UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT
INVESTMENT COMPANIES
Investment Company Act file number: 811-1018
Dreyfus Founders Funds, Inc.
---------------------------------------------------------------
(Exact name of registrant as specified in charter)
210 University Boulevard, Suite 800, Denver, Colorado 80206
---------------------------------------------------------------
(Address of principal executive offices) (Zip code)
Kenneth R. Christoffersen, Esq.
210 University Boulevard, Suite 800, Denver, Colorado 80206
---------------------------------------------------------------
(Name and address of agent for service)
Registrant's telephone number, including area code: 303-394-4404
Date of fiscal year end: December 31
Date of reporting period: June 30, 2005
ITEM 1. REPORTS TO STOCKHOLDERS
<Page>
SEMIANNUAL REPORT
[GRAPHIC]
DREYFUS FOUNDERS
BALANCED FUND
INVESTMENT UPDATE
JUNE 30, 2005
[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
</Table>
PAPERLESS DELIVERY OF THIS REPORT
[GRAPHIC]
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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 June 30, 2005. The amounts of
these holdings are included in the Statement of Investments.
NOT FDIC-INSURED - NOT BANK-GUARANTEED - MAY LOSE VALUE
<Page>
MANAGEMENT OVERVIEW
[PHOTO OF JOHN B. JARES]
[PHOTO OF JOHN V. JOHNSON]
A DISCUSSION WITH PORTFOLIO MANAGER JOHN B. JARES, CFA, LEFT, AND ASSISTANT
PORTFOLIO MANAGER JOHN V. JOHNSON, CFA, REGARDING FUND PERFORMANCE FOR THE
SIX-MONTH PERIOD ENDED JUNE 30, 2005.
STAGNANT VERSUS VOLATILE
The first half of 2005 was a tale of two quarters: stagnant versus volatile.
Early in the first quarter, the market saw profit-taking after a strong rally
in the last half of 2004. The market then was without a major trend
throughout the first quarter, which aided the Fund as individual stocks were
rewarded. The second quarter, in contrast, was punctuated by a strong
mid-quarter rally led by small- and mid-capitalization stocks, a rally that
tended not to compensate large-cap exposure. Overlaying this was a rally in
the bond market, notwithstanding continued interest rate increases by the
Federal Reserve and stubbornly high energy prices. The markets ended the
first half of 2005 down slightly from the beginning of the year, even though
the economy continued to show signs of growth, and companies continued to
exhibit fundamental earnings growth.
We did not adjust the Fund's sector weights materially, even though, as the
period ended, sector rotation appeared more important than stock selection. The
Fund has held many of its core positions throughout this sector rotation, as we
continued to hold confidence in these companies' earnings prospects and
potential cash flow generation over our longer-term investment horizon.
For the six-month period ended June 30, 2005, the Dreyfus Founders Balanced
Fund underperformed its benchmark, the Standard & Poor's 500 Index, which posted
a total return of -0.81% for the same period.
[SIDENOTE]
"WE DID NOT ADJUST THE FUND'S SECTOR WEIGHTS MATERIALLY, EVEN THOUGH, AS THE
PERIOD ENDED, SECTOR ROTATION APPEARED MORE IMPORTANT THAN STOCK SELECTION."
3
<Page>
HEALTHCARE AND IT BENEFITED PERFORMANCE
The Fund experienced strong performance from its biotechnology and semiconductor
stocks in the healthcare and information technology (IT) sectors, respectively.
These industries showed strong improvements during the period in both
fundamentals and in stock price movements. GENENTECH, INC. was one such
strong-performing biotechnology stock. The company performed well through the
period due to the receptivity to its new drugs for the treatment of multiple
indications of cancer.
Numerous other healthcare holdings boosted the Fund's relative return for the
period. TRIAD HOSPITALS, INC. began to show improvements in its hospital
admissions as well as improving trends in its bad debt expense, a factor that
plagued the healthcare facilities industry throughout 2004. The Fund's position
in Triad was increased at the end of the period as these factors were expected
to continue through 2005. The Fund also was aided by its position in Eon Labs,
Inc. as Novartis acquired the generic pharmaceutical company earlier in the
year. Pharmaceutical company IVAX Corporation reached our price objective during
the period, with little catalyst for growth expected for the balance of the
year. Therefore, the Fund sold its position in this company, as we felt the
monies may be better deployed in other investments.
In information technology, APPLE COMPUTER, INC. continued to benefit from
strong sales of its portable music player, the iPod, which also led consumers to
ultimately purchase more Apple products, particularly notebook and desktop
computers.
The Fund was underweight the materials sector relative to its benchmark; this
factor paired with strong stock selection in the sector positively contributed
to the Fund's performance for the period.
TOP 3 PERFORMING SECTORS IN THE FUND
Healthcare
Materials
Information Technology
UNDEREXPOSURE AND WEAK STOCK SELECTION IMPEDED RETURN
For the first six months of 2005, the Fund's relative performance was impaired
by underexposure in two strong-performing sectors: energy and utilities.
The Fund also was underweight the industrials sector, as industrials
typically begin exhibiting weakness as the economic cycle matures and earnings
growth begins to moderate. Although this underweight position produced a
positive effect, poor stock selection impeded the Fund's
4
<Page>
performance in this sector. Industrials holding W.W. GRAINGER, INC. declined as
higher-than-expected spending on the company's store expansion program and
issues with its implementation of a SAP business software solution created
concerns about future earnings growth.
BOTTOM 3 PERFORMING SECTORS IN THE FUND
Energy
Financials
Utilities
The Fund's stock selection in the financials sector also weighed on
performance, as some financial companies tend to underperform in an increasing
interest rate cycle. First Marblehead Corporation declined during the half as
investors became concerned about the company's long-term growth rate. This was
primarily due to two factors: slower-than-expected volume growth for the second
quarter, and an announcement by a large customer that it is considering keeping
a portion of its loans instead of securitizing them through First Marblehead.
Other weak individual performers during the period were found in the consumer
discretionary sector. ROYAL CARIBBEAN CRUISES LIMITED negatively impacted the
Fund as investors concerned with the effect high oil prices may have on the
company's profits pressured the stock. The Fund continued to hold Royal
Caribbean at the end of the period as capacity increases within the cruise
industry remained benign and continued robust demand for cruises helped Royal
Caribbean to continue strong pricing. The movies and entertainment
LARGEST EQUITY HOLDINGS (ticker symbol)
<Table>
1. MICROSOFT CORPORATION (MSFT) 3.22%
2. TIME WARNER, INC. (TWX) 3.11%
3. MGI PHARMA, INC. (MOGN) 3.10%
4. TRIAD HOSPITALS, INC. (TRI) 2.49%
5. INTERNATIONAL BUSINESS MACHINES CORPORATION (IBM) 2.45%
6. GENERAL ELECTRIC COMPANY (GE) 2.23%
7. ROYAL CARIBBEAN CRUISES LIMITED (RCL) 2.05%
8. PFIZER, INC. (PFE) 1.96%
9. COLGATE-PALMOLIVE COMPANY (CL) 1.70%
10. DOLLAR GENERAL CORPORATION (DG) 1.70%
</Table>
Holdings listed are a percentage of equity assets. Portfolio holdings are
subject to change, and should not be construed as a recommendation of any
security.
5
<Page>
GROWTH OF $10,000 INVESTMENT
PERFORMANCE DATA QUOTED REPRESENTS PAST PERFORMANCE. PAST PERFORMANCE DOES NOT
GUARANTEE FUTURE RESULTS. INVESTMENT RETURN AND PRINCIPAL VALUE OF AN INVESTMENT
WILL FLUCTUATE SO THAT AN INVESTOR'S SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR
LESS THAN THEIR ORIGINAL COST. CURRENT PERFORMANCE MAY BE LOWER OR HIGHER THAN
THE PERFORMANCE DATA QUOTED. PLEASE CALL 1-800-525-2440 TO OBTAIN THE MOST
RECENT MONTH-END PERFORMANCE DATA.
[CHART]
Dreyfus Founders
Balanced Fund S&P 500 Lipper Balanced
Class F Shares Index Fund Index
06/30/1995 $10,000.00 $10,000.00 $10,000.00
06/28/1996 $12,678.48 $12,600.05 $11,482.31
06/30/1997 $15,062.14 $16,972.14 $13,831.59
06/30/1998 $17,369.02 $22,091.36 $16,354.06
06/30/1999 $18,283.20 $27,118.52 $18,241.83
06/30/2000 $17,805.15 $29,084.32 $19,053.84
06/29/2001 $15,212.50 $24,771.03 $18,856.39
06/28/2002 $12,706.89 $20,315.14 $17,431.47
06/30/2003 $12,962.89 $20,366.21 $18,039.14
06/30/2004 $14,066.19 $24,258.20 $20,318.58
06/30/2005 $15,050.25 $25,792.11 $21,764.33
The above graph compares a $10,000 investment made in Class F shares of Dreyfus
Founders Balanced Fund on 6/30/95 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>
AVERAGE ANNUAL AND YEAR-TO DATE TOTAL RETURN as of 6/30/05
<Table>
<Caption>
YEAR-TO- 1 5 10 SINCE
CLASS (INCEPTION DATE) DATE+ YEAR YEARS YEARS INCEPTION
----------------------------------------------------------------------------------------
A SHARES (12/31/99)
With sales charge (5.75%) (6.97%) 0.62% (4.74%) -- (4.17%)
Without sales charge (1.24%) 6.77% (3.61%) -- (3.14%)
B SHARES (12/31/99)
With redemption* (5.58%) 2.03% (4.67%) -- (4.02%)
Without redemption (1.65%) 6.03% (4.29%) -- (3.85%)
C SHARES (12/31/99)
With redemption** (2.67%) 4.80% (4.60%) -- (4.20%)
Without redemption (1.68%) 5.80% (4.60%) -- (4.20%)
F SHARES (2/19/63) (1.12%) 7.00% (3.31%) 4.17% N/A
R SHARES (12/31/99) (0.99%) 7.35% (3.64%) -- (3.16%)
T SHARES (12/31/99)
With sales charge (4.50%) (5.86%) 1.72% (4.32%) -- (3.84%)
Without sales charge (1.41%) 6.51% (3.44%) -- (3.04%)
</Table>
Average annual and year-to-date total returns do not reflect the deduction of
taxes that a shareholder would pay on Fund distributions or redemption of Fund
shares, but do reflect the reinvestment of dividends and capital gain
distributions, fee waivers 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.
* The maximum contingent deferred sales charge for Class B shares is 4% and is
reduced to 0% after six years, at which time the Class B shares convert to
Class A shares.
** The maximum contingent deferred sales charge for Class C shares is 1% for
shares redeemed within one year of the date of purchase.
+ Total return is not annualized.
7
<Page>
industry within the consumer discretionary sector underperformed as box office
receipts during the period were a large disappointment. Both TIME WARNER, INC.
and DREAMWORKS ANIMATION SKG, INC. significantly hindered the Fund. Time Warner
experienced pressure due to concerns over its earnings performance in the first
half of 2005. However, Time Warner remained one of the largest equity holdings
in the Fund as of June 30, 2005, as the second-half outlook for its products
remained solid and the fundamentals in its top businesses appeared sound.
DreamWorks warned of a loss in the second quarter as the company overestimated
DVD sales and underestimated returns from its vendors and distributors. The Fund
reduced its position in DreamWorks during the period, although we retained a
small position due to the company's new projects in development for release over
the next two years.
FIXED-INCOME PERFORMANCE
In fixed-income markets, higher oil prices, a strengthening dollar and higher
short-term interest rates were held accountable for any perceived slowdown in
the economy during the period. The housing market provided a considerable offset
to these factors, as well as stimulus to the economy, as homeowners continued to
extract equity from their homes.
Whereas in the first quarter the Fund was aided by its high-quality bias,
high cash position and short duration, the fixed-income portion of the Fund
lagged during the second quarter of the period due to its large cash position
and
[CHART]
PORTFOLIO COMPOSITION OF NET ASSETS
<Table>
Healthcare 16.68%
Information Technology 12.99%
Consumer Discretionary 12.49%
Financials 6.11%
Consumer Staples 5.14%
Industrials 4.47%
Energy 2.70%
Materials 1.25%
Telecommunications Services 0.54%
Fixed-Income Investments 22.63%
Cash & Equivalents 15.00%
</Table>
The Fund's portfolio composition is subject to change, and there is no assurance
the Fund will continue to hold any particular security. Opinions regarding
sectors, industries, companies, and/or themes are those of the portfolio
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>
concentration in shorter-dated securities. A larger position in cash buffered
the Fund when bonds sold off in the first quarter, but created a drag on
performance when bonds rallied in the second quarter. A high concentration of
corporate bonds also hindered performance as Treasuries and Agencies outpaced
corporate debt during the first six months of 2005; corporates experienced
several high-profile downgrades in the first quarter causing investor flight to
quality and Treasury and Agency outperformance.
Exposure in the five- to seven-year range was added during the second quarter
of the period; the Fund held 26% of its fixed-income assets in bonds with
maturities five years or longer as of June 30, 2005. The Fund also held 20.9% of
its fixed-income assets in corporate debt compared to 4.8% in Agencies.
Longer-dated securities performed well for the Fund.
The Fund's exposure of 13% of its fixed-income assets to the fixed-rate
mortgage category weighed on performance as mortgages lagged other fixed-income
sectors during the period.
IN CONCLUSION
We are monitoring indications that the Federal Reserve may be nearing the end of
its tightening cycle. Additionally, as we will be nearing the typical 18-month
lag effect on the economy from the onset of the first federal funds rate
increase, we will monitor the data for signs of economic change.
The Fund maintained a somewhat more conservative stance as of the end of the
period, but increased its equity weighting as we found more compelling growth
opportunities over the last several months. We continue to focus on high-quality
growth companies that we believe show strong fundamental attributes. As always,
we thank you for your continued investment in the Fund.
/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 January 1, 2005
and held through June 30, 2005.
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 FOR COMPARISON PURPOSES 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*
(1/1/05) (6/30/05) (1/1/05-6/30/05)
- -----------------------------------------------------------------------------------------------------
CLASS A ACTUAL $ 1,000.00 $ 979.59 $ 7.98
CLASS A HYPOTHETICAL 1,000.00 1,016.66 8.13
CLASS B ACTUAL 1,000.00 971.88 11.66
CLASS B HYPOTHETICAL 1,000.00 1,012.90 11.90
CLASS C ACTUAL 1,000.00 971.11 12.05
CLASS C HYPOTHETICAL 1,000.00 1,012.49 12.30
CLASS F ACTUAL 1,000.00 982.08 6.71
CLASS F HYPOTHETICAL 1,000.00 1,017.97 6.83
CLASS R ACTUAL 1,000.00 984.80 5.33
CLASS R HYPOTHETICAL 1,000.00 1,019.37 5.42
CLASS T ACTUAL 1,000.00 977.16 8.76
CLASS T HYPOTHETICAL 1,000.00 1,015.86 8.94
</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
181/365 (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, earnings credits and brokerage
offsets, where applicable.
<Table>
<Caption>
EXPENSE RATIO
- ------------------------------------------------------------------
CLASS A 1.62%
CLASS B 2.37%
CLASS C 2.45%
CLASS F 1.36%
CLASS R 1.08%
CLASS T 1.78%
</Table>
11
<Page>
STATEMENT OF INVESTMENTS
June 30, 2005 (UNAUDITED)
<Table>
<Caption>
SHARES MARKET VALUE
- -----------------------------------------------------------------------------------------------------
COMMON STOCKS (DOMESTIC)--59.8%
ADVERTISING--0.7%
12,900 Lamar Advertising Company* $ 551,703
----------------
AEROSPACE & DEFENSE--1.1%
13,400 Boeing Company 884,400
----------------
ASSET MANAGEMENT & CUSTODY BANKS--0.7%
13,500 Northern Trust Corporation 615,465
----------------
BIOTECHNOLOGY--2.8%
5,400 Amgen, Inc.* 326,484
10,500 Genentech, Inc.* 842,940
14,200 Gilead Sciences, Inc.* 624,658
20,700 MedImmune, Inc.* 553,104
----------------
2,347,186
----------------
BROADCASTING & CABLE TV--2.0%
20,900 Clear Channel Communications, Inc. 646,437
24,300 EchoStar Communications Corporation 732,645
7,400 XM Satellite Radio Holdings, Inc. Class A* 249,084
----------------
1,628,166
----------------
COMMUNICATIONS EQUIPMENT--1.6%
56,200 Cisco Systems, Inc.* 1,073,982
10,200 Juniper Networks, Inc.* 256,836
----------------
1,330,818
----------------
COMPUTER & ELECTRONICS RETAIL--0.3%
3,900 Best Buy Company, Inc. 267,345
----------------
COMPUTER HARDWARE--2.9%
22,200 Apple Computer, Inc.* 817,182
21,100 International Business Machines Corporation 1,565,620
----------------
2,382,802
----------------
COMPUTER STORAGE & PERIPHERALS--0.7%
44,800 EMC Corporation* 614,208
----------------
CONSTRUCTION MATERIALS--0.8%
10,200 Lafarge North America, Inc. 636,888
----------------
DEPARTMENT STORES--0.8%
11,200 Kohl's Corporation* 626,192
----------------
DIVERSIFIED BANKS--0.8%
10,200 Wells Fargo & Company 628,116
----------------
FOOD RETAIL--0.9%
33,600 Safeway, Inc. 759,024
----------------
GENERAL MERCHANDISE STORES--2.5%
53,100 Dollar General Corporation 1,081,116
17,700 Target Corporation 963,057
----------------
2,044,173
----------------
</Table>
12
<Page>
<Table>
<Caption>
SHARES MARKET VALUE
- -----------------------------------------------------------------------------------------------------
HEALTHCARE DISTRIBUTORS--0.4%
8,100 Henry Schein, Inc.* $ 336,312
----------------
HEALTHCARE EQUIPMENT--2.0%
5,400 INAMED Corporation* 361,638
16,500 Waters Corporation* 613,305
9,000 Zimmer Holdings, Inc.* 685,530
----------------
1,660,473
----------------
HEALTHCARE FACILITIES--1.9%
29,025 Triad Hospitals, Inc.* 1,585,926
----------------
HEALTHCARE SUPPLIES--0.5%
9,000 Charles River Laboratories International, Inc.* 434,250
----------------
HOMEFURNISHING RETAIL--0.6%
11,900 Bed Bath & Beyond, Inc.* 497,182
----------------
HOTELS, RESORTS & CRUISE LINES--0.5%
7,600 Carnival Corporation 414,580
----------------
HOUSEHOLD PRODUCTS--1.8%
7,300 Clorox Company 406,756
21,750 Colgate-Palmolive Company 1,085,543
----------------
1,492,299
----------------
HYPERMARKETS & SUPER CENTERS--0.8%
14,600 Wal-Mart Stores, Inc. 703,720
----------------
INDUSTRIAL CONGLOMERATES--1.7%
41,000 General Electric Company 1,420,650
----------------
INTEGRATED OIL & GAS--1.0%
14,600 ExxonMobil Corporation 839,062
----------------
INTEGRATED TELECOMMUNICATION SERVICES--0.5%
7,100 Alltel Corporation 442,188
----------------
INTERNET SOFTWARE & SERVICES--0.5%
10,900 Yahoo!, Inc.* 377,685
----------------
INVESTMENT BANKING & BROKERAGE--0.8%
3,400 Goldman Sachs Group, Inc. 346,868
6,700 Morgan Stanley 351,549
----------------
698,417
----------------
LEISURE FACILITIES--1.6%
27,000 Royal Caribbean Cruises Limited 1,305,720
----------------
LIFE & HEALTH INSURANCE--0.0%
100 Aflac, Inc. 4,328
----------------
MOVIES & ENTERTAINMENT--3.6%
5,900 DreamWorks Animation SKG, Inc.* 154,580
118,700 Time Warner, Inc.* 1,983,477
25,600 Viacom, Inc. Class B 819,712
----------------
2,957,769
----------------
</Table>
SEE NOTES TO STATEMENT OF INVESTMENTS.
13
<Page>
<Table>
<Caption>
SHARES MARKET VALUE
- -----------------------------------------------------------------------------------------------------
OIL & GAS EQUIPMENT & SERVICES--1.0%
13,300 Smith International, Inc. $ 847,210
----------------
OIL & GAS EXPLORATION & PRODUCTION--0.6%
8,300 Apache Corporation 536,180
----------------
OTHER DIVERSIFIED FINANCIAL SERVICES--1.4%
8,900 Ambac Financial Group, Inc. 620,864
10,866 Citigroup, Inc. 502,335
----------------
1,123,199
----------------
PERSONAL PRODUCTS--1.6%
7,300 Avon Products, Inc. 276,305
19,900 Gillette Company 1,007,537
----------------
1,283,842
----------------
PHARMACEUTICALS--8.6%
18,900 Abbott Laboratories 926,289
33,100 Angiotech Pharmaceuticals, Inc.* 458,766
15,900 Eli Lilly and Company 885,789
8,500 Johnson & Johnson 552,500
10,100 Medicis Pharmaceutical Corporation Class A 320,473
90,900 MGI Pharma, Inc.* 1,977,984
45,275 Pfizer, Inc. 1,248,685
16,000 Wyeth 712,000
----------------
7,082,486
----------------
RAILROADS--1.2%
14,800 Union Pacific Corporation 959,040
----------------
SEMICONDUCTOR EQUIPMENT--0.8%
25,200 Novellus Systems, Inc.* 622,692
----------------
SEMICONDUCTORS--2.0%
7,700 Intel Corporation 200,662
20,100 Linear Technology Corporation 737,469
8,400 Maxim Integrated Products, Inc. 320,964
14,000 Microchip Technology, Inc. 414,680
----------------
1,673,775
----------------
SPECIALIZED FINANCE--0.4%
6,700 Moody's Corporation 301,232
----------------
SPECIALTY CHEMICALS--0.5%
7,000 Sigma-Aldrich Corporation 392,280
----------------
SYSTEMS SOFTWARE--3.5%
82,700 Microsoft Corporation 2,054,268
37,500 Symantec Corporation* 815,250
----------------
2,869,518
----------------
THRIFTS & MORTGAGE FINANCE--0.9%
19,100 The PMI Group, Inc. 744,518
----------------
</Table>
14
<Page>
<Table>
<Caption>
SHARES MARKET VALUE
- -----------------------------------------------------------------------------------------------------
TRADING COMPANIES & DISTRIBUTORS--0.5%
7,700 W.W. Grainger, Inc. $ 421,883
----------------
TOTAL COMMON STOCKS (DOMESTIC)
(COST--$46,712,086) 49,344,902
----------------
COMMON STOCKS (FOREIGN)--2.6%
APPLICATION SOFTWARE--0.3%
4,925 SAP AG Sponsored ADR (GE) 213,253
----------------
HEALTHCARE SUPPLIES--0.4%
2,800 Alcon, Inc. (SZ) 306,180
----------------
INVESTMENT BANKING & BROKERAGE--1.1%
39,800 Lazard Limited Class A (BD)* 925,350
----------------
SEMICONDUCTORS--0.8%
25,350 ATI Technologies, Inc. (CA)* 300,398
8,500 Marvell Technology Group Limited (BD)* 323,340
----------------
623,738
----------------
TOTAL COMMON STOCKS (FOREIGN)
(COST--$2,109,283) 2,068,521
----------------
<Caption>
PRINCIPAL AMOUNT MARKET VALUE
- -----------------------------------------------------------------------------------------------------
CORPORATE BONDS (DOMESTIC)--8.1%
AUTOMOBILE MANUFACTURERS--1.2%
$ 1,000,000 Toyota Motor Credit Corporation
5.65% 1/15/07 $ 1,023,270
----------------
DIVERSIFIED BANKS--2.1%
1,540,000 Washington Mutual, Inc.
8.25% 4/1/10 1,768,659
----------------
GENERAL MERCHANDISE STORES--1.0%
750,000 Target Corporation
5.875% 3/1/12 814,350
----------------
HOUSEHOLD PRODUCTS--2.0%
1,500,000 Colgate-Palmolive Company
5.98% 4/25/12 1,643,280
----------------
PHARMACEUTICALS--1.8%
1,500,000 Abbott Laboratories
5.625% 7/1/06 1,525,095
----------------
TOTAL CORPORATE BONDS (DOMESTIC)
(COST--$6,452,414) 6,774,654
----------------
U.S. GOVERNMENT OBLIGATIONS--10.9%
AGENCY PASS THROUGH--3.5%
2,709,763 U.S. Small Business Administration Series 10-A
6.64% 2/1/11 2,869,395
----------------
</Table>
SEE NOTES TO STATEMENT OF INVESTMENTS.
15
<Page>
<Table>
<Caption>
PRINCIPAL AMOUNT MARKET VALUE
- -----------------------------------------------------------------------------------------------------
GOVERNMENT SPONSORED ENTERPRISES--1.9%
$ 700,000 Federal Farm Credit Bank
4.70% 12/10/14 $ 721,700
800,000 Federal Home Loan Bank
4.50% 11/15/12 817,720
----------------
1,539,420
----------------
MORTGAGE-BACKED SECURITIES: GNMA/GUARANTEED--1.6%
1,306,605 Government National Mortgage Association
6.00% 1/15/33 Pool #563709 1,348,769
----------------
U.S. TREASURY NOTES--3.9%
1,186,320 U.S. Treasury Inflation Index Note
3.875% 1/15/09 1,291,110
U.S. Treasury Note:
900,000 4.25% 8/15/14 921,519
900,000 5.75% 8/15/10 983,637
----------------
3,196,266
----------------
TOTAL U.S. GOVERNMENT OBLIGATIONS
(COST--$8,773,250) 8,953,850
----------------
GOVERNMENT BONDS (FOREIGN)--3.6%
GOVERNMENT SECURITIES--3.6%
CAD 3,535,000 Province of Quebec
6.50% 12/1/05 (CA) 2,929,791
----------------
TOTAL GOVERNMENT BONDS (FOREIGN)
(COST--$2,343,706) 2,929,791
----------------
<Caption>
PRINCIPAL AMOUNT AMORTIZED COST
- -----------------------------------------------------------------------------------------------------
CORPORATE SHORT-TERM NOTES--16.9%
DISTILLERS & VINTNERS--4.5%
$ 3,700,000 Diageo Capital PLC
3.25% 7/6/05~ $ 3,698,330
----------------
DIVERSIFIED BANKS--3.6%
3,000,000 HSBC Finance Corporation
3.25% 7/7/05 2,998,375
----------------
ELECTRONIC EQUIPMENT MANUFACTURERS--2.3%
1,900,000 Hitachi America Capital Limited
3.23% 7/5/05~ 1,899,318
----------------
MULTI-LINE INSURANCE--1.6%
1,300,000 AIG Funding, Inc.
3.23% 7/5/05 1,299,533
----------------
</Table>
16
<Page>
<Table>
<Caption>
PRINCIPAL AMOUNT AMORTIZED COST
- -----------------------------------------------------------------------------------------------------
OTHER DIVERSIFIED FINANCIAL SERVICES--4.9%
$ 4,000,000 Merrill Lynch & Company
3.05% 7/1/05 $ 4,000,000
----------------
TOTAL CORPORATE SHORT-TERM NOTES
(AMORTIZED COST--$13,895,556) 13,895,556
----------------
TOTAL INVESTMENTS--101.9%
(TOTAL COST--$80,286,295) 83,967,274
----------------
OTHER ASSETS AND LIABILITIES--(1.9%) (1,531,697)
----------------
NET ASSETS--100.0% $ 82,435,577
================
</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 $5,597,648, OR 6.8%, OF THE FUND'S NET ASSETS AS OF JUNE 30,
2005.
ADR - AMERICAN DEPOSITARY RECEIPT
BD - BERMUDA
CA - CANADA
GE - GERMANY
SZ - SWITZERLAND
SEE NOTES TO FINANCIAL STATEMENTS.
17
<Page>
STATEMENT OF ASSETS AND LIABILITIES
June 30, 2005 (UNAUDITED)
<Table>
ASSETS
Investment securities, at cost $ 80,286,295
---------------
Investment securities, at market 83,967,274
Cash 464,257
Receivables:
Capital shares sold 28,142
Dividends and interest 270,377
Other assets 61,495
---------------
Total Assets 84,791,545
---------------
LIABILITIES
Payables and other accrued liabilities:
Investment securities purchased 2,097,768
Capital shares redeemed 51,020
Advisory fees 44,637
Shareholder servicing fees 5,958
Accounting fees 4,120
Distribution fees 26,548
Transfer agency fees 13,541
Custodian fees 1,286
Other 111,090
---------------
Total Liabilities 2,355,968
---------------
Net Assets $ 82,435,577
===============
COMPOSITION OF NET ASSETS
Capital (par value and paid-in surplus) $ 265,972,876
Accumulated net investment loss (28,178)
Accumulated net realized loss from security transactions (187,190,299)
Net unrealized appreciation on investments and foreign
currency translation 3,681,178
---------------
Total $ 82,435,577
===============
</Table>
18
<Page>
<Table>
CLASS A
Net Assets $ 1,648,413
Shares Outstanding 198,443
Net Asset Value, Redemption Price Per Share $ 8.31
Maximum offering price per share (net asset value
plus sales charge of 5.75% of offering price) $ 8.82
CLASS B
Net Assets $ 1,329,526
Shares Outstanding 161,601
Net Asset Value, Offering and Redemption Price (excluding
applicable contingent deferred sales charge) Per Share $ 8.23
CLASS C
Net Assets $ 230,753
Shares Outstanding 28,496
Net Asset Value, Offering and Redemption Price (excluding
applicable contingent deferred sales charge) Per Share $ 8.10
CLASS F
Net Assets $ 79,140,214
Shares Outstanding 9,516,923
Net Asset Value, Offering and Redemption Price Per Share $ 8.32
CLASS R
Net Assets $ 53,217
Shares Outstanding 6,423
Net Asset Value, Offering and Redemption Price Per Share $ 8.29
CLASS T
Net Assets $ 33,454
Shares Outstanding 3,921
Net Asset Value, Redemption Price Per Share $ 8.53
Maximum offering price per share (net asset value
plus sales charge of 4.50% of offering price) $ 8.93
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
19
<Page>
STATEMENT OF OPERATIONS
For the six months ended June 30, 2005 (UNAUDITED)
<Table>
INVESTMENT INCOME
Dividends $ 248,002
Interest 801,290
Foreign taxes withheld (267)
---------------
Total Investment Income 1,049,025
---------------
EXPENSES
Advisory fees--Note 2 280,956
Shareholder servicing fees--Note 2 34,841
Accounting fees--Note 2 25,934
Distribution fees--Note 2 110,232
Transfer agency fees--Note 2 54,728
Registration fees 27,600
Postage and mailing expenses 10,246
Custodian fees and expenses--Note 2 3,521
Printing expenses 26,690
Legal and audit fees 14,374
Directors' fees and expenses--Note 2 7,940
Other expenses 10,938
---------------
Total Expenses 608,000
Earnings Credits (2,769)
Reimbursed/Waived Expenses (2,289)
Expense Offset to Broker Commissions (6,035)
---------------
Net Expenses 596,907
---------------
Net Investment Income 452,118
---------------
REALIZED AND UNREALIZED GAIN (LOSS) ON SECURITY
TRANSACTIONS AND FOREIGN CURRENCY TRANSACTIONS
Net Realized Gain (Loss) on:
Security Transactions 7,208,681
Foreign Currency Transactions (622)
---------------
Net Realized Gain 7,208,059
Net Change in Unrealized Appreciation/Depreciation
of Investments and Foreign Currency Translation (8,759,925)
---------------
Net Realized and Unrealized Loss (1,551,866)
---------------
Net Decrease in Net Assets Resulting from Operations $ (1,099,748)
===============
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
20
<Page>
STATEMENTS OF CHANGES IN NET ASSETS
(UNAUDITED)
<Table>
<Caption>
SIX MONTHS ENDED YEAR ENDED
6/30/05 12/31/04
OPERATIONS
Net Investment Income $ 452,118 $ 1,165,048
Net Realized Gain on Security and Foreign
Currency Transactions 7,208,059 8,838,969
Net Change in Unrealized Appreciation/Depreciation
of Investments and Foreign Currency Translation (8,759,925) (2,078,931)
---------------- ----------------
Net Increase (Decrease) in Net Assets Resulting
from Operations (1,099,748) 7,925,086
---------------- ----------------
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS
From Net Investment Income
Class A (7,062) (16,533)
Class B (406) (4,861)
Class C (39) (659)
Class F (440,827) (1,146,498)
Class R (380) (763)
Class T (110) (243)
---------------- ----------------
Net Decrease from Dividends and Distributions (448,824) (1,169,557)
---------------- ----------------
CAPITAL SHARE TRANSACTIONS
Net Decrease--Note 4
Class A (4,390) (2,547)
Class B (269,764) (135,764)
Class C (28,485) (49,827)
Class F (9,074,043) (36,636,581)
Class R (4,620) (16,844)
Class T (907) (3,452)
---------------- ----------------
Net Decrease from Capital Share Transactions (9,382,209) (36,845,015)
---------------- ----------------
Net Decrease in Net Assets (10,930,781) (30,089,486)
---------------- ----------------
NET ASSETS
Beginning of period $ 93,366,358 $ 123,455,844
---------------- ----------------
End of period $ 82,435,577 $ 93,366,358
================ ================
Accumulated Net Investment Loss $ (28,178) $ (31,472)
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
21
<Page>
FINANCIAL HIGHLIGHTS
(UNAUDITED)
<Table>
<Caption>
SIX MONTHS YEAR ENDED
ENDED JUNE 30, DECEMBER 31,
2005 2004 2003 2002 2001
-------------- --------------------------------------------
CLASS A SHARES
PER SHARE OPERATING DATA
Net Asset Value, beginning of period $ 8.45 $ 7.88 $ 6.68 $ 8.18 $ 9.24
- --------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.03 0.08 0.05 0.05 0.06
Net realized and unrealized gains
(losses) on securities (0.13) 0.57 1.20 (1.51) (1.03)
-------------------------------------------------------------
Total from investment operations (0.10) 0.65 1.25 (1.46) (0.97)
- --------------------------------------------------------------------------------------------------------------
Less dividends and distributions:
From net investment income (0.04) (0.08) (0.05) (0.04) (0.09)
From net realized gains 0.00 0.00 0.00 0.00 0.00
-------------------------------------------------------------
Total distributions (0.04) (0.08) (0.05) (0.04) (0.09)
- --------------------------------------------------------------------------------------------------------------
Net Asset Value, end of period $ 8.31 $ 8.45 $ 7.88 $ 6.68 $ 8.18
=============================================================
TOTAL RETURN(a) (1.24%) 8.31% 18.81% (17.85%) (10.46%)
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000s) $ 1,648 $ 1,682 $ 1,572 $ 1,243 $ 1,227
- --------------------------------------------------------------------------------------------------------------
Ratios to average net assets(b):
Expenses with reimbursements, but
no earnings credits or brokerage offsets(c) 1.64% 1.49% 1.83% 1.89% 1.87%
Expenses with reimbursements,
earnings credits and brokerage offsets 1.62% 1.48% 1.83% 1.89% 1.87%
Net investment income 0.81% 0.96% 0.63% 0.56% 0.51%
- --------------------------------------------------------------------------------------------------------------
Portfolio turnover rate(d) 160% 134% 108% 122% 111%
</Table>
(a). SALES CHARGES ARE NOT REFLECTED IN THE TOTAL RETURN.
(b). ANNUALIZED.
(c). 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% (2005), 1.49% (2004), 1.83% (2003), 1.89%
(2002), AND 1.87% (2001).
(d). PORTFOLIO TURNOVER RATE IS A MEASURE OF PORTFOLIO ACTIVITY THAT IS
CALCULATED BY DIVIDING THE LESSER OF PURCHASES OR SALES OF SECURITIES,
EXCLUDING SECURITIES HAVING MATURITY DATES AT ACQUISITION OF ONE YEAR OR
LESS, BY THE AVERAGE VALUE OF THE PORTFOLIO SECURITIES HELD DURING THE
PERIOD, WHICH IS A ROLLING 12-MONTH PERIOD.
22
<Page>
<Table>
<Caption>
SIX MONTHS YEAR ENDED
ENDED JUNE 30, DECEMBER 31,
2005 2004 2003 2002 2001
-------------- ---------------------------------------------
CLASS B SHARES
PER SHARE OPERATING DATA
Net Asset Value, beginning of period $ 8.37 $ 7.80 $ 6.63 $ 8.11 $ 9.18
- --------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) 0.00(a),(b) 0.01 0.01 (0.01) 0.01
Net realized and unrealized gains
(losses) on securities (0.14) 0.58 1.17 (1.47) (1.03)
--------------------------------------------------------------------
Total from investment operations (0.14) 0.59 1.18 (1.48) (1.02)
- --------------------------------------------------------------------------------------------------------------
Less dividends and distributions:
From net investment income 0.00(c) (0.02) (0.01) 0.00(c) (0.05)
From net realized gains 0.00 0.00 0.00 0.00 0.00
--------------------------------------------------------------------
Total distributions 0.00 (0.02) (0.01) 0.00 (0.05)
- --------------------------------------------------------------------------------------------------------------
Net Asset Value, end of period $ 8.23 $ 8.37 $ 7.80 $ 6.63 $ 8.11
====================================================================
TOTAL RETURN(d) (1.65%) 7.63% 17.76% (18.21%) (11.13%)
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000s) $ 1,330 $ 1,625 $ 1,647 $ 1,181 $ 1,484
- --------------------------------------------------------------------------------------------------------------
Ratios to average net assets(e):
Expenses with reimbursements, but
no earnings credits or brokerage
offsets(f) 2.38% 2.21% 2.53% 2.54% 2.50%
Expenses with reimbursements,
earnings credits and brokerage
offsets 2.37% 2.21% 2.53% 2.54% 2.49%
Net investment income (loss) 0.07% 0.23% (0.08%) (0.10%) (0.13%)
- --------------------------------------------------------------------------------------------------------------
Portfolio turnover rate(g) 160% 134% 108% 122% 111%
</Table>
(a). COMPUTED USING AVERAGE SHARES OUTSTANDING THROUGHOUT THE PERIOD.
(b). NET INVESTMENT INCOME FOR THE PERIOD ENDED JUNE 30, 2005 AGGREGATED LESS
THAN $0.01 ON A PER SHARE BASIS.
(c). DISTRIBUTIONS FROM NET INVESTMENT INCOME FOR THE YEAR ENDED DECEMBER 31,
2002 AND THE PERIOD ENDED JUNE 30, 2005, AGGREGATED LESS THAN $0.01 ON A
PER SHARE BASIS.
(d). SALES CHARGES ARE NOT REFLECTED IN THE TOTAL RETURN.
(e). ANNUALIZED.
(f). 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 2.39% (2005), 2.21% (2004), 2.53% (2003), 2.54%
(2002), AND 2.50% (2001).
(g). PORTFOLIO TURNOVER RATE IS A MEASURE OF PORTFOLIO ACTIVITY THAT IS
CALCULATED BY DIVIDING THE LESSER OF PURCHASES OR SALES OF SECURITIES,
EXCLUDING SECURITIES HAVING MATURITY DATES AT ACQUISITION OF ONE YEAR OR
LESS, BY THE AVERAGE VALUE OF THE PORTFOLIO SECURITIES HELD DURING THE
PERIOD, WHICH IS A ROLLING 12-MONTH PERIOD.
SEE NOTES TO FINANCIAL STATEMENTS.
23
<Page>
<Table>
<Caption>
SIX MONTHS YEAR ENDED
ENDED JUNE 30, DECEMBER 31,
2005 2004 2003 2002 2001
-------------- --------------------------------------------
CLASS C SHARES
PER SHARE OPERATING DATA
Net Asset Value, beginning of period $ 8.24 $ 7.69 $ 6.54 $ 8.04 $ 9.17
- -------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) 0.00(a),(b) 0.01(a) (0.01) (0.17) (0.05)
Net realized and unrealized gains
(losses) on securities (0.14) 0.56 1.16 (1.33) (1.03)
-------------------------------------------------------------------
Total from investment operations (0.14) 0.57 1.15 (1.50) (1.08)
- -------------------------------------------------------------------------------------------------------------------
Less dividends and distributions:
From net investment income 0.00(c) (0.02) 0.00(c) 0.00 (0.05)
From net realized gains 0.00 0.00 0.00 0.00 0.00
-------------------------------------------------------------------
Total distributions 0.00 (0.02) 0.00 0.00 (0.05)
- -------------------------------------------------------------------------------------------------------------------
Net Asset Value, end of period $ 8.10 $ 8.24 $ 7.69 $ 6.54 $ 8.04
===================================================================
TOTAL RETURN(d) (1.68%) 7.42% 17.59% (18.66%) (11.80%)
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000s) $ 231 $ 264 $ 295 $ 248 $ 496
- -------------------------------------------------------------------------------------------------------------------
Ratios to average net assets(e):
Expenses with reimbursements, but
no earnings credits or brokerage offsets(f) 2.46% 2.35% 2.69% 3.48% 3.96%
Expenses with reimbursements,
earnings credits and brokerage offsets 2.45% 2.34% 2.69% 3.48% 3.96%
Net investment income (loss) (0.01%) 0.08% (0.17%) (1.05%) (1.64%)
- -------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate(g) 160% 134% 108% 122% 111%
</Table>
(a). COMPUTED USING AVERAGE SHARES OUTSTANDING THROUGHOUT THE PERIOD.
(b). NET INVESTMENT LOSS FOR THE PERIOD ENDED JUNE 30, 2005 AGGREGATED LESS THAN
$0.01 ON A PER SHARE BASIS.
(c). DISTRIBUTIONS FROM NET INVESTMENT INCOME FOR THE YEAR ENDED DECEMBER 31,
2003 AND THE PERIOD ENDED JUNE 30, 2005, AGGREGATED LESS THAN $0.01 ON A
PER SHARE BASIS.
(d). SALES CHARGES ARE NOT REFLECTED IN THE TOTAL RETURN.
(e). ANNUALIZED.
(f). 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 2.47% (2005), 2.35% (2004), 2.69% (2003), 3.48%
(2002), AND 4.24% (2001).
(g). PORTFOLIO TURNOVER RATE IS A MEASURE OF PORTFOLIO ACTIVITY THAT IS
CALCULATED BY DIVIDING THE LESSER OF PURCHASES OR SALES OF SECURITIES,
EXCLUDING SECURITIES HAVING MATURITY DATES AT ACQUISITION OF ONE YEAR OR
LESS, BY THE AVERAGE VALUE OF THE PORTFOLIO SECURITIES HELD DURING THE
PERIOD, WHICH IS A ROLLING 12-MONTH PERIOD.
24
<Page>
<Table>
<Caption>
SIX MONTHS YEAR ENDED
ENDED JUNE 30, DECEMBER 31,
2005 2004 2003 2002 2001
-------------- ----------------------------------------------
CLASS F SHARES
PER SHARE OPERATING DATA
Net Asset Value, beginning of period $ 8.46 $ 7.88 $ 6.69 $ 8.20 $ 9.22
- ----------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.04 0.08 0.06 0.07 0.10
Net realized and unrealized gains
(losses) on securities (0.13) 0.59 1.20 (1.50) (1.02)
----------------------------------------------------------------
Total from investment operations (0.09) 0.67 1.26 (1.43) (0.92)
- ----------------------------------------------------------------------------------------------------------------
Less dividends and distributions:
From net investment income (0.05) (0.09) (0.07) (0.08) (0.10)
From net realized gains 0.00 0.00 0.00 0.00 0.00
----------------------------------------------------------------
Total distributions (0.05) (0.09) (0.07) (0.08) (0.10)
- ----------------------------------------------------------------------------------------------------------------
Net Asset Value, end of period $ 8.32 $ 8.46 $ 7.88 $ 6.69 $ 8.20
================================================================
TOTAL RETURN (1.12%) 8.58% 18.96% (17.46%) (9.94%)
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000s) $ 79,140 $ 89,701 $ 119,835 $ 130,314 $ 297,068
- ----------------------------------------------------------------------------------------------------------------
Ratios to average net assets(a):
Expenses with reimbursements, but
no earnings credits or brokerage offsets(b) 1.37% 1.34% 1.54% 1.43% 1.23%
Expenses with reimbursements,
earnings credits and brokerage offsets 1.36% 1.33% 1.54% 1.42% 1.22%
Net investment income 1.07% 1.08% 0.93% 0.99% 1.20%
- ----------------------------------------------------------------------------------------------------------------
Portfolio turnover rate(c) 160% 134% 108% 122% 111%
</Table>
(a). ANNUALIZED.
(b). 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 1.38% (2005), 1.34% (2004), 1.54% (2003), 1.43%
(2002), AND 1.23% (2001).
(c). PORTFOLIO TURNOVER RATE IS A MEASURE OF PORTFOLIO ACTIVITY THAT IS
CALCULATED BY DIVIDING THE LESSER OF PURCHASES OR SALES OF SECURITIES,
EXCLUDING SECURITIES HAVING MATURITY DATES AT ACQUISITION OF ONE YEAR OR
LESS, BY THE AVERAGE VALUE OF THE PORTFOLIO SECURITIES HELD DURING THE
PERIOD, WHICH IS A ROLLING 12-MONTH PERIOD.
SEE NOTES TO FINANCIAL STATEMENTS.
25
<Page>
<Table>
<Caption>
SIX MONTHS YEAR ENDED
ENDED JUNE 30, DECEMBER 31,
2005 2004 2003 2002 2001
-------------- --------------------------------------------
CLASS R SHARES
PER SHARE OPERATING DATA
Net Asset Value, beginning of period $ 8.43 $ 7.86 $ 6.68 $ 8.18 $ 9.22
- --------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) 0.05 0.09 0.16 (0.16) 0.09
Net realized and unrealized gains
(losses) on securities (0.13) 0.58 1.05 (1.34) (1.02)
--------------------------------------------------------------
Total from investment operations (0.08) 0.67 1.21 (1.50) (0.93)
- --------------------------------------------------------------------------------------------------------------
Less dividends and distributions:
From net investment income (0.06) (0.10) (0.03) 0.00 (0.11)
From net realized gains 0.00 0.00 0.00 0.00 0.00
--------------------------------------------------------------
Total distributions (0.06) (0.10) (0.03) 0.00 (0.11)
- --------------------------------------------------------------------------------------------------------------
Net Asset Value, end of period $ 8.29 $ 8.43 $ 7.86 $ 6.68 $ 8.18
==============================================================
TOTAL RETURN (0.99%) 8.63% 18.12% (18.34%) (10.09%)
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000s) $ 53 $ 59 $ 72 $ 11 $ 14
- --------------------------------------------------------------------------------------------------------------
Ratios to average net assets(a):
Expenses with reimbursements, but
no earnings credits or brokerage offsets(b) 1.10% 1.21% 2.37% 4.24% 3.07%
Expenses with reimbursements,
earnings credits and brokerage offsets 1.08% 1.21% 2.37% 4.24% 3.07%
Net investment income (loss) 1.35% 1.21% 0.01% (1.77%) (0.75%)
- --------------------------------------------------------------------------------------------------------------
Portfolio turnover rate(c) 160% 134% 108% 122% 111%
</Table>
(a). ANNUALIZED.
(b). 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 1.26% (2005), 1.35% (2004), 2.62% (2003), 19.52%
(2002), AND 272.77% (2001).
(c). PORTFOLIO TURNOVER RATE IS A MEASURE OF PORTFOLIO ACTIVITY THAT IS
CALCULATED BY DIVIDING THE LESSER OF PURCHASES OR SALES OF SECURITIES,
EXCLUDING SECURITIES HAVING MATURITY DATES AT ACQUISITION OF ONE YEAR OR
LESS, BY THE AVERAGE VALUE OF THE PORTFOLIO SECURITIES HELD DURING THE
PERIOD, WHICH IS A ROLLING 12-MONTH PERIOD.
26
<Page>
<Table>
<Caption>
SIX MONTHS YEAR ENDED
ENDED JUNE 30, DECEMBER 31,
2005 2004 2003 2002 2001
-------------- --------------------------------------------
CLASS T SHARES
PER SHARE OPERATING DATA
Net Asset Value, beginning of period $ 8.68 $ 8.09 $ 6.88 $ 8.17 $ 9.21
- --------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) 0.02 0.03 0.21 (0.37) 0.08
Net realized and unrealized gains
(losses) on securities (0.14) 0.62 1.00 (0.92) (1.04)
--------------------------------------------------------------
Total from investment operations (0.12) 0.65 1.21 (1.29) (0.96)
- --------------------------------------------------------------------------------------------------------------
Less dividends and distributions:
From net investment income (0.03) (0.06) 0.00(a) 0.00 (0.08)
From net realized gains 0.00 0.00 0.00 0.00 0.00
--------------------------------------------------------------
Total distributions (0.03) (0.06) 0.00 0.00 (0.08)
- --------------------------------------------------------------------------------------------------------------
Net Asset Value, end of period $ 8.53 $ 8.68 $ 8.09 $ 6.88 $ 8.17
==============================================================
Total Return(b) (1.41%) 8.01% 17.65% (15.79%) (10.44%)
Ratios/Supplemental Data
Net assets, end of period (000s) $ 33 $ 35 $ 36 $ 13 $ 232
- --------------------------------------------------------------------------------------------------------------
Ratios to average net assets(c):
Expenses with reimbursements, but
no earnings credits or brokerage offsets(d) 1.79% 1.77% 2.73% 2.60% 3.36%
Expenses with reimbursements,
earnings credits and brokerage offsets 1.78% 1.77% 2.73% 2.59% 3.36%
Net investment income (loss) 0.66% 0.66% (0.29%) (0.31%) (1.12%)
- --------------------------------------------------------------------------------------------------------------
Portfolio turnover rate(e) 160% 134% 108% 122% 111%
</Table>
(a). DISTRIBUTIONS FROM NET INVESTMENT INCOME FOR THE YEAR ENDED DECEMBER 31,
2003 AGGREGATED LESS THAN $0.01 ON A PER SHARE BASIS.
(b). SALES CHARGES ARE NOT REFLECTED IN THE TOTAL RETURN.
(c). ANNUALIZED.
(d). CERTAIN FEES WERE REIMBURSED OR WAIVED BY THE MANAGEMENT COMPANY OR ITS
AFFILIATES. HAD THESE FEES NOT BEEN REIMBURSED OR WAIVED, THE EXPENSE
RATIOS WOULD HAVE BEEN 2.06% (2005), 2.02% (2004), 3.18% (2003), 14.63%
(2002), AND 18.37% (2001).
(e). PORTFOLIO TURNOVER RATE IS A MEASURE OF PORTFOLIO ACTIVITY THAT IS
CALCULATED BY DIVIDING THE LESSER OF PURCHASES OR SALES OF SECURITIES,
EXCLUDING SECURITIES HAVING MATURITY DATES AT ACQUISITION OF ONE YEAR OR
LESS, BY THE AVERAGE VALUE OF THE PORTFOLIO SECURITIES HELD DURING THE
PERIOD, WHICH IS A ROLLING 12-MONTH PERIOD.
SEE NOTES TO FINANCIAL STATEMENTS.
27
<Page>
NOTES TO FINANCIAL STATEMENTS
June 30, 2005 (UNAUDITED)
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
Dreyfus Founders Funds, Inc. (the "Company") is an open-end management
investment company registered under the Investment Company Act of 1940 (the
"1940 Act"). Ten series of shares are currently issued: Balanced, Discovery,
Equity Growth, 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 shares redeemed 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. Since February 22, 2005, New York closing exchange rates have
been used to convert foreign currencies to U.S. dollars. Previously, London
closing exchange rates were used to convert foreign currencies to U.S. dollars.
A debt security with a remaining maturity greater than 60 days at the time of
purchase is valued in accordance with the evaluated bid price supplied by a
pricing service approved by the Company's board of directors or, if such price
is not available, at the mean between the highest bid and lowest asked
quotations obtained from at least two securities dealers. A debt security with a
remaining maturity of 60 days or less at the time of purchase is valued at
amortized cost, which approximates market value, unless it is determined that
amortized cost would not represent market value, in which case the securities
would be marked to market. The Fund amortizes premiums and discounts on all debt
securities.
If market quotations 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
28
<Page>
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. In addition, it is possible
that the fair value determined for a security may be different from the value
that may be realized upon the security's sale, and that these differences may be
material to the net asset value of the Fund.
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 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
29
<Page>
depreciation on investments and foreign currency translation arises from changes
in the values of assets and liabilities, including investments in securities
held at the date of the financial statements, resulting from changes in the
exchange rates and changes in market prices of securities held.
FEDERAL INCOME TAXES--No provision has been made for federal income taxes since
it is the policy of the Fund to comply with the requirements of the Internal
Revenue Code that are applicable to regulated investment companies and to make
distributions of income and capital gains sufficient to relieve it from all
income taxes. The Fund is treated as a separate tax entity for federal income
tax purposes.
INVESTMENT INCOME--Dividend income is recognized on the ex-dividend date.
Certain dividends from foreign securities are recorded as soon as the Fund is
informed of the dividend, if such information is obtained subsequent to the
ex-dividend date. Interest income is accrued daily, 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 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 period presentation.
30
<Page>
2. FEES AND TRANSACTIONS WITH AFFILIATES
ADVISORY FEES--Founders Asset Management LLC ("Founders") serves as investment
adviser to the Fund. Founders is an indirect wholly-owned subsidiary of Mellon
Financial Corporation, a publicly-owned financial services company which
provides a comprehensive range of financial products and services in domestic
and selected international markets.
In accordance with an investment advisory agreement between the Company and
Founders, the Fund compensates Founders for its services as investment adviser
by the payment of fees computed daily and paid monthly at the annual rate equal
to a percentage of the average daily value of the Fund's net assets. The fee is
0.65% of the first $250 million of net assets, 0.60% of the next $250 million of
net assets, 0.55% of the next $250 million of net assets and 0.50% of net assets
in excess of $750 million.
SHAREHOLDER SERVICING AND TRANSFER AGENCY FEES FOR CLASS F SHARES--The Company
has a shareholder services agreement with Dreyfus Service Corporation ("DSC"),
the direct owner of Founders and a wholly-owned subsidiary of The Dreyfus
Corporation ("Dreyfus", an affiliate of Founders), whereby the Funds have agreed
to compensate DSC for providing certain shareholder servicing functions to
holders of Class F shares. The Fund paid DSC a monthly fee equal, on an annual
basis, to $24.00 per Class F shareholder account considered to be an open
account at any time during a given month. During the six months ended June 30,
2005, Class F shares were charged $30,570 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 six months ended June 30, 2005, Class F shares
were charged $4,445 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 $13.09 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, including both the per account fees paid to
DTI and out-of-pocket charges, during the six months ended June 30, 2005 were as
follows:
<Table>
<Caption>
TRANSFER
AGENCY FEES
--------------------------------------------------------
Class A $ 2,863
Class B $ 2,544
Class C $ 530
Class R $ 60
Class T $ 86
</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
31
<Page>
a written 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 six months ended June 30, 2005, Class R
and Class T were each reimbursed $44, which reduced the amounts paid to DTI to
$16 and $42, respectively.
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 six months ended June 30, 2005, the Fund was charged $1,116 for cash
management fees, which are included in the out-of-pocket transfer agency charges
above.
OTHER TRANSFER AGENCY FEES--Various broker-dealers, retirement plan
administrators and other 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 six months ended
June 30, 2005, the Fund paid $44,200 to these entities for such services. This
amount is included in the transfer agency fees shown on the Statement of
Operations.
DISTRIBUTION AND SHAREHOLDER SERVICES PLANS--DSC also is the distributor of the
Fund's shares. The Fund has adopted a Distribution Plan pursuant to Rule 12b-1
under the 1940 Act applicable to its Class F shares. Under the plan, the Fund is
authorized to reimburse DSC for expenses paid for distributing or servicing its
Class F shares at an annual rate of up to 0.25% of the value of the average
daily net assets of the Fund's Class F shares. During the six months ended June
30, 2005, Class F shares were charged $103,719 pursuant to this Distribution
Plan.
The Fund also has adopted a Distribution Plan pursuant to Rule 12b-1 under the
1940 Act applicable to its Class B, Class C and Class T shares. Under this plan,
the Fund pays DSC a fee for distributing its Class B and C shares at the annual
rate of 0.75% of the value of the average daily net assets of its Class B and C
shares, respectively, and pays DSC a fee for distributing its Class T shares at
the annual rate of 0.25% of the average daily net assets of its Class T shares.
In addition, the Fund has adopted a Shareholder Services Plan applicable to its
Class A, Class B, Class C and Class T shares. Under the Shareholder Services
Plan, Class A, Class B, Class C and Class T shares pay DSC an annual fee of
0.25% of the value of their average daily net assets for the provision of
certain services.
Distribution and shareholder servicing fees paid to DSC by the Fund's Class A,
B, C and T shares for the six months ended June 30, 2005, were as follows:
<Table>
<Caption>
DISTRIBUTION SHAREHOLDER
FEES SERVICING FEES
-------------------------------------------------------------------
Class A N/A $ 2,072
Class B $ 5,537 $ 1,846
Class C $ 934 $ 311
Class T $ 42 $ 42
</Table>
32
<Page>
During the six months ended June 30, 2005, DSC retained $942 in sales
commissions from the sales of Class A shares. DSC also retained $5,229 of
contingent deferred sales charges relating to redemptions of Class B shares.
FUND ACCOUNTING AND ADMINISTRATIVE SERVICES FEES--The Funds have agreed to
compensate Founders for providing accounting services, administration,
compliance monitoring, regulatory and shareholder reporting, as well as related
facilities, equipment and clerical help. The fee is computed at the annual rate
of 0.06% of the average daily net assets of the Fund on the first $500 million,
0.04% of the average daily net assets of the Fund on the next $500 million and
0.02% of the average daily net assets of the Fund in excess of $1 billion, plus
reasonable out-of-pocket expenses. Founders has contractually agreed in writing
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 contractually agreed in writing 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
----------------------------------------------------------------
9/1/04 to 8/31/05 $ 200,000
9/1/05 to 8/31/06 $ 200,000
</Table>
The fee waiver is allocated among the Funds in proportion to their respective
shares of the total custodian fee. For the six months ended June 30, 2005, the
Fund's portion of the fee waiver was $2,201, which reduced the amount paid to
Mellon Bank to $1,320.
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.
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.
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. 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
June 30, 2005 are noted below. Unrealized appreciation/depreciation in the table
below excludes appreciation/depreciation on foreign currency translation, if
any. The primary difference between book and tax appreciation or depreciation is
wash sale loss deferrals.
<Table>
Undistributed Ordinary Income $ 7,356
Federal Tax Cost $ 81,208,742
Gross Tax Appreciation of Investments $ 4,298,124
Gross Tax Depreciation of Investments $ (1,539,592)
Net Tax Appreciation $ 2,758,532
</Table>
34
<Page>
4. CAPITAL SHARE TRANSACTIONS
The Fund is authorized to issue 850 million shares of $0.01 par value capital
stock. Transactions in shares of the Fund for the periods indicated were as
follows:
<Table>
<Caption>
SIX MONTHS ENDED YEAR ENDED
JUNE 30, 2005 DECEMBER 31, 2004
SHARES AMOUNT SHARES AMOUNT
CLASS A
Sold 33,753 $ 281,841 52,105 $ 413,025
Dividends or Distributions Reinvested 786 $ 6,551 1,969 $ 15,805
Redeemed (35,162) $ (292,782) (54,549) $ (431,377)
-------------------------------------------------------------
Net Decrease (623) $ (4,390) (475) $ (2,547)
=============================================================
CLASS B
Sold 15,303 $ 125,833 53,204 $ 414,706
Dividends or Distributions Reinvested 38 $ 311 466 $ 3,759
Redeemed (47,948) $ (395,908) (70,543) $ (554,229)
-------------------------------------------------------------
Net Decrease (32,607) $ (269,764) (16,873) $ (135,764)
=============================================================
CLASS C
Sold 433 $ 3,488 16,072 $ 124,317
Dividends or Distributions Reinvested 3 $ 27 59 $ 475
Redeemed (3,951) $ (32,000) (22,428) $ (174,619)
-------------------------------------------------------------
Net Decrease (3,515) $ (28,485) (6,297) $ (49,827)
=============================================================
CLASS F
Sold 437,062 $ 3,643,006 1,100,066 $ 8,730,703
Dividends or Distributions Reinvested 51,258 $ 427,748 138,996 $ 1,116,482
Redeemed (1,574,754) $ (13,144,797) (5,836,747) $ (46,483,766)
-------------------------------------------------------------
Net Decrease (1,086,434) $ (9,074,043) (4,597,685) $ (36,636,581)
=============================================================
CLASS R
Sold 0 $ 0 0 $ 0
Dividends or Distributions Reinvested 46 $ 380 94 $ 751
Redeemed (608) $ (5,000) (2,224) $ (17,595)
-------------------------------------------------------------
Net Decrease (562) $ (4,620) (2,130) $ (16,844)
=============================================================
CLASS T
Sold 0 $ 0 4,985 $ 39,775
Dividends or Distributions Reinvested 7 $ 60 27 $ 223
Redeemed (114) $ (967) (5,430) $ (43,450)
-------------------------------------------------------------
Net Decrease (107) $ (907) (418) $ (3,452)
=============================================================
</Table>
35
<Page>
5. INVESTMENT TRANSACTIONS
For the six months ended June 30, 2005, purchases and sales of investment
securities (excluding short-term securities and U.S. government obligations)
were $69,241,181 and $84,813,689, respectively. Purchases and sales of long-term
U.S. government obligations were $987,082 and $9,433,428, 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 June 30, 2005, the Fund did not have any borrowings under the LOC.
36
<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.
37
<Page>
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38
<Page>
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<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, 2005, 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. 8/05
A-636-BAL-05
<Page>
SEMIANNUAL REPORT
[GRAPHIC]
DREYFUS FOUNDERS
DISCOVERY FUND
INVESTMENT UPDATE
JUNE 30, 2005
[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
</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 3-10 were owned by the Fund on June 30, 2005. The amounts of
these holdings are included in the Statement of Investments.
NOT FDIC-INSURED - NOT BANK-GUARANTEED - MAY LOSE VALUE
<Page>
MANAGEMENT OVERVIEW
[PHOTO OF BRADLEY C. ORR]
[PHOTO OF JAMES (J.D.) PADGETT]
A DISCUSSION WITH CO-PORTFOLIO MANAGERS BRADLEY C. ORR, CFA, LEFT, AND JAMES
(J.D.) PADGETT, CFA, REGARDING FUND PERFORMANCE FOR THE SIX-MONTH PERIOD ENDED
JUNE 30, 2005.
A MIXED ENVIRONMENT
Following the strong advances registered by the domestic equity markets during
the fourth quarter of last year, 2005 started on a far less positive note.
Markets declined broadly in the first quarter due to a persistent rise in oil
prices and the Federal Reserve's tightening monetary policy.
The markets did partially recover during the second quarter, as investors
began to speculate that the Federal Reserve may soon end its rate tightening
campaign. At the same time, the pace of economic growth remained relatively
strong, as evidenced by the robust gross domestic product (GDP) in the second
quarter.
During the first six months of 2005, small-cap growth stocks underperformed
both small-cap value stocks and large-cap growth stocks. This can be seen when
comparing the -3.58% six-month return of the Russell 2000 Growth Index to the
0.90% return of the Russell 2000 Value Index, as well as to the -1.72% and
- -0.81% returns in the larger-capitalization Russell 1000 Growth Index and the
Standard & Poor's 500 Index, respectively.
For the six-month period ended June 30, 2005, Dreyfus Founders Discovery
Fund's performance(1) compared favorably to the Fund's benchmark, the Russell
2000 Growth Index, which, as mentioned above, posted a total return of -3.58%
for the same period.
- ----------
(1) Excluding sales charges, which result in lower returns for certain share
classes. Please see page 7 for Average Annual and Year-to-Date Total Returns for
all share classes, including and excluding sales charges.
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 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 these indexes assume change in security prices and
reinvestment of dividends, but do not reflect the costs of managing a mutual
fund.
3
<Page>
PORTFOLIO COMPOSITION CHANGES
High energy prices continued to drive demand in the oil services industry;
therefore, the Fund added energy holdings during the period in an attempt to
garner greater growth potential in this sector. In addition, the Fund's
weighting in the consumer discretionary sector was significantly larger than
that of its benchmark as we believed many opportunities existed in this sector.
The Fund decreased its weighting in the information technology sector as we
felt that valuations weren't compelling enough to outweigh broad fundamental
concerns in this sector.
Also, the Fund decreased its weighting in the industrials sector, although
industrials were still overweight versus the benchmark. During the first half,
many companies in this sector faced decelerating revenue and earnings growth. In
fact, earnings expectations dropped after many months of upward revisions. At
the same time, valuations were at the high end of historical ranges. We felt the
earnings acceleration that had been driven by the recovering economy began to
naturally slow, and therefore, we reduced the Fund's exposure to this sector.
CONSUMER DISCRETIONARY STOCKS BENEFITED PERFORMANCE
The consumer discretionary sector proved particularly strong for the Fund during
the six-month period. An overweight position and strong stock selection led to
solid outperformance in this sector. Although the strength of consumer spending
is an important backdrop for the financial performance of most consumer
discretionary companies, there were many stocks within the sector that
outperformed despite the uncertain macro-economic environment.
The Fund opportunistically added to its positions in existing consumer
discretionary holdings after the market sold these stocks due to short-term or
potentially unwarranted concerns. GUITAR CENTER, INC., a music retailer, and WMS
INDUSTRIES, INC., a casino gaming machine manufacturer, were two such examples.
Guitar Center experienced some weaker results toward the end of the first
quarter, causing the stock to decline over 17% from its high. The Fund took this
opportunity to significantly increase its position in Guitar Center and
benefited from the stock's price increase in the second quarter. WMS reported
better-than-expected revenue growth in the fourth quarter of 2004, but was
unable to control expenses and increase margins, thus putting future earnings
growth in question. The company recovered in the first
4
<Page>
quarter of 2005, resulting in improved earnings performance. The Fund increased
its position in WMS following the fourth quarter earnings disappointment and
ensuing stock decline.
The gaming and lodging industry within the consumer discretionary sector has
been a focus area for the Fund for some time. The worldwide proliferation of
gaming continued to provide a strong tailwind for the industry. Many compelling
growth opportunities were found during the first half, including some
strong-performing holdings for the Fund. Station Casinos, Inc. provided a boost
to the Fund's relative return as the company continued to benefit from strong
local gaming trends in the Las Vegas market, driven by fast population growth,
market share gains, an increase in the number of patrons, as well as increased
revenue per patron. The Fund's position in this company was sold during the
period as the valuation became stretched and concerns about future decelerating
growth trends began to surface.
HEALTHCARE AND ENERGY AIDED RETURN
The Fund also invested in a few strong-performing healthcare stocks at the right
time, benefiting the Fund's relative return. Medical device makers ARTHROCARE
CORPORATION and KYPHON, INC. were two such examples. ArthroCare, a new position
for the Fund, experienced an inflection point in its operations in the fourth
quarter of 2004, as the company increased earnings guidance for 2005, updated
progress on a recent acquisition that accelerated sales, and identified a target
operating model that allowed for significant
LARGEST EQUITY HOLDINGS (ticker symbol)
<Table>
1. WMS INDUSTRIES, INC. (WMS) 3.81%
2. HUGHES SUPPLY, INC. (HUG) 3.05%
3. GAYLORD ENTERTAINMENT COMPANY (GET) 2.74%
4. PATTERSON-UTI ENERGY, INC. (PTEN) 2.72%
5. PETCO ANIMAL SUPPLIES, INC. (PETC) 2.53%
6. TEMPUR-PEDIC INTERNATIONAL, INC. (TPX) 2.50%
7. SAFENET, INC. (SFNT) 2.47%
8. MEDICIS PHARMACEUTICAL CORPORATION CLASS A (MRX) 2.29%
9. ARTHROCARE CORPORATION (ARTC) 2.26%
10. EPICOR SOFTWARE CORPORATION (EPIC) 2.21%
</Table>
Portfolio holdings are subject to change, and should not be construed as a
recommendation of any security.
5
<Page>
GROWTH OF $10,000 INVESTMENT
PERFORMANCE DATA QUOTED REPRESENTS PAST PERFORMANCE. PAST PERFORMANCE DOES NOT
GUARANTEE FUTURE RESULTS. INVESTMENT RETURN AND PRINCIPAL VALUE OF AN INVESTMENT
WILL FLUCTUATE SO THAT AN INVESTOR'S SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR
LESS THAN THEIR ORIGINAL COST. CURRENT PERFORMANCE MAY BE LOWER OR HIGHER THAN
THE PERFORMANCE DATA QUOTED. PLEASE CALL 1-800-525-2440 TO OBTAIN THE MOST
RECENT MONTH-END PERFORMANCE DATA.
[CHART]
Dreyfus Founders
Discovery Fund Russell 2000
Class F Shares Growth Index
06/30/1995 $10,000.00 $10,000.00
06/28/1996 $13,351.27 $12,649.36
06/30/1997 $13,582.01 $13,231.73
06/30/1998 $16,395.08 $14,977.31
06/30/1999 $21,878.00 $16,219.98
06/30/2000 $40,588.36 $20,824.80
06/29/2001 $28,474.64 $15,964.27
06/28/2002 $20,974.33 $11,972.71
06/30/2003 $19,001.85 $12,054.99
06/30/2004 $24,223.12 $15,858.10
06/30/2005 $24,954.99 $16,537.77
The above graph compares a $10,000 investment made in Class F shares of Dreyfus
Founders Discovery Fund on 6/30/95 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. 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>
AVERAGE ANNUAL AND YEAR-TO DATE TOTAL RETURN as of 6/30/05
<Table>
<Caption>
YEAR-TO 1 5 10 SINCE
CLASS (INCEPTION DATE) DATE+ YEAR YEARS YEARS INCEPTION
-----------------------------------------------------------------------------
A SHARES (12/31/99)
With sales charge (5.75%) (8.44%) (2.95%) (10.33%) -- (6.30%)
Without sales charge (2.85%) 2.98% (9.26%) -- (5.29%)
B SHARES (12/31/99)
With redemption* (7.17%) (2.01%) (10.41%) -- (6.29%)
Without redemption (3.30%) 1.99% (10.08%) -- (6.13%)
C SHARES (12/31/99)
With redemption** (4.23%) 1.03% (10.06%) -- (6.11%)
Without redemption (3.26%) 2.03% (10.06%) -- (6.11%)
F SHARES (12/29/89) (2.82%) 3.02% (9.27%) 9.58% 12.67%
R SHARES (12/31/99) (2.70%) 3.27% (9.01%) -- (5.03%)
T SHARES (12/31/99)
With sales charge (4.50%) (7.35%) (2.01%) (10.49%) -- (6.48%)
Without sales charge (2.98%) 2.63% (9.66%) -- (5.69%)
</Table>
Average annual and year-to-date total returns do not reflect the deduction of
taxes that a shareholder would pay on Fund distributions or redemption of Fund
shares, but do reflect the reinvestment of dividends and capital gain
distributions, and adjustments for financial statement purposes. Part of the
Fund's 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. Part of the Fund's historical 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. 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
7
<Page>
revenue growth and earnings leverage. The company experienced some missteps
during the first half of 2005, including a missed regulatory filing, which
caused its valuation to drop, thus creating a compelling investment opportunity
for the Fund. Kyphon, Inc. continued to post very positive quarterly results. A
favorable court ruling upholding the company's patents surrounding a proprietary
procedure also was an important contributor to the stock's outperformance during
the period.
The pharmaceutical industry, including both generic and specialty drugs, has
been an attractive pool of potential growth opportunities for the Fund for a
long period of time. Valuations in this industry have been compelling relative
to historical levels and the overall market. One of the Fund's holdings in this
industry, ENDO PHARMACEUTICALS HOLDINGS, INC., received a favorable court ruling
during the period that allowed the company to sell into a previously
patent-protected market for the pain-management drug, OxyContin, which will
address a nearly $2 billion market. The ruling took the company's estimated
earnings for 2005 up over 50% and the stock price up over 30%.
Energy was a clear sector leader in the Russell 2000 Growth Index. Therefore,
increasing the Fund's weighting in this sector allowed the Fund to capture a
greater portion of this outperformance. Combined with positive stock selection,
TOP 3 PERFORMING SECTORS IN THE FUND
Consumer Discretionary
Healthcare
Energy
[CHART]
PORTFOLIO COMPOSITION OF NET ASSETS
<Table>
Consumer Discretionary 28.17%
Healthcare 20.91%
Information Technology 19.55%
Industrials 10.75%
Financials 7.69%
Energy 7.26%
Materials 2.11%
Cash & Equivalents 3.56%
</Table>
The Fund's portfolio composition is subject to change, and there is no assurance
the Fund will continue to hold any particular security. Opinions regarding
sectors, industries, companies, and/or themes are those of the portfolio
managers and are subject to change at any time, based on market and other
conditions, and should not be construed as a recommendation of any specific
security.
8
<Page>
the sector proved to be a very favorable contributor to performance.
The Fund's weighting in this sector was heavily skewed toward the oil services
industry, as opposed to the exploration and production (E&P) industry. We
generally believed during the period that oil services stocks exhibited a more
favorable risk versus reward ratio than E&P stocks, mainly due to a fairly good
correlation between the two industries over time, and the underperformance of
oil services stocks relative to the E&P industry more recently.
Rising oil prices throughout the period led to increased demand for oil
services, increasing pricing power, and therefore, earnings leverage for these
companies. PATTERSON-UTI ENERGY, INC., a top five position in the Fund as of
June 30, 2005, saw increasing demand for its land-drilling rigs and related
services during the period. Earnings growth for Patterson was roughly 100% in
2004. National Oilwell Varco, Inc. was also a beneficiary of the strong energy
market, driven by higher oil prices and increased drilling demand. National
Oilwell Varco also made a very accretive acquisition during the half, following
which the market cap exceeded $8 billion, causing the Fund to gradually exit the
position and redeploy assets elsewhere in the sector.
IT AND INDUSTRIALS WEIGHED ON PERFORMANCE
Both the information technology (IT) and industrials sectors underperformed the
Russell 2000 Growth Index during the half, and poor stock selection in these
sectors negatively impacted relative Fund performance. In the information
technology sector, holdings such as Polycom, Inc., Avocent Corporation, Altiris,
Inc., and AEROFLEX, INC. were large detractors from performance. Polycom, a
maker of video conferencing equipment, reported poor results as the company
continued to struggle with sluggish demand. Avocent, a manufacturer of computer
server management systems, announced that first quarter results would fall well
short of Wall Street expectations, as management executed poorly during an
important new product transition. Altiris, a systems management software
company, struggled with slowing demand and an inability to control operating
expenses. Aeroflex, a maker of semiconductor devices and test and measurement
equipment, fell as the company reported weak results in the first quarter.
[SIDENOTE]
"THE FUND ADDED ENERGY HOLDINGS DURING THE PERIOD IN AN ATTEMPT TO GARNER
GREATER GROWTH POTENTIAL IN THIS SECTOR."
9
<Page>
In the industrials sector, Trex Company, Inc., a building products
manufacturer, was hurt by poor weather and excess inventories in its
distribution channel.
Another name that detracted from Fund performance was INSPIRE
PHARMACEUTICALS, INC. Inspire, a development stage drug manufacturer, missed its
primary endpoint for a late-stage clinical trial, which was important to gain
approval for a drug targeting the condition known as dry eye. The stock declined
over 50% on the news. The Fund held its position in the stock at the end of the
period as we believed a good chance still existed that the company may receive
drug approval. Additionally, we believed that Inspire has a robust drug
pipeline.
The Fund's holdings in the financials sector also underperformed for the
period due to weak stock selection.
BOTTOM 3 PERFORMING SECTORS IN THE FUND
Industrials
Information Technology
Financials
IN CONCLUSION
As we entered the second half of 2005, the Fund was overweight the consumer
discretionary, healthcare and energy sectors, and underweight the information
technology, industrials and financials sectors.
The economic backdrop remains uncertain in our opinion. Most economic
indicators remained relatively strong during the period, or at least were
trending in the right direction. However, the impact that increasing interest
rates and very high oil prices will have on the economy remains uncertain. We
will continue to seek to take advantage of the current economic environment as
well as focus on companies that may offer growth opportunities.
/s/ Bradley C. Orr /s/ James (J.D.) Padgett
Bradley C. Orr, CFA James (J.D.) Padgett, CFA
Co-Portfolio Manager Co-Portfolio Manager
10
<Page>
This page intentionally left blank.
<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 January 1, 2005
and held through June 30, 2005.
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 FOR COMPARISON PURPOSES 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*
(1/1/05) (6/30/05) (1/1/05-6/30/05)
- ------------------------------------------------------------------------------
CLASS A ACTUAL $ 1,000.00 $ 964.41 $ 7.14
CLASS A HYPOTHETICAL 1,000.00 1,017.46 7.33
CLASS B ACTUAL 1,000.00 955.07 11.90
CLASS B HYPOTHETICAL 1,000.00 1,012.54 12.25
CLASS C ACTUAL 1,000.00 955.85 11.51
CLASS C HYPOTHETICAL 1,000.00 1,012.95 11.85
CLASS F ACTUAL 1,000.00 964.81 7.04
CLASS F HYPOTHETICAL 1,000.00 1,017.57 7.23
CLASS R ACTUAL 1,000.00 967.24 5.72
CLASS R HYPOTHETICAL 1,000.00 1,018.92 5.87
CLASS T ACTUAL 1,000.00 961.54 8.65
CLASS T HYPOTHETICAL 1,000.00 1,015.91 8.89
</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
181/365 (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, earnings credits and brokerage
offsets, where applicable.
<Table>
<Caption>
EXPENSE RATIO
- --------------------------------------------------------------------------------
CLASS A 1.46%
CLASS B 2.44%
CLASS C 2.36%
CLASS F 1.44%
CLASS R 1.17%
CLASS T 1.77%
</Table>
13
<Page>
STATEMENT OF INVESTMENTS
June 30, 2005 (UNAUDITED)
<Table>
<Caption>
SHARES MARKET VALUE
- ---------------------------------------------------------------------------------
COMMON STOCKS (DOMESTIC)--93.2%
AIR FREIGHT & LOGISTICS--4.2%
489,747 Hub Group, Inc. Class A* $ 12,268,158
172,440 UTI Worldwide, Inc. 12,005,273
-------------
24,273,431
-------------
ALUMINUM--0.3%
93,825 Century Aluminum Company* 1,914,030
-------------
APPLICATION SOFTWARE--2.2%
962,736 Epicor Software Corporation* 12,708,115
-------------
ASSET MANAGEMENT & CUSTODY BANKS--2.1%
173,275 Affiliated Managers Group, Inc.* 11,839,881
-------------
AUTOMOTIVE RETAIL--1.9%
667,150 CSK Auto Corporation* 11,128,062
-------------
BIOTECHNOLOGY--2.0%
889,275 Alkermes, Inc.* 11,756,216
-------------
CASINOS & GAMING--5.7%
409,207 Pinnacle Entertainment, Inc.* 8,004,089
115,450 Scientific Games Corporation* 3,109,069
650,125 WMS Industries, Inc.* 21,941,719
-------------
33,054,877
-------------
COMMUNICATIONS EQUIPMENT--5.4%
251,090 Harris Corporation 7,836,519
417,700 SafeNet, Inc.* 14,226,862
547,825 Tekelec* 9,203,460
-------------
31,266,841
-------------
CONSUMER FINANCE--1.9%
309,725 First Marblehead Corporation* 10,858,959
-------------
DIVERSIFIED METALS & MINING--1.2%
296,600 Alpha Natural Resources, Inc.* 7,082,808
-------------
EDUCATION SERVICES--3.5%
352,710 Education Management Corporation* 11,896,908
251,450 Universal Technical Institute, Inc.* 8,348,140
-------------
20,245,048
-------------
ELECTRONIC EQUIPMENT MANUFACTURERS--2.1%
1,048,790 Aeroflex, Inc.* 8,809,836
106,732 Cogent, Inc.* 3,047,199
-------------
11,857,035
-------------
ELECTRONIC MANUFACTURING SERVICES--1.7%
246,980 Trimble Navigation Limited* 9,624,811
-------------
GENERAL MERCHANDISE STORES--1.2%
212,570 Tuesday Morning Corporation 6,700,206
-------------
GOLD--0.6%
184,200 Glamis Gold Limited* 3,170,082
-------------
HEALTHCARE DISTRIBUTORS--1.9%
263,559 Henry Schein, Inc.* 10,942,970
-------------
</Table>
14
<Page>
<Table>
<Caption>
SHARES MARKET VALUE
- ---------------------------------------------------------------------------------
HEALTHCARE EQUIPMENT--5.1%
371,850 ArthroCare Corporation* $ 12,992,439
539,664 I-Flow Corporation* 8,980,009
213,475 Kyphon, Inc.* 7,426,795
-------------
29,399,243
-------------
HEALTHCARE SERVICES--1.2%
469,062 Option Care, Inc. 6,613,774
-------------
HEALTHCARE SUPPLIES--1.1%
469,747 ev3, Inc.* 6,529,483
-------------
HOME FURNISHINGS--2.5%
650,068 Tempur-Pedic International, Inc.* 14,418,508
-------------
HOTELS, RESORTS & CRUISE LINES--2.7%
339,240 Gaylord Entertainment Company* 15,771,268
-------------
HUMAN RESOURCE & EMPLOYMENT SERVICES--0.4%
105,655 Resources Connection, Inc.* 2,454,366
-------------
INTERNET SOFTWARE & SERVICES--2.0%
997,327 Digitas, Inc.* 11,379,501
-------------
IT CONSULTING & OTHER SERVICES--1.1%
279,775 Kanbay International, Inc.* 6,465,600
-------------
LEISURE FACILITIES--1.2%
202,550 Life Time Fitness, Inc.* 6,645,666
-------------
LEISURE PRODUCTS--1.5%
429,542 Marvel Enterprises, Inc.* 8,470,568
-------------
MULTI-LINE INSURANCE--1.4%
216,625 HCC Insurance Holdings, Inc. 8,203,589
-------------
OIL & GAS DRILLING--3.8%
562,700 Patterson-UTI Energy, Inc. 15,659,941
239,375 Pride International, Inc.* 6,151,938
-------------
21,811,879
-------------
OIL & GAS EQUIPMENT & SERVICES--1.8%
386,625 Grant Prideco, Inc.* 10,226,231
-------------
OIL & GAS EXPLORATION & PRODUCTION--1.7%
165,050 KFx, Inc.* 2,358,565
208,950 Spinnaker Exploration Company* 7,415,636
-------------
9,774,201
-------------
PHARMACEUTICALS--9.6%
406,425 Endo Pharmaceuticals Holdings, Inc.* 10,680,849
771,982 Impax Laboratories, Inc.* 12,120,117
366,472 Inspire Pharmaceuticals, Inc.* 3,085,694
416,477 Medicis Pharmaceutical Corporation Class A 13,214,815
227,241 MGI Pharma, Inc.* 4,944,764
631,661 Salix Pharmaceuticals Limited* 11,155,133
-------------
55,201,372
-------------
</Table>
SEE NOTES TO STATEMENT OF INVESTMENTS.
15
<Page>
<Table>
<Caption>
SHARES MARKET VALUE
- ---------------------------------------------------------------------------------
RESTAURANTS--2.7%
252,398 RARE Hospitality International, Inc.* $ 7,690,567
124,694 Red Robin Gourmet Burgers, Inc.* 7,728,534
-------------
15,419,101
-------------
SEMICONDUCTOR EQUIPMENT--1.4%
799,905 Entegris, Inc.* 7,919,060
-------------
SEMICONDUCTORS--2.7%
291,375 Fairchild Semiconductor Corporation Class A* 4,297,781
299,200 Intersil Corporation Class A 5,615,984
333,315 Semtech Corporation* 5,549,695
-------------
15,463,460
-------------
SPECIALTY STORES--4.0%
142,050 Guitar Center, Inc.* 8,291,459
496,504 Petco Animal Supplies, Inc. 14,557,497
-------------
22,848,956
-------------
SYSTEMS SOFTWARE--1.0%
124,125 Quality Systems, Inc. 5,881,043
-------------
THRIFTS & MORTGAGE FINANCE--2.3%
327,075 BankAtlantic Bancorp, Inc. 6,198,071
510,075 NewAlliance Bancshares, Inc. 7,166,554
-------------
13,364,625
-------------
TRADING COMPANIES & DISTRIBUTORS--3.0%
624,575 Hughes Supply, Inc. 17,550,558
-------------
TRUCKING--1.1%
200,175 J.B. Hunt Transport Services, Inc. 3,863,378
97,525 Old Dominion Freight Line, Inc.* 2,616,596
-------------
6,479,974
-------------
TOTAL COMMON STOCKS (DOMESTIC)
(COST--$498,548,403) 536,715,398
-------------
COMMON STOCKS (FOREIGN)--3.2%
HOTELS, RESORTS & CRUISE LINES--1.3%
132,200 Kerzner International Limited (BA)* 7,528,790
-------------
MARINE--1.9%
255,100 Diana Shipping, Inc. (GR) 3,734,664
448,685 Dryships, Inc. (GR) 7,407,789
-------------
11,142,453
-------------
TOTAL COMMON STOCKS (FOREIGN)
(COST--$20,996,055) 18,671,243
-------------
</Table>
16
<Page>
<Table>
<Caption>
PRINCIPAL AMOUNT AMORTIZED COST
- ---------------------------------------------------------------------------------
CORPORATE SHORT-TERM NOTES--2.5%
HOUSEHOLD APPLIANCES--2.5%
$ 14,400,000 Stanley Works, Inc.
3.37% 7/1/05~ $ 14,400,000
--------------
TOTAL CORPORATE SHORT-TERM NOTES
(AMORTIZED COST--$14,400,000) 14,400,000
--------------
TOTAL INVESTMENTS--98.9%
(TOTAL COST--$533,944,458) 569,786,641
--------------
OTHER ASSETS AND LIABILITIES--1.1% 6,130,966
--------------
NET ASSETS--100.0% $ 575,917,607
==============
</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 $14,400,000, OR 2.5%, OF THE FUND'S NET ASSETS AS OF JUNE 30,
2005.
BA - BAHAMA ISLANDS
GR - GREECE
SEE NOTES TO FINANCIAL STATEMENTS.
17
<Page>
STATEMENT OF ASSETS AND LIABILITIES
June 30, 2005 (UNAUDITED)
<Table>
ASSETS
Investment securities, at cost $ 533,944,458
--------------
Investment securities, at market 569,786,641
Cash 1,478,335
Receivables:
Investment securities sold 12,120,681
Capital shares sold 6,691,639
Dividends and interest 139,732
Other assets 60,969
--------------
Total Assets 590,277,997
--------------
LIABILITIES
Payables and other accrued liabilities:
Investment securities purchased 8,595,954
Capital shares redeemed 4,823,779
Advisory fees 412,346
Shareholder servicing fees 38,652
Accounting fees 27,085
Distribution fees 140,753
Transfer agency fees 45,090
Custodian fees 2,331
Other 274,400
--------------
Total Liabilities 14,360,390
--------------
Net Assets $ 575,917,607
==============
COMPOSITION OF NET ASSETS
Capital (par value and paid-in surplus) $ 862,131,267
Accumulated net investment loss (3,411,438)
Accumulated net realized loss from security transactions (318,644,405)
Net unrealized appreciation on investments
and foreign currency translation 35,842,183
--------------
Total $ 575,917,607
==============
</Table>
18
<Page>
<Table>
CLASS A
Net Assets $ 54,392,814
Shares Outstanding 1,942,499
Net Asset Value, Redemption Price Per Share $ 28.00
Maximum offering price per share (net asset value
plus sales charge of 5.75% of offering price) $ 29.71
CLASS B
Net Assets $ 15,622,624
Shares Outstanding 586,432
Net Asset Value, Offering and Redemption Price (excluding
applicable contingent deferred sales charge) Per Share $ 26.64
CLASS C
Net Assets $ 5,118,001
Shares Outstanding 191,892
Net Asset Value, Offering and Redemption Price (excluding
applicable contingent deferred sales charge) Per Share $ 26.67
CLASS F
Net Assets $ 437,626,004
Shares Outstanding 15,653,110
Net Asset Value, Offering and Redemption Price Per Share $ 27.96
CLASS R
Net Assets $ 61,841,720
Shares Outstanding 2,175,314
Net Asset Value, Offering and Redemption Price Per Share $ 28.43
CLASS T
Net Assets $ 1,316,444
Shares Outstanding 48,143
Net Asset Value, Redemption Price Per Share $ 27.34
Maximum offering price per share (net asset value
plus sales charge of 4.50% of offering price) $ 28.63
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
19
<Page>
STATEMENT OF OPERATIONS
For the six months ended June 30, 2005 (UNAUDITED)
<Table>
INVESTMENT INCOME
Dividends $ 991,113
Interest 117,689
--------------
Total Investment Income 1,108,802
--------------
EXPENSES
Advisory fees--Note 2 2,620,725
Shareholder servicing fees--Note 2 241,103
Accounting fees--Note 2 171,008
Distribution fees--Note 2 610,725
Transfer agency fees--Note 2 337,826
Registration fees 32,140
Postage and mailing expenses 67,275
Custodian fees and expenses--Note 2 14,644
Printing expenses 74,900
Legal and audit fees 113,894
Directors' fees and expenses--Note 2 58,080
Other expenses 76,694
--------------
Total Expenses 4,419,014
Earnings Credits (14,644)
Reimbursed/Waived Expenses (9,574)
--------------
Net Expenses 4,394,796
--------------
Net Investment Loss (3,285,994)
--------------
REALIZED AND UNREALIZED GAIN (LOSS) ON SECURITY
TRANSACTIONS AND FOREIGN CURRENCY TRANSACTIONS
Net Realized Gain on Security Transactions 71,399,727
Net Change in Unrealized Appreciation/Depreciation
of Investments and Foreign Currency Translation (92,393,684)
--------------
Net Realized and Unrealized Loss (20,993,957)
--------------
Net Decrease in Net Assets Resulting from Operations $ (24,279,951)
==============
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
20
<Page>
STATEMENTS OF CHANGES IN NET ASSETS
(UNAUDITED)
<Table>
<Caption>
SIX MONTHS ENDED YEAR ENDED
6/30/05 12/31/04
OPERATIONS
Net Investment Loss $ (3,285,994) $ (8,291,203)
Net Realized Gain on Security Transactions 71,399,727 74,597,741
Net Change in Unrealized Appreciation/Depreciation
of Investments and Foreign Currency Translation (92,393,684) 5,007,548
---------------- ---------------
Net Increase (Decrease) in Net Assets
Resulting from Operations (24,279,951) 71,314,086
---------------- ---------------
CAPITAL SHARE TRANSACTIONS
Net Increase (Decrease)--Note 4
Class A (9,243,790) (20,072,155)
Class B (2,462,182) (3,926,079)
Class C (1,291,901) (2,295,210)
Class F (94,085,091) (143,830,150)
Class R (8,253,704) 25,138
Class T (278,376) (302,253)
---------------- ---------------
Net Decrease from Capital Share Transactions (115,615,044) (170,400,709)
---------------- ---------------
Net Decrease in Net Assets (139,894,995) (99,086,623)
---------------- ---------------
NET ASSETS
Beginning of period $ 715,812,602 $ 814,899,225
---------------- ---------------
End of period $ 575,917,607 $ 715,812,602
================ ===============
Accumulated Net Investment Loss $ (3,411,438) $ (125,444)
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
21
<Page>
FINANCIAL HIGHLIGHTS
(UNAUDITED)
<Table>
<Caption>
SIX MONTHS YEAR ENDED
ENDED JUNE 30, DECEMBER 31,
2005 2004 2003 2002 2001
-------------- ---------------------------------------------
CLASS A SHARES
PER SHARE OPERATING DATA
Net Asset Value, beginning of period $ 28.82 $ 26.04 $ 19.09 $ 28.50 $ 34.79
- ---------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment loss (0.40) (0.64) (0.36) (0.31) (0.17)
Net realized and unrealized gains
(losses) on securities (0.42) 3.42 7.31 (9.10) (6.02)
---------------------------------------------------------------
Total from investment operations (0.82) 2.78 6.95 (9.41) (6.19)
- ---------------------------------------------------------------------------------------------------------------
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 (0.10)
---------------------------------------------------------------
Total distributions 0.00 0.00 0.00 0.00 (0.10)
- ---------------------------------------------------------------------------------------------------------------
Net Asset Value, end of period $ 28.00 $ 28.82 $ 26.04 $ 19.09 $ 28.50
===============================================================
TOTAL RETURN(a) (2.85%) 10.68% 36.41% (33.02%) (17.78%)
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000s) $ 54,393 $ 65,763 $ 79,630 $ 67,184 $ 117,773
- ---------------------------------------------------------------------------------------------------------------
Ratios to average net assets(b):
Expenses with reimbursements, but
no earnings credits or brokerage offsets(c) 1.47% 1.38% 1.50% 1.35% 1.19%
Expenses with reimbursements,
earnings credits and brokerage offsets 1.46% 1.37% 1.50% 1.35% 1.18%
Net investment loss (1.09%) (1.11%) (1.25%) (1.08%) (0.58%)
- ---------------------------------------------------------------------------------------------------------------
Portfolio turnover rate(d) 134% 98% 130% 128% 110%
</Table>
(a). SALES CHARGES ARE NOT REFLECTED IN THE TOTAL RETURN.
(b). ANNUALIZED.
(c). CERTAIN FEES WERE WAIVED BY THE CUSTODIAN. THESE WAIVERS DID NOT HAVE AN
IMPACT ON THE EXPENSE RATIOS.
(d). PORTFOLIO TURNOVER RATE IS A MEASURE OF PORTFOLIO ACTIVITY THAT IS
CALCULATED BY DIVIDING THE LESSER OF PURCHASES OR SALES OF SECURITIES,
EXCLUDING SECURITIES HAVING MATURITY DATES AT ACQUISITION OF ONE YEAR OR
LESS, BY THE AVERAGE VALUE OF THE PORTFOLIO SECURITIES HELD DURING THE
PERIOD, WHICH IS A ROLLING 12-MONTH PERIOD.
22
<Page>
<Table>
<Caption>
SIX MONTHS YEAR ENDED
ENDED JUNE 30, DECEMBER 31,
2005 2004 2003 2002 2001
-------------- ---------------------------------------------
CLASS B SHARES
PER SHARE OPERATING DATA
Net Asset Value, beginning of period $ 27.55 $ 25.12 $ 18.60 $ 28.03 $ 34.49
- ---------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment loss (0.81) (1.07) (0.81) (0.69) (0.45)
Net realized and unrealized gains
(losses) on securities (0.10) 3.50 7.33 (8.74) (5.91)
---------------------------------------------------------------
Total from investment operations (0.91) 2.43 6.52 (9.43) (6.36)
- ---------------------------------------------------------------------------------------------------------------
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 (0.10)
---------------------------------------------------------------
Total distributions 0.00 0.00 0.00 0.00 (0.10)
- ---------------------------------------------------------------------------------------------------------------
Net Asset Value, end of period $ 26.64 $ 27.55 $ 25.12 $ 18.60 $ 28.03
===============================================================
TOTAL RETURN(a) (3.30%) 9.67% 35.05% (33.64%) (18.43%)
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000s) $ 15,623 $ 18,795 $ 21,009 $ 18,804 $ 35,845
- ---------------------------------------------------------------------------------------------------------------
Ratios to average net assets(b):
Expenses with reimbursements, but
no earnings credits or brokerage offsets(c) 2.45% 2.30% 2.56% 2.26% 1.97%
Expenses with reimbursements,
earnings credits and brokerage offsets 2.44% 2.29% 2.56% 2.26% 1.96%
Net investment loss (2.07%) (2.03%) (2.31%) (1.98%) (1.35%)
- ---------------------------------------------------------------------------------------------------------------
Portfolio turnover rate(d) 134% 98% 130% 128% 110%
</Table>
(a). SALES CHARGES ARE NOT REFLECTED IN THE TOTAL RETURN.
(b). ANNUALIZED.
(c). CERTAIN FEES WERE WAIVED BY THE CUSTODIAN. THESE WAIVERS DID NOT HAVE AN
IMPACT ON THE EXPENSE RATIOS.
(d). PORTFOLIO TURNOVER RATE IS A MEASURE OF PORTFOLIO ACTIVITY THAT IS
CALCULATED BY DIVIDING THE LESSER OF PURCHASES OR SALES OF SECURITIES,
EXCLUDING SECURITIES HAVING MATURITY DATES AT ACQUISITION OF ONE YEAR OR
LESS, BY THE AVERAGE VALUE OF THE PORTFOLIO SECURITIES HELD DURING THE
PERIOD, WHICH IS A ROLLING 12-MONTH PERIOD.
SEE NOTES TO FINANCIAL STATEMENTS.
23
<Page>
<Table>
<Caption>
SIX MONTHS YEAR ENDED
ENDED JUNE 30, DECEMBER 31,
2005 2004 2003 2002 2001
-------------- ---------------------------------------------
CLASS C SHARES
PER SHARE OPERATING DATA
Net Asset Value, beginning of period $ 27.57 $ 25.14 $ 18.60 $ 28.05 $ 34.51
- ---------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment loss (1.32) (1.53) (0.94) (0.86) (0.48)
Net realized and unrealized gains
(losses) on securities 0.42 3.96 7.48 (8.59) (5.88)
---------------------------------------------------------------
Total from investment operations (0.90) 2.43 6.54 (9.45) (6.36)
- ---------------------------------------------------------------------------------------------------------------
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 (0.10)
---------------------------------------------------------------
Total distributions 0.00 0.00 0.00 0.00 (0.10)
- ---------------------------------------------------------------------------------------------------------------
Net Asset Value, end of period $ 26.67 $ 27.57 $ 25.14 $ 18.60 $ 28.05
===============================================================
TOTAL RETURN(a) (3.26%) 9.67% 35.16% (33.69%) (18.42%)
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000s) $ 5,118 $ 6,668 $ 8,352 $ 7,794 $ 17,031
- ---------------------------------------------------------------------------------------------------------------
Ratios to average net assets(b):
Expenses with reimbursements, but
no earnings credits or brokerage offsets(c) 2.37% 2.28% 2.52% 2.27% 1.98%
Expenses with reimbursements,
earnings credits and brokerage offsets 2.36% 2.27% 2.52% 2.26% 1.96%
Net investment loss (2.00%) (2.01%) (2.28%) (1.99%) (1.36%)
- ---------------------------------------------------------------------------------------------------------------
Portfolio turnover rate(d) 134% 98% 130% 128% 110%
</Table>
(a). SALES CHARGES ARE NOT REFLECTED IN THE TOTAL RETURN.
(b). ANNUALIZED.
(c). CERTAIN FEES WERE WAIVED BY THE CUSTODIAN. THESE WAIVERS DID NOT HAVE AN
IMPACT ON THE EXPENSE RATIOS.
(d). PORTFOLIO TURNOVER RATE IS A MEASURE OF PORTFOLIO ACTIVITY THAT IS
CALCULATED BY DIVIDING THE LESSER OF PURCHASES OR SALES OF SECURITIES,
EXCLUDING SECURITIES HAVING MATURITY DATES AT ACQUISITION OF ONE YEAR OR
LESS, BY THE AVERAGE VALUE OF THE PORTFOLIO SECURITIES HELD DURING THE
PERIOD, WHICH IS A ROLLING 12-MONTH PERIOD.
24
<Page>
<Table>
<Caption>
SIX MONTHS YEAR ENDED
ENDED JUNE 30, DECEMBER 31,
2005 2004 2003 2002 2001
-------------- ---------------------------------------------
CLASS F SHARES
PER SHARE OPERATING DATA
Net Asset Value, beginning of period $ 28.77 $ 25.98 $ 19.04 $ 28.45 $ 34.74
- ---------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment loss (0.60) (0.69) (0.35) (0.36) (0.20)
Net realized and unrealized gains
(losses) on securities (0.21) 3.48 7.29 (9.05) (5.99)
---------------------------------------------------------------
Total from investment operations (0.81) 2.79 6.94 (9.41) (6.19)
- ---------------------------------------------------------------------------------------------------------------
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 (0.10)
---------------------------------------------------------------
Total distributions 0.00 0.00 0.00 0.00 (0.10)
- ---------------------------------------------------------------------------------------------------------------
Net Asset Value, end of period $ 27.96 $ 28.77 $ 25.98 $ 19.04 $ 28.45
===============================================================
TOTAL RETURN (2.82%) 10.74% 36.45% (33.08%) (17.81%)
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000s) $ 437,626 $ 550,622 $ 638,880 $ 498,970 $ 847,330
- ---------------------------------------------------------------------------------------------------------------
Ratios to average net assets(a):
Expenses with reimbursements, but
no earnings credits or brokerage offsets(b) 1.45% 1.35% 1.53% 1.41% 1.25%
Expenses with reimbursements,
earnings credits and brokerage offsets 1.44% 1.34% 1.53% 1.40% 1.24%
Net investment loss (1.07%) (1.08%) (1.29%) (1.13%) (0.64%)
- ---------------------------------------------------------------------------------------------------------------
Portfolio turnover rate(c) 134% 98% 130% 128% 110%
</Table>
(a). ANNUALIZED.
(b). CERTAIN FEES WERE WAIVED BY THE CUSTODIAN. THESE WAIVERS DID NOT HAVE AN
IMPACT ON THE EXPENSE RATIOS.
(c). PORTFOLIO TURNOVER RATE IS A MEASURE OF PORTFOLIO ACTIVITY THAT IS
CALCULATED BY DIVIDING THE LESSER OF PURCHASES OR SALES OF SECURITIES,
EXCLUDING SECURITIES HAVING MATURITY DATES AT ACQUISITION OF ONE YEAR OR
LESS, BY THE AVERAGE VALUE OF THE PORTFOLIO SECURITIES HELD DURING THE
PERIOD, WHICH IS A ROLLING 12-MONTH PERIOD.
SEE NOTES TO FINANCIAL STATEMENTS.
25
<Page>
<Table>
<Caption>
SIX MONTHS YEAR ENDED
ENDED JUNE 30, DECEMBER 31,
2005 2004 2003 2002 2001
-------------- ---------------------------------------------
CLASS R SHARES
PER SHARE OPERATING DATA
Net Asset Value, beginning of period $ 29.22 $ 26.32 $ 19.23 $ 28.64 $ 34.87
- ---------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment loss (0.21) (0.24) (0.17) (0.18) (0.08)
Net realized and unrealized gains
(losses) on securities (0.58) 3.14 7.26 (9.23) (6.05)
---------------------------------------------------------------
Total from investment operations (0.79) 2.90 7.09 (9.41) (6.13)
- ---------------------------------------------------------------------------------------------------------------
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 (0.10)
---------------------------------------------------------------
Total distributions 0.00 0.00 0.00 0.00 (0.10)
- ---------------------------------------------------------------------------------------------------------------
Net Asset Value, end of period $ 28.43 $ 29.22 $ 26.32 $ 19.23 $ 28.64
===============================================================
TOTAL RETURN (2.70%) 11.02% 36.87% (32.86%) (17.57%)
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000s) $ 61,842 $ 72,317 $ 65,240 $ 42,872 $ 61,163
- ---------------------------------------------------------------------------------------------------------------
Ratios to average net assets(a):
Expenses with reimbursements, but
no earnings credits or brokerage offsets(b) 1.18% 1.11% 1.21% 1.10% 0.95%
Expenses with reimbursements,
earnings credits and brokerage offsets 1.17% 1.10% 1.21% 1.10% 0.94%
Net investment loss (0.81%) (0.83%) (0.96%) (0.82%) (0.38%)
- ---------------------------------------------------------------------------------------------------------------
Portfolio turnover rate(c) 134% 98% 130% 128% 110%
</Table>
(a). ANNUALIZED.
(b). CERTAIN FEES WERE WAIVED BY THE CUSTODIAN. THESE WAIVERS DID NOT HAVE AN
IMPACT ON THE EXPENSE RATIOS.
(c). PORTFOLIO TURNOVER RATE IS A MEASURE OF PORTFOLIO ACTIVITY THAT IS
CALCULATED BY DIVIDING THE LESSER OF PURCHASES OR SALES OF SECURITIES,
EXCLUDING SECURITIES HAVING MATURITY DATES AT ACQUISITION OF ONE YEAR OR
LESS, BY THE AVERAGE VALUE OF THE PORTFOLIO SECURITIES HELD DURING THE
PERIOD, WHICH IS A ROLLING 12-MONTH PERIOD.
26
<Page>
<Table>
<Caption>
SIX MONTHS YEAR ENDED
ENDED JUNE 30, DECEMBER 31,
2005 2004 2003 2002 2001
-------------- ---------------------------------------------
CLASS T SHARES
PER SHARE OPERATING DATA
Net Asset Value, beginning of period $ 28.18 $ 25.55 $ 18.79 $ 28.24 $ 34.69
- ---------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment loss (0.62) (0.65) (0.31) (0.54) (0.33)
Net realized and unrealized gains
(losses) on securities (0.22) 3.28 7.07 (8.91) (6.02)
---------------------------------------------------------------
Total from investment operations (0.84) 2.63 6.76 (9.45) (6.35)
- ---------------------------------------------------------------------------------------------------------------
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 (0.10)
---------------------------------------------------------------
Total distributions 0.00 0.00 0.00 0.00 (0.10)
- ---------------------------------------------------------------------------------------------------------------
Net Asset Value, end of period $ 27.34 $ 28.18 $ 25.55 $ 18.79 $ 28.24
===============================================================
TOTAL RETURN(a) (2.98%) 10.29% 35.98% (33.46%) (18.30%)
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000s) $ 1,316 $ 1,648 $ 1,788 $ 1,291 $ 2,341
- ---------------------------------------------------------------------------------------------------------------
Ratios to average net assets(b):
Expenses with reimbursements, but
no earnings credits or brokerage offsets(c) 1.78% 1.71% 1.91% 2.06% 1.83%
Expenses with reimbursements,
earnings credits and brokerage offsets 1.77% 1.70% 1.90% 2.06% 1.82%
Net investment loss (1.41%) (1.44%) (1.66%) (1.79%) (1.24%)
- ---------------------------------------------------------------------------------------------------------------
Portfolio turnover rate(d) 134% 98% 130% 128% 110%
</Table>
(a). SALES CHARGES ARE NOT REFLECTED IN THE TOTAL RETURN.
(a). ANNUALIZED.
(c). CERTAIN FEES WERE WAIVED BY THE CUSTODIAN. THESE WAIVERS DID NOT HAVE AN
IMPACT ON THE EXPENSE RATIOS.
(d). PORTFOLIO TURNOVER RATE IS A MEASURE OF PORTFOLIO ACTIVITY THAT IS
CALCULATED BY DIVIDING THE LESSER OF PURCHASES OR SALES OF SECURITIES,
EXCLUDING SECURITIES HAVING MATURITY DATES AT ACQUISITION OF ONE YEAR OR
LESS, BY THE AVERAGE VALUE OF THE PORTFOLIO SECURITIES HELD DURING THE
PERIOD, WHICH IS A ROLLING 12-MONTH PERIOD.
SEE NOTES TO FINANCIAL STATEMENTS.
27
<Page>
NOTES TO FINANCIAL STATEMENTS
June 30, 2005 (UNAUDITED)
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
Dreyfus Founders Funds, Inc. (the "Company") is an open-end management
investment company registered under the Investment Company Act of 1940 (the
"1940 Act"). Ten series of shares are currently issued: Balanced, Discovery,
Equity Growth, 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 shares redeemed 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. Since February 22, 2005, New York closing exchange rates have
been used to convert foreign currencies to U.S. dollars. Previously, London
closing exchange rates were used to convert foreign currencies to U.S. dollars.
A debt security with a remaining maturity greater than 60 days at the time of
purchase is valued in accordance with the evaluated bid price supplied by a
pricing service approved by the Company's board of directors or, if such price
is not available, at the mean between the highest bid and lowest asked
quotations obtained from at least two securities dealers. A debt security with a
remaining maturity of 60 days or less at the time of purchase is valued at
amortized cost, which approximates market value, unless it is determined that
amortized cost would not represent market value, in which case the securities
would be marked to market. The Fund amortizes premiums and discounts on all debt
securities.
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. In addition, it is possible
that the fair value determined for a security may be different from the value
that may be realized upon the security's sale, and that these differences may be
material to the net asset value of the Fund.
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.
29
<Page>
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) 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 period 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.
30
<Page>
In accordance with an investment advisory agreement between the Company and
Founders, the Fund compensates Founders for its services as investment adviser
by the payment of fees computed daily and paid monthly at the annual rate equal
to a percentage of the average daily value of the Fund's net assets. The fee is
1.00% of the first $250 million of net assets, 0.80% of the next $250 million of
net assets and 0.70% of net assets in excess of $500 million.
SHAREHOLDER SERVICING AND TRANSFER AGENCY FEES FOR CLASS F SHARES--The Company
has a shareholder services agreement with Dreyfus Service Corporation ("DSC"),
the direct owner of Founders and a wholly-owned subsidiary of The Dreyfus
Corporation ("Dreyfus", an affiliate of Founders), whereby the Funds have agreed
to compensate DSC for providing certain shareholder servicing functions to
holders of Class F shares. The Fund paid DSC a monthly fee equal, on an annual
basis, to $24.00 per Class F shareholder account considered to be an open
account at any time during a given month. During the six months ended June 30,
2005, Class F shares were charged $150,085 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 six months ended June 30, 2005, Class F shares
were charged $35,380 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 $12.58 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, including both the per account fees paid to
DTI and out-of-pocket charges, during the six months ended June 30, 2005 were as
follows:
<Table>
<Caption>
TRANSFER
AGENCY FEES
---------------------------------------------------------------
Class A $ 17,973
Class B $ 24,557
Class C $ 6,085
Class R $ 11,506
Class T $ 975
</Table>
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 six months ended June 30, 2005, the Fund was charged $7,868 for cash
management fees, which are included in the out-of-pocket transfer agency charges
above.
31
<Page>
OTHER TRANSFER AGENCY FEES--Various broker-dealers, retirement plan
administrators and other 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 six months ended
June 30, 2005, the Fund paid $241,350 to these entities for such services. This
amount is included in the transfer agency fees shown on the Statement of
Operations.
DISTRIBUTION AND SHAREHOLDER SERVICES PLANS--DSC also is the distributor of the
Fund's shares. The Fund has adopted a Distribution Plan pursuant to Rule 12b-1
under the 1940 Act applicable to its Class F shares. Under the plan, the Fund is
authorized to reimburse DSC for expenses paid for distributing or servicing its
Class F shares at an annual rate of up to 0.25% of the value of the average
daily net assets of the Fund's Class F shares. During the six months ended June
30, 2005, Class F shares were charged $528,304 pursuant to this Distribution
Plan.
The Fund also has adopted a Distribution Plan pursuant to Rule 12b-1 under the
1940 Act applicable to its Class B, Class C and Class T shares. Under this plan,
the Fund pays DSC a fee for distributing its Class B and C shares at the annual
rate of 0.75% of the value of the average daily net assets of its Class B and C
shares, respectively, and pays DSC a fee for distributing its Class T shares at
the annual rate of 0.25% of the average daily net assets of its Class T shares.
In addition, the Fund has adopted a Shareholder Services Plan applicable to its
Class A, Class B, Class C and Class T shares. Under the Shareholder Services
Plan, Class A, Class B, Class C and Class T shares pay DSC an annual fee of
0.25% of the value of their average daily net assets for the provision of
certain services.
Distribution and shareholder servicing fees paid to DSC by the Fund's Class A,
B, C and T shares for the six months ended June 30, 2005, were as follows:
<Table>
<Caption>
DISTRIBUTION SHAREHOLDER
FEES SERVICING FEES
----------------------------------------------------------------
Class A N/A $ 62,340
Class B $ 60,555 $ 20,185
Class C $ 20,059 $ 6,686
Class T $ 1,807 $ 1,807
</Table>
During the six months ended June 30, 2005, DSC retained $65 and $2 in sales
commissions from the sales of Class A and Class T shares, respectively. DSC also
retained $32,602 and $613 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
32
<Page>
assets of the Fund in excess of $1 billion, plus reasonable out-of-pocket
expenses. Founders has contractually agreed in writing 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 contractually agreed in writing 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
------------------------------------------------------------
9/1/04 to 8/31/05 $ 200,000
9/1/05 to 8/31/06 $ 200,000
</Table>
The fee waiver is allocated among the Funds in proportion to their respective
shares of the total custodian fee. For the six months ended June 30, 2005, the
Fund's portion of the fee waiver was $9,574, which reduced the amount paid to
Mellon Bank to $5,070.
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.
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
33
<Page>
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.
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
June 30, 2005 are noted below. Unrealized appreciation/depreciation in the table
below excludes appreciation/depreciation on foreign currency translation, if
any. The primary difference between book and tax appreciation or depreciation is
wash sale loss deferrals.
<Table>
Federal Tax Cost $ 539,388,769
Gross Tax Appreciation of Investments $ 51,400,189
Gross Tax Depreciation of Investments $ (21,002,317)
Net Tax Appreciation $ 30,397,872
</Table>
4. CAPITAL SHARE TRANSACTIONS
The Fund is authorized to issue 450 million shares of $0.01 par value capital
stock. Transactions in shares of the Fund for the periods indicated were as
follows:
<Table>
<Caption>
SIX MONTHS ENDED YEAR ENDED
JUNE 30, 2005 DECEMBER 31, 2004
SHARES AMOUNT SHARES AMOUNT
CLASS A
Sold 382,244 $ 10,500,581 606,846 $ 16,285,433
Redeemed (721,857) $ (19,744,371) (1,383,103) $ (36,357,588)
--------------------------------------------------------
Net Decrease (339,613) $ (9,243,790) (776,257) $ (20,072,155)
========================================================
CLASS B
Sold 3,570 $ 92,321 7,176 $ 180,419
Redeemed (99,385) $ (2,554,503) (161,266) $ (4,106,498)
--------------------------------------------------------
Net Decrease (95,815) $ (2,462,182) (154,090) $ (3,926,079)
========================================================
</Table>
34
<Page>
<Table>
<Caption>
SIX MONTHS ENDED YEAR ENDED
JUNE 30, 2005 DECEMBER 31, 2004
SHARES AMOUNT SHARES AMOUNT
CLASS C
Sold 3,976 $ 100,883 7,418 $ 188,358
Redeemed (53,919) $ (1,392,784) (97,877) $ (2,483,568)
-------------------------------------------------------------
Net Decrease (49,943) $ (1,291,901) (90,459) $ (2,295,210)
=============================================================
CLASS F
Sold 1,033,755 $ 28,064,770 3,312,230 $ 88,403,785
Redeemed (4,520,175) $ (122,149,861) (8,760,046) $ (232,233,935)
-------------------------------------------------------------
Net Decrease (3,486,420) $ (94,085,091) (5,447,816) $ (143,830,150)
=============================================================
CLASS R
Sold 213,594 $ 5,907,686 568,863 $ 15,239,651
Redeemed (513,322) $ (14,161,390) (572,087) $ (15,214,513)
-------------------------------------------------------------
Net Increase (Decrease) (299,728) $ (8,253,704) (3,224) $ 25,138
=============================================================
CLASS T
Sold 4,017 $ 106,229 15,867 $ 408,647
Redeemed (14,335) $ (384,605) (27,379) $ (710,900)
-------------------------------------------------------------
Net Decrease (10,318) $ (278,376) (11,512) $ (302,253)
=============================================================
</Table>
5. INVESTMENT TRANSACTIONS
For the six months ended June 30, 2005, purchases and sales of investment
securities (excluding short-term securities and U.S. government obligations)
were $496,258,083 and $636,707,104, 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 June 30, 2005, the Fund did not have any borrowings under the LOC.
35
<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.
36
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37
<Page>
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38
<Page>
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<Page>
DREYFUS FOUNDERS DISCOVERY FUND
P.O. Box 55360
Boston, MA 02205-8252
1-800-525-2440
www.founders.com
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, 2005, 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. 8/05
A-636-DIS-05
<Page>
SEMIANNUAL REPORT
DREYFUS FOUNDERS
EQUITY GROWTH FUND*
INVESTMENT UPDATE
JUNE 30, 2005
*FORMERLY DREYFUS FOUNDERS GROWTH AND INCOME FUND.
[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
</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 financial 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 3-9 were owned by the Fund on June 30, 2005. The amounts of
these holdings are included in the Statement of Investments.
NOT FDIC-INSURED - NOT BANK-GUARANTEED - MAY LOSE VALUE
<Page>
MANAGEMENT OVERVIEW
[PHOTO OF JOHN B. JARES]
A DISCUSSION WITH PORTFOLIO MANAGER JOHN B. JARES, CFA, REGARDING FUND
PERFORMANCE FOR THE SIX-MONTH PERIOD ENDED JUNE 30, 2005.
OIL AND THE FEDERAL RESERVE
The investing environment during the first six months of 2005 can be simply
characterized by two economic factors: rising oil prices and the Federal Reserve
ratcheting up short-term interest rates in an effort to contain inflation. As a
result, most indices posted modest declines during the period despite solid
corporate earnings growth.
COMPANY-SPECIFIC IMPACTS
The Fund's strategy in pursuing growth opportunities by researching stocks on a
company-by-company basis did not change during the period. Because of and in
spite of this strategy, the Fund experienced a mixed lot of stock selection: the
Fund had strong selection in numerous sectors as well as weak selection in
others.
Although the Fund's first quarter performance was solid relative to its
large-cap growth fund peers, its performance in the second quarter proved
disappointing. For the first half of 2005, the Dreyfus Founders Equity Growth
Fund trailed the return of the Russell 1000 Growth Index, which returned -1.72%,
and the Standard & Poor's 500 Index, which returned -0.81%.
[SIDENOTE]
"ALTHOUGH THE FUND'S FIRST QUARTER PERFORMANCE WAS SOLID RELATIVE TO ITS
LARGE-CAP GROWTH FUND PEERS, ITS PERFORMANCE IN THE SECOND QUARTER PROVED
DISAPPOINTING."
3
<Page>
CONSUMER-RELATED STOCKS BOOSTED PERFORMANCE
Financials and consumer-related stocks had the largest positive impacts on the
Fund's relative return during the period. Continued strength in consumer
spending helped buoy consumer discretionary and consumer staples stocks, and the
Fund overweighted the consumer discretionary sector with holdings positioned to
benefit from the potential growth opportunities this trend provided. KOHL'S
CORPORATION experienced a recovery in sales and earnings growth driven by new
apparel products and improved corporate execution. Although a stable consumer
spending backdrop helped J.C. PENNEY COMPANY'S sales, excellent execution helped
lead the stock's favorable performance. Consumer staples stock GILLETTE COMPANY
benefited from a buyout offer from Procter & Gamble Company and from solid
fundamentals as well.
The information technology sector, although underperforming for the period,
did harbor stock-specific boons to Fund performance. Among these were APPLE
COMPUTER, INC. and INTEL CORPORATION. Apple saw outstanding growth in revenue as
well as earnings per share (EPS) driven primarily by the popularity of the
company's iPod and Macintosh products. Strong demand for notebook computers
helped drive Intel's processor unit. As a result, the company saw a rebound in
revenue growth and improved gross and operating margin trends.
