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
Date of reporting period: June 30, 2004
ITEM 1. REPORTS TO STOCKHOLDERS
<Page>
[GRAPHIC]
SEMIANNUAL REPORT
DREYFUS FOUNDERS
BALANCED FUND
INVESTMENT UPDATE
JUNE 30, 2004
[DREYFUS FOUNDERS FUNDS(R) 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
</Table>
PAPERLESS DELIVERY OF THIS REPORT
[GRAPHIC]
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at www.icsdelivery.com.
The views expressed herein are current to the date of this report. The views and
the composition of the Fund's portfolio are subject to change at any time based
on market and other conditions. Companies appearing in bold print on pages 3-9
were owned by the Fund on June 30, 2004. 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]
[PHOTO OF JOHN JOHNSON]
A DISCUSSION WITH PORTFOLIO MANAGER JOHN B. JARES, CFA, LEFT, AND ASSISTANT
PORTFOLIO MANAGER JOHN JOHNSON, CFA
HOW DID THE FUND PERFORM RELATIVE TO ITS BENCHMARK FOR THE SIX-MONTH PERIOD
ENDED JUNE 30, 2004?
For the six-month period ended June 30, 2004, the Dreyfus Founders Balanced Fund
underperformed its benchmark, the Standard & Poor's 500 Index, which posted a
total return of 3.44% for the same period.
TO WHAT DO YOU ATTRIBUTE THE MARKET'S OVERALL PERFORMANCE FOR THE FIRST SIX
MONTHS OF 2004?
During the first half of the year, the market continued to focus on
macroeconomic issues, both domestically and internationally. The continuing war
on terrorism, increasing interest rates and oil prices, and the approaching
Presidential election mired the equity markets during the period. The ongoing
unrest in the Middle East escalated geopolitical instability, which sustained
the risk premium to world oil prices. This caused concern in the U.S. markets
that the domestic economy may slow sooner rather than later. These factors,
coupled with the anticipation of the Federal Reserve raising the federal funds
rate, intensified an already difficult environment for the markets during the
first six months of the year.
[SIDENOTE]
"WE SELECTED FOR INCLUSION IN THE FUND HOLDINGS WE BELIEVE ARE MOST LIKELY TO
EXHIBIT STRONG EARNINGS-PER-SHARE (EPS) GROWTH, PREPARING THE FUND FOR THE
POSSIBILITY OF CONTINUED ECONOMIC EXPANSION."
WHAT CHANGES WERE MADE TO THE FUND DURING THE PERIOD?
Based on our fundamental evaluation of individual companies in various sectors,
we adjusted the Fund's investments in the consumer discretionary sector to those
holdings that were more sensitive to an economic upturn. Additionally,
3
<Page>
we increased the Fund's weighting in the healthcare sector as companies within
this sector offered compelling prospects given their valuations and opportunity
within an increasing interest rate environment.
We selected for inclusion in the Fund holdings we believe are most likely to
exhibit strong earnings-per-share (EPS) growth, preparing the Fund for the
possibility of continued economic expansion. We were also watchful for stocks
that could generate strong EPS and revenue growth through a tightening of the
monetary policy by the Federal Reserve. Because of this, we added FASTENAL
COMPANY, THE PMI GROUP, INC., GILLETTE COMPANY and AUTODESK, INC. to the Fund
during the half.
WHAT MANAGEMENT DECISIONS POSITIVELY CONTRIBUTED TO FUND PERFORMANCE DURING THE
PERIOD?
Compelling growth opportunities were found in the consumer staples, financials
and consumer discretionary sectors. As investors moved toward more defensive
stocks in light of the anticipated federal funds rate hike, names within the
consumer staples sector such as SAFEWAY, INC. buoyed relative Fund performance.
In the tightening monetary policy environment during the period, the Fund's
underexposure and strong stock selection in the financials sector aided relative
performance.
Although the Fund's overweight position in the consumer discretionary sector
proved to be a drag on relative performance, this was offset by the strong
performance of individual issues within the sector. ROYAL CARIBBEAN CRUISES
LIMITED, NORDSTROM, INC. and Mandalay Resort Group, the top three performers
[SIDENOTE]
PERFORMANCE HIGHLIGHTS
- The continuing war on terrorism, increasing interest rates and oil
prices, and the approaching Presidential election mired the equity
markets during the period.
- Compelling growth opportunities were found in the consumer staples,
financials and consumer discretionary sectors.
- Poor stock selection in the information technology sector hindered
relative performance during the period.
- Although the bond market experienced a strong first quarter, the
Treasury market suffered its worst performance in almost 25 years during
the second quarter.
4
<Page>
for the Fund, benefited from an increase in consumer demand. Nordstrom's
earnings came in significantly better than Wall Street had anticipated as
consumers continued to purchase higher-value products in the improving economy.
The Fund's underweight position in the healthcare sector relative to the
benchmark also boosted Fund performance. Although stock selection in this sector
was relatively neutral, some individual issues did outperform. TEVA
PHARMACEUTICAL INDUSTRIES LIMITED continued to assist the Fund's overall return
with its strong generic drug pipeline and through launches of key products
during the first half of the year.
Other notable performances by individual issues include fastener distribution
company FASTENAL COMPANY and Smith International, Inc., the leading supplier of
products and services to the oil and gas exploration and production industry.
ESTEE LAUDER COMPANIES, INC. also moved higher as the company posted superior
revenue and earnings growth.
Although the information technology sector proved to be the worst performing
sector for the Fund on a relative basis, some technology holdings should be
mentioned as boosting Fund performance. APPLE COMPUTER, INC. assisted
performance due primarily to the popularity of the company's consumer-related
technology offerings, the I-Pod and the I-Pod Mini. MICROSOFT CORPORATION also
benefited the Fund as investors began to believe the enterprise spending cycle
had begun.
LARGEST EQUITY HOLDINGS (ticker symbol)
<Table>
1. Microsoft Corporation (MSFT) 4.69%
2. Maxim Integrated Products, Inc. (MXIM) 3.21%
3. Pfizer, Inc. (PFE) 3.02%
4. Gillette Company (G) 2.99%
5. General Electric Company (GE) 2.81%
6. American International Group, Inc. (AIG) 2.52%
7. International Business Machines Corporation (IBM) 2.49%
8. Apple Computer, Inc. (AAPL) 2.31%
9. Royal Caribbean Cruises Limited (RCL) 2.23%
10. Time Warner, Inc. (TWX) 2.09%
</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>
GROWTH OF $10,000 INVESTMENT
PERFORMANCE DATA QUOTED REPRESENTS PAST PERFORMANCE. PAST PERFORMANCE DOES NOT
GUARANTEE FUTURE RESULTS. INVESTMENT RETURN AND PRINCIPAL VALUE OF AN INVESTMENT
WILL FLUCTUATE SO THAT AN INVESTOR'S SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR
LESS THAN THEIR ORIGINAL COST. CURRENT PERFORMANCE MAY BE LOWER OR HIGHER THAN
THE PERFORMANCE DATA QUOTED. PLEASE CALL 1-800-525-2440 TO OBTAIN THE MOST
RECENT MONTH-END PERFORMANCE DATA.
[CHART]
The above graph compares a $10,000 investment made in Class F shares of Dreyfus
Founders Balanced Fund on 6/30/94 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 designed to be representative of the
U.S. equities market and consists of 500 leading companies in leading industries
of the U.S. economy. 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 equal
dollar weighted index of the largest mutual funds within the Balanced Fund
classification, as defined by Lipper. This index is adjusted for the
reinvestment of capital gains and income dividends, and reflects the management
expenses associated with the funds included in the index. Further information
related to Fund performance is contained elsewhere in this report.
6
<Page>
WHAT FACTORS NEGATIVELY CONTRIBUTED TO FUND PERFORMANCE DURING THE PERIOD?
Poor stock selection in the information technology sector hindered relative
performance during the period. The Fund's exposure to certain technology
companies exhibiting weakening fundamentals negatively impacted the portfolio.
Semiconductor Manufacturing International Corporation and Foundry Networks, Inc.
were the two worst-performing stocks for the Fund during the timeframe.
Weak stock selection and an underweight position in the materials sector also
hampered the Fund's relative return. ALCOA, INC., the world's leading producer
of aluminum, underperformed on concerns of a slowdown in the Chinese economy,
which could lead to a decline in the underlying demand for various commodities,
including aluminum.
AVERAGE ANNUAL AND YEAR-TO-DATE TOTAL RETURN AS OF 6/30/04
<Table>
<Caption>
YEAR-TO- 1 5 10 SINCE
CLASS (INCEPTION DATE) DATE+ YEAR YEARS YEARS INCEPTION
- ----------------------------------------------------------------------------------------
CLASS A SHARES (12/31/99)
With sales charge (5.75%) (5.57%) 1.90% -- -- (6.45%)
Without sales charge 0.18% 8.16% -- -- (5.21%)
CLASS B SHARES (12/31/99)
With redemption* (4.15%) 3.41% -- -- (6.33%)
Without redemption (0.16%) 7.41% -- -- (5.91%)
CLASS C SHARES (12/31/99)
With redemption** (1.17%) 6.37% -- -- (6.29%)
Without redemption (0.17%) 7.37% -- -- (6.29%)
CLASS F SHARES (2/19/63) 0.34% 8.51% (5.11%) 4.70% N/A
CLASS R SHARES (12/31/99) 0.20% 7.95% -- -- (5.36%)
CLASS T SHARES (12/31/99)
With sales charge (4.50%) (4.51%) 2.79% -- -- (6.00%)
Without sales charge (0.03%) 7.57% -- -- (5.04%)
</Table>
Average annual and year-to-date total returns do not reflect the deduction of
taxes that a shareholder would pay on Fund distributions or redemption of Fund
shares, but do reflect the reinvestment of dividends and capital gain
distributions, expense limits for certain share classes, and adjustments for
financial statement purposes.
*The maximum contingent deferred sales charge for Class B shares is 4% and is
reduced to 0% after six years, at which time the Class B shares convert to Class
A shares.
**The maximum contingent deferred sales charge for Class C shares is 1% for
shares redeemed within one year of the date of purchase.
+ Total return is not annualized.
7
<Page>
Industrials holdings also hindered relative performance through such names as
rail transportation company UNION PACIFIC CORPORATION. Union Pacific experienced
network congestion as a result of volume growth well ahead of company
expectations, which resulted in much greater-than-expected handling costs. This,
combined with high fuel prices, drove downward revisions to earnings estimates
and share price underperformance.
Although the Fund benefited from strong stock selection in the consumer
discretionary sector, as was previously mentioned, specific underachievers
reduced the positive contribution of this sector. KOHL'S CORPORATION experienced
sluggish sales trends during the latter part of the period, which resulted in
investor concern over future lackluster earnings growth. Cable and entertainment
companies VIACOM, INC. and COX COMMUNICATIONS, INC. also underperformed as the
industry itself suffered.
[CHART]
COMPOSITION OF EQUITY ASSETS
<Table>
Information Technology 26.12%
Consumer Discretionary 16.78%
Financials 16.00%
Healthcare 13.07%
Industrials 12.88%
Consumer Staples 9.99%
Materials 1.92%
Energy 1.69%
Telecommunications Services 1.55%
</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>
HOW DID THE FIXED-INCOME PORTION OF THE FUND FARE IN THE FIRST HALF OF THE YEAR?
Although the bond market experienced a strong first quarter, the Treasury market
suffered its worst performance in almost 25 years during the second quarter,
with interest rates rising dramatically. The yield on the two-year Treasury rose
1.10%, while the 10-year Treasury yield rose 0.75% by June 30, 2004.
The Fund's position in shorter-dated securities proved beneficial as
shorter-duration issues outperformed their longer-dated counterparts. An
underweight position in Treasuries and an overweight position in government
agencies by the end of the period helped to mitigate losses.
The gains experienced by the Fund's overweight position in corporate bonds
during the first half of the period were counteracted by the underperformance of
corporate issues during the last three months of the period. Likewise,
underexposure in fixed-rate mortgages proved detrimental to the six-month
performance of the fixed-income portion of the Fund, as mortgages moved from the
weakest Lehman Brothers Aggregate Bond Index component at the beginning of the
year to one of the strongest by the period's end.
We will continue to apply our process and philosophy in seeking to pick stocks
for the Fund that we believe have the potential to take advantage of a possible
economic uplift and that exhibit strong fundamental earnings strength.
/s/ John B. Jares /s/ John Johnson
John B. Jares, CFA John Johnson, CFA
Portfolio Manager Assistant Portfolio Manager
The Lehman Brothers Aggregate Bond Index is comprised of the Lehman Brothers
Government/Corporate Bond Index, Mortgage-Backed Securities Index, and
Asset-Backed Securities Index, including securities that are of investment-grade
quality or better, have at least one year to maturity, and have an outstanding
par value of at least $100 million.
9
<Page>
STATEMENT OF INVESTMENTS
June 30, 2004 (UNAUDITED)
<Table>
<Caption>
SHARES MARKET VALUE
- ---------------------------------------------------------------------------------
COMMON STOCKS (DOMESTIC)--59.6%
AEROSPACE & DEFENSE--0.6%
12,900 Lockheed Martin Corporation $ 671,822
------------
AIR FREIGHT & LOGISTICS--0.9%
11,400 FedEx Corporation 931,266
------------
AIRLINES--0.6%
39,800 Southwest Airlines Company 667,446
------------
ALUMINUM--0.6%
18,800 Alcoa, Inc. 620,964
------------
APPLICATION SOFTWARE--0.4%
10,400 Autodesk, Inc. 445,224
------------
ASSET MANAGEMENT & CUSTODY BANKS--0.6%
38,000 Janus Capital Group, Inc. 626,620
------------
BIOTECHNOLOGY--0.7%
8,000 Amgen, Inc.* 436,560
5,400 Biogen Idec, Inc.* 341,550
------------
778,110
------------
BROADCASTING & CABLE TV--2.3%
19,500 Comcast Corporation Class A* 546,585
35,000 Comcast Corporation Special Class A* 966,350
33,300 Cox Communications, Inc. Class A* 925,407
------------
2,438,342
------------
CASINOS & GAMING--0.7%
20,300 International Game Technology 783,580
------------
COMMUNICATIONS EQUIPMENT--2.8%
60,200 Cisco Systems, Inc.* 1,426,740
47,900 Motorola, Inc. 874,175
21,200 Scientific-Atlanta, Inc. 731,400
------------
3,032,315
------------
COMPUTER & ELECTRONICS RETAIL--0.3%
6,350 Best Buy Company, Inc. 322,199
------------
COMPUTER HARDWARE--3.0%
48,900 Apple Computer, Inc.* 1,591,206
19,400 International Business Machines Corporation 1,710,110
------------
3,301,316
------------
CONSTRUCTION MATERIALS--0.6%
16,100 Lafarge North America, Inc. 697,130
------------
DATA PROCESSING & OUTSOURCED SERVICES--0.9%
8,600 Automatic Data Processing, Inc. 360,168
16,450 Fiserv, Inc.* 639,741
------------
999,909
------------
DEPARTMENT STORES--1.5%
24,400 Kohl's Corporation* 1,031,632
13,600 Nordstrom, Inc. 579,496
------------
1,611,128
------------
</Table>
10
<Page>
<Table>
<Caption>
SHARES MARKET VALUE
- ---------------------------------------------------------------------------------
DIVERSIFIED BANKS--2.3%
24,400 Bank One Corporation $ 1,244,400
------------
11,400 TCF Financial Corporation 661,770
10,200 Wells Fargo & Company 583,746
------------
2,489,916
------------
EMPLOYMENT SERVICES--1.4%
13,300 Manpower, Inc. 675,241
33,900 Monster Worldwide, Inc.* 871,908
------------
1,547,149
------------
FOOD RETAIL--1.9%
51,400 Kroger Company* 935,480
44,601 Safeway, Inc.* 1,130,189
------------
2,065,669
------------
HEALTHCARE EQUIPMENT--0.7%
16,700 Boston Scientific Corporation* 714,760
------------
HOME ENTERTAINMENT SOFTWARE--0.3%
5,500 Electronic Arts* 300,025
------------
HOTELS, RESORTS & CRUISE LINES--0.4%
8,000 Carnival Corporation 376,000
------------
HOUSEHOLD PRODUCTS--0.3%
5,200 Procter & Gamble Company 283,088
------------
HYPERMARKETS & SUPER CENTERS--0.4%
7,200 Wal-Mart Stores, Inc. 379,872
------------
INDUSTRIAL CONGLOMERATES--2.8%
12,100 3M Company 1,089,121
59,700 General Electric Company 1,934,280
------------
3,023,401
------------
INTEGRATED TELECOMMUNICATION SERVICES--1.0%
29,400 Verizon Communications, Inc. 1,063,986
------------
INVESTMENT BANKING & BROKERAGE--2.1%
12,300 Goldman Sachs Group, Inc. 1,158,168
21,300 Morgan Stanley 1,124,001
------------
2,282,169
------------
LEISURE FACILITIES--1.4%
35,300 Royal Caribbean Cruises Limited 1,532,373
------------
LIFE & HEALTH INSURANCE--0.5%
14,300 AFLAC, Inc. 583,583
------------
MOVIES & ENTERTAINMENT--2.9%
81,900 Time Warner, Inc.* 1,439,802
15,000 Viacom, Inc. Class B 535,800
47,800 Walt Disney Company 1,218,422
------------
3,194,024
------------
</Table>
SEE NOTES TO STATEMENT OF INVESTMENTS.
11
<Page>
<Table>
<Caption>
SHARES MARKET VALUE
- ---------------------------------------------------------------------------------
MULTI-LINE INSURANCE--1.6%
24,300 American International Group, Inc. $ 1,732,104
------------
OIL & GAS EXPLORATION & PRODUCTION--1.1%
26,670 Apache Corporation 1,161,479
------------
OTHER DIVERSIFIED FINANCIAL SERVICES--1.0%
23,066 Citigroup, Inc. 1,072,569
------------
PERSONAL PRODUCTS--3.0%
25,000 Estee Lauder Companies, Inc. Class A 1,219,500
48,600 Gillette Company 2,060,640
------------
3,280,140
------------
PHARMACEUTICALS--5.5%
29,100 Abbott Laboratories 1,186,116
11,300 Eli Lilly and Company 789,983
12,300 Forest Laboratories, Inc.* 696,549
5,000 Johnson & Johnson 278,500
8,000 Merck & Company, Inc. 380,000
60,550 Pfizer, Inc. 2,075,654
15,900 Wyeth 574,944
------------
5,981,746
------------
PROPERTY & CASUALTY INSURANCE--0.5%
12,600 Allstate Corporation 586,530
------------
RAILROADS--0.6%
11,000 Union Pacific Corporation 653,950
------------
SEMICONDUCTORS--4.4%
57,900 Altera Corporation* 1,286,538
48,100 Intel Corporation 1,327,560
42,200 Maxim Integrated Products, Inc. 2,212,124
------------
4,826,222
------------
SOFT DRINKS--0.8%
17,200 Coca-Cola Company 868,256
------------
SPECIALTY STORES--0.8%
23,300 Bed Bath & Beyond, Inc.* 895,885
------------
SYSTEMS SOFTWARE--3.0%
113,000 Microsoft Corporation 3,227,280
------------
THRIFTS & MORTGAGE FINANCE--1.5%
15,200 Countrywide Financial Corporation 1,067,800
13,100 The PMI Group, Inc. 570,112
------------
1,637,912
------------
TRADING COMPANIES & DISTRIBUTORS--0.9%
18,100 Fastenal Company 1,028,623
------------
TOTAL COMMON STOCKS (DOMESTIC)
(Cost--$57,793,925) 64,716,082
------------
</Table>
12
<Page>
<Table>
<Caption>
SHARES MARKET VALUE
- ---------------------------------------------------------------------------------
COMMON STOCKS (FOREIGN)--3.8%
APPLICATION SOFTWARE--0.7%
17,650 SAP AG Sponsored ADR (GE) $ 737,947
------------
HEALTHCARE SUPPLIES--0.6%
8,600 Alcon, Inc. (SZ) 676,390
------------
IT CONSULTING & OTHER SERVICES--1.0%
40,225 Accenture Limited Class A (BD)* 1,105,383
------------
MOVIES & ENTERTAINMENT--0.4%
11,200 News Corporation Limited Sponsored ADR (AU) 396,704
------------
PHARMACEUTICALS--0.8%
12,500 Teva Pharmaceutical Industries
Limited Sponsored ADR (IS) 841,125
------------
RAILROADS--0.3%
7,762 Canadian National Railway Company (CA) 338,346
------------
TOTAL COMMON STOCKS (FOREIGN)
(COST--$2,995,349) 4,095,895
------------
<Caption>
PRINCIPAL AMOUNT MARKET VALUE
- ---------------------------------------------------------------------------------
CORPORATE BONDS (DOMESTIC)--12.3%
AUTOMOBILE MANUFACTURERS--2.9%
$ 3,000,000 Toyota Motor Credit Corporation
5.65% 1/15/07 $ 3,155,610
------------
DIVERSIFIED BANKS--3.1%
1,500,000 Bank One Corporation
6.50% 2/1/06 1,582,965
1,540,000 Washington Mutual, Inc.
8.25% 4/1/10 1,793,176
------------
3,376,141
------------
HOUSEHOLD PRODUCTS--1.5%
1,500,000 Colgate-Palmolive Company
5.98% 4/25/12 1,609,680
------------
MOVIES & ENTERTAINMENT--1.9%
2,000,000 Viacom, Inc.
7.75% 6/1/05 2,094,460
------------
PHARMACEUTICALS--2.9%
3,000,000 Abbott Laboratories
5.625% 7/1/06 3,148,920
------------
TOTAL CORPORATE BONDS (DOMESTIC)
(COST--$12,750,853) 13,384,811
------------
</Table>
SEE NOTES TO STATEMENT OF INVESTMENTS.
13
<Page>
<Table>
<Caption>
PRINCIPAL AMOUNT MARKET VALUE
- ---------------------------------------------------------------------------------
U.S. GOVERNMENT OBLIGATIONS--18.9%
AGENCY PASS THROUGH--3.4%
$ 3,449,474 U.S. Small Business Administration Series 10-A
6.64% 2/1/11 $ 3,660,479
------------
GOVERNMENT SPONSORED ENTERPRISES--9.0%
3,500,000 Federal Home Loan Bank
6.50% 11/15/05 3,683,120
Federal National Mortgage Association:
1,000,000 4.25% 7/15/07 1,018,450
1,500,000 4.375% 10/15/06 1,538,010
2,000,000 Private Export Funding Corporation
3.40% 2/15/08 1,975,700
1,500,000 Tennessee Valley Authority
6.375% 6/15/05 1,556,760
------------
9,772,040
------------
MORTGAGE-BACKED SECURITIES: GNMA/GUARANTEED--1.5%
1,649,482 Government National Mortgage Association
6.00% 1/15/33 Pool #563709 1,693,177
------------
U.S. TREASURY NOTES--5.0%
U.S. Treasury Inflation Index Note:
1,186,480 3.375% 1/15/07 1,271,010
1,146,220 3.875% 1/15/09 1,277,990
U.S. Treasury Note:
1,250,000 4.375% 5/15/07 1,291,988
1,500,000 6.875% 5/15/06 1,614,720
------------
5,455,708
------------
TOTAL U.S. GOVERNMENT OBLIGATIONS
(COST--$20,232,376) 20,581,404
------------
GOVERNMENT BONDS (FOREIGN)--2.5%
CAD 3,535,000 Province of Quebec
6.50% 12/1/05 (CA) 2,759,399
------------
TOTAL GOVERNMENT BONDS (FOREIGN)
(COST--$2,364,824) 2,759,399
------------
SUPRANATIONAL OBLIGATIONS--0.9%
$ 1,000,000 International Finance Corporation
3.75% 6/30/09 988,230
------------
TOTAL SUPRANATIONAL OBLIGATIONS
(COST--$999,410) 988,230
------------
</Table>
14
<Page>
<Table>
<Caption>
PRINCIPAL AMOUNT AMORTIZED COST
- ----------------------------------------------------------------------------------
CORPORATE SHORT-TERM NOTES--4.0%
AGRICULTURAL PRODUCTS--4.0%
$ 4,300,000 Archer-Daniels-Midland Company
1.43% 7/1/04+ $ 4,300,000
-------------
TOTAL CORPORATE SHORT-TERM NOTES
(AMORTIZED COST--$4,300,000) 4,300,000
-------------
TOTAL INVESTMENTS--102.0%
(TOTAL COST--$101,436,737) 110,825,821
-------------
OTHER ASSETS AND LIABILITIES--(2.0%) (2,214,805)
-------------
NET ASSETS--100.0% $ 108,611,016
=============
</Table>
NOTES TO STATEMENT OF INVESTMENTS
* NON-INCOME PRODUCING.
+ SECURITY WAS ACQUIRED PURSUANT TO SECTION 4(2) OF THE SECURITIES ACT OF 1933
AND MAY BE DEEMED TO BE RESTRICTED FOR RESALE.
ADR - AMERICAN DEPOSITARY RECEIPT
AU - AUSTRALIA
BD - BERMUDA
CA - CANADA
GE - GERMANY
IS - ISRAEL
SZ - SWITZERLAND
15
<Page>
STATEMENT OF ASSETS AND LIABILITIES
June 30, 2004 (UNAUDITED)
<Table>
ASSETS
Investment securities, at cost $ 101,436,737
---------------
Investment securities, at market 110,825,821
Cash 306,137
Receivables:
Investment securities sold 798,278
Capital shares sold 56,001
Dividends and interest 502,861
Other 54,054
---------------
Total Assets 112,543,152
---------------
LIABILITIES
Payables and other accrued liabilities:
Investment securities purchased 3,416,522
Capital shares redeemed 206,968
Advisory fees 59,347
Shareholder servicing fees 7,312
Accounting fees 5,478
Distribution fees 43,377
Transfer agency fees 34,726
Custodian fees 2,767
Other 155,639
---------------
Total Liabilities 3,932,136
---------------
Net Assets $ 108,611,016
===============
COMPOSITION OF NET ASSETS
Capital (par value and paid-in surplus) $ 297,589,338
Accumulated net investment loss (31,100)
Accumulated net realized loss from security transactions (198,336,486)
Net unrealized appreciation on investments and
foreign currency translation 9,389,264
---------------
Total $ 108,611,016
===============
</Table>
16
<Page>
<Table>
CLASS A
Net Assets $ 1,668,263
Shares Outstanding 212,213
Net Asset Value, Redemption Price Per Share $ 7.86
Maximum offering price per share (net asset value
plus sales charge of 5.75% of offering price) $ 8.34
CLASS B
Net Assets $ 1,638,816
Shares Outstanding 210,516
Net Asset Value, Offering and Redemption Price (excluding
applicable contingent deferred sales charge) Per Share $ 7.78
CLASS C
Net Assets $ 254,535
Shares Outstanding 33,200
Net Asset Value, Offering and Redemption Price (excluding
applicable contingent deferred sales charge) Per Share $ 7.67
CLASS F
Net Assets $ 104,947,647
Shares Outstanding 13,337,608
Net Asset Value, Offering and Redemption Price Per Share $ 7.87
CLASS R
Net Assets $ 59,110
Shares Outstanding 7,538
Net Asset Value, Offering and Redemption Price Per Share $ 7.84
CLASS T
Net Assets $ 42,645
Shares Outstanding 5,285
Net Asset Value, Redemption Price Per Share $ 8.07
Maximum offering price per share (net asset value
plus sales charge of 4.50% of offering price) $ 8.45
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
17
<Page>
STATEMENT OF OPERATIONS
For the six months ended June 30, 2004 (UNAUDITED)
<Table>
INVESTMENT INCOME
Dividends $ 350,486
Interest 976,496
Foreign taxes withheld (2,915)
---------------
Total Investment Income 1,324,067
---------------
EXPENSES
Advisory fees--Note 2 382,786
Shareholder servicing fees--Note 2 36,610
Accounting fees--Note 2 35,334
Distribution fees--Note 2 149,867
Transfer agency fees--Note 2 108,160
Registration fees 22,541
Postage and mailing expenses 12,054
Custodian fees and expenses--Note 2 3,063
Printing expenses 15,216
Legal and audit fees 8,462
Directors' fees and expenses--Note 2 11,777
Other expenses 15,185
---------------
Total Expenses 801,055
Earnings Credits (1,202)
Reimbursed/Waived Expenses (643)
Expense Offset to Broker Commissions (3,494)
---------------
Net Expenses 795,716
---------------
Net Investment Income 528,351
---------------
REALIZED AND UNREALIZED GAIN (LOSS) ON SECURITY
TRANSACTIONS AND FOREIGN CURRENCY TRANSACTIONS
Net Realized Gain (Loss) on:
Security Transactions 4,894,976
Foreign Currency Transactions (2,194)
---------------
Net Realized Gain 4,892,782
Net Change in Unrealized Appreciation/Depreciation of Investments
and Foreign Currency Translation (5,130,770)
---------------
Net Realized and Unrealized Loss (237,988)
---------------
Net Increase in Net Assets Resulting from Operations $ 290,363
===============
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
18
<Page>
STATEMENTS OF CHANGES IN NET ASSETS
(UNAUDITED)
<Table>
<Caption>
SIX MONTHS ENDED YEAR ENDED
6/30/04 12/31/03
OPERATIONS
Net Investment Income $ 528,351 $ 1,184,817
Net Realized Gain on Security and
Foreign Currency Transactions 4,892,782 6,956,668
Net Change in Unrealized Appreciation/Depreciation
of Investments and Foreign Currency Translation (5,130,770) 14,224,484
--------------- ---------------
Net Increase in Net Assets Resulting from Operations 290,363 22,365,969
--------------- ---------------
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS
From Net Investment Income
Class A (7,248) (10,100)
Class B (1,511) (1,222)
Class C (221) (17)
Class F (515,078) (1,240,046)
Class R (278) (159)
Class T (93) (12)
--------------- ---------------
Net Decrease from Dividends and Distributions (524,429) (1,251,556)
--------------- ---------------
CAPITAL SHARE TRANSACTIONS
Net Increase (Decrease) - Note 4
Class A 102,206 98,293
Class B (4,140) 244,827
Class C (41,043) (6,310)
Class F (14,661,912) (31,079,380)
Class R (12,329) 55,114
Class T 6,456 19,668
--------------- ---------------
Net Decrease from Capital Share Transactions (14,610,762) (30,667,788)
--------------- ---------------
Net Decrease in Net Assets (14,844,828) (9,553,375)
--------------- ---------------
NET ASSETS
Beginning of period $ 123,455,844 $ 133,009,219
--------------- ---------------
End of period $ 108,611,016 $ 123,455,844
=============== ===============
Undistributed Net Investment Loss $ (31,100) $ (35,022)
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
19
<Page>
FINANCIAL HIGHLIGHTS
(UNAUDITED)
<Table>
<Caption>
SIX MONTHS YEAR ENDED
ENDED JUNE 30, DECEMBER 31,
2004 2003 2002 2001 2000
-------------- --------------------------------------------------
CLASS A SHARES
PER SHARE OPERATING DATA
Net Asset Value, beginning of period $ 7.88 $ 6.68 $ 8.18 $ 9.24 $ 10.47
- ---------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.03 0.05 0.05 0.06 0.13
Net realized and unrealized
gains (losses) on securities (0.02) 1.20 (1.51) (1.03) (1.18)
------------------------------------------------------------------
Total from investment operations 0.01 1.25 (1.46) (0.97) (1.05)
- ---------------------------------------------------------------------------------------------------------------------------
Less dividends and distributions:
From net investment income (0.03) (0.05) (0.04) (0.09) (0.16)
From net realized gains 0.00 0.00 0.00 0.00 (0.02)
------------------------------------------------------------------
Total distributions (0.03) (0.05) (0.04) (0.09) (0.18)
- ---------------------------------------------------------------------------------------------------------------------------
Net Asset Value, end of period $ 7.86 $ 7.88 $ 6.68 $ 8.18 $ 9.24
==================================================================
TOTAL RETURN* 0.18% 18.81% (17.85%) (10.46%) (10.21%)
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000s) $ 1,668 $ 1,572 $ 1,243 $ 1,227 $ 699
Ratios to average net assets:
Expenses with reimbursements,
but no earnings credits# 1.43%** 1.83% 1.89% 1.87% 1.23%
Expenses with reimbursements
and earnings credits 1.43%** 1.83% 1.89% 1.87% 1.20%
Net investment income 0.83%** 0.63% 0.56% 0.51% 1.48%
- ---------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate@ 126% 108% 122% 111% 126%
</Table>
* SALES CHARGES ARE NOT REFLECTED IN THE TOTAL RETURN.
** ANNUALIZED.
# CERTAIN FEES WERE WAIVED BY THE CUSTODIAN. THESE WAIVERS DID NOT HAVE AN
IMPACT ON THE EXPENSE RATIOS.
@ 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>
<Table>
<Caption>
SIX MONTHS YEAR ENDED
ENDED JUNE 30, DECEMBER 31,
2004 2003 2002 2001 2000
-------------- --------------------------------------------------
CLASS B SHARES
PER SHARE OPERATING DATA
Net Asset Value, beginning of period $ 7.80 $ 6.63 $ 8.11 $ 9.18 $ 10.47
- ---------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) 0.00+ 0.01 (0.01) 0.01 0.10
Net realized and unrealized
gains (losses) on securities (0.01) 1.17 (1.47) (1.03) (1.24)
------------------------------------------------------------------
Total from investment operations (0.01) 1.18 (1.48) (1.02) (1.14)
- ---------------------------------------------------------------------------------------------------------------------------
Less dividends and distributions:
From net investment income (0.01) (0.01) 0.00^ (0.05) (0.13)
From net realized gains 0.00 0.00 0.00 0.00 (0.02)
------------------------------------------------------------------
Total distributions (0.01) (0.01) 0.00 (0.05) (0.15)
- ---------------------------------------------------------------------------------------------------------------------------
Net Asset Value, end of period $ 7.78 $ 7.80 $ 6.63 $ 8.11 $ 9.18
==================================================================
TOTAL RETURN* (0.16%) 17.76% (18.21%) (11.13%) (11.06%)
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000s) $ 1,639 $ 1,647 $ 1,181 $ 1,484 $ 1,008
Ratios to average net assets:
Expenses with reimbursements,
but no earnings credits# 2.17%** 2.53% 2.54% 2.50% 1.96%
Expenses with reimbursements
and earnings credits 2.17%** 2.53% 2.54% 2.49% 1.93%
Net investment income (loss) 0.08%** (0.08%) (0.10%) (0.13%) 0.71%
- ---------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate@ 126% 108% 122% 111% 126%
</Table>
+ NET INVESTMENT INCOME FOR THE SIX MONTHS ENDED JUNE 30, 2004 AGGREGATED LESS
THAN $0.01 ON A PER SHARE BASIS.
^ DISTRIBUTIONS FROM NET INVESTMENT INCOME FOR THE YEAR ENDED DECEMBER 31,
2002 AGGREGATED LESS THAN $0.01 ON A PER SHARE BASIS.
* SALES CHARGES ARE NOT REFLECTED IN THE TOTAL RETURN.
** ANNUALIZED.
# CERTAIN FEES WERE WAIVED BY THE CUSTODIAN. THESE WAIVERS DID NOT HAVE AN
IMPACT ON THE EXPENSE RATIOS.
@ 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>
<Table>
<Caption>
SIX MONTHS YEAR ENDED
ENDED JUNE 30, DECEMBER 31,
2004 2003 2002 2001 2000
-------------- --------------------------------------------------
CLASS C SHARES
PER SHARE OPERATING DATA
Net Asset Value, beginning of period $ 7.69 $ 6.54 $ 8.04 $ 9.17 $ 10.47
- ---------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.00)+,~ (0.01) (0.17) (0.05) 0.10
Net realized and unrealized
gains (losses) on securities (0.01) 1.16 (1.33) (1.03) (1.28)
------------------------------------------------------------------
Total from investment operations (0.01) 1.15 (1.50) (1.08) (1.18)
- ---------------------------------------------------------------------------------------------------------------------------
Less dividends and distributions:
From net investment income (0.01) 0.00^ 0.00 (0.05) (0.10)
From net realized gains 0.00 0.00 0.00 0.00 (0.02)
------------------------------------------------------------------
Total distributions (0.01) 0.00 0.00 (0.05) (0.12)
- ---------------------------------------------------------------------------------------------------------------------------
Net Asset Value, end of period $ 7.67 $ 7.69 $ 6.54 $ 8.04 $ 9.17
==================================================================
TOTAL RETURN* (0.17%) 17.59% (18.66%) (11.80%) (11.36%)
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000s) $ 255 $ 295 $ 248 $ 496 $ 174
Ratios to average net assets:
Expenses with reimbursements,
but no earnings credits# 2.29%** 2.69% 3.48% 3.96% 1.88%
Expenses with reimbursements
and earnings credits 2.28%** 2.69% 3.48% 3.96% 1.86%
Net investment income (loss) (0.03%)** (0.17%) (1.05%) (1.64%) 0.76%
- ---------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate@ 126% 108% 122% 111% 126%
</Table>
+ NET INVESTMENT LOSS FOR THE SIX MONTHS ENDED JUNE 30, 2004 AGGREGATED LESS
THAN $0.01 ON A PER SHARE BASIS.
~ COMPUTED USING AVERAGE SHARES OUTSTANDING THROUGHOUT THE PERIOD.
^ 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.
** ANNUALIZED.
# CERTAIN FEES WERE REIMBURSED OR WAIVED BY THE MANAGEMENT COMPANY OR ITS
AFFILIATES. HAD THESE FEES NOT BEEN REIMBURSED OR WAIVED, THE EXPENSE RATIOS
WOULD HAVE BEEN 2.29% (2004), 2.69% (2003), 3.48% (2002), 4.24% (2001), AND
1.88% (2000).
@ 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>
<Table>
<Caption>
SIX MONTHS YEAR ENDED
ENDED JUNE 30, DECEMBER 31,
2004 2003 2002 2001 2000 1999
-------------- -----------------------------------------------------------------
CLASS F SHARES
PER SHARE OPERATING DATA
Net Asset Value,
beginning of period $ 7.88 $ 6.69 $ 8.20 $ 9.22 $ 10.47 $ 12.19
- -------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.03 0.06 0.07 0.10 0.15 0.32
Net realized and unrealized
gains (losses) on securities 0.00 1.20 (1.50) (1.02) (1.23) (0.61)
---------------------------------------------------------------------------------
Total from investment operations 0.03 1.26 (1.43) (0.92) (1.08) (0.29)
- -------------------------------------------------------------------------------------------------------------------------------
Less dividends and distributions:
From net investment income (0.04) (0.07) (0.08) (0.10) (0.15) (0.32)
From net realized gains 0.00 0.00 0.00 0.00 (0.02) (1.11)
---------------------------------------------------------------------------------
Total distributions (0.04) (0.07) (0.08) (0.10) (0.17) (1.43)
- -------------------------------------------------------------------------------------------------------------------------------
Net Asset Value, end of period $ 7.87 $ 7.88 $ 6.69 $ 8.20 $ 9.22 $ 10.47
=================================================================================
TOTAL RETURN 0.34% 18.96% (17.46%) (9.94%) (10.44%) (2.22%)
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000s) $ 104,948 $ 119,835 $ 130,314 $ 297,068 $ 552,675 $ 1,055,825
Ratios to average net assets:
Expenses with reimbursements,
but no earnings credits# 1.34%** 1.54% 1.43% 1.23% 1.08% 0.98%
Expenses with reimbursements
and earnings credits 1.34%** 1.54% 1.42% 1.22% 1.07% 0.97%
Net investment income 0.91%** 0.93% 0.99% 1.20% 1.41% 2.64%
- -------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate@ 126% 108% 122% 111% 126% 218%
</Table>
** ANNUALIZED.
# CERTAIN FEES WERE WAIVED BY THE CUSTODIAN. THESE WAIVERS DID NOT HAVE AN
IMPACT ON THE EXPENSE RATIOS.
@ 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>
<Table>
<Caption>
SIX MONTHS YEAR ENDED
ENDED JUNE 30, DECEMBER 31,
2004 2003 2002 2001 2000
-------------- --------------------------------------------------
CLASS R SHARES
PER SHARE OPERATING DATA
Net Asset Value, beginning of period $ 7.86 $ 6.68 $ 8.18 $ 9.22 $ 10.47
- ---------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) 0.03 0.16 (0.16) 0.09 0.18
Net realized and unrealized
gains (losses) on securities (0.01) 1.05 (1.34) (1.02) (1.23)
------------------------------------------------------------------
Total from investment operations 0.02 1.21 (1.50) (0.93) (1.05)
- ---------------------------------------------------------------------------------------------------------------------------
Less dividends and distributions:
From net investment income (0.04) (0.03) 0.00 (0.11) (0.18)
From net realized gains 0.00 0.00 0.00 0.00 (0.02)
------------------------------------------------------------------
Total distributions (0.04) (0.03) 0.00 (0.11) (0.20)
- ---------------------------------------------------------------------------------------------------------------------------
Net Asset Value, end of period $ 7.84 $ 7.86 $ 6.68 $ 8.18 $ 9.22
==================================================================
TOTAL RETURN 0.20% 18.12% (18.34%) (10.09%) (10.18%)
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000s) $ 59 $ 72 $ 11 $ 14 $ 1
Ratios to average net assets:
Expenses with reimbursements,
but no earnings credits# 1.39%** 2.37% 4.24% 3.07% 0.81%
Expenses with reimbursements
and earnings credits 1.39%** 2.37% 4.24% 3.07% 0.80%
Net investment income (loss) 0.86%** 0.01% (1.77%) (0.75%) 1.71%
- ---------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate@ 126% 108% 122% 111% 126%
</Table>
** ANNUALIZED.
# CERTAIN FEES WERE REIMBURSED OR WAIVED BY THE MANAGEMENT COMPANY OR ITS
AFFILIATES. HAD THESE FEES NOT BEEN REIMBURSED OR WAIVED, THE EXPENSE RATIOS
WOULD HAVE BEEN 1.52% (2004), 2.62% (2003), 19.52% (2002), 272.77% (2001),
AND 0.81% (2000).
@ 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>
<Table>
<Caption>
SIX MONTHS YEAR ENDED
ENDED JUNE 30, DECEMBER 31,
2004 2003 2002 2001 2000
-------------- --------------------------------------------------
CLASS T SHARES
PER SHARE OPERATING DATA
Net Asset Value, beginning of period $ 8.09 $ 6.88 $ 8.17 $ 9.21 $ 10.47
- ---------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) 0.02+ 0.21 (0.37) 0.08 0.12
Net realized and unrealized
gains (losses) on securities (0.02) 1.00 (0.92) (1.04) (1.22)
------------------------------------------------------------------
Total from investment operations 0.00 1.21 (1.29) (0.96) (1.10)
- ---------------------------------------------------------------------------------------------------------------------------
Less dividends and distributions:
From net investment income (0.02) 0.00^ 0.00 (0.08) (0.14)
From net realized gains 0.00 0.00 0.00 0.00 (0.02)
------------------------------------------------------------------
Total distributions (0.02) 0.00 0.00 (0.08) (0.16)
- ---------------------------------------------------------------------------------------------------------------------------
Net Asset Value, end of period $ 8.07 $ 8.09 $ 6.88 $ 8.17 $ 9.21
==================================================================
TOTAL RETURN* (0.03%) 17.65% (15.79%) (10.44%) (10.67%)
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000s) $ 43 $ 36 $ 13 $ 232 $ 9
Ratios to average net assets:
Expenses with reimbursements,
but no earnings credits# 1.86%** 2.73% 2.60% 3.36% 1.32%
Expenses with reimbursements
and earnings credits 1.86%** 2.73% 2.59% 3.36% 1.30%
Net investment income (loss) 0.38%** (0.29%) (0.31%) (1.12%) 1.22%
- ---------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate@ 126% 108% 122% 111% 126%
</Table>
+ COMPUTED USING AVERAGE SHARES OUTSTANDING THROUGHOUT THE PERIOD.
^ 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.
** ANNUALIZED.
# CERTAIN FEES WERE REIMBURSED OR WAIVED BY THE MANAGEMENT COMPANY OR ITS
AFFILIATES. HAD THESE FEES NOT BEEN REIMBURSED OR WAIVED, THE EXPENSE RATIOS
WOULD HAVE BEEN 2.11% (2004), 3.18% (2003), 14.63% (2002), 18.37% (2001),
AND 1.32% (2000).
@ PORTFOLIO TURNOVER RATE IS A MEASURE OF PORTFOLIO ACTIVITY THAT IS
CALCULATED BY DIVIDING THE LESSER OF PURCHASES OR SALES OF SECURITIES,
EXCLUDING SECURITIES HAVING MATURITY DATES AT ACQUISITION OF ONE YEAR OR
LESS, BY THE AVERAGE VALUE OF THE PORTFOLIO SECURITIES HELD DURING THE
PERIOD, WHICH IS A ROLLING 12-MONTH PERIOD.
SEE NOTES TO FINANCIAL STATEMENTS.
25
<Page>
NOTES TO FINANCIAL STATEMENTS
June 30, 2004 (UNAUDITED)
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
Dreyfus Founders Funds, Inc. (the "Company") is an open-end management
investment company registered under the Investment Company Act of 1940 (the
"1940 Act"). 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--A domestic 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 a
security traded on Nasdaq, at its official closing price. Lacking any sales on
that day, the security is valued at the current closing bid price, or by quotes
from dealers making a market in the security if the closing bid price is not
available, or in the case of written call options, at the mean between the
highest bid and lowest asked quotations obtained from at least two securities
dealers.
A foreign equity security traded on a foreign exchange is valued at the last
quoted official closing price available before the time when the Fund's assets
are valued, or at the last quoted sales price if the exchange does not provide
an official closing price or if the foreign market has not yet closed. Lacking
any sales on that day, the security is valued at the current closing bid price,
or by quotes from dealers making a market in the security if the closing bid
price is not available. London closing exchange rates are used to convert
foreign currencies to U.S. dollars.
A debt security with a remaining maturity greater than 60 days at the time of
purchase is valued in accordance with the evaluated bid price supplied by a
pricing service approved by the Company's board of directors or, if such price
is not available, at the mean between the highest bid and lowest asked
quotations obtained from at least two securities dealers. A debt security with a
remaining maturity of 60 days or less at the time of purchase is valued at
amortized cost, which approximates market value, unless it is determined that
amortized cost would not represent market value, in which case the securities
would be marked to market. The Fund amortizes premiums and discounts on all debt
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
26
<Page>
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.
U.S. GOVERNMENT OBLIGATIONS--Some U.S. government obligations, such as
Government National Mortgage Association (GNMA) pass-through certificates, are
supported by the full faith and credit of the United States Treasury. Other
obligations, such as securities of the Federal Home Loan Bank (FHLB), are
supported by the right of the issuer to borrow from the United States Treasury;
and others, such as bonds issued by Federal National Mortgage Association (FNMA,
a private corporation), are supported only by the credit of the agency,
authority or instrumentality, although the Secretary of the Treasury has
discretionary authority, though not the obligation, to purchase obligations of
FNMA.
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 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.
27
<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
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, if
any, reduce Other Expenses and would be 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.
SHAREHOLDER SERVICING AND TRANSFER AGENCY FEES FOR CLASS F SHARES--The Company
has a shareholder services agreement with Dreyfus Service Corporation ("DSC"),
the direct owner of Founders and 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
28
<Page>
servicing functions to holders of Class F shares. 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. During the
six months ended June 30, 2004, Class F shares were charged $32,135 pursuant to
this shareholder services agreement.
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 incurred 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. During the six months ended June 30, 2004, Class F shares
were charged $14,383 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 incurred 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 $12.93 to $13.34, per shareholder account considered to be an
open account at any time during a given month, plus out-of-pocket charges.
Class-specific transfer agency fees paid to DTI during the six months ended June
30, 2004 were as follows:
<Table>
<Caption>
TRANSFER
AGENCY FEES
-----------------------------------------------------------
Class A $ 1,423
Class B $ 1,346
Class C $ 351
Class R $ 181
Class T $ 105
</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
expenses pursuant to a contractual commitment. This commitment will extend
through at least August 31, 2005, and will not be terminated without prior
notification to the Company's board of directors. Founders also has agreed to
reimburse these share classes for certain printing expenses pursuant to a
contractual commitment through August 31, 2004. Founders has notified the
Company's board of directors that this commitment will terminate effective
September 1, 2004. For the six months ended June 30, 2004, Class R and Class T
were each reimbursed $44, which reduced the amounts paid to DTI to $137 and $61,
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 1940 Act 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 six months ended June
30, 2004, Class F shares were charged $142,663 pursuant to this Distribution
Plan.
29
<Page>
The Fund also has adopted a Distribution Plan pursuant to Rule 12b-1 under the
1940 Act applicable to its Class B, Class C and Class T shares. Under this plan,
the Fund pays DSC a fee for distributing its Class B and C shares at the annual
rate of 0.75% of the value of the average daily net assets of its Class B and C
shares, respectively, and pays DSC a fee for distributing its Class T shares at
the annual rate of 0.25% of the average daily net assets of its Class T shares.
In addition, the Fund has adopted a Shareholder Services Plan applicable to its
Class A, Class B, Class C and Class T shares. Under the Shareholder Services
Plan, Class A, Class B, Class C and Class T shares pay DSC an annual fee of
0.25% of the value of their average daily net assets for the provision of
certain services.
Distribution and shareholder servicing fees paid to DSC by the Fund's Class A,
B, C and T shares for the six months ended June 30, 2004, were as follows:
<Table>
<Caption>
DISTRIBUTION SHAREHOLDER
FEES SERVICING FEES
---------------------------------------------------------------
Class A N/A $ 2,044
Class B $ 6,200 $ 2,067
Class C $ 960 $ 320
Class T $ 44 $ 44
</Table>
During the six months ended June 30, 2004, DSC retained $666 in sales
commissions from the sales of Class A shares. DSC also retained $3,668 and $186
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 and an affiliate of Founders, 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
9/1/03 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>
30
<Page>
The fee waiver is allocated among the Funds in proportion to their respective
shares of the total custodian fee. For the six months ended June 30, 2004, the
Fund's portion of the fee waiver was $555. The amount paid to Mellon was reduced
by this fee waiver amount.
DIRECTORS COMPENSATION--The Company's board of directors has adopted a deferred
compensation plan for Company directors that enables directors to elect to defer
receipt of all or a portion of the annual compensation that they are entitled to
receive from the Company. Under the plan, the compensation deferred is
periodically adjusted as though an equivalent amount had been invested for the
director in shares of one or more of the Funds. The amount paid to the director
under the plan will be determined based upon the performance of the selected
Funds. The current value of these amounts is included in Other Assets and Other
Liabilities on the Statement of Assets and Liabilities. Deferral of directors'
fees under the plan does not affect the net assets of the Fund.
Certain officers of the Company are also officers and/or directors of Founders.
The affairs of the Fund, including services provided by Founders, are subject to
the supervision and general oversight of the Company's board of directors.
3. FEDERAL TAX INFORMATION
Net investment income and capital gains distributions are determined in
accordance with income tax regulations that may differ from accounting
principles generally accepted in the United States of America. These differences
are due to differing treatments for items such as deferral of wash sale losses,
foreign currency transactions, net operating losses and capital loss carryovers.
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
June 30, 2004 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 $ 103,247,836
Gross Tax Appreciation of Investments $ 9,001,157
Gross Tax Depreciation of Investments $ (1,423,172)
Net Tax Appreciation $ 7,577,985
</Table>
31
<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>
SIX MONTHS ENDED YEAR ENDED
JUNE 30, 2004 DECEMBER 31, 2003
SHARES AMOUNT SHARES AMOUNT
CLASS A
Sold 36,661 $ 292,922 42,130 $ 310,574
Dividends or Distributions Reinvested 889 $ 6,985 1,330 $ 9,742
Redeemed (24,878) $ (197,701) (29,893) $ (222,023)
-----------------------------------------------------------------------
Net Increase 12,672 $ 102,206 13,567 $ 98,293
=======================================================================
CLASS B
Sold 31,268 $ 242,819 76,899 $ 556,448
Dividends or Distributions Reinvested 151 $ 1,171 138 $ 971
Redeemed (31,984) $ (248,130) (44,160) $ (312,592)
-----------------------------------------------------------------------
Net Increase (Decrease) (565) $ (4,140) 32,877 $ 244,827
=======================================================================
CLASS C
Sold 10,850 $ 83,237 18,745 $ 122,311
Dividends or Distributions Reinvested 21 $ 164 2 $ 10
Redeemed (15,979) $ (124,444) (18,304) $ (128,631)
-----------------------------------------------------------------------
Net Increase (Decrease) (5,108) $ (41,043) 443 $ (6,310)
=======================================================================
CLASS F
Sold 633,133 $ 5,006,301 2,774,685 $ 19,677,956
Dividends or Distributions Reinvested 63,802 $ 502,428 164,539 $ 1,202,840
Redeemed (2,560,369) $ (20,170,641) (7,225,827) $ (51,960,176)
-----------------------------------------------------------------------
Net Decrease (1,863,434) $ (14,661,912) (4,286,603) $ (31,079,380)
=======================================================================
CLASS R
Sold 0 $ 0 7,391 $ 55,000
Dividends or Distributions Reinvested 34 $ 266 15 $ 114
Redeemed (1,611) $ (12,595) (0) $ (0)
-----------------------------------------------------------------------
Net Increase (Decrease) (1,577) $ (12,329) 7,406 $ 55,114
=======================================================================
CLASS T
Sold 4,604 $ 36,727 2,530 $ 19,657
Dividends or Distributions Reinvested 11 $ 87 1 $ 11
Redeemed (3,776) $ (30,358) (0) $ (0)
-----------------------------------------------------------------------
Net Increase 839 $ 6,456 2,531 $ 19,668
=======================================================================
</Table>
32
<Page>
5. INVESTMENT TRANSACTIONS
For the six months ended June 30, 2004, purchases and sales of investment
securities (excluding short-term securities and U.S. government obligations)
were $65,119,267 and $70,566,468, respectively. Purchases and sales of long-term
U.S. government obligations were $3,694,848 and $1,974,958, 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 June 30, 2004, the Fund did not have any borrowings under the LOC.
7. LEGAL MATTERS
Two class actions have been filed against Mellon Financial Corporation and
Mellon Bank, N.A.; Dreyfus and Founders (the "Investment Advisers"); and the
directors of all or substantially all of the Dreyfus and Dreyfus Founders Funds.
The complaints also name all or substantially all of the Dreyfus and Dreyfus
Founders Funds as nominal defendants. Plaintiffs allege that the Investment
Advisers improperly used assets of the Dreyfus and Dreyfus Founders Funds, in
the form of directed brokerage commissions and 12b-1 fees, to pay brokers to
promote sales of Dreyfus and Dreyfus Founders Funds, and that the use of fund
assets to make these payments was not properly disclosed to investors.
Plaintiffs claim that the Investment Advisers' actions violated the 1940 Act,
the Investment Advisers Act, and common law. The complaints further allege that
the directors breached their fiduciary duties to fund shareholders under the
1940 Act and at common law and that Mellon Financial and Mellon Bank violated
the 1940 Act. The complaints seek unspecified compensatory and punitive damages,
rescission of the funds' contracts with the Investment Advisers, an accounting
of all fees paid, and an award of attorneys' fees and litigation expenses. The
complaints are pending in the same court and have been consolidated into a
single action under the caption IN RE DREYFUS MUTUAL FUNDS FEE LITIGATION.
Founders, Dreyfus, and the Funds believe the allegations in these lawsuits to be
totally without merit and intend to defend the actions vigorously. It is
possible that additional lawsuits arising out of these circumstances and
presenting similar allegations and requests for relief may be filed against the
defendants in the future. Neither Founders, Dreyfus, nor the Funds believe that
the pending actions will have a material adverse effect on the Funds or
Founders' ability to perform its contract with the Funds.
33
<Page>
This page intentionally left blank
<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
PROXY VOTING INFORMATION
A description of the policies and procedures that the Fund uses to determine how
to vote proxies relating to portfolio securities, and information regarding how
the Fund voted these proxies for the 12-month period ended June 30, 2004, is
available through the Fund's website at www.founders.com and on the Securities
and Exchange Commission's website at www.sec.gov. The description of the
policies and procedures is also available without charge, upon request, by
calling 1-800-525-2440.
THIS REPORT AND THE STATEMENTS IT CONTAINS ARE SUBMITTED FOR THE GENERAL
INFORMATION OF OUR SHAREHOLDERS. THE REPORT IS NOT AUTHORIZED FOR DISTRIBUTION
TO PROSPECTIVE INVESTORS UNLESS PRECEDED OR ACCOMPANIED BY AN EFFECTIVE
PROSPECTUS.
Dreyfus Service Corporation, Distributor.
(C) 2004 Founders Asset Management LLC. 8/04
A-636-BAL-04
<Page>
[GRAPHIC]
SEMIANNUAL REPORT
DREYFUS FOUNDERS
DISCOVERY FUND
INVESTMENT UPDATE
JUNE 30, 2004
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 10
Statement of Assets and Liabilities 15
Statement of Operations 17
Statements of Changes in Net Assets 18
Financial Highlights 19
Notes to Financial Statements 25
</Table>
PAPERLESS DELIVERY OF THIS REPORT
[GRAPHIC]
Did you know you can reduce your postal mail by accessing Dreyfus
Founders Funds regulatory material online? It's a simple, reliable
process: when new documents such as this Semiannual Report are
available, we'll send you an e-mail notification containing a convenient
link that will take you directly to that Fund information on our website.
To take advantage of this service, simply inform us online of your decision to
receive materials through the Founders E-Communications Program. Cut down
on mailbox clutter and help the Fund reduce printing and postage charges by
enrolling today at www.founders.com/ecommunications. If you own Funds
through a third party, enroll at www.icsdelivery.com.
The views expressed herein are current to the date of this report. The views and
the composition of the Fund's portfolio are subject to change at any time based
on market and other conditions. Companies appearing in bold print on pages 3-9
were owned by the Fund on June 30, 2004. 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 BRADLEY C. ORR & JAMES (J.D.) PADGETT]
A DISCUSSION WITH CO-PORTFOLIO MANAGERS BRADLEY C. ORR, CFA, LEFT, AND JAMES
(J.D.) PADGETT, CFA
HOW DID THE FUND PERFORM RELATIVE TO ITS BENCHMARK FOR THE SIX-MONTH PERIOD
ENDED JUNE 30, 2004?
For the six-month period ended June 30, 2004, the Dreyfus Founders Discovery
Fund underperformed its benchmark, the Russell 2000 Growth Index, which
posted a total return of 5.68% for the period.
WHAT FACTORS AFFECTED THE INVESTING ENVIRONMENT DURING THE SIX-MONTH PERIOD?
Market performance was relatively strong in the first quarter of 2004, as low
interest rates and solid corporate profit growth extended the market rally that
began in early 2003. In the second quarter, however, fears about rising interest
rates and surging oil prices, in conjunction with persistent geopolitical
uncertainty, lead to significant investor trepidation. During the second
quarter, the Russell 2000 Growth Index experienced its deepest intra-quarter
contraction since the start of the current rally, declining 12% from April 5 to
May 17. However, the Index did fully recover from its May low, and closed in
positive territory by a slight margin for the second quarter overall.
During the six-month period ended June 30, small-cap stocks outperformed
large-cap stocks, as the Russell 1000 Growth Index
The Russell 1000 Growth Index is an unmanaged index that measures the
performance of the common stocks of those companies among the largest 1,000
publicly traded U.S. 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.
[SIDENOTE]
"FOR THE YEAR-TO-DATE PERIOD, LARGER MARKET CAPITALIZATION STOCKS WITHIN THE
RUSSELL 2000 GROWTH INDEX OUTPERFORMED THEIR SMALLER PEERS, AND THE STOCKS OF
MONEY-LOSING COMPANIES IN THE INDEX UNDERPERFORMED STOCKS OF MORE PROFITABLE
COMPANIES."
3
<Page>
increased 2.74% and the Standard & Poor's 500 Index increased 3.44%, both
lagging the 5.68% return of the Russell 2000 Growth Index. In addition, value
stocks outperformed growth stocks, as was illustrated by the strong advance of
the Russell 2000 Value Index--up 7.83% over the same six-month period.
The first half of 2004 also saw the strong micro-cap and low quality biases
that helped drive the market's advance in 2003 begin to subside. Hence, for the
year-to-date period, larger market capitalization stocks within the Russell 2000
Growth Index outperformed their smaller peers, and the stocks of money-losing
companies in the Index underperformed stocks of more profitable companies.
MESSRS. ORR AND PADGETT, WHAT CHANGES DID YOU MAKE TO THE PORTFOLIO AFTER
ASSUMING MANAGEMENT RESPONSIBILITIES IN APRIL?
Despite the portfolio management transition, the investment philosophy of our
team remains largely unchanged. We will continue to utilize our bottom-up
research process to uncover companies we believe are capable of posting strong
future earnings growth and that are valued attractively relative to their
potential growth rates and peer groups.
The Standard & Poor's (S&P) 500 Index is designed to be representative of the
U.S. equities market and consists of 500 leading companies in leading industries
of the U.S. economy. The Russell 2000 Value Index measures the performance of
stocks of companies in the Russell 2000 Index with lower price-to-book ratios
and lower 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.
[SIDENOTE]
PERFORMANCE HIGHLIGHTS
- - The first half of 2004 saw the strong micro-cap and low quality biases that
helped drive the market's advance in 2003 begin to subside.
- - The portfolio consisted of 107 stocks at the end of April, down from 119 at
the beginning of the year, and that number was further reduced to 93 stocks
as of the end of June.
- - The Fund benefited from a significantly underweight position and strong
stock selection in the lagging financials sector.
- - Stock selection in the telecommunication services sector was also a
positive contributor to the Fund's relative performance.
- - The Fund's holdings in the healthcare sector underperformed as a group for
the period.
- - Although relative weightings in the consumer staples, industrials and
information technology sectors proved to be positive during the period, poor
stock selection within these sectors counteracted the gains earned through
sector allocation.
4
<Page>
From a portfolio composition standpoint, probably the most notable change
since April has been the continuing consolidation in the number of Fund
holdings. Upon assuming portfolio management responsibilities for the Fund, we
worked to reduce the number of positions held, thereby more tightly focusing our
analytical efforts. The portfolio consisted of 107 stocks at the end of April,
down from 119 at the beginning of the year, and that number was further reduced
to 93 stocks as of the end of June. Many smaller positions, which can sometimes
require disproportionate attention, were liquidated and the proceeds were used
to increase position sizes in the stocks where our enthusiasm level was the
highest. That said, the total percentage of the portfolio invested across the
top 10 holdings has not changed dramatically from the 18% range since April.
WHAT MANAGEMENT DECISIONS POSITIVELY IMPACTED FUND PERFORMANCE DURING THE
PERIOD?
The Fund benefited from a significantly underweight position and strong stock
selection in the lagging financials sector.
Stock selection in the telecommunication services sector was also a positive
contributor to the Fund's relative performance. PTEK HOLDINGS, INC., a provider
of conferencing and messaging services, was primarily responsible for the
outperformance in this sector, after the company reported strong first quarter
results and raised its guidance based on new product introductions and a
re-acceleration in the growth rate for its legacy product lines.
LARGEST EQUITY HOLDINGS (ticker symbol)
<Table>
1. Fairmont Hotels & Resorts, Inc. (FHR) 2.13%
2. Ptek Holdings, Inc. (PTEK) 2.04%
3. Insight Enterprises, Inc. (NSIT) 1.92%
4. SFBC International, Inc. (SFCC) 1.91%
5. Altiris, Inc. (ATRS) 1.86%
6. National-Oilwell, Inc. (NOI) 1.76%
7. Polycom, Inc. (PLCM) 1.75%
8. Medicis Pharmaceutical Corporation Class A (MRX) 1.73%
9. Hughes Supply, Inc. (HUG) 1.72%
10. Choice Hotels International, Inc. (CHH) 1.69%
</Table>
Portfolio holdings are subject to change, and should not be construed as a
recommendation of any security.
5
<Page>
GROWTH OF $10,000 INVESTMENT
PERFORMANCE DATA QUOTED REPRESENTS PAST PERFORMANCE. PAST PERFORMANCE
DOES NOT GUARANTEE FUTURE RESULTS. INVESTMENT RETURN AND PRINCIPAL VALUE OF AN
INVESTMENT WILL FLUCTUATE SO THAT AN INVESTOR'S SHARES, WHEN REDEEMED, MAY
BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST. CURRENT PERFORMANCE MAY
BE LOWER OR HIGHER THAN THE PERFORMANCE DATA QUOTED. PLEASE CALL
1-800-525-2440 TO OBTAIN THE MOST RECENT MONTH-END PERFORMANCE DATA.
[CHART]
The above graph compares a $10,000 investment made in Class F shares of Dreyfus
Founders Discovery Fund on 6/30/94 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 stocks of companies in the Russell 2000 Index 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>
While the Fund was slightly underweight in the energy sector, which had
a modest negative effect on relative performance during the six-month period,
this was more than offset by positive stock selection within the sector.
Holdings such as oilfield services company NATIONAL-OILWELL, INC. appreciated
over the period due in part to increased contracting activity in many of the
company's international markets. QUICKSILVER RESOURCES, INC., an exploration and
production company focused on unconventional reservoirs such as coal-bed
methane, also appreciated as the company continued to demonstrate successful
development of its unique opportunities.
AVERAGE ANNUAL AND YEAR-TO-DATE TOTAL RETURN AS OF 6/30/04
<Table>
<Caption>
YEAR-TO- 1 5 10 SINCE
CLASS (Inception Date) DATE YEAR YEARS YEARS INCEPTION
CLASS A SHARES (12/31/99)
With sales charge (5.75%) (1.59%) 20.15% -- -- (8.25%)
Without sales charge 4.42% 27.47% -- -- (7.03%)
CLASS B SHARES (12/31/99)
With redemption* (0.02%) 22.24% -- -- (8.23%)
Without redemption 3.98% 26.24% -- -- (7.85%)
CLASS C SHARES (12/31/99)
With redemption** 2.98% 25.28% -- -- (7.83%)
Without redemption 3.98% 26.28% -- -- (7.83%)
CLASS F SHARES (12/29/89) 4.46% 27.48% 2.06% 12.13% 13.36%
CLASS R SHARES (12/31/99) 4.60% 27.87% -- -- (6.78%)
CLASS T SHARES (12/31/99)
With sales charge (4.50%) (0.41%) 21.31% -- -- (8.39%)
Without sales charge 4.27% 27.04% -- -- (7.45%)
</Table>
Average annual and year-to-date total returns do not reflect the deduction
of taxes that a shareholder would pay on Fund distributions or redemption
of Fund shares, but do reflect the reinvestment of dividends and capital gain
distributions, and adjustments for financial statement purposes. Part of the
Fund's 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 small-cap investing such as limited
product lines, less liquidity, and small market share.
*The maximum contingent deferred sales charge for Class B shares is 4% and is
reduced to 0% after six years, at which time the Class B shares convert to Class
A shares.
**The maximum contingent deferred sales charge for Class C shares is 1% for
shares redeemed within one year of the date of purchase.
+Total return is not annualized.
7
<Page>
The Fund's holdings in the healthcare sector underperformed as a group for
the period; however, some sector holdings such as SFBC INTERNATIONAL, INC. and
FISHER SCIENTIFIC INTERNATIONAL, INC. proved to be standout performers for the
Fund. SFBC, a contract research organization for the pharmaceutical industry,
benefited from the continued strong pace of drug development activity in the
industry. Fisher Scientific, a supplier of clinical laboratory equipment, posted
strong gains as it announced a large acquisition that was viewed as a good
strategic fit.
Other notable positive contributors to the Fund's relative performance
included hotel franchiser CHOICE HOTELS INTERNATIONAL, INC. and musical
instrument retailer GUITAR CENTER, INC. Choice Hotels appreciated along with the
recovery in occupancy rates in the lodging industry, which led to
better-than-expected operating performance. Guitar Center posted robust
same-store sales growth in the first quarter, which pushed earnings estimates
significantly higher.
WHAT MANAGEMENT DECISIONS HINDERED FUND PERFORMANCE DURING THE PERIOD?
Poor individual performers in the consumer discretionary sector were a drag
on Fund performance during the six-month period, including such names as
PERFORMANCE FOOD GROUP COMPANY. The company was negatively impacted
by higher costs and lower productivity associated with new product rollouts.
In addition, middle-market radio station operator CUMULUS MEDIA, INC. was
hurt by investor fears that advertising dollars are migrating away from
traditional channels, such as radio, to Internet-based venues.
[CHART]
PORTFOLIO COMPOSITION
<Table>
Information Technology 23.63%
Consumer Discretionary 22.63%
Healthcare 20.86%
Industrials 18.33%
Energy 3.94%
Financials 2.32%
Consumer Staples 2.05%
Telecommunications Services 2.04%
Materials 1.34%
Cash & Equivalents 2.86%
</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>
Negative contributors in the healthcare sector included pharmaceutical issue
TARO PHARMACEUTICALS INDUSTRIES LIMITED, hospice care provider Odyssey
HealthCare, Inc., and SELECT MEDICAL CORPORATION, an operator of long-term acute
care hospitals. Taro Pharmaceuticals reported disappointing first quarter
results due to both lower-than-expected revenue from new over-the-counter
products as well as higher costs to market those products. Odyssey declined in
the first quarter after reporting disappointing results and giving forward
guidance that fell short of analyst expectations. Select Medical was surprised
by a potentially negative regulatory proposal from an important standards body.
Although the Fund's relative weightings in the consumer staples, industrials
and information technology sectors proved to be positive during the period, poor
stock selection within these sectors counteracted the gains earned through
sector allocation. Within the industrials sector, KVH Industries, Inc., a
manufacturer of digital defense navigation products and consumer communication
satellite tracking technology, fell significantly in the first quarter after
disclosing delays in closing a large defense order as well as a slower than
previously expected ramp up in a new consumer-related product. Within the
information technology sector, Fairchild Semiconductor Corporation declined
based on growing investor concern that the semiconductor cycle was beginning to
reach its peak.
Our strategy for the Fund remains consistent. We will continue to emphasize
companies that we think have higher quality characteristics such as sustainable
earnings growth, reasonable valuations and effective management teams. We are
satisfied with the progress we have made in keeping the Fund relatively fully
invested while at the same time consolidating the number of holdings. We believe
that a more tightly focused analytical effort may benefit our research process.
We are both pleased to be managing the Dreyfus Founders Discovery Fund, and will
work hard to earn the trust of the Fund's shareholders.
/s/ Bradley C. Orr /s/ James (J.D.) Padgett
Bradley C. Orr, CFA James (J.D.) Padgett, CFA
Co-Portfolio Manager Co-Portfolio Manager
9
<Page>
STATEMENT OF INVESTMENTS
June 30, 2004 (UNAUDITED)
<Table>
<Caption>
SHARES MARKET VALUE
- ---------------------------------------------------------------------------------
COMMON STOCKS (DOMESTIC)--90.5%
AIR FREIGHT & LOGISTICS--1.6%
174,200 Forward Air Corporation* $ 6,515,071
337,270 Pacer International, Inc.* 6,239,495
------------
12,754,566
------------
ALTERNATIVE CARRIERS--2.0%
1,380,945 Ptek Holdings, Inc.* 15,922,296
------------
APPAREL RETAIL--1.6%
260,375 Aeropostale, Inc.* 7,006,691
262,475 Hot Topic, Inc.* 5,378,113
------------
12,384,804
------------
APPLICATION SOFTWARE--3.1%
527,380 Altiris, Inc.* 14,560,962
104,050 Ansys, Inc.* 4,890,350
428,725 Concur Technologies, Inc.* 4,587,358
------------
24,038,670
------------
BROADCASTING & CABLE TV--1.1%
529,525 Cumulus Media, Inc.* 8,901,315
------------
BUILDING PRODUCTS--1.5%
301,405 Trex Company, Inc.* 11,378,039
------------
CASINOS & GAMING--2.3%
215,375 GTECH Holdings Corporation 9,974,016
170,025 Station Casinos, Inc. 8,229,210
------------
18,203,226
------------
COMMUNICATIONS EQUIPMENT--5.3%
227,225 Avocent Corporation* 8,348,247
144,195 Harris Corporation 7,317,896
612,400 Polycom, Inc.* 13,723,884
976,180 Powerwave Technologies, Inc.* 7,516,586
1,551,309 Stratex Networks, Inc.* 4,576,362
------------
41,482,975
------------
CONSTRUCTION, FARM MACHINERY & HEAVY TRUCKS--0.7%
285,450 Wabtec Corporation 5,149,518
------------
DIVERSIFIED COMMERCIAL SERVICES--2.6%
183,485 Asset Acceptance Capital Corporation* 3,119,245
328,750 Corinthian Colleges, Inc.* 8,133,275
281,810 Education Management Corporation* 9,260,277
------------
20,512,797
------------
ELECTRICAL COMPONENTS & EQUIPMENT--1.4%
249,375 AMETEK, Inc. 7,705,688
329,825 Artesyn Technologies, Inc.* 2,968,425
------------
10,674,113
------------
ELECTRONIC EQUIPMENT MANUFACTURERS--0.8%
444,610 Aeroflex, Inc.* 6,371,261
------------
</Table>
10
<Page>
<Table>
<Caption>
SHARES MARKET VALUE
- ---------------------------------------------------------------------------------
ELECTRONIC MANUFACTURING SERVICES--1.3%
399,375 RadiSys Corporation* $ 7,416,394
221,450 TTM Technologies, Inc.* 2,624,183
------------
10,040,577
------------
EMPLOYMENT SERVICES--1.5%
440,040 Gevity HR, Inc. 11,524,648
------------
ENVIRONMENTAL SERVICES--1.1%
163,615 Stericycle, Inc.* 8,465,440
------------
FOOD DISTRIBUTORS--0.7%
211,900 Performance Food Group Company* 5,623,826
------------
GENERAL MERCHANDISE STORES--1.0%
279,060 Tuesday Morning Corporation* 8,092,740
------------
HEALTHCARE DISTRIBUTORS--2.3%
226,375 Fisher Scientific International, Inc.* 13,073,156
80,736 Henry Schein, Inc.* 5,097,671
------------
18,170,827
------------
HEALTHCARE EQUIPMENT--1.6%
256,200 I-Flow Corporation* 3,038,532
262,255 Integra LifeSciences Holdings* 9,249,734
------------
12,288,266
------------
HEALTHCARE FACILITIES--1.5%
862,555 Select Medical Corporation 11,575,488
------------
HEALTHCARE SERVICES--2.8%
245,400 eResearch Technology, Inc.* 6,871,200
477,502 SFBC International, Inc.* 14,960,138
------------
21,831,338
------------
HEALTHCARE SUPPLIES--0.7%
343,005 Merit Medical Systems, Inc.* 5,464,070
------------
HOME ENTERTAINMENT SOFTWARE--1.4%
499,155 Sonic Solutions* 10,607,044
------------
HOTELS, RESORTS & CRUISE LINES--3.0%
263,625 Choice Hotels International, Inc. 13,223,430
320,110 Gaylord Entertainment Company* 10,048,253
------------
23,271,683
------------
INDUSTRIAL MACHINERY--1.2%
235,950 Actuant Corporation* 9,199,691
------------
INTERNET SOFTWARE & SERVICES--1.2%
833,475 Digitas, Inc.* 9,193,229
------------
IT CONSULTING & OTHER SERVICES--1.0%
369,745 CIBER, Inc.* 3,039,304
624,920 Lionbridge Technologies, Inc.* 4,780,638
------------
7,819,942
------------
</Table>
SEE NOTES TO STATEMENT OF INVESTMENTS.
11
<Page>
<Table>
<Caption>
SHARES MARKET VALUE
- ---------------------------------------------------------------------------------
LEISURE FACILITIES--1.2%
441,125 Life Time Fitness, Inc.* $ 9,263,625
------------
LEISURE PRODUCTS--2.3%
632,992 Marvel Enterprises, Inc.* 12,356,004
117,700 Polaris Industries, Inc. 5,649,600
------------
18,005,604
------------
MANAGED HEALTHCARE--1.1%
180,325 Amerigroup Corporation* 8,871,990
------------
OFFICE SERVICES & SUPPLIES--0.8%
222,300 Herman Miller, Inc. 6,433,362
------------
OIL & GAS EQUIPMENT & SERVICES--3.0%
53,625 Carbo Ceramics, Inc. 3,659,906
437,595 National-Oilwell, Inc.* 13,779,867
635,225 Superior Energy Services, Inc.* 6,384,011
------------
23,823,784
------------
OIL & GAS EXPLORATION & PRODUCTION--0.9%
104,800 Quicksilver Resources, Inc.* 7,028,936
------------
PHARMACEUTICALS--8.4%
281,775 Andrx Corporation* 7,869,976
577,955 Impax Laboratories, Inc.* 11,200,768
338,627 Medicis Pharmaceutical Corporation Class A 13,528,149
395,890 MGI Pharma, Inc.* 10,692,989
365,500 Salix Pharmaceuticals Limited* 12,043,225
239,200 Taro Pharmaceutical Industries Limited* 10,405,200
------------
65,740,307
------------
PUBLISHING--1.0%
126,820 Getty Images, Inc.* 7,609,200
------------
REGIONAL BANKS--0.8%
136,990 Southwest Bancorporation of Texas, Inc. 6,043,999
------------
RESTAURANTS--2.8%
392,137 Rare Hospitality International, Inc.* 9,764,211
208,694 Red Robin Gourmet Burgers, Inc.* 5,711,955
236,910 Ruby Tuesday, Inc. 6,503,180
------------
21,979,346
------------
SEMICONDUCTOR EQUIPMENT--2.3%
498,795 Brooks Automation, Inc.* 10,050,719
717,630 Entegris, Inc.* 8,302,979
------------
18,353,698
------------
SEMICONDUCTORS--4.0%
328,525 Actel Corporation* 6,077,713
228,970 OmniVision Technologies, Inc.* 3,652,072
530,475 Semtech Corporation* 12,487,382
302,415 Sigmatel, Inc.* 8,788,180
------------
31,005,347
------------
</Table>
12
<Page>
<Table>
<Caption>
SHARES MARKET VALUE
- ---------------------------------------------------------------------------------
SPECIALTY CHEMICALS--0.9%
145,600 Valspar Corporation $ 7,344,064
------------
SPECIALTY STORES--4.2%
205,955 Advance Auto Parts, Inc.* 9,099,092
293,350 Guitar Center, Inc.* 13,045,275
325,625 PETCO Animal Supplies, Inc.* 10,488,381
------------
32,632,748
------------
STEEL--0.4%
298,400 Graftech International Limited* 3,121,264
------------
SYSTEMS SOFTWARE--1.4%
433,025 Macrovision Corporation* 10,838,616
------------
TECHNOLOGY DISTRIBUTORS--1.9%
847,561 Insight Enterprises, Inc.* 15,052,683
------------
THRIFTS & MORTGAGE FINANCE--1.5%
351,850 BankAtlantic Bancorp, Inc. 6,491,633
401,725 NewAlliance Bancshares, Inc.* 5,608,081
------------
12,099,714
------------
TRADING COMPANIES & DISTRIBUTORS--2.7%
130,895 Fastenal Company 7,438,763
228,850 Hughes Supply, Inc. 13,486,131
------------
20,924,894
------------
TRUCKING--2.6%
184,450 J.B. Hunt Transport Services, Inc. 7,116,081
177,150 Knight Transportation, Inc.* 5,089,520
277,945 Overnite Corporation 8,171,583
------------
20,377,184
------------
TOTAL COMMON STOCKS (DOMESTIC)
(COST--$624,836,480) 707,492,754
------------
COMMON STOCKS (FOREIGN)--6.7%
AIR FREIGHT & LOGISTICS--0.8%
114,040 UTI Worldwide, Inc. (VI) 6,008,768
------------
BIOTECHNOLOGY--0.7%
286,375 QLT, Inc. (CA)* 5,733,228
------------
HEALTHCARE EQUIPMENT--1.1%
163,200 ResMed, Inc. (AU)* 8,316,672
------------
HOTELS, RESORTS & CRUISE LINES--2.1%
619,435 Fairmont Hotels & Resorts, Inc. (CA) 16,693,773
------------
PHARMACEUTICALS--0.7%
256,240 Angiotech Pharmaceuticals, Inc. (CA)* 5,163,236
------------
SOFT DRINKS--1.3%
321,400 Cott Corporation (CA)* 10,413,360
------------
TOTAL COMMON STOCKS (FOREIGN)
(COST--$46,099,638) 52,329,037
------------
</Table>
SEE NOTES TO STATEMENT OF INVESTMENTS.
13
<Page>
<Table>
<Caption>
UNITS MARKET VALUE
- ---------------------------------------------------------------------------------
RIGHTS AND WARRANTS--0.0%
COMMERCIAL PRINTING--0.0%
2,368 American Banknote Corporation Warrants, expire 2007* $ 0
2,368 American Banknote Corporation Warrants, expire 2007* 2
------------
2
------------
TOTAL RIGHTS AND WARRANTS
(COST--$0) 2
------------
<Caption>
PRINCIPAL AMOUNT AMORTIZED COST
- ---------------------------------------------------------------------------------
CORPORATE SHORT-TERM NOTES--5.0%
OTHER DIVERSIFIED FINANCIAL SERVICES--5.0%
$10,000,000 American Express Company
1.25% 7/2/04 $ 9,999,653
29,300,000 Merrill Lynch & Company
1.45% 7/1/04 29,300,000
-------------
39,299,653
-------------
TOTAL CORPORATE SHORT-TERM NOTES
(AMORTIZED COST--$39,299,653) 39,299,653
-------------
TOTAL INVESTMENTS--102.2%
(TOTAL COST--$710,235,771) 799,121,446
-------------
OTHER ASSETS AND LIABILITIES--(2.2%) (17,254,611)
-------------
NET ASSETS--100.0% $ 781,866,835
=============
</Table>
NOTES TO STATEMENT OF INVESTMENTS
* NON-INCOME PRODUCING.
AU - AUSTRALIA
CA - CANADA
VI - VIRGIN ISLANDS
14
<Page>
STATEMENT OF ASSETS AND LIABILITIES
June 30, 2004 (UNAUDITED)
<Table>
ASSETS
Investment securities, at cost $ 710,235,771
---------------
Investment securities, at market 799,121,446
Cash 1,980,581
Receivables:
Investment securities sold 7,819,970
Capital shares sold 460,683
Dividends 76,131
Other 46,698
---------------
Total Assets 809,505,509
---------------
LIABILITIES
Payables and other accrued liabilities:
Investment securities purchased 25,805,768
Capital shares redeemed 653,020
Advisory fees 524,546
Shareholder servicing fees 60,208
Accounting fees 33,487
Distribution fees 256,403
Transfer agency fees 64,679
Custodian fees 2,445
Other 238,118
---------------
Total Liabilities 27,638,674
---------------
Net Assets $ 781,866,835
===============
COMPOSITION OF NET ASSETS
Capital (par value and paid-in surplus) $ 1,088,968,202
Accumulated net investment loss (4,767,042)
Accumulated net realized loss from security transactions (391,220,000)
Net unrealized appreciation on investments 88,885,675
---------------
Total $ 781,866,835
===============
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
15
<Page>
<Table>
CLASS A
Net Assets $ 73,066,766
Shares Outstanding 2,686,984
Net Asset Value, Redemption Price Per Share $ 27.19
Maximum offering price per share (net asset value
plus sales charge of 5.75% of offering price) $ 28.85
CLASS B
Net Assets $ 20,074,697
Shares Outstanding 768,540
Net Asset Value, Offering and Redemption Price (excluding
applicable contingent deferred sales charge) Per Share $ 26.12
CLASS C
Net Assets $ 7,354,946
Shares Outstanding 281,387
Net Asset Value, Offering and Redemption Price (excluding
applicable contingent deferred sales charge) Per Share $ 26.14
CLASS F
Net Assets $ 605,012,278
Shares Outstanding 22,295,331
Net Asset Value, Offering and Redemption Price Per Share $ 27.14
CLASS R
Net Assets $ 74,704,931
Shares Outstanding 2,713,369
Net Asset Value, Offering and Redemption Price Per Share $ 27.53
CLASS T
Net Assets $ 1,653,217
Shares Outstanding 62,053
Net Asset Value, Redemption Price Per Share $ 26.64
Maximum offering price per share (net asset value
plus sales charge of 4.50% of offering price) $ 27.90
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
16
<Page>
STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 2004 (UNAUDITED)
<Table>
INVESTMENT INCOME
Dividends $ 773,331
Interest 94,817
Foreign taxes withheld (6,103)
---------------
Total Investment Income 862,045
---------------
EXPENSES
Advisory fees--Note 2 3,323,794
Shareholder servicing fees--Note 2 322,355
Accounting fees--Note 2 211,243
Distribution fees--Note 2 828,059
Transfer agency fees--Note 2 493,371
Registration fees 45,333
Postage and mailing expenses 43,905
Custodian fees and expenses--Note 2 8,279
Printing expenses 39,415
Legal and audit fees 54,020
Directors' fees and expenses--Note 2 72,723
Other expenses 93,176
---------------
Total Expenses 5,535,673
Earnings Credits (4,887)
Reimbursed/Waived Expenses (879)
---------------
Net Expenses 5,529,907
---------------
Net Investment Loss (4,667,862)
---------------
REALIZED AND UNREALIZED GAIN (LOSS) ON SECURITY
TRANSACTIONS AND FOREIGN CURRENCY TRANSACTIONS
Net Realized Gain on Security Transactions 73,421,873
Net Change in Unrealized Appreciation/Depreciation of Investments (34,342,644)
---------------
Net Realized and Unrealized Gain 39,079,229
---------------
Net Increase in Net Assets Resulting from Operations $ 34,411,367
===============
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
17
<Page>
STATEMENTS OF CHANGES IN NET ASSETS (UNAUDITED)
<Table>
<Caption>
SIX MONTHS ENDED YEAR ENDED
6/30/04 12/31/03
OPERATIONS
Net Investment Loss $ (4,667,862) $ (9,085,288)
Net Realized Gain on Security Transactions 73,421,873 13,930,958
Net Change in Unrealized Appreciation/Depreciation
of Investments (34,342,644) 218,611,635
------------- -------------
Net Increase in Net Assets Resulting from Operations 34,411,367 223,457,305
------------- -------------
CAPITAL SHARE TRANSACTIONS
Net Increase (Decrease)--Note 4
Class A (9,586,224) (9,822,554)
Class B (1,752,190) (3,591,234)
Class C (1,309,613) (1,821,877)
Class F (60,913,710) (36,105,693)
Class R 6,330,348 5,799,244
Class T (212,368) 68,669
------------- -------------
Net Decrease from Capital Share Transactions (67,443,757) (45,473,445)
------------- -------------
Net Increase (Decrease) in Net Assets (33,032,390) 177,983,860
------------- -------------
NET ASSETS
Beginning of period $ 814,899,225 $ 636,915,365
------------- -------------
End of period $ 781,866,835 $ 814,899,225
============= =============
Accumulated Net Investment Loss $ (4,767,042) $ (99,180)
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
18
<Page>
FINANCIAL HIGHLIGHTS
(UNAUDITED)
<Table>
<Caption>
SIX MONTHS YEAR ENDED
ENDED JUNE 30, DECEMBER 31,
2004 2003 2002 2001 2000
-------------- -----------------------------------------------------------
CLASS A SHARES
PER SHARE OPERATING DATA
Net Asset Value, beginning of period $ 26.04 $ 19.09 $ 28.50 $ 34.79 $ 40.88
- ------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment loss (0.15)+ (0.36) (0.31) (0.17) (0.03)
Net realized and unrealized gains
(losses) on securities 1.30 7.31 (9.10) (6.02) (3.45)
-----------------------------------------------------------------------------
Total from investment operations 1.15 6.95 (9.41) (6.19) (3.48)
- ------------------------------------------------------------------------------------------------------------------------
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 (0.10) (2.61)
-----------------------------------------------------------------------------
Total distributions 0.00 0.00 0.00 (0.10) (2.61)
- ------------------------------------------------------------------------------------------------------------------------
Net Asset Value, end of period $ 27.19 $ 26.04 $ 19.09 $ 28.50 $ 34.79
=============================================================================
TOTAL RETURN* 4.42% 36.41% (33.02%) (17.78%) (8.18%)
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000s) $ 73,067 $ 79,630 $ 67,184 $ 117,773 $ 131,298
Ratios to average net assets:
Expenses with reimbursements,
but no earnings credits# 1.35%** 1.50% 1.35% 1.19% 1.24%
Expenses with reimbursements
and earnings credits 1.35%** 1.50% 1.35% 1.18% 1.20%
Net investment loss (1.13%)** (1.25%) (1.08%) (0.58%) (0.21%)
- ------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate@ 104% 130% 128% 110% 108%
</Table>
+ COMPUTED USING AVERAGE SHARES OUTSTANDING THROUGHOUT THE PERIOD.
* SALES CHARGES ARE NOT REFLECTED IN THE TOTAL RETURN.
** ANNUALIZED.
# CERTAIN FEES WERE WAIVED BY THE CUSTODIAN. THESE WAIVERS DID NOT HAVE AN
IMPACT ON THE EXPENSE RATIOS.
@ 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>
<Table>
<Caption>
SIX MONTHS YEAR ENDED
ENDED JUNE 30, DECEMBER 31,
2004 2003 2002 2001 2000
-------------- -----------------------------------------------------------
CLASS B SHARES
PER SHARE OPERATING DATA
Net Asset Value, beginning of period $ 25.12 $ 18.60 $ 28.03 $ 34.49 $ 40.88
- ------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment loss (0.26)+ (0.81) (0.69) (0.45) (0.21)
Net realized and unrealized gains (losses)
on securities 1.26 7.33 (8.74) (5.91) (3.57)
-----------------------------------------------------------------------------
Total from investment operations 1.00 6.52 (9.43) (6.36) (3.78)
- ------------------------------------------------------------------------------------------------------------------------
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 (0.10) (2.61)
-----------------------------------------------------------------------------
Total distributions 0.00 0.00 0.00 (0.10) (2.61)
- ------------------------------------------------------------------------------------------------------------------------
Net Asset Value, end of period $ 26.12 $ 25.12 $ 18.60 $ 28.03 $ 34.49
=============================================================================
TOTAL RETURN* 3.98% 35.05% (33.64%) (18.43%) (8.92%)
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000s) $ 20,075 $ 21,009 $ 18,804 $ 35,845 $ 50,883
Ratios to average net assets:
Expenses with reimbursements,
but no earnings credits# 2.24%** 2.56% 2.26% 1.97% 1.97%
Expenses with reimbursements
and earnings credits 2.24%** 2.56% 2.26% 1.96% 1.94%
Net investment loss (2.03%)** (2.31%) (1.98%) (1.35%) (1.02%)
- ------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate@ 104% 130% 128% 110% 108%
</Table>
+ COMPUTED USING AVERAGE SHARES OUTSTANDING THROUGHOUT THE PERIOD.
* SALES CHARGES ARE NOT REFLECTED IN THE TOTAL RETURN.
** ANNUALIZED.
# CERTAIN FEES WERE WAIVED BY THE CUSTODIAN. THESE WAIVERS DID NOT HAVE AN
IMPACT ON THE EXPENSE RATIOS.
@ 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>
<Table>
<Caption>
SIX MONTHS YEAR ENDED
ENDED JUNE 30, DECEMBER 31,
2004 2003 2002 2001 2000
-------------- -----------------------------------------------------------
CLASS C SHARES
PER SHARE OPERATING DATA
Net Asset Value, beginning of period $ 25.14 $ 18.60 $ 28.05 $ 34.51 $ 40.88
- ------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment loss (0.26)+ (0.94) (0.86) (0.48) (0.19)
Net realized and unrealized gains
(losses) on securities 1.26 7.48 (8.59) (5.88) (3.57)
-----------------------------------------------------------------------------
Total from investment operations 1.00 6.54 (9.45) (6.36) (3.76)
- ------------------------------------------------------------------------------------------------------------------------
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 (0.10) (2.61)
-----------------------------------------------------------------------------
Total distributions 0.00 0.00 0.00 (0.10) (2.61)
- ------------------------------------------------------------------------------------------------------------------------
Net Asset Value, end of period $ 26.14 $ 25.14 $ 18.60 $ 28.05 $ 34.51
=============================================================================
TOTAL RETURN* 3.98% 35.16% (33.69%) (18.42%) (8.87%)
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000s) $ 7,355 $ 8,352 $ 7,794 $ 17,031 $ 25,275
Ratios to average net assets:
Expenses with reimbursements,
but no earnings credits# 2.23%** 2.52% 2.27% 1.98% 1.97%
Expenses with reimbursements
and earnings credits 2.23%** 2.52% 2.26% 1.96% 1.94%
Net investment loss (2.02%)** (2.28%) (1.99%) (1.36%) (1.01%)
- ------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate@ 104% 130% 128% 110% 108%
</Table>
+ COMPUTED USING AVERAGE SHARES OUTSTANDING THROUGHOUT THE PERIOD.
* SALES CHARGES ARE NOT REFLECTED IN THE TOTAL RETURN.
** ANNUALIZED.
# CERTAIN FEES WERE WAIVED BY THE CUSTODIAN. THESE WAIVERS DID NOT HAVE AN
IMPACT ON THE EXPENSE RATIOS.
@ 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>
<Table>
<Caption>
SIX MONTHS YEAR ENDED
ENDED JUNE 30, DECEMBER 31,
2004 2003 2002 2001 2000 1999
-------------- -------------------------------------------------------------------------
CLASS F SHARES
PER SHARE OPERATING DATA
Net Asset Value, beginning of
period $ 25.98 $ 19.04 $ 28.45 $ 34.74 $ 40.86 $ 24.37
- ----------------------------------------------------------------------------------------------------------------------------------
Income from investment
operations:
Net investment loss (0.15)+ (0.35) (0.36) (0.20) (0.07) (0.08)
Net realized and unrealized gains
(losses) on securities 1.31 7.29 (9.05) (5.99) (3.44) 22.72
-------------------------------------------------------------------------------------------
Total from investment operations 1.16 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 0.00
From net realized gains 0.00 0.00 0.00 (0.10) (2.61) (6.15)
-------------------------------------------------------------------------------------------
Total distributions 0.00 0.00 0.00 (0.10) (2.61) (6.15)
- ----------------------------------------------------------------------------------------------------------------------------------
Net Asset Value, end of period $ 27.14 $ 25.98 $ 19.04 $ 28.45 $ 34.74 $ 40.86
===========================================================================================
TOTAL RETURN 4.46% 36.45% (33.08%) (17.81%) (8.26%) 94.59%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000s) $ 605,012 $ 638,880 $ 498,970 $ 847,330 $ 1,066,003 $ 806,152
Ratios to average net assets:
Expenses with reimbursements,
but no earnings credits# 1.37%** 1.53% 1.41% 1.25% 1.28% 1.46%
Expenses with reimbursements
and earnings credits 1.36%** 1.53% 1.40% 1.24% 1.25% 1.45%
Net investment loss (1.15%)** (1.29%) (1.13%) (0.64%) (0.46%) (0.96%)
- ----------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate@ 104% 130% 128% 110% 108% 157%
</Table>
+ COMPUTED USING AVERAGE SHARES OUTSTANDING THROUGHOUT THE PERIOD.
** ANNUALIZED.
# CERTAIN FEES WERE WAIVED BY THE CUSTODIAN. THESE WAIVERS DID NOT HAVE AN
IMPACT ON THE EXPENSE RATIOS.
@ 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>
<Table>
<Caption>
SIX MONTHS YEAR ENDED
ENDED JUNE 30, DECEMBER 31,
2004 2003 2002 2001 2000
-------------- -----------------------------------------------------------
CLASS R SHARES
PER SHARE OPERATING DATA
Net Asset Value, beginning of period $ 26.32 $ 19.23 $ 28.64 $ 34.87 $ 40.88
- ------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.12)+ (0.17) (0.18) (0.08) 0.00++
Net realized and unrealized gains
(losses) on securities 1.33 7.26 (9.23) (6.05) (3.40)
-----------------------------------------------------------------------------
Total from investment operations 1.21 7.09 (9.41) (6.13) (3.40)
- ------------------------------------------------------------------------------------------------------------------------
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 (0.10) (2.61)
-----------------------------------------------------------------------------
Total distributions 0.00 0.00 0.00 (0.10) (2.61)
- ------------------------------------------------------------------------------------------------------------------------
Net Asset Value, end of period $ 27.53 $ 26.32 $ 19.23 $ 28.64 $ 34.87
=============================================================================
TOTAL RETURN 4.60% 36.87% (32.86%) (17.57%) (7.98%)
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000s) $ 74,705 $ 65,240 $ 42,872 $ 61,163 $ 4,693
Ratios to average net assets:
Expenses with reimbursements,
but no earnings credits# 1.08%** 1.21% 1.10% 0.95% 0.96%
Expenses with reimbursements
and earnings credits 1.08%** 1.21% 1.10% 0.94% 0.93%
Net investment income (loss) (0.86%)** (0.96%) (0.82%) (0.38%) 0.01%
- ------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate@ 104% 130% 128% 110% 108%
</Table>
++ NET INVESTMENT INCOME FOR THE YEAR ENDED DECEMBER 31, 2000 AGGREGATED LESS
THAN $0.01 ON A PER SHARE BASIS.
+ COMPUTED USING AVERAGE SHARES OUTSTANDING THROUGHOUT THE PERIOD.
** ANNUALIZED.
# CERTAIN FEES WERE WAIVED BY THE CUSTODIAN. THESE WAIVERS DID NOT HAVE AN
IMPACT ON THE EXPENSE RATIOS.
@ 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>
<Table>
<Caption>
SIX MONTHS YEAR ENDED
ENDED JUNE 30, DECEMBER 31,
2004 2003 2002 2001 2000
-------------- -----------------------------------------------------------
CLASS T SHARES
PER SHARE OPERATING DATA
Net Asset Value, beginning of period $ 25.55 $ 18.79 $ 28.24 $ 34.69 $ 40.88
- ------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment loss (0.19)+ (0.31) (0.54) (0.33) (0.09)
Net realized and unrealized gains
(losses) on securities 1.28 7.07 (8.91) (6.02) (3.49)
-----------------------------------------------------------------------------
Total from investment operations 1.09 6.76 (9.45) (6.35) (3.58)
- ------------------------------------------------------------------------------------------------------------------------
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 (0.10) (2.61)
-----------------------------------------------------------------------------
Total distributions 0.00 0.00 0.00 (0.10) (2.61)
- ------------------------------------------------------------------------------------------------------------------------
Net Asset Value, end of period $ 26.64 $ 25.55 $ 18.79 $ 28.24 $ 34.69
=============================================================================
TOTAL RETURN* 4.27% 35.98% (33.46%) (18.30%) (8.43%)
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000s) $ 1,653 $ 1,788 $ 1,291 $ 2,341 $ 1,908
Ratios to average net assets:
Expenses with reimbursements,
but no earnings credits# 1.66%** 1.91% 2.06% 1.83% 1.48%
Expenses with reimbursements
and earnings credits 1.66%** 1.90% 2.06% 1.82% 1.44%
Net investment loss (1.44%)** (1.66%) (1.79%) (1.24%) (0.50%)
- ------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate@ 104% 130% 128% 110% 108%
</Table>
+ COMPUTED USING AVERAGE SHARES OUTSTANDING THROUGHOUT THE PERIOD.
* SALES CHARGES ARE NOT REFLECTED IN THE TOTAL RETURN.
** ANNUALIZED.
# CERTAIN FEES WERE WAIVED BY THE CUSTODIAN. THESE WAIVERS DID NOT HAVE AN
IMPACT ON THE EXPENSE RATIOS.
@ PORTFOLIO TURNOVER RATE IS A MEASURE OF PORTFOLIO ACTIVITY THAT IS
CALCULATED BY DIVIDING THE LESSER OF PURCHASES OR SALES OF SECURITIES,
EXCLUDING SECURITIES HAVING MATURITY DATES AT ACQUISITION OF ONE YEAR OR
LESS, BY THE AVERAGE VALUE OF THE PORTFOLIO SECURITIES HELD DURING THE
PERIOD, WHICH IS A ROLLING 12-MONTH PERIOD.
SEE NOTES TO FINANCIAL STATEMENTS.
24
<Page>
NOTES TO FINANCIAL STATEMENTS
June 30, 2004 (UNAUDITED)
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
Dreyfus Founders Funds, Inc. (the "Company") is an open-end management
investment company registered under the Investment Company Act of 1940 (the
"1940 Act"). 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--A domestic 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 a
security traded on Nasdaq, at its official closing price. Lacking any sales on
that day, the security is valued at the current closing bid price, or by quotes
from dealers making a market in the security if the closing bid price is not
available, or in the case of written call options, at the mean between the
highest bid and lowest asked quotations obtained from at least two securities
dealers.
A foreign equity security traded on a foreign exchange is valued at the last
quoted official closing price available before the time when the Fund's assets
are valued, or at the last quoted sales price if the exchange does not provide
an official closing price or if the foreign market has not yet closed. Lacking
any sales on that day, the security is valued at the current closing bid price,
or by quotes from dealers making a market in the security if the closing bid
price is not available. London closing exchange rates are used to convert
foreign currencies to U.S. dollars.
A debt security with a remaining maturity greater than 60 days at the time of
purchase is valued in accordance with the evaluated bid price supplied by a
pricing service approved by the Company's board of directors or, if such price
is not available, at the mean between the highest bid and lowest asked
quotations obtained from at least two securities dealers. A debt security with a
remaining maturity of 60 days or less at the time of purchase is valued at
amortized cost, which approximates market value, unless it is determined that
amortized cost would not represent market value, in which case the securities
would be marked to market. The Fund amortizes premiums and discounts on all debt
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.
25
<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 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.
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.
26
<Page>
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, if
any, reduce Other Expenses and would be 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.
SHAREHOLDER SERVICING AND TRANSFER AGENCY FEES FOR CLASS F SHARES--The Company
has a shareholder services agreement with Dreyfus Service Corporation ("DSC"),
the direct owner of Founders and 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. 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. During the six months ended June 30,
2004, Class F shares were charged $189,328 pursuant to this shareholder services
agreement.
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 incurred 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. During the six months ended June 30, 2004, Class F shares
were charged $81,232 for out-of-pocket transfer agent charges.
27
<Page>
TRANSFER AGENCY FEES FOR CLASS A, CLASS B, CLASS C, CLASS R AND CLASS T
SHARES--The fees incurred 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 $12.43 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 six months ended June
30, 2004 were as follows:
<Table>
<Caption>
TRANSFER
AGENCY FEES
---------------------------------------------------------------
Class A $ 16,896
Class B $ 19,699
Class C $ 7,047
Class R $ 8,618
Class T $ 908
</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 1940 Act 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 six months ended June
30, 2004, Class F shares were charged $718,714 pursuant to this Distribution
Plan.
The Fund also has adopted a Distribution Plan pursuant to Rule 12b-1 under the
1940 Act applicable to its Class B, Class C and Class T shares. Under this plan,
the Fund pays DSC a fee for distributing its Class B and C shares at the annual
rate of 0.75% of the value of the average daily net assets of its Class B and C
shares, respectively, and pays DSC a fee for distributing its Class T shares at
the annual rate of 0.25% of the average daily net assets of its Class T shares.
In addition, the Fund has adopted a Shareholder Services Plan applicable to its
Class A, Class B, Class C and Class T shares. Under the Shareholder Services
Plan, Class A, Class B, Class C and Class T shares pay DSC an annual fee of
0.25% of the value of their average daily net assets for the provision of
certain services.
Distribution and shareholder servicing fees paid to DSC by the Fund's Class A,
B, C and T shares for the six months ended June 30, 2004, were as follows:
<Table>
<Caption>
DISTRIBUTION SHAREHOLDER
FEES SERVICING FEES
----------------------------------------------------------------
Class A N/A $ 95,134
Class B $ 77,638 $ 25,879
Class C $ 29,540 $ 9,847
Class T $ 2,167 $ 2,167
</Table>
28
<Page>
During the six months ended June 30, 2004, DSC retained $1,052 and $4 in sales
commissions from the sales of Class A and Class T shares, respectively. DSC also
retained $35,705 and $859 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 and an affiliate of Founders, 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
----------------------------------------------------------------
9/1/03 to 8/31/04 $ 150,000
9/1/04 to 8/31/05 $ 200,000
9/1/05 to 8/31/06 $ 200,000
</Table>
The fee waiver is allocated among the Funds in proportion to their respective
shares of the total custodian fee. For the six months ended June 30, 2004, the
Fund's portion of the fee waiver was $879. 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.
29
<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.
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
June 30, 2004 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 $ 713,989,331
Gross Tax Appreciation of Investments $ 136,106,325
Gross Tax Depreciation of Investments $ (50,974,210)
Net Tax Appreciation $ 85,132,115
</Table>
30
<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>
SIX MONTHS ENDED YEAR ENDED
JUNE 30, 2004 DECEMBER 31, 2004
SHARES AMOUNT SHARES AMOUNT
CLASS A
Sold 436,031 $ 11,869,659 1,201,496 $ 27,097,339
Redeemed (807,416) $ (21,455,883) (1,662,688) $ (36,919,893)
---------------------------------------------------------------
Net Decrease (371,385) $ (9,586,224) (461,192) $ (9,822,554)
===============================================================
CLASS B
Sold 3,770 $ 96,811 10,129 $ 212,967
Redeemed (71,567) $ (1,849,001) (184,783) $ (3,804,201)
---------------------------------------------------------------
Net Decrease (67,797) $ (1,752,190) (174,654) $ (3,591,234)
===============================================================
CLASS C
Sold 3,972 $ 102,599 21,413 $ 428,341
Redeemed (54,879) $ (1,412,212) (108,035) $ (2,250,218)
---------------------------------------------------------------
Net Decrease (50,907) $ (1,309,613) (86,622) $ (1,821,877)
===============================================================
CLASS F
Sold 2,369,039 $ 63,952,977 5,367,437 $ 117,439,063
Redeemed (4,661,054) $ (124,866,687) (6,981,197) $ (153,544,756)
---------------------------------------------------------------
Net Decrease (2,292,015) $ (60,913,710) (1,613,760) $ (36,105,693)
===============================================================
CLASS R
Sold 438,650 $ 11,818,112 500,330 $ 11,153,199
Redeemed (203,547) $ (5,487,764) (251,484) $ (5,353,955)
---------------------------------------------------------------
Net Increase 235,103 $ 6,330,348 248,846 $ 5,799,244
===============================================================
CLASS T
Sold 8,690 $ 227,469 18,394 $ 420,952
Redeemed (16,610) $ (439,837) (17,137) $ (352,283)
---------------------------------------------------------------
Net Increase (Decrease) (7,920) $ (212,368) 1,257 $ 68,669
===============================================================
</Table>
31
<Page>
5. INVESTMENT TRANSACTIONS
Purchases and sales of investment securities (excluding short-term securities
and U.S. government obligations) for the six months ended June 30, 2004 were
$352,745,594 and $429,031,390, 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 June 30, 2004 the Fund did not have any borrowings under the LOC.
7. LEGAL MATTERS
Two class actions have been filed against Mellon Financial Corporation and
Mellon Bank, N.A.; Dreyfus and Founders (the "Investment Advisers"); and the
directors of all or substantially all of the Dreyfus and Dreyfus Founders Funds.
The complaints also name all or substantially all of the Dreyfus and Dreyfus
Founders Funds as nominal defendants. Plaintiffs allege that the Investment
Advisers improperly used assets of the Dreyfus and Dreyfus Founders Funds, in
the form of directed brokerage commissions and 12b-1 fees, to pay brokers to
promote sales of Dreyfus and Dreyfus Founders Funds, and that the use of fund
assets to make these payments was not properly disclosed to investors.
Plaintiffs claim that the Investment Advisers' actions violated the 1940 Act,
the Investment Advisers Act, and common law. The complaints further allege that
the directors breached their fiduciary duties to fund shareholders under the
1940 Act and at common law and that Mellon Financial and Mellon Bank violated
the 1940 Act. The complaints seek unspecified compensatory and punitive damages,
rescission of the funds' contracts with the Investment Advisers, an accounting
of all fees paid, and an award of attorneys' fees and litigation expenses. The
complaints are pending in the same court and have been consolidated into a
single action under the caption IN RE DREYFUS MUTUAL FUNDS FEE LITIGATION.
Founders, Dreyfus, and the Funds believe the allegations in these lawsuits to be
totally without merit and intend to defend the actions vigorously. It is
possible that additional lawsuits arising out of these circumstances and
presenting similar allegations and requests for relief may be filed against the
defendants in the future. Neither Founders, Dreyfus, nor the Funds believe that
the pending actions will have a material adverse effect on the Funds or
Founders' ability to perform its contract with the Funds.
32
<Page>
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<Page>
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<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
PROXY VOTING INFORMATION
A description of the policies and procedures that the Fund uses to determine how
to vote proxies relating to portfolio securities, and information regarding how
the Fund voted these proxies for the 12-month period ended June 30, 2004, is
available through the Fund's website at www.founders.com and on the Securities
and Exchange Commission's website at www.sec.gov. The description of the
policies and procedures is also available without charge, upon request, by
calling 1-800-525-2440.
THIS REPORT AND THE STATEMENTS IT CONTAINS ARE SUBMITTED FOR THE GENERAL
INFORMATION OF OUR SHAREHOLDERS. THE REPORT IS NOT AUTHORIZED FOR DISTRIBUTION
TO PROSPECTIVE INVESTORS UNLESS PRECEDED OR ACCOMPANIED BY AN EFFECTIVE
PROSPECTUS.
Dreyfus Service Corporation, Distributor.
(C) 2004 Founders Asset Management LLC. 8/04
A-636-DIS-04
<Page>
[GRAPHIC]
SEMIANNUAL REPORT
DREYFUS FOUNDERS
GOVERNMENT SECURITIES FUND
DREYFUS FOUNDERS
MONEY MARKET FUND
INVESTMENT UPDATE
JUNE 30, 2004
[DREYFUS FOUNDERS FUNDS(R) 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
</Table>
PAPERLESS DELIVERY OF THIS REPORT
[GRAPHIC]
Did you know you can reduce your postal mail by accessing Dreyfus Founders Funds
regulatory material online? It's a simple, reliable process: when new documents
such as this Semiannual Report are available, we'll send you an e-mail
notification containing a convenient link that will take you directly to that
Fund information on our website. To take advantage of this service, simply
inform us online of your decision to receive materials through the Founders
E-Communications Program. Cut down on mailbox clutter and help the Funds reduce
printing and postage charges by enrolling today at
www.founders.com/ecommunications. If you own Funds through a third party, enroll
at www.icsdelivery.com.
*This report includes financial information for the Money Market Fund as of
June 30, 2004, but does not include a discussion of Fund performance.
The views expressed herein are current to the date of this report. The views
and the composition of the Funds' portfolios are subject to change at any time
based on market and other conditions. The amounts of the Funds' holdings as of
June 30, 2004 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 FOR THE SIX-MONTH PERIOD
ENDED JUNE 30, 2004?
For the six-month period ended June 30, 2004, Dreyfus Founders Government
Securities Fund fell 0.21%, underperforming its benchmark, the Lehman Brothers
U.S. Government Composite Index, which returned -0.12%.
WHAT BOND MARKET DYNAMICS AFFECTED THE FUND DURING THE SIX-MONTH PERIOD?
The first quarter of the year saw bond yields fall despite signs of improving
economic fundamentals. The Treasury markets rallied as the labor market
continued to lag, with few new jobs added during the first quarter. Other
factors influencing the first quarter rally included Japanese currency
intervention policies, an accommodative and patient Federal Reserve, and the
March 11 terrorist attack in Spain.
The bond market, and Treasuries in particular, had a strong first quarter
with the Lehman Brothers Aggregate Bond Index gaining 2.65%. Yields fell across
the curve with this positive price performance, and the two- to 10-year yield
curve flattened to 2.26% at the end of the first quarter, down from 2.43% at
2003's year-end. This flattening of the yield curve was primarily due to
The Lehman Brothers Aggregate Bond Index is comprised of the Lehman Brothers
Government/Corporate Bond Index, Mortgage-Backed Securities Index, and
Asset-Backed Securities Index, including securities that are of investment-grade
quality or better, have at least one year to maturity, and have an outstanding
par value of at least $100 million. The total return figures cited for this
index do not reflect the costs of managing a mutual fund.
[SIDENOTE]
"THE TREASURY MARKET SUFFERED ITS WORST PERFORMANCE IN ALMOST 25 YEARS WITH A
DRAMATIC RISE IN INTEREST RATES DURING THE PERIOD."
3
<Page>
GROWTH OF $10,000 INVESTMENT
PERFORMANCE DATA QUOTED REPRESENTS PAST PERFORMANCE. PAST PERFORMANCE DOES NOT
GUARANTEE FUTURE RESULTS. INVESTMENT RETURN AND PRINCIPAL VALUE OF AN INVESTMENT
WILL FLUCTUATE SO THAT AN INVESTOR'S SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR
LESS THAN THEIR ORIGINAL COST. CURRENT PERFORMANCE MAY BE LOWER OR HIGHER THAN
THE PERFORMANCE DATA QUOTED. PLEASE CALL 1-800-525-2440 TO OBTAIN THE MOST
RECENT MONTH-END PERFORMANCE DATA.
[CHART]
The above graph compares a $10,000 investment made in Class F shares of Dreyfus
Founders Government Securities Fund on 6/30/94 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'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
public obligations of the U.S. Treasury with a remaining maturity of one year or
more and publicly issued debt of U.S. Government agencies and quasi-federal
corporations. The total return figures cited for this index do not reflect the
costs of managing a mutual fund. Further information related to Fund performance
is contained elsewhere in this report.
4
<Page>
AVERAGE ANNUAL AND YEAR-TO-DATE TOTAL RETURN AS OF 6/30/04
<Table>
<Caption>
CLASS F SHARES YEAR-TO- 1 5 10 SINCE
INCEPTION DATE DATE+ YEAR YEARS YEARS INCEPTION
---------------------------------------------------------------------------
3/1/88 (0.21%) (1.70%) 5.68% 5.50% 5.95%
</Table>
Average annual and year-to-date total returns do not reflect the deduction of
taxes that a shareholder would pay on Fund distributions or redemption of Fund
shares, but do reflect the reinvestment of dividends and capital gain
distributions, fee waivers, and adjustments for financial statement purposes.
