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: December 31, 2004
ITEM 1. REPORTS TO STOCKHOLDERS
<Page>
ANNUAL REPORT
DREYFUS FOUNDERS
BALANCED FUND
INVESTMENT UPDATE
DECEMBER 31, 2004
[GRAPHIC]
[(R)DREYFUS FOUNDERS FUNDS(R) LOGO]
THE GROWTH SPECIALISTS
<Page>
TABLE OF CONTENTS
<Table>
Management Overview 3
Fund Expenses 10
Statement of Investments 12
Statement of Assets and Liabilities 18
Statement of Operations 20
Statements of Changes in Net Assets 21
Financial Highlights 22
Notes to Financial Statements 28
Report of Independent Registered Public Accounting Firm 39
Other Tax Information 40
Your Board Representatives 41
</Table>
[GRAPHIC]
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To take advantage of this service, simply inform us online of your decision
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INVESTMENT MANAGER DISTRIBUTOR
Founders Asset Management LLC Dreyfus Service Corporation
A MELLON FINANCIAL COMPANY(SM) 200 Park Avenue
210 University Boulevard, Suite 800 New York, NY 10166
Denver, CO 80206
The views expressed in this report reflect those of the portfolio managers only
through the end of the period covered and do not necessarily represent the views
of Founders or any other person in the Founders organization. Any such views are
subject to change at any time based upon market or other conditions and Founders
disclaims any responsibility to update such views. These views may not be relied
on as investment advice and, because investment decisions for a Dreyfus Founders
Fund are based on numerous factors, may not be relied on as an indication of
trading intent on behalf of any Dreyfus Founders Fund. Companies appearing in
bold print on pages 3-9 were owned by the Fund on December 31, 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
(UNAUDITED)
[PHOTO OF JOHN B. JARES]
[PHOTO OF JOHN V. JOHNSON]
A DISCUSSION WITH PORTFOLIO MANAGER JOHN B. JARES, CFA, LEFT, AND ASSISTANT
PORTFOLIO MANAGER JOHN V. JOHNSON, CFA
HOW DID THE FUND PERFORM RELATIVE TO ITS BENCHMARK FOR THE 12-MONTH PERIOD ENDED
DECEMBER 31, 2004?
During the 12-month period, Dreyfus Founders Balanced Fund held
approximately 31% of its portfolio in fixed-income investments, while its
benchmark, the Standard and Poor's 500 Index, was 100% invested in equities.
As a result, the benchmark benefited relative to the Fund as the equity market
rallied in the fourth quarter.
While we were pleased with the Fund's performance during the period, the Fund
underperformed the benchmark, which returned 10.88% for the year.
DESCRIBE THE OVERALL MARKET ENVIRONMENT DURING THE PERIOD.
During the year, the market labored under the burden of high oil prices, the
Iraqi conflict and the uncertainty surrounding the U.S. Presidential election.
As hesitancy over the election was resolved and crude oil prices moderated, the
market refocused on the underlying strength of corporate America and robust
earnings; it began to discount the strong earnings growth in 2004 along with
expectations of continued growth into 2005.
WHAT CHANGES WERE MADE TO THE FUND DURING THE PERIOD?
Fund performance was driven by our fundamental evaluation of individual
companies. Throughout most of the year, our process of vetting quality stocks
for portfolio inclusion led to a more conservative allocation in equities.
[SIDENOTE]
"THE FUND MIGRATED FROM A FAIRLY DEFENSIVE POSITION DURING THE FIRST PART OF THE
YEAR TO MORE OF AN ADVANTAGEOUS EQUITY STRUCTURE LATER IN THE YEAR."
3
<Page>
The market experienced a significant sell-off in the summer months related to
macroeconomic concerns more than fundamental company issues. The opportunity to
add new names to the portfolio at very attractive prices then emerged. This
allowed us to position the Fund off of a relatively inexpensive base for the
strong market rally that occurred at year-end.
WHAT MANAGEMENT DECISIONS HELPED FUND PERFORMANCE DURING THE PERIOD?
Our fundamental-based process drove stock selection throughout the year. As
companies in the information technology, healthcare and consumer discretionary
sectors began to show improving fundamentals, we selected for inclusion in the
Fund those companies that we believed were most likely to exhibit strong
earnings growth. In doing so, the Fund migrated from a fairly defensive position
during the first part of the year to more of an advantageous equity structure
later in the year. We added new stocks to the portfolio and increased positions
in certain existing Fund holdings, including APPLE COMPUTER, INC., ROYAL
CARIBBEAN CRUISES LIMITED, TIBCO SOFTWARE, INC., OSI PHARMACEUTICALS, INC.,
VERITAS Software Corporation, Fastenal Company and WYNN RESORTS, LIMITED.
[SIDENOTE]
PERFORMANCE HIGHLIGHTS
- - During the year, the market labored under the burden of high oil prices, the
Iraqi conflict and the uncertainty surrounding the U.S. Presidential
election.
- - As companies in the information technology, healthcare and consumer
discretionary sectors began to show improving fundamentals, we selected for
inclusion in the Fund those companies that we believed were most likely to
exhibit strong earnings growth.
- - The most compelling growth opportunities were found in the consumer
discretionary sector, where both a relative overweight position and strong
stock selection aided Fund performance.
- - Weak stock selection and a relative underweight position in the consumer
staples and materials sectors hindered Fund performance during the period.
- - Two themes stood out among the underperforming stocks in the Fund's
portfolio: semiconductors and advertising.
4
<Page>
The most compelling growth opportunities were found in the consumer
discretionary sector, where both a relative overweight position and strong stock
selection aided Fund performance. ROYAL CARIBBEAN CRUISES LIMITED, CARNIVAL
CORPORATION and WYNN RESORTS, LIMITED were among the top performers in this
sector for the Fund.
Strong stock selection in the healthcare sector also positively contributed
to the Fund's relative performance. A strong performer in this sector was
biotech firm OSI PHARMACEUTICALS, INC. which announced in November that its
flagship product Tarceva(TM), a non-small cell lung cancer product, received
U.S. Food and Drug Administration approval.
Within the information technology sector, notable performers in the software
industry also buoyed relative performance. APPLE COMPUTER, INC. rallied as the
company continued to benefit from its dominance in the MP3 market with the
popularity of the iPod, as well as from the introduction of a new iMac. TIBCO
SOFTWARE, INC. continued to see strong revenues and earnings driven by an
increase in corporate spending on critical productivity enhancements. VERITAS
also exhibited strong performance as investors began to better appreciate the
company's leading position within storage software.
LARGEST EQUITY HOLDINGS (ticker symbol)
<Table>
1. Royal Caribbean Cruises Limited (RCL) 3.77%
2. Wynn Resorts, Limited (WYNN) 3.61%
3. Apple Computer, Inc. (AAPL) 3.11%
4. Wal-Mart Stores, Inc. (WMT) 2.75%
5. Estee Lauder Companies, Inc. (EL) 2.69%
6. SAP AG Sponsored ADR (SAP) 2.54%
7. Teva Pharmaceutical Industries
Limited Sponsored ADR (TEVA) 2.41%
8. Colgate-Palmolive Company (CL) 2.34%
9. Microsoft Corporation (MSFT) 2.30%
10. Comcast Corporation Special Class A (CMCSK) 2.29%
</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.
Class F S&P 500 Lipper Balanced
Shares Index Fund Index
- -------------------------------------------------------
12/31/1994 $10,000 $10,000 $10,000
12/31/1995 $12,941 $13,758 $12,488
12/31/1996 $15,368 $16,917 $14,114
12/31/1997 $17,969 $22,561 $16,944
12/31/1998 $20,478 $29,008 $19,492
12/31/1999 $20,023 $35,112 $21,245
12/29/2000 $17,932 $31,915 $21,757
12/31/2001 $16,150 $28,122 $21,051
12/31/2002 $13,330 $21,907 $18,799
12/31/2003 $15,858 $28,190 $22,548
12/31/2004 $17,219 $31,258 $24,573
The above graph compares a $10,000 investment made in Class F shares of Dreyfus
Founders Balanced Fund on 12/31/94 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 MANAGEMENT DECISIONS HAMPERED FUND PERFORMANCE DURING THE PERIOD?
Weak stock selection and a relative underweight position in the consumer staples
and materials sectors hindered Fund performance during the period. Likewise, an
underweight position in the strong-performing energy sector detracted from the
Fund's relative performance.
Two themes stood out among the underperforming stocks in the Fund's
portfolio: semiconductors and advertising. Although the information technology
sector fared well for the year, the semiconductor and communications equipment
industries underperformed as demand failed to materialize to the levels
AVERAGE ANNUAL TOTAL RETURN AS OF 12/31/04
<Table>
<Caption>
1 5 10 SINCE
CLASS (INCEPTION DATE) YEAR YEARS YEARS INCEPTION
-----------------------------------------------------------------------------------
CLASS A SHARES (12/31/99)
With sales charge (5.75%) 2.09% (4.34%) -- (4.34%)
Without sales charge 8.31% (3.20%) -- (3.20%)
CLASS B SHARES (12/31/99)
With redemption* 3.63% (4.28%) -- (4.28%)
Without redemption 7.63% (3.91%) -- (3.91%)
CLASS C SHARES (12/31/99)
With redemption** 6.42% (4.29%) -- (4.29%)
Without redemption 7.42% (4.29%) -- (4.29%)
CLASS F SHARES (2/19/63) 8.58% (2.97%) 5.58% N/A
CLASS R SHARES (12/31/99) 8.63% (3.28%) -- (3.28%)
CLASS T SHARES (12/31/99)
With sales charge (4.50%) 3.16% (3.94%) -- (3.94%)
Without sales charge 8.01% (3.06%) -- (3.06%)
</Table>
Average annual total returns do not reflect the deduction of taxes that a
shareholder would pay on Fund distributions or redemption of Fund shares, but do
reflect the reinvestment of dividends and capital gain distributions, expense
limits for certain share classes, and adjustments for financial statement
purposes. Part of the Fund's 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.
*The maximum contingent deferred sales charge for Class B shares is 4% and is
reduced to 0% after six years, at which time the Class B shares convert to Class
A shares.
**The maximum contingent deferred sales charge for Class C shares is 1% for
shares redeemed within one year of the date of purchase.
7
<Page>
reflected in the market, compounding into an inventory correction that continued
through year-end. Semiconductor names NVIDIA Corporation, Semiconductor
Manufacturing International Corporation and INTEL CORPORATION all underperformed
and had a negative impact on Fund performance. Data communication stocks CISCO
SYSTEMS, INC. and Foundry Networks, Inc. also detracted from overall
performance.
Additionally, continued difficulty in the radio and advertising industries
hurt the Fund for the period as advertisers continued to shift to online
advertising and away from the traditional mediums offered by companies such as
VIACOM, INC. Viacom hindered Fund performance as its radio division
underperformed for the year.
Lastly, although the healthcare sector was a positive contributor to
performance, numerous holdings in this sector detracted from the Fund's overall
return for the period. PFIZER, INC. negatively impacted the Fund as the company
revealed data showing that two of its COX-2 inhibitor drugs, Bextra(R) and
Celebrex(R), were linked to adverse cardiovascular events in consumers. This
news unfavorably impacted Pfizer's earnings-per-share prospects. ELI LILLY &
COMPANY and Forest Laboratories, Inc. also performed unfavorably during the
period.
[CHART]
PORTFOLIO COMPOSITION OF NET ASSETS
<Table>
Information Technology 13.92%
Consumer Discretionary 13.68%
Healthcare 13.05%
Financials 10.91%
Consumer Staples 7.28%
Industrials 6.52%
Energy 2.05%
Materials 1.57%
Fixed-Income Investments 31.02%
</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 FOR THE 12-MONTH PERIOD?
The Fund's heavy corporate bond weighting helped boost performance during the
period as corporate bond spreads continued their tightening trend from 2003.
This narrowing trend continued as investors required a smaller risk premium for
holding company debt. By the end of the period, the Fund held approximately 32%
of its fixed-income assets in corporate credit.
The Fund's Canadian dollar-denominated holdings assisted the Fund's relative
return during the period, as the Canadian dollar performed well throughout the
year, hitting a 12-year high versus the U.S. dollar in the fourth quarter.
During the period, lower-quality bonds outperformed higher-quality
securities. This negatively affected performance as the Fund had a greater
exposure to higher-quality issues.
The Fund added to its exposure in mortgage-backed securities during 2004.
However, the Fund still had an overall low exposure, which hurt the performance
of the fixed-income portion of the portfolio as mortgages outpaced Treasuries
during the period. At year's end, the Fund held about 15% of its fixed-income
assets in mortgage debt.
In addition, the Fund reallocated assets out of shorter-dated maturities in
favor of longer-dated securities during the fourth quarter; however, despite
this action, the Fund fell short of full participation in the long-end bond
rally.
For 2005, we will continue to apply our process and philosophy of seeking to
identify companies whose fundamental strengths may lead to superior earnings
growth over time.
/s/ John B. Jares /s/ John V. Johnson
John B. Jares, CFA John V. Johnson, CFA
Portfolio Manager Assistant Portfolio Manager
9
<Page>
FUND EXPENSES
(UNAUDITED)
As a shareholder of the Fund, depending on the class of shares of the Fund you
own, you incur two types of costs: (1) transaction costs, including front-end
and contingent deferred sales charges; and (2) ongoing costs, including
management fees, Rule 12b-1 fees, shareholder services fees, and other expenses.
The expense example shown below is intended to help you understand your ongoing
costs (in dollars) of investing in the Fund and to compare these costs with the
ongoing costs of investing in other mutual funds.
The expense example is based on an investment of $1,000 on July 1, 2004 and
held through December 31, 2004.
ACTUAL EXPENSES The numbers included in the expense example in the rows with the
word "Actual" in the title provide information about actual account values and
actual expenses. You may use this information to estimate the expenses that you
paid over the period. Simply divide your account value by $1,000 (for example,
an $8,600 account value divided by $1,000 = 8.60), then multiply the result by
the number under the column heading entitled "Expenses Paid During Period" for
the class of shares you own to estimate the expenses you paid on your account
during this period.
HYPOTHETICAL EXPENSES The numbers included in the expense example in the rows
with the word "Hypothetical" in the title provide information about hypothetical
account values and hypothetical expenses based on the Fund's actual expense
ratio for each class of shares, and an assumed rate of return of 5% per year
before expenses, which is not the Fund's actual return. The hypothetical account
values and expenses may not be used to estimate the actual ending account
balance or expenses you paid for the period. You may use this information to
compare the ongoing costs of investing in the Fund and other funds. To do so,
compare the hypothetical expenses in the expense example for the class of shares
you own with the hypothetical expenses that appear in the shareholder reports of
other funds.
Please note that the expenses shown in the expense example are meant to
highlight your ongoing costs only and do not reflect the transaction costs
described above. Therefore, the hypothetical expenses in the expense example are
useful in comparing ongoing costs only, and will not help you determine the
relative total costs of owning different funds. In addition, if the transaction
costs were included, your costs would have been higher.
10
<Page>
EXPENSE EXAMPLE
<Table>
<Caption>
BEGINNING ENDING EXPENSES PAID
ACCOUNT VALUE ACCOUNT VALUE DURING PERIOD*
(7/1/04) (12/31/04) (7/1/04-12/31/04)
--------------------------------------------------------------------------------------------------
CLASS A ACTUAL $ 1,000.00 $ 1,073.11 $ 8.00
CLASS A HYPOTHETICAL 1,000.00 1,017.21 7.79
CLASS B ACTUAL 1,000.00 1,066.32 11.75
CLASS B HYPOTHETICAL 1,000.00 1,013.55 11.45
CLASS C ACTUAL 1,000.00 1,063.64 12.47
CLASS C HYPOTHETICAL 1,000.00 1,012.83 12.17
CLASS F ACTUAL 1,000.00 1,075.13 6.96
CLASS F HYPOTHETICAL 1,000.00 1,018.23 6.77
CLASS R ACTUAL 1,000.00 1,078.96 5.24
CLASS R HYPOTHETICAL 1,000.00 1,019.91 5.09
CLASS T ACTUAL 1,000.00 1,071.56 8.79
CLASS T HYPOTHETICAL 1,000.00 1,016.45 8.55
</Table>
*Expenses are equal to each Class's respective annualized expense ratio, shown
below, multiplied by the average account value over the period, multiplied by
184/366 (to reflect the one-half year period).
EXPENSE RATIOS
These expense ratios reflect reimbursements and/or waivers of expenses by the
Fund's investment adviser or its affiliates.
<Table>
<Caption>
EXPENSE RATIO
----------------------------------------------------------------
CLASS A 1.53%
CLASS B 2.25%
CLASS C 2.39%
CLASS F 1.33%
CLASS R 1.00%
CLASS T 1.68%
</Table>
11
<Page>
STATEMENT OF INVESTMENTS
December 31, 2004
<Table>
<Caption>
SHARES MARKET VALUE
- -------------------------------------------------------------------------------
COMMON STOCKS (DOMESTIC)--67.5%
AIR FREIGHT & LOGISTICS--1.1%
10,200 FedEx Corporation $ 1,004,562
--------------
AIRLINES--0.8%
22,600 AMR Corporation* 247,470
10,900 JetBlue Airways Corporation* 253,098
16,900 Southwest Airlines Company 275,132
--------------
775,700
--------------
ASSET MANAGEMENT & CUSTODY BANKS--3.2%
7,600 Bank of New York Company, Inc. 253,992
25,333 Calamos Asset Management, Inc.* 683,991
49,100 Janus Capital Group, Inc. 825,371
24,800 Northern Trust Corporation 1,204,784
--------------
2,968,138
--------------
BIOTECHNOLOGY--3.1%
13,000 Biogen Idec, Inc.* 865,930
22,700 Gilead Sciences, Inc.* 794,273
16,400 OSI Pharmaceuticals, Inc.* 1,227,540
--------------
2,887,743
--------------
BROADCASTING & CABLE TV--2.3%
20,500 Comcast Corporation Class A* 682,240
43,900 Comcast Corporation Special Class A* 1,441,676
--------------
2,123,916
--------------
CASINOS & GAMING--2.4%
34,000 Wynn Resorts, Limited* 2,275,280
--------------
COMMUNICATIONS EQUIPMENT--1.6%
21,600 Cisco Systems, Inc.* 416,880
12,500 QUALCOMM, Inc. 530,000
15,400 Scientific-Atlanta, Inc. 508,354
--------------
1,455,234
--------------
COMPUTER HARDWARE--2.7%
30,500 Apple Computer, Inc.* 1,964,200
6,100 International Business Machines Corporation 601,338
--------------
2,565,538
--------------
COMPUTER STORAGE & PERIPHERALS--1.5%
92,400 EMC Corporation* 1,373,988
--------------
CONSTRUCTION MATERIALS--0.8%
13,800 Lafarge North America, Inc. 708,216
--------------
DEPARTMENT STORES--1.1%
20,900 Kohl's Corporation* 1,027,653
--------------
DIVERSIFIED BANKS--0.7%
10,700 Wells Fargo & Company 665,005
--------------
</Table>
12
<Page>
<Table>
<Caption>
SHARES MARKET VALUE
- -------------------------------------------------------------------------------
EMPLOYMENT SERVICES--1.6%
14,000 Manpower, Inc. $ 676,200
25,800 Monster Worldwide, Inc.* 867,912
--------------
1,544,112
--------------
GENERAL MERCHANDISE STORES--1.4%
36,700 Dollar General Corporation 762,259
10,800 Target Corporation 560,844
--------------
1,323,103
--------------
HEALTHCARE EQUIPMENT--1.6%
26,000 Boston Scientific Corporation* 924,300
7,000 Zimmer Holdings, Inc.* 560,840
--------------
1,485,140
--------------
HEALTHCARE SERVICES--0.8%
7,900 Quest Diagnostics, Inc. 754,845
--------------
HOTELS, RESORTS & CRUISE LINES--1.4%
22,600 Carnival Corporation 1,302,438
--------------
HOUSEHOLD PRODUCTS--2.7%
17,300 Clorox Company 1,019,489
28,850 Colgate-Palmolive Company 1,475,966
--------------
2,495,455
--------------
HYPERMARKETS & SUPER CENTERS--1.9%
32,800 Wal-Mart Stores, Inc. 1,732,496
--------------
INDUSTRIAL CONGLOMERATES--0.8%
21,200 General Electric Company 773,800
--------------
INDUSTRIAL GASES--0.9%
18,800 Praxair, Inc. 830,020
--------------
INVESTMENT BANKING & BROKERAGE--2.8%
12,900 Goldman Sachs Group, Inc. 1,342,116
22,400 Morgan Stanley 1,243,648
--------------
2,585,764
--------------
LEISURE FACILITIES--2.5%
43,700 Royal Caribbean Cruises Limited 2,379,028
--------------
MOVIES & ENTERTAINMENT--1.7%
51,600 Time Warner, Inc.* 1,003,104
15,800 Viacom, Inc. 574,962
--------------
1,578,066
--------------
MULTI-LINE INSURANCE--1.1%
15,800 American International Group, Inc. 1,037,586
--------------
OFFICE ELECTRONICS--0.5%
7,600 Zebra Technologies Corporation* 427,728
--------------
OIL & GAS DRILLING--1.4%
32,300 Diamond Offshore Drilling, Inc. 1,293,615
--------------
</Table>
SEE NOTES TO STATEMENT OF INVESTMENTS.
13
<Page>
<Table>
<Caption>
SHARES MARKET VALUE
- -------------------------------------------------------------------------------
OIL & GAS EXPLORATION & PRODUCTION--0.8%
14,370 Apache Corporation $ 726,691
--------------
OTHER DIVERSIFIED FINANCIAL SERVICES--1.7%
21,966 Citigroup, Inc. 1,058,322
13,208 JPMorgan Chase & Company 515,244
--------------
1,573,566
--------------
PERSONAL PRODUCTS--3.1%
37,000 Estee Lauder Companies, Inc. 1,693,490
27,900 Gillette Company 1,249,362
--------------
2,942,852
--------------
PHARMACEUTICALS--6.7%
30,600 Abbott Laboratories 1,427,490
28,300 Barr Pharmaceuticals, Inc.* 1,288,782
16,500 Eli Lilly and Company 936,375
29,100 Eon Labs, Inc.* 785,700
16,975 Pfizer, Inc. 456,458
31,000 Wyeth 1,320,290
--------------
6,215,095
--------------
RAILROADS--1.4%
27,400 Burlington Northern Santa Fe Corporation 1,296,294
--------------
RESTAURANTS--1.3%
36,300 Cheesecake Factory, Inc.* 1,178,661
--------------
SEMICONDUCTORS--2.3%
24,200 Broadcom Corporation* 781,176
21,400 Intel Corporation 500,546
19,500 Maxim Integrated Products, Inc. 826,605
--------------
2,108,327
--------------
SPECIALTY STORES--0.4%
8,300 Bed Bath & Beyond, Inc.* 330,589
--------------
SYSTEMS SOFTWARE--2.8%
54,200 Microsoft Corporation 1,447,682
89,550 TIBCO Software, Inc.* 1,194,597
--------------
2,642,279
--------------
THRIFTS & MORTGAGE FINANCE--2.0%
10,800 Freddie Mac 795,960
26,800 The PMI Group, Inc. 1,118,900
--------------
1,914,860
--------------
TRADING COMPANIES & DISTRIBUTORS--0.6%
8,500 W.W. Grainger, Inc. 566,270
--------------
TOTAL COMMON STOCKS (DOMESTIC)
(COST--$52,653,518) 62,869,653
--------------
</Table>
14
<Page>
<Table>
<Caption>
SHARES MARKET VALUE
- -------------------------------------------------------------------------------
COMMON STOCKS (FOREIGN)--5.4%
APPLICATION SOFTWARE--2.8%
40,200 Amdocs Limited (CI)* $ 1,055,250
36,250 SAP AG Sponsored ADR (GE) 1,602,613
--------------
2,657,863
--------------
IT CONSULTING & OTHER SERVICES--0.5%
18,800 Accenture Limited (BD)* 507,600
--------------
PHARMACEUTICALS--1.6%
50,900 Teva Pharmaceutical Industries Limited
Sponsored ADR (IS) 1,519,874
--------------
RAILROADS--0.5%
8,162 Canadian National Railway Company (CA) 499,923
--------------
TOTAL COMMON STOCKS (FOREIGN)
(COST--$4,387,058) 5,185,260
--------------
<Caption>
CONTRACTS MARKET VALUE
- -------------------------------------------------------------------------------
OPTIONS PURCHASED--0.0%
165 Eli Lilly and Company Put
Strike Price $55, expire 1/22/05* $ 16,500
--------------
TOTAL OPTIONS PURCHASED
(COST--$61,986) 16,500
--------------
<Caption>
PRINCIPAL AMOUNT MARKET VALUE
- -------------------------------------------------------------------------------
CORPORATE BONDS (DOMESTIC)--9.8%
AUTOMOBILE MANUFACTURERS--2.2%
$ 2,000,000 Toyota Motor Credit Corporation
5.65% 1/15/07 $ 2,085,420
--------------
DIVERSIFIED BANKS--1.9%
1,540,000 Washington Mutual, Inc.
8.25% 4/1/10 1,801,708
--------------
HOUSEHOLD PRODUCTS--1.8%
1,500,000 Colgate-Palmolive Company
5.98% 4/25/12 1,647,795
--------------
MOVIES & ENTERTAINMENT--2.2%
2,000,000 Viacom, Inc.
7.75% 6/1/05 2,035,600
--------------
PHARMACEUTICALS--1.7%
1,500,000 Abbott Laboratories
5.625% 7/1/06 1,550,805
--------------
TOTAL CORPORATE BONDS (DOMESTIC)
(COST--$8,645,161) 9,121,328
--------------
</Table>
SEE NOTES TO STATEMENT OF INVESTMENTS.
15
<Page>
<Table>
<Caption>
PRINCIPAL AMOUNT MARKET VALUE
- -------------------------------------------------------------------------------
U.S. GOVERNMENT OBLIGATIONS--18.3%
AGENCY PASS THROUGH--3.6%
$ 3,200,436 U.S. Small Business Administration Series 10-A
6.64% 2/1/11 $ 3,392,430
--------------
GOVERNMENT SPONSORED ENTERPRISES--7.6%
700,000 Federal Farm Credit Bank
4.70% 12/10/14 703,619
Federal Home Loan Bank:
800,000 4.50% 11/15/12 809,152
2,000,000 6.50% 11/15/05 2,060,482
2,000,000 Private Export Funding Corporation
3.40% 2/15/08 1,992,940
1,500,000 Tennessee Valley Authority
6.375% 6/15/05 1,523,850
--------------
7,090,043
--------------
MORTGAGE-BACKED SECURITIES: GNMA/GUARANTEED--1.7%
1,530,090 Government National Mortgage Association
6.00% 1/15/33 Pool #563709 1,586,826
--------------
U.S. TREASURY NOTES--5.4%
1,163,830 U.S. Treasury Inflation Protection Security
3.875% 1/15/09 1,304,700
U.S. Treasury Note:
900,000 4.25% 8/15/14 902,007
1,250,000 4.375% 5/15/07 1,284,716
1,500,000 6.875% 5/15/06 1,579,395
--------------
5,070,818
--------------
TOTAL U.S. GOVERNMENT OBLIGATIONS
(COST--$16,838,293) 17,140,117
--------------
GOVERNMENT BONDS (FOREIGN)--3.3%
GOVERNMENT SECURITIES--3.3%
CAD 3,535,000 Province of Quebec
6.50% 12/1/05 (CA) 3,048,502
--------------
TOTAL GOVERNMENT BONDS (FOREIGN)
(COST--$2,354,302) 3,048,502
--------------
SUPRANATIONAL OBLIGATIONS--1.1%
GOVERNMENT SECURITIES--1.1%
$ 1,000,000 International Finance Corporation
3.75% 6/30/09 999,180
--------------
TOTAL SUPRANATIONAL OBLIGATIONS
(COST--$999,410) 999,180
--------------
</Table>
16
<Page>
<Table>
<Caption>
PRINCIPAL AMOUNT AMORTIZED COST
- -------------------------------------------------------------------------------
CORPORATE SHORT-TERM NOTES--1.5%
PHARMACEUTICALS--1.5%
$ 1,400,000 Novartis Finance Corporation
2.10% 1/3/05~ $ 1,399,837
--------------
TOTAL CORPORATE SHORT-TERM NOTES
(AMORTIZED COST--$1,399,837) 1,399,837
--------------
TOTAL INVESTMENTS--106.9%
(TOTAL COST--$87,339,565) 99,780,377
--------------
OTHER ASSETS AND LIABILITIES--(6.9%) (6,414,019)
--------------
NET ASSETS--100.0% $ 93,366,358
==============
</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. THESE SECURITIES AMOUNTED TO
$1,399,837, OR 1.5%, OF THE FUND'S NET ASSETS AS OF DECEMBER 31, 2004.
ADR - AMERICAN DEPOSITARY RECEIPT
BD - BERMUDA
CA - CANADA
CI - CHANNEL ISLANDS
GE - GERMANY
IS - ISRAEL
SEE NOTES TO FINANCIAL STATEMENTS.
17
<Page>
STATEMENT OF ASSETS AND LIABILITIES
December 31, 2004
<Table>
ASSETS
Investment securities, at cost $ 87,339,565
--------------
Investment securities, at market 99,780,377
Cash 339,495
Receivables:
Capital shares sold 167,146
Dividends and interest 340,997
Other assets 59,767
--------------
Total Assets 100,687,782
--------------
LIABILITIES
Payables and other accrued liabilities:
Investment securities purchased 631,188
Capital shares redeemed 6,408,816
Advisory fees 54,841
Shareholder servicing fees 6,126
Accounting fees 5,062
Distribution fees 32,768
Transfer agency fees 25,302
Custodian fees 1,988
Other 155,333
--------------
Total Liabilities 7,321,424
--------------
Net Assets $ 93,366,358
==============
COMPOSITION OF NET ASSETS
Capital (par value and paid-in surplus) $ 275,355,085
Accumulated net investment loss (31,472)
Accumulated net realized loss from security transactions (194,398,358)
Net unrealized appreciation on investments
and foreign currency translation 12,441,103
--------------
Total $ 93,366,358
==============
</Table>
18
<Page>
<Table>
CLASS A
Net Assets $ 1,682,405
Shares Outstanding 199,066
Net Asset Value, Redemption Price Per Share $ 8.45
Maximum offering price per share (net asset value
plus sales charge of 5.75% of offering price) $ 8.97
CLASS B
Net Assets $ 1,625,288
Shares Outstanding 194,208
Net Asset Value, Offering and Redemption Price (excluding
applicable contingent deferred sales charge) Per Share $ 8.37
CLASS C
Net Assets $ 263,726
Shares Outstanding 32,011
Net Asset Value, Offering and Redemption Price (excluding
applicable contingent deferred sales charge) Per Share $ 8.24
Class F
Net Assets $ 89,701,093
Shares Outstanding 10,603,357
Net Asset Value, Offering and Redemption Price Per Share $ 8.46
Class R
Net Assets $ 58,886
Shares Outstanding 6,985
Net Asset Value, Offering and Redemption Price Per Share $ 8.43
Class T
Net Assets $ 34,960
Shares Outstanding 4,028
Net Asset Value, Redemption Price Per Share $ 8.68
Maximum offering price per share (net asset value
plus sales charge of 4.50% of offering price) $ 9.09
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
19
<Page>
STATEMENT OF OPERATIONS
For the year ended December 31, 2004
<Table>
INVESTMENT INCOME
Dividends $ 823,238
Interest 1,819,557
Foreign taxes withheld (3,484)
--------------
Total Investment Income 2,639,311
--------------
EXPENSES
Advisory fees--Note 2 710,424
Shareholder servicing fees--Note 2 72,548
Accounting fees--Note 2 65,578
Distribution fees--Note 2 278,384
Transfer agency fees--Note 2 191,082
Registration fees 42,160
Postage and mailing expenses 12,453
Custodian fees and expenses--Note 2 5,911
Printing expenses 42,632
Legal and audit fees 21,156
Directors' fees and expenses--Note 2 16,947
Other expenses 22,599
--------------
Total Expenses 1,481,874
Earnings Credits (2,792)
Reimbursed/Waived Expenses (1,325)
Expense Offset to Broker Commissions (3,494)
--------------
Net Expenses 1,474,263
--------------
Net Investment Income 1,165,048
--------------
REALIZED AND UNREALIZED GAIN (LOSS) ON SECURITY
TRANSACTIONS AND FOREIGN CURRENCY TRANSACTIONS
Net Realized Gain on:
Security Transactions 8,807,349
Closing and Expiration of Option Contracts Written 26,185
Foreign Currency Transactions 5,435
--------------
Net Realized Gain 8,838,969
Net Change in Unrealized Appreciation/Depreciation
of Investments and Foreign Currency Translation (2,078,931)
--------------
Net Realized and Unrealized Gain 6,760,038
--------------
Net Increase in Net Assets Resulting from Operations $ 7,925,086
==============
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
20
<Page>
STATEMENTS OF CHANGES IN NET ASSETS
<Table>
<Caption>
YEAR ENDED YEAR ENDED
12/31/04 12/31/03
- ----------------------------------------------------------------------------------------------------
OPERATIONS
Net Investment Income $ 1,165,048 $ 1,184,817
Net Realized Gain on Security and Foreign
Currency Transactions 8,838,969 6,956,668
Net Change in Unrealized Appreciation/Depreciation
of Investments and Foreign Currency Translation (2,078,931) 14,224,484
-------------- --------------
Net Increase in Net Assets Resulting from Operations 7,925,086 22,365,969
-------------- --------------
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS
From Net Investment Income
Class A (16,533) (10,100)
Class B (4,861) (1,222)
Class C (659) (17)
Class F (1,146,498) (1,240,046)
Class R (763) (159)
Class T (243) (12)
-------------- --------------
Net Decrease from Dividends and Distributions (1,169,557) (1,251,556)
-------------- --------------
CAPITAL SHARE TRANSACTIONS
Net Increase (Decrease)--Note 4
Class A (2,547) 98,293
Class B (135,764) 244,827
Class C (49,827) (6,310)
Class F (36,636,581) (31,079,380)
Class R (16,844) 55,114
Class T (3,452) 19,668
-------------- --------------
Net Decrease from Capital Share Transactions (36,845,015) (30,667,788)
-------------- --------------
Net Decrease in Net Assets (30,089,486) (9,553,375)
-------------- --------------
NET ASSETS
Beginning of year $ 123,455,844 $ 133,009,219
-------------- --------------
End of year $ 93,366,358 $ 123,455,844
============== ==============
Accumulated Net Investment Loss $ (31,472) $ (35,022)
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
21
<Page>
FINANCIAL HIGHLIGHTS
<Table>
<Caption>
YEAR ENDED
DECEMBER 31,
2004 2003 2002 2001 2000
------------------------------------------------------------------
CLASS A SHARES
PER SHARE OPERATING DATA
Net Asset Value, beginning of year $ 7.88 $ 6.68 $ 8.18 $ 9.24 $ 10.47
- -----------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.08 0.05 0.05 0.06 0.13
Net realized and unrealized gains
(losses) on securities 0.57 1.20 (1.51) (1.03) (1.18)
------------------------------------------------------------------
Total from investment operations 0.65 1.25 (1.46) (0.97) (1.05)
- -----------------------------------------------------------------------------------------------------------------------
Less dividends and distributions:
From net investment income (0.08) (0.05) (0.04) (0.09) (0.16)
From net realized gains 0.00 0.00 0.00 0.00 (0.02)
------------------------------------------------------------------
Total distributions (0.08) (0.05) (0.04) (0.09) (0.18)
- -----------------------------------------------------------------------------------------------------------------------
Net Asset Value, end of year $ 8.45 $ 7.88 $ 6.68 $ 8.18 $ 9.24
==================================================================
TOTAL RETURN* 8.31% 18.81% (17.85%) (10.46%) (10.21%)
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000s) $ 1,682 $ 1,572 $ 1,243 $ 1,227 $ 699
- -----------------------------------------------------------------------------------------------------------------------
Ratios to average net assets:
Expenses with reimbursements, but no
earnings credits or brokerage offsets# 1.49% 1.83% 1.89% 1.87% 1.23%
Expenses with reimbursements,
earnings credits and brokerage offsets 1.48% 1.83% 1.89% 1.87% 1.20%
Net investment income 0.96% 0.63% 0.56% 0.51% 1.48%
- -----------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate@ 134% 108% 122% 111% 126%
</Table>
- ----------
* SALES CHARGES ARE NOT REFLECTED IN THE TOTAL RETURN.
# 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>
YEAR ENDED
DECEMBER 31,
2004 2003 2002 2001 2000
------------------------------------------------------------------
CLASS B SHARES
PER SHARE OPERATING DATA
Net Asset Value, beginning of year $ 7.80 $ 6.63 $ 8.11 $ 9.18 $ 10.47
- -----------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) 0.01 0.01 (0.01) 0.01 0.10
Net realized and unrealized gains
(losses) on securities 0.58 1.17 (1.47) (1.03) (1.24)
------------------------------------------------------------------
Total from investment operations 0.59 1.18 (1.48) (1.02) (1.14)
- -----------------------------------------------------------------------------------------------------------------------
Less dividends and distributions:
From net investment income (0.02) (0.01) 0.00^ (0.05) (0.13)
From net realized gains 0.00 0.00 0.00 0.00 (0.02)
------------------------------------------------------------------
Total distributions (0.02) (0.01) 0.00 (0.05) (0.15)
- -----------------------------------------------------------------------------------------------------------------------
Net Asset Value, end of year $ 8.37 $ 7.80 $ 6.63 $ 8.11 $ 9.18
==================================================================
TOTAL RETURN* 7.63% 17.76% (18.21%) (11.13%) (11.06%)
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000s) $ 1,625 $ 1,647 $ 1,181 $ 1,484 $ 1,008
- -----------------------------------------------------------------------------------------------------------------------
Ratios to average net assets:
Expenses with reimbursements, but no
earnings credits or brokerage offsets# 2.21% 2.53% 2.54% 2.50% 1.96%
Expenses with reimbursements,
earnings credits and brokerage offsets 2.21% 2.53% 2.54% 2.49% 1.93%
Net investment income (loss) 0.23% (0.08%) (0.10%) (0.13%) 0.71%
- -----------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate@ 134% 108% 122% 111% 126%
</Table>
- ----------
^ DISTRIBUTIONS FROM NET INVESTMENT INCOME FOR THE YEAR ENDED DECEMBER 31,
2002 AGGREGATED LESS THAN $0.01 ON A PER SHARE BASIS.
* SALES CHARGES ARE NOT REFLECTED IN THE TOTAL RETURN.
# 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>
YEAR ENDED
DECEMBER 31,
2004 2003 2002 2001 2000
------------------------------------------------------------------
CLASS C SHARES
PER SHARE OPERATING DATA
Net Asset Value, beginning of year $ 7.69 $ 6.54 $ 8.04 $ 9.17 $ 10.47
- -----------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) 0.01+ (0.01) (0.17) (0.05) 0.10
Net realized and unrealized gains
(losses) on securities 0.56 1.16 (1.33) (1.03) (1.28)
------------------------------------------------------------------
Total from investment operations 0.57 1.15 (1.50) (1.08) (1.18)
- -----------------------------------------------------------------------------------------------------------------------
Less dividends and distributions:
From net investment income (0.02) 0.00^ 0.00 (0.05) (0.10)
From net realized gains 0.00 0.00 0.00 0.00 (0.02)
------------------------------------------------------------------
Total distributions (0.02) 0.00 0.00 (0.05) (0.12)
- -----------------------------------------------------------------------------------------------------------------------
Net Asset Value, end of year $ 8.24 $ 7.69 $ 6.54 $ 8.04 $ 9.17
==================================================================
TOTAL RETURN* 7.42% 17.59% (18.66%) (11.80%) (11.36%)
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000s) $ 264 $ 295 $ 248 $ 496 $ 174
- -----------------------------------------------------------------------------------------------------------------------
Ratios to average net assets:
Expenses with reimbursements, but no
earnings credits or brokerage offsets# 2.35% 2.69% 3.48% 3.96% 1.88%
Expenses with reimbursements,
earnings credits and brokerage offsets 2.34% 2.69% 3.48% 3.96% 1.86%
Net investment income (loss) 0.08% (0.17%) (1.05%) (1.64%) 0.76%
- -----------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate@ 134% 108% 122% 111% 126%
</Table>
+ COMPUTED USING AVERAGE SHARES OUTSTANDING THROUGHOUT THE YEAR.
^ 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.
# CERTAIN FEES WERE REIMBURSED OR WAIVED BY THE MANAGEMENT COMPANY OR ITS
AFFILIATES. HAD THESE FEES NOT BEEN REIMBURSED OR WAIVED, THE EXPENSE
RATIOS HAVE BEEN 2.35% (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.
24
<Page>
<Table>
<Caption>
YEAR ENDED
DECEMBER 31,
2004 2003 2002 2001 2000
------------------------------------------------------------------
CLASS F SHARES
PER SHARE OPERATING DATA
Net Asset Value, beginning of year $ 7.88 $ 6.69 $ 8.20 $ 9.22 $ 10.47
- -----------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.08 0.06 0.07 0.10 0.15
Net realized and unrealized gains
(losses) on securities 0.59 1.20 (1.50) (1.02) (1.23)
------------------------------------------------------------------
Total from investment operations 0.67 1.26 (1.43) (0.92) (1.08)
- -----------------------------------------------------------------------------------------------------------------------
Less dividends and distributions:
From net investment income (0.09) (0.07) (0.08) (0.10) (0.15)
From net realized gains 0.00 0.00 0.00 0.00 (0.02)
------------------------------------------------------------------
Total distributions (0.09) (0.07) (0.08) (0.10) (0.17)
- -----------------------------------------------------------------------------------------------------------------------
Net Asset Value, end of year $ 8.46 $ 7.88 $ 6.69 $ 8.20 $ 9.22
==================================================================
TOTAL RETURN 8.58% 18.96% (17.46%) (9.94%) (10.44%)
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000s) $ 89,701 $ 119,835 $ 130,314 $ 297,068 $ 552,675
- -----------------------------------------------------------------------------------------------------------------------
Ratios to average net assets:
Expenses with reimbursements, but no
earnings credits or brokerage offsets# 1.34% 1.54% 1.43% 1.23% 1.08%
Expenses with reimbursements,
earnings credits and brokerage offsets 1.33% 1.54% 1.42% 1.22% 1.07%
Net investment income 1.08% 0.93% 0.99% 1.20% 1.41%
- -----------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate@ 134% 108% 122% 111% 126%
</Table>
# 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.
25
<Page>
<Table>
<Caption>
YEAR ENDED
DECEMBER 31,
2004 2003 2002 2001 2000
------------------------------------------------------------------
CLASS R SHARES
PER SHARE OPERATING DATA
Net Asset Value, beginning of year $ 7.86 $ 6.68 $ 8.18 $ 9.22 $ 10.47
- -----------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) 0.09 0.16 (0.16) 0.09 0.18
Net realized and unrealized gains
(losses) on securities 0.58 1.05 (1.34) (1.02) (1.23)
------------------------------------------------------------------
Total from investment operations 0.67 1.21 (1.50) (0.93) (1.05)
- -----------------------------------------------------------------------------------------------------------------------
Less dividends and distributions:
From net investment income (0.10) (0.03) 0.00 (0.11) (0.18)
From net realized gains 0.00 0.00 0.00 0.00 (0.02)
------------------------------------------------------------------
Total distributions (0.10) (0.03) 0.00 (0.11) (0.20)
- -----------------------------------------------------------------------------------------------------------------------
Net Asset Value, end of year $ 8.43 $ 7.86 $ 6.68 $ 8.18 $ 9.22
==================================================================
TOTAL RETURN 8.63% 18.12% (18.34%) (10.09%) (10.18%)
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000s) $ 59 $ 72 $ 11 $ 14 $ 1
- -----------------------------------------------------------------------------------------------------------------------
Ratios to average net assets:
Expenses with reimbursements, but no
earnings credits or brokerage offsets# 1.21% 2.37% 4.24% 3.07% 0.81%
Expenses with reimbursements,
earnings credits and brokerage offsets 1.21% 2.37% 4.24% 3.07% 0.80%
Net investment income (loss) 1.21% 0.01% (1.77%) (0.75%) 1.71%
- -----------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate@ 134% 108% 122% 111% 126%
</Table>
# 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 1.35% (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.
26
<Page>
<Table>
<Caption>
YEAR ENDED
DECEMBER 31,
2004 2003 2002 2001 2000
------------------------------------------------------------------
CLASS T SHARES
PER SHARE OPERATING DATA
Net Asset Value, beginning of year $ 8.09 $ 6.88 $ 8.17 $ 9.21 $ 10.47
- -----------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) 0.03 0.21 (0.37) 0.08 0.12
Net realized and unrealized gains
(losses) on securities 0.62 1.00 (0.92) (1.04) (1.22)
------------------------------------------------------------------
Total from investment operations 0.65 1.21 (1.29) (0.96) (1.10)
- -----------------------------------------------------------------------------------------------------------------------
Less dividends and distributions:
From net investment income (0.06) 0.00^ 0.00 (0.08) (0.14)
From net realized gains 0.00 0.00 0.00 0.00 (0.02)
------------------------------------------------------------------
Total distributions (0.06) 0.00 0.00 (0.08) (0.16)
- -----------------------------------------------------------------------------------------------------------------------
Net Asset Value, end of year $ 8.68 $ 8.09 $ 6.88 $ 8.17 $ 9.21
==================================================================
TOTAL RETURN* 8.01% 17.65% (15.79%) (10.44%) (10.67%)
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000s) $ 35 $ 36 $ 13 $ 232 $ 9
- -----------------------------------------------------------------------------------------------------------------------
Ratios to average net assets:
Expenses with reimbursements, but no
earnings credits or brokerage offsets# 1.77% 2.73% 2.60% 3.36% 1.32%
Expenses with reimbursements,
earnings credits and brokerage offsets 1.77% 2.73% 2.59% 3.36% 1.30%
Net investment income (loss) 0.66% (0.29%) (0.31%) (1.12%) 1.22%
- -----------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate@ 134% 108% 122% 111% 126%
</Table>
^ DISTRIBUTIONS FROM NET INVESTMENT INCOME FOR THE YEAR ENDED DECEMBER 31,
2003 AGGREGATED LESS THAN $0.01 ON A PER SHARE BASIS.
* SALES CHARGES ARE NOT REFLECTED IN THE TOTAL RETURN.
# 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 2.02% (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.
27
<Page>
NOTES TO FINANCIAL STATEMENTS
December 31, 2004
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,
Equity Growth (formerly Growth and Income), Government Securities, Growth,
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 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. However, the Funds are planning to begin using New
York closing exchange rates to convert foreign currencies to U.S. dollars
sometime during the first quarter of 2005.
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.
28
<Page>
If market quotations or official closing prices are not readily available or are
determined not to reflect accurately fair value, 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 but before the Fund calculates its net asset value,
and it is determined that the event has materially affected the value of the
security. Fair value of foreign equity securities may be determined with the
assistance of a pricing service using correlations between the movement of
prices of foreign securities and indexes of domestic securities and other
appropriate indicators, such as closing market prices of relevant ADRs and
futures contracts. Using fair value to price securities may result in a value
that is different from a security's most recent closing price and from the
prices used by other mutual funds to calculate their net asset values.
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 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 is presented as such in the Statement of Operations.
Investment securities and other assets and liabilities denominated in foreign
currencies are translated into U.S. dollar amounts at the date of valuation.
Purchases and sales of investment securities and income and expense items
denominated in foreign currencies are translated into U.S. dollar amounts on the
respective dates of such transactions.
The Fund does not isolate that portion of the results of operations resulting
from changes in foreign exchange rates on investments from the fluctuations
arising from changes in market prices of securities held. Such fluctuations are
included with the net realized and unrealized gain or loss from investments.
Reported net realized foreign exchange gains or losses arise from sales of
foreign currencies, currency gains or losses realized between the trade and
settlement dates on securities transactions, and the difference between the
amounts of dividends, interest, and foreign withholding taxes recorded on the
Fund's books and the U.S. dollar
29
<Page>
equivalent of the amounts actually received or paid. Net unrealized appreciation
or depreciation on investments and foreign currency translation arises from
changes in the values of assets and liabilities, including investments in
securities held at the date of the financial statements, resulting from changes
in the exchange rates and changes in market prices of securities held.
OPTION WRITING--When the Fund writes an option, an amount equal to the premium
received by the Fund is recorded as a liability and is subsequently adjusted to
the current market value of the option written. Premiums received from writing
options that expire unexercised are treated by the Fund on the expiration date
as realized gains from investments. The difference between the premium and the
amount paid on effecting a closing purchase transaction, including brokerage
commissions, is also treated as a realized gain, or, if the premium is less than
the amount paid for the closing purchase transaction, as a realized loss. If a
call option is exercised, the premium is added to the proceeds from the sale of
the underlying security or currency in determining whether the Fund has realized
a gain or loss. If a put option is exercised, the premium reduces the cost basis
of the securities purchased by the Fund. The Fund as writer of an option bears
the market risk of an unfavorable change in the price of the security underlying
the written option.
FEDERAL INCOME TAXES--No provision has been made for federal income taxes since
it is the policy of the Fund to comply with the requirements of the Internal
Revenue Code that are applicable to regulated investment companies and to make
distributions of income and capital gains sufficient to relieve it from all
income taxes. The Fund is treated as a separate tax entity for federal income
tax purposes.
INVESTMENT INCOME--Dividend income is recognized on the ex-dividend date.
Certain dividends from foreign securities are recorded as soon as the Fund is
informed of the dividend, if such information is obtained subsequent to the
ex-dividend date. Interest income is accrued daily, as earned, and includes the
accretion of discounts and the amortization of premiums over the lives of the
respective securities. Withholding taxes on foreign dividends have been provided
for in accordance with the applicable country's tax rules and rates.
DISTRIBUTIONS TO SHAREHOLDERS--The Fund declares and distributes dividends (if
any) quarterly and capital gains (if any) annually. Dividends and distributions,
which are determined in accordance with income tax regulations, are recorded on
the ex-dividend date.
EXPENSES--Each Class of the Fund bears expenses incurred specifically on its
behalf and, in addition, each Class bears a portion of general expenses based on
the relative net assets or the number of shareholder accounts of the Class. The
type of expense determines the allocation method.
The Company's board of directors has authorized the payment of certain Fund
expenses with commissions on Fund portfolio transactions. These commissions
reduce Other Expenses and are included in the Expense Offset to Broker
Commissions in the Statement of Operations.
USE OF ESTIMATES--The preparation of financial statements in conformity with
accounting principles generally accepted in the United States of America
requires
30
<Page>
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.
INDEMNIFICATIONS--In the normal course of business, the Company enters into
contracts that contain provisions indemnifying other parties against specified
potential liabilities. Each Fund's maximum exposure under these arrangements is
unknown as this would involve future claims that may be made against the Fund
that have not yet occurred. However, based on experience, the Funds expect the
risk of loss to be remote.
OTHER--Certain prior year information has been reformatted, without substantive
change, to conform with the current year presentation.
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 year ended December 31,
2004, Class F shares were charged $63,662 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 from DTI
are paid by the Fund. During the year ended December 31, 2004, Class F shares
were charged $18,873 for out-of-pocket transfer agent charges.
31
<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 $12.93 to $13.51, per shareholder account considered to be an
open account at any time during a given month, plus out-of-pocket charges.
Class-specific transfer agency fees paid to DTI during the year ended December
31, 2004 were as follows:
<Table>
<Caption>
TRANSFER
AGENCY FEES
-------------
Class A $ 3,743
Class B $ 3,308
Class C $ 841
Class R $ 225
Class T $ 181
</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, 2006, and will not be terminated without prior
notification to the Company's board of directors. For the year ended December
31, 2004, Class R and Class T were each reimbursed $88, which reduced the
amounts paid to DTI to $137 and $93, respectively.
OTHER TRANSFER AGENCY FEES--Various broker-dealers, retirement plan
administrators and other unaffiliated entities have established omnibus accounts
with the Fund, and provide sub-transfer agency, recordkeeping or similar
services to persons holding Fund shares through those accounts. During the year
ended December 31, 2004, the Fund paid $163,911 to these entities for such
services. This amount is included in the transfer agency fees shown on the
Statement of Operations.
CASH MANAGEMENT FEES--The Funds also pay Mellon Bank N.A. ("Mellon Bank"), a
wholly-owned subsidiary of Mellon Financial Corporation and an affiliate of
Founders, fees for certain cash management services. These include various
services related to the processing of shareholder transactions in the Funds.
During the year ended December 31, 2004, the Fund was charged $1,524 for cash
management fees, which are included in the out-of-pocket charges from DTI above.
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 year ended December
31, 2004, Class F shares were charged $264,192 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
32
<Page>
value of the average daily net assets of its Class B and C shares, respectively,
and pays DSC a fee for distributing its Class T shares at the annual rate of
0.25% of the average daily net assets of its Class T shares.
In addition, the Fund has adopted a Shareholder Services Plan applicable to its
Class A, Class B, Class C and Class T shares. Under the Shareholder Services
Plan, Class A, Class B, Class C and Class T shares pay DSC an annual fee of
0.25% of the value of their average daily net assets for the provision of
certain services.
Distribution and shareholder servicing fees paid to DSC by the Fund's Class A,
B, C and T shares for the year ended December 31, 2004, were as follows:
<Table>
<Caption>
DISTRIBUTION SHAREHOLDER
FEES SERVICING FEES
----------------------------------------------------------------------------
Class A N/A $ 4,096
Class B $ 12,204 $ 4,068
Class C $ 1,899 $ 633
Class T $ 89 $ 89
</Table>
During the year ended December 31, 2004, DSC retained $944 in sales commissions
from the sales of Class A shares. DSC also retained $7,521, and $453 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 contractually agreed to waive
any fees received for these services to the extent they exceed Founders' costs
in providing the services.
CUSTODIAN FEES--Mellon Bank 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 Fund could have employed these assets
elsewhere to produce income had it not entered into this arrangement. The
custodian has also contractually 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>
33
<Page>
The fee waiver is allocated among the Funds in proportion to their respective
shares of the total custodian fee. For the year ended December 31, 2004, the
Fund's portion of the fee waiver was $1,149, which reduced the amount paid to
Mellon Bank to $4,762.
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 invested
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,
which pays their compensation. The affairs of the Fund, including services
provided by Founders, are subject to the supervision and general oversight of
the Company's board of directors.
3. FEDERAL TAX INFORMATION
Net investment income and capital gains distributions are determined in
accordance with income tax regulations that may differ from accounting
principles generally accepted in the United States of America. These differences
are due to differing treatments for items such as deferral of wash sale losses,
foreign currency transactions, net operating losses and capital loss carryovers.
Permanent differences identified during the year ended December 31, 2004 have
been reclassified among the components of net assets as follows:
<Table>
<Caption>
UNDISTRIBUTED NET UNDISTRIBUTED NET PAID-IN
INVESTMENT INCOME REALIZED GAINS AND LOSSES CAPITAL
-----------------------------------------------------------------------
$ 8,059 $ (8,059) $ 0
</Table>
The tax character of distributions paid during 2004 and 2003 was as follows:
<Table>
<Caption>
2004 2003
--------------------------------------------------------
DISTRIBUTIONS PAID FROM:
Ordinary Income $ 1,169,557 $ 1,251,556
Long-Term Capital Gain $ 0 $ 0
---------------------------
$ 1,169,557 $ 1,251,556
===========================
</Table>
The tax components of capital represent distribution requirements the Fund must
satisfy under the income tax regulations and losses or tax deductions the Fund
may be
34
<Page>
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, 2004 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. Net capital loss carryovers
utilized during 2004 by the Fund amounted to $7,613,012. Accumulated capital
losses as of December 31, 2004 were:
<Table>
<Caption>
EXPIRATION AMOUNT
----------------------------------------------------------
2008 $ 72,497,269
2009 $ 49,289,530
2010 $ 70,087,112
2011 $ 1,472,188
---------------
$ 193,346,099
===============
</Table>
The aggregate cost of investments and the composition of unrealized appreciation
and depreciation of investment securities for federal income tax purposes as of
December 31, 2004 are noted below. Unrealized appreciation/depreciation in the
table below excludes appreciation/depreciation on foreign currency translation.
The primary difference between book and tax appreciation or depreciation is wash
sale loss deferrals.
<Table>
Undistributed Ordinary Income $ 7,356
Federal Tax Cost $ 88,391,824
Gross Tax Appreciation of Investments $ 11,769,516
Gross Tax Depreciation of Investments $ (380,963)
Net Tax Appreciation $ 11,388,553
</Table>
35
<Page>
4. CAPITAL SHARE TRANSACTIONS
The Fund is authorized to issue 850 million shares of $0.01 par value capital
stock. Transactions in shares of the Fund for the periods indicated were as
follows:
<Table>
<Caption>
YEAR ENDED YEAR ENDED
12/31/04 12/31/03
SHARES AMOUNT SHARES AMOUNT
CLASS A
Sold 52,105 $ 413,025 42,130 $ 310,574
Dividends or Distributions Reinvested 1,969 $ 15,805 1,330 $ 9,742
Redeemed (54,549) $ (431,377) (29,893) $ (222,023)
------------------------------------------------------------------------
Net Increase (Decrease) (475) $ (2,547) 13,567 $ 98,293
========================================================================
CLASS B
Sold 53,204 $ 414,706 76,899 $ 556,448
Dividends or Distributions Reinvested 466 $ 3,759 138 $ 971
Redeemed (70,543) $ (554,229) (44,160) $ (312,592)
------------------------------------------------------------------------
Net Increase (Decrease) (16,873) $ (135,764) 32,877 $ 244,827
========================================================================
CLASS C
Sold 16,072 $ 124,317 18,745 $ 122,311
Dividends or Distributions Reinvested 59 $ 475 2 $ 10
Redeemed (22,428) $ (174,619) (18,304) $ (128,631)
------------------------------------------------------------------------
Net Increase (Decrease) (6,297) $ (49,827) 443 $ (6,310)
========================================================================
CLASS F
Sold 1,100,066 $ 8,730,703 2,774,685 $ 19,677,956
Dividends or Distributions Reinvested 138,996 $ 1,116,482 164,539 $ 1,202,840
Redeemed (5,836,747) $ (46,483,766) (7,225,827) $ (51,960,176)
------------------------------------------------------------------------
Net Decrease (4,597,685) $ (36,636,581) (4,286,603) $ (31,079,380)
========================================================================
CLASS R
Sold 0 $ 0 7,391 $ 55,000
Dividends or Distributions Reinvested 94 $ 751 15 $ 114
Redeemed (2,224) $ (17,595) (0) $ (0)
------------------------------------------------------------------------
Net Increase (Decrease) (2,130) $ (16,844) 7,406 $ 55,114
========================================================================
CLASS T
Sold 4,985 $ 39,775 2,530 $ 19,657
Dividends or Distributions Reinvested 27 $ 223 1 $ 11
Redeemed (5,430) $ (43,450) (0) $ (0)
------------------------------------------------------------------------
Net Increase (Decrease) (418) $ (3,452) 2,531 $ 19,668
========================================================================
</Table>
36
<Page>
5. INVESTMENT TRANSACTIONS
For the year ended December 31, 2004, purchases and sales of investment
securities (excluding short-term securities and U.S. government obligations)
were $129,311,868 and $146,305,214, respectively. Purchases and sales of
long-term U.S. government obligations were $6,102,794 and $7,414,830,
respectively.
CALL OPTIONS WRITTEN
Transactions in options written during the year ended December 31, 2004 were as
follows:
<Table>
<Caption>
NUMBER OF PREMIUMS
CONTRACTS RECEIVED
- -------------------------------------------------------------------------------------------
Options outstanding at December 31, 2003 0 $ 0
Options written 279 30,824
Options terminated in closing purchase transactions (279) (30,824)
Options expired 0 0
Options exercised 0 0
------------------------
Options outstanding at December 31,2004 0 $ 0
========================
</Table>
6. LINE OF CREDIT
The Company has a line of credit arrangement ("LOC") with State Street Bank and
Trust Company, to be used for temporary or emergency purposes, primarily for
financing redemption payments. Each Fund's borrowings are limited to the lesser
of (a) $50 million, or (b) the lesser of 25% of the Fund's total net assets or
the maximum amount which the Fund is permitted to borrow pursuant to the
prospectus, any law or any other agreement. Combined borrowings are subject to
the $50 million cap on the total LOC. Each Fund agrees to pay annual fees and
interest on the unpaid balance based on prevailing market rates as defined in
the LOC. At December 31, 2004, the Fund did not have any borrowings under the
LOC.
7. LEGAL MATTERS
In early 2004, two purported class and derivative actions were filed against
Mellon Financial Corporation, Mellon Bank, Founders, Dreyfus, and certain
directors of the Dreyfus Founders Funds and the Dreyfus Funds (together, the
"Defendant Funds"). In September 2004, plaintiffs served a Consolidated Amended
Complaint (the "Amended Complaint") on behalf of a purported class of all
persons who acquired interests in any of the Defendant Funds between January 30,
1999 and November 17, 2003, and derivatively on behalf of the Defendant Funds.
The Amended Complaint in the newly styled IN RE DREYFUS MUTUAL FUNDS FEE
LITIGATION also named DSC, Premier Mutual Fund Services, Inc. and two additional
directors of the Defendant Funds as
37
<Page>
defendants and alleges violations of the Investment Company Act of 1940, the
Investment Advisers Act of 1940, the Pennsylvania Unfair Trade Practices and
Consumer Protection Law and common-law claims. Plaintiffs seek to recover
allegedly improper and excessive Rule 12b-1 and advisory fees allegedly charged
to the Defendant Funds for marketing and distribution services. More
specifically, plaintiffs claim, among other things, that 12b-1 fees and directed
brokerage were improperly used to pay brokers to recommend the Defendant Funds
over other funds, and that such payments were not disclosed to investors. In
addition, plaintiffs assert that economies of scale and soft-dollar benefits
were not passed on to the Defendant Funds. Plaintiffs further allege that 12b-1
fees were improperly charged to certain of the Defendant Funds that were closed
to new investors. The Amended Complaint seeks compensatory and punitive damages,
rescission of the advisory contracts, and an accounting and restitution of any
unlawful fees, as well as an award of attorneys' fees and litigation expenses.
As noted, some of the claims in this litigation are asserted derivatively on
behalf of the Defendant Funds that have been named as nominal defendants. With
respect to such derivative claims, no relief is sought against the Defendant
Funds. Founders, Dreyfus and the Defendant Funds believe the allegations to be
totally without merit and intend to defend the action vigorously. The defendants
filed motions to dismiss the Amended Complaint on November 12, 2004, and those
motions are pending.
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 nor the Funds believe that any of the pending actions
will have a material adverse effect on the Funds or Founders' ability to perform
its contract with the Funds.
38
<Page>
REPORT OF INDEPENDENT
REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Shareholders of
Dreyfus Founders Funds, Inc.
In our opinion, the accompanying statement of assets and liabilities, including
the statement of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of Dreyfus Founders Balanced Fund (one
of the portfolios constituting Dreyfus Founders Funds, Inc., hereafter referred
to as the "Fund") at December 31, 2004, the results of its operations for the
year then ended, the changes in its net assets for each of the two years in the
period then ended and the financial highlights for each of the five years in the
period then ended, in conformity with accounting principles generally accepted
in the United States of America. These financial statements and financial
highlights (hereafter referred to as "financial statements") are the
responsibility of the Fund's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these financial statements in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those standards
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits, which included
confirmation of securities at December 31, 2004 by correspondence with the
custodian and brokers and the application of alternative auditing procedures
where securities purchased had not been received, provide a reasonable basis for
the opinion expressed above.
PricewaterhouseCoopers LLP
Denver, Colorado
February 10, 2005
39
<Page>
OTHER TAX INFORMATION
(UNAUDITED)
CORPORATE DIVIDENDS RECEIVED DEDUCTION
Dividends paid by the Fund from net investment income and distributions of net
realized short-term capital gains are, for federal tax purposes, taxable as
ordinary income to shareholders. Of the ordinary income distributions declared
for the year ended December 31, 2004, 66.76% qualified for the dividends
received deduction available to the Fund's corporate shareholders.
QUALIFIED DIVIDEND INCOME
For the year ended December 31, 2004, the Fund designated 69% of the ordinary
income distributions paid as qualified dividend income subject to reduced income
tax rates for taxpayers with taxable accounts.
40
<Page>
YOUR BOARD REPRESENTATIVES
(UNAUDITED)
The Board of Directors of the Company oversees all 10 Dreyfus Founders Funds.
The business and affairs of the Company are managed under the direction of the
Board. The directors serving on the Board perform their responsibilities in the
manner which they reasonably believe to be in the best interests of the Funds
and their shareholders.
All of the directors, as listed below, are independent directors. They are not
affiliated with the Fund's adviser, its parent company, or its affiliates. The
directors have no official term of office and generally serve until they reach
the mandated retirement age of 75, resign, or are not re-elected. As you can see
from their backgrounds, the directors have broad experience as active or former
business and community leaders.
Directors
EUGENE H. VAUGHAN, CFA, 71. Year elected to the Board: 1970
Board Chairman. Founding Chairman and, formerly (1970 to 2000), President and
CEO, Vaughan Nelson Investment Management, LP, an investment counseling firm.
Director, Encore Bank. Founding Chairman, Center for Houston's Future, a
non-profit organization. Founding Chairman and former Governor, Association for
Investment Management and Research. Past Chairman and Trustee, Institute of
Chartered Financial Analysts. Past Chairman and Director, Financial Analysts
Federation.
ALAN S. DANSON, 65. Year elected to the Board: 1991
Private investor. Formerly, President and Director, D.H. Management, Inc., the
general partner of a limited partnership with technology company holdings (1996
to 2003). Formerly, Director and Senior Vice President, OptiMark Technologies,
Inc., a computerized securities trading service (1996 to 1999). Director,
CaseShare Systems, LLP, a document management company. Director, Gore Range
Natural Science School and The Les Streeter Programs, Inc., both of which are
non-profit organizations.
JOAN D. MANLEY, 72. Year elected to the Board: 1998
Retired. Formerly, Ms. Manley served in several executive capacities with Time
Incorporated, most recently as Group Vice President, Director and Chairman of
Time-Life Books, Inc. and Book of the Month Club, Inc. (1960 to 1984). Director,
Sara Lee Corporation and R.R. Donnelley & Sons Company.
ROBERT P. MASTROVITA, 60. Year elected to the Board: 1998
Private investor. Chairman of a private charitable foundation (1997 to present).
Formerly, Chairman and Director, Hagler, Mastrovita & Hewitt, Inc., a registered
investment adviser (1982 to 1997). Member, Boston Society of Security Analysts.
Trustee, Partridge Academy.
TRYGVE E. MYHREN, 68. Year elected to the Board: 1996
President, Myhren Media, Inc., a firm that invests in and advises media,
telecommunications, Internet and software companies. Special Limited Partner and
member of Investment Committee, Megunticook Funds, a venture capital firm (1998
to present). Director, Advanced Marketing Services, Inc. Trustee and Chairman of
Finance Committee, the University of Denver. Trustee, Denver Art Museum. Member,
Cable Television Hall of Fame. Formerly, President (1990 to 1996) and Director
(1992 to 2001) of the Providence Journal Company, a diversified media and
communications
41
<Page>
company. Formerly, Chairman and Chief Executive Officer of American Television
and Communications Corporation (now Timer Warner Cable) (1981 to 1988).
Formerly, Chairman of the National Cable Television Association (1986-1987).
GEORGE W. PHILLIPS, 66. Year elected to the Board: 1998
Retired. Vice Chairman of the Board, Chairman of the Finance Committee, and
Chairman of the Investment Committee, Children's Medical Center of Boston.
Formerly, President and Chief Executive Officer (1992 to 1997) and Director
(1992 to 2002) of Warren Bancorp, Inc. Formerly, President, Chief Executive
Officer and Director of Warren Five Cents Savings Bank (1992 to 1997).
PRINCIPAL OFFICERS
RICHARD W. SABO, 47. President of the Funds since 2000 and Principal Executive
Officer of the Funds since 2002. Founders' President and Chief Executive
Officer, Member of Founders' Board of Managers and Director of Dreyfus (1998 to
present). Executive Vice President of DSC since 2003. Formerly, Senior Vice
President and Regional Director for Prudential Securities, Inc. (1991 to 1998).
DAVID L. RAY, 47. Vice President of the Funds since 2000, and from 1990 to 1998.
Founders' Senior Vice President--Administration and Treasurer. Vice President of
DSC since 2003. Employed by Founders and its predecessor company since 1990.
Formerly, Treasurer of the Funds (1990 to 1998).
KENNETH R. CHRISTOFFERSEN, 49. Secretary of the Funds since 2000, and from 1996
to 1998. Founders' Senior Vice President--Legal, General Counsel and Secretary.
Assistant Secretary of DSC since 2003. Employed by Founders and its predecessor
company since 1996.
JANELLE E. BELCHER, 46. Chief Compliance Officer of the Funds since 2004 and
Assistant Secretary of the Funds since 2002. Founders' Vice
President--Compliance since 2002. Formerly, Founders' Manager of Compliance
(2000 to 2002) and Securities Compliance Examiner, Staff Accountant and Team
Leader for the U.S. Securities and Exchange Commission (1990 to 2000).
ROBERT T. KELLY, 35. Treasurer, Principal Financial Officer, and Principal
Accounting Officer of the Funds since 2003. Founders' Vice President of
Portfolio Accounting since 2000. Formerly, Assistant Treasurer of the Funds
(2000 to 2003), and Head of Equity Desk for ABN Amro Trust Company (Cayman)
Limited (1998 to 2000).
WILLIAM G. GERMENIS, 34. Anti-Money Laundering Compliance Officer ("AMLCO") for
the Class A, Class B, Class C, Class R, and Class T shares of the Funds since
2002 and for the Class F shares of the Funds since 2003. Vice President and
AMLCO of MBSC, LLC since 2002. Vice President and AMLCO of DSC and AMLCO of
investment companies managed by Dreyfus. Employed by DSC since 1998.
The directors and officers may be contacted at Founders' address appearing on
the inside cover, except for Mr.Germenis, who can be contacted at 200 Park
Avenue, New York, New York 10166. Additional information about the Company's
directors is available in the Statement of Additional Information, which can be
obtained free of charge by calling the toll free number on the back cover.
42
<Page>
DREYFUS FOUNDERS BALANCED FUND
P.O. Box 55360
Boston, MA 02205-8252
1-800-525-2440
www.founders.com
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 (SEC) 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.
PORTFOLIO HOLDINGS
The Fund files its complete schedule of portfolio holdings with the SEC for the
first and third quarters of each fiscal year on Form N-Q. The Fund's Forms N-Q
are available on the SEC's website at www.sec.gov and may be reviewed and copied
at the SEC's Public Reference Room inWashington, DC. Information on the
operation of the SEC's Public Reference Room may be obtained by calling
1-800-SEC-0330.
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)2005 Founders Asset Management LLC.
2/05
A-646-BAL-04
<Page>
ANNUAL REPORT
DREYFUS FOUNDERS
DISCOVERY FUND
INVESTMENT UPDATE
DECEMBER 31, 2004
DISCOVERY FUND IS CLOSED TO NEW INVESTORS.
PLEASE SEE THE PROSPECTUS FOR ADDITIONAL INFORMATION.
[(R)DREYFUS FOUNDERS FUNDS(R) LOGO]
THE GROWTH SPECIALISTS
<Page>
TABLE OF CONTENTS
<Table>
Management Overview 3
Fund Expenses 12
Statement of Investments 14
Statement of Assets and Liabilities 18
Statement of Operations 20
Statements of Changes in Net Assets 21
Financial Highlights 22
Notes to Financial Statements 28
Report of Independent Registered Public Accounting Firm 37
Your Board Representatives 38
</Table>
[GRAPHIC]
Did you know you can reduce your postal mail by accessing Dreyfus Founders Funds
regulatory material online? It's a simple, reliable process: when new documents
such as this Annual Report are available, we'll send you an e-mail notification
containing a convenient link that will take you directly to that Fund
information on our website. To take advantage of this service, simply inform us
online of your decision to receive materials through the Founders
E-Communications Program. Cut down on mailbox clutter and help the Fund reduce
printing and postage charges by enrolling today at
www.founders.com/ecommunications. If you own Funds through a third party, enroll
at www.icsdelivery.com.
INVESTMENT MANAGER DISTRIBUTOR
Founders Asset Management LLC Dreyfus Service Corporation
A MELLON FINANCIAL COMPANY(SM) 200 Park Avenue
210 University Boulevard, Suite 800 New York, NY 10166
Denver, CO 80206
The views expressed in this report reflect those of the portfolio managers only
through the end of the period covered and do not necessarily represent the views
of Founders or any other person in the Founders organization. Any such views are
subject to change at any time based upon market or other conditions and Founders
disclaims any responsibility to update such views. These views may not be relied
on as investment advice and, because investment decisions for a Dreyfus Founders
Fund are based on numerous factors, may not be relied on as an indication of
trading intent on behalf of any Dreyfus Founders Fund. Companies appearing in
bold print on pages 3-11 were owned by the Fund on December 31, 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
(UNAUDITED)
[PHOTO OF BRADLEY C. ORR]
[PHOTO OF 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 12-MONTH PERIOD ENDED
DECEMBER 31, 2004?
For the 12-month period ended December 31, 2004, the Dreyfus Founders Discovery
Fund underperformed its benchmark, the Russell 2000 Growth Index, which posted a
return of 14.31% for the same period.
DESCRIBE THE INVESTING ENVIRONMENT DURING THE PERIOD.
The Russell 2000 Growth Index struggled through the first eight calendar months
of 2004, with a sharp decline that began in the second quarter and pushed midway
through the third quarter. The weakness was driven by investor fears over
several factors including: high oil prices, the lack of a quick resolution to
the situation in Iraq, the commencement of an interest rate tightening campaign
by the Federal Reserve, and uncertainty leading up to the Presidential election.
In the fourth quarter, however, at a point roughly coinciding with a sharp
correction in the price of oil, the equity markets began to rally. The rally
gathered momentum from that point, as the election passed with an incumbent
victory and oil prices settled back to the low-$40 level. The Russell 2000
Growth Index declined nearly 12% through mid-August, but rose a staggering 29%
from that point to close the year on a decisively positive note. The strong
market advance was
[SIDENOTE]
"UPON ASSUMING PORTFOLIO MANAGEMENT RESPONSIBILITIES FOR THE FUND, WE WORKED TO
REDUCE THE NUMBER OF POSITIONS HELD, THEREBY MORE TIGHTLY FOCUSING OUR
ANALYTICAL EFFORTS."
3
<Page>
not deterred by either sharply eroding earnings estimates, on average, for
companies in the Russell 2000 Growth Index during the fourth quarter, or by the
Federal Reserve's efforts to raise interest rates (through a series of five 25
basis point increases in the federal funds rate since June 30).
During 2004, small-capitalization value stocks outperformed
small-capitalization growth stocks. In fact, the Russell 2000 Value Index has
now outperformed the Russell 2000 Growth Index in four of the past five years.
In addition, small-capitalization growth stocks again provided better returns
than large-capitalization growth stocks, with the Russell 2000 Growth Index
outperforming the Russell 1000 Growth Index for the second consecutive year.
The Russell 2000 Value Index measures the performance of those Russell 2000
companies with lower price-to-book ratios and lower forecasted growth values.
The Russell 1000 Growth Index is an unmanaged index that measures the
performance of those Russell 1000 companies with higher price-to-book ratios and
higher forecasted growth values. The total return figures cited for these
indexes assume change in security prices and reinvestment of dividends, but do
not reflect the costs of managing a mutual fund.
[SIDENOTE]
PERFORMANCE HIGHLIGHTS
- In the fourth quarter, at a point roughly coinciding with a sharp
correction in the price of oil, the equity markets began to rally.
- The Fund benefited from strong stock selection and a relative overweight
position in the consumer discretionary sector.
- Additionally, the Fund benefited from a relative overweight position in
the industrials sector and a relative underweight position in the
information technology sector.
- Many poor individual performers in the healthcare sector led to
underperformance in the Fund's healthcare holdings overall.
- Other weak individual performers during the period came from the
industrials sector.
- The average cash position for 2004 was less than 3% as compared to an
average cash position of approximately 10% or more in the previous three
years.
4
<Page>
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 continue to utilize our bottom-up research
process to uncover companies we believe are capable of posting strong future
earnings growth and which are valued attractively relative to their potential
growth rates and peer groups.
From a portfolio composition standpoint, 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 74
stocks by the end of 2004. Many smaller positions, which can sometimes require
disproportionate attention, were liquidated and the proceeds were used to
increase position sizes in stocks where our level of enthusiasm was higher.
LARGEST EQUITY HOLDINGS (ticker symbol)
<Table>
1. Altiris, Inc. (ATRS) 2.80%
2. Impax Laboratories, Inc. (IPXL) 2.56%
3. Choice Hotels International, Inc. (CHH) 2.48%
4. Station Casinos, Inc. (STN) 2.39%
5. Gaylord Entertainment Company (GET) 2.34%
6. Harris Corporation (HRS) 2.20%
7. WMS Industries, Inc. (WMS) 2.10%
8. Trex Company, Inc. (TWP) 2.10%
9. SFBC International, Inc. (SFCC) 2.08%
10. Avocent Corporation (AVCT) 2.07%
</Table>
Portfolio holdings are subject to change, and should not be construed as a
recommendation of any security.
5
<Page>
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.
Class F Russell 2000
Shares Growth Index
- ---------------------------------------
12/31/1994 $10,000 $10,000
12/31/1995 $13,130 $13,104
12/31/1996 $15,914 $14,580
12/31/1997 $17,815 $16,468
12/31/1998 $20,343 $16,670
12/31/1999 $39,585 $23,854
12/29/2000 $36,317 $18,503
12/31/2001 $29,850 $16,796
12/31/2002 $19,977 $11,713
12/31/2003 $27,258 $17,399
12/31/2004 $30,186 $19,888
The above graph compares a $10,000 investment made in Class F shares of Dreyfus
Founders Discovery Fund on 12/31/94 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 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 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 total return figures
cited for the Russell 2000 Growth 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>
<Table>
<Caption>
1 5 10 SINCE
CLASS (INCEPTION DATE) YEAR YEARS YEARS INCEPTION
----------------------------------------------------------------------------------------------------
CLASS A SHARES (12/31/99)
With sales charge (5.75%) 4.31% (6.37%) -- (6.37%)
Without sales charge 10.68% (5.26%) -- (5.26%)
CLASS B SHARES (12/31/99)
With redemption* 5.67% (6.44%) -- (6.44%)
Without redemption 9.67% (6.09%) -- (6.09%)
CLASS C SHARES (12/31/99)
With redemption** 8.67% (6.08%) -- (6.08%)
Without redemption 9.67% (6.08%) -- (6.08%)
CLASS F SHARES (12/29/89) 10.74% (5.28%) 11.68% 13.33%
CLASS R SHARES (12/31/99) 11.02% (5.00%) -- (5.00%)
CLASS T SHARES (12/31/99)
With sales charge (4.50%) 5.35% (6.54%) -- (6.54%)
Without sales charge 10.29% (5.68%) -- (5.68%)
</Table>
Average annual total returns do not reflect the deduction of taxes that a
shareholder would pay on Fund distributions or redemption of Fund shares, but do
reflect the reinvestment of dividends and capital gain distributions, and
adjustments for financial statement purposes. Part of the Fund's 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.
7
<Page>
As the number of holdings declined, we were encouraged by the fact that the
average cash position in the Fund was also reduced. The average cash position
for 2004 was less than 3% as compared to an average cash position of
approximately 10% or more in the previous three years. At times, we have
utilized exchange-traded funds (ETFs), which mirror underlying equity indices,
to equitize cash, but because we have been pleased with idea generation for the
Fund overall, the use of ETFs was relatively limited in 2004.
Finally, following the end of the third quarter, we added two equity analysts
to our small-cap investment team, bringing the total number of investment
professionals on our team to seven.
WHAT MANAGEMENT DECISIONS POSITIVELY CONTRIBUTED TO THE FUND'S PERFORMANCE
DURING THE PERIOD?
The Fund benefited from strong stock selection and a relative overweight
position in the consumer discretionary sector. Favorable contributions to
performance were gained from two stocks in the lodging industry, CHOICE HOTELS
INTERNATIONAL, INC. and GAYLORD ENTERTAINMENT COMPANY. Both stocks appreciated
during the year, driven by improving trends in business travel and room rate
pricing. GUITAR CENTER, INC., a retailer of musical instruments, also aided Fund
performance in this sector as the company continued to post better-than-expected
sales growth.
[CHART]
PORTFOLIO COMPOSITION OF NET ASSETS
<Table>
Consumer Discretionary 25.04%
Information Technology 24.04%
Industrials 21.67%
Healthcare 19.72%
Energy 4.39%
Financials 3.24%
Materials 1.03%
Other 0.87%
</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>
Stock selection in the energy sector also boosted relative Fund performance.
Specific holdings such as NATIONAL-OILWELL, INC., SUPERIOR ENERGY SERVICES, INC.
and QUICKSILVER RESOURCES, INC. rose as surging oil prices in 2004 provided a
highly supportive backdrop for stock performance.
The Fund's holdings in the healthcare sector underperformed the Fund's
benchmark as a group for the period; however, some healthcare holdings such as
SFBC INTERNATIONAL, INC. and FISHER SCIENTIFIC INTERNATIONAL, INC. were among
the largest positive contributors to the Fund during the period. 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 gains early in
the year as it announced a large acquisition that was viewed as a good strategic
fit.
Other notable positive contributors to the Fund's relative performance during
the year included HARRIS CORPORATION and TREX COMPANY, INC. Harris, which makes
many forms of electronic communications equipment, performed well as revenue
growth exceeded expectations partially based on an increase in government demand
for communications infrastructure upgrades. Trex, which makes maintenance-free
composite wood boards for decking applications, performed well as revenues grew
and investors began to appreciate the company's significant market opportunity.
Additionally, the Fund benefited from a relative overweight position in the
industrials sector and a relative underweight position in the information
technology sector, which was the only sector in the Russell 2000 Growth Index to
register a loss for the year despite the market's strong advance.
WHAT MANAGEMENT DECISIONS HINDERED FUND PERFORMANCE
FOR THE 12-MONTH PERIOD?
Many poor individual performers in the healthcare sector led to underperformance
in the Fund's healthcare holdings overall. Pharmaceutical manufacturer Taro
Pharmaceuticals Industries Limited, hospice care provider Odyssey HealthCare,
Inc., and medical products company Merit Medical Systems, Inc. all had a
negative impact on the Fund's performance. Taro Pharmaceuticals reported
disappointing first quarter results due to both lower-than-expected revenue from
new over-the-counter products, as well as
9
<Page>
higher costs to market those products. Odyssey also reported disappointing
results in the first quarter and gave forward guidance that fell short of
analyst expectations. Merit reported disappointing third quarter results due to
increased competitive pressures.
Other weak individual performers during the period came from the industrials
sector. KVH Industries, Inc., a manufacturer of digital defense navigation
products and consumer communication satellite tracking technology, saw its stock
price drop significantly in the first quarter after the company disclosed delays
in closing a large defense order, as well as a slower-than-expected ramp-up in a
new consumer-related product. Corinthian Colleges, Inc. also hurt Fund
performance as the company was negatively impacted by slowing admission trends.
In the materials sector, a relative underweight position coupled with poor
stock selection negatively impacted Fund performance. As one such example,
materials holding GRAFTECH INTERNATIONAL LIMITED, which sells consumables used
in steel manufacturing, performed poorly as the company was unable to convert a
strong steel cycle into solid earnings growth.
Stock selection in the information technology sector also negatively affected
the Fund's performance. Within the semiconductor industry, several holdings
hampered Fund performance as evidence mounted that the current cycle had reached
its peak. BROOKS AUTOMATION, INC., which makes automation equipment for
semiconductor manufacturing; OmniVision Technologies, Inc., which makes
semiconductors for digital cameras and other applications; and Fairchild
Semiconductor International, Inc., which makes a variety of commodity-oriented
semiconductor components, all dragged on Fund performance.
Other names that detracted from Fund performance included Performance Food
Group Company, a food distribution company, and CUMULUS MEDIA, INC., a
middle-market radio station operator. Performance Foods was negatively impacted
in the second quarter by higher costs and lower productivity associated with new
product rollouts. Cumulus was hurt by investor fears that advertising dollars
were migrating away from traditional channels, such as radio, to Internet-based
venues.
In addition, Fund performance was negatively impacted by a relative
underweight position in the financials sector.
10
<Page>
We continue to focus on our bottom-up stock selection process, which factors
greatly into the allocation of the Fund's sector weightings. As we entered 2005,
the Fund was overweight the consumer discretionary and industrials sectors,
underweight financials and, to a lesser degree, the information technology
sector. Within consumer discretionary, the Fund had a high relative weighting in
the lodging and gaming industries. Finally, the Fund was slightly underweight
healthcare, but maintained a high relative weighting in the pharmaceutical
industry.
Our strategy for the Fund remains consistent. We will continue to emphasize
companies that we believe have higher quality characteristics such as
sustainable earnings growth, reasonable valuations and effective management
teams.
/s/ Bradley C. Orr /s/ James (J.D.) Padgett
Bradley C. Orr, CFA James (J.D.) Padgett, CFA
Co-Portfolio Manager Co-Portfolio Manager
11
<Page>
FUND EXPENSES
(UNAUDITED)
As a shareholder of the Fund, depending on the class of shares of the Fund you
own, you incur two types of costs: (1) transaction costs, including front-end
and contingent deferred sales charges; and (2) ongoing costs, including
management fees, Rule 12b-1 fees, shareholder services fees, and other expenses.
The expense example shown below is intended to help you understand your ongoing
costs (in dollars) of investing in the Fund and to compare these costs with the
ongoing costs of investing in other mutual funds.
The expense example is based on an investment of $1,000 on July 1, 2004 and
held through December 31, 2004.
ACTUAL EXPENSES The numbers included in the expense example in the rows with the
word "Actual" in the title provide information about actual account values and
actual expenses. You may use this information to estimate the expenses that you
paid over the period. Simply divide your account value by $1,000 (for example,
an $8,600 account value divided by $1,000 = 8.60), then multiply the result by
the number under the column heading entitled "Expenses Paid During Period" for
the class of shares you own to estimate the expenses you paid on your account
during this period.
HYPOTHETICAL EXPENSES The numbers included in the expense example in the rows
with the word "Hypothetical" in the title provide information about hypothetical
account values and hypothetical expenses based on the Fund's actual expense
ratio for each class of shares, and an assumed rate of return of 5% per year
before expenses, which is not the Fund's actual return. The hypothetical account
values and expenses may not be used to estimate the actual ending account
balance or expenses you paid for the period. You may use this information to
compare the ongoing costs of investing in the Fund and other funds. To do so,
compare the hypothetical expenses in the expense example for the class of shares
you own with the hypothetical expenses that appear in the shareholder reports of
other funds.
Please note that the expenses shown in the expense example are meant to
highlight your ongoing costs only and do not reflect the transaction costs
described above. Therefore, the hypothetical expenses in the expense example are
useful in comparing ongoing costs only, and will not help you determine the
relative total costs of owning different funds. In addition, if the transaction
costs were included, your costs would have been higher.
12
<Page>
EXPENSE EXAMPLE
<Table>
<Caption>
BEGINNING ENDING EXPENSES PAID
ACCOUNT VALUE ACCOUNT VALUE DURING PERIOD*
(7/1/04) (12/31/04) (7/1/04-12/31/04)
---------------------------------------------------------------------------------------------------------------
CLASS A ACTUAL $ 1,000.00 $ 1,052.65 $ 7.30
CLASS A HYPOTHETICAL 1,000.00 1,017.82 7.18
CLASS B ACTUAL 1,000.00 1,042.61 12.14
CLASS B HYPOTHETICAL 1,000.00 1,013.04 11.96
CLASS C ACTUAL 1,000.00 1,042.73 11.98
CLASS C HYPOTHETICAL 1,000.00 1,013.19 11.81
CLASS F ACTUAL 1,000.00 1,053.22 6.84
CLASS F HYPOTHETICAL 1,000.00 1,018.28 6.72
CLASS R ACTUAL 1,000.00 1,055.53 5.86
CLASS R HYPOTHETICAL 1,000.00 1,019.25 5.75
CLASS T ACTUAL 1,000.00 1,048.71 9.10
CLASS T HYPOTHETICAL 1,000.00 1,016.04 8.96
</Table>
*Expenses are equal to each Class's respective annualized expense ratio,
shown below, multiplied by the average account value over the period,
multiplied by 184/366 (to reflect the one-half year period).
EXPENSE RATIOS
These expense ratios reflect reimbursements and/or waivers of expenses by
the Fund's investment adviser or its affiliates, where applicable.
<Table>
<Caption>
EXPENSE RATIO
- -------------------------------------------------
CLASS A 1.41%
CLASS B 2.35%
CLASS C 2.32%
CLASS F 1.32%
CLASS R 1.13%
CLASS T 1.76%
</Table>
13
<Page>
STATEMENT OF INVESTMENTS
DECEMBER 31, 2004
<Table>
<Caption>
SHARES MARKET VALUE
- ---------------------------------------------------------------------------------
COMMON STOCKS (DOMESTIC)--100.1%
AEROSPACE & DEFENSE--1.0%
515,697 Hexcel Corporation* $ 7,477,604
----------------
AIR FREIGHT & LOGISTICS--2.3%
118,750 Forward Air Corporation* 5,308,125
169,340 UTI Worldwide, Inc. 11,518,507
----------------
16,826,632
----------------
APPAREL RETAIL--0.9%
356,300 Hot Topic, Inc.* 6,124,797
----------------
APPLICATION SOFTWARE--3.5%
565,180 Altiris, Inc.* 20,024,327
315,400 Quest Software, Inc.* 5,030,630
----------------
25,054,957
----------------
ASSET MANAGEMENT & CUSTODY BANKS--0.5%
54,000 Affiliated Managers Group, Inc.* 3,657,960
----------------
BROADCASTING & CABLE TV--0.9%
410,425 Cumulus Media, Inc.* 6,189,209
----------------
BUILDING PRODUCTS--2.1%
286,112 Trex Company, Inc.* 15,003,713
----------------
CASINOS & GAMING--7.3%
478,530 GTECH Holdings Corporation 12,417,854
380,432 Pinnacle Entertainment, Inc.* 7,524,945
313,131 Station Casinos, Inc. 17,122,003
448,225 WMS Industries, Inc.* 15,033,467
----------------
52,098,269
----------------
COMMUNICATIONS EQUIPMENT--9.8%
365,450 Avocent Corporation* 14,808,034
646,800 Foundry Networks, Inc.* 8,511,888
254,820 Harris Corporation 15,745,328
512,907 Polycom, Inc.* 11,960,991
931,280 Powerwave Technologies, Inc.* 7,897,254
533,375 Tekelec* 10,902,185
----------------
69,825,680
----------------
CONSTRUCTION, FARM MACHINERY & HEAVY TRUCKS--0.7%
249,625 Wabtec Corporation 5,322,005
----------------
DIVERSIFIED COMMERCIAL SERVICES--2.4%
183,485 Asset Acceptance Capital Corporation* 3,908,231
397,310 Education Management Corporation* 13,115,203
----------------
17,023,434
----------------
ELECTRICAL COMPONENTS & EQUIPMENT--2.0%
410,350 AMETEK, Inc. 14,637,185
----------------
ELECTRONIC EQUIPMENT MANUFACTURERS--1.2%
680,065 Aeroflex, Inc.* 8,242,388
----------------
ELECTRONIC MANUFACTURING SERVICES--1.1%
399,375 RadiSys Corporation* 7,807,781
----------------
</Table>
14
<Page>
<Table>
<Caption>
SHARES MARKET VALUE
- ---------------------------------------------------------------------------------
EMPLOYMENT SERVICES--1.1%
378,213 Gevity HR, Inc. $ 7,776,059
----------------
ENVIRONMENTAL SERVICES--1.6%
241,565 Stericycle, Inc.* 11,099,912
----------------
EXCHANGE TRADED FUNDS--1.0%
182,600 Nasdaq 100 Index Tracking Stock 7,287,566
----------------
GENERAL MERCHANDISE STORES--1.4%
336,093 Tuesday Morning Corporation* 10,294,529
----------------
HEALTHCARE DISTRIBUTORS--3.3%
226,375 Fisher Scientific International, Inc.* 14,121,273
138,286 Henry Schein, Inc.* 9,630,237
----------------
23,751,510
----------------
HEALTHCARE EQUIPMENT--2.0%
256,200 I-Flow Corporation* 4,670,526
189,716 Mine Safety Appliances Company 9,618,601
----------------
14,289,127
----------------
HEALTHCARE SERVICES--2.1%
376,805 SFBC International, Inc.* 14,883,798
----------------
HEALTHCARE SUPPLIES--0.9%
120,001 Dade Behring Holdings, Inc.* 6,720,056
----------------
HOME FURNISHINGS--1.7%
560,493 Tempur-Pedic International, Inc.* 11,882,452
----------------
HOTELS, RESORTS & CRUISE LINES--4.8%
306,572 Choice Hotels International, Inc. 17,781,176
402,810 Gaylord Entertainment Company* 16,728,699
----------------
34,509,875
----------------
INDUSTRIAL MACHINERY--1.6%
267,225 Briggs & Stratton Corporation 11,111,216
----------------
INTERNET SOFTWARE & SERVICES--0.1%
94,792 Digitas, Inc.* 905,264
----------------
IT CONSULTING & OTHER SERVICES--1.3%
587,560 Perot Systems Corporation Class A* 9,418,586
----------------
LEISURE FACILITIES--0.9%
259,065 Life Time Fitness, Inc.* 6,704,602
----------------
LEISURE PRODUCTS--1.8%
632,992 Marvel Enterprises, Inc.* 12,963,676
----------------
OFFICE SERVICES & SUPPLIES--1.1%
279,675 Herman Miller, Inc. 7,727,420
----------------
OIL & GAS EQUIPMENT & SERVICES--3.5%
388,745 National-Oilwell, Inc.* 13,718,811
747,000 Superior Energy Services, Inc.* 11,511,270
----------------
25,230,081
----------------
OIL & GAS EXPLORATION & PRODUCTION--0.9%
168,850 Quicksilver Resources, Inc.* 6,210,303
----------------
</Table>
SEE NOTES TO STATEMENT OF INVESTMENTS.
15
<Page>
<Table>
<Caption>
SHARES MARKET VALUE
- ---------------------------------------------------------------------------------
PHARMACEUTICALS--11.4%
437,200 Endo Pharmaceuticals Holdings, Inc.* $ 9,189,944
300,840 Eon Labs, Inc.* 8,122,680
1,155,880 Impax Laboratories, Inc.* 18,355,374
394,197 Inspire Pharmaceuticals, Inc.* 6,610,684
338,627 Medicis Pharmaceutical Corporation Class A 11,889,194
451,065 MGI Pharma, Inc.* 12,634,331
837,525 Salix Pharmaceuticals Limited* 14,732,065
----------------
81,534,272
----------------
REGIONAL BANKS--0.9%
273,980 Southwest Bancorporation of Texas, Inc. 6,380,994
----------------
RESTAURANTS--2.1%
286,342 RARE Hospitality International, Inc.* 9,122,856
108,469 Red Robin Gourmet Burgers, Inc.* 5,799,837
----------------
14,922,693
----------------
SEMICONDUCTOR EQUIPMENT--1.8%
254,295 Brooks Automation, Inc.* 4,378,960
860,430 Entegris, Inc.* 8,561,279
----------------
12,940,239
----------------
SEMICONDUCTORS--3.4%
475,300 Intersil Corporation Class A 7,956,522
304,415 Semtech Corporation* 6,657,556
281,625 Sigmatel, Inc.* 10,006,136
----------------
24,620,214
----------------
SPECIALTY STORES--3.3%
237,400 Guitar Center, Inc.* 12,508,606
280,250 PETCO Animal Supplies, Inc.* 11,064,270
----------------
23,572,876
----------------
STEEL--1.0%
775,800 GrafTech International Limited* 7,339,068
----------------
TECHNOLOGY DISTRIBUTORS--1.9%
645,986 Insight Enterprises, Inc.* 13,255,633
----------------
THRIFTS & MORTGAGE FINANCE--1.8%
351,850 BankAtlantic Bancorp, Inc. 7,001,815
401,725 NewAlliance Bancshares, Inc. 6,146,393
----------------
13,148,208
----------------
TRADING COMPANIES & DISTRIBUTORS--3.6%
203,037 Fastenal Company 12,498,958
412,125 Hughes Supply, Inc. 13,332,244
----------------
25,831,202
----------------
TRUCKING--2.1%
165,950 J.B. Hunt Transport Services, Inc. 7,442,859
210,170 Overnite Corporation 7,826,730
----------------
15,269,589
----------------
TOTAL COMMON STOCKS (DOMESTIC)
(COST--$588,636,767) 716,872,634
----------------
</Table>
16
<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* 0
----------------
0
----------------
TOTAL RIGHTS AND WARRANTS
(COST--$0) 0
----------------
<Caption>
PRINCIPAL AMOUNT AMORTIZED COST
- ---------------------------------------------------------------------------------
CORPORATE SHORT-TERM NOTES--2.1%
PACKAGED FOODS & MEATS--0.0%
$ 250,000 Hershey Foods Corporation
2.18% 1/18/05~ $ 249,743
----------------
PHARMACEUTICALS--2.1%
14,700,000 Novartis Finance Corporation
2.10% 1/3/05~ 14,698,285
----------------
TOTAL CORPORATE SHORT-TERM NOTES
(AMORTIZED COST--$14,948,028) 14,948,028
----------------
TOTAL INVESTMENTS--102.2%
(TOTAL COST--$603,584,795) 731,820,662
----------------
OTHER ASSETS AND LIABILITIES--(2.2%) (16,008,060)
----------------
NET ASSETS--100.0% $ 715,812,602
================
</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. THESE SECURITIES
AMOUNTED TO $14,948,028, OR 2.1%, OF THE FUND'S NET ASSETS AS OF DECEMBER
31, 2004.
SEE NOTES TO FINANCIAL STATEMENTS.
17
<Page>
STATEMENT OF ASSETS AND LIABILITIES
December 31, 2004
<Table>
ASSETS
Investment securities, at cost $ 603,584,795
--------------
Investment securities, at market 731,820,662
Cash 1,701,065
Receivables:
Investment securities sold 8,466,233
Capital shares sold 843,329
Dividends and interest 204,360
Other assets 55,561
--------------
Total Assets 743,091,210
--------------
LIABILITIES
Payables and other accrued liabilities:
Investment securities purchased 12,588,937
Capital shares redeemed 13,561,036
Advisory fees 511,956
Shareholder servicing fees 42,522
Accounting fees 32,884
Distribution fees 178,357
Transfer agency fees 68,989
Custodian fees 2,331
Other 291,596
--------------
Total Liabilities 27,278,608
--------------
Net Assets $ 715,812,602
==============
COMPOSITION OF NET ASSETS
Capital (par value and paid-in surplus) $ 977,746,311
Accumulated net investment loss (125,444)
Accumulated net realized loss from security transactions (390,044,132)
Net unrealized appreciation on investments 128,235,867
--------------
Total $ 715,812,602
==============
</Table>
18
<Page>
<Table>
CLASS A
Net Assets $ 65,762,908
Shares Outstanding 2,282,112
Net Asset Value, Redemption Price Per Share $ 28.82
Maximum offering price per share (net asset value
plus sales charge of 5.75% of offering price) $ 30.58
CLASS B
Net Assets $ 18,795,088
Shares Outstanding 682,247
Net Asset Value, Offering and Redemption Price (excluding
applicable contingent deferred sales charge) Per Share $ 27.55
CLASS C
Net Assets $ 6,667,702
Shares Outstanding 241,835
Net Asset Value, Offering and Redemption Price (excluding
applicable contingent deferred sales charge) Per Share $ 27.57
CLASS F
Net Assets $ 550,622,293
Shares Outstanding 19,139,530
Net Asset Value, Offering and Redemption Price Per Share $ 28.77
CLASS R
Net Assets $ 72,316,956
Shares Outstanding 2,475,042
Net Asset Value, Offering and Redemption Price Per Share $ 29.22
CLASS T
Net Assets $ 1,647,655
Shares Outstanding 58,461
Net Asset Value, Redemption Price Per Share $ 28.18
Maximum offering price per share (net asset value
plus sales charge of 4.50% of offering price) $ 29.51
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
19
<Page>
STATEMENT OF OPERATIONS
For the year ended December 31, 2004
<Table>
INVESTMENT INCOME
Dividends $ 1,784,778
Interest 228,763
Foreign taxes withheld (6,103)
--------------
Total Investment Income 2,007,438
--------------
EXPENSES
Advisory fees--Note 2 6,304,317
Shareholder servicing fees--Note 2 570,834
Accounting fees--Note 2 403,104
Distribution fees--Note 2 1,390,333
Transfer agency fees--Note 2 943,677
Registration fees 77,988
Postage and mailing expenses 98,295
Custodian fees and expenses--Note 2 19,546
Printing expenses 106,315
Legal and audit fees 127,025
Directors' fees and expenses--Note 2 125,318
Other expenses 152,806
--------------
Total Expenses 10,319,558
Earnings Credits (15,926)
Reimbursed/Waived Expenses (941)
Expense Offset to Broker Commissions (4,050)
--------------
Net Expenses 10,298,641
--------------
Net Investment Loss (8,291,203)
--------------
REALIZED AND UNREALIZED GAIN ON SECURITY TRANSACTIONS
Net Realized Gain on Security Transactions 74,597,741
Net Change in Unrealized Appreciation/Depreciation of Investments 5,007,548
--------------
Net Realized and Unrealized Gain 79,605,289
--------------
Net Increase in Net Assets Resulting from Operations $ 71,314,086
==============
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
20
<Page>
STATEMENTS OF CHANGES IN NET ASSETS
<Table>
<Caption>
YEAR ENDED YEAR ENDED
12/31/04 12/31/03
OPERATIONS
Net Investment Loss $ (8,291,203) $ (9,085,288)
Net Realized Gain 74,597,741 13,930,958
Net Change in Unrealized
Appreciation/Depreciation of Investments 5,007,548 218,611,635
-------------- --------------
Net Increase in Net Assets Resulting from Operations 71,314,086 223,457,305
-------------- --------------
CAPITAL SHARE TRANSACTIONS
Net Increase (Decrease)--Note 4
Class A (20,072,155) (9,822,554)
Class B (3,926,079) (3,591,234)
Class C (2,295,210) (1,821,877)
Class F (143,830,150) (36,105,693)
Class R 25,138 5,799,244
Class T (302,253) 68,669
-------------- --------------
Net Decrease from Capital Share Transactions (170,400,709) (45,473,445)
-------------- --------------
Net Increase (Decrease) in Net Assets (99,086,623) 177,983,860
-------------- --------------
NET ASSETS
Beginning of year $ 814,899,225 $ 636,915,365
-------------- --------------
End of year $ 715,812,602 $ 814,899,225
============== ==============
Accumulated Net Investment Loss $ (125,444) $ (99,180)
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
21
<Page>
FINANCIAL HIGHLIGHTS
<Table>
<Caption>
YEAR ENDED
DECEMBER 31,
2004 2003 2002 2001 2000
----------------------------------------------------------------------------------
CLASS A SHARES
PER SHARE OPERATING DATA
Net Asset Value, beginning of year $ 26.04 $ 19.09 $ 28.50 $ 34.79 $ 40.88
- ---------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment loss (0.64) (0.36) (0.31) (0.17) (0.03)
Net realized and unrealized gains
(losses) on securities 3.42 7.31 (9.10) (6.02) (3.45)
--------------------------------------------------------------------------------
Total from investment operations 2.78 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 year $ 28.82 $ 26.04 $ 19.09 $ 28.50 $ 34.79
================================================================================
TOTAL RETURN* 10.68% 36.41% (33.02%) (17.78%) (8.18%)
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000s) $ 65,763 $ 79,630 $ 67,184 $ 117,773 $ 131,298
- ---------------------------------------------------------------------------------------------------------------------------
Ratios to average net assets:
Expenses with reimbursements, but no
earnings credits or brokerage offsets# 1.38% 1.50% 1.35% 1.19% 1.24%
Expenses with reimbursements,
earnings credits and brokerage offsets 1.37% 1.50% 1.35% 1.18% 1.20%
Net investment loss (1.11%) (1.25%) (1.08%) (0.58%) (0.21%)
- ---------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate@ 98% 130% 128% 110% 108%
</Table>
* SALES CHARGES ARE NOT REFLECTED IN THE TOTAL RETURN.
# 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>
YEAR ENDED
DECEMBER 31,
2004 2003 2002 2001 2000
----------------------------------------------------------------------------------
CLASS B SHARES
PER SHARE OPERATING DATA
Net Asset Value, beginning of year $ 25.12 $ 18.60 $ 28.03 $ 34.49 $ 40.88
- ---------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment loss (1.07) (0.81) (0.69) (0.45) (0.21)
Net realized and unrealized gains
(losses) on securities 3.50 7.33 (8.74) (5.91) (3.57)
--------------------------------------------------------------------------------
Total from investment operations 2.43 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 year $ 27.55 $ 25.12 $ 18.60 $ 28.03 $ 34.49
================================================================================
TOTAL RETURN* 9.67% 35.05% (33.64%) (18.43%) (8.92%)
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000s) $ 18,795 $ 21,009 $ 18,804 $ 35,845 $ 50,883
- ---------------------------------------------------------------------------------------------------------------------------
Ratios to average net assets:
Expenses with reimbursements, but no
earnings credits or brokerage offsets# 2.30% 2.56% 2.26% 1.97% 1.97%
Expenses with reimbursements,
earnings credits and brokerage offsets 2.29% 2.56% 2.26% 1.96% 1.94%
Net investment loss (2.03%) (2.31%) (1.98%) (1.35%) (1.02%)
- ---------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate@ 98% 130% 128% 110% 108%
</Table>
* SALES CHARGES ARE NOT REFLECTED IN THE TOTAL RETURN.
# 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>
YEAR ENDED
DECEMBER 31,
2004 2003 2002 2001 2000
----------------------------------------------------------------------------------
CLASS C SHARES
PER SHARE OPERATING DATA
Net Asset Value, beginning of year $ 25.14 $ 18.60 $ 28.05 $ 34.51 $ 40.88
- ---------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment loss (1.53) (0.94) (0.86) (0.48) (0.19)
Net realized and unrealized gains
(losses) on securities 3.96 7.48 (8.59) (5.88) (3.57)
--------------------------------------------------------------------------------
Total from investment operations 2.43 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 year $ 27.57 $ 25.14 $ 18.60 $ 28.05 $ 34.51
================================================================================
TOTAL RETURN* 9.67% 35.16% (33.69%) (18.42%) (8.87%)
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000s) $ 6,668 $ 8,352 $ 7,794 $ 17,031 $ 25,275
- ---------------------------------------------------------------------------------------------------------------------------
Ratios to average net assets:
Expenses with reimbursements, but no
earnings credits or brokerage offsets# 2.28% 2.52% 2.27% 1.98% 1.97%
Expenses with reimbursements,
earnings credits and brokerage offsets 2.27% 2.52% 2.26% 1.96% 1.94%
Net investment loss (2.01%) (2.28%) (1.99%) (1.36%) (1.01%)
- ---------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate@ 98% 130% 128% 110% 108%
</Table>
* SALES CHARGES ARE NOT REFLECTED IN THE TOTAL RETURN.
# 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.
24
<Page>
<Table>
<Caption>
YEAR ENDED
DECEMBER 31,
2004 2003 2002 2001 2000
----------------------------------------------------------------------------------
CLASS F SHARES
PER SHARE OPERATING DATA
Net Asset Value, beginning of year $ 25.98 $ 19.04 $ 28.45 $ 34.74 $ 40.86
- ---------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment loss (0.69) (0.35) (0.36) (0.20) (0.07)
Net realized and unrealized gains
(losses) on securities 3.48 7.29 (9.05) (5.99) (3.44)
--------------------------------------------------------------------------------
Total from investment operations 2.79 6.94 (9.41) (6.19) (3.51)
- ---------------------------------------------------------------------------------------------------------------------------
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 year $ 28.77 $ 25.98 $ 19.04 $ 28.45 $ 34.74
================================================================================
TOTAL RETURN 10.74% 36.45% (33.08%) (17.81%) (8.26%)
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000s) $ 550,622 $ 638,880 $ 498,970 $ 847,330 $ 1,066,003
- ---------------------------------------------------------------------------------------------------------------------------
Ratios to average net assets:
Expenses with reimbursements, but no
earnings credits or brokerage offsets# 1.35% 1.53% 1.41% 1.25% 1.28%
Expenses with reimbursements,
earnings credits and brokerage offsets 1.34% 1.53% 1.40% 1.24% 1.25%
Net investment loss (1.08%) (1.29%) (1.13%) (0.64%) (0.46%)
- ---------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate@ 98% 130% 128% 110% 108%
</Table>
# 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.
25
<Page>
<Table>
<Caption>
YEAR ENDED
DECEMBER 31,
2004 2003 2002 2001 2000
----------------------------------------------------------------------------------
CLASS R SHARES
PER SHARE OPERATING DATA
Net Asset Value, beginning of year $ 26.32 $ 19.23 $ 28.64 $ 34.87 $ 40.88
- ---------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.24) (0.17) (0.18) (0.08) 0.00+
Net realized and unrealized gains
(losses) on securities 3.14 7.26 (9.23) (6.05) (3.40)
--------------------------------------------------------------------------------
Total from investment operations 2.90 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 year $ 29.22 $ 26.32 $ 19.23 $ 28.64 $ 34.87
================================================================================
TOTAL RETURN 11.02% 36.87% (32.86%) (17.57%) (7.98%)
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000s) $ 72,317 $ 65,240 $ 42,872 $ 61,163 $ 4,693
- ---------------------------------------------------------------------------------------------------------------------------
Ratios to average net assets:
Expenses with reimbursements, but no
earnings credits or brokerage offsets# 1.11% 1.21% 1.10% 0.95% 0.96%
Expenses with reimbursements,
earnings credits and brokerage offsets 1.10% 1.21% 1.10% 0.94% 0.93%
Net investment income (loss) (0.83%) (0.96%) (0.82%) (0.38%) 0.01%
- ---------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate@ 98% 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.
# 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.
26
<Page>
<Table>
<Caption>
YEAR ENDED
DECEMBER 31,
2004 2003 2002 2001 2000
----------------------------------------------------------------------------------
CLASS T SHARES
PER SHARE OPERATING DATA
Net Asset Value, beginning of year $ 25.55 $ 18.79 $ 28.24 $ 34.69 $ 40.88
- ---------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment loss (0.65) (0.31) (0.54) (0.33) (0.09)
Net realized and unrealized gains
(losses) on securities 3.28 7.07 (8.91) (6.02) (3.49)
--------------------------------------------------------------------------------
Total from investment operations 2.63 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 year $ 28.18 $ 25.55 $ 18.79 $ 28.24 $ 34.69
================================================================================
TOTAL RETURN* 10.29% 35.98% (33.46%) (18.30%) (8.43%)
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000s) $ 1,648 $ 1,788 $ 1,291 $ 2,341 $ 1,908
- ---------------------------------------------------------------------------------------------------------------------------
Ratios to average net assets:
Expenses with reimbursements, but no
earnings credits or brokerage offsets# 1.71% 1.91% 2.06% 1.83% 1.48%
Expenses with reimbursements,
earnings credits and brokerage offsets 1.70% 1.90% 2.06% 1.82% 1.44%
Net investment loss (1.44%) (1.66%) (1.79%) (1.24%) (0.50%)
- ---------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate@ 98% 130% 128% 110% 108%
</Table>
* SALES CHARGES ARE NOT REFLECTED IN THE TOTAL RETURN.
# 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.
27
<Page>
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2004
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,
Equity Growth (formerly Growth and Income), Government Securities, Growth,
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 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. However, the Funds are planning to begin using New
York closing exchange rates to convert foreign currencies to U.S. dollars
sometime during the first quarter of 2005.
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.
28
<Page>
If market quotations or official closing prices are not readily available or are
determined not to reflect accurately fair value, 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 but before the Fund calculates its net asset value,
and it is determined that the event has materially affected the value of the
security. Fair value of foreign equity securities may be determined with the
assistance of a pricing service using correlations between the movement of
prices of foreign securities and indexes of domestic securities and other
appropriate indicators, such as closing market prices of relevant ADRs and
futures contracts. Using fair value to price securities may result in a value
that is different from a security's most recent closing price and from the
prices used by other mutual funds to calculate their net asset values.
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 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
29
<Page>
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, as earned, and includes the
accretion of discounts and the amortization of premiums over the lives of the
respective securities. Withholding taxes on foreign dividends have been provided
for in accordance with the applicable country's tax rules and rates.
DISTRIBUTIONS TO SHAREHOLDERS--The Fund declares and distributes dividends (if
any) and capital gains (if any) annually. Dividends and distributions, which are
determined in accordance with income tax regulations, are recorded on the
ex-dividend date.
EXPENSES--Each Class of the Fund bears expenses incurred specifically on its
behalf and, in addition, each Class bears a portion of general expenses based on
the relative net assets or the number of shareholder accounts of the Class. The
type of expense determines the allocation method.
The Company's board of directors has authorized the payment of certain Fund
expenses with commissions on Fund portfolio transactions. These commissions
reduce Other Expenses and are included in the Expense Offset to Broker
Commissions in the Statement of Operations.
USE OF ESTIMATES--The preparation of financial statements in conformity with
accounting principles generally accepted in the United States of America
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported amounts of
income and expenses during the reporting period. Actual results could differ
from those estimates.
INDEMNIFICATIONS--In the normal course of business, the Company enters into
contracts that contain provisions indemnifying other parties against specified
potential liabilities. Each Fund's maximum exposure under these arrangements is
unknown as this would involve future claims that may be made against the Fund
that have not yet occurred. However, based on experience, the Funds expect the
risk of loss to be remote.
OTHER--Certain prior year information has been reformatted, without substantive
change, to conform with the current year presentation.
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
30
<Page>
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 year ended December 31,
2004, Class F shares were charged $323,778 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 from DTI
are paid by the Fund. During the year ended December 31, 2004, Class F shares
were charged $120,941 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 $13.00, per shareholder account considered to be an
open account at any time during a given month, plus out-of-pocket charges.
Class-specific transfer agency fees paid to DTI during the year ended December
31, 2004 were as follows:
<Table>
<Caption>
TRANSFER
AGENCY FEES
------------------------------------------
Class A $ 39,332
Class B $ 43,876
Class C $ 14,862
Class R $ 22,780
Class T $ 2,230
</Table>
OTHER TRANSFER AGENCY FEES--Various broker-dealers, retirement plan
administrators and other unaffiliated entities have established omnibus accounts
with the Fund, and provide sub-transfer agency, recordkeeping or similar
services to persons holding Fund shares through those accounts. During the year
ended December 31, 2004, the Fund paid $699,656 to these entities for such
services. This amount is included in the transfer agency fees shown on the
Statement of Operations.
CASH MANAGEMENT FEES--The Funds also pay Mellon Bank N.A. ("Mellon Bank"), a
wholly-owned subsidiary of Mellon Financial Corporation and an affiliate of
Founders, fees for certain cash management services. These include various
services related to the processing of shareholder transactions in the Funds.
During the year ended
31
<Page>
December 31, 2004, the Fund was charged $25,839 for cash management fees, which
are included in the out-of-pocket charges from DTI above.
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 year ended December
31, 2004, Class F shares were charged $1,185,726 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 year ended December 31, 2004, were as follows:
<Table>
<Caption>
DISTRIBUTION SHAREHOLDER
FEES SERVICING FEES
------------------------------------------------------------
Class A N/A $ 176,095
Class B $ 146,288 $ 48,763
Class C $ 54,182 $ 18,061
Class T $ 4,137 $ 4,137
</Table>
During the year ended December 31, 2004, DSC retained $1,102 and $9 in sales
commissions from the sales of Class A and Class T shares, respectively. DSC also
retained $5,116, $63,542 and $912 of contingent deferred sales charges relating
to redemptions of Class A, 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 contractually agreed to waive
any fees received for these services to the extent they exceed Founders' costs
in providing the services.
CUSTODIAN FEES--Mellon Bank 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
32
<Page>
Fund held by the custodian. The Fund could have employed these assets elsewhere
to produce income had it not entered into this arrangement. The custodian has
also contractually 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 year ended December 31, 2004, the
Fund's portion of the fee waiver was $941, which reduced the amount paid to
Mellon Bank to $18,605.
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 invested
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,
which pays their compensation. The affairs of the Fund, including services
provided by Founders, are subject to the supervision and general oversight of
the Company's board of directors.
3. FEDERAL TAX INFORMATION
Net investment income and capital gains distributions are determined in
accordance with income tax regulations that may differ from accounting
principles generally accepted in the United States of America. These differences
are due to differing treatments for items such as deferral of wash sale losses,
foreign currency transactions, net operating losses and capital loss carryovers.
Permanent differences identified during the year ended December 31, 2004 have
been reclassified among the components of net assets as follows:
<Table>
<Caption>
UNDISTRIBUTED NET UNDISTRIBUTED NET PAID-IN
INVESTMENT INCOME REALIZED GAINS AND LOSSES CAPITAL
----------------------------------------------------------------
$ 8,264,939 $ 0 $ (8,264,939)
</Table>
The tax components of capital represent distribution requirements the Fund must
satisfy under the income tax regulations and losses or tax deductions the Fund
may be
33
<Page>
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, 2004, 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. Net capital loss carryovers
utilized during 2004 by the Fund amounted to $72,337,100. Accumulated capital
losses as of December 31, 2004 were:
<Table>
<Caption>
EXPIRATION AMOUNT
----------------------------------------------
2009 $ 138,824,492
2010 $ 230,439,968
2011 $ 14,100,468
$ 383,364,928
===============
</Table>
The aggregate cost of investments and the composition of unrealized appreciation
and depreciation of investment securities for federal income tax purposes as of
December 31, 2004 are noted below. The primary difference between book and tax
appreciation or depreciation is wash sale loss deferrals.
<Table>
Federal Tax Cost $ 610,263,999
Gross Tax Appreciation of Investments $ 131,634,068
Gross Tax Depreciation of Investments $ (10,077,405)
Net Tax Appreciation $ 121,556,663
</Table>
34
<Page>
4. CAPITAL SHARE TRANSACTIONS
The Fund is authorized to issue 450 million shares of $0.01 par value capital
stock. Transactions in shares of the Fund for the periods indicated were as
follows:
<Table>
<Caption>
YEAR ENDED YEAR ENDED
12/31/04 12/31/03
SHARES AMOUNT SHARES AMOUNT
CLASS A
Sold 606,846 $ 16,285,433 1,201,496 $ 27,097,339
Redeemed (1,383,103) $ (36,357,588) (1,662,688) $ (36,919,893)
------------------------------------------------------------------------
Net Decrease (776,257) $ (20,072,155) (461,192) $ (9,822,554)
========================================================================
CLASS B
Sold 7,176 $ 180,419 10,129 $ 212,967
Redeemed (161,266) $ (4,106,498) (184,783) $ (3,804,201)
------------------------------------------------------------------------
Net Decrease (154,090) $ (3,926,079) (174,654) $ (3,591,234)
========================================================================
CLASS C
Sold 7,418 $ 188,358 21,413 $ 428,341
Redeemed (97,877) $ (2,483,568) (108,035) $ (2,250,218)
------------------------------------------------------------------------
Net Decrease (90,459) $ (2,295,210) (86,622) $ (1,821,877)
========================================================================
CLASS F
Sold 3,312,230 $ 88,403,785 5,367,437 $ 117,439,063
Redeemed (8,760,046) $ (232,233,935) (6,981,197) $ (153,544,756)
------------------------------------------------------------------------
Net Decrease (5,447,816) $ (143,830,150) (1,613,760) $ (36,105,693)
========================================================================
CLASS R
Sold 568,863 $ 15,239,651 500,330 $ 11,153,199
Redeemed (572,087) $ (15,214,513) (251,484) $ (5,353,955)
------------------------------------------------------------------------
Net Increase (Decrease) (3,224) $ 25,138 248,846 $ 5,799,244
========================================================================
CLASS T
Sold 15,867 $ 408,647 18,394 $ 420,952
Redeemed (27,379) $ (710,900) (17,137) $ (352,283)
------------------------------------------------------------------------
Net Increase (Decrease) (11,512) $ (302,253) 1,257 $ 68,669
========================================================================
</Table>
5. INVESTMENT TRANSACTIONS
Purchases and sales of investment securities (excluding short-term securities
and U.S. government obligations) for the year ended December 31, 2004 were
$724,668,931 and $883,143,892, respectively.
35
<Page>
6. LINE OF CREDIT
The Company has a line of credit arrangement ("LOC") with State Street Bank and
Trust Company, to be used for temporary or emergency purposes, primarily for
financing redemption payments. Each Fund's borrowings are limited to the lesser
of (a) $50 million, or (b) the lesser of 25% of the Fund's total net assets or
the maximum amount which the Fund is permitted to borrow pursuant to the
prospectus, any law or any other agreement. Combined borrowings are subject to
the $50 million cap on the total LOC. Each Fund agrees to pay annual fees and
interest on the unpaid balance based on prevailing market rates as defined in
the LOC. At December 31, 2004 the Fund did not have any borrowings under the
LOC.
7. LEGAL MATTERS
In early 2004, two purported class and derivative actions were filed against
Mellon Financial Corporation, Mellon Bank, Founders, Dreyfus, and certain
directors of the Dreyfus Founders Funds and the Dreyfus Funds (together, the
"Defendant Funds"). In September 2004, plaintiffs served a Consolidated Amended
Complaint (the "Amended Complaint") on behalf of a purported class of all
persons who acquired interests in any of the Defendant Funds between January 30,
1999 and November 17, 2003, and derivatively on behalf of the Defendant Funds.
The Amended Complaint in the newly styled In re Dreyfus Mutual Funds Fee
Litigation also named DSC, Premier Mutual Fund Services, Inc. and two additional
directors of the Defendant Funds as defendants and alleges violations of the
Investment Company Act of 1940, the Investment Advisers Act of 1940, the
Pennsylvania Unfair Trade Practices and Consumer Protection Law and common-law
claims. Plaintiffs seek to recover allegedly improper and excessive Rule 12b-1
and advisory fees allegedly charged to the Defendant Funds for marketing and
distribution services. More specifically, plaintiffs claim, among other things,
that 12b-1 fees and directed brokerage were improperly used to pay brokers to
recommend the Defendant Funds over other funds, and that such payments were not
disclosed to investors. In addition, plaintiffs assert that economies of scale
and soft-dollar benefits were not passed on to the Defendant Funds. Plaintiffs
further allege that 12b-1 fees were improperly charged to certain of the
Defendant Funds that were closed to new investors. The Amended Complaint seeks
compensatory and punitive damages, rescission of the advisory contracts, and an
accounting and restitution of any unlawful fees, as well as an award of
attorneys' fees and litigation expenses. As noted, some of the claims in this
litigation are asserted derivatively on behalf of the Defendant Funds that have
been named as nominal defendants. With respect to such derivative claims, no
relief is sought against the Defendant Funds. Founders, Dreyfus and the
Defendant Funds believe the allegations to be totally without merit and intend
to defend the action vigorously. The defendants filed motions to dismiss the
Amended Complaint on November 12, 2004, and those motions are pending.
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 nor the Funds believe that any of the pending actions
will have a material adverse effect on the Funds or Founders' ability to perform
its contract with the Funds.
36
<Page>
REPORT OF INDEPENDENT
REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Shareholders of
Dreyfus Founders Funds, Inc.
In our opinion, the accompanying statement of assets and liabilities, including
the statement of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of Dreyfus Founders Discovery Fund
(one of the portfolios constituting Dreyfus Founders Funds, Inc., hereafter
referred to as the "Fund") at December 31, 2004, the results of its operations
for the year then ended, the changes in its net assets for each of the two years
in the period then ended and the financial highlights for each of the five years
in the period then ended, in conformity with accounting principles generally
accepted in the United States of America. These financial statements and
financial highlights (hereafter referred to as "financial statements") are the
responsibility of the Fund's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these financial statements in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those standards
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits, which included
confirmation of securities at December 31, 2004 by correspondence with the
custodian and brokers and the application of alternative auditing procedures
where securities purchased had not been received, provide a reasonable basis for
the opinion expressed above.
PricewaterhouseCoopers LLP
Denver, Colorado
February 10, 2005
37
<Page>
YOUR BOARD REPRESENTATIVES
(UNAUDITED)
The Board of Directors of the Company oversees all 10 Dreyfus Founders Funds.
The business and affairs of the Company are managed under the direction of the
Board. The directors serving on the Board perform their responsibilities in the
manner which they reasonably believe to be in the best interests of the Funds
and their shareholders.
All of the directors, as listed below, are independent directors. They are not
affiliated with the Fund's adviser, its parent company, or its affiliates. The
directors have no official term of office and generally serve until they reach
the mandated retirement age of 75, resign, or are not re-elected. As you can see
from their backgrounds, the directors have broad experience as active or former
business and community leaders.
DIRECTORS
EUGENE H. VAUGHAN, CFA, 71. Year elected to the Board: 1970
Board Chairman. Founding Chairman and, formerly (1970 to 2000), President and
CEO, Vaughan Nelson Investment Management, LP, an investment counseling firm.
Director, Encore Bank. Founding Chairman, Center for Houston's Future, a
non-profit organization. Founding Chairman and former Governor, Association for
Investment Management and Research. Past Chairman and Trustee, Institute of
Chartered Financial Analysts. Past Chairman and Director, Financial Analysts
Federation.
ALAN S. DANSON, 65. Year elected to the Board: 1991
Private investor. Formerly, President and Director, D.H. Management, Inc., the
general partner of a limited partnership with technology company holdings (1996
to 2003). Formerly, Director and Senior Vice President, OptiMark Technologies,
Inc., a computerized securities trading service (1996 to 1999). Director,
CaseShare Systems, LLP, a document management company. Director, Gore Range
Natural Science School and The Les Streeter Programs, Inc., both of which are
non-profit organizations.
JOAN D. MANLEY, 72. Year elected to the Board: 1998
Retired. Formerly, Ms. Manley served in several executive capacities with Time
Incorporated, most recently as Group Vice President, Director and Chairman of
Time-Life Books, Inc. and Book of the Month Club, Inc. (1960 to 1984). Director,
Sara Lee Corporation and R.R. Donnelley & Sons Company.
ROBERT P. MASTROVITA, 60. Year elected to the Board: 1998
Private investor. Chairman of a private charitable foundation (1997 to present).
Formerly, Chairman and Director, Hagler, Mastrovita & Hewitt, Inc., a registered
investment adviser (1982 to 1997). Member, Boston Society of Security Analysts.
Trustee, Partridge Academy.
TRYGVE E. MYHREN, 68. Year elected to the Board: 1996
President, Myhren Media, Inc., a firm that invests in and advises media,
telecommunications, Internet and software companies. Special Limited Partner and
member of Investment Committee, Megunticook Funds, a venture capital firm (1998
to present). Director, Advanced Marketing Services, Inc. Trustee and Chairman of
Finance Committee, the University of Denver. Trustee, Denver Art Museum. Member,
Cable Television Hall of Fame. Formerly, President (1990 to 1996) and Director
(1992 to 2001) of the Providence Journal Company, a diversified media and
communications
38
<Page>
company. Formerly, Chairman and Chief Executive Officer of American Television
and Communications Corporation (now Timer Warner Cable) (1981 to 1988).
Formerly, Chairman of the National Cable Television Association (1986-1987).
GEORGE W. PHILLIPS, 66. Year elected to the Board: 1998
Retired. Vice Chairman of the Board, Chairman of the Finance Committee, and
Chairman of the Investment Committee, Children's Medical Center of Boston.
Formerly, President and Chief Executive Officer (1992 to 1997) and Director
(1992 to 2002) of Warren Bancorp, Inc. Formerly, President, Chief Executive
Officer and Director of Warren Five Cents Savings Bank (1992 to 1997).
PRINCIPAL OFFICERS
RICHARD W. SABO, 47. President of the Funds since 2000 and Principal Executive
Officer of the Funds since 2002. Founders' President and Chief Executive
Officer, Member of Founders' Board of Managers and Director of Dreyfus (1998 to
present). Executive Vice President of DSC since 2003. Formerly, Senior Vice
President and Regional Director for Prudential Securities, Inc. (1991 to 1998).
DAVID L. RAY, 47. Vice President of the Funds since 2000, and from 1990 to 1998.
Founders' Senior Vice President--Administration and Treasurer. Vice President of
DSC since 2003. Employed by Founders and its predecessor company since 1990.
Formerly, Treasurer of the Funds (1990 to 1998).
KENNETH R. CHRISTOFFERSEN, 49. Secretary of the Funds since 2000, and from 1996
to 1998. Founders' Senior Vice President--Legal, General Counsel and Secretary.
Assistant Secretary of DSC since 2003. Employed by Founders and its predecessor
company since 1996.
JANELLE E. BELCHER, 46. Chief Compliance Officer of the Funds since 2004 and
Assistant Secretary of the Funds since 2002. Founders' Vice
President--Compliance since 2002. Formerly, Founders' Manager of Compliance
(2000 to 2002) and Securities Compliance Examiner, Staff Accountant and Team
Leader for the U.S. Securities and Exchange Commission (1990 to 2000).
ROBERT T. KELLY, 35. Treasurer, Principal Financial Officer, and Principal
Accounting Officer of the Funds since 2003. Founders' Vice President of
Portfolio Accounting since 2000. Formerly, Assistant Treasurer of the Funds
(2000 to 2003), and Head of Equity Desk for ABN Amro Trust Company (Cayman)
Limited (1998 to 2000).
WILLIAM G. GERMENIS, 34. Anti-Money Laundering Compliance Officer ("AMLCO") for
the Class A, Class B, Class C, Class R, and Class T shares of the Funds since
2002 and for the Class F shares of the Funds since 2003. Vice President and
AMLCO of MBSC, LLC since 2002. Vice President and AMLCO of DSC and AMLCO of
investment companies managed by Dreyfus. Employed by DSC since 1998.
The directors and officers may be contacted at Founders' address appearing on
the inside cover, except for Mr. Germenis, who can be contacted at 200 Park
Avenue, New York, New York 10166. Additional information about the Company's
directors is available in the Statement of Additional Information, which can be
obtained free of charge by calling the toll free number on the back cover.
39
<Page>
DREYFUS FOUNDERS DISCOVERY GROWTH FUND
P.O. Box 55360
Boston, MA 02205-8252
1-800-525-2440
www.founders.com
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 (SEC) 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.
PORTFOLIO HOLDINGS
The Fund files its complete schedule of portfolio holdings with the SEC for the
first and third quarters of each fiscal year on Form N-Q. The Fund's Forms N-Q
are available on the SEC's website at www.sec.gov and may be reviewed and copied
at the SEC's Public Reference Room in Washington, DC. Information on the
operation of the SEC's Public Reference Room may be obtained by calling
1-800-SEC-0330.
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)2005 Founders Asset Management LLC. 2/05
A-646-DIS-04
<Page>
ANNUAL REPORT
DREYFUS FOUNDERS
EQUITY GROWTH FUND*
INVESTMENT UPDATE
DECEMBER 31, 2004
*FORMERLY DREYFUS FOUNDERS GROWTH AND INCOME FUND.
[(R)DREYFUS FOUNDERS FUNDS(R) LOGO]
THE GROWTH SPECIALISTS
<Page>
TABLE OF CONTENTS
<Table>
Management Overview 3
Fund Expenses 10
Statement of Investments 12
Statement of Assets and Liabilities 17
Statement of Operations 19
Statements of Changes in Net Assets 20
Financial Highlights 21
Notes to Financial Statements 27
Report of Independent Registered Public Accounting Firm 37
Other Tax Information 38
Your Board Representatives 39
</Table>
[GRAPHIC]
PAPERLESS DELIVERY OF THIS REPORT
Did you know you can reduce your postal mail by accessing Dreyfus Founders Funds
regulatory material online? It's a simple, reliable process: when new documents
such as this Annual Report are available, we'll send you an e-mail notification
containing a convenient link that will take you directly to that Fund
information on our website. To take advantage of this service, simply inform us
online of your decision to receive materials through the Founders
E-Communications Program. Cut down on mailbox clutter and help the Fund reduce
printing and postage charges by enrolling today at
www.founders.com/ecommunications. If you own Funds through a third party, enroll
at www.icsdelivery.com.
INVESTMENT MANAGER DISTRIBUTOR
Founders Asset Management LLC Dreyfus Service Corporation
A MELLON FINANCIAL COMPANY(SM) 200 Park Avenue
210 University Boulevard, Suite 800 New York, NY 10166
Denver, CO 80206
The views expressed in this report reflect those of the portfolio manager only
through the end of the period covered and do not necessarily represent the views
of Founders or any other person in the Founders organization. Any such views are
subject to change at any time based upon market or other conditions and Founders
disclaims any responsibility to update such views. These views may not be relied
on as investment advice and, because investment decisions for a Dreyfus Founders
Fund are based on numerous factors, may not be relied on as an indication of
trading intent on behalf of any Dreyfus Founders Fund. Companies appearing in
bold print on pages 3-8 were owned by the Fund on December 31, 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
(UNAUDITED)
[PHOTO OF JOHN B. JARES]
A DISCUSSION WITH PORTFOLIO
MANAGER JOHN B. JARES, CFA
HOW DID THE FUND PERFORM RELATIVE TO ITS BENCHMARK FOR THE 12 MONTHS ENDED
DECEMBER 31, 2004?
Dreyfus Founders Equity Growth Fund underperformed its benchmark, the Standard &
Poor's 500 Index, which posted a 10.88% return for the 12-month period ended
December 31, 2004.
WHAT WAS THE BROAD MARKET ENVIRONMENT IN WHICH THE FUND PERFORMED DURING THE
PERIOD?
The first three quarters of 2004 proved rough for U.S. equity markets as various
factors weighed heavily on investor sentiment. Among these factors were the
continued uncertainty surrounding geopolitical activity in the Middle East, the
anticipation and enactment of increases in the federal funds rate, skyrocketing
oil prices and the run-up to the closely contested U.S. Presidential election.
However, by the fourth quarter numerous investor concerns were resolved and the
markets rallied.
WHAT MANAGEMENT DECISIONS POSITIVELY CONTRIBUTED TO FUND PERFORMANCE DURING THE
PERIOD?
Overall, strong stock selection drove the Fund's performance during the period,
as numerous holdings positively impacted Fund performance. When examining
sectors, holdings in the consumer discretionary, information technology and
industrials sectors provided the largest boon to Fund performance relative to
its benchmark.
[SIDENOTE]
"CONTINUED STRONG CONSUMER SPENDING BOOSTED THE CONSUMER DISCRETIONARY SECTOR."
3
<Page>
Continued strong consumer spending boosted the consumer discretionary sector
in 2004. During the period, our bottom-up investment process led us to forecast
strong demand for leisure cruising, and as a result we compiled earnings
estimates that were ahead of Wall Street forecasts. The Fund's holdings in the
cruise industry, ROYAL CARIBBEAN CRUISES LIMITED and CARNIVAL CORPORATION,
positively impacted relative Fund performance and contributed to an overweight
position in the consumer discretionary sector versus the benchmark. STARWOOD
HOTELS & RESORTS WORLDWIDE, INC. also benefited from an uptick in business and
leisure travel. Additionally, retailer Nordstrom, Inc. gained in this
accommodative spending environment.
Although information technology stocks showed mixed performance in general
during the period, strong stock selection in this sector helped the Fund's
relative performance. Driven by continued strong demand for its iPod and the
introduction of a new Mac computer, APPLE COMPUTER, INC. had the largest
positive impact on the Fund's performance of any stock. Autodesk, Inc., a design
software and digital content company, also performed well due to favorable
acceptance of new products as well as strong company execution.
Continued economic strength also benefited holdings in the industrials
sector, such as FEDEX CORPORATION, which performed well on improved volumes.
[SIDENOTE]
PERFORMANCE HIGHLIGHTS
- The first three quarters of 2004 proved rough for U.S. equity markets as
various factors weighed heavily on investor sentiment.
- Holdings in the consumer discretionary, information technology and
industrials sectors provided the largest boon to Fund performance
relative to its benchmark.
- Although information technology stocks showed mixed performance in
general during the period, strong stock selection in this sector helped
the Fund's relative performance.
- Underweight positions in the materials, energy and financials sectors
weighed heavily on relative Fund performance during the period.
- Select information technology issues weighed heavily on performance in
spite of the sector's overall positive contribution to the Fund.
4
<Page>
Healthcare holding ABBOT LABORATORIES and energy issue EXXONMOBIL CORPORATION
were additional notable performers for the period.
The Fund's position in Standard & Poor's Depositary Receipts also had a
positive impact on Fund performance.
WHAT MANAGEMENT DECISIONS HINDERED FUND PERFORMANCE DURING THE PERIOD?
Our investment strategy is to build a diversified portfolio of high-quality,
respected companies that demonstrate the best potential for significant earnings
growth. However, there are times when stock performance disappoints, hurting the
Fund's overall performance.
During the period, select information technology issues weighed heavily on
performance in spite of the sector's overall positive contribution to the Fund.
INTEL CORPORATION experienced lackluster demand and declining gross margins,
which sent the stock lower during the year. Oracle Corporation was hurt by the
protracted fight to acquire PeopleSoft as well as tepid demand for software.
VIACOM, INC. posted growth rates that trailed Wall Street estimates, and MAXIM
INTEGRATED PRODUCTS, INC. underperformed as a result of lower market demand for
its products and excess channel inventory. CISCO SYSTEMS, INC., NVIDIA
Corporation and TEXAS INSTRUMENTS, INC. also underperformed for the period.