Other individual strong performers during the half were found in the
healthcare and industrials sectors. GENENTECH INC.'S solid sales and expanded
uses for its cancer drugs, Avastin(TM) and Herceptin(R), drove stocK
performance. Strong consumer travel demand and high energy prices allowed the
airline industry to raise fares. In light of the tough industry operating
conditions, this was welcome news that helped to lift the shares of AMR
CORPORATION, the parent company of American Airlines.
TOP 3 PERFORMING SECTORS IN THE FUND
Financials
Consumer Discretionary
Consumer Staples
4
<Page>
INDUSTRIALS AND IT WEIGHED HEAVILY
Overweight positions and weak stock selection in the industrials and information
technology (IT) sectors impeded the Fund's return for the period. Industrials
holding W.W. GRAINGER, INC. exhibited sluggish sales trends and lower earnings
expectations, which combined to drive the stock lower. In information
technology, numerous underachieving issues weighed heavily on the Fund's
performance for the period. Sluggish trends in Europe and poor execution in
services drove a disappointing first quarter earnings report for INTERNATIONAL
BUSINESS MACHINES CORPORATION, which was followed by a precipitous fall in stock
price. MICROSOFT CORPORATION underperformed the market, although it delivered
financial results that were in line with investor expectations. Poor execution,
disappointing margin trends, and difficulties with certain projects overshadowed
strong bookings and revenue growth for ACCENTURE LIMITED CLASS A, resulting in a
materially lower stock price. An excess of semiconductor inventory led to
lackluster industry growth despite
LARGEST EQUITY HOLDINGS (ticker symbol)
<Table>
1. SPDR TRUST SERIES 1 (SPY) 5.26%
2. MICROSOFT CORPORATION (MSFT) 4.51%
3. GILLETTE COMPANY (G) 2.98%
4. GENERAL ELECTRIC COMPANY (GE) 2.93%
5. ROYAL CARIBBEAN CRUISES LIMITED (RCL) 2.59%
6. JOHNSON & JOHNSON (JNJ) 2.56%
7. KOHL'S CORPORATION (KSS) 2.43%
8. CISCO SYSTEMS, INC. (CSCO) 2.19%
9. PFIZER, INC. (PFE) 2.14%
10. COLGATE-PALMOLIVE COMPANY (CL) 1.78%
</Table>
Portfolio holdings are subject to change, and should not be construed as a
recommendation of any security.
5
<Page>
GROWTH OF $10,000 INVESTMENT
PERFORMANCE DATA QUOTED REPRESENTS PAST PERFORMANCE. PAST PERFORMANCE DOES NOT
GUARANTEE FUTURE RESULTS. INVESTMENT RETURN AND PRINCIPAL VALUE OF AN INVESTMENT
WILL FLUCTUATE SO THAT AN INVESTOR'S SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR
LESS THAN THEIR ORIGINAL COST. CURRENT PERFORMANCE MAY BE LOWER OR HIGHER THAN
THE PERFORMANCE DATA QUOTED. PLEASE CALL 1-800-525-2440 TO OBTAIN THE MOST
RECENT MONTH-END PERFORMANCE DATA.
[CHART]
Dreyfus Founders
Equity Growth Fund S&P 500 Russell 1000
Class F Shares Index Growth Index
06/30/1995 $10,000.00 $10,000.00 $10,000.00
06/28/1996 $12,966.52 $12,600.05 $11,587.79
06/30/1997 $15,727.55 $16,972.14 $11,844.48
06/30/1998 $18,860.28 $22,091.36 $14,707.79
06/30/1999 $20,120.49 $27,118.52 $17,359.39
06/30/2000 $21,319.27 $29,084.32 $23,466.73
06/29/2001 $15,479.80 $24,771.03 $24,990.89
06/28/2002 $12,629.33 $20,315.14 $31,239.93
06/30/2003 $12,700.03 $20,366.21 $36,774.39
06/30/2004 $14,839.01 $24,258.20 $26,519.28
06/30/2005 $15,345.92 $25,792.11 $21,602.24
The above graph compares a $10,000 investment made in Class F shares of Dreyfus
Founders Equity Growth Fund on 6/30/95 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 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. In future semiannual reports, the Fund's performance will no longer be
compared to the Standard & Poor's 500 Index, as the Russell 1000 Growth Index is
more reflective of the Fund's growth style of investing. Further information
related to Fund performance is contained elsewhere in this report.
6
<Page>
AVERAGE ANNUAL AND YEAR-TO DATE TOTAL RETURN as of 6/30/05
<Table>
<Caption>
YEAR-TO- 1 5 10 SINCE
CLASS (INCEPTION DATE) DATE+ YEAR YEARS YEARS INCEPTION
------------------------------------------------------------------------------------------------
A SHARES (12/31/99)
With sales charge (5.75%) (8.72%) (2.81%) (8.03%) -- (8.07%)
Without sales charge (3.09%) 3.13% (6.94%) -- (7.08%)
B SHARES (12/31/99)
With redemption* (7.24%) (1.54%) (7.66%) -- (7.74%)
Without redemption (3.38%) 2.46% (7.32%) -- (7.59%)
C SHARES (12/31/99)
With redemption** (4.40%) 1.51% (7.64%) -- (7.88%)
Without redemption (3.43%) 2.51% (7.64%) -- (7.88%)
F SHARES (7/5/38) (3.02%) 3.42% (6.36%) 4.38% N/A
R SHARES (12/31/99) (2.85%) 3.49% (6.60%) -- (6.84%)
T SHARES (12/31/99)
With sales charge (4.50%) (8.91%) (3.43%) (8.52%) -- (8.66%)
Without sales charge (4.66%) 1.12% (7.67%) -- (7.89%)
</Table>
Average annual and year-to-date total returns do not reflect the deduction of
taxes that a shareholder would pay on Fund distributions or redemption of Fund
shares, but do reflect the reinvestment of dividends and capital gain
distributions, fee waivers for certain share classes, and adjustments for
financial statement purposes.
* The maximum contingent deferred sales charge for Class B shares is 4% and is
reduced to 0% after six years, at which time the Class B shares convert to
Class A shares.
** The maximum contingent deferred sales charge for Class C shares is 1% for
shares redeemed within one year of the date of purchase.
+ Total return is not annualized.
7
<Page>
stable end-market demand. Combined with relatively high valuation, these factors
led MAXIM INTEGRATED PRODUCTS, INC. to significantly underperform for the
period. Although all of the aforementioned stocks were weak performers during
the half, the Fund remained invested in these companies as it was our assessment
that fundamental business trends may improve and these companies could benefit.
Although strong performing issues were found in healthcare, a significant
underweight position in this sector detracted from the Fund's performance.
Finally, other notable poor performing stocks hampered the Fund's return,
such as Avaya, Inc. and TIME WARNER, INC. Avaya experienced a large loss from a
European subsidiary, along with sluggish overall sales trends in PBX (private
branch exchange) telephone network equipment, which created a revenue and
earnings shortfall in the first quarter of the period. Subsequently,
BOTTOM 3 PERFORMING SECTORS IN THE FUND
Industrials
Healthcare
Information Technology
[CHART]
PORTFOLIO COMPOSITION OF NET ASSETS
<Table>
Information Technology 28.54%
Consumer Discretionary 19.33%
Healthcare 15.68%
Consumer Staples 9.34%
Industrials 9.11%
Financials 6.14%
Energy 1.28%
Materials 0.75%
Telecommunications Services 0.54%
Other 5.26%
Cash & Equivalents 4.03%
</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>
the stock suffered and the Fund exited its position in the company. Consumer
discretionary holding Time Warner experienced pressure during the period due to
concerns over its second quarter earnings performance.
IN CONCLUSION
As of the end of the period, the Fund was positioned for an expanding economy,
with significant exposure to information technology and consumer-related issues.
Our strategy remains consistent moving into the second half of 2005; we continue
to employ a bottom-up, research-driven approach in searching for the greatest
growth opportunities for the portfolio.
/s/ John B. Jares
John B. Jares, CFA
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 January 1, 2005
and held through June 30, 2005.
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 FOR COMPARISON PURPOSES 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*
(1/1/05) (6/30/05) (1/1/05-6/30/05)
- --------------------------------------------------------------------------------
CLASS A ACTUAL $ 1,000.00 $ 962.60 $ 6.54
CLASS A HYPOTHETICAL 1,000.00 1,018.07 6.73
CLASS B ACTUAL 1,000.00 955.76 10.48
CLASS B HYPOTHETICAL 1,000.00 1,014.00 10.79
CLASS C ACTUAL 1,000.00 956.17 9.50
CLASS C HYPOTHETICAL 1,000.00 1,015.00 9.79
CLASS F ACTUAL 1,000.00 964.34 5.42
CLASS F HYPOTHETICAL 1,000.00 1,019.22 5.57
CLASS R ACTUAL 1,000.00 966.11 5.38
CLASS R HYPOTHETICAL 1,000.00 1,019.27 5.52
CLASS T ACTUAL 1,000.00 942.35 11.04
CLASS T HYPOTHETICAL 1,000.00 1,013.35 11.45
</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
181/365 (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, earnings credits and brokerage
offsets, where applicable.
<Table>
<Caption>
EXPENSE RATIO
- --------------------------------------------------------------------------------
CLASS A 1.34%
CLASS B 2.15%
CLASS C 1.95%
CLASS F 1.11%
CLASS R 1.10%
CLASS T 2.28%
</Table>
11
<Page>
STATEMENT OF INVESTMENTS
June 30, 2005 (UNAUDITED)
<Table>
<Caption>
SHARES MARKET VALUE
- ----------------------------------------------------------------------------------------------------
COMMON STOCKS (DOMESTIC)--93.2%
AIRLINES--1.9%
155,500 AMR Corporation* $ 1,883,100
111,925 JetBlue Airways Corporation* 2,287,747
------------------
4,170,847
------------------
APPLICATION SOFTWARE--1.0%
63,950 Autodesk, Inc. 2,197,962
------------------
ASSET MANAGEMENT & CUSTODY BANKS--1.4%
46,925 Northern Trust Corporation 2,139,311
18,800 State Street Corporation 907,100
------------------
3,046,411
------------------
BIOTECHNOLOGY--3.2%
26,875 Amgen, Inc.* 1,624,863
24,775 Genentech, Inc.* 1,988,937
14,425 Genzyme Corporation* 866,798
28,875 Gilead Sciences, Inc.* 1,270,211
48,500 MedImmune, Inc.* 1,295,920
------------------
7,046,729
------------------
BROADCASTING & CABLE TV--2.9%
51,707 Clear Channel Communications, Inc. 1,599,298
85,175 Comcast Corporation Special Class A* 2,550,991
46,525 EchoStar Communications Corporation 1,402,729
19,750 XM Satellite Radio Holdings, Inc. Class A* 664,785
------------------
6,217,803
------------------
CASINOS & GAMING--0.5%
16,225 Harrah's Entertainment, Inc. 1,169,336
------------------
COMMUNICATIONS EQUIPMENT--3.5%
248,838 Cisco Systems, Inc.* 4,755,294
23,725 Juniper Networks, Inc.* 597,396
61,325 Motorola, Inc. 1,119,795
31,575 QUALCOMM, Inc. 1,042,291
------------------
7,514,776
------------------
COMPUTER & ELECTRONICS RETAIL--0.3%
10,325 Best Buy Company, Inc. 707,779
------------------
COMPUTER HARDWARE--2.8%
73,200 Apple Computer, Inc.* 2,694,492
46,125 International Business Machines Corporation 3,422,475
------------------
6,116,967
------------------
COMPUTER STORAGE & PERIPHERALS--1.7%
269,300 EMC Corporation* 3,692,103
------------------
CONSUMER ELECTRONICS--0.4%
10,550 Harman International Industries, Inc. 858,348
------------------
</Table>
12
<Page>
<Table>
<Caption>
SHARES MARKET VALUE
- ----------------------------------------------------------------------------------------------------
DATA PROCESSING & OUTSOURCED SERVICES--1.4%
73,675 Automatic Data Processing, Inc. $ 3,092,140
------------------
DEPARTMENT STORES--2.8%
13,700 J.C. Penney Company, Inc. 720,346
94,275 Kohl's Corporation* 5,270,915
------------------
5,991,261
------------------
DIVERSIFIED BANKS--0.8%
28,800 Wells Fargo & Company 1,773,504
------------------
ELECTRICAL COMPONENTS & EQUIPMENT--1.2%
40,125 Emerson Electric Company 2,513,029
------------------
EXCHANGE TRADED FUNDS--5.3%
95,800 SPDR Trust Series 1 11,411,696
------------------
FOOD RETAIL--1.4%
131,675 Safeway, Inc. 2,974,538
------------------
GENERAL MERCHANDISE STORES--3.1%
144,925 Dollar General Corporation 2,950,673
68,650 Target Corporation 3,735,247
------------------
6,685,920
------------------
HEALTHCARE DISTRIBUTORS--0.9%
46,125 Henry Schein, Inc.* 1,915,110
------------------
HEALTHCARE EQUIPMENT--0.3%
14,675 Medtronic, Inc. 760,018
------------------
HEALTHCARE FACILITIES--1.3%
50,975 Triad Hospitals, Inc.* 2,785,274
------------------
HEALTHCARE SUPPLIES--0.9%
39,050 Charles River Laboratories International, Inc.* 1,884,163
------------------
HOME ENTERTAINMENT SOFTWARE--1.1%
41,375 Electronic Arts, Inc.* 2,342,239
------------------
HOTELS, RESORTS & CRUISE LINES--1.6%
44,400 Carnival Corporation 2,422,020
19,900 Starwood Hotels & Resorts Worldwide, Inc. 1,165,543
------------------
3,587,563
------------------
HOUSEHOLD PRODUCTS--2.5%
29,175 Clorox Company 1,625,631
77,525 Colgate-Palmolive Company 3,869,273
------------------
5,494,904
------------------
HUMAN RESOURCE & EMPLOYMENT SERVICES--0.4%
31,825 Monster Worldwide, Inc.* 912,741
------------------
HYPERMARKETS & SUPER CENTERS--1.0%
46,500 Wal-Mart Stores, Inc. 2,241,300
------------------
INDUSTRIAL CONGLOMERATES--2.9%
183,325 General Electric Company 6,352,211
------------------
</Table>
13
<Page>
<Table>
<Caption>
SHARES MARKET VALUE
- ----------------------------------------------------------------------------------------------------
INTEGRATED OIL & GAS--1.3%
10,950 ConocoPhillips $ 629,516
37,591 ExxonMobil Corporation 2,160,355
------------------
2,789,871
------------------
INTEGRATED TELECOMMUNICATION SERVICES--0.5%
18,825 Alltel Corporation 1,172,421
------------------
INTERNET SOFTWARE & SERVICES--0.6%
41,650 Yahoo!, Inc.* 1,443,173
------------------
INVESTMENT BANKING & BROKERAGE--1.1%
15,575 Goldman Sachs Group, Inc. 1,588,962
16,875 Morgan Stanley 885,431
------------------
2,474,393
------------------
LEISURE FACILITIES--2.6%
116,175 Royal Caribbean Cruises Limited 5,618,223
------------------
LIFE & HEALTH INSURANCE--0.0%
250 Aflac, Inc. 10,820
------------------
MOVIES & ENTERTAINMENT--4.4%
19,925 DreamWorks Animation SKG, Inc.* 522,035
226,000 Time Warner, Inc.* 3,776,460
63,950 Viacom, Inc. Class B 2,047,679
125,225 Walt Disney Company 3,153,166
------------------
9,499,340
------------------
MULTI-LINE INSURANCE--0.4%
13,650 American International Group, Inc. 793,065
------------------
OTHER DIVERSIFIED FINANCIAL SERVICES--0.5%
25,224 Citigroup, Inc. 1,166,106
------------------
PERSONAL PRODUCTS--3.3%
19,425 Avon Products, Inc. 735,236
127,850 Gillette Company 6,473,046
------------------
7,208,282
------------------
PHARMACEUTICALS--9.1%
66,100 Abbott Laboratories 3,239,561
14,700 Eli Lilly and Company 818,937
85,575 Johnson & Johnson 5,562,375
78,800 MGI Pharma, Inc.* 1,714,688
168,242 Pfizer, Inc. 4,640,114
82,600 Wyeth 3,675,700
------------------
19,651,375
------------------
PROPERTY & CASUALTY INSURANCE--1.1%
39,075 Allstate Corporation 2,334,731
------------------
RAILROADS--1.4%
47,350 Union Pacific Corporation 3,068,280
------------------
</Table>
14
<Page>
<Table>
<Caption>
SHARES MARKET VALUE
- ----------------------------------------------------------------------------------------------------
SEMICONDUCTOR EQUIPMENT--0.8%
14,475 KLA-Tencor Corporation $ 632,558
42,700 Novellus Systems, Inc.* 1,055,117
------------------
1,687,675
------------------
SEMICONDUCTORS--7.4%
76,550 Broadcom Corporation* 2,718,291
147,228 Intel Corporation 3,836,762
99,900 Linear Technology Corporation 3,665,331
89,525 Maxim Integrated Products, Inc. 3,420,750
26,800 Microchip Technology, Inc. 793,816
54,475 Texas Instruments, Inc. 1,529,113
------------------
15,964,063
------------------
SOFT DRINKS--1.1%
56,525 Coca-Cola Company 2,359,919
------------------
SPECIALTY CHEMICALS--0.8%
29,225 Sigma-Aldrich Corporation 1,637,769
------------------
SPECIALTY STORES--0.5%
19,275 PETsMART, Inc. 584,996
16,200 Tiffany & Company 530,712
------------------
1,115,708
------------------
SYSTEMS SOFTWARE--6.2%
393,841 Microsoft Corporation 9,783,010
120,875 Oracle Corporation* 1,595,550
99,400 Symantec Corporation* 2,160,956
------------------
13,539,516
------------------
THRIFTS & MORTGAGE FINANCE--0.8%
44,425 The PMI Group, Inc. 1,731,687
------------------
TRADING COMPANIES & DISTRIBUTORS--0.8%
30,775 W.W. Grainger, Inc. 1,686,162
------------------
TOTAL COMMON STOCKS (DOMESTIC)
(COST--$193,384,313) 202,409,251
------------------
COMMON STOCKS (FOREIGN)--2.7%
APPLICATION SOFTWARE--0.5%
27,000 SAP AG Sponsored ADR (GE) 1,169,100
------------------
AUTO PARTS & EQUIPMENT--0.2%
11,900 Autoliv, Inc. (SW) 521,220
------------------
INDUSTRIAL CONGLOMERATES--0.5%
37,050 Tyco International Limited (BD) 1,081,860
------------------
IT CONSULTING & OTHER SERVICES--1.0%
95,900 Accenture Limited Class A (BD)* 2,174,053
------------------
</Table>
15
<Page>
<Table>
<Caption>
SHARES MARKET VALUE
- ----------------------------------------------------------------------------------------------------
SEMICONDUCTORS--0.5%
33,450 ATI Technologies, Inc. (CA)* $ 396,383
16,100 Marvell Technology Group Limited (BD)* 612,444
------------------
1,008,827
------------------
TOTAL COMMON STOCKS (FOREIGN)
(COST--$6,321,928) 5,955,060
------------------
<Caption>
PRINCIPAL AMOUNT AMORTIZED COST
- ----------------------------------------------------------------------------------------------------
CORPORATE SHORT-TERM NOTES--6.0%
ELECTRONIC EQUIPMENT MANUFACTURERS--1.9%
$ 4,186,000 Hitachi America Capital Limited
3.25% 7/1/05~ $ 4,186,000
------------------
MULTI-LINE INSURANCE--4.1%
8,800,000 AIG Funding, Inc.
3.23% 7/5/05 8,796,842
------------------
TOTAL CORPORATE SHORT-TERM NOTES
(AMORTIZED COST--$12,982,842) 12,982,842
------------------
TOTAL INVESTMENTS--101.9%
(TOTAL COST--$212,689,083) 221,347,153
------------------
OTHER ASSETS AND LIABILITIES--(1.9%) (4,215,668)
------------------
NET ASSETS--100.0% $ 217,131,485
==================
</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
$4,186,000, OR 1.9%, OF THE FUND'S NET ASSETS AS OF JUNE 30, 2005.
ADR - AMERICAN DEPOSITARY RECEIPT
SPDR - STANDARD AND POOR'S DEPOSITARY RECEIPT
BD - BERMUDA
CA - CANADA
GE - GERMANY
SW - SWEDEN
SEE NOTES TO FINANCIAL STATEMENTS.
16
<Page>
STATEMENT OF ASSETS AND LIABILITIES
JUNE 30, 2005 (UNAUDITED)
<Table>
ASSETS
Investment securities, at cost $ 212,689,083
------------------
Investment securities, at market 221,347,153
Cash 561,609
Receivables:
Investment securities sold 1,177,077
Capital shares sold 19,968
Dividends and interest 205,987
Other assets 41,902
------------------
Total Assets 223,353,696
------------------
LIABILITIES
Payables and other accrued liabilities:
Investment securities purchased 5,945,089
Capital shares redeemed 16,695
Advisory fees 118,502
Shareholder servicing fees 21,519
Accounting fees 10,939
Distribution fees 25,388
Transfer agency fees 5,119
Custodian fees 358
Other 78,602
------------------
Total Liabilities 6,222,211
------------------
Net Assets $ 217,131,485
==================
COMPOSITION OF NET ASSETS
Capital (par value and paid-in surplus) $ 301,379,297
Undistributed net investment income 429,560
Accumulated net realized loss from security transactions (93,335,442)
Net unrealized appreciation on investments and foreign currency
translation 8,658,070
------------------
Total $ 217,131,485
==================
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
17
<Page>
<Table>
CLASS A
Net Assets $ 1,228,317
Shares Outstanding 260,772
Net Asset Value, Redemption Price Per Share $ 4.71
Maximum offering price per share (net asset value
plus sales charge of 5.75% of offering price) $ 5.00
CLASS B
Net Assets $ 1,710,970
Shares Outstanding 373,538
Net Asset Value, Offering and Redemption Price (excluding
applicable contingent deferred sales charge) Per Share $ 4.58
CLASS C
Net Assets $ 1,749,053
Shares Outstanding 388,843
Net Asset Value, Offering and Redemption Price (excluding
applicable contingent deferred sales charge) Per Share $ 4.50
CLASS F
Net Assets $ 212,196,866
Shares Outstanding 44,089,827
Net Asset Value, Offering and Redemption Price Per Share $ 4.81
CLASS R
Net Assets $ 245,640
Shares Outstanding 51,518
Net Asset Value, Offering and Redemption Price Per Share $ 4.77
CLASS T
Net Assets $ 639
Shares Outstanding 142
Net Asset Value, Redemption Price Per Share $ 4.50
Maximum offering price per share (net asset value
plus sales charge of 4.50% of offering price) $ 4.71
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
18
<Page>
STATEMENT OF OPERATIONS
For the six months ended June 30, 2005 (UNAUDITED)
<Table>
INVESTMENT INCOME
Dividends $ 1,127,519
Interest 168,257
Foreign taxes withheld (680)
------------------
Total Investment Income 1,295,096
------------------
EXPENSES
Advisory fees--Note 2 726,204
Shareholder servicing fees--Note 2 129,453
Accounting fees--Note 2 67,034
Distribution fees--Note 2 100,245
Transfer agency fees--Note 2 68,245
Registration fees 28,555
Postage and mailing expenses 22,450
Custodian fees and expenses--Note 2 6,170
Printing expenses 37,740
Legal and audit fees 40,492
Directors' fees and expenses--Note 2 20,875
Other expenses 25,519
------------------
Total Expenses 1,272,982
Earnings Credits (5,867)
Reimbursed/Waived Expenses (3,930)
Expense Offset to Broker Commissions (3,895)
------------------
Net Expenses 1,259,290
------------------
Net Investment Income 35,806
------------------
REALIZED AND UNREALIZED GAIN (LOSS) ON SECURITY
TRANSACTIONS AND FOREIGN CURRENCY TRANSLATION
Net Realized Gain on Security Transactions 11,155,865
Net Change in Unrealized Appreciation/Depreciation
of Investments and Foreign Currency Translation (18,108,512)
------------------
Net Realized and Unrealized Loss (6,952,647)
------------------
Net Decrease in Net Assets Resulting from Operations $ (6,916,841)
==================
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
19
<Page>
STATEMENTS OF CHANGES IN NET ASSETS
(UNAUDITED)
<Table>
<Caption>
SIX MONTHS ENDED YEAR ENDED
6/30/05 12/31/04
OPERATIONS
Net Investment Income $ 35,806 $ 1,263,861
Net Realized Gain on Security Transactions 11,155,865 20,710,093
Net Change in Unrealized Appreciation/Depreciation
of Investments and Foreign Currency Translation (18,108,512) (2,549,571)
------------------ ------------------
Net Increase (Decrease) in Net Assets Resulting from
Operations (6,916,841) 19,424,383
------------------ ------------------
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS
From Net Investment Income
Class A 0 (3,007)
Class F 0 (945,884)
Class R 0 (1,108)
------------------ ------------------
Net Decrease from Dividends and Distributions 0 (949,999)
------------------ ------------------
CAPITAL SHARE TRANSACTIONS
Net Increase (Decrease)--Note 4
Class A 83,163 174,433
Class B (330,586) 237,470
Class C 1,205,728 173,366
Class F (14,434,999) (18,116,372)
Class R 6,076 29,755
Class T (30,229) 0
Class T Payment by Service Provider 0 698
------------------ ------------------
Net Decrease from Capital Share Transactions (13,500,847) (17,500,650)
------------------ ------------------
Net Increase (Decrease) in Net Assets (20,417,688) 973,734
------------------ ------------------
NET ASSETS
Beginning of period $ 237,549,173 $ 236,575,439
------------------ ------------------
End of period $ 217,131,485 $ 237,549,173
================== ==================
Undistributed Net Investment Income $ 429,560 $ 393,754
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
20
<Page>
FINANCIAL HIGHLIGHTS
(UNAUDITED)
<Table>
<Caption>
SIX MONTHS YEAR ENDED
ENDED JUNE 30, DECEMBER 31,
2005 2004 2003 2002 2001
-------------- ---------------------------------------------------
CLASS A SHARES
PER SHARE OPERATING DATA
Net Asset Value, beginning of period $ 4.86 $ 4.49 $ 3.44 $ 4.66 $ 5.73
- ------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.00)(a) 0.02 0.03 (0.02) (0.07)
Net realized and unrealized gains
(losses) on securities (0.15) 0.36 1.02 (1.20) (1.00)
------------------------------------------------------------------------
Total from investment operations (0.15) 0.38 1.05 (1.22) (1.07)
- ------------------------------------------------------------------------------------------------------------------------
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 0.00(b)
------------------------------------------------------------------------
Total distributions 0.00 (0.01) 0.00 0.00 0.00
- ------------------------------------------------------------------------------------------------------------------------
Net Asset Value, end of period $ 4.71 $ 4.86 $ 4.49 $ 3.44 $ 4.66
========================================================================
TOTAL RETURN(c) (3.09%) 8.54% 30.52% (26.18%) (18.65%)
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000s) $ 1,228 $ 1,180 $ 935 $ 378 $ 442
- ------------------------------------------------------------------------------------------------------------------------
Ratios to average net assets(d):
Expenses with reimbursements, but
no earnings credits or brokerage offsets(e) 1.35% 1.26% 1.49% 1.87% 2.98%
Expenses with reimbursements, earnings
credits and brokerage offsets 1.34% 1.25% 1.48% 1.87% 2.98%
Net investment income (loss) (0.17%) 0.38% (0.25%) (0.67%) (1.82%)
- ------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate(f) 122% 115% 123% 152% 144%
</Table>
(a). NET INVESTMENT LOSS FOR THE PERIOD ENDED JUNE 30, 2005 AGGREGATED LESS THAN
$0.01 ON A PER SHARE BASIS.
(b). DISTRIBUTIONS FROM NET REALIZED GAINS FOR THE YEAR ENDED DECEMBER 31, 2001
AGGREGATED LESS THAN $0.01 ON A PER SHARE BASIS.
(c). SALES CHARGES ARE NOT REFLECTED IN THE TOTAL RETURN.
(d). ANNUALIZED.
(e). CERTAIN FEES WERE WAIVED BY THE CUSTODIAN. THESE WAIVERS DID NOT HAVE AN
IMPACT ON THE EXPENSE RATIOS.
(f). PORTFOLIO TURNOVER RATE IS A MEASURE OF PORTFOLIO ACTIVITY THAT IS
CALCULATED BY DIVIDING THE LESSER OF PURCHASES OR SALES OF SECURITIES,
EXCLUDING SECURITIES HAVING MATURITY DATES AT ACQUISITION OF ONE YEAR OR
LESS, BY THE AVERAGE VALUE OF THE PORTFOLIO SECURITIES HELD DURING THE
PERIOD, WHICH IS A ROLLING 12-MONTH PERIOD.
SEE NOTES TO FINANCIAL STATEMENTS.
21
<Page>
<Table>
<Caption>
SIX MONTHS YEAR ENDED
ENDED JUNE 30, DECEMBER 31,
2005 2004 2003 2002 2001
-------------- ---------------------------------------------------
CLASS B SHARES
PER SHARE OPERATING DATA
Net Asset Value, beginning of period $ 4.74 $ 4.40 $ 3.40 $ 4.61 $ 5.65
- ------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment loss (0.05) (0.00)(a) (0.01) (0.05) (0.04)
Net realized and unrealized gains
(losses) on securities (0.11) 0.34 1.01 (1.16) (1.00)
------------------------------------------------------------------------
Total from investment operations (0.16) 0.34 1.00 (1.21) (1.04)
- ------------------------------------------------------------------------------------------------------------------------
Less dividends and distributions:
From net investment income 0.00 0.00 0.00 0.00 0.00
From net realized gains 0.00 0.00 0.00 0.00 0.00(b)
------------------------------------------------------------------------
Total distributions 0.00 0.00 0.00 0.00 0.00
- ------------------------------------------------------------------------------------------------------------------------
Net Asset Value, end of period $ 4.58 $ 4.74 $ 4.40 $ 3.40 $ 4.61
========================================================================
TOTAL RETURN(c) (3.38%) 7.73% 29.41% (26.25%) (18.38%)
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000s) $ 1,711 $ 2,110 $ 1,709 $ 1,013 $ 1,599
- ------------------------------------------------------------------------------------------------------------------------
Ratios to average net assets(d):
Expenses with reimbursements, but
no earnings credits or brokerage offsets(e) 2.16% 2.01% 2.30% 2.14% 2.20%
Expenses with reimbursements, earnings
credits and brokerage offsets 2.15% 2.00% 2.30% 2.14% 2.19%
Net investment loss (1.00%) (0.34%) (1.08%) (0.95%) (1.03%)
- ------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate(f) 122% 115% 123% 152% 144%
</Table>
(a). NET INVESTMENT LOSS FOR THE YEAR ENDED DECEMBER 31, 2004 AGGREGATED LESS
THAN $0.01 ON A PER SHARE BASIS.
(b). DISTRIBUTIONS FROM NET REALIZED GAINS FOR THE YEAR ENDED DECEMBER 31, 2001
AGGREGATED LESS THAN $0.01 ON A PER SHARE BASIS.
(c). SALES CHARGES ARE NOT REFLECTED IN THE TOTAL RETURN.
(d). ANNUALIZED.
(e). CERTAIN FEES WERE WAIVED BY THE CUSTODIAN. THESE WAIVERS DID NOT HAVE AN
IMPACT ON THE EXPENSE RATIOS.
(f). PORTFOLIO TURNOVER RATE IS A MEASURE OF PORTFOLIO ACTIVITY THAT IS
CALCULATED BY DIVIDING THE LESSER OF PURCHASES OR SALES OF SECURITIES,
EXCLUDING SECURITIES HAVING MATURITY DATES AT ACQUISITION OF ONE YEAR OR
LESS, BY THE AVERAGE VALUE OF THE PORTFOLIO SECURITIES HELD DURING THE
PERIOD, WHICH IS A ROLLING 12-MONTH PERIOD.
22
<Page>
<Table>
<Caption>
SIX MONTHS YEAR ENDED
ENDED JUNE 30, DECEMBER 31,
2005 2004 2003 2002 2001
-------------- ---------------------------------------------------
CLASS C SHARES
PER SHARE OPERATING DATA
Net Asset Value, beginning of period $ 4.66 $ 4.32 $ 3.34 $ 4.55 $ 5.66
- ------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.02)(a) 0.04 0.04 (0.07) (0.13)
Net realized and unrealized gains
(losses) on securities (0.14) 0.30 0.94 (1.14) (0.98)
------------------------------------------------------------------------
Total from investment operations (0.16) 0.34 0.98 (1.21) (1.11)
- ------------------------------------------------------------------------------------------------------------------------
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 0.00(b)
------------------------------------------------------------------------
Total distributions 0.00 0.00 0.00 0.00 0.00
- ------------------------------------------------------------------------------------------------------------------------
Net Asset Value, end of period $ 4.50 $ 4.66 $ 4.32 $ 3.34 $ 4.55
========================================================================
TOTAL RETURN(c) (3.43%) 7.87% 29.34% (26.59%) (19.58%)
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000s) $ 1,749 $ 571 $ 357 $ 186 $ 270
- ------------------------------------------------------------------------------------------------------------------------
Ratios to average net assets(d):
Expenses with reimbursements, but
no earnings credits or brokerage offsets(e) 1.97% 1.99% 2.29% 2.77% 3.17%
Expenses with reimbursements, earnings
credits and brokerage offsets 1.95% 1.99% 2.28% 2.76% 3.16%
Net investment loss (0.77%) (0.24%) (1.04%) (1.55%) (2.01%)
- ------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate(f) 122% 115% 123% 152% 144%
</Table>
(a). COMPUTED USING AVERAGE SHARES OUTSTANDING THROUGHOUT THE PERIOD.
(b). DISTRIBUTIONS FROM NET REALIZED GAINS FOR THE YEAR ENDED DECEMBER 31, 2001
AGGREGATED LESS THAN $0.01 ON A PER SHARE BASIS.
(c). SALES CHARGES ARE NOT REFLECTED IN THE TOTAL RETURN.
(d). ANNUALIZED.
(e). 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 1.97% (2005), 1.99% (2004), 2.29% (2003), 3.02%
(2002), AND 3.56% (2001).
(f). PORTFOLIO TURNOVER RATE IS A MEASURE OF PORTFOLIO ACTIVITY THAT IS
CALCULATED BY DIVIDING THE LESSER OF PURCHASES OR SALES OF SECURITIES,
EXCLUDING SECURITIES HAVING MATURITY DATES AT ACQUISITION OF ONE YEAR OR
LESS, BY THE AVERAGE VALUE OF THE PORTFOLIO SECURITIES HELD DURING THE
PERIOD, WHICH IS A ROLLING 12-MONTH PERIOD.
SEE NOTES TO FINANCIAL STATEMENTS.
23
<Page>
<Table>
<Caption>
SIX MONTHS YEAR ENDED
ENDED JUNE 30, DECEMBER 31,
2005 2004 2003 2002 2001
-------------- ------------------------------------------------------
CLASS F SHARES
PER SHARE OPERATING DATA
Net Asset Value, beginning of period $ 4.96 $ 4.57 $ 3.50 $ 4.69 $ 5.69
- ---------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.00(a) 0.02 0.00(a) 0.00(a) 0.00(a)
Net realized and unrealized gains
(losses) on securities (0.15) 0.39 1.07 (1.19) (1.00)
---------------------------------------------------------------------------
Total from investment operations (0.15) 0.41 1.07 (1.19) (1.00)
- ---------------------------------------------------------------------------------------------------------------------------
Less dividends and distributions:
From net investment income 0.00 (0.02) 0.00(b) 0.00(b) 0.00
From net realized gains 0.00 0.00 0.00 0.00 0.00(b)
---------------------------------------------------------------------------
Total distributions 0.00 (0.02) 0.00 0.00 0.00
- ---------------------------------------------------------------------------------------------------------------------------
Net Asset Value, end of period $ 4.81 $ 4.96 $ 4.57 $ 3.50 $ 4.69
===========================================================================
TOTAL RETURN (3.02%) 8.97% 30.67% (25.33%) (17.55%)
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000s) $ 212,197 $ 233,410 $ 233,333 $ 191,701 $ 288,752
- ---------------------------------------------------------------------------------------------------------------------------
Ratios to average net assets(c):
Expenses with reimbursements, but
no earnings credits or brokerage offsets(d) 1.12% 1.06% 1.13% 1.08% 1.14%
Expenses with reimbursements, earnings
credits and brokerage offsets 1.11% 1.06% 1.13% 1.08% 1.14%
Net investment income 0.05% 0.56% 0.06% 0.11% 0.02%
- ---------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate(e) 122% 115% 123% 152% 144%
</Table>
(a). NET INVESTMENT INCOME FOR THE YEARS ENDED DECEMBER 31, 2003, 2002, AND 2001
AND FOR THE PERIOD ENDED JUNE 30, 2005 AGGREGATED LESS THAN $0.01 ON A PER
SHARE BASIS.
(b). 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.
(c). ANNUALIZED.
(d). CERTAIN FEES WERE WAIVED BY THE CUSTODIAN. THESE WAIVERS DID NOT HAVE AN
IMPACT ON THE EXPENSE RATIOS.
(e). PORTFOLIO TURNOVER RATE IS A MEASURE OF PORTFOLIO ACTIVITY THAT IS
CALCULATED BY DIVIDING THE LESSER OF PURCHASES OR SALES OF SECURITIES,
EXCLUDING SECURITIES HAVING MATURITY DATES AT ACQUISITION OF ONE YEAR OR
LESS, BY THE AVERAGE VALUE OF THE PORTFOLIO SECURITIES HELD DURING THE
PERIOD, WHICH IS A ROLLING 12-MONTH PERIOD.
24
<Page>
<Table>
<Caption>
SIX MONTHS YEAR ENDED
ENDED JUNE 30, DECEMBER 31,
2005 2004 2003 2002 2001
-------------- ---------------------------------------------------
CLASS R SHARES
PER SHARE OPERATING DATA
Net Asset Value, beginning of period $ 4.91 $ 4.53 $ 3.47 $ 4.74 $ 5.74
- ------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) 0.00(a) 0.03 0.06 (0.08) (0.01)
Net realized and unrealized gains
(losses) on securities (0.14) 0.37 1.00 (1.19) (0.99)
------------------------------------------------------------------------
Total from investment operations (0.14) 0.40 1.06 (1.27) (1.00)
- ------------------------------------------------------------------------------------------------------------------------
Less dividends and distributions:
From net investment income 0.00 (0.02) 0.00 0.00 0.00
From net realized gains 0.00 0.00 0.00 0.00 0.00(b)
------------------------------------------------------------------------
Total distributions 0.00 (0.02) 0.00 0.00 0.00
- ------------------------------------------------------------------------------------------------------------------------
Net Asset Value, end of period $ 4.77 $ 4.91 $ 4.53 $ 3.47 $ 4.74
========================================================================
TOTAL RETURN (2.85%) 8.88% 30.55% (26.79%) (17.39%)
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000s) $ 246 $ 247 $ 211 $ 57 $ 51
- ------------------------------------------------------------------------------------------------------------------------
Ratios to average net assets(c):
Expenses with reimbursements, but
no earnings credits or brokerage offsets(d) 1.11% 1.00% 1.35% 2.95% 2.73%
Expenses with reimbursements, earnings
credits and brokerage offsets 1.10% 1.00% 1.35% 2.95% 2.72%
Net investment income (loss) 0.06% 0.54% (0.12%) (1.78%) (1.68%)
- ------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate(e) 122% 115% 123% 152% 144%
</Table>
(a). NET INVESTMENT INCOME FOR THE PERIOD ENDED JUNE 30, 2005 AGGREGATED LESS
THAN $0.01 ON A PER SHARE BASIS.
(b). DISTRIBUTIONS FROM NET REALIZED GAINS FOR THE YEAR ENDED DECEMBER 31, 2001
AGGREGATED LESS THAN $0.01 ON A PER SHARE BASIS.
(c). ANNUALIZED.
(d). 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 1.11% (2005), 1.00% (2004), 1.35% (2003), 4.68%
(2002), AND 82.23% (2001).
(e). PORTFOLIO TURNOVER RATE IS A MEASURE OF PORTFOLIO ACTIVITY THAT IS
CALCULATED BY DIVIDING THE LESSER OF PURCHASES OR SALES OF SECURITIES,
EXCLUDING SECURITIES HAVING MATURITY DATES AT ACQUISITION OF ONE YEAR OR
LESS, BY THE AVERAGE VALUE OF THE PORTFOLIO SECURITIES HELD DURING THE
PERIOD, WHICH IS A ROLLING 12-MONTH PERIOD.
SEE NOTES TO FINANCIAL STATEMENTS.
25
<Page>
<Table>
<Caption>
SIX MONTHS YEAR ENDED
ENDED JUNE 30, DECEMBER 31,
2005 2004 2003 2002 2001
-------------- ---------------------------------------------------
CLASS T SHARES
PER SHARE OPERATING DATA
Net Asset Value, beginning of period $ 4.72 $ 4.38 $ 3.39 $ 4.60 $ 5.68
- ----------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment loss (0.03)(a) (0.01) (0.23) (0.30) (0.09)
Net realized and unrealized gains
(losses) on securities (0.19) 0.25 1.22 (0.91) (0.99)
----------------------------------------------------------------------
Total from investment operations (0.22) 0.24 0.99 (1.21) (1.08)
- ----------------------------------------------------------------------------------------------------------------------
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 0.00(b)
----------------------------------------------------------------------
Total distributions 0.00 0.00 0.00 0.00 0.00
- ----------------------------------------------------------------------------------------------------------------------
Other:
Payment by Service Provider 0.10(c) 0.00 0.00 0.00
- ----------------------------------------------------------------------------------------------------------------------
Net Asset Value, end of period $ 4.50 $ 4.72 $ 4.38 $ 3.39 $ 4.60
======================================================================
TOTAL RETURN(d) (4.66%) 7.76% 29.20% (26.30%) (18.99%)
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000s) $ 1 $ 32 $ 30 $ 33 $ 127
- ----------------------------------------------------------------------------------------------------------------------
Ratios to average net assets(e):
Expenses with reimbursements, but
no earnings credits or brokerage offsets(f) 2.28% 1.90% 2.27% 2.47% 3.14%
Expenses with reimbursements, earnings
credits and brokerage offsets 2.28% 1.90% 2.26% 2.46% 3.13%
Net investment loss (1.18%) (0.29%) (1.11%) (1.29%) (1.96%)
- ----------------------------------------------------------------------------------------------------------------------
Portfolio turnover rat(g) 122% 115% 123% 152% 144%
</Table>
(a). COMPUTED USING AVERAGE SHARES OUTSTANDING THROUGHOUT THE PERIOD.
(b). DISTRIBUTIONS FROM NET REALIZED GAINS FOR THE YEAR ENDED DECEMBER 31, 2001
AGGREGATED LESS THAN $0.01 ON A PER SHARE BASIS.
(c). 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%.
(d). SALES CHARGES ARE NOT REFLECTED IN THE TOTAL RETURN.
(e). ANNUALIZED.
(f). 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 2.28% (2005), 1.90% (2004), 2.27% (2003), 3.71%
(2002), AND 6.32% (2001).
(g). PORTFOLIO TURNOVER RATE IS A MEASURE OF PORTFOLIO ACTIVITY THAT IS
CALCULATED BY DIVIDING THE LESSER OF PURCHASES OR SALES OF SECURITIES,
EXCLUDING SECURITIES HAVING MATURITY DATES AT ACQUISITION 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
June 30, 2005 (UNAUDITED)
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
Dreyfus Founders Funds, Inc. (the "Company") is an open-end management
investment company registered under the Investment Company Act of 1940 (the
"1940 Act"). Ten series of shares are currently issued: Balanced, Discovery,
Equity Growth, 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 shares redeemed 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. Since February 22, 2005, New York closing exchange rates have
been used to convert foreign currencies to U.S. dollars. Previously, London
closing exchange rates were used to convert foreign currencies to U.S. dollars.
A debt security with a remaining maturity greater than 60 days at the time of
purchase is valued in accordance with the evaluated bid price supplied by a
pricing service approved by the Company's board of directors or, if such price
is not available, at the mean between the highest bid and lowest asked
quotations obtained from at least two securities dealers. A debt security with a
remaining maturity of 60 days or less at the time of purchase is valued at
amortized cost, which approximates market value, unless it is determined that
amortized cost would not represent market value, in which case the securities
would be marked to market. The Fund amortizes premiums and discounts on all debt
securities.
If market quotations 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
27
<Page>
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. In addition, it is possible
that the fair value determined for a security may be different from the value
that may be realized upon the security's sale, and that these differences may be
material to the net asset value of the Fund.
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 period 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
29
<Page>
first $250 million of net assets, 0.60% of the next $250 million of net assets,
0.55% of the next $250 million of net assets and 0.50% of net assets in excess
of $750 million.
SHAREHOLDER SERVICING AND TRANSFER AGENCY FEES FOR CLASS F SHARES--The Company
has a shareholder services agreement with Dreyfus Service Corporation ("DSC"),
the direct owner of Founders and a wholly-owned subsidiary of The Dreyfus
Corporation ("Dreyfus", an affiliate of Founders), whereby the Funds have agreed
to compensate DSC for providing certain shareholder servicing functions to
holders of Class F shares. The Fund paid DSC a monthly fee equal, on an annual
basis, to $24.00 per Class F shareholder account considered to be an open
account at any time during a given month. During the six months ended June 30,
2005, Class F shares were charged $123,895 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 six months ended June 30, 2005, Class F shares
were charged $53,155 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 $12.58 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, including both the per account fees paid to
DTI and out-of-pocket charges, during the six months ended June 30, 2005 were as
follows:
<Table>
<Caption>
TRANSFER
AGENCY FEES
--------------------------------------------------------------
Class A $ 1,308
Class B $ 2,535
Class C $ 535
Class R $ 278
Class T $ 82
</Table>
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 six months ended June 30, 2005, the Fund was charged $2,830 for cash
management fees, which are included in the out-of-pocket transfer agency charges
above.
OTHER TRANSFER AGENCY FEES--Various broker-dealers, retirement plan
administrators and other 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 six months ended
June 30, 2005, the Fund paid
30
<Page>
$10,352 to these entities for such services. This amount is included in the
transfer agency fees shown on the Statement of Operations.
DISTRIBUTION AND SHAREHOLDER SERVICES PLANS--DSC also is the distributor of the
Fund's shares. The Fund has adopted a Distribution Plan pursuant to Rule 12b-1
under the 1940 Act applicable to its Class F shares. Under the plan, the Fund is
authorized to reimburse DSC for expenses paid for distributing or servicing its
Class F shares at an annual rate of up to 0.25% of the value of the average
daily net assets of the Fund's Class F shares. During the six months ended June
30, 2005, Class F shares were charged $88,048 pursuant to this Distribution
Plan.
The Fund also has adopted a Distribution Plan pursuant to Rule 12b-1 under the
1940 Act applicable to its Class B, Class C and Class T shares. Under this plan,
the Fund pays DSC a fee for distributing its Class B and C shares at the annual
rate of 0.75% of the value of the average daily net assets of its Class B and C
shares, respectively, and pays DSC a fee for distributing its Class T shares at
the annual rate of 0.25% of the average daily net assets of its Class T shares.
In addition, the Fund has adopted a Shareholder Services Plan applicable to its
Class A, Class B, Class C and Class T shares. Under the Shareholder Services
Plan, Class A, Class B, Class C and Class T shares pay DSC an annual fee of
0.25% of the value of their average daily net assets for the provision of
certain services.
Distribution and shareholder servicing fees paid to DSC by the Fund's Class A,
B, C and T shares for the six months ended June 30, 2005, were as follows:
<Table>
<Caption>
DISTRIBUTION SHAREHOLDER
FEES SERVICING FEES
--------------------------------------------------------------
Class A N/A $ 1,479
Class B $ 6,808 $ 2,269
Class C $ 5,368 $ 1,789
Class T $ 21 $ 21
</Table>
During the six months ended June 30, 2005, DSC retained $1,012 in sales
commissions from the sales of Class A shares. DSC also retained $3,013 and $1 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 in writing
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 contractually agreed in writing 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
---------------------------------------------------------------
9/1/04 to 8/31/05 $ 200,000
9/1/05 to 8/31/06 $ 200,000
</Table>
The fee waiver is allocated among the Funds in proportion to their respective
shares of the total custodian fee. For the six months ended June 30, 2005, the
Fund's portion of the fee waiver was $3,930, which reduced the amount paid to
Mellon Bank to $2,240.
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.
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
32
<Page>
income and thereby reduce future ordinary income distributions. 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
June 30, 2005 are noted below. Unrealized appreciation/depreciation in the table
below excludes appreciation/depreciation on foreign currency translation, if
any. The primary difference between book and tax appreciation or depreciation is
wash sale loss deferrals.
<Table>
Post-October Capital Loss Deferral $ 1,658,174
Undistributed Ordinary Income $ 438,872
Federal Tax Cost $ 215,587,769
Gross Tax Appreciation of Investments $ 13,239,381
Gross Tax Depreciation of Investments $ (7,479,997)
Net Tax Appreciation $ 5,759,384
</Table>
4. CAPITAL SHARE TRANSACTIONS
The Fund is authorized to issue 750 million shares of $0.01 par value capital
stock. Transactions in shares of the Fund for the periods indicated were as
follows:
<Table>
<Caption>
SIX MONTHS ENDED YEAR ENDED
6/30/2005 12/31/2004
SHARES AMOUNT SHARES AMOUNT
CLASS A
Sold 75,762 $ 357,669 167,335 $ 765,894
Dividends or Distributions Reinvested 0 $ 0 404 $ 1,961
Redeemed (57,865) $ (274,506) (133,430) $ (593,422)
----------------------------------------------------------
Net Increase 17,897 $ 83,163 34,309 $ 174,433
==========================================================
CLASS B
Sold 8,754 $ 39,524 215,457 $ 939,503
Redeemed (80,169) $ (370,110) (159,027) $ (702,033)
----------------------------------------------------------
Net Increase (Decrease) (71,415) $ (330,586) 56,430 $ 237,470
==========================================================
</Table>
33
<Page>
<Table>
<Caption>
SIX MONTHS ENDED YEAR ENDED
6/30/2005 12/31/2004
SHARES AMOUNT SHARES AMOUNT
CLASS C
Sold 293,918 $ 1,331,214 63,935 $ 278,992
Redeemed (27,625) $ (125,486) (24,034) $ (105,626)
-------------------------------------------------------------
Net Increase 266,293 $ 1,205,728 39,901 $ 173,366
=============================================================
CLASS F
Sold 376,500 $ 1,808,532 1,109,016 $ 5,075,748
Dividends or Distributions Reinvested 0 $ 0 165,648 $ 819,960
Redeemed (3,365,625) $ (16,243,531) (5,197,897) $ (24,012,080)
-------------------------------------------------------------
Net Decrease (2,989,125) $ (14,434,999) (3,923,233) $ (18,116,372)
=============================================================
CLASS R
Sold 3,418 $ 16,401 36,325 $ 170,596
Dividends or Distributions Reinvested 0 $ 0 223 $ 1,096
Redeemed (2,195) $ (10,325) (32,838) $ (141,937)
-------------------------------------------------------------
Net Increase 1,223 $ 6,076 3,710 $ 29,755
=============================================================
CLASS T
Sold 0 $ 0 14 $ 65
Redeemed (6,632) $ (30,229) (14) $ (65)
-------------------------------------------------------------
Net Decrease (6,632) $ (30,229) 0 $ 0
=============================================================
</Table>
5. INVESTMENT TRANSACTIONS
For the six months ended June 30, 2005, purchases and sales of investment
securities (excluding short-term securities and U.S. government obligations)
were $136,246,320 and $152,600,440, 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 June 30, 2005, the Fund did not have any borrowings under the LOC.
34
<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.
35
<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, 2005, 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. 8/05
A-636-EQG-05
<Page>
SEMIANNUAL REPORT
[GRAPHIC]
DREYFUS FOUNDERS
GOVERNMENT SECURITIES
FUND
DREYFUS FOUNDERS
MONEY MARKET FUND
INVESTMENT UPDATE
JUNE 30, 2005
[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* 13
Statements of Assets and Liabilities 16
Statements of Operations 17
Statements of Changes in Net Assets 18
Government Securities Fund Financial Highlights 19
Money Market Fund Financial Highlights 20
Notes to Financial Statements 21
</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 financial report are available, we'll send you an e-mail
notification containing a convenient link that will take you directly to that
Fund information on our website.
To take advantage of this service, simply inform us online of your decision
to receive materials through the Founders E-Communications Program. Cut down on
mailbox clutter and help the Funds reduce printing and postage charges by
enrolling today at www.founders.com/ecommunications. If you own Funds through a
third party, enroll at www.icsdelivery.com.
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 June
30, 2005, but does not include a discussion of that Fund's 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 June 30, 2005 are included in the Statements of
Investments.
NOT FDIC-INSURED - NOT BANK-GUARANTEED - MAY LOSE VALUE
<Page>
GOVERNMENT SECURITIES FUND
MANAGEMENT OVERVIEW
[PHOTO OF MARGARET DANUSER]
A DISCUSSION WITH PORTFOLIO MANAGER MARGARET DANUSER, REGARDING FUND PERFORMANCE
FOR THE SIX-MONTH PERIOD ENDED JUNE 30, 2005.
For the six-month period ended June 30, 2005, Dreyfus Founders Government
Securities Fund returned 1.70%. Although a gain, the Fund underperformed its
benchmark, the Lehman Brothers U.S. Government Composite Index, which returned
2.93% for the same period.
A FLATTENING YIELD CURVE
Bonds had a negative first quarter, with Treasury yields rising except in the
very long end of the yield curve. Yields crept higher mainly because of
increasing oil prices, fears that the Federal Reserve would be more aggressive
to effectively contain inflation, as well as wider credit spreads due to some
high-profile corporate bond issuers experiencing rating downgrades. These
factors led investors to become more risk-averse in the first few months of the
year.
The second quarter, however, saw a bond market reversal as Treasuries led the
market higher in spite of two 25 basis point increases in the federal funds
rate. The yield curve experienced a flattening: the 2-year to 10-year curve
flattened to 28 basis points at the end of the second quarter from 71 basis
points on March 31.(1) (To illustrate the flatness of the yield curve at the end
of the second quarter, since 1976, the average 2-year to 10-year yield spread
has been 76 basis points.(2))
- ----------
(1) Bloomberg, end-of-day yield history for March 31, 2005 and June 30, 2005.
(2) Merrill Lynch, "Market Economist," June 25, 2005.
[SIDENOTE]
"THE FUND SOLD SOME POSITIONS IN THE PORTFOLIO THROUGHOUT THE PERIOD WITH THE
BELIEF THAT THESE POSITIONS WERE FULLY PRICED WITH THE MARKET RALLY."
3
<Page>
GROWTH OF $10,000 INVESTMENT
PERFORMANCE DATA QUOTED REPRESENTS PAST PERFORMANCE. PAST PERFORMANCE DOES NOT
GUARANTEE FUTURE RESULTS. INVESTMENT RETURN AND PRINCIPAL VALUE OF AN INVESTMENT
WILL FLUCTUATE SO THAT AN INVESTOR'S SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR
LESS THAN THEIR ORIGINAL COST. CURRENT PERFORMANCE MAY BE LOWER OR HIGHER THAN
THE PERFORMANCE DATA QUOTED. PLEASE CALL 1-800-525-2440 TO OBTAIN THE MOST
RECENT MONTH-END PERFORMANCE DATA.
[CHART]
Dreyfus Founders
Government Securities Lehman Brothers U.S.
Fund Class F Shares Gov't Comp. Index
06/30/1995 $10,000.00 $10,000.00
06/28/1996 $10,292.01 $10,268.22
06/30/1997 $10,883.22 $10,594.28
06/30/1998 $11,967.47 $11,154.04
06/30/1999 $12,243.05 $11,710.65
06/30/2000 $12,545.31 $12,214.56
06/29/2001 $13,753.93 $12,790.96
06/28/2002 $14,860.00 $13,296.65
06/30/2003 $16,419.18 $14,039.51
06/30/2004 $16,139.76 $15,791.41
06/30/2005 $16,913.15 $16,968.28
The above graph compares a $10,000 investment made in Class F shares of Dreyfus
Founders Government Securities Fund on 6/30/95 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's performance in the graph takes into
account all applicable Class F fees and expenses, subject to applicable fee
waivers.
The Lehman Brothers U.S. Government Composite Index reflects the performance of
public obligations of the U.S. Treasury with a remaining maturity of one year or
more and publicly issued debt of U.S. Government agencies and quasi-federal
corporations. The total return figures cited for this index do not reflect the
costs of managing a mutual fund. Further information related to Fund performance
is contained elsewhere in this report.
4
<Page>
AVERAGE ANNUAL AND YEAR-TO DATE TOTAL RETURN as of 6/30/05
<Table>
<Caption>
CLASS F SHARES YEAR-TO 1 5 10 SINCE
INCEPTION DATE DATE+ YEAR YEARS YEARS INCEPTION
-----------------------------------------------------------------------------
3/1/88 1.70% 4.79% 6.16% 5.40% 5.88%
</Table>
Average annual and year-to-date total returns do not reflect the deduction of
taxes that a shareholder would pay on Fund distributions or redemption of
Fund shares, but do reflect the reinvestment of dividends and capital gain
distributions, fee waivers, and adjustments for financial statement purposes.
+ Total return is not annualized.
The long end of the bond market, which typically reacts to inflation
expectations, rallied in the belief that the Federal Reserve is anticipatory in
its move to contain inflation. The short-end, which is usually more responsive
to federal rate changes, experienced a lowering, causing overall gains and a
flatter yield curve.
THE FEDERAL RESERVE'S ACTIONS
The period saw the Federal Reserve succeed in appearing more transparent to the
markets through rapid releases of meeting minutes and consistent policy
announcements. The federal funds rate was raised to 3.25% at the end of June
2005, up from 1.00% in the second quarter of 2004. A rise in short-term interest
rates and the subsequent drop in long-term bond yields led many bond market
analysts to anticipate an inverted yield curve, which often presages economic
slowdown.
TREASURIES AND LONGER-DATED SECURITIES BOOST RETURN
Overall, Fund performance for the period was driven by its positioning in
Treasuries and in securities with longer-dated maturities. In the first quarter
of the year, overweight Treasury and Agency weightings, limited mortgage
exposure and a large cash position drove the Fund's performance. In the second
quarter of the year, the Fund held 25.4% of assets in Treasuries, a sector that
performed well. The Fund also held over 21% of assets in securities with
maturities seven years or longer. This maturity sector beat its shorter
counterparts, returning 7.14% for the second quarter.
5
<Page>
[CHART]
PORTFOLIO COMPOSITION OF NET ASSETS
<Table>
Government Sponsored Enterprises 49.50%
Treasuries 25.40%
Domestic Mortgage 6.50%
Foreign Government 4.90%
Domestic Corporate 3.20%
Cash 10.50%
</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.
CASH HAMPERS PERFORMANCE
The Fund sold some positions in the portfolio throughout the period with the
belief that these positions were fully priced with the market rally. Most
sectors appeared to be fully valued, causing the Fund to accumulate cash.
Although a larger cash position acted as a buffer in the bond sell-off of the
first three months of the year, this higher cash position was a drag on
performance as bonds rallied in the second quarter.
In the first quarter, the Fund's holdings in intermediate and longer-dated
securities hurt performance as these sectors experienced sharper price drops
than shorter-dated holdings. Alternately, shorter-dated securities hindered
performance during the second quarter. This was due to the aforementioned
flattening yield curve, with the short end selling off to keep up with the
rising federal funds rate, while the long end of the curve rallied with
confidence that the Federal Reserve would keep a "measured pace" of increases in
an attempt to contain inflation.
6
<Page>
IN CONCLUSION
The flatness of the yield curve, as existed at the end of the period, has
historically indicated a pause or slowdown in economic activity. We will
continue to monitor indications that the Federal Reserve may be nearing the end
of its tightening cycle. Additionally, the markets are nearing the typical
18-month lag effect on the economy from the onset of the first Federal Reserve
tightening in June 2004. Because of this, we will also monitor the data for
indications of the health of the economy.
/s/ Margaret Danuser
Margaret Danuser
Portfolio Manager
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 January 1, 2005
and held through June 30, 2005.
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 FOR COMPARISON PURPOSES 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*
(1/1/05) (6/30/05) (1/1/05-6/30/05)
- --------------------------------------------------------------------------------
ACTUAL $ 1,000.00 $ 1,012.09 $ 4.90
HYPOTHETICAL 1,000.00 1,019.87 4.92
</Table>
*Expenses are equal to the Fund's annualized expense ratio of 0.98%, multiplied
by the average account value over the period, multiplied by 181/365 (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, earnings
credits and brokerage offsets, where applicable.
MONEY MARKET FUND EXPENSE EXAMPLE
<Table>
<Caption>
BEGINNING ENDING EXPENSES PAID
ACCOUNT VALUE ACCOUNT VALUE DURING PERIOD*
(1/1/05) (6/30/05) (1/1/05-6/30/05)
- --------------------------------------------------------------------------------
ACTUAL $ 1,000.00 $ 1,003.57 $ 5.03
HYPOTHETICAL 1,000.00 1,019.72 5.07
</Table>
*Expenses are equal to the Fund's annualized expense ratio of 1.01%, multiplied
by the average account value over the period, multiplied by 181/365 (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, earnings
credits and brokerage offsets, where applicable.
9
<Page>
GOVERNMENT SECURITIES FUND
STATEMENT OF INVESTMENTS
June 30, 2005 (UNAUDITED)
<Table>
<Caption>
PRINCIPAL AMOUNT MARKET VALUE
- --------------------------------------------------------------------------------
U.S. GOVERNMENT OBLIGATIONS--78.3%
AGENCY PASS THROUGH--2.8%
$ 270,976 U.S. Small Business Administration Series 10-A
6.64% 2/1/11 $ 286,939
------------
GOVERNMENT SPONSORED ENTERPRISES--46.6%
225,000 Federal Agricultural Mortgage Corporation
6.865% 8/10/09 249,557
Federal Farm Credit Bank:
300,000 4.70% 12/10/14 309,300
285,000 5.35% 6/16/14 307,777
Federal Home Loan Bank:
200,000 4.50% 11/15/12 204,430
495,000 5.625% 2/15/08 516,503
Federal Home Loan Mortgage Corporation:
200,000 4.50% 1/15/15 203,686
400,000 5.625% 3/15/11 431,880
Federal National Mortgage Association:
300,000 6.625% 10/15/07 318,096
250,000 7.125% 6/15/10 284,720
Federal National Mortgage Association Discount Note:
200,000 3.16% 8/17/05 199,149
200,000 3.332% 11/10/05 197,492
100,000 Sallie Mae 7.35% 8/1/10 115,088
Tennessee Valley Authority:
500,000 4.75% 8/1/13 520,935
500,000 5.375% 11/13/08 522,495
350,000 7.125% 5/1/30 480,015
------------
4,861,123
------------
MORTGAGE-BACKED SECURITIES: FHLMC/FNMA/SPONSORED--1.1%
19,582 Federal Home Loan Mortgage Corporation
7.50% 11/1/29 Pool #C32819 20,980
Federal National Mortgage Association:
24,632 6.50% 10/1/31 Pool #596063 25,551
69,840 7.00% 3/1/12 Pool #373543 73,199
------------
119,730
------------
MORTGAGE-BACKED SECURITIES: GNMA/GUARANTEED--2.5%
Government National Mortgage Association:
155,338 6.00% 1/15/33 Pool #563709 160,351
99,426 6.50% 5/15/26 Pool #417388 104,181
------------
264,532
------------
U.S. TREASURY NOTES--25.3%
U.S. Treasury Inflation Index Note:
246,533 3.375% 1/15/12 275,357
447,140 3.50% 1/15/11 495,684
</Table>
10
<Page>
<Table>
<Caption>
PRINCIPAL AMOUNT MARKET VALUE
- --------------------------------------------------------------------------------
U.S. Treasury Note:
$ 200,000 4.25% 8/15/14 $ 204,782
400,000 6.00% 8/15/09 434,608
500,000 6.25% 2/15/07 520,860
500,000 6.50% 8/15/05 502,030
200,000 7.00% 7/15/06 206,930
------------
2,640,251
------------
TOTAL U.S. GOVERNMENT OBLIGATIONS
(COST--$7,884,245) 8,172,575
------------
GOVERNMENT BONDS (FOREIGN)--4.9%
CAD 305,000 Province of Quebec
6.50% 12/1/05 (CA) 252,783
CAD 305,000 Province of Saskatchewan
6.00% 6/1/06 (CA) 256,186
------------
508,969
------------
TOTAL GOVERNMENT BONDS (FOREIGN)
(COST--$404,678) 508,969
------------
CORPORATE BONDS (DOMESTIC)--3.2%
DIVERSIFIED COMMERCIAL & PROFESSIONAL SERVICES--3.2%
$ 300,000 Stanford University
6.16% 4/30/11 328,640
------------
TOTAL CORPORATE BONDS (DOMESTIC)
(COST--$299,999) 328,640
------------
<Caption>
PRINCIPAL AMOUNT AMORTIZED COST
- --------------------------------------------------------------------------------
CORPORATE SHORT-TERM NOTES--4.8%
ELECTRONIC EQUIPMENT MANUFACTURERS--4.8%
$ 500,000 Hitachi America Capital Limited
3.25% 7/1/05~ $ 500,000
------------
TOTAL CORPORATE SHORT-TERM NOTES
(COST--$500,000) 500,000
------------
</Table>
SEE NOTES TO STATEMENT OF INVESTMENTS.
11
<Page>
<Table>
<Caption>
PRINCIPAL AMOUNT AMORTIZED COST
- --------------------------------------------------------------------------------
U.S. AGENCY DISCOUNT NOTES--6.7%
$ 300,000 Federal Home Loan Bank
3.15% 8/8/05 $ 299,003
400,000 Federal Home Loan Mortgage Corporation
3.09% 7/6/05 399,828
------------
698,831
------------
TOTAL U.S. AGENCY DISCOUNT NOTES
(COST--$698,831) 698,831
------------
TOTAL INVESTMENTS--97.9%
(TOTAL COST--$9,787,753) 10,209,015
------------
OTHER ASSETS AND LIABILITIES--2.1% 221,615
------------
NET ASSETS--100.0% $ 10,430,630
============
</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
$500,000, OR 4.8%, OF THE FUND'S NET ASSETS AS OF JUNE 30, 2005.
CA - CANADA
SEE NOTES TO FINANCIAL STATEMENTS.
12
<Page>
MONEY MARKET FUND
STATEMENT OF INVESTMENTS
June 30, 2005 (UNAUDITED)
<Table>
<Caption>
PRINCIPAL AMOUNT AMORTIZED COST
- --------------------------------------------------------------------------------
U.S. AGENCY DISCOUNT NOTES--1.8%
$ 600,000 Federal Farm Credit Bank Discount Note
3.44% 3/17/06 $ 585,150
------------
TOTAL U.S. AGENCY DISCOUNT NOTES
(COST--$585,150) 585,150
------------
CORPORATE SHORT-TERM NOTES--97.7%
AGRICULTURAL PRODUCTS--4.2%
1,370,000 Golden Peanut Company LLC
3.07% 7/5/05 1,369,533
------------
AUTOMOBILE MANUFACTURERS--3.0%
1,000,000 Toyota Motor Credit Corporation
3.17% 7/15/05 998,767
------------
CONSTRUCTION, FARM MACHINERY & HEAVY TRUCKS--4.6%
1,500,000 Paccar Financial Corporation
3.08% 7/13/05 1,498,460
------------
CONSUMER ELECTRONICS--4.2%
1,400,000 Sharp Electronics Corporation
3.25% 8/1/05 1,396,082
------------
DIVERSIFIED BANKS--3.6%
1,200,000 HSBC Finance Corporation
3.05% 7/6/05 1,199,492
------------
DIVERSIFIED CHEMICALS--3.3%
1,100,000 E.I. du Pont de Nemours and Company
3.13% 7/21/05 1,098,087
------------
ELECTRICAL COMPONENTS & EQUIPMENT--4.9%
Emerson Electric Company:
900,000 2.98% 7/1/05~ 900,000
700,000 3.12% 7/12/05~ 699,324
------------
1,599,324
------------
ELECTRONIC EQUIPMENT MANUFACTURERS--1.5%
500,000 Hitachi America Capital Limited
3.20% 7/1/05~ 500,000
------------
GENERAL MERCHANDISE STORES--4.2%
1,400,000 Wal-Mart Stores, Inc.
3.23% 8/30/05~ 1,392,463
------------
HOUSEHOLD APPLIANCES--4.6%
1,500,000 Stanley Works, Inc.
3.07% 7/11/05~ 1,498,721
------------
HOUSEHOLD PRODUCTS--3.0%
1,000,000 Procter & Gamble Company
3.07% 7/19/05~ 998,465
------------
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
13
<Page>
<Table>
<Caption>
PRINCIPAL AMOUNT AMORTIZED COST
- --------------------------------------------------------------------------------
INDUSTRIAL CONGLOMERATES--4.8%
General Electric Capital Corporation:
$ 500,000 3.06% 7/11/05 $ 499,575
1,100,000 3.25% 9/22/05 1,091,758
------------
1,591,333
------------
MULTI-LINE INSURANCE--8.4%
1,400,000 AIG Funding, Inc.
3.25% 7/22/05 1,397,346
1,400,000 American Family Financial Services
3.20% 9/12/05 1,390,915
------------
2,788,261
------------
OTHER DIVERSIFIED FINANCIAL SERVICES--11.8%
1,400,000 Merrill Lynch & Company
3.08% 7/7/05 1,399,281
1,400,000 Morgan Stanley
3.22% 8/22/05 1,393,488
1,100,000 National Rural Utilities Cooperative Finance
3.13% 7/14/05 1,098,757
------------
3,891,526
------------
PACKAGED FOODS & MEATS--3.9%
1,300,000 Hershey Foods Corporation
3.06% 7/20/05~ 1,297,901
------------
PHARMACEUTICALS--3.6%
1,200,000 Novartis Finance Corporation
3.14% 7/8/05~ 1,199,267
------------
PROPERTY & CASUALTY INSURANCE--4.2%
1,400,000 General RE Corporation
3.03% 7/18/05 1,397,997
------------
PUBLISHING--2.4%
800,000 Gannett Company
3.11% 7/12/05~ 799,240
------------
SOFT DRINKS--4.2%
1,400,000 Pepsico, Inc.
3.17% 7/25/05~ 1,397,041
------------
SPECIAL PURPOSE ENTITY--13.3%
1,400,000 CAFCO LLC
3.26% 9/8/05~ 1,391,252
1,600,000 Ciesco LLC
3.18% 7/26/05~ 1,596,467
</Table>
14
<Page>
<Table>
<Caption>
PRINCIPAL AMOUNT AMORTIZED COST
- --------------------------------------------------------------------------------
$ 1,400,000 MetLife Funding, Inc.
3.31% 8/23/05 $ 1,393,178
------------
4,380,897
------------
TOTAL CORPORATE SHORT-TERM NOTES
(AMORTIZED COST--$32,292,857) 32,292,857
------------
TOTAL INVESTMENTS--99.5%
(TOTAL COST--$32,878,007) 32,878,007
------------
OTHER ASSETS AND LIABILITIES--0.5% 153,444
------------
NET ASSETS--100.0% $ 33,031,451
============
</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
$13,670,141, OR 41.4%, OF THE FUND'S NET ASSETS AS OF JUNE 30, 2005.
<Table>
<Caption>
CATEGORY VALUE (%)
- --------------------------------------------------------------------------------
U.S. Agency Discount Notes 1.80%
Corporate Short-Term Notes 97.70%
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
15
<Page>
STATEMENTS OF ASSETS AND LIABILITIES
June 30, 2005 (UNAUDITED)
<Table>
<Caption>
GOVERNMENT MONEY
SECURITIES FUND MARKET FUND
ASSETS
Investment securities, at cost $ 9,787,753 $ 32,878,007
--------------- ---------------
Investment securities, at market 10,209,015 32,878,007
Cash 116,974 90,428
Receivables:
Capital shares sold 250 162,621
Dividends and interest 119,439 0
Directors deferred compensation 95,962 51,830
--------------- ---------------
Total Assets 10,541,640 33,182,886
--------------- ---------------
LIABILITIES
Payables and other accrued liabilites:
Capital shares redeemed 588 69,599
Advisory fees 2,885 12,324
Shareholder servicing fees 1,295 5,392
Accounting fees 256 779
Distribution fees 196 0
Transfer agency fees 37 1,915
Custodian fees 42 326
Directors deferred compensation 95,962 51,830
Other 8,154 8,953
Dividends 1,595 317
--------------- ---------------
Total Liabilities 111,010 151,435
--------------- ---------------
Net Assets $ 10,430,630 $ 33,031,451
=============== ===============
COMPOSITION OF NET ASSETS
Capital (par value and paid-in surplus) $ 10,154,274 $ 33,029,560
Undistributed net investment income 4,005 21,324
Accumulated net realized loss from security transactions (148,945) (19,433)
Net unrealized appreciation on investments
and foreign currency translation 421,296 0
--------------- ---------------
Total $ 10,430,630 $ 33,031,451
=============== ===============
CLASS F
Net Assets $ 10,430,630 $ 33,031,451
Shares Outstanding 1,048,558 33,031,451
Net Asset Value, Offering and Redemption Price Per Share $ 9.95 $ 1.00
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
16
<Page>
STATEMENTS OF OPERATIONS
For the six months ended June 30, 2005 (UNAUDITED)
<Table>
<Caption>
GOVERNMENT MONEY
SECURITIES FUND MARKET FUND
INVESTMENT INCOME
Interest $ 234,512 $ 466,454
--------------- ---------------
Total Investment Income 234,512 466,454
--------------- ---------------
EXPENSES
Advisory fees--Note 2 31,829 85,576
Shareholder servicing fees--Note 2 9,098 31,519
Accounting fees--Note 2 1,541 5,315
Distribution fees--Note 2 12,242 0
Transfer agency fees--Note 2 3,655 11,985
Registration fees 7,582 10,473
Postage and mailing expenses 256 4,718
Custodian fees and expenses--Note 2 1,013 1,163
Printing expenses 2,401 13,995
Legal and audit fees 1,490 6,288
Directors' fees and expenses--Note 2 1,220 3,605
Other expenses 2,473 8,003
--------------- ---------------
Total Expenses 74,800 182,640
Earnings Credits (880) (1,086)
Reimbursed/Waived Expenses (26,113) (9,207)
--------------- ---------------
Net Expenses 47,807 172,347
--------------- ---------------
Net Investment Income 186,705 294,107
--------------- ---------------
REALIZED AND UNREALIZED LOSS ON SECURITY
TRANSACTIONS AND FOREIGN CURRENCY TRANSACATIONS
Net Realized Loss on:
Security Transactions (14,778) 0
Foreign Currency Transactions (103) 0
--------------- ---------------
Net Realized Loss (14,881) 0
Net Change in Unrealized Appreciation/Depreciation
of Investments and Foreign Currency Translation (10,377) 0
--------------- ---------------
Net Realized and Unrealized Loss (25,258) 0
--------------- ---------------
Net Increase in Net Assets Resulting from Operations $ 161,447 $ 294,107
=============== ===============
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
17
<Page>
STATEMENTS OF CHANGES IN NET ASSETS
(UNAUDITED)
<Table>
<Caption>
GOVERNMENT MONEY
SECURITIES FUND MARKET FUND
------------------------------ -----------------------------
SIX MONTHS SIX MONTHS
ENDED YEAR ENDED ENDED YEAR ENDED
6/30/05 12/31/04 6/30/05 12/31/04
OPERATIONS
Net Investment Income $ 186,705 $ 386,716 $ 294,107 $ 193,011
Net Realized Gain (Loss) on Security and Foreign
Currency Transactions (14,881) 75,280 0 0
Net Change in Unrealized Appreciation/Depreciation
of Investments and Foreign Currency Translation (10,377) (144,437) 0 0
------------- ------------- ------------- -------------
Net Increase in Net Assets Resulting from
Operations 161,447 317,559 294,107 193,011
------------- ------------- ------------- -------------
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS
From Net Investment Income Class F (186,705) (386,716) (294,107) (193,011)
------------- ------------- ------------- -------------
Net Decrease from Dividends and Distributions (186,705) (386,716) (294,107) (193,011)
------------- ------------- ------------- -------------
CAPITAL SHARE TRANSACTIONS
Net Increase (Decrease) from Capital Share
Transactions--Note 4 Class F 319,571 (2,603,251) (3,026,260) (9,036,232)
------------- ------------- ------------- -------------
Net Increase (Decrease) in Net Assets 294,313 (2,672,408) (3,026,260) (9,036,232)
------------- ------------- ------------- -------------
NET ASSETS
Beginning of period $ 10,136,317 $ 12,808,725 $ 36,057,711 $ 45,093,943
------------- ------------- ------------- -------------
End of period $ 10,430,630 $ 10,136,317 $ 33,031,451 $ 36,057,711
============= ============= ============= =============
Undistributed Net Investment Income $ 4,005 $ 4,005 $ 21,324 $ 21,324
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
18
<Page>
GOVERNMENT SECURITIES FUND
FINANCIAL HIGHLIGHTS
(UNAUDITED)
<Table>
<Caption>
SIX MONTHS YEAR ENDED
ENDED JUNE 30, DECEMBER 31,
2005 2004 2003 2002 2001
---------- -------------------------------------------------------
CLASS F SHARES
PER SHARE OPERATING DATA
Net Asset Value, beginning of period $ 9.97 $ 10.04 $ 10.18 $ 9.55 $ 9.41
- ----------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.19 0.35 0.34 0.38 0.45
Net realized and unrealized gains
(losses) on securities (0.02) (0.07) (0.14) 0.63 0.14
----------------------------------------------------------------------
Total from investment operations 0.17 0.28 0.20 1.01 0.59
- ----------------------------------------------------------------------------------------------------------------------
Less dividends and distributions:
From net investment income (0.19) (0.35) (0.34) (0.38) (0.45)
From net realized gains 0.00 0.00 0.00 0.00 0.00
----------------------------------------------------------------------
Total distributions (0.19) (0.35) (0.34) (0.38) (0.45)
- ----------------------------------------------------------------------------------------------------------------------
Net Asset Value, end of period $ 9.95 $ 9.97 $ 10.04 $ 10.18 $ 9.55
======================================================================
TOTAL RETURN 1.70% 2.83% 2.03% 10.86% 6.37%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000s) $ 10,431 $ 10,136 $ 12,809 $ 15,318 $ 11,967
- ----------------------------------------------------------------------------------------------------------------------
Ratios to average net assets(a):
Expenses with reimbursements, but no
earnings credits or brokerage offsets(b) 1.00% 0.89% 0.95% 0.93% 1.00%
Expenses with reimbursements,
earnings credits and brokerage offsets 0.98% 0.88% 0.94% 0.92% 0.98%
Net investment income 3.81% 3.47% 3.36% 3.90% 4.67%
- ----------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate(c) 22% 13% 52% 28% 73%
</Table>
(a). ANNUALIZED.
(b). CERTAIN FEES WERE WAIVED BY THE MANAGEMENT COMPANY OR ITS AFFILIATES. HAD
THESE FEES NOT BEEN WAIVED, THE EXPENSE RATIOS WOULD HAVE BEEN 1.53%
(2005), 1.45% (2004), 1.50% (2003), 1.48% (2002), AND 1.50% (2001).
(c). PORTFOLIO TURNOVER RATE IS A MEASURE OF PORTFOLIO ACTIVITY THAT IS
CALCULATED BY DIVIDING THE LESSER OF PURCHASES OR SALES OF SECURITIES,
EXCLUDING SECURITIES HAVING MATURITY DATES AT ACQUISITION OF ONE YEAR OR
LESS, BY THE AVERAGE VALUE OF THE PORTFOLIO SECURITIES HELD DURING THE
PERIOD, WHICH IS A ROLLING 12-MONTH PERIOD.
SEE NOTES TO FINANCIAL STATEMENTS.
19
<Page>
MONEY MARKET FUND
FINANCIAL HIGHLIGHTS
(UNAUDITED)
<Table>
<Caption>
SIX MONTHS YEAR ENDED
ENDED JUNE 30, DECEMBER 31,
2005 2004 2003 2002 2001
---------- ---------------------------------------------------------------
CLASS F SHARES
PER SHARE OPERATING DATA
Net Asset Value, beginning of period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
- ------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.01 0.00(a),(b) 0.00(a),(b) 0.01 0.03
Net realized and unrealized gains
(losses) on securities 0.00 0.00 0.00 0.00 0.00
------------------------------------------------------------------------------
Total from investment operations 0.01 0.00 0.00 0.01 0.03
- ------------------------------------------------------------------------------------------------------------------------------
Less dividends and distributions:
From net investment income (0.01) 0.00(c) 0.00(c) (0.01) (0.03)
From net realized gains 0.00 0.00 0.00 0.00 0.00
------------------------------------------------------------------------------
Total distributions (0.01) 0.00 0.00 (0.01) (0.03)
- ------------------------------------------------------------------------------------------------------------------------------
Net Asset Value, end of period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
==============================================================================
TOTAL RETURN 0.86% 0.50% 0.34% 0.98% 3.40%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000s) $ 33,031 $ 36,058 $ 45,094 $ 60,086 $ 75,928
- ------------------------------------------------------------------------------------------------------------------------------
Ratios to average net assets(d):
Expenses with reimbursements, but no
earnings credits or brokerage offsets(e) 1.02% 0.88% 0.83% 0.80% 0.79%
Expenses with reimbursements,
earnings credits and brokerage offsets 1.01% 0.87% 0.83% 0.80% 0.79%
Net investment income 1.72% 0.48% 0.35% 0.98% 3.38%
- ------------------------------------------------------------------------------------------------------------------------------
</Table>
(a). COMPUTED USING AVERAGE SHARES OUTSTANDING THROUGHOUT THE YEAR.
(b). NET INVESTMENT INCOME FOR THE YEARS ENDED DECEMBER 31, 2004 AND 2003
AGGREGATED LESS THAN $0.01 ON A PER SHARE BASIS.
(c). DISTRIBUTIONS FROM NET INVESTMENT INCOME FOR THE YEARS ENDED DECEMBER 31,
2004 AND 2003 AGGREGATED LESS THAN $0.01 ON A PER SHARE BASIS.
(d). ANNUALIZED.
(e). CERTAIN FEES WERE WAIVED BY THE MANAGEMENT COMPANY OR ITS AFFILIATES. HAD
THESE FEES NOT BEEN WAIVED, THE EXPENSE RATIOS WOULD HAVE BEEN 1.07%
(2005), 0.96% (2004), 0.91% (2003), 0.87% (2002), AND 0.84% (2001).
SEE NOTES TO FINANCIAL STATEMENTS.
20
<Page>
NOTES TO FINANCIAL STATEMENTS
June 30, 2005 (UNAUDITED)
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
Dreyfus Founders Funds, Inc. (the "Company") is an open-end management
investment company registered under the Investment Company Act of 1940 (the
"1940 Act"). Ten series of shares are currently issued: Balanced, Discovery,
Equity Growth, 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. In addition, it is possible
that the fair value determined for a security may be different from the value
that may be realized upon the security's sale, and that these differences may be
material to the net asset value of the Fund.
Since February 22, 2005, New York closing exchange rates have been used to
convert foreign currencies to U.S. dollars. Previously, London closing exchange
rates were used to convert foreign currencies to U.S. dollars.
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.
21
<Page>
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 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 distributed
monthly from net investment income, and capital gains (if any) are distributed
annually.
22
<Page>
Dividends and distributions, which are determined in accordance with income tax
regulations, are recorded on the ex-dividend date.
EXPENSES--Each Fund bears expenses incurred specifically on its behalf and, in
addition, each Fund bears a portion of the Company's general expenses based on
the relative net assets or the number of shareholder accounts of each Fund. The
type of expense determines the allocation method.
USE OF ESTIMATES--The preparation of financial statements in conformity with
accounting principles generally accepted in the United States of America
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported amounts of
income and expenses during the reporting period. Actual results could differ
from those estimates.
INDEMNIFICATIONS--In the normal course of business, the Company enters into
contracts that contain provisions indemnifying other parties against specific
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 period 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 in writing 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 in writing 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
23
<Page>
be terminated without prior notice to the Company's board of directors. During
the six months ended June 30, 2005, Founders waived $14,690 and $8,558 for
Government Securities Fund and Money Market Fund, respectively.
SHAREHOLDER SERVICING AND TRANSFER AGENCY FEES--The Company has a shareholder
services agreement with Dreyfus Service Corporation ("DSC"), the direct owner of
Founders and a wholly-owned subsidiary of The Dreyfus Corporation ("Dreyfus", an
affiliate of Founders), whereby the Funds have agreed to compensate DSC for
providing certain shareholder servicing functions to holders of Class F shares.
Each Fund paid DSC a monthly fee equal, on an annual basis, to $24.00 per
Class F shareholder account of the Fund considered to be an open account at any
time during a given month. During the six months ended June 30, 2005, Government
Securities Fund and Money Market Fund were charged $9,098 and $31,519,
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 six months
ended June 30, 2005, Government Securities Fund and Money Market Fund were
charged $3,410 and $11,985, respectively, for out-of-pocket transfer agent
charges.
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 six months ended June 30, 2005, Government Securities Fund and Money
Market Fund were charged $123 and $436, respectively, for cash management fees,
which are included in the out-of-pocket transfer agency charges above.
OTHER TRANSFER AGENCY FEES--Various broker-dealers, retirement plan
administrators and other 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 six months ended
June 30, 2005, Government Securities Fund and Money Market Fund paid $245 and
$0, respectively, to these entities for such services. These amounts are
included in the transfer agency fees shown on the Statement of Operations.
DISTRIBUTION PLAN--DSC also is the distributor of the Funds' shares. Government
Securities Fund has adopted a Distribution Plan pursuant to Rule 12b-1 under the
1940 Act applicable to its Class F shares. Under the plan, Government Securities
Fund is authorized to reimburse DSC for expenses paid for distributing or
servicing its Class F shares at an annual rate of up to 0.25% of the value of
the average daily net assets of the Fund's Class F shares. During the six months
ended June 30, 2005, $11,206 in expenses eligible for reimbursement under the
plan were absorbed by Founders, which resulted in the Fund paying 0.01% 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 written contractual commitment will not be terminated without
prior notice to the Company's board of directors.
24
<Page>
FUND ACCOUNTING AND ADMINISTRATIVE SERVICES FEES--The Funds have agreed to
compensate Founders for providing accounting services, administration,
compliance monitoring, regulatory and shareholder reporting, as well as related
facilities, equipment and clerical help. The fee for each Fund is its respective
pro rata share (based on the relative average daily net assets of all ten of the
Company's series) of a fee computed at the annual rate of 0.06% of the average
daily net assets of the ten series, taken as a whole, from $0 to $500 million
and 0.02% of the net assets of the ten series, taken as a whole, in excess of
$500 million. The Funds also reimburse Founders for reasonable out-of-pocket
expenses. Founders has contractually agreed in writing 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 contractually agreed in writing 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
-----------------------------------------------------------
9/1/04 to 8/31/05 $ 200,000
9/1/05 to 8/31/06 $ 200,000
</Table>
The fee waiver is allocated among all series funds of the Company in proportion
to their respective shares of the total custodian fee. For the six months ended
June 30, 2005, the fee waivers for Government Securities Fund and Money Market
Fund were $217 and $649, respectively, which reduced the amounts paid to Mellon
Bank to $796 and $514, 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.
25
<Page>
3. FEDERAL TAX INFORMATION
Net investment income and capital gains distributions are determined in
accordance with income tax regulations that may differ from accounting
principles generally accepted in the United States of America. These differences
are due to differing treatments for items such as deferral of wash sale losses,
foreign currency transactions, net operating losses and capital loss carryovers.
The tax components of capital represent distribution requirements the 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. Accumulated capital losses as of
December 31, 2004 were:
GOVERNMENT SECURITIES FUND
<Table>
<Caption>
EXPIRATION AMOUNT
-------------------------------------------------------------------
2008 $ 134,064
</Table>
MONEY MARKET FUND
<Table>
<Caption>
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
June 30, 2005 are noted below. Unrealized appreciation/depreciation in the table
below excludes appreciation/depreciation on foreign currency translation, if
any. 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 $ 9,787,753 $ 32,878,007
Gross Tax Appreciation of Investments $ 459,193 $ 0
Gross Tax Depreciation of Investments $ (37,931) $ 0
Net Tax Appreciation $ 421,262 $ 0
</Table>
26
<Page>
4. CAPITAL SHARE TRANSACTIONS
Government Securities Fund is authorized to issue 100 million shares of $0.01
par value capital stock. Money Market Fund is authorized to issue 2 billion
shares of $0.01 par value capital stock. Transactions in shares of the Funds for
the periods indicated were as follows:
<Table>
<Caption>
SIX MONTHS ENDED YEAR ENDED
6/30/05 12/31/04
SHARES AMOUNT SHARES AMOUNT
GOVERNMENT SECURITIES FUND--CLASS F:
Sold 126,317 $ 1,251,899 129,420 $ 1,294,299
Dividends or Distributions Reinvested 17,789 $ 176,271 36,368 $ 362,947
Redeemed (111,787) $ (1,108,599) (425,657) $ (4,260,497)
-------------------------------------------------------------------
Net Increase (Decrease) 32,319 $ 319,571 (259,869) $ (2,603,251)
===================================================================
MONEY MARKET FUND--CLASS F:
Sold 6,318,217 $ 6,318,217 18,101,032 $ 18,101,032
Dividends or Distributions Reinvested 288,171 $ 288,171 188,293 $ 188,293
Redeemed (9,632,648) $ (9,632,648) (27,325,557) $ (27,325,557)
-------------------------------------------------------------------
Net Decrease (3,026,260) $ (3,026,260) (9,036,232) $ (9,036,232)
===================================================================
</Table>
5. INVESTMENT TRANSACTIONS
Purchases and sales of long-term U.S. government obligations for the six months
ended June 30, 2005 were $1,052,352 and $986,215, 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 June 30, 2005, the Funds did not have any borrowings under the LOC.
27
<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.
28
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29
<Page>
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30
<Page>
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<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, 2005, 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. 8/05
A-636-GMM-05
<Page>
SEMIANNUAL REPORT
[GRAPHIC]
DREYFUS FOUNDERS
GROWTH FUND
INVESTMENT UPDATE
JUNE 30, 2005
[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
</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 financial 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 3-9 were owned by the Fund on June 30, 2005. The amounts of
these holdings are included in the Statement of Investments.
NOT FDIC-INSURED - NOT BANK-GUARANTEED - MAY LOSE VALUE
<Page>
MANAGEMENT OVERVIEW
[PHOTO OF JOHN B. JARES]
A DISCUSSION WITH PORTFOLIO MANAGER JOHN B. JARES, CFA, REGARDING FUND
PERFORMANCE FOR THE SIX-MONTH PERIOD ENDED JUNE 30, 2005.
TWO ECONOMIC FACTORS
Two economic factors greatly weighed on the markets during the first two
quarters of the year. Crude oil prices climbed above $60 per barrel during the
period, hitting historical highs on numerous occasions. Additionally, the
Federal Reserve increased the federal funds rate by 100 basis points during the
half in an effort to contain inflationary pressures. The combined effect of
these two factors was reflected in the markets, as most indices posted modest
declines during the period.
STOCK SELECTION WAS KEY
For the six months ended June 30, 2005, the Fund continued its bottom-up,
fundamental-based growth-stock investment strategy. We continued to meet with
company management teams and closely scrutinize companies against the current
economic backdrop in an attempt to assemble the greatest growth potential for
the Fund. This approach led us to select some strong-performing stocks during
the period. However, weak stock selection also plagued some sectors, causing the
Dreyfus Founders Growth Fund's return for the six months to underperform that of
its benchmark, the Russell 1000 Growth Index, which returned -1.72% for the
six-month period ended June 30, 2005.
[SIDENOTE]
"WE CONTINUED TO MEET WITH COMPANY MANAGEMENT TEAMS AND CLOSELY SCRUTINIZE
COMPANIES AGAINST THE CURRENT ECONOMIC BACKDROP IN AN ATTEMPT TO ASSEMBLE THE
GREATEST GROWTH POTENTIAL FOR THE FUND."
3
<Page>
To summarize the period, the Fund's first quarter performance was strong
relative to its large-cap growth fund peers, while its second quarter
performance proved disappointing, due to poor-performing stocks.
CONSUMER-RELATED STOCKS BOOSTED PERFORMANCE
Financials was the strongest performing sector in the Fund for the period, owing
its positive contribution primarily to strong stock selection. Fund holdings in
both the consumer staples and consumer discretionary sectors likewise performed
well, as companies in these sectors benefited from continued strength in
consumer spending. The Fund invested in more consumer discretionary holdings
during the period in an attempt to take advantage of this trend. Among the
strongest performers were retailers KOHL'S CORPORATION and J.C. PENNEY COMPANY,
INC. Kohl's experienced a recovery in sales and earnings growth driven by new
products and improved corporate execution. J.C. Penney also saw strong sales and
solid execution, which pushed the company's earnings estimates and stock price
up. Consumer staples stock GILLETTE COMPANY benefited from both solid company
fundamentals and an acquisition offer from the personal care manufacturing giant
Procter & Gamble Company.
TOP 3 PERFORMING SECTORS IN THE FUND
Financials
Consumer Staples
Consumer Discretionary
Numerous strong performers were also found in the information technology
sector, even though the sector overall underperformed for the Fund during the
period. APPLE COMPUTER, INC. experienced outstanding growth in revenue due
mainly to the popularity of the company's iPod and Macintosh products. INTEL
CORPORATION's processor unit was driven by strong demand for notebook computers,
which helped the company's revenue growth and helped gross and operating margin
trends recover.
4
<Page>
GENENTECH, INC. was another notable performer during the period. The company
experienced solid sales and expanded applications for two of its products,
Avastin(TM) and Herceptin(R). The parent company of American Airlines, AMR
CORPORATION, benefited from strong consumer travel demand and high energy
prices, factors that allowed the company and overall airline industry to raise
fares.
INDUSTRIALS AND IT PERFORMED POORLY
Stock selection in the industrials and information technology (IT) sectors,
paired with relative overweight positions, hampered the Fund's return for the
period. In industrials, W.W. GRAINGER, INC., a supplier of facilities
maintenance products, saw its stock price drop on sluggish sales trends and
lower earnings expectations. Numerous stocks hurt the Fund's performance in the
information technology sector, including INTERNATIONAL BUSINESS MACHINES
CORPORATION (IBM), MICROSOFT CORPORATION, ACCENTURE LIMITED CLASS A and MAXIM
INTEGRATED PRODUCTS, INC. IBM suffered from sluggish trends in Europe and
disappointing execution in services, which caused the stock price to drop.
Microsoft's stock price was hit, although its financial results were in line
LARGEST EQUITY HOLDINGS (ticker symbol)
<Table>
1. MICROSOFT CORPORATION (MSFT) 4.97%
2. SPDR TRUST SERIES 1 (SPY) 4.00%
3. GILLETTE COMPANY (G) 3.06%
4. GENERAL ELECTRIC COMPANY (GE) 2.93%
5. JOHNSON & JOHNSON (JNJ) 2.60%
6. ROYAL CARIBBEAN CRUISES LIMITED (RCL) 2.59%
7. KOHL'S CORPORATION (KSS) 2.43%
8. CISCO SYSTEMS, INC. (CSCO) 2.21%
9. PFIZER, INC. (PFE) 2.15%
10. COLGATE-PALMOLIVE COMPANY (CL) 1.81%
</Table>
Portfolio holdings are subject to change, and should not be construed as a
recommendation of any security.
5
<Page>
GROWTH OF $10,000 INVESTMENT
PERFORMANCE DATA QUOTED REPRESENTS PAST PERFORMANCE. PAST PERFORMANCE DOES NOT
GUARANTEE FUTURE RESULTS. INVESTMENT RETURN AND PRINCIPAL VALUE OF AN INVESTMENT
WILL FLUCTUATE SO THAT AN INVESTOR'S SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR
LESS THAN THEIR ORIGINAL COST. CURRENT PERFORMANCE MAY BE LOWER OR HIGHER THAN
THE PERFORMANCE DATA QUOTED. PLEASE CALL 1-800-525-2440 TO OBTAIN THE MOST
RECENT MONTH-END PERFORMANCE DATA.
[CHART]
Dreyfus Founders
Growth Fund S&P 500 Russell 1000
Class F Shares Index Growth Index
06/30/1995 $10,000.00 $10,000.00 $10,000.00
06/28/1996 $13,416.11 $12,600.05 $11,783.02
06/30/1997 $16,427.51 $16,972.14 $11,994.63
06/30/1998 $21,011.56 $22,091.36 $15,701.59
06/30/1999 $24,407.90 $27,118.52 $18,476.92
06/30/2000 $29,367.99 $29,084.32 $24,776.06
06/29/2001 $17,902.63 $24,771.03 $26,783.91
06/28/2002 $13,541.94 $20,315.14 $36,319.24
06/30/2003 $13,716.37 $20,366.21 $44,937.51
06/30/2004 $15,809.50 $24,258.20 $24,410.39
06/30/2005 $16,221.79 $25,792.11 $19,208.95
The above graph compares a $10,000 investment made in Class F shares of Dreyfus
Founders Growth Fund on 6/30/95 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 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. In future semiannual reports, the Fund's performance will no longer be
compared to the Standard & Poor's 500 Index, as the Russell 1000 Growth Index is
more reflective of the Fund's growth style of investing. Further information
related to Fund performance is contained elsewhere in this report.
6
<Page>
AVERAGE ANNUAL AND YEAR-TO DATE TOTAL RETURN as of 6/30/05
<Table>
<Caption>
YEAR-TO- 1 5 10 SINCE
CLASS (INCEPTION DATE) DATE+ YEAR YEARS YEARS INCEPTION
--------------------------------------------------------------------------------------------------------
A SHARES (12/31/99)
With sales charge (5.75%) (8.95%) (3.51%) (12.34%) -- (11.94%)
Without sales charge (3.42%) 2.42% (11.30%) -- (10.98%)
B SHARES (12/31/99)
With redemption* (7.69%) (2.44%) (12.25%) -- (11.77%)
Without redemption (3.85%) 1.56% (11.96%) -- (11.64%)
C SHARES (12/31/99)
With redemption** (4.71%) 0.77% (11.96%) -- (11.64%)
Without redemption (3.75%) 1.77% (11.96%) -- (11.64%)
F SHARES (1/5/62) (3.31%) 2.61% (11.19%) 4.96% N/A
R SHARES (12/31/99) (3.18%) 2.99% (11.01%) -- (10.71%)
T SHARES (12/31/99)
With sales charge (4.50%) (8.08%) (2.59%) (12.75%) -- (12.33%)
Without sales charge (3.74%) 1.98% (11.95%) -- (11.59%)
</Table>
Average annual and year-to-date total returns do not reflect the deduction of
taxes that a shareholder would pay on Fund distributions or redemption of Fund
shares, but do reflect the reinvestment of dividends and capital gain
distributions, and adjustments for financial statement purposes. Part of the
Fund's historical performance is due to amounts received from class action
settlements regarding prior Fund holdings. There is no guarantee that these
settlement distributions will occur in the future or have a similar impact on
performance.
* The maximum contingent deferred sales charge for Class B shares is 4% and is
reduced to 0% after six years, at which time the Class B shares convert to
Class A shares.
** The maximum contingent deferred sales charge for Class C shares is 1% for
shares redeemed within one year of the date of purchase.
+ Total return is not annualized.
7
<Page>
with investor expectations. Poor execution, disappointing margin trends, and
difficulties with certain projects overshadowed strong bookings and revenue
growth for Accenture. A glut in the semiconductor inventory and lackluster
industry growth, combined with a relatively high valuation, weighed on Maxim.
However, although these stocks underperformed for the period, we believe that
these companies may be positioned to take advantage of improving fundamental
business trends; therefore, the Fund remained invested in these stocks as of
June 30, 2005.
BOTTOM 3 PERFORMING SECTORS IN THE FUND
Industrials
Healthcare
Information Technology
The Fund's performance in the healthcare sector was hindered during the
period by a significant underweight position relative to the Fund's benchmark.
[CHART]
PORTFOLIO COMPOSITION OF NET ASSETS
<Table>
Information Technology 29.35%
Consumer Discretionary 19.59%
Healthcare 15.82%
Consumer Staples 9.75%
Industrials 9.21%
Financials 6.28%
Energy 1.29%
Materials 0.76%
Telecommunications Services 0.54%
Other 4.00%
Cash & Equivalents 3.41%
</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>
Finally, we should note the poor performance of telecommunications services
holding Avaya, Inc., a holding the Fund exited by the end of the period, and
consumer discretionary holding TIME WARNER, INC. Sluggish sales in the PBX
(private branch exchange) telephone network market and an underperforming
European subsidiary created a revenue and earnings shortfall for Avaya. Time
Warner experienced pressure during the period due to concerns over its second
quarter earnings performance.
IN CONCLUSION
The Fund ended the first half of 2005 with a significant exposure to information
technology, consumer discretionary and consumer staples issues. As we enter into
the second half of the year, our investment strategy remains unchanged. We will
continue to employ a research-driven stock-by-stock assessment in composing the
Fund in an attempt to find the best growth opportunities for the portfolio.
/s/ John B. Jares
John B. Jares, CFA
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 January 1, 2005
and held through June 30, 2005.
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 FOR COMPARISON PURPOSES 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*
(1/1/05) (6/30/05) (1/1/05-6/30/05)
- -----------------------------------------------------------------------------
CLASS A ACTUAL $ 1,000.00 $ 958.60 $ 7.21
CLASS A HYPOTHETICAL 1,000.00 1,017.36 7.43
CLASS B ACTUAL 1,000.00 950.35 11.19
CLASS B HYPOTHETICAL 1,000.00 1,013.25 11.55
CLASS C ACTUAL 1,000.00 951.64 10.85
CLASS C HYPOTHETICAL 1,000.00 1,013.60 11.20
CLASS F ACTUAL 1,000.00 960.29 6.63
CLASS F HYPOTHETICAL 1,000.00 1,017.97 6.83
CLASS R ACTUAL 1,000.00 963.07 5.12
CLASS R HYPOTHETICAL 1,000.00 1,019.52 5.27
CLASS T ACTUAL 1,000.00 952.32 10.32
CLASS T HYPOTHETICAL 1,000.00 1,014.15 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
181/365 (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, earnings credits and brokerage
offsets, where applicable.
<Table>
<Caption>
EXPENSE RATIO
- ------------------------------------------------------
CLASS A 1.48%
CLASS B 2.30%
CLASS C 2.23%
CLASS F 1.36%
CLASS R 1.05%
CLASS T 2.12%
</Table>
11
<Page>
STATEMENT OF INVESTMENTS
June 30, 2005 (UNAUDITED)
<Table>
<Caption>
SHARES MARKET VALUE
- ---------------------------------------------------------------------------------
COMMON STOCKS (DOMESTIC)--93.9%
AIRLINES--1.9%
271,800 AMR Corporation* $ 3,291,489
195,675 JetBlue Airways Corporation* 3,999,597
------------
7,291,086
------------
APPLICATION SOFTWARE--1.0%
115,625 Autodesk, Inc. 3,974,031
------------
ASSET MANAGEMENT & CUSTODY BANKS--1.4%
81,850 Northern Trust Corporation 3,731,542
32,900 State Street Corporation 1,587,425
------------
5,318,967
------------
BIOTECHNOLOGY--3.3%
47,025 Amgen, Inc.* 2,843,132
44,275 Genentech, Inc.* 3,554,397
25,225 Genzyme Corporation* 1,515,770
50,550 Gilead Sciences, Inc.* 2,223,695
86,600 MedImmune, Inc.* 2,313,952
------------
12,450,946
------------
BROADCASTING & CABLE TV--2.9%
90,375 Clear Channel Communications, Inc. 2,795,299
149,458 Comcast Corporation Special Class A* 4,476,267
81,525 EchoStar Communications Corporation 2,457,979
34,500 XM Satellite Radio Holdings, Inc. Class A* 1,161,270
------------
10,890,815
------------
CASINOS & GAMING--0.5%
28,375 Harrah's Entertainment, Inc. 2,044,986
------------
COMMUNICATIONS EQUIPMENT--3.5%
436,980 Cisco Systems, Inc.* 8,350,688
41,650 Juniper Networks, Inc.* 1,048,747
107,075 Motorola, Inc. 1,955,190
55,350 QUALCOMM, Inc. 1,827,104
------------
13,181,729
------------
COMPUTER & ELECTRONICS RETAIL--0.3%
18,000 Best Buy Company, Inc. 1,233,900
------------
COMPUTER HARDWARE--3.0%
128,175 Apple Computer, Inc.* 4,718,122
89,925 International Business Machines Corporation 6,672,435
------------
11,390,557
------------
COMPUTER STORAGE & PERIPHERALS--1.7%
472,700 EMC Corporation* 6,480,717
------------
CONSUMER ELECTRONICS--0.4%
18,475 Harman International Industries, Inc. 1,503,126
------------
</Table>
12
<Page>
<Table>
<Caption>
SHARES MARKET VALUE
- ---------------------------------------------------------------------------------
DATA PROCESSING & OUTSOURCED SERVICES--1.4%
128,850 Automatic Data Processing, Inc. $ 5,407,835
------------
DEPARTMENT STORES--2.8%
23,975 J.C. Penney Company, Inc. 1,260,606
164,600 Kohl's Corporation* 9,202,786
------------
10,463,392
------------
DIVERSIFIED BANKS--0.8%
51,000 Wells Fargo & Company 3,140,580
------------
ELECTRICAL COMPONENTS & EQUIPMENT--1.2%
71,050 Emerson Electric Company 4,449,862
------------
EXCHANGE TRADED FUNDS--4.0%
127,000 SPDR Trust Series 1 15,128,240
------------
FOOD RETAIL--1.4%
230,550 Safeway, Inc. 5,208,125
------------
GENERAL MERCHANDISE STORES--3.1%
253,375 Dollar General Corporation 5,158,715
120,325 Target Corporation 6,546,883
------------
11,705,598
------------
HEALTHCARE DISTRIBUTORS--0.9%
80,900 Henry Schein, Inc.* 3,358,968
------------
HEALTHCARE EQUIPMENT--0.4%
25,775 Medtronic, Inc. 1,334,887
------------
HEALTHCARE FACILITIES--1.3%
89,234 Triad Hospitals, Inc.* 4,875,746
------------
HEALTHCARE SUPPLIES--0.9%
68,675 Charles River Laboratories International, Inc.* 3,313,569
------------
HOME ENTERTAINMENT SOFTWARE--1.1%
72,375 Electronic Arts, Inc.* 4,097,149
------------
HOTELS, RESORTS & CRUISE LINES--1.7%
77,725 Carnival Corporation 4,239,899
34,850 Starwood Hotels & Resorts Worldwide, Inc. 2,041,165
------------
6,281,064
------------
HOUSEHOLD PRODUCTS--2.6%
50,900 Clorox Company 2,836,148
137,300 Colgate-Palmolive Company 6,852,643
------------
9,688,791
------------
HUMAN RESOURCE & EMPLOYMENT SERVICES--0.5%
59,450 Monster Worldwide, Inc.* 1,705,026
------------
HYPERMARKETS & SUPER CENTERS--1.0%
81,571 Wal-Mart Stores, Inc. 3,931,722
------------
INDUSTRIAL CONGLOMERATES--2.9%
320,209 General Electric Company 11,095,242
------------
</Table>
SEE NOTES TO STATEMENT OF INVESTMENTS.
13
<Page>
<Table>
<Caption>
SHARES MARKET VALUE
- ---------------------------------------------------------------------------------
INTEGRATED OIL & GAS--1.3%
19,200 ConocoPhillips $ 1,103,808
65,950 ExxonMobil Corporation 3,790,147
------------
4,893,955
------------
INTEGRATED TELECOMMUNICATION SERVICES--0.5%
32,875 Alltel Corporation 2,047,455
------------
INTERNET SOFTWARE & SERVICES--0.7%
75,350 Yahoo!, Inc.* 2,610,878
------------
INVESTMENT BANKING & BROKERAGE--1.1%
27,200 Goldman Sachs Group, Inc. 2,774,944
29,625 Morgan Stanley 1,554,424
------------
4,329,368
------------
LEISURE FACILITIES--2.6%
203,100 Royal Caribbean Cruises Limited 9,821,916
------------
LIFE & HEALTH INSURANCE--0.0%
434 Aflac, Inc. 18,784
------------
MOVIES & ENTERTAINMENT--4.6%
34,850 DreamWorks Animation SKG, Inc.* 913,070
408,375 Time Warner, Inc.* 6,823,946
112,321 Viacom, Inc. Class B 3,596,518
237,100 Walt Disney Company 5,970,178
------------
17,303,712
------------
MULTI-LINE INSURANCE--0.4%
24,199 American International Group, Inc. 1,405,962
------------
OTHER DIVERSIFIED FINANCIAL SERVICES--0.5%
44,667 Citigroup, Inc. 2,064,955
------------
PERSONAL PRODUCTS--3.4%
33,900 Avon Products, Inc. 1,283,115
228,500 Gillette Company 11,568,955
------------
12,852,070
------------
PHARMACEUTICALS--9.1%
115,950 Abbott Laboratories 5,682,710
25,800 Eli Lilly and Company 1,437,318
151,550 Johnson & Johnson 9,850,750
137,925 MGI Pharma, Inc.* 3,001,248
295,169 Pfizer, Inc. 8,140,761
144,900 Wyeth 6,448,050
------------
34,560,837
------------
PROPERTY & CASUALTY INSURANCE--1.2%
74,525 Allstate Corporation 4,452,869
------------
RAILROADS--1.4%
82,750 Union Pacific Corporation 5,362,200
------------
</Table>
14
<Page>
<Table>
<Caption>
SHARES MARKET VALUE
- ---------------------------------------------------------------------------------
SEMICONDUCTOR EQUIPMENT--0.8%
25,725 KLA-Tencor Corporation $ 1,124,183
75,800 Novellus Systems, Inc.* 1,873,018
-------------
2,997,201
-------------
SEMICONDUCTORS--7.4%
133,800 Broadcom Corporation* 4,751,238
258,309 Intel Corporation 6,731,533
174,825 Linear Technology Corporation 6,414,329
156,750 Maxim Integrated Products, Inc. 5,989,418
48,000 Microchip Technology, Inc. 1,421,760
95,488 Texas Instruments, Inc. 2,680,348
-------------
27,988,626
-------------
SOFT DRINKS--1.4%
125,225 Coca-Cola Company 5,228,144
-------------
SPECIALTY CHEMICALS--0.8%
51,175 Sigma-Aldrich Corporation 2,867,847
-------------
SPECIALTY STORES--0.5%
34,525 PETsMART, Inc. 1,047,834
29,325 Tiffany & Company 960,687
-------------
2,008,521
-------------
SYSTEMS SOFTWARE--6.7%
757,926 Microsoft Corporation 18,826,882
211,550 Oracle Corporation* 2,792,460
173,975 Symantec Corporation* 3,782,217
-------------
25,401,559
-------------
THRIFTS & MORTGAGE FINANCE--0.8%
78,600 The PMI Group, Inc. 3,063,828
-------------
TRADING COMPANIES & DISTRIBUTORS--0.8%
53,800 W.W. Grainger, Inc. 2,947,702
-------------
TOTAL COMMON STOCKS (DOMESTIC)
(COST--$343,378,849) 355,175,045
-------------
COMMON STOCKS (FOREIGN)--2.7%
APPLICATION SOFTWARE--0.5%
47,150 SAP AG Sponsored ADR (GE) 2,041,595
-------------
AUTO PARTS & EQUIPMENT--0.2%
20,925 Autoliv, Inc. (SW) 916,515
-------------
INDUSTRIAL CONGLOMERATES--0.5%
69,675 Tyco International Limited (BD) 2,034,510
-------------
IT CONSULTING & OTHER SERVICES--1.0%
167,700 Accenture Limited Class A (BD)* 3,801,759
-------------
</Table>
SEE NOTES TO STATEMENT OF INVESTMENTS.
15
<Page>
<Table>
<Caption>
SHARES MARKET VALUE
- ---------------------------------------------------------------------------------
SEMICONDUCTORS--0.5%
58,425 ATI Technologies, Inc. (CA)* $ 692,336
28,200 Marvell Technology Group Limited (BD)* 1,072,728
------------
1,765,064
------------
TOTAL COMMON STOCKS (FOREIGN)
(COST--$11,217,713) 10,559,443
------------
</Table>
<Table>
<Caption>
PRINCIPAL AMOUNT AMORTIZED COST
- ---------------------------------------------------------------------------------
CORPORATE SHORT-TERM NOTES--5.8%
ELECTRONIC EQUIPMENT MANUFACTURERS--2.6%
$ 10,000,000 Hitachi America Capital Limited
3.25% 7/1/05~ $ 10,000,000
-------------
MULTI-LINE INSURANCE--3.2%
12,000,000 AIG Funding, Inc.
3.23% 7/5/05 11,995,693
-------------
TOTAL CORPORATE SHORT-TERM NOTES
(AMORTIZED COST--$21,995,693) 21,995,693
-------------
TOTAL INVESTMENTS--102.4%
(TOTAL COST--$376,592,255) 387,730,181
-------------
OTHER ASSETS AND LIABILITIES--(2.4%) (9,078,361)
-------------
NET ASSETS--100.0% $ 378,651,820
=============
</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 $10,000,000, OR 2.6%, OF THE FUND'S NET ASSETS AS OF JUNE 30,
2005.
ADR - AMERICAN DEPOSITARY RECEIPT
SPDR - STANDARD AND POOR'S DEPOSITARY RECEIPT
BD - BERMUDA
CA - CANADA
GE - GERMANY
SW - SWEDEN
SEE NOTES TO FINANCIAL STATEMENTS.
16
<Page>
STATEMENT OF ASSETS AND LIABILITIES
June 30, 2005 (UNAUDITED)
<Table>
ASSETS
Investment securities, at cost $ 376,592,255
---------------
Investment securities, at market 387,730,181
Cash 1,044,678
Receivables:
Investment securities sold 2,037,897
Capital shares sold 56,866
Dividends and interest 350,837
Other assets 29,027
---------------
Total Assets 391,249,486
---------------
LIABILITIES
Payables and other accrued liabilities:
Investment securities purchased 10,446,905
Capital shares redeemed 1,507,417
Advisory fees 241,442
Shareholder servicing fees 33,748
Accounting fees 19,110
Distribution fees 116,373
Transfer agency fees 33,838
Custodian fees 2,076
Other 196,757
---------------
Total Liabilities 12,597,666
---------------
Net Assets $ 378,651,820
===============
COMPOSITION OF NET ASSETS
Capital (par value and paid-in surplus) $ 1,077,238,617
Undistributed net investment income 672,338
Accumulated net realized loss from security transactions (710,397,061)
Net unrealized appreciation on investments
and foreign currency translation 11,137,926
---------------
Total $ 378,651,820
===============
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
17
<Page>
<Table>
CLASS A
Net Assets $ 5,642,144
Shares Outstanding 554,650
Net Asset Value, Redemption Price Per Share $ 10.17
Maximum offering price per share (net asset value
plus sales charge of 5.75% of offering price) $ 10.79
CLASS B
Net Assets $ 10,332,812
Shares Outstanding 1,059,261
Net Asset Value, Offering and Redemption Price (excluding
applicable contingent deferred sales charge) Per Share $ 9.75
CLASS C
Net Assets $ 1,398,327
Shares Outstanding 143,490
Net Asset Value, Offering and Redemption Price (excluding
applicable contingent deferred sales charge) Per Share $ 9.75
CLASS F
Net Assets $ 351,077,427
Shares Outstanding 34,324,723
Net Asset Value, Offering and Redemption Price Per Share $ 10.23
CLASS R
Net Assets $ 10,128,406
Shares Outstanding 978,768
Net Asset Value, Offering and Redemption Price Per Share $ 10.35
CLASS T
Net Assets $ 72,704
Shares Outstanding 7,427
Net Asset Value, Redemption Price Per Share $ 9.79
Maximum offering price per share (net asset value
plus sales charge of 4.50% of offering price) $ 10.25
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
18
<Page>
STATEMENT OF OPERATIONS
For the six months ended June 30, 2005 (UNAUDITED)
<Table>
INVESTMENT INCOME
Dividends $ 2,002,712
Interest 238,266
Foreign taxes withheld (1,220)
---------------
Total Investment Income 2,239,758
---------------
EXPENSES
Advisory fees--Note 2 1,501,074
Shareholder servicing fees--Note 2 206,644
Accounting fees--Note 2 119,100
Distribution fees--Note 2 507,716
Transfer agency fees--Note 2 164,825
Registration fees 19,865
Postage and mailing expenses 40,585
Custodian fees and expenses--Note 2 10,598
Printing expenses 54,635
Legal and audit fees 65,942
Directors' fees and expenses--Note 2 35,210
Other expenses 43,908
---------------
Total Expenses 2,770,102
Earnings Credits (10,598)
Reimbursed/Waived Expenses (6,602)
Expense Offset to Broker Commissions (6,690)
---------------
Net Expenses 2,746,212
---------------
Net Investment Loss (506,454)
---------------
REALIZED AND UNREALIZED GAIN (LOSS) ON SECURITY
TRANSACTIONS AND FOREIGN CURRENCY TRANSACTIONS
Net Realized Gain on Security Transactions 22,351,413
Net Change in Unrealized Appreciation/Depreciation
of Investments and Foreign Currency Translation (36,469,089)
---------------
Net Realized and Unrealized Loss (14,117,676)
---------------
Net Decrease in Net Assets Resulting from Operations $ (14,624,130)
===============
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
19
<Page>
STATEMENTS OF CHANGES IN NET ASSETS
<Table>
<Caption>
SIX MONTHS ENDED YEAR ENDED
6/30/05 12/31/04
OPERATIONS
Net Investment Income (Loss) $ (506,454) $ 1,291,564
Net Realized Gain on Security Transactions 22,351,413 52,095,404
Net Change in Unrealized Appreciation/Depreciation
of Investments and Foreign Currency Translation (36,469,089) (21,249,162)
---------------- --------------
Net Increase (Decrease) in Net Assets
Resulting from Operations (14,624,130) 32,137,806
---------------- --------------
CAPITAL SHARE TRANSACTIONS
Net Increase (Decrease)--Note 4
Class A (503,149) (520,803)
Class B (1,618,477) (2,029,596)
Class C (414,716) (15,393)
Class F (41,922,905) (108,174,647)
Class R (118,629) 967,838
Class T (24,292) (130,287)
---------------- --------------
Net Decrease from Capital Share Transactions (44,602,168) (109,902,888)
---------------- --------------
Net Decrease in Net Assets (59,226,298) (77,765,082)
---------------- --------------
NET ASSETS
Beginning of period $ 437,878,118 $ 515,643,200
---------------- --------------
End of period $ 378,651,820 $ 437,878,118
================ ==============
Undistributed Net Investment Income $ 672,338 $ 1,178,792
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
20
<Page>
FINANCIAL HIGHLIGHTS
(UNAUDITED)
<Table>
<Caption>
SIX MONTHS YEAR ENDED
ENDED JUNE 30, DECEMBER 31,
2005 2004 2003 2002 2001
-------------- ----------------------------------------------------
CLASS A SHARES
PER SHARE OPERATING DATA
Net Asset Value, beginning of period $ 10.53 $ 9.79 $ 7.46 $ 10.53 $ 14.02
- -------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.04) 0.02(a) (0.06) (0.06) (0.05)
Net realized and unrealized gains
(losses) on securities (0.32) 0.72 2.39 (3.01) (3.44)
----------------------------------------------------------------------
Total from investment operations (0.36) 0.74 2.33 (3.07) (3.49)
- -------------------------------------------------------------------------------------------------------------------------
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 0.00
----------------------------------------------------------------------
Total distributions 0.00 0.00 0.00 0.00 0.00
- -------------------------------------------------------------------------------------------------------------------------
Net Asset Value, end of period $ 10.17 $ 10.53 $ 9.79 $ 7.46 $ 10.53
======================================================================
TOTAL RETURN(b) (3.42%) 7.56% 31.23% (29.15%) (24.89%)
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000s) $ 5,642 $ 6,356 $ 6,452 $ 5,149 $ 7,795
- -------------------------------------------------------------------------------------------------------------------------
Ratios to average net assets(c):
Expenses with reimbursements,
but no earnings credits or brokerage offsets(d) 1.50% 1.42% 1.66% 1.48% 1.21%
Expenses with reimbursements,
earnings credits and brokerage offsets 1.48% 1.41% 1.66% 1.48% 1.20%
Net investment income (loss) (0.35%) 0.22% (0.59%) (0.56%) (0.47%)
- -------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate(e) 114% 107% 124% 139% 152%
</Table>
(a). COMPUTED USING AVERAGE SHARES OUTSTANDING THROUGHOUT THE YEAR.