+ Total return is not annualized.
longer-dated Treasuries gaining more than shorter-dated Treasuries, as the
10-year Treasury bond had its largest quarterly advance since 2002. Treasuries
outperformed the largest sectors of the credit markets, both the mortgage-backed
securities market and the high-grade corporate bond sector. Agency and
supranational securities slightly outperformed Treasuries during the first
quarter of 2004.
However, the bond market reversed course during the second quarter and the
Treasury market suffered its worst performance in almost 25 years with a
dramatic rise in interest rates during the period. The yield on the two-year
Treasury rose 1.10% during the second quarter, while the 10-year Treasury yield
rose 0.75%.
Second quarter fixed-income markets were influenced by stronger economic data
and speculation that the Federal Reserve would soon reverse its accommodative
monetary policy by raising short-term interest rates. Bond yields rose across
the yield curve in anticipation of the Federal Reserve's move. When the interest
rates were raised 25 basis points on June 30, the first time in four years, the
bond market rallied in relief.
WHAT MANAGEMENT DECISIONS MOST IMPACTED FUND PERFORMANCE DURING THE PERIOD?
The Fund performed admirably during the first quarter as interest rates fell.
The Fund's exposure to the Treasury Inflation-Protected Securities (TIPS) market
and lack of concentrated holdings in the mortgage market boosted performance as
TIPS performed well while mortgages lagged. However, an underweight position in
mortgage holdings hurt the Fund during the second
5
<Page>
quarter of 2004, as mortgages only fell 1.13% compared to the -2.97% and -3.13%
returns for the Lehman Brothers U.S. Government Composite and U.S. Treasury
Composite Indices respectively. Higher interest rates slowed mortgage
prepayments, boosting mortgage performance. In addition, TIPS fell 3.11%(1)
during the second quarter.
The Fund reduced its exposure to longer-dated maturities throughout the first
half of 2004 as longer-dated issues underperformed shorter-duration securities
during the period. The Fund's duration fell slightly from 3.08 years on December
31, 2003 to 3.06 years on June 30, 2004. The Fund added fixed-rate mortgage
exposure during the latter part of the second quarter.
The Fund held a slightly overweight relative position in high-grade corporate
bonds during the period. Corporates outperformed Treasuries during the first
quarter, as the Lehman Brothers Corporate Bond Index returned 3.27% compared to
the Lehman Brothers U.S. Treasury Composite Index, which returned 3.06%. Spreads
remained stable and the short end of the corporate sector outperformed the long
end. However, an overweight position in the corporate sector proved detrimental
as spreads widened slightly during the second half of the period.
In conclusion, we will closely monitor our exposure to the yield curve and
continue to monitor our securities positions. We will continue to seek
investment opportunities among high-quality bonds all along the yield curve.
/s/ Margaret Danuser
Margaret Danuser
Portfolio Manager
(1) Source: Merrill Lynch U.S. Treasury Inflation Linked Index
The Lehman Brothers Corporate Bond Index includes all publicly issued,
fixed-rate, non-convertible, dollar-denominated, SEC-registered,
investment-grade corporate debt. The Lehman Brothers U.S. Treasury Composite
Index is composed of all public obligations of the U.S. Treasury, excluding
certain securities, that have at least one year to maturity and an outstanding
par value of at least $100 million. The total return figures cited for these
indexes do not reflect the costs of managing a mutual fund.
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
June 30, 2004 (UNAUDITED)
<Table>
<Caption>
PRINCIPAL AMOUNT MARKET VALUE
- --------------------------------------------------------------------------------
U.S. GOVERNMENT OBLIGATIONS--83.3%
AGENCY PASS THROUGH--3.4%
$ 344,947 U.S. Small Business Administration Series 10-A
6.64% 2/1/11 $ 366,048
------------
GOVERNMENT SPONSORED ENTERPRISES--49.2%
Federal Home Loan Bank:
150,000 5.40% 10/25/06 157,329
495,000 5.625% 2/15/08 525,992
355,000 7.125% 2/15/05 366,566
Federal National Mortgage Association:
300,000 1.05% 9/15/04 Discount Note 299,160
400,000 5.36% 11/29/11 Callable 11/29/04 403,072
150,000 5.75% 2/15/08 159,839
300,000 6.00% 5/15/08 323,127
300,000 6.625% 10/15/07 327,123
250,000 7.125% 6/15/10 283,813
500,000 Private Export Funding Corporation
3.40% 2/15/08 493,925
Tennessee Valley Authority:
500,000 4.75% 8/1/13 487,860
500,000 5.375% 11/13/08 526,395
350,000 7.125% 5/1/30 406,746
500,000 U.S. Department of Housing & Urban Development
2.97% 8/1/07 491,555
------------
5,252,502
------------
MORTGAGE-BACKED SECURITIES: FHLMC/FNMA/SPONSORED--1.8%
29,022 Federal Home Loan Mortgage Corporation
7.50% 11/1/29 Pool #C32819 31,277
Federal National Mortgage Association:
62,635 6.50% 10/1/31 Pool #596063 65,319
84,342 7.00% 3/1/12 Pool #373543 89,605
------------
186,201
------------
MORTGAGE-BACKED SECURITIES: GNMA/GUARANTEED--3.4%
Government National Mortgage Association:
196,101 6.00% 1/15/33 Pool #563709 201,296
156,549 6.50% 5/15/26 Pool #417388 164,480
------------
365,776
------------
U.S. TREASURY NOTES--25.5%
U.S. Treasury Inflation Index Note:
238,199 3.375% 1/15/12 263,925
432,024 3.50% 1/15/11 479,736
229,244 3.875% 1/15/09 255,598
U.S. Treasury Note:
400,000 6.00% 8/15/09 439,548
500,000 6.25% 2/15/07 540,315
500,000 6.50% 8/15/05 523,945
200,000 7.00% 7/15/06 216,696
------------
2,719,763
------------
</Table>
SEE NOTES TO STATEMENT OF INVESTMENTS.
7
<Page>
<Table>
<Caption>
PRINCIPAL AMOUNT MARKET VALUE
- --------------------------------------------------------------------------------
TOTAL U.S. GOVERNMENT OBLIGATIONS
(COST--$8,653,981) $ 8,890,290
------------
GOVERNMENT BONDS (FOREIGN)--4.5%
CAD 305,000 Province of Quebec
6.50% 12/1/05 (CA) 238,081
CAD 305,000 Province of Saskatchewan
6.00% 6/1/06 (CA) 238,466
------------
TOTAL GOVERNMENT BONDS (FOREIGN)
(COST--$407,387) 476,547
------------
SUPRANATIONAL OBLIGATIONS--1.9%
$ 200,000 International Bank for Reconstruction & Development
4.00% 1/10/05 202,368
------------
TOTAL SUPRANATIONAL OBLIGATIONS
(COST--$200,578) 202,368
------------
CORPORATE BONDS (DOMESTIC)--5.1%
DIVERSIFIED COMMERCIAL SERVICES--5.1%
500,000 Stanford University
6.16% 4/30/11 544,217
------------
TOTAL CORPORATE BONDS (DOMESTIC)
(COST--$500,000) 544,217
------------
<Caption>
PRINCIPAL AMOUNT AMORTIZED COST
- --------------------------------------------------------------------------------
GOVERNMENT SPONSORED ENTERPRISE DISCOUNT NOTE--5.6%
$ 600,000 Federal National Mortgage Association
1.20% 7/1/04 $ 600,000
------------
TOTAL GOVERNMENT SPONSORED ENTERPRISE DISCOUNT NOTE
(AMORTIZED COST--$600,000) 600,000
------------
TOTAL INVESTMENTS--100.4%
(TOTAL COST--$10,361,946) 10,713,422
------------
OTHER ASSETS AND LIABILITIES--(0.4%) (43,136)
------------
NET ASSETS--100.0% $ 10,670,286
============
</Table>
NOTES TO STATEMENT OF INVESTMENTS
CA - CANADA
8
<Page>
MONEY MARKET FUND
STATEMENT OF INVESTMENTS
June 30, 2004 (UNAUDITED)
<Table>
<Caption>
PRINCIPAL AMOUNT AMORITIZED COST
- --------------------------------------------------------------------------------
U.S. AGENCY DISCOUNT NOTES--23.7%
$ 1,000,000 Federal Farm Credit Bureau
1.16% 12/13/04 $ 994,683
Federal National Mortgage Association:
1,805,000 1.08% 9/17/04 1,800,776
1,300,000 1.11% 7/9/04 1,299,679
950,000 1.11% 9/1/04 948,184
1,800,000 1.16% 10/6/04 1,794,374
1,000,000 1.17% 7/14/04 999,578
500,000 1.29% 12/10/04 497,098
1,000,000 1.30% 12/10/04 994,150
------------
TOTAL U.S. AGENCY DISCOUNT NOTES
(AMORTIZED COST--$9,328,522) 9,328,522
------------
CORPORATE SHORT-TERM NOTES--76.3%
AGRICULTURAL PRODUCTS--1.3%
500,000 Golden Peanut Company LLC
1.30% 8/20/04 499,097
------------
AIR FREIGHT & LOGISTICS--2.8%
1,100,000 United Parcel Service, Inc.
1.01% 7/1/04 1,100,000
------------
AUTOMOBILE MANUFACTURERS--4.1%
1,600,000 Toyota Motor Credit Corporation
1.03% 7/2/04 1,599,954
------------
CONSTRUCTION, FARM MACHINERY & HEAVY TRUCKS--4.5%
Paccar Financial Corporation:
800,000 1.24% 9/1/04 798,292
1,000,000 2.00% 2/23/05 986,833
------------
1,785,125
------------
CONSUMER ELECTRONICS--2.5%
1,000,000 Sharp Electronics Corporation
1.10% 7/1/04 1,000,000
------------
CONSUMER FINANCE--4.3%
1,700,000 Household Finance Corporation
1.09% 7/13/04 1,699,401
------------
DISTILLERS & VINTNERS--2.0%
800,000 Diageo Capital PLC
1.25% 7/12/04+ 799,694
------------
DIVERSIFIED CHEMICALS--3.1%
1,200,000 E.I. du Pont de Nemours and Company
1.10% 7/8/04 1,199,743
------------
HOUSEHOLD APPLIANCES--4.6%
1,800,000 Stanley Works, Inc.
1.25% 7/27/04+ 1,798,375
------------
HOUSEHOLD PRODUCTS--2.8%
1,100,000 Procter & Gamble Company
1.10% 7/12/04+ 1,099,630
------------
</Table>
SEE NOTES TO STATEMENT OF INVESTMENTS.
9
<Page>
<Table>
<Caption>
PRINCIPAL AMOUNT AMORITIZED COST
- --------------------------------------------------------------------------------
INDUSTRIAL CONGLOMERATES--5.1%
General Electric Capital Corporation:
$ 700,000 1.10% 8/25/04 $ 698,824
1,300,000 1.29% 11/2/04 1,294,223
------------
1,993,047
------------
MULTI-LINE INSURANCE--6.6%
1,400,000 American Family Financial Services
1.05% 7/7/04 1,399,755
1,200,000 American General Finance Corporation
1.26% 7/6/04 1,199,790
------------
2,599,545
------------
OTHER DIVERSIFIED FINANCIAL SERVICES--12.2%
1,600,000 Morgan Stanley
1.12% 7/22/04 1,598,955
National Rural Utilities Cooperative Finance
Corporation:
700,000 1.17% 7/8/04 699,841
1,000,000 1.20% 7/19/04 999,400
1,500,000 Verizon Network Funding
1.21% 7/20/04 1,499,042
------------
4,797,238
------------
PHARMACEUTICALS--3.0%
1,200,000 Eli Lilly and Company
1.40% 10/4/04+ 1,195,567
------------
SOFT DRINKS--3.0%
1,200,000 PepsiCo, Inc.
1.28% 7/21/04+ 1,199,147
------------
SPECIAL PURPOSE ENTITY--14.4%
1,800,000 Ciesco LLC
1.39% 8/30/04+ 1,795,830
2,000,000 MetLife Funding
1.07% 7/14/04 1,999,226
Nestle Capital Corporation:
1,000,000 1.07% 8/10/04+ 998,811
900,000 1.26% 9/14/04+ 897,638
------------
5,691,505
------------
TOTAL CORPORATE SHORT-TERM NOTES
(AMORTIZED COST--$30,057,068) 30,057,068
------------
TOTAL INVESTMENTS--100.0%
(TOTAL AMORTIZED COST--$39,385,590) 39,385,590
------------
OTHER ASSETS AND LIABILITIES--0.0% 14,730
------------
NET ASSETS--100.0% $ 39,400,320
============
</Table>
NOTES TO STATEMENT OF INVESTMENTS
+ SECURITY WAS ACQUIRED PURSUANT TO SECTION 4(2) OF THE SECURITIES ACT OF 1933
AND MAY BE DEEMED TO BE RESTRICTED FOR RESALE.
10
<Page>
STATEMENTS OF ASSETS AND LIABILITIES
June 30, 2004 (UNAUDITED)
<Table>
<Caption>
GOVERNMENT MONEY
SECURITIES FUND MARKET FUND
ASSETS
Investment securities, at cost $ 10,361,946 $ 39,385,590
--------------- ---------------
Investment securities, at market 10,713,422 39,385,590
Cash 49,761 114,337
Receivables:
Capital shares sold 976 14,239
Interest 135,415 0
Other 73,634 47,694
--------------- ---------------
Total Assets 10,973,208 39,561,860
--------------- ---------------
LIABILITIES
Payables and other accrued liabilities:
Investment securities purchased 200,544 0
Capital shares redeemed 1,946 83,800
Advisory fees 3,043 14,826
Shareholder servicing fees 2,580 6,625
Accounting fees 242 904
Distribution fees 714 0
Transfer agency fees 888 189
Custodian fees 288 908
Other 90,795 54,084
Dividends 1,882 204
--------------- ---------------
Total Liabilities 302,922 161,540
--------------- ---------------
Net Assets $ 10,670,286 $ 39,400,320
=============== ===============
COMPOSITION OF NET ASSETS:
Capital (par value and paid-in surplus) $ 10,505,264 $ 39,400,088
Undistributed net investment income (loss) (1,143) 19,665
Accumulated net realized loss
from security transactions (185,340) (19,433)
Net unrealized appreciation on investments
and foreign currency translation 351,505 0
--------------- ---------------
Total $ 10,670,286 $ 39,400,320
=============== ===============
CLASS F
Net Assets $ 10,670,286 $ 39,400,320
Shares Outstanding 1,083,294 39,400,320
Net Asset Value, Offering
and Redemption Price Per Share $ 9.85 $ 1.00
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
11
<Page>
STATEMENTS OF OPERATIONS
For the six months ended June 30, 2004 (UNAUDITED)
<Table>
<Caption>
GOVERNMENT MONEY
SECURITIES FUND MARKET FUND
INVESTMENT INCOME
Interest $ 248,209 $ 225,847
--------------- ---------------
Total Investment Income 248,209 225,847
--------------- ---------------
EXPENSES
Advisory fees--Note 2 37,576 104,930
Shareholder servicing fees--Note 2 10,257 33,929
Accounting fees--Note 2 3,449 12,505
Distribution fees--Note 2 14,452 0
Transfer agency fees--Note 2 2,386 7,535
Registration fees 6,681 7,549
Postage and mailing expenses 1,439 2,242
Custodian fees and expenses--Note 2 700 1,395
Printing expenses 2,744 4,604
Legal and audit fees 765 3,501
Directors' fees and expenses--Note 2 1,316 5,441
Other expenses 2,971 8,543
--------------- ---------------
Total Expenses 84,736 192,174
Earnings Credits (354) (427)
Reimbursed/Waived Expenses (32,083) (17,097)
--------------- ---------------
Net Expenses 52,299 174,650
--------------- ---------------
Net Investment Income 195,910 51,197
--------------- ---------------
REALIZED AND UNREALIZED GAIN (LOSS) ON SECURITY
TRANSACTIONS AND FOREIGN CURRENCY TRANSACTIONS
Net Realized Gain (Loss) on:
Security Transactions 19,220 0
Foreign Currency Transactions (364) 0
--------------- ---------------
Net Realized Gain 18,856 0
Net Change in Unrealized Appreciation/Depreciation
of Investments and Foreign Currency Translation (224,605) 0
--------------- ---------------
Net Realized and Unrealized Loss (205,749) 0
--------------- ---------------
Net Increase (Decrease) in Net Assets Resulting
from Operations $ (9,839) $ 51,197
=============== ===============
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
12
<Page>
STATEMENTS OF CHANGES IN NET ASSETS
(UNAUDITED)
<Table>
<Caption>
GOVERNMENT MONEY
SECURITIES FUND MARKET FUND
SIX MONTHS YEAR ENDED SIX MONTHS YEAR ENDED
ENDED 6/30/04 12/31/03 ENDED 6/30/04 12/31/03
OPERATIONS
Net Investment Income $ 195,910 $ 488,915 $ 51,197 $ 184,429
Net Realized Gain 18,856 224,498 0 0
Net Change in Unrealized
Appreciation/Depreciation
of Investments and
Foreign Currency
Translation (224,605) (401,425) 0 0
--------------- --------------- --------------- ---------------
Net Increase (Decrease)
in Net Assets Resulting
from Operations (9,839) 311,988 51,197 184,429
--------------- --------------- --------------- ---------------
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS
From Net Investment
Income
Class F (195,910) (493,892) (51,197) (184,429)
--------------- --------------- --------------- ---------------
Net Decrease from
Dividends and
Distributions (195,910) (493,892) (51,197) (184,429)
--------------- --------------- --------------- ---------------
CAPITAL SHARE TRANSACTIONS
Net Decrease from Capital
Share Transactions--Note 4
Class F (1,932,690) (2,327,336) (5,693,623) $ (14,992,067)
--------------- --------------- --------------- ---------------
Net Decrease in Net Assets (2,138,439) (2,509,240) (5,693,623) (14,992,067)
NET ASSETS
Beginning of Period $ 12,808,725 $ 15,317,965 $ 45,093,943 $ 60,086,010
--------------- --------------- --------------- ---------------
End of Period $ 10,670,286 $ 12,808,725 $ 39,400,320 $ 45,093,943
=============== =============== =============== ===============
Undistributed Net
Investment Income (Loss) $ (1,143) $ (1,143) $ 19,665 $ 19,665
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
13
<Page>
GOVERNMENT SECURITIES FUND
FINANCIAL HIGHLIGHTS
(UNAUDITED)
<Table>
<Caption>
SIX MONTHS YEAR ENDED
ENDED JUNE 30, DECEMBER 31,
2004 2003 2002 2001 2000 1999
-------------- -----------------------------------------------------------------------
CLASS F SHARES
PER SHARE OPERATING DATA
Net Asset Value, beginning of period $ 10.04 $ 10.18 $ 9.55 $ 9.41 $ 8.96 $ 9.74
- -------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.17 0.34 0.38 0.45 0.47 0.42
Net realized and unrealized gains
(losses) on securities (0.19) (0.14) 0.63 0.14 0.45 (0.78)
----------------------------------------------------------------------------------------
Total from investment operations (0.02) 0.20 1.01 0.59 0.92 (0.36)
- -------------------------------------------------------------------------------------------------------------------------------
Less dividends and distributions:
From net investment income (0.17) (0.34) (0.38) (0.45) (0.47) (0.42)
From net realized gains 0.00 0.00 0.00 0.00 0.00^ 0.00
----------------------------------------------------------------------------------------
Total distributions (0.17) (0.34) (0.38) (0.45) (0.47) (0.42)
- -------------------------------------------------------------------------------------------------------------------------------
Net Asset Value, end of period $ 9.85 $ 10.04 $ 10.18 $ 9.55 $ 9.41 $ 8.96
========================================================================================
TOTAL RETURN (0.21%) 2.03% 10.86% 6.37% 10.57% (3.77%)
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000s) $ 10,670 $ 12,809 $ 15,318 $ 11,967 $ 10,384 $ 13,276
Ratios to average net assets:
Expenses with reimbursements,
but no earnings credits# 0.91%** 0.95% 0.93% 1.00% 1.35% 1.35%
Expenses with reimbursements
and earnings credits 0.90%** 0.94% 0.92% 0.98% 1.29% 1.31%
Net investment income 3.39%** 3.36% 3.90% 4.67% 5.13% 4.47%
- -------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate@ 22% 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.
** ANNUALIZED.
# CERTAIN FEES WERE WAIVED BY THE MANAGEMENT COMPANY OR ITS AFFILIATES. HAD
THESE FEES NOT BEEN WAIVED, THE EXPENSE RATIOS WOULD HAVE BEEN 1.47% (2004),
1.50% (2003), 1.48% (2002), 1.50% (2001), 1.55% (2000) AND 1.53% (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.
SEE NOTES TO FINANCIAL STATEMENTS.
14
<Page>
MONEY MARKET FUND
FINANCIAL HIGHLIGHTS
(UNAUDITED)
<Table>
<Caption>
SIX MONTHS YEAR ENDED
ENDED JUNE 30, DECEMBER 31,
2004 2003 2002 2001 2000 1999
-------------- -----------------------------------------------------------------------
CLASS F SHARES
PER SHARE OPERATING DATA
Net Asset Value, beginning of period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
- -------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.00+ 0.00+ 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 0.00
----------------------------------------------------------------------------------------
Total from investment operations 0.00 0.00 0.01 0.03 0.05 0.04
- -------------------------------------------------------------------------------------------------------------------------------
Less dividends and distributions:
From net investment income 0.00^ 0.00^ (0.01) (0.03) (0.05) (0.04)
From net realized gains 0.00 0.00 0.00 0.00 0.00 0.00
----------------------------------------------------------------------------------------
Total distributions 0.00 0.00 (0.01) (0.03) (0.05) (0.04)
- -------------------------------------------------------------------------------------------------------------------------------
Net Asset Value, end of period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
========================================================================================
TOTAL RETURN 0.12% 0.34% 0.98% 3.40% 5.62% 4.35%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000s) $ 39,400 $ 45,094 $ 60,086 $ 75,928 $ 103,953 $ 92,866
Ratios to average net assets:
Expenses with reimbursements,
but no earnings credits# 0.84%** 0.83% 0.80% 0.79% 0.87% 0.91%
Expenses with reimbursements
and earnings credits 0.83%** 0.83% 0.80% 0.79% 0.84% 0.89%
Net investment income 0.24%** 0.35% 0.98% 3.38% 5.54% 4.30%
</Table>
+ NET INVESTMENT INCOME FOR THE SIX MONTHS ENDED JUNE 30, 2004 AND THE YEAR
ENDED DECEMBER 31, 2003 AGGREGATED LESS THAN $0.01 ON A PER SHARE BASIS.
^ DISTRIBUTIONS FROM NET INVESTMENT INCOME FOR THE SIX MONTHS ENDED JUNE 30,
2004 AND THE YEAR ENDED DECEMBER 31, 2003 AGGREGATED LESS THAN $0.01 ON A PER
SHARE BASIS.
** ANNUALIZED.
# CERTAIN FEES WERE WAIVED BY THE MANAGEMENT COMPANY OR ITS AFFILIATES. HAD
THESE FEES NOT BEEN WAIVED, THE EXPENSE RATIOS WOULD HAVE BEEN 0.92% (2004),
0.91% (2003), 0.87% (2002), 0.84% (2001), 0.87% (2000) AND 0.91% (1999).
SEE NOTES TO FINANCIAL STATEMENTS.
15
<Page>
NOTES TO FINANCIAL STATEMENTS
June 30, 2004 (UNAUDITED)
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
Dreyfus Founders Funds, Inc. (the "Company") is an open-end management
investment company registered under the Investment Company Act of 1940 (the
"1940 Act"). 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--The Company's board of directors has adopted a policy that
requires that Money Market Fund use its best efforts, under normal
circumstances, to maintain a constant net asset value of $1.00 per share using
the amortized cost method. The amortized cost method involves valuing each
security at its cost and thereafter accruing any discount or premium at a
constant rate to maturity.
Debt securities held by Government Securities Fund with a remaining maturity
greater than 60 days at the time of purchase are valued in accordance with the
evaluated bid prices supplied by a pricing service approved by the Company's
board of directors or, if such prices are not available, at the mean between the
highest bid and lowest asked quotations obtained from at least two securities
dealers. Debt securities with a remaining maturity of 60 days or less at the
time of purchase are valued at amortized cost, which approximates market value,
unless it is determined that amortized cost would not represent market value, in
which case the securities would be marked to market. Premiums and discounts are
amortized on all debt securities. If market quotations are not readily
available, securities will be valued at their fair value as determined in good
faith by the Company's board of directors or pursuant to procedures approved by
the board of directors. These situations may include instances where an event
occurs after the close of the market on which a security is traded, and it is
determined that the event has materially affected the value of the security.
SECURITY TRANSACTIONS--Security transactions are accounted for as of the date
the securities are purchased or sold (trade date). Net realized gains and losses
are determined on the basis of identified cost, which is also used for federal
income tax purposes.
U.S. GOVERNMENT OBLIGATIONS--Some U.S. government obligations, such as
Government National Mortgage Association (GNMA) pass-through certificates, are
supported by the full faith and credit of the United States Treasury. Other
obligations, such as securities of the Federal Home Loan Bank (FHLB), are
supported by the right of the issuer to borrow from the United States Treasury;
and others, such as bonds issued by Federal National Mortgage Association (FNMA,
a private corporation), are supported only by the credit of the agency,
authority or instrumentality, although the Secretary of the Treasury has
discretionary authority, though not the obligation, to purchase obligations of
FNMA.
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
16
<Page>
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, if any, 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 Funds do not isolate that portion of the results of operations resulting
from changes in foreign exchange rates on investments from the fluctuations
arising from changes in market prices of securities held. Such fluctuations are
included with the net realized and unrealized gain or loss from investments.
Reported net realized foreign exchange gains or losses arise from sales of
foreign currencies, currency gains or losses realized between the trade and
settlement dates on securities transactions, and the difference between the
amounts of dividends, interest, and foreign withholding taxes recorded on the
Funds' books and the U.S. dollar equivalent of the amounts actually received or
paid. Net unrealized appreciation or depreciation on investments and foreign
currency translation arise from changes in the values of assets and liabilities,
including investments in securities held at the date of the financial
statements, resulting from changes in the exchange rates and changes in market
prices of securities held.
FEDERAL INCOME TAXES--No provision has been made for federal income taxes since
it is the policy of the Funds to comply with the requirements of the Internal
Revenue Code that are applicable to regulated investment companies and to make
distributions of income and capital gains sufficient to relieve them from all
income taxes. The Funds are treated as separate tax entities for federal income
tax purposes.
INVESTMENT INCOME--Interest income is accrued daily and includes the accretion
of discounts and the amortization of premiums over the lives of the respective
securities.
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
17
<Page>
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% of average net assets in
excess of $750 million. These waivers will extend through at least August 31,
2005, and will not be terminated without prior notice to the Company's board of
directors. During the six months ended June 30, 2004, Founders waived $17,343
and $10,493 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"), the direct owner of
Founders and 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.
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. During the six months ended June 30, 2004, Government
Securities Fund and Money Market Fund were charged $10,257 and $33,929,
respectively, pursuant to this Shareholder Services agreement.
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 incurred by DTI are paid by the Funds. During the six
months ended June 30, 2004, Government Securities Fund and Money Market Fund
were charged $2,164 and $7,535, respectively, for out-of-pocket transfer agent
charges.
18
<Page>
DISTRIBUTION PLAN--DSC also is the distributor of the Funds' shares.
Government Securities Fund has adopted a Distribution Plan pursuant to Rule
12b-1 under the 1940 Act 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 six months ended June 30, 2004, $12,868 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 compensate third parties for distributing the Fund
or servicing Fund shareholders will continue to be absorbed by Founders through
at least August 31, 2005. This commitment will not be terminated without prior
notice to the Company's board of directors.
FUND ACCOUNTING AND ADMINISTRATIVE SERVICES FEES--The Funds have agreed to
compensate Founders for providing accounting services, administration,
compliance monitoring, regulatory and shareholder reporting, as well as related
facilities, equipment and clerical help. The fee is computed at the annual rate
of 0.06% of the average daily net assets of each Fund on the first $500 million,
0.04% of the average daily net assets of each Fund on the next $500 million and
0.02% of the average daily net assets of each Fund in excess of $1 billion, plus
reasonable out-of-pocket expenses. Founders has agreed to waive any fees
received for these services to the extent they exceed the fees payable under the
Funds' prior fee schedule and to the extent they exceed Founders' costs in
providing the services. The prior fee schedule was computed at the annual rate
of 0.06% of the average daily net assets of the Company's ten series, taken as a
whole, from $0 to $500 million and 0.02% of the net assets of the Company's ten
series, taken as a whole, in excess of $500 million, plus reasonable
out-of-pocket expenses. The prior fee was allocated to each of the series on a
pro rata basis based on relative average daily net assets. During the six months
ended June 30, 2004, Founders waived $1,769 and $6,416 for Government Securities
Fund and Money Market Fund, respectively.
CUSTODIAN FEES--Mellon Bank N.A., a wholly-owned subsidiary of Mellon Financial
Corporation and an affiliate of Founders, 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
-----------------------------------------------------------
9/1/03 to 8/31/04 $ 150,000
9/1/04 to 8/31/05 $ 200,000
9/1/05 to 8/31/06 $ 200,000
</Table>
The fee waiver is allocated among all series funds of the Company in proportion
to their respective shares of the total custodian fee. For the six months ended
June 30, 2004, the fee waivers for Government Securities Fund and Money Market
Fund were $103 and $188, respectively. The amounts paid to Mellon were reduced
by these fee waiver amounts.
19
<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.
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. The capital loss carryovers for Money Market Fund expire between December
31, 2007 and December 31, 2010.
The aggregate cost of investments and the composition of unrealized appreciation
and depreciation of investment securities for federal income tax purposes as of
June 30, 2004 are noted below. The primary difference between book and tax
appreciation or depreciation is wash sale loss deferrals.
<Table>
<Caption>
GOVERNMENT MONEY
SECURITIES FUND MARKET FUND
----------------------------------------------------------------------------
Undistributed Ordinary Income $ 296 $ 27,331
Accumulated Capital Losses $ 204,196 $ 19,433
Federal Tax Cost $ 10,361,946 $ 39,385,590
Gross Tax Appreciation of Investments $ 424,540 $ 0
Gross Tax Depreciation of Investments $ (73,064) $ 0
Net Tax Appreciation $ 351,476 $ 0
</Table>
20
<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>
SIX MONTHS ENDED YEAR ENDED
JUNE 30, 2004 DECEMBER 31, 2003
SHARES AMOUNT SHARES AMOUNT
GOVERNMENT SECURITIES FUND--CLASS F
Sold 59,657 $ 599,649 330,747 $ 3,348,390
Dividends or Distributions Reinvested 18,353 $ 183,362 45,955 $ 466,139
Redeemed (270,824) $ (2,715,701) (605,978) $ (6,141,865)
-------------------------------------------------------------------
Net Decrease (192,814) $ (1,932,690) (229,276) $ (2,327,336)
===================================================================
MONEY MARKET FUND--CLASS F
Sold 12,272,529 $ 12,272,529 15,049,068 $ 15,049,068
Dividends or Distributions Reinvested 49,544 $ 49,544 179,077 $ 179,077
Redeemed (18,015,696) $ (18,015,696) (30,220,212) $ (30,220,212)
-------------------------------------------------------------------
Net Decrease (5,693,623) $ (5,693,623) (14,992,067) $ (14,992,067)
===================================================================
</Table>
5. INVESTMENT TRANSACTIONS
Purchases and sales of long-term U.S. government obligations for the six months
ended June 30, 2004 were $312,609 and $564,046, 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 June 30, 2004, the Funds did not have any borrowings under the LOC.
21
<Page>
7. LEGAL MATTERS
Two class actions have been filed against Mellon Financial Corporation and
Mellon Bank, N.A.; Dreyfus and Founders (the "Investment Advisers"); and the
directors of all or substantially all of the Dreyfus and Dreyfus Founders Funds.
The complaints also name all or substantially all of the Dreyfus and Dreyfus
Founders Funds as nominal defendants. Plaintiffs allege that the Investment
Advisers improperly used assets of the Dreyfus and Dreyfus Founders Funds, in
the form of directed brokerage commissions and 12b-1 fees, to pay brokers to
promote sales of Dreyfus and Dreyfus Founders Funds, and that the use of fund
assets to make these payments was not properly disclosed to investors.
Plaintiffs claim that the Investment Advisers' actions violated the 1940 Act,
the Investment Advisers Act, and common law. The complaints further allege that
the directors breached their fiduciary duties to fund shareholders under the
1940 Act and at common law and that Mellon Financial and Mellon Bank violated
the 1940 Act. The complaints seek unspecified compensatory and punitive damages,
rescission of the funds' contracts with the Investment Advisers, an accounting
of all fees paid, and an award of attorneys' fees and litigation expenses. The
complaints are pending in the same court and have been consolidated into a
single action under the caption IN RE DREYFUS MUTUAL FUNDS FEE LITIGATION.
Founders, Dreyfus, and the Funds believe the allegations in these lawsuits to be
totally without merit and intend to defend the actions vigorously. It is
possible that additional lawsuits arising out of these circumstances and
presenting similar allegations and requests for relief may be filed against the
defendants in the future. Neither Founders, Dreyfus, nor the Funds believe that
the pending actions will have a material adverse effect on the Funds or
Founders' ability to perform its contract with the Funds.
22
<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
PROXY VOTING INFORMATION
A description of the policies and procedures that the Funds use to determine how
to vote proxies relating to portfolio securities, and information regarding how
the Funds voted these proxies for the 12-month period ended June 30, 2004, is
available through the Funds' website at www.founders.com and on the Securities
and Exchange Commission's website at www.sec.gov. The description of the
policies and procedures is also available without charge, upon request, by
calling 1-800-525-2440.
THIS REPORT AND THE STATEMENTS IT CONTAINS ARE SUBMITTED FOR THE GENERAL
INFORMATION OF OUR SHAREHOLDERS. THE REPORT IS NOT AUTHORIZED FOR DISTRIBUTION
TO PROSPECTIVE INVESTORS UNLESS PRECEDED OR ACCOMPANIED BY AN EFFECTIVE
PROSPECTUS.
Dreyfus Service Corporation, Distributor.
(C) 2004 Founders Asset Management LLC. 8/04
A-636-GMM-04
<Page>
[GRAPHIC]
SEMIANNUAL REPORT
DREYFUS FOUNDERS
GROWTH FUND
INVESTMENT UPDATE
JUNE 30, 2004
[DREYFUS FOUNDERS FUNDS(R) 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
</Table>
PAPERLESS DELIVERY OF THIS REPORT
[GRAPHIC]
Did you know you can reduce your postal mail by accessing Dreyfus Founders Funds
regulatory material online? It's a simple, reliable process: when new documents
such as this Semiannual Report are available, we'll send you an e-mail
notification containing a convenient link that will take you directly to that
Fund information on our website. To take advantage of this service, simply
inform us online of your decision to receive materials through the Founders
E-Communications Program. Cut down on mailbox clutter and help the Fund reduce
printing and postage charges by enrolling today at
www.founders.com/ecommunications. If you own Funds through a third party, enroll
at www.icsdelivery.com.
The views expressed herein are current to the date of this report. The views and
the composition of the Fund's portfolio are subject to change at any time based
on market and other conditions. Companies appearing in bold print on pages 3-9
were owned by the Fund on June 30, 2004. 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 SIX-MONTH PERIOD
ENDED JUNE 30, 2004?
For the first half of 2004, the Dreyfus Founders Growth Fund trailed the return
of its primary benchmark, the Russell 1000 Growth Index, which returned 2.74%
for the six-month period.
PLEASE DESCRIBE THE BROAD MARKET AND ECONOMIC ENVIRONMENT IN WHICH THE FUND
PERFORMED.
For the six-month period ended June 30, 2004, the equity markets focused on
macroeconomic issues, both global and local. Among the greatest causes of
apprehension during the period were the war on terrorism, higher oil prices, the
expected increase in interest rates and domestic politics. Geopolitical
instability in the Middle East continued, not only adding to investor unease,
but also to the risk premium of world oil prices. Concerns that the United
States' economy was slowing its pace beyond expectations also added to market
volatility. The anticipation of the Federal Reserve raising the federal funds
rate also provided a more difficult environment for the equity markets than in
recent quarters, and the upcoming closely contested U.S. Presidential race
played into heightened concerns as well. The culmination of these factors
provided no real direction in the equity markets; the only discernible direction
evidenced was in the move toward more defensive stocks and away from the
financial services sector during the second half of the period.
[SIDENOTE]
"THE ANTICIPATION OF THE FEDERAL RESERVE RAISING THE FEDERAL FUNDS RATE ALSO
PROVIDED A MORE DIFFICULT ENVIRONMENT FOR THE EQUITY MARKETS THAN IN RECENT
QUARTERS."
3
<Page>
PERFORMANCE HIGHLIGHTS
- Among the greatest causes of apprehension during the period were the war
on terrorism, higher oil prices, the expected increase in interest rates
and domestic politics.
- The most compelling investment opportunity during the period was found
in the information technology sector. Although overall stock selection
reduced the positive impact the Fund's overweight position held in this
sector, specific information technology-related holdings did boost
relative Fund performance for the period.
- For the first half of 2004, holdings in the consumer staples sector also
exhibited compelling growth and aided Fund performance as compared to
the Index.
- Stocks chosen for inclusion in the Fund from the materials sector proved
to be detrimental to the Fund's relative performance.
- The industrials sector also proved to be a burden to relative Fund
performance. An underweight position in this sector, paired with poor
stock selection, drove this sector to be one of the worst contributors
to the Fund's relative return.
WHERE DID YOU FIND THE MOST COMPELLING GROWTH OPPORTUNITIES DURING THE PERIOD?
The most compelling investment opportunity during the period was found in the
information technology sector. Although overall stock selection reduced the
positive impact the Fund's overweight position held in this sector, specific
information technology-related holdings did boost relative Fund performance for
the period. APPLE COMPUTER, INC. performed well due to the popularity of its
consumer-related MP3 products, the I-Pod and I-Pod Mini. AUTODESK, INC., a
company offering solutions for the building design, infrastructure management,
manufacturing, digital media and wireless data services industries, showed solid
execution as well, contributing positively to the Fund's first-half performance.
For the first half of 2004, holdings in the consumer staples sector also
exhibited compelling growth and aided Fund performance as compared to the Index.
Stock selection in this sector was the biggest boon to performance, as
4
<Page>
holdings such as ESTEE LAUDER COMPANIES, INC. performed well through
superior revenue and earnings growth owing to the continued increase in consumer
demand, both domestically and internationally.
The Fund was able to capitalize on the overall performance of the energy
sector during the first half of 2004, which benefited from the increasing energy
price environment, due to the Fund being slightly overweight relative to its
benchmark.
Although the Fund's position in the consumer discretionary sector did not
garner positive relative results overall, select holdings in this sector proved
to be the best performers for the period. ROYAL CARIBBEAN CRUISES LIMITED,
retailer NORDSTROM, INC. and Mandalay Resort Group all benefited from an
increase in consumer demand. Royal Caribbean's excellent product positioning led
to strong stock performance, and made it the Fund's top performer during the
period. Nordstrom benefited from a rebound in consumer demand for higher-end
retail items.
Industrials-related holding GENERAL ELECTRIC COMPANY also aided performance
in spite of the sector's negative relative contribution.
LARGEST EQUITY HOLDINGS (ticker symbol)
<Table>
1. General Electric Company (GE) 4.56%
2. SPDR Trust Series 1 (SPY) 4.51%
3. Microsoft Corporation (MSFT) 4.15%
4. Cisco Systems, Inc. (CSCO) 2.79%
5. Pfizer, Inc. (PFE) 2.50%
6. Intel Corporation (INTC) 2.11%
7. Royal Caribbean Cruises Limited (RCL) 2.07%
8. Walt Disney Company (DIS) 2.03%
9. Kohl's Corporation (KSS) 1.94%
10. Gillette Company (G) 1.88%
</Table>
Portfolio holdings are subject to change, and should not be construed as a
recommendation of any security.
5
<Page>
GROWTH OF $10,000 INVESTMENT
PERFORMANCE DATA QUOTED REPRESENTS PAST PERFORMANCE. PAST PERFORMANCE DOES NOT
GUARANTEE FUTURE RESULTS. INVESTMENT RETURN AND PRINCIPAL VALUE OF AN INVESTMENT
WILL FLUCTUATE SO THAT AN INVESTOR'S SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR
LESS THAN THEIR ORIGINAL COST. CURRENT PERFORMANCE MAY BE LOWER OR HIGHER THAN
THE PERFORMANCE DATA QUOTED. PLEASE CALL 1-800-525-2440 TO OBTAIN THE MOST
RECENT MONTH-END PERFORMANCE DATA.
[CHART]
The above graph compares a $10,000 investment made in Class F shares of Dreyfus
Founders Growth Fund on 6/30/94 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 designed to be representative of the
U.S. equities market and consists of 500 leading companies in leading industries
of the U.S. economy. The Russell 1000 Growth Index is an unmanaged index that
measures the performance of the common stocks of those companies among the
largest 1,000 publicly traded U.S. 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>
AVERAGE ANNUAL AND YEAR-TO-DATE TOTAL RETURN AS OF 6/30/04
<Table>
<Caption>
YEAR-TO- 1 5 10 SINCE
CLASS (INCEPTION DATE) DATE+ YEAR YEARS YEARS INCEPTION
--------------------------------------------------------------------------------------------
CLASS A SHARES (12/31/99)
With sales charge (5.75%) (4.43%) 8.41% -- -- (14.84%)
Without sales charge 1.43% 15.06% -- -- (13.71%)
CLASS B SHARES (12/31/99)
With redemption* (2.95%) 10.15% -- -- (14.64%)
Without redemption 1.05% 14.15% -- -- (14.33%)
CLASS C SHARES (12/31/99)
With redemption** 0.05% 13.18% -- -- (14.37%)
Without redemption 1.05% 14.18% -- -- (14.37%)
CLASS F SHARES (1/5/62) 1.42% 15.26% (8.32%) 7.69% N/A
CLASS R SHARES (12/31/99) 1.62% 15.52% -- -- (13.49%)
CLASS T SHARES (12/31/99)
With sales charge (4.50%) (3.32%) 9.46% -- -- (15.23%)
Without sales charge 1.27% 14.56% -- -- (14.35%)
</Table>
Average annual and year-to-date total returns do not reflect the deduction of
taxes that a shareholder would pay on Fund distributions or redemption of Fund
shares, but do reflect the reinvestment of dividends and capital gain
distributions, and adjustments for financial statement purposes. Part of the
Fund's performance is due to amounts received from class action settlements
regarding prior Fund holdings. There is no guarantee that these settlement
distributions will occur in the future or have a similar impact on performance.
*The maximum contingent deferred sales charge for Class B shares is 4% and is
reduced to 0% after six years, at which time the Class B shares convert to Class
A shares.
**The maximum contingent deferred sales charge for Class C shares is 1% for
shares redeemed within one year of the date of purchase.
+Total return is not annualized.
7
<Page>
WHERE DID YOU FIND THE LEAST COMPELLING GROWTH OPPORTUNITIES DURING THE PERIOD?
During the first six months of 2004, the least compelling area of investment was
found in the materials sector. Stocks chosen for inclusion in the Fund from the
materials sector proved to be detrimental to the Fund's relative performance.
The industrials sector also proved to be a burden to relative Fund
performance. An underweight position in this sector, paired with poor stock
selection, drove this sector to be one of the worst contributors to the Fund's
relative return, with names such as UNION PACIFIC CORPORATION underperforming
for the period.
The healthcare sector also hindered relative Fund performance during the
half. A significantly underweight position along with weak stock selection
prevented the Fund from posting a stronger return in this sector compared to the
Index.
Although the information technology sector was one of the largest positive
contributors to Fund performance on a relative basis, some information
technology names weighed on the sector's overall performance. INTEL CORPORATION
experienced
[CHART]
PORTFOLIO COMPOSITION
<Table>
Information Technology 31.43%
Consumer Discretionary 17.05%
Industrials 11.33%
Financials 10.97%
Healthcare 9.54%
Consumer Staples 7.99%
Energy 1.09%
Materials 1.00%
Other 4.49%
Cash & Equivalents 5.11%
</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>
sluggish sales and earnings trends during the period. VERITAS SOFTWARE
CORPORATION and ORACLE CORPORATION each saw a drop in share price, which
ultimately affected relative Fund performance.
As was previously mentioned, although some of the Fund's holdings in the
consumer discretionary sector proved beneficial to performance, the poor
performance of consumer discretionary stocks in general detracted from this
positive contribution. The Fund's worst performer for the period, lower-end
retailer KOHL'S CORPORATION, experienced sluggish sales and earnings trends. As
a result, the stock lagged the broader market and had a negative impact on
relative Fund performance. VIACOM, INC. and COX COMMUNICATIONS, INC. also
declined as the cable industry overall suffered during the first six months of
the year.
Materials holding Newmont Mining Corporation also underperformed during the
period.
At the end of the period, the Fund was positioned for a potential improvement in
the economic environment. We will continue to employ our fundamental-based
investment strategy of selecting stocks that we believe will post superior
revenue and earnings growth rates at valuations that make sense.
/s/ John B. Jares
John B. Jares, CFA
Portfolio Manager
9
<Page>
STATEMENT OF INVESTMENTS
June 30, 2004 (UNAUDITED)
<Table>
<Caption>
SHARES MARKET VALUE
- ---------------------------------------------------------------------------------
COMMON STOCKS (DOMESTIC)--89.8%
AIR FREIGHT & LOGISTICS--1.1%
63,100 FedEx Corporation $ 5,154,627
------------
AIRLINES--1.3%
94,835 Northwest Airlines Corporation* 1,054,565
306,425 Southwest Airlines Company 5,138,747
------------
6,193,312
------------
ALUMINUM--1.0%
146,725 Alcoa, Inc. 4,846,327
------------
APPLICATION SOFTWARE--1.3%
142,722 Autodesk, Inc. 6,109,929
------------
ASSET MANAGEMENT & CUSTODY BANKS--0.5%
156,850 Janus Capital Group, Inc. 2,586,457
------------
BIOTECHNOLOGY--1.1%
72,185 Amgen, Inc.* 3,939,135
22,550 Biogen Idec, Inc.* 1,426,288
------------
5,365,423
------------
BROADCASTING & CABLE TV--2.1%
203,358 Comcast Corporation Special Class A* 5,614,714
166,725 Cox Communications, Inc. Class A* 4,633,288
------------
10,248,002
------------
COMMUNICATIONS EQUIPMENT--5.2%
154,925 Avaya, Inc.* 2,446,266
568,380 Cisco Systems, Inc.* 13,470,606
48,325 Juniper Networks, Inc.* 1,187,345
235,625 Motorola, Inc. 4,300,156
108,350 Scientific-Atlanta, Inc. 3,738,075
------------
25,142,448
------------
COMPUTER & ELECTRONICS RETAIL--0.5%
44,200 Best Buy Company, Inc. 2,242,708
------------
COMPUTER HARDWARE--4.0%
235,475 Apple Computer, Inc.* 7,662,357
72,175 Dell, Inc.* 2,585,309
102,600 International Business Machines Corporation 9,044,190
------------
19,291,856
------------
COMPUTER STORAGE & PERIPHERALS--0.8%
361,400 EMC Corporation* 4,119,960
------------
CONSUMER FINANCE--0.6%
114,363 MBNA Corporation 2,949,422
------------
DATA PROCESSING & OUTSOURCED SERVICES--2.3%
107,450 Automatic Data Processing, Inc. 4,500,006
169,270 Fiserv, Inc.* 6,582,910
------------
11,082,916
------------
</Table>
10
<Page>
<Table>
<Caption>
SHARES MARKET VALUE
- ---------------------------------------------------------------------------------
DEPARTMENT STORES--2.9%
221,675 Kohl's Corporation* $ 9,372,419
109,225 Nordstrom, Inc. 4,654,077
------------
14,026,496
------------
DIVERSIFIED BANKS--2.1%
128,300 Bank One Corporation 6,543,300
65,900 Wells Fargo & Company 3,771,457
------------
10,314,757
------------
ELECTRICAL COMPONENTS & EQUIPMENT--0.3%
20,275 Emerson Electric Company 1,288,476
------------
EMPLOYMENT SERVICES--1.0%
54,925 Manpower, Inc. 2,788,542
86,550 Monster Worldwide, Inc.* 2,226,066
------------
5,014,608
------------
EXCHANGE TRADED FUNDS--4.5%
189,700 SPDR Trust Series 1 21,726,341
------------
FOOD RETAIL--1.9%
285,050 Kroger Company* 5,187,910
150,250 Safeway, Inc.* 3,807,335
------------
8,995,245
------------
HEALTHCARE EQUIPMENT--1.2%
140,050 Boston Scientific Corporation* 5,994,140
------------
HOME ENTERTAINMENT SOFTWARE--0.9%
80,600 Electronic Arts* 4,396,730
------------
HOTELS, RESORTS & CRUISE LINES--1.4%
139,050 Carnival Corporation 6,535,350
------------
HOUSEHOLD PRODUCTS--0.7%
64,500 Procter & Gamble Company 3,511,380
------------
HYPERMARKETS & SUPER CENTERS--0.9%
84,421 Wal-Mart Stores, Inc. 4,454,052
------------
INDUSTRIAL CONGLOMERATES--5.3%
39,150 3M Company 3,523,892
679,134 General Electric Company 22,003,942
------------
25,527,834
------------
INDUSTRIAL MACHINERY--0.8%
39,825 Illinois Tool Works, Inc. 3,818,819
------------
INTEGRATED OIL & GAS--1.1%
118,675 Exxon Mobil Corporation 5,270,357
------------
INVESTMENT BANKING & BROKERAGE--1.9%
49,300 Goldman Sachs Group, Inc. 4,642,088
86,675 Morgan Stanley 4,573,840
------------
9,215,928
------------
</Table>
SEE NOTES TO STATEMENT OF INVESTMENTS.
11
<Page>
<Table>
<Caption>
SHARES MARKET VALUE
- ---------------------------------------------------------------------------------
LEISURE FACILITIES--2.1%
229,975 Royal Caribbean Cruises Limited $ 9,983,215
------------
LIFE & HEALTH INSURANCE--1.0%
112,950 AFLAC, Inc. 4,609,490
------------
MOVIES & ENTERTAINMENT--5.2%
508,900 Time Warner, Inc.* 8,946,462
179,596 Viacom, Inc. Class B 6,415,169
384,550 Walt Disney Company 9,802,180
------------
25,163,811
------------
MULTI-LINE INSURANCE--1.7%
113,049 American International Group, Inc. 8,058,133
------------
OTHER DIVERSIFIED FINANCIAL SERVICES--0.9%
95,267 Citigroup, Inc. 4,429,916
------------
PERSONAL PRODUCTS--3.3%
144,428 Estee Lauder Companies, Inc. Class A 7,045,198
213,725 Gillette Company 9,061,940
------------
16,107,138
------------
PHARMACEUTICALS--6.2%
147,175 Abbott Laboratories 5,998,853
112,475 Johnson & Johnson 6,264,858
64,325 Merck & Company, Inc. 3,055,438
351,438 Pfizer, Inc. 12,047,295
65,250 Wyeth 2,359,440
------------
29,725,884
------------
PROPERTY & CASUALTY INSURANCE--0.7%
77,400 Allstate Corporation 3,602,970
------------
PUBLISHING--1.8%
69,575 Gannett Company, Inc. 5,903,439
57,450 Tribune Company 2,616,273
------------
8,519,712
------------
RAILROADS--1.0%
81,200 Union Pacific Corporation 4,827,341
------------
SEMICONDUCTORS--7.2%
51,000 Broadcom Corporation* 2,385,270
368,726 Intel Corporation 10,176,838
185,025 Linear Technology Corporation 7,302,937
147,925 Maxim Integrated Products, Inc. 7,754,229
105,075 Microchip Technology, Inc. 3,314,066
56,650 NVIDIA Corporation* 1,161,325
99,375 Texas Instruments, Inc. 2,402,888
------------
34,497,553
------------
SOFT DRINKS--1.2%
110,075 Coca-Cola Company 5,556,586
------------
</Table>
12
<Page>
<Table>
<Caption>
SHARES MARKET VALUE
- ---------------------------------------------------------------------------------
SPECIALTY STORES--0.9%
110,100 Staples, Inc. $ 3,227,031
28,500 Weight Watchers International, Inc.* 1,115,490
-------------
4,342,521
-------------
SYSTEMS SOFTWARE--6.1%
74,225 Adobe Systems, Inc. 3,451,463
700,926 Microsoft Corporation 20,018,447
298,350 Oracle Corporation* 3,559,316
85,325 VERITAS Software Corporation* 2,363,503
-------------
29,392,729
-------------
THRIFTS & MORTGAGE FINANCE--1.5%
69,462 Countrywide Financial Corporation 4,879,706
55,075 The PMI Group, Inc. 2,396,864
-------------
7,276,570
-------------
TRADING COMPANIES & DISTRIBUTORS--0.3%
26,950 Fastenal Company 1,531,569
-------------
TOTAL COMMON STOCKS (DOMESTIC)
(COST--$403,049,386) 433,049,038
-------------
COMMON STOCKS (FOREIGN)--5.4%
APPLICATION SOFTWARE--2.1%
56,500 Amdocs Limited (CI)* 1,323,795
206,650 SAP AG Sponsored ADR (GE) 8,640,037
-------------
9,963,832
-------------
HOTELS, RESORTS & CRUISE LINES--0.3%
23,475 Four Seasons Hotels, Inc. (CA) 1,413,430
-------------
IT CONSULTING & OTHER SERVICES--1.7%
291,650 Accenture Limited Class A (BD)* 8,014,542
-------------
PHARMACEUTICALS--1.0%
74,700 Teva Pharmaceutical Industries
Limited Sponsored ADR (IS) 5,026,563
-------------
RAILROADS--0.3%
32,737 Canadian National Railway Company (CA) 1,427,006
-------------
TOTAL COMMON STOCKS (FOREIGN)
(COST--$20,073,378) 25,845,373
-------------
</Table>
SEE NOTES TO STATEMENT OF INVESTMENTS.
13
<Page>
<Table>
<Caption>
PRINCIPAL AMOUNT AMORTIZED COST
- ---------------------------------------------------------------------------------
CORPORATE SHORT-TERM NOTES--5.2%
OTHER DIVERSIFIED FINANCIAL SERVICES--5.2%
$10,000,000 American Express Company
1.25% 7/2/04 $ 9,999,653
15,200,000 Merrill Lynch & Company
1.45% 7/1/04 15,200,000
-------------
25,199,653
-------------
TOTAL CORPORATE SHORT-TERM NOTES
(AMORTIZED COST--$25,199,653) 25,199,653
-------------
TOTAL INVESTMENTS--100.4%
(TOTAL COST--$448,322,417) 484,094,064
-------------
OTHER ASSETS AND LIABILITIES--(0.4%) (1,954,292)
-------------
NET ASSETS--100.0% $ 482,139,772
=============
</Table>
NOTES TO STATEMENT OF INVESTMENTS
* NON-INCOME PRODUCING.
ADR - AMERICAN DEPOSITARY RECEIPT
SPDR - STANDARD AND POOR'S DEPOSITARY RECEIPT
BD - BERMUDA
CA - CANADA
CI - CHANNEL ISLANDS
GE - GERMANY
IS - ISRAEL
14
<Page>
STATEMENT OF ASSETS AND LIABILITIES
June 30, 2004 (UNAUDITED)
<Table>
ASSETS
Investment securities, at cost $ 448,322,417
-----------------
Investment securities, at market 484,094,064
Cash 1,267,830
Receivables:
Capital shares sold 162,849
Dividends 387,805
Other 44,050
-----------------
Total Assets 485,956,598
-----------------
LIABILITIES
Payables and other accrued liabilities:
Investment securities purchased 1,206,914
Capital shares redeemed 1,639,534
Advisory fees 292,321
Shareholder servicing fees 72,421
Accounting fees 23,558
Distribution fees 141,436
Transfer agency fees 48,943
Custodian fees 2,538
Other 389,161
-----------------
Total Liabilities 3,816,826
-----------------
Net Assets $ 482,139,772
=================
COMPOSITION OF NET ASSETS
Capital (par value and paid-in surplus) $ 1,191,187,471
Accumulated net investment loss (374,937)
Accumulated net realized loss from security transactions (744,444,409)
Net unrealized appreciation on investments 35,771,647
-----------------
Total $ 482,139,772
=================
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
15
<Page>
<Table>
CLASS A
Net Assets $ 6,467,273
Shares Outstanding 651,471
Net Asset Value, Redemption Price Per Share $ 9.93
Maximum offering price per share
(net asset value plus sales charge of 5.75% of offering price) $ 10.54
CLASS B
Net Assets $ 13,036,122
Shares Outstanding 1,358,366
Net Asset Value, Offering and Redemption Price
(excluding applicable contingent deferred sales charge) Per Share $ 9.60
CLASS C
Net Assets $ 2,065,786
Shares Outstanding 215,655
Net Asset Value, Offering and Redemption Price
(excluding applicable contingent deferred sales charge) Per Share $ 9.58
CLASS F
Net Assets $ 449,764,632
Shares Outstanding 45,122,596
Net Asset Value, Offering and Redemption Price Per Share $ 9.97
CLASS R
Net Assets $ 10,619,466
Shares Outstanding 1,056,191
Net Asset Value, Offering and Redemption Price Per Share $ 10.05
CLASS T
Net Assets $ 186,493
Shares Outstanding 19,424
Net Asset Value, Redemption Price Per Share $ 9.60
Maximum offering price per share
(net asset value plus sales charge of 4.50% of offering price) $ 10.05
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
16
<Page>
STATEMENT OF OPERATIONS
For the six months ended June 30, 2004 (UNAUDITED)
<Table>
INVESTMENT INCOME
Dividends $ 2,961,095
Interest 123,437
Foreign taxes withheld (21,042)
-----------------
Total Investment Income 3,063,490
-----------------
EXPENSES
Advisory fees--Note 2 1,833,932
Shareholder servicing fees--Note 2 214,544
Accounting fees--Note 2 146,984
Distribution fees--Note 2 633,877
Transfer agency fees--Note 2 266,990
Registration fees 23,898
Postage and mailing expenses 30,747
Custodian fees and expenses--Note 2 5,019
Printing expenses 30,155
Legal and audit fees 36,234
Directors' fees and expenses--Note 2 54,793
Other expenses 51,950
-----------------
Total Expenses 3,329,123
Earnings Credits (2,820)
Reimbursed/Waived Expenses (729)
-----------------
Net Expenses 3,325,574
-----------------
Net Investment Loss (262,084)
-----------------
REALIZED AND UNREALIZED GAIN (LOSS) ON SECURITY
TRANSACTIONS AND FOREIGN CURRENCY TRANSACTIONS
Net Realized Gain on Security Transactions 40,399,388
Net Change in Unrealized Appreciation/Depreciation of Investments (33,084,530)
-----------------
Net Realized and Unrealized Gain 7,314,858
-----------------
Net Increase in Net Assets Resulting from Operations $ 7,052,774
=================
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
17
<Page>
STATEMENTS OF CHANGES IN NET ASSETS
(UNAUDITED)
<Table>
<Caption>
SIX MONTHS ENDED YEAR ENDED
6/30/04 12/31/03
OPERATIONS
Net Investment Loss $ (262,084) $ (2,162,775)
Net Realized Gain on Security Transactions 40,399,388 16,581,469
Net Change in Unrealized Appreciation/Depreciation
of Investments (33,084,530) 122,368,802
--------------- ---------------
Net Increase in Net Assets
Resulting from Operations 7,052,774 136,787,496
--------------- ---------------
CAPITAL SHARE TRANSACTIONS
Net Increase (Decrease)--Note 4
Class A (77,337) (258,678)
Class B (756,911) (1,223,196)
Class C 273,468 (166,651)
Class F (41,587,674) (88,319,324)
Class R 1,627,766 2,736,606
Class T (35,514) (41,579)
--------------- ---------------
Net Decrease from Capital Share Transactions (40,556,202) (87,272,822)
--------------- ---------------
Net Increase (Decrease) in Net Assets (33,503,428) 49,514,674
--------------- ---------------
NET ASSETS
Beginning of period $ 515,643,200 $ 466,128,526
--------------- ---------------
End of period $ 482,139,772 $ 515,643,200
=============== ===============
Accumulated Net Investment Loss $ (374,937) $ (112,853)
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
18
<Page>
FINANCIAL HIGHLIGHTS
(UNAUDITED)
<Table>
<Caption>
SIX MONTHS YEAR ENDED
ENDED JUNE 30, DECEMBER 31,
2004 2003 2002 2001 2000
-------------- -------------------------------------------------------
CLASS A SHARES
PER SHARE OPERATING DATA
Net Asset Value, beginning of period $ 9.79 $ 7.46 $ 10.53 $ 14.02 $ 23.88
- -------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment loss (0.01) (0.06) (0.06) (0.05) (0.05)
Net realized and unrealized gains
(losses) on securities 0.15 2.39 (3.01) (3.44) (6.39)
------------------------------------------------------------------------
Total from investment operations 0.14 2.33 (3.07) (3.49) (6.44)
- -------------------------------------------------------------------------------------------------------------------
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 0.00 (3.42)
------------------------------------------------------------------------
Total distributions 0.00 0.00 0.00 0.00 (3.42)
- -------------------------------------------------------------------------------------------------------------------
Net Asset Value, end of period $ 9.93 $ 9.79 $ 7.46 $ 10.53 $ 14.02
========================================================================
TOTAL RETURN* 1.43% 31.23% (29.15%) (24.89%) (27.30%)
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000s) $ 6,467 $ 6,452 $ 5,149 $ 7,795 $ 8,655
Ratios to average net assets:
Expenses with reimbursements,
but no earnings credits# 1.38%** 1.66% 1.48% 1.21% 1.08%
Expenses with reimbursements
and earnings credits 1.38%** 1.66% 1.48% 1.20% 1.05%
Net investment loss (0.12%)** (0.59%) (0.56%) (0.47%) (0.54%)
- -------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate@ 118% 124% 139% 152% 182%
</Table>
* SALES CHARGES ARE NOT REFLECTED IN THE TOTAL RETURN.
** ANNUALIZED.
# CERTAIN FEES WERE WAIVED BY THE CUSTODIAN. THESE WAIVERS DID NOT HAVE AN
IMPACT ON THE EXPENSE RATIOS.
@ 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>
<Table>
<Caption>
SIX MONTHS YEAR ENDED
ENDED JUNE 30, DECEMBER 31,
2004 2003 2002 2001 2000
-------------- -------------------------------------------------------
CLASS B SHARES
PER SHARE OPERATING DATA
Net Asset Value, beginning of period $ 9.50 $ 7.30 $ 10.38 $ 13.91 $ 23.88
- -------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment loss (0.04)+ (0.17) (0.18) (0.13) (0.11)
Net realized and unrealized gains
(losses) on securities 0.14 2.37 (2.90) (3.40) (6.44)
------------------------------------------------------------------------
Total from investment operations 0.10 2.20 (3.08) (3.53) (6.55)
- -------------------------------------------------------------------------------------------------------------------
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 0.00 (3.42)
------------------------------------------------------------------------
Total distributions 0.00 0.00 0.00 0.00 (3.42)
- -------------------------------------------------------------------------------------------------------------------
Net Asset Value, end of period $ 9.60 $ 9.50 $ 7.30 $ 10.38 $ 13.91
========================================================================
TOTAL RETURN* 1.05% 30.14% (29.67%) (25.38%) (27.77%)
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000s) $ 13,036 $ 13,664 $ 11,603 $ 19,829 $ 25,359
Ratios to average net assets:
Expenses with reimbursements,
but no earnings credits# 2.17%** 2.48% 2.22% 1.93% 1.82%
Expenses with reimbursements
and earnings credits 2.17%** 2.48% 2.22% 1.92% 1.80%
Net investment loss (0.92%)** (1.41%) (1.30%) (1.20%) (1.29%)
- -------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate@ 118% 124% 139% 152% 182%
</Table>
+ COMPUTED USING AVERAGE SHARES OUTSTANDING THROUGHOUT THE PERIOD.
* SALES CHARGES ARE NOT REFLECTED IN THE TOTAL RETURN.
** ANNUALIZED.
# CERTAIN FEES WERE WAIVED BY THE CUSTODIAN. THESE WAIVERS DID NOT HAVE AN
IMPACT ON THE EXPENSE RATIOS.
@ 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>
<Table>
<Caption>
SIX MONTHS YEAR ENDED
ENDED JUNE 30, DECEMBER 31,
2004 2003 2002 2001 2000
-------------- -------------------------------------------------------
CLASS C SHARES
PER SHARE OPERATING DATA
Net Asset Value, beginning of period $ 9.48 $ 7.29 $ 10.36 $ 13.92 $ 23.88
- -------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.04)+ (0.19) (0.26) (0.18) (0.10)
Net realized and unrealized gains
(losses) on securities 0.14 2.38 (2.81) (3.38) (6.44)
------------------------------------------------------------------------
Total from investment operations 0.10 2.19 (3.07) (3.56) (6.54)
- -------------------------------------------------------------------------------------------------------------------
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 0.00 (3.42)
------------------------------------------------------------------------
Total distributions 0.00 0.00 0.00 0.00 (3.42)
- -------------------------------------------------------------------------------------------------------------------
Net Asset Value, end of period $ 9.58 $ 9.48 $ 7.29 $ 10.36 $ 13.92
========================================================================
TOTAL RETURN* 1.05% 30.04% (29.63%) (25.58%) (27.72%)
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000s) $ 2,066 $ 1,774 $ 1,528 $ 2,979 $ 4,384
Ratios to average net assets:
Expenses with reimbursements,
but no earnings credits# 2.15%** 2.49% 2.37% 2.11% 1.82%
Expenses with reimbursements
and earnings credits 2.15%** 2.49% 2.37% 2.10% 1.80%
Net investment loss (0.87%)** (1.42%) (1.46%) (1.38%) (1.28%)
- -------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate@ 118% 124% 139% 152% 182%
</Table>
+ COMPUTED USING AVERAGE SHARES OUTSTANDING THROUGHOUT THE PERIOD.
* SALES CHARGES ARE NOT REFLECTED IN THE TOTAL RETURN.
** ANNUALIZED.
# CERTAIN FEES WERE WAIVED BY THE CUSTODIAN. THESE WAIVERS DID NOT HAVE AN
IMPACT ON THE EXPENSE RATIOS.
@ 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>
<Table>
<Caption>
SIX MONTHS YEAR ENDED
ENDED JUNE 30, DECEMBER 31,
2004 2003 2002 2001 2000 1999
-------------- ---------- ---------- ---------- ------------ ------------
CLASS F SHARES
PER SHARE OPERATING DATA
Net Asset Value, beginning of period $ 9.83 $ 7.48 $ 10.53 $ 14.03 $ 23.87 $ 20.41
- ----------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment loss 0.00+ (0.17) (0.22) (0.15) (0.21) (0.09)
Net realized and unrealized gains
(losses) on securities 0.14 2.52 (2.83) (3.35) (6.21) 7.73
-------------------------------------------------------------------------------------------
Total from investment operations 0.14 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 0.00^
From net realized gains 0.00 0.00 0.00 0.00 (3.42) (4.18)
-------------------------------------------------------------------------------------------
Total distributions 0.00 0.00 0.00 0.00 (3.42) (4.18)
- ----------------------------------------------------------------------------------------------------------------------------------
Net Asset Value, end of period $ 9.97 $ 9.83 $ 7.48 $ 10.53 $ 14.03 $ 23.87
===========================================================================================
TOTAL RETURN 1.42% 31.42% (28.96%) (24.95%) (27.23%) 39.06%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000s) $ 449,765 $ 484,742 $ 443,307 $ 865,425 $ 1,441,466 $ 3,323,606
Ratios to average net assets:
Expenses with reimbursements,
but no earnings credits# 1.33%** 1.47% 1.38% 1.31% 1.07% 1.09%
Expenses with reimbursements
and earnings credits 1.33%** 1.47% 1.37% 1.30% 1.06% 1.08%
Net investment loss (0.09%)** (0.41%) (0.46%) (0.58%) (0.58%) (0.47%)
- ----------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate@ 118% 124% 139% 152% 182% 117%
</Table>
+ COMPUTED USING AVERAGE SHARES OUTSTANDING THROUGHOUT THE PERIOD.
^ DISTRIBUTIONS FROM NET INVESTMENT INCOME FOR THE YEAR ENDED DECEMBER 31, 1999
AGGREGATED LESS THAN $0.01 ON A PER SHARE BASIS.
** ANNUALIZED.
# CERTAIN FEES WERE WAIVED BY THE CUSTODIAN. THESE WAIVERS DID NOT HAVE AN
IMPACT ON THE EXPENSE RATIOS.
@ 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>
<Table>
<Caption>
SIX MONTHS YEAR ENDED
ENDED JUNE 30, DECEMBER 31,
2004 2003 2002 2001 2000
-------------- -------------------------------------------------------
CLASS R SHARES
PER SHARE OPERATING DATA
Net Asset Value, beginning of period $ 9.89 $ 7.50 $ 10.57 $ 14.07 $ 23.88
- -------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) 0.02 0.01 0.01 (0.02) (0.02)
Net realized and unrealized gains
(losses) on securities 0.14 2.38 (3.08) (3.48) (6.37)
------------------------------------------------------------------------
Total from investment operations 0.16 2.39 (3.07) (3.50) (6.39)
- -------------------------------------------------------------------------------------------------------------------
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 0.00 (3.42)
------------------------------------------------------------------------
Total distributions 0.00 0.00 0.00 0.00 (3.42)
- -------------------------------------------------------------------------------------------------------------------
Net Asset Value, end of period $ 10.05 $ 9.89 $ 7.50 $ 10.57 $ 14.07
========================================================================
TOTAL RETURN 1.62% 31.87% (29.04%) (24.88%) (27.08%)
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000s) $ 10,619 $ 8,792 $ 4,333 $ 2,023 $ 9
Ratios to average net assets:
Expenses with reimbursements,
but no earnings credits# 1.01%** 1.13% 1.30% 1.46% 0.82%
Expenses with reimbursements
and earnings credits 1.01%** 1.13% 1.30% 1.46% 0.79%
Net investment income (loss) 0.28%** (0.04%) (0.34%) (0.72%) (0.29%)
- -------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate@ 118% 124% 139% 152% 182%
</Table>
** ANNUALIZED.
# CERTAIN FEES WERE WAIVED BY THE CUSTODIAN. THESE WAIVERS DID NOT HAVE AN
IMPACT ON THE EXPENSE RATIOS.
@ 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>
<Table>
<Caption>
SIX MONTHS YEAR ENDED
ENDED JUNE 30, DECEMBER 31,
2004 2003 2002 2001 2000
-------------- -------------------------------------------------------
CLASS T SHARES
PER SHARE OPERATING DATA
Net Asset Value, beginning of period $ 9.48 $ 7.27 $ 10.38 $ 14.00 $ 23.88
- -------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment loss (0.03)+ (0.30) (0.56) (0.19) (0.09)
Net realized and unrealized gains
(losses) on securities 0.15 2.51 (2.55) (3.43) (6.37)
------------------------------------------------------------------------
Total from investment operations 0.12 2.21 (3.11) (3.62) (6.46)
- -------------------------------------------------------------------------------------------------------------------
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 0.00 (3.42)
------------------------------------------------------------------------
Total distributions 0.00 0.00 0.00 0.00 (3.42)
- -------------------------------------------------------------------------------------------------------------------
Net Asset Value, end of period $ 9.60 $ 9.48 $ 7.27 $ 10.38 $ 14.00
========================================================================
TOTAL RETURN* 1.27% 30.40% (29.96%) (25.86%) (27.38%)
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000s) $ 186 $ 220 $ 208 $ 621 $ 802
Ratios to average net assets:
Expenses with reimbursements,
but no earnings credits# 1.77%** 2.22% 2.78% 2.56% 1.32%
Expenses with reimbursements
and earnings credits 1.77%** 2.22% 2.78% 2.55% 1.29%
Net investment loss (0.54%)** (1.15%) (1.89%) (1.83%) (0.80%)
- -------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate @ 118% 124% 139% 152% 182%
</Table>
+ COMPUTED USING AVERAGE SHARES OUTSTANDING THROUGHOUT THE PERIOD.
* SALES CHARGES ARE NOT REFLECTED IN THE TOTAL RETURN.
** ANNUALIZED.
# CERTAIN FEES WERE WAIVED BY THE CUSTODIAN. THESE WAIVERS DID NOT HAVE AN
IMPACT ON THE EXPENSE RATIOS.
@ PORTFOLIO TURNOVER RATE IS A MEASURE OF PORTFOLIO ACTIVITY THAT IS CALCULATED
BY DIVIDING THE LESSER OF PURCHASES OR SALES OF SECURITIES, EXCLUDING
SECURITIES HAVING MATURITY DATES AT ACQUISITION OF ONE YEAR OR LESS, BY THE
AVERAGE VALUE OF THE PORTFOLIO SECURITIES HELD DURING THE PERIOD, WHICH IS A
ROLLING 12-MONTH PERIOD.
SEE NOTES TO FINANCIAL STATEMENTS.
24
<Page>
NOTES TO FINANCIAL STATEMENTS
June 30, 2004 (UNAUDITED)
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
Dreyfus Founders Funds, Inc. (the "Company") is an open-end management
investment company registered under the Investment Company Act of 1940 (the
"1940 Act"). 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--A domestic 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 a
security traded on Nasdaq, at its official closing price. Lacking any sales on
that day, the security is valued at the current closing bid price, or by quotes
from dealers making a market in the security if the closing bid price is not
available, or in the case of written call options, at the mean between the
highest bid and lowest asked quotations obtained from at least two securities
dealers.
A foreign equity security traded on a foreign exchange is valued at the last
quoted official closing price available before the time when the Fund's assets
are valued, or at the last quoted sales price if the exchange does not provide
an official closing price or if the foreign market has not yet closed. Lacking
any sales on that day, the security is valued at the current closing bid price,
or by quotes from dealers making a market in the security if the closing bid
price is not available. London closing exchange rates are used to convert
foreign currencies to U.S. dollars.
A debt security with a remaining maturity greater than 60 days at the time of
purchase is valued in accordance with the evaluated bid price supplied by a
pricing service approved by the Company's board of directors or, if such price
is not available, at the mean between the highest bid and lowest asked
quotations obtained from at least two securities dealers. A debt security with a
remaining maturity of 60 days or less at the time of purchase is valued at
amortized cost, which approximates market value, unless it is determined that
amortized cost would not represent market value, in which case the securities
would be marked to market. The Fund amortizes premiums and discounts on all debt
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
25
<Page>
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.
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.
26
<Page>
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, if
any, reduce Other Expenses and would be 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.
SHAREHOLDER SERVICING AND TRANSFER AGENCY FEES FOR CLASS F SHARES--The Company
has a shareholder services agreement with Dreyfus Service Corporation ("DSC"),
the direct owner of Founders and 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. 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. During the six months ended June 30,
2004, Class F shares were charged $187,230 pursuant to this shareholder services
agreement.
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,
27
<Page>
the fees incurred 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. During the six
months ended June 30, 2004, Class F shares were charged $72,201 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 incurred 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 $12.43 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 six months ended June
30, 2004 were as follows:
<Table>
<Caption>
TRANSFER
AGENCY FEES
-------------------------------------------------------------------
Class A $ 5,165
Class B $ 13,263
Class C $ 1,715
Class R $ 1,958
Class T $ 302
</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 1940 Act 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 six months ended June
30, 2004, Class F shares were charged $576,491 pursuant to this Distribution
Plan.
The Fund also has adopted a Distribution Plan pursuant to Rule 12b-1 under the
1940 Act 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.
28
<Page>
Distribution and shareholder servicing fees paid to DSC by the Fund's Class A,
B, C and T shares for the six months ended June 30, 2004, were as follows:
<Table>
<Caption>
DISTRIBUTION SHAREHOLDER
FEES SERVICING FEES
--------------------------------------------------------------------
Class A N/A $ 8,016
Class B $ 49,878 $ 16,626
Class C $ 7,254 $ 2,418
Class T $ 254 $ 254
</Table>
During the six months ended June 30, 2004, DSC retained $1,835 in sales
commissions from the sales of Class A shares. DSC also retained $14,968 of
contingent deferred sales charges relating to redemptions of Class B shares.
FUND ACCOUNTING AND ADMINISTRATIVE SERVICES FEES--The Funds have agreed to
compensate Founders for providing accounting services, administration,
compliance monitoring, regulatory and shareholder reporting, as well as related
facilities, equipment and clerical help. The fee is computed at the annual rate
of 0.06% of the average daily net assets of the Fund on the first $500 million,
0.04% of the average daily net assets of the Fund on the next $500 million and
0.02% of the average daily net assets of the Fund in excess of $1 billion, plus
reasonable 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 and an affiliate of Founders, 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
--------------------------------------------------------------------
9/1/03 to 8/31/04 $ 150,000
9/1/04 to 8/31/05 $ 200,000
9/1/05 to 8/31/06 $ 200,000
</Table>
The fee waiver is allocated among the Funds in proportion to their respective
shares of the total custodian fee. For the six months ended June 30, 2004, the
Fund's portion of the fee waiver was $729. 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
29
<Page>
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.
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.
The aggregate cost of investments and the composition of unrealized appreciation
and depreciation of investment securities for federal income tax purposes as of
June 30, 2004 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 $ 461,017,987
Gross Tax Appreciation of Investments $ 41,314,806
Gross Tax Depreciation of Investments $ (18,238,729)
Net Tax Appreciation $ 23,076,077
</Table>
30
<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>
SIX MONTHS ENDED YEAR ENDED
JUNE 30, 2004 DECEMBER 31, 2003
SHARES AMOUNT SHARES AMOUNT
CLASS A
Sold 57,221 $ 565,455 102,390 $ 863,766
Redeemed (64,822) $ (642,792) (133,313) $ (1,122,444)
----------------------------------------------------------
Net Decrease (7,601) $ (77,337) (30,923) $ (258,678)
==========================================================
CLASS B
Sold 22,836 $ 217,948 95,258 $ 810,696
Redeemed (102,872) $ (974,859) (245,915) $ (2,033,892)
----------------------------------------------------------
Net Decrease (80,036) $ (756,911) (150,657) $ (1,223,196)
==========================================================
CLASS C
Sold 38,062 $ 363,403 22,136 $ 191,985
Redeemed (9,513) $ (89,935) (44,718) $ (358,636)
----------------------------------------------------------
Net Increase (Decrease) 28,549 $ 273,468 (22,582) $ (166,651)
==========================================================
CLASS F
Sold 1,958,281 $ 19,340,530 5,549,619 $ 46,590,327
Redeemed (6,172,462) $ (60,928,204) (15,507,433) $ (134,909,651)
----------------------------------------------------------
Net Decrease (4,214,181) $ (41,587,674) (9,957,814) $ (88,319,324)
==========================================================
CLASS R
Sold 266,181 $ 2,610,010 388,827 $ 3,417,348
Redeemed (98,566) $ (982,244) (77,669) $ (680,742)
----------------------------------------------------------
Net Increase 167,615 $ 1,627,766 311,158 $ 2,736,606
==========================================================
CLASS T
Sold 114 $ 1,097 856 $ 6,961
Redeemed (3,836) $ (36,611) (6,333) $ (48,540)
----------------------------------------------------------
Net Decrease (3,722) $ (35,514) (5,477) $ (41,579)
==========================================================
</Table>
31
<Page>
5. INVESTMENT TRANSACTIONS
Purchases and sales of investment securities (excluding short-term securities
and U.S. government obligations) for the six months ended June 30, 2004 were
$249,862,266 and $296,485,912, 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 June 30, 2004, the Fund did not have any borrowings under the LOC.
7. LEGAL MATTERS
Two class actions have been filed against Mellon Financial Corporation and
Mellon Bank, N.A.; Dreyfus and Founders (the "Investment Advisers"); and the
directors of all or substantially all of the Dreyfus and Dreyfus Founders Funds.
The complaints also name all or substantially all of the Dreyfus and Dreyfus
Founders Funds as nominal defendants. Plaintiffs allege that the Investment
Advisers improperly used assets of the Dreyfus and Dreyfus Founders Funds, in
the form of directed brokerage commissions and 12b-1 fees, to pay brokers to
promote sales of Dreyfus and Dreyfus Founders Funds, and that the use of fund
assets to make these payments was not properly disclosed to investors.
Plaintiffs claim that the Investment Advisers' actions violated the 1940 Act,
the Investment Advisers Act, and common law. The complaints further allege that
the directors breached their fiduciary duties to fund shareholders under the
1940 Act and at common law and that Mellon Financial and Mellon Bank violated
the 1940 Act. The complaints seek unspecified compensatory and punitive damages,
rescission of the funds' contracts with the Investment Advisers, an accounting
of all fees paid, and an award of attorneys' fees and litigation expenses. The
complaints are pending in the same court and have been consolidated into a
single action under the caption IN RE DREYFUS MUTUAL FUNDS FEE LITIGATION.
Founders, Dreyfus, and the Funds believe the allegations in these lawsuits to be
totally without merit and intend to defend the actions vigorously. It is
possible that additional lawsuits arising out of these circumstances and
presenting similar allegations and requests for relief may be filed against the
defendants in the future. Neither Founders, Dreyfus, nor the Funds believe that
the pending actions will have a material adverse effect on the Funds or
Founders' ability to perform its contract with the Funds.
32
<Page>
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<Page>
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<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
PROXY VOTING INFORMATION
A description of the policies and procedures that the Fund uses to determine how
to vote proxies relating to portfolio securities, and information regarding how
the Fund voted these proxies for the 12-month period ended June 30, 2004, is
available through the Fund's website at www.founders.com and on the Securities
and Exchange Commission's website at www.sec.gov. The description of the
policies and procedures is also available without charge, upon request, by
calling 1-800-525-2440.
THIS REPORT AND THE STATEMENTS IT CONTAINS ARE SUBMITTED FOR THE GENERAL
INFORMATION OF OUR SHAREHOLDERS. THE REPORT IS NOT AUTHORIZED FOR DISTRIBUTION
TO PROSPECTIVE INVESTORS UNLESS PRECEDED OR ACCOMPANIED BY AN EFFECTIVE
PROSPECTUS.
Dreyfus Service Corporation, Distributor.
(C) 2004 Founders Asset Management LLC. 8/04
A-636-GRO-04
<Page>
[GRAPHIC]
SEMIANNUAL REPORT
DREYFUS FOUNDERS
GROWTH AND INCOME FUND
INVESTMENT UPDATE
JUNE 30, 2004
[DREYFUS FOUNDERS FUNDS(R) 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
</Table>
PAPERLESS DELIVERY OF THIS REPORT
[GRAPHIC]
Did you know you can reduce your postal mail by accessing Dreyfus Founders Funds
regulatory material online? It's a simple, reliable process: when new documents
such as this Semiannual Report are available, we'll send you an e-mail
notification containing a convenient link that will take you directly to that
Fund information on our website. To take advantage of this service, simply
inform us online of your decision to receive materials through the Founders
E-Communications Program. Cut down on mailbox clutter and help the Fund reduce
printing and postage charges by enrolling today at
www.founders.com/ecommunications. If you own Funds through a third party, enroll
at www.icsdelivery.com.
The views expressed herein are current to the date of this report. The views and
the composition of the Fund's portfolio are subject to change at any time based
on market and other conditions. Companies appearing in bold print on pages 3-9
were owned by the Fund on June 30, 2004. 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 SIX-MONTH PERIOD
ENDED JUNE 30, 2004?
For the first half of 2004, the Dreyfus Founders Growth and Income Fund trailed
the 3.44% gain of the Fund's benchmark, the Standard & Poor's 500 Index.
PLEASE DESCRIBE THE BROAD MARKET AND ECONOMIC ENVIRONMENT IN WHICH THE FUND
PERFORMED.
The environment for equity investing during the first half of 2004 showed mixed
results. The first quarter of 2004 generally saw positive economic indicators,
with interest rates, inflation and consumer spending remaining at favorable
levels. Corporate profit growth also continued to improve during the first
quarter, particularly when contrasted with previous quarters. However,
throughout the second half of the period, the equity markets grappled with heavy
weights on equity investing. Although jobless rates declined and unemployment
rates remained constant, the prospect of higher interest rates, high energy
prices, continued geopolitical unrest and uncertainty regarding the
sustainability of economic and corporate profit growth offset positive economic
news during the period. On the last day of June, the Federal Reserve raised the
federal funds rate by 0.25% to 1.25%, a move that was widely expected and, after
shadowing the markets during the last half of the period, seemed to have only a
modest impact on equity prices.
[SIDENOTE]
"THE EXPECTED TIGHTENING OF THE DOMESTIC MONETARY POLICY WEIGHED HEAVILY ON THE
FINANCIALS SECTOR, AND THE FUND'S UNDERWEIGHT POSITION IN THIS SECTOR, IN
ANTICIPATION OF THE FIRST RATE HIKE IN FOUR YEARS, PROVED ADVANTAGEOUS."
3
<Page>
PERFORMANCE HIGHLIGHTS
- The prospect of higher interest rates, high energy prices, continued
geopolitical unrest and uncertainty regarding the sustainability of
economic and corporate profit growth offset positive economic news
during the period.
- Holdings in the consumer staples and consumer discretionary sectors
exhibited the most compelling growth and investment opportunities.
- The financials sector was another important positive contributor to Fund
performance during the six-month timeframe, aided by an underweight
position relative to the Fund's benchmark.
- The materials sector offered the least compelling area of investment
during the first six months of 2004, and poor stock selection within the
sector was a drag on relative performance.
- The hike in energy prices that culminated toward the end of the period
greatly benefited many stocks within this sector; however, due to the
Fund's underweight position, it was not able to fully capitalize on this
market trend.
WHERE DID YOU FIND THE MOST COMPELLING GROWTH OPPORTUNITIES DURING THE PERIOD?
For the first half of 2004, holdings in the consumer staples and consumer
discretionary sectors exhibited the most compelling growth and investment
opportunities. Consumer staples holdings such as ESTEE LAUDER COMPANIES,
INC. showed solid execution during the period due to a continued increase in
demand by consumers. ROYAL CARIBBEAN CRUISES LIMITED and NORDSTROM, INC., both
names within the consumer discretionary arena, also benefited from an increase
in consumer demand. Royal Caribbean's product positioning and increase in cruise
reservations led to strong stock performance, positively contributing to Fund
performance. Nordstrom benefited from a rebound in consumer demand for
higher-end retail items.
The financials sector was another important positive contributor to Fund
performance during the six-month timeframe, aided by an underweight position
relative to the Fund's benchmark. The expected tightening of the domestic
4
<Page>
monetary policy weighed heavily on the financials sector, and the Fund's
underweight position in this sector, in anticipation of the first rate hike in
four years, proved advantageous.
Although the sector itself did not perform well, specific information
technology-related holdings had a positive impact on relative Fund performance
during the period. For example, APPLE COMPUTER, INC. performed well owing to an
increase in demand for its MP3 products. Also positively contributing to
relative performance was AUTODESK, INC., a company offering solutions for the
building design, infrastructure management, manufacturing, digital media and
wireless data services industries, which showed solid execution during the half.
Other notable positive performers during the first six months of 2004
included GENERAL ELECTRIC COMPANY and EXXON MOBIL CORPORATION.
WHERE DID YOU FIND THE LEAST COMPELLING GROWTH OPPORTUNITIES DURING THE PERIOD?
The materials sector offered the least compelling area of investment during the
first six months of 2004, and poor stock selection within the sector was a drag
on relative performance.
LARGEST EQUITY HOLDINGS (ticker symbol)
<Table>
1. SPDR Trust Series 1 (SPY) 4.60%
2. General Electric Company (GE) 4.22%
3. Microsoft Corporation (MSFT) 3.38%
4. Exxon Mobil Corporation (XOM) 2.85%
5. Cisco Systems, Inc. (CSCO) 2.84%
6. Pfizer, Inc. (PFE) 2.49%
7. Royal Caribbean Cruises Limited (RCL) 2.08%
8. Kohl's Corporation (KSS) 1.94%
9. Gillette Company (G) 1.91%
10. Walt Disney Company (DIS) 1.85%
</Table>
Portfolio holdings are subject to change, and should not be construed as a
recommendation of any security.
5
<Page>
GROWTH OF $10,000 INVESTMENT
PERFORMANCE DATA QUOTED REPRESENTS PAST PERFORMANCE. PAST PERFORMANCE DOES NOT
GUARANTEE FUTURE RESULTS. INVESTMENT RETURN AND PRINCIPAL VALUE OF AN INVESTMENT
WILL FLUCTUATE SO THAT AN INVESTOR'S SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR
LESS THAN THEIR ORIGINAL COST. CURRENT PERFORMANCE MAY BE LOWER OR HIGHER THAN
THE PERFORMANCE DATA QUOTED. PLEASE CALL 1-800-525-2440 TO OBTAIN THE MOST
RECENT MONTH-END PERFORMANCE DATA.
[CHART]
The above graph compares a $10,000 investment made in Class F shares of Dreyfus
Founders Growth and Income Fund on 6/30/94 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 designed to be representative of the
U.S. equities market and consists of 500 leading companies in leading industries
of the U.S. economy. 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>
AVERAGE ANNUAL AND YEAR-TO-DATE TOTAL RETURN AS OF 6/30/04
<Table>
<Caption>
YEAR-TO 1 5 10 SINCE
CLASS (INCEPTION DATE) DATE+ YEAR YEARS YEARS INCEPTION
---------------------------------------------------------------------------------------------------------
CLASS A SHARES (12/31/99)
With sales charge(5.75%) (3.78%) 9.83% -- -- (10.39%)
Without sales charge 2.00% 16.54% -- -- (9.21%)
CLASS B SHARES (12/31/99)
With redemption* (2.41%) 11.50% -- -- (10.06%)
Without redemption 1.59% 15.50% -- -- (9.68%)
CLASS C SHARES (12/31/99)
With redemption** 0.62% 14.53% -- -- (10.05%)
Without redemption 1.62% 15.53% -- -- (10.05%)
CLASS F SHARES (7/5/38) 2.19% 16.84% (5.91%) 5.99% N/A
CLASS R SHARES (12/31/99) 2.21% 16.92% -- -- (9.00%)
CLASS T SHARES (12/31/99)
With sales charge (4.50%) (3.05%) 10.42% -- -- (10.70%)
Without sales charge 1.60% 15.58% -- -- (9.78%)
</Table>
Average annual and year-to-date total returns do not reflect the deduction of
taxes that a shareholder would pay on Fund distributions or redemption of Fund
shares, but do reflect the reinvestment of dividends and capital gain
distributions, expense limits for certain share classes, and adjustments for
financial statement purposes.
* The maximum contingent deferred sales charge for Class B shares is 4% and is
reduced to 0% after six years, at which time the Class B shares convert to Class
A shares.
** The maximum contingent deferred sales charge for Class C shares is 1% for
shares redeemed within one year of the date of purchase.
+ Total return is not annualized.
7
<Page>
Although the Fund selected some stocks in the energy sector that proved
beneficial, such as the aforementioned Exxon Mobil Corporation, this selection
was more than offset by the Fund's underweight position as compared to the
Index. The hike in energy prices that culminated toward the end of the period
greatly benefited many stocks within this sector; however, due to the Fund's
underweight position, it was not able to fully capitalize on this market trend.
Underexposure and poor selection of holdings in industrials prompted this
sector to be one of the worst contributors to the Fund's relative return.
Industrials holding UNION PACIFIC CORPORATION weighed heavily due to
greater-than-expected handling costs during the period. This, combined with high
fuel prices, drove revisions to earnings estimates downward and the stock
underperformed.
Although the information technology sector did have some stocks that boosted
overall performance, other information technology holdings caused this sector to
post a negative return relative to the Fund's benchmark. INTEL CORPORATION
experienced sluggish sales and earnings trends during the period, whereas
VERITAS SOFTWARE CORPORATION and ORACLE CORPORATION each saw a drop in their
respective share price.
[CHART]
PORTFOLIO COMPOSITION
<Table>
Information Technology 29.91%
Consumer Discretionary 17.27%
Industrials 10.83%
Financials 9.97%
Healthcare 9.37%
Consumer Staples 7.93%
Energy 2.85%
Telecommunications Services 1.06%
Materials 1.02%
Other 4.60%
Cash & Equivalents 5.19%
</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>
As was previously mentioned, stock selection in the consumer discretionary
sector proved to be a boon to Fund performance. However, the underperformance of
numerous consumer discretionary stocks detracted from this positive contribution
to relative performance. The Fund's worst performer during the period, lower-end
retailer KOHL'S CORPORATION, experienced sluggish sales and earnings trends
during the period, lagging the broader market. Cable and entertainment holdings
VIACOM, INC. and COX COMMUNICATIONS, INC. also declined as the cable industry
overall suffered during the period.
Newmont Mining Corporation was an additional notable detractor from relative
performance during the period.
In conclusion, we will continue to rely on our bottom-up growth investment
strategy to seek companies we believe are capable of posting strong future
revenue and earnings growth at attractive valuations.
/s/ John B. Jares
John B. Jares, CFA
Portfolio Manager
9
<Page>
STATEMENT OF INVESTMENTS
June 30, 2004 (UNAUDITED)
<Table>
<Caption>
SHARES MARKET VALUE
- ---------------------------------------------------------------------------------
COMMON STOCKS (DOMESTIC)--89.7%
Air Freight & Logistics--1.1%
30,775 FedEx Corporation $ 2,514,004
--------------
AIRLINES--1.3%
45,200 Northwest Airlines Corporation* 502,624
148,050 Southwest Airlines Company 2,482,799
--------------
2,985,423
--------------
ALUMINUM--1.0%
72,225 Alcoa, Inc. 2,385,592
--------------
APPLICATION SOFTWARE--1.3%
70,700 Autodesk, Inc. 3,026,667
--------------
ASSET MANAGEMENT & CUSTODY BANKS--0.5%
77,200 Janus Capital Group, Inc. 1,273,028
--------------
BIOTECHNOLOGY--1.1%
34,185 Amgen, Inc.* 1,865,475
10,700 Biogen Idec, Inc.* 676,775
--------------
2,542,250
--------------
BROADCASTING & CABLE TV--2.1%
100,450 Comcast Corporation Special Class A* 2,773,425
76,400 Cox Communications, Inc. Class A* 2,123,156
--------------
4,896,581
--------------
COMMUNICATIONS EQUIPMENT--5.3%
76,400 Avaya, Inc.* 1,206,356
279,738 Cisco Systems, Inc.* 6,629,791
22,950 Juniper Networks, Inc.* 563,882
116,075 Motorola, Inc. 2,118,369
52,350 Scientific-Atlanta, Inc. 1,806,075
--------------
12,324,473
--------------
COMPUTER & ELECTRONICS RETAIL--0.5%
21,549 Best Buy Company, Inc. 1,093,396
--------------
COMPUTER HARDWARE--3.8%
114,675 Apple Computer, Inc.* 3,731,525
34,750 Dell, Inc.* 1,244,745
44,700 International Business Machines Corporation 3,940,305
--------------
8,916,575
--------------
COMPUTER STORAGE & PERIPHERALS--0.8%
165,575 EMC Corporation* 1,887,555
--------------
CONSUMER FINANCE--0.6%
56,331 MBNA Corporation 1,452,776
--------------
DATA PROCESSING & OUTSOURCED SERVICES--2.2%
52,350 Automatic Data Processing, Inc. 2,192,418
73,025 Fiserv, Inc.* 2,839,942
--------------
5,032,360
--------------
</Table>
10
<Page>
<Table>
<Caption>
SHARES MARKET VALUE
- ---------------------------------------------------------------------------------
DEPARTMENT STORES--2.9%
107,100 Kohl's Corporation* $ 4,528,188
52,766 Nordstrom, Inc. 2,248,359
--------------
6,776,547
--------------
DIVERSIFIED BANKS--2.0%
56,800 Bank One Corporation 2,896,800
32,425 Wells Fargo & Company 1,855,683
--------------
4,752,483
--------------
ELECTRICAL COMPONENTS & EQUIPMENT--0.3%
9,675 Emerson Electric Company 614,846
--------------
EMPLOYMENT SERVICES--1.0%
26,475 Manpower, Inc. 1,344,136
42,625 Monster Worldwide, Inc.* 1,096,315
--------------
2,440,451
--------------
EXCHANGE TRADED FUNDS--4.6%
93,725 SPDR Trust Series 1 10,734,324
--------------
FOOD RETAIL--1.9%
138,350 Kroger Company* 2,517,970
73,175 Safeway, Inc.* 1,854,255
--------------
4,372,225
--------------
HEALTHCARE EQUIPMENT--1.3%
68,925 Boston Scientific Corporation* 2,949,990
--------------
HOME ENTERTAINMENT SOFTWARE--0.9%
38,650 Electronic Arts* 2,108,358
--------------
HOTELS, RESORTS & CRUISE LINES--2.4%
63,725 Carnival Corporation 2,995,075
59,025 Starwood Hotels & Resorts Worldwide, Inc. 2,647,271
--------------
5,642,346
--------------
HOUSEHOLD PRODUCTS--0.7%
31,400 Procter & Gamble Company 1,709,416
--------------
HYPERMARKETS & SUPER CENTERS--0.9%
41,775 Wal-Mart Stores, Inc. 2,204,049
--------------
INDUSTRIAL CONGLOMERATES--4.9%
16,850 3M Company 1,516,669
303,950 General Electric Company 9,847,980
--------------
11,364,649
--------------
INDUSTRIAL MACHINERY--0.7%
17,050 Illinois Tool Works, Inc. 1,634,925
--------------
INTEGRATED OIL & GAS--2.8%
149,966 Exxon Mobil Corporation 6,659,990
--------------
INTEGRATED TELECOMMUNICATION SERVICES--1.1%
68,075 Verizon Communications, Inc. 2,463,634
--------------
</Table>
SEE NOTES TO STATEMENT OF INVESTMENTS.
11
<Page>
<Table>
<Caption>
SHARES MARKET VALUE
- ---------------------------------------------------------------------------------
INVESTMENT BANKING & Brokerage--0.9%
42,075 Morgan Stanley $ 2,220,298
--------------
LEISURE FACILITIES--2.1%
111,975 Royal Caribbean Cruises Limited 4,860,835
--------------
LIFE & HEALTH INSURANCE--1.0%
54,825 AFLAC, Inc. 2,237,408
--------------
MOVIES & ENTERTAINMENT--4.9%
221,025 Time Warner, Inc.* 3,885,620
88,475 Viacom, Inc. Class B 3,160,327
169,050 Walt Disney Company 4,309,085
--------------
11,355,032
--------------
MULTI-LINE INSURANCE--1.7%
53,875 American International Group, Inc. 3,840,210
--------------
OTHER DIVERSIFIED FINANCIAL SERVICES--0.9%
46,849 Citigroup, Inc. 2,178,479
--------------
PERSONAL PRODUCTS--3.3%
68,750 Estee Lauder Companies, Inc. Class A 3,353,625
105,250 Gillette Company 4,462,600
--------------
7,816,225
--------------
PHARMACEUTICALS--6.0%
71,975 Abbott Laboratories 2,933,701
48,375 Johnson & Johnson 2,694,488
27,775 Merck & Company, Inc. 1,319,313
169,459 Pfizer, Inc. 5,809,055
31,300 Wyeth 1,131,808
--------------
13,888,365
--------------
PROPERTY & CASUALTY INSURANCE--0.8%
38,075 Allstate Corporation 1,772,391
--------------
PUBLISHING--1.6%
30,225 Gannett Company, Inc. 2,564,591
25,225 Tribune Company 1,148,747
--------------
3,713,338
--------------
RAILROADS--1.0%
39,175 Union Pacific Corporation 2,328,954
--------------
SEMICONDUCTORS--6.6%
22,025 Broadcom Corporation* 1,030,109
132,328 Intel Corporation 3,652,253
91,000 Linear Technology Corporation 3,591,770
72,025 Maxim Integrated Products, Inc. 3,775,551
49,875 Microchip Technology, Inc. 1,573,058
27,575 NVIDIA Corporation* 565,288
47,400 Texas Instruments, Inc. 1,146,132
--------------
15,334,161
--------------
</Table>
12
<Page>
<Table>
<Caption>
SHARES MARKET VALUE
- ---------------------------------------------------------------------------------
SOFT DRINKS--1.0%
47,400 Coca-Cola Company $ 2,392,752
--------------
SPECIALTY STORES--0.8%
48,400 Staples, Inc. 1,418,604
14,050 Weight Watchers International, Inc.* 549,917
--------------
1,968,521
--------------
SYSTEMS SOFTWARE--5.3%
36,025 Adobe Systems, Inc. 1,675,163
276,266 Microsoft Corporation 7,890,157
147,825 Oracle Corporation* 1,763,552
41,550 VERITAS Software Corporation* 1,150,935
--------------
12,479,807
--------------
THRIFTS & MORTGAGE FINANCE--1.5%
33,825 Countrywide Financial Corporation 2,376,206
26,825 The PMI Group, Inc. 1,167,424
--------------
3,543,630
--------------
TRADING COMPANIES & DISTRIBUTORS--0.3%
12,800 Fastenal Company 727,424
--------------
TOTAL COMMON STOCKS (DOMESTIC)
(COST--$195,096,723) 209,416,743
--------------
COMMON STOCKS (FOREIGN)--5.1%
APPLICATION SOFTWARE--2.1%
26,700 Amdocs Limited (CI)* 625,581
99,850 SAP AG Sponsored ADR (GE) 4,174,729
--------------
4,800,310
--------------
IT CONSULTING & OTHER SERVICES--1.7%
141,525 Accenture Limited Class A (BD)* 3,889,107
--------------
PHARMACEUTICALS--1.0%
36,900 Teva Pharmaceutical Industries Limited
Sponsored ADR (IS) 2,483,001
--------------
RAILROADS--0.3%
15,512 Canadian National Railway Company (CA) 676,168
--------------
TOTAL COMMON STOCKS (FOREIGN)
(COST--$9,156,157) 11,848,586
--------------
</Table>
SEE NOTES TO STATEMENT OF INVESTMENTS.
13
<Page>
<Table>
<Caption>
PRINCIPAL AMOUNT AMORTIZED COST
- ---------------------------------------------------------------------------------
CORPORATE SHORT-TERM NOTES--5.2%
OTHER DIVERSIFIED FINANCIAL SERVICES--5.2%
$5,100,000 American Express Company
1.25% 7/2/04 $ 5,099,823
7,000,000 Merrill Lynch & Company
1.45% 7/1/04 7,000,000
--------------
12,099,823
--------------
TOTAL CORPORATE SHORT-TERM NOTES
(AMORTIZED COST--$12,099,823) 12,099,823
--------------
TOTAL INVESTMENTS--100.0%
(TOTAL COST--$216,352,703) 233,365,152
--------------
OTHER ASSETS AND LIABILITIES--(0.0%) (14,413)
--------------
NET ASSETS--100.0% $ 233,350,739
==============
</Table>
NOTES TO STATEMENT OF INVESTMENTS
* NON-INCOME PRODUCING.
ADR - AMERICAN DEPOSITARY RECEIPT
SPDR - STANDARD AND POOR'S DEPOSITARY RECEIPT
BD - BERMUDA
CA - CANADA
CI - CHANNEL ISLANDS
GE - GERMANY
IS - ISRAEL
14
<Page>
STATEMENT OF ASSETS AND LIABILITIES
June 30, 2004 (UNAUDITED)
<Table>
ASSETS
Investment securities, at cost $ 216,352,703
---------------
Investment securities, at market 233,365,152
Cash 652,903
Receivables:
Capital shares sold 20,352
Dividends 179,598
From transfer agent 31
Other 4,632
---------------
Total Assets 234,222,668
---------------
LIABILITIES
Payables and other accrued liabilities:
Investment securities purchased 566,571
Capital shares redeemed 76,966
Advisory fees 123,480
Shareholder servicing fees 26,545
Accounting fees 11,398
Distribution fees 11,845
Transfer agency fees 3,271
Custodian fees 1,172
Other 50,681
---------------
Total Liabilities 871,929
---------------
Net Assets $ 233,350,739
===============
COMPOSITION OF NET ASSETS
Capital (par value and paid-in surplus) $ 324,221,248
Undistributed net investment income 402,448
Accumulated net realized loss from security transactions (108,285,406)
Net unrealized appreciation on investments 17,012,449
---------------
Total $ 233,350,739
===============
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
15
<Page>
<Table>
CLASS A
Net Assets $ 1,073,981
Shares Outstanding 234,678
Net Asset Value, Redemption Price Per Share $ 4.58
Maximum offering price per share (net asset value
plus sales charge of 5.75% of offering price) $ 4.86
CLASS B
Net Assets $ 2,263,279
Shares Outstanding 506,095
Net Asset Value, Offering and Redemption Price (excluding
applicable contingent deferred sales charge) Per Share $ 4.47
CLASS C
Net Assets $ 402,510
Shares Outstanding 91,708
Net Asset Value, Offering and Redemption Price (excluding
applicable contingent deferred sales charge) Per Share $ 4.39
CLASS F
Net Assets $ 229,284,105
Shares Outstanding 49,069,488
Net Asset Value, Offering and Redemption Price Per Share $ 4.67
CLASS R
Net Assets $ 296,709
Shares Outstanding 64,084
Net Asset Value, Offering and Redemption Price Per Share $ 4.63
CLASS T
Net Assets $ 30,155
Shares Outstanding 6,774
Net Asset Value, Redemption Price Per Share $ 4.45
Maximum offering price per share (net asset value
plus sales charge of 4.50% of offering price) $ 4.66
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
16
<Page>
STATEMENT OF OPERATIONS
For the six months ended June 30, 2004 (unaudited)
<Table>
INVESTMENT INCOME
Dividends $ 1,432,087
Interest 92,233
Foreign taxes withheld (9,741)
---------------
Total Investment Income 1,514,579
---------------
EXPENSES
Advisory fees--Note 2 758,468
Shareholder servicing fees--Note 2 140,747
Accounting fees--Note 2 70,012
Distribution fees--Note 2 63,073
Transfer agency fees--Note 2 46,997
Registration fees 23,179
Postage and mailing expenses 11,330
Custodian fees and expenses--Note 2 3,485
Printing expenses 17,922
Legal and audit fees 20,985
Directors' fees and expenses--Note 2 23,979
Other expenses 13,910
---------------
Total Expenses 1,194,087
Earnings Credits (1,351)
Reimbursed/Waived Expenses (746)
---------------
Net Expenses 1,191,990
---------------
Net Investment Income 322,589
---------------
REALIZED AND UNREALIZED GAIN (LOSS) ON SECURITY
TRANSACTIONS AND FOREIGN CURRENCY TRANSACTIONS
Net Realized Gain on Security Transactions 16,915,961
Net Change in Unrealized Appreciation/Depreciation of Investments (12,303,704)
---------------
Net Realized and Unrealized Gain 4,612,257
---------------
Net Increase in Net Assets Resulting from Operations $ 4,934,846
===============
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
17
<Page>
STATEMENTS OF CHANGES IN NET ASSETS
(UNAUDITED)
<Table>
<Caption>
SIX MONTHS ENDED YEAR ENDED
6/30/04 12/31/03
OPERATIONS
Net Investment Income $ 322,589 $ 103,107
Net Realized Gain on Security Transactions 16,915,961 8,677,330
Net Change in Unrealized Appreciation/Depreciation of
Investments (12,303,704) 48,238,272
--------------- ---------------
Net Increase in Net Assets Resulting from Operations 4,934,846 57,018,709
--------------- ---------------
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS
From Net Investment Income
Class F 0 (183,602)
--------------- ---------------
Net Decrease from Dividends and Distributions 0 (183,602)
--------------- ---------------
CAPITAL SHARE TRANSACTIONS
Net Increase (Decrease)--Note 4
Class A 121,047 408,018
Class B 512,516 407,646
Class C 39,442 121,020
Class F (8,914,299) (14,678,661)
Class R 81,748 127,592
Class T 0 (12,373)
--------------- ---------------
Net Decrease from Capital Share Transactions (8,159,546) (13,626,758)
--------------- ---------------
Net Increase (Decrease) in Net Assets (3,224,700) 43,208,349
NET ASSETS
Beginning of period $ 236,575,439 $ 193,367,090
--------------- ---------------
End of period $ 233,350,739 $ 236,575,439
=============== ===============
Undistributed Net Investment Income $ 402,448 $ 79,859
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
18
<Page>
FINANCIAL HIGHLIGHTS
(UNAUDITED)
<Table>
<Caption>
SIX MONTHS YEAR ENDED
ENDED JUNE 30, DECEMBER 31,
2004 2003 2002 2001 2000
-------------- -------------------------------------------
CLASS A SHARES
PER SHARE OPERATING DATA
Net Asset Value, beginning of period $ 4.49 $ 3.44 $ 4.66 $ 5.73 $ 7.61
- --------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) 0.01 0.03 (0.02) (0.07) 0.00+
Net realized and unrealized gains
(losses) on securities 0.08 1.02 (1.20) (1.00) (1.45)
----------------------------------------------------------
Total from investment operations 0.09 1.05 (1.22) (1.07) (1.45)
- --------------------------------------------------------------------------------------------------------------
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 0.00^ (0.43)
----------------------------------------------------------
Total distributions 0.00 0.00 0.00 0.00 (0.43)
- --------------------------------------------------------------------------------------------------------------
Net Asset Value, end of period $ 4.58 $ 4.49 $ 3.44 $ 4.66 $ 5.73
==========================================================
TOTAL RETURN* 2.00% 30.52% (26.18%) (18.65%) (19.04%)
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000s) $ 1,074 $ 935 $ 378 $ 442 $ 318
Ratios to average net assets:
Expenses with reimbursements,
but no earnings credits# 1.21%** 1.49% 1.87% 2.98% 1.06%
Expenses with reimbursements
and earnings credits 1.21%** 1.48% 1.87% 2.98% 1.01%
Net investment income (loss) 0.12%** (0.25%) (0.67%) (1.82%) (0.03%)
- --------------------------------------------------------------------------------------------------------------
Portfolio turnover rate@ 123% 123% 152% 144% 165%
</Table>
+ NET INVESTMENT INCOME FOR THE YEAR ENDED DECEMBER 31, 2000 AGGREGATED LESS
THAN $0.01 ON A PER SHARE BASIS.
^ DISTRIBUTIONS FROM NET REALIZED GAINS FOR THE YEAR ENDED DECEMBER 31, 2001
AGGREGATED LESS THAN $0.01 ON A PER SHARE BASIS.
* SALES CHARGES ARE NOT REFLECTED IN THE TOTAL RETURN.
** ANNUALIZED.
# CERTAIN FEES WERE WAIVED BY THE CUSTODIAN. THESE WAIVERS DID NOT HAVE AN
IMPACT ON THE EXPENSE RATIOS.
@ 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>
<Table>
<Caption>
SIX MONTHS YEAR ENDED
ENDED JUNE 30, DECEMBER 31,
2004 2003 2002 2001 2000
-------------- ---------------------------------------------------
CLASS B SHARES
PER SHARE OPERATING DATA
Net Asset Value, beginning of period $ 4.40 $ 3.40 $ 4.61 $ 5.65 $ 7.61
- -------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment loss (0.01)+ (0.01) (0.05) (0.04) (0.02)
Net realized and unrealized gains
(losses) on securities 0.08 1.01 (1.16) (1.00) (1.51)
--------------------------------------------------------------------
Total from investment operations 0.07 1.00 (1.21) (1.04) (1.53)
- -------------------------------------------------------------------------------------------------------------------
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 0.00^ (0.43)
--------------------------------------------------------------------
Total distributions 0.00 0.00 0.00 0.00 (0.43)
- -------------------------------------------------------------------------------------------------------------------
Net Asset Value, end of period $ 4.47 $ 4.40 $ 3.40 $ 4.61 $ 5.65
====================================================================
TOTAL RETURN* 1.59% 29.41% (26.25%) (18.38%) (20.09%)
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000s) $ 2,263 $ 1,709 $ 1,013 $ 1,599 $ 1,170
Ratios to average net assets:
Expenses with reimbursements,
but no earnings credits# 1.99%** 2.30% 2.14% 2.20% 1.80%
Expenses with reimbursements
and earnings credits 1.99%** 2.30% 2.14% 2.19% 1.76%
Net investment loss (0.64%)** (1.08%) (0.95%) (1.03%) (0.88%)
- -------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate@ 123% 123% 152% 144% 165%
</Table>
+ COMPUTED USING AVERGE SHARES OUTSTANDING THROUGHOUT THE PERIOD.
^ DISTRIBUTIONS FROM NET REALIZED GAINS FOR THE YEAR ENDED DECEMBER 31, 2001
AGGREGATED LESS THAN $0.01 ON A PER SHARE BASIS.
* SALES CHARGES ARE NOT REFLECTED IN THE TOTAL RETURN.
** ANNUALIZED.
# CERTAIN FEES WERE WAIVED BY THE CUSTODIAN. THESE WAIVERS DID NOT HAVE AN
IMPACT ON THE EXPENSE RATIOS.
@ 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>
<Table>
<Caption>
SIX MONTHS YEAR ENDED
ENDED JUNE 30, DECEMBER 31,
2004 2003 2002 2001 2000
-------------- ---------------------------------------------------
CLASS C SHARES
PER SHARE OPERATING DATA
Net Asset Value, beginning of period $ 4.32 $ 3.34 $ 4.55 $ 5.66 $ 7.61
- -------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.01)+ 0.04 (0.07) (0.13) (0.01)
Net realized and unrealized gains
(losses) on securities 0.08 0.94 (1.14) (0.98) (1.51)
--------------------------------------------------------------------
Total from investment operations 0.07 0.98 (1.21) (1.11) (1.52)
- -------------------------------------------------------------------------------------------------------------------
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 0.00^ (0.43)
--------------------------------------------------------------------
Total distributions 0.00 0.00 0.00 0.00 (0.43)
- -------------------------------------------------------------------------------------------------------------------
Net Asset Value, end of period $ 4.39 $ 4.32 $ 3.34 $ 4.55 $ 5.66
====================================================================
TOTAL RETURN* 1.62% 29.34% (26.59%) (19.58%) (19.96%)
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000s) $ 403 $ 357 $ 186 $ 270 $ 343
Ratios to average net assets:
Expenses with reimbursements,
but no earnings credits# 1.98%** 2.29% 2.77% 3.17% 1.84%
Expenses with reimbursements
and earnings credits 1.98%** 2.28% 2.76% 3.16% 1.75%
Net investment loss (0.67%)** (1.04%) (1.55%) (2.01%) (0.83%)
- -------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate @ 123% 123% 152% 144% 165%
</Table>
+ COMPUTED USING AVERAGE SHARES OUTSTANDING THROUGHOUT THE PERIOD.