LARGEST EQUITY HOLDINGS (ticker symbol)
<Table>
1. SPDR Trust Series 1 (SPY) 4.77%
2. Microsoft Corporation (MSFT) 3.29%
3. Royal Caribbean Cruises Limited (RCL) 2.37%
4. Intel Corporation (INTC) 2.28%
5. Wal-Mart Stores, Inc. (WMT) 2.26%
6. Carnival Corporation (CCL) 2.15%
7. Cisco Systems, Inc. (CSCO) 2.09%
8. Kohl's Corporation (KSS) 2.07%
9. SAP AG Sponsored ADR (SAP) 2.07%
10. Gillette Company (G) 1.97%
</Table>
Portfolio holdings are subject to change, and should not be construed as a
recommendation of any security.
5
<Page>
GROWTH OF 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.
Class F S&P 500
Shares Index
- ----------------------------------
12/31/1994 $10,000 $10,000
12/31/1995 $12,906 $13,758
12/31/1996 $16,051 $16,917
12/31/1997 $19,171 $22,561
12/31/1998 $22,579 $29,008
12/31/1999 $25,973 $35,112
12/29/2000 $20,891 $31,915
12/31/2001 $17,226 $28,122
12/31/2002 $12,862 $21,907
12/31/2003 $16,808 $28,190
12/31/2004 $18,316 $31,258
The above graph compares a $10,000 investment made in Class F shares of Dreyfus
Founders Equity Growth Fund on 12/31/94 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 TOTAL RETURN AS OF 12/31/04
<Table>
<Caption>
1 5 10 SINCE
CLASS (Inception Date) YEAR YEARS YEARS INCEPTION
- -------------------------------------------------------------------------------------------
CLASS A SHARES (12/31/99)
With sales charge (5.75%) 2.39% (8.27%) -- (8.27%)
Without sales charge 8.54% (7.18%) -- (7.18%)
CLASS B SHARES (12/31/99)
With redemption* 3.73% (8.03%) -- (8.03%)
Without redemption 7.73% (7.68%) -- (7.68%)
CLASS C SHARES (12/31/99)
With redemption** 6.87% (8.00%) -- (8.00%)
Without redemption 7.87% (8.00%) -- (8.00%)
CLASS F SHARES (7/5/38) 8.97% (6.75%) 6.24% N/A
CLASS R SHARES (12/31/99) 8.88% (6.96%) -- (6.96%)
CLASS T SHARES (12/31/99)
With sales charge (4.50%) 2.83% (8.61%) -- (8.61%)
Without sales charge 7.76% (7.76%) -- (7.76%)
</Table>
Average annual total returns do not reflect the deduction of taxes that a
shareholder would pay on Fund distributions or redemption of Fund shares, but do
reflect the reinvestment of dividends and capital gain distributions, expense
limits for certain share classes, and adjustments for financial statement
purposes.
*The maximum contingent deferred sales charge for Class B shares is 4% and is
reduced to 0% after six years, at which time the Class B shares convert to Class
A shares.
**The maximum contingent deferred sales charge for Class C shares is 1% for
shares redeemed within one year of the date of purchase.
7
<Page>
[CHART]
PORTFOLIO COMPOSITION OF NET ASSETS
<Table>
Information Technology 30.05%
Consumer Discretionary 19.11%
Financials 11.91%
Industrials 11.26%
Healthcare 9.42%
Consumer Staples 8.15%
Energy 2.37%
Other 5.27%
Cash & Equivalents 2.46%
</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.
Underweight positions in the materials, energy and financials sectors also
weighed heavily on relative Fund performance during the period. Additionally,
weak stock selection in materials and financials dragged on the Fund's annual
return.
Other notable detractors from Fund performance included COCA-COLA COMPANY and
Newmont Mining Corporation. In addition, PFIZER, INC. had the largest negative
impact on the Fund's performance of any stock. Generic competition and safety
concerns surrounding two of the company's COX-2 inhibitor drugs combined to hurt
Pfizer's share price for the period.
We will continue to apply our fundamental-based investment process and
philosophy in seeking companies that we believe have the potential to take
advantage of an improving economy and that exhibit strong earnings growth.
/s/ John B. Jares
John B. Jares, CFA
Portfolio Manager
8
<Page>
This page intentionally left blank.
9
<Page>
FUND EXPENSES
(UNAUDITED)
As a shareholder of the Fund, depending on the class of shares of the Fund you
own, you incur two types of costs: (1) transaction costs, including front-end
and contingent deferred sales charges; and (2) ongoing costs, including
management fees, Rule 12b-1 fees, shareholder services fees, and other expenses.
The expense example shown below is intended to help you understand your ongoing
costs (in dollars) of investing in the Fund and to compare these costs with the
ongoing costs of investing in other mutual funds.
The expense example is based on an investment of $1,000 on July 1, 2004 and
held through December 31, 2004.
ACTUAL EXPENSES The numbers included in the expense example in the rows with the
word "Actual" in the title provide information about actual account values and
actual expenses. You may use this information to estimate the expenses that you
paid over the period. Simply divide your account value by $1,000 (for example,
an $8,600 account value divided by $1,000 = 8.60), then multiply the result by
the number under the column heading entitled "Expenses Paid During Period" for
the class of shares you hold to estimate the expenses you paid on your account
during this period.
HYPOTHETICAL EXPENSES The numbers included in the expense example in the rows
with the word "Hypothetical" in the title provide information about hypothetical
account values and hypothetical expenses based on the Fund's actual expense
ratio for each class of shares, and an assumed rate of return of 5% per year
before expenses, which is not the Fund's actual return. The hypothetical account
values and expenses may not be used to estimate the actual ending account
balance or expenses you paid for the period. You may use this information to
compare the ongoing costs of investing in the Fund and other funds. To do so,
compare the hypothetical expenses in the expense example for the class of shares
you hold with the hypothetical expenses that appear in the shareholder reports
of other funds.
Please note that the expenses shown in the expense example are meant to
highlight your ongoing costs only and do not reflect the transaction costs
described above. Therefore, the hypothetical expenses in the expense example are
useful in comparing ongoing costs only, and will not help you determine the
relative total costs of owning different funds. In addition, if the transaction
costs were included, your costs would have been higher.
10
<Page>
EXPENSE EXAMPLE
<Table>
<Caption>
BEGINNING ENDING EXPENSES PAID
ACCOUNT VALUE ACCOUNT VALUE DURING PERIOD*
(7/1/04) (12/31/04) (7/1/04-12/31/04)
--------------------------------------------------------------------------------------------
CLASS A ACTUAL $ 1,000.00 $ 1,057.36 $ 6.75
CLASS A HYPOTHETICAL 1,000.00 1,018.38 6.62
CLASS B ACTUAL 1,000.00 1,049.94 10.46
CLASS B HYPOTHETICAL 1,000.00 1,014.72 10.28
CLASS C ACTUAL 1,000.00 1,051.14 10.36
CLASS C HYPOTHETICAL 1,000.00 1,014.82 10.18
CLASS F ACTUAL 1,000.00 1,060.70 5.71
CLASS F HYPOTHETICAL 1,000.00 1,019.40 5.60
CLASS R ACTUAL 1,000.00 1,059.96 5.30
CLASS R HYPOTHETICAL 1,000.00 1,019.81 5.19
CLASS T ACTUAL 1,000.00 1,049.84 10.83
CLASS T HYPOTHETICAL 1,000.00 1,014.36 10.64
</Table>
*Expenses are equal to each Class's respective annualized expense ratio,
shown below, multiplied by the average account value over the period,
multiplied by 184/366 (to reflect the one-half year period).
EXPENSE RATIOS
These expense ratios reflect reimbursements and/or waivers of expenses by the
Fund's investment adviser or its affiliates, where applicable.
<Table>
<Caption>
EXPENSE RATIO
--------------------------------------------------
CLASS A 1.30%
CLASS B 2.02%
CLASS C 2.00%
CLASS F 1.10%
CLASS R 1.02%
CLASS T 2.09%
</Table>
11
<Page>
STATEMENT OF INVESTMENTS
December 31, 2004
<Table>
<Caption>
SHARES MARKET VALUE
- ---------------------------------------------------------------------------------
COMMON STOCKS (DOMESTIC)--92.2%
AIR FREIGHT & LOGISTICS--1.0%
24,025 FedEx Corporation $ 2,366,215
------------
AIRLINES--1.6%
53,900 AMR Corporation* 590,205
77,400 JetBlue Airways Corporation* 1,797,228
86,800 Southwest Airlines Company 1,413,104
------------
3,800,537
------------
APPLICATION SOFTWARE--1.0%
53,500 Mercury Interactive Corporation* 2,436,925
------------
ASSET MANAGEMENT & CUSTODY BANKS--1.0%
17,250 Bank of New York Company, Inc. 576,495
39,675 Northern Trust Corporation 1,927,412
------------
2,503,907
------------
BIOTECHNOLOGY--2.3%
29,060 Amgen, Inc.* 1,864,199
9,650 Biogen Idec, Inc.* 642,787
25,375 Genzyme Corporation* 1,473,526
42,425 Gilead Sciences, Inc.* 1,484,451
------------
5,464,963
------------
BROADCASTING & CABLE TV--1.8%
132,325 Comcast Corporation Special Class A* 4,345,553
------------
CASINOS & GAMING--0.5%
17,275 Wynn Resorts, Limited* 1,156,043
------------
COMMUNICATIONS EQUIPMENT--4.6%
85,150 Avaya, Inc.* 1,464,580
257,138 Cisco Systems, Inc.* 4,962,763
37,775 Motorola, Inc. 649,730
43,850 QUALCOMM, Inc. 1,859,240
60,025 Scientific-Atlanta, Inc. 1,981,425
------------
10,917,738
------------
COMPUTER & ELECTRONICS RETAIL--0.5%
19,399 Best Buy Company, Inc. 1,152,689
------------
COMPUTER HARDWARE--4.4%
72,125 Apple Computer, Inc.* 4,644,850
38,750 Dell, Inc.* 1,632,925
43,125 International Business Machines Corporation 4,251,263
------------
10,529,038
------------
COMPUTER STORAGE & PERIPHERALS--1.5%
238,200 EMC Corporation* 3,542,034
------------
CONSUMER FINANCE--0.7%
62,781 MBNA Corporation 1,769,796
------------
</Table>
12
<Page>
<Table>
<Caption>
SHARES MARKET VALUE
- ---------------------------------------------------------------------------------
DATA PROCESSING & OUTSOURCED SERVICES--2.1%
89,225 Automatic Data Processing, Inc. $ 3,957,129
25,625 CheckFree Corporation* 975,800
------------
4,932,929
------------
DEPARTMENT STORES--2.1%
100,125 Kohl's Corporation* 4,923,146
------------
DIVERSIFIED BANKS--1.0%
36,150 Wells Fargo & Company 2,246,723
------------
ELECTRICAL COMPONENTS & EQUIPMENT--0.9%
29,375 Emerson Electric Company 2,059,188
------------
EMPLOYMENT SERVICES--1.6%
29,500 Manpower, Inc. 1,424,850
69,500 Monster Worldwide, Inc.* 2,337,980
------------
3,762,830
------------
EXCHANGE TRADED FUNDS--5.3%
29,650 Nasdaq 100 Index Tracking Stock 1,183,332
93,725 SPDR Trust Series 1 11,331,353
------------
12,514,685
------------
GENERAL MERCHANDISE STORES--1.0%
57,150 Dollar General Corporation 1,187,006
24,875 Target Corporation 1,291,759
------------
2,478,765
------------
HEALTHCARE EQUIPMENT--0.7%
45,425 Boston Scientific Corporation* 1,614,859
------------
HOME ENTERTAINMENT SOFTWARE--0.5%
20,600 Electronic Arts, Inc.* 1,270,608
------------
HOTELS, RESORTS & CRUISE LINES--3.8%
88,725 Carnival Corporation 5,113,222
65,800 Starwood Hotels & Resorts Worldwide, Inc. 3,842,720
------------
8,955,942
------------
HOUSEHOLD PRODUCTS--1.5%
41,025 Clorox Company 2,417,603
23,275 Colgate-Palmolive Company 1,190,749
------------
3,608,352
------------
HYPERMARKETS & SUPER CENTERS--2.3%
101,525 Wal-Mart Stores, Inc. 5,362,551
------------
INDUSTRIAL CONGLOMERATES--1.2%
81,375 General Electric Company 2,970,188
------------
INDUSTRIAL MACHINERY--0.6%
15,225 Illinois Tool Works, Inc. 1,411,053
------------
INTEGRATED OIL & GAS--1.8%
82,541 ExxonMobil Corporation 4,231,052
------------
</Table>
SEE NOTES TO STATEMENT OF INVESTMENTS.
13
<Page>
<Table>
<Caption>
SHARES MARKET VALUE
- ---------------------------------------------------------------------------------
INVESTMENT BANKING & BROKERAGE--2.7%
37,250 Goldman Sachs Group, Inc. $ 3,875,490
46,900 Morgan Stanley 2,603,888
------------
6,479,378
------------
LEISURE FACILITIES--2.4%
103,300 Royal Caribbean Cruises Limited 5,623,652
------------
LIFE & HEALTH INSURANCE--0.5%
71,125 UnumProvident Corporation 1,275,983
------------
MOVIES & ENTERTAINMENT--4.6%
211,275 Time Warner, Inc.* 4,107,186
98,600 Viacom, Inc. 3,588,054
117,075 Walt Disney Company 3,254,685
------------
10,949,925
------------
MULTI-LINE INSURANCE--1.7%
60,075 American International Group, Inc. 3,945,125
------------
OFFICE ELECTRONICS--0.4%
17,700 Zebra Technologies Corporation* 996,156
------------
OIL & GAS DRILLING--0.6%
35,150 Diamond Offshore Drilling, Inc. 1,407,758
------------
OTHER DIVERSIFIED FINANCIAL SERVICES--1.5%
52,224 Citigroup, Inc. 2,516,152
29,201 JPMorgan Chase & Company 1,139,131
------------
3,655,283
------------
PERSONAL PRODUCTS--3.5%
76,650 Estee Lauder Companies, Inc. Class A 3,508,271
104,725 Gillette Company 4,689,586
------------
8,197,857
------------
PHARMACEUTICALS--5.4%
87,675 Abbott Laboratories 4,090,039
63,675 Johnson & Johnson 4,038,269
54,767 Pfizer, Inc. 1,472,685
78,125 Wyeth 3,327,344
------------
12,928,337
------------
PROPERTY & CASUALTY INSURANCE--0.8%
36,525 Allstate Corporation 1,889,073
------------
PUBLISHING--1.2%
33,675 Gannett Company, Inc. 2,751,248
------------
RAILROADS--1.9%
45,175 Burlington Northern Santa Fe Corporation 2,137,229
36,000 Union Pacific Corporation 2,421,000
------------
4,558,229
------------
RESTAURANTS--1.1%
79,425 Cheesecake Factory, Inc.* 2,578,930
------------
</Table>
14
<Page>
<Table>
<Caption>
SHARES MARKET VALUE
- ---------------------------------------------------------------------------------
SEMICONDUCTOR EQUIPMENT--1.0%
67,550 Applied Materials, Inc.* $ 1,155,105
25,500 KLA-Tencor Corporation* 1,187,790
------------
2,342,895
------------
SEMICONDUCTORS--6.5%
36,425 Broadcom Corporation* 1,175,799
4,170 Freescale Semiconductor, Inc. Class B* 76,561
231,628 Intel Corporation 5,417,779
92,025 Linear Technology Corporation 3,566,889
81,775 Maxim Integrated Products, Inc. 3,466,442
52,700 Texas Instruments, Inc. 1,297,474
17,800 Xilinx, Inc. 527,770
------------
15,528,714
------------
SOFT DRINKS--0.9%
52,825 Coca-Cola Company 2,199,105
------------
SPECIALTY STORES--0.2%
15,125 Tiffany & Company 483,546
------------
SYSTEMS SOFTWARE--5.0%
20,075 Adobe Systems, Inc. 1,259,506
292,641 Microsoft Corporation 7,816,441
100,800 VERITAS Software Corporation* 2,877,840
------------
11,953,787
------------
THRIFTS & MORTGAGE FINANCE--1.9%
28,325 Freddie Mac 2,087,553
58,100 The PMI Group, Inc. 2,425,675
------------
4,513,228
------------
TRADING COMPANIES & DISTRIBUTORS--1.1%
37,450 W.W. Grainger, Inc. 2,494,919
------------
TOTAL COMMON STOCKS (DOMESTIC)
(COST--$194,185,336) 219,081,437
------------
COMMON STOCKS (FOREIGN)--5.3%
APPLICATION SOFTWARE--2.4%
29,800 Amdocs Limited (CI)* 782,250
111,300 SAP AG Sponsored ADR (GE) 4,920,573
------------
5,702,823
------------
INDUSTRIAL CONGLOMERATES--0.5%
34,650 Tyco International Limited (BD) 1,238,391
------------
IT CONSULTING & OTHER SERVICES--0.5%
44,300 Accenture Limited Class A (BD)* 1,196,100
------------
PHARMACEUTICALS--1.0%
79,400 Teva Pharmaceutical Industries Limited Sponsored
ADR (IS) 2,370,884
------------
</Table>
SEE NOTES TO STATEMENT OF INVESTMENTS.
15
<Page>
<Table>
<Caption>
SHARES MARKET VALUE
- ---------------------------------------------------------------------------------
RAILROADS--0.9%
33,937 Canadian National Railway Company (CA) $ 2,078,641
-------------
TOTAL COMMON STOCKS (FOREIGN)
(COST--$10,743,550) 12,586,839
-------------
<Caption>
UNITS MARKET VALUE
- ---------------------------------------------------------------------------------
RIGHTS AND WARRANTS--0.0%
COMMUNICATIONS EQUIPMENT--0.0%
17,210 Lucent Technologies Warrants, expire 2007* $ 27,192
-------------
TOTAL RIGHTS AND WARRANTS
(COST--$0) 27,192
-------------
<Caption>
PRINCIPAL AMOUNT AMORTIZED COST
- ---------------------------------------------------------------------------------
CORPORATE SHORT-TERM NOTES--2.9%
PHARMACEUTICALS--2.9%
$ 6,800,000 Novartis Finance Corporation
2.10% 1/3/05~ $ 6,799,207
-------------
TOTAL CORPORATE SHORT-TERM NOTES
(AMORTIZED COST--$6,799,207) 6,799,207
-------------
TOTAL INVESTMENTS--100.4%
(TOTAL COST--$211,728,093) 238,494,675
-------------
OTHER ASSETS AND LIABILITIES--(0.4%) (945,502)
-------------
NET ASSETS--100.0% $ 237,549,173
=============
</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. THESE SECURITIES
AMOUNTED TO $6,799,207, OR 2.9%, OF THE FUND'S NET ASSETS AS OF DECEMBER
31, 2004.
ADR - AMERICAN DEPOSITARY RECEIPT
SPDR - STANDARD AND POOR'S DEPOSITARY RECEIPT
BD - BERMUDA
CA - CANADA
CI - CHANNEL ISLANDS
GE - GERMANY
IS - ISRAEL
SEE NOTES TO FINANCIAL STATEMENTS.
16
<Page>
STATEMENT OF ASSETS AND LIABILITIES
December 31, 2004
<Table>
ASSETS
Investment securities, at cost $ 211,728,093
---------------
Investment securities, at market 238,494,675
Cash 658,365
Receivables:
Capital shares sold 34,740
Dividends and interest 262,829
Other assets 60,397
---------------
Total Assets 239,511,006
---------------
LIABILITIES
Payables and other accrued liabilities:
Investment securities purchased 1,272,329
Capital shares redeemed 371,298
Advisory fees 129,657
Shareholder servicing fees 24,377
Accounting fees 11,968
Distribution fees 39,106
Transfer agency fees 12,590
Custodian fees 507
Other 100,001
---------------
Total Liabilities 1,961,833
---------------
Net Assets $ 237,549,173
===============
COMPOSITION OF NET ASSETS
Capital (par value and paid-in surplus) $ 314,880,144
Undistributed net investment income 393,754
Accumulated net realized loss from security transactions (104,491,307)
Net unrealized appreciation on investments
and foreign currency translation 26,766,582
---------------
Total $ 237,549,173
===============
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
17
<Page>
<Table>
CLASS A
Net Assets $ 1,179,753
Shares Outstanding 242,875
Net Asset Value, Redemption Price Per Share $ 4.86
Maximum offering price per share (net asset value
plus sales charge of 5.75% of offering price) $ 5.16
CLASS B
Net Assets $ 2,110,213
Shares Outstanding 444,953
Net Asset Value, Offering and Redemption Price (excluding
applicable contingent deferred sales charge) Per Share $ 4.74
CLASS C
Net Assets $ 570,577
Shares Outstanding 122,550
Net Asset Value, Offering and Redemption Price (excluding
applicable contingent deferred sales charge) Per Share $ 4.66
CLASS F
Net Assets $ 233,409,658
Shares Outstanding 47,078,952
Net Asset Value, Offering and Redemption Price Per Share $ 4.96
CLASS R
Net Assets $ 247,003
Shares Outstanding 50,295
Net Asset Value, Offering and Redemption Price Per Share $ 4.91
CLASS T
Net Assets $ 31,969
Shares Outstanding 6,774
Net Asset Value, Redemption Price Per Share $ 4.72
Maximum offering price per share (net asset value
plus sales charge of 4.50% of offering price) $ 4.94
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
18
<Page>
STATEMENT OF OPERATIONS
For the year ended December 31, 2004
<Table>
INVESTMENT INCOME
Dividends $ 3,540,686
Interest 187,133
Foreign taxes withheld (10,929)
---------------
Total Investment Income 3,716,890
---------------
EXPENSES
Advisory fees--Note 2 1,494,659
Shareholder servicing fees--Note 2 275,877
Accounting fees--Note 2 137,969
Distribution fees--Note 2 160,945
Transfer agency fees--Note 2 118,813
Registration fees 38,500
Postage and mailing expenses 23,388
Custodian fees and expenses--Note 2 8,196
Printing expenses 65,042
Legal and audit fees 55,050
Directors' fees and expenses--Note 2 43,829
Other expenses 41,091
---------------
Total Expenses 2,463,359
Earnings Credits (4,126)
Reimbursed/Waived Expenses (1,523)
Expense Offset to Broker Commissions (4,681)
---------------
Net Expenses 2,453,029
---------------
Net Investment Income 1,263,861
---------------
REALIZED AND UNREALIZED GAIN (LOSS) ON SECURITY
TRANSACTIONS AND FOREIGN CURRENCY TRANSACTIONS
Net Realized Gain on:
Security Transactions 20,710,060
Foreign currency transactions 33
---------------
Net Realized Gain 20,710,093
Net Change in Unrealized Appreciation/Depreciation
of Investments and Foreign Currency Translation (2,549,571)
---------------
Net Realized and Unrealized Gain 18,160,522
---------------
Net Increase in Net Assets Resulting from Operations $ 19,424,383
===============
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
19
<Page>
STATEMENTS OF CHANGES IN NET ASSETS
<Table>
<Caption>
YEAR ENDED YEAR ENDED
12/31/04 12/31/03
OPERATIONS
Net Investment Income $ 1,263,861 $ 103,107
Net Realized Gain on Security Transactions
and Foreign Currency Transactions 20,710,093 8,677,330
Net Change in Unrealized Appreciation/Depreciation
of Investments and Foreign Currency Translation (2,549,571) 48,238,272
--------------- ---------------
Net Increase in Net Assets Resulting
from Operations 19,424,383 57,018,709
--------------- ---------------
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS
From Net Investment Income
Class A (3,007) 0
Class F (945,884) (183,602)
Class R (1,108) 0
--------------- ---------------
Net Decrease from Dividends and Distributions (949,999) (183,602)
--------------- ---------------
CAPITAL SHARE TRANSACTIONS
Net Increase (Decrease)--Note 4
Class A 174,433 408,018
Class B 237,470 407,646
Class C 173,366 121,020
Class F (18,116,372) (14,678,661)
Class R 29,755 127,592
Class T 0 (12,373)
Class T Payment by Service Provider 698 0
--------------- ---------------
Net Decrease from Capital Share Transactions (17,500,650) (13,626,758)
--------------- ---------------
Net Increase in Net Assets 973,734 43,208,349
--------------- ---------------
NET ASSETS
Beginning of year $ 236,575,439 $ 193,367,090
--------------- ---------------
End of year $ 237,549,173 $ 236,575,439
=============== ===============
Undistributed Net Investment Income $ 393,754 $ 79,859
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
20
<Page>
FINANCIAL HIGHLIGHTS
<Table>
<Caption>
YEAR ENDED DECEMBER 31,
-----------------------------------------------------------------
2004 2003 2002 2001 2000
-----------------------------------------------------------------
CLASS A SHARES
PER SHARE OPERATING DATA
Net Asset Value, beginning of year $ 4.49 $ 3.44 $ 4.66 $ 5.73 $ 7.61
- -----------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) 0.02 0.03 (0.02) (0.07) 0.00+
Net realized and unrealized gains
(losses) on securities 0.36 1.02 (1.20) (1.00) (1.45)
-----------------------------------------------------------------
Total from investment operations 0.38 1.05 (1.22) (1.07) (1.45)
- -----------------------------------------------------------------------------------------------------------
Less dividends and distributions:
From net investment income (0.01) 0.00 0.00 0.00 0.00
From net realized gains 0.00 0.00 0.00 0.00^ (0.43)
-----------------------------------------------------------------
Total distributions (0.01) 0.00 0.00 0.00 (0.43)
- -----------------------------------------------------------------------------------------------------------
Net Asset Value, end of year $ 4.86 $ 4.49 $ 3.44 $ 4.66 $ 5.73
=================================================================
TOTAL RETURN* 8.54% 30.52% (26.18%) (18.65%) (19.04%)
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000s) $ 1,180 $ 935 $ 378 $ 442 $ 318
- -----------------------------------------------------------------------------------------------------------
Ratios to average net assets:
Expenses with reimbursements, but no
earnings credits or brokerage offsets# 1.26% 1.49% 1.87% 2.98% 1.06%
Expenses with reimbursements,
earnings credits and brokerage offsets 1.25% 1.48% 1.87% 2.98% 1.01%
Net investment income (loss) 0.38% (0.25%) (0.67%) (1.82%) (0.03%)
- -----------------------------------------------------------------------------------------------------------
Portfolio turnover rate@ 115% 123% 152% 144% 165%
</Table>
+ NET INVESTMENT LOSS FOR THE YEAR ENDED DECEMBER 31, 2000 AGGREGATED LESS
THAN $0.01 ON A PER SHARE BASIS.
^ DISTRIBUTIONS FROM NET REALIZED GAINS FOR THE YEAR ENDED DECEMBER 31, 2001
AGGREGATED LESS THAN $0.01 ON A PER SHARE BASIS.
* SALES CHARGES ARE NOT REFLECTED IN THE TOTAL RETURN.
# 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>
YEAR ENDED DECEMBER 31,
-----------------------------------------------------------------
2004 2003 2002 2001 2000
-----------------------------------------------------------------
CLASS B SHARES
PER SHARE OPERATING DATA
Net Asset Value, beginning of year $ 4.40 $ 3.40 $ 4.61 $ 5.65 $ 7.61
- -----------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment loss (0.00)+ (0.01) (0.05) (0.04) (0.02)
Net realized and unrealized gains
(losses) on securities 0.34 1.01 (1.16) (1.00) (1.51)
-----------------------------------------------------------------
Total from investment operations 0.34 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 year $ 4.74 $ 4.40 $ 3.40 $ 4.61 $ 5.65
=================================================================
TOTAL RETURN* 7.73% 29.41% (26.25%) (18.38%) (20.09%)
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000s) $ 2,110 $ 1,709 $ 1,013 $ 1,599 $ 1,170
- -----------------------------------------------------------------------------------------------------------
Ratios to average net assets:
Expenses with reimbursements, but no
earnings credits or brokerage offsets# 2.01% 2.30% 2.14% 2.20% 1.80%
Expenses with reimbursements,
earnings credits and brokerage offsets 2.00% 2.30% 2.14% 2.19% 1.76%
Net investment loss (0.34%) (1.08%) (0.95%) (1.03%) (0.88%)
- -----------------------------------------------------------------------------------------------------------
Portfolio turnover rate@ 115% 123% 152% 144% 165%
</Table>
+ NET INVESTMENT LOSS FOR THE YEAR ENDED DECEMBER 31, 2004 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.
# 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>
YEAR ENDED DECEMBER 31,
-----------------------------------------------------------------
2004 2003 2002 2001 2000
-----------------------------------------------------------------
CLASS C SHARES
PER SHARE OPERATING DATA
Net Asset Value, beginning of year $ 4.32 $ 3.34 $ 4.55 $ 5.66 $ 7.61
- -----------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) 0.04 0.04 (0.07) (0.13) (0.01)
Net realized and unrealized gains
(losses) on securities 0.30 0.94 (1.14) (0.98) (1.51)
-----------------------------------------------------------------
Total from investment operations 0.34 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 year $ 4.66 $ 4.32 $ 3.34 $ 4.55 $ 5.66
=================================================================
TOTAL RETURN* 7.87% 29.34% (26.59%) (19.58%) (19.96%)
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000s) $ 571 $ 357 $ 186 $ 270 $ 343
- -----------------------------------------------------------------------------------------------------------
Ratios to average net assets:
Expenses with reimbursements, but no
earnings credits or brokerage offsets# 1.99% 2.29% 2.77% 3.17% 1.84%
Expenses with reimbursements,
earnings credits and brokerage offsets 1.99% 2.28% 2.76% 3.16% 1.75%
Net investment loss (0.24%) (1.04%) (1.55%) (2.01%) (0.83%)
- -----------------------------------------------------------------------------------------------------------
Portfolio turnover rate@ 115% 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.
# 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 1.99% (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.
23
<Page>
<Table>
<Caption>
YEAR ENDED DECEMBER 31,
-----------------------------------------------------------------
2004 2003 2002 2001 2000
-----------------------------------------------------------------
CLASS F SHARES
PER SHARE OPERATING DATA
Net Asset Value, beginning of year $ 4.57 $ 3.50 $ 4.69 $ 5.69 $ 7.61
- -----------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) 0.02 0.00+ 0.00+ 0.00+ (0.02)
Net realized and unrealized gains
(losses) on securities 0.39 1.07 (1.19) (1.00) (1.47)
-----------------------------------------------------------------
Total from investment operations 0.41 1.07 (1.19) (1.00) (1.49)
- -----------------------------------------------------------------------------------------------------------
Less dividends and distributions:
From net investment income (0.02) 0.00^ 0.00^ 0.00 0.00
From net realized gains 0.00 0.00 0.00 0.00^ (0.43)
-----------------------------------------------------------------
Total distributions (0.02) 0.00 0.00 0.00 (0.43)
- -----------------------------------------------------------------------------------------------------------
Net Asset Value, end of year $ 4.96 $ 4.57 $ 3.50 $ 4.69 $ 5.69
=================================================================
TOTAL RETURN 8.97% 30.67% (25.33%) (17.55%) (19.57%)
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000s) $ 233,410 $ 233,333 $ 191,701 $ 288,752 $ 385,816
- -----------------------------------------------------------------------------------------------------------
Ratios to average net assets:
Expenses with reimbursements, but no
earnings credits or brokerage offsets# 1.06% 1.13% 1.08% 1.14% 1.12%
Expenses with reimbursements,
earnings credits and brokerage offsets 1.06% 1.13% 1.08% 1.14% 1.10%
Net investment income (loss) 0.56% 0.06% 0.11% 0.02% (0.24%)
- -----------------------------------------------------------------------------------------------------------
Portfolio turnover rate@ 115% 123% 152% 144% 165%
</Table>
+ NET INVESTMENT INCOME FOR THE YEARS ENDED DECEMBER 31, 2003, 2002, AND 2001
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.
# 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.
24
<Page>
<Table>
<Caption>
YEAR ENDED DECEMBER 31,
-------------------------------------------------------------------
2004 2003 2002 2001 2000
-------------------------------------------------------------------
CLASS R SHARES
PER SHARE OPERATING DATA
Net Asset Value, beginning of year $ 4.53 $ 3.47 $ 4.74 $ 5.74 $ 7.61
- ------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) 0.03 0.06 (0.08) (0.01) 0.00+
Net realized and unrealized gains
(losses) on securities 0.37 1.00 (1.19) (0.99) (1.44)
-------------------------------------------------------------------
Total from investment operations 0.40 1.06 (1.27) (1.00) (1.44)
- ------------------------------------------------------------------------------------------------------------
Less dividends and distributions:
From net investment income (0.02) 0.00 0.00 0.00 0.00
From net realized gains 0.00 0.00 0.00 0.00^ (0.43)
-------------------------------------------------------------------
Total distributions (0.02) 0.00 0.00 0.00 (0.43)
- ------------------------------------------------------------------------------------------------------------
Net Asset Value, end of year $ 4.91 $ 4.53 $ 3.47 $ 4.74 $ 5.74
===================================================================
TOTAL RETURN 8.88% 30.55% (26.79%) (17.39%) (18.91%)
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000s) $ 247 $ 211 $ 57 $ 51 $ 1
- ------------------------------------------------------------------------------------------------------------
Ratios to average net assets:
Expenses with reimbursements, but no
earnings credits or brokerage offsets# 1.00% 1.35% 2.95% 2.73% 0.79%
Expenses with reimbursements,
earnings credits and brokerage offsets 1.00% 1.35% 2.95% 2.72% 0.76%
Net investment income (loss) 0.54% (0.12%) (1.78%) (1.68%) 0.01%
- ------------------------------------------------------------------------------------------------------------
Portfolio turnover rate@ 115% 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.
# 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 1.00% (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.
25
<Page>
<Table>
<Caption>
YEAR ENDED DECEMBER 31,
-------------------------------------------------------------------
2004 2003 2002 2001 2000
-------------------------------------------------------------------
CLASS T SHARES
PER SHARE OPERATING DATA
Net Asset Value, beginning of year $ 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 0.25 1.22 (0.91) (0.99) (1.49)
-------------------------------------------------------------------
Total from investment operations 0.24 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)
- ------------------------------------------------------------------------------------------------------------
Other:
Payment by Service Provider 0.10+ 0.00 0.00 0.00 0.00
- ------------------------------------------------------------------------------------------------------------
Net Asset Value, end of year $ 4.72 $ 4.38 $ 3.39 $ 4.60 $ 5.68
===================================================================
TOTAL RETURN* 7.76% 29.20% (26.30%) (18.99%) (19.69%)
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000s) $ 32 $ 30 $ 33 $ 127 $ 82
- ------------------------------------------------------------------------------------------------------------
Ratios to average net assets:
Expenses with reimbursements, but no
earnings credits or brokerage offsets# 1.90% 2.27% 2.47% 3.14% 1.28%
Expenses with reimbursements,
earnings credits and brokerage offsets 1.90% 2.26% 2.46% 3.13% 1.25%
Net investment loss (0.29%) (1.11%) (1.29%) (1.96%) (0.40%)
- ------------------------------------------------------------------------------------------------------------
Portfolio turnover rate@ 115% 123% 152% 144% 165%
</Table>
+ A SERVICE PROVIDER REIMBURSED THE FUND'S CLASS T SHARES FOR LOSSES
RESULTING FROM CERTAIN SHAREHOLDER ADJUSTMENTS WHICH OTHERWISE WOULD HAVE
REDUCED TOTAL RETURN BY 2.28%.
^ 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.
# 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 1.90% (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.
26
<Page>
NOTES TO FINANCIAL STATEMENTS
December 31, 2004
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,
Equity Growth (formerly Growth and Income), Government Securities, Growth,
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 Equity 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 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. However, the Funds are planning to begin using New
York closing exchange rates to convert foreign currencies to U.S. dollars
sometime during the first quarter of 2005.
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.
27
<Page>
If market quotations or official closing prices are not readily available or are
determined not to reflect accurately fair value, 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 but before the Fund calculates its net asset value,
and it is determined that the event has materially affected the value of the
security. Fair value of foreign equity securities may be determined with the
assistance of a pricing service using correlations between the movement of
prices of foreign securities and indexes of domestic securities and other
appropriate indicators, such as closing market prices of relevant ADRs and
futures contracts. Using fair value to price securities may result in a value
that is different from a security's most recent closing price and from the
prices used by other mutual funds to calculate their net asset values.
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 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.
28
<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, as earned, and includes the
accretion of discounts and the amortization of premiums over the lives of the
respective securities. Withholding taxes on foreign dividends have been provided
for in accordance with the applicable country's tax rules and rates.
DISTRIBUTIONS TO SHAREHOLDERS--The Fund declares and distributes dividends (if
any) and capital gains (if any) annually. Dividends and distributions, which are
determined in accordance with income tax regulations, are recorded on the
ex-dividend date.
EXPENSES--Each Class of the Fund bears expenses incurred specifically on its
behalf and, in addition, each Class bears a portion of general expenses based on
the relative net assets or the number of shareholder accounts of the Class. The
type of expense determines the allocation method.
The Company's board of directors has authorized the payment of certain Fund
expenses with commissions on Fund portfolio transactions. These commissions
reduce Other Expenses and are included in the Expense Offset to Broker
Commissions in the Statement of Operations.
USE OF ESTIMATES--The preparation of financial statements in conformity with
accounting principles generally accepted in the United States of America
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported amounts of
income and expenses during the reporting period. Actual results could differ
from those estimates.
INDEMNIFICATIONS--In the normal course of business, the Company enters into
contracts that contain provisions indemnifying other parties against specified
potential liabilities. Each Fund's maximum exposure under these arrangements is
unknown as this would involve future claims that may be made against the Fund
that have not yet occurred. However, based on experience, the Funds expect the
risk of loss to be remote.
OTHER--Certain prior year information has been reformatted, without substantive
change, to conform with the current year presentation.
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.
29
<Page>
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 year ended December 31,
2004, Class F shares were charged $267,153 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 from DTI
are paid by the Fund. During the year ended December 31, 2004, Class F shares
were charged $94,862 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 $13.00, per shareholder account considered to be an
open account at any time during a given month, plus out-of-pocket charges.
Class-specific transfer agency fees paid to DTI during the year ended December
31, 2004 were as follows:
<Table>
<Caption>
TRANSFER
AGENCY FEES
----------------------------------------------------------
Class A $ 1,724
Class B $ 3,357
Class C $ 635
Class R $ 417
Class T $ 173
</Table>
OTHER TRANSFER AGENCY FEES--Various broker-dealers, retirement plan
administrators and other unaffiliated entities have established omnibus accounts
with the Fund, and provide sub-transfer agency, recordkeeping or similar
services to persons holding Fund shares through those accounts. During the year
ended December 31, 2004, the Fund paid $17,645 to these entities for such
services. This amount is included in the transfer agency fees shown on the
Statement of Operations.
CASH MANAGEMENT FEES--The Funds also pay Mellon Bank N.A. ("Mellon Bank"), a
wholly-owned subsidiary of Mellon Financial Corporation and an affiliate of
Founders, fees for certain cash management services. These include various
services related to the processing of shareholder transactions in the Funds.
During the year ended December 31, 2004, the Fund was charged $2,971 for cash
management fees, which are included in the out-of-pocket charges from DTI above.
30
<Page>
DISTRIBUTION AND SHAREHOLDER SERVICES PLANS--DSC also is the distributor of the
Fund's shares. The Fund has adopted a Distribution Plan pursuant to Rule 12b-1
under the 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 year ended December
31, 2004, Class F shares were charged $142,634 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 year ended December 31, 2004, were as follows:
<Table>
<Caption>
DISTRIBUTION SHAREHOLDER
FEES SERVICING FEES
---------------------------------------------------------------------
Class A N/A $ 2,570
Class B $ 15,108 $ 5,036
Class C $ 3,127 $ 1,042
Class T $ 76 $ 76
</Table>
During the year ended December 31, 2004, DSC retained $2,331 in sales
commissions from the sales of Class A shares. DSC also retained $10,178 and $624
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 contractually agreed to waive
any fees received for these services to the extent they exceed Founders' costs
in providing the services.
CUSTODIAN FEES--Mellon Bank 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
31
<Page>
Fund held by the custodian. The Fund could have employed these assets alsewhere
to produce income had it not entered into this arrangement. The custodian has
also contractually 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 year ended December 31, 2004, the
Fund's portion of the fee waiver was $1,523, which reduced the amount paid to
Mellon Bank to $6,673.
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 invested
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,
which pays their compensation. The affairs of the Fund, including services
provided by Founders, are subject to the supervision and general oversight of
the Company's board of directors.
3. FEDERAL TAX INFORMATION
Net investment income and capital gains distributions are determined in
accordance with income tax regulations that may differ from accounting
principles generally accepted in the United States of America. These differences
are due to differing treatments for items such as deferral of wash sale losses,
foreign currency transactions, net operating losses and capital loss carryovers.
Permanent differences identified during the year ended December 31, 2004 have
been reclassified among the components of net assets as follows:
<Table>
<Caption>
UNDISTRIBUTED NET UNDISTRIBUTED NET PAID-IN
INVESTMENT INCOME REALIZED GAINS AND LOSSES CAPITAL
-------------------------------------------------------
$ 33 $ (33) $ 0
</Table>
32
<Page>
The tax character of distributions paid during 2004 and 2003 was as follows:
<Table>
<Caption>
2004 2003
DISTRIBUTIONS PAID FROM:
Ordinary Income $ 949,999 $ 183,602
Long-Term capital gain $ 0 $ 0
-------------------------------
$ 949,999 $ 183,602
===============================
</Table>
The tax components of capital represent distribution requirements the Fund must
satisfy under the income tax regulations and losses or tax deductions the Fund
may be able to offset against income and capital gains realized in future years.
Accumulated capital losses and post-October 31 capital losses noted below, if
any, as of December 31, 2004, 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. Net capital loss carryovers
utilized during 2004 by the Fund amounted to $20,697,472. Accumulated capital
losses as of December 31, 2004 were:
<Table>
<Caption>
EXPIRATION AMOUNT
---------------------------------------------------------------------
2009 $ 49,538,969
2010 $ 50,083,634
--------------
$ 99,622,603
==============
</Table>
The aggregate cost of investments and the composition of unrealized appreciation
and depreciation of investment securities for federal income tax purposes as of
December 31, 2004 are noted below. The primary difference between book and tax
appreciation or depreciation is wash sale loss deferrals.
<Table>
Undistributed Ordinary Income $ 438,872
Post-October Capital Loss Deferral $ 1,658,174
Federal Tax Cost $ 214,938,623
Gross Tax Appreciation of Investments $ 27,122,778
Gross Tax Depreciation of Investments $ (3,566,726)
Net Tax Appreciation $ 23,556,052
</Table>
33
<Page>
4. CAPITAL SHARE TRANSACTIONS
The Fund is authorized to issue 750 million shares of $0.01 par value
capital stock. Transactions in shares of the Fund for the periods indicated were
as follows:
<Table>
<Caption>
YEAR ENDED YEAR ENDED
12/31/04 12/31/03
SHARES AMOUNT SHARES AMOUNT
CLASS A
Sold 167,335 $ 765,894 127,097 $ 521,827
Dividends or Distributions Reinvested 404 $ 1,961 0 $ 0
Redeemed (133,430) $ (593,422) (28,494) $ (113,809)
------------------------------------------------------------------------
Net Increase 34,309 $ 174,433 98,603 $ 408,018
========================================================================
CLASS B
Sold 215,457 $ 939,503 164,031 $ 669,282
Redeemed (159,027) $ (702,033) (73,231) $ (261,636)
------------------------------------------------------------------------
Net Increase 56,430 $ 237,470 90,800 $ 407,646
========================================================================
CLASS C
Sold 63,935 $ 278,992 55,885 $ 224,519
Redeemed (24,034) $ (105,626) (28,811) $ (103,499)
------------------------------------------------------------------------
Net Increase 39,901 $ 173,366 27,074 $ 121,020
========================================================================
CLASS F
Sold 1,109,016 $ 5,075,748 1,278,819 $ 5,147,869
Dividends or Distributions Reinvested 165,648 $ 819,960 34,819 $ 159,122
Redeemed (5,197,897) $ (24,012,080) (5,079,072) $ (19,985,652)
------------------------------------------------------------------------
Net Decrease (3,923,233) $ (18,116,372) (3,765,434) $ (14,678,661)
========================================================================
CLASS R
Sold 36,325 $ 170,596 70,118 $ 283,426
Dividends or Distributions Reinvested 223 1,096 0 0
Redeemed (32,838) $ (141,937) (39,808) $ (155,834)
------------------------------------------------------------------------
Net Increase 3,710 $ 29,755 30,310 $ 127,592
========================================================================
CLASS T
Sold 14 $ 65 709 $ 2,660
Redeemed (14) $ (65) (3,604) $ (15,033)
------------------------------------------------------------------------
Net Increase (Decrease) 0 $ 0 (2,895) $ (12,373)
========================================================================
</Table>
34
<Page>
5. INVESTMENT TRANSACTIONS
Purchases and sales of investment securities (excluding short-term securities
and U.S. government obligations) for the year ended December 31, 2004 were
$248,349,947 and $249,953,970, 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 temporary or emergency purposes, primarily for
financing redemption payments. Each Fund's borrowings are limited to the lesser
of (a) $50 million, or (b) the lesser of 25% of the Fund's total net assets or
the maximum amount which the Fund is permitted to borrow pursuant to the
prospectus, any law or any other agreement. Combined borrowings are subject to
the $50 million cap on the total LOC. Each Fund agrees to pay annual fees and
interest on the unpaid balance based on prevailing market rates as defined in
the LOC. At December 31, 2004, the Fund did not have any borrowings under the
LOC.
7. LEGAL MATTERS
In early 2004, two purported class and derivative actions were filed against
Mellon Financial Corporation, Mellon Bank, Founders, Dreyfus, and certain
directors of the Dreyfus Founders Funds and the Dreyfus Funds (together, the
"Defendant Funds"). In September 2004, plaintiffs served a Consolidated Amended
Complaint (the "Amended Complaint") on behalf of a purported class of all
persons who acquired interests in any of the Defendant Funds between January 30,
1999 and November 17, 2003, and derivatively on behalf of the Defendant Funds.
The Amended Complaint in the newly styled IN RE DREYFUS MUTUAL FUNDS FEE
LITIGATION also named DSC, Premier Mutual Fund Services, Inc. and two additional
directors of the Defendant Funds as defendants and alleges violations of the
Investment Company Act of 1940, the Investment Advisers Act of 1940, the
Pennsylvania Unfair Trade Practices and Consumer Protection Law and common-law
claims. Plaintiffs seek to recover allegedly improper and excessive Rule 12b-1
and advisory fees allegedly charged to the Defendant Funds for marketing and
distribution services. More specifically, plaintiffs claim, among other things,
that 12b-1 fees and directed brokerage were improperly used to pay brokers to
recommend the Defendant Funds over other funds, and that such payments were not
disclosed to investors. In addition, plaintiffs assert that economies of scale
and soft-dollar benefits were not passed on to the Defendant Funds. Plaintiffs
further allege that 12b-1 fees were improperly charged to certain of the
Defendant Funds that were closed to new investors. The Amended Complaint seeks
compensatory and punitive damages, rescission of the advisory contracts, and an
accounting and restitution of any unlawful fees, as well as an award of
attorneys' fees and litigation expenses. As noted, some of the claims in this
litigation are asserted derivatively on behalf of the Defendant Funds that have
been named as nominal defendants. With respect to such derivative claims, no
relief is sought against the Defendant Funds. Founders, Dreyfus and the
Defendant Funds believe the allegations
35
<Page>
to be totally without merit and intend to defend the action vigorously. The
defendants filed motions to dismiss the Amended Complaint on November 12, 2004,
and those motions are pending.
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 nor the Funds believe that any of the pending actions
will have a material adverse effect on the Funds or Founders' ability to perform
its contract with the Funds.
36
<Page>
REPORT OF INDEPENDENT REGISTERED PUBLIC
ACCOUNTING FIRM
To the Board of Directors and Shareholders of
Dreyfus Founders Funds, Inc.
In our opinion, the accompanying statement of assets and liabilities, including
the statement of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of Dreyfus Founders Equity Growth
Fund, formerly Dreyfus Founders Growth and Income Fund, (one of the portfolios
constituting Dreyfus Founders Funds, Inc., hereafter referred to as the "Fund")
at December 31, 2004, the results of its operations for the year then ended, the
changes in its net assets for each of the two years in the period then ended and
the financial highlights for each of the five years in the period then ended, in
conformity with accounting principles generally accepted in the United States of
America. These financial statements and financial highlights (hereafter referred
to as "financial statements") are the responsibility of the Fund's management;
our responsibility is to express an opinion on these financial statements based
on our audits. We conducted our audits of these financial statements in
accordance with the standards of the Public Company Accounting Oversight Board
(United States). Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits, which included confirmation of securities at December 31, 2004 by
correspondence with the custodian and brokers and the application of alternative
auditing procedures where securities purchased had not been received, provide a
reasonable basis for the opinion expressed above.
PricewaterhouseCoopers LLP
Denver, Colorado
February 10, 2005
37
<Page>
OTHER TAX INFORMATION
(UNAUDITED)
CORPORATE DIVIDENDS RECEIVED DEDUCTION
Dividends paid by the Fund from net investment income and distributions of net
realized short-term capital gains are, for federal tax purposes, taxable as
ordinary income to shareholders. Of the ordinary income distributions declared
for the year ended December 31, 2004, 97.22% qualified for the dividends
received deduction available to the Fund's corporate shareholders.
QUALIFIED DIVIDEND INCOME
For the year ended December 31, 2004, the Fund designated 100% of the ordinary
income distributions paid as qualified dividend income subject to reduced income
tax rates for taxpayers with taxable accounts.
38
<Page>
YOUR BOARD REPRESENTATIVES
(UNAUDITED)
The Board of Directors of the Company oversees all 10 Dreyfus Founders Funds.
The business and affairs of the Company are managed under the direction of the
Board. The directors serving on the Board perform their responsibilities in the
manner which they reasonably believe to be in the best interests of the Funds
and their shareholders.
All of the directors, as listed below, are independent directors. They are not
affiliated with the Fund's adviser, its parent company, or its affiliates. The
directors have no official term of office and generally serve until they reach
the mandated retirement age of 75, resign, or are not re-elected. As you can see
from their backgrounds, the directors have broad experience as active or former
business and community leaders.
DIRECTORS
EUGENE H. VAUGHAN, CFA, 71. Year elected to the Board: 1970
Board Chairman. Founding Chairman and, formerly (1970 to 2000), President and
CEO, Vaughan Nelson Investment Management, LP, an investment counseling firm.
Director, Encore Bank. Founding Chairman, Center for Houston's Future, a
non-profit organization. Founding Chairman and former Governor, Association for
Investment Management and Research. Past Chairman and Trustee, Institute of
Chartered Financial Analysts. Past Chairman and Director, Financial Analysts
Federation.
ALAN S. DANSON, 65. Year elected to the Board: 1991
Private investor. Formerly, President and Director, D.H. Management, Inc., the
general partner of a limited partnership with technology company holdings (1996
to 2003). Formerly, Director and Senior Vice President, OptiMark Technologies,
Inc., a computerized securities trading service (1996 to 1999). Director,
CaseShare Systems, LLP, a document management company. Director, Gore Range
Natural Science School and The Les Streeter Programs, Inc., both of which are
non-profit organizations.
JOAN D. MANLEY, 72. Year elected to the Board: 1998
Retired. Formerly, Ms. Manley served in several executive capacities with Time
Incorporated, most recently as Group Vice President, Director and Chairman of
Time-Life Books, Inc. and Book of the Month Club, Inc. (1960 to 1984). Director,
Sara Lee Corporation and R.R. Donnelley & Sons Company.
ROBERT P. MASTROVITA, 60. Year elected to the Board: 1998
Private investor. Chairman of a private charitable foundation (1997 to present).
Formerly, Chairman and Director, Hagler, Mastrovita & Hewitt, Inc., a registered
investment adviser (1982 to 1997). Member, Boston Society of Security Analysts.
Trustee, Partridge Academy.
TRYGVE E. MYHREN, 68. Year elected to the Board: 1996
President, Myhren Media, Inc., a firm that invests in and advises media,
telecommunications, Internet and software companies. Special Limited Partner and
member of Investment Committee, Megunticook Funds, a venture capital firm (1998
to present). Director, Advanced Marketing Services, Inc. Trustee and Chairman of
Finance Committee, the University of Denver. Trustee, Denver Art Museum. Member,
Cable Television Hall of Fame. Formerly, President (1990 to 1996) and Director
(1992 to 2001) of the Providence Journal Company, a diversified media and
communications company. Formerly, Chairman and Chief Executive Officer of
American Television and
39
<Page>
Communications Corporation (now Timer Warner Cable) (1981 to 1988). Formerly,
Chairman of the National Cable Television Association (1986-1987).
GEORGE W. PHILLIPS, 66. Year elected to the Board: 1998
Retired. Vice Chairman of the Board, Chairman of the Finance Committee, and
Chairman of the Investment Committee, Children's Medical Center of Boston.
Formerly, President and Chief Executive Officer (1992 to 1997) and Director
(1992 to 2002) of Warren Bancorp, Inc. Formerly, President, Chief Executive
Officer and Director of Warren Five Cents Savings Bank (1992 to 1997).
PRINCIPAL OFFICERS
RICHARD W. SABO, 47. President of the Funds since 2000 and Principal Executive
Officer of the Funds since 2002. Founders' President and Chief Executive
Officer, Member of Founders' Board of Managers and Director of Dreyfus (1998 to
present). Executive Vice President of DSC since 2003. Formerly, Senior Vice
President and Regional Director for Prudential Securities, Inc. (1991 to 1998).
DAVID L. RAY, 47. Vice President of the Funds since 2000, and from 1990 to 1998.
Founders' Senior Vice President--Administration and Treasurer. Vice President of
DSC since 2003. Employed by Founders and its predecessor company since 1990.
Formerly, Treasurer of the Funds (1990 to 1998).
KENNETH R. CHRISTOFFERSEN, 49. Secretary of the Funds since 2000, and from 1996
to 1998. Founders' Senior Vice President--Legal, General Counsel and Secretary.
Assistant Secretary of DSC since 2003. Employed by Founders and its predecessor
company since 1996.
JANELLE E. BELCHER, 46. Chief Compliance Officer of the Funds since 2004 and
Assistant Secretary of the Funds since 2002. Founders' Vice
President--Compliance since 2002. Formerly, Founders' Manager of Compliance
(2000 to 2002) and Securities Compliance Examiner, Staff Accountant and Team
Leader for the U.S. Securities and Exchange Commission (1990 to 2000).
ROBERT T. KELLY, 35. Treasurer, Principal Financial Officer, and Principal
Accounting Officer of the Funds since 2003. Founders' Vice President of
Portfolio Accounting since 2000. Formerly, Assistant Treasurer of the Funds
(2000 to 2003), and Head of Equity Desk for ABN Amro Trust Company (Cayman)
Limited (1998 to 2000).
WILLIAM G. GERMENIS, 34. Anti-Money Laundering Compliance Officer ("AMLCO") for
the Class A, Class B, Class C, Class R, and Class T shares of the Funds since
2002 and for the Class F shares of the Funds since 2003. Vice President and
AMLCO of MBSC, LLC since 2002. Vice President and AMLCO of DSC and AMLCO of
investment companies managed by Dreyfus. Employed by DSC since 1998.
The directors and officers may be contacted at Founders' address appearing on
the inside cover, except for Mr.Germenis, who can be contacted at 200 Park
Avenue, New York, New York 10166. Additional information about the Company's
directors is available in the Statement of Additional Information, which can be
obtained free of charge by calling the toll free number on the back cover.
40
<Page>
DREYFUS FOUNDERS EQUITY GROWTH FUND
P.O. Box 55360
Boston, MA 02205-8252
1-800-525-2440
www.founders.com
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 (SEC) 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.
PORTFOLIO HOLDINGS
The Fund files its complete schedule of portfolio holdings with the SEC for the
first and third quarters of each fiscal year on Form N-Q. The Fund's Forms N-Q
are available on the SEC's website at www.sec.gov and may be reviewed and copied
at the SEC's Public Reference Room in Washington, DC. Information on the
operation of the SEC's Public Reference Room may be obtained by calling
1-800-SEC-0330.
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)2005 Founders Asset Management LLC. 2/05
A-646-EQG-04
<Page>
ANNUAL REPORT
DREYFUS FOUNDERS
GOVERNMENT SECURITIES
FUND
DREYFUS FOUNDERS
MONEY MARKET FUND
INVESTMENT UPDATE
DECEMBER 31, 2004
[(R) DREYFUS FOUNDERS FUNDS(R) LOGO]
THE GROWTH SPECIALISTS
<Page>
TABLE OF CONTENTS
<Table>
Government Securities Fund Management Overview 3
Fund Expenses 8
Government Securities Fund Statement of Investments 10
Money Market Fund Statement of Investments* 12
Statements of Assets and Liabilities 14
Statements of Operations 15
Statements of Changes in Net Assets 16
Government Securities Fund Financial Highlights 17
Money Market Fund Financial Highlights 18
Notes to Financial Statements 19
Report of Independent Registered Public Accounting Firm 28
Other Tax Information 29
Your Board Representatives 30
</Table>
[GRAPHIC]
PAPERLESS DELIVERY OF THIS REPORT
Did you know you can reduce your postal mail by accessing Dreyfus Founders Funds
regulatory material online? It's a simple, reliable process: when new documents
such as this Annual Report are available, we'll send you an e-mail notification
containing a convenient link that will take you directly to that Fund
information on our website.
To take advantage of this service, simply inform us online of your decision to
receive materials through the Founders E-Communications Program. Cut down on
mailbox clutter and help the Fund reduce printing and postage charges by
enrolling today at www.founders.com/ecommunications. If you own Funds through a
third party, enroll at www.icsdelivery.com.
INVESTMENT MANAGER DISTRIBUTOR
Founders Asset Management LLC Dreyfus Service Corporation
A MELLON FINANCIAL COMPANY(SM) 200 Park Avenue
210 University Boulevard, Suite 800 New York, NY 10166
Denver, CO 80206
*This report includes financial information for the Money Market Fund as of
December 31, 2004, but does not include a discussion of Fund performance.
The views expressed in this report reflect those of the portfolio manager
only through the end of the period covered and do not necessarily represent the
views of Founders or any other person in the Founders organization. Any such
views are subject to change at any time based upon market or other conditions
and Founders disclaims any responsibility to update such views. These views may
not be relied on as investment advice and, because investment decisions for a
Dreyfus Founders Fund are based on numerous factors, may not be relied on as an
indication of trading intent on behalf of any Dreyfus Founders Fund. The amounts
of the Funds' holdings as of December 31, 2004 are included in the Statements of
Investments.
NOT FDIC-INSURED - NOT BANK-GUARANTEED - MAY LOSE VALUE
<Page>
GOVERNMENT SECURITIES FUND
MANAGEMENT OVERVIEW
(UNAUDITED)
[PHOTO OF MARGARET DANUSER]
A DISCUSSION WITH PORTFOLIO
MANAGER MARGARET DANUSER
HOW DID THE FUND PERFORM RELATIVE TO ITS BENCHMARK FOR THE 12-MONTH PERIOD ENDED
DECEMBER 31, 2004?
For the 12-month period ended December 31, 2004, Dreyfus Founders Government
Securities Fund posted a 2.83% return, underperforming its benchmark, the Lehman
Brothers U.S. Government Composite Index, which returned 3.48% for the same time
period.
WHAT BOND MARKET DYNAMICS AFFECTED THE FUND DURING THE 12-MONTH PERIOD?
The first quarter of 2004 saw the Treasury market rally as labor markets
continued to lag, Japanese currency intervention policies were enacted, and the
Federal Reserve continued its accommodative and patient monetary policy.
However, by the second quarter of the year, the Treasury market suffered its
worst performance in 25 years with a dramatic rise in interest rates during the
period. Fixed-income markets in the second quarter were influenced by stronger
economic data and speculation that the Federal Reserve would soon reverse its
accommodative course. When, in fact, the Federal Reserve raised the federal
funds rate by 25 basis points on June 30, the bond market rallied in relief.
The Federal Reserve continued its tightening of monetary policy in the third and
fourth quarters of the year; by the end of the year, the federal funds rate had
been raised five times for a total of 125 basis points. This proved to be the
largest factor affecting the fixed-income markets during the year.
[SIDENOTE]
"THE LARGEST NOTABLE CHANGE IN PORTFOLIO COMPOSITION WAS THE SLIGHT INCREASE
MADE TO THE FUND'S DURATION TO TAKE ADVANTAGE OF THE `BULL MARKET FLATTENING'
TREND."
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.
Lehman Brothers
Class F U.S. Government
Shares Composite Index
- ------------------------------------------
12/31/1994 $10,000 $10,000
12/31/1995 $11,112 $11,833
12/31/1996 $11,372 $12,161
12/31/1997 $12,269 $13,326
12/31/1998 $13,467 $14,639
12/31/1999 $12,959 $14,311
12/29/2000 $14,329 $16,205
12/31/2001 $15,241 $17,378
12/31/2002 $16,896 $19,376
12/31/2003 $17,238 $19,836
12/31/2004 $17,725 $20,527
The above graph compares a $10,000 investment made in Class F shares of Dreyfus
Founders Government Securities Fund on 12/31/94 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>
In 2004, shorter-term notes had their biggest losing year in four years;
however longer-dated securities fared well during the same 12-month period as
the 10-year Treasury gained 4.90% during 2004, while the two-year Treasury
returned only 0.89%.(1) This led to a "bull market flattening" trend in the
fourth quarter as short-dated maturity yields rose in response to two Federal
Reserve rate hikes, and the long-end rallied believing inflation to be
contained, which caused long-dated maturity yields to fall. The yield curve
flattened accordingly. The spread between the two- and 10-year Treasury yields
stood at 151 basis points at the end of third quarter, and fell to 115 basis
points at year-end.
DID YOUR INVESTMENT APPROACH LEAD TO ANY CHANGES IN PORTFOLIO COMPOSITION DURING
THE REPORTING PERIOD?
Although our investment philosophy for the Fund remains consistent, there were
minor changes made to portfolio composition during the period. Perhaps the
largest notable change was the slight increase made to the Fund's duration to
take advantage of the "bull market flattening" trend.
TO WHAT DO YOU ATTRIBUTE THE FUND'S RELATIVE PERFORMANCE?
The Fund was aided during the period by its exposure to agency bonds as well as
the strong-performing Treasury Inflation-Protected Securities (TIPS), which
posted an 8.53% return in 2004.(2) Also, the Fund benefited throughout the
period from holding Canadian dollar-denominated bonds, as the Canadian dollar
reached a 12-year high versus the U.S. dollar at the end of the period.
AVERAGE ANNUAL TOTAL RETURN AS OF 12/31/04
<Table>
<Caption>
CLASS F SHARES 1 5 10 SINCE
INCEPTION DATE YEAR YEARS YEARS INCEPTION
--------------------------------------------------
3/1/88 2.83% 6.47% 5.89% 5.96%
</Table>
Average annual total returns do not reflect the deduction of taxes that a
shareholder would pay on Fund distributions or redemption of Fund shares, but do
reflect the reinvestment of dividends and capital gain distributions, fee
waivers, and adjustments for financial statement purposes.
(1)Source: Lehman Brothers
(2)Source: Merrill Lynch U.S. Treasury Inflation Linked Index
5
<Page>
[CHART]
PORTFOLIO COMPOSITION OF NET ASSETS
<Table>
Government Sponsored Enterprises 36.90%
Treasuries 26.40%
U.S. Guaranteed Agencies 9.80%
Domestic Mortgage 7.90%
Domestic Corporate 5.30%
Foreign Government 5.20%
Cash 8.50%
</Table>
Government Sponsored Enterprises (GSEs) are not backed by the full faith and
credit of the U.S. Government, but only by their ability to borrow from the
Treasury, other forms of governmental support, or by their own credit. The
Fund's portfolio composition is subject to change, and there is no assurance the
Fund will continue to hold any particular security. Opinions regarding sectors,
industries, companies, and/or themes are those of the portfolio manager and are
subject to change at any time, based on market and other conditions, and should
not be construed as a recommendation of any specific security.
The Fund's shorter duration relative to its benchmark hindered performance.
The Lehman Brothers U.S. Government Composite Index's modified adjusted duration
stood at 4.87 years at year-end, while the Fund's duration was slightly shorter
at 3.26 years. In addition, the Fund reallocated assets out of shorter-dated
maturities in favor of longer-dated securities during the fourth quarter;
however, despite this action, the Fund fell short of full participation in the
long-end bond rally.
In conclusion, we will continue to seek investment opportunities among
high-quality bonds all along the yield curve.
/s/ Margaret Danuser
Margaret Danuser
Portfolio Manager
6
<Page>
This page intentionally left blank.
7
<Page>
FUND EXPENSES
(UNAUDITED)
As a shareholder of a Fund, you incur ongoing costs, including management fees,
Rule 12b-1 fees (Government Securities Fund only), shareholder services fees,
and other expenses. The expense examples shown below are intended to help you
understand your ongoing costs (in dollars) of investing in the Funds and to
compare these costs with the ongoing costs of investing in other mutual funds.
The expense examples are based on an investment of $1,000 on July 1, 2004
and held through December 31, 2004.
ACTUAL EXPENSES The numbers included in the expense examples in the rows with
the word "Actual" in the title provide information about actual account values
and actual expenses. You may use this information to estimate the expenses that
you paid over the period. Simply divide your account value by $1,000 (for
example, an $8,600 account value divided by $1,000 = 8.60), then multiply the
result by the number under the column heading entitled "Expenses Paid During
Period" to estimate the expenses you paid on your account during this period.
HYPOTHETICAL EXPENSES The numbers included in the expense examples in the rows
with the word "Hypothetical" in the title provide information about hypothetical
account values and hypothetical expenses based on the Funds' actual expense
ratios, and an assumed rate of return of 5% per year before expenses, which is
not the Funds' actual return. The hypothetical account values and expenses may
not be used to estimate the actual ending account balance or expenses you paid
for the period. You may use this information to compare the ongoing costs of
investing in the Funds and other funds. To do so, compare the hypothetical
expenses in the expense examples with the hypothetical expenses that appear in
the shareholder reports of other funds.
8
<Page>
GOVERNMENT SECURITIES FUND EXPENSE EXAMPLE
<Table>
<Caption>
BEGINNING ENDING EXPENSES PAID
ACCOUNT VALUE ACCOUNT VALUE DURING PERIOD*
(7/1/04) (12/31/04) (7/1/04-12/31/04)
--------------------------------------------------------------------------------
ACTUAL $ 1,000.00 $ 1,026.02 $ 4.39
HYPOTHETICAL 1,000.00 1,020.62 4.38
</Table>
*Expenses are equal to the Fund's annualized expense ratio of 0.86%, multiplied
by the average account value over the period, multiplied by 184/366 (to reflect
the one-half year period). The expense ratio reflects reimbursements and/or
waivers of expenses by the Fund's investment adviser or its affiliates.
MONEY MARKET FUND EXPENSE EXAMPLE
<Table>
<Caption>
BEGINNING ENDING EXPENSES PAID
ACCOUNT VALUE ACCOUNT VALUE DURING PERIOD*
(7/1/04) (12/31/04) (7/1/04-12/31/04)
--------------------------------------------------------------------------------
ACTUAL $ 1,000.00 $ 999.13 $ 4.63
HYPOTHETICAL 1,000.00 1,020.32 4.68
</Table>
*Expenses are equal to the Fund's annualized expense ratio of 0.92%, multiplied
by the average account value over the period, multiplied by 184/366 (to reflect
the one-half year period). The expense ratio reflects reimbursements and/or
waivers of expenses by the Fund's investment adviser or its affiliates.
9
<Page>
GOVERNMENT SECURITIES FUND
STATEMENT OF INVESTMENTS
December 31, 2004
<Table>
<Caption>
PRINCIPAL AMOUNT MARKET VALUE
- ---------------------------------------------------------------------------------------------------------
U.S. GOVERNMENT OBLIGATIONS--80.8%
AGENCY PASS THROUGH--3.3%
$ 320,044 U.S. Small Business Administration Series 10-A
6.64% 2/1/11 $ 339,243
---------------
GOVERNMENT SPONSORED ENTERPRISES--46.6%
225,000 Federal Agricultural Mortgage Corporation
6.865% 8/10/09 253,181
300,000 Federal Farm Credit Bank
4.70% 12/10/14 301,551
Federal Home Loan Bank:
200,000 4.50% 11/15/12 202,288
495,000 5.625% 2/15/08 525,462
355,000 7.125% 2/15/05 356,846
Federal National Mortgage Association:
300,000 6.625% 10/15/07 325,119
250,000 7.125% 6/15/10 287,355
500,000 Private Export Funding Corporation
3.40% 2/15/08 498,235
Tennessee Valley Authority:
500,000 4.75% 8/1/13 511,400
500,000 5.375% 11/13/08 530,255
350,000 7.125% 5/1/30 435,358
500,000 U.S. Department of Housing & Urban Development
2.97% 8/1/07 494,860
---------------
4,721,910
---------------
MORTGAGE-BACKED SECURITIES: FHLMC/FNMA/SPONSORED--1.3%
28,814 Federal Home Loan Mortgage Corporation
7.50% 11/1/29 Pool #C32819 30,896
Federal National Mortgage Association:
24,798 6.50% 10/1/31 Pool #596063 26,032
75,147 7.00% 3/1/12 Pool #373543 79,675
---------------
136,603
---------------
MORTGAGE-BACKED SECURITIES: GNMA/GUARANTEED--3.2%
Government National Mortgage Association:
181,907 6.00% 1/15/33 Pool #563709 188,652
126,739 6.50% 5/15/26 Pool #417388 133,848
---------------
322,500
---------------
U.S. TREASURY NOTES--26.4%
U.S. Treasury Inflation Protection Security:
241,857 3.375% 1/15/12 275,357
438,664 3.50% 1/15/11 498,292
U.S. Treasury Note:
200,000 4.25% 8/15/14 200,446
400,000 6.00% 8/15/09 441,156
500,000 6.25% 2/15/07 532,190
500,000 6.50% 8/15/05 512,170
200,000 7.00% 7/15/06 212,046
---------------
2,671,657
---------------
TOTAL U.S. GOVERNMENT OBLIGATIONS
(COST--$7,915,573) 8,191,913
---------------
</Table>
10
<Page>
<Table>
<Caption>
PRINCIPAL AMOUNT MARKET VALUE
- ---------------------------------------------------------------------------------------------------------
GOVERNMENT BONDS (FOREIGN)--5.2%
CAD 305,000 Province of Quebec
6.50% 12/1/05 (CA) $ 263,025
CAD 305,000 Province of Saskatchewan
6.00% 6/1/06 (CA) 265,532
---------------
528,557
---------------
TOTAL GOVERNMENT BONDS (FOREIGN)
(COST--$406,037) 528,557
---------------
SUPRANATIONAL OBLIGATIONS--2.0%
$ 200,000 International Bank for Reconstruction & Development
4.00% 1/10/05 200,050
---------------
TOTAL SUPRANATIONAL OBLIGATIONS
(COST--$200,028) 200,050
---------------
CORPORATE BONDS (DOMESTIC)--3.3%
DIVERSIFIED COMMERCIAL SERVICES--3.3%
300,000 Stanford University
6.16% 4/30/11 332,743
---------------
TOTAL CORPORATE BONDS (DOMESTIC)
(COST--$300,000) 332,743
---------------
<Caption>
PRINCIPAL AMOUNT AMORTIZED COST
- ---------------------------------------------------------------------------------------------------------
CORPORATE SHORT-TERM NOTES--6.9%
ELECTRICAL COMPONENTS & EQUIPMENT--3.0%
$ 300,000 Emerson Electric Company
2.20% 1/4/05~ $ 299,945
---------------
PHARMACEUTICALS--3.9%
400,000 Novartis Finance Corporation
2.10% 1/3/05~ 399,953
---------------
TOTAL CORPORATE SHORT-TERM NOTES
(AMORTIZED COST--$699,898) 699,898
---------------
TOTAL INVESTMENTS--98.2%
(TOTAL COST--$9,521,536) 9,953,161
---------------
OTHER ASSETS AND LIABILITIES--1.8% 183,156
---------------
NET ASSETS--100.0% $ 10,136,317
===============
</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. THESE SECURITIES AMOUNTED TO
$699,898, OR 6.9%, OF THE FUND'S NET ASSETS AS OF DECEMBER 31, 2004.
CA - CANADA
SEE NOTES TO FINANCIAL STATEMENTS.
11
<Page>
MONEY MARKET FUND
STATEMENT OF INVESTMENTS
December 31, 2004
<Table>
<Caption>
PRINCIPAL AMOUNT AMORTIZED COST
- ---------------------------------------------------------------------------------------------------------
U.S. AGENCY DISCOUNT NOTES--13.0%
$ 1,700,000 Federal Home Loan Bank
2.26% 1/14/05 $ 1,698,613
Federal National Mortgage Association:
1,500,000 2.23% 1/3/05 1,499,814
1,500,000 2.34% 3/9/05 1,493,468
---------------
TOTAL U.S. AGENCY DISCOUNT NOTES
(COST--$4,691,895) 4,691,895
---------------
CORPORATE SHORT-TERM NOTES--87.0%
AGRICULTURAL PRODUCTS--2.8%
1,000,000 Golden Peanut Company LLC
2.29% 2/18/05 996,947
---------------
AUTOMOBILE MANUFACTURERS--4.1%
Toyota Motor Credit Corporation:
1,000,000 2.00% 1/19/05 999,000
500,000 2.21% 2/8/05 498,833
---------------
1,497,833
---------------
BREWERS--3.9%
1,400,000 Anheuser-Busch Company
2.39% 3/22/05~ 1,392,564
---------------
CONSTRUCTION, FARM MACHINERY & HEAVY TRUCKS--4.1%
Paccar Financial Corporation:
1,000,000 2.00% 2/23/05 997,056
500,000 2.41% 3/23/05 497,289
---------------
1,494,345
---------------
CONSUMER ELECTRONICS--5.0%
Sharp Electronics Corporation:
1,300,000 2.23% 1/11/05 1,299,195
500,000 2.36% 2/7/05 498,787
---------------
1,797,982
---------------
HOUSEHOLD PRODUCTS--3.9%
1,400,000 Procter & Gamble Company
2.15% 1/24/05~ 1,398,077
---------------
INDUSTRIAL CONGLOMERATES--5.0%
General Electric Capital Corporation:
500,000 1.98% 1/4/05 499,918
1,300,000 2.40% 3/11/05 1,294,020
---------------
1,793,938
---------------
MULTI-LINE INSURANCE--4.1%
1,500,000 American Family Financial Services
2.45% 4/15/05 1,489,383
---------------
OTHER DIVERSIFIED FINANCIAL SERVICES--8.3%
1,500,000 Morgan Stanley
2.32% 1/6/05 1,499,517
1,500,000 National Rural Utilities Cooperative Finance Corporation
2.17% 1/10/05 1,499,186
---------------
2,998,703
---------------
</Table>
12
<Page>
<Table>
<Caption>
PRINCIPAL AMOUNT AMORTIZED COST
- ---------------------------------------------------------------------------------------------------------
PACKAGED FOODS & MEATS--2.4%
$ 850,000 Hershey Foods Corporation
2.18% 1/18/05~ $ 849,125
---------------
PHARMACEUTICALS--18.3%
900,000 Abbott Laboratories
2.21% 2/8/05~ 897,901
1,500,000 Bristol Myers-Squibb Company
2.27% 1/7/05~ 1,499,432
1,300,000 Eli Lilly and Company
2.27% 2/1/05~ 1,297,459
1,500,000 Merck & Company
2.27% 1/21/05 1,498,108
1,400,000 Novartis Finance Corporation
2.24% 1/3/05~ 1,399,826
---------------
6,592,726
---------------
PUBLISHING--3.3%
1,200,000 Gannett Company
2.25% 1/4/05 1,199,775
---------------
SOFT DRINKS--6.1%
1,000,000 Coca-Cola Company
2.23% 1/20/05 998,823
1,200,000 PepsiCo, Inc.
2.26% 1/18/05~ 1,198,719
---------------
2,197,542
---------------
SPECIAL PURPOSE ENTITY--15.7%
1,200,000 CAFCO LLC
2.32% 1/28/05~ 1,197,912
1,400,000 Ciesco LLC
2.34% 2/15/05 1,395,905
1,300,000 Metlife Funding, Inc.
2.65% 6/28/05 1,282,966
1,800,000 Nestle Capital Corporation
1.93% 1/5/05~ 1,799,614
---------------
5,676,397
---------------
TOTAL CORPORATE SHORT-TERM NOTES
(AMORTIZED COST--$31,375,337) 31,375,337
---------------
TOTAL INVESTMENTS--100.0%
(TOTAL COST--$36,067,232) 36,067,232
---------------
OTHER ASSETS AND LIABILITIES--(0.0%) (9,521)
---------------
NET ASSETS--100.0% $ 36,057,711
===============
</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. THESE SECURITIES AMOUNTED TO
$12,930,629, OR 35.9%, OF THE FUND'S NET ASSETS AS OF DECEMBER 31, 2004.
<Table>
<Caption>
CATEGORY VALUE (%)
- ---------------------------------------------------------------------------------------------------------
U.S. Agency Discount Notes 13.00%
Corporate Short-Term Notes 87.00%
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
13
<Page>
STATEMENTS OF ASSETS AND LIABILITIES
December 31, 2004
<Table>
<Caption>
GOVERNMENT MONEY
SECURITIES FUND MARKET FUND
ASSETS
Investment securities, at cost $ 9,521,536 $ 36,067,232
------------------ ------------------
Investment securities, at market 9,953,161 36,067,232
Cash 82,121 106,249
Receivables:
Capital shares sold 0 2,782
Interest 129,958 0
Directors Deferred Compensation 82,768 50,086
------------------ ------------------
Total Assets 10,248,008 36,226,349
------------------ ------------------
LIABILITIES
Payables and other liabilities:
Capital shares redeemed 7,399 87,096
Advisory fees 3,066 13,822
Shareholder servicing fees 1,651 5,631
Accounting fees 264 927
Distribution fees 294 0
Transfer agency fees 790 3,139
Custodian fees 111 415
Directors Deferred Compensation 82,768 50,086
Other 13,826 7,223
Dividends 1,522 299
------------------ ------------------
Total Liabilities 111,691 168,638
------------------ ------------------
Net Assets $ 10,136,317 $ 36,057,711
================== ==================
COMPOSITION OF NET ASSETS:
Capital (par value and paid-in surplus) $ 9,834,703 $ 36,055,820
Undistributed net investment income 4,005 21,324
Accumulated net realized loss from
security transactions (134,064) (19,433)
Net unrealized appreciation on investments
and foreign currency translation 431,673 0
------------------ ------------------
Total $ 10,136,317 $ 36,057,711
================== ==================
CLASS F
Net Assets $ 10,136,317 $ 36,057,711
Shares Outstanding 1,016,239 36,057,711
Net Asset Value, Offering and Redemption
Price Per Share $ 9.97 $ 1.00
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
14
<Page>
STATEMENTS OF OPERATIONS
For the year ended December 31, 2004
<Table>
<Caption>
GOVERNMENT MONEY
SECURITIES FUND MARKET FUND
INVESTMENT INCOME
Interest $ 485,337 $ 543,904
------------------ ------------------
Total Investment Income 485,337 543,904
------------------ ------------------
EXPENSES
Advisory fees--Note 2 72,472 200,838
Shareholder servicing fees--Note 2 19,230 67,157
Accounting fees--Note 2 6,686 24,090
Distribution fees--Note 2 27,874 0
Transfer agency fees--Note 2 5,916 21,433
Registration fees 14,081 16,675
Postage and mailing expenses 1,952 5,824
Custodian fees and expenses--Note 2 1,481 2,146
Printing expenses 4,378 16,018
Legal and audit fees 2,159 8,633
Directors' fees and expenses 1,520 7,792
Other expenses 4,310 13,738
------------------ ------------------
Total Expenses 162,059 384,344
Earnings Credits (819) (929)
Reimbursed/Waived Expenses (62,619) (32,522)
------------------ ------------------
Net Expenses 98,621 350,893
------------------ ------------------
Net Investment Income 386,716 193,011
------------------ ------------------
REALIZED AND UNREALIZED GAIN (LOSS) ON SECURITY
TRANSACTIONS AND FOREIGN CURRENCY TRANSACTIONS
Net Realized Gain on:
Security Transactions 74,377 0
Foreign Currency Transactions 903 0
------------------ ------------------
Net Realized Gain 75,280 0
Net Change in Unrealized Appreciation/Depreciation
of Investments and Foreign Currency Translation (144,437) 0
------------------ ------------------
Net Realized and Unrealized Loss (69,157) 0
------------------ ------------------
Net Increase in Net Assets Resulting from Operations $ 317,559 $ 193,011
================== ==================
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
15
<Page>
STATEMENTS OF CHANGES IN NET ASSETS
<Table>
<Caption>
GOVERNMENT MONEY
SECURITIES FUND MARKET FUND
------------------------------- -------------------------------
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
12/31/04 12/31/03 12/31/04 12/31/03
OPERATIONS
Net Investment Income $ 386,716 $ 488,915 $ 193,011 $ 184,429
Net Realized Gain on
Security Transactions and
Foreign Currency Transactions 75,280 224,498 0 0
Net Change in Unrealized
Appreciation/Depreciation
of Investments and Foreign
Currency Translation (144,437) (401,425) 0 0
-------------- -------------- -------------- --------------
Net Increase in Net Assets
Resulting from Operations 317,559 311,988 193,011 184,429
-------------- -------------- -------------- --------------
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS
From Net Investment
Income Class F (386,716) (493,892) (193,011) (184,429)
-------------- -------------- -------------- --------------
Net Decrease from Dividends
and Distributions (386,716) (493,892) (193,011) (184,429)
-------------- -------------- -------------- --------------
CAPITAL SHARE TRANSACTIONS
Net Decrease from Capital Share
Transactions--Note 4 Class F (2,603,251) (2,327,336) (9,036,232) (14,992,067)
-------------- -------------- -------------- --------------
Net Decrease in Net Assets (2,672,408) (2,509,240) (9,036,232) (14,992,067)
-------------- -------------- -------------- --------------
NET ASSETS
Beginning of Year $ 12,808,725 $ 15,317,965 $ 45,093,943 $ 60,086,010
-------------- -------------- -------------- --------------
End of Year $ 10,136,317 $ 12,808,725 $ 36,057,711 $ 45,093,943
============== ============== ============== ==============
Undistributed (Accumulated)
Net Investment Income (Loss) $ 4,005 $ (1,143) $ 21,324 $ 19,665
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
16
<Page>
GOVERNMENT SECURITIES FUND
FINANCIAL HIGHLIGHTS
<Table>
<Caption>
YEAR ENDED
DECEMBER 31,
2004 2003 2002 2001 2000
--------------------------------------------------------------------------------
CLASS F SHARES
PER SHARE OPERATING DATA
Net Asset Value, beginning of year $ 10.04 $ 10.18 $ 9.55 $ 9.41 $ 8.96
- --------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.35 0.34 0.38 0.45 0.47
Net realized and unrealized gains
(losses) on securities (0.07) (0.14) 0.63 0.14 0.45
--------------------------------------------------------------------------------
Total from investment operations 0.28 0.20 1.01 0.59 0.92
- --------------------------------------------------------------------------------------------------------------------------------
Less dividends and distributions:
From net investment income (0.35) (0.34) (0.38) (0.45) (0.47)
From net realized gains 0.00 0.00 0.00 0.00 0.00^
--------------------------------------------------------------------------------
Total distributions (0.35) (0.34) (0.38) (0.45) (0.47)
- --------------------------------------------------------------------------------------------------------------------------------
Net Asset Value, end of year $ 9.97 $ 10.04 $ 10.18 $ 9.55 $ 9.41
================================================================================
TOTAL RETURN 2.83% 2.03% 10.86% 6.37% 10.57%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000s) $ 10,136 $ 12,809 $ 15,318 $ 11,967 $ 10,384
- --------------------------------------------------------------------------------------------------------------------------------
Ratios to average net assets:
Expenses with reimbursements, but no
earnings credits or brokerage offsets# 0.89% 0.95% 0.93% 1.00% 1.35%
Expenses with reimbursements,
earnings credits and brokerage offsets 0.88% 0.94% 0.92% 0.98% 1.29%
Net investment income 3.47% 3.36% 3.90% 4.67% 5.13%
- --------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate @ 13% 52% 28% 73% 88%
</Table>
^ DISTRIBUTIONS FROM NET REALIZED GAINS FOR THE YEAR ENDED DECEMBER 31, 2000
AGGREGATED LESS THAN $0.01 ON A PER SHARE BASIS.
# CERTAIN FEES WERE WAIVED BY THE MANAGEMENT COMPANY OR ITS AFFILIATES. HAD
THESE FEES NOT BEEN WAIVED, THE EXPENSE RATIOS WOULD HAVE BEEN 1.45% (2004),
1.50% (2003), 1.48% (2002), 1.50% (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.
17
<Page>
MONEY MARKET FUND
FINANCIAL HIGHLIGHTS
<Table>
<Caption>
YEAR ENDED
DECEMBER 31,
2004 2003 2002 2001 2000
--------------------------------------------------------------------------------
CLASS F SHARES
PER SHARE OPERATING DATA
Net Asset Value, beginning of year $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
- --------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.00+,~ 0.00+,~ 0.01 0.03 0.05
Net realized and unrealized gains
(losses) on securities 0.00 0.00 0.00 0.00 0.00
--------------------------------------------------------------------------------
Total from investment operations 0.00 0.00 0.01 0.03 0.05
- --------------------------------------------------------------------------------------------------------------------------------
Less dividends and distributions:
From net investment income 0.00^ 0.00^ (0.01) (0.03) (0.05)
From net realized gains 0.00 0.00 0.00 0.00 0.00
--------------------------------------------------------------------------------
Total distributions 0.00 0.00 (0.01) (0.03) (0.05)
- --------------------------------------------------------------------------------------------------------------------------------
Net Asset Value, end of year $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
================================================================================
TOTAL RETURN 0.50% 0.34% 0.98% 3.40% 5.62%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000s) $ 36,058 $ 45,094 $ 60,086 $ 75,928 $ 103,953
- --------------------------------------------------------------------------------------------------------------------------------
Ratios to average net assets:
Expenses with reimbursements, but no
earnings credits or brokerage offsets# 0.88% 0.83% 0.80% 0.79% 0.87%
Expenses with reimbursements,
earnings credits and brokerage offsets 0.87% 0.83% 0.80% 0.79% 0.84%
Net investment income 0.48% 0.35% 0.98% 3.38% 5.54%
- --------------------------------------------------------------------------------------------------------------------------------
</Table>
~ COMPUTED USING AVERAGE SHARES OUTSTANDING THROUGHOUT THE YEAR.
+ NET INVESTMENT INCOME FOR THE YEARS ENDED DECEMBER 31, 2004 AND 2003
AGGREGATED LESS THAN $0.01 ON A PER SHARE BASIS.
^ DISTRIBUTIONS FROM NET INVESTMENT INCOME FOR THE YEARS ENDED DECEMBER 31,
2004 AND 2003 AGGREGATED LESS THAN $0.01 ON A PER SHARE BASIS.
# CERTAIN FEES WERE WAIVED BY THE MANAGEMENT COMPANY OR ITS AFFILIATES. HAD
THESE FEES NOT BEEN WAIVED, THE EXPENSE RATIOS WOULD HAVE BEEN 0.96% (2004),
0.91% (2003), 0.87% (2002), 0.84% (2001) AND 0.87% (2000).
SEE NOTES TO FINANCIAL STATEMENTS.
18
<Page>
NOTES TO FINANCIAL STATEMENTS
December 31, 2004
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,
Equity Growth (formerly Growth and Income), Government Securities, Growth,
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 or are determined not to reflect
accurately fair value, 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 but before the Fund calculates its net asset value, and it is
determined that the event has materially affected the value of the security.
Using fair value to price securities may result in a value that is different
from a security's most recent closing price and from the prices used by other
mutual funds to calculate their net asset values.
London closing exchange rates are used to convert foreign currencies to U.S.
dollars. However, the Funds are planning to begin using New York closing
exchange rates to convert foreign currencies to U.S. dollars sometime during the
first quarter of 2005.
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
19
<Page>
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 carry more risk
than U.S. securities, such as political and currency risks. The Funds may invest
at least a portion of their assets in foreign securities. In the event a Fund
executes a foreign security transaction, the Fund may enter into a foreign
currency contract to settle the foreign security transaction. The resultant
foreign currency gain or loss from the contract is recorded as foreign currency
gain or loss and is presented as such in the Statement of Operations.
Investment securities and other assets and liabilities denominated in foreign
currencies are translated into U.S. dollar amounts at the date of valuation.
Purchases and sales of investment securities and income and expense items
denominated in foreign currencies are translated into U.S. dollar amounts on the
respective dates of such transactions.
The Funds do not isolate that portion of the results of operations resulting
from changes in foreign exchange rates on investments from the fluctuations
arising from changes in market prices of securities held. Such fluctuations are
included with the net realized and unrealized gain or loss from investments.
Reported net realized foreign exchange gains or losses arise from sales of
foreign currencies, currency gains or losses realized between the trade and
settlement dates on securities transactions, and the difference between the
amounts of dividends, interest, and foreign withholding taxes recorded on the
Funds' books and the U.S. dollar equivalent of the amounts actually received or
paid. Net unrealized appreciation or depreciation on investments and foreign
currency translation arise from changes in the values of assets and liabilities,
including investments in securities held at the date of the financial
statements, resulting from changes in the exchange rates and changes in market
prices of securities held.
FEDERAL INCOME TAXES--No provision has been made for federal income taxes since
it is the policy of the Funds to comply with the requirements of the Internal
Revenue Code that are applicable to regulated investment companies and to make
distributions of income and capital gains sufficient to relieve them from all
income taxes. The Funds are treated as separate tax entities for federal income
tax purposes.
INVESTMENT INCOME--Interest income is accrued daily, as earned, 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.
20
<Page>
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.
INDEMNIFICATIONS--In the normal course of business, the Company enters into
contracts that contain provisions indemnifying other parties against specified
potential liabilities. Each Fund's maximum exposure under these arrangements is
unknown as this would involve future claims that may be made against the Fund
that have not yet occurred. However, based on experience, the Funds expect the
risk of loss to be remote.
OTHER--Certain prior year information has been reformatted, without substantive
change, to conform with the current year presentation.
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 contractually 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 contractually 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, 2006, and will not be terminated without prior notice to the
Company's board of directors. During the year ended December 31, 2004, Founders
waived $33,449 and $20,084 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
21
<Page>
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 year ended December 31, 2004, Government
Securities Fund and Money Market Fund were charged $19,230 and $67,157,
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 from DTI are paid by the Funds. During the year ended
December 31, 2004, Government Securities Fund and Money Market Fund were charged
$5,482 and $21,433, respectively, for out-of-pocket transfer agent charges.
OTHER TRANSFER AGENCY FEES--Various broker-dealers, retirement plan
administrators and other unaffiliated entities have established omnibus accounts
with the Funds, and provide sub-transfer agency, recordkeeping or similar
services to persons holding Fund shares through those accounts. During the year
ended December 31, 2004, Government Securities Fund and Money Market Fund paid
$434 and $0, respectively, to these entities for such services. These amounts
are included in the transfer agency fees shown on the Statement of Operations.
CASH MANAGEMENT FEES--The Funds also pay Mellon Bank N.A. ("Mellon Bank"), a
wholly-owned subsidiary of Mellon Financial Corporation and an affiliate of
Founders, fees for certain cash management services. These include various
services related to the processing of shareholder transactions in the Funds.
During the year ended December 31, 2004, Government Securities Fund and Money
Market Fund were charged $122 and $438, respectively, for cash management fees,
which are included in the out-of-pocket charges from DTI above.
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 year ended
December 31, 2004, $25,580 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, 2006. This contractual 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.
22
<Page>
During the year ended December 31, 2004, Founders contractually agreed to waive
any fees received for these services to the extent they exceeded the fees
payable under the Funds' prior fee schedule and to the extent they exceeded
Founders' costs in providing the services. The prior fee schedule was computed
at the annual rate of 0.06% of the average daily net assets of the Company's ten
series, taken as a whole, from $0 to $500 million and 0.02% of the net assets of
the Company's ten series, taken as a whole, in excess of $500 million, plus
reasonable out-of-pocket expenses. The prior fee was allocated to each of the
series on a pro rata basis based on relative average daily net assets. During
the year ended December 31, 2004, Founders waived $3,341 and $12,036 for
Government Securities Fund and Money Market Fund, respectively. Effective
January 1, 2005, the parties agreed to use this prior fee schedule as the
contractual fee schedule for the Funds, although Founders contractually agreed
to continue to waive any fees received for these services to the extent they
exceed Founders' costs in providing the services.
CUSTODIAN FEES--Mellon Bank 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 Funds could have employed these assets
elsewhere to produce income had they not entered into this arrangement. The
custodian has also contractually 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 year ended
December 31, 2004, the fee waivers for Government Securities Fund and Money
Market Fund were $249 and $402 respectively, which reduced the amounts paid to
Mellon Bank to $1,232 and $1,744, respectively.
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 invested
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,
which pays their compensation. 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.
23
<Page>
3. FEDERAL TAX INFORMATION
Net investment income and capital gains distributions are determined in
accordance with income tax regulations that may differ from accounting
principles generally accepted in the United States of America. These differences
are due to differing treatments for items such as deferral of wash sale losses,
foreign currency transactions, net operating losses and capital loss carryovers.
Permanent differences identified during the year ended December 31, 2004 have
been reclassified among the components of net assets as follows:
<Table>
<Caption>
GOVERNMENT MONEY
SECURITIES FUND MARKET FUND
--------------------------------------------------------------------
Undistributed Net Investment Income $ 5,148 $ 1,659
Undistributed Net Realized Gains
and Losses $ (5,148) $ 0
Paid-In Capital $ 0 $ (1,659)
</Table>
The tax character of distributions paid during 2004 and 2003 was as follows:
<Table>
<Caption>
2004 2003
GOVERNMENT SECURITIES FUND:
Distributions paid from:
Ordinary Income $ 386,716 $ 493,892
Long-Term capital gain $ 0 $ 0
----------------------------
$ 386,716 $ 493,892
============================
MONEY MARKET FUND:
Distributions paid from:
Ordinary Income $ 193,011 $ 184,429
Long-Term capital gain $ 0 $ 0
----------------------------
$ 193,011 $ 184,429
============================
</Table>
24
<Page>
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, 2004, 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. Net capital loss carryovers
utilized during 2004 by the Government Securities Fund amounted to $70,132.
Accumulated capital losses as of December 31, 2004 were:
<Table>
<Caption>
GOVERNMENT SECURITIES FUND
EXPIRATION AMOUNT
-------------------------------------------------------------------
2008 $ 134,064
==========
<Caption>
MONEY MARKET FUND
EXPIRATION AMOUNT
-------------------------------------------------------------------
2007 $ 5,448
2008 $ 11,357
2009 $ 2,628
----------
$ 19,433
==========
</Table>
The aggregate cost of investments and the composition of unrealized appreciation
and depreciation of investment securities for federal income tax purposes as of
December 31, 2004 are noted below. Unrealized appreciation/depreciation in the
table below excludes appreciation/depreciation on foreign currency translation.
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 $ 5,831 $ 30,400
Federal Tax Cost $ 9,521,536 $ 36,067,232
Gross Tax Appreciation of Investments $ 465,405 $ 0
Gross Tax Depreciation of Investments $ (33,780) $ 0
Net Tax Appreciation $ 431,625 $ 0
</Table>
25
<Page>
4. CAPITAL SHARE TRANSACTIONS
Government Securities Fund is authorized to issue 100 million shares of $0.01
par value capital stock. Money Market Fund is authorized to issue 2 billion
shares of $0.01 par value capital stock. Transactions in shares of the Funds for
the periods indicated were as follows:
<Table>
<Caption>
YEAR ENDED YEAR ENDED
12/31/04 12/31/03
SHARES AMOUNT SHARES AMOUNT
GOVERNMENT SECURITIES FUND--CLASS F
Sold 129,420 $ 1,294,299 330,747 $ 3,348,390
Dividends or Distributions Reinvested 36,368 $ 362,947 45,955 $ 466,139
Redeemed (425,657) $ (4,260,497) (605,978) $ (6,141,865)
-------------- -------------- -------------- --------------
Net Decrease (259,869) $ (2,603,251) (229,276) $ (2,327,336)
============== ============== ============== ==============
MONEY MARKET FUND--CLASS F
Sold 18,101,032 $ 18,101,032 15,049,068 $ 15,049,068
Dividends or Distributions Reinvested 188,293 $ 188,293 179,077 $ 179,077
Redeemed (27,325,557) $ (27,325,557) (30,220,212) $ (30,220,212)
-------------- -------------- -------------- --------------
Net Decrease (9,036,232) $ (9,036,232) (14,992,067) $ (14,992,067)
============== ============== ============== ==============
</Table>
5. INVESTMENT TRANSACTIONS
Purchases and sales of long-term U.S. government obligations for the year ended
December 31, 2004 were $1,266,258 and $1,865,774, 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 temporary or emergency purposes, primarily for
financing redemption payments. Each Fund's borrowings are limited to the lesser
of (a) $50 million, or (b) the lesser of 25% of the Fund's total net assets or
the maximum amount which the Fund is permitted to borrow pursuant to the
prospectus, any law or any other agreement. Combined borrowings are subject to
the $50 million cap on the total LOC. Each Fund agrees to pay annual fees and
interest on the unpaid balance based on prevailing market rates as defined in
the LOC. At December 31, 2004, the Funds did not have any borrowings under the
LOC.
26
<Page>
7. LEGAL MATTERS
In early 2004, two purported class and derivative actions were filed against
Mellon Financial Corporation, Mellon Bank, Founders, Dreyfus, and certain
directors of the Dreyfus Founders Funds and the Dreyfus Funds (together, the
"Defendant Funds"). In September 2004, plaintiffs served a Consolidated Amended
Complaint (the "Amended Complaint") on behalf of a purported class of all
persons who acquired interests in any of the Defendant Funds between January 30,
1999 and November 17, 2003, and derivatively on behalf of the Defendant Funds.
The Amended Complaint in the newly styled IN RE DREYFUS MUTUAL FUNDS FEE
LITIGATION also named DSC, Premier Mutual Fund Services, Inc. and two additional
directors of the Defendant Funds as defendants and alleges violations of the
Investment Company Act of 1940, the Investment Advisers Act of 1940, the
Pennsylvania Unfair Trade Practices and Consumer Protection Law and common-law
claims. Plaintiffs seek to recover allegedly improper and excessive Rule 12b-1
and advisory fees allegedly charged to the Defendant Funds for marketing and
distribution services. More specifically, plaintiffs claim, among other things,
that 12b-1 fees and directed brokerage were improperly used to pay brokers to
recommend the Defendant Funds over other funds, and that such payments were not
disclosed to investors. In addition, plaintiffs assert that economies of scale
and soft-dollar benefits were not passed on to the Defendant Funds. Plaintiffs
further allege that 12b-1 fees were improperly charged to certain of the
Defendant Funds that were closed to new investors. The Amended Complaint seeks
compensatory and punitive damages, rescission of the advisory contracts, and an
accounting and restitution of any unlawful fees, as well as an award of
attorneys' fees and litigation expenses. As noted, some of the claims in this
litigation are asserted derivatively on behalf of the Defendant Funds that have
been named as nominal defendants. With respect to such derivative claims, no
relief is sought against the Defendant Funds. Founders, Dreyfus and the
Defendant Funds believe the allegations to be totally without merit and intend
to defend the action vigorously. The defendants filed motions to dismiss the
Amended Complaint on November 12, 2004, and those motions are pending.
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 nor the Funds believe that any of the pending actions
will have a material adverse effect on the Funds or Founders' ability to perform
its contract with the Funds.
27
<Page>
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Shareholders of
Dreyfus Founders Funds, Inc.
In our opinion, the accompanying statements of assets and liabilities, including
the statements of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of Dreyfus Founders Government
Securities Fund and Dreyfus Founders Money Market Fund (two of the portfolios
constituting Dreyfus Founders Funds, Inc., hereafter referred to as the "Funds")
at December 31, 2004, the results of each of their operations for the year then
ended, the changes in each of their net assets for each of the two years in the
period then ended and the financial highlights for each of the five years in the
period then ended, in conformity with accounting principles generally accepted
in the United States of America. These financial statements and financial
highlights (hereafter referred to as "financial statements") are the
responsibility of the Funds' management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these financial statements in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those standards
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits, which included
confirmation of securities at December 31, 2004 by correspondence with the
custodian, provide a reasonable basis for our opinion.
PricewaterhouseCoopers LLP
Denver, Colorado
February 10, 2005
28
<Page>
OTHER TAX INFORMATION
(UNAUDITED)
CORPORATE DIVIDENDS RECEIVED DEDUCTION
Dividends paid by the Funds from net investment income and distributions of net
realized short-term capital gains are, for federal tax purposes, taxable as
ordinary income to shareholders. Of the ordinary income distributions declared
for the year ended December 31, 2004, 0.00% qualified for the dividends received
deduction available to the Funds' corporate shareholders.
QUALIFIED DIVIDEND INCOME
For the year ended December 31, 2004, the Funds designated 0% of the ordinary
income distributions paid as qualified dividend income subject to reduced income
tax rates for taxpayers with taxable accounts.
29
<Page>
YOUR BOARD REPRESENTATIVES
(UNAUDITED)
The Board of Directors of the Company oversees all 10 Dreyfus Founders Funds.
The business and affairs of the Company are managed under the direction of the
Board. The directors serving on the Board perform their responsibilities in the
manner which they reasonably believe to be in the best interests of the Funds
and their shareholders.
All of the directors, as listed below, are independent directors. They are not
affiliated with the Fund's adviser, its parent company, or its affiliates. The
directors have no official term of office and generally serve until they reach
the mandated retirement age of 75, resign, or are not re-elected. As you can see
from their backgrounds, the directors have broad experience as active or former
business and community leaders.
DIRECTORS
EUGENE H. VAUGHAN, CFA, 71. Year elected to the Board: 1970
Board Chairman. Founding Chairman and, formerly (1970 to 2000), President and
CEO, Vaughan Nelson Investment Management, LP, an investment counseling firm.
Director, Encore Bank. Founding Chairman, Center for Houston's Future, a
non-profit organization. Founding Chairman and former Governor, Association for
Investment Management and Research. Past Chairman and Trustee, Institute of
Chartered Financial Analysts. Past Chairman and Director, Financial Analysts
Federation.
ALAN S. DANSON, 65. Year elected to the Board: 1991
Private investor. Formerly, President and Director, D.H. Management, Inc., the
general partner of a limited partnership with technology company holdings (1996
to 2003). Formerly, Director and Senior Vice President, OptiMark Technologies,
Inc., a computerized securities trading service (1996 to 1999). Director,
CaseShare Systems, LLP, a document management company. Director, Gore Range
Natural Science School and The Les Streeter Programs, Inc., both of which are
non-profit organizations.
JOAN D. MANLEY, 72. Year elected to the Board: 1998
Retired. Formerly, Ms. Manley served in several executive capacities with Time
Incorporated, most recently as Group Vice President, Director and Chairman of
Time-Life Books, Inc. and Book of the Month Club, Inc. (1960 to 1984). Director,
Sara Lee Corporation and R.R. Donnelley & Sons Company.
ROBERT P. MASTROVITA, 60. Year elected to the Board: 1998
Private investor. Chairman of a private charitable foundation (1997 to present).
Formerly, Chairman and Director, Hagler, Mastrovita & Hewitt, Inc., a registered
investment adviser (1982 to 1997). Member, Boston Society of Security Analysts.
Trustee, Partridge Academy.
TRYGVE E. MYHREN, 68. Year elected to the Board: 1996
President, Myhren Media, Inc., a firm that invests in and advises media,
telecommunications, Internet and software companies. Special Limited Partner and
member of Investment Committee, Megunticook Funds, a venture capital firm (1998
to present). Director, Advanced Marketing Services, Inc. Trustee and Chairman of
Finance Committee, the University of Denver. Trustee, Denver Art Museum. Member,
Cable Television Hall of Fame. Formerly, President (1990 to 1996) and Director
(1992 to 2001) of the Providence Journal Company, a diversified media and
communications
30
<Page>
company. Formerly, Chairman and Chief Executive Officer of American Television
and Communications Corporation (now Timer Warner Cable) (1981 to 1988).
Formerly, Chairman of the National Cable Television Association (1986-1987).
GEORGE W. PHILLIPS, 66. Year elected to the Board: 1998
Retired. Vice Chairman of the Board, Chairman of the Finance Committee, and
Chairman of the Investment Committee, Children's Medical Center of Boston.
Formerly, President and Chief Executive Officer (1992 to 1997) and Director
(1992 to 2002) of Warren Bancorp, Inc. Formerly, President, Chief Executive
Officer and Director of Warren Five Cents Savings Bank (1992 to 1997).
PRINCIPAL OFFICERS
RICHARD W. SABO, 47. President of the Funds since 2000 and Principal Executive
Officer of the Funds since 2002. Founders' President and Chief Executive
Officer, Member of Founders' Board of Managers and Director of Dreyfus (1998 to
present). Executive Vice President of DSC since 2003. Formerly, Senior Vice
President and Regional Director for Prudential Securities, Inc. (1991 to 1998).
DAVID L. RAY, 47. Vice President of the Funds since 2000, and from 1990 to 1998.
Founders' Senior Vice President--Administration and Treasurer. Vice President of
DSC since 2003. Employed by Founders and its predecessor company since 1990.
Formerly, Treasurer of the Funds (1990 to 1998).
KENNETH R. CHRISTOFFERSEN, 49. Secretary of the Funds since 2000, and from 1996
to 1998. Founders' Senior Vice President--Legal, General Counsel and Secretary.
Assistant Secretary of DSC since 2003. Employed by Founders and its predecessor
company since 1996.
JANELLE E. BELCHER, 46. Chief Compliance Officer of the Funds since 2004 and
Assistant Secretary of the Funds since 2002. Founders' Vice
President--Compliance since 2002. Formerly, Founders' Manager of Compliance
(2000 to 2002) and Securities Compliance Examiner, Staff Accountant and Team
Leader for the U.S. Securities and Exchange Commission (1990 to 2000).
ROBERT T. KELLY, 35. Treasurer, Principal Financial Officer, and Principal
Accounting Officer of the Funds since 2003. Founders' Vice President of
Portfolio Accounting since 2000. Formerly, Assistant Treasurer of the Funds
(2000 to 2003), and Head of Equity Desk for ABN Amro Trust Company (Cayman)
Limited (1998 to 2000).
WILLIAM G. GERMENIS, 34. Anti-Money Laundering Compliance Officer ("AMLCO") for
the Class A, Class B, Class C, Class R, and Class T shares of the Funds since
2002 and for the Class F shares of the Funds since 2003. Vice President and
AMLCO of MBSC, LLC since 2002. Vice President and AMLCO of DSC and AMLCO of
investment companies managed by Dreyfus. Employed by DSC since 1998.
The directors and officers may be contacted at Founders' address appearing on
the inside cover, except for Mr.Germenis, who can be contacted at 200 Park
Avenue, New York, New York 10166. Additional information about the Company's
directors is available in the Statement of Additional Information, which can be
obtained free of charge by calling the toll free number on the back cover.
31
<Page>
DREYFUS FOUNDERS FUNDS
P.O. Box 55360
Boston, MA 02205-8252
1-800-525-2440
www.founders.com
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 (SEC) 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.
PORTFOLIO HOLDINGS
The Funds file their complete schedule of portfolio holdings with the SEC for
the first and third quarters of each fiscal year on Form N-Q. The Funds' Forms
N-Q are available on the SEC's website at www.sec.gov and may be reviewed and
copied at the SEC's Public Reference Room in Washington, DC. Information on the
operation of the SEC's Public Reference Room may be obtained by calling
1-800-SEC-0330.
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)2005 Founders Asset Management LLC. 2/05
A-646-GMM-04
<Page>
ANNUAL REPORT
[GRAPHIC]
DREYFUS FOUNDERS
GROWTH FUND
INVESTMENT UPDATE
DECEMBER 31, 2004
[(R)DREYFUS FOUNDERS FUNDS(R) LOGO]
THE GROWTH SPECIALISTS
<Page>
TABLE OF CONTENTS
<Table>
Management Overview 3
Fund Expenses 10
Statement of Investments 12
Statement of Assets and Liabilities 17
Statement of Operations 19
Statements of Changes in Net Assets 20
Financial Highlights 21
Notes to Financial Statements 27
Report of Independent Registered Public Accounting Firm 36
Your Board Representatives 37
</Table>
[GRAPHIC]
PAPERLESS DELIVERY OF THIS REPORT
Did you know you can reduce your postal mail by accessing Dreyfus Founders Funds
regulatory material online? It's a simple, reliable process: when new documents
such as this Annual Report are available, we'll send you an e-mail notification
containing a convenient link that will take you directly to that Fund
information on our website. To take advantage of this service, simply inform us
online of your decision to receive materials through the Founders
E-Communications Program. Cut down on mailbox clutter and help the Fund reduce
printing and postage charges by enrolling today at
www.founders.com/ecommunications. If you own Funds through a third party, enroll
at www.icsdelivery.com.
INVESTMENT MANAGER DISTRIBUTOR
Founders Asset Management LLC Dreyfus Service Corporation
A MELLON FINANCIAL COMPANY(SM) 200 Park Avenue
210 University Boulevard, Suite 800 New York, NY 10166
Denver, CO 80206
The views expressed in this report reflect those of the portfolio manager only
through the end of the period covered and do not necessarily represent the views
of Founders or any other person in the Founders organization. Any such views are
subject to change at any time based upon market or other conditions and Founders
disclaims any responsibility to update such views. These views may not be relied
on as investment advice and, because investment decisions for a Dreyfus Founders
Fund are based on numerous factors, may not be relied on as an indication of
trading intent on behalf of any Dreyfus Founders Fund. Companies appearing in
bold print on pages 3-8 were owned by the Fund on December 31, 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
(UNAUDITED)
[PHOTO OF JOHN B. JARES]
A DISCUSSION WITH PORTFOLIO MANAGER JOHN B. JARES, CFA
HOW DID THE FUND PERFORM RELATIVE TO ITS BENCHMARK
FOR THE 12 MONTHS ENDED DECEMBER 31, 2004?
For the 12-month period ended December 31, 2004, Dreyfus Founders Growth Fund
outperformed1 its benchmark, the Russell 1000 Growth Index, which posted a 6.30%
return for the same time period.
WHAT WAS THE BROAD MARKET ENVIRONMENT IN
WHICH THE FUND PERFORMED DURING THE PERIOD?
The U.S. markets were choppy throughout 2004 as a result of a series of
increases in the federal funds rate, record high oil prices, continued
geopolitical unrest and the anticipation of the U.S. Presidential election.
However, in spite of some lingering investor concerns, the fourth quarter saw a
strong market rally as the conclusion of the Presidential election lifted some
uncertainty and oil prices began to moderate.
WHAT MANAGEMENT DECISIONS FAVORABLY IMPACTED FUND PERFORMANCE
DURING THE 12-MONTH PERIOD ENDED DECEMBER 31, 2004?
The Fund's performance overall was driven by strong stock selection during the
period, as a handful of stocks helped drive the strong performance of the Fund.
Holdings in the information technology, consumer discretionary and industrials
sectors particularly buoyed the Fund's annual return. The Fund's relative
overweight position in the consumer discretionary sector also benefited
performance.
(1)Excluding sales charges, which result in lower returns for certain share
classes. Please see page 7 for average annual total returns for all share
classes, including and excluding sales charges.
[SIDENOTE]
"THE FUND'S PERFORMANCE OVERALL WAS DRIVEN BY STRONG STOCK SELECTION DURING THE
PERIOD, AS A HANDFUL OF STOCKS HELPED DRIVE THE STRONG PERFORMANCE OF THE FUND."
3
<Page>
Despite the fact that information technology stocks showed mixed performance
overall, the Fund did invest in some names that performed well during the
period. For example, APPLE COMPUTER, INC.'s performance was driven by continued
strong demand for its iPod, which serves the digital music market. Autodesk,
Inc., a design software and digital content company, also performed well on the
back of favorable acceptance of new products as well as strong company
execution. MICROSOFT CORPORATION and ADOBE SYSTEMS, INC. also positively
contributed to Fund performance for the period.
Consumer spending continued to remain steady during the period, assisting the
overall performance of consumer discretionary holdings. Travel and leisure
industry issues ROYAL CARIBBEAN CRUISES LIMITED and CARNIVAL CORPORATION
experienced continued strength in demand for leisure cruising.
Fund holdings in the industrials sector benefited from continued strength in
the economy. FEDEX CORPORATION performed well on improved volumes as a direct
result of this economic growth.
During the year, we positioned the Fund with a relative underweight position
in the healthcare sector as a result of our negative outlook on the
pharmaceuticals industry. The industry faced fundamental challenges such as
competition from generics and a lack of new, exciting products in the research
and development pipeline. The healthcare sector proved to be one of the worst
performing sectors for the period; however select holdings helped boost the
Fund's relative performance, including ABBOTT LABORATORIES and healthcare
product manufacturer JOHNSON & JOHNSON.
[SIDENOTE]
PERFORMANCE HIGHLIGHTS
- The U.S. markets were choppy throughout 2004.
- Holdings in the information technology, consumer discretionary and
industrials sectors particularly buoyed the Fund's annual return.
- Consumer spending continued to remain steady during the period,
assisting the overall performance of consumer discretionary holdings.
- Underweight positions and poor stock selection in the materials and
telecommunications sectors proved detrimental to Fund performance
during the period.
- Although information technology holdings as a whole performed well for
the Fund, select issues weighed on performance for various reasons.
4
<Page>
The Fund's position in Standard & Poor's Depositary Receipts also had a
positive impact on Fund performance.
WHAT MANAGEMENT DECISIONS NEGATIVELY IMPACTED
FUND PERFORMANCE DURING THE 12-MONTH PERIOD?
Our investment strategy for the Fund is to build a diversified portfolio of
high-quality companies across various sectors that demonstrate the best
potential for significant earnings growth. However, there are times when stock
performance disappoints, hurting overall Fund performance.
Underweight positions and poor stock selection in the materials and
telecommunications sectors proved detrimental to Fund performance during the
period. Likewise, weak stock selection in the healthcare sector weighed heavily
on relative Fund performance. Large-capitalization pharmaceutical companies were
among the Fund's worst performers for the period largely due to safety concerns
surrounding a number of blockbuster drugs, which drove share prices for these
issues lower. One such stock that was negatively affected by this market
environment was PFIZER, INC., as safety concerns surrounding two of the
company's COX-2 inhibitor drugs, Bextra(R) and Celebrex(R), hurt
LARGEST EQUITY HOLDINGS (ticker symbol)
<Table>
1. Microsoft Corporation (MSFT) 4.47%
2. Royal Caribbean Cruises Limited (RCL) 2.41%
3. Intel Corporation (INTC) 2.31%
4. Carnival Corporation (CCL) 2.31%
5. SAP AG Sponsored ADR (SAP) 2.30%
6. Wal-Mart Stores, Inc. (WMT) 2.29%
7. Cisco Systems, Inc. (CSCO) 2.19%
8. Gillette Company (G) 2.11%
9. Kohl's Corporation (KSS) 2.11%
10. Apple Computer, Inc. (AAPL) 1.99%
</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.
Class F S&P 500 Russell 1000
Shares Index Growth Index
- ---------------------------------------------------
12/31/1994 $10,000 $10,000 $10,000
12/31/1995 $14,559 $13,758 $13,718
12/31/1996 $16,971 $16,917 $16,889
12/31/1997 $21,483 $22,561 $22,039
12/31/1998 $26,861 $29,008 $30,569
12/31/1999 $37,354 $35,112 $40,706
12/29/2000 $27,183 $31,915 $31,577
12/31/2001 $20,402 $28,122 $25,128
12/31/2002 $14,492 $21,907 $18,122
12/31/2003 $19,045 $28,190 $23,513
12/31/2004 $20,499 $31,258 $24,994
The above graph compares a $10,000 investment made in Class F shares of Dreyfus
Founders Growth Fund on 12/31/94 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>
the share price. Additionally, Merck & Company's COX-2 inhibitor, Vioxx(R), was
voluntarily removed from the market during the period after data showed similar
adverse cardiovascular impact from long-term use of the drug.
Although information technology holdings as a whole performed well for the
Fund, select issues weighed on performance for various reasons. INTEL
CORPORATION experienced lackluster demand and declining gross margins, which
sent the stock lower during the year. Oracle Corporation was hurt by the
protracted fight to acquire PeopleSoft as well as tepid demand for software.
VIACOM, INC. posted growth rates that trailed Wall Street estimates, and
AVERAGE ANNUAL TOTAL RETURN AS OF 12/31/04
<Table>
<Caption>
1 5 10 SINCE
CLASS (INCEPTION DATE) YEAR YEARS YEARS INCEPTION
-------------------------------------------------------------------------------------
CLASS A SHARES (12/31/99)
With sales charge (5.75%) 1.35% (12.44%) -- (12.44%)
Without sales charge 7.56% (11.40%) -- (11.40%)
CLASS B SHARES (12/31/99)
With redemption* 2.74% (12.33%) -- (12.33%)
Without redemption 6.74% (12.04%) -- (12.04%)
CLASS C SHARES (12/31/99)
With redemption** 5.86% (12.06%) -- (12.06%)
Without redemption 6.86% (12.06%) -- (12.06%)
CLASS F SHARES (1/5/62) 7.63% (11.31%) 7.44% N/A
CLASS R SHARES (12/31/99) 8.09% (11.14%) -- (11.14%)
CLASS T SHARES (12/31/99)
With sales charge (4.50%) 2.42% (12.82%) -- (12.82%)
Without sales charge 7.28% (12.01%) -- (12.01%)
</Table>
Average annual total returns do not reflect the deduction of taxes that a
shareholder would pay on Fund distributions or redemption of Fund shares, but do
reflect the reinvestment of dividends and capital gain distributions, and
adjustments for financial statement purposes. Part of the Fund's performance is
due to amounts received from class action settlements regarding prior Fund
holdings. There is no guarantee that these settlement distributions will occur
in the future or have a similar impact on performance.
* The maximum contingent deferred sales charge for Class B shares is 4% and is
reduced to 0% after six years, at which time the Class B shares convert to Class
A shares.
** The maximum contingent deferred sales charge for Class C shares is 1% for
shares redeemed within one year of the date of purchase.
7
<Page>
[CHART]
PORTFOLIO COMPOSITION OF NET ASSETS
<Table>
Information Technology 32.86%
Consumer Discretionary 20.19%
Financials 12.86%
Industrials 11.73%
Healthcare 9.98%
Consumer Staples 8.76%
Energy 1.38%
Other 1.73%
Cash & Equivalents 0.51%
</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.
MAXIM INTEGRATED PRODUCTS, INC. underperformed as a result of lower market
demand for its products and excess channel inventory. CISCO SYSTEMS, INC. and
NVIDIA Corporation also fared poorly for the period.
Other notable detractors from Fund performance included COCA-COLA COMPANY and
Newmont Mining Corporation.
In conclusion, we will continue to rely on our bottom-up research process to
seek companies we believe are capable of posting strong future revenues and
earnings growth at attractive valuations.
/s/ John B. Jares
John B. Jares, CFA
Portfolio Manager
8
<Page>
This page intentionally left blank.
9
<Page>
FUND EXPENSES
(UNAUDITED)
As a shareholder of the Fund, depending on the class of shares of the Fund you
own, you incur two types of costs: (1) transaction costs, including front-end
and contingent deferred sales charges; and (2) ongoing costs, including
management fees, Rule 12b-1 fees, shareholder services fees, and other expenses.
The expense example shown below is intended to help you understand your ongoing
costs (in dollars) of investing in the Fund and to compare these costs with the
ongoing costs of investing in other mutual funds.
The expense example is based on an investment of $1,000 on July 1, 2004 and
held through December 31, 2004.
ACTUAL EXPENSES The numbers included in the expense example in the rows with the
word "Actual" in the title provide information about actual account values and
actual expenses. You may use this information to estimate the expenses that you
paid over the period. Simply divide your account value by $1,000 (for example,
an $8,600 account value divided by $1,000 = 8.60), then multiply the result by
the number under the column heading entitled "Expenses Paid During Period" for
the class of shares you hold to estimate the expenses you paid on your account
during this period.
HYPOTHETICAL EXPENSES The numbers included in the expense example in the rows
with the word "Hypothetical" in the title provide information about hypothetical
account values and hypothetical expenses based on the Fund's actual expense
ratio for each class of shares, and an assumed rate of return of 5% per year
before expenses, which is not the Fund's actual return. The hypothetical account
values and expenses may not be used to estimate the actual ending account
balance or expenses you paid for the period. You may use this information to
compare the ongoing costs of investing in the Fund and other funds. To do so,
compare the hypothetical expenses in the expense example for the class of shares
you hold with the hypothetical expenses that appear in the shareholder reports
of other funds.
Please note that the expenses shown in the expense example are meant to
highlight your ongoing costs only and do not reflect the transaction costs
described above. Therefore, the hypothetical expenses in the expense example are
useful in comparing ongoing costs only, and will not help you determine the
relative total costs of owning different funds. In addition, if the transaction
costs were included, your costs would have been higher.
10
<Page>
EXPENSE EXAMPLE
<Table>
<Caption>
BEGINNING ENDING EXPENSES PAID
ACCOUNT VALUE ACCOUNT VALUE DURING PERIOD*
(7/1/04) (12/31/04) (7/1/04-12/31/04)
----------------------------------------------------------------------------
CLASS A ACTUAL $ 1,000.00 $ 1,052.91 $ 7.51
CLASS A HYPOTHETICAL 1,000.00 1,017.62 7.38
CLASS B ACTUAL 1,000.00 1,044.47 11.78
CLASS B HYPOTHETICAL 1,000.00 1,013.39 11.61
CLASS C ACTUAL 1,000.00 1,046.14 11.27
CLASS C HYPOTHETICAL 1,000.00 1,013.90 11.10
CLASS F ACTUAL 1,000.00 1,054.29 6.89
CLASS F HYPOTHETICAL 1,000.00 1,018.23 6.77
CLASS R ACTUAL 1,000.00 1,058.29 5.39
CLASS R HYPOTHETICAL 1,000.00 1,019.71 5.29
CLASS T ACTUAL 1,000.00 1,049.96 9.42
CLASS T HYPOTHETICAL 1,000.00 1,015.74 9.26
</Table>
*Expenses are equal to each Class's respective annualized expense ratio,
shown below, multiplied by the average account value over the period,
multiplied by 184/366 (to reflect the one-half year period).
EXPENSE RATIOS
These expense ratios reflect reimbursements and/or waivers of expenses by the
Fund's investment adviser or its affiliates, where applicable.
<Table>
<Caption>
EXPENSE RATIO
-----------------------------------------------
CLASS A 1.45%
CLASS B 2.28%
CLASS C 2.18%
CLASS F 1.33%
CLASS R 1.04%
CLASS T 1.82%
</Table>
11
<Page>
STATEMENT OF INVESTMENTS
December 31, 2004
<Table>
<Caption>
SHARES MARKET VALUE
- --------------------------------------------------------------------------------
COMMON STOCKS (DOMESTIC)--93.1%
AIR FREIGHT & LOGISTICS--1.0%
45,000 FedEx Corporation $ 4,432,043
---------------
AIRLINES--1.6%
101,025 AMR Corporation* 1,106,224
144,600 JetBlue Airways Corporation* 3,357,612
168,000 Southwest Airlines Company 2,735,040
---------------
7,198,876
---------------
APPLICATION SOFTWARE--1.1%
103,600 Mercury Interactive Corporation* 4,718,980
---------------
ASSET MANAGEMENT & CUSTODY BANKS--1.1%
33,650 Bank of New York Company, Inc. 1,124,583
77,400 Northern Trust Corporation 3,760,092
---------------
4,884,675
---------------
BIOTECHNOLOGY--2.5%
56,260 Amgen, Inc.* 3,609,079
18,775 Biogen Idec, Inc.* 1,250,603
50,600 Genzyme Corporation* 2,938,342
85,050 Gilead Sciences, Inc.* 2,975,900
---------------
10,773,924
---------------
BROADCASTING & CABLE TV--2.0%
264,808 Comcast Corporation Special Class A* 8,696,295
---------------
CASINOS & GAMING--0.5%
34,125 Wynn Resorts, Limited* 2,283,645
---------------
COMMUNICATIONS EQUIPMENT--4.8%
170,575 Avaya, Inc.* 2,933,890
497,930 Cisco Systems, Inc.* 9,610,049
74,250 Motorola, Inc. 1,277,100
84,925 QUALCOMM, Inc. 3,600,820
112,650 Scientific-Atlanta, Inc. 3,718,577
---------------
21,140,436
---------------
COMPUTER & ELECTRONICS RETAIL--0.5%
37,625 Best Buy Company, Inc. 2,235,678
---------------
COMPUTER HARDWARE--4.7%
135,525 Apple Computer, Inc.* 8,727,810
79,475 Dell, Inc.* 3,349,077
87,025 International Business Machines Corporation 8,578,925
---------------
20,655,812
---------------
COMPUTER STORAGE & PERIPHERALS--1.6%
484,475 EMC Corporation* 7,204,143
---------------
CONSUMER FINANCE--0.8%
125,913 MBNA Corporation 3,549,487
---------------
</Table>
12
<Page>
<Table>
<Caption>
SHARES MARKET VALUE
- --------------------------------------------------------------------------------
DATA PROCESSING & OUTSOURCED SERVICES--2.2%
172,600 Automatic Data Processing, Inc. $ 7,654,810
49,550 CheckFree Corporation* 1,886,864
---------------
9,541,674
---------------
DEPARTMENT STORES--2.1%
187,700 Kohl's Corporation* 9,229,209
---------------
DIVERSIFIED BANKS--1.0%
72,575 Wells Fargo & Company 4,510,536
---------------
ELECTRICAL COMPONENTS & EQUIPMENT--0.9%
58,025 Emerson Electric Company 4,067,553
---------------
EMPLOYMENT SERVICES--1.7%
60,475 Manpower, Inc. 2,920,943
137,125 Monster Worldwide, Inc.* 4,612,885
---------------
7,533,828
---------------
EXCHANGE TRADED FUNDS--1.7%
57,375 Nasdaq 100 Index Tracking Stock 2,289,836
43,600 SPDR Trust Series 1 5,271,240
---------------
7,561,076
---------------
GENERAL MERCHANDISE STORES--1.1%
107,225 Dollar General Corporation 2,227,063
48,925 Target Corporation 2,540,675
---------------
4,767,738
---------------
HEALTHCARE EQUIPMENT--0.7%
88,100 Boston Scientific Corporation* 3,131,955
---------------
HOME ENTERTAINMENT SOFTWARE--0.6%
39,875 Electronic Arts, Inc.* 2,459,490
---------------
HOTELS, RESORTS & CRUISE LINES--3.3%
175,150 Carnival Corporation 10,093,895
72,300 Starwood Hotels & Resorts Worldwide, Inc. 4,222,320
---------------
14,316,215
---------------
HOUSEHOLD PRODUCTS--1.5%
76,825 Clorox Company 4,527,297
43,525 Colgate-Palmolive Company 2,226,739
---------------
6,754,036
---------------
HYPERMARKETS & SUPER CENTERS--2.3%
189,696 Wal-Mart Stores, Inc. 10,019,743
---------------
INDUSTRIAL CONGLOMERATES--1.3%
151,959 General Electric Company 5,546,504
---------------
INDUSTRIAL MACHINERY--0.6%
29,550 Illinois Tool Works, Inc. 2,738,694
---------------
INTEGRATED OIL & GAS--0.8%
64,875 ExxonMobil Corporation 3,325,493
---------------
</Table>
SEE NOTES TO STATEMENT OF INVESTMENTS.
13
<Page>
<Table>
<Caption>
SHARES MARKET VALUE
- --------------------------------------------------------------------------------
INVESTMENT BANKING & BROKERAGE--3.0%
73,450 Goldman Sachs Group, Inc. $ 7,641,738
95,425 Morgan Stanley 5,297,996
---------------
12,939,734
---------------
LEISURE FACILITIES--2.4%
193,475 Royal Caribbean Cruises Limited 10,532,779
---------------
LIFE & HEALTH INSURANCE--0.5%
133,225 UnumProvident Corporation 2,390,057
---------------
MOVIES & ENTERTAINMENT--4.8%
395,150 Time Warner, Inc.* 7,681,716
197,746 Viacom, Inc. 7,195,977
229,425 Walt Disney Company 6,378,015
---------------
21,255,708
---------------
MULTI-LINE INSURANCE--1.9%
124,474 American International Group, Inc. 8,174,208
---------------
OFFICE ELECTRONICS--0.4%
34,325 Zebra Technologies Corporation* 1,931,811
---------------
OIL & GAS DRILLING--0.6%
68,225 Diamond Offshore Drilling, Inc. 2,732,411
---------------
OTHER DIVERSIFIED FINANCIAL SERVICES--1.7%
104,892 Citigroup, Inc. 5,053,697
57,631 JPMorgan Chase & Company 2,248,185
---------------
7,301,882
---------------
PERSONAL PRODUCTS--3.8%
159,003 Estee Lauder Companies, Inc. Class A 7,277,567
206,700 Gillette Company 9,256,026
---------------
16,533,593
---------------
PHARMACEUTICALS--5.8%
172,350 Abbott Laboratories 8,040,128
125,150 Johnson & Johnson 7,937,013
102,444 Pfizer, Inc. 2,754,719
155,900 Wyeth 6,639,781
---------------
25,371,641
---------------
PROPERTY & CASUALTY INSURANCE--0.9%
72,100 Allstate Corporation 3,729,012
---------------
PUBLISHING--1.4%
76,625 Gannett Company, Inc. 6,260,263
---------------
RAILROADS--2.0%
88,175 Burlington Northern Santa Fe Corporation 4,171,559
67,350 Union Pacific Corporation 4,529,288
---------------
8,700,847
---------------
RESTAURANTS--1.2%
156,187 Cheesecake Factory, Inc.* 5,071,392
---------------
</Table>
14
<Page>
<Table>
<Caption>
SHARES MARKET VALUE
- --------------------------------------------------------------------------------
SEMICONDUCTOR EQUIPMENT--1.0%
130,650 Applied Materials, Inc.* $ 2,234,115
49,375 KLA-Tencor Corporation* 2,299,888
---------------
4,534,003
---------------
SEMICONDUCTORS--6.8%
68,225 Broadcom Corporation* 2,202,303
8,198 Freescale Semiconductor, Inc. Class B* 150,515
433,201 Intel Corporation 10,132,571
178,250 Linear Technology Corporation 6,908,970
158,325 Maxim Integrated Products, Inc. 6,711,397
103,975 Texas Instruments, Inc. 2,559,865
34,400 Xilinx, Inc. 1,019,960
---------------
29,685,581
---------------
SOFT DRINKS--1.2%
121,175 Coca-Cola Company 5,044,515
---------------
SPECIALTY STORES--0.2%
28,375 Tiffany & Company 907,149
---------------
SYSTEMS SOFTWARE--6.4%
40,850 Adobe Systems, Inc. 2,562,929
733,376 Microsoft Corporation 19,588,473
201,275 VERITAS Software Corporation* 5,746,401
---------------
27,897,803
---------------
THRIFTS & MORTGAGE FINANCE--2.0%
55,675 Freddie Mac 4,103,248
113,300 The PMI Group, Inc. 4,730,275
---------------
8,833,523
---------------
TRADING COMPANIES & DISTRIBUTORS--1.1%
70,150 W.W. Grainger, Inc. 4,673,393
---------------
TOTAL COMMON STOCKS (DOMESTIC)
(COST--$364,982,396) 407,779,043
---------------
COMMON STOCKS (FOREIGN)--6.4%
APPLICATION SOFTWARE--2.7%
62,300 Amdocs Limited (CI)* 1,635,375
227,500 SAP AG Sponsored ADR (GE) 10,057,775
---------------
11,693,150
---------------
HOTELS, RESORTS & CRUISE LINES--0.7%
34,925 Four Seasons Hotels, Inc. (CA) 2,856,516
---------------
INDUSTRIAL CONGLOMERATES--0.6%
67,375 Tyco International Limited (BD) 2,407,983
---------------
IT CONSULTING & OTHER SERVICES--0.5%
82,900 Accenture Limited Class A (BD)* 2,238,300
---------------
PHARMACEUTICALS--1.0%
148,500 Teva Pharmaceutical Industries Limited Sponsored
ADR (IS) 4,434,210
---------------
</Table>
SEE NOTES TO STATEMENT OF INVESTMENTS.
15
<Page>
<Table>
<Caption>
SHARES MARKET VALUE
- --------------------------------------------------------------------------------
RAILROADS--0.9%
66,687 Canadian National Railway Company (CA) $ 4,084,579
---------------
TOTAL COMMON STOCKS (FOREIGN)
(COST--$23,072,556) 27,714,738
---------------
<Caption>
UNITS MARKET VALUE
- --------------------------------------------------------------------------------
RIGHTS AND WARRANTS--0.0%
COMMUNICATIONS EQUIPMENT--0.0%
106,447 Lucent Technologies Warrants, expire 2007* $ 168,186
---------------
TOTAL RIGHTS AND WARRANTS
(COST--$0) 168,186
---------------
<Caption>
PRINCIPAL AMOUNT AMORTIZED COST
- --------------------------------------------------------------------------------
CORPORATE SHORT-TERM NOTES--1.4%
PHARMACEUTICALS--1.4%
$6,000,000 Novartis Finance Corporation
2.10% 1/3/05~ $ 5,999,300
---------------
TOTAL CORPORATE SHORT-TERM NOTES
(AMORTIZED COST--$5,999,300) 5,999,300
---------------
TOTAL INVESTMENTS--100.9%
(TOTAL COST--$394,054,252) 441,661,267
---------------
OTHER ASSETS AND LIABILITIES--(0.9%) (3,783,149)
---------------
NET ASSETS--100.0% $ 437,878,118
===============
</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. THESE SECURITIES
AMOUNTED TO $5,999,300, OR 1.4%, OF THE FUND'S NET ASSETS AS OF
DECEMBER 31, 2004.
ADR - AMERICAN DEPOSITARY RECEIPT
SPDR - STANDARD AND POOR'S DEPOSITARY RECEIPT.
BD - BERMUDA
CA - CANADA
CI - CHANNEL ISLANDS
GE - GERMANY
IS - ISRAEL
SEE NOTES TO FINANCIAL STATEMENTS.