(b). SALES CHARGES ARE NOT REFLECTED IN THE TOTAL RETURN.
(c). ANNUALIZED.
(d). CERTAIN FEES WERE WAIVED BY THE CUSTODIAN. THESE WAIVERS DID NOT HAVE AN
IMPACT ON THE EXPENSE RATIOS.
(e). PORTFOLIO TURNOVER RATE IS A MEASURE OF PORTFOLIO ACTIVITY THAT IS
CALCULATED BY DIVIDING THE LESSER OF PURCHASES OR SALES OF SECURITIES,
EXCLUDING SECURITIES HAVING MATURITY DATES AT ACQUISITION OF ONE YEAR OR
LESS, BY THE AVERAGE VALUE OF THE PORTFOLIO SECURITIES HELD DURING THE
PERIOD, WHICH IS A ROLLING 12-MONTH PERIOD.
SEE NOTES TO FINANCIAL STATEMENTS.
21
<Page>
<Table>
<Caption>
SIX MONTHS YEAR ENDED
ENDED JUNE 30, DECEMBER 31,
2005 2004 2003 2002 2001
-------------- ----------------------------------------------------
CLASS B SHARES
PER SHARE OPERATING DATA
Net Asset Value, beginning of period $ 10.14 $ 9.50 $ 7.30 $ 10.38 $ 13.91
- -------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment loss (0.18) (0.06)(a) (0.17) (0.18) (0.13)
Net realized and unrealized gains
(losses) on securities (0.21) 0.70 2.37 (2.90) (3.40)
----------------------------------------------------------------------
Total from investment operations (0.39) 0.64 2.20 (3.08) (3.53)
- -------------------------------------------------------------------------------------------------------------------------
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 0.00
----------------------------------------------------------------------
Total distributions 0.00 0.00 0.00 0.00 0.00
- -------------------------------------------------------------------------------------------------------------------------
Net Asset Value, end of period $ 9.75 $ 10.14 $ 9.50 $ 7.30 $ 10.38
======================================================================
TOTAL RETURN(b) (3.85%) 6.74% 30.14% (29.67%) (25.38%)
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000s) $ 10,333 $ 12,406 $ 13,664 $ 11,603 $ 19,829
- -------------------------------------------------------------------------------------------------------------------------
Ratios to average net assets(c):
Expenses with reimbursements,
but no earnings credits or brokerage offsets(d) 2.32% 2.22% 2.48% 2.22% 1.93%
Expenses with reimbursements, earnings
credits and brokerage offsets 2.30% 2.22% 2.48% 2.22% 1.92%
Net investment loss (1.18%) (0.58%) (1.41%) (1.30%) (1.20%)
- -------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate(e) 114% 107% 124% 139% 152%
</Table>
(a). COMPUTED USING AVERAGE SHARES OUTSTANDING THROUGHOUT THE YEAR.
(b). SALES CHARGES ARE NOT REFLECTED IN THE TOTAL RETURN.
(c). ANNUALIZED.
(d). CERTAIN FEES WERE WAIVED BY THE CUSTODIAN. THESE WAIVERS DID NOT HAVE AN
IMPACT ON THE EXPENSE RATIOS.
(e). PORTFOLIO TURNOVER RATE IS A MEASURE OF PORTFOLIO ACTIVITY THAT IS
CALCULATED BY DIVIDING THE LESSER OF PURCHASES OR SALES OF SECURITIES,
EXCLUDING SECURITIES HAVING MATURITY DATES AT ACQUISITION OF ONE YEAR OR
LESS, BY THE AVERAGE VALUE OF THE PORTFOLIO SECURITIES HELD DURING THE
PERIOD, WHICH IS A ROLLING 12-MONTH PERIOD.
22
<Page>
<Table>
<Caption>
SIX MONTHS YEAR ENDED
ENDED JUNE 30, DECEMBER 31,
2005 2004 2003 2002 2001
-------------- ----------------------------------------------------
CLASS C SHARES
PER SHARE OPERATING DATA
Net Asset Value, beginning of period $ 10.13 $ 9.48 $ 7.29 $ 10.36 $ 13.92
- -------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment loss (0.29) (0.05)(a) (0.19) (0.26) (0.18)
Net realized and unrealized gains
(losses) on securities (0.09) 0.70 2.38 (2.81) (3.38)
----------------------------------------------------------------------
Total from investment operations (0.38) 0.65 2.19 (3.07) (3.56)
- -------------------------------------------------------------------------------------------------------------------------
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 0.00
----------------------------------------------------------------------
Total distributions 0.00 0.00 0.00 0.00 0.00
- -------------------------------------------------------------------------------------------------------------------------
Net Asset Value, end of period $ 9.75 $ 10.13 $ 9.48 $ 7.29 $ 10.36
======================================================================
TOTAL RETURN(b) (3.75%) 6.86% 30.04% (29.63%) (25.58%)
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000s) $ 1,398 $ 1,881 $ 1,774 $ 1,528 $ 2,979
- -------------------------------------------------------------------------------------------------------------------------
Ratios to average net assets(c):
Expenses with reimbursements,
but no earnings credits or brokerage offsets(d) 2.24% 2.16% 2.49% 2.37% 2.11%
Expenses with reimbursements, earnings
credits and brokerage offsets 2.23% 2.16% 2.49% 2.37% 2.10%
Net investment loss (1.10%) (0.49%) (1.42%) (1.46%) (1.38%)
- -------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate(e) 114% 107% 124% 139% 152%
</Table>
(a). COMPUTED USING AVERAGE SHARES OUTSTANDING THROUGHOUT THE YEAR.
(b). SALES CHARGES ARE NOT REFLECTED IN THE TOTAL RETURN.
(c). ANNUALIZED.
(d). CERTAIN FEES WERE WAIVED BY THE CUSTODIAN. THESE WAIVERS DID NOT HAVE AN
IMPACT ON THE EXPENSE RATIOS.
(e). PORTFOLIO TURNOVER RATE IS A MEASURE OF PORTFOLIO ACTIVITY THAT IS
CALCULATED BY DIVIDING THE LESSER OF PURCHASES OR SALES OF SECURITIES,
EXCLUDING SECURITIES HAVING MATURITY DATES AT ACQUISITION OF ONE YEAR OR
LESS, BY THE AVERAGE VALUE OF THE PORTFOLIO SECURITIES HELD DURING THE
PERIOD, WHICH IS A ROLLING 12-MONTH PERIOD.
SEE NOTES TO FINANCIAL STATEMENTS.
23
<Page>
<Table>
<Caption>
SIX MONTHS YEAR ENDED
ENDED JUNE 30, DECEMBER 31,
2005 2004 2003 2002 2001
-------------- ----------------------------------------------------
CLASS F SHARES
PER SHARE OPERATING DATA
Net Asset Value, beginning of period $ 10.58 $ 9.83 $ 7.48 $ 10.53 $ 14.03
- -------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.14) 0.03(a) (0.17) (0.22) (0.15)
Net realized and unrealized gains
(losses) on securities (0.21) 0.72 2.52 (2.83) (3.35)
----------------------------------------------------------------------
Total from investment operations (0.35) 0.75 2.35 (3.05) (3.50)
- -------------------------------------------------------------------------------------------------------------------------
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 0.00
----------------------------------------------------------------------
Total distributions 0.00 0.00 0.00 0.00 0.00
- -------------------------------------------------------------------------------------------------------------------------
Net Asset Value, end of period $ 10.23 $ 10.58 $ 9.83 $ 7.48 $ 10.53
======================================================================
TOTAL RETURN (3.31%) 7.63% 31.42% (28.96%) (24.95%)
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000s) $ 351,077 $ 406,550 $ 484,742 $ 443,307 $ 865,425
- -------------------------------------------------------------------------------------------------------------------------
Ratios to average net assets(b):
Expenses with reimbursements,
but no earnings credits or brokerage offsets(c) 1.37% 1.33% 1.47% 1.38% 1.31%
Expenses with reimbursements, earnings
credits and brokerage offsets 1.36% 1.33% 1.47% 1.37% 1.30%
Net investment income (loss) (0.23%) 0.30% (0.41%) (0.46%) (0.58%)
- -------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate(d) 114% 107% 124% 139% 152%
</Table>
(a). COMPUTED USING AVERAGE SHARES OUTSTANDING THROUGHOUT THE YEAR.
(b). ANNUALIZED.
(c). CERTAIN FEES WERE WAIVED BY THE CUSTODIAN. THESE WAIVERS DID NOT HAVE AN
IMPACT ON THE EXPENSE RATIOS.
(d). PORTFOLIO TURNOVER RATE IS A MEASURE OF PORTFOLIO ACTIVITY THAT IS
CALCULATED BY DIVIDING THE LESSER OF PURCHASES OR SALES OF SECURITIES,
EXCLUDING SECURITIES HAVING MATURITY DATES AT ACQUISITION OF ONE YEAR OR
LESS, BY THE AVERAGE VALUE OF THE PORTFOLIO SECURITIES HELD DURING THE
PERIOD, WHICH IS A ROLLING 12-MONTH PERIOD.
24
<Page>
<Table>
<Caption>
SIX MONTHS YEAR ENDED
ENDED JUNE 30, DECEMBER 31,
2005 2004 2003 2002 2001
-------------- ----------------------------------------------------
CLASS R SHARES
PER SHARE OPERATING DATA
Net Asset Value, beginning of period $ 10.69 $ 9.89 $ 7.50 $ 10.57 $ 14.07
- -------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) 0.00(a) 0.07 0.01 0.01 (0.02)
Net realized and unrealized gains
(losses) on securities (0.34) 0.73 2.38 (3.08) (3.48)
----------------------------------------------------------------------
Total from investment operations (0.34) 0.80 2.39 (3.07) (3.50)
- -------------------------------------------------------------------------------------------------------------------------
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 0.00
----------------------------------------------------------------------
Total distributions 0.00 0.00 0.00 0.00 0.00
- -------------------------------------------------------------------------------------------------------------------------
Net Asset Value, end of period $ 10.35 $ 10.69 $ 9.89 $ 7.50 $ 10.57
======================================================================
TOTAL RETURN (3.18%) 8.09% 31.87% (29.04%) (24.88%)
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000s) $ 10,128 $ 10,584 $ 8,792 $ 4,333 $ 2,023
- -------------------------------------------------------------------------------------------------------------------------
Ratios to average net assets(b):
Expenses with reimbursements,
but no earnings credits or brokerage offsets(c) 1.06% 1.03% 1.13% 1.30% 1.46%
Expenses with reimbursements, earnings
credits and brokerage offsets 1.05% 1.03% 1.13% 1.30% 1.46%
Net investment income (loss) 0.08% 0.65% (0.04%) (0.34%) (0.72%)
- -------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate(d) 114% 107% 124% 139% 152%
</Table>
(a). NET INVESTMENT INCOME FOR THE PERIOD ENDED JUNE 30, 2005 AGGREGATED LESS
THAN $0.01 ON A PER SHARE BASIS.
(b). ANNUALIZED.
(c). CERTAIN FEES WERE WAIVED BY THE CUSTODIAN. THESE WAIVERS DID NOT HAVE AN
IMPACT ON THE EXPENSE RATIOS.
(d). PORTFOLIO TURNOVER RATE IS A MEASURE OF PORTFOLIO ACTIVITY THAT IS
CALCULATED BY DIVIDING THE LESSER OF PURCHASES OR SALES OF SECURITIES,
EXCLUDING SECURITIES HAVING MATURITY DATES AT ACQUISITION OF ONE YEAR OR
LESS, BY THE AVERAGE VALUE OF THE PORTFOLIO SECURITIES HELD DURING THE
PERIOD, WHICH IS A ROLLING 12-MONTH PERIOD.
SEE NOTES TO FINANCIAL STATEMENTS.
25
<Page>
<Table>
<Caption>
SIX MONTHS YEAR ENDED
ENDED JUNE 30, DECEMBER 31,
2005 2004 2003 2002 2001
-------------- ----------------------------------------------------
CLASS T SHARES
PER SHARE OPERATING DATA
Net Asset Value, beginning of period $ 10.17 $ 9.48 $ 7.27 $ 10.38 $ 14.00
- -------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment loss (0.95) (0.02)(a) (0.30) (0.56) (0.19)
Net realized and unrealized gains
(losses) on securities 0.57 0.71 2.51 (2.55) (3.43)
----------------------------------------------------------------------
Total from investment operations (0.38) 0.69 2.21 (3.11) (3.62)
- -------------------------------------------------------------------------------------------------------------------------
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 0.00
----------------------------------------------------------------------
Total distributions 0.00 0.00 0.00 0.00 0.00
- -------------------------------------------------------------------------------------------------------------------------
Net Asset Value, end of period $ 9.79 $ 10.17 $ 9.48 $ 7.27 $ 10.38
======================================================================
TOTAL RETURN(b) (3.74%) 7.28% 30.40% (29.96%) (25.86%)
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000s) $ 73 $ 100 $ 220 $ 208 $ 621
- -------------------------------------------------------------------------------------------------------------------------
Ratios to average net assets(c):
Expenses with reimbursements,
but no earnings credits or brokerage offsets(d) 2.13% 1.79% 2.22% 2.78% 2.56%
Expenses with reimbursements, earnings
credits and brokerage offsets 2.12% 1.79% 2.22% 2.78% 2.55%
Net investment loss (0.99%) (0.17%) (1.15%) (1.89%) (1.83%)
- -------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate(e) 114% 107% 124% 139% 152%
</Table>
(a). COMPUTED USING AVERAGE SHARES OUTSTANDING THROUGHOUT THE YEAR.
(b). SALES CHARGES ARE NOT REFLECTED IN THE TOTAL RETURN.
(c). ANNUALIZED.
(d). CERTAIN FEES WERE WAIVED BY THE CUSTODIAN. THESE WAIVERS DID NOT HAVE AN
IMPACT ON THE EXPENSE RATIOS.
(e). PORTFOLIO TURNOVER RATE IS A MEASURE OF PORTFOLIO ACTIVITY THAT IS
CALCULATED BY DIVIDING THE LESSER OF PURCHASES OR SALES OF SECURITIES,
EXCLUDING SECURITIES HAVING MATURITY DATES AT ACQUISITION 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
June 30, 2005 (UNAUDITED)
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
Dreyfus Founders Funds, Inc. (the "Company") is an open-end management
investment company registered under the Investment Company Act of 1940 (the
"1940 Act"). Ten series of shares are currently issued: Balanced, Discovery,
Equity Growth, 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 shares redeemed 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. Since February 22, 2005, New York closing exchange rates have
been used to convert foreign currencies to U.S. dollars. Previously, London
closing exchange rates were used to convert foreign currencies to U.S. dollars.
A debt security with a remaining maturity greater than 60 days at the time of
purchase is valued in accordance with the evaluated bid price supplied by a
pricing service approved by the Company's board of directors or, if such price
is not available, at the mean between the highest bid and lowest asked
quotations obtained from at least two securities dealers. A debt security with a
remaining maturity of 60 days or less at the time of purchase is valued at
amortized cost, which approximates market value, unless it is determined that
amortized cost would not represent market value, in which case the securities
would be marked to market. The Fund amortizes premiums and discounts on all debt
securities.
If market quotations 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
27
<Page>
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. In addition, it is possible
that the fair value determined for a security may be different from the value
that may be realized upon the security's sale, and that these differences may be
material to the net asset value of the Fund.
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 period 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 six months ended June 30,
2005, Class F shares were charged $183,470 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 six months ended June 30, 2005, Class F shares
were charged $71,220 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 $12.58 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, including both the per account fees paid to
DTI and out-of-pocket charges, during the six months ended June 30, 2005 were as
follows:
<Table>
<Caption>
TRANSFER
AGENCY FEES
-------------------------------------------------------------------
Class A $ 7,612
Class B $ 18,385
Class C $ 2,069
Class R $ 3,929
Class T $ 310
</Table>
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 six months ended June 30, 2005, the Fund was charged $5,062 for cash
management fees, which are included in the out-of-pocket transfer agency charges
above.
OTHER TRANSFER AGENCY FEES--Various broker-dealers, retirement plan
administrators and other entities have established omnibus accounts with the
Fund, and provide sub-transfer agency, recordkeeping or similar services to
persons holding Fund shares
30
<Page>
through those accounts. During the six months ended June 30, 2005, the Fund paid
$61,300 to these entities for such services. This amount is included in the
transfer agency fees shown on the Statement of Operations.
DISTRIBUTION AND SHAREHOLDER SERVICES PLANS--DSC also is the distributor of the
Fund's shares. The Fund has adopted a Distribution Plan pursuant to Rule 12b-1
under the 1940 Act applicable to its Class F shares. Under the plan, the Fund is
authorized to reimburse DSC for expenses paid for distributing or servicing its
Class F shares at an annual rate of up to 0.25% of the value of the average
daily net assets of the Fund's Class F shares. During the six months ended June
30, 2005, Class F shares were charged $460,257 pursuant to this Distribution
Plan.
The Fund also has adopted a Distribution Plan pursuant to Rule 12b-1 under the
1940 Act applicable to its Class B, Class C and Class T shares. Under this plan,
the Fund pays DSC a fee for distributing its Class B and C shares at the annual
rate of 0.75% of the value of the average daily net assets of its Class B and C
shares, respectively, and pays DSC a fee for distributing its Class T shares at
the annual rate of 0.25% of the average daily net assets of its Class T shares.
In addition, the Fund has adopted a Shareholder Services Plan applicable to its
Class A, Class B, Class C and Class T shares. Under the Shareholder Services
Plan, Class A, Class B, Class C and Class T shares pay DSC an annual fee of
0.25% of the value of their average daily net assets for the provision of
certain services.
Distribution and shareholder servicing fees paid to DSC by the Fund's Class A,
B, C and T shares for the six months ended June 30, 2005, were as follows:
<Table>
<Caption>
DISTRIBUTION SHAREHOLDER
FEES SERVICING FEES
-------------------------------------------------------------------
Class A N/A $ 7,275
Class B $ 41,383 $ 13,794
Class C $ 5,957 $ 1,986
Class T $ 119 $ 119
</Table>
During the six months ended June 30, 2005, DSC retained $618 and $5 in sales
commissions from the sales of Class A and Class T shares, respectively. DSC also
retained $21,147 and $27 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 in writing
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 contractually agreed in writing 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
----------------------------------------------------------------
9/1/04 to 8/31/05 $ 200,000
9/1/05 to 8/31/06 $ 200,000
</Table>
The fee waiver is allocated among the Funds in proportion to their respective
shares of the total custodian fee. For the six months ended June 30, 2005, the
Fund's portion of the fee waiver was $6,602, which reduced the amount paid to
Mellon Bank to $3,996.
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.
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
32
<Page>
income and thereby reduce future ordinary income distributions. 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
June 30, 2005 are noted below. Unrealized appreciation/depreciation in the table
below excludes appreciation/depreciation on foreign currency translation, if
any. 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 $ 379,502,798
Gross Tax Appreciation of Investments $ 21,050,315
Gross Tax Depreciation of Investments $ (12,822,932)
Net Tax Appreciation $ 8,227,383
</Table>
4. CAPITAL SHARE TRANSACTIONS
The Fund is authorized to issue 750 million shares of $0.01 par value capital
stock. Transactions in shares of the Fund for the periods indicated were as
follows:
<Table>
<Caption>
SIX MONTHS ENDED YEAR ENDED
6/30/05 12/31/04
SHARES AMOUNT SHARES AMOUNT
CLASS A
Sold 24,188 $ 247,460 105,906 $ 1,056,250
Redeemed (72,980) $ (750,609) (161,536) $ (1,577,053)
----------------------------------------------------------------
Net Decrease (48,792) $ (503,149) (55,630) $ (520,803)
================================================================
CLASS B
Sold 9,844 $ 96,070 30,813 $ 293,687
Redeemed (173,769) $ (1,714,547) (246,029) $ (2,323,283)
-----------------------------------------------------------------
Net Decrease (163,925) $ (1,618,477) (215,216) $ (2,029,596)
=================================================================
</Table>
33
<Page>
<Table>
<Caption>
SIX MONTHS ENDED YEAR ENDED
6/30/05 12/31/04
SHARES AMOUNT SHARES AMOUNT
CLASS C
Sold 1,854 $ 18,355 38,619 $ 368,762
Redeemed (44,029) $ (433,071) (40,060) $ (384,155)
-------------------------------------------------------------------
Net Decrease (42,175) $ (414,716) (1,441) $ (15,393)
===================================================================
CLASS F
Sold 1,142,277 $ 11,735,887 2,973,891 $ 29,284,630
Redeemed (5,227,854) $ (53,658,792) (13,900,368) $ (137,459,277)
-------------------------------------------------------------------
Net Decrease (4,085,577) $ (41,922,905) (10,926,477) $ (108,174,647)
===================================================================
CLASS R
Sold 96,800 $ 1,005,237 381,438 $ 3,739,499
Redeemed (107,960) $ (1,123,866) (280,086) $ (2,771,661)
-------------------------------------------------------------------
Net Increase (Decrease) (11,160) $ (118,629) 101,352 $ 967,838
===================================================================
CLASS T
Sold 98 $ 963 136 $ 1,307
Redeemed (2,548) $ (25,255) (13,405) $ (131,594)
-------------------------------------------------------------------
Net Decrease (2,450) $ (24,292) (13,269) $ (130,287)
===================================================================
</Table>
5. INVESTMENT TRANSACTIONS
For the six months ended June 30, 2005, purchases and sales of investment
securities (excluding short-term securities and U.S. government obligations)
were $231,921,016 and $287,598,641, 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 June 30, 2005, the Fund did not have any borrowings under the LOC.
34
<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.
35
<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, 2005, 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. 8/05
A-636-GRO-05
<Page>
SEMIANNUAL REPORT
[GRAPHIC]
DREYFUS FOUNDERS
INTERNATIONAL EQUITY FUND
INVESTMENT UPDATE
JUNE 30, 2005
DREYFUS FOUNDERS FUNDS(R)
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
</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 financial 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 June 30, 2005. The amounts of
these holdings are included in the Statement of Investments.
NOT FDIC-INSURED - NOT BANK-GUARANTEED - MAY LOSE VALUE
<Page>
MANAGEMENT OVERVIEW
[PHOTO OF REMI J. BROWNE]
[PHOTO OF DANIEL B. LEVAN]
[PHOTO OF JEFFREY R. SULLIVAN]
A DISCUSSION WITH CO-PORTFOLIO MANAGERS REMI J. BROWNE, CFA, LEFT; DANIEL B.
LEVAN, CFA, MIDDLE; AND JEFFREY R. SULLIVAN, CFA, RIGHT, REGARDING FUND
PERFORMANCE FOR THE SIX-MONTH PERIOD ENDED JUNE 30, 2005.
A DRAIN FROM OIL
Several underlying themes greatly affected the global market environment during
the period. The overwhelming driving force, however, was the ever-increasing
price of oil, which topped $60 per barrel in June. Secondary issues were the
rising unemployment rate in the Euro area and the slowing housing market in the
United Kingdom. On the positive side, the economic scenario in the United States
and subdued worldwide inflation helped support the markets slightly.
Energy stocks were by far the best performers overall during the period,
driven by strong worldwide demand for oil, which drove oil prices higher.
Naturally, countries with strong oil exposure did very well during the first
half of the year; Norway, Canada and Australia, all of which are important
producers of oil, were among the best performers for the period. Japan, which
imports all of its oil, suffered due to the increasing cost.
For the six months ended June 30, 2005, Dreyfus Founders International Equity
Fund underperformed its benchmark, the Morgan Stanley Capital International
(MSCI) World ex U.S. Index, which returned -0.71% for the same period. The Fund
posted a competitive return(1) versus its benchmark, the MSCI World ex U.S.
Growth Index, which returned -1.12%.
- ----------
(1) Excluding sales charges, which result in lower returns for certain share
classes. Please see page 7 for Average Annual and Year-to-Date Total Returns for
all share classes, including and excluding sales charges.
The MSCI World ex U.S. Growth Index measures global developed market equity
performance of growth securities outside of the United States. The 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.
3
<Page>
A CONSISTENT STRATEGY
Our investment strategy did not change during the period: we continued to search
on a stock-by-stock basis for the best growth opportunities as opposed to a
top-down country allocation strategy.
STRONG SELECTION AND BENEFICIAL WEIGHTINGS FUELED FUND
Strong performances in France, Spain and Finland, through both advantageous
relative weightings and strong selection of stocks, buoyed the Fund's relative
return during the period. In France, stock selection in automobile manufacturer
RENAULT SA and pharmaceutical company SANOFI-AVENTIS were beneficial to relative
performance. During the Fund's holding period, Finnish utilities stock FORTUM
OYJ gained nearly 20%, helping the Fund's position in Finland outperform.
Construction company ACS, ACTIVIDADES DE CONSTRUCCION Y SERVICIOS SA also
performed strongly during the period, aiding the Fund's relative outperformance
in Spain.
INDUSTRIALS AND TELECOM AIDED PERFORMANCE
The Fund experienced positive stock selection in 6 of 10 economic sectors.
Outperformance versus the benchmark came primarily from the telecommunications
services and industrials sectors. The Fund's telecommunications services
holdings benefited from strong performances in Canada's TELUS CORPORATION and
Hong Kong's CHINA MOBILE (HONG KONG) LIMITED. TELUS outperformed due to strong
wireless sales reported in early May, while China Mobile continued to show solid
subscriber growth during the first half of 2005. In the industrials sector,
Danish shipper AP MOLLER-MAERSK AS experienced positive stock performance due to
rising shipping rates, strong oil prices and its accretive purchase of container
shipping company, P&O Nedlloyd.
A significant underweight position in the financials sector, a weak
performing sector within the Fund's benchmark, also aided the Fund's relative
return for the period.
[SIDE NOTE]
"WE CONTINUED TO SEARCH ON A STOCK-BY-STOCK BASIS FOR THE BEST GROWTH
OPPORTUNITIES."
4
<Page>
Several other stocks had strong contributions to the overall performance of
the Fund. Australian-based OIL SEARCH LIMITED benefited from $60 per barrel oil
prices and better-than-expected drilling results in its Yemeni oil field. BHP
BILLITON LIMITED had a strong first half as iron ore, coal and oil prices
increased and the company made an accretive acquisition of WMC Resources
Limited, an Australian copper and uranium producer. HUSKY ENERGY, INC., a
Canadian integrated oil and natural gas firm, advanced with the rest of the
energy industry on surging oil prices and widening refining margins.
Additionally, news that the company's White Rose offshore project in
Newfoundland would be completed on time and on budget boosted its share price
further. KEPPEL CORPORATION LIMITED, a Singapore engineering firm, continued to
win new orders to build oil rigs, which drove the company's stock price
performance.
TOP 3 PERFORMING SECTORS IN THE FUND
Industrials
Telecommunications Services
Financials
WEAK U.K. STOCKS AND UNDEREXPOSURE HURT RETURN
The largest drag on performance during the period came from the United Kingdom,
primarily due to poor stock selection. Fund holdings VODAFONE GROUP PLC and
SABMILLER PLC were the main detractors from this country. Vodafone's stock price
decreased during the period due to increased competition,
LARGEST EQUITY HOLDINGS (country of origin; ticker symbol)
<Table>
1. VODAFONE GROUP PLC (United Kingdom; VOD) 3.67%
2. BP PLC (United Kingdom; BP) 2.19%
3. ING GROEP NV (Netherlands; ING.C) 1.93%
4. NOKIA OYJ (Finland; NOK) 1.85%
5. NOVARTIS AG (Switzerland; NOV.N) 1.80%
6. SANOFI-AVENTIS (France; SAN) 1.78%
7. TOTAL SA (France; FP) 1.78%
8. ASTRAZENECA GROUP PLC (United Kingdom; AZN) 1.76%
9. TESCO PLC (United Kingdom; TSCO) 1.74%
10. CANON, INC. (Japan; 7751) 1.73%
</Table>
Portfolio holdings are subject to change, and should not be construed as a
recommendation of any security.
5
<Page>
GROWTH OF $10,000 INVESTMENT
PERFORMANCE DATA QUOTED REPRESENTS PAST PERFORMANCE. PAST PERFORMANCE DOES NOT
GUARANTEE FUTURE RESULTS. INVESTMENT RETURN AND PRINCIPAL VALUE OF AN INVESTMENT
WILL FLUCTUATE SO THAT AN INVESTOR'S SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR
LESS THAN THEIR ORIGINAL COST. CURRENT PERFORMANCE MAY BE LOWER OR HIGHER THAN
THE PERFORMANCE DATA QUOTED. PLEASE CALL 1-800-525-2440 TO OBTAIN THE MOST
RECENT MONTH-END PERFORMANCE DATA.
[CHART]
Dreyfus Founders
International Equity Fund MSCI World
Class F Shares ex U.S. Index
12/31/1995 $10,000.00 $10,000.00
06/28/1996 $11,460.00 $10,469.67
06/30/1997 $13,810.00 $11,886.22
06/30/1998 $16,855.71 $12,634.44
06/30/1999 $17,329.51 $13,565.39
06/30/2000 $24,785.89 $16,114.74
06/29/2001 $16,816.34 $12,273.65
06/28/2002 $12,751.17 $11,116.94
06/30/2003 $11,263.08 $10,496.55
06/30/2004 $15,221.48 $13,850.38
06/30/2005 $17,506.38 $15,866.09
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 AND YEAR-TO DATE TOTAL RETURN as of 6/30/05
<Table>
<Caption>
YEAR-TO- 1 5 10 SINCE
CLASS (INCEPTION DATE) DATE + YEAR YEARS YEARS INCEPTION
---------------------------------------------------------------------------------------------------------
A SHARES (12/31/99)
With sales charge (5.75%) (6.81%) 8.37% (7.86%) -- (7.68%)
Without sales charge (1.09%) 14.99% (6.76%) -- (6.69%)
B SHARES (12/31/99)
With redemption* (5.49%) 10.04% (7.80%) -- (7.54%)
Without redemption (1.55%) 14.04% (7.47%) -- (7.39%)
C SHARES (12/31/99)
With redemption** (2.53%) 13.07% (7.49%) -- (7.43%)
Without redemption (1.55%) 14.07% (7.49%) -- (7.43%)
F SHARES (12/29/95) (1.09%) 15.01% (6.72%) -- 6.07%
R SHARES (12/31/99) (1.00%) 15.62% (6.48%) -- (6.41%)
T SHARES (12/31/99)
With sales charge (4.50%) (5.73%) 9.47% (7.85%) -- (7.71%)
Without sales charge (1.27%) 14.61% (7.00%) -- (6.93%)
</Table>
Average annual and year-to-date total returns do not reflect the deduction of
taxes that a shareholder would pay on Fund distributions or redemption of Fund
shares, but do reflect the reinvestment of dividends and capital gain
distributions, expense limitations, and adjustments for financial statement
purposes. Part of the Fund's historical performance is due to the purchase of
securities sold in initial public offerings (IPOs). There is no guarantee that
the Fund's investments in IPOs, if any, will continue to have a similar impact
on performance. Investments in foreign securities entail unique risks, including
political, market, and currency risks.
* The maximum contingent deferred sales charge for Class B shares is 4% and is
reduced to 0% after six years, at which time the Class B shares convert to
Class A shares.
** The maximum contingent deferred sales charge for Class C shares is 1% for
shares redeemed within one year of the date of purchase.
+ Total return is not annualized.
7
<Page>
lower prices and shrinking margins. Vodafone K.K., the company's Japanese
subsidiary, reported another weak quarter as well. SABMiller's stock price was
hurt by poor U.S. beer sales and continued merger and acquisition speculation.
Additionally, holdings in the Netherlands, Belgium and Canada also hurt the
Fund's relative performance.
Fund holdings in the consumer staples sector produced a drain on performance.
Belgian-based food retailer Delhaize Group reduced its full-year top- and
bottom-line expectations at its quarterly earnings update. Competition with
Wal-Mart Stores, Inc. and cost overruns were the main culprits for the revised
guidance, which prompted the Fund to exit this position. SABMiller, as mentioned
above, also negatively affected the Fund's performance in this sector.
Within the benchmark, energy and utilities were the two best performing
sectors during the period. Exploration and production and oil services stocks
did particularly well in the rising oil price environment. Utilities also
generated strong returns; electricity companies were able to pass along price
increases to
BOTTOM 3 PERFORMING SECTORS IN THE FUND
Consumer Staples
Energy
Information Technology
[CHART]
PORTFOLIO COMPOSITION OF NET ASSETS
<Table>
United Kingdom 21.21%
Japan 18.95%
France 10.77%
Germany 7.37%
Switzerland 6.74%
Canada 5.52%
Italy 3.83%
Australia 3.64%
Other Countries 19.14%
Cash & Equivalents 2.83%
</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>
customers as energy costs rose sharply during the period. However, the Fund's
underweight positions in both these sectors generated a negative impact on the
Fund's relative performance.
IT AND SELECT STOCKS HAMPERED PERFORMANCE
The information technology (IT) sector also hampered the Fund's return for the
period, mainly owing to a relative overweight position. One of the poor
individual IT performers in the Fund was Trend Micro, Inc., a Japanese developer
of anti-virus software for home and business use. Trend Micro's stock fell on
Microsoft's announcement that it will be packaging a competitor's anti-virus
software with its operating system. The Fund exited its position in Trend Micro
on this decline.
Another poor individual performer during the period was German-based
THYSSENKRUPP AG. The company reduced steel volumes due to marketplace
overcapacity as China continues to build more stainless facilities, which
threatens the overall global supply/demand balance in this segment of the steel
market. Casio Computer Company Limited's stock price also declined after Casio
Micronics, a 75% owned subsidiary of Casio Computer, lowered its 2005 operating
profit estimate based on volume revisions. This was enough to affect Casio
Computer's 2005 operating profit estimate, causing the stock to slip. Publishing
and Broadcasting Limited was liquidated during the period as the company
reported weak earnings following the loss of market share in its television
station business.
IN CONCLUSION
As always, our investing focus is on seeking stocks with improving business
momentum and attractive valuations in each country and sector regardless of the
market's direction.
/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 January 1, 2005
and held through June 30, 2005.
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 FOR COMPARISON PURPOSES 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*
(1/1/05) (6/30/05) (1/1/05-6/30/05)
-----------------------------------------------------------------------------
CLASS A ACTUAL $ 1,000.00 $ 982.18 $ 6.90
CLASS A HYPOTHETICAL 1,000.00 1,017.77 7.03
CLASS B ACTUAL 1,000.00 973.94 10.58
CLASS B HYPOTHETICAL 1,000.00 1,014.00 10.79
CLASS C ACTUAL 1,000.00 973.94 10.58
CLASS C HYPOTHETICAL 1,000.00 1,014.00 10.79
CLASS F ACTUAL 1,000.00 982.18 6.90
CLASS F HYPOTHETICAL 1,000.00 1,017.77 7.03
CLASS R ACTUAL 1,000.00 984.34 5.67
CLASS R HYPOTHETICAL 1,000.00 1,019.02 5.77
CLASS T ACTUAL 1,000.00 979.20 8.13
CLASS T HYPOTHETICAL 1,000.00 1,016.51 8.28
</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
181/365 (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, earnings credits and brokerage
offsets, where applicable.
<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
June 30, 2005 (UNAUDITED)
<Table>
<Caption>
SHARES MARKET VALUE
- --------------------------------------------------------------------------------------------------------------------
COMMON STOCKS (FOREIGN)--97.2%
AEROSPACE & DEFENSE--0.7%
47,400 BAE Systems PLC (UK) $ 243,750
APPAREL, ACCESSORIES & LUXURY GOODS--2.4%
24,000 Burberry Group PLC (UK) 173,732
14,500 Compagnie Financiere Richemont AG (SZ) 487,671
8,800 Gildan Activewear, Inc. (CA)* 230,702
---------------
892,105
---------------
APPLICATION SOFTWARE--1.5%
53,600 Sage Group PLC (UK) 214,890
1,900 SAP AG (GE) 331,804
---------------
546,694
---------------
AUTOMOBILE MANUFACTURERS--3.8%
11,000 Honda Motor Company Limited (JA) 542,512
99,000 Mazda Motor Corporation (JA) 372,221
5,400 Renault SA (FR) 476,413
---------------
1,391,146
---------------
BREWERS--3.5%
25,200 Asahi Breweries Limited (JA) 300,373
7,200 InBev NV (BE) 243,718
9,900 Orkla ASA (NW) 365,135
22,500 SABMiller PLC (UK) 351,348
---------------
1,260,574
---------------
BROADCASTING & CABLE TV--2.4%
7,800 Gestevision Telecinco SA (SP) 182,752
42,300 Mediaset SPA (IT) 498,611
84 TV Asahi Corporation (JA) 180,254
---------------
861,617
---------------
</Table>
GUIDE TO UNDERSTANDING FOREIGN HOLDINGS
The following abbreviations are used throughout the Statement of Investments to
indicate the country of origin on non-U.S. holdings.
AU Australia
BD Bermuda
BE Belgium
CA Canada
CN China
DE Denmark
FI Finland
FR France
GE Germany
GR Greece
HK Hong Kong
ID Indonesia
IN India
IT Italy
JA Japan
KR South Korea
MA Malaysia
NE Netherlands
NW Norway
PH Philippines
SG Singapore
SP Spain
SW Sweden
SZ Switzerland
TH Thailand
TU Turkey
TW Taiwan
UK United Kingdom
12
<Page>
<Table>
<Caption>
SHARES MARKET VALUE
- --------------------------------------------------------------------------------------------------------------------
COMMUNICATIONS EQUIPMENT--4.0%
15,000 GN Store Nord AS (DE) $ 169,923
40,200 Nokia Oyj (FI) 673,811
2,400 Research In Motion Limited (CA)* 176,631
139,100 Telefonaktiebolaget LM Ericsson (SW) 446,935
---------------
1,467,300
---------------
COMPUTER & ELECTRONICS RETAIL--0.8%
4,900 Yamada Denki (JA) 281,868
---------------
COMPUTER HARDWARE--0.5%
31,000 NEC Corporation (JA) 167,704
---------------
COMPUTER STORAGE & PERIPHERALS--0.5%
6,200 Logitech International SA (SZ)* 199,329
---------------
CONSTRUCTION & ENGINEERING--0.8%
11,100 ACS, Actividades de Construccion y Servicios SA (SP) 310,848
---------------
CONSTRUCTION MATERIALS--0.6%
20,000 Rinker Group Limited (AU) 213,138
---------------
CONSTRUCTION, FARM MACHINERY & HEAVY TRUCKS--1.7%
15,000 Volvo AB Class B (SW) 610,607
---------------
CONSUMER FINANCE--0.6%
3,200 Sanyo Shinpan Finance Company Limited (JA) 219,854
---------------
DISTILLERS & VINTNERS--0.5%
24,800 Davide Campari - Milano SPA (IT) 181,881
---------------
DIVERSIFIED BANKS--6.1%
7,344 Alpha Bank AE (GR) 195,887
87,100 Banca Intesa SPA (IT) 398,976
38,119 Barclays PLC (UK) 379,414
5,907 BNP Paribas SA (FR) 405,333
16,300 HBOS PLC (UK) 251,320
5,734 Royal Bank of Scotland Group PLC (UK) 173,222
4,100 Societe Generale (FR) 417,542
---------------
2,221,694
---------------
DIVERSIFIED CAPITAL MARKETS--2.0%
13,600 Credit Suisse Group (SZ) 536,465
2,470 UBS AG (SZ) 192,743
---------------
729,208
---------------
DIVERSIFIED CHEMICALS--1.2%
6,600 BASF AG (GE) 439,308
---------------
DIVERSIFIED METALS & MINING--3.2%
44,200 BHP Billiton Limited (AU) 610,665
29,500 Xstrata PLC (UK) 569,280
---------------
1,179,945
---------------
ELECTRIC UTILITIES--1.8%
5,100 E.ON AG (GE) 454,760
11,600 Fortum Oyj (FI) 186,010
---------------
640,770
---------------
</Table>
SEE NOTES TO STATEMENT OF INVESTMENTS.
13
<Page>
STATEMENT OF INVESTMENTS
June 30, 2005 (UNAUDITED) (CONTINUED)
<Table>
<Caption>
SHARES MARKET VALUE
- --------------------------------------------------------------------------------------------------------------------
ELECTRICAL COMPONENTS & EQUIPMENT--1.1%
38,000 Sumitomo Electric Industries Limited (JA) $ 389,216
---------------
ELECTRONIC EQUIPMENT MANUFACTURERS--2.0%
3,900 Hoya Corporation (JA) 450,095
3,800 Kyocera Corporation (JA) 290,542
---------------
740,637
---------------
FOOD RETAIL--1.7%
111,000 Tesco PLC (UK) 633,959
---------------
FOREST PRODUCTS--0.6%
16,600 Canfor Corporation (CA)* 199,167
---------------
HOUSEHOLD PRODUCTS--0.9%
10,700 Reckitt Benckiser PLC (UK) 315,383
---------------
HUMAN RESOURCE & EMPLOYMENT SERVICES--0.4%
4,400 Randstad Holding NV (NE) 152,080
---------------
INDUSTRIAL CONGLOMERATES--0.6%
27,000 Keppel Corporation Limited (SG) 200,190
---------------
INTEGRATED OIL & GAS--6.7%
76,719 BP PLC (UK) 798,669
7,300 Husky Energy, Inc. (CA) 290,344
17,900 Repsol YPF SA (SP) 458,386
3,700 Royal Dutch Petroleum Company (NE) 241,801
2,758 Total SA (FR) 648,529
---------------
2,437,729
---------------
INTEGRATED TELECOMMUNICATION SERVICES--3.2%
45,200 BT Group PLC (UK) 186,275
11,200 Deutsche Telekom AG (GE) 207,382
6,500 France Telecom (FR) 190,052
16,300 Telus Corporation (CA) 572,868
---------------
1,156,577
---------------
LEISURE PRODUCTS--0.5%
8,900 Sankyo Company Limited (JA) 170,922
---------------
LIFE & HEALTH INSURANCE--1.2%
70,500 Friends Provident PLC (UK) 229,905
87,900 Old Mutual PLC (UK) 192,148
---------------
422,053
---------------
MARINE--1.8%
50 AP Moller-Maersk AS (DE) 477,490
29,000 Kawasaki Kisen Kaisha Limited (JA) 172,049
---------------
649,539
---------------
MOVIES & ENTERTAINMENT--1.4%
16,800 Vivendi Universal SA (FR) 529,841
---------------
MULTI-LINE INSURANCE--1.5%
16,200 Aviva PLC (UK) 180,548
3,900 Baloise Holding Limited (SZ) 194,772
1,100 Zurich Financial Services AG (SZ) 189,528
---------------
564,848
---------------
</Table>
14
<Page>
<Table>
<Caption>
SHARES MARKET VALUE
- --------------------------------------------------------------------------------------------------------------------
MULTI-UTILITIES--0.9%
11,700 Suez SA (FR) $ 317,598
---------------
OFFICE ELECTRONICS--1.7%
12,000 Canon, Inc. (JA) 631,864
---------------
OIL & GAS EXPLORATION & PRODUCTION--2.3%
12,200 Eni SPA (IT) 314,634
2,200 Norsk Hydro ASA (NW) 202,011
134,500 Oil Search Limited (AU) 314,315
---------------
830,960
---------------
OTHER DIVERSIFIED FINANCIAL SERVICES--2.5%
24,900 ING Groep NV (NE) 704,239
6,600 Sun Life Financial, Inc. (CA) 222,316
---------------
926,555
---------------
PHARMACEUTICALS--11.6%
15,500 AstraZeneca Group PLC (UK) 641,829
11,400 Eisai Company Limited (JA) 383,392
4,700 Merck KGaA (GE) 378,821
13,759 Novartis AG (SZ) 655,472
5,800 Novo Nordisk AS Class B (DE) 295,313
7,000 Ono Pharmaceuticals Company Limited (JA) 331,981
7,900 Sanofi-Aventis (FR) 649,171
28,700 Shire Pharmaceuticals Group PLC (UK) 314,718
11,400 Takeda Pharmaceuticals Company Limited (JA) 565,323
---------------
4,216,020
---------------
PRECIOUS METALS & MINERALS--0.8%
16,900 ThyssenKrupp AG (GE) 294,313
---------------
RAILROADS--0.9%
5,500 Canadian National Railway Company (CA) 317,287
---------------
SOFT DRINKS--1.0%
12,900 Coca-Cola Hellenic Bottling Company SA (GR) 350,328
---------------
STEEL--1.5%
29,800 Bluescope Steel Limited (AU) 186,690
14,900 JFE Holdings, Inc. (JA) 368,100
---------------
554,790
---------------
TIRES & RUBBER--2.1%
8,000 Continental AG (GE) 577,030
19,000 Sumitomo Rubber Industries Limited (JA) 193,923
---------------
770,953
---------------
TOBACCO--0.9%
17,800 British American Tobacco PLC (UK) 343,179
---------------
TRADING COMPANIES & DISTRIBUTORS--2.4%
46,000 Mitsubishi Corporation (JA) 625,444
28,000 Mitsui & Company Limited (JA) 265,080
---------------
890,524
---------------
</Table>
SEE NOTES TO STATEMENT OF INVESTMENTS.
15
<Page>
<Table>
<Caption>
SHARES MARKET VALUE
- --------------------------------------------------------------------------------------------------------------------
WIRELESS TELECOMMUNICATION SERVICES--6.4%
7,000 Bouygues SA (FR) $ 290,234
138,900 China Mobile (Hong Kong) Limited (HK) 517,457
79,900 O2 PLC (UK)* 195,061
549,175 Vodafone Group PLC (UK) 1,338,251
---------------
2,341,003
---------------
TOTAL COMMON STOCKS (FOREIGN)
(COST--$27,976,169) 35,406,855
---------------
</Table>
<Table>
<Caption>
PRINCIPAL AMOUNT AMORTIZED COST
- --------------------------------------------------------------------------------------------------------------------
CORPORATE SHORT-TERM NOTES--2.2%
HOUSEHOLD APPLIANCES--2.2%
$ 800,000 Stanley Works, Inc.
3.37% 7/1/05~ $ 800,000
---------------
TOTAL CORPORATE SHORT-TERM NOTES
(AMORTIZED COST--$800,000) 800,000
---------------
TOTAL INVESTMENTS--99.4%
(TOTAL COST--$28,776,169) 36,206,855
---------------
OTHER ASSETS AND LIABILITIES--0.6% 225,313
---------------
NET ASSETS--100.0% $ 36,432,168
===============
</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
$800,000, OR 2.2%, OF THE FUND'S NET ASSETS AS OF JUNE 30, 2005.
SEE NOTES TO FINANCIAL STATEMENTS.
16
<Page>
STATEMENT OF ASSETS AND LIABILITIES
June 30, 2005 (UNAUDITED)
<Table>
ASSETS
Investment securities, at cost $ 28,776,169
---------------
Investment securities, at market 36,206,855
Cash 105,917
Foreign currency (cost $213,201) 213,157
Receivables:
Investment securities sold 380,835
Capital shares sold 14,464
Dividends and interest 57,667
From adviser 15,324
Other assets 37,963
---------------
Total Assets 37,032,182
---------------
LIABILITIES
Payables and other accrued liabilities:
Investment securities purchased 499,473
Capital shares redeemed 22,160
Advisory fees 22,455
Shareholder servicing fees 6,824
Accounting fees 2,994
Distribution fees 4,093
Transfer agency fees 15,649
Custodian fees 7,628
Other 18,738
---------------
Total Liabilities 600,014
---------------
Net Assets $ 36,432,168
===============
COMPOSITION OF NET ASSETS
Capital (par value and paid-in surplus) $ 58,322,300
Undistributed net investment income 368,277
Accumulated net realized loss from security transactions (29,686,850)
Net unrealized appreciation on investments
and foreign currency translation 7,428,441
---------------
Total $ 36,432,168
===============
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
17
<Page>
STATEMENT OF ASSETS AND LIABILITIES
June 30, 2005 (UNAUDITED) (CONTINUED)
<Table>
CLASS A
Net Assets $ 23,684,188
Shares Outstanding 2,012,893
Net Asset Value, Redemption Price Per Share $ 11.77
Maximum offering price per share (net asset value
plus sales charge of 5.75% of offering price) $ 12.49
CLASS B
Net Assets $ 1,783,048
Shares Outstanding 155,715
Net Asset Value, Offering and Redemption Price (excluding
applicable contingent deferred sales charge) Per Share $ 11.45
CLASS C
Net Assets $ 456,597
Shares Outstanding 39,935
Net Asset Value, Offering and Redemption Price (excluding
applicable contingent deferred sales charge) Per Share $ 11.43
CLASS F
Net Assets $ 10,322,590
Shares Outstanding 875,897
Net Asset Value, Offering and Redemption Price Per Share $ 11.79
CLASS R
Net Assets $ 59,541
Shares Outstanding 5,007
Net Asset Value, Offering and Redemption Price Per Share $ 11.89
CLASS T
Net Assets $ 126,204
Shares Outstanding 10,795
Net Asset Value, Redemption Price Per Share $ 11.69
Maximum offering price per share (net asset value
plus sales charge of 4.50% of offering price) $ 12.24
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
18
<Page>
STATEMENT OF OPERATIONS
For the six months ended June 30, 2005 (UNAUDITED)
<Table>
INVESTMENT INCOME
Dividends $ 715,726
Interest 6,777
Foreign taxes withheld (87,308)
---------------
Total Investment Income 635,195
---------------
EXPENSES
Advisory fees--Note 2 186,483
Shareholder servicing fees--Note 2 46,827
Accounting fees--Note 2 18,648
Distribution fees--Note 2 22,443
Transfer agency fees--Note 2 40,773
Registration fees 25,375
Postage and mailing expenses 1,480
Custodian fees and expenses--Note 2 31,591
Printing expenses 16,130
Legal and audit fees 6,139
Directors' fees and expenses--Note 2 3,786
Other expenses 23,471
---------------
Total Expenses 423,146
Earnings Credits (1,366)
Reimbursed/Waived Expenses (141,981)
Expense Offset to Broker Commissions (9,592)
---------------
Net Expenses 270,207
---------------
Net Investment Income 364,988
---------------
REALIZED AND UNREALIZED GAIN (LOSS) ON SECURITY
TRANSACTIONS AND FOREIGN CURRENCY TRANSACTIONS
Net Realized Gain (Loss) on:
Security Transactions 1,553,149
Foreign Currency Transactions (10,555)
---------------
Net Realized Gain 1,542,594
Net Change in Unrealized Appreciation/Depreciation
of Investments and Foreign Currency Translation (2,358,558)
---------------
Net Realized and Unrealized Loss (815,964)
---------------
Net Decrease in Net Assets Resulting from Operations $ (450,976)
===============
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
19
<Page>
STATEMENTS OF CHANGES IN NET ASSETS
(UNAUDITED)
<Table>
<Caption>
SIX MONTHS ENDED YEAR ENDED
6/30/05 12/31/04
OPERATIONS
Net Investment Income $ 364,988 $ 277,266
Net Realized Gain on Security and Foreign
Currency Transactions 1,542,594 8,483,384
Net Change in Unrealized Appreciation/Depreciation
of Investments and Foreign Currency Translation (2,358,558) (886,438)
---------------- ----------------
Net Increase (Decrease) in Net Assets Resulting
from Operations (450,976) 7,874,212
---------------- ----------------
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS
From Net Investment Income
Class A 0 (185,495)
Class F 0 (72,290)
Class R 0 (11,405)
Class T 0 (511)
---------------- ----------------
Net Decrease from Dividends and Distributions 0 (269,701)
---------------- ----------------
CAPITAL SHARE TRANSACTIONS
Net Decrease--Note 4
Class A (1,106,866) (2,078,483)
Class B (461,066) (527,506)
Class C (12,975) (94,599)
Class F (443,050) (980,705)
Class R (6,115) (3,373,718)
Class T (46,851) (31,098)
---------------- ----------------
Net Decrease from Capital Share Transactions (2,076,923) (7,086,109)
---------------- ----------------
Net Increase (Decrease) in Net Assets (2,527,899) 518,402
---------------- ----------------
NET ASSETS
Beginning of period $ 38,960,067 $ 38,441,665
---------------- ----------------
End of period $ 36,432,168 $ 38,960,067
================ ================
Undistributed Net Investment Income $ 368,277 $ 3,289
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
20
<Page>
FINANCIAL HIGHLIGHTS
(UNAUDITED)
<Table>
<Caption>
SIX MONTHS YEAR ENDED
ENDED JUNE 30, DECEMBER 31,
2005 2004 2003 2002 2001
-------------- -------------------------------------------------------
CLASS A SHARES
PER SHARE OPERATING DATA
Net Asset Value, beginning of period $ 11.90 $ 9.77 $ 7.19 $ 10.03 $ 14.42
- --------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) 0.12 0.08 0.06 0.01 0.00(a)
Net realized and unrealized gains
(losses) on securities (0.25) 2.14 2.59 (2.84) (4.39)
------------------------------------------------------------------------
Total from investment operations (0.13) 2.22 2.65 (2.83) (4.39)
- --------------------------------------------------------------------------------------------------------------------------------
Less dividends and distributions:
From net investment income 0.00 (0.09) (0.07) (0.01) 0.00
From net realized gains 0.00 0.00 0.00 0.00 0.00
------------------------------------------------------------------------
Total distributions 0.00 (0.09) (0.07) (0.01) 0.00
- --------------------------------------------------------------------------------------------------------------------------------
Net Asset Value, end of period $ 11.77 $ 11.90 $ 9.77 $ 7.19 $ 10.03
========================================================================
TOTAL RETURN(b) (1.09%) 22.69% 36.84% (28.19%) (30.44%)
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000s) $ 23,684 $ 25,076 $ 22,432 $ 18,217 $ 29,151
- --------------------------------------------------------------------------------------------------------------------------------
Ratios to average net assets(c):
Expenses with reimbursements, but
no earnings credits or brokerage offsets(d) 1.46% 1.42% 1.41% 1.40% 1.46%
Expenses with reimbursements,
earnings credits and brokerage offsets 1.40% 1.40% 1.40% 1.40% 1.44%
Net investment income (loss) 2.01% 0.74% 0.80% 0.13% (0.74%)
- --------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate(e) 80% 85% 144% 220% 213%
</Table>
(a). NET INVESTMENT LOSS FOR THE YEAR ENDED DECEMBER 31, 2001 AGGREGATED LESS
THAN $0.01 ON A PER SHARE BASIS.
(b). SALES CHARGES ARE NOT REFLECTED IN THE TOTAL RETURN.
(c). ANNUALIZED.
(d). 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 2.18% (2005), 2.05% (2004), 2.48% (2003), 2.18%
(2002), 1.78% (2001).
(e). PORTFOLIO TURNOVER RATE IS A MEASURE OF PORTFOLIO ACTIVITY THAT IS
CALCULATED BY DIVIDING THE LESSER OF PURCHASES OR SALES OF SECURITIES,
EXCLUDING SECURITIES HAVING MATURITY DATES AT ACQUISITION OF ONE YEAR OR
LESS, BY THE AVERAGE VALUE OF THE PORTFOLIO SECURITIES HELD DURING THE
PERIOD, WHICH IS A ROLLING 12-MONTH PERIOD.
SEE NOTES TO FINANCIAL STATEMENTS.
21
<Page>
<Table>
<Caption>
SIX MONTHS YEAR ENDED
ENDED JUNE 30, DECEMBER 31,
2005 2004 2003 2002 2001
-------------- ------------------------------------------------------------
CLASS B SHARES
PER SHARE OPERATING DATA
Net Asset Value, beginning of period $ 11.63 $ 9.55 $ 7.03 $ 9.87 $ 14.29
- ---------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) 0.07(a) 0.00(a),(b) (0.08) (0.11) (0.12)
Net realized and unrealized gains
(losses) on securities (0.25) 2.08 2.61 (2.73) (4.30)
--------------------------------------------------------------------------------
Total from investment operations (0.18) 2.08 2.53 (2.84) (4.42)
- ---------------------------------------------------------------------------------------------------------------------------------
Less dividends and distributions:
From net investment income 0.00 0.00 (0.01) 0.00 0.00
From net realized gains 0.00 0.00 0.00 0.00 0.00
--------------------------------------------------------------------------------
Total distributions 0.00 0.00 (0.01) 0.00 0.00
- ---------------------------------------------------------------------------------------------------------------------------------
Net Asset Value, end of period $ 11.45 $ 11.63 $ 9.55 $ 7.03 $ 9.87
================================================================================
TOTAL RETURN(c) (1.55%) 21.78% 35.95% (28.77%) (30.93%)
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000s) $ 1,783 $ 2,281 $ 2,372 $ 2,201 $ 3,786
- ---------------------------------------------------------------------------------------------------------------------------------
Ratios to average net assets(d):
Expenses with reimbursements, but
no earnings credits or brokerage offsets(e) 2.21% 2.16% 2.16% 2.16% 2.28%
Expenses with reimbursements,
earnings credits and brokerage offsets 2.15% 2.15% 2.15% 2.15% 2.26%
Net investment income (loss) 1.22% 0.00% 0.07% (0.61%) (1.03%)
- ---------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate(f) 80% 85% 144% 220% 213%
</Table>
(a). COMPUTED USING AVERAGE SHARES OUTSTANDING THROUGHOUT THE PERIOD.
(b). NET INVESTMENT INCOME FOR THE YEAR ENDED DECEMBER 31, 2004 AGGREGATED LESS
THAN $0.01 ON A PER SHARE BASIS.
(c). SALES CHARGES ARE NOT REFLECTED IN THE TOTAL RETURN.
(d). ANNUALIZED.
(e). 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 3.05% (2005), 2.85% (2004), 3.32% (2003), 2.91%
(2002), AND 2.67% (2001).
(f). PORTFOLIO TURNOVER RATE IS A MEASURE OF PORTFOLIO ACTIVITY THAT IS
CALCULATED BY DIVIDING THE LESSER OF PURCHASES OR SALES OF SECURITIES,
EXCLUDING SECURITIES HAVING MATURITY DATES AT ACQUISITION OF ONE YEAR OR
LESS, BY THE AVERAGE VALUE OF THE PORTFOLIO SECURITIES HELD DURING THE
PERIOD, WHICH IS A ROLLING 12-MONTH PERIOD.
22
<Page>
<Table>
<Caption>
SIX MONTHS YEAR ENDED
ENDED JUNE 30, DECEMBER 31,
2005 2004 2003 2002 2001
------------- ------------------------------------------------------------
CLASS C SHARES
PER SHARE OPERATING DATA
Net Asset Value, beginning of period $ 11.61 $ 9.53 $ 7.02 $ 9.86 $ 14.27
- ----------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) 0.05 0.00(a),(b) (0.26) (0.29) (0.16)
Net realized and unrealized gains
(losses) on securities (0.23) 2.08 2.77 (2.55) (4.25)
-------------------------------------------------------------------------------
Total from investment operations (0.18) 2.08 2.51 (2.84) (4.41)
- ----------------------------------------------------------------------------------------------------------------------------------
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 0.00
-------------------------------------------------------------------------------
Total distributions 0.00 0.00 0.00 0.00 0.00
- ----------------------------------------------------------------------------------------------------------------------------------
Net Asset Value, end of period $ 11.43 $ 11.61 $ 9.53 $ 7.02 $ 9.86
===============================================================================
TOTAL RETURN(c) (1.55%) 21.83% 35.76% (28.80%) (30.90%)
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000s) $ 457 $ 476 $ 482 $ 532 $ 1,429
- ----------------------------------------------------------------------------------------------------------------------------------
Ratios to average net assets(d):
Expenses with reimbursements, but
no earnings credits or brokerage offsets(e) 2.21% 2.16% 2.16% 2.16% 2.29%
Expenses with reimbursements,
earnings credits and brokerage offsets 2.15% 2.15% 2.15% 2.15% 2.26%
Net investment income (loss) 1.26% 0.03% 0.08% (0.63%) (0.99%)
- ----------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate(f) 80% 85% 144% 220% 213%
</Table>
(a). COMPUTED USING AVERAGE SHARES OUTSTANDING THROUGHOUT THE YEAR.
(b). NET INVESTMENT INCOME FOR THE YEAR ENDED DECEMBER 31, 2004 AGGREGATED LESS
THAN $0.01 ON A PER SHARE BASIS.
(c). SALES CHARGES ARE NOT REFLECTED IN THE TOTAL RETURN.
(d). ANNUALIZED.
(e). 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 2.98% (2005), 2.87% (2004), 3.25% (2003), 3.11%
(2002), AND 2.85% (2001).
(f). PORTFOLIO TURNOVER RATE IS A MEASURE OF PORTFOLIO ACTIVITY THAT IS
CALCULATED BY DIVIDING THE LESSER OF PURCHASES OR SALES OF SECURITIES,
EXCLUDING SECURITIES HAVING MATURITY DATES AT ACQUISITION OF ONE YEAR OR
LESS, BY THE AVERAGE VALUE OF THE PORTFOLIO SECURITIES HELD DURING THE
PERIOD, WHICH IS A ROLLING 12-MONTH PERIOD.
SEE NOTES TO FINANCIAL STATEMENTS.
23
<Page>
<Table>
<Caption>
SIX MONTHS YEAR ENDED
ENDED JUNE 30, DECEMBER 31,
2005 2004 2003 2002 2001
-------------- ------------------------------------------------------------
CLASS F SHARES
PER SHARE OPERATING DATA
Net Asset Value, beginning of period $ 11.92 $ 9.78 $ 7.18 $ 10.03 $ 14.40
- ----------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) 0.10 0.08(a) (0.01) (0.05) (0.07)
Net realized and unrealized gains
(losses) on securities (0.23) 2.14 2.68 (2.79) (4.30)
-------------------------------------------------------------------------------
Total from investment operations (0.13) 2.22 2.67 (2.84) (4.37)
- ----------------------------------------------------------------------------------------------------------------------------------
Less dividends and distributions:
From net investment income 0.00 (0.08) (0.07) (0.01) 0.00
From net realized gains 0.00 0.00 0.00 0.00 0.00
-------------------------------------------------------------------------------
Total distributions 0.00 (0.08) (0.07) (0.01) 0.00
- ----------------------------------------------------------------------------------------------------------------------------------
Net Asset Value, end of period $ 11.79 $ 11.92 $ 9.78 $ 7.18 $ 10.03
===============================================================================
TOTAL RETURN (1.09%) 22.70% 37.17% (28.30%) (30.35%)
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000s) $ 10,323 $ 10,885 $ 9,837 $ 9,321 $ 16,640
- ----------------------------------------------------------------------------------------------------------------------------------
Ratios to average net assets(b):
Expenses with reimbursements, but
no earnings credits or brokerage offsets(c) 1.45% 1.41% 1.40% 1.40% 1.55%
Expenses with reimbursements,
earnings credits and brokerage offsets 1.40% 1.40% 1.40% 1.40% 1.52%
Net investment income (loss) 2.00% 0.76% 0.80% 0.12% (0.26%)
- ----------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate(d) 80% 85% 144% 220% 213%
</Table>
(a). COMPUTED USING AVERAGE SHARES OUTSTANDING THROUGHOUT THE YEAR.
(b). ANNUALIZED.
(c). 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 2.28% (2005), 2.10% (2004), 2.52% (2003), 2.13%
(2002), AND 1.99% (2001).
(d). PORTFOLIO TURNOVER RATE IS A MEASURE OF PORTFOLIO ACTIVITY THAT IS
CALCULATED BY DIVIDING THE LESSER OF PURCHASES OR SALES OF SECURITIES,
EXCLUDING SECURITIES HAVING MATURITY DATES AT ACQUISITION OF ONE YEAR OR
LESS, BY THE AVERAGE VALUE OF THE PORTFOLIO SECURITIES HELD DURING THE
PERIOD, WHICH IS A ROLLING 12-MONTH PERIOD.
24
<Page>
<Table>
<Caption>
SIX MONTHS YEAR ENDED
ENDED JUNE 30, DECEMBER 31,
2005 2004 2003 2002 2001
-------------- -------------------------------------------------------
CLASS R SHARES
PER SHARE OPERATING DATA
Net Asset Value, beginning of period $ 12.01 $ 9.82 $ 7.22 $ 10.08 $ 14.45
- -------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) 0.13(b) 0.13(b) 0.09 0.02 0.00(a)
Net realized and unrealized gains
(losses) on securities (0.25) 2.17 2.60 (2.85) (4.37)
--------------------------------------------------------------------------
Total from investment operations (0.12) 2.30 2.69 (2.83) (4.37)
- -------------------------------------------------------------------------------------------------------------------------------
Less dividends and distributions:
From net investment income 0.00 (0.11) (0.09) (0.03) 0.00
From net realized gains 0.00 0.00 0.00 0.00 0.00
--------------------------------------------------------------------------
Total distributions 0.00 (0.11) (0.09) (0.03) 0.00
- -------------------------------------------------------------------------------------------------------------------------------
Net Asset Value, end of period $ 11.89 $ 12.01 $ 9.82 $ 7.22 $ 10.08
==========================================================================
TOTAL RETURN (1.00%) 23.45% 37.27% (28.10%) (30.24%)
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000s) $ 60 $ 66 $ 3,146 $ 2,470 $ 6,102
- -------------------------------------------------------------------------------------------------------------------------------
Ratios to average net assets(c):
Expenses with reimbursements, but
no earnings credits or brokerage offsets(d) 1.21% 1.15% 1.15% 1.16% 1.28%
Expenses with reimbursements,
earnings credits and brokerage offsets 1.15% 1.15% 1.15% 1.15% 1.26%
Net investment income (loss) 2.24% 1.21% 1.03% 0.27% (0.04%)
- -------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate(e) 80% 85% 144% 220% 213%
</Table>
(a). NET INVESTMENT LOSS FOR THE YEAR ENDED DECEMBER 31, 2001 AGGREGATED LESS
THAN $0.01 ON A PER SHARE BASIS.
(b). COMPUTED USING AVERAGE SHARES OUTSTANDING THROUGHOUT THE PERIOD.
(c). ANNUALIZED.
(d). 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 4.10% (2005), 1.65% (2004), 1.95% (2003), 1.71%
(2002), AND 1.57% (2001).
(e). PORTFOLIO TURNOVER RATE IS A MEASURE OF PORTFOLIO ACTIVITY THAT IS
CALCULATED BY DIVIDING THE LESSER OF PURCHASES OR SALES OF SECURITIES,
EXCLUDING SECURITIES HAVING MATURITY DATES AT ACQUISITION OF ONE YEAR OR
LESS, BY THE AVERAGE VALUE OF THE PORTFOLIO SECURITIES HELD DURING THE
PERIOD, WHICH IS A ROLLING 12-MONTH PERIOD.
SEE NOTES TO FINANCIAL STATEMENTS.
25
<Page>
<Table>
<Caption>
SIX MONTHS YEAR ENDED
ENDED JUNE 30, DECEMBER 31,
2005 2004 2003 2002 2001
-------------- -------------------------------------------------------
CLASS T SHARES
PER SHARE OPERATING DATA
Net Asset Value, beginning of period $ 11.84 $ 9.70 $ 7.14 $ 9.97 $ 14.37
- ----------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) 0.09(b) 0.06(b) 0.00(a) (0.10) (0.09)
Net realized and unrealized gains
(losses) on securities (0.24) 2.11 2.61 (2.73) (4.31)
--------------------------------------------------------------------------
Total from investment operations (0.15) 2.17 2.61 (2.83) (4.40)
- ----------------------------------------------------------------------------------------------------------------------------------
Less dividends and distributions:
From net investment income 0.00 (0.03) (0.05) 0.00 0.00
From net realized gains 0.00 0.00 0.00 0.00 0.00
--------------------------------------------------------------------------
Total distributions 0.00 (0.03) (0.05) 0.00 0.00
- ----------------------------------------------------------------------------------------------------------------------------------
Net Asset Value, end of period $ 11.69 $ 11.84 $ 9.70 $ 7.14 $ 9.97
==========================================================================
TOTAL RETURN(c) (1.27%) 22.42% 36.58% (28.39%) (30.62%)
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000s) $ 126 $ 175 $ 172 $ 158 $ 343
- ----------------------------------------------------------------------------------------------------------------------------------
Ratios to average net assets(d):
Expenses with reimbursements, but
no earnings credits or brokerage offsets(e) 1.71% 1.66% 1.65% 1.65% 1.80%
Expenses with reimbursements,
earnings credits and brokerage offsets 1.65% 1.65% 1.65% 1.65% 1.77%
Net investment income (loss) 1.67% 0.57% 0.67% (0.12%) (0.53%)
- ----------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate(f) 80% 85% 144% 220% 213%
</Table>
(a). NET INVESTMENT INCOME FOR THE YEAR ENDED DECEMBER 31, 2003 AGGREGATED LESS
THAN $0.01 ON A PER SHARE BASIS.
(b). COMPUTED USING AVERAGE SHARES OUTSTANDING THROUGHOUT THE PERIOD.
(c). SALES CHARGES ARE NOT REFLECTED IN THE TOTAL RETURN.
(d). ANNUALIZED.
(e). 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 2.82% (2005), 2.44% (2004), 2.88% (2003), 4.00%
(2002), AND 2.86% (2001).
(f). PORTFOLIO TURNOVER RATE IS A MEASURE OF PORTFOLIO ACTIVITY THAT IS
CALCULATED BY DIVIDING THE LESSER OF PURCHASES OR SALES OF SECURITIES,
EXCLUDING SECURITIES HAVING MATURITY DATES AT ACQUISITION 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
June 30, 2005 (UNAUDITED)
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
Dreyfus Founders Funds, Inc. (the "Company") is an open-end management
investment company registered under the Investment Company Act of 1940 (the
"1940 Act"). Ten series of shares are currently issued: Balanced, Discovery,
Equity Growth, 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 shares redeemed 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. Since February 22, 2005, New York closing exchange rates have
been used to convert foreign currencies to U.S. dollars. Previously, London
closing exchange rates were used to convert foreign currencies to U.S. dollars.
A debt security with a remaining maturity greater than 60 days at the time of
purchase is valued in accordance with the evaluated bid price supplied by a
pricing service approved by the Company's board of directors or, if such price
is not available, at the mean between the highest bid and lowest asked
quotations obtained from at least two securities dealers. A debt security with a
remaining maturity of 60 days or less at the time of purchase is valued at
amortized cost, which approximates market value, unless it is determined that
amortized cost would not represent market value, in which case the securities
would be marked to market. The Fund amortizes premiums and discounts on all debt
securities.
If market quotations 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
27
<Page>
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. In addition, it is possible
that the fair value determined for a security may be different from the value
that may be realized upon the security's sale, and that these differences may be
material to the net asset value of the Fund.
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 June 30, 2005 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.
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 period 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 first $250 million of net assets, 0.80% of the next $250 million of
net assets and 0.70% of net assets in excess of $500 million.
29
<Page>
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 and expense offsets to broker commissions) 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
written contractual commitment. For the six months ended June 30, 2005, $131,025
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 six months ended June 30,
2005, Class F shares were charged $13,410 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 six months ended June 30, 2005, Class F shares
were charged $4,685 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 $12.58 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, including both the per account fees paid to
DTI and out-of-pocket charges, during the six months ended June 30, 2005 were as
follows:
<Table>
<Caption>
TRANSFER
AGENCY FEES
---------------------------------------------------------------
Class A $ 28,984
Class B $ 3,613
Class C $ 684
Class R $ 706
Class T $ 441
</Table>
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 six months ended
30
<Page>
June 30, 2005, the Fund was charged $475 for cash management fees, which are
included in the out-of-pocket transfer agency charges above.
OTHER TRANSFER AGENCY FEES--Various broker-dealers, retirement plan
administrators and other 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 six months ended
June 30, 2005, the Fund paid $1,660 to these entities for such services. This
amount is included in the transfer agency fees shown on the Statement of
Operations.
DISTRIBUTION AND SHAREHOLDER SERVICES PLANS--DSC also is the distributor of the
Fund's shares. The Fund has adopted a Distribution Plan pursuant to Rule 12b-1
under the 1940 Act applicable to its Class F shares. Under the plan, the Fund is
authorized to reimburse DSC for expenses paid for distributing or servicing its
Class F shares at an annual rate of up to 0.25% of the value of the average
daily net assets of the Fund's Class F shares. During the six months ended June
30, 2005, Class F shares were charged $13,105 pursuant to this Distribution
Plan.
The Fund also has adopted a Distribution Plan pursuant to Rule 12b-1 under the
1940 Act applicable to its Class B, Class C and Class T shares. Under this plan,
the Fund pays DSC a fee for distributing its Class B and C shares at the annual
rate of 0.75% of the value of the average daily net assets of its Class B and C
shares, respectively, and pays DSC a fee for distributing its Class T shares at
the annual rate of 0.25% of the average daily net assets of its Class T shares.
In addition, the Fund has adopted a Shareholder Services Plan applicable to its
Class A, Class B, Class C and Class T shares. Under the Shareholder Services
Plan, Class A, Class B, Class C and Class T shares pay DSC an annual fee of
0.25% of the value of their average daily net assets for the provision of
certain services.
Distribution and shareholder servicing fees paid to DSC by the Fund's Class A,
B, C and T shares for the six months ended June 30, 2005, were as follows:
<Table>
<Caption>
DISTRIBUTION SHAREHOLDER
FEES SERVICING FEES
----------------------------------------------------------------
Class A N/A $ 30,189
Class B $ 7,371 $ 2,457
Class C $ 1,794 $ 598
Class T $ 173 $ 173
</Table>
During the six months ended June 30, 2005, DSC retained $7,771 and $1 of
contingent deferred sales charges relating to redemptions of Class B and Class C
shares, respectively.
FUND ACCOUNTING AND ADMINISTRATIVE SERVICES FEES--The Funds have agreed to
compensate Founders for providing accounting services, administration,
compliance monitoring, regulatory and shareholder reporting, as well as related
facilities, equipment and clerical help. The fee is computed at the annual rate
of 0.10% of the average daily net assets of the Fund on the first $500 million,
0.065% of the average
31
<Page>
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 in writing 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 contractually agreed in writing 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
----------------------------------------------------------------
9/1/04 to 8/31/05 $ 200,000
9/1/05 to 8/31/06 $ 200,000
</Table>
The fee waiver is allocated among the Funds in proportion to their respective
shares of the total custodian fee. For the six months ended June 30, 2005, the
Fund's portion of the fee waiver was $10,956, which reduced the amount paid to
Mellon Bank to $20,635.
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.
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
32
<Page>
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. Accumulated
capital losses as of December 31, 2004 were:
<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
June 30, 2005 are noted below. Unrealized appreciation/depreciation in the table
below excludes appreciation/depreciation on foreign currency translation, if
any. The primary difference between book and tax appreciation or depreciation is
wash sale loss deferrals.
<Table>
Undistributed Ordinary Income $ 9,042
Federal Tax Cost $ 28,831,630
Gross Tax Appreciation of Investments $ 7,587,950
Gross Tax Depreciation of Investments $ (212,725)
Net Tax Appreciation $ 7,375,225
</Table>
4. CAPITAL SHARE TRANSACTIONS
The Fund is authorized to issue 450 million shares of $0.01 par value capital
stock. Transactions in shares of the Fund for the periods indicated were as
follows:
<Table>
<Caption>
SIX MONTHS ENDED YEAR ENDED
6/30/05 12/31/04
SHARES AMOUNT SHARES AMOUNT
CLASS A
Sold 26,806 $ 316,411 111,208 $ 1,148,486
Dividends or Distributions Reinvested 0 $ 0 14,688 $ 174,191
Redeemed (120,555) $ (1,423,277) (315,412) $ (3,401,160)
------------------------------------------------------------------------
Net Decrease (93,749) $ (1,106,866) (189,516) $ (2,078,483)
========================================================================
</Table>
33
<Page>
<Table>
<Caption>
SIX MONTHS ENDED YEAR ENDED
06/30/05 12/31/04
SHARES AMOUNT SHARES AMOUNT
CLASS B
Sold 11,577 $ 135,112 11,870 $ 124,485
Redeemed (52,023) $ (596,178) (64,211) $ (651,991)
------------------------------------------------------------------------
Net Decrease (40,446) $ (461,066) (52,341) $ (527,506)
========================================================================
CLASS C
Sold 6,480 $ 72,825 6,433 $ 64,792
Redeemed (7,577) $ (85,800) (15,944) $ (159,391)
------------------------------------------------------------------------
Net Decrease (1,097) $ (12,975) (9,511) $ (94,599)
========================================================================
CLASS F
Sold 65,567 $ 769,530 470,504 $ 4,815,790
Dividends or Distributions Reinvested 0 $ 0 5,843 $ 69,420
Redeemed (102,707) $ (1,212,580) (569,384) $ (5,865,915)
------------------------------------------------------------------------
Net Decrease (37,140) $ (443,050) (93,037) $ (980,705)
========================================================================
CLASS R
Sold 0 $ 0 40,338 $ 419,337
Dividends or Distributions Reinvested 0 $ 0 957 $ 11,405
Redeemed (518) $ (6,115) (355,989) $ (3,804,460)
------------------------------------------------------------------------
Net Decrease (518) $ (6,115) (314,694) $ (3,373,718)
========================================================================
CLASS T
Sold 104 $ 1,176 1,431 $ 14,400
Dividends or Distributions Reinvested 0 $ 0 42 $ 492
Redeemed (4,086) $ (48,027) (4,460) $ (45,990)
------------------------------------------------------------------------
Net Decrease (3,982) $ (46,851) (2,987) $ (31,098)
========================================================================
</Table>
5. INVESTMENT TRANSACTIONS
For the six months ended June 30, 2005, purchases and sales of investment
securities (excluding short-term securities and U.S. government obligations)
were $9,848,073 and $13,500,345, 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
34
<Page>
amount which the Fund is permitted to borrow pursuant to the prospectus, any law
or any other agreement. Combined borrowings are subject to the $50 million cap
on the total LOC. Each Fund agrees to pay annual fees and interest on the unpaid
balance based on prevailing market rates as defined in the LOC. At June 30,
2005, 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>
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, 2005, 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. 8/05
A-636-INE-05
<Page>
SEMIANNUAL REPORT
[GRAPHIC]
DREYFUS FOUNDERS
MID-CAP GROWTH FUND
INVESTMENT UPDATE
JUNE 30, 2005
[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
</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 financial 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 June 30, 2005. The amounts of
these holdings are included in the Statement of Investments.
NOT FDIC-INSURED - NOT BANK-GUARANTEED - MAY LOSE VALUE
<Page>
MANAGEMENT OVERVIEW
[PHOTO OF JOHN B. JARES]
[PHOTO OF DANIEL E. CROWE]
A DISCUSSION WITH CO-PORTFOLIO MANAGERS JOHN B. JARES, CFA, LEFT, AND DANIEL E.
CROWE, CFA, REGARDING FUND PERFORMANCE FOR THE SIX-MONTH PERIOD ENDED JUNE 30,
2005.
THE VIEW TURNED OPTIMISTIC
The investing environment during the first half of 2005 could be defined by two
distinct periods. During the first period, the market struggled with higher
energy prices, the Federal Reserve's continued tightening of its monetary
policy, a slowing economy and signs of increasing inflation. However, during the
latter part of the half, investors became more optimistic based on stable
economic growth in the face of continued high oil prices, relatively benign
inflation, strong growth in housing prices and the belief that the Federal
Reserve was nearing the end of its tightening cycle. To summarize the half,
investors went from viewing the glass as half empty to half full.
In spite of this, the majority of growth indexes were down for the first half
of 2005. However, the Fund's benchmark, the Russell Midcap Growth Index, was up
slightly for the period. For the six-month period ended June 30, 2005, Dreyfus
Founders Mid-Cap Growth Fund underperformed its benchmark, which returned 1.70%
for the period.
SHIFTS IN COMPOSITION
The number of holdings in the Fund remained relatively consistent throughout the
first six months of 2005, with approximately 50-60 names comprising the
portfolio at any given point in time. The Fund's cash position rose slightly
during the latter part of the period due to both the sale of existing positions
that had reached target prices and an increasingly cautious outlook.
3
<Page>
While stock selection provided both positive and negative impacts to the
Fund's relative return, shifts in sector weightings during the period had a
slightly negative impact. Overweight positions in the consumer discretionary and
information technology sectors were rebalanced during the half. The consumer
discretionary weighting was pulled back due to our concern regarding consumer
spending and the effect that potentially slower home price appreciation, higher
energy costs and moderate employment growth may have on this sector. The Fund's
weighting in the information technology sector also declined during the period.
Some information technology positions were sold because of fundamental concerns,
as well as select investments reaching valuations at which the potential return
was no longer justified by the amount of risk. The proceeds from these
liquidations were reinvested in companies in other sectors and industries where
potentially greater growth opportunities were identified. This re-weighting
hampered the Fund's return, particularly as the information technology sector
saw gains through the end of the second quarter.
Conversely, the Fund's weighting in the healthcare sector was increased as we
found companies with strong growth prospects trading at reasonable valuations
that we believed would likely continue to exhibit strong growth in a slowing
economy.
Throughout the period, we maintained an underweight position in the
industrials sector due to high valuations and concerns regarding the current
economic conditions.
STOCK SELECTION IN IT AND MATERIALS AIDED RETURN
Our bottom-up stock selection process aided the Fund's performance for the
period; the largest contribution to the Fund's return came from strong stock
selection in the information technology (IT) and materials sectors. An
overweight position in the telecommunications services sector also buoyed the
Fund's performance.
[SIDENOTE]
"WHILE STOCK SELECTION PROVIDED BOTH POSITIVE AND NEGATIVE IMPACTS TO THE FUND'S
RELATIVE RETURN, SHIFTS IN SECTOR WEIGHTINGS DURING THE PERIOD HAD A SLIGHTLY
NEGATIVE IMPACT."
4
<Page>
In the information technology sector, BLACKBOARD, INC. a provider of
educational software, continued to see strong demand for its academic suite of
products as well as upgrades throughout its product line. COGENT, INC., a
provider of automated fingerprint identification systems and other biometrics
solutions, was an additional strong performer for the Fund during the period.
Materials holding LAFARGE NORTH AMERICA, INC., a diversified provider of
construction materials, saw continued strength in cement prices due to a strong
economy and limited supply.
TOP 3 PERFORMING SECTORS IN THE FUND
Information Technology
Materials
Telecommunications Services
Other strong performers outside the information technology and materials
sectors boosted the Fund's performance during the period, in spite of weak stock
selection overall in each of these stocks' respective sectors. For example, a
distributor of medical and dental products, HENRY SCHEIN, INC. showed strong
growth within its U.S. dental business and saw its valuation improve as
investors became comfortable that the flu vaccine supply issues the company
previously encountered did not have a material impact on the long-term value of
the company. AMERICAN TOWER CORPORATION benefited as investors realized the
attractive fundamentals within the cellular tower industry. The industry
LARGEST EQUITY HOLDINGS (ticker symbol)
<Table>
1. AMERICAN TOWER CORPORATION (AMT) 3.92%
2. HARMAN INTERNATIONAL INDUSTRIES, INC. (HAR) 3.72%
3. LAFARGE NORTH AMERICA, INC. (LAF) 3.47%
4. MGI PHARMA, INC. (MOGN) 2.92%
5. FIRST MARBLEHEAD CORPORATION (FMD) 2.89%
6. BED BATH & BEYOND, INC. (BBBY) 2.80%
7. SIEBEL SYSTEMS, INC. (SEBL) 2.79%
8. COGENT, INC. (COGT) 2.78%
9. BALL CORPORATION (BLL) 2.75%
10. WATERS CORPORATION (WAT) 2.63%
</Table>
Portfolio holdings are subject to change, and should not be construed as a
recommendation of any security.
5
<Page>
GROWTH OF $10,000 INVESTMENT
PERFORMANCE DATA QUOTED REPRESENTS PAST PERFORMANCE. PAST PERFORMANCE DOES NOT
GUARANTEE FUTURE RESULTS. INVESTMENT RETURN AND PRINCIPAL VALUE OF AN INVESTMENT
WILL FLUCTUATE SO THAT AN INVESTOR'S SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR
LESS THAN THEIR ORIGINAL COST. CURRENT PERFORMANCE MAY BE LOWER OR HIGHER THAN
THE PERFORMANCE DATA QUOTED. PLEASE CALL 1-800-525-2440 TO OBTAIN THE MOST
RECENT MONTH-END PERFORMANCE DATA.
[CHART]
Dreyfus Founders
Mid-Cap Growth Fund Russell Midcap
Class F Shares Growth Index
06/30/1995 $10,000.00 $10,000.00
06/28/1996 $11,608.37 $11,191.27
06/30/1997 $13,282.14 $12,753.06
06/30/1998 $15,944.23 $12,295.97
06/30/1999 $15,256.94 $16,101.40
06/30/2000 $21,069.50 $19,193.07
06/29/2001 $13,497.90 $25,383.38
06/28/2002 $10,475.47 $30,235.08
06/30/2003 $10,338.08 $34,685.91
06/30/2004 $13,051.40 $40,758.28
06/30/2005 $14,390.89 $40,512.12
The above graph compares a $10,000 investment made in Class F shares of Dreyfus
Founders Mid-Cap Growth Fund on 6/30/95 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. 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 AND YEAR-TO DATE TOTAL RETURN as of 6/30/05
<Table>
<Caption>
YEAR-TO 1 5 10 SINCE
CLASS (INCEPTION DATE) DATE + YEAR YEARS YEARS INCEPTION
-------------------------------------------------------------------------------------------------------------------------
A SHARES (12/31/99)
With sales charge (5.75%) (6.59%) 3.79% (8.84%) -- (6.84%)
Without sales charge (0.96%) 10.19% (7.75%) -- (5.83%)
B SHARES (12/31/99)
With redemption* (5.44%) 5.12% (8.55%) -- (6.55%)
Without redemption (1.50%) 9.12% (8.31%) -- (6.44%)
C SHARES (12/31/99)
With redemption** (2.50%) 8.55% (8.56%) -- (6.65%)
Without redemption (1.52%) 9.55% (8.56%) -- (6.65%)
F SHARES (9/8/61) (1.18%) 10.26% (7.34%) 3.71% N/A
R SHARES (12/31/99) (1.19%) 9.81% (7.63%) -- (5.72%)
T SHARES (12/31/99)
With sales charge (4.50%) (6.01%) 4.27% (9.44%) -- (7.43%)
Without sales charge (1.51%) 9.22% (8.60%) -- (6.65%)
</Table>
Average annual and year-to-date total returns do not reflect the deduction of
taxes that a shareholder would pay on Fund distributions or redemption of Fund
shares, but do reflect the reinvestment of dividends and capital gain
distributions, fee waivers 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. Part of the Fund's historical 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. There are risks
associated with mid-cap investing, such as limited product lines, less
liquidity, and small market share.
* The maximum contingent deferred sales charge for Class B shares is 4% and is
reduced to 0% after six years, at which time the Class B shares convert to
Class A shares.
** The maximum contingent deferred sales charge for Class C shares is 1% for
shares redeemed within one year of the date of purchase.
+ Total return is not annualized.
7
<Page>
has consolidated to a smaller number of financially strong players, and enjoyed
stable price increases, improving balance sheets, and strong cash flow
generation during the period. AMR CORPORATION, the parent company of American
Airlines, an addition to the Fund in the first quarter, was a strong contributor
to performance due to stronger airline industry pricing and improved load
factors. Finally, merchandising initiatives implemented at KOHL'S CORPORATION
over the past year led to improvement in same-store sales, driving share price
appreciation.
FINANCIALS AND HEALTHCARE WEIGHED HEAVILY
Offsetting the gain seen in the aforementioned sectors, however, was poor stock
selection within financials, healthcare and to a lesser extent, energy. Relative
weightings in these sectors also detracted from the Fund's return.
In financials, FIRST MARBLEHEAD CORPORATION, a provider of outsourcing
services for private education lending, declined as investors grew concerned
about two factors that may affect the company's long-term growth rate. First,
the company delivered slower-than-expected contract growth in the first
[CHART]
PORTFOLIO COMPOSITION OF NET ASSETS
<Table>
Healthcare 24.42%
Consumer Discretionary 20.61%
Information Technology 13.93%
Financials 9.69%
Materials 6.22%
Industrials 4.98%
Energy 4.95%
Telecommunications Services 3.92%
Consumer Staples 0.88%
Other 1.74%
Cash & Equivalents 8.66%
</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>
BOTTOM 3 PERFORMING SECTORS IN THE FUND
Financials
Healthcare
Energy
quarter. Second, a large customer announced that it is reconsidering the option
of securitizing loans through First Marblehead, which would decrease the
revenues the company realized from this customer. However, the Fund increased
its position in First Marblehead during the period as we viewed the company as
attractively valued, given its long-term growth prospects. Financial guarantor
AMBAC FINANCIAL GROUP, INC. saw slower new business growth as tight credit
spreads limited the amount of new underwriting business, and a low level of new
international business was acquired in the first quarter. While we believe that
company management has the long-term ability to deliver value in a disciplined
manner, the position size was reduced as Ambac's somewhat muted growth
expectations led us to consider other positions offering better growth
opportunities.
In healthcare, MGI PHARMA, INC. underperformed as investors continued to be
concerned that one of the company's products would fall short of revenue
expectations. Sales might slow due to changes by the Centers for Medicare and
Medicaid Services to the reimbursement rate for cancer drugs, including MGI
Pharma's chemotherapy-induced naseau and vomiting (CINV) drug Aloxi(R).
Additionally, GlaxoSmithKline launched an aggressive campaign in an attempt to
win greater share of the CINV market. Biomet, Inc. also underperformed due to
worries over slowing procedures growth and increasing concerns about pricing
pressure for orthopedic hips and knees. Based on these concerns, the Fund sold
its position in Biomet.
SELECT INDIVIDUAL ISSUES AFFECTED PERFORMANCE
Select stocks in other sectors also proved to be a hindrance to the Fund's
relative performance for the semiannual period. Among these poor performers were
Zebra Technologies Corporation, HARMAN INTERNATIONAL INDUSTRIES, INC. and W.W.
GRAINGER, INC. A slow uptake of radio frequency identification contributed to
price declines of Zebra Technologies. Furthermore, the company missed first
quarter earnings estimates due to order deferrals and distribution capacity
constraints in Europe. The stock price of W.W. Grainger, a supplier of
facilities maintenance products, declined as higher-than-expected spending on
9
<Page>
the company's store expansion program and issues regarding a SAP business
software implementation project created concerns about future earnings growth.
Although we believe that the initiatives put in place at W.W. Grainger may
deliver significant shareholder value, we were disappointed with management's
lack of willingness to appropriately manage the balance sheet. Therefore, the
Fund's position in this holding was reduced. Finally, Harman International
Industries' stock price declined due to concerns regarding its competitive
positioning for mid- and lower-tier infotainment systems. First quarter revenues
for the company also came in below some analysts' expectations as the company
prepared for product launches later this year. We viewed the issue regarding
competitive positioning as unfounded and the short-term fluctuations in revenue
as irrelevant. Therefore, the Fund used share price weakness as an opportunity
to increase its position in the company.
IN CONCLUSION
As we headed into the second half of 2005, the Fund had a slightly conservative
position. We structured the portfolio to place more emphasis in sectors we feel
may grow through a slowing economy as well as in companies that may offer
specific growth catalysts.
/s/ John B. Jares /s/ Daniel F. Crowe
John B. Jares, CFA Daniel F. 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 January 1, 2005
and held through June 30, 2005.
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 FOR COMPARISON PURPOSES 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*
(1/1/05) (6/30/05) (1/1/05-6/30/05)
- -------------------------------------------------------------------------------
CLASS A ACTUAL $ 1,000.00 $ 982.66 $ 7.70
CLASS A HYPOTHETICAL 1,000.00 1,016.96 7.83
CLASS B ACTUAL 1,000.00 973.03 12.01
CLASS B HYPOTHETICAL 1,000.00 1,012.54 12.25
CLASS C ACTUAL 1,000.00 973.24 11.61
CLASS C HYPOTHETICAL 1,000.00 1,012.95 11.85
CLASS F ACTUAL 1,000.00 981.26 6.95
CLASS F HYPOTHETICAL 1,000.00 1,017.72 7.08
CLASS R ACTUAL 1,000.00 980.28 7.79
CLASS R HYPOTHETICAL 1,000.00 1,016.86 7.93
CLASS T ACTUAL 1,000.00 972.34 12.55
CLASS T HYPOTHETICAL 1,000.00 1,011.99 12.80
</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
181/365 (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, earnings credits and brokerage
offsets, where applicable.
<Table>
<Caption>
EXPENSE RATIO
- ---------------------------------------------------------
CLASS A 1.56%
CLASS B 2.44%
CLASS C 2.36%
CLASS F 1.41%
CLASS R 1.58%
CLASS T 2.55%
</Table>
13
<Page>
STATEMENT OF INVESTMENTS
June 30, 2005 (UNAUDITED)
<Table>
<Caption>
SHARES MARKET VALUE
- --------------------------------------------------------------------------------
COMMON STOCKS (DOMESTIC)--83.4%
AIRLINES--0.6%
49,000 AMR Corporation* $ 593,383
------------
APPLICATION SOFTWARE--5.5%
28,250 Autodesk, Inc. 970,953
80,539 Blackboard, Inc.* 1,926,493
328,650 Siebel Systems, Inc. 2,924,985
------------
5,822,431
------------
ASSET MANAGEMENT & CUSTODY BANKS--0.9%
21,875 Northern Trust Corporation 997,281
------------
AUTOMOTIVE RETAIL--2.3%
15,575 Advance Auto Parts, Inc.* 1,005,366
82,550 CSK Auto Corporation* 1,376,934
------------
2,382,300
------------
BIOTECHNOLOGY--2.7%
19,175 Genzyme Corporation* 1,152,226
37,175 Gilead Sciences, Inc.* 1,635,328
------------
2,787,554
------------
BROADCASTING & CABLE TV--0.3%
9,350 EchoStar Communications Corporation 281,903
------------
CASINOS & GAMING--2.3%
53,550 GTECH Holdings Corporation 1,565,802
32,800 Scientific Games Corporation* 883,304
------------
2,449,106
------------
CONSTRUCTION MATERIALS--3.5%
58,300 Lafarge North America, Inc. 3,640,252
------------
CONSUMER ELECTRONICS--3.7%
48,025 Harman International Industries, Inc. 3,907,314
------------
CONSUMER FINANCE--2.9%
86,550 First Marblehead Corporation* 3,034,443
------------
DEPARTMENT STORES--2.2%
41,425 Kohl's Corporation* 2,316,072
------------
ELECTRICAL COMPONENTS & EQUIPMENT--2.4%
24,425 Genlyte Group, Inc.* 1,190,475
47,775 Thomas and Betts Corporation* 1,349,166
------------
2,539,641
------------
ELECTRONIC EQUIPMENT MANUFACTURERS--2.8%
102,250 Cogent, Inc.* 2,919,238
------------
EXCHANGE TRADED FUNDS--1.7%
58,900 Health Care Select Sector SPDR Fund 1,825,311
------------
HEALTHCARE DISTRIBUTORS--2.6%
9,000 Fisher Scientific International, Inc.* 584,100
50,975 Henry Schein, Inc.* 2,116,482
------------
2,700,582
------------
</Table>
14
<Page>
<Table>
<Caption>
SHARES MARKET VALUE
- --------------------------------------------------------------------------------
HEALTHCARE EQUIPMENT--3.4%
40,575 PerkinElmer, Inc. $ 766,868
74,350 Waters Corporation* 2,763,590
------------
3,530,458
------------
HEALTHCARE FACILITIES--0.6%
11,000 Triad Hospitals, Inc.* 601,040
------------
HEALTHCARE SERVICES--3.0%
18,000 IDEXX Laboratories, Inc.* 1,121,940
39,100 Quest Diagnostics, Inc. 2,082,857
------------
3,204,797
------------
HOME FURNISHINGS--1.6%
19,975 Mohawk Industries, Inc.* 1,647,938
------------
HOMEBUILDING--0.8%
11,300 Centex Corporation 798,571
------------
HOMEFURNISHING RETAIL--2.8%
70,375 Bed Bath & Beyond, Inc.* 2,940,268
------------
INVESTMENT BANKING & BROKERAGE--0.3%
18,500 Ameritrade Holding Corporation* 343,915
------------
LEISURE FACILITIES--0.8%
17,500 Royal Caribbean Cruises Limited 846,300
------------
MANAGED HEALTHCARE--1.0%
15,550 WellPoint, Inc.* 1,082,902
------------
METAL & GLASS CONTAINERS--2.8%
80,225 Ball Corporation 2,884,891
------------
OIL & GAS DRILLING--2.3%
86,200 Patterson-UTI Energy, Inc. 2,398,946
------------
OIL & GAS EQUIPMENT & SERVICES--2.7%
39,000 BJ Services Company 2,046,720
23,550 FMC Technologies, Inc.* 752,894
------------
2,799,614
------------
OTHER DIVERSIFIED FINANCIAL SERVICES--1.5%
22,475 Ambac Financial Group, Inc. 1,567,856
------------
PACKAGED FOODS & MEATS--0.9%
26,225 Dean Foods Company* 924,169
------------
PHARMACEUTICALS--7.4%
42,750 Covance, Inc.* 1,918,193
36,250 Medicis Pharmaceutical Corporation Class A 1,150,213
141,100 MGI Pharma, Inc.* 3,070,336
95,125 Theravance, Inc.* 1,617,125
------------
7,755,867
------------
REAL ESTATE MANAGEMENT & DEVELOPMENT--1.2%
29,800 CB Richard Ellis Group, Inc.* 1,307,028
------------
</Table>
SEE NOTES TO STATEMENT OF INVESTMENTS.
15
<Page>
<Table>
<Caption>
SHARES MARKET VALUE
- --------------------------------------------------------------------------------
SEMICONDUCTOR EQUIPMENT--1.0%
41,650 Novellus Systems, Inc.* $ 1,029,172
------------
SEMICONDUCTORS--3.9%
50,000 Freescale Semiconductor, Inc. Class B* 1,059,000
48,775 International Rectifier Corporation* 2,327,543
19,575 Maxim Integrated Products, Inc. 747,961
------------
4,134,504
------------
SPECIALIZED FINANCE--1.7%
6,075 Chicago Mercantile Exchange 1,795,163
------------
SPECIALTY STORES--1.4%
25,775 Guitar Center, Inc.* 1,504,487
------------
TRADING COMPANIES & DISTRIBUTORS--1.0%
18,750 W.W. Grainger, Inc. 1,027,313
------------
TRUCKING--1.0%
55,300 J.B. Hunt Transport Services, Inc. 1,067,290
------------
WIRELESS TELECOMMUNICATION SERVICES--3.9%
195,950 American Tower Corporation* 4,118,869
------------
TOTAL COMMON STOCKS (DOMESTIC)
(COST--$82,616,200) 87,508,169
------------
COMMON STOCKS (FOREIGN)--8.0%
AUTO PARTS & EQUIPMENT--2.4%
58,500 Autoliv, Inc. (SW) 2,562,300
------------
HEALTHCARE EQUIPMENT--2.3%
51,875 Mettler-Toledo International, Inc. (SZ)* 2,416,338
------------
INVESTMENT BANKING & BROKERAGE--1.1%
48,425 Lazard Limited Class A (BD)* 1,125,881
------------
PHARMACEUTICALS--1.5%
47,425 Shire Pharmaceuticals Group PLC Sponsored ADR (UK) 1,555,540
------------
SEMICONDUCTORS--0.7%
60,100 ATI Technologies, Inc. (CA)* 712,185
------------
TOTAL COMMON STOCKS (FOREIGN)
(COST--$8,794,837) 8,372,244
------------
</Table>
16
<Page>
<Table>
<Caption>
PRINCIPAL AMOUNT AMORTIZED COST
- --------------------------------------------------------------------------------
CORPORATE SHORT-TERM NOTES--7.5%
ELECTRONIC EQUIPMENT MANUFACTURERS--3.7%
$ 3,900,000 Hitachi America Capital Limited
3.25% 7/1/05~ $ 3,900,000
-------------
MULTI-LINE INSURANCE--3.8%
4,000,000 AIG Funding, Inc.
3.23% 7/5/05 3,998,564
-------------
TOTAL CORPORATE SHORT-TERM NOTES
(AMORTIZED COST--$7,898,564) 7,898,564
-------------
TOTAL INVESTMENTS--98.9%
(TOTAL COST--$99,309,601) 103,778,977
-------------
OTHER ASSETS AND LIABILITIES--1.1% 1,191,303
-------------
NET ASSETS--100.0% $ 104,970,280
=============
</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
$3,900,00, OR 3.7%, OF THE FUND'S NET ASSETS AS OF JUNE 30, 2005.
ADR - AMERICAN DEPOSITARY RECEIPT
SPDR - STANDARD AND POOR'S DEPOSITARY RECEIPT
BD - BERMUDA
CA - CANADA
SW - SWEDEN
SZ - SWITZERLAND
UK - UNITED KINGDOM
SEE NOTES TO FINANCIAL STATEMENTS.
17
<Page>
STATEMENT OF ASSETS AND LIABILITIES
June 30, 2005 (UNAUDITED)
<Table>
ASSETS
Investment securities, at cost $ 99,309,601
---------------
Investment securities, at market 103,778,977
Cash 347,632
Receivables:
Investment securities sold 4,840,270
Capital shares sold 5,845
Dividends and interest 22,279
Other assets 26,145
---------------
Total Assets 109,021,148
---------------
LIABILITIES
Payables and other accrued liabilities:
Investment securities purchased 3,848,236
Capital shares redeemed 17,406
Advisory fees 71,314
Shareholder servicing fees 13,839
Accounting fees 5,212
Distribution fees 15,311
Transfer agency fees 5,899
Custodian fees 1,463
Other 72,188
---------------
Total Liabilities 4,050,868
---------------
Net Assets $ 104,970,280
===============
COMPOSITION OF NET ASSETS
Capital (par value and paid-in surplus) $ 140,030,733
Accumulated net investment loss (457,458)
Accumulated net realized loss from security transactions (39,072,371)
Net unrealized appreciation on investments
and foreign currency translation 4,469,376
---------------
Total $ 104,970,280
===============
</Table>
18
<Page>
<Table>
CLASS A
Net Assets $ 1,506,775
Shares Outstanding 367,000
Net Asset Value, Redemption Price Per Share $ 4.11
Maximum offering price per share (net asset value
plus sales charge of 5.75% of offering price) $ 4.36
CLASS B
Net Assets $ 1,621,691
Shares Outstanding 410,787
Net Asset Value, Offering and Redemption Price (excluding
applicable contingent deferred sales charge) Per Share $ 3.95
CLASS C
Net Assets $ 476,412
Shares Outstanding 122,254
Net Asset Value, Offering and Redemption Price (excluding
applicable contingent deferred sales charge) Per Share $ 3.90
CLASS F
Net Assets $ 101,219,927
Shares Outstanding 24,159,197
Net Asset Value, Offering and Redemption Price Per Share $ 4.19
CLASS R
Net Assets $ 119,517
Shares Outstanding 28,844
Net Asset Value, Offering and Redemption Price Per Share $ 4.14
CLASS T
Net Assets $ 25,958
Shares Outstanding 6,647
Net Asset Value, Redemption Price Per Share $ 3.91
Maximum offering price per share (net asset value
plus sales charge of 4.50% of offering price) $ 4.09
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
19
<Page>
STATEMENT OF OPERATIONS
For the six months ended June 30, 2005 (UNAUDITED)
<Table>
INVESTMENT INCOME
Dividends $ 259,597
Interest 76,569
Foreign taxes withheld (460)
---------------
Total Investment Income 335,706
---------------
EXPENSES
Advisory fees--Note 2 443,324
Shareholder servicing fees--Note 2 80,268
Accounting fees--Note 2 32,491
Distribution fees--Note 2 71,870
Transfer agency fees--Note 2 43,732
Registration fees 27,890
Postage and mailing expenses 10,295
Custodian fees and expenses--Note 2 3,473
Printing expenses 22,920
Legal and audit fees 20,067
Directors' fees and expenses--Note 2 9,510
Other expenses 20,605
---------------
Total Expenses 786,445
Earnings Credits (3,398)
Reimbursed/Waived Expenses (1,868)
Expense Offset to Broker Commissions (7,648)
---------------
Net Expenses 773,531
---------------
Net Investment Loss (437,825)
---------------
REALIZED AND UNREALIZED GAIN (LOSS) ON SECURITY
TRANSACTIONS AND FOREIGN CURRENCY TRANSACTIONS
Net Realized Gain (Loss) on:
Security Transactions 11,009,332
Foreign Currency Transactions (2)
---------------
Net Realized Gain on Security and Foreign Currency Transactions 11,009,330
Net Change in Unrealized Appreciation/Depreciation
of Investments and Foreign Currency Translation (12,187,249)
---------------
Net Realized and Unrealized Loss (1,177,919)
---------------
Net Decrease in Net Assets Resulting from Operations $ (1,615,744)
===============
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
20
<Page>
STATEMENTS OF CHANGES IN NET ASSETS
(UNAUDITED)
<Table>
<Caption>
SIX MONTHS ENDED YEAR ENDED
6/30/05 12/31/04
OPERATIONS
Net Investment Loss $ (437,825) $ (1,149,129)
Net Realized Gain on Security and Foreign
Currency Transactions 11,009,330 32,490,110
Net Change in Unrealized Appreciation/Depreciation
of Investments and Foreign Currency Translation (12,187,249) (10,271,293)
--------------- --------------
Net Increase (Decrease) in Net Assets Resulting
from Operations (1,615,744) 21,069,688
--------------- --------------
CAPITAL SHARE TRANSACTIONS
Net Increase (Decrease)--Note 4
Class A (28,129) 152,338
Class B (165,250) (32,488)
Class C 54,514 45,566
Class F (16,492,016) (60,416,547)
Class R 48,598 (51,768)
Class T (12,913) (76)
--------------- --------------
Net Decrease from Capital Share Transactions (16,595,196) (60,302,975)
--------------- --------------
Net Decrease in Net Assets (18,210,940) (39,233,287)
--------------- --------------
NET ASSETS
Beginning of period $ 123,181,220 $ 162,414,507
--------------- --------------
End of period $ 104,970,280 $ 123,181,220
=============== ==============
Accumulated Net Investment Loss $ (457,458) $ (19,633)
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
21
<Page>
FINANCIAL HIGHLIGHTS
(UNAUDITED)
<Table>
<Caption>
SIX MONTHS YEAR ENDED
ENDED JUNE 30, DECEMBER 31,
2005 2004 2003 2002 2001
---------- ---------------------------------------------------
CLASS A SHARES
PER SHARE OPERATING DATA
Net Asset Value, beginning of period $ 4.15 $ 3.52 $ 2.58 $ 3.44 $ 4.38
- -----------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.02) (0.03) 0.03 (0.04) (0.06)
Net realized and unrealized gains
(losses) on securities (0.02) 0.66 0.91 (0.82) (0.88)
-----------------------------------------------------------------
Total from investment operations (0.04) 0.63 0.94 (0.86) (0.94)
- -----------------------------------------------------------------------------------------------------------------
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 0.00
-----------------------------------------------------------------
Total distributions 0.00 0.00 0.00 0.00 0.00
- -----------------------------------------------------------------------------------------------------------------
Net Asset Value, end of period $ 4.11 $ 4.15 $ 3.52 $ 2.58 $ 3.44
=================================================================
TOTAL RETURN(a) (0.96%) 17.90% 36.43% (25.00%) (21.46%)
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000s) $ 1,507 $ 1,546 $ 1,191 $ 476 $ 538
- -----------------------------------------------------------------------------------------------------------------
Ratios to average net assets(b):
Expenses with reimbursements, but no
earnings credits or brokerage offsets(c) 1.59% 1.54% 1.87% 2.15% 2.47%
Expenses with reimbursements,
earnings credits and brokerage offsets 1.56% 1.53% 1.86% 2.15% 2.46%
Net investment loss (0.93%) (1.07%) (1.38%) (1.81%) (1.93%)
- -----------------------------------------------------------------------------------------------------------------
Portfolio turnover rate(d) 195% 147% 160% 216% 214%
</Table>
(a). SALES CHARGES ARE NOT REFLECTED IN THE TOTAL RETURN.
(b). ANNUALIZED.
(c). CERTAIN FEES WERE WAIVED BY THE CUSTODIAN. THESE WAIVERS DID NOT HAVE AN
IMPACT ON THE EXPENSE RATIOS.
(d). PORTFOLIO TURNOVER RATE IS A MEASURE OF PORTFOLIO ACTIVITY THAT IS
CALCULATED BY DIVIDING THE LESSER OF PURCHASES OR SALES OF SECURITIES,
EXCLUDING SECURITIES HAVING MATURITY DATES AT ACQUISITION OF ONE YEAR OR
LESS, BY THE AVERAGE VALUE OF THE PORTFOLIO SECURITIES HELD DURING THE
PERIOD, WHICH IS A ROLLING 12-MONTH PERIOD.
22
<Page>
<Table>
<Caption>
SIX MONTHS YEAR ENDED
ENDED JUNE 30, DECEMBER 31,
2005 2004 2003 2002 2001
---------- ---------------------------------------------------
CLASS B SHARES
PER SHARE OPERATING DATA
Net Asset Value, beginning of period $ 4.01 $ 3.43 $ 2.54 $ 3.39 $ 4.32
- -----------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment loss (0.06) (0.07) (0.03) (0.05) (0.05)
Net realized and unrealized gains
(losses) on securities 0.00 0.65 0.92 (0.80) (0.88)
-----------------------------------------------------------------
Total from investment operations (0.06) 0.58 0.89 (0.85) (0.93)
- -----------------------------------------------------------------------------------------------------------------
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 0.00
-----------------------------------------------------------------
Total distributions 0.00 0.00 0.00 0.00 0.00
- -----------------------------------------------------------------------------------------------------------------
Net Asset Value, end of period $ 3.95 $ 4.01 $ 3.43 $ 2.54 $ 3.39
=================================================================
TOTAL RETURN(a) (1.50%) 16.91% 35.04% (25.07%) (21.53%)
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000s) $ 1,622 $ 1,823 $ 1,587 $ 969 $ 1,138
- -----------------------------------------------------------------------------------------------------------------
Ratios to average net assets(b):
Expenses with reimbursements, but no
earnings credits or brokerage offsets(c) 2.47% 2.37% 2.65% 2.68% 2.59%
Expenses with reimbursements,
earnings credits and brokerage offsets 2.44% 2.37% 2.64% 2.67% 2.58%
Net investment loss (1.82%) (1.90%) (2.16%) (2.33%) (2.06%)
- -----------------------------------------------------------------------------------------------------------------
Portfolio turnover rate(d) 195% 147% 160% 216% 214%
</Table>
(a). SALES CHARGES ARE NOT REFLECTED IN THE TOTAL RETURN.
(b). ANNUALIZED.
(c). CERTAIN FEES WERE WAIVED BY THE CUSTODIAN. THESE WAIVERS DID NOT HAVE AN
IMPACT ON THE EXPENSE RATIOS.
(d). PORTFOLIO TURNOVER RATE IS A MEASURE OF PORTFOLIO ACTIVITY THAT IS
CALCULATED BY DIVIDING THE LESSER OF PURCHASES OR SALES OF SECURITIES,
EXCLUDING SECURITIES HAVING MATURITY DATES AT ACQUISITION OF ONE YEAR OR
LESS, BY THE AVERAGE VALUE OF THE PORTFOLIO SECURITIES HELD DURING THE
PERIOD, WHICH IS A ROLLING 12-MONTH PERIOD.
SEE NOTES TO FINANCIAL STATEMENTS.
23
<Page>
<Table>
<Caption>
SIX MONTHS YEAR ENDED
ENDED JUNE 30, DECEMBER 31,
2005 2004 2003 2002 2001
---------- ---------------------------------------------------
CLASS C SHARES
PER SHARE OPERATING DATA
Net Asset Value, beginning of period $ 3.96 $ 3.38 $ 2.50 $ 3.36 $ 4.32
- -----------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment loss (0.03)(a) (0.06)(a) (0.10) (0.08) (0.08)
Net realized and unrealized gains
(losses) on securities (0.03) 0.64 0.98 (0.78) (0.88)
-----------------------------------------------------------------
Total from investment operations (0.06) 0.58 0.88 (0.86) (0.96)
- -----------------------------------------------------------------------------------------------------------------
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 0.00
-----------------------------------------------------------------
Total distributions 0.00 0.00 0.00 0.00 0.00
- -----------------------------------------------------------------------------------------------------------------
Net Asset Value, end of period $ 3.90 $ 3.96 $ 3.38 $ 2.50 $ 3.36
=================================================================
TOTAL RETURN(b) (1.52%) 17.16% 35.20% (25.60%) (22.22%)
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000s) $ 476 $ 428 $ 323 $ 274 $ 380
- -----------------------------------------------------------------------------------------------------------------
Ratios to average net assets(c):
Expenses with reimbursements, but no
earnings credits or brokerage offsets(d) 2.38% 2.32% 2.51% 2.99% 3.94%
Expenses with reimbursements,
earnings credits and brokerage offsets 2.36% 2.31% 2.51% 2.98% 3.93%
Net investment loss (1.73%) (1.83%) (2.02%) (2.65%) (3.41%)
- -----------------------------------------------------------------------------------------------------------------
Portfolio turnover rate(e) 195% 147% 160% 216% 214%
</Table>
(a). COMPUTED USING AVERAGE SHARES OUTSTANDING THROUGHOUT THE PERIOD.
(b). SALES CHARGES ARE NOT REFLECTED IN THE TOTAL RETURN.
(c). ANNUALIZED.
(d). 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 2.38% (2005), 2.32% (2004), 2.51% (2003), 3.04%
(2002), AND 4.25% (2001).
(e). PORTFOLIO TURNOVER RATE IS A MEASURE OF PORTFOLIO ACTIVITY THAT IS
CALCULATED BY DIVIDING THE LESSER OF PURCHASES OR SALES OF SECURITIES,
EXCLUDING SECURITIES HAVING MATURITY DATES AT ACQUISITION OF ONE YEAR OR
LESS, BY THE AVERAGE VALUE OF THE PORTFOLIO SECURITIES HELD DURING THE
PERIOD, WHICH IS A ROLLING 12-MONTH PERIOD.
24
<Page>
<Table>
<Caption>
SIX MONTHS YEAR ENDED
ENDED JUNE 30, DECEMBER 31,
2005 2004 2003 2002 2001
---------- ---------------------------------------------------
CLASS F SHARES
PER SHARE OPERATING DATA
Net Asset Value, beginning of period $ 4.24 $ 3.58 $ 2.62 $ 3.47 $ 4.36
- -----------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.02)(a) (0.03)(a) 0.02 (0.04) (0.05)
Net realized and unrealized gains
(losses) on securities (0.03) 0.69 0.94 (0.81) (0.84)
-----------------------------------------------------------------
Total from investment operations (0.05) 0.66 0.96 (0.85) (0.89)
- -----------------------------------------------------------------------------------------------------------------
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 0.00
-----------------------------------------------------------------
Total distributions 0.00 0.00 0.00 0.00 0.00
- -----------------------------------------------------------------------------------------------------------------
Net Asset Value, end of period $ 4.19 $ 4.24 $ 3.58 $ 2.62 $ 3.47
=================================================================
TOTAL RETURN (1.18%) 18.44% 36.64% (24.50%) (20.41%)
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000s) $ 101,220 $ 119,273 $ 159,161 $ 89,970 $ 119,708
- -----------------------------------------------------------------------------------------------------------------
Ratios to average net assets(b):
Expenses with reimbursements, but no
earnings credits or brokerage offsets(c) 1.43% 1.33% 1.51% 1.56% 1.39%
Expenses with reimbursements,
earnings credits and brokerage offsets 1.41% 1.33% 1.50% 1.56% 1.37%
Net investment loss (0.79%) (0.87%) (1.01%) (1.22%) (0.84%)
- -----------------------------------------------------------------------------------------------------------------
Portfolio turnover rate(d) 195% 147% 160% 216% 214%
</Table>
(a). COMPUTED USING AVERAGE SHARES OUTSTANDING THROUGHOUT THE PERIOD.
(b). ANNUALIZED.
(c). CERTAIN FEES WERE WAIVED BY THE CUSTODIAN. THESE WAIVERS DID NOT HAVE AN
IMPACT ON THE EXPENSE RATIOS.
(d). PORTFOLIO TURNOVER RATE IS A MEASURE OF PORTFOLIO ACTIVITY THAT IS
CALCULATED BY DIVIDING THE LESSER OF PURCHASES OR SALES OF SECURITIES,
EXCLUDING SECURITIES HAVING MATURITY DATES AT ACQUISITION OF ONE YEAR OR
LESS, BY THE AVERAGE VALUE OF THE PORTFOLIO SECURITIES HELD DURING THE
PERIOD, WHICH IS A ROLLING 12-MONTH PERIOD.
SEE NOTES TO FINANCIAL STATEMENTS.
25
<Page>
<Table>
<Caption>
SIX MONTHS YEAR ENDED
ENDED JUNE 30, DECEMBER 31,
2005 2004 2003 2002 2001
---------- ---------------------------------------------------
CLASS R SHARES
PER SHARE OPERATING DATA
Net Asset Value, beginning of period $ 4.19 $ 3.56 $ 2.61 $ 3.48 $ 4.39
- -----------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.02)(a) (0.04)(a) (0.03) (0.04) 0.01
Net realized and unrealized gains
(losses) on securities (0.03) 0.67 0.98 (0.83) (0.92)
-----------------------------------------------------------------
Total from investment operations (0.05) 0.63 0.95 (0.87) (0.91)
- -----------------------------------------------------------------------------------------------------------------
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 0.00
-----------------------------------------------------------------
Total distributions 0.00 0.00 0.00 0.00 0.00
- -----------------------------------------------------------------------------------------------------------------
Net Asset Value, end of period $ 4.14 $ 4.19 $ 3.56 $ 2.61 $ 3.48
=================================================================
TOTAL RETURN (1.19%) 17.70% 36.40% (25.00%) (20.73%)
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000s) $ 120 $ 71 $ 119 $ 77 $ 49
- -----------------------------------------------------------------------------------------------------------------
Ratios to average net assets(b):
Expenses with reimbursements, but no
earnings credits or brokerage offsets(c) 1.61% 1.48% 1.64% 1.97% 2.91%
Expenses with reimbursements,
earnings credits and brokerage offsets 1.58% 1.48% 1.64% 1.97% 2.89%
Net investment loss (0.96%) (1.03%) (1.15%) (1.63%) (2.40%)
- -----------------------------------------------------------------------------------------------------------------
Portfolio turnover rate(d) 195% 147% 160% 216% 214%
</Table>
(a). COMPUTED USING AVERAGE SHARES OUTSTANDING THROUGHOUT THE PERIOD.