^ DISTRIBUTIONS FROM NET REALIZED GAINS FOR THE YEAR ENDED DECEMBER 31, 2001
AGGREGATED LESS THAN $0.01 ON A PER SHARE BASIS.
* SALES CHARGES ARE NOT REFLECTED IN THE TOTAL RETURN.
** ANNUALIZED.
# CERTAIN FEES WERE REIMBURSED OR WAIVED BY THE MANAGEMENT COMPANY OR ITS
AFFILIATES. HAD THESE FEES NOT BEEN REIMBURSED OR WAIVED, THE EXPENSE RATIOS
WOULD HAVE BEEN 1.98% (2004), 2.29% (2003), 3.02% (2002), 3.56% (2001), AND
1.84% (2000).
@ 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>
<Table>
<Caption>
SIX MONTHS YEAR ENDED
ENDED JUNE 30, DECEMBER 31,
2004 2003 2002 2001 2000 1999
-------------- ---------------------------------------------------------------------
CLASS F SHARES
PER SHARE OPERATING DATA
Net Asset Value, beginning of period $ 4.57 $ 3.50 $ 4.69 $ 5.69 $ 7.61 $ 7.32
- ---------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) 0.01 0.00+ 0.00+ 0.00+ (0.02) (0.00)+
Net realized and unrealized gains
(losses) on securities 0.09 1.07 (1.19) (1.00) (1.47) 1.06
-------------------------------------------------------------------------------------
Total from investment operations 0.10 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 0.00
From net realized gains 0.00 0.00 0.00 0.00^ (0.43) (0.77)
-------------------------------------------------------------------------------------
Total distributions 0.00 0.00 0.00 0.00 (0.43) (0.77)
- ---------------------------------------------------------------------------------------------------------------------------------
Net Asset Value, end of period $ 4.67 $ 4.57 $ 3.50 $ 4.69 $ 5.69 $ 7.61
=====================================================================================
TOTAL RETURN 2.19% 30.67% (25.33%) (17.55%) (19.57%) 15.03%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000s) $ 229,284 $ 233,333 $ 191,701 $ 288,752 $ 385,816 $ 535,035
Ratios to average net assets:
Expenses with reimbursements,
but no earnings credits# 1.01%** 1.13% 1.08% 1.14% 1.12% 1.13%
Expenses with reimbursements
and earnings credits 1.01%** 1.13% 1.08% 1.14% 1.10% 1.12%
Net investment income (loss) 0.29%** 0.06% 0.11% 0.02% (0.24%) (0.05%)
- ---------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate@ 123% 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.
** ANNUALIZED.
# CERTAIN FEES WERE WAIVED BY THE CUSTODIAN. THESE WAIVERS DID NOT HAVE AN
IMPACT ON THE EXPENSE RATIOS.
@ 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>
<Table>
<Caption>
SIX MONTHS YEAR ENDED
ENDED JUNE 30, DECEMBER 31,
2004 2003 2002 2001 2000
-------------- ---------------------------------------------------
CLASS R SHARES
PER SHARE OPERATING DATA
Net Asset Value, beginning of period $ 4.53 $ 3.47 $ 4.74 $ 5.74 $ 7.61
- --------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) 0.02 0.06 (0.08) (0.01) 0.00+
Net realized and unrealized gains
(losses) on securities 0.08 1.00 (1.19) (0.99) (1.44)
-------------------------------------------------------------------
Total from investment operations 0.10 1.06 (1.27) (1.00) (1.44)
- --------------------------------------------------------------------------------------------------------------
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 0.00^ (0.43)
-------------------------------------------------------------------
Total distributions 0.00 0.00 0.00 0.00 (0.43)
- --------------------------------------------------------------------------------------------------------------
Net Asset Value, end of period $ 4.63 $ 4.53 $ 3.47 $ 4.74 $ 5.74
===================================================================
TOTAL RETURN 2.21% 30.55% (26.79%) (17.39%) (18.91%)
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000s) $ 297 $ 211 $ 57 $ 51 $ 1
Ratios to average net assets:
Expenses with reimbursements,
but no earnings credits# 0.98%** 1.35% 2.95% 2.73% 0.79%
Expenses with reimbursements
and earnings credits 0.97%** 1.35% 2.95% 2.72% 0.76%
Net investment income (loss) 0.35%** (0.12%) (1.78%) (1.68%) 0.01%
- --------------------------------------------------------------------------------------------------------------
Portfolio turnover rate@ 123% 123% 152% 144% 165%
</Table>
+ NET INVESTMENT INCOME FOR THE YEAR ENDED DECEMBER 31, 2000 AGGREGATED LESS
THAN $0.01 ON A PER SHARE BASIS.
^ DISTRIBUTIONS FROM NET REALIZED GAINS FOR THE YEAR ENDED DECEMBER 31, 2001
AGGREGATED LESS THAN $0.01 ON A PER SHARE BASIS.
** ANNUALIZED.
# CERTAIN FEES WERE REIMBURSED OR WAIVED BY THE MANAGEMENT COMPANY OR ITS
AFFILIATES. HAD THESE FEES NOT BEEN REIMBURSED OR WAIVED, THE EXPENSE RATIOS
WOULD HAVE BEEN 0.98% (2004), 1.35% (2003), 4.68% (2002), 82.23% (2001), AND
0.79% (2000).
@ 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>
<Table>
<Caption>
SIX MONTHS YEAR ENDED
ENDED JUNE 30, DECEMBER 31,
2004 2003 2002 2001 2000
-------------- ---------------------------------------------------
CLASS T SHARES
PER SHARE OPERATING DATA
Net Asset Value, beginning of period $ 4.38 $ 3.39 $ 4.60 $ 5.68 $ 7.61
- --------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment loss (0.01) (0.23) (0.30) (0.09) (0.01)
Net realized and unrealized gains
(losses) on securities 0.08 1.22 (0.91) (0.99) (1.49)
-------------------------------------------------------------------
Total from investment operations 0.07 0.99 (1.21) (1.08) (1.50)
- --------------------------------------------------------------------------------------------------------------
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 0.00^ (0.43)
-------------------------------------------------------------------
Total distributions 0.00 0.00 0.00 0.00 (0.43)
- --------------------------------------------------------------------------------------------------------------
Net Asset Value, end of period $ 4.45 $ 4.38 $ 3.39 $ 4.60 $ 5.68
===================================================================
TOTAL RETURN* 1.60% 29.20% (26.30%) (18.99%) (19.69%)
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000s) $ 30 $ 30 $ 33 $ 127 $ 82
Ratios to average net assets:
Expenses with reimbursements,
but no earnings credits# 1.71%** 2.27% 2.47% 3.14% 1.28%
Expenses with reimbursements
and earnings credits 1.71%** 2.26% 2.46% 3.13% 1.25%
Net investment loss (0.44%)** (1.11%) (1.29%) (1.96%) (0.40%)
- --------------------------------------------------------------------------------------------------------------
Portfolio turnover rate@ 123% 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.
** ANNUALIZED.
# CERTAIN FEES WERE REIMBURSED OR WAIVED BY THE MANAGEMENT COMPANY OR ITS
AFFILIATES. HAD THESE FEES NOT BEEN REIMBURSED OR WAIVED, THE EXPENSE RATIOS
WOULD HAVE BEEN 1.71% (2004), 2.27% (2003), 3.71% (2002), 6.32% (2001), AND
1.28% (2000).
@ PORTFOLIO TURNOVER RATE IS A MEASURE OF PORTFOLIO ACTIVITY THAT IS CALCULATED
BY DIVIDING THE LESSER OF PURCHASES OR SALES OF SECURITIES, EXCLUDING
SECURITIES HAVING MATURITY DATES AT ACQUISITION OF ONE YEAR OR LESS, BY THE
AVERAGE VALUE OF THE PORTFOLIO SECURITIES HELD DURING THE PERIOD, WHICH IS A
ROLLING 12-MONTH PERIOD.
SEE NOTES TO FINANCIAL STATEMENTS.
24
<Page>
NOTES TO FINANCIAL STATEMENTS
June 30, 2004 (UNAUDITED)
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
Dreyfus Founders Funds, Inc. (the "Company") is an open-end management
investment company registered under the Investment Company Act of 1940 (the
"1940 Act"). 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--A domestic 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 a
security traded on Nasdaq, at its official closing price. Lacking any sales on
that day, the security is valued at the current closing bid price, or by quotes
from dealers making a market in the security if the closing bid price is not
available, or in the case of written call options, at the mean between the
highest bid and lowest asked quotations obtained from at least two securities
dealers.
A foreign equity security traded on a foreign exchange is valued at the last
quoted official closing price available before the time when the Fund's assets
are valued, or at the last quoted sales price if the exchange does not provide
an official closing price or if the foreign market has not yet closed. Lacking
any sales on that day, the security is valued at the current closing bid price,
or by quotes from dealers making a market in the security if the closing bid
price is not available. London closing exchange rates are used to convert
foreign currencies to U.S. dollars.
A debt security with a remaining maturity greater than 60 days at the time of
purchase is valued in accordance with the evaluated bid price supplied by a
pricing service approved by the Company's board of directors or, if such price
is not available, at the mean between the highest bid and lowest asked
quotations obtained from at least two securities dealers. A debt security with a
remaining maturity of 60 days or less at the time of purchase is valued at
amortized cost, which approximates market value, unless it is determined that
amortized cost would not represent market value, in which case the securities
would be marked to market. The Fund amortizes premiums and discounts on all debt
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
25
<Page>
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.
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.
26
<Page>
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, if
any, reduce Other Expenses and would be 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.
SHAREHOLDER SERVICING AND TRANSFER AGENCY FEES FOR CLASS F SHARES--The Company
has a shareholder services agreement with Dreyfus Service Corporation ("DSC"),
the direct owner of Founders and 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. 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. During the six months ended June 30,
2004, Class F shares were charged $136,533 pursuant to this shareholder services
agreement.
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
27
<Page>
charges, the fees charged by DTI with respect to the Fund's Class F shares are
paid by DSC. The out-of-pocket charges incurred by DTI are paid by the Fund.
During the six months ended June 30, 2004, Class F shares were charged $36,172
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 $12.43 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 six months ended June
30, 2004 were as follows:
<Table>
<Caption>
TRANSFER
AGENCY FEES
----------------------------------------------------------------
Class A $ 761
Class B $ 1,615
Class C $ 319
Class R $ 228
Class T $ 63
</Table>
Certain as-of shareholder transactions may result in gains or losses to the
Fund. Depending on the circumstances, these gains may be payable to, or
reimbursable from, the transfer agent; such gains and losses are presented on
the Statement of Assets and Liabilities.
DISTRIBUTION AND SHAREHOLDER SERVICES PLANS--DSC also is the distributor of the
Fund's shares. The Fund has adopted a Distribution Plan pursuant to Rule 12b-1
under the 1940 Act 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 six months ended June
30, 2004, Class F shares were charged $54,460 pursuant to this Distribution
Plan.
The Fund also has adopted a Distribution Plan pursuant to Rule 12b-1 under the
1940 Act 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.
28
<Page>
Distribution and shareholder servicing fees paid to DSC by the Fund's Class A,
B, C and T shares for the six months ended June 30, 2004, were as follows:
<Table>
<Caption>
DISTRIBUTION SHAREHOLDER
FEES SERVICING FEES
----------------------------------------------------------------
Class A N/A $ 1,317
Class B $ 7,137 $ 2,379
Class C $ 1,438 $ 480
Class T $ 38 $ 38
</Table>
During the six months ended June 30, 2004, DSC retained $1,705 in sales
commissions from the sales of Class A shares. DSC also retained $6,347 and $580
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 and an affiliate of Founders, 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
----------------------------------------------------------------
9/1/03 to 8/31/04 $ 150,000
9/1/04 to 8/31/05 $ 200,000
9/1/05 to 8/31/06 $ 200,000
</Table>
The fee waiver is allocated among the Funds in proportion to their respective
shares of the total custodian fee. For the six months ended June 30, 2004, the
Fund's portion of the fee waiver was $746. 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
29
<Page>
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.
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.
The aggregate cost of investments and the composition of unrealized appreciation
and depreciation of investment securities for federal income tax purposes as of
June 30, 2004 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 $ 220,772,870
Gross Tax Appreciation of Investments $ 20,191,991
Gross Tax Depreciation of Investments $ (7,599,709)
Net Tax Appreciation $ 12,592,282
</Table>
30
<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>
SIX MONTHS ENDED YEAR ENDED
JUNE 30, 2004 DECEMBER 31, 2004
SHARES AMOUNT SHARES AMOUNT
CLASS A
Sold 88,873 $ 404,107 127,097 $ 521,827
Redeemed (62,761) $ (283,060) (28,494) $ (113,809)
----------------------------------------------------------
Net Increase 26,112 $ 121,047 98,603 $ 408,018
==========================================================
CLASS B
Sold 156,501 $ 682,847 164,031 $ 669,282
Redeemed (38,929) $ (170,331) (73,231) $ (261,636)
----------------------------------------------------------
Net Increase 117,572 $ 512,516 90,800 $ 407,646
==========================================================
CLASS C
Sold 25,581 $ 111,883 55,885 $ 224,519
Redeemed (16,522) $ (72,441) (28,811) $ (103,499)
----------------------------------------------------------
Net Increase 9,059 $ 39,442 27,074 $ 121,020
==========================================================
CLASS F
Sold 601,015 $ 2,787,817 1,278,819 $ 5,147,869
Dividends or Distributions Reinvested 0 $ 0 34,819 $ 159,122
Redeemed (2,533,712) $ (11,702,116) (5,079,072) $ (19,985,652)
----------------------------------------------------------
Net Decrease (1,932,697) $ (8,914,299) (3,765,434) $ (14,678,661)
==========================================================
CLASS R
Sold 25,525 $ 118,058 70,118 $ 283,426
Redeemed (8,026) $ (36,310) (39,808) $ (155,834)
----------------------------------------------------------
Net Increase 17,499 $ 81,748 30,310 $ 127,592
==========================================================
CLASS T
Sold 4 $ 17 709 $ 2,660
Redeemed (4) $ (17) (3,604) $ (15,033)
----------------------------------------------------------
Net Increase (Decrease) 0 $ 0 (2,895) $ (12,373)
==========================================================
</Table>
31
<Page>
5. INVESTMENT TRANSACTIONS
Purchases and sales of investment securities (excluding short-term securities
and U.S. government obligations) for the six months ended June 30, 2004 were
$123,131,706 and $121,666,861, 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 June 30, 2004, the Fund did not have any borrowings under the LOC.
7. LEGAL MATTERS
Two class actions have been filed against Mellon Financial Corporation and
Mellon Bank, N.A.; Dreyfus and Founders (the "Investment Advisers"); and the
directors of all or substantially all of the Dreyfus and Dreyfus Founders Funds.
The complaints also name all or substantially all of the Dreyfus and Dreyfus
Founders Funds as nominal defendants. Plaintiffs allege that the Investment
Advisers improperly used assets of the Dreyfus and Dreyfus Founders Funds, in
the form of directed brokerage commissions and 12b-1 fees, to pay brokers to
promote sales of Dreyfus and Dreyfus Founders Funds, and that the use of fund
assets to make these payments was not properly disclosed to investors.
Plaintiffs claim that the Investment Advisers' actions violated the 1940 Act,
the Investment Advisers Act, and common law. The complaints further allege that
the directors breached their fiduciary duties to fund shareholders under the
1940 Act and at common law and that Mellon Financial and Mellon Bank violated
the 1940 Act. The complaints seek unspecified compensatory and punitive damages,
rescission of the funds' contracts with the Investment Advisers, an accounting
of all fees paid, and an award of attorneys' fees and litigation expenses. The
complaints are pending in the same court and have been consolidated into a
single action under the caption IN RE DREYFUS MUTUAL FUNDS FEE LITIGATION.
Founders, Dreyfus, and the Funds believe the allegations in these lawsuits to be
totally without merit and intend to defend the actions vigorously. It is
possible that additional lawsuits arising out of these circumstances and
presenting similar allegations and requests for relief may be filed against the
defendants in the future. Neither Founders, Dreyfus, nor the Funds believe that
the pending actions will have a material adverse effect on the Funds or
Founders' ability to perform its contract with the Funds.
32
<Page>
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<Page>
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<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
PROXY VOTING INFORMATION
A description of the policies and procedures that the Fund uses to determine how
to vote proxies relating to portfolio securities, and information regarding how
the Fund voted these proxies for the 12-month period ended June 30, 2004, is
available through the Fund's website at www.founders.com and on the Securities
and Exchange Commission's website at www.sec.gov. The description of the
policies and procedures is also available without charge, upon request, by
calling 1-800-525-2440.
THIS REPORT AND THE STATEMENTS IT CONTAINS ARE SUBMITTED FOR THE GENERAL
INFORMATION OF OUR SHAREHOLDERS. THE REPORT IS NOT AUTHORIZED FOR DISTRIBUTION
TO PROSPECTIVE INVESTORS UNLESS PRECEDED OR ACCOMPANIED BY AN EFFECTIVE
PROSPECTUS.
Dreyfus Service Corporation, Distributor.
(C) 2004 Founders Asset Management LLC. 8/04
A-636-GI-04
<Page>
[GRAPHIC]
SEMIANNUAL REPORT
DREYFUS FOUNDERS
INTERNATIONAL EQUITY FUND
INVESTMENT UPDATE
JUNE 30, 2004
[DREYFUS FOUNDERS FUNDS(R) 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
</Table>
PAPERLESS DELIVERY OF THIS REPORT
[GRAPHIC]
Did you know you can reduce your postal mail by accessing Dreyfus Founders Funds
regulatory material online? It's a simple, reliable process: when new documents
such as this Semiannual Report are available, we'll send you an e-mail
notification containing a convenient link that will take you directly to that
Fund information on our website. To take advantage of this service, simply
inform us online of your decision to receive materials through the Founders
E-Communications Program. Cut down on mailbox clutter and help the Fund reduce
printing and postage charges by enrolling today at
www.founders.com/ecommunications. If you own Funds through a third party, enroll
at www.icsdelivery.com.
The views expressed herein are current to the date of this report. The views and
the composition of the Fund's portfolio are subject to change at any time based
on market and other conditions. Companies appearing in bold print on pages 3-9
were owned by the Fund on June 30, 2004. The amounts of these holdings are
included in the Statement of Investments.
NOT FDIC-INSURED - NOT BANK-GUARANTEED - MAY LOSE VALUE
<Page>
MANAGEMENT OVERVIEW
[PHOTO OF REMI J. BROWNE, DANIEL B. LEVAN AND JEFFREY R. SULLIVAN]
A DISCUSSION WITH CO-PORTFOLIO MANAGERS REMI J. BROWNE, CFA, LEFT; DANIEL B.
LEVAN, CFA, MIDDLE; AND JEFFREY R. SULLIVAN, CFA, RIGHT
HOW DID THE FUND PERFORM RELATIVE TO ITS BENCHMARK IN THE SIX MONTHS ENDED JUNE
30, 2004?
Dreyfus Founders International Equity Fund's performance(1) compared favorably
to the Fund's benchmark, the Morgan Stanley Capital International (MSCI) World
ex U.S. Index, which posted a 4.34% return for the first six months of 2004.
WHAT DYNAMICS AFFECTED INTERNATIONAL LARGE-CAPITALIZATION INVESTING DURING THE
PERIOD?
The global markets got off to a great start in 2004 as the Japanese economic
recovery became broader than expected, China continued to experience significant
growth across all economic sectors, and the U.S. economy expanded at a 4% clip
during the first quarter. However, as the second quarter came to a close, the
market's perception shifted from the strong growth environment to concerns about
higher global inflation, higher oil prices and rising interest rates. The fear
of the Chinese governmental policies slowing growth also weighed heavily on
investors. While the first quarter experienced very strong returns, the second
quarter ended just slightly positive.
(1) Excluding sales charges, which result in lower returns for certain share
classes. Please see page 7 for Average Annual and Year-to-Date Total Returns for
all share classes, including and excluding sales charges.
[SIDENOTE]
"THE FUND BENEFITED FROM GOOD GROWTH OPPORTUNITIES IN SOME TRADITIONALLY
DEFENSIVE SECTORS; THE ENERGY, UTILITIES AND CONSUMER STAPLES SECTORS OF THE
FUND ALL POSSESSED STRONG-PERFORMING STOCKS."
3
<Page>
WHAT FACTORS POSITIVELY CONTRIBUTED TO THE FUND'S RELATIVE PERFORMANCE DURING
THE PERIOD?
The largest positive impact on a country basis to relative Fund performance was
found in Germany. A slight overweighting coupled with strong stock selection
propelled the Fund's performance in this geographical area. In Spain, the Fund's
strong stock selection and slight underweight position relative to its benchmark
also buoyed performance. The Fund also experienced positive relative performance
in Canada due to strong performance by nearly every Canadian stock in which the
Fund was invested.
Sector allocation and stock selection were both important positive
contributors to the Fund's relative return for the first half of 2004.
Surprisingly, the Fund benefited from good growth opportunities in some
traditionally defensive sectors; the energy, utilities and consumer staples
sectors of the Fund all possessed strong-performing stocks during the period.
The Fund's positions in the energy sector exhibited the strongest
performance. This was primarily attributable to the increase in energy prices
during the period, as well as the specific performance of select individual
issues. One stock that added significant value to the Fund was U.K.-based Cairn
Energy PLC. Cairn had two major oil discoveries during the first quarter in the
Rajasthan region
[SIDENOTE]
PERFORMANCE HIGHLIGHTS
- - As the second quarter came to a close, the market's perception shifted from
the strong growth environment to concerns about higher global inflation,
higher oil prices and rising interest rates.
- - The largest positive impact on a country basis to relative Fund performance
was found in Germany.
- - The Fund's positions in the energy sector exhibited the strongest
performance. This was primarily attributable to the increase in energy prices
during the period, as well as the specific performance of select individual
issues.
- - The information technology sector was the most underachieving sector in the
Fund on a relative basis.
- - Competition within the telecommunications services sector has led to price
wars and subsequent margin erosion in the wireless industries in both Europe
and Japan.
4
<Page>
of India, which significantly increased the company's production profile. The
stock rallied 125% in the first quarter, at which time the Fund liquidated its
position in the company.
Strong stock selection in the healthcare sector also aided relative
performance, with such names as MERCK KGaA contributing to the Fund's return for
the period. The pharma-chemical company received approval for a new colon cancer
drug during the second quarter for use in Europe, and its liquid crystal
business benefited from strong demand from the liquid crystal display (LCD)
market.
The Fund's position in the consumer staples sector proved beneficial during
the period, as several stocks in this sector experienced price appreciation. Two
Japanese names, KIRIN BEVERAGE CORPORATION and ASAHI BREWERIES LIMITED,
contributed positively to relative performance, with Kirin returning over 30%
and Asahi up nearly 21% by the end of the period. Both stocks enjoyed a consumer
spending recovery in Japan after several years of quiet activity.
The utilities sector presented opportunities for the Fund, and the sector as
a whole was the best performer of all economic sectors in the Index during the
period. One of the Fund's holdings in this sector, Finnish electric utility
company FORTUM OYJ, has done well as Nordic power prices have strongly increased
and better refining margins have delivered growth to the company's bottom line.
[SIDENOTE]
LARGEST EQUITY HOLDINGS (country of origin; ticker symbol)
<Table>
1. Vodafone Group PLC (United Kingdom; VOD) 2.65%
2. Barclays PLC (United Kingdom; BARC) 1.94%
3. Alpha Bank AE (Greece; ALPHA) 1.86%
4. BP PLC (United Kingdom; BP) 1.78%
5. Total SA (France; FP) 1.74%
6. Royal Bank of Scotland Group PLC (United Kingdom; RBS) 1.60%
7. Anglo Irish Bank Corporation PLC (Ireland; ANB) 1.56%
8. Novartis AG (Switzerland; NOV.N) 1.54%
9. Sumitomo Mitsui Financial Group, Inc. (Japan; 8316) 1.52%
10. Toyota Motor Corporation (Japan; 7203) 1.41%
</Table>
Portfolio holdings are subject to change, and should not be construed as a
recommendation of any security.
5
<Page>
GROWTH OF $10,000 INVESTMENT
PERFORMANCE DATA QUOTED REPRESENTS PAST PERFORMANCE. PAST PERFORMANCE DOES NOT
GUARANTEE FUTURE RESULTS. INVESTMENT RETURN AND PRINCIPAL VALUE OF AN INVESTMENT
WILL FLUCTUATE SO THAT AN INVESTOR'S SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR
LESS THAN THEIR ORIGINAL COST. CURRENT PERFORMANCE MAY BE LOWER OR HIGHER THAN
THE PERFORMANCE DATA QUOTED. PLEASE CALL 1-800-525-2440 TO OBTAIN THE MOST
RECENT MONTH-END PERFORMANCE DATA.
[CHART]
The above graph compares a $10,000 investment made in Class F shares of Dreyfus
Founders International Equity Fund on its inception date of 12/29/95 to a
$10,000 investment made in an unmanaged securities index on that date. The
Fund's performance assumes the reinvestment of dividends and capital gain
distributions, but does not reflect the deduction of taxes that a shareholder
would pay on Fund distributions or redemption of Fund shares. The Fund offers
multiple classes of shares. Performance shown is for Class F, which is open only
to grandfathered investors. The Fund's performance in the graph takes into
account all applicable Class F fees and expenses, subject to fee waivers and
expense limitations. THESE FIGURES DO NOT REFLECT THE MAXIMUM SALES CHARGES
APPLICABLE TO CLASS A, B, C, OR T SHARES OF THE FUND. FOR THESE SHARE CLASSES,
APPLYING THESE CHARGES WILL RESULT IN LOWER RETURNS FOR INVESTORS.
The Morgan Stanley Capital International (MSCI) World ex U.S. Index measures
global developed market equity performance outside of the United States. 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>
Other individual issues positively impacted the Fund's relative performance
during the period as well. CASIO COMPUTER COMPANY LIMITED continued to benefit
from the consumer spending recovery in Japan. Casio reported strong full-year
profits in May and cited strength in digital cameras, a new joint venture with
Hitachi for cell phones, better margins and an improved balance sheet as primary
reasons for its impressive performance.
CONTINENTAL AG had a strong first half following a quality first quarter
earnings report. The company cited strength in their higher margin braking and
suspension systems as the main driver of performance.
AVERAGE ANNUAL AND YEAR-TO-DATE TOTAL RETURN AS OF 6/30/04
<Table>
<Caption>
YEAR-TO- 1 5 10 SINCE
CLASS (INCEPTION DATE) DATE+ YEAR YEARS YEARS INCEPTION
-----------------------------------------------------------------------------
CLASS A SHARES (12/31/99)
With sales charge (5.75%) (0.58%) 27.40% -- -- (12.08%)
Without sales charge 5.53% 35.19% -- -- (10.92%)
CLASS B SHARES (12/31/99)
With redemption* 1.13% 30.15% -- -- (11.93%)
Without redemption 5.13% 34.15% -- -- (11.58%)
CLASS C SHARES (12/31/99)
With redemption** 4.14% 33.14% -- -- (11.63%)
Without redemption 5.14% 34.14% -- -- (11.63%)
CLASS F SHARES (12/29/95) 5.52% 35.14% (2.56%) -- 5.07%
CLASS R SHARES (12/31/99) 5.70% 35.52% -- -- (10.71%)
CLASS T SHARES (12/31/99)
With sales charge (4.50%) 0.69% 28.72% -- -- (12.04%)
Without sales charge 5.46% 34.79% -- -- (11.13%)
</Table>
Average annual and year-to-date total returns do not reflect the deduction of
taxes that a shareholder would pay on Fund distributions or redemption of Fund
shares, but do reflect the reinvestment of dividends and capital gain
distributions, expense limitations, and adjustments for financial statement
purposes. Part of the Fund's historical performance is due to the purchase of
securities sold in initial public offerings (IPOs). There is no guarantee that
the Fund's investments in IPOs, if any, will continue to have a similar impact
on performance. Investments in foreign securities may entail unique risks,
including political, market, and currency risks.
*The maximum contingent deferred sales charge for Class B shares is 4% and is
reduced to 0% after six years, at which time the Class B shares convert to Class
A shares.
**The maximum contingent deferred sales charge for Class C shares is 1% for
shares redeemed within one year of the date of purchase.
+ Total return is not annualized.
7
<Page>
SUMITOMO MITSUI FINANCIAL GROUP, INC., a Japanese financial services firm,
and GAMESA CORPORACION TECNOLOGICA SA, a manufacturer and supplier of products
and services in the aeronautics and renewable energy sectors, also positively
contributed to the Fund's return.
WHAT FACTORS NEGATIVELY CONTRIBUTED TO RELATIVE FUND PERFORMANCE DURING THE
PERIOD?
Hong Kong, Switzerland, Italy and Belgium were four of the markets that most
detracted from relative Fund performance due to poor stock selection paired with
slight underweight positions. Weak stock selection in Ireland also caused this
country to underperform for the Fund.
Two of the sectors that hampered the Fund's relative returns were the
information technology and telecommunications services sectors.
The information technology sector was the most underachieving sector in the
Fund on a relative basis. Stock selection proved the largest hit as the Fund's
holdings in this sector trailed the benchmark. Issues such as NOKIA OYJ
negatively impacted Fund performance as the company suffered a profit warning
during the second quarter and subsequently declined 29%. Nokia announced it was
losing market share due to lack of focus on the mid-market cell phone models,
which are currently en vogue.
[CHART]
PORTFOLIO COMPOSITION
<Table>
Japan 20.16%
United Kingdom 20.05%
France 8.61%
Germany 7.35%
Switzerland 6.71%
Netherlands 5.74%
Canada 5.06%
Australia 4.45%
Other Countries 18.12%
Cash & Equivalents 3.75%
</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 second-worst performing sector on a relative basis was telecommunications
services. Competition within the telecommunications services sector has led to
price wars and subsequent margin erosion in the wireless industries in both
Europe and Japan. The fixed-line telecommunications business has also been
hampered by competition from cable and internet companies eating into revenues
and profits. VODAFONE GROUP PLC experienced a tough first six months of the
year, down approximately 11%. The company spent money on its profitless Japanese
subsidiary by buying out minority shareholders and making a full commitment to
this business.
In spite of the healthcare sector's positive contribution to Fund
performance, select stocks did underperform during the period. SERONO SA, the
Swiss pharmaceutical company, declined over 10% for the first six months of the
year due to increased competition in the multiple sclerosis (MS) drug area.
Competitor Elan Corporation PLC had its MS drug approved during the period,
which is expected to take market share away from Serono. GlaxoSmithKline,
another pharmaceutical company based in the United Kingdom, has also suffered
this year due to increased competition from generic producers. In addition, the
company's mid-range pipeline of drugs remained thin.
Other notable underperformers during the period included China Unicom
Limited, WMC RESOURCES LIMITED, and Banca Intesa S.p.A.
Our strategy, as always, is to keep our sector and country weights relatively
neutral to the Index and to spend our risk dollars on stock selection. We are
focused on seeking companies that best combine better-than-average business
momentum and attractive valuations.
/s/ Remi J. Browne /s/ Daniel B. LeVan /s/ Jeffrey R. Sullivan
Remi J. Browne, CFA Daniel B. LeVan, CFA Jeffrey R. Sullivan, CFA
Co-Portfolio Manager Co-Portfolio Manager Co-Portfolio Manager
9
<Page>
STATEMENT OF INVESTMENTS
June 30, 2004 (UNAUDITED)
<Table>
<Caption>
SHARES MARKET VALUE
- -----------------------------------------------------------------------------------------------
COMMON STOCKS (FOREIGN)--95.9%
AEROSPACE & DEFENSE--0.8%
22,200 Gamesa Corporacion Tecnologica SA (SP) $ 327,100
-------------
APPLICATION SOFTWARE--1.3%
3,140 SAP AG (GE) 523,397
-------------
AUTO PARTS & EQUIPMENT--0.7%
7,100 Canadian Tire Corporation Limited Class A (CA) 258,942
-------------
AUTOMOBILE MANUFACTURERS--3.4%
38,600 Nissan Motor Company Limited (JA) 429,105
4,700 Renault SA (FR) 357,975
13,800 Toyota Motor Corporation (JA) 559,007
-------------
1,346,087
-------------
BIOTECHNOLOGY--0.7%
420 Serono SA (SZ) 264,596
-------------
BREWERS--2.7%
41,200 Asahi Breweries Limited (JA) 454,233
35,400 Fraser & Neave Limited (SG) 287,721
24,600 SABMiller PLC (UK) 318,319
-------------
1,060,273
-------------
BROADCASTING & CABLE TV--1.0%
15,400 Mediaset SPA (IT) 175,566
24,200 Publishing & Broadcasting Limited (AU) 216,628
-------------
392,194
-------------
COMMUNICATIONS EQUIPMENT--2.2%
14,400 Nokia Oyj (FI) 207,792
2,153 Sagem SA (FR) 240,212
144,000 Telefonaktiebolaget LM Ericsson (SW) 424,373
-------------
872,377
-------------
</Table>
GUIDE TO UNDERSTANDING FOREIGN HOLDINGS
The following abbreviations are used throughout the Statement of Investments to
indicate the country of origin on non-U.S. holdings.
AU Australia
AT Austria
BD Bermuda
BE Belgium
BR Brazil
CA Canada
CI Channel Islands
CN China
CY Cyprus
DE Denmark
FI Finland
FR France
GE Germany
GR Greece
HK Hong Kong
ID Indonesia
IE Ireland
IN India
IT Italy
JA Japan
MA Malaysia
MX Mexico
NE Netherlands
NW Norway
PT Portugal
RS Russia
SG Singapore
SL Solvak Republic
SP Spain
SW Sweden
SZ Switzerland
TH Thailand
UK United Kingdom
10
<Page>
<Table>
<Caption>
SHARES MARKET VALUE
- -----------------------------------------------------------------------------------------------
COMPUTER STORAGE & PERIPHERALS--1.2%
14,300 ATI Technologies, Inc. (CA)* $ 268,338
4,300 Logitech International SA (SZ)* 195,704
-------------
464,042
-------------
CONSTRUCTION & ENGINEERING--0.5%
12,300 ACS, Actividades de Construccion y Servicios SA (SP) 207,270
-------------
CONSTRUCTION MATERIALS--1.2%
155,200 Aggregate Industries PLC (UK) 230,802
50,100 Boral Limited (AU) 225,459
-------------
456,261
-------------
CONSTRUCTION, FARM MACHINERY & HEAVY TRUCKS--0.5%
5,800 Volvo AB Class B (SW) 201,726
-------------
CONSUMER ELECTRONICS--3.6%
27,000 Casio Computer Company Limited (JA) 408,780
9,300 Citizen Electronics Company Limited (JA) 528,433
5,800 Koninklijke (Royal) Philips Electronics NV (NE) 156,167
20,000 Sharp Corporation (JA) 319,479
-------------
1,412,859
-------------
CONSUMER FINANCE--0.6%
3,900 Sanyo Shinpan Finance Company Limited (JA) 222,673
-------------
DIVERSIFIED BANKS--12.3%
8,800 ABN AMRO Holding NV (NE) 192,510
28,920 Alpha Bank AE (GR) 735,403
39,600 Anglo Irish Bank Corporation PLC (IE) 619,126
90,319 Barclays PLC (UK) 769,448
8,807 BNP Paribas SA (FR) 541,664
31,100 HBOS PLC (UK) 384,943
37 Mitsubishi Tokyo Financial Group, Inc. (JA) 342,483
22,034 Royal Bank of Scotland Group PLC (UK) 634,566
17,600 Skandinaviska Enskilda Banken (SW) 254,666
4,700 Societe Generale (FR) 399,434
-------------
4,874,243
-------------
DIVERSIFIED CAPITAL MARKETS--1.7%
11,200 Credit Suisse Group (SZ) 397,956
3,770 UBS AG (SZ) 265,652
-------------
663,608
-------------
DIVERSIFIED METALS & MINING--1.7%
81,600 WMC Resources Limited (AU) 279,674
30,300 Xstrata PLC (UK) 404,989
-------------
684,663
-------------
ELECTRIC UTILITIES--2.3%
5,700 E.ON AG (GE) 410,561
39,900 Fortum Oyj (FI) 509,734
-------------
920,295
-------------
</Table>
SEE NOTES TO STATEMENT OF INVESTMENTS.
11
<Page>
<Table>
<Caption>
SHARES MARKET VALUE
- -----------------------------------------------------------------------------------------------
ELECTRONIC EQUIPMENT MANUFACTURERS--2.9%
1,800 Keyence Corporation (JA) $ 410,594
2,400 Kyocera Corporation (JA) 203,675
7,100 TDK Corporation (JA) 538,771
-------------
1,153,040
-------------
FOOD RETAIL--1.9%
3,900 Delhaize Group (BE) 199,532
3,000 Guyenne et Gascogne AG (FR) 346,027
41,900 Tesco PLC (UK) 202,319
-------------
747,878
-------------
FOREST PRODUCTS-- 0.5%
18,400 Canfor Corporation (CA)* 208,592
-------------
GAS UTILITIES--0.8%
79,200 Centrica PLC (UK) 322,459
-------------
HOME FURNISHINGS--0.6%
4,700 Hunter Douglas NV (NE) 228,738
-------------
HOMEBUILDING--0.9%
33,400 Barratt Developments PLC (UK) 357,078
-------------
HOUSEHOLD PRODUCTS--0.5%
7,600 Reckitt Benckiser PLC (UK) 215,154
-------------
HYPERMARKETS & SUPER CENTERS--0.7%
5,900 Metro AG (GE) 279,961
-------------
INDUSTRIAL CONGLOMERATES--2.0%
251,400 Cookson Group PLC (UK)* 191,491
71,000 Keppel Corporation Limited (SG) 290,595
4,400 Siemens AG (GE) 316,657
-------------
798,743
-------------
INDUSTRIAL MACHINERY--1.4%
41,000 NSK Limited (JA) 204,032
7,200 Saurer AG (SZ)* 368,221
-------------
572,253
-------------
INTEGRATED OIL & GAS--7.0%
9,819 BP PLC (UK) 704,967
16,100 Husky Energy, Inc. (CA) 307,999
1,960 OMV AG (AT) 381,579
19,800 Repsol YPF SA (SP) 433,629
35,850 Shell Transport & Trading Company PLC (UK) 262,991
3,618 Total SA (FR) 689,793
-------------
2,780,958
-------------
INTEGRATED TELECOMMUNICATION SERVICES--2.7%
11,000 Deutsche Telekom AG (GE)* 193,393
66,500 Koninklijke NV (NE) 506,497
55,100 Telenor ASA (NW) 383,152
-------------
1,083,042
-------------
LEISURE PRODUCTS--0.9%
15,800 Sankyo Company Limited (JA) 342,455
-------------
MARINE--0.6%
184,000 Neptune Orient Lines Limited (SG) 252,099
-------------
</Table>
12
<Page>
<Table>
<Caption>
SHARES MARKET VALUE
- -----------------------------------------------------------------------------------------------
MULTI-LINE INSURANCE--1.0%
20,200 Aviva PLC (UK) $ 208,448
4,100 Baloise Holding Limited (SZ) 178,090
-------------
386,538
-------------
OIL & GAS EXPLORATION & PRODUCTION--3.4%
14,600 Canadian National Resources Limited (CA) 436,105
13,500 Eni SPA (IT) 268,062
6,100 Norsk Hydro ASA (NW) 396,458
277,700 Oil Search Limited (AU) 255,356
-------------
1,355,981
-------------
OIL & GAS REFINING, MARKETING, & TRANSPORTATION--0.6%
37,400 Caltex Australia Limited (AU) 240,475
-------------
OTHER DIVERSIFIED FINANCIAL SERVICES--1.7%
19,800 ING Groep NV (NE) 467,356
7,300 Sun Life Financial, Inc. (CA) 209,124
-------------
676,480
-------------
PACKAGED FOODS & MEATS--1.6%
13,600 Koninklijke Wessanen NV (NE) 195,586
21,000 Nisshin Seifun Group, Inc. (JA) 213,243
193,000 Want Want Holdings Limited (SG) 212,300
-------------
621,129
-------------
PHARMACEUTICALS--9.8%
8,250 AstraZeneca Group PLC (UK) 370,158
4,800 Aventis SA (FR) 362,380
14,600 Axcan Pharma, Inc. (CA)* 308,050
12,600 Eisai Company Limited (JA) 362,590
7,100 Merck KGaA (GE) 429,334
13,859 Novartis AG (SZ) 611,394
9,000 Ono Pharmaceuticals Company Limited (JA) 423,132
28,500 Shire Pharmaceuticals Group PLC (UK)* 248,871
6,100 Takeda Chemical Industries Limited (JA) 267,782
38,100 Warner Chilcott PLC (UK) 480,223
-------------
3,863,914
-------------
PRECIOUS METALS & MINERALS--0.8%
18,700 ThyssenKrupp AG (GE) 319,668
-------------
PROPERTY & CASUALTY INSURANCE--0.9%
100,100 Insurance Australia Group Limited (AU) 348,659
-------------
PUBLISHING--0.6%
22,800 Johnston Press PLC (UK) 234,244
-------------
REAL ESTATE INVESTMENT TRUSTS--1.5%
88 Sumitomo Mitsui Financial Group, Inc. (JA) 603,253
-------------
REAL ESTATE MANAGEMENT & DEVELOPMENT--0.8%
4,000 Wereldhave NV (NE) 328,994
-------------
SEMICONDUCTOR EQUIPMENT--0.5%
11,000 ASML Holding NV (NE)* 186,166
-------------
</Table>
SEE NOTES TO STATEMENT OF INVESTMENTS.
13
<Page>
<Table>
<Caption>
SHARES MARKET VALUE
- -----------------------------------------------------------------------------------------------
SEMICONDUCTORS--0.9%
8,000 Micronas Semiconductor Holding AG (SZ)* $ 363,782
-------------
SOFT DRINKS--1.6%
39,200 Coca-Cola Amatil Limited (AU) 189,241
18,500 Kirin Beverage Corporation (JA) 435,733
-------------
624,974
-------------
THRIFTS & MORTGAGE FINANCE--0.8%
24,200 Northern Rock PLC (UK) 317,532
-------------
TIRES & RUBBER--1.1%
8,800 Continental AG (GE) 424,529
-------------
TRADING COMPANIES & DISTRIBUTORS--0.5%
19,000 Mitsubishi Corporation (JA) 184,576
-------------
WIRELESS TELECOMMUNICATION SERVICES--6.0%
13,700 Bouygues SA (FR) 458,722
87 KDDI Corporation (JA) 497,530
180,000 SmarTone Telecommunications Holdings Limited (HK) 197,313
31,900 Telecom Italia Mobile SPA (IT) 180,866
479,775 Vodafone Group PLC (UK) 1,050,650
-------------
2,385,081
-------------
TOTAL COMMON STOCKS (FOREIGN)
(COST--$28,621,455) 37,961,03
-------------
<Caption>
PRINCIPAL AMOUNT AMORTIZED VALUE
- -----------------------------------------------------------------------------------------------
CORPORATE SHORT-TERM NOTES--3.5%
AGRICULTURAL PRODUCTS--3.5%
$1,400,000 Archer-Daniels-Midland Company
1.43% 7/1/04+ $ 1,400,000
-------------
TOTAL CORPORATE SHORT-TERM NOTES
(AMORTIZED COST--$1,400,000) 1,400,000
-------------
TOTAL INVESTMENTS--99.4%
(TOTAL COST--$30,021,455) 39,361,031
-------------
OTHER ASSETS AND LIABILITIES--0.6% 241,943
-------------
NET ASSETS--100.0% $ 39,602,974
=============
</Table>
NOTES TO STATEMENT OF INVESTMENTS
* NON-INCOME PRODUCING.
+ SECURITY WAS ACQUIRED PURSUANT TO SECTION 4(2) OF THE SECURITIES ACT OF 1933
AND MAY BE DEEMED TO BE RESTRICTED FOR RESALE.
14
<Page>
STATEMENT OF ASSETS AND LIABILITIES
June 30, 2004 (UNAUDITED)
<Table>
ASSETS
Investment securities, at cost $ 30,021,455
---------------
Investment securities, at market 39,361,031
Cash 118,361
Foreign currency (cost $19,288) 18,778
Receivables:
Investment securities sold 212,195
Capital shares sold 162,436
Dividends 34,256
From adviser 7,801
From transfer agent 227
Other 31,581
---------------
Total Assets 39,946,666
---------------
LIABILITIES
Payables and other accrued liabilities:
Investment securities purchased 210,255
Capital shares redeemed 24,481
Advisory fees 24,078
Shareholder servicing fees 7,675
Accounting fees 3,210
Distribution fees 4,365
Transfer agency fees 8,557
Custodian fees 21,094
Other 39,977
---------------
Total Liabilities 343,692
---------------
Net Assets $ 39,602,974
===============
COMPOSITION OF NET ASSETS
Capital (par value and paid-in surplus) $ 66,477,490
Undistributed net investment income 294,556
Accumulated net realized loss from security transactions (36,510,591)
Net unrealized appreciation on investments
and foreign currency translation 9,341,519
---------------
Total $ 39,602,974
===============
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
15
<Page>
<Table>
CLASS A
Net Assets $ 23,229,730
Shares Outstanding 2,252,917
Net Asset Value, Redemption Price Per Share $ 10.31
Maximum offering price per share (net asset value
plus sales charge of 5.75% of offering price) $ 10.94
CLASS B
Net Assets $ 2,191,800
Shares Outstanding 218,364
Net Asset Value, Offering and Redemption Price (excluding
applicable contingent deferred sales charge) Per Share $ 10.04
CLASS C
Net Assets $ 465,533
Shares Outstanding 46,455
Net Asset Value, Offering and Redemption Price (excluding
applicable contingent deferred sales charge) Per Share $ 10.02
CLASS F
Net Assets $ 10,190,696
Shares Outstanding 987,313
Net Asset Value, Offering and Redemption Price Per Share $ 10.32
CLASS R
Net Assets $ 3,340,224
Shares Outstanding 321,773
Net Asset Value, Offering and Redemption Price Per Share $ 10.38
CLASS T
Net Assets $ 184,991
Shares Outstanding 18,086
Net Asset Value, Redemption Price Per Share $ 10.23
Maximum offering price per share (net asset value
plus sales charge of 4.50% of offering price) $ 10.71
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
16
<Page>
STATEMENT OF OPERATIONS
For the six months ended June 30, 2004 (UNAUDITED)
<Table>
INVESTMENT INCOME
Dividends $ 655,278
Interest 4,639
Foreign taxes withheld (81,433)
---------------
Total Investment Income 578,484
---------------
EXPENSES
Advisory fees--Note 2 196,145
Shareholder servicing fees--Note 2 45,931
Accounting fees--Note 2 19,615
Distribution fees--Note 2 23,265
Transfer agency fees--Note 2 41,043
Registration fees 31,997
Postage and mailing expenses 1,046
Custodian fees and expenses--Note 2 33,253
Printing expenses 11,040
Legal and audit fees 2,438
Directors' fees and expenses--Note 2 3,947
Other expenses 5,791
---------------
Total Expenses 415,511
Earnings Credits (485)
Reimbursed/Waived Expenses (133,851)
Net Expenses 281,175
---------------
Net Investment Income 297,309
---------------
REALIZED AND UNREALIZED GAIN (LOSS) ON SECURITY
TRANSACTIONS AND FOREIGN CURRENCY TRANSACTIONS
Net Realized Gain (Loss) on:
Security Transactions 3,209,367
Foreign Currency Transactions (5,604)
---------------
Net Realized Gain 3,203,763
Net Change in Unrealized Appreciation/Depreciation of
Investments and Foreign Currency Translation (1,331,918)
---------------
Net Realized and Unrealized Gain 1,871,845
---------------
Net Increase in Net Assets Resulting from Operations $ 2,169,154
===============
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
17
<Page>
STATEMENTS OF CHANGES IN NET ASSETS
(UNAUDITED)
<Table>
<Caption>
SIX MONTHS ENDED YEAR ENDED
6/30/04 12/31/03
OPERATIONS
Net Investment Income $ 297,309 $ 254,642
Net Realized Gain (Loss) on Security and
Foreign Currency Transactions 3,203,763 (5,296,540)
Net Change in Unrealized Appreciation/Depreciation
of Investments and Foreign Currency Translation (1,331,918) 16,056,126
------------ ------------
Net Increase in Net Assets Resulting from Operations 2,169,154 11,014,228
------------ ------------
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS
From Net Investment Income
Class A 0 (156,488)
Class B 0 (1,759)
Class F 0 (71,823)
Class R 0 (28,532)
Class T 0 (910)
------------ ------------
Net Decrease from Dividends and Distributions 0 (259,512)
------------ ------------
CAPITAL SHARE TRANSACTIONS
Net Increase (Decrease)--Note 4
Class A (439,639) (1,959,586)
Class B (299,253) (450,587)
Class C (40,936) (190,274)
Class F (246,076) (2,350,311)
Class R 14,915 (204,031)
Class T 3,144 (57,906)
------------ ------------
Net Decrease from Capital Share Transactions (1,007,845) (5,212,695)
------------ ------------
Net Increase in Net Assets 1,161,309 5,542,021
------------ ------------
NET ASSETS
Beginning of period $ 38,441,665 $ 32,899,644
------------ ------------
End of period $ 39,602,974 $ 38,441,665
============ ============
Undistributed Net Investment Income (Loss) $ 294,556 $ (2,753)
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
18
<Page>
FINANCIAL HIGHLIGHTS
(UNAUDITED)
<Table>
<Caption>
SIX MONTHS YEAR ENDED
ENDED JUNE 30, DECEMBER 31,
2004 2003 2002 2001 2000
-------------- --------------------------------------------------
CLASS A SHARES
PER SHARE OPERATING DATA
Net Asset Value, beginning of period $ 9.77 $ 7.19 $ 10.03 $ 14.42 $ 19.88
- ----------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) 0.08 0.06 0.01 (0.00)+ (0.03)
Net realized and unrealized gains
(losses) on securities 0.46 2.59 (2.84) (4.39) (3.53)
-------------------------------------------------------------------
Total from investment operations 0.54 2.65 (2.83) (4.39) (3.56)
- ----------------------------------------------------------------------------------------------------------
Less dividends and distributions:
From net investment income 0.00 (0.07) (0.01) 0.00 0.00
From net realized gains 0.00 0.00 0.00 0.00 (1.90)
-------------------------------------------------------------------
Total distributions 0.00 (0.07) (0.01) 0.00 (1.90)
- ----------------------------------------------------------------------------------------------------------
Net Asset Value, end of period $ 10.31 $ 9.77 $ 7.19 $ 10.03 $ 14.42
===================================================================
TOTAL RETURN* 5.53% 36.84% (28.19%) (30.44%) (17.60%)
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000s) $ 23,230 $ 22,432 $ 18,217 $ 29,151 $ 4,434
Ratios to average net assets:
Expenses with reimbursements,
but no earnings credits# 1.41%** 1.41% 1.40% 1.46% 1.82%
Expenses with reimbursements
and earnings credits 1.40%** 1.40% 1.40% 1.44% 1.77%
Net investment income (loss) 1.55%** 0.80% 0.13% (0.74%) (0.36%)
- ----------------------------------------------------------------------------------------------------------
Portfolio turnover rate@ 73% 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.
** ANNUALIZED.
# CERTAIN FEES WERE REIMBURSED OR WAIVED BY THE MANAGEMENT COMPANY OR ITS
AFFILIATES. HAD THESE FEES NOT BEEN REIMBURSED OR WAIVED, THE EXPENSE
RATIOS WOULD HAVE BEEN 2.06% (2004), 2.48% (2003), 2.18% (2002), 1.78%
(2001), AND 1.82% (2000).
@ 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>
<Table>
<Caption>
SIX MONTHS
ENDED JUNE 30, YEAR ENDED DECEMBER 31,
2004 2003 2002 2001 2000
-------------- --------------------------------------------------
CLASS B SHARES
PER SHARE OPERATING DATA
Net Asset Value, beginning of period $ 9.55 $ 7.03 $ 9.87 $ 14.29 $ 19.88
- ----------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) 0.04+ (0.08) (0.11) (0.12) (0.09)
Net realized and unrealized gains
(losses) on securities 0.45 2.61 (2.73) (4.30) (3.60)
-------------------------------------------------------------------
Total from investment operations 0.49 2.53 (2.84) (4.42) (3.69)
- ----------------------------------------------------------------------------------------------------------
Less dividends and distributions:
From net investment income 0.00 (0.01) 0.00 0.00 0.00
From net realized gains 0.00 0.00 0.00 0.00 (1.90)
Total distributions 0.00 (0.01) 0.00 0.00 (1.90)
- ----------------------------------------------------------------------------------------------------------
Net Asset Value, end of period $ 10.04 $ 9.55 $ 7.03 $ 9.87 $ 14.29
===================================================================
TOTAL RETURN* 5.13% 35.95% (28.77%) (30.93%) (18.27%)
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000s) $ 2,192 $ 2,372 $ 2,201 $ 3,786 $ 5,129
Ratios to average net assets:
Expenses with reimbursements,
but no earnings credits# 2.15%** 2.16% 2.16% 2.28% 2.57%
Expenses with reimbursements
and earnings credits 2.15%** 2.15% 2.15% 2.26% 2.52%
Net investment income (loss) 0.76%** 0.07% (0.61%) (1.03%) (1.18%)
- ----------------------------------------------------------------------------------------------------------
Portfolio turnover rate@ 73% 144% 220% 213% 184%
</Table>
+ COMPUTED USING AVERAGE SHARES OUTSTANDING THROUGHOUT THE PERIOD.
* SALES CHARGES ARE NOT REFLECTED IN THE TOTAL RETURN.
** ANNUALIZED.
# CERTAIN FEES WERE REIMBURSED OR WAIVED BY THE MANAGEMENT COMPANY OR ITS
AFFILIATES. HAD THESE FEES NOT BEEN REIMBURSED OR WAIVED, THE EXPENSE
RATIOS WOULD HAVE BEEN 2.86% (2004), 3.32% (2003), 2.91% (2002), 2.67%
(2001) AND 2.57% (2000).
@ 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>
<Table>
<Caption>
SIX MONTHS
ENDED JUNE 30, YEAR ENDED DECEMBER 31,
2004 2003 2002 2001 2000
-------------- --------------------------------------------------
CLASS C SHARES
PER SHARE OPERATING DATA
Net Asset Value, beginning of period $ 9.53 $ 7.02 $ 9.86 $ 14.27 $ 19.88
- ----------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) 0.04+ (0.26) (0.29) (0.16) (0.07)
Net realized and unrealized gains
(losses) on securities 0.45 2.77 (2.55) (4.25) (3.64)
-------------------------------------------------------------------
Total from investment operations 0.49 2.51 (2.84) (4.41) (3.71)
- ----------------------------------------------------------------------------------------------------------
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 0.00 (1.90)
-------------------------------------------------------------------
Total distributions 0.00 0.00 0.00 0.00 (1.90)
- ----------------------------------------------------------------------------------------------------------
Net Asset Value, end of period $ 10.02 $ 9.53 $ 7.02 $ 9.86 $ 14.27
===================================================================
TOTAL RETURN* 5.14% 35.76% (28.80%) (30.90%) (18.37%)
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000s) $ 466 $ 482 $ 532 $ 1,429 $ 2,635
Ratios to average net assets:
Expenses with reimbursements,
but no earnings credits# 2.15%** 2.16% 2.16% 2.29% 2.55%
Expenses with reimbursements
and earnings credits 2.15%** 2.15% 2.15% 2.26% 2.50%
Net investment income (loss) 0.78%** 0.08% (0.63%) (0.99%) (1.18%)
- ----------------------------------------------------------------------------------------------------------
Portfolio turnover rate@ 73% 144% 220% 213% 184%
</Table>
+ COMPUTED USING AVERAGE SHARES OUTSTANDING THROUGHOUT THE PERIOD.
* SALES CHARGES ARE NOT REFLECTED IN THE TOTAL RETURN.
** ANNUALIZED.
# CERTAIN FEES WERE REIMBURSED OR WAIVED BY THE MANAGEMENT COMPANY OR ITS
AFFILIATES. HAD THESE FEES NOT BEEN REIMBURSED OR WAIVED, THE EXPENSE
RATIOS WOULD HAVE BEEN 2.85% (2004), 3.25% (2003), 3.11% (2002), 2.85%
(2001), AND 2.55% (2000).
@ 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>
<Table>
<Caption>
SIX MONTHS
ENDED JUNE 30, YEAR ENDED DECEMBER 31,
2004 2003 2002 2001 2000 1999
-------------- ---------------------------------------------------------------
CLASS F SHARES
PER SHARE OPERATING DATA
Net Asset Value, beginning of period $ 9.78 $ 7.18 $ 10.03 $ 14.40 $ 19.87 $ 14.03
- --------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) 0.07 (0.01) (0.05) (0.07) (0.08) (0.05)
Net realized and unrealized gains
(losses) on securities 0.47 2.68 (2.79) (4.30) (3.49) 8.07
--------------------------------------------------------------------------------
Total from investment operations 0.54 2.67 (2.84) (4.37) (3.57) 8.02
- --------------------------------------------------------------------------------------------------------------------------
Less dividends and distributions:
From net investment income 0.00 (0.07) (0.01) 0.00 0.00 0.00
From net realized gains 0.00 0.00 0.00 0.00 (1.90) (2.18)
--------------------------------------------------------------------------------
Total distributions 0.00 (0.07) (0.01) 0.00 (1.90) (2.18)
- --------------------------------------------------------------------------------------------------------------------------
Net Asset Value, end of period $ 10.32 $ 9.78 $ 7.18 $ 10.03 $ 14.40 $ 19.87
================================================================================
TOTAL RETURN 5.52% 37.17% (28.30%) (30.35%) (17.65%) 58.71%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000s) $ 10,191 $ 9,837 $ 9,321 $ 16,640 $ 30,040 $ 35,607
Ratios to average net assets:
Expenses with reimbursements,
but no earnings credits# 1.40%** 1.40% 1.40% 1.55% 1.84% 1.82%
Expenses with reimbursements
and earnings credits 1.40%** 1.40% 1.40% 1.52% 1.80% 1.80%
Net investment income (loss) 1.54%** 0.80% 0.12% (0.26%) (0.55%) (0.36%)
- --------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate@ 73% 144% 220% 213% 184% 205%
</Table>
** ANNUALIZED.
# CERTAIN FEES WERE REIMBURSED OR WAIVED BY THE MANAGEMENT COMPANY OR ITS
AFFILIATES. HAD THESE FEES NOT BEEN REIMBURSED OR WAIVED, THE EXPENSE
RATIOS WOULD HAVE BEEN 2.19% (2004), 2.52% (2003), 2.13% (2002), 1.99%
(2001), 1.95% (2000) AND 1.99% (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>
<Table>
<Caption>
SIX MONTHS
ENDED JUNE 30, YEAR ENDED DECEMBER 31,
2004 2003 2002 2001 2000
-------------- --------------------------------------------------
CLASS R SHARES
PER SHARE OPERATING DATA
Net Asset Value, beginning of period $ 9.82 $ 7.22 $ 10.08 $ 14.45 $ 19.88
- ----------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) 0.09 0.09 0.02 (0.00)+ (0.00)
Net realized and unrealized gains
(losses) on securities 0.47 2.60 (2.85) (4.37) (3.52)
-------------------------------------------------------------------
Total from investment operations 0.56 2.69 (2.83) (4.37) (3.53)
- ----------------------------------------------------------------------------------------------------------
Less dividends and distributions:
From net investment income 0.00 (0.09) (0.03) 0.00 0.00
From net realized gains 0.00 0.00 0.00 0.00 (1.90)
-------------------------------------------------------------------
Total distributions 0.00 (0.09) (0.03) 0.00 (1.90)
- ----------------------------------------------------------------------------------------------------------
Net Asset Value, end of period $ 10.38 $ 9.82 $ 7.22 $ 10.08 $ 14.45
===================================================================
TOTAL RETURN 5.70% 37.27% (28.10%) (30.24%) (17.45%)
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000s) $ 3,340 $ 3,146 $ 2,470 $ 6,102 $ 2,716
Ratios to average net assets:
Expenses with reimbursements,
but no earnings credits# 1.15%** 1.15% 1.16% 1.28% 1.63%
Expenses with reimbursements
and earnings credits 1.15%** 1.15% 1.15% 1.26% 1.53%
Net investment income (loss) 1.81%** 1.03% 0.27% (0.04%) (0.40%)
- ----------------------------------------------------------------------------------------------------------
Portfolio turnover rate@ 73% 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.
** ANNUALIZED.
# CERTAIN FEES WERE REIMBURSED OR WAIVED BY THE MANAGEMENT COMPANY OR ITS
AFFILIATES. HAD THESE FEES NOT BEEN REIMBURSED OR WAIVED, THE EXPENSE
RATIOS WOULD HAVE BEEN 1.69% (2004), 1.95% (2003), 1.71% (2002), 1.57%
(2001), AND 1.63% (2000).
@ 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>
<Table>
<Caption>
SIX MONTHS
ENDED JUNE 30, YEAR ENDED DECEMBER 31,
2004 2003 2002 2001 2000
-------------- --------------------------------------------------
CLASS T SHARES
PER SHARE OPERATING DATA
Net Asset Value, beginning of period $ 9.70 $ 7.14 $ 9.97 $ 14.37 $ 19.88
- ----------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) 0.07 0.00+ (0.10) (0.09) (0.06)
Net realized and unrealized gains
(losses) on securities 0.46 2.61 (2.73) (4.31) (3.55)
-------------------------------------------------------------------
Total from investment operations 0.53 2.61 (2.83) (4.40) (3.61)
- ----------------------------------------------------------------------------------------------------------
Less dividends and distributions:
From net investment income 0.00 (0.05) 0.00 0.00 0.00
From net realized gains 0.00 0.00 0.00 0.00 (1.90)
-------------------------------------------------------------------
Total distributions 0.00 (0.05) 0.00 0.00 (1.90)
- ----------------------------------------------------------------------------------------------------------
Net Asset Value, end of period $ 10.23 $ 9.70 $ 7.14 $ 9.97 $ 14.37
===================================================================
TOTAL RETURN* 5.46% 36.58% (28.39%) (30.62%) (17.85%)
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000s) $ 185 $ 172 $ 158 $ 343 $ 654
Ratios to average net assets:
Expenses with reimbursements,
but no earnings credits# 1.66%** 1.65% 1.65% 1.80% 2.03%
Expenses with reimbursements
and earnings credits 1.65%** 1.65% 1.65% 1.77% 1.98%
Net investment income (loss) 1.36%** 0.67% (0.12%) (0.53%) (0.70%)
- ----------------------------------------------------------------------------------------------------------
Portfolio turnover rate@ 73% 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.
** ANNUALIZED.
# CERTAIN FEES WERE REIMBURSED OR WAIVED BY THE MANAGEMENT COMPANY OR ITS
AFFILIATES. HAD THESE FEES NOT BEEN REIMBURSED OR WAIVED, THE EXPENSE
RATIOS WOULD HAVE BEEN 2.30% (2004), 2.88% (2003), 4.00% (2002), 2.86%
(2001), AND 2.03% (2000).
@ PORTFOLIO TURNOVER RATE IS A MEASURE OF PORTFOLIO ACTIVITY THAT IS
CALCULATED BY DIVIDING THE LESSER OF PURCHASES OR SALES OF SECURITIES,
EXCLUDING SECURITIES HAVING MATURITY DATES AT ACQUISITION OF ONE YEAR OR
LESS, BY THE AVERAGE VALUE OF THE PORTFOLIO SECURITIES HELD DURING THE
PERIOD, WHICH IS A ROLLING 12-MONTH PERIOD.
SEE NOTES TO FINANCIAL STATEMENTS.
24
<Page>
NOTES TO FINANCIAL STATEMENTS
June 30, 2004 (UNAUDITED)
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
Dreyfus Founders Funds, Inc. (the "Company") is an open-end management
investment company registered under the Investment Company Act of 1940 (the
"1940 Act"). 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--A domestic 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 a
security traded on Nasdaq, at its official closing price. Lacking any sales on
that day, the security is valued at the current closing bid price, or by quotes
from dealers making a market in the security if the closing bid price is not
available, or in the case of written call options, at the mean between the
highest bid and lowest asked quotations obtained from at least two securities
dealers.
A foreign equity security traded on a foreign exchange is valued at the last
quoted official closing price available before the time when the Fund's assets
are valued, or at the last quoted sales price if the exchange does not provide
an official closing price or if the foreign market has not yet closed. Lacking
any sales on that day, the security is valued at the current closing bid price,
or by quotes from dealers making a market in the security if the closing bid
price is not available. London closing exchange rates are used to convert
foreign currencies to U.S. dollars.
A debt security with a remaining maturity greater than 60 days at the time of
purchase is valued in accordance with the evaluated bid price supplied by a
pricing service approved by the Company's board of directors or, if such price
is not available, at the mean between the highest bid and lowest asked
quotations obtained from at least two securities dealers. A debt security with a
remaining maturity of 60 days or less at the time of purchase is valued at
amortized cost, which approximates market value, unless it is determined that
amortized cost would not represent market value, in which case the securities
would be marked to market. The Fund amortizes premiums and discounts on all debt
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
25
<Page>
occurs after the close of the market on which a security is traded, and it is
determined that the event has materially affected the value of the security.
SECURITY TRANSACTIONS--Security transactions are accounted for as of the date
the securities are purchased or sold (trade date). Net realized gains and losses
are determined on the basis of identified cost, which is also used for federal
income tax purposes.
FOREIGN SECURITIES AND CURRENCY TRANSACTIONS--Foreign securities may carry more
risk than U.S. securities, such as political and currency risks. The Fund
normally invests a large portion of its assets in foreign securities. In the
event the Fund executes a foreign security transaction, the Fund may enter into
a foreign currency contract to settle the foreign security transaction. The
resultant foreign currency gain or loss from the contract is recorded as foreign
currency gain or loss and is presented as such in the Statement of Operations.
Foreign currency held at June 30, 2004 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 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.
26
<Page>
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, if
any, reduce Other Expenses and would be 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.
Founders has agreed to waive a portion of its management fee and to limit the
total expenses of the Fund. Founders agreed to waive that portion of its
management fee that exceeds 0.75% of the Fund's average net assets and to limit
the annual expenses of the Fund (net of credits received from the Fund's
custodian) to 1.40% for Class A and Class F shares, 2.15% for Class B and Class
C shares, 1.15% for Class R shares and 1.65% for Class T shares. These
reductions are made pursuant to a permanent contractual commitment. For the six
months ended June 30, 2004, $128,140 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"),
the direct owner of Founders and 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. The Fund paid DSC a monthly fee equal, on an
27
<Page>
annual basis, to $24.00 per Class F shareholder account considered to be an open
account at any time during a given month. During the six months ended June 30,
2004, Class F shares were charged $13,588 pursuant to this shareholder services
agreement.
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 incurred by
DTI are paid by the Fund. During the six months ended June 30, 2004, Class F
shares were charged $4,869 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 $12.43 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 six months ended June
30, 2004 were as follows:
<Table>
<Caption>
TRANSFER
AGENCY FEES
-----------
Class A $ 26,325
Class B $ 3,271
Class C $ 677
Class R $ 1,921
Class T $ 207
</Table>
Certain as-of shareholder transactions may result in gains or losses to the
Fund. Depending on the circumstances, these gains may be payable to, or
reimbursable from, the transfer agent; such gains and losses are presented on
the Statement of Assets and Liabilities.
DISTRIBUTION AND SHAREHOLDER SERVICES PLANS--DSC also is the distributor of the
Fund's shares. The Fund has adopted a Distribution Plan pursuant to Rule 12b-1
under the 1940 Act 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 six months ended June
30, 2004, Class F shares were charged $12,621 pursuant to this Distribution
Plan.
The Fund also has adopted a Distribution Plan pursuant to Rule 12b-1 under the
1940 Act 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
28
<Page>
Class T shares pay DSC an annual fee of 0.25% of the value of their average
daily net assets for the provision of certain services.
Distribution and shareholder servicing fees paid to DSC by the Fund's Class A,
B, C and T shares for the six months ended June 30, 2004, were as follows:
<Table>
<Caption>
DISTRIBUTION SHAREHOLDER
FEES SERVICING FEES
-----------------------------
Class A N/A $ 28,641
Class B $ 8,581 $ 2,860
Class C $ 1,832 $ 611
Class T $ 231 $ 231
</Table>
During the six months ended June 30, 2004, DSC retained $37 and $68 in sales
commissions from the sales of Class A and Class T shares, respectively. DSC also
retained $6,155 of contingent deferred sales charges relating to redemptions of
Class B shares.
FUND ACCOUNTING AND ADMINISTRATIVE SERVICES FEES--The Funds have agreed to
compensate Founders for providing accounting services, administration,
compliance monitoring, regulatory and shareholder reporting, as well as related
facilities, equipment and clerical help. The fee is computed at the annual rate
of 0.10% 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 and an affiliate of Founders, 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
--------------------------------------------------------------------
9/1/03 to 8/31/04 $ 150,000
9/1/04 to 8/31/05 $ 200,000
9/1/05 to 8/31/06 $ 200,000
</Table>
The fee waiver is allocated among the Funds in proportion to their respective
shares of the total custodian fee. For the six months ended June 30, 2004, the
Fund's portion of the fee waiver was $5,711. 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
29
<Page>
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.
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
June 30, 2004 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 $ 30,070,528
Gross Tax Appreciation of Investments $ 9,514,169
Gross Tax Depreciation of Investments $ (223,666)
Net Tax Appreciation $ 9,290,503
</Table>
30
<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>
SIX MONTHS ENDED YEAR ENDED
JUNE 30, 2004 DECEMBER 31, 2003
SHARES AMOUNT SHARES AMOUNT
CLASS A
Sold 84,955 $ 864,744 724,401 $ 5,318,119
Dividends or Distributions Reinvested 0 $ 0 15,239 $ 147,964
Redeemed (128,196) $ (1,304,383) (978,731) $ (7,425,669)
-------------------------------------------------------------------
Net Decrease (43,241) $ (439,639) (239,091) $ (1,959,586)
===================================================================
CLASS B
Sold 4,032 $ 39,945 72,988 $ 520,427
Dividends or Distributions Reinvested 0 $ 0 146 $ 1,391
Redeemed (34,170) $ (339,198) (137,735) $ (972,405)
-------------------------------------------------------------------
Net Decrease (30,138) $ (299,253) (64,601) $ (450,587)
===================================================================
CLASS C
Sold 4,337 $ 42,826 165,203 $ 1,132,327
Redeemed (8,425) $ (83,762) (190,526) $ (1,322,601)
-------------------------------------------------------------------
Net Decrease (4,088) $ (40,936) (25,323) $ (190,274)
===================================================================
CLASS F
Sold 360,373 $ 3,623,648 1,515,865 $ 11,180,704
Dividends or Distributions Reinvested 0 $ 0 6,797 $ 66,066
Redeemed (379,134) $ (3,869,724) (1,814,806) $ (13,597,081)
-------------------------------------------------------------------
Net Decrease (18,761) $ (246,076) (292,144) $ (2,350,311)
===================================================================
CLASS R
Sold 23,695 $ 243,158 146,346 $ 1,105,834
Dividends or Distributions Reinvested 0 $ 0 2,764 $ 26,981
Redeemed (22,141) $ (228,243) (170,854) $ (1,336,846)
-------------------------------------------------------------------
Net Increase (Decrease) 1,554 $ 14,915 (21,744) $ (204,031)
===================================================================
CLASS T
Sold 1,369 $ 13,756 97,501 $ 651,910
Dividends or Distributions Reinvested 0 $ 0 91 $ 882
Redeemed (1,047) $ (10,612) (101,973) $ (710,698)
-------------------------------------------------------------------
Net Increase (Decrease) 322 $ 3,144 (4,381) $ (57,906)
===================================================================
</Table>
31
<Page>
5. INVESTMENT TRANSACTIONS
Purchases and sales of investment securities (excluding short-term securities
and U.S. government obligations) for the six months ended June 30, 2004 were
$12,676,689 and $14,693,097, 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 June 30, 2004, the Fund did not have any borrowings under the LOC.
7. LEGAL MATTERS
Two class actions have been filed against Mellon Financial Corporation and
Mellon Bank, N.A.; Dreyfus and Founders (the "Investment Advisers"); and the
directors of all or substantially all of the Dreyfus and Dreyfus Founders Funds.
The complaints also name all or substantially all of the Dreyfus and Dreyfus
Founders Funds as nominal defendants. Plaintiffs allege that the Investment
Advisers improperly used assets of the Dreyfus and Dreyfus Founders Funds, in
the form of directed brokerage commissions and 12b-1 fees, to pay brokers to
promote sales of Dreyfus and Dreyfus Founders Funds, and that the use of fund
assets to make these payments was not properly disclosed to investors.
Plaintiffs claim that the Investment Advisers' actions violated the 1940 Act,
the Investment Advisers Act, and common law. The complaints further allege that
the directors breached their fiduciary duties to fund shareholders under the
1940 Act and at common law and that Mellon Financial and Mellon Bank violated
the 1940 Act. The complaints seek unspecified compensatory and punitive damages,
rescission of the funds' contracts with the Investment Advisers, an accounting
of all fees paid, and an award of attorneys' fees and litigation expenses. The
complaints are pending in the same court and have been consolidated into a
single action under the caption IN RE DREYFUS MUTUAL FUNDS FEE LITIGATION.
Founders, Dreyfus, and the Funds believe the allegations in these lawsuits to be
totally without merit and intend to defend the actions vigorously. It is
possible that additional lawsuits arising out of these circumstances and
presenting similar allegations and requests for relief may be filed against the
defendants in the future. Neither Founders, Dreyfus, nor the Funds believe that
the pending actions will have a material adverse effect on the Funds or
Founders' ability to perform its contract with the Funds.
32
<Page>
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<Page>
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<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
PROXY VOTING INFORMATION
A description of the policies and procedures that the Fund uses to determine how
to vote proxies relating to portfolio securities, and information regarding how
the Fund voted these proxies for the 12-month period ended June 30, 2004, is
available through the Fund's website at www.founders.com and on the Securities
and Exchange Commission's website at www.sec.gov. The description of the
policies and procedures is also available without charge, upon request, by
calling 1-800-525-2440.
THIS REPORT AND THE STATEMENTS IT CONTAINS ARE SUBMITTED FOR THE GENERAL
INFORMATION OF OUR SHAREHOLDERS. THE REPORT IS NOT AUTHORIZED FOR DISTRIBUTION
TO PROSPECTIVE INVESTORS UNLESS PRECEDED OR ACCOMPANIED BY AN EFFECTIVE
PROSPECTUS.
Dreyfus Service Corporation, Distributor.
(C) 2004 Founders Asset Management LLC. 8/04
A-636-INE-04
<Page>
[GRAPHIC]
SEMIANNUAL REPORT
DREYFUS FOUNDERS
MID-CAP GROWTH FUND
INVESTMENT UPDATE
JUNE 30, 2004
[DREYFUS FOUNDERS FUNDS(R) LOGO]
THE GROWTH SPECIALISTS
<Page>
TABLE OF CONTENTS
<Table>
Management Overview 3
Statement of Investments 10
Statement of Assets and Liabilities 14
Statement of Operations 16
Statements of Changes in Net Assets 17
Financial Highlights 18
Notes to Financial Statements 24
</Table>
PAPERLESS DELIVERY OF THIS REPORT
[GRAPHIC]
Did you know you can reduce your postal mail by accessing Dreyfus Founders Funds
regulatory material online? It's a simple, reliable process: when new documents
such as this Semiannual Report are available, we'll send you an e-mail
notification containing a convenient link that will take you directly to that
Fund information on our website. To take advantage of this service, simply
inform us online of your decision to receive materials through the Founders
E-Communications Program. Cut down on mailbox clutter and help the Fund reduce
printing and postage charges by enrolling today at
www.founders.com/ecommunications. If you own Funds through a third party, enroll
at www.icsdelivery.com.
The views expressed herein are current to the date of this report. The views and
the composition of the Fund's portfolio are subject to change at any time based
on market and other conditions. Companies appearing in bold print on pages 3-9
were owned by the Fund on June 30, 2004. 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 AND DANIEL E. CROWE]
A DISCUSSION WITH PORTFOLIO MANAGER JOHN B. JARES, CFA, LEFT, AND ASSISTANT
PORTFOLIO MANAGER DANIEL E. CROWE, CFA
HOW DID THE FUND PERFORM RELATIVE TO ITS BENCHMARK FOR THE SIX MONTHS ENDED JUNE
30, 2004?
For the six-month period ended June 30, 2004, the Dreyfus Founders Mid-Cap
Growth Fund posted a competitive return(1) versus its growth benchmark, the
Russell Midcap Growth Index, which returned 5.94% for the period.
WHAT ECONOMIC OR MARKET DYNAMICS SET THE INVESTING ENVIRONMENT DURING THE
PERIOD?
The market's overall performance during the first half of 2004 was driven by
strong growth in corporate earnings, which were owed mainly to continued
improvements in the economic environment. However, this benefit was somewhat
offset during the period by multiple contractions of the overall market, due to
concerns regarding the anticipated increase in the federal funds rate as well as
the threat of inflation.
MR. JARES, WHAT CHANGES WERE MADE TO THE FUND AFTER YOU ASSUMED MANAGEMENT
RESPONSIBILITIES?
The investment philosophy employed to manage the Fund has remained the same; we
rely on a bottom-up, fundamental approach to stock picking.
Some modest changes have been made to the Fund's portfolio, however, through
the addition and liquidation of some stocks in May and June.
- ----------
(1) Excluding sales charges, which result in lower returns for certain share
classes. Please see page 7 for Average Annual and Year-to-Date Total Returns for
all share classes, including and excluding sales charges.
[SIDENOTE]
"AS THE ECONOMIC RECOVERY TOOK HOLD, THE EMPLOYMENT PICTURE BEGAN TO IMPROVE,
WHICH IN TURN DROVE THE STRONG GROWTH OF CONSUMER-FOCUSED COMPANIES."
3
<Page>
PERFORMANCE HIGHLIGHTS
- - The market's overall performance during the first half of 2004 was driven by
strong growth in corporate earnings, which were owed mainly to continued
improvements in the economic environment.
- - As the economic recovery took hold, the employment picture began to improve,
which in turn drove the strong growth of consumer-focused companies. Due to
this fact, the Fund's strong stock selection in the consumer discretionary
sector was the largest contributor to the Fund's relative performance for the
period.
- - The Fund's underweighting in the information technology sector, coupled with
strong stock selection, increased the Fund's overall relative return.
- - The healthcare sector weighed heavily on relative Fund performance. Poor
stock selection and an underweight position impeded the Fund's relative
return.
- - The financials sector encountered numerous difficult economic events during
the period.
Companies that we expected to exhibit improving fundamentals and that had
compelling valuations were added to the Fund. Such companies included APPLE
COMPUTER, INC., BED BATH & BEYOND, INC., and THE PMI GROUP, INC.
Conversely, positions were sold in investments where either the target price
had been reached, the improvement in fundamentals appeared to be slowing, or
changes in business conditions had materially impacted the stock's investment
thesis. Names including Corinthian Colleges, Inc., Barr Pharmaceuticals, Inc.,
and Ameritrade Holding Corporation were among those sold due to such changes
during the reporting period.
WHAT MANAGEMENT DECISIONS POSITIVELY IMPACTED FUND PERFORMANCE DURING THE
PERIOD?
As the economic recovery took hold, the employment picture began to improve,
which in turn drove the strong growth of consumer-focused companies. Due to this
fact, the Fund's strong stock selection in the consumer discretionary sector was
the largest contributor to the Fund's relative performance for the period. For
example, GETTY IMAGES, INC., a provider of stock photography, continued to
leverage the electronic distribution of digital images, which drove higher
profits.
4
<Page>
ROYAL CARIBBEAN CRUISES LIMITED also positively contributed to relative Fund
performance as an increase in demand for leisure travel helped boost the stock's
share price.
While information technology companies continued to post strong results
overall, the valuations of these companies appeared to already adequately
reflect their prospects. The Fund's underweighting in the information technology
sector, coupled with strong stock selection, increased the Fund's overall
relative return. ZEBRA TECHNOLOGIES CORPORATION performed well based on robust
growth in its barcoding and card imaging business. ACTIVISION, INC., a publisher
of interactive entertainment software products, also performed well during the
period.
The industrials sector, which benefited from the improving economy, also
buoyed Fund performance during the period due to both an overweight position and
strong performance by select stocks. J.B. HUNT TRANSPORT SERVICES, INC. was one
such strong performer in this sector. The transportation company benefited from
a tight trucking supply and a more rational competitive environment, and saw its
operating margins more than double on a year-over-year basis in the first
quarter of 2004. DANAHER CORPORATION and FASTENAL COMPANY both saw strong
revenue and earnings growth associated with improvements in the industrials
sector.
LARGEST EQUITY HOLDINGS (ticker symbol)
<Table>
1. Getty Images, Inc. (GYI) 4.07%
2. iShares Russell 2000 Growth Index Fund (IWO) 4.01%
3. Bed Bath & Beyond, Inc. (BBBY) 2.95%
4. Danaher Corporation (DHR) 2.80%
5. Maxim Integrated Products, Inc. (MXIM) 2.79%
6. Manpower, Inc. (MAN) 2.62%
7. Fastenal Company (FAST) 2.46%
8. Zebra Technologies Corporation (ZBRA) 2.34%
9. Amdocs Limited (DOX) 2.31%
10. Fiserv, Inc. (FISV) 2.24%
</Table>
Portfolio holdings are subject to change, and should not be construed as a
recommendation of any security.
5
<Page>
GROWTH OF $10,000 INVESTMENT
PERFORMANCE DATA QUOTED REPRESENTS PAST PERFORMANCE. PAST PERFORMANCE DOES NOT
GUARANTEE FUTURE RESULTS. INVESTMENT RETURN AND PRINCIPAL VALUE OF AN INVESTMENT
WILL FLUCTUATE SO THAT AN INVESTOR'S SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR
LESS THAN THEIR ORIGINAL COST. CURRENT PERFORMANCE MAY BE LOWER OR HIGHER THAN
THE PERFORMANCE DATA QUOTED. PLEASE CALL 1-800-525-2440 TO OBTAIN THE MOST
RECENT MONTH-END PERFORMANCE DATA.
[CHART]
The above graph compares a $10,000 investment made in Class F shares of Dreyfus
Founders Mid-Cap Growth Fund on 6/30/94 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>
Although the healthcare sector did not benefit relative Fund performance
overall, some individual issues did perform well. TEVA PHARMACEUTICAL INDUSTRIES
LIMITED positively contributed to Fund performance, as the company experienced
an influx in demand. Numerous pharmaceutical buyers began to choose less costly
but equally effective generic drugs over their branded counterparts, and Teva
was able to reap some of the benefits of this shift in the industry. EON Labs,
Inc., a supplier of generic pharmaceuticals, also benefited from this industry
trend.
AVERAGE ANNUAL AND YEAR-TO-DATE TOTAL RETURN AS OF 6/30/04
<Table>
<Caption>
YEAR-TO- 1 5 10 SINCE
CLASS (INCEPTION DATE) DATE+ YEAR YEARS YEARS INCEPTION
- ---------------------------------------------------------------------------------
CLASS A SHARES (12/31/99)
With sales charge (5.75%) 0.00% 18.79% -- -- (10.25%)
Without sales charge 5.97% 26.01% -- -- (9.06%)
CLASS B SHARES (12/31/99)
With redemption* 1.54% 20.83% -- -- (9.84%)
Without redemption 5.54% 24.83% -- -- (9.58%)
CLASS C SHARES (12/31/99)
With redemption** 4.33% 23.48% -- -- (9.91%)
Without redemption 5.33% 24.48% -- -- (9.91%)
CLASS F SHARES (9/8/61) 6.15% 26.25% (3.07%) 5.39% N/A
CLASS R SHARES (12/31/99) 5.90% 25.67% -- -- (8.86%)
CLASS T SHARES (12/31/99)
With sales charge (4.50%) 0.85% 18.94% -- -- (10.77%)
Without sales charge 5.60% 24.74% -- -- (9.85%)
</Table>
Average annual and year-to-date total returns do not reflect the deduction of
taxes that a shareholder would pay on Fund distributions or redemption of Fund
shares, but do reflect the reinvestment of dividends and capital gain
distributions, expense limits for certain share classes, and adjustments for
financial statement purposes. Part of the Fund's performance is due to amounts
received from class action settlements regarding prior Fund holdings. There is
no guarantee that these settlement distributions will occur in the future or
have a similar impact on performance. Part of the Fund's historical performance
is due to the purchase of securities sold in initial public offerings (IPOs).
There is no guarantee that the Fund's investments in IPOs, if any, will continue
to have a similar impact on performance. There are risks associated with mid-cap
investing, such as limited product lines, less liquidity, and small market
share.
*The maximum contingent deferred sales charge for Class B shares is 4% and is
reduced to 0% after six years, at which time the Class B shares convert to Class
A shares.
**The maximum contingent deferred sales charge for Class C shares is 1% for
shares redeemed within one year of the date of purchase.
+ Total return is not annualized.
7
<Page>
WHAT MANAGEMENT DECISIONS HINDERED FUND PERFORMANCE DURING THE PERIOD?
The healthcare sector weighed heavily on relative Fund performance. Poor stock
selection and an underweight position impeded the Fund's relative return.
Healthcare stocks such as SELECT MEDICAL CORPORATION and Barr Pharmaceuticals,
Inc. were among the worst performers during the period. A proposed rule change
by the Centers for Medicare & Medicaid Services (CMS) led to a severe correction
in Select Medical's share price during the period. Barr Pharmaceuticals
experienced increased market competition, which in turn raised concerns
regarding Barr's growth outlook.
The Fund's performance in the consumer staples sector was greatly hampered by
underexposure as well as poor stock selection.
The financials sector encountered numerous difficult economic events during
the period. The Federal Reserve Board signaled that an increase in the federal
funds rate was imminent, and the anticipation of a flattening yield curve had a
negative impact on regional banks. Furthermore, regional banks were trading at
historically high valuations during the period, leaving few attractive
investments. Lastly, a slowdown in retail investor activity led retail brokerage
services companies such as Ameritrade Holding Corporation to lower their
expectations for earnings. New York Community Bancorp, Inc. was adversely
impacted due to poor interest rate risk management.
[CHART]
PORTFOLIO COMPOSITION
<Table>
Consumer Discretionary 27.53%
Information Technology 22.49%
Healthcare 16.85%
Industrials 15.57%
Financials 4.87%
Materials 4.55%
Energy 1.52%
Other 5.81%
Cash & Equivalents 0.18%
</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>
Although the Fund's performance in the information technology sector had a
beneficial effect on overall performance during the period, select technology
holdings did underperform. Among those were Fairchild Semiconductor
International, Inc., Maxtor Corporation, and QLogic Corporation. Increased order
cancellations and push-outs led to a decline in Fairchild Semiconductor's share
price. Maxtor underperformed as the company lowered earnings guidance due to
channel inventory issues and pricing declines. In the first calendar quarter of
the year, QLogic experienced an unexpected decline in host bus adapter (HBA)
orders, which required the company to lower its earnings expectations.
Other poor-performing stocks during the period included for-profit education
services company, Corinthian Colleges, Inc. Corinthian suffered from a number of
factors in the second half of the period. Expectations became overly optimistic,
while closings of existing facilities and potential future closings became a
concern. Industry concerns also surfaced based on issues at other for-profit
educational services companies. Another underachieving issue was GTECH HOLDINGS
CORPORATION, an operator of online lottery transaction processing systems. A
Brazilian court ordered GTECH Holdings to reserve 30% of its revenues for the
possibility of an adverse outcome to a current lawsuit in which the company is
involved. This ruling led to concerns regarding the company's operations in
Brazil, which constitute 10% of the company's revenues and earnings.
As we move forward, we will focus on our bottom-up investment process and work
diligently to seek the most attractive mix of potential reward and risk.
/s/ John B. Jares /s/ Daniel E. Crowe
John B. Jares, CFA Daniel E. Crowe, CFA
Portfolio Manager Assistant Portfolio Manager
9
<Page>
STATEMENT OF INVESTMENTS
June 30, 2004 (UNAUDITED)
<Table>
<Caption>
SHARES MARKET VALUE
- --------------------------------------------------------------------------------
COMMON STOCKS (DOMESTIC)--96.0%
APPAREL, ACCESSORIES & LUXURY GOODS--1.6%
40,075 Coach, Inc.* $ 1,810,981
-------------
APPLICATION SOFTWARE--3.4%
26,775 Autodesk, Inc. 1,146,238
49,550 Cadence Design Systems, Inc.* 724,917
38,550 Mercury Interactive Corporation* 1,920,947
-------------
3,792,102
-------------
CASINOS & GAMING--3.3%
17,600 GTECH Holdings Corporation 815,056
29,950 International Game Technology 1,156,070
36,200 Station Casinos, Inc. 1,752,080
-------------
3,723,206
-------------
COMMUNICATIONS EQUIPMENT--0.9%
30,100 Adtran, Inc. 1,004,437
-------------
COMPUTER & ELECTRONICS RETAIL--1.0%
21,775 Best Buy Company, Inc. 1,104,864
-------------
COMPUTER HARDWARE--1.7%
60,750 Apple Computer, Inc.* 1,976,805
-------------
COMPUTER STORAGE & PERIPHERALS--0.7%
7,725 Lexmark International, Inc.* 745,694
-------------
CONSTRUCTION MATERIALS--2.0%
51,875 Lafarge North America, Inc. 2,246,188
-------------
CONSUMER ELECTRONICS--1.1%
13,375 Harman International Industries, Inc. 1,217,125
-------------
DATA PROCESSING & OUTSOURCED SERVICES--2.2%
65,175 Fiserv, Inc.* 2,534,656
-------------
DEPARTMENT STORES--2.4%
26,675 Kohl's Corporation* 1,127,819
36,600 Nordstrom, Inc. 1,559,526
-------------
2,687,345
-------------
DIVERSIFIED BANKS--1.0%
19,700 TCF Financial Corporation 1,143,585
-------------
DIVERSIFIED COMMERCIAL SERVICES--2.9%
11,700 Apollo Group, Inc. Class A* 1,032,993
79,939 ARAMARK Corporation Class B 2,299,046
-------------
3,332,039
-------------
ELECTRONIC EQUIPMENT MANUFACTURERS--1.7%
126,900 Symbol Technologies, Inc. 1,870,506
-------------
EMPLOYMENT SERVICES--2.6%
58,300 Manpower, Inc. 2,959,891
-------------
</Table>
10
<Page>
<Table>
<Caption>
SHARES MARKET VALUE
- --------------------------------------------------------------------------------
EXCHANGE TRADED FUNDS--5.8%
27,750 iShares Goldman Sachs Networking Index Fund* $ 879,120
30,375 iShares Goldman Sachs Software Index Fund* 1,160,325
72,475 iShares Russell 2000 Growth Index Fund 4,534,761
-------------
6,574,206
-------------
HEALTHCARE EQUIPMENT--5.9%
37,950 Biomet, Inc. 1,686,498
28,425 Boston Scientific Corporation* 1,216,590
47,437 DENTSPLY International, Inc. 2,471,468
17,125 St. Jude Medical, Inc.* 1,295,506
-------------
6,670,062
-------------
HEALTHCARE FACILITIES--1.3%
112,800 Select Medical Corporation 1,513,776
-------------
HEALTHCARE SERVICES--1.9%
27,175 Caremark Rx, Inc.* 895,145
16,200 Express Scripts, Inc.* 1,283,526
-------------
2,178,671
-------------
HOME ENTERTAINMENT SOFTWARE--1.3%
89,700 Activision, Inc.* 1,426,230
-------------
HOME FURNISHINGS--2.8%
71,550 Leggett & Platt, Inc. 1,911,101
16,525 Mohawk Industries, Inc.* 1,211,778
-------------
3,122,879
-------------
HOMEBUILDING--0.5%
14,250 Toll Brothers, Inc.* 603,060
-------------
INDUSTRIAL CONGLOMERATES--2.8%
61,110 Danaher Corporation 3,168,554
-------------
INDUSTRIAL GASES--1.0%
28,325 Praxair, Inc. 1,130,451
-------------
LEISURE FACILITIES--2.1%
55,375 Royal Caribbean Cruises Limited 2,403,829
-------------
MANAGED HEALTHCARE--2.7%
14,025 Anthem, Inc.* 1,256,079
15,550 WellPoint Health Networks, Inc.* 1,741,756
-------------
2,997,835
-------------
METAL & GLASS CONTAINERS--1.6%
24,575 Ball Corporation 1,770,629
-------------
OFFICE ELECTRONICS--2.3%
30,400 Zebra Technologies Corporation* 2,644,800
-------------
OIL & GAS EQUIPMENT & SERVICES--0.4%
9,700 BJ Services Company* 444,648
-------------
OIL & GAS EXPLORATION & PRODUCTION--1.1%
29,427 Apache Corporation 1,281,546
-------------
</Table>
SEE NOTES TO STATEMENT OF INVESTMENTS.
11
<Page>
<Table>
<Caption>
SHARES MARKET VALUE
- --------------------------------------------------------------------------------
OTHER DIVERSIFIED FINANCIAL SERVICES--1.8%
28,300 Ambac Financial Group, Inc. $ 2,078,352
-------------
PHARMACEUTICALS--4.1%
66,000 Andrx Corporation* 1,843,380
27,625 Medicis Pharmaceutical Corporation Class A 1,103,619
60,700 MGI Pharma, Inc.* 1,639,507
-------------
4,586,506
-------------
PUBLISHING--5.3%
76,625 Getty Images, Inc.* 4,597,500
19,800 McClatchy Company Class A 1,388,970
-------------
5,986,470
-------------
RAILROADS--1.0%
19,000 Union Pacific Corporation 1,129,550
-------------
RESTAURANTS--1.7%
39,325 Brinker International, Inc.* 1,341,769
15,225 Yum! Brands, Inc. 566,675
-------------
1,908,444
-------------
SEMICONDUCTORS--4.7%
60,100 Maxim Integrated Products, Inc. 3,150,442
16,275 NVIDIA Corporation* 333,638
75,275 Semtech Corporation* 1,771,974
-------------
5,256,054
-------------
SPECIALTY STORES--5.8%
86,825 Bed Bath & Beyond, Inc.* 3,338,421
28,525 Guitar Center, Inc.* 1,268,507
67,950 Staples, Inc. 1,991,615
-------------
6,598,543
-------------
TECHNOLOGY DISTRIBUTORS--1.4%
25,150 CDW Corporation 1,603,564
-------------
THRIFTS & MORTGAGE FINANCE--2.0%
52,725 The PMI Group, Inc. 2,294,592
-------------
TRADING COMPANIES & DISTRIBUTORS--4.2%
48,925 Fastenal Company 2,780,408
35,050 W.W. Grainger, Inc. 2,015,375
-------------
4,795,783
-------------
TRUCKING--2.0%
58,075 J.B. Hunt Transport Services, Inc. 2,240,534
-------------
TOTAL COMMON STOCKS (DOMESTIC)
(COST--$90,635,611) 108,558,992
-------------
COMMON STOCKS (FOREIGN)--3.3%
APPLICATION SOFTWARE--2.3%
111,400 Amdocs Limited (CI)* 2,610,102
-------------
</Table>
12
<Page>
<Table>
<Caption>
SHARES MARKET VALUE
- --------------------------------------------------------------------------------
PHARMACEUTICALS--1.0%
16,800 Teva Pharmaceutical Industries Limited
Sponsored ADR (IS) $ 1,130,472
-------------
TOTAL COMMON STOCKS (FOREIGN)
(COST--$3,429,596) 3,740,574
-------------
<Caption>
PRINCIPAL AMOUNT AMORTIZED COST
- --------------------------------------------------------------------------------
CORPORATE SHORT-TERM NOTES--5.4%
AGRICULTURAL PRODUCTS--5.0%
$ 5,600,000 Archer-Daniels-Midland Company
1.43% 7/1/04+ $ 5,600,000
-------------
CONSUMER ELECTRONICS--0.4%
450,000 Sharp Electronics Corporation
1.20% 7/1/04 450,000
-------------
TOTAL CORPORATE SHORT-TERM NOTES
(AMORTIZED COST--$6,050,000) 6,050,000
-------------
TOTAL INVESTMENTS--104.7%
(TOTAL COST--$100,115,207) 118,349,566
-------------
OTHER ASSETS AND LIABILITIES--(4.7%) (5,344,623)
-------------
NET ASSETS--100.0% $ 113,004,943
=============
</Table>
NOTES TO STATEMENT OF INVESTMENTS
* NON-INCOME PRODUCING.
+ SECURITY WAS ACQUIRED PURSUANT TO SECTION 4(2) OF THE SECURITIES ACT OF 1933
AND MAY BE DEEMED TO BE RESTRICTED FOR RESALE.
ADR - AMERICAN DEPOSITARY RECEIPT
CI - CHANNEL ISLANDS
IS - ISRAEL
13
<Page>
STATEMENT OF ASSETS AND LIABILITIES
June 30, 2004 (UNAUDITED)
<Table>
ASSETS
Investment securities, at cost $ 100,115,207
---------------
Investment securities, at market 118,349,566
Cash 319,652
Receivables:
Investment securities sold 5,669,124
Capital shares sold 51,614
Dividends 26,761
Other 18,672
---------------
Total Assets 124,435,389
---------------
LIABILITIES
Payables and other accrued liabilities:
Investment securities purchased 10,912,691
Capital shares redeemed 249,522
Advisory fees 76,277
Shareholder servicing fees 22,248
Accounting fees 5,610
Distribution fees 36,264
Transfer agency fees 18,966
Custodian fees 2,737
Other 106,131
---------------
Total Liabilities 11,430,446
---------------
Net Assets $ 113,004,943
===============
COMPOSITION OF NET ASSETS
Capital (par value and paid-in surplus) $ 160,241,008
Accumulated net investment loss (702,072)
Accumulated net realized loss from security transactions (64,768,352)
Net unrealized appreciation on investments 18,234,359
---------------
Total $ 113,004,943
===============
</Table>
14
<Page>
<Table>
CLASS A
Net Assets $ 998,070
Shares Outstanding 267,681
Net Asset Value, Redemption Price Per Share $ 3.73
Maximum offering price per share
(net asset value plus sales charge of 5.75% of offering price) $ 3.96
CLASS B
Net Assets $ 1,650,277
Shares Outstanding 456,245
Net Asset Value, Offering and Redemption Price
(excluding applicable contingent deferred sales charge) Per Share $ 3.62
CLASS C
Net Assets $ 401,606
Shares Outstanding 112,695
Net Asset Value, Offering and Redemption Price
(excluding applicable contingent deferred sales charge) Per Share $ 3.56
CLASS F
Net Assets $ 109,839,612
Shares Outstanding 28,926,372
Net Asset Value, Offering and Redemption Price Per Share $ 3.80
CLASS R
Net Assets $ 84,592
Shares Outstanding 22,446
Net Asset Value, Offering and Redemption Price Per Share $ 3.77
CLASS T
Net Assets $ 30,786
Shares Outstanding 8,602
Net Asset Value, Redemption Price Per Share $ 3.58
Maximum offering price per share
(net asset value plus sales charge of 4.50% of offering price) $ 3.75
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
15
<Page>
STATEMENT OF OPERATIONS
For the six months ended June 30, 2004 (UNAUDITED)
<Table>
INVESTMENT INCOME
Dividends $ 289,123
Interest 12,150
Foreign taxes withheld (2,043)
--------------
Total Investment Income 299,230
--------------
EXPENSES
Advisory fees--Note 2 589,194
Shareholder servicing fees--Note 2 92,117
Accounting fees--Note 2 44,152
Distribution fees--Note 2 129,708
Transfer agency fees--Note 2 43,427
Registration fees 30,812
Postage and mailing expenses 7,440
Custodian fees and expenses--Note 2 4,324
Printing expenses 13,203
Legal and audit fees 7,780
Directors' fees and expenses--Note 2 14,326
Other expenses 12,950
--------------
Total Expenses 989,433
Earnings Credits (863)
Reimbursed/Waived Expenses (750)
Expense Offset to Broker Commissions (1,682)
--------------
Net Expenses 986,138
--------------
Net Investment Loss (686,908)
--------------
REALIZED AND UNREALIZED GAIN (LOSS) ON SECURITY
TRANSACTIONS AND FOREIGN CURRENCY TRANSACTIONS
Net Realized Gain on Security Transactions 17,803,459
Net Change in Unrealized Appreciation/Depreciation of Investments (8,693,559)
--------------
Net Realized and Unrealized Gain 9,109,900
--------------
Net Increase in Net Assets Resulting from Operations $ 8,422,992
==============
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
16
<Page>
STATEMENTS OF CHANGES IN NET ASSETS
(UNAUDITED)
<Table>
<Caption>
SIX MONTHS YEAR ENDED
ENDED 6/30/04 12/31/03
OPERATIONS
Net Investment Loss $ (686,908) $ (1,356,208)
Net Realized Gain on Security Transactions 17,803,459 20,810,975
Net Change in Unrealized Appreciation/Depreciation
of Investments (8,693,559) 25,868,151
------------- -------------
Net Increase in Net Assets Resulting from Operations 8,422,992 45,322,918
------------- -------------
CAPITAL SHARE TRANSACTIONS
Net Increase (Decrease)--Note 4
Class A (251,725) 542,198
Class B (27,367) 264,005
Class C 61,660 (52,492)
Class F (57,573,003) 24,535,977
Class R (37,147) 9,780
Class T (4,974) 5,472
------------- -------------
Net Increase (Decrease) from Capital Share
Transactions (57,832,556) 25,304,940
------------- -------------
Net Increase (Decrease) in Net Assets (49,409,564) 70,627,858
------------- -------------
NET ASSETS
Beginning of period $ 162,414,507 $ 91,786,649
------------- -------------
End of period $ 113,004,943 $ 162,414,507
============= =============
Accumulated Net Investment Loss $ (702,072) $ (15,164)
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
17
<Page>
FINANCIAL HIGHLIGHTS
(UNAUDITED)
<Table>
<Caption>
SIX MONTHS YEAR ENDED
ENDED JUNE 30, DECEMBER 31,
2004 2003 2002 2001 2000
-------------- ------------------------------------------
CLASS A SHARES
PER SHARE OPERATING DATA
Net Asset Value, beginning of period $ 3.52 $ 2.58 $ 3.44 $ 4.38 $ 8.68
- --------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.02)+ 0.03 (0.04) (0.06) (0.02)
Net realized and unrealized
gains (losses) on securities 0.23 0.91 (0.82) (0.88) (2.05)
-------------------------------------------------------
Total from investment operations 0.21 0.94 (0.86) (0.94) (2.07)
- --------------------------------------------------------------------------------------------------
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 0.00 (2.23)
-------------------------------------------------------
Total distributions 0.00 0.00 0.00 0.00 (2.23)
- --------------------------------------------------------------------------------------------------
Net Asset Value, end of period $ 3.73 $ 3.52 $ 2.58 $ 3.44 $ 4.38
=======================================================
TOTAL RETURN* 5.97% 36.43% (25.00%) (21.46%) (23.40%)
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000s) $ 998 $ 1,191 $ 476 $ 538 $ 625
Ratios to average net assets:
Expenses with reimbursements,
but no earnings credits# 1.48%** 1.87% 2.15% 2.47% 1.29%
Expenses with reimbursements
and earnings credits 1.47%** 1.86% 2.15% 2.46% 1.25%
Net investment loss (1.06%)** (1.38%) (1.81%) (1.93%) (0.74%)
- --------------------------------------------------------------------------------------------------
Portfolio turnover rate@ 134% 160% 216% 214% 226%
</Table>
+ COMPUTED USING AVERAGE SHARES OUTSTANDING THROUGHOUT THE PERIOD.
* SALES CHARGES ARE NOT REFLECTED IN THE TOTAL RETURN.
** ANNUALIZED.
# CERTAIN FEES WERE WAIVED BY THE CUSTODIAN. THESE WAIVERS DID NOT HAVE AN
IMPACT ON THE EXPENSE RATIOS.
@ 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.
18
<Page>
<Table>
<Caption>
SIX MONTHS YEAR ENDED
ENDED JUNE 30, DECEMBER 31,
2004 2003 2002 2001 2000
-------------- ------------------------------------------
CLASS B SHARES
PER SHARE OPERATING DATA
Net Asset Value, beginning of period $ 3.43 $ 2.54 $ 3.39 $ 4.32 $ 8.68
- --------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment loss (0.03)+ (0.03) (0.05) (0.05) (0.04)
Net realized and unrealized
gains (losses) on securities 0.22 0.92 (0.80) (0.88) (2.09)
-------------------------------------------------------
Total from investment operations 0.19 0.89 (0.85) (0.93) (2.13)
- --------------------------------------------------------------------------------------------------
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 0.00 (2.23)
-------------------------------------------------------
Total distributions 0.00 0.00 0.00 0.00 (2.23)
- --------------------------------------------------------------------------------------------------
Net Asset Value, end of period $ 3.62 $ 3.43 $ 2.54 $ 3.39 $ 4.32
=======================================================
TOTAL RETURN* 5.54% 35.04% (25.07%) (21.53%) (24.14%)
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000s) $ 1,650 $ 1,587 $ 969 $ 1,138 $ 1,047
Ratios to average net assets:
Expenses with reimbursements,
but no earnings credits# 2.26%** 2.65% 2.68% 2.59% 2.04%
Expenses with reimbursements
and earnings credits 2.26%** 2.64% 2.67% 2.58% 1.99%
Net investment loss (1.84%)** (2.16%) (2.33%) (2.06%) (1.47%)
- --------------------------------------------------------------------------------------------------
Portfolio turnover rate@ 134% 160% 216% 214% 226%
</Table>
+ COMPUTED USING AVERAGE SHARES OUTSTANDING THROUGHOUT THE PERIOD.
* SALES CHARGES ARE NOT REFLECTED IN THE TOTAL RETURN.
** ANNUALIZED.
# CERTAIN FEES WERE WAIVED BY THE CUSTODIAN. THESE WAIVERS DID NOT HAVE AN
IMPACT ON THE EXPENSE RATIOS.
@ 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>
<Table>
<Caption>
SIX MONTHS YEAR ENDED
ENDED JUNE 30, DECEMBER 31,
2004 2003 2002 2001 2000
-------------- ------------------------------------------
CLASS C SHARES
PER SHARE OPERATING DATA
Net Asset Value, beginning of period $ 3.38 $ 2.50 $ 3.36 $ 4.32 $ 8.68
- --------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment loss (0.03)+ (0.10) (0.08) (0.08) (0.04)
Net realized and unrealized
gains (losses) on securities 0.21 0.98 (0.78) (0.88) (2.09)
-------------------------------------------------------
Total from investment operations 0.18 0.88 (0.86) (0.96) (2.13)
- --------------------------------------------------------------------------------------------------
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 0.00 (2.23)
-------------------------------------------------------
Total distributions 0.00 0.00 0.00 0.00 (2.23)
- --------------------------------------------------------------------------------------------------
Net Asset Value, end of period $ 3.56 $ 3.38 $ 2.50 $ 3.36 $ 4.32
=======================================================
TOTAL RETURN* 5.33% 35.20% (25.60%) (22.22%) (24.14%)
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000s) $ 402 $ 323 $ 274 $ 380 $ 422
Ratios to average net assets:
Expenses with reimbursements,
but no earnings credits# 2.22%** 2.51% 2.99% 3.94% 2.04%
Expenses with reimbursements
and earnings credits 2.22%** 2.51% 2.98% 3.93% 2.00%
Net investment loss (1.80%)** (2.02%) (2.65%) (3.41%) (1.46%)
- --------------------------------------------------------------------------------------------------
Portfolio turnover rate@ 134% 160% 216% 214% 226%
</Table>
+ COMPUTED USING AVERAGE SHARES OUTSTANDING THROUGHOUT THE PERIOD.
* SALES CHARGES ARE NOT REFLECTED IN THE TOTAL RETURN.
** ANNUALIZED.
# CERTAIN FEES WERE REIMBURSED OR WAIVED BY THE MANAGEMENT COMPANY OR ITS
AFFILIATES. HAD THESE FEES NOT BEEN REIMBURSED OR WAIVED, THE EXPENSE RATIOS
WOULD HAVE BEEN 2.22% (2004), 2.51% (2003), 3.04% (2002), 4.25% (2001), AND
2.04% (2000).
@ 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>
<Table>
<Caption>
SIX MONTHS YEAR ENDED
ENDED JUNE 30, DECEMBER 31,
2004 2003 2002 2001 2000 1999
-------------- ---------------------------------------------------------------
CLASS F SHARES
PER SHARE OPERATING DATA
Net Asset Value, beginning of period $ 3.58 $ 2.62 $ 3.47 $ 4.36 $ 8.68 $ 7.44
- -------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.02)+ 0.02 (0.04) (0.05) (0.03) (0.08)
Net realized and unrealized
gains (losses) on securities 0.24 0.94 (0.81) (0.84) (2.06) 3.12
------------------------------------------------------------------------------
Total from investment operations 0.22 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 0.00^
From net realized gains 0.00 0.00 0.00 0.00 (2.23) (1.80)
------------------------------------------------------------------------------
Total distributions 0.00 0.00 0.00 0.00 (2.23) (1.80)
- -------------------------------------------------------------------------------------------------------------------------
Net Asset Value, end of period $ 3.80 $ 3.58 $ 2.62 $ 3.47 $ 4.36 $ 8.68
==============================================================================
TOTAL RETURN 6.15% 36.64% (24.50%) (20.41%) (23.69%) 42.27%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000s) $ 109,840 $ 159,161 $ 89,970 $ 119,708 $ 166,365 $ 253,385
Ratios to average net assets:
Expenses with reimbursements,
but no earnings credits# 1.33%** 1.51% 1.56% 1.39% 1.39% 1.42%
Expenses with reimbursements
and earnings credits 1.33%** 1.50% 1.56% 1.37% 1.36% 1.40%
Net investment loss (0.92%)** (1.01%) (1.22%) (0.84%) (0.92%) (0.98%)
- -------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate@ 134% 160% 216% 214% 226% 186%
</Table>
+ COMPUTED USING AVERAGE SHARES OUTSTANDING THROUGHOUT THE PERIOD.
^ DISTRIBUTIONS FROM NET INVESTMENT INCOME FOR THE YEAR ENDED DECEMBER 31, 1999
AGGREGATED LESS THAN $0.01 ON A PER SHARE BASIS.
** ANNUALIZED.
# CERTAIN FEES WERE WAIVED BY THE CUSTODIAN. THESE WAIVERS DID NOT HAVE AN
IMPACT ON THE EXPENSE RATIOS.
@ 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>
<Table>
<Caption>
SIX MONTHS YEAR ENDED
ENDED JUNE 30, DECEMBER 31,
2004 2003 2002 2001 2000
-------------- --------------------------------------------------
CLASS R SHARES
PER SHARE OPERATING DATA
Net Asset Value, beginning of period $ 3.56 $ 2.61 $ 3.48 $ 4.39 $ 8.68
- -----------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.02)+ (0.03) (0.04) 0.01 (0.03)
Net realized and unrealized
gains (losses) on securities 0.23 0.98 (0.83) (0.92) (2.03)
-----------------------------------------------------------------
Total from investment operations 0.21 0.95 (0.87) (0.91) (2.06)
- -----------------------------------------------------------------------------------------------------------
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 0.00 (2.23)
-----------------------------------------------------------------
Total distributions 0.00 0.00 0.00 0.00 (2.23)
- -----------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $ 3.77 $ 3.56 $ 2.61 $ 3.48 $ 4.39
=================================================================
TOTAL RETURN 5.90% 36.40% (25.00%) (20.73%) (23.28%)
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000s) $ 85 $ 119 $ 77 $ 49 $ 7
Ratios to average net assets:
Expenses with reimbursements,
but no earnings credits# 1.29%** 1.64% 1.97% 2.91% 1.03%
Expenses with reimbursements
and earnings credits 1.28%** 1.64% 1.97% 2.89% 1.00%
Net investment loss (0.86%)** (1.15%) (1.63%) (2.40%) (0.55%)
- -----------------------------------------------------------------------------------------------------------
Portfolio turnover rate@ 134% 160% 216% 214% 226%
</Table>
+ COMPUTED USING AVERAGE SHARES OUTSTANDING THROUGHOUT THE PERIOD.
** ANNUALIZED.
# CERTAIN FEES WERE REIMBURSED OR WAIVED BY THE MANAGEMENT COMPANY OR ITS
AFFILIATES. HAD THESE FEES NOT BEEN REIMBURSED OR WAIVED, THE EXPENSE RATIOS
WOULD HAVE BEEN 1.29% (2004), 1.64% (2003), 3.49% (2002), 57.54% (2001), AND
1.03% (2000).