16
<Page>
STATEMENT OF ASSETS AND LIABILITIES
December 31, 2004
<Table>
ASSETS
Investment securities, at cost $ 394,054,252
---------------
Investment securities, at market 441,661,267
Cash 1,105,335
Receivables:
Capital shares sold 146,476
Dividends and interest 390,590
Other assets 129,390
---------------
Total Assets 443,433,058
---------------
LIABILITIES
Payables and other accrued liabilities:
Investment securities purchased 2,364,325
Capital shares redeemed 2,320,547
Advisory fees 281,064
Shareholder servicing fees 42,208
Accounting fees 22,458
Distribution fees 123,433
Transfer agency fees 41,909
Custodian fees 2,076
Other 356,920
---------------
Total Liabilities 5,554,940
---------------
Net Assets $ 437,878,118
===============
COMPOSITION OF NET ASSETS
Capital (par value and paid-in surplus) $ 1,121,840,785
Undistributed net investment income 1,178,792
Accumulated net realized loss from security transactions (732,748,474)
Net unrealized appreciation on investments
and foreign currency translation 47,607,015
---------------
Total $ 437,878,118
===============
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
17
<Page>
<Table>
CLASS A
Net Assets $ 6,356,224
Shares Outstanding 603,442
Net Asset Value, Redemption Price Per Share $ 10.53
Maximum offering
price per share (net asset value
plus sales charge of 5.75% of offering price) $ 11.17
CLASS B
Net Assets $ 12,406,411
Shares Outstanding 1,223,186
Net Asset Value, Offering and Redemption Price (excluding
applicable contingent deferred sales charge) Per Share $ 10.14
CLASS C
Net Assets $ 1,880,538
Shares Outstanding 185,665
Net Asset Value, Offering and Redemption Price (excluding
applicable contingent deferred sales charge) Per Share $ 10.13
CLASS F
Net Assets $ 406,550,176
Shares Outstanding 38,410,300
Net Asset Value, Offering and Redemption Price Per Share $ 10.58
CLASS R
Net Assets $ 10,584,348
Shares Outstanding 989,928
Net Asset Value, Offering and Redemption Price Per Share $ 10.69
CLASS T
Net Assets $ 100,421
Shares Outstanding 9,877
Net Asset Value, Redemption Price Per Share $ 10.17
Maximum offering price per share (net asset value
plus sales charge of 4.50% of offering price) $ 10.65
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
18
<Page>
STATEMENT OF OPERATIONS
For the year ended December 31, 2004
<Table>
INVESTMENT INCOME
Dividends $ 7,410,831
Interest 255,927
Foreign taxes withheld (23,668)
---------------
Total Investment Income 7,643,090
---------------
EXPENSES
Advisory fees--Note 2 3,511,652
Shareholder servicing fees--Note 2 416,085
Accounting fees--Note 2 281,094
Distribution fees--Note 2 1,207,552
Transfer agency fees--Note 2 494,623
Registration fees 41,938
Postage and mailing expenses 55,042
Custodian fees and expenses--Note 2 10,535
Printing expenses 75,175
Legal and audit fees 97,404
Directors' fees and expenses--Note 2 87,948
Other expenses 85,343
---------------
Total Expenses 6,364,391
Earnings Credits (7,790)
Reimbursed/Waived Expenses (979)
Expense Offset to Broker Commissions (4,096)
---------------
Net Expenses 6,351,526
---------------
Net Investment Income 1,291,564
---------------
REALIZED AND UNREALIZED GAIN (LOSS) ON SECURITY
TRANSACTIONS AND FOREIGN CURRENCY TRANSACTIONS
Net Realized Gain on:
Security Transactions 52,095,323
Foreign Currency Transactions 81
---------------
Net Realized Gain 52,095,404
Net Change in Unrealized Appreciation/Depreciation
of Investments and Foreign Currency Translation (21,249,162)
---------------
Net Realized and Unrealized Gain 30,846,242
---------------
Net Increase in Net Assets Resulting from Operations $ 32,137,806
===============
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
19
<Page>
STATEMENTS OF CHANGES IN NET ASSETS
<Table>
<Caption>
YEAR ENDED YEAR ENDED
12/31/04 12/31/03
OPERATIONS
Net Investment Income (Loss) $ 1,291,564 $ (2,162,775)
Net Realized Gain on Security and Foreign
Currency Transactions 52,095,404 16,581,469
Net Change in Unrealized Appreciation/Depreciation
of Investments and Foreign Currency Translation (21,249,162) 122,368,802
--------------- ---------------
Net Increase in Net Assets Resulting from Operations 32,137,806 136,787,496
--------------- ---------------
CAPITAL SHARE TRANSACTIONS
Net Increase (Decrease)--Note 4
Class A (520,803) (258,678)
Class B (2,029,596) (1,223,196)
Class C (15,393) (166,651)
Class F (108,174,647) (88,319,324)
Class R 967,838 2,736,606
Class T (130,287) (41,579)
--------------- ---------------
Net Decrease from Capital Share Transactions (109,902,888) (87,272,822)
--------------- ---------------
Net Increase (Decrease) in Net Assets (77,765,082) 49,514,674
--------------- ---------------
NET ASSETS
Beginning of year $ 515,643,200 $ 466,128,526
--------------- ---------------
End of year $ 437,878,118 $ 515,643,200
=============== ===============
Undistributed (Accumulated) Net Investment
Income (Loss) $ 1,178,792 $ (112,853)
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
20
<Page>
FINANCIAL HIGHLIGHTS
<Table>
<Caption>
YEAR ENDED
DECEMBER 31,
2004 2003 2002 2001 2000
---------------------------------------------------------------------
CLASS A SHARES
PER SHARE OPERATING DATA
Net Asset Value, beginning of year $ 9.79 $ 7.46 $ 10.53 $ 14.02 $ 23.88
- ------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) 0.02+ (0.06) (0.06) (0.05) (0.05)
Net realized and unrealized gains
(losses) on securities 0.72 2.39 (3.01) (3.44) (6.39)
---------------------------------------------------------------------
Total from investment operations 0.74 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 year $ 10.53 $ 9.79 $ 7.46 $ 10.53 $ 14.02
=====================================================================
TOTAL RETURN* 7.56% 31.23% (29.15%) (24.89%) (27.30%)
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000s) $ 6,356 $ 6,452 $ 5,149 $ 7,795 $ 8,655
- ------------------------------------------------------------------------------------------------------------------
Ratios to average net assets:
Expenses with reimbursements, but no
earnings credits or brokerage offsets# 1.42% 1.66% 1.48% 1.21% 1.08%
Expenses with reimbursements,
earnings credits and brokerage offsets 1.41% 1.66% 1.48% 1.20% 1.05%
Net investment income (loss) 0.22% (0.59%) (0.56%) (0.47%) (0.54%)
- ------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate@ 107% 124% 139% 152% 182%
</Table>
+ COMPUTED USING AVERAGE SHARES OUTSTANDING THROUGHOUT THE YEAR.
* SALES CHARGES ARE NOT REFLECTED IN THE TOTAL RETURN.
# 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>
YEAR ENDED
DECEMBER 31,
2004 2003 2002 2001 2000
---------------------------------------------------------------------
CLASS B SHARES
PER SHARE OPERATING DATA
Net Asset Value, beginning of year $ 9.50 $ 7.30 $ 10.38 $ 13.91 $ 23.88
- ------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment loss (0.06)+ (0.17) (0.18) (0.13) (0.11)
Net realized and unrealized gains
(losses) on securities 0.70 2.37 (2.90) (3.40) (6.44)
---------------------------------------------------------------------
Total from investment operations 0.64 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 year $ 10.14 $ 9.50 $ 7.30 $ 10.38 $ 13.91
=====================================================================
TOTAL RETURN* 6.74% 30.14% (29.67%) (25.38%) (27.77%)
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000s) $ 12,406 $ 13,664 $ 11,603 $ 19,829 $ 25,359
- ------------------------------------------------------------------------------------------------------------------
Ratios to average net assets:
Expenses with reimbursements, but no
earnings credits or brokerage offsets# 2.22% 2.48% 2.22% 1.93% 1.82%
Expenses with reimbursements,
earnings credits and brokerage offsets 2.22% 2.48% 2.22% 1.92% 1.80%
Net investment loss (0.58%) (1.41%) (1.30%) (1.20%) (1.29%)
- ------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate@ 107% 124% 139% 152% 182%
</Table>
+ COMPUTED USING AVERAGE SHARES OUTSTANDING THROUGHOUT THE YEAR.
* SALES CHARGES ARE NOT REFLECTED IN THE TOTAL RETURN.
# 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>
YEAR ENDED
DECEMBER 31,
2004 2003 2002 2001 2000
---------------------------------------------------------------------
CLASS C SHARES
PER SHARE OPERATING DATA
Net Asset Value, beginning of year $ 9.48 $ 7.29 $ 10.36 $ 13.92 $ 23.88
- ------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment loss (0.05)+ (0.19) (0.26) (0.18) (0.10)
Net realized and unrealized gains
(losses) on securities 0.70 2.38 (2.81) (3.38) (6.44)
---------------------------------------------------------------------
Total from investment operations 0.65 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 year $ 10.13 $ 9.48 $ 7.29 $ 10.36 $ 13.92
=====================================================================
TOTAL RETURN* 6.86% 30.04% (29.63%) (25.58%) (27.72%)
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000s) $ 1,881 $ 1,774 $ 1,528 $ 2,979 $ 4,384
- ------------------------------------------------------------------------------------------------------------------
Ratios to average net assets:
Expenses with reimbursements, but no
earnings credits or brokerage offsets# 2.16% 2.49% 2.37% 2.11% 1.82%
Expenses with reimbursements,
earnings credits and brokerage offsets 2.16% 2.49% 2.37% 2.10% 1.80%
Net investment loss (0.49%) (1.42%) (1.46%) (1.38%) (1.28%)
- ------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate@ 107% 124% 139% 152% 182%
</Table>
+ COMPUTED USING AVERAGE SHARES OUTSTANDING THROUGHOUT THE YEAR.
* SALES CHARGES ARE NOT REFLECTED IN THE TOTAL RETURN.
# 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>
YEAR ENDED
DECEMBER 31,
2004 2003 2002 2001 2000
----------------------------------------------------------------------
CLASS F SHARES
PER SHARE OPERATING DATA
Net Asset Value, beginning of year $ 9.83 $ 7.48 $ 10.53 $ 14.03 $ 23.87
- -------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) 0.03+ (0.17) (0.22) (0.15) (0.21)
Net realized and unrealized gains
(losses) on securities 0.72 2.52 (2.83) (3.35) (6.21)
----------------------------------------------------------------------
Total from investment operations 0.75 2.35 (3.05) (3.50) (6.42)
- -------------------------------------------------------------------------------------------------------------------
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 year $ 10.58 $ 9.83 $ 7.48 $ 10.53 $ 14.03
======================================================================
TOTAL RETURN 7.63% 31.42% (28.96%) (24.95%) (27.23%)
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000s) $ 406,550 $ 484,742 $ 443,307 $ 865,425 $ 1,441,466
- -------------------------------------------------------------------------------------------------------------------
Ratios to average net assets:
Expenses with reimbursements, but no
earnings credits or brokerage offsets# 1.33% 1.47% 1.38% 1.31% 1.07%
Expenses with reimbursements,
earnings credits and brokerage offsets 1.33% 1.47% 1.37% 1.30% 1.06%
Net investment income (loss) 0.30% (0.41%) (0.46%) (0.58%) (0.58%)
- -------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate@ 107% 124% 139% 152% 182%
</Table>
+ COMPUTED USING AVERAGE SHARES OUTSTANDING THROUGHOUT THE YEAR.
# 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.
24
<Page>
<Table>
<Caption>
YEAR ENDED
DECEMBER 31,
2004 2003 2002 2001 2000
---------------------------------------------------------------------
CLASS R SHARES
PER SHARE OPERATING DATA
Net Asset Value, beginning of year $ 9.89 $ 7.50 $ 10.57 $ 14.07 $ 23.88
- ------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) 0.07 0.01 0.01 (0.02) (0.02)
Net realized and unrealized gains
(losses) on securities 0.73 2.38 (3.08) (3.48) (6.37)
---------------------------------------------------------------------
Total from investment operations 0.80 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 year $ 10.69 $ 9.89 $ 7.50 $ 10.57 $ 14.07
=====================================================================
TOTAL RETURN 8.09% 31.87% (29.04%) (24.88%) (27.08%)
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000s) $ 10,584 $ 8,792 $ 4,333 $ 2,023 $ 9
- ------------------------------------------------------------------------------------------------------------------
Ratios to average net assets:
Expenses with reimbursements, but no
earnings credits or brokerage offsets# 1.03% 1.13% 1.30% 1.46% 0.82%
Expenses with reimbursements,
earnings credits and brokerage offsets 1.03% 1.13% 1.30% 1.46% 0.79%
Net investment income (loss) 0.65% (0.04%) (0.34%) (0.72%) (0.29%)
- ------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate@ 107% 124% 139% 152% 182%
</Table>
# 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.
25
<Page>
<Table>
<Caption>
YEAR ENDED
DECEMBER 31,
2004 2003 2002 2001 2000
---------------------------------------------------------------------
CLASS T SHARES
PER SHARE OPERATING DATA
Net Asset Value, beginning of year $ 9.48 $ 7.27 $ 10.38 $ 14.00 $ 23.88
- ------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment loss (0.02)+ (0.30) (0.56) (0.19) (0.09)
Net realized and unrealized gains
(losses) on securities 0.71 2.51 (2.55) (3.43) (6.37)
---------------------------------------------------------------------
Total from investment operations 0.69 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 year $ 10.17 $ 9.48 $ 7.27 $ 10.38 $ 14.00
=====================================================================
TOTAL RETURN* 7.28% 30.40% (29.96%) (25.86%) (27.38%)
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000s) $ 100 $ 220 $ 208 $ 621 $ 802
- ------------------------------------------------------------------------------------------------------------------
Ratios to average net assets:
Expenses with reimbursements, but no
earnings credits or brokerage offsets# 1.79% 2.22% 2.78% 2.56% 1.32%
Expenses with reimbursements,
earnings credits and brokerage offsets 1.79% 2.22% 2.78% 2.55% 1.29%
Net investment loss (0.17%) (1.15%) (1.89%) (1.83%) (0.80%)
- ------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate@ 107% 124% 139% 152% 182%
</Table>
+ COMPUTED USING AVERAGE SHARES OUTSTANDING THROUGHOUT THE YEAR.
* SALES CHARGES ARE NOT REFLECTED IN THE TOTAL RETURN.
# 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.
26
<Page>
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2004
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,
Equity Growth (formerly Growth and Income), Government Securities, Growth,
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 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. However, the Funds are planning to begin
using New York closing exchange rates to convert foreign currencies to U.S.
dollars sometime during the first quarter of 2005.
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.
27
<Page>
If market quotations or official closing prices are not readily available or are
determined not to reflect accurately fair value, 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 but before the Fund calculates its net asset value,
and it is determined that the event has materially affected the value of the
security. Fair value of foreign equity securities may be determined with the
assistance of a pricing service using correlations between the movement of
prices of foreign securities and indexes of domestic securities and other
appropriate indicators, such as closing market prices of relevant ADRs and
futures contracts. Using fair value to price securities may result in a value
that is different from a security's most recent closing price and from the
prices used by other mutual funds to calculate their net asset values.
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 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
28
<Page>
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, as earned, and includes the
accretion of discounts and the amortization of premiums over the lives of the
respective securities. Withholding taxes on foreign dividends have been provided
for in accordance with the applicable country's tax rules and rates.
DISTRIBUTIONS TO SHAREHOLDERS--The Fund declares and distributes dividends (if
any) and capital gains (if any) annually. Dividends and distributions, which are
determined in accordance with income tax regulations, are recorded on the
ex-dividend date.
EXPENSES--Each Class of the Fund bears expenses incurred specifically on its
behalf and, in addition, each Class bears a portion of general expenses based on
the relative net assets or the number of shareholder accounts of the Class. The
type of expense determines the allocation method.
The Company's board of directors has authorized the payment of certain Fund
expenses with commissions on Fund portfolio transactions. These commissions
reduce Other Expenses and are included in the Expense Offset to Broker
Commissions in the Statement of Operations.
USE OF ESTIMATES--The preparation of financial statements in conformity with
accounting principles generally accepted in the United States of America
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported amounts of
income and expenses during the reporting period. Actual results could differ
from those estimates.
INDEMNIFICATIONS--In the normal course of business, the Company enters into
contracts that contain provisions indemnifying other parties against specified
potential liabilities. Each Fund's maximum exposure under these arrangements is
unknown as this would involve future claims that may be made against the Fund
that have not yet occurred. However, based on experience, the Funds expect the
risk of loss to be remote.
OTHER--Certain prior year information has been reformatted, without substantive
change, to conform with the current year presentation.
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
29
<Page>
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 year ended December 31,
2004, Class F shares were charged $363,400 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 from DTI
are paid by the Fund. During the year ended December 31, 2004, Class F shares
were charged $130,531 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 $13.00, per shareholder account considered to be an
open account at any time during a given month, plus out-of-pocket charges.
Class-specific transfer agency fees paid to DTI during the year ended December
31, 2004 were as follows:
<Table>
<Caption>
TRANSFER
AGENCY FEES
-----------------------------------------
Class A $ 2,144
Class B $ 32,198
Class C $ 3,736
Class R $ 5,802
Class T $ 596
</Table>
OTHER TRANSFER AGENCY FEES--Various broker-dealers, retirement plan
administrators and other unaffiliated entities have established omnibus accounts
with the Fund, and provide sub-transfer agency, recordkeeping or similar
services to persons holding Fund shares through those accounts. During the year
ended December 31, 2004, the Fund paid $309,616 to these entities for such
services. This amount is included in the transfer agency fees shown on the
Statement of Operations.
CASH MANAGEMENT FEES--The Funds also pay Mellon Bank N.A. ("Mellon Bank"), a
wholly-owned subsidiary of Mellon Financial Corporation and an affiliate of
Founders, fees for certain cash management services. These include various
services related to the processing of shareholder transactions in the Funds.
During the year ended
30
<Page>
December 31, 2004, the Fund was charged $8,305 for cash management fees, which
are included in the out-of-pocket charges from DTI above.
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 year ended December
31, 2004, Class F shares were charged $1,097,027 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 year ended December 31, 2004, were as follows:
<Table>
<Caption>
DISTRIBUTION SHAREHOLDER
FEES SERVICING FEES
---------------------------------------------------
Class A N/A $ 15,534
Class B $ 95,550 $ 31,850
Class C $ 14,511 $ 4,837
Class T $ 464 $ 464
</Table>
During the year ended December 31, 2004, DSC retained $2,556 in sales
commissions from the sales of Class A shares. DSC also retained $32,772 and $25
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 contractually agreed to waive
any fees received for these services to the extent they exceed Founders' costs
in providing the services.
31
<Page>
CUSTODIAN FEES--Mellon Bank 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 Fund could have employed these assets
elsewhere to produce income had it not entered into this arrangement. The
custodian has also contractually 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 year ended December 31, 2004, the
Fund's portion of the fee waiver was $979, which reduced the amount paid to
Mellon Bank to $9,556.
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 invested
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,
which pays their compensation. The affairs of the Fund, including services
provided by Founders, are subject to the supervision and general oversight of
the Company's board of directors.
3. FEDERAL TAX INFORMATION
Net investment income and capital gains distributions are determined in
accordance with income tax regulations that may differ from accounting
principles generally accepted in the United States of America. These differences
are due to differing treatments for items such as deferral of wash sale losses,
foreign currency transactions, net operating losses and capital loss carryovers.
Permanent differences identified during the year ended December 31, 2004 have
been reclassified among the components of net assets as follows:
<Table>
<Caption>
UNDISTRIBUTED NET UNDISTRIBUTED NET PAID-IN
INVESTMENT INCOME REALIZED GAINS AND LOSSES CAPITAL
----------------------------------------------------------------
$ 81 $ (81) $ 0
</Table>
32
<Page>
The tax components of capital represent distribution requirements the Fund must
satisfy under the income tax regulations and losses or tax deductions the Fund
may be able to offset against income and capital gains realized in future years.
Accumulated capital losses and post-October 31 capital losses noted below, if
any, as of December 31, 2004, 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. Net capital loss carryovers utilized
during 2004 by the Fund amounted to $39,713,175. Accumulated capital losses as
of December 31, 2004 were:
<Table>
<Caption>
EXPIRATION AMOUNT
-------------------------------------------------------------
2008 $ 501,000
2009 $ 516,034,883
2010 $ 209,975,954
---------------
$ 726,511,837
===============
</Table>
The aggregate cost of investments and the composition of unrealized appreciation
and depreciation of investment securities for federal income tax purposes as of
December 31, 2004 are noted below. The primary difference between book and tax
appreciation or depreciation is wash sale loss deferrals.
<Table>
Undistributed Ordinary Income $ 1,301,047
Federal Tax Cost 400,290,889
Gross Tax Appreciation of Investments 47,200,686
Gross Tax Depreciation of Investments (5,830,308)
Net Tax Appreciation 41,370,378
</Table>
33
<Page>
4. CAPITAL SHARE TRANSACTIONS
The Fund is authorized to issue 750 million shares of $0.01 par value capital
stock. Transactions in shares of the Fund for the periods indicated were as
follows:
<Table>
<Caption>
YEAR ENDED YEAR ENDED
12/31/04 12/31/03
SHARES AMOUNT SHARES AMOUNT
CLASS A
Sold 105,906 $ 1,056,250 102,390 $ 863,766
Redeemed (161,536) $ (1,577,053) (133,313) $ (1,122,444)
--------------------------------------------------------------------
Net Decrease (55,630) $ (520,803) (30,923) $ (258,678)
====================================================================
CLASS B
Sold 30,813 $ 293,687 95,258 $ 810,696
Redeemed (246,029) $ (2,323,283) (245,915) $ (2,033,892)
--------------------------------------------------------------------
Net Decrease (215,216) $ (2,029,596) (150,657) $ (1,223,196)
====================================================================
CLASS C
Sold 38,619 $ 368,762 22,136 $ 191,985
Redeemed (40,060) $ (384,155) (44,718) $ (358,636)
--------------------------------------------------------------------
Net Decrease (1,441) $ (15,393) (22,582) $ (166,651)
====================================================================
CLASS F
Sold 2,973,891 $ 29,284,630 5,549,619 $ 46,590,327
Redeemed (13,900,368) $ (137,459,277) (15,507,433) $ (134,909,651)
--------------------------------------------------------------------
Net Decrease (10,926,477) $ (108,174,647) (9,957,814) $ (88,319,324)
====================================================================
CLASS R
Sold 381,438 $ 3,739,499 388,827 $ 3,417,348
Redeemed (280,086) $ (2,771,661) (77,669) $ (680,742)
--------------------------------------------------------------------
Net Increase 101,352 $ 967,838 311,158 $ 2,736,606
====================================================================
CLASS T
Sold 136 $ 1,307 856 $ 6,961
Redeemed (13,405) $ (131,594) (6,333) $ (48,540)
--------------------------------------------------------------------
Net Decrease (13,269) $ (130,287) (5,477) $ (41,579)
====================================================================
</Table>
5. INVESTMENT TRANSACTIONS
Purchases and sales of investment securities (excluding short-term securities
and U.S. government obligations) for the year ended December 31, 2004 were
$483,599,481 and $576,324,316, respectively.
34
<Page>
6. LINE OF CREDIT
The Company has a line of credit arrangement ("LOC") with State Street Bank and
Trust Company, to be used for temporary or emergency purposes, primarily for
financing redemption payments. Each Fund's borrowings are limited to the lesser
of (a) $50 million, or (b) the lesser of 25% of the Fund's total net assets or
the maximum amount which the Fund is permitted to borrow pursuant to the
prospectus, any law or any other agreement. Combined borrowings are subject to
the $50 million cap on the total LOC. Each Fund agrees to pay annual fees and
interest on the unpaid balance based on prevailing market rates as defined in
the LOC. At December 31, 2004, the Fund did not have any borrowings under the
LOC.
7. LEGAL MATTERS
In early 2004, two purported class and derivative actions were filed against
Mellon Financial Corporation, Mellon Bank, Founders, Dreyfus, and certain
directors of the Dreyfus Founders Funds and the Dreyfus Funds (together, the
"Defendant Funds"). In September 2004, plaintiffs served a Consolidated Amended
Complaint (the "Amended Complaint") on behalf of a purported class of all
persons who acquired interests in any of the Defendant Funds between January 30,
1999 and November 17, 2003, and derivatively on behalf of the Defendant Funds.
The Amended Complaint in the newly styled In re Dreyfus Mutual Funds Fee
Litigation also named DSC, Premier Mutual Fund Services, Inc. and two additional
directors of the Defendant Funds as defendants and alleges violations of the
Investment Company Act of 1940, the Investment Advisers Act of 1940, the
Pennsylvania Unfair Trade Practices and Consumer Protection Law and common-law
claims. Plaintiffs seek to recover allegedly improper and excessive Rule 12b-1
and advisory fees allegedly charged to the Defendant Funds for marketing and
distribution services. More specifically, plaintiffs claim, among other things,
that 12b-1 fees and directed brokerage were improperly used to pay brokers to
recommend the Defendant Funds over other funds, and that such payments were not
disclosed to investors. In addition, plaintiffs assert that economies of scale
and soft-dollar benefits were not passed on to the Defendant Funds. Plaintiffs
further allege that 12b-1 fees were improperly charged to certain of the
Defendant Funds that were closed to new investors. The Amended Complaint seeks
compensatory and punitive damages, rescission of the advisory contracts, and an
accounting and restitution of any unlawful fees, as well as an award of
attorneys' fees and litigation expenses. As noted, some of the claims in this
litigation are asserted derivatively on behalf of the Defendant Funds that have
been named as nominal defendants. With respect to such derivative claims, no
relief is sought against the Defendant Funds. Founders, Dreyfus and the
Defendant Funds believe the allegations to be totally without merit and intend
to defend the action vigorously. The defendants filed motions to dismiss the
Amended Complaint on November 12, 2004, and those motions are pending.
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 nor the Funds believe that any of the pending actions
will have a material adverse effect on the Funds or Founders' ability to perform
its contract with the Funds.
35
<Page>
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Shareholders of
Dreyfus Founders Funds, Inc.
In our opinion, the accompanying statement of assets and liabilities, including
the statement of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of Dreyfus Founders Growth Fund (one
of the portfolios constituting Dreyfus Founders Funds, Inc., hereafter referred
to as the "Fund") at December 31, 2004, the results of its operations for the
year then ended, the changes in its net assets for each of the two years in the
period then ended and the financial highlights for each of the five years in the
period then ended, in conformity with accounting principles generally accepted
in the United States of America. These financial statements and financial
highlights (hereafter referred to as "financial statements") are the
responsibility of the Fund's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these financial statements in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those standards
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits, which included
confirmation of securities at December 31, 2004 by correspondence with the
custodian and brokers and the application of alternative auditing procedures
where securities purchased had not been received, provide a reasonable basis for
the opinion expressed above.
PricewaterhouseCoopers LLP
Denver, Colorado
February 10, 2005
36
<Page>
YOUR BOARD REPRESENTATIVES
(UNAUDITED)
The Board of Directors of the Company oversees all 10 Dreyfus Founders Funds.
The business and affairs of the Company are managed under the direction of the
Board. The directors serving on the Board perform their responsibilities in the
manner which they reasonably believe to be in the best interests of the Funds
and their shareholders.
All of the directors, as listed below, are independent directors. They are not
affiliated with the Fund's adviser, its parent company, or its affiliates. The
directors have no official term of office and generally serve until they reach
the mandated retirement age of 75, resign, or are not re-elected. As you can see
from their backgrounds, the directors have broad experience as active or former
business and community leaders.
DIRECTORS
EUGENE H. VAUGHAN, CFA, 71. Year elected to the Board: 1970
Board Chairman. Founding Chairman and, formerly (1970 to 2000), President and
CEO, Vaughan Nelson Investment Management, LP, an investment counseling firm.
Director, Encore Bank. Founding Chairman, Center for Houston's Future, a
non-profit organization. Founding Chairman and former Governor, Association for
Investment Management and Research. Past Chairman and Trustee, Institute of
Chartered Financial Analysts. Past Chairman and Director, Financial Analysts
Federation.
ALAN S. DANSON, 65. Year elected to the Board: 1991
Private investor. Formerly, President and Director, D.H. Management, Inc., the
general partner of a limited partnership with technology company holdings (1996
to 2003). Formerly, Director and Senior Vice President, OptiMark Technologies,
Inc., a computerized securities trading service (1996 to 1999). Director,
CaseShare Systems, LLP, a document management company. Director, Gore Range
Natural Science School and The Les Streeter Programs, Inc., both of which are
non-profit organizations.
JOAN D. MANLEY, 72. Year elected to the Board: 1998
Retired. Formerly, Ms. Manley served in several executive capacities with Time
Incorporated, most recently as Group Vice President, Director and Chairman of
Time-Life Books, Inc. and Book of the Month Club, Inc. (1960 to 1984). Director,
Sara Lee Corporation and R.R. Donnelley & Sons Company.
ROBERT P. MASTROVITA, 60. Year elected to the Board: 1998
Private investor. Chairman of a private charitable foundation (1997 to present).
Formerly, Chairman and Director, Hagler, Mastrovita & Hewitt, Inc., a registered
investment adviser (1982 to 1997). Member, Boston Society of Security Analysts.
Trustee, Partridge Academy.
TRYGVE E. MYHREN, 68. Year elected to the Board: 1996
President, Myhren Media, Inc., a firm that invests in and advises media,
telecommunications, Internet and software companies. Special Limited Partner and
member of Investment Committee, Megunticook Funds, a venture capital firm (1998
to present). Director, Advanced Marketing Services, Inc. Trustee and Chairman of
Finance Committee, the University of Denver. Trustee, Denver Art Museum. Member,
Cable Television Hall of Fame. Formerly, President (1990 to 1996) and Director
(1992 to 2001) of the Providence Journal Company, a diversified media and
communications
37
<Page>
company. Formerly, Chairman and Chief Executive Officer of American Television
and Communications Corporation (now Timer Warner Cable) (1981 to 1988).
Formerly, Chairman of the National Cable Television Association (1986-1987).
GEORGE W. PHILLIPS, 66. Year elected to the Board: 1998
Retired. Vice Chairman of the Board, Chairman of the Finance Committee, and
Chairman of the Investment Committee, Children's Medical Center of Boston.
Formerly, President and Chief Executive Officer (1992 to 1997) and Director
(1992 to 2002) of Warren Bancorp, Inc. Formerly, President, Chief Executive
Officer and Director of Warren Five Cents Savings Bank (1992 to 1997).
PRINCIPAL OFFICERS
RICHARD W. SABO, 47. President of the Funds since 2000 and Principal Executive
Officer of the Funds since 2002. Founders' President and Chief Executive
Officer, Member of Founders' Board of Managers and Director of Dreyfus (1998 to
present). Executive Vice President of DSC since 2003. Formerly, Senior Vice
President and Regional Director for Prudential Securities, Inc. (1991 to 1998).
DAVID L. RAY, 47. Vice President of the Funds since 2000, and from 1990 to 1998.
Founders' Senior Vice President--Administration and Treasurer. Vice President of
DSC since 2003. Employed by Founders and its predecessor company since 1990.
Formerly, Treasurer of the Funds (1990 to 1998).
KENNETH R. CHRISTOFFERSEN, 49. Secretary of the Funds since 2000, and from 1996
to 1998. Founders' Senior Vice President--Legal, General Counsel and Secretary.
Assistant Secretary of DSC since 2003. Employed by Founders and its predecessor
company since 1996.
JANELLE E. BELCHER, 46. Chief Compliance Officer of the Funds since 2004 and
Assistant Secretary of the Funds since 2002. Founders' Vice
President--Compliance since 2002. Formerly, Founders' Manager of Compliance
(2000 to 2002) and Securities Compliance Examiner, Staff Accountant and Team
Leader for the U.S. Securities and Exchange Commission (1990 to 2000).
ROBERT T. KELLY, 35. Treasurer, Principal Financial Officer, and Principal
Accounting Officer of the Funds since 2003. Founders' Vice President of
Portfolio Accounting since 2000. Formerly, Assistant Treasurer of the Funds
(2000 to 2003), and Head of Equity Desk for ABN Amro Trust Company (Cayman)
Limited (1998 to 2000).
WILLIAM G. GERMENIS, 34. Anti-Money Laundering Compliance Officer ("AMLCO") for
the Class A, Class B, Class C, Class R, and Class T shares of the Funds since
2002 and for the Class F shares of the Funds since 2003. Vice President and
AMLCO of MBSC, LLC since 2002. Vice President and AMLCO of DSC and AMLCO of
investment companies managed by Dreyfus. Employed by DSC since 1998.
The directors and officers may be contacted at Founders' address appearing on
the inside cover, except for Mr. Germenis, who can be contacted at 200 Park
Avenue, New York, New York 10166. Additional information about the Company's
directors is available in the Statement of Additional Information, which can be
obtained free of charge by calling the toll free number on the back cover.
38
<Page>
DREYFUS FOUNDERS GROWTH FUND
P.O. Box 55360
Boston, MA 02205-8252
1-800-525-2440
www.founders.com
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 (SEC) 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.
PORTFOLIO HOLDINGS
The Fund files its complete schedule of portfolio holdings with the SEC for the
first and third quarters of each fiscal year on Form N-Q. The Fund's Forms N-Q
are available on the SEC's website at www.sec.gov and may be reviewed and copied
at the SEC's Public Reference Room in Washington, DC. Information on the
operation of the SEC's Public Reference Room may be obtained by calling
1-800-SEC-0330.
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)2005 Founders Asset Management LLC. 2/05
A-646-GRO-04
<Page>
[GRAPHIC]
ANNUAL REPORT
DREYFUS FOUNDERS
INTERNATIONAL EQUITY FUND
INVESTMENT UPDATE
DECEMBER 31, 2004
[(R) DREYFUS FOUNDERS FUNDS(R) LOGO]
THE GROWTH SPECIALISTS
<Page>
TABLE OF CONTENTS
<Table>
Management Overview 3
Fund Expenses 10
Statement of Investments 12
Statement of Assets and Liabilities 17
Statement of Operations 19
Statements of Changes in Net Assets 20
Financial Highlights 21
Notes to Financial Statements 27
Report of Independent Registered Public Accounting Firm 36
Other Tax Information 37
Your Board Representatives 38
</Table>
PAPERLESS DELIVERY OF THIS REPORT
[GRAPHIC]
Did you know you can reduce your postal mail by accessing Dreyfus Founders Funds
regulatory material online? It's a simple, reliable process: when new documents
such as this Annual Report are available, we'll send you an e-mail notification
containing a convenient link that will take you directly to that Fund
information on our website. To take advantage of this service, simply inform us
online of your decision to receive materials through the Founders
E-Communications Program. Cut down on mailbox clutter and help the Fund reduce
printing and postage charges by enrolling today at
www.founders.com/ecommunications. If you own Funds through a third party, enroll
at www.icsdelivery.com.
INVESTMENT MANAGER DISTRIBUTOR
Founders Asset Management LLC Dreyfus Service Corporation
A MELLON FINANCIAL COMPANY(SM) 200 Park Avenue
210 University Boulevard, Suite 800 New York, NY 10166
Denver, CO 80206
The views expressed in this report reflect those of the portfolio managers only
through the end of the period covered and do not necessarily represent the views
of Founders or any other person in the Founders organization. Any such views are
subject to change at any time based upon market or other conditions and Founders
disclaims any responsibility to update such views. These views may not be relied
on as investment advice and, because investment decisions for a Dreyfus Founders
Fund are based on numerous factors, may not be relied on as an indication of
trading intent on behalf of any Dreyfus Founders Fund. Companies appearing in
bold print on pages 3-9 were owned by the Fund on December 31, 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
(UNAUDITED)
[PHOTO OF REMI J. BROWNE]
[PHOTO OF DANIEL B. LEVAN]
[PHOTO OF 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 FOR THE 12 MONTHS ENDED
DECEMBER 31, 2004?
For the 12 months ended December 31, 2004, Dreyfus Founders International Equity
Fund outperformed(1) its benchmark, the Morgan Stanley Capital International
(MSCI) World ex U.S. Index, which returned 20.38% for the same period.
PLEASE DESCRIBE THE BROAD MARKET AND ECONOMIC ENVIRONMENT IN WHICH THE FUND
PERFORMED.
European markets confounded skeptics who believed weak local demand, record high
commodity prices and currency strength would materially erode business
performance. Instead, natural resource-rich countries, such as Norway, and areas
with flourishing local growth, like Spain, offset more sluggish results
generated by France and Germany. Additionally, several emerging economies were
welcomed into the European Union (EU) during 2004, which now boasts 25 members.
- ----------
(1) Excluding sales charges, which result in lower returns for certain share
classes. Please see page 7 for average annual total returns for all share
classes, including and excluding sales charges.
[SIDENOTE]
"OUR FOCUS, AS ALWAYS, IS ON SELECTING STOCKS WITH IMPROVING BUSINESS MOMENTUM
AND ATTRACTIVE VALUATIONS IN EACH COUNTRY AND SECTOR REGARDLESS OF THE MARKET'S
DIRECTION."
3
<Page>
Despite robust export activity, Japan lagged other Asian markets during the
period due to mixed performance in the information technology sector, an area
that fell under intense selling pressure during the fourth quarter of the year.
In addition, the long-awaited recovery in domestic consumption has been slow to
materialize, causing the Japanese market to pause toward the end of the period.
When examining sectors, many reaped the benefits of accelerating global
production in 2004; however, information technology and healthcare trailed for
the year. Information technology weakness occurred due to high valuations, the
rollover in the semiconductor cycle, and lack of a pick-up in IT spending.
Healthcare, on the other hand, experienced investor backlash due to negative
press concerning pharmaceutical companies with blockbuster drugs being pulled
from the market.
WHAT MANAGEMENT DECISIONS POSITIVELY CONTRIBUTED TO THE FUND'S PERFORMANCE
DURING THE YEAR?
Substantial positive contribution to relative Fund performance on a country
basis came from the United Kingdom, Canada and Germany. The Fund's holdings in
these countries outpaced the benchmark due to strong stock selection. Singapore
and France also performed well during the period.
[SIDENOTE]
PERFORMANCE HIGHLIGHTS
- - Substantial positive contribution to relative Fund performance on a country
basis came from the United Kingdom, Canada and Germany.
- - The Fund's holdings in the industrials sector also had a positive impact on
relative Fund performance.
- - The largest negative contributor to relative Fund performance on a country
basis came from Hong Kong.
- - The biggest stock specific detractors to the Fund's relative performance
came from the information technology, telecommunication services and
healthcare sectors.
4
<Page>
Led by U.K.-based Cairn Energy PLC, the Fund's holdings in the energy
sector performed well for the year. Cairn's stock price rose during the period,
as the oil and gas exploration and production company enjoyed highly successful
exploration ventures in India and soaring oil prices.
The Fund's holdings in the industrials sector also had a positive impact on
relative Fund performance, primarily owing to strong stock selection. Swedish
truck manufacturer VOLVO AB was the best performing industrials holding.
Utilities holding FORTUM OYJ was another top performer for the year.
Fortum, a Finnish energy and utility firm, gained on increasing Scandinavian
power prices and rumors the company may spin out its oil and gas exploration
division.
The consumer staples sector was also a positive contributor to relative
Fund performance due to holdings such as SABMILLER PLC, which rallied during the
period as the Miller brand continued to recover and took market share away from
Budweiser in the U.S.
LARGEST EQUITY HOLDINGS (country of origin; ticker symbol)
<Table>
1. Vodafone Group PLC (United Kingdom; VOD) 4.02%
2. SABMiller PLC (United Kingdom; SAB) 2.35%
3. Barclays PLC (United Kingdom; BARC) 2.16%
4. ING Groep NV (Netherlands; ING.C) 2.03%
5. BP PLC (United Kingdom; BP) 2.02%
6. Koninklijke KPN NV (Netherlands; KPN) 2.01%
7. Sanofi-Synthelabo SA (France; SAN) 1.91%
8. Tesco PLC (United Kingdom; TSCO) 1.85%
9. Shire Pharmaceuticals Group PLC (United Kingdom; SHP) 1.77%
10. Toyota Motor Corporation (Japan; 7203) 1.77%
</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.
Class F MSCI World
Shares ex US Index
- --------------------------------------
12/29/1995 $10,000
12/31/1995 $10,000 $10,000
12/31/1996 $11,860 $10,687
12/31/1997 $13,770 $10,930
12/31/1998 $16,112 $12,980
12/31/1999 $25,571 $16,605
12/29/2000 $21,057 $14,385
12/31/2001 $14,667 $11,307
12/31/2002 $10,516 $ 9,521
12/31/2003 $14,425 $13,274
12/31/2004 $17,699 $15,979
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>
AVERAGE ANNUAL TOTAL RETURN AS OF 12/31/04
<Table>
<Caption>
1 5 10 SINCE
CLASS (INCEPTION DATE) YEAR YEARS YEARS INCEPTION
- ---------------------------------------------------------------------------------
CLASS A SHARES (12/31/99)
With sales charge (5.75%) 15.59% (8.22%) -- (8.22%)
Without sales charge 22.69% (7.13%) -- (7.13%)
CLASS B SHARES (12/31/99)
With redemption* 17.78% (8.14%) -- (8.14%)
Without redemption 21.78% (7.82%) -- (7.82%)
CLASS C SHARES (12/31/99)
With redemption** 20.83% (7.86%) -- (7.86%)
Without redemption 21.83% (7.86%) -- (7.86%)
CLASS F SHARES (12/29/95) 22.70% (7.09%) -- 6.55%
CLASS R SHARES (12/31/99) 23.45% (6.84%) -- (6.84%)
CLASS T SHARES (12/31/99)
With sales charge (4.50%) 16.88% (8.21%) -- (8.21%)
Without sales charge 22.42% (7.36%) -- (7.36%)
</Table>
Average annual total returns do not reflect the deduction of taxes that a
shareholder would pay on Fund distributions or redemption of Fund shares, but do
reflect the reinvestment of dividends and capital gain distributions, expense
limitations, and adjustments for financial statement purposes. Part of the
Fund's historical performance is due to the purchase of securities sold in
initial public offerings (IPOs). There is no guarantee that the Fund's
investments in IPOs, if any, will continue to have a similar impact on
performance. Investments in foreign securities entail unique risks, including
political, market, and currency risks.
*The maximum contingent deferred sales charge for Class B shares is 4% and is
reduced to 0% after six years, at which time the Class B shares convert to Class
A shares.
**The maximum contingent deferred sales charge for Class C shares is 1% for
shares redeemed within one year of the date of purchase.
7
<Page>
Additionally, financials holdings BARCLAYS PLC and ING GROEP NV, automotive
industry supplier CONTINENTAL AG and Dutch telecommunication services holding,
KONINKLIJKE KPN NV boosted the Fund's relative return.
WHAT MANAGEMENT DECISIONS NEGATIVELY CONTRIBUTED TO THE FUND'S PERFORMANCE
DURING THE YEAR?
The largest negative contributor to relative Fund performance on a country basis
came from Hong Kong. The Fund's holdings in this country were down and
significantly underperformed the benchmark for the year. Other countries with
negative contributions to relative Fund performance included Denmark, Italy,
Sweden and Switzerland.
The biggest detractors on a sector basis to the Fund's relative performance
came from the information technology, telecommunication services and healthcare
sectors. In the information technology sector, Citizens Electronics Company
Limited had one of the largest negative impacts on the Fund's relative
performance. The Japanese electronic parts manufacturer's sales suffered due to
a slowing cellular phone market.
[CHART]
PORTFOLIO COMPOSITION OF NET ASSETS
<Table>
United Kingdom 23.67%
Japan 21.40%
France 10.09%
Germany 8.65%
Switzerland 6.04%
Canada 5.17%
Australia 4.05%
Netherlands 4.05%
Italy 3.94%
Other Countries 12.94%
</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>
During the period, we anticipated relative growth in the Fund's
telecommunications services sector holdings. However, specific stocks in this
sector, including China Unicom Limited and KDDI Corporation, underperformed and
weighed heavily on Fund performance.
In healthcare, pharmaceutical companies AstraZeneca PLC and GLAXOSMITHKLINE
PLC and biotech firm SERONO SA were among the largest detractors from
performance. AstraZeneca and Glaxo both fell as the U.K.-based pharmaceutical
firms battled negative sector sentiment brought about by negative test results
on Merck & Company's VIOXX(R) and Pfizer, Inc.'s Celebrex(R). In addition,
AstraZeneca experienced falling new prescription numbers for its cholesterol
drug, Crestor(R), late in the year.
Other weak performers hindering performance for the period included
Finnish-based NOKIA OYJ and U.K.-based materials technology company Cookson
Group PLC, which were both down during the Fund's holding period.
Our focus, as always, is on selecting stocks with improving business
momentum and attractive valuations in various countries and sectors regardless
of the market's direction. We will continue to focus on companies we believe
could generate strong earnings relative to their valuations for possible
inclusion in the Fund.
/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>
FUND EXPENSES
(UNAUDITED)
As a shareholder of the Fund, depending on the class of shares of the Fund you
own, you incur two types of costs: (1) transaction costs, including front-end
and contingent deferred sales charges; and (2) ongoing costs, including
management fees, Rule 12b-1 fees, shareholder services fees, and other expenses.
The expense example shown below is intended to help you understand your ongoing
costs (in dollars) of investing in the Fund and to compare these costs with the
ongoing costs of investing in other mutual funds.
The expense example is based on an investment of $1,000 on July 1, 2004 and
held through December 31, 2004.
ACTUAL EXPENSES The numbers included in the expense example in the rows
with the word "Actual" in the title provide information about actual account
values and actual expenses. You may use this information to estimate the
expenses that you paid over the period. Simply divide your account value by
$1,000 (for example, an $8,600 account value divided by $1,000 = 8.60), then
multiply the result by the number under the column heading entitled "Expenses
Paid During Period" for the class of shares you own to estimate the expenses you
paid on your account during this period.
HYPOTHETICAL EXPENSES The numbers included in the expense example in the rows
with the word "Hypothetical" in the title provide information about hypothetical
account values and hypothetical expenses based on the Fund's actual expense
ratio for each class of shares, and an assumed rate of return of 5% per year
before expenses, which is not the Fund's actual return. The hypothetical account
values and expenses may not be used to estimate the actual ending account
balance or expenses you paid for the period. You may use this information to
compare the ongoing costs of investing in the Fund and other funds. To do so,
compare the hypothetical expenses in the expense example for the class of shares
you own with the hypothetical expenses that appear in the shareholder reports of
other funds.
Please note that the expenses shown in the expense example are meant to
highlight your ongoing costs only and do not reflect the transaction costs
described above. Therefore, the hypothetical expenses in the expense example are
useful in comparing ongoing costs only, and will not help you determine the
relative total costs of owning different funds. In addition, if the transaction
costs were included, your costs would have been higher.
10
<Page>
EXPENSE EXAMPLE
<Table>
<Caption>
BEGINNING ENDING EXPENSES PAID
ACCOUNT VALUE ACCOUNT VALUE DURING PERIOD*
(7/1/04) (12/31/04) (7/1/04-12/31/04)
- ------------------------------------------------------------------------------------
CLASS A ACTUAL $ 1,000.00 $ 1,115.00 $ 7.61
CLASS A HYPOTHETICAL 1,000.00 1,017.87 7.13
CLASS B ACTUAL 1,000.00 1,146.71 11.66
CLASS B HYPOTHETICAL 1,000.00 1,014.06 10.94
CLASS C ACTUAL 1,000.00 1,147.01 11.67
CLASS C HYPOTHETICAL 1,000.00 1,014.06 10.94
CLASS F ACTUAL 1,000.00 1,155.18 7.61
CLASS F HYPOTHETICAL 1,000.00 1,017.87 7.13
CLASS R ACTUAL 1,000.00 1,161.65 6.27
CLASS R HYPOTHETICAL 1,000.00 1,019.15 5.85
CLASS T ACTUAL 1,000.00 1,151.82 8.96
CLASS T HYPOTHETICAL 1,000.00 1,016.60 8.40
</Table>
*Expenses are equal to each Class's respective annualized expense ratio, shown
below, multiplied by the average account value over the period, multiplied by
184/366 (to reflect the one-half year period).
EXPENSE RATIOS
These expense ratios reflect reimbursements and/or waivers of expenses by the
Fund's investment adviser or its affiliates.
<Table>
<Caption>
EXPENSE RATIO
- -------------------------------------------------------
CLASS A 1.40%
CLASS B 2.15%
CLASS C 2.15%
CLASS F 1.40%
CLASS R 1.15%
CLASS T 1.65%
</Table>
11
<Page>
STATEMENT OF INVESTMENTS
December 31, 2004
<Table>
<Caption>
SHARES MARKET VALUE
- ------------------------------------------------------------------------------------------------
COMMON STOCKS (FOREIGN)--102.3%
AEROSPACE & DEFENSE--1.0%
88,800 BAE Systems PLC (UK) $ 392,945
-----------------
APPAREL, ACCESSORIES & LUXURY GOODS--2.1%
17,000 Bulgari SPA (IT) 210,045
41,500 Burberry Group PLC (UK) 319,476
9,300 Compagnie Financiere Richemont AG (SZ) 309,564
-----------------
839,085
-----------------
APPLICATION SOFTWARE--1.7%
56,400 Sage Group PLC (UK) 218,984
2,500 SAP AG (GE) 445,834
-----------------
664,818
-----------------
AUTOMOBILE MANUFACTURERS--3.7%
36,600 Nissan Motor Company Limited (JA) 397,896
4,300 Renault SA (FR) 359,746
16,900 Toyota Motor Corporation (JA) 687,743
-----------------
1,445,385
-----------------
BIOTECHNOLOGY--0.9%
540 Serono SA (SZ) 355,694
-----------------
BREWERS--4.3%
19,200 Asahi Breweries Limited (JA) 237,775
7,600 InBev NV (BE) 294,827
6,900 Orkla ASA (NW) 226,708
55,200 SABMiller PLC (UK) 915,585
-----------------
1,674,895
-----------------
BROADCASTING & CABLE TV--2.9%
44,500 Mediaset SPA (IT) 564,340
41,900 Publishing & Broadcasting Limited (AU) 574,782
-----------------
1,139,122
-----------------
</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.
AR Argentina
AT Austria
AU Australia
BD Bermuda
BE Belgium
BR Brazil
CA Canada
CH Chile
CN China
DE Denmark
FI Finland
FR France
GE Germany
GR Greece
HK Hong Kong
ID Indonesia
IE Ireland
IN India
IS Israel
IT Italy
JA Japan
KR South Korea
MA Malaysia
MX Mexico
NE Netherlands
NW Norway
NZ New Zealand
PH Philippines
SA South Africa
SG Singapore
SP Spain
SW Sweden
SZ Switzerland
TH Thailand
UK United Kingdom
12
<Page>
<Table>
<Caption>
SHARES MARKET VALUE
- ------------------------------------------------------------------------------------------------
COMMUNICATIONS EQUIPMENT--3.1%
27,200 Nokia Oyj (FI) $ 429,610
2,400 Research In Motion Limited (CA)* 197,857
177,200 Telefonaktiebolaget LM Ericsson (SW) 565,299
-----------------
1,192,766
-----------------
COMPUTER HARDWARE--0.5%
30,000 Fujitsu Limited (JA) 195,277
-----------------
COMPUTER STORAGE & PERIPHERALS--0.7%
13,600 ATI Technologies, Inc. (CA)* 264,009
-----------------
CONSTRUCTION & ENGINEERING--0.7%
11,700 ACS, Actividades de Construccion y Servicios SA (SP) 267,174
-----------------
CONSTRUCTION, FARM MACHINERY & HEAVY TRUCKS--1.6%
15,800 Volvo AB (SW) 626,494
-----------------
CONSUMER ELECTRONICS--1.2%
31,100 Casio Computer Company Limited (JA) 479,839
-----------------
CONSUMER FINANCE--0.6%
3,400 Sanyo Shinpan Finance Company Limited (JA) 241,554
-----------------
DIVERSIFIED BANKS--8.0%
6,420 Alpha Bank AE (GR) 223,919
91,700 Banca Intesa SPA (IT) 441,237
74,919 Barclays PLC (UK) 842,821
6,707 BNP Paribas SA (FR) 485,909
17,200 HBOS PLC (UK) 280,008
6,034 Royal Bank of Scotland Group PLC (UK) 202,948
22,000 Shizuoka Bank Limited (JA) 208,471
4,300 Societe Generale (FR) 435,143
-----------------
3,120,456
-----------------
DIVERSIFIED CAPITAL MARKETS--1.7%
10,600 Credit Suisse Group (SZ)* 445,590
2,470 UBS AG (SZ) 207,119
-----------------
652,709
-----------------
DIVERSIFIED CHEMICALS--1.3%
7,000 BASF AG (GE) 503,520
-----------------
DIVERSIFIED METALS & MINING--2.9%
46,500 BHP Billiton Limited (AU) 559,152
31,100 Xstrata PLC (UK) 556,445
-----------------
1,115,597
-----------------
ELECTRIC UTILITIES--2.8%
5,400 E.ON AG (GE) 493,098
31,900 Fortum Oyj (FI) 590,564
-----------------
1,083,662
-----------------
ELECTRICAL COMPONENTS & EQUIPMENT--0.9%
31,500 Sumitomo Electric Industries Limited (JA) 342,759
-----------------
</Table>
SEE NOTES TO STATEMENT OF INVESTMENTS.
13
<Page>
<Table>
<Caption>
SHARES MARKET VALUE
- ------------------------------------------------------------------------------------------------
ELECTRONIC EQUIPMENT MANUFACTURERS--2.2%
65,000 Hitachi Limited (JA) $ 450,376
3,600 Hoya Corporation (JA) 406,480
-----------------
856,856
-----------------
FOOD RETAIL--3.3%
1,300 Colruyt NV (BE) 211,336
4,900 Delhaize Group (BE) 372,645
116,900 Tesco PLC (UK) 722,069
-----------------
1,306,050
-----------------
FOREST PRODUCTS--0.6%
17,500 Canfor Corporation (CA)* 228,572
-----------------
HOUSEHOLD PRODUCTS--0.9%
11,300 Reckitt Benckiser PLC (UK) 341,451
-----------------
HYPERMARKETS & SUPER CENTERS--1.8%
9,000 Ito-Yokado Company Limited (JA) 377,672
5,600 Metro AG (GE) 307,973
-----------------
685,645
-----------------
INDUSTRIAL CONGLOMERATES--0.6%
41,000 Keppel Corporation Limited (SG) 216,001
-----------------
INDUSTRIAL MACHINERY--1.2%
56,000 NSK Limited (JA) 281,448
3,400 Saurer AG (SZ)* 200,334
-----------------
481,782
-----------------
INTEGRATED OIL & GAS--5.4%
80,719 BP PLC (UK) 787,200
7,700 Husky Energy, Inc. (CA) 220,101
18,800 Repsol YPF SA (SP) 489,613
2,858 Total SA (FR) 624,277
-----------------
2,121,191
-----------------
INTEGRATED TELECOMMUNICATION SERVICES--5.5%
15,800 Deutsche Telekom AG (GE)* 357,363
7,500 France Telecom (FR) 248,335
82,500 Koninklijke KPN NV (NE) 783,845
13,200 Telefonica SA (SP) 248,677
17,200 Telus Corporation (CA) 519,933
-----------------
2,158,153
-----------------
LEISURE PRODUCTS--1.1%
18,300 Sankyo Company Limited (JA) 413,433
-----------------
LIFE & HEALTH INSURANCE--1.2%
74,200 Friends Provident PLC (UK) 219,366
92,500 Old Mutual PLC (UK) 235,290
-----------------
454,656
-----------------
MARINE--1.8%
62 AP Moller-Maersk AS (DE) 512,078
31,000 Kawasaki Kisen Kaisha Limited (JA) 199,366
-----------------
711,444
-----------------
</Table>
14
<Page>
<Table>
<Caption>
SHARES MARKET VALUE
- ------------------------------------------------------------------------------------------------
MOVIES & ENTERTAINMENT--0.9%
11,500 Vivendi Universal SA (FR) $ 367,181
-----------------
MULTI-LINE INSURANCE--1.1%
19,200 Aviva PLC (UK) 231,476
3,900 Baloise Holding Limited (SZ) 180,063
-----------------
411,539
-----------------
MULTI-UTILITIES & UNREGULATED POWER--0.5%
7,700 Suez SA (FR) 205,347
-----------------
OFFICE ELECTRONICS--1.7%
12,000 Canon, Inc. (JA) 647,604
-----------------
OIL & GAS EXPLORATION & PRODUCTION--1.8%
12,800 Eni SPA (IT) 320,478
2,200 Norsk Hydro ASA (NW) 173,263
141,600 Oil Search Limited (AU) 200,906
-----------------
694,647
-----------------
OTHER DIVERSIFIED FINANCIAL SERVICES--2.6%
26,200 ING Groep NV (NE) 792,731
6,900 Sun Life Financial, Inc. (CA) 231,209
-----------------
1,023,940
-----------------
PHARMACEUTICALS--11.5%
12,000 Eisai Company Limited (JA) 394,652
10,100 GlaxoSmithKline PLC (UK) 236,940
4,900 Merck KGaA (GE) 335,014
12,959 Novartis AG (SZ) 653,021
5,400 Novo Nordisk AS Class B (DE) 295,033
8,000 Ono Pharmaceuticals Company Limited (JA) 448,912
9,300 Sanofi-Synthelabo SA (FR) 743,292
65,800 Shire Pharmaceuticals Group PLC (UK) 690,969
13,600 Takeda Pharmaceuticals Company Limited (JA) 684,844
-----------------
4,482,677
-----------------
PRECIOUS METALS & MINERALS--1.0%
17,800 ThyssenKrupp AG (GE) 391,953
-----------------
PROPERTY & CASUALTY INSURANCE--0.6%
20,100 QBE Insurance Group Limited (AU) 241,855
-----------------
PUBLISHING--0.6%
25,500 United Business Media PLC (UK) 234,978
-----------------
RAILROADS--0.9%
5,800 Canadian National Railway Company (CA) 353,702
-----------------
SEMICONDUCTORS--0.6%
106,200 ARM Holdings PLC (UK) 225,285
-----------------
STEEL--1.6%
14,900 JFE Holdings, Inc. (JA) 425,320
80,000 Nippon Steel Corporation (JA) 195,960
-----------------
621,280
-----------------
</Table>
SEE NOTES TO STATEMENT OF INVESTMENTS.
15
<Page>
<Table>
<Caption>
SHARES MARKET VALUE
- ------------------------------------------------------------------------------------------------
TIRES & RUBBER--1.4%
8,400 Continental AG (GE) $ 533,777
-----------------
TRADING COMPANIES & DISTRIBUTORS--1.6%
48,000 Mitsubishi Corporation (JA) 620,201
-----------------
WIRELESS TELECOMMUNICATION SERVICES--5.7%
10,000 Bouygues SA (FR) 462,145
59,400 China Mobile (Hong Kong) Limited (HK) 201,370
578,175 Vodafone Group PLC (UK) 1,567,810
-----------------
2,231,325
-----------------
TOTAL COMMON STOCKS (FOREIGN)
(COST--$30,078,362) 39,860,285
-----------------
<Caption>
PRINCIPAL AMOUNT AMORTIZED COST
- ------------------------------------------------------------------------------------------------
CORPORATE SHORT-TERM NOTES--2.1%
HOUSEHOLD APPLIANCES--2.1%
$ 800,000 Stanley Works, Inc.
2.20% 1/3/05~ $ 799,902
-----------------
TOTAL CORPORATE SHORT-TERM NOTES
(AMORTIZED COST--$799,902) 799,902
-----------------
TOTAL INVESTMENTS--104.4%
(TOTAL COST--$30,878,264) 40,660,187
-----------------
OTHER ASSETS AND LIABILITIES--(4.4%) (1,700,120)
-----------------
NET ASSETS--100.0% $ 38,960,067
=================
</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. THESE SECURITIES
AMOUNTED TO $799,902, OR 2.1%, OF THE FUND'S NET ASSETS AS OF DECEMBER 31,
2004.
SEE NOTES TO FINANCIAL STATEMENTS.
16
<Page>
STATEMENT OF ASSETS AND LIABILITIES
December 31, 2004
<Table>
ASSETS
Investment securities, at cost $ 30,878,264
--------------
Investment securities, at market 40,660,187
Cash 121,581
Foreign currency (cost $1,880) 1,887
Receivables:
Capital shares sold 35,637
Dividends and interest 35,034
From adviser 11,453
Other assets 30,430
--------------
Total Assets 40,896,209
--------------
LIABILITIES
Payables and other accrued liabilities:
Capital shares redeemed 1,858,407
Advisory fees 25,359
Shareholder servicing fees 6,690
Accounting fees 3,381
Distribution fees 4,489
Transfer agency fees 14,409
Custodian fees 3,512
Other 19,895
--------------
Total Liabilities 1,936,142
--------------
Net Assets $ 38,960,067
==============
COMPOSITION OF NET ASSETS
Capital (par value and paid-in surplus) $ 60,399,223
Undistributed net investment income 3,289
Accumulated net realized loss from security transactions (31,229,444)
Net unrealized appreciation on investments
and foreign currency translation 9,786,999
--------------
Total $ 38,960,067
==============
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
17
<Page>
<Table>
CLASS A
Net Assets $ 25,075,912
Shares Outstanding 2,106,642
Net Asset Value, Redemption Price Per Share $ 11.90
Maximum offering price per share (net asset value plus sales
charge of 5.75% of offering price) $ 12.63
CLASS B
Net Assets $ 2,280,905
Shares Outstanding 196,161
Net Asset Value, Offering and Redemption Price (excluding
applicable contingent deferred sales charge) Per Share $ 11.63
CLASS C
Net Assets $ 476,367
Shares Outstanding 41,032
Net Asset Value, Offering and Redemption Price (excluding
applicable contingent deferred sales charge) Per Share $ 11.61
CLASS F
Net Assets $ 10,885,487
Shares Outstanding 913,037
Net Asset Value, Offering and Redemption Price Per Share $ 11.92
CLASS R
Net Assets $ 66,382
Shares Outstanding 5,525
Net Asset Value, Offering and Redemption Price Per Share $ 12.01
CLASS T
Net Assets $ 175,014
Shares Outstanding 14,777
Net Asset Value, Redemption Price Per Share $ 11.84
Maximum offering price per share (net asset value
plus sales charge of 4.50% of offering price) $ 12.40
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
18
<Page>
STATEMENT OF OPERATIONS
For the year ended December 31, 2004
<Table>
INVESTMENT INCOME
Dividends $ 917,889
Interest 21,695
Foreign taxes withheld (108,429)
--------------
Total Investment Income 831,155
--------------
EXPENSES
Advisory fees--Note 2 385,226
Shareholder servicing fees--Note 2 87,835
Accounting fees--Note 2 38,523
Distribution fees--Note 2 45,440
Transfer agency fees--Note 2 84,201
Registration fees 49,287
Postage and mailing expenses 1,911
Custodian fees and expenses--Note 2 52,375
Printing expenses 25,760
Legal and audit fees 8,121
Directors' fees and expenses--Note 2 6,723
Other expenses 21,343
--------------
Total Expenses 806,745
Earnings Credits (1,289)
Reimbursed/Waived Expenses (248,314)
Expense Offset to Broker Commissions (3,253)
--------------
Net Expenses 553,889
--------------
Net Investment Income 277,266
--------------
REALIZED AND UNREALIZED GAIN (LOSS) ON SECURITY
TRANSACTIONS AND FOREIGN CURRENCY TRANSACTIONS
Net Realized Gain (Loss) on:
Security Transactions 8,484,907
Foreign Currency Transactions (1,523)
--------------
Net Realized Gain 8,483,384
Net Change in Unrealized Appreciation/Depreciation
of Investments and Foreign Currency Translation (886,438)
--------------
Net Realized and Unrealized Gain 7,596,946
--------------
Net Increase in Net Assets Resulting from Operations $ 7,874,212
==============
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
19
<Page>
STATEMENTS OF CHANGES IN NET ASSETS
<Table>
<Caption>
YEAR ENDED YEAR ENDED
12/31/04 12/31/03
OPERATIONS
Net Investment Income $ 277,266 $ 254,642
Net Realized Gain (Loss) on Security and Foreign
Currency Transactions 8,483,384 (5,296,540)
Net Change in Unrealized Appreciation/Depreciation
of Investments and Foreign Currency Translation (886,438) 16,056,126
-------------- --------------
Net Increase in Net Assets Resulting from Operations 7,874,212 11,014,228
-------------- --------------
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS
From Net Investment Income
Class A (185,495) (156,488)
Class B 0 (1,759)
Class F (72,290) (71,823)
Class R (11,405) (28,532)
Class T (511) (910)
-------------- --------------
Net Decrease from Dividends and Distributions (269,701) (259,512)
-------------- --------------
CAPITAL SHARE TRANSACTIONS
Net Decrease--Note 4
Class A (2,078,483) (1,959,586)
Class B (527,506) (450,587)
Class C (94,599) (190,274)
Class F (980,705) (2,350,311)
Class R (3,373,718) (204,031)
Class T (31,098) (57,906)
-------------- --------------
Net Decrease from Capital Share Transactions (7,086,109) (5,212,695)
-------------- --------------
Net Increase in Net Assets 518,402 5,542,021
-------------- --------------
NET ASSETS
Beginning of year $ 38,441,665 $ 32,899,644
-------------- --------------
End of year $ 38,960,067 $ 38,441,665
============== ==============
Undistributed (Accumulated) Net
Investment Income (Loss) $ 3,289 $ (2,753)
</Table>
SEE NOTES TO FINANCIAL STATEMENTS
20
<Page>
FINANCIAL HIGHLIGHTS
<Table>
<Caption>
YEAR ENDED DECEMBER 31,
--------------------------------------------------------------
2004 2003 2002 2001 2000
--------------------------------------------------------------
CLASS A SHARES
PER SHARE OPERATING DATA
Net Asset Value, beginning of year $ 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 2.14 2.59 (2.84) (4.39) (3.53)
--------------------------------------------------------------
Total from investment operations 2.22 2.65 (2.83) (4.39) (3.56)
- ---------------------------------------------------------------------------------------------------------
Less dividends and distributions:
From net investment income (0.09) (0.07) (0.01) 0.00 0.00
From net realized gains 0.00 0.00 0.00 0.00 (1.90)
--------------------------------------------------------------
Total distributions (0.09) (0.07) (0.01) 0.00 (1.90)
- ---------------------------------------------------------------------------------------------------------
Net Asset Value, end of year $ 11.90 $ 9.77 $ 7.19 $ 10.03 $ 14.42
==============================================================
TOTAL RETURN* 22.69% 36.84% (28.19%) (30.44%) (17.60%)
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000s) $ 25,076 $ 22,432 $ 18,217 $ 29,151 $ 4,434
- ---------------------------------------------------------------------------------------------------------
Ratios to average net assets:
Expenses with reimbursements, but no
earnings credits or brokerage offsets# 1.42% 1.41% 1.40% 1.46% 1.82%
Expenses with reimbursements,
earnings credits and brokerage offsets 1.40% 1.40% 1.40% 1.44% 1.77%
Net investment income (loss) 0.74% 0.80% 0.13% (0.74%) (0.36%)
- ---------------------------------------------------------------------------------------------------------
Portfolio turnover rate@ 85% 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.
# 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 2.05% (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.
21
<Page>
<Table>
<Caption>
YEAR ENDED DECEMBER 31,
--------------------------------------------------------------
2004 2003 2002 2001 2000
--------------------------------------------------------------
CLASS B SHARES
PER SHARE OPERATING DATA
Net Asset Value, beginning of year $ 9.55 $ 7.03 $ 9.87 $ 14.29 $ 19.88
- ---------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) 0.00~,+ (0.08) (0.11) (0.12) (0.09)
Net realized and unrealized gains
(losses) on securities 2.08 2.61 (2.73) (4.30) (3.60)
--------------------------------------------------------------
Total from investment operations 2.08 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 year $ 11.63 $ 9.55 $ 7.03 $ 9.87 $ 14.29
==============================================================
TOTAL RETURN* 21.78% 35.95% (28.77%) (30.93%) (18.27%)
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000s) $ 2,281 $ 2,372 $ 2,201 $ 3,786 $ 5,129
- ---------------------------------------------------------------------------------------------------------
Ratios to average net assets:
Expenses with reimbursements, but no
earnings credits or brokerage offsets# 2.16% 2.16% 2.16% 2.28% 2.57%
Expenses with reimbursements,
earnings credits and brokerage offsets 2.15% 2.15% 2.15% 2.26% 2.52%
Net investment income (loss) 0.00% 0.07% (0.61%) (1.03%) (1.18%)
- ---------------------------------------------------------------------------------------------------------
Portfolio turnover rate@ 85% 144% 220% 213% 184%
</Table>
~ COMPUTED USING AVERAGE SHARES OUTSTANDING THROUGHOUT THE YEAR.
+ NET INVESTMENT INCOME FOR THE YEAR ENDED DECEMBER 31, 2004 AGGREGATED LESS
THAN $0.01 ON A PER SHARE BASIS.
* SALES CHARGES ARE NOT REFLECTED IN THE TOTAL RETURN.
# 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), 3.32% (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.
22
<Page>
<Table>
<Caption>
YEAR ENDED DECEMBER 31,
--------------------------------------------------------------
2004 2003 2002 2001 2000
--------------------------------------------------------------
CLASS C SHARES
PER SHARE OPERATING DATA
Net Asset Value, beginning of year $ 9.53 $ 7.02 $ 9.86 $ 14.27 $ 19.88
- ---------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) 0.00~,+ (0.26) (0.29) (0.16) (0.07)
Net realized and unrealized gains
(losses) on securities 2.08 2.77 (2.55) (4.25) (3.64)
--------------------------------------------------------------
Total from investment operations 2.08 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 year $ 11.61 $ 9.53 $ 7.02 $ 9.86 $ 14.27
==============================================================
TOTAL RETURN* 21.83% 35.76% (28.80%) (30.90%) (18.37%)
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000s) $ 476 $ 482 $ 532 $ 1,429 $ 2,635
- ---------------------------------------------------------------------------------------------------------
Ratios to average net assets:
Expenses with reimbursements, but no
earnings credits or brokerage offsets# 2.16% 2.16% 2.16% 2.29% 2.55%
Expenses with reimbursements,
earnings credits and brokerage offsets 2.15% 2.15% 2.15% 2.26% 2.50%
Net investment income (loss) 0.03% 0.08% (0.63%) (0.99%) (1.18%)
- ---------------------------------------------------------------------------------------------------------
Portfolio turnover rate@ 85% 144% 220% 213% 184%
</Table>
~ COMPUTED USING AVERAGE SHARES OUTSTANDING THROUGHOUT THE YEAR.
+ NET INVESTMENT INCOME FOR THE YEAR ENDED DECEMBER 31, 2004 AGGREGATED LESS
THAN $0.01 ON A PER SHARE BASIS.
* SALES CHARGES ARE NOT REFLECTED IN THE TOTAL RETURN.
# 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 2.87% (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.
23
<Page>
<Table>
<Caption>
YEAR ENDED DECEMBER 31,
--------------------------------------------------------------
2004 2003 2002 2001 2000
--------------------------------------------------------------
CLASS F SHARES
PER SHARE OPERATING DATA
Net Asset Value, beginning of year $ 9.78 $ 7.18 $ 10.03 $ 14.40 $ 19.87
- ---------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) 0.08~ (0.01) (0.05) (0.07) (0.08)
Net realized and unrealized gains
(losses) on securities 2.14 2.68 (2.79) (4.30) (3.49)
--------------------------------------------------------------
Total from investment operations 2.22 2.67 (2.84) (4.37) (3.57)
- ---------------------------------------------------------------------------------------------------------
Less dividends and distributions:
From net investment income (0.08) (0.07) (0.01) 0.00 0.00
From net realized gains 0.00 0.00 0.00 0.00 (1.90)
--------------------------------------------------------------
Total distributions (0.08) (0.07) (0.01) 0.00 (1.90)
- ---------------------------------------------------------------------------------------------------------
Net Asset Value, end of year $ 11.92 $ 9.78 $ 7.18 $ 10.03 $ 14.40
==============================================================
TOTAL RETURN 22.70% 37.17% (28.30%) (30.35%) (17.65%)
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000s) $ 10,885 $ 9,837 $ 9,321 $ 16,640 $ 30,040
- ---------------------------------------------------------------------------------------------------------
Ratios to average net assets:
Expenses with reimbursements, but no
earnings credits or brokerage offsets# 1.41% 1.40% 1.40% 1.55% 1.84%
Expenses with reimbursements,
earnings credits and brokerage offsets 1.40% 1.40% 1.40% 1.52% 1.80%
Net investment income (loss) 0.76% 0.80% 0.12% (0.26%) (0.55%)
- ---------------------------------------------------------------------------------------------------------
Portfolio turnover rate@ 85% 144% 220% 213% 184%
</Table>
~ COMPUTED USING AVERAGE SHARES OUTSTANDING THROUGHOUT THE YEAR.
# 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 2.10% (2004), 2.52% (2003), 2.13% (2002), 1.99%
(2001) AND 1.95% (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>
YEAR ENDED DECEMBER 31,
--------------------------------------------------------------
2004 2003 2002 2001 2000
--------------------------------------------------------------
CLASS R SHARES
PER SHARE OPERATING DATA
Net Asset Value, beginning of year $ 9.82 $ 7.22 $ 10.08 $ 14.45 $ 19.88
- ---------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) 0.13~ 0.09 0.02 0.00+ (0.01)
Net realized and unrealized gains
(losses) on securities 2.17 2.60 (2.85) (4.37) (3.52)
--------------------------------------------------------------
Total from investment operations 2.30 2.69 (2.83) (4.37) (3.53)
- ---------------------------------------------------------------------------------------------------------
Less dividends and distributions:
From net investment income (0.11) (0.09) (0.03) 0.00 0.00
From net realized gains 0.00 0.00 0.00 0.00 (1.90)
--------------------------------------------------------------
Total distributions (0.11) (0.09) (0.03) 0.00 (1.90)
- ---------------------------------------------------------------------------------------------------------
Net Asset Value, end of year $ 12.01 $ 9.82 $ 7.22 $ 10.08 $ 14.45
==============================================================
TOTAL RETURN 23.45% 37.27% (28.10%) (30.24%) (17.45%)
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000s) $ 66 $ 3,146 $ 2,470 $ 6,102 $ 2,716
- ---------------------------------------------------------------------------------------------------------
Ratios to average net assets:
Expenses with reimbursements, but no
earnings credits or brokerage offsets# 1.15% 1.15% 1.16% 1.28% 1.63%
Expenses with reimbursements,
earnings credits and brokerage offsets 1.15% 1.15% 1.15% 1.26% 1.53%
Net investment income (loss) 1.21% 1.03% 0.27% (0.04%) (0.40%)
- ---------------------------------------------------------------------------------------------------------
Portfolio turnover rate@ 85% 144% 220% 213% 184%
</Table>
~ COMPUTED USING AVERAGE SHARES OUTSTANDING THROUGHOUT THE YEAR.
+ NET INVESTMENT LOSS FOR THE YEAR ENDED DECEMBER 31, 2001 AGGREGATED LESS
THAN $0.01 ON A PER SHARE BASIS.
# 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 1.65% (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.
25
<Page>
<Table>
<Caption>
YEAR ENDED DECEMBER 31,
--------------------------------------------------------------
2004 2003 2002 2001 2000
--------------------------------------------------------------
CLASS T SHARES
PER SHARE OPERATING DATA
Net Asset Value, beginning of year $ 9.70 $ 7.14 $ 9.97 $ 14.37 $ 19.88
- ---------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) 0.06~ 0.00+ (0.10) (0.09) (0.06)
Net realized and unrealized gains
(losses) on securities 2.11 2.61 (2.73) (4.31) (3.55)
--------------------------------------------------------------
Total from investment operations 2.17 2.61 (2.83) (4.40) (3.61)
- ---------------------------------------------------------------------------------------------------------
Less dividends and distributions:
From net investment income (0.03) (0.05) 0.00 0.00 0.00
From net realized gains 0.00 0.00 0.00 0.00 (1.90)
--------------------------------------------------------------
Total distributions (0.03) (0.05) 0.00 0.00 (1.90)
- ---------------------------------------------------------------------------------------------------------
Net Asset Value, end of year $ 11.84 $ 9.70 $ 7.14 $ 9.97 $ 14.37
==============================================================
TOTAL RETURN* 22.42% 36.58% (28.39%) (30.62%) (17.85%)
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000s) $ 175 $ 172 $ 158 $ 343 $ 654
- ---------------------------------------------------------------------------------------------------------
Ratios to average net assets:
Expenses with reimbursements, but no
earnings credits or brokerage offsets# 1.66% 1.65% 1.65% 1.80% 2.03%
Expenses with reimbursements,
earnings credits and brokerage offsets 1.65% 1.65% 1.65% 1.77% 1.98%
Net investment income (loss) 0.57% 0.67% (0.12%) (0.53%) (0.70%)
- ---------------------------------------------------------------------------------------------------------
Portfolio turnover rate@ 85% 144% 220% 213% 184%
</Table>
~ COMPUTED USING AVERAGE SHARES OUTSTANDING THROUGHOUT THE YEAR.
+ 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.
# 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 2.44% (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.
26
<Page>
NOTES TO FINANCIAL STATEMENTS
December 31, 2004
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,
Equity Growth (formerly Growth and Income), Government Securities, Growth,
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 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. However, the Funds are planning to begin using New
York closing exchange rates to convert foreign currencies to U.S. dollars
sometime during the first quarter of 2005.
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.
27
<Page>
If market quotations or official closing prices are not readily available or are
determined not to reflect accurately fair value, 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 but before the Fund calculates its net asset value,
and it is determined that the event has materially affected the value of the
security. Fair value of foreign equity securities may be determined with the
assistance of a pricing service using correlations between the movement of
prices of foreign securities and indexes of domestic securities and other
appropriate indicators, such as closing market prices of relevant ADRs and
futures contracts. Using fair value to price securities may result in a value
that is different from a security's most recent closing price and from the
prices used by other mutual funds to calculate their net asset values.
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 carry more risk
than U.S. securities, such as political and currency risks. The Fund normally
invests a large portion of its assets in foreign securities. In the event the
Fund executes a foreign security transaction, the Fund may enter into a foreign
currency contract to settle the foreign security transaction. The resultant
foreign currency gain or loss from the contract is recorded as foreign currency
gain or loss and is presented as such in the Statement of Operations. Foreign
currency held at December 31, 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
28
<Page>
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, as earned, and includes the
accretion of discounts and the amortization of premiums over the lives of the
respective securities. Withholding taxes on foreign dividends have been provided
for in accordance with the applicable country's tax rules and rates.
DISTRIBUTIONS TO SHAREHOLDERS--The Fund declares and distributes dividends (if
any) and capital gains (if any) annually. Dividends and distributions, which are
determined in accordance with income tax regulations, are recorded on the
ex-dividend date.
EXPENSES--Each Class of the Fund bears expenses incurred specifically on its
behalf and, in addition, each Class bears a portion of general expenses based on
the relative net assets or the number of shareholder accounts of the Class. The
type of expense determines the allocation method. The Company's board of
directors has authorized the payment of certain Fund expenses with commissions
on Fund portfolio transactions. These commissions reduce Other Expenses and are
included in the Expense Offset to Broker Commissions in the Statement of
Operations.
USE OF ESTIMATES--The preparation of financial statements in conformity with
accounting principles generally accepted in the United States of America
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported amounts of
income and expenses during the reporting period. Actual results could differ
from those estimates.
INDEMNIFICATIONS--In the normal course of business, the Company enters into
contracts that contain provisions indemnifying other parties against specified
potential liabilities. Each Fund's maximum exposure under these arrangements is
unknown as this would involve future claims that may be made against the Fund
that have not yet occurred. However, based on experience, the Funds expect the
risk of loss to be remote.
OTHER--Certain prior year information has been reformatted, without substantive
change, to conform with the current year presentation.
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
29
<Page>
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 year
ended December 31, 2004, $232,778 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 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 year ended December 31,
2004, Class F shares were charged $22,397 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 from DTI
are paid by the Fund. During the year ended December 31, 2004, Class F shares
were charged $8,045 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 $13.00, per shareholder account considered to be an
open account at any time during a given month, plus out-of-pocket charges.
Class-specific transfer agency fees paid to DTI during the year ended December
31, 2004 were as follows:
<Table>
<Caption>
TRANSFER
AGENCY FEES
---------------------------------------------------------------------------
Class A $ 58,085
Class B $ 6,772
Class C $ 1,499
Class R $ 2,710
Class T $ 711
</Table>
OTHER TRANSFER AGENCY FEES--Various broker-dealers, retirement plan
administrators and other unaffiliated entities have established omnibus accounts
with the Fund, and
30
<Page>
provide sub-transfer agency, recordkeeping or similar services to persons
holding Fund shares through those accounts. During the year ended December 31,
2004, the Fund paid $6,379 to these entities for such services. This amount is
included in the transfer agency fees shown on the Statement of Operations.
CASH MANAGEMENT FEES--The Funds also pay Mellon Bank N.A. ("Mellon Bank"), a
wholly-owned subsidiary of Mellon Financial Corporation and an affiliate of
Founders, fees for certain cash management services. These include various
services related to the processing of shareholder transactions in the Funds.
During the year ended December 31, 2004, the Fund was charged $3,374 for cash
management fees, which are included in the out-of-pocket charges from DTI above.
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 year ended December
31, 2004, Class F shares were charged $24,844 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 year ended December 31, 2004, were as follows:
<Table>
<Caption>
DISTRIBUTION SHAREHOLDER
FEES SERVICING FEES
------------------------------------------------------------------------
Class A N/A $ 58,276
Class B $ 16,658 $ 5,553
Class C $ 3,493 $ 1,164
Class T $ 445 $ 445
</Table>
During the year ended December 31, 2004, DSC retained $440 and $72 in sales
commissions from the sales of Class A and Class T shares, respectively. DSC also
retained $11,655 of contingent deferred sales charges relating to redemptions of
Class B.
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,
31
<Page>
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 contractually agreed to waive
any fees received for these services to the extent they exceed Founders' costs
in providing the services.
CUSTODIAN FEES--Mellon Bank 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 Fund could have employed these assets
elsewhere to produce income had it not entered into this arrangement. The
custodian has also contractually 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 year ended December 31, 2004, the
Fund's portion of the fee waiver was $15,536, which reduced the amount paid to
Mellon Bank to $36,839.
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 invested
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,
which pays their compensation. 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--An affiliate of Founders reimbursed the Fund $4,811 shortly after the
fiscal year end for a trading error. This amount is not material to the Fund.
3. FEDERAL TAX INFORMATION
Net investment income and capital gains distributions are determined in
accordance with income tax regulations that may differ from accounting
principles generally accepted in the United States of America. These differences
are due to differing treatments for items such as deferral of wash sale losses,
foreign currency transactions, net operating losses and capital loss carryovers.
Permanent differences identified during
32
<Page>
the year ended December 31, 2004 have been reclassified among the components of
net assets as follows:
<Table>
<Caption>
UNDISTRIBUTED NET UNDISTRIBUTED NET PAID-IN
INVESTMENT INCOME REALIZED GAINS AND LOSSES CAPITAL
-----------------------------------------------------------------
$ (1,523) $ 1,526 $ (3)
</Table>
The tax character of distributions paid during 2004 and 2003 was as follows:
<Table>
<Caption>
2004 2003
DISTRIBUTIONS PAID FROM:
Ordinary Income $ 269,701 $ 259,512
Long-term capital gain $ 0 $ 0
-----------------------
$ 269,701 $ 259,512
=======================
</Table>
The tax components of capital represent distribution requirements the Fund must
satisfy under the income tax regulations and losses or tax deductions the Fund
may be able to offset against income and capital gains realized in future years.
Accumulated capital losses and post-October 31 capital losses noted below, if
any, as of December 31, 2004, 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. Net capital loss carryovers utilized
during 2004 by the Fund amounted to $8,440,768. Accumulated capital losses as of
December 31, 2004 are:
<Table>
<Caption>
EXPIRATION AMOUNT
-----------------------------------------------------------------
2008 $ 5,074,404
2009 $ 12,777,527
2010 $ 5,986,171
2011 $ 7,339,094
------------
$ 31,177,196
============
</Table>
The aggregate cost of investments and the composition of unrealized appreciation
and depreciation of investment securities for federal income tax purposes as of
December 31, 2004 are noted below. Unrealized appreciation/depreciation in the
table below includes appreciation/depreciation on foreign currency translation.
The primary difference between book and tax appreciation or depreciation is wash
sale loss deferrals.
<Table>
Undistributed Ordinary Income $ 9,042
Federal Tax Cost $ 30,930,512
Gross Tax Appreciation of Investments $ 9,786,985
Gross Tax Depreciation of Investments $ (57,310)
Net Tax Appreciation $ 9,729,675
</Table>
33
<Page>
4. CAPITAL SHARE TRANSACTIONS
The Fund is authorized to issue 450 million shares of $0.01 par value capital
stock. Transactions in shares of the Fund for the periods indicated were as
follows:
<Table>
<Caption>
YEAR ENDED YEAR ENDED
12/31/04 12/31/03
SHARES AMOUNT SHARES AMOUNT
CLASS A
Sold 111,208 $ 1,148,486 724,401 $ 5,318,119
Dividends or Distributions Reinvested 14,688 $ 174,191 15,239 $ 147,964
Redeemed (315,412) $ (3,401,160) (978,731) $ (7,425,669)
--------------------------------------------------------------------
Net Decrease (189,516) $ (2,078,483) (239,091) $ (1,959,586)
====================================================================
CLASS B
Sold 11,870 $ 124,485 72,988 $ 520,427
Dividends or Distributions Reinvested 0 $ 0 146 $ 1,391
Redeemed (64,211) $ (651,991) (137,735) $ (972,405)
--------------------------------------------------------------------
Net Decrease (52,341) $ (527,506) (64,601) $ (450,587)
====================================================================
CLASS C
Sold 6,433 $ 64,792 165,203 $ 1,132,327
Redeemed (15,944) $ (159,391) (190,526) $ (1,322,601)
--------------------------------------------------------------------
Net Decrease (9,511) $ (94,599) (25,323) $ (190,274)
====================================================================
CLASS F
Sold 470,504 $ 4,815,790 1,515,865 $ 11,180,704
Dividends or Distributions Reinvested 5,843 $ 69,420 6,797 $ 66,066
Redeemed (569,384) $ (5,865,915) (1,814,806) $ (13,597,081)
--------------------------------------------------------------------
Net Decrease (93,037) $ (980,705) (292,144) $ (2,350,311)
====================================================================
CLASS R
Sold 40,338 $ 419,337 146,346 $ 1,105,834
Dividends or Distributions Reinvested 957 $ 11,405 2,764 $ 26,981
Redeemed (355,989) $ (3,804,460) (170,854) $ (1,336,846)
--------------------------------------------------------------------
Net Decrease (314,694) $ (3,373,718) (21,744) $ (204,031)
====================================================================
CLASS T
Sold 1,431 $ 14,400 97,501 $ 651,910
Dividends or Distributions Reinvested 42 $ 492 91 $ 882
Redeemed (4,460) $ (45,990) (101,973) $ (710,698)
--------------------------------------------------------------------
Net Decrease (2,987) $ (31,098) (4,381) $ (57,906)
====================================================================
</Table>
5. INVESTMENT TRANSACTIONS
Purchases and sales of investment securities (excluding short-term securities
and U.S. government obligations) for the year ended December 31, 2004 were
$32,138,435 and $37,956,406, respectively.
34
<Page>
6. LINE OF CREDIT
The Company has a line of credit arrangement ("LOC") with State Street Bank and
Trust Company, to be used for temporary or emergency purposes, primarily for
financing redemption payments. Each Fund's borrowings are limited to the lesser
of (a) $50 million, or (b) the lesser of 25% of the Fund's total net assets or
the maximum amount which the Fund is permitted to borrow pursuant to the
prospectus, any law or any other agreement. Combined borrowings are subject to
the $50 million cap on the total LOC. Each Fund agrees to pay annual fees and
interest on the unpaid balance based on prevailing market rates as defined in
the LOC. At December 31, 2004, the Fund did not have any borrowings under the
LOC.
7. LEGAL MATTERS
In early 2004, two purported class and derivative actions were filed against
Mellon Financial Corporation, Mellon Bank, Founders, Dreyfus, and certain
directors of the Dreyfus Founders Funds and the Dreyfus Funds (together, the
"Defendant Funds"). In September 2004, plaintiffs served a Consolidated Amended
Complaint (the "Amended Complaint") on behalf of a purported class of all
persons who acquired interests in any of the Defendant Funds between January 30,
1999 and November 17, 2003, and derivatively on behalf of the Defendant Funds.
The Amended Complaint in the newly styled IN RE DREYFUS MUTUAL FUNDS FEE
LITIGATION also named DSC, Premier Mutual Fund Services, Inc. and two additional
directors of the Defendant Funds as defendants and alleges violations of the
Investment Company Act of 1940, the Investment Advisers Act of 1940, the
Pennsylvania Unfair Trade Practices and Consumer Protection Law and common-law
claims. Plaintiffs seek to recover allegedly improper and excessive Rule 12b-1
and advisory fees allegedly charged to the Defendant Funds for marketing and
distribution services. More specifically, plaintiffs claim, among other things,
that 12b-1 fees and directed brokerage were improperly used to pay brokers to
recommend the Defendant Funds over other funds, and that such payments were not
disclosed to investors. In addition, plaintiffs assert that economies of scale
and soft-dollar benefits were not passed on to the Defendant Funds. Plaintiffs
further allege that 12b-1 fees were improperly charged to certain of the
Defendant Funds that were closed to new investors. The Amended Complaint seeks
compensatory and punitive damages, rescission of the advisory contracts, and an
accounting and restitution of any unlawful fees, as well as an award of
attorneys' fees and litigation expenses. As noted, some of the claims in this
litigation are asserted derivatively on behalf of the Defendant Funds that have
been named as nominal defendants. With respect to such derivative claims, no
relief is sought against the Defendant Funds. Founders, Dreyfus and the
Defendant Funds believe the allegations to be totally without merit and intend
to defend the action vigorously. The defendants filed motions to dismiss the
Amended Complaint on November 12, 2004, and those motions are pending.
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 nor the Funds believe that any of the pending actions
will have a material adverse effect on the Funds or Founders' ability to perform
its contract with the Funds.
35
<Page>
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Shareholders of
Dreyfus Founders Funds, Inc.
In our opinion, the accompanying statement of assets and liabilities, including
the statement of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of Dreyfus Founders International
Equity Fund (one of the portfolios constituting Dreyfus Founders Funds, Inc.,
hereafter referred to as the "Fund") at December 31, 2004, the results of its
operations for the year then ended, the changes in its net assets for each of
the two years in the period then ended and the financial highlights for each of
the five years in the period then ended, in conformity with accounting
principles generally accepted in the United States of America. These financial
statements and financial highlights (hereafter referred to as "financial
statements") are the responsibility of the Fund's management; our responsibility
is to express an opinion on these financial statements based on our audits. We
conducted our audits of these financial statements in accordance with the
standards of the Public Company Accounting Oversight Board (United States).
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits, which included confirmation of securities at December 31, 2004 by
correspondence with the custodian, provide a reasonable basis for our opinion.
PricewaterhouseCoopers LLP
Denver, Colorado
February 10, 2005
36
<Page>
OTHER TAX INFORMATION
(UNAUDITED)
CORPORATE DIVIDENDS RECEIVED DEDUCTION
Dividends paid by the Fund from net investment income and distributions of net
realized short-term capital gains are, for federal tax purposes, taxable as
ordinary income to shareholders. Of the ordinary income distributions declared
for the year ended December 31, 2004, 0.00% qualified for the dividends received
deduction available to the Fund's corporate shareholders.
QUALIFIED DIVIDEND INCOME
For the year ended December 31, 2004, the Fund designated 100% of the ordinary
income distributions paid as qualified dividend income subject to reduced income
tax rates for taxpayers with taxable accounts.
37
<Page>
YOUR BOARD REPRESENTATIVES
(UNAUDITED)
The Board of Directors of the Company oversees all 10 Dreyfus Founders Funds.
The business and affairs of the Company are managed under the direction of the
Board. The directors serving on the Board perform their responsibilities in the
manner which they reasonably believe to be in the best interests of the Funds
and their shareholders.
All of the directors, as listed below, are independent directors. They are not
affiliated with the Fund's adviser, its parent company, or its affiliates. The
directors have no official term of office and generally serve until they reach
the mandated retirement age of 75, resign, or are not re-elected. As you can see
from their backgrounds, the directors have broad experience as active or former
business and community leaders.
DIRECTORS
EUGENE H. VAUGHAN, CFA, 71. Year elected to the Board: 1970
Board Chairman. Founding Chairman and, formerly (1970 to 2000), President and
CEO, Vaughan Nelson Investment Management, LP, an investment counseling firm.
Director, Encore Bank. Founding Chairman, Center for Houston's Future, a
non-profit organization. Founding Chairman and former Governor, Association for
Investment Management and Research. Past Chairman and Trustee, Institute of
Chartered Financial Analysts. Past Chairman and Director, Financial Analysts
Federation.
ALAN S. DANSON, 65. Year elected to the Board: 1991
Private investor. Formerly, President and Director, D.H. Management, Inc., the
general partner of a limited partnership with technology company holdings (1996
to 2003). Formerly, Director and Senior Vice President, OptiMark Technologies,
Inc., a computerized securities trading service (1996 to 1999). Director,
CaseShare Systems, LLP, a document management company. Director, Gore Range
Natural Science School and The Les Streeter Programs, Inc., both of which are
non-profit organizations.
JOAN D. MANLEY, 72. Year elected to the Board: 1998
Retired. Formerly, Ms. Manley served in several executive capacities with Time
Incorporated, most recently as Group Vice President, Director and Chairman of
Time-Life Books, Inc. and Book of the Month Club, Inc. (1960 to 1984). Director,
Sara Lee Corporation and R.R. Donnelley & Sons Company.
ROBERT P. MASTROVITA, 60. Year elected to the Board: 1998
Private investor. Chairman of a private charitable foundation (1997 to present).
Formerly, Chairman and Director, Hagler, Mastrovita & Hewitt, Inc., a registered
investment adviser (1982 to 1997). Member, Boston Society of Security Analysts.
Trustee, Partridge Academy.
TRYGVE E. MYHREN, 68. Year elected to the Board: 1996
President, Myhren Media, Inc., a firm that invests in and advises media,
telecommunications, Internet and software companies. Special Limited Partner and
member of Investment Committee, Megunticook Funds, a venture capital firm (1998
to present). Director, Advanced Marketing Services, Inc. Trustee and Chairman of
Finance Committee, the University of Denver. Trustee, Denver Art Museum. Member,
Cable Television Hall of Fame. Formerly, President (1990 to 1996) and Director
(1992 to 2001) of the Providence Journal Company, a diversified media and
communications company. Formerly, Chairman and Chief Executive Officer of
American Television and
38
<Page>
Communications Corporation (now Timer Warner Cable) (1981 to 1988). Formerly,
Chairman of the National Cable Television Association (1986-1987).
GEORGE W. PHILLIPS, 66. Year elected to the Board: 1998
Retired. Vice Chairman of the Board, Chairman of the Finance Committee, and
Chairman of the Investment Committee, Children's Medical Center of Boston.
Formerly, President and Chief Executive Officer (1992 to 1997) and Director
(1992 to 2002) of Warren Bancorp, Inc. Formerly, President, Chief Executive
Officer and Director of Warren Five Cents Savings Bank (1992 to 1997).
PRINCIPAL OFFICERS
RICHARD W. SABO, 47. President of the Funds since 2000 and Principal Executive
Officer of the Funds since 2002. Founders' President and Chief Executive
Officer, Member of Founders' Board of Managers and Director of Dreyfus (1998 to
present). Executive Vice President of DSC since 2003. Formerly, Senior Vice
President and Regional Director for Prudential Securities, Inc. (1991 to 1998).
DAVID L. RAY, 47. Vice President of the Funds since 2000, and from 1990 to 1998.
Founders' Senior Vice PresidentAdministration and Treasurer. Vice President of
DSC since 2003. Employed by Founders and its predecessor company since 1990.
Formerly, Treasurer of the Funds (1990 to 1998).
KENNETH R. CHRISTOFFERSEN, 49. Secretary of the Funds since 2000, and from 1996
to 1998. Founders' Senior Vice President--Legal, General Counsel and Secretary.
Assistant Secretary of DSC since 2003. Employed by Founders and its predecessor
company since 1996.
JANELLE E. BELCHER, 46. Chief Compliance Officer of the Funds since 2004 and
Assistant Secretary of the Funds since 2002. Founders' Vice
President--Compliance since 2002. Formerly, Founders' Manager of Compliance
(2000 to 2002) and Securities Compliance Examiner, Staff Accountant and Team
Leader for the U.S. Securities and Exchange Commission (1990 to 2000).
ROBERT T. KELLY, 35. Treasurer, Principal Financial Officer, and Principal
Accounting Officer of the Funds since 2003. Founders' Vice President of
Portfolio Accounting since 2000. Formerly, Assistant Treasurer of the Funds
(2000 to 2003), and Head of Equity Desk for ABN Amro Trust Company (Cayman)
Limited (1998 to 2000).
WILLIAM G. GERMENIS, 34. Anti-Money Laundering Compliance Officer (OAMLCOO) for
the Class A, Class B, Class C, Class R, and Class T shares of the Funds since
2002 and for the Class F shares of the Funds since 2003. Vice President and
AMLCO of MBSC, LLC since 2002. Vice President and AMLCO of DSC and AMLCO of
investment companies managed by Dreyfus. Employed by DSC since 1998.
The directors and officers may be contacted at Founders' address appearing on
the inside cover, except for Mr.Germenis, who can be contacted at 200 Park
Avenue, New York, New York 10166. Additional information about the Company's
directors is available in the Statement of Additional Information, which can be
obtained free of charge by calling the toll free number on the back cover.
39
<Page>
DREYFUS FOUNDERS INTERNATIONAL EQUITY FUND
P.O. Box 55360
Boston, MA 02205-8252
1-800-525-2440
www.founders.com
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 (SEC) 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.
PORTFOLIO HOLDINGS
The Fund files its complete schedule of portfolio holdings with the SEC for the
first and third quarters of each fiscal year on Form N-Q. The Fund's Forms N-Q
are available on the SEC's website at www.sec.gov and may be reviewed and copied
at the SEC's Public Reference Room in Washington, DC. Information on the
operation of the SEC's Public Reference Room may be obtained by calling
1-800-SEC-0330.
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) 2005 Founders Asset Management LLC. 2/05
A-646-INE-04
<Page>
ANNUAL REPORT
[GRAPHIC]
DREYFUS FOUNDERS
MID-CAP GROWTH FUND
INVESTMENT UPDATE
DECEMBER 31, 2004
[(R)DREYFUS FOUNDERS FUNDS(R) LOGO]
THE GROWTH SPECIALISTS
<Page>
TABLE OF CONTENTS
<Table>
Management Overview 3
Fund Expenses 12
Statement of Investments 14
Statement of Assets and Liabilities 18
Statement of Operations 20
Statements of Changes in Net Assets 21
Financial Highlights 22
Notes to Financial Statements 28
Report of Independent Registered Public Accounting Firm 37
Your Board Representatives 38
</Table>
[GRAPHIC]
PAPERLESS DELIVERY OF THIS REPORT
Did you know you can reduce your postal mail by accessing Dreyfus Founders Funds
regulatory material online? It's a simple, reliable process: when new documents
such as this Annual Report are available, we'll send you an e-mail notification
containing a convenient link that will take you directly to that Fund
information on our website.
To take advantage of this service, simply inform us online of your decision to
receive materials through the Founders E-Communications Program. Cut down on
mailbox clutter and help the Fund reduce printing and postage charges by
enrolling today at www.founders.com/ecommunications. If you own Funds through a
third party, enroll at www.icsdelivery.com.
INVESTMENT MANAGER DISTRIBUTOR
Founders Asset Management LLC Dreyfus Service Corporation
A MELLON FINANCIAL COMPANY(SM) 200 Park Avenue
210 University Boulevard, Suite 800 New York, NY 10166
Denver, CO 80206
The views expressed in this report reflect those of the portfolio managers only
through the end of the period covered and do not necessarily represent the views
of Founders or any other person in the Founders organization. Any such views are
subject to change at any time based upon market or other conditions and Founders
disclaims any responsibility to update such views. These views may not be relied
on as investment advice and, because investment decisions for a Dreyfus Founders
Fund are based on numerous factors, may not be relied on as an indication of
trading intent on behalf of any Dreyfus Founders Fund. Companies appearing in
bold print on pages 3-10 were owned by the Fund on December 31, 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
(UNAUDITED)
[PHOTO OF JOHN B. JARES]
[PHOTO OF DANIEL E. CROWE]
A DISCUSSION WITH CO-PORTFOLIO MANAGERS JOHN B. JARES, CFA, LEFT, AND
DANIEL E. CROWE, CFA
HOW DID THE FUND PERFORM RELATIVE TO ITS BENCHMARK
FOR THE 12-MONTH PERIOD ENDED DECEMBER 31, 2004?
For the 12-month period ended December 31, 2004, the Dreyfus Founders Mid-Cap
Growth Fund outperformed(1) its benchmark, the Russell MidCap Growth Index,
which returned 15.48% for the period.
TO WHAT DO YOU ATTRIBUTE THE MARKET'S OVERALL PERFORMANCE DURING THE PERIOD?
The market's performance during the 12-month period can be demarcated into three
distinct periods. The start of 2004 continued to exhibit the strength associated
with the beginning of the economic recovery that was realized in 2003. However,
from March through August, the improving economy was overshadowed by concerns
over the Federal Reserve raising interest rates, increased oil prices, the lack
of clarity regarding an outcome in Iraq, and uncertainty surrounding the outcome
to the U.S. Presidential election. These concerns led to declines in most major
equity indexes into August. Finally, the last four months of the year saw strong
market advances as merger and acquisition activity picked up, the Presidential
election passed with the incumbent retaining office, and corporate earnings
growth remained strong.
[SIDENOTE]
"OUR BOTTOM-UP INVESTMENT PROCESS LED US TO SELL POSITIONS THAT HAD APPRECIATED
TO LEVELS SUCH THAT THE RISK VERSUS REWARD PROPOSITION WAS NO LONGER FAVORABLE."
(1) Excluding sales charges, which result in lower returns for certain share
classes. Please see page 7 for average annual total returns for all share
classes, including and excluding sales charges.
3
<Page>
MR. JARES, WHAT CHANGES DID YOU MAKE TO THE PORTFOLIO
AFTER ASSUMING MANAGEMENT RESPONSIBILITIES IN MARCH?
The bottom-up investment process we utilize to identify the most attractive mix
of potential reward and limited risk has not changed. However, since March, the
portfolio's concentration increased as the average number of holdings declined.
The portfolio consisted of 60 stocks at the end of the year, down from more than
100 stocks at the beginning of the year. This change positively impacted
performance as these larger holdings significantly contributed to the Fund's
overall performance.
Our diligent research process to identify new investment opportunities also
benefited the Fund as seven of the top ten positive contributors to Fund
performance for the year were added to the Fund after I assumed management
responsibilities in March.
DID YOUR BOTTOM-UP INVESTMENT APPROACH LEAD TO ANY
CHANGES IN PORTFOLIO COMPOSITION DURING THE REPORTING PERIOD?
Our bottom-up investment process led us to sell positions that had appreciated
to levels such that the risk versus reward proposition was no longer favorable.
Large stock price declines during the third quarter created new investment
[SIDENOTE]
PERFORMANCE HIGHLIGHTS
- The last four months of the year saw strong market advances as merger
and acquisition activity picked up, the Presidential election passed
with the incumbent retaining office, and corporate earnings growth
remained strong.
- The Fund's relative performance was positively impacted by strong stock
selection within specific areas of the information technology sector
such as software and hardware.
- Relative overweight positions in the consumer discretionary and
industrials sectors aided Fund performance. The largest boon to
performance in these sectors came from strong stock selection.
- Although an underweight position in the financials sector weighed on
relative Fund performance, it was weak stock selection in this sector
that created the largest offset to overall positive performance.
- An underweight position coupled with poor stock selection in the
healthcare sector also proved detrimental to relative Fund performance.
4
<Page>
opportunities. TIBCO SOFTWARE, INC. and GTECH HOLDINGS CORPORATION both became
large positions in the Fund. TIBCO has since seen increased demand for its
business integration software and improved sales force productivity. GTECH, an
operator of online lottery transaction processing systems, appreciated after
concerns regarding the company's legal matters in Brazil decreased.
WHAT FACTORS POSITIVELY CONTRIBUTED TO THE FUND'S
RELATIVE PERFORMANCE DURING THE 12-MONTH PERIOD?
The Fund's relative performance was positively impacted by strong stock
selection within specific areas of the information technology sector such as
software and hardware. Previously mentioned TIBCO Software, Inc., APPLE
COMPUTER, INC., Autodesk, Inc., VERITAS SOFTWARE CORPORATION and NAVTEQ
were among the Fund's top performers in this sector for the period. Software
companies benefited as corporate spending picked up and signs of further
industry consolidation began to emerge. Apple appreciated over the period
due in part from the continuing popularity of its iPod products as well as the
introduction of a new Mac computer. Autodesk, Inc., a design software and
digital content company, continued to benefit from increased penetration
of its three-dimensional (3D) products. Digital map data provider NAVTEQ
saw strong demand for its geographic mapping products.
LARGEST EQUITY HOLDINGS (ticker symbol)
<Table>
1. Henry Schein, Inc. (HSIC) 3.31%
2. VERITAS Software Corporation (VRTS) 3.15%
3. Lafarge North America, Inc. (LAF) 3.04%
4. W.W. Grainger, Inc. (GWW) 3.03%
5. GTECH Holdings Corporation (GTK) 2.72%
6. The PMI Group, Inc. (PMI) 2.70%
7. Blackboard, Inc. (BBBB) 2.61%
8. Bed Bath and Beyond, Inc. (BBBY) 2.36%
9. Zebra Technologies Corporation (ZBRA) 2.29%
10. TIBCO Software, Inc. (TIBX) 2.22%
</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.
Russell
Mid-cap
Class F Growth
Shares Index
- -----------------------------------
12/31/1994 $10,000 $10,000
12/31/1995 $12,569 $13,398
12/31/1996 $14,497 $15,739
12/31/1997 $16,878 $19,287
12/31/1998 $16,586 $22,733
12/31/1999 $23,598 $34,393
12/29/2000 $18,008 $30,352
12/31/2001 $14,332 $24,236
12/31/2002 $10,821 $17,594
12/31/2003 $14,787 $25,109
12/31/2004 $17,513 $28,995
The above graph compares a $10,000 investment made in Class F shares of Dreyfus
Founders Mid-Cap Growth Fund on 12/31/94 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 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 Russell 1000 Index measures the performance
of the largest 1,000 publicly traded U.S. companies. Further information related
to Fund performance is contained elsewhere in this report.
6
<Page>
AVERAGE ANNUAL TOTAL RETURN AS OF 12/31/04
<Table>
<Caption>
1 5 10 SINCE
CLASS (INCEPTION DATE) YEAR YEARS YEARS INCEPTION
-------------------------------------------------------------------------------------
CLASS A SHARES (12/31/99)
With sales charge (5.75%) 11.26% (7.31%) -- (7.31%)
Without sales charge 17.90% (6.21%) -- (6.21%)
CLASS B SHARES (12/31/99)
With redemption* 12.91% (7.02%) -- (7.02%)
Without redemption 16.91% (6.78%) -- (6.78%)
CLASS C SHARES (12/31/99)
With redemption** 16.16% (7.01%) -- (7.01%)
Without redemption 17.16% (7.01%) -- (7.01%)
CLASS F SHARES (9/8/61) 18.44% (5.79%) 5.76% N/A
CLASS R SHARES (12/31/99) 17.70% (6.04%) -- (6.04%)
CLASS T SHARES (12/31/99)
With sales charge (4.50%) 11.83% (7.86%) -- (7.86%)
Without sales charge 17.11% (7.01%) -- (7.01%)
</Table>
Average annual total returns do not reflect the deduction of taxes that a
shareholder would pay on Fund distributions or redemption of Fund shares, but do
reflect the reinvestment of dividends and capital gain distributions, expense
limits for certain share classes, and adjustments for financial statement
purposes. Part of the Fund's performance is due to amounts received from class
action settlements regarding prior Fund holdings. There is no guarantee that
these settlement distributions will occur in the future or have a similar impact
on performance. Part of the Fund's historical performance is due to the purchase
of securities sold in initial public offerings (IPOs). There is no guarantee
that the Fund's investments in IPOs, if any, will continue to have a similar
impact on performance. There are risks associated with mid-cap investing, such
as limited product lines, less liquidity, and small market share.
*The maximum contingent deferred sales charge for Class B shares is 4% and is
reduced to 0% after six years, at which time the Class B shares convert to Class
A shares.
**The maximum contingent deferred sales charge for Class C shares is 1% for
shares redeemed within one year of the date of purchase.
7
<Page>
Gains in VERITAS provide a good example of how the risk versus reward
framework benefited the Fund during the year. The company lost more than a third
of its market capitalization after a disappointing second quarter earnings
report. This created an opportunity for the Fund to build a position in the
leading provider of storage software at a reasonable valuation. VERITAS
experienced an appreciation in its share price due to an improvement in its
fundamentals and, ultimately, an offer from software firm Symantec Corporation
to acquire the company.
Relative overweight positions in the consumer discretionary and industrials
sectors aided Fund performance. The largest boon to performance in these sectors
came from strong stock selection. ROYAL CARIBBEAN CRUISES LIMITED and GETTY
IMAGES, INC. delivered strong performance within the consumer discretionary
sector. Royal Caribbean experienced strong recovery in demand for leisure
cruising, while stock photography provider Getty Images continued to leverage
the electronic distribution of digital images, which helped drive higher
profits. Within the industrials sector, W.W. GRAINGER, INC., a leading
[CHART]
PORTFOLIO COMPOSITION OF NET ASSETS
<Table>
Consumer Discretionary 23.59%
Information Technology 23.51%
Healthcare 17.43%
Industrials 10.91%
Financials 10.80%
Materials 3.04%
Energy 2.42%
Telecommunications Services 1.87%
Other 1.94%
Cash & Equivalents 4.49%
</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>
provider of facilities maintenance products, delivered strong branch sales in
part due to the success of its market expansion. Transportation company J.B.
HUNT TRANSPORT SERVICES, INC. was also a notable positive contributor to Fund
performance for the period.
CONVERSELY, WHAT FACTORS NEGATIVELY CONTRIBUTED TO THE
FUND'S RELATIVE PERFORMANCE DURING THE 12-MONTH PERIOD?
Although an underweight position in the financials sector weighed on relative
Fund performance, it was weak stock selection in this sector that created the
largest offset to overall positive performance. Poor interest rate risk
management hurt New York Community Bancorp, Inc. AmeriTrade Holding Corporation
was negatively impacted as trading volumes fell, earnings were revised down, and
the industry continued to struggle with aggressive pricing.
An underweight position coupled with poor stock selection in the healthcare
sector also proved detrimental to relative Fund performance. Among the worst
performers in this sector were long-term acute care hospital services provider
Select Medical Corporation and generic pharmaceutical company Andrx Corporation.
The telecommunications sector also had a negative impact on performance,
due mainly to the Fund's underweight position relative to its benchmark.
Although the information technology sector provided the largest buoy for
relative Fund performance, names within the semiconductor industry weighed on
the sector's positive contribution. NVIDIA Corporation, QLogic Corporation and
Fairchild Semiconductor International, Inc. all had a large negative impact on
Fund performance. NVIDIA reported poor second quarter results due to aggressive
competitor pricing and weak demand for low-end processors. QLogic Corporation
underperformed as it pre-announced lower-than-expected first quarter earnings
due to weaker demand for its storage-related products. Fairchild Semiconductor
declined due to weaker end-market demand.
9
<Page>
Other holdings that negatively impacted relative Fund performance during
the period included BLACKBOARD, INC. and Corinthian Colleges, Inc. Blackboard, a
provider of educational software products, declined due to weak third quarter
bookings. Corinthian Colleges suffered from numerous factors including overly
optimistic expectations and concerns over the closing of existing facilities. In
addition, industry concerns also surfaced based on issues at other for-profit
educational services companies.
At year's end, corporate activity began to pick up as executives began making
strategic decisions regarding investing in businesses and acquisitions. Consumer
spending was reasonable, oil prices appeared to have moderated and employment
was once again stable to improving. Additionally, inflation remained benign,
long-term interest rates remained very low, and credit spreads were tight. While
our outlook was generally positive at year-end, a number of issues such as a
weakening of the U.S. dollar, increased inflation and consumer credit quality
kept us cautiously optimistic. We will continue to focus on our bottom-up
investment process and will work diligently to seek the most attractive mix of
potential reward and limited risk.
/s/ John B. Jares /s/ Daniel E. Crowe
John B. Jares, CFA Daniel E. Crowe, CFA
Co-Portfolio Manager Co-Portfolio Manager
10
<Page>
This page intentionally left blank.
11
<Page>
FUND EXPENSES
(UNAUDITED)
As a shareholder of the Fund, depending on the class of shares of the Fund you
own, you incur two types of costs: (1) transaction costs, including front-end
and contingent deferred sales charges; and (2) ongoing costs, including
management fees, Rule 12b-1 fees, shareholder services fees, and other expenses.
The expense example shown below is intended to help you understand your ongoing
costs (in dollars) of investing in the Fund and to compare these costs with the
ongoing costs of investing in other mutual funds.
The expense example is based on an investment of $1,000 on July 1, 2004 and
held through December 31, 2004.
ACTUAL EXPENSES The numbers included in the expense example in the rows with the
word "Actual" in the title provide information about actual account values and
actual expenses. You may use this information to estimate the expenses that you
paid over the period. Simply divide your account value by $1,000 (for example,
an $8,600 account value divided by $1,000 - 8.60), then multiply the result by
the number under the column heading entitled "Expenses Paid During Period" for
the class of shares you own to estimate the expenses you paid on your account
during this period.
HYPOTHETICAL EXPENSES The numbers included in the expense example in the rows
with the word "Hypothetical" in the title provide information about hypothetical
account values and hypothetical expenses based on the Fund's actual expense
ratio for each class of shares, and an assumed rate of return of 5% per year
before expenses, which is not the Fund's actual return. The hypothetical account
values and expenses may not be used to estimate the actual ending account
balance or expenses you paid for the period. You may use this information to
compare the ongoing costs of investing in the Fund and other funds. To do so,
compare the hypothetical expenses in the expense example for the class of shares
you own with the hypothetical expenses that appear in the shareholder reports of
other funds.
Please note that the expenses shown in the expense example are meant to
highlight your ongoing costs only and do not reflect the transaction costs
described above. Therefore, the hypothetical expenses in the expense example are
useful in comparing ongoing costs only, and will not help you determine the
relative total costs of owning different funds. In addition, if the transaction
costs were included, your costs would have been higher.
12
<Page>
EXPENSE EXAMPLE
<Table>
<Caption>
BEGINNING ENDING EXPENSES PAID
ACCOUNT VALUE ACCOUNT VALUE DURING PERIOD*
(7/1/04) (12/31/04) (7/1/04-12/31/04)
-------------------------------------------------------------------------------------------
CLASS A ACTUAL $ 1,000.00 $ 1,104.16 $ 8.44
CLASS A HYPOTHETICAL 1,000.00 1,016.91 8.09
CLASS B ACTUAL 1,000.00 1,094.59 13.14
CLASS B HYPOTHETICAL 1,000.00 1,012.38 12.62
CLASS C ACTUAL 1,000.00 1,099.67 12.69
CLASS C HYPOTHETICAL 1,000.00 1,012.83 12.17
CLASS F ACTUAL 1,000.00 1,108.72 7.07
CLASS F HYPOTHETICAL 1,000.00 1,018.23 6.77
CLASS R ACTUAL 1,000.00 1,101.33 10.08
CLASS R HYPOTHETICAL 1,000.00 1,015.33 9.67
CLASS T ACTUAL 1,000.00 1,096.16 12.78
CLASS T HYPOTHETICAL 1,000.00 1,012.73 12.27
</Table>
*Expenses are equal to each Class's respective annualized expense ratio,
shown below, multiplied by the average account value over the period,
multiplied by 184/366 (to reflect the one-half year period).
EXPENSE RATIOS
These expense ratios reflect reimbursements and/or waivers of expenses by the
Fund's investment adviser or its affiliates.
<Table>
<Caption>
EXPENSE RATIO
------------------------------------------------------
CLASS A 1.59%
CLASS B 2.48%
CLASS C 2.39%
CLASS F 1.33%
CLASS R 1.90%
CLASS T 2.41%
</Table>
13
<Page>
STATEMENT OF INVESTMENTS
December 31, 2004
<Table>
<Caption>
SHARES MARKET VALUE
- ------------------------------------------------------------------------------------------------------------
COMMON STOCKS (DOMESTIC)--93.3%
AIRLINES--1.2%
61,750 AMR Corporation* $ 676,156
37,500 JetBlue Airways Corporation* 870,750
------------------
1,546,906
------------------
APPLICATION SOFTWARE--3.8%
217,009 Blackboard, Inc.* 3,213,903
30,875 NAVTEQ* 1,431,365
------------------
4,645,268
------------------
ASSET MANAGEMENT & CUSTODY BANKS--3.3%
50,667 Calamos Asset Management, Inc.* 1,368,009
55,325 Northern Trust Corporation 2,687,689
------------------
4,055,698
------------------
AUTO PARTS & EQUIPMENT--1.8%
45,025 Autoliv, Inc. 2,174,708
------------------
BIOTECHNOLOGY--4.0%
30,600 Genzyme Corporation* 1,776,942
37,175 Gilead Sciences, Inc.* 1,300,753
24,375 OSI Pharmaceuticals, Inc.* 1,824,469
------------------
4,902,164
------------------
CASINOS & GAMING--5.3%
129,200 GTECH Holdings Corporation 3,352,740
21,975 Station Casinos, Inc. 1,201,593
29,400 Wynn Resorts, Limited* 1,967,448
------------------
6,521,781
------------------
COMMUNICATIONS EQUIPMENT--1.6%
58,600 Scientific-Atlanta, Inc. 1,934,386
------------------
COMPUTER HARDWARE--1.7%
31,825 Apple Computer, Inc.* 2,049,530
------------------
COMPUTER STORAGE & PERIPHERALS--0.5%
6,975 Lexmark International, Inc.* 592,875
------------------
CONSTRUCTION MATERIALS--3.0%
72,875 Lafarge North America, Inc. 3,739,945
------------------
DEPARTMENT STORES--2.1%
51,500 Kohl's Corporation* 2,532,255
------------------
ELECTRONIC EQUIPMENT MANUFACTURERS--0.8%
60,675 Symbol Technologies, Inc. 1,049,678
------------------
EMPLOYMENT SERVICES--1.3%
32,350 Manpower, Inc. 1,562,505
------------------
ENVIRONMENTAL SERVICES--1.8%
49,700 Stericycle, Inc.* 2,283,715
------------------
</Table>
14
<Page>
<Table>
<Caption>
SHARES MARKET VALUE
- ------------------------------------------------------------------------------------------------------------
EXCHANGE TRADED FUNDS--1.9%
71,800 Semiconductor HLDRs Trust $ 2,395,248
------------------
HEALTHCARE DISTRIBUTORS--3.3%
58,525 Henry Schein, Inc.* 4,075,681
------------------
HEALTHCARE EQUIPMENT--1.8%
50,225 Biomet, Inc. 2,179,263
------------------
HEALTHCARE SERVICES--1.5%
19,550 Quest Diagnostics, Inc. 1,868,003
------------------
HOME FURNISHINGS--3.0%
40,075 Leggett & Platt, Inc. 1,139,332
27,800 Mohawk Industries, Inc.* 2,536,750
------------------
3,676,082
------------------
HOMEBUILDING--1.7%
10,000 KB Home 1,044,000
16,050 Toll Brothers, Inc.* 1,101,191
------------------
2,145,191
------------------
LEISURE FACILITIES--1.6%
35,875 Royal Caribbean Cruises Limited 1,953,035
------------------
LIFE & HEALTH INSURANCE--0.6%
39,500 UnumProvident Corporation 708,630
------------------
OFFICE ELECTRONICS--2.3%
50,075 Zebra Technologies Corporation* 2,818,221
------------------
OIL & GAS EXPLORATION & PRODUCTION--2.4%
18,225 Bill Barrett Corporation* 583,018
38,825 Noble Energy, Inc. 2,393,950
------------------
2,976,968
------------------
OTHER DIVERSIFIED FINANCIAL SERVICES--2.2%
32,625 Ambac Financial Group, Inc. 2,679,491
------------------
PHARMACEUTICALS--6.9%
59,100 Barr Pharmaceuticals, Inc.* 2,691,414
74,000 Eon Labs, Inc.* 1,998,000
55,850 Medicis Pharmaceutical Corporation Class A 1,960,894
64,150 MGI Pharma, Inc.* 1,796,842
------------------
8,447,150
------------------
PUBLISHING--1.7%
30,175 Getty Images, Inc.* 2,077,549
------------------
RAILROADS--0.5%
9,450 Union Pacific Corporation 635,513
------------------
REGIONAL BANKS--1.5%
58,450 South Financial Group, Inc. 1,901,379
------------------
</Table>
SEE NOTES TO STATEMENT OF INVESTMENTS.
15
<Page>
<Table>
<Caption>
SHARES MARKET VALUE
- ------------------------------------------------------------------------------------------------------------
RESTAURANTS--3.3%
91,700 Applebee's International, Inc. $ 2,425,465
35,825 Yum! Brands, Inc. 1,690,224
------------------
4,115,689
------------------
SEMICONDUCTOR EQUIPMENT--1.4%
63,000 Novellus Systems, Inc.* 1,757,070
------------------
SEMICONDUCTORS--2.4%
20,000 Broadcom Corporation* 645,600
53,325 Maxim Integrated Products, Inc. 2,260,447
------------------
2,906,047
------------------
SPECIALTY STORES--3.1%
72,925 Bed Bath & Beyond, Inc.* 2,904,603
18,325 Guitar Center, Inc.* 965,544
------------------
3,870,147
------------------
SYSTEMS SOFTWARE--5.4%
205,000 TIBCO Software, Inc.* 2,734,700
135,875 VERITAS Software Corporation* 3,879,231
------------------
6,613,931
------------------
TECHNOLOGY DISTRIBUTORS--2.0%
38,075 CDW Corporation 2,526,276
------------------
THRIFTS & MORTGAGE FINANCE--2.7%
79,800 The PMI Group, Inc. 3,331,650
------------------
TRADING COMPANIES & DISTRIBUTORS--4.5%
98,850 United Rentals, Inc.* 1,868,265
56,075 W.W. Grainger, Inc. 3,735,717
------------------
5,603,982
------------------
TRUCKING--1.5%
40,150 J.B. Hunt Transport Services, Inc. 1,800,728
------------------
WIRELESS TELECOMMUNICATION SERVICES--1.9%
125,000 American Tower Corporation* 2,300,000
------------------
TOTAL COMMON STOCKS (DOMESTIC)
(COST--$98,443,617) 114,954,338
------------------
COMMON STOCKS (FOREIGN)--2.2%
APPLICATION SOFTWARE--1.7%
78,800 Amdocs Limited (CI)* 2,068,500
------------------
INVESTMENT BANKING & BROKERAGE--0.5%
120,000 ICAP PLC (UK) 626,033
------------------
TOTAL COMMON STOCKS (FOREIGN)
(COST--$2,548,629) 2,694,533
------------------
</Table>
16
<Page>
<Table>
<Caption>
PRINCIPAL AMOUNT AMORTIZED COST
- ------------------------------------------------------------------------------------------------------------
CORPORATE SHORT-TERM NOTES--4.3%
SPECIAL PURPOSE ENTITY--4.3%
$ 5,300,000 Nestle Capital Corporation
2.14% 1/3/05~ $ 5,299,370
------------------
TOTAL CORPORATE SHORT-TERM NOTES
(AMORTIZED COST--$5,299,370) 5,299,370
------------------
TOTAL INVESTMENTS--99.8%
(TOTAL COST--$106,291,616) 122,948,241
------------------
OTHER ASSETS AND LIABILITIES--0.2% 232,979
------------------
NET ASSETS--100.0% $ 123,181,220
==================
</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. THESE SECURITIES AMOUNTED TO
$5,299,370, OR 4.3%, OF THE FUND'S NET ASSETS AS OF DECEMBER 31, 2004.
HLDRs - HOLDING COMPANY DEPOSITARY RECEIPTS
CI - CHANNEL ISLANDS
UK - UNITED KINGDOM
SEE NOTES TO FINANCIAL STATEMENTS.
17
<Page>
STATEMENT OF ASSETS AND LIABILITIES
December 31, 2004
<Table>
ASSETS
Investment securities, at cost $ 106,291,616
------------------
Investment securities, at market 122,948,241
Cash 397,537
Receivables:
Capital shares sold 85,826
Dividends and interest 35,919
Other assets 23,925
------------------
Total Assets 123,491,448
------------------
LIABILITIES
Payables and other accrued liabilities:
Capital shares redeemed 85,285
Advisory fees 83,301
Shareholder servicing fees 15,543
Accounting fees 6,156
Distribution fees 22,152
Transfer agency fees 11,607
Custodian fees 1,579
Directors Deferred Compensation 23,926
Other 60,679
------------------
Total Liabilities 310,228
------------------
Net Assets $ 123,181,220
==================
COMPOSITION OF NET ASSETS
Capital (par value and paid-in surplus) $ 156,625,929
Accumulated net investment loss (19,633)
Accumulated net realized loss from security transactions (50,081,701)
Net unrealized appreciation on investments 16,656,625
------------------
Total $ 123,181,220
==================
</Table>
18
<Page>
<Table>
CLASS A
Net Assets $ 1,546,244
Shares Outstanding 372,304
Net Asset Value, Redemption Price Per Share $ 4.15
Maximum offering price per share (net asset value
plus sales charge of 5.75% of offering price) $ 4.40
CLASS B
Net Assets $ 1,823,393
Shares Outstanding 454,616
Net Asset Value, Offering and Redemption Price (excluding
applicable contingent deferred sales charge) Per Share $ 4.01
CLASS C
Net Assets $ 428,131
Shares Outstanding 108,177
Net Asset Value, Offering and Redemption Price (excluding
applicable contingent deferred sales charge) Per Share $ 3.96
CLASS F
Net Assets $ 119,272,754
Shares Outstanding 28,162,302
Net Asset Value, Offering and Redemption Price Per Share $ 4.24
CLASS R
Net Assets $ 71,135
Shares Outstanding 16,961
Net Asset Value, Offering and Redemption Price Per Share $ 4.19
CLASS T
Net Assets $ 39,563
Shares Outstanding 9,966
Net Asset Value, Redemption Price Per Share $ 3.97
Maximum offering price per share (net asset value
plus sales charge of 4.50% of offering price) $ 4.16
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
19
<Page>
STATEMENT OF OPERATIONS
For the year endend December 31, 2004
<Table>
INVESTMENT INCOME
Dividends $ 540,165
Interest 50,079
Foreign taxes withheld (2,043)
------------------
Total Investment Income 588,201
------------------
EXPENSES
Advisory fees--Note 2 1,044,064
Shareholder servicing fees--Note 2 170,223
Accounting fees--Note 2 77,525
Distribution fees--Note 2 185,790
Transfer agency fees--Note 2 83,090
Registration fees 50,312
Postage and mailing expenses 16,590
Custodian fees and expenses--Note 2 6,708
Printing expenses 28,333
Legal and audit fees 28,580
Directors' fees and expenses--Note 2 25,960
Other expenses 28,661
------------------
Total Expenses 1,745,836
Earnings Credits (2,670)
Reimbursed/Waived Expenses (1,247)
Expense Offset to Broker Commissions (4,589)
------------------
Net Expenses 1,737,330
------------------
Net Investment Loss (1,149,129)
------------------
REALIZED AND UNREALIZED GAIN
(LOSS) ON SECURITY TRANSACTIONS
Net Realized Gain on Security Transactions 32,490,110
Net Change in Unrealized Appreciation/Depreciation of Investments (10,271,293)
------------------
Net Realized and Unrealized Gain 22,218,817
------------------
Net Increase in Net Assets Resulting from Operations $ 21,069,688
==================
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
20
<Page>
STATEMENTS OF CHANGES IN NET ASSETS
<Table>
<Caption>
YEAR ENDED YEAR ENDED
12/31/04 12/31/03
- ------------------------------------------------------------------------------------------------------------
OPERATIONS
Net Investment Loss $ (1,149,129) $ (1,356,208)
Net Realized Gain on Security Transactions 32,490,110 20,810,975
Net Change in Unrealized
Appreciation/Depreciation of Investments (10,271,293) 25,868,151
------------------ ------------------
Net Increase in Net Assets Resulting from Operations 21,069,688 45,322,918
------------------ ------------------
CAPITAL SHARE TRANSACTIONS
Net Increase (Decrease)--Note 4
Class A 152,338 542,198
Class B (32,488) 264,005
Class C 45,566 (52,492)
Class F (60,416,547) 24,535,977
Class R (51,768) 9,780
Class T (76) 5,472
------------------ ------------------
Net Increase (Decrease) from Capital Share
Transactions (60,302,975) 25,304,940
------------------ ------------------
Net Increase (Decrease) in Net Assets (39,233,287) 70,627,858
------------------ ------------------
NET ASSETS
Beginning of year $ 162,414,507 $ 91,786,649
------------------ ------------------
End of year $ 123,181,220 $ 162,414,507
================== ==================
Accumulated Net Investment Loss $ (19,633) $ (15,164)
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
21
<Page>
FINANCIAL HIGHLIGHTS
<Table>
<Caption>
YEAR ENDED
DECEMBER 31,
2004 2003 2002 2001 2000
-------------------------------------------------------
CLASS A SHARES
PER SHARE OPERATING DATA
Net Asset Value, beginning of year $ 3.52 $ 2.58 $ 3.44 $ 4.38 $ 8.68
- ------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.03) 0.03 (0.04) (0.06) (0.02)
Net realized and unrealized gains
(losses) on securities 0.66 0.91 (0.82) (0.88) (2.05)
-------------------------------------------------------
Total from investment operations 0.63 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 year $ 4.15 $ 3.52 $ 2.58 $ 3.44 $ 4.38
=======================================================
TOTAL RETURN* 17.90% 36.43% (25.00%) (21.46%) (23.40%)
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000s) $ 1,546 $ 1,191 $ 476 $ 538 $ 625
- ------------------------------------------------------------------------------------------------------------
Ratios to average net assets:
Expenses with reimbursements, but no
earnings credits or brokerage offsets# 1.54% 1.87% 2.15% 2.47% 1.29%
Expenses with reimbursements,
earnings credits and brokerage offsets 1.53% 1.86% 2.15% 2.46% 1.25%
Net investment loss (1.07%) (1.38%) (1.81%) (1.93%) (0.74%)
- ------------------------------------------------------------------------------------------------------------
Portfolio turnover rate@ 147% 160% 216% 214% 226%
</Table>
* SALES CHARGES ARE NOT REFLECTED IN THE TOTAL RETURN.
# 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>
YEAR ENDED
DECEMBER 31,
2004 2003 2002 2001 2000
-------------------------------------------------------
CLASS B SHARES
PER SHARE OPERATING DATA
Net Asset Value, beginning of year $ 3.43 $ 2.54 $ 3.39 $ 4.32 $ 8.68
- ------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment loss (0.07) (0.03) (0.05) (0.05) (0.04)
Net realized and unrealized gains
(losses) on securities 0.65 0.92 (0.80) (0.88) (2.09)
-------------------------------------------------------
Total from investment operations 0.58 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 year $ 4.01 $ 3.43 $ 2.54 $ 3.39 $ 4.32
=======================================================
TOTAL RETURN* 16.91% 35.04% (25.07%) (21.53%) (24.14%)
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000s) $ 1,823 $ 1,587 $ 969 $ 1,138 $ 1,047
- ------------------------------------------------------------------------------------------------------------
Ratios to average net assets:
Expenses with reimbursements, but no
earnings credits or brokerage offsets# 2.37% 2.65% 2.68% 2.59% 2.04%
Expenses with reimbursements,
earnings credits and brokerage offsets 2.37% 2.64% 2.67% 2.58% 1.99%
Net investment loss (1.90%) (2.16%) (2.33%) (2.06%) (1.47%)
- ------------------------------------------------------------------------------------------------------------
Portfolio turnover rate@ 147% 160% 216% 214% 226%
</Table>
* SALES CHARGES ARE NOT REFLECTED IN THE TOTAL RETURN.
# 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>
YEAR ENDED
DECEMBER 31,
2004 2003 2002 2001 2000
-------------------------------------------------------
CLASS C SHARES
PER SHARE OPERATING DATA
Net Asset Value, beginning of year $ 3.38 $ 2.50 $ 3.36 $ 4.32 $ 8.68
- ------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment loss (0.06)+ (0.10) (0.08) (0.08) (0.04)
Net realized and unrealized gains
(losses) on securities 0.64 0.98 (0.78) (0.88) (2.09)
-------------------------------------------------------
Total from investment operations 0.58 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 year $ 3.96 $ 3.38 $ 2.50 $ 3.36 $ 4.32
=======================================================
TOTAL RETURN* 17.16% 35.20% (25.60%) (22.22%) (24.14%)
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000s) $ 428 $ 323 $ 274 $ 380 $ 422
- ------------------------------------------------------------------------------------------------------------
Ratios to average net assets:
Expenses with reimbursements, but no
earnings credits or brokerage offsets# 2.32% 2.51% 2.99% 3.94% 2.04%
Expenses with reimbursements,
earnings credits and brokerage offsets 2.31% 2.51% 2.98% 3.93% 2.00%
Net investment loss (1.83%) (2.02%) (2.65%) (3.41%) (1.46%)
- ------------------------------------------------------------------------------------------------------------
Portfolio turnover rate@ 147% 160% 216% 214% 226%
</Table>
+ COMPUTED USING AVERAGE SHARES OUTSTANDING THROUGHOUT THE YEAR.
* SALES CHARGES ARE NOT REFLECTED IN THE TOTAL RETURN.
# 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 2.32% (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.
24
<Page>
<Table>
<Caption>
YEAR ENDED
DECEMBER 31,
2004 2003 2002 2001 2000
--------------------------------------------------------------
CLASS F SHARES
PER SHARE OPERATING DATA
Net Asset Value, beginning of year $ 3.58 $ 2.62 $ 3.47 $ 4.36 $ 8.68
- -------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.03)+ 0.02 (0.04) (0.05) (0.03)
Net realized and unrealized gains
(losses) on securities 0.69 0.94 (0.81) (0.84) (2.06)
--------------------------------------------------------------
Total from investment operations 0.66 0.96 (0.85) (0.89) (2.09)
- -------------------------------------------------------------------------------------------------------------------
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 year $ 4.24 $ 3.58 $ 2.62 $ 3.47 $ 4.36
==============================================================
TOTAL RETURN 18.44% 36.64% (24.50%) (20.41%) (23.69%)
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000s) $ 119,273 $ 159,161 $ 89,970 $ 119,708 $ 166,365
- -------------------------------------------------------------------------------------------------------------------
Ratios to average net assets:
Expenses with reimbursements, but no
earnings credits or brokerage offsets# 1.33% 1.51% 1.56% 1.39% 1.39%
Expenses with reimbursements,
earnings credits and brokerage offsets 1.33% 1.50% 1.56% 1.37% 1.36%
Net investment loss (0.87%) (1.01%) (1.22%) (0.84%) (0.92%)
- -------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate@ 147% 160% 216% 214% 226%
</Table>
+ COMPUTED USING AVERAGE SHARES OUTSTANDING THROUGHOUT THE YEAR.
# 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.
25
<Page>
<Table>
<Caption>
YEAR ENDED
DECEMBER 31,
2004 2003 2002 2001 2000
--------------------------------------------------------------
CLASS R SHARES
PER SHARE OPERATING DATA
Net Asset Value, beginning of year $ 3.56 $ 2.61 $ 3.48 $ 4.39 $ 8.68
- -------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.04)+ (0.03) (0.04) 0.01 (0.03)
Net realized and unrealized gains
(losses) on securities 0.67 0.98 (0.83) (0.92) (2.03)
--------------------------------------------------------------
Total from investment operations 0.63 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 year $ 4.19 $ 3.56 $ 2.61 $ 3.48 $ 4.39
==============================================================
TOTAL RETURN 17.70% 36.40% (25.00%) (20.73%) (23.28%)
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000s) $ 71 $ 119 $ 77 $ 49 $ 7
- -------------------------------------------------------------------------------------------------------------------
Ratios to average net assets:
Expenses with reimbursements, but no
earnings credits or brokerage offsets# 1.48% 1.64% 1.97% 2.91% 1.03%
Expenses with reimbursements,
earnings credits and brokerage offsets 1.48% 1.64% 1.97% 2.89% 1.00%
Net investment loss (1.03%) (1.15%) (1.63%) (2.40%) (0.55%)
- -------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate@ 147% 160% 216% 214% 226%
</Table>
+ COMPUTED USING AVERAGE SHARES OUTSTANDING THROUGHOUT THE YEAR.
# 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 1.48% (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.
26
<Page>
<Table>
<Caption>
YEAR ENDED
DECEMBER 31,
2004 2003 2002 2001 2000
--------------------------------------------------------------
CLASS T SHARES
PER SHARE OPERATING DATA
Net Asset Value, beginning of year $ 3.39 $ 2.51 $ 3.39 $ 4.35 $ 8.68
- -------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment loss (0.06) (0.02) (0.06) (0.11) (0.02)
Net realized and unrealized gains
(losses) on securities 0.64 0.90 (0.82) (0.85) (2.08)
--------------------------------------------------------------
Total from investment operations 0.58 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 year $ 3.97 $ 3.39 $ 2.51 $ 3.39 $ 4.35
==============================================================
TOTAL RETURN* 17.11% 35.06% (25.96%) (22.07%) (23.80%)
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000s) $ 40 $ 34 $ 20 $ 20 $ 29
- -------------------------------------------------------------------------------------------------------------------
Ratios to average net assets:
Expenses with reimbursements, but no
earnings credits or brokerage offsets# 2.26% 2.76% 3.64% 3.13% 1.55%
Expenses with reimbursements,
earnings credits and brokerage offsets 2.25% 2.76% 3.63% 3.11% 1.50%
Net investment loss (1.78%) (2.27%) (3.29%) (2.57%) (0.98%)
- -------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate@ 147% 160% 216% 214% 226%
</Table>
* SALES CHARGES ARE NOT REFLECTED IN THE TOTAL RETURN.
# 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 2.26% (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.
27
<Page>
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2004
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,
Equity Growth (formerly Growth and Income), Government Securities, Growth,
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 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. However, the Funds are planning to begin using
New York closing exchange rates to convert foreign currencies to U.S. dollars
sometime during the first quarter of 2005.
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.
28
<Page>
If market quotations or official closing prices are not readily available or are
determined not to reflect accurately fair value, 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 but before the Fund calculates its net asset value,
and it is determined that the event has materially affected the value of the
security. Fair value of foreign equity securities may be determined with the
assistance of a pricing service using correlations between the movement of
prices of foreign securities and indexes of domestic securities and other
appropriate indicators, such as closing market prices of relevant ADRs and
futures contracts. Using fair value to price securities may result in a value
that is different from a security's most recent closing price and from the
prices used by other mutual funds to calculate their net asset values.
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 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
29
<Page>
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, as earned, and includes the
accretion of discounts and the amortization of premiums over the lives of the
respective securities. Withholding taxes on foreign dividends have been provided
for in accordance with the applicable country's tax rules and rates.
DISTRIBUTIONS TO SHAREHOLDERS--The Fund declares and distributes dividends (if
any) and capital gains (if any) annually. Dividends and distributions, which are
determined in accordance with income tax regulations, are recorded on the
ex-dividend date.
EXPENSES--Each Class of the Fund bears expenses incurred specifically on its
behalf and, in addition, each Class bears a portion of general expenses based on
the relative net assets or the number of shareholder accounts of the Class. The
type of expense determines the allocation method.
The Company's board of directors has authorized the payment, if any, of certain
Fund expenses with commissions of Fund portfolio transactions. These commissions
reduce Other Expenses and are included in the Expense Offset to Broker
Commissions in the Statement of Operations.
USE OF ESTIMATES--The preparation of financial statements in conformity with
accounting principles generally accepted in the United States of America
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported amounts of
income and expenses during the reporting period. Actual results could differ
from those estimates.
