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, 2006
ITEM 1. REPORTS TO STOCKHOLDERS
<Page>
SEMIANNUAL REPORT
DREYFUS FOUNDERS
BALANCED FUND
INVESTMENT UPDATE
JUNE 30, 2006
DREYFUS FOUNDERS FUNDS(R)
THE GROWTH SPECIALISTS
<Page>
TABLE OF CONTENTS
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
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INVESTMENT MANAGER
Founders Asset Management LLC
A MELLON FINANCIAL COMPANY(SM)
210 University Boulevard, Suite 800
Denver, CO 80206
DISTRIBUTOR
Dreyfus Service Corporation
200 Park Avenue
New York, NY 10166
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, 2006. The amounts of
these holdings are included in the Statement of Investments.
NOT FDIC-INSURED - NOT BANK-GUARANTEED - MAY LOSE VALUE
<Page>
MANAGEMENT OVERVIEW
(UNAUDITED)
[PHOTO OF JOHN JARES]
A DISCUSSION WITH PORTFOLIO MANAGER JOHN JARES, CFA, REGARDING FUND PERFORMANCE
FOR THE SIX-MONTH PERIOD ENDED JUNE 30, 2006.
RISING RATES HEIGHTENED CONCERNS
The economic environment during the first six months of 2006 was characterized
by high energy prices, a Federal Reserve that continued its monetary tightening
campaign and a stock market that moved higher until May, when it began a
correction that lasted through the end of June, on the back of investor concern
over the inflation outlook.
The bond market experienced six consecutive months of negative price
returns during the first half of 2006, the longest period of negative price
performance since 1978.(1) The yield curve continued to shift higher, and
flattened during the period as a result of four Federal Reserve rate hikes.
Credit spreads generally widened, with the majority of spread deterioration
occurring during the second quarter of the year. The Agency sector supplied the
best performance of the primary fixed income classes during the period, dropping
0.03%. The fixed-rate mortgage sector lost 0.06% and the U.S. Treasury and
investment-grade corporate-bond sectors fell 1.29% and 1.56%, respectively.
For the six-month period ended June 30, 2006, Dreyfus Founders Balanced
Fund underperformed the 2.71% return of its benchmark, the Standard and Poor's
500 Index.
STRONG STOCK SELECTION AIDED PERFORMANCE
The Fund's performance during the period was helped by strong stock picking
across several sectors. Our investment approach in choosing these stocks
"OUR INVESTMENT APPROACH IN CHOOSING STOCKS FOR INCLUSION IN THE FUND REMAINED
CONSISTENT."
- ----------
(1) Merrill Lynch & Company, Inc.
3
<Page>
for inclusion in the Fund remained consistent: we relied on our bottom-up,
fundamental process to seek out stocks that have high growth potential at a
valuation that is attractive.
SECTORS BENEFITING THE FUND
Information Technology
Consumer Discretionary
Consumer Staples
This investment philosophy specifically benefited Fund performance in the
information technology (IT), consumer staples and consumer discretionary
sectors. A slight underweight in the consumer staples sector also aided the
Fund's relative return. Information technology stocks saw mixed performance
during the period, as some companies saw stock price increases, while others
performed poorly. One notable strong performance came from HEWLETT-PACKARD
COMPANY. Hewlett-Packard saw much improved execution under its new chief
executive officer, Mark Hurd. The company posted solid top-line growth while
demonstrating excellent cost control, resulting in better-than-expected earnings
growth.
Best Buy Company, Inc., the leading U.S. retailer of consumer electronics
and a Fund holding in the consumer discretionary sector, benefited from strong
consumer spending on a variety of products, particularly HDTVs, MP3 players and
digital video and photography equipment. COMCAST CORPORATION was another strong
performer for the Fund in this sector. A national provider of cable TV,
high-speed internet and voice-over-Internet-protocol (VoIP) services, Comcast
experienced strong demand for its products, particularly its ability to sell a
bundled package of multiple services. Investors found the value proposition to
be compelling and the company's share price increased. KOHL'S CORPORATION
experienced improved revenue and earnings growth trends driven by improved sales
as the department store industry has seen a reduction in capacity.
Although the industrials sector did not produce a positive effect overall
for the Fund's relative performance, select stocks such as CONTINENTAL AIRLINES,
INC. outperformed in this sector. Late in 2005, the airline industry experienced
a wave of extreme capacity rationalization. This resulted in a significant
reduction in supply, which in turn created strong pricing trends for the entire
industry.
Telecommunications services holding Amdocs, Inc. provided the largest
positive contribution to the Fund's performance of any stock for the period. A
provider of billing software and services for both wireline and wireless
providers, Amdocs secured a business win when Sprint announced it would
4
<Page>
use Amdocs' products company-wide, which is expected to add nearly $300 million
in revenues over the next two to three years. Additionally, Amdocs signed
numerous deals in Europe and Russia.
HEALTH CARE AND ENERGY DRAINED PERFORMANCE
Health care stocks performed poorly both in the Fund and in the Index. A variety
of factors led to this result, including fading pricing power in the HMO
industry, slowing volume growth and tough pricing in the medical-device
industry. In addition, branded drug companies suffered due to competition from
generic drug manufacturers. Finally, some healthcare companies suffered from
Securities and Exchange Commission (SEC) investigations related to
option-granting practices. Two of the worst-performing stocks for the Fund
during the period came from the health care sector, BOSTON SCIENTIFIC
CORPORATION and MGI Pharma, Inc. Boston Scientific acquired medical-device maker
Guidant Corporation early in the year. After the acquisition closed, demand for
medical devices, including Guidant's implantable cardioverter defribrillators
(ICDs), slackened, impacting a number of companies within the industry.
High energy prices created strong demand for oil- and gas-service providers
during the period; however, the Fund's relative underexposure to, and weak stock
selection in, the energy sector detracted from relative performance.
LARGEST EQUITY HOLDINGS (ticker symbol)
1. GENERAL ELECTRIC COMPANY (GE) 3.51%
2. MICROSOFT CORPORATION (MSFT) 3.27%
3. GOOGLE, INC. CLASS A (GOOG) 2.63%
4. EXXONMOBIL CORPORATION (XOM) 2.11%
5. CISCO SYSTEMS, INC. (CSCO) 2.09%
6. WYETH (WYE) 1.87%
7. PROCTER & GAMBLE COMPANY (PG) 1.78%
8. ADOBE SYSTEMS, INC. (ADBE) 1.78%
9. SCHLUMBERGER LIMITED (SLB) 1.75%
10. COLGATE-PALMOLIVE COMPANY (CL) 1.74%
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]
<Table>
<Caption>
DREYFUS
FOUNDERS
BALANCED S&P 500 LIPPER BALANCED
FUND-CLASS F INDEX FUND INDEX
------------ ------- ---------------
6/28/1996 $10,000 $10,000 $10,000
6/30/1997 $11,880 $13,470 $12,046
6/30/1998 $13,699 $17,533 $14,243
6/30/1999 $14,421 $21,523 $15,887
6/30/2000 $14,044 $23,083 $16,594
6/29/2001 $11,999 $19,659 $16,422
6/28/2002 $10,022 $16,123 $15,181
6/30/2003 $10,224 $16,164 $15,710
6/30/2004 $11,094 $19,252 $17,696
6/30/2005 $11,870 $20,470 $18,955
6/30/2006 $12,420 $22,236 $20,289
</Table>
The above graph compares a $10,000 investment made in Class F shares of Dreyfus
Founders Balanced Fund on 6/30/96 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 6/30/06
YEAR-TO- 1 5 10 SINCE
CLASS (INCEPTION DATE) DATE+ YEAR YEARS YEARS INCEPTION
- ---------------------------------------------------------------------------
A SHARES (12/31/99)
With sales charge (5.75%) (5.13%) (1.60%) (0.85%) -- (2.90%)
Without sales charge 0.61% 4.44% 0.33% -- (2.01%)
B SHARES (12/31/99)
With redemption* (3.84%) (0.48%) (0.79%) -- (2.75%)
Without redemption 0.16% 3.52% (0.39%) -- (2.75%)
C SHARES (12/31/99)
With redemption** (0.74%) 2.55% (0.69%) -- (3.05%)
Without redemption 0.26% 3.55% (0.69%) -- (3.05%)
F SHARES (2/19/63) 0.69% 4.63% 0.69% 2.19% N/A
R SHARES (12/31/99) 0.80% 4.87% 0.33% -- (1.97%)
T SHARES (12/31/99)
With sales charge (4.50%) (4.06%) (0.46%) (0.39%) -- (2.64%)
Without sales charge 0.52% 4.21% 0.52% -- (1.96%)
Average annual total returns do not reflect the deduction of taxes that a
shareholder would pay on Fund distributions or redemption of Fund shares, but do
reflect the reinvestment of dividends and capital gain distributions, fee
waivers 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>
SECTORS DETRACTING FROM THE FUND
Health Care
Energy
Telecommunication Services
INDIVIDUAL ISSUES BURDENED RELATIVE RETURN
As mentioned above, although the IT sector was the strongest performing sector
for the Fund during the period, select IT names negatively impacted the Fund's
relative return, due to company-specific factors and not the broader health of
the industry. ADOBE SYSTEMS, INC. began upgrading the majority of its software
products, from Acrobat Reader to the company's Creative Suite. As consumers
awaited the launch of these upgraded products, new purchases were postponed,
which created a slowing in revenue growth. As a result, Adobe moderated revenue
and earnings growth expectations during the second quarter of 2006. MICROSOFT
CORPORATION announced that the launch of its new operating system, Windows
Vista, and the latest update to its office suite would be delayed until early
2007; investors had been expecting the launches during the fall of 2006. In
addition, the company also indicated that spending levels for 2006 would be
elevated, as Microsoft is making investments to strengthen its position on the
Internet. These investments came as a surprise to investors, who were
subsequently forced to moderate their expectations for earnings growth.
PORTFOLIO COMPOSITION OF NET ASSETS
[CHART]
<Table>
Information Technology 18.11%
Consumer Staples 8.03%
Health Care 7.36%
Consumer Discretionary 6.19%
Financials 5.70%
Industrials 5.35%
Energy 2.44%
Materials 0.90%
Telecommunication Services 0.30%
Other 2.67%
Fixed-Income Investments 36.88%
Cash & Equivalents 6.07%
</Table>
The Fund's portfolio composition is subject to change, and there is no assurance
the Fund will continue to hold any particular security. Opinions regarding
sectors, industries, companies, and/or themes are those of the portfolio manager
and are subject to change at any time, based on market and other conditions, and
should not be construed as a recommendation of any specific security.
8
<Page>
Consumer discretionary issue Advance Auto Parts, Inc. was negatively
impacted during the period by slowing customer traffic. In late June, the
company announced that high gasoline prices, high interest rates and the burden
of rising credit card payments had combined to dent customers' disposable
income, and thus, the company's sales. As a result, Advance Auto Parts was
forced to significantly lower sales and earnings guidance for 2006.
FIXED-INCOME PERFORMANCE
In the fixed-income portion of the Fund, some investments were reallocated from
the five- to 10-year maturity range, primarily into the three- to five-year
sector, but also into the 10-year and longer maturity range to take advantage of
opportunities in the shorter and longer ranges of the yield curve.
The Fund's heavy weighting in Agency bonds during the period helped
relative performance, as Agencies boasted the best returns of the main
fixed-income asset classes. The Fund was significantly underweight in the
mortgage market, which performed better than both Treasuries and corporate
bonds, while maintaining overweight positions in the latter two categories.
Finally, a cushion to negative market movements was provided by the Fund's cash
balance, as well as the Fund's position in shorter-duration issues versus the
benchmark; longer-duration securities suffered greater losses than shorter-dated
maturities during the period.
As we head into the second half of 2006, we will be adding an additional
member to the Fund's management team. Effective August 1, 2006, Catherine
Powers, CFA will assume portfolio management responsibilities for the
fixed-income portion of the Fund. I will continue to manage the equity portion
of the Fund, seeking to pick stocks one at time based on the management team's
assessment of each security's respective growth prospects.
/s/ John B. Jares
- ------------------------------
John 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, 2006
and held through June 30, 2006.
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, together with the amount you
invested, 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
BEGINNING ENDING EXPENSES PAID
ACCOUNT VALUE ACCOUNT VALUE DURING PERIOD*
(1/1/06) (6/30/06) (1/1/06-6/30/06)
- --------------------------------------------------------------------------------
CLASS A ACTUAL $1,000.00 $1,006.10 $ 7.91
CLASS A HYPOTHETICAL 1,000.00 1,016.81 7.98
CLASS B ACTUAL 1,000.00 1,001.60 12.90
CLASS B HYPOTHETICAL 1,000.00 1,011.74 13.05
CLASS C ACTUAL 1,000.00 1,002.60 12.66
CLASS C HYPOTHETICAL 1,000.00 1,011.99 12.80
CLASS F ACTUAL 1,000.00 1,006.90 7.12
CLASS F HYPOTHETICAL 1,000.00 1,017.62 7.18
CLASS R ACTUAL 1,000.00 1,008.00 6.12
CLASS R HYPOTHETICAL 1,000.00 1,018.62 6.18
CLASS T ACTUAL 1,000.00 1,005.20 9.15
CLASS T HYPOTHETICAL 1,000.00 1,015.56 9.24
* 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.
EXPENSE RATIO
- -----------------------
CLASS A 1.59%
CLASS B 2.60%
CLASS C 2.55%
CLASS F 1.43%
CLASS R 1.23%
CLASS T 1.84%
11
<Page>
STATEMENT OF INVESTMENTS
June 30, 2006 (UNAUDITED)
SHARES MARKET VALUE
- --------------------------------------------------------------------------------
COMMON STOCKS (DOMESTIC)--55.3%
AIRLINES--0.9%
8,000 AMR Corporation* $ 203,352
7,300 Continental Airlines, Inc. Class B* 217,533
3,100 US Airways Group, Inc.* 156,674
----------
577,559
----------
APPLICATION SOFTWARE--0.8%
5,100 Autodesk, Inc.* 175,746
23,200 BEA Systems, Inc.* 303,688
----------
479,434
----------
ASSET MANAGEMENT & CUSTODY BANKS--0.4%
3,800 State Street Corporation 220,742
----------
BIOTECHNOLOGY--1.1%
5,400 Amgen, Inc.* 352,242
2,900 Genzyme Corporation* 177,045
6,300 MedImmune, Inc.* 170,730
----------
700,017
----------
BROADCASTING & CABLE TV--0.6%
11,600 Comcast Corporation Special Class A* 380,248
----------
CASINOS & GAMING--0.4%
3,300 Harrah's Entertainment, Inc. 234,894
----------
COMMUNICATIONS EQUIPMENT--2.3%
42,700 Cisco Systems, Inc.* 833,931
23,000 Motorola, Inc. 463,450
4,400 QUALCOMM, Inc. 176,308
----------
1,473,689
----------
COMPUTER & ELECTRONICS RETAIL--0.8%
9,250 Best Buy Company, Inc. 507,270
----------
COMPUTER HARDWARE--2.6%
7,300 Apple Computer, Inc.* 416,976
7,900 Dell, Inc.* 192,839
8,900 Diebold, Inc. 361,518
20,300 Hewlett-Packard Company 643,104
----------
1,614,437
----------
COMPUTER STORAGE & PERIPHERALS--0.9%
24,200 Seagate Technology* 547,888
----------
CONSUMER ELECTRONICS--0.3%
2,200 Harman International Industries, Inc. 187,814
----------
CONSUMER FINANCE--0.5%
5,800 SLM Corporation 306,936
----------
DATA PROCESSING & OUTSOURCED SERVICES--0.5%
6,800 Automatic Data Processing, Inc. 308,380
----------
12
<Page>
SHARES MARKET VALUE
- --------------------------------------------------------------------------------
DEPARTMENT STORES--1.5%
14,200 Federated Department Stores, Inc. $ 519,720
5,600 J.C. Penney Company, Inc. 378,056
1,800 Kohl's Corporation* 106,416
----------
1,004,192
----------
DIVERSIFIED CHEMICALS--0.5%
6,800 E.I. du Pont de Nemours and Company 282,880
----------
DRUG RETAIL--1.0%
13,600 Walgreen Company 609,824
----------
ELECTRICAL COMPONENTS & EQUIPMENT--1.1%
8,200 Emerson Electric Company 687,242
----------
ELECTRONIC EQUIPMENT MANUFACTURERS--0.3%
5,200 Agilent Technologies, Inc.* 164,112
----------
ENVIRONMENTAL & FACILITIES SERVICES--0.4%
6,500 Waste Management, Inc. 233,220
----------
EXCHANGE TRADED FUNDS--2.7%
9,950 iShares Russell 1000 Growth Index Fund 501,978
13,900 Nasdaq 100 Index Tracking Stock 538,764
5,050 SPDR Trust Series 1 641,906
----------
1,682,648
----------
FOOD DISTRIBUTORS--0.8%
16,200 Sysco Corporation 495,072
----------
FOOD RETAIL--1.0%
23,000 Safeway, Inc. 598,000
----------
GENERAL MERCHANDISE STORES--0.7%
18,300 Family Dollar Stores, Inc. 447,069
----------
HEALTHCARE EQUIPMENT--1.6%
3,600 Beckman Coulter, Inc. 199,980
19,000 Boston Scientific Corporation* 319,960
1,700 Intuitive Surgical, Inc.* 200,549
5,800 Medtronic, Inc. 272,136
----------
992,625
----------
HEALTHCARE SERVICES--0.7%
7,300 Medco Health Solutions, Inc.* 418,144
----------
HEALTHCARE SUPPLIES--0.7%
8,100 Advanced Medical Optics, Inc.* 410,670
----------
HOME ENTERTAINMENT SOFTWARE--0.4%
6,000 Electronic Arts, Inc.* 258,240
----------
HOME IMPROVEMENT RETAIL--0.4%
7,600 Home Depot, Inc. 272,004
----------
HOTELS, RESORTS & CRUISE LINES--0.3%
5,300 Marriott International, Inc. Class A 202,036
----------
SEE NOTES TO STATEMENT OF INVESTMENTS.
13
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SHARES MARKET VALUE
- --------------------------------------------------------------------------------
HOUSEHOLD PRODUCTS--2.1%
11,550 Colgate-Palmolive Company $ 691,845
12,735 Procter & Gamble Company 708,066
----------
1,399,911
----------
HYPERMARKETS & SUPER CENTERS--0.5%
6,600 Wal-Mart Stores, Inc. 317,922
----------
INDUSTRIAL CONGLOMERATES--2.2%
42,400 General Electric Company 1,397,504
----------
INTEGRATED OIL & GAS--1.3%
13,700 ExxonMobil Corporation 840,495
----------
INTEGRATED TELECOMMUNICATION SERVICES--0.3%
9,600 Sprint Nextel Corporation 191,904
----------
INTERNET RETAIL--0.2%
3,800 eBay, Inc.* 111,302
----------
INTERNET SOFTWARE & SERVICES--2.4%
2,500 Google, Inc. Class A* 1,048,325
15,900 Yahoo!, Inc.* 524,700
----------
1,573,025
----------
INVESTMENT BANKING & BROKERAGE--2.4%
38,400 Charles Schwab Corporation 613,632
3,200 Goldman Sachs Group, Inc. 481,376
4,500 Morgan Stanley 284,445
11,000 TD Ameritrade Holding Corporation 162,910
----------
1,542,363
----------
IT CONSULTING & OTHER SERVICES--0.3%
6,700 Accenture Limited Class A 189,744
----------
MOVIES & ENTERTAINMENT--0.6%
12,430 Walt Disney Company 372,900
----------
MULTI-LINE INSURANCE--0.9%
3,500 American International Group, Inc. 206,675
8,000 Assurant, Inc. 387,200
----------
593,875
----------
OIL & GAS EQUIPMENT & SERVICES--1.1%
10,700 Schlumberger Limited 696,677
----------
OTHER DIVERSIFIED FINANCIAL SERVICES--0.8%
12,000 JPMorgan Chase & Company 504,000
----------
PERSONAL PRODUCTS--1.3%
12,900 Avon Products, Inc. 399,900
10,700 Estee Lauder Companies, Inc. Class A 413,769
----------
813,669
----------
14
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SHARES MARKET VALUE
- --------------------------------------------------------------------------------
PHARMACEUTICALS--3.4%
10,400 Johnson & Johnson $ 623,168
16,100 Pfizer, Inc. 377,867
19,700 Schering-Plough Corporation 374,891
16,800 Wyeth 746,088
-----------
2,122,014
-----------
PROPERTY & CASUALTY INSURANCE--0.7%
7,900 Allstate Corporation 432,367
-----------
RAILROADS--0.4%
3,000 Union Pacific Corporation 278,880
-----------
SEMICONDUCTORS--2.5%
5,000 Broadcom Corporation* 150,250
5,700 Freescale Semiconductor, Inc. Class B* 167,580
16,700 Intel Corporation 316,465
14,500 Linear Technology Corporation 485,605
9,100 Maxim Integrated Products, Inc. 292,201
6,500 Texas Instruments, Inc. 196,885
-----------
1,608,986
-----------
SOFT DRINKS--0.9%
9,000 PepsiCo, Inc. 540,360
-----------
SPECIALTY STORES--0.3%
2,100 AutoZone, Inc.* 185,220
-----------
STEEL--0.5%
5,200 Nucor Corporation 282,100
-----------
SYSTEMS SOFTWARE--4.0%
23,300 Adobe Systems, Inc.* 707,388
55,900 Microsoft Corporation 1,302,470
26,900 Oracle Corporation* 389,781
9,500 Symantec Corporation* 147,630
-----------
2,547,269
-----------
TOTAL COMMON STOCKS (DOMESTIC)
(COST--$34,228,468) 34,839,773
-----------
COMMON STOCKS (FOREIGN)--1.9%
AEROSPACE & DEFENSE--0.3%
5,525 Empresa Brasileira de Aeronautica SA Sponsored ADR (BR) 201,497
-----------
APPLICATION SOFTWARE--0.3%
3,075 SAP AG Sponsored ADR (GE) 161,499
-----------
PACKAGED FOODS & MEATS--0.5%
7,500 Cadbury Schweppes Sponsored ADR (UK) 291,150
-----------
SEMICONDUCTOR EQUIPMENT--0.8%
25,675 ASM Lithography Holding NV NY Shares (NE)* 519,149
-----------
TOTAL COMMON STOCKS (FOREIGN)
(COST--$1,087,016) 1,173,295
-----------
SEE NOTES TO STATEMENT OF INVESTMENTS.
15
<Page>
PRINCIPAL AMOUNT MARKET VALUE
- --------------------------------------------------------------------------------
CORPORATE BONDS (DOMESTIC)--10.1%
AUTOMOBILE MANUFACTURERS--1.5%
$1,000,000 Toyota Motor Credit Corporation
5.65% 1/15/07 $1,000,130
----------
DIVERSIFIED BANKS--2.6%
1,540,000 Washington Mutual, Inc.
8.25% 4/1/10 1,651,296
----------
GENERAL MERCHANDISE STORES--1.2%
750,000 Target Corporation
5.875% 3/1/12 757,763
----------
HOUSEHOLD PRODUCTS--2.4%
1,500,000 Colgate-Palmolive Company
5.98% 4/25/12 1,524,180
----------
PHARMACEUTICALS--2.4%
1,500,000 Abbott Laboratories
5.625% 7/1/06 1,500,000
----------
TOTAL CORPORATE BONDS (DOMESTIC)
(COST--$6,421,086) 6,433,369
----------
U.S. GOVERNMENT SECURITIES--26.6%
AGENCY PASS THROUGH--2.0%
1,208,698 U.S. Small Business Administration Series 10-A
6.64% 2/1/11 1,238,830
----------
GOVERNMENT SPONSORED ENTERPRISES--12.3%
Federal Farm Credit Bank:
1,040,000 4.26% 9/30/10 992,670
700,000 4.70% 12/10/14 661,724
800,000 Federal Home Loan Bank
4.50% 11/15/12 757,312
Federal Home Loan Morgage Corporation:
1,000,000 4.125% 7/12/10 951,280
900,000 5.125% 7/15/12 882,810
1,000,000 5.75% 3/15/09 1,007,700
800,000 Federal National Mortgage Association
5.375% 11/15/11 796,312
Tennessee Valley Authority:
900,000 5.375% 11/13/08 898,209
800,000 5.625% 1/18/11 802,040
----------
7,750,057
----------
MORTGAGE-BACKED SECURITIES: GNMA/GUARANTEED--1.5%
1,024,243 Government National Mortgage Association
6.00% 1/15/33 Pool #563709 1,017,401
----------
U.S. TREASURY BONDS--1.4%
800,000 U.S. Treasury Bond
6.25% 8/15/23 882,312
----------
16
<Page>
PRINCIPAL AMOUNT MARKET VALUE
- --------------------------------------------------------------------------------
U.S. TREASURY NOTES--9.4%
U.S. Treasury Note:
$1,000,000 4.375% 8/15/12 $ 961,950
700,000 4.75% 11/15/08 693,742
1,000,000 4.75% 5/15/14 975,510
800,000 5.00% 2/15/11 798,032
900,000 5.00% 8/15/11 897,291
700,000 5.625% 5/15/08 705,523
900,000 5.75% 8/15/10 922,113
-----------
5,954,161
-----------
TOTAL U.S. GOVERNMENT SECURITIES
(COST--$17,319,684) 16,842,761
-----------
PRINCIPAL AMOUNT AMORTIZED COST
- --------------------------------------------------------------------------------
U.S. AGENCY DISCOUNT NOTES--2.9%
$1,800,000 TVA Discount Note
5.03% 7/3/06 $ 1,799,497
-----------
TOTAL U.S. AGENCY DISCOUNT NOTES
(COST--$1,799,497) 1,799,497
-----------
CORPORATE SHORT-TERM NOTES--3.0%
PHARMACEUTICALS--3.0%
1,900,000 Novartis Finance Corporation
5.25% 7/6/06~ 1,898,615
-----------
TOTAL CORPORATE SHORT-TERM NOTES
(AMORTIZED COST--$1,898,615) 1,898,615
-----------
TOTAL INVESTMENTS--99.8%
(TOTAL COST--$62,754,366) 62,987,310
OTHER ASSETS AND LIABILITIES--0.2% 131,960
-----------
NET ASSETS--100.0% $63,119,270
===========
NOTES TO STATEMENT OF INVESTMENTS
* NON-INCOME PRODUCING.
~ SECURITY WAS ACQUIRED PURSUANT TO SECTION 4(2) OF THE SECURITIES ACT OF
1933 AND MAY BE DEEMED TO BE RESTRICTED FOR RESALE. THESE SECURITIES
AMOUNTED TO $1,898,615, OR 3.0%, OF THE FUND'S NET ASSETS AS OF JUNE 30,
2006.
ADR - AMERICAN DEPOSITARY RECEIPT
SPDR - STANDARD AND POOR'S DEPOSITARY RECEIPT
BR - BRAZIL
GE - GERMANY
NE - NETHERLANDS
UK - UNITED KINGDOM
SEE NOTES TO FINANCIAL STATEMENTS.
17
<Page>
STATEMENT OF ASSETS AND LIABILITIES
June 30, 2006 (UNAUDITED)
ASSETS
- -------------------------------------------------------------------------------
Investment securities, at cost $ 62,754,366
-------------
Investment securities, at market 62,987,310
Cash 147,262
Receivables:
Investment securities sold 893,345
Capital shares sold 19,278
Dividends and interest 391,434
Other assets 69,602
-------------
Total Assets 64,508,231
-------------
LIABILITIES
- -------------------------------------------------------------------------------
Payables and other accrued liabilities:
Investment securities purchased 985,935
Capital shares redeemed 189,852
Advisory fees 33,883
Shareholder servicing fees 4,480
Accounting fees 3,128
Distribution fees 24,178
Transfer agency fees 16,858
Custodian fees 265
Directors' deferred compensation 69,602
Other 60,780
-------------
Total Liabilities 1,388,961
-------------
Net Assets $ 63,119,270
=============
COMPOSITION OF NET ASSETS
- -------------------------------------------------------------------------------
Capital (par value and paid-in surplus) $ 243,823,392
Undistributed net investment income 675,152
Accumulated net realized loss from security transactions (181,612,218)
Net unrealized appreciation on investments 232,944
-------------
Total $ 63,119,270
=============
18
<Page>
CLASS A
- --------------------------------------------------------------------------------
Net Assets $ 1,798,979
Shares Outstanding 209,667
Net Asset Value, Redemption Price Per Share $ 8.58
Maximum offering price per share (net asset value plus sales
charge of 5.75% of offering price) $ 9.10
CLASS B
- --------------------------------------------------------------------------------
Net Assets $ 680,844
Shares Outstanding 80,039
Net Asset Value, Offering and Redemption Price (excluding
applicable contingent deferred sales charge) Per Share $ 8.51
CLASS C
- --------------------------------------------------------------------------------
Net Assets $ 168,999
Shares Outstanding 20,200
Net Asset Value, Offering and Redemption Price (excluding
applicable contingent deferred sales charge) Per Share $ 8.37
CLASS F
- --------------------------------------------------------------------------------
Net Assets $60,365,859
Shares Outstanding 7,026,762
Net Asset Value, Offering and Redemption Price Per Share $ 8.59
CLASS R
- --------------------------------------------------------------------------------
Net Assets $ 52,339
Shares Outstanding 6,115
Net Asset Value, Offering and Redemption Price Per Share $ 8.56
CLASS T
- --------------------------------------------------------------------------------
Net Assets $ 52,250
Shares Outstanding 5,931
Net Asset Value, Redemption Price Per Share $ 8.81
Maximum offering price per share (net asset value plus sales
charge of 4.50% of offering price) $ 9.23
SEE NOTES TO FINANCIAL STATEMENTS.
19
<Page>
STATEMENT OF OPERATIONS
For the six months ended June 30, 2006 (UNAUDITED)
INVESTMENT INCOME
- -------------------------------------------------------------------------------
Dividends $ 278,232
Interest 664,613
Foreign taxes withheld (954)
-----------
Total Investment Income 941,891
-----------
EXPENSES
- -------------------------------------------------------------------------------
Advisory fees--Note 2 220,008
Shareholder servicing fees--Note 2 28,404
Accounting fees--Note 2 20,309
Distribution fees--Note 2 84,854
Transfer agency fees--Note 2 46,447
Registration fees 31,255
Postage and mailing expenses 4,275
Custodian fees and expenses--Note 2 3,047
Printing expenses 22,925
Legal and audit fees 14,735
Directors' fees and expenses--Note 2 9,160
Other expenses 10,999
-----------
Total Expenses 496,418
Earnings Credits (2,658)
Reimbursed/Waived Expenses (402)
Expense Offset to Broker Commissions (1,960)
-----------
Net Expenses 491,398
-----------
Net Investment Income 450,493
-----------
REALIZED AND UNREALIZED GAIN (LOSS) ON SECURITY TRANSACTIONS
- -------------------------------------------------------------------------------
Net Realized Gain on Security Transactions 2,855,657
Net Change in Unrealized Appreciation/Depreciation of Investments (2,636,454)
-----------
Net Realized and Unrealized Gain 219,203
-----------
Net Increase in Net Assets Resulting from Operations $ 669,696
===========
SEE NOTES TO FINANCIAL STATEMENTS.
20
<Page>
STATEMENTS OF CHANGES IN NET ASSETS
(UNAUDITED)
SIX MONTHS ENDED YEAR ENDED
OPERATIONS JUNE 30, 2006 DECEMBER 31, 2005
- --------------------------------------------------------------------------------
Net Investment Income $ 450,493 $ 929,198
Net Realized Gain on Security and Foreign
Currency Transactions 2,855,657 10,647,924
Net Change in Unrealized
Appreciation/Depreciation of
Investments and Foreign Currency
Translation (2,636,454) (9,571,705)
------------ ------------
Net Increase in Net Assets Resulting
from Operations 669,696 2,005,417
------------ ------------
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS
- --------------------------------------------------------------------------------
From Net Investment Income
Class A (11,123) (16,241)
Class B (334) (1,226)
Class C (248) (165)
Class F (433,697) (925,766)
Class R (427) (776)
Class T (265) (240)
------------ ------------
Net Decrease from Dividends and
Distributions (446,094) (944,414)
------------ ------------
CAPITAL SHARE TRANSACTIONS
- --------------------------------------------------------------------------------
Net Increase (Decrease)--Note 4
Class A 38,009 52,147
Class B (374,877) (587,816)
Class C (20,227) (77,456)
Class F (8,779,236) (21,792,363)
Class R (1,573) (5,724)
Class T 18,279 (856)
------------ ------------
Net Decrease from Capital Share
Transactions (9,119,625) (22,412,068)
------------ ------------
Net Decrease in Net Assets (8,896,023) (21,351,065)
------------ ------------
NET ASSETS
- --------------------------------------------------------------------------------
Beginning of Period $ 72,015,293 $ 93,366,358
------------ ------------
End of Period $ 63,119,270 $ 72,015,293
============ ============
Undistributed Net Investment Income $ 675,152 $ 670,753
SEE NOTES TO FINANCIAL STATEMENTS.
21
<Page>
FINANCIAL HIGHLIGHTS
(UNAUDITED)
<Table>
<Caption>
SIX MONTHS YEAR ENDED
ENDED JUNE 30, DECEMBER 31,
2006 2005 2004 2003 2002
-------------- ----------------------------------
CLASS A SHARES
PER SHARE OPERATING DATA
Net Asset Value, beginning of period $ 8.58 $ 8.45 $ 7.88 $ 6.68 $ 8.18
- -------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.05 0.08 0.08 0.05 0.05
Net realized and unrealized gains
(losses) on securities 0.00 0.13 0.57 1.20 (1.51)
---------------------------------------------------
Total from investment operations 0.05 0.21 0.65 1.25 (1.46)
- -------------------------------------------------------------------------------------------------
Less dividends and distributions:
From net investment income (0.05) (0.08) (0.08) (0.05) (0.04)
From net realized gains 0.00 0.00 0.00 0.00 0.00
---------------------------------------------------
Total distributions (0.05) (0.08) (0.08) (0.05) (0.04)
- -------------------------------------------------------------------------------------------------
Net Asset Value, end of period $ 8.58 $ 8.58 $ 8.45 $ 7.88 $ 6.68
===================================================
TOTAL RETURN(a) 0.61% 2.51% 8.31% 18.81% (17.85%)
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000s) $1,799 $1,760 $1,682 $1,572 $ 1,243
- -------------------------------------------------------------------------------------------------
Ratios to average net assets:
Expenses with reimbursements, but no
earnings credits or brokerage offsets(b) 1.60% 1.69% 1.49% 1.83% 1.89%
Expenses with reimbursements, earnings
credits and brokerage offsets 1.59% 1.66% 1.48% 1.83% 1.89%
Net investment income 1.21% 0.90% 0.96% 0.63% 0.56%
- -------------------------------------------------------------------------------------------------
Portfolio turnover rate(c) 171% 181% 134% 108% 122%
</Table>
(a.) SALES CHARGES ARE NOT REFLECTED IN THE TOTAL RETURN.
(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.
22
<Page>
<Table>
<Caption>
SIX MONTHS YEAR ENDED
ENDED JUNE 30, DECEMBER 31,
2006 2005 2004 2003 2002
-------------- ------------------------------------
CLASS B SHARES
PER SHARE OPERATING DATA
Net Asset Value, beginning of period $8.50 $ 8.37 $ 7.80 $ 6.63 $ 8.11
- ---------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) 0.01(a) 0.01(a) 0.01 0.01 (0.01)
Net realized and unrealized gains (losses)
on securities 0.00 0.13 0.58 1.17 (1.47)
-----------------------------------------------------
Total from investment operations 0.01 0.14 0.59 1.18 (1.48)
- ---------------------------------------------------------------------------------------------------
Less dividends and distributions:
From net investment income 0.00(b) (0.01) (0.02) (0.01) 0.00(b)
From net realized gains 0.00 0.00 0.00 0.00 0.00
-----------------------------------------------------
Total distributions 0.00 (0.01) (0.02) (0.01) 0.00
- ---------------------------------------------------------------------------------------------------
Net Asset Value, end of period $8.51 $ 8.50 $ 8.37 $ 7.80 $ 6.63
=====================================================
TOTAL RETURN(c) 0.16% 1.66% 7.63% 17.76% (18.21%)
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000s) $ 681 $1,053 $1,625 $1,647 $ 1,181
- ---------------------------------------------------------------------------------------------------
Ratios to average net assets:
Expenses with reimbursements, but no
earnings credits or brokerage offsets(d) 2.61% 2.47% 2.21% 2.53% 2.54%
Expenses with reimbursements, earnings
credits and brokerage offsets 2.60% 2.45% 2.21% 2.53% 2.54%
Net investment income (loss) 0.17% 0.08% 0.23% (0.08%) (0.10%)
- ---------------------------------------------------------------------------------------------------
Portfolio turnover rate(e) 171% 181% 134% 108% 122%
</Table>
(a.) COMPUTED USING AVERAGE SHARES OUTSTANDING THROUGHOUT THE PERIOD.
(b.) DISTRIBUTIONS FROM NET INVESTMENT INCOME FOR THE YEAR ENDED DECEMBER 31,
2002 AND FOR THE PERIOD ENDED JUNE 30, 2006, AGGREGATED LESS THAN $.01 ON A
PER SHARE BASIS.
(c.) SALES CHARGES ARE NOT REFLECTED IN THE TOTAL RETURN.
(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,
2006 2005 2004 2003 2002
-------------- -------------------------------------------
CLASS C SHARES
PER SHARE OPERATING DATA
Net Asset Value, beginning of period $ 8.36 $ 8.24 $ 7.69 $ 6.54 $ 8.04
- ----------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) 0.01(a) 0.00(a, b) 0.01(a) (0.01) (0.17)
Net realized and unrealized gains (losses)
on securities 0.01 0.13 0.56 1.16 (1.33)
------------------------------------------------------------
Total from investment operations 0.02 0.13 0.57 1.15 (1.50)
- ----------------------------------------------------------------------------------------------------------
Less dividends and distributions:
From net investment income (0.01) (0.01) (0.02) 0.00(c) 0.00
From net realized gains 0.00 0.00 0.00 0.00 0.00
------------------------------------------------------------
Total distributions (0.01) (0.01) (0.02) 0.00 0.00
- ----------------------------------------------------------------------------------------------------------
Net Asset Value, end of period $ 8.37 $ 8.36 $ 8.24 $ 7.69 $ 6.54
============================================================
TOTAL RETURN(d) 0.26% 1.54% 7.42% 17.59% (18.66%)
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000s) $ 169 $ 189 $ 264 $ 295 $ 248
- ----------------------------------------------------------------------------------------------------------
Ratios to average net assets:
Expenses with reimbursements, but no
earnings credits or brokerage offsets(e) 2.56% 2.54% 2.35% 2.69% 3.48%
Expenses with reimbursements, earnings
credits and brokerage offsets 2.55% 2.51% 2.34% 2.69% 3.48%
Net investment income (loss) 0.24% 0.02% 0.08% (0.17%) (1.05%)
- ----------------------------------------------------------------------------------------------------------
Portfolio turnover rate(f) 171% 181% 134% 108% 122%
</Table>
(a.) COMPUTED USING AVERAGE SHARES OUTSTANDING THROUGHOUT THE PERIOD.
(b.) NET INVESTMENT INCOME FOR THE YEAR ENDED DECEMBER 31, 2005 AGGREGATED LESS
THAN $0.01 ON A PER SHARE BASIS.
(c.) DISTRIBUTIONS FROM NET INVESTMENT INCOME FOR THE YEAR ENDED DECEMBER 31,
2003 AGGREGATED LESS THAN $0.01 ON A PER SHARE BASIS.
(d.) SALES CHARGES ARE NOT REFLECTED IN THE TOTAL RETURN.
(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.
24
<Page>
<Table>
<Caption>
SIX MONTHS
ENDED YEAR ENDED
JUNE 30, DECEMBER 31,
2006 2005 2004 2003 2002
---------- ---------------------------------------
CLASS F SHARES
PER SHARE OPERATING DATA
Net Asset Value, beginning of period $ 8.59 $ 8.46 $ 7.88 $ 6.69 $ 8.20
- --------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.05 0.09 0.08 0.06 0.07
Net realized and unrealized gains
(losses) on securities 0.01 0.14 0.59 1.20 (1.50)
----------------------------------------------------
Total from investment operations 0.06 0.23 0.67 1.26 (1.43)
- --------------------------------------------------------------------------------------------------
Less dividends and distributions:
From net investment income (0.06) (0.10) (0.09) (0.07) (0.08)
From net realized gains 0.00 0.00 0.00 0.00 0.00
----------------------------------------------------
Total distributions (0.06) (0.10) (0.09) (0.07) (0.08)
- --------------------------------------------------------------------------------------------------
Net Asset Value, end of period $ 8.59 $ 8.59 $ 8.46 $ 7.88 $ 6.69
====================================================
TOTAL RETURN 0.69% 2.75% 8.58% 18.96% (17.46%)
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000s) $60,366 $68,926 $89,701 $119,835 $130,314
- --------------------------------------------------------------------------------------------------
Ratios to average net assets:
Expenses with reimbursements, but no
earnings credits or brokerage offsets(a) 1.44% 1.43% 1.34% 1.54% 1.43%
Expenses with reimbursements,
earnings credits and brokerage offsets 1.43% 1.40% 1.33% 1.54% 1.42%
Net investment income 1.35% 1.14% 1.08% 0.93% 0.99%
- --------------------------------------------------------------------------------------------------
Portfolio turnover rate(b) 171% 181% 134% 108% 122%
</Table>
(a.) CERTAIN FEES WERE WAIVED BY THE CUSTODIAN. THESE WAIVERS DID NOT HAVE AN
IMPACT ON THE EXPENSE RATIOS.
(b.) PORTFOLIO TURNOVER RATE IS A MEASURE OF PORTFOLIO ACTIVITY THAT IS
CALCULATED BY DIVIDING THE LESSER OF PURCHASES OR SALES OF SECURITIES,
EXCLUDING SECURITIES HAVING MATURITY DATES AT ACQUISITION OF ONE YEAR OR
LESS, 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
ENDED YEAR ENDED
JUNE 30, DECEMBER 31,
2006 2005 2004 2003 2002
---------- ------------------------------------
CLASS R SHARES
PER SHARE OPERATING DATA
Net Asset Value, beginning of period $ 8.56 $ 8.43 $ 7.86 $ 6.68 $ 8.18
- -----------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) 0.07 0.11 0.09 0.16 (0.16)
Net realized and unrealized gains
(losses) on securities 0.00 0.14 0.58 1.05 (1.34)
-------------------------------------------------
Total from investment operations 0.07 0.25 0.67 1.21 (1.50)
- -----------------------------------------------------------------------------------------------
Less dividends and distributions:
From net investment income (0.07) (0.12) (0.10) (0.03) 0.00
From net realized gains 0.00 0.00 0.00 0.00 0.00
-------------------------------------------------
Total distributions (0.07) (0.12) (0.10) (0.03) 0.00
- -----------------------------------------------------------------------------------------------
Net Asset Value, end of period $ 8.56 $ 8.56 $ 8.43 $ 7.86 $ 6.68
=================================================
TOTAL RETURN 0.80% 3.01% 8.63% 18.12% (18.34%)
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000s) $ 52 $ 54 $ 59 $ 72 $ 11
- -----------------------------------------------------------------------------------------------
Ratios to average net assets:
Expenses with reimbursements, but no
earnings credits or brokerage offsets(a) 1.24% 1.19% 1.21% 2.37% 4.24%
Expenses with reimbursements, earnings
credits and brokerage offsets 1.23% 1.17% 1.21% 2.37% 4.24%
Net investment income (loss) 1.56% 1.38% 1.21% 0.01% (1.77%)
- -----------------------------------------------------------------------------------------------
Portfolio turnover rate(b) 171% 181% 134% 108% 122%
</Table>
(a.) 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 1.40% (2006), 1.36% (2005), 1.35% (2004), 2.62%
(2003) AND 19.52% (2002).
(b.) PORTFOLIO TURNOVER RATE IS A MEASURE OF PORTFOLIO ACTIVITY THAT IS
CALCULATED BY DIVIDING THE LESSER OF PURCHASES OR SALES OF SECURITIES,
EXCLUDING SECURITIES HAVING MATURITY DATES AT ACQUISITION 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
ENDED YEAR ENDED
JUNE 30, DECEMBER 31,
2006 2005 2004 2003 2002
---------- --------------------------------------
CLASS T SHARES
PER SHARE OPERATING DATA
Net Asset Value, beginning of period $ 8.81 $ 8.68 $ 8.09 $ 6.88 $ 8.17
- -------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) 0.04(a) 0.05 0.03 0.21 (0.37)
Net realized and unrealized gains
(losses) on securities 0.01 0.14 0.62 1.00 (0.92)
---------------------------------------------------
Total from investment operations 0.05 0.19 0.65 1.21 (1.29)
- -------------------------------------------------------------------------------------------------
Less dividends and distributions:
From net investment income (0.05) (0.06) (0.06) 0.00(b) 0.00
From net realized gains 0.00 0.00 0.00 0.00 0.00
---------------------------------------------------
Total distributions (0.05) (0.06) (0.06) 0.00 0.00
- -------------------------------------------------------------------------------------------------
Net Asset Value, end of period $ 8.81 $ 8.81 $ 8.68 $ 8.09 $ 6.88
===================================================
TOTAL RETURN(c) 0.52% 2.21% 8.01% 17.65% (15.79%)
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000s) $ 52 $ 35 $ 35 $ 36 $ 13
- -------------------------------------------------------------------------------------------------
Ratios to average net assets:
Expenses with reimbursements, but no
earnings credits or brokerage offsets(d) 1.86% 1.89% 1.77% 2.73% 2.60%
Expenses with reimbursements,
earnings credits and brokerage offsets 1.84% 1.87% 1.77% 2.73% 2.59%
Net investment income (loss) 0.96% 0.69% 0.66% (0.29%) (0.31%)
- -------------------------------------------------------------------------------------------------
Portfolio turnover rate(e) 171% 181% 134% 108% 122%
</Table>
(a.) COMPUTED USING AVERAGE SHARES OUTSTANDING THROUGHOUT THE PERIOD.
(b.) DISTRIBUTIONS FROM NET INVESTMENT INCOME FOR THE YEAR ENDED DECEMBER 31,
2003 AGGREGATED LESS THAN $0.01 ON A PER SHARE BASIS.
(c.) SALES CHARGES ARE NOT REFLECTED IN THE TOTAL RETURN.
(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% (2006), 2.15% (2005), 2.02% (2004), 3.18%
(2003) AND 14.63% (2002).
(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, 2006 (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). Effective June 1, 2006,
Class B shares will no longer be offered except in connection with dividend
reinvestments and permitted exchanges of Class B shares. 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. New York closing exchange rates are used to convert foreign
currencies to U.S. dollars.
A debt security with a remaining maturity greater than 60 days at the time of
purchase is valued in accordance with the evaluated bid price supplied by a
pricing service approved by the Company's board of directors or, if such price
is not available, at the mean between the highest bid and lowest asked
quotations obtained from at least two securities dealers. A debt security with a
remaining maturity of 60 days or less at the time of purchase is valued at
amortized cost, which approximates market value, unless it is determined that
amortized cost would not represent market value, in which case the securities
would be marked to market. The Fund amortizes premiums and discounts on all debt
securities.
If market quotations 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
28
<Page>
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 requires the use of estimates, and as such,
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--The Fund may invest at least a
portion of its assets in foreign securities. Foreign securities carry more risk
than U.S. securities, such as political and currency risks. 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 Fund could be
exposed to risk if counterparties are unable to meet the terms of the contracts
or if the value of the currency changes unfavorably to the U.S. dollar. 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.
The accounting records of the Fund are maintained in U.S. dollars. The market
values of foreign securities, currency holdings and other assets and liabilities
are translated into U.S. dollars based on the current exchange rates each
business day. 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 unrealized gain or loss from investments and foreign
currency translations on the Statement of Operations.
29
<Page>
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 Subchapter M 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 from
net investment income (if any) quarterly and from net realized capital gains (if
any) annually. Dividends and distributions, which are determined in accordance
with income tax regulations, are recorded on the ex-dividend date.
EXPENSES--Each Class of the Fund bears expenses incurred specifically on its
behalf and, in addition, each Class bears a portion of general expenses based on
the relative net assets or the number of shareholder accounts of the Class. The
type of expense determines the allocation method.
The Company's board of directors has authorized the payment of certain Fund
expenses with commissions on Fund portfolio transactions. These commissions
reduce Other Expenses and are included in the Expense Offset to Broker
Commissions in the Statement of Operations.
USE OF ESTIMATES--The preparation of financial statements in conformity with
accounting principles generally accepted in the United States of America
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported amounts of
income and expenses during the reporting period. Actual results could differ
from those estimates.
INDEMNIFICATIONS--In the normal course of business, the Company enters into
contracts that contain provisions indemnifying other parties against specified
potential liabilities. Each Fund's maximum exposure under these arrangements is
unknown as this would involve future claims that may be made against the Fund
that have not yet occurred. However, based on experience, the Funds expect the
risk of loss to be remote.
OTHER--Certain prior year information has been reformatted, without substantive
change, to conform with the current year presentation.
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 period ended June 30, 2006,
Class F shares were charged $24,770 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 period ended June 30, 2006, Class F shares were
charged $9,380 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 $13.45 to $13.88, 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 period ended June 30, 2006 were as
follows:
TRANSFER
AGENCY FEES
---------------------
Class A $2,375
---------------------
Class B $2,248
---------------------
Class C $ 435
---------------------
Class R $ 85
---------------------
Class T $ 104
---------------------
31
<Page>
Founders has agreed to reimburse (or to cause its affiliates to reimburse) the
Class R and Class T share classes of the Fund for certain transfer agency
expenses pursuant to a written contractual commitment. This commitment will
extend through at least August 31, 2007, and will not be terminated without
prior notification to the Company's board of directors. For the period ended
June 30, 2006, Class R and Class T were each reimbursed $44, which reduced the
amounts paid to DTI to $41 and $60, 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 period ended June 30, 2006, the Fund was charged $483 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 period ended June
30, 2006, the Fund paid $31,820 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 period ended June 30,
2006, Class F shares were charged $80,917 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 period ended June 30, 2006, were as follows:
DISTRIBUTION SHAREHOLDER
FEES SERVICING FEES
---------------------------------------
Class A N/A $2,284
---------------------------------------
Class B $3,192 $1,064
---------------------------------------
Class C $ 689 $ 230
---------------------------------------
Class T $ 56 $ 56
---------------------------------------
32
<Page>
During the period ended June 30, 2006, DSC retained $262 and $1 in sales
commissions from the sales of Class A and Class T shares, respectively. DSC also
retained $4,323 and $41 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.
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, which are shown as earnings credits on the
Statement of Operations. 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
period and in the amount set forth below:
TIME PERIOD AMOUNT OF WAIVER
------------------------------------
9/1/05 to 8/31/06 $200,000
------------------------------------
The fee waiver is allocated among the Funds in proportion to their respective
shares of the total custodian fee. For the period ended June 30, 2006, the
Fund's portion of the fee waiver was $314, which reduced the amount paid to
Mellon Bank to $2,733.
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 Directors'
Deferred Compensation on the Statement of Assets and Liabilities. Changes in
market value are included in the Directors' fees and expenses and the net change
in unrealized appreciation/depreciation of investments on the Statement of
Operations. 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
or its affiliates, which pay 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, deferred compensation, paydowns 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, 2005 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, 2005 were:
EXPIRATION AMOUNT
---------------------------------------------------
2008 $ 63,264,790
---------------------------------------------------
2009 $ 49,289,530
---------------------------------------------------
2010 $ 70,087,112
---------------------------------------------------
2011 $ 1,472,188
---------------------------------------------------
$184,113,620
============
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, 2006 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.
Undistributed Ordinary Income $ 704,506
---------------------------------------------------
Federal Tax Cost $62,941,894
---------------------------------------------------
Gross Tax Appreciation of Investments $ 1,936,396
---------------------------------------------------
Gross Tax Depreciation of Investments $(1,890,980)
---------------------------------------------------
Net Tax Appreciation $ 45,416
---------------------------------------------------
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>
PERIOD ENDED YEAR ENDED
JUNE 30, 2006 DECEMBER 31, 2005
SHARES AMOUNT SHARES AMOUNT
CLASS A
- ---------------------------------------------------------------------------------------------
Sold 38,521 $ 335,510 57,061 $ 480,146
Dividends or Distributions Reinvested 1,178 $ 10,249 1,781 $ 15,071
Redeemed (35,176) $ (307,750) (52,764) $ (443,070)
-----------------------------------------------------
Net Increase 4,523 $ 38,009 6,078 $ 52,147
=====================================================
CLASS B
- ---------------------------------------------------------------------------------------------
Sold 11,747 $ 103,189 19,802 $ 163,928
Dividends or Distributions Reinvested 29 $ 254 109 $ 919
Redeemed (55,609) $ (478,320) (90,247) $ (752,663)
-----------------------------------------------------
Net Decrease (43,833) $ (374,877) (70,336) $ (587,816)
=====================================================
CLASS C
- ---------------------------------------------------------------------------------------------
Sold 822 $ 7,028 536 $ 4,356
Dividends or Distributions Reinvested 16 $ 135 12 $ 99
Redeemed (3,177) $ (27,390) (10,020) $ (81,911)
-----------------------------------------------------
Net Decrease (2,339) $ (20,227) (9,472) $ (77,456)
=====================================================
CLASS F
- ---------------------------------------------------------------------------------------------
Sold 203,034 $ 1,778,742 724,211 $ 6,098,334
Dividends or Distributions Reinvested 48,076 $ 419,050 106,167 $ 897,919
Redeemed (1,250,133) $(10,977,028) (3,407,950) $(28,788,616)
-----------------------------------------------------
Net Decrease (999,023) $ (8,779,236) (2,577,572) $(21,792,363)
=====================================================
CLASS R
- ---------------------------------------------------------------------------------------------
Sold 0 $ 0 288 $ 2,500
Dividends or Distributions Reinvested 49 $ 427 92 $ 776
Redeemed (225) $ (2,000) (1,074) $ (9,000)
-----------------------------------------------------
Net Decrease (176) $ (1,573) (694) $ (5,724)
=====================================================
CLASS T
- ---------------------------------------------------------------------------------------------
Sold 1,996 $ 18,199 11 $ 100
Dividends or Distributions Reinvested 20 $ 183 15 $ 130
Redeemed (12) $ (103) (127) $ (1,086)
-----------------------------------------------------
Net Increase (Decrease) 2,004 $ 18,279 (101) $ (856)
=====================================================
</Table>
35
<Page>
5. INVESTMENT TRANSACTIONS
For the period ended June 30, 2006, purchases and sales of investment securities
(excluding short-term securities and U.S. government obligations) were
$45,164,624 and $57,621,280, respectively. Purchases and sales of long-term U.S.
government obligations were $5,201,024 and $4,214,964, 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, 2006, the Fund did not have any borrowings under the LOC.
36
<Page>
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<Page>
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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, 2006, 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)2006 Founders Asset Management LLC. 8/06
0376SA0606
<Page>
SEMIANNUAL REPORT
DREYFUS FOUNDERS
DISCOVERY FUND
INVESTMENT UPDATE
JUNE 30, 2006
DREYFUS FOUNDERS FUNDS(R)
THE GROWTH SPECIALISTS
<Page>
TABLE OF CONTENTS
Management Overview 3
Fund Expenses 11
Statement of Investments 13
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
PAPERLESS DELIVERY OF THIS REPORT
Did you know you can reduce your postal mail by accessing Dreyfus Founders Funds
regulatory material online? It's a simple, reliable process: when new documents
such as this 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
Founders Asset Management LLC
A MELLON FINANCIAL COMPANY(SM)
210 University Boulevard, Suite 800
Denver, CO 80206
DISTRIBUTOR
Dreyfus Service Corporation
200 Park Avenue
New York, NY 10166
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, 2006. The amounts of
these holdings are included in the Statement of Investments.
NOT FDIC-INSURED - NOT BANK-GUARANTEED - MAY LOSE VALUE
<Page>
MANAGEMENT OVERVIEW
(UNAUDITED)
[PHOTO OF BRAD ORR]
[PHOTO OF JAMES (J.D.) PADGETT]
A DISCUSSION WITH CO-PORTFOLIO MANAGERS BRAD ORR, CFA, LEFT, AND JAMES (J.D.)
PADGETT, CFA, REGARDING FUND PERFORMANCE FOR THE SIX-MONTH PERIOD ENDED JUNE 30,
2006.
ANTICIPATING THE FEDERAL RESERVE
The majority of domestic equity markets were up broadly during the six-month
period ended June 30, 2006. The investing environment that permeated the last
quarter of 2005 extended into the first quarter of 2006, as investors
anticipated an end to the interest-rate tightening campaign by the Federal
Reserve and economic expectations continued to be of low inflation and solid
growth. Also, during the first quarter, growth stocks outperformed value, and
small-capitalization stocks continued their reign over their large-cap
counterparts. The markets continued their bet on the economy's ability to walk
the fine line between solid growth yet not at a pace that would warrant
continued interest rate increases.
In the second quarter, as it became apparent that the Federal Reserve was
focused on increasing the federal funds rate until its inflationary concerns
abated, the equity markets began sliding. The outperformance of small-cap growth
stocks began to fade. In addition, high commodity prices and continued political
tension from various sources weighed heavily on the investing environment.
SMALL-CAP GROWTH STOCKS BEGIN TO UNDERPERFORM
For the period, small-cap stocks significantly outperformed large-cap stocks.
The Russell 2000 Index rose 8.21%, outpacing the 2.71% gain in the Standard &
Poor's 500 Index and the -0.93% decline of the Russell 1000 Growth Index. In the
small-cap universe, growth stocks underperformed value stocks as the Russell
2000 Growth Index increased 6.07%, while the Russell 2000 Value Index rose
10.44%.(1)
- ----------
(1) 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 Russell 2000 Value Index is an unmanaged index that measures
the performance of those Russell 2000 companies with lower price-to-book
ratios and lower forecasted growth values. The total return figures cited
for these indexes assume change in share prices and reinvestment of of
dividends, but do not reflect the costs of managing a mutual fund.
3
<Page>
For the six-month period, the Dreyfus Founders Discovery Fund
underperformed its benchmark, the Russell 2000 Growth Index, which returned
6.07% for the same period.
PORTFOLIO COMPOSITION REMAINS THE SAME
Our investment approach in managing the Fund remained consistent during the
period, with no major shifts in portfolio composition. We continued to employ a
bottom-up, fundamental approach in seeking to uncover small-cap growth companies
with the greatest growth potential.
INDUSTRIALS OUTPERFORMS DUE TO STRONG STOCK SELECTION
In small-cap investing, without dramatic differences in sector allocation
between the Fund and the benchmark, relative performance usually comes down to
stock selection. With this in mind, we continued to find compelling growth
opportunities during the period in the industrials sector. Although valuations
appeared to be high in many areas of the sector, the fundamental strength and
upside potential justified the valuations and warranted investment in the
sector. By the end of the period, this sector proved to be the Fund's strongest
performer on a relative basis, with the majority of outperformance attributed to
strong stock selection.
"IN SMALL-CAP INVESTING, WITHOUT DRAMATIC DIFFERENCES IN SECTOR ALLOCATION
BETWEEN THE FUND AND THE BENCHMARK, RELATIVE PERFORMANCE USUALLY COMES DOWN TO
STOCK SELECTION."
Numerous industrials stocks produced notable performance. Among them were
HUB GROUP, INC., Hughes Supply, Inc. and OLD DOMINION FREIGHT LINE, INC. Hub
Group, a freight intermodal transportation and logistics services provider,
posted results that were better than expected, and the company once again raised
earnings guidance. Hub Group executed a number of internal growth and margin
opportunities, outperforming the already solid intermodal transportation
industry. Wholesale industrial and construction supply distributor, Hughes
Supply, was acquired during the period by Home Depot, Inc., and Old Dominion
Freight Line saw its valuation expand as the company continued to show strong
organic growth and better-than-expected revenue and earnings results.
4
<Page>
INDIVIDUAL ISSUES PERFORMED STRONGLY
Information technology issue Trident Microsystems, Inc., a manufacturer of
integrated circuits for use in digital media applications, performed strongly as
the company continued to take market share in the rapidly growing advanced TV
market. Revenue and earnings for both the fourth quarter of 2005 and the first
quarter of 2006 beat investors' expectations.
SECTOR BENEFITING THE FUND
Industrials
Although the sector as a whole did not perform well, health care holding
MGI PHARMA, INC. boosted the Fund's relative performance. In late 2005, MGI
received a conditional approval for one of its drugs, Dacogen(TM), from which
the stock took a negative hit. During the same timeframe, the company's key
drug, Aloxi(R), showed signs of slowing prescriptions. Revenue and earnings
expectations were lowered, further depressing the stock. However, in the first
half of 2006, the company received final approval of Dacogen, and showed
stability in Aloxi prescriptions. The stock, therefore, performed well during
the period as a result of the improved fundamentals and good valuation.
Energy stock SUPERIOR ENERGY SERVICES, INC., a leading provider of
specialized oilfield services and equipment, experienced an uptick in business
after hurricane disruption of oil-well operations and related services
throughout the Gulf of Mexico dampened demand in the industry. In addition,
LARGEST EQUITY HOLDINGS (ticker symbol)
1. RACKABLE SYSTEMS, INC. (RACK) 3.08%
2. WMS INDUSTRIES, INC. (WMS) 2.80%
3. ev3, INC. (EVW) 2.78%
4. MGI PHARMA, INC. (MOGN) 2.67%
5. TRAMMELL CROW COMPANY (TCC) 2.62%
6. AEROFLEX, INC. (ARXX) 2.46%
7. NCI BUILDING SYSTEMS, INC. (NCS) 2.41%
8. KFx, INC. (KFX) 2.36%
9. KNOLL, INC. (KNL) 2.16%
10. HUB GROUP, INC. CLASS A (HUBG) 2.14%
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]
<Table>
<Caption>
DREYFUS
FOUNDERS RUSSELL 2000
DISCOVERY GROWTH
FUND-CLASS F INDEX
------------ ------------
6/28/1996 $10,000 $10,000
6/30/1997 $10,173 $10,460
6/30/1998 $12,280 $11,840
6/30/1999 $16,386 $12,823
6/30/2000 $30,400 $16,463
6/29/2001 $21,327 $12,621
6/28/2002 $15,709 $ 9,465
6/30/2003 $14,232 $ 9,530
6/30/2004 $18,143 $12,537
6/30/2005 $18,691 $13,074
6/30/2006 $19,393 $14,981
</Table>
The above graph compares a $10,000 investment made in Class F shares of Dreyfus
Founders Discovery Fund on 6/30/96 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 6/30/06
YEAR-TO- SINCE
CLASS (INCEPTION DATE) DATE+ 1 YEAR 5 YEARS 10 YEARS INCEPTION
- ------------------------------------------------------------------------------
A SHARES (12/31/99)
With sales charge (5.75%) (4.35%) (2.19%) (3.04%) -- (4.82%)
Without sales charge 1.50% 3.79% (1.88%) -- (3.95%)
B SHARES (12/31/99)
With redemption* (2.97%) (1.22%) (3.19%) -- (4.81%)
Without redemption 1.03% 2.78% (2.80%) -- (4.81%)
C SHARES (12/31/99)
With redemption** 0.11% 1.89% (2.77%) -- (4.78%)
Without redemption 1.11% 2.89% (2.77%) -- (4.78%)
F SHARES (12/29/89) 1.50% 3.76% (1.88%) 6.85% 12.10%
R SHARES (12/31/99) 1.61% 4.05% (1.61%) -- (3.69%)
T SHARES (12/31/99)
With sales charge (4.50%) (3.28%) (1.26%) (3.24%) -- (5.03%)
Without sales charge 1.29% 3.40% (2.35%) -- (4.35%)
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 redeemed within one year of the date of purchase.
+ Total return is not annualized.
7
<Page>
a backlog of work has risen steadily as wells are brought online. The company's
earnings, after a short period of impact, were better than expected.
Finally, consumer discretionary issue AARON RENTS, INC. overcame sales
disruptions due to last year's hurricanes and increased spending to keep stores
open during the hurricanes' aftermath. Although the company's stock price
dropped in 2005, we felt the market was viewing the situation incorrectly. We
saw through the short-term depression of margins and invested in the stock at an
attractive valuation. Sales momentum continued and margins recovered, driving
the stock up.
Although the Fund exhibited strong stock selection in the consumer
discretionary and materials sectors, this gain was offset by poor relative
weightings, contributing flat or slightly weak relative performance in each
sector.
WEAK STOCK SELECTION IN CERTAIN SECTORS HAMPERED PERFORMANCE
SECTORS DETRACTING FROM THE FUND
Information Technology
Health Care
Energy
The information technology (IT) sector provided the worst relative performance
in the Fund for the period. The investment team has had difficulty finding
compelling growth opportunities in this sector; valuations remained relatively
high throughout the period, and evidence of flattening and even deteriorating
fundamentals were found in many areas of the sector. Weak stock picking
curtailed our efforts to outperform the benchmark by underweighting the Fund in
this sector. For example, IT holding Merge Technologies Inc. held several large
contracts deemed by auditors to require changes to the company's revenue
recognition policies. These changes caused a large revenue and earnings revision
downward, leading many investors to doubt the company's growth strategy and
ultimate earnings power. The Fund no longer held this stock at the end of the
period as we shared these concerns. Another IT issue, MONOLITHIC POWER SYSTEMS,
INC., a designer and manufacturer of analog and mixed-signal high performance
semiconductors, experienced weakness attributed to both slightly weak guidance
and concerns about the company's end markets. The Fund held a position in this
stock at the end of the period, as we believed that the perception has been
worse than the reality of the company's situation.
8
<Page>
A slight overweight position and poor stock selection in the healthcare
sector also hampered the Fund's relative return. Manufacturer of drug-infusion
pumps and post-operative implantable catheters I-FLOW CORPORATION saw some sales
disruption in its oncology segment due to supply interruption of a commonly used
chemotherapy drug. Results were relatively in line with expectations excluding
this disruption, but the stock did not perform well. Decelerating growth in the
company's largest and fastest growing segment weighed on the stock more
recently. MATRIA HEALTHCARE, INC., which provides disease management programs
for health plans and employers, saw its stock price decline during the period
due to integration issues surrounding a large acquisition, primarily related to
customer disruption and delayed action on new business wins. These issues caused
the company to reduce earnings expectations for the year. DEXCOM, INC., a
manufacturer of continuous glucose monitoring systems for diabetics, experienced
a number of issues that caused pressure on the stock. After receiving approval
for its first generation monitoring system late in the first quarter of 2006,
the initial uptake of the product post-launch was slower than analysts expected,
although not out of the company's expected range. Concerns regarding the timing
of reimbursement for the system were also raised. Finally, rumors surfaced that
the company would recall the product due to malfunction, sending the stock price
tumbling, although no recall had occurred by the end of the period.
PORTFOLIO COMPOSITION OF NET ASSETS
[CHART]
<Table>
Consumer Discretionary 19.72%
Information Technology 19.61%
Industrials 18.52%
Health Care 16.74%
Financials 8.58%
Energy 7.81%
Consumer Staples 1.96%
Telecommunication Services 1.91%
Materials 1.49%
Cash & Equivalents 3.66%
</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.
9
<Page>
The Fund's weak stock picking in the energy and telecommunications services
sectors also produced a drain on relative performance. Likewise, an underweight
position in the strong performing energy sector weighed on the Fund.
SELECT STOCKS UNDERPERFORMED
Individual issues also performed poorly for the Fund, including consumer
discretionary holdings PACIFIC SUNWEAR OF CALIFORNIA, INC. and Red Robin Gourmet
Burgers, Inc. Pacific Sunwear had difficulty solidifying its store merchandising
mix, which resulted in lower store traffic levels, lower same-store sales,
bloated inventory levels and lower earnings. Red Robin also saw traffic slow
during the fourth quarter of 2005, resulting in lower revenue growth and
significantly lower earnings. The company's expense overruns were also
concerning to investors. The Fund no longer held this stock at the end of the
period due to these and other concerns.
As we head into the second half of 2006, the Fund's management team will
change. Effective August 1, 2006, B. Randall Watts, Jr. will assume portfolio
management responsibilities for the Fund, replacing Bradley C. Orr and James D.
Padgett.
We will continue to employ our bottom-up process to identify high-quality
companies we believe are capable of posting strong future earnings growth at
valuations that are attractive.
/s/ Bradley C. Orr, CFA /s/ James (J.D.) Padgett, CFA
- ------------------------------------ ----------------------------------------
Bradley C. Orr, CFA James (J.D.) Padgett, CFA
Co-Portfolio Manager Co-Portfolio Manager
10
<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, 2006
and held through June 30, 2006.
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, together with the amount you
invested, 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.
11
<Page>
EXPENSE EXAMPLE
BEGINNING ENDING EXPENSES PAID
ACCOUNT VALUE ACCOUNT VALUE DURING PERIOD*
(1/1/06) (6/30/06) (1/1/06-6/30/06)
- -----------------------------------------------------------------------
CLASS A ACTUAL $1,000.00 $1,015.00 $ 7.34
CLASS A HYPOTHETICAL 1,000.00 1,017.41 7.38
CLASS B ACTUAL 1,000.00 1,010.30 12.21
CLASS B HYPOTHETICAL 1,000.00 1,012.49 12.30
CLASS C ACTUAL 1,000.00 1,011.10 11.62
CLASS C HYPOTHETICAL 1,000.00 1,013.10 11.70
CLASS F ACTUAL 1,000.00 1,015.00 7.44
CLASS F HYPOTHETICAL 1,000.00 1,017.31 7.48
CLASS R ACTUAL 1,000.00 1,016.10 6.10
CLASS R HYPOTHETICAL 1,000.00 1,018.67 6.12
CLASS T ACTUAL 1,000.00 1,012.90 8.88
CLASS T HYPOTHETICAL 1,000.00 1,015.86 8.94
*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 earnings credits.
EXPENSE RATIO
-------------
CLASS A 1.47%
CLASS B 2.45%
CLASS C 2.33%
CLASS F 1.49%
CLASS R 1.22%
CLASS T 1.78%
12
<Page>
STATEMENT OF INVESTMENTS
June 30, 2006 (UNAUDITED)
SHARES MARKET VALUE
- --------------------------------------------------------------------------------
COMMON STOCKS (DOMESTIC)--92.4%
AIR FREIGHT & LOGISTICS--2.6%
309,844 Hub Group, Inc. Class A* $ 7,600,469
69,000 UTI Worldwide, Inc. 1,740,870
-----------
9,341,339
-----------
APPAREL RETAIL--1.2%
237,873 Pacific Sunwear of California, Inc.* 4,265,063
-----------
APPLICATION SOFTWARE--2.8%
348,750 Nuance Communications, Inc.* 3,508,425
325,836 Witness Systems, Inc.* 6,572,112
-----------
10,080,537
-----------
ASSET MANAGEMENT & CUSTODY BANKS--1.6%
65,525 Affiliated Managers Group, Inc.* 5,693,467
-----------
BUILDING PRODUCTS--2.4%
160,713 NCI Building Systems, Inc.* 8,545,110
-----------
CASINOS & GAMING--2.8%
361,975 WMS Industries, Inc.* 9,914,495
-----------
CATALOG RETAIL--1.2%
398,325 ValueVision Media, Inc. Class A* 4,393,525
-----------
COAL & CONSUMABLE FUEL--2.3%
548,525 KFx, Inc.* 8,381,462
-----------
COMPUTER STORAGE & PERIPHERALS--3.1%
276,313 Rackable Systems, Inc.* 10,911,600
-----------
CONSTRUCTION & ENGINEERING--3.5%
139,350 Foster Wheeler Limited* 6,019,920
290,751 Perini Corporation* 6,541,898
-----------
12,561,818
-----------
CONSTRUCTION, FARM MACHINERY & HEAVY TRUCKS--2.5%
186,911 ASV, Inc.* 4,306,429
93,237 Bucyrus International, Inc. Class A 4,708,469
-----------
9,014,898
-----------
DIVERSIFIED COMMERCIAL & PROFESSIONAL SERVICES--1.8%
139,550 CRA International, Inc.* 6,299,287
-----------
ELECTRICAL COMPONENTS & EQUIPMENT--1.0%
276,300 Evergreen Solar, Inc.* 3,586,374
-----------
ELECTRONIC EQUIPMENT MANUFACTURERS--2.5%
746,540 Aeroflex, Inc.* 8,712,122
-----------
FOOD DISTRIBUTORS--2.0%
275,605 Central European Distribution Corporation* 6,934,222
-----------
GOLD--1.5%
139,475 Glamis Gold Limited* 5,280,524
-----------
SEE NOTES TO STATEMENT OF INVESTMENTS.
13
<Page>
SHARES MARKET VALUE
- --------------------------------------------------------------------------------
HEALTHCARE EQUIPMENT--10.5%
122,275 ArthroCare Corporation* $ 5,136,773
161,580 Dexcom, Inc.* 2,194,256
664,872 ev3, Inc.* 9,846,754
612,764 I-Flow Corporation* 6,630,106
134,020 Integra LifeSciences Holdings* 5,201,316
90,725 Neurometrix, Inc.* 2,763,484
290,050 NuVasive, Inc.* 5,287,612
-----------
37,060,301
-----------
HEALTHCARE FACILITIES--3.1%
136,600 LCA - Vision, Inc. 7,227,506
120,846 United Surgical Partners International, Inc.* 3,633,839
-----------
10,861,345
-----------
HEALTHCARE SERVICES--0.6%
91,975 Matria Healthcare, Inc.* 1,970,105
-----------
HOME FURNISHING RETAIL--2.0%
268,531 Aaron Rents, Inc. 7,218,113
-----------
HOTELS, RESORTS & CRUISE LINES--1.8%
148,315 Gaylord Entertainment Company* 6,472,467
-----------
HUMAN RESOURCE & EMPLOYMENT SERVICES--1.2%
164,625 Resources Connection, Inc.* 4,118,918
-----------
INTERNET SOFTWARE & SERVICES--2.2%
278,302 Digitas, Inc.* 3,233,869
538,000 EarthLink Network, Inc.* 4,659,080
-----------
7,892,949
-----------
LEISURE FACILITIES--1.6%
119,675 Life Time Fitness, Inc.* 5,537,362
-----------
LIFE & HEALTH INSURANCE--0.9%
285,136 American Equity Investment Life Holding Company 3,039,550
-----------
OFFICE SERVICES & SUPPLIES--2.2%
417,006 Knoll, Inc. 7,656,230
-----------
OIL & GAS DRILLING--1.0%
166,851 Bronco Drilling Company, Inc.* 3,485,517
-----------
OIL & GAS EQUIPMENT & SERVICES--4.5%
74,450 Hydril* 5,845,814
122,075 Superior Energy Services, Inc.* 4,138,343
192,426 TETRA Technologies, Inc.* 5,828,584
-----------
15,812,741
-----------
PHARMACEUTICALS--2.7%
439,500 MGI Pharma, Inc.* 9,449,250
-----------
REAL ESTATE MANAGEMET & DEVELOPMENT--2.6%
264,100 Trammell Crow Company* 9,288,397
-----------
REGIONAL BANKS--1.4%
112,275 SVB Financial Group* 5,104,022
-----------
14
<Page>
SHARES MARKET VALUE
- --------------------------------------------------------------------------------
RESTAURANTS--1.6%
276,650 Ruth's Chris Steak House, Inc.* $ 5,649,193
------------
SEMICONDUCTOR EQUIPMENT--1.6%
610,080 Entegris, Inc.* 5,814,062
------------
SEMICONDUCTORS--5.7%
223,450 DSP Group, Inc.* 5,552,733
186,175 Microsemi Corporation* 4,538,947
380,200 Monolithic Power Systems, Inc.* 4,497,766
952,800 RF Micro Devices, Inc.* 5,688,216
------------
20,277,662
------------
SPECIALTY STORES--3.6%
133,718 Guitar Center, Inc.* 5,946,439
258,800 Sotheby's Holdings, Inc. Class A* 6,793,500
------------
12,739,939
------------
SYSTEMS SOFTWARE--1.6%
157,550 Quality Systems, Inc. 5,800,991
------------
THRIFTS & MORTGAGE FINANCE--2.0%
510,075 NewAlliance Bancshares, Inc. 7,299,173
------------
TRUCKING--1.3%
119,562 Old Dominion Freight Line, Inc.* 4,494,336
------------
WIRELESS TELECOMMUNICATION SERVICES--1.9%
522,595 InPhonic, Inc.* 3,292,349
236,775 Syniverse Holdings, Inc.* 3,480,593
------------
6,772,942
------------
TOTAL COMMON STOCKS (DOMESTIC)
(COST--$329,910,286) 327,731,408
------------
COMMON STOCKS (FOREIGN)--3.9%
HOTELS, RESORTS & CRUISE LINES--3.9%
211,075 Intrawest Corporation (CA) 6,724,850
88,000 Kerzner International Limited (BA)* 6,976,640
------------
13,701,490
------------
TOTAL COMMON STOCKS (FOREIGN)
(COST--$11,687,577) 13,701,490
------------
SEE NOTES TO STATEMENT OF INVESTMENTS.
15
<Page>
PRINCIPAL AMOUNT AMORTIZED COST
- --------------------------------------------------------------------------------
CORPORATE SHORT-TERM NOTES--3.8%
SPECIAL PURPOSE ENTITY--3.8%
$13,300,000 CAFCO LLC
5.33% 7/3/06~ $ 13,296,062
------------
TOTAL CORPORATE SHORT-TERM NOTES
(AMORTIZED COST--$13,296,062) 13,296,062
------------
TOTAL INVESTMENTS--100.1%
(TOTAL COST--$354,893,925) 354,728,960
------------
OTHER ASSETS AND LIABILITIES--(0.1%) (323,768)
------------
NET ASSETS--100.0% $354,405,192
============
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 $13,296,062, OR 3.8%, OF THE FUND'S NET ASSETS AS OF JUNE 30,
2006.
BA - BAHAMA ISLANDS
CA - CANADA
SEE NOTES TO FINANCIAL STATEMENTS.
16
<Page>
STATEMENT OF ASSETS AND LIABILITIES
June 30, 2006 (UNAUDITED)
ASSETS
- -------------------------------------------------------------------------------
Investment securities, at cost $ 354,893,925
-------------
Investment securities, at market 354,728,960
Cash 91,325
Receivables:
Investment securities sold 885,456
Capital shares sold 287,846
Dividends and interest 4,417
Other assets 75,817
-------------
Total Assets 356,073,821
-------------
LIABILITIES
- -------------------------------------------------------------------------------
Payables and other accrued liabilities:
Capital shares redeemed 965,612
Advisory fees 271,633
Shareholder servicing fees 30,380
Accounting fees 17,289
Distribution fees 103,174
Transfer agency fees 38,551
Custodian fees 2,331
To transfer agent 880
Directors' deferred compensation 75,817
Other 162,962
-------------
Total Liabilities 1,668,629
-------------
Net Assets $ 354,405,192
=============
COMPOSITION OF NET ASSETS
- -------------------------------------------------------------------------------
Capital (par value and paid-in surplus) $ 613,591,459
Accumulated net investment loss (2,490,863)
Accumulated net realized loss from security transactions (256,530,439)
Net unrealized depreciation on investments (164,965)
-------------
Total $ 354,405,192
=============
SEE NOTES TO FINANCIAL STATEMENTS.
17
<Page>
CLASS A
- --------------------------------------------------------------------------------
Net Assets $ 44,189,465
Shares Outstanding 1,520,831
Net Asset Value, Redemption Price Per Share $ 29.06
Maximum offering price per share
(net asset value plus sales charge of 5.75% of offering price) $ 30.83
CLASS B
- --------------------------------------------------------------------------------
Net Assets $ 7,565,035
Shares Outstanding 276,332
Net Asset Value, Offering and Redemption Price
(excluding applicable contingent
deferred sales charge) Per Share $ 27.38
CLASS C
- --------------------------------------------------------------------------------
Net Assets $ 3,791,369
Shares Outstanding 138,190
Net Asset Value, Offering and Redemption Price
(excluding applicable contingent
deferred sales charge) Per Share $ 27.44
CLASS F
- --------------------------------------------------------------------------------
Net Assets $288,516,035
Shares Outstanding 9,947,012
Net Asset Value, Offering and Redemption Price Per Share $ 29.01
CLASS R
- --------------------------------------------------------------------------------
Net Assets $ 10,146,962
Shares Outstanding 343,006
Net Asset Value, Offering and Redemption Price Per Share $ 29.58
CLASS T
- --------------------------------------------------------------------------------
Net Assets $ 196,326
Shares Outstanding 6,945
Net Asset Value, Redemption Price Per Share $ 28.27
Maximum offering price per share (net asset value plus sales
charge of (net asset value plus sales charge of 4.50% of
offering price) $ 29.60
SEE NOTES TO FINANCIAL STATEMENTS.
18
<Page>
STATEMENT OF OPERATIONS
For the six months ended June 30, 2006 (UNAUDITED)
INVESTMENT INCOME
- --------------------------------------------------------------------------------
Dividends $ 481,156
Interest 215,498
Foreign taxes withheld (2,244)
------------
Total Investment Income 694,410
------------
EXPENSES
- --------------------------------------------------------------------------------
Advisory fees--Note 2 1,862,506
Shareholder servicing fees--Note 2 203,948
Accounting fees--Note 2 121,092
Distribution fees--Note 2 349,196
Transfer agency fees--Note 2 217,313
Registration fees 35,120
Postage and mailing expenses 21,030
Custodian fees and expenses--Note 2 10,884
Printing expenses 40,000
Legal and audit fees 84,900
Directors' fees and expenses--Note 2 60,910
Other expenses 57,122
------------
Total Expenses 3,064,021
Earnings Credits (10,884)
------------
Net Expenses 3,053,137
------------
Net Investment Loss (2,358,727)
------------
REALIZED AND UNREALIZED GAIN (LOSS) ON SECURITY TRANSACTIONS
- --------------------------------------------------------------------------------
Net Realized Gain on Security Transactions 28,654,066
Net Change in Unrealized Appreciation/Depreciation of Investments (18,243,972)
------------
Net Realized and Unrealized Gain 10,410,094
------------
Net Increase in Net Assets Resulting from Operations $ 8,051,367
============
SEE NOTES TO FINANCIAL STATEMENTS.
19
<Page>
STATEMENTS OF CHANGES IN NET ASSETS
(UNAUDITED)
SIX MONTHS ENDED YEAR ENDED
OPERATIONS JUNE 30, 2006 DECEMBER 31, 2005
- -------------------------------------------------------------------------------
Net Investment Loss $ (2,358,727) $ (6,209,050)
Net Realized Gain on Security
Transactions 28,654,066 104,859,627
Net Change in Unrealized
Appreciation/Depreciation of
Investments (18,243,972) (110,156,860)
------------ -------------
Net Increase (Decrease) in Net Assets
Resulting from Operations 8,051,367 (11,506,283)
------------ -------------
CAPITAL SHARE TRANSACTIONS
- -------------------------------------------------------------------------------
Net Increase (Decrease)--Note 4
Class A (147,358) (19,962,138)
Class B (7,032,669) (4,382,098)
Class C (690,283) (2,118,101)
Class F (70,635,857) (190,412,627)
Class R 1,900,208 (62,960,862)
Class T (1,076,046) (434,663)
------------ -------------
Net Decrease from Capital Share
Transactions (77,682,005) (280,270,489)
------------ -------------
Net Decrease in Net Assets (69,630,638) (291,776,772)
------------ -------------
NET ASSETS
- -------------------------------------------------------------------------------
Beginning of Period $424,035,830 $ 715,812,602
------------ -------------
End of Period $354,405,192 $ 424,035,830
============ =============
Accumulated Net Investment Loss $ (2,490,863) $ (132,136)
SEE NOTES TO FINANCIAL STATEMENTS.
20
<Page>
FINANCIAL HIGHLIGHTS
(UNAUDITED)
<Table>
<Caption>
SIX MONTHS
ENDED JUNE 30, YEAR ENDED DECEMBER 31,
2006 2005 2004 2003 2002
-------------- -------------------------------------
CLASS A SHARES PER SHARE OPERATING DATA
Net Asset Value, beginning of period $ 28.63 $ 28.82 $ 26.04 $ 19.09 $ 28.50
- ------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment loss (0.18) (0.28)(a) (0.64) (0.36) (0.31)
Net realized and unrealized gains
(losses) on securities 0.61 0.09 3.42 7.31 (9.10)
-----------------------------------------------------
Total from investment operations 0.43 (0.19) 2.78 6.95 (9.41)
- ------------------------------------------------------------------------------------------------------
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 $ 29.06 $ 28.63 $ 28.82 $ 26.04 $ 19.09
=====================================================
TOTAL RETURN(b) 1.50% (0.66%) 10.68% 36.41% (33.02%)
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000s) $44,189 $45,092 $65,763 $79,630 $67,184
- ------------------------------------------------------------------------------------------------------
Ratios to average net assets:
Expenses with reimbursements, but no
earnings credits or brokerage offsets(c) 1.47% 1.47% 1.38% 1.50% 1.35%
Expenses with reimbursements, earnings
credits and brokerage offsets 1.47% 1.45% 1.37% 1.50% 1.35%
Net investment loss (1.13%) (1.09%) (1.11%) (1.25%) (1.08%)
- ------------------------------------------------------------------------------------------------------
Portfolio turnover rate(d) 136% 160% 98% 130% 128%
</Table>
(a.) COMPUTED USING AVERAGE SHARES OUTSTANDING THROUGHOUT THE PERIOD.
(b.) SALES CHARGES ARE NOT REFLECTED IN THE TOTAL RETURN.
(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.
21
<Page>
<Table>
<Caption>
SIX MONTHS
ENDED JUNE 30, YEAR ENDED DECEMBER 31,
2006 2005 2004 2003 2002
-------------- ---------------------------------------
CLASS B SHARES
PER SHARE OPERATING DATA
Net Asset Value, beginning of period $27.10 $ 27.55 $ 25.12 $ 18.60 $ 28.03
- ------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment loss (0.29)(a) (0.54)(a) (1.07) (0.81) (0.69)
Net realized and unrealized gains
(losses) on securities 0.57 0.09 3.50 7.33 (8.74)
-----------------------------------------------------
Total from investment operations 0.28 (0.45) 2.43 6.52 (9.43)
- ------------------------------------------------------------------------------------------------------
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 $27.38 $ 27.10 $ 27.55 $ 25.12 $ 18.60
=====================================================
TOTAL RETURN(b) 1.03% (1.63%) 9.67% 35.05% (33.64%)
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000s) $7,565 $13,964 $18,795 $21,009 $18,804
- ------------------------------------------------------------------------------------------------------
Ratios to average net assets:
Expenses with reimbursements, but no
earnings credits or brokerage offsets(c) 2.46% 2.44% 2.30% 2.56% 2.26%
Expenses with reimbursements, earnings
credits and brokerage offsets 2.45% 2.43% 2.29% 2.56% 2.26%
Net investment loss (2.09%) (2.06%) (2.03%) (2.31%) (1.98%)
- ------------------------------------------------------------------------------------------------------
Portfolio turnover rate(d) 136% 160% 98% 130% 128%
</Table>
(a.) COMPUTED USING AVERAGE SHARES OUTSTANDING THROUGHOUT THE PERIOD.
(b.) SALES CHARGES ARE NOT REFLECTED IN THE TOTAL RETURN.
(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
ENDED
JUNE 30, YEAR ENDED DECEMBER 31,
2006 2005 2004 2003 2002
---------- --------------------------------------
CLASS C SHARES
PER SHARE OPERATING DATA
Net Asset Value, beginning of period $27.14 $27.57 $25.14 $18.60 $ 28.05
- -------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment loss (0.29)(a) (0.50)(a) (1.53) (0.94) (0.86)
Net realized and unrealized gains
(losses) on securities 0.59 0.07 3.96 7.48 (8.59)
---------------------------------------------------
Total from investment operations 0.30 (0.43) 2.43 6.54 (9.45)
- -------------------------------------------------------------------------------------------------
Less dividends and distributions:
From net investment income 0.00 0.00 0.00 0.00 0.00
From net realized gains 0.00 0.00 0.00 0.00 0.00
---------------------------------------------------
Total distributions 0.00 0.00 0.00 0.00 0.00
- -------------------------------------------------------------------------------------------------
Net Asset Value, end of period $27.44 $27.14 $27.57 $25.14 $ 18.60
===================================================
TOTAL RETURN(b) 1.11% (1.56%) 9.67% 35.16% (33.69%)
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000s) $3,791 $4,391 $6,668 $8,352 $ 7,794
- -------------------------------------------------------------------------------------------------
Ratios to average net assets:
Expenses with reimbursements, but no
earnings credits or brokerage offsets(c) 2.34% 2.36% 2.28% 2.52% 2.27%
Expenses with reimbursements, earnings
credits and brokerage offsets 2.33% 2.35% 2.27% 2.52% 2.26%
Net investment loss (1.98%) (1.98%) (2.01%) (2.28%) (1.99%)
- -------------------------------------------------------------------------------------------------
Portfolio turnover rate(d) 136% 160% 98% 130% 128%
</Table>
(a.) COMPUTED USING AVERAGE SHARES OUTSTANDING THROUGHOUT THE PERIOD.
(b.) SALES CHARGES ARE NOT REFLECTED IN THE TOTAL RETURN.
(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
ENDED
JUNE 30, YEAR ENDED DECEMBER 31,
2006 2005 2004 2003 2002
---------- ----------------------------------------------
CLASS F SHARES
PER SHARE OPERATING DATA
Net Asset Value, beginning of period $ 28.58 $ 28.77 $ 25.98 $ 19.04 $ 28.45
- ----------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment loss (0.17)(a) (0.30)(a) (0.69) (0.35) (0.36)
Net realized and unrealized gains
(losses) on securities 0.60 0.11 3.48 7.29 (9.05)
------------------------------------------------------------
Total from investment operations 0.43 (0.19) 2.79 6.94 (9.41)
- ----------------------------------------------------------------------------------------------------------
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 $ 29.01 $ 28.58 $ 28.77 $ 25.98 $ 19.04
============================================================
TOTAL RETURN 1.50% (0.66%) 10.74% 36.45% (33.08%)
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000s) $288,516 $351,087 $550,622 $638,880 $498,970
- ----------------------------------------------------------------------------------------------------------
Ratios to average net assets:
Expenses with reimbursements, but no
earnings credits or brokerage offsets(b) 1.49% 1.46% 1.35% 1.53% 1.41%
Expenses with reimbursements, earnings
credits and brokerage offsets 1.49% 1.45% 1.34% 1.53% 1.40%
Net investment loss (1.14%) (1.09%) (1.08%) (1.29%) (1.13%)
- ----------------------------------------------------------------------------------------------------------
Portfolio turnover rate(c) 136% 160% 98% 130% 128%
</Table>
(a.) COMPUTED USING AVERAGE SHARES OUTSTANDING THROUGHOUT THE PERIOD.
(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.
24
<Page>
<Table>
<Caption>
SIX MONTHS
ENDED
JUNE 30, YEAR ENDED DECEMBER 31,
2006 2005 2004 2003 2002
---------- -----------------------------------------
CLASS R SHARES
PER SHARE OPERATING DATA
Net Asset Value, beginning of period $ 29.11 $29.22 $ 26.32 $ 19.23 $ 28.64
- ----------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment loss (0.14)(a) (0.24)(a) (0.24) (0.17) (0.18)
Net realized and unrealized gains
(losses) on securities 0.61 0.13 3.14 7.26 (9.23)
------------------------------------------------------
Total from investment operations 0.47 (0.11) 2.90 7.09 (9.41)
- ----------------------------------------------------------------------------------------------------
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 $ 29.58 $29.11 $ 29.22 $ 26.32 $ 19.23
======================================================
TOTAL RETURN 1.61% (0.38%) 11.02% 36.87% (32.86%)
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000s) $10,147 $8,315 $72,317 $65,240 $42,872
- ----------------------------------------------------------------------------------------------------
Ratios to average net assets:
Expenses with reimbursements, but no
earnings credits or brokerage offsets(b) 1.23% 1.18% 1.11% 1.21% 1.10%
Expenses with reimbursements, earnings
credits and brokerage offsets 1.22% 1.17% 1.10% 1.21% 1.10%
Net investment loss (0.88%) (0.80%) (0.83%) (0.96%) (0.82%)
- ----------------------------------------------------------------------------------------------------
Portfolio turnover rate(c) 136% 160% 98% 130% 128%
</Table>
(a.) COMPUTED USING AVERAGE SHARES OUTSTANDING THROUGHOUT THE PERIOD.
(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,
2006 2005 2004 2003 2002
-------------- -----------------------------------------
CLASS T SHARES
PER SHARE OPERATING DATA
Net Asset Value, beginning of period $27.91 $28.18 $25.55 $18.79 $ 28.24
- -------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment loss (0.23)(a) (0.38)(a) (0.65) (0.31) (0.54)
Net realized and unrealized gains
(losses) on securities 0.59 0.11 3.28 7.07 (8.91)
----------------------------------------------------------
Total from investment operations 0.36 (0.27) 2.63 6.76 (9.45)
- -------------------------------------------------------------------------------------------------
Less dividends and distributions:
From net investment income 0.00 0.00 0.00 0.00 0.00
From net realized gains 0.00 0.00 0.00 0.00 0.00
----------------------------------------------------------
Total distributions 0.00 0.00 0.00 0.00 0.00
- -------------------------------------------------------------------------------------------------
Net Asset Value, end of period $28.27 $27.91 $28.18 $25.55 $ 18.79
==========================================================
TOTAL RETURN(b) 1.29% (0.96%) 10.29% 35.98% (33.46%)
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000s) $ 196 $1,187 $1,648 $1,788 $ 1,291
- -------------------------------------------------------------------------------------------------
Ratios to average net assets:
Expenses with reimbursements, but
no earnings credits or brokerage
offsets(c) 1.78% 1.77% 1.71% 1.91% 2.06%
Expenses with reimbursements,
earnings credits and brokerage
offsets 1.78% 1.76% 1.70% 1.90% 2.06%
Net investment loss (1.46%) (1.40%) (1.44%) (1.66%) (1.79%)
- -------------------------------------------------------------------------------------------------
Portfolio turnover rate(d) 136% 160% 98% 130% 128%
</Table>
(a.) COMPUTED USING AVERAGE SHARES OUTSTANDING THROUGHOUT THE PERIOD.
(b.) SALES CHARGES ARE NOT REFLECTED IN THE TOTAL RETURN.
(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.
26
<Page>
NOTES TO FINANCIAL STATEMENTS
June 30, 2006 (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). Effective June 1, 2006,
Class B shares will no longer be offered except in connection with dividend
reinvestments and permitted exchanges of Class B shares. 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. New York closing exchange rates are used to convert foreign
currencies to U.S. dollars.
A debt security with a remaining maturity greater than 60 days at the time of
purchase is valued in accordance with the evaluated bid price supplied by a
pricing service approved by the Company's board of directors or, if such price
is not available, at the mean between the highest bid and lowest asked
quotations obtained from at least two securities dealers. A debt security with a
remaining maturity of 60 days or less at the time of purchase is valued at
amortized cost, which approximates market value, unless it is determined that
amortized cost would not represent market value, in which case the securities
would be marked to market. The Fund amortizes premiums and discounts on all debt
securities.
If market quotations 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 requires the use of estimates, and as such,
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--The Fund may invest at least a
portion of its assets in foreign securities. Foreign securities carry more risk
than U.S. securities, such as political and currency risks. 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 Fund could be
exposed to risk if counterparties are unable to meet the terms of the contracts
or if the value of the currency changes unfavorably to the U.S. dollar. 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.
The accounting records of the Fund are maintained in U.S. dollars. The market
values of foreign securities, currency holdings and other assets and liabilities
are translated into U.S. dollars based on the current exchange rates each
business day. 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 unrealized gain or loss from investments and foreign
currency translations on the Statement of Operations.
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
28
<Page>
equivalent of the amounts actually received or paid. Net unrealized appreciation
or depreciation on investments and foreign currency translation arises from
changes in the values of assets and liabilities, including investments in
securities held at the date of the financial statements, resulting from changes
in the exchange rates and changes in market prices of securities held.
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 Subchapter M 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 from
net investment income (if any) and from net realized 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.
USE OF ESTIMATES--The preparation of financial statements in conformity with
accounting principles generally accepted in the United States of America
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported amounts of
income and expenses during the reporting period. Actual results could differ
from those estimates.
INDEMNIFICATIONS--In the normal course of business, the Company enters into
contracts that contain provisions indemnifying other parties against specified
potential liabilities. Each Fund's maximum exposure under these arrangements is
unknown as this would involve future claims that may be made against the Fund
that have not yet occurred. However, based on experience, the Funds expect the
risk of loss to be remote.
OTHER--Certain prior year information has been reformatted, without substantive
change, to conform with the current year presentation.
29
<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
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 period ended June 30, 2006,
Class F shares were charged $119,324 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 period ended June 30, 2006, Class F shares were
charged $52,999 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 $12.92 to $13.36, 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 period ended June 30, 2006 were as
follows:
TRANSFER
AGENCY FEES
---------------------
Class A $ 3,900
---------------------
Class B $13,829
---------------------
Class C $ 2,753
---------------------
Class R $ 968
---------------------
Class T $ 164
---------------------
30
<Page>
Certain as-of shareholder transactions may result in gains or losses to the
Fund. Depending on the circumstances, these gains may be payable to, or
reimbursable from, the transfer agent; such gains and losses are presented on
the Statement of Assets and Liabilities.
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 period ended June 30, 2006, the Fund was charged $2,938 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 period ended June
30, 2006, the Fund paid $142,700 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 period ended June 30,
2006, Class F shares were charged $291,802 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 period ended June 30, 2006, were as follows:
DISTRIBUTION SHAREHOLDER
FEES SERVICING FEES
---------------------------------------
Class A N/A $65,174
---------------------------------------
Class B $40,863 $13,621
---------------------------------------
Class C $16,054 $ 5,352
---------------------------------------
Class T $ 477 $ 477
---------------------------------------
31
<Page>
During the period ended June 30, 2006, DSC retained $340 and $2 in sales
commissions from the sales of Class A and Class T shares, respectively. DSC also
retained $13,737 and $768 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.
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, which are shown as earnings credits on the
Statement of Operations. 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
period and in the amount set forth below:
TIME PERIOD AMOUNT OF WAIVER
------------------------------------
9/1/05 to 8/31/06 $200,000
------------------------------------
The fee waiver is allocated among the Funds in proportion to their respective
shares of the total custodian fee. For the period ended June 30, 2006, the
Fund's portion of the fee waiver was $0. The amount paid to Mellon Bank was
$10,884.
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 Directors'
Deferred Compensation on the Statement of Assets and Liabilities. Changes in
market value are included in the Directors' fees and expenses and the net change
in unrealized appreciation/depreciation of investments on the Statement of
Operations. 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
or its affiliates, which pay 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.
32
<Page>
3. FEDERAL TAX INFORMATION
Net investment income and capital gains distributions are determined in
accordance with income tax regulations that may differ from accounting
principles generally accepted in the United States of America. These differences
are due to differing treatments for items such as deferral of wash sale losses,
deferred compensation, 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, 2005 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, 2005 were:
EXPIRATION AMOUNT
-------------------------
2009 $ 38,219,881
-------------------------
2010 $230,439,968
-------------------------
2011 $ 14,100,467
-------------------------
$282,760,316
============
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, 2006 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.
----------------------------------------------------
Federal Tax Cost $356,569,914
----------------------------------------------------
Gross Tax Appreciation of Investments $ 29,343,623
----------------------------------------------------
Gross Tax Depreciation of Investments $(31,184,577)
----------------------------------------------------
Net Tax Depreciation $ (1,840,954)
----------------------------------------------------
33
<Page>
4. CAPITAL SHARE TRANSACTIONS
The Fund is authorized to issue 450 million shares of $0.01 par value capital
stock. Transactions in shares of the Fund for the periods indicated were as
follows:
PERIOD ENDED YEAR ENDED
JUNE 30, 2006 DECEMBER 31, 2005
CLASS A Shares Amount Shares Amount
- -----------------------------------------------------------------------------
Sold 790,294 $ 25,006,663 608,634 $ 16,949,413
Redeemed (844,698) $(25,154,021) (1,315,511) $ (36,911,551)
----------------------------------------------------
Net Decrease (54,404) $ (147,358) (706,877) $ (19,962,138)
====================================================
CLASS B
- -----------------------------------------------------------------------------
Sold 2,010 $ 58,647 6,784 $ 179,523
Redeemed (240,928) $ (7,091,316) (173,781) $ (4,561,621)
----------------------------------------------------
Net Decrease (238,918) $ (7,032,669) (166,997) $ (4,382,098)
====================================================
CLASS C
- -----------------------------------------------------------------------------
Sold 11,868 $ 350,995 7,954 $ 207,689
Redeemed (35,425) $ (1,041,278) (88,042) $ (2,325,790)
----------------------------------------------------
Net Decrease (23,557) $ (690,283) (80,088) $ (2,118,101)
====================================================
CLASS F
- -----------------------------------------------------------------------------
Sold 397,938 $ 12,203,622 1,487,909 $ 40,938,769
Redeemed (2,736,222) $(82,839,479) (8,342,143) $(231,351,396)
----------------------------------------------------
Net Decrease (2,338,284) $(70,635,857) (6,854,234) $(190,412,627)
====================================================
CLASS R
- -----------------------------------------------------------------------------
Sold 185,350 $ 5,872,913 348,073 $ 9,843,662
Redeemed (127,999) $ (3,972,705) (2,537,460) $ (72,804,524)
----------------------------------------------------
Net Increase (Decrease) 57,351 $ 1,900,208 (2,189,387) $ (62,960,862)
====================================================
CLASS T
- -----------------------------------------------------------------------------
Sold 916 $ 27,950 8,141 $ 222,678
Redeemed (36,505) $ (1,103,996) (24,068) $ (657,341)
----------------------------------------------------
Net Decrease (35,589) $ (1,076,046) (15,927) $ (434,663)
====================================================
5. INVESTMENT TRANSACTIONS
For the period ended June 30, 2006, purchases and sales of investment securities
(excluding short-term securities and U.S. government obligations) were
$227,560,370 and $303,923,478 respectively.
34
<Page>
6. LINE OF CREDIT
The Company has a line of credit arrangement ("LOC") with State Street Bank and
Trust Company, to be used for temporary or emergency purposes, primarily for
financing redemption payments. Each Fund's borrowings are limited to the lesser
of (a) $50 million, or (b) the lesser of 25% of the Fund's total net assets or
the maximum amount which the Fund is permitted to borrow pursuant to the
prospectus, any law or any other agreement. Combined borrowings are subject to
the $50 million cap on the total LOC. Each Fund agrees to pay annual fees and
interest on the unpaid balance based on prevailing market rates as defined in
the LOC. At June 30, 2006, the Fund did not have any borrowings under the LOC.
35
<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, 2006, 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)2006 Founders Asset Management LLC. 8/06
0370SA0606
<Page>
SEMIANNUAL REPORT
DREYFUS FOUNDERS
EQUITY GROWTH FUND
INVESTMENT UPDATE
JUNE 30, 2006
DREYFUS FOUNDERS FUNDS(R)
THE GROWTH SPECIALISTS
<Page>
TABLE OF CONTENTS
Management Overview 3
Fund Expenses 9
Statement of Investments 11
Statement of Assets and Liabilities 16
Statement of Operations 18
Statements of Changes in Net Assets 19
Financial Highlights 20
Notes to Financial Statements 26
PAPERLESS DELIVERY OF THIS REPORT
Did you know you can reduce your postal mail by accessing Dreyfus Founders
Funds regulatory material online? It's a simple, reliable process: when new
documents such as this 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
Founders Asset Management LLC
A MELLON FINANCIAL COMPANY(SM)
210 University Boulevard, Suite 800
Denver, CO 80206
DISTRIBUTOR
Dreyfus Service Corporation
200 Park Avenue
New York, NY 10166
The views expressed in this report reflect those of the portfolio manager only
through the end of the period covered and do not necessarily represent the views
of Founders or any other person in the Founders organization. Any such views are
subject to change at any time based upon market or other conditions and Founders
disclaims any responsibility to update such views. These views may not be relied
on as investment advice and, because investment decisions for a Dreyfus Founders
Fund are based on numerous factors, may not be relied on as an indication of
trading intent on behalf of any Dreyfus Founders Fund. Companies appearing in
bold print on pages 3-8 were owned by the Fund on June 30, 2006. The amounts of
these holdings are included in the Statement of Investments.
NOT FDIC-INSURED - NOT BANK-GUARANTEED - MAY LOSE VALUE
<Page>
MANAGEMENT OVERVIEW
(UNAUDITED)
[PHOTO OF JOHN JARES]
A DISCUSSION WITH PORTFOLIO MANAGER JOHN JARES, CFA, REGARDING FUND PERFORMANCE
FOR THE SIX-MONTH PERIOD ENDED JUNE 30, 2006.
EQUITY MARKETS END PERIOD LOWER
The period began with strong consumer confidence, a steadily growing economy and
low inflation. However, high crude oil prices continued to press down on
businesses and consumers, and the Federal Reserve moved forward with its
monetary tightening campaign. Growing investor concern over the Federal
Reserve's future direction diminished the positive backdrop for the markets. The
markets' decline began in May and lasted through the end of the period.
For the six-month period ended June 30, 2006, Dreyfus Founders Equity
Growth Fund compared favorably1 to the -0.93% return for the Russell 1000 Growth
Index, the Fund's benchmark.
CONSUMER STOCKS BOOSTED FUND PERFORMANCE
The Fund's investment strategy remained the same. We continued to search company
by company, analyzing fundamentals and speaking with management teams and
industry experts in an attempt to uncover the best growth opportunities for the
Fund. Our efforts in finding strong-performing growth stocks materialized during
the period, as the Fund showed strong stock picking in a number of sectors,
including the consumer discretionary, consumer staples, materials and financials
sectors. Relative exposure to the aforementioned sectors, excluding the
materials sector, also played a positive role in the Fund's return.
"OUR EFFORTS IN FINDING STRONG-PERFORMING GROWTH
STOCKS MATERIALIZED DURING THE PERIOD."
- ----------
(1) Excluding sales charges, which result in lower returns for certain share
classes. Please see page 6 for Average Annual and Year-to-Date Returns for
all share classes, including and excluding sales charges.