(b). ANNUALIZED.
(c). 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 1.61% (2005), 1.48% (2004), 1.64% (2003), 3.49%
(2002), AND 57.54% (2001).
(d). PORTFOLIO TURNOVER RATE IS A MEASURE OF PORTFOLIO ACTIVITY THAT IS
CALCULATED BY DIVIDING THE LESSER OF PURCHASES OR SALES OF SECURITIES,
EXCLUDING SECURITIES HAVING MATURITY DATES AT ACQUISITION OF ONE YEAR OR
LESS, BY THE AVERAGE VALUE OF THE PORTFOLIO SECURITIES HELD DURING THE
PERIOD, WHICH IS A ROLLING 12-MONTH PERIOD.
26
<Page>
<Table>
<Caption>
SIX MONTHS YEAR ENDED
ENDED JUNE 30, DECEMBER 31,
2005 2004 2003 2002 2001
---------- ---------------------------------------------------
CLASS T SHARES
PER SHARE OPERATING DATA
Net Asset Value, beginning of period $ 3.97 $ 3.39 $ 2.51 $ 3.39 $ 4.35
- -----------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment loss (0.04)(a) (0.06) (0.02) (0.06) (0.11)
Net realized and unrealized gains
(losses) on securities (0.02) 0.64 0.90 (0.82) (0.85)
-----------------------------------------------------------------
Total from investment operations (0.06) 0.58 0.88 (0.88) (0.96)
- -----------------------------------------------------------------------------------------------------------------
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 0.00
-----------------------------------------------------------------
Total distributions 0.00 0.00 0.00 0.00 0.00
- -----------------------------------------------------------------------------------------------------------------
Net Asset Value, end of period $ 3.91 $ 3.97 $ 3.39 $ 2.51 $ 3.39
=================================================================
TOTAL RETURN(b) (1.51%) 17.11% 35.06% (25.96%) (22.07%)
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000s) $ 26 $ 40 $ 34 $ 20 $ 20
- -----------------------------------------------------------------------------------------------------------------
Ratios to average net assets(c):
Expenses with reimbursements, but no
earnings credits or brokerage offsets(d) 2.57% 2.26% 2.76% 3.64% 3.13%
Expenses with reimbursements,
earnings credits and brokerage offsets 2.55% 2.25% 2.76% 3.63% 3.11%
Net investment loss (1.92%) (1.78%) (2.27%) (3.29%) (2.57%)
- -----------------------------------------------------------------------------------------------------------------
Portfolio turnover rate(e) 195% 147% 160% 216% 214%
</Table>
(a). COMPUTED USING AVERAGE SHARES OUTSTANDING THROUGHOUT THE PERIOD.
(b). SALES CHARGES ARE NOT REFLECTED IN THE TOTAL RETURN.
(c). ANNUALIZED.
(d). 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 2.57% (2005), 2.26% (2004), 2.76% (2003), 10.30%
(2002), AND 28.91% (2001).
(e). PORTFOLIO TURNOVER RATE IS A MEASURE OF PORTFOLIO ACTIVITY THAT IS
CALCULATED BY DIVIDING THE LESSER OF PURCHASES OR SALES OF SECURITIES,
EXCLUDING SECURITIES HAVING MATURITY DATES AT ACQUISITION OF ONE YEAR OR
LESS, BY THE AVERAGE VALUE OF THE PORTFOLIO SECURITIES HELD DURING THE
PERIOD, WHICH IS A ROLLING 12-MONTH PERIOD.
SEE NOTES TO FINANCIAL STATEMENTS.
27
<Page>
NOTES TO FINANCIAL STATEMENTS
June 30, 2005 (UNAUDITED)
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
Dreyfus Founders Funds, Inc. (the "Company") is an open-end management
investment company registered under the Investment Company Act of 1940 (the
"1940 Act"). Ten series of shares are currently issued: Balanced, Discovery,
Equity Growth, 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 shares redeemed 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. Since February 22, 2005, New York closing exchange rates have
been used to convert foreign currencies to U.S. dollars. Previously, London
closing exchange rates were used to convert foreign currencies to U.S. dollars.
A debt security with a remaining maturity greater than 60 days at the time of
purchase is valued in accordance with the evaluated bid price supplied by a
pricing service approved by the Company's board of directors or, if such price
is not available, at the mean between the highest bid and lowest asked
quotations obtained from at least two securities dealers. A debt security with a
remaining maturity of 60 days or less at the time of purchase is valued at
amortized cost, which approximates market value, unless it is determined that
amortized cost would not represent market value, in which case the securities
would be marked to market. The Fund amortizes premiums and discounts on all debt
securities.
If market quotations 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
28
<Page>
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. In addition, it is possible
that the fair value determined for a security may be different from the value
that may be realized upon the security's sale, and that these differences may be
material to the net asset value of the Fund.
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
29
<Page>
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) 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 period 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.
30
<Page>
In accordance with an investment advisory agreement between the Company and
Founders, the Fund compensates Founders for its services as investment adviser
by the payment of fees computed daily and paid monthly at the annual rate equal
to a percentage of the average daily value of the Fund's net assets. The fee is
1.00% of the first $30 million of net assets, 0.75% of the next $270 million of
net assets, 0.70% of the next $200 million of net assets and 0.65% of net assets
in excess of $500 million.
SHAREHOLDER SERVICING AND TRANSFER AGENCY FEES FOR CLASS F SHARES--The Company
has a shareholder services agreement with Dreyfus Service Corporation ("DSC"),
the direct owner of Founders and a wholly-owned subsidiary of The Dreyfus
Corporation ("Dreyfus", an affiliate of Founders), whereby the Funds have agreed
to compensate DSC for providing certain shareholder servicing functions to
holders of Class F shares. The Fund paid DSC a monthly fee equal, on an annual
basis, to $24.00 per Class F shareholder account considered to be an open
account at any time during a given month. During the six months ended June 30,
2005, Class F shares were charged $75,695 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 six months ended June 30, 2005, Class F shares
were charged $27,420 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 $12.58 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, including both the per account fees paid to
DTI and out-of-pocket charges, during the six months ended June 30, 2005 were as
follows:
<Table>
<Caption>
TRANSFER
AGENCY FEES
--------------------------------------------------------------------
Class A $ 1,656
Class B $ 3,019
Class C $ 568
Class R $ 182
Class T $ 142
</Table>
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 six months ended June 30, 2005, the Fund was charged $1,379 for cash
management fees, which are included in the out-of-pocket transfer agency charges
above.
31
<Page>
OTHER TRANSFER AGENCY FEES--Various broker-dealers, retirement plan
administrators and other 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 six months ended
June 30, 2005, the Fund paid $10,745 to these entities for such services. This
amount is included in the transfer agency fees shown on the Statement of
Operations.
DISTRIBUTION AND SHAREHOLDER SERVICES PLANS--DSC also is the distributor of the
Fund's shares. The Fund has adopted a Distribution Plan pursuant to Rule 12b-1
under the 1940 Act applicable to its Class F shares. Under the plan, the Fund is
authorized to reimburse DSC for expenses paid for distributing or servicing its
Class F shares at an annual rate of up to 0.25% of the value of the average
daily net assets of the Fund's Class F shares. During the six months ended June
30, 2005, Class F shares were charged $63,832 pursuant to this Distribution
Plan.
The Fund also has adopted a Distribution Plan pursuant to Rule 12b-1 under the
1940 Act applicable to its Class B, Class C and Class T shares. Under this plan,
the Fund pays DSC a fee for distributing its Class B and C shares at the annual
rate of 0.75% of the value of the average daily net assets of its Class B and C
shares, respectively, and pays DSC a fee for distributing its Class T shares at
the annual rate of 0.25% of the average daily net assets of its Class T shares.
In addition, the Fund has adopted a Shareholder Services Plan applicable to its
Class A, Class B, Class C and Class T shares. Under the Shareholder Services
Plan, Class A, Class B, Class C and Class T shares pay DSC an annual fee of
0.25% of the value of their average daily net assets for the provision of
certain services.
Distribution and shareholder servicing fees paid to DSC by the Fund's Class A,
B, C and T shares for the six months ended June 30, 2005, were as follows:
<Table>
<Caption>
DISTRIBUTION SHAREHOLDER
FEES SERVICING FEES
--------------------------------------------------------------------
Class A N/A $ 1,869
Class B $ 6,391 $ 2,130
Class C $ 1,610 $ 537
Class T $ 37 $ 37
</Table>
During the six months ended June 30, 2005, DSC retained $1,514 in sales
commissions from the sales of Class A shares. DSC also retained $1,410 and $13
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
32
<Page>
net assets of the Fund in excess of $1 billion, plus reasonable out-of-pocket
expenses. Founders has contractually agreed in writing 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 contractually agreed in writing 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
--------------------------------------------------------------------
9/1/04 to 8/31/05 $ 200,000
9/1/05 to 8/31/06 $ 200,000
</Table>
The fee waiver is allocated among the Funds in proportion to their respective
shares of the total custodian fee. For the six months ended June 30, 2005, the
Fund's portion of the fee waiver was $1,868, which reduced the amount paid to
Mellon Bank to $1,605.
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.
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
33
<Page>
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. 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
June 30, 2005 are noted below. Unrealized appreciation/depreciation in the table
below excludes appreciation/depreciation on foreign currency translation, if
any. The primary difference between book and tax appreciation or depreciation is
wash sale loss deferrals.
<Table>
Federal Tax Cost $ 99,532,476
Gross Tax Appreciation of Investments $ 8,272,628
Gross Tax Depreciation of Investments $ (4,026,127)
Net Tax Appreciation $ 4,246,501
</Table>
4. CAPITAL SHARE TRANSACTIONS
The Fund is authorized to issue 500 million shares of $0.01 par value capital
stock. Transactions in shares of the Fund for the periods indicated were as
follows:
<Table>
<Caption>
SIX MONTHS ENDED YEAR ENDED
6/30/2005 12/31/2004
SHARES AMOUNT SHARES AMOUNT
CLASS A
Sold 100,690 $ 403,469 226,896 $ 852,592
Redeemed (105,994) $ (431,598) (193,006) $ (700,254)
--------------------------------------------------------------
Net Increase (Decrease) (5,304) $ (28,129) 33,890 $ 152,338
==============================================================
CLASS B
Sold 40,150 $ 157,645 89,684 $ 322,791
Redeemed (83,979) $ (322,895) (98,294) $ (355,279)
--------------------------------------------------------------
Net Decrease (43,829) $ (165,250) (8,610) $ (32,488)
==============================================================
</Table>
34
<Page>
<Table>
<Caption>
SIX MONTHS ENDED YEAR ENDED
6/30/2005 12/31/2004
SHARES AMOUNT SHARES AMOUNT
CLASS C
Sold 25,080 $ 96,933 110,256 $ 385,913
Redeemed (11,003) $ (42,419) (97,748) $ (340,347)
----------------------------------------------------------------
Net Increase 14,077 $ 54,514 12,508 $ 45,566
================================================================
CLASS F
Sold 658,250 $ 2,677,721 3,973,983 $ 14,909,282
Redeemed (4,661,355) $ (19,169,737) (20,268,328) $ (75,325,829)
----------------------------------------------------------------
Net Decrease (4,003,105) $ (16,492,016) (16,294,345) $ (60,416,547)
================================================================
CLASS R
Sold 15,110 $ 61,832 23,623 $ 90,989
Redeemed (3,227) $ (13,234) (40,138) $ (142,757)
----------------------------------------------------------------
Net Increase (Decrease) 11,883 $ 48,598 (16,515) $ (51,768)
================================================================
CLASS T
Sold 0 $ 0 1,380 $ 4,956
Redeemed (3,319) $ (12,913) (1,452) $ (5,032)
----------------------------------------------------------------
Net Decrease (3,319) $ (12,913) (72) $ (76)
================================================================
</Table>
5. INVESTMENT TRANSACTIONS
For the six months ended June 30, 2005, purchases and sales of investment
securities (excluding short-term securities and U.S. government obligations)
were $101,116,063 and $121,701,229, 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 June 30, 2005, the Fund did not have any borrowings under the LOC.
35
<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.
36
<Page>
This page intentionally left blank.
<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, 2005, 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. 8/05
A-636-MCAP-05
<Page>
SEMIANNUAL REPORT
[GRAPHIC]
DREYFUS FOUNDERS
PASSPORT FUND
INVESTMENT UPDATE
JUNE 30, 2005
[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
</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 financial 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 3-9 were owned by the Fund on June 30, 2005. The amounts of
these holdings are included in the Statement of Investments.
NOT FDIC-INSURED - NOT BANK-GUARANTEED - MAY LOSE VALUE
<Page>
MANAGEMENT OVERVIEW
[PHOTO OF TRACY P. STOUFFER]
A DISCUSSION WITH PORTFOLIO MANAGER TRACY P. STOUFFER, CFA, REGARDING FUND
PERFORMANCE FOR THE SIX-MONTH PERIOD ENDED JUNE 30, 2005.
WEAK INVESTING ENVIRONMENT
Although the first quarter of 2005 provided a difficult international investing
environment, the second quarter presented an even more challenging one. Major
currencies, including the euro and the yen, dropped against the U.S. dollar,
depressing investment returns. Fears of a slowdown in the Chinese and U.S.
economies, along with rising transportation, raw materials and energy costs, and
higher interest rates, plagued investor sentiment worldwide.
In Europe, French and Dutch "no" votes on the European Union constitution
drew much attention during the period. On the positive side, the European region
continued to enjoy significant merger and acquisition activity. While the
benefits of anticipated synergies are yet to be determined, these transactions
highlighted the abundant liquidity in European markets.
For the period ended June 30, 2005, the 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 4.13%. The
Fund's performance compared favorably(1) to the large-cap MSCI World ex U.S.
Index, which returned -0.71% for the six-month timeframe.
OIL STOCKS AIDED PERFORMANCE
Crude oil prices continued to increase during the period, surpassing $60 per
barrel. As the first quarter experienced a glut, the second quarter found an
acute capacity squeeze through a lack of storage, ports, facilities and boats.
- ----------
(1) Excluding sales charges, which result in lower returns for certain
share classes. Please see page 7 for Average Annual and Year-to-Date Total
Returns for all share classes, including and excluding sales charges.
The Morgan Stanley Capital International (MSCI) World ex U.S. Small Cap Index
measures global performance of small capitalization securities outside of the
United States. The total return figures cited for this index assume change in
share price and reinvestment of dividends after the deduction of local taxes,
but do not reflect the costs of managing a mutual fund.
3
<Page>
These factors combined to boost the performance of many oil services companies.
Norway performed strongly from its heavy weighting in this industry, with oil
services companies such as FRED OLSEN ENERGY ASA posting a positive return.
France's VALLOUREC SA also saw a stock price increase in this high price and
high demand oil environment. The Fund continued to hold numerous oil services
stocks as capacity constraints benefited these companies through the end of the
period.
CONSUMER-RELATED STOCKS HELPED FUND RETURN
Some of the Fund's top-performing holdings during the period were found in the
consumer discretionary sector. Although Internet gaming is not a new industry,
the advent of televised poker tournaments has pumped energy and money into
online gaming, particularly online poker. The Fund found numerous growth
opportunities in this industry; gaming host companies such as BETandWIN.com
Interactive as well as Britain's Gaming VC Holdings SA reaped the benefits of
this surging popularity during the period. BetandWin.com was one of Austria's,
as well as the Fund's, stronger individual performers. Although the Fund
benefited from these stocks, it exited its positions in these companies by the
end of the period, as more compelling growth opportunities were found in other
areas. A broker of entertainment tickets, Germany's CTS EVENTIM AG, also
positively impacted Fund performance in this sector.
Strong stock selection in the consumer staples sector also aided the Fund's
relative return.
TOP 3 PERFORMING SECTORS IN THE FUND
Consumer Discretionary
Energy
Consumer Staples
GREEN PUSH LIFTED RETURN
Despite multiple negative headwinds facing small-cap stocks, the Fund found
strong growth prospects in renewable energy sources, such as solar and biofuels,
which benefited during the period from both pricing and policy. Beyond the
measures implemented due to the Kyoto Protocol, an agreement by various
countries to reduce emissions of greenhouse gases, legislation is being passed
in many countries, primarily in Europe, which mandates the use of renewable
energy. For example, the United Kingdom has legislated that 20% of all new
construction's energy come from renewable sources. This also will apply to all
new construction for the Olympic games in 2012. Many
4
<Page>
companies are benefiting, particularly in the solar component market, from this
green push. In fact, manufacturers of polysilicon and the solar wafers used in
solar panels' photovoltaic cells boosted the Fund's performance during the
period; the relative performance of Taiwan and Germany, in which many of these
companies are domiciled, was aided in part by this industry. German holding
SolarWorld AG was among the Fund's top performers for the period.
COUNTRIES IMPACTED PERFORMANCE
Retailer IC COMPANYS AS, a Danish holding, performed well for the Fund due to a
recently implemented comprehensive restructuring plan. The Fund's position in
India was positively impacted by the performance of stocks such as equity
brokerage house INDIABULLS FINANCIAL SERVICES and low-cost airline company
SPICEJET LIMITED. The Fund's position in Germany benefited from the
aforementioned SolarWorld AG and CTS Eventim AG. Semiconductor issue WAFER WORKS
CORPORATION also aided the Fund's return from Taiwan.
The Fund's holdings in Hong Kong suffered during the period primarily due to
the effect of interest rate increases on the country's pegged currency, as well
as its association with China. Our positions in Australia, South Korea,
Singapore and Italy also underperformed overall.
LARGEST EQUITY HOLDINGS (country of origin; ticker symbol)
<Table>
<Caption>
1. EMPIRE ONLINE LIMITED 144A (United Kingdom; EOL) 1.22%
2. SINVEST ASA (Norway; SIN) 1.21%
3. APL AS (Norway; APL) 1.21%
4. MICRO FOCUS INTERNATIONAL PLC (United Kingdom; MCRO) 1.16%
5. OCEAN RIG ASA (Norway; OCR) 1.15%
6. ULTRA ELECTRONICS HOLDINGS PLC (United Kingdom; ULE) 1.15%
7. MEDA AB CLASS A (Sweden; MEDAA) 1.13%
8. SPICEJET LIMITED (India; MFT) 1.11%
9. DON QUIJOTE COMPANY LIMITED (Japan; 7532) 1.10%
10. AKER KVAERNER ASA (Norway; AKVR) 1.09%
</Table>
Portfolio holdings are subject to change, and should not be construed as a
recommendation of any security.
[SIDENOTE
"RENEWABLE ENERGY SOURCES, SUCH AS SOLAR AND BIOFUELS, BENEFITED DURING THE
PERIOD FROM BOTH PRICING AND POLICY."
5
<Page>
GROWTH OF $10,000 INVESTMENT
PERFORMANCE DATA QUOTED REPRESENTS PAST PERFORMANCE. PAST PERFORMANCE DOES NOT
GUARANTEE FUTURE RESULTS. INVESTMENT RETURN AND PRINCIPAL VALUE OF AN INVESTMENT
WILL FLUCTUATE SO THAT AN INVESTOR'S SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR
LESS THAN THEIR ORIGINAL COST. CURRENT PERFORMANCE MAY BE LOWER OR HIGHER THAN
THE PERFORMANCE DATA QUOTED. PLEASE CALL 1-800-525-2440 TO OBTAIN THE MOST
RECENT MONTH-END PERFORMANCE DATA.
[CHART]
Dreyfus Founders
Passport Fund MSCI World
Class F Shares ex U.S. Index
06/30/1995 $10,000.00 $10,000.00
06/28/1996 $12,907.52 $11,335.14
06/30/1997 $14,369.46 $12,868.78
06/30/1998 $16,635.62 $13,678.85
06/30/1999 $16,638.83 $14,686.76
06/30/2000 $25,644.34 $17,446.85
06/29/2001 $15,652.42 $13,288.24
06/28/2002 $14,250.08 $12,035.91
06/30/2003 $14,122.59 $11,364.24
06/30/2004 $20,709.36 $14,995.31
06/30/2005 $24,038.16 $17,177.64
The above graph compares a $10,000 investment made in Class F shares of Dreyfus
Founders Passport Fund on 6/30/95 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 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>
<Table>
<Caption>
AVERAGE ANNUAL AND YEAR-TO DATE TOTAL RETURN as of 6/30/05
YEAR-TO 1 5 10 SINCE
CLASS (INCEPTION DATE) DATE+ YEAR YEARS YEARS INCEPTION
----------------------------------------------------------------------------------------------------------
A SHARES (12/31/99)
With sales charge (5.75%) (4.61%) 9.35% (2.48%) -- (4.12%)
Without sales charge 1.19% 16.01% (1.32%) -- (3.08%)
B SHARES (12/31/99)
With redemption* (3.25%) 10.96% (2.49%) -- (4.01%)
Without redemption 0.75% 14.96% (2.14%) -- (3.86%)
C SHARES (12/31/99)
With redemption** (0.19%) 14.06% (2.12%) -- (3.87%)
Without redemption 0.81% 15.06% (2.12%) -- (3.87%)
F SHARES (11/16/93) 1.25% 16.07% (1.29%) 9.17% 8.37%
R SHARES (12/31/99) 1.29% 16.17% (1.87%) -- (3.55%)
T SHARES (12/31/99)
With sales charge (4.50%) (3.63%) 10.20% (3.09%) -- (4.68%)
Without sales charge 0.93% 15.38% (2.19%) -- (3.88%)
</Table>
Average annual and year-to-date total returns do not reflect the deduction of
taxes that a shareholder would pay on Fund distributions or redemption of Fund
shares, but do reflect the reinvestment of dividends and capital gain
distributions, fee waivers, and adjustments for financial statement purposes.
Part of the Fund's historical performance is due to the purchase of securities
sold in initial public offerings (IPOs). There is no guarantee that the Fund's
investments in IPOs, if any, will continue to have a similar impact on
performance. There are risks associated with small-cap investments such as
limited product lines, less liquidity, and small market share. Investments in
foreign securities entail unique risks, including political, market, and
currency risks.
* The maximum contingent deferred sales charge for Class B shares is 4% and is
reduced to 0% after six years, at which time the Class B shares convert to
Class A shares.
** The maximum contingent deferred sales charge for Class C shares is 1% for
shares redeemed within one year of the date of purchase.
+ Total return is not annualized.
7
<Page>
SELECT SECTORS DETRACTED
The Fund held an underweight position in the financials sector at the end of the
period. Paired with weak individual stock performance, primarily from Japanese
real estate companies, Islamic Bank of Britain PLC and Upbest Group Limited, the
Fund's relative return suffered. Industrials and telecommunications services
holdings also underperformed for the Fund.
COMPANY-SPECIFIC DISAPPOINTMENTS
Although the consumer discretionary sector provided a positive impact during the
period, numerous holdings in this sector underperformed. Among them were
France's 123 MULTIMEDIA, clothing retailer RNB Retail and Brands AB, Gentosha,
Inc., and Hong Kong's Pearl Oriental Enterprises Limited. Gentosha, a Japanese
bookstore, fell as the market awaited the outcome of the company's internal
restructuring efforts.
[CHART]
PORTFOLIO COMPOSITION OF NET ASSETS
<Table>
Japan 18.98%
United Kingdom 10.54%
India 10.04%
Norway 9.49%
South Korea 6.18%
Canada 5.30%
Taiwan 5.13%
Singapore 4.36%
Other Countries 27.71%
Cash & Equivalents 2.27%
</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>
BOTTOM 3 PERFORMING SECTORS IN THE FUND
Financials
Industrials
Telecommunications Services
Information technology holdings Cyber Agent Limited, PChome Online and Boss
Media AB also declined during the half. PChome Online's stock fell due to a
change in the company's business model, resulting in much lower margins.
D1 OILS PLC also detracted from the Fund's return in spite of the strong
performance of the energy sector.
IN CONCLUSION
At the end of the period, we continued to find investment opportunities in
sectors with shortages or bottlenecks, including energy infrastructure,
renewable energy and energy conservation plays. We also were very positive on
companies that contribute to the development of the sophistication of financial
markets and products. Finally, we were looking for opportunities to invest in
beneficiaries of petrodollars.
As always, we continue to seek out international small-cap companies with the
strongest growth potential by intensive analysis, management contact and
fundamental, bottom-up research.
/s/ Tracy P. Stouffer
Tracy P. Stouffer, CFA
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 January 1, 2005
and held through June 30, 2005.
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 FOR COMPARISON PURPOSES 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*
(1/1/05) (6/30/05) (1/1/05-6/30/05)
- ------------------------------------------------------------------------------------------
CLASS A ACTUAL $ 1,000.00 $ 1,001.71 $ 10.23
CLASS A HYPOTHETICAL 1,000.00 1,014.50 10.29
CLASS B ACTUAL 1,000.00 992.92 14.53
CLASS B HYPOTHETICAL 1,000.00 1,010.14 14.66
CLASS C ACTUAL 1,000.00 993.80 14.29
CLASS C HYPOTHETICAL 1,000.00 1,010.39 14.41
CLASS F ACTUAL 1,000.00 1,002.60 9.93
CLASS F HYPOTHETICAL 1,000.00 1,014.80 9.99
CLASS R ACTUAL 1,000.00 1,003.55 9.33
CLASS R HYPOTHETICAL 1,000.00 1,015.41 9.39
CLASS T ACTUAL 1,000.00 996.88 12.46
CLASS T HYPOTHETICAL 1,000.00 1,012.24 12.55
</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
181/365 (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, earnings credits and brokerage
offsets, where applicable.
<Table>
<Caption>
EXPENSE RATIO
- ---------------------------------------------------
CLASS A 2.05%
CLASS B 2.92%
CLASS C 2.87%
CLASS F 1.99%
CLASS R 1.87%
CLASS T 2.50%
</Table>
11
<Page>
STATEMENT OF INVESTMENTS
JUNE 30, 2005 (UNAUDITED)
<Table>
<Caption>
SHARES MARKET VALUE
- --------------------------------------------------------------------------------
COMMON STOCKS (FOREIGN)--97.4%
AEROSPACE & DEFENSE--1.9%
231,961 Taneja Aerospace Aviation (IN)* $ 423,641
80,000 Ultra Electronics Holdings PLC (UK) 1,153,915
50,000 VT Group PLC (UK) 316,252
---------------
1,893,808
---------------
AGRICULTURAL PRODUCTS--0.3%
425,000 Petra Foods Limited (SG) 262,174
---------------
AIR FREIGHT & LOGISTICS--0.5%
166 World Logi Company Limited (JA)* 459,490
---------------
AIRLINES--1.1%
735,000 SpiceJet Limited (IN)* 1,110,742
---------------
APPAREL RETAIL--2.0%
61 Link Theory Holdings Company Limited (JA) 482,346
151,500 Mulberry Group PLC (UK)* 417,690
14,800 Point, Inc. (JA) 581,805
58,475 Shoppers' Stop Limited (IN)* 485,084
---------------
1,966,925
---------------
APPAREL, ACCESSORIES & LUXURY GOODS--1.2%
11,800 IC Companys AS (DE)* 527,025
51,000 Mariella Burani Spa (IT) 654,859
---------------
1,181,884
---------------
APPLICATION SOFTWARE--1.2%
406,775 Micro Focus International PLC (UK)* 1,166,171
---------------
BREWERS--0.3%
585 Harboes Bryggeri AS Class B (DE) 258,429
---------------
BROADCASTING & CABLE TV--0.4%
10,000 Qrix Communication, Inc. (KR) 381,344
---------------
</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.
<Table>
AU Australia
BD Bermuda
BE Belgium
CA Canada
CN China
DE Denmark
FI Finland
FR France
GE Germany
GR Greece
HK Hong Kong
ID Indonesia
IN India
IT Italy
JA Japan
KR South Korea
MA Malaysia
NE Netherlands
NW Norway
PH Philippines
SG Singapore
SP Spain
SW Sweden
SZ Switzerland
TH Thailand
TU Turkey
TW Taiwan
UK United Kingdom
</Table>
12
<Page>
<Table>
<Caption>
SHARES MARKET VALUE
- --------------------------------------------------------------------------------
BUILDING PRODUCTS--0.5%
195,050 Lloyd Electric & Engineering (IN)* $ 489,251
---------------
CASINOS & GAMING--3.7%
375,000 Empire Online Limited 144A (UK)*+ 1,218,935
342,475 IG Group Holdings PLC (UK)* 898,989
744,000 Melco International Development Limited (HK) 890,387
35,000 Unibet Group PLC (SW) 716,855
---------------
3,725,166
---------------
COMMODITY CHEMICALS--1.6%
20,570,000 Daqing Petroleum and Chemical Group Limited (HK) 1,085,279
20,000 Soken Chemical & Engineering Company Limited (JA) 504,914
---------------
1,590,193
---------------
COMMUNICATIONS EQUIPMENT--3.4%
402,000 CyberTAN Technology, Inc. (TW) 299,517
18,200 Digital Multimedia Technologies SPA (IT)* 576,198
179,350 Exfo Electro-Optical Engineering, Inc. (CA)* 778,379
70,000 Giant Wireless Technology Limited (SG) 21,176
64,600 RTX Telecom AS (DE)* 786,884
127,000 Tamura Taiko Holdings, Inc. (JA) 1,000,793
---------------
3,462,947
---------------
COMPUTER STORAGE & PERIPHERALS--0.8%
3,250,000 Anwell Technologies Limited (SG) 385,551
56,000 King Slide Works Company Limited (TW) 387,182
---------------
772,733
---------------
CONSTRUCTION & ENGINEERING--3.5%
83,050 Abengoa SA (SP) 964,880
87,000 Chiyoda Corporation (JA) 1,078,577
22,350 Korea Development Corporation (KR) 522,832
2,000,000 Power Line Engineering Public Company Limited
Foreign Shares (TH)# 435,572
80,000 WorleyParsons Limited (AU) 480,475
---------------
3,482,336
---------------
CONSTRUCTION MATERIALS--0.2%
49,000 Cimsa Cimento Sanayi ve Ticaret AS (TU) 235,701
---------------
CONSTRUCTION, FARM MACHINERY & HEAVY TRUCKS--1.7%
28,200 Aker Yards AS (NW) 1,087,553
25,000 STX Shipbuilding Company Limited (KR) 592,073
---------------
1,679,626
---------------
DEPARTMENT STORES--0.7%
19,350 Stockmann AB Class B (FI) 690,821
---------------
DISTILLERS & VINTNERS--0.5%
54,825 Radico Khaitan Limited (IN) 519,813
---------------
</Table>
SEE NOTES TO STATEMENT OF INVESTMENTS.
13
<Page>
<Table>
<Caption>
SHARES MARKET VALUE
- --------------------------------------------------------------------------------
DIVERSIFIED COMMERCIAL & PROFESSIONAL SERVICES--1.4%
22 First Energy Service Company Limited (JA)* $ 493,914
600,000 Raffles Education Corporation Limited (SG) 266,920
35,000 Ramirent Oyj (FI) 656,965
---------------
1,417,799
---------------
DIVERSIFIED METALS & MINING--3.4%
208,275 Birch Mountain Resources Limited (CA)* 469,180
192,425 HEG Limited (IN) 621,647
100,000 International Uranium Corporation (CA)* 432,582
64,300 Major Drilling Group International, Inc. (CA)* 635,023
13,000 Toho Titanium Company Limited (JA) 478,226
180,000 Uranium Participation Corporation 144A (CA)*+ 822,723
---------------
3,459,381
---------------
ELECTRIC UTILITIES--0.5%
180,000 Webel-Sl Energy Systems Limited (IN)* 486,072
---------------
ELECTRICAL COMPONENTS & EQUIPMENT--1.6%
1,000,000 Magnecomp International Limited (SG) 566,463
1,000,000 Surface Mount Technology (Holdings) Limited (SG) 415,208
289,000 VTech Holdings Limited (HK) 674,990
---------------
1,656,661
---------------
ELECTRONIC EQUIPMENT MANUFACTURERS--4.9%
294,000 Cheng Uei Precision Industry Company Limited (TW) 858,564
8,400 HF Company (FR) 505,240
62,200 Micronic Laser Systems AB (SW)* 696,694
87,750 Rotork PLC (UK) 746,842
10,160 SFA Engineering Corporation (KR) 263,698
114,000 Simplo Technology Company Limited (TW) 282,526
774,000 Sino-American Silicon Products, Inc. (TW) 1,029,964
27,810 Telechips, Inc. (KR) 517,489
---------------
4,901,017
---------------
ELECTRONIC MANUFACTURING SERVICES--0.7%
61,710 ADP Engineering Company Limited (KR)* 683,015
---------------
ENVIRONMENTAL & FACILITIES SERVICES--0.5%
374 Nippon Jogesuido Sekkei Company Limited (JA) 499,071
---------------
GAS UTILITIES--0.7%
138,000 Shizuoka Gas Company Limited (JA) 707,979
---------------
GENERAL MERCHANDISE STORES--1.1%
20,300 Don Quijote Company Limited (JA) 1,105,509
---------------
HEALTHCARE EQUIPMENT--0.8%
6,800 Ypsomed Holding AG (SZ)* 777,370
---------------
HEALTHCARE FACILITIES--0.9%
26,025 Generale de Sante (FR) 636,216
39,000 Nichiryoku Company Limited (JA) 232,080
---------------
868,296
---------------
</Table>
14
<Page>
<Table>
<Caption>
SHARES MARKET VALUE
- --------------------------------------------------------------------------------
HEALTHCARE SERVICES--0.6%
45,000 RaySearch Laboratories AB (SW)* $ 604,846
---------------
HOMEBUILDING--0.3%
134,968 D.S. Kulkarni Developers (IN) 260,002
---------------
HOTELS, RESORTS & CRUISE LINES--1.4%
60,000 De Vere Group PLC (UK) 606,343
180,000 Formosa International Hotels Corporation (TW) 302,320
121,850 Hotel Leelaventure Limited (IN) 526,499
---------------
1,435,162
---------------
INDUSTRIAL MACHINERY--2.3%
350,000 Japan Steel Works Limited (JA) 953,025
12,000 KCI Konecranes Oyj (FI) 511,921
30,000 Metka SA (GR) 267,941
3,000,000 Midas Holdings Limited (SG) 533,839
---------------
2,266,726
---------------
INTEGRATED TELECOMMUNICATION SERVICES--1.0%
100 M.P. Technologies, Inc. (JA) 515,733
250,000 Spanco Telesystems and Solutions Limited (IN) 463,197
---------------
978,930
---------------
INTERNET SOFTWARE & SERVICES--2.9%
75 DeNA Company Limited (JA)* 632,269
226 Digital Arts, Inc. (JA)* 821,189
22 Gourmet Navigator, Inc. (JA)* 116,238
88 Gourmet Navigator, Inc. New Shares (JA)* 386,403
121,300 Thomson Intermedia PLC (UK)* 423,822
25,940 Webzen, Inc. (KR) 495,230
---------------
2,875,151
---------------
INVESTMENT BANKING & BROKERAGE--0.6%
45 Fintech Global, Inc. (JA)* 616,716
---------------
IT CONSULTING & OTHER SERVICES--2.3%
165,000 AffectoGenimap Oyj (FI)* 910,565
1,500,000 CSE Global Limited (SG) 609,467
120,750 Transcom WorldWide SA Class B (SW)* 766,676
---------------
2,286,708
---------------
LEISURE FACILITIES--0.7%
302,975 Goals Soccer Centres PLC (UK)* 678,586
---------------
MARINE--2.2%
25,000 Cargotec Corporation Class B (FI)* 697,991
63,500 Geo ASA 144A (NW)*+^# 194,359
19,350 Koninklijke Vopak NV (NE) 488,492
1,697,000 Labroy Marine Limited (SG) 805,267
---------------
2,186,109
---------------
</Table>
SEE NOTES TO STATEMENT OF INVESTMENTS.
15
<Page>
<Table>
<Caption>
SHARES MARKET VALUE
- --------------------------------------------------------------------------------
MOVIES & ENTERTAINMENT--1.9%
17,000 123 Multimedia (FR) $ 639,840
21,300 Club iT Corporation (JA)* 460,914
18,400 CTS Eventim AG (GE)* 772,698
---------------
1,873,452
---------------
MULTI-SECTOR HOLDINGS--0.6%
15,000 Ackermans & van Haaren NV (BE) 630,643
---------------
OIL & GAS DRILLING--2.7%
41,200 Fred Olsen Energy ASA (NW)* 1,052,967
140,000 Ocean Rig ASA (NW)* 1,156,972
150,950 Saxon Energy Services, Inc. (CA)* 480,497
---------------
2,690,436
---------------
OIL & GAS EQUIPMENT & SERVICES--5.9%
27,000 Aker Kvaerner ASA (NW)* 1,097,057
111,200 APL AS (NW)* 1,208,270
16,475 Exploration Resources ASA (NW)* 474,006
210,000 Sinvest ASA (NW)* 1,211,606
56,000 Stolt Offshore SA (NW)* 512,067
1,607 Vallourec SA (FR) 462,477
601,975 Welspun Gujarat Stahl Rohren Limited (IN)* 933,252
---------------
5,898,735
---------------
OIL & GAS EXPLORATION & PRODUCTION--3.1%
150,000 Find Energy Limited (CA)* 500,735
143,800 Revus Energy ASA (NW)* 988,112
447,450 UTS Energy Corporation (CA)* 938,579
110,000 Venture Production PLC (UK)* 727,782
---------------
3,155,208
---------------
OIL & GAS REFINING & MARKETING--1.0%
47,500 D1 Oils PLC (UK)* 263,842
15,000 Motor Oil (Hellas) Corinth Refineries SA (GR) 222,195
173,000 Singapore Petroleum Company Limited (SG) 508,974
---------------
995,011
---------------
OIL & GAS STORAGE & TRANSPORTATION--0.5%
224,250 Aygaz AS (TU) 522,492
---------------
OTHER DIVERSIFIED FINANCIAL SERVICES--0.9%
249,575 Indiabulls Financial Services (IN)* 929,412
---------------
PACKAGED FOODS & MEATS--0.8%
1,050 Hiestand Holding AG (SZ) 826,726
---------------
PAPER PACKAGING--0.6%
1,066,000 Vision Grande Group Holdings Limited (HK) 603,577
---------------
PHARMACEUTICALS--3.1%
25,580 Boryung Pharmaceutical Company (KR) 704,717
21,470 Il Dong Pharmaceutical Company (KR) 691,108
300,000 Kopran Limited (IN)* 566,532
111,500 Meda AB Class A (SW) 1,134,711
---------------
3,097,068
---------------
</Table>
16
<Page>
<Table>
<Caption>
SHARES MARKET VALUE
- --------------------------------------------------------------------------------
PUBLISHING--0.5%
450 Chintai Jutaku News Company Limited (JA) $ 555,856
---------------
REAL ESTATE INVESTMENT TRUSTS--0.7%
415,000 Yapi Kredi Koray Gayrimenkul Yatirim Ortakligi
AS (TU)* 745,472
---------------
REAL ESTATE MANAGEMENT & DEVELOPMENT--4.2%
379 Arealink Company Limited (JA) 744,946
139 Arealink Company Limited New Shares (JA)*# 259,552
282,500 Expomedia Group PLC (UK)* 663,098
24,600 FJ Next Company Limited (JA) 290,560
172 RISA Partners, Inc. (JA)* 555,189
2,000,000 Rojana Industrial Park Public Company Limited
Foreign Shares (TH)# 375,076
199 Sun Frontier Fudousan Company Limited (JA) 654,900
30,000 Touei Housing Corporation (JA) 630,241
---------------
4,173,562
---------------
REGIONAL BANKS--2.0%
3,675 Forstaedernes Bank AS (DE) 360,278
60,000 Geniki Bank (GR)* 559,119
4,994,500 Lippo Bank TBK PT (ID)* 603,843
790 Ringkjoebing Landbobank Aktieselskab (DE) 365,670
100,000 Yes Bank Limited (IN)*# 103,508
---------------
1,992,418
---------------
SEMICONDUCTOR EQUIPMENT--1.4%
36,320 Jusung Engineering Company Limited (KR) 484,501
86,175 Silicon-On-Insulator Technologies (FR)* 938,612
---------------
1,423,113
---------------
SEMICONDUCTORS--3.8%
160,000 Elite Semiconductor Memory Technologies, Inc. (TW) 313,181
41,800 MegaChips Corporation (JA) 489,193
148 Nihon Aim Company Limited (JA) 813,993
52,500 Nordic Semiconductor ASA (NW)* 528,270
309,000 System General Corporation (TW)* 613,610
1,318,000 Wafer Works Corporation (TW)* 1,061,058
---------------
3,819,305
---------------
SOFT DRINKS--0.7%
753,500 Mount Everest Mineral Water (IN)* 736,601
---------------
SPECIALIZED CONSUMER SERVICES--0.4%
25,000 Homeserve PLC (UK) 445,709
---------------
SPECIALIZED FINANCE--1.9%
1,334,000 Fil-Hispano Holdings Corporation (PH)* 157,292
142,175 FireOne Group PLC (UK)* 840,669
724,346 SREI Infrastructure Finance Limited (IN) 961,352
---------------
1,959,313
---------------
</Table>
SEE NOTES TO STATEMENT OF INVESTMENTS.
17
<Page>
<Table>
<Caption>
SHARES MARKET VALUE
- --------------------------------------------------------------------------------
SPECIALTY CHEMICALS--2.3%
25,900 Auriga Industries AS Class B (DE) $ 757,162
81,300 Shinwha Intertek Corporation (KR) 860,546
101,000 Tokuyama Corporation (JA) 719,412
---------------
2,337,120
---------------
SYSTEMS SOFTWARE--0.5%
12,500 Software AG (GE) 516,610
---------------
TEXTILES--1.2%
114,875 SRF Limited (IN) 451,177
152,000 Toho Tenax Company Limited (JA)* 735,948
---------------
1,187,125
---------------
TRADING COMPANIES & DISTRIBUTORS--0.4%
200,000 BSL Corporation (JA) 449,013
---------------
TOTAL COMMON STOCKS (FOREIGN)
(COST--$94,891,050) 97,644,637
---------------
<Caption>
UNITS MARKET VALUE
- --------------------------------------------------------------------------------
FOREIGN RIGHTS AND WARRANTS--0.3%
ELECTRIC UTILITIES--0.2%
424,000 VRB Power Systems Special Warrants 144A,
expire 2005 (CA)*+^# $ 249,167
---------------
INTEGRATED TELECOMMUNICATION SERVICES--0.0%
600,000 Yangtze Telecom Corporation Warrants, expire
2005 (CN)*^# 0
---------------
PUBLISHING--0.1%
204,677 Media Prima Berhad ICULS (MA) 53,054
---------------
REGIONAL BANKS--0.0%
60,000 Geniki Bank SA Rights (GR)* 37,759
---------------
TOTAL FOREIGN RIGHTS AND WARRANTS
(COST--$367,083) 339,980
---------------
<Caption>
PRINCIPAL AMOUNT AMORTIZED COST
- --------------------------------------------------------------------------------
CORPORATE SHORT-TERM NOTES--4.1%
HOUSEHOLD APPLIANCES--4.1%
$ 4,100,000 Stanley Works, Inc.
3.37% 7/1/05~ $ 4,100,000
---------------
TOTAL CORPORATE SHORT-TERM NOTES
(AMORTIZED COST--$4,100,000) 4,100,000
---------------
TOTAL INVESTMENTS--101.8%
(TOTAL COST--$99,358,133) 102,084,617
---------------
OTHER ASSETS AND LIABILITIES--(1.8%) (1,822,127)
---------------
NET ASSETS--100.0% $ 100,262,490
===============
</Table>
18
<Page>
NOTES TO STATEMENT OF INVESTMENTS
* NON-INCOME PRODUCING.
+ SECURITIES WERE ACQUIRED PURSUANT TO RULE 144A AND MAY BE DEEMED TO BE
RESTRICTED FOR RESALE. THESE SECURITIES AMOUNTED TO $2,485,184, OR 2.5%, OF
THE FUND'S NET ASSETS AS OF JUNE 30, 2005.
~ 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 $4,100,000, OR 4.1%, OF THE FUND'S NET ASSETS AS OF JUNE 30,
2005.
# FAIR VALUED SECURITY.
ICULS - IRREDEEMABLE CONVERTIBLE UNSECURED LOAN STOCK
^ SCHEDULE OF RESTRICTED AND ILLIQUID SECURITIES:
<Table>
<Caption>
ACQUISITION ACQUISITION VALUE AS %
DATE COST VALUE OF NET ASSETS
--------------- --------------- --------------- ---------------
YANGTZE TELECOM CORPORATION
WARRANTS, EXPIRE 2005 (CA) 3/8/04 $ 0 $ 0 0.00%
GEO ASA 144A (NW) 6/21/05 196,960 194,359 0.19%
VRB POWER SYSTEMS SPECIAL
WARRANTS 144A, EXPIRE 2005 (CA) 6/29/05 249,522 249,167 0.25%
--------------- --------------- ---------------
$ 446,482 $ 443,526 0.44%
</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.
19
<Page>
STATEMENT OF ASSETS AND LIABILITIES
June 30, 2005 (UNAUDITED)
<Table>
ASSETS
Investment securities, at cost $ 99,358,133
---------------
Investment securities, at market 102,084,617
Cash 19,590
Foreign currency (cost $1,385,723) 1,373,870
Receivables:
Investment securities sold 5,853,715
Capital shares sold 9,715
Dividends and interest 46,608
Other assets 106,508
---------------
Total Assets 109,494,623
---------------
LIABILITIES
Payables and other accrued liabilities:
Investment securities purchased 8,717,025
Capital shares redeemed 163,911
Advisory fees 82,585
Shareholder servicing fees 13,837
Accounting fees 8,259
Distribution fees 32,149
Transfer agency fees 36,097
Custodian fees 34,377
India and Thailand taxes 27,299
Other 116,594
---------------
Total Liabilities 9,232,133
---------------
Net Assets $ 100,262,490
===============
COMPOSITION OF NET ASSETS
Capital (par value and paid-in surplus) $ 228,185,514
Accumulated net investment loss (486,071)
Accumulated net realized loss from security transactions
(net of foreign taxes paid on Thailand and Indian
investments of $159,639 and $388,198, respectively) (130,128,412)
Net unrealized appreciation on investments
and foreign currency translation 2,691,459
---------------
Total $ 100,262,490
===============
</Table>
20
<Page>
<Table>
CLASS A
Net Assets $ 17,732,437
Shares Outstanding 1,045,527
Net Asset Value, Redemption Price Per Share $ 16.96
Maximum offering price per share (net asset value
plus sales charge of 5.75% of offering price) $ 17.99
CLASS B
Net Assets $ 15,629,476
Shares Outstanding 964,072
Net Asset Value, Offering and Redemption Price (excluding
applicable contingent deferred sales charge) Per Share $ 16.21
CLASS C
Net Assets $ 7,088,930
Shares Outstanding 437,617
Net Asset Value, Offering and Redemption Price (excluding
applicable contingent deferred sales charge) Per Share $ 16.20
CLASS F
Net Assets $ 59,219,795
Shares Outstanding 3,490,198
Net Asset Value, Offering and Redemption Price Per Share $ 16.97
CLASS R
Net Assets $ 168,267
Shares Outstanding 10,186
Net Asset Value, Offering and Redemption Price Per Share $ 16.52
CLASS T
Net Assets $ 423,585
Shares Outstanding 26,141
Net Asset Value, Redemption Price Per Share $ 16.20
Maximum offering price per share (net asset value
plus sales charge of 4.50% of offering price) $ 16.96
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
21
<Page>
STATEMENT OF OPERATIONS
For the six months ended June 30, 2005 (UNAUDITED)
<Table>
INVESTMENT INCOME
Dividends $ 920,276
Interest 56,222
Foreign taxes withheld (92,719)
---------------
Total Investment Income 883,779
---------------
EXPENSES
Advisory fees--Note 2 583,599
Shareholder servicing fees--Note 2 88,181
Accounting fees--Note 2 58,360
Distribution fees--Note 2 185,213
Transfer agency fees--Note 2 76,746
Registration fees 29,240
Postage and mailing expenses 5,675
Custodian fees and expenses--Note 2 248,201
Printing expenses 26,230
Legal and audit fees 21,854
Directors' fees and expenses--Note 2 10,600
Other expenses 42,586
---------------
Total Expenses 1,376,485
Earnings Credits (4,621)
Reimbursed/Waived Expenses (81,085)
Expense Offset to Broker Commissions (4,865)
---------------
Net Expenses 1,285,914
---------------
Net Investment Loss (402,135)
---------------
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 $159,639 and $388,198, respectively) 9,164,845
Foreign Currency Transactions (21,558)
---------------
Net Realized Gain 9,143,287
Net Change in Unrealized Appreciation/Depreciation
of Investments and Foreign Currency Translation (7,901,612)
---------------
Net Realized and Unrealized Gain 1,241,675
---------------
Net Increase in Net Assets Resulting from Operations $ 839,540
===============
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
22
<Page>
STATEMENTS OF CHANGES IN NET ASSETS
(UNAUDITED)
<Table>
<Caption>
SIX MONTHS ENDED YEAR ENDED
6/30/05 12/31/04
OPERATIONS
Net Investment Loss $ (402,135) $ (1,171,904)
Net Realized Gain on Security and Foreign
Currency Transactions 9,143,287 20,009,742
Net Change in Unrealized Appreciation/Depreciation
of Investments and Foreign Currency Translation (7,901,612) (1,026,156)
----------------- ---------------
Net Increase in Net Assets Resulting from Operations 839,540 17,811,682
----------------- ---------------
CAPITAL SHARE TRANSACTIONS
Net Increase (Decrease)--Note 4
Class A (2,181,471) (9,809,094)
Class B (2,453,343) (2,918,121)
Class C (3,194,035) (1,725,859)
Class F (16,895,807) (14,537,401)
Class R (28,230) 22,994
Class T (92,891) (87,939)
----------------- ---------------
Net Decrease from Capital Share Transactions (24,845,777) (29,055,420)
----------------- ---------------
Net Decrease in Net Assets (24,006,237) (11,243,738)
----------------- ---------------
NET ASSETS
Beginning of period $ 124,268,727 $ 135,512,465
----------------- ---------------
End of period $ 100,262,490 $ 124,268,727
================= ===============
Accumulated Net Investment Loss $ (486,071) $ (83,936)
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
23
<Page>
FINANCIAL HIGHLIGHTS
(UNAUDITED)
<Table>
<Caption>
SIX MONTHS YEAR ENDED
ENDED JUNE 30, DECEMBER 31,
2005 2004 2003 2002 2001
--------------- ---------------------------------------------------------
CLASS A SHARES
PER SHARE OPERATING DATA
Net Asset Value, beginning of period $ 16.76 $ 14.24 $ 8.14 $ 9.68 $ 14.18
- ----------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.05)(a) (0.11)(a) 0.10 (0.16) (0.14)
Net realized and unrealized gains
(losses) on securities 0.25 2.63 6.00 (1.38) (4.36)
-----------------------------------------------------------------------------
Total from investment operations 0.20 2.52 6.10 (1.54) (4.50)
- ----------------------------------------------------------------------------------------------------------------------------------
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 0.00
-----------------------------------------------------------------------------
Total distributions 0.00 0.00 0.00 0.00 0.00
- ----------------------------------------------------------------------------------------------------------------------------------
Net Asset Value, end of period $ 16.96 $ 16.76 $ 14.24 $ 8.14 $ 9.68
=============================================================================
TOTAL RETURN(b) 1.19% 17.70% 74.94% (15.91%) (31.74%)
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000s) $ 17,732 $ 19,726 $ 27,252 $ 9,422 $ 14,033
- ----------------------------------------------------------------------------------------------------------------------------------
Ratios to average net assets(c):
Expenses with reimbursements, but
no earnings credits or brokerage offsets(d) 2.07% 1.92% 2.45% 2.24% 1.88%
Expenses with reimbursements,
earnings credits and brokerage offsets 2.05% 1.92% 2.45% 2.24% 1.87%
Net investment loss (0.54%) (0.77%) (0.83%) (0.80%) (0.26%)
- ----------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate(e) 682% 648% 707% 495% 704%
</Table>
(a). COMPUTED USING AVERAGE SHARES OUTSTANDING THROUGHOUT THE PERIOD.
(b). SALES CHARGES ARE NOT REFLECTED IN THE TOTAL RETURN.
(c). ANNUALIZED.
(d). CERTAIN FEES WERE WAIVED BY THE CUSTODIAN. HAD THESE FEES NOT BEEN WAIVED,
THE EXPENSE RATIOS WOULD HAVE BEEN 2.21% (2005), 2.02% (2004), 2.54%
(2003), 2.27% (2002), AND 1.88% (2001).
(e). PORTFOLIO TURNOVER RATE IS A MEASURE OF PORTFOLIO ACTIVITY THAT IS
CALCULATED BY DIVIDING THE LESSER OF PURCHASES OR SALES OF SECURITIES,
EXCLUDING SECURITIES HAVING MATURITY DATES AT ACQUISITION OF ONE YEAR OR
LESS, BY THE AVERAGE VALUE OF THE PORTFOLIO SECURITIES HELD DURING THE
PERIOD, WHICH IS A ROLLING 12-MONTH PERIOD.
24
<Page>
<Table>
<Caption>
SIX MONTHS YEAR ENDED
ENDED JUNE 30, DECEMBER 31,
2005 2004 2003 2002 2001
--------------- ---------------------------------------------------------
CLASS B SHARES
PER SHARE OPERATING DATA
Net Asset Value, beginning of period $ 16.09 $ 13.79 $ 7.95 $ 9.54 $ 14.08
- ----------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment loss (0.12)(a) (0.23)(a) (0.31) (0.29) (0.18)
Net realized and unrealized gains
(losses) on securities 0.24 2.53 6.15 (1.30) (4.36)
-----------------------------------------------------------------------------
Total from investment operations 0.12 2.30 5.84 (1.59) (4.54)
- ----------------------------------------------------------------------------------------------------------------------------------
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 0.00
-----------------------------------------------------------------------------
Total distributions 0.00 0.00 0.00 0.00 0.00
- ----------------------------------------------------------------------------------------------------------------------------------
Net Asset Value, end of period $ 16.21 $ 16.09 $ 13.79 $ 7.95 $ 9.54
=============================================================================
TOTAL RETURN(b) 0.75% 16.68% 73.46% (16.67%) (32.24%)
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000s) $ 15,629 $ 17,917 $ 18,198 $ 12,810 $ 19,661
- ----------------------------------------------------------------------------------------------------------------------------------
Ratios to average net assets(c):
Expenses with reimbursements, but
no earnings credits or brokerage offsets(d) 2.94% 2.79% 3.30% 3.09% 2.66%
Expenses with reimbursements,
earnings credits and brokerage offsets 2.92% 2.78% 3.29% 3.09% 2.64%
Net investment loss (1.43%) (1.63%) (1.44%) (1.64%) (1.06%)
- ----------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate(e) 682% 648% 707% 495% 704%
</Table>
(a). COMPUTED USING AVERAGE SHARES OUTSTANDING THROUGHOUT THE PERIOD.
(b). SALES CHARGES ARE NOT REFLECTED IN THE TOTAL RETURN.
(c). ANNUALIZED.
(d). CERTAIN FEES WERE WAIVED BY THE CUSTODIAN. HAD THESE FEES NOT BEEN WAIVED,
THE EXPENSE RATIOS WOULD HAVE BEEN 3.08% (2005), 2.89% (2004), 3.38%
(2003), 3.12% (2002), AND 2.66% (2001).
(e). PORTFOLIO TURNOVER RATE IS A MEASURE OF PORTFOLIO ACTIVITY THAT IS
CALCULATED BY DIVIDING THE LESSER OF PURCHASES OR SALES OF SECURITIES,
EXCLUDING SECURITIES HAVING MATURITY DATES AT ACQUISITION OF ONE YEAR OR
LESS, BY THE AVERAGE VALUE OF THE PORTFOLIO SECURITIES HELD DURING THE
PERIOD, WHICH IS A ROLLING 12-MONTH PERIOD.
SEE NOTES TO FINANCIAL STATEMENTS.
25
<Page>
<Table>
<Caption>
SIX MONTHS YEAR ENDED
ENDED JUNE 30, DECEMBER 31,
2005 2004 2003 2002 2001
--------------- ---------------------------------------------------------
CLASS C SHARES
PER SHARE OPERATING DATA
Net Asset Value, beginning of period $ 16.07 $ 13.76 $ 7.93 $ 9.52 $ 14.06
- ----------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment loss (0.11)(a) (0.22)(a) (0.01) (0.35) (0.22)
Net realized and unrealized gains
(losses) on securities 0.24 2.53 5.84 (1.24) (4.32)
-----------------------------------------------------------------------------
Total from investment operations 0.13 2.31 5.83 (1.59) (4.54)
- ----------------------------------------------------------------------------------------------------------------------------------
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 0.00
-----------------------------------------------------------------------------
Total distributions 0.00 0.00 0.00 0.00 0.00
- ----------------------------------------------------------------------------------------------------------------------------------
Net Asset Value, end of period $ 16.20 $ 16.07 $ 13.76 $ 7.93 $ 9.52
=============================================================================
TOTAL RETURN(b) 0.81% 16.79% 73.52% (16.70%) (32.29%)
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000s) $ 7,089 $ 10,249 $ 10,639 $ 5,268 $ 8,928
- ----------------------------------------------------------------------------------------------------------------------------------
Ratios to average net assets(c):
Expenses with reimbursements, but
no earnings credits or brokerage offsets(d) 2.88% 2.71% 3.25% 3.06% 2.67%
Expenses with reimbursements,
earnings credits and brokerage offsets 2.87% 2.70% 3.25% 3.05% 2.65%
Net investment loss (1.37%) (1.55%) (1.43%) (1.58%) (1.08%)
- ----------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate(e) 682% 648% 707% 495% 704%
</Table>
(a). COMPUTED USING AVERAGE SHARES OUTSTANDING THROUGHOUT THE PERIOD.
(b). SALES CHARGES ARE NOT REFLECTED IN THE TOTAL RETURN.
(c). ANNUALIZED.
(d). CERTAIN FEES WERE WAIVED BY THE CUSTODIAN. HAD THESE FEES NOT BEEN WAIVED,
THE EXPENSE RATIOS WOULD HAVE BEEN 3.02% (2005), 2.81% (2004), 3.34%
(2003), 3.08% (2002), AND 2.67% (2001).
(e). PORTFOLIO TURNOVER RATE IS A MEASURE OF PORTFOLIO ACTIVITY THAT IS
CALCULATED BY DIVIDING THE LESSER OF PURCHASES OR SALES OF SECURITIES,
EXCLUDING SECURITIES HAVING MATURITY DATES AT ACQUISITION OF ONE YEAR OR
LESS, BY THE AVERAGE VALUE OF THE PORTFOLIO SECURITIES HELD DURING THE
PERIOD, WHICH IS A ROLLING 12-MONTH PERIOD.
26
<Page>
<Table>
<Caption>
SIX MONTHS YEAR ENDED
ENDED JUNE 30, DECEMBER 31,
2005 2004 2003 2002 2001
--------------- ---------------------------------------------------------
CLASS F SHARES
PER SHARE OPERATING DATA
Net Asset Value, beginning of period $ 16.76 $ 14.24 $ 8.13 $ 9.67 $ 14.17
- ----------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment loss (0.04)(a) (0.11)(a) (0.14) (0.23) (0.22)
Net realized and unrealized gains
(losses) on securities 0.25 2.63 6.25 (1.31) (4.28)
-----------------------------------------------------------------------------
Total from investment operations 0.21 2.52 6.11 (1.54) (4.50)
- ----------------------------------------------------------------------------------------------------------------------------------
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 0.00
-----------------------------------------------------------------------------
Total distributions 0.00 0.00 0.00 0.00 0.00
- ----------------------------------------------------------------------------------------------------------------------------------
Net Asset Value, end of period $ 16.97 $ 16.76 $ 14.24 $ 8.13 $ 9.67
=============================================================================
TOTAL RETURN 1.25% 17.70% 75.15% (15.93%) (31.76%)
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000s) $ 59,220 $ 75,677 $ 78,759 $ 50,742 $ 78,574
- ----------------------------------------------------------------------------------------------------------------------------------
Ratios to average net assets(b):
Expenses with reimbursements, but
no earnings credits or brokerage offsets(c) 2.01% 1.90% 2.31% 2.18% 1.92%
Expenses with reimbursements,
earnings credits and brokerage offsets 1.99% 1.89% 2.31% 2.18% 1.90%
Net investment loss (0.47%) (0.75%) (0.45%) (0.74%) (0.30%)
- ----------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate(d) 682% 648% 707% 495% 704%
</Table>
(a). COMPUTED USING AVERAGE SHARES OUTSTANDING THROUGHOUT THE PERIOD.
(b). ANNUALIZED.
(c). CERTAIN FEES WERE WAIVED BY THE CUSTODIAN. HAD THESE FEES NOT BEEN WAIVED,
THE EXPENSE RATIOS WOULD HAVE BEEN 2.15% (2005), 2.00% (2004), 2.40%
(2003), 2.21% (2002), AND 1.92% (2001).
(d). PORTFOLIO TURNOVER RATE IS A MEASURE OF PORTFOLIO ACTIVITY THAT IS
CALCULATED BY DIVIDING THE LESSER OF PURCHASES OR SALES OF SECURITIES,
EXCLUDING SECURITIES HAVING MATURITY DATES AT ACQUISITION 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>
SIX MONTHS YEAR ENDED
ENDED JUNE 30, DECEMBER 31,
2005 2004 2003 2002 2001
--------------- ---------------------------------------------------------
CLASS R SHARES
PER SHARE OPERATING DATA
Net Asset Value, beginning of period $ 16.31 $ 13.82 $ 7.87 $ 9.56 $ 14.22
- ----------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.03)(a) (0.07)(a) 0.54 (0.81) (0.17)
Net realized and unrealized gains
(losses) on securities 0.24 2.56 5.41 (0.88) (4.49)
-----------------------------------------------------------------------------
Total from investment operations 0.21 2.49 5.95 (1.69) (4.66)
- ----------------------------------------------------------------------------------------------------------------------------------
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 0.00
-----------------------------------------------------------------------------
Total distributions 0.00 0.00 0.00 0.00 0.00
- ----------------------------------------------------------------------------------------------------------------------------------
Net Asset Value, end of period $ 16.52 $ 16.31 $ 13.82 $ 7.87 $ 9.56
=============================================================================
TOTAL RETURN 1.29% 18.02% 75.60% (17.68%) (32.77%)
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000s) $ 168 $ 190 $ 142 $ 37 $ 76
- ----------------------------------------------------------------------------------------------------------------------------------
Ratios to average net assets(b):
Expenses with reimbursements, but
no earnings credits or brokerage offsets(c) 1.89% 1.68% 2.08% 3.94% 1.86%
Expenses with reimbursements,
earnings credits and brokerage offsets 1.87% 1.68% 2.07% 3.91% 1.84%
Net investment loss (0.42%) (0.51%) (0.32%) (2.20%) (0.08%)
- ----------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate(d) 682% 648% 707% 495% 704%
</Table>
(a). COMPUTED USING AVERAGE SHARES OUTSTANDING THROUGHOUT THE PERIOD.
(b). ANNUALIZED.
(c). CERTAIN FEES WERE WAIVED BY THE CUSTODIAN. HAD THESE FEES NOT BEEN WAIVED,
THE EXPENSE RATIOS WOULD HAVE BEEN 2.03% (2005), 1.79% (2004), 2.17%
(2003), 4.65% (2002), AND 2.78% (2001).
(d). PORTFOLIO TURNOVER RATE IS A MEASURE OF PORTFOLIO ACTIVITY THAT IS
CALCULATED BY DIVIDING THE LESSER OF PURCHASES OR SALES OF SECURITIES,
EXCLUDING SECURITIES HAVING MATURITY DATES AT ACQUISITION 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>
SIX MONTHS YEAR ENDED
ENDED JUNE 30, DECEMBER 31,
2005 2004 2003 2002 2001
--------------- ---------------------------------------------------------
CLASS T SHARES
PER SHARE OPERATING DATA
Net Asset Value, beginning of period $ 16.05 $ 13.70 $ 7.87 $ 9.50 $ 14.14
- ----------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment loss (0.08)(a) (0.17)(a) (0.24) (0.45) (0.22)
Net realized and unrealized gains
(losses) on securities 0.23 2.52 6.07 (1.18) (4.42)
-----------------------------------------------------------------------------
Total from investment operations 0.15 2.35 5.83 (1.63) (4.64)
- ----------------------------------------------------------------------------------------------------------------------------------
Less dividends and distributions:
From net investment income 0.00 0.00 0.00 0.00 0.00
From net realized gains 0.00 0.00 0.00 0.00 0.00
-----------------------------------------------------------------------------
Total distributions 0.00 0.00 0.00 0.00 0.00
- ----------------------------------------------------------------------------------------------------------------------------------
Net Asset Value, end of period $ 16.20 $ 16.05 $ 13.70 $ 7.87 $ 9.50
=============================================================================
TOTAL RETURN(b) 0.93% 17.15% 74.08% (17.16%) (32.82%)
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000s) $ 424 $ 510 $ 522 $ 345 $ 538
- ----------------------------------------------------------------------------------------------------------------------------------
Ratios to average net assets(c):
Expenses with reimbursements, but
no earnings credits or brokerage offsets(d) 2.52% 2.37% 3.07% 4.03% 3.16%
Expenses with reimbursements,
earnings credits and brokerage offsets 2.50% 2.36% 3.07% 4.03% 3.14%
Net investment loss (1.02%) (1.21%) (1.06%) (2.69%) (1.60%)
- ----------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate(e) 682% 648% 707% 495% 704%
</Table>
(a). COMPUTED USING AVERAGE SHARES OUTSTANDING THROUGHOUT THE PERIOD.
(b). SALES CHARGES ARE NOT REFLECTED IN THE TOTAL RETURN.
(c). ANNUALIZED.
(d). CERTAIN FEES WERE WAIVED BY THE CUSTODIAN. HAD THESE FEES NOT BEEN WAIVED,
THE EXPENSE RATIOS WOULD HAVE BEEN 2.66% (2005), 2.47% (2004), 3.16%
(2003), 4.05% (2002), AND 3.16% (2001).
(d). PORTFOLIO TURNOVER RATE IS A MEASURE OF PORTFOLIO ACTIVITY THAT IS
CALCULATED BY DIVIDING THE LESSER OF PURCHASES OR SALES OF SECURITIES,
EXCLUDING SECURITIES HAVING MATURITY DATES AT ACQUISITION 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
June 30, 2005 (UNAUDITED)
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
Dreyfus Founders Funds, Inc. (the "Company") is an open-end management
investment company registered under the Investment Company Act of 1940 (the
"1940 Act"). Ten series of shares are currently issued: Balanced, Discovery,
Equity Growth, 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 shares redeemed 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. Since February 22, 2005, New York closing exchange rates have
been used to convert foreign currencies to U.S. dollars. Previously, London
closing exchange rates were used to convert foreign currencies to U.S. dollars.
A debt security with a remaining maturity greater than 60 days at the time of
purchase is valued in accordance with the evaluated bid price supplied by a
pricing service approved by the Company's board of directors or, if such price
is not available, at the mean between the highest bid and lowest asked
quotations obtained from at least two securities dealers. A debt security with a
remaining maturity of 60 days or less at the time of purchase is valued at
amortized cost, which approximates market value, unless it is determined that
amortized cost would not represent market value, in which case the securities
would be marked to market. The Fund amortizes premiums and discounts on all debt
securities.
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. In addition, it is possible
that the fair value determined for a security may be different from the value
that may be realized upon the security's sale, and that these differences may be
material to the net asset value of the Fund.
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 June 30, 2005 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.
31
<Page>
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) 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 period 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.
32
<Page>
In accordance with an investment advisory agreement between the Company and
Founders, the Fund compensates Founders for its services as investment adviser
by the payment of fees computed daily and paid monthly at the annual rate equal
to a percentage of the average daily value of the Fund's net assets. The fee is
1.00% of the first $250 million of net assets, 0.80% of the next $250 million of
net assets and 0.70% of net assets in excess of $500 million.
SHAREHOLDER SERVICING AND TRANSFER AGENCY FEES FOR CLASS F SHARES--The Company
has a shareholder services agreement with Dreyfus Service Corporation ("DSC"),
the direct owner of Founders and a wholly-owned subsidiary of The Dreyfus
Corporation ("Dreyfus", an affiliate of Founders), whereby the Funds have agreed
to compensate DSC for providing certain shareholder servicing functions to
holders of Class F shares. The Fund paid DSC a monthly fee equal, on an annual
basis, to $24.00 per Class F shareholder account considered to be an open
account at any time during a given month. During the six months ended June 30,
2005, Class F shares were charged $31,810 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 six months ended June 30, 2005, Class F shares
were charged $6,490 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 $12.58 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, including both the per account fees paid to
DTI and out-of-pocket charges, during the six months ended June 30, 2005 were as
follows:
<Table>
<Caption>
TRANSFER
AGENCY FEES
-----------------------------------------------------------------
Class A $ 15,184
Class B $ 23,939
Class C $ 9,647
Class R $ 210
Class T $ 857
</Table>
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 six months ended June 30, 2005, the Fund was charged $1,487 for cash
management fees, which are included in the out-of-pocket transfer agency charges
above.
33
<Page>
OTHER TRANSFER AGENCY FEES--Various broker-dealers, retirement plan
administrators and other 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 six months ended
June 30, 2005, the Fund paid $20,419 to these entities for such services. This
amount is included in the transfer agency fees shown on the Statement of
Operations.
DISTRIBUTION AND SHAREHOLDER SERVICES PLANS--DSC also is the distributor of the
Fund's shares. The Fund has adopted a Distribution Plan pursuant to Rule 12b-1
under the 1940 Act applicable to its Class F shares. Under the plan, the Fund is
authorized to reimburse DSC for expenses paid for distributing or servicing its
Class F shares at an annual rate of up to 0.25% of the value of the average
daily net assets of the Fund's Class F shares. During the six months ended June
30, 2005, Class F shares were charged $89,300 pursuant to this Distribution
Plan.
The Fund also has adopted a Distribution Plan pursuant to Rule 12b-1 under the
1940 Act applicable to its Class B, Class C and Class T shares. Under this plan,
the Fund pays DSC a fee for distributing its Class B and C shares at the annual
rate of 0.75% of the value of the average daily net assets of its Class B and C
shares, respectively, and pays DSC a fee for distributing its Class T shares at
the annual rate of 0.25% of the average daily net assets of its Class T shares.
In addition, the Fund has adopted a Shareholder Services Plan applicable to its
Class A, Class B, Class C and Class T shares. Under the Shareholder Services
Plan, Class A, Class B, Class C and Class T shares pay DSC an annual fee of
0.25% of the value of their average daily net assets for the provision of
certain services.
Distribution and shareholder servicing fees paid to DSC by the Fund's Class A,
B, C and T shares for the six months ended June 30, 2005, were as follows:
<Table>
<Caption>
DISTRIBUTION SHAREHOLDER
FEES SERVICING FEES
--------------------------------------------------------------------
Class A N/A $ 24,007
Class B $ 63,794 $ 21,264
Class C $ 31,529 $ 10,510
Class T $ 590 $ 590
</Table>
During the six months ended June 30, 2005, DSC retained $1,361 in sales
commissions from the sales of Class A shares. DSC also retained $26,389 and
$1,684 of contingent deferred sales charges relating to redemptions of Class B
and Class C shares, respectively.
FUND ACCOUNTING AND ADMINISTRATIVE SERVICES FEES--The Funds have agreed to
compensate Founders for providing accounting services, administration,
compliance monitoring, regulatory and shareholder reporting, as well as related
facilities, equipment and clerical help. The fee is computed at the annual rate
of 0.10% of the
34
<Page>
average daily net assets of the Fund on the first $500 million, 0.065% of the
average daily net assets of the Fund on the next $500 million and 0.02% of the
average daily net assets of the Fund in excess of $1 billion, plus reasonable
out-of-pocket expenses. Founders has contractually agreed in writing 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 contractually agreed in writing 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
--------------------------------------------------------------------
9/1/04 to 8/31/05 $ 200,000
9/1/05 to 8/31/06 $ 200,000
</Table>
The fee waiver is allocated among the Funds in proportion to their respective
shares of the total custodian fee. For the six months ended June 30, 2005, the
Fund's portion of the fee waiver was $81,085, which reduced the amount paid to
Mellon Bank to $167,116.
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.
35
<Page>
3. FEDERAL TAX INFORMATION
Net investment income and capital gains distributions are determined in
accordance with income tax regulations that may differ from accounting
principles generally accepted in the United States of America. These differences
are due to differing treatments for items such as deferral of wash sale losses,
foreign currency transactions, net operating losses and capital loss carryovers.
The tax components of capital represent distribution requirements the Fund must
satisfy under the income tax regulations and losses or tax deductions the Fund
may be able to offset against income and capital gains realized in future years.
Accumulated capital losses and post-October 31 capital losses noted below, if
any, as of December 31, 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. 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
June 30, 2005 are noted below. Unrealized appreciation/depreciation in the table
below excludes appreciation/depreciation on foreign currency translation, if
any. 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 $ 99,471,809
Gross Tax Appreciation of Investments $ 5,376,592
Gross Tax Depreciation of Investments $ (2,763,784)
Net Tax Appreciation $ 2,612,808
</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.
36
<Page>
4. CAPITAL SHARE TRANSACTIONS
The Fund is authorized to issue 400 million shares of $0.01 par value capital
stock. Transactions in shares of the Fund for the periods indicated were as
follows:
<Table>
<Caption>
SIX MONTHS ENDED YEAR ENDED
6/30/2005 12/31/2004
SHARES AMOUNT SHARES AMOUNT
CLASS A
Sold 205,498 $ 3,541,140 871,718 $ 12,893,364
Redeemed (337,146) $ (5,722,611) (1,608,411) $ (22,702,458)
----------------------------------------------------------------
Net Decrease (131,648) $ (2,181,471) (736,693) $ (9,809,094)
================================================================
CLASS B
Sold 9,390 $ 153,895 40,534 $ 591,588
Redeemed (159,027) $ (2,607,238) (246,693) $ (3,509,709)
----------------------------------------------------------------
Net Decrease (149,637) $ (2,453,343) (206,159) $ (2,918,121)
================================================================
CLASS C
Sold 30,620 $ 518,072 156,715 $ 2,350,643
Redeemed (230,774) $ (3,712,107) (291,948) $ (4,076,502)
----------------------------------------------------------------
Net Decrease (200,154) $ (3,194,035) (135,233) $ (1,725,859)
================================================================
CLASS F
Sold 260,099 $ 4,469,131 925,441 $ 13,691,198
Redeemed (1,284,998) $ (21,364,938) (1,942,721) $ (28,228,599)
----------------------------------------------------------------
Net Decrease (1,024,899) $ (16,895,807) (1,017,280) $ (14,537,401)
================================================================
CLASS R
Sold 1,286 $ 21,000 19,297 $ 276,727
Redeemed (2,747) $ (49,230) (17,956) $ (253,733)
----------------------------------------------------------------
Net Increase (Decrease) (1,461) $ (28,230) 1,341 $ 22,994
================================================================
CLASS T
Sold 0 $ 0 2,301 $ 33,146
Redeemed (5,631) $ (92,891) (8,628) $ (121,085)
----------------------------------------------------------------
Net Decrease (5,631) $ (92,891) (6,327) $ (87,939)
================================================================
</Table>
5. INVESTMENT TRANSACTIONS
For the six months ended June 30, 2005, purchases and sales of investment
securities (excluding short-term securities and U.S. government obligations)
were $400,710,058 and $422,477,913, 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 June 30, 2005, 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>
This page intentionally left blank.
<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, 2005, 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. 8/05
A-636-PAS-05
<Page>
SEMIANNUAL REPORT
[GRAPHIC]
DREYFUS FOUNDERS
WORLDWIDE GROWTH FUND
INVESTMENT UPDATE
JUNE 30, 2005
[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
</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 financial 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 June 30, 2005. The amounts of
these holdings are included in the Statement of Investments.
NOT FDIC-INSURED - NOT BANK-GUARANTEED - MAY LOSE VALUE
<Page>
MANAGEMENT OVERVIEW
[PHOTO OF REMI J. BROWNE]
[PHOTO OF DANIEL B. LEVAN]
[PHOTO OF JEFFREY R. SULLIVAN]
[PHOTO OF JOHN B. JARES]
A DISCUSSION WITH CO-PORTFOLIO MANAGERS REMI J. BROWNE, CFA, LEFT; DANIEL B.
LEVAN, CFA, SECOND FROM LEFT; JEFFREY R. SULLIVAN, CFA, THIRD FROM LEFT; AND
JOHN B. JARES, CFA, RIGHT, REGARDING FUND PERFORMANCE FOR THE SIX-MONTH PERIOD
ENDED JUNE 30, 2005.
A MIXED ECONOMIC ENVIRONMENT
During the first six months of 2005, the United States contributed positively to
the worldwide investing environment through such factors as strong domestic
consumer demand, solid corporate earnings growth, a strengthening U.S. dollar
and lower unemployment. China's increased demand for goods also injected the
global economy, and inflation, in general, remained steady.
However, crude oil prices continued to skyrocket during the period, reaching
over $60 per barrel. Although many energy companies and resource-rich countries
benefited from high oil prices and high demand, this increase created a tax on
growth throughout the world. The Federal Reserve in the United States continued
its monetary tightening policy, which also weighed on investor activity.
Structural economic problems plagued the Euro area, and Western European
countries continued to struggle with increased competition. Mixed Japanese
economic data also caused investor concern during the period.
For the six months ended June 30, 2005, Dreyfus Founders Worldwide Growth
Fund underperformed its benchmark, the Morgan Stanley Capital International
(MSCI) World Index, which returned -0.70% for the same period. The Fund's return
compared more favorably(1) to that of the MSCI World Growth Index, which
returned -1.33%.
- ----------
(1) Excluding sales charges, which result in lower returns for certain share
classes. Please see page 7 for Average Annual and Year-to-Date Total Returns for
all share classes, including and excluding sales charges.
The MSCI World Growth Index measures global developed market equity
performance of growth securities. The 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.
3
<Page>
STOCK-BY-STOCK BASIS
Our strategy in assembling the portfolio during the period remained consistent;
we continued to analyze stocks on a company-by-company basis for possible
inclusion in the Fund, rather than focusing on sector or country weightings.
U.S., EUROPEAN AND AUSTRALIAN STOCKS AIDED PERFORMANCE
Solid stock selection in the U.S. positively impacted Fund performance during
the reporting period. Likewise, France, Germany, Australia and Finland buoyed
the Fund's return, due primarily to strong selection of stocks within each
respective country. Australia fueled the Fund's return as OIL SEARCH LIMITED
benefited from the high energy price environment and better-than-expected
drilling results in its Yemeni oil field. Finnish utilities stock FORTUM OYJ
gained nearly 20% during the Fund's holding period, helping the Fund's position
in Finland outperform.
Strong company-specific performance in the information technology sector was
the chief contributor to the Fund's six-month return. Information technology
stocks were among the Fund's top performers overall, with APPLE COMPUTER, INC.,
TEXAS INSTRUMENTS, INC. and INTEL CORPORATION leading the pack. Apple
experienced outstanding growth in revenue as well as earnings per share (EPS)
driven by the popularity of the company's iPod and Macintosh products. Strong
demand for mobile telephone handsets drove strong demand for semiconductors and
chipsets produced by Texas Instruments. Improved demand trends also lifted the
company's gross and operating margins. Intel's processor unit was driven by
strong demand for notebook computers. The company saw a rebound in revenue
growth and improved gross and operating margin trends as a result of this
demand.
TOP 3 PERFORMING SECTORS IN THE FUND
Information Technology
Consumer Discretionary
Telecommunications Services
[SIDENOTE]
"ALTHOUGH MANY ENERGY COMPANIES AND RESOURCE-RICH COUNTRIES BENEFITED FROM HIGH
OIL PRICES AND HIGH DEMAND, THIS INCREASE CREATED A TAX ON GROWTH THROUGHOUT THE
WORLD."
4
<Page>
Fund holdings within the consumer discretionary sector aided relative Fund
performance as well. Propelled mainly by the strong consumer spending
environment within the United States, issues such as GILLETTE COMPANY
outperformed. Gillette's stock price was also boosted by an acquisition offer by
personal care manufacturing giant, Procter & Gamble Company.
Strong stock selection in the telecommunications services sector also
produced a positive effect on the Fund's relative return for the period. TELUS
CORPORATION outperformed due to excellent results reported in early May, citing
strong wireless sales. Mobile phone provider NOKIA OYJ also performed strongly
during the period.
Healthcare holding GENENTECH, INC., industrials' AMR CORPORATION, and
consumer staples issue SAFEWAY, INC. were other notable performers during the
period. Genentech's stock performance was driven by solid sales and expanded
uses for its cancer drugs, Avastin(TM) and Herceptin(R). The shares of AMR,
parent company of American Airlines, were lifted due to strong consumer travel
demand and increased fares due to high energy prices. Safeway's stock price also
increased during the period.
LARGEST EQUITY HOLDINGS (country of origin; ticker symbol)
<Table>
1. ROYAL CARIBBEAN CRUISES LIMITED (United States; RCL) 2.04%
2. JOHNSON & JOHNSON (United States; JNJ) 1.86%
3. COLGATE-PALMOLIVE COMPANY (United States; CL) 1.83%
4. VODAFONE GROUP PLC (United Kingdom; VOD) 1.82%
5. EMC CORPORATION (United States; EMC) 1.70%
6. WYETH (United States; WYE) 1.69%
7. MAXIM INTEGRATED PRODUCTS, INC. (United States; MXIM) 1.59%
8. INTEL CORPORATION (United States; INTC) 1.50%
9. SAFEWAY, INC. (United States; SWY) 1.38%
10. GENERAL ELECTRIC COMPANY (United States; GE) 1.26%
</Table>
Portfolio holdings are subject to change, and should not be construed as a
recommendation of any security.
5
<Page>
GROWTH OF $10,000 INVESTMENT
PERFORMANCE DATA QUOTED REPRESENTS PAST PERFORMANCE. PAST PERFORMANCE DOES NOT
GUARANTEE FUTURE RESULTS. INVESTMENT RETURN AND PRINCIPAL VALUE OF AN INVESTMENT
WILL FLUCTUATE SO THAT AN INVESTOR'S SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR
LESS THAN THEIR ORIGINAL COST. CURRENT PERFORMANCE MAY BE LOWER OR HIGHER THAN
THE PERFORMANCE DATA QUOTED. PLEASE CALL 1-800-525-2440 TO OBTAIN THE MOST
RECENT MONTH-END PERFORMANCE DATA.
[CHART]
Dreyfus Founders
Worldwide Growth Fund MSCI World
Class F Shares Index
06/30/1995 $10,000.00 $10,000.00
06/28/1996 $12,015.05 $11,844.11
06/30/1997 $13,607.92 $14,482.20
06/30/1998 $15,643.94 $16,948.40
06/30/1999 $15,762.87 $19,603.86
06/30/2000 $21,319.62 $21,994.19
06/29/2001 $14,276.51 $17,530.11
06/28/2002 $10,811.87 $14,862.74
06/30/2003 $10,316.92 $14,509.88
06/30/2004 $12,890.65 $17,992.73
06/30/2005 $14,001.53 $19,801.25
The above graph compares a $10,000 investment made in Class F shares of Dreyfus
Founders Worldwide Growth Fund on 6/30/95 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 applicable fee waivers. THESE FIGURES DO NOT
REFLECT THE MAXIMUM SALES CHARGES APPLICABLE TO CLASS A, B, C, OR T SHARES OF
THE FUND. FOR THESE SHARE CLASSES, APPLYING THESE CHARGES WILL RESULT IN LOWER
RETURNS FOR INVESTORS.
The Morgan Stanley Capital International (MSCI) World Index measures global
developed market equity performance. The total return figures cited for this
index assume change in security prices and reinvestment of dividends, but do not
reflect the costs of managing a mutual fund. Further information related to Fund
performance is contained elsewhere in this report.
6
<Page>
AVERAGE ANNUAL AND YEAR-TO DATE TOTAL RETURN as of 6/30/05
<Table>
<Caption>
YEAR-TO- 1 5 10 SINCE
CLASS (INCEPTION DATE) DATE+ YEAR YEARS YEARS INCEPTION
------------------------------------------------------------------------------------------------
A SHARES (12/31/99)
With sales charge (5.75%) (6.69%) 2.34% (9.28%) -- (9.08%)
Without sales charge (1.01%) 8.55% (8.20%) -- (8.09%)
B SHARES (12/31/99)
With redemption* (5.32%) 3.71% (9.13%) -- (8.89%)
Without redemption (1.38%) 7.71% (8.84%) -- (8.76%)
C SHARES (12/31/99)
With redemption** (2.31%) 6.78% (9.18%) -- (9.09%)
Without redemption (1.32%) 7.78% (9.18%) -- (9.09%)
F SHARES (12/29/89) (1.01%) 8.62% (8.07%) 3.42% 7.12%
R SHARES (12/31/99) (0.76%) 9.13% (7.69%) -- (7.64%)
T SHARES (12/31/99)
With sales charge (4.50%) (5.71%) 3.21% (10.10%) -- (9.89%)
Without sales charge (1.24%) 8.08% (9.27%) -- (9.13%)
</Table>
Average annual and year-to-date total returns do not reflect the deduction of
taxes that a shareholder would pay on Fund distributions or redemption of Fund
shares, but do reflect the reinvestment of dividends and capital gain
distributions, fee waivers 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.
+ Total return is not annualized.
7
<Page>
WEAK STOCK SELECTION HAMPERED RETURN
On a country basis, the largest drag on performance during the period came
from the United Kingdom, primarily due to poor stock selection. VODAFONE GROUP
PLC and SABMILLER PLC were the main detractors for the Fund from this country.
Vodafone's stock dropped due to increased competition, lower product pricing and
shrinking margins. The company's Japanese subsidiary, Vodafone K.K., reported
another weak quarter as well. SABMiller fell on poor U.S. beer sales and
continued merger and acquisition speculation.
Additionally, holdings in the Netherlands, Canada and Belgium detracted from
performance due to company-specific disappointments.
Within the benchmark, energy was the strongest performing sector during the
period, as exploration and production and oil services stocks did particularly
well, driven by rising oil prices and limited refining capacity. Although
numerous energy stocks performed well for the Fund, it held a relative
underweight position in this sector, which, paired with overall weak stock
selection, detracted from the Fund's relative return for the period.
BOTTOM 3 PERFORMING SECTORS IN THE FUND
Energy
Utilities
Financials
[CHART]
PORTFOLIO COMPOSITION OF NET ASSETS
<Table>
United States 52.06%
United Kingdom 10.33%
Japan 9.62%
France 5.12%
Germany 3.54%
Switzerland 3.41%
Canada 2.29%
Italy 1.95%
Other Countries 11.17%
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
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>
An underweight position in utilities and poor stock selection in financials
also produced a drag on the Fund's return.
Some of the names that detracted from Fund performance came from a variety of
sectors. Poor execution, disappointing margin trends, and difficulties with
certain projects overshadowed strong bookings and revenue growth for Accenture
Limited. W.W. GRAINGER, INC. exhibited sluggish sales trends and lower earnings
expectations. Despite strong demand trends, ROYAL CARIBBEAN CRUISES LIMITED came
in well below consensus earnings estimates for the fourth quarter of 2004, which
were reported in February of 2005. Additionally, high fuel prices and a lack of
cost controls were the major variances that led to the company's poor results.
Trend Micro, Inc., a Japanese developer of anti-virus software, fell on
Microsoft's announcement that it will be packaging a competitor's anti-virus
software with its operating system. Manpower, Inc. and JETBLUE AIRWAYS
CORPORATION underperformed for the period as well.
IN CONCLUSION
The Fund's strategy remains unchanged. We will continue to use a bottom-up,
fundamentally based research approach to seek companies that may exhibit revenue
and earnings growth, and that are characterized by valuations that make sense
compared to the market, the peer group and their growth rates.
/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 January 1, 2005
and held through June 30, 2005.
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 FOR COMPARISON PURPOSES 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*
(1/1/05) (6/30/05) (1/1/05-6/30/05)
- --------------------------------------------------------------------------------
CLASS A ACTUAL $ 1,000.00 $ 980.49 $ 9.37
CLASS A HYPOTHETICAL 1,000.00 1,015.26 9.54
CLASS B ACTUAL 1,000.00 973.21 13.00
CLASS B HYPOTHETICAL 1,000.00 1,011.54 13.25
CLASS C ACTUAL 1,000.00 973.84 12.91
CLASS C HYPOTHETICAL 1,000.00 1,011.64 13.15
CLASS F ACTUAL 1,000.00 980.71 9.18
CLASS F HYPOTHETICAL 1,000.00 1,015.46 9.34
CLASS R ACTUAL 1,000.00 985.27 7.11
CLASS R HYPOTHETICAL 1,000.00 1,017.57 7.23
CLASS T ACTUAL 1,000.00 976.22 11.33
CLASS T HYPOTHETICAL 1,000.00 1,013.25 11.55
</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 181/365 (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, earnings credits and brokerage
offsets, where applicable.
<Table>
<Caption>
EXPENSE RATIO
- --------------------------------------------------------------------------------
CLASS A 1.90%
CLASS B 2.64%
CLASS C 2.62%
CLASS F 1.86%
CLASS R 1.44%
CLASS T 2.30%
</Table>
11
<Page>
STATEMENT OF INVESTMENTS
June 30, 2005 (UNAUDITED)
<Table>
<Caption>
SHARES MARKET VALUE
- ----------------------------------------------------------------------------------------------------
COMMON STOCKS (DOMESTIC)--52.1%
AIRLINES--1.9%
57,675 AMR Corporation* $ 698,438
41,075 JetBlue Airways Corporation* 839,573
------------------
1,538,011
------------------
APPLICATION SOFTWARE--1.0%
22,825 Autodesk, Inc. 784,495
------------------
ASSET MANAGEMENT & CUSTODY BANKS--0.5%
8,825 Northern Trust Corporation 402,332
------------------
BIOTECHNOLOGY--1.9%
5,325 Amgen, Inc.* 321,950
9,000 Genentech, Inc.* 722,520
17,700 MedImmune, Inc.* 472,944
------------------
1,517,414
------------------
BROADCASTING & CABLE TV--2.6%
19,275 Clear Channel Communications, Inc. 596,176
25,300 Comcast Corporation Special Class A* 757,735
17,350 EchoStar Communications Corporation 523,103
7,300 XM Satellite Radio Holdings, Inc. Class A* 245,718
------------------
2,122,732
------------------
COMMUNICATIONS EQUIPMENT--1.9%
47,275 Cisco Systems, Inc.* 903,425
8,825 Juniper Networks, Inc.* 222,214
22,575 Motorola, Inc. 412,220
------------------
1,537,859
------------------
COMPUTER & ELECTRONICS RETAIL--0.3%
3,775 Best Buy Company, Inc. 258,776
------------------
</Table>
GUIDE TO UNDERSTANDING FOREIGN HOLDINGS
The following abbreviations are used throughout the Statement of Investments to
indicate the country of origin on non-U.S. holdings.
AU Australia
BD Bermuda
BE Belgium
CA Canada
CN China
DE Denmark
FI Finland
FR France
GE Germany
GR Greece
HK Hong Kong
ID Indonesia
IN India
IT Italy
JA Japan
KR South Korea
MA Malaysia
NE Netherlands
NW Norway
PH Philippines
SG Singapore
SP Spain
SW Sweden
SZ Switzerland
TH Thailand
TU Turkey
TW Taiwan
UK United Kingdom
12
<Page>
<Table>
<Caption>
SHARES MARKET VALUE
- ----------------------------------------------------------------------------------------------------
COMPUTER HARDWARE--1.2%
27,175 Apple Computer, Inc.* $ 1,000,312
------------------
COMPUTER STORAGE & PERIPHERALS--1.7%
99,550 EMC Corporation* 1,364,831
------------------
CONSUMER ELECTRONICS--0.4%
3,900 Harman International Industries, Inc. 317,304
------------------
DATA PROCESSING & OUTSOURCED SERVICES--1.0%
18,450 Automatic Data Processing, Inc. 774,347
------------------
DEPARTMENT STORES--1.1%
15,425 Kohl's Corporation* 862,412
------------------
FOOD RETAIL--1.4%
49,000 Safeway, Inc. 1,106,910
------------------
GENERAL MERCHANDISE STORES--2.3%
42,950 Dollar General Corporation 874,462
17,425 Target Corporation 948,094
------------------
1,822,556
------------------
HEALTHCARE DISTRIBUTORS--0.5%
10,275 Henry Schein, Inc.* 426,618
------------------
HEALTHCARE FACILITIES--0.9%
13,750 Triad Hospitals, Inc.* 751,300
------------------
HEALTHCARE SUPPLIES--0.9%
14,450 Charles River Laboratories International, Inc.* 697,213
------------------
HOTELS, RESORTS & CRUISE LINES--0.9%
12,450 Carnival Corporation 679,148
------------------
HOUSEHOLD PRODUCTS--2.6%
10,700 Clorox Company 596,204
29,425 Colgate-Palmolive Company 1,468,602
------------------
2,064,806
------------------
HUMAN RESOURCE & EMPLOYMENT SERVICES--0.4%
11,875 Monster Worldwide, Inc.* 340,575
------------------
INDUSTRIAL CONGLOMERATES--1.3%
29,125 General Electric Company 1,009,181
------------------
INTEGRATED OIL & GAS--1.3%
4,050 ConocoPhillips 232,835
13,950 ExxonMobil Corporation 801,707
------------------
1,034,542
------------------
INTEGRATED TELECOMMUNICATION SERVICES--0.5%
6,925 Alltel Corporation 431,289
------------------
INTERNET SOFTWARE & SERVICES--0.6%
14,825 Yahoo!, Inc.* 513,686
------------------
INVESTMENT BANKING & BROKERAGE--0.5%
4,050 Goldman Sachs Group, Inc. 413,181
------------------
</Table>
SEE NOTES TO STATEMENT OF INVESTMENTS.
13
<Page>
<Table>
<Caption>
SHARES MARKET VALUE
- ----------------------------------------------------------------------------------------------------
LEISURE FACILITIES--2.0%
33,800 Royal Caribbean Cruises Limited $ 1,634,568
------------------
MOVIES & ENTERTAINMENT--0.9%
7,425 DreamWorks Animation SKG, Inc.* 194,535
21,850 Walt Disney Company 550,183
------------------
744,718
------------------
MULTI-LINE INSURANCE--0.4%
5,200 American International Group, Inc. 302,120
------------------
PERSONAL PRODUCTS--1.3%
7,150 Avon Products, Inc. 270,628
15,400 Gillette Company 779,702
------------------
1,050,330
------------------
PHARMACEUTICALS--6.9%
18,850 Abbott Laboratories 923,839
5,425 Eli Lilly and Company 302,227
22,975 Johnson & Johnson 1,493,375
29,125 MGI Pharma, Inc.* 633,760
29,106 Pfizer, Inc. 802,743
30,450 Wyeth 1,355,025
------------------
5,510,969
------------------
RAILROADS--0.8%
9,375 Union Pacific Corporation 607,500
------------------
SEMICONDUCTORS--6.0%
26,100 Broadcom Corporation* 926,811
46,050 Intel Corporation 1,200,063
22,425 Linear Technology Corporation 822,773
33,225 Maxim Integrated Products, Inc. 1,269,527
20,225 Texas Instruments, Inc. 567,716
------------------
4,786,890
------------------
SPECIALTY CHEMICALS--0.8%
10,850 Sigma-Aldrich Corporation 608,034
------------------
SPECIALTY STORES--0.3%
7,025 PETsMART, Inc. 213,209
------------------
SYSTEMS SOFTWARE--1.8%
24,900 Microsoft Corporation 618,516
36,875 Symantec Corporation* 801,663
------------------
1,420,179
------------------
THRIFTS & MORTGAGE FINANCE--0.8%
16,725 The PMI Group, Inc. 651,941
------------------
TRADING COMPANIES & DISTRIBUTORS--0.5%
7,150 W.W. Grainger, Inc. 391,749
------------------
TOTAL COMMON STOCKS (DOMESTIC)
(COST--$38,245,835) 41,694,037
------------------
</Table>
14
<Page>
<Table>
<Caption>
SHARES MARKET VALUE
- ----------------------------------------------------------------------------------------------------
COMMON STOCKS (FOREIGN)--47.3%
AEROSPACE & DEFENSE--0.2%
30,300 BAE Systems PLC (UK) $ 155,816
------------------
APPAREL, ACCESSORIES & LUXURY GOODS--1.3%
26,000 Burberry Group PLC (UK) 188,210
17,400 Compagnie Financiere Richemont AG (SZ) 585,205
9,800 Gildan Activewear, Inc. (CA)* 256,918
------------------
1,030,333
------------------
APPLICATION SOFTWARE--0.8%
63,600 Sage Group PLC (UK) 254,981
2,010 SAP AG (GE) 351,014
------------------
605,995
------------------
AUTOMOBILE MANUFACTURERS--1.9%
12,100 Honda Motor Company Limited (JA) 596,763
111,000 Mazda Motor Corporation (JA) 417,338
5,800 Renault SA (FR) 511,703
------------------
1,525,804
------------------
BREWERS--1.7%
23,700 Asahi Breweries Limited (JA) 282,494
8,300 InBev NV (BE) 280,952
11,300 Orkla ASA (NW) 416,770
24,800 SABMiller PLC (UK) 387,264
------------------
1,367,480
------------------
BROADCASTING & CABLE TV--1.2%
8,700 Gestevision Telecinco SA (SP) 203,839
47,100 Mediaset SPA (IT) 555,191
95 TV Asahi Corporation (JA) 203,859
------------------
962,889
------------------
COMMUNICATIONS EQUIPMENT--1.9%
18,000 GN Store Nord AS (DE) 203,908
45,100 Nokia Oyj (FI) 755,942
2,400 Research In Motion Limited (CA)* 176,631
129,200 Telefonaktiebolaget LM Ericsson (SW) 415,126
------------------
1,551,607
------------------
COMPUTER & ELECTRONICS RETAIL--0.4%
5,800 Yamada Denki (JA) 333,640
------------------
COMPUTER HARDWARE--0.3%
42,000 NEC Corporation (JA) 227,211
------------------
COMPUTER STORAGE & PERIPHERALS--0.3%
8,200 Logitech International SA (SZ)* 263,629
------------------
CONSTRUCTION MATERIALS--0.3%
22,200 Rinker Group Limited (AU) 236,584
------------------
CONSTRUCTION, FARM MACHINERY & HEAVY TRUCKS--0.9%
16,800 Volvo AB Class B (SW) 683,880
------------------
</Table>
SEE NOTES TO STATEMENT OF INVESTMENTS.
15
<Page>
<Table>
<Caption>
SHARES MARKET VALUE
- ----------------------------------------------------------------------------------------------------
CONSUMER FINANCE--0.3%
3,400 Sanyo Shinpan Finance Company Limited (JA) $ 233,595
------------------
DISTILLERS & VINTNERS--0.3%
28,300 Davide Campari - Milano SPA (IT) 207,549
------------------
DIVERSIFIED BANKS--2.9%
8,736 Alpha Bank AE (GR) 233,016
98,900 Banca Intesa SPA (IT) 453,027
34,671 Barclays PLC (UK) 345,095
6,289 BNP Paribas SA (FR) 431,546
14,000 HBOS PLC (UK) 215,857
6,988 Royal Bank of Scotland Group PLC (UK) 211,105
4,600 Societe Generale (FR) 468,462
------------------
2,358,108
------------------
DIVERSIFIED CAPITAL MARKETS--1.0%
15,100 Credit Suisse Group (SZ) 595,634
2,844 UBS AG (SZ) 221,927
------------------
817,561
------------------
DIVERSIFIED CHEMICALS--0.6%
7,400 BASF AG (GE) 492,557
------------------
DIVERSIFIED METALS & MINING--1.6%
49,500 BHP Billiton Limited (AU) 683,889
33,100 Xstrata PLC (UK) 638,751
------------------
1,322,640
------------------
ELECTRIC UTILITIES--0.8%
5,800 E.ON AG (GE) 517,178
9,600 Fortum Oyj (FI) 153,939
------------------
671,117
------------------
ELECTRICAL COMPONENTS & EQUIPMENT--0.6%
46,100 Sumitomo Electric Industries Limited (JA) 472,181
------------------
ELECTRONIC EQUIPMENT MANUFACTURERS--1.0%
4,400 Hoya Corporation (JA) 507,799
4,400 Kyocera Corporation (JA) 336,417
------------------
844,216
------------------
FOOD RETAIL--0.9%
127,900 Tesco PLC (UK) 730,481
------------------
FOREST PRODUCTS--0.3%
20,100 Canfor Corporation (CA)* 241,161
------------------
HOUSEHOLD PRODUCTS--0.4%
9,650 Reckitt Benckiser PLC (UK) 284,434
------------------
HUMAN RESOURCE & EMPLOYMENT SERVICES--0.2%
4,700 Randstad Holding NV (NE) 162,449
------------------
INDUSTRIAL CONGLOMERATES--0.2%
23,900 Keppel Corporation Limited (SG) 177,205
------------------
</Table>
16
<Page>
<Table>
<Caption>
SHARES MARKET VALUE
- ----------------------------------------------------------------------------------------------------
INTEGRATED OIL & GAS--2.9%
76,742 BP PLC (UK) $ 798,909
6,400 Husky Energy, Inc. (CA) 254,548
13,900 Repsol YPF SA (SP) 355,953
4,100 Royal Dutch Petroleum Company (NE) 267,941
2,620 Total SA (FR) 616,079
------------------
2,293,430
------------------
INTEGRATED TELECOMMUNICATION SERVICES--1.4%
50,700 BT Group PLC (UK) 208,941
9,600 Deutsche Telekom AG (GE) 177,756
4,600 France Telecom (FR) 134,498
18,100 TELUS Corporation (CA) 636,130
------------------
1,157,325
------------------
LEISURE PRODUCTS--0.2%
6,400 Sankyo Company Limited (JA) 122,910
------------------
LIFE & HEALTH INSURANCE--0.6%
84,900 Friends Provident PLC (UK) 276,864
103,600 Old Mutual PLC (UK) 226,468
------------------
503,332
------------------
MARINE--0.9%
51 AP Moller-Maersk AS (DE) 487,040
35,000 Kawasaki Kisen Kaisha Limited (JA) 207,646
------------------
694,686
------------------
MOVIES & ENTERTAINMENT--0.7%
18,600 Vivendi Universal SA (FR) 586,610
------------------
MULTI-LINE INSURANCE--0.8%
16,800 Aviva PLC (UK) 187,235
4,900 Baloise Holding Limited (SZ) 244,713
1,200 Zurich Financial Services AG (SZ) 206,758
------------------
638,706
------------------
MULTI-UTILITIES--0.3%
9,200 Suez SA (FR) 249,735
------------------
OFFICE ELECTRONICS--0.9%
14,000 Canon, Inc. (JA) 737,174
------------------
OIL & GAS EXPLORATION & PRODUCTION--1.2%
13,300 Eni SPA (IT) 343,003
2,600 Norsk Hydro ASA (NW) 238,740
161,900 Oil Search Limited (AU) 378,346
------------------
960,089
------------------
OTHER DIVERSIFIED FINANCIAL SERVICES--1.3%
27,900 ING Groep NV (NE) 789,087
7,900 Sun Life Financial, Inc. (CA) 266,106
------------------
1,055,193
------------------
</Table>
SEE NOTES TO STATEMENT OF INVESTMENTS.
17
<Page>
<Table>
<Caption>
SHARES MARKET VALUE
- ----------------------------------------------------------------------------------------------------
PHARMACEUTICALS--5.9%
20,000 AstraZeneca Group PLC (UK) $ 828,167
12,200 Eisai Company Limited (JA) 410,297
5,400 Merck KGaA (GE) 435,241
12,788 Novartis AG (SZ) 609,214
8,500 Novo Nordisk AS Class B (DE) 432,786
8,000 Ono Pharmaceuticals Company Limited (JA) 379,407
8,400 Sanofi-Aventis (FR) 690,258
29,700 Shire Pharmaceuticals Group PLC (UK) 325,684
12,900 Takeda Pharmaceuticals Company Limited (JA) 639,708
------------------
4,750,762
------------------
PRECIOUS METALS & MINERALS--0.3%
12,400 ThyssenKrupp AG (GE) 215,946
------------------
SEMICONDUCTORS--0.3%
5,900 Marvell Technology Group Limited (BD)* 224,436
------------------
SOFT DRINKS--0.5%
14,700 Coca-Cola Hellenic Bottling Company SA (GR) 399,211
------------------
STEEL--0.8%
32,400 Bluescope Steel Limited (AU) 202,978
16,300 JFE Holdings, Inc. (JA) 402,687
------------------
605,665
------------------
TIRES & RUBBER--1.1%
8,900 Continental AG (GE) 641,946
20,000 Sumitomo Rubber Industries Limited (JA) 204,129
------------------
846,075
------------------
TOBACCO--0.4%
17,600 British American Tobacco PLC (UK) 339,323
------------------
TRADING COMPANIES & DISTRIBUTORS--1.2%
51,000 Mitsubishi Corporation (JA) 693,427
31,000 Mitsui & Company Limited (JA) 293,481
------------------
986,908
------------------
WIRELESS TELECOMMUNICATION SERVICES--3.3%
9,900 Bouygues SA (FR) 410,473
153,600 China Mobile (Hong Kong) Limited (HK) 572,220
89,700 O2 PLC (UK)* 218,986
596,575 Vodafone Group PLC (UK) 1,453,757
------------------
2,655,436
------------------
TOTAL COMMON STOCKS (FOREIGN)
(COST--$30,412,431) 37,983,074
------------------
</Table>
18
<Page>
<Table>
<Caption>
PRINCIPAL AMOUNT AMORTIZED COST
- ----------------------------------------------------------------------------------------------------
CORPORATE SHORT-TERM NOTES--0.8%
HOUSEHOLD APPLIANCES--0.8%
$ 600,000 Stanley Works, Inc.
3.37% 7/1/05~ $ 600,000
------------------
TOTAL CORPORATE SHORT-TERM NOTES
(AMORTIZED COST--$600,000) 600,000
------------------
TOTAL INVESTMENTS--100.2%
(TOTAL COST--$69,258,266) 80,277,111
------------------
OTHER ASSETS AND LIABILITIES--(0.2%) (191,770)
------------------
NET ASSETS--100.0% $ 80,085,341
==================
</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
$600,000, OR 0.8%, OF THE FUND'S NET ASSETS AS OF JUNE 30, 2005.
SEE NOTES TO FINANCIAL STATEMENTS.
19
<Page>
STATEMENT OF ASSETS AND LIABILITIES
June 30, 2005 (UNAUDITED)
<Table>
ASSETS
Investment securities, at cost $ 69,258,266
------------------
Investment securities, at market 80,277,111
Cash 261,457
Foreign currency (cost $34,424) 34,374
Receivables:
Investment securities sold 3,017,028
Capital shares sold 5,411
Dividends and interest 91,957
Other assets 116,352
------------------
Total Assets 83,803,690
------------------
LIABILITIES
Payables and other accrued liabilities:
Investment securities purchased 2,775,320
Capital shares redeemed 733,660
Advisory fees 67,127
Shareholder servicing fees 7,735
Accounting fees 5,330
Distribution fees 17,395
Transfer agency fees 4,661
Custodian fees 7,518
To transfer agent 7
Other 99,596
------------------
Total Liabilities 3,718,349
------------------
Net Assets $ 80,085,341
==================
COMPOSITION OF NET ASSETS
Capital (par value and paid-in surplus) $ 134,119,314
Undistributed net investment income 170,311
Accumulated net realized loss from security transactions (65,222,640)
Net unrealized appreciation on investments and foreign
currency translation 11,018,356
------------------
Total $ 80,085,341
==================
</Table>
20
<Page>
<Table>
CLASS A
Net Assets $ 637,682
Shares Outstanding 50,261
Net Asset Value, Redemption Price Per Share $ 12.69
Maximum offering price per share (net asset value
plus sales charge of 5.75% of offering price) $ 13.46
CLASS B
Net Assets $ 1,793,882
Shares Outstanding 147,477
Net Asset Value, Offering and Redemption Price (excluding
applicable contingent deferred sales charge) Per Share $ 12.16
Class C
Net Assets $ 258,689
Shares Outstanding 21,698
Net Asset Value, Offering and Redemption Price (excluding
applicable contingent deferred sales charge) Per Share $ 11.92
Class F
Net Assets $ 54,010,196
Shares Outstanding 4,242,049
Net Asset Value, Offering and Redemption Price Per Share $ 12.73
Class R
Net Assets $ 23,350,173
Shares Outstanding 1,792,654
Net Asset Value, Offering and Redemption Price Per Share $ 13.03
Class T
Net Assets $ 34,719
Shares Outstanding 2,918
Net Asset Value, Redemption Price Per Share $ 11.90
Maximum offering price per share (net asset value
plus sales charge of 4.50% of offering price) $ 12.46
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
21
<Page>
STATEMENT OF OPERATIONS
For the six months ended June 30, 2005 (UNAUDITED)
<Table>
INVESTMENT INCOME
Dividends $ 997,864
Interest 15,749
Foreign taxes withheld (93,150)
------------------
Total Investment Income 920,463
------------------
EXPENSES
Advisory fees--Note 2 416,099
Shareholder servicing fees--Note 2 46,071
Accounting fees--Note 2 32,895
Distribution fees--Note 2 78,774
Transfer agency fees--Note 2 41,474
Registration fees 26,050
Postage and mailing expenses 7,130
Custodian fees and expenses--Note 2 29,024
Printing expenses 25,324
Legal and audit fees 14,360
Directors' fees and expenses--Note 2 7,620
Other expenses 29,278
------------------
Total Expenses 754,099
Earnings Credits (2,630)
Reimbursed/Waived Expenses (10,918)
Expense Offset to Broker Commissions (7,605)
------------------
Net Expenses 732,946
------------------
Net Investment Income 187,517
------------------
REALIZED AND UNREALIZED GAIN (LOSS) ON SECURITY
TRANSACTIONS AND FOREIGN CURRENCY TRANSACTIONS
Net Realized Gain (Loss) on:
Security Transactions 4,987,580
Foreign Currency Transactions (11,544)
------------------
Net Realized Gain 4,976,036
Net Change in Unrealized Appreciation/Depreciation
of Investments and Foreign Currency Translation (6,010,944)
------------------
Net Realized and Unrealized Loss (1,034,908)
------------------
Net Decrease in Net Assets Resulting from Operations $ (847,391)
==================
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
22
<Page>
STATEMENTS OF CHANGES IN NET ASSETS
(UNAUDITED)
<Table>
<Caption>
SIX MONTHS ENDED YEAR ENDED
6/30/05 12/31/04
OPERATIONS
Net Investment Income (Loss) $ 187,517 $ (42,516)
Net Realized Gain on Security and Foreign
Currency Transactions 4,976,036 14,019,429
Net Change in Unrealized Appreciation/Depreciation
of Investments and Foreign Currency Translation (6,010,944) (3,533,551)
------------------ ------------------
Net Increase (Decrease) in Net Assets Resulting
from Operations (847,391) 10,443,362
------------------ ------------------
CAPITAL SHARE TRANSACTIONS
Net Increase (Decrease)--Note 4
Class A 122,914 (195,731)
Class B (237,845) 21,999
Class C (10,071) (26,743)
Class F (6,412,470) (16,782,781)
Class R (1,119,887) 383,468
Class T (18,089) (14,130)
------------------ ------------------
Net Decrease from Capital Share Transactions (7,675,448) (16,613,918)
------------------ ------------------
Net Decrease in Net Assets (8,522,839) (6,170,556)
------------------ ------------------
NET ASSETS
Beginning of period $ 88,608,180 $ 94,778,736
------------------ ------------------
End of period $ 80,085,341 $ 88,608,180
================== ==================
Undistributed (Accumulated) Net Investment
Income (Loss) $ 170,311 $ (17,206)
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
23
<Page>
FINANCIAL HIGHLIGHTS
(UNAUDITED)
<Table>
<Caption>
SIX MONTHS YEAR ENDED
ENDED JUNE 30, DECEMBER 31,
2005 2004 2003 2002 2001
-------------- ---------------------------------------------------
CLASS A SHARES
PER SHARE OPERATING DATA
Net Asset Value, beginning of period $ 12.82 $ 11.38 $ 8.32 $ 11.71 $ 15.78
- ----------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) 0.02(a) (0.21) (0.10) (0.15) (0.09)
Net realized and unrealized gains
(losses) on securities (0.15) 1.65 3.16 (3.24) (3.98)
------------------------------------------------------------------------
Total from investment operations (0.13) 1.44 3.06 (3.39) (4.07)
- ----------------------------------------------------------------------------------------------------------------------------
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 0.00
------------------------------------------------------------------------
Total distributions 0.00 0.00 0.00 0.00 0.00
- ----------------------------------------------------------------------------------------------------------------------------
Net Asset Value, end of period $ 12.69 $ 12.82 $ 11.38 $ 8.32 $ 11.71
========================================================================
TOTAL RETURN(b) (1.01%) 12.65% 36.78% (28.95%) (25.79%)
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000s) $ 638 $ 519 $ 656 $ 543 $ 1,003
- ----------------------------------------------------------------------------------------------------------------------------
Ratios to average net assets(c):
Expenses with reimbursements,
but no earnings credits or brokerage offsets(d) 1.92% 1.81% 2.03% 2.06% 2.10%
Expenses with reimbursements,
earnings credits and brokerage offsets 1.90% 1.81% 2.03% 2.06% 2.09%
Net investment income (loss) 0.36% (0.18%) (0.55%) (0.77%) (0.96%)
- ----------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate(e) 139% 130% 138% 211% 145%
</Table>
(a). COMPUTED USING AVERAGE SHARES OUTSTANDING THROUGHOUT THE PERIOD.
(b). SALES CHARGES ARE NOT REFLECTED IN THE TOTAL RETURN.
(c). ANNUALIZED.
(d). CERTAIN FEES WERE WAIVED BY THE CUSTODIAN. HAD THESE FEES NOT BEEN WAIVED,
THE EXPENSE RATIOS WOULD HAVE BEEN 1.95% (2005), 1.83% (2004), 2.04%
(2003), 2.06% (2002), AND 2.10% (2001).
(e). PORTFOLIO TURNOVER RATE IS A MEASURE OF PORTFOLIO ACTIVITY THAT IS
CALCULATED BY DIVIDING THE LESSER OF PURCHASES OR SALES OF SECURITIES,
EXCLUDING SECURITIES HAVING MATURITY DATES AT ACQUISITION OF ONE YEAR OR
LESS, BY THE AVERAGE VALUE OF THE PORTFOLIO SECURITIES HELD DURING THE
PERIOD, WHICH IS A ROLLING 12-MONTH PERIOD.
24
<Page>
<Table>
<Caption>
SIX MONTHS YEAR ENDED
ENDED JUNE 30, DECEMBER 31,
2005 2004 2003 2002 2001
-------------- ---------------------------------------------------
CLASS B SHARES
PER SHARE OPERATING DATA
Net Asset Value, beginning of period $ 12.33 $ 11.02 $ 8.12 $ 11.52 $ 15.57
- ----------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment loss (0.03)(a) (0.09) (0.16) (0.14) (0.15)
Net realized and unrealized gains
(losses) on securities (0.14) 1.40 3.06 (3.26) (3.90)
------------------------------------------------------------------------
Total from investment operations (0.17) 1.31 2.90 (3.40) (4.05)
- ----------------------------------------------------------------------------------------------------------------------------
Less dividends and distributions:
From net investment income 0.00 0.00 0.00 0.00 0.00
From net realized gains 0.00 0.00 0.00 0.00 0.00
------------------------------------------------------------------------
Total distributions 0.00 0.00 0.00 0.00 0.00
- ----------------------------------------------------------------------------------------------------------------------------
Net Asset Value, end of period $ 12.16 $ 12.33 $ 11.02 $ 8.12 $ 11.52
========================================================================
TOTAL RETURN(b) (1.38%) 11.89% 35.71% (29.51%) (26.01%)
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000s) $ 1,794 $ 2,061 $ 1,821 $ 1,459 $ 2,089
- ----------------------------------------------------------------------------------------------------------------------------
Ratios to average net assets(c):
Expenses with reimbursements,
but no earnings credits or brokerage offsets(d) 2.66% 2.52% 2.80% 2.71% 2.54%
Expenses with reimbursements,
earnings credits and brokerage offsets 2.64% 2.52% 2.80% 2.70% 2.53%
Net investment loss (0.42%) (0.87%) (1.30%) (1.41%) (1.43%)
- ----------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate(e) 139% 130% 138% 211% 145%
</Table>
(a). COMPUTED USING AVERAGE SHARES OUTSTANDING THROUGHOUT THE PERIOD.
(b). SALES CHARGES ARE NOT REFLECTED IN THE TOTAL RETURN.
(c). ANNUALIZED.
(d). CERTAIN FEES WERE WAIVED BY THE CUSTODIAN. HAD THESE FEES NOT BEEN WAIVED,
THE EXPENSE RATIOS WOULD HAVE BEEN 2.69% (2005), 2.54% (2004), 2.82%
(2003), 2.71% (2002), AND 2.54% (2001).
(e). PORTFOLIO TURNOVER RATE IS A MEASURE OF PORTFOLIO ACTIVITY THAT IS
CALCULATED BY DIVIDING THE LESSER OF PURCHASES OR SALES OF SECURITIES,
EXCLUDING SECURITIES HAVING MATURITY DATES AT ACQUISITION OF ONE YEAR OR
LESS, BY THE AVERAGE VALUE OF THE PORTFOLIO SECURITIES HELD DURING THE
PERIOD, WHICH IS A ROLLING 12-MONTH PERIOD.
SEE NOTES TO FINANCIAL STATEMENTS.