INDEMNIFICATIONS--In the normal course of business, the Company enters into
contracts that contain provisions indemnifying other parties against specified
potential liabilities. Each Fund's maximum exposure under these arrangements is
unknown as this would involve future claims that may be made against the Fund
that have not yet occurred. However, based on experience, the Funds expect the
risk of loss to be remote.
OTHER--Certain prior year information has been reformatted, without substantive
change, to conform with the current year presentation.
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
30
<Page>
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 year ended December 31,
2004, Class F shares were charged $162,070 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 from DTI
are paid by the Fund. During the year ended December 31, 2004, Class F shares
were charged $43,147 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 $13.00, per shareholder account considered to be an
open account at any time during a given month, plus out-of-pocket charges.
Class-specific transfer agency fees paid to DTI during the year ended December
31, 2004 were as follows:
<Table>
<Caption>
TRANSFER
AGENCY FEES
------------------------------------------------------
Class A $ 2,908
Class B $ 5,487
Class C $ 1,079
Class R $ 403
Class T $ 227
</Table>
OTHER TRANSFER AGENCY FEES--Various broker-dealers, retirement plan
administrators and other unaffiliated entities have established omnibus accounts
with the Fund, and provide sub-transfer agency, recordkeeping or similar
services to persons holding Fund shares through those accounts. During the year
ended December 31, 2004, the Fund paid $29,839 to these entities for such
services. This amount is included in the transfer agency fees shown on the
Statement of Operations.
CASH MANAGEMENT FEES--The Funds also pay Mellon Bank N.A. ("Mellon Bank"), a
wholly-owned subsidiary of Mellon Financial Corporation and an affiliate of
Founders, fees for certain cash management services. These include various
services related to the
31
<Page>
processing of shareholder transactions in the Funds. During the year ended
December 31, 2004, the Fund was charged $1,631 for cash management fees, which
are included in the out-of-pocket charges from DTI above.
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 year ended December
31, 2004, Class F shares were charged $170,318 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 year ended December 31, 2004, were as follows:
<Table>
<Caption>
DISTRIBUTION SHAREHOLDER
FEES SERVICING FEES
--------------------------------------------------------------------
Class A N/A $ 2,942
Class B $ 12,420 $ 4,140
Class C $ 2,972 $ 991
Class T $ 80 $ 80
</Table>
During the year ended December 31, 2004, DSC retained $6,574 and $12 in sales
commissions from the sales of Class A and Class T shares, respectively. DSC also
retained $4,076 and $1,034 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 contractually agreed to waive
any fees received for these services to the extent they exceed Founders' costs
in providing the services.
32
<Page>
CUSTODIAN FEES--Mellon Bank 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 Fund could have employed these assets
elsewhere to produce income had it not entered into this arrangement. The
custodian has also contractually 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 year ended December 31, 2004, the
Fund's portion of the fee waiver was $1,247, which reduced the amount paid to
Mellon Bank to $5,461.
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 invested
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,
which pays their compensation. The affairs of the Fund, including services
provided by Founders, are subject to the supervision and general oversight of
the Company's board of directors.
OTHER--During the year ended December 31, 2004, Founders reimbursed the Fund
$320 for a trading error. This amount is not material to the Fund.
33
<Page>
3. FEDERAL TAX INFORMATION
Net investment income and capital gains distributions are determined in
accordance with income tax regulations that may differ from accounting
principles generally accepted in the United States of America. These differences
are due to differing treatments for items such as deferral of wash sale losses,
foreign currency transactions, net operating losses and capital loss carryovers.
Permanent differences identified during the year ended December 31, 2004 have
been reclassified among the components of net assets as follows:
<Table>
<Caption>
UNDISTRIBUTED NET UNDISTRIBUTED NET PAID-IN
INVESTMENT INCOME REALIZED GAINS AND LOSSES CAPITAL
------------------------------------------------------------------
$ 1,144,660 $ 0 $ (1,144,660)
</Table>
The tax components of capital represent distribution requirements the Fund must
satisfy under the income tax regulations and losses or tax deductions the Fund
may be able to offset against income and capital gains realized in future years.
Accumulated capital losses and post-October 31 capital losses noted below, if
any, as of December 31, 2004, 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. Net capital loss carryovers
utilized during 2004 by the Fund amounted to $32,544,804. Accumulated capital
losses as of December 31, 2004 were:
<Table>
<Caption>
EXPIRATION AMOUNT
---------------------------------------------------------------
2009 $ 17,754,484
2010 $ 31,942,177
-------------
$ 49,696,661
=============
</Table>
The aggregate cost of investments and the composition of unrealized appreciation
and depreciation of investment securities for federal income tax purposes as of
December 31, 2004 are noted below. The primary difference between book and tax
appreciation or depreciation is wash sale loss deferrals.
<Table>
Federal Tax Cost $ 106,676,656
Gross Tax Appreciation of Investments $ 17,199,188
Gross Tax Depreciation of Investments $ (927,603)
Net Tax Appreciation $ 16,271,585
</Table>
34
<Page>
4. CAPITAL SHARE TRANSACTIONS
The Fund is authorized to issue 500 million shares of $0.01 par value capital
stock. Transactions in shares of the Fund for the periods indicated were as
follows:
<Table>
<Caption>
YEAR ENDED YEAR ENDED
12/31/04 12/31/03
SHARES AMOUNT SHARES AMOUNT
CLASS A
Sold 226,896 $ 852,592 244,735 $ 828,175
Redeemed (193,006) $ (700,254) (90,696) $ (285,977)
--------------------------------------------------------------------
Net Increase 33,890 $ 152,338 154,039 $ 542,198
====================================================================
CLASS B
Sold 89,684 $ 322,791 145,154 $ 449,120
Redeemed (98,294) $ (355,279) (63,928) $ (185,115)
--------------------------------------------------------------------
Net Increase (Decrease) (8,610) $ (32,488) 81,226 $ 264,005
====================================================================
CLASS C
Sold 110,256 $ 385,913 56,880 $ 169,451
Redeemed (97,748) $ (340,347) (70,756) $ (221,943)
--------------------------------------------------------------------
Net Increase (Decrease) 12,508 $ 45,566 (13,876) $ (52,492)
====================================================================
CLASS F
Sold 3,973,983 $ 14,909,282 19,131,927 $ 50,872,801
Redeemed (20,268,328) $ (75,325,829) (8,999,875) $ (26,336,824)
--------------------------------------------------------------------
Net Increase (Decrease) (16,294,345) $ (60,416,547) 10,132,052 $ 24,535,977
====================================================================
CLASS R
Sold 23,623 $ 90,989 15,172 $ 45,615
Redeemed (40,138) $ (142,757) (11,397) $ (35,835)
--------------------------------------------------------------------
Net Increase (Decrease) (16,515) $ (51,768) 3,775 $ 9,780
====================================================================
CLASS T
Sold 1,380 $ 4,956 2,448 $ 6,710
Redeemed (1,452) $ (5,032) (403) $ (1,238)
--------------------------------------------------------------------
Net Increase (Decrease) (72) $ (76) 2,045 $ 5,472
====================================================================
</Table>
5. INVESTMENT TRANSACTIONS
Purchases and sales of investment securities (excluding short-term securities
and U.S. government obligations) for the year ended December 31, 2004 were
$184,376,340 and $246,823,021, respectively.
35
<Page>
6. LINE OF CREDIT
The Company has a line of credit arrangement ("LOC") with State Street Bank and
Trust Company, to be used for temporary or emergency purposes, primarily for
financing redemption payments. Each Fund's borrowings are limited to the lesser
of (a) $50 million, or (b) the lesser of 25% of the Fund's total net assets or
the maximum amount which the Fund is permitted to borrow pursuant to the
prospectus, any law or any other agreement. Combined borrowings are subject to
the $50 million cap on the total LOC. Each Fund agrees to pay annual fees and
interest on the unpaid balance based on prevailing market rates as defined in
the LOC. At December 31, 2004, the Fund did not have any borrowings under the
LOC.
7. LEGAL MATTERS
In early 2004, two purported class and derivative actions were filed against
Mellon Financial Corporation, Mellon Bank, Founders, Dreyfus, and certain
directors of the Dreyfus Founders Funds and the Dreyfus Funds (together, the
"Defendant Funds"). In September 2004, plaintiffs served a Consolidated Amended
Complaint (the "Amended Complaint") on behalf of a purported class of all
persons who acquired interests in any of the Defendant Funds between January 30,
1999 and November 17, 2003, and derivatively on behalf of the Defendant Funds.
The Amended Complaint in the newly styled IN RE DREYFUS MUTUAL FUNDS FEE
LITIGATION also named DSC, Premier Mutual Fund Services, Inc. and two additional
directors of the Defendant Funds as defendants and alleges violations of the
Investment Company Act of 1940, the Investment Advisers Act of 1940, the
Pennsylvania Unfair Trade Practices and Consumer Protection Law and common-law
claims. Plaintiffs seek to recover allegedly improper and excessive Rule 12b-1
and advisory fees allegedly charged to the Defendant Funds for marketing and
distribution services. More specifically, plaintiffs claim, among other things,
that 12b-1 fees and directed brokerage were improperly used to pay brokers to
recommend the Defendant Funds over other funds, and that such payments were not
disclosed to investors. In addition, plaintiffs assert that economies of scale
and soft-dollar benefits were not passed on to the Defendant Funds. Plaintiffs
further allege that 12b-1 fees were improperly charged to certain of the
Defendant Funds that were closed to new investors. The Amended Complaint seeks
compensatory and punitive damages, rescission of the advisory contracts, and an
accounting and restitution of any unlawful fees, as well as an award of
attorneys' fees and litigation expenses. As noted, some of the claims in this
litigation are asserted derivatively on behalf of the Defendant Funds that have
been named as nominal defendants. With respect to such derivative claims, no
relief is sought against the Defendant Funds. Founders, Dreyfus and the
Defendant Funds believe the allegations to be totally without merit and intend
to defend the action vigorously. The defendants filed motions to dismiss the
Amended Complaint on November 12, 2004, and those motions are pending.
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 nor the Funds believe that any of the pending actions
will have a material adverse effect on the Funds or Founders' ability to perform
its contract with the Funds.
36
<Page>
REPORT OF INDEPENDENT
REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Shareholders of Dreyfus Founders Funds, Inc.
In our opinion, the accompanying statement of assets and liabilities, including
the statement of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of Dreyfus Founders Mid-Cap Growth
Fund (one of the portfolios constituting Dreyfus Founders Funds, Inc., hereafter
referred to as the "Fund") at December 31, 2004, the results of its operations
for the year then ended, the changes in its net assets for each of the two years
in the period then ended and the financial highlights for each of the five years
in the period then ended, in conformity with accounting principles generally
accepted in the United States of America. These financial statements and
financial highlights (hereafter referred to as "financial statements") are the
responsibility of the Fund's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these financial statements in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those standards
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits, which included
confirmation of securities at December 31, 2004 by correspondence with the
custodian, provide a reasonable basis for our opinion.
PricewaterhouseCoopers LLP
Denver, Colorado
February 10, 2005
37
<Page>
YOUR BOARD REPRESENTATIVES
(UNAUDITED)
The Board of Directors of the Company oversees all 10 Dreyfus Founders Funds.
The business and affairs of the Company are managed under the direction of the
Board. The directors serving on the Board perform their responsibilities in the
manner which they reasonably believe to be in the best interests of the Funds
and their shareholders.
All of the directors, as listed below, are independent directors. They are not
affiliated with the Fund's adviser, its parent company, or its affiliates. The
directors have no official term of office and generally serve until they reach
the mandated retirement age of 75, resign, or are not re-elected. As you can see
from their backgrounds, the directors have broad experience as active or former
business and community leaders.
DIRECTORS
EUGENE H. VAUGHAN, CFA, 71. Year elected to the Board: 1970
Board Chairman. Founding Chairman and, formerly (1970 to 2000), President and
CEO, Vaughan Nelson Investment Management, LP, an investment counseling firm.
Director, Encore Bank. Founding Chairman, Center for Houston's Future, a
non-profit organization. Founding Chairman and former Governor, Association for
Investment Management and Research. Past Chairman and Trustee, Institute of
Chartered Financial Analysts. Past Chairman and Director, Financial Analysts
Federation.
ALAN S. DANSON, 65. Year elected to the Board: 1991
Private investor. Formerly, President and Director, D.H. Management, Inc., the
general partner of a limited partnership with technology company holdings (1996
to 2003). Formerly, Director and Senior Vice President, OptiMark Technologies,
Inc., a computerized securities trading service (1996 to 1999). Director,
CaseShare Systems, LLP, a document management company. Director, Gore Range
Natural Science School and The Les Streeter Programs, Inc., both of which are
non-profit organizations.
JOAN D. MANLEY, 72. Year elected to the Board: 1998
Retired. Formerly, Ms. Manley served in several executive capacities with Time
Incorporated, most recently as Group Vice President, Director and Chairman of
Time-Life Books, Inc. and Book of the Month Club, Inc. (1960 to 1984). Director,
Sara Lee Corporation and R.R. Donnelley & Sons Company.
ROBERT P. MASTROVITA, 60. Year elected to the Board: 1998
Private investor. Chairman of a private charitable foundation (1997 to present).
Formerly, Chairman and Director, Hagler, Mastrovita & Hewitt, Inc., a registered
investment adviser (1982 to 1997). Member, Boston Society of Security Analysts.
Trustee, Partridge Academy.
TRYGVE E. MYHREN, 68. Year elected to the Board: 1996
President, Myhren Media, Inc., a firm that invests in and advises media,
telecommunications, Internet and software companies. Special Limited Partner and
member of Investment Committee, Megunticook Funds, a venture capital firm (1998
to present). Director, Advanced Marketing Services, Inc. Trustee and Chairman of
Finance Committee, the University of Denver. Trustee, Denver Art Museum. Member,
Cable Television Hall of Fame. Formerly, President (1990 to 1996) and Director
(1992 to 2001) of the Providence Journal Company, a diversified media and
communications company. Formerly, Chairman and Chief Executive Officer of
American Television
38
<Page>
and Communications Corporation (now Timer Warner Cable) (1981 to 1988).
Formerly, Chairman of the National Cable Television Association (1986-1987).
GEORGE W. PHILLIPS, 66. Year elected to the Board: 1998
Retired. Vice Chairman of the Board, Chairman of the Finance Committee, and
Chairman of the Investment Committee, Children's Medical Center of Boston.
Formerly, President and Chief Executive Officer (1992 to 1997) and Director
(1992 to 2002) of Warren Bancorp, Inc. Formerly, President, Chief Executive
Officer and Director of Warren Five Cents Savings Bank (1992 to 1997).
PRINCIPAL OFFICERS
RICHARD W. SABO, 47. President of the Funds since 2000 and Principal Executive
Officer of the Funds since 2002. Founders' President and Chief Executive
Officer, Member of Founders' Board of Managers and Director of Dreyfus (1998 to
present). Executive Vice President of DSC since 2003. Formerly, Senior Vice
President and Regional Director for Prudential Securities, Inc. (1991 to 1998).
DAVID L. RAY, 47. Vice President of the Funds since 2000, and from 1990 to 1998.
Founders' Senior Vice President--Administration and Treasurer. Vice President of
DSC since 2003. Employed by Founders and its predecessor company since 1990.
Formerly, Treasurer of the Funds (1990 to 1998).
KENNETH R. CHRISTOFFERSEN, 49. Secretary of the Funds since 2000, and from 1996
to 1998. Founders' Senior Vice President--Legal, General Counsel and Secretary.
Assistant Secretary of DSC since 2003. Employed by Founders and its predecessor
company since 1996.
JANELLE E. BELCHER, 46. Chief Compliance Officer of the Funds since 2004 and
Assistant Secretary of the Funds since 2002. Founders' Vice
President--Compliance since 2002. Formerly, Founders' Manager of Compliance
(2000 to 2002) and Securities Compliance Examiner, Staff Accountant and Team
Leader for the U.S. Securities and Exchange Commission (1990 to 2000).
ROBERT T. KELLY, 35. Treasurer, Principal Financial Officer, and Principal
Accounting Officer of the Funds since 2003. Founders' Vice President of
Portfolio Accounting since 2000. Formerly, Assistant Treasurer of the Funds
(2000 to 2003), and Head of Equity Desk for ABN Amro Trust Company (Cayman)
Limited (1998 to 2000).
WILLIAM G. GERMENIS, 34. Anti-Money Laundering Compliance Officer ("AMLCO") for
the Class A, Class B, Class C, Class R, and Class T shares of the Funds since
2002 and for the Class F shares of the Funds since 2003. Vice President and
AMLCO of MBSC, LLC since 2002. Vice President and AMLCO of DSC and AMLCO of
investment companies managed by Dreyfus. Employed by DSC since 1998.
The directors and officers may be contacted at Founders' address appearing on
the inside cover, except for Mr. Germenis, who can be contacted at 200 Park
Avenue, New York, New York 10166. Additional information about the Company's
directors is available in the Statement of Additional Information, which can be
obtained free of charge by calling the toll free number on the back cover.
39
<Page>
DREYFUS FOUNDERS MID-CAP GROWTH FUND
P.O. Box 55360
Boston, MA 02205-8252
1-800-525-2440
www.founders.com
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 (SEC) 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.
PORTFOLIO HOLDINGS
The Fund files its complete schedule of portfolio holdings with the SEC for the
first and third quarters of each fiscal year on Form N-Q. The Fund's Forms N-Q
are available on the SEC's website at www.sec.gov and may be reviewed and copied
at the SEC's Public Reference Room in Washington, DC. Information on the
operation of the SEC's Public Reference Room may be obtained by calling
1-800-SEC-0330.
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)2005 Founders Asset Management LLC. 2/05
A-646-MCAP-04
<Page>
ANNUAL REPORT
DREYFUS FOUNDERS
PASSPORT FUND
INVESTMENT UPDATE
DECEMBER 31, 2004
[GRAPHIC]
[DREYFUS FOUNDERS FUNDS(R) LOGO]
THE GROWTH SPECIALISTS
<Page>
TABLE OF CONTENTS
<Table>
Management Overview 3
Fund Expenses 12
Statement of Investments 14
Statement of Assets and Liabilities 22
Statement of Operations 24
Statements of Changes in Net Assets 25
Financial Highlights 26
Notes to Financial Statements 32
Report of Independent Registered Public Accounting Firm 41
Your Board Representatives 42
</Table>
[GRAPHIC]
PAPERLESS DELIVERY OF THIS REPORT
Did you know you can reduce your postal mail by accessing Dreyfus Founders Funds
regulatory material online? It's a simple, reliable process: when new documents
such as this Annual Report are available, we'll send you an e-mail notification
containing a convenient link that will take you directly to that Fund
information on our website.
To take advantage of this service, simply inform us online of your decision to
receive materials through the Founders E-Communications Program. Cut down on
mailbox clutter and help the Fund reduce printing and postage charges by
enrolling today at www.founders.com/ecommunications. If you own Funds through a
third party, enroll at www.icsdelivery.com.
INVESTMENT MANAGER DISTRIBUTOR
Founders Asset Management LLC Dreyfus Service Corporation
A MELLON FINANCIAL COMPANY(SM) 200 Park Avenue
210 University Boulevard, Suite 800 New York, NY 10166
Denver, CO 80206
The views expressed in this report reflect those of the portfolio manager only
through the end of the period covered and do not necessarily represent the views
of Founders or any other person in the Founders organization. Any such views are
subject to change at any time based upon market or other conditions and Founders
disclaims any responsibility to update such views. These views may not be relied
on as investment advice and, because investment decisions for a Dreyfus Founders
Fund are based on numerous factors, may not be relied on as an indication of
trading intent on behalf of any Dreyfus Founders Fund. Companies appearing in
bold print on pages 3-10 were owned by the Fund on December 31, 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
(UNAUDITED)
[PHOTO OF TRACY P. STOUFFER]
A DISCUSSION WITH PORTFOLIO MANAGER TRACY P. STOUFFER, CFA
HOW DID THE FUND PERFORM RELATIVE TO ITS BENCHMARK FOR THE 12 MONTHS ENDED
DECEMBER 31, 2004?
Dreyfus Founders Passport Fund underperformed its international small-cap
benchmark, the Morgan Stanley Capital International (MSCI) World ex U.S. Small
Cap Index, which returned 29.40% for the period. The Fund also underperformed
the large-cap MSCI World ex U.S. Index, which returned 20.38% for the 12-month
timeframe.
PLEASE DESCRIBE THE BROAD MARKET ENVIRONMENT IN WHICH THE FUND PERFORMED DURING
THE PERIOD.
For much of the year, political uncertainty surrounding numerous elections
around the world, combined with rising commodity prices and interest rates, kept
many of the markets in a tight trading range. However, during the fourth
quarter, a powerful market rally was sparked by falling oil prices, which were
down approximately 24% from a historic peak of $55 per barrel earlier in the
quarter.
Numerous politically charged events occurred during the period. Perhaps the
second highest-profile political event behind the U.S. Presidential election was
the Russian Yukos crisis, which created spikes in the price of oil and a crisis
of confidence in the transparency of Russian markets. Another high profile
political incident surrounded Ukrainian
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. Total return figures cited for this index assume change in share
price and reinvestment of dividends after the deduction of local taxes, but do
not reflect the costs of managing a mutual fund.
[SIDENOTE]
"THE FUND'S INVESTMENTS IN THE BOOMING FORMER PORTUGUESE COLONY OF MACAU WERE
SIGNIFICANT CONTRIBUTORS AND HELPED DRIVE FUND PERFORMANCE IN 2004."
3
<Page>
presidential candidate Viktor Yushchenko, who was voted into the presidency
after the results of a decidedly fraudulent election were thrown out and a
second election was held. Additionally, Palestinian leader Yasser Arafat died on
November 11, leaving the Palestinian people leaderless. It was decided for the
first time in Palestinian history that a free election would be held in early
2005, a development that brought renewed hope for peace in the region.
On December 26, an enormous earthquake struck off the Indonesian island of
Sumatra, launching a deadly tsunami. This natural disaster is sadly one of
history's greatest human tragedies; however, the event did not create a large
economic toll on the region.
The Asian emerging market region proved to be a more volatile investing
environment this year than in 2003, making returns in this area somewhat more
difficult to obtain. For example, investors in Indian companies scrambled to
assess the new government's policies; however, soon after the new government
took seat, the markets recovered.
China appeared to have successfully cooled its economy during the period
through a set of lending curbs that kept speculation at bay. At the same time,
the country continued to boost the economies and currencies of the
commodity-exporting countries around the world. While many countries
[SIDENOTE]
PERFORMANCE HIGHLIGHTS
- - During the fourth quarter, a powerful market rally was sparked by falling oil
prices, which were down approximately 24% from a historic peak of $55 per
barrel earlier in the quarter.
- - The majority of Fund holdings that benefited from Macau's economic boom were
based in Hong Kong.
- - Financials holdings buoyed Fund performance for the period, due to strong
stock selection.
- - The Fund's relative return was hindered by disappointing overall
underperformance in the United Kingdom.
- - Poor stock selection in the consumer discretionary sector was a drag on
relative Fund performance during the period.
4
<Page>
continued to benefit from China's growth, Chinese companies, as well as Chinese
markets, disappointed investors for the year. We believe the correct investment
strategy continues to be to invest in what China needs, not what China can
produce.
Iraqi insurgencies intensified throughout the year, weighing heavily on
world markets. The dollar declined dramatically in the fourth quarter, as the
U.S. budget and current account deficits ballooned and interest rates remained
at historically low levels. American investors investing abroad benefited from
this trend, providing an additional boost to the returns of dollar-based
international funds for the year.
DID YOUR BOTTOM-UP INVESTMENT APPROACH LEAD TO ANY CHANGES IN PORTFOLIO
COMPOSITION DURING THE REPORTING PERIOD?
We continued to pare down the Fund's Japanese holdings during the period, which
was its largest weighted position in 2003, as opportunities in the region were
narrowed due to the country's economic slowdown. By year-end, the Fund's
holdings continued to be very domestically oriented and reflected such themes as
voice over internet protocol (VOIP), solar power, hybrid cars, micro hard disc
drives and liquefied natural gas.
LARGEST EQUITY HOLDINGS (country of origin; ticker symbol)
<Table>
1. Melco International Development Limited (Hong Kong; 200) 1.73%
2. New Wave Group AB (Sweden; NEWAB) 1.15%
3. Saxon Energy Services, Inc. (Canada; SES) 1.12%
4. RNB Retail and Brands AB (Sweden; RNBS) 1.11%
5. HKR International Limited (Hong Kong; 480) 1.09%
6. Tokuyama Corporation (Japan; 4043) 1.09%
7. YIT-Yhtyma Oyj (Finland; YTY) 1.07%
8. All America Latina Logistica S.A. (Brazil; ALLL) 1.07%
9. Aktiv Kapital ASA (Norway; AIK) 1.03%
10. 123 Multimedia (France; MULTI) 1.03%
</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.
Class F MSCI World
Shares ex US Index
- --------------------------------------
12/31/1994 $10,000 $10,000
12/31/1995 $12,439 $11,141
12/31/1996 $14,932 $11,906
12/31/1997 $15,183 $12,176
12/31/1998 $17,080 $14,461
12/31/1999 $32,014 $18,500
12/29/2000 $22,522 $16,026
12/31/2001 $15,370 $12,597
12/31/2002 $12,922 $10,607
12/31/2003 $22,634 $14,788
12/31/2004 $26,639 $17,802
The above graph compares a $10,000 investment made in Class F shares of Dreyfus
Founders Passport Fund on 12/31/94 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>
AVERAGE ANNUAL TOTAL RETURN AS OF 12/31/04
<Table>
<Caption>
1 5 10 SINCE
CLASS (INCEPTION DATE) YEAR YEARS YEARS INCEPTION
- -------------------------------------------------------------------------------
CLASS A SHARES (12/31/99)
With sales charge(5.75%) 10.92% (4.75%) -- (4.75%)
Without sales charge 17.70% (3.61%) -- (3.61%)
CLASS B SHARES (12/31/99)
With redemption* 12.68% (4.72%) -- (4.72%)
Without redemption 16.68% (4.38%) -- (4.38%)
CLASS C SHARES (12/31/99)
With redemption** 15.79% (4.40%) -- (4.40%)
Without redemption 16.79% (4.40%) -- (4.40%)
CLASS F SHARES (11/16/93) 17.70% (3.61%) 10.29% 8.64%
CLASS R SHARES (12/31/99) 18.02% (4.14%) -- (4.14%)
CLASS T SHARES (12/31/99)
With sales charge(4.50%) 11.85% (5.31%) -- (5.31%)
Without sales charge 17.15% (4.44%) -- (4.44%)
</Table>
Average annual total returns do not reflect the deduction of taxes that a
shareholder would pay on Fund distributions or redemption of Fund shares, but do
reflect the reinvestment of dividends and capital gain distributions, 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 entail
unique risks, including political, market, and currency risks.
* The maximum contingent deferred sales charge for Class B shares is 4% and is
reduced to 0% after six years, at which time the Class B shares convert to Class
A shares.
** The maximum contingent deferred sales charge for Class C shares is 1% for
shares redeemed within one year of the date of purchase.
7
<Page>
WHAT FACTORS POSITIVELY CONTRIBUTED TO FUND PERFORMANCE DURING THE PERIOD?
The Fund's investments in the booming former Portuguese colony of Macau were
significant contributors and helped drive Fund performance in 2004. Macau's
economic boom is largely due to the recently liberalized gaming industry, which
has attracted new investments. Currently, Macau mainly draws visitors from
Mainland China, since the operation of casinos is prohibited there and Macau is
the only authorized and approved gaming location in the world for the Mainland
Chinese.
The performance of the Macau-related stocks is captured in the
outperformance of the Hong Kong market, where the companies are domiciled. Real
estate and infrastructure development firms, casino and slot machine developers,
as well as travel and transportation companies who bring visitors to this
economic zone were among the top performers. MELCO INTERNATIONAL DEVELOPMENT
LIMITED was one such holding that rose on the back of Macau's exploding gaming
market. Melco's primary business is the expansion of a chain of "Mocha Lounges"
featuring slot machines, which appeal to the mass-market gambler.
[CHART]
PORTFOLIO COMPOSITION OF NET ASSETS
<Table>
United Kingdom 9.88%
Japan 8.85%
Hong Kong 8.29%
India 7.83%
France 7.17%
Norway 6.07%
Brazil 5.60%
Thailand 3.61%
Other Countries 38.12%
Cash & Equivalents 4.58%
</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>
Canada also presented numerous opportunities for the Fund as the country is
a large commodities source, particularly of energy and base metals. Brazil was
another solid contributor to Fund performance for the period, as the region has
become a source of base metals and food commodities for China. Additionally,
China has pledged to invest in Brazilian infrastructure development to enable
more efficient access to these commodities. The Fund's Brazilian holdings
included companies dealing in raw materials and firms that handle the logistics
for the transportation of such materials.
Financials holdings buoyed Fund performance for the period, due to strong
stock selection. Japanese real estate securitization firm Secured Capital Japan
Company Limited performed well as opportunities for real estate asset management
companies improved with rising prices and an increased volume of transactions.
Real estate broker Yasuragi Company Limited was also an indirect beneficiary of
this trend, benefiting through higher commission income. Another notable
performer, Idu Company, which provides an internet-based clearing mechanism for
distressed real estate, also rose during the period.
Numerous opportunities were also found in the metal and mining industries
in the materials and industrials sectors, respectively. The outperformance of
these sectors can be tied to the worldwide commodities boom and to China's
continued growth. Materials holding Fortescue Metals Group Limited, an
Australian iron ore exploration company, benefited from China's large appetite
for steel production. China has also agreed to finance a large portion of the
company's infrastructure development to ensure access to the commodity.
An additional notable performer during the period included Japanese-based
internet company Global Media Online, Inc., which performed well due to strong
earnings growth. U.K.-based oil and gas exploration company, Cairn Energy PLC,
also outperformed as the company made five major oil discoveries in India in
2004.
WHAT FACTORS NEGATIVELY CONTRIBUTED TO FUND PERFORMANCE DURING THE PERIOD?
The Fund's relative return was hindered by disappointing overall
underperformance in the United Kingdom and some of the Fund's investments in
India, where an unexpected May election result created a steep decline in the
local markets. Internet holding Rediff.com India Limited ADR fell in this May
decline.
9
<Page>
A relative overweight position in China proved disappointing to the Fund's
return for the period. Thailand and Malaysia were also detrimental to
performance.
Poor stock selection in the consumer discretionary sector was a drag on
relative Fund performance during the period. Likewise, weak stock selection and
a relative overweight position in the telecommunication services sector
negatively impacted performance. The consumer staples sector also suffered due
to poor stock selection.
Although Japan performed well overall during the period, several Japanese
holdings hurt relative performance. BB Net Corporation, which provides an
internet-based marketplace for purchasing bakery and pastry ingredients and
supplies, dropped when market conditions for small-capitalization stocks
deteriorated.
Other underperformers for the period included Bio-Treat Technology Limited,
a water purification company that suffered due to poor corporate governance
issues; Cytos Biotechnology AG, which experienced downward pressure on its stock
price when new shares were issued during the year; Indonesian financial and news
information services firm PT Limas Stokhomindo Tbk, which underperformed due to
poor market conditions; and telecommunications services company Yangtze Telecom
Corporation, which experienced increasing competitive pressures in the Chinese
value-added service market.
In a slowing growth environment, we continue to seek investments in niche growth
companies with strong management and competitive products or services. At
year-end, our research was focused on areas of gaming, energy and energy
infrastructure, as well as beneficiaries of rising per capita income.
/s/ Tracy P. Stouffer
Tracy P. Stouffer, CFA
Portfolio Manager
10
<Page>
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11
<Page>
FUND EXPENSES
(UNAUDITED)
As a shareholder of the Fund, depending on the class of shares of the Fund you
own, you incur two types of costs: (1) transaction costs, including front-end
and contingent deferred sales charges; and (2) ongoing costs, including
management fees, Rule 12b-1 fees, shareholder services fees, and other expenses.
The expense example shown below is intended to help you understand your ongoing
costs (in dollars) of investing in the Fund and to compare these costs with the
ongoing costs of investing in other mutual funds.
The expense example is based on an investment of $1,000 on July 1, 2004 and
held through December 31, 2004.
ACTUAL EXPENSES The numbers included in the expense example in the rows with the
word "Actual" in the title provide information about actual account values and
actual expenses. You may use this information to estimate the expenses that you
paid over the period. Simply divide your account value by $1,000 (for example,
an $8,600 account value divided by $1,000 = 8.60), then multiply the result by
the number under the column heading entitled "Expenses Paid During Period" for
the class of shares you own to estimate the expenses you paid on your account
during this period.
HYPOTHETICAL EXPENSES The numbers included in the expense example in the rows
with the word "Hypothetical" in the title provide information about hypothetical
account values and hypothetical expenses based on the Fund's actual expense
ratio for each class of shares, and an assumed rate of return of 5% per year
before expenses, which is not the Fund's actual return. The hypothetical account
values and expenses may not be used to estimate the actual ending account
balance or expenses you paid for the period. You may use this information to
compare the ongoing costs of investing in the Fund and other funds. To do so,
compare the hypothetical expenses in the expense example for the class of shares
you own with the hypothetical expenses that appear in the shareholder reports of
other funds.
Please note that the expenses shown in the expense example are meant to
highlight your ongoing costs only and do not reflect the transaction costs
described above. Therefore, the hypothetical expenses in the expense example are
useful in comparing ongoing costs only, and will not help you determine the
relative total costs of owning different funds. In addition, if the transaction
costs were included, your costs would have been higher.
12
<Page>
EXPENSE EXAMPLE
<Table>
<Caption>
BEGINNING ENDING EXPENSES PAID
ACCOUNT VALUE ACCOUNT VALUE DURING PERIOD*
(7/1/04) (12/31/04) (7/1/04-12/31/04)
- ----------------------------------------------------------------------------------------------
CLASS A ACTUAL $ 1,000.00 $ 1,136.07 $ 10.30
CLASS A HYPOTHETICAL 1,000.00 1,015.28 9.72
CLASS B ACTUAL 1,000.00 1,126.01 15.12
CLASS B HYPOTHETICAL 1,000.00 1,010.70 14.30
CLASS C ACTUAL 1,000.00 1,126.81 14.53
CLASS C HYPOTHETICAL 1,000.00 1,011.26 13.74
CLASS F ACTUAL 1,000.00 1,136.39 9.98
CLASS F HYPOTHETICAL 1,000.00 1,015.58 9.42
CLASS R ACTUAL 1,000.00 1,137.48 9.50
CLASS R HYPOTHETICAL 1,000.00 1,016.04 8.96
CLASS T ACTUAL 1,000.00 1,130.23 12.93
CLASS T HYPOTHETICAL 1,000.00 1,012.78 12.22
</Table>
*Expenses are equal to each Class's respective annualized expense ratio, shown
below, multiplied by the average account value over the period, multiplied by
184/366 (to reflect the one-half year period).
EXPENSE RATIOS
These expense ratios reflect reimbursements and/or waivers of expenses by the
Fund's investment adviser or its affiliates.
<Table>
<Caption>
EXPENSE RATIO
- ----------------------------------------------------
CLASS A 1.91%
CLASS B 2.81%
CLASS C 2.70%
CLASS F 1.85%
CLASS R 1.76%
CLASS T 2.40%
</Table>
13
<Page>
STATEMENT OF INVESTMENTS
December 31, 2004
<Table>
<Caption>
SHARES MARKET VALUE
- -----------------------------------------------------------------------------------
COMMON STOCKS (FOREIGN)--91.6%
ADVERTISING--0.5%
6,075 Ipsos (FR) $ 635,821
---------------
AEROSPACE & DEFENSE--0.5%
44,100 ECA (FR)* 659,372
---------------
AGRICULTURAL PRODUCTS--0.9%
78,000 Cresud SACIFyA Sponsored ADR (AR)* 1,162,200
---------------
AIR FREIGHT & LOGISTICS--0.9%
93,600 Dart Group PLC (UK) 720,337
48,675 DX Services PLC (UK)* 342,005
---------------
1,062,342
---------------
AIRLINES--2.4%
2,801,100 Airasia Berhad (MA)* 1,223,638
876,000 Cintra SA de CV (MX)* 601,970
22,200 Lan Airlines SA Sponsored ADR (CH) 714,840
300,000 Virgin Blue Holdings Limited (AU)* 437,407
---------------
2,977,855
---------------
APPAREL RETAIL--1.1%
114,500 RNB Retail and Brands AB (SW)* 1,378,397
---------------
APPAREL, ACCESSORIES & LUXURY GOODS--2.4%
68,425 Billabong International Limited (AU) 614,146
50,600 IC Companys AS (DE)* 970,837
74,600 New Wave Group AB Class B (SW) 1,431,291
---------------
3,016,274
---------------
APPLICATION SOFTWARE--0.8%
316 Simplex Technology, Inc. (JA)* 595,179
46,925 Zi Corporation (CA)* 340,206
---------------
935,385
---------------
</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.
AR Argentina
AT Austria
AU Australia
BD Bermuda
BE Belgium
BR Brazil
CA Canada
CH Chile
CN China
DE Denmark
FI Finland
FR France
GE Germany
GR Greece
HK Hong Kong
ID Indonesia
IE Ireland
IN India
IS Israel
IT Italy
JA Japan
KR South Korea
MA Malaysia
MX Mexico
NE Netherlands
NW Norway
NZ New Zealand
PH Philippines
SA South Africa
SG Singapore
SP Spain
SW Sweden
SZ Switzerland
TH Thailand
UK United Kingdom
14
<Page>
<Table>
<Caption>
SHARES MARKET VALUE
- -----------------------------------------------------------------------------------
AUTO PARTS & EQUIPMENT--1.6%
1,069,600 Aapico Hitech Public Company Limited
Foreign Shares (TH)# $ 908,541
296,800 Aapico Hitech Public Company Limited
NVDR Shares (TH) 252,108
75,000 NHK Spring Company Limited (JA) 512,345
103,900 Thai Stanley Electric Public Company Limited
Foreign Shares (TH)# 350,345
---------------
2,023,339
---------------
BROADCASTING & CABLE TV--0.6%
6,900 EVS Broadcast Equipment SA (BE) 757,809
---------------
CASINOS & GAMING--1.9%
15,000 BETandWIN.com Interactive Entertainment AG (AT)* 575,982
137,000 Gold Reef Casino Resorts Limited (SA) 307,617
5,650 Great Canadian Gaming Corporation (CA)* 214,608
6,000 Great Canadian Gaming Corporation 144A (CA)*+ 227,882
26,130 Intralot SA Integrated Lottery (GR) 640,730
31,000 Sun International Limited (SA) 313,643
---------------
2,280,462
---------------
COMMERCIAL PRINTING--0.6%
1,542,000 Next Media Limited (HK)* 768,748
---------------
COMMODITY CHEMICALS--0.3%
127,000 Gujarat Alkalies and Chemicals Limited (IN) 363,880
---------------
COMMUNICATIONS EQUIPMENT--2.9%
31,975 Kudelski SA (SZ)* 1,175,407
16,025 Option International NV (BE)* 576,133
51,400 Tandberg ASA (NW) 638,607
70,000 Tandberg Television ASA (NW)* 609,655
63 Telewave, Inc. (JA) 608,051
---------------
3,607,853
---------------
COMPUTER & ELECTRONICS RETAIL--0.5%
27,325 Bechtle AG (GE) 618,406
---------------
CONSTRUCTION & ENGINEERING--4.6%
100,000 Ask Planning Center, Inc. (JA) 798,282
306,350 Aveng Limited (SA) 652,526
43,975 Bharat Earth Movers Limited (IN) 345,164
1,500,000 Italian-Thai Development Public Company Limited
Foreign Shares (TH)# 370,656
650,000 Jaks Resources Berhad (MA)* 316,447
24,825 Koninklijke BAM Groep NV (NE) 1,247,830
247,225 Murray & Roberts Holdings Limited (SA) 603,384
53,250 YIT-Yhtyma Oyj (FI) 1,328,898
---------------
5,663,187
---------------
CONSTRUCTION MATERIALS--1.4%
400,000 India Cements Limited (IN)* 542,443
9,869,500 PT Semen Cibinong Tbk (ID)* 611,361
105,075 Shree Cement Limited (IN) 611,064
---------------
1,764,868
---------------
</Table>
SEE NOTES TO STATEMENT OF INVESTMENTS.
15
<Page>
<Table>
<Caption>
SHARES MARKET VALUE
- -----------------------------------------------------------------------------------
CONSTRUCTION, FARM MACHINERY & HEAVY TRUCKS--1.4%
29,400 Aker Yards AS (NW)* $ 725,692
3,500 Exel Industries SA Class A (FR) 284,491
2,729,000 PT United Tractors Tbk (ID)* 668,837
---------------
1,679,020
---------------
CONSUMER ELECTRONICS--1.5%
289,000 Clarion Company Limited (JA)* 679,701
35,000 Loewe AG (GE)* 310,657
13,125 Loewe AG New Shares (GE)*^# 104,847
216,325 Mobilezone Holding AG (SZ)* 797,117
---------------
1,892,322
---------------
CONSUMER FINANCE--0.9%
197,925 African Bank Investments Limited (SA) 642,910
4,000,000 PT BFI Finance Indonesia Tbk (ID) 517,102
---------------
1,160,012
---------------
DATA PROCESSING & OUTSOURCED SERVICES--0.3%
688,000 SinoCom Software Group Limited (CN)* 336,357
---------------
DIVERSIFIED BANKS--0.7%
1,796,200 Banco De Oro (PH) 848,094
---------------
DIVERSIFIED COMMERCIAL SERVICES--3.6%
199,900 Aggreko PLC (UK) 644,715
21,000 CeWe Color Holding AG (GE) 609,420
79,075 Dignity PLC (UK) 493,365
850,000 Melco International Development Limited (HK) 2,154,335
385,175 PHS Group PLC (UK) 606,342
---------------
4,508,177
---------------
DIVERSIFIED METALS & MINING--1.8%
150,100 Excel Coal Limited (AU) 549,476
241,475 Gujarat NRE Coke Limited (IN) 1,046,836
33,000 Neomax Company Limited (JA) 585,479
---------------
2,181,791
---------------
ELECTRICAL COMPONENTS & EQUIPMENT--1.0%
8,000 Bekaert NV (BE) 638,847
20,925 NKT Holding AS (DE) 609,863
---------------
1,248,710
---------------
ELECTRONIC EQUIPMENT MANUFACTURERS--1.1%
1,300,000 A-Max Holdings Limited (HK)* 472,487
22,000 Japan Cash Machine Company Limited (JA) 936,079
---------------
1,408,566
---------------
EMPLOYMENT SERVICES--0.8%
250 Fullcast Company Limited (JA) 714,843
820,400 JobStreet Corporation Berhad (MA)* 265,551
---------------
980,394
---------------
ENVIRONMENTAL SERVICES--0.8%
2,125 Citron Holding AG Centre International de
Traitements et de Recyclage des Ordures
Novices (SZ)* 962,426
---------------
</Table>
16
<Page>
<Table>
<Caption>
SHARES MARKET VALUE
- -----------------------------------------------------------------------------------
FERTILIZERS & AGRICULTURAL CHEMICALS--0.9%
118,400 Isagro SPA (IT)* $ 1,100,797
---------------
FOOD DISTRIBUTORS--0.8%
72,400 AVI Limited (SA) 295,573
3,795,000 Heng Tai Consumables Group Limited (HK) 703,076
---------------
998,649
---------------
FOOTWEAR--0.9%
70,000 Grendene SA 144A (BR)*+ 830,196
2,000,000 Prime Success International Group Limited (HK) 285,615
---------------
1,115,811
---------------
HEALTHCARE DISTRIBUTORS--1.0%
263,975 United Drug PLC (IE) 1,248,652
---------------
HEALTHCARE EQUIPMENT--0.5%
273,625 Fisher & Paykel Healthcare Corporation Limited (NZ) 640,336
---------------
HEALTHCARE FACILITIES--0.4%
1,150,000 Bangkok Dusit Medical Services Public Company
Limited Foreign Shares (TH)# 488,417
---------------
HEALTHCARE SERVICES--1.1%
105,000 Diagnosticos da America (BR)* 944,842
50,000 RaySearch Laboratories AB (SW)* 365,666
---------------
1,310,508
---------------
HEALTHCARE SUPPLIES--0.7%
8,350 Audika (FR) 906,276
---------------
HIGHWAYS & RAILTRACKS--0.6%
1,500,000 ConnectEast Group (AU)* 799,561
---------------
HOME FURNISHINGS--1.2%
50,000 Ellerine Holdings Limited (SA) 497,000
13,475 U10 (FR) 957,921
---------------
1,454,921
---------------
HOTELS, RESORTS & CRUISE LINES--1.4%
304,611 First Choice Holidays PLC (UK) 899,097
1,206,125 MyTravel Group PLC (UK)* 138,928
5,250 Societe du Louvre (FR) 665,081
---------------
1,703,106
---------------
INDUSTRIAL CONGLOMERATES--0.7%
720,500 Cofide SPA - Compagnia Finanziaria De Benedetti (IT) 891,199
---------------
INDUSTRIAL MACHINERY--4.4%
169,291 Amforge Industries Limited (IN)* 438,124
8,300 Andritz AG (AT) 632,907
144,100 Charter PLC (UK)* 641,797
20,000 Duro Felguera SA (SP)* 213,402
377,000 Japan Steel Works Limited (JA) 699,034
12,125 Palfinger AG (AT) 693,846
150,000 Pursuit Dynamics PLC (UK)* 657,996
2,500 SIG Holding AG (SZ) 571,630
41,700 Wartsila Corporation (FI) 888,754
---------------
5,437,490
---------------
</Table>
SEE NOTES TO STATEMENT OF INVESTMENTS.
17
<Page>
<Table>
<Caption>
SHARES MARKET VALUE
- -----------------------------------------------------------------------------------
INTEGRATED TELECOMMUNICATION SERVICES--1.5%
25,000 123 Multimedia (FR)* $ 1,281,093
3,000,000 True Corporation Public Company Limited
Foreign Shares (TH)*# 625,483
---------------
1,906,576
---------------
INTERNET RETAIL--0.5%
335,200 Interpark Corporation (KR)* 660,556
---------------
INTERNET SOFTWARE & SERVICES--1.9%
450 Index Corporation (JA) 1,238,411
100 Opt, Inc. (JA)* 579,682
87 Wellnet Corporation (JA)* 533,190
---------------
2,351,283
---------------
IT CONSULTING & OTHER SERVICES--1.5%
45,000 Argo Graphics, Inc. (JA) 1,163,755
964,500 Enea AB (SW)* 673,440
---------------
1,837,195
---------------
LEISURE PRODUCTS--0.7%
230,000 Ainsworth Game Technology Limited (AU)* 180,293
2,930,000 Playmates Holdings Limited (HK) 595,597
124,524 Stargames Limited (AU) 144,466
---------------
920,356
---------------
MARINE--1.5%
50,000 Braemar Seascope Group PLC (UK) 386,351
446,000 Ezra Holdings Pte Limited (SG) 308,736
1,440,000 Golden Ocean Group Limited (NW)* 903,462
50,000 Ocean Wilsons Holdings Limited (BD) 271,645
---------------
1,870,194
---------------
MARINE PORTS & SERVICES--1.0%
37,825 Clarkson PLC (UK) 522,826
196,000 Hamworthy KSE (UK)* 767,595
---------------
1,290,421
---------------
MOVIES & ENTERTAINMENT--1.4%
20,000 CJ CGV (KR)* 618,238
150,000 Gameloft.com (FR)* 591,274
654,825 Sanctuary Group PLC (UK) 549,983
---------------
1,759,495
---------------
MULTI-LINE INSURANCE--1.5%
30,000 Almindelig Brand AS (DE)* 1,137,485
84,500 Porto Seguro SA (BR)* 652,203
---------------
1,789,688
---------------
MULTI-SECTOR HOLDINGS--0.6%
7,100 Societe de la Tour Eiffel (FR)* 681,338
---------------
OIL & GAS DRILLING--3.4%
88,125 Major Drilling Group International, Inc. (CA)* 978,186
371,075 Saxon Energy Services, Inc. (CA)* 1,393,622
225,500 Siem Offshore (NW)* 1,154,176
39,000 Smedvig ASA Class A (NW) 655,184
---------------
4,181,168
---------------
</Table>
18
<Page>
<Table>
<Caption>
SHARES MARKET VALUE
- -----------------------------------------------------------------------------------
OIL & GAS EQUIPMENT & SERVICES--2.9%
22,225 Aban Loyd Chiles Offshore Limited (IN) $ 575,181
141,200 Offshore Hydrocarbon Mapping Limited (UK)* 644,061
75,000 Sondex PLC (UK) 317,307
52,000 Stolt Offshore SA (NW)* 336,553
10,000 Trican Well Service Limited (CA)* 554,999
8,250 Vallourec SA (FR) 1,233,519
---------------
3,661,620
---------------
OIL & GAS EXPLORATION & PRODUCTION--0.5%
92,175 Regal Petroleum PLC (UK)* 617,567
---------------
OIL & GAS REFINING, MARKETING, & TRANSPORTAION--1.0%
816,025 Essar Shipping Limited (IN)* 653,271
193,000 Sinvest ASA (NW)* 646,870
---------------
1,300,141
---------------
OTHER DIVERSIFIED FINANCIAL SERVICES--0.9%
984,200 Tisco Finance Public Company Limited
Foreign Shares (TH)# 615,600
895,900 Tisco Finance Public Company Limited
NVDR Shares (TH) 560,370
---------------
1,175,970
---------------
PACKAGED FOODS & MEATS--1.3%
590,000 Fjord Seafood ASA (NW)* 298,083
10,000 Orion Corporation (KR) 1,052,937
930,000 Pan Fish ASA (NW)* 285,601
---------------
1,636,621
---------------
PAPER PACKAGING--0.5%
1,500,000 Vision Grande Group Holdings Limited (HK) 578,949
---------------
PHARMACEUTICALS--1.0%
269,275 Granules India Limited (IN) 707,722
350,000 Kopran Limited (IN)* 554,750
---------------
1,262,472
---------------
PUBLISHING--0.3%
33,720 Aufeminin.com SA (FR)* 425,797
---------------
RAILROADS--1.1%
2,322,000 Guangshen Railway Company Limited (CN) 948,493
86,075 Railpower Technologies Corporation (CA)* 447,544
---------------
1,396,037
---------------
REAL ESTATE MANAGEMENT & DEVELOPMENT--5.7%
44,400 Capital & Regional PLC (UK) 592,398
335,000 Expomedia Group PLC (UK)* 977,539
2,972,000 Far East Consortium International Limited (HK) 1,280,919
913,000 Genting International PLC (HK)* 196,295
2,108,800 HKR International Limited (HK) 1,349,760
29,400 IRSA Inversiones y Representaciones SA
Sponsored GDR (AR)* 330,750
250,000 MBK Public Company Limited Foreign Shares (TH)# 308,880
54,193,000 PT Kawasan Industri Jababeka Tbk (ID)* 671,392
798,000 Shun Tak Holdings Limited (HK) 877,803
1,088,000 Silver Grant International Industries Limited (HK) 545,911
---------------
7,131,647
---------------
</Table>
SEE NOTES TO STATEMENT OF INVESTMENTS.
19
<Page>
<Table>
<Caption>
SHARES MARKET VALUE
- -----------------------------------------------------------------------------------
REGIONAL BANKS--1.2%
431,450 Allahabad Bank Limited (IN) $ 748,859
206,925 Indian Overseas Bank (IN) 370,818
142,425 Union Bank of India Limited (IN) 356,636
---------------
1,476,313
---------------
SEMICONDUCTOR EQUIPMENT--1.1%
194,450 ClearSpeed Technology PLC (UK)* 818,004
84,200 Silicon-On-Insulator Technologies (FR)* 587,122
---------------
1,405,126
---------------
SEMICONDUCTORS--0.4%
2,000,000 Solomon Systech International Limited (HK) 494,037
---------------
SPECIALIZED FINANCE--1.6%
57,600 Aktiv Kapital ASA (NW) 1,283,867
765,396 SREI Infrastructure Finance Limited (IN) 750,958
---------------
2,034,825
---------------
SPECIALTY CHEMICALS--1.1%
217,000 Tokuyama Corporation (JA) 1,348,970
---------------
SPECIALTY STORES--0.4%
35,650 Trent Limited (IN) 480,951
---------------
STEEL--1.5%
1,407,000 Lion Corporation Berhad (MA)* 655,366
124,863 Monnet Ispat Limited (IN) 517,031
28,250 Sesa Goa Limited (IN) 669,467
---------------
1,841,864
---------------
THRIFTS & MORTGAGE FINANCE--0.8%
116,000 Paragon Group Companies PLC (UK) 944,212
---------------
TRADING COMPANIES & DISTRIBUTORS--0.4%
1,657,000 PT Hexindo Adiperkasa Tbk (ID) 548,912
---------------
TOTAL COMMON STOCKS (FOREIGN)
(COST--$103,705,231) 113,988,091
---------------
PREFERRED STOCKS (FOREIGN)--3.7%
AUTO PARTS & EQUIPMENT--0.6%
7,000 Iochpe Maxion SA (BR) 785,365
---------------
CONSTRUCTION, FARM MACHINERY & HEAVY TRUCKS--0.3%
120,000 Randon Participacoes S.A. (BR) 337,500
---------------
MULTI-SECTOR HOLDINGS--0.7%
25,000 Bradespar SA (BR)* 823,607
---------------
PACKAGED FOODS & MEATS--1.0%
28,900 Perdigao SA (BR) 623,483
285,000 Sadia SA (BR) 641,679
---------------
1,265,162
---------------
RAILROADS--1.1%
44,500 All America Latina Logistica S.A. (BR) 1,323,607
---------------
TOTAL PREFERRED STOCKS (FOREIGN)
(COST--$4,010,731) 4,535,241
---------------
</Table>
20
<Page>
<Table>
<Caption>
UNITS MARKET VALUE
- -----------------------------------------------------------------------------------
FOREIGN RIGHTS AND WARRANTS--0.1%
INDUSTRIAL CONGLOMERATES--0.1%
204,677 Media Prima Berhad ICULS (MA) $ 56,017
---------------
INTEGRATED TELECOMMUNICATION SERVICES--0.0%
600,000 Yangtze Telecom Corporation Warrants, expire 2005
(CN)*^# 0
---------------
TOTAL FOREIGN RIGHTS AND WARRANTS
(COST--$53,933) 56,017
---------------
<Caption>
PRINCIPAL AMOUNT AMORTIZED COST
- -----------------------------------------------------------------------------------
CORPORATE SHORT-TERM NOTES--1.1%
PHARMACEUTICALS--1.1%
$ 1,400,000 Novartis Finance Corporation
2.10% 1/3/05~ $ 1,399,837
---------------
TOTAL CORPORATE SHORT-TERM NOTES
(AMORTIZED COST--$1,399,837) 1,399,837
---------------
TOTAL INVESTMENTS--96.5%
(TOTAL COST--$109,169,732) 119,979,186
---------------
OTHER ASSETS AND LIABILITIES--3.5% 4,289,541
---------------
NET ASSETS--100.0% $ 124,268,727
===============
</Table>
NOTES TO STATEMENT OF INVESTMENTS
* NON-INCOME PRODUCING.
+ SECURITY WAS ACQUIRED PURSUANT TO RULE 144A AND MAY BE DEEMED TO BE
RESTRICTED FOR RESALE. THESE SECURITIES AMOUNTED TO $1,058,078, OR 0.9%, OF
THE FUND'S NET ASSETS AS OF DECEMBER 31, 2004.
~ SECURITY WAS ACQUIRED PURSUANT TO SECTION 4(2) OF THE SECURITIES ACT OF
1933 AND MAY BE DEEMED TO BE RESTRICTED FOR RESALE. THESE SECURITIES
AMOUNTED TO $1,399,837, OR 1.1%, OF THE FUND'S NET ASSETS AS OF DECEMBER
31, 2004.
# FAIR VALUED SECURITY.
ADR - AMERICAN DEPOSITARY RECEIPT
GDR - GLOBAL DEPOSITARY RECEIPT
NVDR - NON-VOTING 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
- ----------------------------------------------------------------------------------------
LOEWE AG NEW SHARES (GE) 12/28/04 $ 122,767 $ 104,847 0.08%
YANGTZE TELECOM CORPORATION
WARRANTS (CN) 3/8/04 0 0 0.00%
------------ ------------ -------------
$ 122,767 $ 104,847 0.08%
============ ============ =============
</Table>
THE FUND MAY HAVE REGISTRATION RIGHTS FOR CERTAIN RESTRICTED SECURITIES, WHICH
MAY REQUIRE THAT REGISTRATION COSTS BE BORNE BY THE FUND.
SEE NOTES TO FINANCIAL STATEMENTS.
21
<Page>
STATEMENT OF ASSETS AND LIABILITIES
December 31, 2004
<Table>
ASSETS
Investment securities, at cost $ 109,169,732
----------------
Investment securities, at market 119,979,186
Cash 421,857
Foreign currency (cost $5,946,130) 5,994,002
Receivables:
Investment securities sold 3,853,737
Capital shares sold 642,372
Dividends and interest 90,492
Other assets 100,404
----------------
Total Assets 131,082,050
----------------
LIABILITIES
Payables and other accrued liabilities:
Investment securities purchased 6,056,670
Capital shares redeemed 131,806
Advisory fees 101,155
Shareholder servicing fees 16,550
Accounting fees 10,115
Distribution fees 35,410
Transfer agency fees 38,086
Custodian fees 51,282
India and Thailand taxes 254,210
Other 118,039
----------------
Total Liabilities 6,813,323
----------------
Net Assets $ 124,268,727
================
COMPOSITION OF NET ASSETS
Capital (par value and paid-in surplus) $ 253,031,291
Accumulated net investment loss (83,936)
Accumulated net realized loss from security transactions (net of
foreign taxes paid on Thailand and Indian investments of $419,643) (139,271,699)
Net unrealized appreciation on investments
and foreign currency translation 10,593,071
----------------
Total $ 124,268,727
================
</Table>
22
<Page>
<Table>
CLASS A
Net Assets $ 19,725,801
Shares Outstanding 1,177,175
Net Asset Value, Redemption Price Per Share $ 16.76
Maximum offering price per share (net asset value
plus sales charge of 5.75% of offering price) $ 17.78
CLASS B
Net Assets $ 17,916,589
Shares Outstanding 1,113,709
Net Asset Value, Offering and Redemption Price (excluding
applicable contingent deferred sales charge) Per Share $ 16.09
CLASS C
Net Assets $ 10,249,241
Shares Outstanding 637,771
Net Asset Value, Offering and Redemption Price (excluding
applicable contingent deferred sales charge) Per Share $ 16.07
CLASS F
Net Assets $ 75,677,328
Shares Outstanding 4,515,097
Net Asset Value, Offering and Redemption Price Per Share $ 16.76
CLASS R
Net Assets $ 189,927
Shares Outstanding 11,647
Net Asset Value, Offering and Redemption Price Per Share $ 16.31
CLASS T
Net Assets $ 509,841
Shares Outstanding 31,772
Net Asset Value, Redemption Price Per Share $ 16.05
Maximum offering price per share (net asset value
plus sales charge of 4.50% of offering price) $ 16.81
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
23
<Page>
STATEMENT OF OPERATIONS
For the year ended December 31, 2004
<Table>
INVESTMENT INCOME
Dividends $ 1,463,189
Interest 73,646
Foreign taxes withheld (125,079)
----------------
Total Investment Income 1,411,756
----------------
EXPENSES
Advisory fees--Note 2 1,235,823
Shareholder servicing fees--Note 2 182,327
Accounting fees--Note 2 123,582
Distribution fees--Note 2 389,967
Transfer agency fees--Note 2 140,543
Registration fees 63,290
Postage and mailing expenses 13,327
Custodian fees and expenses--Note 2 462,739
Printing expenses 29,392
Legal and audit fees 24,775
Directors' fees and expenses--Note 2 20,522
Other expenses 32,378
----------------
Total Expenses 2,718,665
Earnings Credits (4,018)
Reimbursed/Waived Expenses (127,287)
Expense Offset to Broker Commissions (3,700)
----------------
Net Expenses 2,583,660
----------------
Net Investment Loss (1,171,904)
----------------
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 and Indian investments of $419,643) 20,232,442
Foreign Currency Transactions (222,700)
----------------
Net Realized Gain 20,009,742
Net Change in Unrealized Appreciation/Depreciation
of Investments and Foreign Currency Translation (1,026,156)
----------------
Net Realized and Unrealized Gain 18,983,586
----------------
Net Increase in Net Assets Resulting from Operations $ 17,811,682
================
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
24
<Page>
STATEMENTS OF CHANGES IN NET ASSETS
<Table>
<Caption>
YEAR ENDED YEAR ENDED
12/31/04 12/31/03
OPERATIONS
Net Investment Loss $ (1,171,904) $ (713,841)
Net Realized Gain on Security and Foreign
Currency Transactions 20,009,742 40,877,636
Net Change in Unrealized Appreciation/Depreciation
of Investments and Foreign Currency Translation (1,026,156) 14,435,879
--------------- ---------------
Net Increase in Net Assets Resulting from Operations 17,811,682 54,599,674
--------------- ---------------
CAPITAL SHARE TRANSACTIONS
Net Increase (Decrease)--Note 4
Class A (9,809,094) 8,132,869
Class B (2,918,121) (2,705,719)
Class C (1,725,859) 1,905,536
Class F (14,537,401) (4,988,538)
Class R 22,994 23,012
Class T (87,939) (77,846)
--------------- ---------------
Net Increase (Decrease) from Capital Share Transactions (29,055,420) 2,289,314
--------------- ---------------
Net Increase (Decrease) in Net Assets (11,243,738) 56,888,988
--------------- ---------------
NET ASSETS
Beginning of year $ 135,512,465 $ 78,623,477
--------------- ---------------
End of year $ 124,268,727 $ 135,512,465
=============== ===============
Accumulated Net Investment Loss $ (83,936) $ (10,037)
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
25
<Page>
FINANCIAL HIGHLIGHTS
<Table>
<Caption>
YEAR ENDED DECEMBER 31,
----------------------------------------------------------------------------
2004 2003 2002 2001 2000
----------------------------------------------------------------------------
CLASS A SHARES
PER SHARE OPERATING DATA
Net Asset Value, beginning of year $ 14.24 $ 8.14 $ 9.68 $ 14.18 $ 22.93
- ---------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.11)+ 0.10 (0.16) (0.14) (0.13)
Net realized and unrealized gains
(losses) on securities 2.63 6.00 (1.38) (4.36) (6.65)
----------------------------------------------------------------------------
Total from investment operations 2.52 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 year $ 16.76 $ 14.24 $ 8.14 $ 9.68 $ 14.18
============================================================================
TOTAL RETURN* 17.70% 74.94% (15.91%) (31.74%) (29.61%)
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000s) $ 19,726 $ 27,252 $ 9,422 $ 14,033 $ 36,353
- ---------------------------------------------------------------------------------------------------------------------------
Ratios to average net assets:
Expenses with reimbursements, but no
earnings credits or brokerage offsets# 1.92% 2.45% 2.24% 1.88% 1.61%
Expenses with reimbursements,
earnings credits and brokerage offsets 1.92% 2.45% 2.24% 1.87% 1.59%
Net investment loss (0.77%) (0.83%) (0.80%) (0.26%) (0.80%)
- ---------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate@ 648% 707% 495% 704% 535%
</Table>
+ COMPUTED USING AVERAGE SHARES OUTSTANDING THROUGHOUT THE YEAR.
* SALES CHARGES ARE NOT REFLECTED IN THE TOTAL RETURN.
# 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.
26
<Page>
<Table>
<Caption>
YEAR ENDED DECEMBER 31,
----------------------------------------------------------------------------
2004 2003 2002 2001 2000
----------------------------------------------------------------------------
CLASS B SHARES
PER SHARE OPERATING DATA
Net Asset Value, beginning of year $ 13.79 $ 7.95 $ 9.54 $ 14.08 $ 22.93
- ---------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment loss (0.23)+ (0.31) (0.29) (0.18) (0.23)
Net realized and unrealized gains
(losses) on securities 2.53 6.15 (1.30) (4.36) (6.65)
----------------------------------------------------------------------------
Total from investment operations 2.30 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 year $ 16.09 $ 13.79 $ 7.95 $ 9.54 $ 14.08
============================================================================
TOTAL RETURN* 16.68% 73.46% (16.67%) (32.24%) (30.05%)
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000s) $ 17,917 $ 18,198 $ 12,810 $ 19,661 $ 35,000
- ---------------------------------------------------------------------------------------------------------------------------
Ratios to average net assets:
Expenses with reimbursements, but no
earnings credits or brokerage offsets# 2.79% 3.30% 3.09% 2.66% 2.38%
Expenses with reimbursements,
earnings credits and brokerage offsets 2.78% 3.29% 3.09% 2.64% 2.35%
Net investment loss (1.63%) (1.44%) (1.64%) (1.06%) (1.50%)
- ---------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate@ 648% 707% 495% 704% 535%
</Table>
+ COMPUTED USING AVERAGE SHARES OUTSTANDING THROUGHOUT THE YEAR.
* SALES CHARGES ARE NOT REFLECTED IN THE TOTAL RETURN.
# CERTAIN FEES WERE WAIVED BY THE CUSTODIAN. HAD THESE FEES NOT BEEN WAIVED,
THE EXPENSE RATIOS WOULD HAVE BEEN 2.89% (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.
27
<Page>
<Table>
<Caption>
YEAR ENDED DECEMBER 31,
----------------------------------------------------------------------------
2004 2003 2002 2001 2000
----------------------------------------------------------------------------
CLASS C SHARES
PER SHARE OPERATING DATA
Net Asset Value, beginning of year $ 13.76 $ 7.93 $ 9.52 $ 14.06 $ 22.93
- ---------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment loss (0.22)+ (0.01) (0.35) (0.22) (0.21)
Net realized and unrealized gains
(losses) on securities 2.53 5.84 (1.24) (4.32) (6.69)
----------------------------------------------------------------------------
Total from investment operations 2.31 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 year $ 16.07 $ 13.76 $ 7.93 $ 9.52 $ 14.06
============================================================================
TOTAL RETURN* 16.79% 73.52% (16.70%) (32.29%) (30.13%)
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000s) $ 10,249 $ 10,639 $ 5,268 $ 8,928 $ 17,925
- ---------------------------------------------------------------------------------------------------------------------------
Ratios to average net assets:
Expenses with reimbursements, but no
earnings credits or brokerage offsets# 2.71% 3.25% 3.06% 2.67% 2.38%
Expenses with reimbursements,
earnings credits and brokerage offsets 2.70% 3.25% 3.05% 2.65% 2.35%
Net investment loss (1.55%) (1.43%) (1.58%) (1.08%) (1.50%)
- ---------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate@ 648% 707% 495% 704% 535%
</Table>
+ COMPUTED USING AVERAGE SHARES OUTSTANDING THROUGHOUT THE YEAR.
* SALES CHARGES ARE NOT REFLECTED IN THE TOTAL RETURN.
# CERTAIN FEES WERE WAIVED BY THE CUSTODIAN. HAD THESE FEES NOT BEEN WAIVED,
THE EXPENSE RATIOS WOULD HAVE BEEN 2.81% (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.
28
<Page>
<Table>
<Caption>
YEAR ENDED DECEMBER 31,
----------------------------------------------------------------------------
2004 2003 2002 2001 2000
----------------------------------------------------------------------------
CLASS F SHARES
PER SHARE OPERATING DATA
Net Asset Value, beginning of year $ 14.24 $ 8.13 $ 9.67 $ 14.17 $ 22.93
- ---------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment loss (0.11)+ (0.14) (0.23) (0.22) (0.19)
Net realized and unrealized gains
(losses) on securities 2.63 6.25 (1.31) (4.28) (6.60)
----------------------------------------------------------------------------
Total from investment operations 2.52 6.11 (1.54) (4.50) (6.79)
- ---------------------------------------------------------------------------------------------------------------------------
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 year $ 16.76 $ 14.24 $ 8.13 $ 9.67 $ 14.17
============================================================================
TOTAL RETURN 17.70% 75.15% (15.93%) (31.76%) (29.65%)
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000s) $ 75,677 $ 78,759 $ 50,742 $ 78,574 $ 182,036
- ---------------------------------------------------------------------------------------------------------------------------
Ratios to average net assets:
Expenses with reimbursements, but no
earnings credits or brokerage offsets# 1.90% 2.31% 2.18% 1.92% 1.61%
Expenses with reimbursements,
earnings credits and brokerage offsets 1.89% 2.31% 2.18% 1.90% 1.59%
Net investment loss (0.75%) (0.45%) (0.74%) (0.30%) (0.88%)
- ---------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate@ 648% 707% 495% 704% 535%
</Table>
+ COMPUTED USING AVERAGE SHARES OUTSTANDING THROUGHOUT THE YEAR.
# CERTAIN FEES WERE WAIVED BY THE CUSTODIAN. HAD THESE FEES NOT BEEN WAIVED,
THE EXPENSE RATIOS WOULD HAVE BEEN 2.00% (2004), 2.40% (2003), 2.21%
(2002), 1.92% (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.
SEE NOTES TO FINANCIAL STATEMENTS.
29
<Page>
<Table>
<Caption>
YEAR ENDED DECEMBER 31,
----------------------------------------------------------------------------
2004 2003 2002 2001 2000
----------------------------------------------------------------------------
CLASS R SHARES
PER SHARE OPERATING DATA
Net Asset Value, beginning of year $ 13.82 $ 7.87 $ 9.56 $ 14.22 $ 22.93
- ---------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.07)+ 0.54 (0.81) (0.17) (0.09)
Net realized and unrealized gains
(losses) on securities 2.56 5.41 (0.88) (4.49) (6.65)
----------------------------------------------------------------------------
Total from investment operations 2.49 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 year $ 16.31 $ 13.82 $ 7.87 $ 9.56 $ 14.22
============================================================================
TOTAL RETURN 18.02% 75.60% (17.68%) (32.77%) (29.44%)
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000s) $ 190 $ 142 $ 37 $ 76 $ 241
- ---------------------------------------------------------------------------------------------------------------------------
Ratios to average net assets:
Expenses with reimbursements, but no
earnings credits or brokerage offsets# 1.68% 2.08% 3.94% 1.86% 1.33%
Expenses with reimbursements,
earnings credits and brokerage offsets 1.68% 2.07% 3.91% 1.84% 1.31%
Net investment loss (0.51%) (0.32%) (2.20%) (0.08%) (0.55%)
- ---------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate@ 648% 707% 495% 704% 535%
</Table>
+ COMPUTED USING AVERAGE SHARES OUTSTANDING THROUGHOUT THE YEAR.
# CERTAIN FEES WERE WAIVED BY THE CUSTODIAN. HAD THESE FEES NOT BEEN WAIVED,
THE EXPENSE RATIOS WOULD HAVE BEEN 1.79% (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.
30
<Page>
<Table>
<Caption>
YEAR ENDED DECEMBER 31,
----------------------------------------------------------------------------
2004 2003 2002 2001 2000
----------------------------------------------------------------------------
CLASS T SHARES
PER SHARE OPERATING DATA
Net Asset Value, beginning of year $ 13.70 $ 7.87 $ 9.50 $ 14.14 $ 22.93
- ---------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment loss (0.17)+ (0.24) (0.45) (0.22) (0.16)
Net realized and unrealized gains
(losses) on securities 2.52 6.07 (1.18) (4.42) (6.66)
----------------------------------------------------------------------------
Total from investment operations 2.35 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 year $ 16.05 $ 13.70 $ 7.87 $ 9.50 $ 14.14
============================================================================
TOTAL RETURN* 17.15% 74.08% (17.16%) (32.82%) (29.79%)
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000s) $ 510 $ 522 $ 345 $ 538 $ 869
- ---------------------------------------------------------------------------------------------------------------------------
Ratios to average net assets:
Expenses with reimbursements, but no
earnings credits or brokerage offsets# 2.37% 3.07% 4.03% 3.16% 1.87%
Expenses with reimbursements,
earnings credits and brokerage offsets 2.36% 3.07% 4.03% 3.14% 1.84%
Net investment loss (1.21%) (1.06%) (2.69%) (1.60%) (1.00%)
- ---------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate@ 648% 707% 495% 704% 535%
</Table>
+ COMPUTED USING AVERAGE SHARES OUTSTANDING THROUGHOUT THE YEAR.
* SALES CHARGES ARE NOT REFLECTED IN THE TOTAL RETURN.
# CERTAIN FEES WERE WAIVED BY THE CUSTODIAN. HAD THESE FEES NOT BEEN WAIVED,
THE EXPENSE RATIOS WOULD HAVE BEEN 2.47% (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.
31
<Page>
NOTES TO FINANCIAL STATEMENTS
December 31, 2004
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,
Equity Growth (formerly Growth and Income), Government Securities, Growth,
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 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. However, the Funds are planning to begin
using New York closing exchange rates to convert foreign currencies to U.S.
dollars sometime during the first quarter of 2005.
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.
32
<Page>
If market quotations or official closing prices are not readily available or are
determined not to reflect accurately fair value, 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 but before the Fund calculates its net asset value,
and it is determined that the event has materially affected the value of the
security. Fair value of foreign equity securities may be determined with the
assistance of a pricing service using correlations between the movement of
prices of foreign securities and indexes of domestic securities and other
appropriate indicators, such as closing market prices of relevant ADRs and
futures contracts. Using fair value to price securities may result in a value
that is different from a security's most recent closing price and from the
prices used by other mutual funds to calculate their net asset values.
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 carry more risk
than U.S. securities, such as political and currency risks. The Fund normally
will invest a large portion of its assets in foreign securities. In the event
the Fund executes a foreign security transaction, the Fund may enter into a
foreign currency contract to settle the foreign security transaction. The
resultant foreign currency gain or loss from the contract is recorded as foreign
currency gain or loss and is presented as such in the Statement of Operations.
Foreign currency held at December 31, 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.
33
<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, as earned, and includes the
accretion of discounts and the amortization of premiums over the lives of the
respective securities. Withholding taxes on foreign dividends have been provided
for in accordance with the applicable country's tax rules and rates.
DISTRIBUTIONS TO SHAREHOLDERS--The Fund declares and distributes dividends (if
any) and capital gains (if any) annually. Dividends and distributions, which are
determined in accordance with income tax regulations, are recorded on the
ex-dividend date.
EXPENSES--Each Class of the Fund bears expenses incurred specifically on its
behalf and, in addition, each Class bears a portion of general expenses based on
the relative net assets or the number of shareholder accounts of the Class. The
type of expense determines the allocation method.
The Company's board of directors has authorized the payment of certain Fund
expenses with commissions on Fund portfolio transactions. These commissions
reduce Other Expenses and are included in the Expense Offset to Broker
Commissions in the Statement of Operations.
USE OF ESTIMATES--The preparation of financial statements in conformity with
accounting principles generally accepted in the United States of America
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported amounts of
income and expenses during the reporting period. Actual results could differ
from those estimates.
INDEMNIFICATIONS--In the normal course of business, the Company enters into
contracts that contain provisions indemnifying other parties against specified
potential liabilities. Each Fund's maximum exposure under these arrangements is
unknown as this would involve future claims that may be made against the Fund
that have not yet occurred. However, based on experience, the Funds expect the
risk of loss to be remote.
OTHER--Certain prior year information has been reformatted, without substantive
change, to conform with the current year presentation.
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
34
<Page>
first $250 million of net assets, 0.80% of the next $250 million of net assets
and 0.70% of net assets in excess of $500 million.
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 year ended December 31,
2004, Class F shares were charged $53,717 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 from DTI
are paid by the Fund. During the year ended December 31, 2004, Class F shares
were charged $18,228 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 $13.00, per shareholder account considered to be an
open account at any time during a given month, plus out-of-pocket charges.
Class-specific transfer agency fees paid to DTI during the year ended December
31, 2004 were as follows:
<Table>
<Caption>
TRANSFER
AGENCY FEES
---------------------------------------------------------------
Class A $ 31,329
Class B $ 41,484
Class C $ 16,956
Class R $ 306
Class T $ 1,554
</Table>
OTHER TRANSFER AGENCY FEES--Various broker-dealers, retirement plan
administrators and other unaffiliated entities have established omnibus accounts
with the Fund, and provide sub-transfer agency, recordkeeping or similar
services to persons holding Fund shares through those accounts. During the year
ended December 31, 2004, the Fund paid $30,686 to these entities for such
services. This amount is included in the transfer agency fees shown on the
Statement of Operations.
CASH MANAGEMENT FEES--The Funds also pay Mellon Bank N.A. ("Mellon Bank"), a
wholly-owned subsidiary of Mellon Financial Corporation and an affiliate of
Founders, fees for certain cash management services. These include various
services related to the processing of shareholder transactions in the Funds.
During the year ended
35
<Page>
December 31, 2004, the Fund was charged $6,888 for cash management fees, which
are included in the out-of-pocket charges from DTI above.
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 year ended December
31, 2004, Class F shares were charged $179,833 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 year ended December 31, 2004, were as follows:
<Table>
<Caption>
DISTRIBUTION SHAREHOLDER
FEES SERVICING FEES
--------------------------------------------------------------
Class A N/A $ 57,761
Class B $ 130,816 $ 43,605
Class C $ 78,112 $ 26,038
Class T $ 1,206 $ 1,206
</Table>
During the year ended December 31, 2004, DSC retained $24,961 and $104 in sales
commissions from the sales of Class A and Class T shares, respectively. DSC also
retained $57, $54,064 and $22,990 of contingent deferred sales charges relating
to redemptions of Class A, 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 contractually agreed to waive
any fees received for these services to the extent they exceed Founders' costs
in providing the services.
36
<Page>
CUSTODIAN FEES--Mellon Bank 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 Fund could have employed those assets
elsewhere to produce income had it not entered into this arrangement. The
custodian has also contractually 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 year ended December 31, 2004, the
Fund's portion of the fee waiver was $127,287, which reduced the amount paid to
Mellon Bank to $335,452.
DIRECTORS COMPENSATION--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 invested
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,
which pays their compensation. The affairs of the Fund, including services
provided by Founders, are subject to the supervision and general oversight of
the Company's board of directors.
OTHER--During the year ended December 31, 2004, Founders reimbursed the Fund
$19,515 for a trading error and $721 for two pricing errors. These amounts are
not material to the Fund.
37
<Page>
3. FEDERAL TAX INFORMATION
Net investment income and capital gains distributions are determined in
accordance with income tax regulations that may differ from accounting
principles generally accepted in the United States of America. These differences
are due to differing treatments for items such as deferral of wash sale losses,
foreign currency transactions, net operating losses and capital loss carryovers.
Permanent differences identified during the year ended December 31, 2004 have
been reclassified among the components of net assets as follows:
<Table>
<Caption>
UNDISTRIBUTED NET UNDISTRIBUTED NET PAID-IN
INVESTMENT INCOME REALIZED GAINS AND LOSSES CAPITAL
-----------------------------------------------------------------
$ 1,098,005 $ 636,921 $ (1,734,926)
</Table>
The tax components of capital represent distribution requirements the Fund must
satisfy under the income tax regulations and losses or tax deductions the Fund
may be able to offset against income and capital gains realized in future years.
Accumulated capital losses and post-October 31 capital losses noted below, if
any, as of December 31, 2004, 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. Net capital loss carryovers
utilized during 2004 by the Fund amounted to $20,460,712. Accumulated capital
losses as of December 31, 2004 were:
<Table>
<Caption>
EXPIRATION AMOUNT
--------------------------------------------------------------
2008 $ 17,533,320
2009 $ 109,892,631
2010 $ 11,833,084
--------------
$ 139,259,035
==============
</Table>
The aggregate cost of investments and the composition of unrealized appreciation
and depreciation of investment securities for federal income tax purposes as of
December 31, 2004 are noted below. Unrealized appreciation/depreciation in the
table below excludes appreciation/depreciation on foreign currency translation.
The primary difference between book and tax appreciation or depreciation is wash
sale loss deferrals.
<Table>
Post-October Capital Loss Deferral $ 50,886
Federal Tax Cost $ 109,182,396
Gross Tax Appreciation of Investments $ 12,109,003
Gross Tax Depreciation of Investments $ (1,312,213)
Net Tax Appreciation $ 10,796,790
</Table>
Certain foreign countries impose a tax on capital gains, which is accrued by the
Fund based on unrealized appreciation on affected securities. This unrealized
appreciation is not included in the table above. The tax is paid when the gain
is realized.
38
<Page>
4. CAPITAL SHARE TRANSACTIONS
The Fund is authorized to issue 400 million shares of $0.01 par value capital
stock. Transactions in shares of the Fund for the periods indicated were as
follows:
<Table>
<Caption>
YEAR ENDED YEAR ENDED
12/31/04 12/31/03
SHARES AMOUNT SHARES AMOUNT
CLASS A
Sold 871,718 $ 12,893,364 3,502,478 $ 36,560,507
Redeemed (1,608,411) $ (22,702,458) (2,746,760) $ (28,427,638)
----------------------------------------------------------------
Net Increase (Decrease) (736,693) $ (9,809,094) 755,718 $ 8,132,869
================================================================
CLASS B
Sold 40,534 $ 591,588 58,678 $ 685,415
Redeemed (246,693) $ (3,509,709) (350,900) $ (3,391,134)
----------------------------------------------------------------
Net Decrease (206,159) $ (2,918,121) (292,222) $ (2,705,719)
================================================================
CLASS C
Sold 156,715 $ 2,350,643 1,047,656 $ 9,859,862
Redeemed (291,948) $ (4,076,502) (938,988) $ (7,954,326)
----------------------------------------------------------------
Net Increase (Decrease) (135,233) $ (1,725,859) 108,668 $ 1,905,536
================================================================
CLASS F
Sold 925,441 $ 13,691,198 3,504,087 $ 34,110,158
Redeemed (1,942,721) $ (28,228,599) (4,216,077) $ (39,098,696)
----------------------------------------------------------------
Net Decrease (1,017,280) $ (14,537,401) (711,990) $ (4,988,538)
================================================================
CLASS R
Sold 19,297 $ 276,727 88,378 $ 927,946
Redeemed (17,956) $ (253,733) (82,802) $ (904,934)
----------------------------------------------------------------
Net Increase 1,341 $ 22,994 5,576 $ 23,012
================================================================
CLASS T
Sold 2,301 $ 33,146 154,521 $ 1,219,197
Redeemed (8,628) $ (121,085) (160,244) $ (1,297,043)
----------------------------------------------------------------
Net Decrease (6,327) $ (87,939) (5,723) $ (77,846)
================================================================
</Table>
5. INVESTMENT TRANSACTIONS
Purchases and sales of investment securities (excluding short-term securities
and U.S. government obligations) for the year ended December 31, 2004 were
$777,088,584 and $809,517,776, respectively.
39
<Page>
6. LINE OF CREDIT
The Company has a line of credit arrangement ("LOC") with State Street Bank and
Trust Company, to be used for temporary or emergency purposes, primarily for
financing redemption payments. Each Fund's borrowings are limited to the lesser
of (a) $50 million, or (b) the lesser of 25% of the Fund's total net assets or
the maximum amount which the Fund is permitted to borrow pursuant to the
prospectus, any law or any other agreement. Combined borrowings are subject to
the $50 million cap on the total LOC. Each Fund agrees to pay annual fees and
interest on the unpaid balance based on prevailing market rates as defined in
the LOC. At December 31, 2004, the Fund did not have any borrowings under the
LOC.
7. LEGAL MATTERS
In early 2004, two purported class and derivative actions were filed against
Mellon Financial Corporation, Mellon Bank, Founders, Dreyfus, and certain
directors of the Dreyfus Founders Funds and the Dreyfus Funds (together, the
"Defendant Funds"). In September 2004, plaintiffs served a Consolidated Amended
Complaint (the "Amended Complaint") on behalf of a purported class of all
persons who acquired interests in any of the Defendant Funds between January 30,
1999 and November 17, 2003, and derivatively on behalf of the Defendant Funds.
The Amended Complaint in the newly styled IN RE DREYFUS MUTUAL FUNDS FEE
LITIGATION also named DSC, Premier Mutual Fund Services, Inc. and two additional
directors of the Defendant Funds as defendants and alleges violations of the
Investment Company Act of 1940, the Investment Advisers Act of 1940, the
Pennsylvania Unfair Trade Practices and Consumer Protection Law and common-law
claims. Plaintiffs seek to recover allegedly improper and excessive Rule 12b-1
and advisory fees allegedly charged to the Defendant Funds for marketing and
distribution services. More specifically, plaintiffs claim, among other things,
that 12b-1 fees and directed brokerage were improperly used to pay brokers to
recommend the Defendant Funds over other funds, and that such payments were not
disclosed to investors. In addition, plaintiffs assert that economies of scale
and soft-dollar benefits were not passed on to the Defendant Funds. Plaintiffs
further allege that 12b-1 fees were improperly charged to certain of the
Defendant Funds that were closed to new investors. The Amended Complaint seeks
compensatory and punitive damages, rescission of the advisory contracts, and an
accounting and restitution of any unlawful fees, as well as an award of
attorneys' fees and litigation expenses. As noted, some of the claims in this
litigation are asserted derivatively on behalf of the Defendant Funds that have
been named as nominal defendants. With respect to such derivative claims, no
relief is sought against the Defendant Funds. Founders, Dreyfus and the
Defendant Funds believe the allegations to be totally without merit and intend
to defend the action vigorously. The defendants filed motions to dismiss the
Amended Complaint on November 12, 2004, and those motions are pending.
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 nor the Funds believe that any of the pending actions
will have a material adverse effect on the Funds or Founders' ability to perform
its contract with the Funds.
40
<Page>
REPORT OF INDEPENDENT
REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Shareholders of
Dreyfus Founders Funds, Inc.
In our opinion, the accompanying statement of assets and liabilities, including
the statement of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of Dreyfus Founders Passport Fund (one
of the portfolios constituting Dreyfus Founders Funds, Inc., hereafter referred
to as the "Fund") at December 31, 2004, the results of its operations for the
year then ended, the changes in its net assets for each of the two years in the
period then ended and the financial highlights for each of the five years in the
period then ended, in conformity with accounting principles generally accepted
in the United States of America. These financial statements and financial
highlights (hereafter referred to as "financial statements") are the
responsibility of the Fund's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these financial statements in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those standards
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits, which included
confirmation of securities at December 31, 2004 by correspondence with the
custodian and brokers and the application of alternative auditing procedures
where securities purchased had not been received, provide a reasonable basis for
the opinion expressed above.
PricewaterhouseCoopers LLP
Denver, Colorado
February 10, 2005
41
<Page>
YOUR BOARD REPRESENTATIVES
(UNAUDITED)
The Board of Directors of the Company oversees all 10 Dreyfus Founders Funds.
The business and affairs of the Company are managed under the direction of the
Board. The directors serving on the Board perform their responsibilities in the
manner which they reasonably believe to be in the best interests of the Funds
and their shareholders.
All of the directors, as listed below, are independent directors. They are not
affiliated with the Fund's adviser, its parent company, or its affiliates. The
directors have no official term of office and generally serve until they reach
the mandated retirement age of 75, resign, or are not re-elected. As you can see
from their backgrounds, the directors have broad experience as active or former
business and community leaders.
DIRECTORS
EUGENE H. VAUGHAN, CFA, 71. Year elected to the Board: 1970
Board Chairman. Founding Chairman and, formerly (1970 to 2000), President and
CEO, Vaughan Nelson Investment Management, LP, an investment counseling firm.
Director, Encore Bank. Founding Chairman, Center for Houston's Future, a
non-profit organization. Founding Chairman and former Governor, Association for
Investment Management and Research. Past Chairman and Trustee, Institute of
Chartered Financial Analysts. Past Chairman and Director, Financial Analysts
Federation.
ALAN S. DANSON, 65. Year elected to the Board: 1991
Private investor. Formerly, President and Director, D.H. Management, Inc., the
general partner of a limited partnership with technology company holdings (1996
to 2003). Formerly, Director and Senior Vice President, OptiMark Technologies,
Inc., a computerized securities trading service (1996 to 1999). Director,
CaseShare Systems, LLP, a document management company. Director, Gore Range
Natural Science School and The Les Streeter Programs, Inc., both of which are
non-profit organizations.
JOAN D. MANLEY, 72. Year elected to the Board: 1998
Retired. Formerly, Ms. Manley served in several executive capacities with Time
Incorporated, most recently as Group Vice President, Director and Chairman of
Time-Life Books, Inc. and Book of the Month Club, Inc. (1960 to 1984). Director,
Sara Lee Corporation and R.R. Donnelley & Sons Company.
ROBERT P. MASTROVITA, 60. Year elected to the Board: 1998
Private investor. Chairman of a private charitable foundation (1997 to present).
Formerly, Chairman and Director, Hagler, Mastrovita & Hewitt, Inc., a registered
investment adviser (1982 to 1997). Member, Boston Society of Security Analysts.
Trustee, Partridge Academy.
TRYGVE E. MYHREN, 68. Year elected to the Board: 1996
President, Myhren Media, Inc., a firm that invests in and advises media,
telecommunications, Internet and software companies. Special Limited Partner and
member of Investment Committee, Megunticook Funds, a venture capital firm (1998
to present). Director, Advanced Marketing Services, Inc. Trustee and Chairman of
Finance Committee, the University of Denver. Trustee, Denver Art Museum. Member,
Cable Television Hall of Fame. Formerly, President (1990 to 1996) and Director
(1992 to 2001) of the Providence Journal Company, a diversified media and
communications
42
<Page>
company. Formerly, Chairman and Chief Executive Officer of American Television
and Communications Corporation (now Timer Warner Cable) (1981 to 1988).
Formerly, Chairman of the National Cable Television Association (1986-1987).
GEORGE W. PHILLIPS, 66. Year elected to the Board: 1998
Retired. Vice Chairman of the Board, Chairman of the Finance Committee, and
Chairman of the Investment Committee, Children's Medical Center of Boston.
Formerly, President and Chief Executive Officer (1992 to 1997) and Director
(1992 to 2002) of Warren Bancorp, Inc. Formerly, President, Chief Executive
Officer and Director of Warren Five Cents Savings Bank (1992 to 1997).
PRINCIPAL OFFICERS
RICHARD W. SABO, 47. President of the Funds since 2000 and Principal Executive
Officer of the Funds since 2002. Founders' President and Chief Executive
Officer, Member of Founders' Board of Managers and Director of Dreyfus (1998 to
present). Executive Vice President of DSC since 2003. Formerly, Senior Vice
President and Regional Director for Prudential Securities, Inc. (1991 to 1998).
DAVID L. RAY, 47. Vice President of the Funds since 2000, and from 1990 to 1998.
Founders' Senior Vice President--Administration and Treasurer. Vice President of
DSC since 2003. Employed by Founders and its predecessor company since 1990.
Formerly, Treasurer of the Funds (1990 to 1998).
KENNETH R. CHRISTOFFERSEN, 49. Secretary of the Funds since 2000, and from 1996
to 1998. Founders' Senior Vice President--Legal, General Counsel and Secretary.
Assistant Secretary of DSC since 2003. Employed by Founders and its predecessor
company since 1996.
JANELLE E. BELCHER, 46. Chief Compliance Officer of the Funds since 2004 and
Assistant Secretary of the Funds since 2002. Founders' Vice
President--Compliance since 2002. Formerly, Founders' Manager of Compliance
(2000 to 2002) and Securities Compliance Examiner, Staff Accountant and Team
Leader for the U.S. Securities and Exchange Commission (1990 to 2000).
ROBERT T. KELLY, 35. Treasurer, Principal Financial Officer, and Principal
Accounting Officer of the Funds since 2003. Founders' Vice President of
Portfolio Accounting since 2000. Formerly, Assistant Treasurer of the Funds
(2000 to 2003), and Head of Equity Desk for ABN Amro Trust Company (Cayman)
Limited (1998 to 2000).
WILLIAM G. GERMENIS, 34. Anti-Money Laundering Compliance Officer ("AMLCO") for
the Class A, Class B, Class C, Class R, and Class T shares of the Funds since
2002 and for the Class F shares of the Funds since 2003. Vice President and
AMLCO of MBSC, LLC since 2002. Vice President and AMLCO of DSC and AMLCO of
investment companies managed by Dreyfus. Employed by DSC since 1998.
The directors and officers may be contacted at Founders' address appearing on
the inside cover, except for Mr.Germenis, who can be contacted at 200 Park
Avenue, New York, New York 10166. Additional information about the Company's
directors is available in the Statement of Additional Information, which can be
obtained free of charge by calling the toll free number on the back cover.
43
<Page>
DREYFUS FOUNDERS PASSPORT FUND
P.O. Box 55360
Boston, MA 02205-8252
1-800-525-2440
www.founders.com
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 (SEC) 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.
PORTFOLIO HOLDINGS
The Fund files its complete schedule of portfolio holdings with the SEC for the
first and third quarters of each fiscal year on Form N-Q. The Fund's Forms N-Q
are available on the SEC's website at www.sec.gov and may be reviewed and copied
at the SEC's Public Reference Room in Washington, DC. Information on the
operation of the SEC's Public Reference Room may be obtained by calling
1-800-SEC-0330.
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)2005 Founders Asset Management LLC. 2/05
A-646-PAS-04
<Page>
ANNUAL REPORT
DREYFUS FOUNDERS
WORLDWIDE GROWTH
FUND
INVESTMENT UPDATE
DECEMBER 31, 2004
[GRAPHIC]
[(R)DREYFUS FOUNDERS FUNDS(R) LOGO]
THE GROWTH SPECIALISTS
<Page>
TABLE OF CONTENTS
<Table>
Management Overview 3
Fund Expenses 10
Statement of Investments 12
Statement of Assets and Liabilities 20
Statement of Operations 22
Statements of Changes in Net Assets 23
Financial Highlights 24
Notes to Financial Statements 30
Report of Independent Registered Public Accounting Firm 39
Your Board Representatives 40
</Table>
[GRAPHIC]
PAPERLESS DELIVERY OF THIS REPORT
Did you know you can reduce your postal mail by accessing Dreyfus Founders Funds
regulatory material online? It's a simple, reliable process: when new documents
such as this Annual Report are available, we'll send you an e-mail notification
containing a convenient link that will take you directly to that Fund
information on our website.
To take advantage of this service, simply inform us online of your decision
to receive materials through the Founders E-Communications Program. Cut down on
mailbox clutter and help the Fund reduce printing and postage charges by
enrolling today at www.founders.com/ecommunications. If you own Funds through a
third party, enroll at www.icsdelivery.com.
INVESTMENT MANAGER DISTRIBUTOR
Founders Asset Management LLC Dreyfus Service Corporation
A MELLON FINANCIAL COMPANY(SM) 200 Park Avenue
210 University Boulevard, Suite 800 New York, NY 10166
Denver, CO 80206
The views expressed in this report reflect those of the portfolio managers only
through the end of the period covered and do not necessarily represent the views
of Founders or any other person in the Founders organization. Any such views are
subject to change at any time based upon market or other conditions and Founders
disclaims any responsibility to update such views. These views may not be relied
on as investment advice and, because investment decisions for a Dreyfus Founders
Fund are based on numerous factors, may not be relied on as an indication of
trading intent on behalf of any Dreyfus Founders Fund. Companies appearing in
bold print on pages 3-9 were owned by the Fund on December 31, 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
(UNAUDITED)
[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 FOR THE 12 MONTHS ENDED
DECEMBER 31, 2004?
Dreyfus Founders Worldwide Growth Fund underperformed its benchmark, the Morgan
Stanley Capital International (MSCI) World Index, which returned 14.72% for the
period.
PLEASE DESCRIBE THE BROAD MARKET AND ECONOMIC ENVIRONMENT IN WHICH THE FUND
PERFORMED.
The domestic markets performed in an environment of uncertainty during the first
three quarters of the year as a weak U.S. dollar, continued unrest in Iraq, high
oil prices, a tightening of the monetary policy by the Federal Reserve and the
close U.S. Presidential election weighed on investors. However, as oil prices
dropped and the Presidential election was decided, the markets once again gained
momentum in the fourth quarter.
[SIDENOTE]
"MANY SECTORS FARED WELL DURING THE PERIOD DUE PRIMARILY TO THE BENEFITS OF
ACCELERATING GLOBAL PRODUCTION."
3
<Page>
European markets performed well during the period despite weak local demand,
record high commodity prices and currency strength. Natural resource-rich
countries, such as Norway, and areas with flourishing local growth, like Spain,
offset more sluggish results in other European countries.
Japan lagged other Asian markets during 2004 due to mixed performance in the
technology sector and a slower-than-expected recovery in domestic consumption.
Overall, many sectors fared well during the period due primarily to the
benefits of accelerating global production; however, technology and healthcare
were the two worst performing sectors during the year.
WHERE DID YOU FIND THE MOST COMPELLING GROWTH OPPORTUNITIES DURING THE PERIOD?
The largest contributors to relative Fund performance on a country basis were
found in the United Kingdom, Canada, Germany and France. The Fund outpaced the
benchmark in these countries due to strong stock selection and beneficial
weightings. Singapore and the Netherlands also performed well for the Fund
during the 12-month timeframe.
[SIDENOTE]
PERFORMANCE HIGHLIGHTS
- - As oil prices dropped and the Presidential election was decided, the markets
gained momentum in the fourth quarter.
- - During the period, our outlook for consumer spending was favorable and our
bottom-up investment approach led us to select stocks that we believed would
benefit from this increased spending environment.
- - Another large positive contributor to relative Fund performance was strong
stock selection in the energy sector. The Fund's holdings in this sector
significantly outperformed the benchmark for the year.
- - The largest negative contributor to relative Fund performance on a country
basis came from United States, due to the uncertainties which hung over the
market.
- - Nearly all of the stocks that had the largest negative impact on the Fund's
performance were found in the information technology sector.
4
<Page>
During the period, our outlook for consumer spending was favorable and our
bottom-up investment approach led us to select stocks that we believed would
benefit from this increased spending environment. APPLE COMPUTER, INC., which
had the largest positive impact on the Fund's performance of any stock, rallied
as the company continued to benefit from its dominance in the MP3 market with
the popularity of the iPod. Additional Fund holdings that performed well due to
the strong spending environment included brewer SABMILLER PLC, high-end retailer
Nordstrom, Inc., and entertainment company WALT DISNEY COMPANY.
In addition, an overweight position paired with strong stock selection in the
consumer discretionary sector buoyed relative Fund performance. ROYAL CARIBBEAN
CRUISES LIMITED and CARNIVAL CORPORATION both experienced strong demand for
leisure cruising.
Another large positive contributor to relative Fund performance was strong
stock selection in the energy sector. Led by U.K.-based Cairn Energy PLC, the
Fund's holdings in this sector significantly outperformed the benchmark for the
year. Cairn was up nearly 125% during the Fund's holding period, as the oil and
gas exploration and production company enjoyed highly successful exploration
ventures in India and soaring oil prices.
LARGEST EQUITY HOLDINGS (country of origin; ticker symbol)
<Table>
1. Royal Caribbean Cruises Limited (United States; RCL) 2.37%
2. Intel Corporation (United States; INTC) 2.26%
3. Wal-Mart Stores, Inc. (United States; WMT) 2.25%
4. Vodafone Group PLC (United Kingdom; VOD) 1.83%
5. Apple Computer, Inc. (United States; AAPL) 1.78%
6. Carnival Corporation (United States; CCL) 1.72%
7. Automatic Data Processing, Inc. (United States; ADP) 1.67%
8. Abbott Laboratories (United States; ABT) 1.67%
9. Johnson & Johnson (United States; JNJ) 1.64%
10. Comcast Corporation (United States; CMCSK) 1.64%
</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.
Class F MSCI World
Shares Index
- -------------------------------------
12/31/1994 $10,000 $10,000
12/31/1995 $12,063 $12,072
12/31/1996 $13,746 $13,699
12/31/1997 $15,197 $15,859
12/31/1998 $16,659 $19,718
12/31/1999 $24,785 $24,635
11/30/2000 $18,896 $21,051
12/31/2001 $14,414 $17,790
12/31/2002 $10,245 $14,252
12/31/2003 $14,033 $18,971
12/31/2004 $15,816 $21,764
The above graph compares a $10,000 investment made in Class F shares of Dreyfus
Founders Worldwide Growth Fund on 12/31/94 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 TOTAL RETURN AS OF 12/31/04
<Table>
<Caption>
1 5 10 SINCE
CLASS (INCEPTION DATE) YEAR YEARS YEARS INCEPTION
---------------------------------------------------------------------------------------------------
CLASS A SHARES (12/31/99)
With sales charge (5.75%) 6.21% (9.76%) -- (9.76%)
Without sales charge 12.65% (8.68%) -- (8.68%)
CLASS B SHARES (12/31/99)
With redemption* 7.89% (9.63%) -- (9.63%)
Without redemption 11.89% (9.34%) -- (9.34%)
CLASS C SHARES (12/31/99)
With redemption** 10.75% (9.71%) -- (9.71%)
Without redemption 11.75% (9.71%) -- (9.71%)
CLASS F SHARES (12/29/89) 12.71% (8.59%) 4.69% 7.44%
CLASS R SHARES (12/31/99) 13.19% (8.23%) -- (8.23%)
CLASS T SHARES (12/31/99)
With sales charge (4.50%) 7.21% (10.60%) -- (10.60%)
Without sales charge 12.30% (9.77%) -- (9.77%)
</Table>
Average annual total returns do not reflect the deduction of taxes that a
shareholder would pay on Fund distributions or redemption of Fund shares, but do
reflect the reinvestment of dividends and capital gain distributions, expense
limits for certain share classes, and adjustments for financial statement
purposes. Part of the Fund's historical performance is due to the purchase of
securities sold in initial public offerings (IPOs). There is no guarantee that
the Fund's investments in IPOs, if any, will continue to have a similar impact
on performance. Investments in foreign securities entail unique risks, including
political, market, and currency risks.
*The maximum contingent deferred sales charge for Class B shares is 4% and is
reduced to 0% after six years, at which time the Class B shares convert to Class
A shares.
**The maximum contingent deferred sales charge for Class C shares is 1% for
shares redeemed within one year of the date of purchase.
7
<Page>
Solid stock selection in the consumer staples sector also boosted relative
Fund performance.
Other notable individual performers during the period included financials
holdings BARCLAYS PLC and ING GROEP NV, and automotive industry supplier
CONTINENTAL AG.
WHERE DID YOU FIND THE LEAST COMPELLING GROWTH OPPORTUNITIES DURING THE PERIOD?
The largest negative contributor to relative Fund performance on a country basis
came from United States, due to the aforementioned uncertainties which hung over
the market. Although the Fund's holdings in the U.S. were positive for the year,
this return trailed the benchmark's return. The Fund also trailed the Index in
Denmark, Hong Kong, Italy and Sweden.
Our investment strategy for the Fund is to build a diversified portfolio of
high-quality companies across various sectors and countries that demonstrate the
best potential for significant earnings growth. However, there are times when
stock performance disappoints, hurting overall Fund performance. The biggest
detractors to the Fund's relative performance came from the information
technology, materials and industrials sectors. Nearly all of the stocks that
[CHART]
PORTFOLIO COMPOSITION OF NET ASSETS
<Table>
United States 48.13%
United Kingdom 11.14%
Japan 10.32%
France 5.00%
Germany 4.04%
Canada 2.88%
Switzerland 2.82%
Italy 2.03%
Other Countries 11.89%
Cash & Equivalents 1.75%
</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>
had the largest negative impact on the Fund's performance were found in the
information technology sector, including issues INTEL CORPORATION, NVIDIA
Corporation, CISCO SYSTEMS, INC., Oracle Corporation, Motorola, Inc., NOKIA OYJ,
MAXIM INTEGRATED PRODUCTS, INC., VERITAS Software Corporation and EMC
Corporation.
In addition, healthcare holding PFIZER, INC. had a negative impact on the
Fund's performance. The company's share price was hurt by generic competition
and safety concerns surrounding their blockbuster COX-2 inhibitor drug
Celebrex(R).
We will continue to employ our fundamental-based investment strategy of
selecting companies that we believe will post superior revenue and earnings
growth rates at valuations that make sense.
/s/ Remi J. Browne /s/ Daniel B. LeVan
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>
FUND EXPENSES
(UNAUDITED)
As a shareholder of the Fund, depending on the class of shares of the Fund you
own, you incur two types of costs: (1) transaction costs, including front-end
and contingent deferred sales charges; and (2) ongoing costs, including
management fees, Rule 12b-1 fees, shareholder services fees, and other expenses.
The expense example shown below is intended to help you understand your ongoing
costs (in dollars) of investing in the Fund and to compare these costs with the
ongoing costs of investing in other mutual funds.
The expense example is based on an investment of $1,000 on July 1, 2004 and
held through December 31, 2004.
ACTUAL EXPENSES The numbers included in the expense example in the rows with the
word "Actual" in the title provide information about actual account values and
actual expenses. You may use this information to estimate the expenses that you
paid over the period. Simply divide your account value by $1,000 (for example,
an $8,600 account value divided by $1,000 = 8.60), then multiply the result by
the number under the column heading entitled "Expenses Paid During Period" for
the class of shares you own to estimate the expenses you paid on your account
during this period.
HYPOTHETICAL EXPENSES The numbers included in the expense example in the rows
with the word "Hypothetical" in the title provide information about hypothetical
account values and hypothetical expenses based on the Fund's actual expense
ratio for each class of shares, and an assumed rate of return of 5% per year
before expenses, which is not the Fund's actual return. The hypothetical account
values and expenses may not be used to estimate the actual ending account
balance or expenses you paid for the period. You may use this information to
compare the ongoing costs of investing in the Fund and other funds. To do so,
compare the hypothetical expenses in the expense example for the class of shares
you own with the hypothetical expenses that appear in the shareholder reports of
other funds.
Please note that the expenses shown in the expense example are meant to
highlight your ongoing costs only and do not reflect the transaction costs
described above. Therefore, the hypothetical expenses in the expense example are
useful in comparing ongoing costs only, and will not help you determine the
relative total costs of owning different funds. In addition, if the transaction
costs were included, your costs would have been higher.
10
<Page>
EXPENSE EXAMPLE
<Table>
<Caption>
BEGINNING ENDING EXPENSES PAID
ACCOUNT VALUE ACCOUNT VALUE DURING PERIOD*
(7/1/04) (12/31/04) (7/1/04-12/31/04)
--------------------------------------------------------------------------------------------
CLASS A ACTUAL $ 1,000.00 $ 1,086.91 $ 9.75
CLASS A HYPOTHETICAL 1,000.00 1,015.58 9.42
CLASS B ACTUAL 1,000.00 1,078.87 13.25
CLASS B HYPOTHETICAL 1,000.00 1,012.17 12.83
CLASS C ACTUAL 1,000.00 1,078.28 13.94
CLASS C HYPOTHETICAL 1,000.00 1,011.51 13.49
CLASS F ACTUAL 1,000.00 1,087.94 9.33
CLASS F HYPOTHETICAL 1,000.00 1,015.99 9.01
CLASS R ACTUAL 1,000.00 1,092.43 7.23
CLASS R HYPOTHETICAL 1,000.00 1,018.03 6.97
CLASS T ACTUAL 1,000.00 1,082.09 12.37
CLASS T HYPOTHETICAL 1,000.00 1,013.04 11.96
</Table>
*Expenses are equal to each Class's respective annualized expense ratio, shown
below, multiplied by the average account value over the period, multiplied by
184/366 (to reflect the one-half year period).
EXPENSE RATIOS
These expense ratios reflect reimbursements and/or waivers of expenses by the
Fund's investment adviser or its affiliates.
<Table>
<Caption>
EXPENSE RATIO
------------------------------------
CLASS A 1.85%
CLASS B 2.52%
CLASS C 2.65%
CLASS F 1.77%
CLASS R 1.37%
CLASS T 2.35%
</Table>
11
<Page>
STATEMENT OF INVESTMENTS
December 31, 2004
<Table>
<Caption>
SHARES MARKET VALUE
- ---------------------------------------------------------------------------------------------------------------
COMMON STOCKS (DOMESTIC)--48.1%
AIRLINES--1.3%
28,800 JetBlue Airways Corporation* $ 668,730
31,575 Southwest Airlines Company 514,041
---------------
1,182,771
---------------
ASSET MANAGEMENT & CUSTODY BANKS--1.0%
6,400 Bank of New York Company, Inc. 213,888
14,725 Northern Trust Corporation 715,341
---------------
929,229
---------------
BIOTECHNOLOGY--0.8%
3,475 Biogen Idec, Inc.* 231,470
9,000 Genzyme Corporation* 522,630
---------------
754,100
---------------
BROADCASTING & CABLE TV--1.6%
44,325 Comcast Corporation Special Class A* 1,455,633
---------------
COMMUNICATIONS EQUIPMENT--2.3%
44,625 Cisco Systems, Inc.* 861,263
10,825 QUALCOMM, Inc. 458,980
22,325 Scientific-Atlanta, Inc. 736,948
---------------
2,057,191
---------------
COMPUTER & ELECTRONICS RETAIL--0.5%
7,212 Best Buy Company, Inc. 428,537
---------------
COMPUTER HARDWARE--2.6%
24,450 Apple Computer, Inc.* 1,574,580
7,600 International Business Machines Corporation 749,208
---------------
2,323,788
---------------
CONSUMER FINANCE--0.7%
21,250 MBNA Corporation 599,038
---------------
</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.
AR Argentina
AT Austria
AU Australia
BD Bermuda
BE Belgium
BR Brazil
CA Canada
CH Chile
CN China
DE Denmark
FI Finland
FR France
GE Germany
GR Greece
HK Hong Kong
ID Indonesia
IE Ireland
IN India
IS Israel
IT Italy
JA Japan
KR South Korea
MA Malaysia
MX Mexico
NE Netherlands
NW Norway
NZ New Zealand
PH Philippines
SA South Africa
SG Singapore
SP Spain
SW Sweden
SZ Switzerland
TH Thailand
UK United Kingdom
12
<Page>
<Table>
<Caption>
SHARES MARKET VALUE
- ---------------------------------------------------------------------------------------------------------------
DATA PROCESSING & OUTSOURCED SERVICES--2.1%
33,300 Automatic Data Processing, Inc. $ 1,476,855
9,575 CheckFree Corporation* 364,616
---------------
1,841,471
---------------
DEPARTMENT STORES--1.0%
18,625 Kohl's Corporation* 915,791
---------------
GENERAL MERCHANDISE STORES--0.5%
21,250 Dollar General Corporation 441,363
---------------
HEALTHCARE EQUIPMENT--0.7%
16,450 Boston Scientific Corporation* 584,798
---------------
HOTELS, RESORTS & CRUISE LINES--1.7%
26,500 Carnival Corporation 1,527,195
---------------
HOUSEHOLD PRODUCTS--1.8%
15,300 Clorox Company 901,629
13,525 Colgate-Palmolive Company 691,939
---------------
1,593,568
---------------
HYPERMARKETS & SUPER CENTERS--2.2%
37,800 Wal-Mart Stores, Inc. 1,996,596
---------------
INDUSTRIAL CONGLOMERATES--1.0%
23,375 General Electric Company 853,188
---------------
INVESTMENT BANKING & BROKERAGE--1.6%
13,325 Goldman Sachs Group, Inc. 1,386,333
---------------
LEISURE FACILITIES--2.4%
38,550 Royal Caribbean Cruises Limited 2,098,662
---------------
LIFE & HEALTH INSURANCE--0.5%
26,550 UnumProvident Corporation 476,307
---------------
MOVIES & ENTERTAINMENT--0.7%
21,850 Walt Disney Company 607,430
---------------
MULTI-LINE INSURANCE--0.7%
9,200 American International Group, Inc. 604,164
---------------
OFFICE ELECTRONICS--0.4%
6,575 Zebra Technologies Corporation* 370,041
---------------
OIL & GAS DRILLING--0.6%
12,700 Diamond Offshore Drilling, Inc. 508,635
---------------
OTHER DIVERSIFIED FINANCIAL SERVICES--0.9%
9,008 Citigroup, Inc. 434,005
10,456 JPMorgan Chase & Company 407,889
---------------
841,894
---------------
PERSONAL PRODUCTS--2.6%
20,800 Estee Lauder Companies, Inc. 952,016
30,225 Gillette Company 1,353,476
---------------
2,305,492
---------------
</Table>
SEE NOTES TO STATEMENT OF INVESTMENTS.
13
<Page>
<Table>
<Caption>
SHARES MARKET VALUE
- ---------------------------------------------------------------------------------------------------------------
PHARMACEUTICALS--3.7%
31,650 Abbott Laboratories $ 1,476,473
22,975 Johnson & Johnson 1,457,075
13,806 Pfizer, Inc. 371,243
---------------
3,304,791
---------------
PROPERTY & CASUALTY INSURANCE--0.5%
8,850 Allstate Corporation 457,722
---------------
RAILROADS--1.9%
16,250 Burlington Northern Santa Fe Corporation 768,788
13,325 Union Pacific Corporation 896,106
---------------
1,664,894
---------------
SEMICONDUCTORS--4.8%
13,600 Broadcom Corporation* 439,008
85,725 Intel Corporation 2,005,108
20,175 Linear Technology Corporation 781,983
24,300 Maxim Integrated Products, Inc. 1,030,077
---------------
4,256,176
---------------
SOFT DRINKS--0.5%
9,550 Coca-Cola Company 397,567
---------------
SPECIALTY STORES--0.2%
5,675 Tiffany & Company 181,430
---------------
SYSTEMS SOFTWARE--1.3%
41,975 Microsoft Corporation 1,121,152
---------------
THRIFTS & MORTGAGE FINANCE--1.9%
10,225 Freddie Mac 753,583
21,550 The PMI Group, Inc. 899,713
---------------
1,653,296
---------------
TRADING COMPANIES & DISTRIBUTORS--1.1%
13,975 W.W. Grainger, Inc. 931,015
---------------
TOTAL COMMON STOCKS (DOMESTIC)
(COST--$36,025,533) 42,651,258
---------------
COMMON STOCKS (FOREIGN)--50.2%
AEROSPACE & DEFENSE--0.5%
90,600 BAE Systems PLC (UK) 400,908
---------------
APPAREL, ACCESSORIES & LUXURY GOODS--1.1%
18,900 Bulgari SPA (IT) 233,520
45,600 Burberry Group PLC (UK) 351,039
10,400 Compagnie Financiere Richemont AG (SZ) 346,179
---------------
930,738
---------------
APPLICATION SOFTWARE--0.8%
63,600 Sage Group PLC (UK) 246,940
2,510 SAP AG (GE) 447,617
---------------
694,557
---------------
</Table>
14
<Page>
<Table>
<Caption>
SHARES MARKET VALUE
- ---------------------------------------------------------------------------------------------------------------
AUTOMOBILE MANUFACTURERS--1.7%
32,400 Nissan Motor Company Limited (JA) $ 352,236
4,900 Renault SA (FR) 409,943
19,400 Toyota Motor Corporation (JA) 789,480
---------------
1,551,659
---------------
BIOTECHNOLOGY--0.5%
610 Serono SA (SZ) 401,803
---------------
BREWERS--2.0%
16,700 Asahi Breweries Limited (JA) 206,815
8,300 InBev NV (BE) 321,982
7,900 Orkla ASA (NW) 259,564
58,500 SABMiller PLC (UK) 970,321
---------------
1,758,682
---------------
BROADCASTING & CABLE TV--1.4%
56,300 Mediaset SPA (IT) 713,985
36,100 Publishing & Broadcasting Limited (AU) 495,218
---------------
1,209,203
---------------
COMMUNICATIONS EQUIPMENT--1.5%
32,100 Nokia Oyj (FI) 507,003
2,400 Research In Motion Limited (CA)* 197,857
193,800 Telefonaktiebolaget LM Ericsson (SW) 618,256
---------------
1,323,116
---------------
COMPUTER HARDWARE--0.3%
34,000 Fujitsu Limited (JA) 221,314
---------------
COMPUTER STORAGE & PERIPHERALS--0.3%
15,700 ATI Technologies, Inc. (CA)* 304,775
---------------
CONSTRUCTION, FARM MACHINERY & HEAVY TRUCKS--0.8%
18,600 Volvo AB (SW) 737,518
---------------
CONSUMER ELECTRONICS--0.5%
29,000 Casio Computer Company Limited (JA) 447,438
---------------
CONSUMER FINANCE--0.3%
4,000 Sanyo Shinpan Finance Company Limited (JA) 284,181
---------------
DIVERSIFIED BANKS--3.9%
7,280 Alpha Bank AE (GR) 253,914
98,900 Banca Intesa SPA (IT) 475,881
85,871 Barclays PLC (UK) 966,028
7,489 BNP Paribas SA (FR) 542,563
14,000 HBOS PLC (UK) 227,913
6,988 Royal Bank of Scotland Group PLC (UK) 235,035
25,000 Shizuoka Bank Limited (JA) 236,899
5,400 Societe Generale (FR) 546,459
---------------
3,484,692
---------------
</Table>
SEE NOTES TO STATEMENT OF INVESTMENTS.
15
<Page>
<Table>
<Caption>
SHARES MARKET VALUE
- ---------------------------------------------------------------------------------------------------------------
DIVERSIFIED CAPITAL MARKETS--0.8%
12,200 Credit Suisse Group (SZ)* $ 512,848
2,844 UBS AG (SZ) 238,480
---------------
751,328
---------------
DIVERSIFIED CHEMICALS--0.7%
8,100 BASF AG (GE) 582,645
---------------
DIVERSIFIED METALS & MINING--1.4%
53,000 BHP Billiton Limited (AU) 637,313
36,000 Xstrata PLC (UK) 644,116
---------------
1,281,429
---------------
ELECTRIC UTILITIES--1.1%
5,800 E.ON AG (GE) 529,623
24,300 Fortum Oyj (FI) 449,865
---------------
979,488
---------------
ELECTRICAL COMPONENTS & EQUIPMENT--0.4%
34,700 Sumitomo Electric Industries Limited (JA) 377,579
---------------
ELECTRONIC EQUIPMENT MANUFACTURERS--1.1%
79,000 Hitachi Limited (JA) 547,380
4,100 Hoya Corporation (JA) 462,935
---------------
1,010,315
---------------
FOOD RETAIL--1.5%
1,400 Colruyt NV (BE) 227,593
3,700 Delhaize Group (BE) 281,385
127,900 Tesco PLC (UK) 790,014
---------------
1,298,992
---------------
FOREST PRODUCTS--0.3%
20,100 Canfor Corporation (CA)* 262,531
---------------
HOUSEHOLD PRODUCTS--0.4%
12,550 Reckitt Benckiser PLC (UK) 379,222
---------------
HYPERMARKETS & SUPER CENTERS--0.8%
9,000 Ito-Yokado Company Limited (JA) 377,672
6,400 Metro AG (GE) 351,970
---------------
729,642
---------------
INDUSTRIAL CONGLOMERATES--0.3%
42,900 Keppel Corporation Limited (SG) 226,011
---------------
INDUSTRIAL MACHINERY--0.6%
64,000 NSK Limited (JA) 321,655
3,600 Saurer AG (SZ)* 212,119
---------------
533,774
---------------
INTEGRATED OIL & GAS--2.3%
76,742 BP PLC (UK) 748,415
6,400 Husky Energy, Inc. (CA) 182,941
13,900 Repsol YPF SA (SP) 362,001
3,420 Total SA (FR) 747,035
---------------
2,040,392
---------------
</Table>
16
<Page>
<Table>
<Caption>
SHARES MARKET VALUE
- ---------------------------------------------------------------------------------------------------------------
INTEGRATED TELECOMMUNICATION SERVICES--2.7%
17,700 Deutsche Telekom AG (GE)* $ 400,337
7,500 France Telecom (FR) 248,335
92,300 Koninklijke KPN NV (NE) 876,957
12,600 Telefonica SA (SP) 237,374
19,600 Telus Corporation (CA) 592,482
---------------
2,355,485
---------------
IT CONSULTING & OTHER SERVICES--0.5%
16,500 Accenture Limited (BD)* 445,500
---------------
LEISURE PRODUCTS--0.4%
16,600 Sankyo Company Limited (JA) 375,027
---------------
LIFE & HEALTH INSURANCE--0.6%
84,900 Friends Provident PLC (UK) 251,000
103,600 Old Mutual PLC (UK) 263,525
---------------
514,525
---------------
MARINE--0.9%
69 AP Moller-Maersk AS (DE) 569,894
35,000 Kawasaki Kisen Kaisha Limited (JA) 225,090
---------------
794,984
---------------
MOVIES & ENTERTAINMENT--0.5%
13,300 Vivendi Universal SA (FR) 424,653
---------------
MULTI-LINE INSURANCE--0.5%
21,200 Aviva PLC (UK) 255,588
4,900 Baloise Holding Limited (SZ) 226,233
---------------
481,821
---------------
MULTI-UTILITIES & UNREGULATED POWER--0.3%
9,200 Suez SA (FR) 245,350
---------------
OFFICE ELECTRONICS--0.9%
14,000 Canon, Inc. (JA) 755,538
---------------
OIL & GAS EXPLORATION & PRODUCTION--0.9%
15,100 Eni SPA (IT) 378,064
2,600 Norsk Hydro ASA (NW) 204,765
161,900 Oil Search Limited (AU) 229,708
---------------
812,537
---------------
OTHER DIVERSIFIED FINANCIAL SERVICES--1.3%
29,600 ING Groep NV (NE) 895,604
7,900 Sun Life Financial, Inc. (CA) 264,718
---------------
1,160,322
---------------
</Table>
SEE NOTES TO STATEMENT OF INVESTMENTS.
17
<Page>
<Table>
<Caption>
SHARES MARKET VALUE
- ---------------------------------------------------------------------------------------------------------------
PHARMACEUTICALS--6.4%
13,500 Eisai Company Limited (JA) $ 443,984
11,500 GlaxoSmithKline PLC (UK) 269,783
5,400 Merck KGaA (GE) 369,199
11,088 Novartis AG (SZ) 558,739
6,100 Novo Nordisk AS Class B (DE) 333,279
9,000 Ono Pharmaceuticals Company Limited (JA) 505,026
9,500 Sanofi-Synthelabo SA (FR) 759,277
71,500 Shire Pharmaceuticals Group PLC (UK) 750,825
15,600 Takeda Pharmaceuticals Company Limited (JA) 785,557
29,500 Teva Pharmaceutical Industries Limited Sponsored ADR (IS) 880,870
---------------
5,656,539
---------------
PRECIOUS METALS & MINERALS--0.3%
12,400 ThyssenKrupp AG (GE) 273,046
---------------
PROPERTY & CASUALTY INSURANCE--0.3%
21,500 QBE Insurance Group Limited (AU) 258,701
---------------
PUBLISHING--0.3%
26,700 United Business Media PLC (UK) 246,036
---------------
RAILROADS--0.9%
12,237 Canadian National Railway Company (CA) 749,516
---------------
SEMICONDUCTORS--0.3%
119,700 ARM Holdings PLC (UK) 253,923
---------------
STEEL--0.8%
16,300 JFE Holdings, Inc. (JA) 465,283
92,000 Nippon Steel Corporation (JA) 225,354
---------------
690,637
---------------
TIRES & RUBBER--0.7%
9,900 Continental AG (GE) 629,095
---------------
TRADING COMPANIES & DISTRIBUTORS--0.8%
57,000 Mitsubishi Corporation (JA) 736,489
---------------
WIRELESS TELECOMMUNICATION SERVICES--2.6%
11,000 Bouygues SA (FR) 508,359
65,100 China Mobile (Hong Kong) Limited (HK) 220,694
596,575 Vodafone Group PLC (UK) 1,617,704
---------------
2,346,757
---------------
TOTAL COMMON STOCKS (FOREIGN)
(COST--$34,014,899) 44,410,413
---------------
</Table>
18
<Page>
<Table>
<Caption>
PRINCIPAL AMOUNT AMORTIZED COST
- ---------------------------------------------------------------------------------------------------------------
CORPORATE SHORT-TERM NOTES--1.5%
HOUSEHOLD APPLIANCES--1.5%
$ 1,369,000 Stanley Works, Inc.
2.20% 1/3/05~ $ 1,368,833
---------------
TOTAL CORPORATE SHORT-TERM NOTES
(AMORTIZED COST--$1,368,833) 1,368,833
---------------
TOTAL INVESTMENTS--99.8%
(TOTAL COST--$71,409,265) 88,430,504
---------------
OTHER ASSETS AND LIABILITIES--0.2% 177,676
---------------
NET ASSETS--100.0% $ 88,608,180
===============
</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. THESE SECURITIES
AMOUNTED TO $1,368,833, OR 1.5%, OF THE FUND'S NET ASSETS AS OF DECEMBER
31, 2004.
ADR - AMERICAN DEPOSITARY RECEIPT
SEE NOTES TO FINANCIAL STATEMENTS.
19
<Page>
STATEMENT OF ASSETS AND LIABILITIES
December 31, 2004
<Table>
ASSETS
Investment securities, at cost $ 71,409,265
---------------
Investment securities, at market 88,430,504
Cash 247,503
Foreign currency (cost $1,267) 1,255
Receivables:
Capital shares sold 86,787
Dividends and interest 76,830
Other assets 103,650
---------------
Total Assets 88,946,529
---------------
LIABILITIES
Payables and other accrued liabilities:
Capital shares redeemed 124,744
Advisory fees 74,453
Shareholder servicing fees 9,494
Accounting fees 5,842
Distribution fees 17,235
Transfer agency fees 6,797
Custodian fees 3,783
Directors Deferred Compensation 64,944
Other 31,057
---------------
Total Liabilities 338,349
---------------
Net Assets $ 88,608,180
===============
COMPOSITION OF NET ASSETS
Capital (par value and paid-in surplus) $ 141,794,762
Accumulated net investment loss (17,206)
Accumulated net realized loss from security transactions (70,198,676)
Net unrealized appreciation on investments
and foreign currency translation 17,029,300
---------------
Total $ 88,608,180
===============
</Table>
20
<Page>
<Table>
CLASS A
Net Assets $ 518,501
Shares Outstanding 40,452
Net Asset Value, Redemption Price Per Share $ 12.82
Maximum offering price per share (net asset value
plus sales charge of 5.75% of offering price) $ 13.60
CLASS B
Net Assets $ 2,060,574
Shares Outstanding 167,065
Net Asset Value, Offering and Redemption Price (excluding
applicable contingent deferred sales charge) Per Share $ 12.33
CLASS C
Net Assets $ 272,491
Shares Outstanding 22,549
Net Asset Value, Offering and Redemption Price (excluding
applicable contingent deferred sales charge) Per Share $ 12.08
CLASS F
Net Assets $ 61,038,198
Shares Outstanding 4,746,066
Net Asset Value, Offering and Redemption Price Per Share $ 12.86
CLASS R
Net Assets $ 24,664,833
Shares Outstanding 1,878,421
Net Asset Value, Offering and Redemption Price Per Share $ 13.13
CLASS T
Net Assets $ 53,583
Shares Outstanding 4,448
Net Asset Value, Redemption Price Per Share $ 12.05
Maximum offering price per share (net asset value
plus sales charge of 4.50% of offering price) $ 12.62
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
21
<Page>
STATEMENT OF OPERATIONS
For the year ended December 31, 2004
<Table>
INVESTMENT INCOME
Dividends $ 1,524,206
Interest 37,345
Foreign taxes withheld (113,522)
---------------
Total Investment Income 1,448,029
---------------
EXPENSES
Advisory fees--Note 2 881,782
Shareholder servicing fees--Note 2 100,567
Accounting fees--Note 2 69,350
Distribution fees--Note 2 173,942
Transfer agency fees--Note 2 70,147
Registration fees 51,794
Postage and mailing expenses 13,173
Custodian fees and expenses--Note 2 50,527
Printing expenses 35,653
Legal and audit fees 17,335
Directors' fees and expenses--Note 2 17,197
Other expenses 29,392
---------------
Total Expenses 1,510,859
Earnings Credits (1,911)
Reimbursed/Waived Expenses (14,332)
Expense Offset to Broker Commissions (4,071)
---------------
Net Expenses 1,490,545
---------------
Net Investment Loss (42,516)
---------------
REALIZED AND UNREALIZED GAIN (LOSS) ON SECURITY
TRANSACTIONS AND FOREIGN CURRENCY TRANSACTIONS
Net Realized Gain (Loss) on:
Security Transactions 14,020,415
Foreign Currency Transactions (986)
---------------
Net Realized Gain 14,019,429
Net Change in Unrealized Appreciation/Depreciation
of Investments and Foreign Currency Translation (3,533,551)
---------------
Net Realized and Unrealized Gain 10,485,878
---------------
Net Increase in Net Assets Resulting from Operations $ 10,443,362
===============
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
22
<Page>
STATEMENTS OF CHANGES IN NET ASSETS
<Table>
<Caption>
YEAR ENDED YEAR ENDED
12/31/04 12/31/03
OPERATIONS
Net Investment Loss $ (42,516) $ (324,443)
Net Realized Gain (Loss) on Security
and Foreign Currency Transactions 14,019,429 (60,984)
Net Change in Unrealized Appreciation/Depreciation
of Investments and Foreign Currency Translation (3,533,551) 26,608,251
--------------- ---------------
Net Increase in Net Assets
Resulting from Operations 10,443,362 26,222,824
--------------- ---------------
CAPITAL SHARE TRANSACTIONS
Net Increase (Decrease)--Note 4
Class A (195,731) (95,963)
Class B 21,999 (128,745)
Class C (26,743) (25,117)
Class F (16,782,781) (9,169,160)
Class R 383,468 1,759,076
Class T (14,130) (2,291)
--------------- ---------------
Net Decrease from Capital Share Transactions (16,613,918) (7,662,200)
--------------- ---------------
Net Increase (Decrease) in Net Assets (6,170,556) 18,560,624
--------------- ---------------
NET ASSETS
Beginning of year $ 94,778,736 $ 76,218,112
--------------- ---------------
End of year $ 88,608,180 $ 94,778,736
=============== ===============
Accumulated Net Investment Loss $ (17,206) $ (14,782)
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
23
<Page>
FINANCIAL HIGHLIGHTS
<Table>
<Caption>
YEAR ENDED DECEMBER 31,
----------------------------------------------------------------------
2004 2003 2002 2001 2000
----------------------------------------------------------------------
CLASS A SHARES
PER SHARE OPERATING DATA
Net Asset Value, beginning of year $ 11.38 $ 8.32 $ 11.71 $ 15.78 $ 25.18
- ---------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment loss (0.21) (0.10) (0.15) (0.09) (0.09)
Net realized and unrealized gains
(losses) on securities 1.65 3.16 (3.24) (3.98) (5.44)
----------------------------------------------------------------------
Total from investment operations 1.44 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 year $ 12.82 $ 11.38 $ 8.32 $ 11.71 $ 15.78
======================================================================
TOTAL RETURN* 12.65% 36.78% (28.95%) (25.79%) (21.82%)
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000s) $ 519 $ 656 $ 543 $ 1,003 $ 800
- ---------------------------------------------------------------------------------------------------------------------------
Ratios to average net assets:
Expenses with reimbursements, but no
earnings credits or brokerage offsets# 1.81% 2.03% 2.06% 2.10% 1.43%
Expenses with reimbursements,
earnings credits and brokerage offsets 1.81% 2.03% 2.06% 2.09% 1.41%
Net investment loss (0.18%) (0.55%) (0.77%) (0.96%) (0.35%)
- ---------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate@ 130% 138% 211% 145% 210%
</Table>
* SALES CHARGES ARE NOT REFLECTED IN THE TOTAL RETURN.
# CERTAIN FEES WERE WAIVED BY THE CUSTODIAN. HAD THESE FEES NOT BEEN WAIVED,
THE EXPENSE RATIOS WOULD HAVE BEEN 1.83% (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.
24
<Page>
<Table>
<Caption>
YEAR ENDED DECEMBER 31,
----------------------------------------------------------------------
2004 2003 2002 2001 2000
----------------------------------------------------------------------
CLASS B SHARES
PER SHARE OPERATING DATA
Net Asset Value, beginning of year $ 11.02 $ 8.12 $ 11.52 $ 15.57 $ 25.18
- ---------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment loss (0.09) (0.16) (0.14) (0.15) (0.11)
Net realized and unrealized gains
(losses) on securities 1.40 3.06 (3.26) (3.90) (5.63)
----------------------------------------------------------------------
Total from investment operations 1.31 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 year $ 12.33 $ 11.02 $ 8.12 $ 11.52 $ 15.57
======================================================================
TOTAL RETURN* 11.89% 35.71% (29.51%) (26.01%) (22.67%)
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000s) $ 2,061 $ 1,821 $ 1,459 $ 2,089 $ 2,329
- ---------------------------------------------------------------------------------------------------------------------------
Ratios to average net assets:
Expenses with reimbursements, but no
earnings credits or brokerage offsets# 2.52% 2.80% 2.71% 2.54% 2.25%
Expenses with reimbursements,
earnings credits and brokerage offsets 2.52% 2.80% 2.70% 2.53% 2.21%
Net investment loss (0.87%) (1.30%) (1.41%) (1.43%) (1.40%)
- ---------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate@ 130% 138% 211% 145% 210%
</Table>
* SALES CHARGES ARE NOT REFLECTED IN THE TOTAL RETURN.
# CERTAIN FEES WERE WAIVED BY THE CUSTODIAN. HAD THESE FEES NOT BEEN WAIVED,
THE EXPENSE RATIOS WOULD HAVE BEEN 2.54% (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.
25
<Page>
<Table>
<Caption>
YEAR ENDED DECEMBER 31,
----------------------------------------------------------------------
2004 2003 2002 2001 2000
----------------------------------------------------------------------
CLASS C SHARES
PER SHARE OPERATING DATA
Net Asset Value, beginning of year $ 10.81 $ 7.96 $ 11.34 $ 15.56 $ 25.18
- ---------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment loss (0.20) (0.20) (0.30) (0.30) (0.11)
Net realized and unrealized gains
(losses) on securities 1.47 3.05 (3.08) (3.92) (5.64)
----------------------------------------------------------------------
Total from investment operations 1.27 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 year $ 12.08 $ 10.81 $ 7.96 $ 11.34 $ 15.56
======================================================================
TOTAL RETURN* 11.75% 35.80% (29.81%) (27.12%) (22.70%)
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000s) $ 272 $ 271 $ 218 $ 380 $ 375
- ---------------------------------------------------------------------------------------------------------------------------
Ratios to average net assets:
Expenses with reimbursements, but no
earnings credits or brokerage offsets# 2.60% 2.82% 3.33% 4.18% 2.25%
Expenses with reimbursements,
earnings credits and brokerage offsets 2.59% 2.82% 3.33% 4.17% 2.21%
Net investment loss (0.97%) (1.34%) (2.05%) (3.07%) (1.31%)
- ---------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate@ 130% 138% 211% 145% 210%
</Table>
* SALES CHARGES ARE NOT REFLECTED IN THE TOTAL RETURN.
# 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 2.62% (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.
26
<Page>
<Table>
<Caption>
YEAR ENDED DECEMBER 31,
----------------------------------------------------------------------
2004 2003 2002 2001 2000
----------------------------------------------------------------------
CLASS F SHARES
PER SHARE OPERATING DATA
Net Asset Value, beginning of year $ 11.41 $ 8.33 $ 11.72 $ 15.69 $ 25.17
- ---------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment loss (0.21) (0.13) (0.13) (0.14) (0.16)
Net realized and unrealized gains
(losses) on securities 1.66 3.21 (3.26) (3.83) (5.45)
----------------------------------------------------------------------
Total from investment operations 1.45 3.08 (3.39) (3.97) (5.61)
- ---------------------------------------------------------------------------------------------------------------------------
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 year $ 12.86 $ 11.41 $ 8.33 $ 11.72 $ 15.69
======================================================================
TOTAL RETURN 12.71% 36.97% (28.92%) (25.30%) (22.14%)
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000s) $ 61,038 $ 70,566 $ 59,890 $ 101,592 $ 176,405
- ---------------------------------------------------------------------------------------------------------------------------
Ratios to average net assets:
Expenses with reimbursements, but no
earnings credits or brokerage offsets# 1.78% 1.97% 1.84% 1.61% 1.54%
Expenses with reimbursements,
earnings credits and brokerage offsets 1.77% 1.97% 1.84% 1.60% 1.52%
Net investment loss (0.13%) (0.47%) (0.55%) (0.50%) (0.67%)
- ---------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate@ 130% 138% 211% 145% 210%
</Table>
# CERTAIN FEES WERE WAIVED BY THE CUSTODIAN. HAD THESE FEES NOT BEEN WAIVED,
THE EXPENSE RATIOS WOULD HAVE BEEN 1.80% (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.
27
<Page>
<Table>
<Caption>
YEAR ENDED DECEMBER 31,
----------------------------------------------------------------------
2004 2003 2002 2001 2000
----------------------------------------------------------------------
CLASS R SHARES
PER SHARE OPERATING DATA
Net Asset Value, beginning of year $ 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 1.50 3.16 (3.36) (3.92) (5.56)
----------------------------------------------------------------------
Total from investment operations 1.53 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 year $ 13.13 $ 11.60 $ 8.44 $ 11.81 $ 15.75
======================================================================
TOTAL RETURN 13.19% 37.44% (28.54%) (25.02%) (21.94%)
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000s) $ 24,665 $ 21,404 $ 14,060 $ 19,193 $ 27,611
- ---------------------------------------------------------------------------------------------------------------------------
Ratios to average net assets:
Expenses with reimbursements, but no
earnings credits or brokerage offsets# 1.37% 1.51% 1.41% 1.25% 1.26%
Expenses with reimbursements,
earnings credits and brokerage offsets 1.37% 1.51% 1.41% 1.24% 1.22%
Net investment income (loss) 0.28% (0.03%) (0.13%) (0.14%) (0.49%)
- ---------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate@ 130% 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.
# CERTAIN FEES WERE WAIVED BY THE CUSTODIAN. HAD THESE FEES NOT BEEN WAIVED,
THE EXPENSE RATIOS WOULD HAVE BEEN 1.39% (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.