3
<Page>
SECTORS BENEFITING THE FUND
Consumer Discretionary
Consumer Staples
Financials/Materials
Pixar, Inc., COMCAST CORPORATION, KOHL'S CORPORATION and BEST BUY COMPANY,
INC. proved to be solid consumer discretionary picks as well as strong overall
performers for the Fund. Pixar saw its stock price increase on strong demand for
its animated feature-length, family-friendly films. Comcast benefited from
strong demand for its products, primarily its multi-service bundled packages.
Kohl's experienced improved revenue and earnings growth trends driven by higher
sales, as the department store industry saw a reduction in capacity. Best Buy's
stock price rose on strong consumer spending on a variety of products.
Notable performance was also exhibited by SCHLUMBERGER LIMITED. High oil
prices created an increased level of activity related to finding and developing
new oil and gas fields, which promoted healthy demand and pricing for
oil-services provider Schlumberger.
INDUSTRIALS, TELECOM AND UTILITIES HAMPERED THE FUND'S RETURN
Although the industrials sector was a strong performer during the period
overall, a relative underweight position in this sector caused it to be the
worst-performing sector in the Fund. Weak stock selection in the
LARGEST EQUITY HOLDINGS (ticker symbol)
1. GENERAL ELECTRIC COMPANY (GE) 3.62%
2. MICROSOFT CORPORATION (MSFT) 3.37%
3. GOOGLE, INC. CLASS A (GOOG) 2.76%
4. EXXONMOBIL CORPORATION (XOM) 2.22%
5. CISCO SYSTEMS, INC. (CSCO) 2.21%
6. WYETH (WYG) 2.05%
7. PROCTER & GAMBLE COMPANY (PG) 1.95%
8. ADOBE SYSTEMS, INC. (ADBE) 1.95%
9. COLGATE-PALMOLIVE COMPANY (CL) 1.90%
10. EMERSON ELECTRIC COMPANY (EMR) 1.88%
Portfolio holdings are subject to change, and should not be construed as a
recommendation of any security.
4
<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]
<Table>
<Caption>
DREYFUS
FOUNDERS RUSSELL 1000
EQUITY GROWTH GROWTH
FUND-CLASS F INDEX
------------- ------------
6/28/1996 $10,000 $10,000
6/30/1997 $12,129 $13,134
6/30/1998 $14,545 $17,257
6/30/1999 $15,517 $21,962
6/30/2000 $16,442 $27,598
6/29/2001 $11,938 $17,615
6/28/2002 $ 9,740 $12,949
6/30/2003 $ 9,795 $13,330
6/30/2004 $11,444 $15,713
6/30/2005 $11,835 $15,977
6/30/2006 $12,844 $16,954
</Table>
The above graph compares a $10,000 investment made in Class F shares of Dreyfus
Founders Equity Growth Fund on 6/30/96 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 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 this index
assume changes 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.
5
<Page>
AVERAGE ANNUAL AND YEAR-TO DATE TOTAL RETURN as of 6/30/06
YEAR-TO- 1 5 10 SINCE
CLASS (INCEPTION DATE) DATE+ YEAR YEARS YEARS INCEPTION
- -------------------------------------------------------------------------
A SHARES (12/31/99)
With sales charge (5.75%) (5.39%) 1.93% (0.41%) -- (5.74%)
Without sales charge 0.39% 8.21% 0.77% -- (4.88%)
B SHARES (12/31/99)
With redemption* (4.00%) 3.21% (0.06%) -- (5.45%)
Without redemption 0.00% 7.21% 0.34% -- (5.45%)
C SHARES (12/31/99)
With redemption** (0.79%) 6.59% 0.01% -- (5.66%)
Without redemption 0.21% 7.59% 0.01% -- (5.66%)
F SHARES (7/5/38) 0.58% 8.53% 1.47% 2.53% N/A
R SHARES (12/31/99) 0.97% 8.91% 1.07% -- (4.58%)
T SHARES (12/31/99)
With sales charge (4.50%) (4.33%) 3.18% (0.95%) -- (6.27%)
Without sales charge 0.21% 8.00% (0.03%) -- (5.60%)
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.
6
<Page>
telecommunications sector also hampered the Fund's performance for the period,
as did a lack of exposure in the utilities sector, in which the Fund found no
compelling growth stories.
SECTORS DETRACTING FROM THE FUND
Industrials
Telecommunication Services
Utilities
INDIVIDUAL STOCKS HURT PERFORMANCE
The information technology (IT) sector produced mixed results during the period,
as some IT stocks performed strongly while others saw declines. As no broad
industry factors hit the sector, poor performance was due to company-specific
difficulties. As consumers awaited ADOBE SYSTEMS, INC.'s launch of numerous
software upgrades, new purchases were postponed, which created a slowing in
revenue growth. As a result, Adobe moderated revenue and earnings growth
expectations during the second quarter of 2006. MICROSOFT CORPORATION's delay of
its updated office suite and new operating system, Windows Vista, weighed on the
stock's performance. In addition, the company also indicated that spending
levels for 2006 would be elevated, as Microsoft is making investments to
strengthen its position on the Internet. These investments came as a surprise to
investors, who were subsequently forced to moderate their expectations for
PORTFOLIO COMPOSITION OF NET ASSETS
[CHART]
<Table>
Information Technology 30.85%
Consumer Staples 13.66%
Health Care 12.64%
Consumer Discretionary 10.62%
Financials 9.81%
Industrials 9.02%
Energy 4.03%
Materials 1.51%
Telecommunication Services 0.50%
Other 4.59%
Cash & Equivalents 2.77%
</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.
7
<Page>
earnings growth. INTEL CORPORATION's stock price dropped on poor revenue growth
and margin deterioration due to lost market share.
Healthcare holding BOSTON SCIENTIFIC CORPORATION also saw a decline in its
share price. The company recently acquired medical-device maker Guidant
Corporation, but after the acquisition closed, demand for medical devices,
including Guidant's implantable cardioverter defibrillators (ICDs), dropped,
impacting Boston Scientific and a number of companies within the industry.
Finally, during the period, consumer discretionary issue Advance Auto
Parts, Inc. was negatively impacted by a company announcement that high gasoline
prices, high interest rates, and the burden of rising credit card payments had
combined to dent customers' disposable income, and thus, the company's sales. As
a result, Advance Auto Parts was forced to significantly lower sales and
earnings guidance for 2006.
As we move into the second half of 2006, we will continue to employ a
bottom-up research approach to selecting growth stocks that we believe have the
potential to post superior revenue and earnings growth.
/s/ John Jares
- --------------------------
John Jares, CFA
Portfolio Manager
8
<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, 2006
and held through June 30, 2006.
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, together with the amount you
invested, 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.
9
<Page>
EXPENSE EXAMPLE
BEGINNING ENDING EXPENSES PAID
ACCOUNT VALUE ACCOUNT VALUE DURING PERIOD*
(1/1/06) (6/30/06) (1/1/06-6/30/06)
------------------------------------------------
CLASS A ACTUAL $1,000.00 $1,003.90 $ 6.16
CLASS A HYPOTHETICAL 1,000.00 1,018.57 6.23
CLASS B ACTUAL 1,000.00 1,000.00 10.81
CLASS B HYPOTHETICAL 1,000.00 1,013.85 10.94
CLASS C ACTUAL 1,000.00 1,002.10 9.63
CLASS C HYPOTHETICAL 1,000.00 1,015.05 9.74
CLASS F ACTUAL 1,000.00 1,005.80 5.37
CLASS F HYPOTHETICAL 1,000.00 1,019.37 5.42
CLASS R ACTUAL 1,000.00 1,009.70 4.83
CLASS R HYPOTHETICAL 1,000.00 1,019.92 4.87
CLASS T ACTUAL 1,000.00 1,002.10 7.60
CLASS T HYPOTHETICAL 1,000.00 1,017.11 7.68
* 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 and earnings credits.
EXPENSE RATIO
-------------
CLASS A 1.24%
CLASS B 2.18%
CLASS C 1.94%
CLASS F 1.08%
CLASS R 0.97%
CLASS T 1.53%
10
<Page>
STATEMENT OF INVESTMENTS
June 30, 2006 (UNAUDITED)
SHARES MARKET VALUE
- --------------------------------------------------------------------------------
COMMON STOCKS (DOMESTIC)--94.0%
AIRLINES--1.6%
46,175 AMR Corporation* $1,173,764
42,225 Continental Airlines, Inc. Class B* 1,258,305
17,925 US Airways Group, Inc.* 905,930
----------
3,337,999
----------
APPLICATION SOFTWARE--1.3%
28,575 Autodesk, Inc.* 984,695
132,475 BEA Systems, Inc.* 1,734,098
----------
2,718,793
----------
ASSET MANAGEMENT & CUSTODY BANKS--0.6%
21,975 State Street Corporation 1,276,528
----------
BIOTECHNOLOGY--1.9%
29,750 Amgen, Inc.* 1,940,593
16,850 Genzyme Corporation* 1,028,693
35,200 MedImmune, Inc.* 953,920
----------
3,923,206
----------
BROADCASTING & CABLE TV--1.0%
63,175 Comcast Corporation Special Class A* 2,070,877
----------
CASINOS & GAMING--0.6%
18,950 Harrah's Entertainment, Inc. 1,348,861
----------
COMMUNICATIONS EQUIPMENT--3.9%
236,238 Cisco Systems, Inc.* 4,613,728
130,975 Motorola, Inc. 2,639,146
24,600 QUALCOMM, Inc. 985,722
----------
8,238,596
----------
COMPUTER & ELECTRONICS RETAIL--1.3%
51,375 Best Buy Company, Inc. 2,817,405
----------
COMPUTER HARDWARE--4.4%
39,950 Apple Computer, Inc.* 2,281,944
43,400 Dell, Inc.* 1,059,394
50,800 Diebold, Inc. 2,063,496
118,450 Hewlett-Packard Company 3,752,496
----------
9,157,330
----------
COMPUTER STORAGE & PERIPHERALS--1.5%
138,475 Seagate Technology* 3,135,074
----------
CONSUMER ELECTRONICS--0.5%
12,575 Harman International Industries, Inc. 1,073,528
----------
CONSUMER FINANCE--0.8%
31,400 SLM Corporation 1,661,688
----------
DATA PROCESSING & OUTSOURCED SERVICES--0.8%
37,250 Automatic Data Processing, Inc. 1,689,288
----------
SEE NOTES TO STATEMENT OF INVESTMENTS.
11
<Page>
SHARES MARKET VALUE
- --------------------------------------------------------------------------------
DEPARTMENT STORES--2.7%
81,125 Federated Department Stores, Inc. $2,969,175
30,950 J.C. Penney Company, Inc. 2,089,434
10,175 Kohl's Corporation* 601,546
----------
5,660,155
----------
DIVERSIFIED CHEMICALS--0.7%
37,175 E.I. du Pont de Nemours and Company 1,546,480
----------
DRUG RETAIL--1.6%
74,450 Walgreen Company 3,338,338
----------
ELECTRICAL COMPONENTS & EQUIPMENT--1.9%
46,875 Emerson Electric Company 3,928,594
----------
ELECTRONIC EQUIPMENT MANUFACTURERS--0.5%
29,886 Agilent Technologies, Inc.* 943,202
----------
ENVIRONMENTAL & FACILITIES SERVICES--0.6%
35,450 Waste Management, Inc. 1,271,946
----------
EXCHANGE TRADED FUNDS--4.6%
55,625 iShares Russell 1000 Growth Index Fund 2,806,281
79,725 Nasdaq 100 Index Tracking Stock 3,090,141
29,050 SPDR Trust Series 1 3,692,546
----------
9,588,968
----------
FOOD DISTRIBUTORS--1.4%
92,900 Sysco Corporation 2,839,024
----------
FOOD RETAIL--1.6%
125,100 Safeway, Inc. 3,252,600
----------
GENERAL MERCHANDISE STORES--1.2%
104,000 Family Dollar Stores, Inc. 2,540,720
----------
HEALTHCARE EQUIPMENT--2.8%
20,925 Beckman Coulter, Inc. 1,162,384
104,050 Boston Scientific Corporation* 1,752,202
9,625 Intuitive Surgical, Inc.* 1,135,461
37,600 Medtronic, Inc. 1,764,192
----------
5,814,239
----------
HEALTHCARE SERVICES--1.1%
40,150 Medco Health Solutions, Inc.* 2,299,792
----------
HEALTHCARE SUPPLIES--1.1%
45,350 Advanced Medical Optics, Inc.* 2,299,245
----------
HOME ENTERTAINMENT SOFTWARE--0.7%
34,125 Electronic Arts, Inc.* 1,468,740
----------
HOME IMPROVEMENT RETAIL--0.9%
51,200 Home Depot, Inc. 1,832,448
----------
12
<Page>
SHARES MARKET VALUE
- --------------------------------------------------------------------------------
HOTELS, RESORTS & CRUISE LINES--0.5%
28,800 Marriott International, Inc. Class A $1,097,856
----------
HOUSEHOLD PRODUCTS--3.8%
66,175 Colgate-Palmolive Company 3,963,883
73,246 Procter & Gamble Company 4,072,478
----------
8,036,361
----------
HYPERMARKETS & SUPER CENTERS--0.8%
36,300 Wal-Mart Stores, Inc. 1,748,571
----------
INDUSTRIAL CONGLOMERATES--3.6%
229,650 General Electric Company 7,569,264
----------
INTEGRATED OIL & GAS--2.2%
75,575 ExxonMobil Corporation 4,636,527
----------
INTEGRATED TELECOMMUNICATION SERVICES--0.5%
52,625 Sprint Nextel Corporation 1,051,974
----------
INTERNET RETAIL--0.3%
21,925 eBay, Inc.* 642,183
----------
INTERNET SOFTWARE & SERVICES--4.1%
13,775 Google, Inc. Class A* 5,776,271
85,950 Yahoo!, Inc.* 2,836,350
----------
8,612,621
----------
INVESTMENT BANKING & BROKERAGE--4.2%
220,675 Charles Schwab Corporation 3,526,387
18,175 Goldman Sachs Group, Inc. 2,734,065
25,125 Morgan Stanley 1,588,151
62,200 TD Ameritrade Holding Corporation 921,182
----------
8,769,785
----------
IT CONSULTING & OTHER SERVICES--0.5%
38,725 Accenture Limited Class A 1,096,692
----------
MOVIES & ENTERTAINMENT--1.0%
69,732 Walt Disney Company 2,091,960
----------
MULTI-LINE INSURANCE--1.6%
19,425 American International Group, Inc. 1,147,046
46,300 Assurant, Inc. 2,240,920
----------
3,387,966
----------
OIL & GAS EQUIPMENT & SERVICES--1.8%
58,300 Schlumberger Limited 3,795,913
----------
OTHER DIVERSIFIED FINANCIAL SERVICES--1.4%
69,275 JPMorgan Chase & Company 2,909,550
----------
PERSONAL PRODUCTS--2.3%
74,875 Avon Products, Inc. 2,321,125
62,225 Estee Lauder Companies, Inc. Class A 2,406,241
----------
4,727,366
----------
SEE NOTES TO STATEMENT OF INVESTMENTS.
13
<Page>
SHARES MARKET VALUE
- --------------------------------------------------------------------------------
PHARMACEUTICALS--5.8%
59,675 Johnson & Johnson $ 3,575,726
92,692 Pfizer, Inc. 2,175,481
108,000 Schering-Plough Corporation 2,055,240
96,475 Wyeth 4,284,455
------------
12,090,902
------------
PROPERTY & CASUALTY INSURANCE--1.2%
45,675 Allstate Corporation 2,499,793
------------
RAILROADS--0.8%
17,200 Union Pacific Corporation 1,598,912
------------
SEMICONDUCTORS--4.5%
27,075 Broadcom Corporation* 813,604
33,450 Freescale Semiconductor, Inc. Class B* 983,430
96,678 Intel Corporation 1,832,048
83,500 Linear Technology Corporation 2,796,415
62,375 Maxim Integrated Products, Inc. 2,002,861
35,400 Texas Instruments, Inc. 1,072,266
------------
9,500,624
------------
SOFT DRINKS--1.5%
50,375 PepsiCo, Inc. 3,024,515
------------
SPECIALTY STORES--0.5%
11,675 AutoZone, Inc.* 1,029,735
------------
STEEL--0.8%
29,525 Nucor Corporation 1,601,731
------------
SYSTEMS SOFTWARE--6.7%
134,125 Adobe Systems, Inc.* 4,072,035
302,166 Microsoft Corporation 7,040,468
147,075 Oracle Corporation* 2,131,117
51,975 Symantec Corporation* 807,692
------------
14,051,312
------------
TOTAL COMMON STOCKS (DOMESTIC)
(COST--$192,907,396) 196,645,777
------------
COMMON STOCKS (FOREIGN)--3.2%
AEROSPACE & DEFENSE--0.6%
31,825 Empresa Brasileira de Aeronautica SA Sponsored ADR (BR) 1,160,658
------------
APPLICATION SOFTWARE--0.4%
17,200 SAP AG Sponsored ADR (GE) 903,344
------------
PACKAGED FOODS & MEATS--0.8%
41,400 Cadbury Schweppes Sponsored ADR (UK) 1,607,148
------------
SEMICONDUCTOR EQUIPMENT--1.4%
147,650 ASM Lithography Holding NV NY Shares (NE)* 2,985,483
------------
TOTAL COMMON STOCKS (FOREIGN)
(COST--$6,118,006) 6,656,633
------------
14
<Page>
PRINCIPAL AMOUNT AMORTIZED COST
- --------------------------------------------------------------------------------
CORPORATE SHORT-TERM NOTES--2.8%
SPECIAL PURPOSE ENTITY--2.8%
$5,800,000 CAFCO LLC
5.33% 7/3/06~ $ 5,798,283
------------
TOTAL CORPORATE SHORT-TERM NOTES
(AMORTIZED COST--$5,798,283) 5,798,283
------------
TOTAL INVESTMENTS--100.0%
(TOTAL COST--$204,823,685) 209,100,693
------------
OTHER ASSETS AND LIABILITIES--0.0% 2,531
------------
NET ASSETS--100.0% $209,103,224
============
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 $5,798,283, OR 2.8%, OF THE FUND'S NET ASSETS AS OF JUNE 30,
2006.
ADR - AMERICAN DEPOSITARY RECEIPT
SPDR - STANDARD AND POOR'S DEPOSITARY RECEIPT
BR -BRAZIL
GE -GERMANY
NE - NETHERLANDS
UK - UNITED KINGDOM
SEE NOTES TO FINANCIAL STATEMENTS.
15
<Page>
STATEMENT OF ASSETS AND LIABILITIES
June 30, 2006 (UNAUDITED)
ASSETS
- -------------------------------------------------------------------------------
Investment securities, at cost $204,823,685
------------
Investment securities, at market 209,100,693
Cash 144,619
Receivables:
Investment securities sold 5,229,744
Capital shares sold 19,110
Dividends and interest 190,505
Other assets 5,189
------------
Total Assets 214,689,860
------------
LIABILITIES
- -------------------------------------------------------------------------------
Payables and other accrued liabilities:
Investment securities purchased 5,117,957
Capital shares redeemed 229,710
Advisory fees 111,302
Shareholder servicing fees 18,502
Accounting fees 10,274
Distribution fees 36,758
Transfer agency fees 8,862
Custodian fees 211
To transfer agent 159
Directors' deferred compensation 5,189
Other 47,712
------------
Total Liabilities 5,586,636
------------
Net Assets $209,103,224
============
COMPOSITION OF NET ASSETS
- -------------------------------------------------------------------------------
Capital (par value and paid-in surplus) $275,580,443
Undistributed net investment income 291,427
Accumulated net realized loss from security transactions (71,045,654)
Net unrealized appreciation on investments 4,277,008
------------
Total $209,103,224
============
16
<Page>
CLASS A
- --------------------------------------------------------------------------------
Net Assets $ 1,706,126
Shares Outstanding 335,067
Net Asset Value, Redemption Price Per Share $ 5.09
Maximum offering price per share (net asset value plus sales
charge of 5.75% of offering price) $ 5.40
CLASS B
- --------------------------------------------------------------------------------
Net Assets $ 1,094,971
Shares Outstanding 222,790
Net Asset Value, Offering and Redemption Price (excluding
applicable contingent deferred sales charge) Per Share $ 4.91
CLASS C
- --------------------------------------------------------------------------------
Net Assets $ 1,949,926
Shares Outstanding 403,969
Net Asset Value, Offering and Redemption Price (excluding
applicable contingent deferred sales charge) Per Share $ 4.83
CLASS F
- --------------------------------------------------------------------------------
Net Assets $204,247,650
Shares Outstanding 39,195,594
Net Asset Value, Offering and Redemption Price Per Share $ 5.21
CLASS R
- --------------------------------------------------------------------------------
Net Assets $ 84,215
Shares Outstanding 16,272
Net Asset Value, Offering and Redemption Price Per Share $ 5.18
CLASS T
- --------------------------------------------------------------------------------
Net Assets $ 20,336
Shares Outstanding 4,182
Net Asset Value, Redemption Price Per Share $ 4.86
Maximum offering price per share (net asset value plus sales
charge of 4.50% of offering price) $ 5.09
SEE NOTES TO FINANCIAL STATEMENTS.
17
<Page>
STATEMENT OF OPERATIONS
For the six months ended June 30, 2006 (UNAUDITED)
INVESTMENT INCOME
- -------------------------------------------------------------------------------
Dividends $ 1,114,976
Interest 212,448
Foreign taxes withheld (4,573)
-----------
Total Investment Income 1,322,851
-----------
EXPENSES
- -------------------------------------------------------------------------------
Advisory fees--Note 2 708,234
Shareholder servicing fees--Note 2 112,352
Accounting fees--Note 2 65,375
Distribution fees--Note 2 92,228
Transfer agency fees--Note 2 53,203
Registration fees 30,290
Postage and mailing expenses 7,720
Custodian fees and expenses--Note 2 4,859
Printing expenses 29,565
Legal and audit fees 38,085
Directors' fees and expenses--Note 2 27,005
Other expenses 27,373
-----------
Total Expenses 1,196,289
Earnings Credits (4,515)
Reimbursed/Waived Expenses (388)
-----------
Net Expenses 1,191,386
-----------
Net Investment Income 131,465
-----------
REALIZED AND UNREALIZED GAIN (LOSS) ON SECURITY TRANSACTIONS
- -------------------------------------------------------------------------------
Net Realized Gain on Security Transactions 11,428,399
Net Change in Unrealized Appreciation/Depreciation of Investments (9,909,371)
-----------
Net Realized and Unrealized Gain 1,519,028
-----------
Net Increase in Net Assets Resulting from Operations $ 1,650,493
===========
SEE NOTES TO FINANCIAL STATEMENTS.
18
<Page>
STATEMENTS OF CHANGES IN NET ASSETS
(UNAUDITED)
YEAR ENDED
SIX MONTHS ENDED DECEMBER 31,
OPERATIONS JUNE 30, 2006 2005
- -------------------------------------------------------------------------------
Net Investment Income $ 131,465 $ 205,080
Net Realized Gain on Security Transactions 11,428,399 22,014,185
Net Change in Unrealized
Appreciation/Depreciation of Investments (9,909,371) (12,580,203)
------------ ------------
Net Increase in Net Assets Resulting from
Operations 1,650,493 9,639,062
------------ ------------
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS
- -------------------------------------------------------------------------------
From Net Investment Income
Class A 0 (1,749)
Class C 0 (4,846)
Class F 0 (428,422)
Class R 0 (786)
------------ ------------
Net Decrease from Dividends and Distributions 0 (435,803)
------------ ------------
CAPITAL SHARE TRANSACTIONS
- -------------------------------------------------------------------------------
Net Increase (Decrease)--Note 4
Class A 445,345 28,615
Class B (373,131) (702,149)
Class C (63,559) 1,342,518
Class F (12,940,581) (26,845,562)
Class R (192,993) 11,896
Class T 13,006 (23,106)
------------ ------------
Net Decrease from Capital Share Transactions (13,111,913) (26,187,788)
------------ ------------
Net Decrease in Net Assets (11,461,420) (16,984,529)
------------ ------------
NET ASSETS
- -------------------------------------------------------------------------------
Beginning of Period $220,564,644 $237,549,173
------------ ------------
End of Period $209,103,224 $220,564,644
============ ============
Undistributed Net Investment Income $ 291,427 $ 159,962
SEE NOTES TO FINANCIAL STATEMENTS.
19
<Page>
FINANCIAL HIGHLIGHTS
(UNAUDITED)
<Table>
<Caption>
SIX MONTHS YEAR ENDED
ENDED JUNE 30, DECEMBER 31,
2006 2005 2004 2003 2002
-------------- --------------------------------------
CLASS A SHARES PER
SHARE OPERATING DATA
Net Asset Value, beginning of period $ 5.07 $ 4.86 $ 4.49 $ 3.44 $ 4.66
- --------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.00)(a, b) (0.00)(a) 0.02 0.03 (0.02)
Net realized and unrealized gains
(losses) on securities 0.02 0.22 0.36 1.02 (1.20)
-------------------------------------------------------
Total from investment operations 0.02 0.22 0.38 1.05 (1.22)
- --------------------------------------------------------------------------------------------------------
Less dividends and distributions:
From net investment income 0.00 (0.01) (0.01) 0.00 0.00
From net realized gains 0.00 0.00 0.00 0.00 0.00
-------------------------------------------------------
Total distributions 0.00 (0.01) (0.01) 0.00 0.00
- --------------------------------------------------------------------------------------------------------
Net Asset Value, end of period $ 5.09 $ 5.07 $ 4.86 $ 4.49 $ 3.44
=======================================================
TOTAL RETURN(c) 0.39% 4.46% 8.54% 30.52% (26.18%)
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000s) $1,706 $1,266 $1,180 $ 935 $ 378
- --------------------------------------------------------------------------------------------------------
Ratios to average net assets:
Expenses with reimbursements, but
no earnings credits or brokerage offsets(d) 1.24% 1.35% 1.26% 1.49% 1.87%
Expenses with reimbursements,
earnings credits and brokerage offsets 1.24% 1.33% 1.25% 1.48% 1.87%
Net investment income (loss) 0.00% (0.09%) 0.38% (0.25%) (0.67%)
- --------------------------------------------------------------------------------------------------------
Portfolio turnover rate(e) 131% 126% 115% 123% 152%
</Table>
(a.) NET INVESTMENT LOSS FOR THE YEAR ENDED DECEMBER 31, 2005 AND FOR THE PERIOD
ENDED JUNE 30, 2006 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.) 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.
20
<Page>
<Table>
<Caption>
SIX MONTHS YEAR ENDED
ENDED JUNE 30, DECEMBER 31,
2006 2005 2004 2003 2002
-------------- ----------------------------------------
CLASS B SHARES PER
SHARE OPERATING DATA
Net Asset Value, beginning of period $ 4.91 $ 4.74 $ 4.40 $ 3.40 $ 4.61
- ----------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment loss (0.02)(b) (0.04)(b) (0.00)(a) (0.01) (0.05)
Net realized and unrealized gains
(losses) on securities 0.02 0.21 0.34 1.01 (1.16)
---------------------------------------------------------
Total from investment operations 0.00 0.17 0.34 1.00 (1.21)
- ----------------------------------------------------------------------------------------------------------
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 $ 4.91 $ 4.91 $ 4.74 $ 4.40 $ 3.40
=========================================================
TOTAL RETURN(c) 0.00% 3.59% 7.73% 29.41% (26.25%)
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000s) $1,095 $1,453 $2,110 $1,709 $ 1,013
- ----------------------------------------------------------------------------------------------------------
Ratios to average net assets:
Expenses with reimbursements, but
no earnings credits or brokerage offsets(d) 2.18% 2.19% 2.01% 2.30% 2.14%
Expenses with reimbursements,
earnings credits and brokerage offsets 2.18% 2.18% 2.00% 2.30% 2.14%
Net investment loss (0.98%) (0.97%) (0.34%) (1.08%) (0.95%)
- ----------------------------------------------------------------------------------------------------------
Portfolio turnover rate(e) 131% 126% 115% 123% 152%
</Table>
(a.) NET INVESTMENT LOSS FOR THE YEAR ENDED DECEMBER 31, 2004 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.) 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,
2006 2005 2004 2003 2002
-------------- --------------------------------------
CLASS C SHARES PER
SHARE OPERATING DATA
Net Asset Value, beginning of period $ 4.82 $ 4.66 $ 4.32 $ 3.34 $ 4.55
- --------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.02) (0.03)(a) 0.04 0.04 (0.07)
Net realized and unrealized gains
(losses) on securities 0.03 0.20 0.30 0.94 (1.14)
-------------------------------------------------------
Total from investment operations 0.01 0.17 0.34 0.98 (1.21)
- --------------------------------------------------------------------------------------------------------
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
-------------------------------------------------------
Total distributions 0.00 (0.01) 0.00 0.00 0.00
- --------------------------------------------------------------------------------------------------------
Net Asset Value, end of period $ 4.83 $ 4.82 $ 4.66 $ 4.32 $ 3.34
=======================================================
TOTAL RETURN(b) 0.21% 3.68% 7.87% 29.34% (26.59%)
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000s) $1,950 $2,012 $ 571 $ 357 $ 186
- --------------------------------------------------------------------------------------------------------
Ratios to average net assets:
Expenses with reimbursements, but
no earnings credits or brokerage offsets(c) 1.94% 1.98% 1.99% 2.29% 2.77%
Expenses with reimbursements,
earnings credits and brokerage offsets 1.94% 1.96% 1.99% 2.28% 2.76%
Net investment loss (0.72%) (0.72%) (0.24%) (1.04%) (1.55%)
- --------------------------------------------------------------------------------------------------------
Portfolio turnover rate(d) 131% 126% 115% 123% 152%
</Table>
(a.) COMPUTED USING AVERAGE SHARES OUTSTANDING THROUGHOUT THE PERIOD.
(b.) SALES CHARGES ARE NOT REFLECTED IN THE TOTAL RETURN.
(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 1.94% (2006), 1.98% (2005), 1.99% (2004), 2.29%
(2003) AND 3.02% (2002).
(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,
2006 2005 2004 2003 2002
-------------- ------------------------------------------------
CLASS F SHARES
PER SHARE OPERATING DATA
Net Asset Value, beginning of period $ 5.18 $ 4.96 $ 4.57 $ 3.50 $ 4.69
- ------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.00(a) 0.00(a) 0.02 0.00(a) 0.00(a)
Net realized and unrealized gains (losses) on
securities 0.03 0.23 0.39 1.07 (1.19)
---------------------------------------------------------------
Total from investment operations 0.03 0.23 0.41 1.07 (1.19)
- ------------------------------------------------------------------------------------------------------------------
Less dividends and distributions:
From net investment income 0.00 (0.01) (0.02) 0.00(b) 0.00(b)
From net realized gains 0.00 0.00 0.00 0.00 0.00
---------------------------------------------------------------
Total distributions 0.00 (0.01) (0.02) 0.00 0.00
- ------------------------------------------------------------------------------------------------------------------
Net Asset Value, end of period $ 5.21 $ 5.18 $ 4.96 $ 4.57 $ 3.50
===============================================================
TOTAL RETURN 0.58% 4.64% 8.97% 30.67% (25.33%)
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000s) $204,248 $215,556 $233,410 $233,333 $191,701
- ------------------------------------------------------------------------------------------------------------------
Ratios to average net assets:
Expenses with reimbursements, but no earnings
credits or brokerage offsets(c) 1.08% 1.13% 1.06% 1.13% 1.08%
Expenses with reimbursements, earnings
credits and brokerage offsets 1.08% 1.12% 1.06% 1.13% 1.08%
Net investment income 0.14% 0.11% 0.56% 0.06% 0.11%
- ------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate(d) 131% 126% 115% 123% 152%
</Table>
(a.) NET INVESTMENT INCOME FOR THE YEARS ENDED DECEMBER 31, 2005, 2003 AND 2002
AND FOR THE PERIOD ENDED JUNE 30, 2006 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 AGGREGATED LESS THAN $0.01 ON A PER SHARE BASIS.
(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,
2006 2005 2004 2003 2002
-------------- -------------------------------------
CLASS R SHARES
PER SHARE OPERATING DATA
Net Asset Value, beginning of period $5.13 $ 4.91 $ 4.53 $ 3.47 $ 4.74
- -------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) 0.01(a) 0.01 0.03 0.06 (0.08)
Net realized and unrealized gains (losses) on
securities 0.04 0.22 0.37 1.00 (1.19)
---------------------------------------------------
Total from investment operations 0.05 0.23 0.40 1.06 (1.27)
- -------------------------------------------------------------------------------------------------------
Less dividends and distributions:
From net investment income 0.00 (0.01) (0.02) 0.00 0.00
From net realized gains 0.00 0.00 0.00 0.00 0.00
---------------------------------------------------
Total distributions 0.00 (0.01) (0.02) 0.00 0.00
- -------------------------------------------------------------------------------------------------------
Net Asset Value, end of period $5.18 $ 5.13 $ 4.91 $ 4.53 $ 3.47
===================================================
TOTAL RETURN 0.97% 4.78% 8.88% 30.55% (26.79%)
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000s) $ 84 $ 270 $ 247 $ 211 $ 57
- -------------------------------------------------------------------------------------------------------
Ratios to average net assets:
Expenses with reimbursements, but no earnings
credits or brokerage offsets(b) 0.97% 1.10% 1.00% 1.35% 2.95%
Expenses with reimbursements, earnings credits
and brokerage offsets 0.97% 1.09% 1.00% 1.35% 2.95%
Net investment income (loss) 0.23% 0.15% 0.54% (0.12%) (1.78%)
- -------------------------------------------------------------------------------------------------------
Portfolio turnover rate(c) 131% 126% 115% 123% 152%
</Table>
(a.) COMPUTED USING AVERAGE SHARES OUTSTANDING THROUGHOUT THE PERIOD.
(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 0.97% (2006), 1.10% (2005), 1.00% (2004), 1.35%
(2003) AND 4.68% (2002).
(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.
24
<Page>
<Table>
<Caption>
SIX MONTHS YEAR ENDED
ENDED JUNE 30, DECEMBER 31,
2006 2005 2004 2003 2002
-------------- ------------------------------------------
CLASS T SHARES
PER SHARE OPERATING DATA
Net Asset Value, beginning of period $ 4.85 $ 4.72 $ 4.38 $ 3.39 $ 4.60
- ------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment loss (0.00)(a, b) (0.05)(a) (0.01) (0.23) (0.30)
Net realized and unrealized gains
(losses) on securities 0.01 0.18 0.25 1.22 (0.91)
-----------------------------------------------------------
Total from investment operations 0.01 0.13 0.24 0.99 (1.21)
- ------------------------------------------------------------------------------------------------------------
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
- ------------------------------------------------------------------------------------------------------------
Other:
Payment by Service Provider 0.00 0.00 0.10(c) 0.00 0.00
- ------------------------------------------------------------------------------------------------------------
Net Asset Value, end of period $ 4.86 $ 4.85 $ 4.72 $ 4.38 $ 3.39
==========================================================
TOTAL RETURN(d) 0.21% 2.75% 7.76% 29.20% (26.30%)
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000s) $ 20 $ 8 $ 32 $ 30 $ 33
- ------------------------------------------------------------------------------------------------------------
Ratios to average net assets:
Expenses with reimbursements, but
no earnings credits or brokerage offsets(e) 1.54% 2.16% 1.90% 2.27% 2.47%
Expenses with reimbursements, earnings
credits and brokerage offsets 1.53% 2.15% 1.90% 2.26% 2.46%
Net investment loss (0.18%) (0.98%) (0.29%) (1.11%) (1.29%)
- ------------------------------------------------------------------------------------------------------------
Portfolio turnover rate(f) 131% 126% 115% 123% 152%
</Table>
(a.) COMPUTED USING AVERAGE SHARES OUTSTANDING THROUGHOUT THE PERIOD.
(b.) NET INVESTMENT LOSS FOR THE PERIOD ENDED JUNE 30, 2006 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.) 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% (2006), 2.59% (2005), 1.90% (2004), 2.27%
(2003) AND 3.71% (2002).
(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.
25
<Page>
NOTES TO FINANCIAL STATEMENTS
June 30, 2006 (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). Effective
June 1, 2006, Class B shares will no longer be offered except in connection with
dividend reinvestments and permitted exchanges of Class B shares. 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. New York closing exchange rates are used to convert foreign
currencies to U.S. dollars.
A debt security with a remaining maturity greater than 60 days at the time of
purchase is valued in accordance with the evaluated bid price supplied by a
pricing service approved by the Company's board of directors or, if such price
is not available, at the mean between the highest bid and lowest asked
quotations obtained from at least two securities dealers. A debt security with a
remaining maturity of 60 days or less at the time of purchase is valued at
amortized cost, which approximates market value, unless it is determined that
amortized cost would not represent market value, in which case the securities
would be marked to market. The Fund amortizes premiums and discounts on all debt
securities.
If market quotations 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
26
<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 requires the use of estimates, and as such,
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--The Fund may invest at least a
portion of its assets in foreign securities. Foreign securities carry more risk
than U.S. securities, such as political and currency risks. 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 Fund could be
exposed to risk if counterparties are unable to meet the terms of the contracts
or if the value of the currency changes unfavorably to the U.S. dollar. 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.
The accounting records of the Fund are maintained in U.S. dollars. The market
values of foreign securities, currency holdings and other assets and liabilities
are translated into U.S. dollars based on the current exchange rates each
business day. 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 unrealized gain or loss from investments and foreign
currency translations on the Statement of Operations.
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
27
<Page>
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 Subchapter M 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 from
net investment income (if any) and from net realized 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.
USE OF ESTIMATES--The preparation of financial statements in conformity with
accounting principles generally accepted in the United States of America
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported amounts of
income and expenses during the reporting period. Actual results could differ
from those estimates.
INDEMNIFICATIONS--In the normal course of business, the Company enters into
contracts that contain provisions indemnifying other parties against specified
potential liabilities. Each Fund's maximum exposure under these arrangements is
unknown as this would involve future claims that may be made against the Fund
that have not yet occurred. However, based on experience, the Funds expect the
risk of loss to be remote.
OTHER--Certain prior year information has been reformatted, without substantive
change, to conform with the current year presentation.
2. FEES AND TRANSACTIONS WITH AFFILIATES
ADVISORY FEES--Founders Asset Management LLC ("Founders") serves as investment
adviser to the Fund. Founders is an indirect wholly-owned subsidiary of Mellon
Financial Corporation, a publicly-owned financial services company which
provides a comprehensive range of financial products and services in domestic
and selected international markets.
28
<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
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 period ended June 30, 2006,
Class F shares were charged $106,265 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 period ended June 30, 2006, Class F shares were
charged $41,819 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 $12.92 to $13.36, 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 period ended June 30, 2006 were as
follows:
TRANSFER
AGENCY FEES
---------------------
Class A $ 972
Class B $1,989
Class C $ 724
Class R $ 126
Class T $ 53
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.
Founders has agreed to reimburse (or to cause its affiliates to reimburse) the
Class T share class of the Fund for certain transfer agency expenses pursuant to
a written
29
<Page>
contractual commitment. This commitment will extend through at least August 31,
2007, and will not be terminated without prior notification to the Company's
board of directors. For the period ended June 30, 2006, Class T was reimbursed
$44, which reduced the amount paid to DTI to $9.
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 period ended June 30, 2006, the Fund was charged $1,541 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 period ended June
30, 2006, the Fund paid $7,520 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 period ended June 30,
2006, Class F shares were charged $79,865 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 period ended June 30, 2006, were as follows:
DISTRIBUTION SHAREHOLDER
FEES SERVICING FEES
---------------------------------------
Class A N/A $1,956
Class B $4,755 $1,585
Class C $7,593 $2,531
Class T $ 15 $ 15
30
<Page>
During the period ended June 30, 2006, DSC retained $443 and $1 in sales
commissions from the sales of Class A and Class T shares, respectively. DSC also
retained $2,118 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.
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, which are shown as earnings credits on the
Statement of Operations. 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
period and in the amount set forth below:
TIME PERIOD AMOUNT OF WAIVER
-------------------------------------
9/1/05 to 8/31/06 $200,000
-------------------------------------
The fee waiver is allocated among the Funds in proportion to their respective
shares of the total custodian fee. For the period ended June 30, 2006, the
Fund's portion of the fee waiver was $344, which reduced the amount paid to
Mellon Bank to $4,515.
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 Directors'
Deferred Compensation on the Statement of Assets and Liabilities. Changes in
market value are included in the Directors' fees and expenses and the net change
in unrealized appreciation/depreciation of investments on the Statement of
Operations. 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
or its affiliates, which pay 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.
31
<Page>
OTHER--During the period ended June 30, 2006, Founders reimbursed the Fund $997
for a trading error. This amount is not material to the Fund.
3. FEDERAL TAX INFORMATION
Net investment income and capital gains distributions are determined in
accordance with income tax regulations that may differ from accounting
principles generally accepted in the United States of America. These differences
are due to differing treatments for items such as deferral of wash sale losses,
deferred compensation 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, 2005 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, 2005 were:
EXPIRATION AMOUNT
------------------------
2009 $29,494,922
2010 $50,083,635
-----------
$79,578,557
===========
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, 2006 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.
-----------------------------------------------------
Post-October Capital Loss Deferral $ (555,661)
-----------------------------------------------------
Undistributed Ordinary Income $ 209,198
-----------------------------------------------------
Federal Tax Cost $205,495,969
-----------------------------------------------------
Gross Tax Appreciation of Investments $ 11,422,110
-----------------------------------------------------
Gross Tax Depreciation of Investments $ (7,817,386)
-----------------------------------------------------
Net Tax Appreciation $ 3,604,724
-----------------------------------------------------
32
<Page>
4. CAPITAL SHARE TRANSACTIONS
The Fund is authorized to issue 750 million shares of $0.01 par value capital
stock. Transactions in shares of the Fund for the periods indicated were as
follows:
<Table>
<Caption>
PERIOD ENDED YEAR ENDED
JUNE 30, 2006 DECEMBER 31, 2005
SHARES AMOUNT SHARES AMOUNT
CLASS A
- ------------------------------------------------------------------------------------------------
Sold 166,168 $ 867,827 133,918 $ 645,347
Dividends or Distributions Reinvested 0 $ 0 258 $ 1,321
Redeemed (80,969) $ (422,482) (127,183) $ (618,053)
------------------------------------------------------
Net Increase 85,199 $ 445,345 6,993 $ 28,615
======================================================
CLASS B
- ------------------------------------------------------------------------------------------------
Sold 13,148 $ 65,902 13,761 $ 63,612
Redeemed (86,184) $ (439,033) (162,888) $ (765,761)
------------------------------------------------------
Net Decrease (73,036) $ (373,131) (149,127) $ (702,149)
======================================================
CLASS C
- ------------------------------------------------------------------------------------------------
Sold 19,168 $ 93,604 331,465 $ 1,510,039
Dividends or Distributions Reinvested 0 $ 0 275 $ 1,336
Redeemed (32,767) $ (157,163) (36,722) $ (168,857)
------------------------------------------------------
Net Increase (Decrease) (13,599) $ (63,559) 295,018 $ 1,342,518
======================================================
CLASS F
- ------------------------------------------------------------------------------------------------
Sold 276,580 $ 1,475,031 587,677 $ 2,884,040
Dividends or Distributions Reinvested 0 $ 0 71,482 $ 373,127
Redeemed (2,705,760) $(14,415,612) (6,113,337) $(30,102,729)
------------------------------------------------------
Net Decrease (2,429,180) $(12,940,581) (5,454,178) $(26,845,562)
======================================================
CLASS R
- ------------------------------------------------------------------------------------------------
Sold 454 $ 2,396 4,796 $ 23,193
Dividends or Distributions Reinvested 0 $ 0 150 $ 778
Redeemed (36,864) $ (195,389) (2,559) $ (12,075)
------------------------------------------------------
Net Increase (Decrease) (36,410) $ (192,993) 2,387 $ 11,896
======================================================
CLASS T
- ------------------------------------------------------------------------------------------------
Sold 2,545 $ 13,106 1,538 $ 7,232
Redeemed (20) $ (100) (6,655) $ (30,338)
------------------------------------------------------
Net Increase (Decrease) 2,525 $ 13,006 (5,117) $ (23,106)
======================================================
</Table>
33
<Page>
5. INVESTMENT TRANSACTIONS
For the period ended June 30, 2006, purchases and sales of investment securities
(excluding short-term securities and U.S. government obligations) were
$142,876,578 and $157,580,438, 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, 2006, the Fund did not have any borrowings under the LOC.
34
<Page>
This page intentionally left blank.
<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, 2006, 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)2006 Founders Asset Management LLC.8/06
0375SA0606
<Page>
SEMIANNUAL REPORT
DREYFUS FOUNDERS
GOVERNMENT SECURITIES FUND
DREYFUS FOUNDERS
MONEY MARKET FUND
INVESTMENT UPDATE
JUNE 30, 2006
GOVERNMENT SECURITIES FUND IS CLOSED TO NEW INVESTORS.
PLEASE SEE THE PROSPECTUS FOR ADDITIONAL INFORMATION.
DREYFUS FOUNDERS FUNDS(SM)
THE GROWTH SPECIALISTS
<Page>
TABLE OF CONTENTS
Government Securities Fund Management Overview 3
Fund Expenses 7
Government Securities Fund Statement of Investments 9
Money Market Fund Statement of Investments* 11
Statements of Assets and Liabilities 14
Statements of Operations 15
Statements of Changes in Net Assets 16
Government Securities Fund Financial Highlights 17
Money Market Fund Financial Highlights 18
Notes to Financial Statements 19
PAPERLESS DELIVERY OF THIS REPORT
Did you know you can reduce your postal mail by accessing Dreyfus Founders
Funds regulatory material online? It's a simple, reliable process: when new
documents such as this 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
Founders Asset Management LLC
A MELLON FINANCIAL COMPANY(SM)
210 University Boulevard, Suite 800
Denver, CO 80206
DISTRIBUTOR
Dreyfus Service Corporation
200 Park Avenue
New York, NY 10166
* This report includes financial information for the Money Market Fund as of
June 30, 2006, but does not include a discussion of that Fund's
performance.
The views expressed in the Government Securities Fund management overview
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, 2006 are included in the Statements of Investments.
NOT FDIC-INSURED - NOT BANK-GUARANTEED - MAY LOSE VALUE
<Page>
GOVERNMENT SECURITIES FUND
MANAGEMENT OVERVIEW
(UNAUDITED)
[PHOTO OF MARGARET DANUSER]
A DISCUSSION WITH PORTFOLIO MANAGER MARGARET DANUSER, REGARDING FUND PERFORMANCE
FOR THE SIX-MONTH PERIOD ENDED JUNE 30, 2006.
A HIGHER, FLATTER YIELD CURVE
During the six months ended June 30, 2006, the bond market experienced six
consecutive months of negative price returns, the longest period of negative
price performance since 1978.(1) The broad market, as measured by the Merrill
Lynch Broad Market Index, posted a -3.29% price drop for the first half, and a
- -0.71% total return, which takes into account coupon payments and paydowns. The
yield curve continued to shift higher, and flattened during the first six months
of 2006 as a result of four Federal Reserve rate hikes during the period. Credit
spreads generally widened, with most of the spread deterioration occurring
during the second quarter of 2006. The Agency sector supplied the best
performance of the primary fixed-income classes, falling -0.03% as compared to
the -0.06% return in the fixed-rate mortgage sector, the -1.29% return in the
Treasury sector, and the -1.56% return in investment-grade corporate bonds.
The bond market returned -0.89% as measured by the Lehman Brothers U.S.
Government Composite Index for the six months ended June 30, 2006, outperforming
Dreyfus Founders Government Securities Fund, which returned -0.95%.
- ----------
(1) Merrill Lynch & Company, Inc.
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]
<Table>
<Caption>
DREYFUS
FOUNDERS
GOVERNMENT LEHMAN BROTHERS
SECURITIES U.S. GOVERNMENT
FUND-CLASS F COMPOSITE INDEX
6/28/1996 $10,000 $10,000
6/30/1997 $10,574 $10,740
6/30/1998 $11,628 $11,949
6/30/1999 $11,896 $12,312
6/30/2000 $12,189 $12,928
6/29/2001 $13,363 $14,263
6/28/2002 $14,438 $15,521
6/30/2003 $15,952 $17,279
6/30/2004 $15,681 $17,050
6/30/2005 $16,432 $18,182
6/30/2006 $16,219 $17,970
</Table>
The above graph compares a $10,000 investment made in Class F shares of Dreyfus
Founders Government Securities Fund on 6/30/96 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 6/30/06
CLASS F SHARES YEAR-TO- 1 5 10 SINCE
INCEPTION DATE DATE* YEAR YEARS YEARS INCEPTION
- ------------------------------------------------------------
3/1/88 (0.95%) 1.30% 3.95% 4.96% 5.48%
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.
REALLOCATION OF INVESTMENTS
In an effort to take advantage of the opportunities we felt existed in the
"wings" of the yield curve, the Fund reallocated some investments from the five-
to 10-year maturity range primarily into the three- to five-year sector, but
also the 10-year and longer maturity range. We continued, however, to focus
overall on high quality issues and liquidity bias in individual security
selection for inclusion in the Fund.
"THE FUND REALLOCATED SOME INVESTMENTS OUT OF THE FIVE- TO 10-YEAR MATURITY
RANGE DURING THE PERIOD."
AGENCIES AND SHORTER-DURATION ISSUES BOOSTED RELATIVE RETURN
During the period, the Fund's heavy relative weighting in Agencies positively
impacted performance, as agencies bested other asset classes. A cushion to
negative market movements was provided by the Fund's cash balance, as well as
the Fund's position in shorter-duration issue versus the benchmark;
longer-duration securities suffered greater losses than shorter-dated maturities
during the period.
SEE NOTES TO FINANCIAL STATEMENTS.
5
<Page>
[CHART]
PORTFOLIO COMPOSITION OF NET ASSETS
<Table>
Government Sponsored Enterprises 49.20%
Treasuries 33.80%
Domestic Mortgage 4.60%
Domestic Corporate 3.40%
Cash 9.00%
</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 government 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.
EXPOSURE TO LONGER DURATIONS HURT PERFORMANCE
The Fund's exposure to the long-end of the yield curve was detrimental to
performance during the period, as it suffered greater losses than shorter-dated
maturities. The Fund also lacked significant exposure to the mortgage market,
which performed better than both Treasuries and corporate bonds.
We believe the Federal Reserve is nearing the end of its monetary
tightening cycle. In the months ahead, we will continue to focus on high-quality
investments with the expectation that higher short-term interest rates may
eventually produce a drag on the economy; we believe higher quality investments
may outperform in such an environment. Historically, short-term yields decline
more than long-term yields in the wake of the Federal Reserve's end to rate
hikes. A steepening of the yield curve usually ensues, with long-term maturities
outpacing shorter maturities due to their longer durations.
In conclusion, we will focus our attention on areas of the yield curve that
would most actively participate in a steepening yield curve, and we will
continue to maintain our high quality bias, looking for value in individual
securities.
/s/ Margaret R. Danuser
- ---------------------------------------
Margaret Danuser
Portfolio Manager
SEE NOTES TO FINANCIAL STATEMENTS.
6
<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,
2006 and held through June 30, 2006.
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, together with the amount you
invested, 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.
7
<Page>
GOVERNMENT SECURITIES FUND EXPENSE EXAMPLE
BEGINNING ENDING EXPENSES PAID
ACCOUNT VALUE ACCOUNT VALUE DURING PERIOD*
(1/1/06) (6/30/06) (1/1/06-6/30/06)
- ---------------------------------------------------------------
ACTUAL $1,000.00 $ 990.50 $5.13
HYPOTHETICAL 1,000.00 1,019.57 5.22
* Expenses are equal to the Fund's annualized expense ratio of 1.04%,
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 and earnings credits.
MONEY MARKET FUND EXPENSE EXAMPLE
BEGINNING ENDING EXPENSES PAID
ACCOUNT VALUE ACCOUNT VALUE DURING PERIOD*
(1/1/06) (6/30/06) (1/1/06-6/30/06)
- ---------------------------------------------------------------
ACTUAL $1,000.00 $1,018.70 $4.81
HYPOTHETICAL 1,000.00 1,019.97 4.82
* Expenses are equal to the Fund's annualized expense ratio of 0.96%,
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 and earnings credits.
8
<Page>
GOVERNMENT SECURITIES FUND
STATEMENT OF INVESTMENTS
June 30, 2006 (UNAUDITED)
PRINCIPAL AMOUNT MARKET VALUE
- --------------------------------------------------------------------------------
U.S. GOVERNMENT SECURITIES--87.2%
AGENCY PASS THROUGH--1.3%
$120,870 U.S. Small Business Administration Series 10-A
6.64% 2/1/11 $ 123,878
----------
GOVERNMENT SPONSORED ENTERPRISES--49.0%
225,000 Federal Agricultural Mortgage Corporation 6.865% 8/10/09 234,090
Federal Farm Credit Bank:
300,000 4.70% 12/10/14 283,596
300,000 4.85% 10/25/12 290,313
285,000 5.35% 6/16/14 282,136
Federal Home Loan Bank:
200,000 4.50% 11/15/12 189,328
495,000 5.625% 2/15/08 495,970
240,000 5.95% 3/16/09 242,501
Federal Home Loan Mortgage Corporation:
400,000 5.625% 3/15/11 402,060
250,000 5.75% 3/15/09 251,925
Federal National Mortgage Association:
300,000 6.625% 10/15/07 304,047
250,000 7.125% 6/15/10 264,518
100,000 Sallie Mae 7.35% 8/1/10 106,776
Tennessee Valley Authority:
500,000 4.75% 8/1/13 476,570
200,000 5.375% 11/13/08 199,602
350,000 7.125% 5/1/30 418,187
----------
4,441,619
----------
MORTGAGE-BACKED SECURITIES: FHLMC/FNMA/SPONSORED--1.1%
10,819 Federal Home Loan Mortgage Corporation
7.50% 11/1/29 Pool #C32819 11,221
Federal National Mortgage Association:
24,283 6.50% 10/1/31 Pool #596063 24,505
58,510 7.00% 3/1/12 Pool #373543 59,758
----------
95,484
----------
MORTGAGE-BACKED SECURITIES: GNMA/GUARANTEED--2.1%
Government National Mortgage Association:
121,769 6.00% 1/15/33 Pool #563709 120,955
71,961 6.50% 5/15/26 Pool #417388 73,045
----------
194,000
----------
U.S. TREASURY BONDS--2.4%
200,000 U.S. Treasury Bond 6.25% 8/15/23 220,578
----------
SEE NOTES TO STATEMENT OF INVESTMENTS.
9
<Page>
PRINCIPAL AMOUNT MARKET VALUE
- --------------------------------------------------------------------------------
U.S. TREASURY NOTES--31.3%
U.S. Treasury Inflation Index Note:
$255,258 3.375% 1/15/12 $ 267,543
462,968 3.50% 1/15/11 484,548
U.S. Treasury Note:
250,000 4.25% 8/15/13 237,188
300,000 4.25% 8/15/15 280,698
275,000 4.50% 2/15/16 261,638
200,000 5.00% 2/15/11 199,508
200,000 5.00% 8/15/11 199,398
200,000 5.625% 5/15/08 201,578
500,000 6.25% 2/15/07 502,755
200,000 7.00% 7/15/06 200,078
----------
2,834,932
----------
TOTAL U.S. GOVERNMENT SECURITIES
(COST--$8,052,889) 7,910,491
----------
CORPORATE BONDS (DOMESTIC)--3.4%
DIVERSIFIED COMMERCIAL & PROFESSIONAL SERVICES--3.4%
300,000 Stanford University
6.16% 4/30/11 306,805
----------
TOTAL CORPORATE BONDS (DOMESTIC)
(COST--$300,000) 306,805
----------
PRINCIPAL AMOUNT AMORTIZED COST
- --------------------------------------------------------------------------------
U.S. AGENCY DISCOUNT NOTES--6.6%
GOVERNMENT SECURITIES--6.6%
$400,000 Federal Home Loan Mortgage Corporation
5.01% 7/5/06 $ 399,777
200,000 TVA Discount Note 5.03% 7/3/06 199,944
----------
599,721
----------
TOTAL U.S. AGENCY DISCOUNT NOTES
(COST--$599,721) 599,721
----------
CORPORATE SHORT-TERM NOTES--1.1%
DIVERSIFIED CAPITAL MARKETS--1.1%
100,000 UBS Finance LLC 5.275% 7/6/06 99,927
----------
TOTAL CORPORATE SHORT-TERM NOTES
(AMORTIZED COST--$99,927) 99,927
----------
TOTAL INVESTMENTS--98.3%
(TOTAL COST--$9,052,537) 8,916,944
OTHER ASSETS AND LIABILITIES--1.7% 153,746
----------
NET ASSETS--100.0% $9,070,690
==========
SEE NOTES TO FINANCIAL STATEMENTS.
10
<Page>
MONEY MARKET FUND
STATEMENT OF INVESTMENTS
June 30, 2006 (UNAUDITED)
PRINCIPAL AMOUNT AMORTIZED COST
- --------------------------------------------------------------------------------
U.S. AGENCY DISCOUNT NOTES--4.0%
$1,200,000 Federal Home Loan Bank
5.10% 7/12/06 $1,198,128
----------
TOTAL U.S. AGENCY DISCOUNT NOTES
(COST--$1,198,128) 1,198,128
----------
CORPORATE SHORT-TERM NOTES--95.6%
AIR FREIGHT & LOGISTICS--3.3%
1,000,000 United Parcel Service, Inc.
4.95% 7/3/06 999,725
----------
CONSTRUCTION, FARM MACHINERY & HEAVY TRUCKS--3.8%
1,200,000 Paccar Financial Corporation
5.25% 9/13/06 1,187,050
----------
CONSUMER ELECTRONICS--2.7%
800,000 Sharp Electronics Corporation
5.25% 7/17/06 798,133
----------
DIVERSIFIED BANKS--3.6%
1,100,000 HSBC Finance Corporation
5.25% 7/27/06 1,095,829
----------
DIVERSIFIED CAPITAL MARKETS--3.0%
UBS Finance LLC:
200,000 5.03% 8/25/06 198,463
400,000 5.08% 7/6/06 399,718
300,000 5.18% 8/21/06 297,799
----------
895,980
----------
ELECTRONIC EQUIPMENT MANUFACTURERS--4.0%
1,200,000 Hitachi America Capital
5.26% 7/25/06~ 1,195,792
----------
GENERAL MERCHANDISE STORES--4.6%
1,400,000 Wal-Mart Stores, Inc.
5.20% 8/8/06~ 1,392,316
----------
HOUSEHOLD APPLIANCES--4.0%
1,200,000 Stanley Works, Inc.
4.98% 7/10/06~ 1,198,506
----------
INDUSTRIAL CONGLOMERATES--7.3%
1,000,000 3M Company
4.98% 7/20/06 997,372
1,200,000 G.E. Capital Services
5.12% 7/18/06 1,197,099
----------
2,194,471
----------
SEE NOTES TO STATEMENT OF INVESTMENTS.
11
<Page>
PRINCIPAL AMOUNT AMORTIZED COST
- --------------------------------------------------------------------------------
MULTI-LINE INSURANCE--5.9%
$ 500,000 American Family Financial Services
4.83% 8/28/06 $ 496,109
1,300,000 American General Finance Corporation
5.20% 7/21/06 1,296,244
-----------
1,792,353
-----------
OTHER DIVERSIFIED FINANCIAL SERVICES--10.8%
1,000,000 Merrill Lynch & Company
5.17% 7/24/06 996,697
900,000 Morgan Stanley
5.27% 7/6/06 899,341
1,360,000 National Rural Utilities Cooperative Finance
5.19% 7/19/06 1,356,471
-----------
3,252,509
-----------
PACKAGED FOODS & MEATS--3.3%
1,000,000 Hershey Foods Corporation
5.00% 7/13/06~ 998,333
-----------
PHARMACEUTICALS--5.0%
Novartis Finance Corporation:
400,000 5.08% 7/6/06~ 399,718
1,100,000 5.17% 7/7/06~ 1,099,052
-----------
1,498,770
-----------
PROPERTY & CASUALTY INSURANCE--4.0%
1,200,000 General RE Corporation
4.91% 7/17/06 1,197,382
-----------
PUBLISHING--8.6%
Gannett Company:
1,100,000 5.00% 7/11/06~ 1,098,472
400,000 5.21% 7/26/06~ 398,553
1,100,000 McGraw-Hill Companies, Inc.
4.98% 7/7/06 1,099,087
-----------
2,596,112
-----------
SPECIAL PURPOSE ENTITY--21.7%
1,400,000 CAFCO LLC
5.00% 7/5/06~ 1,399,222
Ciesco LLC:
1,100,000 5.09% 7/19/06~ 1,097,201
340,000 5.24% 7/25/06~ 338,812
Metlife Funding, Inc.:
300,000 5.03% 7/20/06 299,204
1,100,000 5.23% 7/20/06 1,096,964
Nestle Capital Corporation:
300,000 4.98% 7/6/06~ 299,793
800,000 5.01% 7/12/06~ 798,775
1,200,000 Prudential Funding 5.07% 7/14/06 1,197,803
-----------
6,527,774
-----------
TOTAL CORPORATE SHORT-TERM NOTES
(AMORTIZED COST--$28,821,035) 28,821,035
-----------
12
<Page>
PRINCIPAL AMOUNT AMORTIZED COST
- --------------------------------------------------------------------------------
TOTAL INVESTMENTS--99.6%
(TOTAL COST--$30,019,163) $30,019,163
-----------
OTHER ASSETS AND LIABILITIES--0.4% 125,764
-----------
NET ASSETS--100.0% $30,144,927
===========
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 $11,714,545, OR 38.9%, OF THE FUND'S NET ASSETS AS OF JUNE 30,
2006.
PORTFOLIO COMPOSITION OF NET ASSETS
CATEGORY VALUE (%)
- --------------------------------------------------------------------------------
U.S. Agency Discount Notes 4.00%
Corporate Short-Term Notes 95.60%
Other 0.40%
SEE NOTES TO FINANCIAL STATEMENTS.
13
<Page>
STATEMENTS OF ASSETS AND LIABILITIES
June 30, 2006 (UNAUDITED)
GOVERNMENT MONEY
ASSETS SECURITIES FUND MARKET FUND
- -------------------------------------------------------------------------------
Investment securities, at cost $9,052,537 $30,019,163
---------- -----------
Investment securities, at market 8,916,944 30,019,163
Cash 32,828 112,353
Receivables:
Capital shares sold 30,213 54,064
Dividends and interest 123,205 0
Other assets 115,066 56,596
---------- -----------
Total Assets 9,218,256 30,242,176
---------- -----------
LIABILITIES
- -------------------------------------------------------------------------------
Payables and other accrued liabilities:
Capital shares redeemed 18,430 11,119
Advisory fees 2,634 11,008
Shareholder servicing fees 857 4,209
Accounting fees 263 834
Distribution fees 268 0
Transfer agency fees 1,082 3,369
Custodian fees 129 326
Directors' deferred compensation 115,066 56,596
Other 7,207 8,432
Dividends 1,630 1,356
---------- ------------
Total Liabilities 147,566 97,249
---------- ------------
Net Assets $9,070,690 $30,144,927
========== ============
COMPOSITION OF NET ASSETS
- --------------------------------------------------------------------------------
Capital (par value and paid-in surplus) $9,272,751 $30,141,261
Undistributed net investment income 67,723 24,819
Accumulated net realized loss from security
and foreign currency transactions (134,489) (21,153)
Net unrealized depreciation on investments and
foreign currency translation (135,295) 0
---------- ------------
Total $9,070,690 $30,144,927
========== ============
CLASS F
- --------------------------------------------------------------------------------
Net Assets $9,070,690 $30,144,927
Shares Outstanding 959,444 30,144,927
Net Asset Value, Offering and Redemption Price
Per Share $ 9.45 $ 1.00
SEE NOTES TO FINANCIAL STATEMENTS.
14
<Page>
STATEMENTS OF OPERATIONS
For the period ended June 30, 2006 (UNAUDITED)
GOVERNMENT MONEY
SECURITIES MARKET
INVESTMENT INCOME FUND FUND
- --------------------------------------------------------------------------------
Interest $ 220,707 $698,109
--------- --------
Total Investment Income 220,707 698,109
--------- --------
EXPENSES
- --------------------------------------------------------------------------------
Advisory fees--Note 2 28,680 74,163
Shareholder servicing fees--Note 2 6,968 25,380
Accounting fees--Note 2 1,501 5,023
Distribution fees--Note 2 11,031 0
Transfer agency fees--Note 2 3,694 10,254
Registration fees 7,724 10,010
Postage and mailing expenses 231 318
Custodian fees and expenses--Note 2 2,337 2,017
Printing expenses 2,290 6,880
Legal and audit fees 1,881 6,510
Directors' fees and expenses--Note 2 156 3,675
Other expenses 3,707 7,000
--------- --------
Total Expenses 70,200 151,230
Earning Credits (2,337) (2,017)
Reimbursed/Waived Expenses (23,009) (7,416)
--------- --------
Net Expenses 44,854 141,797
--------- --------
Net Investment Income 175,853 556,312
--------- --------
REALIZED AND UNREALIZED GAIN (LOSS) ON SECURITY
TRANSACTIONS AND FOREIGN CURRENCY TRANSACATIONS
- --------------------------------------------------------------------------------
Net Realized Gain (Loss) on:
Security Transactions 44,131 0
Foreign Currency Transactions (1,820) 0
--------- --------
Net Realized Gain 42,311 0
Net Change in Unrealized Appreciation/Depreciation
of Investments and Foreign Currency Translation (299,772) 0
--------- --------
Net Realized and Unrealized Loss (257,461) 0
--------- --------
Net Increase (Decrease) in Net Assets Resulting
from Operations $ (81,608) $556,312
========= ========
SEE NOTES TO FINANCIAL STATEMENTS.
15
<Page>
STATEMENTS OF CHANGES IN NET ASSETS
(UNAUDITED)
<Table>
<Caption>
GOVERNMENT MONEY
SECURITIES FUND MARKET FUND
--------------------------- ---------------------------
PERIOD ENDED YEAR ENDED PERIOD ENDED YEAR ENDED
JUNE 30, DECEMBER 31, JUNE 30, DECEMBER 31,
OPERATIONS 2006 2005 2006 2005
- ---------------------------------------------------------------------------------------------------------
Net Investment Income $ 175,853 $ 370,153 $ 556,312 $ 729,755
Net Realized Gain on
Security and Foreign
Currency Transactions 42,311 21,285 0 0
Net Change in Unrealized
Appreciation/Depreciation
of Investments and Foreign
Currency Translation (299,772) (267,196) 0 0
---------- ----------- ----------- -----------
Net Increase (Decrease) in
Net Assets Resulting
from Operations (81,608) 124,242 556,312 729,755
---------- ----------- ----------- -----------
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS
- ---------------------------------------------------------------------------------------------------------
From Net Investment Income Class F (174,829) (371,480) (556,312) (729,755)
---------- ----------- ----------- -----------
Net Decrease from Dividends and Distributions (174,829) (371,480) (556,312) (729,755)
---------- ----------- ----------- -----------
CAPITAL SHARE TRANSACTIONS
- ---------------------------------------------------------------------------------------------------------
Net Increase (Decrease)
from Capital Share Transactions--Note 4
Class F 247,550 (809,502) (495,071) (5,417,713)
---------- ----------- ----------- -----------
Net Decrease in Net Assets (8,887) (1,056,740) (495,071) (5,417,713)
---------- ----------- ----------- -----------
NET ASSETS
- ---------------------------------------------------------------------------------------------------------
Beginning of Period $9,079,577 $10,136,317 $30,639,998 $36,057,711
---------- ----------- ----------- -----------
End of Period $9,070,690 $ 9,079,577 $30,144,927 $30,639,998
========== =========== =========== ===========
Undistributed Net Investment Income $ 67,723 $ 66,699 $ 24,819 $ 24,819
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
16
<Page>
GOVERNMENT SECURITIES FUND
FINANCIAL HIGHLIGHTS
(UNAUDITED)
<Table>
<Caption>
SIX MONTHS YEAR ENDED
ENDED JUNE 30, DECEMBER 31,
2006 2005 2004 2003 2002
-------------- ------------------------------------
CLASS F SHARES PER SHARE OPERATING DATA
Net Asset Value, beginning of period $ 9.73 $ 9.97 $ 10.04 $ 10.18 $ 9.55
- ------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.19 0.37 0.35 0.34 0.38
Net realized and unrealized gains
(losses) on securities (0.28) (0.24) (0.07) (0.14) 0.63
--------------------------------------------------
Total from investment operations ($0.09) 0.13 0.28 0.20 1.01
- ------------------------------------------------------------------------------------------------------
Less dividends and distributions:
From net investment income (0.19) (0.37) (0.35) (0.34) (0.38)
From net realized gains 0.00 0.00 0.00 0.00 0.00
--------------------------------------------------
Total distributions (0.19) (0.37) (0.35) (0.34) (0.38)
- ------------------------------------------------------------------------------------------------------
Net Asset Value, end of period $ 9.45 $ 9.73 $ 9.97 $ 10.04 $ 10.18
==================================================
TOTAL RETURN (0.95%) 1.35% 2.83% 2.03% 10.86%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000s) $9,071 $9,080 $10,136 $12,809 $15,318
- ------------------------------------------------------------------------------------------------------
Ratios to average net assets:
Expenses with reimbursements, but
no earnings credits or brokerage offsets(a) 1.09% 1.08% 0.89% 0.95% 0.93%
Expenses with reimbursements,
earnings credits and brokerage offsets 1.04% 1.06% 0.88% 0.94% 0.92%
Net investment income 3.96% 3.76% 3.47% 3.36% 3.90%
- ------------------------------------------------------------------------------------------------------
Portfolio turnover rate(b) 27% 29% 13% 52% 28%
</Table>
(a.) CERTAIN FEES WERE WAIVED BY THE MANAGEMENT COMPANY OR ITS AFFILIATES. HAD
THESE FEES NOT BEEN WAIVED, THE EXPENSE RATIOS WOULD HAVE BEEN 1.61%
(2006), 1.61% (2005), 1.45% (2004), 1.50% (2003) AND 1.48% (2002).
(b.) PORTFOLIO TURNOVER RATE IS A MEASURE OF PORTFOLIO ACTIVITY THAT IS
CALCULATED BY DIVIDING THE LESSER OF PURCHASES OR SALES OF SECURITIES,
EXCLUDING SECURITIES HAVING MATURITY DATES AT ACQUISITION OF ONE YEAR OR
LESS, BY THE AVERAGE VALUE OF THE PORTFOLIO SECURITIES HELD DURING THE
PERIOD, WHICH IS A ROLLING 12-MONTH PERIOD.
SEE NOTES TO FINANCIAL STATEMENTS.
17
<Page>
MONEY MARKET FUND
FINANCIAL HIGHLIGHTS
(UNAUDITED)
<Table>
<Caption>
SIX MONTHS
ENDED JUNE 30, YEAR ENDED DECEMBER 31,
2006 2005 2004 2003 2002
-------------- --------------------------------------------
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 0.02 0.02 0.00(a, b) 0.00(a, b) 0.01
Net realized and unrealized gains
(losses) on securities 0.00 0.00 0.00 0.00 0.00
-------------------------------------- ------------- -------
Total from investment operations 0.02 0.02 0.00 0.00 0.01
- -------------------------------------------------------------------------------------------------------
Less dividends and distributions:
From net investment income (0.02) (0.02) 0.00(c) 0.00(c) (0.01)
From net realized gains 0.00 0.00 0.00 0.00 0.00
------------------------------------------------------------
Total distributions (0.02) (0.02) 0.00 0.00 (0.01)
- -------------------------------------------------------------------------------------------------------
Net Asset Value, end of period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
============================================================
TOTAL RETURN 1.87% 2.23% 0.50% 0.34% 0.98%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000s) $30,145 $30,640 $36,058 $45,094 $60,086
- -------------------------------------------------------------------------------------------------------
Ratios to average net assets:
Expenses with reimbursements, but
no earnings credits or brokerage
offsets(d) 0.97% 1.03% 0.88% 0.83% 0.80%
Expenses with reimbursements,
earnings credits and brokerage offsets 0.96% 1.02% 0.87% 0.83% 0.80%
Net investment income 3.75% 2.19% 0.48% 0.35% 0.98%
- -------------------------------------------------------------------------------------------------------
</Table>
(a.) COMPUTED USING AVERAGE SHARES OUTSTANDING THROUGHOUT THE PERIOD.
(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.) CERTAIN FEES WERE WAIVED BY THE MANAGEMENT COMPANY OR ITS AFFILIATES. HAD
THESE FEES NOT BEEN WAIVED, THE EXPENSE RATIOS WOULD HAVE BEEN 1.02% (2006)
1.08% (2005), 0.96% (2004), 0.91% (2003) AND 0.87% (2002).
SEE NOTES TO FINANCIAL STATEMENTS.
18
<Page>
NOTES TO FINANCIAL STATEMENTS
June 30, 2006 (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 requires the use of estimates, and as such,
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.
New York closing exchange rates are 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.
U.S. GOVERNMENT OBLIGATIONS--Some U.S. government obligations, such as
Government National Mortgage Association (GNMA) pass-through certificates, are
19
<Page>
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--The Funds may invest at least a
portion of their assets in foreign securities. Foreign securities carry more
risk than U.S. securities, such as political and currency risks. 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 Funds could be
exposed to risk if counterparties are unable to meet the terms of the contracts
or if the value of the currency changes unfavorable to the U.S. dollar. 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.
The accounting records of the Funds are maintained in U.S. dollars. The market
values of foreign securities, currency holdings and other assets and liabilities
are translated into U.S. dollars based on the current exchange rates each
business day. 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 unrealized gain or loss from investments and foreign
currency translations on the Statements of Operations.
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 Subchapter M 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.
20
<Page>
DISTRIBUTIONS TO SHAREHOLDERS--Dividends are declared daily and distributed
monthly from net investment income, and net realized capital gains (if any) are
distributed annually. Dividends and distributions, which are determined in
accordance with income tax regulations, are recorded on the ex-dividend date.
EXPENSES--Each Fund bears expenses incurred specifically on its behalf and, in
addition, each Fund bears a portion of the Company's general expenses based on
the relative net assets or the number of shareholder accounts of each Fund. The
type of expense determines the allocation method.
USE OF ESTIMATES--The preparation of financial statements in conformity with
accounting principles generally accepted in the United States of America
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported amounts of
income and expenses during the reporting period. Actual results could differ
from those estimates.
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 year presentation.
2. FEES AND TRANSACTIONS WITH AFFILIATES
ADVISORY FEES--Founders Asset Management LLC ("Founders") serves as investment
adviser to the Funds. Founders is an indirect wholly-owned subsidiary of Mellon
Financial Corporation, a publicly-owned financial services company which
provides a comprehensive range of financial products and services in domestic
and selected international markets.
In accordance with an investment advisory agreement between the Company and
Founders, the Funds compensate Founders for its services as investment adviser
by the payment of fees computed daily and paid monthly at the annual rate equal
to a percentage of the average daily value of the respective Fund's net assets.
The fee is 0.65% of the first $250 million of net assets, and 0.50% of the net
assets in excess of $250 million for Government Securities Fund and 0.50% of the
first $250 million of net assets, 0.45% of the next $250 million of net assets,
0.40% of the next $250 million of net assets and 0.35% of the net assets in
excess of $750 million for Money Market Fund.
Founders has contractually agreed 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
21
<Page>
in excess of $750 million. These waivers will extend through at least August 31,
2007, and will not be terminated without prior notice to the Company's board of
directors. During the period ended June 30, 2006, Founders waived $13,237 and
$7,416 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 period ended June 30, 2006, Government
Securities Fund and Money Market Fund were charged $6,968 and $25,380,
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 period ended
June 30, 2006, Government Securities Fund and Money Market Fund were charged
$3,323 and $10,254, 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 period ended June 30, 2006, Government Securities Fund and Money
Market Fund were charged $61 and $207, 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 period ended June
30, 2006, Government Securities Fund and Money Market Fund paid $371 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 period
ended June 30, 2006, $9,772 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
22
<Page>
least August 31, 2007. This written contractual commitment will not be
terminated without prior notice to the Company's board of directors.
FUND ACCOUNTING AND ADMINISTRATIVE SERVICES FEES--The Funds have agreed to
compensate Founders for providing accounting services, administration,
compliance monitoring, regulatory and shareholder reporting, as well as related
facilities, equipment and clerical help. The fee 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, which are shown as earnings credits on the
Statements of Operations. 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
period and in the amount set forth below:
TIME PERIOD AMOUNT OF WAIVER
------------------------------------
9/1/05 to 8/31/06 $200,000
------------------------------------
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 period ended June
30, 2006, the fee waivers for Government Securities Fund and Money Market Fund
were $0 and $0, respectively. The amounts paid to Mellon Bank were $2,337 and
$2,017, 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 Directors' Deferred Compensation on the Statement of Assets and Liabilities.
Changes in market value are included in the Directors' fees and expenses and the
net change in unrealized appreciation/depreciation of investments on the
Statements of Operations. 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
or its affiliates, which pay their compensation. The affairs of the Funds,
including services provided by Founders, are subject to the supervision and
general oversight of the Company's board of directors.
23
<Page>
3. FEDERAL TAX INFORMATION
Net investment income and capital gains distributions are determined in
accordance with income tax regulations that may differ from accounting
principles generally accepted in the United States of America. These differences
are due to differing treatments for items such as foreign currency transactions,
paydowns, excise tax paid, deferred compensation 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, 2005 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, 2005 were:
GOVERNMENT SECURITIES FUND
EXPIRATION AMOUNT
--------------------------
2008 $134,064
--------------------------
2013 $ 17,045
--------------------------
$151,109
========
MONEY MARKET FUND
EXPIRATION AMOUNT
--------------------------
2007 $ 5,448
--------------------------
2008 $11,357
--------------------------
2009 $ 2,628
--------------------------
2013 $ 191
--------------------------
$19,624
=======
24
<Page>
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, 2006 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.
GOVERNMENT MONEY
SECURITIES FUND MARKET FUND
---------------------------------------------------------------------
Post-October Capital Loss Deferral $ (25,691) $ (1,529)
Undistributed Ordinary Income $ 71,571 $ 34,067
Federal Tax Cost $9,052,537 $30,019,163
Gross Tax Appreciation of Investments $ 99,762 $ 0
Gross Tax Depreciation of Investments $ (235,355) $ 0
Net Tax Appreciation (Depreciation) $ (135,593) $ 0
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>
PERIOD ENDED YEAR ENDED
JUNE 30, 2006 DECEMBER 31, 2005
SHARES AMOUNT SHARES AMOUNT
GOVERNMENT SECURITIES FUND--CLASS F:
- ----------------------------------------------------------------------------------------------
Sold 177,842 $ 1,699,330 189,954 $ 1,875,877
Dividends or Distributions Reinvested 17,246 $ 164,592 35,516 $ 349,654
Redeemed (168,462) $(1,616,372) (308,891) $ (3,035,033)
------------------------------------------------------
Net Increase (Decrease) 26,626 $ 247,550 (83,421) $ (809,502)
======================================================
MONEY MARKET FUND--CLASS F:
- ----------------------------------------------------------------------------------------------
Sold 7,851,053 $ 7,851,053 12,274,691 $ 12,274,691
Dividends or Distributions Reinvested 540,443 $ 540,443 714,857 $ 714,857
Redeemed (8,886,567) $(8,886,567) (18,407,261) $(18,407,261)
------------------------------------------------------
Net Decrease (495,071) $ (495,071) (5,417,713) $ (5,417,713)
======================================================
</Table>
5. INVESTMENT TRANSACTIONS
For the period ended June 30, 2006, purchases and sales of investment securities
(excluding short-term securities and U.S. government obligations) were $0 and
$276,895, respectively, for Government Securities Fund. Purchases and sales of
long-term U.S. government obligations were $1,388,262 and $1,073,328,
respectively, for Government Securities Fund.
25
<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, 2006, the Funds did not have any borrowings under the LOC.
7. SUBSEQUENT EVENTS
Shareholders of Dreyfus Founders Government Securities Fund will be asked to
approve a reorganization whereby shareholders would receive shares of Dreyfus
U.S. Treasury Intermediate Term Fund. Shareholders of Dreyfus Founders Money
Market Fund will be asked to approve a reorganization whereby shareholders would
receive shares of Dreyfus Liquid Assets, Inc. If shareholder approval is
received, it is expected that the reorganizations will occur during the third
quarter of calendar year 2006.
26
<Page>
This page intentionally left blank.
<Page>
DREYFUS FOUNDERS GOVERNMENT SECURITIES
DREYFUS FOUNDERS MONEY MARKET 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 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, 2006, 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)2006 Founders Asset Management LLC. 8/06
0377-0378 SA 0606
<Page>
SEMIANNUAL REPORT
DREYFUS FOUNDERS
GROWTH FUND
INVESTMENT UPDATE
JUNE 30, 2006
DREYFUS FOUNDERS FUNDS(R)
THE GROWTH SPECIALISTS
<Page>
TABLE OF CONTENTS
Management Overview 3
Fund Expenses 9
Statement of Investments 11
Statement of Assets and Liabilities 16
Statement of Operations 18
Statements of Changes in Net Assets 19
Financial Highlights 20
Notes to Financial Statements 26
PAPERLESS DELIVERY OF THIS REPORT
Did you know you can reduce your postal mail by accessing Dreyfus Founders Funds
regulatory material online? It's a simple, reliable process: when new documents
such as this 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
Founders Asset Management LLC
A MELLON FINANCIAL COMPANY(SM)
210 University Boulevard, Suite 800
Denver, CO 80206
DISTRIBUTOR
Dreyfus Service Corporation
200 Park Avenue
New York, NY 10166
The views expressed in this report reflect those of the portfolio manager only
through the end of the period covered and do not necessarily represent the views
of Founders or any other person in the Founders organization. Any such views are
subject to change at any time based upon market or other conditions and Founders
disclaims any responsibility to update such views. These views may not be relied
on as investment advice and, because investment decisions for a Dreyfus Founders
Fund are based on numerous factors, may not be relied on as an indication of
trading intent on behalf of any Dreyfus Founders Fund. Companies appearing in
bold print on pages 3-8 were owned by the Fund on June 30, 2006. The amounts of
these holdings are included in the Statement of Investments.
NOT FDIC-INSURED - NOT BANK-GUARANTEED - MAY LOSE VALUE
<Page>
MANAGEMENT OVERVIEW
(UNAUDITED)
[PHOTO OF JOHN JARES]
A DISCUSSION WITH PORTFOLIO MANAGER JOHN JARES, CFA, REGARDING FUND PERFORMANCE
FOR THE SIX-MONTH PERIOD ENDED JUNE 30, 2006.
EQUITY MARKETS END PERIOD LOWER
High crude oil prices persisted in the first half of 2006, and the Federal
Reserve continued to lift interest rates, raising investors' concern about the
outlook for inflation and the possibility of a subsequent recession. Against
this economic backdrop, equity markets, in general, moved higher until mid-May,
when they suffered a correction lasting through the end of the period.
Dreyfus Founders Growth Fund compared favorably(1) to its benchmark, the
Russell 1000 Growth Index, which posted a -0.93% return for the six months ended
June 30, 2006.
STOCK SELECTION DROVE PERFORMANCE
The Fund continued to search for high-quality growth stocks by employing its
fundamental-based, hands-on research investment strategy. We continued to meet
with company management teams, talk to industry experts, and closely follow
industry trends in an effort to uncover, stock-by-stock, the greatest growth
potential for the portfolio.
This approach toward stock selection benefited the Fund's relative
performance, primarily in the consumer discretionary, consumer staples,
materials and financials sectors, as strong stock picking provided a boost.
Relative exposure to the aforementioned sectors, excluding the materials sector,
also played a positive role in the Fund's return.
"THE FUND CONTINUED TO SEARCH FOR HIGH-QUALITY GROWTH STOCKS BY EMPLOYING ITS
FUNDAMENTAL-BASED, HANDS-ON RESEARCH INVESTMENT STRATEGY."
- ----------
(1) Excluding sales charges, which result in lower returns for certain share
classes. Please see page 6 for Average Annual and Year-to-Date Returns for
all share classes, including and excluding sales charges.
3
<Page>
SECTORS BENEFITING THE FUND
Consumer Discretionary
Consumer Staples
Financials/Materials
Consumer discretionary holdings COMCAST CORPORATION, KOHL'S CORPORATION, BEST
BUY COMPANY, INC. and Pixar, Inc. were among the strongest performing issues in
the Fund during the period. Comcast benefited from strong demand for its
products, primarily its multi-service bundled packages. Kohl's experienced
improved revenue and earnings growth trends driven by higher sales as the
department store industry saw a reduction in capacity. Best Buy's stock price
rose on strong consumer spending on a variety of products, including HDTVs, MP3
players and digital video and photography equipment. Pixar saw its stock price
increase on strong demand for its animated feature-length, family-friendly
films.
Notable performance was also exhibited by a number of individual stocks
including SCHLUMBERGER LIMITED. High oil prices created an increased level of
activity related to finding and developing new oil and gas fields. This
heightened activity created strong demand and healthy pricing for the
oil-services provider.
INDUSTRIALS, TELECOM AND UTILITIES UNDERPERFORMED
Strong economic growth provided a solid backdrop for industrials companies; many
industrial companies' revenue generation is directly tied to the pace of
LARGEST EQUITY HOLDINGS (ticker symbol)
1. GENERAL ELECTRIC COMPANY (GE) 3.65%
2. MICROSOFT CORPORATION (MSFT) 3.37%
3. GOOGLE, INC. CLASS A (GOOG) 2.76%
4. EXXONMOBIL CORPORATION (XOM) 2.22%
5. CISCO SYSTEMS, INC. (CSCO) 2.21%
6. PROCTER & GAMBLE COMPANY (PG) 2.10%
7. EMERSON ELECTRIC COMPANY (EMR) 2.06%
8. ADOBE SYSTEMS, INC. (ADBE) 1.98%
9. COLGATE-PALMOLIVE COMPANY (CL) 1.93%
10. WYETH (WYG) 1.87%
Portfolio holdings are subject to change, and should not be construed as a
recommendation of any security.
4
<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]
<Table>
<Caption>
DREYFUS
FOUNDERS RUSSELL
GROWTH GROWTH
FUND-CLASS F INDEX
------------ -------
6/28/1996 $10,000 $10,000
6/30/1997 $12,245 $13,134
6/30/1998 $15,661 $17,257
6/30/1999 $18,193 $21,962
6/30/2000 $21,890 $27,598
6/29/2001 $13,344 $17,615
6/28/2002 $10,094 $12,949
6/30/2003 $10,224 $13,330
6/30/2004 $11,784 $15,713
6/30/2005 $12,091 $15,977
6/30/2006 $13,074 $16,954
</Table>
The above graph compares a $10,000 investment made in Class F shares of Dreyfus
Founders Growth Fund on 6/30/96 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 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 this index
assume changes 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.
5
<Page>
AVERAGE ANNUAL AND YEAR-TO DATE TOTAL RETURN as of 6/30/06
YEAR-TO- 1 5 10 SINCE
CLASS (Inception Date) DATE+ YEAR YEARS YEARS INCEPTION
- ------------------------------------------------------------------------
A SHARES (12/31/99)
With sales charge (5.75%) (5.35%) 1.94% (1.69%) -- (9.11%)
Without sales charge 0.46% 8.15% (0.52%) -- (8.28%)
B SHARES (12/31/99)
With redemption* (4.00%) 3.28% (1.70%) -- (8.96%)
Without redemption 0.00% 7.28% (1.30%) -- (8.96%)
C SHARES (12/31/99)
With redemption** (0.90%) 6.28% (1.30%) -- (8.96%)
Without redemption 0.10% 7.28% (1.30%) -- (8.96%)
F SHARES (1/5/62) 0.46% 8.13% (0.41%) 2.72% N/A
R SHARES (12/31/99) 0.72% 8.75% (0.17%) -- (7.96%)
T SHARES (12/31/99)
With sales charge (4.50%) (4.37%) 2.44% (2.29%) -- (9.57%)
Without sales charge 0.10% 7.25% (1.39%) -- (8.92%)
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.
6
<Page>
economic growth. However, a relative underweight position in this sector caused
it to be the worst performing sector in the Fund.
Unfavorable stock selection in the telecommunications sector also weighed
on the Fund's relative return. A lack of exposure in the utilities sector, in
which the Fund found no compelling growth stories, also detracted from Fund
performance.
INDIVIDUAL STOCKS HURT PERFORMANCE
SECTORS DETRACTING FROM THE FUND
Industrials
Telecommunication Services
Utilities
Select information technology stocks were among the weakest performing
securities in the Fund. ADOBE SYSTEMS, INC. began upgrading the majority of its
software products, from Acrobat Reader to the company's Creative Suite. As
consumers awaited the launch of these upgraded products, new purchases were
postponed, which created a slowing in revenue growth. As a result, Adobe
moderated revenue and earnings growth expectations during the second quarter of
2006. MICROSOFT CORPORATION announced that the launch of its new operating
system, Windows Vista, and the latest update to its office suite would be
delayed until early 2007; investors had been expecting the launches during the
fall of 2006. In addition, the company also indicated that spending levels for
2006 would be
PORTFOLIO COMPOSITION OF NET ASSETS
[CHART]
<Table>
31.12% Information Technology
14.24% Consumer Staples
12.47% Health Care
10.69% Consumer Discretionary
10.22% Financials
9.27% Industrials
4.03% Energy
1.53% Materials
0.50% Telecommunication Services
3.01% Other
2.92% Cash & Equivalents
</Table>
The Fund's portfolio composition is subject to change, and there is no assurance
the Fund will continue to hold any particular security. Opinions regarding
sectors, industries, companies, and/or themes are those of the portfolio manager
and are subject to change at any time, based on market and other conditions, and
should not be construed as a recommendation of any specific security.
7
<Page>
elevated, as Microsoft is making investments to strengthen its position on the
Internet. These investments came as a surprise to investors, who were
subsequently forced to moderate their expectations for earnings growth. INTEL
CORPORATION lost market share to a competitor, which resulted in poor revenue
growth and margin deterioration.
Health care holding BOSTON SCIENTIFIC CORPORATION acquired medical-device
maker Guidant Corporation early in the year. After the acquisition closed,
demand for medical devices, including Guidant's implantable cardioverter
defibrillators (ICDs), slackened, impacting a number of companies within the
industry.
Consumer discretionary issue Advance Auto Parts, Inc.'s stock price dropped
during the period. The company was negatively affected by slowing customer
traffic. In late June, the company announced that high gasoline prices, high
interest rates and the burden of rising credit card payments had combined to
dent customers' disposable income, and thus, the company's sales. As a result,
Advance Auto Parts was forced to significantly lower sales and earnings guidance
for 2006.
As we move into the second half of 2006, we will continue to rely on our
bottom-up research process to seek companies we believe are capable of posting
strong future revenue growth at attractive valuations.
/s/ John B. Jares
- -------------------------------------
John Jares, CFA
Portfolio Manager
8
<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, 2006
and held through June 30, 2006.
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, together with the amount you
invested, 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.
9
<Page>
EXPENSE EXAMPLE
BEGINNING ENDING EXPENSES PAID
ACCOUNT VALUE ACCOUNT VALUE DURING PERIOD*
(1/1/06) (6/30/06) (1/1/06-6/30/06)
- -----------------------------------------------------------------------
CLASS A ACTUAL $1,000.00 $1,004.60 $ 6.96
CLASS A HYPOTHETICAL 1,000.00 1,017.77 7.03
CLASS B ACTUAL 1,000.00 1,000.00 11.50
CLASS B HYPOTHETICAL 1,000.00 1,013.15 11.65
CLASS C ACTUAL 1,000.00 1,001.00 10.87
CLASS C HYPOTHETICAL 1,000.00 1,013.80 10.99
CLASS F ACTUAL 1,000.00 1,004.60 6.96
CLASS F HYPOTHETICAL 1,000.00 1,017.77 7.03
CLASS R ACTUAL 1,000.00 1,007.20 5.03
CLASS R HYPOTHETICAL 1,000.00 1,019.72 5.07
CLASS T ACTUAL 1,000.00 1,001.00 11.36
CLASS T HYPOTHETICAL 1,000.00 1,013.13 11.50
* 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 earnings credits.
EXPENSE RATIO
- -----------------------
CLASS A 1.40%
CLASS B 2.32%
CLASS C 2.19%
CLASS F 1.40%
CLASS R 1.01%
CLASS T 2.29%
10
<Page>
STATEMENT OF INVESTMENTS
June 30, 2006 (UNAUDITED)
SHARES MARKET VALUE
- --------------------------------------------------------------------------------
COMMON STOCKS (DOMESTIC)--93.8%
AIRLINES--1.6%
69,725 AMR Corporation* $ 1,772,406
63,900 Continental Airlines, Inc. Class B* 1,904,216
27,175 US Airways Group, Inc.* 1,373,425
-----------
5,050,047
-----------
APPLICATION SOFTWARE--1.3%
42,500 Autodesk, Inc.* 1,464,550
200,775 BEA Systems, Inc.* 2,628,145
-----------
4,092,695
-----------
ASSET MANAGEMENT & CUSTODY BANKS--0.7%
35,575 State Street Corporation 2,066,552
-----------
BIOTECHNOLOGY--1.9%
43,700 Amgen, Inc.* 2,850,551
27,275 Genzyme Corporation* 1,665,139
51,775 MedImmune, Inc.* 1,403,103
-----------
5,918,793
-----------
BROADCASTING & CABLE TV--1.0%
94,773 Comcast Corporation Special Class A* 3,106,659
-----------
CASINOS & GAMING--0.7%
30,700 Harrah's Entertainment, Inc. 2,185,226
-----------
COMMUNICATIONS EQUIPMENT--3.9%
353,025 Cisco Systems, Inc.* 6,894,579
197,025 Motorola, Inc. 3,970,054
36,125 QUALCOMM, Inc. 1,447,529
-----------
12,312,162
-----------
COMPUTER & ELECTRONICS RETAIL--1.3%
75,387 Best Buy Company, Inc. 4,134,223
-----------
COMPUTER HARDWARE--4.4%
59,775 Apple Computer, Inc.* 3,414,348
64,925 Dell, Inc.* 1,584,819
76,450 Diebold, Inc. 3,105,399
178,650 Hewlett-Packard Company 5,659,632
-----------
13,764,198
-----------
COMPUTER STORAGE & PERIPHERALS--1.5%
210,025 Seagate Technology* 4,754,966
-----------
CONSUMER ELECTRONICS--0.6%
20,175 Harman International Industries, Inc. 1,722,340
-----------
CONSUMER FINANCE--0.8%
46,975 SLM Corporation 2,485,917
-----------
DATA PROCESSING & OUTSOURCED SERVICES--0.8%
55,700 Automatic Data Processing, Inc. 2,525,995
-----------
SEE NOTES TO STATEMENT OF INVESTMENTS.
11
<Page>
SHARES MARKET VALUE
- --------------------------------------------------------------------------------
DEPARTMENT STORES--2.7%
123,000 Federated Department Stores, Inc. $4,501,800
46,250 J.C. Penney Company, Inc. 3,122,338
15,075 Kohl's Corporation* 891,234
----------
8,515,372
----------
DIVERSIFIED CHEMICALS--0.7%
55,600 E.I. du Pont de Nemours and Company 2,312,960
----------
DRUG RETAIL--1.6%
111,450 Walgreen Company 4,997,418
----------
ELECTRICAL COMPONENTS & EQUIPMENT--2.1%
76,825 Emerson Electric Company 6,438,703
----------
ELECTRONIC EQUIPMENT MANUFACTURERS--0.5%
45,900 Agilent Technologies, Inc.* 1,448,604
----------
ENVIRONMENTAL & FACILITIES SERVICES--0.6%
53,050 Waste Management, Inc. 1,903,434
----------
EXCHANGE TRADED FUNDS--3.0%
81,825 iShares Russell 1000 Growth Index Fund 4,128,071
63,575 Nasdaq 100 Index Tracking Stock 2,464,167
22,125 SPDR Trust Series 1 2,812,309
----------
9,404,547
----------
FOOD DISTRIBUTORS--1.4%
140,900 Sysco Corporation 4,305,904
----------
FOOD RETAIL--1.6%
187,100 Safeway, Inc. 4,864,600
----------
GENERAL MERCHANDISE STORES--1.2%
156,475 Family Dollar Stores, Inc. 3,822,684
----------
HEALTHCARE EQUIPMENT--2.8%
31,550 Beckman Coulter, Inc. 1,752,603
155,825 Boston Scientific Corporation* 2,624,093
14,150 Intuitive Surgical, Inc.* 1,669,276
55,325 Medtronic, Inc. 2,595,849
----------
8,641,821
----------
HEALTHCARE SERVICES--1.1%
60,100 Medco Health Solutions, Inc.* 3,442,528
----------
HEALTHCARE SUPPLIES--1.1%
66,700 Advanced Medical Optics, Inc.* 3,381,690
----------
HOME ENTERTAINMENT SOFTWARE--0.7%
51,775 Electronic Arts, Inc.* 2,228,396
----------
HOME IMPROVEMENT RETAIL--0.9%
75,900 Home Depot, Inc. 2,716,461
----------
HOTELS, RESORTS & CRUISE LINES--0.5%
43,100 Marriott International, Inc. Class A 1,642,972
----------
12
<Page>
SHARES MARKET VALUE
- --------------------------------------------------------------------------------
HOUSEHOLD PRODUCTS--4.0%
100,525 Colgate-Palmolive Company $ 6,021,448
118,271 Procter & Gamble Company 6,575,868
-----------
12,597,316
-----------
HYPERMARKETS & SUPER CENTERS--0.8%
54,325 Wal-Mart Stores, Inc. 2,616,835
-----------
INDUSTRIAL CONGLOMERATES--3.7%
346,234 General Electric Company 11,411,873
-----------
INTEGRATED OIL & GAS--2.2%
112,925 ExxonMobil Corporation 6,927,949
-----------
INTEGRATED TELECOMMUNICATION SERVICES--0.5%
78,725 Sprint Nextel Corporation 1,573,713
-----------
INTERNET RETAIL--0.3%
32,825 eBay, Inc.* 961,444
-----------
INTERNET SOFTWARE & SERVICES--4.1%
20,600 Google, Inc. Class A* 8,638,198
128,800 Yahoo!, Inc.* 4,250,400
-----------
12,888,598
-----------
INVESTMENT BANKING & BROKERAGE--4.3%
336,850 Charles Schwab Corporation 5,382,863
29,400 Goldman Sachs Group, Inc. 4,422,642
37,000 Morgan Stanley 2,338,770
91,725 TD Ameritrade Holding Corporation 1,358,447
-----------
13,502,722
-----------
IT CONSULTING & OTHER SERVICES--0.5%
58,525 Accenture Limited Class A 1,657,428
-----------
MOVIES & ENTERTAINMENT--1.0%
102,580 Walt Disney Company 3,077,400
-----------
MULTI-LINE INSURANCE--1.6%
29,074 American International Group, Inc. 1,716,820
69,825 Assurant, Inc. 3,379,530
-----------
5,096,350
-----------
OIL & GAS EQUIPMENT & SERVICES--1.8%
87,200 Schlumberger Limited 5,677,592
-----------
OTHER DIVERSIFIED FINANCIAL SERVICES--1.4%
104,475 JPMorgan Chase & Company 4,387,950
-----------
PERSONAL PRODUCTS--2.3%
113,150 Avon Products, Inc. 3,507,650
93,850 Estee Lauder Companies, Inc. Class A 3,629,180
-----------
7,136,830
-----------
SEE NOTES TO STATEMENT OF INVESTMENTS.
13
<Page>
SHARES MARKET VALUE
- --------------------------------------------------------------------------------
PHARMACEUTICALS--5.6%
90,250 Johnson & Johnson $ 5,407,780
140,519 Pfizer, Inc. 3,297,981
161,525 Schering-Plough Corporation 3,073,821
131,300 Wyeth 5,831,033
------------
17,610,615
------------
PROPERTY & CASUALTY INSURANCE--1.4%
80,600 Allstate Corporation 4,411,238
------------
RAILROADS--0.8%
26,000 Union Pacific Corporation 2,416,960
------------
SEMICONDUCTORS--4.6%
40,575 Broadcom Corporation* 1,219,279
50,025 Freescale Semiconductor, Inc. Class B* 1,470,735
145,809 Intel Corporation 2,763,081
126,825 Linear Technology Corporation 4,247,369
93,825 Maxim Integrated Products, Inc. 3,012,721
53,100 Texas Instruments, Inc. 1,608,399
------------
14,321,584
------------
SOFT DRINKS--1.8%
93,000 PepsiCo, Inc. 5,583,720
------------
SPECIALTY STORES--0.5%
17,425 AutoZone, Inc.* 1,536,885
------------
STEEL--0.8%
45,250 Nucor Corporation 2,454,813
------------
SYSTEMS SOFTWARE--6.8%
204,000 Adobe Systems, Inc.* 6,193,440
452,701 Microsoft Corporation 10,547,933
219,975 Oracle Corporation* 3,187,438
77,750 Symantec Corporation* 1,208,235
------------
21,137,046
------------
TOTAL COMMON STOCKS (DOMESTIC)
(COST--$286,767,892) 293,174,728
------------
COMMON STOCKS (FOREIGN)--3.3%
AEROSPACE & DEFENSE--0.6%
48,275 Empresa Brasileira de Aeronautica SA Sponsored
ADR (BR) 1,760,589
------------
APPLICATION SOFTWARE--0.4%
25,300 SAP AG Sponsored ADR (GE) 1,328,756
------------
PACKAGED FOODS & MEATS--0.8%
61,900 Cadbury Schweppes Sponsored ADR (UK) 2,402,958
------------
SEMICONDUCTOR EQUIPMENT--1.5%
237,025 ASM Lithography Holding NV NY Shares (NE)* 4,792,646
------------
TOTAL COMMON STOCKS (FOREIGN)
(COST--$9,400,846) 10,284,949
------------
14
<Page>
PRINCIPAL AMOUNT AMORTIZED COST
- --------------------------------------------------------------------------------
CORPORATE SHORT-TERM NOTES--2.8%
SPECIAL PURPOSE ENTITY--2.8%
$8,800,000 CAFCO LLC 5.33% 7/3/06~ $ 8,797,394
------------
TOTAL CORPORATE SHORT-TERM NOTES
(AMORTIZED COST--$8,797,394) 8,797,394
------------
TOTAL INVESTMENTS--99.9%
(TOTAL COST--$304,966,132) 312,257,071
------------
OTHER ASSETS AND LIABILITIES--0.1% 332,100
------------
NET ASSETS--100.0% $312,589,171
============
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 $8,797,394, OR 2.8%, OF THE FUND'S NET ASSETS AS OF JUNE 30,
2006.
ADR - AMERICAN DEPOSITARY RECEIPT
SPDR - STANDARD AND POOR'S DEPOSITARY RECEIPT
BR - BRAZIL
GE - GERMANY
NE - NETHERLANDS
UK - UNITED KINGDOM
SEE NOTES TO FINANCIAL STATEMENTS.
15
<Page>
ASSETS
- --------------------------------------------------------------------------------
Investment securities, at cost $ 304,966,132
-------------
Investment securities, at market 312,257,071
Cash 170,797
Receivables:
Investment securities sold 7,943,182
Capital shares sold 153,714
Dividends and interest 280,663
Other assets 11,547
-------------
Total Assets 320,816,974
-------------
LIABILITIES
- --------------------------------------------------------------------------------
Payables and other accrued liabilities:
Investment securities purchased 7,516,537
Capital shares redeemed 235,893
Advisory fees 198,271
Shareholder servicing fees 28,340
Accounting fees 15,410
Distribution fees 95,733
Transfer agency fees 39,004
Custodian fees 2,076
Directors' deferred compensation 11,547
Other 84,992
-------------
Total Liabilities 8,227,803
-------------
Net Assets $ 312,589,171
=============
COMPOSITION OF NET ASSETS
- --------------------------------------------------------------------------------
Capital (par value and paid-in surplus) $ 981,218,925
Accumulated net investment loss (565,630)
Accumulated net realized loss from security transactions (675,355,063)
Net unrealized appreciation on investments 7,290,939
--------------
Total $ 312,589,171
==============
16
<Page>
CLASS A
- --------------------------------------------------------------------------------
Net Assets $ 8,522,474
Shares Outstanding 777,420
Net Asset Value, Redemption Price Per Share $ 10.96
Maximum offering price per share (net asset value
plus sales charge of 5.75% of offering price) $ 11.63
CLASS B
- --------------------------------------------------------------------------------
Net Assets $ 5,447,753
Shares Outstanding 520,969
Net Asset Value, Offering and Redemption Price (excluding
applicable contingent deferred sales charge) Per Share $ 10.46
CLASS C
- --------------------------------------------------------------------------------
Net Assets $ 1,263,540
Shares Outstanding 120,818
Net Asset Value, Offering and Redemption Price (excluding
applicable contingent deferred sales charge) Per Share $ 10.46
CLASS F
- --------------------------------------------------------------------------------
Net Assets $295,251,224
Shares Outstanding 26,780,434
Net Asset Value, Offering and Redemption Price Per Share $ 11.02
CLASS R
- --------------------------------------------------------------------------------
Net Assets $ 2,032,663
Shares Outstanding 181,653
Net Asset Value, Offering and Redemption Price Per Share $ 11.19
CLASS T
- --------------------------------------------------------------------------------
Net Assets $ 71,517
Shares Outstanding 6,811
Net Asset Value, Redemption Price Per Share $ 10.50
Maximum offering price per share (net asset value
plus sales charge of 4.50% of offering price) $ 10.99
SEE NOTES TO FINANCIAL STATEMENTS.
17
<Page>
STATEMENT OF OPERATIONS
For the six months ended June 30, 2006 (UNAUDITED)
INVESTMENT INCOME
- -------------------------------------------------------------------------------
Dividends $ 1,744,686
Interest 202,517
Foreign taxes withheld (7,096)
------------
Total Investment Income 1,940,107
------------
EXPENSES
- -------------------------------------------------------------------------------
Advisory fees--Note 2 1,291,391
Shareholder servicing fees--Note 2 172,448
Accounting fees--Note 2 101,127
Distribution fees--Note 2 432,855
Transfer agency fees--Note 2 166,530
Registration fees 30,475
Postage and mailing expenses 17,350
Custodian fees and expenses--Note 2 6,838
Printing expenses 34,925
Legal and audit fees 64,625
Directors' fees and expenses--Note 2 43,120
Other expenses 42,978
------------
Total Expenses 2,404,662
Earnings Credits (6,838)
------------
Net Expenses 2,397,824
------------
Net Investment Loss (457,717)
------------
REALIZED AND UNREALIZED GAIN (LOSS) ON SECURITY TRANSACTIONS
- -------------------------------------------------------------------------------
Net Realized Gain on Security Transactions 18,866,007
Net Change in Unrealized Appreciation/Depreciation of Investments (15,864,679)
------------
Net Realized and Unrealized Gain 3,001,328
------------
Net Increase in Net Assets Resulting from Operations $ 2,543,611
============
SEE NOTES TO FINANCIAL STATEMENTS.