@ 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>
<Table>
<Caption>
SIX MONTHS YEAR ENDED
ENDED JUNE 30, DECEMBER 31,
2004 2003 2002 2001 2000
-------------- --------------------------------------------------
CLASS T SHARES
PER SHARE OPERATING DATA
Net Asset Value, beginning of period $ 3.39 $ 2.51 $ 3.39 $ 4.35 $ 8.68
- -----------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment loss (0.03)+ (0.02) (0.06) (0.11) (0.02)
Net realized and unrealized
gains (losses) on securities 0.22 0.90 (0.82) (0.85) (2.08)
-----------------------------------------------------------------
Total from investment operations 0.19 0.88 (0.88) (0.96) (2.10)
- -----------------------------------------------------------------------------------------------------------
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 0.00 (2.23)
-----------------------------------------------------------------
Total distributions 0.00 0.00 0.00 0.00 (2.23)
- -----------------------------------------------------------------------------------------------------------
Net Asset Value, end of period $ 3.58 $ 3.39 $ 2.51 $ 3.39 $ 4.35
=================================================================
TOTAL RETURN* 5.60% 35.06% (25.96%) (22.07%) (23.80%)
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000s) $ 31 $ 34 $ 20 $ 20 $ 29
Ratios to average net assets:
Expenses with reimbursements,
but no earnings credits# 2.09%** 2.76% 3.64% 3.13% 1.55%
Expenses with reimbursements
and earnings credits 2.08%** 2.76% 3.63% 3.11% 1.50%
Net investment loss (1.66%)** (2.27%) (3.29%) (2.57%) (0.98%)
- -----------------------------------------------------------------------------------------------------------
Portfolio turnover rate@ 134% 160% 216% 214% 226%
</Table>
+ COMPUTED USING AVERAGE SHARES OUTSTANDING THROUGHOUT THE PERIOD.
* SALES CHARGES ARE NOT REFLECTED IN THE TOTAL RETURN.
** ANNUALIZED.
# CERTAIN FEES WERE REIMBURSED OR WAIVED BY THE MANAGEMENT COMPANY OR ITS
AFFILIATES. HAD THESE FEES NOT BEEN REIMBURSED OR WAIVED, THE EXPENSE RATIOS
WOULD HAVE BEEN 2.09% (2004), 2.76% (2003), 10.30% (2002), 28.91% (2001), AND
1.55% (2000).
@ 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>
NOTES TO FINANCIAL STATEMENTS
June 30, 2004 (UNAUDITED)
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
Dreyfus Founders Funds, Inc. (the "Company") is an open-end management
investment company registered under the Investment Company Act of 1940 (the
"1940 Act"). 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--A domestic 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 a
security traded on Nasdaq, at its official closing price. Lacking any sales on
that day, the security is valued at the current closing bid price, or by quotes
from dealers making a market in the security if the closing bid price is not
available, or in the case of written call options, at the mean between the
highest bid and lowest asked quotations obtained from at least two securities
dealers.
A foreign equity security traded on a foreign exchange is valued at the last
quoted official closing price available before the time when the Fund's assets
are valued, or at the last quoted sales price if the exchange does not provide
an official closing price or if the foreign market has not yet closed. Lacking
any sales on that day, the security is valued at the current closing bid price,
or by quotes from dealers making a market in the security if the closing bid
price is not available. London closing exchange rates are used to convert
foreign currencies to U.S. dollars.
A debt security with a remaining maturity greater than 60 days at the time of
purchase is valued in accordance with the evaluated bid price supplied by a
pricing service approved by the Company's board of directors or, if such price
is not available, at the mean between the highest bid and lowest asked
quotations obtained from at least two securities dealers. A debt security with a
remaining maturity of 60 days or less at the time of purchase is valued at
amortized cost, which approximates market value, unless it is determined that
amortized cost would not represent market value, in which case the securities
would be marked to market. The Fund amortizes premiums and discounts on all debt
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
24
<Page>
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.
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.
25
<Page>
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, if
any, reduce Other Expenses and would be 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.
SHAREHOLDER SERVICING AND TRANSFER AGENCY FEES FOR CLASS F SHARES--The Company
has a shareholder services agreement with Dreyfus Service Corporation ("DSC"),
the direct owner of Founders and 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. 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. During the six months ended June 30,
2004, Class F shares were charged $87,990 pursuant to this shareholder services
agreement.
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
26
<Page>
charges, the fees charged by DTI with respect to the Fund's Class F shares are
paid by DSC. The out-of-pocket charges incurred by DTI are paid by the Fund.
During the six months ended June 30, 2004, Class F shares were charged $22,412
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 $12.43 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 during the six months ended June 30,
2004 were as follows:
<Table>
<Caption>
TRANSFER
AGENCY FEES
----------------------------------------------------------------
Class A $ 1,337
Class B $ 2,060
Class C $ 426
Class R $ 171
Class T $ 87
</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 1940 Act 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 six months ended June
30, 2004, Class F shares were charged $121,957 pursuant to this Distribution
Plan.
The Fund also has adopted a Distribution Plan pursuant to Rule 12b-1 under the
1940 Act 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.
27
<Page>
Distribution and shareholder servicing fees paid to DSC by the Fund's Class A,
B, C and T shares for the six months ended June 30, 2004, were as follows:
<Table>
<Caption>
DISTRIBUTION SHAREHOLDER
FEES SERVICING FEES
----------------------------------------------------------------
Class A N/A $ 1,517
Class B $ 6,212 $ 2,071
Class C $ 1,501 $ 501
Class T $ 38 $ 38
</Table>
During the six months ended June 30, 2004, DSC retained $5,644 in sales
commissions from the sales of Class A shares. DSC also retained $1,558 and $838
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 and an affiliate of Founders, 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
----------------------------------------------------------------
9/1/03 to 8/31/04 $ 150,000
9/1/04 to 8/31/05 $ 200,000
9/1/05 to 8/31/06 $ 200,000
</Table>
The fee waiver is allocated among the Funds in proportion to their respective
shares of the total custodian fee. For the six months ended June 30, 2004, the
Fund's portion of the fee waiver was $750. 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
28
<Page>
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.
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.
The aggregate cost of investments and the composition of unrealized appreciation
and depreciation of investment securities for federal income tax purposes as of
June 30, 2004 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 $ 100,313,274
Gross Tax Appreciation of Investments $ 19,066,516
Gross Tax Depreciation of Investments $ (1,030,224)
Net Tax Appreciation $ 18,036,292
</Table>
29
<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>
SIX MONTHS ENDED YEAR ENDED
JUNE 30, 2004 DECEMBER 31, 2003
SHARES AMOUNT SHARES AMOUNT
CLASS A
Sold 91,492 $ 337,671 244,735 $ 828,175
Redeemed (162,225) $ (589,396) (90,696) $ (285,977)
--------------------------------------------------------------
Net Increase (Decrease) (70,733) $ (251,725) 154,039 $ 542,198
==============================================================
CLASS B
Sold 41,090 $ 143,799 145,154 $ 449,120
Redeemed (48,071) $ (171,166) (63,928) $ (185,115)
--------------------------------------------------------------
Net Increase (Decrease) (6,981) $ (27,367) 81,226 $ 264,005
==============================================================
CLASS C
Sold 88,164 $ 305,843 56,880 $ 169,451
Redeemed (71,138) $ (244,183) (70,756) $ (221,943)
--------------------------------------------------------------
Net Increase (Decrease) 17,026 $ 61,660 (13,876) $ (52,492)
==============================================================
CLASS F
Sold 1,386,668 $ 5,180,416 19,131,927 $ 50,872,801
Redeemed (16,916,943) $ (62,753,419) (8,999,875) $ (26,336,824)
--------------------------------------------------------------
Net Increase (Decrease) (15,530,275) $ (57,573,003) 10,132,052 $ 24,535,977
==============================================================
CLASS R
Sold 17,309 $ 65,833 15,172 $ 45,615
Redeemed (28,339) $ (102,980) (11,397) $ (35,835)
--------------------------------------------------------------
Net Increase (Decrease) (11,030) $ (37,147) 3,775 $ 9,780
==============================================================
CLASS T
Sold 0 $ 0 2,448 $ 6,710
Redeemed (1,436) $ (4,974) (403) $ (1,238)
--------------------------------------------------------------
Net Increase (Decrease) (1,436) $ (4,974) 2,045 $ 5,472
==============================================================
</Table>
30
<Page>
5. INVESTMENT TRANSACTIONS
Purchases and sales of investment securities (excluding short-term securities
and U.S. government obligations) for the six months ended June 30, 2004 were
$82,479,808 and $137,408,384, 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 June 30, 2004, the Fund did not have any borrowings under the LOC.
7. LEGAL MATTERS
Two class actions have been filed against Mellon Financial Corporation and
Mellon Bank, N.A.; Dreyfus and Founders (the "Investment Advisers"); and the
directors of all or substantially all of the Dreyfus and Dreyfus Founders Funds.
The complaints also name all or substantially all of the Dreyfus and Dreyfus
Founders Funds as nominal defendants. Plaintiffs allege that the Investment
Advisers improperly used assets of the Dreyfus and Dreyfus Founders Funds, in
the form of directed brokerage commissions and 12b-1 fees, to pay brokers to
promote sales of Dreyfus and Dreyfus Founders Funds, and that the use of fund
assets to make these payments was not properly disclosed to investors.
Plaintiffs claim that the Investment Advisers' actions violated the 1940 Act,
the Investment Advisers Act, and common law. The complaints further allege that
the directors breached their fiduciary duties to fund shareholders under the
1940 Act and at common law and that Mellon Financial and Mellon Bank violated
the 1940 Act. The complaints seek unspecified compensatory and punitive damages,
rescission of the funds' contracts with the Investment Advisers, an accounting
of all fees paid, and an award of attorneys' fees and litigation expenses. The
complaints are pending in the same court and have been consolidated into a
single action under the caption IN RE DREYFUS MUTUAL FUNDS FEE LITIGATION.
Founders, Dreyfus, and the Funds believe the allegations in these lawsuits to be
totally without merit and intend to defend the actions vigorously. It is
possible that additional lawsuits arising out of these circumstances and
presenting similar allegations and requests for relief may be filed against the
defendants in the future. Neither Founders, Dreyfus, nor the Funds believe that
the pending actions will have a material adverse effect on the Funds or
Founders' ability to perform its contract with the Funds.
31
<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
PROXY VOTING INFORMATION
A description of the policies and procedures that the Fund uses to determine how
to vote proxies relating to portfolio securities, and information regarding how
the Fund voted these proxies for the 12-month period ended June 30, 2004, is
available through the Fund's website at www.founders.com and on the Securities
and Exchange Commission's website at www.sec.gov. The description of the
policies and procedures is also available without charge, upon request, by
calling 1-800-525-2440.
THIS REPORT AND THE STATEMENTS IT CONTAINS ARE SUBMITTED FOR THE GENERAL
INFORMATION OF OUR SHAREHOLDERS. THE REPORT IS NOT AUTHORIZED FOR DISTRIBUTION
TO PROSPECTIVE INVESTORS UNLESS PRECEDED OR ACCOMPANIED BY AN EFFECTIVE
PROSPECTUS.
Dreyfus Service Corporation, Distributor.
(C) 2004 Founders Asset Management LLC. 8/04
A-636-MC-04
<Page>
[GRAPHIC]
SEMIANNUAL REPORT
DREYFUS FOUNDERS
PASSPORT FUND
INVESTMENT UPDATE
JUNE 30, 2004
[DREYFUS FOUNDERS FUNDS(R) 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
</Table>
PAPERLESS DELIVERY OF THIS REPORT
[GRAPHIC]
Did you know you can reduce your postal mail by accessing Dreyfus Founders Funds
regulatory material online? It's a simple, reliable process: when new documents
such as this Semiannual Report are available, we'll send you an e-mail
notification containing a convenient link that will take you directly to that
Fund information on our website.
To take advantage of this service, simply inform us online of your decision to
receive materials through the Founders E-Communications Program. Cut down on
mailbox clutter and help the Fund reduce printing and postage charges by
enrolling today at www.founders.com/ecommunications. If you own Funds through a
third party, enroll at www.icsdelivery.com.
The views expressed herein are current to the date of this report. The views and
the composition of the Fund's portfolio are subject to change at any time based
on market and other conditions. Companies appearing in bold print on pages 3-9
were owned by the Fund on June 30, 2004. 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 SIX-MONTH PERIOD
ENDED JUNE 30, 2004?
During the first half of the year, Dreyfus Founders Passport Fund underperformed
in large part due to several unforeseen geopolitical events across Asia, which
created an enormous amount of volatility in the markets. The Fund underperformed
its international small-cap benchmark, the Morgan Stanley Capital International
(MSCI) World ex U.S. Small Cap Index, which returned 11.83% for the period.
The Fund also underperformed the large-cap MSCI World ex U.S. Index, which
returned 4.34% for the six-month timeframe.
PLEASE DESCRIBE THE ECONOMIC ENVIRONMENT DURING THE PERIOD.
The first half of 2004 proved to be tenuous for the global investing
environment, resulting in very lackluster performances from the markets.
Numerous factors led to investor apprehension and a narrow trading range in
global markets. Perhaps one of the larger global concerns during the period was
rising oil prices, which approached $42 a barrel, providing a heavy weight on
the world economy. This hike in crude oil costs was attributable to a
combination of increased world demand, terrorist events in both Iraq and Saudi
Arabia, lack of refining capacity, as well as speculative plays on the
commodity. Global investors also worried that supply disruptions due to
terrorism could spike prices even higher.
The Morgan Stanley Capital International (MSCI) World ex U.S. Small Cap Index
measures global performance of small capitalization securities outside of the
United States. The total return figures cited for this index assume change in
security prices and reinvestment of dividends after the deduction of local
taxes, but do not reflect the costs of managing a mutual fund.
[SIDENOTE]
"A POSITIVE INVESTMENT SURPRISE DURING THE PERIOD WAS EVIDENCED IN JAPAN, AS THE
COUNTRY CONTINUED ITS ECONOMIC REBOUND, GROWING AT AN EVEN FASTER RATE THAN THE
UNITED STATES IN THE FIRST HALF OF THE YEAR."
3
<Page>
PERFORMANCE HIGHLIGHTS
- - Numerous factors led to investor apprehension and a narrow trading range in
global markets.
- - Among the top performers in the financials sector were Japanese real estate
firms that benefited from the reflation in this industry.
- - The two countries weighing heaviest on Fund performance were Thailand and
India. Although 2003 had been a good year for both of these markets, the first
half of 2004 proved to be quite different.
- - Although the Fund held little in China, where the government is orchestrating
an economic slowdown due to overheating, the Fund's exposure to this country
hampered relative performance.
The slowing of the Chinese growth engine also played into the hesitant
investing environment during the year's first half. Data showed that China's
attempt to slow its economy has been working. Chinese Premier Wen Jiabao
attempted to decrease China's official growth rate from its 9.1% mark last year
to 7% in 2004 through such tactics as ordering banks to curb lending in nine key
sectors and raising the amount of cash that banks must set aside as reserve.
While most non-Chinese economists estimate China's growth to be higher than the
official 7%, a slowdown was still present.
To date, India has been one of the largest investment surprises of the year.
The government that fostered the outsourcing phenomenon, encouraged market
reforms, and was at least partly responsible for the rapid growth rates in
India, lost to the left-leaning Congress Party in an early May election. The
election outcome was completely unexpected, and as a result, record foreign fund
selling was experienced, toppling the Indian markets.
A positive investment surprise during the period was evidenced in Japan, as
the country continued its economic rebound, growing at an even faster rate than
the United States in the first half of the year. Japan's Tanken survey of
Japanese business sentiment reached a 13-year high, the unemployment rate
continued to fall, earnings continued to surprise to the upside, retail sales
began reviving for the first time, and Japanese exporters continued benefiting
from China's expansion. Even Japan's deflation is forecasted to start easing
next year.
The United States also added to the investing uncertainty. The country's
election year continued to show both candidates running a close race. The widely
expected federal funds rate hike of a quarter percent by the Federal Reserve was
implemented at the June 30 meeting. Also, employment growth in the United States
began lagging economists' expectations.
4
<Page>
DID YOUR INVESTMENT APPROACH LEAD TO ANY CHANGES IN PORTFOLIO COMPOSITION DURING
THE REPORTING PERIOD?
The election results in India were a huge surprise to the investment community,
both in India and abroad. A large number of investors sold off their holdings,
deciding that, in spite of continued strong economic growth in the country, the
uncertainties tied to a government that was likely to take a more socialist
approach may hurt investor sentiment. The Fund, too, sold out of many of its
Indian holdings, preferring to wait until the newly elected Indian government
announced its policies and budget.
WHAT MANAGEMENT DECISIONS BENEFITED FUND PERFORMANCE DURING THE PERIOD?
The Fund outperformed its benchmark in Japan due to strong stock selection, with
several of the best performers listed on the Tokyo Stock Exchange Mothers Index.
The Mothers Index, which was started in 2000 and is comprised of high growth and
emerging stocks, rose by nearly 103% in the first half of the year based on the
continued good economic and corporate earnings news from Japan.
Valued attractively at the time of inclusion in the Fund, several Belgian
stocks appreciated, helping boost relative Fund performance for the period.
Although the Fund's holdings in Australia did not perform as well as
expected, the Fund's underexposure to this country counteracted its poor stock
selection, benefiting relative performance.
The Tokyo Stock Exchange Mothers Index is a market capitalization-weighted index
based on all stocks listed on Mothers and is calculated with the same
methodology used for calculation of TOPIX (Tokyo Stock Price Index).
LARGEST EQUITY HOLDINGS (country of origin; ticker symbol)
<Table>
1. Marlborough Stirling PLC (United Kingdom; MAS) 1.42%
2. Ryohin Keikaku Company Limited (Japan; 7453) 1.27%
3. Cairn Energy PLC (United Kingdom; CNE) 1.27%
4. Germanos SA (Greece; GERM) 1.26%
5. Urbi, Desarrollos Urbanos SA de CV (Mexico; URBI) 1.26%
6. Natura Cosmeticos SA (Brazil; NATU) 1.21%
7. Ichitaka Company Limited (Japan; 2774) 1.21%
8. CTS Eventim AG (Germany; EVD) 1.16%
9. De Vere Group PLC (United Kingdom; DVR) 1.10%
10. Hamakyorex Company Limited (Japan; 9037) 1.10%
</Table>
Portfolio holdings are subject to change, and should not be construed as a
recommendation of any security.
5
<Page>
GROWTH OF $10,000 INVESTMENT
PERFORMANCE DATA QUOTED REPRESENTS PAST PERFORMANCE. PAST PERFORMANCE
DOES NOT GUARANTEE FUTURE RESULTS. INVESTMENT RETURN AND PRINCIPAL VALUE OF AN
INVESTMENT WILL FLUCTUATE SO THAT AN INVESTOR'S SHARES, WHEN REDEEMED, MAY BE
WORTH MORE OR LESS THAN THEIR ORIGINAL COST. CURRENT PERFORMANCE MAY BE LOWER OR
HIGHER THAN THE PERFORMANCE DATA QUOTED. PLEASE CALL 1-800-525-2440 TO OBTAIN
THE MOST RECENT MONTH-END PERFORMANCE DATA.
[CHART]
The above graph compares a $10,000 investment made in Class F shares of Dreyfus
Founders Passport Fund on 6/30/94 to a $10,000 investment made in an unmanaged
securities index on that date. The Fund's performance assumes the reinvestment
of dividends and capital gain distributions, but does not reflect the deduction
of taxes that a shareholder would pay on Fund distributions or redemption of
Fund shares. The Fund offers multiple classes of shares. Performance shown is
for Class F, which is open only to grandfathered investors. The Fund's
performance in the graph takes into account all applicable Class F fees and
expenses, subject to applicable fee waivers. 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 ex U.S. Index measures
global developed market equity performance outside of the United States. 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>
An underweight position in Italy also buoyed relative Fund performance during
the period, as did a strong selection of German stocks.
When examining sectors, strong stock selection in the financials sector was
the largest contributor to Fund performance during the period. Among the top
performers in the financials sector were Japanese real estate firms that
benefited from the reflation in this industry. Secured Capital Japan Company,
Limited showed strong growth throughout the period as well as a high market
share in its industry. AREALINK COMPANY LIMITED was valued attractively during
the period and produced very strong growth due to its "value-up" theme that
provides new uses for unused real estate assets. IDU COMPANY, which provides an
internet-based
AVERAGE ANNUAL AND YEAR-TO-DATE TOTAL RETURN AS OF 6/30/04
<Table>
<Caption>
YEAR-TO- 1 5 10 SINCE
CLASS (Inception Date) DATE+ YEAR YEARS YEARS INCEPTION
------------------------------------------------------------------------------
CLASS A SHARES (12/31/99)
With sales charge (5.75%) (3.24%) 38.05% -- -- (8.09%)
Without sales charge 2.67% 46.49% -- -- (6.88%)
CLASS B SHARES (12/31/99)
With redemption* (1.75%) 41.36% -- -- (7.97%)
Without redemption 2.25% 45.36% -- -- (7.60%)
CLASS C SHARES (12/31/99)
With redemption** 1.33% 44.45% -- -- (7.63%)
Without redemption 2.33% 45.45% -- -- (7.63%)
CLASS F SHARES (11/16/93) 2.67% 46.64% 4.47% 8.52% 7.67%
CLASS R SHARES (12/31/99) 2.89% 47.21% -- -- (7.46%)
CLASS T SHARES (12/31/99)
With sales charge (4.50%) (2.16%) 39.42% -- -- (8.64%)
Without sales charge 2.48% 45.95% -- -- (7.70%)
</Table>
Average annual and year-to-date total returns do not reflect the deduction of
taxes that a shareholder would pay on Fund distributions or redemption of Fund
shares, but do reflect the reinvestment of dividends and capital gain
distributions, fee waivers, and adjustments for financial statement purposes.
Part of the Fund's historical performance is due to the purchase of securities
sold in initial public offerings (IPOs). There is no guarantee that the Fund's
investments in IPOs, if any, will continue to have a similar impact on
performance. There are risks associated with small-cap investments such as
limited product lines, less liquidity, and small market share. Investments in
foreign securities may entail unique risks, including political, market, and
currency risks.
*The maximum contingent deferred sales charge for Class B shares is 4% and is
reduced to 0% after six years, at which time the Class B shares convert to Class
A shares.
**The maximum contingent deferred sales charge for Class C shares is 1% for
shares redeemed within one year of the date of purchase.
+ Total return is not annualized.
7
<Page>
clearing mechanism for distressed real estate, also exhibited strong earnings
during the period. Yasuragi Company Limited benefited from Japan's asset
reflation trend as well.
Internet-based companies also proved beneficial to the Fund during the
period. Global Media Online, Inc. reaped the benefits of very strong internet
earnings throughout Japan. ICHITAKA COMPANY LIMITED, which formerly had most of
its business in petroleum-based products, has been expanding its e-billing
software business and has profited greatly from this new emphasis, producing
strong sales returns.
CAIRN ENERGY PLC also positively contributed to relative Fund performance due
mainly to new oil discoveries in India.
WHAT MANAGEMENT DECISIONS HINDERED FUND PERFORMANCE DURING THE PERIOD?
The two countries weighing heaviest on Fund performance were Thailand and India.
Although 2003 had been a good year for both of these markets, the first half of
2004 proved to be quite different. As it appeared that interest rates would
start rising around the world, investors became more risk-averse, pulling funds
out of emerging markets overall, taking gains even though fundamentals did not
drastically change. India was additionally hampered by the surprise election
outcome. Rediff.com India Limited ADR was one such Fund holding that fell in the
decline of the Indian markets after May's surprise election.
[CHART]
PORTFOLIO COMPOSITION
<Table>
Japan 35.66%
United Kingdom 13.18%
Canada 4.83%
Germany 3.75%
France 3.66%
Greece 3.25%
Italy 3.20%
Switzerland 2.61%
Other Countries 26.40%
Cash & Equivalents 3.46%
</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>
Although the Fund held little in China, where the government is orchestrating
an economic slowdown due to overheating, the Fund's exposure to this country
hampered relative performance. One Chinese security in particular,
telecommunications services company YANGTZE TELECOM CORPORATION, was detrimental
to relative performance. Yangtze proved too small to gain critical mass as
competition intensified in China. Cytos Biotechnology AG also proved to be an
underperforming security as the issuance of new shares placed downward pressure
on the stock price.
South Korea and Malaysia, countries in which the MSCI World ex U.S. Small Cap
Index does not invest, suffered during the period as well, reducing the Fund's
overall relative return.
The Fund experienced negative relative performance in most sectors, but the
consumer discretionary, industrials and materials sectors had the largest
negative impact during the period through poor stock selection. Monstermob Group
PLC, a United Kingdom-based company supplying various mobile phone content, was
the Fund's worst performer in the consumer discretionary sector. Materials issue
Yamana Gold, Inc. also underperformed due to weakness in the gold price during
the holding period.
The telecommunications services sector also hindered performance due to poor
stock selection, such as the aforementioned Yangtze Telecom Corporation.
Other underperforming issues included Bio-Treat Technology Limited and PT
Limas Stokhomindo Tbk, an Indonesian company that provides financial and news
information services. Limas' stock price dropped after additional company shares
were placed in the market.
As 2004 continues, we remain committed to our fundamental-based investment
strategy to seek international small-cap companies with strong growth potential.
/s/ Tracy P. Stouffer
Tracy Stouffer, CFA
Portfolio Manager
9
<Page>
STATEMENT OF INVESTMENTS
June 30, 2004 (UNAUDITED)
<Table>
<Caption>
SHARES MARKET VALUE
- ---------------------------------------------------------------------------------
COMMON STOCKS (FOREIGN)--95.0%
ADVERTISING--1.2%
360,850 Aegis Group PLC (UK) $ 587,340
76,650 Trader Classifed Media NV Class A (NE)* 867,314
------------
1,454,654
------------
AIRLINES--0.5%
521 Skymark Airlines Company Limited (JA)* 606,397
------------
AIRPORT SERVICES--0.8%
88,000 Japan Airport Terminal Company Limited (JA) 935,527
------------
APPAREL, ACCESSORIES & LUXURY GOODS--2.3%
164,000 Descente Limited (JA) 655,309
61,100 Marimekko Oyj (FI) 834,838
14,800 Sanei-International Company Limited (JA) 686,322
20,000 Wolford AG (AT)* 672,831
------------
2,849,300
------------
APPLICATION SOFTWARE--3.0%
17,600 Artwork Systems Group NV (BE)* 211,997
100,000 Gresham Computing PLC (UK)* 625,680
24,850 MandrakeSoft (FR)* 185,944
1,486,675 Marlborough Stirling PLC (UK) 1,732,297
335,650 Telelogic AB (SW)* 579,245
26,600 Yaskawa Information Systems Corporation (JA) 299,849
------------
3,635,012
------------
AUTO PARTS & EQUIPMENT--2.4%
1,069,600 Aapico Hitech Public Company Limited Foreign Shares
(TH) 784,836
50,500 Finnveden AB (SW)* 447,481
44,000 Nifco, Inc. (JA) 696,806
118,000 Toyo Radiator Company Limited (JA) 592,622
375,800 Westport Innovations, Inc. (CA)* 459,660
------------
2,981,405
------------
AUTOMOBILE MANUFACTURERS--0.9%
114,300 Mahindra & Mahindra Limited (IN) 1,098,747
------------
</Table>
GUIDE TO UNDERSTANDING FOREIGN HOLDINGS
The following abbreviations are used throughout the Statement of Investments to
indicate the country of origin on non-U.S. holdings.
AU Australia
AT Austria
BD Bermuda
BE Belgium
BR Brazil
CA Canada
CI Channel Islands
CN China
CY Cyprus
DE Denmark
FI Finland
FR France
GE Germany
GR Greece
HK Hong Kong
ID Indonesia
IE Ireland
IN India
IT Italy
JA Japan
MA Malaysia
MX Mexico
NE Netherlands
NW Norway
PT Portugal
RS Russia
SG Singapore
SL Solvak Republic
SP Spain
SW Sweden
SZ Switzerland
TH Thailand
UK United Kingdom
10
<Page>
<Table>
<Caption>
SHARES MARKET VALUE
- ---------------------------------------------------------------------------------
BIOTECHNOLOGY--0.4%
40,000 Biocon Limited 144A (IN)+ $ 435,889
------------
BROADCASTING & CABLE TV--0.2%
13,025 Central European Media Enterprises Limited Class A
(SL)* 295,928
------------
BUILDING PRODUCTS--1.3%
300,000 Nitto Boseki Company Limited (JA) 651,606
98,400 Pfleiderer AG Registered Shares (GE)* 915,878
------------
1,567,484
------------
COMMODITY CHEMICALS--0.2%
10,700 Nihon Micro Coating Company Limited (JA) 234,367
------------
COMMUNICATIONS EQUIPMENT--3.1%
68,000 GN Store Nord AS (DE)* 601,051
387,325 Mitec Telecom, Inc. (CA)* 727,968
174,127 Mobilezone Holding AG (SZ)* 582,555
51,625 Option International NV (BE)* 1,309,626
127,000 Tamura Taiko Holdings, Inc. (JA)* 616,872
------------
3,838,072
------------
COMPUTER & ELECTRONICS RETAIL--1.8%
53,480 Germanos SA (GR) 1,544,732
425,900 JB Hi-Fi Limited (AU) 682,389
------------
2,227,121
------------
COMPUTER STORAGE & PERIPHERALS--0.4%
10,000 Roland DG Corporation (JA) 486,643
------------
CONSTRUCTION & ENGINEERING--1.5%
187,000 Chiyoda Corporation (JA) 1,328,186
123,430 Lamda Development SA (GR) 528,621
------------
1,856,807
------------
CONSTRUCTION MATERIALS--1.2%
45,600 Advan Company Limited (JA) 603,041
118,400 Socotherm SPA (IT) 864,339
------------
1,467,380
------------
CONSUMER FINANCE--2.2%
134,300 Lopro Corporation (JA) 916,955
15,000 Sanyo Shinpan Finance Company Limited (JA) 856,436
116,800 Shinki Company Limited (JA) 952,683
------------
2,726,074
------------
DEPARTMENT STORES--0.8%
517,500 Lifestyle International Holdings Limited (HK)* 633,622
61,000 Matsuzakaya Company Limited (JA) 289,584
------------
923,206
------------
DIVERSIFIED BANKS--0.4%
175,310 Bank of Cyprus Limited (CY)* 507,650
------------
DIVERSIFIED CHEMICALS--0.5%
71,000 Nissan Chemical Industries Limited (JA) 570,655
------------
</Table>
SEE NOTES TO STATEMENT OF INVESTMENTS.
11
<Page>
<Table>
<Caption>
SHARES MARKET VALUE
- ---------------------------------------------------------------------------------
DIVERSIFIED COMMERCIAL SERVICES--3.2%
41 MOC Corporation (JA) $ 290,831
41 MOC Corporation New Shares (JA)*^# 276,289
416,400 PHS Group PLC (UK) 619,238
250 Quin Land Company Limited (JA) 888,970
664,000 Raffles Lasalle Limited (SG) 424,035
25,125 Techem AG (GE)* 645,015
28,800 Watabe Wedding Corporation (JA) 739,037
------------
3,883,415
------------
DIVERSIFIED METALS & MINING--2.0%
195,000 Excel Coal Limited (AU)* 359,979
16,000,000 PT Bumi Resources Tbk (ID) 978,463
36,600 Sumitomo Titanium Corporation (JA) 1,160,574
------------
2,499,016
------------
DRUG RETAIL--0.8%
17,500 Sundrug Company Limited (JA) 986,345
------------
ELECTRICAL COMPONENTS & EQUIPMENT--0.5%
239,000 GS Yuasa Corporation (JA) 584,823
------------
ELECTRONIC EQUIPMENT MANUFACTURERS--3.8%
250,750 Cardpoint PLC (UK)* 586,629
173,942 CSR PLC (UK)* 1,274,439
15,325 Funkwerk AG (GE) 570,749
50,300 Ingenico SA (FR) 919,219
85,025 Leitch Technology Corporation (CA)* 594,820
1,500 SAIA-Burgess Electronics AG (SZ) 718,620
------------
4,664,476
------------
EMPLOYMENT SERVICES--0.5%
251,800 Proffice AB (SW) 628,414
------------
ENVIRONMENTAL SERVICES--1.4%
24,225 BWT AG (AT) 632,226
200 Citron Holding AG Centre International de Traitements
et de Recyclage des Ordures Novices (SZ)* 59,885
8,225 Zenon Environmental, Inc. (CA)* 141,091
50,000 Zenon Environmental, Inc. 144A (CA)*+ 857,697
------------
1,690,899
------------
FOOD DISTRIBUTORS--0.8%
8,566,000 Heng Tai Consumables Group Limited (HK) 999,392
------------
FOOD RETAIL--1.5%
82,900 Jeronimo Martins SGPS SA (PT)* 927,948
15,339 Jeronimo Martins SGPS SA Provisional Certificates
(PT)*^# 171,698
15,000 Ozeki Company Limited (JA) 783,577
------------
1,883,223
------------
GAS UTILITIES--0.5%
370,000 AMGA SPA Azienda Mediterranea Gas e Acqua (IT) 578,927
------------
</Table>
12
<Page>
<Table>
<Caption>
SHARES MARKET VALUE
- ---------------------------------------------------------------------------------
GENERAL MERCHANDISE STORES--1.3%
30,000 Ryohin Keikaku Company Limited (JA) $ 1,547,908
------------
HEALTHCARE FACILITIES--0.9%
1,500,000 Bangkok Dusit Medical Services Public Company
Foreign Shares (TH) 392,565
67,600 Capio AB (SW)* 655,091
------------
1,047,656
------------
HEALTHCARE SERVICES--1.6%
44,000 Falco Biosystems Limited (JA) 588,737
73,050 iSOFT Group PLC (UK) 573,643
244 Japan Longlife Company Limited (JA) 825,148
------------
1,987,528
------------
HIGHWAYS & RAILTRACKS--1.0%
110,975 Societa Iniziative Autostradali e Servizi SPA (IT) 1,250,308
------------
HOME IMPROVEMENT RETAIL--1.0%
45,500 Komeri Company Limited (JA) 1,217,614
------------
HOMEBUILDING--0.1%
10,000 Desarrolladora Homex SA de CV ADR (MX)* 173,100
------------
HOTELS, RESORTS & CRUISE LINES--3.1%
168,960 De Vere Group PLC (UK) 1,348,248
19,800 H.I.S. Company Limited (JA) 602,447
102,530 Hyatt Regency Hotels and Tourism SA (GR) 1,052,869
120,925 Millennium & Copthorne Hotels PLC (UK) 745,638
------------
3,749,202
------------
HOUSEHOLD APPLIANCES--0.5%
107,010 Fourlis SA (GR) 624,952
------------
INDUSTRIAL MACHINERY--5.3%
27,350 Andritz AG (AT) 1,340,047
302,700 Charter PLC (UK)* 916,774
20,250 Domino Printing Sciences PLC (UK) 87,240
46,000 Ihara Science Corporation (JA) 425,789
150,000 Kitz Corporation (JA) 662,604
83,000 Nissei ASB Machine Company Limited (JA) 395,546
290,725 Pursuit Dynamics PLC (UK)* 652,470
17,100 Shima Seiki Manufacturing Limited (JA) 581,414
3,500 SIG Holding AG (SZ) 632,985
69,400 Suzumo Machinery Company Limited (JA) 750,511
------------
6,445,380
------------
INTEGRATED OIL & GAS--0.5%
24,100 PetroKazakhstan, Inc. (CA) 651,210
------------
INTEGRATED TELECOMMUNICATION SERVICES--1.7%
22,219 Golden Telecom, Inc. (RS) 625,243
13,447,900 Jasmine International Public Company
Limited Foreign Shares (TH)* 276,293
175 Mitsui & Associates Telepark Corporation (JA) 527,654
450,000 Pipex Communications PLC (UK)* 80,794
41,100 Rostelecom Sponsored ADR (RS) 531,012
------------
2,040,996
------------
</Table>
SEE NOTES TO STATEMENT OF INVESTMENTS.
13
<Page>
<Table>
<Caption>
SHARES MARKET VALUE
- ---------------------------------------------------------------------------------
INTERNET RETAIL--0.7%
210 BB Net Corporation (JA)* $ 894,927
------------
INTERNET SOFTWARE & SERVICES--0.6%
298,950 Certicom Corporation (CA)* 758,077
------------
IT CONSULTING & OTHER SERVICES--0.3%
25 VeriServe Corporation (JA)* 375,750
------------
LEISURE PRODUCTS--0.5%
2,425 Kompan AS (DE) 365,181
24,875 MIFA Mitteldeutsche Fahrradwerke AG (GE)* 273,295
------------
638,476
------------
MARINE--1.0%
322,000 Jinhui Holdings Limited (HK)* 594,477
704,100 Precious Shipping Public Company
Limited Foreign Shares (TH) 598,446
------------
1,192,923
------------
METAL & GLASS CONTAINERS--0.6%
1,375 Vetropack Holding AG (SZ) 702,651
------------
MOVIES & ENTERTAINMENT--1.7%
84,128 CTS Eventim AG (GE)* 1,422,776
18,800 Tohokushinsha Film Corporation (JA) 601,311
------------
2,024,087
------------
OFFICE ELECTRONICS--0.4%
8,650 Neopost SA (FR) 511,275
------------
OFFICE SERVICES & SUPPLIES--0.5%
75,000 Okamura Corporation (JA) 611,740
------------
OIL & GAS DRILLING--1.1%
2,410,000 China Oilfield Services Limited (CN) 687,486
2,160,000 Crest Petroleum Berhad (MA) 619,579
------------
1,307,065
------------
OIL & GAS EQUIPMENT & SERVICES--1.9%
14,950 Compagnie Generale de Geophysique SA (FR)* 913,116
1,698,000 Scomi Group Berhad (MA) 576,426
8,100 Vallourec SA (FR) 794,823
------------
2,284,365
------------
OIL & GAS EXPLORATION & PRODUCTION--3.5%
60,525 Cairn Energy PLC (UK)* 1,547,701
18,450,000 Emerald Energy PLC (UK)* 451,714
122,925 Fairborne Energy Limited (CA)* 939,723
35,125 First Calgary Petroleums Limited (CA)* 292,097
300,000 Hardman Resources Limited (AU)* 401,254
47,675 Lundin Petroleum AB (SW)* 253,153
30,000 Opti Canada, Inc. 144A (CA)*+ 419,526
------------
4,305,168
------------
OIL & GAS REFINING, MARKETING, & TRANSPORTATION--1.7%
127,000 Ichitaka Company Limited (JA) 1,478,165
9,460,000 Titan Petrochemicals Group Limited (HK)* 630,683
------------
2,108,848
------------
</Table>
14
<Page>
<Table>
<Caption>
SHARES MARKET VALUE
- ---------------------------------------------------------------------------------
PACKAGED FOODS & MEATS--2.8%
800 A. Hiestand Holding AG (SZ)* $ 456,723
346,900 Gruma SA de CV Class B (MX) 571,499
80,750 Koninklijke Wessanen NV (NE) 1,161,291
63,000 Nippon Flour Mills Company Limited (JA) 308,317
204,000 Nisshin Oillio Group Limited (JA) 927,315
------------
3,425,145
------------
PERSONAL PRODUCTS--2.1%
5,800 Ales Groupe (FR) 273,805
92,000 Natura Cosmeticos SA (BR)* 1,479,070
50,000 Pigeon Corporation (JA) 833,066
------------
2,585,941
------------
PHARMACEUTICALS--2.0%
35,000 Hisamitsu Pharmaceuticals Company, Inc. (JA) 647,940
42,800 Orion-Yhtyma Oyj B Shares (FI) 1,098,771
15,000 Sawai Pharmaceutical Company Limited (JA) 632,360
------------
2,379,071
------------
PUBLISHING--1.0%
149,500 Incisive Media PLC (UK) 363,312
5,225 SPIR Communication (FR) 830,253
------------
1,193,565
------------
RAILROADS--0.3%
150,000 Nankai Electric Railway Company Limited (JA) 389,039
------------
REAL ESTATE MANAGEMENT & DEVELOPMENT--6.7%
15,000 Aeon Mall Company Limited (JA) 892,178
275 Arealink Company Limited (JA) 965,266
5,291,400 Asian Property Development Public Company
Limited Foreign Shares (TH) 559,101
335,000 Expomedia Group PLC (UK)* 990,297
31 Idu Company (JA)* 115,062
279 Idu Company New Shares (JA)* 715,942
406,300 Immsi SPA (IT) 739,042
50 RISA Partners, Inc. (JA)* 279,522
150 RISA Partners, Inc. New Shares (JA)* 679,100
25,000 Urban Corporation (JA) 767,539
477,550 Urbi, Desarrollos Urbanos SA de CV (MX)* 1,536,210
------------
8,239,259
------------
REGIONAL BANKS--0.4%
74,775 Banco di Desio e della Brianza SPA (IT) 434,876
------------
RESTAURANTS--1.6%
201,100 Alsea SA de CV (MX) 313,865
11,800 Karula Company Limited (JA) 592,622
107,875 TelePizza SA (SP) 212,626
45 Y's Table Corporation (JA)* 298,996
90 Y's Table Corporation New Shares (JA)*^# 568,093
------------
1,986,202
------------
</Table>
SEE NOTES TO STATEMENT OF INVESTMENTS.
15
<Page>
<Table>
<Caption>
SHARES MARKET VALUE
- ---------------------------------------------------------------------------------
SPECIALTY CHEMICALS--0.4%
100,000 Daicel Chemical Industries Limited (JA) $ 525,134
------------
SPECIALTY STORES--1.0%
9,850 Hellenic Duty Free Shops SA (GR) 187,676
1,100 Nafco Company Limited (JA) 32,159
92 Village Vanguard Company Limited (JA)* 961,188
------------
1,181,023
------------
STEEL--0.7%
198,000 Godo Steel Limited (JA) 909,114
------------
TIRES & RUBBER--1.0%
8,100 Nokian Renkaat Oyj (FI) 789,107
373,400 Sri Trang Agro-Industry Public Company
Limited Foreign Shares (TH) 367,601
------------
1,156,708
------------
TRUCKING--1.1%
37,600 Hamakyorex Company Limited (JA) 1,340,457
------------
WATER UTILITIES--2.3%
109,675 AWG PLC (UK) 1,165,570
36,412,100 AWG PLC Redeemable Shares (UK)* 66,036
358,900 Northumbrian Water Group PLC (UK) 885,209
45,425 Pennon Group PLC (UK) 652,871
------------
2,769,686
------------
TOTAL COMMON STOCKS (FOREIGN)
(COST--$107,956,097) 116,063,674
------------
PREFERRED STOCKS (FOREIGN)--0.6%
INDUSTRIAL MACHINERY--0.6%
6,950 Krones AG (GE) 711,997
------------
TOTAL PREFERRED STOCKS (FOREIGN)
(COST--$670,659) 711,997
------------
<Caption>
UNITS MARKET VALUE
- ---------------------------------------------------------------------------------
FOREIGN RIGHTS AND WARRANTS--0.0%
INDUSTRIAL CONGLOMERATES--0.0%
204,677 Media Prima Berhad ICULS (MA) $ 41,474
------------
INTEGRATED TELECOMMUNICATION SERVICES--0.0%
600,000 Yangtze Telecom Corporation Warrants (CN)*^# 0
------------
TOTAL FOREIGN RIGHTS AND WARRANTS
(COST--$53,933) 41,474
------------
</Table>
16
<Page>
<Table>
<Caption>
PRINCIPAL AMOUNT AMORTIZED COST
- ---------------------------------------------------------------------------------
CORPORATE SHORT-TERM NOTES--4.8%
AGRICULTURAL PRODUCTS--4.8%
$ 5,900,000 Archer-Daniels-Midland Company
1.43% 7/1/04+ $ 5,900,000
-------------
TOTAL CORPORATE SHORT-TERM NOTES
(AMORTIZED COST--$5,900,000) 5,900,000
-------------
TOTAL INVESTMENTS--100.4%
(TOTAL COST--$114,580,689) 122,717,145
-------------
OTHER ASSETS AND LIABILITIES--(0.4%) (460,301)
-------------
NET ASSETS--100.0% $ 122,256,844
=============
</Table>
NOTES TO STATEMENT OF INVESTMENTS
* NON-INCOME PRODUCING.
+ SECURITY WAS ACQUIRED PURSUANT TO RULE 144A OR SECTION 4(2) OF THE SECURITIES
ACT OF 1933 AND MAY BE DEEMED TO BE RESTRICTED FOR RESALE.
# FAIR VALUED SECURITY.
ADR - AMERICAN DEPOSITARY RECEIPT
ICULS - IRREDEEMABLE CONVERTIBLE UNSECURED LOAN STOCK
^ SCHEDULE OF RESTRICTED AND ILLIQUID SECURITIES:
<Table>
<Caption>
ACQUISITION ACQUISITION VALUE AS %
DATE COST VALUE OF NET ASSETS
----------- ----------- ----------- -------------
JERONIMO MARTINS SGPS
SA PROVISIONAL CERTIFICATES (PT) 6/25/04 $ 163,682 $ 171,698 0.14%
MOC CORPORATION
NEW SHARES (JA) 6/25/04 254,591 276,289 0.23%
Y'S TABLE CORPORATION
NEW SHARES (JA) 5/26/04 662,391 568,093 0.46%
YANGTZE TELECOM
CORPORATION WARRANTS (CN) 3/8/04 0 0 0.00%
----------- ----------- -------------
$ 1,080,664 $ 1,016,080 0.83%
</Table>
THE FUND MAY HAVE REGISTRATION RIGHTS FOR CERTAIN RESTRICTED SECURITIES, WHICH
MAY REQUIRE THAT REGISTRATION COSTS BE BORNE BY THE FUND.
17
<Page>
STATEMENT OF ASSETS AND LIABILITIES
June 30, 2004 (UNAUDITED)
<Table>
ASSETS
Investment securities, at cost $ 114,580,689
---------------
Investment securities, at market 122,717,145
Cash 344,478
Foreign currency (cost $102,049) 98,823
Receivables:
Investment securities sold 3,760,262
Capital shares sold 1,441,728
Dividends 109,623
Other 126,583
---------------
Total Assets 128,598,642
---------------
LIABILITIES
Payables and other accrued liabilities:
Investment securities purchased 5,656,637
Capital shares redeemed 105,682
Advisory fees 96,225
Shareholder servicing fees 28,406
Accounting fees 9,622
Distribution fees 28,296
Transfer agency fees 57,134
Custodian fees 74,758
India and Thailand taxes 94,542
To transfer agent 227
Other 190,269
---------------
Total Liabilities 6,341,798
---------------
Net Assets $ 122,256,844
===============
COMPOSITION OF NET ASSETS
Capital (par value and paid-in surplus) $ 268,253,337
Accumulated net investment loss (578,543)
Accumulated net realized loss from security transactions
(net of foreign taxes paid on Thailand investments of $137,086) (153,458,442)
Net unrealized appreciation on investments
and foreign currency translation 8,040,492
---------------
Total $ 122,256,844
===============
</Table>
18
<Page>
<Table>
CLASS A
Net Assets $ 22,749,407
Shares Outstanding 1,555,638
Net Asset Value, Redemption Price Per Share $ 14.62
Maximum offering price per share (net asset value
plus sales charge of 5.75% of offering price) $ 15.51
CLASS B
Net Assets $ 17,556,907
Shares Outstanding 1,245,031
Net Asset Value, Offering and Redemption Price (excluding
applicable contingent deferred sales charge) Per Share $ 14.10
CLASS C
Net Assets $ 10,678,028
Shares Outstanding 758,397
Net Asset Value, Offering and Redemption Price (excluding
applicable contingent deferred sales charge) Per Share $ 14.08
CLASS F
Net Assets $ 70,571,417
Shares Outstanding 4,826,149
Net Asset Value, Offering and Redemption Price Per Share $ 14.62
CLASS R
Net Assets $ 230,532
Shares Outstanding 16,211
Net Asset Value, Offering and Redemption Price Per Share $ 14.22
CLASS T
Net Assets $ 470,553
Shares Outstanding 33,522
Net Asset Value, Redemption Price Per Share $ 14.04
Maximum offering price per share (net asset value
plus sales charge of 4.50% of offering price) $ 14.70
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
19
<Page>
STATEMENT OF OPERATIONS
For the six months ended June 30, 2004 (UNAUDITED)
<Table>
INVESTMENT INCOME
Dividends $ 873,788
Interest 34,181
Foreign taxes withheld (82,424)
---------------
Total Investment Income 825,545
---------------
EXPENSES
Advisory fees--Note 2 662,197
Shareholder servicing fees--Note 2 107,163
Accounting fees--Note 2 66,220
Distribution fees--Note 2 204,557
Transfer agency fees--Note 2 85,661
Registration fees 35,300
Postage and mailing expenses 6,308
Custodian fees and expenses--Note 2 244,350
Printing expenses 12,844
Legal and audit fees 9,353
Directors' fees and expenses--Note 2 11,112
Other expenses 14,488
---------------
Total Expenses 1,459,553
Earnings Credits (2,013)
Reimbursed/Waived Expenses (59,789)
Expense Offset to Broker Commissions (3,700)
---------------
Net Expenses 1,394,051
---------------
Net Investment Loss (568,506)
---------------
REALIZED AND UNREALIZED GAIN (LOSS) ON SECURITY
TRANSACTIONS AND FOREIGN CURRENCY TRANSACTIONS
Net Realized Gain (Loss) on:
Security Transactions (net of foreign taxes paid
on Thailand investments of $137,086) 6,633,096
Foreign Currency Transactions (173,176)
---------------
Net Realized Gain 6,459,920
Net Change in Unrealized Appreciation/Depreciation of Investments
and Foreign Currency Translation (3,578,735)
---------------
Net Realized and Unrealized Gain 2,881,185
---------------
Net Increase in Net Assets Resulting from Operations $ 2,312,679
===============
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
20
<Page>
STATEMENTS OF CHANGES IN NET ASSETS
(UNAUDITED)
<Table>
<Caption>
SIX MONTHS ENDED YEAR ENDED
6/30/04 12/31/03
OPERATIONS
Net Investment Loss $ (568,506) $ (713,841)
Net Realized Gain on Security and
Foreign Currency Transactions 6,459,920 40,877,636
Net Change in Unrealized Appreciation/Depreciation
of Investments and Foreign Currency Translation (3,578,735) 14,435,879
--------------- ---------------
Net Increase in Net Assets Resulting from Operations 2,312,679 54,599,674
--------------- ---------------
CAPITAL SHARE TRANSACTIONS
Net Increase (Decrease)--Note 4
Class A (4,425,790) 8,132,869
Class B (1,066,042) (2,705,719)
Class C (50,539) 1,905,536
Class F (10,044,172) (4,988,538)
Class R 83,260 23,012
Class T (65,017) (77,846)
--------------- ---------------
Net Increase (Decrease) from
Capital Share Transactions (15,568,300) 2,289,314
--------------- ---------------
Net Increase (Decrease) in Net Assets (13,255,621) 56,888,988
--------------- ---------------
NET ASSETS
Beginning of period $ 135,512,465 $ 78,623,477
--------------- ---------------
End of period $ 122,256,844 $ 135,512,465
=============== ===============
Accumulated Net Investment Loss $ (578,543) $ (10,037)
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
21
<Page>
FINANCIAL HIGHLIGHTS
(UNAUDITED)
<Table>
<Caption>
SIX MONTHS YEAR ENDED
ENDED JUNE 30, DECEMBER 31,
2004 2003 2002 2001 2000
-------------- -------------------------------------------
CLASS A SHARES
PER SHARE OPERATING DATA
Net Asset Value, beginning of period $ 14.24 $ 8.14 $ 9.68 $ 14.18 $ 22.93
- ---------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.05)+ 0.10 (0.16) (0.14) (0.13)
Net realized and unrealized gains
(losses) on securities 0.43 6.00 (1.38) (4.36) (6.65)
--------------------------------------------------------------
Total from investment operations 0.38 6.10 (1.54) (4.50) (6.78)
- ---------------------------------------------------------------------------------------------------------
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 0.00 (1.97)
--------------------------------------------------------------
Total distributions 0.00 0.00 0.00 0.00 (1.97)
- ---------------------------------------------------------------------------------------------------------
Net Asset Value, end of period $ 14.62 $ 14.24 $ 8.14 $ 9.68 $ 14.18
==============================================================
TOTAL RETURN* 2.67% 74.94% (15.91%) (31.74%) (29.61%)
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000s) $ 22,749 $ 27,252 $ 9,422 $ 14,033 $ 36,353
Ratios to average net assets:
Expenses with reimbursements,
but no earnings credits# 1.93%** 2.45% 2.24% 1.88% 1.61%
Expenses with reimbursements
and earnings credits 1.93%** 2.45% 2.24% 1.87% 1.59%
Net investment loss (0.69%)** (0.83%) (0.80%) (0.26%) (0.80%)
- ---------------------------------------------------------------------------------------------------------
Portfolio turnover rate@ 690% 707% 495% 704% 535%
</Table>
+ COMPUTED USING AVERAGE SHARES OUTSTANDING THROUGHOUT THE PERIOD.
* SALES CHARGES ARE NOT REFLECTED IN THE TOTAL RETURN.
** ANNUALIZED.
# CERTAIN FEES WERE WAIVED BY THE CUSTODIAN. HAD THESE FEES NOT BEEN WAIVED,
THE EXPENSE RATIOS WOULD HAVE BEEN 2.02% (2004), 2.54% (2003), 2.27% (2002),
1.88% (2001), AND 1.61% (2000).
@ 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>
<Table>
<Caption>
SIX MONTHS YEAR ENDED
ENDED JUNE 30, DECEMBER 31,
2004 2003 2002 2001 2000
-------------- -------------------------------------------
CLASS B SHARES
PER SHARE OPERATING DATA
Net Asset Value, beginning of period $ 13.79 $ 7.95 $ 9.54 $ 14.08 $ 22.93
- ---------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment loss (0.10)+ (0.31) (0.29) (0.18) (0.23)
Net realized and unrealized gains
(losses) on securities 0.41 6.15 (1.30) (4.36) (6.65)
--------------------------------------------------------------
Total from investment operations 0.31 5.84 (1.59) (4.54) (6.88)
- ---------------------------------------------------------------------------------------------------------
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 0.00 (1.97)
--------------------------------------------------------------
Total distributions 0.00 0.00 0.00 0.00 (1.97)
- ---------------------------------------------------------------------------------------------------------
Net Asset Value, end of period $ 14.10 $ 13.79 $ 7.95 $ 9.54 $ 14.08
==============================================================
TOTAL RETURN* 2.25% 73.46% (16.67%) (32.24%) (30.05%)
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000s) $ 17,557 $ 18,198 $ 12,810 $ 19,661 $ 35,000
Ratios to average net assets:
Expenses with reimbursements,
but no earnings credits# 2.75%** 3.30% 3.09% 2.66% 2.38%
Expenses with reimbursements
and earnings credits 2.74%** 3.29% 3.09% 2.64% 2.35%
Net investment loss (1.48%)** (1.44%) (1.64%) (1.06%) (1.50%)
- ---------------------------------------------------------------------------------------------------------
Portfolio turnover rate@ 690% 707% 495% 704% 535%
</Table>
+ COMPUTED USING AVERAGE SHARES OUTSTANDING THROUGHOUT THE PERIOD.
* SALES CHARGES ARE NOT REFLECTED IN THE TOTAL RETURN.
** ANNUALIZED.
# CERTAIN FEES WERE WAIVED BY THE CUSTODIAN. HAD THESE FEES NOT BEEN WAIVED,
THE EXPENSE RATIOS WOULD HAVE BEEN 2.84% (2004), 3.38% (2003), 3.12% (2002),
2.66% (2001), AND 2.38% (2000).
@ 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>
<Table>
<Caption>
SIX MONTHS YEAR ENDED
ENDED JUNE 30, DECEMBER 31,
2004 2003 2002 2001 2000
-------------- -------------------------------------------
CLASS C SHARES
PER SHARE OPERATING DATA
Net Asset Value, beginning of period $ 13.76 $ 7.93 $ 9.52 $ 14.06 $ 22.93
- ---------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment loss (0.10)+ (0.01) (0.35) (0.22) (0.21)
Net realized and unrealized gains
(losses) on securities 0.42 5.84 (1.24) (4.32) (6.69)
--------------------------------------------------------------
Total from investment operations 0.32 5.83 (1.59) (4.54) (6.90)
- ---------------------------------------------------------------------------------------------------------
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 0.00 (1.97)
--------------------------------------------------------------
Total distributions 0.00 0.00 0.00 0.00 (1.97)
- ---------------------------------------------------------------------------------------------------------
Net Asset Value, end of period $ 14.08 $ 13.76 $ 7.93 $ 9.52 $ 14.06
==============================================================
TOTAL RETURN* 2.33% 73.52% (16.70%) (32.29%) (30.13%)
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000s) $ 10,678 $ 10,639 $ 5,268 $ 8,928 $ 17,925
Ratios to average net assets:
Expenses with reimbursements,
but no earnings credits# 2.70%** 3.25% 3.06% 2.67% 2.38%
Expenses with reimbursements
and earnings credits 2.70%** 3.25% 3.05% 2.65% 2.35%
Net investment loss (1.43%)** (1.43%) (1.58%) (1.08%) (1.50%)
- ---------------------------------------------------------------------------------------------------------
Portfolio turnover rate@ 690% 707% 495% 704% 535%
</Table>
+ COMPUTED USING AVERAGE SHARES OUTSTANDING THROUGHOUT THE PERIOD.
* SALES CHARGES ARE NOT REFLECTED IN THE TOTAL RETURN.
** ANNUALIZED.
# CERTAIN FEES WERE WAIVED BY THE CUSTODIAN. HAD THESE FEES NOT BEEN WAIVED,
THE EXPENSE RATIOS WOULD HAVE BEEN 2.79% (2004), 3.34% (2003), 3.08% (2002),
2.67% (2001), AND 2.38% (2000).
@ 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>
<Table>
<Caption>
SIX MONTHS YEAR ENDED
ENDED JUNE 30, DECEMBER 31,
2004 2003 2002 2001 2000 1999
-------------- --------------------------------------------------------
CLASS F SHARES
PER SHARE OPERATING DATA
Net Asset Value, beginning of
period $ 14.24 $ 8.13 $ 9.67 $ 14.17 $ 22.93 $ 14.93
- ----------------------------------------------------------------------------------------------------------------------
Income from investment
operations:
Net investment loss (0.05)+ (0.14) (0.23) (0.22) (0.19) (0.11)
Net realized and unrealized gains
(losses) on securities 0.43 6.25 (1.31) (4.28) (6.60) 12.94
---------------------------------------------------------------------------
Total from investment operations 0.38 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 0.00
From net realized gains 0.00 0.00 0.00 0.00 (1.97) (4.83)
---------------------------------------------------------------------------
Total distributions 0.00 0.00 0.00 0.00 (1.97) (4.83)
- ----------------------------------------------------------------------------------------------------------------------
Net Asset Value, end of period $ 14.62 $ 14.24 $ 8.13 $ 9.67 $ 14.17 $ 22.93
===========================================================================
TOTAL RETURN 2.67% 75.15% (15.93%) (31.76%) (29.65%) 87.44%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000s) $ 70,571 $ 78,759 $ 50,742 $ 78,574 $ 182,036 $ 261,437
Ratios to average net assets:
Expenses with reimbursements,
but no earnings credits# 1.93%** 2.31% 2.18% 1.92% 1.61% 1.64%
Expenses with reimbursements
and earnings credits 1.93%** 2.31% 2.18% 1.90% 1.59% 1.63%
Net investment loss (0.69%)** (0.45%) (0.74%) (0.30%) (0.88%) (0.91%)
- ----------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate@ 690% 707% 495% 704% 535% 330%
</Table>
+ COMPUTED USING AVERAGE SHARES OUTSTANDING THROUGHOUT THE PERIOD.
** ANNUALIZED.
# CERTAIN FEES WERE WAIVED BY THE CUSTODIAN. HAD THESE FEES NOT BEEN WAIVED,
THE EXPENSE RATIOS WOULD HAVE BEEN 2.02% (2004), 2.40% (2003), 2.21% (2002),
1.92% (2001), 1.61% (2000), AND 1.64% (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.
25
<Page>
<Table>
<Caption>
SIX MONTHS YEAR ENDED
ENDED JUNE 30, DECEMBER 31,
2004 2003 2002 2001 2000
-------------- -------------------------------------------
CLASS R SHARES
PER SHARE OPERATING DATA
Net Asset Value, beginning of period $ 13.82 $ 7.87 $ 9.56 $ 14.22 $ 22.93
- ---------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.02)+ 0.54 (0.81) (0.17) (0.09)
Net realized and unrealized gains
(losses) on securities 0.42 5.41 (0.88) (4.49) (6.65)
--------------------------------------------------------------
Total from investment operations 0.40 5.95 (1.69) (4.66) (6.74)
- ---------------------------------------------------------------------------------------------------------
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 0.00 (1.97)
--------------------------------------------------------------
Total distributions 0.00 0.00 0.00 0.00 (1.97)
- ---------------------------------------------------------------------------------------------------------
Net Asset Value, end of period $ 14.22 $ 13.82 $ 7.87 $ 9.56 $ 14.22
==============================================================
TOTAL RETURN 2.89% 75.60% (17.68%) (32.77%) (29.44%)
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000s) $ 231 $ 142 $ 37 $ 76 $ 241
Ratios to average net assets:
Expenses with reimbursements,
but no earnings credits# 1.61%** 2.08% 3.94% 1.86% 1.33%
Expenses with reimbursements
and earnings credits 1.60%** 2.07% 3.91% 1.84% 1.31%
Net investment loss (0.32%)** (0.32%) (2.20%) (0.08%) (0.55%)
- ---------------------------------------------------------------------------------------------------------
Portfolio turnover rate@ 690% 707% 495% 704% 535%
</Table>
+ COMPUTED USING AVERAGE SHARES OUTSTANDING THROUGHOUT THE PERIOD.
** ANNUALIZED.
# CERTAIN FEES WERE WAIVED BY THE CUSTODIAN. HAD THESE FEES NOT BEEN WAIVED,
THE EXPENSE RATIOS WOULD HAVE BEEN 1.71% (2004), 2.17% (2003), 4.65% (2002),
2.78% (2001), AND 1.33% (2000).
@ 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>
<Table>
<Caption>
SIX MONTHS YEAR ENDED
ENDED JUNE 30, DECEMBER 31,
2004 2003 2002 2001 2000
-------------- -------------------------------------------
CLASS T SHARES
PER SHARE OPERATING DATA
Net Asset Value, beginning of period $ 13.70 $ 7.87 $ 9.50 $ 14.14 $ 22.93
- ---------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment loss (0.08)+ (0.24) (0.45) (0.22) (0.16)
Net realized and unrealized gains
(losses) on securities 0.42 6.07 (1.18) (4.42) (6.66)
--------------------------------------------------------------
Total from investment operations 0.34 5.83 (1.63) (4.64) (6.82)
- ---------------------------------------------------------------------------------------------------------
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 0.00 (1.97)
--------------------------------------------------------------
Total distributions 0.00 0.00 0.00 0.00 (1.97)
- ---------------------------------------------------------------------------------------------------------
Net Asset Value, end of period $ 14.04 $ 13.70 $ 7.87 $ 9.50 $ 14.14
==============================================================
TOTAL RETURN* 2.48% 74.08% (17.16%) (32.82%) (29.79%)
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000s) $ 471 $ 522 $ 345 $ 538 $ 869
Ratios to average net assets:
Expenses with reimbursements,
but no earnings credits# 2.33%** 3.07% 4.03% 3.16% 1.87%
Expenses with reimbursements
and earnings credits 2.33%** 3.07% 4.03% 3.14% 1.84%
Net investment loss (1.06%)** (1.06%) (2.69%) (1.60%) (1.00%)
- ---------------------------------------------------------------------------------------------------------
Portfolio turnover rate@ 690% 707% 495% 704% 535%
</Table>
+ COMPUTED USING AVERAGE SHARES OUTSTANDING THROUGHOUT THE PERIOD.
* SALES CHARGES ARE NOT REFLECTED IN THE TOTAL RETURN.
** ANNUALIZED.
# CERTAIN FEES WERE WAIVED BY THE CUSTODIAN. HAD THESE FEES NOT BEEN WAIVED,
THE EXPENSE RATIOS WOULD HAVE BEEN 2.42% (2004), 3.16% (2003), 4.05% (2002),
3.16% (2001), AND 1.87% (2000).
@ 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
June 30, 2004 (UNAUDITED)
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
Dreyfus Founders Funds, Inc. (the "Company") is an open-end management
investment company registered under the Investment Company Act of 1940 (the
"1940 Act"). 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--A domestic 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 a
security traded on Nasdaq, at its official closing price. Lacking any sales on
that day, the security is valued at the current closing bid price, or by quotes
from dealers making a market in the security if the closing bid price is not
available, or in the case of written call options, at the mean between the
highest bid and lowest asked quotations obtained from at least two securities
dealers.
A foreign equity security traded on a foreign exchange is valued at the
last quoted official closing price available before the time when the Fund's
assets are valued, or at the last quoted sales price if the exchange does not
provide an official closing price or if the foreign market has not yet closed.
Lacking any sales on that day, the security is valued at the current closing bid
price, or by quotes from dealers making a market in the security if the closing
bid price is not available. London closing exchange rates are used to convert
foreign currencies to U.S. dollars.
A debt security with a remaining maturity greater than 60 days at the time of
purchase is valued in accordance with the evaluated bid price supplied by a
pricing service approved by the Company's board of directors or, if such price
is not available, at the mean between the highest bid and lowest asked
quotations obtained from at least two securities dealers. A debt security with a
remaining maturity of 60 days or less at the time of purchase is valued at
amortized cost, which approximates market value, unless it is determined that
amortized cost would not represent market value, in which case the securities
would be marked to market. The Fund amortizes premiums and discounts on all debt
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
28
<Page>
occurs after the close of the market on which a security is traded, and it is
determined that the event has materially affected the value of the security.
SECURITY TRANSACTIONS--Security transactions are accounted for as of the date
the securities are purchased or sold (trade date). Net realized gains and losses
are determined on the basis of identified cost, which is also used for federal
income tax purposes.
FOREIGN SECURITIES AND CURRENCY TRANSACTIONS--Foreign securities may carry more
risk than U.S. securities, such as political and currency risks. The Fund
normally will invest a large portion of its assets in foreign securities. In the
event the Fund executes a foreign security transaction, the Fund may enter into
a foreign currency contract to settle the foreign security transaction. The
resultant foreign currency gain or loss from the contract is recorded as foreign
currency gain or loss and is presented as such in the Statement of Operations.
Foreign currency held at June 30, 2004 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 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.
29
<Page>
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, if
any, reduce Other Expenses and would be 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.
SHAREHOLDER SERVICING AND TRANSFER AGENCY FEES FOR CLASS F SHARES--The Company
has a shareholder services agreement with Dreyfus Service Corporation ("DSC"),
the direct owner of Founders and 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. 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. During the six months ended June 30,
2004, Class F shares were charged $36,354 pursuant to this shareholder services
agreement.
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
30
<Page>
out-of-pocket charges incurred by DTI are paid by the Fund. During the six
months ended June 30, 2004, Class F shares were charged $18,176 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 $12.43 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 during the six months ended June 30,
2004 were as follows:
<Table>
<Caption>
TRANSFER
AGENCY FEES
--------------------------------------------------------------
Class A $ 19,869
Class B $ 19,193
Class C $ 9,176
Class R $ 95
Class T $ 766
</Table>
Certain as-of shareholder transactions may result in gains or losses to the
Fund. Depending on the circumstances, these gains may be payable to, or
reimbursable from, the transfer agent; such gains and losses are presented on
the Statement of Assets and Liabilities.
DISTRIBUTION AND SHAREHOLDER SERVICES PLANS--DSC also is the distributor of the
Fund's shares. The Fund has adopted a Distribution Plan pursuant to Rule 12b-1
under the 1940 Act 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 six months ended June
30, 2004, Class F shares were charged $94,462 pursuant to this Distribution
Plan.
The Fund also has adopted a Distribution Plan pursuant to Rule 12b-1 under the
1940 Act 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.
31
<Page>
Distribution and shareholder servicing fees paid to DSC by the Fund's Class A,
B, C and T shares for the six months ended June 30, 2004, were as follows:
<Table>
<Caption>
DISTRIBUTION SHAREHOLDER
FEES SERVICING FEES
-----------------------------------------------------------------
Class A N/A $ 33,681
Class B $ 68,363 $ 22,788
Class C $ 41,089 $ 13,697
Class T $ 643 $ 643
</Table>
During the six months ended June 30, 2004, DSC retained $2,630 and $103 in sales
commissions from the sales of Class A and Class T shares, respectively. DSC also
retained $29,781 and $10,519 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 and an affiliate of Founders, 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
---------------------------------------------------------------
9/1/03 to 8/31/04 $ 150,000
9/1/04 to 8/31/05 $ 200,000
9/1/05 to 8/31/06 $ 200,000
</Table>
The fee waiver is allocated among the Funds in proportion to their respective
shares of the total custodian fee. For the six months ended June 30, 2004, the
Fund's portion of the fee waiver was $59,789. 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.
32
<Page>
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 six months ended June 30, 2004, Founders reimbursed the Fund
for a pricing 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.
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.
The aggregate cost of investments and the composition of unrealized appreciation
and depreciation of investment securities for federal income tax purposes as of
June 30, 2004 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 $ 114,664,124
Gross Tax Appreciation of Investments $ 10,146,910
Gross Tax Depreciation of Investments $ (2,093,889)
Net Tax Appreciation $ 8,053,021
</Table>
33
<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>
SIX MONTHS ENDED YEAR ENDED
JUNE 30, 2004 DECEMBER 31, 2003
SHARES AMOUNT SHARES AMOUNT
CLASS A
- ---------------------------------------------------------------------------------------------------------------
Sold 603,770 $ 9,126,833 3,502,478 $ 36,560,507
Redeemed (962,000) $ (13,552,623) (2,746,760) $ (28,427,638)
--------------------------------------------------------------------
Net Increase (Decrease) (358,230) $ (4,425,790) 755,718 $ 8,132,869
====================================================================
CLASS B
- ---------------------------------------------------------------------------------------------------------------
Sold 29,828 $ 434,989 58,678 $ 685,415
Redeemed (104,665) $ (1,501,031) (350,900) $ (3,391,134)
--------------------------------------------------------------------
Net Decrease (74,837) $ (1,066,042) (292,222) $ (2,705,719)
====================================================================
CLASS C
- ---------------------------------------------------------------------------------------------------------------
Sold 139,251 $ 2,065,747 1,047,656 $ 9,859,862
Redeemed (153,858) $ (2,116,286) (938,988) $ (7,954,326)
--------------------------------------------------------------------
Net Increase (Decrease) (14,607) $ (50,539) 108,668 $ 1,905,536
====================================================================
CLASS F
- ---------------------------------------------------------------------------------------------------------------
Sold 589,372 $ 8,834,063 3,504,087 $ 34,110,158
Redeemed (1,295,600) $ (18,878,235) (4,216,077) $ (39,098,696)
--------------------------------------------------------------------
Net Decrease (706,228) $ (10,044,172) (711,990) $ (4,988,538)
====================================================================
CLASS R
- ---------------------------------------------------------------------------------------------------------------
Sold 18,997 $ 271,977 88,378 $ 927,946
Redeemed (13,092) $ (188,717) (82,802) $ (904,934)
--------------------------------------------------------------------
Net Increase 5,905 $ 83,260 5,576 $ 23,012
====================================================================
CLASS T
- ---------------------------------------------------------------------------------------------------------------
Sold 1,666 $ 23,555 154,521 $ 1,219,197
Redeemed (6,243) $ (88,572) (160,244) $ (1,297,043)
--------------------------------------------------------------------
Net Decrease (4,577) $ (65,017) (5,723) $ (77,846)
====================================================================
</Table>
34
<Page>
5. INVESTMENT TRANSACTIONS
Purchases and sales of investment securities (excluding short-term securities
and U.S. government obligations) for the six months ended June 30, 2004 were
$425,429,432 and $443,108,439, 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 June 30, 2004, the Fund did not have any borrowings under the LOC.
7. LEGAL MATTERS
Two class actions have been filed against Mellon Financial Corporation and
Mellon Bank, N.A.; Dreyfus and Founders (the "Investment Advisers"); and the
directors of all or substantially all of the Dreyfus and Dreyfus Founders Funds.
The complaints also name all or substantially all of the Dreyfus and Dreyfus
Founders Funds as nominal defendants. Plaintiffs allege that the Investment
Advisers improperly used assets of the Dreyfus and Dreyfus Founders Funds, in
the form of directed brokerage commissions and 12b-1 fees, to pay brokers to
promote sales of Dreyfus and Dreyfus Founders Funds, and that the use of fund
assets to make these payments was not properly disclosed to investors.
Plaintiffs claim that the Investment Advisers' actions violated the 1940 Act,
the Investment Advisers Act, and common law. The complaints further allege that
the directors breached their fiduciary duties to fund shareholders under the
1940 Act and at common law and that Mellon Financial and Mellon Bank violated
the 1940 Act. The complaints seek unspecified compensatory and punitive damages,
rescission of the funds' contracts with the Investment Advisers, an accounting
of all fees paid, and an award of attorneys' fees and litigation expenses. The
complaints are pending in the same court and have been consolidated into a
single action under the caption IN RE DREYFUS MUTUAL FUNDS FEE LITIGATION.
Founders, Dreyfus, and the Funds believe the allegations in these lawsuits to be
totally without merit and intend to defend the actions vigorously. It is
possible that additional lawsuits arising out of these circumstances and
presenting similar allegations and requests for relief may be filed against the
defendants in the future. Neither Founders, Dreyfus, nor the Funds believe that
the pending actions will have a material adverse effect on the Funds or
Founders' ability to perform its contract with the Funds.
35
<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
PROXY VOTING INFORMATION
A description of the policies and procedures that the Fund uses to determine how
to vote proxies relating to portfolio securities, and information regarding how
the Fund voted these proxies for the 12-month period ended June 30, 2004, is
available through the Fund's website at www.founders.com and on the Securities
and Exchange Commission's website at www.sec.gov. The description of the
policies and procedures is also available without charge, upon request, by
calling 1-800-525-2440.
THIS REPORT AND THE STATEMENTS IT CONTAINS ARE SUBMITTED FOR THE GENERAL
INFORMATION OF OUR SHAREHOLDERS. THE REPORT IS NOT AUTHORIZED FOR DISTRIBUTION
TO PROSPECTIVE INVESTORS UNLESS PRECEDED OR ACCOMPANIED BY AN EFFECTIVE
PROSPECTUS.
Dreyfus Service Corporation, Distributor.
(C) 2004 Founders Asset Management LLC. 8/04
A-636-PAS-04
<Page>
[GRAPHIC]
SEMIANNUAL REPORT
DREYFUS FOUNDERS
WORLDWIDE GROWTH FUND
INVESTMENT UPDATE
JUNE 30, 2004
[DREYFUS FOUNDERS FUNDS(R) 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
</Table>
PAPERLESS DELIVERY OF THIS REPORT
[GRAPHIC]
Did you know you can reduce your postal mail by accessing Dreyfus Founders Funds
regulatory material online? It's a simple, reliable process: when new documents
such as this Semiannual Report are available, we'll send you an e-mail
notification containing a convenient link that will take you directly to that
Fund information on our website. To take advantage of this service, simply
inform us online of your decision to receive materials through the Founders
E-Communications Program. Cut down on mailbox clutter and help the Fund reduce
printing and postage charges by enrolling today at
www.founders.com/ecommunications. If you own Funds through a third party, enroll
at www.icsdelivery.com.
The views expressed herein are current to the date of this report. The views and
the composition of the Fund's portfolio are subject to change at any time based
on market and other conditions. Companies appearing in bold print on pages 3-9
were owned by the Fund on June 30, 2004. The amounts of these holdings are
included in the Statement of Investments.
NOT FDIC-INSURED - NOT BANK-GUARANTEED - MAY LOSE VALUE
<Page>
MANAGEMENT OVERVIEW
[PHOTO OF REMI J. BROWNE]
[PHOTO OF DANIEL B. LEVAN]
[PHOTO OF JEFFREY R. SULLIVAN]
[PHOTO OF JOHN B. JARES]
A DISCUSSION WITH CO-PORTFOLIO MANAGERS REMI J. BROWNE, CFA, LEFT;
DANIEL B. LEVAN, CFA, SECOND FROM LEFT; JEFFREY R. SULLIVAN, CFA, THIRD
FROM LEFT; AND JOHN B. JARES, CFA, RIGHT
HOW DID THE FUND PERFORM RELATIVE TO ITS BENCHMARK IN THE SIX MONTHS ENDED JUNE
30, 2004?
Dreyfus Founders Worldwide Growth Fund underperformed its benchmark, the Morgan
Stanley Capital International (MSCI) World Index, which posted a 3.52% return
for the first six months of 2004.
DESCRIBE THE MARKET FACTORS DURING THE PERIOD.
The global markets opened 2004 in a positive position as the Japanese economic
recovery grew beyond expectations, China continued its trend of significant
growth, and the U.S. expansion continued. However, as the first half of the year
ended, the equity markets were bogged down with numerous concerns. The
perception of a strong growth environment began to erode as concerns of higher
global inflation, higher oil prices and rising interest rates impacted the
global markets. Although Japan continued its recovery, Chinese governmental
policies began to slow China's growth, and investors in the United States were
worried that the domestic economy was not as strong as was once predicted.
[SIDENOTE]
"THE ENERGY SECTOR EXHIBITED STRONG PERFORMANCE FOR THE FUND, PRIMARILY
ATTRIBUTABLE TO THE INCREASE IN ENERGY PRICES AS WELL AS STRONG PERFORMANCE OF
SELECT INDIVIDUAL ISSUES."
3
<Page>
PERFORMANCE HIGHLIGHTS
- - The global markets opened 2004 in a positive position as the Japanese
economic recovery grew beyond expectations, China continued its trend of
significant growth, and the U.S. expansion continued.
- - The Fund benefited from good growth opportunities in the consumer staples and
energy sectors, traditionally defensive sectors.
- - An overweight relative position coupled with strong stock selection in the
consumer discretionary sector boosted the Fund's relative return for the
period.
- - Although the United States had many top performers on an individual basis,
this country was the most detrimental to relative Fund performance during the
first half of 2004.
- - A heavy relative overweighting and poor stock selection in the information
technology sector combined to provide the largest hit to Fund performance on
a sector basis.
WHAT MANAGEMENT DECISIONS POSITIVELY IMPACTED FUND PERFORMANCE DURING THE
PERIOD?
From a country standpoint, the Fund's overweight position and strong stock
selection in Germany created a positive impact to relative Fund performance.
Japan also benefited Fund performance as the country continued its economic
rebound. This was evidenced during the period by business sentiment reaching a
13-year high, the unemployment rate falling and positive earnings being
reported. Canada, Spain and Finland also aided Fund performance primarily
through strong stock selection.
Stock selection in various sectors aided Fund performance during the first
half of 2004 as the Fund benefited from good growth opportunities in the
consumer staples and energy sectors, traditionally defensive sectors. Several
stocks in the consumer staples sector showed favorable performance during the
period. U.S. holdings ESTEE LAUDER COMPANIES, INC. and GILLETTE COMPANY both
performed well because of excellent revenue and earnings growth.
The energy sector also exhibited strong performance for the Fund, primarily
attributable to the increase in energy prices during the first six months of
2004, as well as strong performance of select individual issues. U.K.-based
Cairn
4
<Page>
Energy PLC added significant value to the Fund as the company discovered two
major oil reserves in the Rajasthan region of India during the first half of the
period, which significantly increased the company's production profile.
An overweight position coupled with strong stock selection in the consumer
discretionary sector boosted the Fund's relative return for the period. ROYAL
CARIBBEAN CRUISES LIMITED and NORDSTROM, INC. were among the top performers for
the Fund in this sector.
Although the Fund's performance in the information technology sector was a
hindrance, select holdings from this sector did buoy Fund performance. APPLE
COMPUTER, INC. and ACCENTURE LIMITED, a management consulting, technology
services and outsourcing company, were among the Fund's top information
technology performers during the period.
SUMITOMO MITSUI FINANCIAL GROUP, INC., a Japanese financial services firm,
was also a notable contributor to the Fund's return.
WHAT MANAGEMENT DECISIONS NEGATIVELY IMPACTED FUND PERFORMANCE DURING THE
PERIOD?
Although the United States had many top performers on an individual basis, this
country was the most detrimental to relative Fund performance during the first
half of 2004, as concerns weighed heavily on the domestic economy.
LARGEST EQUITY HOLDINGS (ticker symbol)
<Table>
1. General Electric Company (GE) 2.54%
2. Cisco Systems, Inc. (CSCO) 2.34%
3. Kohl's Corporation (KSS) 1.94%
4. Gillette Company (G) 1.94%
5. Walt Disney Company (DIS) 1.80%
6. SAP AG Sponsored ADR (SAP) 1.79%
7. American International Group, Inc. (AIG) 1.65%
8. Royal Caribbean Cruises Limited (RCL) 1.63%
9. Maxim Integrated Products, Inc. (MXIM) 1.62%
10. International Business Machines Corporation (IBM) 1.60%
</Table>
Portfolio holdings are subject to change, and should not be construed as a
recommendation of any security.
5
<Page>
GROWTH OF $10,000 INVESTMENT
PERFORMANCE DATA QUOTED REPRESENTS PAST PERFORMANCE. PAST PERFORMANCE DOES NOT
GUARANTEE FUTURE RESULTS. INVESTMENT RETURN AND PRINCIPAL VALUE OF AN INVESTMENT
WILL FLUCTUATE SO THAT AN INVESTOR'S SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR
LESS THAN THEIR ORIGINAL COST. CURRENT PERFORMANCE MAY BE LOWER OR HIGHER THAN
THE PERFORMANCE DATA QUOTED. PLEASE CALL 1-800-525-2440 TO OBTAIN THE MOST
RECENT MONTH-END PERFORMANCE DATA.
[CHART]
The above graph compares a $10,000 investment made in Class F shares of Dreyfus
Founders Worldwide Growth Fund on 6/30/94 to a $10,000 investment made in an
unmanaged securities index on that date. The Fund's performance assumes the
reinvestment of dividends and capital gain distributions, but does not reflect
the deduction of taxes that a shareholder would pay on Fund distributions or
redemption of Fund shares. The Fund offers multiple classes of shares.
Performance shown is for Class F, which is open only to grandfathered investors.
The Fund's performance in the graph takes into account all applicable Class F
fees and expenses, subject to applicable fee waivers. 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 measures global
developed market equity performance. 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>
AVERAGE ANNUAL AND YEAR-TO-DATE TOTAL RETURN AS OF 6/30/04
<Table>
<Caption>
YEAR-TO- 1 5 10 SINCE
CLASS (INCEPTION DATE) DATE+ YEAR YEARS YEARS INCEPTION
-----------------------------------------------------------------------------------
CLASS A SHARES (12/31/99)
With sales charge (5.75%) (3.15%) 17.72% -- -- (12.59%)
Without sales charge 2.72% 24.89% -- -- (11.43%)
CLASS B SHARES (12/31/99)
With redemption* (1.55%) 20.07% -- -- (12.38%)
Without redemption 2.45% 24.07% -- -- (12.06%)
CLASS C SHARES (12/31/99)
With redemption** 1.31% 22.85% -- -- (12.46%)
Without redemption 2.31% 23.85% -- -- (12.46%)
CLASS F SHARES (12/29/89) 2.72% 24.95% (3.94%) 4.21% 7.02%
CLASS R SHARES (12/31/99) 2.93% 25.42% -- -- (11.00%)
CLASS T SHARES (12/31/99)
With sales charge (4.50%) (2.05%) 19.16% -- -- (13.46%)
Without sales charge 2.61% 24.83% -- -- (12.57%)
</Table>
Average annual and year-to-date total returns do not reflect the deduction of
taxes that a shareholder would pay on Fund distributions or redemption of Fund
shares, but do reflect the reinvestment of dividends and capital gain
distributions, expense limits for certain share classes, and adjustments for
financial statement purposes. Part of the Fund's historical performance is due
to the purchase of securities sold in initial public offerings (IPOs). There is
no guarantee that the Fund's investments in IPOs, if any, will continue to have
a similar impact on performance. Investments in foreign securities may entail
unique risks, including political, market, and currency risks.
*The maximum contingent deferred sales charge for Class B shares is 4% and is
reduced to 0% after six years, at which time the Class B shares convert to Class
A shares.
**The maximum contingent deferred sales charge for Class C shares is 1% for
shares redeemed within one year of the date of purchase.
+Total return is not annualized.
7
<Page>
Ongoing geopolitical uncertainty, the expectation of a hike in the federal funds
rate, high oil prices and apprehension that the economy was not growing as fast
as expected provided a difficult trading environment for the equity markets.
Hong Kong, Switzerland, Belgium and Italy were four additional markets that
detracted from relative Fund performance due to both poor stock selection and
underweight positions in these countries.
The largest underachiever on a sector basis for the Fund was information
technology. A heavy relative overweighting and poor stock selection combined to
provide the largest hit to Fund performance. Holdings such as INTEL CORPORATION
and Oracle Corporation hampered Fund performance during the half due to drops in
each respective company's share price.
The materials and industrials sectors also hindered relative Fund
performance, mainly owing to poor stock selection. Materials holding Newmont
Mining Corporation proved to be one of the worst performers during the period.
UNION PACIFIC CORPORATION, an industrials holding, also underperformed.
[CHART]
PORTFOLIO COMPOSITION
<Table>
United States 50.44%
Japan 9.78%
United Kingdom 9.31%
Germany 5.20%
France 4.15%
Canada 3.17%
Netherlands 2.83%
Switzerland 2.73%
Other Countries 11.21%
Cash & Equivalents 1.18%
</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>
Other underperforming issues came from various sectors. Lower-end retailer
KOHL'S CORPORATION experienced lackluster sales and earnings trends.
Biotechnology holding AMGEN, INC. also weighed heavily as market competition and
potential effects of healthcare reform in the company's key markets moved the
stock's price lower. Telecommunications services holding VODAFONE GROUP PLC
experienced a tough first half of the year as the company spent money on its
profitless Japanese subsidiary.
As always, our investment process remains the same. We rely on our bottom-up
research process to seek companies we believe are capable of posting strong
future revenue and earnings growth at attractive valuations.
/s/ Remi J. Browne /s/ Daniel B. LeVan, CFA
Remi J. Browne, CFA Daniel B. LeVan, CFA
Co-Portfolio Manager Co-Portfolio Manager
/s/ Jeffrey R. Sullivan /s/ John B. Jares
Jeffrey R. Sullivan, CFA John B. Jares, CFA
Co-Portfolio Manager Co-Portfolio Manager
9
<Page>
STATEMENT OF INVESTMENTS
June 30, 2004 (UNAUDITED)
<Table>
<Caption>
SHARES MARKET VALUE
- -------------------------------------------------------------------------------------------
COMMON STOCKS (DOMESTIC)--50.5%
AIRLINES--1.1%
55,200 Southwest Airlines Company $ 925,697
------------
ALUMINUM--1.0%
27,150 Alcoa, Inc. 896,765
------------
APPLICATION SOFTWARE--0.7%
14,900 Autodesk, Inc. 637,869
------------
ASSET MANAGEMENT & CUSTODY BANKS--0.6%
29,125 Janus Capital Group, Inc. 480,271
------------
BIOTECHNOLOGY--0.7%
6,250 Amgen, Inc.* 341,063
4,125 Biogen Idec, Inc.* 260,906
------------
601,969
------------
BROADCASTING & CABLE TV--1.6%
37,875 Comcast Corporation Special Class A* 1,045,729
13,600 Cox Communications, Inc. Class A* 377,944
------------
1,423,673
------------
COMMUNICATIONS EQUIPMENT--4.6%
28,850 Avaya, Inc.* 455,542
85,925 Cisco Systems, Inc.* 2,036,423
44,100 Motorola, Inc. 804,825
19,525 Scientific-Atlanta, Inc. 673,613
------------
3,970,403
------------
COMPUTER & ELECTRONICS RETAIL--0.5%
8,062 Best Buy Company, Inc. 409,066
------------
COMPUTER HARDWARE--3.2%
42,550 Apple Computer, Inc.* 1,384,577
15,800 International Business Machines Corporation 1,392,770
------------
2,777,347
------------
COMPUTER STORAGE & PERIPHERALS--0.3%
24,850 EMC Corporation* 283,290
------------
</Table>
GUIDE TO UNDERSTANDING FOREIGN HOLDINGS
The following abbreviations are used throughout the Statement of Investments to
indicate the country of origin on non-U.S. holdings.
AU Australia
AT Austria
BD Bermuda
BE Belgium
BR Brazil
CA Canada
CI Channel Islands
CN China
CY Cyprus
DE Denmark
FI Finland
FR France
GE Germany
GR Greece
HK Hong Kong
ID Indonesia
IE Ireland
IN India
IT Italy
JA Japan
MA Malaysia
MX Mexico
NE Netherlands
NW Norway
PT Portugal
RS Russia
SG Singapore
SL Solvak Republic
SP Spain
SW Sweden
SZ Switzerland
TH Thailand
UK United Kingdom
10
<Page>
<Table>
<Caption>
SHARES MARKET VALUE
- -------------------------------------------------------------------------------------------
CONSUMER FINANCE--0.6%
21,250 MBNA Corporation $ 548,038
------------
DATA PROCESSING & OUTSOURCED SERVICES--0.9%
19,575 Automatic Data Processing, Inc. 819,801
------------
DEPARTMENT STORES--2.9%
39,950 Kohl's Corporation* 1,689,086
19,675 Nordstrom, Inc. 838,352
------------
2,527,438
------------
DIVERSIFIED BANKS--1.2%
20,800 Bank One Corporation 1,060,800
------------
EMPLOYMENT SERVICES--1.1%
10,075 Manpower, Inc. 511,508
16,025 Monster Worldwide, Inc.* 412,163
------------
923,671
------------
FOOD RETAIL--0.8%
39,525 Kroger Company* 719,355
------------
HEALTHCARE EQUIPMENT--1.3%
26,025 Boston Scientific Corporation* 1,113,870
------------
HOME ENTERTAINMENT SOFTWARE--0.9%
14,700 Electronic Arts* 801,885
------------
HOTELS, RESORTS & CRUISE LINES--0.7%
11,925 Carnival Corporation 560,475
------------
INDUSTRIAL CONGLOMERATES--2.5%
68,000 General Electric Company 2,203,200
------------
INVESTMENT BANKING & BROKERAGE--1.0%
8,850 Goldman Sachs Group, Inc. 833,316
------------
LEISURE FACILITIES--1.6%
32,700 Royal Caribbean Cruises Limited 1,419,507
------------
LIFE & HEALTH INSURANCE--0.8%
16,225 AFLAC, Inc. 662,142
------------
MOVIES & ENTERTAINMENT--1.8%
61,225 Walt Disney Company 1,560,625
------------
MULTI-LINE INSURANCE--1.7%
20,100 American International Group, Inc. 1,432,728
------------
OTHER DIVERSIFIED FINANCIAL SERVICES--0.5%
9,008 Citigroup, Inc. 418,872
------------
PERSONAL PRODUCTS--3.1%
20,800 Estee Lauder Companies, Inc. Class A 1,014,624
39,800 Gillette Company 1,687,520
------------
2,702,144
------------
</Table>
SEE NOTES TO STATEMENT OF INVESTMENTS.
11
<Page>
<Table>
<Caption>
SHARES MARKET VALUE
- -------------------------------------------------------------------------------------------
PHARMACEUTICALS--2.9%
27,775 Abbott Laboratories $ 1,132,109
8,475 Johnson & Johnson 472,058
27,612 Pfizer, Inc. 946,539
------------
2,550,706
------------
PROPERTY & CASUALTY INSURANCE--0.8%
14,350 Allstate Corporation 667,993
------------
RAILROADS--1.0%
14,625 Union Pacific Corporation 869,456
------------
SEMICONDUCTORS--4.7%
33,325 Intel Corporation 919,770
34,300 Linear Technology Corporation 1,353,821
26,875 Maxim Integrated Products, Inc. 1,408,788
17,925 Texas Instruments, Inc. 433,427
------------
4,115,806
------------
SOFT DRINKS--0.6%
9,550 Coca-Cola Company 482,084
------------
SPECIALTY STORES--0.2%
5,275 Weight Watchers International, Inc.* 206,464
------------
SYSTEMS SOFTWARE--2.1%
13,450 Adobe Systems, Inc. 625,425
26,950 Microsoft Corporation 769,692
15,475 VERITAS Software Corporation* 428,658
------------
1,823,775
------------
THRIFTS & MORTGAGE FINANCE--0.5%
10,000 The PMI Group, Inc. 435,200
------------
TOTAL COMMON STOCKS (DOMESTIC)
(COST--$38,480,785) 43,865,701
------------
COMMON STOCKS (FOREIGN)--48.5%
AEROSPACE & DEFENSE--0.4%
23,400 Gamesa Corporacion Tecnologica SA (SP) 344,779
------------
APPLICATION SOFTWARE--2.7%
10,400 Amdocs Limited (CI)* 243,672
3,020 SAP AG (GE) 503,395
37,225 SAP AG Sponsored ADR (GE) 1,556,377
------------
2,303,444
------------
AUTO PARTS & EQUIPMENT--0.4%
8,400 Canadian Tire Corporation Limited Class A (CA) 306,354
------------
AUTOMOBILE MANUFACTURERS--1.6%
32,400 Nissan Motor Company Limited (JA) 360,181
4,900 Renault SA (FR) 373,208
15,100 Toyota Motor Corporation (JA) 611,667
------------
1,345,056
------------
</Table>
12
<Page>
<Table>
<Caption>
SHARES MARKET VALUE
- -------------------------------------------------------------------------------------------
BIOTECHNOLOGY--0.3%
470 Serono SA (SZ) $ 296,095
------------
BREWERS--1.0%
34,700 Asahi Breweries Limited (JA) 382,570
27,000 Fraser & Neave Limited (SG) 219,448
23,000 SABMiller PLC (UK) 297,615
------------
899,633
------------
BROADCASTING & CABLE TV--0.5%
18,800 Mediaset SPA (IT) 214,328
23,900 Publishing & Broadcasting Limited (AU) 213,943
------------
428,271
------------
COMMUNICATIONS EQUIPMENT--1.0%
16,000 Nokia Oyj (FI) 230,880
2,386 Sagem SA (FR) 266,208
140,700 Telefonaktiebolaget LM Ericsson (SW) 414,648
------------
911,736
------------
COMPUTER STORAGE & PERIPHERALS--0.7%
20,200 ATI Technologies, Inc. (CA)* 379,051
5,300 Logitech International SA (SZ)* 241,217
------------
620,268
------------
CONSTRUCTION MATERIALS--0.6%
171,700 Aggregate Industries PLC (UK) 255,339
50,500 Boral Limited (AU) 227,259
------------
482,598
------------
CONSTRUCTION, FARM MACHINERY & HEAVY TRUCKS--0.3%
7,000 Volvo AB Class B (SW) 243,462
------------
CONSUMER ELECTRONICS--1.8%
25,000 Casio Computer Company Limited (JA) 378,500
10,000 Citizen Electronics Company Limited (JA) 568,208
10,300 Koninklijke (Royal) Philips Electronics NV (NE) 277,332
21,000 Sharp Corporation (JA) 335,453
------------
1,559,493
------------
CONSUMER FINANCE--0.3%
4,000 Sanyo Shinpan Finance Company Limited (JA) 228,383
------------
DIVERSIFIED BANKS--6.6%
10,700 ABN AMRO Holding NV (NE) 234,075
36,880 Alpha Bank AE (GR) 937,818
42,400 Anglo Irish Bank Corporation PLC (IE) 662,903
101,971 Barclays PLC (UK) 868,714
10,589 BNP Paribas SA (FR) 651,264
27,600 HBOS PLC (UK) 341,621
56 Mitsubishi Tokyo Financial Group, Inc. (JA) 518,352
27,888 Royal Bank of Scotland Group PLC (UK) 803,158
17,400 Skandinaviska Enskilda Banken (SW) 251,772
5,400 Societe Generale (FR) 458,924
------------
5,728,601
------------
</Table>
SEE NOTES TO STATEMENT OF INVESTMENTS.
13
<Page>
<Table>
<Caption>
SHARES MARKET VALUE
- -------------------------------------------------------------------------------------------
DIVERSIFIED CAPITAL MARKETS--0.9%
13,900 Credit Suisse Group (SZ) $ 493,892
3,744 UBS AG (SZ) 263,820
------------
757,712
------------
DIVERSIFIED METALS & MINING--0.8%
76,300 WMC Resources Limited (AU) 261,509
33,300 Xstrata PLC (UK) 445,087
------------
706,596
------------
ELECTRIC UTILITIES--0.8%
5,800 E.ON AG (GE) 417,764
24,300 Fortum Oyj (FI) 310,439
------------
728,203
------------
ELECTRONIC EQUIPMENT MANUFACTURERS--1.5%
1,700 Keyence Corporation (JA) 387,784
3,700 Kyocera Corporation (JA) 313,999
8,300 TDK Corporation (JA) 629,831
------------
1,331,614
------------
FOOD RETAIL--0.6%
2,800 Guyenne et Gascogne AG (FR) 322,959
39,300 Tesco PLC (UK) 189,765
------------
512,724
------------
FOREST PRODUCTS--0.3%
20,100 Canfor Corporation (CA)* 227,864
------------
GAS UTILITIES--0.3%
71,900 Centrica PLC (UK) 292,738
------------
HOME FURNISHINGS--0.3%
4,600 Hunter Douglas NV (NE) 223,872
------------
HOMEBUILDING--0.3%
26,600 Barratt Developments PLC (UK) 284,380
------------
HOTELS, RESORTS & CRUISE LINES--0.3%
4,325 Four Seasons Hotels, Inc. (CA) 260,408
------------
HOUSEHOLD PRODUCTS--0.3%
7,850 Reckitt Benckiser PLC (UK) 222,231
------------
HYPERMARKETS & SUPER CENTERS--0.4%
7,300 Metro AG (GE) 346,393
------------
</Table>
14
<Page>
<Table>
<Caption>
SHARES MARKET VALUE
- -------------------------------------------------------------------------------------------
INDUSTRIAL CONGLOMERATES--0.9%
267,900 Cookson Group PLC (UK)* $ 204,059
71,700 Keppel Corporation Limited (SG) 293,460
4,300 Siemens AG (GE) 309,460
------------
806,979
------------
INDUSTRIAL MACHINERY--0.7%
45,000 NSK Limited (JA) 223,938
7,400 Saurer AG (SZ)* 378,449
------------
602,387
------------
INTEGRATED OIL & GAS--3.0%
75,642 BP PLC (UK) 668,075
13,700 Husky Energy, Inc. (CA) 262,086
1,700 OMV AG (AT) 330,961
13,900 Repsol YPF SA (SP) 304,417
33,900 Shell Transport & Trading Company PLC (UK) 248,686
4,030 Total SA (FR) 768,343
------------
2,582,568
------------
INTEGRATED TELECOMMUNICATION SERVICES--1.4%
11,800 Deutsche Telekom AG (GE)* 207,458
70,200 Koninklijke NV (NE) 534,678
65,200 Telenor ASA (NW) 453,385
------------
1,195,521
------------
IT CONSULTING & OTHER SERVICES--0.9%
28,500 Accenture Limited Class A (BD)* 783,180
------------
LEISURE PRODUCTS--0.3%
12,800 Sankyo Company Limited (JA) 277,432
------------
MARINE--0.3%
209,000 Neptune Orient Lines Limited (SG) 286,351
------------
MULTI-LINE INSURANCE--0.5%
21,200 Aviva PLC (UK) 218,767
4,900 Baloise Holding Limited (SZ) 212,839
------------
431,606
------------
OIL & GAS EXPLORATION & PRODUCTION--1.5%
13,700 Canadian National Resources Limited (CA) 409,222
15,100 Eni SPA (IT) 299,832
6,000 Norsk Hydro ASA (NW) 389,959
266,400 Oil Search Limited (AU) 244,966
------------
1,343,979
------------
OIL & GAS REFINING, MARKETING, & TRANSPORTATION--0.3%
41,400 Caltex Australia Limited (AU) 266,194
------------
OTHER DIVERSIFIED FINANCIAL SERVICES--0.9%
22,500 ING Groep NV (NE) 531,087
9,200 Sun Life Financial, Inc. (CA) 263,553
------------
794,640
------------
</Table>
SEE NOTES TO STATEMENT OF INVESTMENTS.
15
<Page>
<Table>
<Caption>
SHARES MARKET VALUE
- -------------------------------------------------------------------------------------------
PACKAGED FOODS & MEATS--0.8%
14,900 Koninklijke Wessanen NV (NE) $ 214,282
20,000 Nisshin Seifun Group, Inc. (JA) 203,088
243,000 Want Want Holdings Limited (SG) 267,300
------------
684,670
------------
PHARMACEUTICALS--4.8%
9,200 AstraZeneca Group PLC (UK) 412,782
3,800 Aventis SA (FR) 286,884
18,200 Axcan Pharma, Inc. (CA)* 384,008
16,400 Eisai Company Limited (JA) 471,942
8,100 Merck KGaA (GE) 489,804
11,088 Novartis AG (SZ) 489,150
11,000 Ono Pharmaceuticals Company Limited (JA) 517,161
27,000 Shire Pharmaceuticals Group PLC (UK)* 235,773
7,100 Takeda Chemical Industries Limited (JA) 311,680
47,900 Warner Chilcott PLC (UK) 603,745
------------
4,202,929
------------
PRECIOUS METALS & MINERALS--0.2%
12,400 ThyssenKrupp AG (GE) 211,972
------------
PROPERTY & CASUALTY INSURANCE--0.5%
124,400 Insurance Australia Group Limited (AU) 433,299
------------
PUBLISHING--0.2%
19,700 Johnston Press PLC (UK) 202,395
------------
RAILROADS--0.3%
5,987 Canadian National Railway Company (CA) 260,973
------------
REAL ESTATE INVESTMENT TRUSTS--0.7%
85 Sumitomo Mitsui Financial Group, Inc. (JA) 582,688
------------
REAL ESTATE MANAGEMENT & DEVELOPMENT--0.3%
2,900 Wereldhave NV (NE) 238,521
------------
SEMICONDUCTOR EQUIPMENT--0.2%
12,400 ASML Holding NV (NE)* 209,860
------------
SOFT DRINKS--0.8%
41,800 Coca-Cola Amatil Limited (AU) 201,793
21,100 Kirin Beverage Corporation (JA) 496,971
------------
698,764
------------
THRIFTS & MORTGAGE FINANCE--0.4%
23,000 Northern Rock PLC (UK) 301,786
------------
</Table>
16
<Page>
<Table>
<Caption>
SHARES MARKET VALUE
- -------------------------------------------------------------------------------------------
TIRES & RUBBER--0.6%
9,900 Continental AG (GE) $ 477,595
------------
TRADING COMPANIES & DISTRIBUTORS--0.3%
23,000 Mitsubishi Corporation (JA) 223,434
------------
WIRELESS TELECOMMUNICATION SERVICES--2.7%
14,400 Bouygues SA (FR) 482,161
85 KDDI Corporation (JA) 486,093
194,000 SmarTone Telecommunications Holdings Limited (HK) 212,659
35,000 Telecom Italia Mobile SPA (IT) 198,443
456,575 Vodafone Group PLC (UK) 999,845
------------
2,379,201
------------
TOTAL COMMON STOCKS (FOREIGN)
(COST--$32,226,156) 42,071,832
------------
TOTAL INVESTMENTS--99.0%
(TOTAL COST--$70,706,941) 85,937,533
------------
OTHER ASSETS AND LIABILITIES--1.0% 907,820
------------
NET ASSETS--100.0% $ 86,845,353
============
</Table>
NOTES TO STATEMENT OF INVESTMENTS
* NON-INCOME PRODUCING.
ADR- AMERICAN DEPOSITARY RECEIPT
17
<Page>
STATEMENT OF ASSETS AND LIABILITIES
JUNE 30, 2004 (unaudited)
<Table>
ASSETS
Investment securities, at cost $ 70,706,941
---------------
Investment securities, at market 85,937,533
Cash 65,183
Foreign currency (cost $23,403) 22,786
Receivables:
Investment securities sold 2,068,447
Capital shares sold 13,128
Dividends 64,258
Other 90,671
---------------
Total Assets 88,262,006
---------------
LIABILITIES
Payables and other accrued liabilities:
Investment securities purchased 335,964
Capital shares redeemed 144,277
Advisory fees 72,138
Shareholder servicing fees 13,230
Accounting fees 5,659
Distribution fees 18,795
Transfer agency fees 10,695
Custodian fees 11,207
Line of credit 700,000
Other 104,688
---------------
Total Liabilities 1,416,653
---------------
Net Assets $ 86,845,353
===============
COMPOSITION OF NET ASSETS
Capital (par value and paid-in surplus) $ 148,011,374
Undistributed net investment income 30,990
Accumulated net realized loss from security transactions (76,431,538)
Net unrealized appreciation on investments
and foreign currency translation 15,234,527
---------------
Total $ 86,845,353
===============
</Table>
18
<Page>
<Table>
CLASS A
Net Assets $ 560,675
Shares Outstanding 47,964
Net Asset Value, Redemption Price Per Share $ 11.69
Maximum offering price per share (net asset value
plus sales charge of 5.75% of offering price) $ 12.40
CLASS B
Net Assets $ 1,935,817
Shares Outstanding 171,530
Net Asset Value, Offering and Redemption Price (excluding
applicable contingent deferred sales charge) Per Share $ 11.29
CLASS C
Net Assets $ 209,812
Shares Outstanding 18,963
Net Asset Value, Offering and Redemption Price (excluding
applicable contingent deferred sales charge) Per Share $ 11.06
CLASS F
Net Assets $ 61,519,772
Shares Outstanding 5,247,631
Net Asset Value, Offering and Redemption Price Per Share $ 11.72
CLASS R
Net Assets $ 22,568,382
Shares Outstanding 1,889,385
Net Asset Value, Offering and Redemption Price Per Share $ 11.94
CLASS T
Net Assets $ 50,895
Shares Outstanding 4,621
Net Asset Value, Redemption Price Per Share $ 11.01
Maximum offering price per share (net asset value
plus sales charge of 4.50% of offering price) $ 11.53
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
19
<Page>
STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 2004 (UNAUDITED)
<Table>
INVESTMENT INCOME
Dividends $ 891,892
Interest 15,959
Foreign taxes withheld (83,952)
---------------
Total Investment Income 823,899
---------------
EXPENSES
Advisory fees--Note 2 458,919
Shareholder servicing fees--Note 2 53,384
Accounting fees--Note 2 35,856
Distribution fees--Note 2 91,928
Transfer agency fees--Note 2 37,116
Registration fees 29,864
Postage and mailing expenses 5,508
Custodian fees and expenses--Note 2 26,414
Printing expenses 16,888
Legal and audit fees 6,575
Directors' fees and expenses--Note 2 9,745
Other expenses 16,245
---------------
Total Expenses 788,442
Earnings Credits (685)
Reimbursed/Waived Expenses (5,559)
Expense Offset to Broker Commissions (4,071)
---------------
Net Expenses 778,127
---------------
Net Investment Income 45,772
---------------
REALIZED AND UNREALIZED GAIN (LOSS) ON SECURITY
TRANSACTIONS AND FOREIGN CURRENCY TRANSACTIONS
Net Realized Gain (Loss) on:
Security Transactions 7,793,411
Foreign Currency Transactions (5,858)
---------------
Net Realized Gain 7,787,553
Net Change in Unrealized Appreciation/Depreciation of Investments
and Foreign Currency Translation (5,328,324)
---------------
Net Realized and Unrealized Gain 2,459,229
---------------
Net Increase in Net Assets Resulting from Operations $ 2,505,001
===============
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
20
<Page>
STATEMENTS OF CHANGES IN NET ASSETS
(UNAUDITED)
<Table>
<Caption>
SIX MONTHS ENDED YEAR ENDED
6/30/04 12/31/03
- -----------------------------------------------------------------------------------------------------
OPERATIONS
Net Investment Income (Loss) $ 45,772 $ (324,443)
Net Realized Gain (Loss) on Security and
Foreign Currency Transactions 7,787,553 (60,984)
Net Change in Unrealized Appreciation/Depreciation
of Investments and Foreign Currency Translation (5,328,324) 26,608,251
------------ ------------
Net Increase in Net Assets Resulting from Operations 2,505,001 26,222,824
------------ ------------
CAPITAL SHARE TRANSACTIONS
Net Increase (Decrease)--Note 4
Class A (115,032) (95,963)
Class B 66,327 (128,745)
Class C (68,011) (25,117)
Class F (10,832,361) (9,169,160)
Class R 522,825 1,759,076
Class T (12,132) (2,291)
------------ ------------
Net Decrease from Capital Share Transactions (10,438,384) (7,662,200)
------------ ------------
Net Increase (Decrease) in Net Assets (7,933,383) 18,560,624
------------ ------------
NET ASSETS
Beginning of period $ 94,778,736 $ 76,218,112
------------ ------------
End of period $ 86,845,353 $ 94,778,736
============ ============
Undistributed Net Investment Income (Loss) $ 30,990 $ (14,782)
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
21
<Page>
FINANCIAL HIGHLIGHTS
(UNAUDITED)
<Table>
<Caption>
SIX MONTHS YEAR ENDED
ENDED JUNE 30, DECEMBER 31,
2004 2003 2002 2001 2000
-------------- -------------------------------------------------------
CLASS A SHARES
PER SHARE OPERATING DATA
Net Asset Value, beginning of period $ 11.38 $ 8.32 $ 11.71 $ 15.78 $ 25.18
- ----------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) 0.00+,~ (0.10) (0.15) (0.09) (0.09)
Net realized and unrealized gains
(losses) on securities 0.31 3.16 (3.24) (3.98) (5.44)
-----------------------------------------------------------------------------
Total from investment operations 0.31 3.06 (3.39) (4.07) (5.53)
- ----------------------------------------------------------------------------------------------------------------------------------
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 0.00 (3.87)
-----------------------------------------------------------------------------
Total distributions 0.00 0.00 0.00 0.00 (3.87)
- ----------------------------------------------------------------------------------------------------------------------------------
Net Asset Value, end of period $ 11.69 $ 11.38 $ 8.32 $ 11.71 $ 15.78
=============================================================================
TOTAL RETURN* 2.72% 36.78% (28.95%) (25.79%) (21.82%)
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000s) $ 561 $ 656 $ 543 $ 1,003 $ 800
Ratios to average net assets:
Expenses with reimbursements,
but no earnings credits# 1.77%** 2.03% 2.06% 2.10% 1.43%
Expenses with reimbursements
and earnings credits 1.77%** 2.03% 2.06% 2.09% 1.41%
Net investment income (loss) 0.00%** (0.55%) (0.77%) (0.96%) (0.35%)
- ----------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate@ 117% 138% 211% 145% 210%
</Table>
+ NET INVESTMENT INCOME FOR THE SIX MONTHS ENDED JUNE 30, 2004 AGGREGATED LESS
THAN $0.01 ON A PER SHARE BASIS.
~ COMPUTED USING AVERAGE SHARES OUTSTANDING THROUGHOUT THE PERIOD.
* SALES CHARGES ARE NOT REFLECTED IN THE TOTAL RETURN.
** ANNUALIZED.
# CERTAIN FEES WERE WAIVED BY THE CUSTODIAN. HAD THESE FEES NOT BEEN WAIVED,
THE EXPENSE RATIOS WOULD HAVE BEEN 1.78% (2004), 2.04% (2003), 2.06% (2002),
2.10% (2001), AND 1.43% (2000).
@ 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>
<Table>
<Caption>
SIX MONTHS YEAR ENDED
ENDED JUNE 30, DECEMBER 31,
2004 2003 2002 2001 2000
-------------- ---------------------------------------------------------
CLASS B SHARES
PER SHARE OPERATING DATA
Net Asset Value, beginning of period $ 11.02 $ 8.12 $ 11.52 $ 15.57 $ 25.18
- ---------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment loss (0.04)+ (0.16) (0.14) (0.15) (0.11)
Net realized and unrealized gains
(losses) on securities 0.31 3.06 (3.26) (3.90) (5.63)
-------------------------------------------------------------------------------
Total from investment operations 0.27 2.90 (3.40) (4.05) (5.74)
- ---------------------------------------------------------------------------------------------------------------------------------
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 0.00 (3.87)
-------------------------------------------------------------------------------
Total distributions 0.00 0.00 0.00 0.00 (3.87)
- ---------------------------------------------------------------------------------------------------------------------------------
Net Asset Value, end of period $ 11.29 $ 11.02 $ 8.12 $ 11.52 $ 15.57
===============================================================================
TOTAL RETURN* 2.45% 35.71% (29.51%) (26.01%) (22.67%)
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000s) $ 1,936 $ 1,821 $ 1,459 $ 2,089 $ 2,329
Ratios to average net assets:
Expenses with reimbursements,
but no earnings credits# 2.51%** 2.80% 2.71% 2.54% 2.25%
Expenses with reimbursements
and earnings credits 2.51%** 2.80% 2.70% 2.53% 2.21%
Net investment loss (0.70%)** (1.30%) (1.41%) (1.43%) (1.40%)
- ---------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate@ 117% 138% 211% 145% 210%
</Table>
+ COMPUTED USING AVERAGE SHARES OUTSTANDING THROUGHOUT THE PERIOD.
* SALES CHARGES ARE NOT REFLECTED IN THE TOTAL RETURN.
** ANNUALIZED.
# CERTAIN FEES WERE WAIVED BY THE CUSTODIAN. HAD THESE FEES NOT BEEN WAIVED,
THE EXPENSE RATIOS WOULD HAVE BEEN 2.52% (2004), 2.82% (2003), 2.71% (2002),
2.54% (2001), AND 2.25% (2000).