28
<Page>
<Table>
<Caption>
YEAR ENDED DECEMBER 31,
----------------------------------------------------------------------
2004 2003 2002 2001 2000
----------------------------------------------------------------------
CLASS T SHARES
PER SHARE OPERATING DATA
Net Asset Value, beginning of year $ 10.73 $ 7.89 $ 11.46 $ 15.65 $ 25.18
- ---------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment loss (0.36) (0.14) (0.59) (0.26) (0.06)
Net realized and unrealized gains
(losses) on securities 1.68 2.98 (2.98) (3.93) (5.60)
----------------------------------------------------------------------
Total from investment operations 1.32 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 year $ 12.05 $ 10.73 $ 7.89 $ 11.46 $ 15.65
======================================================================
TOTAL RETURN* 12.30% 35.99% (31.15%) (26.77%) (22.34%)
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000s) $ 54 $ 61 $ 47 $ 90 $ 48
- ---------------------------------------------------------------------------------------------------------------------------
Ratios to average net assets:
Expenses with reimbursements, but no
earnings credits or brokerage offsets# 2.14% 2.54% 4.60% 3.75% 1.76%
Expenses with reimbursements,
earnings credits and brokerage offsets 2.14% 2.54% 4.60% 3.74% 1.72%
Net investment loss (0.50%) (1.05%) (2.88%) (2.72%) (0.76%)
- ---------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate@ 130% 138% 211% 145% 210%
</Table>
* SALES CHARGES ARE NOT REFLECTED IN THE TOTAL RETURN.
# 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 2.16% (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.
29
<Page>
NOTES TO FINANCIAL STATEMENTS
December 31, 2004
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,
Equity Growth (formerly Growth and Income), Government Securities, Growth,
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 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. However, the Funds are planning to begin using New
York closing exchange rates to convert foreign currencies to U.S. dollars
sometime during the first quarter of 2005.
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.
30
<Page>
If market quotations or official closing prices are not readily available or are
determined not to reflect accurately fair value, 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 but before the Fund calculates its net asset value,
and it is determined that the event has materially affected the value of the
security. Fair value of foreign equity securities may be determined with the
assistance of a pricing service using correlations between the movement of
prices of foreign securities and indexes of domestic securities and other
appropriate indicators, such as closing market prices of relevant ADRs and
futures contracts. Using fair value to price securities may result in a value
that is different from a security's most recent closing price and from the
prices used by other mutual funds to calculate their net asset values.
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 carry more risk
than U.S. securities, such as political and currency risks. The Fund normally
will invest a large portion of its assets in foreign securities. In the event
the Fund executes a foreign security transaction, the Fund may enter into a
foreign currency contract to settle the foreign security transaction. The
resultant foreign currency gain or loss from the contract is recorded as foreign
currency gain or loss and is presented as such in the Statement of Operations.
Foreign currency held at December 31, 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
31
<Page>
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, as earned, and includes the
accretion of discounts and the amortization of premiums over the lives of the
respective securities. Withholding taxes on foreign dividends have been provided
for in accordance with the applicable country's tax rules and rates.
DISTRIBUTIONS TO SHAREHOLDERS--The Fund declares and distributes dividends (if
any) and capital gains (if any) annually. Dividends and distributions, which are
determined in accordance with income tax regulations, are recorded on the
ex-dividend date.
EXPENSES--Each Class of the Fund bears expenses incurred specifically on its
behalf and, in addition, each Class bears a portion of general expenses based on
the relative net assets or the number of shareholder accounts of the Class. The
type of expense determines the allocation method.
The Company's board of directors has authorized the payment of certain Fund
expenses with commissions on Fund portfolio transactions. These commissions
reduce Other Expenses and are included in the Expense Offset to Broker
Commissions in the Statement of Operations.
USE OF ESTIMATES--The preparation of financial statements in conformity with
accounting principles generally accepted in the United States of America
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported amounts of
income and expenses during the reporting period. Actual results could differ
from those estimates.
INDEMNIFICATIONS--In the normal course of business, the Company enters into
contracts that contain provisions indemnifying other parties against specified
potential liabilities. Each Fund's maximum exposure under these arrangements is
unknown as this would involve future claims that may be made against the Fund
that have not yet occurred. However, based on experience, the Funds expect the
risk of loss to be remote.
OTHER--Certain prior year information has been reformatted, without substantive
change, to conform with the current year presentation.
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
32
<Page>
first $250 million of net assets, 0.80% of the next $250 million of net assets
and 0.70% of net assets in excess of $500 million.
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 year ended December 31,
2004, Class F shares were charged $93,831 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 from DTI
are paid by the Fund. During the year ended December 31, 2004, Class F shares
were charged $24,462 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 $13.00, per shareholder account considered to be an
open account at any time during a given month plus out-of-pocket charges.
Class-specific transfer agency fees paid to DTI during the year ended December
31, 2004 were as follows:
<Table>
<Caption>
TRANSFER
AGENCY FEES
----------------------------------------------------------------
Class A $ 1,166
Class B $ 3,377
Class C $ 586
Class R $ 6,809
Class T $ 161
</Table>
OTHER TRANSFER AGENCY FEES--Various broker-dealers, retirement plan
administrators and other unaffiliated entities have established omnibus accounts
with the Fund, and provide sub-transfer agency, recordkeeping or similar
services to persons holding Fund shares through those accounts. During the year
ended December 31, 2004, the Fund paid $33,586 to these entities for such
services. This amount is included in the transfer agency fees shown on the
Statement of Operations.
CASH MANAGEMENT FEES--The Funds also pay Mellon Bank N.A. ("Mellon Bank"), a
wholly-owned subsidiary of Mellon Financial Corporation and an affiliate of
Founders, fees for certain cash management services. These include various
services related to the processing of shareholder transactions in the Funds.
During the year ended December 31, 2004, the Fund was charged $3,495 for cash
management fees, which are included in the out-of-pocket charges from DTI above.
33
<Page>
DISTRIBUTION AND SHAREHOLDER SERVICES PLANS--DSC also is the distributor of the
Fund's shares. The Fund has adopted a Distribution Plan pursuant to Rule 12b-1
under the 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 year ended December
31, 2004, Class F shares were charged $157,943 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 year ended December 31, 2004, were as follows:
<Table>
<Caption>
DISTRIBUTION SHAREHOLDER
FEES SERVICING FEES
------------------------------------------------------------------------------------
Class A N/A $ 1,314
Class B $ 14,115 $ 4,705
Class C $ 1,750 $ 583
Class T $ 134 $ 134
</Table>
During the year ended December 31, 2004, DSC retained $888 and $10 in sales
commissions from the sales of Class A and Class T shares, respectively. DSC also
retained $5,293 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 of the
Fund, 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>
34
<Page>
Founders has contractually agreed to waive any fees received for these services
to the extent they exceed Founders' costs in providing the services.
CUSTODIAN FEES--Mellon Bank 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 Fund could have employed these assets
elsewhere to produce income had it not entered into this arrangement. The
custodian has also contractually 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 year ended December 31, 2004, the
Fund's portion of the fee waiver was $14,332, which reduced the amount paid to
Mellon Bank to $36,195.
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 invested
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,
which pays their compensation. 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--An affiliate of Founders reimbursed the Fund $5,258 shortly after the
fiscal year end for a trading error. This amount is not material to the Fund.
3. FEDERAL TAX INFORMATION
Net investment income and capital gains distributions are determined in
accordance with income tax regulations that may differ from accounting
principles generally accepted in the United States of America. These differences
are due to differing treatments for items such as deferral of wash sale losses,
foreign currency transactions, net operating losses and capital loss carryovers.
Permanent differences identified during the year ended December 31, 2004 have
been reclassified among the components of net assets as follows:
<Table>
<Caption>
UNDISTRIBUTED NET UNDISTRIBUTED NET PAID-IN
INVESTMENT INCOME REALIZED GAINS AND LOSSES CAPITAL
------------------------------------------------------------------
$ 40,092 $ 986 $ (41,078)
</Table>
35
<Page>
The tax components of capital represent distribution requirements the Fund must
satisfy under the income tax regulations and losses or tax deductions the Fund
may be able to offset against income and capital gains realized in future years.
Accumulated capital losses and post-October 31 capital losses noted below, if
any, as of December 31, 2004, 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. Net capital loss carryovers
utilized during 2004 by the Fund amounted to $13,356,449. Accumulated capital
losses as of December 31, 2004 were:
<Table>
<Caption>
EXPIRATION AMOUNT
-----------------------------------------------------------------
2009 $ 44,574,793
2010 $ 22,200,649
2011 $ 3,142,525
------------
$ 69,917,967
============
</Table>
The aggregate cost of investments and the composition of unrealized appreciation
and depreciation of investment securities for federal income tax purposes as of
December 31, 2004 are noted below. Unrealized appreciation/depreciation in the
table below excludes appreciation/depreciation on foreign currency translation.
The primary difference between book and tax appreciation or depreciation is wash
sale loss deferrals.
<Table>
Federal Tax Cost $ 71,689,974
Gross Tax Appreciation of Investments $ 17,005,208
Gross Tax Depreciation of Investments $ (264,678)
Net Tax Appreciation $ 16,740,530
</Table>
36
<Page>
4. CAPITAL SHARE TRANSACTIONS
The Fund is authorized to issue 450 million shares of $0.01 par value capital
stock. Transactions in shares of the Fund for the periods indicated were as
follows:
<Table>
<Caption>
YEAR ENDED YEAR ENDED
12/31/04 12/31/03
SHARES AMOUNT SHARES AMOUNT
CLASS A
Sold 14,460 $ 169,930 197,675 $ 1,902,667
Redeemed (31,674) $ (365,661) (205,316) $ (1,998,630)
----------------------------------------------------------------
Net Decrease (17,214) $ (195,731) (7,641) $ (95,963)
================================================================
CLASS B
Sold 31,752 $ 357,137 13,807 $ 133,035
Redeemed (29,868) $ (335,138) (28,252) $ (261,780)
----------------------------------------------------------------
Net Increase (Decrease) 1,884 $ 21,999 (14,445) $ (128,745)
================================================================
CLASS C
Sold 8,384 $ 94,894 50,623 $ 402,228
Redeemed (10,901) $ (121,637) (52,994) $ (427,345)
----------------------------------------------------------------
Net Decrease (2,517) $ (26,743) (2,371) $ (25,117)
================================================================
CLASS F
Sold 837,712 $ 9,854,038 2,467,985 $ 22,841,668
Redeemed (2,275,773) $ (26,636,819) (3,470,420) $ (32,010,828)
----------------------------------------------------------------
Net Decrease (1,438,061) $ (16,782,781) (1,002,435) $ (9,169,160)
================================================================
CLASS R
Sold 209,694 $ 2,478,822 286,586 $ 2,765,461
Redeemed (175,936) $ (2,095,354) (108,124) $ (1,006,385)
----------------------------------------------------------------
Net Increase 33,758 $ 383,468 178,462 $ 1,759,076
================================================================
CLASS T
Sold 1,421 $ 15,509 0 $ 0
Redeemed (2,672) $ (29,639) (282) $ (2,291)
----------------------------------------------------------------
Net Decrease (1,251) $ (14,130) (282) $ (2,291)
================================================================
</Table>
5. INVESTMENT TRANSACTIONS
Purchases and sales of investment securities (excluding short-term securities
and U.S. government obligations) for the year ended December 31, 2004 were
$112,697,618 and $128,204,437, respectively.
37
<Page>
6. LINE OF CREDIT
The Company has a line of credit arrangement ("LOC") with State Street Bank and
Trust Company, to be used for temporary or emergency purposes, primarily for
financing redemption payments. Each Fund's borrowings are limited to the lesser
of (a) $50 million, or (b) the lesser of 25% of the Fund's total net assets or
the maximum amount which the Fund is permitted to borrow pursuant to the
prospectus, any law or any other agreement. Combined borrowings are subject to
the $50 million cap on the total LOC. Each Fund agrees to pay annual fees and
interest on the unpaid balance based on prevailing market rates as defined in
the LOC. At December 31, 2004, the Fund did not have any borrowings under the
LOC.
7. LEGAL MATTERS
In early 2004, two purported class and derivative actions were filed against
Mellon Financial Corporation, Mellon Bank, Founders, Dreyfus, and certain
directors of the Dreyfus Founders Funds and the Dreyfus Funds (together, the
"Defendant Funds"). In September 2004, plaintiffs served a Consolidated Amended
Complaint (the "Amended Complaint") on behalf of a purported class of all
persons who acquired interests in any of the Defendant Funds between January 30,
1999 and November 17, 2003, and derivatively on behalf of the Defendant Funds.
The Amended Complaint in the newly styled IN RE DREYFUS MUTUAL FUNDS FEE
LITIGATION also named DSC, Premier Mutual Fund Services, Inc. and two additional
directors of the Defendant Funds as defendants and alleges violations of the
Investment Company Act of 1940, the Investment Advisers Act of 1940, the
Pennsylvania Unfair Trade Practices and Consumer Protection Law and common-law
claims. Plaintiffs seek to recover allegedly improper and excessive Rule 12b-1
and advisory fees allegedly charged to the Defendant Funds for marketing and
distribution services. More specifically, plaintiffs claim, among other things,
that 12b-1 fees and directed brokerage were improperly used to pay brokers to
recommend the Defendant Funds over other funds, and that such payments were not
disclosed to investors. In addition, plaintiffs assert that economies of scale
and soft-dollar benefits were not passed on to the Defendant Funds. Plaintiffs
further allege that 12b-1 fees were improperly charged to certain of the
Defendant Funds that were closed to new investors. The Amended Complaint seeks
compensatory and punitive damages, rescission of the advisory contracts, and an
accounting and restitution of any unlawful fees, as well as an award of
attorneys' fees and litigation expenses. As noted, some of the claims in this
litigation are asserted derivatively on behalf of the Defendant Funds that have
been named as nominal defendants. With respect to such derivative claims, no
relief is sought against the Defendant Funds. Founders, Dreyfus and the
Defendant Funds believe the allegations to be totally without merit and intend
to defend the action vigorously. The defendants filed motions to dismiss the
Amended Complaint on November 12, 2004, and those motions are pending.
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 nor the Funds believe that any of the pending actions
will have a material adverse effect on the Funds or Founders' ability to perform
its contract with the Funds.
38
<Page>
REPORT OF INDEPENDENT
REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Shareholders of
Dreyfus Founders Funds, Inc.
In our opinion, the accompanying statement of assets and liabilities, including
the statement of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of Dreyfus Founders Worldwide Growth
Fund (one of the portfolios constituting Dreyfus Founders Funds, Inc., hereafter
referred to as the "Fund") at December 31, 2004, the results of its operations
for the year then ended, the changes in its net assets for each of the two years
in the period then ended and the financial highlights for each of the five years
in the period then ended, in conformity with accounting principles generally
accepted in the United States of America. These financial statements and
financial highlights (hereafter referred to as "financial statements") are the
responsibility of the Fund's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these financial statements in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those standards
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits, which included
confirmation of securities at December 31, 2004 by correspondence with the
custodian, provide a reasonable basis for our opinion.
PricewaterhouseCoopers LLP
Denver, Colorado
February 10, 2005
39
<Page>
YOUR BOARD REPRESENTATIVES
(unaudited)
The Board of Directors of the Company oversees all 10 Dreyfus Founders Funds.
The business and affairs of the Company are managed under the direction of the
Board. The directors serving on the Board perform their responsibilities in the
manner which they reasonably believe to be in the best interests of the Funds
and their shareholders.
All of the directors, as listed below, are independent directors. They are not
affiliated with the Fund's adviser, its parent company, or its affiliates. The
directors have no official term of office and generally serve until they reach
the mandated retirement age of 75, resign, or are not re-elected. As you can see
from their backgrounds, the directors have broad experience as active or former
business and community leaders.
DIRECTORS
EUGENE H. VAUGHAN, CFA, 71. Year elected to the Board: 1970
Board Chairman. Founding Chairman and, formerly (1970 to 2000), President and
CEO, Vaughan Nelson Investment Management, LP, an investment counseling firm.
Director, Encore Bank. Founding Chairman, Center for Houston's Future, a
non-profit organization. Founding Chairman and former Governor, Association for
Investment Management and Research. Past Chairman and Trustee, Institute of
Chartered Financial Analysts. Past Chairman and Director, Financial Analysts
Federation.
ALAN S. DANSON, 65. Year elected to the Board: 1991
Private investor. Formerly, President and Director, D.H. Management, Inc., the
general partner of a limited partnership with technology company holdings (1996
to 2003). Formerly, Director and Senior Vice President, OptiMark Technologies,
Inc., a computerized securities trading service (1996 to 1999). Director,
CaseShare Systems, LLP, a document management company. Director, Gore Range
Natural Science School and The Les Streeter Programs, Inc., both of which are
non-profit organizations.
JOAN D. MANLEY, 72. Year elected to the Board: 1998
Retired. Formerly, Ms. Manley served in several executive capacities with Time
Incorporated, most recently as Group Vice President, Director and Chairman of
Time-Life Books, Inc. and Book of the Month Club, Inc. (1960 to 1984). Director,
Sara Lee Corporation and R.R. Donnelley & Sons Company.
ROBERT P. MASTROVITA, 60. Year elected to the Board: 1998
Private investor. Chairman of a private charitable foundation (1997 to present).
Formerly, Chairman and Director, Hagler, Mastrovita & Hewitt, Inc., a registered
investment adviser (1982 to 1997). Member, Boston Society of Security Analysts.
Trustee, Partridge Academy.
TRYGVE E. MYHREN, 68. Year elected to the Board: 1996
President, Myhren Media, Inc., a firm that invests in and advises media,
telecommunications, Internet and software companies. Special Limited Partner and
member of Investment Committee, Megunticook Funds, a venture capital firm (1998
to present). Director, Advanced Marketing Services, Inc. Trustee and Chairman of
Finance Committee, the University of Denver. Trustee, Denver Art Museum. Member,
Cable Television Hall of Fame. Formerly, President (1990 to 1996) and Director
(1992 to 2001) of the Providence Journal Company, a diversified media and
communications company. Formerly, Chairman and Chief Executive Officer of
American Television
40
<Page>
and Communications Corporation (now Timer Warner Cable) (1981 to 1988).
Formerly, Chairman of the National Cable Television Association (1986-1987).
GEORGE W. PHILLIPS, 66. Year elected to the Board: 1998
Retired. Vice Chairman of the Board, Chairman of the Finance Committee, and
Chairman of the Investment Committee, Children's Medical Center of Boston.
Formerly, President and Chief Executive Officer (1992 to 1997) and Director
(1992 to 2002) of Warren Bancorp, Inc. Formerly, President, Chief Executive
Officer and Director of Warren Five Cents Savings Bank (1992 to 1997).
PRINCIPAL OFFICERS
RICHARD W. SABO, 47. President of the Funds since 2000 and Principal Executive
Officer of the Funds since 2002. Founders' President and Chief Executive
Officer, Member of Founders' Board of Managers and Director of Dreyfus (1998 to
present). Executive Vice President of DSC since 2003. Formerly, Senior Vice
President and Regional Director for Prudential Securities, Inc. (1991 to 1998).
DAVID L. RAY, 47. Vice President of the Funds since 2000, and from 1990 to 1998.
Founders' Senior Vice PresidentAdministration and Treasurer. Vice President of
DSC since 2003. Employed by Founders and its predecessor company since 1990.
Formerly, Treasurer of the Funds (1990 to 1998).
KENNETH R. CHRISTOFFERSEN, 49. Secretary of the Funds since 2000, and from 1996
to 1998. Founders' Senior Vice President--Legal, General Counsel and Secretary.
Assistant Secretary of DSC since 2003. Employed by Founders and its predecessor
company since 1996.
JANELLE E. BELCHER, 46. Chief Compliance Officer of the Funds since 2004 and
Assistant Secretary of the Funds since 2002. Founders' Vice President--
Compliance since 2002. Formerly, Founders' Manager of Compliance (2000 to 2002)
and Securities Compliance Examiner, Staff Accountant and Team Leader for the
U.S. Securities and Exchange Commission (1990 to 2000).
ROBERT T. KELLY, 35. Treasurer, Principal Financial Officer, and Principal
Accounting Officer of the Funds since 2003. Founders' Vice President of
Portfolio Accounting since 2000. Formerly, Assistant Treasurer of the Funds
(2000 to 2003), and Head of Equity Desk for ABN Amro Trust Company (Cayman)
Limited (1998 to 2000).
WILLIAM G. GERMENIS, 34. Anti-Money Laundering Compliance Officer ("AMLCO") for
the Class A, Class B, Class C, Class R, and Class T shares of the Funds since
2002 and for the Class F shares of the Funds since 2003. Vice President and
AMLCO of MBSC, LLC since 2002. Vice President and AMLCO of DSC and AMLCO of
investment companies managed by Dreyfus. Employed by DSC since 1998.
The directors and officers may be contacted at Founders' address appearing on
the inside cover, except for Mr. Germenis, who can be contacted at 200 Park
Avenue, New York, New York 10166. Additional information about the Company's
directors is available in the Statement of Additional Information, which can be
obtained free of charge by calling the toll free number on the back cover.
41
<Page>
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<Page>
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<Page>
DREYFUS FOUNDERS WORLDWIDE GROWTH FUND
P.O. Box 55360
Boston, MA 02205-8252
1-800-525-2440
www.founders.com
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 (SEC) 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.
PORTFOLIO HOLDINGS
The Fund files its complete schedule of portfolio holdings with the SEC for the
first and third quarters of each fiscal year on Form N-Q. The Fund's Forms N-Q
are available on the SEC's website at www.sec.gov and may be reviewed and copied
at the SEC's Public Reference Room in Washington, DC. Information on the
operation of the SEC's Public Reference Room may be obtained by calling
1-800-SEC-0330.
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)2005 Founders Asset Management LLC. 2/05
A-646-WWG-04
<Page>
Dreyfus Founders
Balanced Fund
ANNUAL REPORT December 31, 2004
[LION GRAPHIC]
YOU, YOUR ADVISOR AND
(R) [DREYFUS LOGO]
A MELLON FINANCIAL COMPANY (SM)
<Page>
TABLE OF CONTENTS
<Table>
Management Overview 3
Fund Expenses 10
Statement of Investments 12
Statement of Assets and Liabilities 18
Statement of Operations 20
Statements of Changes in Net Assets 21
Financial Highlights 22
Notes to Financial Statements 28
Report of Independent Registered Public Accounting Firm 39
Other Tax Information 40
Your Board Representatives 41
</Table>
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INVESTMENT MANAGER DISTRIBUTOR
Founders Asset Management LLC Dreyfus Service Corporation
A MELLON FINANCIAL COMPANY(SM) 200 Park Avenue
210 University Boulevard, Suite 800 New York, NY 10166
Denver, CO 80206
The views expressed in this report reflect those of the portfolio managers only
through the end of the period covered and do not necessarily represent the views
of Founders or any other person in the Founders organization. Any such views are
subject to change at any time based upon market or other conditions and Founders
disclaims any responsibility to update such views. These views may not be relied
on as investment advice and, because investment decisions for a Dreyfus Founders
Fund are based on numerous factors, may not be relied on as an indication of
trading intent on behalf of any Dreyfus Founders Fund. Companies appearing in
bold print on pages 3-9 were owned by the Fund on December 31, 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
(UNAUDITED)
[PHOTO OF JOHN B. JARES]
[PHOTO OF JOHN V. JOHNSON]
A DISCUSSION WITH PORTFOLIO MANAGER JOHN B. JARES, CFA, LEFT, AND ASSISTANT
PORTFOLIO MANAGER JOHN V. JOHNSON, CFA
HOW DID THE FUND PERFORM RELATIVE TO ITS BENCHMARK FOR THE 12-MONTH PERIOD ENDED
DECEMBER 31, 2004?
During the 12-month period, Dreyfus Founders Balanced Fund held
approximately 31% of its portfolio in fixed-income investments, while its
benchmark, the Standard and Poor's 500 Index, was 100% invested in equities.
As a result, the benchmark benefited relative to the Fund as the equity market
rallied in the fourth quarter.
While we were pleased with the Fund's performance during the period, the Fund
underperformed the benchmark, which returned 10.88% for the year.
DESCRIBE THE OVERALL MARKET ENVIRONMENT DURING THE PERIOD.
During the year, the market labored under the burden of high oil prices, the
Iraqi conflict and the uncertainty surrounding the U.S. Presidential election.
As hesitancy over the election was resolved and crude oil prices moderated, the
market refocused on the underlying strength of corporate America and robust
earnings; it began to discount the strong earnings growth in 2004 along with
expectations of continued growth into 2005.
WHAT CHANGES WERE MADE TO THE FUND DURING THE PERIOD?
Fund performance was driven by our fundamental evaluation of individual
companies. Throughout most of the year, our process of vetting quality stocks
for portfolio inclusion led to a more conservative allocation in equities.
[SIDENOTE]
"THE FUND MIGRATED FROM A FAIRLY DEFENSIVE POSITION DURING THE FIRST PART OF THE
YEAR TO MORE OF AN ADVANTAGEOUS EQUITY STRUCTURE LATER IN THE YEAR."
3
<Page>
The market experienced a significant sell-off in the summer months related to
macroeconomic concerns more than fundamental company issues. The opportunity to
add new names to the portfolio at very attractive prices then emerged. This
allowed us to position the Fund off of a relatively inexpensive base for the
strong market rally that occurred at year-end.
WHAT MANAGEMENT DECISIONS HELPED FUND PERFORMANCE DURING THE PERIOD?
Our fundamental-based process drove stock selection throughout the year. As
companies in the information technology, healthcare and consumer discretionary
sectors began to show improving fundamentals, we selected for inclusion in the
Fund those companies that we believed were most likely to exhibit strong
earnings growth. In doing so, the Fund migrated from a fairly defensive position
during the first part of the year to more of an advantageous equity structure
later in the year. We added new stocks to the portfolio and increased positions
in certain existing Fund holdings, including APPLE COMPUTER, INC., ROYAL
CARIBBEAN CRUISES LIMITED, TIBCO SOFTWARE, INC., OSI PHARMACEUTICALS, INC.,
VERITAS Software Corporation, Fastenal Company and WYNN RESORTS, LIMITED.
[SIDENOTE]
PERFORMANCE HIGHLIGHTS
- - During the year, the market labored under the burden of high oil prices, the
Iraqi conflict and the uncertainty surrounding the U.S. Presidential
election.
- - As companies in the information technology, healthcare and consumer
discretionary sectors began to show improving fundamentals, we selected for
inclusion in the Fund those companies that we believed were most likely to
exhibit strong earnings growth.
- - The most compelling growth opportunities were found in the consumer
discretionary sector, where both a relative overweight position and strong
stock selection aided Fund performance.
- - Weak stock selection and a relative underweight position in the consumer
staples and materials sectors hindered Fund performance during the period.
- - Two themes stood out among the underperforming stocks in the Fund's
portfolio: semiconductors and advertising.
4
<Page>
The most compelling growth opportunities were found in the consumer
discretionary sector, where both a relative overweight position and strong stock
selection aided Fund performance. ROYAL CARIBBEAN CRUISES LIMITED, CARNIVAL
CORPORATION and WYNN RESORTS, LIMITED were among the top performers in this
sector for the Fund.
Strong stock selection in the healthcare sector also positively contributed
to the Fund's relative performance. A strong performer in this sector was
biotech firm OSI PHARMACEUTICALS, INC. which announced in November that its
flagship product Tarceva(TM), a non-small cell lung cancer product, received
U.S. Food and Drug Administration approval.
Within the information technology sector, notable performers in the software
industry also buoyed relative performance. APPLE COMPUTER, INC. rallied as the
company continued to benefit from its dominance in the MP3 market with the
popularity of the iPod, as well as from the introduction of a new iMac. TIBCO
SOFTWARE, INC. continued to see strong revenues and earnings driven by an
increase in corporate spending on critical productivity enhancements. VERITAS
also exhibited strong performance as investors began to better appreciate the
company's leading position within storage software.
LARGEST EQUITY HOLDINGS (ticker symbol)
<Table>
1. Royal Caribbean Cruises Limited (RCL) 3.77%
2. Wynn Resorts, Limited (WYNN) 3.61%
3. Apple Computer, Inc. (AAPL) 3.11%
4. Wal-Mart Stores, Inc. (WMT) 2.75%
5. Estee Lauder Companies, Inc. (EL) 2.69%
6. SAP AG Sponsored ADR (SAP) 2.54%
7. Teva Pharmaceutical Industries
Limited Sponsored ADR (TEVA) 2.41%
8. Colgate-Palmolive Company (CL) 2.34%
9. Microsoft Corporation (MSFT) 2.30%
10. Comcast Corporation Special Class A (CMCSK) 2.29%
</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.
Class F S&P 500 Lipper Balanced
Shares Index Fund Index
- -------------------------------------------------------
12/31/1994 $10,000 $10,000 $10,000
12/31/1995 $12,941 $13,758 $12,488
12/31/1996 $15,368 $16,917 $14,114
12/31/1997 $17,969 $22,561 $16,944
12/31/1998 $20,478 $29,008 $19,492
12/31/1999 $20,023 $35,112 $21,245
12/29/2000 $17,932 $31,915 $21,757
12/31/2001 $16,150 $28,122 $21,051
12/31/2002 $13,330 $21,907 $18,799
12/31/2003 $15,858 $28,190 $22,548
12/31/2004 $17,219 $31,258 $24,573
The above graph compares a $10,000 investment made in Class F shares of Dreyfus
Founders Balanced Fund on 12/31/94 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 MANAGEMENT DECISIONS HAMPERED FUND PERFORMANCE DURING THE PERIOD?
Weak stock selection and a relative underweight position in the consumer staples
and materials sectors hindered Fund performance during the period. Likewise, an
underweight position in the strong-performing energy sector detracted from the
Fund's relative performance.
Two themes stood out among the underperforming stocks in the Fund's
portfolio: semiconductors and advertising. Although the information technology
sector fared well for the year, the semiconductor and communications equipment
industries underperformed as demand failed to materialize to the levels
AVERAGE ANNUAL TOTAL RETURN AS OF 12/31/04
<Table>
<Caption>
1 5 10 SINCE
CLASS (INCEPTION DATE) YEAR YEARS YEARS INCEPTION
-----------------------------------------------------------------------------------
CLASS A SHARES (12/31/99)
With sales charge (5.75%) 2.09% (4.34%) -- (4.34%)
Without sales charge 8.31% (3.20%) -- (3.20%)
CLASS B SHARES (12/31/99)
With redemption* 3.63% (4.28%) -- (4.28%)
Without redemption 7.63% (3.91%) -- (3.91%)
CLASS C SHARES (12/31/99)
With redemption** 6.42% (4.29%) -- (4.29%)
Without redemption 7.42% (4.29%) -- (4.29%)
CLASS F SHARES (2/19/63) 8.58% (2.97%) 5.58% N/A
CLASS R SHARES (12/31/99) 8.63% (3.28%) -- (3.28%)
CLASS T SHARES (12/31/99)
With sales charge (4.50%) 3.16% (3.94%) -- (3.94%)
Without sales charge 8.01% (3.06%) -- (3.06%)
</Table>
Average annual total returns do not reflect the deduction of taxes that a
shareholder would pay on Fund distributions or redemption of Fund shares, but do
reflect the reinvestment of dividends and capital gain distributions, expense
limits for certain share classes, and adjustments for financial statement
purposes. Part of the Fund's 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.
*The maximum contingent deferred sales charge for Class B shares is 4% and is
reduced to 0% after six years, at which time the Class B shares convert to Class
A shares.
**The maximum contingent deferred sales charge for Class C shares is 1% for
shares redeemed within one year of the date of purchase.
7
<Page>
reflected in the market, compounding into an inventory correction that continued
through year-end. Semiconductor names NVIDIA Corporation, Semiconductor
Manufacturing International Corporation and INTEL CORPORATION all underperformed
and had a negative impact on Fund performance. Data communication stocks CISCO
SYSTEMS, INC. and Foundry Networks, Inc. also detracted from overall
performance.
Additionally, continued difficulty in the radio and advertising industries
hurt the Fund for the period as advertisers continued to shift to online
advertising and away from the traditional mediums offered by companies such as
VIACOM, INC. Viacom hindered Fund performance as its radio division
underperformed for the year.
Lastly, although the healthcare sector was a positive contributor to
performance, numerous holdings in this sector detracted from the Fund's overall
return for the period. PFIZER, INC. negatively impacted the Fund as the company
revealed data showing that two of its COX-2 inhibitor drugs, Bextra(R) and
Celebrex(R), were linked to adverse cardiovascular events in consumers. This
news unfavorably impacted Pfizer's earnings-per-share prospects. ELI LILLY &
COMPANY and Forest Laboratories, Inc. also performed unfavorably during the
period.
[CHART]
PORTFOLIO COMPOSITION OF NET ASSETS
<Table>
Information Technology 13.92%
Consumer Discretionary 13.68%
Healthcare 13.05%
Financials 10.91%
Consumer Staples 7.28%
Industrials 6.52%
Energy 2.05%
Materials 1.57%
Fixed-Income Investments 31.02%
</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 FOR THE 12-MONTH PERIOD?
The Fund's heavy corporate bond weighting helped boost performance during the
period as corporate bond spreads continued their tightening trend from 2003.
This narrowing trend continued as investors required a smaller risk premium for
holding company debt. By the end of the period, the Fund held approximately 32%
of its fixed-income assets in corporate credit.
The Fund's Canadian dollar-denominated holdings assisted the Fund's relative
return during the period, as the Canadian dollar performed well throughout the
year, hitting a 12-year high versus the U.S. dollar in the fourth quarter.
During the period, lower-quality bonds outperformed higher-quality
securities. This negatively affected performance as the Fund had a greater
exposure to higher-quality issues.
The Fund added to its exposure in mortgage-backed securities during 2004.
However, the Fund still had an overall low exposure, which hurt the performance
of the fixed-income portion of the portfolio as mortgages outpaced Treasuries
during the period. At year's end, the Fund held about 15% of its fixed-income
assets in mortgage debt.
In addition, the Fund reallocated assets out of shorter-dated maturities in
favor of longer-dated securities during the fourth quarter; however, despite
this action, the Fund fell short of full participation in the long-end bond
rally.
For 2005, we will continue to apply our process and philosophy of seeking to
identify companies whose fundamental strengths may lead to superior earnings
growth over time.
/s/ John B. Jares /s/ John V. Johnson
John B. Jares, CFA John V. Johnson, CFA
Portfolio Manager Assistant Portfolio Manager
9
<Page>
FUND EXPENSES
(UNAUDITED)
As a shareholder of the Fund, depending on the class of shares of the Fund you
own, you incur two types of costs: (1) transaction costs, including front-end
and contingent deferred sales charges; and (2) ongoing costs, including
management fees, Rule 12b-1 fees, shareholder services fees, and other expenses.
The expense example shown below is intended to help you understand your ongoing
costs (in dollars) of investing in the Fund and to compare these costs with the
ongoing costs of investing in other mutual funds.
The expense example is based on an investment of $1,000 on July 1, 2004 and
held through December 31, 2004.
ACTUAL EXPENSES The numbers included in the expense example in the rows with the
word "Actual" in the title provide information about actual account values and
actual expenses. You may use this information to estimate the expenses that you
paid over the period. Simply divide your account value by $1,000 (for example,
an $8,600 account value divided by $1,000 = 8.60), then multiply the result by
the number under the column heading entitled "Expenses Paid During Period" for
the class of shares you own to estimate the expenses you paid on your account
during this period.
HYPOTHETICAL EXPENSES The numbers included in the expense example in the rows
with the word "Hypothetical" in the title provide information about hypothetical
account values and hypothetical expenses based on the Fund's actual expense
ratio for each class of shares, and an assumed rate of return of 5% per year
before expenses, which is not the Fund's actual return. The hypothetical account
values and expenses may not be used to estimate the actual ending account
balance or expenses you paid for the period. You may use this information to
compare the ongoing costs of investing in the Fund and other funds. To do so,
compare the hypothetical expenses in the expense example for the class of shares
you own with the hypothetical expenses that appear in the shareholder reports of
other funds.
Please note that the expenses shown in the expense example are meant to
highlight your ongoing costs only and do not reflect the transaction costs
described above. Therefore, the hypothetical expenses in the expense example are
useful in comparing ongoing costs only, and will not help you determine the
relative total costs of owning different funds. In addition, if the transaction
costs were included, your costs would have been higher.
10
<Page>
EXPENSE EXAMPLE
<Table>
<Caption>
BEGINNING ENDING EXPENSES PAID
ACCOUNT VALUE ACCOUNT VALUE DURING PERIOD*
(7/1/04) (12/31/04) (7/1/04-12/31/04)
--------------------------------------------------------------------------------------------------
CLASS A ACTUAL $ 1,000.00 $ 1,073.11 $ 8.00
CLASS A HYPOTHETICAL 1,000.00 1,017.21 7.79
CLASS B ACTUAL 1,000.00 1,066.32 11.75
CLASS B HYPOTHETICAL 1,000.00 1,013.55 11.45
CLASS C ACTUAL 1,000.00 1,063.64 12.47
CLASS C HYPOTHETICAL 1,000.00 1,012.83 12.17
CLASS F ACTUAL 1,000.00 1,075.13 6.96
CLASS F HYPOTHETICAL 1,000.00 1,018.23 6.77
CLASS R ACTUAL 1,000.00 1,078.96 5.24
CLASS R HYPOTHETICAL 1,000.00 1,019.91 5.09
CLASS T ACTUAL 1,000.00 1,071.56 8.79
CLASS T HYPOTHETICAL 1,000.00 1,016.45 8.55
</Table>
*Expenses are equal to each Class's respective annualized expense ratio, shown
below, multiplied by the average account value over the period, multiplied by
184/366 (to reflect the one-half year period).
EXPENSE RATIOS
These expense ratios reflect reimbursements and/or waivers of expenses by the
Fund's investment adviser or its affiliates.
<Table>
<Caption>
EXPENSE RATIO
----------------------------------------------------------------
CLASS A 1.53%
CLASS B 2.25%
CLASS C 2.39%
CLASS F 1.33%
CLASS R 1.00%
CLASS T 1.68%
</Table>
11
<Page>
STATEMENT OF INVESTMENTS
December 31, 2004
<Table>
<Caption>
SHARES MARKET VALUE
- -------------------------------------------------------------------------------
COMMON STOCKS (DOMESTIC)--67.5%
AIR FREIGHT & LOGISTICS--1.1%
10,200 FedEx Corporation $ 1,004,562
--------------
AIRLINES--0.8%
22,600 AMR Corporation* 247,470
10,900 JetBlue Airways Corporation* 253,098
16,900 Southwest Airlines Company 275,132
--------------
775,700
--------------
ASSET MANAGEMENT & CUSTODY BANKS--3.2%
7,600 Bank of New York Company, Inc. 253,992
25,333 Calamos Asset Management, Inc.* 683,991
49,100 Janus Capital Group, Inc. 825,371
24,800 Northern Trust Corporation 1,204,784
--------------
2,968,138
--------------
BIOTECHNOLOGY--3.1%
13,000 Biogen Idec, Inc.* 865,930
22,700 Gilead Sciences, Inc.* 794,273
16,400 OSI Pharmaceuticals, Inc.* 1,227,540
--------------
2,887,743
--------------
BROADCASTING & CABLE TV--2.3%
20,500 Comcast Corporation Class A* 682,240
43,900 Comcast Corporation Special Class A* 1,441,676
--------------
2,123,916
--------------
CASINOS & GAMING--2.4%
34,000 Wynn Resorts, Limited* 2,275,280
--------------
COMMUNICATIONS EQUIPMENT--1.6%
21,600 Cisco Systems, Inc.* 416,880
12,500 QUALCOMM, Inc. 530,000
15,400 Scientific-Atlanta, Inc. 508,354
--------------
1,455,234
--------------
COMPUTER HARDWARE--2.7%
30,500 Apple Computer, Inc.* 1,964,200
6,100 International Business Machines Corporation 601,338
--------------
2,565,538
--------------
COMPUTER STORAGE & PERIPHERALS--1.5%
92,400 EMC Corporation* 1,373,988
--------------
CONSTRUCTION MATERIALS--0.8%
13,800 Lafarge North America, Inc. 708,216
--------------
DEPARTMENT STORES--1.1%
20,900 Kohl's Corporation* 1,027,653
--------------
DIVERSIFIED BANKS--0.7%
10,700 Wells Fargo & Company 665,005
--------------
</Table>
12
<Page>
<Table>
<Caption>
SHARES MARKET VALUE
- -------------------------------------------------------------------------------
EMPLOYMENT SERVICES--1.6%
14,000 Manpower, Inc. $ 676,200
25,800 Monster Worldwide, Inc.* 867,912
--------------
1,544,112
--------------
GENERAL MERCHANDISE STORES--1.4%
36,700 Dollar General Corporation 762,259
10,800 Target Corporation 560,844
--------------
1,323,103
--------------
HEALTHCARE EQUIPMENT--1.6%
26,000 Boston Scientific Corporation* 924,300
7,000 Zimmer Holdings, Inc.* 560,840
--------------
1,485,140
--------------
HEALTHCARE SERVICES--0.8%
7,900 Quest Diagnostics, Inc. 754,845
--------------
HOTELS, RESORTS & CRUISE LINES--1.4%
22,600 Carnival Corporation 1,302,438
--------------
HOUSEHOLD PRODUCTS--2.7%
17,300 Clorox Company 1,019,489
28,850 Colgate-Palmolive Company 1,475,966
--------------
2,495,455
--------------
HYPERMARKETS & SUPER CENTERS--1.9%
32,800 Wal-Mart Stores, Inc. 1,732,496
--------------
INDUSTRIAL CONGLOMERATES--0.8%
21,200 General Electric Company 773,800
--------------
INDUSTRIAL GASES--0.9%
18,800 Praxair, Inc. 830,020
--------------
INVESTMENT BANKING & BROKERAGE--2.8%
12,900 Goldman Sachs Group, Inc. 1,342,116
22,400 Morgan Stanley 1,243,648
--------------
2,585,764
--------------
LEISURE FACILITIES--2.5%
43,700 Royal Caribbean Cruises Limited 2,379,028
--------------
MOVIES & ENTERTAINMENT--1.7%
51,600 Time Warner, Inc.* 1,003,104
15,800 Viacom, Inc. 574,962
--------------
1,578,066
--------------
MULTI-LINE INSURANCE--1.1%
15,800 American International Group, Inc. 1,037,586
--------------
OFFICE ELECTRONICS--0.5%
7,600 Zebra Technologies Corporation* 427,728
--------------
OIL & GAS DRILLING--1.4%
32,300 Diamond Offshore Drilling, Inc. 1,293,615
--------------
</Table>
SEE NOTES TO STATEMENT OF INVESTMENTS.
13
<Page>
<Table>
<Caption>
SHARES MARKET VALUE
- -------------------------------------------------------------------------------
OIL & GAS EXPLORATION & PRODUCTION--0.8%
14,370 Apache Corporation $ 726,691
--------------
OTHER DIVERSIFIED FINANCIAL SERVICES--1.7%
21,966 Citigroup, Inc. 1,058,322
13,208 JPMorgan Chase & Company 515,244
--------------
1,573,566
--------------
PERSONAL PRODUCTS--3.1%
37,000 Estee Lauder Companies, Inc. 1,693,490
27,900 Gillette Company 1,249,362
--------------
2,942,852
--------------
PHARMACEUTICALS--6.7%
30,600 Abbott Laboratories 1,427,490
28,300 Barr Pharmaceuticals, Inc.* 1,288,782
16,500 Eli Lilly and Company 936,375
29,100 Eon Labs, Inc.* 785,700
16,975 Pfizer, Inc. 456,458
31,000 Wyeth 1,320,290
--------------
6,215,095
--------------
RAILROADS--1.4%
27,400 Burlington Northern Santa Fe Corporation 1,296,294
--------------
RESTAURANTS--1.3%
36,300 Cheesecake Factory, Inc.* 1,178,661
--------------
SEMICONDUCTORS--2.3%
24,200 Broadcom Corporation* 781,176
21,400 Intel Corporation 500,546
19,500 Maxim Integrated Products, Inc. 826,605
--------------
2,108,327
--------------
SPECIALTY STORES--0.4%
8,300 Bed Bath & Beyond, Inc.* 330,589
--------------
SYSTEMS SOFTWARE--2.8%
54,200 Microsoft Corporation 1,447,682
89,550 TIBCO Software, Inc.* 1,194,597
--------------
2,642,279
--------------
THRIFTS & MORTGAGE FINANCE--2.0%
10,800 Freddie Mac 795,960
26,800 The PMI Group, Inc. 1,118,900
--------------
1,914,860
--------------
TRADING COMPANIES & DISTRIBUTORS--0.6%
8,500 W.W. Grainger, Inc. 566,270
--------------
TOTAL COMMON STOCKS (DOMESTIC)
(COST--$52,653,518) 62,869,653
--------------
</Table>
14
<Page>
<Table>
<Caption>
SHARES MARKET VALUE
- -------------------------------------------------------------------------------
COMMON STOCKS (FOREIGN)--5.4%
APPLICATION SOFTWARE--2.8%
40,200 Amdocs Limited (CI)* $ 1,055,250
36,250 SAP AG Sponsored ADR (GE) 1,602,613
--------------
2,657,863
--------------
IT CONSULTING & OTHER SERVICES--0.5%
18,800 Accenture Limited (BD)* 507,600
--------------
PHARMACEUTICALS--1.6%
50,900 Teva Pharmaceutical Industries Limited
Sponsored ADR (IS) 1,519,874
--------------
RAILROADS--0.5%
8,162 Canadian National Railway Company (CA) 499,923
--------------
TOTAL COMMON STOCKS (FOREIGN)
(COST--$4,387,058) 5,185,260
--------------
<Caption>
CONTRACTS MARKET VALUE
- -------------------------------------------------------------------------------
OPTIONS PURCHASED--0.0%
165 Eli Lilly and Company Put
Strike Price $55, expire 1/22/05* $ 16,500
--------------
TOTAL OPTIONS PURCHASED
(COST--$61,986) 16,500
--------------
<Caption>
PRINCIPAL AMOUNT MARKET VALUE
- -------------------------------------------------------------------------------
CORPORATE BONDS (DOMESTIC)--9.8%
AUTOMOBILE MANUFACTURERS--2.2%
$ 2,000,000 Toyota Motor Credit Corporation
5.65% 1/15/07 $ 2,085,420
--------------
DIVERSIFIED BANKS--1.9%
1,540,000 Washington Mutual, Inc.
8.25% 4/1/10 1,801,708
--------------
HOUSEHOLD PRODUCTS--1.8%
1,500,000 Colgate-Palmolive Company
5.98% 4/25/12 1,647,795
--------------
MOVIES & ENTERTAINMENT--2.2%
2,000,000 Viacom, Inc.
7.75% 6/1/05 2,035,600
--------------
PHARMACEUTICALS--1.7%
1,500,000 Abbott Laboratories
5.625% 7/1/06 1,550,805
--------------
TOTAL CORPORATE BONDS (DOMESTIC)
(COST--$8,645,161) 9,121,328
--------------
</Table>
SEE NOTES TO STATEMENT OF INVESTMENTS.
15
<Page>
<Table>
<Caption>
PRINCIPAL AMOUNT MARKET VALUE
- -------------------------------------------------------------------------------
U.S. GOVERNMENT OBLIGATIONS--18.3%
AGENCY PASS THROUGH--3.6%
$ 3,200,436 U.S. Small Business Administration Series 10-A
6.64% 2/1/11 $ 3,392,430
--------------
GOVERNMENT SPONSORED ENTERPRISES--7.6%
700,000 Federal Farm Credit Bank
4.70% 12/10/14 703,619
Federal Home Loan Bank:
800,000 4.50% 11/15/12 809,152
2,000,000 6.50% 11/15/05 2,060,482
2,000,000 Private Export Funding Corporation
3.40% 2/15/08 1,992,940
1,500,000 Tennessee Valley Authority
6.375% 6/15/05 1,523,850
--------------
7,090,043
--------------
MORTGAGE-BACKED SECURITIES: GNMA/GUARANTEED--1.7%
1,530,090 Government National Mortgage Association
6.00% 1/15/33 Pool #563709 1,586,826
--------------
U.S. TREASURY NOTES--5.4%
1,163,830 U.S. Treasury Inflation Protection Security
3.875% 1/15/09 1,304,700
U.S. Treasury Note:
900,000 4.25% 8/15/14 902,007
1,250,000 4.375% 5/15/07 1,284,716
1,500,000 6.875% 5/15/06 1,579,395
--------------
5,070,818
--------------
TOTAL U.S. GOVERNMENT OBLIGATIONS
(COST--$16,838,293) 17,140,117
--------------
GOVERNMENT BONDS (FOREIGN)--3.3%
GOVERNMENT SECURITIES--3.3%
CAD 3,535,000 Province of Quebec
6.50% 12/1/05 (CA) 3,048,502
--------------
TOTAL GOVERNMENT BONDS (FOREIGN)
(COST--$2,354,302) 3,048,502
--------------
SUPRANATIONAL OBLIGATIONS--1.1%
GOVERNMENT SECURITIES--1.1%
$ 1,000,000 International Finance Corporation
3.75% 6/30/09 999,180
--------------
TOTAL SUPRANATIONAL OBLIGATIONS
(COST--$999,410) 999,180
--------------
</Table>
16
<Page>
<Table>
<Caption>
PRINCIPAL AMOUNT AMORTIZED COST
- -------------------------------------------------------------------------------
CORPORATE SHORT-TERM NOTES--1.5%
PHARMACEUTICALS--1.5%
$ 1,400,000 Novartis Finance Corporation
2.10% 1/3/05~ $ 1,399,837
--------------
TOTAL CORPORATE SHORT-TERM NOTES
(AMORTIZED COST--$1,399,837) 1,399,837
--------------
TOTAL INVESTMENTS--106.9%
(TOTAL COST--$87,339,565) 99,780,377
--------------
OTHER ASSETS AND LIABILITIES--(6.9%) (6,414,019)
--------------
NET ASSETS--100.0% $ 93,366,358
==============
</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. THESE SECURITIES AMOUNTED TO
$1,399,837, OR 1.5%, OF THE FUND'S NET ASSETS AS OF DECEMBER 31, 2004.
ADR - AMERICAN DEPOSITARY RECEIPT
BD - BERMUDA
CA - CANADA
CI - CHANNEL ISLANDS
GE - GERMANY
IS - ISRAEL
SEE NOTES TO FINANCIAL STATEMENTS.
17
<Page>
STATEMENT OF ASSETS AND LIABILITIES
December 31, 2004
<Table>
ASSETS
Investment securities, at cost $ 87,339,565
--------------
Investment securities, at market 99,780,377
Cash 339,495
Receivables:
Capital shares sold 167,146
Dividends and interest 340,997
Other assets 59,767
--------------
Total Assets 100,687,782
--------------
LIABILITIES
Payables and other accrued liabilities:
Investment securities purchased 631,188
Capital shares redeemed 6,408,816
Advisory fees 54,841
Shareholder servicing fees 6,126
Accounting fees 5,062
Distribution fees 32,768
Transfer agency fees 25,302
Custodian fees 1,988
Other 155,333
--------------
Total Liabilities 7,321,424
--------------
Net Assets $ 93,366,358
==============
COMPOSITION OF NET ASSETS
Capital (par value and paid-in surplus) $ 275,355,085
Accumulated net investment loss (31,472)
Accumulated net realized loss from security transactions (194,398,358)
Net unrealized appreciation on investments
and foreign currency translation 12,441,103
--------------
Total $ 93,366,358
==============
</Table>
18
<Page>
<Table>
CLASS A
Net Assets $ 1,682,405
Shares Outstanding 199,066
Net Asset Value, Redemption Price Per Share $ 8.45
Maximum offering price per share (net asset value
plus sales charge of 5.75% of offering price) $ 8.97
CLASS B
Net Assets $ 1,625,288
Shares Outstanding 194,208
Net Asset Value, Offering and Redemption Price (excluding
applicable contingent deferred sales charge) Per Share $ 8.37
CLASS C
Net Assets $ 263,726
Shares Outstanding 32,011
Net Asset Value, Offering and Redemption Price (excluding
applicable contingent deferred sales charge) Per Share $ 8.24
Class F
Net Assets $ 89,701,093
Shares Outstanding 10,603,357
Net Asset Value, Offering and Redemption Price Per Share $ 8.46
Class R
Net Assets $ 58,886
Shares Outstanding 6,985
Net Asset Value, Offering and Redemption Price Per Share $ 8.43
Class T
Net Assets $ 34,960
Shares Outstanding 4,028
Net Asset Value, Redemption Price Per Share $ 8.68
Maximum offering price per share (net asset value
plus sales charge of 4.50% of offering price) $ 9.09
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
19
<Page>
STATEMENT OF OPERATIONS
For the year ended December 31, 2004
<Table>
INVESTMENT INCOME
Dividends $ 823,238
Interest 1,819,557
Foreign taxes withheld (3,484)
--------------
Total Investment Income 2,639,311
--------------
EXPENSES
Advisory fees--Note 2 710,424
Shareholder servicing fees--Note 2 72,548
Accounting fees--Note 2 65,578
Distribution fees--Note 2 278,384
Transfer agency fees--Note 2 191,082
Registration fees 42,160
Postage and mailing expenses 12,453
Custodian fees and expenses--Note 2 5,911
Printing expenses 42,632
Legal and audit fees 21,156
Directors' fees and expenses--Note 2 16,947
Other expenses 22,599
--------------
Total Expenses 1,481,874
Earnings Credits (2,792)
Reimbursed/Waived Expenses (1,325)
Expense Offset to Broker Commissions (3,494)
--------------
Net Expenses 1,474,263
--------------
Net Investment Income 1,165,048
--------------
REALIZED AND UNREALIZED GAIN (LOSS) ON SECURITY
TRANSACTIONS AND FOREIGN CURRENCY TRANSACTIONS
Net Realized Gain on:
Security Transactions 8,807,349
Closing and Expiration of Option Contracts Written 26,185
Foreign Currency Transactions 5,435
--------------
Net Realized Gain 8,838,969
Net Change in Unrealized Appreciation/Depreciation
of Investments and Foreign Currency Translation (2,078,931)
--------------
Net Realized and Unrealized Gain 6,760,038
--------------
Net Increase in Net Assets Resulting from Operations $ 7,925,086
==============
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
20
<Page>
STATEMENTS OF CHANGES IN NET ASSETS
<Table>
<Caption>
YEAR ENDED YEAR ENDED
12/31/04 12/31/03
- ----------------------------------------------------------------------------------------------------
OPERATIONS
Net Investment Income $ 1,165,048 $ 1,184,817
Net Realized Gain on Security and Foreign
Currency Transactions 8,838,969 6,956,668
Net Change in Unrealized Appreciation/Depreciation
of Investments and Foreign Currency Translation (2,078,931) 14,224,484
-------------- --------------
Net Increase in Net Assets Resulting from Operations 7,925,086 22,365,969
-------------- --------------
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS
From Net Investment Income
Class A (16,533) (10,100)
Class B (4,861) (1,222)
Class C (659) (17)
Class F (1,146,498) (1,240,046)
Class R (763) (159)
Class T (243) (12)
-------------- --------------
Net Decrease from Dividends and Distributions (1,169,557) (1,251,556)
-------------- --------------
CAPITAL SHARE TRANSACTIONS
Net Increase (Decrease)--Note 4
Class A (2,547) 98,293
Class B (135,764) 244,827
Class C (49,827) (6,310)
Class F (36,636,581) (31,079,380)
Class R (16,844) 55,114
Class T (3,452) 19,668
-------------- --------------
Net Decrease from Capital Share Transactions (36,845,015) (30,667,788)
-------------- --------------
Net Decrease in Net Assets (30,089,486) (9,553,375)
-------------- --------------
NET ASSETS
Beginning of year $ 123,455,844 $ 133,009,219
-------------- --------------
End of year $ 93,366,358 $ 123,455,844
============== ==============
Accumulated Net Investment Loss $ (31,472) $ (35,022)
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
21
<Page>
FINANCIAL HIGHLIGHTS
<Table>
<Caption>
YEAR ENDED
DECEMBER 31,
2004 2003 2002 2001 2000
------------------------------------------------------------------
CLASS A SHARES
PER SHARE OPERATING DATA
Net Asset Value, beginning of year $ 7.88 $ 6.68 $ 8.18 $ 9.24 $ 10.47
- -----------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.08 0.05 0.05 0.06 0.13
Net realized and unrealized gains
(losses) on securities 0.57 1.20 (1.51) (1.03) (1.18)
------------------------------------------------------------------
Total from investment operations 0.65 1.25 (1.46) (0.97) (1.05)
- -----------------------------------------------------------------------------------------------------------------------
Less dividends and distributions:
From net investment income (0.08) (0.05) (0.04) (0.09) (0.16)
From net realized gains 0.00 0.00 0.00 0.00 (0.02)
------------------------------------------------------------------
Total distributions (0.08) (0.05) (0.04) (0.09) (0.18)
- -----------------------------------------------------------------------------------------------------------------------
Net Asset Value, end of year $ 8.45 $ 7.88 $ 6.68 $ 8.18 $ 9.24
==================================================================
TOTAL RETURN* 8.31% 18.81% (17.85%) (10.46%) (10.21%)
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000s) $ 1,682 $ 1,572 $ 1,243 $ 1,227 $ 699
- -----------------------------------------------------------------------------------------------------------------------
Ratios to average net assets:
Expenses with reimbursements, but no
earnings credits or brokerage offsets# 1.49% 1.83% 1.89% 1.87% 1.23%
Expenses with reimbursements,
earnings credits and brokerage offsets 1.48% 1.83% 1.89% 1.87% 1.20%
Net investment income 0.96% 0.63% 0.56% 0.51% 1.48%
- -----------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate@ 134% 108% 122% 111% 126%
</Table>
- ----------
* SALES CHARGES ARE NOT REFLECTED IN THE TOTAL RETURN.
# 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>
YEAR ENDED
DECEMBER 31,
2004 2003 2002 2001 2000
------------------------------------------------------------------
CLASS B SHARES
PER SHARE OPERATING DATA
Net Asset Value, beginning of year $ 7.80 $ 6.63 $ 8.11 $ 9.18 $ 10.47
- -----------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) 0.01 0.01 (0.01) 0.01 0.10
Net realized and unrealized gains
(losses) on securities 0.58 1.17 (1.47) (1.03) (1.24)
------------------------------------------------------------------
Total from investment operations 0.59 1.18 (1.48) (1.02) (1.14)
- -----------------------------------------------------------------------------------------------------------------------
Less dividends and distributions:
From net investment income (0.02) (0.01) 0.00^ (0.05) (0.13)
From net realized gains 0.00 0.00 0.00 0.00 (0.02)
------------------------------------------------------------------
Total distributions (0.02) (0.01) 0.00 (0.05) (0.15)
- -----------------------------------------------------------------------------------------------------------------------
Net Asset Value, end of year $ 8.37 $ 7.80 $ 6.63 $ 8.11 $ 9.18
==================================================================
TOTAL RETURN* 7.63% 17.76% (18.21%) (11.13%) (11.06%)
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000s) $ 1,625 $ 1,647 $ 1,181 $ 1,484 $ 1,008
- -----------------------------------------------------------------------------------------------------------------------
Ratios to average net assets:
Expenses with reimbursements, but no
earnings credits or brokerage offsets# 2.21% 2.53% 2.54% 2.50% 1.96%
Expenses with reimbursements,
earnings credits and brokerage offsets 2.21% 2.53% 2.54% 2.49% 1.93%
Net investment income (loss) 0.23% (0.08%) (0.10%) (0.13%) 0.71%
- -----------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate@ 134% 108% 122% 111% 126%
</Table>
- ----------
^ DISTRIBUTIONS FROM NET INVESTMENT INCOME FOR THE YEAR ENDED DECEMBER 31,
2002 AGGREGATED LESS THAN $0.01 ON A PER SHARE BASIS.
* SALES CHARGES ARE NOT REFLECTED IN THE TOTAL RETURN.
# 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>
YEAR ENDED
DECEMBER 31,
2004 2003 2002 2001 2000
------------------------------------------------------------------
CLASS C SHARES
PER SHARE OPERATING DATA
Net Asset Value, beginning of year $ 7.69 $ 6.54 $ 8.04 $ 9.17 $ 10.47
- -----------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) 0.01+ (0.01) (0.17) (0.05) 0.10
Net realized and unrealized gains
(losses) on securities 0.56 1.16 (1.33) (1.03) (1.28)
------------------------------------------------------------------
Total from investment operations 0.57 1.15 (1.50) (1.08) (1.18)
- -----------------------------------------------------------------------------------------------------------------------
Less dividends and distributions:
From net investment income (0.02) 0.00^ 0.00 (0.05) (0.10)
From net realized gains 0.00 0.00 0.00 0.00 (0.02)
------------------------------------------------------------------
Total distributions (0.02) 0.00 0.00 (0.05) (0.12)
- -----------------------------------------------------------------------------------------------------------------------
Net Asset Value, end of year $ 8.24 $ 7.69 $ 6.54 $ 8.04 $ 9.17
==================================================================
TOTAL RETURN* 7.42% 17.59% (18.66%) (11.80%) (11.36%)
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000s) $ 264 $ 295 $ 248 $ 496 $ 174
- -----------------------------------------------------------------------------------------------------------------------
Ratios to average net assets:
Expenses with reimbursements, but no
earnings credits or brokerage offsets# 2.35% 2.69% 3.48% 3.96% 1.88%
Expenses with reimbursements,
earnings credits and brokerage offsets 2.34% 2.69% 3.48% 3.96% 1.86%
Net investment income (loss) 0.08% (0.17%) (1.05%) (1.64%) 0.76%
- -----------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate@ 134% 108% 122% 111% 126%
</Table>
+ COMPUTED USING AVERAGE SHARES OUTSTANDING THROUGHOUT THE YEAR.
^ 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.
# CERTAIN FEES WERE REIMBURSED OR WAIVED BY THE MANAGEMENT COMPANY OR ITS
AFFILIATES. HAD THESE FEES NOT BEEN REIMBURSED OR WAIVED, THE EXPENSE
RATIOS HAVE BEEN 2.35% (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.
24
<Page>
<Table>
<Caption>
YEAR ENDED
DECEMBER 31,
2004 2003 2002 2001 2000
------------------------------------------------------------------
CLASS F SHARES
PER SHARE OPERATING DATA
Net Asset Value, beginning of year $ 7.88 $ 6.69 $ 8.20 $ 9.22 $ 10.47
- -----------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.08 0.06 0.07 0.10 0.15
Net realized and unrealized gains
(losses) on securities 0.59 1.20 (1.50) (1.02) (1.23)
------------------------------------------------------------------
Total from investment operations 0.67 1.26 (1.43) (0.92) (1.08)
- -----------------------------------------------------------------------------------------------------------------------
Less dividends and distributions:
From net investment income (0.09) (0.07) (0.08) (0.10) (0.15)
From net realized gains 0.00 0.00 0.00 0.00 (0.02)
------------------------------------------------------------------
Total distributions (0.09) (0.07) (0.08) (0.10) (0.17)
- -----------------------------------------------------------------------------------------------------------------------
Net Asset Value, end of year $ 8.46 $ 7.88 $ 6.69 $ 8.20 $ 9.22
==================================================================
TOTAL RETURN 8.58% 18.96% (17.46%) (9.94%) (10.44%)
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000s) $ 89,701 $ 119,835 $ 130,314 $ 297,068 $ 552,675
- -----------------------------------------------------------------------------------------------------------------------
Ratios to average net assets:
Expenses with reimbursements, but no
earnings credits or brokerage offsets# 1.34% 1.54% 1.43% 1.23% 1.08%
Expenses with reimbursements,
earnings credits and brokerage offsets 1.33% 1.54% 1.42% 1.22% 1.07%
Net investment income 1.08% 0.93% 0.99% 1.20% 1.41%
- -----------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate@ 134% 108% 122% 111% 126%
</Table>
# 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.
25
<Page>
<Table>
<Caption>
YEAR ENDED
DECEMBER 31,
2004 2003 2002 2001 2000
------------------------------------------------------------------
CLASS R SHARES
PER SHARE OPERATING DATA
Net Asset Value, beginning of year $ 7.86 $ 6.68 $ 8.18 $ 9.22 $ 10.47
- -----------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) 0.09 0.16 (0.16) 0.09 0.18
Net realized and unrealized gains
(losses) on securities 0.58 1.05 (1.34) (1.02) (1.23)
------------------------------------------------------------------
Total from investment operations 0.67 1.21 (1.50) (0.93) (1.05)
- -----------------------------------------------------------------------------------------------------------------------
Less dividends and distributions:
From net investment income (0.10) (0.03) 0.00 (0.11) (0.18)
From net realized gains 0.00 0.00 0.00 0.00 (0.02)
------------------------------------------------------------------
Total distributions (0.10) (0.03) 0.00 (0.11) (0.20)
- -----------------------------------------------------------------------------------------------------------------------
Net Asset Value, end of year $ 8.43 $ 7.86 $ 6.68 $ 8.18 $ 9.22
==================================================================
TOTAL RETURN 8.63% 18.12% (18.34%) (10.09%) (10.18%)
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000s) $ 59 $ 72 $ 11 $ 14 $ 1
- -----------------------------------------------------------------------------------------------------------------------
Ratios to average net assets:
Expenses with reimbursements, but no
earnings credits or brokerage offsets# 1.21% 2.37% 4.24% 3.07% 0.81%
Expenses with reimbursements,
earnings credits and brokerage offsets 1.21% 2.37% 4.24% 3.07% 0.80%
Net investment income (loss) 1.21% 0.01% (1.77%) (0.75%) 1.71%
- -----------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate@ 134% 108% 122% 111% 126%
</Table>
# 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 1.35% (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.
26
<Page>
<Table>
<Caption>
YEAR ENDED
DECEMBER 31,
2004 2003 2002 2001 2000
------------------------------------------------------------------
CLASS T SHARES
PER SHARE OPERATING DATA
Net Asset Value, beginning of year $ 8.09 $ 6.88 $ 8.17 $ 9.21 $ 10.47
- -----------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) 0.03 0.21 (0.37) 0.08 0.12
Net realized and unrealized gains
(losses) on securities 0.62 1.00 (0.92) (1.04) (1.22)
------------------------------------------------------------------
Total from investment operations 0.65 1.21 (1.29) (0.96) (1.10)
- -----------------------------------------------------------------------------------------------------------------------
Less dividends and distributions:
From net investment income (0.06) 0.00^ 0.00 (0.08) (0.14)
From net realized gains 0.00 0.00 0.00 0.00 (0.02)
------------------------------------------------------------------
Total distributions (0.06) 0.00 0.00 (0.08) (0.16)
- -----------------------------------------------------------------------------------------------------------------------
Net Asset Value, end of year $ 8.68 $ 8.09 $ 6.88 $ 8.17 $ 9.21
==================================================================
TOTAL RETURN* 8.01% 17.65% (15.79%) (10.44%) (10.67%)
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000s) $ 35 $ 36 $ 13 $ 232 $ 9
- -----------------------------------------------------------------------------------------------------------------------
Ratios to average net assets:
Expenses with reimbursements, but no
earnings credits or brokerage offsets# 1.77% 2.73% 2.60% 3.36% 1.32%
Expenses with reimbursements,
earnings credits and brokerage offsets 1.77% 2.73% 2.59% 3.36% 1.30%
Net investment income (loss) 0.66% (0.29%) (0.31%) (1.12%) 1.22%
- -----------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate@ 134% 108% 122% 111% 126%
</Table>
^ DISTRIBUTIONS FROM NET INVESTMENT INCOME FOR THE YEAR ENDED DECEMBER 31,
2003 AGGREGATED LESS THAN $0.01 ON A PER SHARE BASIS.
* SALES CHARGES ARE NOT REFLECTED IN THE TOTAL RETURN.
# 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 2.02% (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.
27
<Page>
NOTES TO FINANCIAL STATEMENTS
December 31, 2004
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,
Equity Growth (formerly Growth and Income), Government Securities, Growth,
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 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. However, the Funds are planning to begin using New
York closing exchange rates to convert foreign currencies to U.S. dollars
sometime during the first quarter of 2005.
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.
28
<Page>
If market quotations or official closing prices are not readily available or are
determined not to reflect accurately fair value, 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 but before the Fund calculates its net asset value,
and it is determined that the event has materially affected the value of the
security. Fair value of foreign equity securities may be determined with the
assistance of a pricing service using correlations between the movement of
prices of foreign securities and indexes of domestic securities and other
appropriate indicators, such as closing market prices of relevant ADRs and
futures contracts. Using fair value to price securities may result in a value
that is different from a security's most recent closing price and from the
prices used by other mutual funds to calculate their net asset values.
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 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 is presented as such in the Statement of Operations.
Investment securities and other assets and liabilities denominated in foreign
currencies are translated into U.S. dollar amounts at the date of valuation.
Purchases and sales of investment securities and income and expense items
denominated in foreign currencies are translated into U.S. dollar amounts on the
respective dates of such transactions.
The Fund does not isolate that portion of the results of operations resulting
from changes in foreign exchange rates on investments from the fluctuations
arising from changes in market prices of securities held. Such fluctuations are
included with the net realized and unrealized gain or loss from investments.
Reported net realized foreign exchange gains or losses arise from sales of
foreign currencies, currency gains or losses realized between the trade and
settlement dates on securities transactions, and the difference between the
amounts of dividends, interest, and foreign withholding taxes recorded on the
Fund's books and the U.S. dollar
29
<Page>
equivalent of the amounts actually received or paid. Net unrealized appreciation
or depreciation on investments and foreign currency translation arises from
changes in the values of assets and liabilities, including investments in
securities held at the date of the financial statements, resulting from changes
in the exchange rates and changes in market prices of securities held.
OPTION WRITING--When the Fund writes an option, an amount equal to the premium
received by the Fund is recorded as a liability and is subsequently adjusted to
the current market value of the option written. Premiums received from writing
options that expire unexercised are treated by the Fund on the expiration date
as realized gains from investments. The difference between the premium and the
amount paid on effecting a closing purchase transaction, including brokerage
commissions, is also treated as a realized gain, or, if the premium is less than
the amount paid for the closing purchase transaction, as a realized loss. If a
call option is exercised, the premium is added to the proceeds from the sale of
the underlying security or currency in determining whether the Fund has realized
a gain or loss. If a put option is exercised, the premium reduces the cost basis
of the securities purchased by the Fund. The Fund as writer of an option bears
the market risk of an unfavorable change in the price of the security underlying
the written option.
FEDERAL INCOME TAXES--No provision has been made for federal income taxes since
it is the policy of the Fund to comply with the requirements of the Internal
Revenue Code that are applicable to regulated investment companies and to make
distributions of income and capital gains sufficient to relieve it from all
income taxes. The Fund is treated as a separate tax entity for federal income
tax purposes.
INVESTMENT INCOME--Dividend income is recognized on the ex-dividend date.
Certain dividends from foreign securities are recorded as soon as the Fund is
informed of the dividend, if such information is obtained subsequent to the
ex-dividend date. Interest income is accrued daily, as earned, and includes the
accretion of discounts and the amortization of premiums over the lives of the
respective securities. Withholding taxes on foreign dividends have been provided
for in accordance with the applicable country's tax rules and rates.
DISTRIBUTIONS TO SHAREHOLDERS--The Fund declares and distributes dividends (if
any) quarterly and capital gains (if any) annually. Dividends and distributions,
which are determined in accordance with income tax regulations, are recorded on
the ex-dividend date.
EXPENSES--Each Class of the Fund bears expenses incurred specifically on its
behalf and, in addition, each Class bears a portion of general expenses based on
the relative net assets or the number of shareholder accounts of the Class. The
type of expense determines the allocation method.
The Company's board of directors has authorized the payment of certain Fund
expenses with commissions on Fund portfolio transactions. These commissions
reduce Other Expenses and are included in the Expense Offset to Broker
Commissions in the Statement of Operations.
USE OF ESTIMATES--The preparation of financial statements in conformity with
accounting principles generally accepted in the United States of America
requires
30
<Page>
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.
INDEMNIFICATIONS--In the normal course of business, the Company enters into
contracts that contain provisions indemnifying other parties against specified
potential liabilities. Each Fund's maximum exposure under these arrangements is
unknown as this would involve future claims that may be made against the Fund
that have not yet occurred. However, based on experience, the Funds expect the
risk of loss to be remote.
OTHER--Certain prior year information has been reformatted, without substantive
change, to conform with the current year presentation.
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 year ended December 31,
2004, Class F shares were charged $63,662 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 from DTI
are paid by the Fund. During the year ended December 31, 2004, Class F shares
were charged $18,873 for out-of-pocket transfer agent charges.
31
<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 $12.93 to $13.51, per shareholder account considered to be an
open account at any time during a given month, plus out-of-pocket charges.
Class-specific transfer agency fees paid to DTI during the year ended December
31, 2004 were as follows:
<Table>
<Caption>
TRANSFER
AGENCY FEES
-------------
Class A $ 3,743
Class B $ 3,308
Class C $ 841
Class R $ 225
Class T $ 181
</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, 2006, and will not be terminated without prior
notification to the Company's board of directors. For the year ended December
31, 2004, Class R and Class T were each reimbursed $88, which reduced the
amounts paid to DTI to $137 and $93, respectively.
OTHER TRANSFER AGENCY FEES--Various broker-dealers, retirement plan
administrators and other unaffiliated entities have established omnibus accounts
with the Fund, and provide sub-transfer agency, recordkeeping or similar
services to persons holding Fund shares through those accounts. During the year
ended December 31, 2004, the Fund paid $163,911 to these entities for such
services. This amount is included in the transfer agency fees shown on the
Statement of Operations.
CASH MANAGEMENT FEES--The Funds also pay Mellon Bank N.A. ("Mellon Bank"), a
wholly-owned subsidiary of Mellon Financial Corporation and an affiliate of
Founders, fees for certain cash management services. These include various
services related to the processing of shareholder transactions in the Funds.
During the year ended December 31, 2004, the Fund was charged $1,524 for cash
management fees, which are included in the out-of-pocket charges from DTI above.
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 year ended December
31, 2004, Class F shares were charged $264,192 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
32
<Page>
value of the average daily net assets of its Class B and C shares, respectively,
and pays DSC a fee for distributing its Class T shares at the annual rate of
0.25% of the average daily net assets of its Class T shares.
In addition, the Fund has adopted a Shareholder Services Plan applicable to its
Class A, Class B, Class C and Class T shares. Under the Shareholder Services
Plan, Class A, Class B, Class C and Class T shares pay DSC an annual fee of
0.25% of the value of their average daily net assets for the provision of
certain services.
Distribution and shareholder servicing fees paid to DSC by the Fund's Class A,
B, C and T shares for the year ended December 31, 2004, were as follows:
<Table>
<Caption>
DISTRIBUTION SHAREHOLDER
FEES SERVICING FEES
----------------------------------------------------------------------------
Class A N/A $ 4,096
Class B $ 12,204 $ 4,068
Class C $ 1,899 $ 633
Class T $ 89 $ 89
</Table>
During the year ended December 31, 2004, DSC retained $944 in sales commissions
from the sales of Class A shares. DSC also retained $7,521, and $453 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 contractually agreed to waive
any fees received for these services to the extent they exceed Founders' costs
in providing the services.
CUSTODIAN FEES--Mellon Bank 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 Fund could have employed these assets
elsewhere to produce income had it not entered into this arrangement. The
custodian has also contractually 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>
33
<Page>
The fee waiver is allocated among the Funds in proportion to their respective
shares of the total custodian fee. For the year ended December 31, 2004, the
Fund's portion of the fee waiver was $1,149, which reduced the amount paid to
Mellon Bank to $4,762.
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 invested
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,
which pays their compensation. The affairs of the Fund, including services
provided by Founders, are subject to the supervision and general oversight of
the Company's board of directors.
3. FEDERAL TAX INFORMATION
Net investment income and capital gains distributions are determined in
accordance with income tax regulations that may differ from accounting
principles generally accepted in the United States of America. These differences
are due to differing treatments for items such as deferral of wash sale losses,
foreign currency transactions, net operating losses and capital loss carryovers.
Permanent differences identified during the year ended December 31, 2004 have
been reclassified among the components of net assets as follows:
<Table>
<Caption>
UNDISTRIBUTED NET UNDISTRIBUTED NET PAID-IN
INVESTMENT INCOME REALIZED GAINS AND LOSSES CAPITAL
-----------------------------------------------------------------------
$ 8,059 $ (8,059) $ 0
</Table>
The tax character of distributions paid during 2004 and 2003 was as follows:
<Table>
<Caption>
2004 2003
--------------------------------------------------------
DISTRIBUTIONS PAID FROM:
Ordinary Income $ 1,169,557 $ 1,251,556
Long-Term Capital Gain $ 0 $ 0
---------------------------
$ 1,169,557 $ 1,251,556
===========================
</Table>
The tax components of capital represent distribution requirements the Fund must
satisfy under the income tax regulations and losses or tax deductions the Fund
may be
34
<Page>
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, 2004 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. Net capital loss carryovers
utilized during 2004 by the Fund amounted to $7,613,012. Accumulated capital
losses as of December 31, 2004 were:
<Table>
<Caption>
EXPIRATION AMOUNT
----------------------------------------------------------
2008 $ 72,497,269
2009 $ 49,289,530
2010 $ 70,087,112
2011 $ 1,472,188
---------------
$ 193,346,099
===============
</Table>
The aggregate cost of investments and the composition of unrealized appreciation
and depreciation of investment securities for federal income tax purposes as of
December 31, 2004 are noted below. Unrealized appreciation/depreciation in the
table below excludes appreciation/depreciation on foreign currency translation.
The primary difference between book and tax appreciation or depreciation is wash
sale loss deferrals.
<Table>
Undistributed Ordinary Income $ 7,356
Federal Tax Cost $ 88,391,824
Gross Tax Appreciation of Investments $ 11,769,516
Gross Tax Depreciation of Investments $ (380,963)
Net Tax Appreciation $ 11,388,553
</Table>
35
<Page>
4. CAPITAL SHARE TRANSACTIONS
The Fund is authorized to issue 850 million shares of $0.01 par value capital
stock. Transactions in shares of the Fund for the periods indicated were as
follows:
<Table>
<Caption>
YEAR ENDED YEAR ENDED
12/31/04 12/31/03
SHARES AMOUNT SHARES AMOUNT
CLASS A
Sold 52,105 $ 413,025 42,130 $ 310,574
Dividends or Distributions Reinvested 1,969 $ 15,805 1,330 $ 9,742
Redeemed (54,549) $ (431,377) (29,893) $ (222,023)
------------------------------------------------------------------------
Net Increase (Decrease) (475) $ (2,547) 13,567 $ 98,293
========================================================================
CLASS B
Sold 53,204 $ 414,706 76,899 $ 556,448
Dividends or Distributions Reinvested 466 $ 3,759 138 $ 971
Redeemed (70,543) $ (554,229) (44,160) $ (312,592)
------------------------------------------------------------------------
Net Increase (Decrease) (16,873) $ (135,764) 32,877 $ 244,827
========================================================================
CLASS C
Sold 16,072 $ 124,317 18,745 $ 122,311
Dividends or Distributions Reinvested 59 $ 475 2 $ 10
Redeemed (22,428) $ (174,619) (18,304) $ (128,631)
------------------------------------------------------------------------
Net Increase (Decrease) (6,297) $ (49,827) 443 $ (6,310)
========================================================================
CLASS F
Sold 1,100,066 $ 8,730,703 2,774,685 $ 19,677,956
Dividends or Distributions Reinvested 138,996 $ 1,116,482 164,539 $ 1,202,840
Redeemed (5,836,747) $ (46,483,766) (7,225,827) $ (51,960,176)
------------------------------------------------------------------------
Net Decrease (4,597,685) $ (36,636,581) (4,286,603) $ (31,079,380)
========================================================================
CLASS R
Sold 0 $ 0 7,391 $ 55,000
Dividends or Distributions Reinvested 94 $ 751 15 $ 114
Redeemed (2,224) $ (17,595) (0) $ (0)
------------------------------------------------------------------------
Net Increase (Decrease) (2,130) $ (16,844) 7,406 $ 55,114
========================================================================
CLASS T
Sold 4,985 $ 39,775 2,530 $ 19,657
Dividends or Distributions Reinvested 27 $ 223 1 $ 11
Redeemed (5,430) $ (43,450) (0) $ (0)
------------------------------------------------------------------------
Net Increase (Decrease) (418) $ (3,452) 2,531 $ 19,668
========================================================================
</Table>
36
<Page>
5. INVESTMENT TRANSACTIONS
For the year ended December 31, 2004, purchases and sales of investment
securities (excluding short-term securities and U.S. government obligations)
were $129,311,868 and $146,305,214, respectively. Purchases and sales of
long-term U.S. government obligations were $6,102,794 and $7,414,830,
respectively.
CALL OPTIONS WRITTEN
Transactions in options written during the year ended December 31, 2004 were as
follows:
<Table>
<Caption>
NUMBER OF PREMIUMS
CONTRACTS RECEIVED
- -------------------------------------------------------------------------------------------
Options outstanding at December 31, 2003 0 $ 0
Options written 279 30,824
Options terminated in closing purchase transactions (279) (30,824)
Options expired 0 0
Options exercised 0 0
------------------------
Options outstanding at December 31,2004 0 $ 0
========================
</Table>
6. LINE OF CREDIT
The Company has a line of credit arrangement ("LOC") with State Street Bank and
Trust Company, to be used for temporary or emergency purposes, primarily for
financing redemption payments. Each Fund's borrowings are limited to the lesser
of (a) $50 million, or (b) the lesser of 25% of the Fund's total net assets or
the maximum amount which the Fund is permitted to borrow pursuant to the
prospectus, any law or any other agreement. Combined borrowings are subject to
the $50 million cap on the total LOC. Each Fund agrees to pay annual fees and
interest on the unpaid balance based on prevailing market rates as defined in
the LOC. At December 31, 2004, the Fund did not have any borrowings under the
LOC.
7. LEGAL MATTERS
In early 2004, two purported class and derivative actions were filed against
Mellon Financial Corporation, Mellon Bank, Founders, Dreyfus, and certain
directors of the Dreyfus Founders Funds and the Dreyfus Funds (together, the
"Defendant Funds"). In September 2004, plaintiffs served a Consolidated Amended
Complaint (the "Amended Complaint") on behalf of a purported class of all
persons who acquired interests in any of the Defendant Funds between January 30,
1999 and November 17, 2003, and derivatively on behalf of the Defendant Funds.
The Amended Complaint in the newly styled IN RE DREYFUS MUTUAL FUNDS FEE
LITIGATION also named DSC, Premier Mutual Fund Services, Inc. and two additional
directors of the Defendant Funds as
37
<Page>
defendants and alleges violations of the Investment Company Act of 1940, the
Investment Advisers Act of 1940, the Pennsylvania Unfair Trade Practices and
Consumer Protection Law and common-law claims. Plaintiffs seek to recover
allegedly improper and excessive Rule 12b-1 and advisory fees allegedly charged
to the Defendant Funds for marketing and distribution services. More
specifically, plaintiffs claim, among other things, that 12b-1 fees and directed
brokerage were improperly used to pay brokers to recommend the Defendant Funds
over other funds, and that such payments were not disclosed to investors. In
addition, plaintiffs assert that economies of scale and soft-dollar benefits
were not passed on to the Defendant Funds. Plaintiffs further allege that 12b-1
fees were improperly charged to certain of the Defendant Funds that were closed
to new investors. The Amended Complaint seeks compensatory and punitive damages,
rescission of the advisory contracts, and an accounting and restitution of any
unlawful fees, as well as an award of attorneys' fees and litigation expenses.
As noted, some of the claims in this litigation are asserted derivatively on
behalf of the Defendant Funds that have been named as nominal defendants. With
respect to such derivative claims, no relief is sought against the Defendant
Funds. Founders, Dreyfus and the Defendant Funds believe the allegations to be
totally without merit and intend to defend the action vigorously. The defendants
filed motions to dismiss the Amended Complaint on November 12, 2004, and those
motions are pending.
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 nor the Funds believe that any of the pending actions
will have a material adverse effect on the Funds or Founders' ability to perform
its contract with the Funds.
38
<Page>
REPORT OF INDEPENDENT
REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Shareholders of
Dreyfus Founders Funds, Inc.
In our opinion, the accompanying statement of assets and liabilities, including
the statement of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of Dreyfus Founders Balanced Fund (one
of the portfolios constituting Dreyfus Founders Funds, Inc., hereafter referred
to as the "Fund") at December 31, 2004, the results of its operations for the
year then ended, the changes in its net assets for each of the two years in the
period then ended and the financial highlights for each of the five years in the
period then ended, in conformity with accounting principles generally accepted
in the United States of America. These financial statements and financial
highlights (hereafter referred to as "financial statements") are the
responsibility of the Fund's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these financial statements in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those standards
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits, which included
confirmation of securities at December 31, 2004 by correspondence with the
custodian and brokers and the application of alternative auditing procedures
where securities purchased had not been received, provide a reasonable basis for
the opinion expressed above.
PricewaterhouseCoopers LLP
Denver, Colorado
February 10, 2005
39
<Page>
OTHER TAX INFORMATION
(UNAUDITED)
CORPORATE DIVIDENDS RECEIVED DEDUCTION
Dividends paid by the Fund from net investment income and distributions of net
realized short-term capital gains are, for federal tax purposes, taxable as
ordinary income to shareholders. Of the ordinary income distributions declared
for the year ended December 31, 2004, 66.76% qualified for the dividends
received deduction available to the Fund's corporate shareholders.
QUALIFIED DIVIDEND INCOME
For the year ended December 31, 2004, the Fund designated 69% of the ordinary
income distributions paid as qualified dividend income subject to reduced income
tax rates for taxpayers with taxable accounts.
40
<Page>
YOUR BOARD REPRESENTATIVES
(UNAUDITED)
The Board of Directors of the Company oversees all 10 Dreyfus Founders Funds.
The business and affairs of the Company are managed under the direction of the
Board. The directors serving on the Board perform their responsibilities in the
manner which they reasonably believe to be in the best interests of the Funds
and their shareholders.
All of the directors, as listed below, are independent directors. They are not
affiliated with the Fund's adviser, its parent company, or its affiliates. The
directors have no official term of office and generally serve until they reach
the mandated retirement age of 75, resign, or are not re-elected. As you can see
from their backgrounds, the directors have broad experience as active or former
business and community leaders.
Directors
EUGENE H. VAUGHAN, CFA, 71. Year elected to the Board: 1970
Board Chairman. Founding Chairman and, formerly (1970 to 2000), President and
CEO, Vaughan Nelson Investment Management, LP, an investment counseling firm.
Director, Encore Bank. Founding Chairman, Center for Houston's Future, a
non-profit organization. Founding Chairman and former Governor, Association for
Investment Management and Research. Past Chairman and Trustee, Institute of
Chartered Financial Analysts. Past Chairman and Director, Financial Analysts
Federation.
ALAN S. DANSON, 65. Year elected to the Board: 1991
Private investor. Formerly, President and Director, D.H. Management, Inc., the
general partner of a limited partnership with technology company holdings (1996
to 2003). Formerly, Director and Senior Vice President, OptiMark Technologies,
Inc., a computerized securities trading service (1996 to 1999). Director,
CaseShare Systems, LLP, a document management company. Director, Gore Range
Natural Science School and The Les Streeter Programs, Inc., both of which are
non-profit organizations.
JOAN D. MANLEY, 72. Year elected to the Board: 1998
Retired. Formerly, Ms. Manley served in several executive capacities with Time
Incorporated, most recently as Group Vice President, Director and Chairman of
Time-Life Books, Inc. and Book of the Month Club, Inc. (1960 to 1984). Director,
Sara Lee Corporation and R.R. Donnelley & Sons Company.
ROBERT P. MASTROVITA, 60. Year elected to the Board: 1998
Private investor. Chairman of a private charitable foundation (1997 to present).
Formerly, Chairman and Director, Hagler, Mastrovita & Hewitt, Inc., a registered
investment adviser (1982 to 1997). Member, Boston Society of Security Analysts.
Trustee, Partridge Academy.
TRYGVE E. MYHREN, 68. Year elected to the Board: 1996
President, Myhren Media, Inc., a firm that invests in and advises media,
telecommunications, Internet and software companies. Special Limited Partner and
member of Investment Committee, Megunticook Funds, a venture capital firm (1998
to present). Director, Advanced Marketing Services, Inc. Trustee and Chairman of
Finance Committee, the University of Denver. Trustee, Denver Art Museum. Member,
Cable Television Hall of Fame. Formerly, President (1990 to 1996) and Director
(1992 to 2001) of the Providence Journal Company, a diversified media and
communications
41
<Page>
company. Formerly, Chairman and Chief Executive Officer of American Television
and Communications Corporation (now Timer Warner Cable) (1981 to 1988).
Formerly, Chairman of the National Cable Television Association (1986-1987).
GEORGE W. PHILLIPS, 66. Year elected to the Board: 1998
Retired. Vice Chairman of the Board, Chairman of the Finance Committee, and
Chairman of the Investment Committee, Children's Medical Center of Boston.
Formerly, President and Chief Executive Officer (1992 to 1997) and Director
(1992 to 2002) of Warren Bancorp, Inc. Formerly, President, Chief Executive
Officer and Director of Warren Five Cents Savings Bank (1992 to 1997).
PRINCIPAL OFFICERS
RICHARD W. SABO, 47. President of the Funds since 2000 and Principal Executive
Officer of the Funds since 2002. Founders' President and Chief Executive
Officer, Member of Founders' Board of Managers and Director of Dreyfus (1998 to
present). Executive Vice President of DSC since 2003. Formerly, Senior Vice
President and Regional Director for Prudential Securities, Inc. (1991 to 1998).
DAVID L. RAY, 47. Vice President of the Funds since 2000, and from 1990 to 1998.
Founders' Senior Vice President--Administration and Treasurer. Vice President of
DSC since 2003. Employed by Founders and its predecessor company since 1990.
Formerly, Treasurer of the Funds (1990 to 1998).
KENNETH R. CHRISTOFFERSEN, 49. Secretary of the Funds since 2000, and from 1996
to 1998. Founders' Senior Vice President--Legal, General Counsel and Secretary.
Assistant Secretary of DSC since 2003. Employed by Founders and its predecessor
company since 1996.
JANELLE E. BELCHER, 46. Chief Compliance Officer of the Funds since 2004 and
Assistant Secretary of the Funds since 2002. Founders' Vice
President--Compliance since 2002. Formerly, Founders' Manager of Compliance
(2000 to 2002) and Securities Compliance Examiner, Staff Accountant and Team
Leader for the U.S. Securities and Exchange Commission (1990 to 2000).
ROBERT T. KELLY, 35. Treasurer, Principal Financial Officer, and Principal
Accounting Officer of the Funds since 2003. Founders' Vice President of
Portfolio Accounting since 2000. Formerly, Assistant Treasurer of the Funds
(2000 to 2003), and Head of Equity Desk for ABN Amro Trust Company (Cayman)
Limited (1998 to 2000).
WILLIAM G. GERMENIS, 34. Anti-Money Laundering Compliance Officer ("AMLCO") for
the Class A, Class B, Class C, Class R, and Class T shares of the Funds since
2002 and for the Class F shares of the Funds since 2003. Vice President and
AMLCO of MBSC, LLC since 2002. Vice President and AMLCO of DSC and AMLCO of
investment companies managed by Dreyfus. Employed by DSC since 1998.
The directors and officers may be contacted at Founders' address appearing on
the inside cover, except for Mr.Germenis, who can be contacted at 200 Park
Avenue, New York, New York 10166. Additional information about the Company's
directors is available in the Statement of Additional Information, which can be
obtained free of charge by calling the toll free number on the back cover.
42
<Page>
FOR MORE INFORMATION
- -------------------------------------------------------------------------------
DREYFUS FOUNDERS TRANSFER AGENT &
BALANCED FUND DIVIDEND DISBURSING AGENT
MANAGER Dreyfus Transfer, Inc.
200 Park Avenue
Founders Asset Management LLC New York, NY 10166
210 University Boulevard
Suite 800
Denver, CO 80206 DISTRIBUTOR
Dreyfus Service Corporation
200 Park Avenue
New York, NY 10166
- -------------------------------------------------------------------------------
TELEPHONE Call your financial representative or 1-800-554-4611
MAIL Dreyfus Founders Funds, Inc.
144 Glenn Curtiss Boulevard, Uniondale, NY 11556-0144
The fund files its complete schedule of portfolio holdings with the Securities
and Exchange Commission ("SEC") for the first and third quarters of each fiscal
year on Form N-Q. The fund's Forms N-Q are available on the SEC's website at
http://www.sec.gov and may be reviewed and copied at the SEC's Public Reference
Room in Washington, DC. Information on the operation of the Public Reference
Room may be obtained by calling 1-800-SEC-0330.
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 http://www.dreyfus.com and on the SEC's
website at http://www.sec.gov. The description of the policies and procedures is
also available without charge, upon request, by calling 1-800-645-6561.
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.
[LION GRAPHIC]
(C)2005 Dreyfus Service Corporation 0086AR1204
<Page>
Dreyfus Founders
Discovery Fund
Dreyfus Founders Discovery Fund is closed to new investors.
Please see the prospectus for additional information.
ANNUAL REPORT December 31, 2004
[LION GRAPHIC]
YOU, YOUR ADVISOR AND
(R) [DREYFUS LOGO]
A MELLON FINANCIAL COMPANY (SM)
<Page>
TABLE OF CONTENTS
<Table>
Management Overview 3
Fund Expenses 12
Statement of Investments 14
Statement of Assets and Liabilities 18
Statement of Operations 20
Statements of Changes in Net Assets 21
Financial Highlights 22
Notes to Financial Statements 28
Report of Independent Registered Public Accounting Firm 37
Your Board Representatives 38
</Table>
-----------------------------------------------------------
Save time. Save paper. View your next shareholder report
online as soon as it's available. Log into www.dreyfus.com
and sign up for Dreyfus eCommunications. It's simple and
only takes a few minutes.
-----------------------------------------------------------
INVESTMENT MANAGER DISTRIBUTOR
Founders Asset Management LLC Dreyfus Service Corporation
A MELLON FINANCIAL COMPANY(SM) 200 Park Avenue
210 University Boulevard, Suite 800 New York, NY 10166
Denver, CO 80206
The views expressed in this report reflect those of the portfolio managers only
through the end of the period covered and do not necessarily represent the views
of Founders or any other person in the Founders organization. Any such views are
subject to change at any time based upon market or other conditions and Founders
disclaims any responsibility to update such views. These views may not be relied
on as investment advice and, because investment decisions for a Dreyfus Founders
Fund are based on numerous factors, may not be relied on as an indication of
trading intent on behalf of any Dreyfus Founders Fund. Companies appearing in
bold print on pages 3-11 were owned by the Fund on December 31, 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
(UNAUDITED)
[PHOTO OF BRADLEY C. ORR]
[PHOTO OF 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 12-MONTH PERIOD ENDED
DECEMBER 31, 2004?
For the 12-month period ended December 31, 2004, the Dreyfus Founders Discovery
Fund underperformed its benchmark, the Russell 2000 Growth Index, which posted a
return of 14.31% for the same period.
DESCRIBE THE INVESTING ENVIRONMENT DURING THE PERIOD.
The Russell 2000 Growth Index struggled through the first eight calendar months
of 2004, with a sharp decline that began in the second quarter and pushed midway
through the third quarter. The weakness was driven by investor fears over
several factors including: high oil prices, the lack of a quick resolution to
the situation in Iraq, the commencement of an interest rate tightening campaign
by the Federal Reserve, and uncertainty leading up to the Presidential election.
In the fourth quarter, however, at a point roughly coinciding with a sharp
correction in the price of oil, the equity markets began to rally. The rally
gathered momentum from that point, as the election passed with an incumbent
victory and oil prices settled back to the low-$40 level. The Russell 2000
Growth Index declined nearly 12% through mid-August, but rose a staggering 29%
from that point to close the year on a decisively positive note. The strong
market advance was
[SIDENOTE]
"UPON ASSUMING PORTFOLIO MANAGEMENT RESPONSIBILITIES FOR THE FUND, WE WORKED TO
REDUCE THE NUMBER OF POSITIONS HELD, THEREBY MORE TIGHTLY FOCUSING OUR
ANALYTICAL EFFORTS."
3
<Page>
not deterred by either sharply eroding earnings estimates, on average, for
companies in the Russell 2000 Growth Index during the fourth quarter, or by the
Federal Reserve's efforts to raise interest rates (through a series of five 25
basis point increases in the federal funds rate since June 30).
During 2004, small-capitalization value stocks outperformed
small-capitalization growth stocks. In fact, the Russell 2000 Value Index has
now outperformed the Russell 2000 Growth Index in four of the past five years.
In addition, small-capitalization growth stocks again provided better returns
than large-capitalization growth stocks, with the Russell 2000 Growth Index
outperforming the Russell 1000 Growth Index for the second consecutive year.
The Russell 2000 Value Index measures the performance of those Russell 2000
companies with lower price-to-book ratios and lower forecasted growth values.
The Russell 1000 Growth Index is an unmanaged index that measures the
performance of those Russell 1000 companies with higher price-to-book ratios and
higher forecasted growth values. The total return figures cited for these
indexes assume change in security prices and reinvestment of dividends, but do
not reflect the costs of managing a mutual fund.
[SIDENOTE]
PERFORMANCE HIGHLIGHTS
- In the fourth quarter, at a point roughly coinciding with a sharp
correction in the price of oil, the equity markets began to rally.
- The Fund benefited from strong stock selection and a relative overweight
position in the consumer discretionary sector.
- Additionally, the Fund benefited from a relative overweight position in
the industrials sector and a relative underweight position in the
information technology sector.
- Many poor individual performers in the healthcare sector led to
underperformance in the Fund's healthcare holdings overall.
- Other weak individual performers during the period came from the
industrials sector.
- The average cash position for 2004 was less than 3% as compared to an
average cash position of approximately 10% or more in the previous three
years.
4
<Page>
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 continue to utilize our bottom-up research
process to uncover companies we believe are capable of posting strong future
earnings growth and which are valued attractively relative to their potential
growth rates and peer groups.
From a portfolio composition standpoint, 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 74
stocks by the end of 2004. Many smaller positions, which can sometimes require
disproportionate attention, were liquidated and the proceeds were used to
increase position sizes in stocks where our level of enthusiasm was higher.
LARGEST EQUITY HOLDINGS (ticker symbol)
<Table>
1. Altiris, Inc. (ATRS) 2.80%
2. Impax Laboratories, Inc. (IPXL) 2.56%
3. Choice Hotels International, Inc. (CHH) 2.48%
4. Station Casinos, Inc. (STN) 2.39%
5. Gaylord Entertainment Company (GET) 2.34%
6. Harris Corporation (HRS) 2.20%
7. WMS Industries, Inc. (WMS) 2.10%
8. Trex Company, Inc. (TWP) 2.10%
9. SFBC International, Inc. (SFCC) 2.08%
10. Avocent Corporation (AVCT) 2.07%
</Table>
Portfolio holdings are subject to change, and should not be construed as a
recommendation of any security.
5
<Page>
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.
Class F Russell 2000
Shares Growth Index
- ---------------------------------------
12/31/1994 $10,000 $10,000
12/31/1995 $13,130 $13,104
12/31/1996 $15,914 $14,580
12/31/1997 $17,815 $16,468
12/31/1998 $20,343 $16,670
12/31/1999 $39,585 $23,854
12/29/2000 $36,317 $18,503
12/31/2001 $29,850 $16,796
12/31/2002 $19,977 $11,713
12/31/2003 $27,258 $17,399
12/31/2004 $30,186 $19,888
The above graph compares a $10,000 investment made in Class F shares of Dreyfus
Founders Discovery Fund on 12/31/94 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 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 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 total return figures
cited for the Russell 2000 Growth 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>
<Table>
<Caption>
1 5 10 SINCE
CLASS (INCEPTION DATE) YEAR YEARS YEARS INCEPTION
----------------------------------------------------------------------------------------------------
CLASS A SHARES (12/31/99)
With sales charge (5.75%) 4.31% (6.37%) -- (6.37%)
Without sales charge 10.68% (5.26%) -- (5.26%)
CLASS B SHARES (12/31/99)
With redemption* 5.67% (6.44%) -- (6.44%)
Without redemption 9.67% (6.09%) -- (6.09%)
CLASS C SHARES (12/31/99)
With redemption** 8.67% (6.08%) -- (6.08%)
Without redemption 9.67% (6.08%) -- (6.08%)
CLASS F SHARES (12/29/89) 10.74% (5.28%) 11.68% 13.33%
CLASS R SHARES (12/31/99) 11.02% (5.00%) -- (5.00%)
CLASS T SHARES (12/31/99)
With sales charge (4.50%) 5.35% (6.54%) -- (6.54%)
Without sales charge 10.29% (5.68%) -- (5.68%)
</Table>
Average annual total returns do not reflect the deduction of taxes that a
shareholder would pay on Fund distributions or redemption of Fund shares, but do
reflect the reinvestment of dividends and capital gain distributions, and
adjustments for financial statement purposes. Part of the Fund's 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.
7
<Page>
As the number of holdings declined, we were encouraged by the fact that the
average cash position in the Fund was also reduced. The average cash position
for 2004 was less than 3% as compared to an average cash position of
approximately 10% or more in the previous three years. At times, we have
utilized exchange-traded funds (ETFs), which mirror underlying equity indices,
to equitize cash, but because we have been pleased with idea generation for the
Fund overall, the use of ETFs was relatively limited in 2004.
Finally, following the end of the third quarter, we added two equity analysts
to our small-cap investment team, bringing the total number of investment
professionals on our team to seven.
WHAT MANAGEMENT DECISIONS POSITIVELY CONTRIBUTED TO THE FUND'S PERFORMANCE
DURING THE PERIOD?
The Fund benefited from strong stock selection and a relative overweight
position in the consumer discretionary sector. Favorable contributions to
performance were gained from two stocks in the lodging industry, CHOICE HOTELS
INTERNATIONAL, INC. and GAYLORD ENTERTAINMENT COMPANY. Both stocks appreciated
during the year, driven by improving trends in business travel and room rate
pricing. GUITAR CENTER, INC., a retailer of musical instruments, also aided Fund
performance in this sector as the company continued to post better-than-expected
sales growth.
[CHART]
PORTFOLIO COMPOSITION OF NET ASSETS
<Table>
Consumer Discretionary 25.04%
Information Technology 24.04%
Industrials 21.67%
Healthcare 19.72%
Energy 4.39%
Financials 3.24%
Materials 1.03%
Other 0.87%
</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>
Stock selection in the energy sector also boosted relative Fund performance.
Specific holdings such as NATIONAL-OILWELL, INC., SUPERIOR ENERGY SERVICES, INC.
and QUICKSILVER RESOURCES, INC. rose as surging oil prices in 2004 provided a
highly supportive backdrop for stock performance.
The Fund's holdings in the healthcare sector underperformed the Fund's
benchmark as a group for the period; however, some healthcare holdings such as
SFBC INTERNATIONAL, INC. and FISHER SCIENTIFIC INTERNATIONAL, INC. were among
the largest positive contributors to the Fund during the period. 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 gains early in
the year as it announced a large acquisition that was viewed as a good strategic
fit.
Other notable positive contributors to the Fund's relative performance during
the year included HARRIS CORPORATION and TREX COMPANY, INC. Harris, which makes
many forms of electronic communications equipment, performed well as revenue
growth exceeded expectations partially based on an increase in government demand
for communications infrastructure upgrades. Trex, which makes maintenance-free
composite wood boards for decking applications, performed well as revenues grew
and investors began to appreciate the company's significant market opportunity.
Additionally, the Fund benefited from a relative overweight position in the
industrials sector and a relative underweight position in the information
technology sector, which was the only sector in the Russell 2000 Growth Index to
register a loss for the year despite the market's strong advance.
WHAT MANAGEMENT DECISIONS HINDERED FUND PERFORMANCE
FOR THE 12-MONTH PERIOD?
Many poor individual performers in the healthcare sector led to underperformance
in the Fund's healthcare holdings overall. Pharmaceutical manufacturer Taro
Pharmaceuticals Industries Limited, hospice care provider Odyssey HealthCare,
Inc., and medical products company Merit Medical Systems, Inc. all had a
negative impact on the Fund's performance. Taro Pharmaceuticals reported
disappointing first quarter results due to both lower-than-expected revenue from
new over-the-counter products, as well as
9
<Page>
higher costs to market those products. Odyssey also reported disappointing
results in the first quarter and gave forward guidance that fell short of
analyst expectations. Merit reported disappointing third quarter results due to
increased competitive pressures.
Other weak individual performers during the period came from the industrials
sector. KVH Industries, Inc., a manufacturer of digital defense navigation
products and consumer communication satellite tracking technology, saw its stock
price drop significantly in the first quarter after the company disclosed delays
in closing a large defense order, as well as a slower-than-expected ramp-up in a
new consumer-related product. Corinthian Colleges, Inc. also hurt Fund
performance as the company was negatively impacted by slowing admission trends.
In the materials sector, a relative underweight position coupled with poor
stock selection negatively impacted Fund performance. As one such example,
materials holding GRAFTECH INTERNATIONAL LIMITED, which sells consumables used
in steel manufacturing, performed poorly as the company was unable to convert a
strong steel cycle into solid earnings growth.
Stock selection in the information technology sector also negatively affected
the Fund's performance. Within the semiconductor industry, several holdings
hampered Fund performance as evidence mounted that the current cycle had reached
its peak. BROOKS AUTOMATION, INC., which makes automation equipment for
semiconductor manufacturing; OmniVision Technologies, Inc., which makes
semiconductors for digital cameras and other applications; and Fairchild
Semiconductor International, Inc., which makes a variety of commodity-oriented
semiconductor components, all dragged on Fund performance.
Other names that detracted from Fund performance included Performance Food
Group Company, a food distribution company, and CUMULUS MEDIA, INC., a
middle-market radio station operator. Performance Foods was negatively impacted
in the second quarter by higher costs and lower productivity associated with new
product rollouts. Cumulus was hurt by investor fears that advertising dollars
were migrating away from traditional channels, such as radio, to Internet-based
venues.
In addition, Fund performance was negatively impacted by a relative
underweight position in the financials sector.
10
<Page>
We continue to focus on our bottom-up stock selection process, which factors
greatly into the allocation of the Fund's sector weightings. As we entered 2005,
the Fund was overweight the consumer discretionary and industrials sectors,
underweight financials and, to a lesser degree, the information technology
sector. Within consumer discretionary, the Fund had a high relative weighting in
the lodging and gaming industries. Finally, the Fund was slightly underweight
healthcare, but maintained a high relative weighting in the pharmaceutical
industry.
Our strategy for the Fund remains consistent. We will continue to emphasize
companies that we believe have higher quality characteristics such as
sustainable earnings growth, reasonable valuations and effective management
teams.
/s/ Bradley C. Orr /s/ James (J.D.) Padgett
Bradley C. Orr, CFA James (J.D.) Padgett, CFA
Co-Portfolio Manager Co-Portfolio Manager
11
<Page>
FUND EXPENSES
(UNAUDITED)
As a shareholder of the Fund, depending on the class of shares of the Fund you
own, you incur two types of costs: (1) transaction costs, including front-end
and contingent deferred sales charges; and (2) ongoing costs, including
management fees, Rule 12b-1 fees, shareholder services fees, and other expenses.
The expense example shown below is intended to help you understand your ongoing
costs (in dollars) of investing in the Fund and to compare these costs with the
ongoing costs of investing in other mutual funds.
The expense example is based on an investment of $1,000 on July 1, 2004 and
held through December 31, 2004.
ACTUAL EXPENSES The numbers included in the expense example in the rows with the
word "Actual" in the title provide information about actual account values and
actual expenses. You may use this information to estimate the expenses that you
paid over the period. Simply divide your account value by $1,000 (for example,
an $8,600 account value divided by $1,000 = 8.60), then multiply the result by
the number under the column heading entitled "Expenses Paid During Period" for
the class of shares you own to estimate the expenses you paid on your account
during this period.
HYPOTHETICAL EXPENSES The numbers included in the expense example in the rows
with the word "Hypothetical" in the title provide information about hypothetical
account values and hypothetical expenses based on the Fund's actual expense
ratio for each class of shares, and an assumed rate of return of 5% per year
before expenses, which is not the Fund's actual return. The hypothetical account
values and expenses may not be used to estimate the actual ending account
balance or expenses you paid for the period. You may use this information to
compare the ongoing costs of investing in the Fund and other funds. To do so,
compare the hypothetical expenses in the expense example for the class of shares
you own with the hypothetical expenses that appear in the shareholder reports of
other funds.
Please note that the expenses shown in the expense example are meant to
highlight your ongoing costs only and do not reflect the transaction costs
described above. Therefore, the hypothetical expenses in the expense example are
useful in comparing ongoing costs only, and will not help you determine the
relative total costs of owning different funds. In addition, if the transaction
costs were included, your costs would have been higher.
12
<Page>
EXPENSE EXAMPLE
<Table>
<Caption>
BEGINNING ENDING EXPENSES PAID
ACCOUNT VALUE ACCOUNT VALUE DURING PERIOD*
(7/1/04) (12/31/04) (7/1/04-12/31/04)
---------------------------------------------------------------------------------------------------------------
CLASS A ACTUAL $ 1,000.00 $ 1,052.65 $ 7.30
CLASS A HYPOTHETICAL 1,000.00 1,017.82 7.18
CLASS B ACTUAL 1,000.00 1,042.61 12.14
CLASS B HYPOTHETICAL 1,000.00 1,013.04 11.96
CLASS C ACTUAL 1,000.00 1,042.73 11.98
CLASS C HYPOTHETICAL 1,000.00 1,013.19 11.81
CLASS F ACTUAL 1,000.00 1,053.22 6.84
CLASS F HYPOTHETICAL 1,000.00 1,018.28 6.72
CLASS R ACTUAL 1,000.00 1,055.53 5.86
CLASS R HYPOTHETICAL 1,000.00 1,019.25 5.75
CLASS T ACTUAL 1,000.00 1,048.71 9.10
CLASS T HYPOTHETICAL 1,000.00 1,016.04 8.96
</Table>
*Expenses are equal to each Class's respective annualized expense ratio,
shown below, multiplied by the average account value over the period,
multiplied by 184/366 (to reflect the one-half year period).
EXPENSE RATIOS
These expense ratios reflect reimbursements and/or waivers of expenses by
the Fund's investment adviser or its affiliates, where applicable.
<Table>
<Caption>
EXPENSE RATIO
- -------------------------------------------------
CLASS A 1.41%
CLASS B 2.35%
CLASS C 2.32%
CLASS F 1.32%
CLASS R 1.13%
CLASS T 1.76%
</Table>
13
<Page>
STATEMENT OF INVESTMENTS
DECEMBER 31, 2004
<Table>
<Caption>
SHARES MARKET VALUE
- ---------------------------------------------------------------------------------
COMMON STOCKS (DOMESTIC)--100.1%
AEROSPACE & DEFENSE--1.0%
515,697 Hexcel Corporation* $ 7,477,604
----------------
AIR FREIGHT & LOGISTICS--2.3%
118,750 Forward Air Corporation* 5,308,125
169,340 UTI Worldwide, Inc. 11,518,507
----------------
16,826,632
----------------
APPAREL RETAIL--0.9%
356,300 Hot Topic, Inc.* 6,124,797
----------------
APPLICATION SOFTWARE--3.5%
565,180 Altiris, Inc.* 20,024,327
315,400 Quest Software, Inc.* 5,030,630
----------------
25,054,957
----------------
ASSET MANAGEMENT & CUSTODY BANKS--0.5%
54,000 Affiliated Managers Group, Inc.* 3,657,960
----------------
BROADCASTING & CABLE TV--0.9%
410,425 Cumulus Media, Inc.* 6,189,209
----------------
BUILDING PRODUCTS--2.1%
286,112 Trex Company, Inc.* 15,003,713
----------------
CASINOS & GAMING--7.3%
478,530 GTECH Holdings Corporation 12,417,854
380,432 Pinnacle Entertainment, Inc.* 7,524,945
313,131 Station Casinos, Inc. 17,122,003
448,225 WMS Industries, Inc.* 15,033,467
----------------
52,098,269
----------------
COMMUNICATIONS EQUIPMENT--9.8%
365,450 Avocent Corporation* 14,808,034
646,800 Foundry Networks, Inc.* 8,511,888
254,820 Harris Corporation 15,745,328
512,907 Polycom, Inc.* 11,960,991
931,280 Powerwave Technologies, Inc.* 7,897,254
533,375 Tekelec* 10,902,185
----------------
69,825,680
----------------
CONSTRUCTION, FARM MACHINERY & HEAVY TRUCKS--0.7%
249,625 Wabtec Corporation 5,322,005
----------------
DIVERSIFIED COMMERCIAL SERVICES--2.4%
183,485 Asset Acceptance Capital Corporation* 3,908,231
397,310 Education Management Corporation* 13,115,203
----------------
17,023,434
----------------
ELECTRICAL COMPONENTS & EQUIPMENT--2.0%
410,350 AMETEK, Inc. 14,637,185
----------------
ELECTRONIC EQUIPMENT MANUFACTURERS--1.2%
680,065 Aeroflex, Inc.* 8,242,388
----------------
ELECTRONIC MANUFACTURING SERVICES--1.1%
399,375 RadiSys Corporation* 7,807,781
----------------
</Table>
14
<Page>
<Table>
<Caption>
SHARES MARKET VALUE
- ---------------------------------------------------------------------------------
EMPLOYMENT SERVICES--1.1%
378,213 Gevity HR, Inc. $ 7,776,059
----------------
ENVIRONMENTAL SERVICES--1.6%
241,565 Stericycle, Inc.* 11,099,912
----------------
EXCHANGE TRADED FUNDS--1.0%
182,600 Nasdaq 100 Index Tracking Stock 7,287,566
----------------
GENERAL MERCHANDISE STORES--1.4%
336,093 Tuesday Morning Corporation* 10,294,529
----------------
HEALTHCARE DISTRIBUTORS--3.3%
226,375 Fisher Scientific International, Inc.* 14,121,273
138,286 Henry Schein, Inc.* 9,630,237
----------------
23,751,510
----------------
HEALTHCARE EQUIPMENT--2.0%
256,200 I-Flow Corporation* 4,670,526
189,716 Mine Safety Appliances Company 9,618,601
----------------
14,289,127
----------------
HEALTHCARE SERVICES--2.1%
376,805 SFBC International, Inc.* 14,883,798
----------------
HEALTHCARE SUPPLIES--0.9%
120,001 Dade Behring Holdings, Inc.* 6,720,056
----------------
HOME FURNISHINGS--1.7%
560,493 Tempur-Pedic International, Inc.* 11,882,452
----------------
HOTELS, RESORTS & CRUISE LINES--4.8%
306,572 Choice Hotels International, Inc. 17,781,176
402,810 Gaylord Entertainment Company* 16,728,699
----------------
34,509,875
----------------
INDUSTRIAL MACHINERY--1.6%
267,225 Briggs & Stratton Corporation 11,111,216
----------------
INTERNET SOFTWARE & SERVICES--0.1%
94,792 Digitas, Inc.* 905,264
----------------
IT CONSULTING & OTHER SERVICES--1.3%
587,560 Perot Systems Corporation Class A* 9,418,586
----------------
LEISURE FACILITIES--0.9%
259,065 Life Time Fitness, Inc.* 6,704,602
----------------
LEISURE PRODUCTS--1.8%
632,992 Marvel Enterprises, Inc.* 12,963,676
----------------
OFFICE SERVICES & SUPPLIES--1.1%
279,675 Herman Miller, Inc. 7,727,420
----------------
OIL & GAS EQUIPMENT & SERVICES--3.5%
388,745 National-Oilwell, Inc.* 13,718,811
747,000 Superior Energy Services, Inc.* 11,511,270
----------------
25,230,081
----------------
OIL & GAS EXPLORATION & PRODUCTION--0.9%
168,850 Quicksilver Resources, Inc.* 6,210,303
----------------
</Table>
SEE NOTES TO STATEMENT OF INVESTMENTS.
15
<Page>
<Table>
<Caption>
SHARES MARKET VALUE
- ---------------------------------------------------------------------------------
PHARMACEUTICALS--11.4%
437,200 Endo Pharmaceuticals Holdings, Inc.* $ 9,189,944
300,840 Eon Labs, Inc.* 8,122,680
1,155,880 Impax Laboratories, Inc.* 18,355,374
394,197 Inspire Pharmaceuticals, Inc.* 6,610,684
338,627 Medicis Pharmaceutical Corporation Class A 11,889,194
451,065 MGI Pharma, Inc.* 12,634,331
837,525 Salix Pharmaceuticals Limited* 14,732,065
----------------
81,534,272
----------------
REGIONAL BANKS--0.9%
273,980 Southwest Bancorporation of Texas, Inc. 6,380,994
----------------
RESTAURANTS--2.1%
286,342 RARE Hospitality International, Inc.* 9,122,856
108,469 Red Robin Gourmet Burgers, Inc.* 5,799,837
----------------
14,922,693
----------------
SEMICONDUCTOR EQUIPMENT--1.8%
254,295 Brooks Automation, Inc.* 4,378,960
860,430 Entegris, Inc.* 8,561,279
----------------
12,940,239
----------------
SEMICONDUCTORS--3.4%
475,300 Intersil Corporation Class A 7,956,522
304,415 Semtech Corporation* 6,657,556
281,625 Sigmatel, Inc.* 10,006,136
----------------
24,620,214
----------------
SPECIALTY STORES--3.3%
237,400 Guitar Center, Inc.* 12,508,606
280,250 PETCO Animal Supplies, Inc.* 11,064,270
----------------
23,572,876
----------------
STEEL--1.0%
775,800 GrafTech International Limited* 7,339,068
----------------
TECHNOLOGY DISTRIBUTORS--1.9%
645,986 Insight Enterprises, Inc.* 13,255,633
----------------
THRIFTS & MORTGAGE FINANCE--1.8%
351,850 BankAtlantic Bancorp, Inc. 7,001,815
401,725 NewAlliance Bancshares, Inc. 6,146,393
----------------
13,148,208
----------------
TRADING COMPANIES & DISTRIBUTORS--3.6%
203,037 Fastenal Company 12,498,958
412,125 Hughes Supply, Inc. 13,332,244
----------------
25,831,202
----------------
TRUCKING--2.1%
165,950 J.B. Hunt Transport Services, Inc. 7,442,859
210,170 Overnite Corporation 7,826,730
----------------
15,269,589
----------------
TOTAL COMMON STOCKS (DOMESTIC)
(COST--$588,636,767) 716,872,634
----------------
</Table>
16
<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* 0
----------------
0
----------------
TOTAL RIGHTS AND WARRANTS
(COST--$0) 0
----------------
<Caption>
PRINCIPAL AMOUNT AMORTIZED COST
- ---------------------------------------------------------------------------------
CORPORATE SHORT-TERM NOTES--2.1%
PACKAGED FOODS & MEATS--0.0%
$ 250,000 Hershey Foods Corporation
2.18% 1/18/05~ $ 249,743
----------------
PHARMACEUTICALS--2.1%
14,700,000 Novartis Finance Corporation
2.10% 1/3/05~ 14,698,285
----------------
TOTAL CORPORATE SHORT-TERM NOTES
(AMORTIZED COST--$14,948,028) 14,948,028
----------------
TOTAL INVESTMENTS--102.2%
(TOTAL COST--$603,584,795) 731,820,662
----------------
OTHER ASSETS AND LIABILITIES--(2.2%) (16,008,060)
----------------
NET ASSETS--100.0% $ 715,812,602
================
</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. THESE SECURITIES
AMOUNTED TO $14,948,028, OR 2.1%, OF THE FUND'S NET ASSETS AS OF DECEMBER
31, 2004.
SEE NOTES TO FINANCIAL STATEMENTS.
17
<Page>
STATEMENT OF ASSETS AND LIABILITIES
December 31, 2004
<Table>
ASSETS
Investment securities, at cost $ 603,584,795
--------------
Investment securities, at market 731,820,662
Cash 1,701,065
Receivables:
Investment securities sold 8,466,233
Capital shares sold 843,329
Dividends and interest 204,360
Other assets 55,561
--------------
Total Assets 743,091,210
--------------
LIABILITIES
Payables and other accrued liabilities:
Investment securities purchased 12,588,937
Capital shares redeemed 13,561,036
Advisory fees 511,956
Shareholder servicing fees 42,522
Accounting fees 32,884
Distribution fees 178,357
Transfer agency fees 68,989
Custodian fees 2,331
Other 291,596
--------------
Total Liabilities 27,278,608
--------------
Net Assets $ 715,812,602
==============
COMPOSITION OF NET ASSETS
Capital (par value and paid-in surplus) $ 977,746,311
Accumulated net investment loss (125,444)
Accumulated net realized loss from security transactions (390,044,132)
Net unrealized appreciation on investments 128,235,867
--------------
Total $ 715,812,602
==============
</Table>
18
<Page>
<Table>
CLASS A
Net Assets $ 65,762,908
Shares Outstanding 2,282,112
Net Asset Value, Redemption Price Per Share $ 28.82
Maximum offering price per share (net asset value
plus sales charge of 5.75% of offering price) $ 30.58
CLASS B
Net Assets $ 18,795,088
Shares Outstanding 682,247
Net Asset Value, Offering and Redemption Price (excluding
applicable contingent deferred sales charge) Per Share $ 27.55
CLASS C
Net Assets $ 6,667,702
Shares Outstanding 241,835
Net Asset Value, Offering and Redemption Price (excluding
applicable contingent deferred sales charge) Per Share $ 27.57
CLASS F
Net Assets $ 550,622,293
Shares Outstanding 19,139,530
Net Asset Value, Offering and Redemption Price Per Share $ 28.77
CLASS R
Net Assets $ 72,316,956
Shares Outstanding 2,475,042
Net Asset Value, Offering and Redemption Price Per Share $ 29.22
CLASS T
Net Assets $ 1,647,655
Shares Outstanding 58,461
Net Asset Value, Redemption Price Per Share $ 28.18
Maximum offering price per share (net asset value
plus sales charge of 4.50% of offering price) $ 29.51
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
19
<Page>
STATEMENT OF OPERATIONS
For the year ended December 31, 2004
<Table>
INVESTMENT INCOME
Dividends $ 1,784,778
Interest 228,763
Foreign taxes withheld (6,103)
--------------
Total Investment Income 2,007,438
--------------
EXPENSES
Advisory fees--Note 2 6,304,317
Shareholder servicing fees--Note 2 570,834
Accounting fees--Note 2 403,104
Distribution fees--Note 2 1,390,333
Transfer agency fees--Note 2 943,677
Registration fees 77,988
Postage and mailing expenses 98,295
Custodian fees and expenses--Note 2 19,546
Printing expenses 106,315
Legal and audit fees 127,025
Directors' fees and expenses--Note 2 125,318
Other expenses 152,806
--------------
Total Expenses 10,319,558
Earnings Credits (15,926)
Reimbursed/Waived Expenses (941)
Expense Offset to Broker Commissions (4,050)
--------------
Net Expenses 10,298,641
--------------
Net Investment Loss (8,291,203)
--------------
REALIZED AND UNREALIZED GAIN ON SECURITY TRANSACTIONS
Net Realized Gain on Security Transactions 74,597,741
Net Change in Unrealized Appreciation/Depreciation of Investments 5,007,548
--------------
Net Realized and Unrealized Gain 79,605,289
--------------
Net Increase in Net Assets Resulting from Operations $ 71,314,086
==============
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
20
<Page>
STATEMENTS OF CHANGES IN NET ASSETS
<Table>
<Caption>
YEAR ENDED YEAR ENDED
12/31/04 12/31/03
OPERATIONS
Net Investment Loss $ (8,291,203) $ (9,085,288)
Net Realized Gain 74,597,741 13,930,958
Net Change in Unrealized
Appreciation/Depreciation of Investments 5,007,548 218,611,635
-------------- --------------
Net Increase in Net Assets Resulting from Operations 71,314,086 223,457,305
-------------- --------------
CAPITAL SHARE TRANSACTIONS
Net Increase (Decrease)--Note 4
Class A (20,072,155) (9,822,554)
Class B (3,926,079) (3,591,234)
Class C (2,295,210) (1,821,877)
Class F (143,830,150) (36,105,693)
Class R 25,138 5,799,244
Class T (302,253) 68,669
-------------- --------------
Net Decrease from Capital Share Transactions (170,400,709) (45,473,445)
-------------- --------------
Net Increase (Decrease) in Net Assets (99,086,623) 177,983,860
-------------- --------------
NET ASSETS
Beginning of year $ 814,899,225 $ 636,915,365
-------------- --------------
End of year $ 715,812,602 $ 814,899,225
============== ==============
Accumulated Net Investment Loss $ (125,444) $ (99,180)
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
21
<Page>
FINANCIAL HIGHLIGHTS
<Table>
<Caption>
YEAR ENDED
DECEMBER 31,
2004 2003 2002 2001 2000
----------------------------------------------------------------------------------
CLASS A SHARES
PER SHARE OPERATING DATA
Net Asset Value, beginning of year $ 26.04 $ 19.09 $ 28.50 $ 34.79 $ 40.88
- ---------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment loss (0.64) (0.36) (0.31) (0.17) (0.03)
Net realized and unrealized gains
(losses) on securities 3.42 7.31 (9.10) (6.02) (3.45)
--------------------------------------------------------------------------------
Total from investment operations 2.78 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 year $ 28.82 $ 26.04 $ 19.09 $ 28.50 $ 34.79
================================================================================
TOTAL RETURN* 10.68% 36.41% (33.02%) (17.78%) (8.18%)
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000s) $ 65,763 $ 79,630 $ 67,184 $ 117,773 $ 131,298
- ---------------------------------------------------------------------------------------------------------------------------
Ratios to average net assets:
Expenses with reimbursements, but no
earnings credits or brokerage offsets# 1.38% 1.50% 1.35% 1.19% 1.24%
Expenses with reimbursements,
earnings credits and brokerage offsets 1.37% 1.50% 1.35% 1.18% 1.20%
Net investment loss (1.11%) (1.25%) (1.08%) (0.58%) (0.21%)
- ---------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate@ 98% 130% 128% 110% 108%
</Table>
* SALES CHARGES ARE NOT REFLECTED IN THE TOTAL RETURN.
# 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>
YEAR ENDED
DECEMBER 31,
2004 2003 2002 2001 2000
----------------------------------------------------------------------------------
CLASS B SHARES
PER SHARE OPERATING DATA
Net Asset Value, beginning of year $ 25.12 $ 18.60 $ 28.03 $ 34.49 $ 40.88
- ---------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment loss (1.07) (0.81) (0.69) (0.45) (0.21)
Net realized and unrealized gains
(losses) on securities 3.50 7.33 (8.74) (5.91) (3.57)
--------------------------------------------------------------------------------
Total from investment operations 2.43 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 year $ 27.55 $ 25.12 $ 18.60 $ 28.03 $ 34.49
================================================================================
TOTAL RETURN* 9.67% 35.05% (33.64%) (18.43%) (8.92%)
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000s) $ 18,795 $ 21,009 $ 18,804 $ 35,845 $ 50,883
- ---------------------------------------------------------------------------------------------------------------------------
Ratios to average net assets:
Expenses with reimbursements, but no
earnings credits or brokerage offsets# 2.30% 2.56% 2.26% 1.97% 1.97%
Expenses with reimbursements,
earnings credits and brokerage offsets 2.29% 2.56% 2.26% 1.96% 1.94%
Net investment loss (2.03%) (2.31%) (1.98%) (1.35%) (1.02%)
- ---------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate@ 98% 130% 128% 110% 108%
</Table>
* SALES CHARGES ARE NOT REFLECTED IN THE TOTAL RETURN.
# 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>
YEAR ENDED
DECEMBER 31,
2004 2003 2002 2001 2000
----------------------------------------------------------------------------------
CLASS C SHARES
PER SHARE OPERATING DATA
Net Asset Value, beginning of year $ 25.14 $ 18.60 $ 28.05 $ 34.51 $ 40.88
- ---------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment loss (1.53) (0.94) (0.86) (0.48) (0.19)
Net realized and unrealized gains
(losses) on securities 3.96 7.48 (8.59) (5.88) (3.57)
--------------------------------------------------------------------------------
Total from investment operations 2.43 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 year $ 27.57 $ 25.14 $ 18.60 $ 28.05 $ 34.51
================================================================================
TOTAL RETURN* 9.67% 35.16% (33.69%) (18.42%) (8.87%)
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000s) $ 6,668 $ 8,352 $ 7,794 $ 17,031 $ 25,275
- ---------------------------------------------------------------------------------------------------------------------------
Ratios to average net assets:
Expenses with reimbursements, but no
earnings credits or brokerage offsets# 2.28% 2.52% 2.27% 1.98% 1.97%
Expenses with reimbursements,
earnings credits and brokerage offsets 2.27% 2.52% 2.26% 1.96% 1.94%
Net investment loss (2.01%) (2.28%) (1.99%) (1.36%) (1.01%)
- ---------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate@ 98% 130% 128% 110% 108%
</Table>
* SALES CHARGES ARE NOT REFLECTED IN THE TOTAL RETURN.
# 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.
24
<Page>
<Table>
<Caption>
YEAR ENDED
DECEMBER 31,
2004 2003 2002 2001 2000
----------------------------------------------------------------------------------
CLASS F SHARES
PER SHARE OPERATING DATA
Net Asset Value, beginning of year $ 25.98 $ 19.04 $ 28.45 $ 34.74 $ 40.86
- ---------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment loss (0.69) (0.35) (0.36) (0.20) (0.07)
Net realized and unrealized gains
(losses) on securities 3.48 7.29 (9.05) (5.99) (3.44)
--------------------------------------------------------------------------------
Total from investment operations 2.79 6.94 (9.41) (6.19) (3.51)
- ---------------------------------------------------------------------------------------------------------------------------
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 year $ 28.77 $ 25.98 $ 19.04 $ 28.45 $ 34.74
================================================================================
TOTAL RETURN 10.74% 36.45% (33.08%) (17.81%) (8.26%)
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000s) $ 550,622 $ 638,880 $ 498,970 $ 847,330 $ 1,066,003
- ---------------------------------------------------------------------------------------------------------------------------
Ratios to average net assets:
Expenses with reimbursements, but no
earnings credits or brokerage offsets# 1.35% 1.53% 1.41% 1.25% 1.28%
Expenses with reimbursements,
earnings credits and brokerage offsets 1.34% 1.53% 1.40% 1.24% 1.25%
Net investment loss (1.08%) (1.29%) (1.13%) (0.64%) (0.46%)
- ---------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate@ 98% 130% 128% 110% 108%
</Table>
# 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.
25
<Page>
<Table>
<Caption>
YEAR ENDED
DECEMBER 31,
2004 2003 2002 2001 2000
----------------------------------------------------------------------------------
CLASS R SHARES
PER SHARE OPERATING DATA
Net Asset Value, beginning of year $ 26.32 $ 19.23 $ 28.64 $ 34.87 $ 40.88
- ---------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.24) (0.17) (0.18) (0.08) 0.00+
Net realized and unrealized gains
(losses) on securities 3.14 7.26 (9.23) (6.05) (3.40)
--------------------------------------------------------------------------------
Total from investment operations 2.90 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 year $ 29.22 $ 26.32 $ 19.23 $ 28.64 $ 34.87
================================================================================
TOTAL RETURN 11.02% 36.87% (32.86%) (17.57%) (7.98%)
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000s) $ 72,317 $ 65,240 $ 42,872 $ 61,163 $ 4,693
- ---------------------------------------------------------------------------------------------------------------------------
Ratios to average net assets:
Expenses with reimbursements, but no
earnings credits or brokerage offsets# 1.11% 1.21% 1.10% 0.95% 0.96%
Expenses with reimbursements,
earnings credits and brokerage offsets 1.10% 1.21% 1.10% 0.94% 0.93%
Net investment income (loss) (0.83%) (0.96%) (0.82%) (0.38%) 0.01%
- ---------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate@ 98% 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.
# 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.
26
<Page>
<Table>
<Caption>
YEAR ENDED
DECEMBER 31,
2004 2003 2002 2001 2000
----------------------------------------------------------------------------------
CLASS T SHARES
PER SHARE OPERATING DATA
Net Asset Value, beginning of year $ 25.55 $ 18.79 $ 28.24 $ 34.69 $ 40.88
- ---------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment loss (0.65) (0.31) (0.54) (0.33) (0.09)
Net realized and unrealized gains
(losses) on securities 3.28 7.07 (8.91) (6.02) (3.49)
--------------------------------------------------------------------------------
Total from investment operations 2.63 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 year $ 28.18 $ 25.55 $ 18.79 $ 28.24 $ 34.69
================================================================================
TOTAL RETURN* 10.29% 35.98% (33.46%) (18.30%) (8.43%)
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000s) $ 1,648 $ 1,788 $ 1,291 $ 2,341 $ 1,908
- ---------------------------------------------------------------------------------------------------------------------------
Ratios to average net assets:
Expenses with reimbursements, but no
earnings credits or brokerage offsets# 1.71% 1.91% 2.06% 1.83% 1.48%
Expenses with reimbursements,
earnings credits and brokerage offsets 1.70% 1.90% 2.06% 1.82% 1.44%
Net investment loss (1.44%) (1.66%) (1.79%) (1.24%) (0.50%)
- ---------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate@ 98% 130% 128% 110% 108%
</Table>
* SALES CHARGES ARE NOT REFLECTED IN THE TOTAL RETURN.
# 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.
27
<Page>
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2004
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,
Equity Growth (formerly Growth and Income), Government Securities, Growth,
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 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. However, the Funds are planning to begin using New
York closing exchange rates to convert foreign currencies to U.S. dollars
sometime during the first quarter of 2005.
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.
28
<Page>
If market quotations or official closing prices are not readily available or are
determined not to reflect accurately fair value, 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 but before the Fund calculates its net asset value,
and it is determined that the event has materially affected the value of the
security. Fair value of foreign equity securities may be determined with the
assistance of a pricing service using correlations between the movement of
prices of foreign securities and indexes of domestic securities and other
appropriate indicators, such as closing market prices of relevant ADRs and
futures contracts. Using fair value to price securities may result in a value
that is different from a security's most recent closing price and from the
prices used by other mutual funds to calculate their net asset values.
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 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
29
<Page>
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, as earned, and includes the
accretion of discounts and the amortization of premiums over the lives of the
respective securities. Withholding taxes on foreign dividends have been provided
for in accordance with the applicable country's tax rules and rates.
DISTRIBUTIONS TO SHAREHOLDERS--The Fund declares and distributes dividends (if
any) and capital gains (if any) annually. Dividends and distributions, which are
determined in accordance with income tax regulations, are recorded on the
ex-dividend date.
EXPENSES--Each Class of the Fund bears expenses incurred specifically on its
behalf and, in addition, each Class bears a portion of general expenses based on
the relative net assets or the number of shareholder accounts of the Class. The
type of expense determines the allocation method.
The Company's board of directors has authorized the payment of certain Fund
expenses with commissions on Fund portfolio transactions. These commissions
reduce Other Expenses and are included in the Expense Offset to Broker
Commissions in the Statement of Operations.
USE OF ESTIMATES--The preparation of financial statements in conformity with
accounting principles generally accepted in the United States of America
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported amounts of
income and expenses during the reporting period. Actual results could differ
from those estimates.
INDEMNIFICATIONS--In the normal course of business, the Company enters into
contracts that contain provisions indemnifying other parties against specified
potential liabilities. Each Fund's maximum exposure under these arrangements is
unknown as this would involve future claims that may be made against the Fund
that have not yet occurred. However, based on experience, the Funds expect the
risk of loss to be remote.
OTHER--Certain prior year information has been reformatted, without substantive
change, to conform with the current year presentation.
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
30
<Page>
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 year ended December 31,
2004, Class F shares were charged $323,778 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 from DTI
are paid by the Fund. During the year ended December 31, 2004, Class F shares
were charged $120,941 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 $13.00, per shareholder account considered to be an
open account at any time during a given month, plus out-of-pocket charges.
Class-specific transfer agency fees paid to DTI during the year ended December
31, 2004 were as follows:
<Table>
<Caption>
TRANSFER
AGENCY FEES
------------------------------------------
Class A $ 39,332
Class B $ 43,876
Class C $ 14,862
Class R $ 22,780
Class T $ 2,230
</Table>
OTHER TRANSFER AGENCY FEES--Various broker-dealers, retirement plan
administrators and other unaffiliated entities have established omnibus accounts
with the Fund, and provide sub-transfer agency, recordkeeping or similar
services to persons holding Fund shares through those accounts. During the year
ended December 31, 2004, the Fund paid $699,656 to these entities for such
services. This amount is included in the transfer agency fees shown on the
Statement of Operations.
CASH MANAGEMENT FEES--The Funds also pay Mellon Bank N.A. ("Mellon Bank"), a
wholly-owned subsidiary of Mellon Financial Corporation and an affiliate of
Founders, fees for certain cash management services. These include various
services related to the processing of shareholder transactions in the Funds.
During the year ended
31
<Page>
December 31, 2004, the Fund was charged $25,839 for cash management fees, which
are included in the out-of-pocket charges from DTI above.
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 year ended December
31, 2004, Class F shares were charged $1,185,726 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 year ended December 31, 2004, were as follows:
<Table>
<Caption>
DISTRIBUTION SHAREHOLDER
FEES SERVICING FEES
------------------------------------------------------------
Class A N/A $ 176,095
Class B $ 146,288 $ 48,763
Class C $ 54,182 $ 18,061
Class T $ 4,137 $ 4,137
</Table>
During the year ended December 31, 2004, DSC retained $1,102 and $9 in sales
commissions from the sales of Class A and Class T shares, respectively. DSC also
retained $5,116, $63,542 and $912 of contingent deferred sales charges relating
to redemptions of Class A, 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 contractually agreed to waive
any fees received for these services to the extent they exceed Founders' costs
in providing the services.