18
<Page>
STATEMENTS OF CHANGES IN NET ASSETS
(UNAUDITED)
<Table>
<Caption>
SIX MONTHS ENDED YEAR ENDED
JUNE 30, 2006 DECEMBER 31, 2005
OPERATIONS
- --------------------------------------------------------------------------------------------
Net Investment Loss $ (457,717) $ (773,131)
Net Realized Gain on Security Transactions 18,866,007 38,521,459
Net Change in Unrealized Appreciation/Depreciation
of Investments (15,864,679) (24,451,397)
------------ ------------
Net Increase in Net Assets Resulting from Operations 2,543,611 13,296,931
------------ ------------
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS
- ------------------------------------------------------------------------------------------
From Net Investment Income
Class A 0 (19,905)
Class F 0 (1,261,946)
Class R 0 (13,251)
------------ ------------
Net Decrease from Dividends and Distributions 0 (1,295,102)
------------ ------------
CAPITAL SHARE TRANSACTIONS
- ------------------------------------------------------------------------------------------
Net Increase (Decrease)--Note 4
Class A 3,111,159 (1,032,110)
Class B (4,318,660) (3,049,516)
Class C (99,091) (552,479)
Class F (38,795,833) (86,019,465)
Class R 38,928 (9,087,141)
Class T 1,101 (31,280)
------------ ------------
Net Decrease from Capital Share Transactions (40,062,396) (99,771,991)
------------ ------------
Net Decrease in Net Assets (37,518,785) (87,770,162)
------------ ------------
NET ASSETS
- ------------------------------------------------------------------------------------------
Beginning of Period $350,107,956 $437,878,118
------------ ------------
End of Period $312,589,171 $350,107,956
============ ============
Accumulated Net Investment Loss $ (565,630) $ (107,913)
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
19
<Page>
FINANCIAL HIGHLIGHTS
(UNAUDITED)
<Table>
<Caption>
SIX MONTHS YEAR ENDED
ENDED JUNE 30, DECEMBER 31,
2006 2005 2004 2003 2002
-------------- --------------------------------------------
CLASS A SHARES PER SHARE OPERATING DATA
Net Asset Value, beginning of period $10.91 $10.53 $ 9.79 $ 7.46 $ 10.53
- --------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.01)(a) (0.03)(a) (0.02)(a) (0.06) (0.06)
Net realized and unrealized gains
(losses) on securities 0.06 0.45 0.72 2.39 (3.01)
----------------------------------------------------------
Total from investment operations 0.05 0.42 0.74 2.33 (3.07)
- --------------------------------------------------------------------------------------------------------------
Less dividends and distributions:
From net investment income 0.00 (0.04) 0.00 0.00 0.00
From net realized gains 0.00 0.00 0.00 0.00 0.00
----------------------------------------------------------
Total distributions 0.00 (0.04) 0.00 0.00 0.00
- --------------------------------------------------------------------------------------------------------------
Net Asset Value, end of period $10.96 $10.91 $ 10.53 $ 9.79 $ 7.46
==========================================================
TOTAL RETURN(b) 0.46% 3.98% 7.56% 31.23% (29.15%)
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000s) $8,522 $5,505 $ 6,356 $6,452 $ 5,149
- --------------------------------------------------------------------------------------------------------------
Ratios to average net assets:
Expenses with reimbursements, but
no earnings credits or brokerage offsets(c) 1.40% 1.49% 1.42% 1.66% 1.48%
Expenses with reimbursements,
earnings credits and brokerage offsets 1.40% 1.47% 1.41% 1.66% 1.48%
Net investment income (loss) (0.21%) (0.28%) 0.22% (0.59%) (0.56%)
- --------------------------------------------------------------------------------------------------------------
Portfolio turnover rate(d) 121% 120% 107% 124% 139%
</Table>
(a.) COMPUTED USING AVERAGE SHARES OUTSTANDING THROUGHOUT THE PERIOD.
(b.) SALES CHARGES ARE NOT REFLECTED IN THE TOTAL RETURN.
(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.
20
<Page>
<Table>
<Caption>
SIX MONTHS YEAR ENDED
ENDED JUNE 30, DECEMBER 31,
2006 2005 2004 2003 2002
-------------- ------------------------------------------
CLASS B SHARES PER SHARE OPERATING DATA
Net Asset Value, beginning of period $10.46 $10.14 $ 9.50 $ 7.30 $ 10.38
- ------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment loss (0.06)(a) (0.11)(a) (0.06)(a) (0.17) (0.18)
Net realized and unrealized gains
(losses) on securities 0.06 0.43 0.70 2.37 (2.90)
-----------------------------------------------------------
Total from investment operations 0.00 0.32 0.64 2.20 (3.08)
- ------------------------------------------------------------------------------------------------------------
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
-----------------------------------------------------------
Total distributions 0.00 0.00 0.00 0.00 0.00
- ------------------------------------------------------------------------------------------------------------
Net Asset Value, end of period $10.46 $10.46 $ 10.14 $ 9.50 $ 7.30
===========================================================
TOTAL RETURN(b) 0.00% 3.16% 6.74% 30.14% (29.67%)
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000s) $5,448 $9,603 $12,406 $13,664 $11,603
- ------------------------------------------------------------------------------------------------------------
Ratios to average net assets:
Expenses with reimbursements, but
no earnings credits or brokerage offsets(c) 2.32% 2.31% 2.22% 2.48% 2.22%
Expenses with reimbursements,
earnings credits and brokerage offsets 2.32% 2.30% 2.22% 2.48% 2.22%
Net investment loss (1.20%) (1.11%) (0.58%) (1.41%) (1.30%)
- ------------------------------------------------------------------------------------------------------------
Portfolio turnover rate(d) 121% 120% 107% 124% 139%
</Table>
(a.) COMPUTED USING AVERAGE SHARES OUTSTANDING THROUGHOUT THE PERIOD.
(b.) SALES CHARGES ARE NOT REFLECTED IN THE TOTAL RETURN.
(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.
21
<Page>
<Table>
<Caption>
SIX
MONTHS
ENDED YEAR ENDED
JUNE 30, DECEMBER 31,
2006 2005 2004 2003 2002
--------- --------------------------------------
CLASS C SHARES PER SHARE OPERATING DATA
Net Asset Value, beginning of period $10.45 $10.13 $ 9.48 $ 7.29 $ 10.36
- --------------------------------------------------------------------------------------------
Income from investment operations:
Net investment loss (0.06)(a) (0.10)(a) (0.05)(a) (0.19) (0.26)
Net realized and unrealized gains
(losses) on securities 0.07 0.42 0.70 2.38 (2.81)
--------------------------------------------------
Total from investment operations 0.01 0.32 0.65 2.19 (3.07)
- --------------------------------------------------------------------------------------------
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 $10.46 $10.45 $10.13 $ 9.48 $ 7.29
==================================================
TOTAL RETURN(b) 0.10% 3.16% 6.86% 30.04% (29.63%)
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000s) $1,264 $1,362 $1,881 $1,774 $ 1,528
- --------------------------------------------------------------------------------------------
Ratios to average net assets:
Expenses with reimbursements, but no
earnings credits or brokerage
offsets(c) 2.20% 2.24% 2.16% 2.49% 2.37%
Expenses with reimbursements, earnings
credits and brokerage offsets 2.19% 2.22% 2.16% 2.49% 2.37%
Net investment loss (1.04%) (1.03%) (0.49%) (1.42%) (1.46%)
- --------------------------------------------------------------------------------------------
Portfolio turnover rate(d) 121% 120% 107% 124% 139%
</Table>
(a.) COMPUTED USING AVERAGE SHARES OUTSTANDING THROUGHOUT THE PERIOD.
(b.) SALES CHARGES ARE NOT REFLECTED IN THE TOTAL RETURN.
(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,
2006 2005 2004 2003 2002
-------------- ----------------------------------------------
CLASS F SHARES
PER SHARE OPERATING DATA
Net Asset Value, beginning of period $ 10.97 $ 10.58 $ 9.83 $ 7.48 $ 10.53
- ------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.01)(a) (0.02)(a) 0.03(a) (0.17) (0.22)
Net realized and unrealized gains (losses) on
securities 0.06 0.45 0.72 2.52 (2.83)
-----------------------------------------------------------------
Total from investment operations 0.05 0.43 0.75 2.35 (3.05)
- ------------------------------------------------------------------------------------------------------------------
Less dividends and distributions:
From net investment income 0.00 (0.04) 0.00 0.00 0.00
From net realized gains 0.00 0.00 0.00 0.00 0.00
-----------------------------------------------------------------
Total distributions 0.00 (0.04) 0.00 0.00 0.00
- ------------------------------------------------------------------------------------------------------------------
Net Asset Value, end of period $ 11.02 $ 10.97 $ 10.58 $ 9.83 $ 7.48
=================================================================
TOTAL RETURN 0.46% 4.08% 7.63% 31.42% (28.96%)
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000s) $295,251 $331,585 $406,550 $484,742 $443,307
- ------------------------------------------------------------------------------------------------------------------
Ratios to average net assets:
Expenses with reimbursements, but no earnings
credits or brokerage offsets(b) 1.40% 1.38% 1.33% 1.47% 1.38%
Expenses with reimbursements, earnings credits
and brokerage offsets 1.40% 1.37% 1.33% 1.47% 1.37%
Net investment income (loss) (0.25%) (0.18%) 0.30% (0.41%) (0.46%)
- ------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate(c) 121% 120% 107% 124% 139%
</Table>
(a.) COMPUTED USING AVERAGE SHARES OUTSTANDING THROUGHOUT THE PERIOD.
(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.
23
<Page>
<Table>
<Caption>
SIX MONTHS YEAR ENDED
ENDED JUNE 30, DECEMBER 31,
2006 2005 2004 2003 2002
-------------- ----------------------------------------
CLASS R SHARES
PER SHARE OPERATING DATA
Net Asset Value, beginning of period $11.11 $10.69 $ 9.89 $ 7.50 $ 10.57
- ----------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.01(a) 0.02(a) 0.07 0.01 0.01
Net realized and unrealized gains (losses) on
securities 0.07 0.47 0.73 2.38 (3.08)
---------------------------------------------------------
Total from investment operations 0.08 0.49 0.80 2.39 (3.07)
- ----------------------------------------------------------------------------------------------------------
Less dividends and distributions:
From net investment income 0.00 (0.07) 0.00 0.00 0.00
From net realized gains 0.00 0.00 0.00 0.00 0.00
---------------------------------------------------------
Total distributions 0.00 (0.07) 0.00 0.00 0.00
- ----------------------------------------------------------------------------------------------------------
Net Asset Value, end of period $11.19 $11.11 $ 10.69 $ 9.89 $ 7.50
=========================================================
TOTAL RETURN 0.72% 4.54% 8.09% 31.87% (29.04%)
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000s) $2,033 $1,982 $10,584 $8,792 $ 4,333
- ----------------------------------------------------------------------------------------------------------
Ratios to average net assets:
Expenses with reimbursements, but no earnings
credits or brokerage offsets(b) 1.02% 1.05% 1.03% 1.13% 1.30%
Expenses with reimbursements, earnings credits
and brokerage offsets 1.01% 1.04% 1.03% 1.13% 1.30%
Net investment income (loss) 0.14% 0.15% 0.65% (0.04%) (0.34%)
- ----------------------------------------------------------------------------------------------------------
Portfolio turnover rate(c) 121% 120% 107% 124% 139%
</Table>
(a.) COMPUTED USING AVERAGE SHARES OUTSTANDING THROUGHOUT THE PERIOD.
(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.
24
<Page>
<Table>
<Caption>
SIX MONTHS YEAR ENDED
ENDED JUNE 30, DECEMBER 31,
2006 2005 2004 2003 2002
-------------- -------------------------------------------
CLASS T SHARES
PER SHARE OPERATING DATA
Net Asset Value, beginning of period $10.49 $10.17 $ 9.48 $ 7.27 $ 10.38
- -------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment loss (0.06)(a) (0.10)(a) (0.02)(a) (0.30) (0.56)
Net realized and unrealized gains (losses) on
securities 0.07 0.42 0.71 2.51 (2.55)
------------------------------------------------------------
Total from investment operations 0.01 0.32 0.69 2.21 (3.11)
- -------------------------------------------------------------------------------------------------------------
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
------------------------------------------------------------
Total distributions 0.00 0.00 0.00 0.00 0.00
- -------------------------------------------------------------------------------------------------------------
Net Asset Value, end of period $10.50 $10.49 $10.17 $ 9.48 $ 7.27
============================================================
TOTAL RETURN(b) 0.10% 3.15% 7.28% 30.40% (29.96%)
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000s) $ 72 $ 71 $ 100 $ 220 $ 208
- -------------------------------------------------------------------------------------------------------------
Ratios to average net assets:
Expenses with reimbursements, but no earnings
credits or brokerage offsets(c) 2.29% 2.21% 1.79% 2.22% 2.78%
Expenses with reimbursements, earnings credits
and brokerage offsets 2.29% 2.20% 1.79% 2.22% 2.78%
Net investment loss (1.12%) (1.01%) (0.17%) (1.15%) (1.89%)
- -------------------------------------------------------------------------------------------------------------
Portfolio turnover rate(d) 121% 120% 107% 124% 139%
</Table>
(a.) COMPUTED USING AVERAGE SHARES OUTSTANDING THROUGHOUT THE PERIOD.
(b.) SALES CHARGES ARE NOT REFLECTED IN THE TOTAL RETURN.
(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>
NOTES TO FINANCIAL STATEMENTS
June 30, 2006 (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). Effective June 1, 2006,
Class B shares will no longer be offered except in connection with dividend
reinvestments and permitted exchanges of Class B shares. 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. New York closing exchange rates are used to convert foreign
currencies to U.S. dollars.
A debt security with a remaining maturity greater than 60 days at the time of
purchase is valued in accordance with the evaluated bid price supplied by a
pricing service approved by the Company's board of directors or, if such price
is not available, at the mean between the highest bid and lowest asked
quotations obtained from at least two securities dealers. A debt security with a
remaining maturity of 60 days or less at the time of purchase is valued at
amortized cost, which approximates market value, unless it is determined that
amortized cost would not represent market value, in which case the securities
would be marked to market. The Fund amortizes premiums and discounts on all debt
securities.
If market quotations 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
26
<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 requires the use of estimates, and as such,
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--The Fund may invest at least a
portion of its assets in foreign securities. Foreign securities carry more risk
than U.S. securities, such as political and currency risks. 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 Fund could be
exposed to risk if counterparties are unable to meet the terms of the contracts
or if the value of the currency changes unfavorably to the U.S. dollar. 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.
The accounting records of the Fund are maintained in U.S. dollars. The market
values of foreign securities, currency holdings and other assets and liabilities
are translated into U.S. dollars based on the current exchange rates each
business day. 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 unrealized gain or loss from investments and foreign
currency translations on the Statement of Operations.
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.
27
<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 Subchapter M 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 from
net investment income (if any) and from net realized 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.
USE OF ESTIMATES--The preparation of financial statements in conformity with
accounting principles generally accepted in the United States of America
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported amounts of
income and expenses during the reporting period. Actual results could differ
from those estimates.
INDEMNIFICATIONS--In the normal course of business, the Company enters into
contracts that contain provisions indemnifying other parties against specified
potential liabilities. Each Fund's maximum exposure under these arrangements is
unknown as this would involve future claims that may be made against the Fund
that have not yet occurred. However, based on experience, the Funds expect the
risk of loss to be remote.
OTHER--Certain prior year information has been reformatted, without substantive
change, to conform with the current year presentation.
2. FEES AND TRANSACTIONS WITH AFFILIATES
ADVISORY FEES--Founders Asset Management LLC ("Founders") serves as investment
adviser to the Fund. Founders is an indirect wholly-owned subsidiary of Mellon
Financial Corporation, a publicly-owned financial services company which
provides a comprehensive range of financial products and services in domestic
and selected international markets.
In accordance with an investment advisory agreement between the Company and
Founders, the Fund compensates Founders for its services as investment adviser
by the payment of fees computed daily and paid monthly at the annual rate equal
to a
28
<Page>
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 period ended June 30, 2006,
Class F shares were charged $152,250 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 period ended June 30, 2006, Class F shares were
charged $67,050 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 $12.92 to $13.36, 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 period ended June 30, 2006 were as
follows:
TRANSFER
AGENCY FEES
- ---------------------
Class A $ 4,470
- ---------------------
Class B $12,083
- ---------------------
Class C $ 1,214
- ---------------------
Class R $ 0
- ---------------------
Class T $ 263
- ---------------------
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 period ended June 30, 2006, the Fund was charged $2,401 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
29
<Page>
through those accounts. During the period ended June 30, 2006, the Fund paid
$81,450 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 period ended June 30,
2006, Class F shares were charged $398,628 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 period ended June 30, 2006, were as follows:
DISTRIBUTION SHAREHOLDER
FEES SERVICING FEES
- ---------------------------------------
Class A N/A $8,732
- ---------------------------------------
Class B $29,039 $9,680
- ---------------------------------------
Class C $ 5,103 $1,701
- ---------------------------------------
Class T $ 85 $ 85
- ---------------------------------------
During the period ended June 30, 2006, DSC retained $895 and $47 in sales
commissions from the sales of Class A and Class T shares, respectively. DSC also
retained $8,488 and $66 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.
30
<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, which are shown as earnings credits on the
Statement of Operations. 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
period and in the amount set forth below:
TIME PERIOD AMOUNT OF WAIVER
- ------------------------------------
9/1/05 to 8/31/06 $200,000
- ------------------------------------
The fee waiver is allocated among the Funds in proportion to their respective
shares of the total custodian fee. For the period ended June 30, 2006, the
Fund's portion of the fee waiver was $0. The amount paid to Mellon Bank was
$6,838.
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 Directors'
Deferred Compensation on the Statement of Assets and Liabilities. Changes in
market value are included in the Directors' fees and expenses and the net change
in unrealized appreciation/depreciation of investments on the Statement of
Operations. 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
or its affiliates, which pay their compensation. The affairs of the Fund,
including services provided by Founders, are subject to the supervision and
general oversight of the Company's board of directors.
OTHER--During the period ended June 30, 2006, Founders reimbursed the Fund
$11,089 for a trading error. This amount is not material to the fund.
3. FEDERAL TAX INFORMATION
Net investment income and capital gains distributions are determined in
accordance with income tax regulations that may differ from accounting
principles generally accepted in the United States of America. These differences
are due to differing treatments for items such as deferral of wash sale losses,
deferred compensation, 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, 2005
31
<Page>
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, 2005 were:
EXPIRATION AMOUNT
-------------------------
2009 $481,174,758
-------------------------
2010 $209,975,954
-------------------------
$691,150,712
============
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, 2006 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.
----------------------------------------------------
Post-October Capital Loss Deferral $ (947,792)
----------------------------------------------------
Federal Tax Cost $305,689,282
----------------------------------------------------
Gross Tax Appreciation of Investments $ 18,277,604
----------------------------------------------------
Gross Tax Depreciation of Investments $(11,709,815)
----------------------------------------------------
Net Tax Appreciation $ 6,567,789
----------------------------------------------------
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>
PERIOD ENDED YEAR ENDED
JUNE 30, 2006 DECEMBER 31, 2005
SHARES AMOUNT SHARES AMOUNT
CLASS A
- ---------------------------------------------------------------------------------------
Sold 331,885 $ 3,774,944 56,086 $ 588,334
Dividends or Distributions Reinvested 0 $ 0 1,577 $ 17,366
Redeemed (59,099) $ (663,785) (156,471) $(1,637,810)
-----------------------------------------------
Net Increase (Decrease) 272,786 $ 3,111,159 (98,808) $(1,032,110)
===============================================
CLASS B
- ---------------------------------------------------------------------------------------
Sold 4,745 $ 50,617 13,206 $ 130,840
Redeemed (402,265) $(4,369,277) (317,903) $(3,180,356)
-----------------------------------------------
Net Decrease (397,520) $(4,318,660) (304,697) $(3,049,516)
===============================================
</Table>
32
<Page>
<Table>
<Caption>
PERIOD ENDED YEAR ENDED
JUNE 30, 2006 DECEMBER 31, 2005
SHARES AMOUNT SHARES AMOUNT
CLASS C
- ------------------------------------------------------------------------------------------------
Sold 9,489 $ 103,014 7,980 $ 80,497
Redeemed (18,996) $ (202,105) (63,320) $ (632,976)
--------------------------------------------------------
Net Decrease (9,507) $ (99,091) (55,340) $ (552,479)
========================================================
CLASS F
- ------------------------------------------------------------------------------------------------
Sold 714,226 $ 8,075,169 1,864,857 $ 19,477,463
Dividends or Distributions Reinvested 0 $ 0 107,799 $ 1,193,334
Redeemed (4,154,920) $(46,871,002) (10,161,828) $(106,690,262)
--------------------------------------------------------
Net Decrease (3,440,694) $(38,795,833) (8,189,172) $ (86,019,465)
========================================================
CLASS R
- ------------------------------------------------------------------------------------------------
Sold 26,469 $ 303,990 323,673 $ 3,445,896
Dividends or Distributions Reinvested 0 $ 0 1,182 $ 13,251
Redeemed (23,158) $ (265,062) (1,136,441) $ (12,546,288)
--------------------------------------------------------
Net Increase (Decrease) 3,311 $ 38,928 (811,586) $ (9,087,141)
========================================================
CLASS T
- ------------------------------------------------------------------------------------------------
Sold 802 $ 8,802 189 $ 1,893
Redeemed (712) $ (7,701) (3,345) $ (33,173)
--------------------------------------------------------
Net Increase (Decrease) 90 $ 1,101 (3,156) $ (31,280)
========================================================
</Table>
5. INVESTMENT TRANSACTIONS
For the period ended June 30, 2006, purchases and sales of investment securities
(excluding short-term securities and U.S. government obligations) were
$202,943,314 and $254,389,682 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, 2006, the Fund did not have any borrowings under the LOC.
33
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<Page>
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<Page>
DREYFUS FOUNDERS GROWTH FUND
P.O. Box 55360
Boston, MA 02205-8252
1-800-525-2440
www.founders.com
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, 2006, 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)2006 Founders Asset Management LLC. 8/06
0374SA0606
<Page>
SEMIANNUAL REPORT
DREYFUS FOUNDERS
INTERNATIONAL EQUITY FUND
INVESTMENT UPDATE
JUNE 30, 2006
DREYFUS FOUNDERS FUNDS(R)
THE GROWTH SPECIALISTS
<Page>
TABLE OF CONTENTS
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
PAPERLESS DELIVERY OF THIS REPORT
Did you know you can reduce your postal mail by accessing Dreyfus Founders
Funds regulatory material online? It's a simple, reliable process: when new
documents such as this 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
Founders Asset Management LLC
A MELLON FINANCIAL COMPANY(SM)
210 University Boulevard, Suite 800
Denver, CO 80206
DISTRIBUTOR
Dreyfus Service Corporation
200 Park Avenue
New York, NY 10166
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, 2006. The amounts of
these holdings are included in the Statement of Investments.
NOT FDIC-INSURED - NOT BANK-GUARANTEED - MAY LOSE VALUE
<Page>
MANAGEMENT OVERVIEW
(UNAUDITED)
[PHOTO OF REMI J. BROWNE]
[PHOTO OF JEFFREY R. SULLIVAN]
A DISCUSSION WITH CO-PORTFOLIO MANAGERS REMI J. BROWNE, CFA, LEFT, AND JEFFREY
R. SULLIVAN, CFA, REGARDING FUND PERFORMANCE FOR THE SIX-MONTH PERIOD ENDED JUNE
30, 2006.
VOLATILE MARKETS
During the period, international equity markets continued their three-year
rally. Merger-and-acquisition (M&A) activity increased and strong earnings
announcements overcame significant tightening in global monetary policy.
Investor sentiment was boosted by benign inflation, historically low interest
rates and an ongoing economic expansion, primarily driven by the United States.
However, later in the period, investors became concerned about numerous economic
issues that prompted a reversal in global markets. These macroeconomic issues
included a slowdown in the housing market, U.S. dollar weakness, rising consumer
prices and the continued interest rate increases by the Federal Reserve and a
move away from quantitative easing by the Bank of Japan. Against this backdrop,
global equity markets suffered a major sell-off beginning in the middle of May
and lasting until mid-June.
For the six-month period ended June 30, 2006, Dreyfus Founders
International Equity Fund underperformed its benchmark, the Morgan Stanley
Capital International (MSCI) World ex U.S. Index, which returned 10.06%, during
the same period, but outperformed(1) its other benchmark, the MSCI World ex U.S.
Growth Index, which returned 9.35%.
STOCK-BY-STOCK STRATEGY REMAINED IN PLACE
The positioning of the Fund was not substantially altered during the period, as
we continued our investment
"OUR STOCK-PICKING STRATEGY PROVED BENEFICIAL TO
THE FUND ON A RELATIVE BASIS..."
- ----------
(1) Excluding sales charges, which result in lower returns for certain share
classes. Please see page 7 for Average Annual and Year-to-Date 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 securities prices and
reinvestment of dividends, but do not reflect the costs of managing a
mutual fund.
3
<Page>
strategy of picking stocks whose growth potential was high and whose valuations
were attractive. Our stock-picking strategy proved beneficial to the Fund on a
relative basis, as stock selection overall was a boon to the Fund's return.
COUNTRIES BOOSTED RELATIVE PERFORMANCE
For the six-month period, the United Kingdom (U.K.) and Germany provided the
largest positive impact to relative Fund performance due to strong stock
selection. German equities rallied as the IFO business sentiment index hit new
highs, companies began to invest in personnel again and a more business-friendly
government was put in place.
Favorable stock selection in Hong Kong and a substantial relative
overweight position in oil-exporting Norway also boosted the Fund's return for
the period.
MATERIALS AND FINANCIALS OUTPACED OTHER FUND SECTORS
The materials sector was the strongest performing sector in the Fund, as
commodity prices experienced strong appreciation during the period. Increased
M&A activity aided the sector, with large bids indicating the robust metals
cycle was expected to continue. Diversified mining stocks also held up during
the period after tremendous price appreciation during 2005. Within the Fund,
several top-performing holdings came from the materials sector. The U.K.-based
metals and mining company XSTRATA PLC had a strong run as the company benefited
not only from the solid pricing environment, but also by making quality,
strategic acquisitions. BHP BILLITON LIMITED, an Australian company which is the
largest diversified mining firm in the world, rallied as copper, zinc and iron
ore prices continued to defy gravity and reached new highs. THYSSENKRUPP AG
benefited from the merger of France's Arcelor SA and Mittal Steel Company N.V.
The $30 billion merger put many steel companies in focus as potential takeover
candidates.
The Fund's strong stock picking was also made evident in the performance of
the financials sector within the Fund. Dutch financials giant ING GROEP N.V.
performed well during the period, as a result of healthy demand in the corporate
insurance lines and solid performance within ING Direct and its retail banking
division. The firm also released first quarter 2006 results that were better
than expected, and the shares of the company advanced as a result.
4
<Page>
SECTORS BENEFITING THE FUND
Materials
Telecommunication Services
Financials
OTHER IMPORTANT CONTRIBUTORS
Other notable performers during the period include information technology (IT)
issue CANON, INC. and health care holding Schering AG. Japanese firm Canon
experienced stronger-than-expected demand in the United States for its products.
American sales were up 14.6% year-on-year in the first quarter, driven by
increased demand for laser printers. German pharmaceuticals provider Schering AG
benefited from a bidding war for the company. The stock rose 50% during the
period and the Fund sold its position, as it appeared the risk/reward trade-off
no longer favored holding the shares.
COUNTRY-SPECIFIC STOCK-PICKING WEIGHED ON PERFORMANCE
When viewing country-specific performance within the Fund, the main detractor
overall was weak stock selection, primarily in Sweden, Denmark, Spain and
France.
LARGEST EQUITY HOLDINGS (country of origin; ticker symbol)
1. GLAXOSMITHKLINE PLC (United Kingdom; GSK) 3.08%
2. ROCHE HOLDING AG (Switzerland; RO.G) 2.88%
3. BHP BILLITON LIMITED (Australia; BHP) 2.71%
4. SANOFI-AVENTIS (France; SAN) 2.41%
5. BP PLC (United Kingdom; BP) 2.30%
6. ING GROEP NV (Netherlands; ING.C) 2.24%
7. CANON, INC. (Japan; 7751) 2.07%
8. SONY CORPORATION (Japan; 6758) 1.81%
9. BRITISH AMERICAN TOBACCO PLC (United Kingdom; BATS) 1.76%
10. HONDA MOTOR COMPANY LIMITED (Japan; 7267) 1.75%
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]
<Table>
<Caption>
DREYFUS
FOUNDERS
INTERNATIONAL
EQUITY MSCI WORLD
PERIOD FUND-CLASS F EX U.S. INDEX
- ---------- ------------ -------------
6/28/1996 $10,000 $10,000
6/30/1997 $12,051 $11,353
6/30/1998 $14,708 $12,068
6/30/1999 $15,122 $12,957
6/30/2000 $21,628 $15,392
6/29/2001 $14,674 $11,723
6/28/2002 $11,127 $10,618
6/30/2003 $ 9,828 $10,026
6/30/2004 $13,282 $13,229
6/30/2005 $15,276 $15,154
6/30/2006 $19,319 $19,229
</Table>
The above graph compares a $10,000 investment made in Class F shares of Dreyfus
Founders International Equity Fund on 6/30/96 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 6/30/06
YEAR-TO- 1 5 10 SINCE
CLASS (Inception Date) DATE+ YEAR YEARS YEARS INCEPTION
- ------------------------------------------------------------------------
A SHARES (12/31/99)
With sales charge (5.75%) 3.44% 19.13% 4.35% -- (3.11%)
Without sales charge 9.75% 26.42% 5.59% -- (2.22%)
B SHARES (12/31/99)
With redemption* 5.38% 21.56% 4.49% -- (2.95%)
Without redemption 9.38% 25.56% 4.82% -- (2.95%)
C SHARES (12/31/99)
With redemption** 8.40% 24.62% 4.80% -- (2.98%)
Without redemption 9.40% 25.62% 4.80% -- (2.98%)
F SHARES (12/29/95) 9.81% 26.46% 5.65% 6.81% 7.86%
R SHARES (12/31/99) 9.95% 26.85% 5.94% -- (1.93%)
T SHARES (12/31/99)
With sales charge (4.50%) 4.71% 20.55% 4.39% -- (3.15%)
Without sales charge 9.65% 26.22% 5.36% -- (2.46%)
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, expense limitations, and adjustments for financial
statement purposes. 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>
INDUSTRIALS, CONSUMER DISCRETIONARY AND ENERGY STOCKS HURT FUND
With global growth potentially peaking, analysts began to downgrade the
industrials sector by the end of the period. International capital goods
companies faced rising global interest rates, currency strength and a more
mature economic cycle. These underlying issues, combined with poor stock
selection, caused industrials to have the biggest negative impact on the Fund
during the first half of 2006. EADS, a French-listed aerospace company,
announced a profit warning in June as delays of the new Airbus A380 series of
commercial jets will negatively impact earnings going forward. A.P.
Moller-Maersk A/S, the Danish chartered shipping vessel operator, was unable to
grow its share price during the period. Costs increased faster than anticipated,
primarily due to the price of bunker fuel, which weighed on profitability across
the board.
SECTORS DETRACTING FROM THE FUND
Industrials
Consumer Discretionary
Energy
Poor stock selection in the consumer discretionary and energy sectors also
weighed on relative performance. Japanese home appliances and computer retailer
Yamada Denki Company Limited's stock price fell as a result of profit taking.
Oil- and gas-services provider TRICAN WELL SERVICE LIMITED released fourth
[CHART]
<Table>
<Caption>
PORTFOLIO COMPOSITION OF NET ASSETS
20.39% Japan
20.19% United Kingdom
10.09% France
8.00% Switzerland
7.80% Germany
5.99% Canada
4.69% Australia
3.56% Netherlands
3.22% Spain
3.13% Italy
11.49% Other Countries
1.45% Cash & Equivalents
</Table>
The Fund's portfolio composition is subject to change, and there is no assurance
the Fund will continue to hold any particular security. Opinions regarding
sectors, industries, companies, and/or themes are those of the portfolio
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>
quarter 2005 results that were in line with forecasts. The stock, however,
dropped as a result of the deterioration in North American gas prices.
UNDERPERFORMERS FOUND IN STRONGER SECTORS
Underperforming stocks were also found in the Fund's strong-performing
financials and health care sectors. ORIX CORPORATION, the Japanese direct
finance lease and operating lease provider, saw its stock price fall as the firm
was hindered by delays in real-estate transactions between Orix and subsidiary
Orix Jreit. Pharmaceutical manufacturer MERCK KGAA experienced weakness in its
share price due to increased competition in a market segment and a failed
acquisition bid for Schering AG.
We have been cautiously optimistic regarding international markets due to
the relatively strong returns generated by the world's big exporters, Japan and
Germany, and the seemingly limitless appetite for commodity stocks. We believe
the pullback in equity markets experienced between May 11 and June 13 was likely
a cyclical correction, not the beginning of a secular bear market. Economic
fundamentals have improved across Europe and Japan, which should help offset a
slowdown in U.S. consumption.
As always, our focus is on seeking companies with improving business
momentum and attractive valuations, regardless of sector or country, or the
direction of the market.
/s/ Remi J. Browne, /s/ Jeffrey R. Sullivan,
- ------------------------------------- ----------------------------------------
Remi J. Browne, CFA Jeffrey R. Sullivan, 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, 2006
and held through June 30, 2006.
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, together with the amount you
invested, 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
BEGINNING ENDING EXPENSES PAID
ACCOUNT VALUE ACCOUNT VALUE DURING PERIOD*
(1/1/06) (6/30/06) (1/1/06-6/30/06)
- -----------------------------------------------------------------------
CLASS A ACTUAL $1,000.00 $1,097.50 $ 7.28
CLASS A HYPOTHETICAL 1,000.00 1,017.77 7.03
CLASS B ACTUAL 1,000.00 1,093.80 11.16
CLASS B HYPOTHETICAL 1,000.00 1,014.00 10.79
CLASS C ACTUAL 1,000.00 1,094.00 11.16
CLASS C HYPOTHETICAL 1,000.00 1,014.00 10.79
CLASS F ACTUAL 1,000.00 1,098.10 7.28
CLASS F HYPOTHETICAL 1,000.00 1,017.77 7.03
CLASS R ACTUAL 1,000.00 1,099.50 5.99
CLASS R HYPOTHETICAL 1,000.00 1,019.02 5.77
CLASS T ACTUAL 1,000.00 1,096.50 8.58
CLASS T HYPOTHETICAL 1,000.00 1,016.51 8.28
* 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.
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%
11
<Page>
STATEMENT OF INVESTMENTS
June 30, 2006 (UNAUDITED)
SHARES MARKET VALUE
- --------------------------------------------------------------------------------
COMMON STOCKS (FOREIGN)--94.5%
ADVERTISING--0.6%
21,300 WPP Group PLC (UK) $ 257,784
----------
AIRLINES--1.1%
73,800 British Airways PLC (UK)* 467,732
----------
ALUMINUM--0.8%
7,500 Alcan, Inc. (CA) 351,317
----------
APPAREL, ACCESSORIES & LUXURY GOODS--1.4%
8,400 Compagnie Financiere Richemont AG (SZ) 384,754
4,500 Gildan Activewear, Inc. (CA)* 212,806
----------
597,560
----------
APPLICATION SOFTWARE--0.6%
1,250 SAP AG (GE) 263,654
----------
AUTOMOBILE MANUFACTURERS--1.7%
23,400 Honda Motor Company Limited (JA) 742,240
----------
BIOTECHNOLOGY--1.1%
11,900 CSL Limited (AU) 475,310
----------
BREWERS--3.4%
7,400 Heineken NV (NE) 313,776
12,600 InBev NV (BE) 618,074
13,400 Kirin Brewery Company Limited (JA) 210,648
6,600 Orkla ASA (NW) 305,884
----------
1,448,382
----------
BROADCASTING & CABLE TV--0.6%
9,800 Shaw Communications, Inc. Class B (CA) 276,978
----------
COMMUNICATIONS EQUIPMENT--2.2%
109,000 Foxconn International Holdings Limited (HK)* 232,981
34,000 Nokia Oyj (FI) 694,091
----------
927,072
----------
COMPUTER HARDWARE--1.4%
45,000 Fujitsu Limited (JA) 348,785
35,000 Toshiba Corporation (JA) 228,460
----------
577,245
----------
AU Australia
AT Austria
BE Belgium
CA Canada
DE Denmark
FI Finland
FR France
GE Germany
GR Greece
HK Hong Kong
IE Ireland
IT Italy
JA Japan
KR South Korea
NE Netherlands
NW Norway
PT Portugal
SG Singapore
SP Spain
SW Sweden
SZ Switzerland
UK United Kingdom
12
<Page>
SHARES MARKET VALUE
- --------------------------------------------------------------------------------
CONSTRUCTION & ENGINEERING--1.1%
11,100 ACS, Actividades de Construccion y Servicios SA (SP) $ 462,997
----------
CONSTRUCTION MATERIALS--0.9%
30,400 Rinker Group Limited (AU) 370,258
----------
CONSUMER ELECTRONICS--2.9%
22,000 Matsushita Electric Industrial Company Limited (JA) 464,261
17,400 Sony Corporation (JA) 767,826
----------
1,232,087
----------
CONSUMER FINANCE--0.8%
1,440 Orix Corporation (JA) 351,695
----------
DEPARTMENT STORES--0.5%
1,700 PPR SA (FR) 216,795
----------
DISTILLERS & VINTNERS--0.7%
18,300 Diageo PLC (UK) 307,763
----------
DIVERSIFIED BANKS--7.3%
82,600 Banca Intesa SPA (IT) 483,894
15,400 Banco Santander Central Hispano SA (SP) 224,953
19,919 Barclays PLC (UK) 226,336
5,607 BNP Paribas SA (FR) 536,818
34,300 Capitalia SPA (IT) 281,446
18,200 HBOS PLC (UK) 316,346
12,700 HSBC Holdings PLC (UK) 223,448
6,700 Royal Bank of Scotland Group PLC (UK) 220,277
3,900 Societe Generale (FR) 573,676
----------
3,087,194
----------
DIVERSIFIED CAPITAL MARKETS--2.4%
13,100 Credit Suisse Group (SZ) 732,897
2,470 UBS AG (SZ) 270,718
----------
1,003,615
----------
DIVERSIFIED CHEMICALS--1.2%
6,300 BASF AG (GE) 505,579
----------
DIVERSIFIED METALS & MINING--6.4%
53,400 BHP Billiton Limited (AU) 1,150,777
6,100 Teck Cominco Limited Class B (CA) 366,011
20,900 Vedanta Resources PLC (UK) 526,751
17,900 Xstrata PLC (UK) 678,532
----------
2,722,071
----------
ELECTRIC UTILITIES--1.8%
2,000 E.ON AG (GE) 230,238
104,300 International Power PLC (UK) 548,694
----------
778,932
----------
ELECTRICAL COMPONENTS & EQUIPMENT--2.1%
3,300 Schneider Electric SA (FR) 344,014
38,000 Sumitomo Electric Industries Limited (JA) 556,519
----------
900,533
----------
SEE NOTES TO STATEMENT OF INVESTMENTS.
13
<Page>
SHARES MARKET VALUE
- --------------------------------------------------------------------------------
ELECTRONIC EQUIPMENT MANUFACTURERS--0.5%
3,100 TDK Corporation (JA) $ 235,669
----------
FOOD RETAIL--1.0%
5,900 Delhaize Group (BE) 409,030
----------
HEAVY ELECTRICAL EQUIPMENT--1.2%
66,300 Mitsubishi Electric Corporation (JA) 531,257
----------
HOTELS, RESORTS & CRUISE LINES--0.6%
60,000 First Choice Holidays PLC (UK) 253,791
----------
HUMAN RESOURCE & EMPLOYMENT SERVICES--0.6%
36,300 Michael Page International PLC (UK) 235,265
----------
INDUSTRIAL MACHINERY--1.4%
9,600 Atlas Copco AB Class A (SW) 266,785
4,300 Man AG (GE) 311,747
----------
578,532
----------
INTEGRATED OIL & GAS--5.6%
35,100 BG Group PLC (UK) 468,930
83,819 BP PLC (UK) 977,217
7,200 Repsol YPF SA (SP) 206,201
7,400 Royal Dutch Shell PLC Class A (NE) 249,038
7,332 Total SA (FR) 482,517
----------
2,383,903
----------
INTEGRATED TELECOMMUNICATION SERVICES--2.8%
79,400 BT Group PLC (UK) 351,266
28,600 Telefonica SA (SP) 476,301
29,400 Telenor ASA (NW) 355,403
----------
1,182,970
----------
INVESTMENT BANKING & BROKERAGE--2.1%
33,300 Daiwa Securities Group, Inc. (JA) 396,900
25,600 Nomura Holdings, Inc. (JA) 479,832
----------
876,732
----------
LIFE & HEALTH INSURANCE--0.5%
7,200 Manulife Financial Corporation (CA) 228,132
----------
MOVIES & ENTERTAINMENT--1.6%
19,700 Vivendi SA (FR) 690,432
----------
MULTI-LINE INSURANCE--1.8%
16,200 Aviva PLC (UK) 229,310
3,900 Baloise Holding Limited (SZ) 299,693
1,100 Zurich Financial Services AG (SZ) 241,125
----------
770,128
----------
OFFICE ELECTRONICS--2.1%
18,000 Canon, Inc. (JA) 882,384
----------
OIL & GAS DRILLING--0.5%1
6,300 Precision Drilling Trust (CA) 209,379
----------
14
<Page>
SHARES MARKET VALUE
- --------------------------------------------------------------------------------
OIL & GAS EQUIPMENT & SERVICES--0.6%
12,000 Trican Well Service Limited (CA) $ 239,721
----------
OIL & GAS EXPLORATION & PRODUCTION--2.0%
19,200 Eni SPA (IT) 565,587
11,000 Norsk Hydro ASA (NW) 291,571
----------
857,158
----------
OTHER DIVERSIFIED FINANCIAL SERVICES--2.2%
24,200 ING Groep NV (NE) 951,223
----------
PACKAGED FOODS & MEATS--0.6%
790 Nestle SA Registered (SZ) 248,127
----------
PAPER PACKAGING--0.5%
25,500 Rengo Company Limited (JA) 192,743
----------
PHARMACEUTICALS--10.6%
4,000 AstraZeneca Group PLC (UK) 241,420
46,900 GlaxoSmithKline PLC (UK) 1,310,390
5,180 Merck KGaA (GE) 471,752
7,420 Roche Holding AG (SZ) 1,226,552
10,500 Sanofi-Aventis (FR) 1,024,751
3,500 Takeda Pharmaceuticals Company Limited (JA) 217,756
----------
4,492,621
----------
RAILROADS--1.1%
11,000 Canadian National Railway Company (CA) 480,480
----------
SEMICONDUCTOR EQUIPMENT--2.3%
7,000 Silicon-On-Insulator Technologies (FR)* 207,099
3,700 Sumco Corporation (JA) 210,800
8,000 Tokyo Electron Limited (JA) 559,245
----------
977,144
----------
SEMICONDUCTORS--0.4%
12,700 ATI Technologies, Inc. (CA)* 184,533
----------
SOFT DRINKS--0.9%
12,900 Coca-Cola Hellenic Bottling Company SA (GR) 384,459
----------
STEEL--0.8%
10,300 ThyssenKrupp AG (GE) 351,765
----------
TIRES & RUBBER--1.2%
5,100 Continental AG (GE) 522,003
----------
TOBACCO--1.8%
29,700 British American Tobacco PLC (UK) 747,992
----------
TRADING COMPANIES & DISTRIBUTORS--2.4%
30,900 Mitsubishi Corporation (JA) 616,974
28,000 Mitsui & Company Limited (JA) 395,386
----------
1,012,360
----------
SEE NOTES TO STATEMENT OF INVESTMENTS.
15
<Page>
SHARES MARKET VALUE
- --------------------------------------------------------------------------------
WIRELESS TELECOMMUNICATION SERVICES--1.8%
4,200 Bouygues SA (FR) $ 215,963
96,900 China Mobile Limited (HK) 553,978
-----------
769,941
-----------
TOTAL COMMON STOCKS (FOREIGN)
(COST--$30,853,577) 40,204,667
-----------
PREFERRED STOCKS (FOREIGN)--1.6%
HEALTHCARE EQUIPMENT--1.6%
3,970 Fresenius AG Preferred (GE) 661,108
-----------
TOTAL PREFERRED STOCKS (FOREIGN)
(COST--$597,066) 661,108
-----------
PRINCIPAL AMOUNT AMORTIZED COST
- --------------------------------------------------------------------------------
CORPORATE SHORT-TERM NOTES--3.3%
SPECIAL PURPOSE ENTITY--3.3%
$1,400,000 CAFCO LLC 5.33% 7/3/06~ $ 1,399,585
-----------
TOTAL CORPORATE SHORT-TERM NOTES
(AMORTIZED COST--$1,399,585) 1,399,585
-----------
TOTAL INVESTMENTS--99.4%
(TOTAL COST--$32,850,228) 42,265,360
-----------
OTHER ASSETS AND LIABILITIES--0.6% 268,894
-----------
NET ASSETS--100.0% $42,534,254
===========
NOTES TO STATEMENT OF INVESTMENTS
* NON-INCOME PRODUCING.
~ SECURITY WAS ACQUIRED PURSUANT TO SECTION 4(2) OF THE SECURITIES ACT OF
1933 AND MAY BE DEEMED TO BE RESTRICTED FOR RESALE. THESE SECURITIES
AMOUNTED TO $1,399,585, OR 3.3%, OF THE FUND'S NET ASSETS AS OF JUNE 30,
2006.
SEE NOTES TO FINANCIAL STATEMENTS.
16
<Page>
STATEMENT OF ASSETS AND LIABILITIES
June 30, 2006 (UNAUDITED)
ASSETS
- --------------------------------------------------------------------------------
Investment securities, at cost $ 32,850,228
-------------
Investment securities, at market 42,265,360
Cash 136,846
Foreign currency (cost $-759) 240
Cash used for collateral on futures 43,124
Receivables:
Investment securities sold 701,063
Capital shares sold 8,295
Dividends and interest 42,511
From adviser 18,424
Daily variation on futures contracts 17,207
Other assets 55,558
-------------
Total Assets 43,288,628
-------------
LIABILITIES
- --------------------------------------------------------------------------------
Payables and other accrued liabilities:
Investment securities purchased 608,512
Capital shares redeemed 53,801
Advisory fees 25,483
Shareholder servicing fees 7,998
Accounting fees 3,396
Distribution fees 4,428
Transfer agency fees 11,247
Custodian fees 325
To transfer agent 174
Directors' deferred compensation 11,874
Other 27,136
-------------
Total Liabilities 754,374
-------------
Net Assets $ 42,534,254
=============
COMPOSITION OF NET ASSETS
- --------------------------------------------------------------------------------
Capital (par value and paid-in surplus) $ 55,468,923
Undistributed net investment income 324,078
Accumulated net realized loss from security
and foreign currency transactions (22,723,251)
Net unrealized appreciation on investments
and foreign currency translation 9,464,504
-------------
Total $ 42,534,254
=============
SEE NOTES TO FINANCIAL STATEMENTS.
17
<Page>
CLASS A
- --------------------------------------------------------------------------------
Net Assets $27,669,809
Shares Outstanding 1,875,571
Net Asset Value, Redemption Price Per Share $ 14.75
Maximum offering price per share (net asset value
plus sales charge of 5.75% of offering price) $ 15.65
CLASS B
- --------------------------------------------------------------------------------
Net Assets $ 1,420,229
Shares Outstanding 98,937
Net Asset Value, Offering and Redemption Price (excluding
applicable contingent deferred sales charge) Per Share $ 14.35
CLASS C
- --------------------------------------------------------------------------------
Net Assets $ 587,589
Shares Outstanding 41,039
Net Asset Value, Offering and Redemption Price (excluding
applicable contingent deferred sales charge) Per Share $ 14.32
CLASS F
- --------------------------------------------------------------------------------
Net Assets $12,599,081
Shares Outstanding 852,522
Net Asset Value, Offering and Redemption Price Per Share $ 14.78
CLASS R
- --------------------------------------------------------------------------------
Net Assets $ 85,190
Shares Outstanding 5,711
Net Asset Value, Offering and Redemption Price Per Share $ 14.92
CLASS T
- --------------------------------------------------------------------------------
Net Assets $ 172,356
Shares Outstanding 11,759
Net Asset Value, Redemption Price Per Share $ 14.66
Maximum offering price per share (net asset value
plus sales charge of 4.50% of offering price) $ 15.35
SEE NOTES TO FINANCIAL STATEMENTS.
18
<Page>
STATEMENT OF OPERATIONS
For the six months ended June 30, 2006 (UNAUDITED)
INVESTMENT INCOME
- --------------------------------------------------------------------------------
Dividends $ 713,697
Interest 7,182
Foreign taxes withheld (88,224)
-----------
Total Investment Income 632,655
-----------
EXPENSES
- --------------------------------------------------------------------------------
Advisory fees--Note 2 211,190
Shareholder servicing fees--Note 2 48,854
Accounting fees--Note 2 21,117
Distribution fees--Note 2 24,454
Transfer agency fees--Note 2 27,974
Registration fees 31,030
Postage and mailing expenses 1,176
Custodian fees and expenses--Note 2 26,779
Printing expenses 16,570
Legal and audit fees 7,980
Directors' fees and expenses--Note 2 4,907
Other expenses 18,060
-----------
Total Expenses 440,091
Earnings Credits (2,305)
Reimbursed/Waived Expenses (127,244)
Expense Offset to Broker Commissions (6,075)
-----------
Net Expenses 304,467
-----------
Net Investment Income 328,188
-----------
REALIZED AND UNREALIZED GAIN (LOSS) ON SECURITY
TRANSACTIONS AND FOREIGN CURRENCY TRANSACTIONS
- --------------------------------------------------------------------------------
Net Realized Gain (Loss) on:
Security Transactions 4,603,253
Closing of Futures Contracts (46,414)
Foreign Currency Transactions 2,757
-----------
Net Realized Gain 4,559,596
Net Change in Unrealized Appreciation/Depreciation
of Investments and Foreign Currency Translation (1,005,526)
-----------
Net Realized and Unrealized Gain 3,554,070
-----------
Net Increase in Net Assets Resulting from Operations $ 3,882,258
===========
SEE NOTES TO FINANCIAL STATEMENTS.
19
<Page>
STATEMENTS OF CHANGES IN NET ASSETS
(UNAUDITED)
<Table>
<Caption>
SIX MONTHS ENDED YEAR ENDED
OPERATIONS JUNE 30, 2006 DECEMBER 31, 2005
- -----------------------------------------------------------------------------------------
Net Investment Income $ 328,188 $ 336,399
Net Realized Gain on Security and Foreign
Currency Transactions 4,559,596 3,931,706
Net Change in Unrealized Appreciation/Depreciation
of Investments and Foreign Currency Translation (1,005,526) 683,031
---------------- -----------------
Net Increase in Net Assets Resulting from
Operations 3,882,258 4,951,136
---------------- -----------------
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS
- -----------------------------------------------------------------------------------------
From Net Investment Income
Class A 0 (221,917)
Class B 0 (3,527)
Class C 0 (1,574)
Class F 0 (100,227)
Class R 0 (750)
Class T 0 (912)
---------------- -----------------
Net Decrease from Dividends and Distributions 0 (328,907)
---------------- -----------------
CAPITAL SHARE TRANSACTIONS
- -----------------------------------------------------------------------------------------
Net Increase (Decrease)--Note 4
Class A (346,830) (2,546,598)
Class B (729,564) (529,010)
Class C (50,302) 42,438
Class F (13,564) (729,040)
Class R 8,426 (4,365)
Class T 16,642 (48,533)
---------------- -----------------
Net Decrease from Capital Share Transactions (1,115,192) (3,815,108)
---------------- -----------------
Net Increase in Net Assets 2,767,066 807,121
---------------- -----------------
NET ASSETS
- -----------------------------------------------------------------------------------------
Beginning of Period $ 39,767,188 $38,960,067
---------------- -----------------
End of Period $ 42,534,254 $39,767,188
================ =================
Undistributed (Accumulated) Net Investment
Income (Loss) $ 324,078 $ (4,110)
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
20
<Page>
FINANCIAL HIGHLIGHTS
(UNAUDITED)
<Table>
<Caption>
SIX MONTHS YEAR ENDED
ENDED JUNE 30, DECEMBER 31,
2006 2005 2004 2003 2002
-------------- --------------------------------------
CLASS A SHARES
PER SHARE OPERATING DATA
Net Asset Value, beginning of period $ 13.44 $ 11.90 $ 9.77 $ 7.19 $ 10.03
- ------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.12 0.12 0.08 0.06 0.01
Net realized and unrealized gains (losses) on
securities 1.19 1.54 2.14 2.59 (2.84)
-------------------------------------------------------
Total from investment operations 1.31 1.66 2.22 2.65 (2.83)
- ------------------------------------------------------------------------------------------------------------
Less dividends and distributions:
From net investment income 0.00 (0.12) (0.09) (0.07) (0.01)
From net realized gains 0.00 0.00 0.00 0.00 0.00
-------------------------------------------------------
Total distributions 0.00 (0.12) (0.09) (0.07) (0.01)
- ------------------------------------------------------------------------------------------------------------
Net Asset Value, end of period $ 14.75 $ 13.44 $ 11.90 $ 9.77 $ 7.19
=======================================================
TOTAL RETURN(a) 9.75% 13.93% 22.69% 36.84% (28.19%)
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000s) $27,670 $25,519 $25,076 $22,432 $18,217
- ------------------------------------------------------------------------------------------------------------
Ratios to average net assets:
Expenses with reimbursements, but no earnings
credits or brokerage offsets(b) 1.44% 1.44% 1.42% 1.41% 1.40%
Expenses with reimbursements, earnings credits and
brokerage offsets 1.40% 1.40% 1.40% 1.40% 1.40%
Net investment income 1.60% 0.94% 0.74% 0.80% 0.13%
- ------------------------------------------------------------------------------------------------------------
Portfolio turnover rate(c) 68% 54% 85% 144% 220%
</Table>
(a.) SALES CHARGES ARE NOT REFLECTED IN THE TOTAL RETURN.
(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 2.00% (2006), 2.15% (2005), 2.05% (2004), 2.48%
(2003) AND 2.18% (2002).
(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.
21
<Page>
<Table>
<Caption>
SIX MONTHS YEAR ENDED
ENDED JUNE 30, DECEMBER 31,
2006 2005 2004 2003 2002
-------------- ------ ------ ------ ---------
CLASS B SHARES
PER SHARE OPERATING DATA
Net Asset Value, beginning of period $13.12 $11.63 $ 9.55 $ 7.03 $ 9.87
- -------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) 0.04(a) 0.02(a) 0.00(a, b) (0.08) (0.11)
Net realized and unrealized gains (losses) on
securities 1.19 1.49 2.08 2.61 (2.73)
--------------------------------------------------------------
Total from investment operations 1.23 1.51 2.08 2.53 (2.84)
- -------------------------------------------------------------------------------------------------------------------
Less dividends and distributions:
From net investment income 0.00 (0.02) 0.00 (0.01) 0.00
From net realized gains 0.00 0.00 0.00 0.00 0.00
--------------------------------------------------------------
Total distributions 0.00 (0.02) 0.00 (0.01) 0.00
- -------------------------------------------------------------------------------------------------------------------
Net Asset Value, end of period $14.35 $13.12 $11.63 $ 9.55 $ 7.03
==============================================================
TOTAL RETURN(c) 9.38% 13.02% 21.78% 35.95% (28.77%)
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000s) $1,420 $1,966 $2,281 $2,372 $ 2,201
- -------------------------------------------------------------------------------------------------------------------
Ratios to average net assets:
Expenses with reimbursements, but no earnings
credits or brokerage offsets(d) 2.18% 2.19% 2.16% 2.16% 2.16%
Expenses with reimbursements, earnings credits and
brokerage offsets 2.15% 2.15% 2.15% 2.15% 2.15%
Net investment income (loss) 0.63% 0.21% 0.00% 0.07% (0.61%)
- -------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate(e) 68% 54% 85% 144% 220%
</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.) 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 2.89% (2006), 3.04% (2005), 2.85% (2004), 3.32%
(2003) AND 2.91% (2002).
(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,
2006 2005 2004 2003 2002
-------------- ----------------------------------------
CLASS C SHARES
PER SHARE OPERATING DATA
Net Asset Value, beginning of period $13.09 $11.61 $ 9.53 $ 7.02 $ 9.86
- ----------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) 0.06(a) 0.02(a) 0.00(a),(b) (0.26) (0.29)
Net realized and unrealized gains
(losses) on securities 1.17 1.50 2.08 2.77 (2.55)
---------------------------------------------------------
Total from investment operations 1.23 1.52 2.08 2.51 (2.84)
- ----------------------------------------------------------------------------------------------------------
Less dividends and distributions:
From net investment income 0.00 (0.04) 0.00 0.00 0.00
From net realized gains 0.00 0.00 0.00 0.00 0.00
---------------------------------------------------------
Total distributions 0.00 (0.04) 0.00 0.00 0.00
- ----------------------------------------------------------------------------------------------------------
Net Asset Value, end of period $14.32 $13.09 $11.61 $ 9.53 $ 7.02
=========================================================
TOTAL RETURN(c) 9.40% 13.05% 21.83% 35.76% (28.80%)
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000s) $ 588 $ 584 $ 476 $ 482 $ 532
- ----------------------------------------------------------------------------------------------------------
Ratios to average net assets:
Expenses with reimbursements, but
no earnings credits or brokerage offsets(d) 2.19% 2.20% 2.16% 2.16% 2.16%
Expenses with reimbursements,
earnings credits and brokerage offsets 2.15% 2.15% 2.15% 2.15% 2.15%
Net investment income (loss) 0.82% 0.14% 0.03% 0.08% (0.63%)
- ----------------------------------------------------------------------------------------------------------
Portfolio turnover rate(e) 68% 54% 85% 144% 220%
</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.) 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 2.75% (2006), 2.94% (2005), 2.87% (2004), 3.25%
(2003) AND 3.11% (2002).
(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,
2006 2005 2004 2003 2002
-------------- -------------------------------------
CLASS F SHARES
PER SHARE OPERATING DATA
Net Asset Value, beginning of period $ 13.46 $ 11.92 $ 9.78 $ 7.18 $ 10.03
- -------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) 0.12 0.11(a) 0.08(a) (0.01) (0.05)
Net realized and unrealized gains (losses) on
securities 1.20 1.55 2.14 2.68 (2.79)
------------------------------------------------------
Total from investment operations 1.32 1.66 2.22 2.67 (2.84)
- -------------------------------------------------------------------------------------------------------
Less dividends and distributions:
From net investment income 0.00 (0.12) (0.08) (0.07) (0.01)
From net realized gains 0.00 0.00 0.00 0.00 0.00
------------------------------------------------------
Total distributions 0.00 (0.12) (0.08) (0.07) (0.01)
- -------------------------------------------------------------------------------------------------------
Net Asset Value, end of period $ 14.78 $ 13.46 $ 11.92 $ 9.78 $ 7.18
======================================================
TOTAL RETURN 9.81% 13.91% 22.70% 37.17% (28.30%)
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000s) $12,599 $11,485 $10,885 $9,837 $ 9,321
- -------------------------------------------------------------------------------------------------------
Ratios to average net assets:
Expenses with reimbursements, but no earnings
credits or brokerage offsets(b) 1.44% 1.44% 1.41% 1.40% 1.40%
Expenses with reimbursements, earnings credits
and brokerage offsets 1.40% 1.40% 1.40% 1.40% 1.40%
Net investment income 1.61% 0.92% 0.76% 0.80% 0.12%
- -------------------------------------------------------------------------------------------------------
Portfolio turnover rate(c) 68% 54% 85% 144% 220%
</Table>
(a.) COMPUTED USING AVERAGE SHARES OUTSTANDING THROUGHOUT THE PERIOD.
(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 2.13% (2006), 2.28% (2005), 2.10% (2004), 2.52%
(2003) AND 2.13% (2002).
(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.
24
<Page>
<Table>
<Caption>
SIX MONTHS YEAR ENDED
ENDED JUNE 30, DECEMBER 31,
2006 2005 2004 2003 2002
-------------- ------------------------------------
CLASS R SHARES
PER SHARE OPERATING DATA
Net Asset Value, beginning of period $13.57 $12.01 $ 9.82 $ 7.22 $ 10.08
- ------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.14(a) 0.14(a) 0.13(a) 0.09 0.02
Net realized and unrealized gains (losses) on
securities 1.21 1.57 2.17 2.60 (2.85)
-----------------------------------------------------
Total from investment operations 1.35 1.71 2.30 2.69 (2.83)
- ------------------------------------------------------------------------------------------------------
Less dividends and distributions:
From net investment income 0.00 (0.15) (0.11) (0.09) (0.03)
From net realized gains 0.00 0.00 0.00 0.00 0.00
-----------------------------------------------------
Total distributions 0.00 (0.15) (0.11) (0.09) (0.03)
- ------------------------------------------------------------------------------------------------------
Net Asset Value, end of period $14.92 $13.57 $12.01 $ 9.82 $ 7.22
=====================================================
TOTAL RETURN 9.95% 14.22% 23.45% 37.27% (28.10%)
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000s) $ 85 $ 70 $ 66 $3,146 $ 2,470
- ------------------------------------------------------------------------------------------------------
Ratios to average net assets:
Expenses with reimbursements, but no earnings
credits or brokerage offsets(b) 1.19% 1.20% 1.15% 1.15% 1.16%
Expenses with reimbursements, earnings credits
and brokerage offsets 1.15% 1.15% 1.15% 1.15% 1.15%
Net investment income 1.92% 1.15% 1.21% 1.03% 0.27%
- ------------------------------------------------------------------------------------------------------
Portfolio turnover rate(c) 68% 54% 85% 144% 220%
</Table>
(a.) COMPUTED USING AVERAGE SHARES OUTSTANDING THROUGHOUT THE PERIOD.
(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 1.99% (2006), 3.35% (2005), 1.65% (2004), 1.95%
(2003) AND 1.71% (2002).
(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,
2006 2005 2004 2003 2002
-------------- -------------------------------------------
CLASS T SHARES
PER SHARE OPERATING DATA
Net Asset Value, beginning of period $13.37 $11.84 $ 9.70 $ 7.14 $ 9.97
- -------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) 0.10(b) 0.08(b) 0.06(b) 0.00(a) (0.10)
Net realized and unrealized gains
(losses) on securities 1.19 1.54 2.11 2.61 (2.73)
------------------------------------------------------------
Total from investment operations 1.29 1.62 2.17 2.61 (2.83)
- -------------------------------------------------------------------------------------------------------------
Less dividends and distributions:
From net investment income 0.00 (0.09) (0.03) (0.05) 0.00
From net realized gains 0.00 0.00 0.00 0.00 0.00
------------------------------------------------------------
Total distributions 0.00 (0.09) (0.03) (0.05) 0.00
- -------------------------------------------------------------------------------------------------------------
Net Asset Value, end of period $14.66 $13.37 $11.84 $ 9.70 $ 7.14
============================================================
TOTAL RETURN(c) 9.65% 13.65% 22.42% 36.58% (28.39%)
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000s) $ 172 $ 143 $ 175 $ 172 $ 158
- -------------------------------------------------------------------------------------------------------------
Ratios to average net assets:
Expenses with reimbursements, but
no earnings credits or brokerage offsets(d) 1.69% 1.69% 1.66% 1.65% 1.65%
Expenses with reimbursements,
earnings credits and brokerage offsets 1.65% 1.65% 1.65% 1.65% 1.65%
Net investment income (loss) 1.43% 0.67% 0.57% 0.67% (0.12%)
- -------------------------------------------------------------------------------------------------------------
Portfolio turnover rate(e) 68% 54% 85% 144% 220%
</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.) 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 2.54% (2006), 2.81% (2005), 2.44% (2004), 2.88%
(2003) AND 4.00% (2002).
(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, 2006 (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).
Effective June 1, 2006, Class B shares will no longer be offered except in
connection with dividend reinvestments and permitted exchanges of Class B
shares. 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. New York closing exchange rates are used to convert foreign
currencies to U.S. dollars.
A debt security with a remaining maturity greater than 60 days at the time of
purchase is valued in accordance with the evaluated bid price supplied by a
pricing service approved by the Company's board of directors or, if such price
is not available, at the mean between the highest bid and lowest asked
quotations obtained from at least two securities dealers. A debt security with a
remaining maturity of 60 days or less at the time of purchase is valued at
amortized cost, which approximates market value, unless it is determined that
amortized cost would not represent market value, in which case the securities
would be marked to market. The Fund amortizes premiums and discounts on all debt
securities.
If market quotations 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 requires the use of estimates, and as such,
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--The Fund normally will invest a
large portion of its assets in foreign securities. Foreign securities carry more
risk than U.S. securities, such as political and currency risks. 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 Fund
could be exposed to risk if counterparties are unable to meet the terms of the
contracts or if the value of the currency changes unfavorably to the U.S.
dollar. 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, 2006 for settling
foreign trades is listed on the Statement of Assets and Liabilities.
The accounting records of the Fund are maintained in U.S. dollars. The market
values of foreign securities, currency holdings and other assets and liabilities
are translated into U.S. dollars based on the current exchange rates each
business day. 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 unrealized gain or loss from investments and foreign
currency translations on the Statement of Operations.
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
28
<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 Subchapter M 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 from
net investment income (if any) and from net realized capital gains (if any)
annually. Dividends and distributions, which are determined in accordance with
income tax regulations, are recorded on the ex-dividend date.
EXPENSES--Each Class of the Fund bears expenses incurred specifically on its
behalf and, in addition, each Class bears a portion of general expenses based on
the relative net assets or the number of shareholder accounts of the Class. The
type of expense determines the allocation method.
The Company's board of directors has authorized the payment of certain Fund
expenses with commissions on Fund portfolio transactions. These commissions
reduce Other Expenses and are included in the Expense Offset to Broker
Commissions in the Statement of Operations.
USE OF ESTIMATES--The preparation of financial statements in conformity with
accounting principles generally accepted in the United States of America
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported amounts of
income and expenses during the reporting period. Actual results could differ
from those estimates.
INDEMNIFICATIONS--In the normal course of business, the Company enters into
contracts that contain provisions indemnifying other parties against specified
potential liabilities. Each Fund's maximum exposure under these arrangements is
unknown as this would involve future claims that may be made against the Fund
that have not yet occurred. However, based on experience, the Funds expect the
risk of loss to be remote.
OTHER--Certain prior year information has been reformatted, without substantive
change, to conform with the current year presentation.
29
<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
1.00% of the first $250 million of net assets, 0.80% of the next $250 million of
net assets, and 0.70% of net assets in excess of $500 million.
Founders has agreed to waive a portion of its management fee and to limit the
total expenses of the Fund. Founders agreed to waive that portion of its
management fee that exceeds 0.75% of the Fund's average net assets and to limit
the annual expenses of the Fund (net of credits received from the Fund's
custodian 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 period ended June 30, 2006, $111,070 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 period ended June 30, 2006,
Class F shares were charged $11,711 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 period ended June 30, 2006, Class F shares were
charged $4,643 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 $12.92 to $13.36, 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
30
<Page>
fees, including both the per account fees paid to DTI and out-of-pocket charges,
during the period ended June 30, 2006 were as follows:
TRANSFER
AGENCY FEES
---------------------
Class A $17,561
---------------------
Class B $ 2,443
---------------------
Class C $ 390
---------------------
Class R $ 148
---------------------
Class T $ 340
---------------------
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 processing of shareholder transactions in the Funds.
During the period ended June 30, 2006, the Fund was charged $296 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 period ended June
30, 2006, the Fund paid $2,449 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 period ended June 30,
2006, Class F shares were charged $15,555 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,
31
<Page>
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 period ended June 30, 2006, were as follows:
DISTRIBUTION SHAREHOLDER
FEES SERVICING FEES
---------------------------------------
Class A N/A $34,042
---------------------------------------
Class B $6,451 $ 2,150
---------------------------------------
Class C $2,245 $ 748
---------------------------------------
Class T $ 203 $ 203
---------------------------------------
During the period ended June 30, 2006, DSC retained $630 and $317 in sales
commissions from the sales of Class A and Class T shares, respectively. DSC also
retained $2,060 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 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, which are shown as earnings credits on the
Statement of Operations. 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
period and in the amount set forth below:
TIME PERIOD AMOUNT OF WAIVER
------------------------------------
9/1/05 to 8/31/06 $200,000
------------------------------------
The fee waiver is allocated among the Funds in proportion to their respective
shares of the total custodian fee. For the period ended June 30, 2006, the
Fund's portion of the fee waiver was $16,174, which reduced the amount paid to
Mellon Bank to $10,605.
32
<Page>
DIRECTORS COMPENSATION--The Company's board of directors has adopted a deferred
compensation plan for Company directors that enables directors to elect to defer
receipt of all or a portion of the annual compensation that they are entitled to
receive from the Company. Under the plan, the compensation deferred is 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 Directors'
Deferred Compensation on the Statement of Assets and Liabilities. Changes in
market value are included in the Directors' fees and expenses and the net change
in unrealized appreciation/depreciation of investments on the Statement of
Operations. 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
or its affiliates, which pay 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, deferred compensation 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, 2005 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, 2005 were:
EXPIRATION AMOUNT
------------------------
2008 $ 3,805,803
------------------------
2009 $10,099,981
------------------------
2010 $ 5,986,171
------------------------
2011 $ 7,339,094
------------------------
$27,231,049
===========
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, 2006 are noted below. Unrealized appreciation/depreciation in the table
below excludes
33
<Page>
appreciation/depreciation on foreign currency translation, if any. The primary
difference between book and tax appreciation or depreciation is wash sale loss
deferrals.
-----------------------------------------------------
Post-October Capital Loss Deferral $ (2,188)
-----------------------------------------------------
Undistributed Ordinary Income $ 4,737
-----------------------------------------------------
Federal Tax Cost $ 32,900,895
-----------------------------------------------------
Gross Tax Appreciation of Investments $ 9,798,894
-----------------------------------------------------
Gross Tax Depreciation of Investments $ (434,429)
-----------------------------------------------------
Net Tax Appreciation $ 9,364,465
-----------------------------------------------------
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>
PERIOD ENDED YEAR ENDED
JUNE 30, 2006 DECEMBER 31, 2005
SHARES AMOUNT SHARES AMOUNT
CLASS A
- ----------------------------------------------------------------------------------------
Sold 93,370 $ 1,342,179 48,763 $ 599,013
Dividends or Distributions Reinvested 0 $ 0 15,907 $ 210,698
Redeemed (116,978) $(1,689,009) (272,133) $(3,356,309)
------------------------------------------------
Net Decrease (23,608) $ (346,830) (207,463) $(2,546,598)
================================================
CLASS B
- ----------------------------------------------------------------------------------------
Sold 15,057 $ 210,994 22,161 $ 266,981
Dividends or Distributions Reinvested 0 $ 0 212 $ 2,770
Redeemed (66,005) $ (940,558) (68,649) $ (798,761)
------------------------------------------------
Net Decrease (50,948) $ (729,564) (46,276) $ (529,010)
================================================
CLASS C
- ----------------------------------------------------------------------------------------
Sold 1,112 $ 16,180 13,942 $ 162,011
Dividends or Distributions Reinvested 0 $ 0 52 $ 684
Redeemed (4,726) $ (66,482) (10,373) $ (120,257)
------------------------------------------------
Net Increase (Decrease) (3,614) $ (50,302) 3,621 $ 42,438
================================================
CLASS F
- ----------------------------------------------------------------------------------------
Sold 125,549 $ 1,824,959 129,124 $ 1,589,753
Dividends or Distributions Reinvested 0 $ 0 7,163 $ 95,978
Redeemed (126,235) $(1,838,523) (196,116) $(2,414,771)
------------------------------------------------
Net Decrease (686) $ (13,564) (59,829) $ (729,040)
================================================
</Table>
34
<Page>
PERIOD ENDED YEAR ENDED
JUNE 30, 2006 DECEMBER 31, 2005
SHARES AMOUNT SHARES AMOUNT
CLASS R
- --------------------------------------------------------------------------------
Sold 574 $ 8,426 75 $ 1,000
Dividends or Distributions Reinvested 0 $ 0 55 $ 750
Redeemed 0 $ 0 (518) $ (6,115)
-------------------------------------
Net Increase (Decrease) 574 $ 8,426 (388) $ (4,365)
=====================================
CLASS T
- --------------------------------------------------------------------------------
Sold 1,392 $20,779 111 $ 1,276
Dividends or Distributions Reinvested 0 $ 0 66 $ 881
Redeemed (297) $(4,137) (4,290) $(50,690)
-------------------------------------
Net Increase (Decrease) 1,095 $16,642 (4,113) $(48,533)
=====================================
5. INVESTMENT TRANSACTIONS
For the period ended June 30, 2006, purchases and sales of investment securities
(excluding short-term securities and U.S. government obligations) were
$16,578,034 and $18,355,359, respectively.
6. FUTURES CONTRACTS
The Fund may invest in financial futures contracts in order to gain exposure to
or protect against changes in the market. The Fund is exposed to market risk as
a result of changes in the value of the underlying financial instruments.
Investments in financial futures require the Fund to mark to market on a daily
basis, which reflects the change in market value of the contracts at the close
of each day's trading. Accordingly, variation margin payments are received or
made to reflect daily unrealized gains or losses. When the contracts are closed,
the Fund recognizes a realized gain or loss. These investments require initial
margin deposits with a broker, which consist of cash or cash equivalents.
Contracts open at June 30, 2006 are as follows:
UNREALIZED
CONTRACTS MARKET VALUE EXPIRATION APPRECIATION
- ----------------------------------------------------------------------------
CONTRACTS TO PURCHASE
- ----------------------------------------------------------------------------
MSCI Pan Euro 28 $ 774,889 9/15/06 $32,250
- ----------------------------------------------------------------------------
Topix Index 2 $ 277,787 9/7/06 $ 6,960
- ----------------------------------------------------------------------------
$1,052,676 $39,210
========== =======
35
<Page>
7. 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, 2006, the Fund did not have any borrowings under the LOC.
36
<Page>
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<Page>
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<Page>
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<Page>
DREYFUS FOUNDERS INTERNATIONAL EQUITY FUND
P.O. Box 55360
Boston, MA 02205-8252
1-800-525-2440
www.founders.com
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, 2006, 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)2006 Founders Asset Management LLC. 8/06
0381SA0606
<Page>
SEMIANNUAL REPORT
DREYFUS FOUNDERS
MID-CAP GROWTH FUND
INVESTMENT UPDATE
JUNE 30, 2006
DREYFUS FOUNDERS FUNDS(R)
THE GROWTH SPECIALISTS
<Page>
TABLE OF CONTENTS
Management Overview 3
Fund Expenses 10
Statement of Investments 12
Statement of Assets and Liabilities 16
Statement of Operations 18
Statements of Changes in Net Assets 19
Financial Highlights 20
Notes to Financial Statements 26
PAPERLESS DELIVERY OF THIS REPORT
Did you know you can reduce your postal mail by accessing Dreyfus
Founders Funds regulatory material online? It's a simple, reliable process:
when new documents such as this 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
Founders Asset Management LLC
A MELLON FINANCIAL COMPANY(SM)
210 University Boulevard, Suite 800
Denver, CO 80206
DISTRIBUTOR
Dreyfus Service Corporation
200 Park Avenue
New York, NY 10166
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, 2006. The amounts of
these holdings are included in the Statement of Investments.
NOT FDIC-INSURED - NOT BANK-GUARANTEED - MAY LOSE VALUE
<Page>
MANAGEMENT OVERVIEW
(UNAUDITED)
[PHOTO OF DANIEL CROWE]
A DISCUSSION WITH PORTFOLIO MANAGER DANIEL CROWE, CFA, REGARDING FUND
PERFORMANCE FOR THE SIX-MONTH PERIOD ENDED JUNE 30, 2006.
MARKET GAINS WANED AS PERIOD ENDS
The majority of growth indexes started the year with significant gains based on
strong corporate earnings growth and a belief that the Federal Reserve was near
the end of its tightening cycle. However, most of these gains were reversed
during the latter part of the period, due to three main factors. Firstly, signs
of increased inflation based on consumer price index (CPI) data and continued
price increases for many commodities, especially oil, negatively affected the
market. Secondly, investors became concerned with not only whether the Federal
Reserve's inflation fighting credentials were strong, but also that the Fed was
using backward-looking data in its rate decisions, and that this could
potentially lead to higher interest rates, causing a recession. Lastly, housing
prices began to weaken, and the potential impact of this on consumer spending
and the economy as a whole played a part in the market reversal.
For the six-month period ended June 30, 2006, midcap growth indexes
registered modest gains, while large-cap growth indexes realized small declines.
Dreyfus Founders Mid-Cap Growth Fund outperformed its benchmark, the Russell
Midcap Growth Index, which returned 2.56% for the six-month period.
PORTFOLIO COMPOSITION SHIFTS
Although there were no significant changes to the number of holdings or the cash
level of the Fund, exposure to the information technology sector was modestly
increased toward the end of the period, based on more reasonable valuations and
company-specific opportunities. This shift, however, had a minimal impact on the
relative performance of the Fund.
3
<Page>
During the period, we also chose to not hold any positions in home building
firms due to concerns regarding increased interest rates and signs of rampant
speculation in many housing markets.
STRONG STOCK SELECTION BOOSTED RELATIVE PERFORMANCE
The Fund's relative outperformance during the first half of the year was mainly
attributable to strong stock selection, primarily within the materials,
industrials, information technology, financials and health care sectors, and to
a lesser extent by an overweight relative position in the materials sector.
"THE FUND'S RELATIVE OUTPERFORMANCE WAS MAINLY ATTRIBUTABLE TO STRONG STOCK
SELECTION."
SECTORS BENEFITING THE FUND
Materials
Health Care
Information Technology
As referred to above, solid stock picking in the materials sector, paired
with a substantial overweight position, provided the largest boon to the Fund's
relative performance for the period. Among some of the more notable materials
issues held by the Fund were Allegheny Technologies and Nucor Corporation.
Allegheny delivered robust earnings based on strong demand for high-performance
metals, an improvement within the company's flat-rolled products, and
substantial operating leverage due to continued cost-reduction efforts by the
company. Nucor's stock price increased on an improved outlook for the steel
industry. Industry consolidation has led to a better pricing environment and
greater earnings stability; the company increased its earnings guidance for the
first quarter based on improved pricing within the steel industry.
Strong performing industrials stocks also aided the Fund's return, as did
select health care, industrials and consumer discretionary names. Pharmaceutical
development company Covance, Inc. experienced strong earnings momentum in the
first half of 2006, driven by increased demand for its drug research and
development (R&D) services. Underlying market growth was driven by the trend
towards outsourcing more pharmaceutical R&D spending to companies like Covance,
rather than large drug companies doing in-house R&D.
Commercial printing company CENVEO, INC.'s stock price saw an increase
during the period as the company's new management team substantially improved
Cenveo's cost structure, allowing the company to move from a loss
4
<Page>
in 2005 to substantial positive earnings and cash flow in 2006. Strong revenue
growth for THOMAS AND BETTS CORPORATION'S electrical business drove strong
operating leverage, which led analysts to substantially increase earnings
estimates for the company for the rest of the year.
Consumer discretionary issue SCIENTIFIC GAMES CORPORATION saw its share
price appreciate during the period due to new instant lottery business contracts
and a greater appreciation for potential earnings growth from various
international opportunities.
The Fund's performance also benefited from a settlement payment received by
the Fund in a class action lawsuit related to prior Fund investments.
SELECT SECURITIES WEIGHED ON FUND PERFORMANCE
Poor overall stock picking in the energy sector, combined with an underweight
position, did not prove advantageous to the Fund's relative performance for the
period. Energy stock PATTERSON-UTI ENERGY, INC. contributed to the Fund's
underperformance in this sector. Declines in the price of natural gas led to
investor concern that the company's profitability would begin to decline after
years of increases.
As mentioned above, although relative stock selection in the health care,
information technology and consumer discretionary sectors produced a positive
impact for the Fund, select holdings within these sectors underperformed. A
provider of pharmacy services to long-term care institutions, OMNICARE, INC.'s
share price declined due to a number of near-term concerns including Part D
LARGEST EQUITY HOLDINGS (ticker symbol)
1. MICROS SYSTEMS, INC. (MCRS) 3.28%
2. HARMAN INTERNATIONAL INDUSTRIES, INC. (HAR) 3.25%
3. BALL CORPORATION (BLL) 3.20%
4. CENVEO, INC. (CVO) 2.88%
5. THERAVANCE, INC. (THRX) 2.82%
6. DADE BEHRING HOLDINGS, INC. (DADE) 2.81%
7. SHIRE PLC ADR (SHP) 2.74%
8. SEAGATE TECHNOLOGY (SGAT) 2.58%
9. OMNICARE, INC. (OCR) 2.55%
10. ALLEGHENY TECHNOLOGIES, INC. (ATI) 2.45%
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]
<Table>
<Caption>
DREYFUS FOUNDERS
MID-CAP GROWTH RUSSELL MID-CAP
FUND-CLASS F GROWTH INDEX
6/28/1996 $10,000.00 $10,000.00
6/30/1997 $11,441.86 $11,759.33
6/30/1998 $13,735.19 $14,583.46
6/30/1999 $13,143.09 $17,545.58
6/30/2000 $18,150.31 $26,071.41
6/29/2001 $11,627.73 $17,856.29
6/28/2002 $ 9,024.07 $13,153.48
6/30/2003 $ 8,905.72 $14,120.31
6/30/2004 $11,243.10 $17,978.97
6/30/2005 $12,397.00 $19,932.29
6/30/2006 $15,592.40 $22,531.45
</Table>
The above graph compares a $10,000 investment made in Class F shares of Dreyfus
Founders Mid-Cap Growth Fund on 6/30/96 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 6/30/06
<Table>
<Caption>
YEAR-TO- SINCE
CLASS (INCEPTION DATE) DATE+ 1 YEAR 5 YEARS 10 YEARS INCEPTION
- ----------------------------------------------------------------------------------
A SHARES (12/31/99)
With sales charge (5.75%) 3.82% 18.35% 4.25% -- (2.46%)
Without sales charge 10.26% 25.55% 5.49% -- (1.57%)
B SHARES (12/31/99)
With redemption* 5.60% 20.30% 4.49% -- (2.26%)
Without redemption 9.60% 24.30% 4.82% -- (2.26%)
C SHARES (12/31/99)
With redemption** 8.95% 23.62% 4.61% -- (2.41%)
Without redemption 9.95% 24.62% 4.61% -- (2.41%)
F SHARES (9/8/61) 10.25% 25.78% 6.04% 4.54% N/A
R SHARES (12/31/99) 10.36% 26.09% 5.73% -- (1.40%)
T SHARES (12/31/99)
With sales charge (4.50%) 4.74% 18.83% 3.46% -- (3.14%)
Without sales charge 9.71% 24.30% 4.39% -- (2.45%)
</Table>
Average annual and year-to-date total returns do not reflect the deduction of
taxes that a shareholder would pay on Fund distributions or redemption of Fund
shares, but do reflect the reinvestment of dividends and capital gain
distributions, 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>
Medicare pricing and regulatory investigations by the attorneys general of the
states of Ohio and Michigan.
Softness within the personal computer market led to a decline in SEAGATE
TECHNOLOGIES, INC.'s stock price during the period, as investors were not
willing to value the potential future synergies from the company's acquisition
of Maxtor Corporation. Furthermore, investors remained skeptical that a more
consolidated industry would lead to a more stable pricing environment. A product
transition cycle within the video gaming industry led to lower-than-expected
sales and earnings for ACTIVISION, INC. Increases in game development costs also
impacted near-term earnings for the company.
SECTORS DETRACTING FROM THE FUND
Energy
Consumer Staples
Utilities
Consumer discretionary holding ADVANCED AUTO PARTS, INC.'s share price
weakness in the first half of 2006 was caused by a shortfall in revenues and
earnings. Weakness in the low-end consumer market, coupled with tough
year-over-year comparisons, caused the company to lower guidance. Consumer
product provider JARDEN CORPORATION experienced a difficult fourth quarter of
2005, which impacted its share price in the first quarter of 2006. Issues
associated with the company's integration of the Holmes(R) and FoodSaver(R)
businesses into its consumer solutions segment plagued the company's stock.
Specific issues included a decrease in orders for the Holmes products due to a
less lenient return policy because of the integration. Additionally, Jarden
faced raw materials pressures, which outpaced the rate of price increases,
causing margin contraction. Publisher R.H. DONNELLEY CORPORATION underperformed
in the first half of 2006 on investor concerns over competitive threats via the
Internet and integration risks presented by the
PORTFOLIO COMPOSITION OF NET ASSETS
[CHART]
<Table>
23.35% Information Technology
20.07% Health Care
16.26% Consumer Discretionary
10.18% Industrials
7.51% Materials
7.32% Energy
6.79% Financials
3.22% Telecommunicatn Services
1.20% Consumer Staples
4.10% Cash & Equivalents
</Table>
The Fund's portfolio composition is subject to change, and there is no assurance
the Fund will continue to hold any particular security. Opinions regarding
sectors, industries, companies, and/or themes are those of the portfolio manager
and are subject to change at any time, based on market and other conditions, and
should not be construed as a recommendation of any specific security.
8
<Page>
recent acquisition of Dex Media, Inc. A highly leveraged balance sheet
exacerbated these concerns.
As we head into the second half of 2006, the Fund was slightly more
aggressively positioned. Weakness during the second quarter of 2006 led to
attractive entry points for some information technology companies, as well as
for some companies that we believe have strong long-term positioning in
attractive growth markets.
In conclusion, we will continue to focus on our bottom-up investment
process and will work diligently to seek the most attractive mix of potential
reward and limited risk.
/s/ Daniel Crowe
- -------------------------------------
Daniel Crowe, 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, 2006
and held through June 30, 2006.
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, together with the amount you
invested, 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
BEGINNING ENDING EXPENSES PAID
ACCOUNT VALUE ACCOUNT VALUE DURING PERIOD*
(1/1/06) (6/30/06) (1/1/06-6/30/06)
- -----------------------------------------------------------------------
CLASS A ACTUAL $1,000.00 $1,102.60 $ 6.88
CLASS A HYPOTHETICAL 1,000.00 1,018.17 6.63
CLASS B ACTUAL 1,000.00 1,096.00 11.75
CLASS B HYPOTHETICAL 1,000.00 1,013.45 11.35
CLASS C ACTUAL 1,000.00 1,099.50 11.19
CLASS C HYPOTHETICAL 1,000.00 1,014.00 10.79
CLASS F ACTUAL 1,000.00 1,102.50 6.83
CLASS F HYPOTHETICAL 1,000.00 1,018.22 6.58
CLASS R ACTUAL 1,000.00 1,103.60 5.58
CLASS R HYPOTHETICAL 1,000.00 1,019.42 5.37
CLASS T ACTUAL 1,000.00 1,097.10 11.23
CLASS T HYPOTHETICAL 1,000.00 1,013.95 10.84
* 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.
EXPENSE RATIO
- -----------------------
CLASS A 1.32%
CLASS B 2.26%
CLASS C 2.15%
CLASS F 1.31%
CLASS R 1.07%
CLASS T 2.16%
11
<Page>
STATEMENT OF INVESTMENTS
June 30, 2006 (UNAUDITED)
SHARES MARKET VALUE
- --------------------------------------------------------------------------------
COMMON STOCKS (DOMESTIC)--87.2%
ADVERTISING--1.6%
43,500 R.H. Donnelley Corporation* $2,352,045
----------
AIRLINES--1.4%
82,000 AMR Corporation* 2,084,440
----------
ALTERNATIVE CARRIERS--1.5%
500,000 Level 3 Communications, Inc.* 2,220,000
----------
APPLICATION SOFTWARE--5.0%
166,000 Altiris, Inc.* 2,994,640
160,000 BEA Systems, Inc.* 2,094,400
87,500 Blackboard, Inc.* 2,534,000
----------
7,623,040
----------
ASSET MANAGEMENT & CUSTODY BANKS--0.9%
13,000 Legg Mason, Inc. 1,293,760
----------
AUTOMOTIVE RETAIL--1.4%
71,500 Advance Auto Parts, Inc. 2,066,350
----------
BIOTECHNOLOGY--2.8%
100,000 Senomyx, Inc.* 1,443,000
75,500 Vertex Pharmaceuticals, Inc.* 2,771,605
----------
4,214,605
----------
CASINOS & GAMING--3.1%
80,000 Scientific Games Corporation* 2,849,600
24,200 Wynn Resorts Limited* 1,773,860
----------
4,623,460
----------
COMMERCIAL PRINTING--2.9%
242,000 Cenveo, Inc.* 4,343,900
----------
COMMUNICATIONS EQUIPMENT--1.0%
585,000 JDS Uniphase Corporation* 1,480,050
----------
COMPUTER HARDWARE--1.7%
64,000 Diebold, Inc. 2,599,680
----------
COMPUTER STORAGE & PERIPHERALS--2.6%
172,000 Seagate Technology* 3,894,080
----------
CONSTRUCTION, FARM MACHINERY & HEAVY TRUCKS--2.3%
155,000 JLG Industries, Inc. 3,487,500
----------
CONSUMER ELECTRONICS--3.3%
57,500 Harman International Industries, Inc. 4,908,775
----------
DATA PROCESSING & OUTSOURCED SERVICES--0.9%
36,000 Paychex, Inc. 1,403,280
----------
ELECTRICAL COMPONENTS & EQUIPMENT--1.1%
33,450 Thomas and Betts Corporation* 1,715,985
----------
12
<Page>
SHARES MARKET VALUE
- --------------------------------------------------------------------------------
ELECTRONIC EQUIPMENT MANUFACTURERS--3.1%
100,000 Agilent Technologies, Inc.* $3,156,000
71,600 FLIR Systems, Inc.* 1,579,496
----------
4,735,496
----------
GENERAL MERCHANDISE STORES--1.0%
60,500 Family Dollar Stores, Inc. 1,478,015
----------
HEALTHCARE EQUIPMENT--1.6%
21,000 Intuitive Surgical, Inc.* 2,477,370
----------
HEALTHCARE SERVICES--2.6%
81,200 Omnicare, Inc. 3,850,504
----------
HEALTHCARE SUPPLIES--4.8%
102,000 Dade Behring Holdings, Inc. 4,247,280
49,700 DENTSPLY International, Inc. 3,011,820
----------
7,259,100
----------
HOME ENTERTAINMENT SOFTWARE--1.0%
130,500 Activision, Inc.* 1,485,090
----------
HOME FURNISHING RETAIL--2.2%
99,500 Bed Bath & Beyond, Inc.* 3,300,415
----------
HOUSEWARES & SPECIALTIES--1.7%
86,500 Jarden Corporation* 2,633,925
----------
METAL & GLASS CONTAINERS--3.2%
130,500 Ball Corporation 4,833,720
----------
MOVIES & ENTERTAINMENT--2.1%
157,000 Live Nation* 3,196,520
----------
OIL & GAS DRILLING--1.0%
54,000 Patterson-UTI Energy, Inc. 1,528,740
----------
OIL & GAS EQUIPMENT & SERVICES--3.8%
93,500 BJ Services Company 3,483,810
46,000 Weatherford International Limited* 2,282,520
----------
5,766,330
----------
OIL & GAS EXPLORATION & PRODUCTION--2.5%
44,500 Bill Barrett Corporation* 1,317,645
50,000 Newfield Exploration Company* 2,447,000
----------
3,764,645
----------
PACKAGED FOODS & MEATS--1.2%
40,500 J. M. Smucker Company 1,810,350
----------
PHARMACEUTICALS--4.0%
86,000 MGI Pharma, Inc.* 1,849,000
186,000 Theravance, Inc.* 4,255,680
----------
6,104,680
----------
REAL ESTATE MANAGEMET & DEVELOPMENT--1.9%
115,850 CB Richard Ellis Group, Inc.* 2,884,665
----------
SEE NOTES TO STATEMENT OF INVESTMENTS.
13
<Page>
SHARES MARKET VALUE
- --------------------------------------------------------------------------------
SEMICONDUCTORS--4.7%
110,000 Cypress Semiconductor Corporation* $ 1,599,400
98,400 Freescale Semiconductor, Inc. Class B* 2,892,960
80,000 Maxim Integrated Products, Inc. 2,568,800
------------
7,061,160
------------
STEEL--4.3%
53,500 Allegheny Technologies, Inc. 3,704,340
51,700 Nucor Corporation 2,804,725
------------
6,509,065
------------
SYSTEMS SOFTWARE--3.3%
113,500 MICROS Systems, Inc.* 4,957,680
------------
THRIFTS & MORTGAGE FINANCE--0.4%
14,500 The PMI Group, Inc. 646,410
------------
TRUCKING--1.5%
93,100 J.B. Hunt Transport Services, Inc. 2,319,121
------------
WIRELESS TELECOMMUNICATION SERVICES--1.8%
85,050 American Tower Corporation* 2,646,756
------------
TOTAL COMMON STOCKS (DOMESTIC)
(COST--$120,596,286) 131,560,707
------------
COMMON STOCKS (FOREIGN)--8.7%
AEROSPACE & DEFENSE--0.9%
38,800 Empresa Brasileira de Aeronautica SA
Sponsored ADR (BR) 1,415,036
------------
HEALTHCARE EQUIPMENT--1.5%
37,500 Mettler-Toledo International, Inc. (SZ)* 2,271,375
------------
INVESTMENT BANKING & BROKERAGE--1.7%
65,150 Lazard Limited Class A (BD) 2,632,060
------------
MULTI-LINE INSURANCE--1.9%
47,000 Arch Capital Group Limited (BD)* 2,794,620
------------
PHARMACEUTICALS--2.7%
93,500 Shire PLC ADR (UK) 4,135,505
------------
TOTAL COMMON STOCKS (FOREIGN)
(COST--$11,501,014) 13,248,596
------------
14
<Page>
PRINCIPAL AMOUNT AMORTIZED COST
- --------------------------------------------------------------------------------
CORPORATE SHORT-TERM NOTES--3.8%
SPECIAL PURPOSE ENTITY--3.8%
$5,800,000 CAFCO LLC 5.33% 7/3/06~ $ 5,798,283
------------
TOTAL CORPORATE SHORT-TERM NOTES (AMORTIZED COST--$5,798,283) 5,798,283
------------
TOTAL INVESTMENTS--99.7%
(TOTAL COST--$137,895,583) 150,607,586
------------
OTHER ASSETS AND LIABILITIES--0.3% 398,058
------------
NET ASSETS--100.0% $151,005,644
============
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 $5,798,283, OR 3.8%, OF THE FUND'S NET ASSETS AS OF JUNE 30,
2006.
ADR - AMERICAN DEPOSITARY RECEIPT
BR - BRAZIL
BD - BERMUDA
SZ - SWITZERLAND
UK - UNITED KINGDOM
SEE NOTES TO FINANCIAL STATEMENTS.
15
<Page>
STATEMENTS OF ASSETS AND LIABILITIES
JUNE 30, 2006 (UNAUDITED)
ASSETS
- -------------------------------------------------------------------------------
Investment securities, at cost $137,895,583
------------
Investment securities, at market 150,607,586
Cash 173,003
Receivables:
Capital shares sold 581,130
Dividends and interest 59,507
Other assets 38,544
------------
Total Assets 151,459,770
------------
LIABILITIES
- -------------------------------------------------------------------------------
Payables and other accrued liabilities:
Capital shares redeemed 254,723
Advisory fees 95,259
Shareholder servicing fees 15,056
Accounting fees 7,127
Distribution fees 32,503
Transfer agency fees 9,049
Custodian fees 1,357
Directors' deferred compensation 38,544
Other 508
------------
Total Liabilities 454,126
------------
Net Assets $151,005,644
============
COMPOSITION OF NET ASSETS
- -------------------------------------------------------------------------------
Capital (par value and paid-in surplus) $159,301,855
Accumulated net investment loss (536,330)
Accumulated net realized loss from security transactions (20,471,884)
Net unrealized appreciation on investments 12,712,003
------------
Total $151,005,644
============
16
<Page>
CLASS A
- --------------------------------------------------------------------------------
Net Assets $ 21,474,770
Shares Outstanding 4,162,286
Net Asset Value, Redemption Price Per Share $ 5.16
Maximum offering price per share (net asset value
plus sales charge of 5.75% of offering price) $ 5.47
CLASS B
- --------------------------------------------------------------------------------
Net Assets $ 1,893,037
Shares Outstanding 385,171
Net Asset Value, Offering and Redemption Price (excluding
applicable contingent deferred sales charge) Per Share $ 4.91
CLASS C
- --------------------------------------------------------------------------------
Net Assets $ 1,467,797
Shares Outstanding 302,260
Net Asset Value, Offering and Redemption Price (excluding
applicable contingent deferred sales charge) Per Share $ 4.86
CLASS F
- --------------------------------------------------------------------------------
Net Assets $124,780,573
Shares Outstanding 23,690,458
Net Asset Value, Offering and Redemption Price Per Share $ 5.27
CLASS R
- --------------------------------------------------------------------------------
Net Assets $ 1,325,474
Shares Outstanding 254,110
Net Asset Value, Offering and Redemption Price Per Share $ 5.22
CLASS T
- --------------------------------------------------------------------------------
Net Assets $ 63,993
Shares Outstanding 13,167
Net Asset Value, Redemption Price Per Share $ 4.86
Maximum offering price per share (net asset value
plus sales charge of 4.50% of offering price) $ 5.09
SEE NOTES TO FINANCIAL STATEMENTS.
17
<Page>
STATEMENT OF OPERATIONS
For the six months ended June 30, 2006 (UNAUDITED)
INVESTMENT INCOME
- --------------------------------------------------------------------------------
Dividends $ 258,910
Interest 125,677
Foreign taxes withheld (1,576)
-----------
Total Investment Income 383,011
-----------
EXPENSES
- --------------------------------------------------------------------------------
Advisory fees--Note 2 545,641
Shareholder servicing fees--Note 2 83,584
Accounting fees--Note 2 40,676
Distribution fees--Note 2 83,853
Transfer agency fees--Note 2 35,002
Registration fees 31,930
Postage and mailing expenses 4,920
Custodian fees and expenses--Note 2 3,187
Printing expenses 22,010
Legal and audit fees 20,640
Directors' fees and expenses--Note 2 14,520
Other expenses 16,815
-----------
Total Expenses 902,778
Earnings Credits (3,167)
Reimbursed/Waived Expenses (20)
Expense Offset to Broker Commissions (1,775)
-----------
Net Expenses 897,816
-----------
Net Investment Loss (514,805)
-----------
REALIZED AND UNREALIZED GAIN ON SECURITY TRANSACTIONS
- --------------------------------------------------------------------------------
Net Realized Gain on Security Transactions 9,920,442
Net Change in Unrealized Appreciation/Depreciation of Investments 2,125,001
-----------
Net Realized and Unrealized Gain 12,045,443
-----------
Net Increase in Net Assets Resulting from Operations $11,530,638
===========
SEE NOTES TO FINANCIAL STATEMENTS.
18
<Page>
STATEMENTS OF CHANGES IN NET ASSETS
(UNAUDITED)
SIX MONTHS ENDED YEAR ENDED
JUNE 30, DECEMBER 31,
2006 2005
OPERATIONS
- -------------------------------------------------------------------------------
Net Investment Loss $ (514,805) $ (866,779)
Net Realized Gain on Security and Foreign
Currency Transactions 9,920,442 19,689,373
Net Change in Unrealized
Appreciation/Depreciation of Investments
and Foreign Currency Translation 2,125,001 (6,069,623)
------------ ------------
Net Increase in Net Assets Resulting from
Operations 11,530,638 12,752,971
------------ ------------
CAPITAL SHARE TRANSACTIONS
- -------------------------------------------------------------------------------
Net Increase (Decrease) - Note 4
Class A 19,708,541 (86,979)
Class B (174,372) (115,914)
Class C 871,569 62,359
Class F 3,414,816 (21,399,040)
Class R 1,034,268 205,827
Class T 29,445 (9,705)
------------ ------------
Net Increase (Decrease) from Capital Share
Transactions 24,884,267 (21,343,452)
------------ ------------
Net Increase (Decrease) in Net Assets 36,414,905 (8,590,481)
------------ ------------
NET ASSETS
- -------------------------------------------------------------------------------
Beginning of Period $114,590,739 $123,181,220
------------ ------------
End of Period $151,005,644 $114,590,739
============ ============
Accumulated Net Investment Loss $ (536,330) $ (21,525)
SEE NOTES TO FINANCIAL STATEMENTS.
19
<Page>
FINANCIAL HIGHLIGHTS
(UNAUDITED)
<Table>
<Caption>
SIX MONTHS YEAR ENDED
ENDED JUNE 30, DECEMBER 31,
2006 2005 2004 2003 2002
-------------- --------------------------------------
CLASS A SHARES
PER SHARE OPERATING DATA
Net Asset Value, beginning of period $ 4.68 $ 4.15 $ 3.52 $ 2.58 $ 3.44
- -------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.02)(a) (0.05) (0.03) 0.03 (0.04)
Net realized and unrealized gains (losses) on securities 0.50 0.58 0.66 0.91 (0.82)
----------------------------------------------------
Total from investment operations 0.48 0.53 0.63 0.94 (0.86)
- -------------------------------------------------------------------------------------------------------------------
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 $ 5.16 $ 4.68 $ 4.15 $ 3.52 $ 2.58
====================================================
TOTAL RETURN(b) 10.26% 12.77% 17.90% 36.43% (25.00%)
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000s) $21,475 $1,656 $1,546 $ 1,191 $ 476
- -------------------------------------------------------------------------------------------------------------------
Ratios to average net assets:
Expenses with reimbursements, but no earnings credits or
brokerage offsets(c) 1.33% 1.58% 1.54% 1.87% 2.15%
Expenses with reimbursements, earnings credits and
brokerage offsets 1.32% 1.55% 1.53% 1.86% 2.15%
Net investment loss (0.71%) (0.92%) (1.07%) (1.38%) (1.81%)
- -------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate(d) 157% 211% 147% 160% 216%
</Table>
(a.) COMPUTED USING AVERAGE SHARES OUTSTANDING THROUGHOUT THE PERIOD.
(b.) SALES CHARGES ARE NOT REFLECTED IN THE TOTAL RETURN.
(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.
20
<Page>
<Table>
<Caption>
SIX MONTHS YEAR ENDED
ENDED JUNE 30, DECEMBER 31,
2006 2005 2004 2003 2002
-------------- -------------------------------------
CLASS B SHARES
PER SHARE OPERATING DATA
Net Asset Value, beginning of period $ 4.48 $ 4.01 $ 3.43 $ 2.54 $ 3.39
- ----------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment loss (0.04)(a) (0.09) (0.07) (0.03) (0.05)
Net realized and unrealized gains (losses)
on securities 0.47 0.56 0.65 0.92 (0.80)
------------------------------------------------------
Total from investment operations 0.43 0.47 0.58 0.89 (0.85)
- ----------------------------------------------------------------------------------------------------
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 $ 4.91 $ 4.48 $ 4.01 $ 3.43 $ 2.54
======================================================
TOTAL RETURN(b) 9.60% 11.72% 16.91% 35.04% (25.07%)
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000s) $1,893 $1,886 $1,823 $1,587 $ 969
- ----------------------------------------------------------------------------------------------------
Ratios to average net assets:
Expenses with reimbursements, but no
earnings credits or brokerage offsets(c) 2.27% 2.43% 2.37% 2.65% 2.68%
Expenses with reimbursements,
earnings credits and brokerage offsets 2.26% 2.41% 2.37% 2.64% 2.67%
Net investment loss (1.70%) (1.78%) (1.90%) (2.16%) (2.33%)
- ----------------------------------------------------------------------------------------------------
Portfolio turnover rate(d) 157% 211% 147% 160% 216%
</Table>
(a.) COMPUTED USING AVERAGE SHARES OUTSTANDING THROUGHOUT THE PERIOD.
(b.) SALES CHARGES ARE NOT REFLECTED IN THE TOTAL RETURN.
(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.
21
<Page>
<Table>
<Caption>
SIX MONTHS YEAR ENDED
ENDED JUNE 30, DECEMBER 31,
2006 2005 2004 2003 2002
-------------- ---------------------------------------
CLASS C SHARES
PER SHARE OPERATING DATA
Net Asset Value, beginning of period $ 4.42 $ 3.96 $ 3.38 $ 2.50 $ 3.36
- ------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment loss (0.04)(a) (0.02) (0.06)(a) (0.10) (0.08)
Net realized and unrealized gains (losses)
on securities 0.48 0.48 0.64 0.98 (0.78)
--------------------------------------------------------
Total from investment operations 0.44 0.46 0.58 0.88 (0.86)
- ------------------------------------------------------------------------------------------------------
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 $ 4.86 $ 4.42 $ 3.96 $ 3.38 $ 2.50
========================================================
TOTAL RETURN(b) 9.95% 11.62% 17.16% 35.20% (25.60%)
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000s) $1,468 $ 550 $ 428 $ 323 $ 274
- ------------------------------------------------------------------------------------------------------
Ratios to average net assets:
Expenses with reimbursements, but no
earnings credits or brokerage offsets(c) 2.16% 2.35% 2.32% 2.51% 2.99%
Expenses with reimbursements, earnings
credits and brokerage offsets 2.15% 2.32% 2.31% 2.51% 2.98%
Net investment loss (1.55%) (1.69%) (1.83%) (2.02%) (2.65%)
- ------------------------------------------------------------------------------------------------------
Portfolio turnover rate(d) 157% 211% 147% 160% 216%
</Table>
(a.) COMPUTED USING AVERAGE SHARES OUTSTANDING THROUGHOUT THE PERIOD.