@ 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>
<Table>
<Caption>
SIX MONTHS YEAR ENDED
ENDED JUNE 30, DECEMBER 31,
2004 2003 2002 2001 2000
-------------- ---------------------------------------------------------
CLASS C SHARES
PER SHARE OPERATING DATA
Net Asset Value, beginning of period $ 10.81 $ 7.96 $ 11.34 $ 15.56 $ 25.18
- ---------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment loss (0.04)+ (0.20) (0.30) (0.30) (0.11)
Net realized and unrealized gains
(losses) on securities 0.29 3.05 (3.08) (3.92) (5.64)
-------------------------------------------------------------------------------
Total from investment operations 0.25 2.85 (3.38) (4.22) (5.75)
- ---------------------------------------------------------------------------------------------------------------------------------
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 0.00 (3.87)
-------------------------------------------------------------------------------
Total distributions 0.00 0.00 0.00 0.00 (3.87)
- ---------------------------------------------------------------------------------------------------------------------------------
Net Asset Value, end of period $ 11.06 $ 10.81 $ 7.96 $ 11.34 $ 15.56
===============================================================================
TOTAL RETURN* 2.31% 35.80% (29.81%) (27.12%) (22.70%)
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000s) $ 210 $ 271 $ 218 $ 380 $ 375
Ratios to average net assets:
Expenses with reimbursements,
but no earnings credits# 2.54%** 2.82% 3.33% 4.18% 2.25%
Expenses with reimbursements
and earnings credits 2.54%** 2.82% 3.33% 4.17% 2.21%
Net investment loss (0.78%)** (1.34%) (2.05%) (3.07%) (1.31%)
- ---------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate@ 117% 138% 211% 145% 210%
</Table>
+ COMPUTED USING AVERAGE SHARES OUTSTANDING THROUGHOUT THE PERIOD.
* SALES CHARGES ARE NOT REFLECTED IN THE TOTAL RETURN.
** ANNUALIZED.
# CERTAIN FEES WERE WAIVED BY THE CUSTODIAN OR REIMBURSED BY THE MANAGEMENT
COMPANY OR ITS AFFILIATES. HAD THESE FEES NOT BEEN REIMBURSED OR WAIVED, THE
EXPENSE RATIOS WOULD HAVE BEEN 2.55% (2004), 2.84% (2003), 3.40% (2002),
4.18% (2001), AND 2.25% (2000).
@ 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>
<Table>
<Caption>
SIX MONTHS YEAR ENDED
ENDED JUNE 30, DECEMBER 31,
2004 2003 2002 2001 2000 1999
------------- -----------------------------------------------------------------------
CLASS F SHARES
PER SHARE OPERATING DATA
Net Asset Value, beginning of
period $ 11.41 $ 8.33 $ 11.72 $ 15.69 $ 25.17 $ 22.06
- -----------------------------------------------------------------------------------------------------------------------------------
Income from investment
operations:
Net investment income (loss) 0.00+,~ (0.13) (0.13) (0.14) (0.16) (0.06)
Net realized and unrealized gains
(losses) on securities 0.31 3.21 (3.26) (3.83) (5.45) 10.11
--------------------------------------------------------------------------------------------
Total from investment operations 0.31 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 0.00
From net realized gains 0.00 0.00 0.00 0.00 (3.87) (6.94)
--------------------------------------------------------------------------------------------
Total distributions 0.00 0.00 0.00 0.00 (3.87) (6.94)
- -----------------------------------------------------------------------------------------------------------------------------------
Net Asset Value, end of period $ 11.72 $ 11.41 $ 8.33 $ 11.72 $ 15.69 $ 25.17
============================================================================================
TOTAL RETURN 2.72% 36.97% (28.92%) (25.30%) (22.14%) 48.78%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000s) $ 61,520 $ 70,566 $ 59,890 $ 101,592 $ 176,405 $ 284,839
Ratios to average net assets:
Expenses with reimbursements,
but no earnings credits# 1.78%** 1.97% 1.84% 1.61% 1.54% 1.55%
Expenses with reimbursements
and earnings credits 1.78%** 1.97% 1.84% 1.60% 1.52% 1.53%
Net investment income (loss) 0.01%** (0.47%) (0.55%) (0.50%) (0.67%) (0.27)
- -----------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate@ 117% 138% 211% 145% 210% 157%
</Table>
+ NET INVESTMENT INCOME FOR THE SIX MONTHS ENDED JUNE 30, 2004 AGGREGATED LESS
THAN $0.01 ON A PER SHARE BASIS.
~ COMPUTED USING AVERAGE SHARES OUTSTANDING THROUGHOUT THE PERIOD.
** ANNUALIZED.
# CERTAIN FEES WERE WAIVED BY THE CUSTODIAN. HAD THESE FEES NOT BEEN WAIVED,
THE EXPENSE RATIOS WOULD HAVE BEEN 1.79% (2004), 1.98% (2003), 1.84% (2002),
1.61% (2001), 1.54% (2000) AND 1.55% (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.
25
<Page>
<Table>
<Caption>
SIX MONTHS YEAR ENDED
ENDED JUNE 30, DECEMBER 31,
2004 2003 2002 2001 2000
-------------- ---------------------------------------------------------
CLASS R SHARES
PER SHARE OPERATING DATA
Net Asset Value, beginning of period $ 11.60 $ 8.44 $ 11.81 $ 15.75 $ 25.18
- ---------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) 0.03 (0.00)+ (0.01) (0.02) (0.00)+
Net realized and unrealized gains
(losses) on securities 0.31 3.16 (3.36) (3.92) (5.56)
------------------------------------------------------------------------------
Total from investment operations 0.34 3.16 (3.37) (3.94) (5.56)
- ---------------------------------------------------------------------------------------------------------------------------------
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 0.00 (3.87)
------------------------------------------------------------------------------
Total distributions 0.00 0.00 0.00 0.00 (3.87)
- ---------------------------------------------------------------------------------------------------------------------------------
Net Asset Value, end of period $ 11.94 $ 11.60 $ 8.44 $ 11.81 $ 15.75
==============================================================================
TOTAL RETURN 2.93% 37.44% (28.54%) (25.02%) (21.94%)
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000s) $ 22,568 $ 21,404 $ 14,060 $ 19,193 $ 27,611
Ratios to average net assets:
Expenses with reimbursements,
but no earnings credits# 1.37%** 1.51% 1.41% 1.25% 1.26%
Expenses with reimbursements
and earnings credits 1.37%** 1.51% 1.41% 1.24% 1.22%
Net investment income (loss) 0.44%** (0.03%) (0.13%) (0.14%) (0.49%)
- ---------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate@ 117% 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.
** ANNUALIZED.
# CERTAIN FEES WERE WAIVED BY THE CUSTODIAN. HAD THESE FEES NOT BEEN WAIVED,
THE EXPENSE RATIOS WOULD HAVE BEEN 1.38% (2004), 1.53% (2003), 1.41% (2002),
1.25% (2001), AND 1.26% (2000).
@ 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>
<Table>
<Caption>
SIX MONTHS YEAR ENDED
ENDED JUNE 30, DECEMBER 31,
2004 2003 2002 2001 2000
--------------- ---------------------------------------------------------
CLASS T SHARES
PER SHARE OPERATING DATA
Net Asset Value, beginning of period $ 10.73 $ 7.89 $ 11.46 $ 15.65 $ 25.18
- ----------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment loss (0.01)+ (0.14) (0.59) (0.26) (0.06)
Net realized and unrealized gains
(losses) on securities 0.29 2.98 (2.98) (3.93) (5.60)
--------------------------------------------------------------------------------
Total from investment operations 0.28 2.84 (3.57) (4.19) (5.66)
- ----------------------------------------------------------------------------------------------------------------------------------
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 0.00 (3.87)
--------------------------------------------------------------------------------
Total distributions 0.00 0.00 0.00 0.00 (3.87)
- ----------------------------------------------------------------------------------------------------------------------------------
Net Asset Value, end of period $ 11.01 $ 10.73 $ 7.89 $ 11.46 $ 15.65
================================================================================
TOTAL RETURN* 2.61% 35.99% (31.15%) (26.77%) (22.34%)
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000s) $ 51 $ 61 $ 47 $ 90 $ 48
Ratios to average net assets:
Expenses with reimbursements,
but no earnings credits# 1.95%** 2.54% 4.60% 3.75% 1.76%
Expenses with reimbursements
and earnings credits 1.94%** 2.54% 4.60% 3.74% 1.72%
Net investment loss (0.17%)** (1.05%) (2.88%) (2.72%) (0.76%)
- ----------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate@ 117% 138% 211% 145% 210%
</Table>
+ COMPUTED USING AVERAGE SHARES OUTSTANDING THROUGHOUT THE PERIOD.
* SALES CHARGES ARE NOT REFLECTED IN THE TOTAL RETURN.
** ANNUALIZED.
# CERTAIN FEES WERE WAIVED BY THE CUSTODIAN OR REIMBURSED BY THE MANAGEMENT
COMPANY OR ITS AFFILIATES. HAD THESE FEES NOT BEEN REIMBURSED OR WAIVED, THE
EXPENSE RATIOS WOULD HAVE BEEN 1.96% (2004), 2.56% (2003), 5.48% (2002),
10.02% (2001), AND 1.76% (2000).
@ 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
June 30, 2004 (UNAUDITED)
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
Dreyfus Founders Funds, Inc. (the "Company") is an open-end management
investment company registered under the Investment Company Act of 1940 (the
"1940 Act"). 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--A domestic 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 a
security traded on Nasdaq, at its official closing price. Lacking any sales on
that day, the security is valued at the current closing bid price, or by quotes
from dealers making a market in the security if the closing bid price is not
available, or in the case of written call options, at the mean between the
highest bid and lowest asked quotations obtained from at least two securities
dealers.
A foreign equity security traded on a foreign exchange is valued at the last
quoted official closing price available before the time when the Fund's assets
are valued, or at the last quoted sales price if the exchange does not provide
an official closing price or if the foreign market has not yet closed. Lacking
any sales on that day, the security is valued at the current closing bid price,
or by quotes from dealers making a market in the security if the closing bid
price is not available. London closing exchange rates are used to convert
foreign currencies to U.S. dollars. A debt security with a remaining maturity
greater than 60 days at the time of purchase is valued in accordance with the
evaluated bid price supplied by a pricing service approved by the Company's
board of directors or, if such price is not available, at the mean between the
highest bid and lowest asked quotations obtained from at least two securities
dealers.
A debt security with a remaining maturity of 60 days or less at the time of
purchase is valued at amortized cost, which approximates market value, unless it
is determined that amortized cost would not represent market value, in which
case the securities would be marked to market. The Fund amortizes premiums and
discounts on all debt 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.
28
<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 Fund
normally will invest a large portion of its assets in foreign securities. In the
event the Fund executes a foreign security transaction, the Fund may enter into
a foreign currency contract to settle the foreign security transaction. The
resultant foreign currency gain or loss from the contract is recorded as foreign
currency gain or loss and is presented as such in the Statement of Operations.
Foreign currency held at June 30, 2004 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 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.
29
<Page>
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, if
any, reduce Other Expenses and would be 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.
SHAREHOLDER SERVICING AND TRANSFER AGENCY FEES FOR CLASS F SHARES--The Company
has a shareholder services agreement with Dreyfus Service Corporation ("DSC"),
the direct owner of Founders and 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. 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. During the six months ended June 30,
2004, Class F shares were charged $49,947 pursuant to this shareholder services
agreement.
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 incurred by
DTI are paid by the Fund. During the six months ended June 30, 2004, Class F
shares were charged $12,031 for out-of-pocket transfer agent charges.
30
<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 $12.43 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 six months ended June
30, 2004 were as follows:
<Table>
<Caption>
TRANSFER
AGENCY FEES
-----------
Class A $ 507
Class B $ 1,598
Class C $ 236
Class R $ 3,287
Class T $ 30
</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 1940 Act 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 six months ended June
30, 2004, Class F shares were charged $83,854 pursuant to this Distribution
Plan.
The Fund also has adopted a Distribution Plan pursuant to Rule 12b-1 under the
1940 Act applicable to its Class B, Class C and Class T shares. Under this plan,
the Fund pays DSC a fee for distributing its Class B and C shares at the annual
rate of 0.75% of the value of the average daily net assets of its Class B and C
shares, respectively, and pays DSC a fee for distributing its Class T shares at
the annual rate of 0.25% of the average daily net assets of its Class T shares.
In addition, the Fund has adopted a Shareholder Services Plan applicable to its
Class A, Class B, Class C and Class T shares. Under the Shareholder Services
Plan, Class A, Class B, Class C and Class T shares pay DSC an annual fee of
0.25% of the value of their average daily net assets for the provision of
certain services.
Distribution and shareholder servicing fees paid to DSC by the Fund's Class A,
B, C and T shares for the six months ended June 30, 2004, were as follows:
<Table>
<Caption>
DISTRIBUTION SHAREHOLDER
FEES SERVICING FEES
-----------------------------
Class A N/A $ 699
Class B $ 7,081 $ 2,360
Class C $ 922 $ 307
Class T $ 71 $ 71
</Table>
31
<Page>
During the six months ended June 30, 2004, DSC retained $846 and $10 in sales
commissions from the sales of Class A and Class T shares, respectively. DSC also
retained $3,422 and $50 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 by applying the
following rates, as applicable, to the domestic assets and foreign assets, with
the proportions of domestic and foreign assets recalculated monthly, plus
reasonable out-of-pocket expenses.
<Table>
<Caption>
ON ASSETS BUT NOT DOMESTIC FOREIGN
IN EXCESS OF EXCEEDING FEE 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 and an affiliate of Founders, 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
----------------------------------------------------------------
9/1/03 to 8/31/04 $ 150,000
9/1/04 to 8/31/05 $ 200,000
9/1/05 to 8/31/06 $ 200,000
</Table>
The fee waiver is allocated among the Funds in proportion to their respective
shares of the total custodian fee. For the six months ended June 30, 2004, the
Fund's portion of the fee waiver was $5,559. 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
32
<Page>
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.
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 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
June 30, 2004 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 $ 71,379,139
Gross Tax Appreciation of Investments $ 15,601,849
Gross Tax Depreciation of Investments $ (1,043,455)
Net Tax Appreciation $ 14,558,394
</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>
SIX MONTHS
ENDED YEAR ENDED
JUNE 30, 2004 DECEMBER 31, 2003
SHARES AMOUNT SHARES AMOUNT
CLASS A
Sold 8,413 $ 97,470 197,675 $ 1,902,667
Redeemed (18,115) $ (212,502) (205,316) $ (1,998,630)
-------------------------------------------------------------
Net Decrease (9,702) $ (115,032) (7,641) $ (95,963)
=============================================================
CLASS B
Sold 21,726 $ 239,925 13,807 $ 133,035
Redeemed (15,377) $ (173,598) (28,252) $ (261,780)
-------------------------------------------------------------
Net Increase (Decrease) 6,349 $ 66,327 (14,445) $ (128,745)
=============================================================
CLASS C
Sold 3,830 $ 42,414 50,623 $ 402,228
Redeemed (9,933) $ (110,425) (52,994) $ (427,345)
-------------------------------------------------------------
Net Decrease (6,103) $ (68,011) (2,371) $ (25,117)
=============================================================
CLASS F
Sold 518,816 $ 6,087,270 2,467,985 $ 22,841,668
Redeemed (1,455,312) $ (16,919,631) (3,470,420) $ (32,010,828)
-------------------------------------------------------------
Net Decrease (936,496) $ (10,832,361) (1,002,435) $ (9,169,160)
=============================================================
CLASS R
Sold 123,552 $ 1,457,362 286,586 $ 2,765,461
Redeemed (78,830) $ (934,537) (108,124) $ (1,006,385)
-------------------------------------------------------------
Net Increase 44,722 $ 522,825 178,462 $ 1,759,076
=============================================================
CLASS T
Sold 1,417 $ 15,461 0 $ 0
Redeemed (2,495) $ (27,593) (282) $ (2,291)
-------------------------------------------------------------
Net Decrease (1,078) $ (12,132) (282) $ (2,291)
=============================================================
</Table>
34
<Page>
5. INVESTMENT TRANSACTIONS
Purchases and sales of investment securities (excluding short-term securities
and U.S. government obligations) for the six months ended June 30, 2004 were
$52,591,227 and $61,234,475, 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 June 30, 2004, the Fund had borrowings in the amount of $700,000
pursuant to this LOC arrangement.
7. LEGAL MATTERS
Two class actions have been filed against Mellon Financial Corporation and
Mellon Bank, N.A.; Dreyfus and Founders (the "Investment Advisers"); and the
directors of all or substantially all of the Dreyfus and Dreyfus Founders Funds.
The complaints also name all or substantially all of the Dreyfus and Dreyfus
Founders Funds as nominal defendants. Plaintiffs allege that the Investment
Advisers improperly used assets of the Dreyfus and Dreyfus Founders Funds, in
the form of directed brokerage commissions and 12b-1 fees, to pay brokers to
promote sales of Dreyfus and Dreyfus Founders Funds, and that the use of fund
assets to make these payments was not properly disclosed to investors.
Plaintiffs claim that the Investment Advisers' actions violated the 1940 Act,
the Investment Advisers Act, and common law. The complaints further allege that
the directors breached their fiduciary duties to fund shareholders under the
1940 Act and at common law and that Mellon Financial and Mellon Bank violated
the 1940 Act. The complaints seek unspecified compensatory and punitive damages,
rescission of the funds' contracts with the Investment Advisers, an accounting
of all fees paid, and an award of attorneys' fees and litigation expenses. The
complaints are pending in the same court and have been consolidated into a
single action under the caption IN RE DREYFUS MUTUAL FUNDS FEE LITIGATION.
Founders, Dreyfus, and the Funds believe the allegations in these lawsuits to be
totally without merit and intend to defend the actions vigorously. It is
possible that additional lawsuits arising out of these circumstances and
presenting similar allegations and requests for relief may be filed against the
defendants in the future. Neither Founders, Dreyfus, nor the Funds believe that
the pending actions will have a material adverse effect on the Funds or
Founders' ability to perform its contract with the Funds.
35
<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
PROXY VOTING INFORMATION
A description of the policies and procedures that the Fund uses to determine how
to vote proxies relating to portfolio securities, and information regarding how
the Fund voted these proxies for the 12-month period ended June 30, 2004, is
available through the Fund's website at www.founders.com and on the Securities
and Exchange Commission's website at www.sec.gov. The description of the
policies and procedures is also available without charge, upon request, by
calling 1-800-525-2440.
THIS REPORT AND THE STATEMENTS IT CONTAINS ARE SUBMITTED FOR THE GENERAL
INFORMATION OF OUR SHAREHOLDERS. THE REPORT IS NOT AUTHORIZED FOR DISTRIBUTION
TO PROSPECTIVE INVESTORS UNLESS PRECEDED OR ACCOMPANIED BY AN EFFECTIVE
PROSPECTUS.
Dreyfus Service Corporation, Distributor.
(C) 2004 Founders Asset Management LLC. 8/04
A-636-WWG-04
<Page>
Dreyfus Founders
Balanced Fund
SEMIANNUAL REPORT June 30, 2004
[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
</Table>
The views expressed herein are current to the date of this report. The views and
the composition of the Fund's portfolio are subject to change at any time based
on market and other conditions. Companies appearing in bold print on pages 3-9
were owned by the Fund on June 30, 2004. 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]
[PHOTO OF JOHN JOHNSON]
A DISCUSSION WITH PORTFOLIO MANAGER JOHN B. JARES, CFA, LEFT, AND ASSISTANT
PORTFOLIO MANAGER JOHN JOHNSON, CFA
HOW DID THE FUND PERFORM RELATIVE TO ITS BENCHMARK FOR THE SIX-MONTH PERIOD
ENDED JUNE 30, 2004?
For the six-month period ended June 30, 2004, the Dreyfus Founders Balanced Fund
underperformed its benchmark, the Standard & Poor's 500 Index, which posted a
total return of 3.44% for the same period.
TO WHAT DO YOU ATTRIBUTE THE MARKET'S OVERALL PERFORMANCE FOR THE FIRST SIX
MONTHS OF 2004?
During the first half of the year, the market continued to focus on
macroeconomic issues, both domestically and internationally. The continuing war
on terrorism, increasing interest rates and oil prices, and the approaching
Presidential election mired the equity markets during the period. The ongoing
unrest in the Middle East escalated geopolitical instability, which sustained
the risk premium to world oil prices. This caused concern in the U.S. markets
that the domestic economy may slow sooner rather than later. These factors,
coupled with the anticipation of the Federal Reserve raising the federal funds
rate, intensified an already difficult environment for the markets during the
first six months of the year.
[SIDENOTE]
"WE SELECTED FOR INCLUSION IN THE FUND HOLDINGS WE BELIEVE ARE MOST LIKELY TO
EXHIBIT STRONG EARNINGS-PER-SHARE (EPS) GROWTH, PREPARING THE FUND FOR THE
POSSIBILITY OF CONTINUED ECONOMIC EXPANSION."
WHAT CHANGES WERE MADE TO THE FUND DURING THE PERIOD?
Based on our fundamental evaluation of individual companies in various sectors,
we adjusted the Fund's investments in the consumer discretionary sector to those
holdings that were more sensitive to an economic upturn. Additionally,
3
<Page>
we increased the Fund's weighting in the healthcare sector as companies within
this sector offered compelling prospects given their valuations and opportunity
within an increasing interest rate environment.
We selected for inclusion in the Fund holdings we believe are most likely to
exhibit strong earnings-per-share (EPS) growth, preparing the Fund for the
possibility of continued economic expansion. We were also watchful for stocks
that could generate strong EPS and revenue growth through a tightening of the
monetary policy by the Federal Reserve. Because of this, we added FASTENAL
COMPANY, THE PMI GROUP, INC., GILLETTE COMPANY and AUTODESK, INC. to the Fund
during the half.
WHAT MANAGEMENT DECISIONS POSITIVELY CONTRIBUTED TO FUND PERFORMANCE DURING THE
PERIOD?
Compelling growth opportunities were found in the consumer staples, financials
and consumer discretionary sectors. As investors moved toward more defensive
stocks in light of the anticipated federal funds rate hike, names within the
consumer staples sector such as SAFEWAY, INC. buoyed relative Fund performance.
In the tightening monetary policy environment during the period, the Fund's
underexposure and strong stock selection in the financials sector aided relative
performance.
Although the Fund's overweight position in the consumer discretionary sector
proved to be a drag on relative performance, this was offset by the strong
performance of individual issues within the sector. ROYAL CARIBBEAN CRUISES
LIMITED, NORDSTROM, INC. and Mandalay Resort Group, the top three performers
[SIDENOTE]
PERFORMANCE HIGHLIGHTS
- The continuing war on terrorism, increasing interest rates and oil
prices, and the approaching Presidential election mired the equity
markets during the period.
- Compelling growth opportunities were found in the consumer staples,
financials and consumer discretionary sectors.
- Poor stock selection in the information technology sector hindered
relative performance during the period.
- Although the bond market experienced a strong first quarter, the
Treasury market suffered its worst performance in almost 25 years during
the second quarter.
4
<Page>
for the Fund, benefited from an increase in consumer demand. Nordstrom's
earnings came in significantly better than Wall Street had anticipated as
consumers continued to purchase higher-value products in the improving economy.
The Fund's underweight position in the healthcare sector relative to the
benchmark also boosted Fund performance. Although stock selection in this sector
was relatively neutral, some individual issues did outperform. TEVA
PHARMACEUTICAL INDUSTRIES LIMITED continued to assist the Fund's overall return
with its strong generic drug pipeline and through launches of key products
during the first half of the year.
Other notable performances by individual issues include fastener distribution
company FASTENAL COMPANY and Smith International, Inc., the leading supplier of
products and services to the oil and gas exploration and production industry.
ESTEE LAUDER COMPANIES, INC. also moved higher as the company posted superior
revenue and earnings growth.
Although the information technology sector proved to be the worst performing
sector for the Fund on a relative basis, some technology holdings should be
mentioned as boosting Fund performance. APPLE COMPUTER, INC. assisted
performance due primarily to the popularity of the company's consumer-related
technology offerings, the I-Pod and the I-Pod Mini. MICROSOFT CORPORATION also
benefited the Fund as investors began to believe the enterprise spending cycle
had begun.
LARGEST EQUITY HOLDINGS (ticker symbol)
<Table>
1. Microsoft Corporation (MSFT) 4.69%
2. Maxim Integrated Products, Inc. (MXIM) 3.21%
3. Pfizer, Inc. (PFE) 3.02%
4. Gillette Company (G) 2.99%
5. General Electric Company (GE) 2.81%
6. American International Group, Inc. (AIG) 2.52%
7. International Business Machines Corporation (IBM) 2.49%
8. Apple Computer, Inc. (AAPL) 2.31%
9. Royal Caribbean Cruises Limited (RCL) 2.23%
10. Time Warner, Inc. (TWX) 2.09%
</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>
GROWTH OF $10,000 INVESTMENT
PERFORMANCE DATA QUOTED REPRESENTS PAST PERFORMANCE. PAST PERFORMANCE DOES NOT
GUARANTEE FUTURE RESULTS. INVESTMENT RETURN AND PRINCIPAL VALUE OF AN INVESTMENT
WILL FLUCTUATE SO THAT AN INVESTOR'S SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR
LESS THAN THEIR ORIGINAL COST. CURRENT PERFORMANCE MAY BE LOWER OR HIGHER THAN
THE PERFORMANCE DATA QUOTED. PLEASE CALL 1-800-525-2440 TO OBTAIN THE MOST
RECENT MONTH-END PERFORMANCE DATA.
[CHART]
The above graph compares a $10,000 investment made in Class F shares of Dreyfus
Founders Balanced Fund on 6/30/94 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 designed to be representative of the
U.S. equities market and consists of 500 leading companies in leading industries
of the U.S. economy. 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 equal
dollar weighted index of the largest mutual funds within the Balanced Fund
classification, as defined by Lipper. This index is adjusted for the
reinvestment of capital gains and income dividends, and reflects the management
expenses associated with the funds included in the index. Further information
related to Fund performance is contained elsewhere in this report.
6
<Page>
WHAT FACTORS NEGATIVELY CONTRIBUTED TO FUND PERFORMANCE DURING THE PERIOD?
Poor stock selection in the information technology sector hindered relative
performance during the period. The Fund's exposure to certain technology
companies exhibiting weakening fundamentals negatively impacted the portfolio.
Semiconductor Manufacturing International Corporation and Foundry Networks, Inc.
were the two worst-performing stocks for the Fund during the timeframe.
Weak stock selection and an underweight position in the materials sector also
hampered the Fund's relative return. ALCOA, INC., the world's leading producer
of aluminum, underperformed on concerns of a slowdown in the Chinese economy,
which could lead to a decline in the underlying demand for various commodities,
including aluminum.
AVERAGE ANNUAL AND YEAR-TO-DATE TOTAL RETURN AS OF 6/30/04
<Table>
<Caption>
YEAR-TO- 1 5 10 SINCE
CLASS (INCEPTION DATE) DATE+ YEAR YEARS YEARS INCEPTION
- ----------------------------------------------------------------------------------------
CLASS A SHARES (12/31/99)
With sales charge (5.75%) (5.57%) 1.90% -- -- (6.45%)
Without sales charge 0.18% 8.16% -- -- (5.21%)
CLASS B SHARES (12/31/99)
With redemption* (4.15%) 3.41% -- -- (6.33%)
Without redemption (0.16%) 7.41% -- -- (5.91%)
CLASS C SHARES (12/31/99)
With redemption** (1.17%) 6.37% -- -- (6.29%)
Without redemption (0.17%) 7.37% -- -- (6.29%)
CLASS F SHARES (2/19/63) 0.34% 8.51% (5.11%) 4.70% N/A
CLASS R SHARES (12/31/99) 0.20% 7.95% -- -- (5.36%)
CLASS T SHARES (12/31/99)
With sales charge (4.50%) (4.51%) 2.79% -- -- (6.00%)
Without sales charge (0.03%) 7.57% -- -- (5.04%)
</Table>
Average annual and year-to-date total returns do not reflect the deduction of
taxes that a shareholder would pay on Fund distributions or redemption of Fund
shares, but do reflect the reinvestment of dividends and capital gain
distributions, expense limits for certain share classes, and adjustments for
financial statement purposes.
*The maximum contingent deferred sales charge for Class B shares is 4% and is
reduced to 0% after six years, at which time the Class B shares convert to Class
A shares.
**The maximum contingent deferred sales charge for Class C shares is 1% for
shares redeemed within one year of the date of purchase.
+ Total return is not annualized.
7
<Page>
Industrials holdings also hindered relative performance through such names as
rail transportation company UNION PACIFIC CORPORATION. Union Pacific experienced
network congestion as a result of volume growth well ahead of company
expectations, which resulted in much greater-than-expected handling costs. This,
combined with high fuel prices, drove downward revisions to earnings estimates
and share price underperformance.
Although the Fund benefited from strong stock selection in the consumer
discretionary sector, as was previously mentioned, specific underachievers
reduced the positive contribution of this sector. KOHL'S CORPORATION experienced
sluggish sales trends during the latter part of the period, which resulted in
investor concern over future lackluster earnings growth. Cable and entertainment
companies VIACOM, INC. and COX COMMUNICATIONS, INC. also underperformed as the
industry itself suffered.
[CHART]
COMPOSITION OF EQUITY ASSETS
<Table>
Information Technology 26.12%
Consumer Discretionary 16.78%
Financials 16.00%
Healthcare 13.07%
Industrials 12.88%
Consumer Staples 9.99%
Materials 1.92%
Energy 1.69%
Telecommunications Services 1.55%
</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>
HOW DID THE FIXED-INCOME PORTION OF THE FUND FARE IN THE FIRST HALF OF THE YEAR?
Although the bond market experienced a strong first quarter, the Treasury market
suffered its worst performance in almost 25 years during the second quarter,
with interest rates rising dramatically. The yield on the two-year Treasury rose
1.10%, while the 10-year Treasury yield rose 0.75% by June 30, 2004.
The Fund's position in shorter-dated securities proved beneficial as
shorter-duration issues outperformed their longer-dated counterparts. An
underweight position in Treasuries and an overweight position in government
agencies by the end of the period helped to mitigate losses.
The gains experienced by the Fund's overweight position in corporate bonds
during the first half of the period were counteracted by the underperformance of
corporate issues during the last three months of the period. Likewise,
underexposure in fixed-rate mortgages proved detrimental to the six-month
performance of the fixed-income portion of the Fund, as mortgages moved from the
weakest Lehman Brothers Aggregate Bond Index component at the beginning of the
year to one of the strongest by the period's end.
We will continue to apply our process and philosophy in seeking to pick stocks
for the Fund that we believe have the potential to take advantage of a possible
economic uplift and that exhibit strong fundamental earnings strength.
/s/ John B. Jares /s/ John Johnson
John B. Jares, CFA John Johnson, CFA
Portfolio Manager Assistant Portfolio Manager
The Lehman Brothers Aggregate Bond Index is comprised of the Lehman Brothers
Government/Corporate Bond Index, Mortgage-Backed Securities Index, and
Asset-Backed Securities Index, including securities that are of investment-grade
quality or better, have at least one year to maturity, and have an outstanding
par value of at least $100 million.
9
<Page>
STATEMENT OF INVESTMENTS
June 30, 2004 (UNAUDITED)
<Table>
<Caption>
SHARES MARKET VALUE
- ---------------------------------------------------------------------------------
COMMON STOCKS (DOMESTIC)--59.6%
AEROSPACE & DEFENSE--0.6%
12,900 Lockheed Martin Corporation $ 671,822
------------
AIR FREIGHT & LOGISTICS--0.9%
11,400 FedEx Corporation 931,266
------------
AIRLINES--0.6%
39,800 Southwest Airlines Company 667,446
------------
ALUMINUM--0.6%
18,800 Alcoa, Inc. 620,964
------------
APPLICATION SOFTWARE--0.4%
10,400 Autodesk, Inc. 445,224
------------
ASSET MANAGEMENT & CUSTODY BANKS--0.6%
38,000 Janus Capital Group, Inc. 626,620
------------
BIOTECHNOLOGY--0.7%
8,000 Amgen, Inc.* 436,560
5,400 Biogen Idec, Inc.* 341,550
------------
778,110
------------
BROADCASTING & CABLE TV--2.3%
19,500 Comcast Corporation Class A* 546,585
35,000 Comcast Corporation Special Class A* 966,350
33,300 Cox Communications, Inc. Class A* 925,407
------------
2,438,342
------------
CASINOS & GAMING--0.7%
20,300 International Game Technology 783,580
------------
COMMUNICATIONS EQUIPMENT--2.8%
60,200 Cisco Systems, Inc.* 1,426,740
47,900 Motorola, Inc. 874,175
21,200 Scientific-Atlanta, Inc. 731,400
------------
3,032,315
------------
COMPUTER & ELECTRONICS RETAIL--0.3%
6,350 Best Buy Company, Inc. 322,199
------------
COMPUTER HARDWARE--3.0%
48,900 Apple Computer, Inc.* 1,591,206
19,400 International Business Machines Corporation 1,710,110
------------
3,301,316
------------
CONSTRUCTION MATERIALS--0.6%
16,100 Lafarge North America, Inc. 697,130
------------
DATA PROCESSING & OUTSOURCED SERVICES--0.9%
8,600 Automatic Data Processing, Inc. 360,168
16,450 Fiserv, Inc.* 639,741
------------
999,909
------------
DEPARTMENT STORES--1.5%
24,400 Kohl's Corporation* 1,031,632
13,600 Nordstrom, Inc. 579,496
------------
1,611,128
------------
</Table>
10
<Page>
<Table>
<Caption>
SHARES MARKET VALUE
- ---------------------------------------------------------------------------------
DIVERSIFIED BANKS--2.3%
24,400 Bank One Corporation $ 1,244,400
------------
11,400 TCF Financial Corporation 661,770
10,200 Wells Fargo & Company 583,746
------------
2,489,916
------------
EMPLOYMENT SERVICES--1.4%
13,300 Manpower, Inc. 675,241
33,900 Monster Worldwide, Inc.* 871,908
------------
1,547,149
------------
FOOD RETAIL--1.9%
51,400 Kroger Company* 935,480
44,601 Safeway, Inc.* 1,130,189
------------
2,065,669
------------
HEALTHCARE EQUIPMENT--0.7%
16,700 Boston Scientific Corporation* 714,760
------------
HOME ENTERTAINMENT SOFTWARE--0.3%
5,500 Electronic Arts* 300,025
------------
HOTELS, RESORTS & CRUISE LINES--0.4%
8,000 Carnival Corporation 376,000
------------
HOUSEHOLD PRODUCTS--0.3%
5,200 Procter & Gamble Company 283,088
------------
HYPERMARKETS & SUPER CENTERS--0.4%
7,200 Wal-Mart Stores, Inc. 379,872
------------
INDUSTRIAL CONGLOMERATES--2.8%
12,100 3M Company 1,089,121
59,700 General Electric Company 1,934,280
------------
3,023,401
------------
INTEGRATED TELECOMMUNICATION SERVICES--1.0%
29,400 Verizon Communications, Inc. 1,063,986
------------
INVESTMENT BANKING & BROKERAGE--2.1%
12,300 Goldman Sachs Group, Inc. 1,158,168
21,300 Morgan Stanley 1,124,001
------------
2,282,169
------------
LEISURE FACILITIES--1.4%
35,300 Royal Caribbean Cruises Limited 1,532,373
------------
LIFE & HEALTH INSURANCE--0.5%
14,300 AFLAC, Inc. 583,583
------------
MOVIES & ENTERTAINMENT--2.9%
81,900 Time Warner, Inc.* 1,439,802
15,000 Viacom, Inc. Class B 535,800
47,800 Walt Disney Company 1,218,422
------------
3,194,024
------------
</Table>
SEE NOTES TO STATEMENT OF INVESTMENTS.
11
<Page>
<Table>
<Caption>
SHARES MARKET VALUE
- ---------------------------------------------------------------------------------
MULTI-LINE INSURANCE--1.6%
24,300 American International Group, Inc. $ 1,732,104
------------
OIL & GAS EXPLORATION & PRODUCTION--1.1%
26,670 Apache Corporation 1,161,479
------------
OTHER DIVERSIFIED FINANCIAL SERVICES--1.0%
23,066 Citigroup, Inc. 1,072,569
------------
PERSONAL PRODUCTS--3.0%
25,000 Estee Lauder Companies, Inc. Class A 1,219,500
48,600 Gillette Company 2,060,640
------------
3,280,140
------------
PHARMACEUTICALS--5.5%
29,100 Abbott Laboratories 1,186,116
11,300 Eli Lilly and Company 789,983
12,300 Forest Laboratories, Inc.* 696,549
5,000 Johnson & Johnson 278,500
8,000 Merck & Company, Inc. 380,000
60,550 Pfizer, Inc. 2,075,654
15,900 Wyeth 574,944
------------
5,981,746
------------
PROPERTY & CASUALTY INSURANCE--0.5%
12,600 Allstate Corporation 586,530
------------
RAILROADS--0.6%
11,000 Union Pacific Corporation 653,950
------------
SEMICONDUCTORS--4.4%
57,900 Altera Corporation* 1,286,538
48,100 Intel Corporation 1,327,560
42,200 Maxim Integrated Products, Inc. 2,212,124
------------
4,826,222
------------
SOFT DRINKS--0.8%
17,200 Coca-Cola Company 868,256
------------
SPECIALTY STORES--0.8%
23,300 Bed Bath & Beyond, Inc.* 895,885
------------
SYSTEMS SOFTWARE--3.0%
113,000 Microsoft Corporation 3,227,280
------------
THRIFTS & MORTGAGE FINANCE--1.5%
15,200 Countrywide Financial Corporation 1,067,800
13,100 The PMI Group, Inc. 570,112
------------
1,637,912
------------
TRADING COMPANIES & DISTRIBUTORS--0.9%
18,100 Fastenal Company 1,028,623
------------
TOTAL COMMON STOCKS (DOMESTIC)
(Cost--$57,793,925) 64,716,082
------------
</Table>
12
<Page>
<Table>
<Caption>
SHARES MARKET VALUE
- ---------------------------------------------------------------------------------
COMMON STOCKS (FOREIGN)--3.8%
APPLICATION SOFTWARE--0.7%
17,650 SAP AG Sponsored ADR (GE) $ 737,947
------------
HEALTHCARE SUPPLIES--0.6%
8,600 Alcon, Inc. (SZ) 676,390
------------
IT CONSULTING & OTHER SERVICES--1.0%
40,225 Accenture Limited Class A (BD)* 1,105,383
------------
MOVIES & ENTERTAINMENT--0.4%
11,200 News Corporation Limited Sponsored ADR (AU) 396,704
------------
PHARMACEUTICALS--0.8%
12,500 Teva Pharmaceutical Industries
Limited Sponsored ADR (IS) 841,125
------------
RAILROADS--0.3%
7,762 Canadian National Railway Company (CA) 338,346
------------
TOTAL COMMON STOCKS (FOREIGN)
(COST--$2,995,349) 4,095,895
------------
<Caption>
PRINCIPAL AMOUNT MARKET VALUE
- ---------------------------------------------------------------------------------
CORPORATE BONDS (DOMESTIC)--12.3%
AUTOMOBILE MANUFACTURERS--2.9%
$ 3,000,000 Toyota Motor Credit Corporation
5.65% 1/15/07 $ 3,155,610
------------
DIVERSIFIED BANKS--3.1%
1,500,000 Bank One Corporation
6.50% 2/1/06 1,582,965
1,540,000 Washington Mutual, Inc.
8.25% 4/1/10 1,793,176
------------
3,376,141
------------
HOUSEHOLD PRODUCTS--1.5%
1,500,000 Colgate-Palmolive Company
5.98% 4/25/12 1,609,680
------------
MOVIES & ENTERTAINMENT--1.9%
2,000,000 Viacom, Inc.
7.75% 6/1/05 2,094,460
------------
PHARMACEUTICALS--2.9%
3,000,000 Abbott Laboratories
5.625% 7/1/06 3,148,920
------------
TOTAL CORPORATE BONDS (DOMESTIC)
(COST--$12,750,853) 13,384,811
------------
</Table>
SEE NOTES TO STATEMENT OF INVESTMENTS.
13
<Page>
<Table>
<Caption>
PRINCIPAL AMOUNT MARKET VALUE
- ---------------------------------------------------------------------------------
U.S. GOVERNMENT OBLIGATIONS--18.9%
AGENCY PASS THROUGH--3.4%
$ 3,449,474 U.S. Small Business Administration Series 10-A
6.64% 2/1/11 $ 3,660,479
------------
GOVERNMENT SPONSORED ENTERPRISES--9.0%
3,500,000 Federal Home Loan Bank
6.50% 11/15/05 3,683,120
Federal National Mortgage Association:
1,000,000 4.25% 7/15/07 1,018,450
1,500,000 4.375% 10/15/06 1,538,010
2,000,000 Private Export Funding Corporation
3.40% 2/15/08 1,975,700
1,500,000 Tennessee Valley Authority
6.375% 6/15/05 1,556,760
------------
9,772,040
------------
MORTGAGE-BACKED SECURITIES: GNMA/GUARANTEED--1.5%
1,649,482 Government National Mortgage Association
6.00% 1/15/33 Pool #563709 1,693,177
------------
U.S. TREASURY NOTES--5.0%
U.S. Treasury Inflation Index Note:
1,186,480 3.375% 1/15/07 1,271,010
1,146,220 3.875% 1/15/09 1,277,990
U.S. Treasury Note:
1,250,000 4.375% 5/15/07 1,291,988
1,500,000 6.875% 5/15/06 1,614,720
------------
5,455,708
------------
TOTAL U.S. GOVERNMENT OBLIGATIONS
(COST--$20,232,376) 20,581,404
------------
GOVERNMENT BONDS (FOREIGN)--2.5%
CAD 3,535,000 Province of Quebec
6.50% 12/1/05 (CA) 2,759,399
------------
TOTAL GOVERNMENT BONDS (FOREIGN)
(COST--$2,364,824) 2,759,399
------------
SUPRANATIONAL OBLIGATIONS--0.9%
$ 1,000,000 International Finance Corporation
3.75% 6/30/09 988,230
------------
TOTAL SUPRANATIONAL OBLIGATIONS
(COST--$999,410) 988,230
------------
</Table>
14
<Page>
<Table>
<Caption>
PRINCIPAL AMOUNT AMORTIZED COST
- ----------------------------------------------------------------------------------
CORPORATE SHORT-TERM NOTES--4.0%
AGRICULTURAL PRODUCTS--4.0%
$ 4,300,000 Archer-Daniels-Midland Company
1.43% 7/1/04+ $ 4,300,000
-------------
TOTAL CORPORATE SHORT-TERM NOTES
(AMORTIZED COST--$4,300,000) 4,300,000
-------------
TOTAL INVESTMENTS--102.0%
(TOTAL COST--$101,436,737) 110,825,821
-------------
OTHER ASSETS AND LIABILITIES--(2.0%) (2,214,805)
-------------
NET ASSETS--100.0% $ 108,611,016
=============
</Table>
NOTES TO STATEMENT OF INVESTMENTS
* NON-INCOME PRODUCING.
+ SECURITY WAS ACQUIRED PURSUANT TO SECTION 4(2) OF THE SECURITIES ACT OF 1933
AND MAY BE DEEMED TO BE RESTRICTED FOR RESALE.
ADR - AMERICAN DEPOSITARY RECEIPT
AU - AUSTRALIA
BD - BERMUDA
CA - CANADA
GE - GERMANY
IS - ISRAEL
SZ - SWITZERLAND
15
<Page>
STATEMENT OF ASSETS AND LIABILITIES
June 30, 2004 (UNAUDITED)
<Table>
ASSETS
Investment securities, at cost $ 101,436,737
---------------
Investment securities, at market 110,825,821
Cash 306,137
Receivables:
Investment securities sold 798,278
Capital shares sold 56,001
Dividends and interest 502,861
Other 54,054
---------------
Total Assets 112,543,152
---------------
LIABILITIES
Payables and other accrued liabilities:
Investment securities purchased 3,416,522
Capital shares redeemed 206,968
Advisory fees 59,347
Shareholder servicing fees 7,312
Accounting fees 5,478
Distribution fees 43,377
Transfer agency fees 34,726
Custodian fees 2,767
Other 155,639
---------------
Total Liabilities 3,932,136
---------------
Net Assets $ 108,611,016
===============
COMPOSITION OF NET ASSETS
Capital (par value and paid-in surplus) $ 297,589,338
Accumulated net investment loss (31,100)
Accumulated net realized loss from security transactions (198,336,486)
Net unrealized appreciation on investments and
foreign currency translation 9,389,264
---------------
Total $ 108,611,016
===============
</Table>
16
<Page>
<Table>
CLASS A
Net Assets $ 1,668,263
Shares Outstanding 212,213
Net Asset Value, Redemption Price Per Share $ 7.86
Maximum offering price per share (net asset value
plus sales charge of 5.75% of offering price) $ 8.34
CLASS B
Net Assets $ 1,638,816
Shares Outstanding 210,516
Net Asset Value, Offering and Redemption Price (excluding
applicable contingent deferred sales charge) Per Share $ 7.78
CLASS C
Net Assets $ 254,535
Shares Outstanding 33,200
Net Asset Value, Offering and Redemption Price (excluding
applicable contingent deferred sales charge) Per Share $ 7.67
CLASS F
Net Assets $ 104,947,647
Shares Outstanding 13,337,608
Net Asset Value, Offering and Redemption Price Per Share $ 7.87
CLASS R
Net Assets $ 59,110
Shares Outstanding 7,538
Net Asset Value, Offering and Redemption Price Per Share $ 7.84
CLASS T
Net Assets $ 42,645
Shares Outstanding 5,285
Net Asset Value, Redemption Price Per Share $ 8.07
Maximum offering price per share (net asset value
plus sales charge of 4.50% of offering price) $ 8.45
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
17
<Page>
STATEMENT OF OPERATIONS
For the six months ended June 30, 2004 (UNAUDITED)
<Table>
INVESTMENT INCOME
Dividends $ 350,486
Interest 976,496
Foreign taxes withheld (2,915)
---------------
Total Investment Income 1,324,067
---------------
EXPENSES
Advisory fees--Note 2 382,786
Shareholder servicing fees--Note 2 36,610
Accounting fees--Note 2 35,334
Distribution fees--Note 2 149,867
Transfer agency fees--Note 2 108,160
Registration fees 22,541
Postage and mailing expenses 12,054
Custodian fees and expenses--Note 2 3,063
Printing expenses 15,216
Legal and audit fees 8,462
Directors' fees and expenses--Note 2 11,777
Other expenses 15,185
---------------
Total Expenses 801,055
Earnings Credits (1,202)
Reimbursed/Waived Expenses (643)
Expense Offset to Broker Commissions (3,494)
---------------
Net Expenses 795,716
---------------
Net Investment Income 528,351
---------------
REALIZED AND UNREALIZED GAIN (LOSS) ON SECURITY
TRANSACTIONS AND FOREIGN CURRENCY TRANSACTIONS
Net Realized Gain (Loss) on:
Security Transactions 4,894,976
Foreign Currency Transactions (2,194)
---------------
Net Realized Gain 4,892,782
Net Change in Unrealized Appreciation/Depreciation of Investments
and Foreign Currency Translation (5,130,770)
---------------
Net Realized and Unrealized Loss (237,988)
---------------
Net Increase in Net Assets Resulting from Operations $ 290,363
===============
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
18
<Page>
STATEMENTS OF CHANGES IN NET ASSETS
(UNAUDITED)
<Table>
<Caption>
SIX MONTHS ENDED YEAR ENDED
6/30/04 12/31/03
OPERATIONS
Net Investment Income $ 528,351 $ 1,184,817
Net Realized Gain on Security and
Foreign Currency Transactions 4,892,782 6,956,668
Net Change in Unrealized Appreciation/Depreciation
of Investments and Foreign Currency Translation (5,130,770) 14,224,484
--------------- ---------------
Net Increase in Net Assets Resulting from Operations 290,363 22,365,969
--------------- ---------------
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS
From Net Investment Income
Class A (7,248) (10,100)
Class B (1,511) (1,222)
Class C (221) (17)
Class F (515,078) (1,240,046)
Class R (278) (159)
Class T (93) (12)
--------------- ---------------
Net Decrease from Dividends and Distributions (524,429) (1,251,556)
--------------- ---------------
CAPITAL SHARE TRANSACTIONS
Net Increase (Decrease) - Note 4
Class A 102,206 98,293
Class B (4,140) 244,827
Class C (41,043) (6,310)
Class F (14,661,912) (31,079,380)
Class R (12,329) 55,114
Class T 6,456 19,668
--------------- ---------------
Net Decrease from Capital Share Transactions (14,610,762) (30,667,788)
--------------- ---------------
Net Decrease in Net Assets (14,844,828) (9,553,375)
--------------- ---------------
NET ASSETS
Beginning of period $ 123,455,844 $ 133,009,219
--------------- ---------------
End of period $ 108,611,016 $ 123,455,844
=============== ===============
Undistributed Net Investment Loss $ (31,100) $ (35,022)
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
19
<Page>
FINANCIAL HIGHLIGHTS
(UNAUDITED)
<Table>
<Caption>
SIX MONTHS YEAR ENDED
ENDED JUNE 30, DECEMBER 31,
2004 2003 2002 2001 2000
-------------- --------------------------------------------------
CLASS A SHARES
PER SHARE OPERATING DATA
Net Asset Value, beginning of period $ 7.88 $ 6.68 $ 8.18 $ 9.24 $ 10.47
- ---------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.03 0.05 0.05 0.06 0.13
Net realized and unrealized
gains (losses) on securities (0.02) 1.20 (1.51) (1.03) (1.18)
------------------------------------------------------------------
Total from investment operations 0.01 1.25 (1.46) (0.97) (1.05)
- ---------------------------------------------------------------------------------------------------------------------------
Less dividends and distributions:
From net investment income (0.03) (0.05) (0.04) (0.09) (0.16)
From net realized gains 0.00 0.00 0.00 0.00 (0.02)
------------------------------------------------------------------
Total distributions (0.03) (0.05) (0.04) (0.09) (0.18)
- ---------------------------------------------------------------------------------------------------------------------------
Net Asset Value, end of period $ 7.86 $ 7.88 $ 6.68 $ 8.18 $ 9.24
==================================================================
TOTAL RETURN* 0.18% 18.81% (17.85%) (10.46%) (10.21%)
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000s) $ 1,668 $ 1,572 $ 1,243 $ 1,227 $ 699
Ratios to average net assets:
Expenses with reimbursements,
but no earnings credits# 1.43%** 1.83% 1.89% 1.87% 1.23%
Expenses with reimbursements
and earnings credits 1.43%** 1.83% 1.89% 1.87% 1.20%
Net investment income 0.83%** 0.63% 0.56% 0.51% 1.48%
- ---------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate@ 126% 108% 122% 111% 126%
</Table>
* SALES CHARGES ARE NOT REFLECTED IN THE TOTAL RETURN.
** ANNUALIZED.
# CERTAIN FEES WERE WAIVED BY THE CUSTODIAN. THESE WAIVERS DID NOT HAVE AN
IMPACT ON THE EXPENSE RATIOS.
@ 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>
<Table>
<Caption>
SIX MONTHS YEAR ENDED
ENDED JUNE 30, DECEMBER 31,
2004 2003 2002 2001 2000
-------------- --------------------------------------------------
CLASS B SHARES
PER SHARE OPERATING DATA
Net Asset Value, beginning of period $ 7.80 $ 6.63 $ 8.11 $ 9.18 $ 10.47
- ---------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) 0.00+ 0.01 (0.01) 0.01 0.10
Net realized and unrealized
gains (losses) on securities (0.01) 1.17 (1.47) (1.03) (1.24)
------------------------------------------------------------------
Total from investment operations (0.01) 1.18 (1.48) (1.02) (1.14)
- ---------------------------------------------------------------------------------------------------------------------------
Less dividends and distributions:
From net investment income (0.01) (0.01) 0.00^ (0.05) (0.13)
From net realized gains 0.00 0.00 0.00 0.00 (0.02)
------------------------------------------------------------------
Total distributions (0.01) (0.01) 0.00 (0.05) (0.15)
- ---------------------------------------------------------------------------------------------------------------------------
Net Asset Value, end of period $ 7.78 $ 7.80 $ 6.63 $ 8.11 $ 9.18
==================================================================
TOTAL RETURN* (0.16%) 17.76% (18.21%) (11.13%) (11.06%)
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000s) $ 1,639 $ 1,647 $ 1,181 $ 1,484 $ 1,008
Ratios to average net assets:
Expenses with reimbursements,
but no earnings credits# 2.17%** 2.53% 2.54% 2.50% 1.96%
Expenses with reimbursements
and earnings credits 2.17%** 2.53% 2.54% 2.49% 1.93%
Net investment income (loss) 0.08%** (0.08%) (0.10%) (0.13%) 0.71%
- ---------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate@ 126% 108% 122% 111% 126%
</Table>
+ NET INVESTMENT INCOME FOR THE SIX MONTHS ENDED JUNE 30, 2004 AGGREGATED LESS
THAN $0.01 ON A PER SHARE BASIS.
^ DISTRIBUTIONS FROM NET INVESTMENT INCOME FOR THE YEAR ENDED DECEMBER 31,
2002 AGGREGATED LESS THAN $0.01 ON A PER SHARE BASIS.
* SALES CHARGES ARE NOT REFLECTED IN THE TOTAL RETURN.
** ANNUALIZED.
# CERTAIN FEES WERE WAIVED BY THE CUSTODIAN. THESE WAIVERS DID NOT HAVE AN
IMPACT ON THE EXPENSE RATIOS.
@ 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>
<Table>
<Caption>
SIX MONTHS YEAR ENDED
ENDED JUNE 30, DECEMBER 31,
2004 2003 2002 2001 2000
-------------- --------------------------------------------------
CLASS C SHARES
PER SHARE OPERATING DATA
Net Asset Value, beginning of period $ 7.69 $ 6.54 $ 8.04 $ 9.17 $ 10.47
- ---------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.00)+,~ (0.01) (0.17) (0.05) 0.10
Net realized and unrealized
gains (losses) on securities (0.01) 1.16 (1.33) (1.03) (1.28)
------------------------------------------------------------------
Total from investment operations (0.01) 1.15 (1.50) (1.08) (1.18)
- ---------------------------------------------------------------------------------------------------------------------------
Less dividends and distributions:
From net investment income (0.01) 0.00^ 0.00 (0.05) (0.10)
From net realized gains 0.00 0.00 0.00 0.00 (0.02)
------------------------------------------------------------------
Total distributions (0.01) 0.00 0.00 (0.05) (0.12)
- ---------------------------------------------------------------------------------------------------------------------------
Net Asset Value, end of period $ 7.67 $ 7.69 $ 6.54 $ 8.04 $ 9.17
==================================================================
TOTAL RETURN* (0.17%) 17.59% (18.66%) (11.80%) (11.36%)
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000s) $ 255 $ 295 $ 248 $ 496 $ 174
Ratios to average net assets:
Expenses with reimbursements,
but no earnings credits# 2.29%** 2.69% 3.48% 3.96% 1.88%
Expenses with reimbursements
and earnings credits 2.28%** 2.69% 3.48% 3.96% 1.86%
Net investment income (loss) (0.03%)** (0.17%) (1.05%) (1.64%) 0.76%
- ---------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate@ 126% 108% 122% 111% 126%
</Table>
+ NET INVESTMENT LOSS FOR THE SIX MONTHS ENDED JUNE 30, 2004 AGGREGATED LESS
THAN $0.01 ON A PER SHARE BASIS.
~ COMPUTED USING AVERAGE SHARES OUTSTANDING THROUGHOUT THE PERIOD.
^ 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.
** ANNUALIZED.
# CERTAIN FEES WERE REIMBURSED OR WAIVED BY THE MANAGEMENT COMPANY OR ITS
AFFILIATES. HAD THESE FEES NOT BEEN REIMBURSED OR WAIVED, THE EXPENSE RATIOS
WOULD HAVE BEEN 2.29% (2004), 2.69% (2003), 3.48% (2002), 4.24% (2001), AND
1.88% (2000).
@ 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>
<Table>
<Caption>
SIX MONTHS YEAR ENDED
ENDED JUNE 30, DECEMBER 31,
2004 2003 2002 2001 2000 1999
-------------- -----------------------------------------------------------------
CLASS F SHARES
PER SHARE OPERATING DATA
Net Asset Value,
beginning of period $ 7.88 $ 6.69 $ 8.20 $ 9.22 $ 10.47 $ 12.19
- -------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.03 0.06 0.07 0.10 0.15 0.32
Net realized and unrealized
gains (losses) on securities 0.00 1.20 (1.50) (1.02) (1.23) (0.61)
---------------------------------------------------------------------------------
Total from investment operations 0.03 1.26 (1.43) (0.92) (1.08) (0.29)
- -------------------------------------------------------------------------------------------------------------------------------
Less dividends and distributions:
From net investment income (0.04) (0.07) (0.08) (0.10) (0.15) (0.32)
From net realized gains 0.00 0.00 0.00 0.00 (0.02) (1.11)
---------------------------------------------------------------------------------
Total distributions (0.04) (0.07) (0.08) (0.10) (0.17) (1.43)
- -------------------------------------------------------------------------------------------------------------------------------
Net Asset Value, end of period $ 7.87 $ 7.88 $ 6.69 $ 8.20 $ 9.22 $ 10.47
=================================================================================
TOTAL RETURN 0.34% 18.96% (17.46%) (9.94%) (10.44%) (2.22%)
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000s) $ 104,948 $ 119,835 $ 130,314 $ 297,068 $ 552,675 $ 1,055,825
Ratios to average net assets:
Expenses with reimbursements,
but no earnings credits# 1.34%** 1.54% 1.43% 1.23% 1.08% 0.98%
Expenses with reimbursements
and earnings credits 1.34%** 1.54% 1.42% 1.22% 1.07% 0.97%
Net investment income 0.91%** 0.93% 0.99% 1.20% 1.41% 2.64%
- -------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate@ 126% 108% 122% 111% 126% 218%
</Table>
** ANNUALIZED.
# CERTAIN FEES WERE WAIVED BY THE CUSTODIAN. THESE WAIVERS DID NOT HAVE AN
IMPACT ON THE EXPENSE RATIOS.
@ 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>
<Table>
<Caption>
SIX MONTHS YEAR ENDED
ENDED JUNE 30, DECEMBER 31,
2004 2003 2002 2001 2000
-------------- --------------------------------------------------
CLASS R SHARES
PER SHARE OPERATING DATA
Net Asset Value, beginning of period $ 7.86 $ 6.68 $ 8.18 $ 9.22 $ 10.47
- ---------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) 0.03 0.16 (0.16) 0.09 0.18
Net realized and unrealized
gains (losses) on securities (0.01) 1.05 (1.34) (1.02) (1.23)
------------------------------------------------------------------
Total from investment operations 0.02 1.21 (1.50) (0.93) (1.05)
- ---------------------------------------------------------------------------------------------------------------------------
Less dividends and distributions:
From net investment income (0.04) (0.03) 0.00 (0.11) (0.18)
From net realized gains 0.00 0.00 0.00 0.00 (0.02)
------------------------------------------------------------------
Total distributions (0.04) (0.03) 0.00 (0.11) (0.20)
- ---------------------------------------------------------------------------------------------------------------------------
Net Asset Value, end of period $ 7.84 $ 7.86 $ 6.68 $ 8.18 $ 9.22
==================================================================
TOTAL RETURN 0.20% 18.12% (18.34%) (10.09%) (10.18%)
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000s) $ 59 $ 72 $ 11 $ 14 $ 1
Ratios to average net assets:
Expenses with reimbursements,
but no earnings credits# 1.39%** 2.37% 4.24% 3.07% 0.81%
Expenses with reimbursements
and earnings credits 1.39%** 2.37% 4.24% 3.07% 0.80%
Net investment income (loss) 0.86%** 0.01% (1.77%) (0.75%) 1.71%
- ---------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate@ 126% 108% 122% 111% 126%
</Table>
** ANNUALIZED.
# CERTAIN FEES WERE REIMBURSED OR WAIVED BY THE MANAGEMENT COMPANY OR ITS
AFFILIATES. HAD THESE FEES NOT BEEN REIMBURSED OR WAIVED, THE EXPENSE RATIOS
WOULD HAVE BEEN 1.52% (2004), 2.62% (2003), 19.52% (2002), 272.77% (2001),
AND 0.81% (2000).
@ 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>
<Table>
<Caption>
SIX MONTHS YEAR ENDED
ENDED JUNE 30, DECEMBER 31,
2004 2003 2002 2001 2000
-------------- --------------------------------------------------
CLASS T SHARES
PER SHARE OPERATING DATA
Net Asset Value, beginning of period $ 8.09 $ 6.88 $ 8.17 $ 9.21 $ 10.47
- ---------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) 0.02+ 0.21 (0.37) 0.08 0.12
Net realized and unrealized
gains (losses) on securities (0.02) 1.00 (0.92) (1.04) (1.22)
------------------------------------------------------------------
Total from investment operations 0.00 1.21 (1.29) (0.96) (1.10)
- ---------------------------------------------------------------------------------------------------------------------------
Less dividends and distributions:
From net investment income (0.02) 0.00^ 0.00 (0.08) (0.14)
From net realized gains 0.00 0.00 0.00 0.00 (0.02)
------------------------------------------------------------------
Total distributions (0.02) 0.00 0.00 (0.08) (0.16)
- ---------------------------------------------------------------------------------------------------------------------------
Net Asset Value, end of period $ 8.07 $ 8.09 $ 6.88 $ 8.17 $ 9.21
==================================================================
TOTAL RETURN* (0.03%) 17.65% (15.79%) (10.44%) (10.67%)
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000s) $ 43 $ 36 $ 13 $ 232 $ 9
Ratios to average net assets:
Expenses with reimbursements,
but no earnings credits# 1.86%** 2.73% 2.60% 3.36% 1.32%
Expenses with reimbursements
and earnings credits 1.86%** 2.73% 2.59% 3.36% 1.30%
Net investment income (loss) 0.38%** (0.29%) (0.31%) (1.12%) 1.22%
- ---------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate@ 126% 108% 122% 111% 126%
</Table>
+ COMPUTED USING AVERAGE SHARES OUTSTANDING THROUGHOUT THE PERIOD.
^ 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.
** ANNUALIZED.
# CERTAIN FEES WERE REIMBURSED OR WAIVED BY THE MANAGEMENT COMPANY OR ITS
AFFILIATES. HAD THESE FEES NOT BEEN REIMBURSED OR WAIVED, THE EXPENSE RATIOS
WOULD HAVE BEEN 2.11% (2004), 3.18% (2003), 14.63% (2002), 18.37% (2001),
AND 1.32% (2000).
@ PORTFOLIO TURNOVER RATE IS A MEASURE OF PORTFOLIO ACTIVITY THAT IS
CALCULATED BY DIVIDING THE LESSER OF PURCHASES OR SALES OF SECURITIES,
EXCLUDING SECURITIES HAVING MATURITY DATES AT ACQUISITION OF ONE YEAR OR
LESS, BY THE AVERAGE VALUE OF THE PORTFOLIO SECURITIES HELD DURING THE
PERIOD, WHICH IS A ROLLING 12-MONTH PERIOD.
SEE NOTES TO FINANCIAL STATEMENTS.
25
<Page>
NOTES TO FINANCIAL STATEMENTS
June 30, 2004 (UNAUDITED)
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
Dreyfus Founders Funds, Inc. (the "Company") is an open-end management
investment company registered under the Investment Company Act of 1940 (the
"1940 Act"). 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--A domestic 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 a
security traded on Nasdaq, at its official closing price. Lacking any sales on
that day, the security is valued at the current closing bid price, or by quotes
from dealers making a market in the security if the closing bid price is not
available, or in the case of written call options, at the mean between the
highest bid and lowest asked quotations obtained from at least two securities
dealers.
A foreign equity security traded on a foreign exchange is valued at the last
quoted official closing price available before the time when the Fund's assets
are valued, or at the last quoted sales price if the exchange does not provide
an official closing price or if the foreign market has not yet closed. Lacking
any sales on that day, the security is valued at the current closing bid price,
or by quotes from dealers making a market in the security if the closing bid
price is not available. London closing exchange rates are used to convert
foreign currencies to U.S. dollars.
A debt security with a remaining maturity greater than 60 days at the time of
purchase is valued in accordance with the evaluated bid price supplied by a
pricing service approved by the Company's board of directors or, if such price
is not available, at the mean between the highest bid and lowest asked
quotations obtained from at least two securities dealers. A debt security with a
remaining maturity of 60 days or less at the time of purchase is valued at
amortized cost, which approximates market value, unless it is determined that
amortized cost would not represent market value, in which case the securities
would be marked to market. The Fund amortizes premiums and discounts on all debt
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
26
<Page>
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.
U.S. GOVERNMENT OBLIGATIONS--Some U.S. government obligations, such as
Government National Mortgage Association (GNMA) pass-through certificates, are
supported by the full faith and credit of the United States Treasury. Other
obligations, such as securities of the Federal Home Loan Bank (FHLB), are
supported by the right of the issuer to borrow from the United States Treasury;
and others, such as bonds issued by Federal National Mortgage Association (FNMA,
a private corporation), are supported only by the credit of the agency,
authority or instrumentality, although the Secretary of the Treasury has
discretionary authority, though not the obligation, to purchase obligations of
FNMA.
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 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.
27
<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
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, if
any, reduce Other Expenses and would be 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.
SHAREHOLDER SERVICING AND TRANSFER AGENCY FEES FOR CLASS F SHARES--The Company
has a shareholder services agreement with Dreyfus Service Corporation ("DSC"),
the direct owner of Founders and 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
28
<Page>
servicing functions to holders of Class F shares. 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. During the
six months ended June 30, 2004, Class F shares were charged $32,135 pursuant to
this shareholder services agreement.
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 incurred 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. During the six months ended June 30, 2004, Class F shares
were charged $14,383 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 incurred 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 $12.93 to $13.34, per shareholder account considered to be an
open account at any time during a given month, plus out-of-pocket charges.
Class-specific transfer agency fees paid to DTI during the six months ended June
30, 2004 were as follows:
<Table>
<Caption>
TRANSFER
AGENCY FEES
-----------------------------------------------------------
Class A $ 1,423
Class B $ 1,346
Class C $ 351
Class R $ 181
Class T $ 105
</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
expenses pursuant to a contractual commitment. This commitment will extend
through at least August 31, 2005, and will not be terminated without prior
notification to the Company's board of directors. Founders also has agreed to
reimburse these share classes for certain printing expenses pursuant to a
contractual commitment through August 31, 2004. Founders has notified the
Company's board of directors that this commitment will terminate effective
September 1, 2004. For the six months ended June 30, 2004, Class R and Class T
were each reimbursed $44, which reduced the amounts paid to DTI to $137 and $61,
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 1940 Act 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 six months ended June
30, 2004, Class F shares were charged $142,663 pursuant to this Distribution
Plan.
29
<Page>
The Fund also has adopted a Distribution Plan pursuant to Rule 12b-1 under the
1940 Act applicable to its Class B, Class C and Class T shares. Under this plan,
the Fund pays DSC a fee for distributing its Class B and C shares at the annual
rate of 0.75% of the value of the average daily net assets of its Class B and C
shares, respectively, and pays DSC a fee for distributing its Class T shares at
the annual rate of 0.25% of the average daily net assets of its Class T shares.
In addition, the Fund has adopted a Shareholder Services Plan applicable to its
Class A, Class B, Class C and Class T shares. Under the Shareholder Services
Plan, Class A, Class B, Class C and Class T shares pay DSC an annual fee of
0.25% of the value of their average daily net assets for the provision of
certain services.
Distribution and shareholder servicing fees paid to DSC by the Fund's Class A,
B, C and T shares for the six months ended June 30, 2004, were as follows:
<Table>
<Caption>
DISTRIBUTION SHAREHOLDER
FEES SERVICING FEES
---------------------------------------------------------------
Class A N/A $ 2,044
Class B $ 6,200 $ 2,067
Class C $ 960 $ 320
Class T $ 44 $ 44
</Table>
During the six months ended June 30, 2004, DSC retained $666 in sales
commissions from the sales of Class A shares. DSC also retained $3,668 and $186
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 and an affiliate of Founders, 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
9/1/03 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>
30
<Page>
The fee waiver is allocated among the Funds in proportion to their respective
shares of the total custodian fee. For the six months ended June 30, 2004, the
Fund's portion of the fee waiver was $555. The amount paid to Mellon was reduced
by this fee waiver amount.
DIRECTORS COMPENSATION--The Company's board of directors has adopted a deferred
compensation plan for Company directors that enables directors to elect to defer
receipt of all or a portion of the annual compensation that they are entitled to
receive from the Company. Under the plan, the compensation deferred is
periodically adjusted as though an equivalent amount had been invested for the
director in shares of one or more of the Funds. The amount paid to the director
under the plan will be determined based upon the performance of the selected
Funds. The current value of these amounts is included in Other Assets and Other
Liabilities on the Statement of Assets and Liabilities. Deferral of directors'
fees under the plan does not affect the net assets of the Fund.
Certain officers of the Company are also officers and/or directors of Founders.
The affairs of the Fund, including services provided by Founders, are subject to
the supervision and general oversight of the Company's board of directors.
3. FEDERAL TAX INFORMATION
Net investment income and capital gains distributions are determined in
accordance with income tax regulations that may differ from accounting
principles generally accepted in the United States of America. These differences
are due to differing treatments for items such as deferral of wash sale losses,
foreign currency transactions, net operating losses and capital loss carryovers.
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
June 30, 2004 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 $ 103,247,836
Gross Tax Appreciation of Investments $ 9,001,157
Gross Tax Depreciation of Investments $ (1,423,172)
Net Tax Appreciation $ 7,577,985
</Table>
31
<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>
SIX MONTHS ENDED YEAR ENDED
JUNE 30, 2004 DECEMBER 31, 2003
SHARES AMOUNT SHARES AMOUNT
CLASS A
Sold 36,661 $ 292,922 42,130 $ 310,574
Dividends or Distributions Reinvested 889 $ 6,985 1,330 $ 9,742
Redeemed (24,878) $ (197,701) (29,893) $ (222,023)
-----------------------------------------------------------------------
Net Increase 12,672 $ 102,206 13,567 $ 98,293
=======================================================================
CLASS B
Sold 31,268 $ 242,819 76,899 $ 556,448
Dividends or Distributions Reinvested 151 $ 1,171 138 $ 971
Redeemed (31,984) $ (248,130) (44,160) $ (312,592)
-----------------------------------------------------------------------
Net Increase (Decrease) (565) $ (4,140) 32,877 $ 244,827
=======================================================================
CLASS C
Sold 10,850 $ 83,237 18,745 $ 122,311
Dividends or Distributions Reinvested 21 $ 164 2 $ 10
Redeemed (15,979) $ (124,444) (18,304) $ (128,631)
-----------------------------------------------------------------------
Net Increase (Decrease) (5,108) $ (41,043) 443 $ (6,310)
=======================================================================
CLASS F
Sold 633,133 $ 5,006,301 2,774,685 $ 19,677,956
Dividends or Distributions Reinvested 63,802 $ 502,428 164,539 $ 1,202,840
Redeemed (2,560,369) $ (20,170,641) (7,225,827) $ (51,960,176)
-----------------------------------------------------------------------
Net Decrease (1,863,434) $ (14,661,912) (4,286,603) $ (31,079,380)
=======================================================================
CLASS R
Sold 0 $ 0 7,391 $ 55,000
Dividends or Distributions Reinvested 34 $ 266 15 $ 114
Redeemed (1,611) $ (12,595) (0) $ (0)
-----------------------------------------------------------------------
Net Increase (Decrease) (1,577) $ (12,329) 7,406 $ 55,114
=======================================================================
CLASS T
Sold 4,604 $ 36,727 2,530 $ 19,657
Dividends or Distributions Reinvested 11 $ 87 1 $ 11
Redeemed (3,776) $ (30,358) (0) $ (0)
-----------------------------------------------------------------------
Net Increase 839 $ 6,456 2,531 $ 19,668
=======================================================================
</Table>
32
<Page>
5. INVESTMENT TRANSACTIONS
For the six months ended June 30, 2004, purchases and sales of investment
securities (excluding short-term securities and U.S. government obligations)
were $65,119,267 and $70,566,468, respectively. Purchases and sales of long-term
U.S. government obligations were $3,694,848 and $1,974,958, 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 June 30, 2004, the Fund did not have any borrowings under the LOC.
7. LEGAL MATTERS
Two class actions have been filed against Mellon Financial Corporation and
Mellon Bank, N.A.; Dreyfus and Founders (the "Investment Advisers"); and the
directors of all or substantially all of the Dreyfus and Dreyfus Founders Funds.
The complaints also name all or substantially all of the Dreyfus and Dreyfus
Founders Funds as nominal defendants. Plaintiffs allege that the Investment
Advisers improperly used assets of the Dreyfus and Dreyfus Founders Funds, in
the form of directed brokerage commissions and 12b-1 fees, to pay brokers to
promote sales of Dreyfus and Dreyfus Founders Funds, and that the use of fund
assets to make these payments was not properly disclosed to investors.
Plaintiffs claim that the Investment Advisers' actions violated the 1940 Act,
the Investment Advisers Act, and common law. The complaints further allege that
the directors breached their fiduciary duties to fund shareholders under the
1940 Act and at common law and that Mellon Financial and Mellon Bank violated
the 1940 Act. The complaints seek unspecified compensatory and punitive damages,
rescission of the funds' contracts with the Investment Advisers, an accounting
of all fees paid, and an award of attorneys' fees and litigation expenses. The
complaints are pending in the same court and have been consolidated into a
single action under the caption IN RE DREYFUS MUTUAL FUNDS FEE LITIGATION.
Founders, Dreyfus, and the Funds believe the allegations in these lawsuits to be
totally without merit and intend to defend the actions vigorously. It is
possible that additional lawsuits arising out of these circumstances and
presenting similar allegations and requests for relief may be filed against the
defendants in the future. Neither Founders, Dreyfus, nor the Funds believe that
the pending actions will have a material adverse effect on the Funds or
Founders' ability to perform its contract with the Funds.
33
<Page>
This page intentionally left blank
<Page>
For More Information
DREYFUS FOUNDERS
BALANCED FUND
To obtain information:
MANAGER
- ---------------------------------
BY TELEPHONE | Founders Asset Management LLC
Call your financial | 210 University Boulevard, Suite 800
representative or | Denver, CO 80206
1-800-554-4611 |
| TRANSFER AGENT &
BY MAIL Write to: | DIVIDEND DISBURSING AGENT
Dreyfus Founders Funds |
144 Glenn Curtiss Boulevard | Dreyfus Transfer, Inc.
Uniondale, NY 11556-0144 | 200 Park Avenue
| New York, NY 10166
PROXY VOTING INFORMATION |
A description of the policies |
and procedures that the Fund | DISTRIBUTOR
uses to determine how to vote |
proxies relating to portfolio | Dreyfus Service Corporation
securities, and information | 200 Park Avenue
regarding how the Fund | New York, NY 10166
voted these proxies for |
the 12-month period ended |
June 30, 2004, is available |
through the Fund's website |
at www.dreyfus.com and on |
the Securities and Exchange |
Commission's website at |
www.sec.gov. The description |
of the policies and procedures |
is also available without |
charge, upon request, by |
calling 1-800-554-4611. |
THIS REPORT AND THE STATEMENTS IT CONTAINS ARE SUBMITTED FOR THE GENERAL
INFORMATION OF OUR SHAREHOLDERS. THE REPORT IS NOT AUTHORIZED FOR DISTRIBUTION
TO PROSPECTIVE INVESTORS UNLESS PRECEDED OR ACCOMPANIED BY AN EFFECTIVE
PROSPECTUS.
Dreyfus Founders Funds are managed by Founders Asset Management LLC. Founders
and Founders Funds are registered trademarks of Founders Asset Management LLC.
(C)2004 Founders Asset Management LLC. 08/04 0086SA0604
<Page>
Dreyfus Founders
Discovery Fund
SEMIANNUAL REPORT June 30, 2004
[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
</Table>
The views expressed herein are current to the date of this report. The views and
the composition of the Fund's portfolio are subject to change at any time based
on market and other conditions. Companies appearing in bold print on pages 3-9
were owned by the Fund on June 30, 2004. 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 BRADLEY C. ORR & JAMES (J.D.) PADGETT]
A DISCUSSION WITH CO-PORTFOLIO MANAGERS BRADLEY C. ORR, CFA, LEFT, AND JAMES
(J.D.) PADGETT, CFA
HOW DID THE FUND PERFORM RELATIVE TO ITS BENCHMARK FOR THE SIX-MONTH PERIOD
ENDED JUNE 30, 2004?
For the six-month period ended June 30, 2004, the Dreyfus Founders Discovery
Fund underperformed its benchmark, the Russell 2000 Growth Index, which
posted a total return of 5.68% for the period.
WHAT FACTORS AFFECTED THE INVESTING ENVIRONMENT DURING THE SIX-MONTH PERIOD?
Market performance was relatively strong in the first quarter of 2004, as low
interest rates and solid corporate profit growth extended the market rally that
began in early 2003. In the second quarter, however, fears about rising interest
rates and surging oil prices, in conjunction with persistent geopolitical
uncertainty, lead to significant investor trepidation. During the second
quarter, the Russell 2000 Growth Index experienced its deepest intra-quarter
contraction since the start of the current rally, declining 12% from April 5 to
May 17. However, the Index did fully recover from its May low, and closed in
positive territory by a slight margin for the second quarter overall.
During the six-month period ended June 30, small-cap stocks outperformed
large-cap stocks, as the Russell 1000 Growth Index
The Russell 1000 Growth Index is an unmanaged index that measures the
performance of the common stocks of those companies among the largest 1,000
publicly traded U.S. 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.
[SIDENOTE]
"FOR THE YEAR-TO-DATE PERIOD, LARGER MARKET CAPITALIZATION STOCKS WITHIN THE
RUSSELL 2000 GROWTH INDEX OUTPERFORMED THEIR SMALLER PEERS, AND THE STOCKS OF
MONEY-LOSING COMPANIES IN THE INDEX UNDERPERFORMED STOCKS OF MORE PROFITABLE
COMPANIES."
3
<Page>
increased 2.74% and the Standard & Poor's 500 Index increased 3.44%, both
lagging the 5.68% return of the Russell 2000 Growth Index. In addition, value
stocks outperformed growth stocks, as was illustrated by the strong advance of
the Russell 2000 Value Index--up 7.83% over the same six-month period.
The first half of 2004 also saw the strong micro-cap and low quality biases
that helped drive the market's advance in 2003 begin to subside. Hence, for the
year-to-date period, larger market capitalization stocks within the Russell 2000
Growth Index outperformed their smaller peers, and the stocks of money-losing
companies in the Index underperformed stocks of more profitable companies.
MESSRS. ORR AND PADGETT, WHAT CHANGES DID YOU MAKE TO THE PORTFOLIO AFTER
ASSUMING MANAGEMENT RESPONSIBILITIES IN APRIL?
Despite the portfolio management transition, the investment philosophy of our
team remains largely unchanged. We will continue to utilize our bottom-up
research process to uncover companies we believe are capable of posting strong
future earnings growth and that are valued attractively relative to their
potential growth rates and peer groups.
The Standard & Poor's (S&P) 500 Index is designed to be representative of the
U.S. equities market and consists of 500 leading companies in leading industries
of the U.S. economy. The Russell 2000 Value Index measures the performance of
stocks of companies in the Russell 2000 Index with lower price-to-book ratios
and lower 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.
[SIDENOTE]
PERFORMANCE HIGHLIGHTS
- - The first half of 2004 saw the strong micro-cap and low quality biases that
helped drive the market's advance in 2003 begin to subside.
- - The portfolio consisted of 107 stocks at the end of April, down from 119 at
the beginning of the year, and that number was further reduced to 93 stocks
as of the end of June.
- - The Fund benefited from a significantly underweight position and strong
stock selection in the lagging financials sector.
- - Stock selection in the telecommunication services sector was also a
positive contributor to the Fund's relative performance.
- - The Fund's holdings in the healthcare sector underperformed as a group for
the period.
- - Although relative weightings in the consumer staples, industrials and
information technology sectors proved to be positive during the period, poor
stock selection within these sectors counteracted the gains earned through
sector allocation.
4
<Page>
From a portfolio composition standpoint, probably the most notable change
since April has been the continuing consolidation in the number of Fund
holdings. Upon assuming portfolio management responsibilities for the Fund, we
worked to reduce the number of positions held, thereby more tightly focusing our
analytical efforts. The portfolio consisted of 107 stocks at the end of April,
down from 119 at the beginning of the year, and that number was further reduced
to 93 stocks as of the end of June. Many smaller positions, which can sometimes
require disproportionate attention, were liquidated and the proceeds were used
to increase position sizes in the stocks where our enthusiasm level was the
highest. That said, the total percentage of the portfolio invested across the
top 10 holdings has not changed dramatically from the 18% range since April.
WHAT MANAGEMENT DECISIONS POSITIVELY IMPACTED FUND PERFORMANCE DURING THE
PERIOD?
The Fund benefited from a significantly underweight position and strong stock
selection in the lagging financials sector.
Stock selection in the telecommunication services sector was also a positive
contributor to the Fund's relative performance. PTEK HOLDINGS, INC., a provider
of conferencing and messaging services, was primarily responsible for the
outperformance in this sector, after the company reported strong first quarter
results and raised its guidance based on new product introductions and a
re-acceleration in the growth rate for its legacy product lines.
LARGEST EQUITY HOLDINGS (ticker symbol)
<Table>
1. Fairmont Hotels & Resorts, Inc. (FHR) 2.13%
2. Ptek Holdings, Inc. (PTEK) 2.04%
3. Insight Enterprises, Inc. (NSIT) 1.92%
4. SFBC International, Inc. (SFCC) 1.91%
5. Altiris, Inc. (ATRS) 1.86%
6. National-Oilwell, Inc. (NOI) 1.76%
7. Polycom, Inc. (PLCM) 1.75%
8. Medicis Pharmaceutical Corporation Class A (MRX) 1.73%
9. Hughes Supply, Inc. (HUG) 1.72%
10. Choice Hotels International, Inc. (CHH) 1.69%
</Table>
Portfolio holdings are subject to change, and should not be construed as a
recommendation of any security.
5
<Page>
GROWTH OF $10,000 INVESTMENT
PERFORMANCE DATA QUOTED REPRESENTS PAST PERFORMANCE. PAST PERFORMANCE
DOES NOT GUARANTEE FUTURE RESULTS. INVESTMENT RETURN AND PRINCIPAL VALUE OF AN
INVESTMENT WILL FLUCTUATE SO THAT AN INVESTOR'S SHARES, WHEN REDEEMED, MAY
BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST. CURRENT PERFORMANCE MAY
BE LOWER OR HIGHER THAN THE PERFORMANCE DATA QUOTED. PLEASE CALL
1-800-525-2440 TO OBTAIN THE MOST RECENT MONTH-END PERFORMANCE DATA.
[CHART]
The above graph compares a $10,000 investment made in Class F shares of Dreyfus
Founders Discovery Fund on 6/30/94 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 stocks of companies in the Russell 2000 Index 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>
While the Fund was slightly underweight in the energy sector, which had
a modest negative effect on relative performance during the six-month period,
this was more than offset by positive stock selection within the sector.
Holdings such as oilfield services company NATIONAL-OILWELL, INC. appreciated
over the period due in part to increased contracting activity in many of the
company's international markets. QUICKSILVER RESOURCES, INC., an exploration and
production company focused on unconventional reservoirs such as coal-bed
methane, also appreciated as the company continued to demonstrate successful
development of its unique opportunities.
AVERAGE ANNUAL AND YEAR-TO-DATE TOTAL RETURN AS OF 6/30/04
<Table>
<Caption>
YEAR-TO- 1 5 10 SINCE
CLASS (Inception Date) DATE YEAR YEARS YEARS INCEPTION
CLASS A SHARES (12/31/99)
With sales charge (5.75%) (1.59%) 20.15% -- -- (8.25%)
Without sales charge 4.42% 27.47% -- -- (7.03%)
CLASS B SHARES (12/31/99)
With redemption* (0.02%) 22.24% -- -- (8.23%)
Without redemption 3.98% 26.24% -- -- (7.85%)
CLASS C SHARES (12/31/99)
With redemption** 2.98% 25.28% -- -- (7.83%)
Without redemption 3.98% 26.28% -- -- (7.83%)
CLASS F SHARES (12/29/89) 4.46% 27.48% 2.06% 12.13% 13.36%
CLASS R SHARES (12/31/99) 4.60% 27.87% -- -- (6.78%)
CLASS T SHARES (12/31/99)
With sales charge (4.50%) (0.41%) 21.31% -- -- (8.39%)
Without sales charge 4.27% 27.04% -- -- (7.45%)
</Table>
Average annual and year-to-date total returns do not reflect the deduction
of taxes that a shareholder would pay on Fund distributions or redemption
of Fund shares, but do reflect the reinvestment of dividends and capital gain
distributions, and adjustments for financial statement purposes. Part of the
Fund's 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 small-cap investing such as limited
product lines, less liquidity, and small market share.
*The maximum contingent deferred sales charge for Class B shares is 4% and is
reduced to 0% after six years, at which time the Class B shares convert to Class
A shares.
**The maximum contingent deferred sales charge for Class C shares is 1% for
shares redeemed within one year of the date of purchase.
+Total return is not annualized.
7
<Page>
The Fund's holdings in the healthcare sector underperformed as a group for
the period; however, some sector holdings such as SFBC INTERNATIONAL, INC. and
FISHER SCIENTIFIC INTERNATIONAL, INC. proved to be standout performers for the
Fund. SFBC, a contract research organization for the pharmaceutical industry,
benefited from the continued strong pace of drug development activity in the
industry. Fisher Scientific, a supplier of clinical laboratory equipment, posted
strong gains as it announced a large acquisition that was viewed as a good
strategic fit.
Other notable positive contributors to the Fund's relative performance
included hotel franchiser CHOICE HOTELS INTERNATIONAL, INC. and musical
instrument retailer GUITAR CENTER, INC. Choice Hotels appreciated along with the
recovery in occupancy rates in the lodging industry, which led to
better-than-expected operating performance. Guitar Center posted robust
same-store sales growth in the first quarter, which pushed earnings estimates
significantly higher.
WHAT MANAGEMENT DECISIONS HINDERED FUND PERFORMANCE DURING THE PERIOD?
Poor individual performers in the consumer discretionary sector were a drag
on Fund performance during the six-month period, including such names as
PERFORMANCE FOOD GROUP COMPANY. The company was negatively impacted
by higher costs and lower productivity associated with new product rollouts.
In addition, middle-market radio station operator CUMULUS MEDIA, INC. was
hurt by investor fears that advertising dollars are migrating away from
traditional channels, such as radio, to Internet-based venues.
[CHART]
PORTFOLIO COMPOSITION
<Table>
Information Technology 23.63%
Consumer Discretionary 22.63%
Healthcare 20.86%
Industrials 18.33%
Energy 3.94%
Financials 2.32%
Consumer Staples 2.05%
Telecommunications Services 2.04%
Materials 1.34%
Cash & Equivalents 2.86%
</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>
Negative contributors in the healthcare sector included pharmaceutical issue
TARO PHARMACEUTICALS INDUSTRIES LIMITED, hospice care provider Odyssey
HealthCare, Inc., and SELECT MEDICAL CORPORATION, an operator of long-term acute
care hospitals. Taro Pharmaceuticals reported disappointing first quarter
results due to both lower-than-expected revenue from new over-the-counter
products as well as higher costs to market those products. Odyssey declined in
the first quarter after reporting disappointing results and giving forward
guidance that fell short of analyst expectations. Select Medical was surprised
by a potentially negative regulatory proposal from an important standards body.
Although the Fund's relative weightings in the consumer staples, industrials
and information technology sectors proved to be positive during the period, poor
stock selection within these sectors counteracted the gains earned through
sector allocation. Within the industrials sector, KVH Industries, Inc., a
manufacturer of digital defense navigation products and consumer communication
satellite tracking technology, fell significantly in the first quarter after
disclosing delays in closing a large defense order as well as a slower than
previously expected ramp up in a new consumer-related product. Within the
information technology sector, Fairchild Semiconductor Corporation declined
based on growing investor concern that the semiconductor cycle was beginning to
reach its peak.
Our strategy for the Fund remains consistent. We will continue to emphasize
companies that we think have higher quality characteristics such as sustainable
earnings growth, reasonable valuations and effective management teams. We are
satisfied with the progress we have made in keeping the Fund relatively fully
invested while at the same time consolidating the number of holdings. We believe
that a more tightly focused analytical effort may benefit our research process.
We are both pleased to be managing the Dreyfus Founders Discovery Fund, and will
work hard to earn the trust of the Fund's shareholders.
/s/ Bradley C. Orr /s/ James (J.D.) Padgett
Bradley C. Orr, CFA James (J.D.) Padgett, CFA
Co-Portfolio Manager Co-Portfolio Manager
9
<Page>
STATEMENT OF INVESTMENTS
June 30, 2004 (UNAUDITED)
<Table>
<Caption>
SHARES MARKET VALUE
- ---------------------------------------------------------------------------------
COMMON STOCKS (DOMESTIC)--90.5%
AIR FREIGHT & LOGISTICS--1.6%
174,200 Forward Air Corporation* $ 6,515,071
337,270 Pacer International, Inc.* 6,239,495
------------
12,754,566
------------
ALTERNATIVE CARRIERS--2.0%
1,380,945 Ptek Holdings, Inc.* 15,922,296
------------
APPAREL RETAIL--1.6%
260,375 Aeropostale, Inc.* 7,006,691
262,475 Hot Topic, Inc.* 5,378,113
------------
12,384,804
------------
APPLICATION SOFTWARE--3.1%
527,380 Altiris, Inc.* 14,560,962
104,050 Ansys, Inc.* 4,890,350
428,725 Concur Technologies, Inc.* 4,587,358
------------
24,038,670
------------
BROADCASTING & CABLE TV--1.1%
529,525 Cumulus Media, Inc.* 8,901,315
------------
BUILDING PRODUCTS--1.5%
301,405 Trex Company, Inc.* 11,378,039
------------
CASINOS & GAMING--2.3%
215,375 GTECH Holdings Corporation 9,974,016
170,025 Station Casinos, Inc. 8,229,210
------------
18,203,226
------------
COMMUNICATIONS EQUIPMENT--5.3%
227,225 Avocent Corporation* 8,348,247
144,195 Harris Corporation 7,317,896
612,400 Polycom, Inc.* 13,723,884
976,180 Powerwave Technologies, Inc.* 7,516,586
1,551,309 Stratex Networks, Inc.* 4,576,362
------------
41,482,975
------------
CONSTRUCTION, FARM MACHINERY & HEAVY TRUCKS--0.7%
285,450 Wabtec Corporation 5,149,518
------------
DIVERSIFIED COMMERCIAL SERVICES--2.6%
183,485 Asset Acceptance Capital Corporation* 3,119,245
328,750 Corinthian Colleges, Inc.* 8,133,275
281,810 Education Management Corporation* 9,260,277
------------
20,512,797
------------
ELECTRICAL COMPONENTS & EQUIPMENT--1.4%
249,375 AMETEK, Inc. 7,705,688
329,825 Artesyn Technologies, Inc.* 2,968,425
------------
10,674,113
------------
ELECTRONIC EQUIPMENT MANUFACTURERS--0.8%
444,610 Aeroflex, Inc.* 6,371,261
------------
</Table>
10
<Page>
<Table>
<Caption>
SHARES MARKET VALUE
- ---------------------------------------------------------------------------------
ELECTRONIC MANUFACTURING SERVICES--1.3%
399,375 RadiSys Corporation* $ 7,416,394
221,450 TTM Technologies, Inc.* 2,624,183
------------
10,040,577
------------
EMPLOYMENT SERVICES--1.5%
440,040 Gevity HR, Inc. 11,524,648
------------
ENVIRONMENTAL SERVICES--1.1%
163,615 Stericycle, Inc.* 8,465,440
------------
FOOD DISTRIBUTORS--0.7%
211,900 Performance Food Group Company* 5,623,826
------------
GENERAL MERCHANDISE STORES--1.0%
279,060 Tuesday Morning Corporation* 8,092,740
------------
HEALTHCARE DISTRIBUTORS--2.3%
226,375 Fisher Scientific International, Inc.* 13,073,156
80,736 Henry Schein, Inc.* 5,097,671
------------
18,170,827
------------
HEALTHCARE EQUIPMENT--1.6%
256,200 I-Flow Corporation* 3,038,532
262,255 Integra LifeSciences Holdings* 9,249,734
------------
12,288,266
------------
HEALTHCARE FACILITIES--1.5%
862,555 Select Medical Corporation 11,575,488
------------
HEALTHCARE SERVICES--2.8%
245,400 eResearch Technology, Inc.* 6,871,200
477,502 SFBC International, Inc.* 14,960,138
------------
21,831,338
------------
HEALTHCARE SUPPLIES--0.7%
343,005 Merit Medical Systems, Inc.* 5,464,070
------------
HOME ENTERTAINMENT SOFTWARE--1.4%
499,155 Sonic Solutions* 10,607,044
------------
HOTELS, RESORTS & CRUISE LINES--3.0%
263,625 Choice Hotels International, Inc. 13,223,430
320,110 Gaylord Entertainment Company* 10,048,253
------------
23,271,683
------------
INDUSTRIAL MACHINERY--1.2%
235,950 Actuant Corporation* 9,199,691
------------
INTERNET SOFTWARE & SERVICES--1.2%
833,475 Digitas, Inc.* 9,193,229
------------
IT CONSULTING & OTHER SERVICES--1.0%
369,745 CIBER, Inc.* 3,039,304
624,920 Lionbridge Technologies, Inc.* 4,780,638
------------
7,819,942
------------
</Table>
SEE NOTES TO STATEMENT OF INVESTMENTS.
11
<Page>
<Table>
<Caption>
SHARES MARKET VALUE
- ---------------------------------------------------------------------------------
LEISURE FACILITIES--1.2%
441,125 Life Time Fitness, Inc.* $ 9,263,625
------------
LEISURE PRODUCTS--2.3%
632,992 Marvel Enterprises, Inc.* 12,356,004
117,700 Polaris Industries, Inc. 5,649,600
------------
18,005,604
------------
MANAGED HEALTHCARE--1.1%
180,325 Amerigroup Corporation* 8,871,990
------------
OFFICE SERVICES & SUPPLIES--0.8%
222,300 Herman Miller, Inc. 6,433,362
------------
OIL & GAS EQUIPMENT & SERVICES--3.0%
53,625 Carbo Ceramics, Inc. 3,659,906
437,595 National-Oilwell, Inc.* 13,779,867
635,225 Superior Energy Services, Inc.* 6,384,011
------------
23,823,784
------------
OIL & GAS EXPLORATION & PRODUCTION--0.9%
104,800 Quicksilver Resources, Inc.* 7,028,936
------------
PHARMACEUTICALS--8.4%
281,775 Andrx Corporation* 7,869,976
577,955 Impax Laboratories, Inc.* 11,200,768
338,627 Medicis Pharmaceutical Corporation Class A 13,528,149
395,890 MGI Pharma, Inc.* 10,692,989
365,500 Salix Pharmaceuticals Limited* 12,043,225
239,200 Taro Pharmaceutical Industries Limited* 10,405,200
------------
65,740,307
------------
PUBLISHING--1.0%
126,820 Getty Images, Inc.* 7,609,200
------------
REGIONAL BANKS--0.8%
136,990 Southwest Bancorporation of Texas, Inc. 6,043,999
------------
RESTAURANTS--2.8%
392,137 Rare Hospitality International, Inc.* 9,764,211
208,694 Red Robin Gourmet Burgers, Inc.* 5,711,955
236,910 Ruby Tuesday, Inc. 6,503,180
------------
21,979,346
------------
SEMICONDUCTOR EQUIPMENT--2.3%
498,795 Brooks Automation, Inc.* 10,050,719
717,630 Entegris, Inc.* 8,302,979
------------
18,353,698
------------
SEMICONDUCTORS--4.0%
328,525 Actel Corporation* 6,077,713
228,970 OmniVision Technologies, Inc.* 3,652,072
530,475 Semtech Corporation* 12,487,382
302,415 Sigmatel, Inc.* 8,788,180
------------
31,005,347
------------
</Table>
12
<Page>
<Table>
<Caption>
SHARES MARKET VALUE
- ---------------------------------------------------------------------------------
SPECIALTY CHEMICALS--0.9%
145,600 Valspar Corporation $ 7,344,064
------------
SPECIALTY STORES--4.2%
205,955 Advance Auto Parts, Inc.* 9,099,092
293,350 Guitar Center, Inc.* 13,045,275
325,625 PETCO Animal Supplies, Inc.* 10,488,381
------------
32,632,748
------------
STEEL--0.4%
298,400 Graftech International Limited* 3,121,264
------------
SYSTEMS SOFTWARE--1.4%
433,025 Macrovision Corporation* 10,838,616
------------
TECHNOLOGY DISTRIBUTORS--1.9%
847,561 Insight Enterprises, Inc.* 15,052,683
------------
THRIFTS & MORTGAGE FINANCE--1.5%
351,850 BankAtlantic Bancorp, Inc. 6,491,633
401,725 NewAlliance Bancshares, Inc.* 5,608,081
------------
12,099,714
------------
TRADING COMPANIES & DISTRIBUTORS--2.7%
130,895 Fastenal Company 7,438,763
228,850 Hughes Supply, Inc. 13,486,131
------------
20,924,894
------------
TRUCKING--2.6%
184,450 J.B. Hunt Transport Services, Inc. 7,116,081
177,150 Knight Transportation, Inc.* 5,089,520
277,945 Overnite Corporation 8,171,583
------------
20,377,184
------------
TOTAL COMMON STOCKS (DOMESTIC)
(COST--$624,836,480) 707,492,754
------------
COMMON STOCKS (FOREIGN)--6.7%
AIR FREIGHT & LOGISTICS--0.8%
114,040 UTI Worldwide, Inc. (VI) 6,008,768
------------
BIOTECHNOLOGY--0.7%
286,375 QLT, Inc. (CA)* 5,733,228
------------
HEALTHCARE EQUIPMENT--1.1%
163,200 ResMed, Inc. (AU)* 8,316,672
------------
HOTELS, RESORTS & CRUISE LINES--2.1%
619,435 Fairmont Hotels & Resorts, Inc. (CA) 16,693,773
------------
PHARMACEUTICALS--0.7%
256,240 Angiotech Pharmaceuticals, Inc. (CA)* 5,163,236
------------
SOFT DRINKS--1.3%
321,400 Cott Corporation (CA)* 10,413,360
------------
TOTAL COMMON STOCKS (FOREIGN)
(COST--$46,099,638) 52,329,037
------------
</Table>
SEE NOTES TO STATEMENT OF INVESTMENTS.
13
<Page>
<Table>
<Caption>
UNITS MARKET VALUE
- ---------------------------------------------------------------------------------
RIGHTS AND WARRANTS--0.0%
COMMERCIAL PRINTING--0.0%
2,368 American Banknote Corporation Warrants, expire 2007* $ 0
2,368 American Banknote Corporation Warrants, expire 2007* 2
------------
2
------------
TOTAL RIGHTS AND WARRANTS
(COST--$0) 2
------------
<Caption>
PRINCIPAL AMOUNT AMORTIZED COST
- ---------------------------------------------------------------------------------
CORPORATE SHORT-TERM NOTES--5.0%
OTHER DIVERSIFIED FINANCIAL SERVICES--5.0%
$10,000,000 American Express Company
1.25% 7/2/04 $ 9,999,653
29,300,000 Merrill Lynch & Company
1.45% 7/1/04 29,300,000
-------------
39,299,653
-------------
TOTAL CORPORATE SHORT-TERM NOTES
(AMORTIZED COST--$39,299,653) 39,299,653
-------------
TOTAL INVESTMENTS--102.2%
(TOTAL COST--$710,235,771) 799,121,446
-------------
OTHER ASSETS AND LIABILITIES--(2.2%) (17,254,611)
-------------
NET ASSETS--100.0% $ 781,866,835
=============
</Table>
NOTES TO STATEMENT OF INVESTMENTS
* NON-INCOME PRODUCING.
AU - AUSTRALIA
CA - CANADA
VI - VIRGIN ISLANDS
14
<Page>
STATEMENT OF ASSETS AND LIABILITIES
June 30, 2004 (UNAUDITED)
<Table>
ASSETS
Investment securities, at cost $ 710,235,771
---------------
Investment securities, at market 799,121,446
Cash 1,980,581
Receivables:
Investment securities sold 7,819,970
Capital shares sold 460,683
Dividends 76,131
Other 46,698
---------------
Total Assets 809,505,509
---------------
LIABILITIES
Payables and other accrued liabilities:
Investment securities purchased 25,805,768
Capital shares redeemed 653,020
Advisory fees 524,546
Shareholder servicing fees 60,208
Accounting fees 33,487
Distribution fees 256,403
Transfer agency fees 64,679
Custodian fees 2,445
Other 238,118
---------------
Total Liabilities 27,638,674
---------------
Net Assets $ 781,866,835
===============
COMPOSITION OF NET ASSETS
Capital (par value and paid-in surplus) $ 1,088,968,202
Accumulated net investment loss (4,767,042)
Accumulated net realized loss from security transactions (391,220,000)
Net unrealized appreciation on investments 88,885,675
---------------
Total $ 781,866,835
===============
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
15
<Page>
<Table>
CLASS A
Net Assets $ 73,066,766
Shares Outstanding 2,686,984
Net Asset Value, Redemption Price Per Share $ 27.19
Maximum offering price per share (net asset value
plus sales charge of 5.75% of offering price) $ 28.85
CLASS B
Net Assets $ 20,074,697
Shares Outstanding 768,540
Net Asset Value, Offering and Redemption Price (excluding
applicable contingent deferred sales charge) Per Share $ 26.12
CLASS C
Net Assets $ 7,354,946
Shares Outstanding 281,387
Net Asset Value, Offering and Redemption Price (excluding
applicable contingent deferred sales charge) Per Share $ 26.14
CLASS F
Net Assets $ 605,012,278
Shares Outstanding 22,295,331
Net Asset Value, Offering and Redemption Price Per Share $ 27.14
CLASS R
Net Assets $ 74,704,931
Shares Outstanding 2,713,369
Net Asset Value, Offering and Redemption Price Per Share $ 27.53
CLASS T
Net Assets $ 1,653,217
Shares Outstanding 62,053
Net Asset Value, Redemption Price Per Share $ 26.64
Maximum offering price per share (net asset value
plus sales charge of 4.50% of offering price) $ 27.90
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
16
<Page>
STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 2004 (UNAUDITED)
<Table>
INVESTMENT INCOME
Dividends $ 773,331
Interest 94,817
Foreign taxes withheld (6,103)
---------------
Total Investment Income 862,045
---------------
EXPENSES
Advisory fees--Note 2 3,323,794
Shareholder servicing fees--Note 2 322,355
Accounting fees--Note 2 211,243
Distribution fees--Note 2 828,059
Transfer agency fees--Note 2 493,371
Registration fees 45,333
Postage and mailing expenses 43,905
Custodian fees and expenses--Note 2 8,279
Printing expenses 39,415
Legal and audit fees 54,020
Directors' fees and expenses--Note 2 72,723
Other expenses 93,176
---------------
Total Expenses 5,535,673
Earnings Credits (4,887)
Reimbursed/Waived Expenses (879)
---------------
Net Expenses 5,529,907
---------------
Net Investment Loss (4,667,862)
---------------
REALIZED AND UNREALIZED GAIN (LOSS) ON SECURITY
TRANSACTIONS AND FOREIGN CURRENCY TRANSACTIONS
Net Realized Gain on Security Transactions 73,421,873
Net Change in Unrealized Appreciation/Depreciation of Investments (34,342,644)
---------------
Net Realized and Unrealized Gain 39,079,229
---------------
Net Increase in Net Assets Resulting from Operations $ 34,411,367
===============
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
17
<Page>
STATEMENTS OF CHANGES IN NET ASSETS (UNAUDITED)
<Table>
<Caption>
SIX MONTHS ENDED YEAR ENDED
6/30/04 12/31/03
OPERATIONS
Net Investment Loss $ (4,667,862) $ (9,085,288)
Net Realized Gain on Security Transactions 73,421,873 13,930,958
Net Change in Unrealized Appreciation/Depreciation
of Investments (34,342,644) 218,611,635
------------- -------------
Net Increase in Net Assets Resulting from Operations 34,411,367 223,457,305
------------- -------------
CAPITAL SHARE TRANSACTIONS
Net Increase (Decrease)--Note 4
Class A (9,586,224) (9,822,554)
Class B (1,752,190) (3,591,234)
Class C (1,309,613) (1,821,877)
Class F (60,913,710) (36,105,693)
Class R 6,330,348 5,799,244
Class T (212,368) 68,669
------------- -------------
Net Decrease from Capital Share Transactions (67,443,757) (45,473,445)
------------- -------------
Net Increase (Decrease) in Net Assets (33,032,390) 177,983,860
------------- -------------
NET ASSETS
Beginning of period $ 814,899,225 $ 636,915,365
------------- -------------
End of period $ 781,866,835 $ 814,899,225
============= =============
Accumulated Net Investment Loss $ (4,767,042) $ (99,180)
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
18
<Page>
FINANCIAL HIGHLIGHTS
(UNAUDITED)
<Table>
<Caption>
SIX MONTHS YEAR ENDED
ENDED JUNE 30, DECEMBER 31,
2004 2003 2002 2001 2000
-------------- -----------------------------------------------------------
CLASS A SHARES
PER SHARE OPERATING DATA
Net Asset Value, beginning of period $ 26.04 $ 19.09 $ 28.50 $ 34.79 $ 40.88
- ------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment loss (0.15)+ (0.36) (0.31) (0.17) (0.03)
Net realized and unrealized gains
(losses) on securities 1.30 7.31 (9.10) (6.02) (3.45)
-----------------------------------------------------------------------------
Total from investment operations 1.15 6.95 (9.41) (6.19) (3.48)
- ------------------------------------------------------------------------------------------------------------------------
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 (0.10) (2.61)
-----------------------------------------------------------------------------
Total distributions 0.00 0.00 0.00 (0.10) (2.61)
- ------------------------------------------------------------------------------------------------------------------------
Net Asset Value, end of period $ 27.19 $ 26.04 $ 19.09 $ 28.50 $ 34.79
=============================================================================
TOTAL RETURN* 4.42% 36.41% (33.02%) (17.78%) (8.18%)
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000s) $ 73,067 $ 79,630 $ 67,184 $ 117,773 $ 131,298
Ratios to average net assets:
Expenses with reimbursements,
but no earnings credits# 1.35%** 1.50% 1.35% 1.19% 1.24%
Expenses with reimbursements
and earnings credits 1.35%** 1.50% 1.35% 1.18% 1.20%
Net investment loss (1.13%)** (1.25%) (1.08%) (0.58%) (0.21%)
- ------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate@ 104% 130% 128% 110% 108%
</Table>
+ COMPUTED USING AVERAGE SHARES OUTSTANDING THROUGHOUT THE PERIOD.
* SALES CHARGES ARE NOT REFLECTED IN THE TOTAL RETURN.
** ANNUALIZED.
# CERTAIN FEES WERE WAIVED BY THE CUSTODIAN. THESE WAIVERS DID NOT HAVE AN
IMPACT ON THE EXPENSE RATIOS.
@ 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>
<Table>
<Caption>
SIX MONTHS YEAR ENDED
ENDED JUNE 30, DECEMBER 31,
2004 2003 2002 2001 2000
-------------- -----------------------------------------------------------
CLASS B SHARES
PER SHARE OPERATING DATA
Net Asset Value, beginning of period $ 25.12 $ 18.60 $ 28.03 $ 34.49 $ 40.88
- ------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment loss (0.26)+ (0.81) (0.69) (0.45) (0.21)
Net realized and unrealized gains (losses)
on securities 1.26 7.33 (8.74) (5.91) (3.57)
-----------------------------------------------------------------------------
Total from investment operations 1.00 6.52 (9.43) (6.36) (3.78)
- ------------------------------------------------------------------------------------------------------------------------
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 (0.10) (2.61)
-----------------------------------------------------------------------------
Total distributions 0.00 0.00 0.00 (0.10) (2.61)
- ------------------------------------------------------------------------------------------------------------------------
Net Asset Value, end of period $ 26.12 $ 25.12 $ 18.60 $ 28.03 $ 34.49
=============================================================================
TOTAL RETURN* 3.98% 35.05% (33.64%) (18.43%) (8.92%)
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000s) $ 20,075 $ 21,009 $ 18,804 $ 35,845 $ 50,883
Ratios to average net assets:
Expenses with reimbursements,
but no earnings credits# 2.24%** 2.56% 2.26% 1.97% 1.97%
Expenses with reimbursements
and earnings credits 2.24%** 2.56% 2.26% 1.96% 1.94%
Net investment loss (2.03%)** (2.31%) (1.98%) (1.35%) (1.02%)
- ------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate@ 104% 130% 128% 110% 108%
</Table>
+ COMPUTED USING AVERAGE SHARES OUTSTANDING THROUGHOUT THE PERIOD.
* SALES CHARGES ARE NOT REFLECTED IN THE TOTAL RETURN.
** ANNUALIZED.
# CERTAIN FEES WERE WAIVED BY THE CUSTODIAN. THESE WAIVERS DID NOT HAVE AN
IMPACT ON THE EXPENSE RATIOS.
@ 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>
<Table>
<Caption>
SIX MONTHS YEAR ENDED
ENDED JUNE 30, DECEMBER 31,
2004 2003 2002 2001 2000
-------------- -----------------------------------------------------------
CLASS C SHARES
PER SHARE OPERATING DATA
Net Asset Value, beginning of period $ 25.14 $ 18.60 $ 28.05 $ 34.51 $ 40.88
- ------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment loss (0.26)+ (0.94) (0.86) (0.48) (0.19)
Net realized and unrealized gains
(losses) on securities 1.26 7.48 (8.59) (5.88) (3.57)
-----------------------------------------------------------------------------
Total from investment operations 1.00 6.54 (9.45) (6.36) (3.76)
- ------------------------------------------------------------------------------------------------------------------------
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 (0.10) (2.61)
-----------------------------------------------------------------------------
Total distributions 0.00 0.00 0.00 (0.10) (2.61)
- ------------------------------------------------------------------------------------------------------------------------
Net Asset Value, end of period $ 26.14 $ 25.14 $ 18.60 $ 28.05 $ 34.51
=============================================================================
TOTAL RETURN* 3.98% 35.16% (33.69%) (18.42%) (8.87%)
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000s) $ 7,355 $ 8,352 $ 7,794 $ 17,031 $ 25,275
Ratios to average net assets:
Expenses with reimbursements,
but no earnings credits# 2.23%** 2.52% 2.27% 1.98% 1.97%
Expenses with reimbursements
and earnings credits 2.23%** 2.52% 2.26% 1.96% 1.94%
Net investment loss (2.02%)** (2.28%) (1.99%) (1.36%) (1.01%)
- ------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate@ 104% 130% 128% 110% 108%
</Table>
+ COMPUTED USING AVERAGE SHARES OUTSTANDING THROUGHOUT THE PERIOD.
* SALES CHARGES ARE NOT REFLECTED IN THE TOTAL RETURN.
** ANNUALIZED.
# CERTAIN FEES WERE WAIVED BY THE CUSTODIAN. THESE WAIVERS DID NOT HAVE AN
IMPACT ON THE EXPENSE RATIOS.
@ 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>
<Table>
<Caption>
SIX MONTHS YEAR ENDED
ENDED JUNE 30, DECEMBER 31,
2004 2003 2002 2001 2000 1999
-------------- -------------------------------------------------------------------------
CLASS F SHARES
PER SHARE OPERATING DATA
Net Asset Value, beginning of
period $ 25.98 $ 19.04 $ 28.45 $ 34.74 $ 40.86 $ 24.37
- ----------------------------------------------------------------------------------------------------------------------------------
Income from investment
operations:
Net investment loss (0.15)+ (0.35) (0.36) (0.20) (0.07) (0.08)
Net realized and unrealized gains
(losses) on securities 1.31 7.29 (9.05) (5.99) (3.44) 22.72
-------------------------------------------------------------------------------------------
Total from investment operations 1.16 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 0.00
From net realized gains 0.00 0.00 0.00 (0.10) (2.61) (6.15)
-------------------------------------------------------------------------------------------
Total distributions 0.00 0.00 0.00 (0.10) (2.61) (6.15)
- ----------------------------------------------------------------------------------------------------------------------------------
Net Asset Value, end of period $ 27.14 $ 25.98 $ 19.04 $ 28.45 $ 34.74 $ 40.86
===========================================================================================
TOTAL RETURN 4.46% 36.45% (33.08%) (17.81%) (8.26%) 94.59%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000s) $ 605,012 $ 638,880 $ 498,970 $ 847,330 $ 1,066,003 $ 806,152
Ratios to average net assets:
Expenses with reimbursements,
but no earnings credits# 1.37%** 1.53% 1.41% 1.25% 1.28% 1.46%
Expenses with reimbursements
and earnings credits 1.36%** 1.53% 1.40% 1.24% 1.25% 1.45%
Net investment loss (1.15%)** (1.29%) (1.13%) (0.64%) (0.46%) (0.96%)
- ----------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate@ 104% 130% 128% 110% 108% 157%
</Table>
+ COMPUTED USING AVERAGE SHARES OUTSTANDING THROUGHOUT THE PERIOD.
** ANNUALIZED.
# CERTAIN FEES WERE WAIVED BY THE CUSTODIAN. THESE WAIVERS DID NOT HAVE AN
IMPACT ON THE EXPENSE RATIOS.
@ 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>
<Table>
<Caption>
SIX MONTHS YEAR ENDED
ENDED JUNE 30, DECEMBER 31,
2004 2003 2002 2001 2000
-------------- -----------------------------------------------------------
CLASS R SHARES
PER SHARE OPERATING DATA
Net Asset Value, beginning of period $ 26.32 $ 19.23 $ 28.64 $ 34.87 $ 40.88
- ------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.12)+ (0.17) (0.18) (0.08) 0.00++
Net realized and unrealized gains
(losses) on securities 1.33 7.26 (9.23) (6.05) (3.40)
-----------------------------------------------------------------------------
Total from investment operations 1.21 7.09 (9.41) (6.13) (3.40)
- ------------------------------------------------------------------------------------------------------------------------
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 (0.10) (2.61)
-----------------------------------------------------------------------------
Total distributions 0.00 0.00 0.00 (0.10) (2.61)
- ------------------------------------------------------------------------------------------------------------------------
Net Asset Value, end of period $ 27.53 $ 26.32 $ 19.23 $ 28.64 $ 34.87
=============================================================================
TOTAL RETURN 4.60% 36.87% (32.86%) (17.57%) (7.98%)
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000s) $ 74,705 $ 65,240 $ 42,872 $ 61,163 $ 4,693
Ratios to average net assets:
Expenses with reimbursements,
but no earnings credits# 1.08%** 1.21% 1.10% 0.95% 0.96%
Expenses with reimbursements
and earnings credits 1.08%** 1.21% 1.10% 0.94% 0.93%
Net investment income (loss) (0.86%)** (0.96%) (0.82%) (0.38%) 0.01%
- ------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate@ 104% 130% 128% 110% 108%
</Table>
++ NET INVESTMENT INCOME FOR THE YEAR ENDED DECEMBER 31, 2000 AGGREGATED LESS
THAN $0.01 ON A PER SHARE BASIS.