CUSTODIAN FEES--Mellon Bank 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
32
<Page>
Fund held by the custodian. The Fund could have employed these assets elsewhere
to produce income had it not entered into this arrangement. The custodian has
also contractually 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 year ended December 31, 2004, the
Fund's portion of the fee waiver was $941, which reduced the amount paid to
Mellon Bank to $18,605.
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 invested
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,
which pays their compensation. The affairs of the Fund, including services
provided by Founders, are subject to the supervision and general oversight of
the Company's board of directors.
3. FEDERAL TAX INFORMATION
Net investment income and capital gains distributions are determined in
accordance with income tax regulations that may differ from accounting
principles generally accepted in the United States of America. These differences
are due to differing treatments for items such as deferral of wash sale losses,
foreign currency transactions, net operating losses and capital loss carryovers.
Permanent differences identified during the year ended December 31, 2004 have
been reclassified among the components of net assets as follows:
<Table>
<Caption>
UNDISTRIBUTED NET UNDISTRIBUTED NET PAID-IN
INVESTMENT INCOME REALIZED GAINS AND LOSSES CAPITAL
----------------------------------------------------------------
$ 8,264,939 $ 0 $ (8,264,939)
</Table>
The tax components of capital represent distribution requirements the Fund must
satisfy under the income tax regulations and losses or tax deductions the Fund
may be
33
<Page>
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, 2004, 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. Net capital loss carryovers
utilized during 2004 by the Fund amounted to $72,337,100. Accumulated capital
losses as of December 31, 2004 were:
<Table>
<Caption>
EXPIRATION AMOUNT
----------------------------------------------
2009 $ 138,824,492
2010 $ 230,439,968
2011 $ 14,100,468
$ 383,364,928
===============
</Table>
The aggregate cost of investments and the composition of unrealized appreciation
and depreciation of investment securities for federal income tax purposes as of
December 31, 2004 are noted below. The primary difference between book and tax
appreciation or depreciation is wash sale loss deferrals.
<Table>
Federal Tax Cost $ 610,263,999
Gross Tax Appreciation of Investments $ 131,634,068
Gross Tax Depreciation of Investments $ (10,077,405)
Net Tax Appreciation $ 121,556,663
</Table>
34
<Page>
4. CAPITAL SHARE TRANSACTIONS
The Fund is authorized to issue 450 million shares of $0.01 par value capital
stock. Transactions in shares of the Fund for the periods indicated were as
follows:
<Table>
<Caption>
YEAR ENDED YEAR ENDED
12/31/04 12/31/03
SHARES AMOUNT SHARES AMOUNT
CLASS A
Sold 606,846 $ 16,285,433 1,201,496 $ 27,097,339
Redeemed (1,383,103) $ (36,357,588) (1,662,688) $ (36,919,893)
------------------------------------------------------------------------
Net Decrease (776,257) $ (20,072,155) (461,192) $ (9,822,554)
========================================================================
CLASS B
Sold 7,176 $ 180,419 10,129 $ 212,967
Redeemed (161,266) $ (4,106,498) (184,783) $ (3,804,201)
------------------------------------------------------------------------
Net Decrease (154,090) $ (3,926,079) (174,654) $ (3,591,234)
========================================================================
CLASS C
Sold 7,418 $ 188,358 21,413 $ 428,341
Redeemed (97,877) $ (2,483,568) (108,035) $ (2,250,218)
------------------------------------------------------------------------
Net Decrease (90,459) $ (2,295,210) (86,622) $ (1,821,877)
========================================================================
CLASS F
Sold 3,312,230 $ 88,403,785 5,367,437 $ 117,439,063
Redeemed (8,760,046) $ (232,233,935) (6,981,197) $ (153,544,756)
------------------------------------------------------------------------
Net Decrease (5,447,816) $ (143,830,150) (1,613,760) $ (36,105,693)
========================================================================
CLASS R
Sold 568,863 $ 15,239,651 500,330 $ 11,153,199
Redeemed (572,087) $ (15,214,513) (251,484) $ (5,353,955)
------------------------------------------------------------------------
Net Increase (Decrease) (3,224) $ 25,138 248,846 $ 5,799,244
========================================================================
CLASS T
Sold 15,867 $ 408,647 18,394 $ 420,952
Redeemed (27,379) $ (710,900) (17,137) $ (352,283)
------------------------------------------------------------------------
Net Increase (Decrease) (11,512) $ (302,253) 1,257 $ 68,669
========================================================================
</Table>
5. INVESTMENT TRANSACTIONS
Purchases and sales of investment securities (excluding short-term securities
and U.S. government obligations) for the year ended December 31, 2004 were
$724,668,931 and $883,143,892, respectively.
35
<Page>
6. LINE OF CREDIT
The Company has a line of credit arrangement ("LOC") with State Street Bank and
Trust Company, to be used for temporary or emergency purposes, primarily for
financing redemption payments. Each Fund's borrowings are limited to the lesser
of (a) $50 million, or (b) the lesser of 25% of the Fund's total net assets or
the maximum amount which the Fund is permitted to borrow pursuant to the
prospectus, any law or any other agreement. Combined borrowings are subject to
the $50 million cap on the total LOC. Each Fund agrees to pay annual fees and
interest on the unpaid balance based on prevailing market rates as defined in
the LOC. At December 31, 2004 the Fund did not have any borrowings under the
LOC.
7. LEGAL MATTERS
In early 2004, two purported class and derivative actions were filed against
Mellon Financial Corporation, Mellon Bank, Founders, Dreyfus, and certain
directors of the Dreyfus Founders Funds and the Dreyfus Funds (together, the
"Defendant Funds"). In September 2004, plaintiffs served a Consolidated Amended
Complaint (the "Amended Complaint") on behalf of a purported class of all
persons who acquired interests in any of the Defendant Funds between January 30,
1999 and November 17, 2003, and derivatively on behalf of the Defendant Funds.
The Amended Complaint in the newly styled In re Dreyfus Mutual Funds Fee
Litigation also named DSC, Premier Mutual Fund Services, Inc. and two additional
directors of the Defendant Funds as defendants and alleges violations of the
Investment Company Act of 1940, the Investment Advisers Act of 1940, the
Pennsylvania Unfair Trade Practices and Consumer Protection Law and common-law
claims. Plaintiffs seek to recover allegedly improper and excessive Rule 12b-1
and advisory fees allegedly charged to the Defendant Funds for marketing and
distribution services. More specifically, plaintiffs claim, among other things,
that 12b-1 fees and directed brokerage were improperly used to pay brokers to
recommend the Defendant Funds over other funds, and that such payments were not
disclosed to investors. In addition, plaintiffs assert that economies of scale
and soft-dollar benefits were not passed on to the Defendant Funds. Plaintiffs
further allege that 12b-1 fees were improperly charged to certain of the
Defendant Funds that were closed to new investors. The Amended Complaint seeks
compensatory and punitive damages, rescission of the advisory contracts, and an
accounting and restitution of any unlawful fees, as well as an award of
attorneys' fees and litigation expenses. As noted, some of the claims in this
litigation are asserted derivatively on behalf of the Defendant Funds that have
been named as nominal defendants. With respect to such derivative claims, no
relief is sought against the Defendant Funds. Founders, Dreyfus and the
Defendant Funds believe the allegations to be totally without merit and intend
to defend the action vigorously. The defendants filed motions to dismiss the
Amended Complaint on November 12, 2004, and those motions are pending.
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 nor the Funds believe that any of the pending actions
will have a material adverse effect on the Funds or Founders' ability to perform
its contract with the Funds.
36
<Page>
REPORT OF INDEPENDENT
REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Shareholders of
Dreyfus Founders Funds, Inc.
In our opinion, the accompanying statement of assets and liabilities, including
the statement of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of Dreyfus Founders Discovery Fund
(one of the portfolios constituting Dreyfus Founders Funds, Inc., hereafter
referred to as the "Fund") at December 31, 2004, the results of its operations
for the year then ended, the changes in its net assets for each of the two years
in the period then ended and the financial highlights for each of the five years
in the period then ended, in conformity with accounting principles generally
accepted in the United States of America. These financial statements and
financial highlights (hereafter referred to as "financial statements") are the
responsibility of the Fund's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these financial statements in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those standards
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits, which included
confirmation of securities at December 31, 2004 by correspondence with the
custodian and brokers and the application of alternative auditing procedures
where securities purchased had not been received, provide a reasonable basis for
the opinion expressed above.
PricewaterhouseCoopers LLP
Denver, Colorado
February 10, 2005
37
<Page>
YOUR BOARD REPRESENTATIVES
(UNAUDITED)
The Board of Directors of the Company oversees all 10 Dreyfus Founders Funds.
The business and affairs of the Company are managed under the direction of the
Board. The directors serving on the Board perform their responsibilities in the
manner which they reasonably believe to be in the best interests of the Funds
and their shareholders.
All of the directors, as listed below, are independent directors. They are not
affiliated with the Fund's adviser, its parent company, or its affiliates. The
directors have no official term of office and generally serve until they reach
the mandated retirement age of 75, resign, or are not re-elected. As you can see
from their backgrounds, the directors have broad experience as active or former
business and community leaders.
DIRECTORS
EUGENE H. VAUGHAN, CFA, 71. Year elected to the Board: 1970
Board Chairman. Founding Chairman and, formerly (1970 to 2000), President and
CEO, Vaughan Nelson Investment Management, LP, an investment counseling firm.
Director, Encore Bank. Founding Chairman, Center for Houston's Future, a
non-profit organization. Founding Chairman and former Governor, Association for
Investment Management and Research. Past Chairman and Trustee, Institute of
Chartered Financial Analysts. Past Chairman and Director, Financial Analysts
Federation.
ALAN S. DANSON, 65. Year elected to the Board: 1991
Private investor. Formerly, President and Director, D.H. Management, Inc., the
general partner of a limited partnership with technology company holdings (1996
to 2003). Formerly, Director and Senior Vice President, OptiMark Technologies,
Inc., a computerized securities trading service (1996 to 1999). Director,
CaseShare Systems, LLP, a document management company. Director, Gore Range
Natural Science School and The Les Streeter Programs, Inc., both of which are
non-profit organizations.
JOAN D. MANLEY, 72. Year elected to the Board: 1998
Retired. Formerly, Ms. Manley served in several executive capacities with Time
Incorporated, most recently as Group Vice President, Director and Chairman of
Time-Life Books, Inc. and Book of the Month Club, Inc. (1960 to 1984). Director,
Sara Lee Corporation and R.R. Donnelley & Sons Company.
ROBERT P. MASTROVITA, 60. Year elected to the Board: 1998
Private investor. Chairman of a private charitable foundation (1997 to present).
Formerly, Chairman and Director, Hagler, Mastrovita & Hewitt, Inc., a registered
investment adviser (1982 to 1997). Member, Boston Society of Security Analysts.
Trustee, Partridge Academy.
TRYGVE E. MYHREN, 68. Year elected to the Board: 1996
President, Myhren Media, Inc., a firm that invests in and advises media,
telecommunications, Internet and software companies. Special Limited Partner and
member of Investment Committee, Megunticook Funds, a venture capital firm (1998
to present). Director, Advanced Marketing Services, Inc. Trustee and Chairman of
Finance Committee, the University of Denver. Trustee, Denver Art Museum. Member,
Cable Television Hall of Fame. Formerly, President (1990 to 1996) and Director
(1992 to 2001) of the Providence Journal Company, a diversified media and
communications
38
<Page>
company. Formerly, Chairman and Chief Executive Officer of American Television
and Communications Corporation (now Timer Warner Cable) (1981 to 1988).
Formerly, Chairman of the National Cable Television Association (1986-1987).
GEORGE W. PHILLIPS, 66. Year elected to the Board: 1998
Retired. Vice Chairman of the Board, Chairman of the Finance Committee, and
Chairman of the Investment Committee, Children's Medical Center of Boston.
Formerly, President and Chief Executive Officer (1992 to 1997) and Director
(1992 to 2002) of Warren Bancorp, Inc. Formerly, President, Chief Executive
Officer and Director of Warren Five Cents Savings Bank (1992 to 1997).
PRINCIPAL OFFICERS
RICHARD W. SABO, 47. President of the Funds since 2000 and Principal Executive
Officer of the Funds since 2002. Founders' President and Chief Executive
Officer, Member of Founders' Board of Managers and Director of Dreyfus (1998 to
present). Executive Vice President of DSC since 2003. Formerly, Senior Vice
President and Regional Director for Prudential Securities, Inc. (1991 to 1998).
DAVID L. RAY, 47. Vice President of the Funds since 2000, and from 1990 to 1998.
Founders' Senior Vice President--Administration and Treasurer. Vice President of
DSC since 2003. Employed by Founders and its predecessor company since 1990.
Formerly, Treasurer of the Funds (1990 to 1998).
KENNETH R. CHRISTOFFERSEN, 49. Secretary of the Funds since 2000, and from 1996
to 1998. Founders' Senior Vice President--Legal, General Counsel and Secretary.
Assistant Secretary of DSC since 2003. Employed by Founders and its predecessor
company since 1996.
JANELLE E. BELCHER, 46. Chief Compliance Officer of the Funds since 2004 and
Assistant Secretary of the Funds since 2002. Founders' Vice
President--Compliance since 2002. Formerly, Founders' Manager of Compliance
(2000 to 2002) and Securities Compliance Examiner, Staff Accountant and Team
Leader for the U.S. Securities and Exchange Commission (1990 to 2000).
ROBERT T. KELLY, 35. Treasurer, Principal Financial Officer, and Principal
Accounting Officer of the Funds since 2003. Founders' Vice President of
Portfolio Accounting since 2000. Formerly, Assistant Treasurer of the Funds
(2000 to 2003), and Head of Equity Desk for ABN Amro Trust Company (Cayman)
Limited (1998 to 2000).
WILLIAM G. GERMENIS, 34. Anti-Money Laundering Compliance Officer ("AMLCO") for
the Class A, Class B, Class C, Class R, and Class T shares of the Funds since
2002 and for the Class F shares of the Funds since 2003. Vice President and
AMLCO of MBSC, LLC since 2002. Vice President and AMLCO of DSC and AMLCO of
investment companies managed by Dreyfus. Employed by DSC since 1998.
The directors and officers may be contacted at Founders' address appearing on
the inside cover, except for Mr. Germenis, who can be contacted at 200 Park
Avenue, New York, New York 10166. Additional information about the Company's
directors is available in the Statement of Additional Information, which can be
obtained free of charge by calling the toll free number on the back cover.
39
<Page>
FOR MORE INFORMATION
- -------------------------------------------------------------------------------
DREYFUS FOUNDERS TRANSFER AGENT &
DISCOVERY FUND DIVIDEND DISBURSING AGENT
MANAGER Dreyfus Transfer, Inc.
200 Park Avenue
Founders Asset Management LLC New York, NY 10166
210 University Boulevard
Suite 800
Denver, CO 80206 DISTRIBUTOR
Dreyfus Service Corporation
200 Park Avenue
New York, NY 10166
- -------------------------------------------------------------------------------
TELEPHONE Call your financial representative or 1-800-554-4611
MAIL Dreyfus Founders Funds, Inc.
144 Glenn Curtiss Boulevard, Uniondale, NY 11556-0144
The fund files its complete schedule of portfolio holdings with the Securities
and Exchange Commission ("SEC") for the first and third quarters of each fiscal
year on Form N-Q. The fund's Forms N-Q are available on the SEC's website at
http://www.sec.gov and may be reviewed and copied at the SEC's Public Reference
Room in Washington, DC. Information on the operation of the Public Reference
Room may be obtained by calling 1-800-SEC-0330.
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 http://www.dreyfus.com and on the SEC's
website at http://www.sec.gov. The description of the policies and procedures is
also available without charge, upon request, by calling 1-800-645-6561.
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.
[LION GRAPHIC]
(C)2005 Dreyfus Service Corporation 0182AR1204
<Page>
Dreyfus Founders
Equity Growth Fund
Formerly known as Dreyfus Founders Growth and Income Fund.
ANNUAL REPORT December 31, 2004
[LION GRAPHIC]
YOU, YOUR ADVISOR AND
(R) [DREYFUS LOGO]
A MELLON FINANCIAL COMPANY (SM)
<Page>
TABLE OF CONTENTS
<Table>
Management Overview 3
Fund Expenses 10
Statement of Investments 12
Statement of Assets and Liabilities 17
Statement of Operations 19
Statements of Changes in Net Assets 20
Financial Highlights 21
Notes to Financial Statements 27
Report of Independent Registered Public Accounting Firm 37
Other Tax Information 38
Your Board Representatives 39
</Table>
-----------------------------------------------------------
Save time. Save paper. View your next shareholder report
online as soon as it's available. Log into www.dreyfus.com
and sign up for Dreyfus eCommunications. It's simple and
only takes a few minutes.
-----------------------------------------------------------
INVESTMENT MANAGER DISTRIBUTOR
Founders Asset Management LLC Dreyfus Service Corporation
A MELLON FINANCIAL COMPANY(SM) 200 Park Avenue
210 University Boulevard, Suite 800 New York, NY 10166
Denver, CO 80206
The views expressed in this report reflect those of the portfolio manager only
through the end of the period covered and do not necessarily represent the views
of Founders or any other person in the Founders organization. Any such views are
subject to change at any time based upon market or other conditions and Founders
disclaims any responsibility to update such views. These views may not be relied
on as investment advice and, because investment decisions for a Dreyfus Founders
Fund are based on numerous factors, may not be relied on as an indication of
trading intent on behalf of any Dreyfus Founders Fund. Companies appearing in
bold print on pages 3-8 were owned by the Fund on December 31, 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
(UNAUDITED)
[PHOTO OF JOHN B. JARES]
A DISCUSSION WITH PORTFOLIO
MANAGER JOHN B. JARES, CFA
HOW DID THE FUND PERFORM RELATIVE TO ITS BENCHMARK FOR THE 12 MONTHS ENDED
DECEMBER 31, 2004?
Dreyfus Founders Equity Growth Fund underperformed its benchmark, the Standard &
Poor's 500 Index, which posted a 10.88% return for the 12-month period ended
December 31, 2004.
WHAT WAS THE BROAD MARKET ENVIRONMENT IN WHICH THE FUND PERFORMED DURING THE
PERIOD?
The first three quarters of 2004 proved rough for U.S. equity markets as various
factors weighed heavily on investor sentiment. Among these factors were the
continued uncertainty surrounding geopolitical activity in the Middle East, the
anticipation and enactment of increases in the federal funds rate, skyrocketing
oil prices and the run-up to the closely contested U.S. Presidential election.
However, by the fourth quarter numerous investor concerns were resolved and the
markets rallied.
WHAT MANAGEMENT DECISIONS POSITIVELY CONTRIBUTED TO FUND PERFORMANCE DURING THE
PERIOD?
Overall, strong stock selection drove the Fund's performance during the period,
as numerous holdings positively impacted Fund performance. When examining
sectors, holdings in the consumer discretionary, information technology and
industrials sectors provided the largest boon to Fund performance relative to
its benchmark.
[SIDENOTE]
"CONTINUED STRONG CONSUMER SPENDING BOOSTED THE CONSUMER DISCRETIONARY SECTOR."
3
<Page>
Continued strong consumer spending boosted the consumer discretionary sector
in 2004. During the period, our bottom-up investment process led us to forecast
strong demand for leisure cruising, and as a result we compiled earnings
estimates that were ahead of Wall Street forecasts. The Fund's holdings in the
cruise industry, ROYAL CARIBBEAN CRUISES LIMITED and CARNIVAL CORPORATION,
positively impacted relative Fund performance and contributed to an overweight
position in the consumer discretionary sector versus the benchmark. STARWOOD
HOTELS & RESORTS WORLDWIDE, INC. also benefited from an uptick in business and
leisure travel. Additionally, retailer Nordstrom, Inc. gained in this
accommodative spending environment.
Although information technology stocks showed mixed performance in general
during the period, strong stock selection in this sector helped the Fund's
relative performance. Driven by continued strong demand for its iPod and the
introduction of a new Mac computer, APPLE COMPUTER, INC. had the largest
positive impact on the Fund's performance of any stock. Autodesk, Inc., a design
software and digital content company, also performed well due to favorable
acceptance of new products as well as strong company execution.
Continued economic strength also benefited holdings in the industrials
sector, such as FEDEX CORPORATION, which performed well on improved volumes.
[SIDENOTE]
PERFORMANCE HIGHLIGHTS
- The first three quarters of 2004 proved rough for U.S. equity markets as
various factors weighed heavily on investor sentiment.
- Holdings in the consumer discretionary, information technology and
industrials sectors provided the largest boon to Fund performance
relative to its benchmark.
- Although information technology stocks showed mixed performance in
general during the period, strong stock selection in this sector helped
the Fund's relative performance.
- Underweight positions in the materials, energy and financials sectors
weighed heavily on relative Fund performance during the period.
- Select information technology issues weighed heavily on performance in
spite of the sector's overall positive contribution to the Fund.
4
<Page>
Healthcare holding ABBOT LABORATORIES and energy issue EXXONMOBIL CORPORATION
were additional notable performers for the period.
The Fund's position in Standard & Poor's Depositary Receipts also had a
positive impact on Fund performance.
WHAT MANAGEMENT DECISIONS HINDERED FUND PERFORMANCE DURING THE PERIOD?
Our investment strategy is to build a diversified portfolio of high-quality,
respected companies that demonstrate the best potential for significant earnings
growth. However, there are times when stock performance disappoints, hurting the
Fund's overall performance.
During the period, select information technology issues weighed heavily on
performance in spite of the sector's overall positive contribution to the Fund.
INTEL CORPORATION experienced lackluster demand and declining gross margins,
which sent the stock lower during the year. Oracle Corporation was hurt by the
protracted fight to acquire PeopleSoft as well as tepid demand for software.
VIACOM, INC. posted growth rates that trailed Wall Street estimates, and MAXIM
INTEGRATED PRODUCTS, INC. underperformed as a result of lower market demand for
its products and excess channel inventory. CISCO SYSTEMS, INC., NVIDIA
Corporation and TEXAS INSTRUMENTS, INC. also underperformed for the period.
LARGEST EQUITY HOLDINGS (ticker symbol)
<Table>
1. SPDR Trust Series 1 (SPY) 4.77%
2. Microsoft Corporation (MSFT) 3.29%
3. Royal Caribbean Cruises Limited (RCL) 2.37%
4. Intel Corporation (INTC) 2.28%
5. Wal-Mart Stores, Inc. (WMT) 2.26%
6. Carnival Corporation (CCL) 2.15%
7. Cisco Systems, Inc. (CSCO) 2.09%
8. Kohl's Corporation (KSS) 2.07%
9. SAP AG Sponsored ADR (SAP) 2.07%
10. Gillette Company (G) 1.97%
</Table>
Portfolio holdings are subject to change, and should not be construed as a
recommendation of any security.
5
<Page>
GROWTH OF 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.
Class F S&P 500
Shares Index
- ----------------------------------
12/31/1994 $10,000 $10,000
12/31/1995 $12,906 $13,758
12/31/1996 $16,051 $16,917
12/31/1997 $19,171 $22,561
12/31/1998 $22,579 $29,008
12/31/1999 $25,973 $35,112
12/29/2000 $20,891 $31,915
12/31/2001 $17,226 $28,122
12/31/2002 $12,862 $21,907
12/31/2003 $16,808 $28,190
12/31/2004 $18,316 $31,258
The above graph compares a $10,000 investment made in Class F shares of Dreyfus
Founders Equity Growth Fund on 12/31/94 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 TOTAL RETURN AS OF 12/31/04
<Table>
<Caption>
1 5 10 SINCE
CLASS (Inception Date) YEAR YEARS YEARS INCEPTION
- -------------------------------------------------------------------------------------------
CLASS A SHARES (12/31/99)
With sales charge (5.75%) 2.39% (8.27%) -- (8.27%)
Without sales charge 8.54% (7.18%) -- (7.18%)
CLASS B SHARES (12/31/99)
With redemption* 3.73% (8.03%) -- (8.03%)
Without redemption 7.73% (7.68%) -- (7.68%)
CLASS C SHARES (12/31/99)
With redemption** 6.87% (8.00%) -- (8.00%)
Without redemption 7.87% (8.00%) -- (8.00%)
CLASS F SHARES (7/5/38) 8.97% (6.75%) 6.24% N/A
CLASS R SHARES (12/31/99) 8.88% (6.96%) -- (6.96%)
CLASS T SHARES (12/31/99)
With sales charge (4.50%) 2.83% (8.61%) -- (8.61%)
Without sales charge 7.76% (7.76%) -- (7.76%)
</Table>
Average annual total returns do not reflect the deduction of taxes that a
shareholder would pay on Fund distributions or redemption of Fund shares, but do
reflect the reinvestment of dividends and capital gain distributions, expense
limits for certain share classes, and adjustments for financial statement
purposes.
*The maximum contingent deferred sales charge for Class B shares is 4% and is
reduced to 0% after six years, at which time the Class B shares convert to Class
A shares.
**The maximum contingent deferred sales charge for Class C shares is 1% for
shares redeemed within one year of the date of purchase.
7
<Page>
[CHART]
PORTFOLIO COMPOSITION OF NET ASSETS
<Table>
Information Technology 30.05%
Consumer Discretionary 19.11%
Financials 11.91%
Industrials 11.26%
Healthcare 9.42%
Consumer Staples 8.15%
Energy 2.37%
Other 5.27%
Cash & Equivalents 2.46%
</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.
Underweight positions in the materials, energy and financials sectors also
weighed heavily on relative Fund performance during the period. Additionally,
weak stock selection in materials and financials dragged on the Fund's annual
return.
Other notable detractors from Fund performance included COCA-COLA COMPANY and
Newmont Mining Corporation. In addition, PFIZER, INC. had the largest negative
impact on the Fund's performance of any stock. Generic competition and safety
concerns surrounding two of the company's COX-2 inhibitor drugs combined to hurt
Pfizer's share price for the period.
We will continue to apply our fundamental-based investment process and
philosophy in seeking companies that we believe have the potential to take
advantage of an improving economy and that exhibit strong earnings growth.
/s/ John B. Jares
John B. Jares, CFA
Portfolio Manager
8
<Page>
This page intentionally left blank.
9
<Page>
FUND EXPENSES
(UNAUDITED)
As a shareholder of the Fund, depending on the class of shares of the Fund you
own, you incur two types of costs: (1) transaction costs, including front-end
and contingent deferred sales charges; and (2) ongoing costs, including
management fees, Rule 12b-1 fees, shareholder services fees, and other expenses.
The expense example shown below is intended to help you understand your ongoing
costs (in dollars) of investing in the Fund and to compare these costs with the
ongoing costs of investing in other mutual funds.
The expense example is based on an investment of $1,000 on July 1, 2004 and
held through December 31, 2004.
ACTUAL EXPENSES The numbers included in the expense example in the rows with the
word "Actual" in the title provide information about actual account values and
actual expenses. You may use this information to estimate the expenses that you
paid over the period. Simply divide your account value by $1,000 (for example,
an $8,600 account value divided by $1,000 = 8.60), then multiply the result by
the number under the column heading entitled "Expenses Paid During Period" for
the class of shares you hold to estimate the expenses you paid on your account
during this period.
HYPOTHETICAL EXPENSES The numbers included in the expense example in the rows
with the word "Hypothetical" in the title provide information about hypothetical
account values and hypothetical expenses based on the Fund's actual expense
ratio for each class of shares, and an assumed rate of return of 5% per year
before expenses, which is not the Fund's actual return. The hypothetical account
values and expenses may not be used to estimate the actual ending account
balance or expenses you paid for the period. You may use this information to
compare the ongoing costs of investing in the Fund and other funds. To do so,
compare the hypothetical expenses in the expense example for the class of shares
you hold with the hypothetical expenses that appear in the shareholder reports
of other funds.
Please note that the expenses shown in the expense example are meant to
highlight your ongoing costs only and do not reflect the transaction costs
described above. Therefore, the hypothetical expenses in the expense example are
useful in comparing ongoing costs only, and will not help you determine the
relative total costs of owning different funds. In addition, if the transaction
costs were included, your costs would have been higher.
10
<Page>
EXPENSE EXAMPLE
<Table>
<Caption>
BEGINNING ENDING EXPENSES PAID
ACCOUNT VALUE ACCOUNT VALUE DURING PERIOD*
(7/1/04) (12/31/04) (7/1/04-12/31/04)
--------------------------------------------------------------------------------------------
CLASS A ACTUAL $ 1,000.00 $ 1,057.36 $ 6.75
CLASS A HYPOTHETICAL 1,000.00 1,018.38 6.62
CLASS B ACTUAL 1,000.00 1,049.94 10.46
CLASS B HYPOTHETICAL 1,000.00 1,014.72 10.28
CLASS C ACTUAL 1,000.00 1,051.14 10.36
CLASS C HYPOTHETICAL 1,000.00 1,014.82 10.18
CLASS F ACTUAL 1,000.00 1,060.70 5.71
CLASS F HYPOTHETICAL 1,000.00 1,019.40 5.60
CLASS R ACTUAL 1,000.00 1,059.96 5.30
CLASS R HYPOTHETICAL 1,000.00 1,019.81 5.19
CLASS T ACTUAL 1,000.00 1,049.84 10.83
CLASS T HYPOTHETICAL 1,000.00 1,014.36 10.64
</Table>
*Expenses are equal to each Class's respective annualized expense ratio,
shown below, multiplied by the average account value over the period,
multiplied by 184/366 (to reflect the one-half year period).
EXPENSE RATIOS
These expense ratios reflect reimbursements and/or waivers of expenses by the
Fund's investment adviser or its affiliates, where applicable.
<Table>
<Caption>
EXPENSE RATIO
--------------------------------------------------
CLASS A 1.30%
CLASS B 2.02%
CLASS C 2.00%
CLASS F 1.10%
CLASS R 1.02%
CLASS T 2.09%
</Table>
11
<Page>
STATEMENT OF INVESTMENTS
December 31, 2004
<Table>
<Caption>
SHARES MARKET VALUE
- ---------------------------------------------------------------------------------
COMMON STOCKS (DOMESTIC)--92.2%
AIR FREIGHT & LOGISTICS--1.0%
24,025 FedEx Corporation $ 2,366,215
------------
AIRLINES--1.6%
53,900 AMR Corporation* 590,205
77,400 JetBlue Airways Corporation* 1,797,228
86,800 Southwest Airlines Company 1,413,104
------------
3,800,537
------------
APPLICATION SOFTWARE--1.0%
53,500 Mercury Interactive Corporation* 2,436,925
------------
ASSET MANAGEMENT & CUSTODY BANKS--1.0%
17,250 Bank of New York Company, Inc. 576,495
39,675 Northern Trust Corporation 1,927,412
------------
2,503,907
------------
BIOTECHNOLOGY--2.3%
29,060 Amgen, Inc.* 1,864,199
9,650 Biogen Idec, Inc.* 642,787
25,375 Genzyme Corporation* 1,473,526
42,425 Gilead Sciences, Inc.* 1,484,451
------------
5,464,963
------------
BROADCASTING & CABLE TV--1.8%
132,325 Comcast Corporation Special Class A* 4,345,553
------------
CASINOS & GAMING--0.5%
17,275 Wynn Resorts, Limited* 1,156,043
------------
COMMUNICATIONS EQUIPMENT--4.6%
85,150 Avaya, Inc.* 1,464,580
257,138 Cisco Systems, Inc.* 4,962,763
37,775 Motorola, Inc. 649,730
43,850 QUALCOMM, Inc. 1,859,240
60,025 Scientific-Atlanta, Inc. 1,981,425
------------
10,917,738
------------
COMPUTER & ELECTRONICS RETAIL--0.5%
19,399 Best Buy Company, Inc. 1,152,689
------------
COMPUTER HARDWARE--4.4%
72,125 Apple Computer, Inc.* 4,644,850
38,750 Dell, Inc.* 1,632,925
43,125 International Business Machines Corporation 4,251,263
------------
10,529,038
------------
COMPUTER STORAGE & PERIPHERALS--1.5%
238,200 EMC Corporation* 3,542,034
------------
CONSUMER FINANCE--0.7%
62,781 MBNA Corporation 1,769,796
------------
</Table>
12
<Page>
<Table>
<Caption>
SHARES MARKET VALUE
- ---------------------------------------------------------------------------------
DATA PROCESSING & OUTSOURCED SERVICES--2.1%
89,225 Automatic Data Processing, Inc. $ 3,957,129
25,625 CheckFree Corporation* 975,800
------------
4,932,929
------------
DEPARTMENT STORES--2.1%
100,125 Kohl's Corporation* 4,923,146
------------
DIVERSIFIED BANKS--1.0%
36,150 Wells Fargo & Company 2,246,723
------------
ELECTRICAL COMPONENTS & EQUIPMENT--0.9%
29,375 Emerson Electric Company 2,059,188
------------
EMPLOYMENT SERVICES--1.6%
29,500 Manpower, Inc. 1,424,850
69,500 Monster Worldwide, Inc.* 2,337,980
------------
3,762,830
------------
EXCHANGE TRADED FUNDS--5.3%
29,650 Nasdaq 100 Index Tracking Stock 1,183,332
93,725 SPDR Trust Series 1 11,331,353
------------
12,514,685
------------
GENERAL MERCHANDISE STORES--1.0%
57,150 Dollar General Corporation 1,187,006
24,875 Target Corporation 1,291,759
------------
2,478,765
------------
HEALTHCARE EQUIPMENT--0.7%
45,425 Boston Scientific Corporation* 1,614,859
------------
HOME ENTERTAINMENT SOFTWARE--0.5%
20,600 Electronic Arts, Inc.* 1,270,608
------------
HOTELS, RESORTS & CRUISE LINES--3.8%
88,725 Carnival Corporation 5,113,222
65,800 Starwood Hotels & Resorts Worldwide, Inc. 3,842,720
------------
8,955,942
------------
HOUSEHOLD PRODUCTS--1.5%
41,025 Clorox Company 2,417,603
23,275 Colgate-Palmolive Company 1,190,749
------------
3,608,352
------------
HYPERMARKETS & SUPER CENTERS--2.3%
101,525 Wal-Mart Stores, Inc. 5,362,551
------------
INDUSTRIAL CONGLOMERATES--1.2%
81,375 General Electric Company 2,970,188
------------
INDUSTRIAL MACHINERY--0.6%
15,225 Illinois Tool Works, Inc. 1,411,053
------------
INTEGRATED OIL & GAS--1.8%
82,541 ExxonMobil Corporation 4,231,052
------------
</Table>
SEE NOTES TO STATEMENT OF INVESTMENTS.
13
<Page>
<Table>
<Caption>
SHARES MARKET VALUE
- ---------------------------------------------------------------------------------
INVESTMENT BANKING & BROKERAGE--2.7%
37,250 Goldman Sachs Group, Inc. $ 3,875,490
46,900 Morgan Stanley 2,603,888
------------
6,479,378
------------
LEISURE FACILITIES--2.4%
103,300 Royal Caribbean Cruises Limited 5,623,652
------------
LIFE & HEALTH INSURANCE--0.5%
71,125 UnumProvident Corporation 1,275,983
------------
MOVIES & ENTERTAINMENT--4.6%
211,275 Time Warner, Inc.* 4,107,186
98,600 Viacom, Inc. 3,588,054
117,075 Walt Disney Company 3,254,685
------------
10,949,925
------------
MULTI-LINE INSURANCE--1.7%
60,075 American International Group, Inc. 3,945,125
------------
OFFICE ELECTRONICS--0.4%
17,700 Zebra Technologies Corporation* 996,156
------------
OIL & GAS DRILLING--0.6%
35,150 Diamond Offshore Drilling, Inc. 1,407,758
------------
OTHER DIVERSIFIED FINANCIAL SERVICES--1.5%
52,224 Citigroup, Inc. 2,516,152
29,201 JPMorgan Chase & Company 1,139,131
------------
3,655,283
------------
PERSONAL PRODUCTS--3.5%
76,650 Estee Lauder Companies, Inc. Class A 3,508,271
104,725 Gillette Company 4,689,586
------------
8,197,857
------------
PHARMACEUTICALS--5.4%
87,675 Abbott Laboratories 4,090,039
63,675 Johnson & Johnson 4,038,269
54,767 Pfizer, Inc. 1,472,685
78,125 Wyeth 3,327,344
------------
12,928,337
------------
PROPERTY & CASUALTY INSURANCE--0.8%
36,525 Allstate Corporation 1,889,073
------------
PUBLISHING--1.2%
33,675 Gannett Company, Inc. 2,751,248
------------
RAILROADS--1.9%
45,175 Burlington Northern Santa Fe Corporation 2,137,229
36,000 Union Pacific Corporation 2,421,000
------------
4,558,229
------------
RESTAURANTS--1.1%
79,425 Cheesecake Factory, Inc.* 2,578,930
------------
</Table>
14
<Page>
<Table>
<Caption>
SHARES MARKET VALUE
- ---------------------------------------------------------------------------------
SEMICONDUCTOR EQUIPMENT--1.0%
67,550 Applied Materials, Inc.* $ 1,155,105
25,500 KLA-Tencor Corporation* 1,187,790
------------
2,342,895
------------
SEMICONDUCTORS--6.5%
36,425 Broadcom Corporation* 1,175,799
4,170 Freescale Semiconductor, Inc. Class B* 76,561
231,628 Intel Corporation 5,417,779
92,025 Linear Technology Corporation 3,566,889
81,775 Maxim Integrated Products, Inc. 3,466,442
52,700 Texas Instruments, Inc. 1,297,474
17,800 Xilinx, Inc. 527,770
------------
15,528,714
------------
SOFT DRINKS--0.9%
52,825 Coca-Cola Company 2,199,105
------------
SPECIALTY STORES--0.2%
15,125 Tiffany & Company 483,546
------------
SYSTEMS SOFTWARE--5.0%
20,075 Adobe Systems, Inc. 1,259,506
292,641 Microsoft Corporation 7,816,441
100,800 VERITAS Software Corporation* 2,877,840
------------
11,953,787
------------
THRIFTS & MORTGAGE FINANCE--1.9%
28,325 Freddie Mac 2,087,553
58,100 The PMI Group, Inc. 2,425,675
------------
4,513,228
------------
TRADING COMPANIES & DISTRIBUTORS--1.1%
37,450 W.W. Grainger, Inc. 2,494,919
------------
TOTAL COMMON STOCKS (DOMESTIC)
(COST--$194,185,336) 219,081,437
------------
COMMON STOCKS (FOREIGN)--5.3%
APPLICATION SOFTWARE--2.4%
29,800 Amdocs Limited (CI)* 782,250
111,300 SAP AG Sponsored ADR (GE) 4,920,573
------------
5,702,823
------------
INDUSTRIAL CONGLOMERATES--0.5%
34,650 Tyco International Limited (BD) 1,238,391
------------
IT CONSULTING & OTHER SERVICES--0.5%
44,300 Accenture Limited Class A (BD)* 1,196,100
------------
PHARMACEUTICALS--1.0%
79,400 Teva Pharmaceutical Industries Limited Sponsored
ADR (IS) 2,370,884
------------
</Table>
SEE NOTES TO STATEMENT OF INVESTMENTS.
15
<Page>
<Table>
<Caption>
SHARES MARKET VALUE
- ---------------------------------------------------------------------------------
RAILROADS--0.9%
33,937 Canadian National Railway Company (CA) $ 2,078,641
-------------
TOTAL COMMON STOCKS (FOREIGN)
(COST--$10,743,550) 12,586,839
-------------
<Caption>
UNITS MARKET VALUE
- ---------------------------------------------------------------------------------
RIGHTS AND WARRANTS--0.0%
COMMUNICATIONS EQUIPMENT--0.0%
17,210 Lucent Technologies Warrants, expire 2007* $ 27,192
-------------
TOTAL RIGHTS AND WARRANTS
(COST--$0) 27,192
-------------
<Caption>
PRINCIPAL AMOUNT AMORTIZED COST
- ---------------------------------------------------------------------------------
CORPORATE SHORT-TERM NOTES--2.9%
PHARMACEUTICALS--2.9%
$ 6,800,000 Novartis Finance Corporation
2.10% 1/3/05~ $ 6,799,207
-------------
TOTAL CORPORATE SHORT-TERM NOTES
(AMORTIZED COST--$6,799,207) 6,799,207
-------------
TOTAL INVESTMENTS--100.4%
(TOTAL COST--$211,728,093) 238,494,675
-------------
OTHER ASSETS AND LIABILITIES--(0.4%) (945,502)
-------------
NET ASSETS--100.0% $ 237,549,173
=============
</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. THESE SECURITIES
AMOUNTED TO $6,799,207, OR 2.9%, OF THE FUND'S NET ASSETS AS OF DECEMBER
31, 2004.
ADR - AMERICAN DEPOSITARY RECEIPT
SPDR - STANDARD AND POOR'S DEPOSITARY RECEIPT
BD - BERMUDA
CA - CANADA
CI - CHANNEL ISLANDS
GE - GERMANY
IS - ISRAEL
SEE NOTES TO FINANCIAL STATEMENTS.
16
<Page>
STATEMENT OF ASSETS AND LIABILITIES
December 31, 2004
<Table>
ASSETS
Investment securities, at cost $ 211,728,093
---------------
Investment securities, at market 238,494,675
Cash 658,365
Receivables:
Capital shares sold 34,740
Dividends and interest 262,829
Other assets 60,397
---------------
Total Assets 239,511,006
---------------
LIABILITIES
Payables and other accrued liabilities:
Investment securities purchased 1,272,329
Capital shares redeemed 371,298
Advisory fees 129,657
Shareholder servicing fees 24,377
Accounting fees 11,968
Distribution fees 39,106
Transfer agency fees 12,590
Custodian fees 507
Other 100,001
---------------
Total Liabilities 1,961,833
---------------
Net Assets $ 237,549,173
===============
COMPOSITION OF NET ASSETS
Capital (par value and paid-in surplus) $ 314,880,144
Undistributed net investment income 393,754
Accumulated net realized loss from security transactions (104,491,307)
Net unrealized appreciation on investments
and foreign currency translation 26,766,582
---------------
Total $ 237,549,173
===============
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
17
<Page>
<Table>
CLASS A
Net Assets $ 1,179,753
Shares Outstanding 242,875
Net Asset Value, Redemption Price Per Share $ 4.86
Maximum offering price per share (net asset value
plus sales charge of 5.75% of offering price) $ 5.16
CLASS B
Net Assets $ 2,110,213
Shares Outstanding 444,953
Net Asset Value, Offering and Redemption Price (excluding
applicable contingent deferred sales charge) Per Share $ 4.74
CLASS C
Net Assets $ 570,577
Shares Outstanding 122,550
Net Asset Value, Offering and Redemption Price (excluding
applicable contingent deferred sales charge) Per Share $ 4.66
CLASS F
Net Assets $ 233,409,658
Shares Outstanding 47,078,952
Net Asset Value, Offering and Redemption Price Per Share $ 4.96
CLASS R
Net Assets $ 247,003
Shares Outstanding 50,295
Net Asset Value, Offering and Redemption Price Per Share $ 4.91
CLASS T
Net Assets $ 31,969
Shares Outstanding 6,774
Net Asset Value, Redemption Price Per Share $ 4.72
Maximum offering price per share (net asset value
plus sales charge of 4.50% of offering price) $ 4.94
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
18
<Page>
STATEMENT OF OPERATIONS
For the year ended December 31, 2004
<Table>
INVESTMENT INCOME
Dividends $ 3,540,686
Interest 187,133
Foreign taxes withheld (10,929)
---------------
Total Investment Income 3,716,890
---------------
EXPENSES
Advisory fees--Note 2 1,494,659
Shareholder servicing fees--Note 2 275,877
Accounting fees--Note 2 137,969
Distribution fees--Note 2 160,945
Transfer agency fees--Note 2 118,813
Registration fees 38,500
Postage and mailing expenses 23,388
Custodian fees and expenses--Note 2 8,196
Printing expenses 65,042
Legal and audit fees 55,050
Directors' fees and expenses--Note 2 43,829
Other expenses 41,091
---------------
Total Expenses 2,463,359
Earnings Credits (4,126)
Reimbursed/Waived Expenses (1,523)
Expense Offset to Broker Commissions (4,681)
---------------
Net Expenses 2,453,029
---------------
Net Investment Income 1,263,861
---------------
REALIZED AND UNREALIZED GAIN (LOSS) ON SECURITY
TRANSACTIONS AND FOREIGN CURRENCY TRANSACTIONS
Net Realized Gain on:
Security Transactions 20,710,060
Foreign currency transactions 33
---------------
Net Realized Gain 20,710,093
Net Change in Unrealized Appreciation/Depreciation
of Investments and Foreign Currency Translation (2,549,571)
---------------
Net Realized and Unrealized Gain 18,160,522
---------------
Net Increase in Net Assets Resulting from Operations $ 19,424,383
===============
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
19
<Page>
STATEMENTS OF CHANGES IN NET ASSETS
<Table>
<Caption>
YEAR ENDED YEAR ENDED
12/31/04 12/31/03
OPERATIONS
Net Investment Income $ 1,263,861 $ 103,107
Net Realized Gain on Security Transactions
and Foreign Currency Transactions 20,710,093 8,677,330
Net Change in Unrealized Appreciation/Depreciation
of Investments and Foreign Currency Translation (2,549,571) 48,238,272
--------------- ---------------
Net Increase in Net Assets Resulting
from Operations 19,424,383 57,018,709
--------------- ---------------
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS
From Net Investment Income
Class A (3,007) 0
Class F (945,884) (183,602)
Class R (1,108) 0
--------------- ---------------
Net Decrease from Dividends and Distributions (949,999) (183,602)
--------------- ---------------
CAPITAL SHARE TRANSACTIONS
Net Increase (Decrease)--Note 4
Class A 174,433 408,018
Class B 237,470 407,646
Class C 173,366 121,020
Class F (18,116,372) (14,678,661)
Class R 29,755 127,592
Class T 0 (12,373)
Class T Payment by Service Provider 698 0
--------------- ---------------
Net Decrease from Capital Share Transactions (17,500,650) (13,626,758)
--------------- ---------------
Net Increase in Net Assets 973,734 43,208,349
--------------- ---------------
NET ASSETS
Beginning of year $ 236,575,439 $ 193,367,090
--------------- ---------------
End of year $ 237,549,173 $ 236,575,439
=============== ===============
Undistributed Net Investment Income $ 393,754 $ 79,859
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
20
<Page>
FINANCIAL HIGHLIGHTS
<Table>
<Caption>
YEAR ENDED DECEMBER 31,
-----------------------------------------------------------------
2004 2003 2002 2001 2000
-----------------------------------------------------------------
CLASS A SHARES
PER SHARE OPERATING DATA
Net Asset Value, beginning of year $ 4.49 $ 3.44 $ 4.66 $ 5.73 $ 7.61
- -----------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) 0.02 0.03 (0.02) (0.07) 0.00+
Net realized and unrealized gains
(losses) on securities 0.36 1.02 (1.20) (1.00) (1.45)
-----------------------------------------------------------------
Total from investment operations 0.38 1.05 (1.22) (1.07) (1.45)
- -----------------------------------------------------------------------------------------------------------
Less dividends and distributions:
From net investment income (0.01) 0.00 0.00 0.00 0.00
From net realized gains 0.00 0.00 0.00 0.00^ (0.43)
-----------------------------------------------------------------
Total distributions (0.01) 0.00 0.00 0.00 (0.43)
- -----------------------------------------------------------------------------------------------------------
Net Asset Value, end of year $ 4.86 $ 4.49 $ 3.44 $ 4.66 $ 5.73
=================================================================
TOTAL RETURN* 8.54% 30.52% (26.18%) (18.65%) (19.04%)
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000s) $ 1,180 $ 935 $ 378 $ 442 $ 318
- -----------------------------------------------------------------------------------------------------------
Ratios to average net assets:
Expenses with reimbursements, but no
earnings credits or brokerage offsets# 1.26% 1.49% 1.87% 2.98% 1.06%
Expenses with reimbursements,
earnings credits and brokerage offsets 1.25% 1.48% 1.87% 2.98% 1.01%
Net investment income (loss) 0.38% (0.25%) (0.67%) (1.82%) (0.03%)
- -----------------------------------------------------------------------------------------------------------
Portfolio turnover rate@ 115% 123% 152% 144% 165%
</Table>
+ NET INVESTMENT LOSS FOR THE YEAR ENDED DECEMBER 31, 2000 AGGREGATED LESS
THAN $0.01 ON A PER SHARE BASIS.
^ DISTRIBUTIONS FROM NET REALIZED GAINS FOR THE YEAR ENDED DECEMBER 31, 2001
AGGREGATED LESS THAN $0.01 ON A PER SHARE BASIS.
* SALES CHARGES ARE NOT REFLECTED IN THE TOTAL RETURN.
# 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>
YEAR ENDED DECEMBER 31,
-----------------------------------------------------------------
2004 2003 2002 2001 2000
-----------------------------------------------------------------
CLASS B SHARES
PER SHARE OPERATING DATA
Net Asset Value, beginning of year $ 4.40 $ 3.40 $ 4.61 $ 5.65 $ 7.61
- -----------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment loss (0.00)+ (0.01) (0.05) (0.04) (0.02)
Net realized and unrealized gains
(losses) on securities 0.34 1.01 (1.16) (1.00) (1.51)
-----------------------------------------------------------------
Total from investment operations 0.34 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 year $ 4.74 $ 4.40 $ 3.40 $ 4.61 $ 5.65
=================================================================
TOTAL RETURN* 7.73% 29.41% (26.25%) (18.38%) (20.09%)
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000s) $ 2,110 $ 1,709 $ 1,013 $ 1,599 $ 1,170
- -----------------------------------------------------------------------------------------------------------
Ratios to average net assets:
Expenses with reimbursements, but no
earnings credits or brokerage offsets# 2.01% 2.30% 2.14% 2.20% 1.80%
Expenses with reimbursements,
earnings credits and brokerage offsets 2.00% 2.30% 2.14% 2.19% 1.76%
Net investment loss (0.34%) (1.08%) (0.95%) (1.03%) (0.88%)
- -----------------------------------------------------------------------------------------------------------
Portfolio turnover rate@ 115% 123% 152% 144% 165%
</Table>
+ NET INVESTMENT LOSS FOR THE YEAR ENDED DECEMBER 31, 2004 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.
# 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>
YEAR ENDED DECEMBER 31,
-----------------------------------------------------------------
2004 2003 2002 2001 2000
-----------------------------------------------------------------
CLASS C SHARES
PER SHARE OPERATING DATA
Net Asset Value, beginning of year $ 4.32 $ 3.34 $ 4.55 $ 5.66 $ 7.61
- -----------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) 0.04 0.04 (0.07) (0.13) (0.01)
Net realized and unrealized gains
(losses) on securities 0.30 0.94 (1.14) (0.98) (1.51)
-----------------------------------------------------------------
Total from investment operations 0.34 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 year $ 4.66 $ 4.32 $ 3.34 $ 4.55 $ 5.66
=================================================================
TOTAL RETURN* 7.87% 29.34% (26.59%) (19.58%) (19.96%)
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000s) $ 571 $ 357 $ 186 $ 270 $ 343
- -----------------------------------------------------------------------------------------------------------
Ratios to average net assets:
Expenses with reimbursements, but no
earnings credits or brokerage offsets# 1.99% 2.29% 2.77% 3.17% 1.84%
Expenses with reimbursements,
earnings credits and brokerage offsets 1.99% 2.28% 2.76% 3.16% 1.75%
Net investment loss (0.24%) (1.04%) (1.55%) (2.01%) (0.83%)
- -----------------------------------------------------------------------------------------------------------
Portfolio turnover rate@ 115% 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.
# 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 1.99% (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.
23
<Page>
<Table>
<Caption>
YEAR ENDED DECEMBER 31,
-----------------------------------------------------------------
2004 2003 2002 2001 2000
-----------------------------------------------------------------
CLASS F SHARES
PER SHARE OPERATING DATA
Net Asset Value, beginning of year $ 4.57 $ 3.50 $ 4.69 $ 5.69 $ 7.61
- -----------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) 0.02 0.00+ 0.00+ 0.00+ (0.02)
Net realized and unrealized gains
(losses) on securities 0.39 1.07 (1.19) (1.00) (1.47)
-----------------------------------------------------------------
Total from investment operations 0.41 1.07 (1.19) (1.00) (1.49)
- -----------------------------------------------------------------------------------------------------------
Less dividends and distributions:
From net investment income (0.02) 0.00^ 0.00^ 0.00 0.00
From net realized gains 0.00 0.00 0.00 0.00^ (0.43)
-----------------------------------------------------------------
Total distributions (0.02) 0.00 0.00 0.00 (0.43)
- -----------------------------------------------------------------------------------------------------------
Net Asset Value, end of year $ 4.96 $ 4.57 $ 3.50 $ 4.69 $ 5.69
=================================================================
TOTAL RETURN 8.97% 30.67% (25.33%) (17.55%) (19.57%)
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000s) $ 233,410 $ 233,333 $ 191,701 $ 288,752 $ 385,816
- -----------------------------------------------------------------------------------------------------------
Ratios to average net assets:
Expenses with reimbursements, but no
earnings credits or brokerage offsets# 1.06% 1.13% 1.08% 1.14% 1.12%
Expenses with reimbursements,
earnings credits and brokerage offsets 1.06% 1.13% 1.08% 1.14% 1.10%
Net investment income (loss) 0.56% 0.06% 0.11% 0.02% (0.24%)
- -----------------------------------------------------------------------------------------------------------
Portfolio turnover rate@ 115% 123% 152% 144% 165%
</Table>
+ NET INVESTMENT INCOME FOR THE YEARS ENDED DECEMBER 31, 2003, 2002, AND 2001
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.
# 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.
24
<Page>
<Table>
<Caption>
YEAR ENDED DECEMBER 31,
-------------------------------------------------------------------
2004 2003 2002 2001 2000
-------------------------------------------------------------------
CLASS R SHARES
PER SHARE OPERATING DATA
Net Asset Value, beginning of year $ 4.53 $ 3.47 $ 4.74 $ 5.74 $ 7.61
- ------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) 0.03 0.06 (0.08) (0.01) 0.00+
Net realized and unrealized gains
(losses) on securities 0.37 1.00 (1.19) (0.99) (1.44)
-------------------------------------------------------------------
Total from investment operations 0.40 1.06 (1.27) (1.00) (1.44)
- ------------------------------------------------------------------------------------------------------------
Less dividends and distributions:
From net investment income (0.02) 0.00 0.00 0.00 0.00
From net realized gains 0.00 0.00 0.00 0.00^ (0.43)
-------------------------------------------------------------------
Total distributions (0.02) 0.00 0.00 0.00 (0.43)
- ------------------------------------------------------------------------------------------------------------
Net Asset Value, end of year $ 4.91 $ 4.53 $ 3.47 $ 4.74 $ 5.74
===================================================================
TOTAL RETURN 8.88% 30.55% (26.79%) (17.39%) (18.91%)
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000s) $ 247 $ 211 $ 57 $ 51 $ 1
- ------------------------------------------------------------------------------------------------------------
Ratios to average net assets:
Expenses with reimbursements, but no
earnings credits or brokerage offsets# 1.00% 1.35% 2.95% 2.73% 0.79%
Expenses with reimbursements,
earnings credits and brokerage offsets 1.00% 1.35% 2.95% 2.72% 0.76%
Net investment income (loss) 0.54% (0.12%) (1.78%) (1.68%) 0.01%
- ------------------------------------------------------------------------------------------------------------
Portfolio turnover rate@ 115% 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.
# 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 1.00% (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.
25
<Page>
<Table>
<Caption>
YEAR ENDED DECEMBER 31,
-------------------------------------------------------------------
2004 2003 2002 2001 2000
-------------------------------------------------------------------
CLASS T SHARES
PER SHARE OPERATING DATA
Net Asset Value, beginning of year $ 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 0.25 1.22 (0.91) (0.99) (1.49)
-------------------------------------------------------------------
Total from investment operations 0.24 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)
- ------------------------------------------------------------------------------------------------------------
Other:
Payment by Service Provider 0.10+ 0.00 0.00 0.00 0.00
- ------------------------------------------------------------------------------------------------------------
Net Asset Value, end of year $ 4.72 $ 4.38 $ 3.39 $ 4.60 $ 5.68
===================================================================
TOTAL RETURN* 7.76% 29.20% (26.30%) (18.99%) (19.69%)
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000s) $ 32 $ 30 $ 33 $ 127 $ 82
- ------------------------------------------------------------------------------------------------------------
Ratios to average net assets:
Expenses with reimbursements, but no
earnings credits or brokerage offsets# 1.90% 2.27% 2.47% 3.14% 1.28%
Expenses with reimbursements,
earnings credits and brokerage offsets 1.90% 2.26% 2.46% 3.13% 1.25%
Net investment loss (0.29%) (1.11%) (1.29%) (1.96%) (0.40%)
- ------------------------------------------------------------------------------------------------------------
Portfolio turnover rate@ 115% 123% 152% 144% 165%
</Table>
+ A SERVICE PROVIDER REIMBURSED THE FUND'S CLASS T SHARES FOR LOSSES
RESULTING FROM CERTAIN SHAREHOLDER ADJUSTMENTS WHICH OTHERWISE WOULD HAVE
REDUCED TOTAL RETURN BY 2.28%.
^ 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.
# 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 1.90% (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.
26
<Page>
NOTES TO FINANCIAL STATEMENTS
December 31, 2004
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,
Equity Growth (formerly Growth and Income), Government Securities, Growth,
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 Equity 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 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. However, the Funds are planning to begin using New
York closing exchange rates to convert foreign currencies to U.S. dollars
sometime during the first quarter of 2005.
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.
27
<Page>
If market quotations or official closing prices are not readily available or are
determined not to reflect accurately fair value, 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 but before the Fund calculates its net asset value,
and it is determined that the event has materially affected the value of the
security. Fair value of foreign equity securities may be determined with the
assistance of a pricing service using correlations between the movement of
prices of foreign securities and indexes of domestic securities and other
appropriate indicators, such as closing market prices of relevant ADRs and
futures contracts. Using fair value to price securities may result in a value
that is different from a security's most recent closing price and from the
prices used by other mutual funds to calculate their net asset values.
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 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.
28
<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, as earned, and includes the
accretion of discounts and the amortization of premiums over the lives of the
respective securities. Withholding taxes on foreign dividends have been provided
for in accordance with the applicable country's tax rules and rates.
DISTRIBUTIONS TO SHAREHOLDERS--The Fund declares and distributes dividends (if
any) and capital gains (if any) annually. Dividends and distributions, which are
determined in accordance with income tax regulations, are recorded on the
ex-dividend date.
EXPENSES--Each Class of the Fund bears expenses incurred specifically on its
behalf and, in addition, each Class bears a portion of general expenses based on
the relative net assets or the number of shareholder accounts of the Class. The
type of expense determines the allocation method.
The Company's board of directors has authorized the payment of certain Fund
expenses with commissions on Fund portfolio transactions. These commissions
reduce Other Expenses and are included in the Expense Offset to Broker
Commissions in the Statement of Operations.
USE OF ESTIMATES--The preparation of financial statements in conformity with
accounting principles generally accepted in the United States of America
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported amounts of
income and expenses during the reporting period. Actual results could differ
from those estimates.
INDEMNIFICATIONS--In the normal course of business, the Company enters into
contracts that contain provisions indemnifying other parties against specified
potential liabilities. Each Fund's maximum exposure under these arrangements is
unknown as this would involve future claims that may be made against the Fund
that have not yet occurred. However, based on experience, the Funds expect the
risk of loss to be remote.
OTHER--Certain prior year information has been reformatted, without substantive
change, to conform with the current year presentation.
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.
29
<Page>
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 year ended December 31,
2004, Class F shares were charged $267,153 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 from DTI
are paid by the Fund. During the year ended December 31, 2004, Class F shares
were charged $94,862 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 $13.00, per shareholder account considered to be an
open account at any time during a given month, plus out-of-pocket charges.
Class-specific transfer agency fees paid to DTI during the year ended December
31, 2004 were as follows:
<Table>
<Caption>
TRANSFER
AGENCY FEES
----------------------------------------------------------
Class A $ 1,724
Class B $ 3,357
Class C $ 635
Class R $ 417
Class T $ 173
</Table>
OTHER TRANSFER AGENCY FEES--Various broker-dealers, retirement plan
administrators and other unaffiliated entities have established omnibus accounts
with the Fund, and provide sub-transfer agency, recordkeeping or similar
services to persons holding Fund shares through those accounts. During the year
ended December 31, 2004, the Fund paid $17,645 to these entities for such
services. This amount is included in the transfer agency fees shown on the
Statement of Operations.
CASH MANAGEMENT FEES--The Funds also pay Mellon Bank N.A. ("Mellon Bank"), a
wholly-owned subsidiary of Mellon Financial Corporation and an affiliate of
Founders, fees for certain cash management services. These include various
services related to the processing of shareholder transactions in the Funds.
During the year ended December 31, 2004, the Fund was charged $2,971 for cash
management fees, which are included in the out-of-pocket charges from DTI above.
30
<Page>
DISTRIBUTION AND SHAREHOLDER SERVICES PLANS--DSC also is the distributor of the
Fund's shares. The Fund has adopted a Distribution Plan pursuant to Rule 12b-1
under the 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 year ended December
31, 2004, Class F shares were charged $142,634 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 year ended December 31, 2004, were as follows:
<Table>
<Caption>
DISTRIBUTION SHAREHOLDER
FEES SERVICING FEES
---------------------------------------------------------------------
Class A N/A $ 2,570
Class B $ 15,108 $ 5,036
Class C $ 3,127 $ 1,042
Class T $ 76 $ 76
</Table>
During the year ended December 31, 2004, DSC retained $2,331 in sales
commissions from the sales of Class A shares. DSC also retained $10,178 and $624
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 contractually agreed to waive
any fees received for these services to the extent they exceed Founders' costs
in providing the services.
CUSTODIAN FEES--Mellon Bank 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
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<Page>
Fund held by the custodian. The Fund could have employed these assets alsewhere
to produce income had it not entered into this arrangement. The custodian has
also contractually 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 year ended December 31, 2004, the
Fund's portion of the fee waiver was $1,523, which reduced the amount paid to
Mellon Bank to $6,673.
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 invested
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,
which pays their compensation. The affairs of the Fund, including services
provided by Founders, are subject to the supervision and general oversight of
the Company's board of directors.
3. FEDERAL TAX INFORMATION
Net investment income and capital gains distributions are determined in
accordance with income tax regulations that may differ from accounting
principles generally accepted in the United States of America. These differences
are due to differing treatments for items such as deferral of wash sale losses,
foreign currency transactions, net operating losses and capital loss carryovers.
Permanent differences identified during the year ended December 31, 2004 have
been reclassified among the components of net assets as follows:
<Table>
<Caption>
UNDISTRIBUTED NET UNDISTRIBUTED NET PAID-IN
INVESTMENT INCOME REALIZED GAINS AND LOSSES CAPITAL
-------------------------------------------------------
$ 33 $ (33) $ 0
</Table>
32
<Page>
The tax character of distributions paid during 2004 and 2003 was as follows:
<Table>
<Caption>
2004 2003
DISTRIBUTIONS PAID FROM:
Ordinary Income $ 949,999 $ 183,602
Long-Term capital gain $ 0 $ 0
-------------------------------
$ 949,999 $ 183,602
===============================
</Table>
The tax components of capital represent distribution requirements the Fund must
satisfy under the income tax regulations and losses or tax deductions the Fund
may be able to offset against income and capital gains realized in future years.
Accumulated capital losses and post-October 31 capital losses noted below, if
any, as of December 31, 2004, 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. Net capital loss carryovers
utilized during 2004 by the Fund amounted to $20,697,472. Accumulated capital
losses as of December 31, 2004 were:
<Table>
<Caption>
EXPIRATION AMOUNT
---------------------------------------------------------------------
2009 $ 49,538,969
2010 $ 50,083,634
--------------
$ 99,622,603
==============
</Table>
The aggregate cost of investments and the composition of unrealized appreciation
and depreciation of investment securities for federal income tax purposes as of
December 31, 2004 are noted below. The primary difference between book and tax
appreciation or depreciation is wash sale loss deferrals.
<Table>
Undistributed Ordinary Income $ 438,872
Post-October Capital Loss Deferral $ 1,658,174
Federal Tax Cost $ 214,938,623
Gross Tax Appreciation of Investments $ 27,122,778
Gross Tax Depreciation of Investments $ (3,566,726)
Net Tax Appreciation $ 23,556,052
</Table>
33
<Page>
4. CAPITAL SHARE TRANSACTIONS
The Fund is authorized to issue 750 million shares of $0.01 par value
capital stock. Transactions in shares of the Fund for the periods indicated were
as follows:
<Table>
<Caption>
YEAR ENDED YEAR ENDED
12/31/04 12/31/03
SHARES AMOUNT SHARES AMOUNT
CLASS A
Sold 167,335 $ 765,894 127,097 $ 521,827
Dividends or Distributions Reinvested 404 $ 1,961 0 $ 0
Redeemed (133,430) $ (593,422) (28,494) $ (113,809)
------------------------------------------------------------------------
Net Increase 34,309 $ 174,433 98,603 $ 408,018
========================================================================
CLASS B
Sold 215,457 $ 939,503 164,031 $ 669,282
Redeemed (159,027) $ (702,033) (73,231) $ (261,636)
------------------------------------------------------------------------
Net Increase 56,430 $ 237,470 90,800 $ 407,646
========================================================================
CLASS C
Sold 63,935 $ 278,992 55,885 $ 224,519
Redeemed (24,034) $ (105,626) (28,811) $ (103,499)
------------------------------------------------------------------------
Net Increase 39,901 $ 173,366 27,074 $ 121,020
========================================================================
CLASS F
Sold 1,109,016 $ 5,075,748 1,278,819 $ 5,147,869
Dividends or Distributions Reinvested 165,648 $ 819,960 34,819 $ 159,122
Redeemed (5,197,897) $ (24,012,080) (5,079,072) $ (19,985,652)
------------------------------------------------------------------------
Net Decrease (3,923,233) $ (18,116,372) (3,765,434) $ (14,678,661)
========================================================================
CLASS R
Sold 36,325 $ 170,596 70,118 $ 283,426
Dividends or Distributions Reinvested 223 1,096 0 0
Redeemed (32,838) $ (141,937) (39,808) $ (155,834)
------------------------------------------------------------------------
Net Increase 3,710 $ 29,755 30,310 $ 127,592
========================================================================
CLASS T
Sold 14 $ 65 709 $ 2,660
Redeemed (14) $ (65) (3,604) $ (15,033)
------------------------------------------------------------------------
Net Increase (Decrease) 0 $ 0 (2,895) $ (12,373)
========================================================================
</Table>
34
<Page>
5. INVESTMENT TRANSACTIONS
Purchases and sales of investment securities (excluding short-term securities
and U.S. government obligations) for the year ended December 31, 2004 were
$248,349,947 and $249,953,970, 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 temporary or emergency purposes, primarily for
financing redemption payments. Each Fund's borrowings are limited to the lesser
of (a) $50 million, or (b) the lesser of 25% of the Fund's total net assets or
the maximum amount which the Fund is permitted to borrow pursuant to the
prospectus, any law or any other agreement. Combined borrowings are subject to
the $50 million cap on the total LOC. Each Fund agrees to pay annual fees and
interest on the unpaid balance based on prevailing market rates as defined in
the LOC. At December 31, 2004, the Fund did not have any borrowings under the
LOC.
7. LEGAL MATTERS
In early 2004, two purported class and derivative actions were filed against
Mellon Financial Corporation, Mellon Bank, Founders, Dreyfus, and certain
directors of the Dreyfus Founders Funds and the Dreyfus Funds (together, the
"Defendant Funds"). In September 2004, plaintiffs served a Consolidated Amended
Complaint (the "Amended Complaint") on behalf of a purported class of all
persons who acquired interests in any of the Defendant Funds between January 30,
1999 and November 17, 2003, and derivatively on behalf of the Defendant Funds.
The Amended Complaint in the newly styled IN RE DREYFUS MUTUAL FUNDS FEE
LITIGATION also named DSC, Premier Mutual Fund Services, Inc. and two additional
directors of the Defendant Funds as defendants and alleges violations of the
Investment Company Act of 1940, the Investment Advisers Act of 1940, the
Pennsylvania Unfair Trade Practices and Consumer Protection Law and common-law
claims. Plaintiffs seek to recover allegedly improper and excessive Rule 12b-1
and advisory fees allegedly charged to the Defendant Funds for marketing and
distribution services. More specifically, plaintiffs claim, among other things,
that 12b-1 fees and directed brokerage were improperly used to pay brokers to
recommend the Defendant Funds over other funds, and that such payments were not
disclosed to investors. In addition, plaintiffs assert that economies of scale
and soft-dollar benefits were not passed on to the Defendant Funds. Plaintiffs
further allege that 12b-1 fees were improperly charged to certain of the
Defendant Funds that were closed to new investors. The Amended Complaint seeks
compensatory and punitive damages, rescission of the advisory contracts, and an
accounting and restitution of any unlawful fees, as well as an award of
attorneys' fees and litigation expenses. As noted, some of the claims in this
litigation are asserted derivatively on behalf of the Defendant Funds that have
been named as nominal defendants. With respect to such derivative claims, no
relief is sought against the Defendant Funds. Founders, Dreyfus and the
Defendant Funds believe the allegations
35
<Page>
to be totally without merit and intend to defend the action vigorously. The
defendants filed motions to dismiss the Amended Complaint on November 12, 2004,
and those motions are pending.
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 nor the Funds believe that any of the pending actions
will have a material adverse effect on the Funds or Founders' ability to perform
its contract with the Funds.
36
<Page>
REPORT OF INDEPENDENT REGISTERED PUBLIC
ACCOUNTING FIRM
To the Board of Directors and Shareholders of
Dreyfus Founders Funds, Inc.
In our opinion, the accompanying statement of assets and liabilities, including
the statement of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of Dreyfus Founders Equity Growth
Fund, formerly Dreyfus Founders Growth and Income Fund, (one of the portfolios
constituting Dreyfus Founders Funds, Inc., hereafter referred to as the "Fund")
at December 31, 2004, the results of its operations for the year then ended, the
changes in its net assets for each of the two years in the period then ended and
the financial highlights for each of the five years in the period then ended, in
conformity with accounting principles generally accepted in the United States of
America. These financial statements and financial highlights (hereafter referred
to as "financial statements") are the responsibility of the Fund's management;
our responsibility is to express an opinion on these financial statements based
on our audits. We conducted our audits of these financial statements in
accordance with the standards of the Public Company Accounting Oversight Board
(United States). Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits, which included confirmation of securities at December 31, 2004 by
correspondence with the custodian and brokers and the application of alternative
auditing procedures where securities purchased had not been received, provide a
reasonable basis for the opinion expressed above.
PricewaterhouseCoopers LLP
Denver, Colorado
February 10, 2005
37
<Page>
OTHER TAX INFORMATION
(UNAUDITED)
CORPORATE DIVIDENDS RECEIVED DEDUCTION
Dividends paid by the Fund from net investment income and distributions of net
realized short-term capital gains are, for federal tax purposes, taxable as
ordinary income to shareholders. Of the ordinary income distributions declared
for the year ended December 31, 2004, 97.22% qualified for the dividends
received deduction available to the Fund's corporate shareholders.
QUALIFIED DIVIDEND INCOME
For the year ended December 31, 2004, the Fund designated 100% of the ordinary
income distributions paid as qualified dividend income subject to reduced income
tax rates for taxpayers with taxable accounts.
38
<Page>
YOUR BOARD REPRESENTATIVES
(UNAUDITED)
The Board of Directors of the Company oversees all 10 Dreyfus Founders Funds.
The business and affairs of the Company are managed under the direction of the
Board. The directors serving on the Board perform their responsibilities in the
manner which they reasonably believe to be in the best interests of the Funds
and their shareholders.
All of the directors, as listed below, are independent directors. They are not
affiliated with the Fund's adviser, its parent company, or its affiliates. The
directors have no official term of office and generally serve until they reach
the mandated retirement age of 75, resign, or are not re-elected. As you can see
from their backgrounds, the directors have broad experience as active or former
business and community leaders.
DIRECTORS
EUGENE H. VAUGHAN, CFA, 71. Year elected to the Board: 1970
Board Chairman. Founding Chairman and, formerly (1970 to 2000), President and
CEO, Vaughan Nelson Investment Management, LP, an investment counseling firm.
Director, Encore Bank. Founding Chairman, Center for Houston's Future, a
non-profit organization. Founding Chairman and former Governor, Association for
Investment Management and Research. Past Chairman and Trustee, Institute of
Chartered Financial Analysts. Past Chairman and Director, Financial Analysts
Federation.
ALAN S. DANSON, 65. Year elected to the Board: 1991
Private investor. Formerly, President and Director, D.H. Management, Inc., the
general partner of a limited partnership with technology company holdings (1996
to 2003). Formerly, Director and Senior Vice President, OptiMark Technologies,
Inc., a computerized securities trading service (1996 to 1999). Director,
CaseShare Systems, LLP, a document management company. Director, Gore Range
Natural Science School and The Les Streeter Programs, Inc., both of which are
non-profit organizations.
JOAN D. MANLEY, 72. Year elected to the Board: 1998
Retired. Formerly, Ms. Manley served in several executive capacities with Time
Incorporated, most recently as Group Vice President, Director and Chairman of
Time-Life Books, Inc. and Book of the Month Club, Inc. (1960 to 1984). Director,
Sara Lee Corporation and R.R. Donnelley & Sons Company.
ROBERT P. MASTROVITA, 60. Year elected to the Board: 1998
Private investor. Chairman of a private charitable foundation (1997 to present).
Formerly, Chairman and Director, Hagler, Mastrovita & Hewitt, Inc., a registered
investment adviser (1982 to 1997). Member, Boston Society of Security Analysts.
Trustee, Partridge Academy.
TRYGVE E. MYHREN, 68. Year elected to the Board: 1996
President, Myhren Media, Inc., a firm that invests in and advises media,
telecommunications, Internet and software companies. Special Limited Partner and
member of Investment Committee, Megunticook Funds, a venture capital firm (1998
to present). Director, Advanced Marketing Services, Inc. Trustee and Chairman of
Finance Committee, the University of Denver. Trustee, Denver Art Museum. Member,
Cable Television Hall of Fame. Formerly, President (1990 to 1996) and Director
(1992 to 2001) of the Providence Journal Company, a diversified media and
communications company. Formerly, Chairman and Chief Executive Officer of
American Television and
39
<Page>
Communications Corporation (now Timer Warner Cable) (1981 to 1988). Formerly,
Chairman of the National Cable Television Association (1986-1987).
GEORGE W. PHILLIPS, 66. Year elected to the Board: 1998
Retired. Vice Chairman of the Board, Chairman of the Finance Committee, and
Chairman of the Investment Committee, Children's Medical Center of Boston.
Formerly, President and Chief Executive Officer (1992 to 1997) and Director
(1992 to 2002) of Warren Bancorp, Inc. Formerly, President, Chief Executive
Officer and Director of Warren Five Cents Savings Bank (1992 to 1997).
PRINCIPAL OFFICERS
RICHARD W. SABO, 47. President of the Funds since 2000 and Principal Executive
Officer of the Funds since 2002. Founders' President and Chief Executive
Officer, Member of Founders' Board of Managers and Director of Dreyfus (1998 to
present). Executive Vice President of DSC since 2003. Formerly, Senior Vice
President and Regional Director for Prudential Securities, Inc. (1991 to 1998).
DAVID L. RAY, 47. Vice President of the Funds since 2000, and from 1990 to 1998.
Founders' Senior Vice President--Administration and Treasurer. Vice President of
DSC since 2003. Employed by Founders and its predecessor company since 1990.
Formerly, Treasurer of the Funds (1990 to 1998).
KENNETH R. CHRISTOFFERSEN, 49. Secretary of the Funds since 2000, and from 1996
to 1998. Founders' Senior Vice President--Legal, General Counsel and Secretary.
Assistant Secretary of DSC since 2003. Employed by Founders and its predecessor
company since 1996.
JANELLE E. BELCHER, 46. Chief Compliance Officer of the Funds since 2004 and
Assistant Secretary of the Funds since 2002. Founders' Vice
President--Compliance since 2002. Formerly, Founders' Manager of Compliance
(2000 to 2002) and Securities Compliance Examiner, Staff Accountant and Team
Leader for the U.S. Securities and Exchange Commission (1990 to 2000).
ROBERT T. KELLY, 35. Treasurer, Principal Financial Officer, and Principal
Accounting Officer of the Funds since 2003. Founders' Vice President of
Portfolio Accounting since 2000. Formerly, Assistant Treasurer of the Funds
(2000 to 2003), and Head of Equity Desk for ABN Amro Trust Company (Cayman)
Limited (1998 to 2000).
WILLIAM G. GERMENIS, 34. Anti-Money Laundering Compliance Officer ("AMLCO") for
the Class A, Class B, Class C, Class R, and Class T shares of the Funds since
2002 and for the Class F shares of the Funds since 2003. Vice President and
AMLCO of MBSC, LLC since 2002. Vice President and AMLCO of DSC and AMLCO of
investment companies managed by Dreyfus. Employed by DSC since 1998.
The directors and officers may be contacted at Founders' address appearing on
the inside cover, except for Mr.Germenis, who can be contacted at 200 Park
Avenue, New York, New York 10166. Additional information about the Company's
directors is available in the Statement of Additional Information, which can be
obtained free of charge by calling the toll free number on the back cover.
40
<Page>
FOR MORE INFORMATION
- -------------------------------------------------------------------------------
DREYFUS FOUNDERS TRANSFER AGENT &
EQUITY GROWTH FUND DIVIDEND DISBURSING AGENT
MANAGER Dreyfus Transfer, Inc.
200 Park Avenue
Founders Asset Management LLC New York, NY 10166
210 University Boulevard
Suite 800
Denver, CO 80206 DISTRIBUTOR
Dreyfus Service Corporation
200 Park Avenue
New York, NY 10166
- -------------------------------------------------------------------------------
TELEPHONE Call your financial representative or 1-800-554-4611
MAIL Dreyfus Founders Funds, Inc.
144 Glenn Curtiss Boulevard, Uniondale, NY 11556-0144
The fund files its complete schedule of portfolio holdings with the Securities
and Exchange Commission ("SEC") for the first and third quarters of each fiscal
year on Form N-Q. The fund's Forms N-Q are available on the SEC's website at
http://www.sec.gov and may be reviewed and copied at the SEC's Public Reference
Room in Washington, DC. Information on the operation of the Public Reference
Room may be obtained by calling 1-800-SEC-0330.
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 http://www.dreyfus.com and on the SEC's
website at http://www.sec.gov. The description of the policies and procedures is
also available without charge, upon request, by calling 1-800-645-6561.
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.
[LION GRAPHIC]
(C)2005 Dreyfus Service Corporation 0275AR1204
<Page>
Dreyfus Founders
Growth Fund
ANNUAL REPORT December 31, 2004
[LION GRAPHIC]
YOU, YOUR ADVISOR AND
(R) [DREYFUS LOGO]
A MELLON FINANCIAL COMPANY (SM)
<Page>
TABLE OF CONTENTS
<Table>
Management Overview 3
Fund Expenses 10
Statement of Investments 12
Statement of Assets and Liabilities 17
Statement of Operations 19
Statements of Changes in Net Assets 20
Financial Highlights 21
Notes to Financial Statements 27
Report of Independent Registered Public Accounting Firm 36
Your Board Representatives 37
</Table>
-----------------------------------------------------------
Save time. Save paper. View your next shareholder report
online as soon as it's available. Log into www.dreyfus.com
and sign up for Dreyfus eCommunications. It's simple and
only takes a few minutes.
-----------------------------------------------------------
INVESTMENT MANAGER DISTRIBUTOR
Founders Asset Management LLC Dreyfus Service Corporation
A MELLON FINANCIAL COMPANY(SM) 200 Park Avenue
210 University Boulevard, Suite 800 New York, NY 10166
Denver, CO 80206
The views expressed in this report reflect those of the portfolio manager only
through the end of the period covered and do not necessarily represent the views
of Founders or any other person in the Founders organization. Any such views are
subject to change at any time based upon market or other conditions and Founders
disclaims any responsibility to update such views. These views may not be relied
on as investment advice and, because investment decisions for a Dreyfus Founders
Fund are based on numerous factors, may not be relied on as an indication of
trading intent on behalf of any Dreyfus Founders Fund. Companies appearing in
bold print on pages 3-8 were owned by the Fund on December 31, 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
(UNAUDITED)
[PHOTO OF JOHN B. JARES]
A DISCUSSION WITH PORTFOLIO MANAGER JOHN B. JARES, CFA
HOW DID THE FUND PERFORM RELATIVE TO ITS BENCHMARK
FOR THE 12 MONTHS ENDED DECEMBER 31, 2004?
For the 12-month period ended December 31, 2004, Dreyfus Founders Growth Fund
outperformed1 its benchmark, the Russell 1000 Growth Index, which posted a 6.30%
return for the same time period.
WHAT WAS THE BROAD MARKET ENVIRONMENT IN
WHICH THE FUND PERFORMED DURING THE PERIOD?
The U.S. markets were choppy throughout 2004 as a result of a series of
increases in the federal funds rate, record high oil prices, continued
geopolitical unrest and the anticipation of the U.S. Presidential election.
However, in spite of some lingering investor concerns, the fourth quarter saw a
strong market rally as the conclusion of the Presidential election lifted some
uncertainty and oil prices began to moderate.
WHAT MANAGEMENT DECISIONS FAVORABLY IMPACTED FUND PERFORMANCE
DURING THE 12-MONTH PERIOD ENDED DECEMBER 31, 2004?
The Fund's performance overall was driven by strong stock selection during the
period, as a handful of stocks helped drive the strong performance of the Fund.
Holdings in the information technology, consumer discretionary and industrials
sectors particularly buoyed the Fund's annual return. The Fund's relative
overweight position in the consumer discretionary sector also benefited
performance.
(1)Excluding sales charges, which result in lower returns for certain share
classes. Please see page 7 for average annual total returns for all share
classes, including and excluding sales charges.
[SIDENOTE]
"THE FUND'S PERFORMANCE OVERALL WAS DRIVEN BY STRONG STOCK SELECTION DURING THE
PERIOD, AS A HANDFUL OF STOCKS HELPED DRIVE THE STRONG PERFORMANCE OF THE FUND."
3
<Page>
Despite the fact that information technology stocks showed mixed performance
overall, the Fund did invest in some names that performed well during the
period. For example, APPLE COMPUTER, INC.'s performance was driven by continued
strong demand for its iPod, which serves the digital music market. Autodesk,
Inc., a design software and digital content company, also performed well on the
back of favorable acceptance of new products as well as strong company
execution. MICROSOFT CORPORATION and ADOBE SYSTEMS, INC. also positively
contributed to Fund performance for the period.
Consumer spending continued to remain steady during the period, assisting the
overall performance of consumer discretionary holdings. Travel and leisure
industry issues ROYAL CARIBBEAN CRUISES LIMITED and CARNIVAL CORPORATION
experienced continued strength in demand for leisure cruising.
Fund holdings in the industrials sector benefited from continued strength in
the economy. FEDEX CORPORATION performed well on improved volumes as a direct
result of this economic growth.
During the year, we positioned the Fund with a relative underweight position
in the healthcare sector as a result of our negative outlook on the
pharmaceuticals industry. The industry faced fundamental challenges such as
competition from generics and a lack of new, exciting products in the research
and development pipeline. The healthcare sector proved to be one of the worst
performing sectors for the period; however select holdings helped boost the
Fund's relative performance, including ABBOTT LABORATORIES and healthcare
product manufacturer JOHNSON & JOHNSON.
[SIDENOTE]
PERFORMANCE HIGHLIGHTS
- The U.S. markets were choppy throughout 2004.
- Holdings in the information technology, consumer discretionary and
industrials sectors particularly buoyed the Fund's annual return.
- Consumer spending continued to remain steady during the period,
assisting the overall performance of consumer discretionary holdings.
- Underweight positions and poor stock selection in the materials and
telecommunications sectors proved detrimental to Fund performance
during the period.
- Although information technology holdings as a whole performed well for
the Fund, select issues weighed on performance for various reasons.
4
<Page>
The Fund's position in Standard & Poor's Depositary Receipts also had a
positive impact on Fund performance.
WHAT MANAGEMENT DECISIONS NEGATIVELY IMPACTED
FUND PERFORMANCE DURING THE 12-MONTH PERIOD?
Our investment strategy for the Fund is to build a diversified portfolio of
high-quality companies across various sectors that demonstrate the best
potential for significant earnings growth. However, there are times when stock
performance disappoints, hurting overall Fund performance.
Underweight positions and poor stock selection in the materials and
telecommunications sectors proved detrimental to Fund performance during the
period. Likewise, weak stock selection in the healthcare sector weighed heavily
on relative Fund performance. Large-capitalization pharmaceutical companies were
among the Fund's worst performers for the period largely due to safety concerns
surrounding a number of blockbuster drugs, which drove share prices for these
issues lower. One such stock that was negatively affected by this market
environment was PFIZER, INC., as safety concerns surrounding two of the
company's COX-2 inhibitor drugs, Bextra(R) and Celebrex(R), hurt
LARGEST EQUITY HOLDINGS (ticker symbol)
<Table>
1. Microsoft Corporation (MSFT) 4.47%
2. Royal Caribbean Cruises Limited (RCL) 2.41%
3. Intel Corporation (INTC) 2.31%
4. Carnival Corporation (CCL) 2.31%
5. SAP AG Sponsored ADR (SAP) 2.30%
6. Wal-Mart Stores, Inc. (WMT) 2.29%
7. Cisco Systems, Inc. (CSCO) 2.19%
8. Gillette Company (G) 2.11%
9. Kohl's Corporation (KSS) 2.11%
10. Apple Computer, Inc. (AAPL) 1.99%
</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.
Class F S&P 500 Russell 1000
Shares Index Growth Index
- ---------------------------------------------------
12/31/1994 $10,000 $10,000 $10,000
12/31/1995 $14,559 $13,758 $13,718
12/31/1996 $16,971 $16,917 $16,889
12/31/1997 $21,483 $22,561 $22,039
12/31/1998 $26,861 $29,008 $30,569
12/31/1999 $37,354 $35,112 $40,706
12/29/2000 $27,183 $31,915 $31,577
12/31/2001 $20,402 $28,122 $25,128
12/31/2002 $14,492 $21,907 $18,122
12/31/2003 $19,045 $28,190 $23,513
12/31/2004 $20,499 $31,258 $24,994
The above graph compares a $10,000 investment made in Class F shares of Dreyfus
Founders Growth Fund on 12/31/94 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>
the share price. Additionally, Merck & Company's COX-2 inhibitor, Vioxx(R), was
voluntarily removed from the market during the period after data showed similar
adverse cardiovascular impact from long-term use of the drug.
Although information technology holdings as a whole performed well for the
Fund, select issues weighed on performance for various reasons. INTEL
CORPORATION experienced lackluster demand and declining gross margins, which
sent the stock lower during the year. Oracle Corporation was hurt by the
protracted fight to acquire PeopleSoft as well as tepid demand for software.
VIACOM, INC. posted growth rates that trailed Wall Street estimates, and
AVERAGE ANNUAL TOTAL RETURN AS OF 12/31/04
<Table>
<Caption>
1 5 10 SINCE
CLASS (INCEPTION DATE) YEAR YEARS YEARS INCEPTION
-------------------------------------------------------------------------------------
CLASS A SHARES (12/31/99)
With sales charge (5.75%) 1.35% (12.44%) -- (12.44%)
Without sales charge 7.56% (11.40%) -- (11.40%)
CLASS B SHARES (12/31/99)
With redemption* 2.74% (12.33%) -- (12.33%)
Without redemption 6.74% (12.04%) -- (12.04%)
CLASS C SHARES (12/31/99)
With redemption** 5.86% (12.06%) -- (12.06%)
Without redemption 6.86% (12.06%) -- (12.06%)
CLASS F SHARES (1/5/62) 7.63% (11.31%) 7.44% N/A
CLASS R SHARES (12/31/99) 8.09% (11.14%) -- (11.14%)
CLASS T SHARES (12/31/99)
With sales charge (4.50%) 2.42% (12.82%) -- (12.82%)
Without sales charge 7.28% (12.01%) -- (12.01%)
</Table>
Average annual total returns do not reflect the deduction of taxes that a
shareholder would pay on Fund distributions or redemption of Fund shares, but do
reflect the reinvestment of dividends and capital gain distributions, and
adjustments for financial statement purposes. Part of the Fund's performance is
due to amounts received from class action settlements regarding prior Fund
holdings. There is no guarantee that these settlement distributions will occur
in the future or have a similar impact on performance.
* The maximum contingent deferred sales charge for Class B shares is 4% and is
reduced to 0% after six years, at which time the Class B shares convert to Class
A shares.
** The maximum contingent deferred sales charge for Class C shares is 1% for
shares redeemed within one year of the date of purchase.
7
<Page>
[CHART]
PORTFOLIO COMPOSITION OF NET ASSETS
<Table>
Information Technology 32.86%
Consumer Discretionary 20.19%
Financials 12.86%
Industrials 11.73%
Healthcare 9.98%
Consumer Staples 8.76%
Energy 1.38%
Other 1.73%
Cash & Equivalents 0.51%
</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.
MAXIM INTEGRATED PRODUCTS, INC. underperformed as a result of lower market
demand for its products and excess channel inventory. CISCO SYSTEMS, INC. and
NVIDIA Corporation also fared poorly for the period.
Other notable detractors from Fund performance included COCA-COLA COMPANY and
Newmont Mining Corporation.
In conclusion, we will continue to rely on our bottom-up research process to
seek companies we believe are capable of posting strong future revenues and
earnings growth at attractive valuations.
/s/ John B. Jares
John B. Jares, CFA
Portfolio Manager
8
<Page>
This page intentionally left blank.
9
<Page>
FUND EXPENSES
(UNAUDITED)
As a shareholder of the Fund, depending on the class of shares of the Fund you
own, you incur two types of costs: (1) transaction costs, including front-end
and contingent deferred sales charges; and (2) ongoing costs, including
management fees, Rule 12b-1 fees, shareholder services fees, and other expenses.
The expense example shown below is intended to help you understand your ongoing
costs (in dollars) of investing in the Fund and to compare these costs with the
ongoing costs of investing in other mutual funds.
The expense example is based on an investment of $1,000 on July 1, 2004 and
held through December 31, 2004.
ACTUAL EXPENSES The numbers included in the expense example in the rows with the
word "Actual" in the title provide information about actual account values and
actual expenses. You may use this information to estimate the expenses that you
paid over the period. Simply divide your account value by $1,000 (for example,
an $8,600 account value divided by $1,000 = 8.60), then multiply the result by
the number under the column heading entitled "Expenses Paid During Period" for
the class of shares you hold to estimate the expenses you paid on your account
during this period.
HYPOTHETICAL EXPENSES The numbers included in the expense example in the rows
with the word "Hypothetical" in the title provide information about hypothetical
account values and hypothetical expenses based on the Fund's actual expense
ratio for each class of shares, and an assumed rate of return of 5% per year
before expenses, which is not the Fund's actual return. The hypothetical account
values and expenses may not be used to estimate the actual ending account
balance or expenses you paid for the period. You may use this information to
compare the ongoing costs of investing in the Fund and other funds. To do so,
compare the hypothetical expenses in the expense example for the class of shares
you hold with the hypothetical expenses that appear in the shareholder reports
of other funds.
Please note that the expenses shown in the expense example are meant to
highlight your ongoing costs only and do not reflect the transaction costs
described above. Therefore, the hypothetical expenses in the expense example are
useful in comparing ongoing costs only, and will not help you determine the
relative total costs of owning different funds. In addition, if the transaction
costs were included, your costs would have been higher.
10
<Page>
EXPENSE EXAMPLE
<Table>
<Caption>
BEGINNING ENDING EXPENSES PAID
ACCOUNT VALUE ACCOUNT VALUE DURING PERIOD*
(7/1/04) (12/31/04) (7/1/04-12/31/04)
----------------------------------------------------------------------------
CLASS A ACTUAL $ 1,000.00 $ 1,052.91 $ 7.51
CLASS A HYPOTHETICAL 1,000.00 1,017.62 7.38
CLASS B ACTUAL 1,000.00 1,044.47 11.78
CLASS B HYPOTHETICAL 1,000.00 1,013.39 11.61
CLASS C ACTUAL 1,000.00 1,046.14 11.27
CLASS C HYPOTHETICAL 1,000.00 1,013.90 11.10
CLASS F ACTUAL 1,000.00 1,054.29 6.89
CLASS F HYPOTHETICAL 1,000.00 1,018.23 6.77
CLASS R ACTUAL 1,000.00 1,058.29 5.39
CLASS R HYPOTHETICAL 1,000.00 1,019.71 5.29
CLASS T ACTUAL 1,000.00 1,049.96 9.42
CLASS T HYPOTHETICAL 1,000.00 1,015.74 9.26
</Table>
*Expenses are equal to each Class's respective annualized expense ratio,
shown below, multiplied by the average account value over the period,
multiplied by 184/366 (to reflect the one-half year period).
EXPENSE RATIOS
These expense ratios reflect reimbursements and/or waivers of expenses by the
Fund's investment adviser or its affiliates, where applicable.
<Table>
<Caption>
EXPENSE RATIO
-----------------------------------------------
CLASS A 1.45%
CLASS B 2.28%
CLASS C 2.18%
CLASS F 1.33%
CLASS R 1.04%
CLASS T 1.82%
</Table>
11
<Page>
STATEMENT OF INVESTMENTS
December 31, 2004
<Table>
<Caption>
SHARES MARKET VALUE
- --------------------------------------------------------------------------------
COMMON STOCKS (DOMESTIC)--93.1%
AIR FREIGHT & LOGISTICS--1.0%
45,000 FedEx Corporation $ 4,432,043
---------------
AIRLINES--1.6%
101,025 AMR Corporation* 1,106,224
144,600 JetBlue Airways Corporation* 3,357,612
168,000 Southwest Airlines Company 2,735,040
---------------
7,198,876
---------------
APPLICATION SOFTWARE--1.1%
103,600 Mercury Interactive Corporation* 4,718,980
---------------
ASSET MANAGEMENT & CUSTODY BANKS--1.1%
33,650 Bank of New York Company, Inc. 1,124,583
77,400 Northern Trust Corporation 3,760,092
---------------
4,884,675
---------------
BIOTECHNOLOGY--2.5%
56,260 Amgen, Inc.* 3,609,079
18,775 Biogen Idec, Inc.* 1,250,603
50,600 Genzyme Corporation* 2,938,342
85,050 Gilead Sciences, Inc.* 2,975,900
---------------
10,773,924
---------------
BROADCASTING & CABLE TV--2.0%
264,808 Comcast Corporation Special Class A* 8,696,295
---------------
CASINOS & GAMING--0.5%
34,125 Wynn Resorts, Limited* 2,283,645
---------------
COMMUNICATIONS EQUIPMENT--4.8%
170,575 Avaya, Inc.* 2,933,890
497,930 Cisco Systems, Inc.* 9,610,049
74,250 Motorola, Inc. 1,277,100
84,925 QUALCOMM, Inc. 3,600,820
112,650 Scientific-Atlanta, Inc. 3,718,577
---------------
21,140,436
---------------
COMPUTER & ELECTRONICS RETAIL--0.5%
37,625 Best Buy Company, Inc. 2,235,678
---------------
COMPUTER HARDWARE--4.7%
135,525 Apple Computer, Inc.* 8,727,810
79,475 Dell, Inc.* 3,349,077
87,025 International Business Machines Corporation 8,578,925
---------------
20,655,812
---------------
COMPUTER STORAGE & PERIPHERALS--1.6%
484,475 EMC Corporation* 7,204,143
---------------
CONSUMER FINANCE--0.8%
125,913 MBNA Corporation 3,549,487
---------------
</Table>
12
<Page>
<Table>
<Caption>
SHARES MARKET VALUE
- --------------------------------------------------------------------------------
DATA PROCESSING & OUTSOURCED SERVICES--2.2%
172,600 Automatic Data Processing, Inc. $ 7,654,810
49,550 CheckFree Corporation* 1,886,864
---------------
9,541,674
---------------
DEPARTMENT STORES--2.1%
187,700 Kohl's Corporation* 9,229,209
---------------
DIVERSIFIED BANKS--1.0%
72,575 Wells Fargo & Company 4,510,536
---------------
ELECTRICAL COMPONENTS & EQUIPMENT--0.9%
58,025 Emerson Electric Company 4,067,553
---------------
EMPLOYMENT SERVICES--1.7%
60,475 Manpower, Inc. 2,920,943
137,125 Monster Worldwide, Inc.* 4,612,885
---------------
7,533,828
---------------
EXCHANGE TRADED FUNDS--1.7%
57,375 Nasdaq 100 Index Tracking Stock 2,289,836
43,600 SPDR Trust Series 1 5,271,240
---------------
7,561,076
---------------
GENERAL MERCHANDISE STORES--1.1%
107,225 Dollar General Corporation 2,227,063
48,925 Target Corporation 2,540,675
---------------
4,767,738
---------------
HEALTHCARE EQUIPMENT--0.7%
88,100 Boston Scientific Corporation* 3,131,955
---------------
HOME ENTERTAINMENT SOFTWARE--0.6%
39,875 Electronic Arts, Inc.* 2,459,490
---------------
HOTELS, RESORTS & CRUISE LINES--3.3%
175,150 Carnival Corporation 10,093,895
72,300 Starwood Hotels & Resorts Worldwide, Inc. 4,222,320
---------------
14,316,215
---------------
HOUSEHOLD PRODUCTS--1.5%
76,825 Clorox Company 4,527,297
43,525 Colgate-Palmolive Company 2,226,739
---------------
6,754,036
---------------
HYPERMARKETS & SUPER CENTERS--2.3%
189,696 Wal-Mart Stores, Inc. 10,019,743
---------------
INDUSTRIAL CONGLOMERATES--1.3%
151,959 General Electric Company 5,546,504
---------------
INDUSTRIAL MACHINERY--0.6%
29,550 Illinois Tool Works, Inc. 2,738,694
---------------
INTEGRATED OIL & GAS--0.8%
64,875 ExxonMobil Corporation 3,325,493
---------------
</Table>
SEE NOTES TO STATEMENT OF INVESTMENTS.
13
<Page>
<Table>
<Caption>
SHARES MARKET VALUE
- --------------------------------------------------------------------------------
INVESTMENT BANKING & BROKERAGE--3.0%
73,450 Goldman Sachs Group, Inc. $ 7,641,738
95,425 Morgan Stanley 5,297,996
---------------
12,939,734
---------------
LEISURE FACILITIES--2.4%
193,475 Royal Caribbean Cruises Limited 10,532,779
---------------
LIFE & HEALTH INSURANCE--0.5%
133,225 UnumProvident Corporation 2,390,057
---------------
MOVIES & ENTERTAINMENT--4.8%
395,150 Time Warner, Inc.* 7,681,716
197,746 Viacom, Inc. 7,195,977
229,425 Walt Disney Company 6,378,015
---------------
21,255,708
---------------
MULTI-LINE INSURANCE--1.9%
124,474 American International Group, Inc. 8,174,208
---------------
OFFICE ELECTRONICS--0.4%
34,325 Zebra Technologies Corporation* 1,931,811
---------------
OIL & GAS DRILLING--0.6%
68,225 Diamond Offshore Drilling, Inc. 2,732,411
---------------
OTHER DIVERSIFIED FINANCIAL SERVICES--1.7%
104,892 Citigroup, Inc. 5,053,697
57,631 JPMorgan Chase & Company 2,248,185
---------------
7,301,882
---------------
PERSONAL PRODUCTS--3.8%
159,003 Estee Lauder Companies, Inc. Class A 7,277,567
206,700 Gillette Company 9,256,026
---------------
16,533,593
---------------
PHARMACEUTICALS--5.8%
172,350 Abbott Laboratories 8,040,128
125,150 Johnson & Johnson 7,937,013
102,444 Pfizer, Inc. 2,754,719
155,900 Wyeth 6,639,781
---------------
25,371,641
---------------
PROPERTY & CASUALTY INSURANCE--0.9%
72,100 Allstate Corporation 3,729,012
---------------
PUBLISHING--1.4%
76,625 Gannett Company, Inc. 6,260,263
---------------
RAILROADS--2.0%
88,175 Burlington Northern Santa Fe Corporation 4,171,559
67,350 Union Pacific Corporation 4,529,288
---------------
8,700,847
---------------
RESTAURANTS--1.2%
156,187 Cheesecake Factory, Inc.* 5,071,392
---------------
</Table>
14
<Page>
<Table>
<Caption>
SHARES MARKET VALUE
- --------------------------------------------------------------------------------
SEMICONDUCTOR EQUIPMENT--1.0%
130,650 Applied Materials, Inc.* $ 2,234,115
49,375 KLA-Tencor Corporation* 2,299,888
---------------
4,534,003
---------------
SEMICONDUCTORS--6.8%
68,225 Broadcom Corporation* 2,202,303
8,198 Freescale Semiconductor, Inc. Class B* 150,515
433,201 Intel Corporation 10,132,571
178,250 Linear Technology Corporation 6,908,970
158,325 Maxim Integrated Products, Inc. 6,711,397
103,975 Texas Instruments, Inc. 2,559,865
34,400 Xilinx, Inc. 1,019,960
---------------
29,685,581
---------------
SOFT DRINKS--1.2%
121,175 Coca-Cola Company 5,044,515
---------------
SPECIALTY STORES--0.2%
28,375 Tiffany & Company 907,149
---------------
SYSTEMS SOFTWARE--6.4%
40,850 Adobe Systems, Inc. 2,562,929
733,376 Microsoft Corporation 19,588,473
201,275 VERITAS Software Corporation* 5,746,401
---------------
27,897,803
---------------
THRIFTS & MORTGAGE FINANCE--2.0%
55,675 Freddie Mac 4,103,248
113,300 The PMI Group, Inc. 4,730,275
---------------
8,833,523
---------------
TRADING COMPANIES & DISTRIBUTORS--1.1%
70,150 W.W. Grainger, Inc. 4,673,393
---------------
TOTAL COMMON STOCKS (DOMESTIC)
(COST--$364,982,396) 407,779,043
---------------
COMMON STOCKS (FOREIGN)--6.4%
APPLICATION SOFTWARE--2.7%
62,300 Amdocs Limited (CI)* 1,635,375
227,500 SAP AG Sponsored ADR (GE) 10,057,775
---------------
11,693,150
---------------
HOTELS, RESORTS & CRUISE LINES--0.7%
34,925 Four Seasons Hotels, Inc. (CA) 2,856,516
---------------
INDUSTRIAL CONGLOMERATES--0.6%
67,375 Tyco International Limited (BD) 2,407,983
---------------
IT CONSULTING & OTHER SERVICES--0.5%
82,900 Accenture Limited Class A (BD)* 2,238,300
---------------
PHARMACEUTICALS--1.0%
148,500 Teva Pharmaceutical Industries Limited Sponsored
ADR (IS) 4,434,210
---------------
</Table>
SEE NOTES TO STATEMENT OF INVESTMENTS.
15
<Page>
<Table>
<Caption>
SHARES MARKET VALUE
- --------------------------------------------------------------------------------
RAILROADS--0.9%
66,687 Canadian National Railway Company (CA) $ 4,084,579
---------------
TOTAL COMMON STOCKS (FOREIGN)
(COST--$23,072,556) 27,714,738
---------------
<Caption>
UNITS MARKET VALUE
- --------------------------------------------------------------------------------
RIGHTS AND WARRANTS--0.0%
COMMUNICATIONS EQUIPMENT--0.0%
106,447 Lucent Technologies Warrants, expire 2007* $ 168,186
---------------
TOTAL RIGHTS AND WARRANTS
(COST--$0) 168,186
---------------
<Caption>
PRINCIPAL AMOUNT AMORTIZED COST
- --------------------------------------------------------------------------------
CORPORATE SHORT-TERM NOTES--1.4%
PHARMACEUTICALS--1.4%
$6,000,000 Novartis Finance Corporation
2.10% 1/3/05~ $ 5,999,300
---------------
TOTAL CORPORATE SHORT-TERM NOTES
(AMORTIZED COST--$5,999,300) 5,999,300
---------------
TOTAL INVESTMENTS--100.9%
(TOTAL COST--$394,054,252) 441,661,267
---------------
OTHER ASSETS AND LIABILITIES--(0.9%) (3,783,149)
---------------
NET ASSETS--100.0% $ 437,878,118
===============
</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. THESE SECURITIES
AMOUNTED TO $5,999,300, OR 1.4%, OF THE FUND'S NET ASSETS AS OF
DECEMBER 31, 2004.
ADR - AMERICAN DEPOSITARY RECEIPT
SPDR - STANDARD AND POOR'S DEPOSITARY RECEIPT.
BD - BERMUDA
CA - CANADA
CI - CHANNEL ISLANDS
GE - GERMANY
IS - ISRAEL
SEE NOTES TO FINANCIAL STATEMENTS.
16
<Page>
STATEMENT OF ASSETS AND LIABILITIES
December 31, 2004
<Table>
ASSETS
Investment securities, at cost $ 394,054,252
---------------
Investment securities, at market 441,661,267
Cash 1,105,335
Receivables:
Capital shares sold 146,476
Dividends and interest 390,590
Other assets 129,390
---------------
Total Assets 443,433,058
---------------
LIABILITIES
Payables and other accrued liabilities:
Investment securities purchased 2,364,325
Capital shares redeemed 2,320,547
Advisory fees 281,064
Shareholder servicing fees 42,208
Accounting fees 22,458
Distribution fees 123,433
Transfer agency fees 41,909
Custodian fees 2,076
Other 356,920
---------------
Total Liabilities 5,554,940
---------------
Net Assets $ 437,878,118
===============
COMPOSITION OF NET ASSETS
Capital (par value and paid-in surplus) $ 1,121,840,785
Undistributed net investment income 1,178,792
Accumulated net realized loss from security transactions (732,748,474)
Net unrealized appreciation on investments
and foreign currency translation 47,607,015
---------------
Total $ 437,878,118
===============
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
17
<Page>
<Table>
CLASS A
Net Assets $ 6,356,224
Shares Outstanding 603,442
Net Asset Value, Redemption Price Per Share $ 10.53
Maximum offering
price per share (net asset value
plus sales charge of 5.75% of offering price) $ 11.17
CLASS B
Net Assets $ 12,406,411
Shares Outstanding 1,223,186
Net Asset Value, Offering and Redemption Price (excluding
applicable contingent deferred sales charge) Per Share $ 10.14
CLASS C
Net Assets $ 1,880,538
Shares Outstanding 185,665
Net Asset Value, Offering and Redemption Price (excluding
applicable contingent deferred sales charge) Per Share $ 10.13
CLASS F
Net Assets $ 406,550,176
Shares Outstanding 38,410,300
Net Asset Value, Offering and Redemption Price Per Share $ 10.58
CLASS R
Net Assets $ 10,584,348
Shares Outstanding 989,928
Net Asset Value, Offering and Redemption Price Per Share $ 10.69
CLASS T
Net Assets $ 100,421
Shares Outstanding 9,877
Net Asset Value, Redemption Price Per Share $ 10.17
Maximum offering price per share (net asset value
plus sales charge of 4.50% of offering price) $ 10.65
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
18
<Page>
STATEMENT OF OPERATIONS
For the year ended December 31, 2004
<Table>
INVESTMENT INCOME
Dividends $ 7,410,831
Interest 255,927
Foreign taxes withheld (23,668)
---------------
Total Investment Income 7,643,090
---------------
EXPENSES
Advisory fees--Note 2 3,511,652
Shareholder servicing fees--Note 2 416,085
Accounting fees--Note 2 281,094
Distribution fees--Note 2 1,207,552
Transfer agency fees--Note 2 494,623
Registration fees 41,938
Postage and mailing expenses 55,042
Custodian fees and expenses--Note 2 10,535
Printing expenses 75,175
Legal and audit fees 97,404
Directors' fees and expenses--Note 2 87,948
Other expenses 85,343
---------------
Total Expenses 6,364,391
Earnings Credits (7,790)
Reimbursed/Waived Expenses (979)
Expense Offset to Broker Commissions (4,096)
---------------
Net Expenses 6,351,526
---------------
Net Investment Income 1,291,564
---------------
REALIZED AND UNREALIZED GAIN (LOSS) ON SECURITY
TRANSACTIONS AND FOREIGN CURRENCY TRANSACTIONS
Net Realized Gain on:
Security Transactions 52,095,323
Foreign Currency Transactions 81
---------------
Net Realized Gain 52,095,404
Net Change in Unrealized Appreciation/Depreciation
of Investments and Foreign Currency Translation (21,249,162)
---------------
Net Realized and Unrealized Gain 30,846,242
---------------
Net Increase in Net Assets Resulting from Operations $ 32,137,806
===============
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
19
<Page>
STATEMENTS OF CHANGES IN NET ASSETS
<Table>
<Caption>
YEAR ENDED YEAR ENDED
12/31/04 12/31/03
OPERATIONS
Net Investment Income (Loss) $ 1,291,564 $ (2,162,775)
Net Realized Gain on Security and Foreign
Currency Transactions 52,095,404 16,581,469
Net Change in Unrealized Appreciation/Depreciation
of Investments and Foreign Currency Translation (21,249,162) 122,368,802
--------------- ---------------
Net Increase in Net Assets Resulting from Operations 32,137,806 136,787,496
--------------- ---------------
CAPITAL SHARE TRANSACTIONS
Net Increase (Decrease)--Note 4
Class A (520,803) (258,678)
Class B (2,029,596) (1,223,196)
Class C (15,393) (166,651)
Class F (108,174,647) (88,319,324)
Class R 967,838 2,736,606
Class T (130,287) (41,579)
--------------- ---------------
Net Decrease from Capital Share Transactions (109,902,888) (87,272,822)
--------------- ---------------
Net Increase (Decrease) in Net Assets (77,765,082) 49,514,674
--------------- ---------------
NET ASSETS
Beginning of year $ 515,643,200 $ 466,128,526
--------------- ---------------
End of year $ 437,878,118 $ 515,643,200
=============== ===============
Undistributed (Accumulated) Net Investment
Income (Loss) $ 1,178,792 $ (112,853)
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
20
<Page>
FINANCIAL HIGHLIGHTS
<Table>
<Caption>
YEAR ENDED
DECEMBER 31,
2004 2003 2002 2001 2000
---------------------------------------------------------------------
CLASS A SHARES
PER SHARE OPERATING DATA
Net Asset Value, beginning of year $ 9.79 $ 7.46 $ 10.53 $ 14.02 $ 23.88
- ------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) 0.02+ (0.06) (0.06) (0.05) (0.05)
Net realized and unrealized gains
(losses) on securities 0.72 2.39 (3.01) (3.44) (6.39)
---------------------------------------------------------------------
Total from investment operations 0.74 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 year $ 10.53 $ 9.79 $ 7.46 $ 10.53 $ 14.02
=====================================================================
TOTAL RETURN* 7.56% 31.23% (29.15%) (24.89%) (27.30%)
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000s) $ 6,356 $ 6,452 $ 5,149 $ 7,795 $ 8,655
- ------------------------------------------------------------------------------------------------------------------
Ratios to average net assets:
Expenses with reimbursements, but no
earnings credits or brokerage offsets# 1.42% 1.66% 1.48% 1.21% 1.08%
Expenses with reimbursements,
earnings credits and brokerage offsets 1.41% 1.66% 1.48% 1.20% 1.05%
Net investment income (loss) 0.22% (0.59%) (0.56%) (0.47%) (0.54%)
- ------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate@ 107% 124% 139% 152% 182%
</Table>
+ COMPUTED USING AVERAGE SHARES OUTSTANDING THROUGHOUT THE YEAR.
* SALES CHARGES ARE NOT REFLECTED IN THE TOTAL RETURN.
# 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>
YEAR ENDED
DECEMBER 31,
2004 2003 2002 2001 2000
---------------------------------------------------------------------
CLASS B SHARES
PER SHARE OPERATING DATA
Net Asset Value, beginning of year $ 9.50 $ 7.30 $ 10.38 $ 13.91 $ 23.88
- ------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment loss (0.06)+ (0.17) (0.18) (0.13) (0.11)
Net realized and unrealized gains
(losses) on securities 0.70 2.37 (2.90) (3.40) (6.44)
---------------------------------------------------------------------
Total from investment operations 0.64 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 year $ 10.14 $ 9.50 $ 7.30 $ 10.38 $ 13.91
=====================================================================
TOTAL RETURN* 6.74% 30.14% (29.67%) (25.38%) (27.77%)
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000s) $ 12,406 $ 13,664 $ 11,603 $ 19,829 $ 25,359
- ------------------------------------------------------------------------------------------------------------------
Ratios to average net assets:
Expenses with reimbursements, but no
earnings credits or brokerage offsets# 2.22% 2.48% 2.22% 1.93% 1.82%
Expenses with reimbursements,
earnings credits and brokerage offsets 2.22% 2.48% 2.22% 1.92% 1.80%
Net investment loss (0.58%) (1.41%) (1.30%) (1.20%) (1.29%)
- ------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate@ 107% 124% 139% 152% 182%
</Table>
+ COMPUTED USING AVERAGE SHARES OUTSTANDING THROUGHOUT THE YEAR.
* SALES CHARGES ARE NOT REFLECTED IN THE TOTAL RETURN.
# 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>
YEAR ENDED
DECEMBER 31,
2004 2003 2002 2001 2000
---------------------------------------------------------------------
CLASS C SHARES
PER SHARE OPERATING DATA
Net Asset Value, beginning of year $ 9.48 $ 7.29 $ 10.36 $ 13.92 $ 23.88
- ------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment loss (0.05)+ (0.19) (0.26) (0.18) (0.10)
Net realized and unrealized gains
(losses) on securities 0.70 2.38 (2.81) (3.38) (6.44)
---------------------------------------------------------------------
Total from investment operations 0.65 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 year $ 10.13 $ 9.48 $ 7.29 $ 10.36 $ 13.92
=====================================================================
TOTAL RETURN* 6.86% 30.04% (29.63%) (25.58%) (27.72%)
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000s) $ 1,881 $ 1,774 $ 1,528 $ 2,979 $ 4,384
- ------------------------------------------------------------------------------------------------------------------
Ratios to average net assets:
Expenses with reimbursements, but no
earnings credits or brokerage offsets# 2.16% 2.49% 2.37% 2.11% 1.82%
Expenses with reimbursements,
earnings credits and brokerage offsets 2.16% 2.49% 2.37% 2.10% 1.80%
Net investment loss (0.49%) (1.42%) (1.46%) (1.38%) (1.28%)
- ------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate@ 107% 124% 139% 152% 182%
</Table>
+ COMPUTED USING AVERAGE SHARES OUTSTANDING THROUGHOUT THE YEAR.
* SALES CHARGES ARE NOT REFLECTED IN THE TOTAL RETURN.
# 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>
YEAR ENDED
DECEMBER 31,
2004 2003 2002 2001 2000
----------------------------------------------------------------------
CLASS F SHARES
PER SHARE OPERATING DATA
Net Asset Value, beginning of year $ 9.83 $ 7.48 $ 10.53 $ 14.03 $ 23.87
- -------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) 0.03+ (0.17) (0.22) (0.15) (0.21)
Net realized and unrealized gains
(losses) on securities 0.72 2.52 (2.83) (3.35) (6.21)
----------------------------------------------------------------------
Total from investment operations 0.75 2.35 (3.05) (3.50) (6.42)
- -------------------------------------------------------------------------------------------------------------------
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 year $ 10.58 $ 9.83 $ 7.48 $ 10.53 $ 14.03
======================================================================
TOTAL RETURN 7.63% 31.42% (28.96%) (24.95%) (27.23%)
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000s) $ 406,550 $ 484,742 $ 443,307 $ 865,425 $ 1,441,466
- -------------------------------------------------------------------------------------------------------------------
Ratios to average net assets:
Expenses with reimbursements, but no
earnings credits or brokerage offsets# 1.33% 1.47% 1.38% 1.31% 1.07%
Expenses with reimbursements,
earnings credits and brokerage offsets 1.33% 1.47% 1.37% 1.30% 1.06%
Net investment income (loss) 0.30% (0.41%) (0.46%) (0.58%) (0.58%)
- -------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate@ 107% 124% 139% 152% 182%
</Table>
+ COMPUTED USING AVERAGE SHARES OUTSTANDING THROUGHOUT THE YEAR.
# 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.
24
<Page>
<Table>
<Caption>
YEAR ENDED
DECEMBER 31,
2004 2003 2002 2001 2000
---------------------------------------------------------------------
CLASS R SHARES
PER SHARE OPERATING DATA
Net Asset Value, beginning of year $ 9.89 $ 7.50 $ 10.57 $ 14.07 $ 23.88
- ------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) 0.07 0.01 0.01 (0.02) (0.02)
Net realized and unrealized gains
(losses) on securities 0.73 2.38 (3.08) (3.48) (6.37)
---------------------------------------------------------------------
Total from investment operations 0.80 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 year $ 10.69 $ 9.89 $ 7.50 $ 10.57 $ 14.07
=====================================================================
TOTAL RETURN 8.09% 31.87% (29.04%) (24.88%) (27.08%)
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000s) $ 10,584 $ 8,792 $ 4,333 $ 2,023 $ 9
- ------------------------------------------------------------------------------------------------------------------
Ratios to average net assets:
Expenses with reimbursements, but no
earnings credits or brokerage offsets# 1.03% 1.13% 1.30% 1.46% 0.82%
Expenses with reimbursements,
earnings credits and brokerage offsets 1.03% 1.13% 1.30% 1.46% 0.79%
Net investment income (loss) 0.65% (0.04%) (0.34%) (0.72%) (0.29%)
- ------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate@ 107% 124% 139% 152% 182%
</Table>
# 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.
25
<Page>
<Table>
<Caption>
YEAR ENDED
DECEMBER 31,
2004 2003 2002 2001 2000
---------------------------------------------------------------------
CLASS T SHARES
PER SHARE OPERATING DATA
Net Asset Value, beginning of year $ 9.48 $ 7.27 $ 10.38 $ 14.00 $ 23.88
- ------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment loss (0.02)+ (0.30) (0.56) (0.19) (0.09)
Net realized and unrealized gains
(losses) on securities 0.71 2.51 (2.55) (3.43) (6.37)
---------------------------------------------------------------------
Total from investment operations 0.69 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 year $ 10.17 $ 9.48 $ 7.27 $ 10.38 $ 14.00
=====================================================================
TOTAL RETURN* 7.28% 30.40% (29.96%) (25.86%) (27.38%)
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000s) $ 100 $ 220 $ 208 $ 621 $ 802
- ------------------------------------------------------------------------------------------------------------------
Ratios to average net assets:
Expenses with reimbursements, but no
earnings credits or brokerage offsets# 1.79% 2.22% 2.78% 2.56% 1.32%
Expenses with reimbursements,
earnings credits and brokerage offsets 1.79% 2.22% 2.78% 2.55% 1.29%
Net investment loss (0.17%) (1.15%) (1.89%) (1.83%) (0.80%)
- ------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate@ 107% 124% 139% 152% 182%
</Table>
+ COMPUTED USING AVERAGE SHARES OUTSTANDING THROUGHOUT THE YEAR.
* SALES CHARGES ARE NOT REFLECTED IN THE TOTAL RETURN.
# 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.
26
<Page>
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2004
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,
Equity Growth (formerly Growth and Income), Government Securities, Growth,
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 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. However, the Funds are planning to begin
using New York closing exchange rates to convert foreign currencies to U.S.
dollars sometime during the first quarter of 2005.
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.
27
<Page>
If market quotations or official closing prices are not readily available or are
determined not to reflect accurately fair value, 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 but before the Fund calculates its net asset value,
and it is determined that the event has materially affected the value of the
security. Fair value of foreign equity securities may be determined with the
assistance of a pricing service using correlations between the movement of
prices of foreign securities and indexes of domestic securities and other
appropriate indicators, such as closing market prices of relevant ADRs and
futures contracts. Using fair value to price securities may result in a value
that is different from a security's most recent closing price and from the
prices used by other mutual funds to calculate their net asset values.
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 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
28
<Page>
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, as earned, and includes the
accretion of discounts and the amortization of premiums over the lives of the
respective securities. Withholding taxes on foreign dividends have been provided
for in accordance with the applicable country's tax rules and rates.
DISTRIBUTIONS TO SHAREHOLDERS--The Fund declares and distributes dividends (if
any) and capital gains (if any) annually. Dividends and distributions, which are
determined in accordance with income tax regulations, are recorded on the
ex-dividend date.
EXPENSES--Each Class of the Fund bears expenses incurred specifically on its
behalf and, in addition, each Class bears a portion of general expenses based on
the relative net assets or the number of shareholder accounts of the Class. The
type of expense determines the allocation method.
The Company's board of directors has authorized the payment of certain Fund
expenses with commissions on Fund portfolio transactions. These commissions
reduce Other Expenses and are included in the Expense Offset to Broker
Commissions in the Statement of Operations.
USE OF ESTIMATES--The preparation of financial statements in conformity with
accounting principles generally accepted in the United States of America
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported amounts of
income and expenses during the reporting period. Actual results could differ
from those estimates.
INDEMNIFICATIONS--In the normal course of business, the Company enters into
contracts that contain provisions indemnifying other parties against specified
potential liabilities. Each Fund's maximum exposure under these arrangements is
unknown as this would involve future claims that may be made against the Fund
that have not yet occurred. However, based on experience, the Funds expect the
risk of loss to be remote.
OTHER--Certain prior year information has been reformatted, without substantive
change, to conform with the current year presentation.
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
29
<Page>
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 year ended December 31,
2004, Class F shares were charged $363,400 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 from DTI
are paid by the Fund. During the year ended December 31, 2004, Class F shares
were charged $130,531 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 $13.00, per shareholder account considered to be an
open account at any time during a given month, plus out-of-pocket charges.
Class-specific transfer agency fees paid to DTI during the year ended December
31, 2004 were as follows:
<Table>
<Caption>
TRANSFER
AGENCY FEES
-----------------------------------------
Class A $ 2,144
Class B $ 32,198
Class C $ 3,736
Class R $ 5,802
Class T $ 596
</Table>
OTHER TRANSFER AGENCY FEES--Various broker-dealers, retirement plan
administrators and other unaffiliated entities have established omnibus accounts
with the Fund, and provide sub-transfer agency, recordkeeping or similar
services to persons holding Fund shares through those accounts. During the year
ended December 31, 2004, the Fund paid $309,616 to these entities for such
services. This amount is included in the transfer agency fees shown on the
Statement of Operations.
CASH MANAGEMENT FEES--The Funds also pay Mellon Bank N.A. ("Mellon Bank"), a
wholly-owned subsidiary of Mellon Financial Corporation and an affiliate of
Founders, fees for certain cash management services. These include various
services related to the processing of shareholder transactions in the Funds.
During the year ended
30
<Page>
December 31, 2004, the Fund was charged $8,305 for cash management fees, which
are included in the out-of-pocket charges from DTI above.
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 year ended December
31, 2004, Class F shares were charged $1,097,027 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 year ended December 31, 2004, were as follows:
<Table>
<Caption>
DISTRIBUTION SHAREHOLDER
FEES SERVICING FEES
---------------------------------------------------
Class A N/A $ 15,534
Class B $ 95,550 $ 31,850
Class C $ 14,511 $ 4,837
Class T $ 464 $ 464
</Table>
During the year ended December 31, 2004, DSC retained $2,556 in sales
commissions from the sales of Class A shares. DSC also retained $32,772 and $25
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 contractually agreed to waive
any fees received for these services to the extent they exceed Founders' costs
in providing the services.
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<Page>
CUSTODIAN FEES--Mellon Bank 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 Fund could have employed these assets
elsewhere to produce income had it not entered into this arrangement. The
custodian has also contractually 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 year ended December 31, 2004, the
Fund's portion of the fee waiver was $979, which reduced the amount paid to
Mellon Bank to $9,556.
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 invested
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,
which pays their compensation. The affairs of the Fund, including services
provided by Founders, are subject to the supervision and general oversight of
the Company's board of directors.
3. FEDERAL TAX INFORMATION
Net investment income and capital gains distributions are determined in
accordance with income tax regulations that may differ from accounting
principles generally accepted in the United States of America. These differences
are due to differing treatments for items such as deferral of wash sale losses,
foreign currency transactions, net operating losses and capital loss carryovers.
Permanent differences identified during the year ended December 31, 2004 have
been reclassified among the components of net assets as follows:
<Table>
<Caption>
UNDISTRIBUTED NET UNDISTRIBUTED NET PAID-IN
INVESTMENT INCOME REALIZED GAINS AND LOSSES CAPITAL
----------------------------------------------------------------
$ 81 $ (81) $ 0
</Table>
32
<Page>
The tax components of capital represent distribution requirements the Fund must
satisfy under the income tax regulations and losses or tax deductions the Fund
may be able to offset against income and capital gains realized in future years.
Accumulated capital losses and post-October 31 capital losses noted below, if
any, as of December 31, 2004, 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. Net capital loss carryovers utilized
during 2004 by the Fund amounted to $39,713,175. Accumulated capital losses as
of December 31, 2004 were:
<Table>
<Caption>
EXPIRATION AMOUNT
-------------------------------------------------------------
2008 $ 501,000
2009 $ 516,034,883
2010 $ 209,975,954
---------------
$ 726,511,837
===============
</Table>
The aggregate cost of investments and the composition of unrealized appreciation
and depreciation of investment securities for federal income tax purposes as of
December 31, 2004 are noted below. The primary difference between book and tax
appreciation or depreciation is wash sale loss deferrals.
<Table>
Undistributed Ordinary Income $ 1,301,047
Federal Tax Cost 400,290,889
Gross Tax Appreciation of Investments 47,200,686
Gross Tax Depreciation of Investments (5,830,308)
Net Tax Appreciation 41,370,378
</Table>
33
<Page>
4. CAPITAL SHARE TRANSACTIONS
The Fund is authorized to issue 750 million shares of $0.01 par value capital
stock. Transactions in shares of the Fund for the periods indicated were as
follows:
<Table>
<Caption>
YEAR ENDED YEAR ENDED
12/31/04 12/31/03
SHARES AMOUNT SHARES AMOUNT
CLASS A
Sold 105,906 $ 1,056,250 102,390 $ 863,766
Redeemed (161,536) $ (1,577,053) (133,313) $ (1,122,444)
--------------------------------------------------------------------
Net Decrease (55,630) $ (520,803) (30,923) $ (258,678)
====================================================================
CLASS B
Sold 30,813 $ 293,687 95,258 $ 810,696
Redeemed (246,029) $ (2,323,283) (245,915) $ (2,033,892)
--------------------------------------------------------------------
Net Decrease (215,216) $ (2,029,596) (150,657) $ (1,223,196)
====================================================================
CLASS C
Sold 38,619 $ 368,762 22,136 $ 191,985
Redeemed (40,060) $ (384,155) (44,718) $ (358,636)
--------------------------------------------------------------------
Net Decrease (1,441) $ (15,393) (22,582) $ (166,651)
====================================================================
CLASS F
Sold 2,973,891 $ 29,284,630 5,549,619 $ 46,590,327
Redeemed (13,900,368) $ (137,459,277) (15,507,433) $ (134,909,651)
--------------------------------------------------------------------
Net Decrease (10,926,477) $ (108,174,647) (9,957,814) $ (88,319,324)
====================================================================
CLASS R
Sold 381,438 $ 3,739,499 388,827 $ 3,417,348
Redeemed (280,086) $ (2,771,661) (77,669) $ (680,742)
--------------------------------------------------------------------
Net Increase 101,352 $ 967,838 311,158 $ 2,736,606
====================================================================
CLASS T
Sold 136 $ 1,307 856 $ 6,961
Redeemed (13,405) $ (131,594) (6,333) $ (48,540)
--------------------------------------------------------------------
Net Decrease (13,269) $ (130,287) (5,477) $ (41,579)
====================================================================
</Table>
5. INVESTMENT TRANSACTIONS
Purchases and sales of investment securities (excluding short-term securities
and U.S. government obligations) for the year ended December 31, 2004 were
$483,599,481 and $576,324,316, respectively.
34
<Page>
6. LINE OF CREDIT
The Company has a line of credit arrangement ("LOC") with State Street Bank and
Trust Company, to be used for temporary or emergency purposes, primarily for
financing redemption payments. Each Fund's borrowings are limited to the lesser
of (a) $50 million, or (b) the lesser of 25% of the Fund's total net assets or
the maximum amount which the Fund is permitted to borrow pursuant to the
prospectus, any law or any other agreement. Combined borrowings are subject to
the $50 million cap on the total LOC. Each Fund agrees to pay annual fees and
interest on the unpaid balance based on prevailing market rates as defined in
the LOC. At December 31, 2004, the Fund did not have any borrowings under the
LOC.
7. LEGAL MATTERS
In early 2004, two purported class and derivative actions were filed against
Mellon Financial Corporation, Mellon Bank, Founders, Dreyfus, and certain
directors of the Dreyfus Founders Funds and the Dreyfus Funds (together, the
"Defendant Funds"). In September 2004, plaintiffs served a Consolidated Amended
Complaint (the "Amended Complaint") on behalf of a purported class of all
persons who acquired interests in any of the Defendant Funds between January 30,
1999 and November 17, 2003, and derivatively on behalf of the Defendant Funds.
The Amended Complaint in the newly styled In re Dreyfus Mutual Funds Fee
Litigation also named DSC, Premier Mutual Fund Services, Inc. and two additional
directors of the Defendant Funds as defendants and alleges violations of the
Investment Company Act of 1940, the Investment Advisers Act of 1940, the
Pennsylvania Unfair Trade Practices and Consumer Protection Law and common-law
claims. Plaintiffs seek to recover allegedly improper and excessive Rule 12b-1
and advisory fees allegedly charged to the Defendant Funds for marketing and
distribution services. More specifically, plaintiffs claim, among other things,
that 12b-1 fees and directed brokerage were improperly used to pay brokers to
recommend the Defendant Funds over other funds, and that such payments were not
disclosed to investors. In addition, plaintiffs assert that economies of scale
and soft-dollar benefits were not passed on to the Defendant Funds. Plaintiffs
further allege that 12b-1 fees were improperly charged to certain of the
Defendant Funds that were closed to new investors. The Amended Complaint seeks
compensatory and punitive damages, rescission of the advisory contracts, and an
accounting and restitution of any unlawful fees, as well as an award of
attorneys' fees and litigation expenses. As noted, some of the claims in this
litigation are asserted derivatively on behalf of the Defendant Funds that have
been named as nominal defendants. With respect to such derivative claims, no
relief is sought against the Defendant Funds. Founders, Dreyfus and the
Defendant Funds believe the allegations to be totally without merit and intend
to defend the action vigorously. The defendants filed motions to dismiss the
Amended Complaint on November 12, 2004, and those motions are pending.
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 nor the Funds believe that any of the pending actions
will have a material adverse effect on the Funds or Founders' ability to perform
its contract with the Funds.
35
<Page>
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Shareholders of
Dreyfus Founders Funds, Inc.
In our opinion, the accompanying statement of assets and liabilities, including
the statement of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of Dreyfus Founders Growth Fund (one
of the portfolios constituting Dreyfus Founders Funds, Inc., hereafter referred
to as the "Fund") at December 31, 2004, the results of its operations for the
year then ended, the changes in its net assets for each of the two years in the
period then ended and the financial highlights for each of the five years in the
period then ended, in conformity with accounting principles generally accepted
in the United States of America. These financial statements and financial
highlights (hereafter referred to as "financial statements") are the
responsibility of the Fund's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these financial statements in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those standards
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits, which included
confirmation of securities at December 31, 2004 by correspondence with the
custodian and brokers and the application of alternative auditing procedures
where securities purchased had not been received, provide a reasonable basis for
the opinion expressed above.
PricewaterhouseCoopers LLP
Denver, Colorado
February 10, 2005
36
<Page>
YOUR BOARD REPRESENTATIVES
(UNAUDITED)
The Board of Directors of the Company oversees all 10 Dreyfus Founders Funds.
The business and affairs of the Company are managed under the direction of the
Board. The directors serving on the Board perform their responsibilities in the
manner which they reasonably believe to be in the best interests of the Funds
and their shareholders.
All of the directors, as listed below, are independent directors. They are not
affiliated with the Fund's adviser, its parent company, or its affiliates. The
directors have no official term of office and generally serve until they reach
the mandated retirement age of 75, resign, or are not re-elected. As you can see
from their backgrounds, the directors have broad experience as active or former
business and community leaders.
DIRECTORS
EUGENE H. VAUGHAN, CFA, 71. Year elected to the Board: 1970
Board Chairman. Founding Chairman and, formerly (1970 to 2000), President and
CEO, Vaughan Nelson Investment Management, LP, an investment counseling firm.
Director, Encore Bank. Founding Chairman, Center for Houston's Future, a
non-profit organization. Founding Chairman and former Governor, Association for
Investment Management and Research. Past Chairman and Trustee, Institute of
Chartered Financial Analysts. Past Chairman and Director, Financial Analysts
Federation.
ALAN S. DANSON, 65. Year elected to the Board: 1991
Private investor. Formerly, President and Director, D.H. Management, Inc., the
general partner of a limited partnership with technology company holdings (1996
to 2003). Formerly, Director and Senior Vice President, OptiMark Technologies,
Inc., a computerized securities trading service (1996 to 1999). Director,
CaseShare Systems, LLP, a document management company. Director, Gore Range
Natural Science School and The Les Streeter Programs, Inc., both of which are
non-profit organizations.
JOAN D. MANLEY, 72. Year elected to the Board: 1998
Retired. Formerly, Ms. Manley served in several executive capacities with Time
Incorporated, most recently as Group Vice President, Director and Chairman of
Time-Life Books, Inc. and Book of the Month Club, Inc. (1960 to 1984). Director,
Sara Lee Corporation and R.R. Donnelley & Sons Company.
ROBERT P. MASTROVITA, 60. Year elected to the Board: 1998
Private investor. Chairman of a private charitable foundation (1997 to present).
Formerly, Chairman and Director, Hagler, Mastrovita & Hewitt, Inc., a registered
investment adviser (1982 to 1997). Member, Boston Society of Security Analysts.
Trustee, Partridge Academy.
TRYGVE E. MYHREN, 68. Year elected to the Board: 1996
President, Myhren Media, Inc., a firm that invests in and advises media,
telecommunications, Internet and software companies. Special Limited Partner and
member of Investment Committee, Megunticook Funds, a venture capital firm (1998
to present). Director, Advanced Marketing Services, Inc. Trustee and Chairman of
Finance Committee, the University of Denver. Trustee, Denver Art Museum. Member,
Cable Television Hall of Fame. Formerly, President (1990 to 1996) and Director
(1992 to 2001) of the Providence Journal Company, a diversified media and
communications
37
<Page>
company. Formerly, Chairman and Chief Executive Officer of American Television
and Communications Corporation (now Timer Warner Cable) (1981 to 1988).
Formerly, Chairman of the National Cable Television Association (1986-1987).
GEORGE W. PHILLIPS, 66. Year elected to the Board: 1998
Retired. Vice Chairman of the Board, Chairman of the Finance Committee, and
Chairman of the Investment Committee, Children's Medical Center of Boston.
Formerly, President and Chief Executive Officer (1992 to 1997) and Director
(1992 to 2002) of Warren Bancorp, Inc. Formerly, President, Chief Executive
Officer and Director of Warren Five Cents Savings Bank (1992 to 1997).
PRINCIPAL OFFICERS
RICHARD W. SABO, 47. President of the Funds since 2000 and Principal Executive
Officer of the Funds since 2002. Founders' President and Chief Executive
Officer, Member of Founders' Board of Managers and Director of Dreyfus (1998 to
present). Executive Vice President of DSC since 2003. Formerly, Senior Vice
President and Regional Director for Prudential Securities, Inc. (1991 to 1998).
DAVID L. RAY, 47. Vice President of the Funds since 2000, and from 1990 to 1998.
Founders' Senior Vice President--Administration and Treasurer. Vice President of
DSC since 2003. Employed by Founders and its predecessor company since 1990.
Formerly, Treasurer of the Funds (1990 to 1998).
KENNETH R. CHRISTOFFERSEN, 49. Secretary of the Funds since 2000, and from 1996
to 1998. Founders' Senior Vice President--Legal, General Counsel and Secretary.
Assistant Secretary of DSC since 2003. Employed by Founders and its predecessor
company since 1996.
JANELLE E. BELCHER, 46. Chief Compliance Officer of the Funds since 2004 and
Assistant Secretary of the Funds since 2002. Founders' Vice
President--Compliance since 2002. Formerly, Founders' Manager of Compliance
(2000 to 2002) and Securities Compliance Examiner, Staff Accountant and Team
Leader for the U.S. Securities and Exchange Commission (1990 to 2000).
ROBERT T. KELLY, 35. Treasurer, Principal Financial Officer, and Principal
Accounting Officer of the Funds since 2003. Founders' Vice President of
Portfolio Accounting since 2000. Formerly, Assistant Treasurer of the Funds
(2000 to 2003), and Head of Equity Desk for ABN Amro Trust Company (Cayman)
Limited (1998 to 2000).
WILLIAM G. GERMENIS, 34. Anti-Money Laundering Compliance Officer ("AMLCO") for
the Class A, Class B, Class C, Class R, and Class T shares of the Funds since
2002 and for the Class F shares of the Funds since 2003. Vice President and
AMLCO of MBSC, LLC since 2002. Vice President and AMLCO of DSC and AMLCO of
investment companies managed by Dreyfus. Employed by DSC since 1998.