(b.) SALES CHARGES ARE NOT REFLECTED IN THE TOTAL RETURN.
(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 2.16% (2006), 2.35% (2005), 2.32% (2004), 2.51%
(2003) AND 3.04% (2002).
(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,
2006 2005 2004 2003 2002
-------------- ---------------------------------------------
CLASS F SHARES
PER SHARE OPERATING DATA
Net Asset Value, beginning of period $ 4.78 $ 4.24 $ 3.58 $ 2.62 $ 3.47
- ------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.02)(a) (0.12) (0.03)(a) 0.02 (0.04)
Net realized and unrealized gains (losses)
on securities 0.51 0.66 0.69 0.94 (0.81)
--------------------------------------------------------------
Total from investment operations 0.49 0.54 0.66 0.96 (0.85)
- ------------------------------------------------------------------------------------------------------------
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 $ 5.27 $ 4.78 $ 4.24 $ 3.58 $ 2.62
==============================================================
TOTAL RETURN 10.25% 12.74% 18.44% 36.64% (24.50%)
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000s) $124,781 $110,170 $119,273 $159,161 $89,970
- ------------------------------------------------------------------------------------------------------------
Ratios to average net assets:
Expenses with reimbursements, but no
earnings credits or brokerage offsets(b) 1.31% 1.41% 1.33% 1.51% 1.56%
Expenses with reimbursements, earnings
credits and brokerage offsets 1.31% 1.39% 1.33% 1.50% 1.56%
Net investment loss (0.74%) (0.77%) (0.87%) (1.01%) (1.22%)
- ------------------------------------------------------------------------------------------------------------
Portfolio turnover rate(c) 157% 211% 147% 160% 216%
</Table>
(a.) COMPUTED USING AVERAGE SHARES OUTSTANDING THROUGHOUT THE PERIOD.
(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.
23
<Page>
<Table>
<Caption>
SIX MONTHS YEAR ENDED
ENDED JUNE 30, DECEMBER 31,
2006 2005 2004 2003 2002
-------------- --------------------------------------
CLASS R SHARES
PER SHARE OPERATING DATA
Net Asset Value, beginning of period $ 4.73 $ 4.19 $ 3.56 $ 2.61 $ 3.48
- -------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment loss (0.01)(a) (0.02)(a) (0.04)(a) (0.03) (0.04)
Net realized and unrealized gains
(losses) on securities 0.50 0.56 0.67 0.98 (0.83)
-----------------------------------------------------
Total from investment operations 0.49 0.54 0.63 0.95 (0.87)
- -------------------------------------------------------------------------------------------------
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 $ 5.22 $ 4.73 $ 4.19 $ 3.56 $ 2.61
====== ====== ====== ====== =======
TOTAL RETURN 10.36% 12.89% 17.70% 36.40% (25.00%)
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000s) $1,325 $ 297 $ 71 $ 119 $ 77
- -------------------------------------------------------------------------------------------------
Ratios to average net assets:
Expenses with reimbursements, but no
earnings credits or brokerage
offsets(b) 1.08% 1.38% 1.48% 1.64% 1.97%
Expenses with reimbursements, earnings
credits and brokerage offsets 1.07% 1.34% 1.48% 1.64% 1.97%
Net investment loss (0.43%) (0.70%) (1.03%) (1.15%) (1.63%)
- -------------------------------------------------------------------------------------------------
Portfolio turnover rate(c) 157% 211% 147% 160% 216%
</Table>
(a.) COMPUTED USING AVERAGE SHARES OUTSTANDING THROUGHOUT THE PERIOD.
(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 1.08% (2006), 1.38% (2005), 1.48% (2004), 1.64%
(2003) AND 3.49% (2002).
(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.
24
<Page>
<Table>
<Caption>
SIX MONTHS YEAR ENDED
ENDED JUNE 30, DECEMBER 31,
2006 2005 2004 2003 2002
-------------- ----------------------------------
CLASS T SHARES
PER SHARE OPERATING DATA
Net Asset Value, beginning of period $ 4.43 $ 3.97 $ 3.39 $ 2.51 $ 3.39
- ---------------------------------------------------------------------------------------------
Income from investment operations:
Net investment loss (0.04)(a) (0.17) (0.06) (0.02) (0.06)
Net realized and unrealized gains
(losses) on securities 0.47 0.63 0.64 0.90 (0.82)
------------------------------------------------
Total from investment operations 0.43 0.46 0.58 0.88 (0.88)
- ---------------------------------------------------------------------------------------------
Less dividends and distributions:
From net investment income 0.00 0.00 0.00 0.00 0.00
From net realized gains 0.00 0.00 0.00 0.00 0.00
------------------------------------------------
Total distributions 0.00 0.00 0.00 0.00 0.00
- ---------------------------------------------------------------------------------------------
Net Asset Value, end of period $ 4.86 $ 4.43 $ 3.97 $ 3.39 $ 2.51
================================================
TOTAL RETURN(b) 9.71% 11.59% 17.11% 35.06% (25.96%)
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000s) $ 64 $ 33 $ 40 $ 34 $ 20
- ---------------------------------------------------------------------------------------------
Ratios to average net assets:
Expenses with reimbursements, but no
earnings credits or brokerage
offsets(c) 2.17% 2.59% 2.26% 2.76% 3.64%
Expenses with reimbursements, earnings
credits and brokerage offsets 2.16% 2.57% 2.25% 2.76% 3.63%
Net investment loss (1.57%) (1.94%) (1.78%) (2.27%) (3.29%)
- ---------------------------------------------------------------------------------------------
Portfolio turnover rate(d) 157% 211% 147% 160% 216%
</Table>
(a.) COMPUTED USING AVERAGE SHARES OUTSTANDING THROUGHOUT THE PERIOD.
(b.) SALES CHARGES ARE NOT REFLECTED IN THE TOTAL RETURN.
(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 2.17% (2006), 2.59% (2005), 2.26% (2004), 2.76%
(2003) AND 10.30% (2002).
(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>
NOTES TO FINANCIAL STATEMENTS
June 30, 2006 (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). Effective
June 1, 2006, Class B shares will no longer be offered except in connection with
dividend reinvestments and permitted exchanges of Class B shares. 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. New York closing exchange rates are used to convert foreign
currencies to U.S. dollars.
A debt security with a remaining maturity greater than 60 days at the time of
purchase is valued in accordance with the evaluated bid price supplied by a
pricing service approved by the Company's board of directors or, if such price
is not available, at the mean between the highest bid and lowest asked
quotations obtained from at least two securities dealers. A debt security with a
remaining maturity of 60 days or less at the time of purchase is valued at
amortized cost, which approximates market value, unless it is determined that
amortized cost would not represent market value, in which case the securities
would be marked to market. The Fund amortizes premiums and discounts on all debt
securities.
If market quotations 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
26
<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 requires the use of estimates, and as such,
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--The Fund may invest at least a
portion of its assets in foreign securities. Foreign securities carry more risk
than U.S. securities, such as political and currency risks. 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 Fund could be
exposed to risk if counterparties are unable to meet the terms of the contracts
or if the value of the currency changes unfavorably to the U.S. dollar. 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.
The accounting records of the Fund are maintained in U.S. dollars. The market
values of foreign securities, currency holdings and other assets and liabilities
are translated into U.S. dollars based on the current exchange rates each
business day. 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 unrealized gain or loss from investments and foreign
currency translations on the Statement of Operations.
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
27
<Page>
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 Subchapter M 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 from
net investment income (if any) and from net realized capital gains (if any)
annually. Dividends and distributions, which are determined in accordance with
income tax regulations, are recorded on the ex-dividend date.
EXPENSES--Each Class of the Fund bears expenses incurred specifically on its
behalf and, in addition, each Class bears a portion of general expenses based on
the relative net assets or the number of shareholder accounts of the Class. The
type of expense determines the allocation method.
The Company's board of directors has authorized the payment of certain Fund
expenses with commissions on Fund portfolio transactions. These commissions
reduce Other Expenses and are included in the Expense Offset to Broker
Commissions in the Statement of Operations.
USE OF ESTIMATES--The preparation of financial statements in conformity with
accounting principles generally accepted in the United States of America
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported amounts of
income and expenses during the reporting period. Actual results could differ
from those estimates.
INDEMNIFICATIONS--In the normal course of business, the Company enters into
contracts that contain provisions indemnifying other parties against specified
potential liabilities. Each Fund's maximum exposure under these arrangements is
unknown as this would involve future claims that may be made against the Fund
that have not yet occurred. However, based on experience, the Funds expect the
risk of loss to be remote.
OTHER--Certain prior year information has been reformatted, without substantive
change, to conform with the current year presentation.
28
<Page>
2. FEES AND TRANSACTIONS WITH AFFILIATES
ADVISORY FEES--Founders Asset Management LLC ("Founders") serves as investment
adviser to the Fund. Founders is an indirect wholly-owned subsidiary of Mellon
Financial Corporation, a publicly-owned financial services company which
provides a comprehensive range of financial products and services in domestic
and selected international markets.
In accordance with an investment advisory agreement between the Company and
Founders, the Fund compensates Founders for its services as investment adviser
by the payment of fees computed daily and paid monthly at the annual rate equal
to a percentage of the average daily value of the Fund's net assets. The fee is
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 period ended June 30, 2006,
Class F shares were charged $65,635 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 period ended June 30, 2006, Class F shares were
charged $22,555 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 $12.92 to $13.36, 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 period ended June 30, 2006 were as
follows:
TRANSFER
AGENCY
FEES
------------------
Class A $1,457
------------------
Class B $2,127
------------------
Class C $ 457
------------------
Class R $ 75
------------------
Class T $ 136
------------------
29
<Page>
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 period ended June 30, 2006, the Fund was charged $945 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 period ended June
30, 2006, the Fund paid $8,195 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 period ended June 30,
2006, Class F shares were charged $73,534 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 period ended June 30, 2006, were as follows:
DISTRIBUTION SHAREHOLDER
FEES SERVICING FEES
---------------------------------------
Class A N/A $14,473
---------------------------------------
Class B $7,146 $ 2,382
---------------------------------------
Class C $3,118 $ 1,039
---------------------------------------
Class T $ 55 $ 55
---------------------------------------
During the period ended June 30, 2006, DSC retained $7,268 and $3 in sales
commissions from the sales of Class A and Class T shares, respectively. DSC also
retained $3,716 and $155 of contingent deferred sales charges relating to
redemptions of Class B and Class C shares, respectively.
30
<Page>
FUND ACCOUNTING AND ADMINISTRATIVE SERVICES FEES--The Funds have agreed to
compensate Founders for providing accounting services, administration,
compliance monitoring, regulatory and shareholder reporting, as well as related
facilities, equipment and clerical help. The fee is computed at the annual rate
of 0.06% of the average daily net assets of the Fund on the first $500 million,
0.04% of the average daily net assets of the Fund on the next $500 million and
0.02% of the average daily net assets of the Fund in excess of $1 billion, plus
reasonable out-of-pocket expenses. Founders has 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, which are shown as earnings credits on the
Statement of Operations. 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
period and in the amount set forth below:
TIME PERIOD AMOUNT OF WAIVER
------------------------------------
9/1/05 to 8/31/06 $200,000
The fee waiver is allocated among the Funds in proportion to their respective
shares of the total custodian fee. For the period ended June 30, 2006, the
Fund's portion of the fee waiver was $20, which reduced the amount paid to
Mellon Bank to $3,167.
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 Directors'
Deferred Compensation on the Statement of Assets and Liabilities. Changes in
market value are included in the Directors' fees and expenses and the net change
in unrealized appreciation/depreciation of investments on the Statement of
Operations. 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
or its affiliates, which pay 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
31
<Page>
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, deferred compensation, 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, 2005 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, 2005 were:
EXPIRATION AMOUNT
------------------------
2010 $30,227,567
===========
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, 2006 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.
-----------------------------------------------------
Federal Tax Cost $137,966,524
-----------------------------------------------------
Gross Tax Appreciation of Investments $ 17,287,738
-----------------------------------------------------
Gross Tax Depreciation of Investments $ (4,646,676)
-----------------------------------------------------
Net Tax Appreciation $ 12,641,062
-----------------------------------------------------
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:
PERIOD ENDED YEAR ENDED
JUNE 30, 2006 DECEMBER 31, 2005
Shares Amount Shares Amount
CLASS A
- -------------------------------------------------------------------------
Sold 4,020,437 $20,812,386 190,179 $ 807,085
Redeemed (212,087) $(1,103,845) (208,547) $(894,064)
-----------------------------------------------
Net Increase (Decrease) 3,808,350 $19,708,541 (18,368) $ (86,979)
===============================================
32
<Page>
<Table>
<Caption>
PERIOD ENDED YEAR ENDED
JUNE 30, 2006 DECEMBER 31, 2005
SHARES AMOUNT SHARES AMOUNT
CLASS B
- ---------------------------------------------------------------------------------
Sold 74,520 $ 371,206 84,947 $ 353,630
Redeemed (110,358) $ (545,578) (118,554) $ (469,544)
-------------------------------------------------------
Net Decrease (35,838) $ (174,372) (33,607) $ (115,914)
=======================================================
CLASS C
- ---------------------------------------------------------------------------------
Sold 195,153 $ 952,765 44,048 $ 176,957
Redeemed (17,226) $ (81,196) (27,892) $ (114,598)
-------------------------------------------------------
Net Increase 177,927 $ 871,569 16,156 $ 62,359
=======================================================
CLASS F
- ---------------------------------------------------------------------------------
Sold 2,925,992 $ 15,435,871 1,291,586 $ 5,627,660
Redeemed (2,292,105) $(12,021,055) (6,397,317) $(27,026,700)
-------------------------------------------------------
Net Increase (Decrease) 633,887 $ 3,414,816 (5,105,731) $(21,399,040)
=======================================================
CLASS R
- ---------------------------------------------------------------------------------
Sold 272,045 $ 1,453,184 57,080 $ 257,056
Redeemed (80,681) $ (418,916) (11,295) $ (51,229)
-------------------------------------------------------
Net Increase 191,364 $ 1,034,268 45,785 $ 205,827
=======================================================
CLASS T
- ---------------------------------------------------------------------------------
Sold 5,903 $ 29,934 906 $ 4,021
Redeemed (96) $ (489) (3,512) $ (13,726)
-------------------------------------------------------
Net Increase (Decrease) 5,807 $ 29,445 (2,606) $ (9,705)
=======================================================
</Table>
5. INVESTMENT TRANSACTIONS
For the period ended June 30, 2006, purchases and sales of investment securities
(excluding short-term securities and U.S. government obligations) were
$91,284,718 and $68,126,849, respectively.
33
<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, 2006, the Fund did not have any borrowings under the LOC.
34
<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, 2006, 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.
<Page>
SEMIANNUAL REPORT
DREYFUS FOUNDERS
PASSPORT FUND
INVESTMENT UPDATE
JUNE 30, 2006
PASSPORT FUND IS CLOSED TO NEW INVESTORS.
PLEASE SEE THE PROSPECTUS FOR ADDITIONAL INFORMATION.
DREYFUS FOUNDERS FUNDS(R)
THE GROWTH SPECIALISTS
<Page>
TABLE OF CONTENTS
Management Overview 3
Fund Expenses 10
Statement of Investments 12
Statement of Assets and Liabilities 21
Statement of Operations 23
Statements of Changes in Net Assets 24
Financial Highlights 25
Notes to Financial Statements 31
PAPERLESS DELIVERY OF THIS REPORT
Did you know you can reduce your postal mail by accessing Dreyfus
Founders Funds regulatory material online? It's a simple, reliable process:
when new documents such as this 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
Founders Asset Management LLC
A MELLON FINANCIAL COMPANY(SM)
210 University Boulevard, Suite 800
Denver, CO 80206
DISTRIBUTOR
Dreyfus Service Corporation
200 Park Avenue
New York, NY 10166
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, 2006. The amounts of
these holdings are included in the Statement of Investments.
NOT FDIC-INSURED - NOT BANK-GUARANTEED - MAY LOSE VALUE
<Page>
MANAGEMENT OVERVIEW
(UNAUDITED)
[PHOTO OF DANIEL B. LEVAN]
[PHOTO OF JOHN W. EVERS]
A DISCUSSION WITH CO-PORTFOLIO MANAGERS DANIEL B. LEVAN, CFA, LEFT, AND JOHN W.
EVERS, CFA, REGARDING FUND PERFORMANCE FOR THE SIX-MONTH PERIOD ENDED JUNE 30,
2006.
GLOBAL EXPANSION SHOWED SIGNS OF CONTRACTION
Equity markets extended a three-year rally during the first four months of 2006,
as merger activity and earnings announcements overshadowed a hawkish tone in
global monetary policy. However, macroeconomic fears precipitated a major
sell-off in global equity markets beginning in May, which continued through the
middle of June. Investors had long enjoyed benign inflation, low interest rates
and exceptional global expansion driven mainly by U.S. demand; however, as the
United States began facing a slowdown in the housing market, currency weakness
and rising consumer prices, markets responded in kind. Under the untested
leadership of new Federal Reserve Chairman Ben Bernanke, monetary policy makers
tried to balance several variables to orchestrate a soft landing. Though the
correction is not likely a secular bear market in the making, it was a healthy
contraction in some overpriced countries and sectors.
"MACROECONOMIC FEARS PRECIPITATED A MAJOR SELL-OFF IN GLOBAL EQUITY MARKETS
BEGINNING IN MAY..."
During the period, the United Kingdom was swept up in
merger-and-acquisition (M&A) enthusiasm despite some weakness in the
structurally challenged media sector. Airport operator BAA rejected what it
considered to be an inadequate bid from Spanish-based Grupo Ferrovial. Also in
the Eurozone, with employment vacancies rising, the IFO business sentiment index
hitting new highs and a new government in place, German equities remained a
favorite among investors looking for the next consumer recovery.
The Asian sector saw Japan staging a resounding rebound last year, after
years of fitful attempts at sustaining local consumption. As a result, Japan
suffered more profit taking during the correction period of mid-May to mid-June,
relative to Europe. Japanese exporters and commercial banks dropped
3
<Page>
during the six month period as the yen strengthened against the U.S. dollar.
Machinery orders and general exports were down, while the high cost of oil sent
imports and producer prices higher. Elsewhere in Asia, the growing appetite for
energy and basic materials in China and India helped to create growth
opportunities for companies involved in such sectors.
For the six-month period ended June 30, 2006, Dreyfus Founders Passport
Fund outperformed(1) its benchmark, the Standard & Poor's/Citigroup Extended
Market Index ex-U.S., which rose 11.03%.
PORTFOLIO COMPOSITION REMAINED CONSISTENT
As the current investment team took up management of the Fund in the fourth
quarter of last year, no major shifts in portfolio compositions have occurred
during the past six months. The Fund was broadly diversified across all 10
sectors and across most countries in the Index. Overall, we have continued to
use a bottom-up, intensive research-driven approach in composing the Fund,
uncovering stocks we believe are capable of posting strong future revenues and
earning growth at attractive valuations.
COUNTRIES AIDED FUND PERFORMANCE
Strong stock selection in France and the United Kingdom positively contributed
to the Fund's relative performance during the period. Additionally, solid stock
picking in Japan, paired with an underweight position, further supported the
Fund's outperformance. The Fund's underweight position in Australia, combined
with a favorable selection of stocks, also aided the Fund.
INDUSTRIALS AND MATERIALS BOOSTED RELATIVE RETURN
The Fund's stock selection in the industrials, materials, consumer discretionary
and consumer staples sectors provided the largest boost to the Fund's relative
performance versus the benchmark.
SECTORS BENEFITING THE FUND
Industrials
Materials
Consumer Discretionary
Among the most robust performers within the Fund's industrials holdings was
French construction firm EIFFAGE SA. Eiffage released results for 2005 above
expectations as a result of the favorable market conditions for France's
construction sector. A Spanish peer also began establishing a stake in Eiffage
for strategic purposes, further supporting the stock's price increase.
- ----------
(1) Excluding sales charges, which result in lower returns for certain share
classes. Please see page 7 for Average Annual and Year-to-Date Returns for
all share classes, including and excluding sales charges.
4
<Page>
The materials sector overall was aided by large-scale M&A activity at the
end of the period. These bids indicated that certain industry management teams
believe the robust metals cycle will continue. Additionally, diversified mining
stocks held up after tremendous price appreciation during 2005.
The Fund's metals and mining securities performed exceptionally well during
the period as Vallourec SA, Oxiana Limited and Inmet Mining Corporation were the
top three performing stocks in the Fund, based on their contribution to the
Fund's total return. Vallourec, the French metal tubing maker, experienced
robust demand for drill tubes and well equipment, continuing price increases and
the stabilization of raw materials prices. Australian copper, zinc and gold
miner Oxiana also experienced a share price increase as the company benefited
from an upbeat metal price environment and reported strong production at its
zinc mine, Golden Grove. Canadian mining firm Inmet saw its stock price rise
with the posting of solid figures as a result of robust metal prices and strong
demand. In addition, Finnish provider of systems and total solutions to the
construction and mechanical engineering industries, Rautaruukki Oyj, experienced
healthy demand for all the company's divisions and benefited from increases in
steel prices.
INDIVIDUAL PERFORMERS HELPED FUND PERFORMANCE
Notable performance during the period was also found in individual Fund
holdings. Financials issue Inmobiliaria Urbis SA, the Spanish real-estate firm,
LARGEST EQUITY HOLDINGS (country of origin; ticker symbol)
1. INMET MINING CORPORATION (Canada; IMN) 1.32%
2. OXIANA LIMITED (Australia; OXR) 1.17%
3. MITSUBISHI GAS CHEMICAL COMPANY, INC. (Japan; 4182) 1.16%
4. TRICAN WELL SERVICE LIMITED (Canada; TCW) 0.96%
5. INMOBILIARIA URBIS SA (Spain; URB) 0.95%
6. IPSCO, INC. (Canada; IPS) 0.89%
7. BOEHLER-UDDEHOLM AG (Austria; BUD) 0.82%
8. RECORD INVESTMENTS LIMITED (Australia; RCD) 0.81%
9. HENGAN INTERNATIONAL GROUP COMPANY LIMITED (Hong Kong; 1044) 0.80%
10. VALLOUREC SA (France; VK) 0.79%
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]
<Table>
<Caption>
DREYFUS
FOUNDERS
PASSPORT S & P/
FUND - CITIGROUP EMI
CLASS F WORLD EX U.S.
---------- -------------
6/28/1996 $10,000.00 $10,000.00
6/30/1997 $11,132.58 $10,219.49
6/30/1998 $12,888.24 $10,276.33
6/30/1999 $12,890.76 $10,625.23
6/30/2000 $19,867.59 $12,216.71
6/29/2001 $12,126.48 $10,061.68
6/28/2002 $11,040.04 $ 9,963.12
6/30/2003 $10,941.27 $10,039.91
6/30/2004 $16,044.27 $14,493.29
6/30/2005 $18,623.20 $17,436.21
6/30/2006 $24,977.26 $22,917.52
</Table>
The above graph compares a $10,000 investment made in Class F shares of Dreyfus
Founders Passport Fund on 6/30/96 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 S&P/Citigroup EMI World ex U.S. represents, on a country-by-country basis,
the small- capitalization component of the Citigroup Broad Market Index(SM),
which is a comprehensive float-weighted index of companies in 26 countries
(excluding the U.S.) with market capitalizations of at least $100 million. 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 6/30/06
YEAR-TO- 1 5 10 SINCE
CLASS (INCEPTION DATE) DATE+ YEAR YEARS YEARS INCEPTION
- --------------------------------------------------------------------------------
A SHARES (12/31/99)
With sales charge (5.75%) 6.66% 26.46% 14.13% -- 0.96%
Without sales charge 13.18% 34.14% 15.50% -- 1.89%
B SHARES (12/31/99)
With redemption* 8.70% 29.00% 14.30% -- 1.06%
Without redemption 12.70% 33.00% 14.53% -- 1.06%
C SHARES (12/31/99)
With redemption** 11.76% 32.09% 14.55% -- 1.07%
Without redemption 12.76% 33.09% 14.55% -- 1.07%
F SHARES (11/16/93) 13.18% 34.12% 15.55% 9.59% 10.22%
R SHARES (12/31/99) 13.32% 34.44% 14.86% -- 1.51%
T SHARES (12/31/99)
With sales charge (4.50%) 7.93% 27.65% 13.41% -- 0.41%
Without sales charge 13.00% 33.64% 14.46% -- 1.12%
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>
performed solidly on higher housing development sales and reiterated its
full-year forecasts. Nobia AB, the Swedish bedroom and bathroom interior
provider, reported strong earnings as a result of a recent acquisition, and
experienced its ninth consecutive quarter with double-digit organic sales growth
in the Nordic region.
GERMANY, CANADA AND SINGAPORE BURDENED FUND
The most significant detractors on a country basis came from weak stock
selection in Germany, Canada and Singapore. Additionally, an underweight
position in Sweden detracted from the Fund's return.
ENERGY, HEALTH CARE AND FINANCIALS HAMPERED RETURN
The most notable detractors to relative performance for the period were the
energy, health care and financial sectors, primarily through weak stock
selection. The threat of military action in the Middle East, as Iran denounced
Israel, was exacerbated by ongoing tension in the Nigerian Delta. As a result,
the price of oil remained persistently high during the period. However, the
Fund's overweight position in this strong-performing sector in the benchmark was
not enough to offset its weak stock picking. Trican Well Service, one of these
poor-performing energy stocks, released fourth quarter 2005 results that were in
line with forecasts; however, the stock's price fell as a result of the
deterioration in North American gas prices and because of profit taking.
[CHART]
<Table>
<Caption>
PORTFOLIO COMPOSITION OF NET ASSETS
19.12% Japan
18.80% United Kingdom
9.80% France
6.95% Germany
5.82% Canada
5.36% Switzerland
4.60% Italy
4.55% Netherlands
3.98% Spain
3.66% Australia
16.43% Other Countries
0.93% Cash & Equivalents
</Table>
The Fund's portfolio composition is subject to change, and there is no assurance
the Fund will continue to hold any particular security. Opinions regarding
sectors, industries, companies, and/or themes are those of the portfolio
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>
SECTORS DETRACTING FROM THE FUND
Energy
Health Care
Financials
Numerous financials securities, particularly real-estate stocks, were among
the worst performing stocks in the Fund for the period. Japanese real-estate
stock URBAN CORPORATION nearly doubled in price during the fourth quarter of
2005, but gave back some of that increase in the first quarter. Shares fell
after investors were disappointed by in-line results and less positive guidance.
KENEDIX, INC., another Japanese real-estate holding, fell due to profit taking
and after an announcement made by Nikkei stating "accounting regulations
governing investment partnerships and special-purpose companies...are to be
tightened." This announcement had a negative impact industry-wide in Japan.
German real-estate firm VIVACON AG announced the postponement of the initial
public offering of company spin-off, Vivacon German Properties, given the
current volatility in the market. This announcement sent the stock price lower.
SELECT IT ISSUES CAME UP SHORT
Although the information technology (IT) sector in the Fund produced an overall
positive effect, select IT stocks weighed heavily on the Fund's return. JURONG
TECHNOLOGIES INDUSTRIAL CORPORATION LIMITED, a Singapore circuit boards and
electronic products provider, saw its stock price fall on concerns regarding its
merger with Maxtor Corporation and its weakening strength in Western Europe.
Hong Kong IC solutions provider for cellular phones and handheld displays,
SOLOMON SYSTECH INTERNATIONAL LIMITED, released first quarter results below
expectations as a result of slowing demand due to increased inventories in the
MP3 market.
We continue to believe that consistent exposure to companies with improving
business momentum will be rewarded by the market over the long term. Hence, as
we move into the second half of 2006, the portfolio composition remains largely
unchanged. We expect that the Fund will continue to look similar to our
benchmark along country and sector lines, such that the management team can
remain focused on seeking the most attractive securities within each sector.
/s/ Daniel B. LeVan /s/ John W. Evers
- ----------------------------------- ----------------------------------------
Daniel B. LeVan, CFA John W. Evers, 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, 2006
and held through June 30, 2006.
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, together with the amount you
invested, 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
BEGINNING ENDING EXPENSES PAID
ACCOUNT VALUE ACCOUNT VALUE DURING PERIOD*
(1/1/06) (6/30/06) (1/1/06-6/30/06)
- --------------------------------------------------------------------------------
CLASS A ACTUAL $1,000.00 $1,131.80 $ 8.99
CLASS A HYPOTHETICAL 1,000.00 1,016.26 8.53
CLASS B ACTUAL 1,000.00 1,127.00 13.87
CLASS B HYPOTHETICAL 1,000.00 1,011.59 13.20
CLASS C ACTUAL 1,000.00 1,127.60 13.19
CLASS C HYPOTHETICAL 1,000.00 1,012.24 12.55
CLASS F ACTUAL 1,000.00 1,131.80 9.25
CLASS F HYPOTHETICAL 1,000.00 1,016.01 8.79
CLASS R ACTUAL 1,000.00 1,133.20 7.99
CLASS R HYPOTHETICAL 1,000.00 1,017.21 7.58
CLASS T ACTUAL 1,000.00 1,130.00 11.04
CLASS T HYPOTHETICAL 1,000.00 1,014.30 10.49
* 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.
EXPENSE RATIO
- -----------------------
CLASS A 1.70%
CLASS B 2.63%
CLASS C 2.50%
CLASS F 1.75%
CLASS R 1.51%
CLASS T 2.09%
11
<Page>
STATEMENT OF INVESTMENTS
June 30, 2006 (UNAUDITED)
SHARES MARKET VALUE
- --------------------------------------------------------------------------------
COMMON STOCKS (FOREIGN)--97.2%
ADVERTISING--1.2%
9,030 Publicis Groupe (FR) $ 348,815
101,010 Taylor Nelson Sofres PLC (UK) 435,195
14,110 Teleperformance (FR) 564,544
----------
1,348,554
----------
AEROSPACE & DEFENSE--0.8%
21,679 Chemring Group PLC (UK) 468,816
29,000 Japan Aviation Electronics Industry Limited (JA) 406,466
----------
875,282
----------
AGRICULTURAL PRODUCTS--0.4%
31,100 Cermaq ASA (NW) 419,669
----------
AIRLINES--0.6%
97,330 British Airways PLC (UK)* 616,861
----------
ALTERNATIVE CARRIERS--0.4%
72,520 Carphone Warehouse PLC (UK) 425,760
----------
APPAREL RETAIL--0.5%
15,050 Xebio Company Limited (JA) 514,204
----------
APPAREL, ACCESSORIES & LUXURY GOODS--0.5%
12,800 Gildan Activewear, Inc. (CA)* 605,314
----------
APPLICATION SOFTWARE--0.6%
18,700 Nippon Systems Development Company (JA) 648,715
----------
ASSET MANAGEMENT & CUSTODY BANKS--0.6%
29,110 Azimut Holding SPA (IT) 303,462
17,180 Schroder's PLC (UK) 320,854
----------
624,316
----------
AUTO PARTS & EQUIPMENT--1.2%
23,000 Exedy Corporation (JA) 723,523
15,100 Keihin Corporation (JA) 323,930
13,300 Nissin Kogyo Company Limited (JA) 245,221
----------
1,292,674
----------
BIOTECHNOLOGY--0.4%
4,450 Actelion Limited (SZ)* 448,421
----------
BREWERS--0.4%
20,040 Wolverhampton & Dudley Breweries PLC (UK) 476,913
----------
AU Australia
AT Austria
BE Belgium
CA Canada
DE Denmark
FI Finland
FR France
GE Germany
GR Greece
HK Hong Kong
IE Ireland
IT Italy
JA Japan
KR South Korea
NE Netherlands
NW Norway
PT Portugal
SG Singapore
SP Spain
SW Sweden
SZ Switzerland
UK United Kingdom
12
<Page>
SHARES MARKET VALUE
- --------------------------------------------------------------------------------
BROADCASTING & CABLE TV--0.4%
15,600 Astral Media, Inc. (CA) $ 487,439
----------
BUILDING PRODUCTS--0.4%
390 Geberit AG (SZ) 451,055
----------
COMMODITY CHEMICALS--0.4%
52,000 Mitsubishi Rayon Company Limited (JA) 423,488
----------
COMMUNICATIONS EQUIPMENT--1.3%
23,400 LG Telecom Limited (KR)* 305,834
15,150 Option NV (BE)* 363,344
45,800 Tandberg Television ASA (NW)* 759,667
----------
1,428,845
----------
COMPUTER HARDWARE--0.3%
2,820 Wincor Nixdorf AG (GE) 358,001
----------
COMPUTER STORAGE & PERIPHERALS--0.1%
117,000 Jurong Technologies Industrial Corporation
Limited (SG) 73,915
----------
CONSTRUCTION & ENGINEERING--5.3%
18,410 ACS, Actividades de Construccion y Servicios SA (SP) 767,908
30,000 Comsys Holdings Corporation (JA) 370,150
6,890 Eiffage SA (FR) 583,420
10,200 Hyundai Development Company (KR) 440,791
16,895 Kier Group PLC (UK) 470,798
39,600 Koninklijke BAM Groep NV (NE) 787,137
53,000 Kyowa Exeo Corporation (JA) 684,498
26,810 Morgan Sindall PLC (UK) 566,143
11,531 Speedy Hire PLC (UK) 186,569
3,900 Vinci SA (FR) 401,823
22,900 YIT Oyj (FI) 561,516
----------
5,820,753
----------
CONSTRUCTION MATERIALS--0.8%
2,910 Ciments Francais SA (FR) 483,511
4,470 Imerys SA (FR) 357,348
----------
840,859
----------
CONSTRUCTION, FARM MACHINERY & HEAVY TRUCKS--1.4%
5,300 Aker Yards AS (NW) 372,922
22,000 Hitachi Construction Machinery Company Limited (JA) 529,623
5,900 Hyundai Mipo Dockyard Company Limited (KR) 590,777
----------
1,493,322
----------
CONSUMER FINANCE--1.1%
73,890 Cattles PLC (UK) 449,857
14,400 Sumisho Lease Company Limited (JA) 799,021
----------
1,248,878
----------
DEPARTMENT STORES--0.9%
4,900 Hyundai Department Store Company Limited (KR) 378,572
15,500 Izumi Company Limited (JA) 564,794
----------
943,366
----------
SEE NOTES TO STATEMENT OF INVESTMENTS.
13
<Page>
SHARES MARKET VALUE
- --------------------------------------------------------------------------------
DISTILLERS & VINTNERS--1.1%
89,310 C&C Group PLC (IE) $ 775,665
41,870 Davide Campari-Milano SPA (IT) 434,071
----------
1,209,736
----------
DISTRIBUTORS--0.8%
75,200 Inchcape PLC (UK) 657,027
168,650 Pacific Brands Limited (AU) 269,449
----------
926,476
----------
DIVERSIFIED BANKS--5.2%
73,550 Banco BPI SA (PT) 558,822
19,420 Banco de Sabadell SA (SP) 679,377
31,070 Banco Popolare de Verona e Novara Scrl (IT) 832,587
40,170 Banco Popolare di Milano (IT) 512,016
1,260 Banque Cantonale Vaudoise (SZ) 430,787
42,050 Credito Emiliano SPA (IT) 519,305
7,480 Deutsche Postbank AG (GE) 537,798
9,100 Jyske Bank AS (DE)* 527,410
3,300 Natexis Banques Populaires (FR) 759,363
39,000 Wing Hang Bank Limited (HK) 341,475
----------
5,698,940
----------
DIVERSIFIED CAPITAL MARKETS--1.4%
37,370 Close Brothers Group PLC (UK) 629,513
96,920 Record Investments Limited (AU) 889,472
----------
1,518,985
----------
DIVERSIFIED CHEMICALS--1.5%
10,200 Lanxess (GE)* 401,320
111,000 Mitsubishi Gas Chemical Company, Inc. (JA) 1,272,562
----------
1,673,882
----------
DIVERSIFIED COMMERCIAL & PROFESSIONAL SERVICES--0.7%
78,340 Downer EDI Limited (AU) 433,120
182,430 Regus Group PLC (UK)* 369,380
----------
802,500
----------
DIVERSIFIED METALS & MINING--2.0%
38,700 Inmet Mining Corporation (CA) 1,445,660
28,620 Vedanta Resources PLC (UK) 721,321
----------
2,166,981
----------
ELECTRIC UTILITIES--1.9%
139,150 International Power PLC (UK) 732,030
180,070 Terna SPA (IT) 480,233
11,950 Union Electrica Fenosa SA (SP) 462,531
20,210 Viridian Group PLC (UK) 357,449
----------
2,032,243
----------
ELECTRICAL COMPONENTS & EQUIPMENT--1.5%
11,400 Chiypda Integre Company Limited (JA) 299,843
50,000 Dainippon Screen Manufacturing Company Limited (JA) 457,882
11,690 Leoni AG (GE) 440,954
6,210 Nexans SA (FR) 442,834
----------
1,641,513
----------
14
<Page>
SHARES MARKET VALUE
- --------------------------------------------------------------------------------
ELECTRONIC EQUIPMENT MANUFACTURERS--1.7%
36,060 CSR PLC (UK)* $ 840,155
2,929 Intops Company Limited (KR) 69,462
69,920 Laird Group PLC (UK) 504,231
34,000 Yaskawa Electric Corporation (JA) 395,142
----------
1,808,990
----------
ENVIRONMENTAL & FACILITIES SERVICES--0.4%
14,000 Asahi Pretec Corporation (JA) 446,522
----------
FOOD RETAIL--0.5%
8,100 Delhaize Group (BE) 561,550
----------
GENERAL MERCHANDISE STORES--0.9%
16,200 Don Quijote Company Limited (JA) 366,638
8,100 Ryohin Keikaku Company Limited (JA) 663,911
----------
1,030,549
----------
GOLD--1.2%
543,450 Oxiana Limited (AU) 1,276,140
----------
HEALTHCARE DISTRIBUTORS--0.7%
26,300 Alliance Unichem PLC (UK) 497,016
17,400 Toho Pharmaceutical Company Limited (JA) 307,891
----------
804,907
----------
HEALTHCARE EQUIPMENT--2.0%
49,000 Amplifon SPA (IT) 417,108
6,800 Biomerieux (FR) 401,842
11,950 Cochlear Limited (AU) 485,122
18,800 Getinge AB Class B (SW) 320,003
8,160 Phonak Holding AG (SZ) 510,250
----------
2,134,325
----------
HEALTHCARE FACILITIES--0.3%
43,980 Ramsay Health Care Limited (AU) 314,073
----------
HOME IMPROVEMENT RETAIL--1.1%
31,970 Grafton Group PLC Units (IE)* 402,794
23,100 Nobia AB (SW) 751,084
----------
1,153,878
----------
HOMEBUILDING--1.8%
21,260 Barratt Developments PLC (UK) 372,679
16,120 Fadesa Inmobiliaria SA (SP) 553,004
19,100 Joint Corporation (JA) 622,536
19,710 Persimmon PLC (UK) 449,744
----------
1,997,963
----------
HOTELS, RESORTS & CRUISE LINES--1.8%
130,230 First Choice Holidays PLC (UK) 550,853
1,100 Kuoni Reisen Holding AG (SZ)* 617,209
3,690 Pierre & Vacances (FR) 404,493
23,000 Sol Melia SA (SP) 370,977
----------
1,943,532
----------
SEE NOTES TO STATEMENT OF INVESTMENTS.
15
<Page>
SHARES MARKET VALUE
- --------------------------------------------------------------------------------
HOUSEHOLD APPLIANCES--0.4%
13,200 Makita Corporation (JA) $ 417,546
----------
HUMAN RESOURCE & EMPLOYMENT SERVICES--1.1%
95,420 Michael Page International PLC (UK) 618,430
7,670 USG People NV (NE) 586,679
----------
1,205,109
----------
INDUSTRIAL CONGLOMERATES--1.1%
8,840 Aalberts Industries NV (NE) 649,601
59,600 Cookson Group PLC (UK) 578,863
----------
1,228,464
----------
INDUSTRIAL MACHINERY--5.6%
70,800 Bodycote International PLC (UK) 331,548
43,390 Charter PLC (UK)* 647,079
26,200 CKD Corporation (JA) 406,599
1,070 Fischer Georg AG (SZ)* 459,472
13,750 Haulotte Group (FR) 394,842
7,770 Man AG (GE) 563,320
18,100 Mori Seiki Company Limited (JA) 391,450
83,000 Nachi-Fujikoshi Corporation (JA) 467,800
44,000 NTN Corporation (JA) 347,955
19,100 OSG Corporation (JA) 321,616
1,460 Rieter Holding AG (SZ) 561,263
680 Sulzer AG (SZ) 509,472
60,000 Toshiba Machine Company Limited (JA) 678,434
----------
6,080,850
----------
INSURANCE BROKERS--0.4%
7,290 April Group (FR) 391,355
----------
INTEGRATED OIL & GAS--0.4%
22,080 Enagas (SP) 471,085
----------
INTERNET SOFTWARE & SERVICES--0.7%
9,470 Iliad SA (FR) 792,195
----------
INVESTMENT BANKING & BROKERAGE--0.3%
21,300 Canaccord Capital, Inc. (CA) 338,113
----------
IT CONSULTING & OTHER SERVICES--1.1%
16,180 Alten (FR)* 589,831
171,250 Northgate Information Solutions PLC (UK)* 245,412
121,000 WM Data AB Class B (SW) 373,249
----------
1,208,492
----------
LEISURE PRODUCTS--0.4%
62,480 Sportingbet PLC (UK) 454,621
----------
LIFE & HEALTH INSURANCE--0.4%
4,700 CNP Assurances (FR) 446,975
----------
MULTI-LINE INSURANCE--0.8%
69,180 Amlin PLC (UK) 301,895
72,110 Milano Assicurazioni SPA (IT) 526,206
----------
828,101
----------
16
<Page>
SHARES MARKET VALUE
- --------------------------------------------------------------------------------
OFFICE SERVICES & SUPPLIES--0.8%
3,310 Bacou Dalloz (FR) $ 394,169
30,840 Buhrmann NV (NE) 447,334
----------
841,503
----------
OIL & GAS DRILLING--0.7%
35,600 Ensign Energy Services, Inc. (CA) 731,581
----------
OIL & GAS EQUIPMENT & SERVICES--3.3%
2,500 Compagnie Generale de Geophysique SA (FR)* 431,376
17,680 Fugro NV (NE) 762,560
22,800 SBM Offshore NV (NE) 607,767
40,800 TGS Nopec Geophysical Company ASA (NW)* 720,975
52,500 Trican Well Service Limited (CA) 1,048,777
----------
3,571,455
----------
OIL & GAS EXPLORATION & PRODUCTION--1.2%
29,710 Burren Energy PLC (UK) 479,052
107,200 Oil Search Limited (AU) 326,611
71,210 Tullow Oil PLC (UK) 503,000
----------
1,308,663
----------
OIL & GAS REFINING & MARKETING--0.3%
98,000 Singapore Petroleum Company Limited (SG) 312,654
----------
OTHER DIVERSIFIED FINANCIAL SERVICES--0.6%
142 Kenedix, Inc. (JA) 616,690
----------
PACKAGED FOODS & MEATS--1.5%
1,800 Barry Callebaut AG (SZ) 759,692
25,260 IAWS Group PLC (IE) 445,879
45,800 Katokichi Company Limited (JA) 460,241
----------
1,665,812
----------
PAPER PACKAGING--0.4%
64,000 Rengo Company Limited (JA) 483,747
----------
PERSONAL PRODUCTS--0.8%
536,000 Hengan International Group Company Limited (HK) 873,054
----------
PHARMACEUTICALS--1.8%
30,000 Dainippon Sumitomo Pharma Company Limited (JA) 336,858
2,820 Hanmi Pharmaceutical Industrial Company Limited (KR) 282,372
62,820 Recordati SPA (IT) 458,816
10,010 Stada Arzneimittel AG (GE) 398,454
18,000 Tsumura & Company (JA) 512,758
----------
1,989,258
----------
PHOTOGRAPHIC PRODUCTS--0.4%
24,400 Tamron Company Limited (JA) 408,088
----------
SEE NOTES TO STATEMENT OF INVESTMENTS.
17
<Page>
SHARES MARKET VALUE
- --------------------------------------------------------------------------------
PROPERTY & CASUALTY INSURANCE--3.0%
35,680 Admiral Group PLC (UK) $ 409,713
32,020 Dongbu Insurance Company Limited (KR) 803,242
7,600 Euler Hermes SA (FR) 838,936
13,200 Fondiaria-Sai SPA (IT) 539,616
21,700 Kingsway Financial Services, Inc. (CA) 392,089
11,300 Northbridge Financial Corporation (CA) 333,544
----------
3,317,140
----------
PUBLISHING--1.2%
61,530 Informa PLC (UK) 490,659
4,860 Lagardere SCA (FR) 358,688
34,850 United Business Media PLC (UK) 417,259
----------
1,266,606
----------
REAL ESTATE MANAGEMENT & DEVELOPMENT--3.5%
1,184,000 China Overseas Land & Investment Limited (HK) 720,343
68 Creed Corporation (JA) 268,577
39,970 Inmobiliaria Urbis SA (SP) 1,040,406
16,900 Leopalace21 Corporation (JA) 583,319
26,400 Urban Corporation (JA) 318,812
18,360 Vivacon AG (GE)* 410,740
24,800 Wihlborgs Fastigheter AB (SW) 427,301
----------
3,769,498
----------
REGIONAL BANKS--0.7%
33,200 Pusan Bank (KR) 423,420
26,000 Suruga Bank Limited (JA) 350,332
----------
773,752
----------
RESTAURANTS--1.5%
32,930 Enterprise Inns PLC (UK) 577,249
41,680 Greene King PLC (UK) 633,909
107,652 Restaurant Group PLC (UK) 403,595
----------
1,614,753
----------
SEMICONDUCTOR EQUIPMENT--0.8%
15,320 Silicon-On-Insulator Technologies (FR)* 453,251
12,200 Ulvac, Inc. (JA) 416,830
----------
870,081
----------
SEMICONDUCTORS--0.6%
1,224,000 Solomon Systech International Limited (HK) 308,904
631,000 STATS ChipPAC Limited (SG)* 396,642
----------
705,546
----------
SPECIALIZED FINANCE--1.0%
5,820 Deutsche Boerse AG (GE) 794,164
11,900 Ricoh Leasing Company Limited (JA) 344,189
----------
1,138,353
----------
18
<Page>
SHARES MARKET VALUE
- --------------------------------------------------------------------------------
SPECIALTY CHEMICALS--3.6%
68,200 Croda International PLC (UK) $ 547,000
12,570 Koninklijke DSM NV (NE) 523,509
53,000 Nippon Shokubai Company Limited (JA) 647,912
680 Sika AG (SZ)* 756,421
4,570 Umicore (BE) 610,269
26,940 Victrex PLC (UK) 383,576
36,000 Zeon Corporation (JA) 428,452
------------
3,897,139
------------
SPECIALTY STORES--0.7%
1,600 Valora Holding AG (SZ) 346,802
45,830 WH Smith PLC (UK) 412,707
------------
759,509
------------
STEEL--3.2%
16,400 Boehler-Uddeholm AG (AT) 896,777
10,200 IPSCO, Inc. (CA) 976,506
26,700 Rautaruukki Oyj (FI) 806,669
720 Vallourec SA (FR) 865,695
------------
3,545,647
------------
SYSTEMS SOFTWARE--0.4%
8,060 Software AG (GE) 421,042
------------
TECHNOLOGY DISTRIBUTORS--0.6%
29,600 Simm Tech Company Limited (KR) 315,109
45,430 Wolfson Microelectronics PLC (UK)* 375,923
------------
691,032
------------
THRIFTS & MORTGAGE FINANCE--0.3%
6,050 Hypo Real Estate Holding AG (GE) 366,807
------------
TIRES & RUBBER--0.8%
7,960 Continental AG (GE) 814,734
------------
TRADING COMPANIES & DISTRIBUTORS--1.7%
20,400 Hitachi High-Technologies Corporation (JA) 620,343
38,740 SIG PLC (UK) 630,385
12,750 Univar NV (NE) 604,231
------------
1,854,959
------------
WIRELESS TELECOMMUNICATION SERVICES--0.6%
235,000 MobileOne Limited (SG) 307,316
4,200 Mobistar SA (BE) 333,346
------------
640,662
------------
TOTAL COMMON STOCKS (FOREIGN) (COST--$87,433,732) 106,122,960
------------
SEE NOTES TO STATEMENT OF INVESTMENTS.
19
<Page>
SHARES MARKET VALUE
- --------------------------------------------------------------------------------
PREFERRED STOCKS (FOREIGN)--1.9%
APPAREL, ACCESSORIES & LUXURY GOODS--0.4%
9,710 Hugo Boss AG Preferred (GE) $ 410,731
----------
BROADCASTING & CABLE TV--0.3%
13,700 ProSiebenSat.1 Media AG Preferred (GE) 342,062
----------
HEALTHCARE EQUIPMENT--0.6%
3,910 Fresenius AG Preferred (GE) 651,117
----------
HOUSEHOLD PRODUCTS--0.6%
6,010 Henkel KGAA Preferred (GE) 687,176
----------
TOTAL PREFERRED STOCKS (FOREIGN)
(COST--$1,821,089) 2,091,086
----------
UNITS MARKET VALUE
- --------------------------------------------------------------------------------
FOREIGN RIGHTS AND WARRANTS--0.0%
REAL ESTATE MANAGEMENT & DEVELOPMENT--0.0%
148,000 China Overseas Land & Investment Limited Warrant,
exp. 7/18/07 (HK)* $4,288
------
TOTAL FOREIGN RIGHTS AND WARRANTS
(COST--$0) 4,288
------
PRINCIPAL AMOUNT AMORTIZED COST
- --------------------------------------------------------------------------------
CORPORATE SHORT-TERM NOTES--0.9%
SPECIAL PURPOSE ENTITY--0.9%
$1,000,000 CAFCO LLC 5.33% 7/3/06~ $ 999,704
------------
TOTAL CORPORATE SHORT-TERM NOTES (AMORTIZED COST--$999,704) 999,704
------------
TOTAL INVESTMENTS--100.0% (TOTAL COST--$90,254,525) 109,218,038
------------
OTHER ASSETS AND LIABILITIES--0.0% 34,211
------------
NET ASSETS--100.0% $109,252,249
============
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 $999,704, OR 0.9%, OF THE FUND'S NET ASSETS AS OF JUNE 30,
2006.
SEE NOTES TO FINANCIAL STATEMENTS.
20
<Page>
STATEMENT OF ASSETS AND LIABILITIES
June 30, 2006 (UNAUDITED)
ASSETS
- --------------------------------------------------------------------------------
Investment securities, at cost $ 90,254,525
-------------
Investment securities, at market 109,218,038
Cash 190,015
Foreign currency (cost $166,123) 165,691
Receivables:
Investment securities sold 678,193
Capital shares sold 92,910
Dividends and interest 63,437
From transfer agent 4,562
Other assets 248,017
-------------
Total Assets 110,660,863
-------------
LIABILITIES
- --------------------------------------------------------------------------------
Payables and other accrued liabilities:
Investment securities purchased 459,109
Capital shares redeemed 653,954
Advisory fees 87,912
Shareholder servicing fees 13,721
Accounting fees 8,791
Distribution fees 26,398
Transfer agency fees 28,490
Custodian fees 3,148
To transfer agent 2,161
Directors' deferred compensation 116,177
Other 8,753
-------------
Total Liabilities 1,408,614
-------------
Net Assets $ 109,252,249
=============
COMPOSITION OF NET ASSETS
- --------------------------------------------------------------------------------
Capital (par value and paid-in surplus) $ 203,202,976
Undistributed net investment income 184,939
Accumulated net realized loss from security
and foreign currency transactions (113,130,474)
Net unrealized appreciation on investments
and foreign currency translation 18,994,808
-------------
Total $ 109,252,249
=============
SEE NOTES TO FINANCIAL STATEMENTS.
21
<Page>
CLASS A
- --------------------------------------------------------------------------------
Net Assets $33,526,120
Shares Outstanding 1,473,510
Net Asset Value, Redemption Price Per Share $ 22.75
Maximum offering price per share (net asset value
plus sales charge of 5.75% of offering price) $ 24.14
CLASS B
- --------------------------------------------------------------------------------
Net Assets $ 4,924,848
Shares Outstanding 228,477
Net Asset Value, Offering and Redemption Price (excluding
applicable contingent deferred sales charge) Per Share $ 21.56
CLASS C
- --------------------------------------------------------------------------------
Net Assets $ 6,938,029
Shares Outstanding 321,820
Net Asset Value, Offering and Redemption Price (excluding
applicable contingent deferred sales charge) Per Share $ 21.56
CLASS F
- --------------------------------------------------------------------------------
Net Assets $63,197,856
Shares Outstanding 2,777,091
Net Asset Value, Offering and Redemption Price Per Share $ 22.76
CLASS R
- --------------------------------------------------------------------------------
Net Assets $ 187,102
Shares Outstanding 8,424
Net Asset Value, Offering and Redemption Price Per Share $ 22.21
CLASS T
- --------------------------------------------------------------------------------
Net Assets $ 478,294
Shares Outstanding 22,092
Net Asset Value, Redemption Price Per Share $ 21.65
Maximum offering price per share (net asset value
plus sales charge of 4.50% of offering price) $ 22.67
SEE NOTES TO FINANCIAL STATEMENTS.
22
<Page>
STATEMENT OF OPERATIONS
For the six months ended June 30, 2006 (UNAUDITED)
INVESTMENT INCOME
- --------------------------------------------------------------------------------
Dividends $ 1,493,734
Interest 16,665
Foreign taxes withheld (169,235)
------------
Total Investment Income 1,341,164
------------
EXPENSES
- --------------------------------------------------------------------------------
Advisory fees--Note 2 570,438
Shareholder servicing fees--Note 2 88,679
Accounting fees--Note 2 57,044
Distribution fees--Note 2 146,797
Transfer agency fees--Note 2 49,027
Registration fees 32,255
Postage and mailing expenses 5,100
Custodian fees and expenses--Note 2 97,815
Printing expenses 21,165
Legal and audit fees 19,785
Directors' fees and expenses--Note 2 26,897
Other expenses 33,378
------------
Total Expenses 1,148,380
Earnings Credits (3,188)
Reimbursed/Waived Expenses (67,835)
Expense Offset to Broker Commissions (1,164)
------------
Net Expenses 1,076,193
------------
Net Investment Income 264,971
------------
REALIZED AND UNREALIZED GAIN (LOSS) ON SECURITY TRANSACTIONS AND
FOREIGN CURRENCY TRANSACTIONS
- --------------------------------------------------------------------------------
Net Realized Gain (Loss) on:
Security Transactions 5,554,415
Closing of Futures Contracts (41,950)
Foreign Currency Transactions 12,481
------------
Net Realized Gain 5,524,946
Net Change in Unrealized Appreciation/Depreciation
of Investments and Foreign Currency Translation 8,354,925
------------
Net Realized and Unrealized Gain 13,879,871
------------
Net Increase in Net Assets Resulting from Operations $14,144,842
============
SEE NOTES TO FINANCIAL STATEMENTS.
23
<Page>
STATEMENTS OF CHANGES IN NET ASSETS
(UNAUDITED)
<Table>
<Caption>
SIX MONTHS ENDED YEAR ENDED
JUNE 30, 2006 DECEMBER 31, 2005
OPERATIONS
- --------------------------------------------------------------------------------------------
Net Investment Income (Loss) $ 264,971 $ (1,089,649)
Net Realized Gain on Security and Foreign
Currency Transactions 5,524,946 19,668,576
Net Change in Unrealized Appreciation/Depreciation
of Investments and Foreign Currency Translation 8,354,925 46,812
------------ -------------
Net Increase in Net Assets Resulting from Operations 14,144,842 18,625,739
------------ -------------
CAPITAL SHARE TRANSACTIONS
- --------------------------------------------------------------------------------------------
Net Increase (Decrease)--Note 4
Class A 8,250,157 (1,068,075)
Class B (13,288,663) (4,356,640)
Class C (1,597,212) (3,909,744)
Class F (9,041,808) (22,526,616)
Class R (153,662) 73,085
Class T (23,461) (144,420)
------------ -------------
Net Decrease from Capital Share Transactions (15,854,649) (31,932,410)
------------ -------------
Net Decrease in Net Assets (1,709,807) (13,306,671)
------------ -------------
NET ASSETS
- --------------------------------------------------------------------------------------------
Beginning of Period $110,962,056 $124,268,727
------------ -------------
End of Period $109,252,249 $110,962,056
============ =============
Undistributed (Accumulated)
Net Investment Income (Loss) $ 184,939 $ (80,032)
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
24
<Page>
FINANCIAL HIGHLIGHTS
(UNAUDITED)
<Table>
<Caption>
SIX MONTHS YEAR ENDED
ENDED JUNE 30, DECEMBER 31,
2006 2005 2004 2003 2002
-------------- ---------------------------------------------
CLASS A SHARES
PER SHARE OPERATING DATA
Net Asset Value, beginning of period $ 20.10 $ 16.76 $ 14.24 $ 8.14 $ 9.68
- ---------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) 0.09(a) (0.14)(a) (0.11)(a) 0.10 (0.16)
Net realized and unrealized gains
(losses) on securities 2.56 3.48 2.63 6.00 (1.38)
--------------------------------------------------------------
Total from investment operations 2.65 3.34 2.52 6.10 (1.54)
- ---------------------------------------------------------------------------------------------------------------
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 $ 22.75 $ 20.10 $ 16.76 $ 14.24 $ 8.14
==============================================================
TOTAL RETURN(b) 13.18% 19.93% 17.70% 74.94% (15.91%)
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000s) $33,526 $22,107 $19,726 $27,252 $ 9,422
- ---------------------------------------------------------------------------------------------------------------
Ratios to average net assets:
Expenses with reimbursements, but
no earnings credits or brokerage offsets(c) 1.70% 2.14% 1.92% 2.45% 2.24%
Expenses with reimbursements,
earnings credits and brokerage offsets 1.70% 2.12% 1.92% 2.45% 2.24%
Net investment income (loss) 0.80% (0.82%) (0.77%) (0.83%) (0.80%)
- ---------------------------------------------------------------------------------------------------------------
Portfolio turnover rate(d) 398% 729% 648% 707% 495%
</Table>
(a.) COMPUTED USING AVERAGE SHARES OUTSTANDING THROUGHOUT THE PERIOD.
(b.) SALES CHARGES ARE NOT REFLECTED IN THE TOTAL RETURN.
(c.) CERTAIN FEES WERE WAIVED BY THE CUSTODIAN. HAD THESE FEES NOT BEEN WAIVED,
THE EXPENSE RATIOS WOULD HAVE BEEN 1.83% (2006), 2.29% (2005), 2.02%
(2004), 2.54% (2003) AND 2.27% (2002).
(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,
2006 2005 2004 2003 2002
-------------- ----------------------------------------------
CLASS B SHARES
PER SHARE OPERATING DATA
Net Asset Value, beginning of period $19.13 $ 16.09 $ 13.79 $ 7.95 $ 9.54
- ----------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment loss (0.07)(a) (0.28)(a) (0.23)(a) (0.31) (0.29)
Net realized and unrealized gains
(losses) on securities 2.50 3.32 2.53 6.15 (1.30)
---------------------------------------------------------------
Total from investment operations 2.43 3.04 2.30 5.84 (1.59)
- ----------------------------------------------------------------------------------------------------------------
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 $21.56 $ 19.13 $ 16.09 $ 13.79 $ 7.95
===============================================================
TOTAL RETURN(b) 12.70% 18.89% 16.68% 73.46% (16.67%)
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000s) $4,925 $16,421 $17,917 $18,198 $12,810
- ----------------------------------------------------------------------------------------------------------------
Ratios to average net assets:
Expenses with reimbursements, but
no earnings credits or brokerage offsets(c) 2.63% 2.98% 2.79% 3.30% 3.09%
Expenses with reimbursements,
earnings credits and brokerage offsets 2.63% 2.97% 2.78% 3.29% 3.09%
Net investment loss (0.76%) (1.66%) (1.63%) (1.44%) (1.64%)
- ----------------------------------------------------------------------------------------------------------------
Portfolio turnover rate(d) 398% 729% 648% 707% 495%
</Table>
(a.) COMPUTED USING AVERAGE SHARES OUTSTANDING THROUGHOUT THE PERIOD.
(b.) SALES CHARGES ARE NOT REFLECTED IN THE TOTAL RETURN.
(c.) CERTAIN FEES WERE WAIVED BY THE CUSTODIAN. HAD THESE FEES NOT BEEN WAIVED,
THE EXPENSE RATIOS WOULD HAVE BEEN 2.73% (2006), 3.13% (2005), 2.89%
(2004), 3.38% (2003) AND 3.12% (2002).
(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,
2006 2005 2004 2003 2002
-------------- --------------------------------------------
CLASS C SHARES
PER SHARE OPERATING DATA
Net Asset Value, beginning of period $19.12 $16.07 $ 13.76 $ 7.93 $ 9.52
- --------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment loss (0.01)(a) (0.27)(a) (0.22)(a) (0.01) (0.35)
Net realized and unrealized gains
(losses) on securities 2.45 3.32 2.53 5.84 (1.24)
-------------------------------------------------------------
Total from investment operations 2.44 3.05 2.31 5.83 (1.59)
- --------------------------------------------------------------------------------------------------------------
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 $21.56 $19.12 $ 16.07 $ 13.76 $ 7.93
=============================================================
TOTAL RETURN(b) 12.76% 18.98% 16.79% 73.52% (16.70%)
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000s) $6,938 $7,568 $10,249 $10,639 $ 5,268
- --------------------------------------------------------------------------------------------------------------
Ratios to average net assets:
Expenses with reimbursements, but
no earnings credits or brokerage offsets(c) 2.51% 2.93% 2.71% 3.25% 3.06%
Expenses with reimbursements,
earnings credits and brokerage offsets 2.50% 2.92% 2.70% 3.25% 3.05%
Net investment loss (0.14%) (1.60%) (1.55%) (1.43%) (1.58%)
- --------------------------------------------------------------------------------------------------------------
Portfolio turnover rate(d) 398% 729% 648% 707% 495%
</Table>
(a.) COMPUTED USING AVERAGE SHARES OUTSTANDING THROUGHOUT THE PERIOD.
(b.) SALES CHARGES ARE NOT REFLECTED IN THE TOTAL RETURN.
(c.) CERTAIN FEES WERE WAIVED BY THE CUSTODIAN. HAD THESE FEES NOT BEEN WAIVED,
THE EXPENSE RATIOS WOULD HAVE BEEN 2.63% (2006), 3.08% (2005), 2.81%
(2004), 3.34% (2003) AND 3.08% (2002).
(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,
2006 2005 2004 2003 2002
-------------- ----------------------------------------------
CLASS F SHARES
PER SHARE OPERATING DATA
Net Asset Value, beginning of period $ 20.11 $ 16.76 $ 14.24 $ 8.13 $ 9.67
- ----------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) 0.07(a) (0.13)(a) (0.11)(a) (0.14) (0.23)
Net realized and unrealized gains
(losses) on securities 2.58 3.48 2.63 6.25 (1.31)
---------------------------------------------------------------
Total from investment operations 2.65 3.35 2.52 6.11 (1.54)
- ----------------------------------------------------------------------------------------------------------------
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 $ 22.76 $ 20.11 $ 16.76 $ 14.24 $ 8.13
===============================================================
TOTAL RETURN 13.18% 19.99% 17.70% 75.15% (15.93%)
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000s) $63,198 $64,112 $75,677 $78,759 $50,742
- ----------------------------------------------------------------------------------------------------------------
Ratios to average net assets:
Expenses with reimbursements, but
no earnings credits or brokerage offsets(b) 1.76% 2.10% 1.90% 2.31% 2.18%
Expenses with reimbursements,
earnings credits and brokerage offsets 1.75% 2.08% 1.89% 2.31% 2.18%
Net investment income (loss) 0.59% (0.76%) (0.75%) (0.45%) (0.74%)
- ----------------------------------------------------------------------------------------------------------------
Portfolio turnover rate(c) 398% 729% 648% 707% 495%
</Table>
(a.) COMPUTED USING AVERAGE SHARES OUTSTANDING THROUGHOUT THE PERIOD.
(b.) CERTAIN FEES WERE WAIVED BY THE CUSTODIAN. HAD THESE FEES NOT BEEN WAIVED,
THE EXPENSE RATIOS WOULD HAVE BEEN 1.88% (2006), 2.24% (2005), 2.00%
(2004), 2.40% (2003) AND 2.21% (2002).
(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.
28
<Page>
<Table>
<Caption>
SIX MONTHS YEAR ENDED
ENDED JUNE 30, DECEMBER 31,
2006 2005 2004 2003 2002
-------------- -----------------------------------------
CLASS R SHARES PER SHARE OPERATING DATA
Net Asset Value, beginning of period $19.60 $ 16.31 $13.82 $ 7.87 $ 9.56
- ----------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) 0.08(a) (0.12)(a) (0.07)(a) 0.54 (0.81)
Net realized and unrealized gains
(losses) on securities 2.53 3.41 2.56 5.41 (0.88)
----------------------------------------------------------
Total from investment operations 2.61 3.29 2.49 5.95 (1.69)
- ----------------------------------------------------------------------------------------------------
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 $22.21 $ 19.60 $16.31 $13.82 $ 7.87
==========================================================
TOTAL RETURN 13.32% 20.17% 18.02% 75.60% (17.68%)
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000s) $ 187 $ 310 $ 190 $ 142 $ 37
- ----------------------------------------------------------------------------------------------------
Ratios to average net assets:
Expenses with reimbursements, but no
earnings credits or brokerage
offsets(b) 1.52% 1.91% 1.68% 2.08% 3.94%
Expenses with reimbursements, earnings
credits and brokerage offsets 1.51% 1.89% 1.68% 2.07% 3.91%
Net investment income (loss) 0.81% (0.69%) (0.51%) (0.32%) (2.20%)
- ----------------------------------------------------------------------------------------------------
Portfolio turnover rate(c) 398% 729% 648% 707% 495%
</Table>
(a.) COMPUTED USING AVERAGE SHARES OUTSTANDING THROUGHOUT THE PERIOD.
(b.) CERTAIN FEES WERE WAIVED BY THE CUSTODIAN. HAD THESE FEES NOT BEEN WAIVED,
THE EXPENSE RATIOS WOULD HAVE BEEN 1.63% (2006), 2.08% (2005), 1.79%
(2004), 2.17% (2003) AND 4.65% (2002).
(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.
29
<Page>
<Table>
<Caption>
SIX MONTHS YEAR ENDED
ENDED JUNE 30, DECEMBER 31,
2006 2005 2004 2003 2002
-------------- -----------------------------------------
CLASS T SHARES PER SHARE OPERATING DATA
Net Asset Value, beginning of period $19.16 $16.05 $13.70 $ 7.87 $ 9.50
- ----------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) 0.03(a) (0.21)(a) (0.17)(a) (0.24) (0.45)
Net realized and unrealized gains
(losses) on securities 2.46 3.32 2.52 6.07 (1.18)
----------------------------------------------------------
Total from investment operations 2.49 3.11 2.35 5.83 (1.63)
- ----------------------------------------------------------------------------------------------------
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 $21.65 $19.16 $16.05 $13.70 $ 7.87
==========================================================
TOTAL RETURN(b) 13.00% 19.38% 17.15% 74.08% (17.16%)
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000s) $ 478 $ 444 $ 510 $ 522 $ 345
- ----------------------------------------------------------------------------------------------------
Ratios to average net assets:
Expenses with reimbursements, but no
earnings credits or brokerage
offsets(c) 2.10% 2.55% 2.37% 3.07% 4.03%
Expenses with reimbursements, earnings
credits and brokerage offsets 2.09% 2.54% 2.36% 3.07% 4.03%
Net investment income (loss) 0.29% (1.24%) (1.21%) (1.06%) (2.69%)
- ----------------------------------------------------------------------------------------------------
Portfolio turnover rate(d) 398% 729% 648% 707% 495%
</Table>
(a.) COMPUTED USING AVERAGE SHARES OUTSTANDING THROUGHOUT THE PERIOD.
(b.) SALES CHARGES ARE NOT REFLECTED IN THE TOTAL RETURN.
(c.) CERTAIN FEES WERE WAIVED BY THE CUSTODIAN. HAD THESE FEES NOT BEEN WAIVED,
THE EXPENSE RATIOS WOULD HAVE BEEN 2.22% (2006), 2.70% (2005), 2.47%
(2004), 3.16% (2003) AND 4.05% (2002).
(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.
30
<Page>
NOTES TO FINANCIAL STATEMENTS
June 30, 2006 (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). Effective June 1, 2006,
Class B shares will no longer be offered except in connection with dividend
reinvestments and permitted exchanges of Class B shares. 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. New York closing exchange rates are used to convert foreign
currencies to U.S. dollars.
A debt security with a remaining maturity greater than 60 days at the time of
purchase is valued in accordance with the evaluated bid price supplied by a
pricing service approved by the Company's board of directors or, if such price
is not available, at the mean between the highest bid and lowest asked
quotations obtained from at least two securities dealers. A debt security with a
remaining maturity of 60 days or less at the time of purchase is valued at
amortized cost, which approximates market value, unless it is determined that
amortized cost would not represent market value, in which case the securities
would be marked to market. The Fund amortizes premiums and discounts on all debt
securities.
If market quotations 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
31
<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 requires the use of estimates, and as such,
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--The Fund normally will invest a
large portion of its assets in foreign securities. Foreign securities carry more
risk than U.S. securities, such as political and currency risks. 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 Fund
could be exposed to risk if counterparties are unable to meet the terms of the
contracts or if the value of the currency changes unfavorably to the U.S.
dollar. 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, 2006 for settling
foreign trades is listed on the Statement of Assets and Liabilities.
The accounting records of the Fund are maintained in U.S. dollars. The market
values of foreign securities, currency holdings and other assets and liabilities
are translated into U.S. dollars based on the current exchange rates each
business day. 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 unrealized gain or loss from investments and foreign
currency translations on the Statement of Operations.
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
32
<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 Subchapter M 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 from
net investment income (if any) and from net realized capital gains (if any)
annually. Dividends and distributions, which are determined in accordance with
income tax regulations, are recorded on the ex-dividend date.
EXPENSES--Each Class of the Fund bears expenses incurred specifically on its
behalf and, in addition, each Class bears a portion of general expenses based on
the relative net assets or the number of shareholder accounts of the Class. The
type of expense determines the allocation method.
The Company's board of directors has authorized the payment of certain Fund
expenses with commissions on Fund portfolio transactions. These commissions
reduce Other Expenses and are included in the Expense Offset to Broker
Commissions in the Statement of Operations.
USE OF ESTIMATES--The preparation of financial statements in conformity with
accounting principles generally accepted in the United States of America
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported amounts of
income and expenses during the reporting period. Actual results could differ
from those estimates.
INDEMNIFICATIONS--In the normal course of business, the Company enters into
contracts that contain provisions indemnifying other parties against specified
potential liabilities. Each Fund's maximum exposure under these arrangements is
unknown as this would involve future claims that may be made against the Fund
that have not yet occurred. However, based on experience, the Funds expect the
risk of loss to be remote.
OTHER--Certain prior year information has been reformatted, without substantive
change, to conform with the current year presentation.
33
<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
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 period ended June 30, 2006,
Class F shares were charged $27,975 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 period ended June 30, 2006, Class F shares were
charged $8,395 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 $12.92 to $13.36, 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 period ended June 30, 2006 were as
follows:
TRANSFER
AGENCY FEES
---------------------
Class A $ 7,425
---------------------
Class B $12,139
---------------------
Class C $ 4,457
---------------------
Class R $ 131
---------------------
Class T $ 475
34
<Page>
Certain as-of shareholder transactions may result in gains or losses to the
Fund. Depending on the circumstances, these gains may be payable to, or
reimbursable from, the transfer agent; such gains and losses are presented on
the Statement of Assets and Liabilities.
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 period ended June 30, 2006, the Fund was charged $809 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 period ended June
30, 2006, the Fund paid $16,005 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 period ended June 30,
2006, Class F shares were charged $81,635 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 period ended June 30, 2006, were as follows:
DISTRIBUTION SHAREHOLDER
FEES SERVICING FEES
---------------------------------------
Class A N/A $38,582
---------------------------------------
Class B $34,876 $11,625
---------------------------------------
Class C $29,683 $ 9,894
---------------------------------------
Class T $ 603 $ 603
---------------------------------------
35
<Page>
During the period ended June 30, 2006, DSC retained $284 in sales commissions
from the sales of Class A shares. DSC also retained $10,844 and $589 of
contingent deferred sales charges relating to redemptions of Class B and Class C
shares, respectively.
FUND ACCOUNTING AND ADMINISTRATIVE SERVICES FEES--The Funds have agreed to
compensate Founders for providing accounting services, administration,
compliance monitoring, regulatory and shareholder reporting, as well as related
facilities, equipment and clerical help. The fee is computed at the annual rate
of 0.10% of the average daily net assets of the Fund on the first $500 million,
0.065% of the average daily net assets of the Fund on the next $500 million and
0.02% of the average daily net assets of the Fund in excess of $1 billion, plus
reasonable out-of-pocket expenses. Founders has 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, which are shown as earnings credits on the
Statement of Operations. 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
period and in the amount set forth below:
TIME PERIOD AMOUNT OF WAIVER
------------------------------------
9/1/05 to 8/31/06 $200,000
------------------------------------
The fee waiver is allocated among the Funds in proportion to their respective
shares of the total custodian fee. For the period ended June 30, 2006, the
Fund's portion of the fee waiver was $67,835, which reduced the amount paid to
Mellon Bank to $29,980.
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 Directors'
Deferred Compensation on the Statement of Assets and Liabilities. Changes in
market value are included in the Directors' fees and expenses and the net change
in unrealized appreciation/depreciation of investments on the Statement of
Operations. 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
or its affiliates, which pay 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.
36
<Page>
OTHER--During the period ended June 30, 2006, Founders reimbursed the Fund
$3,661 for a trading error. An affiliate of Founders reimbursed the Fund $11,226
for trading errors. The amounts were not material to the Fund.
3. FEDERAL TAX INFORMATION
Net investment income and capital gains distributions are determined in
accordance with income tax regulations that may differ from accounting
principles generally accepted in the United States of America. These differences
are due to differing treatments for items such as deferral of wash sale losses,
passive foreign investment corporations, foreign currency transactions, deferred
compensation, 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, 2005 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, 2005 were:
EXPIRATION AMOUNT
---------------------------------------------------
2009 $105,273,118
---------------------------------------------------
2010 $ 11,833,084
---------------------------------------------------
$117,106,202
============
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, 2006 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.
Post-October Capital Loss Deferral $(1,461,360)
---------------------------------------------------
Federal Tax Cost $90,307,229
---------------------------------------------------
Gross Tax Appreciation of Investments $20,960,939
---------------------------------------------------
Gross Tax Depreciation of Investments $(2,050,130)
---------------------------------------------------
Net Tax Appreciation $18,910,809
---------------------------------------------------
37
<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:
PERIOD ENDED YEAR ENDED
JUNE 30, 2006 DECEMBER 31, 2005
SHARES AMOUNT SHARES AMOUNT
CLASS A
- -----------------------------------------------------------------------------
Sold 624,845 $ 13,908,499 431,931 $ 7,916,442
Redeemed (251,235) $ (5,658,342) (509,206) $ (8,984,517)
---------------------------------------------------
Net Increase (Decrease) 373,610 $ 8,250,157 (77,275) $ (1,068,075)
===================================================
CLASS B
- -----------------------------------------------------------------------------
Sold 4,858 $ 101,668 19,176 $ 327,743
Redeemed (634,700) $(13,390,331) (274,566) $ (4,684,383)
---------------------------------------------------
Net Decrease (629,842) $(13,288,663) (255,390) $ (4,356,640)
===================================================
CLASS C
- -----------------------------------------------------------------------------
Sold 15,130 $ 331,312 77,684 $ 1,393,853
Redeemed (89,115) $ (1,928,524) (319,650) $ (5,303,597)
---------------------------------------------------
Net Decrease (73,985) $ (1,597,212) (241,966) $ (3,909,744)
===================================================
CLASS F
- -----------------------------------------------------------------------------
Sold 126,369 $ 2,854,593 456,877 $8,160,585
Redeemed (537,774) $(11,896,401) (1,783,478) $(30,687,201)
---------------------------------------------------
Net Decrease (411,405) $ (9,041,808) (1,326,601) $(22,526,616)
===================================================
CLASS R
- -----------------------------------------------------------------------------
Sold 2,065 $ 44,272 25,002 $ 458,697
Redeemed (9,476) $ (197,934) (20,814) $ (385,612)
---------------------------------------------------
Net Increase (Decrease) (7,411) $ (153,662) 4,188 $ 73,085
===================================================
CLASS T
- -----------------------------------------------------------------------------
Sold 4 $ 96 4,248 $ 79,625
Redeemed (1,098) $ (23,557) (12,834) $ (224,045)
---------------------------------------------------
Net Decrease (1,094) $ (23,461) (8,586) $ (144,420)
===================================================
38
<Page>
5. INVESTMENT TRANSACTIONS
For the period ended June 30, 2006, purchases and sales of investment securities
(excluding short-term securities and U.S. government obligations) were
$39,427,474 and $55,083,866, respectively.
6. FUTURES CONTRACTS
The Fund may invest in financial futures contracts in order to gain exposure to
or protect against changes in the market. The Fund is exposed to market risk as
a result of changes in the value of the underlying financial instruments.
Investments in financial futures require the Fund to mark to market on a daily
basis, which reflects the change in market value of the contracts at the close
of each day's trading. Accordingly, variation margin payments are received or
made to reflect daily unrealized gains or losses. When the contracts are closed,
the Fund recognizes a realized gain or loss. These investments require initial
margin deposits with a broker, which consist of cash or cash equivalents. There
were no contracts open at June 30, 2006.
7. 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, 2006, the Fund did not have any borrowings under the LOC.
39
<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, 2006, 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)2006 Founders Asset Management LLC. 8/06
0379SA0606
<Page>
SEMIANNUAL REPORT
DREYFUS FOUNDERS
WORLDWIDE GROWTH FUND
INVESTMENT UPDATE
JUNE 30, 2006
DREYFUS FOUNDERS FUNDS(R)
THE GROWTH SPECIALISTS
<Page>
TABLE OF CONTENTS
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
PAPERLESS DELIVERY OF THIS REPORT
Did you know you can reduce your postal mail by accessing Dreyfus Founders Funds
regulatory material online? It's a simple, reliable process: when new documents
such as this 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
Founders Asset Management LLC
A MELLON FINANCIAL COMPANY(SM)
210 University Boulevard, Suite 800
Denver, CO 80206
DISTRIBUTOR
Dreyfus Service Corporation
200 Park Avenue
New York, NY 10166
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, 2006. The amounts of
these holdings are included in the Statement of Investments.
NOT FDIC-INSURED - NOT BANK-GUARANTEED - MAY LOSE VALUE
<Page>
MANAGEMENT OVERVIEW
(UNAUDITED)
[PHOTO OF REMI J. BROWNE]
[PHOTO OF JEFFREY R. SULLIVAN]
[PHOTO OF JOHN JARES]
A DISCUSSION WITH CO-PORTFOLIO MANAGERS REMI J. BROWNE, CFA, LEFT, JEFFREY R.
SULLIVAN, CFA SECOND FROM LEFT, AND JOHN JARES, CFA, RIGHT, REGARDING FUND
PERFORMANCE FOR THE SIX-MONTH PERIOD ENDED JUNE 30, 2006.
VOLATILE GLOBAL MARKETS
For the first four months of 2006, global equity markets continued the rally
that began three years ago. Strong earnings announcements and an increase in
merger-and-acquisition (M&A) activity, paired with generally benign inflation,
historically low interest rates and an ongoing economic expansion, drove
investor activity. However, later in the period, the United States faced
numerous macroeconomic issues that prompted a reversal in the global equity
markets. A slowdown in the housing market, U.S. dollar weakness, rising consumer
prices and the continued interest rate increases by the Federal Reserve began to
weigh on investors, initiating global market declines mid-May through mid-June.
Dreyfus Founders Worldwide Growth Fund underperformed its benchmark, the
Morgan Stanley Capital International (MSCI) World Index, which returned 6.06%
for the six-month period ended June 30, 2006, but outperformed(1) its other
benchmark, the MSCI World Growth Index, which returned 4.22% for the same
period.
CONSISTENT INVESTING STRATEGY
The positioning of the Fund was not substantially altered during the period, nor
was the investment strategy behind the Fund. We continued to analyze
- ----------
(1) Excluding sales charges, which result in lower returns for certain share
classes. Please see page 7 for Average Annual and Year-to-Date 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, but do not reflect
the costs of managing a mutual fund.
3
<Page>
companies through proprietary analysis, Wall Street data and meetings with
company management, among other resources, seeking solid growth opportunities at
attractive valuations. This investment approach served the Fund well, as strong
stock selection proved to be the principal positive impact on the Fund's
relative return for the period.
"STRONG STOCK SELECTION PROVED TO BE THE PRINCIPAL POSITIVE IMPACT ON THE FUND'S
RELATIVE RETURN FOR THE PERIOD."
U.S., U.K. AND GERMANY WERE PRIMARY AIDS TO PERFORMANCE
The largest positive contributors to relative Fund performance on a country
basis were the United States, the United Kingdom (U.K.) and Germany, primarily
due to strong stock selection. Investor optimism and strong market activity in
the first four months of the period boosted the United States' performance.
An overweight position in oil-exporting Norway and favorable stock
selection in Hong Kong also aided the Fund.
MATERIALS AND CONSUMER STOCKS BOOSTED RELATIVE RETURN
For the period, the materials sector was the strongest performing sector in the
Fund. Increased M&A activity aided materials firms at the end of the period,
with large bids indicating that the robust metals cycle was expected to
continue. The U.K.-based metals and mining company XSTRATA PLC had a strong run
during the period, as many metal prices experienced strong appreciation. In
addition, Xstrata announced a $1.7 billion acquisition of a Columbian coal mine,
giving the company increased exposure to the strong U.S. coal market. NUCOR
CORPORATION, a U.S.-based steel producer, saw its stock price increase over 60%
for the period.
SECTORS BENEFITING THE FUND
Materials
Consumer Staples
Consumer Discretionary
The consumer staples and consumer discretionary sectors also positively impacted
the Fund's relative return primarily through solid stock picking, but also
through an overweight position in the consumer staples sector. Consumer
discretionary issues BEST BUY COMPANY, INC., Pixar, Inc. and Kohl's Corporation
were among the strongest performing stocks in the Fund. Best Buy's stock price
rose on strong
4
<Page>
consumer spending on a variety of products, including HDTVs, MP3 players and
digital video and photography equipment. Pixar, Inc. saw its stock price
increase on strong demand for its animated feature-length, family-friendly
films. Kohl's experienced improved revenue and earnings growth trends driven by
higher sales as the department store industry saw a reduction in capacity.
SELECT ISSUES PERFORMED STRONGLY
Other notable performers during the period included industrials issue
CONTINENTAL AIRLINES, INC. and Schering AG. Late in 2005, the airline industry
experienced a wave of extreme capacity rationalization. This resulted in a
significant reduction in supply, which in turn created strong pricing trends for
the entire industry, including Continental. The German pharmaceuticals provider
Schering AG was caught in an acquisition bidding war between Bayer AG and MERCK
KGAA during the period. The stock rose 50% on the bidding.
SWEDEN, SPAIN AND CANADA WERE PRIMARY WEIGHTS ON PERFORMANCE
Weak stock selection, combined with poor relative allocations in Sweden, Spain
and Canada, detracted from relative Fund performance. Weak stock selection in
Denmark also produced a negative effect on the Fund for the period.
LARGEST EQUITY HOLDINGS (country of origin; ticker symbol)
1. GLAXOSMITHKLINE PLC (United Kingdom; GSK) 1.57%
2. HEWLETT-PACKARD COMPANY (United States; HPQ) 1.55%
3. EXXONMOBIL CORPORATION (United States; XOM) 1.53%
4. ROCHE HOLDING AG (Switzerland; RO.G) 1.48%
5. CISCO SYSTEMS, INC. (United States; CSCO) 1.46%
6. WALGREEN COMPANY (United States; WAG) 1.43%
7. BHP BILLITON LIMITED (Australia; BHP) 1.43%
8. SEAGATE TECHNOLOGY (United States; SGAT) 1.37%
9. GOOGLE, INC. CLASS A (United States; GOOG) 1.31%
10. BEST BUY COMPANY, INC. (United States; BBY) 1.31%
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]
<Table>
<Caption>
DREYFUS FOUNDERS
WORLDWIDE GROWTH MSCI
FUND-CLASS F WORLD INDEX
---------------- -----------
6/28/1996 $10,000.00 $10,000.00
6/30/1997 $11,325.72 $12,227.34
6/30/1998 $13,020.32 $14,309.55
6/30/1999 $13,119.34 $16,551.56
6/30/2000 $17,744.19 $18,569.72
6/29/2001 $11,882.24 $14,800.69
6/28/2002 $ 8,998.65 $12,548.63
6/30/2003 $ 8,586.71 $12,250.71
6/30/2004 $10,728.80 $15,191.29
6/30/2005 $11,653.39 $16,718.22
6/30/2006 $13,804.64 $19,548.89
</Table>
The above graph compares a $10,000 investment made in Class F shares of Dreyfus
Founders Worldwide Growth Fund on 6/30/96 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 6/30/06
YEAR-TO- SINCE
CLASS (INCEPTION DATE) DATE+ 1 YEAR 5 YEARS 10 YEARS INCEPTION
- ------------------------------------------------------------------------------
A SHARES (12/31/99)
With sales charge (5.75%) (0.33%) 11.66% 1.63% -- (5.30%)
Without sales charge 5.77% 18.44% 2.85% -- (4.43%)
B SHARES (12/31/99)
With redemption* 1.30% 13.60% 1.81% -- (5.13%)
Without redemption 5.30% 17.60% 2.18% -- (5.13%)
C SHARES (12/31/99)
With redemption** 4.26% 16.53% 1.78% -- (5.42%)
Without redemption 5.26% 17.53% 1.78% -- (5.42%)
F SHARES (12/29/89) 5.75% 18.46% 3.04% 3.28% 7.78%
R SHARES (12/31/99) 5.92% 19.42% 3.57% -- (3.92%)
T SHARES (12/31/99)
With sales charge (4.50%) 0.86% 12.84% 0.74% -- (6.06%)
Without sales charge 5.63% 18.15% 1.67% -- (5.39%)
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.
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>
INFORMATION TECHNOLOGY, INDUSTRIALS AND ENERGY HAMPERED FUND
A substantial overweight position in the information technology (IT) sector
caused the largest drain on Fund performance. INTEL CORPORATION, MOTOROLA, INC.,
SEAGATE TECHNOLOGIES, INC. and ADOBE SYSTEMS, INC. were among the weakest
overall performers in the Fund for the period. Intel Corporation lost market
share to a competitor, which resulted in poor revenue growth and margin
deterioration. Adobe moderated revenue and earnings growth expectations during
the second quarter of 2006, primarily due to weak sales as customers awaited the
launch of the company's upgraded software packages.
SECTORS DETRACTING FROM THE FUND
Information Technology
Industrials
Energy
In the industrials sector, the French-listed company EADS announced a
profit warning in June, as delays of the new Airbus A380 series of commercial
jets will negatively impact earnings going forward.
Poor stock selection in the energy sector also weighed on relative
performance. Oil- and gas-services provider TRICAN WELL SERVICE LIMITED released
fourth quarter 2005 results that were in line with forecasts. The stock,
however, fell as a result of the deterioration in North American gas prices and
profit taking.
[CHART]
<Table>
<Caption>
PORTFOLIO COMPOSITION OF NET ASSETS
47.99% United States
10.95% United Kingdom
10.89% Japan
5.44% France
4.41% Switzerland
4.01% Germany
2.58% Canada
2.54% Australia
2.04% Netherlands
1.76% Italy
6.35% Other Countries
1.04% Cash & Equivalents
</Table>
The Fund's portfolio composition is subject to change, and there is no assurance
the Fund will continue to hold any particular security. Opinions regarding
sectors, industries, companies, and/or themes are those of the portfolio
managers and are subject to change at any time, based on market and other
conditions, and should not be construed as a recommendation of any specific
security.
8
<Page>
OTHER NOTABLE UNDERPERFORMERS
Other individual issues also experienced poor performance during the period.
Health care holding BOSTON SCIENTIFIC CORPORATION acquired medical-device maker
Guidant Corporation early in the year. After the acquisition closed, demand for
medical devices, including Guidant's implantable cardioverter defibrillators
(ICDs), slackened. The Japanese home appliances and computer retailer Yamada
Denki Company Limited's stock price fell as a result of profit taking.
We have been cautiously optimistic regarding global markets due to the
relatively strong returns generated by the world's big exporters, Japan and
Germany, and the seemingly limitless appetite for commodity stocks. Economic
fundamentals have improved across Europe and Japan, which should help offset a
slowdown in U.S. consumption.
As always, we remain committed to our investment philosophy. Regardless of
macroeconomic trends, we continue to search for growth stocks that have an
attractive combination of business momentum and valuation.
/s/ Remi J. Browne /s/ Jeffrey R. Sullivan
- -------------------------------------- ---------------------------------------
Remi J. Browne, CFA Jeffrey R. Sullivan, CFA
Co-Portfolio Manager Co-Portfolio Manager
/s/ John B. Jares
- --------------------------------------
John Jares, CFA
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, 2006
and held through June 30, 2006.
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, together with the amount you
invested, 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
BEGINNING ENDING EXPENSES PAID
ACCOUNT VALUE ACCOUNT VALUE DURING PERIOD*
(1/1/06) (6/30/06) (1/1/06-6/30/06)
- -----------------------------------------------------------------------
CLASS A ACTUAL $1,000.00 $1,057.70 $ 9.95
CLASS A HYPOTHETICAL 1,000.00 1,015.00 9.79
CLASS B ACTUAL 1,000.00 1,053.00 13.90
CLASS B HYPOTHETICAL 1,000.00 1,011.09 13.71
CLASS C ACTUAL 1,000.00 1,052.60 13.69
CLASS C HYPOTHETICAL 1,000.00 1,011.29 13.50
CLASS F ACTUAL 1,000.00 1,057.50 10.00
CLASS F HYPOTHETICAL 1,000.00 1,014.95 9.84
CLASS R ACTUAL 1,000.00 1,059.20 7.91
CLASS R HYPOTHETICAL 1,000.00 1,017.01 7.78
CLASS T ACTUAL 1,000.00 1,056.30 11.06
CLASS T HYPOTHETICAL 1,000.00 1,013.90 10.89
* 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.
EXPENSE RATIO
- -----------------------
CLASS A 1.95%
CLASS B 2.73%
CLASS C 2.69%
CLASS F 1.96%
CLASS R 1.55%
CLASS T 2.17%
11
<Page>
STATEMENT OF INVESTMENTS
June 30, 2006 (UNAUDITED)
SHARES MARKET VALUE
- --------------------------------------------------------------------------------
COMMON STOCKS (DOMESTIC)--47.8%
AIRLINES--1.1%
11,938 AMR Corporation* $ 303,465
10,775 Continental Airlines, Inc. Class B* 321,095
----------
624,560
----------
APPLICATION SOFTWARE--1.3%
7,650 Autodesk, Inc.* 263,619
33,775 BEA Systems, Inc.* 442,115
----------
705,734
----------
BIOTECHNOLOGY--0.4%
9,275 MedImmune, Inc.* 251,353
----------
BROADCASTING & CABLE TV--1.0%
16,799 Comcast Corporation Special Class A* 550,671
----------
COMMUNICATIONS EQUIPMENT--3.2%
42,050 Cisco Systems, Inc.* 821,237
35,375 Motorola, Inc. 712,806
6,400 QUALCOMM, Inc. 256,448
----------
1,790,491
----------
COMPUTER & ELECTRONICS RETAIL--1.3%
13,376 Best Buy Company, Inc. 733,540
----------
COMPUTER HARDWARE--4.0%
9,302 Apple Computer, Inc.* 531,330
11,475 Dell, Inc.* 280,105
13,725 Diebold, Inc. 557,510
27,548 Hewlett-Packard Company 872,721
----------
2,241,666
----------
COMPUTER STORAGE & PERIPHERALS--1.4%
33,975 Seagate Technology* 769,194
----------
CONSUMER FINANCE--0.5%
5,793 SLM Corporation 306,566
----------
DEPARTMENT STORES--1.8%
12,450 Federated Department Stores, Inc. 455,670
8,250 J.C. Penney Company, Inc. 556,957
----------
1,012,627
----------
AU Australia
AT Austria
BE Belgium
CA Canada
DE Denmark
FI Finland
FR France
GE Germany
GR Greece
HK Hong Kong
IE Ireland
IT Italy
JA Japan
KR South Korea
NE Netherlands
NW Norway
PT Portugal
SG Singapore
SP Spain
SW Sweden
SZ Switzerland
UK United Kingdom
12
<Page>
SHARES MARKET VALUE
- --------------------------------------------------------------------------------
DIVERSIFIED CHEMICALS--0.7%
9,825 E.I. du Pont de Nemours and Company $ 408,720
----------
DRUG RETAIL--1.4%
17,875 Walgreen Company 801,515
----------
FOOD DISTRIBUTORS--0.8%
14,425 Sysco Corporation 440,828
----------
FOOD RETAIL--1.0%
22,325 Safeway, Inc. 580,450
----------
GENERAL MERCHANDISE STORES--1.2%
28,075 Family Dollar Stores, Inc. 685,872
----------
HEALTHCARE EQUIPMENT--1.3%
27,525 Boston Scientific Corporation* 463,521
2,500 Intuitive Surgical, Inc.* 294,925
----------
758,446
----------
HEALTHCARE SERVICES--1.1%
10,600 Medco Health Solutions, Inc.* 607,168
----------
HEALTHCARE SUPPLIES--1.1%
11,950 Advanced Medical Optics, Inc.* 605,865
----------
HOME ENTERTAINMENT SOFTWARE--0.4%
5,250 Electronic Arts, Inc.* 225,960
----------
HOME IMPROVEMENT RETAIL--0.9%
13,613 Home Depot, Inc. 487,209
----------
HOTELS, RESORTS & CRUISE LINES--0.5%
7,625 Marriott International, Inc. Class A 290,665
----------
HOUSEHOLD PRODUCTS--1.1%
10,697 Colgate-Palmolive Company 640,750
----------
HYPERMARKETS & SUPER CENTERS--0.6%
6,595 Wal-Mart Stores, Inc. 317,681
----------
INDUSTRIAL CONGLOMERATES--0.8%
13,258 General Electric Company 436,984
----------
INTEGRATED OIL & GAS--1.5%
13,971 ExxonMobil Corporation 857,121
----------
INTEGRATED TELECOMMUNICATION SERVICES--0.5%
13,555 Sprint Nextel Corporation 270,964
----------
INTERNET SOFTWARE & SERVICES--2.1%
1,759 Google, Inc. Class A* 737,601
14,250 Yahoo!, Inc.* 470,250
----------
1,207,851
----------
INVESTMENT BANKING & BROKERAGE--1.2%
2,995 Goldman Sachs Group, Inc. 450,538
16,475 TD Ameritrade Holding Corporation 243,995
----------
694,533
----------
SEE NOTES TO STATEMENT OF INVESTMENTS.
13
<Page>
SHARES MARKET VALUE
- --------------------------------------------------------------------------------
MOVIES & ENTERTAINMENT--1.0%
18,376 Walt Disney Company $ 551,280
-----------
MULTI-LINE INSURANCE--1.0%
12,100 Assurant, Inc. 585,640
-----------
OIL & GAS EQUIPMENT & SERVICES--0.5%
4,550 Schlumberger Limited 296,251
-----------
OTHER DIVERSIFIED FINANCIAL SERVICES--1.0%
13,369 JPMorgan Chase & Company 561,498
-----------
PERSONAL PRODUCTS--2.2%
19,350 Avon Products, Inc. 599,850
16,255 Estee Lauder Companies, Inc. Class A 628,581
-----------
1,228,431
-----------
PHARMACEUTICALS--1.5%
22,763 Pfizer, Inc. 534,248
6,662 Wyeth 295,859
-----------
830,107
-----------
RAILROADS--0.5%
3,110 Union Pacific Corporation 289,106
-----------
SEMICONDUCTORS--3.4%
8,850 Freescale Semiconductor, Inc. Class B* 260,190
25,258 Intel Corporation 478,639
19,085 Linear Technology Corporation 639,157
16,850 Maxim Integrated Products, Inc. 541,054
-----------
1,919,040
-----------
SPECIALTY STORES--0.5%
3,125 AutoZone, Inc.* 275,625
-----------
STEEL--0.4%
3,746 Nucor Corporation 203,221
-----------
SYSTEMS SOFTWARE--1.6%
11,300 Adobe Systems, Inc.* 343,068
24,804 Microsoft Corporation 577,933
-----------
921,001
-----------
TOTAL COMMON STOCKS (DOMESTIC)
(COST--$25,529,112) 26,966,184
-----------
COMMON STOCKS (FOREIGN)--50.3%
ADVERTISING--0.3%
14,300 WPP Group PLC (UK) 173,065
-----------
AIRLINES--0.6%
56,200 British Airways PLC (UK)* 356,186
-----------
ALUMINUM--0.4%
5,000 Alcan, Inc. (CA) 234,211
-----------
14
<Page>
SHARES MARKET VALUE
- --------------------------------------------------------------------------------
APPAREL, ACCESSORIES & LUXURY GOODS--0.8%
6,056 Compagnie Financiere Richemont AG (SZ) $ 277,389
4,000 Gildan Activewear, Inc. (CA)* 189,161
-----------
466,550
-----------
APPLICATION SOFTWARE--0.4%
961 SAP AG (GE) 202,697
-----------
AUTOMOBILE MANUFACTURERS--0.9%
16,600 Honda Motor Company Limited (JA) 526,547
-----------
BIOTECHNOLOGY--0.6%
9,000 CSL Limited (AU) 359,478
-----------
BREWERS--1.9%
5,700 Heineken NV (NE) 241,692
8,926 InBev NV (BE) 437,851
8,900 Kirin Brewery Company Limited (JA) 139,908
4,900 Orkla ASA (NW) 227,096
-----------
1,046,547
-----------
BROADCASTING & CABLE TV--0.4%
6,900 Shaw Communications, Inc. Class B (CA) 195,015
-----------
COMMUNICATIONS EQUIPMENT--1.2%
94,000 Foxconn International Holdings Limited (HK)* 200,919
22,250 Nokia Oyj (FI) 454,221
-----------
655,140
-----------
COMPUTER HARDWARE--0.9%
34,000 Fujitsu Limited (JA) 263,527
33,000 Toshiba Corporation (JA) 215,405
-----------
478,932
-----------
CONSTRUCTION MATERIALS--0.5%
22,045 Rinker Group Limited (AU) 268,498
-----------
CONSUMER ELECTRONICS--1.7%
16,000 Matsushita Electric Industrial Company Limited (JA) 337,644
13,800 Sony Corporation (JA) 608,965
-----------
946,609
-----------
CONSUMER FINANCE--0.4%
990 Orix Corporation (JA) 241,790
-----------
DEPARTMENT STORES--0.3%
1,100 PPR SA (FR) 140,279
-----------
DISTILLERS & VINTNERS--0.4%
13,497 Diageo PLC (UK) 226,988
-----------
SEE NOTES TO STATEMENT OF INVESTMENTS.
15
<Page>
SHARES MARKET VALUE
- --------------------------------------------------------------------------------
DIVERSIFIED BANKS--4.0%
60,097 Banca Intesa SPA (IT) $ 352,065
11,693 Banco Santander Central Hispano SA (SP) 170,803
14,953 Barclays PLC (UK) 169,908
4,084 BNP Paribas SA (FR) 391,005
25,669 Capitalia SPA (IT) 210,625
13,903 HBOS PLC (UK) 241,657
8,400 HSBC Holdings PLC (UK) 147,792
4,900 Royal Bank of Scotland Group PLC (UK) 161,098
2,866 Societe Generale (FR) 421,578
-----------
2,266,531
-----------
DIVERSIFIED CAPITAL MARKETS--1.4%
9,667 Credit Suisse Group (SZ) 540,833
2,028 UBS AG (SZ) 222,274
-----------
763,107
-----------
DIVERSIFIED CHEMICALS--0.7%
4,691 BASF AG (GE) 376,456
-----------
DIVERSIFIED METALS & MINING--3.4%
37,189 BHP Billiton Limited (AU) 801,428
4,100 Teck Cominco Limited Class B (CA) 246,007
14,500 Vedanta Resources PLC (UK) 365,449
13,046 Xstrata PLC (UK) 494,532
-----------
1,907,416
-----------
ELECTRIC UTILITIES--1.0%
1,450 E.ON AG (GE) 166,922
78,211 International Power PLC (UK) 411,447
-----------
578,369
-----------
ELECTRICAL COMPONENTS & EQUIPMENT--1.1%
2,254 Schneider Electric SA (FR) 234,972
27,100 Sumitomo Electric Industries Limited (JA) 396,886
-----------
631,858
-----------
ELECTRONIC EQUIPMENT MANUFACTURERS--0.2%
1,700 TDK Corporation (JA) 129,238
-----------
FOOD RETAIL--0.5%
4,300 Delhaize Group (BE) 298,107
-----------
HEAVY ELECTRICAL EQUIPMENT--0.6%
44,600 Mitsubishi Electric Corporation (JA) 357,377
-----------
HOTELS, RESORTS & CRUISE LINES--0.3%
41,500 First Choice Holidays PLC (UK) 175,539
-----------
HUMAN RESOURCE & EMPLOYMENT SERVICES--0.3%
29,600 Michael Page International PLC (UK) 191,842
-----------
INDUSTRIAL MACHINERY--0.7%
6,900 Atlas Copco AB Class A (SW) 191,752
2,800 Man AG (GE) 202,998
-----------
394,750
-----------
16
<Page>
SHARES MARKET VALUE
- --------------------------------------------------------------------------------
INTEGRATED OIL & GAS--2.9%
21,800 BG Group PLC (UK) $ 291,244
57,027 BP PLC (UK) 664,858
5,011 Repsol YPF SA (SP) 143,510
5,847 Royal Dutch Shell PLC Class A (NE) 196,774
4,748 Total SA (FR) 312,464
----------
1,608,850
----------
INTEGRATED TELECOMMUNICATION SERVICES--1.5%
61,971 BT Group PLC (UK) 274,160
17,700 Telefonica SA (SP) 294,774
22,800 Telenor ASA (NW) 275,619
----------
844,553
----------
INVESTMENT BANKING & BROKERAGE--1.1%
24,200 Daiwa Securities Group, Inc. (JA) 288,438
17,600 Nomura Holdings, Inc. (JA) 329,885
----------
618,323
----------
LIFE & HEALTH INSURANCE--0.3%
4,600 Manulife Financial Corporation (CA) 145,751
----------
MOVIES & ENTERTAINMENT--0.9%
15,045 Vivendi SA (FR) 527,287
----------
MULTI-LINE INSURANCE--1.0%
11,979 Aviva PLC (UK) 169,562
2,923 Baloise Holding Limited (SZ) 224,616
856 Zurich Financial Services AG (SZ) 187,639
----------
581,817
----------
OFFICE ELECTRONICS--1.2%
13,950 Canon, Inc. (JA) 683,847
----------
OIL & GAS DRILLING--0.3%
4,200 Precision Drilling Trust (CA) 139,586
----------
OIL & GAS EQUIPMENT & SERVICES--0.3%
8,000 Trican Well Service Limited (CA) 159,814
----------
OIL & GAS EXPLORATION & PRODUCTION--1.1%
14,383 Eni SPA (IT) 423,690
7,800 Norsk Hydro ASA (NW) 206,750
----------
630,440
----------
OTHER DIVERSIFIED FINANCIAL SERVICES--1.3%
17,952 ING Groep NV (NE) 705,634
----------
PACKAGED FOODS & MEATS--0.3%
612 Nestle SA Registered (SZ) 192,220
----------
PAPER PACKAGING--0.2%
17,500 Rengo Company Limited (JA) 132,275
----------
SEE NOTES TO STATEMENT OF INVESTMENTS.
17
<Page>
SHARES MARKET VALUE
- --------------------------------------------------------------------------------
PHARMACEUTICALS--5.6%
3,659 AstraZeneca Group PLC (UK) $ 220,839
31,600 GlaxoSmithKline PLC (UK) 882,907
3,490 Merck KGaA (GE) 317,841
5,045 Roche Holding AG (SZ) 833,956
7,189 Sanofi-Aventis (FR) 701,613
2,800 Takeda Pharmaceuticals Company Limited (JA) 174,205
-----------
3,131,361
-----------
SEMICONDUCTOR EQUIPMENT--1.2%
4,700 Silicon-On-Insulator Technologies (FR)* 139,052
2,500 Sumco Corporation (JA) 142,433
5,500 Tokyo Electron Limited (JA) 384,481
-----------
665,966
-----------
SEMICONDUCTORS--0.3%
9,600 ATI Technologies, Inc. (CA)* 139,489
-----------
SOFT DRINKS--0.5%
9,100 Coca-Cola Hellenic Bottling Company SA (GR) 271,207
-----------
STEEL--0.3%
4,049 ThyssenKrupp AG (GE) 138,281
-----------
TIRES & RUBBER--0.7%
3,891 Continental AG (GE) 398,258
-----------
TOBACCO--1.0%
21,303 British American Tobacco PLC (UK) 536,514
-----------
TRADING COMPANIES & DISTRIBUTORS--1.4%
22,800 Mitsubishi Corporation (JA) 455,243
22,000 Mitsui & Company Limited (JA) 310,661
-----------
765,904
-----------
WIRELESS TELECOMMUNICATION SERVICES--1.0%
3,662 Bouygues SA (FR) 188,299
69,600 China Mobile Limited (HK) 397,904
-----------
586,203
-----------
TOTAL COMMON STOCKS (FOREIGN)
(COST--$21,738,680) 28,192,702
-----------
PREFERRED STOCKS (FOREIGN)--0.8%
HEALTHCARE EQUIPMENT--0.8%
2,691 Fresenius AG Preferred (GE) 448,121
-----------
TOTAL PREFERRED STOCKS (FOREIGN)
(COST--$399,232) 448,121
-----------
18
<Page>
PRINCIPAL AMOUNT AMORTIZED COST
- --------------------------------------------------------------------------------
CORPORATE SHORT-TERM NOTES--1.1%
SPECIAL PURPOSE ENTITY--1.1%
$600,000 CAFCO LLC
5.33% 7/3/06~ $ 599,822
-----------
TOTAL CORPORATE SHORT-TERM NOTES
(AMORTIZED COST--$599,822) 599,822
-----------
TOTAL INVESTMENTS--100.0%
(TOTAL COST--$48,266,846) 56,206,829
-----------
OTHER ASSETS AND LIABILITIES--(0.0%) (12,664)
-----------
NET ASSETS--100.0% $56,194,165
===========
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 $599,822, OR 1.1%, OF THE FUND'S NET ASSETS AS OF JUNE 30,
2006.