+ COMPUTED USING AVERAGE SHARES OUTSTANDING THROUGHOUT THE PERIOD.
** ANNUALIZED.
# CERTAIN FEES WERE WAIVED BY THE CUSTODIAN. THESE WAIVERS DID NOT HAVE AN
IMPACT ON THE EXPENSE RATIOS.
@ 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>
<Table>
<Caption>
SIX MONTHS YEAR ENDED
ENDED JUNE 30, DECEMBER 31,
2004 2003 2002 2001 2000
-------------- -----------------------------------------------------------
CLASS T SHARES
PER SHARE OPERATING DATA
Net Asset Value, beginning of period $ 25.55 $ 18.79 $ 28.24 $ 34.69 $ 40.88
- ------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment loss (0.19)+ (0.31) (0.54) (0.33) (0.09)
Net realized and unrealized gains
(losses) on securities 1.28 7.07 (8.91) (6.02) (3.49)
-----------------------------------------------------------------------------
Total from investment operations 1.09 6.76 (9.45) (6.35) (3.58)
- ------------------------------------------------------------------------------------------------------------------------
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 (0.10) (2.61)
-----------------------------------------------------------------------------
Total distributions 0.00 0.00 0.00 (0.10) (2.61)
- ------------------------------------------------------------------------------------------------------------------------
Net Asset Value, end of period $ 26.64 $ 25.55 $ 18.79 $ 28.24 $ 34.69
=============================================================================
TOTAL RETURN* 4.27% 35.98% (33.46%) (18.30%) (8.43%)
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000s) $ 1,653 $ 1,788 $ 1,291 $ 2,341 $ 1,908
Ratios to average net assets:
Expenses with reimbursements,
but no earnings credits# 1.66%** 1.91% 2.06% 1.83% 1.48%
Expenses with reimbursements
and earnings credits 1.66%** 1.90% 2.06% 1.82% 1.44%
Net investment loss (1.44%)** (1.66%) (1.79%) (1.24%) (0.50%)
- ------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate@ 104% 130% 128% 110% 108%
</Table>
+ COMPUTED USING AVERAGE SHARES OUTSTANDING THROUGHOUT THE PERIOD.
* SALES CHARGES ARE NOT REFLECTED IN THE TOTAL RETURN.
** ANNUALIZED.
# CERTAIN FEES WERE WAIVED BY THE CUSTODIAN. THESE WAIVERS DID NOT HAVE AN
IMPACT ON THE EXPENSE RATIOS.
@ PORTFOLIO TURNOVER RATE IS A MEASURE OF PORTFOLIO ACTIVITY THAT IS
CALCULATED BY DIVIDING THE LESSER OF PURCHASES OR SALES OF SECURITIES,
EXCLUDING SECURITIES HAVING MATURITY DATES AT ACQUISITION OF ONE YEAR OR
LESS, BY THE AVERAGE VALUE OF THE PORTFOLIO SECURITIES HELD DURING THE
PERIOD, WHICH IS A ROLLING 12-MONTH PERIOD.
SEE NOTES TO FINANCIAL STATEMENTS.
24
<Page>
NOTES TO FINANCIAL STATEMENTS
June 30, 2004 (UNAUDITED)
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
Dreyfus Founders Funds, Inc. (the "Company") is an open-end management
investment company registered under the Investment Company Act of 1940 (the
"1940 Act"). 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--A domestic 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 a
security traded on Nasdaq, at its official closing price. Lacking any sales on
that day, the security is valued at the current closing bid price, or by quotes
from dealers making a market in the security if the closing bid price is not
available, or in the case of written call options, at the mean between the
highest bid and lowest asked quotations obtained from at least two securities
dealers.
A foreign equity security traded on a foreign exchange is valued at the last
quoted official closing price available before the time when the Fund's assets
are valued, or at the last quoted sales price if the exchange does not provide
an official closing price or if the foreign market has not yet closed. Lacking
any sales on that day, the security is valued at the current closing bid price,
or by quotes from dealers making a market in the security if the closing bid
price is not available. London closing exchange rates are used to convert
foreign currencies to U.S. dollars.
A debt security with a remaining maturity greater than 60 days at the time of
purchase is valued in accordance with the evaluated bid price supplied by a
pricing service approved by the Company's board of directors or, if such price
is not available, at the mean between the highest bid and lowest asked
quotations obtained from at least two securities dealers. A debt security with a
remaining maturity of 60 days or less at the time of purchase is valued at
amortized cost, which approximates market value, unless it is determined that
amortized cost would not represent market value, in which case the securities
would be marked to market. The Fund amortizes premiums and discounts on all debt
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.
25
<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 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.
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.
26
<Page>
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, if
any, reduce Other Expenses and would be 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.
SHAREHOLDER SERVICING AND TRANSFER AGENCY FEES FOR CLASS F SHARES--The Company
has a shareholder services agreement with Dreyfus Service Corporation ("DSC"),
the direct owner of Founders and 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. 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. During the six months ended June 30,
2004, Class F shares were charged $189,328 pursuant to this shareholder services
agreement.
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 incurred 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. During the six months ended June 30, 2004, Class F shares
were charged $81,232 for out-of-pocket transfer agent charges.
27
<Page>
TRANSFER AGENCY FEES FOR CLASS A, CLASS B, CLASS C, CLASS R AND CLASS T
SHARES--The fees incurred 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 $12.43 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 six months ended June
30, 2004 were as follows:
<Table>
<Caption>
TRANSFER
AGENCY FEES
---------------------------------------------------------------
Class A $ 16,896
Class B $ 19,699
Class C $ 7,047
Class R $ 8,618
Class T $ 908
</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 1940 Act 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 six months ended June
30, 2004, Class F shares were charged $718,714 pursuant to this Distribution
Plan.
The Fund also has adopted a Distribution Plan pursuant to Rule 12b-1 under the
1940 Act applicable to its Class B, Class C and Class T shares. Under this plan,
the Fund pays DSC a fee for distributing its Class B and C shares at the annual
rate of 0.75% of the value of the average daily net assets of its Class B and C
shares, respectively, and pays DSC a fee for distributing its Class T shares at
the annual rate of 0.25% of the average daily net assets of its Class T shares.
In addition, the Fund has adopted a Shareholder Services Plan applicable to its
Class A, Class B, Class C and Class T shares. Under the Shareholder Services
Plan, Class A, Class B, Class C and Class T shares pay DSC an annual fee of
0.25% of the value of their average daily net assets for the provision of
certain services.
Distribution and shareholder servicing fees paid to DSC by the Fund's Class A,
B, C and T shares for the six months ended June 30, 2004, were as follows:
<Table>
<Caption>
DISTRIBUTION SHAREHOLDER
FEES SERVICING FEES
----------------------------------------------------------------
Class A N/A $ 95,134
Class B $ 77,638 $ 25,879
Class C $ 29,540 $ 9,847
Class T $ 2,167 $ 2,167
</Table>
28
<Page>
During the six months ended June 30, 2004, DSC retained $1,052 and $4 in sales
commissions from the sales of Class A and Class T shares, respectively. DSC also
retained $35,705 and $859 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 and an affiliate of Founders, 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
----------------------------------------------------------------
9/1/03 to 8/31/04 $ 150,000
9/1/04 to 8/31/05 $ 200,000
9/1/05 to 8/31/06 $ 200,000
</Table>
The fee waiver is allocated among the Funds in proportion to their respective
shares of the total custodian fee. For the six months ended June 30, 2004, the
Fund's portion of the fee waiver was $879. 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.
29
<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.
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
June 30, 2004 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 $ 713,989,331
Gross Tax Appreciation of Investments $ 136,106,325
Gross Tax Depreciation of Investments $ (50,974,210)
Net Tax Appreciation $ 85,132,115
</Table>
30
<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>
SIX MONTHS ENDED YEAR ENDED
JUNE 30, 2004 DECEMBER 31, 2004
SHARES AMOUNT SHARES AMOUNT
CLASS A
Sold 436,031 $ 11,869,659 1,201,496 $ 27,097,339
Redeemed (807,416) $ (21,455,883) (1,662,688) $ (36,919,893)
---------------------------------------------------------------
Net Decrease (371,385) $ (9,586,224) (461,192) $ (9,822,554)
===============================================================
CLASS B
Sold 3,770 $ 96,811 10,129 $ 212,967
Redeemed (71,567) $ (1,849,001) (184,783) $ (3,804,201)
---------------------------------------------------------------
Net Decrease (67,797) $ (1,752,190) (174,654) $ (3,591,234)
===============================================================
CLASS C
Sold 3,972 $ 102,599 21,413 $ 428,341
Redeemed (54,879) $ (1,412,212) (108,035) $ (2,250,218)
---------------------------------------------------------------
Net Decrease (50,907) $ (1,309,613) (86,622) $ (1,821,877)
===============================================================
CLASS F
Sold 2,369,039 $ 63,952,977 5,367,437 $ 117,439,063
Redeemed (4,661,054) $ (124,866,687) (6,981,197) $ (153,544,756)
---------------------------------------------------------------
Net Decrease (2,292,015) $ (60,913,710) (1,613,760) $ (36,105,693)
===============================================================
CLASS R
Sold 438,650 $ 11,818,112 500,330 $ 11,153,199
Redeemed (203,547) $ (5,487,764) (251,484) $ (5,353,955)
---------------------------------------------------------------
Net Increase 235,103 $ 6,330,348 248,846 $ 5,799,244
===============================================================
CLASS T
Sold 8,690 $ 227,469 18,394 $ 420,952
Redeemed (16,610) $ (439,837) (17,137) $ (352,283)
---------------------------------------------------------------
Net Increase (Decrease) (7,920) $ (212,368) 1,257 $ 68,669
===============================================================
</Table>
31
<Page>
5. INVESTMENT TRANSACTIONS
Purchases and sales of investment securities (excluding short-term securities
and U.S. government obligations) for the six months ended June 30, 2004 were
$352,745,594 and $429,031,390, 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 June 30, 2004 the Fund did not have any borrowings under the LOC.
7. LEGAL MATTERS
Two class actions have been filed against Mellon Financial Corporation and
Mellon Bank, N.A.; Dreyfus and Founders (the "Investment Advisers"); and the
directors of all or substantially all of the Dreyfus and Dreyfus Founders Funds.
The complaints also name all or substantially all of the Dreyfus and Dreyfus
Founders Funds as nominal defendants. Plaintiffs allege that the Investment
Advisers improperly used assets of the Dreyfus and Dreyfus Founders Funds, in
the form of directed brokerage commissions and 12b-1 fees, to pay brokers to
promote sales of Dreyfus and Dreyfus Founders Funds, and that the use of fund
assets to make these payments was not properly disclosed to investors.
Plaintiffs claim that the Investment Advisers' actions violated the 1940 Act,
the Investment Advisers Act, and common law. The complaints further allege that
the directors breached their fiduciary duties to fund shareholders under the
1940 Act and at common law and that Mellon Financial and Mellon Bank violated
the 1940 Act. The complaints seek unspecified compensatory and punitive damages,
rescission of the funds' contracts with the Investment Advisers, an accounting
of all fees paid, and an award of attorneys' fees and litigation expenses. The
complaints are pending in the same court and have been consolidated into a
single action under the caption IN RE DREYFUS MUTUAL FUNDS FEE LITIGATION.
Founders, Dreyfus, and the Funds believe the allegations in these lawsuits to be
totally without merit and intend to defend the actions vigorously. It is
possible that additional lawsuits arising out of these circumstances and
presenting similar allegations and requests for relief may be filed against the
defendants in the future. Neither Founders, Dreyfus, nor the Funds believe that
the pending actions will have a material adverse effect on the Funds or
Founders' ability to perform its contract with the Funds.
32
<Page>
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<Page>
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<Page>
For More Information
DREYFUS FOUNDERS
DISCOVERY FUND
To obtain information:
MANAGER
- ---------------------------------
BY TELEPHONE | Founders Asset Management LLC
Call your financial | 210 University Boulevard, Suite 800
representative or | Denver, CO 80206
1-800-554-4611 |
| TRANSFER AGENT &
BY MAIL Write to: | DIVIDEND DISBURSING AGENT
Dreyfus Founders Funds |
144 Glenn Curtiss Boulevard | Dreyfus Transfer, Inc.
Uniondale, NY 11556-0144 | 200 Park Avenue
| New York, NY 10166
PROXY VOTING INFORMATION |
A description of the policies |
and procedures that the Fund | DISTRIBUTOR
uses to determine how to vote |
proxies relating to portfolio | Dreyfus Service Corporation
securities, and information | 200 Park Avenue
regarding how the Fund | New York, NY 10166
voted these proxies for |
the 12-month period ended |
June 30, 2004, is available |
through the Fund's website |
at www.dreyfus.com and on |
the Securities and Exchange |
Commission's website at |
www.sec.gov. The description |
of the policies and procedures |
is also available without |
charge, upon request, by |
calling 1-800-554-4611. |
THIS REPORT AND THE STATEMENTS IT CONTAINS ARE SUBMITTED FOR THE GENERAL
INFORMATION OF OUR SHAREHOLDERS. THE REPORT IS NOT AUTHORIZED FOR DISTRIBUTION
TO PROSPECTIVE INVESTORS UNLESS PRECEDED OR ACCOMPANIED BY AN EFFECTIVE
PROSPECTUS.
Dreyfus Founders Funds are managed by Founders Asset Management LLC. Founders
and Founders Funds are registered trademarks of Founders Asset Management LLC.
(C)2004 Founders Asset Management LLC. 08/04 0182SA0604
<Page>
Dreyfus Founders
Growth Fund
SEMIANNUAL REPORT June 30, 2004
[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
</Table>
The views expressed herein are current to the date of this report. The views and
the composition of the Fund's portfolio are subject to change at any time based
on market and other conditions. Companies appearing in bold print on pages 3-9
were owned by the Fund on June 30, 2004. 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 SIX-MONTH PERIOD
ENDED JUNE 30, 2004?
For the first half of 2004, the Dreyfus Founders Growth Fund trailed the return
of its primary benchmark, the Russell 1000 Growth Index, which returned 2.74%
for the six-month period.
PLEASE DESCRIBE THE BROAD MARKET AND ECONOMIC ENVIRONMENT IN WHICH THE FUND
PERFORMED.
For the six-month period ended June 30, 2004, the equity markets focused on
macroeconomic issues, both global and local. Among the greatest causes of
apprehension during the period were the war on terrorism, higher oil prices, the
expected increase in interest rates and domestic politics. Geopolitical
instability in the Middle East continued, not only adding to investor unease,
but also to the risk premium of world oil prices. Concerns that the United
States' economy was slowing its pace beyond expectations also added to market
volatility. The anticipation of the Federal Reserve raising the federal funds
rate also provided a more difficult environment for the equity markets than in
recent quarters, and the upcoming closely contested U.S. Presidential race
played into heightened concerns as well. The culmination of these factors
provided no real direction in the equity markets; the only discernible direction
evidenced was in the move toward more defensive stocks and away from the
financial services sector during the second half of the period.
[SIDENOTE]
"THE ANTICIPATION OF THE FEDERAL RESERVE RAISING THE FEDERAL FUNDS RATE ALSO
PROVIDED A MORE DIFFICULT ENVIRONMENT FOR THE EQUITY MARKETS THAN IN RECENT
QUARTERS."
3
<Page>
PERFORMANCE HIGHLIGHTS
- Among the greatest causes of apprehension during the period were the war
on terrorism, higher oil prices, the expected increase in interest rates
and domestic politics.
- The most compelling investment opportunity during the period was found
in the information technology sector. Although overall stock selection
reduced the positive impact the Fund's overweight position held in this
sector, specific information technology-related holdings did boost
relative Fund performance for the period.
- For the first half of 2004, holdings in the consumer staples sector also
exhibited compelling growth and aided Fund performance as compared to
the Index.
- Stocks chosen for inclusion in the Fund from the materials sector proved
to be detrimental to the Fund's relative performance.
- The industrials sector also proved to be a burden to relative Fund
performance. An underweight position in this sector, paired with poor
stock selection, drove this sector to be one of the worst contributors
to the Fund's relative return.
WHERE DID YOU FIND THE MOST COMPELLING GROWTH OPPORTUNITIES DURING THE PERIOD?
The most compelling investment opportunity during the period was found in the
information technology sector. Although overall stock selection reduced the
positive impact the Fund's overweight position held in this sector, specific
information technology-related holdings did boost relative Fund performance for
the period. APPLE COMPUTER, INC. performed well due to the popularity of its
consumer-related MP3 products, the I-Pod and I-Pod Mini. AUTODESK, INC., a
company offering solutions for the building design, infrastructure management,
manufacturing, digital media and wireless data services industries, showed solid
execution as well, contributing positively to the Fund's first-half performance.
For the first half of 2004, holdings in the consumer staples sector also
exhibited compelling growth and aided Fund performance as compared to the Index.
Stock selection in this sector was the biggest boon to performance, as
4
<Page>
holdings such as ESTEE LAUDER COMPANIES, INC. performed well through
superior revenue and earnings growth owing to the continued increase in consumer
demand, both domestically and internationally.
The Fund was able to capitalize on the overall performance of the energy
sector during the first half of 2004, which benefited from the increasing energy
price environment, due to the Fund being slightly overweight relative to its
benchmark.
Although the Fund's position in the consumer discretionary sector did not
garner positive relative results overall, select holdings in this sector proved
to be the best performers for the period. ROYAL CARIBBEAN CRUISES LIMITED,
retailer NORDSTROM, INC. and Mandalay Resort Group all benefited from an
increase in consumer demand. Royal Caribbean's excellent product positioning led
to strong stock performance, and made it the Fund's top performer during the
period. Nordstrom benefited from a rebound in consumer demand for higher-end
retail items.
Industrials-related holding GENERAL ELECTRIC COMPANY also aided performance
in spite of the sector's negative relative contribution.
LARGEST EQUITY HOLDINGS (ticker symbol)
<Table>
1. General Electric Company (GE) 4.56%
2. SPDR Trust Series 1 (SPY) 4.51%
3. Microsoft Corporation (MSFT) 4.15%
4. Cisco Systems, Inc. (CSCO) 2.79%
5. Pfizer, Inc. (PFE) 2.50%
6. Intel Corporation (INTC) 2.11%
7. Royal Caribbean Cruises Limited (RCL) 2.07%
8. Walt Disney Company (DIS) 2.03%
9. Kohl's Corporation (KSS) 1.94%
10. Gillette Company (G) 1.88%
</Table>
Portfolio holdings are subject to change, and should not be construed as a
recommendation of any security.
5
<Page>
GROWTH OF $10,000 INVESTMENT
PERFORMANCE DATA QUOTED REPRESENTS PAST PERFORMANCE. PAST PERFORMANCE DOES NOT
GUARANTEE FUTURE RESULTS. INVESTMENT RETURN AND PRINCIPAL VALUE OF AN INVESTMENT
WILL FLUCTUATE SO THAT AN INVESTOR'S SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR
LESS THAN THEIR ORIGINAL COST. CURRENT PERFORMANCE MAY BE LOWER OR HIGHER THAN
THE PERFORMANCE DATA QUOTED. PLEASE CALL 1-800-525-2440 TO OBTAIN THE MOST
RECENT MONTH-END PERFORMANCE DATA.
[CHART]
The above graph compares a $10,000 investment made in Class F shares of Dreyfus
Founders Growth Fund on 6/30/94 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 designed to be representative of the
U.S. equities market and consists of 500 leading companies in leading industries
of the U.S. economy. The Russell 1000 Growth Index is an unmanaged index that
measures the performance of the common stocks of those companies among the
largest 1,000 publicly traded U.S. 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>
AVERAGE ANNUAL AND YEAR-TO-DATE TOTAL RETURN AS OF 6/30/04
<Table>
<Caption>
YEAR-TO- 1 5 10 SINCE
CLASS (INCEPTION DATE) DATE+ YEAR YEARS YEARS INCEPTION
--------------------------------------------------------------------------------------------
CLASS A SHARES (12/31/99)
With sales charge (5.75%) (4.43%) 8.41% -- -- (14.84%)
Without sales charge 1.43% 15.06% -- -- (13.71%)
CLASS B SHARES (12/31/99)
With redemption* (2.95%) 10.15% -- -- (14.64%)
Without redemption 1.05% 14.15% -- -- (14.33%)
CLASS C SHARES (12/31/99)
With redemption** 0.05% 13.18% -- -- (14.37%)
Without redemption 1.05% 14.18% -- -- (14.37%)
CLASS F SHARES (1/5/62) 1.42% 15.26% (8.32%) 7.69% N/A
CLASS R SHARES (12/31/99) 1.62% 15.52% -- -- (13.49%)
CLASS T SHARES (12/31/99)
With sales charge (4.50%) (3.32%) 9.46% -- -- (15.23%)
Without sales charge 1.27% 14.56% -- -- (14.35%)
</Table>
Average annual and year-to-date total returns do not reflect the deduction of
taxes that a shareholder would pay on Fund distributions or redemption of Fund
shares, but do reflect the reinvestment of dividends and capital gain
distributions, and adjustments for financial statement purposes. Part of the
Fund's performance is due to amounts received from class action settlements
regarding prior Fund holdings. There is no guarantee that these settlement
distributions will occur in the future or have a similar impact on performance.
*The maximum contingent deferred sales charge for Class B shares is 4% and is
reduced to 0% after six years, at which time the Class B shares convert to Class
A shares.
**The maximum contingent deferred sales charge for Class C shares is 1% for
shares redeemed within one year of the date of purchase.
+Total return is not annualized.
7
<Page>
WHERE DID YOU FIND THE LEAST COMPELLING GROWTH OPPORTUNITIES DURING THE PERIOD?
During the first six months of 2004, the least compelling area of investment was
found in the materials sector. Stocks chosen for inclusion in the Fund from the
materials sector proved to be detrimental to the Fund's relative performance.
The industrials sector also proved to be a burden to relative Fund
performance. An underweight position in this sector, paired with poor stock
selection, drove this sector to be one of the worst contributors to the Fund's
relative return, with names such as UNION PACIFIC CORPORATION underperforming
for the period.
The healthcare sector also hindered relative Fund performance during the
half. A significantly underweight position along with weak stock selection
prevented the Fund from posting a stronger return in this sector compared to the
Index.
Although the information technology sector was one of the largest positive
contributors to Fund performance on a relative basis, some information
technology names weighed on the sector's overall performance. INTEL CORPORATION
experienced
[CHART]
PORTFOLIO COMPOSITION
<Table>
Information Technology 31.43%
Consumer Discretionary 17.05%
Industrials 11.33%
Financials 10.97%
Healthcare 9.54%
Consumer Staples 7.99%
Energy 1.09%
Materials 1.00%
Other 4.49%
Cash & Equivalents 5.11%
</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>
sluggish sales and earnings trends during the period. VERITAS SOFTWARE
CORPORATION and ORACLE CORPORATION each saw a drop in share price, which
ultimately affected relative Fund performance.
As was previously mentioned, although some of the Fund's holdings in the
consumer discretionary sector proved beneficial to performance, the poor
performance of consumer discretionary stocks in general detracted from this
positive contribution. The Fund's worst performer for the period, lower-end
retailer KOHL'S CORPORATION, experienced sluggish sales and earnings trends. As
a result, the stock lagged the broader market and had a negative impact on
relative Fund performance. VIACOM, INC. and COX COMMUNICATIONS, INC. also
declined as the cable industry overall suffered during the first six months of
the year.
Materials holding Newmont Mining Corporation also underperformed during the
period.
At the end of the period, the Fund was positioned for a potential improvement in
the economic environment. We will continue to employ our fundamental-based
investment strategy of selecting stocks that we believe will post superior
revenue and earnings growth rates at valuations that make sense.
/s/ John B. Jares
John B. Jares, CFA
Portfolio Manager
9
<Page>
STATEMENT OF INVESTMENTS
June 30, 2004 (UNAUDITED)
<Table>
<Caption>
SHARES MARKET VALUE
- ---------------------------------------------------------------------------------
COMMON STOCKS (DOMESTIC)--89.8%
AIR FREIGHT & LOGISTICS--1.1%
63,100 FedEx Corporation $ 5,154,627
------------
AIRLINES--1.3%
94,835 Northwest Airlines Corporation* 1,054,565
306,425 Southwest Airlines Company 5,138,747
------------
6,193,312
------------
ALUMINUM--1.0%
146,725 Alcoa, Inc. 4,846,327
------------
APPLICATION SOFTWARE--1.3%
142,722 Autodesk, Inc. 6,109,929
------------
ASSET MANAGEMENT & CUSTODY BANKS--0.5%
156,850 Janus Capital Group, Inc. 2,586,457
------------
BIOTECHNOLOGY--1.1%
72,185 Amgen, Inc.* 3,939,135
22,550 Biogen Idec, Inc.* 1,426,288
------------
5,365,423
------------
BROADCASTING & CABLE TV--2.1%
203,358 Comcast Corporation Special Class A* 5,614,714
166,725 Cox Communications, Inc. Class A* 4,633,288
------------
10,248,002
------------
COMMUNICATIONS EQUIPMENT--5.2%
154,925 Avaya, Inc.* 2,446,266
568,380 Cisco Systems, Inc.* 13,470,606
48,325 Juniper Networks, Inc.* 1,187,345
235,625 Motorola, Inc. 4,300,156
108,350 Scientific-Atlanta, Inc. 3,738,075
------------
25,142,448
------------
COMPUTER & ELECTRONICS RETAIL--0.5%
44,200 Best Buy Company, Inc. 2,242,708
------------
COMPUTER HARDWARE--4.0%
235,475 Apple Computer, Inc.* 7,662,357
72,175 Dell, Inc.* 2,585,309
102,600 International Business Machines Corporation 9,044,190
------------
19,291,856
------------
COMPUTER STORAGE & PERIPHERALS--0.8%
361,400 EMC Corporation* 4,119,960
------------
CONSUMER FINANCE--0.6%
114,363 MBNA Corporation 2,949,422
------------
DATA PROCESSING & OUTSOURCED SERVICES--2.3%
107,450 Automatic Data Processing, Inc. 4,500,006
169,270 Fiserv, Inc.* 6,582,910
------------
11,082,916
------------
</Table>
10
<Page>
<Table>
<Caption>
SHARES MARKET VALUE
- ---------------------------------------------------------------------------------
DEPARTMENT STORES--2.9%
221,675 Kohl's Corporation* $ 9,372,419
109,225 Nordstrom, Inc. 4,654,077
------------
14,026,496
------------
DIVERSIFIED BANKS--2.1%
128,300 Bank One Corporation 6,543,300
65,900 Wells Fargo & Company 3,771,457
------------
10,314,757
------------
ELECTRICAL COMPONENTS & EQUIPMENT--0.3%
20,275 Emerson Electric Company 1,288,476
------------
EMPLOYMENT SERVICES--1.0%
54,925 Manpower, Inc. 2,788,542
86,550 Monster Worldwide, Inc.* 2,226,066
------------
5,014,608
------------
EXCHANGE TRADED FUNDS--4.5%
189,700 SPDR Trust Series 1 21,726,341
------------
FOOD RETAIL--1.9%
285,050 Kroger Company* 5,187,910
150,250 Safeway, Inc.* 3,807,335
------------
8,995,245
------------
HEALTHCARE EQUIPMENT--1.2%
140,050 Boston Scientific Corporation* 5,994,140
------------
HOME ENTERTAINMENT SOFTWARE--0.9%
80,600 Electronic Arts* 4,396,730
------------
HOTELS, RESORTS & CRUISE LINES--1.4%
139,050 Carnival Corporation 6,535,350
------------
HOUSEHOLD PRODUCTS--0.7%
64,500 Procter & Gamble Company 3,511,380
------------
HYPERMARKETS & SUPER CENTERS--0.9%
84,421 Wal-Mart Stores, Inc. 4,454,052
------------
INDUSTRIAL CONGLOMERATES--5.3%
39,150 3M Company 3,523,892
679,134 General Electric Company 22,003,942
------------
25,527,834
------------
INDUSTRIAL MACHINERY--0.8%
39,825 Illinois Tool Works, Inc. 3,818,819
------------
INTEGRATED OIL & GAS--1.1%
118,675 Exxon Mobil Corporation 5,270,357
------------
INVESTMENT BANKING & BROKERAGE--1.9%
49,300 Goldman Sachs Group, Inc. 4,642,088
86,675 Morgan Stanley 4,573,840
------------
9,215,928
------------
</Table>
SEE NOTES TO STATEMENT OF INVESTMENTS.
11
<Page>
<Table>
<Caption>
SHARES MARKET VALUE
- ---------------------------------------------------------------------------------
LEISURE FACILITIES--2.1%
229,975 Royal Caribbean Cruises Limited $ 9,983,215
------------
LIFE & HEALTH INSURANCE--1.0%
112,950 AFLAC, Inc. 4,609,490
------------
MOVIES & ENTERTAINMENT--5.2%
508,900 Time Warner, Inc.* 8,946,462
179,596 Viacom, Inc. Class B 6,415,169
384,550 Walt Disney Company 9,802,180
------------
25,163,811
------------
MULTI-LINE INSURANCE--1.7%
113,049 American International Group, Inc. 8,058,133
------------
OTHER DIVERSIFIED FINANCIAL SERVICES--0.9%
95,267 Citigroup, Inc. 4,429,916
------------
PERSONAL PRODUCTS--3.3%
144,428 Estee Lauder Companies, Inc. Class A 7,045,198
213,725 Gillette Company 9,061,940
------------
16,107,138
------------
PHARMACEUTICALS--6.2%
147,175 Abbott Laboratories 5,998,853
112,475 Johnson & Johnson 6,264,858
64,325 Merck & Company, Inc. 3,055,438
351,438 Pfizer, Inc. 12,047,295
65,250 Wyeth 2,359,440
------------
29,725,884
------------
PROPERTY & CASUALTY INSURANCE--0.7%
77,400 Allstate Corporation 3,602,970
------------
PUBLISHING--1.8%
69,575 Gannett Company, Inc. 5,903,439
57,450 Tribune Company 2,616,273
------------
8,519,712
------------
RAILROADS--1.0%
81,200 Union Pacific Corporation 4,827,341
------------
SEMICONDUCTORS--7.2%
51,000 Broadcom Corporation* 2,385,270
368,726 Intel Corporation 10,176,838
185,025 Linear Technology Corporation 7,302,937
147,925 Maxim Integrated Products, Inc. 7,754,229
105,075 Microchip Technology, Inc. 3,314,066
56,650 NVIDIA Corporation* 1,161,325
99,375 Texas Instruments, Inc. 2,402,888
------------
34,497,553
------------
SOFT DRINKS--1.2%
110,075 Coca-Cola Company 5,556,586
------------
</Table>
12
<Page>
<Table>
<Caption>
SHARES MARKET VALUE
- ---------------------------------------------------------------------------------
SPECIALTY STORES--0.9%
110,100 Staples, Inc. $ 3,227,031
28,500 Weight Watchers International, Inc.* 1,115,490
-------------
4,342,521
-------------
SYSTEMS SOFTWARE--6.1%
74,225 Adobe Systems, Inc. 3,451,463
700,926 Microsoft Corporation 20,018,447
298,350 Oracle Corporation* 3,559,316
85,325 VERITAS Software Corporation* 2,363,503
-------------
29,392,729
-------------
THRIFTS & MORTGAGE FINANCE--1.5%
69,462 Countrywide Financial Corporation 4,879,706
55,075 The PMI Group, Inc. 2,396,864
-------------
7,276,570
-------------
TRADING COMPANIES & DISTRIBUTORS--0.3%
26,950 Fastenal Company 1,531,569
-------------
TOTAL COMMON STOCKS (DOMESTIC)
(COST--$403,049,386) 433,049,038
-------------
COMMON STOCKS (FOREIGN)--5.4%
APPLICATION SOFTWARE--2.1%
56,500 Amdocs Limited (CI)* 1,323,795
206,650 SAP AG Sponsored ADR (GE) 8,640,037
-------------
9,963,832
-------------
HOTELS, RESORTS & CRUISE LINES--0.3%
23,475 Four Seasons Hotels, Inc. (CA) 1,413,430
-------------
IT CONSULTING & OTHER SERVICES--1.7%
291,650 Accenture Limited Class A (BD)* 8,014,542
-------------
PHARMACEUTICALS--1.0%
74,700 Teva Pharmaceutical Industries
Limited Sponsored ADR (IS) 5,026,563
-------------
RAILROADS--0.3%
32,737 Canadian National Railway Company (CA) 1,427,006
-------------
TOTAL COMMON STOCKS (FOREIGN)
(COST--$20,073,378) 25,845,373
-------------
</Table>
SEE NOTES TO STATEMENT OF INVESTMENTS.
13
<Page>
<Table>
<Caption>
PRINCIPAL AMOUNT AMORTIZED COST
- ---------------------------------------------------------------------------------
CORPORATE SHORT-TERM NOTES--5.2%
OTHER DIVERSIFIED FINANCIAL SERVICES--5.2%
$10,000,000 American Express Company
1.25% 7/2/04 $ 9,999,653
15,200,000 Merrill Lynch & Company
1.45% 7/1/04 15,200,000
-------------
25,199,653
-------------
TOTAL CORPORATE SHORT-TERM NOTES
(AMORTIZED COST--$25,199,653) 25,199,653
-------------
TOTAL INVESTMENTS--100.4%
(TOTAL COST--$448,322,417) 484,094,064
-------------
OTHER ASSETS AND LIABILITIES--(0.4%) (1,954,292)
-------------
NET ASSETS--100.0% $ 482,139,772
=============
</Table>
NOTES TO STATEMENT OF INVESTMENTS
* NON-INCOME PRODUCING.
ADR - AMERICAN DEPOSITARY RECEIPT
SPDR - STANDARD AND POOR'S DEPOSITARY RECEIPT
BD - BERMUDA
CA - CANADA
CI - CHANNEL ISLANDS
GE - GERMANY
IS - ISRAEL
14
<Page>
STATEMENT OF ASSETS AND LIABILITIES
June 30, 2004 (UNAUDITED)
<Table>
ASSETS
Investment securities, at cost $ 448,322,417
-----------------
Investment securities, at market 484,094,064
Cash 1,267,830
Receivables:
Capital shares sold 162,849
Dividends 387,805
Other 44,050
-----------------
Total Assets 485,956,598
-----------------
LIABILITIES
Payables and other accrued liabilities:
Investment securities purchased 1,206,914
Capital shares redeemed 1,639,534
Advisory fees 292,321
Shareholder servicing fees 72,421
Accounting fees 23,558
Distribution fees 141,436
Transfer agency fees 48,943
Custodian fees 2,538
Other 389,161
-----------------
Total Liabilities 3,816,826
-----------------
Net Assets $ 482,139,772
=================
COMPOSITION OF NET ASSETS
Capital (par value and paid-in surplus) $ 1,191,187,471
Accumulated net investment loss (374,937)
Accumulated net realized loss from security transactions (744,444,409)
Net unrealized appreciation on investments 35,771,647
-----------------
Total $ 482,139,772
=================
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
15
<Page>
<Table>
CLASS A
Net Assets $ 6,467,273
Shares Outstanding 651,471
Net Asset Value, Redemption Price Per Share $ 9.93
Maximum offering price per share
(net asset value plus sales charge of 5.75% of offering price) $ 10.54
CLASS B
Net Assets $ 13,036,122
Shares Outstanding 1,358,366
Net Asset Value, Offering and Redemption Price
(excluding applicable contingent deferred sales charge) Per Share $ 9.60
CLASS C
Net Assets $ 2,065,786
Shares Outstanding 215,655
Net Asset Value, Offering and Redemption Price
(excluding applicable contingent deferred sales charge) Per Share $ 9.58
CLASS F
Net Assets $ 449,764,632
Shares Outstanding 45,122,596
Net Asset Value, Offering and Redemption Price Per Share $ 9.97
CLASS R
Net Assets $ 10,619,466
Shares Outstanding 1,056,191
Net Asset Value, Offering and Redemption Price Per Share $ 10.05
CLASS T
Net Assets $ 186,493
Shares Outstanding 19,424
Net Asset Value, Redemption Price Per Share $ 9.60
Maximum offering price per share
(net asset value plus sales charge of 4.50% of offering price) $ 10.05
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
16
<Page>
STATEMENT OF OPERATIONS
For the six months ended June 30, 2004 (UNAUDITED)
<Table>
INVESTMENT INCOME
Dividends $ 2,961,095
Interest 123,437
Foreign taxes withheld (21,042)
-----------------
Total Investment Income 3,063,490
-----------------
EXPENSES
Advisory fees--Note 2 1,833,932
Shareholder servicing fees--Note 2 214,544
Accounting fees--Note 2 146,984
Distribution fees--Note 2 633,877
Transfer agency fees--Note 2 266,990
Registration fees 23,898
Postage and mailing expenses 30,747
Custodian fees and expenses--Note 2 5,019
Printing expenses 30,155
Legal and audit fees 36,234
Directors' fees and expenses--Note 2 54,793
Other expenses 51,950
-----------------
Total Expenses 3,329,123
Earnings Credits (2,820)
Reimbursed/Waived Expenses (729)
-----------------
Net Expenses 3,325,574
-----------------
Net Investment Loss (262,084)
-----------------
REALIZED AND UNREALIZED GAIN (LOSS) ON SECURITY
TRANSACTIONS AND FOREIGN CURRENCY TRANSACTIONS
Net Realized Gain on Security Transactions 40,399,388
Net Change in Unrealized Appreciation/Depreciation of Investments (33,084,530)
-----------------
Net Realized and Unrealized Gain 7,314,858
-----------------
Net Increase in Net Assets Resulting from Operations $ 7,052,774
=================
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
17
<Page>
STATEMENTS OF CHANGES IN NET ASSETS
(UNAUDITED)
<Table>
<Caption>
SIX MONTHS ENDED YEAR ENDED
6/30/04 12/31/03
OPERATIONS
Net Investment Loss $ (262,084) $ (2,162,775)
Net Realized Gain on Security Transactions 40,399,388 16,581,469
Net Change in Unrealized Appreciation/Depreciation
of Investments (33,084,530) 122,368,802
--------------- ---------------
Net Increase in Net Assets
Resulting from Operations 7,052,774 136,787,496
--------------- ---------------
CAPITAL SHARE TRANSACTIONS
Net Increase (Decrease)--Note 4
Class A (77,337) (258,678)
Class B (756,911) (1,223,196)
Class C 273,468 (166,651)
Class F (41,587,674) (88,319,324)
Class R 1,627,766 2,736,606
Class T (35,514) (41,579)
--------------- ---------------
Net Decrease from Capital Share Transactions (40,556,202) (87,272,822)
--------------- ---------------
Net Increase (Decrease) in Net Assets (33,503,428) 49,514,674
--------------- ---------------
NET ASSETS
Beginning of period $ 515,643,200 $ 466,128,526
--------------- ---------------
End of period $ 482,139,772 $ 515,643,200
=============== ===============
Accumulated Net Investment Loss $ (374,937) $ (112,853)
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
18
<Page>
FINANCIAL HIGHLIGHTS
(UNAUDITED)
<Table>
<Caption>
SIX MONTHS YEAR ENDED
ENDED JUNE 30, DECEMBER 31,
2004 2003 2002 2001 2000
-------------- -------------------------------------------------------
CLASS A SHARES
PER SHARE OPERATING DATA
Net Asset Value, beginning of period $ 9.79 $ 7.46 $ 10.53 $ 14.02 $ 23.88
- -------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment loss (0.01) (0.06) (0.06) (0.05) (0.05)
Net realized and unrealized gains
(losses) on securities 0.15 2.39 (3.01) (3.44) (6.39)
------------------------------------------------------------------------
Total from investment operations 0.14 2.33 (3.07) (3.49) (6.44)
- -------------------------------------------------------------------------------------------------------------------
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 0.00 (3.42)
------------------------------------------------------------------------
Total distributions 0.00 0.00 0.00 0.00 (3.42)
- -------------------------------------------------------------------------------------------------------------------
Net Asset Value, end of period $ 9.93 $ 9.79 $ 7.46 $ 10.53 $ 14.02
========================================================================
TOTAL RETURN* 1.43% 31.23% (29.15%) (24.89%) (27.30%)
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000s) $ 6,467 $ 6,452 $ 5,149 $ 7,795 $ 8,655
Ratios to average net assets:
Expenses with reimbursements,
but no earnings credits# 1.38%** 1.66% 1.48% 1.21% 1.08%
Expenses with reimbursements
and earnings credits 1.38%** 1.66% 1.48% 1.20% 1.05%
Net investment loss (0.12%)** (0.59%) (0.56%) (0.47%) (0.54%)
- -------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate@ 118% 124% 139% 152% 182%
</Table>
* SALES CHARGES ARE NOT REFLECTED IN THE TOTAL RETURN.
** ANNUALIZED.
# CERTAIN FEES WERE WAIVED BY THE CUSTODIAN. THESE WAIVERS DID NOT HAVE AN
IMPACT ON THE EXPENSE RATIOS.
@ 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>
<Table>
<Caption>
SIX MONTHS YEAR ENDED
ENDED JUNE 30, DECEMBER 31,
2004 2003 2002 2001 2000
-------------- -------------------------------------------------------
CLASS B SHARES
PER SHARE OPERATING DATA
Net Asset Value, beginning of period $ 9.50 $ 7.30 $ 10.38 $ 13.91 $ 23.88
- -------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment loss (0.04)+ (0.17) (0.18) (0.13) (0.11)
Net realized and unrealized gains
(losses) on securities 0.14 2.37 (2.90) (3.40) (6.44)
------------------------------------------------------------------------
Total from investment operations 0.10 2.20 (3.08) (3.53) (6.55)
- -------------------------------------------------------------------------------------------------------------------
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 0.00 (3.42)
------------------------------------------------------------------------
Total distributions 0.00 0.00 0.00 0.00 (3.42)
- -------------------------------------------------------------------------------------------------------------------
Net Asset Value, end of period $ 9.60 $ 9.50 $ 7.30 $ 10.38 $ 13.91
========================================================================
TOTAL RETURN* 1.05% 30.14% (29.67%) (25.38%) (27.77%)
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000s) $ 13,036 $ 13,664 $ 11,603 $ 19,829 $ 25,359
Ratios to average net assets:
Expenses with reimbursements,
but no earnings credits# 2.17%** 2.48% 2.22% 1.93% 1.82%
Expenses with reimbursements
and earnings credits 2.17%** 2.48% 2.22% 1.92% 1.80%
Net investment loss (0.92%)** (1.41%) (1.30%) (1.20%) (1.29%)
- -------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate@ 118% 124% 139% 152% 182%
</Table>
+ COMPUTED USING AVERAGE SHARES OUTSTANDING THROUGHOUT THE PERIOD.
* SALES CHARGES ARE NOT REFLECTED IN THE TOTAL RETURN.
** ANNUALIZED.
# CERTAIN FEES WERE WAIVED BY THE CUSTODIAN. THESE WAIVERS DID NOT HAVE AN
IMPACT ON THE EXPENSE RATIOS.
@ 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>
<Table>
<Caption>
SIX MONTHS YEAR ENDED
ENDED JUNE 30, DECEMBER 31,
2004 2003 2002 2001 2000
-------------- -------------------------------------------------------
CLASS C SHARES
PER SHARE OPERATING DATA
Net Asset Value, beginning of period $ 9.48 $ 7.29 $ 10.36 $ 13.92 $ 23.88
- -------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.04)+ (0.19) (0.26) (0.18) (0.10)
Net realized and unrealized gains
(losses) on securities 0.14 2.38 (2.81) (3.38) (6.44)
------------------------------------------------------------------------
Total from investment operations 0.10 2.19 (3.07) (3.56) (6.54)
- -------------------------------------------------------------------------------------------------------------------
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 0.00 (3.42)
------------------------------------------------------------------------
Total distributions 0.00 0.00 0.00 0.00 (3.42)
- -------------------------------------------------------------------------------------------------------------------
Net Asset Value, end of period $ 9.58 $ 9.48 $ 7.29 $ 10.36 $ 13.92
========================================================================
TOTAL RETURN* 1.05% 30.04% (29.63%) (25.58%) (27.72%)
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000s) $ 2,066 $ 1,774 $ 1,528 $ 2,979 $ 4,384
Ratios to average net assets:
Expenses with reimbursements,
but no earnings credits# 2.15%** 2.49% 2.37% 2.11% 1.82%
Expenses with reimbursements
and earnings credits 2.15%** 2.49% 2.37% 2.10% 1.80%
Net investment loss (0.87%)** (1.42%) (1.46%) (1.38%) (1.28%)
- -------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate@ 118% 124% 139% 152% 182%
</Table>
+ COMPUTED USING AVERAGE SHARES OUTSTANDING THROUGHOUT THE PERIOD.
* SALES CHARGES ARE NOT REFLECTED IN THE TOTAL RETURN.
** ANNUALIZED.
# CERTAIN FEES WERE WAIVED BY THE CUSTODIAN. THESE WAIVERS DID NOT HAVE AN
IMPACT ON THE EXPENSE RATIOS.
@ 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>
<Table>
<Caption>
SIX MONTHS YEAR ENDED
ENDED JUNE 30, DECEMBER 31,
2004 2003 2002 2001 2000 1999
-------------- ---------- ---------- ---------- ------------ ------------
CLASS F SHARES
PER SHARE OPERATING DATA
Net Asset Value, beginning of period $ 9.83 $ 7.48 $ 10.53 $ 14.03 $ 23.87 $ 20.41
- ----------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment loss 0.00+ (0.17) (0.22) (0.15) (0.21) (0.09)
Net realized and unrealized gains
(losses) on securities 0.14 2.52 (2.83) (3.35) (6.21) 7.73
-------------------------------------------------------------------------------------------
Total from investment operations 0.14 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 0.00^
From net realized gains 0.00 0.00 0.00 0.00 (3.42) (4.18)
-------------------------------------------------------------------------------------------
Total distributions 0.00 0.00 0.00 0.00 (3.42) (4.18)
- ----------------------------------------------------------------------------------------------------------------------------------
Net Asset Value, end of period $ 9.97 $ 9.83 $ 7.48 $ 10.53 $ 14.03 $ 23.87
===========================================================================================
TOTAL RETURN 1.42% 31.42% (28.96%) (24.95%) (27.23%) 39.06%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000s) $ 449,765 $ 484,742 $ 443,307 $ 865,425 $ 1,441,466 $ 3,323,606
Ratios to average net assets:
Expenses with reimbursements,
but no earnings credits# 1.33%** 1.47% 1.38% 1.31% 1.07% 1.09%
Expenses with reimbursements
and earnings credits 1.33%** 1.47% 1.37% 1.30% 1.06% 1.08%
Net investment loss (0.09%)** (0.41%) (0.46%) (0.58%) (0.58%) (0.47%)
- ----------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate@ 118% 124% 139% 152% 182% 117%
</Table>
+ COMPUTED USING AVERAGE SHARES OUTSTANDING THROUGHOUT THE PERIOD.
^ DISTRIBUTIONS FROM NET INVESTMENT INCOME FOR THE YEAR ENDED DECEMBER 31, 1999
AGGREGATED LESS THAN $0.01 ON A PER SHARE BASIS.
** ANNUALIZED.
# CERTAIN FEES WERE WAIVED BY THE CUSTODIAN. THESE WAIVERS DID NOT HAVE AN
IMPACT ON THE EXPENSE RATIOS.
@ 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>
<Table>
<Caption>
SIX MONTHS YEAR ENDED
ENDED JUNE 30, DECEMBER 31,
2004 2003 2002 2001 2000
-------------- -------------------------------------------------------
CLASS R SHARES
PER SHARE OPERATING DATA
Net Asset Value, beginning of period $ 9.89 $ 7.50 $ 10.57 $ 14.07 $ 23.88
- -------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) 0.02 0.01 0.01 (0.02) (0.02)
Net realized and unrealized gains
(losses) on securities 0.14 2.38 (3.08) (3.48) (6.37)
------------------------------------------------------------------------
Total from investment operations 0.16 2.39 (3.07) (3.50) (6.39)
- -------------------------------------------------------------------------------------------------------------------
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 0.00 (3.42)
------------------------------------------------------------------------
Total distributions 0.00 0.00 0.00 0.00 (3.42)
- -------------------------------------------------------------------------------------------------------------------
Net Asset Value, end of period $ 10.05 $ 9.89 $ 7.50 $ 10.57 $ 14.07
========================================================================
TOTAL RETURN 1.62% 31.87% (29.04%) (24.88%) (27.08%)
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000s) $ 10,619 $ 8,792 $ 4,333 $ 2,023 $ 9
Ratios to average net assets:
Expenses with reimbursements,
but no earnings credits# 1.01%** 1.13% 1.30% 1.46% 0.82%
Expenses with reimbursements
and earnings credits 1.01%** 1.13% 1.30% 1.46% 0.79%
Net investment income (loss) 0.28%** (0.04%) (0.34%) (0.72%) (0.29%)
- -------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate@ 118% 124% 139% 152% 182%
</Table>
** ANNUALIZED.
# CERTAIN FEES WERE WAIVED BY THE CUSTODIAN. THESE WAIVERS DID NOT HAVE AN
IMPACT ON THE EXPENSE RATIOS.
@ 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>
<Table>
<Caption>
SIX MONTHS YEAR ENDED
ENDED JUNE 30, DECEMBER 31,
2004 2003 2002 2001 2000
-------------- -------------------------------------------------------
CLASS T SHARES
PER SHARE OPERATING DATA
Net Asset Value, beginning of period $ 9.48 $ 7.27 $ 10.38 $ 14.00 $ 23.88
- -------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment loss (0.03)+ (0.30) (0.56) (0.19) (0.09)
Net realized and unrealized gains
(losses) on securities 0.15 2.51 (2.55) (3.43) (6.37)
------------------------------------------------------------------------
Total from investment operations 0.12 2.21 (3.11) (3.62) (6.46)
- -------------------------------------------------------------------------------------------------------------------
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 0.00 (3.42)
------------------------------------------------------------------------
Total distributions 0.00 0.00 0.00 0.00 (3.42)
- -------------------------------------------------------------------------------------------------------------------
Net Asset Value, end of period $ 9.60 $ 9.48 $ 7.27 $ 10.38 $ 14.00
========================================================================
TOTAL RETURN* 1.27% 30.40% (29.96%) (25.86%) (27.38%)
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000s) $ 186 $ 220 $ 208 $ 621 $ 802
Ratios to average net assets:
Expenses with reimbursements,
but no earnings credits# 1.77%** 2.22% 2.78% 2.56% 1.32%
Expenses with reimbursements
and earnings credits 1.77%** 2.22% 2.78% 2.55% 1.29%
Net investment loss (0.54%)** (1.15%) (1.89%) (1.83%) (0.80%)
- -------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate @ 118% 124% 139% 152% 182%
</Table>
+ COMPUTED USING AVERAGE SHARES OUTSTANDING THROUGHOUT THE PERIOD.
* SALES CHARGES ARE NOT REFLECTED IN THE TOTAL RETURN.
** ANNUALIZED.
# CERTAIN FEES WERE WAIVED BY THE CUSTODIAN. THESE WAIVERS DID NOT HAVE AN
IMPACT ON THE EXPENSE RATIOS.
@ PORTFOLIO TURNOVER RATE IS A MEASURE OF PORTFOLIO ACTIVITY THAT IS CALCULATED
BY DIVIDING THE LESSER OF PURCHASES OR SALES OF SECURITIES, EXCLUDING
SECURITIES HAVING MATURITY DATES AT ACQUISITION OF ONE YEAR OR LESS, BY THE
AVERAGE VALUE OF THE PORTFOLIO SECURITIES HELD DURING THE PERIOD, WHICH IS A
ROLLING 12-MONTH PERIOD.
SEE NOTES TO FINANCIAL STATEMENTS.
24
<Page>
NOTES TO FINANCIAL STATEMENTS
June 30, 2004 (UNAUDITED)
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
Dreyfus Founders Funds, Inc. (the "Company") is an open-end management
investment company registered under the Investment Company Act of 1940 (the
"1940 Act"). 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--A domestic 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 a
security traded on Nasdaq, at its official closing price. Lacking any sales on
that day, the security is valued at the current closing bid price, or by quotes
from dealers making a market in the security if the closing bid price is not
available, or in the case of written call options, at the mean between the
highest bid and lowest asked quotations obtained from at least two securities
dealers.
A foreign equity security traded on a foreign exchange is valued at the last
quoted official closing price available before the time when the Fund's assets
are valued, or at the last quoted sales price if the exchange does not provide
an official closing price or if the foreign market has not yet closed. Lacking
any sales on that day, the security is valued at the current closing bid price,
or by quotes from dealers making a market in the security if the closing bid
price is not available. London closing exchange rates are used to convert
foreign currencies to U.S. dollars.
A debt security with a remaining maturity greater than 60 days at the time of
purchase is valued in accordance with the evaluated bid price supplied by a
pricing service approved by the Company's board of directors or, if such price
is not available, at the mean between the highest bid and lowest asked
quotations obtained from at least two securities dealers. A debt security with a
remaining maturity of 60 days or less at the time of purchase is valued at
amortized cost, which approximates market value, unless it is determined that
amortized cost would not represent market value, in which case the securities
would be marked to market. The Fund amortizes premiums and discounts on all debt
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
25
<Page>
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.
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.
26
<Page>
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, if
any, reduce Other Expenses and would be 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.
SHAREHOLDER SERVICING AND TRANSFER AGENCY FEES FOR CLASS F SHARES--The Company
has a shareholder services agreement with Dreyfus Service Corporation ("DSC"),
the direct owner of Founders and 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. 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. During the six months ended June 30,
2004, Class F shares were charged $187,230 pursuant to this shareholder services
agreement.
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,
27
<Page>
the fees incurred 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. During the six
months ended June 30, 2004, Class F shares were charged $72,201 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 incurred 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 $12.43 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 six months ended June
30, 2004 were as follows:
<Table>
<Caption>
TRANSFER
AGENCY FEES
-------------------------------------------------------------------
Class A $ 5,165
Class B $ 13,263
Class C $ 1,715
Class R $ 1,958
Class T $ 302
</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 1940 Act 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 six months ended June
30, 2004, Class F shares were charged $576,491 pursuant to this Distribution
Plan.
The Fund also has adopted a Distribution Plan pursuant to Rule 12b-1 under the
1940 Act 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.
28
<Page>
Distribution and shareholder servicing fees paid to DSC by the Fund's Class A,
B, C and T shares for the six months ended June 30, 2004, were as follows:
<Table>
<Caption>
DISTRIBUTION SHAREHOLDER
FEES SERVICING FEES
--------------------------------------------------------------------
Class A N/A $ 8,016
Class B $ 49,878 $ 16,626
Class C $ 7,254 $ 2,418
Class T $ 254 $ 254
</Table>
During the six months ended June 30, 2004, DSC retained $1,835 in sales
commissions from the sales of Class A shares. DSC also retained $14,968 of
contingent deferred sales charges relating to redemptions of Class B shares.
FUND ACCOUNTING AND ADMINISTRATIVE SERVICES FEES--The Funds have agreed to
compensate Founders for providing accounting services, administration,
compliance monitoring, regulatory and shareholder reporting, as well as related
facilities, equipment and clerical help. The fee is computed at the annual rate
of 0.06% of the average daily net assets of the Fund on the first $500 million,
0.04% of the average daily net assets of the Fund on the next $500 million and
0.02% of the average daily net assets of the Fund in excess of $1 billion, plus
reasonable 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 and an affiliate of Founders, 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
--------------------------------------------------------------------
9/1/03 to 8/31/04 $ 150,000
9/1/04 to 8/31/05 $ 200,000
9/1/05 to 8/31/06 $ 200,000
</Table>
The fee waiver is allocated among the Funds in proportion to their respective
shares of the total custodian fee. For the six months ended June 30, 2004, the
Fund's portion of the fee waiver was $729. 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
29
<Page>
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.
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.
The aggregate cost of investments and the composition of unrealized appreciation
and depreciation of investment securities for federal income tax purposes as of
June 30, 2004 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 $ 461,017,987
Gross Tax Appreciation of Investments $ 41,314,806
Gross Tax Depreciation of Investments $ (18,238,729)
Net Tax Appreciation $ 23,076,077
</Table>
30
<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>
SIX MONTHS ENDED YEAR ENDED
JUNE 30, 2004 DECEMBER 31, 2003
SHARES AMOUNT SHARES AMOUNT
CLASS A
Sold 57,221 $ 565,455 102,390 $ 863,766
Redeemed (64,822) $ (642,792) (133,313) $ (1,122,444)
----------------------------------------------------------
Net Decrease (7,601) $ (77,337) (30,923) $ (258,678)
==========================================================
CLASS B
Sold 22,836 $ 217,948 95,258 $ 810,696
Redeemed (102,872) $ (974,859) (245,915) $ (2,033,892)
----------------------------------------------------------
Net Decrease (80,036) $ (756,911) (150,657) $ (1,223,196)
==========================================================
CLASS C
Sold 38,062 $ 363,403 22,136 $ 191,985
Redeemed (9,513) $ (89,935) (44,718) $ (358,636)
----------------------------------------------------------
Net Increase (Decrease) 28,549 $ 273,468 (22,582) $ (166,651)
==========================================================
CLASS F
Sold 1,958,281 $ 19,340,530 5,549,619 $ 46,590,327
Redeemed (6,172,462) $ (60,928,204) (15,507,433) $ (134,909,651)
----------------------------------------------------------
Net Decrease (4,214,181) $ (41,587,674) (9,957,814) $ (88,319,324)
==========================================================
CLASS R
Sold 266,181 $ 2,610,010 388,827 $ 3,417,348
Redeemed (98,566) $ (982,244) (77,669) $ (680,742)
----------------------------------------------------------
Net Increase 167,615 $ 1,627,766 311,158 $ 2,736,606
==========================================================
CLASS T
Sold 114 $ 1,097 856 $ 6,961
Redeemed (3,836) $ (36,611) (6,333) $ (48,540)
----------------------------------------------------------
Net Decrease (3,722) $ (35,514) (5,477) $ (41,579)
==========================================================
</Table>
31
<Page>
5. INVESTMENT TRANSACTIONS
Purchases and sales of investment securities (excluding short-term securities
and U.S. government obligations) for the six months ended June 30, 2004 were
$249,862,266 and $296,485,912, 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 June 30, 2004, the Fund did not have any borrowings under the LOC.
7. LEGAL MATTERS
Two class actions have been filed against Mellon Financial Corporation and
Mellon Bank, N.A.; Dreyfus and Founders (the "Investment Advisers"); and the
directors of all or substantially all of the Dreyfus and Dreyfus Founders Funds.
The complaints also name all or substantially all of the Dreyfus and Dreyfus
Founders Funds as nominal defendants. Plaintiffs allege that the Investment
Advisers improperly used assets of the Dreyfus and Dreyfus Founders Funds, in
the form of directed brokerage commissions and 12b-1 fees, to pay brokers to
promote sales of Dreyfus and Dreyfus Founders Funds, and that the use of fund
assets to make these payments was not properly disclosed to investors.
Plaintiffs claim that the Investment Advisers' actions violated the 1940 Act,
the Investment Advisers Act, and common law. The complaints further allege that
the directors breached their fiduciary duties to fund shareholders under the
1940 Act and at common law and that Mellon Financial and Mellon Bank violated
the 1940 Act. The complaints seek unspecified compensatory and punitive damages,
rescission of the funds' contracts with the Investment Advisers, an accounting
of all fees paid, and an award of attorneys' fees and litigation expenses. The
complaints are pending in the same court and have been consolidated into a
single action under the caption IN RE DREYFUS MUTUAL FUNDS FEE LITIGATION.
Founders, Dreyfus, and the Funds believe the allegations in these lawsuits to be
totally without merit and intend to defend the actions vigorously. It is
possible that additional lawsuits arising out of these circumstances and
presenting similar allegations and requests for relief may be filed against the
defendants in the future. Neither Founders, Dreyfus, nor the Funds believe that
the pending actions will have a material adverse effect on the Funds or
Founders' ability to perform its contract with the Funds.
32
<Page>
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<Page>
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<Page>
For More Information
DREYFUS FOUNDERS
GROWTH FUND
To obtain information:
MANAGER
- ---------------------------------
BY TELEPHONE | Founders Asset Management LLC
Call your financial | 210 University Boulevard, Suite 800
representative or | Denver, CO 80206
1-800-554-4611 |
| TRANSFER AGENT &
BY MAIL Write to: | DIVIDEND DISBURSING AGENT
Dreyfus Founders Funds |
144 Glenn Curtiss Boulevard | Dreyfus Transfer, Inc.
Uniondale, NY 11556-0144 | 200 Park Avenue
| New York, NY 10166
PROXY VOTING INFORMATION |
A description of the policies |
and procedures that the Fund | DISTRIBUTOR
uses to determine how to vote |
proxies relating to portfolio | Dreyfus Service Corporation
securities, and information | 200 Park Avenue
regarding how the Fund | New York, NY 10166
voted these proxies for |
the 12-month period ended |
June 30, 2004, is available |
through the Fund's website |
at www.dreyfus.com and on |
the Securities and Exchange |
Commission's website at |
www.sec.gov. The description |
of the policies and procedures |
is also available without |
charge, upon request, by |
calling 1-800-554-4611. |
THIS REPORT AND THE STATEMENTS IT CONTAINS ARE SUBMITTED FOR THE GENERAL
INFORMATION OF OUR SHAREHOLDERS. THE REPORT IS NOT AUTHORIZED FOR DISTRIBUTION
TO PROSPECTIVE INVESTORS UNLESS PRECEDED OR ACCOMPANIED BY AN EFFECTIVE
PROSPECTUS.
Dreyfus Founders Funds are managed by Founders Asset Management LLC. Founders
and Founders Funds are registered trademarks of Founders Asset Management LLC.
(C)2004 Founders Asset Management LLC. 08/04 0213SA0604
<Page>
Dreyfus Founders
Growth and
Income Fund
SEMIANNUAL REPORT June 30, 2004
[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
</Table>
The views expressed herein are current to the date of this report. The views and
the composition of the Fund's portfolio are subject to change at any time based
on market and other conditions. Companies appearing in bold print on pages 3-9
were owned by the Fund on June 30, 2004. 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 SIX-MONTH PERIOD
ENDED JUNE 30, 2004?
For the first half of 2004, the Dreyfus Founders Growth and Income Fund trailed
the 3.44% gain of the Fund's benchmark, the Standard & Poor's 500 Index.
PLEASE DESCRIBE THE BROAD MARKET AND ECONOMIC ENVIRONMENT IN WHICH THE FUND
PERFORMED.
The environment for equity investing during the first half of 2004 showed mixed
results. The first quarter of 2004 generally saw positive economic indicators,
with interest rates, inflation and consumer spending remaining at favorable
levels. Corporate profit growth also continued to improve during the first
quarter, particularly when contrasted with previous quarters. However,
throughout the second half of the period, the equity markets grappled with heavy
weights on equity investing. Although jobless rates declined and unemployment
rates remained constant, the prospect of higher interest rates, high energy
prices, continued geopolitical unrest and uncertainty regarding the
sustainability of economic and corporate profit growth offset positive economic
news during the period. On the last day of June, the Federal Reserve raised the
federal funds rate by 0.25% to 1.25%, a move that was widely expected and, after
shadowing the markets during the last half of the period, seemed to have only a
modest impact on equity prices.
[SIDENOTE]
"THE EXPECTED TIGHTENING OF THE DOMESTIC MONETARY POLICY WEIGHED HEAVILY ON THE
FINANCIALS SECTOR, AND THE FUND'S UNDERWEIGHT POSITION IN THIS SECTOR, IN
ANTICIPATION OF THE FIRST RATE HIKE IN FOUR YEARS, PROVED ADVANTAGEOUS."
3
<Page>
PERFORMANCE HIGHLIGHTS
- The prospect of higher interest rates, high energy prices, continued
geopolitical unrest and uncertainty regarding the sustainability of
economic and corporate profit growth offset positive economic news
during the period.
- Holdings in the consumer staples and consumer discretionary sectors
exhibited the most compelling growth and investment opportunities.
- The financials sector was another important positive contributor to Fund
performance during the six-month timeframe, aided by an underweight
position relative to the Fund's benchmark.
- The materials sector offered the least compelling area of investment
during the first six months of 2004, and poor stock selection within the
sector was a drag on relative performance.
- The hike in energy prices that culminated toward the end of the period
greatly benefited many stocks within this sector; however, due to the
Fund's underweight position, it was not able to fully capitalize on this
market trend.
WHERE DID YOU FIND THE MOST COMPELLING GROWTH OPPORTUNITIES DURING THE PERIOD?
For the first half of 2004, holdings in the consumer staples and consumer
discretionary sectors exhibited the most compelling growth and investment
opportunities. Consumer staples holdings such as ESTEE LAUDER COMPANIES,
INC. showed solid execution during the period due to a continued increase in
demand by consumers. ROYAL CARIBBEAN CRUISES LIMITED and NORDSTROM, INC., both
names within the consumer discretionary arena, also benefited from an increase
in consumer demand. Royal Caribbean's product positioning and increase in cruise
reservations led to strong stock performance, positively contributing to Fund
performance. Nordstrom benefited from a rebound in consumer demand for
higher-end retail items.
The financials sector was another important positive contributor to Fund
performance during the six-month timeframe, aided by an underweight position
relative to the Fund's benchmark. The expected tightening of the domestic
4
<Page>
monetary policy weighed heavily on the financials sector, and the Fund's
underweight position in this sector, in anticipation of the first rate hike in
four years, proved advantageous.
Although the sector itself did not perform well, specific information
technology-related holdings had a positive impact on relative Fund performance
during the period. For example, APPLE COMPUTER, INC. performed well owing to an
increase in demand for its MP3 products. Also positively contributing to
relative performance was AUTODESK, INC., a company offering solutions for the
building design, infrastructure management, manufacturing, digital media and
wireless data services industries, which showed solid execution during the half.
Other notable positive performers during the first six months of 2004
included GENERAL ELECTRIC COMPANY and EXXON MOBIL CORPORATION.
WHERE DID YOU FIND THE LEAST COMPELLING GROWTH OPPORTUNITIES DURING THE PERIOD?
The materials sector offered the least compelling area of investment during the
first six months of 2004, and poor stock selection within the sector was a drag
on relative performance.
LARGEST EQUITY HOLDINGS (ticker symbol)
<Table>
1. SPDR Trust Series 1 (SPY) 4.60%
2. General Electric Company (GE) 4.22%
3. Microsoft Corporation (MSFT) 3.38%
4. Exxon Mobil Corporation (XOM) 2.85%
5. Cisco Systems, Inc. (CSCO) 2.84%
6. Pfizer, Inc. (PFE) 2.49%
7. Royal Caribbean Cruises Limited (RCL) 2.08%
8. Kohl's Corporation (KSS) 1.94%
9. Gillette Company (G) 1.91%
10. Walt Disney Company (DIS) 1.85%
</Table>
Portfolio holdings are subject to change, and should not be construed as a
recommendation of any security.
5
<Page>
GROWTH OF $10,000 INVESTMENT
PERFORMANCE DATA QUOTED REPRESENTS PAST PERFORMANCE. PAST PERFORMANCE DOES NOT
GUARANTEE FUTURE RESULTS. INVESTMENT RETURN AND PRINCIPAL VALUE OF AN INVESTMENT
WILL FLUCTUATE SO THAT AN INVESTOR'S SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR
LESS THAN THEIR ORIGINAL COST. CURRENT PERFORMANCE MAY BE LOWER OR HIGHER THAN
THE PERFORMANCE DATA QUOTED. PLEASE CALL 1-800-525-2440 TO OBTAIN THE MOST
RECENT MONTH-END PERFORMANCE DATA.
[CHART]
The above graph compares a $10,000 investment made in Class F shares of Dreyfus
Founders Growth and Income Fund on 6/30/94 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 designed to be representative of the
U.S. equities market and consists of 500 leading companies in leading industries
of the U.S. economy. 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>
AVERAGE ANNUAL AND YEAR-TO-DATE TOTAL RETURN AS OF 6/30/04
<Table>
<Caption>
YEAR-TO 1 5 10 SINCE
CLASS (INCEPTION DATE) DATE+ YEAR YEARS YEARS INCEPTION
---------------------------------------------------------------------------------------------------------
CLASS A SHARES (12/31/99)
With sales charge(5.75%) (3.78%) 9.83% -- -- (10.39%)
Without sales charge 2.00% 16.54% -- -- (9.21%)
CLASS B SHARES (12/31/99)
With redemption* (2.41%) 11.50% -- -- (10.06%)
Without redemption 1.59% 15.50% -- -- (9.68%)
CLASS C SHARES (12/31/99)
With redemption** 0.62% 14.53% -- -- (10.05%)
Without redemption 1.62% 15.53% -- -- (10.05%)
CLASS F SHARES (7/5/38) 2.19% 16.84% (5.91%) 5.99% N/A
CLASS R SHARES (12/31/99) 2.21% 16.92% -- -- (9.00%)
CLASS T SHARES (12/31/99)
With sales charge (4.50%) (3.05%) 10.42% -- -- (10.70%)
Without sales charge 1.60% 15.58% -- -- (9.78%)
</Table>
Average annual and year-to-date total returns do not reflect the deduction of
taxes that a shareholder would pay on Fund distributions or redemption of Fund
shares, but do reflect the reinvestment of dividends and capital gain
distributions, expense limits for certain share classes, and adjustments for
financial statement purposes.
* The maximum contingent deferred sales charge for Class B shares is 4% and is
reduced to 0% after six years, at which time the Class B shares convert to Class
A shares.
** The maximum contingent deferred sales charge for Class C shares is 1% for
shares redeemed within one year of the date of purchase.
+ Total return is not annualized.
7
<Page>
Although the Fund selected some stocks in the energy sector that proved
beneficial, such as the aforementioned Exxon Mobil Corporation, this selection
was more than offset by the Fund's underweight position as compared to the
Index. The hike in energy prices that culminated toward the end of the period
greatly benefited many stocks within this sector; however, due to the Fund's
underweight position, it was not able to fully capitalize on this market trend.
Underexposure and poor selection of holdings in industrials prompted this
sector to be one of the worst contributors to the Fund's relative return.
Industrials holding UNION PACIFIC CORPORATION weighed heavily due to
greater-than-expected handling costs during the period. This, combined with high
fuel prices, drove revisions to earnings estimates downward and the stock
underperformed.
Although the information technology sector did have some stocks that boosted
overall performance, other information technology holdings caused this sector to
post a negative return relative to the Fund's benchmark. INTEL CORPORATION
experienced sluggish sales and earnings trends during the period, whereas
VERITAS SOFTWARE CORPORATION and ORACLE CORPORATION each saw a drop in their
respective share price.
[CHART]
PORTFOLIO COMPOSITION
<Table>
Information Technology 29.91%
Consumer Discretionary 17.27%
Industrials 10.83%
Financials 9.97%
Healthcare 9.37%
Consumer Staples 7.93%
Energy 2.85%
Telecommunications Services 1.06%
Materials 1.02%
Other 4.60%
Cash & Equivalents 5.19%
</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>
As was previously mentioned, stock selection in the consumer discretionary
sector proved to be a boon to Fund performance. However, the underperformance of
numerous consumer discretionary stocks detracted from this positive contribution
to relative performance. The Fund's worst performer during the period, lower-end
retailer KOHL'S CORPORATION, experienced sluggish sales and earnings trends
during the period, lagging the broader market. Cable and entertainment holdings
VIACOM, INC. and COX COMMUNICATIONS, INC. also declined as the cable industry
overall suffered during the period.
Newmont Mining Corporation was an additional notable detractor from relative
performance during the period.
In conclusion, we will continue to rely on our bottom-up growth investment
strategy to seek companies we believe are capable of posting strong future
revenue and earnings growth at attractive valuations.
/s/ John B. Jares
John B. Jares, CFA
Portfolio Manager
9
<Page>
STATEMENT OF INVESTMENTS
June 30, 2004 (UNAUDITED)
<Table>
<Caption>
SHARES MARKET VALUE
- ---------------------------------------------------------------------------------
COMMON STOCKS (DOMESTIC)--89.7%
Air Freight & Logistics--1.1%
30,775 FedEx Corporation $ 2,514,004
--------------
AIRLINES--1.3%
45,200 Northwest Airlines Corporation* 502,624
148,050 Southwest Airlines Company 2,482,799
--------------
2,985,423
--------------
ALUMINUM--1.0%
72,225 Alcoa, Inc. 2,385,592
--------------
APPLICATION SOFTWARE--1.3%
70,700 Autodesk, Inc. 3,026,667
--------------
ASSET MANAGEMENT & CUSTODY BANKS--0.5%
77,200 Janus Capital Group, Inc. 1,273,028
--------------
BIOTECHNOLOGY--1.1%
34,185 Amgen, Inc.* 1,865,475
10,700 Biogen Idec, Inc.* 676,775
--------------
2,542,250
--------------
BROADCASTING & CABLE TV--2.1%
100,450 Comcast Corporation Special Class A* 2,773,425
76,400 Cox Communications, Inc. Class A* 2,123,156
--------------
4,896,581
--------------
COMMUNICATIONS EQUIPMENT--5.3%
76,400 Avaya, Inc.* 1,206,356
279,738 Cisco Systems, Inc.* 6,629,791
22,950 Juniper Networks, Inc.* 563,882
116,075 Motorola, Inc. 2,118,369
52,350 Scientific-Atlanta, Inc. 1,806,075
--------------
12,324,473
--------------
COMPUTER & ELECTRONICS RETAIL--0.5%
21,549 Best Buy Company, Inc. 1,093,396
--------------
COMPUTER HARDWARE--3.8%
114,675 Apple Computer, Inc.* 3,731,525
34,750 Dell, Inc.* 1,244,745
44,700 International Business Machines Corporation 3,940,305
--------------
8,916,575
--------------
COMPUTER STORAGE & PERIPHERALS--0.8%
165,575 EMC Corporation* 1,887,555
--------------
CONSUMER FINANCE--0.6%
56,331 MBNA Corporation 1,452,776
--------------
DATA PROCESSING & OUTSOURCED SERVICES--2.2%
52,350 Automatic Data Processing, Inc. 2,192,418
73,025 Fiserv, Inc.* 2,839,942
--------------
5,032,360
--------------
</Table>
10
<Page>
<Table>
<Caption>
SHARES MARKET VALUE
- ---------------------------------------------------------------------------------
DEPARTMENT STORES--2.9%
107,100 Kohl's Corporation* $ 4,528,188
52,766 Nordstrom, Inc. 2,248,359
--------------
6,776,547
--------------
DIVERSIFIED BANKS--2.0%
56,800 Bank One Corporation 2,896,800
32,425 Wells Fargo & Company 1,855,683
--------------
4,752,483
--------------
ELECTRICAL COMPONENTS & EQUIPMENT--0.3%
9,675 Emerson Electric Company 614,846
--------------
EMPLOYMENT SERVICES--1.0%
26,475 Manpower, Inc. 1,344,136
42,625 Monster Worldwide, Inc.* 1,096,315
--------------
2,440,451
--------------
EXCHANGE TRADED FUNDS--4.6%
93,725 SPDR Trust Series 1 10,734,324
--------------
FOOD RETAIL--1.9%
138,350 Kroger Company* 2,517,970
73,175 Safeway, Inc.* 1,854,255
--------------
4,372,225
--------------
HEALTHCARE EQUIPMENT--1.3%
68,925 Boston Scientific Corporation* 2,949,990
--------------
HOME ENTERTAINMENT SOFTWARE--0.9%
38,650 Electronic Arts* 2,108,358
--------------
HOTELS, RESORTS & CRUISE LINES--2.4%
63,725 Carnival Corporation 2,995,075
59,025 Starwood Hotels & Resorts Worldwide, Inc. 2,647,271
--------------
5,642,346
--------------
HOUSEHOLD PRODUCTS--0.7%
31,400 Procter & Gamble Company 1,709,416
--------------
HYPERMARKETS & SUPER CENTERS--0.9%
41,775 Wal-Mart Stores, Inc. 2,204,049
--------------
INDUSTRIAL CONGLOMERATES--4.9%
16,850 3M Company 1,516,669
303,950 General Electric Company 9,847,980
--------------
11,364,649
--------------
INDUSTRIAL MACHINERY--0.7%
17,050 Illinois Tool Works, Inc. 1,634,925
--------------
INTEGRATED OIL & GAS--2.8%
149,966 Exxon Mobil Corporation 6,659,990
--------------
INTEGRATED TELECOMMUNICATION SERVICES--1.1%
68,075 Verizon Communications, Inc. 2,463,634
--------------
</Table>
SEE NOTES TO STATEMENT OF INVESTMENTS.
11
<Page>
<Table>
<Caption>
SHARES MARKET VALUE
- ---------------------------------------------------------------------------------
INVESTMENT BANKING & Brokerage--0.9%
42,075 Morgan Stanley $ 2,220,298
--------------
LEISURE FACILITIES--2.1%
111,975 Royal Caribbean Cruises Limited 4,860,835
--------------
LIFE & HEALTH INSURANCE--1.0%
54,825 AFLAC, Inc. 2,237,408
--------------
MOVIES & ENTERTAINMENT--4.9%
221,025 Time Warner, Inc.* 3,885,620
88,475 Viacom, Inc. Class B 3,160,327
169,050 Walt Disney Company 4,309,085
--------------
11,355,032
--------------
MULTI-LINE INSURANCE--1.7%
53,875 American International Group, Inc. 3,840,210
--------------
OTHER DIVERSIFIED FINANCIAL SERVICES--0.9%
46,849 Citigroup, Inc. 2,178,479
--------------
PERSONAL PRODUCTS--3.3%
68,750 Estee Lauder Companies, Inc. Class A 3,353,625
105,250 Gillette Company 4,462,600
--------------
7,816,225
--------------
PHARMACEUTICALS--6.0%
71,975 Abbott Laboratories 2,933,701
48,375 Johnson & Johnson 2,694,488
27,775 Merck & Company, Inc. 1,319,313
169,459 Pfizer, Inc. 5,809,055
31,300 Wyeth 1,131,808
--------------
13,888,365
--------------
PROPERTY & CASUALTY INSURANCE--0.8%
38,075 Allstate Corporation 1,772,391
--------------
PUBLISHING--1.6%
30,225 Gannett Company, Inc. 2,564,591
25,225 Tribune Company 1,148,747
--------------
3,713,338
--------------
RAILROADS--1.0%
39,175 Union Pacific Corporation 2,328,954
--------------
SEMICONDUCTORS--6.6%
22,025 Broadcom Corporation* 1,030,109
132,328 Intel Corporation 3,652,253
91,000 Linear Technology Corporation 3,591,770
72,025 Maxim Integrated Products, Inc. 3,775,551
49,875 Microchip Technology, Inc. 1,573,058
27,575 NVIDIA Corporation* 565,288
47,400 Texas Instruments, Inc. 1,146,132
--------------
15,334,161
--------------
</Table>
12
<Page>
<Table>
<Caption>
SHARES MARKET VALUE
- ---------------------------------------------------------------------------------
SOFT DRINKS--1.0%
47,400 Coca-Cola Company $ 2,392,752
--------------
SPECIALTY STORES--0.8%
48,400 Staples, Inc. 1,418,604
14,050 Weight Watchers International, Inc.* 549,917
--------------
1,968,521
--------------
SYSTEMS SOFTWARE--5.3%
36,025 Adobe Systems, Inc. 1,675,163
276,266 Microsoft Corporation 7,890,157
147,825 Oracle Corporation* 1,763,552
41,550 VERITAS Software Corporation* 1,150,935
--------------
12,479,807
--------------
THRIFTS & MORTGAGE FINANCE--1.5%
33,825 Countrywide Financial Corporation 2,376,206
26,825 The PMI Group, Inc. 1,167,424
--------------
3,543,630
--------------
TRADING COMPANIES & DISTRIBUTORS--0.3%
12,800 Fastenal Company 727,424
--------------
TOTAL COMMON STOCKS (DOMESTIC)
(COST--$195,096,723) 209,416,743
--------------
COMMON STOCKS (FOREIGN)--5.1%
APPLICATION SOFTWARE--2.1%
26,700 Amdocs Limited (CI)* 625,581
99,850 SAP AG Sponsored ADR (GE) 4,174,729
--------------
4,800,310
--------------
IT CONSULTING & OTHER SERVICES--1.7%
141,525 Accenture Limited Class A (BD)* 3,889,107
--------------
PHARMACEUTICALS--1.0%
36,900 Teva Pharmaceutical Industries Limited
Sponsored ADR (IS) 2,483,001
--------------
RAILROADS--0.3%
15,512 Canadian National Railway Company (CA) 676,168
--------------
TOTAL COMMON STOCKS (FOREIGN)
(COST--$9,156,157) 11,848,586
--------------
</Table>
SEE NOTES TO STATEMENT OF INVESTMENTS.
13
<Page>
<Table>
<Caption>
PRINCIPAL AMOUNT AMORTIZED COST
- ---------------------------------------------------------------------------------
CORPORATE SHORT-TERM NOTES--5.2%
OTHER DIVERSIFIED FINANCIAL SERVICES--5.2%
$5,100,000 American Express Company
1.25% 7/2/04 $ 5,099,823
7,000,000 Merrill Lynch & Company
1.45% 7/1/04 7,000,000
--------------
12,099,823
--------------
TOTAL CORPORATE SHORT-TERM NOTES
(AMORTIZED COST--$12,099,823) 12,099,823
--------------
TOTAL INVESTMENTS--100.0%
(TOTAL COST--$216,352,703) 233,365,152
--------------
OTHER ASSETS AND LIABILITIES--(0.0%) (14,413)
--------------
NET ASSETS--100.0% $ 233,350,739
==============
</Table>
NOTES TO STATEMENT OF INVESTMENTS
* NON-INCOME PRODUCING.
ADR - AMERICAN DEPOSITARY RECEIPT
SPDR - STANDARD AND POOR'S DEPOSITARY RECEIPT
BD - BERMUDA
CA - CANADA
CI - CHANNEL ISLANDS
GE - GERMANY
IS - ISRAEL
14
<Page>
STATEMENT OF ASSETS AND LIABILITIES
June 30, 2004 (UNAUDITED)
<Table>
ASSETS
Investment securities, at cost $ 216,352,703
---------------
Investment securities, at market 233,365,152
Cash 652,903
Receivables:
Capital shares sold 20,352
Dividends 179,598
From transfer agent 31
Other 4,632
---------------
Total Assets 234,222,668
---------------
LIABILITIES
Payables and other accrued liabilities:
Investment securities purchased 566,571
Capital shares redeemed 76,966
Advisory fees 123,480
Shareholder servicing fees 26,545
Accounting fees 11,398
Distribution fees 11,845
Transfer agency fees 3,271
Custodian fees 1,172
Other 50,681
---------------
Total Liabilities 871,929
---------------
Net Assets $ 233,350,739
===============
COMPOSITION OF NET ASSETS
Capital (par value and paid-in surplus) $ 324,221,248
Undistributed net investment income 402,448
Accumulated net realized loss from security transactions (108,285,406)
Net unrealized appreciation on investments 17,012,449
---------------
Total $ 233,350,739
===============
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
15
<Page>
<Table>
CLASS A
Net Assets $ 1,073,981
Shares Outstanding 234,678
Net Asset Value, Redemption Price Per Share $ 4.58
Maximum offering price per share (net asset value
plus sales charge of 5.75% of offering price) $ 4.86
CLASS B
Net Assets $ 2,263,279
Shares Outstanding 506,095
Net Asset Value, Offering and Redemption Price (excluding
applicable contingent deferred sales charge) Per Share $ 4.47
CLASS C
Net Assets $ 402,510
Shares Outstanding 91,708
Net Asset Value, Offering and Redemption Price (excluding
applicable contingent deferred sales charge) Per Share $ 4.39
CLASS F
Net Assets $ 229,284,105
Shares Outstanding 49,069,488
Net Asset Value, Offering and Redemption Price Per Share $ 4.67
CLASS R
Net Assets $ 296,709
Shares Outstanding 64,084
Net Asset Value, Offering and Redemption Price Per Share $ 4.63
CLASS T
Net Assets $ 30,155
Shares Outstanding 6,774
Net Asset Value, Redemption Price Per Share $ 4.45
Maximum offering price per share (net asset value
plus sales charge of 4.50% of offering price) $ 4.66
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
16
<Page>
STATEMENT OF OPERATIONS
For the six months ended June 30, 2004 (unaudited)
<Table>
INVESTMENT INCOME
Dividends $ 1,432,087
Interest 92,233
Foreign taxes withheld (9,741)
---------------
Total Investment Income 1,514,579
---------------
EXPENSES
Advisory fees--Note 2 758,468
Shareholder servicing fees--Note 2 140,747
Accounting fees--Note 2 70,012
Distribution fees--Note 2 63,073
Transfer agency fees--Note 2 46,997
Registration fees 23,179
Postage and mailing expenses 11,330
Custodian fees and expenses--Note 2 3,485
Printing expenses 17,922
Legal and audit fees 20,985
Directors' fees and expenses--Note 2 23,979
Other expenses 13,910
---------------
Total Expenses 1,194,087
Earnings Credits (1,351)
Reimbursed/Waived Expenses (746)
---------------
Net Expenses 1,191,990
---------------
Net Investment Income 322,589
---------------
REALIZED AND UNREALIZED GAIN (LOSS) ON SECURITY
TRANSACTIONS AND FOREIGN CURRENCY TRANSACTIONS
Net Realized Gain on Security Transactions 16,915,961
Net Change in Unrealized Appreciation/Depreciation of Investments (12,303,704)
---------------
Net Realized and Unrealized Gain 4,612,257
---------------
Net Increase in Net Assets Resulting from Operations $ 4,934,846
===============
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
17
<Page>
STATEMENTS OF CHANGES IN NET ASSETS
(UNAUDITED)
<Table>
<Caption>
SIX MONTHS ENDED YEAR ENDED
6/30/04 12/31/03
OPERATIONS
Net Investment Income $ 322,589 $ 103,107
Net Realized Gain on Security Transactions 16,915,961 8,677,330
Net Change in Unrealized Appreciation/Depreciation of
Investments (12,303,704) 48,238,272
--------------- ---------------
Net Increase in Net Assets Resulting from Operations 4,934,846 57,018,709
--------------- ---------------
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS
From Net Investment Income
Class F 0 (183,602)
--------------- ---------------
Net Decrease from Dividends and Distributions 0 (183,602)
--------------- ---------------
CAPITAL SHARE TRANSACTIONS
Net Increase (Decrease)--Note 4
Class A 121,047 408,018
Class B 512,516 407,646
Class C 39,442 121,020
Class F (8,914,299) (14,678,661)
Class R 81,748 127,592
Class T 0 (12,373)
--------------- ---------------
Net Decrease from Capital Share Transactions (8,159,546) (13,626,758)
--------------- ---------------
Net Increase (Decrease) in Net Assets (3,224,700) 43,208,349
NET ASSETS
Beginning of period $ 236,575,439 $ 193,367,090
--------------- ---------------
End of period $ 233,350,739 $ 236,575,439
=============== ===============
Undistributed Net Investment Income $ 402,448 $ 79,859
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
18
<Page>
FINANCIAL HIGHLIGHTS
(UNAUDITED)
<Table>
<Caption>
SIX MONTHS YEAR ENDED
ENDED JUNE 30, DECEMBER 31,
2004 2003 2002 2001 2000
-------------- -------------------------------------------
CLASS A SHARES
PER SHARE OPERATING DATA
Net Asset Value, beginning of period $ 4.49 $ 3.44 $ 4.66 $ 5.73 $ 7.61
- --------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) 0.01 0.03 (0.02) (0.07) 0.00+
Net realized and unrealized gains
(losses) on securities 0.08 1.02 (1.20) (1.00) (1.45)
----------------------------------------------------------
Total from investment operations 0.09 1.05 (1.22) (1.07) (1.45)
- --------------------------------------------------------------------------------------------------------------
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 0.00^ (0.43)
----------------------------------------------------------
Total distributions 0.00 0.00 0.00 0.00 (0.43)
- --------------------------------------------------------------------------------------------------------------
Net Asset Value, end of period $ 4.58 $ 4.49 $ 3.44 $ 4.66 $ 5.73
==========================================================
TOTAL RETURN* 2.00% 30.52% (26.18%) (18.65%) (19.04%)
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000s) $ 1,074 $ 935 $ 378 $ 442 $ 318
Ratios to average net assets:
Expenses with reimbursements,
but no earnings credits# 1.21%** 1.49% 1.87% 2.98% 1.06%
Expenses with reimbursements
and earnings credits 1.21%** 1.48% 1.87% 2.98% 1.01%
Net investment income (loss) 0.12%** (0.25%) (0.67%) (1.82%) (0.03%)
- --------------------------------------------------------------------------------------------------------------
Portfolio turnover rate@ 123% 123% 152% 144% 165%
</Table>
+ NET INVESTMENT INCOME FOR THE YEAR ENDED DECEMBER 31, 2000 AGGREGATED LESS
THAN $0.01 ON A PER SHARE BASIS.
^ DISTRIBUTIONS FROM NET REALIZED GAINS FOR THE YEAR ENDED DECEMBER 31, 2001
AGGREGATED LESS THAN $0.01 ON A PER SHARE BASIS.
* SALES CHARGES ARE NOT REFLECTED IN THE TOTAL RETURN.
** ANNUALIZED.
# CERTAIN FEES WERE WAIVED BY THE CUSTODIAN. THESE WAIVERS DID NOT HAVE AN
IMPACT ON THE EXPENSE RATIOS.
@ 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>
<Table>
<Caption>
SIX MONTHS YEAR ENDED
ENDED JUNE 30, DECEMBER 31,
2004 2003 2002 2001 2000
-------------- ---------------------------------------------------
CLASS B SHARES
PER SHARE OPERATING DATA
Net Asset Value, beginning of period $ 4.40 $ 3.40 $ 4.61 $ 5.65 $ 7.61
- -------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment loss (0.01)+ (0.01) (0.05) (0.04) (0.02)
Net realized and unrealized gains
(losses) on securities 0.08 1.01 (1.16) (1.00) (1.51)
--------------------------------------------------------------------
Total from investment operations 0.07 1.00 (1.21) (1.04) (1.53)
- -------------------------------------------------------------------------------------------------------------------
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 0.00^ (0.43)
--------------------------------------------------------------------
Total distributions 0.00 0.00 0.00 0.00 (0.43)
- -------------------------------------------------------------------------------------------------------------------
Net Asset Value, end of period $ 4.47 $ 4.40 $ 3.40 $ 4.61 $ 5.65
====================================================================
TOTAL RETURN* 1.59% 29.41% (26.25%) (18.38%) (20.09%)
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000s) $ 2,263 $ 1,709 $ 1,013 $ 1,599 $ 1,170
Ratios to average net assets:
Expenses with reimbursements,
but no earnings credits# 1.99%** 2.30% 2.14% 2.20% 1.80%
Expenses with reimbursements
and earnings credits 1.99%** 2.30% 2.14% 2.19% 1.76%
Net investment loss (0.64%)** (1.08%) (0.95%) (1.03%) (0.88%)
- -------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate@ 123% 123% 152% 144% 165%
</Table>
+ COMPUTED USING AVERGE SHARES OUTSTANDING THROUGHOUT THE PERIOD.
^ DISTRIBUTIONS FROM NET REALIZED GAINS FOR THE YEAR ENDED DECEMBER 31, 2001
AGGREGATED LESS THAN $0.01 ON A PER SHARE BASIS.
* SALES CHARGES ARE NOT REFLECTED IN THE TOTAL RETURN.
** ANNUALIZED.
# CERTAIN FEES WERE WAIVED BY THE CUSTODIAN. THESE WAIVERS DID NOT HAVE AN
IMPACT ON THE EXPENSE RATIOS.
@ 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>
<Table>
<Caption>
SIX MONTHS YEAR ENDED
ENDED JUNE 30, DECEMBER 31,
2004 2003 2002 2001 2000
-------------- ---------------------------------------------------
CLASS C SHARES
PER SHARE OPERATING DATA
Net Asset Value, beginning of period $ 4.32 $ 3.34 $ 4.55 $ 5.66 $ 7.61
- -------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.01)+ 0.04 (0.07) (0.13) (0.01)
Net realized and unrealized gains
(losses) on securities 0.08 0.94 (1.14) (0.98) (1.51)
--------------------------------------------------------------------
Total from investment operations 0.07 0.98 (1.21) (1.11) (1.52)
- -------------------------------------------------------------------------------------------------------------------
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 0.00^ (0.43)
--------------------------------------------------------------------
Total distributions 0.00 0.00 0.00 0.00 (0.43)
- -------------------------------------------------------------------------------------------------------------------
Net Asset Value, end of period $ 4.39 $ 4.32 $ 3.34 $ 4.55 $ 5.66
====================================================================
TOTAL RETURN* 1.62% 29.34% (26.59%) (19.58%) (19.96%)
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000s) $ 403 $ 357 $ 186 $ 270 $ 343
Ratios to average net assets:
Expenses with reimbursements,
but no earnings credits# 1.98%** 2.29% 2.77% 3.17% 1.84%
Expenses with reimbursements
and earnings credits 1.98%** 2.28% 2.76% 3.16% 1.75%
Net investment loss (0.67%)** (1.04%) (1.55%) (2.01%) (0.83%)
- -------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate @ 123% 123% 152% 144% 165%
</Table>
+ COMPUTED USING AVERAGE SHARES OUTSTANDING THROUGHOUT THE PERIOD.
^ DISTRIBUTIONS FROM NET REALIZED GAINS FOR THE YEAR ENDED DECEMBER 31, 2001
AGGREGATED LESS THAN $0.01 ON A PER SHARE BASIS.
* SALES CHARGES ARE NOT REFLECTED IN THE TOTAL RETURN.
** ANNUALIZED.
# CERTAIN FEES WERE REIMBURSED OR WAIVED BY THE MANAGEMENT COMPANY OR ITS
AFFILIATES. HAD THESE FEES NOT BEEN REIMBURSED OR WAIVED, THE EXPENSE RATIOS
WOULD HAVE BEEN 1.98% (2004), 2.29% (2003), 3.02% (2002), 3.56% (2001), AND
1.84% (2000).
@ 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>
<Table>
<Caption>
SIX MONTHS YEAR ENDED
ENDED JUNE 30, DECEMBER 31,
2004 2003 2002 2001 2000 1999
-------------- ---------------------------------------------------------------------
CLASS F SHARES
PER SHARE OPERATING DATA
Net Asset Value, beginning of period $ 4.57 $ 3.50 $ 4.69 $ 5.69 $ 7.61 $ 7.32
- ---------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) 0.01 0.00+ 0.00+ 0.00+ (0.02) (0.00)+
Net realized and unrealized gains
(losses) on securities 0.09 1.07 (1.19) (1.00) (1.47) 1.06
-------------------------------------------------------------------------------------
Total from investment operations 0.10 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 0.00
From net realized gains 0.00 0.00 0.00 0.00^ (0.43) (0.77)
-------------------------------------------------------------------------------------
Total distributions 0.00 0.00 0.00 0.00 (0.43) (0.77)
- ---------------------------------------------------------------------------------------------------------------------------------
Net Asset Value, end of period $ 4.67 $ 4.57 $ 3.50 $ 4.69 $ 5.69 $ 7.61
=====================================================================================
TOTAL RETURN 2.19% 30.67% (25.33%) (17.55%) (19.57%) 15.03%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000s) $ 229,284 $ 233,333 $ 191,701 $ 288,752 $ 385,816 $ 535,035
Ratios to average net assets:
Expenses with reimbursements,
but no earnings credits# 1.01%** 1.13% 1.08% 1.14% 1.12% 1.13%
Expenses with reimbursements
and earnings credits 1.01%** 1.13% 1.08% 1.14% 1.10% 1.12%
Net investment income (loss) 0.29%** 0.06% 0.11% 0.02% (0.24%) (0.05%)
- ---------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate@ 123% 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.
** ANNUALIZED.
# CERTAIN FEES WERE WAIVED BY THE CUSTODIAN. THESE WAIVERS DID NOT HAVE AN
IMPACT ON THE EXPENSE RATIOS.
@ 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>
<Table>
<Caption>
SIX MONTHS YEAR ENDED
ENDED JUNE 30, DECEMBER 31,
2004 2003 2002 2001 2000
-------------- ---------------------------------------------------
CLASS R SHARES
PER SHARE OPERATING DATA
Net Asset Value, beginning of period $ 4.53 $ 3.47 $ 4.74 $ 5.74 $ 7.61
- --------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) 0.02 0.06 (0.08) (0.01) 0.00+
Net realized and unrealized gains
(losses) on securities 0.08 1.00 (1.19) (0.99) (1.44)
-------------------------------------------------------------------
Total from investment operations 0.10 1.06 (1.27) (1.00) (1.44)
- --------------------------------------------------------------------------------------------------------------
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 0.00^ (0.43)
-------------------------------------------------------------------
Total distributions 0.00 0.00 0.00 0.00 (0.43)
- --------------------------------------------------------------------------------------------------------------
Net Asset Value, end of period $ 4.63 $ 4.53 $ 3.47 $ 4.74 $ 5.74
===================================================================
TOTAL RETURN 2.21% 30.55% (26.79%) (17.39%) (18.91%)
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000s) $ 297 $ 211 $ 57 $ 51 $ 1
Ratios to average net assets:
Expenses with reimbursements,
but no earnings credits# 0.98%** 1.35% 2.95% 2.73% 0.79%
Expenses with reimbursements
and earnings credits 0.97%** 1.35% 2.95% 2.72% 0.76%
Net investment income (loss) 0.35%** (0.12%) (1.78%) (1.68%) 0.01%
- --------------------------------------------------------------------------------------------------------------
Portfolio turnover rate@ 123% 123% 152% 144% 165%
</Table>
+ NET INVESTMENT INCOME FOR THE YEAR ENDED DECEMBER 31, 2000 AGGREGATED LESS
THAN $0.01 ON A PER SHARE BASIS.
^ DISTRIBUTIONS FROM NET REALIZED GAINS FOR THE YEAR ENDED DECEMBER 31, 2001
AGGREGATED LESS THAN $0.01 ON A PER SHARE BASIS.
** ANNUALIZED.
# CERTAIN FEES WERE REIMBURSED OR WAIVED BY THE MANAGEMENT COMPANY OR ITS
AFFILIATES. HAD THESE FEES NOT BEEN REIMBURSED OR WAIVED, THE EXPENSE RATIOS
WOULD HAVE BEEN 0.98% (2004), 1.35% (2003), 4.68% (2002), 82.23% (2001), AND
0.79% (2000).
@ 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>
<Table>
<Caption>
SIX MONTHS YEAR ENDED
ENDED JUNE 30, DECEMBER 31,
2004 2003 2002 2001 2000
-------------- ---------------------------------------------------
CLASS T SHARES
PER SHARE OPERATING DATA
Net Asset Value, beginning of period $ 4.38 $ 3.39 $ 4.60 $ 5.68 $ 7.61
- --------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment loss (0.01) (0.23) (0.30) (0.09) (0.01)
Net realized and unrealized gains
(losses) on securities 0.08 1.22 (0.91) (0.99) (1.49)
-------------------------------------------------------------------
Total from investment operations 0.07 0.99 (1.21) (1.08) (1.50)
- --------------------------------------------------------------------------------------------------------------
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 0.00^ (0.43)
-------------------------------------------------------------------
Total distributions 0.00 0.00 0.00 0.00 (0.43)
- --------------------------------------------------------------------------------------------------------------
Net Asset Value, end of period $ 4.45 $ 4.38 $ 3.39 $ 4.60 $ 5.68
===================================================================
TOTAL RETURN* 1.60% 29.20% (26.30%) (18.99%) (19.69%)
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000s) $ 30 $ 30 $ 33 $ 127 $ 82
Ratios to average net assets:
Expenses with reimbursements,
but no earnings credits# 1.71%** 2.27% 2.47% 3.14% 1.28%
Expenses with reimbursements
and earnings credits 1.71%** 2.26% 2.46% 3.13% 1.25%
Net investment loss (0.44%)** (1.11%) (1.29%) (1.96%) (0.40%)
- --------------------------------------------------------------------------------------------------------------
Portfolio turnover rate@ 123% 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.
** ANNUALIZED.
# CERTAIN FEES WERE REIMBURSED OR WAIVED BY THE MANAGEMENT COMPANY OR ITS
AFFILIATES. HAD THESE FEES NOT BEEN REIMBURSED OR WAIVED, THE EXPENSE RATIOS
WOULD HAVE BEEN 1.71% (2004), 2.27% (2003), 3.71% (2002), 6.32% (2001), AND
1.28% (2000).
@ PORTFOLIO TURNOVER RATE IS A MEASURE OF PORTFOLIO ACTIVITY THAT IS CALCULATED
BY DIVIDING THE LESSER OF PURCHASES OR SALES OF SECURITIES, EXCLUDING
SECURITIES HAVING MATURITY DATES AT ACQUISITION OF ONE YEAR OR LESS, BY THE
AVERAGE VALUE OF THE PORTFOLIO SECURITIES HELD DURING THE PERIOD, WHICH IS A
ROLLING 12-MONTH PERIOD.
SEE NOTES TO FINANCIAL STATEMENTS.
24
<Page>
NOTES TO FINANCIAL STATEMENTS
June 30, 2004 (UNAUDITED)
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
Dreyfus Founders Funds, Inc. (the "Company") is an open-end management
investment company registered under the Investment Company Act of 1940 (the
"1940 Act"). 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--A domestic 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 a
security traded on Nasdaq, at its official closing price. Lacking any sales on
that day, the security is valued at the current closing bid price, or by quotes
from dealers making a market in the security if the closing bid price is not
available, or in the case of written call options, at the mean between the
highest bid and lowest asked quotations obtained from at least two securities
dealers.
A foreign equity security traded on a foreign exchange is valued at the last
quoted official closing price available before the time when the Fund's assets
are valued, or at the last quoted sales price if the exchange does not provide
an official closing price or if the foreign market has not yet closed. Lacking
any sales on that day, the security is valued at the current closing bid price,
or by quotes from dealers making a market in the security if the closing bid
price is not available. London closing exchange rates are used to convert
foreign currencies to U.S. dollars.
A debt security with a remaining maturity greater than 60 days at the time of
purchase is valued in accordance with the evaluated bid price supplied by a
pricing service approved by the Company's board of directors or, if such price
is not available, at the mean between the highest bid and lowest asked
quotations obtained from at least two securities dealers. A debt security with a
remaining maturity of 60 days or less at the time of purchase is valued at
amortized cost, which approximates market value, unless it is determined that
amortized cost would not represent market value, in which case the securities
would be marked to market. The Fund amortizes premiums and discounts on all debt
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
25
<Page>
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.
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.
26
<Page>
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, if
any, reduce Other Expenses and would be 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.
SHAREHOLDER SERVICING AND TRANSFER AGENCY FEES FOR CLASS F SHARES--The Company
has a shareholder services agreement with Dreyfus Service Corporation ("DSC"),
the direct owner of Founders and 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. 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. During the six months ended June 30,
2004, Class F shares were charged $136,533 pursuant to this shareholder services
agreement.
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
27
<Page>
charges, the fees charged by DTI with respect to the Fund's Class F shares are
paid by DSC. The out-of-pocket charges incurred by DTI are paid by the Fund.
During the six months ended June 30, 2004, Class F shares were charged $36,172
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 $12.43 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 six months ended June
30, 2004 were as follows:
<Table>
<Caption>
TRANSFER
AGENCY FEES
----------------------------------------------------------------
Class A $ 761
Class B $ 1,615
Class C $ 319
Class R $ 228
Class T $ 63
</Table>
Certain as-of shareholder transactions may result in gains or losses to the
Fund. Depending on the circumstances, these gains may be payable to, or
reimbursable from, the transfer agent; such gains and losses are presented on
the Statement of Assets and Liabilities.
DISTRIBUTION AND SHAREHOLDER SERVICES PLANS--DSC also is the distributor of the
Fund's shares. The Fund has adopted a Distribution Plan pursuant to Rule 12b-1
under the 1940 Act 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 six months ended June
30, 2004, Class F shares were charged $54,460 pursuant to this Distribution
Plan.
The Fund also has adopted a Distribution Plan pursuant to Rule 12b-1 under the
1940 Act 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.
28
<Page>
Distribution and shareholder servicing fees paid to DSC by the Fund's Class A,
B, C and T shares for the six months ended June 30, 2004, were as follows:
<Table>
<Caption>
DISTRIBUTION SHAREHOLDER
FEES SERVICING FEES
----------------------------------------------------------------
Class A N/A $ 1,317
Class B $ 7,137 $ 2,379
Class C $ 1,438 $ 480
Class T $ 38 $ 38
</Table>
During the six months ended June 30, 2004, DSC retained $1,705 in sales
commissions from the sales of Class A shares. DSC also retained $6,347 and $580
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 and an affiliate of Founders, 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
----------------------------------------------------------------
9/1/03 to 8/31/04 $ 150,000
9/1/04 to 8/31/05 $ 200,000
9/1/05 to 8/31/06 $ 200,000
</Table>
The fee waiver is allocated among the Funds in proportion to their respective
shares of the total custodian fee. For the six months ended June 30, 2004, the
Fund's portion of the fee waiver was $746. 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
29
<Page>
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.
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.
The aggregate cost of investments and the composition of unrealized appreciation
and depreciation of investment securities for federal income tax purposes as of
June 30, 2004 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 $ 220,772,870
Gross Tax Appreciation of Investments $ 20,191,991
Gross Tax Depreciation of Investments $ (7,599,709)
Net Tax Appreciation $ 12,592,282
</Table>
30
<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>
SIX MONTHS ENDED YEAR ENDED
JUNE 30, 2004 DECEMBER 31, 2004
SHARES AMOUNT SHARES AMOUNT
CLASS A
Sold 88,873 $ 404,107 127,097 $ 521,827
Redeemed (62,761) $ (283,060) (28,494) $ (113,809)
----------------------------------------------------------
Net Increase 26,112 $ 121,047 98,603 $ 408,018
==========================================================
CLASS B
Sold 156,501 $ 682,847 164,031 $ 669,282
Redeemed (38,929) $ (170,331) (73,231) $ (261,636)
----------------------------------------------------------
Net Increase 117,572 $ 512,516 90,800 $ 407,646
==========================================================
CLASS C
Sold 25,581 $ 111,883 55,885 $ 224,519
Redeemed (16,522) $ (72,441) (28,811) $ (103,499)
----------------------------------------------------------
Net Increase 9,059 $ 39,442 27,074 $ 121,020
==========================================================
CLASS F
Sold 601,015 $ 2,787,817 1,278,819 $ 5,147,869
Dividends or Distributions Reinvested 0 $ 0 34,819 $ 159,122
Redeemed (2,533,712) $ (11,702,116) (5,079,072) $ (19,985,652)
----------------------------------------------------------
Net Decrease (1,932,697) $ (8,914,299) (3,765,434) $ (14,678,661)
==========================================================
CLASS R
Sold 25,525 $ 118,058 70,118 $ 283,426
Redeemed (8,026) $ (36,310) (39,808) $ (155,834)
----------------------------------------------------------
Net Increase 17,499 $ 81,748 30,310 $ 127,592
==========================================================
CLASS T
Sold 4 $ 17 709 $ 2,660
Redeemed (4) $ (17) (3,604) $ (15,033)
----------------------------------------------------------
Net Increase (Decrease) 0 $ 0 (2,895) $ (12,373)
==========================================================
</Table>
31
<Page>
5. INVESTMENT TRANSACTIONS
Purchases and sales of investment securities (excluding short-term securities
and U.S. government obligations) for the six months ended June 30, 2004 were
$123,131,706 and $121,666,861, 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 June 30, 2004, the Fund did not have any borrowings under the LOC.
7. LEGAL MATTERS
Two class actions have been filed against Mellon Financial Corporation and
Mellon Bank, N.A.; Dreyfus and Founders (the "Investment Advisers"); and the
directors of all or substantially all of the Dreyfus and Dreyfus Founders Funds.
The complaints also name all or substantially all of the Dreyfus and Dreyfus
Founders Funds as nominal defendants. Plaintiffs allege that the Investment
Advisers improperly used assets of the Dreyfus and Dreyfus Founders Funds, in
the form of directed brokerage commissions and 12b-1 fees, to pay brokers to
promote sales of Dreyfus and Dreyfus Founders Funds, and that the use of fund
assets to make these payments was not properly disclosed to investors.
Plaintiffs claim that the Investment Advisers' actions violated the 1940 Act,
the Investment Advisers Act, and common law. The complaints further allege that
the directors breached their fiduciary duties to fund shareholders under the
1940 Act and at common law and that Mellon Financial and Mellon Bank violated
the 1940 Act. The complaints seek unspecified compensatory and punitive damages,
rescission of the funds' contracts with the Investment Advisers, an accounting
of all fees paid, and an award of attorneys' fees and litigation expenses. The
complaints are pending in the same court and have been consolidated into a
single action under the caption IN RE DREYFUS MUTUAL FUNDS FEE LITIGATION.
Founders, Dreyfus, and the Funds believe the allegations in these lawsuits to be
totally without merit and intend to defend the actions vigorously. It is
possible that additional lawsuits arising out of these circumstances and
presenting similar allegations and requests for relief may be filed against the
defendants in the future. Neither Founders, Dreyfus, nor the Funds believe that
the pending actions will have a material adverse effect on the Funds or
Founders' ability to perform its contract with the Funds.
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<Page>
For More Information
DREYFUS FOUNDERS
GROWTH AND INCOME FUND
To obtain information:
MANAGER
- ---------------------------------
BY TELEPHONE | Founders Asset Management LLC
Call your financial | 210 University Boulevard, Suite 800
representative or | Denver, CO 80206
1-800-554-4611 |
| TRANSFER AGENT &
BY MAIL Write to: | DIVIDEND DISBURSING AGENT
Dreyfus Founders Funds |
144 Glenn Curtiss Boulevard | Dreyfus Transfer, Inc.
Uniondale, NY 11556-0144 | 200 Park Avenue
| New York, NY 10166
PROXY VOTING INFORMATION |
A description of the policies |
and procedures that the Fund | DISTRIBUTOR
uses to determine how to vote |
proxies relating to portfolio | Dreyfus Service Corporation
securities, and information | 200 Park Avenue
regarding how the Fund | New York, NY 10166
voted these proxies for |
the 12-month period ended |
June 30, 2004, is available |
through the Fund's website |
at www.dreyfus.com and on |
the Securities and Exchange |
Commission's website at |
www.sec.gov. The description |
of the policies and procedures |
is also available without |
charge, upon request, by |
calling 1-800-554-4611. |
THIS REPORT AND THE STATEMENTS IT CONTAINS ARE SUBMITTED FOR THE GENERAL
INFORMATION OF OUR SHAREHOLDERS. THE REPORT IS NOT AUTHORIZED FOR DISTRIBUTION
TO PROSPECTIVE INVESTORS UNLESS PRECEDED OR ACCOMPANIED BY AN EFFECTIVE
PROSPECTUS.
Dreyfus Founders Funds are managed by Founders Asset Management LLC. Founders
and Founders Funds are registered trademarks of Founders Asset Management LLC.
(C)2004 Founders Asset Management LLC. 08/04 0275SA0604
<Page>
Dreyfus Founders
International
Equity Fund
SEMIANNUAL REPORT June 30, 2004
[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
</Table>
The views expressed herein are current to the date of this report. The views and
the composition of the Fund's portfolio are subject to change at any time based
on market and other conditions. Companies appearing in bold print on pages 3-9
were owned by the Fund on June 30, 2004. The amounts of these holdings are
included in the Statement of Investments.
NOT FDIC-INSURED - NOT BANK-GUARANTEED - MAY LOSE VALUE
<Page>
MANAGEMENT OVERVIEW
[PHOTO OF REMI J. BROWNE, DANIEL B. LEVAN AND JEFFREY R. SULLIVAN]
A DISCUSSION WITH CO-PORTFOLIO MANAGERS REMI J. BROWNE, CFA, LEFT; DANIEL B.
LEVAN, CFA, MIDDLE; AND JEFFREY R. SULLIVAN, CFA, RIGHT
HOW DID THE FUND PERFORM RELATIVE TO ITS BENCHMARK IN THE SIX MONTHS ENDED JUNE
30, 2004?
Dreyfus Founders International Equity Fund's performance(1) compared favorably
to the Fund's benchmark, the Morgan Stanley Capital International (MSCI) World
ex U.S. Index, which posted a 4.34% return for the first six months of 2004.
WHAT DYNAMICS AFFECTED INTERNATIONAL LARGE-CAPITALIZATION INVESTING DURING THE
PERIOD?
The global markets got off to a great start in 2004 as the Japanese economic
recovery became broader than expected, China continued to experience significant
growth across all economic sectors, and the U.S. economy expanded at a 4% clip
during the first quarter. However, as the second quarter came to a close, the
market's perception shifted from the strong growth environment to concerns about
higher global inflation, higher oil prices and rising interest rates. The fear
of the Chinese governmental policies slowing growth also weighed heavily on
investors. While the first quarter experienced very strong returns, the second
quarter ended just slightly positive.
(1) Excluding sales charges, which result in lower returns for certain share
classes. Please see page 7 for Average Annual and Year-to-Date Total Returns for
all share classes, including and excluding sales charges.
[SIDENOTE]
"THE FUND BENEFITED FROM GOOD GROWTH OPPORTUNITIES IN SOME TRADITIONALLY
DEFENSIVE SECTORS; THE ENERGY, UTILITIES AND CONSUMER STAPLES SECTORS OF THE
FUND ALL POSSESSED STRONG-PERFORMING STOCKS."