25
<Page>
<Table>
<Caption>
SIX MONTHS YEAR ENDED
ENDED JUNE 30, DECEMBER 31,
2005 2004 2003 2002 2001
-------------- ---------------------------------------------------
CLASS C SHARES
PER SHARE OPERATING DATA
Net Asset Value, beginning of period $ 12.08 $ 10.81 $ 7.96 $ 11.34 $ 15.56
- ----------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment loss (0.02)(a) (0.20) (0.20) (0.30) (0.30)
Net realized and unrealized gains
(losses) on securities (0.14) 1.47 3.05 (3.08) (3.92)
------------------------------------------------------------------------
Total from investment operations (0.16) 1.27 2.85 (3.38) (4.22)
- ----------------------------------------------------------------------------------------------------------------------------
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 0.00
------------------------------------------------------------------------
Total distributions 0.00 0.00 0.00 0.00 0.00
- ----------------------------------------------------------------------------------------------------------------------------
Net Asset Value, end of period $ 11.92 $ 12.08 $ 10.81 $ 7.96 $ 11.34
========================================================================
TOTAL RETURN(b) (1.32%) 11.75% 35.80% (29.81%) (27.12%)
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000s) $ 259 $ 272 $ 271 $ 218 $ 380
- ----------------------------------------------------------------------------------------------------------------------------
Ratios to average net assets(c):
Expenses with reimbursements,
but no earnings credits or brokerage offsets(d) 2.65% 2.60% 2.82% 3.33% 4.18%
Expenses with reimbursements,
earnings credits and brokerage offsets 2.62% 2.59% 2.82% 3.33% 4.17%
Net investment loss (0.39%) (0.97%) (1.34%) (2.05%) (3.07%)
- ----------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate(e) 139% 130% 138% 211% 145%
</Table>
(a). COMPUTED USING AVERAGE SHARES OUTSTANDING THROUGHOUT THE PERIOD.
(b). SALES CHARGES ARE NOT REFLECTED IN THE TOTAL RETURN.
(c). ANNUALIZED.
(d). 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 2.68% (2005), 2.62% (2004), 2.84%
(2003), 3.40% (2002), AND 4.18% (2001).
(e). PORTFOLIO TURNOVER RATE IS A MEASURE OF PORTFOLIO ACTIVITY THAT IS
CALCULATED BY DIVIDING THE LESSER OF PURCHASES OR SALES OF SECURITIES,
EXCLUDING SECURITIES HAVING MATURITY DATES AT ACQUISITION OF ONE YEAR OR
LESS, BY THE AVERAGE VALUE OF THE PORTFOLIO SECURITIES HELD DURING THE
PERIOD, WHICH IS A ROLLING 12-MONTH PERIOD.
26
<Page>
<Table>
<Caption>
SIX MONTHS YEAR ENDED
ENDED JUNE 30, DECEMBER 31,
2005 2004 2003 2002 2001
-------------- ---------------------------------------------------
CLASS F SHARES
PER SHARE OPERATING DATA
Net Asset Value, beginning of period $ 12.86 $ 11.41 $ 8.33 $ 11.72 $ 15.69
- ----------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) 0.02(a) (0.21) (0.13) (0.13) (0.14)
Net realized and unrealized gains
(losses) on securities (0.15) 1.66 3.21 (3.26) (3.83)
------------------------------------------------------------------------
Total from investment operations (0.13) 1.45 3.08 (3.39) (3.97)
- ----------------------------------------------------------------------------------------------------------------------------
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 0.00
------------------------------------------------------------------------
Total distributions 0.00 0.00 0.00 0.00 0.00
- ----------------------------------------------------------------------------------------------------------------------------
Net Asset Value, end of period $ 12.73 $ 12.86 $ 11.41 $ 8.33 $ 11.72
========================================================================
TOTAL RETURN (1.01%) 12.71% 36.97% (28.92%) (25.30%)
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000s) $ 54,010 $ 61,038 $ 70,566 $ 59,890 $ 101,592
- ----------------------------------------------------------------------------------------------------------------------------
Ratios to average net assets(b):
Expenses with reimbursements,
but no earnings credits or brokerage offsets(c) 1.88% 1.78% 1.97% 1.84% 1.61%
Expenses with reimbursements,
earnings credits and brokerage offsets 1.86% 1.77% 1.97% 1.84% 1.60%
Net investment income (loss) 0.35% (0.13%) (0.47%) (0.55%) (0.50%)
- ----------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate(d) 139% 130% 138% 211% 145%
</Table>
(a). COMPUTED USING AVERAGE SHARES OUTSTANDING THROUGHOUT THE PERIOD.
(b). ANNUALIZED.
(c). CERTAIN FEES WERE WAIVED BY THE CUSTODIAN. HAD THESE FEES NOT BEEN WAIVED,
THE EXPENSE RATIOS WOULD HAVE BEEN 1.91% (2005), 1.80% (2004), 1.98%
(2003), 1.84% (2002), AND 1.61% (2001).
(d). PORTFOLIO TURNOVER RATE IS A MEASURE OF PORTFOLIO ACTIVITY THAT IS
CALCULATED BY DIVIDING THE LESSER OF PURCHASES OR SALES OF SECURITIES,
EXCLUDING SECURITIES HAVING MATURITY DATES AT ACQUISITION 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>
SIX MONTHS YEAR ENDED
ENDED JUNE 30, DECEMBER 31,
2005 2004 2003 2002 2001
-------------- --------------------------------------------------
CLASS R SHARES
PER SHARE OPERATING DATA
Net Asset Value, beginning of period $ 13.13 $ 11.60 $ 8.44 $ 11.81 $ 15.75
- -------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) 0.05 0.03 0.00(a) (0.01) (0.02)
Net realized and unrealized gains
(losses) on securities (0.15) 1.50 3.16 (3.36) (3.92)
---------------------------------------------------------------------
Total from investment operations (0.10) 1.53 3.16 (3.37) (3.94)
- -------------------------------------------------------------------------------------------------------------------------
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 0.00
---------------------------------------------------------------------
Total distributions 0.00 0.00 0.00 0.00 0.00
- -------------------------------------------------------------------------------------------------------------------------
Net Asset Value, end of period $ 13.03 $ 13.13 $ 11.60 $ 8.44 $ 11.81
=====================================================================
TOTAL RETURN (0.76%) 13.19% 37.44% (28.54%) (25.02%)
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000s) $ 23,350 $ 24,665 $ 21,404 $ 14,060 $ 19,193
- -------------------------------------------------------------------------------------------------------------------------
Ratios to average net assets(b):
Expenses with reimbursements, but no
earnings credits or brokerage offsets(c) 1.46% 1.37% 1.51% 1.41% 1.25%
Expenses with reimbursements,
earnings credits and brokerage offsets 1.44% 1.37% 1.51% 1.41% 1.24%
Net investment income (loss) 0.78% 0.28% (0.03%) (0.13%) (0.14%)
- -------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate(d) 139% 130% 138% 211% 145%
</Table>
(a). NET INVESTMENT LOSS FOR THE YEAR ENDED DECEMBER 31, 2003 AGGREGATED LESS
THAN $0.01 ON A PER SHARE BASIS.
(b). ANNUALIZED.
(c). CERTAIN FEES WERE WAIVED BY THE CUSTODIAN. HAD THESE FEES NOT BEEN WAIVED,
THE EXPENSE RATIOS WOULD HAVE BEEN 1.49% (2005), 1.39% (2004), 1.53%
(2003), 1.41% (2002), AND 1.25% (2001).
(d). PORTFOLIO TURNOVER RATE IS A MEASURE OF PORTFOLIO ACTIVITY THAT IS
CALCULATED BY DIVIDING THE LESSER OF PURCHASES OR SALES OF SECURITIES,
EXCLUDING SECURITIES HAVING MATURITY DATES AT ACQUISITION 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>
SIX MONTHS
ENDED JUNE 30, YEAR ENDED DECEMBER 31,
2005 2004 2003 2002 2001
-------------- ---------------------------------------------------
CLASS T SHARES
PER SHARE OPERATING DATA
Net Asset Value, beginning of period $ 12.05 $ 10.73 $ 7.89 $ 11.46 $ 15.65
- ----------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment loss (0.01)(a) (0.36) (0.14) (0.59) (0.26)
Net realized and unrealized gains
(losses) on securities (0.14) 1.68 2.98 (2.98) (3.93)
------------------------------------------------------------------------
Total from investment operations (0.15) 1.32 2.84 (3.57) (4.19)
- ----------------------------------------------------------------------------------------------------------------------------
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 0.00
------------------------------------------------------------------------
Total distributions 0.00 0.00 0.00 0.00 0.00
- ----------------------------------------------------------------------------------------------------------------------------
Net Asset Value, end of period $ 11.90 $ 12.05 $ 10.73 $ 7.89 $ 11.46
========================================================================
TOTAL RETURN(b) (1.24%) 12.30% 35.99% (31.15%) (26.77%)
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000s) $ 35 $ 54 $ 61 $ 47 $ 90
- ----------------------------------------------------------------------------------------------------------------------------
Ratios to average net assets(c):
Expenses with reimbursements,
but no earnings credits or brokerage offsets(d) 2.33% 2.14% 2.54% 4.60% 3.75%
Expenses with reimbursements,
earnings credits and brokerage offsets 2.30% 2.14% 2.54% 4.60% 3.74%
Net investment loss (0.20%) (0.50%) (1.05%) (2.88%) (2.72%)
- ----------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate(e) 139% 130% 138% 211% 145%
</Table>
(a). COMPUTED USING AVERAGE SHARES OUTSTANDING THROUGHOUT THE PERIOD.
(b). SALES CHARGES ARE NOT REFLECTED IN THE TOTAL RETURN.
(c). ANNUALIZED.
(d). 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 2.35% (2005), 2.16% (2004), 2.56%
(2003), 5.48% (2002), AND 10.02% (2001).
(e). PORTFOLIO TURNOVER RATE IS A MEASURE OF PORTFOLIO ACTIVITY THAT IS
CALCULATED BY DIVIDING THE LESSER OF PURCHASES OR SALES OF SECURITIES,
EXCLUDING SECURITIES HAVING MATURITY DATES AT ACQUISITION 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
June 30, 2005 (UNAUDITED)
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
Dreyfus Founders Funds, Inc. (the "Company") is an open-end management
investment company registered under the Investment Company Act of 1940 (the
"1940 Act"). Ten series of shares are currently issued: Balanced, Discovery,
Equity Growth, 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 shares redeemed 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. Since February 22, 2005, New York closing exchange rates have
been used to convert foreign currencies to U.S. dollars. Previously, London
closing exchange rates were used to convert foreign currencies to U.S. dollars.
A debt security with a remaining maturity greater than 60 days at the time of
purchase is valued in accordance with the evaluated bid price supplied by a
pricing service approved by the Company's board of directors or, if such price
is not available, at the mean between the highest bid and lowest asked
quotations obtained from at least two securities dealers. A debt security with a
remaining maturity of 60 days or less at the time of purchase is valued at
amortized cost, which approximates market value, unless it is determined that
amortized cost would not represent market value, in which case the securities
would be marked to market. The Fund amortizes premiums and discounts on all debt
securities.
If market quotations 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
30
<Page>
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. In addition, it is possible
that the fair value determined for a security may be different from the value
that may be realized upon the security's sale, and that these differences may be
material to the net asset value of the Fund.
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 June 30, 2005 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
31
<Page>
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) 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 period 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.
32
<Page>
In accordance with an investment advisory agreement between the Company and
Founders, the Fund compensates Founders for its services as investment adviser
by the payment of fees computed daily and paid monthly at the annual rate equal
to a percentage of the average daily value of the Fund's net assets. The fee is
1.00% of the first $250 million of net assets, 0.80% of the next $250 million of
net assets, and 0.70% of net assets in excess of $500 million.
SHAREHOLDER SERVICING AND TRANSFER AGENCY FEES FOR CLASS F SHARES--The Company
has a shareholder services agreement with Dreyfus Service Corporation ("DSC"),
the direct owner of Founders and a wholly-owned subsidiary of The Dreyfus
Corporation ("Dreyfus", an affiliate of Founders), whereby the Funds have agreed
to compensate DSC for providing certain shareholder servicing functions to
holders of Class F shares. The Fund paid DSC a monthly fee equal, on an annual
basis, to $24.00 per Class F shareholder account considered to be an open
account at any time during a given month. During the six months ended June 30,
2005, Class F shares were charged $42,640 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 six months ended June 30, 2005, Class F shares
were charged $16,732 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 $12.58 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, including both the per account fees paid to
DTI and out-of-pocket charges, during the six months ended June 30, 2005 were as
follows:
<Table>
<Caption>
TRANSFER
AGENCY FEES
-----------------------------------
Class A $ 713
Class B $ 2,129
Class C $ 287
Class R $ 3,780
Class T $ 89
</Table>
Certain as-of shareholder transactions may result in gains or losses to the
Fund. Depending on the circumstances, these gains may be payable to, or
reimbursable from, the transfer agent; such gains and losses are presented on
the Statement of Assets and Liabilities.
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
33
<Page>
processing of shareholder transactions in the Funds. During the six months ended
June 30, 2005, the Fund was charged $1,056 for cash management fees, which are
included in the out-of-pocket transfer agency charges above.
OTHER TRANSFER AGENCY FEES--Various broker-dealers, retirement plan
administrators and other 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 six months ended
June 30, 2005, the Fund paid $17,744 to these entities for such services. This
amount is included in the transfer agency fees shown on the Statement of
Operations.
DISTRIBUTION AND SHAREHOLDER SERVICES PLANS--DSC also is the distributor of the
Fund's shares. The Fund has adopted a Distribution Plan pursuant to Rule 12b-1
under the 1940 Act applicable to its Class F shares. Under the plan, the Fund is
authorized to reimburse DSC for expenses paid for distributing or servicing its
Class F shares at an annual rate of up to 0.25% of the value of the average
daily net assets of the Fund's Class F shares. During the six months ended
June 30, 2005, Class F shares were charged $70,833 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 six months ended June 30, 2005, were as follows:
<Table>
<Caption>
DISTRIBUTION SHAREHOLDER
FEES SERVICING FEES
-------------------------------------------------------------
Class A N/A $ 748
Class B $ 6,895 $ 2,298
Class C $ 992 $ 331
Class T $ 54 $ 54
</Table>
During the six months ended June 30, 2005, DSC retained $48 in sales commissions
from the sales of Class A shares. DSC also retained $2,426 and $1 of contingent
deferred sales charges relating to redemptions of Class B shares 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
34
<Page>
applicable, to the domestic assets and foreign assets, with the proportions of
domestic and foreign assets recalculated monthly, plus reasonable out-of-pocket
expenses.
<Table>
<Caption>
ON ASSETS IN BUT NOT DOMESTIC FOREIGN
EXCESS OF EXCEEDING FEE FEE
-------------------------------------------------------------
$0 $500 million 0.06% 0.10%
$500 million $1 billion 0.04% 0.065%
$1 billion 0.02% 0.02%
</Table>
Founders has contractually agreed in writing 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 contractually agreed in writing 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
------------------------------------
9/1/04 to 8/31/05 $ 200,000
9/1/05 to 8/31/06 $ 200,000
</Table>
The fee waiver is allocated among the Funds in proportion to their respective
shares of the total custodian fee. For the six months ended June 30, 2005, the
Fund's portion of the fee waiver was $10,918, which reduced the amount paid to
Mellon Bank to $18,106.
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.
35
<Page>
3. FEDERAL TAX INFORMATION
Net investment income and capital gains distributions are determined in
accordance with income tax regulations that may differ from accounting
principles generally accepted in the United States of America. These differences
are due to differing treatments for items such as deferral of wash sale losses,
foreign currency transactions, net operating losses and capital loss carryovers.
The tax components of capital represent distribution requirements the Fund must
satisfy under the income tax regulations and losses or tax deductions the Fund
may be able to offset against income and capital gains realized in future years.
Accumulated capital losses and post-October 31 capital losses noted below, if
any, as of December 31, 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. 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
June 30, 2005 are noted below. Unrealized appreciation/depreciation in the table
below excludes appreciation/depreciation on foreign currency translation, if
any. The primary difference between book and tax appreciation or depreciation is
wash sale loss deferrals.
<Table>
Federal Tax Cost $ 69,622,674
Gross Tax Appreciation of Investments $ 11,386,581
Gross Tax Depreciation of Investments $ (732,144)
Net Tax Appreciation $ 10,654,437
</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>
SIX MONTHS ENDED YEAR ENDED
6/30/05 12/31/04
SHARES AMOUNT SHARES AMOUNT
CLASS A
Sold 12,734 $ 160,031 14,460 $ 169,930
Redeemed (2,925) $ (37,117) (31,674) $ (365,661)
----------------------------------------------------------------
Net Increase (Decrease) 9,809 $ 122,914 (17,214) $ (195,731)
================================================================
CLASS B
Sold 6,161 $ 74,891 31,752 $ 357,137
Redeemed (25,749) $ (312,736) (29,868) $ (335,138)
----------------------------------------------------------------
Net Increase (Decrease) (19,588) $ (237,845) 1,884 $ 21,999
================================================================
CLASS C
Sold 1,174 $ 13,988 8,384 $ 94,894
Redeemed (2,025) $ (24,059) (10,901) $ (121,637)
----------------------------------------------------------------
Net Decrease (851) $ (10,071) (2,517) $ (26,743)
================================================================
CLASS F
Sold 140,793 $ 1,789,634 837,712 $ 9,854,038
Redeemed (644,810) $ (8,202,104) (2,275,773) $ (26,636,819)
----------------------------------------------------------------
Net Decrease (504,017) $ (6,412,470) (1,438,061) $ (16,782,781)
================================================================
CLASS R
Sold 94,405 $ 1,223,126 209,694 $ 2,478,822
Redeemed (180,172) $ (2,343,013) (175,936) $ (2,095,354)
----------------------------------------------------------------
Net Increase (Decrease) (85,767) $ (1,119,887) 33,758 $ 383,468
================================================================
CLASS T
Sold 0 $ 0 1,421 $ 15,509
Redeemed (1,530) $ (18,089) (2,672) $ (29,639)
----------------------------------------------------------------
Net Decrease (1,530) $ (18,089) (1,251) $ (14,130)
================================================================
</Table>
5. INVESTMENT TRANSACTIONS
For the six months ended June 30, 2005, purchases and sales of investment
securities (excluding short-term securities and U.S. government obligations)
were $55,030,641 and $61,397,510, 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 June 30, 2005, 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>
This page intentionally left blank.
<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, 2005, 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. 8/05
A-636-WWG-05
<Page>
Dreyfus Founders
Balanced Fund
SEMIANNUAL REPORT June 30, 2005
[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
</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 June 30, 2005. The amounts of
these holdings are included in the Statement of Investments.
NOT FDIC-INSURED - NOT BANK-GUARANTEED - MAY LOSE VALUE
<Page>
MANAGEMENT OVERVIEW
[PHOTO OF JOHN B. JARES]
[PHOTO OF JOHN V. JOHNSON]
A DISCUSSION WITH PORTFOLIO MANAGER JOHN B. JARES, CFA, LEFT, AND ASSISTANT
PORTFOLIO MANAGER JOHN V. JOHNSON, CFA, REGARDING FUND PERFORMANCE FOR THE
SIX-MONTH PERIOD ENDED JUNE 30, 2005.
STAGNANT VERSUS VOLATILE
The first half of 2005 was a tale of two quarters: stagnant versus volatile.
Early in the first quarter, the market saw profit-taking after a strong rally
in the last half of 2004. The market then was without a major trend
throughout the first quarter, which aided the Fund as individual stocks were
rewarded. The second quarter, in contrast, was punctuated by a strong
mid-quarter rally led by small- and mid-capitalization stocks, a rally that
tended not to compensate large-cap exposure. Overlaying this was a rally in
the bond market, notwithstanding continued interest rate increases by the
Federal Reserve and stubbornly high energy prices. The markets ended the
first half of 2005 down slightly from the beginning of the year, even though
the economy continued to show signs of growth, and companies continued to
exhibit fundamental earnings growth.
We did not adjust the Fund's sector weights materially, even though, as the
period ended, sector rotation appeared more important than stock selection. The
Fund has held many of its core positions throughout this sector rotation, as we
continued to hold confidence in these companies' earnings prospects and
potential cash flow generation over our longer-term investment horizon.
For the six-month period ended June 30, 2005, the Dreyfus Founders Balanced
Fund underperformed its benchmark, the Standard & Poor's 500 Index, which posted
a total return of -0.81% for the same period.
[SIDENOTE]
"WE DID NOT ADJUST THE FUND'S SECTOR WEIGHTS MATERIALLY, EVEN THOUGH, AS THE
PERIOD ENDED, SECTOR ROTATION APPEARED MORE IMPORTANT THAN STOCK SELECTION."
3
<Page>
HEALTHCARE AND IT BENEFITED PERFORMANCE
The Fund experienced strong performance from its biotechnology and semiconductor
stocks in the healthcare and information technology (IT) sectors, respectively.
These industries showed strong improvements during the period in both
fundamentals and in stock price movements. GENENTECH, INC. was one such
strong-performing biotechnology stock. The company performed well through the
period due to the receptivity to its new drugs for the treatment of multiple
indications of cancer.
Numerous other healthcare holdings boosted the Fund's relative return for the
period. TRIAD HOSPITALS, INC. began to show improvements in its hospital
admissions as well as improving trends in its bad debt expense, a factor that
plagued the healthcare facilities industry throughout 2004. The Fund's position
in Triad was increased at the end of the period as these factors were expected
to continue through 2005. The Fund also was aided by its position in Eon Labs,
Inc. as Novartis acquired the generic pharmaceutical company earlier in the
year. Pharmaceutical company IVAX Corporation reached our price objective during
the period, with little catalyst for growth expected for the balance of the
year. Therefore, the Fund sold its position in this company, as we felt the
monies may be better deployed in other investments.
In information technology, APPLE COMPUTER, INC. continued to benefit from
strong sales of its portable music player, the iPod, which also led consumers to
ultimately purchase more Apple products, particularly notebook and desktop
computers.
The Fund was underweight the materials sector relative to its benchmark; this
factor paired with strong stock selection in the sector positively contributed
to the Fund's performance for the period.
TOP 3 PERFORMING SECTORS IN THE FUND
Healthcare
Materials
Information Technology
UNDEREXPOSURE AND WEAK STOCK SELECTION IMPEDED RETURN
For the first six months of 2005, the Fund's relative performance was impaired
by underexposure in two strong-performing sectors: energy and utilities.
The Fund also was underweight the industrials sector, as industrials
typically begin exhibiting weakness as the economic cycle matures and earnings
growth begins to moderate. Although this underweight position produced a
positive effect, poor stock selection impeded the Fund's
4
<Page>
performance in this sector. Industrials holding W.W. GRAINGER, INC. declined as
higher-than-expected spending on the company's store expansion program and
issues with its implementation of a SAP business software solution created
concerns about future earnings growth.
BOTTOM 3 PERFORMING SECTORS IN THE FUND
Energy
Financials
Utilities
The Fund's stock selection in the financials sector also weighed on
performance, as some financial companies tend to underperform in an increasing
interest rate cycle. First Marblehead Corporation declined during the half as
investors became concerned about the company's long-term growth rate. This was
primarily due to two factors: slower-than-expected volume growth for the second
quarter, and an announcement by a large customer that it is considering keeping
a portion of its loans instead of securitizing them through First Marblehead.
Other weak individual performers during the period were found in the consumer
discretionary sector. ROYAL CARIBBEAN CRUISES LIMITED negatively impacted the
Fund as investors concerned with the effect high oil prices may have on the
company's profits pressured the stock. The Fund continued to hold Royal
Caribbean at the end of the period as capacity increases within the cruise
industry remained benign and continued robust demand for cruises helped Royal
Caribbean to continue strong pricing. The movies and entertainment
LARGEST EQUITY HOLDINGS (ticker symbol)
<Table>
1. MICROSOFT CORPORATION (MSFT) 3.22%
2. TIME WARNER, INC. (TWX) 3.11%
3. MGI PHARMA, INC. (MOGN) 3.10%
4. TRIAD HOSPITALS, INC. (TRI) 2.49%
5. INTERNATIONAL BUSINESS MACHINES CORPORATION (IBM) 2.45%
6. GENERAL ELECTRIC COMPANY (GE) 2.23%
7. ROYAL CARIBBEAN CRUISES LIMITED (RCL) 2.05%
8. PFIZER, INC. (PFE) 1.96%
9. COLGATE-PALMOLIVE COMPANY (CL) 1.70%
10. DOLLAR GENERAL CORPORATION (DG) 1.70%
</Table>
Holdings listed are a percentage of equity assets. Portfolio holdings are
subject to change, and should not be construed as a recommendation of any
security.
5
<Page>
GROWTH OF $10,000 INVESTMENT
PERFORMANCE DATA QUOTED REPRESENTS PAST PERFORMANCE. PAST PERFORMANCE DOES NOT
GUARANTEE FUTURE RESULTS. INVESTMENT RETURN AND PRINCIPAL VALUE OF AN INVESTMENT
WILL FLUCTUATE SO THAT AN INVESTOR'S SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR
LESS THAN THEIR ORIGINAL COST. CURRENT PERFORMANCE MAY BE LOWER OR HIGHER THAN
THE PERFORMANCE DATA QUOTED. PLEASE CALL 1-800-525-2440 TO OBTAIN THE MOST
RECENT MONTH-END PERFORMANCE DATA.
[CHART]
Dreyfus Founders
Balanced Fund S&P 500 Lipper Balanced
Class F Shares Index Fund Index
06/30/1995 $10,000.00 $10,000.00 $10,000.00
06/28/1996 $12,678.48 $12,600.05 $11,482.31
06/30/1997 $15,062.14 $16,972.14 $13,831.59
06/30/1998 $17,369.02 $22,091.36 $16,354.06
06/30/1999 $18,283.20 $27,118.52 $18,241.83
06/30/2000 $17,805.15 $29,084.32 $19,053.84
06/29/2001 $15,212.50 $24,771.03 $18,856.39
06/28/2002 $12,706.89 $20,315.14 $17,431.47
06/30/2003 $12,962.89 $20,366.21 $18,039.14
06/30/2004 $14,066.19 $24,258.20 $20,318.58
06/30/2005 $15,050.25 $25,792.11 $21,764.33
The above graph compares a $10,000 investment made in Class F shares of Dreyfus
Founders Balanced Fund on 6/30/95 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>
AVERAGE ANNUAL AND YEAR-TO DATE TOTAL RETURN as of 6/30/05
<Table>
<Caption>
YEAR-TO- 1 5 10 SINCE
CLASS (INCEPTION DATE) DATE+ YEAR YEARS YEARS INCEPTION
----------------------------------------------------------------------------------------
A SHARES (12/31/99)
With sales charge (5.75%) (6.97%) 0.62% (4.74%) -- (4.17%)
Without sales charge (1.24%) 6.77% (3.61%) -- (3.14%)
B SHARES (12/31/99)
With redemption* (5.58%) 2.03% (4.67%) -- (4.02%)
Without redemption (1.65%) 6.03% (4.29%) -- (3.85%)
C SHARES (12/31/99)
With redemption** (2.67%) 4.80% (4.60%) -- (4.20%)
Without redemption (1.68%) 5.80% (4.60%) -- (4.20%)
F SHARES (2/19/63) (1.12%) 7.00% (3.31%) 4.17% N/A
R SHARES (12/31/99) (0.99%) 7.35% (3.64%) -- (3.16%)
T SHARES (12/31/99)
With sales charge (4.50%) (5.86%) 1.72% (4.32%) -- (3.84%)
Without sales charge (1.41%) 6.51% (3.44%) -- (3.04%)
</Table>
Average annual and year-to-date total returns do not reflect the deduction of
taxes that a shareholder would pay on Fund distributions or redemption of Fund
shares, but do reflect the reinvestment of dividends and capital gain
distributions, fee waivers 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.
* The maximum contingent deferred sales charge for Class B shares is 4% and is
reduced to 0% after six years, at which time the Class B shares convert to
Class A shares.
** The maximum contingent deferred sales charge for Class C shares is 1% for
shares redeemed within one year of the date of purchase.
+ Total return is not annualized.
7
<Page>
industry within the consumer discretionary sector underperformed as box office
receipts during the period were a large disappointment. Both TIME WARNER, INC.
and DREAMWORKS ANIMATION SKG, INC. significantly hindered the Fund. Time Warner
experienced pressure due to concerns over its earnings performance in the first
half of 2005. However, Time Warner remained one of the largest equity holdings
in the Fund as of June 30, 2005, as the second-half outlook for its products
remained solid and the fundamentals in its top businesses appeared sound.
DreamWorks warned of a loss in the second quarter as the company overestimated
DVD sales and underestimated returns from its vendors and distributors. The Fund
reduced its position in DreamWorks during the period, although we retained a
small position due to the company's new projects in development for release over
the next two years.
FIXED-INCOME PERFORMANCE
In fixed-income markets, higher oil prices, a strengthening dollar and higher
short-term interest rates were held accountable for any perceived slowdown in
the economy during the period. The housing market provided a considerable offset
to these factors, as well as stimulus to the economy, as homeowners continued to
extract equity from their homes.
Whereas in the first quarter the Fund was aided by its high-quality bias,
high cash position and short duration, the fixed-income portion of the Fund
lagged during the second quarter of the period due to its large cash position
and
[CHART]
PORTFOLIO COMPOSITION OF NET ASSETS
<Table>
Healthcare 16.68%
Information Technology 12.99%
Consumer Discretionary 12.49%
Financials 6.11%
Consumer Staples 5.14%
Industrials 4.47%
Energy 2.70%
Materials 1.25%
Telecommunications Services 0.54%
Fixed-Income Investments 22.63%
Cash & Equivalents 15.00%
</Table>
The Fund's portfolio composition is subject to change, and there is no assurance
the Fund will continue to hold any particular security. Opinions regarding
sectors, industries, companies, and/or themes are those of the portfolio
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>
concentration in shorter-dated securities. A larger position in cash buffered
the Fund when bonds sold off in the first quarter, but created a drag on
performance when bonds rallied in the second quarter. A high concentration of
corporate bonds also hindered performance as Treasuries and Agencies outpaced
corporate debt during the first six months of 2005; corporates experienced
several high-profile downgrades in the first quarter causing investor flight to
quality and Treasury and Agency outperformance.
Exposure in the five- to seven-year range was added during the second quarter
of the period; the Fund held 26% of its fixed-income assets in bonds with
maturities five years or longer as of June 30, 2005. The Fund also held 20.9% of
its fixed-income assets in corporate debt compared to 4.8% in Agencies.
Longer-dated securities performed well for the Fund.
The Fund's exposure of 13% of its fixed-income assets to the fixed-rate
mortgage category weighed on performance as mortgages lagged other fixed-income
sectors during the period.
IN CONCLUSION
We are monitoring indications that the Federal Reserve may be nearing the end of
its tightening cycle. Additionally, as we will be nearing the typical 18-month
lag effect on the economy from the onset of the first federal funds rate
increase, we will monitor the data for signs of economic change.
The Fund maintained a somewhat more conservative stance as of the end of the
period, but increased its equity weighting as we found more compelling growth
opportunities over the last several months. We continue to focus on high-quality
growth companies that we believe show strong fundamental attributes. As always,
we thank you for your continued investment in the Fund.
/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 January 1, 2005
and held through June 30, 2005.
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 FOR COMPARISON PURPOSES 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*
(1/1/05) (6/30/05) (1/1/05-6/30/05)
- -----------------------------------------------------------------------------------------------------
CLASS A ACTUAL $ 1,000.00 $ 979.59 $ 7.98
CLASS A HYPOTHETICAL 1,000.00 1,016.66 8.13
CLASS B ACTUAL 1,000.00 971.88 11.66
CLASS B HYPOTHETICAL 1,000.00 1,012.90 11.90
CLASS C ACTUAL 1,000.00 971.11 12.05
CLASS C HYPOTHETICAL 1,000.00 1,012.49 12.30
CLASS F ACTUAL 1,000.00 982.08 6.71
CLASS F HYPOTHETICAL 1,000.00 1,017.97 6.83
CLASS R ACTUAL 1,000.00 984.80 5.33
CLASS R HYPOTHETICAL 1,000.00 1,019.37 5.42
CLASS T ACTUAL 1,000.00 977.16 8.76
CLASS T HYPOTHETICAL 1,000.00 1,015.86 8.94
</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
181/365 (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, earnings credits and brokerage
offsets, where applicable.
<Table>
<Caption>
EXPENSE RATIO
- ------------------------------------------------------------------
CLASS A 1.62%
CLASS B 2.37%
CLASS C 2.45%
CLASS F 1.36%
CLASS R 1.08%
CLASS T 1.78%
</Table>
11
<Page>
STATEMENT OF INVESTMENTS
June 30, 2005 (UNAUDITED)
<Table>
<Caption>
SHARES MARKET VALUE
- -----------------------------------------------------------------------------------------------------
COMMON STOCKS (DOMESTIC)--59.8%
ADVERTISING--0.7%
12,900 Lamar Advertising Company* $ 551,703
----------------
AEROSPACE & DEFENSE--1.1%
13,400 Boeing Company 884,400
----------------
ASSET MANAGEMENT & CUSTODY BANKS--0.7%
13,500 Northern Trust Corporation 615,465
----------------
BIOTECHNOLOGY--2.8%
5,400 Amgen, Inc.* 326,484
10,500 Genentech, Inc.* 842,940
14,200 Gilead Sciences, Inc.* 624,658
20,700 MedImmune, Inc.* 553,104
----------------
2,347,186
----------------
BROADCASTING & CABLE TV--2.0%
20,900 Clear Channel Communications, Inc. 646,437
24,300 EchoStar Communications Corporation 732,645
7,400 XM Satellite Radio Holdings, Inc. Class A* 249,084
----------------
1,628,166
----------------
COMMUNICATIONS EQUIPMENT--1.6%
56,200 Cisco Systems, Inc.* 1,073,982
10,200 Juniper Networks, Inc.* 256,836
----------------
1,330,818
----------------
COMPUTER & ELECTRONICS RETAIL--0.3%
3,900 Best Buy Company, Inc. 267,345
----------------
COMPUTER HARDWARE--2.9%
22,200 Apple Computer, Inc.* 817,182
21,100 International Business Machines Corporation 1,565,620
----------------
2,382,802
----------------
COMPUTER STORAGE & PERIPHERALS--0.7%
44,800 EMC Corporation* 614,208
----------------
CONSTRUCTION MATERIALS--0.8%
10,200 Lafarge North America, Inc. 636,888
----------------
DEPARTMENT STORES--0.8%
11,200 Kohl's Corporation* 626,192
----------------
DIVERSIFIED BANKS--0.8%
10,200 Wells Fargo & Company 628,116
----------------
FOOD RETAIL--0.9%
33,600 Safeway, Inc. 759,024
----------------
GENERAL MERCHANDISE STORES--2.5%
53,100 Dollar General Corporation 1,081,116
17,700 Target Corporation 963,057
----------------
2,044,173
----------------
</Table>
12
<Page>
<Table>
<Caption>
SHARES MARKET VALUE
- -----------------------------------------------------------------------------------------------------
HEALTHCARE DISTRIBUTORS--0.4%
8,100 Henry Schein, Inc.* $ 336,312
----------------
HEALTHCARE EQUIPMENT--2.0%
5,400 INAMED Corporation* 361,638
16,500 Waters Corporation* 613,305
9,000 Zimmer Holdings, Inc.* 685,530
----------------
1,660,473
----------------
HEALTHCARE FACILITIES--1.9%
29,025 Triad Hospitals, Inc.* 1,585,926
----------------
HEALTHCARE SUPPLIES--0.5%
9,000 Charles River Laboratories International, Inc.* 434,250
----------------
HOMEFURNISHING RETAIL--0.6%
11,900 Bed Bath & Beyond, Inc.* 497,182
----------------
HOTELS, RESORTS & CRUISE LINES--0.5%
7,600 Carnival Corporation 414,580
----------------
HOUSEHOLD PRODUCTS--1.8%
7,300 Clorox Company 406,756
21,750 Colgate-Palmolive Company 1,085,543
----------------
1,492,299
----------------
HYPERMARKETS & SUPER CENTERS--0.8%
14,600 Wal-Mart Stores, Inc. 703,720
----------------
INDUSTRIAL CONGLOMERATES--1.7%
41,000 General Electric Company 1,420,650
----------------
INTEGRATED OIL & GAS--1.0%
14,600 ExxonMobil Corporation 839,062
----------------
INTEGRATED TELECOMMUNICATION SERVICES--0.5%
7,100 Alltel Corporation 442,188
----------------
INTERNET SOFTWARE & SERVICES--0.5%
10,900 Yahoo!, Inc.* 377,685
----------------
INVESTMENT BANKING & BROKERAGE--0.8%
3,400 Goldman Sachs Group, Inc. 346,868
6,700 Morgan Stanley 351,549
----------------
698,417
----------------
LEISURE FACILITIES--1.6%
27,000 Royal Caribbean Cruises Limited 1,305,720
----------------
LIFE & HEALTH INSURANCE--0.0%
100 Aflac, Inc. 4,328
----------------
MOVIES & ENTERTAINMENT--3.6%
5,900 DreamWorks Animation SKG, Inc.* 154,580
118,700 Time Warner, Inc.* 1,983,477
25,600 Viacom, Inc. Class B 819,712
----------------
2,957,769
----------------
</Table>
SEE NOTES TO STATEMENT OF INVESTMENTS.
13
<Page>
<Table>
<Caption>
SHARES MARKET VALUE
- -----------------------------------------------------------------------------------------------------
OIL & GAS EQUIPMENT & SERVICES--1.0%
13,300 Smith International, Inc. $ 847,210
----------------
OIL & GAS EXPLORATION & PRODUCTION--0.6%
8,300 Apache Corporation 536,180
----------------
OTHER DIVERSIFIED FINANCIAL SERVICES--1.4%
8,900 Ambac Financial Group, Inc. 620,864
10,866 Citigroup, Inc. 502,335
----------------
1,123,199
----------------
PERSONAL PRODUCTS--1.6%
7,300 Avon Products, Inc. 276,305
19,900 Gillette Company 1,007,537
----------------
1,283,842
----------------
PHARMACEUTICALS--8.6%
18,900 Abbott Laboratories 926,289
33,100 Angiotech Pharmaceuticals, Inc.* 458,766
15,900 Eli Lilly and Company 885,789
8,500 Johnson & Johnson 552,500
10,100 Medicis Pharmaceutical Corporation Class A 320,473
90,900 MGI Pharma, Inc.* 1,977,984
45,275 Pfizer, Inc. 1,248,685
16,000 Wyeth 712,000
----------------
7,082,486
----------------
RAILROADS--1.2%
14,800 Union Pacific Corporation 959,040
----------------
SEMICONDUCTOR EQUIPMENT--0.8%
25,200 Novellus Systems, Inc.* 622,692
----------------
SEMICONDUCTORS--2.0%
7,700 Intel Corporation 200,662
20,100 Linear Technology Corporation 737,469
8,400 Maxim Integrated Products, Inc. 320,964
14,000 Microchip Technology, Inc. 414,680
----------------
1,673,775
----------------
SPECIALIZED FINANCE--0.4%
6,700 Moody's Corporation 301,232
----------------
SPECIALTY CHEMICALS--0.5%
7,000 Sigma-Aldrich Corporation 392,280
----------------
SYSTEMS SOFTWARE--3.5%
82,700 Microsoft Corporation 2,054,268
37,500 Symantec Corporation* 815,250
----------------
2,869,518
----------------
THRIFTS & MORTGAGE FINANCE--0.9%
19,100 The PMI Group, Inc. 744,518
----------------
</Table>
14
<Page>
<Table>
<Caption>
SHARES MARKET VALUE
- -----------------------------------------------------------------------------------------------------
TRADING COMPANIES & DISTRIBUTORS--0.5%
7,700 W.W. Grainger, Inc. $ 421,883
----------------
TOTAL COMMON STOCKS (DOMESTIC)
(COST--$46,712,086) 49,344,902
----------------
COMMON STOCKS (FOREIGN)--2.6%
APPLICATION SOFTWARE--0.3%
4,925 SAP AG Sponsored ADR (GE) 213,253
----------------
HEALTHCARE SUPPLIES--0.4%
2,800 Alcon, Inc. (SZ) 306,180
----------------
INVESTMENT BANKING & BROKERAGE--1.1%
39,800 Lazard Limited Class A (BD)* 925,350
----------------
SEMICONDUCTORS--0.8%
25,350 ATI Technologies, Inc. (CA)* 300,398
8,500 Marvell Technology Group Limited (BD)* 323,340
----------------
623,738
----------------
TOTAL COMMON STOCKS (FOREIGN)
(COST--$2,109,283) 2,068,521
----------------
<Caption>
PRINCIPAL AMOUNT MARKET VALUE
- -----------------------------------------------------------------------------------------------------
CORPORATE BONDS (DOMESTIC)--8.1%
AUTOMOBILE MANUFACTURERS--1.2%
$ 1,000,000 Toyota Motor Credit Corporation
5.65% 1/15/07 $ 1,023,270
----------------
DIVERSIFIED BANKS--2.1%
1,540,000 Washington Mutual, Inc.
8.25% 4/1/10 1,768,659
----------------
GENERAL MERCHANDISE STORES--1.0%
750,000 Target Corporation
5.875% 3/1/12 814,350
----------------
HOUSEHOLD PRODUCTS--2.0%
1,500,000 Colgate-Palmolive Company
5.98% 4/25/12 1,643,280
----------------
PHARMACEUTICALS--1.8%
1,500,000 Abbott Laboratories
5.625% 7/1/06 1,525,095
----------------
TOTAL CORPORATE BONDS (DOMESTIC)
(COST--$6,452,414) 6,774,654
----------------
U.S. GOVERNMENT OBLIGATIONS--10.9%
AGENCY PASS THROUGH--3.5%
2,709,763 U.S. Small Business Administration Series 10-A
6.64% 2/1/11 2,869,395
----------------
</Table>
SEE NOTES TO STATEMENT OF INVESTMENTS.
15
<Page>
<Table>
<Caption>
PRINCIPAL AMOUNT MARKET VALUE
- -----------------------------------------------------------------------------------------------------
GOVERNMENT SPONSORED ENTERPRISES--1.9%
$ 700,000 Federal Farm Credit Bank
4.70% 12/10/14 $ 721,700
800,000 Federal Home Loan Bank
4.50% 11/15/12 817,720
----------------
1,539,420
----------------
MORTGAGE-BACKED SECURITIES: GNMA/GUARANTEED--1.6%
1,306,605 Government National Mortgage Association
6.00% 1/15/33 Pool #563709 1,348,769
----------------
U.S. TREASURY NOTES--3.9%
1,186,320 U.S. Treasury Inflation Index Note
3.875% 1/15/09 1,291,110
U.S. Treasury Note:
900,000 4.25% 8/15/14 921,519
900,000 5.75% 8/15/10 983,637
----------------
3,196,266
----------------
TOTAL U.S. GOVERNMENT OBLIGATIONS
(COST--$8,773,250) 8,953,850
----------------
GOVERNMENT BONDS (FOREIGN)--3.6%
GOVERNMENT SECURITIES--3.6%
CAD 3,535,000 Province of Quebec
6.50% 12/1/05 (CA) 2,929,791
----------------
TOTAL GOVERNMENT BONDS (FOREIGN)
(COST--$2,343,706) 2,929,791
----------------
<Caption>
PRINCIPAL AMOUNT AMORTIZED COST
- -----------------------------------------------------------------------------------------------------
CORPORATE SHORT-TERM NOTES--16.9%
DISTILLERS & VINTNERS--4.5%
$ 3,700,000 Diageo Capital PLC
3.25% 7/6/05~ $ 3,698,330
----------------
DIVERSIFIED BANKS--3.6%
3,000,000 HSBC Finance Corporation
3.25% 7/7/05 2,998,375
----------------
ELECTRONIC EQUIPMENT MANUFACTURERS--2.3%
1,900,000 Hitachi America Capital Limited
3.23% 7/5/05~ 1,899,318
----------------
MULTI-LINE INSURANCE--1.6%
1,300,000 AIG Funding, Inc.
3.23% 7/5/05 1,299,533
----------------
</Table>
16
<Page>
<Table>
<Caption>
PRINCIPAL AMOUNT AMORTIZED COST
- -----------------------------------------------------------------------------------------------------
OTHER DIVERSIFIED FINANCIAL SERVICES--4.9%
$ 4,000,000 Merrill Lynch & Company
3.05% 7/1/05 $ 4,000,000
----------------
TOTAL CORPORATE SHORT-TERM NOTES
(AMORTIZED COST--$13,895,556) 13,895,556
----------------
TOTAL INVESTMENTS--101.9%
(TOTAL COST--$80,286,295) 83,967,274
----------------
OTHER ASSETS AND LIABILITIES--(1.9%) (1,531,697)
----------------
NET ASSETS--100.0% $ 82,435,577
================
</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 $5,597,648, OR 6.8%, OF THE FUND'S NET ASSETS AS OF JUNE 30,
2005.
ADR - AMERICAN DEPOSITARY RECEIPT
BD - BERMUDA
CA - CANADA
GE - GERMANY
SZ - SWITZERLAND
SEE NOTES TO FINANCIAL STATEMENTS.
17
<Page>
STATEMENT OF ASSETS AND LIABILITIES
June 30, 2005 (UNAUDITED)
<Table>
ASSETS
Investment securities, at cost $ 80,286,295
---------------
Investment securities, at market 83,967,274
Cash 464,257
Receivables:
Capital shares sold 28,142
Dividends and interest 270,377
Other assets 61,495
---------------
Total Assets 84,791,545
---------------
LIABILITIES
Payables and other accrued liabilities:
Investment securities purchased 2,097,768
Capital shares redeemed 51,020
Advisory fees 44,637
Shareholder servicing fees 5,958
Accounting fees 4,120
Distribution fees 26,548
Transfer agency fees 13,541
Custodian fees 1,286
Other 111,090
---------------
Total Liabilities 2,355,968
---------------
Net Assets $ 82,435,577
===============
COMPOSITION OF NET ASSETS
Capital (par value and paid-in surplus) $ 265,972,876
Accumulated net investment loss (28,178)
Accumulated net realized loss from security transactions (187,190,299)
Net unrealized appreciation on investments and foreign
currency translation 3,681,178
---------------
Total $ 82,435,577
===============
</Table>
18
<Page>
<Table>
CLASS A
Net Assets $ 1,648,413
Shares Outstanding 198,443
Net Asset Value, Redemption Price Per Share $ 8.31
Maximum offering price per share (net asset value
plus sales charge of 5.75% of offering price) $ 8.82
CLASS B
Net Assets $ 1,329,526
Shares Outstanding 161,601
Net Asset Value, Offering and Redemption Price (excluding
applicable contingent deferred sales charge) Per Share $ 8.23
CLASS C
Net Assets $ 230,753
Shares Outstanding 28,496
Net Asset Value, Offering and Redemption Price (excluding
applicable contingent deferred sales charge) Per Share $ 8.10
CLASS F
Net Assets $ 79,140,214
Shares Outstanding 9,516,923
Net Asset Value, Offering and Redemption Price Per Share $ 8.32
CLASS R
Net Assets $ 53,217
Shares Outstanding 6,423
Net Asset Value, Offering and Redemption Price Per Share $ 8.29
CLASS T
Net Assets $ 33,454
Shares Outstanding 3,921
Net Asset Value, Redemption Price Per Share $ 8.53
Maximum offering price per share (net asset value
plus sales charge of 4.50% of offering price) $ 8.93
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
19
<Page>
STATEMENT OF OPERATIONS
For the six months ended June 30, 2005 (UNAUDITED)
<Table>
INVESTMENT INCOME
Dividends $ 248,002
Interest 801,290
Foreign taxes withheld (267)
---------------
Total Investment Income 1,049,025
---------------
EXPENSES
Advisory fees--Note 2 280,956
Shareholder servicing fees--Note 2 34,841
Accounting fees--Note 2 25,934
Distribution fees--Note 2 110,232
Transfer agency fees--Note 2 54,728
Registration fees 27,600
Postage and mailing expenses 10,246
Custodian fees and expenses--Note 2 3,521
Printing expenses 26,690
Legal and audit fees 14,374
Directors' fees and expenses--Note 2 7,940
Other expenses 10,938
---------------
Total Expenses 608,000
Earnings Credits (2,769)
Reimbursed/Waived Expenses (2,289)
Expense Offset to Broker Commissions (6,035)
---------------
Net Expenses 596,907
---------------
Net Investment Income 452,118
---------------
REALIZED AND UNREALIZED GAIN (LOSS) ON SECURITY
TRANSACTIONS AND FOREIGN CURRENCY TRANSACTIONS
Net Realized Gain (Loss) on:
Security Transactions 7,208,681
Foreign Currency Transactions (622)
---------------
Net Realized Gain 7,208,059
Net Change in Unrealized Appreciation/Depreciation
of Investments and Foreign Currency Translation (8,759,925)
---------------
Net Realized and Unrealized Loss (1,551,866)
---------------
Net Decrease in Net Assets Resulting from Operations $ (1,099,748)
===============
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
20
<Page>
STATEMENTS OF CHANGES IN NET ASSETS
(UNAUDITED)
<Table>
<Caption>
SIX MONTHS ENDED YEAR ENDED
6/30/05 12/31/04
OPERATIONS
Net Investment Income $ 452,118 $ 1,165,048
Net Realized Gain on Security and Foreign
Currency Transactions 7,208,059 8,838,969
Net Change in Unrealized Appreciation/Depreciation
of Investments and Foreign Currency Translation (8,759,925) (2,078,931)
---------------- ----------------
Net Increase (Decrease) in Net Assets Resulting
from Operations (1,099,748) 7,925,086
---------------- ----------------
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS
From Net Investment Income
Class A (7,062) (16,533)
Class B (406) (4,861)
Class C (39) (659)
Class F (440,827) (1,146,498)
Class R (380) (763)
Class T (110) (243)
---------------- ----------------
Net Decrease from Dividends and Distributions (448,824) (1,169,557)
---------------- ----------------
CAPITAL SHARE TRANSACTIONS
Net Decrease--Note 4
Class A (4,390) (2,547)
Class B (269,764) (135,764)
Class C (28,485) (49,827)
Class F (9,074,043) (36,636,581)
Class R (4,620) (16,844)
Class T (907) (3,452)
---------------- ----------------
Net Decrease from Capital Share Transactions (9,382,209) (36,845,015)
---------------- ----------------
Net Decrease in Net Assets (10,930,781) (30,089,486)
---------------- ----------------
NET ASSETS
Beginning of period $ 93,366,358 $ 123,455,844
---------------- ----------------
End of period $ 82,435,577 $ 93,366,358
================ ================
Accumulated Net Investment Loss $ (28,178) $ (31,472)
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
21
<Page>
FINANCIAL HIGHLIGHTS
(UNAUDITED)
<Table>
<Caption>
SIX MONTHS YEAR ENDED
ENDED JUNE 30, DECEMBER 31,
2005 2004 2003 2002 2001
-------------- --------------------------------------------
CLASS A SHARES
PER SHARE OPERATING DATA
Net Asset Value, beginning of period $ 8.45 $ 7.88 $ 6.68 $ 8.18 $ 9.24
- --------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.03 0.08 0.05 0.05 0.06
Net realized and unrealized gains
(losses) on securities (0.13) 0.57 1.20 (1.51) (1.03)
-------------------------------------------------------------
Total from investment operations (0.10) 0.65 1.25 (1.46) (0.97)
- --------------------------------------------------------------------------------------------------------------
Less dividends and distributions:
From net investment income (0.04) (0.08) (0.05) (0.04) (0.09)
From net realized gains 0.00 0.00 0.00 0.00 0.00
-------------------------------------------------------------
Total distributions (0.04) (0.08) (0.05) (0.04) (0.09)
- --------------------------------------------------------------------------------------------------------------
Net Asset Value, end of period $ 8.31 $ 8.45 $ 7.88 $ 6.68 $ 8.18
=============================================================
TOTAL RETURN(a) (1.24%) 8.31% 18.81% (17.85%) (10.46%)
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000s) $ 1,648 $ 1,682 $ 1,572 $ 1,243 $ 1,227
- --------------------------------------------------------------------------------------------------------------
Ratios to average net assets(b):
Expenses with reimbursements, but
no earnings credits or brokerage offsets(c) 1.64% 1.49% 1.83% 1.89% 1.87%
Expenses with reimbursements,
earnings credits and brokerage offsets 1.62% 1.48% 1.83% 1.89% 1.87%
Net investment income 0.81% 0.96% 0.63% 0.56% 0.51%
- --------------------------------------------------------------------------------------------------------------
Portfolio turnover rate(d) 160% 134% 108% 122% 111%
</Table>
(a). SALES CHARGES ARE NOT REFLECTED IN THE TOTAL RETURN.
(b). ANNUALIZED.
(c). 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% (2005), 1.49% (2004), 1.83% (2003), 1.89%
(2002), AND 1.87% (2001).
(d). PORTFOLIO TURNOVER RATE IS A MEASURE OF PORTFOLIO ACTIVITY THAT IS
CALCULATED BY DIVIDING THE LESSER OF PURCHASES OR SALES OF SECURITIES,
EXCLUDING SECURITIES HAVING MATURITY DATES AT ACQUISITION OF ONE YEAR OR
LESS, BY THE AVERAGE VALUE OF THE PORTFOLIO SECURITIES HELD DURING THE
PERIOD, WHICH IS A ROLLING 12-MONTH PERIOD.
22
<Page>
<Table>
<Caption>
SIX MONTHS YEAR ENDED
ENDED JUNE 30, DECEMBER 31,
2005 2004 2003 2002 2001
-------------- ---------------------------------------------
CLASS B SHARES
PER SHARE OPERATING DATA
Net Asset Value, beginning of period $ 8.37 $ 7.80 $ 6.63 $ 8.11 $ 9.18
- --------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) 0.00(a),(b) 0.01 0.01 (0.01) 0.01
Net realized and unrealized gains
(losses) on securities (0.14) 0.58 1.17 (1.47) (1.03)
--------------------------------------------------------------------
Total from investment operations (0.14) 0.59 1.18 (1.48) (1.02)
- --------------------------------------------------------------------------------------------------------------
Less dividends and distributions:
From net investment income 0.00(c) (0.02) (0.01) 0.00(c) (0.05)
From net realized gains 0.00 0.00 0.00 0.00 0.00
--------------------------------------------------------------------
Total distributions 0.00 (0.02) (0.01) 0.00 (0.05)
- --------------------------------------------------------------------------------------------------------------
Net Asset Value, end of period $ 8.23 $ 8.37 $ 7.80 $ 6.63 $ 8.11
====================================================================
TOTAL RETURN(d) (1.65%) 7.63% 17.76% (18.21%) (11.13%)
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000s) $ 1,330 $ 1,625 $ 1,647 $ 1,181 $ 1,484
- --------------------------------------------------------------------------------------------------------------
Ratios to average net assets(e):
Expenses with reimbursements, but
no earnings credits or brokerage
offsets(f) 2.38% 2.21% 2.53% 2.54% 2.50%
Expenses with reimbursements,
earnings credits and brokerage
offsets 2.37% 2.21% 2.53% 2.54% 2.49%
Net investment income (loss) 0.07% 0.23% (0.08%) (0.10%) (0.13%)
- --------------------------------------------------------------------------------------------------------------
Portfolio turnover rate(g) 160% 134% 108% 122% 111%
</Table>
(a). COMPUTED USING AVERAGE SHARES OUTSTANDING THROUGHOUT THE PERIOD.
(b). NET INVESTMENT INCOME FOR THE PERIOD ENDED JUNE 30, 2005 AGGREGATED LESS
THAN $0.01 ON A PER SHARE BASIS.
(c). DISTRIBUTIONS FROM NET INVESTMENT INCOME FOR THE YEAR ENDED DECEMBER 31,
2002 AND THE PERIOD ENDED JUNE 30, 2005, AGGREGATED LESS THAN $0.01 ON A
PER SHARE BASIS.
(d). SALES CHARGES ARE NOT REFLECTED IN THE TOTAL RETURN.
(e). ANNUALIZED.
(f). 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 2.39% (2005), 2.21% (2004), 2.53% (2003), 2.54%
(2002), AND 2.50% (2001).
(g). PORTFOLIO TURNOVER RATE IS A MEASURE OF PORTFOLIO ACTIVITY THAT IS
CALCULATED BY DIVIDING THE LESSER OF PURCHASES OR SALES OF SECURITIES,
EXCLUDING SECURITIES HAVING MATURITY DATES AT ACQUISITION OF ONE YEAR OR
LESS, BY THE AVERAGE VALUE OF THE PORTFOLIO SECURITIES HELD DURING THE
PERIOD, WHICH IS A ROLLING 12-MONTH PERIOD.
SEE NOTES TO FINANCIAL STATEMENTS.
23
<Page>
<Table>
<Caption>
SIX MONTHS YEAR ENDED
ENDED JUNE 30, DECEMBER 31,
2005 2004 2003 2002 2001
-------------- --------------------------------------------
CLASS C SHARES
PER SHARE OPERATING DATA
Net Asset Value, beginning of period $ 8.24 $ 7.69 $ 6.54 $ 8.04 $ 9.17
- -------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) 0.00(a),(b) 0.01(a) (0.01) (0.17) (0.05)
Net realized and unrealized gains
(losses) on securities (0.14) 0.56 1.16 (1.33) (1.03)
-------------------------------------------------------------------
Total from investment operations (0.14) 0.57 1.15 (1.50) (1.08)
- -------------------------------------------------------------------------------------------------------------------
Less dividends and distributions:
From net investment income 0.00(c) (0.02) 0.00(c) 0.00 (0.05)
From net realized gains 0.00 0.00 0.00 0.00 0.00
-------------------------------------------------------------------
Total distributions 0.00 (0.02) 0.00 0.00 (0.05)
- -------------------------------------------------------------------------------------------------------------------
Net Asset Value, end of period $ 8.10 $ 8.24 $ 7.69 $ 6.54 $ 8.04
===================================================================
TOTAL RETURN(d) (1.68%) 7.42% 17.59% (18.66%) (11.80%)
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000s) $ 231 $ 264 $ 295 $ 248 $ 496
- -------------------------------------------------------------------------------------------------------------------
Ratios to average net assets(e):
Expenses with reimbursements, but
no earnings credits or brokerage offsets(f) 2.46% 2.35% 2.69% 3.48% 3.96%
Expenses with reimbursements,
earnings credits and brokerage offsets 2.45% 2.34% 2.69% 3.48% 3.96%
Net investment income (loss) (0.01%) 0.08% (0.17%) (1.05%) (1.64%)
- -------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate(g) 160% 134% 108% 122% 111%
</Table>
(a). COMPUTED USING AVERAGE SHARES OUTSTANDING THROUGHOUT THE PERIOD.
(b). NET INVESTMENT LOSS FOR THE PERIOD ENDED JUNE 30, 2005 AGGREGATED LESS THAN
$0.01 ON A PER SHARE BASIS.
(c). DISTRIBUTIONS FROM NET INVESTMENT INCOME FOR THE YEAR ENDED DECEMBER 31,
2003 AND THE PERIOD ENDED JUNE 30, 2005, AGGREGATED LESS THAN $0.01 ON A
PER SHARE BASIS.
(d). SALES CHARGES ARE NOT REFLECTED IN THE TOTAL RETURN.
(e). ANNUALIZED.
(f). 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 2.47% (2005), 2.35% (2004), 2.69% (2003), 3.48%
(2002), AND 4.24% (2001).
(g). PORTFOLIO TURNOVER RATE IS A MEASURE OF PORTFOLIO ACTIVITY THAT IS
CALCULATED BY DIVIDING THE LESSER OF PURCHASES OR SALES OF SECURITIES,
EXCLUDING SECURITIES HAVING MATURITY DATES AT ACQUISITION OF ONE YEAR OR
LESS, BY THE AVERAGE VALUE OF THE PORTFOLIO SECURITIES HELD DURING THE
PERIOD, WHICH IS A ROLLING 12-MONTH PERIOD.
24
<Page>
<Table>
<Caption>
SIX MONTHS YEAR ENDED
ENDED JUNE 30, DECEMBER 31,
2005 2004 2003 2002 2001
-------------- ----------------------------------------------
CLASS F SHARES
PER SHARE OPERATING DATA
Net Asset Value, beginning of period $ 8.46 $ 7.88 $ 6.69 $ 8.20 $ 9.22
- ----------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.04 0.08 0.06 0.07 0.10
Net realized and unrealized gains
(losses) on securities (0.13) 0.59 1.20 (1.50) (1.02)
----------------------------------------------------------------
Total from investment operations (0.09) 0.67 1.26 (1.43) (0.92)
- ----------------------------------------------------------------------------------------------------------------
Less dividends and distributions:
From net investment income (0.05) (0.09) (0.07) (0.08) (0.10)
From net realized gains 0.00 0.00 0.00 0.00 0.00
----------------------------------------------------------------
Total distributions (0.05) (0.09) (0.07) (0.08) (0.10)
- ----------------------------------------------------------------------------------------------------------------
Net Asset Value, end of period $ 8.32 $ 8.46 $ 7.88 $ 6.69 $ 8.20
================================================================
TOTAL RETURN (1.12%) 8.58% 18.96% (17.46%) (9.94%)
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000s) $ 79,140 $ 89,701 $ 119,835 $ 130,314 $ 297,068
- ----------------------------------------------------------------------------------------------------------------
Ratios to average net assets(a):
Expenses with reimbursements, but
no earnings credits or brokerage offsets(b) 1.37% 1.34% 1.54% 1.43% 1.23%
Expenses with reimbursements,
earnings credits and brokerage offsets 1.36% 1.33% 1.54% 1.42% 1.22%
Net investment income 1.07% 1.08% 0.93% 0.99% 1.20%
- ----------------------------------------------------------------------------------------------------------------
Portfolio turnover rate(c) 160% 134% 108% 122% 111%
</Table>
(a). ANNUALIZED.
(b). 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 1.38% (2005), 1.34% (2004), 1.54% (2003), 1.43%
(2002), AND 1.23% (2001).
(c). PORTFOLIO TURNOVER RATE IS A MEASURE OF PORTFOLIO ACTIVITY THAT IS
CALCULATED BY DIVIDING THE LESSER OF PURCHASES OR SALES OF SECURITIES,
EXCLUDING SECURITIES HAVING MATURITY DATES AT ACQUISITION OF ONE YEAR OR
LESS, BY THE AVERAGE VALUE OF THE PORTFOLIO SECURITIES HELD DURING THE
PERIOD, WHICH IS A ROLLING 12-MONTH PERIOD.
SEE NOTES TO FINANCIAL STATEMENTS.
25
<Page>
<Table>
<Caption>
SIX MONTHS YEAR ENDED
ENDED JUNE 30, DECEMBER 31,
2005 2004 2003 2002 2001
-------------- --------------------------------------------
CLASS R SHARES
PER SHARE OPERATING DATA
Net Asset Value, beginning of period $ 8.43 $ 7.86 $ 6.68 $ 8.18 $ 9.22
- --------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) 0.05 0.09 0.16 (0.16) 0.09
Net realized and unrealized gains
(losses) on securities (0.13) 0.58 1.05 (1.34) (1.02)
--------------------------------------------------------------
Total from investment operations (0.08) 0.67 1.21 (1.50) (0.93)
- --------------------------------------------------------------------------------------------------------------
Less dividends and distributions:
From net investment income (0.06) (0.10) (0.03) 0.00 (0.11)
From net realized gains 0.00 0.00 0.00 0.00 0.00
--------------------------------------------------------------
Total distributions (0.06) (0.10) (0.03) 0.00 (0.11)
- --------------------------------------------------------------------------------------------------------------
Net Asset Value, end of period $ 8.29 $ 8.43 $ 7.86 $ 6.68 $ 8.18
==============================================================
TOTAL RETURN (0.99%) 8.63% 18.12% (18.34%) (10.09%)
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000s) $ 53 $ 59 $ 72 $ 11 $ 14
- --------------------------------------------------------------------------------------------------------------
Ratios to average net assets(a):
Expenses with reimbursements, but
no earnings credits or brokerage offsets(b) 1.10% 1.21% 2.37% 4.24% 3.07%
Expenses with reimbursements,
earnings credits and brokerage offsets 1.08% 1.21% 2.37% 4.24% 3.07%
Net investment income (loss) 1.35% 1.21% 0.01% (1.77%) (0.75%)
- --------------------------------------------------------------------------------------------------------------
Portfolio turnover rate(c) 160% 134% 108% 122% 111%
</Table>
(a). ANNUALIZED.
(b). 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 1.26% (2005), 1.35% (2004), 2.62% (2003), 19.52%
(2002), AND 272.77% (2001).
(c). PORTFOLIO TURNOVER RATE IS A MEASURE OF PORTFOLIO ACTIVITY THAT IS
CALCULATED BY DIVIDING THE LESSER OF PURCHASES OR SALES OF SECURITIES,
EXCLUDING SECURITIES HAVING MATURITY DATES AT ACQUISITION OF ONE YEAR OR
LESS, BY THE AVERAGE VALUE OF THE PORTFOLIO SECURITIES HELD DURING THE
PERIOD, WHICH IS A ROLLING 12-MONTH PERIOD.
26
<Page>
<Table>
<Caption>
SIX MONTHS YEAR ENDED
ENDED JUNE 30, DECEMBER 31,
2005 2004 2003 2002 2001
-------------- --------------------------------------------
CLASS T SHARES
PER SHARE OPERATING DATA
Net Asset Value, beginning of period $ 8.68 $ 8.09 $ 6.88 $ 8.17 $ 9.21
- --------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) 0.02 0.03 0.21 (0.37) 0.08
Net realized and unrealized gains
(losses) on securities (0.14) 0.62 1.00 (0.92) (1.04)
--------------------------------------------------------------
Total from investment operations (0.12) 0.65 1.21 (1.29) (0.96)
- --------------------------------------------------------------------------------------------------------------
Less dividends and distributions:
From net investment income (0.03) (0.06) 0.00(a) 0.00 (0.08)
From net realized gains 0.00 0.00 0.00 0.00 0.00
--------------------------------------------------------------
Total distributions (0.03) (0.06) 0.00 0.00 (0.08)
- --------------------------------------------------------------------------------------------------------------
Net Asset Value, end of period $ 8.53 $ 8.68 $ 8.09 $ 6.88 $ 8.17
==============================================================
Total Return(b) (1.41%) 8.01% 17.65% (15.79%) (10.44%)
Ratios/Supplemental Data
Net assets, end of period (000s) $ 33 $ 35 $ 36 $ 13 $ 232
- --------------------------------------------------------------------------------------------------------------
Ratios to average net assets(c):
Expenses with reimbursements, but
no earnings credits or brokerage offsets(d) 1.79% 1.77% 2.73% 2.60% 3.36%
Expenses with reimbursements,
earnings credits and brokerage offsets 1.78% 1.77% 2.73% 2.59% 3.36%
Net investment income (loss) 0.66% 0.66% (0.29%) (0.31%) (1.12%)
- --------------------------------------------------------------------------------------------------------------
Portfolio turnover rate(e) 160% 134% 108% 122% 111%
</Table>
(a). DISTRIBUTIONS FROM NET INVESTMENT INCOME FOR THE YEAR ENDED DECEMBER 31,
2003 AGGREGATED LESS THAN $0.01 ON A PER SHARE BASIS.
(b). SALES CHARGES ARE NOT REFLECTED IN THE TOTAL RETURN.
(c). ANNUALIZED.
(d). CERTAIN FEES WERE REIMBURSED OR WAIVED BY THE MANAGEMENT COMPANY OR ITS
AFFILIATES. HAD THESE FEES NOT BEEN REIMBURSED OR WAIVED, THE EXPENSE
RATIOS WOULD HAVE BEEN 2.06% (2005), 2.02% (2004), 3.18% (2003), 14.63%
(2002), AND 18.37% (2001).
(e). PORTFOLIO TURNOVER RATE IS A MEASURE OF PORTFOLIO ACTIVITY THAT IS
CALCULATED BY DIVIDING THE LESSER OF PURCHASES OR SALES OF SECURITIES,
EXCLUDING SECURITIES HAVING MATURITY DATES AT ACQUISITION OF ONE YEAR OR
LESS, BY THE AVERAGE VALUE OF THE PORTFOLIO SECURITIES HELD DURING THE
PERIOD, WHICH IS A ROLLING 12-MONTH PERIOD.
SEE NOTES TO FINANCIAL STATEMENTS.
27
<Page>
NOTES TO FINANCIAL STATEMENTS
June 30, 2005 (UNAUDITED)
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
Dreyfus Founders Funds, Inc. (the "Company") is an open-end management
investment company registered under the Investment Company Act of 1940 (the
"1940 Act"). Ten series of shares are currently issued: Balanced, Discovery,
Equity Growth, 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 shares redeemed 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. Since February 22, 2005, New York closing exchange rates have
been used to convert foreign currencies to U.S. dollars. Previously, London
closing exchange rates were used to convert foreign currencies to U.S. dollars.
A debt security with a remaining maturity greater than 60 days at the time of
purchase is valued in accordance with the evaluated bid price supplied by a
pricing service approved by the Company's board of directors or, if such price
is not available, at the mean between the highest bid and lowest asked
quotations obtained from at least two securities dealers. A debt security with a
remaining maturity of 60 days or less at the time of purchase is valued at
amortized cost, which approximates market value, unless it is determined that
amortized cost would not represent market value, in which case the securities
would be marked to market. The Fund amortizes premiums and discounts on all debt
securities.
If market quotations 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
28
<Page>
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. In addition, it is possible
that the fair value determined for a security may be different from the value
that may be realized upon the security's sale, and that these differences may be
material to the net asset value of the Fund.
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 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
29
<Page>
depreciation on investments and foreign currency translation arises from changes
in the values of assets and liabilities, including investments in securities
held at the date of the financial statements, resulting from changes in the
exchange rates and changes in market prices of securities held.
FEDERAL INCOME TAXES--No provision has been made for federal income taxes since
it is the policy of the Fund to comply with the requirements of the Internal
Revenue Code that are applicable to regulated investment companies and to make
distributions of income and capital gains sufficient to relieve it from all
income taxes. The Fund is treated as a separate tax entity for federal income
tax purposes.
INVESTMENT INCOME--Dividend income is recognized on the ex-dividend date.
Certain dividends from foreign securities are recorded as soon as the Fund is
informed of the dividend, if such information is obtained subsequent to the
ex-dividend date. Interest income is accrued daily, 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 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 period presentation.
30
<Page>
2. FEES AND TRANSACTIONS WITH AFFILIATES
ADVISORY FEES--Founders Asset Management LLC ("Founders") serves as investment
adviser to the Fund. Founders is an indirect wholly-owned subsidiary of Mellon
Financial Corporation, a publicly-owned financial services company which
provides a comprehensive range of financial products and services in domestic
and selected international markets.
In accordance with an investment advisory agreement between the Company and
Founders, the Fund compensates Founders for its services as investment adviser
by the payment of fees computed daily and paid monthly at the annual rate equal
to a percentage of the average daily value of the Fund's net assets. The fee is
0.65% of the first $250 million of net assets, 0.60% of the next $250 million of
net assets, 0.55% of the next $250 million of net assets and 0.50% of net assets
in excess of $750 million.
SHAREHOLDER SERVICING AND TRANSFER AGENCY FEES FOR CLASS F SHARES--The Company
has a shareholder services agreement with Dreyfus Service Corporation ("DSC"),
the direct owner of Founders and a wholly-owned subsidiary of The Dreyfus
Corporation ("Dreyfus", an affiliate of Founders), whereby the Funds have agreed
to compensate DSC for providing certain shareholder servicing functions to
holders of Class F shares. The Fund paid DSC a monthly fee equal, on an annual
basis, to $24.00 per Class F shareholder account considered to be an open
account at any time during a given month. During the six months ended June 30,
2005, Class F shares were charged $30,570 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 six months ended June 30, 2005, Class F shares
were charged $4,445 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 $13.09 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, including both the per account fees paid to
DTI and out-of-pocket charges, during the six months ended June 30, 2005 were as
follows:
<Table>
<Caption>
TRANSFER
AGENCY FEES
--------------------------------------------------------
Class A $ 2,863
Class B $ 2,544
Class C $ 530
Class R $ 60
Class T $ 86
</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
31
<Page>
a written 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 six months ended June 30, 2005, Class R
and Class T were each reimbursed $44, which reduced the amounts paid to DTI to
$16 and $42, respectively.
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 six months ended June 30, 2005, the Fund was charged $1,116 for cash
management fees, which are included in the out-of-pocket transfer agency charges
above.
OTHER TRANSFER AGENCY FEES--Various broker-dealers, retirement plan
administrators and other 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 six months ended
June 30, 2005, the Fund paid $44,200 to these entities for such services. This
amount is included in the transfer agency fees shown on the Statement of
Operations.
DISTRIBUTION AND SHAREHOLDER SERVICES PLANS--DSC also is the distributor of the
Fund's shares. The Fund has adopted a Distribution Plan pursuant to Rule 12b-1
under the 1940 Act applicable to its Class F shares. Under the plan, the Fund is
authorized to reimburse DSC for expenses paid for distributing or servicing its
Class F shares at an annual rate of up to 0.25% of the value of the average
daily net assets of the Fund's Class F shares. During the six months ended June
30, 2005, Class F shares were charged $103,719 pursuant to this Distribution
Plan.
The Fund also has adopted a Distribution Plan pursuant to Rule 12b-1 under the
1940 Act applicable to its Class B, Class C and Class T shares. Under this plan,
the Fund pays DSC a fee for distributing its Class B and C shares at the annual
rate of 0.75% of the value of the average daily net assets of its Class B and C
shares, respectively, and pays DSC a fee for distributing its Class T shares at
the annual rate of 0.25% of the average daily net assets of its Class T shares.
In addition, the Fund has adopted a Shareholder Services Plan applicable to its
Class A, Class B, Class C and Class T shares. Under the Shareholder Services
Plan, Class A, Class B, Class C and Class T shares pay DSC an annual fee of
0.25% of the value of their average daily net assets for the provision of
certain services.
Distribution and shareholder servicing fees paid to DSC by the Fund's Class A,
B, C and T shares for the six months ended June 30, 2005, were as follows:
<Table>
<Caption>
DISTRIBUTION SHAREHOLDER
FEES SERVICING FEES
-------------------------------------------------------------------
Class A N/A $ 2,072
Class B $ 5,537 $ 1,846
Class C $ 934 $ 311
Class T $ 42 $ 42
</Table>
32
<Page>
During the six months ended June 30, 2005, DSC retained $942 in sales
commissions from the sales of Class A shares. DSC also retained $5,229 of
contingent deferred sales charges relating to redemptions of Class B shares.
FUND ACCOUNTING AND ADMINISTRATIVE SERVICES FEES--The Funds have agreed to
compensate Founders for providing accounting services, administration,
compliance monitoring, regulatory and shareholder reporting, as well as related
facilities, equipment and clerical help. The fee is computed at the annual rate
of 0.06% of the average daily net assets of the Fund on the first $500 million,
0.04% of the average daily net assets of the Fund on the next $500 million and
0.02% of the average daily net assets of the Fund in excess of $1 billion, plus
reasonable out-of-pocket expenses. Founders has contractually agreed in writing
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 contractually agreed in writing 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
----------------------------------------------------------------
9/1/04 to 8/31/05 $ 200,000
9/1/05 to 8/31/06 $ 200,000
</Table>
The fee waiver is allocated among the Funds in proportion to their respective
shares of the total custodian fee. For the six months ended June 30, 2005, the
Fund's portion of the fee waiver was $2,201, which reduced the amount paid to
Mellon Bank to $1,320.
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.
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.
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. 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
June 30, 2005 are noted below. Unrealized appreciation/depreciation in the table
below excludes appreciation/depreciation on foreign currency translation, if
any. The primary difference between book and tax appreciation or depreciation is
wash sale loss deferrals.
<Table>
Undistributed Ordinary Income $ 7,356
Federal Tax Cost $ 81,208,742
Gross Tax Appreciation of Investments $ 4,298,124
Gross Tax Depreciation of Investments $ (1,539,592)
Net Tax Appreciation $ 2,758,532
</Table>
34
<Page>
4. CAPITAL SHARE TRANSACTIONS
The Fund is authorized to issue 850 million shares of $0.01 par value capital
stock. Transactions in shares of the Fund for the periods indicated were as
follows:
<Table>
<Caption>
SIX MONTHS ENDED YEAR ENDED
JUNE 30, 2005 DECEMBER 31, 2004
SHARES AMOUNT SHARES AMOUNT
CLASS A
Sold 33,753 $ 281,841 52,105 $ 413,025
Dividends or Distributions Reinvested 786 $ 6,551 1,969 $ 15,805
Redeemed (35,162) $ (292,782) (54,549) $ (431,377)
-------------------------------------------------------------
Net Decrease (623) $ (4,390) (475) $ (2,547)
=============================================================
CLASS B
Sold 15,303 $ 125,833 53,204 $ 414,706
Dividends or Distributions Reinvested 38 $ 311 466 $ 3,759
Redeemed (47,948) $ (395,908) (70,543) $ (554,229)
-------------------------------------------------------------
Net Decrease (32,607) $ (269,764) (16,873) $ (135,764)
=============================================================
CLASS C
Sold 433 $ 3,488 16,072 $ 124,317
Dividends or Distributions Reinvested 3 $ 27 59 $ 475
Redeemed (3,951) $ (32,000) (22,428) $ (174,619)
-------------------------------------------------------------
Net Decrease (3,515) $ (28,485) (6,297) $ (49,827)
=============================================================
CLASS F
Sold 437,062 $ 3,643,006 1,100,066 $ 8,730,703
Dividends or Distributions Reinvested 51,258 $ 427,748 138,996 $ 1,116,482
Redeemed (1,574,754) $ (13,144,797) (5,836,747) $ (46,483,766)
-------------------------------------------------------------
Net Decrease (1,086,434) $ (9,074,043) (4,597,685) $ (36,636,581)
=============================================================
CLASS R
Sold 0 $ 0 0 $ 0
Dividends or Distributions Reinvested 46 $ 380 94 $ 751
Redeemed (608) $ (5,000) (2,224) $ (17,595)
-------------------------------------------------------------
Net Decrease (562) $ (4,620) (2,130) $ (16,844)
=============================================================
CLASS T
Sold 0 $ 0 4,985 $ 39,775
Dividends or Distributions Reinvested 7 $ 60 27 $ 223
Redeemed (114) $ (967) (5,430) $ (43,450)
-------------------------------------------------------------
Net Decrease (107) $ (907) (418) $ (3,452)
=============================================================
</Table>
35
<Page>
5. INVESTMENT TRANSACTIONS
For the six months ended June 30, 2005, purchases and sales of investment
securities (excluding short-term securities and U.S. government obligations)
were $69,241,181 and $84,813,689, respectively. Purchases and sales of long-term
U.S. government obligations were $987,082 and $9,433,428, 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 June 30, 2005, the Fund did not have any borrowings under the LOC.
36
<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.
37
<Page>
This page intentionally left blank.
38
<Page>
This page intentionally left blank.
<Page>
FOR MORE INFORMATION
- -------------------------------------------------------------------------------
DREYFUS FOUNDERS TRANSFER AGENT &
BALANCED FUND DIVIDEND DISBURSING AGENT
MANAGER Dreyfus Transfer, Inc.
200 Park Avenue
Founders Asset New York, NY 10166
Management LLC
210 University Boulevard DISTRIBUTOR
Suite 800
Denver, CO 80206 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, 2005, is
available 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 Founders Asset Management LLC 0086SA0605
<Page>
Dreyfus Founders
Discovery Fund
SEMIANNUAL REPORT June 30, 2005
[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
</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 June 30, 2005. The amounts of
these holdings are included in the Statement of Investments.
NOT FDIC-INSURED - NOT BANK-GUARANTEED - MAY LOSE VALUE
<Page>
MANAGEMENT OVERVIEW
[PHOTO OF BRADLEY C. ORR]
[PHOTO OF JAMES (J.D.) PADGETT]
A DISCUSSION WITH CO-PORTFOLIO MANAGERS BRADLEY C. ORR, CFA, LEFT, AND JAMES
(J.D.) PADGETT, CFA, REGARDING FUND PERFORMANCE FOR THE SIX-MONTH PERIOD ENDED
JUNE 30, 2005.
A MIXED ENVIRONMENT
Following the strong advances registered by the domestic equity markets during
the fourth quarter of last year, 2005 started on a far less positive note.
Markets declined broadly in the first quarter due to a persistent rise in oil
prices and the Federal Reserve's tightening monetary policy.
The markets did partially recover during the second quarter, as investors
began to speculate that the Federal Reserve may soon end its rate tightening
campaign. At the same time, the pace of economic growth remained relatively
strong, as evidenced by the robust gross domestic product (GDP) in the second
quarter.
During the first six months of 2005, small-cap growth stocks underperformed
both small-cap value stocks and large-cap growth stocks. This can be seen when
comparing the -3.58% six-month return of the Russell 2000 Growth Index to the
0.90% return of the Russell 2000 Value Index, as well as to the -1.72% and
- -0.81% returns in the larger-capitalization Russell 1000 Growth Index and the
Standard & Poor's 500 Index, respectively.
For the six-month period ended June 30, 2005, Dreyfus Founders Discovery
Fund's performance(1) compared favorably to the Fund's benchmark, the Russell
2000 Growth Index, which, as mentioned above, posted a total return of -3.58%
for the same period.
- ----------
(1) Excluding sales charges, which result in lower returns for certain share
classes. Please see page 7 for Average Annual and Year-to-Date Total Returns for
all share classes, including and excluding sales charges.
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 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 these indexes assume change in security prices and
reinvestment of dividends, but do not reflect the costs of managing a mutual
fund.
3
<Page>
PORTFOLIO COMPOSITION CHANGES
High energy prices continued to drive demand in the oil services industry;
therefore, the Fund added energy holdings during the period in an attempt to
garner greater growth potential in this sector. In addition, the Fund's
weighting in the consumer discretionary sector was significantly larger than
that of its benchmark as we believed many opportunities existed in this sector.
The Fund decreased its weighting in the information technology sector as we
felt that valuations weren't compelling enough to outweigh broad fundamental
concerns in this sector.
Also, the Fund decreased its weighting in the industrials sector, although
industrials were still overweight versus the benchmark. During the first half,
many companies in this sector faced decelerating revenue and earnings growth. In
fact, earnings expectations dropped after many months of upward revisions. At
the same time, valuations were at the high end of historical ranges. We felt the
earnings acceleration that had been driven by the recovering economy began to
naturally slow, and therefore, we reduced the Fund's exposure to this sector.
CONSUMER DISCRETIONARY STOCKS BENEFITED PERFORMANCE
The consumer discretionary sector proved particularly strong for the Fund during
the six-month period. An overweight position and strong stock selection led to
solid outperformance in this sector. Although the strength of consumer spending
is an important backdrop for the financial performance of most consumer
discretionary companies, there were many stocks within the sector that
outperformed despite the uncertain macro-economic environment.
The Fund opportunistically added to its positions in existing consumer
discretionary holdings after the market sold these stocks due to short-term or
potentially unwarranted concerns. GUITAR CENTER, INC., a music retailer, and WMS
INDUSTRIES, INC., a casino gaming machine manufacturer, were two such examples.
Guitar Center experienced some weaker results toward the end of the first
quarter, causing the stock to decline over 17% from its high. The Fund took this
opportunity to significantly increase its position in Guitar Center and
benefited from the stock's price increase in the second quarter. WMS reported
better-than-expected revenue growth in the fourth quarter of 2004, but was
unable to control expenses and increase margins, thus putting future earnings
growth in question. The company recovered in the first
4
<Page>
quarter of 2005, resulting in improved earnings performance. The Fund increased
its position in WMS following the fourth quarter earnings disappointment and
ensuing stock decline.
The gaming and lodging industry within the consumer discretionary sector has
been a focus area for the Fund for some time. The worldwide proliferation of
gaming continued to provide a strong tailwind for the industry. Many compelling
growth opportunities were found during the first half, including some
strong-performing holdings for the Fund. Station Casinos, Inc. provided a boost
to the Fund's relative return as the company continued to benefit from strong
local gaming trends in the Las Vegas market, driven by fast population growth,
market share gains, an increase in the number of patrons, as well as increased
revenue per patron. The Fund's position in this company was sold during the
period as the valuation became stretched and concerns about future decelerating
growth trends began to surface.
HEALTHCARE AND ENERGY AIDED RETURN
The Fund also invested in a few strong-performing healthcare stocks at the right
time, benefiting the Fund's relative return. Medical device makers ARTHROCARE
CORPORATION and KYPHON, INC. were two such examples. ArthroCare, a new position
for the Fund, experienced an inflection point in its operations in the fourth
quarter of 2004, as the company increased earnings guidance for 2005, updated
progress on a recent acquisition that accelerated sales, and identified a target
operating model that allowed for significant
LARGEST EQUITY HOLDINGS (ticker symbol)
<Table>
1. WMS INDUSTRIES, INC. (WMS) 3.81%
2. HUGHES SUPPLY, INC. (HUG) 3.05%
3. GAYLORD ENTERTAINMENT COMPANY (GET) 2.74%
4. PATTERSON-UTI ENERGY, INC. (PTEN) 2.72%
5. PETCO ANIMAL SUPPLIES, INC. (PETC) 2.53%
6. TEMPUR-PEDIC INTERNATIONAL, INC. (TPX) 2.50%
7. SAFENET, INC. (SFNT) 2.47%
8. MEDICIS PHARMACEUTICAL CORPORATION CLASS A (MRX) 2.29%
9. ARTHROCARE CORPORATION (ARTC) 2.26%
10. EPICOR SOFTWARE CORPORATION (EPIC) 2.21%
</Table>
Portfolio holdings are subject to change, and should not be construed as a
recommendation of any security.
5
<Page>
GROWTH OF $10,000 INVESTMENT
PERFORMANCE DATA QUOTED REPRESENTS PAST PERFORMANCE. PAST PERFORMANCE DOES NOT
GUARANTEE FUTURE RESULTS. INVESTMENT RETURN AND PRINCIPAL VALUE OF AN INVESTMENT
WILL FLUCTUATE SO THAT AN INVESTOR'S SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR
LESS THAN THEIR ORIGINAL COST. CURRENT PERFORMANCE MAY BE LOWER OR HIGHER THAN
THE PERFORMANCE DATA QUOTED. PLEASE CALL 1-800-525-2440 TO OBTAIN THE MOST
RECENT MONTH-END PERFORMANCE DATA.
[CHART]
Dreyfus Founders
Discovery Fund Russell 2000
Class F Shares Growth Index
06/30/1995 $10,000.00 $10,000.00
06/28/1996 $13,351.27 $12,649.36
06/30/1997 $13,582.01 $13,231.73
06/30/1998 $16,395.08 $14,977.31
06/30/1999 $21,878.00 $16,219.98
06/30/2000 $40,588.36 $20,824.80
06/29/2001 $28,474.64 $15,964.27
06/28/2002 $20,974.33 $11,972.71
06/30/2003 $19,001.85 $12,054.99
06/30/2004 $24,223.12 $15,858.10
06/30/2005 $24,954.99 $16,537.77
The above graph compares a $10,000 investment made in Class F shares of Dreyfus
Founders Discovery Fund on 6/30/95 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. 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>
AVERAGE ANNUAL AND YEAR-TO DATE TOTAL RETURN as of 6/30/05
<Table>
<Caption>
YEAR-TO 1 5 10 SINCE
CLASS (INCEPTION DATE) DATE+ YEAR YEARS YEARS INCEPTION
-----------------------------------------------------------------------------
A SHARES (12/31/99)
With sales charge (5.75%) (8.44%) (2.95%) (10.33%) -- (6.30%)
Without sales charge (2.85%) 2.98% (9.26%) -- (5.29%)
B SHARES (12/31/99)
With redemption* (7.17%) (2.01%) (10.41%) -- (6.29%)
Without redemption (3.30%) 1.99% (10.08%) -- (6.13%)
C SHARES (12/31/99)
With redemption** (4.23%) 1.03% (10.06%) -- (6.11%)
Without redemption (3.26%) 2.03% (10.06%) -- (6.11%)
F SHARES (12/29/89) (2.82%) 3.02% (9.27%) 9.58% 12.67%
R SHARES (12/31/99) (2.70%) 3.27% (9.01%) -- (5.03%)
T SHARES (12/31/99)
With sales charge (4.50%) (7.35%) (2.01%) (10.49%) -- (6.48%)
Without sales charge (2.98%) 2.63% (9.66%) -- (5.69%)
</Table>
Average annual and year-to-date total returns do not reflect the deduction of
taxes that a shareholder would pay on Fund distributions or redemption of Fund
shares, but do reflect the reinvestment of dividends and capital gain
distributions, and adjustments for financial statement purposes. Part of the
Fund's 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. Part of the Fund's historical 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. 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
7
<Page>
revenue growth and earnings leverage. The company experienced some missteps
during the first half of 2005, including a missed regulatory filing, which
caused its valuation to drop, thus creating a compelling investment opportunity
for the Fund. Kyphon, Inc. continued to post very positive quarterly results. A
favorable court ruling upholding the company's patents surrounding a proprietary
procedure also was an important contributor to the stock's outperformance during
the period.
The pharmaceutical industry, including both generic and specialty drugs, has
been an attractive pool of potential growth opportunities for the Fund for a
long period of time. Valuations in this industry have been compelling relative
to historical levels and the overall market. One of the Fund's holdings in this
industry, ENDO PHARMACEUTICALS HOLDINGS, INC., received a favorable court ruling
during the period that allowed the company to sell into a previously
patent-protected market for the pain-management drug, OxyContin, which will
address a nearly $2 billion market. The ruling took the company's estimated
earnings for 2005 up over 50% and the stock price up over 30%.
Energy was a clear sector leader in the Russell 2000 Growth Index. Therefore,
increasing the Fund's weighting in this sector allowed the Fund to capture a
greater portion of this outperformance. Combined with positive stock selection,
TOP 3 PERFORMING SECTORS IN THE FUND
Consumer Discretionary
Healthcare
Energy
[CHART]
PORTFOLIO COMPOSITION OF NET ASSETS
<Table>
Consumer Discretionary 28.17%
Healthcare 20.91%
Information Technology 19.55%
Industrials 10.75%
Financials 7.69%
Energy 7.26%
Materials 2.11%
Cash & Equivalents 3.56%
</Table>
The Fund's portfolio composition is subject to change, and there is no assurance
the Fund will continue to hold any particular security. Opinions regarding
sectors, industries, companies, and/or themes are those of the portfolio
managers and are subject to change at any time, based on market and other
conditions, and should not be construed as a recommendation of any specific
security.
8
<Page>
the sector proved to be a very favorable contributor to performance.
The Fund's weighting in this sector was heavily skewed toward the oil services
industry, as opposed to the exploration and production (E&P) industry. We
generally believed during the period that oil services stocks exhibited a more
favorable risk versus reward ratio than E&P stocks, mainly due to a fairly good
correlation between the two industries over time, and the underperformance of
oil services stocks relative to the E&P industry more recently.
Rising oil prices throughout the period led to increased demand for oil
services, increasing pricing power, and therefore, earnings leverage for these
companies. PATTERSON-UTI ENERGY, INC., a top five position in the Fund as of
June 30, 2005, saw increasing demand for its land-drilling rigs and related
services during the period. Earnings growth for Patterson was roughly 100% in
2004. National Oilwell Varco, Inc. was also a beneficiary of the strong energy
market, driven by higher oil prices and increased drilling demand. National
Oilwell Varco also made a very accretive acquisition during the half, following
which the market cap exceeded $8 billion, causing the Fund to gradually exit the
position and redeploy assets elsewhere in the sector.
IT AND INDUSTRIALS WEIGHED ON PERFORMANCE
Both the information technology (IT) and industrials sectors underperformed the
Russell 2000 Growth Index during the half, and poor stock selection in these
sectors negatively impacted relative Fund performance. In the information
technology sector, holdings such as Polycom, Inc., Avocent Corporation, Altiris,
Inc., and AEROFLEX, INC. were large detractors from performance. Polycom, a
maker of video conferencing equipment, reported poor results as the company
continued to struggle with sluggish demand. Avocent, a manufacturer of computer
server management systems, announced that first quarter results would fall well
short of Wall Street expectations, as management executed poorly during an
important new product transition. Altiris, a systems management software
company, struggled with slowing demand and an inability to control operating
expenses. Aeroflex, a maker of semiconductor devices and test and measurement
equipment, fell as the company reported weak results in the first quarter.
[SIDENOTE]
"THE FUND ADDED ENERGY HOLDINGS DURING THE PERIOD IN AN ATTEMPT TO GARNER
GREATER GROWTH POTENTIAL IN THIS SECTOR."
9
<Page>
In the industrials sector, Trex Company, Inc., a building products
manufacturer, was hurt by poor weather and excess inventories in its
distribution channel.
Another name that detracted from Fund performance was INSPIRE
PHARMACEUTICALS, INC. Inspire, a development stage drug manufacturer, missed its
primary endpoint for a late-stage clinical trial, which was important to gain
approval for a drug targeting the condition known as dry eye. The stock declined
over 50% on the news. The Fund held its position in the stock at the end of the
period as we believed a good chance still existed that the company may receive
drug approval. Additionally, we believed that Inspire has a robust drug
pipeline.
The Fund's holdings in the financials sector also underperformed for the
period due to weak stock selection.
BOTTOM 3 PERFORMING SECTORS IN THE FUND
Industrials
Information Technology
Financials
IN CONCLUSION
As we entered the second half of 2005, the Fund was overweight the consumer
discretionary, healthcare and energy sectors, and underweight the information
technology, industrials and financials sectors.
The economic backdrop remains uncertain in our opinion. Most economic
indicators remained relatively strong during the period, or at least were
trending in the right direction. However, the impact that increasing interest
rates and very high oil prices will have on the economy remains uncertain. We
will continue to seek to take advantage of the current economic environment as
well as focus on companies that may offer growth opportunities.
/s/ Bradley C. Orr /s/ James (J.D.) Padgett
Bradley C. Orr, CFA James (J.D.) Padgett, CFA
Co-Portfolio Manager Co-Portfolio Manager
10
<Page>
This page intentionally left blank.
<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 January 1, 2005
and held through June 30, 2005.
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 FOR COMPARISON PURPOSES 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*
(1/1/05) (6/30/05) (1/1/05-6/30/05)
- ------------------------------------------------------------------------------
CLASS A ACTUAL $ 1,000.00 $ 964.41 $ 7.14
CLASS A HYPOTHETICAL 1,000.00 1,017.46 7.33
CLASS B ACTUAL 1,000.00 955.07 11.90
CLASS B HYPOTHETICAL 1,000.00 1,012.54 12.25
CLASS C ACTUAL 1,000.00 955.85 11.51
CLASS C HYPOTHETICAL 1,000.00 1,012.95 11.85
CLASS F ACTUAL 1,000.00 964.81 7.04
CLASS F HYPOTHETICAL 1,000.00 1,017.57 7.23
CLASS R ACTUAL 1,000.00 967.24 5.72
CLASS R HYPOTHETICAL 1,000.00 1,018.92 5.87
CLASS T ACTUAL 1,000.00 961.54 8.65
CLASS T HYPOTHETICAL 1,000.00 1,015.91 8.89
</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
181/365 (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, earnings credits and brokerage
offsets, where applicable.
<Table>
<Caption>
EXPENSE RATIO
- --------------------------------------------------------------------------------
CLASS A 1.46%
CLASS B 2.44%
CLASS C 2.36%
CLASS F 1.44%
CLASS R 1.17%
CLASS T 1.77%
</Table>
13
<Page>
STATEMENT OF INVESTMENTS
June 30, 2005 (UNAUDITED)
<Table>
<Caption>
SHARES MARKET VALUE
- ---------------------------------------------------------------------------------
COMMON STOCKS (DOMESTIC)--93.2%
AIR FREIGHT & LOGISTICS--4.2%
489,747 Hub Group, Inc. Class A* $ 12,268,158
172,440 UTI Worldwide, Inc. 12,005,273
-------------
24,273,431
-------------
ALUMINUM--0.3%
93,825 Century Aluminum Company* 1,914,030
-------------
APPLICATION SOFTWARE--2.2%
962,736 Epicor Software Corporation* 12,708,115
-------------
ASSET MANAGEMENT & CUSTODY BANKS--2.1%
173,275 Affiliated Managers Group, Inc.* 11,839,881
-------------
AUTOMOTIVE RETAIL--1.9%
667,150 CSK Auto Corporation* 11,128,062
-------------
BIOTECHNOLOGY--2.0%
889,275 Alkermes, Inc.* 11,756,216
-------------
CASINOS & GAMING--5.7%
409,207 Pinnacle Entertainment, Inc.* 8,004,089
115,450 Scientific Games Corporation* 3,109,069
650,125 WMS Industries, Inc.* 21,941,719
-------------
33,054,877
-------------
COMMUNICATIONS EQUIPMENT--5.4%
251,090 Harris Corporation 7,836,519
417,700 SafeNet, Inc.* 14,226,862
547,825 Tekelec* 9,203,460
-------------
31,266,841
-------------
CONSUMER FINANCE--1.9%
309,725 First Marblehead Corporation* 10,858,959
-------------
DIVERSIFIED METALS & MINING--1.2%
296,600 Alpha Natural Resources, Inc.* 7,082,808
-------------
EDUCATION SERVICES--3.5%
352,710 Education Management Corporation* 11,896,908
251,450 Universal Technical Institute, Inc.* 8,348,140
-------------
20,245,048
-------------
ELECTRONIC EQUIPMENT MANUFACTURERS--2.1%
1,048,790 Aeroflex, Inc.* 8,809,836
106,732 Cogent, Inc.* 3,047,199
-------------
11,857,035
-------------
ELECTRONIC MANUFACTURING SERVICES--1.7%
246,980 Trimble Navigation Limited* 9,624,811
-------------
GENERAL MERCHANDISE STORES--1.2%
212,570 Tuesday Morning Corporation 6,700,206
-------------
GOLD--0.6%
184,200 Glamis Gold Limited* 3,170,082
-------------
HEALTHCARE DISTRIBUTORS--1.9%
263,559 Henry Schein, Inc.* 10,942,970
-------------
</Table>
14
<Page>
<Table>
<Caption>
SHARES MARKET VALUE
- ---------------------------------------------------------------------------------
HEALTHCARE EQUIPMENT--5.1%
371,850 ArthroCare Corporation* $ 12,992,439
539,664 I-Flow Corporation* 8,980,009
213,475 Kyphon, Inc.* 7,426,795
-------------
29,399,243
-------------
HEALTHCARE SERVICES--1.2%
469,062 Option Care, Inc. 6,613,774
-------------
HEALTHCARE SUPPLIES--1.1%
469,747 ev3, Inc.* 6,529,483
-------------
HOME FURNISHINGS--2.5%
650,068 Tempur-Pedic International, Inc.* 14,418,508
-------------
HOTELS, RESORTS & CRUISE LINES--2.7%
339,240 Gaylord Entertainment Company* 15,771,268
-------------
HUMAN RESOURCE & EMPLOYMENT SERVICES--0.4%
105,655 Resources Connection, Inc.* 2,454,366
-------------
INTERNET SOFTWARE & SERVICES--2.0%
997,327 Digitas, Inc.* 11,379,501
-------------
IT CONSULTING & OTHER SERVICES--1.1%
279,775 Kanbay International, Inc.* 6,465,600
-------------
LEISURE FACILITIES--1.2%
202,550 Life Time Fitness, Inc.* 6,645,666
-------------
LEISURE PRODUCTS--1.5%
429,542 Marvel Enterprises, Inc.* 8,470,568
-------------
MULTI-LINE INSURANCE--1.4%
216,625 HCC Insurance Holdings, Inc. 8,203,589
-------------
OIL & GAS DRILLING--3.8%
562,700 Patterson-UTI Energy, Inc. 15,659,941
239,375 Pride International, Inc.* 6,151,938
-------------
21,811,879
-------------
OIL & GAS EQUIPMENT & SERVICES--1.8%
386,625 Grant Prideco, Inc.* 10,226,231
-------------
OIL & GAS EXPLORATION & PRODUCTION--1.7%
165,050 KFx, Inc.* 2,358,565
208,950 Spinnaker Exploration Company* 7,415,636
-------------
9,774,201
-------------
PHARMACEUTICALS--9.6%
406,425 Endo Pharmaceuticals Holdings, Inc.* 10,680,849
771,982 Impax Laboratories, Inc.* 12,120,117
366,472 Inspire Pharmaceuticals, Inc.* 3,085,694
416,477 Medicis Pharmaceutical Corporation Class A 13,214,815
227,241 MGI Pharma, Inc.* 4,944,764
631,661 Salix Pharmaceuticals Limited* 11,155,133
-------------
55,201,372
-------------
</Table>
SEE NOTES TO STATEMENT OF INVESTMENTS.
15
<Page>
<Table>
<Caption>
SHARES MARKET VALUE
- ---------------------------------------------------------------------------------
RESTAURANTS--2.7%
252,398 RARE Hospitality International, Inc.* $ 7,690,567
124,694 Red Robin Gourmet Burgers, Inc.* 7,728,534
-------------
15,419,101
-------------
SEMICONDUCTOR EQUIPMENT--1.4%
799,905 Entegris, Inc.* 7,919,060
-------------
SEMICONDUCTORS--2.7%
291,375 Fairchild Semiconductor Corporation Class A* 4,297,781
299,200 Intersil Corporation Class A 5,615,984
333,315 Semtech Corporation* 5,549,695
-------------
15,463,460
-------------
SPECIALTY STORES--4.0%
142,050 Guitar Center, Inc.* 8,291,459
496,504 Petco Animal Supplies, Inc. 14,557,497
-------------
22,848,956
-------------
SYSTEMS SOFTWARE--1.0%
124,125 Quality Systems, Inc. 5,881,043
-------------
THRIFTS & MORTGAGE FINANCE--2.3%
327,075 BankAtlantic Bancorp, Inc. 6,198,071
510,075 NewAlliance Bancshares, Inc. 7,166,554
-------------
13,364,625
-------------
TRADING COMPANIES & DISTRIBUTORS--3.0%
624,575 Hughes Supply, Inc. 17,550,558
-------------
TRUCKING--1.1%
200,175 J.B. Hunt Transport Services, Inc. 3,863,378
97,525 Old Dominion Freight Line, Inc.* 2,616,596
-------------
6,479,974
-------------
TOTAL COMMON STOCKS (DOMESTIC)
(COST--$498,548,403) 536,715,398
-------------
COMMON STOCKS (FOREIGN)--3.2%
HOTELS, RESORTS & CRUISE LINES--1.3%
132,200 Kerzner International Limited (BA)* 7,528,790
-------------
MARINE--1.9%
255,100 Diana Shipping, Inc. (GR) 3,734,664
448,685 Dryships, Inc. (GR) 7,407,789
-------------
11,142,453
-------------
TOTAL COMMON STOCKS (FOREIGN)
(COST--$20,996,055) 18,671,243
-------------
</Table>
16
<Page>
<Table>
<Caption>
PRINCIPAL AMOUNT AMORTIZED COST
- ---------------------------------------------------------------------------------
CORPORATE SHORT-TERM NOTES--2.5%
HOUSEHOLD APPLIANCES--2.5%
$ 14,400,000 Stanley Works, Inc.
3.37% 7/1/05~ $ 14,400,000
--------------
TOTAL CORPORATE SHORT-TERM NOTES
(AMORTIZED COST--$14,400,000) 14,400,000
--------------
TOTAL INVESTMENTS--98.9%
(TOTAL COST--$533,944,458) 569,786,641
--------------
OTHER ASSETS AND LIABILITIES--1.1% 6,130,966
--------------
NET ASSETS--100.0% $ 575,917,607
==============
</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 $14,400,000, OR 2.5%, OF THE FUND'S NET ASSETS AS OF JUNE 30,
2005.
BA - BAHAMA ISLANDS
GR - GREECE
SEE NOTES TO FINANCIAL STATEMENTS.
17
<Page>
STATEMENT OF ASSETS AND LIABILITIES
June 30, 2005 (UNAUDITED)
<Table>
ASSETS
Investment securities, at cost $ 533,944,458
--------------
Investment securities, at market 569,786,641
Cash 1,478,335
Receivables:
Investment securities sold 12,120,681
Capital shares sold 6,691,639
Dividends and interest 139,732
Other assets 60,969
--------------
Total Assets 590,277,997
--------------
LIABILITIES
Payables and other accrued liabilities:
Investment securities purchased 8,595,954
Capital shares redeemed 4,823,779
Advisory fees 412,346
Shareholder servicing fees 38,652
Accounting fees 27,085
Distribution fees 140,753
Transfer agency fees 45,090
Custodian fees 2,331
Other 274,400
--------------
Total Liabilities 14,360,390
--------------
Net Assets $ 575,917,607
==============
COMPOSITION OF NET ASSETS
Capital (par value and paid-in surplus) $ 862,131,267
Accumulated net investment loss (3,411,438)
Accumulated net realized loss from security transactions (318,644,405)
Net unrealized appreciation on investments
and foreign currency translation 35,842,183
--------------
Total $ 575,917,607
==============
</Table>
18
<Page>
<Table>
CLASS A
Net Assets $ 54,392,814
Shares Outstanding 1,942,499
Net Asset Value, Redemption Price Per Share $ 28.00
Maximum offering price per share (net asset value
plus sales charge of 5.75% of offering price) $ 29.71
CLASS B
Net Assets $ 15,622,624
Shares Outstanding 586,432
Net Asset Value, Offering and Redemption Price (excluding
applicable contingent deferred sales charge) Per Share $ 26.64
CLASS C
Net Assets $ 5,118,001
Shares Outstanding 191,892
Net Asset Value, Offering and Redemption Price (excluding
applicable contingent deferred sales charge) Per Share $ 26.67
CLASS F
Net Assets $ 437,626,004
Shares Outstanding 15,653,110
Net Asset Value, Offering and Redemption Price Per Share $ 27.96
CLASS R
Net Assets $ 61,841,720
Shares Outstanding 2,175,314
Net Asset Value, Offering and Redemption Price Per Share $ 28.43
CLASS T
Net Assets $ 1,316,444
Shares Outstanding 48,143
Net Asset Value, Redemption Price Per Share $ 27.34
Maximum offering price per share (net asset value
plus sales charge of 4.50% of offering price) $ 28.63
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
19
<Page>
STATEMENT OF OPERATIONS
For the six months ended June 30, 2005 (UNAUDITED)
<Table>
INVESTMENT INCOME
Dividends $ 991,113
Interest 117,689
--------------
Total Investment Income 1,108,802
--------------
EXPENSES
Advisory fees--Note 2 2,620,725
Shareholder servicing fees--Note 2 241,103
Accounting fees--Note 2 171,008
Distribution fees--Note 2 610,725
Transfer agency fees--Note 2 337,826
Registration fees 32,140
Postage and mailing expenses 67,275
Custodian fees and expenses--Note 2 14,644
Printing expenses 74,900
Legal and audit fees 113,894
Directors' fees and expenses--Note 2 58,080
Other expenses 76,694
--------------
Total Expenses 4,419,014
Earnings Credits (14,644)
Reimbursed/Waived Expenses (9,574)
--------------
Net Expenses 4,394,796
--------------
Net Investment Loss (3,285,994)
--------------
REALIZED AND UNREALIZED GAIN (LOSS) ON SECURITY
TRANSACTIONS AND FOREIGN CURRENCY TRANSACTIONS
Net Realized Gain on Security Transactions 71,399,727
Net Change in Unrealized Appreciation/Depreciation
of Investments and Foreign Currency Translation (92,393,684)
--------------
Net Realized and Unrealized Loss (20,993,957)
--------------
Net Decrease in Net Assets Resulting from Operations $ (24,279,951)
==============
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
20
<Page>
STATEMENTS OF CHANGES IN NET ASSETS
(UNAUDITED)
<Table>
<Caption>
SIX MONTHS ENDED YEAR ENDED
6/30/05 12/31/04
OPERATIONS
Net Investment Loss $ (3,285,994) $ (8,291,203)
Net Realized Gain on Security Transactions 71,399,727 74,597,741
Net Change in Unrealized Appreciation/Depreciation
of Investments and Foreign Currency Translation (92,393,684) 5,007,548
---------------- ---------------
Net Increase (Decrease) in Net Assets
Resulting from Operations (24,279,951) 71,314,086
---------------- ---------------
CAPITAL SHARE TRANSACTIONS
Net Increase (Decrease)--Note 4
Class A (9,243,790) (20,072,155)
Class B (2,462,182) (3,926,079)
Class C (1,291,901) (2,295,210)
Class F (94,085,091) (143,830,150)
Class R (8,253,704) 25,138
Class T (278,376) (302,253)
---------------- ---------------
Net Decrease from Capital Share Transactions (115,615,044) (170,400,709)
---------------- ---------------
Net Decrease in Net Assets (139,894,995) (99,086,623)
---------------- ---------------
NET ASSETS
Beginning of period $ 715,812,602 $ 814,899,225
---------------- ---------------
End of period $ 575,917,607 $ 715,812,602
================ ===============
Accumulated Net Investment Loss $ (3,411,438) $ (125,444)
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
21
<Page>
FINANCIAL HIGHLIGHTS
(UNAUDITED)
<Table>
<Caption>
SIX MONTHS YEAR ENDED
ENDED JUNE 30, DECEMBER 31,
2005 2004 2003 2002 2001
-------------- ---------------------------------------------
CLASS A SHARES
PER SHARE OPERATING DATA
Net Asset Value, beginning of period $ 28.82 $ 26.04 $ 19.09 $ 28.50 $ 34.79
- ---------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment loss (0.40) (0.64) (0.36) (0.31) (0.17)
Net realized and unrealized gains
(losses) on securities (0.42) 3.42 7.31 (9.10) (6.02)
---------------------------------------------------------------
Total from investment operations (0.82) 2.78 6.95 (9.41) (6.19)
- ---------------------------------------------------------------------------------------------------------------
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 (0.10)
---------------------------------------------------------------
Total distributions 0.00 0.00 0.00 0.00 (0.10)
- ---------------------------------------------------------------------------------------------------------------
Net Asset Value, end of period $ 28.00 $ 28.82 $ 26.04 $ 19.09 $ 28.50
===============================================================
TOTAL RETURN(a) (2.85%) 10.68% 36.41% (33.02%) (17.78%)
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000s) $ 54,393 $ 65,763 $ 79,630 $ 67,184 $ 117,773
- ---------------------------------------------------------------------------------------------------------------
Ratios to average net assets(b):
Expenses with reimbursements, but
no earnings credits or brokerage offsets(c) 1.47% 1.38% 1.50% 1.35% 1.19%
Expenses with reimbursements,
earnings credits and brokerage offsets 1.46% 1.37% 1.50% 1.35% 1.18%
Net investment loss (1.09%) (1.11%) (1.25%) (1.08%) (0.58%)
- ---------------------------------------------------------------------------------------------------------------
Portfolio turnover rate(d) 134% 98% 130% 128% 110%
</Table>
(a). SALES CHARGES ARE NOT REFLECTED IN THE TOTAL RETURN.
(b). ANNUALIZED.
(c). CERTAIN FEES WERE WAIVED BY THE CUSTODIAN. THESE WAIVERS DID NOT HAVE AN
IMPACT ON THE EXPENSE RATIOS.
(d). PORTFOLIO TURNOVER RATE IS A MEASURE OF PORTFOLIO ACTIVITY THAT IS
CALCULATED BY DIVIDING THE LESSER OF PURCHASES OR SALES OF SECURITIES,
EXCLUDING SECURITIES HAVING MATURITY DATES AT ACQUISITION OF ONE YEAR OR
LESS, BY THE AVERAGE VALUE OF THE PORTFOLIO SECURITIES HELD DURING THE
PERIOD, WHICH IS A ROLLING 12-MONTH PERIOD.
22
<Page>
<Table>
<Caption>
SIX MONTHS YEAR ENDED
ENDED JUNE 30, DECEMBER 31,
2005 2004 2003 2002 2001
-------------- ---------------------------------------------
CLASS B SHARES
PER SHARE OPERATING DATA
Net Asset Value, beginning of period $ 27.55 $ 25.12 $ 18.60 $ 28.03 $ 34.49
- ---------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment loss (0.81) (1.07) (0.81) (0.69) (0.45)
Net realized and unrealized gains
(losses) on securities (0.10) 3.50 7.33 (8.74) (5.91)
---------------------------------------------------------------
Total from investment operations (0.91) 2.43 6.52 (9.43) (6.36)
- ---------------------------------------------------------------------------------------------------------------
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 (0.10)
---------------------------------------------------------------
Total distributions 0.00 0.00 0.00 0.00 (0.10)
- ---------------------------------------------------------------------------------------------------------------
Net Asset Value, end of period $ 26.64 $ 27.55 $ 25.12 $ 18.60 $ 28.03
===============================================================
TOTAL RETURN(a) (3.30%) 9.67% 35.05% (33.64%) (18.43%)
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000s) $ 15,623 $ 18,795 $ 21,009 $ 18,804 $ 35,845
- ---------------------------------------------------------------------------------------------------------------
Ratios to average net assets(b):
Expenses with reimbursements, but
no earnings credits or brokerage offsets(c) 2.45% 2.30% 2.56% 2.26% 1.97%
Expenses with reimbursements,
earnings credits and brokerage offsets 2.44% 2.29% 2.56% 2.26% 1.96%
Net investment loss (2.07%) (2.03%) (2.31%) (1.98%) (1.35%)
- ---------------------------------------------------------------------------------------------------------------
Portfolio turnover rate(d) 134% 98% 130% 128% 110%
</Table>
(a). SALES CHARGES ARE NOT REFLECTED IN THE TOTAL RETURN.
(b). ANNUALIZED.
(c). CERTAIN FEES WERE WAIVED BY THE CUSTODIAN. THESE WAIVERS DID NOT HAVE AN
IMPACT ON THE EXPENSE RATIOS.
(d). PORTFOLIO TURNOVER RATE IS A MEASURE OF PORTFOLIO ACTIVITY THAT IS
CALCULATED BY DIVIDING THE LESSER OF PURCHASES OR SALES OF SECURITIES,
EXCLUDING SECURITIES HAVING MATURITY DATES AT ACQUISITION OF ONE YEAR OR
LESS, BY THE AVERAGE VALUE OF THE PORTFOLIO SECURITIES HELD DURING THE
PERIOD, WHICH IS A ROLLING 12-MONTH PERIOD.
SEE NOTES TO FINANCIAL STATEMENTS.
23
<Page>
<Table>
<Caption>
SIX MONTHS YEAR ENDED
ENDED JUNE 30, DECEMBER 31,
2005 2004 2003 2002 2001
-------------- ---------------------------------------------
CLASS C SHARES
PER SHARE OPERATING DATA
Net Asset Value, beginning of period $ 27.57 $ 25.14 $ 18.60 $ 28.05 $ 34.51
- ---------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment loss (1.32) (1.53) (0.94) (0.86) (0.48)
Net realized and unrealized gains
(losses) on securities 0.42 3.96 7.48 (8.59) (5.88)
---------------------------------------------------------------
Total from investment operations (0.90) 2.43 6.54 (9.45) (6.36)
- ---------------------------------------------------------------------------------------------------------------
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 (0.10)
---------------------------------------------------------------
Total distributions 0.00 0.00 0.00 0.00 (0.10)
- ---------------------------------------------------------------------------------------------------------------
Net Asset Value, end of period $ 26.67 $ 27.57 $ 25.14 $ 18.60 $ 28.05
===============================================================
TOTAL RETURN(a) (3.26%) 9.67% 35.16% (33.69%) (18.42%)
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000s) $ 5,118 $ 6,668 $ 8,352 $ 7,794 $ 17,031
- ---------------------------------------------------------------------------------------------------------------
Ratios to average net assets(b):
Expenses with reimbursements, but
no earnings credits or brokerage offsets(c) 2.37% 2.28% 2.52% 2.27% 1.98%
Expenses with reimbursements,
earnings credits and brokerage offsets 2.36% 2.27% 2.52% 2.26% 1.96%
Net investment loss (2.00%) (2.01%) (2.28%) (1.99%) (1.36%)
- ---------------------------------------------------------------------------------------------------------------
Portfolio turnover rate(d) 134% 98% 130% 128% 110%
</Table>
(a). SALES CHARGES ARE NOT REFLECTED IN THE TOTAL RETURN.
(b). ANNUALIZED.
(c). CERTAIN FEES WERE WAIVED BY THE CUSTODIAN. THESE WAIVERS DID NOT HAVE AN
IMPACT ON THE EXPENSE RATIOS.
(d). PORTFOLIO TURNOVER RATE IS A MEASURE OF PORTFOLIO ACTIVITY THAT IS
CALCULATED BY DIVIDING THE LESSER OF PURCHASES OR SALES OF SECURITIES,
EXCLUDING SECURITIES HAVING MATURITY DATES AT ACQUISITION OF ONE YEAR OR
LESS, BY THE AVERAGE VALUE OF THE PORTFOLIO SECURITIES HELD DURING THE
PERIOD, WHICH IS A ROLLING 12-MONTH PERIOD.
24
<Page>
<Table>
<Caption>
SIX MONTHS YEAR ENDED
ENDED JUNE 30, DECEMBER 31,
2005 2004 2003 2002 2001
-------------- ---------------------------------------------
CLASS F SHARES
PER SHARE OPERATING DATA
Net Asset Value, beginning of period $ 28.77 $ 25.98 $ 19.04 $ 28.45 $ 34.74
- ---------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment loss (0.60) (0.69) (0.35) (0.36) (0.20)
Net realized and unrealized gains
(losses) on securities (0.21) 3.48 7.29 (9.05) (5.99)
---------------------------------------------------------------
Total from investment operations (0.81) 2.79 6.94 (9.41) (6.19)
- ---------------------------------------------------------------------------------------------------------------
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 (0.10)
---------------------------------------------------------------
Total distributions 0.00 0.00 0.00 0.00 (0.10)
- ---------------------------------------------------------------------------------------------------------------
Net Asset Value, end of period $ 27.96 $ 28.77 $ 25.98 $ 19.04 $ 28.45
===============================================================
TOTAL RETURN (2.82%) 10.74% 36.45% (33.08%) (17.81%)
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000s) $ 437,626 $ 550,622 $ 638,880 $ 498,970 $ 847,330
- ---------------------------------------------------------------------------------------------------------------
Ratios to average net assets(a):
Expenses with reimbursements, but
no earnings credits or brokerage offsets(b) 1.45% 1.35% 1.53% 1.41% 1.25%
Expenses with reimbursements,
earnings credits and brokerage offsets 1.44% 1.34% 1.53% 1.40% 1.24%
Net investment loss (1.07%) (1.08%) (1.29%) (1.13%) (0.64%)
- ---------------------------------------------------------------------------------------------------------------
Portfolio turnover rate(c) 134% 98% 130% 128% 110%
</Table>
(a). ANNUALIZED.
(b). CERTAIN FEES WERE WAIVED BY THE CUSTODIAN. THESE WAIVERS DID NOT HAVE AN
IMPACT ON THE EXPENSE RATIOS.
(c). PORTFOLIO TURNOVER RATE IS A MEASURE OF PORTFOLIO ACTIVITY THAT IS
CALCULATED BY DIVIDING THE LESSER OF PURCHASES OR SALES OF SECURITIES,
EXCLUDING SECURITIES HAVING MATURITY DATES AT ACQUISITION OF ONE YEAR OR
LESS, BY THE AVERAGE VALUE OF THE PORTFOLIO SECURITIES HELD DURING THE
PERIOD, WHICH IS A ROLLING 12-MONTH PERIOD.
SEE NOTES TO FINANCIAL STATEMENTS.