SEE NOTES TO FINANCIAL STATEMENTS.
19
<Page>
STATEMENT OF ASSETS AND LIABILITIES
June 30, 2006 (UNAUDITED)
ASSETS
- --------------------------------------------------------------------------------
Investment securities, at cost $ 48,266,846
------------
Investment securities, at market 56,206,829
Cash 64,770
Foreign currency (cost $1,376) 2,233
Receivables:
Investment securities sold 1,023,741
Capital shares sold 2,459
Dividends and interest 50,640
From transfer agent 531
Other assets 152,444
------------
Total Assets 57,503,647
------------
LIABILITIES
- --------------------------------------------------------------------------------
Payables and other accrued liabilities:
Investment securities purchased 1,044,643
Capital shares redeemed 58,451
Advisory fees 45,606
Shareholder servicing fees 6,290
Accounting fees 3,550
Distribution fees 15,024
Transfer agency fees 3,707
Custodian fees 445
Directors' deferred compensation 102,632
Other 29,134
------------
Total Liabilities 1,309,482
------------
Net Assets $ 56,194,165
============
COMPOSITION OF NET ASSETS
- --------------------------------------------------------------------------------
Capital (par value and paid-in surplus) $102,224,305
Accumulated net investment loss (7,498)
Accumulated net realized loss from security and foreign
currency transactions (53,981,581)
Net unrealized appreciation on investments and foreign
currency translation 7,958,939
------------
Total $ 56,194,165
============
20
<Page>
CLASS A
- --------------------------------------------------------------------------------
Net Assets $ 1,156,949
Shares Outstanding 76,975
Net Asset Value, Redemption Price Per Share $ 15.03
Maximum offering price per share (net asset value plus sales
charge of 5.75% of offering price) $ 15.95
CLASS B
- --------------------------------------------------------------------------------
Net Assets $ 1,236,582
Shares Outstanding 86,493
Net Asset Value, Offering and Redemption Price (excluding
applicable contingent deferred sales charge) Per Share $ 14.30
CLASS C
- --------------------------------------------------------------------------------
Net Assets $ 298,990
Shares Outstanding 21,335
Net Asset Value, Offering and Redemption Price (excluding
applicable contingent deferred sales charge) Per Share $ 14.01
CLASS F
- --------------------------------------------------------------------------------
Net Assets $51,455,083
Shares Outstanding 3,412,032
Net Asset Value, Offering and Redemption Price Per Share $ 15.08
CLASS R
- --------------------------------------------------------------------------------
Net Assets $ 2,014,694
Shares Outstanding 129,478
Net Asset Value, Offering and Redemption Price Per Share $ 15.56
CLASS T
- --------------------------------------------------------------------------------
Net Assets $ 31,867
Shares Outstanding 2,267
Net Asset Value, Redemption Price Per Share $ 14.06
Maximum offering price per share (net asset value plus sales
charge of 4.50% of offering price) $ 14.72
SEE NOTES TO FINANCIAL STATEMENTS.
21
<Page>
STATEMENT OF OPERATIONS
For the six months ended June 30, 2006 (UNAUDITED)
INVESTMENT INCOME
- -------------------------------------------------------------------------------
Dividends $ 656,983
Interest 3,736
Foreign taxes withheld (62,770)
----------
Total Investment Income 597,949
----------
EXPENSES
- -------------------------------------------------------------------------------
Advisory fees--Note 2 289,439
Shareholder servicing fees--Note 2 38,818
Accounting fees--Note 2 23,398
Distribution fees--Note 2 73,685
Transfer agency fees--Note 2 40,146
Registration fees 31,615
Postage and mailing expenses 4,930
Custodian fees and expenses--Note 2 26,718
Printing expenses 19,315
Legal and audit fees 14,395
Directors' fees and expenses--Note 2 15,551
Other expenses 16,468
----------
Total Expenses 594,478
Earnings Credits (2,446)
Reimbursed/Waived Expenses (15,313)
Expense Offset to Broker Commissions (30)
----------
Net Expenses 576,689
----------
Net Investment Income 21,260
----------
REALIZED AND UNREALIZED GAIN (LOSS) ON SECURITY TRANSACTIONS AND
FOREIGN CURRENCY TRANSACTIONS
- -------------------------------------------------------------------------------
Net Realized Gain on:
Security Transactions 6,044,996
Foreign Currency Transactions 791
----------
Net Realized Gain 6,045,787
Net Change in Unrealized Appreciation/Depreciation of Investments
and Foreign Currency Translation (2,810,233)
----------
Net Realized and Unrealized Gain 3,235,554
----------
Net Increase in Net Assets Resulting from Operations $3,256,814
==========
SEE NOTES TO FINANCIAL STATEMENTS.
22
<Page>
STATEMENTS OF CHANGES IN NET ASSETS
(UNAUDITED)
SIX MONTHS ENDED YEAR ENDED
JUNE 30, 2006 DECEMBER 31, 2005
OPERATIONS
- --------------------------------------------------------------------------------
Net Investment Income (Loss) $ 21,260 $ (38,851)
Net Realized Gain on Security and
Foreign Currency Transactions 6,045,787 14,142,515
Net Change in Unrealized
Appreciation/Depreciation of
Investments and Foreign Currency
Translation (2,810,233) (6,260,128)
----------- ------------
Net Increase in Net Assets Resulting
from Operations 3,256,814 7,843,536
----------- ------------
CAPITAL SHARE TRANSACTIONS
- --------------------------------------------------------------------------------
Net Increase (Decrease)--Note 4
Class A 510,674 31,644
Class B (669,020) (430,097)
Class C (21,701) 8,837
Class F (4,742,172) (13,367,715)
Class R 213,096 (25,021,636)(1)
Class T 7 (26,282)
----------- ------------
Net Decrease from Capital Share
Transactions (4,709,116) (38,805,249)
----------- ------------
Net Decrease in Net Assets (1,452,302) (30,961,713)
----------- ------------
NET ASSETS
- --------------------------------------------------------------------------------
Beginning of Period $57,646,467 $ 88,608,180
----------- ------------
End of Period $56,194,165 $ 57,646,467
=========== ============
Accumulated Net Investment Loss $ (7,498) $ (28,758)
(1) ON NOVEMBER 30, 2005, CLASS R DISBURSED PORTFOLIO SECURITIES AND CASH
VALUED AT $23,196,136 IN PAYMENT OF A REDEMPTION BY AN AFFILATE OF THE
FUND.
SEE NOTES TO FINANCIAL STATEMENTS.
23
<Page>
FINANCIAL HIGHLIGHTS
(UNAUDITED)
<Table>
<Caption>
SIX MONTHS YEAR ENDED
ENDED JUNE 30, DECEMBER 31,
2006 2005 2004 2003 2002
-------------- --------------------------------------
CLASS A SHARES
PER SHARE OPERATING DATA
Net Asset Value, beginning of period $14.21 $12.82 $11.38 $ 8.32 $ 11.71
- -------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) 0.02(a) (0.02)(a) (0.21) (0.10) (0.15)
Net realized and unrealized gains
(losses) on securities 0.80 1.41 1.65 3.16 (3.24)
-------------------------------------------------------
Total from investment operations 0.82 1.39 1.44 3.06 (3.39)
- -------------------------------------------------------------------------------------------------
Less dividends and distributions:
From net investment income 0.00 0.00 0.00 0.00 0.00
From net realized gains 0.00 0.00 0.00 0.00 0.00
-------------------------------------------------------
Total distributions 0.00 0.00 0.00 0.00 0.00
- -------------------------------------------------------------------------------------------------
Net Asset Value, end of period $15.03 $14.21 $12.82 $11.38 $ 8.32
=======================================================
TOTAL RETURN(b) 5.77% 10.84% 12.65% 36.78% (28.95%)
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000s) $1,157 $ 619 $ 519 $ 656 $ 543
- -------------------------------------------------------------------------------------------------
Ratios to average net assets:
Expenses with reimbursements, but no
earnings credits or brokerage
offsets(c) 1.96% 1.95% 1.81% 2.03% 2.06%
Expenses with reimbursements, earnings
credits and brokerage offsets 1.95% 1.92% 1.81% 2.03% 2.06%
Net investment income (loss) 0.24% (0.19%) (0.18%) (0.55%) (0.77%)
- -------------------------------------------------------------------------------------------------
Portfolio turnover rate(d) 116% 120% 130% 138% 211%
</Table>
(a.) COMPUTED USING AVERAGE SHARES OUTSTANDING THROUGHOUT THE PERIOD.
(b.) SALES CHARGES ARE NOT REFLECTED IN THE TOTAL RETURN.
(c.) CERTAIN FEES WERE WAIVED BY THE CUSTODIAN. HAD THESE FEES NOT BEEN WAIVED,
THE EXPENSE RATIOS WOULD HAVE BEEN 2.02% (2006), 1.98% (2005), 1.83%
(2004), 2.04% (2003) AND 2.06% (2002).
(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,
2006 2005 2004 2003 2002
-------------- -------------------------------------
CLASS B SHARES
PER SHARE OPERATING DATA
Net Asset Value, beginning of period $13.58 $12.33 $11.02 $ 8.12 $ 11.52
- ------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment loss (0.05)(a) (0.11)(a) (0.09) (0.16) (0.14)
Net realized and unrealized gains
(losses) on securities 0.77 1.36 1.40 3.06 (3.26)
------------------------------------------------------
Total from investment operations 0.72 1.25 1.31 2.90 (3.40)
- ------------------------------------------------------------------------------------------------
Less dividends and distributions:
From net investment income 0.00 0.00 0.00 0.00 0.00
From net realized gains 0.00 0.00 0.00 0.00 0.00
------------------------------------------------------
Total distributions 0.00 0.00 0.00 0.00 0.00
- ------------------------------------------------------------------------------------------------
Net Asset Value, end of period $14.30 $13.58 $12.33 $11.02 $ 8.12
======================================================
TOTAL RETURN(b) 5.30% 10.14% 11.89% 35.71% (29.51%)
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000s) $1,237 $1,803 $2,061 $1,821 $ 1,459
- ------------------------------------------------------------------------------------------------
Ratios to average net assets:
Expenses with reimbursements, but no
earnings credits or brokerage
offsets(c) 2.74% 2.69% 2.52% 2.80% 2.71%
Expenses with reimbursements, earnings
credits and brokerage offsets 2.73% 2.66% 2.52% 2.80% 2.70%
Net investment loss (0.74%) (0.93%) (0.87%) (1.30%) (1.41%)
- ------------------------------------------------------------------------------------------------
Portfolio turnover rate(d) 116% 120% 130% 138% 211%
</Table>
(a.) COMPUTED USING AVERAGE SHARES OUTSTANDING THROUGHOUT THE PERIOD.
(b.) SALES CHARGES ARE NOT REFLECTED IN THE TOTAL RETURN.
(c.) CERTAIN FEES WERE WAIVED BY THE CUSTODIAN. HAD THESE FEES NOT BEEN WAIVED,
THE EXPENSE RATIOS WOULD HAVE BEEN 2.79% (2006), 2.72% (2005), 2.54%
(2004), 2.82% (2003) AND 2.71% (2002).
(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,
2006 2005 2004 2003 2002
-------------- ------------------------------------
CLASS C SHARES
PER SHARE OPERATING DATA
Net Asset Value, beginning of period $13.31 $12.08 $10.81 $ 7.96 $ 11.34
- -----------------------------------------------------------------------------------------------
Income from investment operations:
Net investment loss (0.04)(a) (0.07) (0.20) (0.20) (0.30)
Net realized and unrealized gains
(losses) on securities 0.74 1.30 1.47 3.05 (3.08)
-----------------------------------------------------
Total from investment operations 0.70 1.23 1.27 2.85 (3.38)
- -----------------------------------------------------------------------------------------------
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 $14.01 $13.31 $12.08 $10.81 $ 7.96
=====================================================
TOTAL RETURN(b) 5.26% 10.18% 11.75% 35.80% (29.81%)
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000s) $ 299 $ 308 $ 272 $ 271 $ 218
- -----------------------------------------------------------------------------------------------
Ratios to average net assets:
Expenses with reimbursements, but no
earnings credits or brokerage
offsets(c) 2.71% 2.70% 2.60% 2.82% 3.33%
Expenses with reimbursements, earnings
credits and brokerage offsets 2.69% 2.66% 2.59% 2.82% 3.33%
Net investment loss (0.59%) (0.93%) (0.97%) (1.34%) (2.05%)
- -----------------------------------------------------------------------------------------------
Portfolio turnover rate(d) 116% 120% 130% 138% 211%
</Table>
(a.) COMPUTED USING AVERAGE SHARES OUTSTANDING THROUGHOUT THE PERIOD.
(b.) SALES CHARGES ARE NOT REFLECTED IN THE TOTAL RETURN.
(c.) 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 2.76% (2006), 2.72% (2005), 2.62%
(2004), 2.84% (2003) AND 3.40% (2002).
(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,
2006 2005 2004 2003 2002
-------------- --------------------------------------------
CLASS F SHARES
PER SHARE OPERATING DATA
Net Asset Value, beginning of period $ 14.26 $ 12.86 $ 11.41 $ 8.33 $ 11.72
- -----------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) 0.01(a) (0.02)(a) (0.21) (0.13) (0.13)
Net realized and unrealized gains (losses)
on securities 0.81 1.42 1.66 3.21 (3.26)
-------------------------------------------------------------
Total from investment operations 0.82 1.40 1.45 3.08 (3.39)
- -----------------------------------------------------------------------------------------------------------
Less dividends and distributions:
From net investment income 0.00 0.00 0.00 0.00 0.00
From net realized gains 0.00 0.00 0.00 0.00 0.00
-------------------------------------------------------------
Total distributions 0.00 0.00 0.00 0.00 0.00
- -----------------------------------------------------------------------------------------------------------
Net Asset Value, end of period $ 15.08 $ 14.26 $ 12.86 $ 11.41 $ 8.33
=============================================================
TOTAL RETURN 5.75% 10.89% 12.71% 36.97% (28.92%)
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000s) $51,455 $53,184 $61,038 $70,566 $59,890
- -----------------------------------------------------------------------------------------------------------
Ratios to average net assets:
Expenses with reimbursements, but no
earnings credits or brokerage offsets(b) 1.97% 1.94% 1.78% 1.97% 1.84%
Expenses with reimbursements, earnings
credits and brokerage offsets 1.96% 1.91% 1.77% 1.97% 1.84%
Net investment income (loss) 0.10% (0.17%) (0.13%) (0.47%) (0.55%)
- -----------------------------------------------------------------------------------------------------------
Portfolio turnover rate(c) 116% 120% 130% 138% 211%
</Table>
(a.) COMPUTED USING AVERAGE SHARES OUTSTANDING THROUGHOUT THE PERIOD.
(b.) CERTAIN FEES WERE WAIVED BY THE CUSTODIAN. HAD THESE FEES NOT BEEN WAIVED,
THE EXPENSE RATIOS WOULD HAVE BEEN 2.02% (2006), 1.96% (2005), 1.80%
(2004), 1.98% (2003) AND 1.84% (2002).
(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.
27
<Page>
<Table>
<Caption>
SIX MONTHS YEAR ENDED
ENDED JUNE 30, DECEMBER 31,
2006 2005 2004 2003 2002
--------------- ------------------------------------------
CLASS R SHARES
PER SHARE OPERATING DATA
Net Asset Value, beginning of period $14.69 $13.13 $ 11.60 $ 8.44 $ 11.81
- ---------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) 0.04(b) 0.05(b) 0.03 0.00(a) (0.01)
Net realized and unrealized gains (losses)
on securities 0.83 1.51 1.50 3.16 (3.36)
-----------------------------------------------------------
Total from investment operations 0.87 1.56 1.53 3.16 (3.37)
- ---------------------------------------------------------------------------------------------------------
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 $15.56 $14.69 $ 13.13 $ 11.60 $ 8.44
===========================================================
TOTAL RETURN 5.92% 11.88% 13.19% 37.44% (28.54%)
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000s) $2,015 $1,701 $24,665 $21,404 $14,060
- ---------------------------------------------------------------------------------------------------------
Ratios to average net assets:
Expenses with reimbursements, but no
earnings credits or brokerage offsets(c) 1.57% 1.45% 1.37% 1.51% 1.41%
Expenses with reimbursements, earnings
credits and brokerage offsets 1.55% 1.44% 1.37% 1.51% 1.41%
Net investment income (loss) 0.55% 0.35% 0.28% (0.03%) (0.13%)
- ---------------------------------------------------------------------------------------------------------
Portfolio turnover rate(d) 116% 120% 130% 138% 211%
</Table>
(a.) NET INVESTMENT LOSS 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.) CERTAIN FEES WERE WAIVED BY THE CUSTODIAN. HAD THESE FEES NOT BEEN WAIVED,
THE EXPENSE RATIOS WOULD HAVE BEEN 1.62% (2006), 1.47% (2005), 1.39%
(2004), 1.53% (2003) AND 1.41% (2002).
(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,
2006 2005 2004 2003 2002
-------------- ----------------------------------------
CLASS T SHARES
PER SHARE OPERATING DATA
Net Asset Value, beginning of period $13.31 $12.05 $10.73 $ 7.89 $11.46
- -------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment loss (0.01) (0.07)(a) (0.36) (0.14) (0.59)
Net realized and unrealized gains (losses)
on securities 0.76 1.33 1.68 2.98 (2.98)
---------------------------------------------------------
Total from investment operations 0.75 1.26 1.32 2.84 (3.57)
- -------------------------------------------------------------------------------------------------------
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 $14.06 $13.31 $12.05 $10.73 $ 7.89
=========================================================
TOTAL RETURN(b) 5.63% 10.46% 12.30% 35.99% (31.15%)
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000s) $ 32 $ 30 $ 54 $ 61 $ 47
- -------------------------------------------------------------------------------------------------------
Ratios to average net assets:
Expenses with reimbursements, but no
earnings credits or brokerage offsets(c) 2.18% 2.33% 2.14% 2.54% 4.60%
Expenses with reimbursements, earnings
credits and brokerage offsets 2.17% 2.30% 2.14% 2.54% 4.60%
Net investment loss (0.08%) (0.56%) (0.50%) (1.05%) (2.88%)
- -------------------------------------------------------------------------------------------------------
Portfolio turnover rate(d) 116% 120% 130% 138% 211%
</Table>
(a.) COMPUTED USING AVERAGE SHARES OUTSTANDING THROUGHOUT THE PERIOD.
(b.) SALES CHARGES ARE NOT REFLECTED IN THE TOTAL RETURN.
(c.) 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 2.23% (2006), 2.35% (2005), 2.16%
(2004), 2.56% (2003) AND 5.48% (2002).
(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, 2006 (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). Effective
June 1, 2006, Class B shares will no longer be offered except in connection with
dividend reinvestments and permitted exchanges of Class B shares. 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. New York closing exchange rates are used to convert foreign
currencies to U.S. dollars.
A debt security with a remaining maturity greater than 60 days at the time of
purchase is valued in accordance with the evaluated bid price supplied by a
pricing service approved by the Company's board of directors or, if such price
is not available, at the mean between the highest bid and lowest asked
quotations obtained from at least two securities dealers. A debt security with a
remaining maturity of 60 days or less at the time of purchase is valued at
amortized cost, which approximates market value, unless it is determined that
amortized cost would not represent market value, in which case the securities
would be marked to market. The Fund amortizes premiums and discounts on all debt
securities.
If market quotations or official closing prices are not readily available or are
determined not to reflect accurately fair value, securities will be valued at
their fair
30
<Page>
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 requires the use of estimates, and as such,
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--The Fund normally will invest a
significant portion of its assets in foreign securities. Foreign securities
carry more risk than U.S. securities, such as political and currency risks. 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
Fund could be exposed to risk if counterparties are unable to meet the terms of
the contracts or if the value of the currency changes unfavorably to the U.S.
dollar. 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, 2006 for settling
foreign trades is listed on the Statement of Assets and Liabilities.
The accounting records of the Fund are maintained in U.S. dollars. The market
values of foreign securities, currency holdings and other assets and liabilities
are translated into U.S. dollars based on the current exchange rates each
business day. 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 unrealized gain or loss from investments and foreign
currency translations on the Statement of Operations.
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
31
<Page>
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 Subchapter M 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 from
net investment income (if any) and from net realized capital gains (if any)
annually. Dividends and distributions, which are determined in accordance with
income tax regulations, are recorded on the ex-dividend date.
EXPENSES--Each Class of the Fund bears expenses incurred specifically on its
behalf and, in addition, each Class bears a portion of general expenses based on
the relative net assets or the number of shareholder accounts of the Class. The
type of expense determines the allocation method.
The Company's board of directors has authorized the payment of certain Fund
expenses with commissions on Fund portfolio transactions. These commissions
reduce Other Expenses and are included in the Expense Offset to Broker
Commissions in the Statement of Operations.
USE OF ESTIMATES--The preparation of financial statements in conformity with
accounting principles generally accepted in the United States of America
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported amounts of
income and expenses during the reporting period. Actual results could differ
from those estimates.
INDEMNIFICATIONS--In the normal course of business, the Company enters into
contracts that contain provisions indemnifying other parties against specified
potential liabilities. Each Fund's maximum exposure under these arrangements is
unknown as this would involve future claims that may be made against the Fund
that have not yet occurred. However, based on experience, the Funds expect the
risk of loss to be remote.
OTHER--Certain prior year information has been reformatted, without substantive
change, to conform with the current year presentation.
32
<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
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 period ended June 30, 2006,
Class F shares were charged $35,350 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 period ended June 30, 2006, Class F shares were
charged $12,929 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 $12.92 to $13.36, 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 period ended June 30, 2006 were as
follows:
TRANSFER
AGENCY FEES
---------------------
Class A $ 665
---------------------
Class B $1,641
---------------------
Class C $ 258
---------------------
Class R $ 205
---------------------
Class T $ 23
---------------------
33
<Page>
Certain as-of shareholder transactions may result in gains or losses to the
Fund. Depending on the circumstances, these gains may be payable to, or
reimbursable from, the transfer agent; such gains and losses are presented on
the Statement of Assets and Liabilities.
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 period ended June 30, 2006, the Fund was charged $409 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 period ended June
30, 2006, the Fund paid $24,425 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 period ended June 30,
2006, Class F shares were charged $66,543 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 period ended June 30, 2006, were as follows:
DISTRIBUTION SHAREHOLDER
FEES SERVICING FEES
---------------------------------------
Class A N/A $1,061
---------------------------------------
Class B $5,916 $1,972
---------------------------------------
Class C $1,187 $ 396
---------------------------------------
Class T $ 39 $ 39
---------------------------------------
34
<Page>
During the period ended June 30, 2006, DSC retained $243 and $1 in sales
commissions from the sales of Class A and Class T shares, respectively. DSC also
retained $2,562 and $354 of contingent deferred sales charges relating to
redemptions of Class B and Class C shares, respectively.
FUND ACCOUNTING AND ADMINISTRATIVE SERVICES FEES--The Funds have agreed to
compensate Founders for providing accounting services, administration,
compliance monitoring, regulatory and shareholder reporting, as well as related
facilities, equipment and clerical help. The fee is computed by applying the
following rates, as applicable, to the domestic assets and foreign assets, with
the proportions of domestic and foreign assets recalculated monthly, plus
reasonable out-of-pocket expenses.
ON ASSETS IN BUT NOT
EXCESS OF EXCEEDING DOMESTIC FEE FOREIGN FEE
--------------------------------------------------------
$0 $500 million 0.06% 0.10%
--------------------------------------------------------
$500 million $1 billion 0.04% 0.065%
--------------------------------------------------------
$1 billion 0.02% 0.02%
--------------------------------------------------------
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, which are shown as earnings credits on the
Statement of Operations. 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
period and in the amount set forth below:
TIME PERIOD AMOUNT OF WAIVER
-----------------------------------
9/1/05 to 8/31/06 $200,000
-----------------------------------
The fee waiver is allocated among the Funds in proportion to their respective
shares of the total custodian fee. For the period ended June 30, 2006, the
Fund's portion of the fee waiver was $15,313, which reduced the amount paid to
Mellon Bank to $11,405.
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 Directors'
Deferred Compensation on the Statement of Assets and Liabilities. Changes in
market value are included in the Directors' fees and expenses and the net change
in unrealized appreciation/depreciation
35
<Page>
of investments on the Statement of Operations. 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
or its affiliates, which pay 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, deferred compensation, redemptions-in-kind, 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, 2005 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, 2005 were:
EXPIRATION AMOUNT
------------------------
2009 $34,530,988
------------------------
2010 $22,200,649
------------------------
2011 $ 3,142,525
------------------------
$59,874,162
===========
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, 2006 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.
Post-October Capital Loss Deferral $ (2,399)
---------------------------------------------------
Federal Tax Cost $48,408,738
---------------------------------------------------
Gross Tax Appreciation of Investments $ 9,058,505
---------------------------------------------------
Gross Tax Depreciation of Investments $(1,260,414)
---------------------------------------------------
Net Tax Appreciation $ 7,798,091
---------------------------------------------------
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>
PERIOD ENDED YEAR ENDED
JUNE 30, 2006 DECEMBER 31, 2005
SHARES AMOUNT SHARES AMOUNT
CLASS A
- -----------------------------------------------------------------------------
Sold 36,043 $ 550,938 22,521 $ 293,185
Redeemed (2,626) $ (40,264) (19,415) $ (261,541)
---------------------------------------------------
Net Increase 33,417 $ 510,674 3,106 $ 31,644
===================================================
CLASS B
- -----------------------------------------------------------------------------
Sold 1,175 $ 16,795 8,028 $ 98,777
Redeemed (47,507) $ (685,815) (42,268) $ (528,874)
---------------------------------------------------
Net Decrease (46,332) $ (669,020) (34,240) $ (430,097)
===================================================
CLASS C
- -----------------------------------------------------------------------------
Sold 3,632 $ 52,125 10,078 $ 128,403
Redeemed (5,459) $ (73,826) (9,465) $ (119,566)
---------------------------------------------------
Net Increase (Decrease) (1,827) $ (21,701) 613 $ 8,837
===================================================
CLASS F
- -----------------------------------------------------------------------------
Sold 79,528 $ 1,207,381 210,093 $ 2,732,978
Redeemed (396,268) $(5,949,553) (1,227,387) $(16,100,693)
---------------------------------------------------
Net Decrease (316,740) $(4,742,172) (1,017,294) $(13,367,715)
===================================================
CLASS R
- -----------------------------------------------------------------------------
Sold 20,910 $ 324,902 256,421 $ 3,470,964
Redeemed (7,280) $ (111,806) (2,018,994) $(28,492,600)
---------------------------------------------------
Net Increase (Decrease) 13,630 $ 213,096 (1,762,573) $(25,021,636)
===================================================
CLASS T
- -----------------------------------------------------------------------------
Sold 7 $ 95 8 $ 100
Redeemed (6) $ (88) (2,190) $ (26,382)
---------------------------------------------------
Net Increase (Decrease) 1 $ 7 (2,182) $ (26,282)
===================================================
</Table>
5. INVESTMENT TRANSACTIONS
For the period ended June 30, 2006, purchases and sales of investment securities
(excluding short-term securities and U.S. government obligations) were
$37,770,013 and $41,435,748, 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, 2006, the Fund did not have any borrowings under the LOC.
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, 2006, 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)2006 Founders Asset Management LLC. 8/06
0373SA0606
<Page>
DREYFUS FOUNDERS
BALANCED FUND
SEMIANNUAL REPORT June 30, 2006
[Dreyfus LOGO]
A MELLON FINANCIAL COMPANY(SM)
<Page>
TABLE OF CONTENTS
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
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
Founders Asset Management LLC
A MELLON FINANCIAL COMPANY(SM)
210 University Boulevard, Suite 800
Denver, CO 80206
DISTRIBUTOR
Dreyfus Service Corporation
200 Park Avenue
New York, NY 10166
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, 2006. The amounts of
these holdings are included in the Statement of Investments.
NOT FDIC-INSURED - NOT BANK-GUARANTEED - MAY LOSE VALUE
<Page>
MANAGEMENT OVERVIEW
(UNAUDITED)
[PHOTO OF JOHN JARES]
A DISCUSSION WITH PORTFOLIO MANAGER JOHN JARES, CFA, REGARDING FUND PERFORMANCE
FOR THE SIX-MONTH PERIOD ENDED JUNE 30, 2006.
RISING RATES HEIGHTENED CONCERNS
The economic environment during the first six months of 2006 was characterized
by high energy prices, a Federal Reserve that continued its monetary tightening
campaign and a stock market that moved higher until May, when it began a
correction that lasted through the end of June, on the back of investor concern
over the inflation outlook.
The bond market experienced six consecutive months of negative price
returns during the first half of 2006, the longest period of negative price
performance since 1978.(1) The yield curve continued to shift higher, and
flattened during the period as a result of four Federal Reserve rate hikes.
Credit spreads generally widened, with the majority of spread deterioration
occurring during the second quarter of the year. The Agency sector supplied the
best performance of the primary fixed income classes during the period, dropping
0.03%. The fixed-rate mortgage sector lost 0.06% and the U.S. Treasury and
investment-grade corporate-bond sectors fell 1.29% and 1.56%, respectively.
For the six-month period ended June 30, 2006, Dreyfus Founders Balanced
Fund underperformed the 2.71% return of its benchmark, the Standard and Poor's
500 Index.
"OUR INVESTMENT APPROACH IN CHOOSING STOCKS FOR INCLUSION IN THE FUND REMAINED
CONSISTENT."
STRONG STOCK SELECTION AIDED PERFORMANCE
The Fund's performance during the period was helped by strong stock picking
across several sectors. Our investment approach in choosing these stocks
- ----------
(1) Merrill Lynch & Company, Inc.
3
<Page>
for inclusion in the Fund remained consistent: we relied on our bottom-up,
fundamental process to seek out stocks that have high growth potential at a
valuation that is attractive.
SECTORS BENEFITING THE FUND
Information Technology
Consumer Discretionary
Consumer Staples
This investment philosophy specifically benefited Fund performance in the
information technology (IT), consumer staples and consumer discretionary
sectors. A slight underweight in the consumer staples sector also aided the
Fund's relative return. Information technology stocks saw mixed performance
during the period, as some companies saw stock price increases, while others
performed poorly. One notable strong performance came from HEWLETT-PACKARD
COMPANY. Hewlett-Packard saw much improved execution under its new chief
executive officer, Mark Hurd. The company posted solid top-line growth while
demonstrating excellent cost control, resulting in better-than-expected earnings
growth.
Best Buy Company, Inc., the leading U.S. retailer of consumer electronics
and a Fund holding in the consumer discretionary sector, benefited from strong
consumer spending on a variety of products, particularly HDTVs, MP3 players and
digital video and photography equipment. COMCAST CORPORATION was another strong
performer for the Fund in this sector. A national provider of cable TV,
high-speed internet and voice-over-Internet-protocol (VoIP) services, Comcast
experienced strong demand for its products, particularly its ability to sell a
bundled package of multiple services. Investors found the value proposition to
be compelling and the company's share price increased. KOHL'S CORPORATION
experienced improved revenue and earnings growth trends driven by improved sales
as the department store industry has seen a reduction in capacity.
Although the industrials sector did not produce a positive effect overall
for the Fund's relative performance, select stocks such as CONTINENTAL AIRLINES,
INC. outperformed in this sector. Late in 2005, the airline industry experienced
a wave of extreme capacity rationalization. This resulted in a significant
reduction in supply, which in turn created strong pricing trends for the entire
industry.
Telecommunications services holding Amdocs, Inc. provided the largest
positive contribution to the Fund's performance of any stock for the period. A
provider of billing software and services for both wireline and wireless
providers, Amdocs secured a business win when Sprint announced it would
4
<Page>
use Amdocs' products company-wide, which is expected to add nearly $300 million
in revenues over the next two to three years. Additionally, Amdocs signed
numerous deals in Europe and Russia.
HEALTH CARE AND ENERGY DRAINED PERFORMANCE
Health care stocks performed poorly both in the Fund and in the Index. A variety
of factors led to this result, including fading pricing power in the HMO
industry, slowing volume growth and tough pricing in the medical-device
industry. In addition, branded drug companies suffered due to competition from
generic drug manufacturers. Finally, some healthcare companies suffered from
Securities and Exchange Commission (SEC) investigations related to
option-granting practices. Two of the worst-performing stocks for the Fund
during the period came from the health care sector, BOSTON SCIENTIFIC
CORPORATION and MGI Pharma, Inc. Boston Scientific acquired medical-device maker
Guidant Corporation early in the year. After the acquisition closed, demand for
medical devices, including Guidant's implantable cardioverter defribrillators
(ICDs), slackened, impacting a number of companies within the industry.
High energy prices created strong demand for oil- and gas-service providers
during the period; however, the Fund's relative underexposure to, and weak stock
selection in, the energy sector detracted from relative performance.
LARGEST EQUITY HOLDINGS (ticker symbol)
1. GENERAL ELECTRIC COMPANY (GE) 3.51%
2. MICROSOFT CORPORATION (MSFT) 3.27%
3. GOOGLE, INC. CLASS A (GOOG) 2.63%
4. EXXONMOBIL CORPORATION (XOM) 2.11%
5. CISCO SYSTEMS, INC. (CSCO) 2.09%
6. WYETH (WYE) 1.87%
7. PROCTER & GAMBLE COMPANY (PG) 1.78%
8. ADOBE SYSTEMS, INC. (ADBE) 1.78%
9. SCHLUMBERGER LIMITED (SLB) 1.75%
10. COLGATE-PALMOLIVE COMPANY (CL) 1.74%
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]
<Table>
<Caption>
DREYFUS
FOUNDERS
BALANCED S&P 500 LIPPER BALANCED
FUND-CLASS F INDEX FUND INDEX
------------ ------- ---------------
6/28/1996 $10,000 $10,000 $10,000
6/30/1997 $11,880 $13,470 $12,046
6/30/1998 $13,699 $17,533 $14,243
6/30/1999 $14,421 $21,523 $15,887
6/30/2000 $14,044 $23,083 $16,594
6/29/2001 $11,999 $19,659 $16,422
6/28/2002 $10,022 $16,123 $15,181
6/30/2003 $10,224 $16,164 $15,710
6/30/2004 $11,094 $19,252 $17,696
6/30/2005 $11,870 $20,470 $18,955
6/30/2006 $12,420 $22,236 $20,289
</Table>
The above graph compares a $10,000 investment made in Class F shares of Dreyfus
Founders Balanced Fund on 6/30/96 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 6/30/06
YEAR-TO- 1 5 10 SINCE
CLASS (INCEPTION DATE) DATE+ YEAR YEARS YEARS INCEPTION
- ---------------------------------------------------------------------------
A SHARES (12/31/99)
With sales charge (5.75%) (5.13%) (1.60%) (0.85%) -- (2.90%)
Without sales charge 0.61% 4.44% 0.33% -- (2.01%)
B SHARES (12/31/99)
With redemption* (3.84%) (0.48%) (0.79%) -- (2.75%)
Without redemption 0.16% 3.52% (0.39%) -- (2.75%)
C SHARES (12/31/99)
With redemption** (0.74%) 2.55% (0.69%) -- (3.05%)
Without redemption 0.26% 3.55% (0.69%) -- (3.05%)
F SHARES (2/19/63) 0.69% 4.63% 0.69% 2.19% N/A
R SHARES (12/31/99) 0.80% 4.87% 0.33% -- (1.97%)
T SHARES (12/31/99)
With sales charge (4.50%) (4.06%) (0.46%) (0.39%) -- (2.64%)
Without sales charge 0.52% 4.21% 0.52% -- (1.96%)
Average annual total returns do not reflect the deduction of taxes that a
shareholder would pay on Fund distributions or redemption of Fund shares, but do
reflect the reinvestment of dividends and capital gain distributions, fee
waivers 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>
SECTORS DETRACTING FROM THE FUND
Health Care
Energy
Telecommunication Services
INDIVIDUAL ISSUES BURDENED RELATIVE RETURN
As mentioned above, although the IT sector was the strongest performing sector
for the Fund during the period, select IT names negatively impacted the Fund's
relative return, due to company-specific factors and not the broader health of
the industry. ADOBE SYSTEMS, INC. began upgrading the majority of its software
products, from Acrobat Reader to the company's Creative Suite. As consumers
awaited the launch of these upgraded products, new purchases were postponed,
which created a slowing in revenue growth. As a result, Adobe moderated revenue
and earnings growth expectations during the second quarter of 2006. MICROSOFT
CORPORATION announced that the launch of its new operating system, Windows
Vista, and the latest update to its office suite would be delayed until early
2007; investors had been expecting the launches during the fall of 2006. In
addition, the company also indicated that spending levels for 2006 would be
elevated, as Microsoft is making investments to strengthen its position on the
Internet. These investments came as a surprise to investors, who were
subsequently forced to moderate their expectations for earnings growth.
PORTFOLIO COMPOSITION OF NET ASSETS
[CHART]
<Table>
<Caption>
Information Technology 18.11%
Consumer Staples 8.03%
Health Care 7.36%
Consumer Discretionary 6.19%
Financials 5.70%
Industrials 5.35%
Energy 2.44%
Materials 0.90%
Telecommunication Services 0.30%
Other 2.67%
Fixed-Income Investments 36.88%
Cash & Equivalents 6.07%
</Table>
The Fund's portfolio composition is subject to change, and there is no assurance
the Fund will continue to hold any particular security. Opinions regarding
sectors, industries, companies, and/or themes are those of the portfolio manager
and are subject to change at any time, based on market and other conditions, and
should not be construed as a recommendation of any specific security.
8
<Page>
Consumer discretionary issue Advance Auto Parts, Inc. was negatively
impacted during the period by slowing customer traffic. In late June, the
company announced that high gasoline prices, high interest rates and the burden
of rising credit card payments had combined to dent customers' disposable
income, and thus, the company's sales. As a result, Advance Auto Parts was
forced to significantly lower sales and earnings guidance for 2006.
FIXED-INCOME PERFORMANCE
In the fixed-income portion of the Fund, some investments were reallocated from
the five- to 10-year maturity range, primarily into the three- to five-year
sector, but also into the 10-year and longer maturity range to take advantage of
opportunities in the shorter and longer ranges of the yield curve.
The Fund's heavy weighting in Agency bonds during the period helped
relative performance, as Agencies boasted the best returns of the main
fixed-income asset classes. The Fund was significantly underweight in the
mortgage market, which performed better than both Treasuries and corporate
bonds, while maintaining overweight positions in the latter two categories.
Finally, a cushion to negative market movements was provided by the Fund's cash
balance, as well as the Fund's position in shorter-duration issues versus the
benchmark; longer-duration securities suffered greater losses than shorter-dated
maturities during the period.
As we head into the second half of 2006, we will be adding an additional
member to the Fund's management team. Effective August 1, 2006, Catherine
Powers, CFA will assume portfolio management responsibilities for the
fixed-income portion of the Fund. I will continue to manage the equity portion
of the Fund, seeking to pick stocks one at time based on the management team's
assessment of each security's respective growth prospects.
/s/ John B. Jares
- ------------------------------
John 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, 2006
and held through June 30, 2006.
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, together with the amount you
invested, 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
BEGINNING ENDING EXPENSES PAID
ACCOUNT VALUE ACCOUNT VALUE DURING PERIOD*
(1/1/06) (6/30/06) (1/1/06-6/30/06)
- --------------------------------------------------------------------------------
CLASS A ACTUAL $1,000.00 $1,006.10 $ 7.91
CLASS A HYPOTHETICAL 1,000.00 1,016.81 7.98
CLASS B ACTUAL 1,000.00 1,001.60 12.90
CLASS B HYPOTHETICAL 1,000.00 1,011.74 13.05
CLASS C ACTUAL 1,000.00 1,002.60 12.66
CLASS C HYPOTHETICAL 1,000.00 1,011.99 12.80
CLASS F ACTUAL 1,000.00 1,006.90 7.12
CLASS F HYPOTHETICAL 1,000.00 1,017.62 7.18
CLASS R ACTUAL 1,000.00 1,008.00 6.12
CLASS R HYPOTHETICAL 1,000.00 1,018.62 6.18
CLASS T ACTUAL 1,000.00 1,005.20 9.15
CLASS T HYPOTHETICAL 1,000.00 1,015.56 9.24
* 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.
EXPENSE RATIO
- -----------------------
CLASS A 1.59%
CLASS B 2.60%
CLASS C 2.55%
CLASS F 1.43%
CLASS R 1.23%
CLASS T 1.84%
11
<Page>
STATEMENT OF INVESTMENTS
June 30, 2006 (UNAUDITED)
SHARES MARKET VALUE
- --------------------------------------------------------------------------------
COMMON STOCKS (DOMESTIC)--55.3%
AIRLINES--0.9%
8,000 AMR Corporation* $ 203,352
7,300 Continental Airlines, Inc. Class B* 217,533
3,100 US Airways Group, Inc.* 156,674
----------
577,559
----------
APPLICATION SOFTWARE--0.8%
5,100 Autodesk, Inc.* 175,746
23,200 BEA Systems, Inc.* 303,688
----------
479,434
----------
ASSET MANAGEMENT & CUSTODY BANKS--0.4%
3,800 State Street Corporation 220,742
----------
BIOTECHNOLOGY--1.1%
5,400 Amgen, Inc.* 352,242
2,900 Genzyme Corporation* 177,045
6,300 MedImmune, Inc.* 170,730
----------
700,017
----------
BROADCASTING & CABLE TV--0.6%
11,600 Comcast Corporation Special Class A* 380,248
----------
CASINOS & GAMING--0.4%
3,300 Harrah's Entertainment, Inc. 234,894
----------
COMMUNICATIONS EQUIPMENT--2.3%
42,700 Cisco Systems, Inc.* 833,931
23,000 Motorola, Inc. 463,450
4,400 QUALCOMM, Inc. 176,308
----------
1,473,689
----------
COMPUTER & ELECTRONICS RETAIL--0.8%
9,250 Best Buy Company, Inc. 507,270
----------
COMPUTER HARDWARE--2.6%
7,300 Apple Computer, Inc.* 416,976
7,900 Dell, Inc.* 192,839
8,900 Diebold, Inc. 361,518
20,300 Hewlett-Packard Company 643,104
----------
1,614,437
----------
COMPUTER STORAGE & PERIPHERALS--0.9%
24,200 Seagate Technology* 547,888
----------
CONSUMER ELECTRONICS--0.3%
2,200 Harman International Industries, Inc. 187,814
----------
CONSUMER FINANCE--0.5%
5,800 SLM Corporation 306,936
----------
DATA PROCESSING & OUTSOURCED SERVICES--0.5%
6,800 Automatic Data Processing, Inc. 308,380
----------
12
<Page>
SHARES MARKET VALUE
- --------------------------------------------------------------------------------
DEPARTMENT STORES--1.5%
14,200 Federated Department Stores, Inc. $ 519,720
5,600 J.C. Penney Company, Inc. 378,056
1,800 Kohl's Corporation* 106,416
----------
1,004,192
----------
DIVERSIFIED CHEMICALS--0.5%
6,800 E.I. du Pont de Nemours and Company 282,880
----------
DRUG RETAIL--1.0%
13,600 Walgreen Company 609,824
----------
ELECTRICAL COMPONENTS & EQUIPMENT--1.1%
8,200 Emerson Electric Company 687,242
----------
ELECTRONIC EQUIPMENT MANUFACTURERS--0.3%
5,200 Agilent Technologies, Inc.* 164,112
----------
ENVIRONMENTAL & FACILITIES SERVICES--0.4%
6,500 Waste Management, Inc. 233,220
----------
EXCHANGE TRADED FUNDS--2.7%
9,950 iShares Russell 1000 Growth Index Fund 501,978
13,900 Nasdaq 100 Index Tracking Stock 538,764
5,050 SPDR Trust Series 1 641,906
----------
1,682,648
----------
FOOD DISTRIBUTORS--0.8%
16,200 Sysco Corporation 495,072
----------
FOOD RETAIL--1.0%
23,000 Safeway, Inc. 598,000
----------
GENERAL MERCHANDISE STORES--0.7%
18,300 Family Dollar Stores, Inc. 447,069
----------
HEALTHCARE EQUIPMENT--1.6%
3,600 Beckman Coulter, Inc. 199,980
19,000 Boston Scientific Corporation* 319,960
1,700 Intuitive Surgical, Inc.* 200,549
5,800 Medtronic, Inc. 272,136
----------
992,625
----------
HEALTHCARE SERVICES--0.7%
7,300 Medco Health Solutions, Inc.* 418,144
----------
HEALTHCARE SUPPLIES--0.7%
8,100 Advanced Medical Optics, Inc.* 410,670
----------
HOME ENTERTAINMENT SOFTWARE--0.4%
6,000 Electronic Arts, Inc.* 258,240
----------
HOME IMPROVEMENT RETAIL--0.4%
7,600 Home Depot, Inc. 272,004
----------
HOTELS, RESORTS & CRUISE LINES--0.3%
5,300 Marriott International, Inc. Class A 202,036
----------
SEE NOTES TO STATEMENT OF INVESTMENTS.
13
<Page>
SHARES MARKET VALUE
- --------------------------------------------------------------------------------
HOUSEHOLD PRODUCTS--2.1%
11,550 Colgate-Palmolive Company $ 691,845
12,735 Procter & Gamble Company 708,066
----------
1,399,911
----------
HYPERMARKETS & SUPER CENTERS--0.5%
6,600 Wal-Mart Stores, Inc. 317,922
----------
INDUSTRIAL CONGLOMERATES--2.2%
42,400 General Electric Company 1,397,504
----------
INTEGRATED OIL & GAS--1.3%
13,700 ExxonMobil Corporation 840,495
----------
INTEGRATED TELECOMMUNICATION SERVICES--0.3%
9,600 Sprint Nextel Corporation 191,904
----------
INTERNET RETAIL--0.2%
3,800 eBay, Inc.* 111,302
----------
INTERNET SOFTWARE & SERVICES--2.4%
2,500 Google, Inc. Class A* 1,048,325
15,900 Yahoo!, Inc.* 524,700
----------
1,573,025
----------
INVESTMENT BANKING & BROKERAGE--2.4%
38,400 Charles Schwab Corporation 613,632
3,200 Goldman Sachs Group, Inc. 481,376
4,500 Morgan Stanley 284,445
11,000 TD Ameritrade Holding Corporation 162,910
----------
1,542,363
----------
IT CONSULTING & OTHER SERVICES--0.3%
6,700 Accenture Limited Class A 189,744
----------
MOVIES & ENTERTAINMENT--0.6%
12,430 Walt Disney Company 372,900
----------
MULTI-LINE INSURANCE--0.9%
3,500 American International Group, Inc. 206,675
8,000 Assurant, Inc. 387,200
----------
593,875
----------
OIL & GAS EQUIPMENT & SERVICES--1.1%
10,700 Schlumberger Limited 696,677
----------
OTHER DIVERSIFIED FINANCIAL SERVICES--0.8%
12,000 JPMorgan Chase & Company 504,000
----------
PERSONAL PRODUCTS--1.3%
12,900 Avon Products, Inc. 399,900
10,700 Estee Lauder Companies, Inc. Class A 413,769
----------
813,669
----------
14
<Page>
SHARES MARKET VALUE
- --------------------------------------------------------------------------------
PHARMACEUTICALS--3.4%
10,400 Johnson & Johnson $ 623,168
16,100 Pfizer, Inc. 377,867
19,700 Schering-Plough Corporation 374,891
16,800 Wyeth 746,088
-----------
2,122,014
-----------
PROPERTY & CASUALTY INSURANCE--0.7%
7,900 Allstate Corporation 432,367
-----------
RAILROADS--0.4%
3,000 Union Pacific Corporation 278,880
-----------
SEMICONDUCTORS--2.5%
5,000 Broadcom Corporation* 150,250
5,700 Freescale Semiconductor, Inc. Class B* 167,580
16,700 Intel Corporation 316,465
14,500 Linear Technology Corporation 485,605
9,100 Maxim Integrated Products, Inc. 292,201
6,500 Texas Instruments, Inc. 196,885
-----------
1,608,986
-----------
SOFT DRINKS--0.9%
9,000 PepsiCo, Inc. 540,360
-----------
SPECIALTY STORES--0.3%
2,100 AutoZone, Inc.* 185,220
-----------
STEEL--0.5%
5,200 Nucor Corporation 282,100
-----------
SYSTEMS SOFTWARE--4.0%
23,300 Adobe Systems, Inc.* 707,388
55,900 Microsoft Corporation 1,302,470
26,900 Oracle Corporation* 389,781
9,500 Symantec Corporation* 147,630
-----------
2,547,269
-----------
TOTAL COMMON STOCKS (DOMESTIC)
(COST--$34,228,468) 34,839,773
-----------
COMMON STOCKS (FOREIGN)--1.9%
AEROSPACE & DEFENSE--0.3%
5,525 Empresa Brasileira de Aeronautica SA Sponsored ADR (BR) 201,497
-----------
APPLICATION SOFTWARE--0.3%
3,075 SAP AG Sponsored ADR (GE) 161,499
-----------
PACKAGED FOODS & MEATS--0.5%
7,500 Cadbury Schweppes Sponsored ADR (UK) 291,150
-----------
SEMICONDUCTOR EQUIPMENT--0.8%
25,675 ASM Lithography Holding NV NY Shares (NE)* 519,149
-----------
TOTAL COMMON STOCKS (FOREIGN)
(COST--$1,087,016) 1,173,295
-----------
SEE NOTES TO STATEMENT OF INVESTMENTS.
15
<Page>
PRINCIPAL AMOUNT MARKET VALUE
- --------------------------------------------------------------------------------
CORPORATE BONDS (DOMESTIC)--10.1%
AUTOMOBILE MANUFACTURERS--1.5%
$1,000,000 Toyota Motor Credit Corporation
5.65% 1/15/07 $1,000,130
----------
DIVERSIFIED BANKS--2.6%
1,540,000 Washington Mutual, Inc.
8.25% 4/1/10 1,651,296
----------
GENERAL MERCHANDISE STORES--1.2%
750,000 Target Corporation
5.875% 3/1/12 757,763
----------
HOUSEHOLD PRODUCTS--2.4%
1,500,000 Colgate-Palmolive Company
5.98% 4/25/12 1,524,180
----------
PHARMACEUTICALS--2.4%
1,500,000 Abbott Laboratories
5.625% 7/1/06 1,500,000
----------
TOTAL CORPORATE BONDS (DOMESTIC)
(COST--$6,421,086) 6,433,369
----------
U.S. GOVERNMENT SECURITIES--26.6%
AGENCY PASS THROUGH--2.0%
1,208,698 U.S. Small Business Administration Series 10-A
6.64% 2/1/11 1,238,830
----------
GOVERNMENT SPONSORED ENTERPRISES--12.3%
Federal Farm Credit Bank:
1,040,000 4.26% 9/30/10 992,670
700,000 4.70% 12/10/14 661,724
800,000 Federal Home Loan Bank
4.50% 11/15/12 757,312
Federal Home Loan Morgage Corporation:
1,000,000 4.125% 7/12/10 951,280
900,000 5.125% 7/15/12 882,810
1,000,000 5.75% 3/15/09 1,007,700
800,000 Federal National Mortgage Association
5.375% 11/15/11 796,312
Tennessee Valley Authority:
900,000 5.375% 11/13/08 898,209
800,000 5.625% 1/18/11 802,040
----------
7,750,057
----------
MORTGAGE-BACKED SECURITIES: GNMA/GUARANTEED--1.5%
1,024,243 Government National Mortgage Association
6.00% 1/15/33 Pool #563709 1,017,401
----------
U.S. TREASURY BONDS--1.4%
800,000 U.S. Treasury Bond
6.25% 8/15/23 882,312
----------
16
<Page>
PRINCIPAL AMOUNT MARKET VALUE
- --------------------------------------------------------------------------------
U.S. TREASURY NOTES--9.4%
U.S. Treasury Note:
$1,000,000 4.375% 8/15/12 $ 961,950
700,000 4.75% 11/15/08 693,742
1,000,000 4.75% 5/15/14 975,510
800,000 5.00% 2/15/11 798,032
900,000 5.00% 8/15/11 897,291
700,000 5.625% 5/15/08 705,523
900,000 5.75% 8/15/10 922,113
-----------
5,954,161
-----------
TOTAL U.S. GOVERNMENT SECURITIES
(COST--$17,319,684) 16,842,761
-----------
PRINCIPAL AMOUNT AMORTIZED COST
- --------------------------------------------------------------------------------
U.S. AGENCY DISCOUNT NOTES--2.9%
$1,800,000 TVA Discount Note
5.03% 7/3/06 $ 1,799,497
-----------
TOTAL U.S. AGENCY DISCOUNT NOTES
(COST--$1,799,497) 1,799,497
-----------
CORPORATE SHORT-TERM NOTES--3.0%
PHARMACEUTICALS--3.0%
1,900,000 Novartis Finance Corporation
5.25% 7/6/06~ 1,898,615
-----------
TOTAL CORPORATE SHORT-TERM NOTES
(AMORTIZED COST--$1,898,615) 1,898,615
-----------
TOTAL INVESTMENTS--99.8%
(TOTAL COST--$62,754,366) 62,987,310
OTHER ASSETS AND LIABILITIES--0.2% 131,960
-----------
NET ASSETS--100.0% $63,119,270
===========
NOTES TO STATEMENT OF INVESTMENTS
* NON-INCOME PRODUCING.
~ SECURITY WAS ACQUIRED PURSUANT TO SECTION 4(2) OF THE SECURITIES ACT OF
1933 AND MAY BE DEEMED TO BE RESTRICTED FOR RESALE. THESE SECURITIES
AMOUNTED TO $1,898,615, OR 3.0%, OF THE FUND'S NET ASSETS AS OF JUNE 30,
2006.
ADR - AMERICAN DEPOSITARY RECEIPT
SPDR - STANDARD AND POOR'S DEPOSITARY RECEIPT
BR - BRAZIL
GE - GERMANY
NE - NETHERLANDS
UK - UNITED KINGDOM
SEE NOTES TO FINANCIAL STATEMENTS.
17
<Page>
STATEMENT OF ASSETS AND LIABILITIES
June 30, 2006 (UNAUDITED)
ASSETS
- -------------------------------------------------------------------------------
Investment securities, at cost $ 62,754,366
-------------
Investment securities, at market 62,987,310
Cash 147,262
Receivables:
Investment securities sold 893,345
Capital shares sold 19,278
Dividends and interest 391,434
Other assets 69,602
-------------
Total Assets 64,508,231
-------------
LIABILITIES
- -------------------------------------------------------------------------------
Payables and other accrued liabilities:
Investment securities purchased 985,935
Capital shares redeemed 189,852
Advisory fees 33,883
Shareholder servicing fees 4,480
Accounting fees 3,128
Distribution fees 24,178
Transfer agency fees 16,858
Custodian fees 265
Directors' deferred compensation 69,602
Other 60,780
-------------
Total Liabilities 1,388,961
-------------
Net Assets $ 63,119,270
=============
COMPOSITION OF NET ASSETS
- -------------------------------------------------------------------------------
Capital (par value and paid-in surplus) $ 243,823,392
Undistributed net investment income 675,152
Accumulated net realized loss from security transactions (181,612,218)
Net unrealized appreciation on investments 232,944
-------------
Total $ 63,119,270
=============
18
<Page>
CLASS A
- --------------------------------------------------------------------------------
Net Assets $ 1,798,979
Shares Outstanding 209,667
Net Asset Value, Redemption Price Per Share $ 8.58
Maximum offering price per share (net asset value plus sales
charge of 5.75% of offering price) $ 9.10
CLASS B
- --------------------------------------------------------------------------------
Net Assets $ 680,844
Shares Outstanding 80,039
Net Asset Value, Offering and Redemption Price (excluding
applicable contingent deferred sales charge) Per Share $ 8.51
CLASS C
- --------------------------------------------------------------------------------
Net Assets $ 168,999
Shares Outstanding 20,200
Net Asset Value, Offering and Redemption Price (excluding
applicable contingent deferred sales charge) Per Share $ 8.37
CLASS F
- --------------------------------------------------------------------------------
Net Assets $60,365,859
Shares Outstanding 7,026,762
Net Asset Value, Offering and Redemption Price Per Share $ 8.59
CLASS R
- --------------------------------------------------------------------------------
Net Assets $ 52,339
Shares Outstanding 6,115
Net Asset Value, Offering and Redemption Price Per Share $ 8.56
CLASS T
- --------------------------------------------------------------------------------
Net Assets $ 52,250
Shares Outstanding 5,931
Net Asset Value, Redemption Price Per Share $ 8.81
Maximum offering price per share (net asset value plus sales
charge of 4.50% of offering price) $ 9.23
SEE NOTES TO FINANCIAL STATEMENTS.
19
<Page>
STATEMENT OF OPERATIONS
For the six months ended June 30, 2006 (UNAUDITED)
INVESTMENT INCOME
- -------------------------------------------------------------------------------
Dividends $ 278,232
Interest 664,613
Foreign taxes withheld (954)
-----------
Total Investment Income 941,891
-----------
EXPENSES
- -------------------------------------------------------------------------------
Advisory fees--Note 2 220,008
Shareholder servicing fees--Note 2 28,404
Accounting fees--Note 2 20,309
Distribution fees--Note 2 84,854
Transfer agency fees--Note 2 46,447
Registration fees 31,255
Postage and mailing expenses 4,275
Custodian fees and expenses--Note 2 3,047
Printing expenses 22,925
Legal and audit fees 14,735
Directors' fees and expenses--Note 2 9,160
Other expenses 10,999
-----------
Total Expenses 496,418
Earnings Credits (2,658)
Reimbursed/Waived Expenses (402)
Expense Offset to Broker Commissions (1,960)
-----------
Net Expenses 491,398
-----------
Net Investment Income 450,493
-----------
REALIZED AND UNREALIZED GAIN (LOSS) ON SECURITY TRANSACTIONS
- -------------------------------------------------------------------------------
Net Realized Gain on Security Transactions 2,855,657
Net Change in Unrealized Appreciation/Depreciation of Investments (2,636,454)
-----------
Net Realized and Unrealized Gain 219,203
-----------
Net Increase in Net Assets Resulting from Operations $ 669,696
===========
SEE NOTES TO FINANCIAL STATEMENTS.
20
<Page>
STATEMENTS OF CHANGES IN NET ASSETS
(UNAUDITED)
SIX MONTHS ENDED YEAR ENDED
OPERATIONS JUNE 30, 2006 DECEMBER 31, 2005
- --------------------------------------------------------------------------------
Net Investment Income $ 450,493 $ 929,198
Net Realized Gain on Security and Foreign
Currency Transactions 2,855,657 10,647,924
Net Change in Unrealized
Appreciation/Depreciation of
Investments and Foreign Currency
Translation (2,636,454) (9,571,705)
------------ ------------
Net Increase in Net Assets Resulting
from Operations 669,696 2,005,417
------------ ------------
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS
- --------------------------------------------------------------------------------
From Net Investment Income
Class A (11,123) (16,241)
Class B (334) (1,226)
Class C (248) (165)
Class F (433,697) (925,766)
Class R (427) (776)
Class T (265) (240)
------------ ------------
Net Decrease from Dividends and
Distributions (446,094) (944,414)
------------ ------------
CAPITAL SHARE TRANSACTIONS
- --------------------------------------------------------------------------------
Net Increase (Decrease)--Note 4
Class A 38,009 52,147
Class B (374,877) (587,816)
Class C (20,227) (77,456)
Class F (8,779,236) (21,792,363)
Class R (1,573) (5,724)
Class T 18,279 (856)
------------ ------------
Net Decrease from Capital Share
Transactions (9,119,625) (22,412,068)
------------ ------------
Net Decrease in Net Assets (8,896,023) (21,351,065)
------------ ------------
NET ASSETS
- --------------------------------------------------------------------------------
Beginning of Period $ 72,015,293 $ 93,366,358
------------ ------------
End of Period $ 63,119,270 $ 72,015,293
============ ============
Undistributed Net Investment Income $ 675,152 $ 670,753
SEE NOTES TO FINANCIAL STATEMENTS.
21
<Page>
FINANCIAL HIGHLIGHTS
(UNAUDITED)
<Table>
<Caption>
SIX MONTHS YEAR ENDED
ENDED JUNE 30, DECEMBER 31,
2006 2005 2004 2003 2002
-------------- ----------------------------------
CLASS A SHARES
PER SHARE OPERATING DATA
Net Asset Value, beginning of period $ 8.58 $ 8.45 $ 7.88 $ 6.68 $ 8.18
- -------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.05 0.08 0.08 0.05 0.05
Net realized and unrealized gains
(losses) on securities 0.00 0.13 0.57 1.20 (1.51)
---------------------------------------------------
Total from investment operations 0.05 0.21 0.65 1.25 (1.46)
- -------------------------------------------------------------------------------------------------
Less dividends and distributions:
From net investment income (0.05) (0.08) (0.08) (0.05) (0.04)
From net realized gains 0.00 0.00 0.00 0.00 0.00
---------------------------------------------------
Total distributions (0.05) (0.08) (0.08) (0.05) (0.04)
- -------------------------------------------------------------------------------------------------
Net Asset Value, end of period $ 8.58 $ 8.58 $ 8.45 $ 7.88 $ 6.68
===================================================
TOTAL RETURN(a) 0.61% 2.51% 8.31% 18.81% (17.85%)
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000s) $1,799 $1,760 $1,682 $1,572 $ 1,243
- -------------------------------------------------------------------------------------------------
Ratios to average net assets:
Expenses with reimbursements, but no
earnings credits or brokerage offsets(b) 1.60% 1.69% 1.49% 1.83% 1.89%
Expenses with reimbursements, earnings
credits and brokerage offsets 1.59% 1.66% 1.48% 1.83% 1.89%
Net investment income 1.21% 0.90% 0.96% 0.63% 0.56%
- -------------------------------------------------------------------------------------------------
Portfolio turnover rate(c) 171% 181% 134% 108% 122%
</Table>
(a.) SALES CHARGES ARE NOT REFLECTED IN THE TOTAL RETURN.
(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.
22
<Page>
<Table>
<Caption>
SIX MONTHS YEAR ENDED
ENDED JUNE 30, DECEMBER 31,
2006 2005 2004 2003 2002
-------------- ------------------------------------
CLASS B SHARES
PER SHARE OPERATING DATA
Net Asset Value, beginning of period $8.50 $ 8.37 $ 7.80 $ 6.63 $ 8.11
- ---------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) 0.01(a) 0.01(a) 0.01 0.01 (0.01)
Net realized and unrealized gains (losses)
on securities 0.00 0.13 0.58 1.17 (1.47)
-----------------------------------------------------
Total from investment operations 0.01 0.14 0.59 1.18 (1.48)
- ---------------------------------------------------------------------------------------------------
Less dividends and distributions:
From net investment income 0.00(b) (0.01) (0.02) (0.01) 0.00(b)
From net realized gains 0.00 0.00 0.00 0.00 0.00
-----------------------------------------------------
Total distributions 0.00 (0.01) (0.02) (0.01) 0.00
- ---------------------------------------------------------------------------------------------------
Net Asset Value, end of period $8.51 $ 8.50 $ 8.37 $ 7.80 $ 6.63
=====================================================
TOTAL RETURN(c) 0.16% 1.66% 7.63% 17.76% (18.21%)
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000s) $ 681 $1,053 $1,625 $1,647 $ 1,181
- ---------------------------------------------------------------------------------------------------
Ratios to average net assets:
Expenses with reimbursements, but no
earnings credits or brokerage offsets(d) 2.61% 2.47% 2.21% 2.53% 2.54%
Expenses with reimbursements, earnings
credits and brokerage offsets 2.60% 2.45% 2.21% 2.53% 2.54%
Net investment income (loss) 0.17% 0.08% 0.23% (0.08%) (0.10%)
- ---------------------------------------------------------------------------------------------------
Portfolio turnover rate(e) 171% 181% 134% 108% 122%
</Table>
(a.) COMPUTED USING AVERAGE SHARES OUTSTANDING THROUGHOUT THE PERIOD.
(b.) DISTRIBUTIONS FROM NET INVESTMENT INCOME FOR THE YEAR ENDED DECEMBER 31,
2002 AND FOR THE PERIOD ENDED JUNE 30, 2006, AGGREGATED LESS THAN $.01 ON A
PER SHARE BASIS.
(c.) SALES CHARGES ARE NOT REFLECTED IN THE TOTAL RETURN.
(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,
2006 2005 2004 2003 2002
-------------- -------------------------------------------
CLASS C SHARES
PER SHARE OPERATING DATA
Net Asset Value, beginning of period $ 8.36 $ 8.24 $ 7.69 $ 6.54 $ 8.04
- ----------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) 0.01(a) 0.00(a, b) 0.01(a) (0.01) (0.17)
Net realized and unrealized gains (losses)
on securities 0.01 0.13 0.56 1.16 (1.33)
------------------------------------------------------------
Total from investment operations 0.02 0.13 0.57 1.15 (1.50)
- ----------------------------------------------------------------------------------------------------------
Less dividends and distributions:
From net investment income (0.01) (0.01) (0.02) 0.00(c) 0.00
From net realized gains 0.00 0.00 0.00 0.00 0.00
------------------------------------------------------------
Total distributions (0.01) (0.01) (0.02) 0.00 0.00
- ----------------------------------------------------------------------------------------------------------
Net Asset Value, end of period $ 8.37 $ 8.36 $ 8.24 $ 7.69 $ 6.54
============================================================
TOTAL RETURN(d) 0.26% 1.54% 7.42% 17.59% (18.66%)
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000s) $ 169 $ 189 $ 264 $ 295 $ 248
- ----------------------------------------------------------------------------------------------------------
Ratios to average net assets:
Expenses with reimbursements, but no
earnings credits or brokerage offsets(e) 2.56% 2.54% 2.35% 2.69% 3.48%
Expenses with reimbursements, earnings
credits and brokerage offsets 2.55% 2.51% 2.34% 2.69% 3.48%
Net investment income (loss) 0.24% 0.02% 0.08% (0.17%) (1.05%)
- ----------------------------------------------------------------------------------------------------------
Portfolio turnover rate(f) 171% 181% 134% 108% 122%
</Table>
(a.) COMPUTED USING AVERAGE SHARES OUTSTANDING THROUGHOUT THE PERIOD.
(b.) NET INVESTMENT INCOME FOR THE YEAR ENDED DECEMBER 31, 2005 AGGREGATED LESS
THAN $0.01 ON A PER SHARE BASIS.
(c.) DISTRIBUTIONS FROM NET INVESTMENT INCOME FOR THE YEAR ENDED DECEMBER 31,
2003 AGGREGATED LESS THAN $0.01 ON A PER SHARE BASIS.
(d.) SALES CHARGES ARE NOT REFLECTED IN THE TOTAL RETURN.
(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.
24
<Page>
<Table>
<Caption>
SIX MONTHS
ENDED YEAR ENDED
JUNE 30, DECEMBER 31,
2006 2005 2004 2003 2002
---------- ---------------------------------------
CLASS F SHARES
PER SHARE OPERATING DATA
Net Asset Value, beginning of period $ 8.59 $ 8.46 $ 7.88 $ 6.69 $ 8.20
- --------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.05 0.09 0.08 0.06 0.07
Net realized and unrealized gains
(losses) on securities 0.01 0.14 0.59 1.20 (1.50)
----------------------------------------------------
Total from investment operations 0.06 0.23 0.67 1.26 (1.43)
- --------------------------------------------------------------------------------------------------
Less dividends and distributions:
From net investment income (0.06) (0.10) (0.09) (0.07) (0.08)
From net realized gains 0.00 0.00 0.00 0.00 0.00
----------------------------------------------------
Total distributions (0.06) (0.10) (0.09) (0.07) (0.08)
- --------------------------------------------------------------------------------------------------
Net Asset Value, end of period $ 8.59 $ 8.59 $ 8.46 $ 7.88 $ 6.69
====================================================
TOTAL RETURN 0.69% 2.75% 8.58% 18.96% (17.46%)
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000s) $60,366 $68,926 $89,701 $119,835 $130,314
- --------------------------------------------------------------------------------------------------
Ratios to average net assets:
Expenses with reimbursements, but no
earnings credits or brokerage offsets(a) 1.44% 1.43% 1.34% 1.54% 1.43%
Expenses with reimbursements,
earnings credits and brokerage offsets 1.43% 1.40% 1.33% 1.54% 1.42%
Net investment income 1.35% 1.14% 1.08% 0.93% 0.99%
- --------------------------------------------------------------------------------------------------
Portfolio turnover rate(b) 171% 181% 134% 108% 122%
</Table>
(a.) CERTAIN FEES WERE WAIVED BY THE CUSTODIAN. THESE WAIVERS DID NOT HAVE AN
IMPACT ON THE EXPENSE RATIOS.
(b.) PORTFOLIO TURNOVER RATE IS A MEASURE OF PORTFOLIO ACTIVITY THAT IS
CALCULATED BY DIVIDING THE LESSER OF PURCHASES OR SALES OF SECURITIES,
EXCLUDING SECURITIES HAVING MATURITY DATES AT ACQUISITION OF ONE YEAR OR
LESS, 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
ENDED YEAR ENDED
JUNE 30, DECEMBER 31,
2006 2005 2004 2003 2002
---------- ------------------------------------
CLASS R SHARES
PER SHARE OPERATING DATA
Net Asset Value, beginning of period $ 8.56 $ 8.43 $ 7.86 $ 6.68 $ 8.18
- -----------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) 0.07 0.11 0.09 0.16 (0.16)
Net realized and unrealized gains
(losses) on securities 0.00 0.14 0.58 1.05 (1.34)
-------------------------------------------------
Total from investment operations 0.07 0.25 0.67 1.21 (1.50)
- -----------------------------------------------------------------------------------------------
Less dividends and distributions:
From net investment income (0.07) (0.12) (0.10) (0.03) 0.00
From net realized gains 0.00 0.00 0.00 0.00 0.00
-------------------------------------------------
Total distributions (0.07) (0.12) (0.10) (0.03) 0.00
- -----------------------------------------------------------------------------------------------
Net Asset Value, end of period $ 8.56 $ 8.56 $ 8.43 $ 7.86 $ 6.68
=================================================
TOTAL RETURN 0.80% 3.01% 8.63% 18.12% (18.34%)
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000s) $ 52 $ 54 $ 59 $ 72 $ 11
- -----------------------------------------------------------------------------------------------
Ratios to average net assets:
Expenses with reimbursements, but no
earnings credits or brokerage offsets(a) 1.24% 1.19% 1.21% 2.37% 4.24%
Expenses with reimbursements, earnings
credits and brokerage offsets 1.23% 1.17% 1.21% 2.37% 4.24%
Net investment income (loss) 1.56% 1.38% 1.21% 0.01% (1.77%)
- -----------------------------------------------------------------------------------------------
Portfolio turnover rate(b) 171% 181% 134% 108% 122%
</Table>
(a.) 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 1.40% (2006), 1.36% (2005), 1.35% (2004), 2.62%
(2003) AND 19.52% (2002).
(b.) PORTFOLIO TURNOVER RATE IS A MEASURE OF PORTFOLIO ACTIVITY THAT IS
CALCULATED BY DIVIDING THE LESSER OF PURCHASES OR SALES OF SECURITIES,
EXCLUDING SECURITIES HAVING MATURITY DATES AT ACQUISITION 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
ENDED YEAR ENDED
JUNE 30, DECEMBER 31,
2006 2005 2004 2003 2002
---------- --------------------------------------
CLASS T SHARES
PER SHARE OPERATING DATA
Net Asset Value, beginning of period $ 8.81 $ 8.68 $ 8.09 $ 6.88 $ 8.17
- -------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) 0.04(a) 0.05 0.03 0.21 (0.37)
Net realized and unrealized gains
(losses) on securities 0.01 0.14 0.62 1.00 (0.92)
---------------------------------------------------
Total from investment operations 0.05 0.19 0.65 1.21 (1.29)
- -------------------------------------------------------------------------------------------------
Less dividends and distributions:
From net investment income (0.05) (0.06) (0.06) 0.00(b) 0.00
From net realized gains 0.00 0.00 0.00 0.00 0.00
---------------------------------------------------
Total distributions (0.05) (0.06) (0.06) 0.00 0.00
- -------------------------------------------------------------------------------------------------
Net Asset Value, end of period $ 8.81 $ 8.81 $ 8.68 $ 8.09 $ 6.88
===================================================
TOTAL RETURN(c) 0.52% 2.21% 8.01% 17.65% (15.79%)
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000s) $ 52 $ 35 $ 35 $ 36 $ 13
- -------------------------------------------------------------------------------------------------
Ratios to average net assets:
Expenses with reimbursements, but no
earnings credits or brokerage offsets(d) 1.86% 1.89% 1.77% 2.73% 2.60%
Expenses with reimbursements,
earnings credits and brokerage offsets 1.84% 1.87% 1.77% 2.73% 2.59%
Net investment income (loss) 0.96% 0.69% 0.66% (0.29%) (0.31%)
- -------------------------------------------------------------------------------------------------
Portfolio turnover rate(e) 171% 181% 134% 108% 122%
</Table>
(a.) COMPUTED USING AVERAGE SHARES OUTSTANDING THROUGHOUT THE PERIOD.
(b.) DISTRIBUTIONS FROM NET INVESTMENT INCOME FOR THE YEAR ENDED DECEMBER 31,
2003 AGGREGATED LESS THAN $0.01 ON A PER SHARE BASIS.
(c.) SALES CHARGES ARE NOT REFLECTED IN THE TOTAL RETURN.
(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% (2006), 2.15% (2005), 2.02% (2004), 3.18%
(2003) AND 14.63% (2002).
(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, 2006 (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). Effective June 1, 2006,
Class B shares will no longer be offered except in connection with dividend
reinvestments and permitted exchanges of Class B shares. 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. New York closing exchange rates are used to convert foreign
currencies to U.S. dollars.
A debt security with a remaining maturity greater than 60 days at the time of
purchase is valued in accordance with the evaluated bid price supplied by a
pricing service approved by the Company's board of directors or, if such price
is not available, at the mean between the highest bid and lowest asked
quotations obtained from at least two securities dealers. A debt security with a
remaining maturity of 60 days or less at the time of purchase is valued at
amortized cost, which approximates market value, unless it is determined that
amortized cost would not represent market value, in which case the securities
would be marked to market. The Fund amortizes premiums and discounts on all debt
securities.
If market quotations 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
28
<Page>
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 requires the use of estimates, and as such,
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--The Fund may invest at least a
portion of its assets in foreign securities. Foreign securities carry more risk
than U.S. securities, such as political and currency risks. 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 Fund could be
exposed to risk if counterparties are unable to meet the terms of the contracts
or if the value of the currency changes unfavorably to the U.S. dollar. 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.
The accounting records of the Fund are maintained in U.S. dollars. The market
values of foreign securities, currency holdings and other assets and liabilities
are translated into U.S. dollars based on the current exchange rates each
business day. 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 unrealized gain or loss from investments and foreign
currency translations on the Statement of Operations.
29
<Page>
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 Subchapter M 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 from
net investment income (if any) quarterly and from net realized capital gains (if
any) annually. Dividends and distributions, which are determined in accordance
with income tax regulations, are recorded on the ex-dividend date.
EXPENSES--Each Class of the Fund bears expenses incurred specifically on its
behalf and, in addition, each Class bears a portion of general expenses based on
the relative net assets or the number of shareholder accounts of the Class. The
type of expense determines the allocation method.
The Company's board of directors has authorized the payment of certain Fund
expenses with commissions on Fund portfolio transactions. These commissions
reduce Other Expenses and are included in the Expense Offset to Broker
Commissions in the Statement of Operations.
USE OF ESTIMATES--The preparation of financial statements in conformity with
accounting principles generally accepted in the United States of America
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported amounts of
income and expenses during the reporting period. Actual results could differ
from those estimates.
INDEMNIFICATIONS--In the normal course of business, the Company enters into
contracts that contain provisions indemnifying other parties against specified
potential liabilities. Each Fund's maximum exposure under these arrangements is
unknown as this would involve future claims that may be made against the Fund
that have not yet occurred. However, based on experience, the Funds expect the
risk of loss to be remote.
OTHER--Certain prior year information has been reformatted, without substantive
change, to conform with the current year presentation.
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 period ended June 30, 2006,
Class F shares were charged $24,770 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 period ended June 30, 2006, Class F shares were
charged $9,380 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 $13.45 to $13.88, 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 period ended June 30, 2006 were as
follows:
TRANSFER
AGENCY FEES
---------------------
Class A $2,375
---------------------
Class B $2,248
---------------------
Class C $ 435
---------------------
Class R $ 85
---------------------
Class T $ 104
---------------------
31
<Page>
Founders has agreed to reimburse (or to cause its affiliates to reimburse) the
Class R and Class T share classes of the Fund for certain transfer agency
expenses pursuant to a written contractual commitment. This commitment will
extend through at least August 31, 2007, and will not be terminated without
prior notification to the Company's board of directors. For the period ended
June 30, 2006, Class R and Class T were each reimbursed $44, which reduced the
amounts paid to DTI to $41 and $60, 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 period ended June 30, 2006, the Fund was charged $483 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 period ended June
30, 2006, the Fund paid $31,820 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 period ended June 30,
2006, Class F shares were charged $80,917 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 period ended June 30, 2006, were as follows:
DISTRIBUTION SHAREHOLDER
FEES SERVICING FEES
---------------------------------------
Class A N/A $2,284
---------------------------------------
Class B $3,192 $1,064
---------------------------------------
Class C $ 689 $ 230
---------------------------------------
Class T $ 56 $ 56
---------------------------------------
32
<Page>
During the period ended June 30, 2006, DSC retained $262 and $1 in sales
commissions from the sales of Class A and Class T shares, respectively. DSC also
retained $4,323 and $41 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.
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, which are shown as earnings credits on the
Statement of Operations. 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
period and in the amount set forth below:
TIME PERIOD AMOUNT OF WAIVER
------------------------------------
9/1/05 to 8/31/06 $200,000
------------------------------------
The fee waiver is allocated among the Funds in proportion to their respective
shares of the total custodian fee. For the period ended June 30, 2006, the
Fund's portion of the fee waiver was $314, which reduced the amount paid to
Mellon Bank to $2,733.
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 Directors'
Deferred Compensation on the Statement of Assets and Liabilities. Changes in
market value are included in the Directors' fees and expenses and the net change
in unrealized appreciation/depreciation of investments on the Statement of
Operations. 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
or its affiliates, which pay 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, deferred compensation, paydowns 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, 2005 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, 2005 were:
EXPIRATION AMOUNT
---------------------------------------------------
2008 $ 63,264,790
---------------------------------------------------
2009 $ 49,289,530
---------------------------------------------------
2010 $ 70,087,112
---------------------------------------------------
2011 $ 1,472,188
---------------------------------------------------
$184,113,620
============
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, 2006 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.
Undistributed Ordinary Income $ 704,506
---------------------------------------------------
Federal Tax Cost $62,941,894
---------------------------------------------------
Gross Tax Appreciation of Investments $ 1,936,396
---------------------------------------------------
Gross Tax Depreciation of Investments $(1,890,980)
---------------------------------------------------
Net Tax Appreciation $ 45,416
---------------------------------------------------
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>
PERIOD ENDED YEAR ENDED
JUNE 30, 2006 DECEMBER 31, 2005
SHARES AMOUNT SHARES AMOUNT
CLASS A
- ---------------------------------------------------------------------------------------------
Sold 38,521 $ 335,510 57,061 $ 480,146
Dividends or Distributions Reinvested 1,178 $ 10,249 1,781 $ 15,071
Redeemed (35,176) $ (307,750) (52,764) $ (443,070)
-----------------------------------------------------
Net Increase 4,523 $ 38,009 6,078 $ 52,147
=====================================================
CLASS B
- ---------------------------------------------------------------------------------------------
Sold 11,747 $ 103,189 19,802 $ 163,928
Dividends or Distributions Reinvested 29 $ 254 109 $ 919
Redeemed (55,609) $ (478,320) (90,247) $ (752,663)
-----------------------------------------------------
Net Decrease (43,833) $ (374,877) (70,336) $ (587,816)
=====================================================
CLASS C
- ---------------------------------------------------------------------------------------------
Sold 822 $ 7,028 536 $ 4,356
Dividends or Distributions Reinvested 16 $ 135 12 $ 99
Redeemed (3,177) $ (27,390) (10,020) $ (81,911)
-----------------------------------------------------
Net Decrease (2,339) $ (20,227) (9,472) $ (77,456)
=====================================================
CLASS F
- ---------------------------------------------------------------------------------------------
Sold 203,034 $ 1,778,742 724,211 $ 6,098,334
Dividends or Distributions Reinvested 48,076 $ 419,050 106,167 $ 897,919
Redeemed (1,250,133) $(10,977,028) (3,407,950) $(28,788,616)
-----------------------------------------------------
Net Decrease (999,023) $ (8,779,236) (2,577,572) $(21,792,363)
=====================================================
CLASS R
- ---------------------------------------------------------------------------------------------
Sold 0 $ 0 288 $ 2,500
Dividends or Distributions Reinvested 49 $ 427 92 $ 776
Redeemed (225) $ (2,000) (1,074) $ (9,000)
-----------------------------------------------------
Net Decrease (176) $ (1,573) (694) $ (5,724)
=====================================================
CLASS T
- ---------------------------------------------------------------------------------------------
Sold 1,996 $ 18,199 11 $ 100
Dividends or Distributions Reinvested 20 $ 183 15 $ 130
Redeemed (12) $ (103) (127) $ (1,086)
-----------------------------------------------------
Net Increase (Decrease) 2,004 $ 18,279 (101) $ (856)
=====================================================
</Table>
35
<Page>
5. INVESTMENT TRANSACTIONS
For the period ended June 30, 2006, purchases and sales of investment securities
(excluding short-term securities and U.S. government obligations) were
$45,164,624 and $57,621,280, respectively. Purchases and sales of long-term U.S.
government obligations were $5,201,024 and $4,214,964, 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, 2006, the Fund did not have any borrowings under the LOC.
36
<Page>
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For More Information
DREYFUS FOUNDERS
BALANCED FUND
MANAGER
Founders Asset
Management LLC
210 University Boulevard
Suite 800
Denver, CO 80206
TRANSFER AGENT &
DIVIDEND DISBURSING AGENT
Dreyfus Transfer, Inc.
200 Park Avenue
New York, NY 10166
DISTRIBUTOR
Dreyfus Service Corporation
200 Park Avenue
New York, NY 10166
TELEPHONE Call your financial representative or 1-800-554-4611
MAIL Dreyfus Founders Funds, Inc.
144 Glenn Curtiss Boulevard, Uniondale, NY 11556-0144
The fund files its complete schedule of portfolio holdings with the Securities
and Exchange Commission ("SEC") for the first and third quarters of each fiscal
year on Form N-Q. The fund's Forms N-Q are available on the SEC's website at
http://www.sec.gov and may be reviewed and copied at the SEC's Public Reference
Room in Washington, DC. Information on the operation of the Public Reference
Room may be obtained by calling 1-202-551-8090.
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, 2006, 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.
(C) 2006 Founders Asset Management LLC
0086SA0606
<Page>
DREYFUS FOUNDERS
DISCOVERY FUND
SEMIANNUAL REPORT JUNE 30, 2006
[DREYFUS LOGO]
A MELLON FINANCIAL COMPANY(SM)
<Page>
TABLE OF CONTENTS
Management Overview 3
Fund Expenses 11
Statement of Investments 13
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
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
Founders Asset Management LLC
A MELLON FINANCIAL COMPANY(SM)
210 University Boulevard, Suite 800
Denver, CO 80206
DISTRIBUTOR
Dreyfus Service Corporation
200 Park Avenue
New York, NY 10166
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, 2006. The amounts of
these holdings are included in the Statement of Investments.
NOT FDIC-INSURED - NOT BANK-GUARANTEED - MAY LOSE VALUE
<Page>
MANAGEMENT OVERVIEW
(UNAUDITED)
[PHOTO OF BRAD ORR]
[PHOTO OF JAMES (J.D.) PADGETT]
A DISCUSSION WITH CO-PORTFOLIO MANAGERS BRAD ORR, CFA, LEFT, AND JAMES (J.D.)
PADGETT, CFA, REGARDING FUND PERFORMANCE FOR THE SIX-MONTH PERIOD ENDED JUNE 30,
2006.
ANTICIPATING THE FEDERAL RESERVE
The majority of domestic equity markets were up broadly during the six-month
period ended June 30, 2006. The investing environment that permeated the last
quarter of 2005 extended into the first quarter of 2006, as investors
anticipated an end to the interest-rate tightening campaign by the Federal
Reserve and economic expectations continued to be of low inflation and solid
growth. Also, during the first quarter, growth stocks outperformed value, and
small-capitalization stocks continued their reign over their large-cap
counterparts. The markets continued their bet on the economy's ability to walk
the fine line between solid growth yet not at a pace that would warrant
continued interest rate increases.
In the second quarter, as it became apparent that the Federal Reserve was
focused on increasing the federal funds rate until its inflationary concerns
abated, the equity markets began sliding. The outperformance of small-cap growth
stocks began to fade. In addition, high commodity prices and continued political
tension from various sources weighed heavily on the investing environment.
SMALL-CAP GROWTH STOCKS BEGIN TO UNDERPERFORM
For the period, small-cap stocks significantly outperformed large-cap stocks.
The Russell 2000 Index rose 8.21%, outpacing the 2.71% gain in the Standard &
Poor's 500 Index and the -0.93% decline of the Russell 1000 Growth Index. In the
small-cap universe, growth stocks underperformed value stocks as the Russell
2000 Growth Index increased 6.07%, while the Russell 2000 Value Index rose
10.44%.(1)
- ----------
(1) 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 Russell 2000 Value Index is an unmanaged index that measures
the performance of those Russell 2000 companies with lower price-to-book
ratios and lower forecasted growth values. The total return figures cited
for these indexes assume change in share prices and reinvestment of of
dividends, but do not reflect the costs of managing a mutual fund.
3
<Page>
For the six-month period, the Dreyfus Founders Discovery Fund
underperformed its benchmark, the Russell 2000 Growth Index, which returned
6.07% for the same period.
PORTFOLIO COMPOSITION REMAINS THE SAME
Our investment approach in managing the Fund remained consistent during the
period, with no major shifts in portfolio composition. We continued to employ a
bottom-up, fundamental approach in seeking to uncover small-cap growth companies
with the greatest growth potential.
INDUSTRIALS OUTPERFORMS DUE TO STRONG STOCK SELECTION
In small-cap investing, without dramatic differences in sector allocation
between the Fund and the benchmark, relative performance usually comes down to
stock selection. With this in mind, we continued to find compelling growth
opportunities during the period in the industrials sector. Although valuations
appeared to be high in many areas of the sector, the fundamental strength and
upside potential justified the valuations and warranted investment in the
sector. By the end of the period, this sector proved to be the Fund's strongest
performer on a relative basis, with the majority of outperformance attributed to
strong stock selection.
"IN SMALL-CAP INVESTING, WITHOUT DRAMATIC DIFFERENCES IN SECTOR ALLOCATION
BETWEEN THE FUND AND THE BENCHMARK, RELATIVE PERFORMANCE USUALLY COMES DOWN TO
STOCK SELECTION."
Numerous industrials stocks produced notable performance. Among them were
HUB GROUP, INC., Hughes Supply, Inc. and OLD DOMINION FREIGHT LINE, INC. Hub
Group, a freight intermodal transportation and logistics services provider,
posted results that were better than expected, and the company once again raised
earnings guidance. Hub Group executed a number of internal growth and margin
opportunities, outperforming the already solid intermodal transportation
industry. Wholesale industrial and construction supply distributor, Hughes
Supply, was acquired during the period by Home Depot, Inc., and Old Dominion
Freight Line saw its valuation expand as the company continued to show strong
organic growth and better-than-expected revenue and earnings results.
4
<Page>
INDIVIDUAL ISSUES PERFORMED STRONGLY
Information technology issue Trident Microsystems, Inc., a manufacturer of
integrated circuits for use in digital media applications, performed strongly as
the company continued to take market share in the rapidly growing advanced TV
market. Revenue and earnings for both the fourth quarter of 2005 and the first
quarter of 2006 beat investors' expectations.
SECTOR BENEFITING THE FUND
Industrials
Although the sector as a whole did not perform well, health care holding
MGI PHARMA, INC. boosted the Fund's relative performance. In late 2005, MGI
received a conditional approval for one of its drugs, Dacogen(TM), from which
the stock took a negative hit. During the same timeframe, the company's key
drug, Aloxi(R), showed signs of slowing prescriptions. Revenue and earnings
expectations were lowered, further depressing the stock. However, in the first
half of 2006, the company received final approval of Dacogen, and showed
stability in Aloxi prescriptions. The stock, therefore, performed well during
the period as a result of the improved fundamentals and good valuation.
Energy stock SUPERIOR ENERGY SERVICES, INC., a leading provider of
specialized oilfield services and equipment, experienced an uptick in business
after hurricane disruption of oil-well operations and related services
throughout the Gulf of Mexico dampened demand in the industry. In addition,
LARGEST EQUITY HOLDINGS (ticker symbol)
1. RACKABLE SYSTEMS, INC. (RACK) 3.08%
2. WMS INDUSTRIES, INC. (WMS) 2.80%
3. EV3, INC. (EVW) 2.78%
4. MGI PHARMA, INC. (MOGN) 2.67%
5. TRAMMELL CROW COMPANY (TCC) 2.62%
6. AEROFLEX, INC. (ARXX) 2.46%
7. NCI BUILDING SYSTEMS, INC. (NCS) 2.41%
8. KFX, INC. (KFX) 2.36%
9. KNOLL, INC. (KNL) 2.16%
10. HUB GROUP, INC. CLASS A (HUBG) 2.14%
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]
<Table>
<Caption>
DREYFUS
FOUNDERS RUSSELL 2000
DISCOVERY GROWTH
FUND-CLASS F INDEX
------------ ------------
6/28/1996 $10,000 $10,000
6/30/1997 $10,173 $10,460
6/30/1998 $12,280 $11,840
6/30/1999 $16,386 $12,823
6/30/2000 $30,400 $16,463
6/29/2001 $21,327 $12,621
6/28/2002 $15,709 $ 9,465
6/30/2003 $14,232 $ 9,530
6/30/2004 $18,143 $12,537
6/30/2005 $18,691 $13,074
6/30/2006 $19,393 $14,981
</Table>
The above graph compares a $10,000 investment made in Class F shares of Dreyfus
Founders Discovery Fund on 6/30/96 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 6/30/06
YEAR-TO- SINCE
CLASS (INCEPTION DATE) DATE+ 1 YEAR 5 YEARS 10 YEARS INCEPTION
- ------------------------------------------------------------------------------
A SHARES (12/31/99)
With sales charge (5.75%) (4.35%) (2.19%) (3.04%) -- (4.82%)
Without sales charge 1.50% 3.79% (1.88%) -- (3.95%)
B SHARES (12/31/99)
With redemption* (2.97%) (1.22%) (3.19%) -- (4.81%)
Without redemption 1.03% 2.78% (2.80%) -- (4.81%)
C SHARES (12/31/99)
With redemption** 0.11% 1.89% (2.77%) -- (4.78%)
Without redemption 1.11% 2.89% (2.77%) -- (4.78%)
F SHARES (12/29/89) 1.50% 3.76% (1.88%) 6.85% 12.10%
R SHARES (12/31/99) 1.61% 4.05% (1.61%) -- (3.69%)
T SHARES (12/31/99)
With sales charge (4.50%) (3.28%) (1.26%) (3.24%) -- (5.03%)
Without sales charge 1.29% 3.40% (2.35%) -- (4.35%)
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 redeemed within one year of the date of purchase.
+ Total return is not annualized.
7
<Page>
a backlog of work has risen steadily as wells are brought online. The company's
earnings, after a short period of impact, were better than expected.
Finally, consumer discretionary issue AARON RENTS, INC. overcame sales
disruptions due to last year's hurricanes and increased spending to keep stores
open during the hurricanes' aftermath. Although the company's stock price
dropped in 2005, we felt the market was viewing the situation incorrectly. We
saw through the short-term depression of margins and invested in the stock at an
attractive valuation. Sales momentum continued and margins recovered, driving
the stock up.
Although the Fund exhibited strong stock selection in the consumer
discretionary and materials sectors, this gain was offset by poor relative
weightings, contributing flat or slightly weak relative performance in each
sector.
WEAK STOCK SELECTION IN CERTAIN SECTORS HAMPERED PERFORMANCE
SECTORS DETRACTING FROM THE FUND
Information Technology
Health Care
Energy
The information technology (IT) sector provided the worst relative performance
in the Fund for the period. The investment team has had difficulty finding
compelling growth opportunities in this sector; valuations remained relatively
high throughout the period, and evidence of flattening and even deteriorating
fundamentals were found in many areas of the sector. Weak stock picking
curtailed our efforts to outperform the benchmark by underweighting the Fund in
this sector. For example, IT holding Merge Technologies Inc. held several large
contracts deemed by auditors to require changes to the company's revenue
recognition policies. These changes caused a large revenue and earnings revision
downward, leading many investors to doubt the company's growth strategy and
ultimate earnings power. The Fund no longer held this stock at the end of the
period as we shared these concerns. Another IT issue, MONOLITHIC POWER SYSTEMS,
INC., a designer and manufacturer of analog and mixed-signal high performance
semiconductors, experienced weakness attributed to both slightly weak guidance
and concerns about the company's end markets. The Fund held a position in this
stock at the end of the period, as we believed that the perception has been
worse than the reality of the company's situation.
8
<Page>
A slight overweight position and poor stock selection in the healthcare
sector also hampered the Fund's relative return. Manufacturer of drug-infusion
pumps and post-operative implantable catheters I-FLOW CORPORATION saw some sales
disruption in its oncology segment due to supply interruption of a commonly used
chemotherapy drug. Results were relatively in line with expectations excluding
this disruption, but the stock did not perform well. Decelerating growth in the
company's largest and fastest growing segment weighed on the stock more
recently. MATRIA HEALTHCARE, INC., which provides disease management programs
for health plans and employers, saw its stock price decline during the period
due to integration issues surrounding a large acquisition, primarily related to
customer disruption and delayed action on new business wins. These issues caused
the company to reduce earnings expectations for the year. DEXCOM, INC., a
manufacturer of continuous glucose monitoring systems for diabetics, experienced
a number of issues that caused pressure on the stock. After receiving approval
for its first generation monitoring system late in the first quarter of 2006,
the initial uptake of the product post-launch was slower than analysts expected,
although not out of the company's expected range. Concerns regarding the timing
of reimbursement for the system were also raised. Finally, rumors surfaced that
the company would recall the product due to malfunction, sending the stock price
tumbling, although no recall had occurred by the end of the period.
[CHART]
<Table>
<Caption>
PORTFOLIO COMPOSITION OF ASSETS
Consumer Discretionary 19.72%
Information Technology 19.61%
Industrials 18.52%
Health Care 16.74%
Financials 8.58%
Energy 7.81%
Consumer Staples 1.96%
Telecommunication Services 1.91%
Materials 1.49%
Cash & Equivalents 3.66%
</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.
9
<Page>
The Fund's weak stock picking in the energy and telecommunications services
sectors also produced a drain on relative performance. Likewise, an underweight
position in the strong performing energy sector weighed on the Fund.
SELECT STOCKS UNDERPERFORMED
Individual issues also performed poorly for the Fund, including consumer
discretionary holdings PACIFIC SUNWEAR OF CALIFORNIA, INC. and Red Robin Gourmet
Burgers, Inc. Pacific Sunwear had difficulty solidifying its store merchandising
mix, which resulted in lower store traffic levels, lower same-store sales,
bloated inventory levels and lower earnings. Red Robin also saw traffic slow
during the fourth quarter of 2005, resulting in lower revenue growth and
significantly lower earnings. The company's expense overruns were also
concerning to investors. The Fund no longer held this stock at the end of the
period due to these and other concerns.
As we head into the second half of 2006, the Fund's management team will
change. Effective August 1, 2006, B. Randall Watts, Jr. will assume portfolio
management responsibilities for the Fund, replacing Bradley C. Orr and James D.
Padgett.
We will continue to employ our bottom-up process to identify high-quality
companies we believe are capable of posting strong future earnings growth at
valuations that are attractive.
/s/ Bradley C. Orr, CFA /s/ James (J.D.) Padgett, CFA
- ------------------------------------ ----------------------------------------
Bradley C. Orr, CFA James (J.D.) Padgett, CFA
Co-Portfolio Manager Co-Portfolio Manager
10
<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, 2006
and held through June 30, 2006.
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, together with the amount you
invested, 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.
11
<Page>
EXPENSE EXAMPLE
BEGINNING ENDING EXPENSES PAID
ACCOUNT VALUE ACCOUNT VALUE DURING PERIOD*
(1/1/06) (6/30/06) (1/1/06-6/30/06)
- -----------------------------------------------------------------------
CLASS A ACTUAL $1,000.00 $1,015.00 $ 7.34
CLASS A HYPOTHETICAL 1,000.00 1,017.41 7.38
CLASS B ACTUAL 1,000.00 1,010.30 12.21
CLASS B HYPOTHETICAL 1,000.00 1,012.49 12.30
CLASS C ACTUAL 1,000.00 1,011.10 11.62
CLASS C HYPOTHETICAL 1,000.00 1,013.10 11.70
CLASS F ACTUAL 1,000.00 1,015.00 7.44
CLASS F HYPOTHETICAL 1,000.00 1,017.31 7.48
CLASS R ACTUAL 1,000.00 1,016.10 6.10
CLASS R HYPOTHETICAL 1,000.00 1,018.67 6.12
CLASS T ACTUAL 1,000.00 1,012.90 8.88
CLASS T HYPOTHETICAL 1,000.00 1,015.86 8.94
*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 earnings credits.
EXPENSE RATIO
-------------
CLASS A 1.47%
CLASS B 2.45%
CLASS C 2.33%
CLASS F 1.49%
CLASS R 1.22%
CLASS T 1.78%
12
<Page>
STATEMENT OF INVESTMENTS
June 30, 2006 (UNAUDITED)
SHARES MARKET VALUE
- --------------------------------------------------------------------------------
COMMON STOCKS (DOMESTIC)--92.4%
AIR FREIGHT & LOGISTICS--2.6%
309,844 Hub Group, Inc. Class A* $ 7,600,469
69,000 UTI Worldwide, Inc. 1,740,870
-----------
9,341,339
-----------
APPAREL RETAIL--1.2%
237,873 Pacific Sunwear of California, Inc.* 4,265,063
-----------
APPLICATION SOFTWARE--2.8%
348,750 Nuance Communications, Inc.* 3,508,425
325,836 Witness Systems, Inc.* 6,572,112
-----------
10,080,537
-----------
ASSET MANAGEMENT & CUSTODY BANKS--1.6%
65,525 Affiliated Managers Group, Inc.* 5,693,467
-----------
BUILDING PRODUCTS--2.4%
160,713 NCI Building Systems, Inc.* 8,545,110
-----------
CASINOS & GAMING--2.8%
361,975 WMS Industries, Inc.* 9,914,495
-----------
CATALOG RETAIL--1.2%
398,325 ValueVision Media, Inc. Class A* 4,393,525
-----------
COAL & CONSUMABLE FUEL--2.3%
548,525 KFx, Inc.* 8,381,462
-----------
COMPUTER STORAGE & PERIPHERALS--3.1%
276,313 Rackable Systems, Inc.* 10,911,600
-----------
CONSTRUCTION & ENGINEERING--3.5%
139,350 Foster Wheeler Limited* 6,019,920
290,751 Perini Corporation* 6,541,898
-----------
12,561,818
-----------
CONSTRUCTION, FARM MACHINERY & HEAVY TRUCKS--2.5%
186,911 ASV, Inc.* 4,306,429
93,237 Bucyrus International, Inc. Class A 4,708,469
-----------
9,014,898
-----------
DIVERSIFIED COMMERCIAL & PROFESSIONAL SERVICES--1.8%
139,550 CRA International, Inc.* 6,299,287
-----------
ELECTRICAL COMPONENTS & EQUIPMENT--1.0%
276,300 Evergreen Solar, Inc.* 3,586,374
-----------
ELECTRONIC EQUIPMENT MANUFACTURERS--2.5%
746,540 Aeroflex, Inc.* 8,712,122
-----------
FOOD DISTRIBUTORS--2.0%
275,605 Central European Distribution Corporation* 6,934,222
-----------
GOLD--1.5%
139,475 Glamis Gold Limited* 5,280,524
-----------
SEE NOTES TO STATEMENT OF INVESTMENTS.
13
<Page>
SHARES MARKET VALUE
- --------------------------------------------------------------------------------
HEALTHCARE EQUIPMENT--10.5%
122,275 ArthroCare Corporation* $ 5,136,773
161,580 Dexcom, Inc.* 2,194,256
664,872 ev3, Inc.* 9,846,754
612,764 I-Flow Corporation* 6,630,106
134,020 Integra LifeSciences Holdings* 5,201,316
90,725 Neurometrix, Inc.* 2,763,484
290,050 NuVasive, Inc.* 5,287,612
-----------
37,060,301
-----------
HEALTHCARE FACILITIES--3.1%
136,600 LCA - Vision, Inc. 7,227,506
120,846 United Surgical Partners International, Inc.* 3,633,839
-----------
10,861,345
-----------
HEALTHCARE SERVICES--0.6%
91,975 Matria Healthcare, Inc.* 1,970,105
-----------
HOME FURNISHING RETAIL--2.0%
268,531 Aaron Rents, Inc. 7,218,113
-----------
HOTELS, RESORTS & CRUISE LINES--1.8%
148,315 Gaylord Entertainment Company* 6,472,467
-----------
HUMAN RESOURCE & EMPLOYMENT SERVICES--1.2%
164,625 Resources Connection, Inc.* 4,118,918
-----------
INTERNET SOFTWARE & SERVICES--2.2%
278,302 Digitas, Inc.* 3,233,869
538,000 EarthLink Network, Inc.* 4,659,080
-----------
7,892,949
-----------
LEISURE FACILITIES--1.6%
119,675 Life Time Fitness, Inc.* 5,537,362
-----------
LIFE & HEALTH INSURANCE--0.9%
285,136 American Equity Investment Life Holding Company 3,039,550
-----------
OFFICE SERVICES & SUPPLIES--2.2%
417,006 Knoll, Inc. 7,656,230
-----------
OIL & GAS DRILLING--1.0%
166,851 Bronco Drilling Company, Inc.* 3,485,517
-----------
OIL & GAS EQUIPMENT & SERVICES--4.5%
74,450 Hydril* 5,845,814
122,075 Superior Energy Services, Inc.* 4,138,343
192,426 TETRA Technologies, Inc.* 5,828,584
-----------
15,812,741
-----------
PHARMACEUTICALS--2.7%
439,500 MGI Pharma, Inc.* 9,449,250
-----------
REAL ESTATE MANAGEMET & DEVELOPMENT--2.6%
264,100 Trammell Crow Company* 9,288,397
-----------
REGIONAL BANKS--1.4%
112,275 SVB Financial Group* 5,104,022
-----------
14
<Page>
SHARES MARKET VALUE
- --------------------------------------------------------------------------------
RESTAURANTS--1.6%
276,650 Ruth's Chris Steak House, Inc.* $ 5,649,193
------------
SEMICONDUCTOR EQUIPMENT--1.6%
610,080 Entegris, Inc.* 5,814,062
------------
SEMICONDUCTORS--5.7%
223,450 DSP Group, Inc.* 5,552,733
186,175 Microsemi Corporation* 4,538,947
380,200 Monolithic Power Systems, Inc.* 4,497,766
952,800 RF Micro Devices, Inc.* 5,688,216
------------
20,277,662
------------
SPECIALTY STORES--3.6%
133,718 Guitar Center, Inc.* 5,946,439
258,800 Sotheby's Holdings, Inc. Class A* 6,793,500
------------
12,739,939
------------
SYSTEMS SOFTWARE--1.6%
157,550 Quality Systems, Inc. 5,800,991
------------
THRIFTS & MORTGAGE FINANCE--2.0%
510,075 NewAlliance Bancshares, Inc. 7,299,173
------------
TRUCKING--1.3%
119,562 Old Dominion Freight Line, Inc.* 4,494,336
------------
WIRELESS TELECOMMUNICATION SERVICES--1.9%
522,595 InPhonic, Inc.* 3,292,349
236,775 Syniverse Holdings, Inc.* 3,480,593
------------
6,772,942
------------
TOTAL COMMON STOCKS (DOMESTIC)
(COST--$329,910,286) 327,731,408
------------
COMMON STOCKS (FOREIGN)--3.9%
HOTELS, RESORTS & CRUISE LINES--3.9%
211,075 Intrawest Corporation (CA) 6,724,850
88,000 Kerzner International Limited (BA)* 6,976,640
------------
13,701,490
------------
TOTAL COMMON STOCKS (FOREIGN)
(COST--$11,687,577) 13,701,490
------------
SEE NOTES TO STATEMENT OF INVESTMENTS.
15
<Page>
PRINCIPAL AMOUNT AMORTIZED COST
- --------------------------------------------------------------------------------
CORPORATE SHORT-TERM NOTES--3.8%
SPECIAL PURPOSE ENTITY--3.8%
$13,300,000 CAFCO LLC
5.33% 7/3/06~ $ 13,296,062
------------
TOTAL CORPORATE SHORT-TERM NOTES
(AMORTIZED COST--$13,296,062) 13,296,062
------------
TOTAL INVESTMENTS--100.1%
(TOTAL COST--$354,893,925) 354,728,960
------------
OTHER ASSETS AND LIABILITIES--(0.1%) (323,768)
------------
NET ASSETS--100.0% $354,405,192
============
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 $13,296,062, OR 3.8%, OF THE FUND'S NET ASSETS AS OF JUNE 30,
2006.
BA - BAHAMA ISLANDS
CA - CANADA
SEE NOTES TO FINANCIAL STATEMENTS.