3
<Page>
WHAT FACTORS POSITIVELY CONTRIBUTED TO THE FUND'S RELATIVE PERFORMANCE DURING
THE PERIOD?
The largest positive impact on a country basis to relative Fund performance was
found in Germany. A slight overweighting coupled with strong stock selection
propelled the Fund's performance in this geographical area. In Spain, the Fund's
strong stock selection and slight underweight position relative to its benchmark
also buoyed performance. The Fund also experienced positive relative performance
in Canada due to strong performance by nearly every Canadian stock in which the
Fund was invested.
Sector allocation and stock selection were both important positive
contributors to the Fund's relative return for the first half of 2004.
Surprisingly, the Fund benefited from good growth opportunities in some
traditionally defensive sectors; the energy, utilities and consumer staples
sectors of the Fund all possessed strong-performing stocks during the period.
The Fund's positions in the energy sector exhibited the strongest
performance. This was primarily attributable to the increase in energy prices
during the period, as well as the specific performance of select individual
issues. One stock that added significant value to the Fund was U.K.-based Cairn
Energy PLC. Cairn had two major oil discoveries during the first quarter in the
Rajasthan region
[SIDENOTE]
PERFORMANCE HIGHLIGHTS
- - As the second quarter came to a close, the market's perception shifted from
the strong growth environment to concerns about higher global inflation,
higher oil prices and rising interest rates.
- - The largest positive impact on a country basis to relative Fund performance
was found in Germany.
- - The Fund's positions in the energy sector exhibited the strongest
performance. This was primarily attributable to the increase in energy prices
during the period, as well as the specific performance of select individual
issues.
- - The information technology sector was the most underachieving sector in the
Fund on a relative basis.
- - Competition within the telecommunications services sector has led to price
wars and subsequent margin erosion in the wireless industries in both Europe
and Japan.
4
<Page>
of India, which significantly increased the company's production profile. The
stock rallied 125% in the first quarter, at which time the Fund liquidated its
position in the company.
Strong stock selection in the healthcare sector also aided relative
performance, with such names as MERCK KGaA contributing to the Fund's return for
the period. The pharma-chemical company received approval for a new colon cancer
drug during the second quarter for use in Europe, and its liquid crystal
business benefited from strong demand from the liquid crystal display (LCD)
market.
The Fund's position in the consumer staples sector proved beneficial during
the period, as several stocks in this sector experienced price appreciation. Two
Japanese names, KIRIN BEVERAGE CORPORATION and ASAHI BREWERIES LIMITED,
contributed positively to relative performance, with Kirin returning over 30%
and Asahi up nearly 21% by the end of the period. Both stocks enjoyed a consumer
spending recovery in Japan after several years of quiet activity.
The utilities sector presented opportunities for the Fund, and the sector as
a whole was the best performer of all economic sectors in the Index during the
period. One of the Fund's holdings in this sector, Finnish electric utility
company FORTUM OYJ, has done well as Nordic power prices have strongly increased
and better refining margins have delivered growth to the company's bottom line.
[SIDENOTE]
LARGEST EQUITY HOLDINGS (country of origin; ticker symbol)
<Table>
1. Vodafone Group PLC (United Kingdom; VOD) 2.65%
2. Barclays PLC (United Kingdom; BARC) 1.94%
3. Alpha Bank AE (Greece; ALPHA) 1.86%
4. BP PLC (United Kingdom; BP) 1.78%
5. Total SA (France; FP) 1.74%
6. Royal Bank of Scotland Group PLC (United Kingdom; RBS) 1.60%
7. Anglo Irish Bank Corporation PLC (Ireland; ANB) 1.56%
8. Novartis AG (Switzerland; NOV.N) 1.54%
9. Sumitomo Mitsui Financial Group, Inc. (Japan; 8316) 1.52%
10. Toyota Motor Corporation (Japan; 7203) 1.41%
</Table>
Portfolio holdings are subject to change, and should not be construed as a
recommendation of any security.
5
<Page>
GROWTH OF $10,000 INVESTMENT
PERFORMANCE DATA QUOTED REPRESENTS PAST PERFORMANCE. PAST PERFORMANCE DOES NOT
GUARANTEE FUTURE RESULTS. INVESTMENT RETURN AND PRINCIPAL VALUE OF AN INVESTMENT
WILL FLUCTUATE SO THAT AN INVESTOR'S SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR
LESS THAN THEIR ORIGINAL COST. CURRENT PERFORMANCE MAY BE LOWER OR HIGHER THAN
THE PERFORMANCE DATA QUOTED. PLEASE CALL 1-800-525-2440 TO OBTAIN THE MOST
RECENT MONTH-END PERFORMANCE DATA.
[CHART]
The above graph compares a $10,000 investment made in Class F shares of Dreyfus
Founders International Equity Fund on its inception date of 12/29/95 to a
$10,000 investment made in an unmanaged securities index on that date. The
Fund's performance assumes the reinvestment of dividends and capital gain
distributions, but does not reflect the deduction of taxes that a shareholder
would pay on Fund distributions or redemption of Fund shares. The Fund offers
multiple classes of shares. Performance shown is for Class F, which is open only
to grandfathered investors. The Fund's performance in the graph takes into
account all applicable Class F fees and expenses, subject to fee waivers and
expense limitations. THESE FIGURES DO NOT REFLECT THE MAXIMUM SALES CHARGES
APPLICABLE TO CLASS A, B, C, OR T SHARES OF THE FUND. FOR THESE SHARE CLASSES,
APPLYING THESE CHARGES WILL RESULT IN LOWER RETURNS FOR INVESTORS.
The Morgan Stanley Capital International (MSCI) World ex U.S. Index measures
global developed market equity performance outside of the United States. 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>
Other individual issues positively impacted the Fund's relative performance
during the period as well. CASIO COMPUTER COMPANY LIMITED continued to benefit
from the consumer spending recovery in Japan. Casio reported strong full-year
profits in May and cited strength in digital cameras, a new joint venture with
Hitachi for cell phones, better margins and an improved balance sheet as primary
reasons for its impressive performance.
CONTINENTAL AG had a strong first half following a quality first quarter
earnings report. The company cited strength in their higher margin braking and
suspension systems as the main driver of performance.
AVERAGE ANNUAL AND YEAR-TO-DATE TOTAL RETURN AS OF 6/30/04
<Table>
<Caption>
YEAR-TO- 1 5 10 SINCE
CLASS (INCEPTION DATE) DATE+ YEAR YEARS YEARS INCEPTION
-----------------------------------------------------------------------------
CLASS A SHARES (12/31/99)
With sales charge (5.75%) (0.58%) 27.40% -- -- (12.08%)
Without sales charge 5.53% 35.19% -- -- (10.92%)
CLASS B SHARES (12/31/99)
With redemption* 1.13% 30.15% -- -- (11.93%)
Without redemption 5.13% 34.15% -- -- (11.58%)
CLASS C SHARES (12/31/99)
With redemption** 4.14% 33.14% -- -- (11.63%)
Without redemption 5.14% 34.14% -- -- (11.63%)
CLASS F SHARES (12/29/95) 5.52% 35.14% (2.56%) -- 5.07%
CLASS R SHARES (12/31/99) 5.70% 35.52% -- -- (10.71%)
CLASS T SHARES (12/31/99)
With sales charge (4.50%) 0.69% 28.72% -- -- (12.04%)
Without sales charge 5.46% 34.79% -- -- (11.13%)
</Table>
Average annual and year-to-date total returns do not reflect the deduction of
taxes that a shareholder would pay on Fund distributions or redemption of Fund
shares, but do reflect the reinvestment of dividends and capital gain
distributions, expense limitations, and adjustments for financial statement
purposes. Part of the Fund's historical performance is due to the purchase of
securities sold in initial public offerings (IPOs). There is no guarantee that
the Fund's investments in IPOs, if any, will continue to have a similar impact
on performance. Investments in foreign securities may entail unique risks,
including political, market, and currency risks.
*The maximum contingent deferred sales charge for Class B shares is 4% and is
reduced to 0% after six years, at which time the Class B shares convert to Class
A shares.
**The maximum contingent deferred sales charge for Class C shares is 1% for
shares redeemed within one year of the date of purchase.
+ Total return is not annualized.
7
<Page>
SUMITOMO MITSUI FINANCIAL GROUP, INC., a Japanese financial services firm,
and GAMESA CORPORACION TECNOLOGICA SA, a manufacturer and supplier of products
and services in the aeronautics and renewable energy sectors, also positively
contributed to the Fund's return.
WHAT FACTORS NEGATIVELY CONTRIBUTED TO RELATIVE FUND PERFORMANCE DURING THE
PERIOD?
Hong Kong, Switzerland, Italy and Belgium were four of the markets that most
detracted from relative Fund performance due to poor stock selection paired with
slight underweight positions. Weak stock selection in Ireland also caused this
country to underperform for the Fund.
Two of the sectors that hampered the Fund's relative returns were the
information technology and telecommunications services sectors.
The information technology sector was the most underachieving sector in the
Fund on a relative basis. Stock selection proved the largest hit as the Fund's
holdings in this sector trailed the benchmark. Issues such as NOKIA OYJ
negatively impacted Fund performance as the company suffered a profit warning
during the second quarter and subsequently declined 29%. Nokia announced it was
losing market share due to lack of focus on the mid-market cell phone models,
which are currently en vogue.
[CHART]
PORTFOLIO COMPOSITION
<Table>
Japan 20.16%
United Kingdom 20.05%
France 8.61%
Germany 7.35%
Switzerland 6.71%
Netherlands 5.74%
Canada 5.06%
Australia 4.45%
Other Countries 18.12%
Cash & Equivalents 3.75%
</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 second-worst performing sector on a relative basis was telecommunications
services. Competition within the telecommunications services sector has led to
price wars and subsequent margin erosion in the wireless industries in both
Europe and Japan. The fixed-line telecommunications business has also been
hampered by competition from cable and internet companies eating into revenues
and profits. VODAFONE GROUP PLC experienced a tough first six months of the
year, down approximately 11%. The company spent money on its profitless Japanese
subsidiary by buying out minority shareholders and making a full commitment to
this business.
In spite of the healthcare sector's positive contribution to Fund
performance, select stocks did underperform during the period. SERONO SA, the
Swiss pharmaceutical company, declined over 10% for the first six months of the
year due to increased competition in the multiple sclerosis (MS) drug area.
Competitor Elan Corporation PLC had its MS drug approved during the period,
which is expected to take market share away from Serono. GlaxoSmithKline,
another pharmaceutical company based in the United Kingdom, has also suffered
this year due to increased competition from generic producers. In addition, the
company's mid-range pipeline of drugs remained thin.
Other notable underperformers during the period included China Unicom
Limited, WMC RESOURCES LIMITED, and Banca Intesa S.p.A.
Our strategy, as always, is to keep our sector and country weights relatively
neutral to the Index and to spend our risk dollars on stock selection. We are
focused on seeking companies that best combine better-than-average business
momentum and attractive valuations.
/s/ Remi J. Browne /s/ Daniel B. LeVan /s/ Jeffrey R. Sullivan
Remi J. Browne, CFA Daniel B. LeVan, CFA Jeffrey R. Sullivan, CFA
Co-Portfolio Manager Co-Portfolio Manager Co-Portfolio Manager
9
<Page>
STATEMENT OF INVESTMENTS
June 30, 2004 (UNAUDITED)
<Table>
<Caption>
SHARES MARKET VALUE
- -----------------------------------------------------------------------------------------------
COMMON STOCKS (FOREIGN)--95.9%
AEROSPACE & DEFENSE--0.8%
22,200 Gamesa Corporacion Tecnologica SA (SP) $ 327,100
-------------
APPLICATION SOFTWARE--1.3%
3,140 SAP AG (GE) 523,397
-------------
AUTO PARTS & EQUIPMENT--0.7%
7,100 Canadian Tire Corporation Limited Class A (CA) 258,942
-------------
AUTOMOBILE MANUFACTURERS--3.4%
38,600 Nissan Motor Company Limited (JA) 429,105
4,700 Renault SA (FR) 357,975
13,800 Toyota Motor Corporation (JA) 559,007
-------------
1,346,087
-------------
BIOTECHNOLOGY--0.7%
420 Serono SA (SZ) 264,596
-------------
BREWERS--2.7%
41,200 Asahi Breweries Limited (JA) 454,233
35,400 Fraser & Neave Limited (SG) 287,721
24,600 SABMiller PLC (UK) 318,319
-------------
1,060,273
-------------
BROADCASTING & CABLE TV--1.0%
15,400 Mediaset SPA (IT) 175,566
24,200 Publishing & Broadcasting Limited (AU) 216,628
-------------
392,194
-------------
COMMUNICATIONS EQUIPMENT--2.2%
14,400 Nokia Oyj (FI) 207,792
2,153 Sagem SA (FR) 240,212
144,000 Telefonaktiebolaget LM Ericsson (SW) 424,373
-------------
872,377
-------------
</Table>
GUIDE TO UNDERSTANDING FOREIGN HOLDINGS
The following abbreviations are used throughout the Statement of Investments to
indicate the country of origin on non-U.S. holdings.
AU Australia
AT Austria
BD Bermuda
BE Belgium
BR Brazil
CA Canada
CI Channel Islands
CN China
CY Cyprus
DE Denmark
FI Finland
FR France
GE Germany
GR Greece
HK Hong Kong
ID Indonesia
IE Ireland
IN India
IT Italy
JA Japan
MA Malaysia
MX Mexico
NE Netherlands
NW Norway
PT Portugal
RS Russia
SG Singapore
SL Solvak Republic
SP Spain
SW Sweden
SZ Switzerland
TH Thailand
UK United Kingdom
10
<Page>
<Table>
<Caption>
SHARES MARKET VALUE
- -----------------------------------------------------------------------------------------------
COMPUTER STORAGE & PERIPHERALS--1.2%
14,300 ATI Technologies, Inc. (CA)* $ 268,338
4,300 Logitech International SA (SZ)* 195,704
-------------
464,042
-------------
CONSTRUCTION & ENGINEERING--0.5%
12,300 ACS, Actividades de Construccion y Servicios SA (SP) 207,270
-------------
CONSTRUCTION MATERIALS--1.2%
155,200 Aggregate Industries PLC (UK) 230,802
50,100 Boral Limited (AU) 225,459
-------------
456,261
-------------
CONSTRUCTION, FARM MACHINERY & HEAVY TRUCKS--0.5%
5,800 Volvo AB Class B (SW) 201,726
-------------
CONSUMER ELECTRONICS--3.6%
27,000 Casio Computer Company Limited (JA) 408,780
9,300 Citizen Electronics Company Limited (JA) 528,433
5,800 Koninklijke (Royal) Philips Electronics NV (NE) 156,167
20,000 Sharp Corporation (JA) 319,479
-------------
1,412,859
-------------
CONSUMER FINANCE--0.6%
3,900 Sanyo Shinpan Finance Company Limited (JA) 222,673
-------------
DIVERSIFIED BANKS--12.3%
8,800 ABN AMRO Holding NV (NE) 192,510
28,920 Alpha Bank AE (GR) 735,403
39,600 Anglo Irish Bank Corporation PLC (IE) 619,126
90,319 Barclays PLC (UK) 769,448
8,807 BNP Paribas SA (FR) 541,664
31,100 HBOS PLC (UK) 384,943
37 Mitsubishi Tokyo Financial Group, Inc. (JA) 342,483
22,034 Royal Bank of Scotland Group PLC (UK) 634,566
17,600 Skandinaviska Enskilda Banken (SW) 254,666
4,700 Societe Generale (FR) 399,434
-------------
4,874,243
-------------
DIVERSIFIED CAPITAL MARKETS--1.7%
11,200 Credit Suisse Group (SZ) 397,956
3,770 UBS AG (SZ) 265,652
-------------
663,608
-------------
DIVERSIFIED METALS & MINING--1.7%
81,600 WMC Resources Limited (AU) 279,674
30,300 Xstrata PLC (UK) 404,989
-------------
684,663
-------------
ELECTRIC UTILITIES--2.3%
5,700 E.ON AG (GE) 410,561
39,900 Fortum Oyj (FI) 509,734
-------------
920,295
-------------
</Table>
SEE NOTES TO STATEMENT OF INVESTMENTS.
11
<Page>
<Table>
<Caption>
SHARES MARKET VALUE
- -----------------------------------------------------------------------------------------------
ELECTRONIC EQUIPMENT MANUFACTURERS--2.9%
1,800 Keyence Corporation (JA) $ 410,594
2,400 Kyocera Corporation (JA) 203,675
7,100 TDK Corporation (JA) 538,771
-------------
1,153,040
-------------
FOOD RETAIL--1.9%
3,900 Delhaize Group (BE) 199,532
3,000 Guyenne et Gascogne AG (FR) 346,027
41,900 Tesco PLC (UK) 202,319
-------------
747,878
-------------
FOREST PRODUCTS-- 0.5%
18,400 Canfor Corporation (CA)* 208,592
-------------
GAS UTILITIES--0.8%
79,200 Centrica PLC (UK) 322,459
-------------
HOME FURNISHINGS--0.6%
4,700 Hunter Douglas NV (NE) 228,738
-------------
HOMEBUILDING--0.9%
33,400 Barratt Developments PLC (UK) 357,078
-------------
HOUSEHOLD PRODUCTS--0.5%
7,600 Reckitt Benckiser PLC (UK) 215,154
-------------
HYPERMARKETS & SUPER CENTERS--0.7%
5,900 Metro AG (GE) 279,961
-------------
INDUSTRIAL CONGLOMERATES--2.0%
251,400 Cookson Group PLC (UK)* 191,491
71,000 Keppel Corporation Limited (SG) 290,595
4,400 Siemens AG (GE) 316,657
-------------
798,743
-------------
INDUSTRIAL MACHINERY--1.4%
41,000 NSK Limited (JA) 204,032
7,200 Saurer AG (SZ)* 368,221
-------------
572,253
-------------
INTEGRATED OIL & GAS--7.0%
9,819 BP PLC (UK) 704,967
16,100 Husky Energy, Inc. (CA) 307,999
1,960 OMV AG (AT) 381,579
19,800 Repsol YPF SA (SP) 433,629
35,850 Shell Transport & Trading Company PLC (UK) 262,991
3,618 Total SA (FR) 689,793
-------------
2,780,958
-------------
INTEGRATED TELECOMMUNICATION SERVICES--2.7%
11,000 Deutsche Telekom AG (GE)* 193,393
66,500 Koninklijke NV (NE) 506,497
55,100 Telenor ASA (NW) 383,152
-------------
1,083,042
-------------
LEISURE PRODUCTS--0.9%
15,800 Sankyo Company Limited (JA) 342,455
-------------
MARINE--0.6%
184,000 Neptune Orient Lines Limited (SG) 252,099
-------------
</Table>
12
<Page>
<Table>
<Caption>
SHARES MARKET VALUE
- -----------------------------------------------------------------------------------------------
MULTI-LINE INSURANCE--1.0%
20,200 Aviva PLC (UK) $ 208,448
4,100 Baloise Holding Limited (SZ) 178,090
-------------
386,538
-------------
OIL & GAS EXPLORATION & PRODUCTION--3.4%
14,600 Canadian National Resources Limited (CA) 436,105
13,500 Eni SPA (IT) 268,062
6,100 Norsk Hydro ASA (NW) 396,458
277,700 Oil Search Limited (AU) 255,356
-------------
1,355,981
-------------
OIL & GAS REFINING, MARKETING, & TRANSPORTATION--0.6%
37,400 Caltex Australia Limited (AU) 240,475
-------------
OTHER DIVERSIFIED FINANCIAL SERVICES--1.7%
19,800 ING Groep NV (NE) 467,356
7,300 Sun Life Financial, Inc. (CA) 209,124
-------------
676,480
-------------
PACKAGED FOODS & MEATS--1.6%
13,600 Koninklijke Wessanen NV (NE) 195,586
21,000 Nisshin Seifun Group, Inc. (JA) 213,243
193,000 Want Want Holdings Limited (SG) 212,300
-------------
621,129
-------------
PHARMACEUTICALS--9.8%
8,250 AstraZeneca Group PLC (UK) 370,158
4,800 Aventis SA (FR) 362,380
14,600 Axcan Pharma, Inc. (CA)* 308,050
12,600 Eisai Company Limited (JA) 362,590
7,100 Merck KGaA (GE) 429,334
13,859 Novartis AG (SZ) 611,394
9,000 Ono Pharmaceuticals Company Limited (JA) 423,132
28,500 Shire Pharmaceuticals Group PLC (UK)* 248,871
6,100 Takeda Chemical Industries Limited (JA) 267,782
38,100 Warner Chilcott PLC (UK) 480,223
-------------
3,863,914
-------------
PRECIOUS METALS & MINERALS--0.8%
18,700 ThyssenKrupp AG (GE) 319,668
-------------
PROPERTY & CASUALTY INSURANCE--0.9%
100,100 Insurance Australia Group Limited (AU) 348,659
-------------
PUBLISHING--0.6%
22,800 Johnston Press PLC (UK) 234,244
-------------
REAL ESTATE INVESTMENT TRUSTS--1.5%
88 Sumitomo Mitsui Financial Group, Inc. (JA) 603,253
-------------
REAL ESTATE MANAGEMENT & DEVELOPMENT--0.8%
4,000 Wereldhave NV (NE) 328,994
-------------
SEMICONDUCTOR EQUIPMENT--0.5%
11,000 ASML Holding NV (NE)* 186,166
-------------
</Table>
SEE NOTES TO STATEMENT OF INVESTMENTS.
13
<Page>
<Table>
<Caption>
SHARES MARKET VALUE
- -----------------------------------------------------------------------------------------------
SEMICONDUCTORS--0.9%
8,000 Micronas Semiconductor Holding AG (SZ)* $ 363,782
-------------
SOFT DRINKS--1.6%
39,200 Coca-Cola Amatil Limited (AU) 189,241
18,500 Kirin Beverage Corporation (JA) 435,733
-------------
624,974
-------------
THRIFTS & MORTGAGE FINANCE--0.8%
24,200 Northern Rock PLC (UK) 317,532
-------------
TIRES & RUBBER--1.1%
8,800 Continental AG (GE) 424,529
-------------
TRADING COMPANIES & DISTRIBUTORS--0.5%
19,000 Mitsubishi Corporation (JA) 184,576
-------------
WIRELESS TELECOMMUNICATION SERVICES--6.0%
13,700 Bouygues SA (FR) 458,722
87 KDDI Corporation (JA) 497,530
180,000 SmarTone Telecommunications Holdings Limited (HK) 197,313
31,900 Telecom Italia Mobile SPA (IT) 180,866
479,775 Vodafone Group PLC (UK) 1,050,650
-------------
2,385,081
-------------
TOTAL COMMON STOCKS (FOREIGN)
(COST--$28,621,455) 37,961,03
-------------
<Caption>
PRINCIPAL AMOUNT AMORTIZED VALUE
- -----------------------------------------------------------------------------------------------
CORPORATE SHORT-TERM NOTES--3.5%
AGRICULTURAL PRODUCTS--3.5%
$1,400,000 Archer-Daniels-Midland Company
1.43% 7/1/04+ $ 1,400,000
-------------
TOTAL CORPORATE SHORT-TERM NOTES
(AMORTIZED COST--$1,400,000) 1,400,000
-------------
TOTAL INVESTMENTS--99.4%
(TOTAL COST--$30,021,455) 39,361,031
-------------
OTHER ASSETS AND LIABILITIES--0.6% 241,943
-------------
NET ASSETS--100.0% $ 39,602,974
=============
</Table>
NOTES TO STATEMENT OF INVESTMENTS
* NON-INCOME PRODUCING.
+ SECURITY WAS ACQUIRED PURSUANT TO SECTION 4(2) OF THE SECURITIES ACT OF 1933
AND MAY BE DEEMED TO BE RESTRICTED FOR RESALE.
14
<Page>
STATEMENT OF ASSETS AND LIABILITIES
June 30, 2004 (UNAUDITED)
<Table>
ASSETS
Investment securities, at cost $ 30,021,455
---------------
Investment securities, at market 39,361,031
Cash 118,361
Foreign currency (cost $19,288) 18,778
Receivables:
Investment securities sold 212,195
Capital shares sold 162,436
Dividends 34,256
From adviser 7,801
From transfer agent 227
Other 31,581
---------------
Total Assets 39,946,666
---------------
LIABILITIES
Payables and other accrued liabilities:
Investment securities purchased 210,255
Capital shares redeemed 24,481
Advisory fees 24,078
Shareholder servicing fees 7,675
Accounting fees 3,210
Distribution fees 4,365
Transfer agency fees 8,557
Custodian fees 21,094
Other 39,977
---------------
Total Liabilities 343,692
---------------
Net Assets $ 39,602,974
===============
COMPOSITION OF NET ASSETS
Capital (par value and paid-in surplus) $ 66,477,490
Undistributed net investment income 294,556
Accumulated net realized loss from security transactions (36,510,591)
Net unrealized appreciation on investments
and foreign currency translation 9,341,519
---------------
Total $ 39,602,974
===============
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
15
<Page>
<Table>
CLASS A
Net Assets $ 23,229,730
Shares Outstanding 2,252,917
Net Asset Value, Redemption Price Per Share $ 10.31
Maximum offering price per share (net asset value
plus sales charge of 5.75% of offering price) $ 10.94
CLASS B
Net Assets $ 2,191,800
Shares Outstanding 218,364
Net Asset Value, Offering and Redemption Price (excluding
applicable contingent deferred sales charge) Per Share $ 10.04
CLASS C
Net Assets $ 465,533
Shares Outstanding 46,455
Net Asset Value, Offering and Redemption Price (excluding
applicable contingent deferred sales charge) Per Share $ 10.02
CLASS F
Net Assets $ 10,190,696
Shares Outstanding 987,313
Net Asset Value, Offering and Redemption Price Per Share $ 10.32
CLASS R
Net Assets $ 3,340,224
Shares Outstanding 321,773
Net Asset Value, Offering and Redemption Price Per Share $ 10.38
CLASS T
Net Assets $ 184,991
Shares Outstanding 18,086
Net Asset Value, Redemption Price Per Share $ 10.23
Maximum offering price per share (net asset value
plus sales charge of 4.50% of offering price) $ 10.71
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
16
<Page>
STATEMENT OF OPERATIONS
For the six months ended June 30, 2004 (UNAUDITED)
<Table>
INVESTMENT INCOME
Dividends $ 655,278
Interest 4,639
Foreign taxes withheld (81,433)
---------------
Total Investment Income 578,484
---------------
EXPENSES
Advisory fees--Note 2 196,145
Shareholder servicing fees--Note 2 45,931
Accounting fees--Note 2 19,615
Distribution fees--Note 2 23,265
Transfer agency fees--Note 2 41,043
Registration fees 31,997
Postage and mailing expenses 1,046
Custodian fees and expenses--Note 2 33,253
Printing expenses 11,040
Legal and audit fees 2,438
Directors' fees and expenses--Note 2 3,947
Other expenses 5,791
---------------
Total Expenses 415,511
Earnings Credits (485)
Reimbursed/Waived Expenses (133,851)
Net Expenses 281,175
---------------
Net Investment Income 297,309
---------------
REALIZED AND UNREALIZED GAIN (LOSS) ON SECURITY
TRANSACTIONS AND FOREIGN CURRENCY TRANSACTIONS
Net Realized Gain (Loss) on:
Security Transactions 3,209,367
Foreign Currency Transactions (5,604)
---------------
Net Realized Gain 3,203,763
Net Change in Unrealized Appreciation/Depreciation of
Investments and Foreign Currency Translation (1,331,918)
---------------
Net Realized and Unrealized Gain 1,871,845
---------------
Net Increase in Net Assets Resulting from Operations $ 2,169,154
===============
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
17
<Page>
STATEMENTS OF CHANGES IN NET ASSETS
(UNAUDITED)
<Table>
<Caption>
SIX MONTHS ENDED YEAR ENDED
6/30/04 12/31/03
OPERATIONS
Net Investment Income $ 297,309 $ 254,642
Net Realized Gain (Loss) on Security and
Foreign Currency Transactions 3,203,763 (5,296,540)
Net Change in Unrealized Appreciation/Depreciation
of Investments and Foreign Currency Translation (1,331,918) 16,056,126
------------ ------------
Net Increase in Net Assets Resulting from Operations 2,169,154 11,014,228
------------ ------------
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS
From Net Investment Income
Class A 0 (156,488)
Class B 0 (1,759)
Class F 0 (71,823)
Class R 0 (28,532)
Class T 0 (910)
------------ ------------
Net Decrease from Dividends and Distributions 0 (259,512)
------------ ------------
CAPITAL SHARE TRANSACTIONS
Net Increase (Decrease)--Note 4
Class A (439,639) (1,959,586)
Class B (299,253) (450,587)
Class C (40,936) (190,274)
Class F (246,076) (2,350,311)
Class R 14,915 (204,031)
Class T 3,144 (57,906)
------------ ------------
Net Decrease from Capital Share Transactions (1,007,845) (5,212,695)
------------ ------------
Net Increase in Net Assets 1,161,309 5,542,021
------------ ------------
NET ASSETS
Beginning of period $ 38,441,665 $ 32,899,644
------------ ------------
End of period $ 39,602,974 $ 38,441,665
============ ============
Undistributed Net Investment Income (Loss) $ 294,556 $ (2,753)
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
18
<Page>
FINANCIAL HIGHLIGHTS
(UNAUDITED)
<Table>
<Caption>
SIX MONTHS YEAR ENDED
ENDED JUNE 30, DECEMBER 31,
2004 2003 2002 2001 2000
-------------- --------------------------------------------------
CLASS A SHARES
PER SHARE OPERATING DATA
Net Asset Value, beginning of period $ 9.77 $ 7.19 $ 10.03 $ 14.42 $ 19.88
- ----------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) 0.08 0.06 0.01 (0.00)+ (0.03)
Net realized and unrealized gains
(losses) on securities 0.46 2.59 (2.84) (4.39) (3.53)
-------------------------------------------------------------------
Total from investment operations 0.54 2.65 (2.83) (4.39) (3.56)
- ----------------------------------------------------------------------------------------------------------
Less dividends and distributions:
From net investment income 0.00 (0.07) (0.01) 0.00 0.00
From net realized gains 0.00 0.00 0.00 0.00 (1.90)
-------------------------------------------------------------------
Total distributions 0.00 (0.07) (0.01) 0.00 (1.90)
- ----------------------------------------------------------------------------------------------------------
Net Asset Value, end of period $ 10.31 $ 9.77 $ 7.19 $ 10.03 $ 14.42
===================================================================
TOTAL RETURN* 5.53% 36.84% (28.19%) (30.44%) (17.60%)
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000s) $ 23,230 $ 22,432 $ 18,217 $ 29,151 $ 4,434
Ratios to average net assets:
Expenses with reimbursements,
but no earnings credits# 1.41%** 1.41% 1.40% 1.46% 1.82%
Expenses with reimbursements
and earnings credits 1.40%** 1.40% 1.40% 1.44% 1.77%
Net investment income (loss) 1.55%** 0.80% 0.13% (0.74%) (0.36%)
- ----------------------------------------------------------------------------------------------------------
Portfolio turnover rate@ 73% 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.
** ANNUALIZED.
# CERTAIN FEES WERE REIMBURSED OR WAIVED BY THE MANAGEMENT COMPANY OR ITS
AFFILIATES. HAD THESE FEES NOT BEEN REIMBURSED OR WAIVED, THE EXPENSE
RATIOS WOULD HAVE BEEN 2.06% (2004), 2.48% (2003), 2.18% (2002), 1.78%
(2001), AND 1.82% (2000).
@ 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>
<Table>
<Caption>
SIX MONTHS
ENDED JUNE 30, YEAR ENDED DECEMBER 31,
2004 2003 2002 2001 2000
-------------- --------------------------------------------------
CLASS B SHARES
PER SHARE OPERATING DATA
Net Asset Value, beginning of period $ 9.55 $ 7.03 $ 9.87 $ 14.29 $ 19.88
- ----------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) 0.04+ (0.08) (0.11) (0.12) (0.09)
Net realized and unrealized gains
(losses) on securities 0.45 2.61 (2.73) (4.30) (3.60)
-------------------------------------------------------------------
Total from investment operations 0.49 2.53 (2.84) (4.42) (3.69)
- ----------------------------------------------------------------------------------------------------------
Less dividends and distributions:
From net investment income 0.00 (0.01) 0.00 0.00 0.00
From net realized gains 0.00 0.00 0.00 0.00 (1.90)
Total distributions 0.00 (0.01) 0.00 0.00 (1.90)
- ----------------------------------------------------------------------------------------------------------
Net Asset Value, end of period $ 10.04 $ 9.55 $ 7.03 $ 9.87 $ 14.29
===================================================================
TOTAL RETURN* 5.13% 35.95% (28.77%) (30.93%) (18.27%)
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000s) $ 2,192 $ 2,372 $ 2,201 $ 3,786 $ 5,129
Ratios to average net assets:
Expenses with reimbursements,
but no earnings credits# 2.15%** 2.16% 2.16% 2.28% 2.57%
Expenses with reimbursements
and earnings credits 2.15%** 2.15% 2.15% 2.26% 2.52%
Net investment income (loss) 0.76%** 0.07% (0.61%) (1.03%) (1.18%)
- ----------------------------------------------------------------------------------------------------------
Portfolio turnover rate@ 73% 144% 220% 213% 184%
</Table>
+ COMPUTED USING AVERAGE SHARES OUTSTANDING THROUGHOUT THE PERIOD.
* SALES CHARGES ARE NOT REFLECTED IN THE TOTAL RETURN.
** ANNUALIZED.
# CERTAIN FEES WERE REIMBURSED OR WAIVED BY THE MANAGEMENT COMPANY OR ITS
AFFILIATES. HAD THESE FEES NOT BEEN REIMBURSED OR WAIVED, THE EXPENSE
RATIOS WOULD HAVE BEEN 2.86% (2004), 3.32% (2003), 2.91% (2002), 2.67%
(2001) AND 2.57% (2000).
@ 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>
<Table>
<Caption>
SIX MONTHS
ENDED JUNE 30, YEAR ENDED DECEMBER 31,
2004 2003 2002 2001 2000
-------------- --------------------------------------------------
CLASS C SHARES
PER SHARE OPERATING DATA
Net Asset Value, beginning of period $ 9.53 $ 7.02 $ 9.86 $ 14.27 $ 19.88
- ----------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) 0.04+ (0.26) (0.29) (0.16) (0.07)
Net realized and unrealized gains
(losses) on securities 0.45 2.77 (2.55) (4.25) (3.64)
-------------------------------------------------------------------
Total from investment operations 0.49 2.51 (2.84) (4.41) (3.71)
- ----------------------------------------------------------------------------------------------------------
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 0.00 (1.90)
-------------------------------------------------------------------
Total distributions 0.00 0.00 0.00 0.00 (1.90)
- ----------------------------------------------------------------------------------------------------------
Net Asset Value, end of period $ 10.02 $ 9.53 $ 7.02 $ 9.86 $ 14.27
===================================================================
TOTAL RETURN* 5.14% 35.76% (28.80%) (30.90%) (18.37%)
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000s) $ 466 $ 482 $ 532 $ 1,429 $ 2,635
Ratios to average net assets:
Expenses with reimbursements,
but no earnings credits# 2.15%** 2.16% 2.16% 2.29% 2.55%
Expenses with reimbursements
and earnings credits 2.15%** 2.15% 2.15% 2.26% 2.50%
Net investment income (loss) 0.78%** 0.08% (0.63%) (0.99%) (1.18%)
- ----------------------------------------------------------------------------------------------------------
Portfolio turnover rate@ 73% 144% 220% 213% 184%
</Table>
+ COMPUTED USING AVERAGE SHARES OUTSTANDING THROUGHOUT THE PERIOD.
* SALES CHARGES ARE NOT REFLECTED IN THE TOTAL RETURN.
** ANNUALIZED.
# CERTAIN FEES WERE REIMBURSED OR WAIVED BY THE MANAGEMENT COMPANY OR ITS
AFFILIATES. HAD THESE FEES NOT BEEN REIMBURSED OR WAIVED, THE EXPENSE
RATIOS WOULD HAVE BEEN 2.85% (2004), 3.25% (2003), 3.11% (2002), 2.85%
(2001), AND 2.55% (2000).
@ 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>
<Table>
<Caption>
SIX MONTHS
ENDED JUNE 30, YEAR ENDED DECEMBER 31,
2004 2003 2002 2001 2000 1999
-------------- ---------------------------------------------------------------
CLASS F SHARES
PER SHARE OPERATING DATA
Net Asset Value, beginning of period $ 9.78 $ 7.18 $ 10.03 $ 14.40 $ 19.87 $ 14.03
- --------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) 0.07 (0.01) (0.05) (0.07) (0.08) (0.05)
Net realized and unrealized gains
(losses) on securities 0.47 2.68 (2.79) (4.30) (3.49) 8.07
--------------------------------------------------------------------------------
Total from investment operations 0.54 2.67 (2.84) (4.37) (3.57) 8.02
- --------------------------------------------------------------------------------------------------------------------------
Less dividends and distributions:
From net investment income 0.00 (0.07) (0.01) 0.00 0.00 0.00
From net realized gains 0.00 0.00 0.00 0.00 (1.90) (2.18)
--------------------------------------------------------------------------------
Total distributions 0.00 (0.07) (0.01) 0.00 (1.90) (2.18)
- --------------------------------------------------------------------------------------------------------------------------
Net Asset Value, end of period $ 10.32 $ 9.78 $ 7.18 $ 10.03 $ 14.40 $ 19.87
================================================================================
TOTAL RETURN 5.52% 37.17% (28.30%) (30.35%) (17.65%) 58.71%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000s) $ 10,191 $ 9,837 $ 9,321 $ 16,640 $ 30,040 $ 35,607
Ratios to average net assets:
Expenses with reimbursements,
but no earnings credits# 1.40%** 1.40% 1.40% 1.55% 1.84% 1.82%
Expenses with reimbursements
and earnings credits 1.40%** 1.40% 1.40% 1.52% 1.80% 1.80%
Net investment income (loss) 1.54%** 0.80% 0.12% (0.26%) (0.55%) (0.36%)
- --------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate@ 73% 144% 220% 213% 184% 205%
</Table>
** ANNUALIZED.
# CERTAIN FEES WERE REIMBURSED OR WAIVED BY THE MANAGEMENT COMPANY OR ITS
AFFILIATES. HAD THESE FEES NOT BEEN REIMBURSED OR WAIVED, THE EXPENSE
RATIOS WOULD HAVE BEEN 2.19% (2004), 2.52% (2003), 2.13% (2002), 1.99%
(2001), 1.95% (2000) AND 1.99% (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>
<Table>
<Caption>
SIX MONTHS
ENDED JUNE 30, YEAR ENDED DECEMBER 31,
2004 2003 2002 2001 2000
-------------- --------------------------------------------------
CLASS R SHARES
PER SHARE OPERATING DATA
Net Asset Value, beginning of period $ 9.82 $ 7.22 $ 10.08 $ 14.45 $ 19.88
- ----------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) 0.09 0.09 0.02 (0.00)+ (0.00)
Net realized and unrealized gains
(losses) on securities 0.47 2.60 (2.85) (4.37) (3.52)
-------------------------------------------------------------------
Total from investment operations 0.56 2.69 (2.83) (4.37) (3.53)
- ----------------------------------------------------------------------------------------------------------
Less dividends and distributions:
From net investment income 0.00 (0.09) (0.03) 0.00 0.00
From net realized gains 0.00 0.00 0.00 0.00 (1.90)
-------------------------------------------------------------------
Total distributions 0.00 (0.09) (0.03) 0.00 (1.90)
- ----------------------------------------------------------------------------------------------------------
Net Asset Value, end of period $ 10.38 $ 9.82 $ 7.22 $ 10.08 $ 14.45
===================================================================
TOTAL RETURN 5.70% 37.27% (28.10%) (30.24%) (17.45%)
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000s) $ 3,340 $ 3,146 $ 2,470 $ 6,102 $ 2,716
Ratios to average net assets:
Expenses with reimbursements,
but no earnings credits# 1.15%** 1.15% 1.16% 1.28% 1.63%
Expenses with reimbursements
and earnings credits 1.15%** 1.15% 1.15% 1.26% 1.53%
Net investment income (loss) 1.81%** 1.03% 0.27% (0.04%) (0.40%)
- ----------------------------------------------------------------------------------------------------------
Portfolio turnover rate@ 73% 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.
** ANNUALIZED.
# CERTAIN FEES WERE REIMBURSED OR WAIVED BY THE MANAGEMENT COMPANY OR ITS
AFFILIATES. HAD THESE FEES NOT BEEN REIMBURSED OR WAIVED, THE EXPENSE
RATIOS WOULD HAVE BEEN 1.69% (2004), 1.95% (2003), 1.71% (2002), 1.57%
(2001), AND 1.63% (2000).
@ 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>
<Table>
<Caption>
SIX MONTHS
ENDED JUNE 30, YEAR ENDED DECEMBER 31,
2004 2003 2002 2001 2000
-------------- --------------------------------------------------
CLASS T SHARES
PER SHARE OPERATING DATA
Net Asset Value, beginning of period $ 9.70 $ 7.14 $ 9.97 $ 14.37 $ 19.88
- ----------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) 0.07 0.00+ (0.10) (0.09) (0.06)
Net realized and unrealized gains
(losses) on securities 0.46 2.61 (2.73) (4.31) (3.55)
-------------------------------------------------------------------
Total from investment operations 0.53 2.61 (2.83) (4.40) (3.61)
- ----------------------------------------------------------------------------------------------------------
Less dividends and distributions:
From net investment income 0.00 (0.05) 0.00 0.00 0.00
From net realized gains 0.00 0.00 0.00 0.00 (1.90)
-------------------------------------------------------------------
Total distributions 0.00 (0.05) 0.00 0.00 (1.90)
- ----------------------------------------------------------------------------------------------------------
Net Asset Value, end of period $ 10.23 $ 9.70 $ 7.14 $ 9.97 $ 14.37
===================================================================
TOTAL RETURN* 5.46% 36.58% (28.39%) (30.62%) (17.85%)
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000s) $ 185 $ 172 $ 158 $ 343 $ 654
Ratios to average net assets:
Expenses with reimbursements,
but no earnings credits# 1.66%** 1.65% 1.65% 1.80% 2.03%
Expenses with reimbursements
and earnings credits 1.65%** 1.65% 1.65% 1.77% 1.98%
Net investment income (loss) 1.36%** 0.67% (0.12%) (0.53%) (0.70%)
- ----------------------------------------------------------------------------------------------------------
Portfolio turnover rate@ 73% 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.
** ANNUALIZED.
# CERTAIN FEES WERE REIMBURSED OR WAIVED BY THE MANAGEMENT COMPANY OR ITS
AFFILIATES. HAD THESE FEES NOT BEEN REIMBURSED OR WAIVED, THE EXPENSE
RATIOS WOULD HAVE BEEN 2.30% (2004), 2.88% (2003), 4.00% (2002), 2.86%
(2001), AND 2.03% (2000).
@ PORTFOLIO TURNOVER RATE IS A MEASURE OF PORTFOLIO ACTIVITY THAT IS
CALCULATED BY DIVIDING THE LESSER OF PURCHASES OR SALES OF SECURITIES,
EXCLUDING SECURITIES HAVING MATURITY DATES AT ACQUISITION OF ONE YEAR OR
LESS, BY THE AVERAGE VALUE OF THE PORTFOLIO SECURITIES HELD DURING THE
PERIOD, WHICH IS A ROLLING 12-MONTH PERIOD.
SEE NOTES TO FINANCIAL STATEMENTS.
24
<Page>
NOTES TO FINANCIAL STATEMENTS
June 30, 2004 (UNAUDITED)
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
Dreyfus Founders Funds, Inc. (the "Company") is an open-end management
investment company registered under the Investment Company Act of 1940 (the
"1940 Act"). 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--A domestic 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 a
security traded on Nasdaq, at its official closing price. Lacking any sales on
that day, the security is valued at the current closing bid price, or by quotes
from dealers making a market in the security if the closing bid price is not
available, or in the case of written call options, at the mean between the
highest bid and lowest asked quotations obtained from at least two securities
dealers.
A foreign equity security traded on a foreign exchange is valued at the last
quoted official closing price available before the time when the Fund's assets
are valued, or at the last quoted sales price if the exchange does not provide
an official closing price or if the foreign market has not yet closed. Lacking
any sales on that day, the security is valued at the current closing bid price,
or by quotes from dealers making a market in the security if the closing bid
price is not available. London closing exchange rates are used to convert
foreign currencies to U.S. dollars.
A debt security with a remaining maturity greater than 60 days at the time of
purchase is valued in accordance with the evaluated bid price supplied by a
pricing service approved by the Company's board of directors or, if such price
is not available, at the mean between the highest bid and lowest asked
quotations obtained from at least two securities dealers. A debt security with a
remaining maturity of 60 days or less at the time of purchase is valued at
amortized cost, which approximates market value, unless it is determined that
amortized cost would not represent market value, in which case the securities
would be marked to market. The Fund amortizes premiums and discounts on all debt
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
25
<Page>
occurs after the close of the market on which a security is traded, and it is
determined that the event has materially affected the value of the security.
SECURITY TRANSACTIONS--Security transactions are accounted for as of the date
the securities are purchased or sold (trade date). Net realized gains and losses
are determined on the basis of identified cost, which is also used for federal
income tax purposes.
FOREIGN SECURITIES AND CURRENCY TRANSACTIONS--Foreign securities may carry more
risk than U.S. securities, such as political and currency risks. The Fund
normally invests a large portion of its assets in foreign securities. In the
event the Fund executes a foreign security transaction, the Fund may enter into
a foreign currency contract to settle the foreign security transaction. The
resultant foreign currency gain or loss from the contract is recorded as foreign
currency gain or loss and is presented as such in the Statement of Operations.
Foreign currency held at June 30, 2004 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 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.
26
<Page>
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, if
any, reduce Other Expenses and would be 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.
Founders has agreed to waive a portion of its management fee and to limit the
total expenses of the Fund. Founders agreed to waive that portion of its
management fee that exceeds 0.75% of the Fund's average net assets and to limit
the annual expenses of the Fund (net of credits received from the Fund's
custodian) to 1.40% for Class A and Class F shares, 2.15% for Class B and Class
C shares, 1.15% for Class R shares and 1.65% for Class T shares. These
reductions are made pursuant to a permanent contractual commitment. For the six
months ended June 30, 2004, $128,140 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"),
the direct owner of Founders and 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. The Fund paid DSC a monthly fee equal, on an
27
<Page>
annual basis, to $24.00 per Class F shareholder account considered to be an open
account at any time during a given month. During the six months ended June 30,
2004, Class F shares were charged $13,588 pursuant to this shareholder services
agreement.
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 incurred by
DTI are paid by the Fund. During the six months ended June 30, 2004, Class F
shares were charged $4,869 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 $12.43 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 six months ended June
30, 2004 were as follows:
<Table>
<Caption>
TRANSFER
AGENCY FEES
-----------
Class A $ 26,325
Class B $ 3,271
Class C $ 677
Class R $ 1,921
Class T $ 207
</Table>
Certain as-of shareholder transactions may result in gains or losses to the
Fund. Depending on the circumstances, these gains may be payable to, or
reimbursable from, the transfer agent; such gains and losses are presented on
the Statement of Assets and Liabilities.
DISTRIBUTION AND SHAREHOLDER SERVICES PLANS--DSC also is the distributor of the
Fund's shares. The Fund has adopted a Distribution Plan pursuant to Rule 12b-1
under the 1940 Act 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 six months ended June
30, 2004, Class F shares were charged $12,621 pursuant to this Distribution
Plan.
The Fund also has adopted a Distribution Plan pursuant to Rule 12b-1 under the
1940 Act 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
28
<Page>
Class T shares pay DSC an annual fee of 0.25% of the value of their average
daily net assets for the provision of certain services.
Distribution and shareholder servicing fees paid to DSC by the Fund's Class A,
B, C and T shares for the six months ended June 30, 2004, were as follows:
<Table>
<Caption>
DISTRIBUTION SHAREHOLDER
FEES SERVICING FEES
-----------------------------
Class A N/A $ 28,641
Class B $ 8,581 $ 2,860
Class C $ 1,832 $ 611
Class T $ 231 $ 231
</Table>
During the six months ended June 30, 2004, DSC retained $37 and $68 in sales
commissions from the sales of Class A and Class T shares, respectively. DSC also
retained $6,155 of contingent deferred sales charges relating to redemptions of
Class B shares.
FUND ACCOUNTING AND ADMINISTRATIVE SERVICES FEES--The Funds have agreed to
compensate Founders for providing accounting services, administration,
compliance monitoring, regulatory and shareholder reporting, as well as related
facilities, equipment and clerical help. The fee is computed at the annual rate
of 0.10% 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 and an affiliate of Founders, 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
--------------------------------------------------------------------
9/1/03 to 8/31/04 $ 150,000
9/1/04 to 8/31/05 $ 200,000
9/1/05 to 8/31/06 $ 200,000
</Table>
The fee waiver is allocated among the Funds in proportion to their respective
shares of the total custodian fee. For the six months ended June 30, 2004, the
Fund's portion of the fee waiver was $5,711. 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
29
<Page>
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.
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
June 30, 2004 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 $ 30,070,528
Gross Tax Appreciation of Investments $ 9,514,169
Gross Tax Depreciation of Investments $ (223,666)
Net Tax Appreciation $ 9,290,503
</Table>
30
<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>
SIX MONTHS ENDED YEAR ENDED
JUNE 30, 2004 DECEMBER 31, 2003
SHARES AMOUNT SHARES AMOUNT
CLASS A
Sold 84,955 $ 864,744 724,401 $ 5,318,119
Dividends or Distributions Reinvested 0 $ 0 15,239 $ 147,964
Redeemed (128,196) $ (1,304,383) (978,731) $ (7,425,669)
-------------------------------------------------------------------
Net Decrease (43,241) $ (439,639) (239,091) $ (1,959,586)
===================================================================
CLASS B
Sold 4,032 $ 39,945 72,988 $ 520,427
Dividends or Distributions Reinvested 0 $ 0 146 $ 1,391
Redeemed (34,170) $ (339,198) (137,735) $ (972,405)
-------------------------------------------------------------------
Net Decrease (30,138) $ (299,253) (64,601) $ (450,587)
===================================================================
CLASS C
Sold 4,337 $ 42,826 165,203 $ 1,132,327
Redeemed (8,425) $ (83,762) (190,526) $ (1,322,601)
-------------------------------------------------------------------
Net Decrease (4,088) $ (40,936) (25,323) $ (190,274)
===================================================================
CLASS F
Sold 360,373 $ 3,623,648 1,515,865 $ 11,180,704
Dividends or Distributions Reinvested 0 $ 0 6,797 $ 66,066
Redeemed (379,134) $ (3,869,724) (1,814,806) $ (13,597,081)
-------------------------------------------------------------------
Net Decrease (18,761) $ (246,076) (292,144) $ (2,350,311)
===================================================================
CLASS R
Sold 23,695 $ 243,158 146,346 $ 1,105,834
Dividends or Distributions Reinvested 0 $ 0 2,764 $ 26,981
Redeemed (22,141) $ (228,243) (170,854) $ (1,336,846)
-------------------------------------------------------------------
Net Increase (Decrease) 1,554 $ 14,915 (21,744) $ (204,031)
===================================================================
CLASS T
Sold 1,369 $ 13,756 97,501 $ 651,910
Dividends or Distributions Reinvested 0 $ 0 91 $ 882
Redeemed (1,047) $ (10,612) (101,973) $ (710,698)
-------------------------------------------------------------------
Net Increase (Decrease) 322 $ 3,144 (4,381) $ (57,906)
===================================================================
</Table>
31
<Page>
5. INVESTMENT TRANSACTIONS
Purchases and sales of investment securities (excluding short-term securities
and U.S. government obligations) for the six months ended June 30, 2004 were
$12,676,689 and $14,693,097, 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 June 30, 2004, the Fund did not have any borrowings under the LOC.
7. LEGAL MATTERS
Two class actions have been filed against Mellon Financial Corporation and
Mellon Bank, N.A.; Dreyfus and Founders (the "Investment Advisers"); and the
directors of all or substantially all of the Dreyfus and Dreyfus Founders Funds.
The complaints also name all or substantially all of the Dreyfus and Dreyfus
Founders Funds as nominal defendants. Plaintiffs allege that the Investment
Advisers improperly used assets of the Dreyfus and Dreyfus Founders Funds, in
the form of directed brokerage commissions and 12b-1 fees, to pay brokers to
promote sales of Dreyfus and Dreyfus Founders Funds, and that the use of fund
assets to make these payments was not properly disclosed to investors.
Plaintiffs claim that the Investment Advisers' actions violated the 1940 Act,
the Investment Advisers Act, and common law. The complaints further allege that
the directors breached their fiduciary duties to fund shareholders under the
1940 Act and at common law and that Mellon Financial and Mellon Bank violated
the 1940 Act. The complaints seek unspecified compensatory and punitive damages,
rescission of the funds' contracts with the Investment Advisers, an accounting
of all fees paid, and an award of attorneys' fees and litigation expenses. The
complaints are pending in the same court and have been consolidated into a
single action under the caption IN RE DREYFUS MUTUAL FUNDS FEE LITIGATION.
Founders, Dreyfus, and the Funds believe the allegations in these lawsuits to be
totally without merit and intend to defend the actions vigorously. It is
possible that additional lawsuits arising out of these circumstances and
presenting similar allegations and requests for relief may be filed against the
defendants in the future. Neither Founders, Dreyfus, nor the Funds believe that
the pending actions will have a material adverse effect on the Funds or
Founders' ability to perform its contract with the Funds.
32
<Page>
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<Page>
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<Page>
For More Information
DREYFUS FOUNDERS
INTERNATIONAL EQUITY FUND
To obtain information:
MANAGER
- ---------------------------------
BY TELEPHONE | Founders Asset Management LLC
Call your financial | 210 University Boulevard, Suite 800
representative or | Denver, CO 80206
1-800-554-4611 |
| TRANSFER AGENT &
BY MAIL Write to: | DIVIDEND DISBURSING AGENT
Dreyfus Founders Funds |
144 Glenn Curtiss Boulevard | Dreyfus Transfer, Inc.
Uniondale, NY 11556-0144 | 200 Park Avenue
| New York, NY 10166
PROXY VOTING INFORMATION |
A description of the policies |
and procedures that the Fund | DISTRIBUTOR
uses to determine how to vote |
proxies relating to portfolio | Dreyfus Service Corporation
securities, and information | 200 Park Avenue
regarding how the Fund | New York, NY 10166
voted these proxies for |
the 12-month period ended |
June 30, 2004, is available |
through the Fund's website |
at www.dreyfus.com and on |
the Securities and Exchange |
Commission's website at |
www.sec.gov. The description |
of the policies and procedures |
is also available without |
charge, upon request, by |
calling 1-800-554-4611. |
THIS REPORT AND THE STATEMENTS IT CONTAINS ARE SUBMITTED FOR THE GENERAL
INFORMATION OF OUR SHAREHOLDERS. THE REPORT IS NOT AUTHORIZED FOR DISTRIBUTION
TO PROSPECTIVE INVESTORS UNLESS PRECEDED OR ACCOMPANIED BY AN EFFECTIVE
PROSPECTUS.
Dreyfus Founders Funds are managed by Founders Asset Management LLC. Founders
and Founders Funds are registered trademarks of Founders Asset Management LLC.
(C)2004 Founders Asset Management LLC. 08/04 0360SA0604
<Page>
Dreyfus Founders
Mid-Cap Growth Fund
SEMIANNUAL REPORT June 30, 2004
[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 14
Statement of Operations 16
Statements of Changes in Net Assets 17
Financial Highlights 18
Notes to Financial Statements 24
</Table>
The views expressed herein are current to the date of this report. The views and
the composition of the Fund's portfolio are subject to change at any time based
on market and other conditions. Companies appearing in bold print on pages 3-9
were owned by the Fund on June 30, 2004. 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 AND DANIEL E. CROWE]
A DISCUSSION WITH PORTFOLIO MANAGER JOHN B. JARES, CFA, LEFT, AND ASSISTANT
PORTFOLIO MANAGER DANIEL E. CROWE, CFA
HOW DID THE FUND PERFORM RELATIVE TO ITS BENCHMARK FOR THE SIX MONTHS ENDED JUNE
30, 2004?
For the six-month period ended June 30, 2004, the Dreyfus Founders Mid-Cap
Growth Fund posted a competitive return(1) versus its growth benchmark, the
Russell Midcap Growth Index, which returned 5.94% for the period.
WHAT ECONOMIC OR MARKET DYNAMICS SET THE INVESTING ENVIRONMENT DURING THE
PERIOD?
The market's overall performance during the first half of 2004 was driven by
strong growth in corporate earnings, which were owed mainly to continued
improvements in the economic environment. However, this benefit was somewhat
offset during the period by multiple contractions of the overall market, due to
concerns regarding the anticipated increase in the federal funds rate as well as
the threat of inflation.
MR. JARES, WHAT CHANGES WERE MADE TO THE FUND AFTER YOU ASSUMED MANAGEMENT
RESPONSIBILITIES?
The investment philosophy employed to manage the Fund has remained the same; we
rely on a bottom-up, fundamental approach to stock picking.
Some modest changes have been made to the Fund's portfolio, however, through
the addition and liquidation of some stocks in May and June.
- ----------
(1) Excluding sales charges, which result in lower returns for certain share
classes. Please see page 7 for Average Annual and Year-to-Date Total Returns for
all share classes, including and excluding sales charges.
[SIDENOTE]
"AS THE ECONOMIC RECOVERY TOOK HOLD, THE EMPLOYMENT PICTURE BEGAN TO IMPROVE,
WHICH IN TURN DROVE THE STRONG GROWTH OF CONSUMER-FOCUSED COMPANIES."
3
<Page>
PERFORMANCE HIGHLIGHTS
- - The market's overall performance during the first half of 2004 was driven by
strong growth in corporate earnings, which were owed mainly to continued
improvements in the economic environment.
- - As the economic recovery took hold, the employment picture began to improve,
which in turn drove the strong growth of consumer-focused companies. Due to
this fact, the Fund's strong stock selection in the consumer discretionary
sector was the largest contributor to the Fund's relative performance for the
period.
- - The Fund's underweighting in the information technology sector, coupled with
strong stock selection, increased the Fund's overall relative return.
- - The healthcare sector weighed heavily on relative Fund performance. Poor
stock selection and an underweight position impeded the Fund's relative
return.
- - The financials sector encountered numerous difficult economic events during
the period.
Companies that we expected to exhibit improving fundamentals and that had
compelling valuations were added to the Fund. Such companies included APPLE
COMPUTER, INC., BED BATH & BEYOND, INC., and THE PMI GROUP, INC.
Conversely, positions were sold in investments where either the target price
had been reached, the improvement in fundamentals appeared to be slowing, or
changes in business conditions had materially impacted the stock's investment
thesis. Names including Corinthian Colleges, Inc., Barr Pharmaceuticals, Inc.,
and Ameritrade Holding Corporation were among those sold due to such changes
during the reporting period.
WHAT MANAGEMENT DECISIONS POSITIVELY IMPACTED FUND PERFORMANCE DURING THE
PERIOD?
As the economic recovery took hold, the employment picture began to improve,
which in turn drove the strong growth of consumer-focused companies. Due to this
fact, the Fund's strong stock selection in the consumer discretionary sector was
the largest contributor to the Fund's relative performance for the period. For
example, GETTY IMAGES, INC., a provider of stock photography, continued to
leverage the electronic distribution of digital images, which drove higher
profits.
4
<Page>
ROYAL CARIBBEAN CRUISES LIMITED also positively contributed to relative Fund
performance as an increase in demand for leisure travel helped boost the stock's
share price.
While information technology companies continued to post strong results
overall, the valuations of these companies appeared to already adequately
reflect their prospects. The Fund's underweighting in the information technology
sector, coupled with strong stock selection, increased the Fund's overall
relative return. ZEBRA TECHNOLOGIES CORPORATION performed well based on robust
growth in its barcoding and card imaging business. ACTIVISION, INC., a publisher
of interactive entertainment software products, also performed well during the
period.
The industrials sector, which benefited from the improving economy, also
buoyed Fund performance during the period due to both an overweight position and
strong performance by select stocks. J.B. HUNT TRANSPORT SERVICES, INC. was one
such strong performer in this sector. The transportation company benefited from
a tight trucking supply and a more rational competitive environment, and saw its
operating margins more than double on a year-over-year basis in the first
quarter of 2004. DANAHER CORPORATION and FASTENAL COMPANY both saw strong
revenue and earnings growth associated with improvements in the industrials
sector.
LARGEST EQUITY HOLDINGS (ticker symbol)
<Table>
1. Getty Images, Inc. (GYI) 4.07%
2. iShares Russell 2000 Growth Index Fund (IWO) 4.01%
3. Bed Bath & Beyond, Inc. (BBBY) 2.95%
4. Danaher Corporation (DHR) 2.80%
5. Maxim Integrated Products, Inc. (MXIM) 2.79%
6. Manpower, Inc. (MAN) 2.62%
7. Fastenal Company (FAST) 2.46%
8. Zebra Technologies Corporation (ZBRA) 2.34%
9. Amdocs Limited (DOX) 2.31%
10. Fiserv, Inc. (FISV) 2.24%
</Table>
Portfolio holdings are subject to change, and should not be construed as a
recommendation of any security.
5
<Page>
GROWTH OF $10,000 INVESTMENT
PERFORMANCE DATA QUOTED REPRESENTS PAST PERFORMANCE. PAST PERFORMANCE DOES NOT
GUARANTEE FUTURE RESULTS. INVESTMENT RETURN AND PRINCIPAL VALUE OF AN INVESTMENT
WILL FLUCTUATE SO THAT AN INVESTOR'S SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR
LESS THAN THEIR ORIGINAL COST. CURRENT PERFORMANCE MAY BE LOWER OR HIGHER THAN
THE PERFORMANCE DATA QUOTED. PLEASE CALL 1-800-525-2440 TO OBTAIN THE MOST
RECENT MONTH-END PERFORMANCE DATA.
[CHART]
The above graph compares a $10,000 investment made in Class F shares of Dreyfus
Founders Mid-Cap Growth Fund on 6/30/94 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>
Although the healthcare sector did not benefit relative Fund performance
overall, some individual issues did perform well. TEVA PHARMACEUTICAL INDUSTRIES
LIMITED positively contributed to Fund performance, as the company experienced
an influx in demand. Numerous pharmaceutical buyers began to choose less costly
but equally effective generic drugs over their branded counterparts, and Teva
was able to reap some of the benefits of this shift in the industry. EON Labs,
Inc., a supplier of generic pharmaceuticals, also benefited from this industry
trend.
AVERAGE ANNUAL AND YEAR-TO-DATE TOTAL RETURN AS OF 6/30/04
<Table>
<Caption>
YEAR-TO- 1 5 10 SINCE
CLASS (INCEPTION DATE) DATE+ YEAR YEARS YEARS INCEPTION
- ---------------------------------------------------------------------------------
CLASS A SHARES (12/31/99)
With sales charge (5.75%) 0.00% 18.79% -- -- (10.25%)
Without sales charge 5.97% 26.01% -- -- (9.06%)
CLASS B SHARES (12/31/99)
With redemption* 1.54% 20.83% -- -- (9.84%)
Without redemption 5.54% 24.83% -- -- (9.58%)
CLASS C SHARES (12/31/99)
With redemption** 4.33% 23.48% -- -- (9.91%)
Without redemption 5.33% 24.48% -- -- (9.91%)
CLASS F SHARES (9/8/61) 6.15% 26.25% (3.07%) 5.39% N/A
CLASS R SHARES (12/31/99) 5.90% 25.67% -- -- (8.86%)
CLASS T SHARES (12/31/99)
With sales charge (4.50%) 0.85% 18.94% -- -- (10.77%)
Without sales charge 5.60% 24.74% -- -- (9.85%)
</Table>
Average annual and year-to-date total returns do not reflect the deduction of
taxes that a shareholder would pay on Fund distributions or redemption of Fund
shares, but do reflect the reinvestment of dividends and capital gain
distributions, expense limits for certain share classes, and adjustments for
financial statement purposes. Part of the Fund's performance is due to amounts
received from class action settlements regarding prior Fund holdings. There is
no guarantee that these settlement distributions will occur in the future or
have a similar impact on performance. Part of the Fund's historical performance
is due to the purchase of securities sold in initial public offerings (IPOs).
There is no guarantee that the Fund's investments in IPOs, if any, will continue
to have a similar impact on performance. There are risks associated with mid-cap
investing, such as limited product lines, less liquidity, and small market
share.
*The maximum contingent deferred sales charge for Class B shares is 4% and is
reduced to 0% after six years, at which time the Class B shares convert to Class
A shares.
**The maximum contingent deferred sales charge for Class C shares is 1% for
shares redeemed within one year of the date of purchase.
+ Total return is not annualized.
7
<Page>
WHAT MANAGEMENT DECISIONS HINDERED FUND PERFORMANCE DURING THE PERIOD?
The healthcare sector weighed heavily on relative Fund performance. Poor stock
selection and an underweight position impeded the Fund's relative return.
Healthcare stocks such as SELECT MEDICAL CORPORATION and Barr Pharmaceuticals,
Inc. were among the worst performers during the period. A proposed rule change
by the Centers for Medicare & Medicaid Services (CMS) led to a severe correction
in Select Medical's share price during the period. Barr Pharmaceuticals
experienced increased market competition, which in turn raised concerns
regarding Barr's growth outlook.
The Fund's performance in the consumer staples sector was greatly hampered by
underexposure as well as poor stock selection.
The financials sector encountered numerous difficult economic events during
the period. The Federal Reserve Board signaled that an increase in the federal
funds rate was imminent, and the anticipation of a flattening yield curve had a
negative impact on regional banks. Furthermore, regional banks were trading at
historically high valuations during the period, leaving few attractive
investments. Lastly, a slowdown in retail investor activity led retail brokerage
services companies such as Ameritrade Holding Corporation to lower their
expectations for earnings. New York Community Bancorp, Inc. was adversely
impacted due to poor interest rate risk management.
[CHART]
PORTFOLIO COMPOSITION
<Table>
Consumer Discretionary 27.53%
Information Technology 22.49%
Healthcare 16.85%
Industrials 15.57%
Financials 4.87%
Materials 4.55%
Energy 1.52%
Other 5.81%
Cash & Equivalents 0.18%
</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>
Although the Fund's performance in the information technology sector had a
beneficial effect on overall performance during the period, select technology
holdings did underperform. Among those were Fairchild Semiconductor
International, Inc., Maxtor Corporation, and QLogic Corporation. Increased order
cancellations and push-outs led to a decline in Fairchild Semiconductor's share
price. Maxtor underperformed as the company lowered earnings guidance due to
channel inventory issues and pricing declines. In the first calendar quarter of
the year, QLogic experienced an unexpected decline in host bus adapter (HBA)
orders, which required the company to lower its earnings expectations.
Other poor-performing stocks during the period included for-profit education
services company, Corinthian Colleges, Inc. Corinthian suffered from a number of
factors in the second half of the period. Expectations became overly optimistic,
while closings of existing facilities and potential future closings became a
concern. Industry concerns also surfaced based on issues at other for-profit
educational services companies. Another underachieving issue was GTECH HOLDINGS
CORPORATION, an operator of online lottery transaction processing systems. A
Brazilian court ordered GTECH Holdings to reserve 30% of its revenues for the
possibility of an adverse outcome to a current lawsuit in which the company is
involved. This ruling led to concerns regarding the company's operations in
Brazil, which constitute 10% of the company's revenues and earnings.
As we move forward, we will focus on our bottom-up investment process and work
diligently to seek the most attractive mix of potential reward and risk.
/s/ John B. Jares /s/ Daniel E. Crowe
John B. Jares, CFA Daniel E. Crowe, CFA
Portfolio Manager Assistant Portfolio Manager
9
<Page>
STATEMENT OF INVESTMENTS
June 30, 2004 (UNAUDITED)
<Table>
<Caption>
SHARES MARKET VALUE
- --------------------------------------------------------------------------------
COMMON STOCKS (DOMESTIC)--96.0%
APPAREL, ACCESSORIES & LUXURY GOODS--1.6%
40,075 Coach, Inc.* $ 1,810,981
-------------
APPLICATION SOFTWARE--3.4%
26,775 Autodesk, Inc. 1,146,238
49,550 Cadence Design Systems, Inc.* 724,917
38,550 Mercury Interactive Corporation* 1,920,947
-------------
3,792,102
-------------
CASINOS & GAMING--3.3%
17,600 GTECH Holdings Corporation 815,056
29,950 International Game Technology 1,156,070
36,200 Station Casinos, Inc. 1,752,080
-------------
3,723,206
-------------
COMMUNICATIONS EQUIPMENT--0.9%
30,100 Adtran, Inc. 1,004,437
-------------
COMPUTER & ELECTRONICS RETAIL--1.0%
21,775 Best Buy Company, Inc. 1,104,864
-------------
COMPUTER HARDWARE--1.7%
60,750 Apple Computer, Inc.* 1,976,805
-------------
COMPUTER STORAGE & PERIPHERALS--0.7%
7,725 Lexmark International, Inc.* 745,694
-------------
CONSTRUCTION MATERIALS--2.0%
51,875 Lafarge North America, Inc. 2,246,188
-------------
CONSUMER ELECTRONICS--1.1%
13,375 Harman International Industries, Inc. 1,217,125
-------------
DATA PROCESSING & OUTSOURCED SERVICES--2.2%
65,175 Fiserv, Inc.* 2,534,656
-------------
DEPARTMENT STORES--2.4%
26,675 Kohl's Corporation* 1,127,819
36,600 Nordstrom, Inc. 1,559,526
-------------
2,687,345
-------------
DIVERSIFIED BANKS--1.0%
19,700 TCF Financial Corporation 1,143,585
-------------
DIVERSIFIED COMMERCIAL SERVICES--2.9%
11,700 Apollo Group, Inc. Class A* 1,032,993
79,939 ARAMARK Corporation Class B 2,299,046
-------------
3,332,039
-------------
ELECTRONIC EQUIPMENT MANUFACTURERS--1.7%
126,900 Symbol Technologies, Inc. 1,870,506
-------------
EMPLOYMENT SERVICES--2.6%
58,300 Manpower, Inc. 2,959,891
-------------
</Table>
10
<Page>
<Table>
<Caption>
SHARES MARKET VALUE
- --------------------------------------------------------------------------------
EXCHANGE TRADED FUNDS--5.8%
27,750 iShares Goldman Sachs Networking Index Fund* $ 879,120
30,375 iShares Goldman Sachs Software Index Fund* 1,160,325
72,475 iShares Russell 2000 Growth Index Fund 4,534,761
-------------
6,574,206
-------------
HEALTHCARE EQUIPMENT--5.9%
37,950 Biomet, Inc. 1,686,498
28,425 Boston Scientific Corporation* 1,216,590
47,437 DENTSPLY International, Inc. 2,471,468
17,125 St. Jude Medical, Inc.* 1,295,506
-------------
6,670,062
-------------
HEALTHCARE FACILITIES--1.3%
112,800 Select Medical Corporation 1,513,776
-------------
HEALTHCARE SERVICES--1.9%
27,175 Caremark Rx, Inc.* 895,145
16,200 Express Scripts, Inc.* 1,283,526
-------------
2,178,671
-------------
HOME ENTERTAINMENT SOFTWARE--1.3%
89,700 Activision, Inc.* 1,426,230
-------------
HOME FURNISHINGS--2.8%
71,550 Leggett & Platt, Inc. 1,911,101
16,525 Mohawk Industries, Inc.* 1,211,778
-------------
3,122,879
-------------
HOMEBUILDING--0.5%
14,250 Toll Brothers, Inc.* 603,060
-------------
INDUSTRIAL CONGLOMERATES--2.8%
61,110 Danaher Corporation 3,168,554
-------------
INDUSTRIAL GASES--1.0%
28,325 Praxair, Inc. 1,130,451
-------------
LEISURE FACILITIES--2.1%
55,375 Royal Caribbean Cruises Limited 2,403,829
-------------
MANAGED HEALTHCARE--2.7%
14,025 Anthem, Inc.* 1,256,079
15,550 WellPoint Health Networks, Inc.* 1,741,756
-------------
2,997,835
-------------
METAL & GLASS CONTAINERS--1.6%
24,575 Ball Corporation 1,770,629
-------------
OFFICE ELECTRONICS--2.3%
30,400 Zebra Technologies Corporation* 2,644,800
-------------
OIL & GAS EQUIPMENT & SERVICES--0.4%
9,700 BJ Services Company* 444,648
-------------
OIL & GAS EXPLORATION & PRODUCTION--1.1%
29,427 Apache Corporation 1,281,546
-------------
</Table>
SEE NOTES TO STATEMENT OF INVESTMENTS.
11
<Page>
<Table>
<Caption>
SHARES MARKET VALUE
- --------------------------------------------------------------------------------
OTHER DIVERSIFIED FINANCIAL SERVICES--1.8%
28,300 Ambac Financial Group, Inc. $ 2,078,352
-------------
PHARMACEUTICALS--4.1%
66,000 Andrx Corporation* 1,843,380
27,625 Medicis Pharmaceutical Corporation Class A 1,103,619
60,700 MGI Pharma, Inc.* 1,639,507
-------------
4,586,506
-------------
PUBLISHING--5.3%
76,625 Getty Images, Inc.* 4,597,500
19,800 McClatchy Company Class A 1,388,970
-------------
5,986,470
-------------
RAILROADS--1.0%
19,000 Union Pacific Corporation 1,129,550
-------------
RESTAURANTS--1.7%
39,325 Brinker International, Inc.* 1,341,769
15,225 Yum! Brands, Inc. 566,675
-------------
1,908,444
-------------
SEMICONDUCTORS--4.7%
60,100 Maxim Integrated Products, Inc. 3,150,442
16,275 NVIDIA Corporation* 333,638
75,275 Semtech Corporation* 1,771,974
-------------
5,256,054
-------------
SPECIALTY STORES--5.8%
86,825 Bed Bath & Beyond, Inc.* 3,338,421
28,525 Guitar Center, Inc.* 1,268,507
67,950 Staples, Inc. 1,991,615
-------------
6,598,543
-------------
TECHNOLOGY DISTRIBUTORS--1.4%
25,150 CDW Corporation 1,603,564
-------------
THRIFTS & MORTGAGE FINANCE--2.0%
52,725 The PMI Group, Inc. 2,294,592
-------------
TRADING COMPANIES & DISTRIBUTORS--4.2%
48,925 Fastenal Company 2,780,408
35,050 W.W. Grainger, Inc. 2,015,375
-------------
4,795,783
-------------
TRUCKING--2.0%
58,075 J.B. Hunt Transport Services, Inc. 2,240,534
-------------
TOTAL COMMON STOCKS (DOMESTIC)
(COST--$90,635,611) 108,558,992
-------------
COMMON STOCKS (FOREIGN)--3.3%
APPLICATION SOFTWARE--2.3%
111,400 Amdocs Limited (CI)* 2,610,102
-------------
</Table>
12
<Page>
<Table>
<Caption>
SHARES MARKET VALUE
- --------------------------------------------------------------------------------
PHARMACEUTICALS--1.0%
16,800 Teva Pharmaceutical Industries Limited
Sponsored ADR (IS) $ 1,130,472
-------------
TOTAL COMMON STOCKS (FOREIGN)
(COST--$3,429,596) 3,740,574
-------------
<Caption>
PRINCIPAL AMOUNT AMORTIZED COST
- --------------------------------------------------------------------------------
CORPORATE SHORT-TERM NOTES--5.4%
AGRICULTURAL PRODUCTS--5.0%
$ 5,600,000 Archer-Daniels-Midland Company
1.43% 7/1/04+ $ 5,600,000
-------------
CONSUMER ELECTRONICS--0.4%
450,000 Sharp Electronics Corporation
1.20% 7/1/04 450,000
-------------
TOTAL CORPORATE SHORT-TERM NOTES
(AMORTIZED COST--$6,050,000) 6,050,000
-------------
TOTAL INVESTMENTS--104.7%
(TOTAL COST--$100,115,207) 118,349,566
-------------
OTHER ASSETS AND LIABILITIES--(4.7%) (5,344,623)
-------------
NET ASSETS--100.0% $ 113,004,943
=============
</Table>
NOTES TO STATEMENT OF INVESTMENTS
* NON-INCOME PRODUCING.
+ SECURITY WAS ACQUIRED PURSUANT TO SECTION 4(2) OF THE SECURITIES ACT OF 1933
AND MAY BE DEEMED TO BE RESTRICTED FOR RESALE.
ADR - AMERICAN DEPOSITARY RECEIPT
CI - CHANNEL ISLANDS
IS - ISRAEL
13
<Page>
STATEMENT OF ASSETS AND LIABILITIES
June 30, 2004 (UNAUDITED)
<Table>
ASSETS
Investment securities, at cost $ 100,115,207
---------------
Investment securities, at market 118,349,566
Cash 319,652
Receivables:
Investment securities sold 5,669,124
Capital shares sold 51,614
Dividends 26,761
Other 18,672
---------------
Total Assets 124,435,389
---------------
LIABILITIES
Payables and other accrued liabilities:
Investment securities purchased 10,912,691
Capital shares redeemed 249,522
Advisory fees 76,277
Shareholder servicing fees 22,248
Accounting fees 5,610
Distribution fees 36,264
Transfer agency fees 18,966
Custodian fees 2,737
Other 106,131
---------------
Total Liabilities 11,430,446
---------------
Net Assets $ 113,004,943
===============
COMPOSITION OF NET ASSETS
Capital (par value and paid-in surplus) $ 160,241,008
Accumulated net investment loss (702,072)
Accumulated net realized loss from security transactions (64,768,352)
Net unrealized appreciation on investments 18,234,359
---------------
Total $ 113,004,943
===============
</Table>
14
<Page>
<Table>
CLASS A
Net Assets $ 998,070
Shares Outstanding 267,681
Net Asset Value, Redemption Price Per Share $ 3.73
Maximum offering price per share
(net asset value plus sales charge of 5.75% of offering price) $ 3.96
CLASS B
Net Assets $ 1,650,277
Shares Outstanding 456,245
Net Asset Value, Offering and Redemption Price
(excluding applicable contingent deferred sales charge) Per Share $ 3.62
CLASS C
Net Assets $ 401,606
Shares Outstanding 112,695
Net Asset Value, Offering and Redemption Price
(excluding applicable contingent deferred sales charge) Per Share $ 3.56
CLASS F
Net Assets $ 109,839,612
Shares Outstanding 28,926,372
Net Asset Value, Offering and Redemption Price Per Share $ 3.80
CLASS R
Net Assets $ 84,592
Shares Outstanding 22,446
Net Asset Value, Offering and Redemption Price Per Share $ 3.77
CLASS T
Net Assets $ 30,786
Shares Outstanding 8,602
Net Asset Value, Redemption Price Per Share $ 3.58
Maximum offering price per share
(net asset value plus sales charge of 4.50% of offering price) $ 3.75
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
15
<Page>
STATEMENT OF OPERATIONS
For the six months ended June 30, 2004 (UNAUDITED)
<Table>
INVESTMENT INCOME
Dividends $ 289,123
Interest 12,150
Foreign taxes withheld (2,043)
--------------
Total Investment Income 299,230
--------------
EXPENSES
Advisory fees--Note 2 589,194
Shareholder servicing fees--Note 2 92,117
Accounting fees--Note 2 44,152
Distribution fees--Note 2 129,708
Transfer agency fees--Note 2 43,427
Registration fees 30,812
Postage and mailing expenses 7,440
Custodian fees and expenses--Note 2 4,324
Printing expenses 13,203
Legal and audit fees 7,780
Directors' fees and expenses--Note 2 14,326
Other expenses 12,950
--------------
Total Expenses 989,433
Earnings Credits (863)
Reimbursed/Waived Expenses (750)
Expense Offset to Broker Commissions (1,682)
--------------
Net Expenses 986,138
--------------
Net Investment Loss (686,908)
--------------
REALIZED AND UNREALIZED GAIN (LOSS) ON SECURITY
TRANSACTIONS AND FOREIGN CURRENCY TRANSACTIONS
Net Realized Gain on Security Transactions 17,803,459
Net Change in Unrealized Appreciation/Depreciation of Investments (8,693,559)
--------------
Net Realized and Unrealized Gain 9,109,900
--------------
Net Increase in Net Assets Resulting from Operations $ 8,422,992
==============
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
16
<Page>
STATEMENTS OF CHANGES IN NET ASSETS
(UNAUDITED)
<Table>
<Caption>
SIX MONTHS YEAR ENDED
ENDED 6/30/04 12/31/03
OPERATIONS
Net Investment Loss $ (686,908) $ (1,356,208)
Net Realized Gain on Security Transactions 17,803,459 20,810,975
Net Change in Unrealized Appreciation/Depreciation
of Investments (8,693,559) 25,868,151
------------- -------------
Net Increase in Net Assets Resulting from Operations 8,422,992 45,322,918
------------- -------------
CAPITAL SHARE TRANSACTIONS
Net Increase (Decrease)--Note 4
Class A (251,725) 542,198
Class B (27,367) 264,005
Class C 61,660 (52,492)
Class F (57,573,003) 24,535,977
Class R (37,147) 9,780
Class T (4,974) 5,472
------------- -------------
Net Increase (Decrease) from Capital Share
Transactions (57,832,556) 25,304,940
------------- -------------
Net Increase (Decrease) in Net Assets (49,409,564) 70,627,858
------------- -------------
NET ASSETS
Beginning of period $ 162,414,507 $ 91,786,649
------------- -------------
End of period $ 113,004,943 $ 162,414,507
============= =============
Accumulated Net Investment Loss $ (702,072) $ (15,164)
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
17
<Page>
FINANCIAL HIGHLIGHTS
(UNAUDITED)
<Table>
<Caption>
SIX MONTHS YEAR ENDED
ENDED JUNE 30, DECEMBER 31,
2004 2003 2002 2001 2000
-------------- ------------------------------------------
CLASS A SHARES
PER SHARE OPERATING DATA
Net Asset Value, beginning of period $ 3.52 $ 2.58 $ 3.44 $ 4.38 $ 8.68
- --------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.02)+ 0.03 (0.04) (0.06) (0.02)
Net realized and unrealized
gains (losses) on securities 0.23 0.91 (0.82) (0.88) (2.05)
-------------------------------------------------------
Total from investment operations 0.21 0.94 (0.86) (0.94) (2.07)
- --------------------------------------------------------------------------------------------------
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 0.00 (2.23)
-------------------------------------------------------
Total distributions 0.00 0.00 0.00 0.00 (2.23)
- --------------------------------------------------------------------------------------------------
Net Asset Value, end of period $ 3.73 $ 3.52 $ 2.58 $ 3.44 $ 4.38
=======================================================
TOTAL RETURN* 5.97% 36.43% (25.00%) (21.46%) (23.40%)
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000s) $ 998 $ 1,191 $ 476 $ 538 $ 625
Ratios to average net assets:
Expenses with reimbursements,
but no earnings credits# 1.48%** 1.87% 2.15% 2.47% 1.29%
Expenses with reimbursements
and earnings credits 1.47%** 1.86% 2.15% 2.46% 1.25%
Net investment loss (1.06%)** (1.38%) (1.81%) (1.93%) (0.74%)
- --------------------------------------------------------------------------------------------------
Portfolio turnover rate@ 134% 160% 216% 214% 226%
</Table>
+ COMPUTED USING AVERAGE SHARES OUTSTANDING THROUGHOUT THE PERIOD.
* SALES CHARGES ARE NOT REFLECTED IN THE TOTAL RETURN.
** ANNUALIZED.
# CERTAIN FEES WERE WAIVED BY THE CUSTODIAN. THESE WAIVERS DID NOT HAVE AN
IMPACT ON THE EXPENSE RATIOS.
@ 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.
18
<Page>
<Table>
<Caption>
SIX MONTHS YEAR ENDED
ENDED JUNE 30, DECEMBER 31,
2004 2003 2002 2001 2000
-------------- ------------------------------------------
CLASS B SHARES
PER SHARE OPERATING DATA
Net Asset Value, beginning of period $ 3.43 $ 2.54 $ 3.39 $ 4.32 $ 8.68
- --------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment loss (0.03)+ (0.03) (0.05) (0.05) (0.04)
Net realized and unrealized
gains (losses) on securities 0.22 0.92 (0.80) (0.88) (2.09)
-------------------------------------------------------
Total from investment operations 0.19 0.89 (0.85) (0.93) (2.13)
- --------------------------------------------------------------------------------------------------
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 0.00 (2.23)
-------------------------------------------------------
Total distributions 0.00 0.00 0.00 0.00 (2.23)
- --------------------------------------------------------------------------------------------------
Net Asset Value, end of period $ 3.62 $ 3.43 $ 2.54 $ 3.39 $ 4.32
=======================================================
TOTAL RETURN* 5.54% 35.04% (25.07%) (21.53%) (24.14%)
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000s) $ 1,650 $ 1,587 $ 969 $ 1,138 $ 1,047
Ratios to average net assets:
Expenses with reimbursements,
but no earnings credits# 2.26%** 2.65% 2.68% 2.59% 2.04%
Expenses with reimbursements
and earnings credits 2.26%** 2.64% 2.67% 2.58% 1.99%
Net investment loss (1.84%)** (2.16%) (2.33%) (2.06%) (1.47%)
- --------------------------------------------------------------------------------------------------
Portfolio turnover rate@ 134% 160% 216% 214% 226%
</Table>
+ COMPUTED USING AVERAGE SHARES OUTSTANDING THROUGHOUT THE PERIOD.
* SALES CHARGES ARE NOT REFLECTED IN THE TOTAL RETURN.
** ANNUALIZED.
# CERTAIN FEES WERE WAIVED BY THE CUSTODIAN. THESE WAIVERS DID NOT HAVE AN
IMPACT ON THE EXPENSE RATIOS.
@ 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>
<Table>
<Caption>
SIX MONTHS YEAR ENDED
ENDED JUNE 30, DECEMBER 31,
2004 2003 2002 2001 2000
-------------- ------------------------------------------
CLASS C SHARES
PER SHARE OPERATING DATA
Net Asset Value, beginning of period $ 3.38 $ 2.50 $ 3.36 $ 4.32 $ 8.68
- --------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment loss (0.03)+ (0.10) (0.08) (0.08) (0.04)
Net realized and unrealized
gains (losses) on securities 0.21 0.98 (0.78) (0.88) (2.09)
-------------------------------------------------------
Total from investment operations 0.18 0.88 (0.86) (0.96) (2.13)
- --------------------------------------------------------------------------------------------------
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 0.00 (2.23)
-------------------------------------------------------
Total distributions 0.00 0.00 0.00 0.00 (2.23)
- --------------------------------------------------------------------------------------------------
Net Asset Value, end of period $ 3.56 $ 3.38 $ 2.50 $ 3.36 $ 4.32
=======================================================
TOTAL RETURN* 5.33% 35.20% (25.60%) (22.22%) (24.14%)
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000s) $ 402 $ 323 $ 274 $ 380 $ 422
Ratios to average net assets:
Expenses with reimbursements,
but no earnings credits# 2.22%** 2.51% 2.99% 3.94% 2.04%
Expenses with reimbursements
and earnings credits 2.22%** 2.51% 2.98% 3.93% 2.00%
Net investment loss (1.80%)** (2.02%) (2.65%) (3.41%) (1.46%)
- --------------------------------------------------------------------------------------------------
Portfolio turnover rate@ 134% 160% 216% 214% 226%
</Table>
+ COMPUTED USING AVERAGE SHARES OUTSTANDING THROUGHOUT THE PERIOD.
* SALES CHARGES ARE NOT REFLECTED IN THE TOTAL RETURN.
** ANNUALIZED.
# CERTAIN FEES WERE REIMBURSED OR WAIVED BY THE MANAGEMENT COMPANY OR ITS
AFFILIATES. HAD THESE FEES NOT BEEN REIMBURSED OR WAIVED, THE EXPENSE RATIOS
WOULD HAVE BEEN 2.22% (2004), 2.51% (2003), 3.04% (2002), 4.25% (2001), AND
2.04% (2000).
@ 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>
<Table>
<Caption>
SIX MONTHS YEAR ENDED
ENDED JUNE 30, DECEMBER 31,
2004 2003 2002 2001 2000 1999
-------------- ---------------------------------------------------------------
CLASS F SHARES
PER SHARE OPERATING DATA
Net Asset Value, beginning of period $ 3.58 $ 2.62 $ 3.47 $ 4.36 $ 8.68 $ 7.44
- -------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.02)+ 0.02 (0.04) (0.05) (0.03) (0.08)
Net realized and unrealized
gains (losses) on securities 0.24 0.94 (0.81) (0.84) (2.06) 3.12
------------------------------------------------------------------------------
Total from investment operations 0.22 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 0.00^
From net realized gains 0.00 0.00 0.00 0.00 (2.23) (1.80)
------------------------------------------------------------------------------
Total distributions 0.00 0.00 0.00 0.00 (2.23) (1.80)
- -------------------------------------------------------------------------------------------------------------------------
Net Asset Value, end of period $ 3.80 $ 3.58 $ 2.62 $ 3.47 $ 4.36 $ 8.68
==============================================================================
TOTAL RETURN 6.15% 36.64% (24.50%) (20.41%) (23.69%) 42.27%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000s) $ 109,840 $ 159,161 $ 89,970 $ 119,708 $ 166,365 $ 253,385
Ratios to average net assets:
Expenses with reimbursements,
but no earnings credits# 1.33%** 1.51% 1.56% 1.39% 1.39% 1.42%
Expenses with reimbursements
and earnings credits 1.33%** 1.50% 1.56% 1.37% 1.36% 1.40%
Net investment loss (0.92%)** (1.01%) (1.22%) (0.84%) (0.92%) (0.98%)
- -------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate@ 134% 160% 216% 214% 226% 186%
</Table>
+ COMPUTED USING AVERAGE SHARES OUTSTANDING THROUGHOUT THE PERIOD.
^ DISTRIBUTIONS FROM NET INVESTMENT INCOME FOR THE YEAR ENDED DECEMBER 31, 1999
AGGREGATED LESS THAN $0.01 ON A PER SHARE BASIS.
** ANNUALIZED.
# CERTAIN FEES WERE WAIVED BY THE CUSTODIAN. THESE WAIVERS DID NOT HAVE AN
IMPACT ON THE EXPENSE RATIOS.
@ 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>
<Table>
<Caption>
SIX MONTHS YEAR ENDED
ENDED JUNE 30, DECEMBER 31,
2004 2003 2002 2001 2000
-------------- --------------------------------------------------
CLASS R SHARES
PER SHARE OPERATING DATA
Net Asset Value, beginning of period $ 3.56 $ 2.61 $ 3.48 $ 4.39 $ 8.68
- -----------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.02)+ (0.03) (0.04) 0.01 (0.03)
Net realized and unrealized
gains (losses) on securities 0.23 0.98 (0.83) (0.92) (2.03)
-----------------------------------------------------------------
Total from investment operations 0.21 0.95 (0.87) (0.91) (2.06)
- -----------------------------------------------------------------------------------------------------------
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 0.00 (2.23)
-----------------------------------------------------------------
Total distributions 0.00 0.00 0.00 0.00 (2.23)
- -----------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $ 3.77 $ 3.56 $ 2.61 $ 3.48 $ 4.39
=================================================================
TOTAL RETURN 5.90% 36.40% (25.00%) (20.73%) (23.28%)
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000s) $ 85 $ 119 $ 77 $ 49 $ 7
Ratios to average net assets:
Expenses with reimbursements,
but no earnings credits# 1.29%** 1.64% 1.97% 2.91% 1.03%
Expenses with reimbursements
and earnings credits 1.28%** 1.64% 1.97% 2.89% 1.00%
Net investment loss (0.86%)** (1.15%) (1.63%) (2.40%) (0.55%)
- -----------------------------------------------------------------------------------------------------------
Portfolio turnover rate@ 134% 160% 216% 214% 226%
</Table>
+ COMPUTED USING AVERAGE SHARES OUTSTANDING THROUGHOUT THE PERIOD.
** ANNUALIZED.
# CERTAIN FEES WERE REIMBURSED OR WAIVED BY THE MANAGEMENT COMPANY OR ITS
AFFILIATES. HAD THESE FEES NOT BEEN REIMBURSED OR WAIVED, THE EXPENSE RATIOS
WOULD HAVE BEEN 1.29% (2004), 1.64% (2003), 3.49% (2002), 57.54% (2001), AND
1.03% (2000).
@ 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>
<Table>
<Caption>
SIX MONTHS YEAR ENDED
ENDED JUNE 30, DECEMBER 31,
2004 2003 2002 2001 2000
-------------- --------------------------------------------------
CLASS T SHARES
PER SHARE OPERATING DATA
Net Asset Value, beginning of period $ 3.39 $ 2.51 $ 3.39 $ 4.35 $ 8.68
- -----------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment loss (0.03)+ (0.02) (0.06) (0.11) (0.02)
Net realized and unrealized
gains (losses) on securities 0.22 0.90 (0.82) (0.85) (2.08)
-----------------------------------------------------------------
Total from investment operations 0.19 0.88 (0.88) (0.96) (2.10)
- -----------------------------------------------------------------------------------------------------------
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 0.00 (2.23)
-----------------------------------------------------------------
Total distributions 0.00 0.00 0.00 0.00 (2.23)
- -----------------------------------------------------------------------------------------------------------
Net Asset Value, end of period $ 3.58 $ 3.39 $ 2.51 $ 3.39 $ 4.35
=================================================================
TOTAL RETURN* 5.60% 35.06% (25.96%) (22.07%) (23.80%)
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000s) $ 31 $ 34 $ 20 $ 20 $ 29
Ratios to average net assets:
Expenses with reimbursements,
but no earnings credits# 2.09%** 2.76% 3.64% 3.13% 1.55%
Expenses with reimbursements
and earnings credits 2.08%** 2.76% 3.63% 3.11% 1.50%
Net investment loss (1.66%)** (2.27%) (3.29%) (2.57%) (0.98%)
- -----------------------------------------------------------------------------------------------------------
Portfolio turnover rate@ 134% 160% 216% 214% 226%
</Table>
+ COMPUTED USING AVERAGE SHARES OUTSTANDING THROUGHOUT THE PERIOD.
* SALES CHARGES ARE NOT REFLECTED IN THE TOTAL RETURN.
** ANNUALIZED.
# CERTAIN FEES WERE REIMBURSED OR WAIVED BY THE MANAGEMENT COMPANY OR ITS
AFFILIATES. HAD THESE FEES NOT BEEN REIMBURSED OR WAIVED, THE EXPENSE RATIOS
WOULD HAVE BEEN 2.09% (2004), 2.76% (2003), 10.30% (2002), 28.91% (2001), AND
1.55% (2000).
@ 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>
NOTES TO FINANCIAL STATEMENTS
June 30, 2004 (UNAUDITED)
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
Dreyfus Founders Funds, Inc. (the "Company") is an open-end management
investment company registered under the Investment Company Act of 1940 (the
"1940 Act"). 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--A domestic 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 a
security traded on Nasdaq, at its official closing price. Lacking any sales on
that day, the security is valued at the current closing bid price, or by quotes
from dealers making a market in the security if the closing bid price is not
available, or in the case of written call options, at the mean between the
highest bid and lowest asked quotations obtained from at least two securities
dealers.
A foreign equity security traded on a foreign exchange is valued at the last
quoted official closing price available before the time when the Fund's assets
are valued, or at the last quoted sales price if the exchange does not provide
an official closing price or if the foreign market has not yet closed. Lacking
any sales on that day, the security is valued at the current closing bid price,
or by quotes from dealers making a market in the security if the closing bid
price is not available. London closing exchange rates are used to convert
foreign currencies to U.S. dollars.
A debt security with a remaining maturity greater than 60 days at the time of
purchase is valued in accordance with the evaluated bid price supplied by a
pricing service approved by the Company's board of directors or, if such price
is not available, at the mean between the highest bid and lowest asked
quotations obtained from at least two securities dealers. A debt security with a
remaining maturity of 60 days or less at the time of purchase is valued at
amortized cost, which approximates market value, unless it is determined that
amortized cost would not represent market value, in which case the securities
would be marked to market. The Fund amortizes premiums and discounts on all debt
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
24
<Page>
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.
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.
25
<Page>
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, if
any, reduce Other Expenses and would be 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.
SHAREHOLDER SERVICING AND TRANSFER AGENCY FEES FOR CLASS F SHARES--The Company
has a shareholder services agreement with Dreyfus Service Corporation ("DSC"),
the direct owner of Founders and 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. 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. During the six months ended June 30,
2004, Class F shares were charged $87,990 pursuant to this shareholder services
agreement.
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
26
<Page>
charges, the fees charged by DTI with respect to the Fund's Class F shares are
paid by DSC. The out-of-pocket charges incurred by DTI are paid by the Fund.
During the six months ended June 30, 2004, Class F shares were charged $22,412
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 $12.43 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 during the six months ended June 30,
2004 were as follows:
<Table>
<Caption>
TRANSFER
AGENCY FEES
----------------------------------------------------------------
Class A $ 1,337
Class B $ 2,060
Class C $ 426
Class R $ 171
Class T $ 87
</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 1940 Act 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 six months ended June
30, 2004, Class F shares were charged $121,957 pursuant to this Distribution
Plan.
The Fund also has adopted a Distribution Plan pursuant to Rule 12b-1 under the
1940 Act 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.
27
<Page>
Distribution and shareholder servicing fees paid to DSC by the Fund's Class A,
B, C and T shares for the six months ended June 30, 2004, were as follows:
<Table>
<Caption>
DISTRIBUTION SHAREHOLDER
FEES SERVICING FEES
----------------------------------------------------------------
Class A N/A $ 1,517
Class B $ 6,212 $ 2,071
Class C $ 1,501 $ 501
Class T $ 38 $ 38
</Table>
During the six months ended June 30, 2004, DSC retained $5,644 in sales
commissions from the sales of Class A shares. DSC also retained $1,558 and $838
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 and an affiliate of Founders, 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
----------------------------------------------------------------
9/1/03 to 8/31/04 $ 150,000
9/1/04 to 8/31/05 $ 200,000
9/1/05 to 8/31/06 $ 200,000
</Table>
The fee waiver is allocated among the Funds in proportion to their respective
shares of the total custodian fee. For the six months ended June 30, 2004, the
Fund's portion of the fee waiver was $750. 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
28
<Page>
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.
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.
The aggregate cost of investments and the composition of unrealized appreciation
and depreciation of investment securities for federal income tax purposes as of
June 30, 2004 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 $ 100,313,274
Gross Tax Appreciation of Investments $ 19,066,516
Gross Tax Depreciation of Investments $ (1,030,224)
Net Tax Appreciation $ 18,036,292
</Table>
29
<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>
SIX MONTHS ENDED YEAR ENDED
JUNE 30, 2004 DECEMBER 31, 2003
SHARES AMOUNT SHARES AMOUNT
CLASS A
Sold 91,492 $ 337,671 244,735 $ 828,175
Redeemed (162,225) $ (589,396) (90,696) $ (285,977)
--------------------------------------------------------------
Net Increase (Decrease) (70,733) $ (251,725) 154,039 $ 542,198
==============================================================
CLASS B
Sold 41,090 $ 143,799 145,154 $ 449,120
Redeemed (48,071) $ (171,166) (63,928) $ (185,115)
--------------------------------------------------------------
Net Increase (Decrease) (6,981) $ (27,367) 81,226 $ 264,005
==============================================================
CLASS C
Sold 88,164 $ 305,843 56,880 $ 169,451
Redeemed (71,138) $ (244,183) (70,756) $ (221,943)
--------------------------------------------------------------
Net Increase (Decrease) 17,026 $ 61,660 (13,876) $ (52,492)
==============================================================
CLASS F
Sold 1,386,668 $ 5,180,416 19,131,927 $ 50,872,801
Redeemed (16,916,943) $ (62,753,419) (8,999,875) $ (26,336,824)
--------------------------------------------------------------
Net Increase (Decrease) (15,530,275) $ (57,573,003) 10,132,052 $ 24,535,977
==============================================================
CLASS R
Sold 17,309 $ 65,833 15,172 $ 45,615
Redeemed (28,339) $ (102,980) (11,397) $ (35,835)
--------------------------------------------------------------
Net Increase (Decrease) (11,030) $ (37,147) 3,775 $ 9,780
==============================================================
CLASS T
Sold 0 $ 0 2,448 $ 6,710
Redeemed (1,436) $ (4,974) (403) $ (1,238)
--------------------------------------------------------------
Net Increase (Decrease) (1,436) $ (4,974) 2,045 $ 5,472
==============================================================
</Table>
30
<Page>
5. INVESTMENT TRANSACTIONS
Purchases and sales of investment securities (excluding short-term securities
and U.S. government obligations) for the six months ended June 30, 2004 were
$82,479,808 and $137,408,384, 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 June 30, 2004, the Fund did not have any borrowings under the LOC.
7. LEGAL MATTERS
Two class actions have been filed against Mellon Financial Corporation and
Mellon Bank, N.A.; Dreyfus and Founders (the "Investment Advisers"); and the
directors of all or substantially all of the Dreyfus and Dreyfus Founders Funds.
The complaints also name all or substantially all of the Dreyfus and Dreyfus
Founders Funds as nominal defendants. Plaintiffs allege that the Investment
Advisers improperly used assets of the Dreyfus and Dreyfus Founders Funds, in
the form of directed brokerage commissions and 12b-1 fees, to pay brokers to
promote sales of Dreyfus and Dreyfus Founders Funds, and that the use of fund
assets to make these payments was not properly disclosed to investors.
Plaintiffs claim that the Investment Advisers' actions violated the 1940 Act,
the Investment Advisers Act, and common law. The complaints further allege that
the directors breached their fiduciary duties to fund shareholders under the
1940 Act and at common law and that Mellon Financial and Mellon Bank violated
the 1940 Act. The complaints seek unspecified compensatory and punitive damages,
rescission of the funds' contracts with the Investment Advisers, an accounting
of all fees paid, and an award of attorneys' fees and litigation expenses. The
complaints are pending in the same court and have been consolidated into a
single action under the caption IN RE DREYFUS MUTUAL FUNDS FEE LITIGATION.
Founders, Dreyfus, and the Funds believe the allegations in these lawsuits to be
totally without merit and intend to defend the actions vigorously. It is
possible that additional lawsuits arising out of these circumstances and
presenting similar allegations and requests for relief may be filed against the
defendants in the future. Neither Founders, Dreyfus, nor the Funds believe that
the pending actions will have a material adverse effect on the Funds or
Founders' ability to perform its contract with the Funds.
31
<Page>
For More Information
DREYFUS FOUNDERS
MID-CAP GROWTH FUND
To obtain information:
MANAGER
- ---------------------------------
BY TELEPHONE | Founders Asset Management LLC
Call your financial | 210 University Boulevard, Suite 800
representative or | Denver, CO 80206
1-800-554-4611 |
| TRANSFER AGENT &
BY MAIL Write to: | DIVIDEND DISBURSING AGENT
Dreyfus Founders Funds |
144 Glenn Curtiss Boulevard | Dreyfus Transfer, Inc.
Uniondale, NY 11556-0144 | 200 Park Avenue
| New York, NY 10166
PROXY VOTING INFORMATION |
A description of the policies |
and procedures that the Fund | DISTRIBUTOR
uses to determine how to vote |
proxies relating to portfolio | Dreyfus Service Corporation
securities, and information | 200 Park Avenue
regarding how the Fund | New York, NY 10166
voted these proxies for |
the 12-month period ended |
June 30, 2004, is available |
through the Fund's website |
at www.dreyfus.com and on |
the Securities and Exchange |
Commission's website at |
www.sec.gov. The description |
of the policies and procedures |
is also available without |
charge, upon request, by |
calling 1-800-554-4611. |
THIS REPORT AND THE STATEMENTS IT CONTAINS ARE SUBMITTED FOR THE GENERAL
INFORMATION OF OUR SHAREHOLDERS. THE REPORT IS NOT AUTHORIZED FOR DISTRIBUTION
TO PROSPECTIVE INVESTORS UNLESS PRECEDED OR ACCOMPANIED BY AN EFFECTIVE
PROSPECTUS.
Dreyfus Founders Funds are managed by Founders Asset Management LLC. Founders
and Founders Funds are registered trademarks of Founders Asset Management LLC.
(C)2004 Founders Asset Management LLC. 08/04 0291SA0604
<Page>
Dreyfus Founders
Passport Fund
SEMIANNUAL REPORT June 30, 2004
[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
</Table>
The views expressed herein are current to the date of this report. The views and
the composition of the Fund's portfolio are subject to change at any time based
on market and other conditions. Companies appearing in bold print on pages 3-9
were owned by the Fund on June 30, 2004. 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 SIX-MONTH PERIOD
ENDED JUNE 30, 2004?
During the first half of the year, Dreyfus Founders Passport Fund underperformed
in large part due to several unforeseen geopolitical events across Asia, which
created an enormous amount of volatility in the markets. The Fund underperformed
its international small-cap benchmark, the Morgan Stanley Capital International
(MSCI) World ex U.S. Small Cap Index, which returned 11.83% for the period.
The Fund also underperformed the large-cap MSCI World ex U.S. Index, which
returned 4.34% for the six-month timeframe.
PLEASE DESCRIBE THE ECONOMIC ENVIRONMENT DURING THE PERIOD.
The first half of 2004 proved to be tenuous for the global investing
environment, resulting in very lackluster performances from the markets.
Numerous factors led to investor apprehension and a narrow trading range in
global markets. Perhaps one of the larger global concerns during the period was
rising oil prices, which approached $42 a barrel, providing a heavy weight on
the world economy. This hike in crude oil costs was attributable to a
combination of increased world demand, terrorist events in both Iraq and Saudi
Arabia, lack of refining capacity, as well as speculative plays on the
commodity. Global investors also worried that supply disruptions due to
terrorism could spike prices even higher.
The Morgan Stanley Capital International (MSCI) World ex U.S. Small Cap Index
measures global performance of small capitalization securities outside of the
United States. The total return figures cited for this index assume change in
security prices and reinvestment of dividends after the deduction of local
taxes, but do not reflect the costs of managing a mutual fund.
[SIDENOTE]
"A POSITIVE INVESTMENT SURPRISE DURING THE PERIOD WAS EVIDENCED IN JAPAN, AS THE
COUNTRY CONTINUED ITS ECONOMIC REBOUND, GROWING AT AN EVEN FASTER RATE THAN THE
UNITED STATES IN THE FIRST HALF OF THE YEAR."
3
<Page>
PERFORMANCE HIGHLIGHTS
- - Numerous factors led to investor apprehension and a narrow trading range in
global markets.
- - Among the top performers in the financials sector were Japanese real estate
firms that benefited from the reflation in this industry.
- - The two countries weighing heaviest on Fund performance were Thailand and
India. Although 2003 had been a good year for both of these markets, the first
half of 2004 proved to be quite different.
- - Although the Fund held little in China, where the government is orchestrating
an economic slowdown due to overheating, the Fund's exposure to this country
hampered relative performance.
The slowing of the Chinese growth engine also played into the hesitant
investing environment during the year's first half. Data showed that China's
attempt to slow its economy has been working. Chinese Premier Wen Jiabao
attempted to decrease China's official growth rate from its 9.1% mark last year
to 7% in 2004 through such tactics as ordering banks to curb lending in nine key
sectors and raising the amount of cash that banks must set aside as reserve.
While most non-Chinese economists estimate China's growth to be higher than the
official 7%, a slowdown was still present.
To date, India has been one of the largest investment surprises of the year.
The government that fostered the outsourcing phenomenon, encouraged market
reforms, and was at least partly responsible for the rapid growth rates in
India, lost to the left-leaning Congress Party in an early May election. The
election outcome was completely unexpected, and as a result, record foreign fund
selling was experienced, toppling the Indian markets.
A positive investment surprise during the period was evidenced in Japan, as
the country continued its economic rebound, growing at an even faster rate than
the United States in the first half of the year. Japan's Tanken survey of
Japanese business sentiment reached a 13-year high, the unemployment rate
continued to fall, earnings continued to surprise to the upside, retail sales
began reviving for the first time, and Japanese exporters continued benefiting
from China's expansion. Even Japan's deflation is forecasted to start easing
next year.
The United States also added to the investing uncertainty. The country's
election year continued to show both candidates running a close race. The widely
expected federal funds rate hike of a quarter percent by the Federal Reserve was
implemented at the June 30 meeting. Also, employment growth in the United States
began lagging economists' expectations.
4
<Page>
DID YOUR INVESTMENT APPROACH LEAD TO ANY CHANGES IN PORTFOLIO COMPOSITION DURING
THE REPORTING PERIOD?
The election results in India were a huge surprise to the investment community,
both in India and abroad. A large number of investors sold off their holdings,
deciding that, in spite of continued strong economic growth in the country, the
uncertainties tied to a government that was likely to take a more socialist
approach may hurt investor sentiment. The Fund, too, sold out of many of its
Indian holdings, preferring to wait until the newly elected Indian government
announced its policies and budget.
WHAT MANAGEMENT DECISIONS BENEFITED FUND PERFORMANCE DURING THE PERIOD?
The Fund outperformed its benchmark in Japan due to strong stock selection, with
several of the best performers listed on the Tokyo Stock Exchange Mothers Index.
The Mothers Index, which was started in 2000 and is comprised of high growth and
emerging stocks, rose by nearly 103% in the first half of the year based on the
continued good economic and corporate earnings news from Japan.
Valued attractively at the time of inclusion in the Fund, several Belgian
stocks appreciated, helping boost relative Fund performance for the period.
Although the Fund's holdings in Australia did not perform as well as
expected, the Fund's underexposure to this country counteracted its poor stock
selection, benefiting relative performance.
The Tokyo Stock Exchange Mothers Index is a market capitalization-weighted index
based on all stocks listed on Mothers and is calculated with the same
methodology used for calculation of TOPIX (Tokyo Stock Price Index).
LARGEST EQUITY HOLDINGS (country of origin; ticker symbol)
<Table>
1. Marlborough Stirling PLC (United Kingdom; MAS) 1.42%
2. Ryohin Keikaku Company Limited (Japan; 7453) 1.27%
3. Cairn Energy PLC (United Kingdom; CNE) 1.27%
4. Germanos SA (Greece; GERM) 1.26%
5. Urbi, Desarrollos Urbanos SA de CV (Mexico; URBI) 1.26%
6. Natura Cosmeticos SA (Brazil; NATU) 1.21%
7. Ichitaka Company Limited (Japan; 2774) 1.21%
8. CTS Eventim AG (Germany; EVD) 1.16%
9. De Vere Group PLC (United Kingdom; DVR) 1.10%
10. Hamakyorex Company Limited (Japan; 9037) 1.10%
</Table>
Portfolio holdings are subject to change, and should not be construed as a
recommendation of any security.
5
<Page>
GROWTH OF $10,000 INVESTMENT
PERFORMANCE DATA QUOTED REPRESENTS PAST PERFORMANCE. PAST PERFORMANCE
DOES NOT GUARANTEE FUTURE RESULTS. INVESTMENT RETURN AND PRINCIPAL VALUE OF AN
INVESTMENT WILL FLUCTUATE SO THAT AN INVESTOR'S SHARES, WHEN REDEEMED, MAY BE
WORTH MORE OR LESS THAN THEIR ORIGINAL COST. CURRENT PERFORMANCE MAY BE LOWER OR
HIGHER THAN THE PERFORMANCE DATA QUOTED. PLEASE CALL 1-800-525-2440 TO OBTAIN
THE MOST RECENT MONTH-END PERFORMANCE DATA.
[CHART]
The above graph compares a $10,000 investment made in Class F shares of Dreyfus
Founders Passport Fund on 6/30/94 to a $10,000 investment made in an unmanaged
securities index on that date. The Fund's performance assumes the reinvestment
of dividends and capital gain distributions, but does not reflect the deduction
of taxes that a shareholder would pay on Fund distributions or redemption of
Fund shares. The Fund offers multiple classes of shares. Performance shown is
for Class F, which is open only to grandfathered investors. The Fund's
performance in the graph takes into account all applicable Class F fees and
expenses, subject to applicable fee waivers. 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 ex U.S. Index measures
global developed market equity performance outside of the United States. 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>
An underweight position in Italy also buoyed relative Fund performance during
the period, as did a strong selection of German stocks.
When examining sectors, strong stock selection in the financials sector was
the largest contributor to Fund performance during the period. Among the top
performers in the financials sector were Japanese real estate firms that
benefited from the reflation in this industry. Secured Capital Japan Company,
Limited showed strong growth throughout the period as well as a high market
share in its industry. AREALINK COMPANY LIMITED was valued attractively during
the period and produced very strong growth due to its "value-up" theme that
provides new uses for unused real estate assets. IDU COMPANY, which provides an
internet-based
AVERAGE ANNUAL AND YEAR-TO-DATE TOTAL RETURN AS OF 6/30/04
<Table>
<Caption>
YEAR-TO- 1 5 10 SINCE
CLASS (Inception Date) DATE+ YEAR YEARS YEARS INCEPTION
------------------------------------------------------------------------------
CLASS A SHARES (12/31/99)
With sales charge (5.75%) (3.24%) 38.05% -- -- (8.09%)
Without sales charge 2.67% 46.49% -- -- (6.88%)
CLASS B SHARES (12/31/99)
With redemption* (1.75%) 41.36% -- -- (7.97%)
Without redemption 2.25% 45.36% -- -- (7.60%)
CLASS C SHARES (12/31/99)
With redemption** 1.33% 44.45% -- -- (7.63%)
Without redemption 2.33% 45.45% -- -- (7.63%)
CLASS F SHARES (11/16/93) 2.67% 46.64% 4.47% 8.52% 7.67%
CLASS R SHARES (12/31/99) 2.89% 47.21% -- -- (7.46%)
CLASS T SHARES (12/31/99)
With sales charge (4.50%) (2.16%) 39.42% -- -- (8.64%)
Without sales charge 2.48% 45.95% -- -- (7.70%)
</Table>
Average annual and year-to-date total returns do not reflect the deduction of
taxes that a shareholder would pay on Fund distributions or redemption of Fund
shares, but do reflect the reinvestment of dividends and capital gain
distributions, fee waivers, and adjustments for financial statement purposes.