25
<Page>
<Table>
<Caption>
SIX MONTHS YEAR ENDED
ENDED JUNE 30, DECEMBER 31,
2005 2004 2003 2002 2001
-------------- ---------------------------------------------
CLASS R SHARES
PER SHARE OPERATING DATA
Net Asset Value, beginning of period $ 29.22 $ 26.32 $ 19.23 $ 28.64 $ 34.87
- ---------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment loss (0.21) (0.24) (0.17) (0.18) (0.08)
Net realized and unrealized gains
(losses) on securities (0.58) 3.14 7.26 (9.23) (6.05)
---------------------------------------------------------------
Total from investment operations (0.79) 2.90 7.09 (9.41) (6.13)
- ---------------------------------------------------------------------------------------------------------------
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 (0.10)
---------------------------------------------------------------
Total distributions 0.00 0.00 0.00 0.00 (0.10)
- ---------------------------------------------------------------------------------------------------------------
Net Asset Value, end of period $ 28.43 $ 29.22 $ 26.32 $ 19.23 $ 28.64
===============================================================
TOTAL RETURN (2.70%) 11.02% 36.87% (32.86%) (17.57%)
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000s) $ 61,842 $ 72,317 $ 65,240 $ 42,872 $ 61,163
- ---------------------------------------------------------------------------------------------------------------
Ratios to average net assets(a):
Expenses with reimbursements, but
no earnings credits or brokerage offsets(b) 1.18% 1.11% 1.21% 1.10% 0.95%
Expenses with reimbursements,
earnings credits and brokerage offsets 1.17% 1.10% 1.21% 1.10% 0.94%
Net investment loss (0.81%) (0.83%) (0.96%) (0.82%) (0.38%)
- ---------------------------------------------------------------------------------------------------------------
Portfolio turnover rate(c) 134% 98% 130% 128% 110%
</Table>
(a). ANNUALIZED.
(b). CERTAIN FEES WERE WAIVED BY THE CUSTODIAN. THESE WAIVERS DID NOT HAVE AN
IMPACT ON THE EXPENSE RATIOS.
(c). PORTFOLIO TURNOVER RATE IS A MEASURE OF PORTFOLIO ACTIVITY THAT IS
CALCULATED BY DIVIDING THE LESSER OF PURCHASES OR SALES OF SECURITIES,
EXCLUDING SECURITIES HAVING MATURITY DATES AT ACQUISITION OF ONE YEAR OR
LESS, BY THE AVERAGE VALUE OF THE PORTFOLIO SECURITIES HELD DURING THE
PERIOD, WHICH IS A ROLLING 12-MONTH PERIOD.
26
<Page>
<Table>
<Caption>
SIX MONTHS YEAR ENDED
ENDED JUNE 30, DECEMBER 31,
2005 2004 2003 2002 2001
-------------- ---------------------------------------------
CLASS T SHARES
PER SHARE OPERATING DATA
Net Asset Value, beginning of period $ 28.18 $ 25.55 $ 18.79 $ 28.24 $ 34.69
- ---------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment loss (0.62) (0.65) (0.31) (0.54) (0.33)
Net realized and unrealized gains
(losses) on securities (0.22) 3.28 7.07 (8.91) (6.02)
---------------------------------------------------------------
Total from investment operations (0.84) 2.63 6.76 (9.45) (6.35)
- ---------------------------------------------------------------------------------------------------------------
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 (0.10)
---------------------------------------------------------------
Total distributions 0.00 0.00 0.00 0.00 (0.10)
- ---------------------------------------------------------------------------------------------------------------
Net Asset Value, end of period $ 27.34 $ 28.18 $ 25.55 $ 18.79 $ 28.24
===============================================================
TOTAL RETURN(a) (2.98%) 10.29% 35.98% (33.46%) (18.30%)
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000s) $ 1,316 $ 1,648 $ 1,788 $ 1,291 $ 2,341
- ---------------------------------------------------------------------------------------------------------------
Ratios to average net assets(b):
Expenses with reimbursements, but
no earnings credits or brokerage offsets(c) 1.78% 1.71% 1.91% 2.06% 1.83%
Expenses with reimbursements,
earnings credits and brokerage offsets 1.77% 1.70% 1.90% 2.06% 1.82%
Net investment loss (1.41%) (1.44%) (1.66%) (1.79%) (1.24%)
- ---------------------------------------------------------------------------------------------------------------
Portfolio turnover rate(d) 134% 98% 130% 128% 110%
</Table>
(a). SALES CHARGES ARE NOT REFLECTED IN THE TOTAL RETURN.
(a). ANNUALIZED.
(c). CERTAIN FEES WERE WAIVED BY THE CUSTODIAN. THESE WAIVERS DID NOT HAVE AN
IMPACT ON THE EXPENSE RATIOS.
(d). PORTFOLIO TURNOVER RATE IS A MEASURE OF PORTFOLIO ACTIVITY THAT IS
CALCULATED BY DIVIDING THE LESSER OF PURCHASES OR SALES OF SECURITIES,
EXCLUDING SECURITIES HAVING MATURITY DATES AT ACQUISITION OF ONE YEAR OR
LESS, BY THE AVERAGE VALUE OF THE PORTFOLIO SECURITIES HELD DURING THE
PERIOD, WHICH IS A ROLLING 12-MONTH PERIOD.
SEE NOTES TO FINANCIAL STATEMENTS.
27
<Page>
NOTES TO FINANCIAL STATEMENTS
June 30, 2005 (UNAUDITED)
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
Dreyfus Founders Funds, Inc. (the "Company") is an open-end management
investment company registered under the Investment Company Act of 1940 (the
"1940 Act"). Ten series of shares are currently issued: Balanced, Discovery,
Equity Growth, 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 shares redeemed 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. Since February 22, 2005, New York closing exchange rates have
been used to convert foreign currencies to U.S. dollars. Previously, London
closing exchange rates were used to convert foreign currencies to U.S. dollars.
A debt security with a remaining maturity greater than 60 days at the time of
purchase is valued in accordance with the evaluated bid price supplied by a
pricing service approved by the Company's board of directors or, if such price
is not available, at the mean between the highest bid and lowest asked
quotations obtained from at least two securities dealers. A debt security with a
remaining maturity of 60 days or less at the time of purchase is valued at
amortized cost, which approximates market value, unless it is determined that
amortized cost would not represent market value, in which case the securities
would be marked to market. The Fund amortizes premiums and discounts on all debt
securities.
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. In addition, it is possible
that the fair value determined for a security may be different from the value
that may be realized upon the security's sale, and that these differences may be
material to the net asset value of the Fund.
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.
29
<Page>
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) 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 period 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.
30
<Page>
In accordance with an investment advisory agreement between the Company and
Founders, the Fund compensates Founders for its services as investment adviser
by the payment of fees computed daily and paid monthly at the annual rate equal
to a percentage of the average daily value of the Fund's net assets. The fee is
1.00% of the first $250 million of net assets, 0.80% of the next $250 million of
net assets and 0.70% of net assets in excess of $500 million.
SHAREHOLDER SERVICING AND TRANSFER AGENCY FEES FOR CLASS F SHARES--The Company
has a shareholder services agreement with Dreyfus Service Corporation ("DSC"),
the direct owner of Founders and a wholly-owned subsidiary of The Dreyfus
Corporation ("Dreyfus", an affiliate of Founders), whereby the Funds have agreed
to compensate DSC for providing certain shareholder servicing functions to
holders of Class F shares. The Fund paid DSC a monthly fee equal, on an annual
basis, to $24.00 per Class F shareholder account considered to be an open
account at any time during a given month. During the six months ended June 30,
2005, Class F shares were charged $150,085 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 six months ended June 30, 2005, Class F shares
were charged $35,380 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 $12.58 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, including both the per account fees paid to
DTI and out-of-pocket charges, during the six months ended June 30, 2005 were as
follows:
<Table>
<Caption>
TRANSFER
AGENCY FEES
---------------------------------------------------------------
Class A $ 17,973
Class B $ 24,557
Class C $ 6,085
Class R $ 11,506
Class T $ 975
</Table>
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 six months ended June 30, 2005, the Fund was charged $7,868 for cash
management fees, which are included in the out-of-pocket transfer agency charges
above.
31
<Page>
OTHER TRANSFER AGENCY FEES--Various broker-dealers, retirement plan
administrators and other 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 six months ended
June 30, 2005, the Fund paid $241,350 to these entities for such services. This
amount is included in the transfer agency fees shown on the Statement of
Operations.
DISTRIBUTION AND SHAREHOLDER SERVICES PLANS--DSC also is the distributor of the
Fund's shares. The Fund has adopted a Distribution Plan pursuant to Rule 12b-1
under the 1940 Act applicable to its Class F shares. Under the plan, the Fund is
authorized to reimburse DSC for expenses paid for distributing or servicing its
Class F shares at an annual rate of up to 0.25% of the value of the average
daily net assets of the Fund's Class F shares. During the six months ended June
30, 2005, Class F shares were charged $528,304 pursuant to this Distribution
Plan.
The Fund also has adopted a Distribution Plan pursuant to Rule 12b-1 under the
1940 Act applicable to its Class B, Class C and Class T shares. Under this plan,
the Fund pays DSC a fee for distributing its Class B and C shares at the annual
rate of 0.75% of the value of the average daily net assets of its Class B and C
shares, respectively, and pays DSC a fee for distributing its Class T shares at
the annual rate of 0.25% of the average daily net assets of its Class T shares.
In addition, the Fund has adopted a Shareholder Services Plan applicable to its
Class A, Class B, Class C and Class T shares. Under the Shareholder Services
Plan, Class A, Class B, Class C and Class T shares pay DSC an annual fee of
0.25% of the value of their average daily net assets for the provision of
certain services.
Distribution and shareholder servicing fees paid to DSC by the Fund's Class A,
B, C and T shares for the six months ended June 30, 2005, were as follows:
<Table>
<Caption>
DISTRIBUTION SHAREHOLDER
FEES SERVICING FEES
----------------------------------------------------------------
Class A N/A $ 62,340
Class B $ 60,555 $ 20,185
Class C $ 20,059 $ 6,686
Class T $ 1,807 $ 1,807
</Table>
During the six months ended June 30, 2005, DSC retained $65 and $2 in sales
commissions from the sales of Class A and Class T shares, respectively. DSC also
retained $32,602 and $613 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
32
<Page>
assets of the Fund in excess of $1 billion, plus reasonable out-of-pocket
expenses. Founders has contractually agreed in writing 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 contractually agreed in writing 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
------------------------------------------------------------
9/1/04 to 8/31/05 $ 200,000
9/1/05 to 8/31/06 $ 200,000
</Table>
The fee waiver is allocated among the Funds in proportion to their respective
shares of the total custodian fee. For the six months ended June 30, 2005, the
Fund's portion of the fee waiver was $9,574, which reduced the amount paid to
Mellon Bank to $5,070.
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.
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
33
<Page>
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.
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
June 30, 2005 are noted below. Unrealized appreciation/depreciation in the table
below excludes appreciation/depreciation on foreign currency translation, if
any. The primary difference between book and tax appreciation or depreciation is
wash sale loss deferrals.
<Table>
Federal Tax Cost $ 539,388,769
Gross Tax Appreciation of Investments $ 51,400,189
Gross Tax Depreciation of Investments $ (21,002,317)
Net Tax Appreciation $ 30,397,872
</Table>
4. CAPITAL SHARE TRANSACTIONS
The Fund is authorized to issue 450 million shares of $0.01 par value capital
stock. Transactions in shares of the Fund for the periods indicated were as
follows:
<Table>
<Caption>
SIX MONTHS ENDED YEAR ENDED
JUNE 30, 2005 DECEMBER 31, 2004
SHARES AMOUNT SHARES AMOUNT
CLASS A
Sold 382,244 $ 10,500,581 606,846 $ 16,285,433
Redeemed (721,857) $ (19,744,371) (1,383,103) $ (36,357,588)
--------------------------------------------------------
Net Decrease (339,613) $ (9,243,790) (776,257) $ (20,072,155)
========================================================
CLASS B
Sold 3,570 $ 92,321 7,176 $ 180,419
Redeemed (99,385) $ (2,554,503) (161,266) $ (4,106,498)
--------------------------------------------------------
Net Decrease (95,815) $ (2,462,182) (154,090) $ (3,926,079)
========================================================
</Table>
34
<Page>
<Table>
<Caption>
SIX MONTHS ENDED YEAR ENDED
JUNE 30, 2005 DECEMBER 31, 2004
SHARES AMOUNT SHARES AMOUNT
CLASS C
Sold 3,976 $ 100,883 7,418 $ 188,358
Redeemed (53,919) $ (1,392,784) (97,877) $ (2,483,568)
-------------------------------------------------------------
Net Decrease (49,943) $ (1,291,901) (90,459) $ (2,295,210)
=============================================================
CLASS F
Sold 1,033,755 $ 28,064,770 3,312,230 $ 88,403,785
Redeemed (4,520,175) $ (122,149,861) (8,760,046) $ (232,233,935)
-------------------------------------------------------------
Net Decrease (3,486,420) $ (94,085,091) (5,447,816) $ (143,830,150)
=============================================================
CLASS R
Sold 213,594 $ 5,907,686 568,863 $ 15,239,651
Redeemed (513,322) $ (14,161,390) (572,087) $ (15,214,513)
-------------------------------------------------------------
Net Increase (Decrease) (299,728) $ (8,253,704) (3,224) $ 25,138
=============================================================
CLASS T
Sold 4,017 $ 106,229 15,867 $ 408,647
Redeemed (14,335) $ (384,605) (27,379) $ (710,900)
-------------------------------------------------------------
Net Decrease (10,318) $ (278,376) (11,512) $ (302,253)
=============================================================
</Table>
5. INVESTMENT TRANSACTIONS
For the six months ended June 30, 2005, purchases and sales of investment
securities (excluding short-term securities and U.S. government obligations)
were $496,258,083 and $636,707,104, 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 June 30, 2005, the Fund did not have any borrowings under the LOC.
35
<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.
36
<Page>
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37
<Page>
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38
<Page>
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<Page>
FOR MORE INFORMATION
- -------------------------------------------------------------------------------
DREYFUS FOUNDERS TRANSFER AGENT &
DISCOVERY FUND DIVIDEND DISBURSING AGENT
MANAGER Dreyfus Transfer, Inc.
200 Park Avenue
Founders Asset New York, NY 10166
Management LLC
210 University Boulevard DISTRIBUTOR
Suite 800
Denver, CO 80206 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, 2005, is
available 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 Founders Asset Management LLC 0182SA0605
<Page>
Dreyfus Founders
Equity Growth Fund
SEMIANNUAL REPORT June 30, 2005
[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
</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 3-9 were owned by the Fund on June 30, 2005. The amounts of
these holdings are included in the Statement of Investments.
NOT FDIC-INSURED - NOT BANK-GUARANTEED - MAY LOSE VALUE
<Page>
MANAGEMENT OVERVIEW
[PHOTO OF JOHN B. JARES]
A DISCUSSION WITH PORTFOLIO MANAGER JOHN B. JARES, CFA, REGARDING FUND
PERFORMANCE FOR THE SIX-MONTH PERIOD ENDED JUNE 30, 2005.
OIL AND THE FEDERAL RESERVE
The investing environment during the first six months of 2005 can be simply
characterized by two economic factors: rising oil prices and the Federal Reserve
ratcheting up short-term interest rates in an effort to contain inflation. As a
result, most indices posted modest declines during the period despite solid
corporate earnings growth.
COMPANY-SPECIFIC IMPACTS
The Fund's strategy in pursuing growth opportunities by researching stocks on a
company-by-company basis did not change during the period. Because of and in
spite of this strategy, the Fund experienced a mixed lot of stock selection: the
Fund had strong selection in numerous sectors as well as weak selection in
others.
Although the Fund's first quarter performance was solid relative to its
large-cap growth fund peers, its performance in the second quarter proved
disappointing. For the first half of 2005, the Dreyfus Founders Equity Growth
Fund trailed the return of the Russell 1000 Growth Index, which returned -1.72%,
and the Standard & Poor's 500 Index, which returned -0.81%.
[SIDENOTE]
"ALTHOUGH THE FUND'S FIRST QUARTER PERFORMANCE WAS SOLID RELATIVE TO ITS
LARGE-CAP GROWTH FUND PEERS, ITS PERFORMANCE IN THE SECOND QUARTER PROVED
DISAPPOINTING."
3
<Page>
CONSUMER-RELATED STOCKS BOOSTED PERFORMANCE
Financials and consumer-related stocks had the largest positive impacts on the
Fund's relative return during the period. Continued strength in consumer
spending helped buoy consumer discretionary and consumer staples stocks, and the
Fund overweighted the consumer discretionary sector with holdings positioned to
benefit from the potential growth opportunities this trend provided. KOHL'S
CORPORATION experienced a recovery in sales and earnings growth driven by new
apparel products and improved corporate execution. Although a stable consumer
spending backdrop helped J.C. PENNEY COMPANY'S sales, excellent execution helped
lead the stock's favorable performance. Consumer staples stock GILLETTE COMPANY
benefited from a buyout offer from Procter & Gamble Company and from solid
fundamentals as well.
The information technology sector, although underperforming for the period,
did harbor stock-specific boons to Fund performance. Among these were APPLE
COMPUTER, INC. and INTEL CORPORATION. Apple saw outstanding growth in revenue as
well as earnings per share (EPS) driven primarily by the popularity of the
company's iPod and Macintosh products. Strong demand for notebook computers
helped drive Intel's processor unit. As a result, the company saw a rebound in
revenue growth and improved gross and operating margin trends.
Other individual strong performers during the half were found in the
healthcare and industrials sectors. GENENTECH INC.'S solid sales and expanded
uses for its cancer drugs, Avastin(TM) and Herceptin(R), drove stocK
performance. Strong consumer travel demand and high energy prices allowed the
airline industry to raise fares. In light of the tough industry operating
conditions, this was welcome news that helped to lift the shares of AMR
CORPORATION, the parent company of American Airlines.
TOP 3 PERFORMING SECTORS IN THE FUND
Financials
Consumer Discretionary
Consumer Staples
4
<Page>
INDUSTRIALS AND IT WEIGHED HEAVILY
Overweight positions and weak stock selection in the industrials and information
technology (IT) sectors impeded the Fund's return for the period. Industrials
holding W.W. GRAINGER, INC. exhibited sluggish sales trends and lower earnings
expectations, which combined to drive the stock lower. In information
technology, numerous underachieving issues weighed heavily on the Fund's
performance for the period. Sluggish trends in Europe and poor execution in
services drove a disappointing first quarter earnings report for INTERNATIONAL
BUSINESS MACHINES CORPORATION, which was followed by a precipitous fall in stock
price. MICROSOFT CORPORATION underperformed the market, although it delivered
financial results that were in line with investor expectations. Poor execution,
disappointing margin trends, and difficulties with certain projects overshadowed
strong bookings and revenue growth for ACCENTURE LIMITED CLASS A, resulting in a
materially lower stock price. An excess of semiconductor inventory led to
lackluster industry growth despite
LARGEST EQUITY HOLDINGS (ticker symbol)
<Table>
1. SPDR TRUST SERIES 1 (SPY) 5.26%
2. MICROSOFT CORPORATION (MSFT) 4.51%
3. GILLETTE COMPANY (G) 2.98%
4. GENERAL ELECTRIC COMPANY (GE) 2.93%
5. ROYAL CARIBBEAN CRUISES LIMITED (RCL) 2.59%
6. JOHNSON & JOHNSON (JNJ) 2.56%
7. KOHL'S CORPORATION (KSS) 2.43%
8. CISCO SYSTEMS, INC. (CSCO) 2.19%
9. PFIZER, INC. (PFE) 2.14%
10. COLGATE-PALMOLIVE COMPANY (CL) 1.78%
</Table>
Portfolio holdings are subject to change, and should not be construed as a
recommendation of any security.
5
<Page>
GROWTH OF $10,000 INVESTMENT
PERFORMANCE DATA QUOTED REPRESENTS PAST PERFORMANCE. PAST PERFORMANCE DOES NOT
GUARANTEE FUTURE RESULTS. INVESTMENT RETURN AND PRINCIPAL VALUE OF AN INVESTMENT
WILL FLUCTUATE SO THAT AN INVESTOR'S SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR
LESS THAN THEIR ORIGINAL COST. CURRENT PERFORMANCE MAY BE LOWER OR HIGHER THAN
THE PERFORMANCE DATA QUOTED. PLEASE CALL 1-800-525-2440 TO OBTAIN THE MOST
RECENT MONTH-END PERFORMANCE DATA.
[CHART]
Dreyfus Founders
Equity Growth Fund S&P 500 Russell 1000
Class F Shares Index Growth Index
06/30/1995 $10,000.00 $10,000.00 $10,000.00
06/28/1996 $12,966.52 $12,600.05 $11,587.79
06/30/1997 $15,727.55 $16,972.14 $11,844.48
06/30/1998 $18,860.28 $22,091.36 $14,707.79
06/30/1999 $20,120.49 $27,118.52 $17,359.39
06/30/2000 $21,319.27 $29,084.32 $23,466.73
06/29/2001 $15,479.80 $24,771.03 $24,990.89
06/28/2002 $12,629.33 $20,315.14 $31,239.93
06/30/2003 $12,700.03 $20,366.21 $36,774.39
06/30/2004 $14,839.01 $24,258.20 $26,519.28
06/30/2005 $15,345.92 $25,792.11 $21,602.24
The above graph compares a $10,000 investment made in Class F shares of Dreyfus
Founders Equity Growth Fund on 6/30/95 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 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. In future semiannual reports, the Fund's performance will no longer be
compared to the Standard & Poor's 500 Index, as the Russell 1000 Growth Index is
more reflective of the Fund's growth style of investing. Further information
related to Fund performance is contained elsewhere in this report.
6
<Page>
AVERAGE ANNUAL AND YEAR-TO DATE TOTAL RETURN as of 6/30/05
<Table>
<Caption>
YEAR-TO- 1 5 10 SINCE
CLASS (INCEPTION DATE) DATE+ YEAR YEARS YEARS INCEPTION
------------------------------------------------------------------------------------------------
A SHARES (12/31/99)
With sales charge (5.75%) (8.72%) (2.81%) (8.03%) -- (8.07%)
Without sales charge (3.09%) 3.13% (6.94%) -- (7.08%)
B SHARES (12/31/99)
With redemption* (7.24%) (1.54%) (7.66%) -- (7.74%)
Without redemption (3.38%) 2.46% (7.32%) -- (7.59%)
C SHARES (12/31/99)
With redemption** (4.40%) 1.51% (7.64%) -- (7.88%)
Without redemption (3.43%) 2.51% (7.64%) -- (7.88%)
F SHARES (7/5/38) (3.02%) 3.42% (6.36%) 4.38% N/A
R SHARES (12/31/99) (2.85%) 3.49% (6.60%) -- (6.84%)
T SHARES (12/31/99)
With sales charge (4.50%) (8.91%) (3.43%) (8.52%) -- (8.66%)
Without sales charge (4.66%) 1.12% (7.67%) -- (7.89%)
</Table>
Average annual and year-to-date total returns do not reflect the deduction of
taxes that a shareholder would pay on Fund distributions or redemption of Fund
shares, but do reflect the reinvestment of dividends and capital gain
distributions, fee waivers for certain share classes, and adjustments for
financial statement purposes.
* The maximum contingent deferred sales charge for Class B shares is 4% and is
reduced to 0% after six years, at which time the Class B shares convert to
Class A shares.
** The maximum contingent deferred sales charge for Class C shares is 1% for
shares redeemed within one year of the date of purchase.
+ Total return is not annualized.
7
<Page>
stable end-market demand. Combined with relatively high valuation, these factors
led MAXIM INTEGRATED PRODUCTS, INC. to significantly underperform for the
period. Although all of the aforementioned stocks were weak performers during
the half, the Fund remained invested in these companies as it was our assessment
that fundamental business trends may improve and these companies could benefit.
Although strong performing issues were found in healthcare, a significant
underweight position in this sector detracted from the Fund's performance.
Finally, other notable poor performing stocks hampered the Fund's return,
such as Avaya, Inc. and TIME WARNER, INC. Avaya experienced a large loss from a
European subsidiary, along with sluggish overall sales trends in PBX (private
branch exchange) telephone network equipment, which created a revenue and
earnings shortfall in the first quarter of the period. Subsequently,
BOTTOM 3 PERFORMING SECTORS IN THE FUND
Industrials
Healthcare
Information Technology
[CHART]
PORTFOLIO COMPOSITION OF NET ASSETS
<Table>
Information Technology 28.54%
Consumer Discretionary 19.33%
Healthcare 15.68%
Consumer Staples 9.34%
Industrials 9.11%
Financials 6.14%
Energy 1.28%
Materials 0.75%
Telecommunications Services 0.54%
Other 5.26%
Cash & Equivalents 4.03%
</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>
the stock suffered and the Fund exited its position in the company. Consumer
discretionary holding Time Warner experienced pressure during the period due to
concerns over its second quarter earnings performance.
IN CONCLUSION
As of the end of the period, the Fund was positioned for an expanding economy,
with significant exposure to information technology and consumer-related issues.
Our strategy remains consistent moving into the second half of 2005; we continue
to employ a bottom-up, research-driven approach in searching for the greatest
growth opportunities for the portfolio.
/s/ John B. Jares
John B. Jares, CFA
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 January 1, 2005
and held through June 30, 2005.
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 FOR COMPARISON PURPOSES 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*
(1/1/05) (6/30/05) (1/1/05-6/30/05)
- --------------------------------------------------------------------------------
CLASS A ACTUAL $ 1,000.00 $ 962.60 $ 6.54
CLASS A HYPOTHETICAL 1,000.00 1,018.07 6.73
CLASS B ACTUAL 1,000.00 955.76 10.48
CLASS B HYPOTHETICAL 1,000.00 1,014.00 10.79
CLASS C ACTUAL 1,000.00 956.17 9.50
CLASS C HYPOTHETICAL 1,000.00 1,015.00 9.79
CLASS F ACTUAL 1,000.00 964.34 5.42
CLASS F HYPOTHETICAL 1,000.00 1,019.22 5.57
CLASS R ACTUAL 1,000.00 966.11 5.38
CLASS R HYPOTHETICAL 1,000.00 1,019.27 5.52
CLASS T ACTUAL 1,000.00 942.35 11.04
CLASS T HYPOTHETICAL 1,000.00 1,013.35 11.45
</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
181/365 (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, earnings credits and brokerage
offsets, where applicable.
<Table>
<Caption>
EXPENSE RATIO
- --------------------------------------------------------------------------------
CLASS A 1.34%
CLASS B 2.15%
CLASS C 1.95%
CLASS F 1.11%
CLASS R 1.10%
CLASS T 2.28%
</Table>
11
<Page>
STATEMENT OF INVESTMENTS
June 30, 2005 (UNAUDITED)
<Table>
<Caption>
SHARES MARKET VALUE
- ----------------------------------------------------------------------------------------------------
COMMON STOCKS (DOMESTIC)--93.2%
AIRLINES--1.9%
155,500 AMR Corporation* $ 1,883,100
111,925 JetBlue Airways Corporation* 2,287,747
------------------
4,170,847
------------------
APPLICATION SOFTWARE--1.0%
63,950 Autodesk, Inc. 2,197,962
------------------
ASSET MANAGEMENT & CUSTODY BANKS--1.4%
46,925 Northern Trust Corporation 2,139,311
18,800 State Street Corporation 907,100
------------------
3,046,411
------------------
BIOTECHNOLOGY--3.2%
26,875 Amgen, Inc.* 1,624,863
24,775 Genentech, Inc.* 1,988,937
14,425 Genzyme Corporation* 866,798
28,875 Gilead Sciences, Inc.* 1,270,211
48,500 MedImmune, Inc.* 1,295,920
------------------
7,046,729
------------------
BROADCASTING & CABLE TV--2.9%
51,707 Clear Channel Communications, Inc. 1,599,298
85,175 Comcast Corporation Special Class A* 2,550,991
46,525 EchoStar Communications Corporation 1,402,729
19,750 XM Satellite Radio Holdings, Inc. Class A* 664,785
------------------
6,217,803
------------------
CASINOS & GAMING--0.5%
16,225 Harrah's Entertainment, Inc. 1,169,336
------------------
COMMUNICATIONS EQUIPMENT--3.5%
248,838 Cisco Systems, Inc.* 4,755,294
23,725 Juniper Networks, Inc.* 597,396
61,325 Motorola, Inc. 1,119,795
31,575 QUALCOMM, Inc. 1,042,291
------------------
7,514,776
------------------
COMPUTER & ELECTRONICS RETAIL--0.3%
10,325 Best Buy Company, Inc. 707,779
------------------
COMPUTER HARDWARE--2.8%
73,200 Apple Computer, Inc.* 2,694,492
46,125 International Business Machines Corporation 3,422,475
------------------
6,116,967
------------------
COMPUTER STORAGE & PERIPHERALS--1.7%
269,300 EMC Corporation* 3,692,103
------------------
CONSUMER ELECTRONICS--0.4%
10,550 Harman International Industries, Inc. 858,348
------------------
</Table>
12
<Page>
<Table>
<Caption>
SHARES MARKET VALUE
- ----------------------------------------------------------------------------------------------------
DATA PROCESSING & OUTSOURCED SERVICES--1.4%
73,675 Automatic Data Processing, Inc. $ 3,092,140
------------------
DEPARTMENT STORES--2.8%
13,700 J.C. Penney Company, Inc. 720,346
94,275 Kohl's Corporation* 5,270,915
------------------
5,991,261
------------------
DIVERSIFIED BANKS--0.8%
28,800 Wells Fargo & Company 1,773,504
------------------
ELECTRICAL COMPONENTS & EQUIPMENT--1.2%
40,125 Emerson Electric Company 2,513,029
------------------
EXCHANGE TRADED FUNDS--5.3%
95,800 SPDR Trust Series 1 11,411,696
------------------
FOOD RETAIL--1.4%
131,675 Safeway, Inc. 2,974,538
------------------
GENERAL MERCHANDISE STORES--3.1%
144,925 Dollar General Corporation 2,950,673
68,650 Target Corporation 3,735,247
------------------
6,685,920
------------------
HEALTHCARE DISTRIBUTORS--0.9%
46,125 Henry Schein, Inc.* 1,915,110
------------------
HEALTHCARE EQUIPMENT--0.3%
14,675 Medtronic, Inc. 760,018
------------------
HEALTHCARE FACILITIES--1.3%
50,975 Triad Hospitals, Inc.* 2,785,274
------------------
HEALTHCARE SUPPLIES--0.9%
39,050 Charles River Laboratories International, Inc.* 1,884,163
------------------
HOME ENTERTAINMENT SOFTWARE--1.1%
41,375 Electronic Arts, Inc.* 2,342,239
------------------
HOTELS, RESORTS & CRUISE LINES--1.6%
44,400 Carnival Corporation 2,422,020
19,900 Starwood Hotels & Resorts Worldwide, Inc. 1,165,543
------------------
3,587,563
------------------
HOUSEHOLD PRODUCTS--2.5%
29,175 Clorox Company 1,625,631
77,525 Colgate-Palmolive Company 3,869,273
------------------
5,494,904
------------------
HUMAN RESOURCE & EMPLOYMENT SERVICES--0.4%
31,825 Monster Worldwide, Inc.* 912,741
------------------
HYPERMARKETS & SUPER CENTERS--1.0%
46,500 Wal-Mart Stores, Inc. 2,241,300
------------------
INDUSTRIAL CONGLOMERATES--2.9%
183,325 General Electric Company 6,352,211
------------------
</Table>
13
<Page>
<Table>
<Caption>
SHARES MARKET VALUE
- ----------------------------------------------------------------------------------------------------
INTEGRATED OIL & GAS--1.3%
10,950 ConocoPhillips $ 629,516
37,591 ExxonMobil Corporation 2,160,355
------------------
2,789,871
------------------
INTEGRATED TELECOMMUNICATION SERVICES--0.5%
18,825 Alltel Corporation 1,172,421
------------------
INTERNET SOFTWARE & SERVICES--0.6%
41,650 Yahoo!, Inc.* 1,443,173
------------------
INVESTMENT BANKING & BROKERAGE--1.1%
15,575 Goldman Sachs Group, Inc. 1,588,962
16,875 Morgan Stanley 885,431
------------------
2,474,393
------------------
LEISURE FACILITIES--2.6%
116,175 Royal Caribbean Cruises Limited 5,618,223
------------------
LIFE & HEALTH INSURANCE--0.0%
250 Aflac, Inc. 10,820
------------------
MOVIES & ENTERTAINMENT--4.4%
19,925 DreamWorks Animation SKG, Inc.* 522,035
226,000 Time Warner, Inc.* 3,776,460
63,950 Viacom, Inc. Class B 2,047,679
125,225 Walt Disney Company 3,153,166
------------------
9,499,340
------------------
MULTI-LINE INSURANCE--0.4%
13,650 American International Group, Inc. 793,065
------------------
OTHER DIVERSIFIED FINANCIAL SERVICES--0.5%
25,224 Citigroup, Inc. 1,166,106
------------------
PERSONAL PRODUCTS--3.3%
19,425 Avon Products, Inc. 735,236
127,850 Gillette Company 6,473,046
------------------
7,208,282
------------------
PHARMACEUTICALS--9.1%
66,100 Abbott Laboratories 3,239,561
14,700 Eli Lilly and Company 818,937
85,575 Johnson & Johnson 5,562,375
78,800 MGI Pharma, Inc.* 1,714,688
168,242 Pfizer, Inc. 4,640,114
82,600 Wyeth 3,675,700
------------------
19,651,375
------------------
PROPERTY & CASUALTY INSURANCE--1.1%
39,075 Allstate Corporation 2,334,731
------------------
RAILROADS--1.4%
47,350 Union Pacific Corporation 3,068,280
------------------
</Table>
14
<Page>
<Table>
<Caption>
SHARES MARKET VALUE
- ----------------------------------------------------------------------------------------------------
SEMICONDUCTOR EQUIPMENT--0.8%
14,475 KLA-Tencor Corporation $ 632,558
42,700 Novellus Systems, Inc.* 1,055,117
------------------
1,687,675
------------------
SEMICONDUCTORS--7.4%
76,550 Broadcom Corporation* 2,718,291
147,228 Intel Corporation 3,836,762
99,900 Linear Technology Corporation 3,665,331
89,525 Maxim Integrated Products, Inc. 3,420,750
26,800 Microchip Technology, Inc. 793,816
54,475 Texas Instruments, Inc. 1,529,113
------------------
15,964,063
------------------
SOFT DRINKS--1.1%
56,525 Coca-Cola Company 2,359,919
------------------
SPECIALTY CHEMICALS--0.8%
29,225 Sigma-Aldrich Corporation 1,637,769
------------------
SPECIALTY STORES--0.5%
19,275 PETsMART, Inc. 584,996
16,200 Tiffany & Company 530,712
------------------
1,115,708
------------------
SYSTEMS SOFTWARE--6.2%
393,841 Microsoft Corporation 9,783,010
120,875 Oracle Corporation* 1,595,550
99,400 Symantec Corporation* 2,160,956
------------------
13,539,516
------------------
THRIFTS & MORTGAGE FINANCE--0.8%
44,425 The PMI Group, Inc. 1,731,687
------------------
TRADING COMPANIES & DISTRIBUTORS--0.8%
30,775 W.W. Grainger, Inc. 1,686,162
------------------
TOTAL COMMON STOCKS (DOMESTIC)
(COST--$193,384,313) 202,409,251
------------------
COMMON STOCKS (FOREIGN)--2.7%
APPLICATION SOFTWARE--0.5%
27,000 SAP AG Sponsored ADR (GE) 1,169,100
------------------
AUTO PARTS & EQUIPMENT--0.2%
11,900 Autoliv, Inc. (SW) 521,220
------------------
INDUSTRIAL CONGLOMERATES--0.5%
37,050 Tyco International Limited (BD) 1,081,860
------------------
IT CONSULTING & OTHER SERVICES--1.0%
95,900 Accenture Limited Class A (BD)* 2,174,053
------------------
</Table>
15
<Page>
<Table>
<Caption>
SHARES MARKET VALUE
- ----------------------------------------------------------------------------------------------------
SEMICONDUCTORS--0.5%
33,450 ATI Technologies, Inc. (CA)* $ 396,383
16,100 Marvell Technology Group Limited (BD)* 612,444
------------------
1,008,827
------------------
TOTAL COMMON STOCKS (FOREIGN)
(COST--$6,321,928) 5,955,060
------------------
<Caption>
PRINCIPAL AMOUNT AMORTIZED COST
- ----------------------------------------------------------------------------------------------------
CORPORATE SHORT-TERM NOTES--6.0%
ELECTRONIC EQUIPMENT MANUFACTURERS--1.9%
$ 4,186,000 Hitachi America Capital Limited
3.25% 7/1/05~ $ 4,186,000
------------------
MULTI-LINE INSURANCE--4.1%
8,800,000 AIG Funding, Inc.
3.23% 7/5/05 8,796,842
------------------
TOTAL CORPORATE SHORT-TERM NOTES
(AMORTIZED COST--$12,982,842) 12,982,842
------------------
TOTAL INVESTMENTS--101.9%
(TOTAL COST--$212,689,083) 221,347,153
------------------
OTHER ASSETS AND LIABILITIES--(1.9%) (4,215,668)
------------------
NET ASSETS--100.0% $ 217,131,485
==================
</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
$4,186,000, OR 1.9%, OF THE FUND'S NET ASSETS AS OF JUNE 30, 2005.
ADR - AMERICAN DEPOSITARY RECEIPT
SPDR - STANDARD AND POOR'S DEPOSITARY RECEIPT
BD - BERMUDA
CA - CANADA
GE - GERMANY
SW - SWEDEN
SEE NOTES TO FINANCIAL STATEMENTS.
16
<Page>
STATEMENT OF ASSETS AND LIABILITIES
JUNE 30, 2005 (UNAUDITED)
<Table>
ASSETS
Investment securities, at cost $ 212,689,083
------------------
Investment securities, at market 221,347,153
Cash 561,609
Receivables:
Investment securities sold 1,177,077
Capital shares sold 19,968
Dividends and interest 205,987
Other assets 41,902
------------------
Total Assets 223,353,696
------------------
LIABILITIES
Payables and other accrued liabilities:
Investment securities purchased 5,945,089
Capital shares redeemed 16,695
Advisory fees 118,502
Shareholder servicing fees 21,519
Accounting fees 10,939
Distribution fees 25,388
Transfer agency fees 5,119
Custodian fees 358
Other 78,602
------------------
Total Liabilities 6,222,211
------------------
Net Assets $ 217,131,485
==================
COMPOSITION OF NET ASSETS
Capital (par value and paid-in surplus) $ 301,379,297
Undistributed net investment income 429,560
Accumulated net realized loss from security transactions (93,335,442)
Net unrealized appreciation on investments and foreign currency
translation 8,658,070
------------------
Total $ 217,131,485
==================
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
17
<Page>
<Table>
CLASS A
Net Assets $ 1,228,317
Shares Outstanding 260,772
Net Asset Value, Redemption Price Per Share $ 4.71
Maximum offering price per share (net asset value
plus sales charge of 5.75% of offering price) $ 5.00
CLASS B
Net Assets $ 1,710,970
Shares Outstanding 373,538
Net Asset Value, Offering and Redemption Price (excluding
applicable contingent deferred sales charge) Per Share $ 4.58
CLASS C
Net Assets $ 1,749,053
Shares Outstanding 388,843
Net Asset Value, Offering and Redemption Price (excluding
applicable contingent deferred sales charge) Per Share $ 4.50
CLASS F
Net Assets $ 212,196,866
Shares Outstanding 44,089,827
Net Asset Value, Offering and Redemption Price Per Share $ 4.81
CLASS R
Net Assets $ 245,640
Shares Outstanding 51,518
Net Asset Value, Offering and Redemption Price Per Share $ 4.77
CLASS T
Net Assets $ 639
Shares Outstanding 142
Net Asset Value, Redemption Price Per Share $ 4.50
Maximum offering price per share (net asset value
plus sales charge of 4.50% of offering price) $ 4.71
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
18
<Page>
STATEMENT OF OPERATIONS
For the six months ended June 30, 2005 (UNAUDITED)
<Table>
INVESTMENT INCOME
Dividends $ 1,127,519
Interest 168,257
Foreign taxes withheld (680)
------------------
Total Investment Income 1,295,096
------------------
EXPENSES
Advisory fees--Note 2 726,204
Shareholder servicing fees--Note 2 129,453
Accounting fees--Note 2 67,034
Distribution fees--Note 2 100,245
Transfer agency fees--Note 2 68,245
Registration fees 28,555
Postage and mailing expenses 22,450
Custodian fees and expenses--Note 2 6,170
Printing expenses 37,740
Legal and audit fees 40,492
Directors' fees and expenses--Note 2 20,875
Other expenses 25,519
------------------
Total Expenses 1,272,982
Earnings Credits (5,867)
Reimbursed/Waived Expenses (3,930)
Expense Offset to Broker Commissions (3,895)
------------------
Net Expenses 1,259,290
------------------
Net Investment Income 35,806
------------------
REALIZED AND UNREALIZED GAIN (LOSS) ON SECURITY
TRANSACTIONS AND FOREIGN CURRENCY TRANSLATION
Net Realized Gain on Security Transactions 11,155,865
Net Change in Unrealized Appreciation/Depreciation
of Investments and Foreign Currency Translation (18,108,512)
------------------
Net Realized and Unrealized Loss (6,952,647)
------------------
Net Decrease in Net Assets Resulting from Operations $ (6,916,841)
==================
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
19
<Page>
STATEMENTS OF CHANGES IN NET ASSETS
(UNAUDITED)
<Table>
<Caption>
SIX MONTHS ENDED YEAR ENDED
6/30/05 12/31/04
OPERATIONS
Net Investment Income $ 35,806 $ 1,263,861
Net Realized Gain on Security Transactions 11,155,865 20,710,093
Net Change in Unrealized Appreciation/Depreciation
of Investments and Foreign Currency Translation (18,108,512) (2,549,571)
------------------ ------------------
Net Increase (Decrease) in Net Assets Resulting from
Operations (6,916,841) 19,424,383
------------------ ------------------
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS
From Net Investment Income
Class A 0 (3,007)
Class F 0 (945,884)
Class R 0 (1,108)
------------------ ------------------
Net Decrease from Dividends and Distributions 0 (949,999)
------------------ ------------------
CAPITAL SHARE TRANSACTIONS
Net Increase (Decrease)--Note 4
Class A 83,163 174,433
Class B (330,586) 237,470
Class C 1,205,728 173,366
Class F (14,434,999) (18,116,372)
Class R 6,076 29,755
Class T (30,229) 0
Class T Payment by Service Provider 0 698
------------------ ------------------
Net Decrease from Capital Share Transactions (13,500,847) (17,500,650)
------------------ ------------------
Net Increase (Decrease) in Net Assets (20,417,688) 973,734
------------------ ------------------
NET ASSETS
Beginning of period $ 237,549,173 $ 236,575,439
------------------ ------------------
End of period $ 217,131,485 $ 237,549,173
================== ==================
Undistributed Net Investment Income $ 429,560 $ 393,754
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
20
<Page>
FINANCIAL HIGHLIGHTS
(UNAUDITED)
<Table>
<Caption>
SIX MONTHS YEAR ENDED
ENDED JUNE 30, DECEMBER 31,
2005 2004 2003 2002 2001
-------------- ---------------------------------------------------
CLASS A SHARES
PER SHARE OPERATING DATA
Net Asset Value, beginning of period $ 4.86 $ 4.49 $ 3.44 $ 4.66 $ 5.73
- ------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.00)(a) 0.02 0.03 (0.02) (0.07)
Net realized and unrealized gains
(losses) on securities (0.15) 0.36 1.02 (1.20) (1.00)
------------------------------------------------------------------------
Total from investment operations (0.15) 0.38 1.05 (1.22) (1.07)
- ------------------------------------------------------------------------------------------------------------------------
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 0.00(b)
------------------------------------------------------------------------
Total distributions 0.00 (0.01) 0.00 0.00 0.00
- ------------------------------------------------------------------------------------------------------------------------
Net Asset Value, end of period $ 4.71 $ 4.86 $ 4.49 $ 3.44 $ 4.66
========================================================================
TOTAL RETURN(c) (3.09%) 8.54% 30.52% (26.18%) (18.65%)
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000s) $ 1,228 $ 1,180 $ 935 $ 378 $ 442
- ------------------------------------------------------------------------------------------------------------------------
Ratios to average net assets(d):
Expenses with reimbursements, but
no earnings credits or brokerage offsets(e) 1.35% 1.26% 1.49% 1.87% 2.98%
Expenses with reimbursements, earnings
credits and brokerage offsets 1.34% 1.25% 1.48% 1.87% 2.98%
Net investment income (loss) (0.17%) 0.38% (0.25%) (0.67%) (1.82%)
- ------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate(f) 122% 115% 123% 152% 144%
</Table>
(a). NET INVESTMENT LOSS FOR THE PERIOD ENDED JUNE 30, 2005 AGGREGATED LESS THAN
$0.01 ON A PER SHARE BASIS.
(b). DISTRIBUTIONS FROM NET REALIZED GAINS FOR THE YEAR ENDED DECEMBER 31, 2001
AGGREGATED LESS THAN $0.01 ON A PER SHARE BASIS.
(c). SALES CHARGES ARE NOT REFLECTED IN THE TOTAL RETURN.
(d). ANNUALIZED.
(e). CERTAIN FEES WERE WAIVED BY THE CUSTODIAN. THESE WAIVERS DID NOT HAVE AN
IMPACT ON THE EXPENSE RATIOS.
(f). PORTFOLIO TURNOVER RATE IS A MEASURE OF PORTFOLIO ACTIVITY THAT IS
CALCULATED BY DIVIDING THE LESSER OF PURCHASES OR SALES OF SECURITIES,
EXCLUDING SECURITIES HAVING MATURITY DATES AT ACQUISITION OF ONE YEAR OR
LESS, BY THE AVERAGE VALUE OF THE PORTFOLIO SECURITIES HELD DURING THE
PERIOD, WHICH IS A ROLLING 12-MONTH PERIOD.
SEE NOTES TO FINANCIAL STATEMENTS.
21
<Page>
<Table>
<Caption>
SIX MONTHS YEAR ENDED
ENDED JUNE 30, DECEMBER 31,
2005 2004 2003 2002 2001
-------------- ---------------------------------------------------
CLASS B SHARES
PER SHARE OPERATING DATA
Net Asset Value, beginning of period $ 4.74 $ 4.40 $ 3.40 $ 4.61 $ 5.65
- ------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment loss (0.05) (0.00)(a) (0.01) (0.05) (0.04)
Net realized and unrealized gains
(losses) on securities (0.11) 0.34 1.01 (1.16) (1.00)
------------------------------------------------------------------------
Total from investment operations (0.16) 0.34 1.00 (1.21) (1.04)
- ------------------------------------------------------------------------------------------------------------------------
Less dividends and distributions:
From net investment income 0.00 0.00 0.00 0.00 0.00
From net realized gains 0.00 0.00 0.00 0.00 0.00(b)
------------------------------------------------------------------------
Total distributions 0.00 0.00 0.00 0.00 0.00
- ------------------------------------------------------------------------------------------------------------------------
Net Asset Value, end of period $ 4.58 $ 4.74 $ 4.40 $ 3.40 $ 4.61
========================================================================
TOTAL RETURN(c) (3.38%) 7.73% 29.41% (26.25%) (18.38%)
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000s) $ 1,711 $ 2,110 $ 1,709 $ 1,013 $ 1,599
- ------------------------------------------------------------------------------------------------------------------------
Ratios to average net assets(d):
Expenses with reimbursements, but
no earnings credits or brokerage offsets(e) 2.16% 2.01% 2.30% 2.14% 2.20%
Expenses with reimbursements, earnings
credits and brokerage offsets 2.15% 2.00% 2.30% 2.14% 2.19%
Net investment loss (1.00%) (0.34%) (1.08%) (0.95%) (1.03%)
- ------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate(f) 122% 115% 123% 152% 144%
</Table>
(a). NET INVESTMENT LOSS FOR THE YEAR ENDED DECEMBER 31, 2004 AGGREGATED LESS
THAN $0.01 ON A PER SHARE BASIS.
(b). DISTRIBUTIONS FROM NET REALIZED GAINS FOR THE YEAR ENDED DECEMBER 31, 2001
AGGREGATED LESS THAN $0.01 ON A PER SHARE BASIS.
(c). SALES CHARGES ARE NOT REFLECTED IN THE TOTAL RETURN.
(d). ANNUALIZED.
(e). CERTAIN FEES WERE WAIVED BY THE CUSTODIAN. THESE WAIVERS DID NOT HAVE AN
IMPACT ON THE EXPENSE RATIOS.
(f). PORTFOLIO TURNOVER RATE IS A MEASURE OF PORTFOLIO ACTIVITY THAT IS
CALCULATED BY DIVIDING THE LESSER OF PURCHASES OR SALES OF SECURITIES,
EXCLUDING SECURITIES HAVING MATURITY DATES AT ACQUISITION OF ONE YEAR OR
LESS, BY THE AVERAGE VALUE OF THE PORTFOLIO SECURITIES HELD DURING THE
PERIOD, WHICH IS A ROLLING 12-MONTH PERIOD.
22
<Page>
<Table>
<Caption>
SIX MONTHS YEAR ENDED
ENDED JUNE 30, DECEMBER 31,
2005 2004 2003 2002 2001
-------------- ---------------------------------------------------
CLASS C SHARES
PER SHARE OPERATING DATA
Net Asset Value, beginning of period $ 4.66 $ 4.32 $ 3.34 $ 4.55 $ 5.66
- ------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.02)(a) 0.04 0.04 (0.07) (0.13)
Net realized and unrealized gains
(losses) on securities (0.14) 0.30 0.94 (1.14) (0.98)
------------------------------------------------------------------------
Total from investment operations (0.16) 0.34 0.98 (1.21) (1.11)
- ------------------------------------------------------------------------------------------------------------------------
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 0.00(b)
------------------------------------------------------------------------
Total distributions 0.00 0.00 0.00 0.00 0.00
- ------------------------------------------------------------------------------------------------------------------------
Net Asset Value, end of period $ 4.50 $ 4.66 $ 4.32 $ 3.34 $ 4.55
========================================================================
TOTAL RETURN(c) (3.43%) 7.87% 29.34% (26.59%) (19.58%)
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000s) $ 1,749 $ 571 $ 357 $ 186 $ 270
- ------------------------------------------------------------------------------------------------------------------------
Ratios to average net assets(d):
Expenses with reimbursements, but
no earnings credits or brokerage offsets(e) 1.97% 1.99% 2.29% 2.77% 3.17%
Expenses with reimbursements, earnings
credits and brokerage offsets 1.95% 1.99% 2.28% 2.76% 3.16%
Net investment loss (0.77%) (0.24%) (1.04%) (1.55%) (2.01%)
- ------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate(f) 122% 115% 123% 152% 144%
</Table>
(a). COMPUTED USING AVERAGE SHARES OUTSTANDING THROUGHOUT THE PERIOD.
(b). DISTRIBUTIONS FROM NET REALIZED GAINS FOR THE YEAR ENDED DECEMBER 31, 2001
AGGREGATED LESS THAN $0.01 ON A PER SHARE BASIS.
(c). SALES CHARGES ARE NOT REFLECTED IN THE TOTAL RETURN.
(d). ANNUALIZED.
(e). 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 1.97% (2005), 1.99% (2004), 2.29% (2003), 3.02%
(2002), AND 3.56% (2001).
(f). PORTFOLIO TURNOVER RATE IS A MEASURE OF PORTFOLIO ACTIVITY THAT IS
CALCULATED BY DIVIDING THE LESSER OF PURCHASES OR SALES OF SECURITIES,
EXCLUDING SECURITIES HAVING MATURITY DATES AT ACQUISITION OF ONE YEAR OR
LESS, BY THE AVERAGE VALUE OF THE PORTFOLIO SECURITIES HELD DURING THE
PERIOD, WHICH IS A ROLLING 12-MONTH PERIOD.
SEE NOTES TO FINANCIAL STATEMENTS.
23
<Page>
<Table>
<Caption>
SIX MONTHS YEAR ENDED
ENDED JUNE 30, DECEMBER 31,
2005 2004 2003 2002 2001
-------------- ------------------------------------------------------
CLASS F SHARES
PER SHARE OPERATING DATA
Net Asset Value, beginning of period $ 4.96 $ 4.57 $ 3.50 $ 4.69 $ 5.69
- ---------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.00(a) 0.02 0.00(a) 0.00(a) 0.00(a)
Net realized and unrealized gains
(losses) on securities (0.15) 0.39 1.07 (1.19) (1.00)
---------------------------------------------------------------------------
Total from investment operations (0.15) 0.41 1.07 (1.19) (1.00)
- ---------------------------------------------------------------------------------------------------------------------------
Less dividends and distributions:
From net investment income 0.00 (0.02) 0.00(b) 0.00(b) 0.00
From net realized gains 0.00 0.00 0.00 0.00 0.00(b)
---------------------------------------------------------------------------
Total distributions 0.00 (0.02) 0.00 0.00 0.00
- ---------------------------------------------------------------------------------------------------------------------------
Net Asset Value, end of period $ 4.81 $ 4.96 $ 4.57 $ 3.50 $ 4.69
===========================================================================
TOTAL RETURN (3.02%) 8.97% 30.67% (25.33%) (17.55%)
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000s) $ 212,197 $ 233,410 $ 233,333 $ 191,701 $ 288,752
- ---------------------------------------------------------------------------------------------------------------------------
Ratios to average net assets(c):
Expenses with reimbursements, but
no earnings credits or brokerage offsets(d) 1.12% 1.06% 1.13% 1.08% 1.14%
Expenses with reimbursements, earnings
credits and brokerage offsets 1.11% 1.06% 1.13% 1.08% 1.14%
Net investment income 0.05% 0.56% 0.06% 0.11% 0.02%
- ---------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate(e) 122% 115% 123% 152% 144%
</Table>
(a). NET INVESTMENT INCOME FOR THE YEARS ENDED DECEMBER 31, 2003, 2002, AND 2001
AND FOR THE PERIOD ENDED JUNE 30, 2005 AGGREGATED LESS THAN $0.01 ON A PER
SHARE BASIS.
(b). 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.
(c). ANNUALIZED.
(d). CERTAIN FEES WERE WAIVED BY THE CUSTODIAN. THESE WAIVERS DID NOT HAVE AN
IMPACT ON THE EXPENSE RATIOS.
(e). PORTFOLIO TURNOVER RATE IS A MEASURE OF PORTFOLIO ACTIVITY THAT IS
CALCULATED BY DIVIDING THE LESSER OF PURCHASES OR SALES OF SECURITIES,
EXCLUDING SECURITIES HAVING MATURITY DATES AT ACQUISITION OF ONE YEAR OR
LESS, BY THE AVERAGE VALUE OF THE PORTFOLIO SECURITIES HELD DURING THE
PERIOD, WHICH IS A ROLLING 12-MONTH PERIOD.
24
<Page>
<Table>
<Caption>
SIX MONTHS YEAR ENDED
ENDED JUNE 30, DECEMBER 31,
2005 2004 2003 2002 2001
-------------- ---------------------------------------------------
CLASS R SHARES
PER SHARE OPERATING DATA
Net Asset Value, beginning of period $ 4.91 $ 4.53 $ 3.47 $ 4.74 $ 5.74
- ------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) 0.00(a) 0.03 0.06 (0.08) (0.01)
Net realized and unrealized gains
(losses) on securities (0.14) 0.37 1.00 (1.19) (0.99)
------------------------------------------------------------------------
Total from investment operations (0.14) 0.40 1.06 (1.27) (1.00)
- ------------------------------------------------------------------------------------------------------------------------
Less dividends and distributions:
From net investment income 0.00 (0.02) 0.00 0.00 0.00
From net realized gains 0.00 0.00 0.00 0.00 0.00(b)
------------------------------------------------------------------------
Total distributions 0.00 (0.02) 0.00 0.00 0.00
- ------------------------------------------------------------------------------------------------------------------------
Net Asset Value, end of period $ 4.77 $ 4.91 $ 4.53 $ 3.47 $ 4.74
========================================================================
TOTAL RETURN (2.85%) 8.88% 30.55% (26.79%) (17.39%)
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000s) $ 246 $ 247 $ 211 $ 57 $ 51
- ------------------------------------------------------------------------------------------------------------------------
Ratios to average net assets(c):
Expenses with reimbursements, but
no earnings credits or brokerage offsets(d) 1.11% 1.00% 1.35% 2.95% 2.73%
Expenses with reimbursements, earnings
credits and brokerage offsets 1.10% 1.00% 1.35% 2.95% 2.72%
Net investment income (loss) 0.06% 0.54% (0.12%) (1.78%) (1.68%)
- ------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate(e) 122% 115% 123% 152% 144%
</Table>
(a). NET INVESTMENT INCOME FOR THE PERIOD ENDED JUNE 30, 2005 AGGREGATED LESS
THAN $0.01 ON A PER SHARE BASIS.
(b). DISTRIBUTIONS FROM NET REALIZED GAINS FOR THE YEAR ENDED DECEMBER 31, 2001
AGGREGATED LESS THAN $0.01 ON A PER SHARE BASIS.
(c). ANNUALIZED.
(d). 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 1.11% (2005), 1.00% (2004), 1.35% (2003), 4.68%
(2002), AND 82.23% (2001).
(e). PORTFOLIO TURNOVER RATE IS A MEASURE OF PORTFOLIO ACTIVITY THAT IS
CALCULATED BY DIVIDING THE LESSER OF PURCHASES OR SALES OF SECURITIES,
EXCLUDING SECURITIES HAVING MATURITY DATES AT ACQUISITION OF ONE YEAR OR
LESS, BY THE AVERAGE VALUE OF THE PORTFOLIO SECURITIES HELD DURING THE
PERIOD, WHICH IS A ROLLING 12-MONTH PERIOD.
SEE NOTES TO FINANCIAL STATEMENTS.
25
<Page>
<Table>
<Caption>
SIX MONTHS YEAR ENDED
ENDED JUNE 30, DECEMBER 31,
2005 2004 2003 2002 2001
-------------- ---------------------------------------------------
CLASS T SHARES
PER SHARE OPERATING DATA
Net Asset Value, beginning of period $ 4.72 $ 4.38 $ 3.39 $ 4.60 $ 5.68
- ----------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment loss (0.03)(a) (0.01) (0.23) (0.30) (0.09)
Net realized and unrealized gains
(losses) on securities (0.19) 0.25 1.22 (0.91) (0.99)
----------------------------------------------------------------------
Total from investment operations (0.22) 0.24 0.99 (1.21) (1.08)
- ----------------------------------------------------------------------------------------------------------------------
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 0.00(b)
----------------------------------------------------------------------
Total distributions 0.00 0.00 0.00 0.00 0.00
- ----------------------------------------------------------------------------------------------------------------------
Other:
Payment by Service Provider 0.10(c) 0.00 0.00 0.00
- ----------------------------------------------------------------------------------------------------------------------
Net Asset Value, end of period $ 4.50 $ 4.72 $ 4.38 $ 3.39 $ 4.60
======================================================================
TOTAL RETURN(d) (4.66%) 7.76% 29.20% (26.30%) (18.99%)
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000s) $ 1 $ 32 $ 30 $ 33 $ 127
- ----------------------------------------------------------------------------------------------------------------------
Ratios to average net assets(e):
Expenses with reimbursements, but
no earnings credits or brokerage offsets(f) 2.28% 1.90% 2.27% 2.47% 3.14%
Expenses with reimbursements, earnings
credits and brokerage offsets 2.28% 1.90% 2.26% 2.46% 3.13%
Net investment loss (1.18%) (0.29%) (1.11%) (1.29%) (1.96%)
- ----------------------------------------------------------------------------------------------------------------------
Portfolio turnover rat(g) 122% 115% 123% 152% 144%
</Table>
(a). COMPUTED USING AVERAGE SHARES OUTSTANDING THROUGHOUT THE PERIOD.
(b). DISTRIBUTIONS FROM NET REALIZED GAINS FOR THE YEAR ENDED DECEMBER 31, 2001
AGGREGATED LESS THAN $0.01 ON A PER SHARE BASIS.
(c). 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%.
(d). SALES CHARGES ARE NOT REFLECTED IN THE TOTAL RETURN.
(e). ANNUALIZED.
(f). 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 2.28% (2005), 1.90% (2004), 2.27% (2003), 3.71%
(2002), AND 6.32% (2001).
(g). PORTFOLIO TURNOVER RATE IS A MEASURE OF PORTFOLIO ACTIVITY THAT IS
CALCULATED BY DIVIDING THE LESSER OF PURCHASES OR SALES OF SECURITIES,
EXCLUDING SECURITIES HAVING MATURITY DATES AT ACQUISITION 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
June 30, 2005 (UNAUDITED)
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
Dreyfus Founders Funds, Inc. (the "Company") is an open-end management
investment company registered under the Investment Company Act of 1940 (the
"1940 Act"). Ten series of shares are currently issued: Balanced, Discovery,
Equity Growth, 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 shares redeemed 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. Since February 22, 2005, New York closing exchange rates have
been used to convert foreign currencies to U.S. dollars. Previously, London
closing exchange rates were used to convert foreign currencies to U.S. dollars.
A debt security with a remaining maturity greater than 60 days at the time of
purchase is valued in accordance with the evaluated bid price supplied by a
pricing service approved by the Company's board of directors or, if such price
is not available, at the mean between the highest bid and lowest asked
quotations obtained from at least two securities dealers. A debt security with a
remaining maturity of 60 days or less at the time of purchase is valued at
amortized cost, which approximates market value, unless it is determined that
amortized cost would not represent market value, in which case the securities
would be marked to market. The Fund amortizes premiums and discounts on all debt
securities.
If market quotations 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
27
<Page>
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. In addition, it is possible
that the fair value determined for a security may be different from the value
that may be realized upon the security's sale, and that these differences may be
material to the net asset value of the Fund.
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 period 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
29
<Page>
first $250 million of net assets, 0.60% of the next $250 million of net assets,
0.55% of the next $250 million of net assets and 0.50% of net assets in excess
of $750 million.
SHAREHOLDER SERVICING AND TRANSFER AGENCY FEES FOR CLASS F SHARES--The Company
has a shareholder services agreement with Dreyfus Service Corporation ("DSC"),
the direct owner of Founders and a wholly-owned subsidiary of The Dreyfus
Corporation ("Dreyfus", an affiliate of Founders), whereby the Funds have agreed
to compensate DSC for providing certain shareholder servicing functions to
holders of Class F shares. The Fund paid DSC a monthly fee equal, on an annual
basis, to $24.00 per Class F shareholder account considered to be an open
account at any time during a given month. During the six months ended June 30,
2005, Class F shares were charged $123,895 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 six months ended June 30, 2005, Class F shares
were charged $53,155 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 $12.58 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, including both the per account fees paid to
DTI and out-of-pocket charges, during the six months ended June 30, 2005 were as
follows:
<Table>
<Caption>
TRANSFER
AGENCY FEES
--------------------------------------------------------------
Class A $ 1,308
Class B $ 2,535
Class C $ 535
Class R $ 278
Class T $ 82
</Table>
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 six months ended June 30, 2005, the Fund was charged $2,830 for cash
management fees, which are included in the out-of-pocket transfer agency charges
above.
OTHER TRANSFER AGENCY FEES--Various broker-dealers, retirement plan
administrators and other 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 six months ended
June 30, 2005, the Fund paid
30
<Page>
$10,352 to these entities for such services. This amount is included in the
transfer agency fees shown on the Statement of Operations.
DISTRIBUTION AND SHAREHOLDER SERVICES PLANS--DSC also is the distributor of the
Fund's shares. The Fund has adopted a Distribution Plan pursuant to Rule 12b-1
under the 1940 Act applicable to its Class F shares. Under the plan, the Fund is
authorized to reimburse DSC for expenses paid for distributing or servicing its
Class F shares at an annual rate of up to 0.25% of the value of the average
daily net assets of the Fund's Class F shares. During the six months ended June
30, 2005, Class F shares were charged $88,048 pursuant to this Distribution
Plan.
The Fund also has adopted a Distribution Plan pursuant to Rule 12b-1 under the
1940 Act applicable to its Class B, Class C and Class T shares. Under this plan,
the Fund pays DSC a fee for distributing its Class B and C shares at the annual
rate of 0.75% of the value of the average daily net assets of its Class B and C
shares, respectively, and pays DSC a fee for distributing its Class T shares at
the annual rate of 0.25% of the average daily net assets of its Class T shares.
In addition, the Fund has adopted a Shareholder Services Plan applicable to its
Class A, Class B, Class C and Class T shares. Under the Shareholder Services
Plan, Class A, Class B, Class C and Class T shares pay DSC an annual fee of
0.25% of the value of their average daily net assets for the provision of
certain services.
Distribution and shareholder servicing fees paid to DSC by the Fund's Class A,
B, C and T shares for the six months ended June 30, 2005, were as follows:
<Table>
<Caption>
DISTRIBUTION SHAREHOLDER
FEES SERVICING FEES
--------------------------------------------------------------
Class A N/A $ 1,479
Class B $ 6,808 $ 2,269
Class C $ 5,368 $ 1,789
Class T $ 21 $ 21
</Table>
During the six months ended June 30, 2005, DSC retained $1,012 in sales
commissions from the sales of Class A shares. DSC also retained $3,013 and $1 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 in writing
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 contractually agreed in writing 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
---------------------------------------------------------------
9/1/04 to 8/31/05 $ 200,000
9/1/05 to 8/31/06 $ 200,000
</Table>
The fee waiver is allocated among the Funds in proportion to their respective
shares of the total custodian fee. For the six months ended June 30, 2005, the
Fund's portion of the fee waiver was $3,930, which reduced the amount paid to
Mellon Bank to $2,240.
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.
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
32
<Page>
income and thereby reduce future ordinary income distributions. 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
June 30, 2005 are noted below. Unrealized appreciation/depreciation in the table
below excludes appreciation/depreciation on foreign currency translation, if
any. The primary difference between book and tax appreciation or depreciation is
wash sale loss deferrals.
<Table>
Post-October Capital Loss Deferral $ 1,658,174
Undistributed Ordinary Income $ 438,872
Federal Tax Cost $ 215,587,769
Gross Tax Appreciation of Investments $ 13,239,381
Gross Tax Depreciation of Investments $ (7,479,997)
Net Tax Appreciation $ 5,759,384
</Table>
4. CAPITAL SHARE TRANSACTIONS
The Fund is authorized to issue 750 million shares of $0.01 par value capital
stock. Transactions in shares of the Fund for the periods indicated were as
follows:
<Table>
<Caption>
SIX MONTHS ENDED YEAR ENDED
6/30/2005 12/31/2004
SHARES AMOUNT SHARES AMOUNT
CLASS A
Sold 75,762 $ 357,669 167,335 $ 765,894
Dividends or Distributions Reinvested 0 $ 0 404 $ 1,961
Redeemed (57,865) $ (274,506) (133,430) $ (593,422)
----------------------------------------------------------
Net Increase 17,897 $ 83,163 34,309 $ 174,433
==========================================================
CLASS B
Sold 8,754 $ 39,524 215,457 $ 939,503
Redeemed (80,169) $ (370,110) (159,027) $ (702,033)
----------------------------------------------------------
Net Increase (Decrease) (71,415) $ (330,586) 56,430 $ 237,470
==========================================================
</Table>
33
<Page>
<Table>
<Caption>
SIX MONTHS ENDED YEAR ENDED
6/30/2005 12/31/2004
SHARES AMOUNT SHARES AMOUNT
CLASS C
Sold 293,918 $ 1,331,214 63,935 $ 278,992
Redeemed (27,625) $ (125,486) (24,034) $ (105,626)
-------------------------------------------------------------
Net Increase 266,293 $ 1,205,728 39,901 $ 173,366
=============================================================
CLASS F
Sold 376,500 $ 1,808,532 1,109,016 $ 5,075,748
Dividends or Distributions Reinvested 0 $ 0 165,648 $ 819,960
Redeemed (3,365,625) $ (16,243,531) (5,197,897) $ (24,012,080)
-------------------------------------------------------------
Net Decrease (2,989,125) $ (14,434,999) (3,923,233) $ (18,116,372)
=============================================================
CLASS R
Sold 3,418 $ 16,401 36,325 $ 170,596
Dividends or Distributions Reinvested 0 $ 0 223 $ 1,096
Redeemed (2,195) $ (10,325) (32,838) $ (141,937)
-------------------------------------------------------------
Net Increase 1,223 $ 6,076 3,710 $ 29,755
=============================================================
CLASS T
Sold 0 $ 0 14 $ 65
Redeemed (6,632) $ (30,229) (14) $ (65)
-------------------------------------------------------------
Net Decrease (6,632) $ (30,229) 0 $ 0
=============================================================
</Table>
5. INVESTMENT TRANSACTIONS
For the six months ended June 30, 2005, purchases and sales of investment
securities (excluding short-term securities and U.S. government obligations)
were $136,246,320 and $152,600,440, 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 June 30, 2005, the Fund did not have any borrowings under the LOC.
34
<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.
35
<Page>
FOR MORE INFORMATION
- -------------------------------------------------------------------------------
DREYFUS FOUNDERS TRANSFER AGENT &
EQUITY GROWTH FUND DIVIDEND DISBURSING AGENT
MANAGER Dreyfus Transfer, Inc.
200 Park Avenue
Founders Asset New York, NY 10166
Management LLC
210 University Boulevard DISTRIBUTOR
Suite 800
Denver, CO 80206 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, 2005, is
available 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 Founders Asset Management LLC 0275SA0605
<Page>
Dreyfus Founders
Growth Fund
SEMIANNUAL REPORT June 30, 2005
[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
</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 3-9 were owned by the Fund on June 30, 2005. The amounts of
these holdings are included in the Statement of Investments.
NOT FDIC-INSURED - NOT BANK-GUARANTEED - MAY LOSE VALUE
<Page>
MANAGEMENT OVERVIEW
[PHOTO OF JOHN B. JARES]
A DISCUSSION WITH PORTFOLIO MANAGER JOHN B. JARES, CFA, REGARDING FUND
PERFORMANCE FOR THE SIX-MONTH PERIOD ENDED JUNE 30, 2005.
TWO ECONOMIC FACTORS
Two economic factors greatly weighed on the markets during the first two
quarters of the year. Crude oil prices climbed above $60 per barrel during the
period, hitting historical highs on numerous occasions. Additionally, the
Federal Reserve increased the federal funds rate by 100 basis points during the
half in an effort to contain inflationary pressures. The combined effect of
these two factors was reflected in the markets, as most indices posted modest
declines during the period.
STOCK SELECTION WAS KEY
For the six months ended June 30, 2005, the Fund continued its bottom-up,
fundamental-based growth-stock investment strategy. We continued to meet with
company management teams and closely scrutinize companies against the current
economic backdrop in an attempt to assemble the greatest growth potential for
the Fund. This approach led us to select some strong-performing stocks during
the period. However, weak stock selection also plagued some sectors, causing the
Dreyfus Founders Growth Fund's return for the six months to underperform that of
its benchmark, the Russell 1000 Growth Index, which returned -1.72% for the
six-month period ended June 30, 2005.
[SIDENOTE]
"WE CONTINUED TO MEET WITH COMPANY MANAGEMENT TEAMS AND CLOSELY SCRUTINIZE
COMPANIES AGAINST THE CURRENT ECONOMIC BACKDROP IN AN ATTEMPT TO ASSEMBLE THE
GREATEST GROWTH POTENTIAL FOR THE FUND."
3
<Page>
To summarize the period, the Fund's first quarter performance was strong
relative to its large-cap growth fund peers, while its second quarter
performance proved disappointing, due to poor-performing stocks.
CONSUMER-RELATED STOCKS BOOSTED PERFORMANCE
Financials was the strongest performing sector in the Fund for the period, owing
its positive contribution primarily to strong stock selection. Fund holdings in
both the consumer staples and consumer discretionary sectors likewise performed
well, as companies in these sectors benefited from continued strength in
consumer spending. The Fund invested in more consumer discretionary holdings
during the period in an attempt to take advantage of this trend. Among the
strongest performers were retailers KOHL'S CORPORATION and J.C. PENNEY COMPANY,
INC. Kohl's experienced a recovery in sales and earnings growth driven by new
products and improved corporate execution. J.C. Penney also saw strong sales and
solid execution, which pushed the company's earnings estimates and stock price
up. Consumer staples stock GILLETTE COMPANY benefited from both solid company
fundamentals and an acquisition offer from the personal care manufacturing giant
Procter & Gamble Company.
TOP 3 PERFORMING SECTORS IN THE FUND
Financials
Consumer Staples
Consumer Discretionary
Numerous strong performers were also found in the information technology
sector, even though the sector overall underperformed for the Fund during the
period. APPLE COMPUTER, INC. experienced outstanding growth in revenue due
mainly to the popularity of the company's iPod and Macintosh products. INTEL
CORPORATION's processor unit was driven by strong demand for notebook computers,
which helped the company's revenue growth and helped gross and operating margin
trends recover.
4
<Page>
GENENTECH, INC. was another notable performer during the period. The company
experienced solid sales and expanded applications for two of its products,
Avastin(TM) and Herceptin(R). The parent company of American Airlines, AMR
CORPORATION, benefited from strong consumer travel demand and high energy
prices, factors that allowed the company and overall airline industry to raise
fares.
INDUSTRIALS AND IT PERFORMED POORLY
Stock selection in the industrials and information technology (IT) sectors,
paired with relative overweight positions, hampered the Fund's return for the
period. In industrials, W.W. GRAINGER, INC., a supplier of facilities
maintenance products, saw its stock price drop on sluggish sales trends and
lower earnings expectations. Numerous stocks hurt the Fund's performance in the
information technology sector, including INTERNATIONAL BUSINESS MACHINES
CORPORATION (IBM), MICROSOFT CORPORATION, ACCENTURE LIMITED CLASS A and MAXIM
INTEGRATED PRODUCTS, INC. IBM suffered from sluggish trends in Europe and
disappointing execution in services, which caused the stock price to drop.
Microsoft's stock price was hit, although its financial results were in line
LARGEST EQUITY HOLDINGS (ticker symbol)
<Table>
1. MICROSOFT CORPORATION (MSFT) 4.97%
2. SPDR TRUST SERIES 1 (SPY) 4.00%
3. GILLETTE COMPANY (G) 3.06%
4. GENERAL ELECTRIC COMPANY (GE) 2.93%
5. JOHNSON & JOHNSON (JNJ) 2.60%
6. ROYAL CARIBBEAN CRUISES LIMITED (RCL) 2.59%
7. KOHL'S CORPORATION (KSS) 2.43%
8. CISCO SYSTEMS, INC. (CSCO) 2.21%
9. PFIZER, INC. (PFE) 2.15%
10. COLGATE-PALMOLIVE COMPANY (CL) 1.81%
</Table>
Portfolio holdings are subject to change, and should not be construed as a
recommendation of any security.
5
<Page>
GROWTH OF $10,000 INVESTMENT
PERFORMANCE DATA QUOTED REPRESENTS PAST PERFORMANCE. PAST PERFORMANCE DOES NOT
GUARANTEE FUTURE RESULTS. INVESTMENT RETURN AND PRINCIPAL VALUE OF AN INVESTMENT
WILL FLUCTUATE SO THAT AN INVESTOR'S SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR
LESS THAN THEIR ORIGINAL COST. CURRENT PERFORMANCE MAY BE LOWER OR HIGHER THAN
THE PERFORMANCE DATA QUOTED. PLEASE CALL 1-800-525-2440 TO OBTAIN THE MOST
RECENT MONTH-END PERFORMANCE DATA.
[CHART]
Dreyfus Founders
Growth Fund S&P 500 Russell 1000
Class F Shares Index Growth Index
06/30/1995 $10,000.00 $10,000.00 $10,000.00
06/28/1996 $13,416.11 $12,600.05 $11,783.02
06/30/1997 $16,427.51 $16,972.14 $11,994.63
06/30/1998 $21,011.56 $22,091.36 $15,701.59
06/30/1999 $24,407.90 $27,118.52 $18,476.92
06/30/2000 $29,367.99 $29,084.32 $24,776.06
06/29/2001 $17,902.63 $24,771.03 $26,783.91
06/28/2002 $13,541.94 $20,315.14 $36,319.24
06/30/2003 $13,716.37 $20,366.21 $44,937.51
06/30/2004 $15,809.50 $24,258.20 $24,410.39
06/30/2005 $16,221.79 $25,792.11 $19,208.95
The above graph compares a $10,000 investment made in Class F shares of Dreyfus
Founders Growth Fund on 6/30/95 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 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. In future semiannual reports, the Fund's performance will no longer be
compared to the Standard & Poor's 500 Index, as the Russell 1000 Growth Index is
more reflective of the Fund's growth style of investing. Further information
related to Fund performance is contained elsewhere in this report.
6
<Page>
AVERAGE ANNUAL AND YEAR-TO DATE TOTAL RETURN as of 6/30/05
<Table>
<Caption>
YEAR-TO- 1 5 10 SINCE
CLASS (INCEPTION DATE) DATE+ YEAR YEARS YEARS INCEPTION
--------------------------------------------------------------------------------------------------------
A SHARES (12/31/99)
With sales charge (5.75%) (8.95%) (3.51%) (12.34%) -- (11.94%)
Without sales charge (3.42%) 2.42% (11.30%) -- (10.98%)
B SHARES (12/31/99)
With redemption* (7.69%) (2.44%) (12.25%) -- (11.77%)
Without redemption (3.85%) 1.56% (11.96%) -- (11.64%)
C SHARES (12/31/99)
With redemption** (4.71%) 0.77% (11.96%) -- (11.64%)
Without redemption (3.75%) 1.77% (11.96%) -- (11.64%)
F SHARES (1/5/62) (3.31%) 2.61% (11.19%) 4.96% N/A
R SHARES (12/31/99) (3.18%) 2.99% (11.01%) -- (10.71%)
T SHARES (12/31/99)
With sales charge (4.50%) (8.08%) (2.59%) (12.75%) -- (12.33%)
Without sales charge (3.74%) 1.98% (11.95%) -- (11.59%)
</Table>
Average annual and year-to-date total returns do not reflect the deduction of
taxes that a shareholder would pay on Fund distributions or redemption of Fund
shares, but do reflect the reinvestment of dividends and capital gain
distributions, and adjustments for financial statement purposes. Part of the
Fund's historical performance is due to amounts received from class action
settlements regarding prior Fund holdings. There is no guarantee that these
settlement distributions will occur in the future or have a similar impact on
performance.
* The maximum contingent deferred sales charge for Class B shares is 4% and is
reduced to 0% after six years, at which time the Class B shares convert to
Class A shares.
** The maximum contingent deferred sales charge for Class C shares is 1% for
shares redeemed within one year of the date of purchase.
+ Total return is not annualized.
7
<Page>
with investor expectations. Poor execution, disappointing margin trends, and
difficulties with certain projects overshadowed strong bookings and revenue
growth for Accenture. A glut in the semiconductor inventory and lackluster
industry growth, combined with a relatively high valuation, weighed on Maxim.
However, although these stocks underperformed for the period, we believe that
these companies may be positioned to take advantage of improving fundamental
business trends; therefore, the Fund remained invested in these stocks as of
June 30, 2005.
BOTTOM 3 PERFORMING SECTORS IN THE FUND
Industrials
Healthcare
Information Technology
The Fund's performance in the healthcare sector was hindered during the
period by a significant underweight position relative to the Fund's benchmark.
[CHART]
PORTFOLIO COMPOSITION OF NET ASSETS
<Table>
Information Technology 29.35%
Consumer Discretionary 19.59%
Healthcare 15.82%
Consumer Staples 9.75%
Industrials 9.21%
Financials 6.28%
Energy 1.29%
Materials 0.76%
Telecommunications Services 0.54%
Other 4.00%
Cash & Equivalents 3.41%
</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>
Finally, we should note the poor performance of telecommunications services
holding Avaya, Inc., a holding the Fund exited by the end of the period, and
consumer discretionary holding TIME WARNER, INC. Sluggish sales in the PBX
(private branch exchange) telephone network market and an underperforming
European subsidiary created a revenue and earnings shortfall for Avaya. Time
Warner experienced pressure during the period due to concerns over its second
quarter earnings performance.
IN CONCLUSION
The Fund ended the first half of 2005 with a significant exposure to information
technology, consumer discretionary and consumer staples issues. As we enter into
the second half of the year, our investment strategy remains unchanged. We will
continue to employ a research-driven stock-by-stock assessment in composing the
Fund in an attempt to find the best growth opportunities for the portfolio.
/s/ John B. Jares
John B. Jares, CFA
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 January 1, 2005
and held through June 30, 2005.
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 FOR COMPARISON PURPOSES 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*
(1/1/05) (6/30/05) (1/1/05-6/30/05)
- -----------------------------------------------------------------------------
CLASS A ACTUAL $ 1,000.00 $ 958.60 $ 7.21
CLASS A HYPOTHETICAL 1,000.00 1,017.36 7.43
CLASS B ACTUAL 1,000.00 950.35 11.19
CLASS B HYPOTHETICAL 1,000.00 1,013.25 11.55
CLASS C ACTUAL 1,000.00 951.64 10.85
CLASS C HYPOTHETICAL 1,000.00 1,013.60 11.20
CLASS F ACTUAL 1,000.00 960.29 6.63
CLASS F HYPOTHETICAL 1,000.00 1,017.97 6.83
CLASS R ACTUAL 1,000.00 963.07 5.12
CLASS R HYPOTHETICAL 1,000.00 1,019.52 5.27
CLASS T ACTUAL 1,000.00 952.32 10.32
CLASS T HYPOTHETICAL 1,000.00 1,014.15 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
181/365 (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, earnings credits and brokerage
offsets, where applicable.
<Table>
<Caption>
EXPENSE RATIO
- ------------------------------------------------------
CLASS A 1.48%
CLASS B 2.30%
CLASS C 2.23%
CLASS F 1.36%
CLASS R 1.05%
CLASS T 2.12%
</Table>
11
<Page>
STATEMENT OF INVESTMENTS
June 30, 2005 (UNAUDITED)
<Table>
<Caption>
SHARES MARKET VALUE
- ---------------------------------------------------------------------------------
COMMON STOCKS (DOMESTIC)--93.9%
AIRLINES--1.9%
271,800 AMR Corporation* $ 3,291,489
195,675 JetBlue Airways Corporation* 3,999,597
------------
7,291,086
------------
APPLICATION SOFTWARE--1.0%
115,625 Autodesk, Inc. 3,974,031
------------
ASSET MANAGEMENT & CUSTODY BANKS--1.4%
81,850 Northern Trust Corporation 3,731,542
32,900 State Street Corporation 1,587,425
------------
5,318,967
------------
BIOTECHNOLOGY--3.3%
47,025 Amgen, Inc.* 2,843,132
44,275 Genentech, Inc.* 3,554,397
25,225 Genzyme Corporation* 1,515,770
50,550 Gilead Sciences, Inc.* 2,223,695
86,600 MedImmune, Inc.* 2,313,952
------------
12,450,946
------------
BROADCASTING & CABLE TV--2.9%
90,375 Clear Channel Communications, Inc. 2,795,299
149,458 Comcast Corporation Special Class A* 4,476,267
81,525 EchoStar Communications Corporation 2,457,979
34,500 XM Satellite Radio Holdings, Inc. Class A* 1,161,270
------------
10,890,815
------------
CASINOS & GAMING--0.5%
28,375 Harrah's Entertainment, Inc. 2,044,986
------------
COMMUNICATIONS EQUIPMENT--3.5%
436,980 Cisco Systems, Inc.* 8,350,688
41,650 Juniper Networks, Inc.* 1,048,747
107,075 Motorola, Inc. 1,955,190
55,350 QUALCOMM, Inc. 1,827,104
------------
13,181,729
------------
COMPUTER & ELECTRONICS RETAIL--0.3%
18,000 Best Buy Company, Inc. 1,233,900
------------
COMPUTER HARDWARE--3.0%
128,175 Apple Computer, Inc.* 4,718,122
89,925 International Business Machines Corporation 6,672,435
------------
11,390,557
------------
COMPUTER STORAGE & PERIPHERALS--1.7%
472,700 EMC Corporation* 6,480,717
------------
CONSUMER ELECTRONICS--0.4%
18,475 Harman International Industries, Inc. 1,503,126
------------
</Table>
12
<Page>
<Table>
<Caption>
SHARES MARKET VALUE
- ---------------------------------------------------------------------------------
DATA PROCESSING & OUTSOURCED SERVICES--1.4%
128,850 Automatic Data Processing, Inc. $ 5,407,835
------------
DEPARTMENT STORES--2.8%
23,975 J.C. Penney Company, Inc. 1,260,606
164,600 Kohl's Corporation* 9,202,786
------------
10,463,392
------------
DIVERSIFIED BANKS--0.8%
51,000 Wells Fargo & Company 3,140,580
------------
ELECTRICAL COMPONENTS & EQUIPMENT--1.2%
71,050 Emerson Electric Company 4,449,862
------------
EXCHANGE TRADED FUNDS--4.0%
127,000 SPDR Trust Series 1 15,128,240
------------
FOOD RETAIL--1.4%
230,550 Safeway, Inc. 5,208,125
------------
GENERAL MERCHANDISE STORES--3.1%
253,375 Dollar General Corporation 5,158,715
120,325 Target Corporation 6,546,883
------------
11,705,598
------------
HEALTHCARE DISTRIBUTORS--0.9%
80,900 Henry Schein, Inc.* 3,358,968
------------
HEALTHCARE EQUIPMENT--0.4%
25,775 Medtronic, Inc. 1,334,887
------------
HEALTHCARE FACILITIES--1.3%
89,234 Triad Hospitals, Inc.* 4,875,746
------------
HEALTHCARE SUPPLIES--0.9%
68,675 Charles River Laboratories International, Inc.* 3,313,569
------------
HOME ENTERTAINMENT SOFTWARE--1.1%
72,375 Electronic Arts, Inc.* 4,097,149
------------
HOTELS, RESORTS & CRUISE LINES--1.7%
77,725 Carnival Corporation 4,239,899
34,850 Starwood Hotels & Resorts Worldwide, Inc. 2,041,165
------------
6,281,064
------------
HOUSEHOLD PRODUCTS--2.6%
50,900 Clorox Company 2,836,148
137,300 Colgate-Palmolive Company 6,852,643
------------
9,688,791
------------
HUMAN RESOURCE & EMPLOYMENT SERVICES--0.5%
59,450 Monster Worldwide, Inc.* 1,705,026
------------
HYPERMARKETS & SUPER CENTERS--1.0%
81,571 Wal-Mart Stores, Inc. 3,931,722
------------
INDUSTRIAL CONGLOMERATES--2.9%
320,209 General Electric Company 11,095,242
------------
</Table>
SEE NOTES TO STATEMENT OF INVESTMENTS.
13
<Page>
<Table>
<Caption>
SHARES MARKET VALUE
- ---------------------------------------------------------------------------------
INTEGRATED OIL & GAS--1.3%
19,200 ConocoPhillips $ 1,103,808
65,950 ExxonMobil Corporation 3,790,147
------------
4,893,955
------------
INTEGRATED TELECOMMUNICATION SERVICES--0.5%
32,875 Alltel Corporation 2,047,455
------------
INTERNET SOFTWARE & SERVICES--0.7%
75,350 Yahoo!, Inc.* 2,610,878
------------
INVESTMENT BANKING & BROKERAGE--1.1%
27,200 Goldman Sachs Group, Inc. 2,774,944
29,625 Morgan Stanley 1,554,424
------------
4,329,368
------------
LEISURE FACILITIES--2.6%
203,100 Royal Caribbean Cruises Limited 9,821,916
------------
LIFE & HEALTH INSURANCE--0.0%
434 Aflac, Inc. 18,784
------------
MOVIES & ENTERTAINMENT--4.6%
34,850 DreamWorks Animation SKG, Inc.* 913,070
408,375 Time Warner, Inc.* 6,823,946
112,321 Viacom, Inc. Class B 3,596,518
237,100 Walt Disney Company 5,970,178
------------
17,303,712
------------
MULTI-LINE INSURANCE--0.4%
24,199 American International Group, Inc. 1,405,962
------------
OTHER DIVERSIFIED FINANCIAL SERVICES--0.5%
44,667 Citigroup, Inc. 2,064,955
------------
PERSONAL PRODUCTS--3.4%
33,900 Avon Products, Inc. 1,283,115
228,500 Gillette Company 11,568,955
------------
12,852,070
------------
PHARMACEUTICALS--9.1%
115,950 Abbott Laboratories 5,682,710
25,800 Eli Lilly and Company 1,437,318
151,550 Johnson & Johnson 9,850,750
137,925 MGI Pharma, Inc.* 3,001,248
295,169 Pfizer, Inc. 8,140,761
144,900 Wyeth 6,448,050
------------
34,560,837
------------
PROPERTY & CASUALTY INSURANCE--1.2%
74,525 Allstate Corporation 4,452,869
------------
RAILROADS--1.4%
82,750 Union Pacific Corporation 5,362,200
------------
</Table>
14
<Page>
<Table>
<Caption>
SHARES MARKET VALUE
- ---------------------------------------------------------------------------------
SEMICONDUCTOR EQUIPMENT--0.8%
25,725 KLA-Tencor Corporation $ 1,124,183
75,800 Novellus Systems, Inc.* 1,873,018
-------------
2,997,201
-------------
SEMICONDUCTORS--7.4%
133,800 Broadcom Corporation* 4,751,238
258,309 Intel Corporation 6,731,533
174,825 Linear Technology Corporation 6,414,329
156,750 Maxim Integrated Products, Inc. 5,989,418
48,000 Microchip Technology, Inc. 1,421,760
95,488 Texas Instruments, Inc. 2,680,348
-------------
27,988,626
-------------
SOFT DRINKS--1.4%
125,225 Coca-Cola Company 5,228,144
-------------
SPECIALTY CHEMICALS--0.8%
51,175 Sigma-Aldrich Corporation 2,867,847
-------------
SPECIALTY STORES--0.5%
34,525 PETsMART, Inc. 1,047,834
29,325 Tiffany & Company 960,687
-------------
2,008,521
-------------
SYSTEMS SOFTWARE--6.7%
757,926 Microsoft Corporation 18,826,882
211,550 Oracle Corporation* 2,792,460
173,975 Symantec Corporation* 3,782,217
-------------
25,401,559
-------------
THRIFTS & MORTGAGE FINANCE--0.8%
78,600 The PMI Group, Inc. 3,063,828
-------------
TRADING COMPANIES & DISTRIBUTORS--0.8%
53,800 W.W. Grainger, Inc. 2,947,702
-------------
TOTAL COMMON STOCKS (DOMESTIC)
(COST--$343,378,849) 355,175,045
-------------
COMMON STOCKS (FOREIGN)--2.7%
APPLICATION SOFTWARE--0.5%
47,150 SAP AG Sponsored ADR (GE) 2,041,595
-------------
AUTO PARTS & EQUIPMENT--0.2%
20,925 Autoliv, Inc. (SW) 916,515
-------------
INDUSTRIAL CONGLOMERATES--0.5%
69,675 Tyco International Limited (BD) 2,034,510
-------------
IT CONSULTING & OTHER SERVICES--1.0%
167,700 Accenture Limited Class A (BD)* 3,801,759
-------------
</Table>
SEE NOTES TO STATEMENT OF INVESTMENTS.
15
<Page>
<Table>
<Caption>
SHARES MARKET VALUE
- ---------------------------------------------------------------------------------
SEMICONDUCTORS--0.5%
58,425 ATI Technologies, Inc. (CA)* $ 692,336
28,200 Marvell Technology Group Limited (BD)* 1,072,728
------------
1,765,064
------------
TOTAL COMMON STOCKS (FOREIGN)
(COST--$11,217,713) 10,559,443
------------
</Table>
<Table>
<Caption>
PRINCIPAL AMOUNT AMORTIZED COST
- ---------------------------------------------------------------------------------
CORPORATE SHORT-TERM NOTES--5.8%
ELECTRONIC EQUIPMENT MANUFACTURERS--2.6%
$ 10,000,000 Hitachi America Capital Limited
3.25% 7/1/05~ $ 10,000,000
-------------
MULTI-LINE INSURANCE--3.2%
12,000,000 AIG Funding, Inc.
3.23% 7/5/05 11,995,693
-------------
TOTAL CORPORATE SHORT-TERM NOTES
(AMORTIZED COST--$21,995,693) 21,995,693
-------------
TOTAL INVESTMENTS--102.4%
(TOTAL COST--$376,592,255) 387,730,181
-------------
OTHER ASSETS AND LIABILITIES--(2.4%) (9,078,361)
-------------
NET ASSETS--100.0% $ 378,651,820
=============
</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 $10,000,000, OR 2.6%, OF THE FUND'S NET ASSETS AS OF JUNE 30,
2005.
ADR - AMERICAN DEPOSITARY RECEIPT
SPDR - STANDARD AND POOR'S DEPOSITARY RECEIPT
BD - BERMUDA
CA - CANADA
GE - GERMANY
SW - SWEDEN
SEE NOTES TO FINANCIAL STATEMENTS.
16
<Page>
STATEMENT OF ASSETS AND LIABILITIES
June 30, 2005 (UNAUDITED)
<Table>
ASSETS
Investment securities, at cost $ 376,592,255
---------------
Investment securities, at market 387,730,181
Cash 1,044,678
Receivables:
Investment securities sold 2,037,897
Capital shares sold 56,866
Dividends and interest 350,837
Other assets 29,027
---------------
Total Assets 391,249,486
---------------
LIABILITIES
Payables and other accrued liabilities:
Investment securities purchased 10,446,905
Capital shares redeemed 1,507,417
Advisory fees 241,442
Shareholder servicing fees 33,748
Accounting fees 19,110
Distribution fees 116,373
Transfer agency fees 33,838
Custodian fees 2,076
Other 196,757
---------------
Total Liabilities 12,597,666
---------------
Net Assets $ 378,651,820
===============
COMPOSITION OF NET ASSETS
Capital (par value and paid-in surplus) $ 1,077,238,617
Undistributed net investment income 672,338
Accumulated net realized loss from security transactions (710,397,061)
Net unrealized appreciation on investments
and foreign currency translation 11,137,926
---------------
Total $ 378,651,820
===============
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
17
<Page>
<Table>
CLASS A
Net Assets $ 5,642,144
Shares Outstanding 554,650
Net Asset Value, Redemption Price Per Share $ 10.17
Maximum offering price per share (net asset value
plus sales charge of 5.75% of offering price) $ 10.79
CLASS B
Net Assets $ 10,332,812
Shares Outstanding 1,059,261
Net Asset Value, Offering and Redemption Price (excluding
applicable contingent deferred sales charge) Per Share $ 9.75
CLASS C
Net Assets $ 1,398,327
Shares Outstanding 143,490
Net Asset Value, Offering and Redemption Price (excluding
applicable contingent deferred sales charge) Per Share $ 9.75
CLASS F
Net Assets $ 351,077,427
Shares Outstanding 34,324,723
Net Asset Value, Offering and Redemption Price Per Share $ 10.23
CLASS R
Net Assets $ 10,128,406
Shares Outstanding 978,768
Net Asset Value, Offering and Redemption Price Per Share $ 10.35
CLASS T
Net Assets $ 72,704
Shares Outstanding 7,427
Net Asset Value, Redemption Price Per Share $ 9.79
Maximum offering price per share (net asset value
plus sales charge of 4.50% of offering price) $ 10.25
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
18
<Page>
STATEMENT OF OPERATIONS
For the six months ended June 30, 2005 (UNAUDITED)
<Table>
INVESTMENT INCOME
Dividends $ 2,002,712
Interest 238,266
Foreign taxes withheld (1,220)
---------------
Total Investment Income 2,239,758
---------------
EXPENSES
Advisory fees--Note 2 1,501,074
Shareholder servicing fees--Note 2 206,644
Accounting fees--Note 2 119,100
Distribution fees--Note 2 507,716
Transfer agency fees--Note 2 164,825
Registration fees 19,865
Postage and mailing expenses 40,585
Custodian fees and expenses--Note 2 10,598
Printing expenses 54,635
Legal and audit fees 65,942
Directors' fees and expenses--Note 2 35,210
Other expenses 43,908
---------------
Total Expenses 2,770,102
Earnings Credits (10,598)
Reimbursed/Waived Expenses (6,602)
Expense Offset to Broker Commissions (6,690)
---------------
Net Expenses 2,746,212
---------------
Net Investment Loss (506,454)
---------------
REALIZED AND UNREALIZED GAIN (LOSS) ON SECURITY
TRANSACTIONS AND FOREIGN CURRENCY TRANSACTIONS
Net Realized Gain on Security Transactions 22,351,413
Net Change in Unrealized Appreciation/Depreciation
of Investments and Foreign Currency Translation (36,469,089)
---------------
Net Realized and Unrealized Loss (14,117,676)
---------------
Net Decrease in Net Assets Resulting from Operations $ (14,624,130)
===============
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
19
<Page>
STATEMENTS OF CHANGES IN NET ASSETS
<Table>
<Caption>
SIX MONTHS ENDED YEAR ENDED
6/30/05 12/31/04
OPERATIONS
Net Investment Income (Loss) $ (506,454) $ 1,291,564
Net Realized Gain on Security Transactions 22,351,413 52,095,404
Net Change in Unrealized Appreciation/Depreciation
of Investments and Foreign Currency Translation (36,469,089) (21,249,162)
---------------- --------------
Net Increase (Decrease) in Net Assets
Resulting from Operations (14,624,130) 32,137,806
---------------- --------------
CAPITAL SHARE TRANSACTIONS
Net Increase (Decrease)--Note 4
Class A (503,149) (520,803)
Class B (1,618,477) (2,029,596)
Class C (414,716) (15,393)
Class F (41,922,905) (108,174,647)
Class R (118,629) 967,838
Class T (24,292) (130,287)
---------------- --------------
Net Decrease from Capital Share Transactions (44,602,168) (109,902,888)
---------------- --------------
Net Decrease in Net Assets (59,226,298) (77,765,082)
---------------- --------------
NET ASSETS
Beginning of period $ 437,878,118 $ 515,643,200
---------------- --------------
End of period $ 378,651,820 $ 437,878,118
================ ==============
Undistributed Net Investment Income $ 672,338 $ 1,178,792
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
20
<Page>
FINANCIAL HIGHLIGHTS
(UNAUDITED)
<Table>
<Caption>
SIX MONTHS YEAR ENDED
ENDED JUNE 30, DECEMBER 31,
2005 2004 2003 2002 2001
-------------- ----------------------------------------------------
CLASS A SHARES
PER SHARE OPERATING DATA
Net Asset Value, beginning of period $ 10.53 $ 9.79 $ 7.46 $ 10.53 $ 14.02
- -------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.04) 0.02(a) (0.06) (0.06) (0.05)
Net realized and unrealized gains
(losses) on securities (0.32) 0.72 2.39 (3.01) (3.44)
----------------------------------------------------------------------
Total from investment operations (0.36) 0.74 2.33 (3.07) (3.49)
- -------------------------------------------------------------------------------------------------------------------------
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 0.00
----------------------------------------------------------------------
Total distributions 0.00 0.00 0.00 0.00 0.00
- -------------------------------------------------------------------------------------------------------------------------
Net Asset Value, end of period $ 10.17 $ 10.53 $ 9.79 $ 7.46 $ 10.53
======================================================================
TOTAL RETURN(b) (3.42%) 7.56% 31.23% (29.15%) (24.89%)
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000s) $ 5,642 $ 6,356 $ 6,452 $ 5,149 $ 7,795
- -------------------------------------------------------------------------------------------------------------------------
Ratios to average net assets(c):
Expenses with reimbursements,
but no earnings credits or brokerage offsets(d) 1.50% 1.42% 1.66% 1.48% 1.21%
Expenses with reimbursements,
earnings credits and brokerage offsets 1.48% 1.41% 1.66% 1.48% 1.20%
Net investment income (loss) (0.35%) 0.22% (0.59%) (0.56%) (0.47%)
- -------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate(e) 114% 107% 124% 139% 152%
</Table>
(a). COMPUTED USING AVERAGE SHARES OUTSTANDING THROUGHOUT THE YEAR.
(b). SALES CHARGES ARE NOT REFLECTED IN THE TOTAL RETURN.
(c). ANNUALIZED.
(d). CERTAIN FEES WERE WAIVED BY THE CUSTODIAN. THESE WAIVERS DID NOT HAVE AN
IMPACT ON THE EXPENSE RATIOS.
(e). PORTFOLIO TURNOVER RATE IS A MEASURE OF PORTFOLIO ACTIVITY THAT IS
CALCULATED BY DIVIDING THE LESSER OF PURCHASES OR SALES OF SECURITIES,
EXCLUDING SECURITIES HAVING MATURITY DATES AT ACQUISITION OF ONE YEAR OR
LESS, BY THE AVERAGE VALUE OF THE PORTFOLIO SECURITIES HELD DURING THE
PERIOD, WHICH IS A ROLLING 12-MONTH PERIOD.
SEE NOTES TO FINANCIAL STATEMENTS.
21
<Page>
<Table>
<Caption>
SIX MONTHS YEAR ENDED
ENDED JUNE 30, DECEMBER 31,
2005 2004 2003 2002 2001
-------------- ----------------------------------------------------
CLASS B SHARES
PER SHARE OPERATING DATA
Net Asset Value, beginning of period $ 10.14 $ 9.50 $ 7.30 $ 10.38 $ 13.91
- -------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment loss (0.18) (0.06)(a) (0.17) (0.18) (0.13)
Net realized and unrealized gains
(losses) on securities (0.21) 0.70 2.37 (2.90) (3.40)
----------------------------------------------------------------------
Total from investment operations (0.39) 0.64 2.20 (3.08) (3.53)
- -------------------------------------------------------------------------------------------------------------------------
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 0.00
----------------------------------------------------------------------
Total distributions 0.00 0.00 0.00 0.00 0.00
- -------------------------------------------------------------------------------------------------------------------------
Net Asset Value, end of period $ 9.75 $ 10.14 $ 9.50 $ 7.30 $ 10.38
======================================================================
TOTAL RETURN(b) (3.85%) 6.74% 30.14% (29.67%) (25.38%)
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000s) $ 10,333 $ 12,406 $ 13,664 $ 11,603 $ 19,829
- -------------------------------------------------------------------------------------------------------------------------
Ratios to average net assets(c):
Expenses with reimbursements,
but no earnings credits or brokerage offsets(d) 2.32% 2.22% 2.48% 2.22% 1.93%
Expenses with reimbursements, earnings
credits and brokerage offsets 2.30% 2.22% 2.48% 2.22% 1.92%
Net investment loss (1.18%) (0.58%) (1.41%) (1.30%) (1.20%)
- -------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate(e) 114% 107% 124% 139% 152%
</Table>
(a). COMPUTED USING AVERAGE SHARES OUTSTANDING THROUGHOUT THE YEAR.
(b). SALES CHARGES ARE NOT REFLECTED IN THE TOTAL RETURN.
(c). ANNUALIZED.
(d). CERTAIN FEES WERE WAIVED BY THE CUSTODIAN. THESE WAIVERS DID NOT HAVE AN
IMPACT ON THE EXPENSE RATIOS.
(e). PORTFOLIO TURNOVER RATE IS A MEASURE OF PORTFOLIO ACTIVITY THAT IS
CALCULATED BY DIVIDING THE LESSER OF PURCHASES OR SALES OF SECURITIES,
EXCLUDING SECURITIES HAVING MATURITY DATES AT ACQUISITION OF ONE YEAR OR
LESS, BY THE AVERAGE VALUE OF THE PORTFOLIO SECURITIES HELD DURING THE
PERIOD, WHICH IS A ROLLING 12-MONTH PERIOD.
22
<Page>
<Table>
<Caption>
SIX MONTHS YEAR ENDED
ENDED JUNE 30, DECEMBER 31,
2005 2004 2003 2002 2001
-------------- ----------------------------------------------------
CLASS C SHARES
PER SHARE OPERATING DATA
Net Asset Value, beginning of period $ 10.13 $ 9.48 $ 7.29 $ 10.36 $ 13.92
- -------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment loss (0.29) (0.05)(a) (0.19) (0.26) (0.18)
Net realized and unrealized gains
(losses) on securities (0.09) 0.70 2.38 (2.81) (3.38)
----------------------------------------------------------------------
Total from investment operations (0.38) 0.65 2.19 (3.07) (3.56)
- -------------------------------------------------------------------------------------------------------------------------
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 0.00
----------------------------------------------------------------------
Total distributions 0.00 0.00 0.00 0.00 0.00
- -------------------------------------------------------------------------------------------------------------------------
Net Asset Value, end of period $ 9.75 $ 10.13 $ 9.48 $ 7.29 $ 10.36
======================================================================
TOTAL RETURN(b) (3.75%) 6.86% 30.04% (29.63%) (25.58%)
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000s) $ 1,398 $ 1,881 $ 1,774 $ 1,528 $ 2,979
- -------------------------------------------------------------------------------------------------------------------------
Ratios to average net assets(c):
Expenses with reimbursements,
but no earnings credits or brokerage offsets(d) 2.24% 2.16% 2.49% 2.37% 2.11%
Expenses with reimbursements, earnings
credits and brokerage offsets 2.23% 2.16% 2.49% 2.37% 2.10%
Net investment loss (1.10%) (0.49%) (1.42%) (1.46%) (1.38%)
- -------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate(e) 114% 107% 124% 139% 152%
</Table>
(a). COMPUTED USING AVERAGE SHARES OUTSTANDING THROUGHOUT THE YEAR.
(b). SALES CHARGES ARE NOT REFLECTED IN THE TOTAL RETURN.
(c). ANNUALIZED.
(d). CERTAIN FEES WERE WAIVED BY THE CUSTODIAN. THESE WAIVERS DID NOT HAVE AN
IMPACT ON THE EXPENSE RATIOS.
(e). PORTFOLIO TURNOVER RATE IS A MEASURE OF PORTFOLIO ACTIVITY THAT IS
CALCULATED BY DIVIDING THE LESSER OF PURCHASES OR SALES OF SECURITIES,
EXCLUDING SECURITIES HAVING MATURITY DATES AT ACQUISITION OF ONE YEAR OR
LESS, BY THE AVERAGE VALUE OF THE PORTFOLIO SECURITIES HELD DURING THE
PERIOD, WHICH IS A ROLLING 12-MONTH PERIOD.
SEE NOTES TO FINANCIAL STATEMENTS.
23
<Page>
<Table>
<Caption>
SIX MONTHS YEAR ENDED
ENDED JUNE 30, DECEMBER 31,
2005 2004 2003 2002 2001
-------------- ----------------------------------------------------
CLASS F SHARES
PER SHARE OPERATING DATA
Net Asset Value, beginning of period $ 10.58 $ 9.83 $ 7.48 $ 10.53 $ 14.03
- -------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.14) 0.03(a) (0.17) (0.22) (0.15)
Net realized and unrealized gains
(losses) on securities (0.21) 0.72 2.52 (2.83) (3.35)
----------------------------------------------------------------------
Total from investment operations (0.35) 0.75 2.35 (3.05) (3.50)
- -------------------------------------------------------------------------------------------------------------------------
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 0.00
----------------------------------------------------------------------
Total distributions 0.00 0.00 0.00 0.00 0.00
- -------------------------------------------------------------------------------------------------------------------------
Net Asset Value, end of period $ 10.23 $ 10.58 $ 9.83 $ 7.48 $ 10.53
======================================================================
TOTAL RETURN (3.31%) 7.63% 31.42% (28.96%) (24.95%)
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000s) $ 351,077 $ 406,550 $ 484,742 $ 443,307 $ 865,425
- -------------------------------------------------------------------------------------------------------------------------
Ratios to average net assets(b):
Expenses with reimbursements,
but no earnings credits or brokerage offsets(c) 1.37% 1.33% 1.47% 1.38% 1.31%
Expenses with reimbursements, earnings
credits and brokerage offsets 1.36% 1.33% 1.47% 1.37% 1.30%
Net investment income (loss) (0.23%) 0.30% (0.41%) (0.46%) (0.58%)
- -------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate(d) 114% 107% 124% 139% 152%
</Table>
(a). COMPUTED USING AVERAGE SHARES OUTSTANDING THROUGHOUT THE YEAR.
(b). ANNUALIZED.
(c). CERTAIN FEES WERE WAIVED BY THE CUSTODIAN. THESE WAIVERS DID NOT HAVE AN
IMPACT ON THE EXPENSE RATIOS.
(d). PORTFOLIO TURNOVER RATE IS A MEASURE OF PORTFOLIO ACTIVITY THAT IS
CALCULATED BY DIVIDING THE LESSER OF PURCHASES OR SALES OF SECURITIES,
EXCLUDING SECURITIES HAVING MATURITY DATES AT ACQUISITION OF ONE YEAR OR
LESS, BY THE AVERAGE VALUE OF THE PORTFOLIO SECURITIES HELD DURING THE
PERIOD, WHICH IS A ROLLING 12-MONTH PERIOD.
24
<Page>
<Table>
<Caption>
SIX MONTHS YEAR ENDED
ENDED JUNE 30, DECEMBER 31,
2005 2004 2003 2002 2001
-------------- ----------------------------------------------------
CLASS R SHARES
PER SHARE OPERATING DATA
Net Asset Value, beginning of period $ 10.69 $ 9.89 $ 7.50 $ 10.57 $ 14.07
- -------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) 0.00(a) 0.07 0.01 0.01 (0.02)
Net realized and unrealized gains
(losses) on securities (0.34) 0.73 2.38 (3.08) (3.48)
----------------------------------------------------------------------
Total from investment operations (0.34) 0.80 2.39 (3.07) (3.50)
- -------------------------------------------------------------------------------------------------------------------------
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 0.00
----------------------------------------------------------------------
Total distributions 0.00 0.00 0.00 0.00 0.00
- -------------------------------------------------------------------------------------------------------------------------
Net Asset Value, end of period $ 10.35 $ 10.69 $ 9.89 $ 7.50 $ 10.57
======================================================================
TOTAL RETURN (3.18%) 8.09% 31.87% (29.04%) (24.88%)
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000s) $ 10,128 $ 10,584 $ 8,792 $ 4,333 $ 2,023
- -------------------------------------------------------------------------------------------------------------------------
Ratios to average net assets(b):
Expenses with reimbursements,
but no earnings credits or brokerage offsets(c) 1.06% 1.03% 1.13% 1.30% 1.46%
Expenses with reimbursements, earnings
credits and brokerage offsets 1.05% 1.03% 1.13% 1.30% 1.46%
Net investment income (loss) 0.08% 0.65% (0.04%) (0.34%) (0.72%)
- -------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate(d) 114% 107% 124% 139% 152%
</Table>
(a). NET INVESTMENT INCOME FOR THE PERIOD ENDED JUNE 30, 2005 AGGREGATED LESS
THAN $0.01 ON A PER SHARE BASIS.
(b). ANNUALIZED.
(c). CERTAIN FEES WERE WAIVED BY THE CUSTODIAN. THESE WAIVERS DID NOT HAVE AN
IMPACT ON THE EXPENSE RATIOS.
(d). PORTFOLIO TURNOVER RATE IS A MEASURE OF PORTFOLIO ACTIVITY THAT IS
CALCULATED BY DIVIDING THE LESSER OF PURCHASES OR SALES OF SECURITIES,
EXCLUDING SECURITIES HAVING MATURITY DATES AT ACQUISITION OF ONE YEAR OR
LESS, BY THE AVERAGE VALUE OF THE PORTFOLIO SECURITIES HELD DURING THE
PERIOD, WHICH IS A ROLLING 12-MONTH PERIOD.
SEE NOTES TO FINANCIAL STATEMENTS.
25
<Page>
<Table>
<Caption>
SIX MONTHS YEAR ENDED
ENDED JUNE 30, DECEMBER 31,
2005 2004 2003 2002 2001
-------------- ----------------------------------------------------
CLASS T SHARES
PER SHARE OPERATING DATA
Net Asset Value, beginning of period $ 10.17 $ 9.48 $ 7.27 $ 10.38 $ 14.00
- -------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment loss (0.95) (0.02)(a) (0.30) (0.56) (0.19)
Net realized and unrealized gains
(losses) on securities 0.57 0.71 2.51 (2.55) (3.43)
----------------------------------------------------------------------
Total from investment operations (0.38) 0.69 2.21 (3.11) (3.62)
- -------------------------------------------------------------------------------------------------------------------------
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 0.00
----------------------------------------------------------------------
Total distributions 0.00 0.00 0.00 0.00 0.00
- -------------------------------------------------------------------------------------------------------------------------
Net Asset Value, end of period $ 9.79 $ 10.17 $ 9.48 $ 7.27 $ 10.38
======================================================================
TOTAL RETURN(b) (3.74%) 7.28% 30.40% (29.96%) (25.86%)
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000s) $ 73 $ 100 $ 220 $ 208 $ 621
- -------------------------------------------------------------------------------------------------------------------------
Ratios to average net assets(c):
Expenses with reimbursements,
but no earnings credits or brokerage offsets(d) 2.13% 1.79% 2.22% 2.78% 2.56%
Expenses with reimbursements, earnings
credits and brokerage offsets 2.12% 1.79% 2.22% 2.78% 2.55%
Net investment loss (0.99%) (0.17%) (1.15%) (1.89%) (1.83%)
- -------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate(e) 114% 107% 124% 139% 152%
</Table>
(a). COMPUTED USING AVERAGE SHARES OUTSTANDING THROUGHOUT THE YEAR.
(b). SALES CHARGES ARE NOT REFLECTED IN THE TOTAL RETURN.
(c). ANNUALIZED.
(d). CERTAIN FEES WERE WAIVED BY THE CUSTODIAN. THESE WAIVERS DID NOT HAVE AN
IMPACT ON THE EXPENSE RATIOS.
(e). PORTFOLIO TURNOVER RATE IS A MEASURE OF PORTFOLIO ACTIVITY THAT IS
CALCULATED BY DIVIDING THE LESSER OF PURCHASES OR SALES OF SECURITIES,
EXCLUDING SECURITIES HAVING MATURITY DATES AT ACQUISITION 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
June 30, 2005 (UNAUDITED)
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
Dreyfus Founders Funds, Inc. (the "Company") is an open-end management
investment company registered under the Investment Company Act of 1940 (the
"1940 Act"). Ten series of shares are currently issued: Balanced, Discovery,
Equity Growth, 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 shares redeemed 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. Since February 22, 2005, New York closing exchange rates have
been used to convert foreign currencies to U.S. dollars. Previously, London
closing exchange rates were used to convert foreign currencies to U.S. dollars.
A debt security with a remaining maturity greater than 60 days at the time of
purchase is valued in accordance with the evaluated bid price supplied by a
pricing service approved by the Company's board of directors or, if such price
is not available, at the mean between the highest bid and lowest asked
quotations obtained from at least two securities dealers. A debt security with a
remaining maturity of 60 days or less at the time of purchase is valued at
amortized cost, which approximates market value, unless it is determined that
amortized cost would not represent market value, in which case the securities
would be marked to market. The Fund amortizes premiums and discounts on all debt
securities.
If market quotations 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
27
<Page>
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. In addition, it is possible
that the fair value determined for a security may be different from the value
that may be realized upon the security's sale, and that these differences may be
material to the net asset value of the Fund.
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 period 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 six months ended June 30,
2005, Class F shares were charged $183,470 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 six months ended June 30, 2005, Class F shares
were charged $71,220 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 $12.58 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, including both the per account fees paid to
DTI and out-of-pocket charges, during the six months ended June 30, 2005 were as
follows:
<Table>
<Caption>
TRANSFER
AGENCY FEES
-------------------------------------------------------------------
Class A $ 7,612
Class B $ 18,385
Class C $ 2,069
Class R $ 3,929
Class T $ 310
</Table>
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 six months ended June 30, 2005, the Fund was charged $5,062 for cash
management fees, which are included in the out-of-pocket transfer agency charges
above.
OTHER TRANSFER AGENCY FEES--Various broker-dealers, retirement plan
administrators and other entities have established omnibus accounts with the
Fund, and provide sub-transfer agency, recordkeeping or similar services to
persons holding Fund shares
30
<Page>
through those accounts. During the six months ended June 30, 2005, the Fund paid
$61,300 to these entities for such services. This amount is included in the
transfer agency fees shown on the Statement of Operations.
DISTRIBUTION AND SHAREHOLDER SERVICES PLANS--DSC also is the distributor of the
Fund's shares. The Fund has adopted a Distribution Plan pursuant to Rule 12b-1
under the 1940 Act applicable to its Class F shares. Under the plan, the Fund is
authorized to reimburse DSC for expenses paid for distributing or servicing its
Class F shares at an annual rate of up to 0.25% of the value of the average
daily net assets of the Fund's Class F shares. During the six months ended June
30, 2005, Class F shares were charged $460,257 pursuant to this Distribution
Plan.
The Fund also has adopted a Distribution Plan pursuant to Rule 12b-1 under the
1940 Act applicable to its Class B, Class C and Class T shares. Under this plan,
the Fund pays DSC a fee for distributing its Class B and C shares at the annual
rate of 0.75% of the value of the average daily net assets of its Class B and C
shares, respectively, and pays DSC a fee for distributing its Class T shares at
the annual rate of 0.25% of the average daily net assets of its Class T shares.
In addition, the Fund has adopted a Shareholder Services Plan applicable to its
Class A, Class B, Class C and Class T shares. Under the Shareholder Services
Plan, Class A, Class B, Class C and Class T shares pay DSC an annual fee of
0.25% of the value of their average daily net assets for the provision of
certain services.
Distribution and shareholder servicing fees paid to DSC by the Fund's Class A,
B, C and T shares for the six months ended June 30, 2005, were as follows:
<Table>
<Caption>
DISTRIBUTION SHAREHOLDER
FEES SERVICING FEES
-------------------------------------------------------------------
Class A N/A $ 7,275
Class B $ 41,383 $ 13,794
Class C $ 5,957 $ 1,986
Class T $ 119 $ 119
</Table>
During the six months ended June 30, 2005, DSC retained $618 and $5 in sales
commissions from the sales of Class A and Class T shares, respectively. DSC also
retained $21,147 and $27 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 in writing
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 contractually agreed in writing 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
----------------------------------------------------------------
9/1/04 to 8/31/05 $ 200,000
9/1/05 to 8/31/06 $ 200,000
</Table>
The fee waiver is allocated among the Funds in proportion to their respective
shares of the total custodian fee. For the six months ended June 30, 2005, the
Fund's portion of the fee waiver was $6,602, which reduced the amount paid to
Mellon Bank to $3,996.
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.