16
<Page>
STATEMENT OF ASSETS AND LIABILITIES
June 30, 2006 (UNAUDITED)
ASSETS
- -------------------------------------------------------------------------------
Investment securities, at cost $ 354,893,925
-------------
Investment securities, at market 354,728,960
Cash 91,325
Receivables:
Investment securities sold 885,456
Capital shares sold 287,846
Dividends and interest 4,417
Other assets 75,817
-------------
Total Assets 356,073,821
-------------
LIABILITIES
- -------------------------------------------------------------------------------
Payables and other accrued liabilities:
Capital shares redeemed 965,612
Advisory fees 271,633
Shareholder servicing fees 30,380
Accounting fees 17,289
Distribution fees 103,174
Transfer agency fees 38,551
Custodian fees 2,331
To transfer agent 880
Directors' deferred compensation 75,817
Other 162,962
-------------
Total Liabilities 1,668,629
-------------
Net Assets $ 354,405,192
=============
COMPOSITION OF NET ASSETS
- -------------------------------------------------------------------------------
Capital (par value and paid-in surplus) $ 613,591,459
Accumulated net investment loss (2,490,863)
Accumulated net realized loss from security transactions (256,530,439)
Net unrealized depreciation on investments (164,965)
-------------
Total $ 354,405,192
=============
SEE NOTES TO FINANCIAL STATEMENTS.
17
<Page>
CLASS A
- --------------------------------------------------------------------------------
Net Assets $ 44,189,465
Shares Outstanding 1,520,831
Net Asset Value, Redemption Price Per Share $ 29.06
Maximum offering price per share
(net asset value plus sales charge of 5.75% of offering price) $ 30.83
CLASS B
- --------------------------------------------------------------------------------
Net Assets $ 7,565,035
Shares Outstanding 276,332
Net Asset Value, Offering and Redemption Price
(excluding applicable contingent
deferred sales charge) Per Share $ 27.38
CLASS C
- --------------------------------------------------------------------------------
Net Assets $ 3,791,369
Shares Outstanding 138,190
Net Asset Value, Offering and Redemption Price
(excluding applicable contingent
deferred sales charge) Per Share $ 27.44
CLASS F
- --------------------------------------------------------------------------------
Net Assets $288,516,035
Shares Outstanding 9,947,012
Net Asset Value, Offering and Redemption Price Per Share $ 29.01
CLASS R
- --------------------------------------------------------------------------------
Net Assets $ 10,146,962
Shares Outstanding 343,006
Net Asset Value, Offering and Redemption Price Per Share $ 29.58
CLASS T
- --------------------------------------------------------------------------------
Net Assets $ 196,326
Shares Outstanding 6,945
Net Asset Value, Redemption Price Per Share $ 28.27
Maximum offering price per share (net asset value plus sales
charge of (net asset value plus sales charge of 4.50% of
offering price) $ 29.60
SEE NOTES TO FINANCIAL STATEMENTS.
18
<Page>
STATEMENT OF OPERATIONS
For the six months ended June 30, 2006 (UNAUDITED)
INVESTMENT INCOME
- --------------------------------------------------------------------------------
Dividends $ 481,156
Interest 215,498
Foreign taxes withheld (2,244)
------------
Total Investment Income 694,410
------------
EXPENSES
- --------------------------------------------------------------------------------
Advisory fees--Note 2 1,862,506
Shareholder servicing fees--Note 2 203,948
Accounting fees--Note 2 121,092
Distribution fees--Note 2 349,196
Transfer agency fees--Note 2 217,313
Registration fees 35,120
Postage and mailing expenses 21,030
Custodian fees and expenses--Note 2 10,884
Printing expenses 40,000
Legal and audit fees 84,900
Directors' fees and expenses--Note 2 60,910
Other expenses 57,122
------------
Total Expenses 3,064,021
Earnings Credits (10,884)
------------
Net Expenses 3,053,137
------------
Net Investment Loss (2,358,727)
------------
REALIZED AND UNREALIZED GAIN (LOSS) ON SECURITY TRANSACTIONS
- --------------------------------------------------------------------------------
Net Realized Gain on Security Transactions 28,654,066
Net Change in Unrealized Appreciation/Depreciation of Investments (18,243,972)
------------
Net Realized and Unrealized Gain 10,410,094
------------
Net Increase in Net Assets Resulting from Operations $ 8,051,367
============
SEE NOTES TO FINANCIAL STATEMENTS.
19
<Page>
STATEMENTS OF CHANGES IN NET ASSETS
(UNAUDITED)
SIX MONTHS ENDED YEAR ENDED
OPERATIONS JUNE 30, 2006 DECEMBER 31, 2005
- -------------------------------------------------------------------------------
Net Investment Loss $ (2,358,727) $ (6,209,050)
Net Realized Gain on Security
Transactions 28,654,066 104,859,627
Net Change in Unrealized
Appreciation/Depreciation of
Investments (18,243,972) (110,156,860)
------------ -------------
Net Increase (Decrease) in Net Assets
Resulting from Operations 8,051,367 (11,506,283)
------------ -------------
CAPITAL SHARE TRANSACTIONS
- -------------------------------------------------------------------------------
Net Increase (Decrease)--Note 4
Class A (147,358) (19,962,138)
Class B (7,032,669) (4,382,098)
Class C (690,283) (2,118,101)
Class F (70,635,857) (190,412,627)
Class R 1,900,208 (62,960,862)
Class T (1,076,046) (434,663)
------------ -------------
Net Decrease from Capital Share
Transactions (77,682,005) (280,270,489)
------------ -------------
Net Decrease in Net Assets (69,630,638) (291,776,772)
------------ -------------
NET ASSETS
- -------------------------------------------------------------------------------
Beginning of Period $424,035,830 $ 715,812,602
------------ -------------
End of Period $354,405,192 $ 424,035,830
============ =============
Accumulated Net Investment Loss $ (2,490,863) $ (132,136)
SEE NOTES TO FINANCIAL STATEMENTS.
20
<Page>
FINANCIAL HIGHLIGHTS
(UNAUDITED)
<Table>
<Caption>
SIX MONTHS
ENDED JUNE 30, YEAR ENDED DECEMBER 31,
2006 2005 2004 2003 2002
-------------- -------------------------------------
CLASS A SHARES PER SHARE OPERATING DATA
Net Asset Value, beginning of period $ 28.63 $ 28.82 $ 26.04 $ 19.09 $ 28.50
- ------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment loss (0.18) (0.28)(a) (0.64) (0.36) (0.31)
Net realized and unrealized gains
(losses) on securities 0.61 0.09 3.42 7.31 (9.10)
-----------------------------------------------------
Total from investment operations 0.43 (0.19) 2.78 6.95 (9.41)
- ------------------------------------------------------------------------------------------------------
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 $ 29.06 $ 28.63 $ 28.82 $ 26.04 $ 19.09
=====================================================
TOTAL RETURN(b) 1.50% (0.66%) 10.68% 36.41% (33.02%)
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000s) $44,189 $45,092 $65,763 $79,630 $67,184
- ------------------------------------------------------------------------------------------------------
Ratios to average net assets:
Expenses with reimbursements, but no
earnings credits or brokerage offsets(c) 1.47% 1.47% 1.38% 1.50% 1.35%
Expenses with reimbursements, earnings
credits and brokerage offsets 1.47% 1.45% 1.37% 1.50% 1.35%
Net investment loss (1.13%) (1.09%) (1.11%) (1.25%) (1.08%)
- ------------------------------------------------------------------------------------------------------
Portfolio turnover rate(d) 136% 160% 98% 130% 128%
</Table>
(a.) COMPUTED USING AVERAGE SHARES OUTSTANDING THROUGHOUT THE PERIOD.
(b.) SALES CHARGES ARE NOT REFLECTED IN THE TOTAL RETURN.
(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.
21
<Page>
<Table>
<Caption>
SIX MONTHS
ENDED JUNE 30, YEAR ENDED DECEMBER 31,
2006 2005 2004 2003 2002
-------------- ---------------------------------------
CLASS B SHARES
PER SHARE OPERATING DATA
Net Asset Value, beginning of period $27.10 $ 27.55 $ 25.12 $ 18.60 $ 28.03
- ------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment loss (0.29)(a) (0.54)(a) (1.07) (0.81) (0.69)
Net realized and unrealized gains
(losses) on securities 0.57 0.09 3.50 7.33 (8.74)
-----------------------------------------------------
Total from investment operations 0.28 (0.45) 2.43 6.52 (9.43)
- ------------------------------------------------------------------------------------------------------
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 $27.38 $ 27.10 $ 27.55 $ 25.12 $ 18.60
=====================================================
TOTAL RETURN(b) 1.03% (1.63%) 9.67% 35.05% (33.64%)
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000s) $7,565 $13,964 $18,795 $21,009 $18,804
- ------------------------------------------------------------------------------------------------------
Ratios to average net assets:
Expenses with reimbursements, but no
earnings credits or brokerage offsets(c) 2.46% 2.44% 2.30% 2.56% 2.26%
Expenses with reimbursements, earnings
credits and brokerage offsets 2.45% 2.43% 2.29% 2.56% 2.26%
Net investment loss (2.09%) (2.06%) (2.03%) (2.31%) (1.98%)
- ------------------------------------------------------------------------------------------------------
Portfolio turnover rate(d) 136% 160% 98% 130% 128%
</Table>
(a.) COMPUTED USING AVERAGE SHARES OUTSTANDING THROUGHOUT THE PERIOD.
(b.) SALES CHARGES ARE NOT REFLECTED IN THE TOTAL RETURN.
(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
ENDED
JUNE 30, YEAR ENDED DECEMBER 31,
2006 2005 2004 2003 2002
---------- --------------------------------------
CLASS C SHARES
PER SHARE OPERATING DATA
Net Asset Value, beginning of period $27.14 $27.57 $25.14 $18.60 $ 28.05
- -------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment loss (0.29)(a) (0.50)(a) (1.53) (0.94) (0.86)
Net realized and unrealized gains
(losses) on securities 0.59 0.07 3.96 7.48 (8.59)
---------------------------------------------------
Total from investment operations 0.30 (0.43) 2.43 6.54 (9.45)
- -------------------------------------------------------------------------------------------------
Less dividends and distributions:
From net investment income 0.00 0.00 0.00 0.00 0.00
From net realized gains 0.00 0.00 0.00 0.00 0.00
---------------------------------------------------
Total distributions 0.00 0.00 0.00 0.00 0.00
- -------------------------------------------------------------------------------------------------
Net Asset Value, end of period $27.44 $27.14 $27.57 $25.14 $ 18.60
===================================================
TOTAL RETURN(b) 1.11% (1.56%) 9.67% 35.16% (33.69%)
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000s) $3,791 $4,391 $6,668 $8,352 $ 7,794
- -------------------------------------------------------------------------------------------------
Ratios to average net assets:
Expenses with reimbursements, but no
earnings credits or brokerage offsets(c) 2.34% 2.36% 2.28% 2.52% 2.27%
Expenses with reimbursements, earnings
credits and brokerage offsets 2.33% 2.35% 2.27% 2.52% 2.26%
Net investment loss (1.98%) (1.98%) (2.01%) (2.28%) (1.99%)
- -------------------------------------------------------------------------------------------------
Portfolio turnover rate(d) 136% 160% 98% 130% 128%
</Table>
(a.) COMPUTED USING AVERAGE SHARES OUTSTANDING THROUGHOUT THE PERIOD.
(b.) SALES CHARGES ARE NOT REFLECTED IN THE TOTAL RETURN.
(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
ENDED
JUNE 30, YEAR ENDED DECEMBER 31,
2006 2005 2004 2003 2002
---------- ----------------------------------------------
CLASS F SHARES
PER SHARE OPERATING DATA
Net Asset Value, beginning of period $ 28.58 $ 28.77 $ 25.98 $ 19.04 $ 28.45
- ----------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment loss (0.17)(a) (0.30)(a) (0.69) (0.35) (0.36)
Net realized and unrealized gains
(losses) on securities 0.60 0.11 3.48 7.29 (9.05)
------------------------------------------------------------
Total from investment operations 0.43 (0.19) 2.79 6.94 (9.41)
- ----------------------------------------------------------------------------------------------------------
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 $ 29.01 $ 28.58 $ 28.77 $ 25.98 $ 19.04
============================================================
TOTAL RETURN 1.50% (0.66%) 10.74% 36.45% (33.08%)
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000s) $288,516 $351,087 $550,622 $638,880 $498,970
- ----------------------------------------------------------------------------------------------------------
Ratios to average net assets:
Expenses with reimbursements, but no
earnings credits or brokerage offsets(b) 1.49% 1.46% 1.35% 1.53% 1.41%
Expenses with reimbursements, earnings
credits and brokerage offsets 1.49% 1.45% 1.34% 1.53% 1.40%
Net investment loss (1.14%) (1.09%) (1.08%) (1.29%) (1.13%)
- ----------------------------------------------------------------------------------------------------------
Portfolio turnover rate(c) 136% 160% 98% 130% 128%
</Table>
(a.) COMPUTED USING AVERAGE SHARES OUTSTANDING THROUGHOUT THE PERIOD.
(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.
24
<Page>
<Table>
<Caption>
SIX MONTHS
ENDED
JUNE 30, YEAR ENDED DECEMBER 31,
2006 2005 2004 2003 2002
---------- -----------------------------------------
CLASS R SHARES
PER SHARE OPERATING DATA
Net Asset Value, beginning of period $ 29.11 $29.22 $ 26.32 $ 19.23 $ 28.64
- ----------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment loss (0.14)(a) (0.24)(a) (0.24) (0.17) (0.18)
Net realized and unrealized gains
(losses) on securities 0.61 0.13 3.14 7.26 (9.23)
------------------------------------------------------
Total from investment operations 0.47 (0.11) 2.90 7.09 (9.41)
- ----------------------------------------------------------------------------------------------------
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 $ 29.58 $29.11 $ 29.22 $ 26.32 $ 19.23
======================================================
TOTAL RETURN 1.61% (0.38%) 11.02% 36.87% (32.86%)
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000s) $10,147 $8,315 $72,317 $65,240 $42,872
- ----------------------------------------------------------------------------------------------------
Ratios to average net assets:
Expenses with reimbursements, but no
earnings credits or brokerage offsets(b) 1.23% 1.18% 1.11% 1.21% 1.10%
Expenses with reimbursements, earnings
credits and brokerage offsets 1.22% 1.17% 1.10% 1.21% 1.10%
Net investment loss (0.88%) (0.80%) (0.83%) (0.96%) (0.82%)
- ----------------------------------------------------------------------------------------------------
Portfolio turnover rate(c) 136% 160% 98% 130% 128%
</Table>
(a.) COMPUTED USING AVERAGE SHARES OUTSTANDING THROUGHOUT THE PERIOD.
(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,
2006 2005 2004 2003 2002
-------------- -----------------------------------------
CLASS T SHARES
PER SHARE OPERATING DATA
Net Asset Value, beginning of period $27.91 $28.18 $25.55 $18.79 $ 28.24
- -------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment loss (0.23)(a) (0.38)(a) (0.65) (0.31) (0.54)
Net realized and unrealized gains
(losses) on securities 0.59 0.11 3.28 7.07 (8.91)
----------------------------------------------------------
Total from investment operations 0.36 (0.27) 2.63 6.76 (9.45)
- -------------------------------------------------------------------------------------------------
Less dividends and distributions:
From net investment income 0.00 0.00 0.00 0.00 0.00
From net realized gains 0.00 0.00 0.00 0.00 0.00
----------------------------------------------------------
Total distributions 0.00 0.00 0.00 0.00 0.00
- -------------------------------------------------------------------------------------------------
Net Asset Value, end of period $28.27 $27.91 $28.18 $25.55 $ 18.79
==========================================================
TOTAL RETURN(b) 1.29% (0.96%) 10.29% 35.98% (33.46%)
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000s) $ 196 $1,187 $1,648 $1,788 $ 1,291
- -------------------------------------------------------------------------------------------------
Ratios to average net assets:
Expenses with reimbursements, but
no earnings credits or brokerage
offsets(c) 1.78% 1.77% 1.71% 1.91% 2.06%
Expenses with reimbursements,
earnings credits and brokerage
offsets 1.78% 1.76% 1.70% 1.90% 2.06%
Net investment loss (1.46%) (1.40%) (1.44%) (1.66%) (1.79%)
- -------------------------------------------------------------------------------------------------
Portfolio turnover rate(d) 136% 160% 98% 130% 128%
</Table>
(a.) COMPUTED USING AVERAGE SHARES OUTSTANDING THROUGHOUT THE PERIOD.
(b.) SALES CHARGES ARE NOT REFLECTED IN THE TOTAL RETURN.
(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.
26
<Page>
NOTES TO FINANCIAL STATEMENTS
June 30, 2006 (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). Effective June 1, 2006,
Class B shares will no longer be offered except in connection with dividend
reinvestments and permitted exchanges of Class B shares. 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. New York closing exchange rates are used to convert foreign
currencies to U.S. dollars.
A debt security with a remaining maturity greater than 60 days at the time of
purchase is valued in accordance with the evaluated bid price supplied by a
pricing service approved by the Company's board of directors or, if such price
is not available, at the mean between the highest bid and lowest asked
quotations obtained from at least two securities dealers. A debt security with a
remaining maturity of 60 days or less at the time of purchase is valued at
amortized cost, which approximates market value, unless it is determined that
amortized cost would not represent market value, in which case the securities
would be marked to market. The Fund amortizes premiums and discounts on all debt
securities.
If market quotations 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 requires the use of estimates, and as such,
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--The Fund may invest at least a
portion of its assets in foreign securities. Foreign securities carry more risk
than U.S. securities, such as political and currency risks. 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 Fund could be
exposed to risk if counterparties are unable to meet the terms of the contracts
or if the value of the currency changes unfavorably to the U.S. dollar. 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.
The accounting records of the Fund are maintained in U.S. dollars. The market
values of foreign securities, currency holdings and other assets and liabilities
are translated into U.S. dollars based on the current exchange rates each
business day. 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 unrealized gain or loss from investments and foreign
currency translations on the Statement of Operations.
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
28
<Page>
equivalent of the amounts actually received or paid. Net unrealized appreciation
or depreciation on investments and foreign currency translation arises from
changes in the values of assets and liabilities, including investments in
securities held at the date of the financial statements, resulting from changes
in the exchange rates and changes in market prices of securities held.
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 Subchapter M 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 from
net investment income (if any) and from net realized 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.
USE OF ESTIMATES--The preparation of financial statements in conformity with
accounting principles generally accepted in the United States of America
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported amounts of
income and expenses during the reporting period. Actual results could differ
from those estimates.
INDEMNIFICATIONS--In the normal course of business, the Company enters into
contracts that contain provisions indemnifying other parties against specified
potential liabilities. Each Fund's maximum exposure under these arrangements is
unknown as this would involve future claims that may be made against the Fund
that have not yet occurred. However, based on experience, the Funds expect the
risk of loss to be remote.
OTHER--Certain prior year information has been reformatted, without substantive
change, to conform with the current year presentation.
29
<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
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 period ended June 30, 2006,
Class F shares were charged $119,324 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 period ended June 30, 2006, Class F shares were
charged $52,999 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 $12.92 to $13.36, 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 period ended June 30, 2006 were as
follows:
TRANSFER
AGENCY FEES
---------------------
Class A $ 3,900
---------------------
Class B $13,829
---------------------
Class C $ 2,753
---------------------
Class R $ 968
---------------------
Class T $ 164
---------------------
30
<Page>
Certain as-of shareholder transactions may result in gains or losses to the
Fund. Depending on the circumstances, these gains may be payable to, or
reimbursable from, the transfer agent; such gains and losses are presented on
the Statement of Assets and Liabilities.
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 period ended June 30, 2006, the Fund was charged $2,938 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 period ended June
30, 2006, the Fund paid $142,700 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 period ended June 30,
2006, Class F shares were charged $291,802 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 period ended June 30, 2006, were as follows:
DISTRIBUTION SHAREHOLDER
FEES SERVICING FEES
---------------------------------------
Class A N/A $65,174
---------------------------------------
Class B $40,863 $13,621
---------------------------------------
Class C $16,054 $ 5,352
---------------------------------------
Class T $ 477 $ 477
---------------------------------------
31
<Page>
During the period ended June 30, 2006, DSC retained $340 and $2 in sales
commissions from the sales of Class A and Class T shares, respectively. DSC also
retained $13,737 and $768 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.
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, which are shown as earnings credits on the
Statement of Operations. 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
period and in the amount set forth below:
TIME PERIOD AMOUNT OF WAIVER
------------------------------------
9/1/05 to 8/31/06 $200,000
------------------------------------
The fee waiver is allocated among the Funds in proportion to their respective
shares of the total custodian fee. For the period ended June 30, 2006, the
Fund's portion of the fee waiver was $0. The amount paid to Mellon Bank was
$10,884.
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 Directors'
Deferred Compensation on the Statement of Assets and Liabilities. Changes in
market value are included in the Directors' fees and expenses and the net change
in unrealized appreciation/depreciation of investments on the Statement of
Operations. 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
or its affiliates, which pay 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.
32
<Page>
3. FEDERAL TAX INFORMATION
Net investment income and capital gains distributions are determined in
accordance with income tax regulations that may differ from accounting
principles generally accepted in the United States of America. These differences
are due to differing treatments for items such as deferral of wash sale losses,
deferred compensation, 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, 2005 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, 2005 were:
EXPIRATION AMOUNT
-------------------------
2009 $ 38,219,881
-------------------------
2010 $230,439,968
-------------------------
2011 $ 14,100,467
-------------------------
$282,760,316
============
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, 2006 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.
----------------------------------------------------
Federal Tax Cost $356,569,914
----------------------------------------------------
Gross Tax Appreciation of Investments $ 29,343,623
----------------------------------------------------
Gross Tax Depreciation of Investments $(31,184,577)
----------------------------------------------------
Net Tax Depreciation $ (1,840,954)
----------------------------------------------------
33
<Page>
4. CAPITAL SHARE TRANSACTIONS
The Fund is authorized to issue 450 million shares of $0.01 par value capital
stock. Transactions in shares of the Fund for the periods indicated were as
follows:
PERIOD ENDED YEAR ENDED
JUNE 30, 2006 DECEMBER 31, 2005
CLASS A Shares Amount Shares Amount
- -----------------------------------------------------------------------------
Sold 790,294 $ 25,006,663 608,634 $ 16,949,413
Redeemed (844,698) $(25,154,021) (1,315,511) $ (36,911,551)
----------------------------------------------------
Net Decrease (54,404) $ (147,358) (706,877) $ (19,962,138)
====================================================
CLASS B
- -----------------------------------------------------------------------------
Sold 2,010 $ 58,647 6,784 $ 179,523
Redeemed (240,928) $ (7,091,316) (173,781) $ (4,561,621)
----------------------------------------------------
Net Decrease (238,918) $ (7,032,669) (166,997) $ (4,382,098)
====================================================
CLASS C
- -----------------------------------------------------------------------------
Sold 11,868 $ 350,995 7,954 $ 207,689
Redeemed (35,425) $ (1,041,278) (88,042) $ (2,325,790)
----------------------------------------------------
Net Decrease (23,557) $ (690,283) (80,088) $ (2,118,101)
====================================================
CLASS F
- -----------------------------------------------------------------------------
Sold 397,938 $ 12,203,622 1,487,909 $ 40,938,769
Redeemed (2,736,222) $(82,839,479) (8,342,143) $(231,351,396)
----------------------------------------------------
Net Decrease (2,338,284) $(70,635,857) (6,854,234) $(190,412,627)
====================================================
CLASS R
- -----------------------------------------------------------------------------
Sold 185,350 $ 5,872,913 348,073 $ 9,843,662
Redeemed (127,999) $ (3,972,705) (2,537,460) $ (72,804,524)
----------------------------------------------------
Net Increase (Decrease) 57,351 $ 1,900,208 (2,189,387) $ (62,960,862)
====================================================
CLASS T
- -----------------------------------------------------------------------------
Sold 916 $ 27,950 8,141 $ 222,678
Redeemed (36,505) $ (1,103,996) (24,068) $ (657,341)
----------------------------------------------------
Net Decrease (35,589) $ (1,076,046) (15,927) $ (434,663)
====================================================
5. INVESTMENT TRANSACTIONS
For the period ended June 30, 2006, purchases and sales of investment securities
(excluding short-term securities and U.S. government obligations) were
$227,560,370 and $303,923,478 respectively.
34
<Page>
6. LINE OF CREDIT
The Company has a line of credit arrangement ("LOC") with State Street Bank and
Trust Company, to be used for temporary or emergency purposes, primarily for
financing redemption payments. Each Fund's borrowings are limited to the lesser
of (a) $50 million, or (b) the lesser of 25% of the Fund's total net assets or
the maximum amount which the Fund is permitted to borrow pursuant to the
prospectus, any law or any other agreement. Combined borrowings are subject to
the $50 million cap on the total LOC. Each Fund agrees to pay annual fees and
interest on the unpaid balance based on prevailing market rates as defined in
the LOC. At June 30, 2006, the Fund did not have any borrowings under the LOC.
35
<Page>
For More Information
DREYFUS FOUNDERS
DISCOVERY FUND
MANAGER
Founders Asset
Management LLC
210 University Boulevard
Suite 800
Denver, CO 80206
TRANSFER AGENT &
DIVIDEND DISBURSING AGENT
Dreyfus Transfer, Inc.
200 Park Avenue
New York, NY 10166
DISTRIBUTOR
Dreyfus Service Corporation
200 Park Avenue
New York, NY 10166
TELEPHONE Call your financial representative or 1-800-554-4611
MAIL Dreyfus Founders Funds, Inc.
144 Glenn Curtiss Boulevard, Uniondale, NY 11556-0144
The fund files its complete schedule of portfolio holdings with the Securities
and Exchange Commission ("SEC") for the first and third quarters of each fiscal
year on Form N-Q. The fund's Forms N-Q are available on the SEC's website at
http://www.sec.gov and may be reviewed and copied at the SEC's Public Reference
Room in Washington, DC. Information on the operation of the Public Reference
Room may be obtained by calling 1-202-551-8090.
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, 2006, 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.
(C) 2006 Founders Asset Management LLC
0182SA0606
<Page>
DREYFUS FOUNDERS
EQUITY GROWTH FUND
SEMIANNUAL REPORT JUNE 30, 2006
[DREYFUS LOGO]
A MELLON FINANCIAL COMPANY(SM)
<Page>
TABLE OF CONTENTS
Management Overview 3
Fund Expenses 9
Statement of Investments 11
Statement of Assets and Liabilities 16
Statement of Operations 18
Statements of Changes in Net Assets 19
Financial Highlights 20
Notes to Financial Statements 26
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
Founders Asset Management LLC
A MELLON FINANCIAL COMPANY(SM)
210 University Boulevard, Suite 800
Denver, CO 80206
DISTRIBUTOR
Dreyfus Service Corporation
200 Park Avenue
New York, NY 10166
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, 2006. The amounts of
these holdings are included in the Statement of Investments.
NOT FDIC-INSURED - NOT BANK-GUARANTEED - MAY LOSE VALUE
<Page>
MANAGEMENT OVERVIEW
(UNAUDITED)
[PHOTO OF JOHN JARES]
A DISCUSSION WITH PORTFOLIO MANAGER JOHN JARES, CFA, REGARDING FUND PERFORMANCE
FOR THE SIX-MONTH PERIOD ENDED JUNE 30, 2006.
EQUITY MARKETS END PERIOD LOWER
The period began with strong consumer confidence, a steadily growing economy and
low inflation. However, high crude oil prices continued to press down on
businesses and consumers, and the Federal Reserve moved forward with its
monetary tightening campaign. Growing investor concern over the Federal
Reserve's future direction diminished the positive backdrop for the markets. The
markets' decline began in May and lasted through the end of the period.
For the six-month period ended June 30, 2006, Dreyfus Founders Equity
Growth Fund compared favorably(1) to the -0.93% return for the Russell 1000
Growth Index, the Fund's benchmark.
CONSUMER STOCKS BOOSTED FUND PERFORMANCE
The Fund's investment strategy remained the same. We continued to search company
by company, analyzing fundamentals and speaking with management teams and
industry experts in an attempt to uncover the best growth opportunities for the
Fund. Our efforts in finding strong-performing growth stocks materialized during
the period, as the Fund showed strong stock picking in a number of sectors,
including the consumer discretionary, consumer staples, materials and financials
sectors. Relative exposure to the aforementioned sectors, excluding the
materials sector, also played a positive role in the Fund's return.
"OUR EFFORTS IN FINDING STRONG-PERFORMING GROWTH
STOCKS MATERIALIZED DURING THE PERIOD."
- ----------
(1) Excluding sales charges, which result in lower returns for certain share
classes. Please see page 6 for Average Annual and Year-to-Date Returns for
all share classes, including and excluding sales charges.
3
<Page>
SECTORS BENEFITING THE FUND
Consumer Discretionary
Consumer Staples
Financials/Materials
Pixar, Inc., COMCAST CORPORATION, KOHL'S CORPORATION and BEST BUY COMPANY,
INC. proved to be solid consumer discretionary picks as well as strong overall
performers for the Fund. Pixar saw its stock price increase on strong demand for
its animated feature-length, family-friendly films. Comcast benefited from
strong demand for its products, primarily its multi-service bundled packages.
Kohl's experienced improved revenue and earnings growth trends driven by higher
sales, as the department store industry saw a reduction in capacity. Best Buy's
stock price rose on strong consumer spending on a variety of products.
Notable performance was also exhibited by SCHLUMBERGER LIMITED. High oil
prices created an increased level of activity related to finding and developing
new oil and gas fields, which promoted healthy demand and pricing for
oil-services provider Schlumberger.
INDUSTRIALS, TELECOM AND UTILITIES HAMPERED THE FUND'S RETURN
Although the industrials sector was a strong performer during the period
overall, a relative underweight position in this sector caused it to be the
worst-performing sector in the Fund. Weak stock selection in the
LARGEST EQUITY HOLDINGS (ticker symbol)
1. GENERAL ELECTRIC COMPANY (GE) 3.62%
2. MICROSOFT CORPORATION (MSFT) 3.37%
3. GOOGLE, INC. CLASS A (GOOG) 2.76%
4. EXXONMOBIL CORPORATION (XOM) 2.22%
5. CISCO SYSTEMS, INC. (CSCO) 2.21%
6. WYETH (WYG) 2.05%
7. PROCTER & GAMBLE COMPANY (PG) 1.95%
8. ADOBE SYSTEMS, INC. (ADBE) 1.95%
9. COLGATE-PALMOLIVE COMPANY (CL) 1.90%
10. EMERSON ELECTRIC COMPANY (EMR) 1.88%
Portfolio holdings are subject to change, and should not be construed as a
recommendation of any security.
4
<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]
<Table>
<Caption>
DREYFUS
FOUNDERS RUSSELL 1000
EQUITY GROWTH GROWTH
FUND-CLASS F INDEX
------------- ------------
6/28/1996 $10,000 $10,000
6/30/1997 $12,129 $13,134
6/30/1998 $14,545 $17,257
6/30/1999 $15,517 $21,962
6/30/2000 $16,442 $27,598
6/29/2001 $11,938 $17,615
6/28/2002 $ 9,740 $12,949
6/30/2003 $ 9,795 $13,330
6/30/2004 $11,444 $15,713
6/30/2005 $11,835 $15,977
6/30/2006 $12,844 $16,954
</Table>
The above graph compares a $10,000 investment made in Class F shares of Dreyfus
Founders Equity Growth Fund on 6/30/96 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 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 this index
assume changes 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.
5
<Page>
AVERAGE ANNUAL AND YEAR-TO DATE TOTAL RETURN as of 6/30/06
YEAR-TO- 1 5 10 SINCE
CLASS (INCEPTION DATE) DATE+ YEAR YEARS YEARS INCEPTION
- -------------------------------------------------------------------------
A SHARES (12/31/99)
With sales charge (5.75%) (5.39%) 1.93% (0.41%) -- (5.74%)
Without sales charge 0.39% 8.21% 0.77% -- (4.88%)
B SHARES (12/31/99)
With redemption* (4.00%) 3.21% (0.06%) -- (5.45%)
Without redemption 0.00% 7.21% 0.34% -- (5.45%)
C SHARES (12/31/99)
With redemption** (0.79%) 6.59% 0.01% -- (5.66%)
Without redemption 0.21% 7.59% 0.01% -- (5.66%)
F SHARES (7/5/38) 0.58% 8.53% 1.47% 2.53% N/A
R SHARES (12/31/99) 0.97% 8.91% 1.07% -- (4.58%)
T SHARES (12/31/99)
With sales charge (4.50%) (4.33%) 3.18% (0.95%) -- (6.27%)
Without sales charge 0.21% 8.00% (0.03%) -- (5.60%)
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.
6
<Page>
telecommunications sector also hampered the Fund's performance for the period,
as did a lack of exposure in the utilities sector, in which the Fund found no
compelling growth stories.
SECTORS DETRACTING FROM THE FUND
Industrials
Telecommunication Services
Utilities
INDIVIDUAL STOCKS HURT PERFORMANCE
The information technology (IT) sector produced mixed results during the period,
as some IT stocks performed strongly while others saw declines. As no broad
industry factors hit the sector, poor performance was due to company-specific
difficulties. As consumers awaited ADOBE SYSTEMS, INC.'s launch of numerous
software upgrades, new purchases were postponed, which created a slowing in
revenue growth. As a result, Adobe moderated revenue and earnings growth
expectations during the second quarter of 2006. MICROSOFT CORPORATION's delay of
its updated office suite and new operating system, Windows Vista, weighed on the
stock's performance. In addition, the company also indicated that spending
levels for 2006 would be elevated, as Microsoft is making investments to
strengthen its position on the Internet. These investments came as a surprise to
investors, who were subsequently forced to moderate their expectations for
[CHART]
<Table>
<Caption>
PORTFOLIO COMPOSITION OF NET ASSETS
Information Technology 30.85%
Consumer Staples 13.66%
Health Care 12.64%
Consumer Discretionary 10.62%
Financials 9.81%
Industrials 9.02%
Energy 4.03%
Materials 1.51%
Telecommunication Services 0.50%
Other 4.59%
Cash & Equivalents 2.77%
</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.
7
<Page>
earnings growth. INTEL CORPORATION's stock price dropped on poor revenue growth
and margin deterioration due to lost market share.
Healthcare holding BOSTON SCIENTIFIC CORPORATION also saw a decline in its
share price. The company recently acquired medical-device maker Guidant
Corporation, but after the acquisition closed, demand for medical devices,
including Guidant's implantable cardioverter defibrillators (ICDs), dropped,
impacting Boston Scientific and a number of companies within the industry.
Finally, during the period, consumer discretionary issue Advance Auto
Parts, Inc. was negatively impacted by a company announcement that high gasoline
prices, high interest rates, and the burden of rising credit card payments had
combined to dent customers' disposable income, and thus, the company's sales. As
a result, Advance Auto Parts was forced to significantly lower sales and
earnings guidance for 2006.
As we move into the second half of 2006, we will continue to employ a
bottom-up research approach to selecting growth stocks that we believe have the
potential to post superior revenue and earnings growth.
/s/ John Jares
- --------------------------
John Jares, CFA
Portfolio Manager
8
<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, 2006
and held through June 30, 2006.
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, together with the amount you
invested, 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.
9
<Page>
EXPENSE EXAMPLE
BEGINNING ENDING EXPENSES PAID
ACCOUNT VALUE ACCOUNT VALUE DURING PERIOD*
(1/1/06) (6/30/06) (1/1/06-6/30/06)
------------------------------------------------
CLASS A ACTUAL $1,000.00 $1,003.90 $ 6.16
CLASS A HYPOTHETICAL 1,000.00 1,018.57 6.23
CLASS B ACTUAL 1,000.00 1,000.00 10.81
CLASS B HYPOTHETICAL 1,000.00 1,013.85 10.94
CLASS C ACTUAL 1,000.00 1,002.10 9.63
CLASS C HYPOTHETICAL 1,000.00 1,015.05 9.74
CLASS F ACTUAL 1,000.00 1,005.80 5.37
CLASS F HYPOTHETICAL 1,000.00 1,019.37 5.42
CLASS R ACTUAL 1,000.00 1,009.70 4.83
CLASS R HYPOTHETICAL 1,000.00 1,019.92 4.87
CLASS T ACTUAL 1,000.00 1,002.10 7.60
CLASS T HYPOTHETICAL 1,000.00 1,017.11 7.68
* 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 and earnings credits.
EXPENSE RATIO
-------------
CLASS A 1.24%
CLASS B 2.18%
CLASS C 1.94%
CLASS F 1.08%
CLASS R 0.97%
CLASS T 1.53%
10
<Page>
STATEMENT OF INVESTMENTS
June 30, 2006 (UNAUDITED)
SHARES MARKET VALUE
- --------------------------------------------------------------------------------
COMMON STOCKS (DOMESTIC)--94.0%
AIRLINES--1.6%
46,175 AMR Corporation* $1,173,764
42,225 Continental Airlines, Inc. Class B* 1,258,305
17,925 US Airways Group, Inc.* 905,930
----------
3,337,999
----------
APPLICATION SOFTWARE--1.3%
28,575 Autodesk, Inc.* 984,695
132,475 BEA Systems, Inc.* 1,734,098
----------
2,718,793
----------
ASSET MANAGEMENT & CUSTODY BANKS--0.6%
21,975 State Street Corporation 1,276,528
----------
BIOTECHNOLOGY--1.9%
29,750 Amgen, Inc.* 1,940,593
16,850 Genzyme Corporation* 1,028,693
35,200 MedImmune, Inc.* 953,920
----------
3,923,206
----------
BROADCASTING & CABLE TV--1.0%
63,175 Comcast Corporation Special Class A* 2,070,877
----------
CASINOS & GAMING--0.6%
18,950 Harrah's Entertainment, Inc. 1,348,861
----------
COMMUNICATIONS EQUIPMENT--3.9%
236,238 Cisco Systems, Inc.* 4,613,728
130,975 Motorola, Inc. 2,639,146
24,600 QUALCOMM, Inc. 985,722
----------
8,238,596
----------
COMPUTER & ELECTRONICS RETAIL--1.3%
51,375 Best Buy Company, Inc. 2,817,405
----------
COMPUTER HARDWARE--4.4%
39,950 Apple Computer, Inc.* 2,281,944
43,400 Dell, Inc.* 1,059,394
50,800 Diebold, Inc. 2,063,496
118,450 Hewlett-Packard Company 3,752,496
----------
9,157,330
----------
COMPUTER STORAGE & PERIPHERALS--1.5%
138,475 Seagate Technology* 3,135,074
----------
CONSUMER ELECTRONICS--0.5%
12,575 Harman International Industries, Inc. 1,073,528
----------
CONSUMER FINANCE--0.8%
31,400 SLM Corporation 1,661,688
----------
DATA PROCESSING & OUTSOURCED SERVICES--0.8%
37,250 Automatic Data Processing, Inc. 1,689,288
----------
SEE NOTES TO STATEMENT OF INVESTMENTS.
11
<Page>
SHARES MARKET VALUE
- --------------------------------------------------------------------------------
DEPARTMENT STORES--2.7%
81,125 Federated Department Stores, Inc. $2,969,175
30,950 J.C. Penney Company, Inc. 2,089,434
10,175 Kohl's Corporation* 601,546
----------
5,660,155
----------
DIVERSIFIED CHEMICALS--0.7%
37,175 E.I. du Pont de Nemours and Company 1,546,480
----------
DRUG RETAIL--1.6%
74,450 Walgreen Company 3,338,338
----------
ELECTRICAL COMPONENTS & EQUIPMENT--1.9%
46,875 Emerson Electric Company 3,928,594
----------
ELECTRONIC EQUIPMENT MANUFACTURERS--0.5%
29,886 Agilent Technologies, Inc.* 943,202
----------
ENVIRONMENTAL & FACILITIES SERVICES--0.6%
35,450 Waste Management, Inc. 1,271,946
----------
EXCHANGE TRADED FUNDS--4.6%
55,625 iShares Russell 1000 Growth Index Fund 2,806,281
79,725 Nasdaq 100 Index Tracking Stock 3,090,141
29,050 SPDR Trust Series 1 3,692,546
----------
9,588,968
----------
FOOD DISTRIBUTORS--1.4%
92,900 Sysco Corporation 2,839,024
----------
FOOD RETAIL--1.6%
125,100 Safeway, Inc. 3,252,600
----------
GENERAL MERCHANDISE STORES--1.2%
104,000 Family Dollar Stores, Inc. 2,540,720
----------
HEALTHCARE EQUIPMENT--2.8%
20,925 Beckman Coulter, Inc. 1,162,384
104,050 Boston Scientific Corporation* 1,752,202
9,625 Intuitive Surgical, Inc.* 1,135,461
37,600 Medtronic, Inc. 1,764,192
----------
5,814,239
----------
HEALTHCARE SERVICES--1.1%
40,150 Medco Health Solutions, Inc.* 2,299,792
----------
HEALTHCARE SUPPLIES--1.1%
45,350 Advanced Medical Optics, Inc.* 2,299,245
----------
HOME ENTERTAINMENT SOFTWARE--0.7%
34,125 Electronic Arts, Inc.* 1,468,740
----------
HOME IMPROVEMENT RETAIL--0.9%
51,200 Home Depot, Inc. 1,832,448
----------
12
<Page>
SHARES MARKET VALUE
- --------------------------------------------------------------------------------
HOTELS, RESORTS & CRUISE LINES--0.5%
28,800 Marriott International, Inc. Class A $1,097,856
----------
HOUSEHOLD PRODUCTS--3.8%
66,175 Colgate-Palmolive Company 3,963,883
73,246 Procter & Gamble Company 4,072,478
----------
8,036,361
----------
HYPERMARKETS & SUPER CENTERS--0.8%
36,300 Wal-Mart Stores, Inc. 1,748,571
----------
INDUSTRIAL CONGLOMERATES--3.6%
229,650 General Electric Company 7,569,264
----------
INTEGRATED OIL & GAS--2.2%
75,575 ExxonMobil Corporation 4,636,527
----------
INTEGRATED TELECOMMUNICATION SERVICES--0.5%
52,625 Sprint Nextel Corporation 1,051,974
----------
INTERNET RETAIL--0.3%
21,925 eBay, Inc.* 642,183
----------
INTERNET SOFTWARE & SERVICES--4.1%
13,775 Google, Inc. Class A* 5,776,271
85,950 Yahoo!, Inc.* 2,836,350
----------
8,612,621
----------
INVESTMENT BANKING & BROKERAGE--4.2%
220,675 Charles Schwab Corporation 3,526,387
18,175 Goldman Sachs Group, Inc. 2,734,065
25,125 Morgan Stanley 1,588,151
62,200 TD Ameritrade Holding Corporation 921,182
----------
8,769,785
----------
IT CONSULTING & OTHER SERVICES--0.5%
38,725 Accenture Limited Class A 1,096,692
----------
MOVIES & ENTERTAINMENT--1.0%
69,732 Walt Disney Company 2,091,960
----------
MULTI-LINE INSURANCE--1.6%
19,425 American International Group, Inc. 1,147,046
46,300 Assurant, Inc. 2,240,920
----------
3,387,966
----------
OIL & GAS EQUIPMENT & SERVICES--1.8%
58,300 Schlumberger Limited 3,795,913
----------
OTHER DIVERSIFIED FINANCIAL SERVICES--1.4%
69,275 JPMorgan Chase & Company 2,909,550
----------
PERSONAL PRODUCTS--2.3%
74,875 Avon Products, Inc. 2,321,125
62,225 Estee Lauder Companies, Inc. Class A 2,406,241
----------
4,727,366
----------
SEE NOTES TO STATEMENT OF INVESTMENTS.
13
<Page>
SHARES MARKET VALUE
- --------------------------------------------------------------------------------
PHARMACEUTICALS--5.8%
59,675 Johnson & Johnson $ 3,575,726
92,692 Pfizer, Inc. 2,175,481
108,000 Schering-Plough Corporation 2,055,240
96,475 Wyeth 4,284,455
------------
12,090,902
------------
PROPERTY & CASUALTY INSURANCE--1.2%
45,675 Allstate Corporation 2,499,793
------------
RAILROADS--0.8%
17,200 Union Pacific Corporation 1,598,912
------------
SEMICONDUCTORS--4.5%
27,075 Broadcom Corporation* 813,604
33,450 Freescale Semiconductor, Inc. Class B* 983,430
96,678 Intel Corporation 1,832,048
83,500 Linear Technology Corporation 2,796,415
62,375 Maxim Integrated Products, Inc. 2,002,861
35,400 Texas Instruments, Inc. 1,072,266
------------
9,500,624
------------
SOFT DRINKS--1.5%
50,375 PepsiCo, Inc. 3,024,515
------------
SPECIALTY STORES--0.5%
11,675 AutoZone, Inc.* 1,029,735
------------
STEEL--0.8%
29,525 Nucor Corporation 1,601,731
------------
SYSTEMS SOFTWARE--6.7%
134,125 Adobe Systems, Inc.* 4,072,035
302,166 Microsoft Corporation 7,040,468
147,075 Oracle Corporation* 2,131,117
51,975 Symantec Corporation* 807,692
------------
14,051,312
------------
TOTAL COMMON STOCKS (DOMESTIC)
(COST--$192,907,396) 196,645,777
------------
COMMON STOCKS (FOREIGN)--3.2%
AEROSPACE & DEFENSE--0.6%
31,825 Empresa Brasileira de Aeronautica SA Sponsored ADR (BR) 1,160,658
------------
APPLICATION SOFTWARE--0.4%
17,200 SAP AG Sponsored ADR (GE) 903,344
------------
PACKAGED FOODS & MEATS--0.8%
41,400 Cadbury Schweppes Sponsored ADR (UK) 1,607,148
------------
SEMICONDUCTOR EQUIPMENT--1.4%
147,650 ASM Lithography Holding NV NY Shares (NE)* 2,985,483
------------
TOTAL COMMON STOCKS (FOREIGN)
(COST--$6,118,006) 6,656,633
------------
14
<Page>
PRINCIPAL AMOUNT AMORTIZED COST
- --------------------------------------------------------------------------------
CORPORATE SHORT-TERM NOTES--2.8%
SPECIAL PURPOSE ENTITY--2.8%
$5,800,000 CAFCO LLC
5.33% 7/3/06~ $ 5,798,283
------------
TOTAL CORPORATE SHORT-TERM NOTES
(AMORTIZED COST--$5,798,283) 5,798,283
------------
TOTAL INVESTMENTS--100.0%
(TOTAL COST--$204,823,685) 209,100,693
------------
OTHER ASSETS AND LIABILITIES--0.0% 2,531
------------
NET ASSETS--100.0% $209,103,224
============
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 $5,798,283, OR 2.8%, OF THE FUND'S NET ASSETS AS OF JUNE 30,
2006.
ADR - AMERICAN DEPOSITARY RECEIPT
SPDR - STANDARD AND POOR'S DEPOSITARY RECEIPT
BR -BRAZIL
GE -GERMANY
NE - NETHERLANDS
UK - UNITED KINGDOM
SEE NOTES TO FINANCIAL STATEMENTS.
15
<Page>
STATEMENT OF ASSETS AND LIABILITIES
June 30, 2006 (UNAUDITED)
ASSETS
- -------------------------------------------------------------------------------
Investment securities, at cost $204,823,685
------------
Investment securities, at market 209,100,693
Cash 144,619
Receivables:
Investment securities sold 5,229,744
Capital shares sold 19,110
Dividends and interest 190,505
Other assets 5,189
------------
Total Assets 214,689,860
------------
LIABILITIES
- -------------------------------------------------------------------------------
Payables and other accrued liabilities:
Investment securities purchased 5,117,957
Capital shares redeemed 229,710
Advisory fees 111,302
Shareholder servicing fees 18,502
Accounting fees 10,274
Distribution fees 36,758
Transfer agency fees 8,862
Custodian fees 211
To transfer agent 159
Directors' deferred compensation 5,189
Other 47,712
------------
Total Liabilities 5,586,636
------------
Net Assets $209,103,224
============
COMPOSITION OF NET ASSETS
- -------------------------------------------------------------------------------
Capital (par value and paid-in surplus) $275,580,443
Undistributed net investment income 291,427
Accumulated net realized loss from security transactions (71,045,654)
Net unrealized appreciation on investments 4,277,008
------------
Total $209,103,224
============
16
<Page>
CLASS A
- --------------------------------------------------------------------------------
Net Assets $ 1,706,126
Shares Outstanding 335,067
Net Asset Value, Redemption Price Per Share $ 5.09
Maximum offering price per share (net asset value plus sales
charge of 5.75% of offering price) $ 5.40
CLASS B
- --------------------------------------------------------------------------------
Net Assets $ 1,094,971
Shares Outstanding 222,790
Net Asset Value, Offering and Redemption Price (excluding
applicable contingent deferred sales charge) Per Share $ 4.91
CLASS C
- --------------------------------------------------------------------------------
Net Assets $ 1,949,926
Shares Outstanding 403,969
Net Asset Value, Offering and Redemption Price (excluding
applicable contingent deferred sales charge) Per Share $ 4.83
CLASS F
- --------------------------------------------------------------------------------
Net Assets $204,247,650
Shares Outstanding 39,195,594
Net Asset Value, Offering and Redemption Price Per Share $ 5.21
CLASS R
- --------------------------------------------------------------------------------
Net Assets $ 84,215
Shares Outstanding 16,272
Net Asset Value, Offering and Redemption Price Per Share $ 5.18
CLASS T
- --------------------------------------------------------------------------------
Net Assets $ 20,336
Shares Outstanding 4,182
Net Asset Value, Redemption Price Per Share $ 4.86
Maximum offering price per share (net asset value plus sales
charge of 4.50% of offering price) $ 5.09
SEE NOTES TO FINANCIAL STATEMENTS.
17
<Page>
STATEMENT OF OPERATIONS
For the six months ended June 30, 2006 (UNAUDITED)
INVESTMENT INCOME
- -------------------------------------------------------------------------------
Dividends $ 1,114,976
Interest 212,448
Foreign taxes withheld (4,573)
-----------
Total Investment Income 1,322,851
-----------
EXPENSES
- -------------------------------------------------------------------------------
Advisory fees--Note 2 708,234
Shareholder servicing fees--Note 2 112,352
Accounting fees--Note 2 65,375
Distribution fees--Note 2 92,228
Transfer agency fees--Note 2 53,203
Registration fees 30,290
Postage and mailing expenses 7,720
Custodian fees and expenses--Note 2 4,859
Printing expenses 29,565
Legal and audit fees 38,085
Directors' fees and expenses--Note 2 27,005
Other expenses 27,373
-----------
Total Expenses 1,196,289
Earnings Credits (4,515)
Reimbursed/Waived Expenses (388)
-----------
Net Expenses 1,191,386
-----------
Net Investment Income 131,465
-----------
REALIZED AND UNREALIZED GAIN (LOSS) ON SECURITY TRANSACTIONS
- -------------------------------------------------------------------------------
Net Realized Gain on Security Transactions 11,428,399
Net Change in Unrealized Appreciation/Depreciation of Investments (9,909,371)
-----------
Net Realized and Unrealized Gain 1,519,028
-----------
Net Increase in Net Assets Resulting from Operations $ 1,650,493
===========
SEE NOTES TO FINANCIAL STATEMENTS.
18
<Page>
STATEMENTS OF CHANGES IN NET ASSETS
(UNAUDITED)
YEAR ENDED
SIX MONTHS ENDED DECEMBER 31,
OPERATIONS JUNE 30, 2006 2005
- -------------------------------------------------------------------------------
Net Investment Income $ 131,465 $ 205,080
Net Realized Gain on Security Transactions 11,428,399 22,014,185
Net Change in Unrealized
Appreciation/Depreciation of Investments (9,909,371) (12,580,203)
------------ ------------
Net Increase in Net Assets Resulting from
Operations 1,650,493 9,639,062
------------ ------------
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS
- -------------------------------------------------------------------------------
From Net Investment Income
Class A 0 (1,749)
Class C 0 (4,846)
Class F 0 (428,422)
Class R 0 (786)
------------ ------------
Net Decrease from Dividends and Distributions 0 (435,803)
------------ ------------
CAPITAL SHARE TRANSACTIONS
- -------------------------------------------------------------------------------
Net Increase (Decrease)--Note 4
Class A 445,345 28,615
Class B (373,131) (702,149)
Class C (63,559) 1,342,518
Class F (12,940,581) (26,845,562)
Class R (192,993) 11,896
Class T 13,006 (23,106)
------------ ------------
Net Decrease from Capital Share Transactions (13,111,913) (26,187,788)
------------ ------------
Net Decrease in Net Assets (11,461,420) (16,984,529)
------------ ------------
NET ASSETS
- -------------------------------------------------------------------------------
Beginning of Period $220,564,644 $237,549,173
------------ ------------
End of Period $209,103,224 $220,564,644
============ ============
Undistributed Net Investment Income $ 291,427 $ 159,962
SEE NOTES TO FINANCIAL STATEMENTS.
19
<Page>
FINANCIAL HIGHLIGHTS
(UNAUDITED)
<Table>
<Caption>
SIX MONTHS YEAR ENDED
ENDED JUNE 30, DECEMBER 31,
2006 2005 2004 2003 2002
-------------- --------------------------------------
CLASS A SHARES PER
SHARE OPERATING DATA
Net Asset Value, beginning of period $ 5.07 $ 4.86 $ 4.49 $ 3.44 $ 4.66
- --------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.00)(a, b) (0.00)(a) 0.02 0.03 (0.02)
Net realized and unrealized gains
(losses) on securities 0.02 0.22 0.36 1.02 (1.20)
-------------------------------------------------------
Total from investment operations 0.02 0.22 0.38 1.05 (1.22)
- --------------------------------------------------------------------------------------------------------
Less dividends and distributions:
From net investment income 0.00 (0.01) (0.01) 0.00 0.00
From net realized gains 0.00 0.00 0.00 0.00 0.00
-------------------------------------------------------
Total distributions 0.00 (0.01) (0.01) 0.00 0.00
- --------------------------------------------------------------------------------------------------------
Net Asset Value, end of period $ 5.09 $ 5.07 $ 4.86 $ 4.49 $ 3.44
=======================================================
TOTAL RETURN(c) 0.39% 4.46% 8.54% 30.52% (26.18%)
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000s) $1,706 $1,266 $1,180 $ 935 $ 378
- --------------------------------------------------------------------------------------------------------
Ratios to average net assets:
Expenses with reimbursements, but
no earnings credits or brokerage offsets(d) 1.24% 1.35% 1.26% 1.49% 1.87%
Expenses with reimbursements,
earnings credits and brokerage offsets 1.24% 1.33% 1.25% 1.48% 1.87%
Net investment income (loss) 0.00% (0.09%) 0.38% (0.25%) (0.67%)
- --------------------------------------------------------------------------------------------------------
Portfolio turnover rate(e) 131% 126% 115% 123% 152%
</Table>
(a.) NET INVESTMENT LOSS FOR THE YEAR ENDED DECEMBER 31, 2005 AND FOR THE PERIOD
ENDED JUNE 30, 2006 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.) 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.
20
<Page>
<Table>
<Caption>
SIX MONTHS YEAR ENDED
ENDED JUNE 30, DECEMBER 31,
2006 2005 2004 2003 2002
-------------- ----------------------------------------
CLASS B SHARES PER
SHARE OPERATING DATA
Net Asset Value, beginning of period $ 4.91 $ 4.74 $ 4.40 $ 3.40 $ 4.61
- ----------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment loss (0.02)(b) (0.04)(b) (0.00)(a) (0.01) (0.05)
Net realized and unrealized gains
(losses) on securities 0.02 0.21 0.34 1.01 (1.16)
---------------------------------------------------------
Total from investment operations 0.00 0.17 0.34 1.00 (1.21)
- ----------------------------------------------------------------------------------------------------------
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 $ 4.91 $ 4.91 $ 4.74 $ 4.40 $ 3.40
=========================================================
TOTAL RETURN(c) 0.00% 3.59% 7.73% 29.41% (26.25%)
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000s) $1,095 $1,453 $2,110 $1,709 $ 1,013
- ----------------------------------------------------------------------------------------------------------
Ratios to average net assets:
Expenses with reimbursements, but
no earnings credits or brokerage offsets(d) 2.18% 2.19% 2.01% 2.30% 2.14%
Expenses with reimbursements,
earnings credits and brokerage offsets 2.18% 2.18% 2.00% 2.30% 2.14%
Net investment loss (0.98%) (0.97%) (0.34%) (1.08%) (0.95%)
- ----------------------------------------------------------------------------------------------------------
Portfolio turnover rate(e) 131% 126% 115% 123% 152%
</Table>
(a.) NET INVESTMENT LOSS FOR THE YEAR ENDED DECEMBER 31, 2004 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.) 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,
2006 2005 2004 2003 2002
-------------- --------------------------------------
CLASS C SHARES PER
SHARE OPERATING DATA
Net Asset Value, beginning of period $ 4.82 $ 4.66 $ 4.32 $ 3.34 $ 4.55
- --------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.02) (0.03)(a) 0.04 0.04 (0.07)
Net realized and unrealized gains
(losses) on securities 0.03 0.20 0.30 0.94 (1.14)
-------------------------------------------------------
Total from investment operations 0.01 0.17 0.34 0.98 (1.21)
- --------------------------------------------------------------------------------------------------------
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
-------------------------------------------------------
Total distributions 0.00 (0.01) 0.00 0.00 0.00
- --------------------------------------------------------------------------------------------------------
Net Asset Value, end of period $ 4.83 $ 4.82 $ 4.66 $ 4.32 $ 3.34
=======================================================
TOTAL RETURN(b) 0.21% 3.68% 7.87% 29.34% (26.59%)
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000s) $1,950 $2,012 $ 571 $ 357 $ 186
- --------------------------------------------------------------------------------------------------------
Ratios to average net assets:
Expenses with reimbursements, but
no earnings credits or brokerage offsets(c) 1.94% 1.98% 1.99% 2.29% 2.77%
Expenses with reimbursements,
earnings credits and brokerage offsets 1.94% 1.96% 1.99% 2.28% 2.76%
Net investment loss (0.72%) (0.72%) (0.24%) (1.04%) (1.55%)
- --------------------------------------------------------------------------------------------------------
Portfolio turnover rate(d) 131% 126% 115% 123% 152%
</Table>
(a.) COMPUTED USING AVERAGE SHARES OUTSTANDING THROUGHOUT THE PERIOD.
(b.) SALES CHARGES ARE NOT REFLECTED IN THE TOTAL RETURN.
(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 1.94% (2006), 1.98% (2005), 1.99% (2004), 2.29%
(2003) AND 3.02% (2002).
(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,
2006 2005 2004 2003 2002
-------------- ------------------------------------------------
CLASS F SHARES
PER SHARE OPERATING DATA
Net Asset Value, beginning of period $ 5.18 $ 4.96 $ 4.57 $ 3.50 $ 4.69
- ------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.00(a) 0.00(a) 0.02 0.00(a) 0.00(a)
Net realized and unrealized gains (losses) on
securities 0.03 0.23 0.39 1.07 (1.19)
---------------------------------------------------------------
Total from investment operations 0.03 0.23 0.41 1.07 (1.19)
- ------------------------------------------------------------------------------------------------------------------
Less dividends and distributions:
From net investment income 0.00 (0.01) (0.02) 0.00(b) 0.00(b)
From net realized gains 0.00 0.00 0.00 0.00 0.00
---------------------------------------------------------------
Total distributions 0.00 (0.01) (0.02) 0.00 0.00
- ------------------------------------------------------------------------------------------------------------------
Net Asset Value, end of period $ 5.21 $ 5.18 $ 4.96 $ 4.57 $ 3.50
===============================================================
TOTAL RETURN 0.58% 4.64% 8.97% 30.67% (25.33%)
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000s) $204,248 $215,556 $233,410 $233,333 $191,701
- ------------------------------------------------------------------------------------------------------------------
Ratios to average net assets:
Expenses with reimbursements, but no earnings
credits or brokerage offsets(c) 1.08% 1.13% 1.06% 1.13% 1.08%
Expenses with reimbursements, earnings
credits and brokerage offsets 1.08% 1.12% 1.06% 1.13% 1.08%
Net investment income 0.14% 0.11% 0.56% 0.06% 0.11%
- ------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate(d) 131% 126% 115% 123% 152%
</Table>
(a.) NET INVESTMENT INCOME FOR THE YEARS ENDED DECEMBER 31, 2005, 2003 AND 2002
AND FOR THE PERIOD ENDED JUNE 30, 2006 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 AGGREGATED LESS THAN $0.01 ON A PER SHARE BASIS.
(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,
2006 2005 2004 2003 2002
-------------- -------------------------------------
CLASS R SHARES
PER SHARE OPERATING DATA
Net Asset Value, beginning of period $5.13 $ 4.91 $ 4.53 $ 3.47 $ 4.74
- -------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) 0.01(a) 0.01 0.03 0.06 (0.08)
Net realized and unrealized gains (losses) on
securities 0.04 0.22 0.37 1.00 (1.19)
---------------------------------------------------
Total from investment operations 0.05 0.23 0.40 1.06 (1.27)
- -------------------------------------------------------------------------------------------------------
Less dividends and distributions:
From net investment income 0.00 (0.01) (0.02) 0.00 0.00
From net realized gains 0.00 0.00 0.00 0.00 0.00
---------------------------------------------------
Total distributions 0.00 (0.01) (0.02) 0.00 0.00
- -------------------------------------------------------------------------------------------------------
Net Asset Value, end of period $5.18 $ 5.13 $ 4.91 $ 4.53 $ 3.47
===================================================
TOTAL RETURN 0.97% 4.78% 8.88% 30.55% (26.79%)
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000s) $ 84 $ 270 $ 247 $ 211 $ 57
- -------------------------------------------------------------------------------------------------------
Ratios to average net assets:
Expenses with reimbursements, but no earnings
credits or brokerage offsets(b) 0.97% 1.10% 1.00% 1.35% 2.95%
Expenses with reimbursements, earnings credits
and brokerage offsets 0.97% 1.09% 1.00% 1.35% 2.95%
Net investment income (loss) 0.23% 0.15% 0.54% (0.12%) (1.78%)
- -------------------------------------------------------------------------------------------------------
Portfolio turnover rate(c) 131% 126% 115% 123% 152%
</Table>
(a.) COMPUTED USING AVERAGE SHARES OUTSTANDING THROUGHOUT THE PERIOD.
(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 0.97% (2006), 1.10% (2005), 1.00% (2004), 1.35%
(2003) AND 4.68% (2002).
(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.
24
<Page>
<Table>
<Caption>
SIX MONTHS YEAR ENDED
ENDED JUNE 30, DECEMBER 31,
2006 2005 2004 2003 2002
-------------- ------------------------------------------
CLASS T SHARES
PER SHARE OPERATING DATA
Net Asset Value, beginning of period $ 4.85 $ 4.72 $ 4.38 $ 3.39 $ 4.60
- ------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment loss (0.00)(a, b) (0.05)(a) (0.01) (0.23) (0.30)
Net realized and unrealized gains
(losses) on securities 0.01 0.18 0.25 1.22 (0.91)
-----------------------------------------------------------
Total from investment operations 0.01 0.13 0.24 0.99 (1.21)
- ------------------------------------------------------------------------------------------------------------
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
- ------------------------------------------------------------------------------------------------------------
Other:
Payment by Service Provider 0.00 0.00 0.10(c) 0.00 0.00
- ------------------------------------------------------------------------------------------------------------
Net Asset Value, end of period $ 4.86 $ 4.85 $ 4.72 $ 4.38 $ 3.39
==========================================================
TOTAL RETURN(d) 0.21% 2.75% 7.76% 29.20% (26.30%)
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000s) $ 20 $ 8 $ 32 $ 30 $ 33
- ------------------------------------------------------------------------------------------------------------
Ratios to average net assets:
Expenses with reimbursements, but
no earnings credits or brokerage offsets(e) 1.54% 2.16% 1.90% 2.27% 2.47%
Expenses with reimbursements, earnings
credits and brokerage offsets 1.53% 2.15% 1.90% 2.26% 2.46%
Net investment loss (0.18%) (0.98%) (0.29%) (1.11%) (1.29%)
- ------------------------------------------------------------------------------------------------------------
Portfolio turnover rate(f) 131% 126% 115% 123% 152%
</Table>
(a.) COMPUTED USING AVERAGE SHARES OUTSTANDING THROUGHOUT THE PERIOD.
(b.) NET INVESTMENT LOSS FOR THE PERIOD ENDED JUNE 30, 2006 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.) 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% (2006), 2.59% (2005), 1.90% (2004), 2.27%
(2003) AND 3.71% (2002).
(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.
25
<Page>
NOTES TO FINANCIAL STATEMENTS
June 30, 2006 (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). Effective
June 1, 2006, Class B shares will no longer be offered except in connection with
dividend reinvestments and permitted exchanges of Class B shares. 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. New York closing exchange rates are used to convert foreign
currencies to U.S. dollars.
A debt security with a remaining maturity greater than 60 days at the time of
purchase is valued in accordance with the evaluated bid price supplied by a
pricing service approved by the Company's board of directors or, if such price
is not available, at the mean between the highest bid and lowest asked
quotations obtained from at least two securities dealers. A debt security with a
remaining maturity of 60 days or less at the time of purchase is valued at
amortized cost, which approximates market value, unless it is determined that
amortized cost would not represent market value, in which case the securities
would be marked to market. The Fund amortizes premiums and discounts on all debt
securities.
If market quotations 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
26
<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 requires the use of estimates, and as such,
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--The Fund may invest at least a
portion of its assets in foreign securities. Foreign securities carry more risk
than U.S. securities, such as political and currency risks. 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 Fund could be
exposed to risk if counterparties are unable to meet the terms of the contracts
or if the value of the currency changes unfavorably to the U.S. dollar. 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.
The accounting records of the Fund are maintained in U.S. dollars. The market
values of foreign securities, currency holdings and other assets and liabilities
are translated into U.S. dollars based on the current exchange rates each
business day. 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 unrealized gain or loss from investments and foreign
currency translations on the Statement of Operations.
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
27
<Page>
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 Subchapter M 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 from
net investment income (if any) and from net realized 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.
USE OF ESTIMATES--The preparation of financial statements in conformity with
accounting principles generally accepted in the United States of America
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported amounts of
income and expenses during the reporting period. Actual results could differ
from those estimates.
INDEMNIFICATIONS--In the normal course of business, the Company enters into
contracts that contain provisions indemnifying other parties against specified
potential liabilities. Each Fund's maximum exposure under these arrangements is
unknown as this would involve future claims that may be made against the Fund
that have not yet occurred. However, based on experience, the Funds expect the
risk of loss to be remote.
OTHER--Certain prior year information has been reformatted, without substantive
change, to conform with the current year presentation.
2. FEES AND TRANSACTIONS WITH AFFILIATES
ADVISORY FEES--Founders Asset Management LLC ("Founders") serves as investment
adviser to the Fund. Founders is an indirect wholly-owned subsidiary of Mellon
Financial Corporation, a publicly-owned financial services company which
provides a comprehensive range of financial products and services in domestic
and selected international markets.
28
<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
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 period ended June 30, 2006,
Class F shares were charged $106,265 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 period ended June 30, 2006, Class F shares were
charged $41,819 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 $12.92 to $13.36, 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 period ended June 30, 2006 were as
follows:
TRANSFER
AGENCY FEES
---------------------
Class A $ 972
Class B $1,989
Class C $ 724
Class R $ 126
Class T $ 53
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.
Founders has agreed to reimburse (or to cause its affiliates to reimburse) the
Class T share class of the Fund for certain transfer agency expenses pursuant to
a written
29
<Page>
NOTES TO FINANCIAL STATEMENTS
June 30, 2006 (UNAUDITED) (CONTINUED)
contractual commitment. This commitment will extend through at least August 31,
2007, and will not be terminated without prior notification to the Company's
board of directors. For the period ended June 30, 2006, Class T was reimbursed
$44, which reduced the amount paid to DTI to $9.
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 period ended June 30, 2006, the Fund was charged $1,541 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 period ended June
30, 2006, the Fund paid $7,520 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 period ended June 30,
2006, Class F shares were charged $79,865 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 period ended June 30, 2006, were as follows:
DISTRIBUTION SHAREHOLDER
FEES SERVICING FEES
---------------------------------------
Class A N/A $1,956
Class B $4,755 $1,585
Class C $7,593 $2,531
Class T $ 15 $ 15
30
<Page>
During the period ended June 30, 2006, DSC retained $443 and $1 in sales
commissions from the sales of Class A and Class T shares, respectively. DSC also
retained $2,118 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.
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, which are shown as earnings credits on the
Statement of Operations. 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
period and in the amount set forth below:
TIME PERIOD AMOUNT OF WAIVER
-------------------------------------
9/1/05 to 8/31/06 $200,000
-------------------------------------
The fee waiver is allocated among the Funds in proportion to their respective
shares of the total custodian fee. For the period ended June 30, 2006, the
Fund's portion of the fee waiver was $344, which reduced the amount paid to
Mellon Bank to $4,515.
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 Directors'
Deferred Compensation on the Statement of Assets and Liabilities. Changes in
market value are included in the Directors' fees and expenses and the net change
in unrealized appreciation/depreciation of investments on the Statement of
Operations. 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
or its affiliates, which pay 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.
31
<Page>
OTHER--During the period ended June 30, 2006, Founders reimbursed the Fund $997
for a trading error. This amount is not material to the Fund.
3. FEDERAL TAX INFORMATION
Net investment income and capital gains distributions are determined in
accordance with income tax regulations that may differ from accounting
principles generally accepted in the United States of America. These differences
are due to differing treatments for items such as deferral of wash sale losses,
deferred compensation 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, 2005 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, 2005 were:
EXPIRATION AMOUNT
------------------------
2009 $29,494,922
2010 $50,083,635
-----------
$79,578,557
===========
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, 2006 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.
-----------------------------------------------------
Post-October Capital Loss Deferral $ (555,661)
-----------------------------------------------------
Undistributed Ordinary Income $ 209,198
-----------------------------------------------------
Federal Tax Cost $205,495,969
-----------------------------------------------------
Gross Tax Appreciation of Investments $ 11,422,110
-----------------------------------------------------
Gross Tax Depreciation of Investments $ (7,817,386)
-----------------------------------------------------
Net Tax Appreciation $ 3,604,724
-----------------------------------------------------
32
<Page>
4. CAPITAL SHARE TRANSACTIONS
The Fund is authorized to issue 750 million shares of $0.01 par value capital
stock. Transactions in shares of the Fund for the periods indicated were as
follows:
<Table>
<Caption>
PERIOD ENDED YEAR ENDED
JUNE 30, 2006 DECEMBER 31, 2005
SHARES AMOUNT SHARES AMOUNT
CLASS A
- ------------------------------------------------------------------------------------------------
Sold 166,168 $ 867,827 133,918 $ 645,347
Dividends or Distributions Reinvested 0 $ 0 258 $ 1,321
Redeemed (80,969) $ (422,482) (127,183) $ (618,053)
------------------------------------------------------
Net Increase 85,199 $ 445,345 6,993 $ 28,615
======================================================
CLASS B
- ------------------------------------------------------------------------------------------------
Sold 13,148 $ 65,902 13,761 $ 63,612
Redeemed (86,184) $ (439,033) (162,888) $ (765,761)
------------------------------------------------------
Net Decrease (73,036) $ (373,131) (149,127) $ (702,149)
======================================================
CLASS C
- ------------------------------------------------------------------------------------------------
Sold 19,168 $ 93,604 331,465 $ 1,510,039
Dividends or Distributions Reinvested 0 $ 0 275 $ 1,336
Redeemed (32,767) $ (157,163) (36,722) $ (168,857)
------------------------------------------------------
Net Increase (Decrease) (13,599) $ (63,559) 295,018 $ 1,342,518
======================================================
CLASS F
- ------------------------------------------------------------------------------------------------
Sold 276,580 $ 1,475,031 587,677 $ 2,884,040
Dividends or Distributions Reinvested 0 $ 0 71,482 $ 373,127
Redeemed (2,705,760) $(14,415,612) (6,113,337) $(30,102,729)
------------------------------------------------------
Net Decrease (2,429,180) $(12,940,581) (5,454,178) $(26,845,562)
======================================================
CLASS R
- ------------------------------------------------------------------------------------------------
Sold 454 $ 2,396 4,796 $ 23,193
Dividends or Distributions Reinvested 0 $ 0 150 $ 778
Redeemed (36,864) $ (195,389) (2,559) $ (12,075)
------------------------------------------------------
Net Increase (Decrease) (36,410) $ (192,993) 2,387 $ 11,896
======================================================
CLASS T
- ------------------------------------------------------------------------------------------------
Sold 2,545 $ 13,106 1,538 $ 7,232
Redeemed (20) $ (100) (6,655) $ (30,338)
------------------------------------------------------
Net Increase (Decrease) 2,525 $ 13,006 (5,117) $ (23,106)
======================================================
</Table>
33
<Page>
5. INVESTMENT TRANSACTIONS
For the period ended June 30, 2006, purchases and sales of investment securities
(excluding short-term securities and U.S. government obligations) were
$142,876,578 and $157,580,438, 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, 2006, the Fund did not have any borrowings under the LOC.
34
<Page>
This page intentionally left blank.
<Page>
For More Information
DREYFUS FOUNDERS
EQUITY GROWTH FUND
MANAGER
Founders Asset
Management LLC
210 University Boulevard
Suite 800
Denver, CO 80206
TRANSFER AGENT &
DIVIDEND DISBURSING AGENT
Dreyfus Transfer, Inc.
200 Park Avenue
New York, NY 10166
DISTRIBUTOR
Dreyfus Service Corporation
200 Park Avenue
New York, NY 10166
TELEPHONE Call your financial representative or 1-800-554-4611
MAIL Dreyfus Founders Funds, Inc.
144 Glenn Curtiss Boulevard, Uniondale, NY 11556-0144
The fund files its complete schedule of portfolio holdings with the Securities
and Exchange Commission ("SEC") for the first and third quarters of each fiscal
year on Form N-Q. The fund's Forms N-Q are available on the SEC's website at
http://www.sec.gov and may be reviewed and copied at the SEC's Public Reference
Room in Washington, DC. Information on the operation of the Public Reference
Room may be obtained by calling 1-202-551-8090.
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, 2006, 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.
(C) 2006 Founders Asset Management LLC
0275SA0606
<Page>
DREYFUS FOUNDERS
GROWTH FUND
SEMIANNUAL REPORT JUNE 30, 2006
[DREYFUS LOGO]
A MELLON FINANCIAL COMPANY(SM)
<Page>
TABLE OF CONTENTS
Management Overview 3
Fund Expenses 9
Statement of Investments 11
Statement of Assets and Liabilities 16
Statement of Operations 18
Statements of Changes in Net Assets 19
Financial Highlights 20
Notes to Financial Statements 26
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
Founders Asset Management LLC
A MELLON FINANCIAL COMPANY(SM)
210 University Boulevard, Suite 800
Denver, CO 80206
DISTRIBUTOR
Dreyfus Service Corporation
200 Park Avenue
New York, NY 10166
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, 2006. The amounts of
these holdings are included in the Statement of Investments.
NOT FDIC-INSURED - NOT BANK-GUARANTEED - MAY LOSE VALUE
<Page>
MANAGEMENT OVERVIEW
(UNAUDITED)
[PHOTO OF JOHN JARES]
A DISCUSSION WITH PORTFOLIO MANAGER JOHN JARES, CFA, REGARDING FUND PERFORMANCE
FOR THE SIX-MONTH PERIOD ENDED JUNE 30, 2006.
EQUITY MARKETS END PERIOD LOWER
High crude oil prices persisted in the first half of 2006, and the Federal
Reserve continued to lift interest rates, raising investors' concern about the
outlook for inflation and the possibility of a subsequent recession. Against
this economic backdrop, equity markets, in general, moved higher until mid-May,
when they suffered a correction lasting through the end of the period.
Dreyfus Founders Growth Fund compared favorably(1) to its benchmark, the
Russell 1000 Growth Index, which posted a -0.93% return for the six months ended
June 30, 2006.
STOCK SELECTION DROVE PERFORMANCE
The Fund continued to search for high-quality growth stocks by employing its
fundamental-based, hands-on research investment strategy. We continued to meet
with company management teams, talk to industry experts, and closely follow
industry trends in an effort to uncover, stock-by-stock, the greatest growth
potential for the portfolio.
This approach toward stock selection benefited the Fund's relative
performance, primarily in the consumer discretionary, consumer staples,
materials and financials sectors, as strong stock picking provided a boost.
Relative exposure to the aforementioned sectors, excluding the materials sector,
also played a positive role in the Fund's return.
"THE FUND CONTINUED TO SEARCH FOR HIGH-QUALITY GROWTH STOCKS BY EMPLOYING ITS
FUNDAMENTAL-BASED, HANDS-ON RESEARCH INVESTMENT STRATEGY."
- ----------
(1) Excluding sales charges, which result in lower returns for certain share
classes. Please see page 6 for Average Annual and Year-to-Date Returns for
all share classes, including and excluding sales charges.
3
<Page>
SECTORS BENEFITING THE FUND
Consumer Discretionary
Consumer Staples
Financials/Materials
Consumer discretionary holdings COMCAST CORPORATION, KOHL'S CORPORATION, BEST
BUY COMPANY, INC. and Pixar, Inc. were among the strongest performing issues in
the Fund during the period. Comcast benefited from strong demand for its
products, primarily its multi-service bundled packages. Kohl's experienced
improved revenue and earnings growth trends driven by higher sales as the
department store industry saw a reduction in capacity. Best Buy's stock price
rose on strong consumer spending on a variety of products, including HDTVs, MP3
players and digital video and photography equipment. Pixar saw its stock price
increase on strong demand for its animated feature-length, family-friendly
films.
Notable performance was also exhibited by a number of individual stocks
including SCHLUMBERGER LIMITED. High oil prices created an increased level of
activity related to finding and developing new oil and gas fields. This
heightened activity created strong demand and healthy pricing for the
oil-services provider.
INDUSTRIALS, TELECOM AND UTILITIES UNDERPERFORMED
Strong economic growth provided a solid backdrop for industrials companies; many
industrial companies' revenue generation is directly tied to the pace of
LARGEST EQUITY HOLDINGS (ticker symbol)
1. GENERAL ELECTRIC COMPANY (GE) 3.65%
2. MICROSOFT CORPORATION (MSFT) 3.37%
3. GOOGLE, INC. CLASS A (GOOG) 2.76%
4. EXXONMOBIL CORPORATION (XOM) 2.22%
5. CISCO SYSTEMS, INC. (CSCO) 2.21%
6. PROCTER & GAMBLE COMPANY (PG) 2.10%
7. EMERSON ELECTRIC COMPANY (EMR) 2.06%
8. ADOBE SYSTEMS, INC. (ADBE) 1.98%
9. COLGATE-PALMOLIVE COMPANY (CL) 1.93%
10. WYETH (WYG) 1.87%
Portfolio holdings are subject to change, and should not be construed as a
recommendation of any security.
4
<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]
<Table>
<Caption>
DREYFUS RUSSELL
FOUNDERS 1000
GROWTH GROWTH
FUND-CLASS F INDEX
------------ -------
6/28/1996 $10,000 $10,000
6/30/1997 $12,245 $13,134
6/30/1998 $15,661 $17,257
6/30/1999 $18,193 $21,962
6/30/2000 $21,890 $27,598
6/29/2001 $13,344 $17,615
6/28/2002 $10,094 $12,949
6/30/2003 $10,224 $13,330
6/30/2004 $11,784 $15,713
6/30/2005 $12,091 $15,977
6/30/2006 $13,074 $16,954
</Table>
The above graph compares a $10,000 investment made in Class F shares of Dreyfus
Founders Growth Fund on 6/30/96 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 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 this index
assume changes 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.
5
<Page>
AVERAGE ANNUAL AND YEAR-TO DATE TOTAL RETURN as of 6/30/06
YEAR-TO- 1 5 10 SINCE
CLASS (Inception Date) DATE+ YEAR YEARS YEARS INCEPTION
- ------------------------------------------------------------------------
A SHARES (12/31/99)
With sales charge (5.75%) (5.35%) 1.94% (1.69%) -- (9.11%)
Without sales charge 0.46% 8.15% (0.52%) -- (8.28%)
B SHARES (12/31/99)
With redemption* (4.00%) 3.28% (1.70%) -- (8.96%)
Without redemption 0.00% 7.28% (1.30%) -- (8.96%)
C SHARES (12/31/99)
With redemption** (0.90%) 6.28% (1.30%) -- (8.96%)
Without redemption 0.10% 7.28% (1.30%) -- (8.96%)
F SHARES (1/5/62) 0.46% 8.13% (0.41%) 2.72% N/A
R SHARES (12/31/99) 0.72% 8.75% (0.17%) -- (7.96%)
T SHARES (12/31/99)
With sales charge (4.50%) (4.37%) 2.44% (2.29%) -- (9.57%)
Without sales charge 0.10% 7.25% (1.39%) -- (8.92%)
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.
6
<Page>
economic growth. However, a relative underweight position in this sector caused
it to be the worst performing sector in the Fund.
Unfavorable stock selection in the telecommunications sector also weighed
on the Fund's relative return. A lack of exposure in the utilities sector, in
which the Fund found no compelling growth stories, also detracted from Fund
performance.
INDIVIDUAL STOCKS HURT PERFORMANCE
SECTORS DETRACTING FROM THE FUND
Industrials
Telecommunication Services
Utilities
Select information technology stocks were among the weakest performing
securities in the Fund. ADOBE SYSTEMS, INC. began upgrading the majority of its
software products, from Acrobat Reader to the company's Creative Suite. As
consumers awaited the launch of these upgraded products, new purchases were
postponed, which created a slowing in revenue growth. As a result, Adobe
moderated revenue and earnings growth expectations during the second quarter of
2006. MICROSOFT CORPORATION announced that the launch of its new operating
system, Windows Vista, and the latest update to its office suite would be
delayed until early 2007; investors had been expecting the launches during the
fall of 2006. In addition, the company also indicated that spending levels for
2006 would be
[CHART]
<Table>
<Caption>
PORTFOLIO COMPOSITION OF NET ASSETS
31.12% Information Technology
14.24% Consumer Staples
12.47% Health Care
10.69% Consumer Discretionary
10.22% Financials
9.27% Industrials
4.03% Energy
1.53% Materials
0.50% Telecommunication Services
3.01% Other
2.92% Cash & Equivalents
</Table>
The Fund's portfolio composition is subject to change, and there is no assurance
the Fund will continue to hold any particular security. Opinions regarding
sectors, industries, companies, and/or themes are those of the portfolio manager
and are subject to change at any time, based on market and other conditions, and
should not be construed as a recommendation of any specific security.
7
<Page>
elevated, as Microsoft is making investments to strengthen its position on the
Internet. These investments came as a surprise to investors, who were
subsequently forced to moderate their expectations for earnings growth. INTEL
CORPORATION lost market share to a competitor, which resulted in poor revenue
growth and margin deterioration.
Health care holding BOSTON SCIENTIFIC CORPORATION acquired medical-device
maker Guidant Corporation early in the year. After the acquisition closed,
demand for medical devices, including Guidant's implantable cardioverter
defibrillators (ICDs), slackened, impacting a number of companies within the
industry.
Consumer discretionary issue Advance Auto Parts, Inc.'s stock price dropped
during the period. The company was negatively affected by slowing customer
traffic. In late June, the company announced that high gasoline prices, high
interest rates and the burden of rising credit card payments had combined to
dent customers' disposable income, and thus, the company's sales. As a result,
Advance Auto Parts was forced to significantly lower sales and earnings guidance
for 2006.
As we move into the second half of 2006, we will continue to rely on our
bottom-up research process to seek companies we believe are capable of posting
strong future revenue growth at attractive valuations.
/s/ John B. Jares
- -------------------------------------
John Jares, CFA
Portfolio Manager
8
<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, 2006
and held through June 30, 2006.
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, together with the amount you
invested, 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.
9
<Page>
EXPENSE EXAMPLE
BEGINNING ENDING EXPENSES PAID
ACCOUNT VALUE ACCOUNT VALUE DURING PERIOD*
(1/1/06) (6/30/06) (1/1/06-6/30/06)
- -----------------------------------------------------------------------
CLASS A ACTUAL $1,000.00 $1,004.60 $ 6.96
CLASS A HYPOTHETICAL 1,000.00 1,017.77 7.03
CLASS B ACTUAL 1,000.00 1,000.00 11.50
CLASS B HYPOTHETICAL 1,000.00 1,013.15 11.65
CLASS C ACTUAL 1,000.00 1,001.00 10.87
CLASS C HYPOTHETICAL 1,000.00 1,013.80 10.99
CLASS F ACTUAL 1,000.00 1,004.60 6.96
CLASS F HYPOTHETICAL 1,000.00 1,017.77 7.03
CLASS R ACTUAL 1,000.00 1,007.20 5.03
CLASS R HYPOTHETICAL 1,000.00 1,019.72 5.07
CLASS T ACTUAL 1,000.00 1,001.00 11.36
CLASS T HYPOTHETICAL 1,000.00 1,013.13 11.50
* 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 earnings credits.
EXPENSE RATIO
- -----------------------
CLASS A 1.40%
CLASS B 2.32%
CLASS C 2.19%
CLASS F 1.40%
CLASS R 1.01%
CLASS T 2.29%
10
<Page>
STATEMENT OF INVESTMENTS
June 30, 2006 (UNAUDITED)
SHARES MARKET VALUE
- --------------------------------------------------------------------------------
COMMON STOCKS (DOMESTIC)--93.8%
AIRLINES--1.6%
69,725 AMR Corporation* $ 1,772,406
63,900 Continental Airlines, Inc. Class B* 1,904,216
27,175 US Airways Group, Inc.* 1,373,425
-----------
5,050,047
-----------
APPLICATION SOFTWARE--1.3%
42,500 Autodesk, Inc.* 1,464,550
200,775 BEA Systems, Inc.* 2,628,145
-----------
4,092,695
-----------
ASSET MANAGEMENT & CUSTODY BANKS--0.7%
35,575 State Street Corporation 2,066,552
-----------
BIOTECHNOLOGY--1.9%
43,700 Amgen, Inc.* 2,850,551
27,275 Genzyme Corporation* 1,665,139
51,775 MedImmune, Inc.* 1,403,103
-----------
5,918,793
-----------
BROADCASTING & CABLE TV--1.0%
94,773 Comcast Corporation Special Class A* 3,106,659
-----------
CASINOS & GAMING--0.7%
30,700 Harrah's Entertainment, Inc. 2,185,226
-----------
COMMUNICATIONS EQUIPMENT--3.9%
353,025 Cisco Systems, Inc.* 6,894,579
197,025 Motorola, Inc. 3,970,054
36,125 QUALCOMM, Inc. 1,447,529
-----------
12,312,162
-----------
COMPUTER & ELECTRONICS RETAIL--1.3%
75,387 Best Buy Company, Inc. 4,134,223
-----------
COMPUTER HARDWARE--4.4%
59,775 Apple Computer, Inc.* 3,414,348
64,925 Dell, Inc.* 1,584,819
76,450 Diebold, Inc. 3,105,399
178,650 Hewlett-Packard Company 5,659,632
-----------
13,764,198
-----------
COMPUTER STORAGE & PERIPHERALS--1.5%
210,025 Seagate Technology* 4,754,966
-----------
CONSUMER ELECTRONICS--0.6%
20,175 Harman International Industries, Inc. 1,722,340
-----------
CONSUMER FINANCE--0.8%
46,975 SLM Corporation 2,485,917
-----------
DATA PROCESSING & OUTSOURCED SERVICES--0.8%
55,700 Automatic Data Processing, Inc. 2,525,995
-----------
SEE NOTES TO STATEMENT OF INVESTMENTS.
11
<Page>
SHARES MARKET VALUE
- --------------------------------------------------------------------------------
DEPARTMENT STORES--2.7%
123,000 Federated Department Stores, Inc. $4,501,800
46,250 J.C. Penney Company, Inc. 3,122,338
15,075 Kohl's Corporation* 891,234
----------
8,515,372
----------
DIVERSIFIED CHEMICALS--0.7%
55,600 E.I. du Pont de Nemours and Company 2,312,960
----------
DRUG RETAIL--1.6%
111,450 Walgreen Company 4,997,418
----------
ELECTRICAL COMPONENTS & EQUIPMENT--2.1%
76,825 Emerson Electric Company 6,438,703
----------
ELECTRONIC EQUIPMENT MANUFACTURERS--0.5%
45,900 Agilent Technologies, Inc.* 1,448,604
----------
ENVIRONMENTAL & FACILITIES SERVICES--0.6%
53,050 Waste Management, Inc. 1,903,434
----------
EXCHANGE TRADED FUNDS--3.0%
81,825 iShares Russell 1000 Growth Index Fund 4,128,071
63,575 Nasdaq 100 Index Tracking Stock 2,464,167
22,125 SPDR Trust Series 1 2,812,309
----------
9,404,547
----------
FOOD DISTRIBUTORS--1.4%
140,900 Sysco Corporation 4,305,904
----------
FOOD RETAIL--1.6%
187,100 Safeway, Inc. 4,864,600
----------
GENERAL MERCHANDISE STORES--1.2%
156,475 Family Dollar Stores, Inc. 3,822,684
----------
HEALTHCARE EQUIPMENT--2.8%
31,550 Beckman Coulter, Inc. 1,752,603
155,825 Boston Scientific Corporation* 2,624,093
14,150 Intuitive Surgical, Inc.* 1,669,276
55,325 Medtronic, Inc. 2,595,849
----------
8,641,821
----------
HEALTHCARE SERVICES--1.1%
60,100 Medco Health Solutions, Inc.* 3,442,528
----------
HEALTHCARE SUPPLIES--1.1%
66,700 Advanced Medical Optics, Inc.* 3,381,690
----------
HOME ENTERTAINMENT SOFTWARE--0.7%
51,775 Electronic Arts, Inc.* 2,228,396
----------
HOME IMPROVEMENT RETAIL--0.9%
75,900 Home Depot, Inc. 2,716,461
----------
HOTELS, RESORTS & CRUISE LINES--0.5%
43,100 Marriott International, Inc. Class A 1,642,972
----------
12
<Page>
SHARES MARKET VALUE
- --------------------------------------------------------------------------------
HOUSEHOLD PRODUCTS--4.0%
100,525 Colgate-Palmolive Company $ 6,021,448
118,271 Procter & Gamble Company 6,575,868
-----------
12,597,316
-----------
HYPERMARKETS & SUPER CENTERS--0.8%
54,325 Wal-Mart Stores, Inc. 2,616,835
-----------
INDUSTRIAL CONGLOMERATES--3.7%
346,234 General Electric Company 11,411,873
-----------
INTEGRATED OIL & GAS--2.2%
112,925 ExxonMobil Corporation 6,927,949
-----------
INTEGRATED TELECOMMUNICATION SERVICES--0.5%
78,725 Sprint Nextel Corporation 1,573,713
-----------
INTERNET RETAIL--0.3%
32,825 eBay, Inc.* 961,444
-----------
INTERNET SOFTWARE & SERVICES--4.1%
20,600 Google, Inc. Class A* 8,638,198
128,800 Yahoo!, Inc.* 4,250,400
-----------
12,888,598
-----------
INVESTMENT BANKING & BROKERAGE--4.3%
336,850 Charles Schwab Corporation 5,382,863
29,400 Goldman Sachs Group, Inc. 4,422,642
37,000 Morgan Stanley 2,338,770
91,725 TD Ameritrade Holding Corporation 1,358,447
-----------
13,502,722
-----------
IT CONSULTING & OTHER SERVICES--0.5%
58,525 Accenture Limited Class A 1,657,428
-----------
MOVIES & ENTERTAINMENT--1.0%
102,580 Walt Disney Company 3,077,400
-----------
MULTI-LINE INSURANCE--1.6%
29,074 American International Group, Inc. 1,716,820
69,825 Assurant, Inc. 3,379,530
-----------
5,096,350
-----------
OIL & GAS EQUIPMENT & SERVICES--1.8%
87,200 Schlumberger Limited 5,677,592
-----------
OTHER DIVERSIFIED FINANCIAL SERVICES--1.4%
104,475 JPMorgan Chase & Company 4,387,950
-----------
PERSONAL PRODUCTS--2.3%
113,150 Avon Products, Inc. 3,507,650
93,850 Estee Lauder Companies, Inc. Class A 3,629,180
-----------
7,136,830
-----------
SEE NOTES TO STATEMENT OF INVESTMENTS.
13
<Page>
SHARES MARKET VALUE
- --------------------------------------------------------------------------------
PHARMACEUTICALS--5.6%
90,250 Johnson & Johnson $ 5,407,780
140,519 Pfizer, Inc. 3,297,981
161,525 Schering-Plough Corporation 3,073,821
131,300 Wyeth 5,831,033
------------
17,610,615
------------
PROPERTY & CASUALTY INSURANCE--1.4%
80,600 Allstate Corporation 4,411,238
------------
RAILROADS--0.8%
26,000 Union Pacific Corporation 2,416,960
------------
SEMICONDUCTORS--4.6%
40,575 Broadcom Corporation* 1,219,279
50,025 Freescale Semiconductor, Inc. Class B* 1,470,735
145,809 Intel Corporation 2,763,081
126,825 Linear Technology Corporation 4,247,369
93,825 Maxim Integrated Products, Inc. 3,012,721
53,100 Texas Instruments, Inc. 1,608,399
------------
14,321,584
------------
SOFT DRINKS--1.8%
93,000 PepsiCo, Inc. 5,583,720
SPECIALTY STORES--0.5%
17,425 AutoZone, Inc.* 1,536,885
STEEL--0.8%
45,250 Nucor Corporation 2,454,813
SYSTEMS SOFTWARE--6.8%
204,000 Adobe Systems, Inc.* 6,193,440
452,701 Microsoft Corporation 10,547,933
219,975 Oracle Corporation* 3,187,438
77,750 Symantec Corporation* 1,208,235
------------
21,137,046
------------
TOTAL COMMON STOCKS (DOMESTIC)
(COST--$286,767,892) 293,174,728
------------
COMMON STOCKS (FOREIGN)--3.3%
AEROSPACE & DEFENSE--0.6%
48,275 Empresa Brasileira de Aeronautica SA Sponsored
ADR (BR) 1,760,589
------------
APPLICATION SOFTWARE--0.4%
25,300 SAP AG Sponsored ADR (GE) 1,328,756
------------
PACKAGED FOODS & MEATS--0.8%
61,900 Cadbury Schweppes Sponsored ADR (UK) 2,402,958
------------
SEMICONDUCTOR EQUIPMENT--1.5%
237,025 ASM Lithography Holding NV NY Shares (NE)* 4,792,646
------------
TOTAL COMMON STOCKS (FOREIGN)
(COST--$9,400,846) 10,284,949
------------
14
<Page>
PRINCIPAL AMOUNT AMORTIZED COST
- --------------------------------------------------------------------------------
CORPORATE SHORT-TERM NOTES--2.8%
SPECIAL PURPOSE ENTITY--2.8%
$8,800,000 CAFCO LLC 5.33% 7/3/06~ $ 8,797,394
------------
TOTAL CORPORATE SHORT-TERM NOTES
(AMORTIZED COST--$8,797,394) 8,797,394
------------
TOTAL INVESTMENTS--99.9%
(TOTAL COST--$304,966,132) 312,257,071
------------
OTHER ASSETS AND LIABILITIES--0.1% 332,100
------------
NET ASSETS--100.0% $312,589,171
============
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 $8,797,394, OR 2.8%, OF THE FUND'S NET ASSETS AS OF JUNE 30,
2006.
ADR - AMERICAN DEPOSITARY RECEIPT
SPDR - STANDARD AND POOR'S DEPOSITARY RECEIPT
BR - BRAZIL
GE - GERMANY
NE - NETHERLANDS
UK - UNITED KINGDOM
SEE NOTES TO FINANCIAL STATEMENTS.
15
<Page>
STATEMENT OF ASSETS AND LIABILITIES
JUNE 30, 2006 (UNAUDITED)
ASSETS
- --------------------------------------------------------------------------------
Investment securities, at cost $ 304,966,132
-------------
Investment securities, at market 312,257,071
Cash 170,797
Receivables:
Investment securities sold 7,943,182
Capital shares sold 153,714
Dividends and interest 280,663
Other assets 11,547
-------------
Total Assets 320,816,974
-------------
LIABILITIES
- --------------------------------------------------------------------------------
Payables and other accrued liabilities:
Investment securities purchased 7,516,537
Capital shares redeemed 235,893
Advisory fees 198,271
Shareholder servicing fees 28,340
Accounting fees 15,410
Distribution fees 95,733
Transfer agency fees 39,004
Custodian fees 2,076
Directors' deferred compensation 11,547
Other 84,992
-------------
Total Liabilities 8,227,803
-------------
Net Assets $ 312,589,171
=============
COMPOSITION OF NET ASSETS
- --------------------------------------------------------------------------------
Capital (par value and paid-in surplus) $ 981,218,925
Accumulated net investment loss (565,630)
Accumulated net realized loss from security transactions (675,355,063)
Net unrealized appreciation on investments 7,290,939
--------------
Total $ 312,589,171
==============
16
<Page>
CLASS A
- --------------------------------------------------------------------------------
Net Assets $ 8,522,474
Shares Outstanding 777,420
Net Asset Value, Redemption Price Per Share $ 10.96
Maximum offering price per share (net asset value
plus sales charge of 5.75% of offering price) $ 11.63
CLASS B
- --------------------------------------------------------------------------------
Net Assets $ 5,447,753
Shares Outstanding 520,969
Net Asset Value, Offering and Redemption Price (excluding
applicable contingent deferred sales charge) Per Share $ 10.46
CLASS C
- --------------------------------------------------------------------------------
Net Assets $ 1,263,540
Shares Outstanding 120,818
Net Asset Value, Offering and Redemption Price (excluding
applicable contingent deferred sales charge) Per Share $ 10.46
CLASS F
- --------------------------------------------------------------------------------
Net Assets $295,251,224
Shares Outstanding 26,780,434
Net Asset Value, Offering and Redemption Price Per Share $ 11.02
CLASS R
- --------------------------------------------------------------------------------
Net Assets $ 2,032,663
Shares Outstanding 181,653
Net Asset Value, Offering and Redemption Price Per Share $ 11.19
CLASS T
- --------------------------------------------------------------------------------
Net Assets $ 71,517
Shares Outstanding 6,811
Net Asset Value, Redemption Price Per Share $ 10.50
Maximum offering price per share (net asset value
plus sales charge of 4.50% of offering price) $ 10.99
SEE NOTES TO FINANCIAL STATEMENTS.
17
<Page>
STATEMENT OF OPERATIONS
For the six months ended June 30, 2006 (UNAUDITED)
INVESTMENT INCOME
- -------------------------------------------------------------------------------
Dividends $ 1,744,686
Interest 202,517
Foreign taxes withheld (7,096)
------------
Total Investment Income 1,940,107
------------
EXPENSES
- -------------------------------------------------------------------------------
Advisory fees--Note 2 1,291,391
Shareholder servicing fees--Note 2 172,448
Accounting fees--Note 2 101,127
Distribution fees--Note 2 432,855
Transfer agency fees--Note 2 166,530
Registration fees 30,475
Postage and mailing expenses 17,350
Custodian fees and expenses--Note 2 6,838
Printing expenses 34,925
Legal and audit fees 64,625
Directors' fees and expenses--Note 2 43,120
Other expenses 42,978
------------
Total Expenses 2,404,662
Earnings Credits (6,838)
------------
Net Expenses 2,397,824
------------
Net Investment Loss (457,717)
------------
REALIZED AND UNREALIZED GAIN (LOSS) ON SECURITY TRANSACTIONS
- -------------------------------------------------------------------------------
Net Realized Gain on Security Transactions 18,866,007
Net Change in Unrealized Appreciation/Depreciation of Investments (15,864,679)
------------
Net Realized and Unrealized Gain 3,001,328
------------
Net Increase in Net Assets Resulting from Operations $ 2,543,611
============
SEE NOTES TO FINANCIAL STATEMENTS.
18
<Page>
STATEMENTS OF CHANGES IN NET ASSETS
(UNAUDITED)
<Table>
<Caption>
SIX MONTHS ENDED YEAR ENDED
JUNE 30, 2006 DECEMBER 31, 2005
OPERATIONS
- --------------------------------------------------------------------------------------------
Net Investment Loss $ (457,717) $ (773,131)
Net Realized Gain on Security Transactions 18,866,007 38,521,459
Net Change in Unrealized Appreciation/Depreciation
of Investments (15,864,679) (24,451,397)
------------ ------------
Net Increase in Net Assets Resulting from Operations 2,543,611 13,296,931
------------ ------------
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS
- ------------------------------------------------------------------------------------------
From Net Investment Income
Class A 0 (19,905)
Class F 0 (1,261,946)
Class R 0 (13,251)
------------ ------------
Net Decrease from Dividends and Distributions 0 (1,295,102)
------------ ------------
CAPITAL SHARE TRANSACTIONS
- ------------------------------------------------------------------------------------------
Net Increase (Decrease)--Note 4
Class A 3,111,159 (1,032,110)
Class B (4,318,660) (3,049,516)
Class C (99,091) (552,479)
Class F (38,795,833) (86,019,465)
Class R 38,928 (9,087,141)
Class T 1,101 (31,280)
------------ ------------
Net Decrease from Capital Share Transactions (40,062,396) (99,771,991)
------------ ------------
Net Decrease in Net Assets (37,518,785) (87,770,162)
------------ ------------
NET ASSETS
- ------------------------------------------------------------------------------------------
Beginning of Period $350,107,956 $437,878,118
------------ ------------
End of Period $312,589,171 $350,107,956
============ ============
Accumulated Net Investment Loss $ (565,630) $ (107,913)
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
19
<Page>
FINANCIAL HIGHLIGHTS
(UNAUDITED)
<Table>
<Caption>
SIX MONTHS YEAR ENDED
ENDED JUNE 30, DECEMBER 31,
2006 2005 2004 2003 2002
-------------- --------------------------------------------
CLASS A SHARES PER SHARE OPERATING DATA
Net Asset Value, beginning of period $10.91 $10.53 $ 9.79 $ 7.46 $ 10.53
- --------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.01)(a) (0.03)(a) (0.02)(a) (0.06) (0.06)
Net realized and unrealized gains
(losses) on securities 0.06 0.45 0.72 2.39 (3.01)
----------------------------------------------------------
Total from investment operations 0.05 0.42 0.74 2.33 (3.07)
- --------------------------------------------------------------------------------------------------------------
Less dividends and distributions:
From net investment income 0.00 (0.04) 0.00 0.00 0.00
From net realized gains 0.00 0.00 0.00 0.00 0.00
----------------------------------------------------------
Total distributions 0.00 (0.04) 0.00 0.00 0.00
- --------------------------------------------------------------------------------------------------------------
Net Asset Value, end of period $10.96 $10.91 $ 10.53 $ 9.79 $ 7.46
==========================================================
TOTAL RETURN(b) 0.46% 3.98% 7.56% 31.23% (29.15%)
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000s) $8,522 $5,505 $ 6,356 $6,452 $ 5,149
- --------------------------------------------------------------------------------------------------------------
Ratios to average net assets:
Expenses with reimbursements, but
no earnings credits or brokerage offsets(c) 1.40% 1.49% 1.42% 1.66% 1.48%
Expenses with reimbursements,
earnings credits and brokerage offsets 1.40% 1.47% 1.41% 1.66% 1.48%
Net investment income (loss) (0.21%) (0.28%) 0.22% (0.59%) (0.56%)
- --------------------------------------------------------------------------------------------------------------
Portfolio turnover rate(d) 121% 120% 107% 124% 139%
</Table>
(a.) COMPUTED USING AVERAGE SHARES OUTSTANDING THROUGHOUT THE PERIOD.
(b.) SALES CHARGES ARE NOT REFLECTED IN THE TOTAL RETURN.
(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.
20
<Page>
<Table>
<Caption>
SIX MONTHS YEAR ENDED
ENDED JUNE 30, DECEMBER 31,
2006 2005 2004 2003 2002
-------------- ------------------------------------------
CLASS B SHARES PER SHARE OPERATING DATA
Net Asset Value, beginning of period $10.46 $10.14 $ 9.50 $ 7.30 $ 10.38
- ------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment loss (0.06)(a) (0.11)(a) (0.06)(a) (0.17) (0.18)
Net realized and unrealized gains
(losses) on securities 0.06 0.43 0.70 2.37 (2.90)
-----------------------------------------------------------
Total from investment operations 0.00 0.32 0.64 2.20 (3.08)
- ------------------------------------------------------------------------------------------------------------
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
-----------------------------------------------------------
Total distributions 0.00 0.00 0.00 0.00 0.00
- ------------------------------------------------------------------------------------------------------------
Net Asset Value, end of period $10.46 $10.46 $ 10.14 $ 9.50 $ 7.30
===========================================================
TOTAL RETURN(b) 0.00% 3.16% 6.74% 30.14% (29.67%)
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000s) $5,448 $9,603 $12,406 $13,664 $11,603
- ------------------------------------------------------------------------------------------------------------
Ratios to average net assets:
Expenses with reimbursements, but
no earnings credits or brokerage offsets(c) 2.32% 2.31% 2.22% 2.48% 2.22%
Expenses with reimbursements,
earnings credits and brokerage offsets 2.32% 2.30% 2.22% 2.48% 2.22%
Net investment loss (1.20%) (1.11%) (0.58%) (1.41%) (1.30%)
- ------------------------------------------------------------------------------------------------------------
Portfolio turnover rate(d) 121% 120% 107% 124% 139%
</Table>
(a.) COMPUTED USING AVERAGE SHARES OUTSTANDING THROUGHOUT THE PERIOD.
(b.) SALES CHARGES ARE NOT REFLECTED IN THE TOTAL RETURN.
(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.