The directors and officers may be contacted at Founders' address appearing on
the inside cover, except for Mr. Germenis, who can be contacted at 200 Park
Avenue, New York, New York 10166. Additional information about the Company's
directors is available in the Statement of Additional Information, which can be
obtained free of charge by calling the toll free number on the back cover.
38
<Page>
FOR MORE INFORMATION
- -------------------------------------------------------------------------------
DREYFUS FOUNDERS TRANSFER AGENT &
GROWTH FUND DIVIDEND DISBURSING AGENT
MANAGER Dreyfus Transfer, Inc.
200 Park Avenue
Founders Asset Management LLC New York, NY 10166
210 University Boulevard
Suite 800
Denver, CO 80206 DISTRIBUTOR
Dreyfus Service Corporation
200 Park Avenue
New York, NY 10166
- -------------------------------------------------------------------------------
TELEPHONE Call your financial representative or 1-800-554-4611
MAIL Dreyfus Founders Funds, Inc.
144 Glenn Curtiss Boulevard, Uniondale, NY 11556-0144
The fund files its complete schedule of portfolio holdings with the Securities
and Exchange Commission ("SEC") for the first and third quarters of each fiscal
year on Form N-Q. The fund's Forms N-Q are available on the SEC's website at
http://www.sec.gov and may be reviewed and copied at the SEC's Public Reference
Room in Washington, DC. Information on the operation of the Public Reference
Room may be obtained by calling 1-800-SEC-0330.
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 http://www.dreyfus.com and on the SEC's
website at http://www.sec.gov. The description of the policies and procedures is
also available without charge, upon request, by calling 1-800-645-6561.
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.
[LION GRAPHIC]
(C)2005 Dreyfus Service Corporation 0213AR1204
<Page>
Dreyfus Founders
International Equity Fund
ANNUAL REPORT December 31, 2004
[LION GRAPHIC]
YOU, YOUR ADVISOR AND
(R) [DREYFUS LOGO]
A MELLON FINANCIAL COMPANY (SM)
<Page>
TABLE OF CONTENTS
<Table>
Management Overview 3
Fund Expenses 10
Statement of Investments 12
Statement of Assets and Liabilities 17
Statement of Operations 19
Statements of Changes in Net Assets 20
Financial Highlights 21
Notes to Financial Statements 27
Report of Independent Registered Public Accounting Firm 36
Other Tax Information 37
Your Board Representatives 38
</Table>
-----------------------------------------------------------
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online as soon as it's available. Log into www.dreyfus.com
and sign up for Dreyfus eCommunications. It's simple and
only takes a few minutes.
-----------------------------------------------------------
INVESTMENT MANAGER DISTRIBUTOR
Founders Asset Management LLC Dreyfus Service Corporation
A MELLON FINANCIAL COMPANY(SM) 200 Park Avenue
210 University Boulevard, Suite 800 New York, NY 10166
Denver, CO 80206
The views expressed in this report reflect those of the portfolio managers only
through the end of the period covered and do not necessarily represent the views
of Founders or any other person in the Founders organization. Any such views are
subject to change at any time based upon market or other conditions and Founders
disclaims any responsibility to update such views. These views may not be relied
on as investment advice and, because investment decisions for a Dreyfus Founders
Fund are based on numerous factors, may not be relied on as an indication of
trading intent on behalf of any Dreyfus Founders Fund. Companies appearing in
bold print on pages 3-9 were owned by the Fund on December 31, 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
(UNAUDITED)
[PHOTO OF REMI J. BROWNE]
[PHOTO OF DANIEL B. LEVAN]
[PHOTO OF 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 FOR THE 12 MONTHS ENDED
DECEMBER 31, 2004?
For the 12 months ended December 31, 2004, Dreyfus Founders International Equity
Fund outperformed(1) its benchmark, the Morgan Stanley Capital International
(MSCI) World ex U.S. Index, which returned 20.38% for the same period.
PLEASE DESCRIBE THE BROAD MARKET AND ECONOMIC ENVIRONMENT IN WHICH THE FUND
PERFORMED.
European markets confounded skeptics who believed weak local demand, record high
commodity prices and currency strength would materially erode business
performance. Instead, natural resource-rich countries, such as Norway, and areas
with flourishing local growth, like Spain, offset more sluggish results
generated by France and Germany. Additionally, several emerging economies were
welcomed into the European Union (EU) during 2004, which now boasts 25 members.
- ----------
(1) Excluding sales charges, which result in lower returns for certain share
classes. Please see page 7 for average annual total returns for all share
classes, including and excluding sales charges.
[SIDENOTE]
"OUR FOCUS, AS ALWAYS, IS ON SELECTING STOCKS WITH IMPROVING BUSINESS MOMENTUM
AND ATTRACTIVE VALUATIONS IN EACH COUNTRY AND SECTOR REGARDLESS OF THE MARKET'S
DIRECTION."
3
<Page>
Despite robust export activity, Japan lagged other Asian markets during the
period due to mixed performance in the information technology sector, an area
that fell under intense selling pressure during the fourth quarter of the year.
In addition, the long-awaited recovery in domestic consumption has been slow to
materialize, causing the Japanese market to pause toward the end of the period.
When examining sectors, many reaped the benefits of accelerating global
production in 2004; however, information technology and healthcare trailed for
the year. Information technology weakness occurred due to high valuations, the
rollover in the semiconductor cycle, and lack of a pick-up in IT spending.
Healthcare, on the other hand, experienced investor backlash due to negative
press concerning pharmaceutical companies with blockbuster drugs being pulled
from the market.
WHAT MANAGEMENT DECISIONS POSITIVELY CONTRIBUTED TO THE FUND'S PERFORMANCE
DURING THE YEAR?
Substantial positive contribution to relative Fund performance on a country
basis came from the United Kingdom, Canada and Germany. The Fund's holdings in
these countries outpaced the benchmark due to strong stock selection. Singapore
and France also performed well during the period.
[SIDENOTE]
PERFORMANCE HIGHLIGHTS
- - Substantial positive contribution to relative Fund performance on a country
basis came from the United Kingdom, Canada and Germany.
- - The Fund's holdings in the industrials sector also had a positive impact on
relative Fund performance.
- - The largest negative contributor to relative Fund performance on a country
basis came from Hong Kong.
- - The biggest stock specific detractors to the Fund's relative performance
came from the information technology, telecommunication services and
healthcare sectors.
4
<Page>
Led by U.K.-based Cairn Energy PLC, the Fund's holdings in the energy
sector performed well for the year. Cairn's stock price rose during the period,
as the oil and gas exploration and production company enjoyed highly successful
exploration ventures in India and soaring oil prices.
The Fund's holdings in the industrials sector also had a positive impact on
relative Fund performance, primarily owing to strong stock selection. Swedish
truck manufacturer VOLVO AB was the best performing industrials holding.
Utilities holding FORTUM OYJ was another top performer for the year.
Fortum, a Finnish energy and utility firm, gained on increasing Scandinavian
power prices and rumors the company may spin out its oil and gas exploration
division.
The consumer staples sector was also a positive contributor to relative
Fund performance due to holdings such as SABMILLER PLC, which rallied during the
period as the Miller brand continued to recover and took market share away from
Budweiser in the U.S.
LARGEST EQUITY HOLDINGS (country of origin; ticker symbol)
<Table>
1. Vodafone Group PLC (United Kingdom; VOD) 4.02%
2. SABMiller PLC (United Kingdom; SAB) 2.35%
3. Barclays PLC (United Kingdom; BARC) 2.16%
4. ING Groep NV (Netherlands; ING.C) 2.03%
5. BP PLC (United Kingdom; BP) 2.02%
6. Koninklijke KPN NV (Netherlands; KPN) 2.01%
7. Sanofi-Synthelabo SA (France; SAN) 1.91%
8. Tesco PLC (United Kingdom; TSCO) 1.85%
9. Shire Pharmaceuticals Group PLC (United Kingdom; SHP) 1.77%
10. Toyota Motor Corporation (Japan; 7203) 1.77%
</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.
Class F MSCI World
Shares ex US Index
- --------------------------------------
12/29/1995 $10,000
12/31/1995 $10,000 $10,000
12/31/1996 $11,860 $10,687
12/31/1997 $13,770 $10,930
12/31/1998 $16,112 $12,980
12/31/1999 $25,571 $16,605
12/29/2000 $21,057 $14,385
12/31/2001 $14,667 $11,307
12/31/2002 $10,516 $ 9,521
12/31/2003 $14,425 $13,274
12/31/2004 $17,699 $15,979
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>
AVERAGE ANNUAL TOTAL RETURN AS OF 12/31/04
<Table>
<Caption>
1 5 10 SINCE
CLASS (INCEPTION DATE) YEAR YEARS YEARS INCEPTION
- ---------------------------------------------------------------------------------
CLASS A SHARES (12/31/99)
With sales charge (5.75%) 15.59% (8.22%) -- (8.22%)
Without sales charge 22.69% (7.13%) -- (7.13%)
CLASS B SHARES (12/31/99)
With redemption* 17.78% (8.14%) -- (8.14%)
Without redemption 21.78% (7.82%) -- (7.82%)
CLASS C SHARES (12/31/99)
With redemption** 20.83% (7.86%) -- (7.86%)
Without redemption 21.83% (7.86%) -- (7.86%)
CLASS F SHARES (12/29/95) 22.70% (7.09%) -- 6.55%
CLASS R SHARES (12/31/99) 23.45% (6.84%) -- (6.84%)
CLASS T SHARES (12/31/99)
With sales charge (4.50%) 16.88% (8.21%) -- (8.21%)
Without sales charge 22.42% (7.36%) -- (7.36%)
</Table>
Average annual total returns do not reflect the deduction of taxes that a
shareholder would pay on Fund distributions or redemption of Fund shares, but do
reflect the reinvestment of dividends and capital gain distributions, expense
limitations, and adjustments for financial statement purposes. Part of the
Fund's historical performance is due to the purchase of securities sold in
initial public offerings (IPOs). There is no guarantee that the Fund's
investments in IPOs, if any, will continue to have a similar impact on
performance. Investments in foreign securities entail unique risks, including
political, market, and currency risks.
*The maximum contingent deferred sales charge for Class B shares is 4% and is
reduced to 0% after six years, at which time the Class B shares convert to Class
A shares.
**The maximum contingent deferred sales charge for Class C shares is 1% for
shares redeemed within one year of the date of purchase.
7
<Page>
Additionally, financials holdings BARCLAYS PLC and ING GROEP NV, automotive
industry supplier CONTINENTAL AG and Dutch telecommunication services holding,
KONINKLIJKE KPN NV boosted the Fund's relative return.
WHAT MANAGEMENT DECISIONS NEGATIVELY CONTRIBUTED TO THE FUND'S PERFORMANCE
DURING THE YEAR?
The largest negative contributor to relative Fund performance on a country basis
came from Hong Kong. The Fund's holdings in this country were down and
significantly underperformed the benchmark for the year. Other countries with
negative contributions to relative Fund performance included Denmark, Italy,
Sweden and Switzerland.
The biggest detractors on a sector basis to the Fund's relative performance
came from the information technology, telecommunication services and healthcare
sectors. In the information technology sector, Citizens Electronics Company
Limited had one of the largest negative impacts on the Fund's relative
performance. The Japanese electronic parts manufacturer's sales suffered due to
a slowing cellular phone market.
[CHART]
PORTFOLIO COMPOSITION OF NET ASSETS
<Table>
United Kingdom 23.67%
Japan 21.40%
France 10.09%
Germany 8.65%
Switzerland 6.04%
Canada 5.17%
Australia 4.05%
Netherlands 4.05%
Italy 3.94%
Other Countries 12.94%
</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>
During the period, we anticipated relative growth in the Fund's
telecommunications services sector holdings. However, specific stocks in this
sector, including China Unicom Limited and KDDI Corporation, underperformed and
weighed heavily on Fund performance.
In healthcare, pharmaceutical companies AstraZeneca PLC and GLAXOSMITHKLINE
PLC and biotech firm SERONO SA were among the largest detractors from
performance. AstraZeneca and Glaxo both fell as the U.K.-based pharmaceutical
firms battled negative sector sentiment brought about by negative test results
on Merck & Company's VIOXX(R) and Pfizer, Inc.'s Celebrex(R). In addition,
AstraZeneca experienced falling new prescription numbers for its cholesterol
drug, Crestor(R), late in the year.
Other weak performers hindering performance for the period included
Finnish-based NOKIA OYJ and U.K.-based materials technology company Cookson
Group PLC, which were both down during the Fund's holding period.
Our focus, as always, is on selecting stocks with improving business
momentum and attractive valuations in various countries and sectors regardless
of the market's direction. We will continue to focus on companies we believe
could generate strong earnings relative to their valuations for possible
inclusion in the Fund.
/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>
FUND EXPENSES
(UNAUDITED)
As a shareholder of the Fund, depending on the class of shares of the Fund you
own, you incur two types of costs: (1) transaction costs, including front-end
and contingent deferred sales charges; and (2) ongoing costs, including
management fees, Rule 12b-1 fees, shareholder services fees, and other expenses.
The expense example shown below is intended to help you understand your ongoing
costs (in dollars) of investing in the Fund and to compare these costs with the
ongoing costs of investing in other mutual funds.
The expense example is based on an investment of $1,000 on July 1, 2004 and
held through December 31, 2004.
ACTUAL EXPENSES The numbers included in the expense example in the rows
with the word "Actual" in the title provide information about actual account
values and actual expenses. You may use this information to estimate the
expenses that you paid over the period. Simply divide your account value by
$1,000 (for example, an $8,600 account value divided by $1,000 = 8.60), then
multiply the result by the number under the column heading entitled "Expenses
Paid During Period" for the class of shares you own to estimate the expenses you
paid on your account during this period.
HYPOTHETICAL EXPENSES The numbers included in the expense example in the rows
with the word "Hypothetical" in the title provide information about hypothetical
account values and hypothetical expenses based on the Fund's actual expense
ratio for each class of shares, and an assumed rate of return of 5% per year
before expenses, which is not the Fund's actual return. The hypothetical account
values and expenses may not be used to estimate the actual ending account
balance or expenses you paid for the period. You may use this information to
compare the ongoing costs of investing in the Fund and other funds. To do so,
compare the hypothetical expenses in the expense example for the class of shares
you own with the hypothetical expenses that appear in the shareholder reports of
other funds.
Please note that the expenses shown in the expense example are meant to
highlight your ongoing costs only and do not reflect the transaction costs
described above. Therefore, the hypothetical expenses in the expense example are
useful in comparing ongoing costs only, and will not help you determine the
relative total costs of owning different funds. In addition, if the transaction
costs were included, your costs would have been higher.
10
<Page>
EXPENSE EXAMPLE
<Table>
<Caption>
BEGINNING ENDING EXPENSES PAID
ACCOUNT VALUE ACCOUNT VALUE DURING PERIOD*
(7/1/04) (12/31/04) (7/1/04-12/31/04)
- ------------------------------------------------------------------------------------
CLASS A ACTUAL $ 1,000.00 $ 1,115.00 $ 7.61
CLASS A HYPOTHETICAL 1,000.00 1,017.87 7.13
CLASS B ACTUAL 1,000.00 1,146.71 11.66
CLASS B HYPOTHETICAL 1,000.00 1,014.06 10.94
CLASS C ACTUAL 1,000.00 1,147.01 11.67
CLASS C HYPOTHETICAL 1,000.00 1,014.06 10.94
CLASS F ACTUAL 1,000.00 1,155.18 7.61
CLASS F HYPOTHETICAL 1,000.00 1,017.87 7.13
CLASS R ACTUAL 1,000.00 1,161.65 6.27
CLASS R HYPOTHETICAL 1,000.00 1,019.15 5.85
CLASS T ACTUAL 1,000.00 1,151.82 8.96
CLASS T HYPOTHETICAL 1,000.00 1,016.60 8.40
</Table>
*Expenses are equal to each Class's respective annualized expense ratio, shown
below, multiplied by the average account value over the period, multiplied by
184/366 (to reflect the one-half year period).
EXPENSE RATIOS
These expense ratios reflect reimbursements and/or waivers of expenses by the
Fund's investment adviser or its affiliates.
<Table>
<Caption>
EXPENSE RATIO
- -------------------------------------------------------
CLASS A 1.40%
CLASS B 2.15%
CLASS C 2.15%
CLASS F 1.40%
CLASS R 1.15%
CLASS T 1.65%
</Table>
11
<Page>
STATEMENT OF INVESTMENTS
December 31, 2004
<Table>
<Caption>
SHARES MARKET VALUE
- ------------------------------------------------------------------------------------------------
COMMON STOCKS (FOREIGN)--102.3%
AEROSPACE & DEFENSE--1.0%
88,800 BAE Systems PLC (UK) $ 392,945
-----------------
APPAREL, ACCESSORIES & LUXURY GOODS--2.1%
17,000 Bulgari SPA (IT) 210,045
41,500 Burberry Group PLC (UK) 319,476
9,300 Compagnie Financiere Richemont AG (SZ) 309,564
-----------------
839,085
-----------------
APPLICATION SOFTWARE--1.7%
56,400 Sage Group PLC (UK) 218,984
2,500 SAP AG (GE) 445,834
-----------------
664,818
-----------------
AUTOMOBILE MANUFACTURERS--3.7%
36,600 Nissan Motor Company Limited (JA) 397,896
4,300 Renault SA (FR) 359,746
16,900 Toyota Motor Corporation (JA) 687,743
-----------------
1,445,385
-----------------
BIOTECHNOLOGY--0.9%
540 Serono SA (SZ) 355,694
-----------------
BREWERS--4.3%
19,200 Asahi Breweries Limited (JA) 237,775
7,600 InBev NV (BE) 294,827
6,900 Orkla ASA (NW) 226,708
55,200 SABMiller PLC (UK) 915,585
-----------------
1,674,895
-----------------
BROADCASTING & CABLE TV--2.9%
44,500 Mediaset SPA (IT) 564,340
41,900 Publishing & Broadcasting Limited (AU) 574,782
-----------------
1,139,122
-----------------
</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.
AR Argentina
AT Austria
AU Australia
BD Bermuda
BE Belgium
BR Brazil
CA Canada
CH Chile
CN China
DE Denmark
FI Finland
FR France
GE Germany
GR Greece
HK Hong Kong
ID Indonesia
IE Ireland
IN India
IS Israel
IT Italy
JA Japan
KR South Korea
MA Malaysia
MX Mexico
NE Netherlands
NW Norway
NZ New Zealand
PH Philippines
SA South Africa
SG Singapore
SP Spain
SW Sweden
SZ Switzerland
TH Thailand
UK United Kingdom
12
<Page>
<Table>
<Caption>
SHARES MARKET VALUE
- ------------------------------------------------------------------------------------------------
COMMUNICATIONS EQUIPMENT--3.1%
27,200 Nokia Oyj (FI) $ 429,610
2,400 Research In Motion Limited (CA)* 197,857
177,200 Telefonaktiebolaget LM Ericsson (SW) 565,299
-----------------
1,192,766
-----------------
COMPUTER HARDWARE--0.5%
30,000 Fujitsu Limited (JA) 195,277
-----------------
COMPUTER STORAGE & PERIPHERALS--0.7%
13,600 ATI Technologies, Inc. (CA)* 264,009
-----------------
CONSTRUCTION & ENGINEERING--0.7%
11,700 ACS, Actividades de Construccion y Servicios SA (SP) 267,174
-----------------
CONSTRUCTION, FARM MACHINERY & HEAVY TRUCKS--1.6%
15,800 Volvo AB (SW) 626,494
-----------------
CONSUMER ELECTRONICS--1.2%
31,100 Casio Computer Company Limited (JA) 479,839
-----------------
CONSUMER FINANCE--0.6%
3,400 Sanyo Shinpan Finance Company Limited (JA) 241,554
-----------------
DIVERSIFIED BANKS--8.0%
6,420 Alpha Bank AE (GR) 223,919
91,700 Banca Intesa SPA (IT) 441,237
74,919 Barclays PLC (UK) 842,821
6,707 BNP Paribas SA (FR) 485,909
17,200 HBOS PLC (UK) 280,008
6,034 Royal Bank of Scotland Group PLC (UK) 202,948
22,000 Shizuoka Bank Limited (JA) 208,471
4,300 Societe Generale (FR) 435,143
-----------------
3,120,456
-----------------
DIVERSIFIED CAPITAL MARKETS--1.7%
10,600 Credit Suisse Group (SZ)* 445,590
2,470 UBS AG (SZ) 207,119
-----------------
652,709
-----------------
DIVERSIFIED CHEMICALS--1.3%
7,000 BASF AG (GE) 503,520
-----------------
DIVERSIFIED METALS & MINING--2.9%
46,500 BHP Billiton Limited (AU) 559,152
31,100 Xstrata PLC (UK) 556,445
-----------------
1,115,597
-----------------
ELECTRIC UTILITIES--2.8%
5,400 E.ON AG (GE) 493,098
31,900 Fortum Oyj (FI) 590,564
-----------------
1,083,662
-----------------
ELECTRICAL COMPONENTS & EQUIPMENT--0.9%
31,500 Sumitomo Electric Industries Limited (JA) 342,759
-----------------
</Table>
SEE NOTES TO STATEMENT OF INVESTMENTS.
13
<Page>
<Table>
<Caption>
SHARES MARKET VALUE
- ------------------------------------------------------------------------------------------------
ELECTRONIC EQUIPMENT MANUFACTURERS--2.2%
65,000 Hitachi Limited (JA) $ 450,376
3,600 Hoya Corporation (JA) 406,480
-----------------
856,856
-----------------
FOOD RETAIL--3.3%
1,300 Colruyt NV (BE) 211,336
4,900 Delhaize Group (BE) 372,645
116,900 Tesco PLC (UK) 722,069
-----------------
1,306,050
-----------------
FOREST PRODUCTS--0.6%
17,500 Canfor Corporation (CA)* 228,572
-----------------
HOUSEHOLD PRODUCTS--0.9%
11,300 Reckitt Benckiser PLC (UK) 341,451
-----------------
HYPERMARKETS & SUPER CENTERS--1.8%
9,000 Ito-Yokado Company Limited (JA) 377,672
5,600 Metro AG (GE) 307,973
-----------------
685,645
-----------------
INDUSTRIAL CONGLOMERATES--0.6%
41,000 Keppel Corporation Limited (SG) 216,001
-----------------
INDUSTRIAL MACHINERY--1.2%
56,000 NSK Limited (JA) 281,448
3,400 Saurer AG (SZ)* 200,334
-----------------
481,782
-----------------
INTEGRATED OIL & GAS--5.4%
80,719 BP PLC (UK) 787,200
7,700 Husky Energy, Inc. (CA) 220,101
18,800 Repsol YPF SA (SP) 489,613
2,858 Total SA (FR) 624,277
-----------------
2,121,191
-----------------
INTEGRATED TELECOMMUNICATION SERVICES--5.5%
15,800 Deutsche Telekom AG (GE)* 357,363
7,500 France Telecom (FR) 248,335
82,500 Koninklijke KPN NV (NE) 783,845
13,200 Telefonica SA (SP) 248,677
17,200 Telus Corporation (CA) 519,933
-----------------
2,158,153
-----------------
LEISURE PRODUCTS--1.1%
18,300 Sankyo Company Limited (JA) 413,433
-----------------
LIFE & HEALTH INSURANCE--1.2%
74,200 Friends Provident PLC (UK) 219,366
92,500 Old Mutual PLC (UK) 235,290
-----------------
454,656
-----------------
MARINE--1.8%
62 AP Moller-Maersk AS (DE) 512,078
31,000 Kawasaki Kisen Kaisha Limited (JA) 199,366
-----------------
711,444
-----------------
</Table>
14
<Page>
<Table>
<Caption>
SHARES MARKET VALUE
- ------------------------------------------------------------------------------------------------
MOVIES & ENTERTAINMENT--0.9%
11,500 Vivendi Universal SA (FR) $ 367,181
-----------------
MULTI-LINE INSURANCE--1.1%
19,200 Aviva PLC (UK) 231,476
3,900 Baloise Holding Limited (SZ) 180,063
-----------------
411,539
-----------------
MULTI-UTILITIES & UNREGULATED POWER--0.5%
7,700 Suez SA (FR) 205,347
-----------------
OFFICE ELECTRONICS--1.7%
12,000 Canon, Inc. (JA) 647,604
-----------------
OIL & GAS EXPLORATION & PRODUCTION--1.8%
12,800 Eni SPA (IT) 320,478
2,200 Norsk Hydro ASA (NW) 173,263
141,600 Oil Search Limited (AU) 200,906
-----------------
694,647
-----------------
OTHER DIVERSIFIED FINANCIAL SERVICES--2.6%
26,200 ING Groep NV (NE) 792,731
6,900 Sun Life Financial, Inc. (CA) 231,209
-----------------
1,023,940
-----------------
PHARMACEUTICALS--11.5%
12,000 Eisai Company Limited (JA) 394,652
10,100 GlaxoSmithKline PLC (UK) 236,940
4,900 Merck KGaA (GE) 335,014
12,959 Novartis AG (SZ) 653,021
5,400 Novo Nordisk AS Class B (DE) 295,033
8,000 Ono Pharmaceuticals Company Limited (JA) 448,912
9,300 Sanofi-Synthelabo SA (FR) 743,292
65,800 Shire Pharmaceuticals Group PLC (UK) 690,969
13,600 Takeda Pharmaceuticals Company Limited (JA) 684,844
-----------------
4,482,677
-----------------
PRECIOUS METALS & MINERALS--1.0%
17,800 ThyssenKrupp AG (GE) 391,953
-----------------
PROPERTY & CASUALTY INSURANCE--0.6%
20,100 QBE Insurance Group Limited (AU) 241,855
-----------------
PUBLISHING--0.6%
25,500 United Business Media PLC (UK) 234,978
-----------------
RAILROADS--0.9%
5,800 Canadian National Railway Company (CA) 353,702
-----------------
SEMICONDUCTORS--0.6%
106,200 ARM Holdings PLC (UK) 225,285
-----------------
STEEL--1.6%
14,900 JFE Holdings, Inc. (JA) 425,320
80,000 Nippon Steel Corporation (JA) 195,960
-----------------
621,280
-----------------
</Table>
SEE NOTES TO STATEMENT OF INVESTMENTS.
15
<Page>
<Table>
<Caption>
SHARES MARKET VALUE
- ------------------------------------------------------------------------------------------------
TIRES & RUBBER--1.4%
8,400 Continental AG (GE) $ 533,777
-----------------
TRADING COMPANIES & DISTRIBUTORS--1.6%
48,000 Mitsubishi Corporation (JA) 620,201
-----------------
WIRELESS TELECOMMUNICATION SERVICES--5.7%
10,000 Bouygues SA (FR) 462,145
59,400 China Mobile (Hong Kong) Limited (HK) 201,370
578,175 Vodafone Group PLC (UK) 1,567,810
-----------------
2,231,325
-----------------
TOTAL COMMON STOCKS (FOREIGN)
(COST--$30,078,362) 39,860,285
-----------------
<Caption>
PRINCIPAL AMOUNT AMORTIZED COST
- ------------------------------------------------------------------------------------------------
CORPORATE SHORT-TERM NOTES--2.1%
HOUSEHOLD APPLIANCES--2.1%
$ 800,000 Stanley Works, Inc.
2.20% 1/3/05~ $ 799,902
-----------------
TOTAL CORPORATE SHORT-TERM NOTES
(AMORTIZED COST--$799,902) 799,902
-----------------
TOTAL INVESTMENTS--104.4%
(TOTAL COST--$30,878,264) 40,660,187
-----------------
OTHER ASSETS AND LIABILITIES--(4.4%) (1,700,120)
-----------------
NET ASSETS--100.0% $ 38,960,067
=================
</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. THESE SECURITIES
AMOUNTED TO $799,902, OR 2.1%, OF THE FUND'S NET ASSETS AS OF DECEMBER 31,
2004.
SEE NOTES TO FINANCIAL STATEMENTS.
16
<Page>
STATEMENT OF ASSETS AND LIABILITIES
December 31, 2004
<Table>
ASSETS
Investment securities, at cost $ 30,878,264
--------------
Investment securities, at market 40,660,187
Cash 121,581
Foreign currency (cost $1,880) 1,887
Receivables:
Capital shares sold 35,637
Dividends and interest 35,034
From adviser 11,453
Other assets 30,430
--------------
Total Assets 40,896,209
--------------
LIABILITIES
Payables and other accrued liabilities:
Capital shares redeemed 1,858,407
Advisory fees 25,359
Shareholder servicing fees 6,690
Accounting fees 3,381
Distribution fees 4,489
Transfer agency fees 14,409
Custodian fees 3,512
Other 19,895
--------------
Total Liabilities 1,936,142
--------------
Net Assets $ 38,960,067
==============
COMPOSITION OF NET ASSETS
Capital (par value and paid-in surplus) $ 60,399,223
Undistributed net investment income 3,289
Accumulated net realized loss from security transactions (31,229,444)
Net unrealized appreciation on investments
and foreign currency translation 9,786,999
--------------
Total $ 38,960,067
==============
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
17
<Page>
<Table>
CLASS A
Net Assets $ 25,075,912
Shares Outstanding 2,106,642
Net Asset Value, Redemption Price Per Share $ 11.90
Maximum offering price per share (net asset value plus sales
charge of 5.75% of offering price) $ 12.63
CLASS B
Net Assets $ 2,280,905
Shares Outstanding 196,161
Net Asset Value, Offering and Redemption Price (excluding
applicable contingent deferred sales charge) Per Share $ 11.63
CLASS C
Net Assets $ 476,367
Shares Outstanding 41,032
Net Asset Value, Offering and Redemption Price (excluding
applicable contingent deferred sales charge) Per Share $ 11.61
CLASS F
Net Assets $ 10,885,487
Shares Outstanding 913,037
Net Asset Value, Offering and Redemption Price Per Share $ 11.92
CLASS R
Net Assets $ 66,382
Shares Outstanding 5,525
Net Asset Value, Offering and Redemption Price Per Share $ 12.01
CLASS T
Net Assets $ 175,014
Shares Outstanding 14,777
Net Asset Value, Redemption Price Per Share $ 11.84
Maximum offering price per share (net asset value
plus sales charge of 4.50% of offering price) $ 12.40
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
18
<Page>
STATEMENT OF OPERATIONS
For the year ended December 31, 2004
<Table>
INVESTMENT INCOME
Dividends $ 917,889
Interest 21,695
Foreign taxes withheld (108,429)
--------------
Total Investment Income 831,155
--------------
EXPENSES
Advisory fees--Note 2 385,226
Shareholder servicing fees--Note 2 87,835
Accounting fees--Note 2 38,523
Distribution fees--Note 2 45,440
Transfer agency fees--Note 2 84,201
Registration fees 49,287
Postage and mailing expenses 1,911
Custodian fees and expenses--Note 2 52,375
Printing expenses 25,760
Legal and audit fees 8,121
Directors' fees and expenses--Note 2 6,723
Other expenses 21,343
--------------
Total Expenses 806,745
Earnings Credits (1,289)
Reimbursed/Waived Expenses (248,314)
Expense Offset to Broker Commissions (3,253)
--------------
Net Expenses 553,889
--------------
Net Investment Income 277,266
--------------
REALIZED AND UNREALIZED GAIN (LOSS) ON SECURITY
TRANSACTIONS AND FOREIGN CURRENCY TRANSACTIONS
Net Realized Gain (Loss) on:
Security Transactions 8,484,907
Foreign Currency Transactions (1,523)
--------------
Net Realized Gain 8,483,384
Net Change in Unrealized Appreciation/Depreciation
of Investments and Foreign Currency Translation (886,438)
--------------
Net Realized and Unrealized Gain 7,596,946
--------------
Net Increase in Net Assets Resulting from Operations $ 7,874,212
==============
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
19
<Page>
STATEMENTS OF CHANGES IN NET ASSETS
<Table>
<Caption>
YEAR ENDED YEAR ENDED
12/31/04 12/31/03
OPERATIONS
Net Investment Income $ 277,266 $ 254,642
Net Realized Gain (Loss) on Security and Foreign
Currency Transactions 8,483,384 (5,296,540)
Net Change in Unrealized Appreciation/Depreciation
of Investments and Foreign Currency Translation (886,438) 16,056,126
-------------- --------------
Net Increase in Net Assets Resulting from Operations 7,874,212 11,014,228
-------------- --------------
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS
From Net Investment Income
Class A (185,495) (156,488)
Class B 0 (1,759)
Class F (72,290) (71,823)
Class R (11,405) (28,532)
Class T (511) (910)
-------------- --------------
Net Decrease from Dividends and Distributions (269,701) (259,512)
-------------- --------------
CAPITAL SHARE TRANSACTIONS
Net Decrease--Note 4
Class A (2,078,483) (1,959,586)
Class B (527,506) (450,587)
Class C (94,599) (190,274)
Class F (980,705) (2,350,311)
Class R (3,373,718) (204,031)
Class T (31,098) (57,906)
-------------- --------------
Net Decrease from Capital Share Transactions (7,086,109) (5,212,695)
-------------- --------------
Net Increase in Net Assets 518,402 5,542,021
-------------- --------------
NET ASSETS
Beginning of year $ 38,441,665 $ 32,899,644
-------------- --------------
End of year $ 38,960,067 $ 38,441,665
============== ==============
Undistributed (Accumulated) Net
Investment Income (Loss) $ 3,289 $ (2,753)
</Table>
SEE NOTES TO FINANCIAL STATEMENTS
20
<Page>
FINANCIAL HIGHLIGHTS
<Table>
<Caption>
YEAR ENDED DECEMBER 31,
--------------------------------------------------------------
2004 2003 2002 2001 2000
--------------------------------------------------------------
CLASS A SHARES
PER SHARE OPERATING DATA
Net Asset Value, beginning of year $ 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 2.14 2.59 (2.84) (4.39) (3.53)
--------------------------------------------------------------
Total from investment operations 2.22 2.65 (2.83) (4.39) (3.56)
- ---------------------------------------------------------------------------------------------------------
Less dividends and distributions:
From net investment income (0.09) (0.07) (0.01) 0.00 0.00
From net realized gains 0.00 0.00 0.00 0.00 (1.90)
--------------------------------------------------------------
Total distributions (0.09) (0.07) (0.01) 0.00 (1.90)
- ---------------------------------------------------------------------------------------------------------
Net Asset Value, end of year $ 11.90 $ 9.77 $ 7.19 $ 10.03 $ 14.42
==============================================================
TOTAL RETURN* 22.69% 36.84% (28.19%) (30.44%) (17.60%)
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000s) $ 25,076 $ 22,432 $ 18,217 $ 29,151 $ 4,434
- ---------------------------------------------------------------------------------------------------------
Ratios to average net assets:
Expenses with reimbursements, but no
earnings credits or brokerage offsets# 1.42% 1.41% 1.40% 1.46% 1.82%
Expenses with reimbursements,
earnings credits and brokerage offsets 1.40% 1.40% 1.40% 1.44% 1.77%
Net investment income (loss) 0.74% 0.80% 0.13% (0.74%) (0.36%)
- ---------------------------------------------------------------------------------------------------------
Portfolio turnover rate@ 85% 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.
# 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 2.05% (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.
21
<Page>
<Table>
<Caption>
YEAR ENDED DECEMBER 31,
--------------------------------------------------------------
2004 2003 2002 2001 2000
--------------------------------------------------------------
CLASS B SHARES
PER SHARE OPERATING DATA
Net Asset Value, beginning of year $ 9.55 $ 7.03 $ 9.87 $ 14.29 $ 19.88
- ---------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) 0.00~,+ (0.08) (0.11) (0.12) (0.09)
Net realized and unrealized gains
(losses) on securities 2.08 2.61 (2.73) (4.30) (3.60)
--------------------------------------------------------------
Total from investment operations 2.08 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 year $ 11.63 $ 9.55 $ 7.03 $ 9.87 $ 14.29
==============================================================
TOTAL RETURN* 21.78% 35.95% (28.77%) (30.93%) (18.27%)
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000s) $ 2,281 $ 2,372 $ 2,201 $ 3,786 $ 5,129
- ---------------------------------------------------------------------------------------------------------
Ratios to average net assets:
Expenses with reimbursements, but no
earnings credits or brokerage offsets# 2.16% 2.16% 2.16% 2.28% 2.57%
Expenses with reimbursements,
earnings credits and brokerage offsets 2.15% 2.15% 2.15% 2.26% 2.52%
Net investment income (loss) 0.00% 0.07% (0.61%) (1.03%) (1.18%)
- ---------------------------------------------------------------------------------------------------------
Portfolio turnover rate@ 85% 144% 220% 213% 184%
</Table>
~ COMPUTED USING AVERAGE SHARES OUTSTANDING THROUGHOUT THE YEAR.
+ NET INVESTMENT INCOME FOR THE YEAR ENDED DECEMBER 31, 2004 AGGREGATED LESS
THAN $0.01 ON A PER SHARE BASIS.
* SALES CHARGES ARE NOT REFLECTED IN THE TOTAL RETURN.
# 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), 3.32% (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.
22
<Page>
<Table>
<Caption>
YEAR ENDED DECEMBER 31,
--------------------------------------------------------------
2004 2003 2002 2001 2000
--------------------------------------------------------------
CLASS C SHARES
PER SHARE OPERATING DATA
Net Asset Value, beginning of year $ 9.53 $ 7.02 $ 9.86 $ 14.27 $ 19.88
- ---------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) 0.00~,+ (0.26) (0.29) (0.16) (0.07)
Net realized and unrealized gains
(losses) on securities 2.08 2.77 (2.55) (4.25) (3.64)
--------------------------------------------------------------
Total from investment operations 2.08 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 year $ 11.61 $ 9.53 $ 7.02 $ 9.86 $ 14.27
==============================================================
TOTAL RETURN* 21.83% 35.76% (28.80%) (30.90%) (18.37%)
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000s) $ 476 $ 482 $ 532 $ 1,429 $ 2,635
- ---------------------------------------------------------------------------------------------------------
Ratios to average net assets:
Expenses with reimbursements, but no
earnings credits or brokerage offsets# 2.16% 2.16% 2.16% 2.29% 2.55%
Expenses with reimbursements,
earnings credits and brokerage offsets 2.15% 2.15% 2.15% 2.26% 2.50%
Net investment income (loss) 0.03% 0.08% (0.63%) (0.99%) (1.18%)
- ---------------------------------------------------------------------------------------------------------
Portfolio turnover rate@ 85% 144% 220% 213% 184%
</Table>
~ COMPUTED USING AVERAGE SHARES OUTSTANDING THROUGHOUT THE YEAR.
+ NET INVESTMENT INCOME FOR THE YEAR ENDED DECEMBER 31, 2004 AGGREGATED LESS
THAN $0.01 ON A PER SHARE BASIS.
* SALES CHARGES ARE NOT REFLECTED IN THE TOTAL RETURN.
# 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 2.87% (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.
23
<Page>
<Table>
<Caption>
YEAR ENDED DECEMBER 31,
--------------------------------------------------------------
2004 2003 2002 2001 2000
--------------------------------------------------------------
CLASS F SHARES
PER SHARE OPERATING DATA
Net Asset Value, beginning of year $ 9.78 $ 7.18 $ 10.03 $ 14.40 $ 19.87
- ---------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) 0.08~ (0.01) (0.05) (0.07) (0.08)
Net realized and unrealized gains
(losses) on securities 2.14 2.68 (2.79) (4.30) (3.49)
--------------------------------------------------------------
Total from investment operations 2.22 2.67 (2.84) (4.37) (3.57)
- ---------------------------------------------------------------------------------------------------------
Less dividends and distributions:
From net investment income (0.08) (0.07) (0.01) 0.00 0.00
From net realized gains 0.00 0.00 0.00 0.00 (1.90)
--------------------------------------------------------------
Total distributions (0.08) (0.07) (0.01) 0.00 (1.90)
- ---------------------------------------------------------------------------------------------------------
Net Asset Value, end of year $ 11.92 $ 9.78 $ 7.18 $ 10.03 $ 14.40
==============================================================
TOTAL RETURN 22.70% 37.17% (28.30%) (30.35%) (17.65%)
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000s) $ 10,885 $ 9,837 $ 9,321 $ 16,640 $ 30,040
- ---------------------------------------------------------------------------------------------------------
Ratios to average net assets:
Expenses with reimbursements, but no
earnings credits or brokerage offsets# 1.41% 1.40% 1.40% 1.55% 1.84%
Expenses with reimbursements,
earnings credits and brokerage offsets 1.40% 1.40% 1.40% 1.52% 1.80%
Net investment income (loss) 0.76% 0.80% 0.12% (0.26%) (0.55%)
- ---------------------------------------------------------------------------------------------------------
Portfolio turnover rate@ 85% 144% 220% 213% 184%
</Table>
~ COMPUTED USING AVERAGE SHARES OUTSTANDING THROUGHOUT THE YEAR.
# 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 2.10% (2004), 2.52% (2003), 2.13% (2002), 1.99%
(2001) AND 1.95% (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>
YEAR ENDED DECEMBER 31,
--------------------------------------------------------------
2004 2003 2002 2001 2000
--------------------------------------------------------------
CLASS R SHARES
PER SHARE OPERATING DATA
Net Asset Value, beginning of year $ 9.82 $ 7.22 $ 10.08 $ 14.45 $ 19.88
- ---------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) 0.13~ 0.09 0.02 0.00+ (0.01)
Net realized and unrealized gains
(losses) on securities 2.17 2.60 (2.85) (4.37) (3.52)
--------------------------------------------------------------
Total from investment operations 2.30 2.69 (2.83) (4.37) (3.53)
- ---------------------------------------------------------------------------------------------------------
Less dividends and distributions:
From net investment income (0.11) (0.09) (0.03) 0.00 0.00
From net realized gains 0.00 0.00 0.00 0.00 (1.90)
--------------------------------------------------------------
Total distributions (0.11) (0.09) (0.03) 0.00 (1.90)
- ---------------------------------------------------------------------------------------------------------
Net Asset Value, end of year $ 12.01 $ 9.82 $ 7.22 $ 10.08 $ 14.45
==============================================================
TOTAL RETURN 23.45% 37.27% (28.10%) (30.24%) (17.45%)
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000s) $ 66 $ 3,146 $ 2,470 $ 6,102 $ 2,716
- ---------------------------------------------------------------------------------------------------------
Ratios to average net assets:
Expenses with reimbursements, but no
earnings credits or brokerage offsets# 1.15% 1.15% 1.16% 1.28% 1.63%
Expenses with reimbursements,
earnings credits and brokerage offsets 1.15% 1.15% 1.15% 1.26% 1.53%
Net investment income (loss) 1.21% 1.03% 0.27% (0.04%) (0.40%)
- ---------------------------------------------------------------------------------------------------------
Portfolio turnover rate@ 85% 144% 220% 213% 184%
</Table>
~ COMPUTED USING AVERAGE SHARES OUTSTANDING THROUGHOUT THE YEAR.
+ NET INVESTMENT LOSS FOR THE YEAR ENDED DECEMBER 31, 2001 AGGREGATED LESS
THAN $0.01 ON A PER SHARE BASIS.
# 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 1.65% (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.
25
<Page>
<Table>
<Caption>
YEAR ENDED DECEMBER 31,
--------------------------------------------------------------
2004 2003 2002 2001 2000
--------------------------------------------------------------
CLASS T SHARES
PER SHARE OPERATING DATA
Net Asset Value, beginning of year $ 9.70 $ 7.14 $ 9.97 $ 14.37 $ 19.88
- ---------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) 0.06~ 0.00+ (0.10) (0.09) (0.06)
Net realized and unrealized gains
(losses) on securities 2.11 2.61 (2.73) (4.31) (3.55)
--------------------------------------------------------------
Total from investment operations 2.17 2.61 (2.83) (4.40) (3.61)
- ---------------------------------------------------------------------------------------------------------
Less dividends and distributions:
From net investment income (0.03) (0.05) 0.00 0.00 0.00
From net realized gains 0.00 0.00 0.00 0.00 (1.90)
--------------------------------------------------------------
Total distributions (0.03) (0.05) 0.00 0.00 (1.90)
- ---------------------------------------------------------------------------------------------------------
Net Asset Value, end of year $ 11.84 $ 9.70 $ 7.14 $ 9.97 $ 14.37
==============================================================
TOTAL RETURN* 22.42% 36.58% (28.39%) (30.62%) (17.85%)
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000s) $ 175 $ 172 $ 158 $ 343 $ 654
- ---------------------------------------------------------------------------------------------------------
Ratios to average net assets:
Expenses with reimbursements, but no
earnings credits or brokerage offsets# 1.66% 1.65% 1.65% 1.80% 2.03%
Expenses with reimbursements,
earnings credits and brokerage offsets 1.65% 1.65% 1.65% 1.77% 1.98%
Net investment income (loss) 0.57% 0.67% (0.12%) (0.53%) (0.70%)
- ---------------------------------------------------------------------------------------------------------
Portfolio turnover rate@ 85% 144% 220% 213% 184%
</Table>
~ COMPUTED USING AVERAGE SHARES OUTSTANDING THROUGHOUT THE YEAR.
+ 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.
# 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 2.44% (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.
26
<Page>
NOTES TO FINANCIAL STATEMENTS
December 31, 2004
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,
Equity Growth (formerly Growth and Income), Government Securities, Growth,
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 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. However, the Funds are planning to begin using New
York closing exchange rates to convert foreign currencies to U.S. dollars
sometime during the first quarter of 2005.
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.
27
<Page>
If market quotations or official closing prices are not readily available or are
determined not to reflect accurately fair value, 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 but before the Fund calculates its net asset value,
and it is determined that the event has materially affected the value of the
security. Fair value of foreign equity securities may be determined with the
assistance of a pricing service using correlations between the movement of
prices of foreign securities and indexes of domestic securities and other
appropriate indicators, such as closing market prices of relevant ADRs and
futures contracts. Using fair value to price securities may result in a value
that is different from a security's most recent closing price and from the
prices used by other mutual funds to calculate their net asset values.
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 carry more risk
than U.S. securities, such as political and currency risks. The Fund normally
invests a large portion of its assets in foreign securities. In the event the
Fund executes a foreign security transaction, the Fund may enter into a foreign
currency contract to settle the foreign security transaction. The resultant
foreign currency gain or loss from the contract is recorded as foreign currency
gain or loss and is presented as such in the Statement of Operations. Foreign
currency held at December 31, 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
28
<Page>
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, as earned, and includes the
accretion of discounts and the amortization of premiums over the lives of the
respective securities. Withholding taxes on foreign dividends have been provided
for in accordance with the applicable country's tax rules and rates.
DISTRIBUTIONS TO SHAREHOLDERS--The Fund declares and distributes dividends (if
any) and capital gains (if any) annually. Dividends and distributions, which are
determined in accordance with income tax regulations, are recorded on the
ex-dividend date.
EXPENSES--Each Class of the Fund bears expenses incurred specifically on its
behalf and, in addition, each Class bears a portion of general expenses based on
the relative net assets or the number of shareholder accounts of the Class. The
type of expense determines the allocation method. The Company's board of
directors has authorized the payment of certain Fund expenses with commissions
on Fund portfolio transactions. These commissions reduce Other Expenses and are
included in the Expense Offset to Broker Commissions in the Statement of
Operations.
USE OF ESTIMATES--The preparation of financial statements in conformity with
accounting principles generally accepted in the United States of America
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported amounts of
income and expenses during the reporting period. Actual results could differ
from those estimates.
INDEMNIFICATIONS--In the normal course of business, the Company enters into
contracts that contain provisions indemnifying other parties against specified
potential liabilities. Each Fund's maximum exposure under these arrangements is
unknown as this would involve future claims that may be made against the Fund
that have not yet occurred. However, based on experience, the Funds expect the
risk of loss to be remote.
OTHER--Certain prior year information has been reformatted, without substantive
change, to conform with the current year presentation.
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
29
<Page>
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 year
ended December 31, 2004, $232,778 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 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 year ended December 31,
2004, Class F shares were charged $22,397 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 from DTI
are paid by the Fund. During the year ended December 31, 2004, Class F shares
were charged $8,045 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 $13.00, per shareholder account considered to be an
open account at any time during a given month, plus out-of-pocket charges.
Class-specific transfer agency fees paid to DTI during the year ended December
31, 2004 were as follows:
<Table>
<Caption>
TRANSFER
AGENCY FEES
---------------------------------------------------------------------------
Class A $ 58,085
Class B $ 6,772
Class C $ 1,499
Class R $ 2,710
Class T $ 711
</Table>
OTHER TRANSFER AGENCY FEES--Various broker-dealers, retirement plan
administrators and other unaffiliated entities have established omnibus accounts
with the Fund, and
30
<Page>
provide sub-transfer agency, recordkeeping or similar services to persons
holding Fund shares through those accounts. During the year ended December 31,
2004, the Fund paid $6,379 to these entities for such services. This amount is
included in the transfer agency fees shown on the Statement of Operations.
CASH MANAGEMENT FEES--The Funds also pay Mellon Bank N.A. ("Mellon Bank"), a
wholly-owned subsidiary of Mellon Financial Corporation and an affiliate of
Founders, fees for certain cash management services. These include various
services related to the processing of shareholder transactions in the Funds.
During the year ended December 31, 2004, the Fund was charged $3,374 for cash
management fees, which are included in the out-of-pocket charges from DTI above.
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 year ended December
31, 2004, Class F shares were charged $24,844 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 year ended December 31, 2004, were as follows:
<Table>
<Caption>
DISTRIBUTION SHAREHOLDER
FEES SERVICING FEES
------------------------------------------------------------------------
Class A N/A $ 58,276
Class B $ 16,658 $ 5,553
Class C $ 3,493 $ 1,164
Class T $ 445 $ 445
</Table>
During the year ended December 31, 2004, DSC retained $440 and $72 in sales
commissions from the sales of Class A and Class T shares, respectively. DSC also
retained $11,655 of contingent deferred sales charges relating to redemptions of
Class B.
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,
31
<Page>
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 contractually agreed to waive
any fees received for these services to the extent they exceed Founders' costs
in providing the services.
CUSTODIAN FEES--Mellon Bank 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 Fund could have employed these assets
elsewhere to produce income had it not entered into this arrangement. The
custodian has also contractually 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 year ended December 31, 2004, the
Fund's portion of the fee waiver was $15,536, which reduced the amount paid to
Mellon Bank to $36,839.
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 invested
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,
which pays their compensation. 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--An affiliate of Founders reimbursed the Fund $4,811 shortly after the
fiscal year end for a trading error. This amount is not material to the Fund.
3. FEDERAL TAX INFORMATION
Net investment income and capital gains distributions are determined in
accordance with income tax regulations that may differ from accounting
principles generally accepted in the United States of America. These differences
are due to differing treatments for items such as deferral of wash sale losses,
foreign currency transactions, net operating losses and capital loss carryovers.
Permanent differences identified during
32
<Page>
the year ended December 31, 2004 have been reclassified among the components of
net assets as follows:
<Table>
<Caption>
UNDISTRIBUTED NET UNDISTRIBUTED NET PAID-IN
INVESTMENT INCOME REALIZED GAINS AND LOSSES CAPITAL
-----------------------------------------------------------------
$ (1,523) $ 1,526 $ (3)
</Table>
The tax character of distributions paid during 2004 and 2003 was as follows:
<Table>
<Caption>
2004 2003
DISTRIBUTIONS PAID FROM:
Ordinary Income $ 269,701 $ 259,512
Long-term capital gain $ 0 $ 0
-----------------------
$ 269,701 $ 259,512
=======================
</Table>
The tax components of capital represent distribution requirements the Fund must
satisfy under the income tax regulations and losses or tax deductions the Fund
may be able to offset against income and capital gains realized in future years.
Accumulated capital losses and post-October 31 capital losses noted below, if
any, as of December 31, 2004, 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. Net capital loss carryovers utilized
during 2004 by the Fund amounted to $8,440,768. Accumulated capital losses as of
December 31, 2004 are:
<Table>
<Caption>
EXPIRATION AMOUNT
-----------------------------------------------------------------
2008 $ 5,074,404
2009 $ 12,777,527
2010 $ 5,986,171
2011 $ 7,339,094
------------
$ 31,177,196
============
</Table>
The aggregate cost of investments and the composition of unrealized appreciation
and depreciation of investment securities for federal income tax purposes as of
December 31, 2004 are noted below. Unrealized appreciation/depreciation in the
table below includes appreciation/depreciation on foreign currency translation.
The primary difference between book and tax appreciation or depreciation is wash
sale loss deferrals.
<Table>
Undistributed Ordinary Income $ 9,042
Federal Tax Cost $ 30,930,512
Gross Tax Appreciation of Investments $ 9,786,985
Gross Tax Depreciation of Investments $ (57,310)
Net Tax Appreciation $ 9,729,675
</Table>
33
<Page>
4. CAPITAL SHARE TRANSACTIONS
The Fund is authorized to issue 450 million shares of $0.01 par value capital
stock. Transactions in shares of the Fund for the periods indicated were as
follows:
<Table>
<Caption>
YEAR ENDED YEAR ENDED
12/31/04 12/31/03
SHARES AMOUNT SHARES AMOUNT
CLASS A
Sold 111,208 $ 1,148,486 724,401 $ 5,318,119
Dividends or Distributions Reinvested 14,688 $ 174,191 15,239 $ 147,964
Redeemed (315,412) $ (3,401,160) (978,731) $ (7,425,669)
--------------------------------------------------------------------
Net Decrease (189,516) $ (2,078,483) (239,091) $ (1,959,586)
====================================================================
CLASS B
Sold 11,870 $ 124,485 72,988 $ 520,427
Dividends or Distributions Reinvested 0 $ 0 146 $ 1,391
Redeemed (64,211) $ (651,991) (137,735) $ (972,405)
--------------------------------------------------------------------
Net Decrease (52,341) $ (527,506) (64,601) $ (450,587)
====================================================================
CLASS C
Sold 6,433 $ 64,792 165,203 $ 1,132,327
Redeemed (15,944) $ (159,391) (190,526) $ (1,322,601)
--------------------------------------------------------------------
Net Decrease (9,511) $ (94,599) (25,323) $ (190,274)
====================================================================
CLASS F
Sold 470,504 $ 4,815,790 1,515,865 $ 11,180,704
Dividends or Distributions Reinvested 5,843 $ 69,420 6,797 $ 66,066
Redeemed (569,384) $ (5,865,915) (1,814,806) $ (13,597,081)
--------------------------------------------------------------------
Net Decrease (93,037) $ (980,705) (292,144) $ (2,350,311)
====================================================================
CLASS R
Sold 40,338 $ 419,337 146,346 $ 1,105,834
Dividends or Distributions Reinvested 957 $ 11,405 2,764 $ 26,981
Redeemed (355,989) $ (3,804,460) (170,854) $ (1,336,846)
--------------------------------------------------------------------
Net Decrease (314,694) $ (3,373,718) (21,744) $ (204,031)
====================================================================
CLASS T
Sold 1,431 $ 14,400 97,501 $ 651,910
Dividends or Distributions Reinvested 42 $ 492 91 $ 882
Redeemed (4,460) $ (45,990) (101,973) $ (710,698)
--------------------------------------------------------------------
Net Decrease (2,987) $ (31,098) (4,381) $ (57,906)
====================================================================
</Table>
5. INVESTMENT TRANSACTIONS
Purchases and sales of investment securities (excluding short-term securities
and U.S. government obligations) for the year ended December 31, 2004 were
$32,138,435 and $37,956,406, respectively.
34
<Page>
6. LINE OF CREDIT
The Company has a line of credit arrangement ("LOC") with State Street Bank and
Trust Company, to be used for temporary or emergency purposes, primarily for
financing redemption payments. Each Fund's borrowings are limited to the lesser
of (a) $50 million, or (b) the lesser of 25% of the Fund's total net assets or
the maximum amount which the Fund is permitted to borrow pursuant to the
prospectus, any law or any other agreement. Combined borrowings are subject to
the $50 million cap on the total LOC. Each Fund agrees to pay annual fees and
interest on the unpaid balance based on prevailing market rates as defined in
the LOC. At December 31, 2004, the Fund did not have any borrowings under the
LOC.
7. LEGAL MATTERS
In early 2004, two purported class and derivative actions were filed against
Mellon Financial Corporation, Mellon Bank, Founders, Dreyfus, and certain
directors of the Dreyfus Founders Funds and the Dreyfus Funds (together, the
"Defendant Funds"). In September 2004, plaintiffs served a Consolidated Amended
Complaint (the "Amended Complaint") on behalf of a purported class of all
persons who acquired interests in any of the Defendant Funds between January 30,
1999 and November 17, 2003, and derivatively on behalf of the Defendant Funds.
The Amended Complaint in the newly styled IN RE DREYFUS MUTUAL FUNDS FEE
LITIGATION also named DSC, Premier Mutual Fund Services, Inc. and two additional
directors of the Defendant Funds as defendants and alleges violations of the
Investment Company Act of 1940, the Investment Advisers Act of 1940, the
Pennsylvania Unfair Trade Practices and Consumer Protection Law and common-law
claims. Plaintiffs seek to recover allegedly improper and excessive Rule 12b-1
and advisory fees allegedly charged to the Defendant Funds for marketing and
distribution services. More specifically, plaintiffs claim, among other things,
that 12b-1 fees and directed brokerage were improperly used to pay brokers to
recommend the Defendant Funds over other funds, and that such payments were not
disclosed to investors. In addition, plaintiffs assert that economies of scale
and soft-dollar benefits were not passed on to the Defendant Funds. Plaintiffs
further allege that 12b-1 fees were improperly charged to certain of the
Defendant Funds that were closed to new investors. The Amended Complaint seeks
compensatory and punitive damages, rescission of the advisory contracts, and an
accounting and restitution of any unlawful fees, as well as an award of
attorneys' fees and litigation expenses. As noted, some of the claims in this
litigation are asserted derivatively on behalf of the Defendant Funds that have
been named as nominal defendants. With respect to such derivative claims, no
relief is sought against the Defendant Funds. Founders, Dreyfus and the
Defendant Funds believe the allegations to be totally without merit and intend
to defend the action vigorously. The defendants filed motions to dismiss the
Amended Complaint on November 12, 2004, and those motions are pending.
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 nor the Funds believe that any of the pending actions
will have a material adverse effect on the Funds or Founders' ability to perform
its contract with the Funds.
35
<Page>
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Shareholders of
Dreyfus Founders Funds, Inc.
In our opinion, the accompanying statement of assets and liabilities, including
the statement of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of Dreyfus Founders International
Equity Fund (one of the portfolios constituting Dreyfus Founders Funds, Inc.,
hereafter referred to as the "Fund") at December 31, 2004, the results of its
operations for the year then ended, the changes in its net assets for each of
the two years in the period then ended and the financial highlights for each of
the five years in the period then ended, in conformity with accounting
principles generally accepted in the United States of America. These financial
statements and financial highlights (hereafter referred to as "financial
statements") are the responsibility of the Fund's management; our responsibility
is to express an opinion on these financial statements based on our audits. We
conducted our audits of these financial statements in accordance with the
standards of the Public Company Accounting Oversight Board (United States).
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits, which included confirmation of securities at December 31, 2004 by
correspondence with the custodian, provide a reasonable basis for our opinion.
PricewaterhouseCoopers LLP
Denver, Colorado
February 10, 2005
36
<Page>
OTHER TAX INFORMATION
(UNAUDITED)
CORPORATE DIVIDENDS RECEIVED DEDUCTION
Dividends paid by the Fund from net investment income and distributions of net
realized short-term capital gains are, for federal tax purposes, taxable as
ordinary income to shareholders. Of the ordinary income distributions declared
for the year ended December 31, 2004, 0.00% qualified for the dividends received
deduction available to the Fund's corporate shareholders.
QUALIFIED DIVIDEND INCOME
For the year ended December 31, 2004, the Fund designated 100% of the ordinary
income distributions paid as qualified dividend income subject to reduced income
tax rates for taxpayers with taxable accounts.
37
<Page>
YOUR BOARD REPRESENTATIVES
(UNAUDITED)
The Board of Directors of the Company oversees all 10 Dreyfus Founders Funds.
The business and affairs of the Company are managed under the direction of the
Board. The directors serving on the Board perform their responsibilities in the
manner which they reasonably believe to be in the best interests of the Funds
and their shareholders.
All of the directors, as listed below, are independent directors. They are not
affiliated with the Fund's adviser, its parent company, or its affiliates. The
directors have no official term of office and generally serve until they reach
the mandated retirement age of 75, resign, or are not re-elected. As you can see
from their backgrounds, the directors have broad experience as active or former
business and community leaders.
DIRECTORS
EUGENE H. VAUGHAN, CFA, 71. Year elected to the Board: 1970
Board Chairman. Founding Chairman and, formerly (1970 to 2000), President and
CEO, Vaughan Nelson Investment Management, LP, an investment counseling firm.
Director, Encore Bank. Founding Chairman, Center for Houston's Future, a
non-profit organization. Founding Chairman and former Governor, Association for
Investment Management and Research. Past Chairman and Trustee, Institute of
Chartered Financial Analysts. Past Chairman and Director, Financial Analysts
Federation.
ALAN S. DANSON, 65. Year elected to the Board: 1991
Private investor. Formerly, President and Director, D.H. Management, Inc., the
general partner of a limited partnership with technology company holdings (1996
to 2003). Formerly, Director and Senior Vice President, OptiMark Technologies,
Inc., a computerized securities trading service (1996 to 1999). Director,
CaseShare Systems, LLP, a document management company. Director, Gore Range
Natural Science School and The Les Streeter Programs, Inc., both of which are
non-profit organizations.
JOAN D. MANLEY, 72. Year elected to the Board: 1998
Retired. Formerly, Ms. Manley served in several executive capacities with Time
Incorporated, most recently as Group Vice President, Director and Chairman of
Time-Life Books, Inc. and Book of the Month Club, Inc. (1960 to 1984). Director,
Sara Lee Corporation and R.R. Donnelley & Sons Company.
ROBERT P. MASTROVITA, 60. Year elected to the Board: 1998
Private investor. Chairman of a private charitable foundation (1997 to present).
Formerly, Chairman and Director, Hagler, Mastrovita & Hewitt, Inc., a registered
investment adviser (1982 to 1997). Member, Boston Society of Security Analysts.
Trustee, Partridge Academy.
TRYGVE E. MYHREN, 68. Year elected to the Board: 1996
President, Myhren Media, Inc., a firm that invests in and advises media,
telecommunications, Internet and software companies. Special Limited Partner and
member of Investment Committee, Megunticook Funds, a venture capital firm (1998
to present). Director, Advanced Marketing Services, Inc. Trustee and Chairman of
Finance Committee, the University of Denver. Trustee, Denver Art Museum. Member,
Cable Television Hall of Fame. Formerly, President (1990 to 1996) and Director
(1992 to 2001) of the Providence Journal Company, a diversified media and
communications company. Formerly, Chairman and Chief Executive Officer of
American Television and
38
<Page>
Communications Corporation (now Timer Warner Cable) (1981 to 1988). Formerly,
Chairman of the National Cable Television Association (1986-1987).
GEORGE W. PHILLIPS, 66. Year elected to the Board: 1998
Retired. Vice Chairman of the Board, Chairman of the Finance Committee, and
Chairman of the Investment Committee, Children's Medical Center of Boston.
Formerly, President and Chief Executive Officer (1992 to 1997) and Director
(1992 to 2002) of Warren Bancorp, Inc. Formerly, President, Chief Executive
Officer and Director of Warren Five Cents Savings Bank (1992 to 1997).
PRINCIPAL OFFICERS
RICHARD W. SABO, 47. President of the Funds since 2000 and Principal Executive
Officer of the Funds since 2002. Founders' President and Chief Executive
Officer, Member of Founders' Board of Managers and Director of Dreyfus (1998 to
present). Executive Vice President of DSC since 2003. Formerly, Senior Vice
President and Regional Director for Prudential Securities, Inc. (1991 to 1998).
DAVID L. RAY, 47. Vice President of the Funds since 2000, and from 1990 to 1998.
Founders' Senior Vice PresidentAdministration and Treasurer. Vice President of
DSC since 2003. Employed by Founders and its predecessor company since 1990.
Formerly, Treasurer of the Funds (1990 to 1998).
KENNETH R. CHRISTOFFERSEN, 49. Secretary of the Funds since 2000, and from 1996
to 1998. Founders' Senior Vice President--Legal, General Counsel and Secretary.
Assistant Secretary of DSC since 2003. Employed by Founders and its predecessor
company since 1996.
JANELLE E. BELCHER, 46. Chief Compliance Officer of the Funds since 2004 and
Assistant Secretary of the Funds since 2002. Founders' Vice
President--Compliance since 2002. Formerly, Founders' Manager of Compliance
(2000 to 2002) and Securities Compliance Examiner, Staff Accountant and Team
Leader for the U.S. Securities and Exchange Commission (1990 to 2000).
ROBERT T. KELLY, 35. Treasurer, Principal Financial Officer, and Principal
Accounting Officer of the Funds since 2003. Founders' Vice President of
Portfolio Accounting since 2000. Formerly, Assistant Treasurer of the Funds
(2000 to 2003), and Head of Equity Desk for ABN Amro Trust Company (Cayman)
Limited (1998 to 2000).
WILLIAM G. GERMENIS, 34. Anti-Money Laundering Compliance Officer (OAMLCOO) for
the Class A, Class B, Class C, Class R, and Class T shares of the Funds since
2002 and for the Class F shares of the Funds since 2003. Vice President and
AMLCO of MBSC, LLC since 2002. Vice President and AMLCO of DSC and AMLCO of
investment companies managed by Dreyfus. Employed by DSC since 1998.
The directors and officers may be contacted at Founders' address appearing on
the inside cover, except for Mr.Germenis, who can be contacted at 200 Park
Avenue, New York, New York 10166. Additional information about the Company's
directors is available in the Statement of Additional Information, which can be
obtained free of charge by calling the toll free number on the back cover.
39
<Page>
FOR MORE INFORMATION
- -------------------------------------------------------------------------------
DREYFUS FOUNDERS TRANSFER AGENT &
INTERNATIONAL EQUITY FUND DIVIDEND DISBURSING AGENT
MANAGER Dreyfus Transfer, Inc.
200 Park Avenue
Founders Asset Management LLC New York, NY 10166
210 University Boulevard
Suite 800
Denver, CO 80206 DISTRIBUTOR
Dreyfus Service Corporation
200 Park Avenue
New York, NY 10166
- -------------------------------------------------------------------------------
TELEPHONE Call your financial representative or 1-800-554-4611
MAIL Dreyfus Founders Funds, Inc.
144 Glenn Curtiss Boulevard, Uniondale, NY 11556-0144
The fund files its complete schedule of portfolio holdings with the Securities
and Exchange Commission ("SEC") for the first and third quarters of each fiscal
year on Form N-Q. The fund's Forms N-Q are available on the SEC's website at
http://www.sec.gov and may be reviewed and copied at the SEC's Public Reference
Room in Washington, DC. Information on the operation of the Public Reference
Room may be obtained by calling 1-800-SEC-0330.
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 http://www.dreyfus.com and on the SEC's
website at http://www.sec.gov. The description of the policies and procedures is
also available without charge, upon request, by calling 1-800-645-6561.
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.
[LION GRAPHIC]
(C)2005 Dreyfus Service Corporation 0360AR1204
<Page>
Dreyfus Founders
Mid-Cap Growth Fund
ANNUAL REPORT December 31, 2004
[LION GRAPHIC]
YOU, YOUR ADVISOR AND
(R) [DREYFUS LOGO]
A MELLON FINANCIAL COMPANY (SM)
<Page>
TABLE OF CONTENTS
<Table>
Management Overview 3
Fund Expenses 12
Statement of Investments 14
Statement of Assets and Liabilities 18
Statement of Operations 20
Statements of Changes in Net Assets 21
Financial Highlights 22
Notes to Financial Statements 28
Report of Independent Registered Public Accounting Firm 37
Your Board Representatives 38
</Table>
-----------------------------------------------------------
Save time. Save paper. View your next shareholder report
online as soon as it's available. Log into www.dreyfus.com
and sign up for Dreyfus eCommunications. It's simple and
only takes a few minutes.
-----------------------------------------------------------
INVESTMENT MANAGER DISTRIBUTOR
Founders Asset Management LLC Dreyfus Service Corporation
A MELLON FINANCIAL COMPANY(SM) 200 Park Avenue
210 University Boulevard, Suite 800 New York, NY 10166
Denver, CO 80206
The views expressed in this report reflect those of the portfolio managers only
through the end of the period covered and do not necessarily represent the views
of Founders or any other person in the Founders organization. Any such views are
subject to change at any time based upon market or other conditions and Founders
disclaims any responsibility to update such views. These views may not be relied
on as investment advice and, because investment decisions for a Dreyfus Founders
Fund are based on numerous factors, may not be relied on as an indication of
trading intent on behalf of any Dreyfus Founders Fund. Companies appearing in
bold print on pages 3-10 were owned by the Fund on December 31, 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
(UNAUDITED)
[PHOTO OF JOHN B. JARES]
[PHOTO OF DANIEL E. CROWE]
A DISCUSSION WITH CO-PORTFOLIO MANAGERS JOHN B. JARES, CFA, LEFT, AND
DANIEL E. CROWE, CFA
HOW DID THE FUND PERFORM RELATIVE TO ITS BENCHMARK
FOR THE 12-MONTH PERIOD ENDED DECEMBER 31, 2004?
For the 12-month period ended December 31, 2004, the Dreyfus Founders Mid-Cap
Growth Fund outperformed(1) its benchmark, the Russell MidCap Growth Index,
which returned 15.48% for the period.
TO WHAT DO YOU ATTRIBUTE THE MARKET'S OVERALL PERFORMANCE DURING THE PERIOD?
The market's performance during the 12-month period can be demarcated into three
distinct periods. The start of 2004 continued to exhibit the strength associated
with the beginning of the economic recovery that was realized in 2003. However,
from March through August, the improving economy was overshadowed by concerns
over the Federal Reserve raising interest rates, increased oil prices, the lack
of clarity regarding an outcome in Iraq, and uncertainty surrounding the outcome
to the U.S. Presidential election. These concerns led to declines in most major
equity indexes into August. Finally, the last four months of the year saw strong
market advances as merger and acquisition activity picked up, the Presidential
election passed with the incumbent retaining office, and corporate earnings
growth remained strong.
[SIDENOTE]
"OUR BOTTOM-UP INVESTMENT PROCESS LED US TO SELL POSITIONS THAT HAD APPRECIATED
TO LEVELS SUCH THAT THE RISK VERSUS REWARD PROPOSITION WAS NO LONGER FAVORABLE."
(1) Excluding sales charges, which result in lower returns for certain share
classes. Please see page 7 for average annual total returns for all share
classes, including and excluding sales charges.
3
<Page>
MR. JARES, WHAT CHANGES DID YOU MAKE TO THE PORTFOLIO
AFTER ASSUMING MANAGEMENT RESPONSIBILITIES IN MARCH?
The bottom-up investment process we utilize to identify the most attractive mix
of potential reward and limited risk has not changed. However, since March, the
portfolio's concentration increased as the average number of holdings declined.
The portfolio consisted of 60 stocks at the end of the year, down from more than
100 stocks at the beginning of the year. This change positively impacted
performance as these larger holdings significantly contributed to the Fund's
overall performance.
Our diligent research process to identify new investment opportunities also
benefited the Fund as seven of the top ten positive contributors to Fund
performance for the year were added to the Fund after I assumed management
responsibilities in March.
DID YOUR BOTTOM-UP INVESTMENT APPROACH LEAD TO ANY
CHANGES IN PORTFOLIO COMPOSITION DURING THE REPORTING PERIOD?
Our bottom-up investment process led us to sell positions that had appreciated
to levels such that the risk versus reward proposition was no longer favorable.
Large stock price declines during the third quarter created new investment
[SIDENOTE]
PERFORMANCE HIGHLIGHTS
- The last four months of the year saw strong market advances as merger
and acquisition activity picked up, the Presidential election passed
with the incumbent retaining office, and corporate earnings growth
remained strong.
- The Fund's relative performance was positively impacted by strong stock
selection within specific areas of the information technology sector
such as software and hardware.
- Relative overweight positions in the consumer discretionary and
industrials sectors aided Fund performance. The largest boon to
performance in these sectors came from strong stock selection.
- Although an underweight position in the financials sector weighed on
relative Fund performance, it was weak stock selection in this sector
that created the largest offset to overall positive performance.
- An underweight position coupled with poor stock selection in the
healthcare sector also proved detrimental to relative Fund performance.
4
<Page>
opportunities. TIBCO SOFTWARE, INC. and GTECH HOLDINGS CORPORATION both became
large positions in the Fund. TIBCO has since seen increased demand for its
business integration software and improved sales force productivity. GTECH, an
operator of online lottery transaction processing systems, appreciated after
concerns regarding the company's legal matters in Brazil decreased.
WHAT FACTORS POSITIVELY CONTRIBUTED TO THE FUND'S
RELATIVE PERFORMANCE DURING THE 12-MONTH PERIOD?
The Fund's relative performance was positively impacted by strong stock
selection within specific areas of the information technology sector such as
software and hardware. Previously mentioned TIBCO Software, Inc., APPLE
COMPUTER, INC., Autodesk, Inc., VERITAS SOFTWARE CORPORATION and NAVTEQ
were among the Fund's top performers in this sector for the period. Software
companies benefited as corporate spending picked up and signs of further
industry consolidation began to emerge. Apple appreciated over the period
due in part from the continuing popularity of its iPod products as well as the
introduction of a new Mac computer. Autodesk, Inc., a design software and
digital content company, continued to benefit from increased penetration
of its three-dimensional (3D) products. Digital map data provider NAVTEQ
saw strong demand for its geographic mapping products.
LARGEST EQUITY HOLDINGS (ticker symbol)
<Table>
1. Henry Schein, Inc. (HSIC) 3.31%
2. VERITAS Software Corporation (VRTS) 3.15%
3. Lafarge North America, Inc. (LAF) 3.04%
4. W.W. Grainger, Inc. (GWW) 3.03%
5. GTECH Holdings Corporation (GTK) 2.72%
6. The PMI Group, Inc. (PMI) 2.70%
7. Blackboard, Inc. (BBBB) 2.61%
8. Bed Bath and Beyond, Inc. (BBBY) 2.36%
9. Zebra Technologies Corporation (ZBRA) 2.29%
10. TIBCO Software, Inc. (TIBX) 2.22%
</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.
Russell
Mid-cap
Class F Growth
Shares Index
- -----------------------------------
12/31/1994 $10,000 $10,000
12/31/1995 $12,569 $13,398
12/31/1996 $14,497 $15,739
12/31/1997 $16,878 $19,287
12/31/1998 $16,586 $22,733
12/31/1999 $23,598 $34,393
12/29/2000 $18,008 $30,352
12/31/2001 $14,332 $24,236
12/31/2002 $10,821 $17,594
12/31/2003 $14,787 $25,109
12/31/2004 $17,513 $28,995
The above graph compares a $10,000 investment made in Class F shares of Dreyfus
Founders Mid-Cap Growth Fund on 12/31/94 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 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 Russell 1000 Index measures the performance
of the largest 1,000 publicly traded U.S. companies. Further information related
to Fund performance is contained elsewhere in this report.
6
<Page>
AVERAGE ANNUAL TOTAL RETURN AS OF 12/31/04
<Table>
<Caption>
1 5 10 SINCE
CLASS (INCEPTION DATE) YEAR YEARS YEARS INCEPTION
-------------------------------------------------------------------------------------
CLASS A SHARES (12/31/99)
With sales charge (5.75%) 11.26% (7.31%) -- (7.31%)
Without sales charge 17.90% (6.21%) -- (6.21%)
CLASS B SHARES (12/31/99)
With redemption* 12.91% (7.02%) -- (7.02%)
Without redemption 16.91% (6.78%) -- (6.78%)
CLASS C SHARES (12/31/99)
With redemption** 16.16% (7.01%) -- (7.01%)
Without redemption 17.16% (7.01%) -- (7.01%)
CLASS F SHARES (9/8/61) 18.44% (5.79%) 5.76% N/A
CLASS R SHARES (12/31/99) 17.70% (6.04%) -- (6.04%)
CLASS T SHARES (12/31/99)
With sales charge (4.50%) 11.83% (7.86%) -- (7.86%)
Without sales charge 17.11% (7.01%) -- (7.01%)
</Table>
Average annual total returns do not reflect the deduction of taxes that a
shareholder would pay on Fund distributions or redemption of Fund shares, but do
reflect the reinvestment of dividends and capital gain distributions, expense
limits for certain share classes, and adjustments for financial statement
purposes. Part of the Fund's performance is due to amounts received from class
action settlements regarding prior Fund holdings. There is no guarantee that
these settlement distributions will occur in the future or have a similar impact
on performance. Part of the Fund's historical performance is due to the purchase
of securities sold in initial public offerings (IPOs). There is no guarantee
that the Fund's investments in IPOs, if any, will continue to have a similar
impact on performance. There are risks associated with mid-cap investing, such
as limited product lines, less liquidity, and small market share.
*The maximum contingent deferred sales charge for Class B shares is 4% and is
reduced to 0% after six years, at which time the Class B shares convert to Class
A shares.
**The maximum contingent deferred sales charge for Class C shares is 1% for
shares redeemed within one year of the date of purchase.
7
<Page>
Gains in VERITAS provide a good example of how the risk versus reward
framework benefited the Fund during the year. The company lost more than a third
of its market capitalization after a disappointing second quarter earnings
report. This created an opportunity for the Fund to build a position in the
leading provider of storage software at a reasonable valuation. VERITAS
experienced an appreciation in its share price due to an improvement in its
fundamentals and, ultimately, an offer from software firm Symantec Corporation
to acquire the company.
Relative overweight positions in the consumer discretionary and industrials
sectors aided Fund performance. The largest boon to performance in these sectors
came from strong stock selection. ROYAL CARIBBEAN CRUISES LIMITED and GETTY
IMAGES, INC. delivered strong performance within the consumer discretionary
sector. Royal Caribbean experienced strong recovery in demand for leisure
cruising, while stock photography provider Getty Images continued to leverage
the electronic distribution of digital images, which helped drive higher
profits. Within the industrials sector, W.W. GRAINGER, INC., a leading
[CHART]
PORTFOLIO COMPOSITION OF NET ASSETS
<Table>
Consumer Discretionary 23.59%
Information Technology 23.51%
Healthcare 17.43%
Industrials 10.91%
Financials 10.80%
Materials 3.04%
Energy 2.42%
Telecommunications Services 1.87%
Other 1.94%
Cash & Equivalents 4.49%
</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>
provider of facilities maintenance products, delivered strong branch sales in
part due to the success of its market expansion. Transportation company J.B.
HUNT TRANSPORT SERVICES, INC. was also a notable positive contributor to Fund
performance for the period.
CONVERSELY, WHAT FACTORS NEGATIVELY CONTRIBUTED TO THE
FUND'S RELATIVE PERFORMANCE DURING THE 12-MONTH PERIOD?
Although an underweight position in the financials sector weighed on relative
Fund performance, it was weak stock selection in this sector that created the
largest offset to overall positive performance. Poor interest rate risk
management hurt New York Community Bancorp, Inc. AmeriTrade Holding Corporation
was negatively impacted as trading volumes fell, earnings were revised down, and
the industry continued to struggle with aggressive pricing.
An underweight position coupled with poor stock selection in the healthcare
sector also proved detrimental to relative Fund performance. Among the worst
performers in this sector were long-term acute care hospital services provider
Select Medical Corporation and generic pharmaceutical company Andrx Corporation.
The telecommunications sector also had a negative impact on performance,
due mainly to the Fund's underweight position relative to its benchmark.
Although the information technology sector provided the largest buoy for
relative Fund performance, names within the semiconductor industry weighed on
the sector's positive contribution. NVIDIA Corporation, QLogic Corporation and
Fairchild Semiconductor International, Inc. all had a large negative impact on
Fund performance. NVIDIA reported poor second quarter results due to aggressive
competitor pricing and weak demand for low-end processors. QLogic Corporation
underperformed as it pre-announced lower-than-expected first quarter earnings
due to weaker demand for its storage-related products. Fairchild Semiconductor
declined due to weaker end-market demand.
9
<Page>
Other holdings that negatively impacted relative Fund performance during
the period included BLACKBOARD, INC. and Corinthian Colleges, Inc. Blackboard, a
provider of educational software products, declined due to weak third quarter
bookings. Corinthian Colleges suffered from numerous factors including overly
optimistic expectations and concerns over the closing of existing facilities. In
addition, industry concerns also surfaced based on issues at other for-profit
educational services companies.
At year's end, corporate activity began to pick up as executives began making
strategic decisions regarding investing in businesses and acquisitions. Consumer
spending was reasonable, oil prices appeared to have moderated and employment
was once again stable to improving. Additionally, inflation remained benign,
long-term interest rates remained very low, and credit spreads were tight. While
our outlook was generally positive at year-end, a number of issues such as a
weakening of the U.S. dollar, increased inflation and consumer credit quality
kept us cautiously optimistic. We will continue to focus on our bottom-up
investment process and will work diligently to seek the most attractive mix of
potential reward and limited risk.
/s/ John B. Jares /s/ Daniel E. Crowe
John B. Jares, CFA Daniel E. Crowe, CFA
Co-Portfolio Manager Co-Portfolio Manager
10
<Page>
This page intentionally left blank.
11
<Page>
FUND EXPENSES
(UNAUDITED)
As a shareholder of the Fund, depending on the class of shares of the Fund you
own, you incur two types of costs: (1) transaction costs, including front-end
and contingent deferred sales charges; and (2) ongoing costs, including
management fees, Rule 12b-1 fees, shareholder services fees, and other expenses.
The expense example shown below is intended to help you understand your ongoing
costs (in dollars) of investing in the Fund and to compare these costs with the
ongoing costs of investing in other mutual funds.
The expense example is based on an investment of $1,000 on July 1, 2004 and
held through December 31, 2004.
ACTUAL EXPENSES The numbers included in the expense example in the rows with the
word "Actual" in the title provide information about actual account values and
actual expenses. You may use this information to estimate the expenses that you
paid over the period. Simply divide your account value by $1,000 (for example,
an $8,600 account value divided by $1,000 - 8.60), then multiply the result by
the number under the column heading entitled "Expenses Paid During Period" for
the class of shares you own to estimate the expenses you paid on your account
during this period.
HYPOTHETICAL EXPENSES The numbers included in the expense example in the rows
with the word "Hypothetical" in the title provide information about hypothetical
account values and hypothetical expenses based on the Fund's actual expense
ratio for each class of shares, and an assumed rate of return of 5% per year
before expenses, which is not the Fund's actual return. The hypothetical account
values and expenses may not be used to estimate the actual ending account
balance or expenses you paid for the period. You may use this information to
compare the ongoing costs of investing in the Fund and other funds. To do so,
compare the hypothetical expenses in the expense example for the class of shares
you own with the hypothetical expenses that appear in the shareholder reports of
other funds.
Please note that the expenses shown in the expense example are meant to
highlight your ongoing costs only and do not reflect the transaction costs
described above. Therefore, the hypothetical expenses in the expense example are
useful in comparing ongoing costs only, and will not help you determine the
relative total costs of owning different funds. In addition, if the transaction
costs were included, your costs would have been higher.
12
<Page>
EXPENSE EXAMPLE
<Table>
<Caption>
BEGINNING ENDING EXPENSES PAID
ACCOUNT VALUE ACCOUNT VALUE DURING PERIOD*
(7/1/04) (12/31/04) (7/1/04-12/31/04)
-------------------------------------------------------------------------------------------
CLASS A ACTUAL $ 1,000.00 $ 1,104.16 $ 8.44
CLASS A HYPOTHETICAL 1,000.00 1,016.91 8.09
CLASS B ACTUAL 1,000.00 1,094.59 13.14
CLASS B HYPOTHETICAL 1,000.00 1,012.38 12.62
CLASS C ACTUAL 1,000.00 1,099.67 12.69
CLASS C HYPOTHETICAL 1,000.00 1,012.83 12.17
CLASS F ACTUAL 1,000.00 1,108.72 7.07
CLASS F HYPOTHETICAL 1,000.00 1,018.23 6.77
CLASS R ACTUAL 1,000.00 1,101.33 10.08
CLASS R HYPOTHETICAL 1,000.00 1,015.33 9.67
CLASS T ACTUAL 1,000.00 1,096.16 12.78
CLASS T HYPOTHETICAL 1,000.00 1,012.73 12.27
</Table>
*Expenses are equal to each Class's respective annualized expense ratio,
shown below, multiplied by the average account value over the period,
multiplied by 184/366 (to reflect the one-half year period).
EXPENSE RATIOS
These expense ratios reflect reimbursements and/or waivers of expenses by the
Fund's investment adviser or its affiliates.
<Table>
<Caption>
EXPENSE RATIO
------------------------------------------------------
CLASS A 1.59%
CLASS B 2.48%
CLASS C 2.39%
CLASS F 1.33%
CLASS R 1.90%
CLASS T 2.41%
</Table>
13
<Page>
STATEMENT OF INVESTMENTS
December 31, 2004
<Table>
<Caption>
SHARES MARKET VALUE
- ------------------------------------------------------------------------------------------------------------
COMMON STOCKS (DOMESTIC)--93.3%
AIRLINES--1.2%
61,750 AMR Corporation* $ 676,156
37,500 JetBlue Airways Corporation* 870,750
------------------
1,546,906
------------------
APPLICATION SOFTWARE--3.8%
217,009 Blackboard, Inc.* 3,213,903
30,875 NAVTEQ* 1,431,365
------------------
4,645,268
------------------
ASSET MANAGEMENT & CUSTODY BANKS--3.3%
50,667 Calamos Asset Management, Inc.* 1,368,009
55,325 Northern Trust Corporation 2,687,689
------------------
4,055,698
------------------
AUTO PARTS & EQUIPMENT--1.8%
45,025 Autoliv, Inc. 2,174,708
------------------
BIOTECHNOLOGY--4.0%
30,600 Genzyme Corporation* 1,776,942
37,175 Gilead Sciences, Inc.* 1,300,753
24,375 OSI Pharmaceuticals, Inc.* 1,824,469
------------------
4,902,164
------------------
CASINOS & GAMING--5.3%
129,200 GTECH Holdings Corporation 3,352,740
21,975 Station Casinos, Inc. 1,201,593
29,400 Wynn Resorts, Limited* 1,967,448
------------------
6,521,781
------------------
COMMUNICATIONS EQUIPMENT--1.6%
58,600 Scientific-Atlanta, Inc. 1,934,386
------------------
COMPUTER HARDWARE--1.7%
31,825 Apple Computer, Inc.* 2,049,530
------------------
COMPUTER STORAGE & PERIPHERALS--0.5%
6,975 Lexmark International, Inc.* 592,875
------------------
CONSTRUCTION MATERIALS--3.0%
72,875 Lafarge North America, Inc. 3,739,945
------------------
DEPARTMENT STORES--2.1%
51,500 Kohl's Corporation* 2,532,255
------------------
ELECTRONIC EQUIPMENT MANUFACTURERS--0.8%
60,675 Symbol Technologies, Inc. 1,049,678
------------------
EMPLOYMENT SERVICES--1.3%
32,350 Manpower, Inc. 1,562,505
------------------
ENVIRONMENTAL SERVICES--1.8%
49,700 Stericycle, Inc.* 2,283,715
------------------
</Table>
14
<Page>
<Table>
<Caption>
SHARES MARKET VALUE
- ------------------------------------------------------------------------------------------------------------
EXCHANGE TRADED FUNDS--1.9%
71,800 Semiconductor HLDRs Trust $ 2,395,248
------------------
HEALTHCARE DISTRIBUTORS--3.3%
58,525 Henry Schein, Inc.* 4,075,681
------------------
HEALTHCARE EQUIPMENT--1.8%
50,225 Biomet, Inc. 2,179,263
------------------
HEALTHCARE SERVICES--1.5%
19,550 Quest Diagnostics, Inc. 1,868,003
------------------
HOME FURNISHINGS--3.0%
40,075 Leggett & Platt, Inc. 1,139,332
27,800 Mohawk Industries, Inc.* 2,536,750
------------------
3,676,082
------------------
HOMEBUILDING--1.7%
10,000 KB Home 1,044,000
16,050 Toll Brothers, Inc.* 1,101,191
------------------
2,145,191
------------------
LEISURE FACILITIES--1.6%
35,875 Royal Caribbean Cruises Limited 1,953,035
------------------
LIFE & HEALTH INSURANCE--0.6%
39,500 UnumProvident Corporation 708,630
------------------
OFFICE ELECTRONICS--2.3%
50,075 Zebra Technologies Corporation* 2,818,221
------------------
OIL & GAS EXPLORATION & PRODUCTION--2.4%
18,225 Bill Barrett Corporation* 583,018
38,825 Noble Energy, Inc. 2,393,950
------------------
2,976,968
------------------
OTHER DIVERSIFIED FINANCIAL SERVICES--2.2%
32,625 Ambac Financial Group, Inc. 2,679,491
------------------
PHARMACEUTICALS--6.9%
59,100 Barr Pharmaceuticals, Inc.* 2,691,414
74,000 Eon Labs, Inc.* 1,998,000
55,850 Medicis Pharmaceutical Corporation Class A 1,960,894
64,150 MGI Pharma, Inc.* 1,796,842
------------------
8,447,150
------------------
PUBLISHING--1.7%
30,175 Getty Images, Inc.* 2,077,549
------------------
RAILROADS--0.5%
9,450 Union Pacific Corporation 635,513
------------------
REGIONAL BANKS--1.5%
58,450 South Financial Group, Inc. 1,901,379
------------------
</Table>
SEE NOTES TO STATEMENT OF INVESTMENTS.
15
<Page>
<Table>
<Caption>
SHARES MARKET VALUE
- ------------------------------------------------------------------------------------------------------------
RESTAURANTS--3.3%
91,700 Applebee's International, Inc. $ 2,425,465
35,825 Yum! Brands, Inc. 1,690,224
------------------
4,115,689
------------------
SEMICONDUCTOR EQUIPMENT--1.4%
63,000 Novellus Systems, Inc.* 1,757,070
------------------
SEMICONDUCTORS--2.4%
20,000 Broadcom Corporation* 645,600
53,325 Maxim Integrated Products, Inc. 2,260,447
------------------
2,906,047
------------------
SPECIALTY STORES--3.1%
72,925 Bed Bath & Beyond, Inc.* 2,904,603
18,325 Guitar Center, Inc.* 965,544
------------------
3,870,147
------------------
SYSTEMS SOFTWARE--5.4%
205,000 TIBCO Software, Inc.* 2,734,700
135,875 VERITAS Software Corporation* 3,879,231
------------------
6,613,931
------------------
TECHNOLOGY DISTRIBUTORS--2.0%
38,075 CDW Corporation 2,526,276
------------------
THRIFTS & MORTGAGE FINANCE--2.7%
79,800 The PMI Group, Inc. 3,331,650
------------------
TRADING COMPANIES & DISTRIBUTORS--4.5%
98,850 United Rentals, Inc.* 1,868,265
56,075 W.W. Grainger, Inc. 3,735,717
------------------
5,603,982
------------------
TRUCKING--1.5%
40,150 J.B. Hunt Transport Services, Inc. 1,800,728
------------------
WIRELESS TELECOMMUNICATION SERVICES--1.9%
125,000 American Tower Corporation* 2,300,000
------------------
TOTAL COMMON STOCKS (DOMESTIC)
(COST--$98,443,617) 114,954,338
------------------
COMMON STOCKS (FOREIGN)--2.2%
APPLICATION SOFTWARE--1.7%
78,800 Amdocs Limited (CI)* 2,068,500
------------------
INVESTMENT BANKING & BROKERAGE--0.5%
120,000 ICAP PLC (UK) 626,033
------------------
TOTAL COMMON STOCKS (FOREIGN)
(COST--$2,548,629) 2,694,533
------------------
</Table>
16
<Page>
<Table>
<Caption>
PRINCIPAL AMOUNT AMORTIZED COST
- ------------------------------------------------------------------------------------------------------------
CORPORATE SHORT-TERM NOTES--4.3%
SPECIAL PURPOSE ENTITY--4.3%
$ 5,300,000 Nestle Capital Corporation
2.14% 1/3/05~ $ 5,299,370
------------------
TOTAL CORPORATE SHORT-TERM NOTES
(AMORTIZED COST--$5,299,370) 5,299,370
------------------
TOTAL INVESTMENTS--99.8%
(TOTAL COST--$106,291,616) 122,948,241
------------------
OTHER ASSETS AND LIABILITIES--0.2% 232,979
------------------
NET ASSETS--100.0% $ 123,181,220
==================
</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. THESE SECURITIES AMOUNTED TO
$5,299,370, OR 4.3%, OF THE FUND'S NET ASSETS AS OF DECEMBER 31, 2004.
HLDRs - HOLDING COMPANY DEPOSITARY RECEIPTS
CI - CHANNEL ISLANDS
UK - UNITED KINGDOM
SEE NOTES TO FINANCIAL STATEMENTS.
17
<Page>
STATEMENT OF ASSETS AND LIABILITIES
December 31, 2004
<Table>
ASSETS
Investment securities, at cost $ 106,291,616
------------------
Investment securities, at market 122,948,241
Cash 397,537
Receivables:
Capital shares sold 85,826
Dividends and interest 35,919
Other assets 23,925
------------------
Total Assets 123,491,448
------------------
LIABILITIES
Payables and other accrued liabilities:
Capital shares redeemed 85,285
Advisory fees 83,301
Shareholder servicing fees 15,543
Accounting fees 6,156
Distribution fees 22,152
Transfer agency fees 11,607
Custodian fees 1,579
Directors Deferred Compensation 23,926
Other 60,679
------------------
Total Liabilities 310,228
------------------
Net Assets $ 123,181,220
==================
COMPOSITION OF NET ASSETS
Capital (par value and paid-in surplus) $ 156,625,929
Accumulated net investment loss (19,633)
Accumulated net realized loss from security transactions (50,081,701)
Net unrealized appreciation on investments 16,656,625
------------------
Total $ 123,181,220
==================
</Table>
18
<Page>
<Table>
CLASS A
Net Assets $ 1,546,244
Shares Outstanding 372,304
Net Asset Value, Redemption Price Per Share $ 4.15
Maximum offering price per share (net asset value
plus sales charge of 5.75% of offering price) $ 4.40
CLASS B
Net Assets $ 1,823,393
Shares Outstanding 454,616
Net Asset Value, Offering and Redemption Price (excluding
applicable contingent deferred sales charge) Per Share $ 4.01
CLASS C
Net Assets $ 428,131
Shares Outstanding 108,177
Net Asset Value, Offering and Redemption Price (excluding
applicable contingent deferred sales charge) Per Share $ 3.96
CLASS F
Net Assets $ 119,272,754
Shares Outstanding 28,162,302
Net Asset Value, Offering and Redemption Price Per Share $ 4.24
CLASS R
Net Assets $ 71,135
Shares Outstanding 16,961
Net Asset Value, Offering and Redemption Price Per Share $ 4.19
CLASS T
Net Assets $ 39,563
Shares Outstanding 9,966
Net Asset Value, Redemption Price Per Share $ 3.97
Maximum offering price per share (net asset value
plus sales charge of 4.50% of offering price) $ 4.16
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
19
<Page>
STATEMENT OF OPERATIONS
For the year endend December 31, 2004
<Table>
INVESTMENT INCOME
Dividends $ 540,165
Interest 50,079
Foreign taxes withheld (2,043)
------------------
Total Investment Income 588,201
------------------
EXPENSES
Advisory fees--Note 2 1,044,064
Shareholder servicing fees--Note 2 170,223
Accounting fees--Note 2 77,525
Distribution fees--Note 2 185,790
Transfer agency fees--Note 2 83,090
Registration fees 50,312
Postage and mailing expenses 16,590
Custodian fees and expenses--Note 2 6,708
Printing expenses 28,333
Legal and audit fees 28,580
Directors' fees and expenses--Note 2 25,960
Other expenses 28,661
------------------
Total Expenses 1,745,836
Earnings Credits (2,670)
Reimbursed/Waived Expenses (1,247)
Expense Offset to Broker Commissions (4,589)
------------------
Net Expenses 1,737,330
------------------
Net Investment Loss (1,149,129)
------------------
REALIZED AND UNREALIZED GAIN
(LOSS) ON SECURITY TRANSACTIONS
Net Realized Gain on Security Transactions 32,490,110
Net Change in Unrealized Appreciation/Depreciation of Investments (10,271,293)
------------------
Net Realized and Unrealized Gain 22,218,817
------------------
Net Increase in Net Assets Resulting from Operations $ 21,069,688
==================
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
20
<Page>
STATEMENTS OF CHANGES IN NET ASSETS
<Table>
<Caption>
YEAR ENDED YEAR ENDED
12/31/04 12/31/03
- ------------------------------------------------------------------------------------------------------------
OPERATIONS
Net Investment Loss $ (1,149,129) $ (1,356,208)
Net Realized Gain on Security Transactions 32,490,110 20,810,975
Net Change in Unrealized
Appreciation/Depreciation of Investments (10,271,293) 25,868,151
------------------ ------------------
Net Increase in Net Assets Resulting from Operations 21,069,688 45,322,918
------------------ ------------------
CAPITAL SHARE TRANSACTIONS
Net Increase (Decrease)--Note 4
Class A 152,338 542,198
Class B (32,488) 264,005
Class C 45,566 (52,492)
Class F (60,416,547) 24,535,977
Class R (51,768) 9,780
Class T (76) 5,472
------------------ ------------------
Net Increase (Decrease) from Capital Share
Transactions (60,302,975) 25,304,940
------------------ ------------------
Net Increase (Decrease) in Net Assets (39,233,287) 70,627,858
------------------ ------------------
NET ASSETS
Beginning of year $ 162,414,507 $ 91,786,649
------------------ ------------------
End of year $ 123,181,220 $ 162,414,507
================== ==================
Accumulated Net Investment Loss $ (19,633) $ (15,164)
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
21
<Page>
FINANCIAL HIGHLIGHTS
<Table>
<Caption>
YEAR ENDED
DECEMBER 31,
2004 2003 2002 2001 2000
-------------------------------------------------------
CLASS A SHARES
PER SHARE OPERATING DATA
Net Asset Value, beginning of year $ 3.52 $ 2.58 $ 3.44 $ 4.38 $ 8.68
- ------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.03) 0.03 (0.04) (0.06) (0.02)
Net realized and unrealized gains
(losses) on securities 0.66 0.91 (0.82) (0.88) (2.05)
-------------------------------------------------------
Total from investment operations 0.63 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 year $ 4.15 $ 3.52 $ 2.58 $ 3.44 $ 4.38
=======================================================
TOTAL RETURN* 17.90% 36.43% (25.00%) (21.46%) (23.40%)
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000s) $ 1,546 $ 1,191 $ 476 $ 538 $ 625
- ------------------------------------------------------------------------------------------------------------
Ratios to average net assets:
Expenses with reimbursements, but no
earnings credits or brokerage offsets# 1.54% 1.87% 2.15% 2.47% 1.29%
Expenses with reimbursements,
earnings credits and brokerage offsets 1.53% 1.86% 2.15% 2.46% 1.25%
Net investment loss (1.07%) (1.38%) (1.81%) (1.93%) (0.74%)
- ------------------------------------------------------------------------------------------------------------
Portfolio turnover rate@ 147% 160% 216% 214% 226%
</Table>
* SALES CHARGES ARE NOT REFLECTED IN THE TOTAL RETURN.
# 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>
YEAR ENDED
DECEMBER 31,
2004 2003 2002 2001 2000
-------------------------------------------------------
CLASS B SHARES
PER SHARE OPERATING DATA
Net Asset Value, beginning of year $ 3.43 $ 2.54 $ 3.39 $ 4.32 $ 8.68
- ------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment loss (0.07) (0.03) (0.05) (0.05) (0.04)
Net realized and unrealized gains
(losses) on securities 0.65 0.92 (0.80) (0.88) (2.09)
-------------------------------------------------------
Total from investment operations 0.58 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 year $ 4.01 $ 3.43 $ 2.54 $ 3.39 $ 4.32
=======================================================
TOTAL RETURN* 16.91% 35.04% (25.07%) (21.53%) (24.14%)
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000s) $ 1,823 $ 1,587 $ 969 $ 1,138 $ 1,047
- ------------------------------------------------------------------------------------------------------------
Ratios to average net assets:
Expenses with reimbursements, but no
earnings credits or brokerage offsets# 2.37% 2.65% 2.68% 2.59% 2.04%
Expenses with reimbursements,
earnings credits and brokerage offsets 2.37% 2.64% 2.67% 2.58% 1.99%
Net investment loss (1.90%) (2.16%) (2.33%) (2.06%) (1.47%)
- ------------------------------------------------------------------------------------------------------------
Portfolio turnover rate@ 147% 160% 216% 214% 226%
</Table>
* SALES CHARGES ARE NOT REFLECTED IN THE TOTAL RETURN.
# 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>
YEAR ENDED
DECEMBER 31,
2004 2003 2002 2001 2000
-------------------------------------------------------
CLASS C SHARES
PER SHARE OPERATING DATA
Net Asset Value, beginning of year $ 3.38 $ 2.50 $ 3.36 $ 4.32 $ 8.68
- ------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment loss (0.06)+ (0.10) (0.08) (0.08) (0.04)
Net realized and unrealized gains
(losses) on securities 0.64 0.98 (0.78) (0.88) (2.09)
-------------------------------------------------------
Total from investment operations 0.58 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 year $ 3.96 $ 3.38 $ 2.50 $ 3.36 $ 4.32
=======================================================
TOTAL RETURN* 17.16% 35.20% (25.60%) (22.22%) (24.14%)
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000s) $ 428 $ 323 $ 274 $ 380 $ 422
- ------------------------------------------------------------------------------------------------------------
Ratios to average net assets:
Expenses with reimbursements, but no
earnings credits or brokerage offsets# 2.32% 2.51% 2.99% 3.94% 2.04%
Expenses with reimbursements,
earnings credits and brokerage offsets 2.31% 2.51% 2.98% 3.93% 2.00%
Net investment loss (1.83%) (2.02%) (2.65%) (3.41%) (1.46%)
- ------------------------------------------------------------------------------------------------------------
Portfolio turnover rate@ 147% 160% 216% 214% 226%
</Table>
+ COMPUTED USING AVERAGE SHARES OUTSTANDING THROUGHOUT THE YEAR.
* SALES CHARGES ARE NOT REFLECTED IN THE TOTAL RETURN.
# 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 2.32% (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.
24
<Page>
<Table>
<Caption>
YEAR ENDED
DECEMBER 31,
2004 2003 2002 2001 2000
--------------------------------------------------------------
CLASS F SHARES
PER SHARE OPERATING DATA
Net Asset Value, beginning of year $ 3.58 $ 2.62 $ 3.47 $ 4.36 $ 8.68
- -------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.03)+ 0.02 (0.04) (0.05) (0.03)
Net realized and unrealized gains
(losses) on securities 0.69 0.94 (0.81) (0.84) (2.06)
--------------------------------------------------------------
Total from investment operations 0.66 0.96 (0.85) (0.89) (2.09)
- -------------------------------------------------------------------------------------------------------------------
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 year $ 4.24 $ 3.58 $ 2.62 $ 3.47 $ 4.36
==============================================================
TOTAL RETURN 18.44% 36.64% (24.50%) (20.41%) (23.69%)
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000s) $ 119,273 $ 159,161 $ 89,970 $ 119,708 $ 166,365
- -------------------------------------------------------------------------------------------------------------------
Ratios to average net assets:
Expenses with reimbursements, but no
earnings credits or brokerage offsets# 1.33% 1.51% 1.56% 1.39% 1.39%
Expenses with reimbursements,
earnings credits and brokerage offsets 1.33% 1.50% 1.56% 1.37% 1.36%
Net investment loss (0.87%) (1.01%) (1.22%) (0.84%) (0.92%)
- -------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate@ 147% 160% 216% 214% 226%
</Table>
+ COMPUTED USING AVERAGE SHARES OUTSTANDING THROUGHOUT THE YEAR.
# 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.
25
<Page>
<Table>
<Caption>
YEAR ENDED
DECEMBER 31,
2004 2003 2002 2001 2000
--------------------------------------------------------------
CLASS R SHARES
PER SHARE OPERATING DATA
Net Asset Value, beginning of year $ 3.56 $ 2.61 $ 3.48 $ 4.39 $ 8.68
- -------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.04)+ (0.03) (0.04) 0.01 (0.03)
Net realized and unrealized gains
(losses) on securities 0.67 0.98 (0.83) (0.92) (2.03)
--------------------------------------------------------------
Total from investment operations 0.63 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 year $ 4.19 $ 3.56 $ 2.61 $ 3.48 $ 4.39
==============================================================
TOTAL RETURN 17.70% 36.40% (25.00%) (20.73%) (23.28%)
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000s) $ 71 $ 119 $ 77 $ 49 $ 7
- -------------------------------------------------------------------------------------------------------------------
Ratios to average net assets:
Expenses with reimbursements, but no
earnings credits or brokerage offsets# 1.48% 1.64% 1.97% 2.91% 1.03%
Expenses with reimbursements,
earnings credits and brokerage offsets 1.48% 1.64% 1.97% 2.89% 1.00%
Net investment loss (1.03%) (1.15%) (1.63%) (2.40%) (0.55%)
- -------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate@ 147% 160% 216% 214% 226%
</Table>
+ COMPUTED USING AVERAGE SHARES OUTSTANDING THROUGHOUT THE YEAR.
# 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 1.48% (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.
26
<Page>
<Table>
<Caption>
YEAR ENDED
DECEMBER 31,
2004 2003 2002 2001 2000
--------------------------------------------------------------
CLASS T SHARES
PER SHARE OPERATING DATA
Net Asset Value, beginning of year $ 3.39 $ 2.51 $ 3.39 $ 4.35 $ 8.68
- -------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment loss (0.06) (0.02) (0.06) (0.11) (0.02)
Net realized and unrealized gains
(losses) on securities 0.64 0.90 (0.82) (0.85) (2.08)
--------------------------------------------------------------
Total from investment operations 0.58 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 year $ 3.97 $ 3.39 $ 2.51 $ 3.39 $ 4.35
==============================================================
TOTAL RETURN* 17.11% 35.06% (25.96%) (22.07%) (23.80%)
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000s) $ 40 $ 34 $ 20 $ 20 $ 29
- -------------------------------------------------------------------------------------------------------------------
Ratios to average net assets:
Expenses with reimbursements, but no
earnings credits or brokerage offsets# 2.26% 2.76% 3.64% 3.13% 1.55%
Expenses with reimbursements,
earnings credits and brokerage offsets 2.25% 2.76% 3.63% 3.11% 1.50%
Net investment loss (1.78%) (2.27%) (3.29%) (2.57%) (0.98%)
- -------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate@ 147% 160% 216% 214% 226%
</Table>
* SALES CHARGES ARE NOT REFLECTED IN THE TOTAL RETURN.
# 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 2.26% (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.
27
<Page>
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2004
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,
Equity Growth (formerly Growth and Income), Government Securities, Growth,
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 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. However, the Funds are planning to begin using
New York closing exchange rates to convert foreign currencies to U.S. dollars
sometime during the first quarter of 2005.
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.
28
<Page>
If market quotations or official closing prices are not readily available or are
determined not to reflect accurately fair value, 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 but before the Fund calculates its net asset value,
and it is determined that the event has materially affected the value of the
security. Fair value of foreign equity securities may be determined with the
assistance of a pricing service using correlations between the movement of
prices of foreign securities and indexes of domestic securities and other
appropriate indicators, such as closing market prices of relevant ADRs and
futures contracts. Using fair value to price securities may result in a value
that is different from a security's most recent closing price and from the
prices used by other mutual funds to calculate their net asset values.
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 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
29
<Page>
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, as earned, and includes the
accretion of discounts and the amortization of premiums over the lives of the
respective securities. Withholding taxes on foreign dividends have been provided
for in accordance with the applicable country's tax rules and rates.
DISTRIBUTIONS TO SHAREHOLDERS--The Fund declares and distributes dividends (if
any) and capital gains (if any) annually. Dividends and distributions, which are
determined in accordance with income tax regulations, are recorded on the
ex-dividend date.
EXPENSES--Each Class of the Fund bears expenses incurred specifically on its
behalf and, in addition, each Class bears a portion of general expenses based on
the relative net assets or the number of shareholder accounts of the Class. The
type of expense determines the allocation method.
The Company's board of directors has authorized the payment, if any, of certain
Fund expenses with commissions of Fund portfolio transactions. These commissions
reduce Other Expenses and are included in the Expense Offset to Broker
Commissions in the Statement of Operations.
USE OF ESTIMATES--The preparation of financial statements in conformity with
accounting principles generally accepted in the United States of America
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported amounts of
income and expenses during the reporting period. Actual results could differ
from those estimates.
INDEMNIFICATIONS--In the normal course of business, the Company enters into
contracts that contain provisions indemnifying other parties against specified
potential liabilities. Each Fund's maximum exposure under these arrangements is
unknown as this would involve future claims that may be made against the Fund
that have not yet occurred. However, based on experience, the Funds expect the
risk of loss to be remote.
OTHER--Certain prior year information has been reformatted, without substantive
change, to conform with the current year presentation.
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
30
<Page>
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 year ended December 31,
2004, Class F shares were charged $162,070 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 from DTI
are paid by the Fund. During the year ended December 31, 2004, Class F shares
were charged $43,147 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 $13.00, per shareholder account considered to be an
open account at any time during a given month, plus out-of-pocket charges.
Class-specific transfer agency fees paid to DTI during the year ended December
31, 2004 were as follows:
<Table>
<Caption>
TRANSFER
AGENCY FEES
------------------------------------------------------
Class A $ 2,908
Class B $ 5,487
Class C $ 1,079
Class R $ 403
Class T $ 227
</Table>
OTHER TRANSFER AGENCY FEES--Various broker-dealers, retirement plan
administrators and other unaffiliated entities have established omnibus accounts
with the Fund, and provide sub-transfer agency, recordkeeping or similar
services to persons holding Fund shares through those accounts. During the year
ended December 31, 2004, the Fund paid $29,839 to these entities for such
services. This amount is included in the transfer agency fees shown on the
Statement of Operations.
CASH MANAGEMENT FEES--The Funds also pay Mellon Bank N.A. ("Mellon Bank"), a
wholly-owned subsidiary of Mellon Financial Corporation and an affiliate of
Founders, fees for certain cash management services. These include various
services related to the
31
<Page>
processing of shareholder transactions in the Funds. During the year ended
December 31, 2004, the Fund was charged $1,631 for cash management fees, which
are included in the out-of-pocket charges from DTI above.
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 year ended December
31, 2004, Class F shares were charged $170,318 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 year ended December 31, 2004, were as follows:
<Table>
<Caption>
DISTRIBUTION SHAREHOLDER
FEES SERVICING FEES
--------------------------------------------------------------------
Class A N/A $ 2,942
Class B $ 12,420 $ 4,140
Class C $ 2,972 $ 991
Class T $ 80 $ 80
</Table>
During the year ended December 31, 2004, DSC retained $6,574 and $12 in sales
commissions from the sales of Class A and Class T shares, respectively. DSC also
retained $4,076 and $1,034 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 contractually agreed to waive
any fees received for these services to the extent they exceed Founders' costs
in providing the services.
32
<Page>
CUSTODIAN FEES--Mellon Bank 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 Fund could have employed these assets
elsewhere to produce income had it not entered into this arrangement. The
custodian has also contractually 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 year ended December 31, 2004, the
Fund's portion of the fee waiver was $1,247, which reduced the amount paid to
Mellon Bank to $5,461.
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 invested
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,
which pays their compensation. The affairs of the Fund, including services
provided by Founders, are subject to the supervision and general oversight of
the Company's board of directors.
OTHER--During the year ended December 31, 2004, Founders reimbursed the Fund
$320 for a trading error. This amount is not material to the Fund.
33
<Page>
3. FEDERAL TAX INFORMATION
Net investment income and capital gains distributions are determined in
accordance with income tax regulations that may differ from accounting
principles generally accepted in the United States of America. These differences
are due to differing treatments for items such as deferral of wash sale losses,
foreign currency transactions, net operating losses and capital loss carryovers.
Permanent differences identified during the year ended December 31, 2004 have
been reclassified among the components of net assets as follows:
<Table>
<Caption>
UNDISTRIBUTED NET UNDISTRIBUTED NET PAID-IN
INVESTMENT INCOME REALIZED GAINS AND LOSSES CAPITAL
------------------------------------------------------------------
$ 1,144,660 $ 0 $ (1,144,660)
</Table>
The tax components of capital represent distribution requirements the Fund must
satisfy under the income tax regulations and losses or tax deductions the Fund
may be able to offset against income and capital gains realized in future years.
Accumulated capital losses and post-October 31 capital losses noted below, if
any, as of December 31, 2004, 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. Net capital loss carryovers
utilized during 2004 by the Fund amounted to $32,544,804. Accumulated capital
losses as of December 31, 2004 were:
<Table>
<Caption>
EXPIRATION AMOUNT
---------------------------------------------------------------
2009 $ 17,754,484
2010 $ 31,942,177
-------------
$ 49,696,661
=============
</Table>
The aggregate cost of investments and the composition of unrealized appreciation
and depreciation of investment securities for federal income tax purposes as of
December 31, 2004 are noted below. The primary difference between book and tax
appreciation or depreciation is wash sale loss deferrals.
<Table>
Federal Tax Cost $ 106,676,656
Gross Tax Appreciation of Investments $ 17,199,188
Gross Tax Depreciation of Investments $ (927,603)
Net Tax Appreciation $ 16,271,585
</Table>
34
<Page>
4. CAPITAL SHARE TRANSACTIONS
The Fund is authorized to issue 500 million shares of $0.01 par value capital
stock. Transactions in shares of the Fund for the periods indicated were as
follows:
<Table>
<Caption>
YEAR ENDED YEAR ENDED
12/31/04 12/31/03
SHARES AMOUNT SHARES AMOUNT
CLASS A
Sold 226,896 $ 852,592 244,735 $ 828,175
Redeemed (193,006) $ (700,254) (90,696) $ (285,977)
--------------------------------------------------------------------
Net Increase 33,890 $ 152,338 154,039 $ 542,198
====================================================================
CLASS B
Sold 89,684 $ 322,791 145,154 $ 449,120
Redeemed (98,294) $ (355,279) (63,928) $ (185,115)
--------------------------------------------------------------------
Net Increase (Decrease) (8,610) $ (32,488) 81,226 $ 264,005
====================================================================
CLASS C
Sold 110,256 $ 385,913 56,880 $ 169,451
Redeemed (97,748) $ (340,347) (70,756) $ (221,943)
--------------------------------------------------------------------
Net Increase (Decrease) 12,508 $ 45,566 (13,876) $ (52,492)
====================================================================
CLASS F
Sold 3,973,983 $ 14,909,282 19,131,927 $ 50,872,801
Redeemed (20,268,328) $ (75,325,829) (8,999,875) $ (26,336,824)
--------------------------------------------------------------------
Net Increase (Decrease) (16,294,345) $ (60,416,547) 10,132,052 $ 24,535,977
====================================================================
CLASS R
Sold 23,623 $ 90,989 15,172 $ 45,615
Redeemed (40,138) $ (142,757) (11,397) $ (35,835)
--------------------------------------------------------------------
Net Increase (Decrease) (16,515) $ (51,768) 3,775 $ 9,780
====================================================================
CLASS T
Sold 1,380 $ 4,956 2,448 $ 6,710
Redeemed (1,452) $ (5,032) (403) $ (1,238)
--------------------------------------------------------------------
Net Increase (Decrease) (72) $ (76) 2,045 $ 5,472
====================================================================
</Table>
5. INVESTMENT TRANSACTIONS
Purchases and sales of investment securities (excluding short-term securities
and U.S. government obligations) for the year ended December 31, 2004 were
$184,376,340 and $246,823,021, respectively.
35
<Page>
6. LINE OF CREDIT
The Company has a line of credit arrangement ("LOC") with State Street Bank and
Trust Company, to be used for temporary or emergency purposes, primarily for
financing redemption payments. Each Fund's borrowings are limited to the lesser
of (a) $50 million, or (b) the lesser of 25% of the Fund's total net assets or
the maximum amount which the Fund is permitted to borrow pursuant to the
prospectus, any law or any other agreement. Combined borrowings are subject to
the $50 million cap on the total LOC. Each Fund agrees to pay annual fees and
interest on the unpaid balance based on prevailing market rates as defined in
the LOC. At December 31, 2004, the Fund did not have any borrowings under the
LOC.
7. LEGAL MATTERS
In early 2004, two purported class and derivative actions were filed against
Mellon Financial Corporation, Mellon Bank, Founders, Dreyfus, and certain
directors of the Dreyfus Founders Funds and the Dreyfus Funds (together, the
"Defendant Funds"). In September 2004, plaintiffs served a Consolidated Amended
Complaint (the "Amended Complaint") on behalf of a purported class of all
persons who acquired interests in any of the Defendant Funds between January 30,
1999 and November 17, 2003, and derivatively on behalf of the Defendant Funds.
The Amended Complaint in the newly styled IN RE DREYFUS MUTUAL FUNDS FEE
LITIGATION also named DSC, Premier Mutual Fund Services, Inc. and two additional
directors of the Defendant Funds as defendants and alleges violations of the
Investment Company Act of 1940, the Investment Advisers Act of 1940, the
Pennsylvania Unfair Trade Practices and Consumer Protection Law and common-law
claims. Plaintiffs seek to recover allegedly improper and excessive Rule 12b-1
and advisory fees allegedly charged to the Defendant Funds for marketing and
distribution services. More specifically, plaintiffs claim, among other things,
that 12b-1 fees and directed brokerage were improperly used to pay brokers to
recommend the Defendant Funds over other funds, and that such payments were not
disclosed to investors. In addition, plaintiffs assert that economies of scale
and soft-dollar benefits were not passed on to the Defendant Funds. Plaintiffs
further allege that 12b-1 fees were improperly charged to certain of the
Defendant Funds that were closed to new investors. The Amended Complaint seeks
compensatory and punitive damages, rescission of the advisory contracts, and an
accounting and restitution of any unlawful fees, as well as an award of
attorneys' fees and litigation expenses. As noted, some of the claims in this
litigation are asserted derivatively on behalf of the Defendant Funds that have
been named as nominal defendants. With respect to such derivative claims, no
relief is sought against the Defendant Funds. Founders, Dreyfus and the
Defendant Funds believe the allegations to be totally without merit and intend
to defend the action vigorously. The defendants filed motions to dismiss the
Amended Complaint on November 12, 2004, and those motions are pending.
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 nor the Funds believe that any of the pending actions
will have a material adverse effect on the Funds or Founders' ability to perform
its contract with the Funds.
36
<Page>
REPORT OF INDEPENDENT
REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Shareholders of Dreyfus Founders Funds, Inc.
In our opinion, the accompanying statement of assets and liabilities, including
the statement of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of Dreyfus Founders Mid-Cap Growth
Fund (one of the portfolios constituting Dreyfus Founders Funds, Inc., hereafter
referred to as the "Fund") at December 31, 2004, the results of its operations
for the year then ended, the changes in its net assets for each of the two years
in the period then ended and the financial highlights for each of the five years
in the period then ended, in conformity with accounting principles generally
accepted in the United States of America. These financial statements and
financial highlights (hereafter referred to as "financial statements") are the
responsibility of the Fund's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these financial statements in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those standards
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits, which included
confirmation of securities at December 31, 2004 by correspondence with the
custodian, provide a reasonable basis for our opinion.
PricewaterhouseCoopers LLP
Denver, Colorado
February 10, 2005
37
<Page>
YOUR BOARD REPRESENTATIVES
(UNAUDITED)
The Board of Directors of the Company oversees all 10 Dreyfus Founders Funds.
The business and affairs of the Company are managed under the direction of the
Board. The directors serving on the Board perform their responsibilities in the
manner which they reasonably believe to be in the best interests of the Funds
and their shareholders.
All of the directors, as listed below, are independent directors. They are not
affiliated with the Fund's adviser, its parent company, or its affiliates. The
directors have no official term of office and generally serve until they reach
the mandated retirement age of 75, resign, or are not re-elected. As you can see
from their backgrounds, the directors have broad experience as active or former
business and community leaders.
DIRECTORS
EUGENE H. VAUGHAN, CFA, 71. Year elected to the Board: 1970
Board Chairman. Founding Chairman and, formerly (1970 to 2000), President and
CEO, Vaughan Nelson Investment Management, LP, an investment counseling firm.
Director, Encore Bank. Founding Chairman, Center for Houston's Future, a
non-profit organization. Founding Chairman and former Governor, Association for
Investment Management and Research. Past Chairman and Trustee, Institute of
Chartered Financial Analysts. Past Chairman and Director, Financial Analysts
Federation.
ALAN S. DANSON, 65. Year elected to the Board: 1991
Private investor. Formerly, President and Director, D.H. Management, Inc., the
general partner of a limited partnership with technology company holdings (1996
to 2003). Formerly, Director and Senior Vice President, OptiMark Technologies,
Inc., a computerized securities trading service (1996 to 1999). Director,
CaseShare Systems, LLP, a document management company. Director, Gore Range
Natural Science School and The Les Streeter Programs, Inc., both of which are
non-profit organizations.
JOAN D. MANLEY, 72. Year elected to the Board: 1998
Retired. Formerly, Ms. Manley served in several executive capacities with Time
Incorporated, most recently as Group Vice President, Director and Chairman of
Time-Life Books, Inc. and Book of the Month Club, Inc. (1960 to 1984). Director,
Sara Lee Corporation and R.R. Donnelley & Sons Company.
ROBERT P. MASTROVITA, 60. Year elected to the Board: 1998
Private investor. Chairman of a private charitable foundation (1997 to present).
Formerly, Chairman and Director, Hagler, Mastrovita & Hewitt, Inc., a registered
investment adviser (1982 to 1997). Member, Boston Society of Security Analysts.
Trustee, Partridge Academy.
TRYGVE E. MYHREN, 68. Year elected to the Board: 1996
President, Myhren Media, Inc., a firm that invests in and advises media,
telecommunications, Internet and software companies. Special Limited Partner and
member of Investment Committee, Megunticook Funds, a venture capital firm (1998
to present). Director, Advanced Marketing Services, Inc. Trustee and Chairman of
Finance Committee, the University of Denver. Trustee, Denver Art Museum. Member,
Cable Television Hall of Fame. Formerly, President (1990 to 1996) and Director
(1992 to 2001) of the Providence Journal Company, a diversified media and
communications company. Formerly, Chairman and Chief Executive Officer of
American Television
38
<Page>
and Communications Corporation (now Timer Warner Cable) (1981 to 1988).
Formerly, Chairman of the National Cable Television Association (1986-1987).
GEORGE W. PHILLIPS, 66. Year elected to the Board: 1998
Retired. Vice Chairman of the Board, Chairman of the Finance Committee, and
Chairman of the Investment Committee, Children's Medical Center of Boston.
Formerly, President and Chief Executive Officer (1992 to 1997) and Director
(1992 to 2002) of Warren Bancorp, Inc. Formerly, President, Chief Executive
Officer and Director of Warren Five Cents Savings Bank (1992 to 1997).
PRINCIPAL OFFICERS
RICHARD W. SABO, 47. President of the Funds since 2000 and Principal Executive
Officer of the Funds since 2002. Founders' President and Chief Executive
Officer, Member of Founders' Board of Managers and Director of Dreyfus (1998 to
present). Executive Vice President of DSC since 2003. Formerly, Senior Vice
President and Regional Director for Prudential Securities, Inc. (1991 to 1998).
DAVID L. RAY, 47. Vice President of the Funds since 2000, and from 1990 to 1998.
Founders' Senior Vice President--Administration and Treasurer. Vice President of
DSC since 2003. Employed by Founders and its predecessor company since 1990.
Formerly, Treasurer of the Funds (1990 to 1998).
KENNETH R. CHRISTOFFERSEN, 49. Secretary of the Funds since 2000, and from 1996
to 1998. Founders' Senior Vice President--Legal, General Counsel and Secretary.
Assistant Secretary of DSC since 2003. Employed by Founders and its predecessor
company since 1996.
JANELLE E. BELCHER, 46. Chief Compliance Officer of the Funds since 2004 and
Assistant Secretary of the Funds since 2002. Founders' Vice
President--Compliance since 2002. Formerly, Founders' Manager of Compliance
(2000 to 2002) and Securities Compliance Examiner, Staff Accountant and Team
Leader for the U.S. Securities and Exchange Commission (1990 to 2000).
ROBERT T. KELLY, 35. Treasurer, Principal Financial Officer, and Principal
Accounting Officer of the Funds since 2003. Founders' Vice President of
Portfolio Accounting since 2000. Formerly, Assistant Treasurer of the Funds
(2000 to 2003), and Head of Equity Desk for ABN Amro Trust Company (Cayman)
Limited (1998 to 2000).
WILLIAM G. GERMENIS, 34. Anti-Money Laundering Compliance Officer ("AMLCO") for
the Class A, Class B, Class C, Class R, and Class T shares of the Funds since
2002 and for the Class F shares of the Funds since 2003. Vice President and
AMLCO of MBSC, LLC since 2002. Vice President and AMLCO of DSC and AMLCO of
investment companies managed by Dreyfus. Employed by DSC since 1998.
The directors and officers may be contacted at Founders' address appearing on
the inside cover, except for Mr. Germenis, who can be contacted at 200 Park
Avenue, New York, New York 10166. Additional information about the Company's
directors is available in the Statement of Additional Information, which can be
obtained free of charge by calling the toll free number on the back cover.
39
<Page>
FOR MORE INFORMATION
- -------------------------------------------------------------------------------
DREYFUS FOUNDERS TRANSFER AGENT &
MID-CAP GROWTH FUND DIVIDEND DISBURSING AGENT
MANAGER Dreyfus Transfer, Inc.
200 Park Avenue
Founders Asset Management LLC New York, NY 10166
210 University Boulevard
Suite 800
Denver, CO 80206 DISTRIBUTOR
Dreyfus Service Corporation
200 Park Avenue
New York, NY 10166
- -------------------------------------------------------------------------------
TELEPHONE Call your financial representative or 1-800-554-4611
MAIL Dreyfus Founders Funds, Inc.
144 Glenn Curtiss Boulevard, Uniondale, NY 11556-0144
The fund files its complete schedule of portfolio holdings with the Securities
and Exchange Commission ("SEC") for the first and third quarters of each fiscal
year on Form N-Q. The fund's Forms N-Q are available on the SEC's website at
http://www.sec.gov and may be reviewed and copied at the SEC's Public Reference
Room in Washington, DC. Information on the operation of the Public Reference
Room may be obtained by calling 1-800-SEC-0330.
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 http://www.dreyfus.com and on the SEC's
website at http://www.sec.gov. The description of the policies and procedures is
also available without charge, upon request, by calling 1-800-645-6561.
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.
[LION GRAPHIC]
(C)2005 Dreyfus Service Corporation 0291AR1204
<Page>
Dreyfus Founders
Passport Fund
ANNUAL REPORT December 31, 2004
[LION GRAPHIC]
YOU, YOUR ADVISOR AND
(R) [DREYFUS LOGO]
A MELLON FINANCIAL COMPANY (SM)
<Page>
TABLE OF CONTENTS
<Table>
Management Overview 3
Fund Expenses 12
Statement of Investments 14
Statement of Assets and Liabilities 22
Statement of Operations 24
Statements of Changes in Net Assets 25
Financial Highlights 26
Notes to Financial Statements 32
Report of Independent Registered Public Accounting Firm 41
Your Board Representatives 42
</Table>
-----------------------------------------------------------
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and sign up for Dreyfus eCommunications. It's simple and
only takes a few minutes.
-----------------------------------------------------------
INVESTMENT MANAGER DISTRIBUTOR
Founders Asset Management LLC Dreyfus Service Corporation
A MELLON FINANCIAL COMPANY(SM) 200 Park Avenue
210 University Boulevard, Suite 800 New York, NY 10166
Denver, CO 80206
The views expressed in this report reflect those of the portfolio manager only
through the end of the period covered and do not necessarily represent the views
of Founders or any other person in the Founders organization. Any such views are
subject to change at any time based upon market or other conditions and Founders
disclaims any responsibility to update such views. These views may not be relied
on as investment advice and, because investment decisions for a Dreyfus Founders
Fund are based on numerous factors, may not be relied on as an indication of
trading intent on behalf of any Dreyfus Founders Fund. Companies appearing in
bold print on pages 3-10 were owned by the Fund on December 31, 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
(UNAUDITED)
[PHOTO OF TRACY P. STOUFFER]
A DISCUSSION WITH PORTFOLIO MANAGER TRACY P. STOUFFER, CFA
HOW DID THE FUND PERFORM RELATIVE TO ITS BENCHMARK FOR THE 12 MONTHS ENDED
DECEMBER 31, 2004?
Dreyfus Founders Passport Fund underperformed its international small-cap
benchmark, the Morgan Stanley Capital International (MSCI) World ex U.S. Small
Cap Index, which returned 29.40% for the period. The Fund also underperformed
the large-cap MSCI World ex U.S. Index, which returned 20.38% for the 12-month
timeframe.
PLEASE DESCRIBE THE BROAD MARKET ENVIRONMENT IN WHICH THE FUND PERFORMED DURING
THE PERIOD.
For much of the year, political uncertainty surrounding numerous elections
around the world, combined with rising commodity prices and interest rates, kept
many of the markets in a tight trading range. However, during the fourth
quarter, a powerful market rally was sparked by falling oil prices, which were
down approximately 24% from a historic peak of $55 per barrel earlier in the
quarter.
Numerous politically charged events occurred during the period. Perhaps the
second highest-profile political event behind the U.S. Presidential election was
the Russian Yukos crisis, which created spikes in the price of oil and a crisis
of confidence in the transparency of Russian markets. Another high profile
political incident surrounded Ukrainian
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. Total return figures cited for this index assume change in share
price and reinvestment of dividends after the deduction of local taxes, but do
not reflect the costs of managing a mutual fund.
[SIDENOTE]
"THE FUND'S INVESTMENTS IN THE BOOMING FORMER PORTUGUESE COLONY OF MACAU WERE
SIGNIFICANT CONTRIBUTORS AND HELPED DRIVE FUND PERFORMANCE IN 2004."
3
<Page>
presidential candidate Viktor Yushchenko, who was voted into the presidency
after the results of a decidedly fraudulent election were thrown out and a
second election was held. Additionally, Palestinian leader Yasser Arafat died on
November 11, leaving the Palestinian people leaderless. It was decided for the
first time in Palestinian history that a free election would be held in early
2005, a development that brought renewed hope for peace in the region.
On December 26, an enormous earthquake struck off the Indonesian island of
Sumatra, launching a deadly tsunami. This natural disaster is sadly one of
history's greatest human tragedies; however, the event did not create a large
economic toll on the region.
The Asian emerging market region proved to be a more volatile investing
environment this year than in 2003, making returns in this area somewhat more
difficult to obtain. For example, investors in Indian companies scrambled to
assess the new government's policies; however, soon after the new government
took seat, the markets recovered.
China appeared to have successfully cooled its economy during the period
through a set of lending curbs that kept speculation at bay. At the same time,
the country continued to boost the economies and currencies of the
commodity-exporting countries around the world. While many countries
[SIDENOTE]
PERFORMANCE HIGHLIGHTS
- - During the fourth quarter, a powerful market rally was sparked by falling oil
prices, which were down approximately 24% from a historic peak of $55 per
barrel earlier in the quarter.
- - The majority of Fund holdings that benefited from Macau's economic boom were
based in Hong Kong.
- - Financials holdings buoyed Fund performance for the period, due to strong
stock selection.
- - The Fund's relative return was hindered by disappointing overall
underperformance in the United Kingdom.
- - Poor stock selection in the consumer discretionary sector was a drag on
relative Fund performance during the period.
4
<Page>
continued to benefit from China's growth, Chinese companies, as well as Chinese
markets, disappointed investors for the year. We believe the correct investment
strategy continues to be to invest in what China needs, not what China can
produce.
Iraqi insurgencies intensified throughout the year, weighing heavily on
world markets. The dollar declined dramatically in the fourth quarter, as the
U.S. budget and current account deficits ballooned and interest rates remained
at historically low levels. American investors investing abroad benefited from
this trend, providing an additional boost to the returns of dollar-based
international funds for the year.
DID YOUR BOTTOM-UP INVESTMENT APPROACH LEAD TO ANY CHANGES IN PORTFOLIO
COMPOSITION DURING THE REPORTING PERIOD?
We continued to pare down the Fund's Japanese holdings during the period, which
was its largest weighted position in 2003, as opportunities in the region were
narrowed due to the country's economic slowdown. By year-end, the Fund's
holdings continued to be very domestically oriented and reflected such themes as
voice over internet protocol (VOIP), solar power, hybrid cars, micro hard disc
drives and liquefied natural gas.
LARGEST EQUITY HOLDINGS (country of origin; ticker symbol)
<Table>
1. Melco International Development Limited (Hong Kong; 200) 1.73%
2. New Wave Group AB (Sweden; NEWAB) 1.15%
3. Saxon Energy Services, Inc. (Canada; SES) 1.12%
4. RNB Retail and Brands AB (Sweden; RNBS) 1.11%
5. HKR International Limited (Hong Kong; 480) 1.09%
6. Tokuyama Corporation (Japan; 4043) 1.09%
7. YIT-Yhtyma Oyj (Finland; YTY) 1.07%
8. All America Latina Logistica S.A. (Brazil; ALLL) 1.07%
9. Aktiv Kapital ASA (Norway; AIK) 1.03%
10. 123 Multimedia (France; MULTI) 1.03%
</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.
Class F MSCI World
Shares ex US Index
- --------------------------------------
12/31/1994 $10,000 $10,000
12/31/1995 $12,439 $11,141
12/31/1996 $14,932 $11,906
12/31/1997 $15,183 $12,176
12/31/1998 $17,080 $14,461
12/31/1999 $32,014 $18,500
12/29/2000 $22,522 $16,026
12/31/2001 $15,370 $12,597
12/31/2002 $12,922 $10,607
12/31/2003 $22,634 $14,788
12/31/2004 $26,639 $17,802
The above graph compares a $10,000 investment made in Class F shares of Dreyfus
Founders Passport Fund on 12/31/94 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>
AVERAGE ANNUAL TOTAL RETURN AS OF 12/31/04
<Table>
<Caption>
1 5 10 SINCE
CLASS (INCEPTION DATE) YEAR YEARS YEARS INCEPTION
- -------------------------------------------------------------------------------
CLASS A SHARES (12/31/99)
With sales charge(5.75%) 10.92% (4.75%) -- (4.75%)
Without sales charge 17.70% (3.61%) -- (3.61%)
CLASS B SHARES (12/31/99)
With redemption* 12.68% (4.72%) -- (4.72%)
Without redemption 16.68% (4.38%) -- (4.38%)
CLASS C SHARES (12/31/99)
With redemption** 15.79% (4.40%) -- (4.40%)
Without redemption 16.79% (4.40%) -- (4.40%)
CLASS F SHARES (11/16/93) 17.70% (3.61%) 10.29% 8.64%
CLASS R SHARES (12/31/99) 18.02% (4.14%) -- (4.14%)
CLASS T SHARES (12/31/99)
With sales charge(4.50%) 11.85% (5.31%) -- (5.31%)
Without sales charge 17.15% (4.44%) -- (4.44%)
</Table>
Average annual total returns do not reflect the deduction of taxes that a
shareholder would pay on Fund distributions or redemption of Fund shares, but do
reflect the reinvestment of dividends and capital gain distributions, 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 entail
unique risks, including political, market, and currency risks.
* The maximum contingent deferred sales charge for Class B shares is 4% and is
reduced to 0% after six years, at which time the Class B shares convert to Class
A shares.
** The maximum contingent deferred sales charge for Class C shares is 1% for
shares redeemed within one year of the date of purchase.
7
<Page>
WHAT FACTORS POSITIVELY CONTRIBUTED TO FUND PERFORMANCE DURING THE PERIOD?
The Fund's investments in the booming former Portuguese colony of Macau were
significant contributors and helped drive Fund performance in 2004. Macau's
economic boom is largely due to the recently liberalized gaming industry, which
has attracted new investments. Currently, Macau mainly draws visitors from
Mainland China, since the operation of casinos is prohibited there and Macau is
the only authorized and approved gaming location in the world for the Mainland
Chinese.
The performance of the Macau-related stocks is captured in the
outperformance of the Hong Kong market, where the companies are domiciled. Real
estate and infrastructure development firms, casino and slot machine developers,
as well as travel and transportation companies who bring visitors to this
economic zone were among the top performers. MELCO INTERNATIONAL DEVELOPMENT
LIMITED was one such holding that rose on the back of Macau's exploding gaming
market. Melco's primary business is the expansion of a chain of "Mocha Lounges"
featuring slot machines, which appeal to the mass-market gambler.
[CHART]
PORTFOLIO COMPOSITION OF NET ASSETS
<Table>
United Kingdom 9.88%
Japan 8.85%
Hong Kong 8.29%
India 7.83%
France 7.17%
Norway 6.07%
Brazil 5.60%
Thailand 3.61%
Other Countries 38.12%
Cash & Equivalents 4.58%
</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>
Canada also presented numerous opportunities for the Fund as the country is
a large commodities source, particularly of energy and base metals. Brazil was
another solid contributor to Fund performance for the period, as the region has
become a source of base metals and food commodities for China. Additionally,
China has pledged to invest in Brazilian infrastructure development to enable
more efficient access to these commodities. The Fund's Brazilian holdings
included companies dealing in raw materials and firms that handle the logistics
for the transportation of such materials.
Financials holdings buoyed Fund performance for the period, due to strong
stock selection. Japanese real estate securitization firm Secured Capital Japan
Company Limited performed well as opportunities for real estate asset management
companies improved with rising prices and an increased volume of transactions.