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
32
<Page>
income and thereby reduce future ordinary income distributions. 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
June 30, 2005 are noted below. Unrealized appreciation/depreciation in the table
below excludes appreciation/depreciation on foreign currency translation, if
any. 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 $ 379,502,798
Gross Tax Appreciation of Investments $ 21,050,315
Gross Tax Depreciation of Investments $ (12,822,932)
Net Tax Appreciation $ 8,227,383
</Table>
4. CAPITAL SHARE TRANSACTIONS
The Fund is authorized to issue 750 million shares of $0.01 par value capital
stock. Transactions in shares of the Fund for the periods indicated were as
follows:
<Table>
<Caption>
SIX MONTHS ENDED YEAR ENDED
6/30/05 12/31/04
SHARES AMOUNT SHARES AMOUNT
CLASS A
Sold 24,188 $ 247,460 105,906 $ 1,056,250
Redeemed (72,980) $ (750,609) (161,536) $ (1,577,053)
----------------------------------------------------------------
Net Decrease (48,792) $ (503,149) (55,630) $ (520,803)
================================================================
CLASS B
Sold 9,844 $ 96,070 30,813 $ 293,687
Redeemed (173,769) $ (1,714,547) (246,029) $ (2,323,283)
-----------------------------------------------------------------
Net Decrease (163,925) $ (1,618,477) (215,216) $ (2,029,596)
=================================================================
</Table>
33
<Page>
<Table>
<Caption>
SIX MONTHS ENDED YEAR ENDED
6/30/05 12/31/04
SHARES AMOUNT SHARES AMOUNT
CLASS C
Sold 1,854 $ 18,355 38,619 $ 368,762
Redeemed (44,029) $ (433,071) (40,060) $ (384,155)
-------------------------------------------------------------------
Net Decrease (42,175) $ (414,716) (1,441) $ (15,393)
===================================================================
CLASS F
Sold 1,142,277 $ 11,735,887 2,973,891 $ 29,284,630
Redeemed (5,227,854) $ (53,658,792) (13,900,368) $ (137,459,277)
-------------------------------------------------------------------
Net Decrease (4,085,577) $ (41,922,905) (10,926,477) $ (108,174,647)
===================================================================
CLASS R
Sold 96,800 $ 1,005,237 381,438 $ 3,739,499
Redeemed (107,960) $ (1,123,866) (280,086) $ (2,771,661)
-------------------------------------------------------------------
Net Increase (Decrease) (11,160) $ (118,629) 101,352 $ 967,838
===================================================================
CLASS T
Sold 98 $ 963 136 $ 1,307
Redeemed (2,548) $ (25,255) (13,405) $ (131,594)
-------------------------------------------------------------------
Net Decrease (2,450) $ (24,292) (13,269) $ (130,287)
===================================================================
</Table>
5. INVESTMENT TRANSACTIONS
For the six months ended June 30, 2005, purchases and sales of investment
securities (excluding short-term securities and U.S. government obligations)
were $231,921,016 and $287,598,641, 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 June 30, 2005, the Fund did not have any borrowings under the LOC.
34
<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.
35
<Page>
FOR MORE INFORMATION
- -------------------------------------------------------------------------------
DREYFUS FOUNDERS TRANSFER AGENT &
GROWTH FUND DIVIDEND DISBURSING AGENT
MANAGER Dreyfus Transfer, Inc.
200 Park Avenue
Founders Asset New York, NY 10166
Management LLC
210 University Boulevard DISTRIBUTOR
Suite 800
Denver, CO 80206 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, 2005, is
available 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 Founders Asset Management LLC 0213SA0605
<Page>
Dreyfus Founders
International Equity Fund
SEMIANNUAL REPORT June 30, 2005
[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
</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 June 30, 2005. The amounts of
these holdings are included in the Statement of Investments.
NOT FDIC-INSURED - NOT BANK-GUARANTEED - MAY LOSE VALUE
<Page>
MANAGEMENT OVERVIEW
[PHOTO OF REMI J. BROWNE]
[PHOTO OF DANIEL B. LEVAN]
[PHOTO OF JEFFREY R. SULLIVAN]
A DISCUSSION WITH CO-PORTFOLIO MANAGERS REMI J. BROWNE, CFA, LEFT; DANIEL B.
LEVAN, CFA, MIDDLE; AND JEFFREY R. SULLIVAN, CFA, RIGHT, REGARDING FUND
PERFORMANCE FOR THE SIX-MONTH PERIOD ENDED JUNE 30, 2005.
A DRAIN FROM OIL
Several underlying themes greatly affected the global market environment during
the period. The overwhelming driving force, however, was the ever-increasing
price of oil, which topped $60 per barrel in June. Secondary issues were the
rising unemployment rate in the Euro area and the slowing housing market in the
United Kingdom. On the positive side, the economic scenario in the United States
and subdued worldwide inflation helped support the markets slightly.
Energy stocks were by far the best performers overall during the period,
driven by strong worldwide demand for oil, which drove oil prices higher.
Naturally, countries with strong oil exposure did very well during the first
half of the year; Norway, Canada and Australia, all of which are important
producers of oil, were among the best performers for the period. Japan, which
imports all of its oil, suffered due to the increasing cost.
For the six months ended June 30, 2005, Dreyfus Founders International Equity
Fund underperformed its benchmark, the Morgan Stanley Capital International
(MSCI) World ex U.S. Index, which returned -0.71% for the same period. The Fund
posted a competitive return(1) versus its benchmark, the MSCI World ex U.S.
Growth Index, which returned -1.12%.
- ----------
(1) Excluding sales charges, which result in lower returns for certain share
classes. Please see page 7 for Average Annual and Year-to-Date Total Returns for
all share classes, including and excluding sales charges.
The MSCI World ex U.S. Growth Index measures global developed market equity
performance of growth securities outside of the United States. The 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.
3
<Page>
A CONSISTENT STRATEGY
Our investment strategy did not change during the period: we continued to search
on a stock-by-stock basis for the best growth opportunities as opposed to a
top-down country allocation strategy.
STRONG SELECTION AND BENEFICIAL WEIGHTINGS FUELED FUND
Strong performances in France, Spain and Finland, through both advantageous
relative weightings and strong selection of stocks, buoyed the Fund's relative
return during the period. In France, stock selection in automobile manufacturer
RENAULT SA and pharmaceutical company SANOFI-AVENTIS were beneficial to relative
performance. During the Fund's holding period, Finnish utilities stock FORTUM
OYJ gained nearly 20%, helping the Fund's position in Finland outperform.
Construction company ACS, ACTIVIDADES DE CONSTRUCCION Y SERVICIOS SA also
performed strongly during the period, aiding the Fund's relative outperformance
in Spain.
INDUSTRIALS AND TELECOM AIDED PERFORMANCE
The Fund experienced positive stock selection in 6 of 10 economic sectors.
Outperformance versus the benchmark came primarily from the telecommunications
services and industrials sectors. The Fund's telecommunications services
holdings benefited from strong performances in Canada's TELUS CORPORATION and
Hong Kong's CHINA MOBILE (HONG KONG) LIMITED. TELUS outperformed due to strong
wireless sales reported in early May, while China Mobile continued to show solid
subscriber growth during the first half of 2005. In the industrials sector,
Danish shipper AP MOLLER-MAERSK AS experienced positive stock performance due to
rising shipping rates, strong oil prices and its accretive purchase of container
shipping company, P&O Nedlloyd.
A significant underweight position in the financials sector, a weak
performing sector within the Fund's benchmark, also aided the Fund's relative
return for the period.
[SIDE NOTE]
"WE CONTINUED TO SEARCH ON A STOCK-BY-STOCK BASIS FOR THE BEST GROWTH
OPPORTUNITIES."
4
<Page>
Several other stocks had strong contributions to the overall performance of
the Fund. Australian-based OIL SEARCH LIMITED benefited from $60 per barrel oil
prices and better-than-expected drilling results in its Yemeni oil field. BHP
BILLITON LIMITED had a strong first half as iron ore, coal and oil prices
increased and the company made an accretive acquisition of WMC Resources
Limited, an Australian copper and uranium producer. HUSKY ENERGY, INC., a
Canadian integrated oil and natural gas firm, advanced with the rest of the
energy industry on surging oil prices and widening refining margins.
Additionally, news that the company's White Rose offshore project in
Newfoundland would be completed on time and on budget boosted its share price
further. KEPPEL CORPORATION LIMITED, a Singapore engineering firm, continued to
win new orders to build oil rigs, which drove the company's stock price
performance.
TOP 3 PERFORMING SECTORS IN THE FUND
Industrials
Telecommunications Services
Financials
WEAK U.K. STOCKS AND UNDEREXPOSURE HURT RETURN
The largest drag on performance during the period came from the United Kingdom,
primarily due to poor stock selection. Fund holdings VODAFONE GROUP PLC and
SABMILLER PLC were the main detractors from this country. Vodafone's stock price
decreased during the period due to increased competition,
LARGEST EQUITY HOLDINGS (country of origin; ticker symbol)
<Table>
1. VODAFONE GROUP PLC (United Kingdom; VOD) 3.67%
2. BP PLC (United Kingdom; BP) 2.19%
3. ING GROEP NV (Netherlands; ING.C) 1.93%
4. NOKIA OYJ (Finland; NOK) 1.85%
5. NOVARTIS AG (Switzerland; NOV.N) 1.80%
6. SANOFI-AVENTIS (France; SAN) 1.78%
7. TOTAL SA (France; FP) 1.78%
8. ASTRAZENECA GROUP PLC (United Kingdom; AZN) 1.76%
9. TESCO PLC (United Kingdom; TSCO) 1.74%
10. CANON, INC. (Japan; 7751) 1.73%
</Table>
Portfolio holdings are subject to change, and should not be construed as a
recommendation of any security.
5
<Page>
GROWTH OF $10,000 INVESTMENT
PERFORMANCE DATA QUOTED REPRESENTS PAST PERFORMANCE. PAST PERFORMANCE DOES NOT
GUARANTEE FUTURE RESULTS. INVESTMENT RETURN AND PRINCIPAL VALUE OF AN INVESTMENT
WILL FLUCTUATE SO THAT AN INVESTOR'S SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR
LESS THAN THEIR ORIGINAL COST. CURRENT PERFORMANCE MAY BE LOWER OR HIGHER THAN
THE PERFORMANCE DATA QUOTED. PLEASE CALL 1-800-525-2440 TO OBTAIN THE MOST
RECENT MONTH-END PERFORMANCE DATA.
[CHART]
Dreyfus Founders
International Equity Fund MSCI World
Class F Shares ex U.S. Index
12/31/1995 $10,000.00 $10,000.00
06/28/1996 $11,460.00 $10,469.67
06/30/1997 $13,810.00 $11,886.22
06/30/1998 $16,855.71 $12,634.44
06/30/1999 $17,329.51 $13,565.39
06/30/2000 $24,785.89 $16,114.74
06/29/2001 $16,816.34 $12,273.65
06/28/2002 $12,751.17 $11,116.94
06/30/2003 $11,263.08 $10,496.55
06/30/2004 $15,221.48 $13,850.38
06/30/2005 $17,506.38 $15,866.09
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 AND YEAR-TO DATE TOTAL RETURN as of 6/30/05
<Table>
<Caption>
YEAR-TO- 1 5 10 SINCE
CLASS (INCEPTION DATE) DATE + YEAR YEARS YEARS INCEPTION
---------------------------------------------------------------------------------------------------------
A SHARES (12/31/99)
With sales charge (5.75%) (6.81%) 8.37% (7.86%) -- (7.68%)
Without sales charge (1.09%) 14.99% (6.76%) -- (6.69%)
B SHARES (12/31/99)
With redemption* (5.49%) 10.04% (7.80%) -- (7.54%)
Without redemption (1.55%) 14.04% (7.47%) -- (7.39%)
C SHARES (12/31/99)
With redemption** (2.53%) 13.07% (7.49%) -- (7.43%)
Without redemption (1.55%) 14.07% (7.49%) -- (7.43%)
F SHARES (12/29/95) (1.09%) 15.01% (6.72%) -- 6.07%
R SHARES (12/31/99) (1.00%) 15.62% (6.48%) -- (6.41%)
T SHARES (12/31/99)
With sales charge (4.50%) (5.73%) 9.47% (7.85%) -- (7.71%)
Without sales charge (1.27%) 14.61% (7.00%) -- (6.93%)
</Table>
Average annual and year-to-date total returns do not reflect the deduction of
taxes that a shareholder would pay on Fund distributions or redemption of Fund
shares, but do reflect the reinvestment of dividends and capital gain
distributions, expense limitations, and adjustments for financial statement
purposes. Part of the Fund's historical performance is due to the purchase of
securities sold in initial public offerings (IPOs). There is no guarantee that
the Fund's investments in IPOs, if any, will continue to have a similar impact
on performance. Investments in foreign securities entail unique risks, including
political, market, and currency risks.
* The maximum contingent deferred sales charge for Class B shares is 4% and is
reduced to 0% after six years, at which time the Class B shares convert to
Class A shares.
** The maximum contingent deferred sales charge for Class C shares is 1% for
shares redeemed within one year of the date of purchase.
+ Total return is not annualized.
7
<Page>
lower prices and shrinking margins. Vodafone K.K., the company's Japanese
subsidiary, reported another weak quarter as well. SABMiller's stock price was
hurt by poor U.S. beer sales and continued merger and acquisition speculation.
Additionally, holdings in the Netherlands, Belgium and Canada also hurt the
Fund's relative performance.
Fund holdings in the consumer staples sector produced a drain on performance.
Belgian-based food retailer Delhaize Group reduced its full-year top- and
bottom-line expectations at its quarterly earnings update. Competition with
Wal-Mart Stores, Inc. and cost overruns were the main culprits for the revised
guidance, which prompted the Fund to exit this position. SABMiller, as mentioned
above, also negatively affected the Fund's performance in this sector.
Within the benchmark, energy and utilities were the two best performing
sectors during the period. Exploration and production and oil services stocks
did particularly well in the rising oil price environment. Utilities also
generated strong returns; electricity companies were able to pass along price
increases to
BOTTOM 3 PERFORMING SECTORS IN THE FUND
Consumer Staples
Energy
Information Technology
[CHART]
PORTFOLIO COMPOSITION OF NET ASSETS
<Table>
United Kingdom 21.21%
Japan 18.95%
France 10.77%
Germany 7.37%
Switzerland 6.74%
Canada 5.52%
Italy 3.83%
Australia 3.64%
Other Countries 19.14%
Cash & Equivalents 2.83%
</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>
customers as energy costs rose sharply during the period. However, the Fund's
underweight positions in both these sectors generated a negative impact on the
Fund's relative performance.
IT AND SELECT STOCKS HAMPERED PERFORMANCE
The information technology (IT) sector also hampered the Fund's return for the
period, mainly owing to a relative overweight position. One of the poor
individual IT performers in the Fund was Trend Micro, Inc., a Japanese developer
of anti-virus software for home and business use. Trend Micro's stock fell on
Microsoft's announcement that it will be packaging a competitor's anti-virus
software with its operating system. The Fund exited its position in Trend Micro
on this decline.
Another poor individual performer during the period was German-based
THYSSENKRUPP AG. The company reduced steel volumes due to marketplace
overcapacity as China continues to build more stainless facilities, which
threatens the overall global supply/demand balance in this segment of the steel
market. Casio Computer Company Limited's stock price also declined after Casio
Micronics, a 75% owned subsidiary of Casio Computer, lowered its 2005 operating
profit estimate based on volume revisions. This was enough to affect Casio
Computer's 2005 operating profit estimate, causing the stock to slip. Publishing
and Broadcasting Limited was liquidated during the period as the company
reported weak earnings following the loss of market share in its television
station business.
IN CONCLUSION
As always, our investing focus is on seeking stocks with improving business
momentum and attractive valuations in each country and sector regardless of the
market's direction.
/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 January 1, 2005
and held through June 30, 2005.
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 FOR COMPARISON PURPOSES 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*
(1/1/05) (6/30/05) (1/1/05-6/30/05)
-----------------------------------------------------------------------------
CLASS A ACTUAL $ 1,000.00 $ 982.18 $ 6.90
CLASS A HYPOTHETICAL 1,000.00 1,017.77 7.03
CLASS B ACTUAL 1,000.00 973.94 10.58
CLASS B HYPOTHETICAL 1,000.00 1,014.00 10.79
CLASS C ACTUAL 1,000.00 973.94 10.58
CLASS C HYPOTHETICAL 1,000.00 1,014.00 10.79
CLASS F ACTUAL 1,000.00 982.18 6.90
CLASS F HYPOTHETICAL 1,000.00 1,017.77 7.03
CLASS R ACTUAL 1,000.00 984.34 5.67
CLASS R HYPOTHETICAL 1,000.00 1,019.02 5.77
CLASS T ACTUAL 1,000.00 979.20 8.13
CLASS T HYPOTHETICAL 1,000.00 1,016.51 8.28
</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
181/365 (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, earnings credits and brokerage
offsets, where applicable.
<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
June 30, 2005 (UNAUDITED)
<Table>
<Caption>
SHARES MARKET VALUE
- --------------------------------------------------------------------------------------------------------------------
COMMON STOCKS (FOREIGN)--97.2%
AEROSPACE & DEFENSE--0.7%
47,400 BAE Systems PLC (UK) $ 243,750
APPAREL, ACCESSORIES & LUXURY GOODS--2.4%
24,000 Burberry Group PLC (UK) 173,732
14,500 Compagnie Financiere Richemont AG (SZ) 487,671
8,800 Gildan Activewear, Inc. (CA)* 230,702
---------------
892,105
---------------
APPLICATION SOFTWARE--1.5%
53,600 Sage Group PLC (UK) 214,890
1,900 SAP AG (GE) 331,804
---------------
546,694
---------------
AUTOMOBILE MANUFACTURERS--3.8%
11,000 Honda Motor Company Limited (JA) 542,512
99,000 Mazda Motor Corporation (JA) 372,221
5,400 Renault SA (FR) 476,413
---------------
1,391,146
---------------
BREWERS--3.5%
25,200 Asahi Breweries Limited (JA) 300,373
7,200 InBev NV (BE) 243,718
9,900 Orkla ASA (NW) 365,135
22,500 SABMiller PLC (UK) 351,348
---------------
1,260,574
---------------
BROADCASTING & CABLE TV--2.4%
7,800 Gestevision Telecinco SA (SP) 182,752
42,300 Mediaset SPA (IT) 498,611
84 TV Asahi Corporation (JA) 180,254
---------------
861,617
---------------
</Table>
GUIDE TO UNDERSTANDING FOREIGN HOLDINGS
The following abbreviations are used throughout the Statement of Investments to
indicate the country of origin on non-U.S. holdings.
AU Australia
BD Bermuda
BE Belgium
CA Canada
CN China
DE Denmark
FI Finland
FR France
GE Germany
GR Greece
HK Hong Kong
ID Indonesia
IN India
IT Italy
JA Japan
KR South Korea
MA Malaysia
NE Netherlands
NW Norway
PH Philippines
SG Singapore
SP Spain
SW Sweden
SZ Switzerland
TH Thailand
TU Turkey
TW Taiwan
UK United Kingdom
12
<Page>
<Table>
<Caption>
SHARES MARKET VALUE
- --------------------------------------------------------------------------------------------------------------------
COMMUNICATIONS EQUIPMENT--4.0%
15,000 GN Store Nord AS (DE) $ 169,923
40,200 Nokia Oyj (FI) 673,811
2,400 Research In Motion Limited (CA)* 176,631
139,100 Telefonaktiebolaget LM Ericsson (SW) 446,935
---------------
1,467,300
---------------
COMPUTER & ELECTRONICS RETAIL--0.8%
4,900 Yamada Denki (JA) 281,868
---------------
COMPUTER HARDWARE--0.5%
31,000 NEC Corporation (JA) 167,704
---------------
COMPUTER STORAGE & PERIPHERALS--0.5%
6,200 Logitech International SA (SZ)* 199,329
---------------
CONSTRUCTION & ENGINEERING--0.8%
11,100 ACS, Actividades de Construccion y Servicios SA (SP) 310,848
---------------
CONSTRUCTION MATERIALS--0.6%
20,000 Rinker Group Limited (AU) 213,138
---------------
CONSTRUCTION, FARM MACHINERY & HEAVY TRUCKS--1.7%
15,000 Volvo AB Class B (SW) 610,607
---------------
CONSUMER FINANCE--0.6%
3,200 Sanyo Shinpan Finance Company Limited (JA) 219,854
---------------
DISTILLERS & VINTNERS--0.5%
24,800 Davide Campari - Milano SPA (IT) 181,881
---------------
DIVERSIFIED BANKS--6.1%
7,344 Alpha Bank AE (GR) 195,887
87,100 Banca Intesa SPA (IT) 398,976
38,119 Barclays PLC (UK) 379,414
5,907 BNP Paribas SA (FR) 405,333
16,300 HBOS PLC (UK) 251,320
5,734 Royal Bank of Scotland Group PLC (UK) 173,222
4,100 Societe Generale (FR) 417,542
---------------
2,221,694
---------------
DIVERSIFIED CAPITAL MARKETS--2.0%
13,600 Credit Suisse Group (SZ) 536,465
2,470 UBS AG (SZ) 192,743
---------------
729,208
---------------
DIVERSIFIED CHEMICALS--1.2%
6,600 BASF AG (GE) 439,308
---------------
DIVERSIFIED METALS & MINING--3.2%
44,200 BHP Billiton Limited (AU) 610,665
29,500 Xstrata PLC (UK) 569,280
---------------
1,179,945
---------------
ELECTRIC UTILITIES--1.8%
5,100 E.ON AG (GE) 454,760
11,600 Fortum Oyj (FI) 186,010
---------------
640,770
---------------
</Table>
SEE NOTES TO STATEMENT OF INVESTMENTS.
13
<Page>
STATEMENT OF INVESTMENTS
June 30, 2005 (UNAUDITED) (CONTINUED)
<Table>
<Caption>
SHARES MARKET VALUE
- --------------------------------------------------------------------------------------------------------------------
ELECTRICAL COMPONENTS & EQUIPMENT--1.1%
38,000 Sumitomo Electric Industries Limited (JA) $ 389,216
---------------
ELECTRONIC EQUIPMENT MANUFACTURERS--2.0%
3,900 Hoya Corporation (JA) 450,095
3,800 Kyocera Corporation (JA) 290,542
---------------
740,637
---------------
FOOD RETAIL--1.7%
111,000 Tesco PLC (UK) 633,959
---------------
FOREST PRODUCTS--0.6%
16,600 Canfor Corporation (CA)* 199,167
---------------
HOUSEHOLD PRODUCTS--0.9%
10,700 Reckitt Benckiser PLC (UK) 315,383
---------------
HUMAN RESOURCE & EMPLOYMENT SERVICES--0.4%
4,400 Randstad Holding NV (NE) 152,080
---------------
INDUSTRIAL CONGLOMERATES--0.6%
27,000 Keppel Corporation Limited (SG) 200,190
---------------
INTEGRATED OIL & GAS--6.7%
76,719 BP PLC (UK) 798,669
7,300 Husky Energy, Inc. (CA) 290,344
17,900 Repsol YPF SA (SP) 458,386
3,700 Royal Dutch Petroleum Company (NE) 241,801
2,758 Total SA (FR) 648,529
---------------
2,437,729
---------------
INTEGRATED TELECOMMUNICATION SERVICES--3.2%
45,200 BT Group PLC (UK) 186,275
11,200 Deutsche Telekom AG (GE) 207,382
6,500 France Telecom (FR) 190,052
16,300 Telus Corporation (CA) 572,868
---------------
1,156,577
---------------
LEISURE PRODUCTS--0.5%
8,900 Sankyo Company Limited (JA) 170,922
---------------
LIFE & HEALTH INSURANCE--1.2%
70,500 Friends Provident PLC (UK) 229,905
87,900 Old Mutual PLC (UK) 192,148
---------------
422,053
---------------
MARINE--1.8%
50 AP Moller-Maersk AS (DE) 477,490
29,000 Kawasaki Kisen Kaisha Limited (JA) 172,049
---------------
649,539
---------------
MOVIES & ENTERTAINMENT--1.4%
16,800 Vivendi Universal SA (FR) 529,841
---------------
MULTI-LINE INSURANCE--1.5%
16,200 Aviva PLC (UK) 180,548
3,900 Baloise Holding Limited (SZ) 194,772
1,100 Zurich Financial Services AG (SZ) 189,528
---------------
564,848
---------------
</Table>
14
<Page>
<Table>
<Caption>
SHARES MARKET VALUE
- --------------------------------------------------------------------------------------------------------------------
MULTI-UTILITIES--0.9%
11,700 Suez SA (FR) $ 317,598
---------------
OFFICE ELECTRONICS--1.7%
12,000 Canon, Inc. (JA) 631,864
---------------
OIL & GAS EXPLORATION & PRODUCTION--2.3%
12,200 Eni SPA (IT) 314,634
2,200 Norsk Hydro ASA (NW) 202,011
134,500 Oil Search Limited (AU) 314,315
---------------
830,960
---------------
OTHER DIVERSIFIED FINANCIAL SERVICES--2.5%
24,900 ING Groep NV (NE) 704,239
6,600 Sun Life Financial, Inc. (CA) 222,316
---------------
926,555
---------------
PHARMACEUTICALS--11.6%
15,500 AstraZeneca Group PLC (UK) 641,829
11,400 Eisai Company Limited (JA) 383,392
4,700 Merck KGaA (GE) 378,821
13,759 Novartis AG (SZ) 655,472
5,800 Novo Nordisk AS Class B (DE) 295,313
7,000 Ono Pharmaceuticals Company Limited (JA) 331,981
7,900 Sanofi-Aventis (FR) 649,171
28,700 Shire Pharmaceuticals Group PLC (UK) 314,718
11,400 Takeda Pharmaceuticals Company Limited (JA) 565,323
---------------
4,216,020
---------------
PRECIOUS METALS & MINERALS--0.8%
16,900 ThyssenKrupp AG (GE) 294,313
---------------
RAILROADS--0.9%
5,500 Canadian National Railway Company (CA) 317,287
---------------
SOFT DRINKS--1.0%
12,900 Coca-Cola Hellenic Bottling Company SA (GR) 350,328
---------------
STEEL--1.5%
29,800 Bluescope Steel Limited (AU) 186,690
14,900 JFE Holdings, Inc. (JA) 368,100
---------------
554,790
---------------
TIRES & RUBBER--2.1%
8,000 Continental AG (GE) 577,030
19,000 Sumitomo Rubber Industries Limited (JA) 193,923
---------------
770,953
---------------
TOBACCO--0.9%
17,800 British American Tobacco PLC (UK) 343,179
---------------
TRADING COMPANIES & DISTRIBUTORS--2.4%
46,000 Mitsubishi Corporation (JA) 625,444
28,000 Mitsui & Company Limited (JA) 265,080
---------------
890,524
---------------
</Table>
SEE NOTES TO STATEMENT OF INVESTMENTS.
15
<Page>
<Table>
<Caption>
SHARES MARKET VALUE
- --------------------------------------------------------------------------------------------------------------------
WIRELESS TELECOMMUNICATION SERVICES--6.4%
7,000 Bouygues SA (FR) $ 290,234
138,900 China Mobile (Hong Kong) Limited (HK) 517,457
79,900 O2 PLC (UK)* 195,061
549,175 Vodafone Group PLC (UK) 1,338,251
---------------
2,341,003
---------------
TOTAL COMMON STOCKS (FOREIGN)
(COST--$27,976,169) 35,406,855
---------------
</Table>
<Table>
<Caption>
PRINCIPAL AMOUNT AMORTIZED COST
- --------------------------------------------------------------------------------------------------------------------
CORPORATE SHORT-TERM NOTES--2.2%
HOUSEHOLD APPLIANCES--2.2%
$ 800,000 Stanley Works, Inc.
3.37% 7/1/05~ $ 800,000
---------------
TOTAL CORPORATE SHORT-TERM NOTES
(AMORTIZED COST--$800,000) 800,000
---------------
TOTAL INVESTMENTS--99.4%
(TOTAL COST--$28,776,169) 36,206,855
---------------
OTHER ASSETS AND LIABILITIES--0.6% 225,313
---------------
NET ASSETS--100.0% $ 36,432,168
===============
</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
$800,000, OR 2.2%, OF THE FUND'S NET ASSETS AS OF JUNE 30, 2005.
SEE NOTES TO FINANCIAL STATEMENTS.
16
<Page>
STATEMENT OF ASSETS AND LIABILITIES
June 30, 2005 (UNAUDITED)
<Table>
ASSETS
Investment securities, at cost $ 28,776,169
---------------
Investment securities, at market 36,206,855
Cash 105,917
Foreign currency (cost $213,201) 213,157
Receivables:
Investment securities sold 380,835
Capital shares sold 14,464
Dividends and interest 57,667
From adviser 15,324
Other assets 37,963
---------------
Total Assets 37,032,182
---------------
LIABILITIES
Payables and other accrued liabilities:
Investment securities purchased 499,473
Capital shares redeemed 22,160
Advisory fees 22,455
Shareholder servicing fees 6,824
Accounting fees 2,994
Distribution fees 4,093
Transfer agency fees 15,649
Custodian fees 7,628
Other 18,738
---------------
Total Liabilities 600,014
---------------
Net Assets $ 36,432,168
===============
COMPOSITION OF NET ASSETS
Capital (par value and paid-in surplus) $ 58,322,300
Undistributed net investment income 368,277
Accumulated net realized loss from security transactions (29,686,850)
Net unrealized appreciation on investments
and foreign currency translation 7,428,441
---------------
Total $ 36,432,168
===============
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
17
<Page>
STATEMENT OF ASSETS AND LIABILITIES
June 30, 2005 (UNAUDITED) (CONTINUED)
<Table>
CLASS A
Net Assets $ 23,684,188
Shares Outstanding 2,012,893
Net Asset Value, Redemption Price Per Share $ 11.77
Maximum offering price per share (net asset value
plus sales charge of 5.75% of offering price) $ 12.49
CLASS B
Net Assets $ 1,783,048
Shares Outstanding 155,715
Net Asset Value, Offering and Redemption Price (excluding
applicable contingent deferred sales charge) Per Share $ 11.45
CLASS C
Net Assets $ 456,597
Shares Outstanding 39,935
Net Asset Value, Offering and Redemption Price (excluding
applicable contingent deferred sales charge) Per Share $ 11.43
CLASS F
Net Assets $ 10,322,590
Shares Outstanding 875,897
Net Asset Value, Offering and Redemption Price Per Share $ 11.79
CLASS R
Net Assets $ 59,541
Shares Outstanding 5,007
Net Asset Value, Offering and Redemption Price Per Share $ 11.89
CLASS T
Net Assets $ 126,204
Shares Outstanding 10,795
Net Asset Value, Redemption Price Per Share $ 11.69
Maximum offering price per share (net asset value
plus sales charge of 4.50% of offering price) $ 12.24
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
18
<Page>
STATEMENT OF OPERATIONS
For the six months ended June 30, 2005 (UNAUDITED)
<Table>
INVESTMENT INCOME
Dividends $ 715,726
Interest 6,777
Foreign taxes withheld (87,308)
---------------
Total Investment Income 635,195
---------------
EXPENSES
Advisory fees--Note 2 186,483
Shareholder servicing fees--Note 2 46,827
Accounting fees--Note 2 18,648
Distribution fees--Note 2 22,443
Transfer agency fees--Note 2 40,773
Registration fees 25,375
Postage and mailing expenses 1,480
Custodian fees and expenses--Note 2 31,591
Printing expenses 16,130
Legal and audit fees 6,139
Directors' fees and expenses--Note 2 3,786
Other expenses 23,471
---------------
Total Expenses 423,146
Earnings Credits (1,366)
Reimbursed/Waived Expenses (141,981)
Expense Offset to Broker Commissions (9,592)
---------------
Net Expenses 270,207
---------------
Net Investment Income 364,988
---------------
REALIZED AND UNREALIZED GAIN (LOSS) ON SECURITY
TRANSACTIONS AND FOREIGN CURRENCY TRANSACTIONS
Net Realized Gain (Loss) on:
Security Transactions 1,553,149
Foreign Currency Transactions (10,555)
---------------
Net Realized Gain 1,542,594
Net Change in Unrealized Appreciation/Depreciation
of Investments and Foreign Currency Translation (2,358,558)
---------------
Net Realized and Unrealized Loss (815,964)
---------------
Net Decrease in Net Assets Resulting from Operations $ (450,976)
===============
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
19
<Page>
STATEMENTS OF CHANGES IN NET ASSETS
(UNAUDITED)
<Table>
<Caption>
SIX MONTHS ENDED YEAR ENDED
6/30/05 12/31/04
OPERATIONS
Net Investment Income $ 364,988 $ 277,266
Net Realized Gain on Security and Foreign
Currency Transactions 1,542,594 8,483,384
Net Change in Unrealized Appreciation/Depreciation
of Investments and Foreign Currency Translation (2,358,558) (886,438)
---------------- ----------------
Net Increase (Decrease) in Net Assets Resulting
from Operations (450,976) 7,874,212
---------------- ----------------
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS
From Net Investment Income
Class A 0 (185,495)
Class F 0 (72,290)
Class R 0 (11,405)
Class T 0 (511)
---------------- ----------------
Net Decrease from Dividends and Distributions 0 (269,701)
---------------- ----------------
CAPITAL SHARE TRANSACTIONS
Net Decrease--Note 4
Class A (1,106,866) (2,078,483)
Class B (461,066) (527,506)
Class C (12,975) (94,599)
Class F (443,050) (980,705)
Class R (6,115) (3,373,718)
Class T (46,851) (31,098)
---------------- ----------------
Net Decrease from Capital Share Transactions (2,076,923) (7,086,109)
---------------- ----------------
Net Increase (Decrease) in Net Assets (2,527,899) 518,402
---------------- ----------------
NET ASSETS
Beginning of period $ 38,960,067 $ 38,441,665
---------------- ----------------
End of period $ 36,432,168 $ 38,960,067
================ ================
Undistributed Net Investment Income $ 368,277 $ 3,289
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
20
<Page>
FINANCIAL HIGHLIGHTS
(UNAUDITED)
<Table>
<Caption>
SIX MONTHS YEAR ENDED
ENDED JUNE 30, DECEMBER 31,
2005 2004 2003 2002 2001
-------------- -------------------------------------------------------
CLASS A SHARES
PER SHARE OPERATING DATA
Net Asset Value, beginning of period $ 11.90 $ 9.77 $ 7.19 $ 10.03 $ 14.42
- --------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) 0.12 0.08 0.06 0.01 0.00(a)
Net realized and unrealized gains
(losses) on securities (0.25) 2.14 2.59 (2.84) (4.39)
------------------------------------------------------------------------
Total from investment operations (0.13) 2.22 2.65 (2.83) (4.39)
- --------------------------------------------------------------------------------------------------------------------------------
Less dividends and distributions:
From net investment income 0.00 (0.09) (0.07) (0.01) 0.00
From net realized gains 0.00 0.00 0.00 0.00 0.00
------------------------------------------------------------------------
Total distributions 0.00 (0.09) (0.07) (0.01) 0.00
- --------------------------------------------------------------------------------------------------------------------------------
Net Asset Value, end of period $ 11.77 $ 11.90 $ 9.77 $ 7.19 $ 10.03
========================================================================
TOTAL RETURN(b) (1.09%) 22.69% 36.84% (28.19%) (30.44%)
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000s) $ 23,684 $ 25,076 $ 22,432 $ 18,217 $ 29,151
- --------------------------------------------------------------------------------------------------------------------------------
Ratios to average net assets(c):
Expenses with reimbursements, but
no earnings credits or brokerage offsets(d) 1.46% 1.42% 1.41% 1.40% 1.46%
Expenses with reimbursements,
earnings credits and brokerage offsets 1.40% 1.40% 1.40% 1.40% 1.44%
Net investment income (loss) 2.01% 0.74% 0.80% 0.13% (0.74%)
- --------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate(e) 80% 85% 144% 220% 213%
</Table>
(a). NET INVESTMENT LOSS FOR THE YEAR ENDED DECEMBER 31, 2001 AGGREGATED LESS
THAN $0.01 ON A PER SHARE BASIS.
(b). SALES CHARGES ARE NOT REFLECTED IN THE TOTAL RETURN.
(c). ANNUALIZED.
(d). 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 2.18% (2005), 2.05% (2004), 2.48% (2003), 2.18%
(2002), 1.78% (2001).
(e). PORTFOLIO TURNOVER RATE IS A MEASURE OF PORTFOLIO ACTIVITY THAT IS
CALCULATED BY DIVIDING THE LESSER OF PURCHASES OR SALES OF SECURITIES,
EXCLUDING SECURITIES HAVING MATURITY DATES AT ACQUISITION OF ONE YEAR OR
LESS, BY THE AVERAGE VALUE OF THE PORTFOLIO SECURITIES HELD DURING THE
PERIOD, WHICH IS A ROLLING 12-MONTH PERIOD.
SEE NOTES TO FINANCIAL STATEMENTS.
21
<Page>
<Table>
<Caption>
SIX MONTHS YEAR ENDED
ENDED JUNE 30, DECEMBER 31,
2005 2004 2003 2002 2001
-------------- ------------------------------------------------------------
CLASS B SHARES
PER SHARE OPERATING DATA
Net Asset Value, beginning of period $ 11.63 $ 9.55 $ 7.03 $ 9.87 $ 14.29
- ---------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) 0.07(a) 0.00(a),(b) (0.08) (0.11) (0.12)
Net realized and unrealized gains
(losses) on securities (0.25) 2.08 2.61 (2.73) (4.30)
--------------------------------------------------------------------------------
Total from investment operations (0.18) 2.08 2.53 (2.84) (4.42)
- ---------------------------------------------------------------------------------------------------------------------------------
Less dividends and distributions:
From net investment income 0.00 0.00 (0.01) 0.00 0.00
From net realized gains 0.00 0.00 0.00 0.00 0.00
--------------------------------------------------------------------------------
Total distributions 0.00 0.00 (0.01) 0.00 0.00
- ---------------------------------------------------------------------------------------------------------------------------------
Net Asset Value, end of period $ 11.45 $ 11.63 $ 9.55 $ 7.03 $ 9.87
================================================================================
TOTAL RETURN(c) (1.55%) 21.78% 35.95% (28.77%) (30.93%)
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000s) $ 1,783 $ 2,281 $ 2,372 $ 2,201 $ 3,786
- ---------------------------------------------------------------------------------------------------------------------------------
Ratios to average net assets(d):
Expenses with reimbursements, but
no earnings credits or brokerage offsets(e) 2.21% 2.16% 2.16% 2.16% 2.28%
Expenses with reimbursements,
earnings credits and brokerage offsets 2.15% 2.15% 2.15% 2.15% 2.26%
Net investment income (loss) 1.22% 0.00% 0.07% (0.61%) (1.03%)
- ---------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate(f) 80% 85% 144% 220% 213%
</Table>
(a). COMPUTED USING AVERAGE SHARES OUTSTANDING THROUGHOUT THE PERIOD.
(b). NET INVESTMENT INCOME FOR THE YEAR ENDED DECEMBER 31, 2004 AGGREGATED LESS
THAN $0.01 ON A PER SHARE BASIS.
(c). SALES CHARGES ARE NOT REFLECTED IN THE TOTAL RETURN.
(d). ANNUALIZED.
(e). 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 3.05% (2005), 2.85% (2004), 3.32% (2003), 2.91%
(2002), AND 2.67% (2001).
(f). PORTFOLIO TURNOVER RATE IS A MEASURE OF PORTFOLIO ACTIVITY THAT IS
CALCULATED BY DIVIDING THE LESSER OF PURCHASES OR SALES OF SECURITIES,
EXCLUDING SECURITIES HAVING MATURITY DATES AT ACQUISITION OF ONE YEAR OR
LESS, BY THE AVERAGE VALUE OF THE PORTFOLIO SECURITIES HELD DURING THE
PERIOD, WHICH IS A ROLLING 12-MONTH PERIOD.
22
<Page>
<Table>
<Caption>
SIX MONTHS YEAR ENDED
ENDED JUNE 30, DECEMBER 31,
2005 2004 2003 2002 2001
------------- ------------------------------------------------------------
CLASS C SHARES
PER SHARE OPERATING DATA
Net Asset Value, beginning of period $ 11.61 $ 9.53 $ 7.02 $ 9.86 $ 14.27
- ----------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) 0.05 0.00(a),(b) (0.26) (0.29) (0.16)
Net realized and unrealized gains
(losses) on securities (0.23) 2.08 2.77 (2.55) (4.25)
-------------------------------------------------------------------------------
Total from investment operations (0.18) 2.08 2.51 (2.84) (4.41)
- ----------------------------------------------------------------------------------------------------------------------------------
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 0.00
-------------------------------------------------------------------------------
Total distributions 0.00 0.00 0.00 0.00 0.00
- ----------------------------------------------------------------------------------------------------------------------------------
Net Asset Value, end of period $ 11.43 $ 11.61 $ 9.53 $ 7.02 $ 9.86
===============================================================================
TOTAL RETURN(c) (1.55%) 21.83% 35.76% (28.80%) (30.90%)
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000s) $ 457 $ 476 $ 482 $ 532 $ 1,429
- ----------------------------------------------------------------------------------------------------------------------------------
Ratios to average net assets(d):
Expenses with reimbursements, but
no earnings credits or brokerage offsets(e) 2.21% 2.16% 2.16% 2.16% 2.29%
Expenses with reimbursements,
earnings credits and brokerage offsets 2.15% 2.15% 2.15% 2.15% 2.26%
Net investment income (loss) 1.26% 0.03% 0.08% (0.63%) (0.99%)
- ----------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate(f) 80% 85% 144% 220% 213%
</Table>
(a). COMPUTED USING AVERAGE SHARES OUTSTANDING THROUGHOUT THE YEAR.
(b). NET INVESTMENT INCOME FOR THE YEAR ENDED DECEMBER 31, 2004 AGGREGATED LESS
THAN $0.01 ON A PER SHARE BASIS.
(c). SALES CHARGES ARE NOT REFLECTED IN THE TOTAL RETURN.
(d). ANNUALIZED.
(e). 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 2.98% (2005), 2.87% (2004), 3.25% (2003), 3.11%
(2002), AND 2.85% (2001).
(f). PORTFOLIO TURNOVER RATE IS A MEASURE OF PORTFOLIO ACTIVITY THAT IS
CALCULATED BY DIVIDING THE LESSER OF PURCHASES OR SALES OF SECURITIES,
EXCLUDING SECURITIES HAVING MATURITY DATES AT ACQUISITION OF ONE YEAR OR
LESS, BY THE AVERAGE VALUE OF THE PORTFOLIO SECURITIES HELD DURING THE
PERIOD, WHICH IS A ROLLING 12-MONTH PERIOD.
SEE NOTES TO FINANCIAL STATEMENTS.
23
<Page>
<Table>
<Caption>
SIX MONTHS YEAR ENDED
ENDED JUNE 30, DECEMBER 31,
2005 2004 2003 2002 2001
-------------- ------------------------------------------------------------
CLASS F SHARES
PER SHARE OPERATING DATA
Net Asset Value, beginning of period $ 11.92 $ 9.78 $ 7.18 $ 10.03 $ 14.40
- ----------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) 0.10 0.08(a) (0.01) (0.05) (0.07)
Net realized and unrealized gains
(losses) on securities (0.23) 2.14 2.68 (2.79) (4.30)
-------------------------------------------------------------------------------
Total from investment operations (0.13) 2.22 2.67 (2.84) (4.37)
- ----------------------------------------------------------------------------------------------------------------------------------
Less dividends and distributions:
From net investment income 0.00 (0.08) (0.07) (0.01) 0.00
From net realized gains 0.00 0.00 0.00 0.00 0.00
-------------------------------------------------------------------------------
Total distributions 0.00 (0.08) (0.07) (0.01) 0.00
- ----------------------------------------------------------------------------------------------------------------------------------
Net Asset Value, end of period $ 11.79 $ 11.92 $ 9.78 $ 7.18 $ 10.03
===============================================================================
TOTAL RETURN (1.09%) 22.70% 37.17% (28.30%) (30.35%)
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000s) $ 10,323 $ 10,885 $ 9,837 $ 9,321 $ 16,640
- ----------------------------------------------------------------------------------------------------------------------------------
Ratios to average net assets(b):
Expenses with reimbursements, but
no earnings credits or brokerage offsets(c) 1.45% 1.41% 1.40% 1.40% 1.55%
Expenses with reimbursements,
earnings credits and brokerage offsets 1.40% 1.40% 1.40% 1.40% 1.52%
Net investment income (loss) 2.00% 0.76% 0.80% 0.12% (0.26%)
- ----------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate(d) 80% 85% 144% 220% 213%
</Table>
(a). COMPUTED USING AVERAGE SHARES OUTSTANDING THROUGHOUT THE YEAR.
(b). ANNUALIZED.
(c). 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 2.28% (2005), 2.10% (2004), 2.52% (2003), 2.13%
(2002), AND 1.99% (2001).
(d). PORTFOLIO TURNOVER RATE IS A MEASURE OF PORTFOLIO ACTIVITY THAT IS
CALCULATED BY DIVIDING THE LESSER OF PURCHASES OR SALES OF SECURITIES,
EXCLUDING SECURITIES HAVING MATURITY DATES AT ACQUISITION OF ONE YEAR OR
LESS, BY THE AVERAGE VALUE OF THE PORTFOLIO SECURITIES HELD DURING THE
PERIOD, WHICH IS A ROLLING 12-MONTH PERIOD.
24
<Page>
<Table>
<Caption>
SIX MONTHS YEAR ENDED
ENDED JUNE 30, DECEMBER 31,
2005 2004 2003 2002 2001
-------------- -------------------------------------------------------
CLASS R SHARES
PER SHARE OPERATING DATA
Net Asset Value, beginning of period $ 12.01 $ 9.82 $ 7.22 $ 10.08 $ 14.45
- -------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) 0.13(b) 0.13(b) 0.09 0.02 0.00(a)
Net realized and unrealized gains
(losses) on securities (0.25) 2.17 2.60 (2.85) (4.37)
--------------------------------------------------------------------------
Total from investment operations (0.12) 2.30 2.69 (2.83) (4.37)
- -------------------------------------------------------------------------------------------------------------------------------
Less dividends and distributions:
From net investment income 0.00 (0.11) (0.09) (0.03) 0.00
From net realized gains 0.00 0.00 0.00 0.00 0.00
--------------------------------------------------------------------------
Total distributions 0.00 (0.11) (0.09) (0.03) 0.00
- -------------------------------------------------------------------------------------------------------------------------------
Net Asset Value, end of period $ 11.89 $ 12.01 $ 9.82 $ 7.22 $ 10.08
==========================================================================
TOTAL RETURN (1.00%) 23.45% 37.27% (28.10%) (30.24%)
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000s) $ 60 $ 66 $ 3,146 $ 2,470 $ 6,102
- -------------------------------------------------------------------------------------------------------------------------------
Ratios to average net assets(c):
Expenses with reimbursements, but
no earnings credits or brokerage offsets(d) 1.21% 1.15% 1.15% 1.16% 1.28%
Expenses with reimbursements,
earnings credits and brokerage offsets 1.15% 1.15% 1.15% 1.15% 1.26%
Net investment income (loss) 2.24% 1.21% 1.03% 0.27% (0.04%)
- -------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate(e) 80% 85% 144% 220% 213%
</Table>
(a). NET INVESTMENT LOSS FOR THE YEAR ENDED DECEMBER 31, 2001 AGGREGATED LESS
THAN $0.01 ON A PER SHARE BASIS.
(b). COMPUTED USING AVERAGE SHARES OUTSTANDING THROUGHOUT THE PERIOD.
(c). ANNUALIZED.
(d). 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 4.10% (2005), 1.65% (2004), 1.95% (2003), 1.71%
(2002), AND 1.57% (2001).
(e). PORTFOLIO TURNOVER RATE IS A MEASURE OF PORTFOLIO ACTIVITY THAT IS
CALCULATED BY DIVIDING THE LESSER OF PURCHASES OR SALES OF SECURITIES,
EXCLUDING SECURITIES HAVING MATURITY DATES AT ACQUISITION OF ONE YEAR OR
LESS, BY THE AVERAGE VALUE OF THE PORTFOLIO SECURITIES HELD DURING THE
PERIOD, WHICH IS A ROLLING 12-MONTH PERIOD.
SEE NOTES TO FINANCIAL STATEMENTS.
25
<Page>
<Table>
<Caption>
SIX MONTHS YEAR ENDED
ENDED JUNE 30, DECEMBER 31,
2005 2004 2003 2002 2001
-------------- -------------------------------------------------------
CLASS T SHARES
PER SHARE OPERATING DATA
Net Asset Value, beginning of period $ 11.84 $ 9.70 $ 7.14 $ 9.97 $ 14.37
- ----------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) 0.09(b) 0.06(b) 0.00(a) (0.10) (0.09)
Net realized and unrealized gains
(losses) on securities (0.24) 2.11 2.61 (2.73) (4.31)
--------------------------------------------------------------------------
Total from investment operations (0.15) 2.17 2.61 (2.83) (4.40)
- ----------------------------------------------------------------------------------------------------------------------------------
Less dividends and distributions:
From net investment income 0.00 (0.03) (0.05) 0.00 0.00
From net realized gains 0.00 0.00 0.00 0.00 0.00
--------------------------------------------------------------------------
Total distributions 0.00 (0.03) (0.05) 0.00 0.00
- ----------------------------------------------------------------------------------------------------------------------------------
Net Asset Value, end of period $ 11.69 $ 11.84 $ 9.70 $ 7.14 $ 9.97
==========================================================================
TOTAL RETURN(c) (1.27%) 22.42% 36.58% (28.39%) (30.62%)
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000s) $ 126 $ 175 $ 172 $ 158 $ 343
- ----------------------------------------------------------------------------------------------------------------------------------
Ratios to average net assets(d):
Expenses with reimbursements, but
no earnings credits or brokerage offsets(e) 1.71% 1.66% 1.65% 1.65% 1.80%
Expenses with reimbursements,
earnings credits and brokerage offsets 1.65% 1.65% 1.65% 1.65% 1.77%
Net investment income (loss) 1.67% 0.57% 0.67% (0.12%) (0.53%)
- ----------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate(f) 80% 85% 144% 220% 213%
</Table>
(a). NET INVESTMENT INCOME FOR THE YEAR ENDED DECEMBER 31, 2003 AGGREGATED LESS
THAN $0.01 ON A PER SHARE BASIS.
(b). COMPUTED USING AVERAGE SHARES OUTSTANDING THROUGHOUT THE PERIOD.
(c). SALES CHARGES ARE NOT REFLECTED IN THE TOTAL RETURN.
(d). ANNUALIZED.
(e). 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 2.82% (2005), 2.44% (2004), 2.88% (2003), 4.00%
(2002), AND 2.86% (2001).
(f). PORTFOLIO TURNOVER RATE IS A MEASURE OF PORTFOLIO ACTIVITY THAT IS
CALCULATED BY DIVIDING THE LESSER OF PURCHASES OR SALES OF SECURITIES,
EXCLUDING SECURITIES HAVING MATURITY DATES AT ACQUISITION 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
June 30, 2005 (UNAUDITED)
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
Dreyfus Founders Funds, Inc. (the "Company") is an open-end management
investment company registered under the Investment Company Act of 1940 (the
"1940 Act"). Ten series of shares are currently issued: Balanced, Discovery,
Equity Growth, 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 shares redeemed 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. Since February 22, 2005, New York closing exchange rates have
been used to convert foreign currencies to U.S. dollars. Previously, London
closing exchange rates were used to convert foreign currencies to U.S. dollars.
A debt security with a remaining maturity greater than 60 days at the time of
purchase is valued in accordance with the evaluated bid price supplied by a
pricing service approved by the Company's board of directors or, if such price
is not available, at the mean between the highest bid and lowest asked
quotations obtained from at least two securities dealers. A debt security with a
remaining maturity of 60 days or less at the time of purchase is valued at
amortized cost, which approximates market value, unless it is determined that
amortized cost would not represent market value, in which case the securities
would be marked to market. The Fund amortizes premiums and discounts on all debt
securities.
If market quotations 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
27
<Page>
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. In addition, it is possible
that the fair value determined for a security may be different from the value
that may be realized upon the security's sale, and that these differences may be
material to the net asset value of the Fund.
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 June 30, 2005 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.
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 period 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 first $250 million of net assets, 0.80% of the next $250 million of
net assets and 0.70% of net assets in excess of $500 million.
29
<Page>
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 and expense offsets to broker commissions) 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
written contractual commitment. For the six months ended June 30, 2005, $131,025
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 six months ended June 30,
2005, Class F shares were charged $13,410 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 six months ended June 30, 2005, Class F shares
were charged $4,685 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 $12.58 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, including both the per account fees paid to
DTI and out-of-pocket charges, during the six months ended June 30, 2005 were as
follows:
<Table>
<Caption>
TRANSFER
AGENCY FEES
---------------------------------------------------------------
Class A $ 28,984
Class B $ 3,613
Class C $ 684
Class R $ 706
Class T $ 441
</Table>
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 six months ended
30
<Page>
June 30, 2005, the Fund was charged $475 for cash management fees, which are
included in the out-of-pocket transfer agency charges above.
OTHER TRANSFER AGENCY FEES--Various broker-dealers, retirement plan
administrators and other 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 six months ended
June 30, 2005, the Fund paid $1,660 to these entities for such services. This
amount is included in the transfer agency fees shown on the Statement of
Operations.
DISTRIBUTION AND SHAREHOLDER SERVICES PLANS--DSC also is the distributor of the
Fund's shares. The Fund has adopted a Distribution Plan pursuant to Rule 12b-1
under the 1940 Act applicable to its Class F shares. Under the plan, the Fund is
authorized to reimburse DSC for expenses paid for distributing or servicing its
Class F shares at an annual rate of up to 0.25% of the value of the average
daily net assets of the Fund's Class F shares. During the six months ended June
30, 2005, Class F shares were charged $13,105 pursuant to this Distribution
Plan.
The Fund also has adopted a Distribution Plan pursuant to Rule 12b-1 under the
1940 Act applicable to its Class B, Class C and Class T shares. Under this plan,
the Fund pays DSC a fee for distributing its Class B and C shares at the annual
rate of 0.75% of the value of the average daily net assets of its Class B and C
shares, respectively, and pays DSC a fee for distributing its Class T shares at
the annual rate of 0.25% of the average daily net assets of its Class T shares.
In addition, the Fund has adopted a Shareholder Services Plan applicable to its
Class A, Class B, Class C and Class T shares. Under the Shareholder Services
Plan, Class A, Class B, Class C and Class T shares pay DSC an annual fee of
0.25% of the value of their average daily net assets for the provision of
certain services.
Distribution and shareholder servicing fees paid to DSC by the Fund's Class A,
B, C and T shares for the six months ended June 30, 2005, were as follows:
<Table>
<Caption>
DISTRIBUTION SHAREHOLDER
FEES SERVICING FEES
----------------------------------------------------------------
Class A N/A $ 30,189
Class B $ 7,371 $ 2,457
Class C $ 1,794 $ 598
Class T $ 173 $ 173
</Table>
During the six months ended June 30, 2005, DSC retained $7,771 and $1 of
contingent deferred sales charges relating to redemptions of Class B and Class C
shares, respectively.
FUND ACCOUNTING AND ADMINISTRATIVE SERVICES FEES--The Funds have agreed to
compensate Founders for providing accounting services, administration,
compliance monitoring, regulatory and shareholder reporting, as well as related
facilities, equipment and clerical help. The fee is computed at the annual rate
of 0.10% of the average daily net assets of the Fund on the first $500 million,
0.065% of the average
31
<Page>
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 in writing 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 contractually agreed in writing 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
----------------------------------------------------------------
9/1/04 to 8/31/05 $ 200,000
9/1/05 to 8/31/06 $ 200,000
</Table>
The fee waiver is allocated among the Funds in proportion to their respective
shares of the total custodian fee. For the six months ended June 30, 2005, the
Fund's portion of the fee waiver was $10,956, which reduced the amount paid to
Mellon Bank to $20,635.
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.
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
32
<Page>
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. Accumulated
capital losses as of December 31, 2004 were:
<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
June 30, 2005 are noted below. Unrealized appreciation/depreciation in the table
below excludes appreciation/depreciation on foreign currency translation, if
any. The primary difference between book and tax appreciation or depreciation is
wash sale loss deferrals.
<Table>
Undistributed Ordinary Income $ 9,042
Federal Tax Cost $ 28,831,630
Gross Tax Appreciation of Investments $ 7,587,950
Gross Tax Depreciation of Investments $ (212,725)
Net Tax Appreciation $ 7,375,225
</Table>
4. CAPITAL SHARE TRANSACTIONS
The Fund is authorized to issue 450 million shares of $0.01 par value capital
stock. Transactions in shares of the Fund for the periods indicated were as
follows:
<Table>
<Caption>
SIX MONTHS ENDED YEAR ENDED
6/30/05 12/31/04
SHARES AMOUNT SHARES AMOUNT
CLASS A
Sold 26,806 $ 316,411 111,208 $ 1,148,486
Dividends or Distributions Reinvested 0 $ 0 14,688 $ 174,191
Redeemed (120,555) $ (1,423,277) (315,412) $ (3,401,160)
------------------------------------------------------------------------
Net Decrease (93,749) $ (1,106,866) (189,516) $ (2,078,483)
========================================================================
</Table>
33
<Page>
<Table>
<Caption>
SIX MONTHS ENDED YEAR ENDED
06/30/05 12/31/04
SHARES AMOUNT SHARES AMOUNT
CLASS B
Sold 11,577 $ 135,112 11,870 $ 124,485
Redeemed (52,023) $ (596,178) (64,211) $ (651,991)
------------------------------------------------------------------------
Net Decrease (40,446) $ (461,066) (52,341) $ (527,506)
========================================================================
CLASS C
Sold 6,480 $ 72,825 6,433 $ 64,792
Redeemed (7,577) $ (85,800) (15,944) $ (159,391)
------------------------------------------------------------------------
Net Decrease (1,097) $ (12,975) (9,511) $ (94,599)
========================================================================
CLASS F
Sold 65,567 $ 769,530 470,504 $ 4,815,790
Dividends or Distributions Reinvested 0 $ 0 5,843 $ 69,420
Redeemed (102,707) $ (1,212,580) (569,384) $ (5,865,915)
------------------------------------------------------------------------
Net Decrease (37,140) $ (443,050) (93,037) $ (980,705)
========================================================================
CLASS R
Sold 0 $ 0 40,338 $ 419,337
Dividends or Distributions Reinvested 0 $ 0 957 $ 11,405
Redeemed (518) $ (6,115) (355,989) $ (3,804,460)
------------------------------------------------------------------------
Net Decrease (518) $ (6,115) (314,694) $ (3,373,718)
========================================================================
CLASS T
Sold 104 $ 1,176 1,431 $ 14,400
Dividends or Distributions Reinvested 0 $ 0 42 $ 492
Redeemed (4,086) $ (48,027) (4,460) $ (45,990)
------------------------------------------------------------------------
Net Decrease (3,982) $ (46,851) (2,987) $ (31,098)
========================================================================
</Table>
5. INVESTMENT TRANSACTIONS
For the six months ended June 30, 2005, purchases and sales of investment
securities (excluding short-term securities and U.S. government obligations)
were $9,848,073 and $13,500,345, 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
34
<Page>
amount which the Fund is permitted to borrow pursuant to the prospectus, any law
or any other agreement. Combined borrowings are subject to the $50 million cap
on the total LOC. Each Fund agrees to pay annual fees and interest on the unpaid
balance based on prevailing market rates as defined in the LOC. At June 30,
2005, 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>
FOR MORE INFORMATION
- -------------------------------------------------------------------------------
DREYFUS FOUNDERS TRANSFER AGENT &
INTERNATIONAL EQUITY FUND DIVIDEND DISBURSING AGENT
MANAGER Dreyfus Transfer, Inc.
200 Park Avenue
Founders Asset New York, NY 10166
Management LLC
210 University Boulevard DISTRIBUTOR
Suite 800
Denver, CO 80206 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, 2005, is
available 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 Founders Asset Management LLC 0360SA0605
<Page>
Dreyfus Founders
Mid-Cap Growth Fund
SEMIANNUAL REPORT June 30, 2005
[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
</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 3-10 were owned by the Fund on June 30, 2005. The amounts of
these holdings are included in the Statement of Investments.
NOT FDIC-INSURED - NOT BANK-GUARANTEED - MAY LOSE VALUE
<Page>
MANAGEMENT OVERVIEW
[PHOTO OF JOHN B. JARES]
[PHOTO OF DANIEL E. CROWE]
A DISCUSSION WITH CO-PORTFOLIO MANAGERS JOHN B. JARES, CFA, LEFT, AND DANIEL E.
CROWE, CFA, REGARDING FUND PERFORMANCE FOR THE SIX-MONTH PERIOD ENDED JUNE 30,
2005.
THE VIEW TURNED OPTIMISTIC
The investing environment during the first half of 2005 could be defined by two
distinct periods. During the first period, the market struggled with higher
energy prices, the Federal Reserve's continued tightening of its monetary
policy, a slowing economy and signs of increasing inflation. However, during the
latter part of the half, investors became more optimistic based on stable
economic growth in the face of continued high oil prices, relatively benign
inflation, strong growth in housing prices and the belief that the Federal
Reserve was nearing the end of its tightening cycle. To summarize the half,
investors went from viewing the glass as half empty to half full.
In spite of this, the majority of growth indexes were down for the first half
of 2005. However, the Fund's benchmark, the Russell Midcap Growth Index, was up
slightly for the period. For the six-month period ended June 30, 2005, Dreyfus
Founders Mid-Cap Growth Fund underperformed its benchmark, which returned 1.70%
for the period.
SHIFTS IN COMPOSITION
The number of holdings in the Fund remained relatively consistent throughout the
first six months of 2005, with approximately 50-60 names comprising the
portfolio at any given point in time. The Fund's cash position rose slightly
during the latter part of the period due to both the sale of existing positions
that had reached target prices and an increasingly cautious outlook.
3
<Page>
While stock selection provided both positive and negative impacts to the
Fund's relative return, shifts in sector weightings during the period had a
slightly negative impact. Overweight positions in the consumer discretionary and
information technology sectors were rebalanced during the half. The consumer
discretionary weighting was pulled back due to our concern regarding consumer
spending and the effect that potentially slower home price appreciation, higher
energy costs and moderate employment growth may have on this sector. The Fund's
weighting in the information technology sector also declined during the period.
Some information technology positions were sold because of fundamental concerns,
as well as select investments reaching valuations at which the potential return
was no longer justified by the amount of risk. The proceeds from these
liquidations were reinvested in companies in other sectors and industries where
potentially greater growth opportunities were identified. This re-weighting
hampered the Fund's return, particularly as the information technology sector
saw gains through the end of the second quarter.
Conversely, the Fund's weighting in the healthcare sector was increased as we
found companies with strong growth prospects trading at reasonable valuations
that we believed would likely continue to exhibit strong growth in a slowing
economy.
Throughout the period, we maintained an underweight position in the
industrials sector due to high valuations and concerns regarding the current
economic conditions.
STOCK SELECTION IN IT AND MATERIALS AIDED RETURN
Our bottom-up stock selection process aided the Fund's performance for the
period; the largest contribution to the Fund's return came from strong stock
selection in the information technology (IT) and materials sectors. An
overweight position in the telecommunications services sector also buoyed the
Fund's performance.
[SIDENOTE]
"WHILE STOCK SELECTION PROVIDED BOTH POSITIVE AND NEGATIVE IMPACTS TO THE FUND'S
RELATIVE RETURN, SHIFTS IN SECTOR WEIGHTINGS DURING THE PERIOD HAD A SLIGHTLY
NEGATIVE IMPACT."
4
<Page>
In the information technology sector, BLACKBOARD, INC. a provider of
educational software, continued to see strong demand for its academic suite of
products as well as upgrades throughout its product line. COGENT, INC., a
provider of automated fingerprint identification systems and other biometrics
solutions, was an additional strong performer for the Fund during the period.
Materials holding LAFARGE NORTH AMERICA, INC., a diversified provider of
construction materials, saw continued strength in cement prices due to a strong
economy and limited supply.
TOP 3 PERFORMING SECTORS IN THE FUND
Information Technology
Materials
Telecommunications Services
Other strong performers outside the information technology and materials
sectors boosted the Fund's performance during the period, in spite of weak stock
selection overall in each of these stocks' respective sectors. For example, a
distributor of medical and dental products, HENRY SCHEIN, INC. showed strong
growth within its U.S. dental business and saw its valuation improve as
investors became comfortable that the flu vaccine supply issues the company
previously encountered did not have a material impact on the long-term value of
the company. AMERICAN TOWER CORPORATION benefited as investors realized the
attractive fundamentals within the cellular tower industry. The industry
LARGEST EQUITY HOLDINGS (ticker symbol)
<Table>
1. AMERICAN TOWER CORPORATION (AMT) 3.92%
2. HARMAN INTERNATIONAL INDUSTRIES, INC. (HAR) 3.72%
3. LAFARGE NORTH AMERICA, INC. (LAF) 3.47%
4. MGI PHARMA, INC. (MOGN) 2.92%
5. FIRST MARBLEHEAD CORPORATION (FMD) 2.89%
6. BED BATH & BEYOND, INC. (BBBY) 2.80%
7. SIEBEL SYSTEMS, INC. (SEBL) 2.79%
8. COGENT, INC. (COGT) 2.78%
9. BALL CORPORATION (BLL) 2.75%
10. WATERS CORPORATION (WAT) 2.63%
</Table>
Portfolio holdings are subject to change, and should not be construed as a
recommendation of any security.
5
<Page>
GROWTH OF $10,000 INVESTMENT
PERFORMANCE DATA QUOTED REPRESENTS PAST PERFORMANCE. PAST PERFORMANCE DOES NOT
GUARANTEE FUTURE RESULTS. INVESTMENT RETURN AND PRINCIPAL VALUE OF AN INVESTMENT
WILL FLUCTUATE SO THAT AN INVESTOR'S SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR
LESS THAN THEIR ORIGINAL COST. CURRENT PERFORMANCE MAY BE LOWER OR HIGHER THAN
THE PERFORMANCE DATA QUOTED. PLEASE CALL 1-800-525-2440 TO OBTAIN THE MOST
RECENT MONTH-END PERFORMANCE DATA.
[CHART]
Dreyfus Founders
Mid-Cap Growth Fund Russell Midcap
Class F Shares Growth Index
06/30/1995 $10,000.00 $10,000.00
06/28/1996 $11,608.37 $11,191.27
06/30/1997 $13,282.14 $12,753.06
06/30/1998 $15,944.23 $12,295.97
06/30/1999 $15,256.94 $16,101.40
06/30/2000 $21,069.50 $19,193.07
06/29/2001 $13,497.90 $25,383.38
06/28/2002 $10,475.47 $30,235.08
06/30/2003 $10,338.08 $34,685.91
06/30/2004 $13,051.40 $40,758.28
06/30/2005 $14,390.89 $40,512.12
The above graph compares a $10,000 investment made in Class F shares of Dreyfus
Founders Mid-Cap Growth Fund on 6/30/95 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. 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 AND YEAR-TO DATE TOTAL RETURN as of 6/30/05
<Table>
<Caption>
YEAR-TO 1 5 10 SINCE
CLASS (INCEPTION DATE) DATE + YEAR YEARS YEARS INCEPTION
-------------------------------------------------------------------------------------------------------------------------
A SHARES (12/31/99)
With sales charge (5.75%) (6.59%) 3.79% (8.84%) -- (6.84%)
Without sales charge (0.96%) 10.19% (7.75%) -- (5.83%)
B SHARES (12/31/99)
With redemption* (5.44%) 5.12% (8.55%) -- (6.55%)
Without redemption (1.50%) 9.12% (8.31%) -- (6.44%)
C SHARES (12/31/99)
With redemption** (2.50%) 8.55% (8.56%) -- (6.65%)
Without redemption (1.52%) 9.55% (8.56%) -- (6.65%)
F SHARES (9/8/61) (1.18%) 10.26% (7.34%) 3.71% N/A
R SHARES (12/31/99) (1.19%) 9.81% (7.63%) -- (5.72%)
T SHARES (12/31/99)
With sales charge (4.50%) (6.01%) 4.27% (9.44%) -- (7.43%)
Without sales charge (1.51%) 9.22% (8.60%) -- (6.65%)
</Table>
Average annual and year-to-date total returns do not reflect the deduction of
taxes that a shareholder would pay on Fund distributions or redemption of Fund
shares, but do reflect the reinvestment of dividends and capital gain
distributions, fee waivers 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. Part of the Fund's historical 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. There are risks
associated with mid-cap investing, such as limited product lines, less
liquidity, and small market share.
* The maximum contingent deferred sales charge for Class B shares is 4% and is
reduced to 0% after six years, at which time the Class B shares convert to
Class A shares.
** The maximum contingent deferred sales charge for Class C shares is 1% for
shares redeemed within one year of the date of purchase.
+ Total return is not annualized.
7
<Page>
has consolidated to a smaller number of financially strong players, and enjoyed
stable price increases, improving balance sheets, and strong cash flow
generation during the period. AMR CORPORATION, the parent company of American
Airlines, an addition to the Fund in the first quarter, was a strong contributor
to performance due to stronger airline industry pricing and improved load
factors. Finally, merchandising initiatives implemented at KOHL'S CORPORATION
over the past year led to improvement in same-store sales, driving share price
appreciation.
FINANCIALS AND HEALTHCARE WEIGHED HEAVILY
Offsetting the gain seen in the aforementioned sectors, however, was poor stock
selection within financials, healthcare and to a lesser extent, energy. Relative
weightings in these sectors also detracted from the Fund's return.
In financials, FIRST MARBLEHEAD CORPORATION, a provider of outsourcing
services for private education lending, declined as investors grew concerned
about two factors that may affect the company's long-term growth rate. First,
the company delivered slower-than-expected contract growth in the first
[CHART]
PORTFOLIO COMPOSITION OF NET ASSETS
<Table>
Healthcare 24.42%
Consumer Discretionary 20.61%
Information Technology 13.93%
Financials 9.69%
Materials 6.22%
Industrials 4.98%
Energy 4.95%
Telecommunications Services 3.92%
Consumer Staples 0.88%
Other 1.74%
Cash & Equivalents 8.66%
</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>
BOTTOM 3 PERFORMING SECTORS IN THE FUND
Financials
Healthcare
Energy
quarter. Second, a large customer announced that it is reconsidering the option
of securitizing loans through First Marblehead, which would decrease the
revenues the company realized from this customer. However, the Fund increased
its position in First Marblehead during the period as we viewed the company as
attractively valued, given its long-term growth prospects. Financial guarantor
AMBAC FINANCIAL GROUP, INC. saw slower new business growth as tight credit
spreads limited the amount of new underwriting business, and a low level of new
international business was acquired in the first quarter. While we believe that
company management has the long-term ability to deliver value in a disciplined
manner, the position size was reduced as Ambac's somewhat muted growth
expectations led us to consider other positions offering better growth
opportunities.
In healthcare, MGI PHARMA, INC. underperformed as investors continued to be
concerned that one of the company's products would fall short of revenue
expectations. Sales might slow due to changes by the Centers for Medicare and
Medicaid Services to the reimbursement rate for cancer drugs, including MGI
Pharma's chemotherapy-induced naseau and vomiting (CINV) drug Aloxi(R).
Additionally, GlaxoSmithKline launched an aggressive campaign in an attempt to
win greater share of the CINV market. Biomet, Inc. also underperformed due to
worries over slowing procedures growth and increasing concerns about pricing
pressure for orthopedic hips and knees. Based on these concerns, the Fund sold
its position in Biomet.
SELECT INDIVIDUAL ISSUES AFFECTED PERFORMANCE
Select stocks in other sectors also proved to be a hindrance to the Fund's
relative performance for the semiannual period. Among these poor performers were
Zebra Technologies Corporation, HARMAN INTERNATIONAL INDUSTRIES, INC. and W.W.
GRAINGER, INC. A slow uptake of radio frequency identification contributed to
price declines of Zebra Technologies. Furthermore, the company missed first
quarter earnings estimates due to order deferrals and distribution capacity
constraints in Europe. The stock price of W.W. Grainger, a supplier of
facilities maintenance products, declined as higher-than-expected spending on
9
<Page>
the company's store expansion program and issues regarding a SAP business
software implementation project created concerns about future earnings growth.
Although we believe that the initiatives put in place at W.W. Grainger may
deliver significant shareholder value, we were disappointed with management's
lack of willingness to appropriately manage the balance sheet. Therefore, the
Fund's position in this holding was reduced. Finally, Harman International
Industries' stock price declined due to concerns regarding its competitive
positioning for mid- and lower-tier infotainment systems. First quarter revenues
for the company also came in below some analysts' expectations as the company
prepared for product launches later this year. We viewed the issue regarding
competitive positioning as unfounded and the short-term fluctuations in revenue
as irrelevant. Therefore, the Fund used share price weakness as an opportunity
to increase its position in the company.
IN CONCLUSION
As we headed into the second half of 2005, the Fund had a slightly conservative
position. We structured the portfolio to place more emphasis in sectors we feel
may grow through a slowing economy as well as in companies that may offer
specific growth catalysts.
/s/ John B. Jares /s/ Daniel F. Crowe
John B. Jares, CFA Daniel F. 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 January 1, 2005
and held through June 30, 2005.
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 FOR COMPARISON PURPOSES 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*
(1/1/05) (6/30/05) (1/1/05-6/30/05)
- -------------------------------------------------------------------------------
CLASS A ACTUAL $ 1,000.00 $ 982.66 $ 7.70
CLASS A HYPOTHETICAL 1,000.00 1,016.96 7.83
CLASS B ACTUAL 1,000.00 973.03 12.01
CLASS B HYPOTHETICAL 1,000.00 1,012.54 12.25
CLASS C ACTUAL 1,000.00 973.24 11.61
CLASS C HYPOTHETICAL 1,000.00 1,012.95 11.85
CLASS F ACTUAL 1,000.00 981.26 6.95
CLASS F HYPOTHETICAL 1,000.00 1,017.72 7.08
CLASS R ACTUAL 1,000.00 980.28 7.79
CLASS R HYPOTHETICAL 1,000.00 1,016.86 7.93
CLASS T ACTUAL 1,000.00 972.34 12.55
CLASS T HYPOTHETICAL 1,000.00 1,011.99 12.80
</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
181/365 (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, earnings credits and brokerage
offsets, where applicable.
<Table>
<Caption>
EXPENSE RATIO
- ---------------------------------------------------------
CLASS A 1.56%
CLASS B 2.44%
CLASS C 2.36%
CLASS F 1.41%
CLASS R 1.58%
CLASS T 2.55%
</Table>
13
<Page>
STATEMENT OF INVESTMENTS
June 30, 2005 (UNAUDITED)
<Table>
<Caption>
SHARES MARKET VALUE
- --------------------------------------------------------------------------------
COMMON STOCKS (DOMESTIC)--83.4%
AIRLINES--0.6%
49,000 AMR Corporation* $ 593,383
------------
APPLICATION SOFTWARE--5.5%
28,250 Autodesk, Inc. 970,953
80,539 Blackboard, Inc.* 1,926,493
328,650 Siebel Systems, Inc. 2,924,985
------------
5,822,431
------------
ASSET MANAGEMENT & CUSTODY BANKS--0.9%
21,875 Northern Trust Corporation 997,281
------------
AUTOMOTIVE RETAIL--2.3%
15,575 Advance Auto Parts, Inc.* 1,005,366
82,550 CSK Auto Corporation* 1,376,934
------------
2,382,300
------------
BIOTECHNOLOGY--2.7%
19,175 Genzyme Corporation* 1,152,226
37,175 Gilead Sciences, Inc.* 1,635,328
------------
2,787,554
------------
BROADCASTING & CABLE TV--0.3%
9,350 EchoStar Communications Corporation 281,903
------------
CASINOS & GAMING--2.3%
53,550 GTECH Holdings Corporation 1,565,802
32,800 Scientific Games Corporation* 883,304
------------
2,449,106
------------
CONSTRUCTION MATERIALS--3.5%
58,300 Lafarge North America, Inc. 3,640,252
------------
CONSUMER ELECTRONICS--3.7%
48,025 Harman International Industries, Inc. 3,907,314
------------
CONSUMER FINANCE--2.9%
86,550 First Marblehead Corporation* 3,034,443
------------
DEPARTMENT STORES--2.2%
41,425 Kohl's Corporation* 2,316,072
------------
ELECTRICAL COMPONENTS & EQUIPMENT--2.4%
24,425 Genlyte Group, Inc.* 1,190,475
47,775 Thomas and Betts Corporation* 1,349,166
------------
2,539,641
------------
ELECTRONIC EQUIPMENT MANUFACTURERS--2.8%
102,250 Cogent, Inc.* 2,919,238
------------
EXCHANGE TRADED FUNDS--1.7%
58,900 Health Care Select Sector SPDR Fund 1,825,311
------------
HEALTHCARE DISTRIBUTORS--2.6%
9,000 Fisher Scientific International, Inc.* 584,100
50,975 Henry Schein, Inc.* 2,116,482
------------
2,700,582
------------
</Table>
14
<Page>
<Table>
<Caption>
SHARES MARKET VALUE
- --------------------------------------------------------------------------------
HEALTHCARE EQUIPMENT--3.4%
40,575 PerkinElmer, Inc. $ 766,868
74,350 Waters Corporation* 2,763,590
------------
3,530,458
------------
HEALTHCARE FACILITIES--0.6%
11,000 Triad Hospitals, Inc.* 601,040
------------
HEALTHCARE SERVICES--3.0%
18,000 IDEXX Laboratories, Inc.* 1,121,940
39,100 Quest Diagnostics, Inc. 2,082,857
------------
3,204,797
------------
HOME FURNISHINGS--1.6%
19,975 Mohawk Industries, Inc.* 1,647,938
------------
HOMEBUILDING--0.8%
11,300 Centex Corporation 798,571
------------
HOMEFURNISHING RETAIL--2.8%
70,375 Bed Bath & Beyond, Inc.* 2,940,268
------------
INVESTMENT BANKING & BROKERAGE--0.3%
18,500 Ameritrade Holding Corporation* 343,915
------------
LEISURE FACILITIES--0.8%
17,500 Royal Caribbean Cruises Limited 846,300
------------
MANAGED HEALTHCARE--1.0%
15,550 WellPoint, Inc.* 1,082,902
------------
METAL & GLASS CONTAINERS--2.8%
80,225 Ball Corporation 2,884,891
------------
OIL & GAS DRILLING--2.3%
86,200 Patterson-UTI Energy, Inc. 2,398,946
------------
OIL & GAS EQUIPMENT & SERVICES--2.7%
39,000 BJ Services Company 2,046,720
23,550 FMC Technologies, Inc.* 752,894
------------
2,799,614
------------
OTHER DIVERSIFIED FINANCIAL SERVICES--1.5%
22,475 Ambac Financial Group, Inc. 1,567,856
------------
PACKAGED FOODS & MEATS--0.9%
26,225 Dean Foods Company* 924,169
------------
PHARMACEUTICALS--7.4%
42,750 Covance, Inc.* 1,918,193
36,250 Medicis Pharmaceutical Corporation Class A 1,150,213
141,100 MGI Pharma, Inc.* 3,070,336
95,125 Theravance, Inc.* 1,617,125
------------
7,755,867
------------
REAL ESTATE MANAGEMENT & DEVELOPMENT--1.2%
29,800 CB Richard Ellis Group, Inc.* 1,307,028
------------
</Table>
SEE NOTES TO STATEMENT OF INVESTMENTS.
15
<Page>
<Table>
<Caption>
SHARES MARKET VALUE
- --------------------------------------------------------------------------------
SEMICONDUCTOR EQUIPMENT--1.0%
41,650 Novellus Systems, Inc.* $ 1,029,172
------------
SEMICONDUCTORS--3.9%
50,000 Freescale Semiconductor, Inc. Class B* 1,059,000
48,775 International Rectifier Corporation* 2,327,543
19,575 Maxim Integrated Products, Inc. 747,961
------------
4,134,504
------------
SPECIALIZED FINANCE--1.7%
6,075 Chicago Mercantile Exchange 1,795,163
------------
SPECIALTY STORES--1.4%
25,775 Guitar Center, Inc.* 1,504,487
------------
TRADING COMPANIES & DISTRIBUTORS--1.0%
18,750 W.W. Grainger, Inc. 1,027,313
------------
TRUCKING--1.0%
55,300 J.B. Hunt Transport Services, Inc. 1,067,290
------------
WIRELESS TELECOMMUNICATION SERVICES--3.9%
195,950 American Tower Corporation* 4,118,869
------------
TOTAL COMMON STOCKS (DOMESTIC)
(COST--$82,616,200) 87,508,169
------------
COMMON STOCKS (FOREIGN)--8.0%
AUTO PARTS & EQUIPMENT--2.4%
58,500 Autoliv, Inc. (SW) 2,562,300
------------
HEALTHCARE EQUIPMENT--2.3%
51,875 Mettler-Toledo International, Inc. (SZ)* 2,416,338
------------
INVESTMENT BANKING & BROKERAGE--1.1%
48,425 Lazard Limited Class A (BD)* 1,125,881
------------
PHARMACEUTICALS--1.5%
47,425 Shire Pharmaceuticals Group PLC Sponsored ADR (UK) 1,555,540
------------
SEMICONDUCTORS--0.7%
60,100 ATI Technologies, Inc. (CA)* 712,185
------------
TOTAL COMMON STOCKS (FOREIGN)
(COST--$8,794,837) 8,372,244
------------
</Table>
16
<Page>
<Table>
<Caption>
PRINCIPAL AMOUNT AMORTIZED COST
- --------------------------------------------------------------------------------
CORPORATE SHORT-TERM NOTES--7.5%
ELECTRONIC EQUIPMENT MANUFACTURERS--3.7%
$ 3,900,000 Hitachi America Capital Limited
3.25% 7/1/05~ $ 3,900,000
-------------
MULTI-LINE INSURANCE--3.8%
4,000,000 AIG Funding, Inc.
3.23% 7/5/05 3,998,564
-------------
TOTAL CORPORATE SHORT-TERM NOTES
(AMORTIZED COST--$7,898,564) 7,898,564
-------------
TOTAL INVESTMENTS--98.9%
(TOTAL COST--$99,309,601) 103,778,977
-------------
OTHER ASSETS AND LIABILITIES--1.1% 1,191,303
-------------
NET ASSETS--100.0% $ 104,970,280
=============
</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
$3,900,00, OR 3.7%, OF THE FUND'S NET ASSETS AS OF JUNE 30, 2005.
ADR - AMERICAN DEPOSITARY RECEIPT
SPDR - STANDARD AND POOR'S DEPOSITARY RECEIPT
BD - BERMUDA
CA - CANADA
SW - SWEDEN
SZ - SWITZERLAND
UK - UNITED KINGDOM
SEE NOTES TO FINANCIAL STATEMENTS.
17
<Page>
STATEMENT OF ASSETS AND LIABILITIES
June 30, 2005 (UNAUDITED)
<Table>
ASSETS
Investment securities, at cost $ 99,309,601
---------------
Investment securities, at market 103,778,977
Cash 347,632
Receivables:
Investment securities sold 4,840,270
Capital shares sold 5,845
Dividends and interest 22,279
Other assets 26,145
---------------
Total Assets 109,021,148
---------------
LIABILITIES
Payables and other accrued liabilities:
Investment securities purchased 3,848,236
Capital shares redeemed 17,406
Advisory fees 71,314
Shareholder servicing fees 13,839
Accounting fees 5,212
Distribution fees 15,311
Transfer agency fees 5,899
Custodian fees 1,463
Other 72,188
---------------
Total Liabilities 4,050,868
---------------
Net Assets $ 104,970,280
===============
COMPOSITION OF NET ASSETS
Capital (par value and paid-in surplus) $ 140,030,733
Accumulated net investment loss (457,458)
Accumulated net realized loss from security transactions (39,072,371)
Net unrealized appreciation on investments
and foreign currency translation 4,469,376
---------------
Total $ 104,970,280
===============
</Table>
18
<Page>
<Table>
CLASS A
Net Assets $ 1,506,775
Shares Outstanding 367,000
Net Asset Value, Redemption Price Per Share $ 4.11
Maximum offering price per share (net asset value
plus sales charge of 5.75% of offering price) $ 4.36
CLASS B
Net Assets $ 1,621,691
Shares Outstanding 410,787
Net Asset Value, Offering and Redemption Price (excluding
applicable contingent deferred sales charge) Per Share $ 3.95
CLASS C
Net Assets $ 476,412
Shares Outstanding 122,254
Net Asset Value, Offering and Redemption Price (excluding
applicable contingent deferred sales charge) Per Share $ 3.90
CLASS F
Net Assets $ 101,219,927
Shares Outstanding 24,159,197
Net Asset Value, Offering and Redemption Price Per Share $ 4.19
CLASS R
Net Assets $ 119,517
Shares Outstanding 28,844
Net Asset Value, Offering and Redemption Price Per Share $ 4.14
CLASS T
Net Assets $ 25,958
Shares Outstanding 6,647
Net Asset Value, Redemption Price Per Share $ 3.91
Maximum offering price per share (net asset value
plus sales charge of 4.50% of offering price) $ 4.09
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
19
<Page>
STATEMENT OF OPERATIONS
For the six months ended June 30, 2005 (UNAUDITED)
<Table>
INVESTMENT INCOME
Dividends $ 259,597
Interest 76,569
Foreign taxes withheld (460)
---------------
Total Investment Income 335,706
---------------
EXPENSES
Advisory fees--Note 2 443,324
Shareholder servicing fees--Note 2 80,268
Accounting fees--Note 2 32,491
Distribution fees--Note 2 71,870
Transfer agency fees--Note 2 43,732
Registration fees 27,890
Postage and mailing expenses 10,295
Custodian fees and expenses--Note 2 3,473
Printing expenses 22,920
Legal and audit fees 20,067
Directors' fees and expenses--Note 2 9,510
Other expenses 20,605
---------------
Total Expenses 786,445
Earnings Credits (3,398)
Reimbursed/Waived Expenses (1,868)
Expense Offset to Broker Commissions (7,648)
---------------
Net Expenses 773,531
---------------
Net Investment Loss (437,825)
---------------
REALIZED AND UNREALIZED GAIN (LOSS) ON SECURITY
TRANSACTIONS AND FOREIGN CURRENCY TRANSACTIONS
Net Realized Gain (Loss) on:
Security Transactions 11,009,332
Foreign Currency Transactions (2)
---------------
Net Realized Gain on Security and Foreign Currency Transactions 11,009,330
Net Change in Unrealized Appreciation/Depreciation
of Investments and Foreign Currency Translation (12,187,249)
---------------
Net Realized and Unrealized Loss (1,177,919)
---------------
Net Decrease in Net Assets Resulting from Operations $ (1,615,744)
===============
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
20
<Page>
STATEMENTS OF CHANGES IN NET ASSETS
(UNAUDITED)
<Table>
<Caption>
SIX MONTHS ENDED YEAR ENDED
6/30/05 12/31/04
OPERATIONS
Net Investment Loss $ (437,825) $ (1,149,129)
Net Realized Gain on Security and Foreign
Currency Transactions 11,009,330 32,490,110
Net Change in Unrealized Appreciation/Depreciation
of Investments and Foreign Currency Translation (12,187,249) (10,271,293)
--------------- --------------
Net Increase (Decrease) in Net Assets Resulting
from Operations (1,615,744) 21,069,688
--------------- --------------
CAPITAL SHARE TRANSACTIONS
Net Increase (Decrease)--Note 4
Class A (28,129) 152,338
Class B (165,250) (32,488)
Class C 54,514 45,566
Class F (16,492,016) (60,416,547)
Class R 48,598 (51,768)
Class T (12,913) (76)
--------------- --------------
Net Decrease from Capital Share Transactions (16,595,196) (60,302,975)
--------------- --------------
Net Decrease in Net Assets (18,210,940) (39,233,287)
--------------- --------------
NET ASSETS
Beginning of period $ 123,181,220 $ 162,414,507
--------------- --------------
End of period $ 104,970,280 $ 123,181,220
=============== ==============
Accumulated Net Investment Loss $ (457,458) $ (19,633)
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
21
<Page>
FINANCIAL HIGHLIGHTS
(UNAUDITED)
<Table>
<Caption>
SIX MONTHS YEAR ENDED
ENDED JUNE 30, DECEMBER 31,
2005 2004 2003 2002 2001
---------- ---------------------------------------------------
CLASS A SHARES
PER SHARE OPERATING DATA
Net Asset Value, beginning of period $ 4.15 $ 3.52 $ 2.58 $ 3.44 $ 4.38
- -----------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.02) (0.03) 0.03 (0.04) (0.06)
Net realized and unrealized gains
(losses) on securities (0.02) 0.66 0.91 (0.82) (0.88)
-----------------------------------------------------------------
Total from investment operations (0.04) 0.63 0.94 (0.86) (0.94)
- -----------------------------------------------------------------------------------------------------------------
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 0.00
-----------------------------------------------------------------
Total distributions 0.00 0.00 0.00 0.00 0.00
- -----------------------------------------------------------------------------------------------------------------
Net Asset Value, end of period $ 4.11 $ 4.15 $ 3.52 $ 2.58 $ 3.44
=================================================================
TOTAL RETURN(a) (0.96%) 17.90% 36.43% (25.00%) (21.46%)
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000s) $ 1,507 $ 1,546 $ 1,191 $ 476 $ 538
- -----------------------------------------------------------------------------------------------------------------
Ratios to average net assets(b):
Expenses with reimbursements, but no
earnings credits or brokerage offsets(c) 1.59% 1.54% 1.87% 2.15% 2.47%
Expenses with reimbursements,
earnings credits and brokerage offsets 1.56% 1.53% 1.86% 2.15% 2.46%
Net investment loss (0.93%) (1.07%) (1.38%) (1.81%) (1.93%)
- -----------------------------------------------------------------------------------------------------------------
Portfolio turnover rate(d) 195% 147% 160% 216% 214%
</Table>
(a). SALES CHARGES ARE NOT REFLECTED IN THE TOTAL RETURN.
(b). ANNUALIZED.
(c). CERTAIN FEES WERE WAIVED BY THE CUSTODIAN. THESE WAIVERS DID NOT HAVE AN
IMPACT ON THE EXPENSE RATIOS.
(d). PORTFOLIO TURNOVER RATE IS A MEASURE OF PORTFOLIO ACTIVITY THAT IS
CALCULATED BY DIVIDING THE LESSER OF PURCHASES OR SALES OF SECURITIES,
EXCLUDING SECURITIES HAVING MATURITY DATES AT ACQUISITION OF ONE YEAR OR
LESS, BY THE AVERAGE VALUE OF THE PORTFOLIO SECURITIES HELD DURING THE
PERIOD, WHICH IS A ROLLING 12-MONTH PERIOD.
22
<Page>
<Table>
<Caption>
SIX MONTHS YEAR ENDED
ENDED JUNE 30, DECEMBER 31,
2005 2004 2003 2002 2001
---------- ---------------------------------------------------
CLASS B SHARES
PER SHARE OPERATING DATA
Net Asset Value, beginning of period $ 4.01 $ 3.43 $ 2.54 $ 3.39 $ 4.32
- -----------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment loss (0.06) (0.07) (0.03) (0.05) (0.05)
Net realized and unrealized gains
(losses) on securities 0.00 0.65 0.92 (0.80) (0.88)
-----------------------------------------------------------------
Total from investment operations (0.06) 0.58 0.89 (0.85) (0.93)
- -----------------------------------------------------------------------------------------------------------------
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 0.00
-----------------------------------------------------------------
Total distributions 0.00 0.00 0.00 0.00 0.00
- -----------------------------------------------------------------------------------------------------------------
Net Asset Value, end of period $ 3.95 $ 4.01 $ 3.43 $ 2.54 $ 3.39
=================================================================
TOTAL RETURN(a) (1.50%) 16.91% 35.04% (25.07%) (21.53%)
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000s) $ 1,622 $ 1,823 $ 1,587 $ 969 $ 1,138
- -----------------------------------------------------------------------------------------------------------------
Ratios to average net assets(b):
Expenses with reimbursements, but no
earnings credits or brokerage offsets(c) 2.47% 2.37% 2.65% 2.68% 2.59%
Expenses with reimbursements,
earnings credits and brokerage offsets 2.44% 2.37% 2.64% 2.67% 2.58%
Net investment loss (1.82%) (1.90%) (2.16%) (2.33%) (2.06%)
- -----------------------------------------------------------------------------------------------------------------
Portfolio turnover rate(d) 195% 147% 160% 216% 214%
</Table>
(a). SALES CHARGES ARE NOT REFLECTED IN THE TOTAL RETURN.
(b). ANNUALIZED.
(c). CERTAIN FEES WERE WAIVED BY THE CUSTODIAN. THESE WAIVERS DID NOT HAVE AN
IMPACT ON THE EXPENSE RATIOS.
(d). PORTFOLIO TURNOVER RATE IS A MEASURE OF PORTFOLIO ACTIVITY THAT IS
CALCULATED BY DIVIDING THE LESSER OF PURCHASES OR SALES OF SECURITIES,
EXCLUDING SECURITIES HAVING MATURITY DATES AT ACQUISITION OF ONE YEAR OR
LESS, BY THE AVERAGE VALUE OF THE PORTFOLIO SECURITIES HELD DURING THE
PERIOD, WHICH IS A ROLLING 12-MONTH PERIOD.
SEE NOTES TO FINANCIAL STATEMENTS.
23
<Page>
<Table>
<Caption>
SIX MONTHS YEAR ENDED
ENDED JUNE 30, DECEMBER 31,
2005 2004 2003 2002 2001
---------- ---------------------------------------------------
CLASS C SHARES
PER SHARE OPERATING DATA
Net Asset Value, beginning of period $ 3.96 $ 3.38 $ 2.50 $ 3.36 $ 4.32
- -----------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment loss (0.03)(a) (0.06)(a) (0.10) (0.08) (0.08)
Net realized and unrealized gains
(losses) on securities (0.03) 0.64 0.98 (0.78) (0.88)
-----------------------------------------------------------------
Total from investment operations (0.06) 0.58 0.88 (0.86) (0.96)
- -----------------------------------------------------------------------------------------------------------------
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 0.00
-----------------------------------------------------------------
Total distributions 0.00 0.00 0.00 0.00 0.00
- -----------------------------------------------------------------------------------------------------------------
Net Asset Value, end of period $ 3.90 $ 3.96 $ 3.38 $ 2.50 $ 3.36
=================================================================
TOTAL RETURN(b) (1.52%) 17.16% 35.20% (25.60%) (22.22%)
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000s) $ 476 $ 428 $ 323 $ 274 $ 380
- -----------------------------------------------------------------------------------------------------------------
Ratios to average net assets(c):
Expenses with reimbursements, but no
earnings credits or brokerage offsets(d) 2.38% 2.32% 2.51% 2.99% 3.94%
Expenses with reimbursements,
earnings credits and brokerage offsets 2.36% 2.31% 2.51% 2.98% 3.93%
Net investment loss (1.73%) (1.83%) (2.02%) (2.65%) (3.41%)
- -----------------------------------------------------------------------------------------------------------------
Portfolio turnover rate(e) 195% 147% 160% 216% 214%
</Table>
(a). COMPUTED USING AVERAGE SHARES OUTSTANDING THROUGHOUT THE PERIOD.
(b). SALES CHARGES ARE NOT REFLECTED IN THE TOTAL RETURN.
(c). ANNUALIZED.
(d). 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 2.38% (2005), 2.32% (2004), 2.51% (2003), 3.04%
(2002), AND 4.25% (2001).
(e). PORTFOLIO TURNOVER RATE IS A MEASURE OF PORTFOLIO ACTIVITY THAT IS
CALCULATED BY DIVIDING THE LESSER OF PURCHASES OR SALES OF SECURITIES,
EXCLUDING SECURITIES HAVING MATURITY DATES AT ACQUISITION OF ONE YEAR OR
LESS, BY THE AVERAGE VALUE OF THE PORTFOLIO SECURITIES HELD DURING THE
PERIOD, WHICH IS A ROLLING 12-MONTH PERIOD.
24
<Page>
<Table>
<Caption>
SIX MONTHS YEAR ENDED
ENDED JUNE 30, DECEMBER 31,
2005 2004 2003 2002 2001
---------- ---------------------------------------------------
CLASS F SHARES
PER SHARE OPERATING DATA
Net Asset Value, beginning of period $ 4.24 $ 3.58 $ 2.62 $ 3.47 $ 4.36
- -----------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.02)(a) (0.03)(a) 0.02 (0.04) (0.05)
Net realized and unrealized gains
(losses) on securities (0.03) 0.69 0.94 (0.81) (0.84)
-----------------------------------------------------------------
Total from investment operations (0.05) 0.66 0.96 (0.85) (0.89)
- -----------------------------------------------------------------------------------------------------------------
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 0.00
-----------------------------------------------------------------
Total distributions 0.00 0.00 0.00 0.00 0.00
- -----------------------------------------------------------------------------------------------------------------
Net Asset Value, end of period $ 4.19 $ 4.24 $ 3.58 $ 2.62 $ 3.47
=================================================================
TOTAL RETURN (1.18%) 18.44% 36.64% (24.50%) (20.41%)
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000s) $ 101,220 $ 119,273 $ 159,161 $ 89,970 $ 119,708
- -----------------------------------------------------------------------------------------------------------------
Ratios to average net assets(b):
Expenses with reimbursements, but no
earnings credits or brokerage offsets(c) 1.43% 1.33% 1.51% 1.56% 1.39%
Expenses with reimbursements,
earnings credits and brokerage offsets 1.41% 1.33% 1.50% 1.56% 1.37%
Net investment loss (0.79%) (0.87%) (1.01%) (1.22%) (0.84%)
- -----------------------------------------------------------------------------------------------------------------
Portfolio turnover rate(d) 195% 147% 160% 216% 214%
</Table>
(a). COMPUTED USING AVERAGE SHARES OUTSTANDING THROUGHOUT THE PERIOD.
(b). ANNUALIZED.
(c). CERTAIN FEES WERE WAIVED BY THE CUSTODIAN. THESE WAIVERS DID NOT HAVE AN
IMPACT ON THE EXPENSE RATIOS.
(d). PORTFOLIO TURNOVER RATE IS A MEASURE OF PORTFOLIO ACTIVITY THAT IS
CALCULATED BY DIVIDING THE LESSER OF PURCHASES OR SALES OF SECURITIES,
EXCLUDING SECURITIES HAVING MATURITY DATES AT ACQUISITION OF ONE YEAR OR
LESS, BY THE AVERAGE VALUE OF THE PORTFOLIO SECURITIES HELD DURING THE
PERIOD, WHICH IS A ROLLING 12-MONTH PERIOD.
SEE NOTES TO FINANCIAL STATEMENTS.
25
<Page>
<Table>
<Caption>
SIX MONTHS YEAR ENDED
ENDED JUNE 30, DECEMBER 31,
2005 2004 2003 2002 2001
---------- ---------------------------------------------------
CLASS R SHARES
PER SHARE OPERATING DATA
Net Asset Value, beginning of period $ 4.19 $ 3.56 $ 2.61 $ 3.48 $ 4.39
- -----------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.02)(a) (0.04)(a) (0.03) (0.04) 0.01
Net realized and unrealized gains
(losses) on securities (0.03) 0.67 0.98 (0.83) (0.92)
-----------------------------------------------------------------
Total from investment operations (0.05) 0.63 0.95 (0.87) (0.91)
- -----------------------------------------------------------------------------------------------------------------
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 0.00
-----------------------------------------------------------------
Total distributions 0.00 0.00 0.00 0.00 0.00
- -----------------------------------------------------------------------------------------------------------------
Net Asset Value, end of period $ 4.14 $ 4.19 $ 3.56 $ 2.61 $ 3.48
=================================================================
TOTAL RETURN (1.19%) 17.70% 36.40% (25.00%) (20.73%)
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000s) $ 120 $ 71 $ 119 $ 77 $ 49
- -----------------------------------------------------------------------------------------------------------------
Ratios to average net assets(b):
Expenses with reimbursements, but no
earnings credits or brokerage offsets(c) 1.61% 1.48% 1.64% 1.97% 2.91%
Expenses with reimbursements,
earnings credits and brokerage offsets 1.58% 1.48% 1.64% 1.97% 2.89%
Net investment loss (0.96%) (1.03%) (1.15%) (1.63%) (2.40%)
- -----------------------------------------------------------------------------------------------------------------
Portfolio turnover rate(d) 195% 147% 160% 216% 214%
</Table>
(a). COMPUTED USING AVERAGE SHARES OUTSTANDING THROUGHOUT THE PERIOD.
(b). ANNUALIZED.
(c). 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 1.61% (2005), 1.48% (2004), 1.64% (2003), 3.49%
(2002), AND 57.54% (2001).
(d). PORTFOLIO TURNOVER RATE IS A MEASURE OF PORTFOLIO ACTIVITY THAT IS
CALCULATED BY DIVIDING THE LESSER OF PURCHASES OR SALES OF SECURITIES,
EXCLUDING SECURITIES HAVING MATURITY DATES AT ACQUISITION OF ONE YEAR OR
LESS, BY THE AVERAGE VALUE OF THE PORTFOLIO SECURITIES HELD DURING THE
PERIOD, WHICH IS A ROLLING 12-MONTH PERIOD.
26
<Page>
<Table>
<Caption>
SIX MONTHS YEAR ENDED
ENDED JUNE 30, DECEMBER 31,
2005 2004 2003 2002 2001
---------- ---------------------------------------------------
CLASS T SHARES
PER SHARE OPERATING DATA
Net Asset Value, beginning of period $ 3.97 $ 3.39 $ 2.51 $ 3.39 $ 4.35
- -----------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment loss (0.04)(a) (0.06) (0.02) (0.06) (0.11)
Net realized and unrealized gains
(losses) on securities (0.02) 0.64 0.90 (0.82) (0.85)
-----------------------------------------------------------------
Total from investment operations (0.06) 0.58 0.88 (0.88) (0.96)
- -----------------------------------------------------------------------------------------------------------------
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 0.00
-----------------------------------------------------------------
Total distributions 0.00 0.00 0.00 0.00 0.00
- -----------------------------------------------------------------------------------------------------------------
Net Asset Value, end of period $ 3.91 $ 3.97 $ 3.39 $ 2.51 $ 3.39
=================================================================
TOTAL RETURN(b) (1.51%) 17.11% 35.06% (25.96%) (22.07%)
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000s) $ 26 $ 40 $ 34 $ 20 $ 20
- -----------------------------------------------------------------------------------------------------------------
Ratios to average net assets(c):
Expenses with reimbursements, but no
earnings credits or brokerage offsets(d) 2.57% 2.26% 2.76% 3.64% 3.13%
Expenses with reimbursements,
earnings credits and brokerage offsets 2.55% 2.25% 2.76% 3.63% 3.11%
Net investment loss (1.92%) (1.78%) (2.27%) (3.29%) (2.57%)
- -----------------------------------------------------------------------------------------------------------------
Portfolio turnover rate(e) 195% 147% 160% 216% 214%
</Table>
(a). COMPUTED USING AVERAGE SHARES OUTSTANDING THROUGHOUT THE PERIOD.
(b). SALES CHARGES ARE NOT REFLECTED IN THE TOTAL RETURN.
(c). ANNUALIZED.
(d). 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 2.57% (2005), 2.26% (2004), 2.76% (2003), 10.30%
(2002), AND 28.91% (2001).
(e). PORTFOLIO TURNOVER RATE IS A MEASURE OF PORTFOLIO ACTIVITY THAT IS
CALCULATED BY DIVIDING THE LESSER OF PURCHASES OR SALES OF SECURITIES,
EXCLUDING SECURITIES HAVING MATURITY DATES AT ACQUISITION OF ONE YEAR OR
LESS, BY THE AVERAGE VALUE OF THE PORTFOLIO SECURITIES HELD DURING THE
PERIOD, WHICH IS A ROLLING 12-MONTH PERIOD.
SEE NOTES TO FINANCIAL STATEMENTS.
27
<Page>
NOTES TO FINANCIAL STATEMENTS
June 30, 2005 (UNAUDITED)
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
Dreyfus Founders Funds, Inc. (the "Company") is an open-end management
investment company registered under the Investment Company Act of 1940 (the
"1940 Act"). Ten series of shares are currently issued: Balanced, Discovery,
Equity Growth, 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 shares redeemed 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. Since February 22, 2005, New York closing exchange rates have
been used to convert foreign currencies to U.S. dollars. Previously, London
closing exchange rates were used to convert foreign currencies to U.S. dollars.
A debt security with a remaining maturity greater than 60 days at the time of
purchase is valued in accordance with the evaluated bid price supplied by a
pricing service approved by the Company's board of directors or, if such price
is not available, at the mean between the highest bid and lowest asked
quotations obtained from at least two securities dealers. A debt security with a
remaining maturity of 60 days or less at the time of purchase is valued at
amortized cost, which approximates market value, unless it is determined that
amortized cost would not represent market value, in which case the securities
would be marked to market. The Fund amortizes premiums and discounts on all debt
securities.
If market quotations 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
28
<Page>
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. In addition, it is possible
that the fair value determined for a security may be different from the value
that may be realized upon the security's sale, and that these differences may be
material to the net asset value of the Fund.
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
29
<Page>
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) 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 period 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.
30
<Page>
In accordance with an investment advisory agreement between the Company and
Founders, the Fund compensates Founders for its services as investment adviser
by the payment of fees computed daily and paid monthly at the annual rate equal
to a percentage of the average daily value of the Fund's net assets. The fee is
1.00% of the first $30 million of net assets, 0.75% of the next $270 million of
net assets, 0.70% of the next $200 million of net assets and 0.65% of net assets
in excess of $500 million.
SHAREHOLDER SERVICING AND TRANSFER AGENCY FEES FOR CLASS F SHARES--The Company
has a shareholder services agreement with Dreyfus Service Corporation ("DSC"),
the direct owner of Founders and a wholly-owned subsidiary of The Dreyfus
Corporation ("Dreyfus", an affiliate of Founders), whereby the Funds have agreed
to compensate DSC for providing certain shareholder servicing functions to
holders of Class F shares. The Fund paid DSC a monthly fee equal, on an annual
basis, to $24.00 per Class F shareholder account considered to be an open
account at any time during a given month. During the six months ended June 30,
2005, Class F shares were charged $75,695 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 six months ended June 30, 2005, Class F shares
were charged $27,420 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 $12.58 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, including both the per account fees paid to
DTI and out-of-pocket charges, during the six months ended June 30, 2005 were as
follows:
<Table>
<Caption>
TRANSFER
AGENCY FEES
--------------------------------------------------------------------
Class A $ 1,656
Class B $ 3,019
Class C $ 568
Class R $ 182
Class T $ 142
</Table>
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 six months ended June 30, 2005, the Fund was charged $1,379 for cash
management fees, which are included in the out-of-pocket transfer agency charges
above.
31
<Page>
OTHER TRANSFER AGENCY FEES--Various broker-dealers, retirement plan
administrators and other 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 six months ended
June 30, 2005, the Fund paid $10,745 to these entities for such services. This
amount is included in the transfer agency fees shown on the Statement of
Operations.
DISTRIBUTION AND SHAREHOLDER SERVICES PLANS--DSC also is the distributor of the
Fund's shares. The Fund has adopted a Distribution Plan pursuant to Rule 12b-1
under the 1940 Act applicable to its Class F shares. Under the plan, the Fund is
authorized to reimburse DSC for expenses paid for distributing or servicing its
Class F shares at an annual rate of up to 0.25% of the value of the average
daily net assets of the Fund's Class F shares. During the six months ended June
30, 2005, Class F shares were charged $63,832 pursuant to this Distribution
Plan.
The Fund also has adopted a Distribution Plan pursuant to Rule 12b-1 under the
1940 Act applicable to its Class B, Class C and Class T shares. Under this plan,
the Fund pays DSC a fee for distributing its Class B and C shares at the annual
rate of 0.75% of the value of the average daily net assets of its Class B and C
shares, respectively, and pays DSC a fee for distributing its Class T shares at
the annual rate of 0.25% of the average daily net assets of its Class T shares.
In addition, the Fund has adopted a Shareholder Services Plan applicable to its
Class A, Class B, Class C and Class T shares. Under the Shareholder Services
Plan, Class A, Class B, Class C and Class T shares pay DSC an annual fee of
0.25% of the value of their average daily net assets for the provision of
certain services.
Distribution and shareholder servicing fees paid to DSC by the Fund's Class A,
B, C and T shares for the six months ended June 30, 2005, were as follows:
<Table>
<Caption>
DISTRIBUTION SHAREHOLDER
FEES SERVICING FEES
--------------------------------------------------------------------
Class A N/A $ 1,869
Class B $ 6,391 $ 2,130
Class C $ 1,610 $ 537
Class T $ 37 $ 37
</Table>
During the six months ended June 30, 2005, DSC retained $1,514 in sales
commissions from the sales of Class A shares. DSC also retained $1,410 and $13
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
32
<Page>
net assets of the Fund in excess of $1 billion, plus reasonable out-of-pocket
expenses. Founders has contractually agreed in writing 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 contractually agreed in writing 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
--------------------------------------------------------------------
9/1/04 to 8/31/05 $ 200,000
9/1/05 to 8/31/06 $ 200,000
</Table>
The fee waiver is allocated among the Funds in proportion to their respective
shares of the total custodian fee. For the six months ended June 30, 2005, the
Fund's portion of the fee waiver was $1,868, which reduced the amount paid to
Mellon Bank to $1,605.
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.
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
33
<Page>
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. 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
June 30, 2005 are noted below. Unrealized appreciation/depreciation in the table
below excludes appreciation/depreciation on foreign currency translation, if
any. The primary difference between book and tax appreciation or depreciation is
wash sale loss deferrals.
<Table>
Federal Tax Cost $ 99,532,476
Gross Tax Appreciation of Investments $ 8,272,628
Gross Tax Depreciation of Investments $ (4,026,127)
Net Tax Appreciation $ 4,246,501
</Table>
4. CAPITAL SHARE TRANSACTIONS
The Fund is authorized to issue 500 million shares of $0.01 par value capital
stock. Transactions in shares of the Fund for the periods indicated were as
follows:
<Table>
<Caption>
SIX MONTHS ENDED YEAR ENDED
6/30/2005 12/31/2004
SHARES AMOUNT SHARES AMOUNT
CLASS A
Sold 100,690 $ 403,469 226,896 $ 852,592
Redeemed (105,994) $ (431,598) (193,006) $ (700,254)
--------------------------------------------------------------
Net Increase (Decrease) (5,304) $ (28,129) 33,890 $ 152,338
==============================================================
CLASS B
Sold 40,150 $ 157,645 89,684 $ 322,791
Redeemed (83,979) $ (322,895) (98,294) $ (355,279)
--------------------------------------------------------------
Net Decrease (43,829) $ (165,250) (8,610) $ (32,488)
==============================================================
</Table>
34
<Page>
<Table>
<Caption>
SIX MONTHS ENDED YEAR ENDED
6/30/2005 12/31/2004
SHARES AMOUNT SHARES AMOUNT
CLASS C
Sold 25,080 $ 96,933 110,256 $ 385,913
Redeemed (11,003) $ (42,419) (97,748) $ (340,347)
----------------------------------------------------------------
Net Increase 14,077 $ 54,514 12,508 $ 45,566
================================================================
CLASS F
Sold 658,250 $ 2,677,721 3,973,983 $ 14,909,282
Redeemed (4,661,355) $ (19,169,737) (20,268,328) $ (75,325,829)
----------------------------------------------------------------
Net Decrease (4,003,105) $ (16,492,016) (16,294,345) $ (60,416,547)
================================================================
CLASS R
Sold 15,110 $ 61,832 23,623 $ 90,989
Redeemed (3,227) $ (13,234) (40,138) $ (142,757)
----------------------------------------------------------------
Net Increase (Decrease) 11,883 $ 48,598 (16,515) $ (51,768)
================================================================
CLASS T
Sold 0 $ 0 1,380 $ 4,956
Redeemed (3,319) $ (12,913) (1,452) $ (5,032)
----------------------------------------------------------------
Net Decrease (3,319) $ (12,913) (72) $ (76)
================================================================
</Table>
5. INVESTMENT TRANSACTIONS
For the six months ended June 30, 2005, purchases and sales of investment
securities (excluding short-term securities and U.S. government obligations)
were $101,116,063 and $121,701,229, 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 June 30, 2005, the Fund did not have any borrowings under the LOC.
35
<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.
36
<Page>
This page intentionally left blank.
<Page>
FOR MORE INFORMATION
- -------------------------------------------------------------------------------
DREYFUS FOUNDERS TRANSFER AGENT &
MID-CAP GROWTH FUND DIVIDEND DISBURSING AGENT
MANAGER Dreyfus Transfer, Inc.
200 Park Avenue
Founders Asset New York, NY 10166
Management LLC
210 University Boulevard DISTRIBUTOR
Suite 800
Denver, CO 80206 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, 2005, is
available 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 Founders Asset Management LLC 0291SA0605
<Page>
Dreyfus Founders
Passport Fund
SEMIANNUAL REPORT June 30, 2005
[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
</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 3-9 were owned by the Fund on June 30, 2005. The amounts of
these holdings are included in the Statement of Investments.
NOT FDIC-INSURED - NOT BANK-GUARANTEED - MAY LOSE VALUE
<Page>
MANAGEMENT OVERVIEW
[PHOTO OF TRACY P. STOUFFER]
A DISCUSSION WITH PORTFOLIO MANAGER TRACY P. STOUFFER, CFA, REGARDING FUND
PERFORMANCE FOR THE SIX-MONTH PERIOD ENDED JUNE 30, 2005.
WEAK INVESTING ENVIRONMENT
Although the first quarter of 2005 provided a difficult international investing
environment, the second quarter presented an even more challenging one. Major
currencies, including the euro and the yen, dropped against the U.S. dollar,
depressing investment returns. Fears of a slowdown in the Chinese and U.S.
economies, along with rising transportation, raw materials and energy costs, and
higher interest rates, plagued investor sentiment worldwide.
In Europe, French and Dutch "no" votes on the European Union constitution
drew much attention during the period. On the positive side, the European region
continued to enjoy significant merger and acquisition activity. While the
benefits of anticipated synergies are yet to be determined, these transactions
highlighted the abundant liquidity in European markets.
For the period ended June 30, 2005, the 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 4.13%. The
Fund's performance compared favorably(1) to the large-cap MSCI World ex U.S.
Index, which returned -0.71% for the six-month timeframe.
OIL STOCKS AIDED PERFORMANCE
Crude oil prices continued to increase during the period, surpassing $60 per
barrel. As the first quarter experienced a glut, the second quarter found an
acute capacity squeeze through a lack of storage, ports, facilities and boats.
- ----------
(1) Excluding sales charges, which result in lower returns for certain
share classes. Please see page 7 for Average Annual and Year-to-Date Total
Returns for all share classes, including and excluding sales charges.
The Morgan Stanley Capital International (MSCI) World ex U.S. Small Cap Index
measures global performance of small capitalization securities outside of the
United States. The total return figures cited for this index assume change in
share price and reinvestment of dividends after the deduction of local taxes,
but do not reflect the costs of managing a mutual fund.
3
<Page>
These factors combined to boost the performance of many oil services companies.
Norway performed strongly from its heavy weighting in this industry, with oil
services companies such as FRED OLSEN ENERGY ASA posting a positive return.
France's VALLOUREC SA also saw a stock price increase in this high price and
high demand oil environment. The Fund continued to hold numerous oil services
stocks as capacity constraints benefited these companies through the end of the
period.
CONSUMER-RELATED STOCKS HELPED FUND RETURN
Some of the Fund's top-performing holdings during the period were found in the
consumer discretionary sector. Although Internet gaming is not a new industry,
the advent of televised poker tournaments has pumped energy and money into
online gaming, particularly online poker. The Fund found numerous growth
opportunities in this industry; gaming host companies such as BETandWIN.com
Interactive as well as Britain's Gaming VC Holdings SA reaped the benefits of
this surging popularity during the period. BetandWin.com was one of Austria's,
as well as the Fund's, stronger individual performers. Although the Fund
benefited from these stocks, it exited its positions in these companies by the
end of the period, as more compelling growth opportunities were found in other
areas. A broker of entertainment tickets, Germany's CTS EVENTIM AG, also
positively impacted Fund performance in this sector.
Strong stock selection in the consumer staples sector also aided the Fund's
relative return.
TOP 3 PERFORMING SECTORS IN THE FUND
Consumer Discretionary
Energy
Consumer Staples
GREEN PUSH LIFTED RETURN
Despite multiple negative headwinds facing small-cap stocks, the Fund found
strong growth prospects in renewable energy sources, such as solar and biofuels,
which benefited during the period from both pricing and policy. Beyond the
measures implemented due to the Kyoto Protocol, an agreement by various
countries to reduce emissions of greenhouse gases, legislation is being passed
in many countries, primarily in Europe, which mandates the use of renewable
energy. For example, the United Kingdom has legislated that 20% of all new
construction's energy come from renewable sources. This also will apply to all
new construction for the Olympic games in 2012. Many
4
<Page>
companies are benefiting, particularly in the solar component market, from this
green push. In fact, manufacturers of polysilicon and the solar wafers used in
solar panels' photovoltaic cells boosted the Fund's performance during the
period; the relative performance of Taiwan and Germany, in which many of these
companies are domiciled, was aided in part by this industry. German holding
SolarWorld AG was among the Fund's top performers for the period.
COUNTRIES IMPACTED PERFORMANCE
Retailer IC COMPANYS AS, a Danish holding, performed well for the Fund due to a
recently implemented comprehensive restructuring plan. The Fund's position in
India was positively impacted by the performance of stocks such as equity
brokerage house INDIABULLS FINANCIAL SERVICES and low-cost airline company
SPICEJET LIMITED. The Fund's position in Germany benefited from the
aforementioned SolarWorld AG and CTS Eventim AG. Semiconductor issue WAFER WORKS
CORPORATION also aided the Fund's return from Taiwan.
The Fund's holdings in Hong Kong suffered during the period primarily due to
the effect of interest rate increases on the country's pegged currency, as well
as its association with China. Our positions in Australia, South Korea,
Singapore and Italy also underperformed overall.
LARGEST EQUITY HOLDINGS (country of origin; ticker symbol)
<Table>
<Caption>
1. EMPIRE ONLINE LIMITED 144A (United Kingdom; EOL) 1.22%
2. SINVEST ASA (Norway; SIN) 1.21%
3. APL AS (Norway; APL) 1.21%
4. MICRO FOCUS INTERNATIONAL PLC (United Kingdom; MCRO) 1.16%
5. OCEAN RIG ASA (Norway; OCR) 1.15%
6. ULTRA ELECTRONICS HOLDINGS PLC (United Kingdom; ULE) 1.15%
7. MEDA AB CLASS A (Sweden; MEDAA) 1.13%
8. SPICEJET LIMITED (India; MFT) 1.11%
9. DON QUIJOTE COMPANY LIMITED (Japan; 7532) 1.10%
10. AKER KVAERNER ASA (Norway; AKVR) 1.09%
</Table>
Portfolio holdings are subject to change, and should not be construed as a
recommendation of any security.
[SIDENOTE
"RENEWABLE ENERGY SOURCES, SUCH AS SOLAR AND BIOFUELS, BENEFITED DURING THE
PERIOD FROM BOTH PRICING AND POLICY."
5
<Page>
GROWTH OF $10,000 INVESTMENT
PERFORMANCE DATA QUOTED REPRESENTS PAST PERFORMANCE. PAST PERFORMANCE DOES NOT
GUARANTEE FUTURE RESULTS. INVESTMENT RETURN AND PRINCIPAL VALUE OF AN INVESTMENT
WILL FLUCTUATE SO THAT AN INVESTOR'S SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR
LESS THAN THEIR ORIGINAL COST. CURRENT PERFORMANCE MAY BE LOWER OR HIGHER THAN
THE PERFORMANCE DATA QUOTED. PLEASE CALL 1-800-525-2440 TO OBTAIN THE MOST
RECENT MONTH-END PERFORMANCE DATA.