21
<Page>
<Table>
<Caption>
SIX
MONTHS
ENDED YEAR ENDED
JUNE 30, DECEMBER 31,
2006 2005 2004 2003 2002
--------- --------------------------------------
CLASS C SHARES PER SHARE OPERATING DATA
Net Asset Value, beginning of period $10.45 $10.13 $ 9.48 $ 7.29 $ 10.36
- --------------------------------------------------------------------------------------------
Income from investment operations:
Net investment loss (0.06)(a) (0.10)(a) (0.05)(a) (0.19) (0.26)
Net realized and unrealized gains
(losses) on securities 0.07 0.42 0.70 2.38 (2.81)
--------------------------------------------------
Total from investment operations 0.01 0.32 0.65 2.19 (3.07)
- --------------------------------------------------------------------------------------------
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 $10.46 $10.45 $10.13 $ 9.48 $ 7.29
==================================================
TOTAL RETURN(b) 0.10% 3.16% 6.86% 30.04% (29.63%)
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000s) $1,264 $1,362 $1,881 $1,774 $ 1,528
- --------------------------------------------------------------------------------------------
Ratios to average net assets:
Expenses with reimbursements, but no
earnings credits or brokerage
offsets(c) 2.20% 2.24% 2.16% 2.49% 2.37%
Expenses with reimbursements, earnings
credits and brokerage offsets 2.19% 2.22% 2.16% 2.49% 2.37%
Net investment loss (1.04%) (1.03%) (0.49%) (1.42%) (1.46%)
- --------------------------------------------------------------------------------------------
Portfolio turnover rate(d) 121% 120% 107% 124% 139%
</Table>
(a.) COMPUTED USING AVERAGE SHARES OUTSTANDING THROUGHOUT THE PERIOD.
(b.) SALES CHARGES ARE NOT REFLECTED IN THE TOTAL RETURN.
(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,
2006 2005 2004 2003 2002
-------------- ----------------------------------------------
CLASS F SHARES
PER SHARE OPERATING DATA
Net Asset Value, beginning of period $ 10.97 $ 10.58 $ 9.83 $ 7.48 $ 10.53
- ------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.01)(a) (0.02)(a) 0.03(a) (0.17) (0.22)
Net realized and unrealized gains (losses) on
securities 0.06 0.45 0.72 2.52 (2.83)
-----------------------------------------------------------------
Total from investment operations 0.05 0.43 0.75 2.35 (3.05)
- ------------------------------------------------------------------------------------------------------------------
Less dividends and distributions:
From net investment income 0.00 (0.04) 0.00 0.00 0.00
From net realized gains 0.00 0.00 0.00 0.00 0.00
-----------------------------------------------------------------
Total distributions 0.00 (0.04) 0.00 0.00 0.00
- ------------------------------------------------------------------------------------------------------------------
Net Asset Value, end of period $ 11.02 $ 10.97 $ 10.58 $ 9.83 $ 7.48
=================================================================
TOTAL RETURN 0.46% 4.08% 7.63% 31.42% (28.96%)
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000s) $295,251 $331,585 $406,550 $484,742 $443,307
- ------------------------------------------------------------------------------------------------------------------
Ratios to average net assets:
Expenses with reimbursements, but no earnings
credits or brokerage offsets(b) 1.40% 1.38% 1.33% 1.47% 1.38%
Expenses with reimbursements, earnings credits
and brokerage offsets 1.40% 1.37% 1.33% 1.47% 1.37%
Net investment income (loss) (0.25%) (0.18%) 0.30% (0.41%) (0.46%)
- ------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate(c) 121% 120% 107% 124% 139%
</Table>
(a.) COMPUTED USING AVERAGE SHARES OUTSTANDING THROUGHOUT THE PERIOD.
(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.
23
<Page>
<Table>
<Caption>
SIX MONTHS YEAR ENDED
ENDED JUNE 30, DECEMBER 31,
2006 2005 2004 2003 2002
-------------- ----------------------------------------
CLASS R SHARES
PER SHARE OPERATING DATA
Net Asset Value, beginning of period $11.11 $10.69 $ 9.89 $ 7.50 $ 10.57
- ----------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.01(a) 0.02(a) 0.07 0.01 0.01
Net realized and unrealized gains (losses) on
securities 0.07 0.47 0.73 2.38 (3.08)
---------------------------------------------------------
Total from investment operations 0.08 0.49 0.80 2.39 (3.07)
- ----------------------------------------------------------------------------------------------------------
Less dividends and distributions:
From net investment income 0.00 (0.07) 0.00 0.00 0.00
From net realized gains 0.00 0.00 0.00 0.00 0.00
---------------------------------------------------------
Total distributions 0.00 (0.07) 0.00 0.00 0.00
- ----------------------------------------------------------------------------------------------------------
Net Asset Value, end of period $11.19 $11.11 $ 10.69 $ 9.89 $ 7.50
=========================================================
TOTAL RETURN 0.72% 4.54% 8.09% 31.87% (29.04%)
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000s) $2,033 $1,982 $10,584 $8,792 $ 4,333
- ----------------------------------------------------------------------------------------------------------
Ratios to average net assets:
Expenses with reimbursements, but no earnings
credits or brokerage offsets(b) 1.02% 1.05% 1.03% 1.13% 1.30%
Expenses with reimbursements, earnings credits
and brokerage offsets 1.01% 1.04% 1.03% 1.13% 1.30%
Net investment income (loss) 0.14% 0.15% 0.65% (0.04%) (0.34%)
- ----------------------------------------------------------------------------------------------------------
Portfolio turnover rate(c) 121% 120% 107% 124% 139%
</Table>
(a.) COMPUTED USING AVERAGE SHARES OUTSTANDING THROUGHOUT THE PERIOD.
(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.
24
<Page>
<Table>
<Caption>
SIX MONTHS YEAR ENDED
ENDED JUNE 30, DECEMBER 31,
2006 2005 2004 2003 2002
-------------- -------------------------------------------
CLASS T SHARES
PER SHARE OPERATING DATA
Net Asset Value, beginning of period $10.49 $10.17 $ 9.48 $ 7.27 $ 10.38
- -------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment loss (0.06)(a) (0.10)(a) (0.02)(a) (0.30) (0.56)
Net realized and unrealized gains (losses) on
securities 0.07 0.42 0.71 2.51 (2.55)
------------------------------------------------------------
Total from investment operations 0.01 0.32 0.69 2.21 (3.11)
- -------------------------------------------------------------------------------------------------------------
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
------------------------------------------------------------
Total distributions 0.00 0.00 0.00 0.00 0.00
- -------------------------------------------------------------------------------------------------------------
Net Asset Value, end of period $10.50 $10.49 $10.17 $ 9.48 $ 7.27
============================================================
TOTAL RETURN(b) 0.10% 3.15% 7.28% 30.40% (29.96%)
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000s) $ 72 $ 71 $ 100 $ 220 $ 208
- -------------------------------------------------------------------------------------------------------------
Ratios to average net assets:
Expenses with reimbursements, but no earnings
credits or brokerage offsets(c) 2.29% 2.21% 1.79% 2.22% 2.78%
Expenses with reimbursements, earnings credits
and brokerage offsets 2.29% 2.20% 1.79% 2.22% 2.78%
Net investment loss (1.12%) (1.01%) (0.17%) (1.15%) (1.89%)
- -------------------------------------------------------------------------------------------------------------
Portfolio turnover rate(d) 121% 120% 107% 124% 139%
</Table>
(a.) COMPUTED USING AVERAGE SHARES OUTSTANDING THROUGHOUT THE PERIOD.
(b.) SALES CHARGES ARE NOT REFLECTED IN THE TOTAL RETURN.
(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>
NOTES TO FINANCIAL STATEMENTS
June 30, 2006 (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). Effective June 1, 2006,
Class B shares will no longer be offered except in connection with dividend
reinvestments and permitted exchanges of Class B shares. 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. New York closing exchange rates are used to convert foreign
currencies to U.S. dollars.
A debt security with a remaining maturity greater than 60 days at the time of
purchase is valued in accordance with the evaluated bid price supplied by a
pricing service approved by the Company's board of directors or, if such price
is not available, at the mean between the highest bid and lowest asked
quotations obtained from at least two securities dealers. A debt security with a
remaining maturity of 60 days or less at the time of purchase is valued at
amortized cost, which approximates market value, unless it is determined that
amortized cost would not represent market value, in which case the securities
would be marked to market. The Fund amortizes premiums and discounts on all debt
securities.
If market quotations 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
26
<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 requires the use of estimates, and as such,
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--The Fund may invest at least a
portion of its assets in foreign securities. Foreign securities carry more risk
than U.S. securities, such as political and currency risks. 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 Fund could be
exposed to risk if counterparties are unable to meet the terms of the contracts
or if the value of the currency changes unfavorably to the U.S. dollar. 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.
The accounting records of the Fund are maintained in U.S. dollars. The market
values of foreign securities, currency holdings and other assets and liabilities
are translated into U.S. dollars based on the current exchange rates each
business day. 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 unrealized gain or loss from investments and foreign
currency translations on the Statement of Operations.
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.
27
<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 Subchapter M 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 from
net investment income (if any) and from net realized 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.
USE OF ESTIMATES--The preparation of financial statements in conformity with
accounting principles generally accepted in the United States of America
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported amounts of
income and expenses during the reporting period. Actual results could differ
from those estimates.
INDEMNIFICATIONS--In the normal course of business, the Company enters into
contracts that contain provisions indemnifying other parties against specified
potential liabilities. Each Fund's maximum exposure under these arrangements is
unknown as this would involve future claims that may be made against the Fund
that have not yet occurred. However, based on experience, the Funds expect the
risk of loss to be remote.
OTHER--Certain prior year information has been reformatted, without substantive
change, to conform with the current year presentation.
2. FEES AND TRANSACTIONS WITH AFFILIATES
ADVISORY FEES--Founders Asset Management LLC ("Founders") serves as investment
adviser to the Fund. Founders is an indirect wholly-owned subsidiary of Mellon
Financial Corporation, a publicly-owned financial services company which
provides a comprehensive range of financial products and services in domestic
and selected international markets.
In accordance with an investment advisory agreement between the Company and
Founders, the Fund compensates Founders for its services as investment adviser
by the payment of fees computed daily and paid monthly at the annual rate equal
to a
28
<Page>
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 period ended June 30, 2006,
Class F shares were charged $152,250 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 period ended June 30, 2006, Class F shares were
charged $67,050 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 $12.92 to $13.36, 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 period ended June 30, 2006 were as
follows:
TRANSFER
AGENCY FEES
- ---------------------
Class A $ 4,470
- ---------------------
Class B $12,083
- ---------------------
Class C $ 1,214
- ---------------------
Class R $ 0
- ---------------------
Class T $ 263
- ---------------------
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 period ended June 30, 2006, the Fund was charged $2,401 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
29
<Page>
through those accounts. During the period ended June 30, 2006, the Fund paid
$81,450 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 period ended June 30,
2006, Class F shares were charged $398,628 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 period ended June 30, 2006, were as follows:
DISTRIBUTION SHAREHOLDER
FEES SERVICING FEES
- ---------------------------------------
Class A N/A $8,732
- ---------------------------------------
Class B $29,039 $9,680
- ---------------------------------------
Class C $ 5,103 $1,701
- ---------------------------------------
Class T $ 85 $ 85
- ---------------------------------------
During the period ended June 30, 2006, DSC retained $895 and $47 in sales
commissions from the sales of Class A and Class T shares, respectively. DSC also
retained $8,488 and $66 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.
30
<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, which are shown as earnings credits on the
Statement of Operations. 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
period and in the amount set forth below:
TIME PERIOD AMOUNT OF WAIVER
- ------------------------------------
9/1/05 to 8/31/06 $200,000
- ------------------------------------
The fee waiver is allocated among the Funds in proportion to their respective
shares of the total custodian fee. For the period ended June 30, 2006, the
Fund's portion of the fee waiver was $0. The amount paid to Mellon Bank was
$6,838.
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 Directors'
Deferred Compensation on the Statement of Assets and Liabilities. Changes in
market value are included in the Directors' fees and expenses and the net change
in unrealized appreciation/depreciation of investments on the Statement of
Operations. 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
or its affiliates, which pay their compensation. The affairs of the Fund,
including services provided by Founders, are subject to the supervision and
general oversight of the Company's board of directors.
OTHER--During the period ended June 30, 2006, Founders reimbursed the Fund
$11,089 for a trading error. This amount is not material to the fund.
3. FEDERAL TAX INFORMATION
Net investment income and capital gains distributions are determined in
accordance with income tax regulations that may differ from accounting
principles generally accepted in the United States of America. These differences
are due to differing treatments for items such as deferral of wash sale losses,
deferred compensation, 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, 2005
31
<Page>
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, 2005 were:
EXPIRATION AMOUNT
-------------------------
2009 $481,174,758
-------------------------
2010 $209,975,954
-------------------------
$691,150,712
============
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, 2006 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.
----------------------------------------------------
Post-October Capital Loss Deferral $ (947,792)
----------------------------------------------------
Federal Tax Cost $305,689,282
----------------------------------------------------
Gross Tax Appreciation of Investments $ 18,277,604
----------------------------------------------------
Gross Tax Depreciation of Investments $(11,709,815)
----------------------------------------------------
Net Tax Appreciation $ 6,567,789
----------------------------------------------------
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>
PERIOD ENDED YEAR ENDED
JUNE 30, 2006 DECEMBER 31, 2005
SHARES AMOUNT SHARES AMOUNT
CLASS A
- ---------------------------------------------------------------------------------------
Sold 331,885 $ 3,774,944 56,086 $ 588,334
Dividends or Distributions Reinvested 0 $ 0 1,577 $ 17,366
Redeemed (59,099) $ (663,785) (156,471) $(1,637,810)
-----------------------------------------------
Net Increase (Decrease) 272,786 $ 3,111,159 (98,808) $(1,032,110)
===============================================
CLASS B
- ---------------------------------------------------------------------------------------
Sold 4,745 $ 50,617 13,206 $ 130,840
Redeemed (402,265) $(4,369,277) (317,903) $(3,180,356)
-----------------------------------------------
Net Decrease (397,520) $(4,318,660) (304,697) $(3,049,516)
===============================================
</Table>
32
<Page>
<Table>
<Caption>
PERIOD ENDED YEAR ENDED
JUNE 30, 2006 DECEMBER 31, 2005
SHARES AMOUNT SHARES AMOUNT
CLASS C
- ------------------------------------------------------------------------------------------------
Sold 9,489 $ 103,014 7,980 $ 80,497
Redeemed (18,996) $ (202,105) (63,320) $ (632,976)
--------------------------------------------------------
Net Decrease (9,507) $ (99,091) (55,340) $ (552,479)
========================================================
CLASS F
- ------------------------------------------------------------------------------------------------
Sold 714,226 $ 8,075,169 1,864,857 $ 19,477,463
Dividends or Distributions Reinvested 0 $ 0 107,799 $ 1,193,334
Redeemed (4,154,920) $(46,871,002) (10,161,828) $(106,690,262)
--------------------------------------------------------
Net Decrease (3,440,694) $(38,795,833) (8,189,172) $ (86,019,465)
========================================================
CLASS R
- ------------------------------------------------------------------------------------------------
Sold 26,469 $ 303,990 323,673 $ 3,445,896
Dividends or Distributions Reinvested 0 $ 0 1,182 $ 13,251
Redeemed (23,158) $ (265,062) (1,136,441) $ (12,546,288)
--------------------------------------------------------
Net Increase (Decrease) 3,311 $ 38,928 (811,586) $ (9,087,141)
========================================================
CLASS T
- ------------------------------------------------------------------------------------------------
Sold 802 $ 8,802 189 $ 1,893
Redeemed (712) $ (7,701) (3,345) $ (33,173)
--------------------------------------------------------
Net Increase (Decrease) 90 $ 1,101 (3,156) $ (31,280)
========================================================
</Table>
5. INVESTMENT TRANSACTIONS
For the period ended June 30, 2006, purchases and sales of investment securities
(excluding short-term securities and U.S. government obligations) were
$202,943,314 and $254,389,682 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, 2006, the Fund did not have any borrowings under the LOC.
33
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<Page>
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<Page>
For More Information
DREYFUS FOUNDERS
GROWTH FUND
MANAGER
Founders Asset
Management LLC
210 University Boulevard
Suite 800
Denver, CO 80206
TRANSFER AGENT &
DIVIDEND DISBURSING AGENT
Dreyfus Transfer, Inc.
200 Park Avenue
New York, NY 10166
DISTRIBUTOR
Dreyfus Service Corporation
200 Park Avenue
New York, NY 10166
TELEPHONE Call your financial representative or 1-800-554-4611
MAIL Dreyfus Founders Funds, Inc.
144 Glenn Curtiss Boulevard, Uniondale, NY 11556-0144
The fund files its complete schedule of portfolio holdings with the Securities
and Exchange Commission ("SEC") for the first and third quarters of each fiscal
year on Form N-Q. The fund's Forms N-Q are available on the SEC's website at
http://www.sec.gov and may be reviewed and copied at the SEC's Public Reference
Room in Washington, DC. Information on the operation of the Public Reference
Room may be obtained by calling 1-202-551-8090.
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, 2006, 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.
(C) 2006 Founders Asset Management LLC
0213SA0606
<Page>
DREYFUS FOUNDERS
INTERNATIONAL
EQUITY FUND
SEMIANNUAL REPORT JUNE 30, 2006
[DREYFUS LOGO]
A MELLON FINANCIAL COMPANY(SM)
<Page>
TABLE OF CONTENTS
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
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
Founders Asset Management LLC
A MELLON FINANCIAL COMPANY(SM)
210 University Boulevard, Suite 800
Denver, CO 80206
DISTRIBUTOR
Dreyfus Service Corporation
200 Park Avenue
New York, NY 10166
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, 2006. The amounts of
these holdings are included in the Statement of Investments.
NOT FDIC-INSURED - NOT BANK-GUARANTEED - MAY LOSE VALUE
<Page>
MANAGEMENT OVERVIEW
(UNAUDITED)
[PHOTO OF REMI J. BROWNE]
[PHOTO OF JEFFREY R. SULLIVAN]
A DISCUSSION WITH CO-PORTFOLIO MANAGERS REMI J. BROWNE, CFA, LEFT, AND JEFFREY
R. SULLIVAN, CFA, REGARDING FUND PERFORMANCE FOR THE SIX-MONTH PERIOD ENDED JUNE
30, 2006.
VOLATILE MARKETS
During the period, international equity markets continued their three-year
rally. Merger-and-acquisition (M&A) activity increased and strong earnings
announcements overcame significant tightening in global monetary policy.
Investor sentiment was boosted by benign inflation, historically low interest
rates and an ongoing economic expansion, primarily driven by the United States.
However, later in the period, investors became concerned about numerous economic
issues that prompted a reversal in global markets. These macroeconomic issues
included a slowdown in the housing market, U.S. dollar weakness, rising consumer
prices and the continued interest rate increases by the Federal Reserve and a
move away from quantitative easing by the Bank of Japan. Against this backdrop,
global equity markets suffered a major sell-off beginning in the middle of May
and lasting until mid-June.
For the six-month period ended June 30, 2006, Dreyfus Founders
International Equity Fund underperformed its benchmark, the Morgan Stanley
Capital International (MSCI) World ex U.S. Index, which returned 10.06%, during
the same period, but outperformed(1) its other benchmark, the MSCI World ex U.S.
Growth Index, which returned 9.35%.
STOCK-BY-STOCK STRATEGY REMAINED IN PLACE
The positioning of the Fund was not substantially altered during the period, as
we continued our investment
"OUR STOCK-PICKING STRATEGY PROVED BENEFICIAL TO
THE FUND ON A RELATIVE BASIS..."
- ----------
(1) Excluding sales charges, which result in lower returns for certain share
classes. Please see page 7 for Average Annual and Year-to-Date 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 securities prices and
reinvestment of dividends, but do not reflect the costs of managing a
mutual fund.
3
<Page>
strategy of picking stocks whose growth potential was high and whose valuations
were attractive. Our stock-picking strategy proved beneficial to the Fund on a
relative basis, as stock selection overall was a boon to the Fund's return.
COUNTRIES BOOSTED RELATIVE PERFORMANCE
For the six-month period, the United Kingdom (U.K.) and Germany provided the
largest positive impact to relative Fund performance due to strong stock
selection. German equities rallied as the IFO business sentiment index hit new
highs, companies began to invest in personnel again and a more business-friendly
government was put in place.
Favorable stock selection in Hong Kong and a substantial relative
overweight position in oil-exporting Norway also boosted the Fund's return for
the period.
MATERIALS AND FINANCIALS OUTPACED OTHER FUND SECTORS
The materials sector was the strongest performing sector in the Fund, as
commodity prices experienced strong appreciation during the period. Increased
M&A activity aided the sector, with large bids indicating the robust metals
cycle was expected to continue. Diversified mining stocks also held up during
the period after tremendous price appreciation during 2005. Within the Fund,
several top-performing holdings came from the materials sector. The U.K.-based
metals and mining company XSTRATA PLC had a strong run as the company benefited
not only from the solid pricing environment, but also by making quality,
strategic acquisitions. BHP BILLITON LIMITED, an Australian company which is the
largest diversified mining firm in the world, rallied as copper, zinc and iron
ore prices continued to defy gravity and reached new highs. THYSSENKRUPP AG
benefited from the merger of France's Arcelor SA and Mittal Steel Company N.V.
The $30 billion merger put many steel companies in focus as potential takeover
candidates.
The Fund's strong stock picking was also made evident in the performance of
the financials sector within the Fund. Dutch financials giant ING GROEP N.V.
performed well during the period, as a result of healthy demand in the corporate
insurance lines and solid performance within ING Direct and its retail banking
division. The firm also released first quarter 2006 results that were better
than expected, and the shares of the company advanced as a result.
4
<Page>
SECTORS BENEFITING THE FUND
Materials
Telecommunication Services
Financials
OTHER IMPORTANT CONTRIBUTORS
Other notable performers during the period include information technology (IT)
issue CANON, INC. and health care holding Schering AG. Japanese firm Canon
experienced stronger-than-expected demand in the United States for its products.
American sales were up 14.6% year-on-year in the first quarter, driven by
increased demand for laser printers. German pharmaceuticals provider Schering AG
benefited from a bidding war for the company. The stock rose 50% during the
period and the Fund sold its position, as it appeared the risk/reward trade-off
no longer favored holding the shares.
COUNTRY-SPECIFIC STOCK-PICKING WEIGHED ON PERFORMANCE
When viewing country-specific performance within the Fund, the main detractor
overall was weak stock selection, primarily in Sweden, Denmark, Spain and
France.
LARGEST EQUITY HOLDINGS (country of origin; ticker symbol)
1. GLAXOSMITHKLINE PLC (United Kingdom; GSK) 3.08%
2. ROCHE HOLDING AG (Switzerland; RO.G) 2.88%
3. BHP BILLITON LIMITED (Australia; BHP) 2.71%
4. SANOFI-AVENTIS (France; SAN) 2.41%
5. BP PLC (United Kingdom; BP) 2.30%
6. ING GROEP NV (Netherlands; ING.C) 2.24%
7. CANON, INC. (Japan; 7751) 2.07%
8. SONY CORPORATION (Japan; 6758) 1.81%
9. BRITISH AMERICAN TOBACCO PLC (United Kingdom; BATS) 1.76%
10. HONDA MOTOR COMPANY LIMITED (Japan; 7267) 1.75%
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]
<Table>
<Caption>
DREYFUS
FOUNDERS
INTERNATIONAL MSCI
EQUITY WORLD EX
FUND-CLASS F U.S. INDEX
------------ -----------
6/28/1996 $10,000 $10,000
6/30/1997 $12,051 $11,353
6/30/1998 $14,708 $12,068
6/30/1999 $15,122 $12,957
6/30/2000 $21,628 $15,392
6/29/2001 $14,674 $11,723
6/28/2002 $11,127 $10,618
6/30/2003 $ 9,828 $10,026
6/30/2004 $13,282 $13,229
6/30/2005 $15,276 $15,154
6/30/2006 $19,319 $19,229
</Table>
The above graph compares a $10,000 investment made in Class F shares of Dreyfus
Founders International Equity Fund on 6/30/96 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 6/30/06
YEAR-TO- 1 5 10 SINCE
CLASS (Inception Date) DATE+ YEAR YEARS YEARS INCEPTION
- ------------------------------------------------------------------------
A SHARES (12/31/99)
With sales charge (5.75%) 3.44% 19.13% 4.35% -- (3.11%)
Without sales charge 9.75% 26.42% 5.59% -- (2.22%)
B SHARES (12/31/99)
With redemption* 5.38% 21.56% 4.49% -- (2.95%)
Without redemption 9.38% 25.56% 4.82% -- (2.95%)
C SHARES (12/31/99)
With redemption** 8.40% 24.62% 4.80% -- (2.98%)
Without redemption 9.40% 25.62% 4.80% -- (2.98%)
F SHARES (12/29/95) 9.81% 26.46% 5.65% 6.81% 7.86%
R SHARES (12/31/99) 9.95% 26.85% 5.94% -- (1.93%)
T SHARES (12/31/99)
With sales charge (4.50%) 4.71% 20.55% 4.39% -- (3.15%)
Without sales charge 9.65% 26.22% 5.36% -- (2.46%)
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, expense limitations, and adjustments for financial
statement purposes. 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>
INDUSTRIALS, CONSUMER DISCRETIONARY AND ENERGY STOCKS HURT FUND
With global growth potentially peaking, analysts began to downgrade the
industrials sector by the end of the period. International capital goods
companies faced rising global interest rates, currency strength and a more
mature economic cycle. These underlying issues, combined with poor stock
selection, caused industrials to have the biggest negative impact on the Fund
during the first half of 2006. EADS, a French-listed aerospace company,
announced a profit warning in June as delays of the new Airbus A380 series of
commercial jets will negatively impact earnings going forward. A.P.
Moller-Maersk A/S, the Danish chartered shipping vessel operator, was unable to
grow its share price during the period. Costs increased faster than anticipated,
primarily due to the price of bunker fuel, which weighed on profitability across
the board.
SECTORS DETRACTING FROM THE FUND
Industrials
Consumer Discretionary
Energy
Poor stock selection in the consumer discretionary and energy sectors also
weighed on relative performance. Japanese home appliances and computer retailer
Yamada Denki Company Limited's stock price fell as a result of profit taking.
Oil- and gas-services provider TRICAN WELL SERVICE LIMITED released fourth
[CHART]
<Table>
<Caption>
PORTFOLIO COMPOSITION OF NET ASSETS
20.39% Japan
20.19% United Kingdom
10.09% France
8.00% Switzerland
7.80% Germany
5.99% Canada
4.69% Australia
3.56% Netherlands
3.22% Spain
3.13% Italy
11.49% Other Countries
1.45% Cash & Equivalents
</Table>
The Fund's portfolio composition is subject to change, and there is no assurance
the Fund will continue to hold any particular security. Opinions regarding
sectors, industries, companies, and/or themes are those of the portfolio
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>
quarter 2005 results that were in line with forecasts. The stock, however,
dropped as a result of the deterioration in North American gas prices.
UNDERPERFORMERS FOUND IN STRONGER SECTORS
Underperforming stocks were also found in the Fund's strong-performing
financials and health care sectors. ORIX CORPORATION, the Japanese direct
finance lease and operating lease provider, saw its stock price fall as the firm
was hindered by delays in real-estate transactions between Orix and subsidiary
Orix Jreit. Pharmaceutical manufacturer MERCK KGAA experienced weakness in its
share price due to increased competition in a market segment and a failed
acquisition bid for Schering AG.
We have been cautiously optimistic regarding international markets due to
the relatively strong returns generated by the world's big exporters, Japan and
Germany, and the seemingly limitless appetite for commodity stocks. We believe
the pullback in equity markets experienced between May 11 and June 13 was likely
a cyclical correction, not the beginning of a secular bear market. Economic
fundamentals have improved across Europe and Japan, which should help offset a
slowdown in U.S. consumption.
As always, our focus is on seeking companies with improving business
momentum and attractive valuations, regardless of sector or country, or the
direction of the market.
/s/ Remi J. Browne, /s/ Jeffrey R. Sullivan,
- ------------------------------------- ----------------------------------------
Remi J. Browne, CFA Jeffrey R. Sullivan, 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, 2006
and held through June 30, 2006.
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, together with the amount you
invested, 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
BEGINNING ENDING EXPENSES PAID
ACCOUNT VALUE ACCOUNT VALUE DURING PERIOD*
(1/1/06) (6/30/06) (1/1/06-6/30/06)
- -----------------------------------------------------------------------
CLASS A ACTUAL $1,000.00 $1,097.50 $ 7.28
CLASS A HYPOTHETICAL 1,000.00 1,017.77 7.03
CLASS B ACTUAL 1,000.00 1,093.80 11.16
CLASS B HYPOTHETICAL 1,000.00 1,014.00 10.79
CLASS C ACTUAL 1,000.00 1,094.00 11.16
CLASS C HYPOTHETICAL 1,000.00 1,014.00 10.79
CLASS F ACTUAL 1,000.00 1,098.10 7.28
CLASS F HYPOTHETICAL 1,000.00 1,017.77 7.03
CLASS R ACTUAL 1,000.00 1,099.50 5.99
CLASS R HYPOTHETICAL 1,000.00 1,019.02 5.77
CLASS T ACTUAL 1,000.00 1,096.50 8.58
CLASS T HYPOTHETICAL 1,000.00 1,016.51 8.28
* 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.
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%
11
<Page>
STATEMENT OF INVESTMENTS
June 30, 2006 (UNAUDITED)
SHARES MARKET VALUE
- --------------------------------------------------------------------------------
COMMON STOCKS (FOREIGN)--94.5%
ADVERTISING--0.6%
21,300 WPP Group PLC (UK) $ 257,784
----------
AIRLINES--1.1%
73,800 British Airways PLC (UK)* 467,732
----------
ALUMINUM--0.8%
7,500 Alcan, Inc. (CA) 351,317
----------
APPAREL, ACCESSORIES & LUXURY GOODS--1.4%
8,400 Compagnie Financiere Richemont AG (SZ) 384,754
4,500 Gildan Activewear, Inc. (CA)* 212,806
----------
597,560
----------
APPLICATION SOFTWARE--0.6%
1,250 SAP AG (GE) 263,654
----------
AUTOMOBILE MANUFACTURERS--1.7%
23,400 Honda Motor Company Limited (JA) 742,240
----------
BIOTECHNOLOGY--1.1%
11,900 CSL Limited (AU) 475,310
----------
BREWERS--3.4%
7,400 Heineken NV (NE) 313,776
12,600 InBev NV (BE) 618,074
13,400 Kirin Brewery Company Limited (JA) 210,648
6,600 Orkla ASA (NW) 305,884
----------
1,448,382
----------
BROADCASTING & CABLE TV--0.6%
9,800 Shaw Communications, Inc. Class B (CA) 276,978
----------
COMMUNICATIONS EQUIPMENT--2.2%
109,000 Foxconn International Holdings Limited (HK)* 232,981
34,000 Nokia Oyj (FI) 694,091
----------
927,072
----------
COMPUTER HARDWARE--1.4%
45,000 Fujitsu Limited (JA) 348,785
35,000 Toshiba Corporation (JA) 228,460
----------
577,245
----------
AU Australia
AT Austria
BE Belgium
CA Canada
DE Denmark
FI Finland
FR France
GE Germany
GR Greece
HK Hong Kong
IE Ireland
IT Italy
JA Japan
KR South Korea
NE Netherlands
NW Norway
PT Portugal
SG Singapore
SP Spain
SW Sweden
SZ Switzerland
UK United Kingdom
12
<Page>
SHARES MARKET VALUE
- --------------------------------------------------------------------------------
CONSTRUCTION & ENGINEERING--1.1%
11,100 ACS, Actividades de Construccion y Servicios SA (SP) $ 462,997
----------
CONSTRUCTION MATERIALS--0.9%
30,400 Rinker Group Limited (AU) 370,258
----------
CONSUMER ELECTRONICS--2.9%
22,000 Matsushita Electric Industrial Company Limited (JA) 464,261
17,400 Sony Corporation (JA) 767,826
----------
1,232,087
----------
CONSUMER FINANCE--0.8%
1,440 Orix Corporation (JA) 351,695
----------
DEPARTMENT STORES--0.5%
1,700 PPR SA (FR) 216,795
----------
DISTILLERS & VINTNERS--0.7%
18,300 Diageo PLC (UK) 307,763
----------
DIVERSIFIED BANKS--7.3%
82,600 Banca Intesa SPA (IT) 483,894
15,400 Banco Santander Central Hispano SA (SP) 224,953
19,919 Barclays PLC (UK) 226,336
5,607 BNP Paribas SA (FR) 536,818
34,300 Capitalia SPA (IT) 281,446
18,200 HBOS PLC (UK) 316,346
12,700 HSBC Holdings PLC (UK) 223,448
6,700 Royal Bank of Scotland Group PLC (UK) 220,277
3,900 Societe Generale (FR) 573,676
----------
3,087,194
----------
DIVERSIFIED CAPITAL MARKETS--2.4%
13,100 Credit Suisse Group (SZ) 732,897
2,470 UBS AG (SZ) 270,718
----------
1,003,615
----------
DIVERSIFIED CHEMICALS--1.2%
6,300 BASF AG (GE) 505,579
----------
DIVERSIFIED METALS & MINING--6.4%
53,400 BHP Billiton Limited (AU) 1,150,777
6,100 Teck Cominco Limited Class B (CA) 366,011
20,900 Vedanta Resources PLC (UK) 526,751
17,900 Xstrata PLC (UK) 678,532
----------
2,722,071
----------
ELECTRIC UTILITIES--1.8%
2,000 E.ON AG (GE) 230,238
104,300 International Power PLC (UK) 548,694
----------
778,932
----------
ELECTRICAL COMPONENTS & EQUIPMENT--2.1%
3,300 Schneider Electric SA (FR) 344,014
38,000 Sumitomo Electric Industries Limited (JA) 556,519
----------
900,533
----------
SEE NOTES TO STATEMENT OF INVESTMENTS.
13
<Page>
SHARES MARKET VALUE
- --------------------------------------------------------------------------------
ELECTRONIC EQUIPMENT MANUFACTURERS--0.5%
3,100 TDK Corporation (JA) $ 235,669
----------
FOOD RETAIL--1.0%
5,900 Delhaize Group (BE) 409,030
----------
HEAVY ELECTRICAL EQUIPMENT--1.2%
66,300 Mitsubishi Electric Corporation (JA) 531,257
----------
HOTELS, RESORTS & CRUISE LINES--0.6%
60,000 First Choice Holidays PLC (UK) 253,791
----------
HUMAN RESOURCE & EMPLOYMENT SERVICES--0.6%
36,300 Michael Page International PLC (UK) 235,265
----------
INDUSTRIAL MACHINERY--1.4%
9,600 Atlas Copco AB Class A (SW) 266,785
4,300 Man AG (GE) 311,747
----------
578,532
----------
INTEGRATED OIL & GAS--5.6%
35,100 BG Group PLC (UK) 468,930
83,819 BP PLC (UK) 977,217
7,200 Repsol YPF SA (SP) 206,201
7,400 Royal Dutch Shell PLC Class A (NE) 249,038
7,332 Total SA (FR) 482,517
----------
2,383,903
----------
INTEGRATED TELECOMMUNICATION SERVICES--2.8%
79,400 BT Group PLC (UK) 351,266
28,600 Telefonica SA (SP) 476,301
29,400 Telenor ASA (NW) 355,403
----------
1,182,970
----------
INVESTMENT BANKING & BROKERAGE--2.1%
33,300 Daiwa Securities Group, Inc. (JA) 396,900
25,600 Nomura Holdings, Inc. (JA) 479,832
----------
876,732
----------
LIFE & HEALTH INSURANCE--0.5%
7,200 Manulife Financial Corporation (CA) 228,132
----------
MOVIES & ENTERTAINMENT--1.6%
19,700 Vivendi SA (FR) 690,432
----------
MULTI-LINE INSURANCE--1.8%
16,200 Aviva PLC (UK) 229,310
3,900 Baloise Holding Limited (SZ) 299,693
1,100 Zurich Financial Services AG (SZ) 241,125
----------
770,128
----------
OFFICE ELECTRONICS--2.1%
18,000 Canon, Inc. (JA) 882,384
----------
OIL & GAS DRILLING--0.5%1
6,300 Precision Drilling Trust (CA) 209,379
----------
14
<Page>
SHARES MARKET VALUE
- --------------------------------------------------------------------------------
OIL & GAS EQUIPMENT & SERVICES--0.6%
12,000 Trican Well Service Limited (CA) $ 239,721
----------
OIL & GAS EXPLORATION & PRODUCTION--2.0%
19,200 Eni SPA (IT) 565,587
11,000 Norsk Hydro ASA (NW) 291,571
----------
857,158
----------
OTHER DIVERSIFIED FINANCIAL SERVICES--2.2%
24,200 ING Groep NV (NE) 951,223
----------
PACKAGED FOODS & MEATS--0.6%
790 Nestle SA Registered (SZ) 248,127
----------
PAPER PACKAGING--0.5%
25,500 Rengo Company Limited (JA) 192,743
----------
PHARMACEUTICALS--10.6%
4,000 AstraZeneca Group PLC (UK) 241,420
46,900 GlaxoSmithKline PLC (UK) 1,310,390
5,180 Merck KGaA (GE) 471,752
7,420 Roche Holding AG (SZ) 1,226,552
10,500 Sanofi-Aventis (FR) 1,024,751
3,500 Takeda Pharmaceuticals Company Limited (JA) 217,756
----------
4,492,621
----------
RAILROADS--1.1%
11,000 Canadian National Railway Company (CA) 480,480
----------
SEMICONDUCTOR EQUIPMENT--2.3%
7,000 Silicon-On-Insulator Technologies (FR)* 207,099
3,700 Sumco Corporation (JA) 210,800
8,000 Tokyo Electron Limited (JA) 559,245
----------
977,144
----------
SEMICONDUCTORS--0.4%
12,700 ATI Technologies, Inc. (CA)* 184,533
----------
SOFT DRINKS--0.9%
12,900 Coca-Cola Hellenic Bottling Company SA (GR) 384,459
----------
STEEL--0.8%
10,300 ThyssenKrupp AG (GE) 351,765
----------
TIRES & RUBBER--1.2%
5,100 Continental AG (GE) 522,003
----------
TOBACCO--1.8%
29,700 British American Tobacco PLC (UK) 747,992
----------
TRADING COMPANIES & DISTRIBUTORS--2.4%
30,900 Mitsubishi Corporation (JA) 616,974
28,000 Mitsui & Company Limited (JA) 395,386
----------
1,012,360
----------
SEE NOTES TO STATEMENT OF INVESTMENTS.
15
<Page>
SHARES MARKET VALUE
- --------------------------------------------------------------------------------
WIRELESS TELECOMMUNICATION SERVICES--1.8%
4,200 Bouygues SA (FR) $ 215,963
96,900 China Mobile Limited (HK) 553,978
-----------
769,941
-----------
TOTAL COMMON STOCKS (FOREIGN)
(COST--$30,853,577) 40,204,667
-----------
PREFERRED STOCKS (FOREIGN)--1.6%
HEALTHCARE EQUIPMENT--1.6%
3,970 Fresenius AG Preferred (GE) 661,108
-----------
TOTAL PREFERRED STOCKS (FOREIGN)
(COST--$597,066) 661,108
-----------
PRINCIPAL AMOUNT AMORTIZED COST
- --------------------------------------------------------------------------------
CORPORATE SHORT-TERM NOTES--3.3%
SPECIAL PURPOSE ENTITY--3.3%
$1,400,000 CAFCO LLC 5.33% 7/3/06~ $ 1,399,585
-----------
TOTAL CORPORATE SHORT-TERM NOTES
(AMORTIZED COST--$1,399,585) 1,399,585
-----------
TOTAL INVESTMENTS--99.4%
(TOTAL COST--$32,850,228) 42,265,360
-----------
OTHER ASSETS AND LIABILITIES--0.6% 268,894
-----------
NET ASSETS--100.0% $42,534,254
===========
NOTES TO STATEMENT OF INVESTMENTS
* NON-INCOME PRODUCING.
~ SECURITY WAS ACQUIRED PURSUANT TO SECTION 4(2) OF THE SECURITIES ACT OF
1933 AND MAY BE DEEMED TO BE RESTRICTED FOR RESALE. THESE SECURITIES
AMOUNTED TO $1,399,585, OR 3.3%, OF THE FUND'S NET ASSETS AS OF JUNE 30,
2006.
SEE NOTES TO FINANCIAL STATEMENTS.
16
<Page>
STATEMENT OF ASSETS AND LIABILITIES
June 30, 2006 (UNAUDITED)
ASSETS
- --------------------------------------------------------------------------------
Investment securities, at cost $ 32,850,228
-------------
Investment securities, at market 42,265,360
Cash 136,846
Foreign currency (cost $-759) 240
Cash used for collateral on futures 43,124
Receivables:
Investment securities sold 701,063
Capital shares sold 8,295
Dividends and interest 42,511
From adviser 18,424
Daily variation on futures contracts 17,207
Other assets 55,558
-------------
Total Assets 43,288,628
-------------
LIABILITIES
- --------------------------------------------------------------------------------
Payables and other accrued liabilities:
Investment securities purchased 608,512
Capital shares redeemed 53,801
Advisory fees 25,483
Shareholder servicing fees 7,998
Accounting fees 3,396
Distribution fees 4,428
Transfer agency fees 11,247
Custodian fees 325
To transfer agent 174
Directors' deferred compensation 11,874
Other 27,136
-------------
Total Liabilities 754,374
-------------
Net Assets $ 42,534,254
=============
COMPOSITION OF NET ASSETS
- --------------------------------------------------------------------------------
Capital (par value and paid-in surplus) $ 55,468,923
Undistributed net investment income 324,078
Accumulated net realized loss from security
and foreign currency transactions (22,723,251)
Net unrealized appreciation on investments
and foreign currency translation 9,464,504
-------------
Total $ 42,534,254
=============
SEE NOTES TO FINANCIAL STATEMENTS.
17
<Page>
CLASS A
- --------------------------------------------------------------------------------
Net Assets $27,669,809
Shares Outstanding 1,875,571
Net Asset Value, Redemption Price Per Share $ 14.75
Maximum offering price per share (net asset value
plus sales charge of 5.75% of offering price) $ 15.65
CLASS B
- --------------------------------------------------------------------------------
Net Assets $ 1,420,229
Shares Outstanding 98,937
Net Asset Value, Offering and Redemption Price (excluding
applicable contingent deferred sales charge) Per Share $ 14.35
CLASS C
- --------------------------------------------------------------------------------
Net Assets $ 587,589
Shares Outstanding 41,039
Net Asset Value, Offering and Redemption Price (excluding
applicable contingent deferred sales charge) Per Share $ 14.32
CLASS F
- --------------------------------------------------------------------------------
Net Assets $12,599,081
Shares Outstanding 852,522
Net Asset Value, Offering and Redemption Price Per Share $ 14.78
CLASS R
- --------------------------------------------------------------------------------
Net Assets $ 85,190
Shares Outstanding 5,711
Net Asset Value, Offering and Redemption Price Per Share $ 14.92
CLASS T
- --------------------------------------------------------------------------------
Net Assets $ 172,356
Shares Outstanding 11,759
Net Asset Value, Redemption Price Per Share $ 14.66
Maximum offering price per share (net asset value
plus sales charge of 4.50% of offering price) $ 15.35
SEE NOTES TO FINANCIAL STATEMENTS.
18
<Page>
STATEMENT OF OPERATIONS
For the six months ended June 30, 2006 (UNAUDITED)
INVESTMENT INCOME
- --------------------------------------------------------------------------------
Dividends $ 713,697
Interest 7,182
Foreign taxes withheld (88,224)
-----------
Total Investment Income 632,655
-----------
EXPENSES
- --------------------------------------------------------------------------------
Advisory fees--Note 2 211,190
Shareholder servicing fees--Note 2 48,854
Accounting fees--Note 2 21,117
Distribution fees--Note 2 24,454
Transfer agency fees--Note 2 27,974
Registration fees 31,030
Postage and mailing expenses 1,176
Custodian fees and expenses--Note 2 26,779
Printing expenses 16,570
Legal and audit fees 7,980
Directors' fees and expenses--Note 2 4,907
Other expenses 18,060
-----------
Total Expenses 440,091
Earnings Credits (2,305)
Reimbursed/Waived Expenses (127,244)
Expense Offset to Broker Commissions (6,075)
-----------
Net Expenses 304,467
-----------
Net Investment Income 328,188
-----------
REALIZED AND UNREALIZED GAIN (LOSS) ON SECURITY
TRANSACTIONS AND FOREIGN CURRENCY TRANSACTIONS
- --------------------------------------------------------------------------------
Net Realized Gain (Loss) on:
Security Transactions 4,603,253
Closing of Futures Contracts (46,414)
Foreign Currency Transactions 2,757
-----------
Net Realized Gain 4,559,596
Net Change in Unrealized Appreciation/Depreciation
of Investments and Foreign Currency Translation (1,005,526)
-----------
Net Realized and Unrealized Gain 3,554,070
-----------
Net Increase in Net Assets Resulting from Operations $ 3,882,258
===========
SEE NOTES TO FINANCIAL STATEMENTS.
19
<Page>
STATEMENTS OF CHANGES IN NET ASSETS
(UNAUDITED)
<Table>
<Caption>
SIX MONTHS ENDED YEAR ENDED
OPERATIONS JUNE 30, 2006 DECEMBER 31, 2005
- -----------------------------------------------------------------------------------------
Net Investment Income $ 328,188 $ 336,399
Net Realized Gain on Security and Foreign
Currency Transactions 4,559,596 3,931,706
Net Change in Unrealized Appreciation/Depreciation
of Investments and Foreign Currency Translation (1,005,526) 683,031
---------------- -----------------
Net Increase in Net Assets Resulting from
Operations 3,882,258 4,951,136
---------------- -----------------
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS
- -----------------------------------------------------------------------------------------
From Net Investment Income
Class A 0 (221,917)
Class B 0 (3,527)
Class C 0 (1,574)
Class F 0 (100,227)
Class R 0 (750)
Class T 0 (912)
---------------- -----------------
Net Decrease from Dividends and Distributions 0 (328,907)
---------------- -----------------
CAPITAL SHARE TRANSACTIONS
- -----------------------------------------------------------------------------------------
Net Increase (Decrease)--Note 4
Class A (346,830) (2,546,598)
Class B (729,564) (529,010)
Class C (50,302) 42,438
Class F (13,564) (729,040)
Class R 8,426 (4,365)
Class T 16,642 (48,533)
---------------- -----------------
Net Decrease from Capital Share Transactions (1,115,192) (3,815,108)
---------------- -----------------
Net Increase in Net Assets 2,767,066 807,121
---------------- -----------------
NET ASSETS
- -----------------------------------------------------------------------------------------
Beginning of Period $ 39,767,188 $38,960,067
---------------- -----------------
End of Period $ 42,534,254 $39,767,188
================ =================
Undistributed (Accumulated) Net Investment
Income (Loss) $ 324,078 $ (4,110)
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
20
<Page>
FINANCIAL HIGHLIGHTS
(UNAUDITED)
<Table>
<Caption>
SIX MONTHS YEAR ENDED
ENDED JUNE 30, DECEMBER 31,
2006 2005 2004 2003 2002
-------------- --------------------------------------
CLASS A SHARES
PER SHARE OPERATING DATA
Net Asset Value, beginning of period $ 13.44 $ 11.90 $ 9.77 $ 7.19 $ 10.03
- ------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.12 0.12 0.08 0.06 0.01
Net realized and unrealized gains (losses) on
securities 1.19 1.54 2.14 2.59 (2.84)
-------------------------------------------------------
Total from investment operations 1.31 1.66 2.22 2.65 (2.83)
- ------------------------------------------------------------------------------------------------------------
Less dividends and distributions:
From net investment income 0.00 (0.12) (0.09) (0.07) (0.01)
From net realized gains 0.00 0.00 0.00 0.00 0.00
-------------------------------------------------------
Total distributions 0.00 (0.12) (0.09) (0.07) (0.01)
- ------------------------------------------------------------------------------------------------------------
Net Asset Value, end of period $ 14.75 $ 13.44 $ 11.90 $ 9.77 $ 7.19
=======================================================
TOTAL RETURN(a) 9.75% 13.93% 22.69% 36.84% (28.19%)
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000s) $27,670 $25,519 $25,076 $22,432 $18,217
- ------------------------------------------------------------------------------------------------------------
Ratios to average net assets:
Expenses with reimbursements, but no earnings
credits or brokerage offsets(b) 1.44% 1.44% 1.42% 1.41% 1.40%
Expenses with reimbursements, earnings credits and
brokerage offsets 1.40% 1.40% 1.40% 1.40% 1.40%
Net investment income 1.60% 0.94% 0.74% 0.80% 0.13%
- ------------------------------------------------------------------------------------------------------------
Portfolio turnover rate(c) 68% 54% 85% 144% 220%
</Table>
(a.) SALES CHARGES ARE NOT REFLECTED IN THE TOTAL RETURN.
(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 2.00% (2006), 2.15% (2005), 2.05% (2004), 2.48%
(2003) AND 2.18% (2002).
(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.
21
<Page>
<Table>
<Caption>
SIX MONTHS YEAR ENDED
ENDED JUNE 30, DECEMBER 31,
2006 2005 2004 2003 2002
-------------- ------ ------ ------ ---------
CLASS B SHARES
PER SHARE OPERATING DATA
Net Asset Value, beginning of period $13.12 $11.63 $ 9.55 $ 7.03 $ 9.87
- -------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) 0.04(a) 0.02(a) 0.00(a, b) (0.08) (0.11)
Net realized and unrealized gains (losses) on
securities 1.19 1.49 2.08 2.61 (2.73)
--------------------------------------------------------------
Total from investment operations 1.23 1.51 2.08 2.53 (2.84)
- -------------------------------------------------------------------------------------------------------------------
Less dividends and distributions:
From net investment income 0.00 (0.02) 0.00 (0.01) 0.00
From net realized gains 0.00 0.00 0.00 0.00 0.00
--------------------------------------------------------------
Total distributions 0.00 (0.02) 0.00 (0.01) 0.00
- -------------------------------------------------------------------------------------------------------------------
Net Asset Value, end of period $14.35 $13.12 $11.63 $ 9.55 $ 7.03
==============================================================
TOTAL RETURN(c) 9.38% 13.02% 21.78% 35.95% (28.77%)
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000s) $1,420 $1,966 $2,281 $2,372 $ 2,201
- -------------------------------------------------------------------------------------------------------------------
Ratios to average net assets:
Expenses with reimbursements, but no earnings
credits or brokerage offsets(d) 2.18% 2.19% 2.16% 2.16% 2.16%
Expenses with reimbursements, earnings credits and
brokerage offsets 2.15% 2.15% 2.15% 2.15% 2.15%
Net investment income (loss) 0.63% 0.21% 0.00% 0.07% (0.61%)
- -------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate(e) 68% 54% 85% 144% 220%
</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.) 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 2.89% (2006), 3.04% (2005), 2.85% (2004), 3.32%
(2003) AND 2.91% (2002).
(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,
2006 2005 2004 2003 2002
-------------- ----------------------------------------
CLASS C SHARES
PER SHARE OPERATING DATA
Net Asset Value, beginning of period $13.09 $11.61 $ 9.53 $ 7.02 $ 9.86
- ----------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) 0.06(a) 0.02(a) 0.00(a),(b) (0.26) (0.29)
Net realized and unrealized gains
(losses) on securities 1.17 1.50 2.08 2.77 (2.55)
---------------------------------------------------------
Total from investment operations 1.23 1.52 2.08 2.51 (2.84)
- ----------------------------------------------------------------------------------------------------------
Less dividends and distributions:
From net investment income 0.00 (0.04) 0.00 0.00 0.00
From net realized gains 0.00 0.00 0.00 0.00 0.00
---------------------------------------------------------
Total distributions 0.00 (0.04) 0.00 0.00 0.00
- ----------------------------------------------------------------------------------------------------------
Net Asset Value, end of period $14.32 $13.09 $11.61 $ 9.53 $ 7.02
=========================================================
TOTAL RETURN(c) 9.40% 13.05% 21.83% 35.76% (28.80%)
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000s) $ 588 $ 584 $ 476 $ 482 $ 532
- ----------------------------------------------------------------------------------------------------------
Ratios to average net assets:
Expenses with reimbursements, but
no earnings credits or brokerage offsets(d) 2.19% 2.20% 2.16% 2.16% 2.16%
Expenses with reimbursements,
earnings credits and brokerage offsets 2.15% 2.15% 2.15% 2.15% 2.15%
Net investment income (loss) 0.82% 0.14% 0.03% 0.08% (0.63%)
- ----------------------------------------------------------------------------------------------------------
Portfolio turnover rate(e) 68% 54% 85% 144% 220%
</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.) 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 2.75% (2006), 2.94% (2005), 2.87% (2004), 3.25%
(2003) AND 3.11% (2002).
(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,
2006 2005 2004 2003 2002
-------------- -------------------------------------
CLASS F SHARES
PER SHARE OPERATING DATA
Net Asset Value, beginning of period $ 13.46 $ 11.92 $ 9.78 $ 7.18 $ 10.03
- -------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) 0.12 0.11(a) 0.08(a) (0.01) (0.05)
Net realized and unrealized gains (losses) on
securities 1.20 1.55 2.14 2.68 (2.79)
------------------------------------------------------
Total from investment operations 1.32 1.66 2.22 2.67 (2.84)
- -------------------------------------------------------------------------------------------------------
Less dividends and distributions:
From net investment income 0.00 (0.12) (0.08) (0.07) (0.01)
From net realized gains 0.00 0.00 0.00 0.00 0.00
------------------------------------------------------
Total distributions 0.00 (0.12) (0.08) (0.07) (0.01)
- -------------------------------------------------------------------------------------------------------
Net Asset Value, end of period $ 14.78 $ 13.46 $ 11.92 $ 9.78 $ 7.18
======================================================
TOTAL RETURN 9.81% 13.91% 22.70% 37.17% (28.30%)
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000s) $12,599 $11,485 $10,885 $9,837 $ 9,321
- -------------------------------------------------------------------------------------------------------
Ratios to average net assets:
Expenses with reimbursements, but no earnings
credits or brokerage offsets(b) 1.44% 1.44% 1.41% 1.40% 1.40%
Expenses with reimbursements, earnings credits
and brokerage offsets 1.40% 1.40% 1.40% 1.40% 1.40%
Net investment income 1.61% 0.92% 0.76% 0.80% 0.12%
- -------------------------------------------------------------------------------------------------------
Portfolio turnover rate(c) 68% 54% 85% 144% 220%
</Table>
(a.) COMPUTED USING AVERAGE SHARES OUTSTANDING THROUGHOUT THE PERIOD.
(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 2.13% (2006), 2.28% (2005), 2.10% (2004), 2.52%
(2003) AND 2.13% (2002).
(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.
24
<Page>
<Table>
<Caption>
SIX MONTHS YEAR ENDED
ENDED JUNE 30, DECEMBER 31,
2006 2005 2004 2003 2002
-------------- ------------------------------------
CLASS R SHARES
PER SHARE OPERATING DATA
Net Asset Value, beginning of period $13.57 $12.01 $ 9.82 $ 7.22 $ 10.08
Income from investment operations:
Net investment income 0.14(a) 0.14(a) 0.13(a) 0.09 0.02
Net realized and unrealized gains (losses) on
securities 1.21 1.57 2.17 2.60 (2.85)
-----------------------------------------------------
Total from investment operations 1.35 1.71 2.30 2.69 (2.83)
- ------------------------------------------------------------------------------------------------------
Less dividends and distributions:
From net investment income 0.00 (0.15) (0.11) (0.09) (0.03)
From net realized gains 0.00 0.00 0.00 0.00 0.00
-----------------------------------------------------
Total distributions 0.00 (0.15) (0.11) (0.09) (0.03)
- ------------------------------------------------------------------------------------------------------
Net Asset Value, end of period $14.92 $13.57 $12.01 $ 9.82 $ 7.22
=====================================================
TOTAL RETURN 9.95% 14.22% 23.45% 37.27% (28.10%)
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000s) $ 85 $ 70 $ 66 $3,146 $ 2,470
- ------------------------------------------------------------------------------------------------------
Ratios to average net assets:
Expenses with reimbursements, but no earnings
credits or brokerage offsets(b) 1.19% 1.20% 1.15% 1.15% 1.16%
Expenses with reimbursements, earnings credits
and brokerage offsets 1.15% 1.15% 1.15% 1.15% 1.15%
Net investment income 1.92% 1.15% 1.21% 1.03% 0.27%
Portfolio turnover rate(c) 68% 54% 85% 144% 220%
- ------------------------------------------------------------------------------------------------------
</Table>
(a.) COMPUTED USING AVERAGE SHARES OUTSTANDING THROUGHOUT THE PERIOD.
(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 1.99% (2006), 3.35% (2005), 1.65% (2004), 1.95%
(2003) AND 1.71% (2002).
(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,
2006 2005 2004 2003 2002
-------------- -------------------------------------------
CLASS T SHARES
PER SHARE OPERATING DATA
Net Asset Value, beginning of period $13.37 $11.84 $ 9.70 $ 7.14 $ 9.97
- -------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) 0.10(b) 0.08(b) 0.06(b) 0.00(a) (0.10)
Net realized and unrealized gains
(losses) on securities 1.19 1.54 2.11 2.61 (2.73)
------------------------------------------------------------
Total from investment operations 1.29 1.62 2.17 2.61 (2.83)
- -------------------------------------------------------------------------------------------------------------
Less dividends and distributions:
From net investment income 0.00 (0.09) (0.03) (0.05) 0.00
From net realized gains 0.00 0.00 0.00 0.00 0.00
------------------------------------------------------------
Total distributions 0.00 (0.09) (0.03) (0.05) 0.00
- -------------------------------------------------------------------------------------------------------------
Net Asset Value, end of period $14.66 $13.37 $11.84 $ 9.70 $ 7.14
============================================================
TOTAL RETURN(c) 9.65% 13.65% 22.42% 36.58% (28.39%)
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000s) $ 172 $ 143 $ 175 $ 172 $ 158
- -------------------------------------------------------------------------------------------------------------
Ratios to average net assets:
Expenses with reimbursements, but
no earnings credits or brokerage offsets(d) 1.69% 1.69% 1.66% 1.65% 1.65%
Expenses with reimbursements,
earnings credits and brokerage offsets 1.65% 1.65% 1.65% 1.65% 1.65%
Net investment income (loss) 1.43% 0.67% 0.57% 0.67% (0.12%)
- -------------------------------------------------------------------------------------------------------------
Portfolio turnover rate(e) 68% 54% 85% 144% 220%
</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.) 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 2.54% (2006), 2.81% (2005), 2.44% (2004), 2.88%
(2003) AND 4.00% (2002).
(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, 2006 (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).
Effective June 1, 2006, Class B shares will no longer be offered except in
connection with dividend reinvestments and permitted exchanges of Class B
shares. 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. New York closing exchange rates are used to convert foreign
currencies to U.S. dollars.
A debt security with a remaining maturity greater than 60 days at the time of
purchase is valued in accordance with the evaluated bid price supplied by a
pricing service approved by the Company's board of directors or, if such price
is not available, at the mean between the highest bid and lowest asked
quotations obtained from at least two securities dealers. A debt security with a
remaining maturity of 60 days or less at the time of purchase is valued at
amortized cost, which approximates market value, unless it is determined that
amortized cost would not represent market value, in which case the securities
would be marked to market. The Fund amortizes premiums and discounts on all debt
securities.
If market quotations 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 requires the use of estimates, and as such,
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--The Fund normally will invest a
large portion of its assets in foreign securities. Foreign securities carry more
risk than U.S. securities, such as political and currency risks. 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 Fund
could be exposed to risk if counterparties are unable to meet the terms of the
contracts or if the value of the currency changes unfavorably to the U.S.
dollar. 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, 2006 for settling
foreign trades is listed on the Statement of Assets and Liabilities.
The accounting records of the Fund are maintained in U.S. dollars. The market
values of foreign securities, currency holdings and other assets and liabilities
are translated into U.S. dollars based on the current exchange rates each
business day. 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 unrealized gain or loss from investments and foreign
currency translations on the Statement of Operations.
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
28
<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 Subchapter M 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 from
net investment income (if any) and from net realized capital gains (if any)
annually. Dividends and distributions, which are determined in accordance with
income tax regulations, are recorded on the ex-dividend date.
EXPENSES--Each Class of the Fund bears expenses incurred specifically on its
behalf and, in addition, each Class bears a portion of general expenses based on
the relative net assets or the number of shareholder accounts of the Class. The
type of expense determines the allocation method.
The Company's board of directors has authorized the payment of certain Fund
expenses with commissions on Fund portfolio transactions. These commissions
reduce Other Expenses and are included in the Expense Offset to Broker
Commissions in the Statement of Operations.
USE OF ESTIMATES--The preparation of financial statements in conformity with
accounting principles generally accepted in the United States of America
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported amounts of
income and expenses during the reporting period. Actual results could differ
from those estimates.
INDEMNIFICATIONS--In the normal course of business, the Company enters into
contracts that contain provisions indemnifying other parties against specified
potential liabilities. Each Fund's maximum exposure under these arrangements is
unknown as this would involve future claims that may be made against the Fund
that have not yet occurred. However, based on experience, the Funds expect the
risk of loss to be remote.
OTHER--Certain prior year information has been reformatted, without substantive
change, to conform with the current year presentation.
29
<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
1.00% of the first $250 million of net assets, 0.80% of the next $250 million of
net assets, and 0.70% of net assets in excess of $500 million.
Founders has agreed to waive a portion of its management fee and to limit the
total expenses of the Fund. Founders agreed to waive that portion of its
management fee that exceeds 0.75% of the Fund's average net assets and to limit
the annual expenses of the Fund (net of credits received from the Fund's
custodian 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 period ended June 30, 2006, $111,070 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 period ended June 30, 2006,
Class F shares were charged $11,711 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 period ended June 30, 2006, Class F shares were
charged $4,643 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 $12.92 to $13.36, 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
30
<Page>
fees, including both the per account fees paid to DTI and out-of-pocket charges,
during the period ended June 30, 2006 were as follows:
TRANSFER
AGENCY FEES
---------------------
Class A $17,561
---------------------
Class B $ 2,443
---------------------
Class C $ 390
---------------------
Class R $ 148
---------------------
Class T $ 340
---------------------
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 processing of shareholder transactions in the Funds.
During the period ended June 30, 2006, the Fund was charged $296 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 period ended June
30, 2006, the Fund paid $2,449 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 period ended June 30,
2006, Class F shares were charged $15,555 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,
31
<Page>
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 period ended June 30, 2006, were as follows:
DISTRIBUTION SHAREHOLDER
FEES SERVICING FEES
---------------------------------------
Class A N/A $34,042
---------------------------------------
Class B $6,451 $ 2,150
---------------------------------------
Class C $2,245 $ 748
---------------------------------------
Class T $ 203 $ 203
---------------------------------------
During the period ended June 30, 2006, DSC retained $630 and $317 in sales
commissions from the sales of Class A and Class T shares, respectively. DSC also
retained $2,060 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 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, which are shown as earnings credits on the
Statement of Operations. 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
period and in the amount set forth below:
TIME PERIOD AMOUNT OF WAIVER
------------------------------------
9/1/05 to 8/31/06 $200,000
------------------------------------
The fee waiver is allocated among the Funds in proportion to their respective
shares of the total custodian fee. For the period ended June 30, 2006, the
Fund's portion of the fee waiver was $16,174, which reduced the amount paid to
Mellon Bank to $10,605.
32
<Page>
DIRECTORS COMPENSATION--The Company's board of directors has adopted a deferred
compensation plan for Company directors that enables directors to elect to defer
receipt of all or a portion of the annual compensation that they are entitled to
receive from the Company. Under the plan, the compensation deferred is 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 Directors'
Deferred Compensation on the Statement of Assets and Liabilities. Changes in
market value are included in the Directors' fees and expenses and the net change
in unrealized appreciation/depreciation of investments on the Statement of
Operations. 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
or its affiliates, which pay 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, deferred compensation 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, 2005 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, 2005 were:
EXPIRATION AMOUNT
------------------------
2008 $ 3,805,803
------------------------
2009 $10,099,981
------------------------
2010 $ 5,986,171
------------------------
2011 $ 7,339,094
------------------------
$27,231,049
===========
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, 2006 are noted below. Unrealized appreciation/depreciation in the table
below excludes
33
<Page>
appreciation/depreciation on foreign currency translation, if any. The primary
difference between book and tax appreciation or depreciation is wash sale loss
deferrals.
-----------------------------------------------------
Post-October Capital Loss Deferral $ (2,188)
-----------------------------------------------------
Undistributed Ordinary Income $ 4,737
-----------------------------------------------------
Federal Tax Cost $ 32,900,895
-----------------------------------------------------
Gross Tax Appreciation of Investments $ 9,798,894
-----------------------------------------------------
Gross Tax Depreciation of Investments $ (434,429)
-----------------------------------------------------
Net Tax Appreciation $ 9,364,465
-----------------------------------------------------
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>
PERIOD ENDED YEAR ENDED
JUNE 30, 2006 DECEMBER 31, 2005
SHARES AMOUNT SHARES AMOUNT
CLASS A
- ----------------------------------------------------------------------------------------
Sold 93,370 $ 1,342,179 48,763 $ 599,013
Dividends or Distributions Reinvested 0 $ 0 15,907 $ 210,698
Redeemed (116,978) $(1,689,009) (272,133) $(3,356,309)
------------------------------------------------
Net Decrease (23,608) $ (346,830) (207,463) $(2,546,598)
================================================
CLASS B
- ----------------------------------------------------------------------------------------
Sold 15,057 $ 210,994 22,161 $ 266,981
Dividends or Distributions Reinvested 0 $ 0 212 $ 2,770
Redeemed (66,005) $ (940,558) (68,649) $ (798,761)
------------------------------------------------
Net Decrease (50,948) $ (729,564) (46,276) $ (529,010)
================================================
CLASS C
- ----------------------------------------------------------------------------------------
Sold 1,112 $ 16,180 13,942 $ 162,011
Dividends or Distributions Reinvested 0 $ 0 52 $ 684
Redeemed (4,726) $ (66,482) (10,373) $ (120,257)
------------------------------------------------
Net Increase (Decrease) (3,614) $ (50,302) 3,621 $ 42,438
================================================
CLASS F
- ----------------------------------------------------------------------------------------
Sold 125,549 $ 1,824,959 129,124 $ 1,589,753
Dividends or Distributions Reinvested 0 $ 0 7,163 $ 95,978
Redeemed (126,235) $(1,838,523) (196,116) $(2,414,771)
------------------------------------------------
Net Decrease (686) $ (13,564) (59,829) $ (729,040)
================================================
</Table>
34
<Page>
PERIOD ENDED YEAR ENDED
JUNE 30, 2006 DECEMBER 31, 2005
SHARES AMOUNT SHARES AMOUNT
CLASS R
- --------------------------------------------------------------------------------
Sold 574 $ 8,426 75 $ 1,000
Dividends or Distributions Reinvested 0 $ 0 55 $ 750
Redeemed 0 $ 0 (518) $ (6,115)
-------------------------------------
Net Increase (Decrease) 574 $ 8,426 (388) $ (4,365)
=====================================
CLASS T
- --------------------------------------------------------------------------------
Sold 1,392 $20,779 111 $ 1,276
Dividends or Distributions Reinvested 0 $ 0 66 $ 881
Redeemed (297) $(4,137) (4,290) $(50,690)
-------------------------------------
Net Increase (Decrease) 1,095 $16,642 (4,113) $(48,533)
=====================================
5. INVESTMENT TRANSACTIONS
For the period ended June 30, 2006, purchases and sales of investment securities
(excluding short-term securities and U.S. government obligations) were
$16,578,034 and $18,355,359, respectively.
6. FUTURES CONTRACTS
The Fund may invest in financial futures contracts in order to gain exposure to
or protect against changes in the market. The Fund is exposed to market risk as
a result of changes in the value of the underlying financial instruments.
Investments in financial futures require the Fund to mark to market on a daily
basis, which reflects the change in market value of the contracts at the close
of each day's trading. Accordingly, variation margin payments are received or
made to reflect daily unrealized gains or losses. When the contracts are closed,
the Fund recognizes a realized gain or loss. These investments require initial
margin deposits with a broker, which consist of cash or cash equivalents.
Contracts open at June 30, 2006 are as follows:
UNREALIZED
CONTRACTS MARKET VALUE EXPIRATION APPRECIATION
- ----------------------------------------------------------------------------
CONTRACTS TO PURCHASE
- ----------------------------------------------------------------------------
MSCI Pan Euro 28 $ 774,889 9/15/06 $32,250
- ----------------------------------------------------------------------------
Topix Index 2 $ 277,787 9/7/06 $ 6,960
- ----------------------------------------------------------------------------
$1,052,676 $39,210
========== =======
35
<Page>
7. 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, 2006, the Fund did not have any borrowings under the LOC.
36
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<Page>
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For More Information
DREYFUS FOUNDERS
INTERNATIONAL EQUITY FUND
MANAGER
Founders Asset
Management LLC
210 University Boulevard
Suite 800
Denver, CO 80206
TRANSFER AGENT &
DIVIDEND DISBURSING AGENT
Dreyfus Transfer, Inc.
200 Park Avenue
New York, NY 10166
DISTRIBUTOR
Dreyfus Service Corporation
200 Park Avenue
New York, NY 10166
TELEPHONE Call your financial representative or 1-800-554-4611
MAIL Dreyfus Founders Funds, Inc.
144 Glenn Curtiss Boulevard, Uniondale, NY 11556-0144
The fund files its complete schedule of portfolio holdings with the Securities
and Exchange Commission ("SEC") for the first and third quarters of each fiscal
year on Form N-Q. The fund's Forms N-Q are available on the SEC's website at
http://www.sec.gov and may be reviewed and copied at the SEC's Public Reference
Room in Washington, DC. Information on the operation of the Public Reference
Room may be obtained by calling 1-202-551-8090.
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, 2006, 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.
(C) 2006 Founders Asset Management LLC
0360SA0606
<Page>
DREYFUS FOUNDERS
MID-CAP GROWTH FUND
SEMIANNUAL REPORT JUNE 30, 2006
[DREYFUS LOGO]
A MELLON FINANCIAL COMPANY(SM)
<Page>
TABLE OF CONTENTS
Management Overview 3
Fund Expenses 10
Statement of Investments 12
Statement of Assets and Liabilities 16
Statement of Operations 18
Statements of Changes in Net Assets 19
Financial Highlights 20
Notes to Financial Statements 26
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
Founders Asset Management LLC
A MELLON FINANCIAL COMPANY(SM)
210 University Boulevard, Suite 800
Denver, CO 80206
DISTRIBUTOR
Dreyfus Service Corporation
200 Park Avenue
New York, NY 10166
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, 2006. The amounts of
these holdings are included in the Statement of Investments.
NOT FDIC-INSURED - NOT BANK-GUARANTEED - MAY LOSE VALUE
<Page>
MANAGEMENT OVERVIEW
(UNAUDITED)
[PHOTO OF DANIEL CROWE]
A DISCUSSION WITH PORTFOLIO MANAGER DANIEL CROWE, CFA, REGARDING FUND
PERFORMANCE FOR THE SIX-MONTH PERIOD ENDED JUNE 30, 2006.
MARKET GAINS WANED AS PERIOD ENDS
The majority of growth indexes started the year with significant gains based on
strong corporate earnings growth and a belief that the Federal Reserve was near
the end of its tightening cycle. However, most of these gains were reversed
during the latter part of the period, due to three main factors. Firstly, signs
of increased inflation based on consumer price index (CPI) data and continued
price increases for many commodities, especially oil, negatively affected the
market. Secondly, investors became concerned with not only whether the Federal
Reserve's inflation fighting credentials were strong, but also that the Fed was
using backward-looking data in its rate decisions, and that this could
potentially lead to higher interest rates, causing a recession. Lastly, housing
prices began to weaken, and the potential impact of this on consumer spending
and the economy as a whole played a part in the market reversal.
For the six-month period ended June 30, 2006, midcap growth indexes
registered modest gains, while large-cap growth indexes realized small declines.
Dreyfus Founders Mid-Cap Growth Fund outperformed its benchmark, the Russell
Midcap Growth Index, which returned 2.56% for the six-month period.
PORTFOLIO COMPOSITION SHIFTS
Although there were no significant changes to the number of holdings or the cash
level of the Fund, exposure to the information technology sector was modestly
increased toward the end of the period, based on more reasonable valuations and
company-specific opportunities. This shift, however, had a minimal impact on the
relative performance of the Fund.
3
<Page>
During the period, we also chose to not hold any positions in home building
firms due to concerns regarding increased interest rates and signs of rampant
speculation in many housing markets.
STRONG STOCK SELECTION BOOSTED RELATIVE PERFORMANCE
The Fund's relative outperformance during the first half of the year was mainly
attributable to strong stock selection, primarily within the materials,
industrials, information technology, financials and health care sectors, and to
a lesser extent by an overweight relative position in the materials sector.
"THE FUND'S RELATIVE OUTPERFORMANCE WAS MAINLY ATTRIBUTABLE TO STRONG STOCK
SELECTION."
SECTORS BENEFITING THE FUND
Materials
Health Care
Information Technology
As referred to above, solid stock picking in the materials sector, paired
with a substantial overweight position, provided the largest boon to the Fund's
relative performance for the period. Among some of the more notable materials
issues held by the Fund were Allegheny Technologies and Nucor Corporation.
Allegheny delivered robust earnings based on strong demand for high-performance
metals, an improvement within the company's flat-rolled products, and
substantial operating leverage due to continued cost-reduction efforts by the
company. Nucor's stock price increased on an improved outlook for the steel
industry. Industry consolidation has led to a better pricing environment and
greater earnings stability; the company increased its earnings guidance for the
first quarter based on improved pricing within the steel industry.
Strong performing industrials stocks also aided the Fund's return, as did
select health care, industrials and consumer discretionary names. Pharmaceutical
development company Covance, Inc. experienced strong earnings momentum in the
first half of 2006, driven by increased demand for its drug research and
development (R&D) services. Underlying market growth was driven by the trend
towards outsourcing more pharmaceutical R&D spending to companies like Covance,
rather than large drug companies doing in-house R&D.
Commercial printing company CENVEO, INC.'s stock price saw an increase
during the period as the company's new management team substantially improved
Cenveo's cost structure, allowing the company to move from a loss
4
<Page>
in 2005 to substantial positive earnings and cash flow in 2006. Strong revenue
growth for THOMAS AND BETTS CORPORATION'S electrical business drove strong
operating leverage, which led analysts to substantially increase earnings
estimates for the company for the rest of the year.
Consumer discretionary issue SCIENTIFIC GAMES CORPORATION saw its share
price appreciate during the period due to new instant lottery business contracts
and a greater appreciation for potential earnings growth from various
international opportunities.
The Fund's performance also benefited from a settlement payment received by
the Fund in a class action lawsuit related to prior Fund investments.
SELECT SECURITIES WEIGHED ON FUND PERFORMANCE
Poor overall stock picking in the energy sector, combined with an underweight
position, did not prove advantageous to the Fund's relative performance for the
period. Energy stock PATTERSON-UTI ENERGY, INC. contributed to the Fund's
underperformance in this sector. Declines in the price of natural gas led to
investor concern that the company's profitability would begin to decline after
years of increases.
As mentioned above, although relative stock selection in the health care,
information technology and consumer discretionary sectors produced a positive
impact for the Fund, select holdings within these sectors underperformed. A
provider of pharmacy services to long-term care institutions, OMNICARE, INC.'s
share price declined due to a number of near-term concerns including Part D
LARGEST EQUITY HOLDINGS (ticker symbol)
1. MICROS SYSTEMS, INC. (MCRS) 3.28%
2. HARMAN INTERNATIONAL INDUSTRIES, INC. (HAR) 3.25%
3. BALL CORPORATION (BLL) 3.20%
4. CENVEO, INC. (CVO) 2.88%
5. THERAVANCE, INC. (THRX) 2.82%
6. DADE BEHRING HOLDINGS, INC. (DADE) 2.81%
7. SHIRE PLC ADR (SHP) 2.74%
8. SEAGATE TECHNOLOGY (SGAT) 2.58%
9. OMNICARE, INC. (OCR) 2.55%
10. ALLEGHENY TECHNOLOGIES, INC. (ATI) 2.45%
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]
<Table>
<Caption>
DREYFUS FOUNDERS
MID-CAP GROWTH RUSSELL MID-CAP
FUND-CLASS F GROWTH INDEX
6/28/1996 $10,000.00 $10,000.00
6/30/1997 $11,441.86 $11,759.33
6/30/1998 $13,735.19 $14,583.46
6/30/1999 $13,143.09 $17,545.58
6/30/2000 $18,150.31 $26,071.41
6/29/2001 $11,627.73 $17,856.29
6/28/2002 $ 9,024.07 $13,153.48
6/30/2003 $ 8,905.72 $14,120.31
6/30/2004 $11,243.10 $17,978.97
6/30/2005 $12,397.00 $19,932.29
6/30/2006 $15,592.40 $22,531.45
</Table>
The above graph compares a $10,000 investment made in Class F shares of Dreyfus
Founders Mid-Cap Growth Fund on 6/30/96 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 6/30/06
<Table>
<Caption>
YEAR-TO- SINCE
CLASS (INCEPTION DATE) DATE+ 1 YEAR 5 YEARS 10 YEARS INCEPTION
- ----------------------------------------------------------------------------------
A SHARES (12/31/99)
With sales charge (5.75%) 3.82% 18.35% 4.25% -- (2.46%)
Without sales charge 10.26% 25.55% 5.49% -- (1.57%)
B SHARES (12/31/99)
With redemption* 5.60% 20.30% 4.49% -- (2.26%)
Without redemption 9.60% 24.30% 4.82% -- (2.26%)
C SHARES (12/31/99)
With redemption** 8.95% 23.62% 4.61% -- (2.41%)
Without redemption 9.95% 24.62% 4.61% -- (2.41%)
F SHARES (9/8/61) 10.25% 25.78% 6.04% 4.54% N/A
R SHARES (12/31/99) 10.36% 26.09% 5.73% -- (1.40%)
T SHARES (12/31/99)
With sales charge (4.50%) 4.74% 18.83% 3.46% -- (3.14%)
Without sales charge 9.71% 24.30% 4.39% -- (2.45%)
</Table>
Average annual and year-to-date total returns do not reflect the deduction of
taxes that a shareholder would pay on Fund distributions or redemption of Fund
shares, but do reflect the reinvestment of dividends and capital gain
distributions, 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>
Medicare pricing and regulatory investigations by the attorneys general of the
states of Ohio and Michigan.
Softness within the personal computer market led to a decline in SEAGATE
TECHNOLOGIES, INC.'s stock price during the period, as investors were not
willing to value the potential future synergies from the company's acquisition
of Maxtor Corporation. Furthermore, investors remained skeptical that a more
consolidated industry would lead to a more stable pricing environment. A product
transition cycle within the video gaming industry led to lower-than-expected
sales and earnings for ACTIVISION, INC. Increases in game development costs also
impacted near-term earnings for the company.
SECTORS DETRACTING FROM THE FUND
Energy
Consumer Staples
Utilities
Consumer discretionary holding ADVANCED AUTO PARTS, INC.'s share price
weakness in the first half of 2006 was caused by a shortfall in revenues and
earnings. Weakness in the low-end consumer market, coupled with tough
year-over-year comparisons, caused the company to lower guidance. Consumer
product provider JARDEN CORPORATION experienced a difficult fourth quarter of
2005, which impacted its share price in the first quarter of 2006. Issues
associated with the company's integration of the Holmes(R) and FoodSaver(R)
businesses into its consumer solutions segment plagued the company's stock.
Specific issues included a decrease in orders for the Holmes products due to a
less lenient return policy because of the integration. Additionally, Jarden
faced raw materials pressures, which outpaced the rate of price increases,
causing margin contraction. Publisher R.H. DONNELLEY CORPORATION underperformed
in the first half of 2006 on investor concerns over competitive threats via the
Internet and integration risks presented by the
PORTFOLIO COMPOSITION OF NET ASSETS
[CHART]
<Table>
<Caption>
PORTFOLIO COMPOSITION OF NET ASSETS
23.35% Information Technology
20.07% Health Care
16.26% Consumer Discretionary
10.18% Industrials
7.51% Materials
7.32% Energy
6.79% Financials
3.22% Telecommunicatn Services
1.20% Consumer Staples
4.10% Cash & Equivalents
</Table>
The Fund's portfolio composition is subject to change, and there is no assurance
the Fund will continue to hold any particular security. Opinions regarding
sectors, industries, companies, and/or themes are those of the portfolio manager
and are subject to change at any time, based on market and other conditions, and
should not be construed as a recommendation of any specific security.
8
<Page>
recent acquisition of Dex Media, Inc. A highly leveraged balance sheet
exacerbated these concerns.
As we head into the second half of 2006, the Fund was slightly more
aggressively positioned. Weakness during the second quarter of 2006 led to
attractive entry points for some information technology companies, as well as
for some companies that we believe have strong long-term positioning in
attractive growth markets.
In conclusion, we will continue to focus on our bottom-up investment
process and will work diligently to seek the most attractive mix of potential
reward and limited risk.
/s/ Daniel E. Crowe
- -------------------------------------
Daniel Crowe, 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, 2006
and held through June 30, 2006.
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, together with the amount you
invested, 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
BEGINNING ENDING EXPENSES PAID
ACCOUNT VALUE ACCOUNT VALUE DURING PERIOD*
(1/1/06) (6/30/06) (1/1/06-6/30/06)
- -----------------------------------------------------------------------
CLASS A ACTUAL $1,000.00 $1,102.60 $ 6.88
CLASS A HYPOTHETICAL 1,000.00 1,018.17 6.63
CLASS B ACTUAL 1,000.00 1,096.00 11.75
CLASS B HYPOTHETICAL 1,000.00 1,013.45 11.35
CLASS C ACTUAL 1,000.00 1,099.50 11.19
CLASS C HYPOTHETICAL 1,000.00 1,014.00 10.79
CLASS F ACTUAL 1,000.00 1,102.50 6.83
CLASS F HYPOTHETICAL 1,000.00 1,018.22 6.58
CLASS R ACTUAL 1,000.00 1,103.60 5.58
CLASS R HYPOTHETICAL 1,000.00 1,019.42 5.37
CLASS T ACTUAL 1,000.00 1,097.10 11.23
CLASS T HYPOTHETICAL 1,000.00 1,013.95 10.84
* 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.
EXPENSE RATIO
- -----------------------
CLASS A 1.32%
CLASS B 2.26%
CLASS C 2.15%
CLASS F 1.31%
CLASS R 1.07%
CLASS T 2.16%
11
<Page>
STATEMENT OF INVESTMENTS
June 30, 2006 (UNAUDITED)
SHARES MARKET VALUE
- --------------------------------------------------------------------------------
COMMON STOCKS (DOMESTIC)--87.2%
ADVERTISING--1.6%
43,500 R.H. Donnelley Corporation* $2,352,045
----------
AIRLINES--1.4%
82,000 AMR Corporation* 2,084,440
----------
ALTERNATIVE CARRIERS--1.5%
500,000 Level 3 Communications, Inc.* 2,220,000
----------
APPLICATION SOFTWARE--5.0%
166,000 Altiris, Inc.* 2,994,640
160,000 BEA Systems, Inc.* 2,094,400
87,500 Blackboard, Inc.* 2,534,000
----------
7,623,040
----------
ASSET MANAGEMENT & CUSTODY BANKS--0.9%
13,000 Legg Mason, Inc. 1,293,760
----------
AUTOMOTIVE RETAIL--1.4%
71,500 Advance Auto Parts, Inc. 2,066,350
----------
BIOTECHNOLOGY--2.8%
100,000 Senomyx, Inc.* 1,443,000
75,500 Vertex Pharmaceuticals, Inc.* 2,771,605
----------
4,214,605
----------
CASINOS & GAMING--3.1%
80,000 Scientific Games Corporation* 2,849,600
24,200 Wynn Resorts Limited* 1,773,860
----------
4,623,460
----------
COMMERCIAL PRINTING--2.9%
242,000 Cenveo, Inc.* 4,343,900
----------
COMMUNICATIONS EQUIPMENT--1.0%
585,000 JDS Uniphase Corporation* 1,480,050
----------
COMPUTER HARDWARE--1.7%
64,000 Diebold, Inc. 2,599,680
----------
COMPUTER STORAGE & PERIPHERALS--2.6%
172,000 Seagate Technology* 3,894,080
----------
CONSTRUCTION, FARM MACHINERY & HEAVY TRUCKS--2.3%
155,000 JLG Industries, Inc. 3,487,500
----------
CONSUMER ELECTRONICS--3.3%
57,500 Harman International Industries, Inc. 4,908,775
----------
DATA PROCESSING & OUTSOURCED SERVICES--0.9%
36,000 Paychex, Inc. 1,403,280
----------
ELECTRICAL COMPONENTS & EQUIPMENT--1.1%
33,450 Thomas and Betts Corporation* 1,715,985
----------
12
<Page>
SHARES MARKET VALUE
- --------------------------------------------------------------------------------
ELECTRONIC EQUIPMENT MANUFACTURERS--3.1%
100,000 Agilent Technologies, Inc.* $3,156,000
71,600 FLIR Systems, Inc.* 1,579,496
----------
4,735,496
----------
GENERAL MERCHANDISE STORES--1.0%
60,500 Family Dollar Stores, Inc. 1,478,015
----------
HEALTHCARE EQUIPMENT--1.6%
21,000 Intuitive Surgical, Inc.* 2,477,370
----------
HEALTHCARE SERVICES--2.6%
81,200 Omnicare, Inc. 3,850,504
----------
HEALTHCARE SUPPLIES--4.8%
102,000 Dade Behring Holdings, Inc. 4,247,280
49,700 DENTSPLY International, Inc. 3,011,820
----------
7,259,100
----------
HOME ENTERTAINMENT SOFTWARE--1.0%
130,500 Activision, Inc.* 1,485,090
----------
HOME FURNISHING RETAIL--2.2%
99,500 Bed Bath & Beyond, Inc.* 3,300,415
----------
HOUSEWARES & SPECIALTIES--1.7%
86,500 Jarden Corporation* 2,633,925
----------
METAL & GLASS CONTAINERS--3.2%
130,500 Ball Corporation 4,833,720
----------
MOVIES & ENTERTAINMENT--2.1%
157,000 Live Nation* 3,196,520
----------
OIL & GAS DRILLING--1.0%
54,000 Patterson-UTI Energy, Inc. 1,528,740
----------
OIL & GAS EQUIPMENT & SERVICES--3.8%
93,500 BJ Services Company 3,483,810
46,000 Weatherford International Limited* 2,282,520
----------
5,766,330
----------
OIL & GAS EXPLORATION & PRODUCTION--2.5%
44,500 Bill Barrett Corporation* 1,317,645
50,000 Newfield Exploration Company* 2,447,000
----------
3,764,645
----------
PACKAGED FOODS & MEATS--1.2%
40,500 J. M. Smucker Company 1,810,350
----------
PHARMACEUTICALS--4.0%
86,000 MGI Pharma, Inc.* 1,849,000
186,000 Theravance, Inc.* 4,255,680
----------
6,104,680
----------
REAL ESTATE MANAGEMET & DEVELOPMENT--1.9%
115,850 CB Richard Ellis Group, Inc.* 2,884,665
----------
SEE NOTES TO STATEMENT OF INVESTMENTS.
13
<Page>
SHARES MARKET VALUE
- --------------------------------------------------------------------------------
SEMICONDUCTORS--4.7%
110,000 Cypress Semiconductor Corporation* $ 1,599,400
98,400 Freescale Semiconductor, Inc. Class B* 2,892,960
80,000 Maxim Integrated Products, Inc. 2,568,800
------------
7,061,160
------------
STEEL--4.3%
53,500 Allegheny Technologies, Inc. 3,704,340
51,700 Nucor Corporation 2,804,725
------------
6,509,065
------------
SYSTEMS SOFTWARE--3.3%
113,500 MICROS Systems, Inc.* 4,957,680
------------
THRIFTS & MORTGAGE FINANCE--0.4%
14,500 The PMI Group, Inc. 646,410
------------
TRUCKING--1.5%
93,100 J.B. Hunt Transport Services, Inc. 2,319,121
------------
WIRELESS TELECOMMUNICATION SERVICES--1.8%
85,050 American Tower Corporation* 2,646,756
------------
TOTAL COMMON STOCKS (DOMESTIC)
(COST--$120,596,286) 131,560,707
------------
COMMON STOCKS (FOREIGN)--8.7%
AEROSPACE & DEFENSE--0.9%
38,800 Empresa Brasileira de Aeronautica SA
Sponsored ADR (BR) 1,415,036
------------
HEALTHCARE EQUIPMENT--1.5%
37,500 Mettler-Toledo International, Inc. (SZ)* 2,271,375
------------
INVESTMENT BANKING & BROKERAGE--1.7%
65,150 Lazard Limited Class A (BD) 2,632,060
------------
MULTI-LINE INSURANCE--1.9%
47,000 Arch Capital Group Limited (BD)* 2,794,620
------------
PHARMACEUTICALS--2.7%
93,500 Shire PLC ADR (UK) 4,135,505
------------
TOTAL COMMON STOCKS (FOREIGN)
(COST--$11,501,014) 13,248,596
------------
14
<Page>
PRINCIPAL AMOUNT AMORTIZED COST
- --------------------------------------------------------------------------------
CORPORATE SHORT-TERM NOTES--3.8%
SPECIAL PURPOSE ENTITY--3.8%
$5,800,000 CAFCO LLC 5.33% 7/3/06~ $ 5,798,283
------------
TOTAL CORPORATE SHORT-TERM NOTES (AMORTIZED COST--$5,798,283) 5,798,283
------------
TOTAL INVESTMENTS--99.7%
(TOTAL COST--$137,895,583) 150,607,586
------------
OTHER ASSETS AND LIABILITIES--0.3% 398,058
------------
NET ASSETS--100.0% $151,005,644
============
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 $5,798,283, OR 3.8%, OF THE FUND'S NET ASSETS AS OF JUNE 30,
2006.
ADR - AMERICAN DEPOSITARY RECEIPT
BR - BRAZIL
BD - BERMUDA
SZ - SWITZERLAND
UK - UNITED KINGDOM
SEE NOTES TO FINANCIAL STATEMENTS.
15
<Page>
STATEMENT OF ASSETS AND LIABILITIES
JUNE 30, 2006 (UNAUDITED)
ASSETS
- -------------------------------------------------------------------------------
Investment securities, at cost $137,895,583
------------
Investment securities, at market 150,607,586
Cash 173,003
Receivables:
Capital shares sold 581,130
Dividends and interest 59,507
Other assets 38,544
------------
Total Assets 151,459,770
------------
LIABILITIES
- -------------------------------------------------------------------------------
Payables and other accrued liabilities:
Capital shares redeemed 254,723
Advisory fees 95,259
Shareholder servicing fees 15,056
Accounting fees 7,127
Distribution fees 32,503
Transfer agency fees 9,049
Custodian fees 1,357
Directors' deferred compensation 38,544
Other 508
------------
Total Liabilities 454,126
------------
Net Assets $151,005,644
============
COMPOSITION OF NET ASSETS
- -------------------------------------------------------------------------------
Capital (par value and paid-in surplus) $159,301,855
Accumulated net investment loss (536,330)
Accumulated net realized loss from security transactions (20,471,884)
Net unrealized appreciation on investments 12,712,003
------------
Total $151,005,644
============
16
<Page>
CLASS A
- --------------------------------------------------------------------------------
Net Assets $ 21,474,770
Shares Outstanding 4,162,286
Net Asset Value, Redemption Price Per Share $ 5.16
Maximum offering price per share (net asset value
plus sales charge of 5.75% of offering price) $ 5.47
CLASS B
- --------------------------------------------------------------------------------
Net Assets $ 1,893,037
Shares Outstanding 385,171
Net Asset Value, Offering and Redemption Price (excluding
applicable contingent deferred sales charge) Per Share $ 4.91
CLASS C
- --------------------------------------------------------------------------------
Net Assets $ 1,467,797
Shares Outstanding 302,260
Net Asset Value, Offering and Redemption Price (excluding
applicable contingent deferred sales charge) Per Share $ 4.86
CLASS F
- --------------------------------------------------------------------------------
Net Assets $124,780,573
Shares Outstanding 23,690,458
Net Asset Value, Offering and Redemption Price Per Share $ 5.27
CLASS R
- --------------------------------------------------------------------------------
Net Assets $ 1,325,474
Shares Outstanding 254,110
Net Asset Value, Offering and Redemption Price Per Share $ 5.22
CLASS T
- --------------------------------------------------------------------------------
Net Assets $ 63,993
Shares Outstanding 13,167
Net Asset Value, Redemption Price Per Share $ 4.86
Maximum offering price per share (net asset value
plus sales charge of 4.50% of offering price) $ 5.09
SEE NOTES TO FINANCIAL STATEMENTS.
17
<Page>
STATEMENT OF OPERATIONS
For the six months ended June 30, 2006 (UNAUDITED)
INVESTMENT INCOME
- --------------------------------------------------------------------------------
Dividends $ 258,910
Interest 125,677
Foreign taxes withheld (1,576)
-----------
Total Investment Income 383,011
-----------
EXPENSES
- --------------------------------------------------------------------------------
Advisory fees--Note 2 545,641
Shareholder servicing fees--Note 2 83,584
Accounting fees--Note 2 40,676
Distribution fees--Note 2 83,853
Transfer agency fees--Note 2 35,002
Registration fees 31,930
Postage and mailing expenses 4,920
Custodian fees and expenses--Note 2 3,187
Printing expenses 22,010
Legal and audit fees 20,640
Directors' fees and expenses--Note 2 14,520
Other expenses 16,815
-----------
Total Expenses 902,778
Earnings Credits (3,167)
Reimbursed/Waived Expenses (20)
Expense Offset to Broker Commissions (1,775)
-----------
Net Expenses 897,816
-----------
Net Investment Loss (514,805)
-----------
REALIZED AND UNREALIZED GAIN ON SECURITY TRANSACTIONS
- --------------------------------------------------------------------------------
Net Realized Gain on Security Transactions 9,920,442
Net Change in Unrealized Appreciation/Depreciation of Investments 2,125,001
-----------
Net Realized and Unrealized Gain 12,045,443
-----------
Net Increase in Net Assets Resulting from Operations $11,530,638
===========
SEE NOTES TO FINANCIAL STATEMENTS.
18
<Page>
STATEMENTS OF CHANGES IN NET ASSETS
(UNAUDITED)
SIX MONTHS ENDED YEAR ENDED
JUNE 30, DECEMBER 31,
2006 2005
OPERATIONS
- -------------------------------------------------------------------------------
Net Investment Loss $ (514,805) $ (866,779)
Net Realized Gain on Security and Foreign
Currency Transactions 9,920,442 19,689,373
Net Change in Unrealized
Appreciation/Depreciation of Investments
and Foreign Currency Translation 2,125,001 (6,069,623)
------------ ------------
Net Increase in Net Assets Resulting from
Operations 11,530,638 12,752,971
------------ ------------
CAPITAL SHARE TRANSACTIONS
- -------------------------------------------------------------------------------
Net Increase (Decrease) - Note 4
Class A 19,708,541 (86,979)
Class B (174,372) (115,914)
Class C 871,569 62,359
Class F 3,414,816 (21,399,040)
Class R 1,034,268 205,827
Class T 29,445 (9,705)
------------ ------------
Net Increase (Decrease) from Capital Share
Transactions 24,884,267 (21,343,452)
------------ ------------
Net Increase (Decrease) in Net Assets 36,414,905 (8,590,481)
------------ ------------
NET ASSETS
- -------------------------------------------------------------------------------
Beginning of Period $114,590,739 $123,181,220
------------ ------------
End of Period $151,005,644 $114,590,739
============ ============
Accumulated Net Investment Loss $ (536,330) $ (21,525)
SEE NOTES TO FINANCIAL STATEMENTS.
19
<Page>
FINANCIAL HIGHLIGHTS
(UNAUDITED)
<Table>
<Caption>
SIX MONTHS YEAR ENDED
ENDED JUNE 30, DECEMBER 31,
2006 2005 2004 2003 2002
-------------- --------------------------------------
CLASS A SHARES
PER SHARE OPERATING DATA
Net Asset Value, beginning of period $ 4.68 $ 4.15 $ 3.52 $ 2.58 $ 3.44
- -------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.02)(a) (0.05) (0.03) 0.03 (0.04)
Net realized and unrealized gains (losses) on securities 0.50 0.58 0.66 0.91 (0.82)
----------------------------------------------------
Total from investment operations 0.48 0.53 0.63 0.94 (0.86)
- -------------------------------------------------------------------------------------------------------------------
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 $ 5.16 $ 4.68 $ 4.15 $ 3.52 $ 2.58
====================================================
TOTAL RETURN(b) 10.26% 12.77% 17.90% 36.43% (25.00%)
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000s) $21,475 $1,656 $1,546 $ 1,191 $ 476
- -------------------------------------------------------------------------------------------------------------------
Ratios to average net assets:
Expenses with reimbursements, but no earnings credits or
brokerage offsets(c) 1.33% 1.58% 1.54% 1.87% 2.15%
Expenses with reimbursements, earnings credits and
brokerage offsets 1.32% 1.55% 1.53% 1.86% 2.15%
Net investment loss (0.71%) (0.92%) (1.07%) (1.38%) (1.81%)
- -------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate(d) 157% 211% 147% 160% 216%
</Table>
(a.) COMPUTED USING AVERAGE SHARES OUTSTANDING THROUGHOUT THE PERIOD.
(b.) SALES CHARGES ARE NOT REFLECTED IN THE TOTAL RETURN.
(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.
20
<Page>
<Table>
<Caption>
SIX MONTHS YEAR ENDED
ENDED JUNE 30, DECEMBER 31,
2006 2005 2004 2003 2002
-------------- -------------------------------------
CLASS B SHARES
PER SHARE OPERATING DATA
Net Asset Value, beginning of period $ 4.48 $ 4.01 $ 3.43 $ 2.54 $ 3.39
- ----------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment loss (0.04)(a) (0.09) (0.07) (0.03) (0.05)
Net realized and unrealized gains (losses)
on securities 0.47 0.56 0.65 0.92 (0.80)
------------------------------------------------------
Total from investment operations 0.43 0.47 0.58 0.89 (0.85)
- ----------------------------------------------------------------------------------------------------
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 $ 4.91 $ 4.48 $ 4.01 $ 3.43 $ 2.54
======================================================
TOTAL RETURN(b) 9.60% 11.72% 16.91% 35.04% (25.07%)
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000s) $1,893 $1,886 $1,823 $1,587 $ 969
- ----------------------------------------------------------------------------------------------------
Ratios to average net assets:
Expenses with reimbursements, but no
earnings credits or brokerage offsets(c) 2.27% 2.43% 2.37% 2.65% 2.68%
Expenses with reimbursements,
earnings credits and brokerage offsets 2.26% 2.41% 2.37% 2.64% 2.67%
Net investment loss (1.70%) (1.78%) (1.90%) (2.16%) (2.33%)
- ----------------------------------------------------------------------------------------------------
Portfolio turnover rate(d) 157% 211% 147% 160% 216%
</Table>
(a.) COMPUTED USING AVERAGE SHARES OUTSTANDING THROUGHOUT THE PERIOD.
(b.) SALES CHARGES ARE NOT REFLECTED IN THE TOTAL RETURN.
(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.
21
<Page>
<Table>
<Caption>
SIX MONTHS YEAR ENDED
ENDED JUNE 30, DECEMBER 31,
2006 2005 2004 2003 2002
-------------- ---------------------------------------
CLASS C SHARES
PER SHARE OPERATING DATA
Net Asset Value, beginning of period $ 4.42 $ 3.96 $ 3.38 $ 2.50 $ 3.36
- ------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment loss (0.04)(a) (0.02) (0.06)(a) (0.10) (0.08)
Net realized and unrealized gains (losses)
on securities 0.48 0.48 0.64 0.98 (0.78)
--------------------------------------------------------
Total from investment operations 0.44 0.46 0.58 0.88 (0.86)
- ------------------------------------------------------------------------------------------------------
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 $ 4.86 $ 4.42 $ 3.96 $ 3.38 $ 2.50
========================================================
TOTAL RETURN(b) 9.95% 11.62% 17.16% 35.20% (25.60%)
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000s) $1,468 $ 550 $ 428 $ 323 $ 274
- ------------------------------------------------------------------------------------------------------
Ratios to average net assets:
Expenses with reimbursements, but no
earnings credits or brokerage offsets(c) 2.16% 2.35% 2.32% 2.51% 2.99%
Expenses with reimbursements, earnings
credits and brokerage offsets 2.15% 2.32% 2.31% 2.51% 2.98%
Net investment loss (1.55%) (1.69%) (1.83%) (2.02%) (2.65%)
- ------------------------------------------------------------------------------------------------------
Portfolio turnover rate(d) 157% 211% 147% 160% 216%
</Table>
(a.) COMPUTED USING AVERAGE SHARES OUTSTANDING THROUGHOUT THE PERIOD.
(b.) SALES CHARGES ARE NOT REFLECTED IN THE TOTAL RETURN.
(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 2.16% (2006), 2.35% (2005), 2.32% (2004), 2.51%
(2003) AND 3.04% (2002).
(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,
2006 2005 2004 2003 2002
-------------- ---------------------------------------------
CLASS F SHARES
PER SHARE OPERATING DATA
Net Asset Value, beginning of period $ 4.78 $ 4.24 $ 3.58 $ 2.62 $ 3.47
- ------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.02)(a) (0.12) (0.03)(a) 0.02 (0.04)
Net realized and unrealized gains (losses)
on securities 0.51 0.66 0.69 0.94 (0.81)
--------------------------------------------------------------
Total from investment operations 0.49 0.54 0.66 0.96 (0.85)
- ------------------------------------------------------------------------------------------------------------
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 $ 5.27 $ 4.78 $ 4.24 $ 3.58 $ 2.62
==============================================================
TOTAL RETURN 10.25% 12.74% 18.44% 36.64% (24.50%)
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000s) $124,781 $110,170 $119,273 $159,161 $89,970
- ------------------------------------------------------------------------------------------------------------
Ratios to average net assets:
Expenses with reimbursements, but no
earnings credits or brokerage offsets(b) 1.31% 1.41% 1.33% 1.51% 1.56%
Expenses with reimbursements, earnings
credits and brokerage offsets 1.31% 1.39% 1.33% 1.50% 1.56%
Net investment loss (0.74%) (0.77%) (0.87%) (1.01%) (1.22%)
- ------------------------------------------------------------------------------------------------------------
Portfolio turnover rate(c) 157% 211% 147% 160% 216%
</Table>
(a.) COMPUTED USING AVERAGE SHARES OUTSTANDING THROUGHOUT THE PERIOD.
(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.
23
<Page>
<Table>
<Caption>
SIX MONTHS YEAR ENDED
ENDED JUNE 30, DECEMBER 31,
2006 2005 2004 2003 2002
-------------- --------------------------------------
CLASS R SHARES
PER SHARE OPERATING DATA
Net Asset Value, beginning of period $ 4.73 $ 4.19 $ 3.56 $ 2.61 $ 3.48
- -------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment loss (0.01)(a) (0.02)(a) (0.04)(a) (0.03) (0.04)
Net realized and unrealized gains
(losses) on securities 0.50 0.56 0.67 0.98 (0.83)
-----------------------------------------------------
Total from investment operations 0.49 0.54 0.63 0.95 (0.87)
- -------------------------------------------------------------------------------------------------
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 $ 5.22 $ 4.73 $ 4.19 $ 3.56 $ 2.61
====== ====== ====== ====== =======
TOTAL RETURN 10.36% 12.89% 17.70% 36.40% (25.00%)
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000s) $1,325 $ 297 $ 71 $ 119 $ 77
- -------------------------------------------------------------------------------------------------
Ratios to average net assets:
Expenses with reimbursements, but no
earnings credits or brokerage
offsets(b) 1.08% 1.38% 1.48% 1.64% 1.97%
Expenses with reimbursements, earnings
credits and brokerage offsets 1.07% 1.34% 1.48% 1.64% 1.97%
Net investment loss (0.43%) (0.70%) (1.03%) (1.15%) (1.63%)
- -------------------------------------------------------------------------------------------------
Portfolio turnover rate(c) 157% 211% 147% 160% 216%
</Table>
(a.) COMPUTED USING AVERAGE SHARES OUTSTANDING THROUGHOUT THE PERIOD.
(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 1.08% (2006), 1.38% (2005), 1.48% (2004), 1.64%
(2003) AND 3.49% (2002).
(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.
24
<Page>
<Table>
<Caption>
SIX MONTHS YEAR ENDED
ENDED JUNE 30, DECEMBER 31,
2006 2005 2004 2003 2002
-------------- ----------------------------------
CLASS T SHARES
PER SHARE OPERATING DATA
Net Asset Value, beginning of period $ 4.43 $ 3.97 $ 3.39 $ 2.51 $ 3.39
- ---------------------------------------------------------------------------------------------
Income from investment operations:
Net investment loss (0.04)(a) (0.17) (0.06) (0.02) (0.06)
Net realized and unrealized gains
(losses) on securities 0.47 0.63 0.64 0.90 (0.82)
------------------------------------------------
Total from investment operations 0.43 0.46 0.58 0.88 (0.88)
- ---------------------------------------------------------------------------------------------
Less dividends and distributions:
From net investment income 0.00 0.00 0.00 0.00 0.00
From net realized gains 0.00 0.00 0.00 0.00 0.00
------------------------------------------------
Total distributions 0.00 0.00 0.00 0.00 0.00
- ---------------------------------------------------------------------------------------------
Net Asset Value, end of period $ 4.86 $ 4.43 $ 3.97 $ 3.39 $ 2.51
================================================
TOTAL RETURN(b) 9.71% 11.59% 17.11% 35.06% (25.96%)
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000s) $ 64 $ 33 $ 40 $ 34 $ 20
- ---------------------------------------------------------------------------------------------
Ratios to average net assets:
Expenses with reimbursements, but no
earnings credits or brokerage
offsets(c) 2.17% 2.59% 2.26% 2.76% 3.64%
Expenses with reimbursements, earnings
credits and brokerage offsets 2.16% 2.57% 2.25% 2.76% 3.63%
Net investment loss (1.57%) (1.94%) (1.78%) (2.27%) (3.29%)
- ---------------------------------------------------------------------------------------------
Portfolio turnover rate(d) 157% 211% 147% 160% 216%
</Table>
(a.) COMPUTED USING AVERAGE SHARES OUTSTANDING THROUGHOUT THE PERIOD.
(b.) SALES CHARGES ARE NOT REFLECTED IN THE TOTAL RETURN.
(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 2.17% (2006), 2.59% (2005), 2.26% (2004), 2.76%
(2003) AND 10.30% (2002).