Real estate broker Yasuragi Company Limited was also an indirect beneficiary of
this trend, benefiting through higher commission income. Another notable
performer, Idu Company, which provides an internet-based clearing mechanism for
distressed real estate, also rose during the period.
Numerous opportunities were also found in the metal and mining industries
in the materials and industrials sectors, respectively. The outperformance of
these sectors can be tied to the worldwide commodities boom and to China's
continued growth. Materials holding Fortescue Metals Group Limited, an
Australian iron ore exploration company, benefited from China's large appetite
for steel production. China has also agreed to finance a large portion of the
company's infrastructure development to ensure access to the commodity.
An additional notable performer during the period included Japanese-based
internet company Global Media Online, Inc., which performed well due to strong
earnings growth. U.K.-based oil and gas exploration company, Cairn Energy PLC,
also outperformed as the company made five major oil discoveries in India in
2004.
WHAT FACTORS NEGATIVELY CONTRIBUTED TO FUND PERFORMANCE DURING THE PERIOD?
The Fund's relative return was hindered by disappointing overall
underperformance in the United Kingdom and some of the Fund's investments in
India, where an unexpected May election result created a steep decline in the
local markets. Internet holding Rediff.com India Limited ADR fell in this May
decline.
9
<Page>
A relative overweight position in China proved disappointing to the Fund's
return for the period. Thailand and Malaysia were also detrimental to
performance.
Poor stock selection in the consumer discretionary sector was a drag on
relative Fund performance during the period. Likewise, weak stock selection and
a relative overweight position in the telecommunication services sector
negatively impacted performance. The consumer staples sector also suffered due
to poor stock selection.
Although Japan performed well overall during the period, several Japanese
holdings hurt relative performance. BB Net Corporation, which provides an
internet-based marketplace for purchasing bakery and pastry ingredients and
supplies, dropped when market conditions for small-capitalization stocks
deteriorated.
Other underperformers for the period included Bio-Treat Technology Limited,
a water purification company that suffered due to poor corporate governance
issues; Cytos Biotechnology AG, which experienced downward pressure on its stock
price when new shares were issued during the year; Indonesian financial and news
information services firm PT Limas Stokhomindo Tbk, which underperformed due to
poor market conditions; and telecommunications services company Yangtze Telecom
Corporation, which experienced increasing competitive pressures in the Chinese
value-added service market.
In a slowing growth environment, we continue to seek investments in niche growth
companies with strong management and competitive products or services. At
year-end, our research was focused on areas of gaming, energy and energy
infrastructure, as well as beneficiaries of rising per capita income.
/s/ Tracy P. Stouffer
Tracy P. Stouffer, CFA
Portfolio Manager
10
<Page>
This page intentionally left blank.
11
<Page>
FUND EXPENSES
(UNAUDITED)
As a shareholder of the Fund, depending on the class of shares of the Fund you
own, you incur two types of costs: (1) transaction costs, including front-end
and contingent deferred sales charges; and (2) ongoing costs, including
management fees, Rule 12b-1 fees, shareholder services fees, and other expenses.
The expense example shown below is intended to help you understand your ongoing
costs (in dollars) of investing in the Fund and to compare these costs with the
ongoing costs of investing in other mutual funds.
The expense example is based on an investment of $1,000 on July 1, 2004 and
held through December 31, 2004.
ACTUAL EXPENSES The numbers included in the expense example in the rows with the
word "Actual" in the title provide information about actual account values and
actual expenses. You may use this information to estimate the expenses that you
paid over the period. Simply divide your account value by $1,000 (for example,
an $8,600 account value divided by $1,000 = 8.60), then multiply the result by
the number under the column heading entitled "Expenses Paid During Period" for
the class of shares you own to estimate the expenses you paid on your account
during this period.
HYPOTHETICAL EXPENSES The numbers included in the expense example in the rows
with the word "Hypothetical" in the title provide information about hypothetical
account values and hypothetical expenses based on the Fund's actual expense
ratio for each class of shares, and an assumed rate of return of 5% per year
before expenses, which is not the Fund's actual return. The hypothetical account
values and expenses may not be used to estimate the actual ending account
balance or expenses you paid for the period. You may use this information to
compare the ongoing costs of investing in the Fund and other funds. To do so,
compare the hypothetical expenses in the expense example for the class of shares
you own with the hypothetical expenses that appear in the shareholder reports of
other funds.
Please note that the expenses shown in the expense example are meant to
highlight your ongoing costs only and do not reflect the transaction costs
described above. Therefore, the hypothetical expenses in the expense example are
useful in comparing ongoing costs only, and will not help you determine the
relative total costs of owning different funds. In addition, if the transaction
costs were included, your costs would have been higher.
12
<Page>
EXPENSE EXAMPLE
<Table>
<Caption>
BEGINNING ENDING EXPENSES PAID
ACCOUNT VALUE ACCOUNT VALUE DURING PERIOD*
(7/1/04) (12/31/04) (7/1/04-12/31/04)
- ----------------------------------------------------------------------------------------------
CLASS A ACTUAL $ 1,000.00 $ 1,136.07 $ 10.30
CLASS A HYPOTHETICAL 1,000.00 1,015.28 9.72
CLASS B ACTUAL 1,000.00 1,126.01 15.12
CLASS B HYPOTHETICAL 1,000.00 1,010.70 14.30
CLASS C ACTUAL 1,000.00 1,126.81 14.53
CLASS C HYPOTHETICAL 1,000.00 1,011.26 13.74
CLASS F ACTUAL 1,000.00 1,136.39 9.98
CLASS F HYPOTHETICAL 1,000.00 1,015.58 9.42
CLASS R ACTUAL 1,000.00 1,137.48 9.50
CLASS R HYPOTHETICAL 1,000.00 1,016.04 8.96
CLASS T ACTUAL 1,000.00 1,130.23 12.93
CLASS T HYPOTHETICAL 1,000.00 1,012.78 12.22
</Table>
*Expenses are equal to each Class's respective annualized expense ratio, shown
below, multiplied by the average account value over the period, multiplied by
184/366 (to reflect the one-half year period).
EXPENSE RATIOS
These expense ratios reflect reimbursements and/or waivers of expenses by the
Fund's investment adviser or its affiliates.
<Table>
<Caption>
EXPENSE RATIO
- ----------------------------------------------------
CLASS A 1.91%
CLASS B 2.81%
CLASS C 2.70%
CLASS F 1.85%
CLASS R 1.76%
CLASS T 2.40%
</Table>
13
<Page>
STATEMENT OF INVESTMENTS
December 31, 2004
<Table>
<Caption>
SHARES MARKET VALUE
- -----------------------------------------------------------------------------------
COMMON STOCKS (FOREIGN)--91.6%
ADVERTISING--0.5%
6,075 Ipsos (FR) $ 635,821
---------------
AEROSPACE & DEFENSE--0.5%
44,100 ECA (FR)* 659,372
---------------
AGRICULTURAL PRODUCTS--0.9%
78,000 Cresud SACIFyA Sponsored ADR (AR)* 1,162,200
---------------
AIR FREIGHT & LOGISTICS--0.9%
93,600 Dart Group PLC (UK) 720,337
48,675 DX Services PLC (UK)* 342,005
---------------
1,062,342
---------------
AIRLINES--2.4%
2,801,100 Airasia Berhad (MA)* 1,223,638
876,000 Cintra SA de CV (MX)* 601,970
22,200 Lan Airlines SA Sponsored ADR (CH) 714,840
300,000 Virgin Blue Holdings Limited (AU)* 437,407
---------------
2,977,855
---------------
APPAREL RETAIL--1.1%
114,500 RNB Retail and Brands AB (SW)* 1,378,397
---------------
APPAREL, ACCESSORIES & LUXURY GOODS--2.4%
68,425 Billabong International Limited (AU) 614,146
50,600 IC Companys AS (DE)* 970,837
74,600 New Wave Group AB Class B (SW) 1,431,291
---------------
3,016,274
---------------
APPLICATION SOFTWARE--0.8%
316 Simplex Technology, Inc. (JA)* 595,179
46,925 Zi Corporation (CA)* 340,206
---------------
935,385
---------------
</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.
AR Argentina
AT Austria
AU Australia
BD Bermuda
BE Belgium
BR Brazil
CA Canada
CH Chile
CN China
DE Denmark
FI Finland
FR France
GE Germany
GR Greece
HK Hong Kong
ID Indonesia
IE Ireland
IN India
IS Israel
IT Italy
JA Japan
KR South Korea
MA Malaysia
MX Mexico
NE Netherlands
NW Norway
NZ New Zealand
PH Philippines
SA South Africa
SG Singapore
SP Spain
SW Sweden
SZ Switzerland
TH Thailand
UK United Kingdom
14
<Page>
<Table>
<Caption>
SHARES MARKET VALUE
- -----------------------------------------------------------------------------------
AUTO PARTS & EQUIPMENT--1.6%
1,069,600 Aapico Hitech Public Company Limited
Foreign Shares (TH)# $ 908,541
296,800 Aapico Hitech Public Company Limited
NVDR Shares (TH) 252,108
75,000 NHK Spring Company Limited (JA) 512,345
103,900 Thai Stanley Electric Public Company Limited
Foreign Shares (TH)# 350,345
---------------
2,023,339
---------------
BROADCASTING & CABLE TV--0.6%
6,900 EVS Broadcast Equipment SA (BE) 757,809
---------------
CASINOS & GAMING--1.9%
15,000 BETandWIN.com Interactive Entertainment AG (AT)* 575,982
137,000 Gold Reef Casino Resorts Limited (SA) 307,617
5,650 Great Canadian Gaming Corporation (CA)* 214,608
6,000 Great Canadian Gaming Corporation 144A (CA)*+ 227,882
26,130 Intralot SA Integrated Lottery (GR) 640,730
31,000 Sun International Limited (SA) 313,643
---------------
2,280,462
---------------
COMMERCIAL PRINTING--0.6%
1,542,000 Next Media Limited (HK)* 768,748
---------------
COMMODITY CHEMICALS--0.3%
127,000 Gujarat Alkalies and Chemicals Limited (IN) 363,880
---------------
COMMUNICATIONS EQUIPMENT--2.9%
31,975 Kudelski SA (SZ)* 1,175,407
16,025 Option International NV (BE)* 576,133
51,400 Tandberg ASA (NW) 638,607
70,000 Tandberg Television ASA (NW)* 609,655
63 Telewave, Inc. (JA) 608,051
---------------
3,607,853
---------------
COMPUTER & ELECTRONICS RETAIL--0.5%
27,325 Bechtle AG (GE) 618,406
---------------
CONSTRUCTION & ENGINEERING--4.6%
100,000 Ask Planning Center, Inc. (JA) 798,282
306,350 Aveng Limited (SA) 652,526
43,975 Bharat Earth Movers Limited (IN) 345,164
1,500,000 Italian-Thai Development Public Company Limited
Foreign Shares (TH)# 370,656
650,000 Jaks Resources Berhad (MA)* 316,447
24,825 Koninklijke BAM Groep NV (NE) 1,247,830
247,225 Murray & Roberts Holdings Limited (SA) 603,384
53,250 YIT-Yhtyma Oyj (FI) 1,328,898
---------------
5,663,187
---------------
CONSTRUCTION MATERIALS--1.4%
400,000 India Cements Limited (IN)* 542,443
9,869,500 PT Semen Cibinong Tbk (ID)* 611,361
105,075 Shree Cement Limited (IN) 611,064
---------------
1,764,868
---------------
</Table>
SEE NOTES TO STATEMENT OF INVESTMENTS.
15
<Page>
<Table>
<Caption>
SHARES MARKET VALUE
- -----------------------------------------------------------------------------------
CONSTRUCTION, FARM MACHINERY & HEAVY TRUCKS--1.4%
29,400 Aker Yards AS (NW)* $ 725,692
3,500 Exel Industries SA Class A (FR) 284,491
2,729,000 PT United Tractors Tbk (ID)* 668,837
---------------
1,679,020
---------------
CONSUMER ELECTRONICS--1.5%
289,000 Clarion Company Limited (JA)* 679,701
35,000 Loewe AG (GE)* 310,657
13,125 Loewe AG New Shares (GE)*^# 104,847
216,325 Mobilezone Holding AG (SZ)* 797,117
---------------
1,892,322
---------------
CONSUMER FINANCE--0.9%
197,925 African Bank Investments Limited (SA) 642,910
4,000,000 PT BFI Finance Indonesia Tbk (ID) 517,102
---------------
1,160,012
---------------
DATA PROCESSING & OUTSOURCED SERVICES--0.3%
688,000 SinoCom Software Group Limited (CN)* 336,357
---------------
DIVERSIFIED BANKS--0.7%
1,796,200 Banco De Oro (PH) 848,094
---------------
DIVERSIFIED COMMERCIAL SERVICES--3.6%
199,900 Aggreko PLC (UK) 644,715
21,000 CeWe Color Holding AG (GE) 609,420
79,075 Dignity PLC (UK) 493,365
850,000 Melco International Development Limited (HK) 2,154,335
385,175 PHS Group PLC (UK) 606,342
---------------
4,508,177
---------------
DIVERSIFIED METALS & MINING--1.8%
150,100 Excel Coal Limited (AU) 549,476
241,475 Gujarat NRE Coke Limited (IN) 1,046,836
33,000 Neomax Company Limited (JA) 585,479
---------------
2,181,791
---------------
ELECTRICAL COMPONENTS & EQUIPMENT--1.0%
8,000 Bekaert NV (BE) 638,847
20,925 NKT Holding AS (DE) 609,863
---------------
1,248,710
---------------
ELECTRONIC EQUIPMENT MANUFACTURERS--1.1%
1,300,000 A-Max Holdings Limited (HK)* 472,487
22,000 Japan Cash Machine Company Limited (JA) 936,079
---------------
1,408,566
---------------
EMPLOYMENT SERVICES--0.8%
250 Fullcast Company Limited (JA) 714,843
820,400 JobStreet Corporation Berhad (MA)* 265,551
---------------
980,394
---------------
ENVIRONMENTAL SERVICES--0.8%
2,125 Citron Holding AG Centre International de
Traitements et de Recyclage des Ordures
Novices (SZ)* 962,426
---------------
</Table>
16
<Page>
<Table>
<Caption>
SHARES MARKET VALUE
- -----------------------------------------------------------------------------------
FERTILIZERS & AGRICULTURAL CHEMICALS--0.9%
118,400 Isagro SPA (IT)* $ 1,100,797
---------------
FOOD DISTRIBUTORS--0.8%
72,400 AVI Limited (SA) 295,573
3,795,000 Heng Tai Consumables Group Limited (HK) 703,076
---------------
998,649
---------------
FOOTWEAR--0.9%
70,000 Grendene SA 144A (BR)*+ 830,196
2,000,000 Prime Success International Group Limited (HK) 285,615
---------------
1,115,811
---------------
HEALTHCARE DISTRIBUTORS--1.0%
263,975 United Drug PLC (IE) 1,248,652
---------------
HEALTHCARE EQUIPMENT--0.5%
273,625 Fisher & Paykel Healthcare Corporation Limited (NZ) 640,336
---------------
HEALTHCARE FACILITIES--0.4%
1,150,000 Bangkok Dusit Medical Services Public Company
Limited Foreign Shares (TH)# 488,417
---------------
HEALTHCARE SERVICES--1.1%
105,000 Diagnosticos da America (BR)* 944,842
50,000 RaySearch Laboratories AB (SW)* 365,666
---------------
1,310,508
---------------
HEALTHCARE SUPPLIES--0.7%
8,350 Audika (FR) 906,276
---------------
HIGHWAYS & RAILTRACKS--0.6%
1,500,000 ConnectEast Group (AU)* 799,561
---------------
HOME FURNISHINGS--1.2%
50,000 Ellerine Holdings Limited (SA) 497,000
13,475 U10 (FR) 957,921
---------------
1,454,921
---------------
HOTELS, RESORTS & CRUISE LINES--1.4%
304,611 First Choice Holidays PLC (UK) 899,097
1,206,125 MyTravel Group PLC (UK)* 138,928
5,250 Societe du Louvre (FR) 665,081
---------------
1,703,106
---------------
INDUSTRIAL CONGLOMERATES--0.7%
720,500 Cofide SPA - Compagnia Finanziaria De Benedetti (IT) 891,199
---------------
INDUSTRIAL MACHINERY--4.4%
169,291 Amforge Industries Limited (IN)* 438,124
8,300 Andritz AG (AT) 632,907
144,100 Charter PLC (UK)* 641,797
20,000 Duro Felguera SA (SP)* 213,402
377,000 Japan Steel Works Limited (JA) 699,034
12,125 Palfinger AG (AT) 693,846
150,000 Pursuit Dynamics PLC (UK)* 657,996
2,500 SIG Holding AG (SZ) 571,630
41,700 Wartsila Corporation (FI) 888,754
---------------
5,437,490
---------------
</Table>
SEE NOTES TO STATEMENT OF INVESTMENTS.
17
<Page>
<Table>
<Caption>
SHARES MARKET VALUE
- -----------------------------------------------------------------------------------
INTEGRATED TELECOMMUNICATION SERVICES--1.5%
25,000 123 Multimedia (FR)* $ 1,281,093
3,000,000 True Corporation Public Company Limited
Foreign Shares (TH)*# 625,483
---------------
1,906,576
---------------
INTERNET RETAIL--0.5%
335,200 Interpark Corporation (KR)* 660,556
---------------
INTERNET SOFTWARE & SERVICES--1.9%
450 Index Corporation (JA) 1,238,411
100 Opt, Inc. (JA)* 579,682
87 Wellnet Corporation (JA)* 533,190
---------------
2,351,283
---------------
IT CONSULTING & OTHER SERVICES--1.5%
45,000 Argo Graphics, Inc. (JA) 1,163,755
964,500 Enea AB (SW)* 673,440
---------------
1,837,195
---------------
LEISURE PRODUCTS--0.7%
230,000 Ainsworth Game Technology Limited (AU)* 180,293
2,930,000 Playmates Holdings Limited (HK) 595,597
124,524 Stargames Limited (AU) 144,466
---------------
920,356
---------------
MARINE--1.5%
50,000 Braemar Seascope Group PLC (UK) 386,351
446,000 Ezra Holdings Pte Limited (SG) 308,736
1,440,000 Golden Ocean Group Limited (NW)* 903,462
50,000 Ocean Wilsons Holdings Limited (BD) 271,645
---------------
1,870,194
---------------
MARINE PORTS & SERVICES--1.0%
37,825 Clarkson PLC (UK) 522,826
196,000 Hamworthy KSE (UK)* 767,595
---------------
1,290,421
---------------
MOVIES & ENTERTAINMENT--1.4%
20,000 CJ CGV (KR)* 618,238
150,000 Gameloft.com (FR)* 591,274
654,825 Sanctuary Group PLC (UK) 549,983
---------------
1,759,495
---------------
MULTI-LINE INSURANCE--1.5%
30,000 Almindelig Brand AS (DE)* 1,137,485
84,500 Porto Seguro SA (BR)* 652,203
---------------
1,789,688
---------------
MULTI-SECTOR HOLDINGS--0.6%
7,100 Societe de la Tour Eiffel (FR)* 681,338
---------------
OIL & GAS DRILLING--3.4%
88,125 Major Drilling Group International, Inc. (CA)* 978,186
371,075 Saxon Energy Services, Inc. (CA)* 1,393,622
225,500 Siem Offshore (NW)* 1,154,176
39,000 Smedvig ASA Class A (NW) 655,184
---------------
4,181,168
---------------
</Table>
18
<Page>
<Table>
<Caption>
SHARES MARKET VALUE
- -----------------------------------------------------------------------------------
OIL & GAS EQUIPMENT & SERVICES--2.9%
22,225 Aban Loyd Chiles Offshore Limited (IN) $ 575,181
141,200 Offshore Hydrocarbon Mapping Limited (UK)* 644,061
75,000 Sondex PLC (UK) 317,307
52,000 Stolt Offshore SA (NW)* 336,553
10,000 Trican Well Service Limited (CA)* 554,999
8,250 Vallourec SA (FR) 1,233,519
---------------
3,661,620
---------------
OIL & GAS EXPLORATION & PRODUCTION--0.5%
92,175 Regal Petroleum PLC (UK)* 617,567
---------------
OIL & GAS REFINING, MARKETING, & TRANSPORTAION--1.0%
816,025 Essar Shipping Limited (IN)* 653,271
193,000 Sinvest ASA (NW)* 646,870
---------------
1,300,141
---------------
OTHER DIVERSIFIED FINANCIAL SERVICES--0.9%
984,200 Tisco Finance Public Company Limited
Foreign Shares (TH)# 615,600
895,900 Tisco Finance Public Company Limited
NVDR Shares (TH) 560,370
---------------
1,175,970
---------------
PACKAGED FOODS & MEATS--1.3%
590,000 Fjord Seafood ASA (NW)* 298,083
10,000 Orion Corporation (KR) 1,052,937
930,000 Pan Fish ASA (NW)* 285,601
---------------
1,636,621
---------------
PAPER PACKAGING--0.5%
1,500,000 Vision Grande Group Holdings Limited (HK) 578,949
---------------
PHARMACEUTICALS--1.0%
269,275 Granules India Limited (IN) 707,722
350,000 Kopran Limited (IN)* 554,750
---------------
1,262,472
---------------
PUBLISHING--0.3%
33,720 Aufeminin.com SA (FR)* 425,797
---------------
RAILROADS--1.1%
2,322,000 Guangshen Railway Company Limited (CN) 948,493
86,075 Railpower Technologies Corporation (CA)* 447,544
---------------
1,396,037
---------------
REAL ESTATE MANAGEMENT & DEVELOPMENT--5.7%
44,400 Capital & Regional PLC (UK) 592,398
335,000 Expomedia Group PLC (UK)* 977,539
2,972,000 Far East Consortium International Limited (HK) 1,280,919
913,000 Genting International PLC (HK)* 196,295
2,108,800 HKR International Limited (HK) 1,349,760
29,400 IRSA Inversiones y Representaciones SA
Sponsored GDR (AR)* 330,750
250,000 MBK Public Company Limited Foreign Shares (TH)# 308,880
54,193,000 PT Kawasan Industri Jababeka Tbk (ID)* 671,392
798,000 Shun Tak Holdings Limited (HK) 877,803
1,088,000 Silver Grant International Industries Limited (HK) 545,911
---------------
7,131,647
---------------
</Table>
SEE NOTES TO STATEMENT OF INVESTMENTS.
19
<Page>
<Table>
<Caption>
SHARES MARKET VALUE
- -----------------------------------------------------------------------------------
REGIONAL BANKS--1.2%
431,450 Allahabad Bank Limited (IN) $ 748,859
206,925 Indian Overseas Bank (IN) 370,818
142,425 Union Bank of India Limited (IN) 356,636
---------------
1,476,313
---------------
SEMICONDUCTOR EQUIPMENT--1.1%
194,450 ClearSpeed Technology PLC (UK)* 818,004
84,200 Silicon-On-Insulator Technologies (FR)* 587,122
---------------
1,405,126
---------------
SEMICONDUCTORS--0.4%
2,000,000 Solomon Systech International Limited (HK) 494,037
---------------
SPECIALIZED FINANCE--1.6%
57,600 Aktiv Kapital ASA (NW) 1,283,867
765,396 SREI Infrastructure Finance Limited (IN) 750,958
---------------
2,034,825
---------------
SPECIALTY CHEMICALS--1.1%
217,000 Tokuyama Corporation (JA) 1,348,970
---------------
SPECIALTY STORES--0.4%
35,650 Trent Limited (IN) 480,951
---------------
STEEL--1.5%
1,407,000 Lion Corporation Berhad (MA)* 655,366
124,863 Monnet Ispat Limited (IN) 517,031
28,250 Sesa Goa Limited (IN) 669,467
---------------
1,841,864
---------------
THRIFTS & MORTGAGE FINANCE--0.8%
116,000 Paragon Group Companies PLC (UK) 944,212
---------------
TRADING COMPANIES & DISTRIBUTORS--0.4%
1,657,000 PT Hexindo Adiperkasa Tbk (ID) 548,912
---------------
TOTAL COMMON STOCKS (FOREIGN)
(COST--$103,705,231) 113,988,091
---------------
PREFERRED STOCKS (FOREIGN)--3.7%
AUTO PARTS & EQUIPMENT--0.6%
7,000 Iochpe Maxion SA (BR) 785,365
---------------
CONSTRUCTION, FARM MACHINERY & HEAVY TRUCKS--0.3%
120,000 Randon Participacoes S.A. (BR) 337,500
---------------
MULTI-SECTOR HOLDINGS--0.7%
25,000 Bradespar SA (BR)* 823,607
---------------
PACKAGED FOODS & MEATS--1.0%
28,900 Perdigao SA (BR) 623,483
285,000 Sadia SA (BR) 641,679
---------------
1,265,162
---------------
RAILROADS--1.1%
44,500 All America Latina Logistica S.A. (BR) 1,323,607
---------------
TOTAL PREFERRED STOCKS (FOREIGN)
(COST--$4,010,731) 4,535,241
---------------
</Table>
20
<Page>
<Table>
<Caption>
UNITS MARKET VALUE
- -----------------------------------------------------------------------------------
FOREIGN RIGHTS AND WARRANTS--0.1%
INDUSTRIAL CONGLOMERATES--0.1%
204,677 Media Prima Berhad ICULS (MA) $ 56,017
---------------
INTEGRATED TELECOMMUNICATION SERVICES--0.0%
600,000 Yangtze Telecom Corporation Warrants, expire 2005
(CN)*^# 0
---------------
TOTAL FOREIGN RIGHTS AND WARRANTS
(COST--$53,933) 56,017
---------------
<Caption>
PRINCIPAL AMOUNT AMORTIZED COST
- -----------------------------------------------------------------------------------
CORPORATE SHORT-TERM NOTES--1.1%
PHARMACEUTICALS--1.1%
$ 1,400,000 Novartis Finance Corporation
2.10% 1/3/05~ $ 1,399,837
---------------
TOTAL CORPORATE SHORT-TERM NOTES
(AMORTIZED COST--$1,399,837) 1,399,837
---------------
TOTAL INVESTMENTS--96.5%
(TOTAL COST--$109,169,732) 119,979,186
---------------
OTHER ASSETS AND LIABILITIES--3.5% 4,289,541
---------------
NET ASSETS--100.0% $ 124,268,727
===============
</Table>
NOTES TO STATEMENT OF INVESTMENTS
* NON-INCOME PRODUCING.
+ SECURITY WAS ACQUIRED PURSUANT TO RULE 144A AND MAY BE DEEMED TO BE
RESTRICTED FOR RESALE. THESE SECURITIES AMOUNTED TO $1,058,078, OR 0.9%, OF
THE FUND'S NET ASSETS AS OF DECEMBER 31, 2004.
~ SECURITY WAS ACQUIRED PURSUANT TO SECTION 4(2) OF THE SECURITIES ACT OF
1933 AND MAY BE DEEMED TO BE RESTRICTED FOR RESALE. THESE SECURITIES
AMOUNTED TO $1,399,837, OR 1.1%, OF THE FUND'S NET ASSETS AS OF DECEMBER
31, 2004.
# FAIR VALUED SECURITY.
ADR - AMERICAN DEPOSITARY RECEIPT
GDR - GLOBAL DEPOSITARY RECEIPT
NVDR - NON-VOTING 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
- ----------------------------------------------------------------------------------------
LOEWE AG NEW SHARES (GE) 12/28/04 $ 122,767 $ 104,847 0.08%
YANGTZE TELECOM CORPORATION
WARRANTS (CN) 3/8/04 0 0 0.00%
------------ ------------ -------------
$ 122,767 $ 104,847 0.08%
============ ============ =============
</Table>
THE FUND MAY HAVE REGISTRATION RIGHTS FOR CERTAIN RESTRICTED SECURITIES, WHICH
MAY REQUIRE THAT REGISTRATION COSTS BE BORNE BY THE FUND.
SEE NOTES TO FINANCIAL STATEMENTS.
21
<Page>
STATEMENT OF ASSETS AND LIABILITIES
December 31, 2004
<Table>
ASSETS
Investment securities, at cost $ 109,169,732
----------------
Investment securities, at market 119,979,186
Cash 421,857
Foreign currency (cost $5,946,130) 5,994,002
Receivables:
Investment securities sold 3,853,737
Capital shares sold 642,372
Dividends and interest 90,492
Other assets 100,404
----------------
Total Assets 131,082,050
----------------
LIABILITIES
Payables and other accrued liabilities:
Investment securities purchased 6,056,670
Capital shares redeemed 131,806
Advisory fees 101,155
Shareholder servicing fees 16,550
Accounting fees 10,115
Distribution fees 35,410
Transfer agency fees 38,086
Custodian fees 51,282
India and Thailand taxes 254,210
Other 118,039
----------------
Total Liabilities 6,813,323
----------------
Net Assets $ 124,268,727
================
COMPOSITION OF NET ASSETS
Capital (par value and paid-in surplus) $ 253,031,291
Accumulated net investment loss (83,936)
Accumulated net realized loss from security transactions (net of
foreign taxes paid on Thailand and Indian investments of $419,643) (139,271,699)
Net unrealized appreciation on investments
and foreign currency translation 10,593,071
----------------
Total $ 124,268,727
================
</Table>
22
<Page>
<Table>
CLASS A
Net Assets $ 19,725,801
Shares Outstanding 1,177,175
Net Asset Value, Redemption Price Per Share $ 16.76
Maximum offering price per share (net asset value
plus sales charge of 5.75% of offering price) $ 17.78
CLASS B
Net Assets $ 17,916,589
Shares Outstanding 1,113,709
Net Asset Value, Offering and Redemption Price (excluding
applicable contingent deferred sales charge) Per Share $ 16.09
CLASS C
Net Assets $ 10,249,241
Shares Outstanding 637,771
Net Asset Value, Offering and Redemption Price (excluding
applicable contingent deferred sales charge) Per Share $ 16.07
CLASS F
Net Assets $ 75,677,328
Shares Outstanding 4,515,097
Net Asset Value, Offering and Redemption Price Per Share $ 16.76
CLASS R
Net Assets $ 189,927
Shares Outstanding 11,647
Net Asset Value, Offering and Redemption Price Per Share $ 16.31
CLASS T
Net Assets $ 509,841
Shares Outstanding 31,772
Net Asset Value, Redemption Price Per Share $ 16.05
Maximum offering price per share (net asset value
plus sales charge of 4.50% of offering price) $ 16.81
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
23
<Page>
STATEMENT OF OPERATIONS
For the year ended December 31, 2004
<Table>
INVESTMENT INCOME
Dividends $ 1,463,189
Interest 73,646
Foreign taxes withheld (125,079)
----------------
Total Investment Income 1,411,756
----------------
EXPENSES
Advisory fees--Note 2 1,235,823
Shareholder servicing fees--Note 2 182,327
Accounting fees--Note 2 123,582
Distribution fees--Note 2 389,967
Transfer agency fees--Note 2 140,543
Registration fees 63,290
Postage and mailing expenses 13,327
Custodian fees and expenses--Note 2 462,739
Printing expenses 29,392
Legal and audit fees 24,775
Directors' fees and expenses--Note 2 20,522
Other expenses 32,378
----------------
Total Expenses 2,718,665
Earnings Credits (4,018)
Reimbursed/Waived Expenses (127,287)
Expense Offset to Broker Commissions (3,700)
----------------
Net Expenses 2,583,660
----------------
Net Investment Loss (1,171,904)
----------------
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 and Indian investments of $419,643) 20,232,442
Foreign Currency Transactions (222,700)
----------------
Net Realized Gain 20,009,742
Net Change in Unrealized Appreciation/Depreciation
of Investments and Foreign Currency Translation (1,026,156)
----------------
Net Realized and Unrealized Gain 18,983,586
----------------
Net Increase in Net Assets Resulting from Operations $ 17,811,682
================
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
24
<Page>
STATEMENTS OF CHANGES IN NET ASSETS
<Table>
<Caption>
YEAR ENDED YEAR ENDED
12/31/04 12/31/03
OPERATIONS
Net Investment Loss $ (1,171,904) $ (713,841)
Net Realized Gain on Security and Foreign
Currency Transactions 20,009,742 40,877,636
Net Change in Unrealized Appreciation/Depreciation
of Investments and Foreign Currency Translation (1,026,156) 14,435,879
--------------- ---------------
Net Increase in Net Assets Resulting from Operations 17,811,682 54,599,674
--------------- ---------------
CAPITAL SHARE TRANSACTIONS
Net Increase (Decrease)--Note 4
Class A (9,809,094) 8,132,869
Class B (2,918,121) (2,705,719)
Class C (1,725,859) 1,905,536
Class F (14,537,401) (4,988,538)
Class R 22,994 23,012
Class T (87,939) (77,846)
--------------- ---------------
Net Increase (Decrease) from Capital Share Transactions (29,055,420) 2,289,314
--------------- ---------------
Net Increase (Decrease) in Net Assets (11,243,738) 56,888,988
--------------- ---------------
NET ASSETS
Beginning of year $ 135,512,465 $ 78,623,477
--------------- ---------------
End of year $ 124,268,727 $ 135,512,465
=============== ===============
Accumulated Net Investment Loss $ (83,936) $ (10,037)
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
25
<Page>
FINANCIAL HIGHLIGHTS
<Table>
<Caption>
YEAR ENDED DECEMBER 31,
----------------------------------------------------------------------------
2004 2003 2002 2001 2000
----------------------------------------------------------------------------
CLASS A SHARES
PER SHARE OPERATING DATA
Net Asset Value, beginning of year $ 14.24 $ 8.14 $ 9.68 $ 14.18 $ 22.93
- ---------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.11)+ 0.10 (0.16) (0.14) (0.13)
Net realized and unrealized gains
(losses) on securities 2.63 6.00 (1.38) (4.36) (6.65)
----------------------------------------------------------------------------
Total from investment operations 2.52 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 year $ 16.76 $ 14.24 $ 8.14 $ 9.68 $ 14.18
============================================================================
TOTAL RETURN* 17.70% 74.94% (15.91%) (31.74%) (29.61%)
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000s) $ 19,726 $ 27,252 $ 9,422 $ 14,033 $ 36,353
- ---------------------------------------------------------------------------------------------------------------------------
Ratios to average net assets:
Expenses with reimbursements, but no
earnings credits or brokerage offsets# 1.92% 2.45% 2.24% 1.88% 1.61%
Expenses with reimbursements,
earnings credits and brokerage offsets 1.92% 2.45% 2.24% 1.87% 1.59%
Net investment loss (0.77%) (0.83%) (0.80%) (0.26%) (0.80%)
- ---------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate@ 648% 707% 495% 704% 535%
</Table>
+ COMPUTED USING AVERAGE SHARES OUTSTANDING THROUGHOUT THE YEAR.
* SALES CHARGES ARE NOT REFLECTED IN THE TOTAL RETURN.
# 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.
26
<Page>
<Table>
<Caption>
YEAR ENDED DECEMBER 31,
----------------------------------------------------------------------------
2004 2003 2002 2001 2000
----------------------------------------------------------------------------
CLASS B SHARES
PER SHARE OPERATING DATA
Net Asset Value, beginning of year $ 13.79 $ 7.95 $ 9.54 $ 14.08 $ 22.93
- ---------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment loss (0.23)+ (0.31) (0.29) (0.18) (0.23)
Net realized and unrealized gains
(losses) on securities 2.53 6.15 (1.30) (4.36) (6.65)
----------------------------------------------------------------------------
Total from investment operations 2.30 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 year $ 16.09 $ 13.79 $ 7.95 $ 9.54 $ 14.08
============================================================================
TOTAL RETURN* 16.68% 73.46% (16.67%) (32.24%) (30.05%)
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000s) $ 17,917 $ 18,198 $ 12,810 $ 19,661 $ 35,000
- ---------------------------------------------------------------------------------------------------------------------------
Ratios to average net assets:
Expenses with reimbursements, but no
earnings credits or brokerage offsets# 2.79% 3.30% 3.09% 2.66% 2.38%
Expenses with reimbursements,
earnings credits and brokerage offsets 2.78% 3.29% 3.09% 2.64% 2.35%
Net investment loss (1.63%) (1.44%) (1.64%) (1.06%) (1.50%)
- ---------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate@ 648% 707% 495% 704% 535%
</Table>
+ COMPUTED USING AVERAGE SHARES OUTSTANDING THROUGHOUT THE YEAR.
* SALES CHARGES ARE NOT REFLECTED IN THE TOTAL RETURN.
# CERTAIN FEES WERE WAIVED BY THE CUSTODIAN. HAD THESE FEES NOT BEEN WAIVED,
THE EXPENSE RATIOS WOULD HAVE BEEN 2.89% (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.
27
<Page>
<Table>
<Caption>
YEAR ENDED DECEMBER 31,
----------------------------------------------------------------------------
2004 2003 2002 2001 2000
----------------------------------------------------------------------------
CLASS C SHARES
PER SHARE OPERATING DATA
Net Asset Value, beginning of year $ 13.76 $ 7.93 $ 9.52 $ 14.06 $ 22.93
- ---------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment loss (0.22)+ (0.01) (0.35) (0.22) (0.21)
Net realized and unrealized gains
(losses) on securities 2.53 5.84 (1.24) (4.32) (6.69)
----------------------------------------------------------------------------
Total from investment operations 2.31 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 year $ 16.07 $ 13.76 $ 7.93 $ 9.52 $ 14.06
============================================================================
TOTAL RETURN* 16.79% 73.52% (16.70%) (32.29%) (30.13%)
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000s) $ 10,249 $ 10,639 $ 5,268 $ 8,928 $ 17,925
- ---------------------------------------------------------------------------------------------------------------------------
Ratios to average net assets:
Expenses with reimbursements, but no
earnings credits or brokerage offsets# 2.71% 3.25% 3.06% 2.67% 2.38%
Expenses with reimbursements,
earnings credits and brokerage offsets 2.70% 3.25% 3.05% 2.65% 2.35%
Net investment loss (1.55%) (1.43%) (1.58%) (1.08%) (1.50%)
- ---------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate@ 648% 707% 495% 704% 535%
</Table>
+ COMPUTED USING AVERAGE SHARES OUTSTANDING THROUGHOUT THE YEAR.
* SALES CHARGES ARE NOT REFLECTED IN THE TOTAL RETURN.
# CERTAIN FEES WERE WAIVED BY THE CUSTODIAN. HAD THESE FEES NOT BEEN WAIVED,
THE EXPENSE RATIOS WOULD HAVE BEEN 2.81% (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.
28
<Page>
<Table>
<Caption>
YEAR ENDED DECEMBER 31,
----------------------------------------------------------------------------
2004 2003 2002 2001 2000
----------------------------------------------------------------------------
CLASS F SHARES
PER SHARE OPERATING DATA
Net Asset Value, beginning of year $ 14.24 $ 8.13 $ 9.67 $ 14.17 $ 22.93
- ---------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment loss (0.11)+ (0.14) (0.23) (0.22) (0.19)
Net realized and unrealized gains
(losses) on securities 2.63 6.25 (1.31) (4.28) (6.60)
----------------------------------------------------------------------------
Total from investment operations 2.52 6.11 (1.54) (4.50) (6.79)
- ---------------------------------------------------------------------------------------------------------------------------
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 year $ 16.76 $ 14.24 $ 8.13 $ 9.67 $ 14.17
============================================================================
TOTAL RETURN 17.70% 75.15% (15.93%) (31.76%) (29.65%)
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000s) $ 75,677 $ 78,759 $ 50,742 $ 78,574 $ 182,036
- ---------------------------------------------------------------------------------------------------------------------------
Ratios to average net assets:
Expenses with reimbursements, but no
earnings credits or brokerage offsets# 1.90% 2.31% 2.18% 1.92% 1.61%
Expenses with reimbursements,
earnings credits and brokerage offsets 1.89% 2.31% 2.18% 1.90% 1.59%
Net investment loss (0.75%) (0.45%) (0.74%) (0.30%) (0.88%)
- ---------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate@ 648% 707% 495% 704% 535%
</Table>
+ COMPUTED USING AVERAGE SHARES OUTSTANDING THROUGHOUT THE YEAR.
# CERTAIN FEES WERE WAIVED BY THE CUSTODIAN. HAD THESE FEES NOT BEEN WAIVED,
THE EXPENSE RATIOS WOULD HAVE BEEN 2.00% (2004), 2.40% (2003), 2.21%
(2002), 1.92% (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.
SEE NOTES TO FINANCIAL STATEMENTS.
29
<Page>
<Table>
<Caption>
YEAR ENDED DECEMBER 31,
----------------------------------------------------------------------------
2004 2003 2002 2001 2000
----------------------------------------------------------------------------
CLASS R SHARES
PER SHARE OPERATING DATA
Net Asset Value, beginning of year $ 13.82 $ 7.87 $ 9.56 $ 14.22 $ 22.93
- ---------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.07)+ 0.54 (0.81) (0.17) (0.09)
Net realized and unrealized gains
(losses) on securities 2.56 5.41 (0.88) (4.49) (6.65)
----------------------------------------------------------------------------
Total from investment operations 2.49 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 year $ 16.31 $ 13.82 $ 7.87 $ 9.56 $ 14.22
============================================================================
TOTAL RETURN 18.02% 75.60% (17.68%) (32.77%) (29.44%)
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000s) $ 190 $ 142 $ 37 $ 76 $ 241
- ---------------------------------------------------------------------------------------------------------------------------
Ratios to average net assets:
Expenses with reimbursements, but no
earnings credits or brokerage offsets# 1.68% 2.08% 3.94% 1.86% 1.33%
Expenses with reimbursements,
earnings credits and brokerage offsets 1.68% 2.07% 3.91% 1.84% 1.31%
Net investment loss (0.51%) (0.32%) (2.20%) (0.08%) (0.55%)
- ---------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate@ 648% 707% 495% 704% 535%
</Table>
+ COMPUTED USING AVERAGE SHARES OUTSTANDING THROUGHOUT THE YEAR.
# CERTAIN FEES WERE WAIVED BY THE CUSTODIAN. HAD THESE FEES NOT BEEN WAIVED,
THE EXPENSE RATIOS WOULD HAVE BEEN 1.79% (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.
30
<Page>
<Table>
<Caption>
YEAR ENDED DECEMBER 31,
----------------------------------------------------------------------------
2004 2003 2002 2001 2000
----------------------------------------------------------------------------
CLASS T SHARES
PER SHARE OPERATING DATA
Net Asset Value, beginning of year $ 13.70 $ 7.87 $ 9.50 $ 14.14 $ 22.93
- ---------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment loss (0.17)+ (0.24) (0.45) (0.22) (0.16)
Net realized and unrealized gains
(losses) on securities 2.52 6.07 (1.18) (4.42) (6.66)
----------------------------------------------------------------------------
Total from investment operations 2.35 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 year $ 16.05 $ 13.70 $ 7.87 $ 9.50 $ 14.14
============================================================================
TOTAL RETURN* 17.15% 74.08% (17.16%) (32.82%) (29.79%)
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000s) $ 510 $ 522 $ 345 $ 538 $ 869
- ---------------------------------------------------------------------------------------------------------------------------
Ratios to average net assets:
Expenses with reimbursements, but no
earnings credits or brokerage offsets# 2.37% 3.07% 4.03% 3.16% 1.87%
Expenses with reimbursements,
earnings credits and brokerage offsets 2.36% 3.07% 4.03% 3.14% 1.84%
Net investment loss (1.21%) (1.06%) (2.69%) (1.60%) (1.00%)
- ---------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate@ 648% 707% 495% 704% 535%
</Table>
+ COMPUTED USING AVERAGE SHARES OUTSTANDING THROUGHOUT THE YEAR.
* SALES CHARGES ARE NOT REFLECTED IN THE TOTAL RETURN.
# CERTAIN FEES WERE WAIVED BY THE CUSTODIAN. HAD THESE FEES NOT BEEN WAIVED,
THE EXPENSE RATIOS WOULD HAVE BEEN 2.47% (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.
31
<Page>
NOTES TO FINANCIAL STATEMENTS
December 31, 2004
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,
Equity Growth (formerly Growth and Income), Government Securities, Growth,
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 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. However, the Funds are planning to begin
using New York closing exchange rates to convert foreign currencies to U.S.
dollars sometime during the first quarter of 2005.
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.
32
<Page>
If market quotations or official closing prices are not readily available or are
determined not to reflect accurately fair value, 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 but before the Fund calculates its net asset value,
and it is determined that the event has materially affected the value of the
security. Fair value of foreign equity securities may be determined with the
assistance of a pricing service using correlations between the movement of
prices of foreign securities and indexes of domestic securities and other
appropriate indicators, such as closing market prices of relevant ADRs and
futures contracts. Using fair value to price securities may result in a value
that is different from a security's most recent closing price and from the
prices used by other mutual funds to calculate their net asset values.
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 carry more risk
than U.S. securities, such as political and currency risks. The Fund normally
will invest a large portion of its assets in foreign securities. In the event
the Fund executes a foreign security transaction, the Fund may enter into a
foreign currency contract to settle the foreign security transaction. The
resultant foreign currency gain or loss from the contract is recorded as foreign
currency gain or loss and is presented as such in the Statement of Operations.
Foreign currency held at December 31, 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.
33
<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, as earned, and includes the
accretion of discounts and the amortization of premiums over the lives of the
respective securities. Withholding taxes on foreign dividends have been provided
for in accordance with the applicable country's tax rules and rates.
DISTRIBUTIONS TO SHAREHOLDERS--The Fund declares and distributes dividends (if
any) and capital gains (if any) annually. Dividends and distributions, which are
determined in accordance with income tax regulations, are recorded on the
ex-dividend date.
EXPENSES--Each Class of the Fund bears expenses incurred specifically on its
behalf and, in addition, each Class bears a portion of general expenses based on
the relative net assets or the number of shareholder accounts of the Class. The
type of expense determines the allocation method.
The Company's board of directors has authorized the payment of certain Fund
expenses with commissions on Fund portfolio transactions. These commissions
reduce Other Expenses and are included in the Expense Offset to Broker
Commissions in the Statement of Operations.
USE OF ESTIMATES--The preparation of financial statements in conformity with
accounting principles generally accepted in the United States of America
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported amounts of
income and expenses during the reporting period. Actual results could differ
from those estimates.
INDEMNIFICATIONS--In the normal course of business, the Company enters into
contracts that contain provisions indemnifying other parties against specified
potential liabilities. Each Fund's maximum exposure under these arrangements is
unknown as this would involve future claims that may be made against the Fund
that have not yet occurred. However, based on experience, the Funds expect the
risk of loss to be remote.
OTHER--Certain prior year information has been reformatted, without substantive
change, to conform with the current year presentation.
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
34
<Page>
first $250 million of net assets, 0.80% of the next $250 million of net assets
and 0.70% of net assets in excess of $500 million.
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 year ended December 31,
2004, Class F shares were charged $53,717 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 from DTI
are paid by the Fund. During the year ended December 31, 2004, Class F shares
were charged $18,228 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 $13.00, per shareholder account considered to be an
open account at any time during a given month, plus out-of-pocket charges.
Class-specific transfer agency fees paid to DTI during the year ended December
31, 2004 were as follows:
<Table>
<Caption>
TRANSFER
AGENCY FEES
---------------------------------------------------------------
Class A $ 31,329
Class B $ 41,484
Class C $ 16,956
Class R $ 306
Class T $ 1,554
</Table>
OTHER TRANSFER AGENCY FEES--Various broker-dealers, retirement plan
administrators and other unaffiliated entities have established omnibus accounts
with the Fund, and provide sub-transfer agency, recordkeeping or similar
services to persons holding Fund shares through those accounts. During the year
ended December 31, 2004, the Fund paid $30,686 to these entities for such
services. This amount is included in the transfer agency fees shown on the
Statement of Operations.
CASH MANAGEMENT FEES--The Funds also pay Mellon Bank N.A. ("Mellon Bank"), a
wholly-owned subsidiary of Mellon Financial Corporation and an affiliate of
Founders, fees for certain cash management services. These include various
services related to the processing of shareholder transactions in the Funds.
During the year ended
35
<Page>
December 31, 2004, the Fund was charged $6,888 for cash management fees, which
are included in the out-of-pocket charges from DTI above.
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 year ended December
31, 2004, Class F shares were charged $179,833 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 year ended December 31, 2004, were as follows:
<Table>
<Caption>
DISTRIBUTION SHAREHOLDER
FEES SERVICING FEES
--------------------------------------------------------------
Class A N/A $ 57,761
Class B $ 130,816 $ 43,605
Class C $ 78,112 $ 26,038
Class T $ 1,206 $ 1,206
</Table>
During the year ended December 31, 2004, DSC retained $24,961 and $104 in sales
commissions from the sales of Class A and Class T shares, respectively. DSC also
retained $57, $54,064 and $22,990 of contingent deferred sales charges relating
to redemptions of Class A, 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 contractually agreed to waive
any fees received for these services to the extent they exceed Founders' costs
in providing the services.
36
<Page>
CUSTODIAN FEES--Mellon Bank 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 Fund could have employed those assets
elsewhere to produce income had it not entered into this arrangement. The
custodian has also contractually 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 year ended December 31, 2004, the
Fund's portion of the fee waiver was $127,287, which reduced the amount paid to
Mellon Bank to $335,452.
DIRECTORS COMPENSATION--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 invested
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,
which pays their compensation. The affairs of the Fund, including services
provided by Founders, are subject to the supervision and general oversight of
the Company's board of directors.
OTHER--During the year ended December 31, 2004, Founders reimbursed the Fund
$19,515 for a trading error and $721 for two pricing errors. These amounts are
not material to the Fund.
37
<Page>
3. FEDERAL TAX INFORMATION
Net investment income and capital gains distributions are determined in
accordance with income tax regulations that may differ from accounting
principles generally accepted in the United States of America. These differences
are due to differing treatments for items such as deferral of wash sale losses,
foreign currency transactions, net operating losses and capital loss carryovers.
Permanent differences identified during the year ended December 31, 2004 have
been reclassified among the components of net assets as follows:
<Table>
<Caption>
UNDISTRIBUTED NET UNDISTRIBUTED NET PAID-IN
INVESTMENT INCOME REALIZED GAINS AND LOSSES CAPITAL
-----------------------------------------------------------------
$ 1,098,005 $ 636,921 $ (1,734,926)
</Table>
The tax components of capital represent distribution requirements the Fund must
satisfy under the income tax regulations and losses or tax deductions the Fund
may be able to offset against income and capital gains realized in future years.
Accumulated capital losses and post-October 31 capital losses noted below, if
any, as of December 31, 2004, 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. Net capital loss carryovers
utilized during 2004 by the Fund amounted to $20,460,712. Accumulated capital
losses as of December 31, 2004 were:
<Table>
<Caption>
EXPIRATION AMOUNT
--------------------------------------------------------------
2008 $ 17,533,320
2009 $ 109,892,631
2010 $ 11,833,084
--------------
$ 139,259,035
==============
</Table>
The aggregate cost of investments and the composition of unrealized appreciation
and depreciation of investment securities for federal income tax purposes as of
December 31, 2004 are noted below. Unrealized appreciation/depreciation in the
table below excludes appreciation/depreciation on foreign currency translation.
The primary difference between book and tax appreciation or depreciation is wash
sale loss deferrals.
<Table>
Post-October Capital Loss Deferral $ 50,886
Federal Tax Cost $ 109,182,396
Gross Tax Appreciation of Investments $ 12,109,003
Gross Tax Depreciation of Investments $ (1,312,213)
Net Tax Appreciation $ 10,796,790
</Table>
Certain foreign countries impose a tax on capital gains, which is accrued by the
Fund based on unrealized appreciation on affected securities. This unrealized
appreciation is not included in the table above. The tax is paid when the gain
is realized.
38
<Page>
4. CAPITAL SHARE TRANSACTIONS
The Fund is authorized to issue 400 million shares of $0.01 par value capital
stock. Transactions in shares of the Fund for the periods indicated were as
follows:
<Table>
<Caption>
YEAR ENDED YEAR ENDED
12/31/04 12/31/03
SHARES AMOUNT SHARES AMOUNT
CLASS A
Sold 871,718 $ 12,893,364 3,502,478 $ 36,560,507
Redeemed (1,608,411) $ (22,702,458) (2,746,760) $ (28,427,638)
----------------------------------------------------------------
Net Increase (Decrease) (736,693) $ (9,809,094) 755,718 $ 8,132,869
================================================================
CLASS B
Sold 40,534 $ 591,588 58,678 $ 685,415
Redeemed (246,693) $ (3,509,709) (350,900) $ (3,391,134)
----------------------------------------------------------------
Net Decrease (206,159) $ (2,918,121) (292,222) $ (2,705,719)
================================================================
CLASS C
Sold 156,715 $ 2,350,643 1,047,656 $ 9,859,862
Redeemed (291,948) $ (4,076,502) (938,988) $ (7,954,326)
----------------------------------------------------------------
Net Increase (Decrease) (135,233) $ (1,725,859) 108,668 $ 1,905,536
================================================================
CLASS F
Sold 925,441 $ 13,691,198 3,504,087 $ 34,110,158
Redeemed (1,942,721) $ (28,228,599) (4,216,077) $ (39,098,696)
----------------------------------------------------------------
Net Decrease (1,017,280) $ (14,537,401) (711,990) $ (4,988,538)
================================================================
CLASS R
Sold 19,297 $ 276,727 88,378 $ 927,946
Redeemed (17,956) $ (253,733) (82,802) $ (904,934)
----------------------------------------------------------------
Net Increase 1,341 $ 22,994 5,576 $ 23,012
================================================================
CLASS T
Sold 2,301 $ 33,146 154,521 $ 1,219,197
Redeemed (8,628) $ (121,085) (160,244) $ (1,297,043)
----------------------------------------------------------------
Net Decrease (6,327) $ (87,939) (5,723) $ (77,846)
================================================================
</Table>
5. INVESTMENT TRANSACTIONS
Purchases and sales of investment securities (excluding short-term securities
and U.S. government obligations) for the year ended December 31, 2004 were
$777,088,584 and $809,517,776, respectively.
39
<Page>
6. LINE OF CREDIT
The Company has a line of credit arrangement ("LOC") with State Street Bank and
Trust Company, to be used for temporary or emergency purposes, primarily for
financing redemption payments. Each Fund's borrowings are limited to the lesser
of (a) $50 million, or (b) the lesser of 25% of the Fund's total net assets or
the maximum amount which the Fund is permitted to borrow pursuant to the
prospectus, any law or any other agreement. Combined borrowings are subject to
the $50 million cap on the total LOC. Each Fund agrees to pay annual fees and
interest on the unpaid balance based on prevailing market rates as defined in
the LOC. At December 31, 2004, the Fund did not have any borrowings under the
LOC.
7. LEGAL MATTERS
In early 2004, two purported class and derivative actions were filed against
Mellon Financial Corporation, Mellon Bank, Founders, Dreyfus, and certain
directors of the Dreyfus Founders Funds and the Dreyfus Funds (together, the
"Defendant Funds"). In September 2004, plaintiffs served a Consolidated Amended
Complaint (the "Amended Complaint") on behalf of a purported class of all
persons who acquired interests in any of the Defendant Funds between January 30,
1999 and November 17, 2003, and derivatively on behalf of the Defendant Funds.
The Amended Complaint in the newly styled IN RE DREYFUS MUTUAL FUNDS FEE
LITIGATION also named DSC, Premier Mutual Fund Services, Inc. and two additional
directors of the Defendant Funds as defendants and alleges violations of the
Investment Company Act of 1940, the Investment Advisers Act of 1940, the
Pennsylvania Unfair Trade Practices and Consumer Protection Law and common-law
claims. Plaintiffs seek to recover allegedly improper and excessive Rule 12b-1
and advisory fees allegedly charged to the Defendant Funds for marketing and
distribution services. More specifically, plaintiffs claim, among other things,
that 12b-1 fees and directed brokerage were improperly used to pay brokers to
recommend the Defendant Funds over other funds, and that such payments were not
disclosed to investors. In addition, plaintiffs assert that economies of scale
and soft-dollar benefits were not passed on to the Defendant Funds. Plaintiffs
further allege that 12b-1 fees were improperly charged to certain of the
Defendant Funds that were closed to new investors. The Amended Complaint seeks
compensatory and punitive damages, rescission of the advisory contracts, and an
accounting and restitution of any unlawful fees, as well as an award of
attorneys' fees and litigation expenses. As noted, some of the claims in this
litigation are asserted derivatively on behalf of the Defendant Funds that have
been named as nominal defendants. With respect to such derivative claims, no
relief is sought against the Defendant Funds. Founders, Dreyfus and the
Defendant Funds believe the allegations to be totally without merit and intend
to defend the action vigorously. The defendants filed motions to dismiss the
Amended Complaint on November 12, 2004, and those motions are pending.
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 nor the Funds believe that any of the pending actions
will have a material adverse effect on the Funds or Founders' ability to perform
its contract with the Funds.
40
<Page>
REPORT OF INDEPENDENT
REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Shareholders of
Dreyfus Founders Funds, Inc.
In our opinion, the accompanying statement of assets and liabilities, including
the statement of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of Dreyfus Founders Passport Fund (one
of the portfolios constituting Dreyfus Founders Funds, Inc., hereafter referred
to as the "Fund") at December 31, 2004, the results of its operations for the
year then ended, the changes in its net assets for each of the two years in the
period then ended and the financial highlights for each of the five years in the
period then ended, in conformity with accounting principles generally accepted
in the United States of America. These financial statements and financial
highlights (hereafter referred to as "financial statements") are the
responsibility of the Fund's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these financial statements in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those standards
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits, which included
confirmation of securities at December 31, 2004 by correspondence with the
custodian and brokers and the application of alternative auditing procedures
where securities purchased had not been received, provide a reasonable basis for
the opinion expressed above.
PricewaterhouseCoopers LLP
Denver, Colorado
February 10, 2005
41
<Page>
YOUR BOARD REPRESENTATIVES
(UNAUDITED)
The Board of Directors of the Company oversees all 10 Dreyfus Founders Funds.
The business and affairs of the Company are managed under the direction of the
Board. The directors serving on the Board perform their responsibilities in the
manner which they reasonably believe to be in the best interests of the Funds
and their shareholders.
All of the directors, as listed below, are independent directors. They are not
affiliated with the Fund's adviser, its parent company, or its affiliates. The
directors have no official term of office and generally serve until they reach
the mandated retirement age of 75, resign, or are not re-elected. As you can see
from their backgrounds, the directors have broad experience as active or former
business and community leaders.
DIRECTORS
EUGENE H. VAUGHAN, CFA, 71. Year elected to the Board: 1970
Board Chairman. Founding Chairman and, formerly (1970 to 2000), President and
CEO, Vaughan Nelson Investment Management, LP, an investment counseling firm.
Director, Encore Bank. Founding Chairman, Center for Houston's Future, a
non-profit organization. Founding Chairman and former Governor, Association for
Investment Management and Research. Past Chairman and Trustee, Institute of
Chartered Financial Analysts. Past Chairman and Director, Financial Analysts
Federation.
ALAN S. DANSON, 65. Year elected to the Board: 1991
Private investor. Formerly, President and Director, D.H. Management, Inc., the
general partner of a limited partnership with technology company holdings (1996
to 2003). Formerly, Director and Senior Vice President, OptiMark Technologies,
Inc., a computerized securities trading service (1996 to 1999). Director,
CaseShare Systems, LLP, a document management company. Director, Gore Range
Natural Science School and The Les Streeter Programs, Inc., both of which are
non-profit organizations.
JOAN D. MANLEY, 72. Year elected to the Board: 1998
Retired. Formerly, Ms. Manley served in several executive capacities with Time
Incorporated, most recently as Group Vice President, Director and Chairman of
Time-Life Books, Inc. and Book of the Month Club, Inc. (1960 to 1984). Director,
Sara Lee Corporation and R.R. Donnelley & Sons Company.
ROBERT P. MASTROVITA, 60. Year elected to the Board: 1998
Private investor. Chairman of a private charitable foundation (1997 to present).
Formerly, Chairman and Director, Hagler, Mastrovita & Hewitt, Inc., a registered
investment adviser (1982 to 1997). Member, Boston Society of Security Analysts.
Trustee, Partridge Academy.
TRYGVE E. MYHREN, 68. Year elected to the Board: 1996
President, Myhren Media, Inc., a firm that invests in and advises media,
telecommunications, Internet and software companies. Special Limited Partner and
member of Investment Committee, Megunticook Funds, a venture capital firm (1998
to present). Director, Advanced Marketing Services, Inc. Trustee and Chairman of
Finance Committee, the University of Denver. Trustee, Denver Art Museum. Member,
Cable Television Hall of Fame. Formerly, President (1990 to 1996) and Director
(1992 to 2001) of the Providence Journal Company, a diversified media and
communications
42
<Page>
company. Formerly, Chairman and Chief Executive Officer of American Television
and Communications Corporation (now Timer Warner Cable) (1981 to 1988).
Formerly, Chairman of the National Cable Television Association (1986-1987).
GEORGE W. PHILLIPS, 66. Year elected to the Board: 1998
Retired. Vice Chairman of the Board, Chairman of the Finance Committee, and
Chairman of the Investment Committee, Children's Medical Center of Boston.
Formerly, President and Chief Executive Officer (1992 to 1997) and Director
(1992 to 2002) of Warren Bancorp, Inc. Formerly, President, Chief Executive
Officer and Director of Warren Five Cents Savings Bank (1992 to 1997).
PRINCIPAL OFFICERS
RICHARD W. SABO, 47. President of the Funds since 2000 and Principal Executive
Officer of the Funds since 2002. Founders' President and Chief Executive
Officer, Member of Founders' Board of Managers and Director of Dreyfus (1998 to
present). Executive Vice President of DSC since 2003. Formerly, Senior Vice
President and Regional Director for Prudential Securities, Inc. (1991 to 1998).
DAVID L. RAY, 47. Vice President of the Funds since 2000, and from 1990 to 1998.
Founders' Senior Vice President--Administration and Treasurer. Vice President of
DSC since 2003. Employed by Founders and its predecessor company since 1990.
Formerly, Treasurer of the Funds (1990 to 1998).
KENNETH R. CHRISTOFFERSEN, 49. Secretary of the Funds since 2000, and from 1996
to 1998. Founders' Senior Vice President--Legal, General Counsel and Secretary.
Assistant Secretary of DSC since 2003. Employed by Founders and its predecessor
company since 1996.
JANELLE E. BELCHER, 46. Chief Compliance Officer of the Funds since 2004 and
Assistant Secretary of the Funds since 2002. Founders' Vice
President--Compliance since 2002. Formerly, Founders' Manager of Compliance
(2000 to 2002) and Securities Compliance Examiner, Staff Accountant and Team
Leader for the U.S. Securities and Exchange Commission (1990 to 2000).
ROBERT T. KELLY, 35. Treasurer, Principal Financial Officer, and Principal
Accounting Officer of the Funds since 2003. Founders' Vice President of
Portfolio Accounting since 2000. Formerly, Assistant Treasurer of the Funds
(2000 to 2003), and Head of Equity Desk for ABN Amro Trust Company (Cayman)
Limited (1998 to 2000).
WILLIAM G. GERMENIS, 34. Anti-Money Laundering Compliance Officer ("AMLCO") for
the Class A, Class B, Class C, Class R, and Class T shares of the Funds since
2002 and for the Class F shares of the Funds since 2003. Vice President and
AMLCO of MBSC, LLC since 2002. Vice President and AMLCO of DSC and AMLCO of
investment companies managed by Dreyfus. Employed by DSC since 1998.
The directors and officers may be contacted at Founders' address appearing on
the inside cover, except for Mr.Germenis, who can be contacted at 200 Park
Avenue, New York, New York 10166. Additional information about the Company's
directors is available in the Statement of Additional Information, which can be
obtained free of charge by calling the toll free number on the back cover.
43
<Page>
FOR MORE INFORMATION
- -------------------------------------------------------------------------------
DREYFUS FOUNDERS TRANSFER AGENT &
PASSPORT FUND DIVIDEND DISBURSING AGENT
MANAGER Dreyfus Transfer, Inc.
200 Park Avenue
Founders Asset Management LLC New York, NY 10166
210 University Boulevard
Suite 800
Denver, CO 80206 DISTRIBUTOR
Dreyfus Service Corporation
200 Park Avenue
New York, NY 10166
- -------------------------------------------------------------------------------
TELEPHONE Call your financial representative or 1-800-554-4611
MAIL Dreyfus Founders Funds, Inc.
144 Glenn Curtiss Boulevard, Uniondale, NY 11556-0144
The fund files its complete schedule of portfolio holdings with the Securities
and Exchange Commission ("SEC") for the first and third quarters of each fiscal
year on Form N-Q. The fund's Forms N-Q are available on the SEC's website at
http://www.sec.gov and may be reviewed and copied at the SEC's Public Reference
Room in Washington, DC. Information on the operation of the Public Reference
Room may be obtained by calling 1-800-SEC-0330.
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 http://www.dreyfus.com and on the SEC's
website at http://www.sec.gov. The description of the policies and procedures is
also available without charge, upon request, by calling 1-800-645-6561.
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.
[LION GRAPHIC]
(C)2005 Dreyfus Service Corporation 0281AR1204
<Page>
Dreyfus Founders
Worldwide Growth Fund
ANNUAL REPORT December 31, 2004
[LION GRAPHIC]
YOU, YOUR ADVISOR AND
(R) [DREYFUS LOGO]
A MELLON FINANCIAL COMPANY (SM)
<Page>
TABLE OF CONTENTS
<Table>
Management Overview 3
Fund Expenses 10
Statement of Investments 12
Statement of Assets and Liabilities 20
Statement of Operations 22
Statements of Changes in Net Assets 23
Financial Highlights 24
Notes to Financial Statements 30
Report of Independent Registered Public Accounting Firm 39
Your Board Representatives 40
</Table>
-----------------------------------------------------------
Save time. Save paper. View your next shareholder report
online as soon as it's available. Log into www.dreyfus.com
and sign up for Dreyfus eCommunications. It's simple and
only takes a few minutes.
-----------------------------------------------------------
INVESTMENT MANAGER DISTRIBUTOR
Founders Asset Management LLC Dreyfus Service Corporation
A MELLON FINANCIAL COMPANY(SM) 200 Park Avenue
210 University Boulevard, Suite 800 New York, NY 10166
Denver, CO 80206
The views expressed in this report reflect those of the portfolio managers only
through the end of the period covered and do not necessarily represent the views
of Founders or any other person in the Founders organization. Any such views are
subject to change at any time based upon market or other conditions and Founders
disclaims any responsibility to update such views. These views may not be relied
on as investment advice and, because investment decisions for a Dreyfus Founders
Fund are based on numerous factors, may not be relied on as an indication of
trading intent on behalf of any Dreyfus Founders Fund. Companies appearing in
bold print on pages 3-9 were owned by the Fund on December 31, 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
(UNAUDITED)
[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 FOR THE 12 MONTHS ENDED
DECEMBER 31, 2004?
Dreyfus Founders Worldwide Growth Fund underperformed its benchmark, the Morgan
Stanley Capital International (MSCI) World Index, which returned 14.72% for the
period.
PLEASE DESCRIBE THE BROAD MARKET AND ECONOMIC ENVIRONMENT IN WHICH THE FUND
PERFORMED.
The domestic markets performed in an environment of uncertainty during the first
three quarters of the year as a weak U.S. dollar, continued unrest in Iraq, high
oil prices, a tightening of the monetary policy by the Federal Reserve and the
close U.S. Presidential election weighed on investors. However, as oil prices
dropped and the Presidential election was decided, the markets once again gained
momentum in the fourth quarter.
[SIDENOTE]
"MANY SECTORS FARED WELL DURING THE PERIOD DUE PRIMARILY TO THE BENEFITS OF
ACCELERATING GLOBAL PRODUCTION."
3
<Page>
European markets performed well during the period despite weak local demand,
record high commodity prices and currency strength. Natural resource-rich
countries, such as Norway, and areas with flourishing local growth, like Spain,
offset more sluggish results in other European countries.
Japan lagged other Asian markets during 2004 due to mixed performance in the
technology sector and a slower-than-expected recovery in domestic consumption.
Overall, many sectors fared well during the period due primarily to the
benefits of accelerating global production; however, technology and healthcare
were the two worst performing sectors during the year.
WHERE DID YOU FIND THE MOST COMPELLING GROWTH OPPORTUNITIES DURING THE PERIOD?
The largest contributors to relative Fund performance on a country basis were
found in the United Kingdom, Canada, Germany and France. The Fund outpaced the
benchmark in these countries due to strong stock selection and beneficial
weightings. Singapore and the Netherlands also performed well for the Fund
during the 12-month timeframe.
[SIDENOTE]
PERFORMANCE HIGHLIGHTS
- - As oil prices dropped and the Presidential election was decided, the markets
gained momentum in the fourth quarter.
- - During the period, our outlook for consumer spending was favorable and our
bottom-up investment approach led us to select stocks that we believed would
benefit from this increased spending environment.
- - Another large positive contributor to relative Fund performance was strong
stock selection in the energy sector. The Fund's holdings in this sector
significantly outperformed the benchmark for the year.
- - The largest negative contributor to relative Fund performance on a country
basis came from United States, due to the uncertainties which hung over the
market.
- - Nearly all of the stocks that had the largest negative impact on the Fund's
performance were found in the information technology sector.
4
<Page>
During the period, our outlook for consumer spending was favorable and our
bottom-up investment approach led us to select stocks that we believed would
benefit from this increased spending environment. APPLE COMPUTER, INC., which
had the largest positive impact on the Fund's performance of any stock, rallied
as the company continued to benefit from its dominance in the MP3 market with
the popularity of the iPod. Additional Fund holdings that performed well due to
the strong spending environment included brewer SABMILLER PLC, high-end retailer
Nordstrom, Inc., and entertainment company WALT DISNEY COMPANY.
In addition, an overweight position paired with strong stock selection in the
consumer discretionary sector buoyed relative Fund performance. ROYAL CARIBBEAN
CRUISES LIMITED and CARNIVAL CORPORATION both experienced strong demand for
leisure cruising.
Another large positive contributor to relative Fund performance was strong
stock selection in the energy sector. Led by U.K.-based Cairn Energy PLC, the
Fund's holdings in this sector significantly outperformed the benchmark for the
year. Cairn was up nearly 125% during the Fund's holding period, as the oil and
gas exploration and production company enjoyed highly successful exploration
ventures in India and soaring oil prices.
LARGEST EQUITY HOLDINGS (country of origin; ticker symbol)
<Table>
1. Royal Caribbean Cruises Limited (United States; RCL) 2.37%
2. Intel Corporation (United States; INTC) 2.26%
3. Wal-Mart Stores, Inc. (United States; WMT) 2.25%
4. Vodafone Group PLC (United Kingdom; VOD) 1.83%
5. Apple Computer, Inc. (United States; AAPL) 1.78%
6. Carnival Corporation (United States; CCL) 1.72%
7. Automatic Data Processing, Inc. (United States; ADP) 1.67%
8. Abbott Laboratories (United States; ABT) 1.67%
9. Johnson & Johnson (United States; JNJ) 1.64%
10. Comcast Corporation (United States; CMCSK) 1.64%
</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.
Class F MSCI World
Shares Index
- -------------------------------------
12/31/1994 $10,000 $10,000
12/31/1995 $12,063 $12,072
12/31/1996 $13,746 $13,699
12/31/1997 $15,197 $15,859
12/31/1998 $16,659 $19,718
12/31/1999 $24,785 $24,635
11/30/2000 $18,896 $21,051
12/31/2001 $14,414 $17,790
12/31/2002 $10,245 $14,252
12/31/2003 $14,033 $18,971
12/31/2004 $15,816 $21,764
The above graph compares a $10,000 investment made in Class F shares of Dreyfus
Founders Worldwide Growth Fund on 12/31/94 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 TOTAL RETURN AS OF 12/31/04
<Table>
<Caption>
1 5 10 SINCE
CLASS (INCEPTION DATE) YEAR YEARS YEARS INCEPTION
---------------------------------------------------------------------------------------------------
CLASS A SHARES (12/31/99)
With sales charge (5.75%) 6.21% (9.76%) -- (9.76%)
Without sales charge 12.65% (8.68%) -- (8.68%)
CLASS B SHARES (12/31/99)
With redemption* 7.89% (9.63%) -- (9.63%)
Without redemption 11.89% (9.34%) -- (9.34%)
CLASS C SHARES (12/31/99)
With redemption** 10.75% (9.71%) -- (9.71%)
Without redemption 11.75% (9.71%) -- (9.71%)
CLASS F SHARES (12/29/89) 12.71% (8.59%) 4.69% 7.44%
CLASS R SHARES (12/31/99) 13.19% (8.23%) -- (8.23%)
CLASS T SHARES (12/31/99)
With sales charge (4.50%) 7.21% (10.60%) -- (10.60%)
Without sales charge 12.30% (9.77%) -- (9.77%)
</Table>
Average annual total returns do not reflect the deduction of taxes that a
shareholder would pay on Fund distributions or redemption of Fund shares, but do
reflect the reinvestment of dividends and capital gain distributions, expense
limits for certain share classes, and adjustments for financial statement
purposes. Part of the Fund's historical performance is due to the purchase of
securities sold in initial public offerings (IPOs). There is no guarantee that
the Fund's investments in IPOs, if any, will continue to have a similar impact
on performance. Investments in foreign securities entail unique risks, including
political, market, and currency risks.
*The maximum contingent deferred sales charge for Class B shares is 4% and is
reduced to 0% after six years, at which time the Class B shares convert to Class
A shares.
**The maximum contingent deferred sales charge for Class C shares is 1% for
shares redeemed within one year of the date of purchase.
7
<Page>
Solid stock selection in the consumer staples sector also boosted relative
Fund performance.
Other notable individual performers during the period included financials
holdings BARCLAYS PLC and ING GROEP NV, and automotive industry supplier
CONTINENTAL AG.
WHERE DID YOU FIND THE LEAST COMPELLING GROWTH OPPORTUNITIES DURING THE PERIOD?
The largest negative contributor to relative Fund performance on a country basis
came from United States, due to the aforementioned uncertainties which hung over
the market. Although the Fund's holdings in the U.S. were positive for the year,
this return trailed the benchmark's return. The Fund also trailed the Index in
Denmark, Hong Kong, Italy and Sweden.
Our investment strategy for the Fund is to build a diversified portfolio of
high-quality companies across various sectors and countries that demonstrate the
best potential for significant earnings growth. However, there are times when
stock performance disappoints, hurting overall Fund performance. The biggest
detractors to the Fund's relative performance came from the information
technology, materials and industrials sectors. Nearly all of the stocks that
[CHART]
PORTFOLIO COMPOSITION OF NET ASSETS
<Table>
United States 48.13%
United Kingdom 11.14%
Japan 10.32%
France 5.00%
Germany 4.04%
Canada 2.88%
Switzerland 2.82%
Italy 2.03%
Other Countries 11.89%
Cash & Equivalents 1.75%
</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>
had the largest negative impact on the Fund's performance were found in the
information technology sector, including issues INTEL CORPORATION, NVIDIA
Corporation, CISCO SYSTEMS, INC., Oracle Corporation, Motorola, Inc., NOKIA OYJ,
MAXIM INTEGRATED PRODUCTS, INC., VERITAS Software Corporation and EMC
Corporation.
In addition, healthcare holding PFIZER, INC. had a negative impact on the
Fund's performance. The company's share price was hurt by generic competition
and safety concerns surrounding their blockbuster COX-2 inhibitor drug
Celebrex(R).
We will continue to employ our fundamental-based investment strategy of
selecting companies that we believe will post superior revenue and earnings
growth rates at valuations that make sense.
/s/ Remi J. Browne /s/ Daniel B. LeVan
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>
FUND EXPENSES
(UNAUDITED)
As a shareholder of the Fund, depending on the class of shares of the Fund you
own, you incur two types of costs: (1) transaction costs, including front-end
and contingent deferred sales charges; and (2) ongoing costs, including
management fees, Rule 12b-1 fees, shareholder services fees, and other expenses.
The expense example shown below is intended to help you understand your ongoing
costs (in dollars) of investing in the Fund and to compare these costs with the
ongoing costs of investing in other mutual funds.
The expense example is based on an investment of $1,000 on July 1, 2004 and
held through December 31, 2004.
ACTUAL EXPENSES The numbers included in the expense example in the rows with the
word "Actual" in the title provide information about actual account values and
actual expenses. You may use this information to estimate the expenses that you
paid over the period. Simply divide your account value by $1,000 (for example,
an $8,600 account value divided by $1,000 = 8.60), then multiply the result by
the number under the column heading entitled "Expenses Paid During Period" for
the class of shares you own to estimate the expenses you paid on your account
during this period.
HYPOTHETICAL EXPENSES The numbers included in the expense example in the rows
with the word "Hypothetical" in the title provide information about hypothetical
account values and hypothetical expenses based on the Fund's actual expense
ratio for each class of shares, and an assumed rate of return of 5% per year
before expenses, which is not the Fund's actual return. The hypothetical account
values and expenses may not be used to estimate the actual ending account
balance or expenses you paid for the period. You may use this information to
compare the ongoing costs of investing in the Fund and other funds. To do so,
compare the hypothetical expenses in the expense example for the class of shares
you own with the hypothetical expenses that appear in the shareholder reports of
other funds.
Please note that the expenses shown in the expense example are meant to
highlight your ongoing costs only and do not reflect the transaction costs
described above. Therefore, the hypothetical expenses in the expense example are
useful in comparing ongoing costs only, and will not help you determine the
relative total costs of owning different funds. In addition, if the transaction
costs were included, your costs would have been higher.
10
<Page>
EXPENSE EXAMPLE
<Table>
<Caption>
BEGINNING ENDING EXPENSES PAID
ACCOUNT VALUE ACCOUNT VALUE DURING PERIOD*
(7/1/04) (12/31/04) (7/1/04-12/31/04)
--------------------------------------------------------------------------------------------
CLASS A ACTUAL $ 1,000.00 $ 1,086.91 $ 9.75
CLASS A HYPOTHETICAL 1,000.00 1,015.58 9.42
CLASS B ACTUAL 1,000.00 1,078.87 13.25
CLASS B HYPOTHETICAL 1,000.00 1,012.17 12.83
CLASS C ACTUAL 1,000.00 1,078.28 13.94
CLASS C HYPOTHETICAL 1,000.00 1,011.51 13.49
CLASS F ACTUAL 1,000.00 1,087.94 9.33
CLASS F HYPOTHETICAL 1,000.00 1,015.99 9.01
CLASS R ACTUAL 1,000.00 1,092.43 7.23
CLASS R HYPOTHETICAL 1,000.00 1,018.03 6.97
CLASS T ACTUAL 1,000.00 1,082.09 12.37
CLASS T HYPOTHETICAL 1,000.00 1,013.04 11.96
</Table>
*Expenses are equal to each Class's respective annualized expense ratio, shown
below, multiplied by the average account value over the period, multiplied by
184/366 (to reflect the one-half year period).
EXPENSE RATIOS
These expense ratios reflect reimbursements and/or waivers of expenses by the
Fund's investment adviser or its affiliates.
<Table>
<Caption>
EXPENSE RATIO
------------------------------------
CLASS A 1.85%
CLASS B 2.52%
CLASS C 2.65%
CLASS F 1.77%
CLASS R 1.37%
CLASS T 2.35%
</Table>
11
<Page>
STATEMENT OF INVESTMENTS
December 31, 2004
<Table>
<Caption>
SHARES MARKET VALUE
- ---------------------------------------------------------------------------------------------------------------
COMMON STOCKS (DOMESTIC)--48.1%
AIRLINES--1.3%
28,800 JetBlue Airways Corporation* $ 668,730
31,575 Southwest Airlines Company 514,041
---------------
1,182,771
---------------
ASSET MANAGEMENT & CUSTODY BANKS--1.0%
6,400 Bank of New York Company, Inc. 213,888
14,725 Northern Trust Corporation 715,341
---------------
929,229
---------------
BIOTECHNOLOGY--0.8%
3,475 Biogen Idec, Inc.* 231,470
9,000 Genzyme Corporation* 522,630
---------------
754,100
---------------
BROADCASTING & CABLE TV--1.6%
44,325 Comcast Corporation Special Class A* 1,455,633
---------------
COMMUNICATIONS EQUIPMENT--2.3%
44,625 Cisco Systems, Inc.* 861,263
10,825 QUALCOMM, Inc. 458,980
22,325 Scientific-Atlanta, Inc. 736,948
---------------
2,057,191
---------------
COMPUTER & ELECTRONICS RETAIL--0.5%
7,212 Best Buy Company, Inc. 428,537
---------------
COMPUTER HARDWARE--2.6%
24,450 Apple Computer, Inc.* 1,574,580
7,600 International Business Machines Corporation 749,208
---------------
2,323,788
---------------
CONSUMER FINANCE--0.7%
21,250 MBNA Corporation 599,038
---------------
</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.
AR Argentina
AT Austria
AU Australia
BD Bermuda
BE Belgium
BR Brazil
CA Canada
CH Chile
CN China
DE Denmark
FI Finland
FR France
GE Germany
GR Greece
HK Hong Kong
ID Indonesia
IE Ireland
IN India
IS Israel
IT Italy
JA Japan
KR South Korea
MA Malaysia
MX Mexico
NE Netherlands
NW Norway
NZ New Zealand
PH Philippines
SA South Africa
SG Singapore
SP Spain
SW Sweden
SZ Switzerland
TH Thailand
UK United Kingdom
12
<Page>
<Table>
<Caption>
SHARES MARKET VALUE
- ---------------------------------------------------------------------------------------------------------------
DATA PROCESSING & OUTSOURCED SERVICES--2.1%
33,300 Automatic Data Processing, Inc. $ 1,476,855
9,575 CheckFree Corporation* 364,616
---------------
1,841,471
---------------
DEPARTMENT STORES--1.0%
18,625 Kohl's Corporation* 915,791
---------------
GENERAL MERCHANDISE STORES--0.5%
21,250 Dollar General Corporation 441,363
---------------
HEALTHCARE EQUIPMENT--0.7%
16,450 Boston Scientific Corporation* 584,798
---------------
HOTELS, RESORTS & CRUISE LINES--1.7%
26,500 Carnival Corporation 1,527,195
---------------
HOUSEHOLD PRODUCTS--1.8%
15,300 Clorox Company 901,629
13,525 Colgate-Palmolive Company 691,939
---------------
1,593,568
---------------
HYPERMARKETS & SUPER CENTERS--2.2%
37,800 Wal-Mart Stores, Inc. 1,996,596
---------------
INDUSTRIAL CONGLOMERATES--1.0%
23,375 General Electric Company 853,188
---------------
INVESTMENT BANKING & BROKERAGE--1.6%
13,325 Goldman Sachs Group, Inc. 1,386,333
---------------
LEISURE FACILITIES--2.4%
38,550 Royal Caribbean Cruises Limited 2,098,662
---------------
LIFE & HEALTH INSURANCE--0.5%
26,550 UnumProvident Corporation 476,307
---------------
MOVIES & ENTERTAINMENT--0.7%
21,850 Walt Disney Company 607,430
---------------
MULTI-LINE INSURANCE--0.7%
9,200 American International Group, Inc. 604,164
---------------
OFFICE ELECTRONICS--0.4%
6,575 Zebra Technologies Corporation* 370,041
---------------
OIL & GAS DRILLING--0.6%
12,700 Diamond Offshore Drilling, Inc. 508,635
---------------
OTHER DIVERSIFIED FINANCIAL SERVICES--0.9%
9,008 Citigroup, Inc. 434,005
10,456 JPMorgan Chase & Company 407,889
---------------
841,894
---------------
PERSONAL PRODUCTS--2.6%
20,800 Estee Lauder Companies, Inc. 952,016
30,225 Gillette Company 1,353,476
---------------
2,305,492
---------------
</Table>
SEE NOTES TO STATEMENT OF INVESTMENTS.
13
<Page>
<Table>
<Caption>
SHARES MARKET VALUE
- ---------------------------------------------------------------------------------------------------------------
PHARMACEUTICALS--3.7%
31,650 Abbott Laboratories $ 1,476,473
22,975 Johnson & Johnson 1,457,075
13,806 Pfizer, Inc. 371,243
---------------
3,304,791
---------------
PROPERTY & CASUALTY INSURANCE--0.5%
8,850 Allstate Corporation 457,722
---------------
RAILROADS--1.9%
16,250 Burlington Northern Santa Fe Corporation 768,788
13,325 Union Pacific Corporation 896,106
---------------
1,664,894
---------------
SEMICONDUCTORS--4.8%
13,600 Broadcom Corporation* 439,008
85,725 Intel Corporation 2,005,108
20,175 Linear Technology Corporation 781,983
24,300 Maxim Integrated Products, Inc. 1,030,077
---------------
4,256,176
---------------
SOFT DRINKS--0.5%
9,550 Coca-Cola Company 397,567
---------------
SPECIALTY STORES--0.2%
5,675 Tiffany & Company 181,430
---------------
SYSTEMS SOFTWARE--1.3%
41,975 Microsoft Corporation 1,121,152
---------------
THRIFTS & MORTGAGE FINANCE--1.9%
10,225 Freddie Mac 753,583
21,550 The PMI Group, Inc. 899,713
---------------
1,653,296
---------------
TRADING COMPANIES & DISTRIBUTORS--1.1%
13,975 W.W. Grainger, Inc. 931,015
---------------
TOTAL COMMON STOCKS (DOMESTIC)
(COST--$36,025,533) 42,651,258
---------------
COMMON STOCKS (FOREIGN)--50.2%
AEROSPACE & DEFENSE--0.5%
90,600 BAE Systems PLC (UK) 400,908
---------------
APPAREL, ACCESSORIES & LUXURY GOODS--1.1%
18,900 Bulgari SPA (IT) 233,520
45,600 Burberry Group PLC (UK) 351,039
10,400 Compagnie Financiere Richemont AG (SZ) 346,179
---------------
930,738
---------------
APPLICATION SOFTWARE--0.8%
63,600 Sage Group PLC (UK) 246,940
2,510 SAP AG (GE) 447,617
---------------
694,557
---------------
</Table>
14
<Page>
<Table>
<Caption>
SHARES MARKET VALUE
- ---------------------------------------------------------------------------------------------------------------
AUTOMOBILE MANUFACTURERS--1.7%
32,400 Nissan Motor Company Limited (JA) $ 352,236
4,900 Renault SA (FR) 409,943
19,400 Toyota Motor Corporation (JA) 789,480
---------------
1,551,659
---------------
BIOTECHNOLOGY--0.5%
610 Serono SA (SZ) 401,803
---------------
BREWERS--2.0%
16,700 Asahi Breweries Limited (JA) 206,815
8,300 InBev NV (BE) 321,982
7,900 Orkla ASA (NW) 259,564
58,500 SABMiller PLC (UK) 970,321
---------------
1,758,682
---------------
BROADCASTING & CABLE TV--1.4%
56,300 Mediaset SPA (IT) 713,985
36,100 Publishing & Broadcasting Limited (AU) 495,218
---------------
1,209,203
---------------
COMMUNICATIONS EQUIPMENT--1.5%
32,100 Nokia Oyj (FI) 507,003
2,400 Research In Motion Limited (CA)* 197,857
193,800 Telefonaktiebolaget LM Ericsson (SW) 618,256
---------------
1,323,116
---------------
COMPUTER HARDWARE--0.3%
34,000 Fujitsu Limited (JA) 221,314
---------------
COMPUTER STORAGE & PERIPHERALS--0.3%
15,700 ATI Technologies, Inc. (CA)* 304,775
---------------
CONSTRUCTION, FARM MACHINERY & HEAVY TRUCKS--0.8%
18,600 Volvo AB (SW) 737,518
---------------
CONSUMER ELECTRONICS--0.5%
29,000 Casio Computer Company Limited (JA) 447,438
---------------
CONSUMER FINANCE--0.3%
4,000 Sanyo Shinpan Finance Company Limited (JA) 284,181
---------------
DIVERSIFIED BANKS--3.9%
7,280 Alpha Bank AE (GR) 253,914
98,900 Banca Intesa SPA (IT) 475,881
85,871 Barclays PLC (UK) 966,028
7,489 BNP Paribas SA (FR) 542,563
14,000 HBOS PLC (UK) 227,913
6,988 Royal Bank of Scotland Group PLC (UK) 235,035
25,000 Shizuoka Bank Limited (JA) 236,899
5,400 Societe Generale (FR) 546,459
---------------
3,484,692
---------------
</Table>
SEE NOTES TO STATEMENT OF INVESTMENTS.
15
<Page>
<Table>
<Caption>
SHARES MARKET VALUE
- ---------------------------------------------------------------------------------------------------------------
DIVERSIFIED CAPITAL MARKETS--0.8%
12,200 Credit Suisse Group (SZ)* $ 512,848
2,844 UBS AG (SZ) 238,480
---------------
751,328
---------------
DIVERSIFIED CHEMICALS--0.7%
8,100 BASF AG (GE) 582,645
---------------
DIVERSIFIED METALS & MINING--1.4%
53,000 BHP Billiton Limited (AU) 637,313
36,000 Xstrata PLC (UK) 644,116
---------------
1,281,429
---------------
ELECTRIC UTILITIES--1.1%
5,800 E.ON AG (GE) 529,623
24,300 Fortum Oyj (FI) 449,865
---------------
979,488
---------------
ELECTRICAL COMPONENTS & EQUIPMENT--0.4%
34,700 Sumitomo Electric Industries Limited (JA) 377,579
---------------
ELECTRONIC EQUIPMENT MANUFACTURERS--1.1%
79,000 Hitachi Limited (JA) 547,380
4,100 Hoya Corporation (JA) 462,935
---------------
1,010,315
---------------
FOOD RETAIL--1.5%
1,400 Colruyt NV (BE) 227,593
3,700 Delhaize Group (BE) 281,385
127,900 Tesco PLC (UK) 790,014
---------------
1,298,992
---------------
FOREST PRODUCTS--0.3%
20,100 Canfor Corporation (CA)* 262,531
---------------
HOUSEHOLD PRODUCTS--0.4%
12,550 Reckitt Benckiser PLC (UK) 379,222
---------------
HYPERMARKETS & SUPER CENTERS--0.8%
9,000 Ito-Yokado Company Limited (JA) 377,672
6,400 Metro AG (GE) 351,970
---------------
729,642
---------------
INDUSTRIAL CONGLOMERATES--0.3%
42,900 Keppel Corporation Limited (SG) 226,011
---------------
INDUSTRIAL MACHINERY--0.6%
64,000 NSK Limited (JA) 321,655
3,600 Saurer AG (SZ)* 212,119
---------------
533,774
---------------
INTEGRATED OIL & GAS--2.3%
76,742 BP PLC (UK) 748,415
6,400 Husky Energy, Inc. (CA) 182,941
13,900 Repsol YPF SA (SP) 362,001
3,420 Total SA (FR) 747,035
---------------
2,040,392
---------------
</Table>
16
<Page>
<Table>
<Caption>
SHARES MARKET VALUE
- ---------------------------------------------------------------------------------------------------------------
INTEGRATED TELECOMMUNICATION SERVICES--2.7%
17,700 Deutsche Telekom AG (GE)* $ 400,337
7,500 France Telecom (FR) 248,335
92,300 Koninklijke KPN NV (NE) 876,957
12,600 Telefonica SA (SP) 237,374
19,600 Telus Corporation (CA) 592,482
---------------
2,355,485
---------------
IT CONSULTING & OTHER SERVICES--0.5%
16,500 Accenture Limited (BD)* 445,500
---------------
LEISURE PRODUCTS--0.4%
16,600 Sankyo Company Limited (JA) 375,027
---------------
LIFE & HEALTH INSURANCE--0.6%
84,900 Friends Provident PLC (UK) 251,000
103,600 Old Mutual PLC (UK) 263,525
---------------
514,525
---------------
MARINE--0.9%
69 AP Moller-Maersk AS (DE) 569,894
35,000 Kawasaki Kisen Kaisha Limited (JA) 225,090
---------------
794,984
---------------
MOVIES & ENTERTAINMENT--0.5%
13,300 Vivendi Universal SA (FR) 424,653
---------------
MULTI-LINE INSURANCE--0.5%
21,200 Aviva PLC (UK) 255,588
4,900 Baloise Holding Limited (SZ) 226,233
---------------
481,821
---------------
MULTI-UTILITIES & UNREGULATED POWER--0.3%
9,200 Suez SA (FR) 245,350
---------------
OFFICE ELECTRONICS--0.9%
14,000 Canon, Inc. (JA) 755,538
---------------
OIL & GAS EXPLORATION & PRODUCTION--0.9%
15,100 Eni SPA (IT) 378,064
2,600 Norsk Hydro ASA (NW) 204,765
161,900 Oil Search Limited (AU) 229,708
---------------
812,537
---------------
OTHER DIVERSIFIED FINANCIAL SERVICES--1.3%
29,600 ING Groep NV (NE) 895,604
7,900 Sun Life Financial, Inc. (CA) 264,718
---------------
1,160,322
---------------
</Table>
SEE NOTES TO STATEMENT OF INVESTMENTS.
17
<Page>
<Table>
<Caption>
SHARES MARKET VALUE
- ---------------------------------------------------------------------------------------------------------------
PHARMACEUTICALS--6.4%
13,500 Eisai Company Limited (JA) $ 443,984
11,500 GlaxoSmithKline PLC (UK) 269,783
5,400 Merck KGaA (GE) 369,199
11,088 Novartis AG (SZ) 558,739
6,100 Novo Nordisk AS Class B (DE) 333,279
9,000 Ono Pharmaceuticals Company Limited (JA) 505,026
9,500 Sanofi-Synthelabo SA (FR) 759,277
71,500 Shire Pharmaceuticals Group PLC (UK) 750,825
15,600 Takeda Pharmaceuticals Company Limited (JA) 785,557
29,500 Teva Pharmaceutical Industries Limited Sponsored ADR (IS) 880,870
---------------
5,656,539
---------------
PRECIOUS METALS & MINERALS--0.3%
12,400 ThyssenKrupp AG (GE) 273,046
---------------
PROPERTY & CASUALTY INSURANCE--0.3%
21,500 QBE Insurance Group Limited (AU) 258,701
---------------
PUBLISHING--0.3%
26,700 United Business Media PLC (UK) 246,036
---------------
RAILROADS--0.9%
12,237 Canadian National Railway Company (CA) 749,516
---------------
SEMICONDUCTORS--0.3%
119,700 ARM Holdings PLC (UK) 253,923
---------------
STEEL--0.8%
16,300 JFE Holdings, Inc. (JA) 465,283
92,000 Nippon Steel Corporation (JA) 225,354
---------------
690,637
---------------
TIRES & RUBBER--0.7%
9,900 Continental AG (GE) 629,095
---------------
TRADING COMPANIES & DISTRIBUTORS--0.8%
57,000 Mitsubishi Corporation (JA) 736,489
---------------
WIRELESS TELECOMMUNICATION SERVICES--2.6%
11,000 Bouygues SA (FR) 508,359
65,100 China Mobile (Hong Kong) Limited (HK) 220,694
596,575 Vodafone Group PLC (UK) 1,617,704
---------------
2,346,757
---------------
TOTAL COMMON STOCKS (FOREIGN)
(COST--$34,014,899) 44,410,413
---------------
</Table>
18
<Page>
<Table>
<Caption>
PRINCIPAL AMOUNT AMORTIZED COST
- ---------------------------------------------------------------------------------------------------------------
CORPORATE SHORT-TERM NOTES--1.5%
HOUSEHOLD APPLIANCES--1.5%
$ 1,369,000 Stanley Works, Inc.
2.20% 1/3/05~ $ 1,368,833
---------------
TOTAL CORPORATE SHORT-TERM NOTES
(AMORTIZED COST--$1,368,833) 1,368,833
---------------
TOTAL INVESTMENTS--99.8%
(TOTAL COST--$71,409,265) 88,430,504
---------------
OTHER ASSETS AND LIABILITIES--0.2% 177,676
---------------
NET ASSETS--100.0% $ 88,608,180
===============
</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. THESE SECURITIES
AMOUNTED TO $1,368,833, OR 1.5%, OF THE FUND'S NET ASSETS AS OF DECEMBER
31, 2004.
ADR - AMERICAN DEPOSITARY RECEIPT
SEE NOTES TO FINANCIAL STATEMENTS.
19
<Page>
STATEMENT OF ASSETS AND LIABILITIES
December 31, 2004
<Table>
ASSETS
Investment securities, at cost $ 71,409,265
---------------
Investment securities, at market 88,430,504
Cash 247,503
Foreign currency (cost $1,267) 1,255
Receivables:
Capital shares sold 86,787
Dividends and interest 76,830
Other assets 103,650
---------------
Total Assets 88,946,529
---------------
LIABILITIES
Payables and other accrued liabilities:
Capital shares redeemed 124,744
Advisory fees 74,453
Shareholder servicing fees 9,494
Accounting fees 5,842
Distribution fees 17,235
Transfer agency fees 6,797
Custodian fees 3,783
Directors Deferred Compensation 64,944
Other 31,057
---------------
Total Liabilities 338,349
---------------
Net Assets $ 88,608,180
===============
COMPOSITION OF NET ASSETS
Capital (par value and paid-in surplus) $ 141,794,762
Accumulated net investment loss (17,206)
Accumulated net realized loss from security transactions (70,198,676)
Net unrealized appreciation on investments
and foreign currency translation 17,029,300
---------------
Total $ 88,608,180
===============
</Table>
20
<Page>
<Table>
CLASS A
Net Assets $ 518,501
Shares Outstanding 40,452
Net Asset Value, Redemption Price Per Share $ 12.82
Maximum offering price per share (net asset value
plus sales charge of 5.75% of offering price) $ 13.60
CLASS B
Net Assets $ 2,060,574
Shares Outstanding 167,065
Net Asset Value, Offering and Redemption Price (excluding
applicable contingent deferred sales charge) Per Share $ 12.33
CLASS C
Net Assets $ 272,491
Shares Outstanding 22,549
Net Asset Value, Offering and Redemption Price (excluding
applicable contingent deferred sales charge) Per Share $ 12.08
CLASS F
Net Assets $ 61,038,198
Shares Outstanding 4,746,066
Net Asset Value, Offering and Redemption Price Per Share $ 12.86
CLASS R
Net Assets $ 24,664,833
Shares Outstanding 1,878,421
Net Asset Value, Offering and Redemption Price Per Share $ 13.13
CLASS T
Net Assets $ 53,583
Shares Outstanding 4,448
Net Asset Value, Redemption Price Per Share $ 12.05
Maximum offering price per share (net asset value
plus sales charge of 4.50% of offering price) $ 12.62
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
21
<Page>
STATEMENT OF OPERATIONS
For the year ended December 31, 2004
<Table>
INVESTMENT INCOME
Dividends $ 1,524,206
Interest 37,345
Foreign taxes withheld (113,522)
---------------
Total Investment Income 1,448,029
---------------
EXPENSES
Advisory fees--Note 2 881,782
Shareholder servicing fees--Note 2 100,567
Accounting fees--Note 2 69,350
Distribution fees--Note 2 173,942
Transfer agency fees--Note 2 70,147
Registration fees 51,794
Postage and mailing expenses 13,173
Custodian fees and expenses--Note 2 50,527
Printing expenses 35,653
Legal and audit fees 17,335
Directors' fees and expenses--Note 2 17,197
Other expenses 29,392
---------------
Total Expenses 1,510,859
Earnings Credits (1,911)
Reimbursed/Waived Expenses (14,332)
Expense Offset to Broker Commissions (4,071)
---------------
Net Expenses 1,490,545
---------------
Net Investment Loss (42,516)
---------------
REALIZED AND UNREALIZED GAIN (LOSS) ON SECURITY
TRANSACTIONS AND FOREIGN CURRENCY TRANSACTIONS
Net Realized Gain (Loss) on:
Security Transactions 14,020,415
Foreign Currency Transactions (986)
---------------
Net Realized Gain 14,019,429
Net Change in Unrealized Appreciation/Depreciation
of Investments and Foreign Currency Translation (3,533,551)
---------------
Net Realized and Unrealized Gain 10,485,878
---------------
Net Increase in Net Assets Resulting from Operations $ 10,443,362
===============
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
22
<Page>
STATEMENTS OF CHANGES IN NET ASSETS
<Table>
<Caption>
YEAR ENDED YEAR ENDED
12/31/04 12/31/03
OPERATIONS
Net Investment Loss $ (42,516) $ (324,443)
Net Realized Gain (Loss) on Security
and Foreign Currency Transactions 14,019,429 (60,984)
Net Change in Unrealized Appreciation/Depreciation
of Investments and Foreign Currency Translation (3,533,551) 26,608,251
--------------- ---------------
Net Increase in Net Assets
Resulting from Operations 10,443,362 26,222,824
--------------- ---------------
CAPITAL SHARE TRANSACTIONS
Net Increase (Decrease)--Note 4
Class A (195,731) (95,963)
Class B 21,999 (128,745)
Class C (26,743) (25,117)
Class F (16,782,781) (9,169,160)
Class R 383,468 1,759,076
Class T (14,130) (2,291)
--------------- ---------------
Net Decrease from Capital Share Transactions (16,613,918) (7,662,200)
--------------- ---------------
Net Increase (Decrease) in Net Assets (6,170,556) 18,560,624
--------------- ---------------
NET ASSETS
Beginning of year $ 94,778,736 $ 76,218,112
--------------- ---------------
End of year $ 88,608,180 $ 94,778,736
=============== ===============
Accumulated Net Investment Loss $ (17,206) $ (14,782)
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
23
<Page>
FINANCIAL HIGHLIGHTS
<Table>
<Caption>
YEAR ENDED DECEMBER 31,
----------------------------------------------------------------------
2004 2003 2002 2001 2000
----------------------------------------------------------------------
CLASS A SHARES
PER SHARE OPERATING DATA
Net Asset Value, beginning of year $ 11.38 $ 8.32 $ 11.71 $ 15.78 $ 25.18
- ---------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment loss (0.21) (0.10) (0.15) (0.09) (0.09)
Net realized and unrealized gains
(losses) on securities 1.65 3.16 (3.24) (3.98) (5.44)
----------------------------------------------------------------------
Total from investment operations 1.44 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 year $ 12.82 $ 11.38 $ 8.32 $ 11.71 $ 15.78
======================================================================
TOTAL RETURN* 12.65% 36.78% (28.95%) (25.79%) (21.82%)
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000s) $ 519 $ 656 $ 543 $ 1,003 $ 800
- ---------------------------------------------------------------------------------------------------------------------------
Ratios to average net assets:
Expenses with reimbursements, but no
earnings credits or brokerage offsets# 1.81% 2.03% 2.06% 2.10% 1.43%
Expenses with reimbursements,
earnings credits and brokerage offsets 1.81% 2.03% 2.06% 2.09% 1.41%
Net investment loss (0.18%) (0.55%) (0.77%) (0.96%) (0.35%)
- ---------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate@ 130% 138% 211% 145% 210%
</Table>
* SALES CHARGES ARE NOT REFLECTED IN THE TOTAL RETURN.
# CERTAIN FEES WERE WAIVED BY THE CUSTODIAN. HAD THESE FEES NOT BEEN WAIVED,
THE EXPENSE RATIOS WOULD HAVE BEEN 1.83% (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.
24
<Page>
<Table>
<Caption>
YEAR ENDED DECEMBER 31,
----------------------------------------------------------------------
2004 2003 2002 2001 2000
----------------------------------------------------------------------
CLASS B SHARES
PER SHARE OPERATING DATA
Net Asset Value, beginning of year $ 11.02 $ 8.12 $ 11.52 $ 15.57 $ 25.18
- ---------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment loss (0.09) (0.16) (0.14) (0.15) (0.11)
Net realized and unrealized gains
(losses) on securities 1.40 3.06 (3.26) (3.90) (5.63)
----------------------------------------------------------------------
Total from investment operations 1.31 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 year $ 12.33 $ 11.02 $ 8.12 $ 11.52 $ 15.57
======================================================================
TOTAL RETURN* 11.89% 35.71% (29.51%) (26.01%) (22.67%)
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000s) $ 2,061 $ 1,821 $ 1,459 $ 2,089 $ 2,329
- ---------------------------------------------------------------------------------------------------------------------------
Ratios to average net assets:
Expenses with reimbursements, but no
earnings credits or brokerage offsets# 2.52% 2.80% 2.71% 2.54% 2.25%
Expenses with reimbursements,
earnings credits and brokerage offsets 2.52% 2.80% 2.70% 2.53% 2.21%
Net investment loss (0.87%) (1.30%) (1.41%) (1.43%) (1.40%)
- ---------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate@ 130% 138% 211% 145% 210%
</Table>
* SALES CHARGES ARE NOT REFLECTED IN THE TOTAL RETURN.
# CERTAIN FEES WERE WAIVED BY THE CUSTODIAN. HAD THESE FEES NOT BEEN WAIVED,
THE EXPENSE RATIOS WOULD HAVE BEEN 2.54% (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.
25
<Page>
<Table>
<Caption>
YEAR ENDED DECEMBER 31,
----------------------------------------------------------------------
2004 2003 2002 2001 2000
----------------------------------------------------------------------
CLASS C SHARES
PER SHARE OPERATING DATA
Net Asset Value, beginning of year $ 10.81 $ 7.96 $ 11.34 $ 15.56 $ 25.18
- ---------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment loss (0.20) (0.20) (0.30) (0.30) (0.11)
Net realized and unrealized gains
(losses) on securities 1.47 3.05 (3.08) (3.92) (5.64)
----------------------------------------------------------------------
Total from investment operations 1.27 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 year $ 12.08 $ 10.81 $ 7.96 $ 11.34 $ 15.56
======================================================================
TOTAL RETURN* 11.75% 35.80% (29.81%) (27.12%) (22.70%)
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000s) $ 272 $ 271 $ 218 $ 380 $ 375
- ---------------------------------------------------------------------------------------------------------------------------
Ratios to average net assets:
Expenses with reimbursements, but no
earnings credits or brokerage offsets# 2.60% 2.82% 3.33% 4.18% 2.25%
Expenses with reimbursements,
earnings credits and brokerage offsets 2.59% 2.82% 3.33% 4.17% 2.21%
Net investment loss (0.97%) (1.34%) (2.05%) (3.07%) (1.31%)
- ---------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate@ 130% 138% 211% 145% 210%
</Table>
* SALES CHARGES ARE NOT REFLECTED IN THE TOTAL RETURN.
# 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 2.62% (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.
26
<Page>
<Table>
<Caption>
YEAR ENDED DECEMBER 31,
----------------------------------------------------------------------
2004 2003 2002 2001 2000
----------------------------------------------------------------------
CLASS F SHARES
PER SHARE OPERATING DATA
Net Asset Value, beginning of year $ 11.41 $ 8.33 $ 11.72 $ 15.69 $ 25.17
- ---------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment loss (0.21) (0.13) (0.13) (0.14) (0.16)
Net realized and unrealized gains
(losses) on securities 1.66 3.21 (3.26) (3.83) (5.45)
----------------------------------------------------------------------
Total from investment operations 1.45 3.08 (3.39) (3.97) (5.61)
- ---------------------------------------------------------------------------------------------------------------------------
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 year $ 12.86 $ 11.41 $ 8.33 $ 11.72 $ 15.69
======================================================================
TOTAL RETURN 12.71% 36.97% (28.92%) (25.30%) (22.14%)
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000s) $ 61,038 $ 70,566 $ 59,890 $ 101,592 $ 176,405
- ---------------------------------------------------------------------------------------------------------------------------
Ratios to average net assets:
Expenses with reimbursements, but no
earnings credits or brokerage offsets# 1.78% 1.97% 1.84% 1.61% 1.54%
Expenses with reimbursements,
earnings credits and brokerage offsets 1.77% 1.97% 1.84% 1.60% 1.52%
Net investment loss (0.13%) (0.47%) (0.55%) (0.50%) (0.67%)
- ---------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate@ 130% 138% 211% 145% 210%
</Table>
# CERTAIN FEES WERE WAIVED BY THE CUSTODIAN. HAD THESE FEES NOT BEEN WAIVED,
THE EXPENSE RATIOS WOULD HAVE BEEN 1.80% (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.
27
<Page>
<Table>
<Caption>
YEAR ENDED DECEMBER 31,
----------------------------------------------------------------------
2004 2003 2002 2001 2000
----------------------------------------------------------------------
CLASS R SHARES
PER SHARE OPERATING DATA
Net Asset Value, beginning of year $ 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 1.50 3.16 (3.36) (3.92) (5.56)
----------------------------------------------------------------------
Total from investment operations 1.53 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 year $ 13.13 $ 11.60 $ 8.44 $ 11.81 $ 15.75
======================================================================
TOTAL RETURN 13.19% 37.44% (28.54%) (25.02%) (21.94%)
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000s) $ 24,665 $ 21,404 $ 14,060 $ 19,193 $ 27,611
- ---------------------------------------------------------------------------------------------------------------------------
Ratios to average net assets:
Expenses with reimbursements, but no
earnings credits or brokerage offsets# 1.37% 1.51% 1.41% 1.25% 1.26%
Expenses with reimbursements,
earnings credits and brokerage offsets 1.37% 1.51% 1.41% 1.24% 1.22%
Net investment income (loss) 0.28% (0.03%) (0.13%) (0.14%) (0.49%)
- ---------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate@ 130% 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.
# CERTAIN FEES WERE WAIVED BY THE CUSTODIAN. HAD THESE FEES NOT BEEN WAIVED,
THE EXPENSE RATIOS WOULD HAVE BEEN 1.39% (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.
28
<Page>
<Table>
<Caption>
YEAR ENDED DECEMBER 31,
----------------------------------------------------------------------
2004 2003 2002 2001 2000
----------------------------------------------------------------------
CLASS T SHARES
PER SHARE OPERATING DATA
Net Asset Value, beginning of year $ 10.73 $ 7.89 $ 11.46 $ 15.65 $ 25.18
- ---------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment loss (0.36) (0.14) (0.59) (0.26) (0.06)
Net realized and unrealized gains
(losses) on securities 1.68 2.98 (2.98) (3.93) (5.60)
----------------------------------------------------------------------
Total from investment operations 1.32 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 year $ 12.05 $ 10.73 $ 7.89 $ 11.46 $ 15.65
======================================================================
TOTAL RETURN* 12.30% 35.99% (31.15%) (26.77%) (22.34%)
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000s) $ 54 $ 61 $ 47 $ 90 $ 48
- ---------------------------------------------------------------------------------------------------------------------------
Ratios to average net assets:
Expenses with reimbursements, but no
earnings credits or brokerage offsets# 2.14% 2.54% 4.60% 3.75% 1.76%
Expenses with reimbursements,
earnings credits and brokerage offsets 2.14% 2.54% 4.60% 3.74% 1.72%
Net investment loss (0.50%) (1.05%) (2.88%) (2.72%) (0.76%)
- ---------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate@ 130% 138% 211% 145% 210%
</Table>
* SALES CHARGES ARE NOT REFLECTED IN THE TOTAL RETURN.
# 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 2.16% (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.
29
<Page>
NOTES TO FINANCIAL STATEMENTS
December 31, 2004
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,
Equity Growth (formerly Growth and Income), Government Securities, Growth,
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 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. However, the Funds are planning to begin using New
York closing exchange rates to convert foreign currencies to U.S. dollars
sometime during the first quarter of 2005.
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.
30
<Page>
If market quotations or official closing prices are not readily available or are
determined not to reflect accurately fair value, 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 but before the Fund calculates its net asset value,
and it is determined that the event has materially affected the value of the
security. Fair value of foreign equity securities may be determined with the
assistance of a pricing service using correlations between the movement of
prices of foreign securities and indexes of domestic securities and other
appropriate indicators, such as closing market prices of relevant ADRs and
futures contracts. Using fair value to price securities may result in a value
that is different from a security's most recent closing price and from the
prices used by other mutual funds to calculate their net asset values.
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 carry more risk
than U.S. securities, such as political and currency risks. The Fund normally
will invest a large portion of its assets in foreign securities. In the event
the Fund executes a foreign security transaction, the Fund may enter into a
foreign currency contract to settle the foreign security transaction. The
resultant foreign currency gain or loss from the contract is recorded as foreign
currency gain or loss and is presented as such in the Statement of Operations.
Foreign currency held at December 31, 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
31
<Page>
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, as earned, and includes the
accretion of discounts and the amortization of premiums over the lives of the
respective securities. Withholding taxes on foreign dividends have been provided
for in accordance with the applicable country's tax rules and rates.
DISTRIBUTIONS TO SHAREHOLDERS--The Fund declares and distributes dividends (if
any) and capital gains (if any) annually. Dividends and distributions, which are
determined in accordance with income tax regulations, are recorded on the
ex-dividend date.
EXPENSES--Each Class of the Fund bears expenses incurred specifically on its
behalf and, in addition, each Class bears a portion of general expenses based on
the relative net assets or the number of shareholder accounts of the Class. The
type of expense determines the allocation method.
The Company's board of directors has authorized the payment of certain Fund
expenses with commissions on Fund portfolio transactions. These commissions
reduce Other Expenses and are included in the Expense Offset to Broker
Commissions in the Statement of Operations.
USE OF ESTIMATES--The preparation of financial statements in conformity with
accounting principles generally accepted in the United States of America
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported amounts of
income and expenses during the reporting period. Actual results could differ
from those estimates.
INDEMNIFICATIONS--In the normal course of business, the Company enters into
contracts that contain provisions indemnifying other parties against specified
potential liabilities. Each Fund's maximum exposure under these arrangements is
unknown as this would involve future claims that may be made against the Fund
that have not yet occurred. However, based on experience, the Funds expect the
risk of loss to be remote.
OTHER--Certain prior year information has been reformatted, without substantive
change, to conform with the current year presentation.
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
32
<Page>
first $250 million of net assets, 0.80% of the next $250 million of net assets
and 0.70% of net assets in excess of $500 million.
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 year ended December 31,
2004, Class F shares were charged $93,831 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 from DTI
are paid by the Fund. During the year ended December 31, 2004, Class F shares
were charged $24,462 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 $13.00, per shareholder account considered to be an
open account at any time during a given month plus out-of-pocket charges.
Class-specific transfer agency fees paid to DTI during the year ended December
31, 2004 were as follows:
<Table>
<Caption>
TRANSFER
AGENCY FEES
----------------------------------------------------------------
Class A $ 1,166
Class B $ 3,377
Class C $ 586
Class R $ 6,809
Class T $ 161
</Table>
OTHER TRANSFER AGENCY FEES--Various broker-dealers, retirement plan
administrators and other unaffiliated entities have established omnibus accounts
with the Fund, and provide sub-transfer agency, recordkeeping or similar
services to persons holding Fund shares through those accounts. During the year
ended December 31, 2004, the Fund paid $33,586 to these entities for such
services. This amount is included in the transfer agency fees shown on the
Statement of Operations.
CASH MANAGEMENT FEES--The Funds also pay Mellon Bank N.A. ("Mellon Bank"), a
wholly-owned subsidiary of Mellon Financial Corporation and an affiliate of
Founders, fees for certain cash management services. These include various
services related to the processing of shareholder transactions in the Funds.
During the year ended December 31, 2004, the Fund was charged $3,495 for cash
management fees, which are included in the out-of-pocket charges from DTI above.
33
<Page>
DISTRIBUTION AND SHAREHOLDER SERVICES PLANS--DSC also is the distributor of the
Fund's shares. The Fund has adopted a Distribution Plan pursuant to Rule 12b-1
under the 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 year ended December
31, 2004, Class F shares were charged $157,943 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 year ended December 31, 2004, were as follows:
<Table>
<Caption>
DISTRIBUTION SHAREHOLDER
FEES SERVICING FEES
------------------------------------------------------------------------------------
Class A N/A $ 1,314
Class B $ 14,115 $ 4,705
Class C $ 1,750 $ 583
Class T $ 134 $ 134
</Table>
During the year ended December 31, 2004, DSC retained $888 and $10 in sales
commissions from the sales of Class A and Class T shares, respectively. DSC also
retained $5,293 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 of the
Fund, 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>
34
<Page>
Founders has contractually agreed to waive any fees received for these services
to the extent they exceed Founders' costs in providing the services.
CUSTODIAN FEES--Mellon Bank 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 Fund could have employed these assets
elsewhere to produce income had it not entered into this arrangement. The
custodian has also contractually 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 year ended December 31, 2004, the
Fund's portion of the fee waiver was $14,332, which reduced the amount paid to
Mellon Bank to $36,195.
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 invested
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,
which pays their compensation. 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--An affiliate of Founders reimbursed the Fund $5,258 shortly after the
fiscal year end for a trading error. This amount is not material to the Fund.
3. FEDERAL TAX INFORMATION
Net investment income and capital gains distributions are determined in
accordance with income tax regulations that may differ from accounting
principles generally accepted in the United States of America. These differences
are due to differing treatments for items such as deferral of wash sale losses,
foreign currency transactions, net operating losses and capital loss carryovers.
Permanent differences identified during the year ended December 31, 2004 have
been reclassified among the components of net assets as follows:
<Table>
<Caption>
UNDISTRIBUTED NET UNDISTRIBUTED NET PAID-IN
INVESTMENT INCOME REALIZED GAINS AND LOSSES CAPITAL
------------------------------------------------------------------
$ 40,092 $ 986 $ (41,078)
</Table>
35
<Page>
The tax components of capital represent distribution requirements the Fund must
satisfy under the income tax regulations and losses or tax deductions the Fund
may be able to offset against income and capital gains realized in future years.
Accumulated capital losses and post-October 31 capital losses noted below, if
any, as of December 31, 2004, 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. Net capital loss carryovers
utilized during 2004 by the Fund amounted to $13,356,449. Accumulated capital
losses as of December 31, 2004 were:
<Table>
<Caption>
EXPIRATION AMOUNT
-----------------------------------------------------------------
2009 $ 44,574,793
2010 $ 22,200,649
2011 $ 3,142,525
------------
$ 69,917,967
============
</Table>
The aggregate cost of investments and the composition of unrealized appreciation
and depreciation of investment securities for federal income tax purposes as of
December 31, 2004 are noted below. Unrealized appreciation/depreciation in the
table below excludes appreciation/depreciation on foreign currency translation.
The primary difference between book and tax appreciation or depreciation is wash
sale loss deferrals.
<Table>
Federal Tax Cost $ 71,689,974
Gross Tax Appreciation of Investments $ 17,005,208
Gross Tax Depreciation of Investments $ (264,678)
Net Tax Appreciation $ 16,740,530
</Table>
36
<Page>
4. CAPITAL SHARE TRANSACTIONS
The Fund is authorized to issue 450 million shares of $0.01 par value capital
stock. Transactions in shares of the Fund for the periods indicated were as
follows:
<Table>
<Caption>
YEAR ENDED YEAR ENDED
12/31/04 12/31/03
SHARES AMOUNT SHARES AMOUNT
CLASS A
Sold 14,460 $ 169,930 197,675 $ 1,902,667
Redeemed (31,674) $ (365,661) (205,316) $ (1,998,630)
----------------------------------------------------------------
Net Decrease (17,214) $ (195,731) (7,641) $ (95,963)
================================================================
CLASS B
Sold 31,752 $ 357,137 13,807 $ 133,035
Redeemed (29,868) $ (335,138) (28,252) $ (261,780)
----------------------------------------------------------------
Net Increase (Decrease) 1,884 $ 21,999 (14,445) $ (128,745)
================================================================
CLASS C
Sold 8,384 $ 94,894 50,623 $ 402,228
Redeemed (10,901) $ (121,637) (52,994) $ (427,345)
----------------------------------------------------------------
Net Decrease (2,517) $ (26,743) (2,371) $ (25,117)
================================================================
CLASS F
Sold 837,712 $ 9,854,038 2,467,985 $ 22,841,668
Redeemed (2,275,773) $ (26,636,819) (3,470,420) $ (32,010,828)
----------------------------------------------------------------
Net Decrease (1,438,061) $ (16,782,781) (1,002,435) $ (9,169,160)
================================================================
CLASS R
Sold 209,694 $ 2,478,822 286,586 $ 2,765,461
Redeemed (175,936) $ (2,095,354) (108,124) $ (1,006,385)
----------------------------------------------------------------
Net Increase 33,758 $ 383,468 178,462 $ 1,759,076
================================================================
CLASS T
Sold 1,421 $ 15,509 0 $ 0
Redeemed (2,672) $ (29,639) (282) $ (2,291)
----------------------------------------------------------------
Net Decrease (1,251) $ (14,130) (282) $ (2,291)
================================================================
</Table>
5. INVESTMENT TRANSACTIONS
Purchases and sales of investment securities (excluding short-term securities
and U.S. government obligations) for the year ended December 31, 2004 were
$112,697,618 and $128,204,437, respectively.
37
<Page>
6. LINE OF CREDIT
The Company has a line of credit arrangement ("LOC") with State Street Bank and
Trust Company, to be used for temporary or emergency purposes, primarily for
financing redemption payments. Each Fund's borrowings are limited to the lesser
of (a) $50 million, or (b) the lesser of 25% of the Fund's total net assets or
the maximum amount which the Fund is permitted to borrow pursuant to the
prospectus, any law or any other agreement. Combined borrowings are subject to
the $50 million cap on the total LOC. Each Fund agrees to pay annual fees and
interest on the unpaid balance based on prevailing market rates as defined in
the LOC. At December 31, 2004, the Fund did not have any borrowings under the
LOC.
7. LEGAL MATTERS
In early 2004, two purported class and derivative actions were filed against
Mellon Financial Corporation, Mellon Bank, Founders, Dreyfus, and certain
directors of the Dreyfus Founders Funds and the Dreyfus Funds (together, the
"Defendant Funds"). In September 2004, plaintiffs served a Consolidated Amended
Complaint (the "Amended Complaint") on behalf of a purported class of all
persons who acquired interests in any of the Defendant Funds between January 30,
1999 and November 17, 2003, and derivatively on behalf of the Defendant Funds.
The Amended Complaint in the newly styled IN RE DREYFUS MUTUAL FUNDS FEE
LITIGATION also named DSC, Premier Mutual Fund Services, Inc. and two additional
directors of the Defendant Funds as defendants and alleges violations of the
Investment Company Act of 1940, the Investment Advisers Act of 1940, the
Pennsylvania Unfair Trade Practices and Consumer Protection Law and common-law
claims. Plaintiffs seek to recover allegedly improper and excessive Rule 12b-1
and advisory fees allegedly charged to the Defendant Funds for marketing and
distribution services. More specifically, plaintiffs claim, among other things,
that 12b-1 fees and directed brokerage were improperly used to pay brokers to
recommend the Defendant Funds over other funds, and that such payments were not
disclosed to investors. In addition, plaintiffs assert that economies of scale
and soft-dollar benefits were not passed on to the Defendant Funds. Plaintiffs
further allege that 12b-1 fees were improperly charged to certain of the
Defendant Funds that were closed to new investors. The Amended Complaint seeks
compensatory and punitive damages, rescission of the advisory contracts, and an
accounting and restitution of any unlawful fees, as well as an award of
attorneys' fees and litigation expenses. As noted, some of the claims in this
litigation are asserted derivatively on behalf of the Defendant Funds that have
been named as nominal defendants. With respect to such derivative claims, no
relief is sought against the Defendant Funds. Founders, Dreyfus and the
Defendant Funds believe the allegations to be totally without merit and intend
to defend the action vigorously. The defendants filed motions to dismiss the
Amended Complaint on November 12, 2004, and those motions are pending.
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 nor the Funds believe that any of the pending actions
will have a material adverse effect on the Funds or Founders' ability to perform
its contract with the Funds.
38
<Page>
REPORT OF INDEPENDENT
REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Shareholders of
Dreyfus Founders Funds, Inc.
In our opinion, the accompanying statement of assets and liabilities, including
the statement of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of Dreyfus Founders Worldwide Growth
Fund (one of the portfolios constituting Dreyfus Founders Funds, Inc., hereafter
referred to as the "Fund") at December 31, 2004, the results of its operations
for the year then ended, the changes in its net assets for each of the two years
in the period then ended and the financial highlights for each of the five years
in the period then ended, in conformity with accounting principles generally
accepted in the United States of America. These financial statements and
financial highlights (hereafter referred to as "financial statements") are the
responsibility of the Fund's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these financial statements in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those standards
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits, which included
confirmation of securities at December 31, 2004 by correspondence with the
custodian, provide a reasonable basis for our opinion.
PricewaterhouseCoopers LLP
Denver, Colorado
February 10, 2005
39
<Page>
YOUR BOARD REPRESENTATIVES
(unaudited)
The Board of Directors of the Company oversees all 10 Dreyfus Founders Funds.
The business and affairs of the Company are managed under the direction of the
Board. The directors serving on the Board perform their responsibilities in the
manner which they reasonably believe to be in the best interests of the Funds
and their shareholders.
All of the directors, as listed below, are independent directors. They are not
affiliated with the Fund's adviser, its parent company, or its affiliates. The
directors have no official term of office and generally serve until they reach
the mandated retirement age of 75, resign, or are not re-elected. As you can see
from their backgrounds, the directors have broad experience as active or former
business and community leaders.
DIRECTORS
EUGENE H. VAUGHAN, CFA, 71. Year elected to the Board: 1970
Board Chairman. Founding Chairman and, formerly (1970 to 2000), President and
CEO, Vaughan Nelson Investment Management, LP, an investment counseling firm.
Director, Encore Bank. Founding Chairman, Center for Houston's Future, a
non-profit organization. Founding Chairman and former Governor, Association for
Investment Management and Research. Past Chairman and Trustee, Institute of
Chartered Financial Analysts. Past Chairman and Director, Financial Analysts
Federation.
ALAN S. DANSON, 65. Year elected to the Board: 1991
Private investor. Formerly, President and Director, D.H. Management, Inc., the
general partner of a limited partnership with technology company holdings (1996
to 2003). Formerly, Director and Senior Vice President, OptiMark Technologies,
Inc., a computerized securities trading service (1996 to 1999). Director,
CaseShare Systems, LLP, a document management company. Director, Gore Range
Natural Science School and The Les Streeter Programs, Inc., both of which are
non-profit organizations.
JOAN D. MANLEY, 72. Year elected to the Board: 1998
Retired. Formerly, Ms. Manley served in several executive capacities with Time
Incorporated, most recently as Group Vice President, Director and Chairman of
Time-Life Books, Inc. and Book of the Month Club, Inc. (1960 to 1984). Director,
Sara Lee Corporation and R.R. Donnelley & Sons Company.
ROBERT P. MASTROVITA, 60. Year elected to the Board: 1998
Private investor. Chairman of a private charitable foundation (1997 to present).
Formerly, Chairman and Director, Hagler, Mastrovita & Hewitt, Inc., a registered
investment adviser (1982 to 1997). Member, Boston Society of Security Analysts.
Trustee, Partridge Academy.
TRYGVE E. MYHREN, 68. Year elected to the Board: 1996
President, Myhren Media, Inc., a firm that invests in and advises media,
telecommunications, Internet and software companies. Special Limited Partner and
member of Investment Committee, Megunticook Funds, a venture capital firm (1998
to present). Director, Advanced Marketing Services, Inc. Trustee and Chairman of
Finance Committee, the University of Denver. Trustee, Denver Art Museum. Member,
Cable Television Hall of Fame. Formerly, President (1990 to 1996) and Director
(1992 to 2001) of the Providence Journal Company, a diversified media and
communications company. Formerly, Chairman and Chief Executive Officer of
American Television
40
<Page>
and Communications Corporation (now Timer Warner Cable) (1981 to 1988).
Formerly, Chairman of the National Cable Television Association (1986-1987).
GEORGE W. PHILLIPS, 66. Year elected to the Board: 1998
Retired. Vice Chairman of the Board, Chairman of the Finance Committee, and
Chairman of the Investment Committee, Children's Medical Center of Boston.
Formerly, President and Chief Executive Officer (1992 to 1997) and Director
(1992 to 2002) of Warren Bancorp, Inc. Formerly, President, Chief Executive
Officer and Director of Warren Five Cents Savings Bank (1992 to 1997).
PRINCIPAL OFFICERS
RICHARD W. SABO, 47. President of the Funds since 2000 and Principal Executive
Officer of the Funds since 2002. Founders' President and Chief Executive
Officer, Member of Founders' Board of Managers and Director of Dreyfus (1998 to
present). Executive Vice President of DSC since 2003. Formerly, Senior Vice
President and Regional Director for Prudential Securities, Inc. (1991 to 1998).
DAVID L. RAY, 47. Vice President of the Funds since 2000, and from 1990 to 1998.
Founders' Senior Vice PresidentAdministration and Treasurer. Vice President of
DSC since 2003. Employed by Founders and its predecessor company since 1990.
Formerly, Treasurer of the Funds (1990 to 1998).
KENNETH R. CHRISTOFFERSEN, 49. Secretary of the Funds since 2000, and from 1996
to 1998. Founders' Senior Vice President--Legal, General Counsel and Secretary.
Assistant Secretary of DSC since 2003. Employed by Founders and its predecessor
company since 1996.
JANELLE E. BELCHER, 46. Chief Compliance Officer of the Funds since 2004 and
Assistant Secretary of the Funds since 2002. Founders' Vice President--
Compliance since 2002. Formerly, Founders' Manager of Compliance (2000 to 2002)
and Securities Compliance Examiner, Staff Accountant and Team Leader for the
U.S. Securities and Exchange Commission (1990 to 2000).
ROBERT T. KELLY, 35. Treasurer, Principal Financial Officer, and Principal
Accounting Officer of the Funds since 2003. Founders' Vice President of
Portfolio Accounting since 2000. Formerly, Assistant Treasurer of the Funds
(2000 to 2003), and Head of Equity Desk for ABN Amro Trust Company (Cayman)
Limited (1998 to 2000).
WILLIAM G. GERMENIS, 34. Anti-Money Laundering Compliance Officer ("AMLCO") for
the Class A, Class B, Class C, Class R, and Class T shares of the Funds since
2002 and for the Class F shares of the Funds since 2003. Vice President and
AMLCO of MBSC, LLC since 2002. Vice President and AMLCO of DSC and AMLCO of
investment companies managed by Dreyfus. Employed by DSC since 1998.
The directors and officers may be contacted at Founders' address appearing on
the inside cover, except for Mr. Germenis, who can be contacted at 200 Park
Avenue, New York, New York 10166. Additional information about the Company's
directors is available in the Statement of Additional Information, which can be
obtained free of charge by calling the toll free number on the back cover.
41
<Page>
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<Page>
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<Page>
FOR MORE INFORMATION
- -------------------------------------------------------------------------------
DREYFUS FOUNDERS TRANSFER AGENT &
WORLDWIDE GROWTH FUND DIVIDEND DISBURSING AGENT
MANAGER Dreyfus Transfer, Inc.
200 Park Avenue
Founders Asset Management LLC New York, NY 10166
210 University Boulevard
Suite 800
Denver, CO 80206 DISTRIBUTOR
Dreyfus Service Corporation
200 Park Avenue
New York, NY 10166
- -------------------------------------------------------------------------------
TELEPHONE Call your financial representative or 1-800-554-4611
MAIL Dreyfus Founders Funds, Inc.
144 Glenn Curtiss Boulevard, Uniondale, NY 11556-0144
The fund files its complete schedule of portfolio holdings with the Securities
and Exchange Commission ("SEC") for the first and third quarters of each fiscal
year on Form N-Q. The fund's Forms N-Q are available on the SEC's website at
http://www.sec.gov and may be reviewed and copied at the SEC's Public Reference
Room in Washington, DC. Information on the operation of the Public Reference
Room may be obtained by calling 1-800-SEC-0330.
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 http://www.dreyfus.com and on the SEC's
website at http://www.sec.gov. The description of the policies and procedures is
also available without charge, upon request, by calling 1-800-645-6561.
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.
[LION GRAPHIC]
(C)2005 Dreyfus Service Corporation 0351AR1204
ITEM 2. CODE OF ETHICS
(a) As of the end of the period covered by this report, Dreyfus Founders
Funds, Inc. (the "Funds") has adopted a code of ethics that applies to
the Funds' principal executive officer, principal financial officer,
and principal accounting officer.
(c) During the period covered by this report, no amendments have been made
to a provision of the code of ethics that applies to the Funds'
principal executive officer, principal financial officer, or principal
accounting officer, and that relates to any element of the code of
ethics definition enumerated in paragraph (b) of Item 2 of Form N-CSR.
(d) During the period covered by this report, the Funds have not granted a
waiver, including an implicit waiver, from a provision of the code of
ethics to the Funds' principal executive officer, principal financial
officer, or principal accounting officer that relates to one or more
of the items set forth in paragraph (b) of Item 2 of Form N-CSR.
(f)(1) A copy of the code of ethics is filed as an exhibit to this report,
pursuant to Item 12(a)(1) of Form N-CSR.
ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT
(a)(1) The board of directors of the Funds has determined that the Funds
have an "audit committee financial expert" serving on its audit
committee, as that term is defined in paragraph (b) of Item 3 of Form
N-CSR.
(a)(2) The name of the audit committee financial expert is George W.
Phillips. Mr. Phillips is an "independent" member of the audit
committee as that term is defined in paragraph (a)(2) of Item 3 of
Form N-CSR.
ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES
(a) AUDIT FEES - The aggregate fees billed to the Funds by their principal
accountant for professional services rendered for the audit of the Funds'
annual financial statements or services that are normally provided by the
accountant in connection with statutory and regulatory filings or
engagements for the fiscal years ending December 31, 2004 and 2003 were
$193,500 and $168,200, respectively.
(b) AUDIT-RELATED FEES - The aggregate fees billed to the Funds by their
principal accountant for assurance and related services that are reasonably
related to the performance of the audit of the Funds' financial statements
and that are not reported under paragraph (a) of this Item 4
("audit-related fees") for the fiscal years ending December 31, 2004 and
2003 were $10,000 and $9,000, respectively. These fees were for agreed-upon
procedures performed relating to trade allocation, initial or secondary
public offerings, brokerage commissions, and Rule 17a-7 transactions.
The aggregate audit-related fees billed by the Funds' principal
accountant to the Funds' investment adviser, and any entity controlling,
controlled by, or under common control with the adviser that provides
ongoing services to the Funds (collectively, the "Service Providers") for
services relating directly to the operations or financial reporting of the
Funds for the fiscal years ending December 31, 2004 and 2003 were $42,000
and $0, respectively. These fees were for a review of the internal controls
of the transfer agent.
(c) TAX FEES - The aggregate fees billed to the Funds by their principal
accountant for professional services rendered by the accountant for tax
compliance, tax advice, and tax planning ("tax fees") for the fiscal years
ending December 31, 2004 and 2003 were $50,800 and $63,800, respectively.
These fees were for excise tax distribution calculations, preparation of
tax returns, review of qualified dividend income, and related
consultations.
The aggregate tax fees billed by the Funds' principal accountant to
the Service Providers for services relating directly to the operations or
financial reporting of the Funds for the fiscal years ending December 31,
2004 and 2003 were $0 and $0, respectively.
(d) ALL OTHER FEES - The aggregate fees billed to the Funds by their
principal accountant for products and services provided by the accountant,
other than the services reported in paragraphs (a), (b), and (c) of this
Item 4 ("all other fees"), for the fiscal years ending December 31, 2004
and 2003 were $0 and $0, respectively.
The aggregate of all other fees billed by the Funds' principal
accountant to the Service Providers for services relating directly to the
operations or financial reporting of the Funds for the fiscal years ending
December 31, 2004 and 2003 were $2,310,500 and $23,000, respectively. These
fees were for AIMR verification services, risk assessment of material
compliance functions, evaluation of voice communications over network
communications link, review of corporate-wide risk management and
compliance activities, and network vulnerability testing.
(e)(1) Approval is required of all audit and significant permitted
non-audit engagements of the Funds' principal accountant, prior to the
commencement of any such engagement, including pre-approval not only of
services provided directly to the Funds but also services provided to the
Service Providers where the nature of the services provided has a direct
relationship to the operations or financial reporting of the Funds;
pre-approval may be given up to one year in advance of the audit or
non-audit activity for which pre-approval is sought.
In any instance in which it may become necessary or desirable for the
audit committee to grant immediate pre-approval of a non-audit service to
be provided either by the Funds' principal accountant or by another audit
firm, such pre-approval may be procured in writing from the chair of the
Funds' audit committee or, in the event of his or her unavailability, from
the chair of the Funds' board of directors. Any such pre-approval shall be
subject to consideration and review by the audit committee at its next
regularly scheduled quarterly meeting.
(e)(2) None of the services described in paragraphs (b) through (d) of this
Item 4 were approved by the audit committee pursuant to paragraph
(c)(7)(i)(C) of Rule 2-01 of Regulation S-X.
(f) Not applicable.
(g) For the fiscal years ending December 31, 2004 and 2003, the aggregate
non-audit fees billed by the Funds' principal accountant to the Funds and
to the Service Providers for services relating directly to the operations
or financial reporting of the Funds were $2,413,300 and $95,800,
respectively.
(h) During the period covered by this report, the audit committee has
pre-approved all non-audit services rendered to the Service Providers
relating to the operations or financial reporting of the Funds.
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. PORTFOLIO MANAGERS OF CLOSED-END MANAGEMENT
INVESTMENT COMPANIES
Not applicable
ITEM 9. PURCHASES OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT
INVESTMENT COMPANY AND AFFILIATED PURCHASERS
Not applicable
ITEM 10. 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 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 10.
ITEM 11. 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 quarter ended December 31, 2004, there has been no change
in the Funds' internal control over financial reporting that has
materially affected, or that is reasonably likely to materially
affect, the Funds' internal control over financial reporting.
ITEM 12. EXHIBITS
(a)(1) Attached hereto as Exhibit EX-99.CODE ETH
(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: February 25, 2005
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.
By: /s/ Richard W. Sabo
-------------------
Richard W. Sabo, Principal Executive Officer
Date: February 25, 2005
By: /s/ Robert T. Kelly
-------------------
Robert T. Kelly, Principal Financial Officer
Date: February 25, 2005