[CHART]
Dreyfus Founders
Passport Fund MSCI World
Class F Shares ex U.S. Index
06/30/1995 $10,000.00 $10,000.00
06/28/1996 $12,907.52 $11,335.14
06/30/1997 $14,369.46 $12,868.78
06/30/1998 $16,635.62 $13,678.85
06/30/1999 $16,638.83 $14,686.76
06/30/2000 $25,644.34 $17,446.85
06/29/2001 $15,652.42 $13,288.24
06/28/2002 $14,250.08 $12,035.91
06/30/2003 $14,122.59 $11,364.24
06/30/2004 $20,709.36 $14,995.31
06/30/2005 $24,038.16 $17,177.64
The above graph compares a $10,000 investment made in Class F shares of Dreyfus
Founders Passport Fund on 6/30/95 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 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>
<Table>
<Caption>
AVERAGE ANNUAL AND YEAR-TO DATE TOTAL RETURN as of 6/30/05
YEAR-TO 1 5 10 SINCE
CLASS (INCEPTION DATE) DATE+ YEAR YEARS YEARS INCEPTION
----------------------------------------------------------------------------------------------------------
A SHARES (12/31/99)
With sales charge (5.75%) (4.61%) 9.35% (2.48%) -- (4.12%)
Without sales charge 1.19% 16.01% (1.32%) -- (3.08%)
B SHARES (12/31/99)
With redemption* (3.25%) 10.96% (2.49%) -- (4.01%)
Without redemption 0.75% 14.96% (2.14%) -- (3.86%)
C SHARES (12/31/99)
With redemption** (0.19%) 14.06% (2.12%) -- (3.87%)
Without redemption 0.81% 15.06% (2.12%) -- (3.87%)
F SHARES (11/16/93) 1.25% 16.07% (1.29%) 9.17% 8.37%
R SHARES (12/31/99) 1.29% 16.17% (1.87%) -- (3.55%)
T SHARES (12/31/99)
With sales charge (4.50%) (3.63%) 10.20% (3.09%) -- (4.68%)
Without sales charge 0.93% 15.38% (2.19%) -- (3.88%)
</Table>
Average annual and year-to-date total returns do not reflect the deduction of
taxes that a shareholder would pay on Fund distributions or redemption of Fund
shares, but do reflect the reinvestment of dividends and capital gain
distributions, fee waivers, and adjustments for financial statement purposes.
Part of the Fund's historical performance is due to the purchase of securities
sold in initial public offerings (IPOs). There is no guarantee that the Fund's
investments in IPOs, if any, will continue to have a similar impact on
performance. There are risks associated with small-cap investments such as
limited product lines, less liquidity, and small market share. Investments in
foreign securities entail unique risks, including political, market, and
currency risks.
* The maximum contingent deferred sales charge for Class B shares is 4% and is
reduced to 0% after six years, at which time the Class B shares convert to
Class A shares.
** The maximum contingent deferred sales charge for Class C shares is 1% for
shares redeemed within one year of the date of purchase.
+ Total return is not annualized.
7
<Page>
SELECT SECTORS DETRACTED
The Fund held an underweight position in the financials sector at the end of the
period. Paired with weak individual stock performance, primarily from Japanese
real estate companies, Islamic Bank of Britain PLC and Upbest Group Limited, the
Fund's relative return suffered. Industrials and telecommunications services
holdings also underperformed for the Fund.
COMPANY-SPECIFIC DISAPPOINTMENTS
Although the consumer discretionary sector provided a positive impact during the
period, numerous holdings in this sector underperformed. Among them were
France's 123 MULTIMEDIA, clothing retailer RNB Retail and Brands AB, Gentosha,
Inc., and Hong Kong's Pearl Oriental Enterprises Limited. Gentosha, a Japanese
bookstore, fell as the market awaited the outcome of the company's internal
restructuring efforts.
[CHART]
PORTFOLIO COMPOSITION OF NET ASSETS
<Table>
Japan 18.98%
United Kingdom 10.54%
India 10.04%
Norway 9.49%
South Korea 6.18%
Canada 5.30%
Taiwan 5.13%
Singapore 4.36%
Other Countries 27.71%
Cash & Equivalents 2.27%
</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>
BOTTOM 3 PERFORMING SECTORS IN THE FUND
Financials
Industrials
Telecommunications Services
Information technology holdings Cyber Agent Limited, PChome Online and Boss
Media AB also declined during the half. PChome Online's stock fell due to a
change in the company's business model, resulting in much lower margins.
D1 OILS PLC also detracted from the Fund's return in spite of the strong
performance of the energy sector.
IN CONCLUSION
At the end of the period, we continued to find investment opportunities in
sectors with shortages or bottlenecks, including energy infrastructure,
renewable energy and energy conservation plays. We also were very positive on
companies that contribute to the development of the sophistication of financial
markets and products. Finally, we were looking for opportunities to invest in
beneficiaries of petrodollars.
As always, we continue to seek out international small-cap companies with the
strongest growth potential by intensive analysis, management contact and
fundamental, bottom-up research.
/s/ Tracy P. Stouffer
Tracy P. Stouffer, CFA
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 January 1, 2005
and held through June 30, 2005.
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 FOR COMPARISON PURPOSES 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*
(1/1/05) (6/30/05) (1/1/05-6/30/05)
- ------------------------------------------------------------------------------------------
CLASS A ACTUAL $ 1,000.00 $ 1,001.71 $ 10.23
CLASS A HYPOTHETICAL 1,000.00 1,014.50 10.29
CLASS B ACTUAL 1,000.00 992.92 14.53
CLASS B HYPOTHETICAL 1,000.00 1,010.14 14.66
CLASS C ACTUAL 1,000.00 993.80 14.29
CLASS C HYPOTHETICAL 1,000.00 1,010.39 14.41
CLASS F ACTUAL 1,000.00 1,002.60 9.93
CLASS F HYPOTHETICAL 1,000.00 1,014.80 9.99
CLASS R ACTUAL 1,000.00 1,003.55 9.33
CLASS R HYPOTHETICAL 1,000.00 1,015.41 9.39
CLASS T ACTUAL 1,000.00 996.88 12.46
CLASS T HYPOTHETICAL 1,000.00 1,012.24 12.55
</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
181/365 (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, earnings credits and brokerage
offsets, where applicable.
<Table>
<Caption>
EXPENSE RATIO
- ---------------------------------------------------
CLASS A 2.05%
CLASS B 2.92%
CLASS C 2.87%
CLASS F 1.99%
CLASS R 1.87%
CLASS T 2.50%
</Table>
11
<Page>
STATEMENT OF INVESTMENTS
JUNE 30, 2005 (UNAUDITED)
<Table>
<Caption>
SHARES MARKET VALUE
- --------------------------------------------------------------------------------
COMMON STOCKS (FOREIGN)--97.4%
AEROSPACE & DEFENSE--1.9%
231,961 Taneja Aerospace Aviation (IN)* $ 423,641
80,000 Ultra Electronics Holdings PLC (UK) 1,153,915
50,000 VT Group PLC (UK) 316,252
---------------
1,893,808
---------------
AGRICULTURAL PRODUCTS--0.3%
425,000 Petra Foods Limited (SG) 262,174
---------------
AIR FREIGHT & LOGISTICS--0.5%
166 World Logi Company Limited (JA)* 459,490
---------------
AIRLINES--1.1%
735,000 SpiceJet Limited (IN)* 1,110,742
---------------
APPAREL RETAIL--2.0%
61 Link Theory Holdings Company Limited (JA) 482,346
151,500 Mulberry Group PLC (UK)* 417,690
14,800 Point, Inc. (JA) 581,805
58,475 Shoppers' Stop Limited (IN)* 485,084
---------------
1,966,925
---------------
APPAREL, ACCESSORIES & LUXURY GOODS--1.2%
11,800 IC Companys AS (DE)* 527,025
51,000 Mariella Burani Spa (IT) 654,859
---------------
1,181,884
---------------
APPLICATION SOFTWARE--1.2%
406,775 Micro Focus International PLC (UK)* 1,166,171
---------------
BREWERS--0.3%
585 Harboes Bryggeri AS Class B (DE) 258,429
---------------
BROADCASTING & CABLE TV--0.4%
10,000 Qrix Communication, Inc. (KR) 381,344
---------------
</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.
<Table>
AU Australia
BD Bermuda
BE Belgium
CA Canada
CN China
DE Denmark
FI Finland
FR France
GE Germany
GR Greece
HK Hong Kong
ID Indonesia
IN India
IT Italy
JA Japan
KR South Korea
MA Malaysia
NE Netherlands
NW Norway
PH Philippines
SG Singapore
SP Spain
SW Sweden
SZ Switzerland
TH Thailand
TU Turkey
TW Taiwan
UK United Kingdom
</Table>
12
<Page>
<Table>
<Caption>
SHARES MARKET VALUE
- --------------------------------------------------------------------------------
BUILDING PRODUCTS--0.5%
195,050 Lloyd Electric & Engineering (IN)* $ 489,251
---------------
CASINOS & GAMING--3.7%
375,000 Empire Online Limited 144A (UK)*+ 1,218,935
342,475 IG Group Holdings PLC (UK)* 898,989
744,000 Melco International Development Limited (HK) 890,387
35,000 Unibet Group PLC (SW) 716,855
---------------
3,725,166
---------------
COMMODITY CHEMICALS--1.6%
20,570,000 Daqing Petroleum and Chemical Group Limited (HK) 1,085,279
20,000 Soken Chemical & Engineering Company Limited (JA) 504,914
---------------
1,590,193
---------------
COMMUNICATIONS EQUIPMENT--3.4%
402,000 CyberTAN Technology, Inc. (TW) 299,517
18,200 Digital Multimedia Technologies SPA (IT)* 576,198
179,350 Exfo Electro-Optical Engineering, Inc. (CA)* 778,379
70,000 Giant Wireless Technology Limited (SG) 21,176
64,600 RTX Telecom AS (DE)* 786,884
127,000 Tamura Taiko Holdings, Inc. (JA) 1,000,793
---------------
3,462,947
---------------
COMPUTER STORAGE & PERIPHERALS--0.8%
3,250,000 Anwell Technologies Limited (SG) 385,551
56,000 King Slide Works Company Limited (TW) 387,182
---------------
772,733
---------------
CONSTRUCTION & ENGINEERING--3.5%
83,050 Abengoa SA (SP) 964,880
87,000 Chiyoda Corporation (JA) 1,078,577
22,350 Korea Development Corporation (KR) 522,832
2,000,000 Power Line Engineering Public Company Limited
Foreign Shares (TH)# 435,572
80,000 WorleyParsons Limited (AU) 480,475
---------------
3,482,336
---------------
CONSTRUCTION MATERIALS--0.2%
49,000 Cimsa Cimento Sanayi ve Ticaret AS (TU) 235,701
---------------
CONSTRUCTION, FARM MACHINERY & HEAVY TRUCKS--1.7%
28,200 Aker Yards AS (NW) 1,087,553
25,000 STX Shipbuilding Company Limited (KR) 592,073
---------------
1,679,626
---------------
DEPARTMENT STORES--0.7%
19,350 Stockmann AB Class B (FI) 690,821
---------------
DISTILLERS & VINTNERS--0.5%
54,825 Radico Khaitan Limited (IN) 519,813
---------------
</Table>
SEE NOTES TO STATEMENT OF INVESTMENTS.
13
<Page>
<Table>
<Caption>
SHARES MARKET VALUE
- --------------------------------------------------------------------------------
DIVERSIFIED COMMERCIAL & PROFESSIONAL SERVICES--1.4%
22 First Energy Service Company Limited (JA)* $ 493,914
600,000 Raffles Education Corporation Limited (SG) 266,920
35,000 Ramirent Oyj (FI) 656,965
---------------
1,417,799
---------------
DIVERSIFIED METALS & MINING--3.4%
208,275 Birch Mountain Resources Limited (CA)* 469,180
192,425 HEG Limited (IN) 621,647
100,000 International Uranium Corporation (CA)* 432,582
64,300 Major Drilling Group International, Inc. (CA)* 635,023
13,000 Toho Titanium Company Limited (JA) 478,226
180,000 Uranium Participation Corporation 144A (CA)*+ 822,723
---------------
3,459,381
---------------
ELECTRIC UTILITIES--0.5%
180,000 Webel-Sl Energy Systems Limited (IN)* 486,072
---------------
ELECTRICAL COMPONENTS & EQUIPMENT--1.6%
1,000,000 Magnecomp International Limited (SG) 566,463
1,000,000 Surface Mount Technology (Holdings) Limited (SG) 415,208
289,000 VTech Holdings Limited (HK) 674,990
---------------
1,656,661
---------------
ELECTRONIC EQUIPMENT MANUFACTURERS--4.9%
294,000 Cheng Uei Precision Industry Company Limited (TW) 858,564
8,400 HF Company (FR) 505,240
62,200 Micronic Laser Systems AB (SW)* 696,694
87,750 Rotork PLC (UK) 746,842
10,160 SFA Engineering Corporation (KR) 263,698
114,000 Simplo Technology Company Limited (TW) 282,526
774,000 Sino-American Silicon Products, Inc. (TW) 1,029,964
27,810 Telechips, Inc. (KR) 517,489
---------------
4,901,017
---------------
ELECTRONIC MANUFACTURING SERVICES--0.7%
61,710 ADP Engineering Company Limited (KR)* 683,015
---------------
ENVIRONMENTAL & FACILITIES SERVICES--0.5%
374 Nippon Jogesuido Sekkei Company Limited (JA) 499,071
---------------
GAS UTILITIES--0.7%
138,000 Shizuoka Gas Company Limited (JA) 707,979
---------------
GENERAL MERCHANDISE STORES--1.1%
20,300 Don Quijote Company Limited (JA) 1,105,509
---------------
HEALTHCARE EQUIPMENT--0.8%
6,800 Ypsomed Holding AG (SZ)* 777,370
---------------
HEALTHCARE FACILITIES--0.9%
26,025 Generale de Sante (FR) 636,216
39,000 Nichiryoku Company Limited (JA) 232,080
---------------
868,296
---------------
</Table>
14
<Page>
<Table>
<Caption>
SHARES MARKET VALUE
- --------------------------------------------------------------------------------
HEALTHCARE SERVICES--0.6%
45,000 RaySearch Laboratories AB (SW)* $ 604,846
---------------
HOMEBUILDING--0.3%
134,968 D.S. Kulkarni Developers (IN) 260,002
---------------
HOTELS, RESORTS & CRUISE LINES--1.4%
60,000 De Vere Group PLC (UK) 606,343
180,000 Formosa International Hotels Corporation (TW) 302,320
121,850 Hotel Leelaventure Limited (IN) 526,499
---------------
1,435,162
---------------
INDUSTRIAL MACHINERY--2.3%
350,000 Japan Steel Works Limited (JA) 953,025
12,000 KCI Konecranes Oyj (FI) 511,921
30,000 Metka SA (GR) 267,941
3,000,000 Midas Holdings Limited (SG) 533,839
---------------
2,266,726
---------------
INTEGRATED TELECOMMUNICATION SERVICES--1.0%
100 M.P. Technologies, Inc. (JA) 515,733
250,000 Spanco Telesystems and Solutions Limited (IN) 463,197
---------------
978,930
---------------
INTERNET SOFTWARE & SERVICES--2.9%
75 DeNA Company Limited (JA)* 632,269
226 Digital Arts, Inc. (JA)* 821,189
22 Gourmet Navigator, Inc. (JA)* 116,238
88 Gourmet Navigator, Inc. New Shares (JA)* 386,403
121,300 Thomson Intermedia PLC (UK)* 423,822
25,940 Webzen, Inc. (KR) 495,230
---------------
2,875,151
---------------
INVESTMENT BANKING & BROKERAGE--0.6%
45 Fintech Global, Inc. (JA)* 616,716
---------------
IT CONSULTING & OTHER SERVICES--2.3%
165,000 AffectoGenimap Oyj (FI)* 910,565
1,500,000 CSE Global Limited (SG) 609,467
120,750 Transcom WorldWide SA Class B (SW)* 766,676
---------------
2,286,708
---------------
LEISURE FACILITIES--0.7%
302,975 Goals Soccer Centres PLC (UK)* 678,586
---------------
MARINE--2.2%
25,000 Cargotec Corporation Class B (FI)* 697,991
63,500 Geo ASA 144A (NW)*+^# 194,359
19,350 Koninklijke Vopak NV (NE) 488,492
1,697,000 Labroy Marine Limited (SG) 805,267
---------------
2,186,109
---------------
</Table>
SEE NOTES TO STATEMENT OF INVESTMENTS.
15
<Page>
<Table>
<Caption>
SHARES MARKET VALUE
- --------------------------------------------------------------------------------
MOVIES & ENTERTAINMENT--1.9%
17,000 123 Multimedia (FR) $ 639,840
21,300 Club iT Corporation (JA)* 460,914
18,400 CTS Eventim AG (GE)* 772,698
---------------
1,873,452
---------------
MULTI-SECTOR HOLDINGS--0.6%
15,000 Ackermans & van Haaren NV (BE) 630,643
---------------
OIL & GAS DRILLING--2.7%
41,200 Fred Olsen Energy ASA (NW)* 1,052,967
140,000 Ocean Rig ASA (NW)* 1,156,972
150,950 Saxon Energy Services, Inc. (CA)* 480,497
---------------
2,690,436
---------------
OIL & GAS EQUIPMENT & SERVICES--5.9%
27,000 Aker Kvaerner ASA (NW)* 1,097,057
111,200 APL AS (NW)* 1,208,270
16,475 Exploration Resources ASA (NW)* 474,006
210,000 Sinvest ASA (NW)* 1,211,606
56,000 Stolt Offshore SA (NW)* 512,067
1,607 Vallourec SA (FR) 462,477
601,975 Welspun Gujarat Stahl Rohren Limited (IN)* 933,252
---------------
5,898,735
---------------
OIL & GAS EXPLORATION & PRODUCTION--3.1%
150,000 Find Energy Limited (CA)* 500,735
143,800 Revus Energy ASA (NW)* 988,112
447,450 UTS Energy Corporation (CA)* 938,579
110,000 Venture Production PLC (UK)* 727,782
---------------
3,155,208
---------------
OIL & GAS REFINING & MARKETING--1.0%
47,500 D1 Oils PLC (UK)* 263,842
15,000 Motor Oil (Hellas) Corinth Refineries SA (GR) 222,195
173,000 Singapore Petroleum Company Limited (SG) 508,974
---------------
995,011
---------------
OIL & GAS STORAGE & TRANSPORTATION--0.5%
224,250 Aygaz AS (TU) 522,492
---------------
OTHER DIVERSIFIED FINANCIAL SERVICES--0.9%
249,575 Indiabulls Financial Services (IN)* 929,412
---------------
PACKAGED FOODS & MEATS--0.8%
1,050 Hiestand Holding AG (SZ) 826,726
---------------
PAPER PACKAGING--0.6%
1,066,000 Vision Grande Group Holdings Limited (HK) 603,577
---------------
PHARMACEUTICALS--3.1%
25,580 Boryung Pharmaceutical Company (KR) 704,717
21,470 Il Dong Pharmaceutical Company (KR) 691,108
300,000 Kopran Limited (IN)* 566,532
111,500 Meda AB Class A (SW) 1,134,711
---------------
3,097,068
---------------
</Table>
16
<Page>
<Table>
<Caption>
SHARES MARKET VALUE
- --------------------------------------------------------------------------------
PUBLISHING--0.5%
450 Chintai Jutaku News Company Limited (JA) $ 555,856
---------------
REAL ESTATE INVESTMENT TRUSTS--0.7%
415,000 Yapi Kredi Koray Gayrimenkul Yatirim Ortakligi
AS (TU)* 745,472
---------------
REAL ESTATE MANAGEMENT & DEVELOPMENT--4.2%
379 Arealink Company Limited (JA) 744,946
139 Arealink Company Limited New Shares (JA)*# 259,552
282,500 Expomedia Group PLC (UK)* 663,098
24,600 FJ Next Company Limited (JA) 290,560
172 RISA Partners, Inc. (JA)* 555,189
2,000,000 Rojana Industrial Park Public Company Limited
Foreign Shares (TH)# 375,076
199 Sun Frontier Fudousan Company Limited (JA) 654,900
30,000 Touei Housing Corporation (JA) 630,241
---------------
4,173,562
---------------
REGIONAL BANKS--2.0%
3,675 Forstaedernes Bank AS (DE) 360,278
60,000 Geniki Bank (GR)* 559,119
4,994,500 Lippo Bank TBK PT (ID)* 603,843
790 Ringkjoebing Landbobank Aktieselskab (DE) 365,670
100,000 Yes Bank Limited (IN)*# 103,508
---------------
1,992,418
---------------
SEMICONDUCTOR EQUIPMENT--1.4%
36,320 Jusung Engineering Company Limited (KR) 484,501
86,175 Silicon-On-Insulator Technologies (FR)* 938,612
---------------
1,423,113
---------------
SEMICONDUCTORS--3.8%
160,000 Elite Semiconductor Memory Technologies, Inc. (TW) 313,181
41,800 MegaChips Corporation (JA) 489,193
148 Nihon Aim Company Limited (JA) 813,993
52,500 Nordic Semiconductor ASA (NW)* 528,270
309,000 System General Corporation (TW)* 613,610
1,318,000 Wafer Works Corporation (TW)* 1,061,058
---------------
3,819,305
---------------
SOFT DRINKS--0.7%
753,500 Mount Everest Mineral Water (IN)* 736,601
---------------
SPECIALIZED CONSUMER SERVICES--0.4%
25,000 Homeserve PLC (UK) 445,709
---------------
SPECIALIZED FINANCE--1.9%
1,334,000 Fil-Hispano Holdings Corporation (PH)* 157,292
142,175 FireOne Group PLC (UK)* 840,669
724,346 SREI Infrastructure Finance Limited (IN) 961,352
---------------
1,959,313
---------------
</Table>
SEE NOTES TO STATEMENT OF INVESTMENTS.
17
<Page>
<Table>
<Caption>
SHARES MARKET VALUE
- --------------------------------------------------------------------------------
SPECIALTY CHEMICALS--2.3%
25,900 Auriga Industries AS Class B (DE) $ 757,162
81,300 Shinwha Intertek Corporation (KR) 860,546
101,000 Tokuyama Corporation (JA) 719,412
---------------
2,337,120
---------------
SYSTEMS SOFTWARE--0.5%
12,500 Software AG (GE) 516,610
---------------
TEXTILES--1.2%
114,875 SRF Limited (IN) 451,177
152,000 Toho Tenax Company Limited (JA)* 735,948
---------------
1,187,125
---------------
TRADING COMPANIES & DISTRIBUTORS--0.4%
200,000 BSL Corporation (JA) 449,013
---------------
TOTAL COMMON STOCKS (FOREIGN)
(COST--$94,891,050) 97,644,637
---------------
<Caption>
UNITS MARKET VALUE
- --------------------------------------------------------------------------------
FOREIGN RIGHTS AND WARRANTS--0.3%
ELECTRIC UTILITIES--0.2%
424,000 VRB Power Systems Special Warrants 144A,
expire 2005 (CA)*+^# $ 249,167
---------------
INTEGRATED TELECOMMUNICATION SERVICES--0.0%
600,000 Yangtze Telecom Corporation Warrants, expire
2005 (CN)*^# 0
---------------
PUBLISHING--0.1%
204,677 Media Prima Berhad ICULS (MA) 53,054
---------------
REGIONAL BANKS--0.0%
60,000 Geniki Bank SA Rights (GR)* 37,759
---------------
TOTAL FOREIGN RIGHTS AND WARRANTS
(COST--$367,083) 339,980
---------------
<Caption>
PRINCIPAL AMOUNT AMORTIZED COST
- --------------------------------------------------------------------------------
CORPORATE SHORT-TERM NOTES--4.1%
HOUSEHOLD APPLIANCES--4.1%
$ 4,100,000 Stanley Works, Inc.
3.37% 7/1/05~ $ 4,100,000
---------------
TOTAL CORPORATE SHORT-TERM NOTES
(AMORTIZED COST--$4,100,000) 4,100,000
---------------
TOTAL INVESTMENTS--101.8%
(TOTAL COST--$99,358,133) 102,084,617
---------------
OTHER ASSETS AND LIABILITIES--(1.8%) (1,822,127)
---------------
NET ASSETS--100.0% $ 100,262,490
===============
</Table>
18
<Page>
NOTES TO STATEMENT OF INVESTMENTS
* NON-INCOME PRODUCING.
+ SECURITIES WERE ACQUIRED PURSUANT TO RULE 144A AND MAY BE DEEMED TO BE
RESTRICTED FOR RESALE. THESE SECURITIES AMOUNTED TO $2,485,184, OR 2.5%, OF
THE FUND'S NET ASSETS AS OF JUNE 30, 2005.
~ 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 $4,100,000, OR 4.1%, OF THE FUND'S NET ASSETS AS OF JUNE 30,
2005.
# FAIR VALUED SECURITY.
ICULS - IRREDEEMABLE CONVERTIBLE UNSECURED LOAN STOCK
^ SCHEDULE OF RESTRICTED AND ILLIQUID SECURITIES:
<Table>
<Caption>
ACQUISITION ACQUISITION VALUE AS %
DATE COST VALUE OF NET ASSETS
--------------- --------------- --------------- ---------------
YANGTZE TELECOM CORPORATION
WARRANTS, EXPIRE 2005 (CA) 3/8/04 $ 0 $ 0 0.00%
GEO ASA 144A (NW) 6/21/05 196,960 194,359 0.19%
VRB POWER SYSTEMS SPECIAL
WARRANTS 144A, EXPIRE 2005 (CA) 6/29/05 249,522 249,167 0.25%
--------------- --------------- ---------------
$ 446,482 $ 443,526 0.44%
</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.
19
<Page>
STATEMENT OF ASSETS AND LIABILITIES
June 30, 2005 (UNAUDITED)
<Table>
ASSETS
Investment securities, at cost $ 99,358,133
---------------
Investment securities, at market 102,084,617
Cash 19,590
Foreign currency (cost $1,385,723) 1,373,870
Receivables:
Investment securities sold 5,853,715
Capital shares sold 9,715
Dividends and interest 46,608
Other assets 106,508
---------------
Total Assets 109,494,623
---------------
LIABILITIES
Payables and other accrued liabilities:
Investment securities purchased 8,717,025
Capital shares redeemed 163,911
Advisory fees 82,585
Shareholder servicing fees 13,837
Accounting fees 8,259
Distribution fees 32,149
Transfer agency fees 36,097
Custodian fees 34,377
India and Thailand taxes 27,299
Other 116,594
---------------
Total Liabilities 9,232,133
---------------
Net Assets $ 100,262,490
===============
COMPOSITION OF NET ASSETS
Capital (par value and paid-in surplus) $ 228,185,514
Accumulated net investment loss (486,071)
Accumulated net realized loss from security transactions
(net of foreign taxes paid on Thailand and Indian
investments of $159,639 and $388,198, respectively) (130,128,412)
Net unrealized appreciation on investments
and foreign currency translation 2,691,459
---------------
Total $ 100,262,490
===============
</Table>
20
<Page>
<Table>
CLASS A
Net Assets $ 17,732,437
Shares Outstanding 1,045,527
Net Asset Value, Redemption Price Per Share $ 16.96
Maximum offering price per share (net asset value
plus sales charge of 5.75% of offering price) $ 17.99
CLASS B
Net Assets $ 15,629,476
Shares Outstanding 964,072
Net Asset Value, Offering and Redemption Price (excluding
applicable contingent deferred sales charge) Per Share $ 16.21
CLASS C
Net Assets $ 7,088,930
Shares Outstanding 437,617
Net Asset Value, Offering and Redemption Price (excluding
applicable contingent deferred sales charge) Per Share $ 16.20
CLASS F
Net Assets $ 59,219,795
Shares Outstanding 3,490,198
Net Asset Value, Offering and Redemption Price Per Share $ 16.97
CLASS R
Net Assets $ 168,267
Shares Outstanding 10,186
Net Asset Value, Offering and Redemption Price Per Share $ 16.52
CLASS T
Net Assets $ 423,585
Shares Outstanding 26,141
Net Asset Value, Redemption Price Per Share $ 16.20
Maximum offering price per share (net asset value
plus sales charge of 4.50% of offering price) $ 16.96
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
21
<Page>
STATEMENT OF OPERATIONS
For the six months ended June 30, 2005 (UNAUDITED)
<Table>
INVESTMENT INCOME
Dividends $ 920,276
Interest 56,222
Foreign taxes withheld (92,719)
---------------
Total Investment Income 883,779
---------------
EXPENSES
Advisory fees--Note 2 583,599
Shareholder servicing fees--Note 2 88,181
Accounting fees--Note 2 58,360
Distribution fees--Note 2 185,213
Transfer agency fees--Note 2 76,746
Registration fees 29,240
Postage and mailing expenses 5,675
Custodian fees and expenses--Note 2 248,201
Printing expenses 26,230
Legal and audit fees 21,854
Directors' fees and expenses--Note 2 10,600
Other expenses 42,586
---------------
Total Expenses 1,376,485
Earnings Credits (4,621)
Reimbursed/Waived Expenses (81,085)
Expense Offset to Broker Commissions (4,865)
---------------
Net Expenses 1,285,914
---------------
Net Investment Loss (402,135)
---------------
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 $159,639 and $388,198, respectively) 9,164,845
Foreign Currency Transactions (21,558)
---------------
Net Realized Gain 9,143,287
Net Change in Unrealized Appreciation/Depreciation
of Investments and Foreign Currency Translation (7,901,612)
---------------
Net Realized and Unrealized Gain 1,241,675
---------------
Net Increase in Net Assets Resulting from Operations $ 839,540
===============
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
22
<Page>
STATEMENTS OF CHANGES IN NET ASSETS
(UNAUDITED)
<Table>
<Caption>
SIX MONTHS ENDED YEAR ENDED
6/30/05 12/31/04
OPERATIONS
Net Investment Loss $ (402,135) $ (1,171,904)
Net Realized Gain on Security and Foreign
Currency Transactions 9,143,287 20,009,742
Net Change in Unrealized Appreciation/Depreciation
of Investments and Foreign Currency Translation (7,901,612) (1,026,156)
----------------- ---------------
Net Increase in Net Assets Resulting from Operations 839,540 17,811,682
----------------- ---------------
CAPITAL SHARE TRANSACTIONS
Net Increase (Decrease)--Note 4
Class A (2,181,471) (9,809,094)
Class B (2,453,343) (2,918,121)
Class C (3,194,035) (1,725,859)
Class F (16,895,807) (14,537,401)
Class R (28,230) 22,994
Class T (92,891) (87,939)
----------------- ---------------
Net Decrease from Capital Share Transactions (24,845,777) (29,055,420)
----------------- ---------------
Net Decrease in Net Assets (24,006,237) (11,243,738)
----------------- ---------------
NET ASSETS
Beginning of period $ 124,268,727 $ 135,512,465
----------------- ---------------
End of period $ 100,262,490 $ 124,268,727
================= ===============
Accumulated Net Investment Loss $ (486,071) $ (83,936)
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
23
<Page>
FINANCIAL HIGHLIGHTS
(UNAUDITED)
<Table>
<Caption>
SIX MONTHS YEAR ENDED
ENDED JUNE 30, DECEMBER 31,
2005 2004 2003 2002 2001
--------------- ---------------------------------------------------------
CLASS A SHARES
PER SHARE OPERATING DATA
Net Asset Value, beginning of period $ 16.76 $ 14.24 $ 8.14 $ 9.68 $ 14.18
- ----------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.05)(a) (0.11)(a) 0.10 (0.16) (0.14)
Net realized and unrealized gains
(losses) on securities 0.25 2.63 6.00 (1.38) (4.36)
-----------------------------------------------------------------------------
Total from investment operations 0.20 2.52 6.10 (1.54) (4.50)
- ----------------------------------------------------------------------------------------------------------------------------------
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 0.00
-----------------------------------------------------------------------------
Total distributions 0.00 0.00 0.00 0.00 0.00
- ----------------------------------------------------------------------------------------------------------------------------------
Net Asset Value, end of period $ 16.96 $ 16.76 $ 14.24 $ 8.14 $ 9.68
=============================================================================
TOTAL RETURN(b) 1.19% 17.70% 74.94% (15.91%) (31.74%)
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000s) $ 17,732 $ 19,726 $ 27,252 $ 9,422 $ 14,033
- ----------------------------------------------------------------------------------------------------------------------------------
Ratios to average net assets(c):
Expenses with reimbursements, but
no earnings credits or brokerage offsets(d) 2.07% 1.92% 2.45% 2.24% 1.88%
Expenses with reimbursements,
earnings credits and brokerage offsets 2.05% 1.92% 2.45% 2.24% 1.87%
Net investment loss (0.54%) (0.77%) (0.83%) (0.80%) (0.26%)
- ----------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate(e) 682% 648% 707% 495% 704%
</Table>
(a). COMPUTED USING AVERAGE SHARES OUTSTANDING THROUGHOUT THE PERIOD.
(b). SALES CHARGES ARE NOT REFLECTED IN THE TOTAL RETURN.
(c). ANNUALIZED.
(d). CERTAIN FEES WERE WAIVED BY THE CUSTODIAN. HAD THESE FEES NOT BEEN WAIVED,
THE EXPENSE RATIOS WOULD HAVE BEEN 2.21% (2005), 2.02% (2004), 2.54%
(2003), 2.27% (2002), AND 1.88% (2001).
(e). PORTFOLIO TURNOVER RATE IS A MEASURE OF PORTFOLIO ACTIVITY THAT IS
CALCULATED BY DIVIDING THE LESSER OF PURCHASES OR SALES OF SECURITIES,
EXCLUDING SECURITIES HAVING MATURITY DATES AT ACQUISITION OF ONE YEAR OR
LESS, BY THE AVERAGE VALUE OF THE PORTFOLIO SECURITIES HELD DURING THE
PERIOD, WHICH IS A ROLLING 12-MONTH PERIOD.
24
<Page>
<Table>
<Caption>
SIX MONTHS YEAR ENDED
ENDED JUNE 30, DECEMBER 31,
2005 2004 2003 2002 2001
--------------- ---------------------------------------------------------
CLASS B SHARES
PER SHARE OPERATING DATA
Net Asset Value, beginning of period $ 16.09 $ 13.79 $ 7.95 $ 9.54 $ 14.08
- ----------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment loss (0.12)(a) (0.23)(a) (0.31) (0.29) (0.18)
Net realized and unrealized gains
(losses) on securities 0.24 2.53 6.15 (1.30) (4.36)
-----------------------------------------------------------------------------
Total from investment operations 0.12 2.30 5.84 (1.59) (4.54)
- ----------------------------------------------------------------------------------------------------------------------------------
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 0.00
-----------------------------------------------------------------------------
Total distributions 0.00 0.00 0.00 0.00 0.00
- ----------------------------------------------------------------------------------------------------------------------------------
Net Asset Value, end of period $ 16.21 $ 16.09 $ 13.79 $ 7.95 $ 9.54
=============================================================================
TOTAL RETURN(b) 0.75% 16.68% 73.46% (16.67%) (32.24%)
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000s) $ 15,629 $ 17,917 $ 18,198 $ 12,810 $ 19,661
- ----------------------------------------------------------------------------------------------------------------------------------
Ratios to average net assets(c):
Expenses with reimbursements, but
no earnings credits or brokerage offsets(d) 2.94% 2.79% 3.30% 3.09% 2.66%
Expenses with reimbursements,
earnings credits and brokerage offsets 2.92% 2.78% 3.29% 3.09% 2.64%
Net investment loss (1.43%) (1.63%) (1.44%) (1.64%) (1.06%)
- ----------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate(e) 682% 648% 707% 495% 704%
</Table>
(a). COMPUTED USING AVERAGE SHARES OUTSTANDING THROUGHOUT THE PERIOD.
(b). SALES CHARGES ARE NOT REFLECTED IN THE TOTAL RETURN.
(c). ANNUALIZED.
(d). CERTAIN FEES WERE WAIVED BY THE CUSTODIAN. HAD THESE FEES NOT BEEN WAIVED,
THE EXPENSE RATIOS WOULD HAVE BEEN 3.08% (2005), 2.89% (2004), 3.38%
(2003), 3.12% (2002), AND 2.66% (2001).
(e). PORTFOLIO TURNOVER RATE IS A MEASURE OF PORTFOLIO ACTIVITY THAT IS
CALCULATED BY DIVIDING THE LESSER OF PURCHASES OR SALES OF SECURITIES,
EXCLUDING SECURITIES HAVING MATURITY DATES AT ACQUISITION OF ONE YEAR OR
LESS, BY THE AVERAGE VALUE OF THE PORTFOLIO SECURITIES HELD DURING THE
PERIOD, WHICH IS A ROLLING 12-MONTH PERIOD.
SEE NOTES TO FINANCIAL STATEMENTS.
25
<Page>
<Table>
<Caption>
SIX MONTHS YEAR ENDED
ENDED JUNE 30, DECEMBER 31,
2005 2004 2003 2002 2001
--------------- ---------------------------------------------------------
CLASS C SHARES
PER SHARE OPERATING DATA
Net Asset Value, beginning of period $ 16.07 $ 13.76 $ 7.93 $ 9.52 $ 14.06
- ----------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment loss (0.11)(a) (0.22)(a) (0.01) (0.35) (0.22)
Net realized and unrealized gains
(losses) on securities 0.24 2.53 5.84 (1.24) (4.32)
-----------------------------------------------------------------------------
Total from investment operations 0.13 2.31 5.83 (1.59) (4.54)
- ----------------------------------------------------------------------------------------------------------------------------------
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 0.00
-----------------------------------------------------------------------------
Total distributions 0.00 0.00 0.00 0.00 0.00
- ----------------------------------------------------------------------------------------------------------------------------------
Net Asset Value, end of period $ 16.20 $ 16.07 $ 13.76 $ 7.93 $ 9.52
=============================================================================
TOTAL RETURN(b) 0.81% 16.79% 73.52% (16.70%) (32.29%)
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000s) $ 7,089 $ 10,249 $ 10,639 $ 5,268 $ 8,928
- ----------------------------------------------------------------------------------------------------------------------------------
Ratios to average net assets(c):
Expenses with reimbursements, but
no earnings credits or brokerage offsets(d) 2.88% 2.71% 3.25% 3.06% 2.67%
Expenses with reimbursements,
earnings credits and brokerage offsets 2.87% 2.70% 3.25% 3.05% 2.65%
Net investment loss (1.37%) (1.55%) (1.43%) (1.58%) (1.08%)
- ----------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate(e) 682% 648% 707% 495% 704%
</Table>
(a). COMPUTED USING AVERAGE SHARES OUTSTANDING THROUGHOUT THE PERIOD.
(b). SALES CHARGES ARE NOT REFLECTED IN THE TOTAL RETURN.
(c). ANNUALIZED.
(d). CERTAIN FEES WERE WAIVED BY THE CUSTODIAN. HAD THESE FEES NOT BEEN WAIVED,
THE EXPENSE RATIOS WOULD HAVE BEEN 3.02% (2005), 2.81% (2004), 3.34%
(2003), 3.08% (2002), AND 2.67% (2001).
(e). PORTFOLIO TURNOVER RATE IS A MEASURE OF PORTFOLIO ACTIVITY THAT IS
CALCULATED BY DIVIDING THE LESSER OF PURCHASES OR SALES OF SECURITIES,
EXCLUDING SECURITIES HAVING MATURITY DATES AT ACQUISITION OF ONE YEAR OR
LESS, BY THE AVERAGE VALUE OF THE PORTFOLIO SECURITIES HELD DURING THE
PERIOD, WHICH IS A ROLLING 12-MONTH PERIOD.
26
<Page>
<Table>
<Caption>
SIX MONTHS YEAR ENDED
ENDED JUNE 30, DECEMBER 31,
2005 2004 2003 2002 2001
--------------- ---------------------------------------------------------
CLASS F SHARES
PER SHARE OPERATING DATA
Net Asset Value, beginning of period $ 16.76 $ 14.24 $ 8.13 $ 9.67 $ 14.17
- ----------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment loss (0.04)(a) (0.11)(a) (0.14) (0.23) (0.22)
Net realized and unrealized gains
(losses) on securities 0.25 2.63 6.25 (1.31) (4.28)
-----------------------------------------------------------------------------
Total from investment operations 0.21 2.52 6.11 (1.54) (4.50)
- ----------------------------------------------------------------------------------------------------------------------------------
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 0.00
-----------------------------------------------------------------------------
Total distributions 0.00 0.00 0.00 0.00 0.00
- ----------------------------------------------------------------------------------------------------------------------------------
Net Asset Value, end of period $ 16.97 $ 16.76 $ 14.24 $ 8.13 $ 9.67
=============================================================================
TOTAL RETURN 1.25% 17.70% 75.15% (15.93%) (31.76%)
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000s) $ 59,220 $ 75,677 $ 78,759 $ 50,742 $ 78,574
- ----------------------------------------------------------------------------------------------------------------------------------
Ratios to average net assets(b):
Expenses with reimbursements, but
no earnings credits or brokerage offsets(c) 2.01% 1.90% 2.31% 2.18% 1.92%
Expenses with reimbursements,
earnings credits and brokerage offsets 1.99% 1.89% 2.31% 2.18% 1.90%
Net investment loss (0.47%) (0.75%) (0.45%) (0.74%) (0.30%)
- ----------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate(d) 682% 648% 707% 495% 704%
</Table>
(a). COMPUTED USING AVERAGE SHARES OUTSTANDING THROUGHOUT THE PERIOD.
(b). ANNUALIZED.
(c). CERTAIN FEES WERE WAIVED BY THE CUSTODIAN. HAD THESE FEES NOT BEEN WAIVED,
THE EXPENSE RATIOS WOULD HAVE BEEN 2.15% (2005), 2.00% (2004), 2.40%
(2003), 2.21% (2002), AND 1.92% (2001).
(d). PORTFOLIO TURNOVER RATE IS A MEASURE OF PORTFOLIO ACTIVITY THAT IS
CALCULATED BY DIVIDING THE LESSER OF PURCHASES OR SALES OF SECURITIES,
EXCLUDING SECURITIES HAVING MATURITY DATES AT ACQUISITION 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>
SIX MONTHS YEAR ENDED
ENDED JUNE 30, DECEMBER 31,
2005 2004 2003 2002 2001
--------------- ---------------------------------------------------------
CLASS R SHARES
PER SHARE OPERATING DATA
Net Asset Value, beginning of period $ 16.31 $ 13.82 $ 7.87 $ 9.56 $ 14.22
- ----------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.03)(a) (0.07)(a) 0.54 (0.81) (0.17)
Net realized and unrealized gains
(losses) on securities 0.24 2.56 5.41 (0.88) (4.49)
-----------------------------------------------------------------------------
Total from investment operations 0.21 2.49 5.95 (1.69) (4.66)
- ----------------------------------------------------------------------------------------------------------------------------------
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 0.00
-----------------------------------------------------------------------------
Total distributions 0.00 0.00 0.00 0.00 0.00
- ----------------------------------------------------------------------------------------------------------------------------------
Net Asset Value, end of period $ 16.52 $ 16.31 $ 13.82 $ 7.87 $ 9.56
=============================================================================
TOTAL RETURN 1.29% 18.02% 75.60% (17.68%) (32.77%)
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000s) $ 168 $ 190 $ 142 $ 37 $ 76
- ----------------------------------------------------------------------------------------------------------------------------------
Ratios to average net assets(b):
Expenses with reimbursements, but
no earnings credits or brokerage offsets(c) 1.89% 1.68% 2.08% 3.94% 1.86%
Expenses with reimbursements,
earnings credits and brokerage offsets 1.87% 1.68% 2.07% 3.91% 1.84%
Net investment loss (0.42%) (0.51%) (0.32%) (2.20%) (0.08%)
- ----------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate(d) 682% 648% 707% 495% 704%
</Table>
(a). COMPUTED USING AVERAGE SHARES OUTSTANDING THROUGHOUT THE PERIOD.
(b). ANNUALIZED.
(c). CERTAIN FEES WERE WAIVED BY THE CUSTODIAN. HAD THESE FEES NOT BEEN WAIVED,
THE EXPENSE RATIOS WOULD HAVE BEEN 2.03% (2005), 1.79% (2004), 2.17%
(2003), 4.65% (2002), AND 2.78% (2001).
(d). PORTFOLIO TURNOVER RATE IS A MEASURE OF PORTFOLIO ACTIVITY THAT IS
CALCULATED BY DIVIDING THE LESSER OF PURCHASES OR SALES OF SECURITIES,
EXCLUDING SECURITIES HAVING MATURITY DATES AT ACQUISITION 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>
SIX MONTHS YEAR ENDED
ENDED JUNE 30, DECEMBER 31,
2005 2004 2003 2002 2001
--------------- ---------------------------------------------------------
CLASS T SHARES
PER SHARE OPERATING DATA
Net Asset Value, beginning of period $ 16.05 $ 13.70 $ 7.87 $ 9.50 $ 14.14
- ----------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment loss (0.08)(a) (0.17)(a) (0.24) (0.45) (0.22)
Net realized and unrealized gains
(losses) on securities 0.23 2.52 6.07 (1.18) (4.42)
-----------------------------------------------------------------------------
Total from investment operations 0.15 2.35 5.83 (1.63) (4.64)
- ----------------------------------------------------------------------------------------------------------------------------------
Less dividends and distributions:
From net investment income 0.00 0.00 0.00 0.00 0.00
From net realized gains 0.00 0.00 0.00 0.00 0.00
-----------------------------------------------------------------------------
Total distributions 0.00 0.00 0.00 0.00 0.00
- ----------------------------------------------------------------------------------------------------------------------------------
Net Asset Value, end of period $ 16.20 $ 16.05 $ 13.70 $ 7.87 $ 9.50
=============================================================================
TOTAL RETURN(b) 0.93% 17.15% 74.08% (17.16%) (32.82%)
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000s) $ 424 $ 510 $ 522 $ 345 $ 538
- ----------------------------------------------------------------------------------------------------------------------------------
Ratios to average net assets(c):
Expenses with reimbursements, but
no earnings credits or brokerage offsets(d) 2.52% 2.37% 3.07% 4.03% 3.16%
Expenses with reimbursements,
earnings credits and brokerage offsets 2.50% 2.36% 3.07% 4.03% 3.14%
Net investment loss (1.02%) (1.21%) (1.06%) (2.69%) (1.60%)
- ----------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate(e) 682% 648% 707% 495% 704%
</Table>
(a). COMPUTED USING AVERAGE SHARES OUTSTANDING THROUGHOUT THE PERIOD.
(b). SALES CHARGES ARE NOT REFLECTED IN THE TOTAL RETURN.
(c). ANNUALIZED.
(d). CERTAIN FEES WERE WAIVED BY THE CUSTODIAN. HAD THESE FEES NOT BEEN WAIVED,
THE EXPENSE RATIOS WOULD HAVE BEEN 2.66% (2005), 2.47% (2004), 3.16%
(2003), 4.05% (2002), AND 3.16% (2001).
(d). PORTFOLIO TURNOVER RATE IS A MEASURE OF PORTFOLIO ACTIVITY THAT IS
CALCULATED BY DIVIDING THE LESSER OF PURCHASES OR SALES OF SECURITIES,
EXCLUDING SECURITIES HAVING MATURITY DATES AT ACQUISITION 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
June 30, 2005 (UNAUDITED)
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
Dreyfus Founders Funds, Inc. (the "Company") is an open-end management
investment company registered under the Investment Company Act of 1940 (the
"1940 Act"). Ten series of shares are currently issued: Balanced, Discovery,
Equity Growth, 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 shares redeemed 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. Since February 22, 2005, New York closing exchange rates have
been used to convert foreign currencies to U.S. dollars. Previously, London
closing exchange rates were used to convert foreign currencies to U.S. dollars.
A debt security with a remaining maturity greater than 60 days at the time of
purchase is valued in accordance with the evaluated bid price supplied by a
pricing service approved by the Company's board of directors or, if such price
is not available, at the mean between the highest bid and lowest asked
quotations obtained from at least two securities dealers. A debt security with a
remaining maturity of 60 days or less at the time of purchase is valued at
amortized cost, which approximates market value, unless it is determined that
amortized cost would not represent market value, in which case the securities
would be marked to market. The Fund amortizes premiums and discounts on all debt
securities.
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. In addition, it is possible
that the fair value determined for a security may be different from the value
that may be realized upon the security's sale, and that these differences may be
material to the net asset value of the Fund.
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 June 30, 2005 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.
31
<Page>
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) 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 period 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.
32
<Page>
In accordance with an investment advisory agreement between the Company and
Founders, the Fund compensates Founders for its services as investment adviser
by the payment of fees computed daily and paid monthly at the annual rate equal
to a percentage of the average daily value of the Fund's net assets. The fee is
1.00% of the first $250 million of net assets, 0.80% of the next $250 million of
net assets and 0.70% of net assets in excess of $500 million.
SHAREHOLDER SERVICING AND TRANSFER AGENCY FEES FOR CLASS F SHARES--The Company
has a shareholder services agreement with Dreyfus Service Corporation ("DSC"),
the direct owner of Founders and a wholly-owned subsidiary of The Dreyfus
Corporation ("Dreyfus", an affiliate of Founders), whereby the Funds have agreed
to compensate DSC for providing certain shareholder servicing functions to
holders of Class F shares. The Fund paid DSC a monthly fee equal, on an annual
basis, to $24.00 per Class F shareholder account considered to be an open
account at any time during a given month. During the six months ended June 30,
2005, Class F shares were charged $31,810 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 six months ended June 30, 2005, Class F shares
were charged $6,490 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 $12.58 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, including both the per account fees paid to
DTI and out-of-pocket charges, during the six months ended June 30, 2005 were as
follows:
<Table>
<Caption>
TRANSFER
AGENCY FEES
-----------------------------------------------------------------
Class A $ 15,184
Class B $ 23,939
Class C $ 9,647
Class R $ 210
Class T $ 857
</Table>
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 six months ended June 30, 2005, the Fund was charged $1,487 for cash
management fees, which are included in the out-of-pocket transfer agency charges
above.
33
<Page>
OTHER TRANSFER AGENCY FEES--Various broker-dealers, retirement plan
administrators and other 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 six months ended
June 30, 2005, the Fund paid $20,419 to these entities for such services. This
amount is included in the transfer agency fees shown on the Statement of
Operations.
DISTRIBUTION AND SHAREHOLDER SERVICES PLANS--DSC also is the distributor of the
Fund's shares. The Fund has adopted a Distribution Plan pursuant to Rule 12b-1
under the 1940 Act applicable to its Class F shares. Under the plan, the Fund is
authorized to reimburse DSC for expenses paid for distributing or servicing its
Class F shares at an annual rate of up to 0.25% of the value of the average
daily net assets of the Fund's Class F shares. During the six months ended June
30, 2005, Class F shares were charged $89,300 pursuant to this Distribution
Plan.
The Fund also has adopted a Distribution Plan pursuant to Rule 12b-1 under the
1940 Act applicable to its Class B, Class C and Class T shares. Under this plan,
the Fund pays DSC a fee for distributing its Class B and C shares at the annual
rate of 0.75% of the value of the average daily net assets of its Class B and C
shares, respectively, and pays DSC a fee for distributing its Class T shares at
the annual rate of 0.25% of the average daily net assets of its Class T shares.
In addition, the Fund has adopted a Shareholder Services Plan applicable to its
Class A, Class B, Class C and Class T shares. Under the Shareholder Services
Plan, Class A, Class B, Class C and Class T shares pay DSC an annual fee of
0.25% of the value of their average daily net assets for the provision of
certain services.
Distribution and shareholder servicing fees paid to DSC by the Fund's Class A,
B, C and T shares for the six months ended June 30, 2005, were as follows:
<Table>
<Caption>
DISTRIBUTION SHAREHOLDER
FEES SERVICING FEES
--------------------------------------------------------------------
Class A N/A $ 24,007
Class B $ 63,794 $ 21,264
Class C $ 31,529 $ 10,510
Class T $ 590 $ 590
</Table>
During the six months ended June 30, 2005, DSC retained $1,361 in sales
commissions from the sales of Class A shares. DSC also retained $26,389 and
$1,684 of contingent deferred sales charges relating to redemptions of Class B
and Class C shares, respectively.
FUND ACCOUNTING AND ADMINISTRATIVE SERVICES FEES--The Funds have agreed to
compensate Founders for providing accounting services, administration,
compliance monitoring, regulatory and shareholder reporting, as well as related
facilities, equipment and clerical help. The fee is computed at the annual rate
of 0.10% of the
34
<Page>
average daily net assets of the Fund on the first $500 million, 0.065% of the
average daily net assets of the Fund on the next $500 million and 0.02% of the
average daily net assets of the Fund in excess of $1 billion, plus reasonable
out-of-pocket expenses. Founders has contractually agreed in writing 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 contractually agreed in writing 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
--------------------------------------------------------------------
9/1/04 to 8/31/05 $ 200,000
9/1/05 to 8/31/06 $ 200,000
</Table>
The fee waiver is allocated among the Funds in proportion to their respective
shares of the total custodian fee. For the six months ended June 30, 2005, the
Fund's portion of the fee waiver was $81,085, which reduced the amount paid to
Mellon Bank to $167,116.
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.
35
<Page>
3. FEDERAL TAX INFORMATION
Net investment income and capital gains distributions are determined in
accordance with income tax regulations that may differ from accounting
principles generally accepted in the United States of America. These differences
are due to differing treatments for items such as deferral of wash sale losses,
foreign currency transactions, net operating losses and capital loss carryovers.
The tax components of capital represent distribution requirements the Fund must
satisfy under the income tax regulations and losses or tax deductions the Fund
may be able to offset against income and capital gains realized in future years.
Accumulated capital losses and post-October 31 capital losses noted below, if
any, as of December 31, 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. 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
June 30, 2005 are noted below. Unrealized appreciation/depreciation in the table
below excludes appreciation/depreciation on foreign currency translation, if
any. 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 $ 99,471,809
Gross Tax Appreciation of Investments $ 5,376,592
Gross Tax Depreciation of Investments $ (2,763,784)
Net Tax Appreciation $ 2,612,808
</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.
36
<Page>
4. CAPITAL SHARE TRANSACTIONS
The Fund is authorized to issue 400 million shares of $0.01 par value capital
stock. Transactions in shares of the Fund for the periods indicated were as
follows:
<Table>
<Caption>
SIX MONTHS ENDED YEAR ENDED
6/30/2005 12/31/2004
SHARES AMOUNT SHARES AMOUNT
CLASS A
Sold 205,498 $ 3,541,140 871,718 $ 12,893,364
Redeemed (337,146) $ (5,722,611) (1,608,411) $ (22,702,458)
----------------------------------------------------------------
Net Decrease (131,648) $ (2,181,471) (736,693) $ (9,809,094)
================================================================
CLASS B
Sold 9,390 $ 153,895 40,534 $ 591,588
Redeemed (159,027) $ (2,607,238) (246,693) $ (3,509,709)
----------------------------------------------------------------
Net Decrease (149,637) $ (2,453,343) (206,159) $ (2,918,121)
================================================================
CLASS C
Sold 30,620 $ 518,072 156,715 $ 2,350,643
Redeemed (230,774) $ (3,712,107) (291,948) $ (4,076,502)
----------------------------------------------------------------
Net Decrease (200,154) $ (3,194,035) (135,233) $ (1,725,859)
================================================================
CLASS F
Sold 260,099 $ 4,469,131 925,441 $ 13,691,198
Redeemed (1,284,998) $ (21,364,938) (1,942,721) $ (28,228,599)
----------------------------------------------------------------
Net Decrease (1,024,899) $ (16,895,807) (1,017,280) $ (14,537,401)
================================================================
CLASS R
Sold 1,286 $ 21,000 19,297 $ 276,727
Redeemed (2,747) $ (49,230) (17,956) $ (253,733)
----------------------------------------------------------------
Net Increase (Decrease) (1,461) $ (28,230) 1,341 $ 22,994
================================================================
CLASS T
Sold 0 $ 0 2,301 $ 33,146
Redeemed (5,631) $ (92,891) (8,628) $ (121,085)
----------------------------------------------------------------
Net Decrease (5,631) $ (92,891) (6,327) $ (87,939)
================================================================
</Table>
5. INVESTMENT TRANSACTIONS
For the six months ended June 30, 2005, purchases and sales of investment
securities (excluding short-term securities and U.S. government obligations)
were $400,710,058 and $422,477,913, 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 June 30, 2005, 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>
This page intentionally left blank.
<Page>
FOR MORE INFORMATION
- -------------------------------------------------------------------------------
DREYFUS FOUNDERS TRANSFER AGENT &
PASSPORT FUND DIVIDEND DISBURSING AGENT
MANAGER Dreyfus Transfer, Inc.
200 Park Avenue
Founders Asset New York, NY 10166
Management LLC
210 University Boulevard DISTRIBUTOR
Suite 800
Denver, CO 80206 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, 2005, is
available 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 Founders Asset Management LLC 0281SA0605
<Page>
Dreyfus Founders
Worldwide Growth Fund
SEMIANNUAL REPORT June 30, 2005
[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
</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 June 30, 2005. The amounts of
these holdings are included in the Statement of Investments.
NOT FDIC-INSURED - NOT BANK-GUARANTEED - MAY LOSE VALUE
<Page>
MANAGEMENT OVERVIEW
[PHOTO OF REMI J. BROWNE]
[PHOTO OF DANIEL B. LEVAN]
[PHOTO OF JEFFREY R. SULLIVAN]
[PHOTO OF JOHN B. JARES]
A DISCUSSION WITH CO-PORTFOLIO MANAGERS REMI J. BROWNE, CFA, LEFT; DANIEL B.
LEVAN, CFA, SECOND FROM LEFT; JEFFREY R. SULLIVAN, CFA, THIRD FROM LEFT; AND
JOHN B. JARES, CFA, RIGHT, REGARDING FUND PERFORMANCE FOR THE SIX-MONTH PERIOD
ENDED JUNE 30, 2005.
A MIXED ECONOMIC ENVIRONMENT
During the first six months of 2005, the United States contributed positively to
the worldwide investing environment through such factors as strong domestic
consumer demand, solid corporate earnings growth, a strengthening U.S. dollar
and lower unemployment. China's increased demand for goods also injected the
global economy, and inflation, in general, remained steady.
However, crude oil prices continued to skyrocket during the period, reaching
over $60 per barrel. Although many energy companies and resource-rich countries
benefited from high oil prices and high demand, this increase created a tax on
growth throughout the world. The Federal Reserve in the United States continued
its monetary tightening policy, which also weighed on investor activity.
Structural economic problems plagued the Euro area, and Western European
countries continued to struggle with increased competition. Mixed Japanese
economic data also caused investor concern during the period.
For the six months ended June 30, 2005, Dreyfus Founders Worldwide Growth
Fund underperformed its benchmark, the Morgan Stanley Capital International
(MSCI) World Index, which returned -0.70% for the same period. The Fund's return
compared more favorably(1) to that of the MSCI World Growth Index, which
returned -1.33%.
- ----------
(1) Excluding sales charges, which result in lower returns for certain share
classes. Please see page 7 for Average Annual and Year-to-Date Total Returns for
all share classes, including and excluding sales charges.
The MSCI World Growth Index measures global developed market equity
performance of growth securities. The 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.
3
<Page>
STOCK-BY-STOCK BASIS
Our strategy in assembling the portfolio during the period remained consistent;
we continued to analyze stocks on a company-by-company basis for possible
inclusion in the Fund, rather than focusing on sector or country weightings.
U.S., EUROPEAN AND AUSTRALIAN STOCKS AIDED PERFORMANCE
Solid stock selection in the U.S. positively impacted Fund performance during
the reporting period. Likewise, France, Germany, Australia and Finland buoyed
the Fund's return, due primarily to strong selection of stocks within each
respective country. Australia fueled the Fund's return as OIL SEARCH LIMITED
benefited from the high energy price environment and better-than-expected
drilling results in its Yemeni oil field. Finnish utilities stock FORTUM OYJ
gained nearly 20% during the Fund's holding period, helping the Fund's position
in Finland outperform.
Strong company-specific performance in the information technology sector was
the chief contributor to the Fund's six-month return. Information technology
stocks were among the Fund's top performers overall, with APPLE COMPUTER, INC.,
TEXAS INSTRUMENTS, INC. and INTEL CORPORATION leading the pack. Apple
experienced outstanding growth in revenue as well as earnings per share (EPS)
driven by the popularity of the company's iPod and Macintosh products. Strong
demand for mobile telephone handsets drove strong demand for semiconductors and
chipsets produced by Texas Instruments. Improved demand trends also lifted the
company's gross and operating margins. Intel's processor unit was driven by
strong demand for notebook computers. The company saw a rebound in revenue
growth and improved gross and operating margin trends as a result of this
demand.
TOP 3 PERFORMING SECTORS IN THE FUND
Information Technology
Consumer Discretionary
Telecommunications Services
[SIDENOTE]
"ALTHOUGH MANY ENERGY COMPANIES AND RESOURCE-RICH COUNTRIES BENEFITED FROM HIGH
OIL PRICES AND HIGH DEMAND, THIS INCREASE CREATED A TAX ON GROWTH THROUGHOUT THE
WORLD."
4
<Page>
Fund holdings within the consumer discretionary sector aided relative Fund
performance as well. Propelled mainly by the strong consumer spending
environment within the United States, issues such as GILLETTE COMPANY
outperformed. Gillette's stock price was also boosted by an acquisition offer by
personal care manufacturing giant, Procter & Gamble Company.
Strong stock selection in the telecommunications services sector also
produced a positive effect on the Fund's relative return for the period. TELUS
CORPORATION outperformed due to excellent results reported in early May, citing
strong wireless sales. Mobile phone provider NOKIA OYJ also performed strongly
during the period.
Healthcare holding GENENTECH, INC., industrials' AMR CORPORATION, and
consumer staples issue SAFEWAY, INC. were other notable performers during the
period. Genentech's stock performance was driven by solid sales and expanded
uses for its cancer drugs, Avastin(TM) and Herceptin(R). The shares of AMR,
parent company of American Airlines, were lifted due to strong consumer travel
demand and increased fares due to high energy prices. Safeway's stock price also
increased during the period.
LARGEST EQUITY HOLDINGS (country of origin; ticker symbol)
<Table>
1. ROYAL CARIBBEAN CRUISES LIMITED (United States; RCL) 2.04%
2. JOHNSON & JOHNSON (United States; JNJ) 1.86%
3. COLGATE-PALMOLIVE COMPANY (United States; CL) 1.83%
4. VODAFONE GROUP PLC (United Kingdom; VOD) 1.82%
5. EMC CORPORATION (United States; EMC) 1.70%
6. WYETH (United States; WYE) 1.69%
7. MAXIM INTEGRATED PRODUCTS, INC. (United States; MXIM) 1.59%
8. INTEL CORPORATION (United States; INTC) 1.50%
9. SAFEWAY, INC. (United States; SWY) 1.38%
10. GENERAL ELECTRIC COMPANY (United States; GE) 1.26%
</Table>
Portfolio holdings are subject to change, and should not be construed as a
recommendation of any security.
5
<Page>
GROWTH OF $10,000 INVESTMENT
PERFORMANCE DATA QUOTED REPRESENTS PAST PERFORMANCE. PAST PERFORMANCE DOES NOT
GUARANTEE FUTURE RESULTS. INVESTMENT RETURN AND PRINCIPAL VALUE OF AN INVESTMENT
WILL FLUCTUATE SO THAT AN INVESTOR'S SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR
LESS THAN THEIR ORIGINAL COST. CURRENT PERFORMANCE MAY BE LOWER OR HIGHER THAN
THE PERFORMANCE DATA QUOTED. PLEASE CALL 1-800-525-2440 TO OBTAIN THE MOST
RECENT MONTH-END PERFORMANCE DATA.
[CHART]
Dreyfus Founders
Worldwide Growth Fund MSCI World
Class F Shares Index
06/30/1995 $10,000.00 $10,000.00
06/28/1996 $12,015.05 $11,844.11
06/30/1997 $13,607.92 $14,482.20
06/30/1998 $15,643.94 $16,948.40
06/30/1999 $15,762.87 $19,603.86
06/30/2000 $21,319.62 $21,994.19
06/29/2001 $14,276.51 $17,530.11
06/28/2002 $10,811.87 $14,862.74
06/30/2003 $10,316.92 $14,509.88
06/30/2004 $12,890.65 $17,992.73
06/30/2005 $14,001.53 $19,801.25
The above graph compares a $10,000 investment made in Class F shares of Dreyfus
Founders Worldwide Growth Fund on 6/30/95 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 applicable fee waivers. THESE FIGURES DO NOT
REFLECT THE MAXIMUM SALES CHARGES APPLICABLE TO CLASS A, B, C, OR T SHARES OF
THE FUND. FOR THESE SHARE CLASSES, APPLYING THESE CHARGES WILL RESULT IN LOWER
RETURNS FOR INVESTORS.
The Morgan Stanley Capital International (MSCI) World Index measures global
developed market equity performance. The total return figures cited for this
index assume change in security prices and reinvestment of dividends, but do not
reflect the costs of managing a mutual fund. Further information related to Fund
performance is contained elsewhere in this report.
6
<Page>
AVERAGE ANNUAL AND YEAR-TO DATE TOTAL RETURN as of 6/30/05
<Table>
<Caption>
YEAR-TO- 1 5 10 SINCE
CLASS (INCEPTION DATE) DATE+ YEAR YEARS YEARS INCEPTION
------------------------------------------------------------------------------------------------
A SHARES (12/31/99)
With sales charge (5.75%) (6.69%) 2.34% (9.28%) -- (9.08%)
Without sales charge (1.01%) 8.55% (8.20%) -- (8.09%)
B SHARES (12/31/99)
With redemption* (5.32%) 3.71% (9.13%) -- (8.89%)
Without redemption (1.38%) 7.71% (8.84%) -- (8.76%)
C SHARES (12/31/99)
With redemption** (2.31%) 6.78% (9.18%) -- (9.09%)
Without redemption (1.32%) 7.78% (9.18%) -- (9.09%)
F SHARES (12/29/89) (1.01%) 8.62% (8.07%) 3.42% 7.12%
R SHARES (12/31/99) (0.76%) 9.13% (7.69%) -- (7.64%)
T SHARES (12/31/99)
With sales charge (4.50%) (5.71%) 3.21% (10.10%) -- (9.89%)
Without sales charge (1.24%) 8.08% (9.27%) -- (9.13%)
</Table>
Average annual and year-to-date total returns do not reflect the deduction of
taxes that a shareholder would pay on Fund distributions or redemption of Fund
shares, but do reflect the reinvestment of dividends and capital gain
distributions, fee waivers 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.
+ Total return is not annualized.
7
<Page>
WEAK STOCK SELECTION HAMPERED RETURN
On a country basis, the largest drag on performance during the period came
from the United Kingdom, primarily due to poor stock selection. VODAFONE GROUP
PLC and SABMILLER PLC were the main detractors for the Fund from this country.
Vodafone's stock dropped due to increased competition, lower product pricing and
shrinking margins. The company's Japanese subsidiary, Vodafone K.K., reported
another weak quarter as well. SABMiller fell on poor U.S. beer sales and
continued merger and acquisition speculation.
Additionally, holdings in the Netherlands, Canada and Belgium detracted from
performance due to company-specific disappointments.
Within the benchmark, energy was the strongest performing sector during the
period, as exploration and production and oil services stocks did particularly
well, driven by rising oil prices and limited refining capacity. Although
numerous energy stocks performed well for the Fund, it held a relative
underweight position in this sector, which, paired with overall weak stock
selection, detracted from the Fund's relative return for the period.
BOTTOM 3 PERFORMING SECTORS IN THE FUND
Energy
Utilities
Financials
[CHART]
PORTFOLIO COMPOSITION OF NET ASSETS
<Table>
United States 52.06%
United Kingdom 10.33%
Japan 9.62%
France 5.12%
Germany 3.54%
Switzerland 3.41%
Canada 2.29%
Italy 1.95%
Other Countries 11.17%
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
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>
An underweight position in utilities and poor stock selection in financials
also produced a drag on the Fund's return.
Some of the names that detracted from Fund performance came from a variety of
sectors. Poor execution, disappointing margin trends, and difficulties with
certain projects overshadowed strong bookings and revenue growth for Accenture
Limited. W.W. GRAINGER, INC. exhibited sluggish sales trends and lower earnings
expectations. Despite strong demand trends, ROYAL CARIBBEAN CRUISES LIMITED came
in well below consensus earnings estimates for the fourth quarter of 2004, which
were reported in February of 2005. Additionally, high fuel prices and a lack of
cost controls were the major variances that led to the company's poor results.
Trend Micro, Inc., a Japanese developer of anti-virus software, fell on
Microsoft's announcement that it will be packaging a competitor's anti-virus
software with its operating system. Manpower, Inc. and JETBLUE AIRWAYS
CORPORATION underperformed for the period as well.
IN CONCLUSION
The Fund's strategy remains unchanged. We will continue to use a bottom-up,
fundamentally based research approach to seek companies that may exhibit revenue
and earnings growth, and that are characterized by valuations that make sense
compared to the market, the peer group and their growth rates.
/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 January 1, 2005
and held through June 30, 2005.
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 FOR COMPARISON PURPOSES 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*
(1/1/05) (6/30/05) (1/1/05-6/30/05)
- --------------------------------------------------------------------------------
CLASS A ACTUAL $ 1,000.00 $ 980.49 $ 9.37
CLASS A HYPOTHETICAL 1,000.00 1,015.26 9.54
CLASS B ACTUAL 1,000.00 973.21 13.00
CLASS B HYPOTHETICAL 1,000.00 1,011.54 13.25
CLASS C ACTUAL 1,000.00 973.84 12.91
CLASS C HYPOTHETICAL 1,000.00 1,011.64 13.15
CLASS F ACTUAL 1,000.00 980.71 9.18
CLASS F HYPOTHETICAL 1,000.00 1,015.46 9.34
CLASS R ACTUAL 1,000.00 985.27 7.11
CLASS R HYPOTHETICAL 1,000.00 1,017.57 7.23
CLASS T ACTUAL 1,000.00 976.22 11.33
CLASS T HYPOTHETICAL 1,000.00 1,013.25 11.55
</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 181/365 (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, earnings credits and brokerage
offsets, where applicable.
<Table>
<Caption>
EXPENSE RATIO
- --------------------------------------------------------------------------------
CLASS A 1.90%
CLASS B 2.64%
CLASS C 2.62%
CLASS F 1.86%
CLASS R 1.44%
CLASS T 2.30%
</Table>
11
<Page>
STATEMENT OF INVESTMENTS
June 30, 2005 (UNAUDITED)
<Table>
<Caption>
SHARES MARKET VALUE
- ----------------------------------------------------------------------------------------------------
COMMON STOCKS (DOMESTIC)--52.1%
AIRLINES--1.9%
57,675 AMR Corporation* $ 698,438
41,075 JetBlue Airways Corporation* 839,573
------------------
1,538,011
------------------
APPLICATION SOFTWARE--1.0%
22,825 Autodesk, Inc. 784,495
------------------
ASSET MANAGEMENT & CUSTODY BANKS--0.5%
8,825 Northern Trust Corporation 402,332
------------------
BIOTECHNOLOGY--1.9%
5,325 Amgen, Inc.* 321,950
9,000 Genentech, Inc.* 722,520
17,700 MedImmune, Inc.* 472,944
------------------
1,517,414
------------------
BROADCASTING & CABLE TV--2.6%
19,275 Clear Channel Communications, Inc. 596,176
25,300 Comcast Corporation Special Class A* 757,735
17,350 EchoStar Communications Corporation 523,103
7,300 XM Satellite Radio Holdings, Inc. Class A* 245,718
------------------
2,122,732
------------------
COMMUNICATIONS EQUIPMENT--1.9%
47,275 Cisco Systems, Inc.* 903,425
8,825 Juniper Networks, Inc.* 222,214
22,575 Motorola, Inc. 412,220
------------------
1,537,859
------------------
COMPUTER & ELECTRONICS RETAIL--0.3%
3,775 Best Buy Company, Inc. 258,776
------------------
</Table>
GUIDE TO UNDERSTANDING FOREIGN HOLDINGS
The following abbreviations are used throughout the Statement of Investments to
indicate the country of origin on non-U.S. holdings.
AU Australia
BD Bermuda
BE Belgium
CA Canada
CN China
DE Denmark
FI Finland
FR France
GE Germany
GR Greece
HK Hong Kong
ID Indonesia
IN India
IT Italy
JA Japan
KR South Korea
MA Malaysia
NE Netherlands
NW Norway
PH Philippines
SG Singapore
SP Spain
SW Sweden
SZ Switzerland
TH Thailand
TU Turkey
TW Taiwan
UK United Kingdom
12
<Page>
<Table>
<Caption>
SHARES MARKET VALUE
- ----------------------------------------------------------------------------------------------------
COMPUTER HARDWARE--1.2%
27,175 Apple Computer, Inc.* $ 1,000,312
------------------
COMPUTER STORAGE & PERIPHERALS--1.7%
99,550 EMC Corporation* 1,364,831
------------------
CONSUMER ELECTRONICS--0.4%
3,900 Harman International Industries, Inc. 317,304
------------------
DATA PROCESSING & OUTSOURCED SERVICES--1.0%
18,450 Automatic Data Processing, Inc. 774,347
------------------
DEPARTMENT STORES--1.1%
15,425 Kohl's Corporation* 862,412
------------------
FOOD RETAIL--1.4%
49,000 Safeway, Inc. 1,106,910
------------------
GENERAL MERCHANDISE STORES--2.3%
42,950 Dollar General Corporation 874,462
17,425 Target Corporation 948,094
------------------
1,822,556
------------------
HEALTHCARE DISTRIBUTORS--0.5%
10,275 Henry Schein, Inc.* 426,618
------------------
HEALTHCARE FACILITIES--0.9%
13,750 Triad Hospitals, Inc.* 751,300
------------------
HEALTHCARE SUPPLIES--0.9%
14,450 Charles River Laboratories International, Inc.* 697,213
------------------
HOTELS, RESORTS & CRUISE LINES--0.9%
12,450 Carnival Corporation 679,148
------------------
HOUSEHOLD PRODUCTS--2.6%
10,700 Clorox Company 596,204
29,425 Colgate-Palmolive Company 1,468,602
------------------
2,064,806
------------------
HUMAN RESOURCE & EMPLOYMENT SERVICES--0.4%
11,875 Monster Worldwide, Inc.* 340,575
------------------
INDUSTRIAL CONGLOMERATES--1.3%
29,125 General Electric Company 1,009,181
------------------
INTEGRATED OIL & GAS--1.3%
4,050 ConocoPhillips 232,835
13,950 ExxonMobil Corporation 801,707
------------------
1,034,542
------------------
INTEGRATED TELECOMMUNICATION SERVICES--0.5%
6,925 Alltel Corporation 431,289
------------------
INTERNET SOFTWARE & SERVICES--0.6%
14,825 Yahoo!, Inc.* 513,686
------------------
INVESTMENT BANKING & BROKERAGE--0.5%
4,050 Goldman Sachs Group, Inc. 413,181
------------------
</Table>
SEE NOTES TO STATEMENT OF INVESTMENTS.
13
<Page>
<Table>
<Caption>
SHARES MARKET VALUE
- ----------------------------------------------------------------------------------------------------
LEISURE FACILITIES--2.0%
33,800 Royal Caribbean Cruises Limited $ 1,634,568
------------------
MOVIES & ENTERTAINMENT--0.9%
7,425 DreamWorks Animation SKG, Inc.* 194,535
21,850 Walt Disney Company 550,183
------------------
744,718
------------------
MULTI-LINE INSURANCE--0.4%
5,200 American International Group, Inc. 302,120
------------------
PERSONAL PRODUCTS--1.3%
7,150 Avon Products, Inc. 270,628
15,400 Gillette Company 779,702
------------------
1,050,330
------------------
PHARMACEUTICALS--6.9%
18,850 Abbott Laboratories 923,839
5,425 Eli Lilly and Company 302,227
22,975 Johnson & Johnson 1,493,375
29,125 MGI Pharma, Inc.* 633,760
29,106 Pfizer, Inc. 802,743
30,450 Wyeth 1,355,025
------------------
5,510,969
------------------
RAILROADS--0.8%
9,375 Union Pacific Corporation 607,500
------------------
SEMICONDUCTORS--6.0%
26,100 Broadcom Corporation* 926,811
46,050 Intel Corporation 1,200,063
22,425 Linear Technology Corporation 822,773
33,225 Maxim Integrated Products, Inc. 1,269,527
20,225 Texas Instruments, Inc. 567,716
------------------
4,786,890
------------------
SPECIALTY CHEMICALS--0.8%
10,850 Sigma-Aldrich Corporation 608,034
------------------
SPECIALTY STORES--0.3%
7,025 PETsMART, Inc. 213,209
------------------
SYSTEMS SOFTWARE--1.8%
24,900 Microsoft Corporation 618,516
36,875 Symantec Corporation* 801,663
------------------
1,420,179
------------------
THRIFTS & MORTGAGE FINANCE--0.8%
16,725 The PMI Group, Inc. 651,941
------------------
TRADING COMPANIES & DISTRIBUTORS--0.5%
7,150 W.W. Grainger, Inc. 391,749
------------------
TOTAL COMMON STOCKS (DOMESTIC)
(COST--$38,245,835) 41,694,037
------------------
</Table>
14
<Page>
<Table>
<Caption>
SHARES MARKET VALUE
- ----------------------------------------------------------------------------------------------------
COMMON STOCKS (FOREIGN)--47.3%
AEROSPACE & DEFENSE--0.2%
30,300 BAE Systems PLC (UK) $ 155,816
------------------
APPAREL, ACCESSORIES & LUXURY GOODS--1.3%
26,000 Burberry Group PLC (UK) 188,210
17,400 Compagnie Financiere Richemont AG (SZ) 585,205
9,800 Gildan Activewear, Inc. (CA)* 256,918
------------------
1,030,333
------------------
APPLICATION SOFTWARE--0.8%
63,600 Sage Group PLC (UK) 254,981
2,010 SAP AG (GE) 351,014
------------------
605,995
------------------
AUTOMOBILE MANUFACTURERS--1.9%
12,100 Honda Motor Company Limited (JA) 596,763
111,000 Mazda Motor Corporation (JA) 417,338
5,800 Renault SA (FR) 511,703
------------------
1,525,804
------------------
BREWERS--1.7%
23,700 Asahi Breweries Limited (JA) 282,494
8,300 InBev NV (BE) 280,952
11,300 Orkla ASA (NW) 416,770
24,800 SABMiller PLC (UK) 387,264
------------------
1,367,480
------------------
BROADCASTING & CABLE TV--1.2%
8,700 Gestevision Telecinco SA (SP) 203,839
47,100 Mediaset SPA (IT) 555,191
95 TV Asahi Corporation (JA) 203,859
------------------
962,889
------------------
COMMUNICATIONS EQUIPMENT--1.9%
18,000 GN Store Nord AS (DE) 203,908
45,100 Nokia Oyj (FI) 755,942
2,400 Research In Motion Limited (CA)* 176,631
129,200 Telefonaktiebolaget LM Ericsson (SW) 415,126
------------------
1,551,607
------------------
COMPUTER & ELECTRONICS RETAIL--0.4%
5,800 Yamada Denki (JA) 333,640
------------------
COMPUTER HARDWARE--0.3%
42,000 NEC Corporation (JA) 227,211
------------------
COMPUTER STORAGE & PERIPHERALS--0.3%
8,200 Logitech International SA (SZ)* 263,629
------------------
CONSTRUCTION MATERIALS--0.3%
22,200 Rinker Group Limited (AU) 236,584
------------------
CONSTRUCTION, FARM MACHINERY & HEAVY TRUCKS--0.9%
16,800 Volvo AB Class B (SW) 683,880
------------------
</Table>
SEE NOTES TO STATEMENT OF INVESTMENTS.
15
<Page>
<Table>
<Caption>
SHARES MARKET VALUE
- ----------------------------------------------------------------------------------------------------
CONSUMER FINANCE--0.3%
3,400 Sanyo Shinpan Finance Company Limited (JA) $ 233,595
------------------
DISTILLERS & VINTNERS--0.3%
28,300 Davide Campari - Milano SPA (IT) 207,549
------------------
DIVERSIFIED BANKS--2.9%
8,736 Alpha Bank AE (GR) 233,016
98,900 Banca Intesa SPA (IT) 453,027
34,671 Barclays PLC (UK) 345,095
6,289 BNP Paribas SA (FR) 431,546
14,000 HBOS PLC (UK) 215,857
6,988 Royal Bank of Scotland Group PLC (UK) 211,105
4,600 Societe Generale (FR) 468,462
------------------
2,358,108
------------------
DIVERSIFIED CAPITAL MARKETS--1.0%
15,100 Credit Suisse Group (SZ) 595,634
2,844 UBS AG (SZ) 221,927
------------------
817,561
------------------
DIVERSIFIED CHEMICALS--0.6%
7,400 BASF AG (GE) 492,557
------------------
DIVERSIFIED METALS & MINING--1.6%
49,500 BHP Billiton Limited (AU) 683,889
33,100 Xstrata PLC (UK) 638,751
------------------
1,322,640
------------------
ELECTRIC UTILITIES--0.8%
5,800 E.ON AG (GE) 517,178
9,600 Fortum Oyj (FI) 153,939
------------------
671,117
------------------
ELECTRICAL COMPONENTS & EQUIPMENT--0.6%
46,100 Sumitomo Electric Industries Limited (JA) 472,181
------------------
ELECTRONIC EQUIPMENT MANUFACTURERS--1.0%
4,400 Hoya Corporation (JA) 507,799
4,400 Kyocera Corporation (JA) 336,417
------------------
844,216
------------------
FOOD RETAIL--0.9%
127,900 Tesco PLC (UK) 730,481
------------------
FOREST PRODUCTS--0.3%
20,100 Canfor Corporation (CA)* 241,161
------------------
HOUSEHOLD PRODUCTS--0.4%
9,650 Reckitt Benckiser PLC (UK) 284,434
------------------
HUMAN RESOURCE & EMPLOYMENT SERVICES--0.2%
4,700 Randstad Holding NV (NE) 162,449
------------------
INDUSTRIAL CONGLOMERATES--0.2%
23,900 Keppel Corporation Limited (SG) 177,205
------------------
</Table>
16
<Page>
<Table>
<Caption>
SHARES MARKET VALUE
- ----------------------------------------------------------------------------------------------------
INTEGRATED OIL & GAS--2.9%
76,742 BP PLC (UK) $ 798,909
6,400 Husky Energy, Inc. (CA) 254,548
13,900 Repsol YPF SA (SP) 355,953
4,100 Royal Dutch Petroleum Company (NE) 267,941
2,620 Total SA (FR) 616,079
------------------
2,293,430
------------------
INTEGRATED TELECOMMUNICATION SERVICES--1.4%
50,700 BT Group PLC (UK) 208,941
9,600 Deutsche Telekom AG (GE) 177,756
4,600 France Telecom (FR) 134,498
18,100 TELUS Corporation (CA) 636,130
------------------
1,157,325
------------------
LEISURE PRODUCTS--0.2%
6,400 Sankyo Company Limited (JA) 122,910
------------------
LIFE & HEALTH INSURANCE--0.6%
84,900 Friends Provident PLC (UK) 276,864
103,600 Old Mutual PLC (UK) 226,468
------------------
503,332
------------------
MARINE--0.9%
51 AP Moller-Maersk AS (DE) 487,040
35,000 Kawasaki Kisen Kaisha Limited (JA) 207,646
------------------
694,686
------------------
MOVIES & ENTERTAINMENT--0.7%
18,600 Vivendi Universal SA (FR) 586,610
------------------
MULTI-LINE INSURANCE--0.8%
16,800 Aviva PLC (UK) 187,235
4,900 Baloise Holding Limited (SZ) 244,713
1,200 Zurich Financial Services AG (SZ) 206,758
------------------
638,706
------------------
MULTI-UTILITIES--0.3%
9,200 Suez SA (FR) 249,735
------------------
OFFICE ELECTRONICS--0.9%
14,000 Canon, Inc. (JA) 737,174
------------------
OIL & GAS EXPLORATION & PRODUCTION--1.2%
13,300 Eni SPA (IT) 343,003
2,600 Norsk Hydro ASA (NW) 238,740
161,900 Oil Search Limited (AU) 378,346
------------------
960,089
------------------
OTHER DIVERSIFIED FINANCIAL SERVICES--1.3%
27,900 ING Groep NV (NE) 789,087
7,900 Sun Life Financial, Inc. (CA) 266,106
------------------
1,055,193
------------------
</Table>
SEE NOTES TO STATEMENT OF INVESTMENTS.
17
<Page>
<Table>
<Caption>
SHARES MARKET VALUE
- ----------------------------------------------------------------------------------------------------
PHARMACEUTICALS--5.9%
20,000 AstraZeneca Group PLC (UK) $ 828,167
12,200 Eisai Company Limited (JA) 410,297
5,400 Merck KGaA (GE) 435,241
12,788 Novartis AG (SZ) 609,214
8,500 Novo Nordisk AS Class B (DE) 432,786
8,000 Ono Pharmaceuticals Company Limited (JA) 379,407
8,400 Sanofi-Aventis (FR) 690,258
29,700 Shire Pharmaceuticals Group PLC (UK) 325,684
12,900 Takeda Pharmaceuticals Company Limited (JA) 639,708
------------------
4,750,762
------------------
PRECIOUS METALS & MINERALS--0.3%
12,400 ThyssenKrupp AG (GE) 215,946
------------------
SEMICONDUCTORS--0.3%
5,900 Marvell Technology Group Limited (BD)* 224,436
------------------
SOFT DRINKS--0.5%
14,700 Coca-Cola Hellenic Bottling Company SA (GR) 399,211
------------------
STEEL--0.8%
32,400 Bluescope Steel Limited (AU) 202,978
16,300 JFE Holdings, Inc. (JA) 402,687
------------------
605,665
------------------
TIRES & RUBBER--1.1%
8,900 Continental AG (GE) 641,946
20,000 Sumitomo Rubber Industries Limited (JA) 204,129
------------------
846,075
------------------
TOBACCO--0.4%
17,600 British American Tobacco PLC (UK) 339,323
------------------
TRADING COMPANIES & DISTRIBUTORS--1.2%
51,000 Mitsubishi Corporation (JA) 693,427
31,000 Mitsui & Company Limited (JA) 293,481
------------------
986,908
------------------
WIRELESS TELECOMMUNICATION SERVICES--3.3%
9,900 Bouygues SA (FR) 410,473
153,600 China Mobile (Hong Kong) Limited (HK) 572,220
89,700 O2 PLC (UK)* 218,986
596,575 Vodafone Group PLC (UK) 1,453,757
------------------
2,655,436
------------------
TOTAL COMMON STOCKS (FOREIGN)
(COST--$30,412,431) 37,983,074
------------------
</Table>
18
<Page>
<Table>
<Caption>
PRINCIPAL AMOUNT AMORTIZED COST
- ----------------------------------------------------------------------------------------------------
CORPORATE SHORT-TERM NOTES--0.8%
HOUSEHOLD APPLIANCES--0.8%
$ 600,000 Stanley Works, Inc.
3.37% 7/1/05~ $ 600,000
------------------
TOTAL CORPORATE SHORT-TERM NOTES
(AMORTIZED COST--$600,000) 600,000
------------------
TOTAL INVESTMENTS--100.2%
(TOTAL COST--$69,258,266) 80,277,111
------------------
OTHER ASSETS AND LIABILITIES--(0.2%) (191,770)
------------------
NET ASSETS--100.0% $ 80,085,341
==================
</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
$600,000, OR 0.8%, OF THE FUND'S NET ASSETS AS OF JUNE 30, 2005.
SEE NOTES TO FINANCIAL STATEMENTS.
19
<Page>
STATEMENT OF ASSETS AND LIABILITIES
June 30, 2005 (UNAUDITED)
<Table>
ASSETS
Investment securities, at cost $ 69,258,266
------------------
Investment securities, at market 80,277,111
Cash 261,457
Foreign currency (cost $34,424) 34,374
Receivables:
Investment securities sold 3,017,028
Capital shares sold 5,411
Dividends and interest 91,957
Other assets 116,352
------------------
Total Assets 83,803,690
------------------
LIABILITIES
Payables and other accrued liabilities:
Investment securities purchased 2,775,320
Capital shares redeemed 733,660
Advisory fees 67,127
Shareholder servicing fees 7,735
Accounting fees 5,330
Distribution fees 17,395
Transfer agency fees 4,661
Custodian fees 7,518
To transfer agent 7
Other 99,596
------------------
Total Liabilities 3,718,349
------------------
Net Assets $ 80,085,341
==================
COMPOSITION OF NET ASSETS
Capital (par value and paid-in surplus) $ 134,119,314
Undistributed net investment income 170,311
Accumulated net realized loss from security transactions (65,222,640)
Net unrealized appreciation on investments and foreign
currency translation 11,018,356
------------------
Total $ 80,085,341
==================
</Table>
20
<Page>
<Table>
CLASS A
Net Assets $ 637,682
Shares Outstanding 50,261
Net Asset Value, Redemption Price Per Share $ 12.69
Maximum offering price per share (net asset value
plus sales charge of 5.75% of offering price) $ 13.46
CLASS B
Net Assets $ 1,793,882
Shares Outstanding 147,477
Net Asset Value, Offering and Redemption Price (excluding
applicable contingent deferred sales charge) Per Share $ 12.16
Class C
Net Assets $ 258,689
Shares Outstanding 21,698
Net Asset Value, Offering and Redemption Price (excluding
applicable contingent deferred sales charge) Per Share $ 11.92
Class F
Net Assets $ 54,010,196
Shares Outstanding 4,242,049
Net Asset Value, Offering and Redemption Price Per Share $ 12.73
Class R
Net Assets $ 23,350,173
Shares Outstanding 1,792,654
Net Asset Value, Offering and Redemption Price Per Share $ 13.03
Class T
Net Assets $ 34,719
Shares Outstanding 2,918
Net Asset Value, Redemption Price Per Share $ 11.90
Maximum offering price per share (net asset value
plus sales charge of 4.50% of offering price) $ 12.46
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
21
<Page>
STATEMENT OF OPERATIONS
For the six months ended June 30, 2005 (UNAUDITED)
<Table>
INVESTMENT INCOME
Dividends $ 997,864
Interest 15,749
Foreign taxes withheld (93,150)
------------------
Total Investment Income 920,463
------------------
EXPENSES
Advisory fees--Note 2 416,099
Shareholder servicing fees--Note 2 46,071
Accounting fees--Note 2 32,895
Distribution fees--Note 2 78,774
Transfer agency fees--Note 2 41,474
Registration fees 26,050
Postage and mailing expenses 7,130
Custodian fees and expenses--Note 2 29,024
Printing expenses 25,324
Legal and audit fees 14,360
Directors' fees and expenses--Note 2 7,620
Other expenses 29,278
------------------
Total Expenses 754,099
Earnings Credits (2,630)
Reimbursed/Waived Expenses (10,918)
Expense Offset to Broker Commissions (7,605)
------------------
Net Expenses 732,946
------------------
Net Investment Income 187,517
------------------
REALIZED AND UNREALIZED GAIN (LOSS) ON SECURITY
TRANSACTIONS AND FOREIGN CURRENCY TRANSACTIONS
Net Realized Gain (Loss) on:
Security Transactions 4,987,580
Foreign Currency Transactions (11,544)
------------------
Net Realized Gain 4,976,036
Net Change in Unrealized Appreciation/Depreciation
of Investments and Foreign Currency Translation (6,010,944)
------------------
Net Realized and Unrealized Loss (1,034,908)
------------------
Net Decrease in Net Assets Resulting from Operations $ (847,391)
==================
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
22
<Page>
STATEMENTS OF CHANGES IN NET ASSETS
(UNAUDITED)
<Table>
<Caption>
SIX MONTHS ENDED YEAR ENDED
6/30/05 12/31/04
OPERATIONS
Net Investment Income (Loss) $ 187,517 $ (42,516)
Net Realized Gain on Security and Foreign
Currency Transactions 4,976,036 14,019,429
Net Change in Unrealized Appreciation/Depreciation
of Investments and Foreign Currency Translation (6,010,944) (3,533,551)
------------------ ------------------
Net Increase (Decrease) in Net Assets Resulting
from Operations (847,391) 10,443,362
------------------ ------------------
CAPITAL SHARE TRANSACTIONS
Net Increase (Decrease)--Note 4
Class A 122,914 (195,731)
Class B (237,845) 21,999
Class C (10,071) (26,743)
Class F (6,412,470) (16,782,781)
Class R (1,119,887) 383,468
Class T (18,089) (14,130)
------------------ ------------------
Net Decrease from Capital Share Transactions (7,675,448) (16,613,918)
------------------ ------------------
Net Decrease in Net Assets (8,522,839) (6,170,556)
------------------ ------------------
NET ASSETS
Beginning of period $ 88,608,180 $ 94,778,736
------------------ ------------------
End of period $ 80,085,341 $ 88,608,180
================== ==================
Undistributed (Accumulated) Net Investment
Income (Loss) $ 170,311 $ (17,206)
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
23
<Page>
FINANCIAL HIGHLIGHTS
(UNAUDITED)
<Table>
<Caption>
SIX MONTHS YEAR ENDED
ENDED JUNE 30, DECEMBER 31,
2005 2004 2003 2002 2001
-------------- ---------------------------------------------------
CLASS A SHARES
PER SHARE OPERATING DATA
Net Asset Value, beginning of period $ 12.82 $ 11.38 $ 8.32 $ 11.71 $ 15.78
- ----------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) 0.02(a) (0.21) (0.10) (0.15) (0.09)
Net realized and unrealized gains
(losses) on securities (0.15) 1.65 3.16 (3.24) (3.98)
------------------------------------------------------------------------
Total from investment operations (0.13) 1.44 3.06 (3.39) (4.07)
- ----------------------------------------------------------------------------------------------------------------------------
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 0.00
------------------------------------------------------------------------
Total distributions 0.00 0.00 0.00 0.00 0.00
- ----------------------------------------------------------------------------------------------------------------------------
Net Asset Value, end of period $ 12.69 $ 12.82 $ 11.38 $ 8.32 $ 11.71
========================================================================
TOTAL RETURN(b) (1.01%) 12.65% 36.78% (28.95%) (25.79%)
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000s) $ 638 $ 519 $ 656 $ 543 $ 1,003
- ----------------------------------------------------------------------------------------------------------------------------
Ratios to average net assets(c):
Expenses with reimbursements,
but no earnings credits or brokerage offsets(d) 1.92% 1.81% 2.03% 2.06% 2.10%
Expenses with reimbursements,
earnings credits and brokerage offsets 1.90% 1.81% 2.03% 2.06% 2.09%
Net investment income (loss) 0.36% (0.18%) (0.55%) (0.77%) (0.96%)
- ----------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate(e) 139% 130% 138% 211% 145%
</Table>
(a). COMPUTED USING AVERAGE SHARES OUTSTANDING THROUGHOUT THE PERIOD.
(b). SALES CHARGES ARE NOT REFLECTED IN THE TOTAL RETURN.
(c). ANNUALIZED.
(d). CERTAIN FEES WERE WAIVED BY THE CUSTODIAN. HAD THESE FEES NOT BEEN WAIVED,
THE EXPENSE RATIOS WOULD HAVE BEEN 1.95% (2005), 1.83% (2004), 2.04%
(2003), 2.06% (2002), AND 2.10% (2001).
(e). PORTFOLIO TURNOVER RATE IS A MEASURE OF PORTFOLIO ACTIVITY THAT IS
CALCULATED BY DIVIDING THE LESSER OF PURCHASES OR SALES OF SECURITIES,
EXCLUDING SECURITIES HAVING MATURITY DATES AT ACQUISITION OF ONE YEAR OR
LESS, BY THE AVERAGE VALUE OF THE PORTFOLIO SECURITIES HELD DURING THE
PERIOD, WHICH IS A ROLLING 12-MONTH PERIOD.
24
<Page>
<Table>
<Caption>
SIX MONTHS YEAR ENDED
ENDED JUNE 30, DECEMBER 31,
2005 2004 2003 2002 2001
-------------- ---------------------------------------------------
CLASS B SHARES
PER SHARE OPERATING DATA
Net Asset Value, beginning of period $ 12.33 $ 11.02 $ 8.12 $ 11.52 $ 15.57
- ----------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment loss (0.03)(a) (0.09) (0.16) (0.14) (0.15)
Net realized and unrealized gains
(losses) on securities (0.14) 1.40 3.06 (3.26) (3.90)
------------------------------------------------------------------------
Total from investment operations (0.17) 1.31 2.90 (3.40) (4.05)
- ----------------------------------------------------------------------------------------------------------------------------
Less dividends and distributions:
From net investment income 0.00 0.00 0.00 0.00 0.00
From net realized gains 0.00 0.00 0.00 0.00 0.00
------------------------------------------------------------------------
Total distributions 0.00 0.00 0.00 0.00 0.00
- ----------------------------------------------------------------------------------------------------------------------------
Net Asset Value, end of period $ 12.16 $ 12.33 $ 11.02 $ 8.12 $ 11.52
========================================================================
TOTAL RETURN(b) (1.38%) 11.89% 35.71% (29.51%) (26.01%)
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000s) $ 1,794 $ 2,061 $ 1,821 $ 1,459 $ 2,089
- ----------------------------------------------------------------------------------------------------------------------------
Ratios to average net assets(c):
Expenses with reimbursements,
but no earnings credits or brokerage offsets(d) 2.66% 2.52% 2.80% 2.71% 2.54%
Expenses with reimbursements,
earnings credits and brokerage offsets 2.64% 2.52% 2.80% 2.70% 2.53%
Net investment loss (0.42%) (0.87%) (1.30%) (1.41%) (1.43%)
- ----------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate(e) 139% 130% 138% 211% 145%
</Table>
(a). COMPUTED USING AVERAGE SHARES OUTSTANDING THROUGHOUT THE PERIOD.
(b). SALES CHARGES ARE NOT REFLECTED IN THE TOTAL RETURN.
(c). ANNUALIZED.
(d). CERTAIN FEES WERE WAIVED BY THE CUSTODIAN. HAD THESE FEES NOT BEEN WAIVED,
THE EXPENSE RATIOS WOULD HAVE BEEN 2.69% (2005), 2.54% (2004), 2.82%
(2003), 2.71% (2002), AND 2.54% (2001).
(e). PORTFOLIO TURNOVER RATE IS A MEASURE OF PORTFOLIO ACTIVITY THAT IS
CALCULATED BY DIVIDING THE LESSER OF PURCHASES OR SALES OF SECURITIES,
EXCLUDING SECURITIES HAVING MATURITY DATES AT ACQUISITION OF ONE YEAR OR
LESS, BY THE AVERAGE VALUE OF THE PORTFOLIO SECURITIES HELD DURING THE
PERIOD, WHICH IS A ROLLING 12-MONTH PERIOD.
SEE NOTES TO FINANCIAL STATEMENTS.
25
<Page>
<Table>
<Caption>
SIX MONTHS YEAR ENDED
ENDED JUNE 30, DECEMBER 31,
2005 2004 2003 2002 2001
-------------- ---------------------------------------------------
CLASS C SHARES
PER SHARE OPERATING DATA
Net Asset Value, beginning of period $ 12.08 $ 10.81 $ 7.96 $ 11.34 $ 15.56
- ----------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment loss (0.02)(a) (0.20) (0.20) (0.30) (0.30)
Net realized and unrealized gains
(losses) on securities (0.14) 1.47 3.05 (3.08) (3.92)
------------------------------------------------------------------------
Total from investment operations (0.16) 1.27 2.85 (3.38) (4.22)
- ----------------------------------------------------------------------------------------------------------------------------
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 0.00
------------------------------------------------------------------------
Total distributions 0.00 0.00 0.00 0.00 0.00
- ----------------------------------------------------------------------------------------------------------------------------
Net Asset Value, end of period $ 11.92 $ 12.08 $ 10.81 $ 7.96 $ 11.34
========================================================================
TOTAL RETURN(b) (1.32%) 11.75% 35.80% (29.81%) (27.12%)
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000s) $ 259 $ 272 $ 271 $ 218 $ 380
- ----------------------------------------------------------------------------------------------------------------------------
Ratios to average net assets(c):
Expenses with reimbursements,
but no earnings credits or brokerage offsets(d) 2.65% 2.60% 2.82% 3.33% 4.18%
Expenses with reimbursements,
earnings credits and brokerage offsets 2.62% 2.59% 2.82% 3.33% 4.17%
Net investment loss (0.39%) (0.97%) (1.34%) (2.05%) (3.07%)
- ----------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate(e) 139% 130% 138% 211% 145%
</Table>
(a). COMPUTED USING AVERAGE SHARES OUTSTANDING THROUGHOUT THE PERIOD.
(b). SALES CHARGES ARE NOT REFLECTED IN THE TOTAL RETURN.
(c). ANNUALIZED.
(d). 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 2.68% (2005), 2.62% (2004), 2.84%
(2003), 3.40% (2002), AND 4.18% (2001).
(e). PORTFOLIO TURNOVER RATE IS A MEASURE OF PORTFOLIO ACTIVITY THAT IS
CALCULATED BY DIVIDING THE LESSER OF PURCHASES OR SALES OF SECURITIES,
EXCLUDING SECURITIES HAVING MATURITY DATES AT ACQUISITION OF ONE YEAR OR
LESS, BY THE AVERAGE VALUE OF THE PORTFOLIO SECURITIES HELD DURING THE
PERIOD, WHICH IS A ROLLING 12-MONTH PERIOD.
26
<Page>
<Table>
<Caption>
SIX MONTHS YEAR ENDED
ENDED JUNE 30, DECEMBER 31,
2005 2004 2003 2002 2001
-------------- ---------------------------------------------------
CLASS F SHARES
PER SHARE OPERATING DATA
Net Asset Value, beginning of period $ 12.86 $ 11.41 $ 8.33 $ 11.72 $ 15.69
- ----------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) 0.02(a) (0.21) (0.13) (0.13) (0.14)
Net realized and unrealized gains
(losses) on securities (0.15) 1.66 3.21 (3.26) (3.83)
------------------------------------------------------------------------
Total from investment operations (0.13) 1.45 3.08 (3.39) (3.97)
- ----------------------------------------------------------------------------------------------------------------------------
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 0.00
------------------------------------------------------------------------
Total distributions 0.00 0.00 0.00 0.00 0.00
- ----------------------------------------------------------------------------------------------------------------------------
Net Asset Value, end of period $ 12.73 $ 12.86 $ 11.41 $ 8.33 $ 11.72
========================================================================
TOTAL RETURN (1.01%) 12.71% 36.97% (28.92%) (25.30%)
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000s) $ 54,010 $ 61,038 $ 70,566 $ 59,890 $ 101,592
- ----------------------------------------------------------------------------------------------------------------------------
Ratios to average net assets(b):
Expenses with reimbursements,
but no earnings credits or brokerage offsets(c) 1.88% 1.78% 1.97% 1.84% 1.61%
Expenses with reimbursements,
earnings credits and brokerage offsets 1.86% 1.77% 1.97% 1.84% 1.60%
Net investment income (loss) 0.35% (0.13%) (0.47%) (0.55%) (0.50%)
- ----------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate(d) 139% 130% 138% 211% 145%
</Table>
(a). COMPUTED USING AVERAGE SHARES OUTSTANDING THROUGHOUT THE PERIOD.
(b). ANNUALIZED.
(c). CERTAIN FEES WERE WAIVED BY THE CUSTODIAN. HAD THESE FEES NOT BEEN WAIVED,
THE EXPENSE RATIOS WOULD HAVE BEEN 1.91% (2005), 1.80% (2004), 1.98%
(2003), 1.84% (2002), AND 1.61% (2001).
(d). PORTFOLIO TURNOVER RATE IS A MEASURE OF PORTFOLIO ACTIVITY THAT IS
CALCULATED BY DIVIDING THE LESSER OF PURCHASES OR SALES OF SECURITIES,
EXCLUDING SECURITIES HAVING MATURITY DATES AT ACQUISITION 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>
SIX MONTHS YEAR ENDED
ENDED JUNE 30, DECEMBER 31,
2005 2004 2003 2002 2001
-------------- --------------------------------------------------
CLASS R SHARES
PER SHARE OPERATING DATA
Net Asset Value, beginning of period $ 13.13 $ 11.60 $ 8.44 $ 11.81 $ 15.75
- -------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) 0.05 0.03 0.00(a) (0.01) (0.02)
Net realized and unrealized gains
(losses) on securities (0.15) 1.50 3.16 (3.36) (3.92)
---------------------------------------------------------------------
Total from investment operations (0.10) 1.53 3.16 (3.37) (3.94)
- -------------------------------------------------------------------------------------------------------------------------
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 0.00
---------------------------------------------------------------------
Total distributions 0.00 0.00 0.00 0.00 0.00
- -------------------------------------------------------------------------------------------------------------------------
Net Asset Value, end of period $ 13.03 $ 13.13 $ 11.60 $ 8.44 $ 11.81
=====================================================================
TOTAL RETURN (0.76%) 13.19% 37.44% (28.54%) (25.02%)
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000s) $ 23,350 $ 24,665 $ 21,404 $ 14,060 $ 19,193
- -------------------------------------------------------------------------------------------------------------------------
Ratios to average net assets(b):
Expenses with reimbursements, but no
earnings credits or brokerage offsets(c) 1.46% 1.37% 1.51% 1.41% 1.25%
Expenses with reimbursements,
earnings credits and brokerage offsets 1.44% 1.37% 1.51% 1.41% 1.24%
Net investment income (loss) 0.78% 0.28% (0.03%) (0.13%) (0.14%)
- -------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate(d) 139% 130% 138% 211% 145%
</Table>
(a). NET INVESTMENT LOSS FOR THE YEAR ENDED DECEMBER 31, 2003 AGGREGATED LESS
THAN $0.01 ON A PER SHARE BASIS.
(b). ANNUALIZED.
(c). CERTAIN FEES WERE WAIVED BY THE CUSTODIAN. HAD THESE FEES NOT BEEN WAIVED,
THE EXPENSE RATIOS WOULD HAVE BEEN 1.49% (2005), 1.39% (2004), 1.53%
(2003), 1.41% (2002), AND 1.25% (2001).
(d). PORTFOLIO TURNOVER RATE IS A MEASURE OF PORTFOLIO ACTIVITY THAT IS
CALCULATED BY DIVIDING THE LESSER OF PURCHASES OR SALES OF SECURITIES,
EXCLUDING SECURITIES HAVING MATURITY DATES AT ACQUISITION 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>
SIX MONTHS
ENDED JUNE 30, YEAR ENDED DECEMBER 31,
2005 2004 2003 2002 2001
-------------- ---------------------------------------------------
CLASS T SHARES
PER SHARE OPERATING DATA
Net Asset Value, beginning of period $ 12.05 $ 10.73 $ 7.89 $ 11.46 $ 15.65
- ----------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment loss (0.01)(a) (0.36) (0.14) (0.59) (0.26)
Net realized and unrealized gains
(losses) on securities (0.14) 1.68 2.98 (2.98) (3.93)
------------------------------------------------------------------------
Total from investment operations (0.15) 1.32 2.84 (3.57) (4.19)
- ----------------------------------------------------------------------------------------------------------------------------
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 0.00
------------------------------------------------------------------------
Total distributions 0.00 0.00 0.00 0.00 0.00
- ----------------------------------------------------------------------------------------------------------------------------
Net Asset Value, end of period $ 11.90 $ 12.05 $ 10.73 $ 7.89 $ 11.46
========================================================================
TOTAL RETURN(b) (1.24%) 12.30% 35.99% (31.15%) (26.77%)
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000s) $ 35 $ 54 $ 61 $ 47 $ 90
- ----------------------------------------------------------------------------------------------------------------------------
Ratios to average net assets(c):
Expenses with reimbursements,
but no earnings credits or brokerage offsets(d) 2.33% 2.14% 2.54% 4.60% 3.75%
Expenses with reimbursements,
earnings credits and brokerage offsets 2.30% 2.14% 2.54% 4.60% 3.74%
Net investment loss (0.20%) (0.50%) (1.05%) (2.88%) (2.72%)
- ----------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate(e) 139% 130% 138% 211% 145%
</Table>
(a). COMPUTED USING AVERAGE SHARES OUTSTANDING THROUGHOUT THE PERIOD.
(b). SALES CHARGES ARE NOT REFLECTED IN THE TOTAL RETURN.
(c). ANNUALIZED.
(d). 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 2.35% (2005), 2.16% (2004), 2.56%
(2003), 5.48% (2002), AND 10.02% (2001).
(e). PORTFOLIO TURNOVER RATE IS A MEASURE OF PORTFOLIO ACTIVITY THAT IS
CALCULATED BY DIVIDING THE LESSER OF PURCHASES OR SALES OF SECURITIES,
EXCLUDING SECURITIES HAVING MATURITY DATES AT ACQUISITION 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
June 30, 2005 (UNAUDITED)
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
Dreyfus Founders Funds, Inc. (the "Company") is an open-end management
investment company registered under the Investment Company Act of 1940 (the
"1940 Act"). Ten series of shares are currently issued: Balanced, Discovery,
Equity Growth, 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 shares redeemed 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. Since February 22, 2005, New York closing exchange rates have
been used to convert foreign currencies to U.S. dollars. Previously, London
closing exchange rates were used to convert foreign currencies to U.S. dollars.
A debt security with a remaining maturity greater than 60 days at the time of
purchase is valued in accordance with the evaluated bid price supplied by a
pricing service approved by the Company's board of directors or, if such price
is not available, at the mean between the highest bid and lowest asked
quotations obtained from at least two securities dealers. A debt security with a
remaining maturity of 60 days or less at the time of purchase is valued at
amortized cost, which approximates market value, unless it is determined that
amortized cost would not represent market value, in which case the securities
would be marked to market. The Fund amortizes premiums and discounts on all debt
securities.
If market quotations 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
30
<Page>
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. In addition, it is possible
that the fair value determined for a security may be different from the value
that may be realized upon the security's sale, and that these differences may be
material to the net asset value of the Fund.
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 June 30, 2005 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
31
<Page>
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) 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 period 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.
32
<Page>
In accordance with an investment advisory agreement between the Company and
Founders, the Fund compensates Founders for its services as investment adviser
by the payment of fees computed daily and paid monthly at the annual rate equal
to a percentage of the average daily value of the Fund's net assets. The fee is
1.00% of the first $250 million of net assets, 0.80% of the next $250 million of
net assets, and 0.70% of net assets in excess of $500 million.
SHAREHOLDER SERVICING AND TRANSFER AGENCY FEES FOR CLASS F SHARES--The Company
has a shareholder services agreement with Dreyfus Service Corporation ("DSC"),
the direct owner of Founders and a wholly-owned subsidiary of The Dreyfus
Corporation ("Dreyfus", an affiliate of Founders), whereby the Funds have agreed
to compensate DSC for providing certain shareholder servicing functions to
holders of Class F shares. The Fund paid DSC a monthly fee equal, on an annual
basis, to $24.00 per Class F shareholder account considered to be an open
account at any time during a given month. During the six months ended June 30,
2005, Class F shares were charged $42,640 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 six months ended June 30, 2005, Class F shares
were charged $16,732 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 $12.58 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, including both the per account fees paid to
DTI and out-of-pocket charges, during the six months ended June 30, 2005 were as
follows:
<Table>
<Caption>
TRANSFER
AGENCY FEES
-----------------------------------
Class A $ 713
Class B $ 2,129
Class C $ 287
Class R $ 3,780
Class T $ 89
</Table>
Certain as-of shareholder transactions may result in gains or losses to the
Fund. Depending on the circumstances, these gains may be payable to, or
reimbursable from, the transfer agent; such gains and losses are presented on
the Statement of Assets and Liabilities.
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
33
<Page>
processing of shareholder transactions in the Funds. During the six months ended
June 30, 2005, the Fund was charged $1,056 for cash management fees, which are
included in the out-of-pocket transfer agency charges above.
OTHER TRANSFER AGENCY FEES--Various broker-dealers, retirement plan
administrators and other 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 six months ended
June 30, 2005, the Fund paid $17,744 to these entities for such services. This
amount is included in the transfer agency fees shown on the Statement of
Operations.
DISTRIBUTION AND SHAREHOLDER SERVICES PLANS--DSC also is the distributor of the
Fund's shares. The Fund has adopted a Distribution Plan pursuant to Rule 12b-1
under the 1940 Act applicable to its Class F shares. Under the plan, the Fund is
authorized to reimburse DSC for expenses paid for distributing or servicing its
Class F shares at an annual rate of up to 0.25% of the value of the average
daily net assets of the Fund's Class F shares. During the six months ended
June 30, 2005, Class F shares were charged $70,833 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 six months ended June 30, 2005, were as follows:
<Table>
<Caption>
DISTRIBUTION SHAREHOLDER
FEES SERVICING FEES
-------------------------------------------------------------
Class A N/A $ 748
Class B $ 6,895 $ 2,298
Class C $ 992 $ 331
Class T $ 54 $ 54
</Table>
During the six months ended June 30, 2005, DSC retained $48 in sales commissions
from the sales of Class A shares. DSC also retained $2,426 and $1 of contingent
deferred sales charges relating to redemptions of Class B shares 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
34
<Page>
applicable, to the domestic assets and foreign assets, with the proportions of
domestic and foreign assets recalculated monthly, plus reasonable out-of-pocket
expenses.
<Table>
<Caption>
ON ASSETS IN BUT NOT DOMESTIC FOREIGN
EXCESS OF EXCEEDING FEE FEE
-------------------------------------------------------------
$0 $500 million 0.06% 0.10%
$500 million $1 billion 0.04% 0.065%
$1 billion 0.02% 0.02%
</Table>
Founders has contractually agreed in writing 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 contractually agreed in writing 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
------------------------------------
9/1/04 to 8/31/05 $ 200,000
9/1/05 to 8/31/06 $ 200,000
</Table>
The fee waiver is allocated among the Funds in proportion to their respective
shares of the total custodian fee. For the six months ended June 30, 2005, the
Fund's portion of the fee waiver was $10,918, which reduced the amount paid to
Mellon Bank to $18,106.
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.
35
<Page>
3. FEDERAL TAX INFORMATION
Net investment income and capital gains distributions are determined in
accordance with income tax regulations that may differ from accounting
principles generally accepted in the United States of America. These differences
are due to differing treatments for items such as deferral of wash sale losses,
foreign currency transactions, net operating losses and capital loss carryovers.
The tax components of capital represent distribution requirements the Fund must
satisfy under the income tax regulations and losses or tax deductions the Fund
may be able to offset against income and capital gains realized in future years.
Accumulated capital losses and post-October 31 capital losses noted below, if
any, as of December 31, 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. 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
June 30, 2005 are noted below. Unrealized appreciation/depreciation in the table
below excludes appreciation/depreciation on foreign currency translation, if
any. The primary difference between book and tax appreciation or depreciation is
wash sale loss deferrals.
<Table>
Federal Tax Cost $ 69,622,674
Gross Tax Appreciation of Investments $ 11,386,581
Gross Tax Depreciation of Investments $ (732,144)
Net Tax Appreciation $ 10,654,437
</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>
SIX MONTHS ENDED YEAR ENDED
6/30/05 12/31/04
SHARES AMOUNT SHARES AMOUNT
CLASS A
Sold 12,734 $ 160,031 14,460 $ 169,930
Redeemed (2,925) $ (37,117) (31,674) $ (365,661)
----------------------------------------------------------------
Net Increase (Decrease) 9,809 $ 122,914 (17,214) $ (195,731)
================================================================
CLASS B
Sold 6,161 $ 74,891 31,752 $ 357,137
Redeemed (25,749) $ (312,736) (29,868) $ (335,138)
----------------------------------------------------------------
Net Increase (Decrease) (19,588) $ (237,845) 1,884 $ 21,999
================================================================
CLASS C
Sold 1,174 $ 13,988 8,384 $ 94,894
Redeemed (2,025) $ (24,059) (10,901) $ (121,637)
----------------------------------------------------------------
Net Decrease (851) $ (10,071) (2,517) $ (26,743)
================================================================
CLASS F
Sold 140,793 $ 1,789,634 837,712 $ 9,854,038
Redeemed (644,810) $ (8,202,104) (2,275,773) $ (26,636,819)
----------------------------------------------------------------
Net Decrease (504,017) $ (6,412,470) (1,438,061) $ (16,782,781)
================================================================
CLASS R
Sold 94,405 $ 1,223,126 209,694 $ 2,478,822
Redeemed (180,172) $ (2,343,013) (175,936) $ (2,095,354)
----------------------------------------------------------------
Net Increase (Decrease) (85,767) $ (1,119,887) 33,758 $ 383,468
================================================================
CLASS T
Sold 0 $ 0 1,421 $ 15,509
Redeemed (1,530) $ (18,089) (2,672) $ (29,639)
----------------------------------------------------------------
Net Decrease (1,530) $ (18,089) (1,251) $ (14,130)
================================================================
</Table>
5. INVESTMENT TRANSACTIONS
For the six months ended June 30, 2005, purchases and sales of investment
securities (excluding short-term securities and U.S. government obligations)
were $55,030,641 and $61,397,510, 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 June 30, 2005, 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>
This page intentionally left blank.
<Page>
FOR MORE INFORMATION
- -------------------------------------------------------------------------------
DREYFUS FOUNDERS TRANSFER AGENT &
WORLDWIDE GROWTH FUND DIVIDEND DISBURSING AGENT
MANAGER Dreyfus Transfer, Inc.
200 Park Avenue
Founders Asset New York, NY 10166
Management LLC
210 University Boulevard DISTRIBUTOR
Suite 800
Denver, CO 80206 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, 2005, is
available 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 Founders Asset Management LLC 0351SA0605
ITEM 2. CODE OF ETHICS
Not applicable to semiannual reports
ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT
Not applicable to semiannual reports
ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES
Not applicable to semiannual reports
ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS
Not applicable
ITEM 6. SCHEDULE OF INVESTMENTS
SCHEDULE I - INVESTMENTS IN SECURITIES OF UNAFFILIATED ISSUERS is
included as part of the reports to shareholders filed under Item 1 of
this report on Form N-CSR.
ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES
FOR CLOSED-END MANAGEMENT INVESTMENT COMPANIES
Not applicable
ITEM 8. 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
Dreyfus Founders Funds (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 June 30, 2005, 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) Not applicable to semiannual reports
(a)(2) Attached hereto as Exhibit EX-99.CERT
(a)(3) Not applicable
(b) Attached hereto as Exhibit EX-99.906CERT
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, the registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
DREYFUS FOUNDERS FUNDS, INC.
By: /s/ Richard W. Sabo
-------------------
Richard W. Sabo, President
Date: August 30, 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: August 30, 2005
By: /s/ Robert T. Kelly
-------------------
Robert T. Kelly, Principal Financial Officer
Date: August 30, 2005