Part of the Fund's historical performance is due to the purchase of securities
sold in initial public offerings (IPOs). There is no guarantee that the Fund's
investments in IPOs, if any, will continue to have a similar impact on
performance. There are risks associated with small-cap investments such as
limited product lines, less liquidity, and small market share. Investments in
foreign securities may entail unique risks, including political, market, and
currency risks.
*The maximum contingent deferred sales charge for Class B shares is 4% and is
reduced to 0% after six years, at which time the Class B shares convert to Class
A shares.
**The maximum contingent deferred sales charge for Class C shares is 1% for
shares redeemed within one year of the date of purchase.
+ Total return is not annualized.
7
<Page>
clearing mechanism for distressed real estate, also exhibited strong earnings
during the period. Yasuragi Company Limited benefited from Japan's asset
reflation trend as well.
Internet-based companies also proved beneficial to the Fund during the
period. Global Media Online, Inc. reaped the benefits of very strong internet
earnings throughout Japan. ICHITAKA COMPANY LIMITED, which formerly had most of
its business in petroleum-based products, has been expanding its e-billing
software business and has profited greatly from this new emphasis, producing
strong sales returns.
CAIRN ENERGY PLC also positively contributed to relative Fund performance due
mainly to new oil discoveries in India.
WHAT MANAGEMENT DECISIONS HINDERED FUND PERFORMANCE DURING THE PERIOD?
The two countries weighing heaviest on Fund performance were Thailand and India.
Although 2003 had been a good year for both of these markets, the first half of
2004 proved to be quite different. As it appeared that interest rates would
start rising around the world, investors became more risk-averse, pulling funds
out of emerging markets overall, taking gains even though fundamentals did not
drastically change. India was additionally hampered by the surprise election
outcome. Rediff.com India Limited ADR was one such Fund holding that fell in the
decline of the Indian markets after May's surprise election.
[CHART]
PORTFOLIO COMPOSITION
<Table>
Japan 35.66%
United Kingdom 13.18%
Canada 4.83%
Germany 3.75%
France 3.66%
Greece 3.25%
Italy 3.20%
Switzerland 2.61%
Other Countries 26.40%
Cash & Equivalents 3.46%
</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>
Although the Fund held little in China, where the government is orchestrating
an economic slowdown due to overheating, the Fund's exposure to this country
hampered relative performance. One Chinese security in particular,
telecommunications services company YANGTZE TELECOM CORPORATION, was detrimental
to relative performance. Yangtze proved too small to gain critical mass as
competition intensified in China. Cytos Biotechnology AG also proved to be an
underperforming security as the issuance of new shares placed downward pressure
on the stock price.
South Korea and Malaysia, countries in which the MSCI World ex U.S. Small Cap
Index does not invest, suffered during the period as well, reducing the Fund's
overall relative return.
The Fund experienced negative relative performance in most sectors, but the
consumer discretionary, industrials and materials sectors had the largest
negative impact during the period through poor stock selection. Monstermob Group
PLC, a United Kingdom-based company supplying various mobile phone content, was
the Fund's worst performer in the consumer discretionary sector. Materials issue
Yamana Gold, Inc. also underperformed due to weakness in the gold price during
the holding period.
The telecommunications services sector also hindered performance due to poor
stock selection, such as the aforementioned Yangtze Telecom Corporation.
Other underperforming issues included Bio-Treat Technology Limited and PT
Limas Stokhomindo Tbk, an Indonesian company that provides financial and news
information services. Limas' stock price dropped after additional company shares
were placed in the market.
As 2004 continues, we remain committed to our fundamental-based investment
strategy to seek international small-cap companies with strong growth potential.
/s/ Tracy P. Stouffer
Tracy Stouffer, CFA
Portfolio Manager
9
<Page>
STATEMENT OF INVESTMENTS
June 30, 2004 (UNAUDITED)
<Table>
<Caption>
SHARES MARKET VALUE
- ---------------------------------------------------------------------------------
COMMON STOCKS (FOREIGN)--95.0%
ADVERTISING--1.2%
360,850 Aegis Group PLC (UK) $ 587,340
76,650 Trader Classifed Media NV Class A (NE)* 867,314
------------
1,454,654
------------
AIRLINES--0.5%
521 Skymark Airlines Company Limited (JA)* 606,397
------------
AIRPORT SERVICES--0.8%
88,000 Japan Airport Terminal Company Limited (JA) 935,527
------------
APPAREL, ACCESSORIES & LUXURY GOODS--2.3%
164,000 Descente Limited (JA) 655,309
61,100 Marimekko Oyj (FI) 834,838
14,800 Sanei-International Company Limited (JA) 686,322
20,000 Wolford AG (AT)* 672,831
------------
2,849,300
------------
APPLICATION SOFTWARE--3.0%
17,600 Artwork Systems Group NV (BE)* 211,997
100,000 Gresham Computing PLC (UK)* 625,680
24,850 MandrakeSoft (FR)* 185,944
1,486,675 Marlborough Stirling PLC (UK) 1,732,297
335,650 Telelogic AB (SW)* 579,245
26,600 Yaskawa Information Systems Corporation (JA) 299,849
------------
3,635,012
------------
AUTO PARTS & EQUIPMENT--2.4%
1,069,600 Aapico Hitech Public Company Limited Foreign Shares
(TH) 784,836
50,500 Finnveden AB (SW)* 447,481
44,000 Nifco, Inc. (JA) 696,806
118,000 Toyo Radiator Company Limited (JA) 592,622
375,800 Westport Innovations, Inc. (CA)* 459,660
------------
2,981,405
------------
AUTOMOBILE MANUFACTURERS--0.9%
114,300 Mahindra & Mahindra Limited (IN) 1,098,747
------------
</Table>
GUIDE TO UNDERSTANDING FOREIGN HOLDINGS
The following abbreviations are used throughout the Statement of Investments to
indicate the country of origin on non-U.S. holdings.
AU Australia
AT Austria
BD Bermuda
BE Belgium
BR Brazil
CA Canada
CI Channel Islands
CN China
CY Cyprus
DE Denmark
FI Finland
FR France
GE Germany
GR Greece
HK Hong Kong
ID Indonesia
IE Ireland
IN India
IT Italy
JA Japan
MA Malaysia
MX Mexico
NE Netherlands
NW Norway
PT Portugal
RS Russia
SG Singapore
SL Solvak Republic
SP Spain
SW Sweden
SZ Switzerland
TH Thailand
UK United Kingdom
10
<Page>
<Table>
<Caption>
SHARES MARKET VALUE
- ---------------------------------------------------------------------------------
BIOTECHNOLOGY--0.4%
40,000 Biocon Limited 144A (IN)+ $ 435,889
------------
BROADCASTING & CABLE TV--0.2%
13,025 Central European Media Enterprises Limited Class A
(SL)* 295,928
------------
BUILDING PRODUCTS--1.3%
300,000 Nitto Boseki Company Limited (JA) 651,606
98,400 Pfleiderer AG Registered Shares (GE)* 915,878
------------
1,567,484
------------
COMMODITY CHEMICALS--0.2%
10,700 Nihon Micro Coating Company Limited (JA) 234,367
------------
COMMUNICATIONS EQUIPMENT--3.1%
68,000 GN Store Nord AS (DE)* 601,051
387,325 Mitec Telecom, Inc. (CA)* 727,968
174,127 Mobilezone Holding AG (SZ)* 582,555
51,625 Option International NV (BE)* 1,309,626
127,000 Tamura Taiko Holdings, Inc. (JA)* 616,872
------------
3,838,072
------------
COMPUTER & ELECTRONICS RETAIL--1.8%
53,480 Germanos SA (GR) 1,544,732
425,900 JB Hi-Fi Limited (AU) 682,389
------------
2,227,121
------------
COMPUTER STORAGE & PERIPHERALS--0.4%
10,000 Roland DG Corporation (JA) 486,643
------------
CONSTRUCTION & ENGINEERING--1.5%
187,000 Chiyoda Corporation (JA) 1,328,186
123,430 Lamda Development SA (GR) 528,621
------------
1,856,807
------------
CONSTRUCTION MATERIALS--1.2%
45,600 Advan Company Limited (JA) 603,041
118,400 Socotherm SPA (IT) 864,339
------------
1,467,380
------------
CONSUMER FINANCE--2.2%
134,300 Lopro Corporation (JA) 916,955
15,000 Sanyo Shinpan Finance Company Limited (JA) 856,436
116,800 Shinki Company Limited (JA) 952,683
------------
2,726,074
------------
DEPARTMENT STORES--0.8%
517,500 Lifestyle International Holdings Limited (HK)* 633,622
61,000 Matsuzakaya Company Limited (JA) 289,584
------------
923,206
------------
DIVERSIFIED BANKS--0.4%
175,310 Bank of Cyprus Limited (CY)* 507,650
------------
DIVERSIFIED CHEMICALS--0.5%
71,000 Nissan Chemical Industries Limited (JA) 570,655
------------
</Table>
SEE NOTES TO STATEMENT OF INVESTMENTS.
11
<Page>
<Table>
<Caption>
SHARES MARKET VALUE
- ---------------------------------------------------------------------------------
DIVERSIFIED COMMERCIAL SERVICES--3.2%
41 MOC Corporation (JA) $ 290,831
41 MOC Corporation New Shares (JA)*^# 276,289
416,400 PHS Group PLC (UK) 619,238
250 Quin Land Company Limited (JA) 888,970
664,000 Raffles Lasalle Limited (SG) 424,035
25,125 Techem AG (GE)* 645,015
28,800 Watabe Wedding Corporation (JA) 739,037
------------
3,883,415
------------
DIVERSIFIED METALS & MINING--2.0%
195,000 Excel Coal Limited (AU)* 359,979
16,000,000 PT Bumi Resources Tbk (ID) 978,463
36,600 Sumitomo Titanium Corporation (JA) 1,160,574
------------
2,499,016
------------
DRUG RETAIL--0.8%
17,500 Sundrug Company Limited (JA) 986,345
------------
ELECTRICAL COMPONENTS & EQUIPMENT--0.5%
239,000 GS Yuasa Corporation (JA) 584,823
------------
ELECTRONIC EQUIPMENT MANUFACTURERS--3.8%
250,750 Cardpoint PLC (UK)* 586,629
173,942 CSR PLC (UK)* 1,274,439
15,325 Funkwerk AG (GE) 570,749
50,300 Ingenico SA (FR) 919,219
85,025 Leitch Technology Corporation (CA)* 594,820
1,500 SAIA-Burgess Electronics AG (SZ) 718,620
------------
4,664,476
------------
EMPLOYMENT SERVICES--0.5%
251,800 Proffice AB (SW) 628,414
------------
ENVIRONMENTAL SERVICES--1.4%
24,225 BWT AG (AT) 632,226
200 Citron Holding AG Centre International de Traitements
et de Recyclage des Ordures Novices (SZ)* 59,885
8,225 Zenon Environmental, Inc. (CA)* 141,091
50,000 Zenon Environmental, Inc. 144A (CA)*+ 857,697
------------
1,690,899
------------
FOOD DISTRIBUTORS--0.8%
8,566,000 Heng Tai Consumables Group Limited (HK) 999,392
------------
FOOD RETAIL--1.5%
82,900 Jeronimo Martins SGPS SA (PT)* 927,948
15,339 Jeronimo Martins SGPS SA Provisional Certificates
(PT)*^# 171,698
15,000 Ozeki Company Limited (JA) 783,577
------------
1,883,223
------------
GAS UTILITIES--0.5%
370,000 AMGA SPA Azienda Mediterranea Gas e Acqua (IT) 578,927
------------
</Table>
12
<Page>
<Table>
<Caption>
SHARES MARKET VALUE
- ---------------------------------------------------------------------------------
GENERAL MERCHANDISE STORES--1.3%
30,000 Ryohin Keikaku Company Limited (JA) $ 1,547,908
------------
HEALTHCARE FACILITIES--0.9%
1,500,000 Bangkok Dusit Medical Services Public Company
Foreign Shares (TH) 392,565
67,600 Capio AB (SW)* 655,091
------------
1,047,656
------------
HEALTHCARE SERVICES--1.6%
44,000 Falco Biosystems Limited (JA) 588,737
73,050 iSOFT Group PLC (UK) 573,643
244 Japan Longlife Company Limited (JA) 825,148
------------
1,987,528
------------
HIGHWAYS & RAILTRACKS--1.0%
110,975 Societa Iniziative Autostradali e Servizi SPA (IT) 1,250,308
------------
HOME IMPROVEMENT RETAIL--1.0%
45,500 Komeri Company Limited (JA) 1,217,614
------------
HOMEBUILDING--0.1%
10,000 Desarrolladora Homex SA de CV ADR (MX)* 173,100
------------
HOTELS, RESORTS & CRUISE LINES--3.1%
168,960 De Vere Group PLC (UK) 1,348,248
19,800 H.I.S. Company Limited (JA) 602,447
102,530 Hyatt Regency Hotels and Tourism SA (GR) 1,052,869
120,925 Millennium & Copthorne Hotels PLC (UK) 745,638
------------
3,749,202
------------
HOUSEHOLD APPLIANCES--0.5%
107,010 Fourlis SA (GR) 624,952
------------
INDUSTRIAL MACHINERY--5.3%
27,350 Andritz AG (AT) 1,340,047
302,700 Charter PLC (UK)* 916,774
20,250 Domino Printing Sciences PLC (UK) 87,240
46,000 Ihara Science Corporation (JA) 425,789
150,000 Kitz Corporation (JA) 662,604
83,000 Nissei ASB Machine Company Limited (JA) 395,546
290,725 Pursuit Dynamics PLC (UK)* 652,470
17,100 Shima Seiki Manufacturing Limited (JA) 581,414
3,500 SIG Holding AG (SZ) 632,985
69,400 Suzumo Machinery Company Limited (JA) 750,511
------------
6,445,380
------------
INTEGRATED OIL & GAS--0.5%
24,100 PetroKazakhstan, Inc. (CA) 651,210
------------
INTEGRATED TELECOMMUNICATION SERVICES--1.7%
22,219 Golden Telecom, Inc. (RS) 625,243
13,447,900 Jasmine International Public Company
Limited Foreign Shares (TH)* 276,293
175 Mitsui & Associates Telepark Corporation (JA) 527,654
450,000 Pipex Communications PLC (UK)* 80,794
41,100 Rostelecom Sponsored ADR (RS) 531,012
------------
2,040,996
------------
</Table>
SEE NOTES TO STATEMENT OF INVESTMENTS.
13
<Page>
<Table>
<Caption>
SHARES MARKET VALUE
- ---------------------------------------------------------------------------------
INTERNET RETAIL--0.7%
210 BB Net Corporation (JA)* $ 894,927
------------
INTERNET SOFTWARE & SERVICES--0.6%
298,950 Certicom Corporation (CA)* 758,077
------------
IT CONSULTING & OTHER SERVICES--0.3%
25 VeriServe Corporation (JA)* 375,750
------------
LEISURE PRODUCTS--0.5%
2,425 Kompan AS (DE) 365,181
24,875 MIFA Mitteldeutsche Fahrradwerke AG (GE)* 273,295
------------
638,476
------------
MARINE--1.0%
322,000 Jinhui Holdings Limited (HK)* 594,477
704,100 Precious Shipping Public Company
Limited Foreign Shares (TH) 598,446
------------
1,192,923
------------
METAL & GLASS CONTAINERS--0.6%
1,375 Vetropack Holding AG (SZ) 702,651
------------
MOVIES & ENTERTAINMENT--1.7%
84,128 CTS Eventim AG (GE)* 1,422,776
18,800 Tohokushinsha Film Corporation (JA) 601,311
------------
2,024,087
------------
OFFICE ELECTRONICS--0.4%
8,650 Neopost SA (FR) 511,275
------------
OFFICE SERVICES & SUPPLIES--0.5%
75,000 Okamura Corporation (JA) 611,740
------------
OIL & GAS DRILLING--1.1%
2,410,000 China Oilfield Services Limited (CN) 687,486
2,160,000 Crest Petroleum Berhad (MA) 619,579
------------
1,307,065
------------
OIL & GAS EQUIPMENT & SERVICES--1.9%
14,950 Compagnie Generale de Geophysique SA (FR)* 913,116
1,698,000 Scomi Group Berhad (MA) 576,426
8,100 Vallourec SA (FR) 794,823
------------
2,284,365
------------
OIL & GAS EXPLORATION & PRODUCTION--3.5%
60,525 Cairn Energy PLC (UK)* 1,547,701
18,450,000 Emerald Energy PLC (UK)* 451,714
122,925 Fairborne Energy Limited (CA)* 939,723
35,125 First Calgary Petroleums Limited (CA)* 292,097
300,000 Hardman Resources Limited (AU)* 401,254
47,675 Lundin Petroleum AB (SW)* 253,153
30,000 Opti Canada, Inc. 144A (CA)*+ 419,526
------------
4,305,168
------------
OIL & GAS REFINING, MARKETING, & TRANSPORTATION--1.7%
127,000 Ichitaka Company Limited (JA) 1,478,165
9,460,000 Titan Petrochemicals Group Limited (HK)* 630,683
------------
2,108,848
------------
</Table>
14
<Page>
<Table>
<Caption>
SHARES MARKET VALUE
- ---------------------------------------------------------------------------------
PACKAGED FOODS & MEATS--2.8%
800 A. Hiestand Holding AG (SZ)* $ 456,723
346,900 Gruma SA de CV Class B (MX) 571,499
80,750 Koninklijke Wessanen NV (NE) 1,161,291
63,000 Nippon Flour Mills Company Limited (JA) 308,317
204,000 Nisshin Oillio Group Limited (JA) 927,315
------------
3,425,145
------------
PERSONAL PRODUCTS--2.1%
5,800 Ales Groupe (FR) 273,805
92,000 Natura Cosmeticos SA (BR)* 1,479,070
50,000 Pigeon Corporation (JA) 833,066
------------
2,585,941
------------
PHARMACEUTICALS--2.0%
35,000 Hisamitsu Pharmaceuticals Company, Inc. (JA) 647,940
42,800 Orion-Yhtyma Oyj B Shares (FI) 1,098,771
15,000 Sawai Pharmaceutical Company Limited (JA) 632,360
------------
2,379,071
------------
PUBLISHING--1.0%
149,500 Incisive Media PLC (UK) 363,312
5,225 SPIR Communication (FR) 830,253
------------
1,193,565
------------
RAILROADS--0.3%
150,000 Nankai Electric Railway Company Limited (JA) 389,039
------------
REAL ESTATE MANAGEMENT & DEVELOPMENT--6.7%
15,000 Aeon Mall Company Limited (JA) 892,178
275 Arealink Company Limited (JA) 965,266
5,291,400 Asian Property Development Public Company
Limited Foreign Shares (TH) 559,101
335,000 Expomedia Group PLC (UK)* 990,297
31 Idu Company (JA)* 115,062
279 Idu Company New Shares (JA)* 715,942
406,300 Immsi SPA (IT) 739,042
50 RISA Partners, Inc. (JA)* 279,522
150 RISA Partners, Inc. New Shares (JA)* 679,100
25,000 Urban Corporation (JA) 767,539
477,550 Urbi, Desarrollos Urbanos SA de CV (MX)* 1,536,210
------------
8,239,259
------------
REGIONAL BANKS--0.4%
74,775 Banco di Desio e della Brianza SPA (IT) 434,876
------------
RESTAURANTS--1.6%
201,100 Alsea SA de CV (MX) 313,865
11,800 Karula Company Limited (JA) 592,622
107,875 TelePizza SA (SP) 212,626
45 Y's Table Corporation (JA)* 298,996
90 Y's Table Corporation New Shares (JA)*^# 568,093
------------
1,986,202
------------
</Table>
SEE NOTES TO STATEMENT OF INVESTMENTS.
15
<Page>
<Table>
<Caption>
SHARES MARKET VALUE
- ---------------------------------------------------------------------------------
SPECIALTY CHEMICALS--0.4%
100,000 Daicel Chemical Industries Limited (JA) $ 525,134
------------
SPECIALTY STORES--1.0%
9,850 Hellenic Duty Free Shops SA (GR) 187,676
1,100 Nafco Company Limited (JA) 32,159
92 Village Vanguard Company Limited (JA)* 961,188
------------
1,181,023
------------
STEEL--0.7%
198,000 Godo Steel Limited (JA) 909,114
------------
TIRES & RUBBER--1.0%
8,100 Nokian Renkaat Oyj (FI) 789,107
373,400 Sri Trang Agro-Industry Public Company
Limited Foreign Shares (TH) 367,601
------------
1,156,708
------------
TRUCKING--1.1%
37,600 Hamakyorex Company Limited (JA) 1,340,457
------------
WATER UTILITIES--2.3%
109,675 AWG PLC (UK) 1,165,570
36,412,100 AWG PLC Redeemable Shares (UK)* 66,036
358,900 Northumbrian Water Group PLC (UK) 885,209
45,425 Pennon Group PLC (UK) 652,871
------------
2,769,686
------------
TOTAL COMMON STOCKS (FOREIGN)
(COST--$107,956,097) 116,063,674
------------
PREFERRED STOCKS (FOREIGN)--0.6%
INDUSTRIAL MACHINERY--0.6%
6,950 Krones AG (GE) 711,997
------------
TOTAL PREFERRED STOCKS (FOREIGN)
(COST--$670,659) 711,997
------------
<Caption>
UNITS MARKET VALUE
- ---------------------------------------------------------------------------------
FOREIGN RIGHTS AND WARRANTS--0.0%
INDUSTRIAL CONGLOMERATES--0.0%
204,677 Media Prima Berhad ICULS (MA) $ 41,474
------------
INTEGRATED TELECOMMUNICATION SERVICES--0.0%
600,000 Yangtze Telecom Corporation Warrants (CN)*^# 0
------------
TOTAL FOREIGN RIGHTS AND WARRANTS
(COST--$53,933) 41,474
------------
</Table>
16
<Page>
<Table>
<Caption>
PRINCIPAL AMOUNT AMORTIZED COST
- ---------------------------------------------------------------------------------
CORPORATE SHORT-TERM NOTES--4.8%
AGRICULTURAL PRODUCTS--4.8%
$ 5,900,000 Archer-Daniels-Midland Company
1.43% 7/1/04+ $ 5,900,000
-------------
TOTAL CORPORATE SHORT-TERM NOTES
(AMORTIZED COST--$5,900,000) 5,900,000
-------------
TOTAL INVESTMENTS--100.4%
(TOTAL COST--$114,580,689) 122,717,145
-------------
OTHER ASSETS AND LIABILITIES--(0.4%) (460,301)
-------------
NET ASSETS--100.0% $ 122,256,844
=============
</Table>
NOTES TO STATEMENT OF INVESTMENTS
* NON-INCOME PRODUCING.
+ SECURITY WAS ACQUIRED PURSUANT TO RULE 144A OR SECTION 4(2) OF THE SECURITIES
ACT OF 1933 AND MAY BE DEEMED TO BE RESTRICTED FOR RESALE.
# FAIR VALUED SECURITY.
ADR - AMERICAN DEPOSITARY RECEIPT
ICULS - IRREDEEMABLE CONVERTIBLE UNSECURED LOAN STOCK
^ SCHEDULE OF RESTRICTED AND ILLIQUID SECURITIES:
<Table>
<Caption>
ACQUISITION ACQUISITION VALUE AS %
DATE COST VALUE OF NET ASSETS
----------- ----------- ----------- -------------
JERONIMO MARTINS SGPS
SA PROVISIONAL CERTIFICATES (PT) 6/25/04 $ 163,682 $ 171,698 0.14%
MOC CORPORATION
NEW SHARES (JA) 6/25/04 254,591 276,289 0.23%
Y'S TABLE CORPORATION
NEW SHARES (JA) 5/26/04 662,391 568,093 0.46%
YANGTZE TELECOM
CORPORATION WARRANTS (CN) 3/8/04 0 0 0.00%
----------- ----------- -------------
$ 1,080,664 $ 1,016,080 0.83%
</Table>
THE FUND MAY HAVE REGISTRATION RIGHTS FOR CERTAIN RESTRICTED SECURITIES, WHICH
MAY REQUIRE THAT REGISTRATION COSTS BE BORNE BY THE FUND.
17
<Page>
STATEMENT OF ASSETS AND LIABILITIES
June 30, 2004 (UNAUDITED)
<Table>
ASSETS
Investment securities, at cost $ 114,580,689
---------------
Investment securities, at market 122,717,145
Cash 344,478
Foreign currency (cost $102,049) 98,823
Receivables:
Investment securities sold 3,760,262
Capital shares sold 1,441,728
Dividends 109,623
Other 126,583
---------------
Total Assets 128,598,642
---------------
LIABILITIES
Payables and other accrued liabilities:
Investment securities purchased 5,656,637
Capital shares redeemed 105,682
Advisory fees 96,225
Shareholder servicing fees 28,406
Accounting fees 9,622
Distribution fees 28,296
Transfer agency fees 57,134
Custodian fees 74,758
India and Thailand taxes 94,542
To transfer agent 227
Other 190,269
---------------
Total Liabilities 6,341,798
---------------
Net Assets $ 122,256,844
===============
COMPOSITION OF NET ASSETS
Capital (par value and paid-in surplus) $ 268,253,337
Accumulated net investment loss (578,543)
Accumulated net realized loss from security transactions
(net of foreign taxes paid on Thailand investments of $137,086) (153,458,442)
Net unrealized appreciation on investments
and foreign currency translation 8,040,492
---------------
Total $ 122,256,844
===============
</Table>
18
<Page>
<Table>
CLASS A
Net Assets $ 22,749,407
Shares Outstanding 1,555,638
Net Asset Value, Redemption Price Per Share $ 14.62
Maximum offering price per share (net asset value
plus sales charge of 5.75% of offering price) $ 15.51
CLASS B
Net Assets $ 17,556,907
Shares Outstanding 1,245,031
Net Asset Value, Offering and Redemption Price (excluding
applicable contingent deferred sales charge) Per Share $ 14.10
CLASS C
Net Assets $ 10,678,028
Shares Outstanding 758,397
Net Asset Value, Offering and Redemption Price (excluding
applicable contingent deferred sales charge) Per Share $ 14.08
CLASS F
Net Assets $ 70,571,417
Shares Outstanding 4,826,149
Net Asset Value, Offering and Redemption Price Per Share $ 14.62
CLASS R
Net Assets $ 230,532
Shares Outstanding 16,211
Net Asset Value, Offering and Redemption Price Per Share $ 14.22
CLASS T
Net Assets $ 470,553
Shares Outstanding 33,522
Net Asset Value, Redemption Price Per Share $ 14.04
Maximum offering price per share (net asset value
plus sales charge of 4.50% of offering price) $ 14.70
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
19
<Page>
STATEMENT OF OPERATIONS
For the six months ended June 30, 2004 (UNAUDITED)
<Table>
INVESTMENT INCOME
Dividends $ 873,788
Interest 34,181
Foreign taxes withheld (82,424)
---------------
Total Investment Income 825,545
---------------
EXPENSES
Advisory fees--Note 2 662,197
Shareholder servicing fees--Note 2 107,163
Accounting fees--Note 2 66,220
Distribution fees--Note 2 204,557
Transfer agency fees--Note 2 85,661
Registration fees 35,300
Postage and mailing expenses 6,308
Custodian fees and expenses--Note 2 244,350
Printing expenses 12,844
Legal and audit fees 9,353
Directors' fees and expenses--Note 2 11,112
Other expenses 14,488
---------------
Total Expenses 1,459,553
Earnings Credits (2,013)
Reimbursed/Waived Expenses (59,789)
Expense Offset to Broker Commissions (3,700)
---------------
Net Expenses 1,394,051
---------------
Net Investment Loss (568,506)
---------------
REALIZED AND UNREALIZED GAIN (LOSS) ON SECURITY
TRANSACTIONS AND FOREIGN CURRENCY TRANSACTIONS
Net Realized Gain (Loss) on:
Security Transactions (net of foreign taxes paid
on Thailand investments of $137,086) 6,633,096
Foreign Currency Transactions (173,176)
---------------
Net Realized Gain 6,459,920
Net Change in Unrealized Appreciation/Depreciation of Investments
and Foreign Currency Translation (3,578,735)
---------------
Net Realized and Unrealized Gain 2,881,185
---------------
Net Increase in Net Assets Resulting from Operations $ 2,312,679
===============
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
20
<Page>
STATEMENTS OF CHANGES IN NET ASSETS
(UNAUDITED)
<Table>
<Caption>
SIX MONTHS ENDED YEAR ENDED
6/30/04 12/31/03
OPERATIONS
Net Investment Loss $ (568,506) $ (713,841)
Net Realized Gain on Security and
Foreign Currency Transactions 6,459,920 40,877,636
Net Change in Unrealized Appreciation/Depreciation
of Investments and Foreign Currency Translation (3,578,735) 14,435,879
--------------- ---------------
Net Increase in Net Assets Resulting from Operations 2,312,679 54,599,674
--------------- ---------------
CAPITAL SHARE TRANSACTIONS
Net Increase (Decrease)--Note 4
Class A (4,425,790) 8,132,869
Class B (1,066,042) (2,705,719)
Class C (50,539) 1,905,536
Class F (10,044,172) (4,988,538)
Class R 83,260 23,012
Class T (65,017) (77,846)
--------------- ---------------
Net Increase (Decrease) from
Capital Share Transactions (15,568,300) 2,289,314
--------------- ---------------
Net Increase (Decrease) in Net Assets (13,255,621) 56,888,988
--------------- ---------------
NET ASSETS
Beginning of period $ 135,512,465 $ 78,623,477
--------------- ---------------
End of period $ 122,256,844 $ 135,512,465
=============== ===============
Accumulated Net Investment Loss $ (578,543) $ (10,037)
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
21
<Page>
FINANCIAL HIGHLIGHTS
(UNAUDITED)
<Table>
<Caption>
SIX MONTHS YEAR ENDED
ENDED JUNE 30, DECEMBER 31,
2004 2003 2002 2001 2000
-------------- -------------------------------------------
CLASS A SHARES
PER SHARE OPERATING DATA
Net Asset Value, beginning of period $ 14.24 $ 8.14 $ 9.68 $ 14.18 $ 22.93
- ---------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.05)+ 0.10 (0.16) (0.14) (0.13)
Net realized and unrealized gains
(losses) on securities 0.43 6.00 (1.38) (4.36) (6.65)
--------------------------------------------------------------
Total from investment operations 0.38 6.10 (1.54) (4.50) (6.78)
- ---------------------------------------------------------------------------------------------------------
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 0.00 (1.97)
--------------------------------------------------------------
Total distributions 0.00 0.00 0.00 0.00 (1.97)
- ---------------------------------------------------------------------------------------------------------
Net Asset Value, end of period $ 14.62 $ 14.24 $ 8.14 $ 9.68 $ 14.18
==============================================================
TOTAL RETURN* 2.67% 74.94% (15.91%) (31.74%) (29.61%)
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000s) $ 22,749 $ 27,252 $ 9,422 $ 14,033 $ 36,353
Ratios to average net assets:
Expenses with reimbursements,
but no earnings credits# 1.93%** 2.45% 2.24% 1.88% 1.61%
Expenses with reimbursements
and earnings credits 1.93%** 2.45% 2.24% 1.87% 1.59%
Net investment loss (0.69%)** (0.83%) (0.80%) (0.26%) (0.80%)
- ---------------------------------------------------------------------------------------------------------
Portfolio turnover rate@ 690% 707% 495% 704% 535%
</Table>
+ COMPUTED USING AVERAGE SHARES OUTSTANDING THROUGHOUT THE PERIOD.
* SALES CHARGES ARE NOT REFLECTED IN THE TOTAL RETURN.
** ANNUALIZED.
# CERTAIN FEES WERE WAIVED BY THE CUSTODIAN. HAD THESE FEES NOT BEEN WAIVED,
THE EXPENSE RATIOS WOULD HAVE BEEN 2.02% (2004), 2.54% (2003), 2.27% (2002),
1.88% (2001), AND 1.61% (2000).
@ 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>
<Table>
<Caption>
SIX MONTHS YEAR ENDED
ENDED JUNE 30, DECEMBER 31,
2004 2003 2002 2001 2000
-------------- -------------------------------------------
CLASS B SHARES
PER SHARE OPERATING DATA
Net Asset Value, beginning of period $ 13.79 $ 7.95 $ 9.54 $ 14.08 $ 22.93
- ---------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment loss (0.10)+ (0.31) (0.29) (0.18) (0.23)
Net realized and unrealized gains
(losses) on securities 0.41 6.15 (1.30) (4.36) (6.65)
--------------------------------------------------------------
Total from investment operations 0.31 5.84 (1.59) (4.54) (6.88)
- ---------------------------------------------------------------------------------------------------------
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 0.00 (1.97)
--------------------------------------------------------------
Total distributions 0.00 0.00 0.00 0.00 (1.97)
- ---------------------------------------------------------------------------------------------------------
Net Asset Value, end of period $ 14.10 $ 13.79 $ 7.95 $ 9.54 $ 14.08
==============================================================
TOTAL RETURN* 2.25% 73.46% (16.67%) (32.24%) (30.05%)
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000s) $ 17,557 $ 18,198 $ 12,810 $ 19,661 $ 35,000
Ratios to average net assets:
Expenses with reimbursements,
but no earnings credits# 2.75%** 3.30% 3.09% 2.66% 2.38%
Expenses with reimbursements
and earnings credits 2.74%** 3.29% 3.09% 2.64% 2.35%
Net investment loss (1.48%)** (1.44%) (1.64%) (1.06%) (1.50%)
- ---------------------------------------------------------------------------------------------------------
Portfolio turnover rate@ 690% 707% 495% 704% 535%
</Table>
+ COMPUTED USING AVERAGE SHARES OUTSTANDING THROUGHOUT THE PERIOD.
* SALES CHARGES ARE NOT REFLECTED IN THE TOTAL RETURN.
** ANNUALIZED.
# CERTAIN FEES WERE WAIVED BY THE CUSTODIAN. HAD THESE FEES NOT BEEN WAIVED,
THE EXPENSE RATIOS WOULD HAVE BEEN 2.84% (2004), 3.38% (2003), 3.12% (2002),
2.66% (2001), AND 2.38% (2000).
@ 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>
<Table>
<Caption>
SIX MONTHS YEAR ENDED
ENDED JUNE 30, DECEMBER 31,
2004 2003 2002 2001 2000
-------------- -------------------------------------------
CLASS C SHARES
PER SHARE OPERATING DATA
Net Asset Value, beginning of period $ 13.76 $ 7.93 $ 9.52 $ 14.06 $ 22.93
- ---------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment loss (0.10)+ (0.01) (0.35) (0.22) (0.21)
Net realized and unrealized gains
(losses) on securities 0.42 5.84 (1.24) (4.32) (6.69)
--------------------------------------------------------------
Total from investment operations 0.32 5.83 (1.59) (4.54) (6.90)
- ---------------------------------------------------------------------------------------------------------
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 0.00 (1.97)
--------------------------------------------------------------
Total distributions 0.00 0.00 0.00 0.00 (1.97)
- ---------------------------------------------------------------------------------------------------------
Net Asset Value, end of period $ 14.08 $ 13.76 $ 7.93 $ 9.52 $ 14.06
==============================================================
TOTAL RETURN* 2.33% 73.52% (16.70%) (32.29%) (30.13%)
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000s) $ 10,678 $ 10,639 $ 5,268 $ 8,928 $ 17,925
Ratios to average net assets:
Expenses with reimbursements,
but no earnings credits# 2.70%** 3.25% 3.06% 2.67% 2.38%
Expenses with reimbursements
and earnings credits 2.70%** 3.25% 3.05% 2.65% 2.35%
Net investment loss (1.43%)** (1.43%) (1.58%) (1.08%) (1.50%)
- ---------------------------------------------------------------------------------------------------------
Portfolio turnover rate@ 690% 707% 495% 704% 535%
</Table>
+ COMPUTED USING AVERAGE SHARES OUTSTANDING THROUGHOUT THE PERIOD.
* SALES CHARGES ARE NOT REFLECTED IN THE TOTAL RETURN.
** ANNUALIZED.
# CERTAIN FEES WERE WAIVED BY THE CUSTODIAN. HAD THESE FEES NOT BEEN WAIVED,
THE EXPENSE RATIOS WOULD HAVE BEEN 2.79% (2004), 3.34% (2003), 3.08% (2002),
2.67% (2001), AND 2.38% (2000).
@ 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>
<Table>
<Caption>
SIX MONTHS YEAR ENDED
ENDED JUNE 30, DECEMBER 31,
2004 2003 2002 2001 2000 1999
-------------- --------------------------------------------------------
CLASS F SHARES
PER SHARE OPERATING DATA
Net Asset Value, beginning of
period $ 14.24 $ 8.13 $ 9.67 $ 14.17 $ 22.93 $ 14.93
- ----------------------------------------------------------------------------------------------------------------------
Income from investment
operations:
Net investment loss (0.05)+ (0.14) (0.23) (0.22) (0.19) (0.11)
Net realized and unrealized gains
(losses) on securities 0.43 6.25 (1.31) (4.28) (6.60) 12.94
---------------------------------------------------------------------------
Total from investment operations 0.38 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 0.00
From net realized gains 0.00 0.00 0.00 0.00 (1.97) (4.83)
---------------------------------------------------------------------------
Total distributions 0.00 0.00 0.00 0.00 (1.97) (4.83)
- ----------------------------------------------------------------------------------------------------------------------
Net Asset Value, end of period $ 14.62 $ 14.24 $ 8.13 $ 9.67 $ 14.17 $ 22.93
===========================================================================
TOTAL RETURN 2.67% 75.15% (15.93%) (31.76%) (29.65%) 87.44%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000s) $ 70,571 $ 78,759 $ 50,742 $ 78,574 $ 182,036 $ 261,437
Ratios to average net assets:
Expenses with reimbursements,
but no earnings credits# 1.93%** 2.31% 2.18% 1.92% 1.61% 1.64%
Expenses with reimbursements
and earnings credits 1.93%** 2.31% 2.18% 1.90% 1.59% 1.63%
Net investment loss (0.69%)** (0.45%) (0.74%) (0.30%) (0.88%) (0.91%)
- ----------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate@ 690% 707% 495% 704% 535% 330%
</Table>
+ COMPUTED USING AVERAGE SHARES OUTSTANDING THROUGHOUT THE PERIOD.
** ANNUALIZED.
# CERTAIN FEES WERE WAIVED BY THE CUSTODIAN. HAD THESE FEES NOT BEEN WAIVED,
THE EXPENSE RATIOS WOULD HAVE BEEN 2.02% (2004), 2.40% (2003), 2.21% (2002),
1.92% (2001), 1.61% (2000), AND 1.64% (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.
25
<Page>
<Table>
<Caption>
SIX MONTHS YEAR ENDED
ENDED JUNE 30, DECEMBER 31,
2004 2003 2002 2001 2000
-------------- -------------------------------------------
CLASS R SHARES
PER SHARE OPERATING DATA
Net Asset Value, beginning of period $ 13.82 $ 7.87 $ 9.56 $ 14.22 $ 22.93
- ---------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.02)+ 0.54 (0.81) (0.17) (0.09)
Net realized and unrealized gains
(losses) on securities 0.42 5.41 (0.88) (4.49) (6.65)
--------------------------------------------------------------
Total from investment operations 0.40 5.95 (1.69) (4.66) (6.74)
- ---------------------------------------------------------------------------------------------------------
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 0.00 (1.97)
--------------------------------------------------------------
Total distributions 0.00 0.00 0.00 0.00 (1.97)
- ---------------------------------------------------------------------------------------------------------
Net Asset Value, end of period $ 14.22 $ 13.82 $ 7.87 $ 9.56 $ 14.22
==============================================================
TOTAL RETURN 2.89% 75.60% (17.68%) (32.77%) (29.44%)
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000s) $ 231 $ 142 $ 37 $ 76 $ 241
Ratios to average net assets:
Expenses with reimbursements,
but no earnings credits# 1.61%** 2.08% 3.94% 1.86% 1.33%
Expenses with reimbursements
and earnings credits 1.60%** 2.07% 3.91% 1.84% 1.31%
Net investment loss (0.32%)** (0.32%) (2.20%) (0.08%) (0.55%)
- ---------------------------------------------------------------------------------------------------------
Portfolio turnover rate@ 690% 707% 495% 704% 535%
</Table>
+ COMPUTED USING AVERAGE SHARES OUTSTANDING THROUGHOUT THE PERIOD.
** ANNUALIZED.
# CERTAIN FEES WERE WAIVED BY THE CUSTODIAN. HAD THESE FEES NOT BEEN WAIVED,
THE EXPENSE RATIOS WOULD HAVE BEEN 1.71% (2004), 2.17% (2003), 4.65% (2002),
2.78% (2001), AND 1.33% (2000).
@ 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>
<Table>
<Caption>
SIX MONTHS YEAR ENDED
ENDED JUNE 30, DECEMBER 31,
2004 2003 2002 2001 2000
-------------- -------------------------------------------
CLASS T SHARES
PER SHARE OPERATING DATA
Net Asset Value, beginning of period $ 13.70 $ 7.87 $ 9.50 $ 14.14 $ 22.93
- ---------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment loss (0.08)+ (0.24) (0.45) (0.22) (0.16)
Net realized and unrealized gains
(losses) on securities 0.42 6.07 (1.18) (4.42) (6.66)
--------------------------------------------------------------
Total from investment operations 0.34 5.83 (1.63) (4.64) (6.82)
- ---------------------------------------------------------------------------------------------------------
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 0.00 (1.97)
--------------------------------------------------------------
Total distributions 0.00 0.00 0.00 0.00 (1.97)
- ---------------------------------------------------------------------------------------------------------
Net Asset Value, end of period $ 14.04 $ 13.70 $ 7.87 $ 9.50 $ 14.14
==============================================================
TOTAL RETURN* 2.48% 74.08% (17.16%) (32.82%) (29.79%)
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000s) $ 471 $ 522 $ 345 $ 538 $ 869
Ratios to average net assets:
Expenses with reimbursements,
but no earnings credits# 2.33%** 3.07% 4.03% 3.16% 1.87%
Expenses with reimbursements
and earnings credits 2.33%** 3.07% 4.03% 3.14% 1.84%
Net investment loss (1.06%)** (1.06%) (2.69%) (1.60%) (1.00%)
- ---------------------------------------------------------------------------------------------------------
Portfolio turnover rate@ 690% 707% 495% 704% 535%
</Table>
+ COMPUTED USING AVERAGE SHARES OUTSTANDING THROUGHOUT THE PERIOD.
* SALES CHARGES ARE NOT REFLECTED IN THE TOTAL RETURN.
** ANNUALIZED.
# CERTAIN FEES WERE WAIVED BY THE CUSTODIAN. HAD THESE FEES NOT BEEN WAIVED,
THE EXPENSE RATIOS WOULD HAVE BEEN 2.42% (2004), 3.16% (2003), 4.05% (2002),
3.16% (2001), AND 1.87% (2000).
@ 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
June 30, 2004 (UNAUDITED)
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
Dreyfus Founders Funds, Inc. (the "Company") is an open-end management
investment company registered under the Investment Company Act of 1940 (the
"1940 Act"). 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--A domestic 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 a
security traded on Nasdaq, at its official closing price. Lacking any sales on
that day, the security is valued at the current closing bid price, or by quotes
from dealers making a market in the security if the closing bid price is not
available, or in the case of written call options, at the mean between the
highest bid and lowest asked quotations obtained from at least two securities
dealers.
A foreign equity security traded on a foreign exchange is valued at the
last quoted official closing price available before the time when the Fund's
assets are valued, or at the last quoted sales price if the exchange does not
provide an official closing price or if the foreign market has not yet closed.
Lacking any sales on that day, the security is valued at the current closing bid
price, or by quotes from dealers making a market in the security if the closing
bid price is not available. London closing exchange rates are used to convert
foreign currencies to U.S. dollars.
A debt security with a remaining maturity greater than 60 days at the time of
purchase is valued in accordance with the evaluated bid price supplied by a
pricing service approved by the Company's board of directors or, if such price
is not available, at the mean between the highest bid and lowest asked
quotations obtained from at least two securities dealers. A debt security with a
remaining maturity of 60 days or less at the time of purchase is valued at
amortized cost, which approximates market value, unless it is determined that
amortized cost would not represent market value, in which case the securities
would be marked to market. The Fund amortizes premiums and discounts on all debt
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
28
<Page>
occurs after the close of the market on which a security is traded, and it is
determined that the event has materially affected the value of the security.
SECURITY TRANSACTIONS--Security transactions are accounted for as of the date
the securities are purchased or sold (trade date). Net realized gains and losses
are determined on the basis of identified cost, which is also used for federal
income tax purposes.
FOREIGN SECURITIES AND CURRENCY TRANSACTIONS--Foreign securities may carry more
risk than U.S. securities, such as political and currency risks. The Fund
normally will invest a large portion of its assets in foreign securities. In the
event the Fund executes a foreign security transaction, the Fund may enter into
a foreign currency contract to settle the foreign security transaction. The
resultant foreign currency gain or loss from the contract is recorded as foreign
currency gain or loss and is presented as such in the Statement of Operations.
Foreign currency held at June 30, 2004 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 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.
29
<Page>
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, if
any, reduce Other Expenses and would be 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.
SHAREHOLDER SERVICING AND TRANSFER AGENCY FEES FOR CLASS F SHARES--The Company
has a shareholder services agreement with Dreyfus Service Corporation ("DSC"),
the direct owner of Founders and 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. 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. During the six months ended June 30,
2004, Class F shares were charged $36,354 pursuant to this shareholder services
agreement.
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
30
<Page>
out-of-pocket charges incurred by DTI are paid by the Fund. During the six
months ended June 30, 2004, Class F shares were charged $18,176 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 $12.43 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 during the six months ended June 30,
2004 were as follows:
<Table>
<Caption>
TRANSFER
AGENCY FEES
--------------------------------------------------------------
Class A $ 19,869
Class B $ 19,193
Class C $ 9,176
Class R $ 95
Class T $ 766
</Table>
Certain as-of shareholder transactions may result in gains or losses to the
Fund. Depending on the circumstances, these gains may be payable to, or
reimbursable from, the transfer agent; such gains and losses are presented on
the Statement of Assets and Liabilities.
DISTRIBUTION AND SHAREHOLDER SERVICES PLANS--DSC also is the distributor of the
Fund's shares. The Fund has adopted a Distribution Plan pursuant to Rule 12b-1
under the 1940 Act 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 six months ended June
30, 2004, Class F shares were charged $94,462 pursuant to this Distribution
Plan.
The Fund also has adopted a Distribution Plan pursuant to Rule 12b-1 under the
1940 Act 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.
31
<Page>
Distribution and shareholder servicing fees paid to DSC by the Fund's Class A,
B, C and T shares for the six months ended June 30, 2004, were as follows:
<Table>
<Caption>
DISTRIBUTION SHAREHOLDER
FEES SERVICING FEES
-----------------------------------------------------------------
Class A N/A $ 33,681
Class B $ 68,363 $ 22,788
Class C $ 41,089 $ 13,697
Class T $ 643 $ 643
</Table>
During the six months ended June 30, 2004, DSC retained $2,630 and $103 in sales
commissions from the sales of Class A and Class T shares, respectively. DSC also
retained $29,781 and $10,519 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 and an affiliate of Founders, 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
---------------------------------------------------------------
9/1/03 to 8/31/04 $ 150,000
9/1/04 to 8/31/05 $ 200,000
9/1/05 to 8/31/06 $ 200,000
</Table>
The fee waiver is allocated among the Funds in proportion to their respective
shares of the total custodian fee. For the six months ended June 30, 2004, the
Fund's portion of the fee waiver was $59,789. 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.
32
<Page>
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 six months ended June 30, 2004, Founders reimbursed the Fund
for a pricing 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.
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.
The aggregate cost of investments and the composition of unrealized appreciation
and depreciation of investment securities for federal income tax purposes as of
June 30, 2004 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 $ 114,664,124
Gross Tax Appreciation of Investments $ 10,146,910
Gross Tax Depreciation of Investments $ (2,093,889)
Net Tax Appreciation $ 8,053,021
</Table>
33
<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>
SIX MONTHS ENDED YEAR ENDED
JUNE 30, 2004 DECEMBER 31, 2003
SHARES AMOUNT SHARES AMOUNT
CLASS A
- ---------------------------------------------------------------------------------------------------------------
Sold 603,770 $ 9,126,833 3,502,478 $ 36,560,507
Redeemed (962,000) $ (13,552,623) (2,746,760) $ (28,427,638)
--------------------------------------------------------------------
Net Increase (Decrease) (358,230) $ (4,425,790) 755,718 $ 8,132,869
====================================================================
CLASS B
- ---------------------------------------------------------------------------------------------------------------
Sold 29,828 $ 434,989 58,678 $ 685,415
Redeemed (104,665) $ (1,501,031) (350,900) $ (3,391,134)
--------------------------------------------------------------------
Net Decrease (74,837) $ (1,066,042) (292,222) $ (2,705,719)
====================================================================
CLASS C
- ---------------------------------------------------------------------------------------------------------------
Sold 139,251 $ 2,065,747 1,047,656 $ 9,859,862
Redeemed (153,858) $ (2,116,286) (938,988) $ (7,954,326)
--------------------------------------------------------------------
Net Increase (Decrease) (14,607) $ (50,539) 108,668 $ 1,905,536
====================================================================
CLASS F
- ---------------------------------------------------------------------------------------------------------------
Sold 589,372 $ 8,834,063 3,504,087 $ 34,110,158
Redeemed (1,295,600) $ (18,878,235) (4,216,077) $ (39,098,696)
--------------------------------------------------------------------
Net Decrease (706,228) $ (10,044,172) (711,990) $ (4,988,538)
====================================================================
CLASS R
- ---------------------------------------------------------------------------------------------------------------
Sold 18,997 $ 271,977 88,378 $ 927,946
Redeemed (13,092) $ (188,717) (82,802) $ (904,934)
--------------------------------------------------------------------
Net Increase 5,905 $ 83,260 5,576 $ 23,012
====================================================================
CLASS T
- ---------------------------------------------------------------------------------------------------------------
Sold 1,666 $ 23,555 154,521 $ 1,219,197
Redeemed (6,243) $ (88,572) (160,244) $ (1,297,043)
--------------------------------------------------------------------
Net Decrease (4,577) $ (65,017) (5,723) $ (77,846)
====================================================================
</Table>
34
<Page>
5. INVESTMENT TRANSACTIONS
Purchases and sales of investment securities (excluding short-term securities
and U.S. government obligations) for the six months ended June 30, 2004 were
$425,429,432 and $443,108,439, 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 June 30, 2004, the Fund did not have any borrowings under the LOC.
7. LEGAL MATTERS
Two class actions have been filed against Mellon Financial Corporation and
Mellon Bank, N.A.; Dreyfus and Founders (the "Investment Advisers"); and the
directors of all or substantially all of the Dreyfus and Dreyfus Founders Funds.
The complaints also name all or substantially all of the Dreyfus and Dreyfus
Founders Funds as nominal defendants. Plaintiffs allege that the Investment
Advisers improperly used assets of the Dreyfus and Dreyfus Founders Funds, in
the form of directed brokerage commissions and 12b-1 fees, to pay brokers to
promote sales of Dreyfus and Dreyfus Founders Funds, and that the use of fund
assets to make these payments was not properly disclosed to investors.
Plaintiffs claim that the Investment Advisers' actions violated the 1940 Act,
the Investment Advisers Act, and common law. The complaints further allege that
the directors breached their fiduciary duties to fund shareholders under the
1940 Act and at common law and that Mellon Financial and Mellon Bank violated
the 1940 Act. The complaints seek unspecified compensatory and punitive damages,
rescission of the funds' contracts with the Investment Advisers, an accounting
of all fees paid, and an award of attorneys' fees and litigation expenses. The
complaints are pending in the same court and have been consolidated into a
single action under the caption IN RE DREYFUS MUTUAL FUNDS FEE LITIGATION.
Founders, Dreyfus, and the Funds believe the allegations in these lawsuits to be
totally without merit and intend to defend the actions vigorously. It is
possible that additional lawsuits arising out of these circumstances and
presenting similar allegations and requests for relief may be filed against the
defendants in the future. Neither Founders, Dreyfus, nor the Funds believe that
the pending actions will have a material adverse effect on the Funds or
Founders' ability to perform its contract with the Funds.
35
<Page>
For More Information
DREYFUS FOUNDERS
PASSPORT FUND
To obtain information:
MANAGER
- ---------------------------------
BY TELEPHONE | Founders Asset Management LLC
Call your financial | 210 University Boulevard, Suite 800
representative or | Denver, CO 80206
1-800-554-4611 |
| TRANSFER AGENT &
BY MAIL Write to: | DIVIDEND DISBURSING AGENT
Dreyfus Founders Funds |
144 Glenn Curtiss Boulevard | Dreyfus Transfer, Inc.
Uniondale, NY 11556-0144 | 200 Park Avenue
| New York, NY 10166
PROXY VOTING INFORMATION |
A description of the policies |
and procedures that the Fund | DISTRIBUTOR
uses to determine how to vote |
proxies relating to portfolio | Dreyfus Service Corporation
securities, and information | 200 Park Avenue
regarding how the Fund | New York, NY 10166
voted these proxies for |
the 12-month period ended |
June 30, 2004, is available |
through the Fund's website |
at www.dreyfus.com and on |
the Securities and Exchange |
Commission's website at |
www.sec.gov. The description |
of the policies and procedures |
is also available without |
charge, upon request, by |
calling 1-800-554-4611. |
THIS REPORT AND THE STATEMENTS IT CONTAINS ARE SUBMITTED FOR THE GENERAL
INFORMATION OF OUR SHAREHOLDERS. THE REPORT IS NOT AUTHORIZED FOR DISTRIBUTION
TO PROSPECTIVE INVESTORS UNLESS PRECEDED OR ACCOMPANIED BY AN EFFECTIVE
PROSPECTUS.
Dreyfus Founders Funds are managed by Founders Asset Management LLC. Founders
and Founders Funds are registered trademarks of Founders Asset Management LLC.
(C)2004 Founders Asset Management LLC. 08/04 0281SA0604
<Page>
Dreyfus Founders
Worldwide
Growth Fund
SEMIANNUAL REPORT June 30, 2004
[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
</Table>
The views expressed herein are current to the date of this report. The views and
the composition of the Fund's portfolio are subject to change at any time based
on market and other conditions. Companies appearing in bold print on pages 3-9
were owned by the Fund on June 30, 2004. The amounts of these holdings are
included in the Statement of Investments.
NOT FDIC-INSURED - NOT BANK-GUARANTEED - MAY LOSE VALUE
<Page>
MANAGEMENT OVERVIEW
[PHOTO OF REMI J. BROWNE]
[PHOTO OF DANIEL B. LEVAN]
[PHOTO OF JEFFREY R. SULLIVAN]
[PHOTO OF JOHN B. JARES]
A DISCUSSION WITH CO-PORTFOLIO MANAGERS REMI J. BROWNE, CFA, LEFT;
DANIEL B. LEVAN, CFA, SECOND FROM LEFT; JEFFREY R. SULLIVAN, CFA, THIRD
FROM LEFT; AND JOHN B. JARES, CFA, RIGHT
HOW DID THE FUND PERFORM RELATIVE TO ITS BENCHMARK IN THE SIX MONTHS ENDED JUNE
30, 2004?
Dreyfus Founders Worldwide Growth Fund underperformed its benchmark, the Morgan
Stanley Capital International (MSCI) World Index, which posted a 3.52% return
for the first six months of 2004.
DESCRIBE THE MARKET FACTORS DURING THE PERIOD.
The global markets opened 2004 in a positive position as the Japanese economic
recovery grew beyond expectations, China continued its trend of significant
growth, and the U.S. expansion continued. However, as the first half of the year
ended, the equity markets were bogged down with numerous concerns. The
perception of a strong growth environment began to erode as concerns of higher
global inflation, higher oil prices and rising interest rates impacted the
global markets. Although Japan continued its recovery, Chinese governmental
policies began to slow China's growth, and investors in the United States were
worried that the domestic economy was not as strong as was once predicted.
[SIDENOTE]
"THE ENERGY SECTOR EXHIBITED STRONG PERFORMANCE FOR THE FUND, PRIMARILY
ATTRIBUTABLE TO THE INCREASE IN ENERGY PRICES AS WELL AS STRONG PERFORMANCE OF
SELECT INDIVIDUAL ISSUES."
3
<Page>
PERFORMANCE HIGHLIGHTS
- - The global markets opened 2004 in a positive position as the Japanese
economic recovery grew beyond expectations, China continued its trend of
significant growth, and the U.S. expansion continued.
- - The Fund benefited from good growth opportunities in the consumer staples and
energy sectors, traditionally defensive sectors.
- - An overweight relative position coupled with strong stock selection in the
consumer discretionary sector boosted the Fund's relative return for the
period.
- - Although the United States had many top performers on an individual basis,
this country was the most detrimental to relative Fund performance during the
first half of 2004.
- - A heavy relative overweighting and poor stock selection in the information
technology sector combined to provide the largest hit to Fund performance on
a sector basis.
WHAT MANAGEMENT DECISIONS POSITIVELY IMPACTED FUND PERFORMANCE DURING THE
PERIOD?
From a country standpoint, the Fund's overweight position and strong stock
selection in Germany created a positive impact to relative Fund performance.
Japan also benefited Fund performance as the country continued its economic
rebound. This was evidenced during the period by business sentiment reaching a
13-year high, the unemployment rate falling and positive earnings being
reported. Canada, Spain and Finland also aided Fund performance primarily
through strong stock selection.
Stock selection in various sectors aided Fund performance during the first
half of 2004 as the Fund benefited from good growth opportunities in the
consumer staples and energy sectors, traditionally defensive sectors. Several
stocks in the consumer staples sector showed favorable performance during the
period. U.S. holdings ESTEE LAUDER COMPANIES, INC. and GILLETTE COMPANY both
performed well because of excellent revenue and earnings growth.
The energy sector also exhibited strong performance for the Fund, primarily
attributable to the increase in energy prices during the first six months of
2004, as well as strong performance of select individual issues. U.K.-based
Cairn
4
<Page>
Energy PLC added significant value to the Fund as the company discovered two
major oil reserves in the Rajasthan region of India during the first half of the
period, which significantly increased the company's production profile.
An overweight position coupled with strong stock selection in the consumer
discretionary sector boosted the Fund's relative return for the period. ROYAL
CARIBBEAN CRUISES LIMITED and NORDSTROM, INC. were among the top performers for
the Fund in this sector.
Although the Fund's performance in the information technology sector was a
hindrance, select holdings from this sector did buoy Fund performance. APPLE
COMPUTER, INC. and ACCENTURE LIMITED, a management consulting, technology
services and outsourcing company, were among the Fund's top information
technology performers during the period.
SUMITOMO MITSUI FINANCIAL GROUP, INC., a Japanese financial services firm,
was also a notable contributor to the Fund's return.
WHAT MANAGEMENT DECISIONS NEGATIVELY IMPACTED FUND PERFORMANCE DURING THE
PERIOD?
Although the United States had many top performers on an individual basis, this
country was the most detrimental to relative Fund performance during the first
half of 2004, as concerns weighed heavily on the domestic economy.
LARGEST EQUITY HOLDINGS (ticker symbol)
<Table>
1. General Electric Company (GE) 2.54%
2. Cisco Systems, Inc. (CSCO) 2.34%
3. Kohl's Corporation (KSS) 1.94%
4. Gillette Company (G) 1.94%
5. Walt Disney Company (DIS) 1.80%
6. SAP AG Sponsored ADR (SAP) 1.79%
7. American International Group, Inc. (AIG) 1.65%
8. Royal Caribbean Cruises Limited (RCL) 1.63%
9. Maxim Integrated Products, Inc. (MXIM) 1.62%
10. International Business Machines Corporation (IBM) 1.60%
</Table>
Portfolio holdings are subject to change, and should not be construed as a
recommendation of any security.
5
<Page>
GROWTH OF $10,000 INVESTMENT
PERFORMANCE DATA QUOTED REPRESENTS PAST PERFORMANCE. PAST PERFORMANCE DOES NOT
GUARANTEE FUTURE RESULTS. INVESTMENT RETURN AND PRINCIPAL VALUE OF AN INVESTMENT
WILL FLUCTUATE SO THAT AN INVESTOR'S SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR
LESS THAN THEIR ORIGINAL COST. CURRENT PERFORMANCE MAY BE LOWER OR HIGHER THAN
THE PERFORMANCE DATA QUOTED. PLEASE CALL 1-800-525-2440 TO OBTAIN THE MOST
RECENT MONTH-END PERFORMANCE DATA.
[CHART]
The above graph compares a $10,000 investment made in Class F shares of Dreyfus
Founders Worldwide Growth Fund on 6/30/94 to a $10,000 investment made in an
unmanaged securities index on that date. The Fund's performance assumes the
reinvestment of dividends and capital gain distributions, but does not reflect
the deduction of taxes that a shareholder would pay on Fund distributions or
redemption of Fund shares. The Fund offers multiple classes of shares.
Performance shown is for Class F, which is open only to grandfathered investors.
The Fund's performance in the graph takes into account all applicable Class F
fees and expenses, subject to applicable fee waivers. 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 measures global
developed market equity performance. 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>
AVERAGE ANNUAL AND YEAR-TO-DATE TOTAL RETURN AS OF 6/30/04
<Table>
<Caption>
YEAR-TO- 1 5 10 SINCE
CLASS (INCEPTION DATE) DATE+ YEAR YEARS YEARS INCEPTION
-----------------------------------------------------------------------------------
CLASS A SHARES (12/31/99)
With sales charge (5.75%) (3.15%) 17.72% -- -- (12.59%)
Without sales charge 2.72% 24.89% -- -- (11.43%)
CLASS B SHARES (12/31/99)
With redemption* (1.55%) 20.07% -- -- (12.38%)
Without redemption 2.45% 24.07% -- -- (12.06%)
CLASS C SHARES (12/31/99)
With redemption** 1.31% 22.85% -- -- (12.46%)
Without redemption 2.31% 23.85% -- -- (12.46%)
CLASS F SHARES (12/29/89) 2.72% 24.95% (3.94%) 4.21% 7.02%
CLASS R SHARES (12/31/99) 2.93% 25.42% -- -- (11.00%)
CLASS T SHARES (12/31/99)
With sales charge (4.50%) (2.05%) 19.16% -- -- (13.46%)
Without sales charge 2.61% 24.83% -- -- (12.57%)
</Table>
Average annual and year-to-date total returns do not reflect the deduction of
taxes that a shareholder would pay on Fund distributions or redemption of Fund
shares, but do reflect the reinvestment of dividends and capital gain
distributions, expense limits for certain share classes, and adjustments for
financial statement purposes. Part of the Fund's historical performance is due
to the purchase of securities sold in initial public offerings (IPOs). There is
no guarantee that the Fund's investments in IPOs, if any, will continue to have
a similar impact on performance. Investments in foreign securities may entail
unique risks, including political, market, and currency risks.
*The maximum contingent deferred sales charge for Class B shares is 4% and is
reduced to 0% after six years, at which time the Class B shares convert to Class
A shares.
**The maximum contingent deferred sales charge for Class C shares is 1% for
shares redeemed within one year of the date of purchase.
+Total return is not annualized.
7
<Page>
Ongoing geopolitical uncertainty, the expectation of a hike in the federal funds
rate, high oil prices and apprehension that the economy was not growing as fast
as expected provided a difficult trading environment for the equity markets.
Hong Kong, Switzerland, Belgium and Italy were four additional markets that
detracted from relative Fund performance due to both poor stock selection and
underweight positions in these countries.
The largest underachiever on a sector basis for the Fund was information
technology. A heavy relative overweighting and poor stock selection combined to
provide the largest hit to Fund performance. Holdings such as INTEL CORPORATION
and Oracle Corporation hampered Fund performance during the half due to drops in
each respective company's share price.
The materials and industrials sectors also hindered relative Fund
performance, mainly owing to poor stock selection. Materials holding Newmont
Mining Corporation proved to be one of the worst performers during the period.
UNION PACIFIC CORPORATION, an industrials holding, also underperformed.
[CHART]
PORTFOLIO COMPOSITION
<Table>
United States 50.44%
Japan 9.78%
United Kingdom 9.31%
Germany 5.20%
France 4.15%
Canada 3.17%
Netherlands 2.83%
Switzerland 2.73%
Other Countries 11.21%
Cash & Equivalents 1.18%
</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>
Other underperforming issues came from various sectors. Lower-end retailer
KOHL'S CORPORATION experienced lackluster sales and earnings trends.
Biotechnology holding AMGEN, INC. also weighed heavily as market competition and
potential effects of healthcare reform in the company's key markets moved the
stock's price lower. Telecommunications services holding VODAFONE GROUP PLC
experienced a tough first half of the year as the company spent money on its
profitless Japanese subsidiary.
As always, our investment process remains the same. We rely on our bottom-up
research process to seek companies we believe are capable of posting strong
future revenue and earnings growth at attractive valuations.
/s/ Remi J. Browne /s/ Daniel B. LeVan, CFA
Remi J. Browne, CFA Daniel B. LeVan, CFA
Co-Portfolio Manager Co-Portfolio Manager
/s/ Jeffrey R. Sullivan /s/ John B. Jares
Jeffrey R. Sullivan, CFA John B. Jares, CFA
Co-Portfolio Manager Co-Portfolio Manager
9
<Page>
STATEMENT OF INVESTMENTS
June 30, 2004 (UNAUDITED)
<Table>
<Caption>
SHARES MARKET VALUE
- -------------------------------------------------------------------------------------------
COMMON STOCKS (DOMESTIC)--50.5%
AIRLINES--1.1%
55,200 Southwest Airlines Company $ 925,697
------------
ALUMINUM--1.0%
27,150 Alcoa, Inc. 896,765
------------
APPLICATION SOFTWARE--0.7%
14,900 Autodesk, Inc. 637,869
------------
ASSET MANAGEMENT & CUSTODY BANKS--0.6%
29,125 Janus Capital Group, Inc. 480,271
------------
BIOTECHNOLOGY--0.7%
6,250 Amgen, Inc.* 341,063
4,125 Biogen Idec, Inc.* 260,906
------------
601,969
------------
BROADCASTING & CABLE TV--1.6%
37,875 Comcast Corporation Special Class A* 1,045,729
13,600 Cox Communications, Inc. Class A* 377,944
------------
1,423,673
------------
COMMUNICATIONS EQUIPMENT--4.6%
28,850 Avaya, Inc.* 455,542
85,925 Cisco Systems, Inc.* 2,036,423
44,100 Motorola, Inc. 804,825
19,525 Scientific-Atlanta, Inc. 673,613
------------
3,970,403
------------
COMPUTER & ELECTRONICS RETAIL--0.5%
8,062 Best Buy Company, Inc. 409,066
------------
COMPUTER HARDWARE--3.2%
42,550 Apple Computer, Inc.* 1,384,577
15,800 International Business Machines Corporation 1,392,770
------------
2,777,347
------------
COMPUTER STORAGE & PERIPHERALS--0.3%
24,850 EMC Corporation* 283,290
------------
</Table>
GUIDE TO UNDERSTANDING FOREIGN HOLDINGS
The following abbreviations are used throughout the Statement of Investments to
indicate the country of origin on non-U.S. holdings.
AU Australia
AT Austria
BD Bermuda
BE Belgium
BR Brazil
CA Canada
CI Channel Islands
CN China
CY Cyprus
DE Denmark
FI Finland
FR France
GE Germany
GR Greece
HK Hong Kong
ID Indonesia
IE Ireland
IN India
IT Italy
JA Japan
MA Malaysia
MX Mexico
NE Netherlands
NW Norway
PT Portugal
RS Russia
SG Singapore
SL Solvak Republic
SP Spain
SW Sweden
SZ Switzerland
TH Thailand
UK United Kingdom
10
<Page>
<Table>
<Caption>
SHARES MARKET VALUE
- -------------------------------------------------------------------------------------------
CONSUMER FINANCE--0.6%
21,250 MBNA Corporation $ 548,038
------------
DATA PROCESSING & OUTSOURCED SERVICES--0.9%
19,575 Automatic Data Processing, Inc. 819,801
------------
DEPARTMENT STORES--2.9%
39,950 Kohl's Corporation* 1,689,086
19,675 Nordstrom, Inc. 838,352
------------
2,527,438
------------
DIVERSIFIED BANKS--1.2%
20,800 Bank One Corporation 1,060,800
------------
EMPLOYMENT SERVICES--1.1%
10,075 Manpower, Inc. 511,508
16,025 Monster Worldwide, Inc.* 412,163
------------
923,671
------------
FOOD RETAIL--0.8%
39,525 Kroger Company* 719,355
------------
HEALTHCARE EQUIPMENT--1.3%
26,025 Boston Scientific Corporation* 1,113,870
------------
HOME ENTERTAINMENT SOFTWARE--0.9%
14,700 Electronic Arts* 801,885
------------
HOTELS, RESORTS & CRUISE LINES--0.7%
11,925 Carnival Corporation 560,475
------------
INDUSTRIAL CONGLOMERATES--2.5%
68,000 General Electric Company 2,203,200
------------
INVESTMENT BANKING & BROKERAGE--1.0%
8,850 Goldman Sachs Group, Inc. 833,316
------------
LEISURE FACILITIES--1.6%
32,700 Royal Caribbean Cruises Limited 1,419,507
------------
LIFE & HEALTH INSURANCE--0.8%
16,225 AFLAC, Inc. 662,142
------------
MOVIES & ENTERTAINMENT--1.8%
61,225 Walt Disney Company 1,560,625
------------
MULTI-LINE INSURANCE--1.7%
20,100 American International Group, Inc. 1,432,728
------------
OTHER DIVERSIFIED FINANCIAL SERVICES--0.5%
9,008 Citigroup, Inc. 418,872
------------
PERSONAL PRODUCTS--3.1%
20,800 Estee Lauder Companies, Inc. Class A 1,014,624
39,800 Gillette Company 1,687,520
------------
2,702,144
------------
</Table>
SEE NOTES TO STATEMENT OF INVESTMENTS.
11
<Page>
<Table>
<Caption>
SHARES MARKET VALUE
- -------------------------------------------------------------------------------------------
PHARMACEUTICALS--2.9%
27,775 Abbott Laboratories $ 1,132,109
8,475 Johnson & Johnson 472,058
27,612 Pfizer, Inc. 946,539
------------
2,550,706
------------
PROPERTY & CASUALTY INSURANCE--0.8%
14,350 Allstate Corporation 667,993
------------
RAILROADS--1.0%
14,625 Union Pacific Corporation 869,456
------------
SEMICONDUCTORS--4.7%
33,325 Intel Corporation 919,770
34,300 Linear Technology Corporation 1,353,821
26,875 Maxim Integrated Products, Inc. 1,408,788
17,925 Texas Instruments, Inc. 433,427
------------
4,115,806
------------
SOFT DRINKS--0.6%
9,550 Coca-Cola Company 482,084
------------
SPECIALTY STORES--0.2%
5,275 Weight Watchers International, Inc.* 206,464
------------
SYSTEMS SOFTWARE--2.1%
13,450 Adobe Systems, Inc. 625,425
26,950 Microsoft Corporation 769,692
15,475 VERITAS Software Corporation* 428,658
------------
1,823,775
------------
THRIFTS & MORTGAGE FINANCE--0.5%
10,000 The PMI Group, Inc. 435,200
------------
TOTAL COMMON STOCKS (DOMESTIC)
(COST--$38,480,785) 43,865,701
------------
COMMON STOCKS (FOREIGN)--48.5%
AEROSPACE & DEFENSE--0.4%
23,400 Gamesa Corporacion Tecnologica SA (SP) 344,779
------------
APPLICATION SOFTWARE--2.7%
10,400 Amdocs Limited (CI)* 243,672
3,020 SAP AG (GE) 503,395
37,225 SAP AG Sponsored ADR (GE) 1,556,377
------------
2,303,444
------------
AUTO PARTS & EQUIPMENT--0.4%
8,400 Canadian Tire Corporation Limited Class A (CA) 306,354
------------
AUTOMOBILE MANUFACTURERS--1.6%
32,400 Nissan Motor Company Limited (JA) 360,181
4,900 Renault SA (FR) 373,208
15,100 Toyota Motor Corporation (JA) 611,667
------------
1,345,056
------------
</Table>
12
<Page>
<Table>
<Caption>
SHARES MARKET VALUE
- -------------------------------------------------------------------------------------------
BIOTECHNOLOGY--0.3%
470 Serono SA (SZ) $ 296,095
------------
BREWERS--1.0%
34,700 Asahi Breweries Limited (JA) 382,570
27,000 Fraser & Neave Limited (SG) 219,448
23,000 SABMiller PLC (UK) 297,615
------------
899,633
------------
BROADCASTING & CABLE TV--0.5%
18,800 Mediaset SPA (IT) 214,328
23,900 Publishing & Broadcasting Limited (AU) 213,943
------------
428,271
------------
COMMUNICATIONS EQUIPMENT--1.0%
16,000 Nokia Oyj (FI) 230,880
2,386 Sagem SA (FR) 266,208
140,700 Telefonaktiebolaget LM Ericsson (SW) 414,648
------------
911,736
------------
COMPUTER STORAGE & PERIPHERALS--0.7%
20,200 ATI Technologies, Inc. (CA)* 379,051
5,300 Logitech International SA (SZ)* 241,217
------------
620,268
------------
CONSTRUCTION MATERIALS--0.6%
171,700 Aggregate Industries PLC (UK) 255,339
50,500 Boral Limited (AU) 227,259
------------
482,598
------------
CONSTRUCTION, FARM MACHINERY & HEAVY TRUCKS--0.3%
7,000 Volvo AB Class B (SW) 243,462
------------
CONSUMER ELECTRONICS--1.8%
25,000 Casio Computer Company Limited (JA) 378,500
10,000 Citizen Electronics Company Limited (JA) 568,208
10,300 Koninklijke (Royal) Philips Electronics NV (NE) 277,332
21,000 Sharp Corporation (JA) 335,453
------------
1,559,493
------------
CONSUMER FINANCE--0.3%
4,000 Sanyo Shinpan Finance Company Limited (JA) 228,383
------------
DIVERSIFIED BANKS--6.6%
10,700 ABN AMRO Holding NV (NE) 234,075
36,880 Alpha Bank AE (GR) 937,818
42,400 Anglo Irish Bank Corporation PLC (IE) 662,903
101,971 Barclays PLC (UK) 868,714
10,589 BNP Paribas SA (FR) 651,264
27,600 HBOS PLC (UK) 341,621
56 Mitsubishi Tokyo Financial Group, Inc. (JA) 518,352
27,888 Royal Bank of Scotland Group PLC (UK) 803,158
17,400 Skandinaviska Enskilda Banken (SW) 251,772
5,400 Societe Generale (FR) 458,924
------------
5,728,601
------------
</Table>
SEE NOTES TO STATEMENT OF INVESTMENTS.
13
<Page>
<Table>
<Caption>
SHARES MARKET VALUE
- -------------------------------------------------------------------------------------------
DIVERSIFIED CAPITAL MARKETS--0.9%
13,900 Credit Suisse Group (SZ) $ 493,892
3,744 UBS AG (SZ) 263,820
------------
757,712
------------
DIVERSIFIED METALS & MINING--0.8%
76,300 WMC Resources Limited (AU) 261,509
33,300 Xstrata PLC (UK) 445,087
------------
706,596
------------
ELECTRIC UTILITIES--0.8%
5,800 E.ON AG (GE) 417,764
24,300 Fortum Oyj (FI) 310,439
------------
728,203
------------
ELECTRONIC EQUIPMENT MANUFACTURERS--1.5%
1,700 Keyence Corporation (JA) 387,784
3,700 Kyocera Corporation (JA) 313,999
8,300 TDK Corporation (JA) 629,831
------------
1,331,614
------------
FOOD RETAIL--0.6%
2,800 Guyenne et Gascogne AG (FR) 322,959
39,300 Tesco PLC (UK) 189,765
------------
512,724
------------
FOREST PRODUCTS--0.3%
20,100 Canfor Corporation (CA)* 227,864
------------
GAS UTILITIES--0.3%
71,900 Centrica PLC (UK) 292,738
------------
HOME FURNISHINGS--0.3%
4,600 Hunter Douglas NV (NE) 223,872
------------
HOMEBUILDING--0.3%
26,600 Barratt Developments PLC (UK) 284,380
------------
HOTELS, RESORTS & CRUISE LINES--0.3%
4,325 Four Seasons Hotels, Inc. (CA) 260,408
------------
HOUSEHOLD PRODUCTS--0.3%
7,850 Reckitt Benckiser PLC (UK) 222,231
------------
HYPERMARKETS & SUPER CENTERS--0.4%
7,300 Metro AG (GE) 346,393
------------
</Table>
14
<Page>
<Table>
<Caption>
SHARES MARKET VALUE
- -------------------------------------------------------------------------------------------
INDUSTRIAL CONGLOMERATES--0.9%
267,900 Cookson Group PLC (UK)* $ 204,059
71,700 Keppel Corporation Limited (SG) 293,460
4,300 Siemens AG (GE) 309,460
------------
806,979
------------
INDUSTRIAL MACHINERY--0.7%
45,000 NSK Limited (JA) 223,938
7,400 Saurer AG (SZ)* 378,449
------------
602,387
------------
INTEGRATED OIL & GAS--3.0%
75,642 BP PLC (UK) 668,075
13,700 Husky Energy, Inc. (CA) 262,086
1,700 OMV AG (AT) 330,961
13,900 Repsol YPF SA (SP) 304,417
33,900 Shell Transport & Trading Company PLC (UK) 248,686
4,030 Total SA (FR) 768,343
------------
2,582,568
------------
INTEGRATED TELECOMMUNICATION SERVICES--1.4%
11,800 Deutsche Telekom AG (GE)* 207,458
70,200 Koninklijke NV (NE) 534,678
65,200 Telenor ASA (NW) 453,385
------------
1,195,521
------------
IT CONSULTING & OTHER SERVICES--0.9%
28,500 Accenture Limited Class A (BD)* 783,180
------------
LEISURE PRODUCTS--0.3%
12,800 Sankyo Company Limited (JA) 277,432
------------
MARINE--0.3%
209,000 Neptune Orient Lines Limited (SG) 286,351
------------
MULTI-LINE INSURANCE--0.5%
21,200 Aviva PLC (UK) 218,767
4,900 Baloise Holding Limited (SZ) 212,839
------------
431,606
------------
OIL & GAS EXPLORATION & PRODUCTION--1.5%
13,700 Canadian National Resources Limited (CA) 409,222
15,100 Eni SPA (IT) 299,832
6,000 Norsk Hydro ASA (NW) 389,959
266,400 Oil Search Limited (AU) 244,966
------------
1,343,979
------------
OIL & GAS REFINING, MARKETING, & TRANSPORTATION--0.3%
41,400 Caltex Australia Limited (AU) 266,194
------------
OTHER DIVERSIFIED FINANCIAL SERVICES--0.9%
22,500 ING Groep NV (NE) 531,087
9,200 Sun Life Financial, Inc. (CA) 263,553
------------
794,640
------------
</Table>
SEE NOTES TO STATEMENT OF INVESTMENTS.
15
<Page>
<Table>
<Caption>
SHARES MARKET VALUE
- -------------------------------------------------------------------------------------------
PACKAGED FOODS & MEATS--0.8%
14,900 Koninklijke Wessanen NV (NE) $ 214,282
20,000 Nisshin Seifun Group, Inc. (JA) 203,088
243,000 Want Want Holdings Limited (SG) 267,300
------------
684,670
------------
PHARMACEUTICALS--4.8%
9,200 AstraZeneca Group PLC (UK) 412,782
3,800 Aventis SA (FR) 286,884
18,200 Axcan Pharma, Inc. (CA)* 384,008
16,400 Eisai Company Limited (JA) 471,942
8,100 Merck KGaA (GE) 489,804
11,088 Novartis AG (SZ) 489,150
11,000 Ono Pharmaceuticals Company Limited (JA) 517,161
27,000 Shire Pharmaceuticals Group PLC (UK)* 235,773
7,100 Takeda Chemical Industries Limited (JA) 311,680
47,900 Warner Chilcott PLC (UK) 603,745
------------
4,202,929
------------
PRECIOUS METALS & MINERALS--0.2%
12,400 ThyssenKrupp AG (GE) 211,972
------------
PROPERTY & CASUALTY INSURANCE--0.5%
124,400 Insurance Australia Group Limited (AU) 433,299
------------
PUBLISHING--0.2%
19,700 Johnston Press PLC (UK) 202,395
------------
RAILROADS--0.3%
5,987 Canadian National Railway Company (CA) 260,973
------------
REAL ESTATE INVESTMENT TRUSTS--0.7%
85 Sumitomo Mitsui Financial Group, Inc. (JA) 582,688
------------
REAL ESTATE MANAGEMENT & DEVELOPMENT--0.3%
2,900 Wereldhave NV (NE) 238,521
------------
SEMICONDUCTOR EQUIPMENT--0.2%
12,400 ASML Holding NV (NE)* 209,860
------------
SOFT DRINKS--0.8%
41,800 Coca-Cola Amatil Limited (AU) 201,793
21,100 Kirin Beverage Corporation (JA) 496,971
------------
698,764
------------
THRIFTS & MORTGAGE FINANCE--0.4%
23,000 Northern Rock PLC (UK) 301,786
------------
</Table>
16
<Page>
<Table>
<Caption>
SHARES MARKET VALUE
- -------------------------------------------------------------------------------------------
TIRES & RUBBER--0.6%
9,900 Continental AG (GE) $ 477,595
------------
TRADING COMPANIES & DISTRIBUTORS--0.3%
23,000 Mitsubishi Corporation (JA) 223,434
------------
WIRELESS TELECOMMUNICATION SERVICES--2.7%
14,400 Bouygues SA (FR) 482,161
85 KDDI Corporation (JA) 486,093
194,000 SmarTone Telecommunications Holdings Limited (HK) 212,659
35,000 Telecom Italia Mobile SPA (IT) 198,443
456,575 Vodafone Group PLC (UK) 999,845
------------
2,379,201
------------
TOTAL COMMON STOCKS (FOREIGN)
(COST--$32,226,156) 42,071,832
------------
TOTAL INVESTMENTS--99.0%
(TOTAL COST--$70,706,941) 85,937,533
------------
OTHER ASSETS AND LIABILITIES--1.0% 907,820
------------
NET ASSETS--100.0% $ 86,845,353
============
</Table>
NOTES TO STATEMENT OF INVESTMENTS
* NON-INCOME PRODUCING.
ADR- AMERICAN DEPOSITARY RECEIPT
17
<Page>
STATEMENT OF ASSETS AND LIABILITIES
JUNE 30, 2004 (unaudited)
<Table>
ASSETS
Investment securities, at cost $ 70,706,941
---------------
Investment securities, at market 85,937,533
Cash 65,183
Foreign currency (cost $23,403) 22,786
Receivables:
Investment securities sold 2,068,447
Capital shares sold 13,128
Dividends 64,258
Other 90,671
---------------
Total Assets 88,262,006
---------------
LIABILITIES
Payables and other accrued liabilities:
Investment securities purchased 335,964
Capital shares redeemed 144,277
Advisory fees 72,138
Shareholder servicing fees 13,230
Accounting fees 5,659
Distribution fees 18,795
Transfer agency fees 10,695
Custodian fees 11,207
Line of credit 700,000
Other 104,688
---------------
Total Liabilities 1,416,653
---------------
Net Assets $ 86,845,353
===============
COMPOSITION OF NET ASSETS
Capital (par value and paid-in surplus) $ 148,011,374
Undistributed net investment income 30,990
Accumulated net realized loss from security transactions (76,431,538)
Net unrealized appreciation on investments
and foreign currency translation 15,234,527
---------------
Total $ 86,845,353
===============
</Table>
18
<Page>
<Table>
CLASS A
Net Assets $ 560,675
Shares Outstanding 47,964
Net Asset Value, Redemption Price Per Share $ 11.69
Maximum offering price per share (net asset value
plus sales charge of 5.75% of offering price) $ 12.40
CLASS B
Net Assets $ 1,935,817
Shares Outstanding 171,530
Net Asset Value, Offering and Redemption Price (excluding
applicable contingent deferred sales charge) Per Share $ 11.29
CLASS C
Net Assets $ 209,812
Shares Outstanding 18,963
Net Asset Value, Offering and Redemption Price (excluding
applicable contingent deferred sales charge) Per Share $ 11.06
CLASS F
Net Assets $ 61,519,772
Shares Outstanding 5,247,631
Net Asset Value, Offering and Redemption Price Per Share $ 11.72
CLASS R
Net Assets $ 22,568,382
Shares Outstanding 1,889,385
Net Asset Value, Offering and Redemption Price Per Share $ 11.94
CLASS T
Net Assets $ 50,895
Shares Outstanding 4,621
Net Asset Value, Redemption Price Per Share $ 11.01
Maximum offering price per share (net asset value
plus sales charge of 4.50% of offering price) $ 11.53
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
19
<Page>
STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 2004 (UNAUDITED)
<Table>
INVESTMENT INCOME
Dividends $ 891,892
Interest 15,959
Foreign taxes withheld (83,952)
---------------
Total Investment Income 823,899
---------------
EXPENSES
Advisory fees--Note 2 458,919
Shareholder servicing fees--Note 2 53,384
Accounting fees--Note 2 35,856
Distribution fees--Note 2 91,928
Transfer agency fees--Note 2 37,116
Registration fees 29,864
Postage and mailing expenses 5,508
Custodian fees and expenses--Note 2 26,414
Printing expenses 16,888
Legal and audit fees 6,575
Directors' fees and expenses--Note 2 9,745
Other expenses 16,245
---------------
Total Expenses 788,442
Earnings Credits (685)
Reimbursed/Waived Expenses (5,559)
Expense Offset to Broker Commissions (4,071)
---------------
Net Expenses 778,127
---------------
Net Investment Income 45,772
---------------
REALIZED AND UNREALIZED GAIN (LOSS) ON SECURITY
TRANSACTIONS AND FOREIGN CURRENCY TRANSACTIONS
Net Realized Gain (Loss) on:
Security Transactions 7,793,411
Foreign Currency Transactions (5,858)
---------------
Net Realized Gain 7,787,553
Net Change in Unrealized Appreciation/Depreciation of Investments
and Foreign Currency Translation (5,328,324)
---------------
Net Realized and Unrealized Gain 2,459,229
---------------
Net Increase in Net Assets Resulting from Operations $ 2,505,001
===============
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
20
<Page>
STATEMENTS OF CHANGES IN NET ASSETS
(UNAUDITED)
<Table>
<Caption>
SIX MONTHS ENDED YEAR ENDED
6/30/04 12/31/03
- -----------------------------------------------------------------------------------------------------
OPERATIONS
Net Investment Income (Loss) $ 45,772 $ (324,443)
Net Realized Gain (Loss) on Security and
Foreign Currency Transactions 7,787,553 (60,984)
Net Change in Unrealized Appreciation/Depreciation
of Investments and Foreign Currency Translation (5,328,324) 26,608,251
------------ ------------
Net Increase in Net Assets Resulting from Operations 2,505,001 26,222,824
------------ ------------
CAPITAL SHARE TRANSACTIONS
Net Increase (Decrease)--Note 4
Class A (115,032) (95,963)
Class B 66,327 (128,745)
Class C (68,011) (25,117)
Class F (10,832,361) (9,169,160)
Class R 522,825 1,759,076
Class T (12,132) (2,291)
------------ ------------
Net Decrease from Capital Share Transactions (10,438,384) (7,662,200)
------------ ------------
Net Increase (Decrease) in Net Assets (7,933,383) 18,560,624
------------ ------------
NET ASSETS
Beginning of period $ 94,778,736 $ 76,218,112
------------ ------------
End of period $ 86,845,353 $ 94,778,736
============ ============
Undistributed Net Investment Income (Loss) $ 30,990 $ (14,782)
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
21
<Page>
FINANCIAL HIGHLIGHTS
(UNAUDITED)
<Table>
<Caption>
SIX MONTHS YEAR ENDED
ENDED JUNE 30, DECEMBER 31,
2004 2003 2002 2001 2000
-------------- -------------------------------------------------------
CLASS A SHARES
PER SHARE OPERATING DATA
Net Asset Value, beginning of period $ 11.38 $ 8.32 $ 11.71 $ 15.78 $ 25.18
- ----------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) 0.00+,~ (0.10) (0.15) (0.09) (0.09)
Net realized and unrealized gains
(losses) on securities 0.31 3.16 (3.24) (3.98) (5.44)
-----------------------------------------------------------------------------
Total from investment operations 0.31 3.06 (3.39) (4.07) (5.53)
- ----------------------------------------------------------------------------------------------------------------------------------
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 0.00 (3.87)
-----------------------------------------------------------------------------
Total distributions 0.00 0.00 0.00 0.00 (3.87)
- ----------------------------------------------------------------------------------------------------------------------------------
Net Asset Value, end of period $ 11.69 $ 11.38 $ 8.32 $ 11.71 $ 15.78
=============================================================================
TOTAL RETURN* 2.72% 36.78% (28.95%) (25.79%) (21.82%)
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000s) $ 561 $ 656 $ 543 $ 1,003 $ 800
Ratios to average net assets:
Expenses with reimbursements,
but no earnings credits# 1.77%** 2.03% 2.06% 2.10% 1.43%
Expenses with reimbursements
and earnings credits 1.77%** 2.03% 2.06% 2.09% 1.41%
Net investment income (loss) 0.00%** (0.55%) (0.77%) (0.96%) (0.35%)
- ----------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate@ 117% 138% 211% 145% 210%
</Table>
+ NET INVESTMENT INCOME FOR THE SIX MONTHS ENDED JUNE 30, 2004 AGGREGATED LESS
THAN $0.01 ON A PER SHARE BASIS.
~ COMPUTED USING AVERAGE SHARES OUTSTANDING THROUGHOUT THE PERIOD.
* SALES CHARGES ARE NOT REFLECTED IN THE TOTAL RETURN.
** ANNUALIZED.
# CERTAIN FEES WERE WAIVED BY THE CUSTODIAN. HAD THESE FEES NOT BEEN WAIVED,
THE EXPENSE RATIOS WOULD HAVE BEEN 1.78% (2004), 2.04% (2003), 2.06% (2002),
2.10% (2001), AND 1.43% (2000).
@ 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>
<Table>
<Caption>
SIX MONTHS YEAR ENDED
ENDED JUNE 30, DECEMBER 31,
2004 2003 2002 2001 2000
-------------- ---------------------------------------------------------
CLASS B SHARES
PER SHARE OPERATING DATA
Net Asset Value, beginning of period $ 11.02 $ 8.12 $ 11.52 $ 15.57 $ 25.18
- ---------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment loss (0.04)+ (0.16) (0.14) (0.15) (0.11)
Net realized and unrealized gains
(losses) on securities 0.31 3.06 (3.26) (3.90) (5.63)
-------------------------------------------------------------------------------
Total from investment operations 0.27 2.90 (3.40) (4.05) (5.74)
- ---------------------------------------------------------------------------------------------------------------------------------
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 0.00 (3.87)
-------------------------------------------------------------------------------
Total distributions 0.00 0.00 0.00 0.00 (3.87)
- ---------------------------------------------------------------------------------------------------------------------------------
Net Asset Value, end of period $ 11.29 $ 11.02 $ 8.12 $ 11.52 $ 15.57
===============================================================================
TOTAL RETURN* 2.45% 35.71% (29.51%) (26.01%) (22.67%)
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000s) $ 1,936 $ 1,821 $ 1,459 $ 2,089 $ 2,329
Ratios to average net assets:
Expenses with reimbursements,
but no earnings credits# 2.51%** 2.80% 2.71% 2.54% 2.25%
Expenses with reimbursements
and earnings credits 2.51%** 2.80% 2.70% 2.53% 2.21%
Net investment loss (0.70%)** (1.30%) (1.41%) (1.43%) (1.40%)
- ---------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate@ 117% 138% 211% 145% 210%
</Table>
+ COMPUTED USING AVERAGE SHARES OUTSTANDING THROUGHOUT THE PERIOD.
* SALES CHARGES ARE NOT REFLECTED IN THE TOTAL RETURN.
** ANNUALIZED.
# CERTAIN FEES WERE WAIVED BY THE CUSTODIAN. HAD THESE FEES NOT BEEN WAIVED,
THE EXPENSE RATIOS WOULD HAVE BEEN 2.52% (2004), 2.82% (2003), 2.71% (2002),
2.54% (2001), AND 2.25% (2000).
@ 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>
<Table>
<Caption>
SIX MONTHS YEAR ENDED
ENDED JUNE 30, DECEMBER 31,
2004 2003 2002 2001 2000
-------------- ---------------------------------------------------------
CLASS C SHARES
PER SHARE OPERATING DATA
Net Asset Value, beginning of period $ 10.81 $ 7.96 $ 11.34 $ 15.56 $ 25.18
- ---------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment loss (0.04)+ (0.20) (0.30) (0.30) (0.11)
Net realized and unrealized gains
(losses) on securities 0.29 3.05 (3.08) (3.92) (5.64)
-------------------------------------------------------------------------------
Total from investment operations 0.25 2.85 (3.38) (4.22) (5.75)
- ---------------------------------------------------------------------------------------------------------------------------------
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 0.00 (3.87)
-------------------------------------------------------------------------------
Total distributions 0.00 0.00 0.00 0.00 (3.87)
- ---------------------------------------------------------------------------------------------------------------------------------
Net Asset Value, end of period $ 11.06 $ 10.81 $ 7.96 $ 11.34 $ 15.56
===============================================================================
TOTAL RETURN* 2.31% 35.80% (29.81%) (27.12%) (22.70%)
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000s) $ 210 $ 271 $ 218 $ 380 $ 375
Ratios to average net assets:
Expenses with reimbursements,
but no earnings credits# 2.54%** 2.82% 3.33% 4.18% 2.25%
Expenses with reimbursements
and earnings credits 2.54%** 2.82% 3.33% 4.17% 2.21%
Net investment loss (0.78%)** (1.34%) (2.05%) (3.07%) (1.31%)
- ---------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate@ 117% 138% 211% 145% 210%
</Table>
+ COMPUTED USING AVERAGE SHARES OUTSTANDING THROUGHOUT THE PERIOD.
* SALES CHARGES ARE NOT REFLECTED IN THE TOTAL RETURN.
** ANNUALIZED.
# CERTAIN FEES WERE WAIVED BY THE CUSTODIAN OR REIMBURSED BY THE MANAGEMENT
COMPANY OR ITS AFFILIATES. HAD THESE FEES NOT BEEN REIMBURSED OR WAIVED, THE
EXPENSE RATIOS WOULD HAVE BEEN 2.55% (2004), 2.84% (2003), 3.40% (2002),
4.18% (2001), AND 2.25% (2000).
@ 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>
<Table>
<Caption>
SIX MONTHS YEAR ENDED
ENDED JUNE 30, DECEMBER 31,
2004 2003 2002 2001 2000 1999
------------- -----------------------------------------------------------------------
CLASS F SHARES
PER SHARE OPERATING DATA
Net Asset Value, beginning of
period $ 11.41 $ 8.33 $ 11.72 $ 15.69 $ 25.17 $ 22.06
- -----------------------------------------------------------------------------------------------------------------------------------
Income from investment
operations:
Net investment income (loss) 0.00+,~ (0.13) (0.13) (0.14) (0.16) (0.06)
Net realized and unrealized gains
(losses) on securities 0.31 3.21 (3.26) (3.83) (5.45) 10.11
--------------------------------------------------------------------------------------------
Total from investment operations 0.31 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 0.00
From net realized gains 0.00 0.00 0.00 0.00 (3.87) (6.94)
--------------------------------------------------------------------------------------------
Total distributions 0.00 0.00 0.00 0.00 (3.87) (6.94)
- -----------------------------------------------------------------------------------------------------------------------------------
Net Asset Value, end of period $ 11.72 $ 11.41 $ 8.33 $ 11.72 $ 15.69 $ 25.17
============================================================================================
TOTAL RETURN 2.72% 36.97% (28.92%) (25.30%) (22.14%) 48.78%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000s) $ 61,520 $ 70,566 $ 59,890 $ 101,592 $ 176,405 $ 284,839
Ratios to average net assets:
Expenses with reimbursements,
but no earnings credits# 1.78%** 1.97% 1.84% 1.61% 1.54% 1.55%
Expenses with reimbursements
and earnings credits 1.78%** 1.97% 1.84% 1.60% 1.52% 1.53%
Net investment income (loss) 0.01%** (0.47%) (0.55%) (0.50%) (0.67%) (0.27)
- -----------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate@ 117% 138% 211% 145% 210% 157%
</Table>
+ NET INVESTMENT INCOME FOR THE SIX MONTHS ENDED JUNE 30, 2004 AGGREGATED LESS
THAN $0.01 ON A PER SHARE BASIS.
~ COMPUTED USING AVERAGE SHARES OUTSTANDING THROUGHOUT THE PERIOD.
** ANNUALIZED.
# CERTAIN FEES WERE WAIVED BY THE CUSTODIAN. HAD THESE FEES NOT BEEN WAIVED,
THE EXPENSE RATIOS WOULD HAVE BEEN 1.79% (2004), 1.98% (2003), 1.84% (2002),
1.61% (2001), 1.54% (2000) AND 1.55% (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.
25
<Page>
<Table>
<Caption>
SIX MONTHS YEAR ENDED
ENDED JUNE 30, DECEMBER 31,
2004 2003 2002 2001 2000
-------------- ---------------------------------------------------------
CLASS R SHARES
PER SHARE OPERATING DATA
Net Asset Value, beginning of period $ 11.60 $ 8.44 $ 11.81 $ 15.75 $ 25.18
- ---------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) 0.03 (0.00)+ (0.01) (0.02) (0.00)+
Net realized and unrealized gains
(losses) on securities 0.31 3.16 (3.36) (3.92) (5.56)
------------------------------------------------------------------------------
Total from investment operations 0.34 3.16 (3.37) (3.94) (5.56)
- ---------------------------------------------------------------------------------------------------------------------------------
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 0.00 (3.87)
------------------------------------------------------------------------------
Total distributions 0.00 0.00 0.00 0.00 (3.87)
- ---------------------------------------------------------------------------------------------------------------------------------
Net Asset Value, end of period $ 11.94 $ 11.60 $ 8.44 $ 11.81 $ 15.75
==============================================================================
TOTAL RETURN 2.93% 37.44% (28.54%) (25.02%) (21.94%)
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000s) $ 22,568 $ 21,404 $ 14,060 $ 19,193 $ 27,611
Ratios to average net assets:
Expenses with reimbursements,
but no earnings credits# 1.37%** 1.51% 1.41% 1.25% 1.26%
Expenses with reimbursements
and earnings credits 1.37%** 1.51% 1.41% 1.24% 1.22%
Net investment income (loss) 0.44%** (0.03%) (0.13%) (0.14%) (0.49%)
- ---------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate@ 117% 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.
** ANNUALIZED.
# CERTAIN FEES WERE WAIVED BY THE CUSTODIAN. HAD THESE FEES NOT BEEN WAIVED,
THE EXPENSE RATIOS WOULD HAVE BEEN 1.38% (2004), 1.53% (2003), 1.41% (2002),
1.25% (2001), AND 1.26% (2000).
@ 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>
<Table>
<Caption>
SIX MONTHS YEAR ENDED
ENDED JUNE 30, DECEMBER 31,
2004 2003 2002 2001 2000
--------------- ---------------------------------------------------------
CLASS T SHARES
PER SHARE OPERATING DATA
Net Asset Value, beginning of period $ 10.73 $ 7.89 $ 11.46 $ 15.65 $ 25.18
- ----------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment loss (0.01)+ (0.14) (0.59) (0.26) (0.06)
Net realized and unrealized gains
(losses) on securities 0.29 2.98 (2.98) (3.93) (5.60)
--------------------------------------------------------------------------------
Total from investment operations 0.28 2.84 (3.57) (4.19) (5.66)
- ----------------------------------------------------------------------------------------------------------------------------------
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 0.00 (3.87)
--------------------------------------------------------------------------------
Total distributions 0.00 0.00 0.00 0.00 (3.87)
- ----------------------------------------------------------------------------------------------------------------------------------
Net Asset Value, end of period $ 11.01 $ 10.73 $ 7.89 $ 11.46 $ 15.65
================================================================================
TOTAL RETURN* 2.61% 35.99% (31.15%) (26.77%) (22.34%)
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000s) $ 51 $ 61 $ 47 $ 90 $ 48
Ratios to average net assets:
Expenses with reimbursements,
but no earnings credits# 1.95%** 2.54% 4.60% 3.75% 1.76%
Expenses with reimbursements
and earnings credits 1.94%** 2.54% 4.60% 3.74% 1.72%
Net investment loss (0.17%)** (1.05%) (2.88%) (2.72%) (0.76%)
- ----------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate@ 117% 138% 211% 145% 210%
</Table>
+ COMPUTED USING AVERAGE SHARES OUTSTANDING THROUGHOUT THE PERIOD.
* SALES CHARGES ARE NOT REFLECTED IN THE TOTAL RETURN.
** ANNUALIZED.
# CERTAIN FEES WERE WAIVED BY THE CUSTODIAN OR REIMBURSED BY THE MANAGEMENT
COMPANY OR ITS AFFILIATES. HAD THESE FEES NOT BEEN REIMBURSED OR WAIVED, THE
EXPENSE RATIOS WOULD HAVE BEEN 1.96% (2004), 2.56% (2003), 5.48% (2002),
10.02% (2001), AND 1.76% (2000).
@ 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
June 30, 2004 (UNAUDITED)
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
Dreyfus Founders Funds, Inc. (the "Company") is an open-end management
investment company registered under the Investment Company Act of 1940 (the
"1940 Act"). 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--A domestic 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 a
security traded on Nasdaq, at its official closing price. Lacking any sales on
that day, the security is valued at the current closing bid price, or by quotes
from dealers making a market in the security if the closing bid price is not
available, or in the case of written call options, at the mean between the
highest bid and lowest asked quotations obtained from at least two securities
dealers.
A foreign equity security traded on a foreign exchange is valued at the last
quoted official closing price available before the time when the Fund's assets
are valued, or at the last quoted sales price if the exchange does not provide
an official closing price or if the foreign market has not yet closed. Lacking
any sales on that day, the security is valued at the current closing bid price,
or by quotes from dealers making a market in the security if the closing bid
price is not available. London closing exchange rates are used to convert
foreign currencies to U.S. dollars. A debt security with a remaining maturity
greater than 60 days at the time of purchase is valued in accordance with the
evaluated bid price supplied by a pricing service approved by the Company's
board of directors or, if such price is not available, at the mean between the
highest bid and lowest asked quotations obtained from at least two securities
dealers.
A debt security with a remaining maturity of 60 days or less at the time of
purchase is valued at amortized cost, which approximates market value, unless it
is determined that amortized cost would not represent market value, in which
case the securities would be marked to market. The Fund amortizes premiums and
discounts on all debt 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.
28
<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 Fund
normally will invest a large portion of its assets in foreign securities. In the
event the Fund executes a foreign security transaction, the Fund may enter into
a foreign currency contract to settle the foreign security transaction. The
resultant foreign currency gain or loss from the contract is recorded as foreign
currency gain or loss and is presented as such in the Statement of Operations.
Foreign currency held at June 30, 2004 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 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.
29
<Page>
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, if
any, reduce Other Expenses and would be 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.
SHAREHOLDER SERVICING AND TRANSFER AGENCY FEES FOR CLASS F SHARES--The Company
has a shareholder services agreement with Dreyfus Service Corporation ("DSC"),
the direct owner of Founders and 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. 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. During the six months ended June 30,
2004, Class F shares were charged $49,947 pursuant to this shareholder services
agreement.
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 incurred by
DTI are paid by the Fund. During the six months ended June 30, 2004, Class F
shares were charged $12,031 for out-of-pocket transfer agent charges.
30
<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 $12.43 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 six months ended June
30, 2004 were as follows:
<Table>
<Caption>
TRANSFER
AGENCY FEES
-----------
Class A $ 507
Class B $ 1,598
Class C $ 236
Class R $ 3,287
Class T $ 30
</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 1940 Act 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 six months ended June
30, 2004, Class F shares were charged $83,854 pursuant to this Distribution
Plan.
The Fund also has adopted a Distribution Plan pursuant to Rule 12b-1 under the
1940 Act applicable to its Class B, Class C and Class T shares. Under this plan,
the Fund pays DSC a fee for distributing its Class B and C shares at the annual
rate of 0.75% of the value of the average daily net assets of its Class B and C
shares, respectively, and pays DSC a fee for distributing its Class T shares at
the annual rate of 0.25% of the average daily net assets of its Class T shares.
In addition, the Fund has adopted a Shareholder Services Plan applicable to its
Class A, Class B, Class C and Class T shares. Under the Shareholder Services
Plan, Class A, Class B, Class C and Class T shares pay DSC an annual fee of
0.25% of the value of their average daily net assets for the provision of
certain services.
Distribution and shareholder servicing fees paid to DSC by the Fund's Class A,
B, C and T shares for the six months ended June 30, 2004, were as follows:
<Table>
<Caption>
DISTRIBUTION SHAREHOLDER
FEES SERVICING FEES
-----------------------------
Class A N/A $ 699
Class B $ 7,081 $ 2,360
Class C $ 922 $ 307
Class T $ 71 $ 71
</Table>
31
<Page>
During the six months ended June 30, 2004, DSC retained $846 and $10 in sales
commissions from the sales of Class A and Class T shares, respectively. DSC also
retained $3,422 and $50 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 by applying the
following rates, as applicable, to the domestic assets and foreign assets, with
the proportions of domestic and foreign assets recalculated monthly, plus
reasonable out-of-pocket expenses.
<Table>
<Caption>
ON ASSETS BUT NOT DOMESTIC FOREIGN
IN EXCESS OF EXCEEDING FEE 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 and an affiliate of Founders, 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
----------------------------------------------------------------
9/1/03 to 8/31/04 $ 150,000
9/1/04 to 8/31/05 $ 200,000
9/1/05 to 8/31/06 $ 200,000
</Table>
The fee waiver is allocated among the Funds in proportion to their respective
shares of the total custodian fee. For the six months ended June 30, 2004, the
Fund's portion of the fee waiver was $5,559. 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
32
<Page>
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.
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 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
June 30, 2004 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 $ 71,379,139
Gross Tax Appreciation of Investments $ 15,601,849
Gross Tax Depreciation of Investments $ (1,043,455)
Net Tax Appreciation $ 14,558,394
</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>
SIX MONTHS
ENDED YEAR ENDED
JUNE 30, 2004 DECEMBER 31, 2003
SHARES AMOUNT SHARES AMOUNT
CLASS A
Sold 8,413 $ 97,470 197,675 $ 1,902,667
Redeemed (18,115) $ (212,502) (205,316) $ (1,998,630)
-------------------------------------------------------------
Net Decrease (9,702) $ (115,032) (7,641) $ (95,963)
=============================================================
CLASS B
Sold 21,726 $ 239,925 13,807 $ 133,035
Redeemed (15,377) $ (173,598) (28,252) $ (261,780)
-------------------------------------------------------------
Net Increase (Decrease) 6,349 $ 66,327 (14,445) $ (128,745)
=============================================================
CLASS C
Sold 3,830 $ 42,414 50,623 $ 402,228
Redeemed (9,933) $ (110,425) (52,994) $ (427,345)
-------------------------------------------------------------
Net Decrease (6,103) $ (68,011) (2,371) $ (25,117)
=============================================================
CLASS F
Sold 518,816 $ 6,087,270 2,467,985 $ 22,841,668
Redeemed (1,455,312) $ (16,919,631) (3,470,420) $ (32,010,828)
-------------------------------------------------------------
Net Decrease (936,496) $ (10,832,361) (1,002,435) $ (9,169,160)
=============================================================
CLASS R
Sold 123,552 $ 1,457,362 286,586 $ 2,765,461
Redeemed (78,830) $ (934,537) (108,124) $ (1,006,385)
-------------------------------------------------------------
Net Increase 44,722 $ 522,825 178,462 $ 1,759,076
=============================================================
CLASS T
Sold 1,417 $ 15,461 0 $ 0
Redeemed (2,495) $ (27,593) (282) $ (2,291)
-------------------------------------------------------------
Net Decrease (1,078) $ (12,132) (282) $ (2,291)
=============================================================
</Table>
34
<Page>
5. INVESTMENT TRANSACTIONS
Purchases and sales of investment securities (excluding short-term securities
and U.S. government obligations) for the six months ended June 30, 2004 were
$52,591,227 and $61,234,475, 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 June 30, 2004, the Fund had borrowings in the amount of $700,000
pursuant to this LOC arrangement.
7. LEGAL MATTERS
Two class actions have been filed against Mellon Financial Corporation and
Mellon Bank, N.A.; Dreyfus and Founders (the "Investment Advisers"); and the
directors of all or substantially all of the Dreyfus and Dreyfus Founders Funds.
The complaints also name all or substantially all of the Dreyfus and Dreyfus
Founders Funds as nominal defendants. Plaintiffs allege that the Investment
Advisers improperly used assets of the Dreyfus and Dreyfus Founders Funds, in
the form of directed brokerage commissions and 12b-1 fees, to pay brokers to
promote sales of Dreyfus and Dreyfus Founders Funds, and that the use of fund
assets to make these payments was not properly disclosed to investors.
Plaintiffs claim that the Investment Advisers' actions violated the 1940 Act,
the Investment Advisers Act, and common law. The complaints further allege that
the directors breached their fiduciary duties to fund shareholders under the
1940 Act and at common law and that Mellon Financial and Mellon Bank violated
the 1940 Act. The complaints seek unspecified compensatory and punitive damages,
rescission of the funds' contracts with the Investment Advisers, an accounting
of all fees paid, and an award of attorneys' fees and litigation expenses. The
complaints are pending in the same court and have been consolidated into a
single action under the caption IN RE DREYFUS MUTUAL FUNDS FEE LITIGATION.
Founders, Dreyfus, and the Funds believe the allegations in these lawsuits to be
totally without merit and intend to defend the actions vigorously. It is
possible that additional lawsuits arising out of these circumstances and
presenting similar allegations and requests for relief may be filed against the
defendants in the future. Neither Founders, Dreyfus, nor the Funds believe that
the pending actions will have a material adverse effect on the Funds or
Founders' ability to perform its contract with the Funds.
35
<Page>
For More Information
DREYFUS FOUNDERS
WORLDWIDE GROWTH FUND
To obtain information:
MANAGER
- ---------------------------------
BY TELEPHONE | Founders Asset Management LLC
Call your financial | 210 University Boulevard, Suite 800
representative or | Denver, CO 80206
1-800-554-4611 |
| TRANSFER AGENT &
BY MAIL Write to: | DIVIDEND DISBURSING AGENT
Dreyfus Founders Funds |
144 Glenn Curtiss Boulevard | Dreyfus Transfer, Inc.
Uniondale, NY 11556-0144 | 200 Park Avenue
| New York, NY 10166
PROXY VOTING INFORMATION |
A description of the policies |
and procedures that the Fund | DISTRIBUTOR
uses to determine how to vote |
proxies relating to portfolio | Dreyfus Service Corporation
securities, and information | 200 Park Avenue
regarding how the Fund | New York, NY 10166
voted these proxies for |
the 12-month period ended |
June 30, 2004, is available |
through the Fund's website |
at www.dreyfus.com and on |
the Securities and Exchange |
Commission's website at |
www.sec.gov. The description |
of the policies and procedures |
is also available without |
charge, upon request, by |
calling 1-800-554-4611. |
THIS REPORT AND THE STATEMENTS IT CONTAINS ARE SUBMITTED FOR THE GENERAL
INFORMATION OF OUR SHAREHOLDERS. THE REPORT IS NOT AUTHORIZED FOR DISTRIBUTION
TO PROSPECTIVE INVESTORS UNLESS PRECEDED OR ACCOMPANIED BY AN EFFECTIVE
PROSPECTUS.
Dreyfus Founders Funds are managed by Founders Asset Management LLC. Founders
and Founders Funds are registered trademarks of Founders Asset Management LLC.
(C)2004 Founders Asset Management LLC. 08/04 0351SA0604
ITEM 2. CODE OF ETHICS
Not applicable to semiannual reports
ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT
Not applicable to semiannual reports
ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES
Not applicable to semiannual reports
ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS
Not applicable
ITEM 6. SCHEDULE OF INVESTMENTS
SCHEDULE I - INVESTMENTS IN SECURITIES OF UNAFFILIATED ISSUERS is
included as part of the reports to shareholders filed under Item 1 of
this report on Form N-CSR.
ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES
FOR CLOSED-END MANAGEMENT INVESTMENT COMPANIES
Not applicable
ITEM 8. PURCHASES OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT
INVESTMENT COMPANY AND AFFILIATED PURCHASERS
Not applicable
ITEM 9. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No material changes have been made to the procedures by which
shareholders may recommend nominees to the board of directors of
Dreyfus Founders Funds, Inc. (the "Funds"), where those changes were
implemented after the Funds last provided disclosure in response to
the requirements of Item 7(d)(2)(ii)(G) of Schedule 14A or this Item
9.
ITEM 10. CONTROLS AND PROCEDURES
(a) Based on an evaluation of the Funds' Disclosure Controls and
Procedures as of a date within 90 days of the filing date of this
report, the Funds' Principal Executive Officer ("PEO") and Principal
Financial Officer ("PFO") have concluded that the Funds' 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 information required to be disclosed in
the report is accumulated and communicated to the Funds' management,
including the Funds' PEO and PFO, 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 11. EXHIBITS
(a)(1) Not applicable to semiannual reports
(a)(2) Attached hereto as Exhibit EX-99.CERT
(a)(3) Not applicable
(b) Attached hereto as Exhibit EX-99.906CERT
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, President
Date: August 30, 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: August 30, 2004
By: /s/ Robert T. Kelly
-------------------
Robert T. Kelly, Principal Financial Officer
Date: August 30, 2004