(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>
NOTES TO FINANCIAL STATEMENTS
June 30, 2006 (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). Effective
June 1, 2006, Class B shares will no longer be offered except in connection with
dividend reinvestments and permitted exchanges of Class B shares. 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. New York closing exchange rates are used to convert foreign
currencies to U.S. dollars.
A debt security with a remaining maturity greater than 60 days at the time of
purchase is valued in accordance with the evaluated bid price supplied by a
pricing service approved by the Company's board of directors or, if such price
is not available, at the mean between the highest bid and lowest asked
quotations obtained from at least two securities dealers. A debt security with a
remaining maturity of 60 days or less at the time of purchase is valued at
amortized cost, which approximates market value, unless it is determined that
amortized cost would not represent market value, in which case the securities
would be marked to market. The Fund amortizes premiums and discounts on all debt
securities.
If market quotations 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
26
<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 requires the use of estimates, and as such,
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--The Fund may invest at least a
portion of its assets in foreign securities. Foreign securities carry more risk
than U.S. securities, such as political and currency risks. 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 Fund could be
exposed to risk if counterparties are unable to meet the terms of the contracts
or if the value of the currency changes unfavorably to the U.S. dollar. 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.
The accounting records of the Fund are maintained in U.S. dollars. The market
values of foreign securities, currency holdings and other assets and liabilities
are translated into U.S. dollars based on the current exchange rates each
business day. 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 unrealized gain or loss from investments and foreign
currency translations on the Statement of Operations.
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
27
<Page>
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 Subchapter M 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 from
net investment income (if any) and from net realized capital gains (if any)
annually. Dividends and distributions, which are determined in accordance with
income tax regulations, are recorded on the ex-dividend date.
EXPENSES--Each Class of the Fund bears expenses incurred specifically on its
behalf and, in addition, each Class bears a portion of general expenses based on
the relative net assets or the number of shareholder accounts of the Class. The
type of expense determines the allocation method.
The Company's board of directors has authorized the payment of certain Fund
expenses with commissions on Fund portfolio transactions. These commissions
reduce Other Expenses and are included in the Expense Offset to Broker
Commissions in the Statement of Operations.
USE OF ESTIMATES--The preparation of financial statements in conformity with
accounting principles generally accepted in the United States of America
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported amounts of
income and expenses during the reporting period. Actual results could differ
from those estimates.
INDEMNIFICATIONS--In the normal course of business, the Company enters into
contracts that contain provisions indemnifying other parties against specified
potential liabilities. Each Fund's maximum exposure under these arrangements is
unknown as this would involve future claims that may be made against the Fund
that have not yet occurred. However, based on experience, the Funds expect the
risk of loss to be remote.
OTHER--Certain prior year information has been reformatted, without substantive
change, to conform with the current year presentation.
28
<Page>
2. FEES AND TRANSACTIONS WITH AFFILIATES
ADVISORY FEES--Founders Asset Management LLC ("Founders") serves as investment
adviser to the Fund. Founders is an indirect wholly-owned subsidiary of Mellon
Financial Corporation, a publicly-owned financial services company which
provides a comprehensive range of financial products and services in domestic
and selected international markets.
In accordance with an investment advisory agreement between the Company and
Founders, the Fund compensates Founders for its services as investment adviser
by the payment of fees computed daily and paid monthly at the annual rate equal
to a percentage of the average daily value of the Fund's net assets. The fee is
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 period ended June 30, 2006,
Class F shares were charged $65,635 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 period ended June 30, 2006, Class F shares were
charged $22,555 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 $12.92 to $13.36, 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 period ended June 30, 2006 were as
follows:
TRANSFER
AGENCY
FEES
------------------
Class A $1,457
------------------
Class B $2,127
------------------
Class C $ 457
------------------
Class R $ 75
------------------
Class T $ 136
------------------
29
<Page>
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 period ended June 30, 2006, the Fund was charged $945 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 period ended June
30, 2006, the Fund paid $8,195 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 period ended June 30,
2006, Class F shares were charged $73,534 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 period ended June 30, 2006, were as follows:
DISTRIBUTION SHAREHOLDER
FEES SERVICING FEES
---------------------------------------
Class A N/A $14,473
---------------------------------------
Class B $7,146 $ 2,382
---------------------------------------
Class C $3,118 $ 1,039
---------------------------------------
Class T $ 55 $ 55
---------------------------------------
During the period ended June 30, 2006, DSC retained $7,268 and $3 in sales
commissions from the sales of Class A and Class T shares, respectively. DSC also
retained $3,716 and $155 of contingent deferred sales charges relating to
redemptions of Class B and Class C shares, respectively.
30
<Page>
FUND ACCOUNTING AND ADMINISTRATIVE SERVICES FEES--The Funds have agreed to
compensate Founders for providing accounting services, administration,
compliance monitoring, regulatory and shareholder reporting, as well as related
facilities, equipment and clerical help. The fee is computed at the annual rate
of 0.06% of the average daily net assets of the Fund on the first $500 million,
0.04% of the average daily net assets of the Fund on the next $500 million and
0.02% of the average daily net assets of the Fund in excess of $1 billion, plus
reasonable out-of-pocket expenses. Founders has 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, which are shown as earnings credits on the
Statement of Operations. 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
period and in the amount set forth below:
TIME PERIOD AMOUNT OF WAIVER
------------------------------------
9/1/05 to 8/31/06 $200,000
The fee waiver is allocated among the Funds in proportion to their respective
shares of the total custodian fee. For the period ended June 30, 2006, the
Fund's portion of the fee waiver was $20, which reduced the amount paid to
Mellon Bank to $3,167.
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 Directors'
Deferred Compensation on the Statement of Assets and Liabilities. Changes in
market value are included in the Directors' fees and expenses and the net change
in unrealized appreciation/depreciation of investments on the Statement of
Operations. 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
or its affiliates, which pay 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
31
<Page>
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, deferred compensation, 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, 2005 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, 2005 were:
EXPIRATION AMOUNT
------------------------
2010 $30,227,567
===========
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, 2006 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.
-----------------------------------------------------
Federal Tax Cost $137,966,524
-----------------------------------------------------
Gross Tax Appreciation of Investments $ 17,287,738
-----------------------------------------------------
Gross Tax Depreciation of Investments $ (4,646,676)
-----------------------------------------------------
Net Tax Appreciation $ 12,641,062
-----------------------------------------------------
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:
PERIOD ENDED YEAR ENDED
JUNE 30, 2006 DECEMBER 31, 2005
Shares Amount Shares Amount
CLASS A
- -------------------------------------------------------------------------
Sold 4,020,437 $20,812,386 190,179 $ 807,085
Redeemed (212,087) $(1,103,845) (208,547) $(894,064)
-----------------------------------------------
Net Increase (Decrease) 3,808,350 $19,708,541 (18,368) $ (86,979)
===============================================
32
<Page>
<Table>
<Caption>
PERIOD ENDED YEAR ENDED
JUNE 30, 2006 DECEMBER 31, 2005
SHARES AMOUNT SHARES AMOUNT
CLASS B
- ---------------------------------------------------------------------------------
Sold 74,520 $ 371,206 84,947 $ 353,630
Redeemed (110,358) $ (545,578) (118,554) $ (469,544)
-------------------------------------------------------
Net Decrease (35,838) $ (174,372) (33,607) $ (115,914)
=======================================================
CLASS C
- ---------------------------------------------------------------------------------
Sold 195,153 $ 952,765 44,048 $ 176,957
Redeemed (17,226) $ (81,196) (27,892) $ (114,598)
-------------------------------------------------------
Net Increase 177,927 $ 871,569 16,156 $ 62,359
=======================================================
CLASS F
- ---------------------------------------------------------------------------------
Sold 2,925,992 $ 15,435,871 1,291,586 $ 5,627,660
Redeemed (2,292,105) $(12,021,055) (6,397,317) $(27,026,700)
-------------------------------------------------------
Net Increase (Decrease) 633,887 $ 3,414,816 (5,105,731) $(21,399,040)
=======================================================
CLASS R
- ---------------------------------------------------------------------------------
Sold 272,045 $ 1,453,184 57,080 $ 257,056
Redeemed (80,681) $ (418,916) (11,295) $ (51,229)
-------------------------------------------------------
Net Increase 191,364 $ 1,034,268 45,785 $ 205,827
=======================================================
CLASS T
- ---------------------------------------------------------------------------------
Sold 5,903 $ 29,934 906 $ 4,021
Redeemed (96) $ (489) (3,512) $ (13,726)
-------------------------------------------------------
Net Increase (Decrease) 5,807 $ 29,445 (2,606) $ (9,705)
=======================================================
</Table>
5. INVESTMENT TRANSACTIONS
For the period ended June 30, 2006, purchases and sales of investment securities
(excluding short-term securities and U.S. government obligations) were
$91,284,718 and $68,126,849, respectively.
33
<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, 2006, the Fund did not have any borrowings under the LOC.
34
<Page>
This page intentionally left blank.
<Page>
For More Information
DREYFUS FOUNDERS
MID-CAP GROWTH FUND
MANAGER
Founders Asset
Management LLC
210 University Boulevard
Suite 800
Denver, CO 80206
TRANSFER AGENT &
DIVIDEND DISBURSING AGENT
Dreyfus Transfer, Inc.
200 Park Avenue
New York, NY 10166
DISTRIBUTOR
Dreyfus Service Corporation
200 Park Avenue
New York, NY 10166
TELEPHONE Call your financial representative or 1-800-554-4611
MAIL Dreyfus Founders Funds, Inc.
144 Glenn Curtiss Boulevard, Uniondale, NY 11556-0144
The fund files its complete schedule of portfolio holdings with the Securities
and Exchange Commission ("SEC") for the first and third quarters of each fiscal
year on Form N-Q. The fund's Forms N-Q are available on the SEC's website at
http://www.sec.gov and may be reviewed and copied at the SEC's Public Reference
Room in Washington, DC. Information on the operation of the Public Reference
Room may be obtained by calling 1-202-551-8090.
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, 2006, 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.
(C) 2006 Founders Asset Management LLC
0292SA0606
<Page>
DREYFUS FOUNDERS
PASSPORT FUND
PASSPORT FUND IS CLOSED TO NEW INVESTORS.
PLEASE SEE THE PROSPECTUS FOR ADDITIONAL INFORMATION.
SEMIANNUAL REPORT JUNE 30, 2006
[DREYFUS LOGO]
A MELLON FINANCIAL COMPANY(SM)
<Page>
TABLE OF CONTENTS
Management Overview 3
Fund Expenses 10
Statement of Investments 12
Statement of Assets and Liabilities 21
Statement of Operations 23
Statements of Changes in Net Assets 24
Financial Highlights 25
Notes to Financial Statements 31
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
Founders Asset Management LLC
A MELLON FINANCIAL COMPANY(SM)
210 University Boulevard, Suite 800
Denver, CO 80206
DISTRIBUTOR
Dreyfus Service Corporation
200 Park Avenue
New York, NY 10166
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, 2006. The amounts of
these holdings are included in the Statement of Investments.
NOT FDIC-INSURED - NOT BANK-GUARANTEED - MAY LOSE VALUE
<Page>
MANAGEMENT OVERVIEW
(UNAUDITED)
[PHOTO OF DANIEL B. LEVAN]
[PHOTO OF JOHN W. EVERS]
A DISCUSSION WITH CO-PORTFOLIO MANAGERS DANIEL B. LEVAN, CFA, LEFT, AND JOHN W.
EVERS, CFA, REGARDING FUND PERFORMANCE FOR THE SIX-MONTH PERIOD ENDED JUNE 30,
2006.
GLOBAL EXPANSION SHOWED SIGNS OF CONTRACTION
Equity markets extended a three-year rally during the first four months of 2006,
as merger activity and earnings announcements overshadowed a hawkish tone in
global monetary policy. However, macroeconomic fears precipitated a major
sell-off in global equity markets beginning in May, which continued through the
middle of June. Investors had long enjoyed benign inflation, low interest rates
and exceptional global expansion driven mainly by U.S. demand; however, as the
United States began facing a slowdown in the housing market, currency weakness
and rising consumer prices, markets responded in kind. Under the untested
leadership of new Federal Reserve Chairman Ben Bernanke, monetary policy makers
tried to balance several variables to orchestrate a soft landing. Though the
correction is not likely a secular bear market in the making, it was a healthy
contraction in some overpriced countries and sectors.
"MACROECONOMIC FEARS PRECIPITATED A MAJOR SELL-OFF IN GLOBAL EQUITY MARKETS
BEGINNING IN MAY..."
During the period, the United Kingdom was swept up in
merger-and-acquisition (M&A) enthusiasm despite some weakness in the
structurally challenged media sector. Airport operator BAA rejected what it
considered to be an inadequate bid from Spanish-based Grupo Ferrovial. Also in
the Eurozone, with employment vacancies rising, the IFO business sentiment index
hitting new highs and a new government in place, German equities remained a
favorite among investors looking for the next consumer recovery.
The Asian sector saw Japan staging a resounding rebound last year, after
years of fitful attempts at sustaining local consumption. As a result, Japan
suffered more profit taking during the correction period of mid-May to mid-June,
relative to Europe. Japanese exporters and commercial banks dropped
3
<Page>
during the six month period as the yen strengthened against the U.S. dollar.
Machinery orders and general exports were down, while the high cost of oil sent
imports and producer prices higher. Elsewhere in Asia, the growing appetite for
energy and basic materials in China and India helped to create growth
opportunities for companies involved in such sectors.
For the six-month period ended June 30, 2006, Dreyfus Founders Passport
Fund outperformed(1) its benchmark, the Standard & Poor's/Citigroup Extended
Market Index ex-U.S., which rose 11.03%.
PORTFOLIO COMPOSITION REMAINED CONSISTENT
As the current investment team took up management of the Fund in the fourth
quarter of last year, no major shifts in portfolio compositions have occurred
during the past six months. The Fund was broadly diversified across all 10
sectors and across most countries in the Index. Overall, we have continued to
use a bottom-up, intensive research-driven approach in composing the Fund,
uncovering stocks we believe are capable of posting strong future revenues and
earning growth at attractive valuations.
COUNTRIES AIDED FUND PERFORMANCE
Strong stock selection in France and the United Kingdom positively contributed
to the Fund's relative performance during the period. Additionally, solid stock
picking in Japan, paired with an underweight position, further supported the
Fund's outperformance. The Fund's underweight position in Australia, combined
with a favorable selection of stocks, also aided the Fund.
INDUSTRIALS AND MATERIALS BOOSTED RELATIVE RETURN
The Fund's stock selection in the industrials, materials, consumer discretionary
and consumer staples sectors provided the largest boost to the Fund's relative
performance versus the benchmark.
SECTORS BENEFITING THE FUND
Industrials
Materials
Consumer Discretionary
Among the most robust performers within the Fund's industrials holdings was
French construction firm EIFFAGE SA. Eiffage released results for 2005 above
expectations as a result of the favorable market conditions for France's
construction sector. A Spanish peer also began establishing a stake in Eiffage
for strategic purposes, further supporting the stock's price increase.
- ----------
(1) Excluding sales charges, which result in lower returns for certain share
classes. Please see page 7 for Average Annual and Year-to-Date Returns for
all share classes, including and excluding sales charges.
4
<Page>
The materials sector overall was aided by large-scale M&A activity at the
end of the period. These bids indicated that certain industry management teams
believe the robust metals cycle will continue. Additionally, diversified mining
stocks held up after tremendous price appreciation during 2005.
The Fund's metals and mining securities performed exceptionally well during
the period as VALLOUREC SA, OXIANA LIMITED and INMET MINING CORPORATION were the
top three performing stocks in the Fund, based on their contribution to the
Fund's total return. Vallourec, the French metal tubing maker, experienced
robust demand for drill tubes and well equipment, continuing price increases and
the stabilization of raw materials prices. Australian copper, zinc and gold
miner Oxiana also experienced a share price increase as the company benefited
from an upbeat metal price environment and reported strong production at its
zinc mine, Golden Grove. Canadian mining firm Inmet saw its stock price rise
with the posting of solid figures as a result of robust metal prices and strong
demand. In addition, Finnish provider of systems and total solutions to the
construction and mechanical engineering industries, RAUTARUUKKI OYJ, experienced
healthy demand for all the company's divisions and benefited from increases in
steel prices.
INDIVIDUAL PERFORMERS HELPED FUND PERFORMANCE
Notable performance during the period was also found in individual Fund
holdings. Financials issue INMOBILIARIA URBIS SA, the Spanish real-estate firm,
LARGEST EQUITY HOLDINGS (country of origin; ticker symbol)
1. INMET MINING CORPORATION (Canada; IMN) 1.32%
2. OXIANA LIMITED (Australia; OXR) 1.17%
3. MITSUBISHI GAS CHEMICAL COMPANY, INC. (Japan; 4182) 1.16%
4. TRICAN WELL SERVICE LIMITED (Canada; TCW) 0.96%
5. INMOBILIARIA URBIS SA (Spain; URB) 0.95%
6. IPSCO, INC. (Canada; IPS) 0.89%
7. BOEHLER-UDDEHOLM AG (Austria; BUD) 0.82%
8. RECORD INVESTMENTS LIMITED (Australia; RCD) 0.81%
9. HENGAN INTERNATIONAL GROUP COMPANY LIMITED (Hong Kong; 1044) 0.80%
10. VALLOUREC SA (France; VK) 0.79%
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]
<Table>
<Caption>
DREYFUS
FOUNDERS
PASSPORT S&P/
FUND - CITIGROUP EMI
CLASS F WORLD EX US
---------- -------------
6/28/1996 $10,000.00 $10,000.00
6/30/1997 $11,132.58 $10,219.49
6/30/1998 $12,888.24 $10,276.33
6/30/1999 $12,890.76 $10,625.23
6/30/2000 $19,867.59 $12,216.71
6/29/2001 $12,126.48 $10,061.68
6/30/2003 $10,941.27 $10,039.91
6/30/2004 $16,044.27 $14,493.29
6/30/2005 $18,623.20 $17,436.21
6/30/2006 $24,977.26 $22,917.52
</Table>
The above graph compares a $10,000 investment made in Class F shares of Dreyfus
Founders Passport Fund on 6/30/96 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 S&P/Citigroup EMI World ex U.S. represents, on a country-by-country basis,
the small- capitalization component of the Citigroup Broad Market Index(SM),
which is a comprehensive float-weighted index of companies in 26 countries
(excluding the U.S.) with market capitalizations of at least $100 million. 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 6/30/06
YEAR-TO- 1 5 10 SINCE
CLASS (INCEPTION DATE) DATE+ YEAR YEARS YEARS INCEPTION
- --------------------------------------------------------------------------------
A SHARES (12/31/99)
With sales charge (5.75%) 6.66% 26.46% 14.13% -- 0.96%
Without sales charge 13.18% 34.14% 15.50% -- 1.89%
B SHARES (12/31/99)
With redemption* 8.70% 29.00% 14.30% -- 1.06%
Without redemption 12.70% 33.00% 14.53% -- 1.06%
C SHARES (12/31/99)
With redemption** 11.76% 32.09% 14.55% -- 1.07%
Without redemption 12.76% 33.09% 14.55% -- 1.07%
F SHARES (11/16/93) 13.18% 34.12% 15.55% 9.59% 10.22%
R SHARES (12/31/99) 13.32% 34.44% 14.86% -- 1.51%
T SHARES (12/31/99)
With sales charge (4.50%) 7.93% 27.65% 13.41% -- 0.41%
Without sales charge 13.00% 33.64% 14.46% -- 1.12%
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>
performed solidly on higher housing development sales and reiterated its
full-year forecasts. NOBIA AB, the Swedish bedroom and bathroom interior
provider, reported strong earnings as a result of a recent acquisition, and
experienced its ninth consecutive quarter with double-digit organic sales growth
in the Nordic region.
GERMANY, CANADA AND SINGAPORE BURDENED FUND
The most significant detractors on a country basis came from weak stock
selection in Germany, Canada and Singapore. Additionally, an underweight
position in Sweden detracted from the Fund's return.
ENERGY, HEALTH CARE AND FINANCIALS HAMPERED RETURN
The most notable detractors to relative performance for the period were the
energy, health care and financial sectors, primarily through weak stock
selection. The threat of military action in the Middle East, as Iran denounced
Israel, was exacerbated by ongoing tension in the Nigerian Delta. As a result,
the price of oil remained persistently high during the period. However, the
Fund's overweight position in this strong-performing sector in the benchmark was
not enough to offset its weak stock picking. TRICAN WELL SERVICE, one of these
poor-performing energy stocks, released fourth quarter 2005 results that were in
line with forecasts; however, the stock's price fell as a result of the
deterioration in North American gas prices and because of profit taking.
[CHART]
<Table>
<Caption>
PORTFOLIO COMPOSITION OF NET ASSETS
19.12% Japan
18.80% United Kingdom
9.80% France
6.95% Germany
5.82% Canada
5.36% Switzerland
4.60% Italy
4.55% Netherland
3.98% Spain
3.66% Australia
16.43% Other Countries
0.93% Cash & Equivalents
</Table>
The Fund's portfolio composition is subject to change, and there is no assurance
the Fund will continue to hold any particular security. Opinions regarding
sectors, industries, companies, and/or themes are those of the portfolio
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>
SECTORS DETRACTING FROM THE FUND
Energy
Health Care
Financials
Numerous financials securities, particularly real-estate stocks, were among
the worst performing stocks in the Fund for the period. Japanese real-estate
stock URBAN CORPORATION nearly doubled in price during the fourth quarter of
2005, but gave back some of that increase in the first quarter. Shares fell
after investors were disappointed by in-line results and less positive guidance.
KENEDIX, INC., another Japanese real-estate holding, fell due to profit taking
and after an announcement made by Nikkei stating "accounting regulations
governing investment partnerships and special-purpose companies...are to be
tightened." This announcement had a negative impact industry-wide in Japan.
German real-estate firm VIVACON AG announced the postponement of the initial
public offering of company spin-off, Vivacon German Properties, given the
current volatility in the market. This announcement sent the stock price lower.
SELECT IT ISSUES CAME UP SHORT
Although the information technology (IT) sector in the Fund produced an overall
positive effect, select IT stocks weighed heavily on the Fund's return. JURONG
TECHNOLOGIES INDUSTRIAL CORPORATION LIMITED, a Singapore circuit boards and
electronic products provider, saw its stock price fall on concerns regarding its
merger with Maxtor Corporation and its weakening strength in Western Europe.
Hong Kong IC solutions provider for cellular phones and handheld displays,
SOLOMON SYSTECH INTERNATIONAL LIMITED, released first quarter results below
expectations as a result of slowing demand due to increased inventories in the
MP3 market.
We continue to believe that consistent exposure to companies with improving
business momentum will be rewarded by the market over the long term. Hence, as
we move into the second half of 2006, the portfolio composition remains largely
unchanged. We expect that the Fund will continue to look similar to our
benchmark along country and sector lines, such that the management team can
remain focused on seeking the most attractive securities within each sector.
/s/ Daniel B. LeVan /s/ John W. Evers
- ----------------------------------- ----------------------------------------
Daniel B. LeVan, CFA John W. Evers, 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, 2006
and held through June 30, 2006.
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, together with the amount you
invested, 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
BEGINNING ENDING EXPENSES PAID
ACCOUNT VALUE ACCOUNT VALUE DURING PERIOD*
(1/1/06) (6/30/06) (1/1/06-6/30/06)
- --------------------------------------------------------------------------------
CLASS A ACTUAL $1,000.00 $1,131.80 $ 8.99
CLASS A HYPOTHETICAL 1,000.00 1,016.26 8.53
CLASS B ACTUAL 1,000.00 1,127.00 13.87
CLASS B HYPOTHETICAL 1,000.00 1,011.59 13.20
CLASS C ACTUAL 1,000.00 1,127.60 13.19
CLASS C HYPOTHETICAL 1,000.00 1,012.24 12.55
CLASS F ACTUAL 1,000.00 1,131.80 9.25
CLASS F HYPOTHETICAL 1,000.00 1,016.01 8.79
CLASS R ACTUAL 1,000.00 1,133.20 7.99
CLASS R HYPOTHETICAL 1,000.00 1,017.21 7.58
CLASS T ACTUAL 1,000.00 1,130.00 11.04
CLASS T HYPOTHETICAL 1,000.00 1,014.30 10.49
* 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.
EXPENSE RATIO
- -----------------------
CLASS A 1.70%
CLASS B 2.63%
CLASS C 2.50%
CLASS F 1.75%
CLASS R 1.51%
CLASS T 2.09%
11
<Page>
STATEMENT OF INVESTMENTS
June 30, 2006 (UNAUDITED)
SHARES MARKET VALUE
- --------------------------------------------------------------------------------
COMMON STOCKS (FOREIGN)--97.2%
ADVERTISING--1.2%
9,030 Publicis Groupe (FR) $ 348,815
101,010 Taylor Nelson Sofres PLC (UK) 435,195
14,110 Teleperformance (FR) 564,544
----------
1,348,554
----------
AEROSPACE & DEFENSE--0.8%
21,679 Chemring Group PLC (UK) 468,816
29,000 Japan Aviation Electronics Industry Limited (JA) 406,466
----------
875,282
----------
AGRICULTURAL PRODUCTS--0.4%
31,100 Cermaq ASA (NW) 419,669
----------
AIRLINES--0.6%
97,330 British Airways PLC (UK)* 616,861
----------
ALTERNATIVE CARRIERS--0.4%
72,520 Carphone Warehouse PLC (UK) 425,760
----------
APPAREL RETAIL--0.5%
15,050 Xebio Company Limited (JA) 514,204
----------
APPAREL, ACCESSORIES & LUXURY GOODS--0.5%
12,800 Gildan Activewear, Inc. (CA)* 605,314
----------
APPLICATION SOFTWARE--0.6%
18,700 Nippon Systems Development Company (JA) 648,715
----------
ASSET MANAGEMENT & CUSTODY BANKS--0.6%
29,110 Azimut Holding SPA (IT) 303,462
17,180 Schroder's PLC (UK) 320,854
----------
624,316
----------
AUTO PARTS & EQUIPMENT--1.2%
23,000 Exedy Corporation (JA) 723,523
15,100 Keihin Corporation (JA) 323,930
13,300 Nissin Kogyo Company Limited (JA) 245,221
----------
1,292,674
----------
BIOTECHNOLOGY--0.4%
4,450 Actelion Limited (SZ)* 448,421
----------
BREWERS--0.4%
20,040 Wolverhampton & Dudley Breweries PLC (UK) 476,913
----------
AU Australia
AT Austria
BE Belgium
CA Canada
DE Denmark
FI Finland
FR France
GE Germany
GR Greece
HK Hong Kong
IE Ireland
IT Italy
JA Japan
KR South Korea
NE Netherlands
NW Norway
PT Portugal
SG Singapore
SP Spain
SW Sweden
SZ Switzerland
UK United Kingdom
12
<Page>
SHARES MARKET VALUE
- --------------------------------------------------------------------------------
BROADCASTING & CABLE TV--0.4%
15,600 Astral Media, Inc. (CA) $ 487,439
----------
BUILDING PRODUCTS--0.4%
390 Geberit AG (SZ) 451,055
----------
COMMODITY CHEMICALS--0.4%
52,000 Mitsubishi Rayon Company Limited (JA) 423,488
----------
COMMUNICATIONS EQUIPMENT--1.3%
23,400 LG Telecom Limited (KR)* 305,834
15,150 Option NV (BE)* 363,344
45,800 Tandberg Television ASA (NW)* 759,667
----------
1,428,845
----------
COMPUTER HARDWARE--0.3%
2,820 Wincor Nixdorf AG (GE) 358,001
----------
COMPUTER STORAGE & PERIPHERALS--0.1%
117,000 Jurong Technologies Industrial Corporation
Limited (SG) 73,915
----------
CONSTRUCTION & ENGINEERING--5.3%
18,410 ACS, Actividades de Construccion y Servicios SA (SP) 767,908
30,000 Comsys Holdings Corporation (JA) 370,150
6,890 Eiffage SA (FR) 583,420
10,200 Hyundai Development Company (KR) 440,791
16,895 Kier Group PLC (UK) 470,798
39,600 Koninklijke BAM Groep NV (NE) 787,137
53,000 Kyowa Exeo Corporation (JA) 684,498
26,810 Morgan Sindall PLC (UK) 566,143
11,531 Speedy Hire PLC (UK) 186,569
3,900 Vinci SA (FR) 401,823
22,900 YIT Oyj (FI) 561,516
----------
5,820,753
----------
CONSTRUCTION MATERIALS--0.8%
2,910 Ciments Francais SA (FR) 483,511
4,470 Imerys SA (FR) 357,348
----------
840,859
----------
CONSTRUCTION, FARM MACHINERY & HEAVY TRUCKS--1.4%
5,300 Aker Yards AS (NW) 372,922
22,000 Hitachi Construction Machinery Company Limited (JA) 529,623
5,900 Hyundai Mipo Dockyard Company Limited (KR) 590,777
----------
1,493,322
----------
CONSUMER FINANCE--1.1%
73,890 Cattles PLC (UK) 449,857
14,400 Sumisho Lease Company Limited (JA) 799,021
----------
1,248,878
----------
DEPARTMENT STORES--0.9%
4,900 Hyundai Department Store Company Limited (KR) 378,572
15,500 Izumi Company Limited (JA) 564,794
----------
943,366
----------
SEE NOTES TO STATEMENT OF INVESTMENTS.
13
<Page>
SHARES MARKET VALUE
- --------------------------------------------------------------------------------
DISTILLERS & VINTNERS--1.1%
89,310 C&C Group PLC (IE) $ 775,665
41,870 Davide Campari-Milano SPA (IT) 434,071
----------
1,209,736
----------
DISTRIBUTORS--0.8%
75,200 Inchcape PLC (UK) 657,027
168,650 Pacific Brands Limited (AU) 269,449
----------
926,476
----------
DIVERSIFIED BANKS--5.2%
73,550 Banco BPI SA (PT) 558,822
19,420 Banco de Sabadell SA (SP) 679,377
31,070 Banco Popolare de Verona e Novara Scrl (IT) 832,587
40,170 Banco Popolare di Milano (IT) 512,016
1,260 Banque Cantonale Vaudoise (SZ) 430,787
42,050 Credito Emiliano SPA (IT) 519,305
7,480 Deutsche Postbank AG (GE) 537,798
9,100 Jyske Bank AS (DE)* 527,410
3,300 Natexis Banques Populaires (FR) 759,363
39,000 Wing Hang Bank Limited (HK) 341,475
----------
5,698,940
----------
DIVERSIFIED CAPITAL MARKETS--1.4%
37,370 Close Brothers Group PLC (UK) 629,513
96,920 Record Investments Limited (AU) 889,472
----------
1,518,985
----------
DIVERSIFIED CHEMICALS--1.5%
10,200 Lanxess (GE)* 401,320
111,000 Mitsubishi Gas Chemical Company, Inc. (JA) 1,272,562
----------
1,673,882
----------
DIVERSIFIED COMMERCIAL & PROFESSIONAL SERVICES--0.7%
78,340 Downer EDI Limited (AU) 433,120
182,430 Regus Group PLC (UK)* 369,380
----------
802,500
----------
DIVERSIFIED METALS & MINING--2.0%
38,700 Inmet Mining Corporation (CA) 1,445,660
28,620 Vedanta Resources PLC (UK) 721,321
----------
2,166,981
----------
ELECTRIC UTILITIES--1.9%
139,150 International Power PLC (UK) 732,030
180,070 Terna SPA (IT) 480,233
11,950 Union Electrica Fenosa SA (SP) 462,531
20,210 Viridian Group PLC (UK) 357,449
----------
2,032,243
----------
ELECTRICAL COMPONENTS & EQUIPMENT--1.5%
11,400 Chiypda Integre Company Limited (JA) 299,843
50,000 Dainippon Screen Manufacturing Company Limited (JA) 457,882
11,690 Leoni AG (GE) 440,954
6,210 Nexans SA (FR) 442,834
----------
1,641,513
----------
14
<Page>
SHARES MARKET VALUE
- --------------------------------------------------------------------------------
ELECTRONIC EQUIPMENT MANUFACTURERS--1.7%
36,060 CSR PLC (UK)* $ 840,155
2,929 Intops Company Limited (KR) 69,462
69,920 Laird Group PLC (UK) 504,231
34,000 Yaskawa Electric Corporation (JA) 395,142
----------
1,808,990
----------
ENVIRONMENTAL & FACILITIES SERVICES--0.4%
14,000 Asahi Pretec Corporation (JA) 446,522
----------
FOOD RETAIL--0.5%
8,100 Delhaize Group (BE) 561,550
----------
GENERAL MERCHANDISE STORES--0.9%
16,200 Don Quijote Company Limited (JA) 366,638
8,100 Ryohin Keikaku Company Limited (JA) 663,911
----------
1,030,549
----------
GOLD--1.2%
543,450 Oxiana Limited (AU) 1,276,140
----------
HEALTHCARE DISTRIBUTORS--0.7%
26,300 Alliance Unichem PLC (UK) 497,016
17,400 Toho Pharmaceutical Company Limited (JA) 307,891
----------
804,907
----------
HEALTHCARE EQUIPMENT--2.0%
49,000 Amplifon SPA (IT) 417,108
6,800 Biomerieux (FR) 401,842
11,950 Cochlear Limited (AU) 485,122
18,800 Getinge AB Class B (SW) 320,003
8,160 Phonak Holding AG (SZ) 510,250
----------
2,134,325
----------
HEALTHCARE FACILITIES--0.3%
43,980 Ramsay Health Care Limited (AU) 314,073
----------
HOME IMPROVEMENT RETAIL--1.1%
31,970 Grafton Group PLC Units (IE)* 402,794
23,100 Nobia AB (SW) 751,084
----------
1,153,878
----------
HOMEBUILDING--1.8%
21,260 Barratt Developments PLC (UK) 372,679
16,120 Fadesa Inmobiliaria SA (SP) 553,004
19,100 Joint Corporation (JA) 622,536
19,710 Persimmon PLC (UK) 449,744
----------
1,997,963
----------
HOTELS, RESORTS & CRUISE LINES--1.8%
130,230 First Choice Holidays PLC (UK) 550,853
1,100 Kuoni Reisen Holding AG (SZ)* 617,209
3,690 Pierre & Vacances (FR) 404,493
23,000 Sol Melia SA (SP) 370,977
----------
1,943,532
----------
SEE NOTES TO STATEMENT OF INVESTMENTS.
15
<Page>
SHARES MARKET VALUE
- --------------------------------------------------------------------------------
HOUSEHOLD APPLIANCES--0.4%
13,200 Makita Corporation (JA) $ 417,546
----------
HUMAN RESOURCE & EMPLOYMENT SERVICES--1.1%
95,420 Michael Page International PLC (UK) 618,430
7,670 USG People NV (NE) 586,679
----------
1,205,109
----------
INDUSTRIAL CONGLOMERATES--1.1%
8,840 Aalberts Industries NV (NE) 649,601
59,600 Cookson Group PLC (UK) 578,863
----------
1,228,464
----------
INDUSTRIAL MACHINERY--5.6%
70,800 Bodycote International PLC (UK) 331,548
43,390 Charter PLC (UK)* 647,079
26,200 CKD Corporation (JA) 406,599
1,070 Fischer Georg AG (SZ)* 459,472
13,750 Haulotte Group (FR) 394,842
7,770 Man AG (GE) 563,320
18,100 Mori Seiki Company Limited (JA) 391,450
83,000 Nachi-Fujikoshi Corporation (JA) 467,800
44,000 NTN Corporation (JA) 347,955
19,100 OSG Corporation (JA) 321,616
1,460 Rieter Holding AG (SZ) 561,263
680 Sulzer AG (SZ) 509,472
60,000 Toshiba Machine Company Limited (JA) 678,434
----------
6,080,850
----------
INSURANCE BROKERS--0.4%
7,290 April Group (FR) 391,355
----------
INTEGRATED OIL & GAS--0.4%
22,080 Enagas (SP) 471,085
----------
INTERNET SOFTWARE & SERVICES--0.7%
9,470 Iliad SA (FR) 792,195
----------
INVESTMENT BANKING & BROKERAGE--0.3%
21,300 Canaccord Capital, Inc. (CA) 338,113
----------
IT CONSULTING & OTHER SERVICES--1.1%
16,180 Alten (FR)* 589,831
171,250 Northgate Information Solutions PLC (UK)* 245,412
121,000 WM Data AB Class B (SW) 373,249
----------
1,208,492
----------
LEISURE PRODUCTS--0.4%
62,480 Sportingbet PLC (UK) 454,621
----------
LIFE & HEALTH INSURANCE--0.4%
4,700 CNP Assurances (FR) 446,975
----------
MULTI-LINE INSURANCE--0.8%
69,180 Amlin PLC (UK) 301,895
72,110 Milano Assicurazioni SPA (IT) 526,206
----------
828,101
----------
16
<Page>
SHARES MARKET VALUE
- --------------------------------------------------------------------------------
OFFICE SERVICES & SUPPLIES--0.8%
3,310 Bacou Dalloz (FR) $ 394,169
30,840 Buhrmann NV (NE) 447,334
----------
841,503
----------
OIL & GAS DRILLING--0.7%
35,600 Ensign Energy Services, Inc. (CA) 731,581
----------
OIL & GAS EQUIPMENT & SERVICES--3.3%
2,500 Compagnie Generale de Geophysique SA (FR)* 431,376
17,680 Fugro NV (NE) 762,560
22,800 SBM Offshore NV (NE) 607,767
40,800 TGS Nopec Geophysical Company ASA (NW)* 720,975
52,500 Trican Well Service Limited (CA) 1,048,777
----------
3,571,455
----------
OIL & GAS EXPLORATION & PRODUCTION--1.2%
29,710 Burren Energy PLC (UK) 479,052
107,200 Oil Search Limited (AU) 326,611
71,210 Tullow Oil PLC (UK) 503,000
----------
1,308,663
----------
OIL & GAS REFINING & MARKETING--0.3%
98,000 Singapore Petroleum Company Limited (SG) 312,654
----------
OTHER DIVERSIFIED FINANCIAL SERVICES--0.6%
142 Kenedix, Inc. (JA) 616,690
----------
PACKAGED FOODS & MEATS--1.5%
1,800 Barry Callebaut AG (SZ) 759,692
25,260 IAWS Group PLC (IE) 445,879
45,800 Katokichi Company Limited (JA) 460,241
----------
1,665,812
----------
PAPER PACKAGING--0.4%
64,000 Rengo Company Limited (JA) 483,747
----------
PERSONAL PRODUCTS--0.8%
536,000 Hengan International Group Company Limited (HK) 873,054
----------
PHARMACEUTICALS--1.8%
30,000 Dainippon Sumitomo Pharma Company Limited (JA) 336,858
2,820 Hanmi Pharmaceutical Industrial Company Limited (KR) 282,372
62,820 Recordati SPA (IT) 458,816
10,010 Stada Arzneimittel AG (GE) 398,454
18,000 Tsumura & Company (JA) 512,758
----------
1,989,258
----------
PHOTOGRAPHIC PRODUCTS--0.4%
24,400 Tamron Company Limited (JA) 408,088
----------
SEE NOTES TO STATEMENT OF INVESTMENTS.
17
<Page>
SHARES MARKET VALUE
- --------------------------------------------------------------------------------
PROPERTY & CASUALTY INSURANCE--3.0%
35,680 Admiral Group PLC (UK) $ 409,713
32,020 Dongbu Insurance Company Limited (KR) 803,242
7,600 Euler Hermes SA (FR) 838,936
13,200 Fondiaria-Sai SPA (IT) 539,616
21,700 Kingsway Financial Services, Inc. (CA) 392,089
11,300 Northbridge Financial Corporation (CA) 333,544
----------
3,317,140
----------
PUBLISHING--1.2%
61,530 Informa PLC (UK) 490,659
4,860 Lagardere SCA (FR) 358,688
34,850 United Business Media PLC (UK) 417,259
----------
1,266,606
----------
REAL ESTATE MANAGEMENT & DEVELOPMENT--3.5%
1,184,000 China Overseas Land & Investment Limited (HK) 720,343
68 Creed Corporation (JA) 268,577
39,970 Inmobiliaria Urbis SA (SP) 1,040,406
16,900 Leopalace21 Corporation (JA) 583,319
26,400 Urban Corporation (JA) 318,812
18,360 Vivacon AG (GE)* 410,740
24,800 Wihlborgs Fastigheter AB (SW) 427,301
----------
3,769,498
----------
REGIONAL BANKS--0.7%
33,200 Pusan Bank (KR) 423,420
26,000 Suruga Bank Limited (JA) 350,332
----------
773,752
----------
RESTAURANTS--1.5%
32,930 Enterprise Inns PLC (UK) 577,249
41,680 Greene King PLC (UK) 633,909
107,652 Restaurant Group PLC (UK) 403,595
----------
1,614,753
----------
SEMICONDUCTOR EQUIPMENT--0.8%
15,320 Silicon-On-Insulator Technologies (FR)* 453,251
12,200 Ulvac, Inc. (JA) 416,830
----------
870,081
----------
SEMICONDUCTORS--0.6%
1,224,000 Solomon Systech International Limited (HK) 308,904
631,000 STATS ChipPAC Limited (SG)* 396,642
----------
705,546
----------
SPECIALIZED FINANCE--1.0%
5,820 Deutsche Boerse AG (GE) 794,164
11,900 Ricoh Leasing Company Limited (JA) 344,189
----------
1,138,353
----------
18
<Page>
SHARES MARKET VALUE
- --------------------------------------------------------------------------------
SPECIALTY CHEMICALS--3.6%
68,200 Croda International PLC (UK) $ 547,000
12,570 Koninklijke DSM NV (NE) 523,509
53,000 Nippon Shokubai Company Limited (JA) 647,912
680 Sika AG (SZ)* 756,421
4,570 Umicore (BE) 610,269
26,940 Victrex PLC (UK) 383,576
36,000 Zeon Corporation (JA) 428,452
------------
3,897,139
------------
SPECIALTY STORES--0.7%
1,600 Valora Holding AG (SZ) 346,802
45,830 WH Smith PLC (UK) 412,707
------------
759,509
------------
STEEL--3.2%
16,400 Boehler-Uddeholm AG (AT) 896,777
10,200 IPSCO, Inc. (CA) 976,506
26,700 Rautaruukki Oyj (FI) 806,669
720 Vallourec SA (FR) 865,695
------------
3,545,647
------------
SYSTEMS SOFTWARE--0.4%
8,060 Software AG (GE) 421,042
------------
TECHNOLOGY DISTRIBUTORS--0.6%
29,600 Simm Tech Company Limited (KR) 315,109
45,430 Wolfson Microelectronics PLC (UK)* 375,923
------------
691,032
------------
THRIFTS & MORTGAGE FINANCE--0.3%
6,050 Hypo Real Estate Holding AG (GE) 366,807
------------
TIRES & RUBBER--0.8%
7,960 Continental AG (GE) 814,734
------------
TRADING COMPANIES & DISTRIBUTORS--1.7%
20,400 Hitachi High-Technologies Corporation (JA) 620,343
38,740 SIG PLC (UK) 630,385
12,750 Univar NV (NE) 604,231
------------
1,854,959
------------
WIRELESS TELECOMMUNICATION SERVICES--0.6%
235,000 MobileOne Limited (SG) 307,316
4,200 Mobistar SA (BE) 333,346
------------
640,662
------------
TOTAL COMMON STOCKS (FOREIGN) (COST--$87,433,732) 106,122,960
------------
SEE NOTES TO STATEMENT OF INVESTMENTS.
19
<Page>
SHARES MARKET VALUE
- --------------------------------------------------------------------------------
PREFERRED STOCKS (FOREIGN)--1.9%
APPAREL, ACCESSORIES & LUXURY GOODS--0.4%
9,710 Hugo Boss AG Preferred (GE) $ 410,731
----------
BROADCASTING & CABLE TV--0.3%
13,700 ProSiebenSat.1 Media AG Preferred (GE) 342,062
----------
HEALTHCARE EQUIPMENT--0.6%
3,910 Fresenius AG Preferred (GE) 651,117
----------
HOUSEHOLD PRODUCTS--0.6%
6,010 Henkel KGAA Preferred (GE) 687,176
----------
TOTAL PREFERRED STOCKS (FOREIGN)
(COST--$1,821,089) 2,091,086
----------
UNITS MARKET VALUE
- --------------------------------------------------------------------------------
FOREIGN RIGHTS AND WARRANTS--0.0%
REAL ESTATE MANAGEMENT & DEVELOPMENT--0.0%
148,000 China Overseas Land & Investment Limited Warrant,
exp. 7/18/07 (HK)* $4,288
------
TOTAL FOREIGN RIGHTS AND WARRANTS
(COST--$0) 4,288
------
PRINCIPAL AMOUNT AMORTIZED COST
- --------------------------------------------------------------------------------
CORPORATE SHORT-TERM NOTES--0.9%
SPECIAL PURPOSE ENTITY--0.9%
$1,000,000 CAFCO LLC 5.33% 7/3/06~ $ 999,704
------------
TOTAL CORPORATE SHORT-TERM NOTES (AMORTIZED COST--$999,704) 999,704
------------
TOTAL INVESTMENTS--100.0% (TOTAL COST--$90,254,525) 109,218,038
------------
OTHER ASSETS AND LIABILITIES--0.0% 34,211
------------
NET ASSETS--100.0% $109,252,249
============
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 $999,704, OR 0.9%, OF THE FUND'S NET ASSETS AS OF JUNE 30,
2006.
SEE NOTES TO FINANCIAL STATEMENTS.
20
<Page>
STATEMENT OF ASSETS AND LIABILITIES
June 30, 2006 (UNAUDITED)
ASSETS
- --------------------------------------------------------------------------------
Investment securities, at cost $ 90,254,525
-------------
Investment securities, at market 109,218,038
Cash 190,015
Foreign currency (cost $166,123) 165,691
Receivables:
Investment securities sold 678,193
Capital shares sold 92,910
Dividends and interest 63,437
From transfer agent 4,562
Other assets 248,017
-------------
Total Assets 110,660,863
-------------
LIABILITIES
- --------------------------------------------------------------------------------
Payables and other accrued liabilities:
Investment securities purchased 459,109
Capital shares redeemed 653,954
Advisory fees 87,912
Shareholder servicing fees 13,721
Accounting fees 8,791
Distribution fees 26,398
Transfer agency fees 28,490
Custodian fees 3,148
To transfer agent 2,161
Directors' deferred compensation 116,177
Other 8,753
-------------
Total Liabilities 1,408,614
-------------
Net Assets $ 109,252,249
=============
COMPOSITION OF NET ASSETS
- --------------------------------------------------------------------------------
Capital (par value and paid-in surplus) $ 203,202,976
Undistributed net investment income 184,939
Accumulated net realized loss from security
and foreign currency transactions (113,130,474)
Net unrealized appreciation on investments
and foreign currency translation 18,994,808
-------------
Total $ 109,252,249
=============
SEE NOTES TO FINANCIAL STATEMENTS.
21
<Page>
CLASS A
- --------------------------------------------------------------------------------
Net Assets $33,526,120
Shares Outstanding 1,473,510
Net Asset Value, Redemption Price Per Share $ 22.75
Maximum offering price per share (net asset value
plus sales charge of 5.75% of offering price) $ 24.14
CLASS B
- --------------------------------------------------------------------------------
Net Assets $ 4,924,848
Shares Outstanding 228,477
Net Asset Value, Offering and Redemption Price (excluding
applicable contingent deferred sales charge) Per Share $ 21.56
CLASS C
- --------------------------------------------------------------------------------
Net Assets $ 6,938,029
Shares Outstanding 321,820
Net Asset Value, Offering and Redemption Price (excluding
applicable contingent deferred sales charge) Per Share $ 21.56
CLASS F
- --------------------------------------------------------------------------------
Net Assets $63,197,856
Shares Outstanding 2,777,091
Net Asset Value, Offering and Redemption Price Per Share $ 22.76
CLASS R
- --------------------------------------------------------------------------------
Net Assets $ 187,102
Shares Outstanding 8,424
Net Asset Value, Offering and Redemption Price Per Share $ 22.21
CLASS T
- --------------------------------------------------------------------------------
Net Assets $ 478,294
Shares Outstanding 22,092
Net Asset Value, Redemption Price Per Share $ 21.65
Maximum offering price per share (net asset value
plus sales charge of 4.50% of offering price) $ 22.67
SEE NOTES TO FINANCIAL STATEMENTS.
22
<Page>
STATEMENT OF OPERATIONS
For the six months ended June 30, 2006 (UNAUDITED)
INVESTMENT INCOME
- --------------------------------------------------------------------------------
Dividends $ 1,493,734
Interest 16,665
Foreign taxes withheld (169,235)
------------
Total Investment Income 1,341,164
------------
EXPENSES
- --------------------------------------------------------------------------------
Advisory fees--Note 2 570,438
Shareholder servicing fees--Note 2 88,679
Accounting fees--Note 2 57,044
Distribution fees--Note 2 146,797
Transfer agency fees--Note 2 49,027
Registration fees 32,255
Postage and mailing expenses 5,100
Custodian fees and expenses--Note 2 97,815
Printing expenses 21,165
Legal and audit fees 19,785
Directors' fees and expenses--Note 2 26,897
Other expenses 33,378
------------
Total Expenses 1,148,380
Earnings Credits (3,188)
Reimbursed/Waived Expenses (67,835)
Expense Offset to Broker Commissions (1,164)
------------
Net Expenses 1,076,193
------------
Net Investment Income 264,971
------------
REALIZED AND UNREALIZED GAIN (LOSS) ON SECURITY TRANSACTIONS AND
FOREIGN CURRENCY TRANSACTIONS
- --------------------------------------------------------------------------------
Net Realized Gain (Loss) on:
Security Transactions 5,554,415
Closing of Futures Contracts (41,950)
Foreign Currency Transactions 12,481
------------
Net Realized Gain 5,524,946
Net Change in Unrealized Appreciation/Depreciation
of Investments and Foreign Currency Translation 8,354,925
------------
Net Realized and Unrealized Gain 13,879,871
------------
Net Increase in Net Assets Resulting from Operations $14,144,842
============
SEE NOTES TO FINANCIAL STATEMENTS.
23
<Page>
STATEMENTS OF CHANGES IN NET ASSETS
(UNAUDITED)
<Table>
<Caption>
SIX MONTHS ENDED YEAR ENDED
JUNE 30, 2006 DECEMBER 31, 2005
OPERATIONS
- --------------------------------------------------------------------------------------------
Net Investment Income (Loss) $ 264,971 $ (1,089,649)
Net Realized Gain on Security and Foreign
Currency Transactions 5,524,946 19,668,576
Net Change in Unrealized Appreciation/Depreciation
of Investments and Foreign Currency Translation 8,354,925 46,812
------------ -------------
Net Increase in Net Assets Resulting from Operations 14,144,842 18,625,739
------------ -------------
CAPITAL SHARE TRANSACTIONS
- --------------------------------------------------------------------------------------------
Net Increase (Decrease)--Note 4
Class A 8,250,157 (1,068,075)
Class B (13,288,663) (4,356,640)
Class C (1,597,212) (3,909,744)
Class F (9,041,808) (22,526,616)
Class R (153,662) 73,085
Class T (23,461) (144,420)
------------ -------------
Net Decrease from Capital Share Transactions (15,854,649) (31,932,410)
------------ -------------
Net Decrease in Net Assets (1,709,807) (13,306,671)
------------ -------------
NET ASSETS
- --------------------------------------------------------------------------------------------
Beginning of Period $110,962,056 $124,268,727
------------ -------------
End of Period $109,252,249 $110,962,056
============ =============
Undistributed (Accumulated)
Net Investment Income (Loss) $ 184,939 $ (80,032)
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
24
<Page>
FINANCIAL HIGHLIGHTS
(UNAUDITED)
<Table>
<Caption>
SIX MONTHS YEAR ENDED
ENDED JUNE 30, DECEMBER 31,
2006 2005 2004 2003 2002
-------------- ---------------------------------------------
CLASS A SHARES
PER SHARE OPERATING DATA
Net Asset Value, beginning of period $ 20.10 $ 16.76 $ 14.24 $ 8.14 $ 9.68
- ---------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) 0.09(a) (0.14)(a) (0.11)(a) 0.10 (0.16)
Net realized and unrealized gains
(losses) on securities 2.56 3.48 2.63 6.00 (1.38)
--------------------------------------------------------------
Total from investment operations 2.65 3.34 2.52 6.10 (1.54)
- ---------------------------------------------------------------------------------------------------------------
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 $ 22.75 $ 20.10 $ 16.76 $ 14.24 $ 8.14
==============================================================
TOTAL RETURN(b) 13.18% 19.93% 17.70% 74.94% (15.91%)
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000s) $33,526 $22,107 $19,726 $27,252 $ 9,422
- ---------------------------------------------------------------------------------------------------------------
Ratios to average net assets:
Expenses with reimbursements, but
no earnings credits or brokerage offsets(c) 1.70% 2.14% 1.92% 2.45% 2.24%
Expenses with reimbursements,
earnings credits and brokerage offsets 1.70% 2.12% 1.92% 2.45% 2.24%
Net investment income (loss) 0.80% (0.82%) (0.77%) (0.83%) (0.80%)
- ---------------------------------------------------------------------------------------------------------------
Portfolio turnover rate(d) 398% 729% 648% 707% 495%
</Table>
(a.) COMPUTED USING AVERAGE SHARES OUTSTANDING THROUGHOUT THE PERIOD.
(b.) SALES CHARGES ARE NOT REFLECTED IN THE TOTAL RETURN.
(c.) CERTAIN FEES WERE WAIVED BY THE CUSTODIAN. HAD THESE FEES NOT BEEN WAIVED,
THE EXPENSE RATIOS WOULD HAVE BEEN 1.83% (2006), 2.29% (2005), 2.02%
(2004), 2.54% (2003) AND 2.27% (2002).
(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,
2006 2005 2004 2003 2002
-------------- ----------------------------------------------
CLASS B SHARES
PER SHARE OPERATING DATA
Net Asset Value, beginning of period $19.13 $ 16.09 $ 13.79 $ 7.95 $ 9.54
- ----------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment loss (0.07)(a) (0.28)(a) (0.23)(a) (0.31) (0.29)
Net realized and unrealized gains
(losses) on securities 2.50 3.32 2.53 6.15 (1.30)
---------------------------------------------------------------
Total from investment operations 2.43 3.04 2.30 5.84 (1.59)
- ----------------------------------------------------------------------------------------------------------------
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 $21.56 $ 19.13 $ 16.09 $ 13.79 $ 7.95
===============================================================
TOTAL RETURN(b) 12.70% 18.89% 16.68% 73.46% (16.67%)
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000s) $4,925 $16,421 $17,917 $18,198 $12,810
- ----------------------------------------------------------------------------------------------------------------
Ratios to average net assets:
Expenses with reimbursements, but
no earnings credits or brokerage offsets(c) 2.63% 2.98% 2.79% 3.30% 3.09%
Expenses with reimbursements,
earnings credits and brokerage offsets 2.63% 2.97% 2.78% 3.29% 3.09%
Net investment loss (0.76%) (1.66%) (1.63%) (1.44%) (1.64%)
- ----------------------------------------------------------------------------------------------------------------
Portfolio turnover rate(d) 398% 729% 648% 707% 495%
</Table>
(a.) COMPUTED USING AVERAGE SHARES OUTSTANDING THROUGHOUT THE PERIOD.
(b.) SALES CHARGES ARE NOT REFLECTED IN THE TOTAL RETURN.
(c.) CERTAIN FEES WERE WAIVED BY THE CUSTODIAN. HAD THESE FEES NOT BEEN WAIVED,
THE EXPENSE RATIOS WOULD HAVE BEEN 2.73% (2006), 3.13% (2005), 2.89%
(2004), 3.38% (2003) AND 3.12% (2002).
(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,
2006 2005 2004 2003 2002
-------------- --------------------------------------------
CLASS C SHARES
PER SHARE OPERATING DATA
Net Asset Value, beginning of period $19.12 $16.07 $ 13.76 $ 7.93 $ 9.52
- --------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment loss (0.01)(a) (0.27)(a) (0.22)(a) (0.01) (0.35)
Net realized and unrealized gains
(losses) on securities 2.45 3.32 2.53 5.84 (1.24)
-------------------------------------------------------------
Total from investment operations 2.44 3.05 2.31 5.83 (1.59)
- --------------------------------------------------------------------------------------------------------------
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 $21.56 $19.12 $ 16.07 $ 13.76 $ 7.93
=============================================================
TOTAL RETURN(b) 12.76% 18.98% 16.79% 73.52% (16.70%)
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000s) $6,938 $7,568 $10,249 $10,639 $ 5,268
- --------------------------------------------------------------------------------------------------------------
Ratios to average net assets:
Expenses with reimbursements, but
no earnings credits or brokerage offsets(c) 2.51% 2.93% 2.71% 3.25% 3.06%
Expenses with reimbursements,
earnings credits and brokerage offsets 2.50% 2.92% 2.70% 3.25% 3.05%
Net investment loss (0.14%) (1.60%) (1.55%) (1.43%) (1.58%)
- --------------------------------------------------------------------------------------------------------------
Portfolio turnover rate(d) 398% 729% 648% 707% 495%
</Table>
(a.) COMPUTED USING AVERAGE SHARES OUTSTANDING THROUGHOUT THE PERIOD.
(b.) SALES CHARGES ARE NOT REFLECTED IN THE TOTAL RETURN.
(c.) CERTAIN FEES WERE WAIVED BY THE CUSTODIAN. HAD THESE FEES NOT BEEN WAIVED,
THE EXPENSE RATIOS WOULD HAVE BEEN 2.63% (2006), 3.08% (2005), 2.81%
(2004), 3.34% (2003) AND 3.08% (2002).
(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,
2006 2005 2004 2003 2002
-------------- ----------------------------------------------
CLASS F SHARES
PER SHARE OPERATING DATA
Net Asset Value, beginning of period $ 20.11 $ 16.76 $ 14.24 $ 8.13 $ 9.67
- ----------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) 0.07(a) (0.13)(a) (0.11)(a) (0.14) (0.23)
Net realized and unrealized gains
(losses) on securities 2.58 3.48 2.63 6.25 (1.31)
---------------------------------------------------------------
Total from investment operations 2.65 3.35 2.52 6.11 (1.54)
- ----------------------------------------------------------------------------------------------------------------
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 $ 22.76 $ 20.11 $ 16.76 $ 14.24 $ 8.13
===============================================================
TOTAL RETURN 13.18% 19.99% 17.70% 75.15% (15.93%)
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000s) $63,198 $64,112 $75,677 $78,759 $50,742
- ----------------------------------------------------------------------------------------------------------------
Ratios to average net assets:
Expenses with reimbursements, but
no earnings credits or brokerage offsets(b) 1.76% 2.10% 1.90% 2.31% 2.18%
Expenses with reimbursements,
earnings credits and brokerage offsets 1.75% 2.08% 1.89% 2.31% 2.18%
Net investment income (loss) 0.59% (0.76%) (0.75%) (0.45%) (0.74%)
- ----------------------------------------------------------------------------------------------------------------
Portfolio turnover rate(c) 398% 729% 648% 707% 495%
</Table>
(a.) COMPUTED USING AVERAGE SHARES OUTSTANDING THROUGHOUT THE PERIOD.
(b.) CERTAIN FEES WERE WAIVED BY THE CUSTODIAN. HAD THESE FEES NOT BEEN WAIVED,
THE EXPENSE RATIOS WOULD HAVE BEEN 1.88% (2006), 2.24% (2005), 2.00%
(2004), 2.40% (2003) AND 2.21% (2002).
(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.
28
<Page>
<Table>
<Caption>
SIX MONTHS YEAR ENDED
ENDED JUNE 30, DECEMBER 31,
2006 2005 2004 2003 2002
-------------- -----------------------------------------
CLASS R SHARES PER SHARE OPERATING DATA
Net Asset Value, beginning of period $19.60 $ 16.31 $13.82 $ 7.87 $ 9.56
- ----------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) 0.08(a) (0.12)(a) (0.07)(a) 0.54 (0.81)
Net realized and unrealized gains
(losses) on securities 2.53 3.41 2.56 5.41 (0.88)
----------------------------------------------------------
Total from investment operations 2.61 3.29 2.49 5.95 (1.69)
- ----------------------------------------------------------------------------------------------------
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 $22.21 $ 19.60 $16.31 $13.82 $ 7.87
==========================================================
TOTAL RETURN 13.32% 20.17% 18.02% 75.60% (17.68%)
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000s) $ 187 $ 310 $ 190 $ 142 $ 37
- ----------------------------------------------------------------------------------------------------
Ratios to average net assets:
Expenses with reimbursements, but no
earnings credits or brokerage
offsets(b) 1.52% 1.91% 1.68% 2.08% 3.94%
Expenses with reimbursements, earnings
credits and brokerage offsets 1.51% 1.89% 1.68% 2.07% 3.91%
Net investment income (loss) 0.81% (0.69%) (0.51%) (0.32%) (2.20%)
- ----------------------------------------------------------------------------------------------------
Portfolio turnover rate(c) 398% 729% 648% 707% 495%
</Table>
(a.) COMPUTED USING AVERAGE SHARES OUTSTANDING THROUGHOUT THE PERIOD.
(b.) CERTAIN FEES WERE WAIVED BY THE CUSTODIAN. HAD THESE FEES NOT BEEN WAIVED,
THE EXPENSE RATIOS WOULD HAVE BEEN 1.63% (2006), 2.08% (2005), 1.79%
(2004), 2.17% (2003) AND 4.65% (2002).
(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.
29
<Page>
<Table>
<Caption>
SIX MONTHS YEAR ENDED
ENDED JUNE 30, DECEMBER 31,
2006 2005 2004 2003 2002
-------------- -----------------------------------------
CLASS T SHARES PER SHARE OPERATING DATA
Net Asset Value, beginning of period $19.16 $16.05 $13.70 $ 7.87 $ 9.50
- ----------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) 0.03(a) (0.21)(a) (0.17)(a) (0.24) (0.45)
Net realized and unrealized gains
(losses) on securities 2.46 3.32 2.52 6.07 (1.18)
----------------------------------------------------------
Total from investment operations 2.49 3.11 2.35 5.83 (1.63)
- ----------------------------------------------------------------------------------------------------
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 $21.65 $19.16 $16.05 $13.70 $ 7.87
==========================================================
TOTAL RETURN(b) 13.00% 19.38% 17.15% 74.08% (17.16%)
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000s) $ 478 $ 444 $ 510 $ 522 $ 345
- ----------------------------------------------------------------------------------------------------
Ratios to average net assets:
Expenses with reimbursements, but no
earnings credits or brokerage
offsets(c) 2.10% 2.55% 2.37% 3.07% 4.03%
Expenses with reimbursements, earnings
credits and brokerage offsets 2.09% 2.54% 2.36% 3.07% 4.03%
Net investment income (loss) 0.29% (1.24%) (1.21%) (1.06%) (2.69%)
- ----------------------------------------------------------------------------------------------------
Portfolio turnover rate(d) 398% 729% 648% 707% 495%
</Table>
(a.) COMPUTED USING AVERAGE SHARES OUTSTANDING THROUGHOUT THE PERIOD.
(b.) SALES CHARGES ARE NOT REFLECTED IN THE TOTAL RETURN.
(c.) CERTAIN FEES WERE WAIVED BY THE CUSTODIAN. HAD THESE FEES NOT BEEN WAIVED,
THE EXPENSE RATIOS WOULD HAVE BEEN 2.22% (2006), 2.70% (2005), 2.47%
(2004), 3.16% (2003) AND 4.05% (2002).
(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.
30
<Page>
NOTES TO FINANCIAL STATEMENTS
June 30, 2006 (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). Effective June 1, 2006,
Class B shares will no longer be offered except in connection with dividend
reinvestments and permitted exchanges of Class B shares. 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. New York closing exchange rates are used to convert foreign
currencies to U.S. dollars.
A debt security with a remaining maturity greater than 60 days at the time of
purchase is valued in accordance with the evaluated bid price supplied by a
pricing service approved by the Company's board of directors or, if such price
is not available, at the mean between the highest bid and lowest asked
quotations obtained from at least two securities dealers. A debt security with a
remaining maturity of 60 days or less at the time of purchase is valued at
amortized cost, which approximates market value, unless it is determined that
amortized cost would not represent market value, in which case the securities
would be marked to market. The Fund amortizes premiums and discounts on all debt
securities.
If market quotations 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
31
<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 requires the use of estimates, and as such,
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--The Fund normally will invest a
large portion of its assets in foreign securities. Foreign securities carry more
risk than U.S. securities, such as political and currency risks. 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 Fund
could be exposed to risk if counterparties are unable to meet the terms of the
contracts or if the value of the currency changes unfavorably to the U.S.
dollar. 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, 2006 for settling
foreign trades is listed on the Statement of Assets and Liabilities.
The accounting records of the Fund are maintained in U.S. dollars. The market
values of foreign securities, currency holdings and other assets and liabilities
are translated into U.S. dollars based on the current exchange rates each
business day. 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 unrealized gain or loss from investments and foreign
currency translations on the Statement of Operations.
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
32
<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 Subchapter M 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 from
net investment income (if any) and from net realized capital gains (if any)
annually. Dividends and distributions, which are determined in accordance with
income tax regulations, are recorded on the ex-dividend date.
EXPENSES--Each Class of the Fund bears expenses incurred specifically on its
behalf and, in addition, each Class bears a portion of general expenses based on
the relative net assets or the number of shareholder accounts of the Class. The
type of expense determines the allocation method.
The Company's board of directors has authorized the payment of certain Fund
expenses with commissions on Fund portfolio transactions. These commissions
reduce Other Expenses and are included in the Expense Offset to Broker
Commissions in the Statement of Operations.
USE OF ESTIMATES--The preparation of financial statements in conformity with
accounting principles generally accepted in the United States of America
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported amounts of
income and expenses during the reporting period. Actual results could differ
from those estimates.
INDEMNIFICATIONS--In the normal course of business, the Company enters into
contracts that contain provisions indemnifying other parties against specified
potential liabilities. Each Fund's maximum exposure under these arrangements is
unknown as this would involve future claims that may be made against the Fund
that have not yet occurred. However, based on experience, the Funds expect the
risk of loss to be remote.
OTHER--Certain prior year information has been reformatted, without substantive
change, to conform with the current year presentation.
33
<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
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 period ended June 30, 2006,
Class F shares were charged $27,975 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 period ended June 30, 2006, Class F shares were
charged $8,395 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 $12.92 to $13.36, 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 period ended June 30, 2006 were as
follows:
TRANSFER
AGENCY FEES
---------------------
Class A $ 7,425
---------------------
Class B $12,139
---------------------
Class C $ 4,457
---------------------
Class R $ 131
---------------------
Class T $ 475
34
<Page>
Certain as-of shareholder transactions may result in gains or losses to the
Fund. Depending on the circumstances, these gains may be payable to, or
reimbursable from, the transfer agent; such gains and losses are presented on
the Statement of Assets and Liabilities.
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 period ended June 30, 2006, the Fund was charged $809 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 period ended June
30, 2006, the Fund paid $16,005 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 period ended June 30,
2006, Class F shares were charged $81,635 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 period ended June 30, 2006, were as follows:
DISTRIBUTION SHAREHOLDER
FEES SERVICING FEES
---------------------------------------
Class A N/A $38,582
---------------------------------------
Class B $34,876 $11,625
---------------------------------------
Class C $29,683 $ 9,894
---------------------------------------
Class T $ 603 $ 603
---------------------------------------
35
<Page>
During the period ended June 30, 2006, DSC retained $284 in sales commissions
from the sales of Class A shares. DSC also retained $10,844 and $589 of
contingent deferred sales charges relating to redemptions of Class B and Class C
shares, respectively.
FUND ACCOUNTING AND ADMINISTRATIVE SERVICES FEES--The Funds have agreed to
compensate Founders for providing accounting services, administration,
compliance monitoring, regulatory and shareholder reporting, as well as related
facilities, equipment and clerical help. The fee is computed at the annual rate
of 0.10% of the average daily net assets of the Fund on the first $500 million,
0.065% of the average daily net assets of the Fund on the next $500 million and
0.02% of the average daily net assets of the Fund in excess of $1 billion, plus
reasonable out-of-pocket expenses. Founders has 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, which are shown as earnings credits on the
Statement of Operations. 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
period and in the amount set forth below:
TIME PERIOD AMOUNT OF WAIVER
------------------------------------
9/1/05 to 8/31/06 $200,000
------------------------------------
The fee waiver is allocated among the Funds in proportion to their respective
shares of the total custodian fee. For the period ended June 30, 2006, the
Fund's portion of the fee waiver was $67,835, which reduced the amount paid to
Mellon Bank to $29,980.
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 Directors'
Deferred Compensation on the Statement of Assets and Liabilities. Changes in
market value are included in the Directors' fees and expenses and the net change
in unrealized appreciation/depreciation of investments on the Statement of
Operations. 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
or its affiliates, which pay 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.
36
<Page>
OTHER--During the period ended June 30, 2006, Founders reimbursed the Fund
$3,661 for a trading error. An affiliate of Founders reimbursed the Fund $11,226
for trading errors. The amounts were not material to the Fund.
3. FEDERAL TAX INFORMATION
Net investment income and capital gains distributions are determined in
accordance with income tax regulations that may differ from accounting
principles generally accepted in the United States of America. These differences
are due to differing treatments for items such as deferral of wash sale losses,
passive foreign investment corporations, foreign currency transactions, deferred
compensation, 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, 2005 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, 2005 were:
EXPIRATION AMOUNT
---------------------------------------------------
2009 $105,273,118
---------------------------------------------------
2010 $ 11,833,084
---------------------------------------------------
$117,106,202
============
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, 2006 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.
Post-October Capital Loss Deferral $(1,461,360)
---------------------------------------------------
Federal Tax Cost $90,307,229
---------------------------------------------------
Gross Tax Appreciation of Investments $20,960,939
---------------------------------------------------
Gross Tax Depreciation of Investments $(2,050,130)
---------------------------------------------------
Net Tax Appreciation $18,910,809
---------------------------------------------------
37
<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:
PERIOD ENDED YEAR ENDED
JUNE 30, 2006 DECEMBER 31, 2005
SHARES AMOUNT SHARES AMOUNT
CLASS A
- -----------------------------------------------------------------------------
Sold 624,845 $ 13,908,499 431,931 $ 7,916,442
Redeemed (251,235) $ (5,658,342) (509,206) $ (8,984,517)
---------------------------------------------------
Net Increase (Decrease) 373,610 $ 8,250,157 (77,275) $ (1,068,075)
===================================================
CLASS B
- -----------------------------------------------------------------------------
Sold 4,858 $ 101,668 19,176 $ 327,743
Redeemed (634,700) $(13,390,331) (274,566) $ (4,684,383)
---------------------------------------------------
Net Decrease (629,842) $(13,288,663) (255,390) $ (4,356,640)
===================================================
CLASS C
- -----------------------------------------------------------------------------
Sold 15,130 $ 331,312 77,684 $ 1,393,853
Redeemed (89,115) $ (1,928,524) (319,650) $ (5,303,597)
---------------------------------------------------
Net Decrease (73,985) $ (1,597,212) (241,966) $ (3,909,744)
===================================================
CLASS F
- -----------------------------------------------------------------------------
Sold 126,369 $ 2,854,593 456,877 $8,160,585
Redeemed (537,774) $(11,896,401) (1,783,478) $(30,687,201)
---------------------------------------------------
Net Decrease (411,405) $ (9,041,808) (1,326,601) $(22,526,616)
===================================================
CLASS R
- -----------------------------------------------------------------------------
Sold 2,065 $ 44,272 25,002 $ 458,697
Redeemed (9,476) $ (197,934) (20,814) $ (385,612)
---------------------------------------------------
Net Increase (Decrease) (7,411) $ (153,662) 4,188 $ 73,085
===================================================
CLASS T
- -----------------------------------------------------------------------------
Sold 4 $ 96 4,248 $ 79,625
Redeemed (1,098) $ (23,557) (12,834) $ (224,045)
---------------------------------------------------
Net Decrease (1,094) $ (23,461) (8,586) $ (144,420)
===================================================
38
<Page>
5. INVESTMENT TRANSACTIONS
For the period ended June 30, 2006, purchases and sales of investment securities
(excluding short-term securities and U.S. government obligations) were
$39,427,474 and $55,083,866, respectively.
6. FUTURES CONTRACTS
The Fund may invest in financial futures contracts in order to gain exposure to
or protect against changes in the market. The Fund is exposed to market risk as
a result of changes in the value of the underlying financial instruments.
Investments in financial futures require the Fund to mark to market on a daily
basis, which reflects the change in market value of the contracts at the close
of each day's trading. Accordingly, variation margin payments are received or
made to reflect daily unrealized gains or losses. When the contracts are closed,
the Fund recognizes a realized gain or loss. These investments require initial
margin deposits with a broker, which consist of cash or cash equivalents. There
were no contracts open at June 30, 2006.
7. 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, 2006, the Fund did not have any borrowings under the LOC.
39
<Page>
For More Information
DREYFUS FOUNDERS
PASSPORT FUND
MANAGER
Founders Asset
Management LLC
210 University Boulevard
Suite 800
Denver, CO 80206
TRANSFER AGENT &
DIVIDEND DISBURSING AGENT
Dreyfus Transfer, Inc.
200 Park Avenue
New York, NY 10166
DISTRIBUTOR
Dreyfus Service Corporation
200 Park Avenue
New York, NY 10166
TELEPHONE Call your financial representative or 1-800-554-4611
MAIL Dreyfus Founders Funds, Inc.
144 Glenn Curtiss Boulevard, Uniondale, NY 11556-0144
The fund files its complete schedule of portfolio holdings with the Securities
and Exchange Commission ("SEC") for the first and third quarters of each fiscal
year on Form N-Q. The fund's Forms N-Q are available on the SEC's website at
http://www.sec.gov and may be reviewed and copied at the SEC's Public Reference
Room in Washington, DC. Information on the operation of the Public Reference
Room may be obtained by calling 1-202-551-8090.
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, 2006, 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.
SEE NOTES TO FINANCIAL STATEMENTS.
(C) 2006 Founders Asset Management LLC
0281SA0606
<Page>
DREYFUS FOUNDERS
WORLDWIDE GROWTH
FUND
SEMIANNUAL REPORT JUNE 30, 2006
[DREYFUS LOGO]
A MELLON FINANCIAL COMPANY(SM)
<Page>
TABLE OF CONTENTS
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
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
Founders Asset Management LLC
A MELLON FINANCIAL COMPANY(SM)
210 University Boulevard, Suite 800
Denver, CO 80206
DISTRIBUTOR
Dreyfus Service Corporation
200 Park Avenue
New York, NY 10166
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, 2006. The amounts of
these holdings are included in the Statement of Investments.
NOT FDIC-INSURED - NOT BANK-GUARANTEED - MAY LOSE VALUE
<Page>
MANAGEMENT OVERVIEW
(UNAUDITED)
[PHOTO OF REMI J. BROWNE]
[PHOTO OF JEFFREY R. SULLIVAN]
[PHOTO OF JOHN JARES]
A DISCUSSION WITH CO-PORTFOLIO MANAGERS REMI J. BROWNE, CFA, LEFT, JEFFREY R.
SULLIVAN, CFA SECOND FROM LEFT, AND JOHN JARES, CFA, RIGHT, REGARDING FUND
PERFORMANCE FOR THE SIX-MONTH PERIOD ENDED JUNE 30, 2006.
VOLATILE GLOBAL MARKETS
For the first four months of 2006, global equity markets continued the rally
that began three years ago. Strong earnings announcements and an increase in
merger-and-acquisition (M&A) activity, paired with generally benign inflation,
historically low interest rates and an ongoing economic expansion, drove
investor activity. However, later in the period, the United States faced
numerous macroeconomic issues that prompted a reversal in the global equity
markets. A slowdown in the housing market, U.S. dollar weakness, rising consumer
prices and the continued interest rate increases by the Federal Reserve began to
weigh on investors, initiating global market declines mid-May through mid-June.
Dreyfus Founders Worldwide Growth Fund underperformed its benchmark, the
Morgan Stanley Capital International (MSCI) World Index, which returned 6.06%
for the six-month period ended June 30, 2006, but outperformed(1) its other
benchmark, the MSCI World Growth Index, which returned 4.22% for the same
period.
CONSISTENT INVESTING STRATEGY
The positioning of the Fund was not substantially altered during the period, nor
was the investment strategy behind the Fund. We continued to analyze
- ----------
(1) Excluding sales charges, which result in lower returns for certain share
classes. Please see page 7 for Average Annual and Year-to-Date 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, but do not reflect
the costs of managing a mutual fund.
3
<Page>
companies through proprietary analysis, Wall Street data and meetings with
company management, among other resources, seeking solid growth opportunities at
attractive valuations. This investment approach served the Fund well, as strong
stock selection proved to be the principal positive impact on the Fund's
relative return for the period.
"STRONG STOCK SELECTION PROVED TO BE THE PRINCIPAL POSITIVE IMPACT ON THE FUND'S
RELATIVE RETURN FOR THE PERIOD."
U.S., U.K. AND GERMANY WERE PRIMARY AIDS TO PERFORMANCE
The largest positive contributors to relative Fund performance on a country
basis were the United States, the United Kingdom (U.K.) and Germany, primarily
due to strong stock selection. Investor optimism and strong market activity in
the first four months of the period boosted the United States' performance.
An overweight position in oil-exporting Norway and favorable stock
selection in Hong Kong also aided the Fund.
MATERIALS AND CONSUMER STOCKS BOOSTED RELATIVE RETURN
For the period, the materials sector was the strongest performing sector in the
Fund. Increased M&A activity aided materials firms at the end of the period,
with large bids indicating that the robust metals cycle was expected to
continue. The U.K.-based metals and mining company XSTRATA PLC had a strong run
during the period, as many metal prices experienced strong appreciation. In
addition, Xstrata announced a $1.7 billion acquisition of a Columbian coal mine,
giving the company increased exposure to the strong U.S. coal market. NUCOR
CORPORATION, a U.S.-based steel producer, saw its stock price increase over 60%
for the period.
SECTORS BENEFITING THE FUND
Materials
Consumer Staples
Consumer Discretionary
The consumer staples and consumer discretionary sectors also positively impacted
the Fund's relative return primarily through solid stock picking, but also
through an overweight position in the consumer staples sector. Consumer
discretionary issues BEST BUY COMPANY, INC., Pixar, Inc. and Kohl's Corporation
were among the strongest performing stocks in the Fund. Best Buy's stock price
rose on strong
4
<Page>
consumer spending on a variety of products, including HDTVs, MP3 players and
digital video and photography equipment. Pixar, Inc. saw its stock price
increase on strong demand for its animated feature-length, family-friendly
films. Kohl's experienced improved revenue and earnings growth trends driven by
higher sales as the department store industry saw a reduction in capacity.
SELECT ISSUES PERFORMED STRONGLY
Other notable performers during the period included industrials issue
CONTINENTAL AIRLINES, INC. and Schering AG. Late in 2005, the airline industry
experienced a wave of extreme capacity rationalization. This resulted in a
significant reduction in supply, which in turn created strong pricing trends for
the entire industry, including Continental. The German pharmaceuticals provider
Schering AG was caught in an acquisition bidding war between Bayer AG and MERCK
KGAA during the period. The stock rose 50% on the bidding.
SWEDEN, SPAIN AND CANADA WERE PRIMARY WEIGHTS ON PERFORMANCE
Weak stock selection, combined with poor relative allocations in Sweden, Spain
and Canada, detracted from relative Fund performance. Weak stock selection in
Denmark also produced a negative effect on the Fund for the period.
LARGEST EQUITY HOLDINGS (country of origin; ticker symbol)
1. GLAXOSMITHKLINE PLC (United Kingdom; GSK) 1.57%
2. HEWLETT-PACKARD COMPANY (United States; HPQ) 1.55%
3. EXXONMOBIL CORPORATION (United States; XOM) 1.53%
4. ROCHE HOLDING AG (Switzerland; RO.G) 1.48%
5. CISCO SYSTEMS, INC. (United States; CSCO) 1.46%
6. WALGREEN COMPANY (United States; WAG) 1.43%
7. BHP BILLITON LIMITED (Australia; BHP) 1.43%
8. SEAGATE TECHNOLOGY (United States; SGAT) 1.37%
9. GOOGLE, INC. CLASS A (United States; GOOG) 1.31%
10. BEST BUY COMPANY, INC. (United States; BBY) 1.31%
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]
<Table>
<Caption>
DREYFUS FOUNDERS
WORLDWIDE GROWTH MSCI
FUND-CLASS F WORLD INDEX
---------------- -----------
6/28/1996 $10,000.00 $10,000.00
6/30/1997 $11,325.72 $12,227.34
6/30/1998 $13,020.32 $14,309.55
6/30/1999 $13,119.34 $16,551.56
6/30/2000 $17,744.19 $18,569.72
6/29/2001 $11,882.24 $14,800.69
6/28/2002 $ 8,998.65 $12,548.63
6/30/2003 $ 8,586.71 $12,250.71
6/30/2004 $10,728.80 $15,191.29
6/30/2005 $11,653.39 $16,718.22
6/30/2006 $13,804.64 $19,548.89
</Table>
The above graph compares a $10,000 investment made in Class F shares of Dreyfus
Founders Worldwide Growth Fund on 6/30/96 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 6/30/06
YEAR-TO- SINCE
CLASS (INCEPTION DATE) DATE+ 1 YEAR 5 YEARS 10 YEARS INCEPTION
- ------------------------------------------------------------------------------
A SHARES (12/31/99)
With sales charge (5.75%) (0.33%) 11.66% 1.63% -- (5.30%)
Without sales charge 5.77% 18.44% 2.85% -- (4.43%)
B SHARES (12/31/99)
With redemption* 1.30% 13.60% 1.81% -- (5.13%)
Without redemption 5.30% 17.60% 2.18% -- (5.13%)
C SHARES (12/31/99)
With redemption** 4.26% 16.53% 1.78% -- (5.42%)
Without redemption 5.26% 17.53% 1.78% -- (5.42%)
F SHARES (12/29/89) 5.75% 18.46% 3.04% 3.28% 7.78%
R SHARES (12/31/99) 5.92% 19.42% 3.57% -- (3.92%)
T SHARES (12/31/99)
With sales charge (4.50%) 0.86% 12.84% 0.74% -- (6.06%)
Without sales charge 5.63% 18.15% 1.67% -- (5.39%)
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.
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>
INFORMATION TECHNOLOGY, INDUSTRIALS AND ENERGY HAMPERED FUND
A substantial overweight position in the information technology (IT) sector
caused the largest drain on Fund performance. INTEL CORPORATION, MOTOROLA, INC.,
SEAGATE TECHNOLOGIES, INC. and ADOBE SYSTEMS, INC. were among the weakest
overall performers in the Fund for the period. Intel Corporation lost market
share to a competitor, which resulted in poor revenue growth and margin
deterioration. Adobe moderated revenue and earnings growth expectations during
the second quarter of 2006, primarily due to weak sales as customers awaited the
launch of the company's upgraded software packages.
SECTORS DETRACTING FROM THE FUND
Information Technology
Industrials
Energy
In the industrials sector, the French-listed company EADS announced a
profit warning in June, as delays of the new Airbus A380 series of commercial
jets will negatively impact earnings going forward.
Poor stock selection in the energy sector also weighed on relative
performance. Oil- and gas-services provider TRICAN WELL SERVICE LIMITED released
fourth quarter 2005 results that were in line with forecasts. The stock,
however, fell as a result of the deterioration in North American gas prices and
profit taking.
[CHART]
<Table>
<Caption>
PORTFOLIO COMPOSITION OF NET ASSETS
47.99% United States
10.95% United Kingdom
10.89% Japan
5.44% France
4.41% Switzerland
4.01% Germany
2.58% Canada
2.54% Australia
2.04% Netherlands
1.76% Italy
6.35% Other Countries
1.04% Cash & Equivalents
</Table>
The Fund's portfolio composition is subject to change, and there is no assurance
the Fund will continue to hold any particular security. Opinions regarding
sectors, industries, companies, and/or themes are those of the portfolio
managers and are subject to change at any time, based on market and other
conditions, and should not be construed as a recommendation of any specific
security.
8
<Page>
OTHER NOTABLE UNDERPERFORMERS
Other individual issues also experienced poor performance during the period.
Health care holding BOSTON SCIENTIFIC CORPORATION acquired medical-device maker
Guidant Corporation early in the year. After the acquisition closed, demand for
medical devices, including Guidant's implantable cardioverter defibrillators
(ICDs), slackened. The Japanese home appliances and computer retailer Yamada
Denki Company Limited's stock price fell as a result of profit taking.
We have been cautiously optimistic regarding global markets due to the
relatively strong returns generated by the world's big exporters, Japan and
Germany, and the seemingly limitless appetite for commodity stocks. Economic
fundamentals have improved across Europe and Japan, which should help offset a
slowdown in U.S. consumption.
As always, we remain committed to our investment philosophy. Regardless of
macroeconomic trends, we continue to search for growth stocks that have an
attractive combination of business momentum and valuation.
/s/ Remi J. Browne /s/ Jeffrey R. Sullivan
- -------------------------------------- ---------------------------------------
Remi J. Browne, CFA Jeffrey R. Sullivan, CFA
Co-Portfolio Manager Co-Portfolio Manager
/s/ John B. Jares
- --------------------------------------
John Jares, CFA
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, 2006
and held through June 30, 2006.
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, together with the amount you
invested, 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
BEGINNING ENDING EXPENSES PAID
ACCOUNT VALUE ACCOUNT VALUE DURING PERIOD*
(1/1/06) (6/30/06) (1/1/06-6/30/06)
- -----------------------------------------------------------------------
CLASS A ACTUAL $1,000.00 $1,057.70 $ 9.95
CLASS A HYPOTHETICAL 1,000.00 1,015.00 9.79
CLASS B ACTUAL 1,000.00 1,053.00 13.90
CLASS B HYPOTHETICAL 1,000.00 1,011.09 13.71
CLASS C ACTUAL 1,000.00 1,052.60 13.69
CLASS C HYPOTHETICAL 1,000.00 1,011.29 13.50
CLASS F ACTUAL 1,000.00 1,057.50 10.00
CLASS F HYPOTHETICAL 1,000.00 1,014.95 9.84
CLASS R ACTUAL 1,000.00 1,059.20 7.91
CLASS R HYPOTHETICAL 1,000.00 1,017.01 7.78
CLASS T ACTUAL 1,000.00 1,056.30 11.06
CLASS T HYPOTHETICAL 1,000.00 1,013.90 10.89
* 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.
EXPENSE RATIO
- -----------------------
CLASS A 1.95%
CLASS B 2.73%
CLASS C 2.69%
CLASS F 1.96%
CLASS R 1.55%
CLASS T 2.17%
11
<Page>
STATEMENT OF INVESTMENTS
June 30, 2006 (UNAUDITED)
SHARES MARKET VALUE
- --------------------------------------------------------------------------------
COMMON STOCKS (DOMESTIC)--47.8%
AIRLINES--1.1%
11,938 AMR Corporation* $ 303,465
10,775 Continental Airlines, Inc. Class B* 321,095
----------
624,560
----------
APPLICATION SOFTWARE--1.3%
7,650 Autodesk, Inc.* 263,619
33,775 BEA Systems, Inc.* 442,115
----------
705,734
----------
BIOTECHNOLOGY--0.4%
9,275 MedImmune, Inc.* 251,353
----------
BROADCASTING & CABLE TV--1.0%
16,799 Comcast Corporation Special Class A* 550,671
----------
COMMUNICATIONS EQUIPMENT--3.2%
42,050 Cisco Systems, Inc.* 821,237
35,375 Motorola, Inc. 712,806
6,400 QUALCOMM, Inc. 256,448
----------
1,790,491
----------
COMPUTER & ELECTRONICS RETAIL--1.3%
13,376 Best Buy Company, Inc. 733,540
----------
COMPUTER HARDWARE--4.0%
9,302 Apple Computer, Inc.* 531,330
11,475 Dell, Inc.* 280,105
13,725 Diebold, Inc. 557,510
27,548 Hewlett-Packard Company 872,721
----------
2,241,666
----------
COMPUTER STORAGE & PERIPHERALS--1.4%
33,975 Seagate Technology* 769,194
----------
CONSUMER FINANCE--0.5%
5,793 SLM Corporation 306,566
----------
DEPARTMENT STORES--1.8%
12,450 Federated Department Stores, Inc. 455,670
8,250 J.C. Penney Company, Inc. 556,957
----------
1,012,627
----------
AU Australia
AT Austria
BE Belgium
CA Canada
DE Denmark
FI Finland
FR France
GE Germany
GR Greece
HK Hong Kong
IE Ireland
IT Italy
JA Japan
KR South Korea
NE Netherlands
NW Norway
PT Portugal
SG Singapore
SP Spain
SW Sweden
SZ Switzerland
UK United Kingdom
12
<Page>
SHARES MARKET VALUE
- --------------------------------------------------------------------------------
DIVERSIFIED CHEMICALS--0.7%
9,825 E.I. du Pont de Nemours and Company $ 408,720
----------
DRUG RETAIL--1.4%
17,875 Walgreen Company 801,515
----------
FOOD DISTRIBUTORS--0.8%
14,425 Sysco Corporation 440,828
----------
FOOD RETAIL--1.0%
22,325 Safeway, Inc. 580,450
----------
GENERAL MERCHANDISE STORES--1.2%
28,075 Family Dollar Stores, Inc. 685,872
----------
HEALTHCARE EQUIPMENT--1.3%
27,525 Boston Scientific Corporation* 463,521
2,500 Intuitive Surgical, Inc.* 294,925
----------
758,446
----------
HEALTHCARE SERVICES--1.1%
10,600 Medco Health Solutions, Inc.* 607,168
----------
HEALTHCARE SUPPLIES--1.1%
11,950 Advanced Medical Optics, Inc.* 605,865
----------
HOME ENTERTAINMENT SOFTWARE--0.4%
5,250 Electronic Arts, Inc.* 225,960
----------
HOME IMPROVEMENT RETAIL--0.9%
13,613 Home Depot, Inc. 487,209
----------
HOTELS, RESORTS & CRUISE LINES--0.5%
7,625 Marriott International, Inc. Class A 290,665
----------
HOUSEHOLD PRODUCTS--1.1%
10,697 Colgate-Palmolive Company 640,750
----------
HYPERMARKETS & SUPER CENTERS--0.6%
6,595 Wal-Mart Stores, Inc. 317,681
----------
INDUSTRIAL CONGLOMERATES--0.8%
13,258 General Electric Company 436,984
----------
INTEGRATED OIL & GAS--1.5%
13,971 ExxonMobil Corporation 857,121
----------
INTEGRATED TELECOMMUNICATION SERVICES--0.5%
13,555 Sprint Nextel Corporation 270,964
----------
INTERNET SOFTWARE & SERVICES--2.1%
1,759 Google, Inc. Class A* 737,601
14,250 Yahoo!, Inc.* 470,250
----------
1,207,851
----------
INVESTMENT BANKING & BROKERAGE--1.2%
2,995 Goldman Sachs Group, Inc. 450,538
16,475 TD Ameritrade Holding Corporation 243,995
----------
694,533
----------
SEE NOTES TO STATEMENT OF INVESTMENTS.
13
<Page>
SHARES MARKET VALUE
- --------------------------------------------------------------------------------
MOVIES & ENTERTAINMENT--1.0%
18,376 Walt Disney Company $ 551,280
-----------
MULTI-LINE INSURANCE--1.0%
12,100 Assurant, Inc. 585,640
-----------
OIL & GAS EQUIPMENT & SERVICES--0.5%
4,550 Schlumberger Limited 296,251
-----------
OTHER DIVERSIFIED FINANCIAL SERVICES--1.0%
13,369 JPMorgan Chase & Company 561,498
-----------
PERSONAL PRODUCTS--2.2%
19,350 Avon Products, Inc. 599,850
16,255 Estee Lauder Companies, Inc. Class A 628,581
-----------
1,228,431
-----------
PHARMACEUTICALS--1.5%
22,763 Pfizer, Inc. 534,248
6,662 Wyeth 295,859
-----------
830,107
-----------
RAILROADS--0.5%
3,110 Union Pacific Corporation 289,106
-----------
SEMICONDUCTORS--3.4%
8,850 Freescale Semiconductor, Inc. Class B* 260,190
25,258 Intel Corporation 478,639
19,085 Linear Technology Corporation 639,157
16,850 Maxim Integrated Products, Inc. 541,054
-----------
1,919,040
-----------
SPECIALTY STORES--0.5%
3,125 AutoZone, Inc.* 275,625
-----------
STEEL--0.4%
3,746 Nucor Corporation 203,221
-----------
SYSTEMS SOFTWARE--1.6%
11,300 Adobe Systems, Inc.* 343,068
24,804 Microsoft Corporation 577,933
-----------
921,001
-----------
TOTAL COMMON STOCKS (DOMESTIC)
(COST--$25,529,112) 26,966,184
-----------
COMMON STOCKS (FOREIGN)--50.3%
ADVERTISING--0.3%
14,300 WPP Group PLC (UK) 173,065
-----------
AIRLINES--0.6%
56,200 British Airways PLC (UK)* 356,186
-----------
ALUMINUM--0.4%
5,000 Alcan, Inc. (CA) 234,211
-----------
14
<Page>
SHARES MARKET VALUE
- --------------------------------------------------------------------------------
APPAREL, ACCESSORIES & LUXURY GOODS--0.8%
6,056 Compagnie Financiere Richemont AG (SZ) $ 277,389
4,000 Gildan Activewear, Inc. (CA)* 189,161
-----------
466,550
-----------
APPLICATION SOFTWARE--0.4%
961 SAP AG (GE) 202,697
-----------
AUTOMOBILE MANUFACTURERS--0.9%
16,600 Honda Motor Company Limited (JA) 526,547
-----------
BIOTECHNOLOGY--0.6%
9,000 CSL Limited (AU) 359,478
-----------
BREWERS--1.9%
5,700 Heineken NV (NE) 241,692
8,926 InBev NV (BE) 437,851
8,900 Kirin Brewery Company Limited (JA) 139,908
4,900 Orkla ASA (NW) 227,096
-----------
1,046,547
-----------
BROADCASTING & CABLE TV--0.4%
6,900 Shaw Communications, Inc. Class B (CA) 195,015
-----------
COMMUNICATIONS EQUIPMENT--1.2%
94,000 Foxconn International Holdings Limited (HK)* 200,919
22,250 Nokia Oyj (FI) 454,221
-----------
655,140
-----------
COMPUTER HARDWARE--0.9%
34,000 Fujitsu Limited (JA) 263,527
33,000 Toshiba Corporation (JA) 215,405
-----------
478,932
-----------
CONSTRUCTION MATERIALS--0.5%
22,045 Rinker Group Limited (AU) 268,498
-----------
CONSUMER ELECTRONICS--1.7%
16,000 Matsushita Electric Industrial Company Limited (JA) 337,644
13,800 Sony Corporation (JA) 608,965
-----------
946,609
-----------
CONSUMER FINANCE--0.4%
990 Orix Corporation (JA) 241,790
-----------
DEPARTMENT STORES--0.3%
1,100 PPR SA (FR) 140,279
-----------
DISTILLERS & VINTNERS--0.4%
13,497 Diageo PLC (UK) 226,988
-----------
SEE NOTES TO STATEMENT OF INVESTMENTS.
15
<Page>
SHARES MARKET VALUE
- --------------------------------------------------------------------------------
DIVERSIFIED BANKS--4.0%
60,097 Banca Intesa SPA (IT) $ 352,065
11,693 Banco Santander Central Hispano SA (SP) 170,803
14,953 Barclays PLC (UK) 169,908
4,084 BNP Paribas SA (FR) 391,005
25,669 Capitalia SPA (IT) 210,625
13,903 HBOS PLC (UK) 241,657
8,400 HSBC Holdings PLC (UK) 147,792
4,900 Royal Bank of Scotland Group PLC (UK) 161,098
2,866 Societe Generale (FR) 421,578
-----------
2,266,531
-----------
DIVERSIFIED CAPITAL MARKETS--1.4%
9,667 Credit Suisse Group (SZ) 540,833
2,028 UBS AG (SZ) 222,274
-----------
763,107
-----------
DIVERSIFIED CHEMICALS--0.7%
4,691 BASF AG (GE) 376,456
-----------
DIVERSIFIED METALS & MINING--3.4%
37,189 BHP Billiton Limited (AU) 801,428
4,100 Teck Cominco Limited Class B (CA) 246,007
14,500 Vedanta Resources PLC (UK) 365,449
13,046 Xstrata PLC (UK) 494,532
-----------
1,907,416
-----------
ELECTRIC UTILITIES--1.0%
1,450 E.ON AG (GE) 166,922
78,211 International Power PLC (UK) 411,447
-----------
578,369
-----------
ELECTRICAL COMPONENTS & EQUIPMENT--1.1%
2,254 Schneider Electric SA (FR) 234,972
27,100 Sumitomo Electric Industries Limited (JA) 396,886
-----------
631,858
-----------
ELECTRONIC EQUIPMENT MANUFACTURERS--0.2%
1,700 TDK Corporation (JA) 129,238
-----------
FOOD RETAIL--0.5%
4,300 Delhaize Group (BE) 298,107
-----------
HEAVY ELECTRICAL EQUIPMENT--0.6%
44,600 Mitsubishi Electric Corporation (JA) 357,377
-----------
HOTELS, RESORTS & CRUISE LINES--0.3%
41,500 First Choice Holidays PLC (UK) 175,539
-----------
HUMAN RESOURCE & EMPLOYMENT SERVICES--0.3%
29,600 Michael Page International PLC (UK) 191,842
-----------
INDUSTRIAL MACHINERY--0.7%
6,900 Atlas Copco AB Class A (SW) 191,752
2,800 Man AG (GE) 202,998
-----------
394,750
-----------
16
<Page>
SHARES MARKET VALUE
- --------------------------------------------------------------------------------
INTEGRATED OIL & GAS--2.9%
21,800 BG Group PLC (UK) $ 291,244
57,027 BP PLC (UK) 664,858
5,011 Repsol YPF SA (SP) 143,510
5,847 Royal Dutch Shell PLC Class A (NE) 196,774
4,748 Total SA (FR) 312,464
----------
1,608,850
----------
INTEGRATED TELECOMMUNICATION SERVICES--1.5%
61,971 BT Group PLC (UK) 274,160
17,700 Telefonica SA (SP) 294,774
22,800 Telenor ASA (NW) 275,619
----------
844,553
----------
INVESTMENT BANKING & BROKERAGE--1.1%
24,200 Daiwa Securities Group, Inc. (JA) 288,438
17,600 Nomura Holdings, Inc. (JA) 329,885
----------
618,323
----------
LIFE & HEALTH INSURANCE--0.3%
4,600 Manulife Financial Corporation (CA) 145,751
----------
MOVIES & ENTERTAINMENT--0.9%
15,045 Vivendi SA (FR) 527,287
----------
MULTI-LINE INSURANCE--1.0%
11,979 Aviva PLC (UK) 169,562
2,923 Baloise Holding Limited (SZ) 224,616
856 Zurich Financial Services AG (SZ) 187,639
----------
581,817
----------
OFFICE ELECTRONICS--1.2%
13,950 Canon, Inc. (JA) 683,847
----------
OIL & GAS DRILLING--0.3%
4,200 Precision Drilling Trust (CA) 139,586
----------
OIL & GAS EQUIPMENT & SERVICES--0.3%
8,000 Trican Well Service Limited (CA) 159,814
----------
OIL & GAS EXPLORATION & PRODUCTION--1.1%
14,383 Eni SPA (IT) 423,690
7,800 Norsk Hydro ASA (NW) 206,750
----------
630,440
----------
OTHER DIVERSIFIED FINANCIAL SERVICES--1.3%
17,952 ING Groep NV (NE) 705,634
----------
PACKAGED FOODS & MEATS--0.3%
612 Nestle SA Registered (SZ) 192,220
----------
PAPER PACKAGING--0.2%
17,500 Rengo Company Limited (JA) 132,275
----------
SEE NOTES TO STATEMENT OF INVESTMENTS.
17
<Page>
SHARES MARKET VALUE
- --------------------------------------------------------------------------------
PHARMACEUTICALS--5.6%
3,659 AstraZeneca Group PLC (UK) $ 220,839
31,600 GlaxoSmithKline PLC (UK) 882,907
3,490 Merck KGaA (GE) 317,841
5,045 Roche Holding AG (SZ) 833,956
7,189 Sanofi-Aventis (FR) 701,613
2,800 Takeda Pharmaceuticals Company Limited (JA) 174,205
-----------
3,131,361
-----------
SEMICONDUCTOR EQUIPMENT--1.2%
4,700 Silicon-On-Insulator Technologies (FR)* 139,052
2,500 Sumco Corporation (JA) 142,433
5,500 Tokyo Electron Limited (JA) 384,481
-----------
665,966
-----------
SEMICONDUCTORS--0.3%
9,600 ATI Technologies, Inc. (CA)* 139,489
-----------
SOFT DRINKS--0.5%
9,100 Coca-Cola Hellenic Bottling Company SA (GR) 271,207
-----------
STEEL--0.3%
4,049 ThyssenKrupp AG (GE) 138,281
-----------
TIRES & RUBBER--0.7%
3,891 Continental AG (GE) 398,258
-----------
TOBACCO--1.0%
21,303 British American Tobacco PLC (UK) 536,514
-----------
TRADING COMPANIES & DISTRIBUTORS--1.4%
22,800 Mitsubishi Corporation (JA) 455,243
22,000 Mitsui & Company Limited (JA) 310,661
-----------
765,904
-----------
WIRELESS TELECOMMUNICATION SERVICES--1.0%
3,662 Bouygues SA (FR) 188,299
69,600 China Mobile Limited (HK) 397,904
-----------
586,203
-----------
TOTAL COMMON STOCKS (FOREIGN)
(COST--$21,738,680) 28,192,702
-----------
PREFERRED STOCKS (FOREIGN)--0.8%
HEALTHCARE EQUIPMENT--0.8%
2,691 Fresenius AG Preferred (GE) 448,121
-----------
TOTAL PREFERRED STOCKS (FOREIGN)
(COST--$399,232) 448,121
-----------
18
<Page>
PRINCIPAL AMOUNT AMORTIZED COST
- --------------------------------------------------------------------------------
CORPORATE SHORT-TERM NOTES--1.1%
SPECIAL PURPOSE ENTITY--1.1%
$600,000 CAFCO LLC
5.33% 7/3/06~ $ 599,822
-----------
TOTAL CORPORATE SHORT-TERM NOTES
(AMORTIZED COST--$599,822) 599,822
-----------
TOTAL INVESTMENTS--100.0%
(TOTAL COST--$48,266,846) 56,206,829
-----------
OTHER ASSETS AND LIABILITIES--(0.0%) (12,664)
-----------
NET ASSETS--100.0% $56,194,165
===========
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 $599,822, OR 1.1%, OF THE FUND'S NET ASSETS AS OF JUNE 30,
2006.
SEE NOTES TO FINANCIAL STATEMENTS.
19
<Page>
STATEMENT OF ASSETS AND LIABILITIES
June 30, 2006 (UNAUDITED)
ASSETS
- --------------------------------------------------------------------------------
Investment securities, at cost $ 48,266,846
------------
Investment securities, at market 56,206,829
Cash 64,770
Foreign currency (cost $1,376) 2,233
Receivables:
Investment securities sold 1,023,741
Capital shares sold 2,459
Dividends and interest 50,640
From transfer agent 531
Other assets 152,444
------------
Total Assets 57,503,647
------------
LIABILITIES
- --------------------------------------------------------------------------------
Payables and other accrued liabilities:
Investment securities purchased 1,044,643
Capital shares redeemed 58,451
Advisory fees 45,606
Shareholder servicing fees 6,290
Accounting fees 3,550
Distribution fees 15,024
Transfer agency fees 3,707
Custodian fees 445
Directors' deferred compensation 102,632
Other 29,134
------------
Total Liabilities 1,309,482
------------
Net Assets $ 56,194,165
============
COMPOSITION OF NET ASSETS
- --------------------------------------------------------------------------------
Capital (par value and paid-in surplus) $102,224,305
Accumulated net investment loss (7,498)
Accumulated net realized loss from security and foreign
currency transactions (53,981,581)
Net unrealized appreciation on investments and foreign
currency translation 7,958,939
------------
Total $ 56,194,165
============
20
<Page>
CLASS A
- --------------------------------------------------------------------------------
Net Assets $ 1,156,949
Shares Outstanding 76,975
Net Asset Value, Redemption Price Per Share $ 15.03
Maximum offering price per share (net asset value plus sales
charge of 5.75% of offering price) $ 15.95
CLASS B
- --------------------------------------------------------------------------------
Net Assets $ 1,236,582
Shares Outstanding 86,493
Net Asset Value, Offering and Redemption Price (excluding
applicable contingent deferred sales charge) Per Share $ 14.30
CLASS C
- --------------------------------------------------------------------------------
Net Assets $ 298,990
Shares Outstanding 21,335
Net Asset Value, Offering and Redemption Price (excluding
applicable contingent deferred sales charge) Per Share $ 14.01
CLASS F
- --------------------------------------------------------------------------------
Net Assets $51,455,083
Shares Outstanding 3,412,032
Net Asset Value, Offering and Redemption Price Per Share $ 15.08
CLASS R
- --------------------------------------------------------------------------------
Net Assets $ 2,014,694
Shares Outstanding 129,478
Net Asset Value, Offering and Redemption Price Per Share $ 15.56
CLASS T
- --------------------------------------------------------------------------------
Net Assets $ 31,867
Shares Outstanding 2,267
Net Asset Value, Redemption Price Per Share $ 14.06
Maximum offering price per share (net asset value plus sales
charge of 4.50% of offering price) $ 14.72
SEE NOTES TO FINANCIAL STATEMENTS.
21
<Page>
STATEMENT OF OPERATIONS
For the six months ended June 30, 2006 (UNAUDITED)
INVESTMENT INCOME
- -------------------------------------------------------------------------------
Dividends $ 656,983
Interest 3,736
Foreign taxes withheld (62,770)
----------
Total Investment Income 597,949
----------
EXPENSES
- -------------------------------------------------------------------------------
Advisory fees--Note 2 289,439
Shareholder servicing fees--Note 2 38,818
Accounting fees--Note 2 23,398
Distribution fees--Note 2 73,685
Transfer agency fees--Note 2 40,146
Registration fees 31,615
Postage and mailing expenses 4,930
Custodian fees and expenses--Note 2 26,718
Printing expenses 19,315
Legal and audit fees 14,395
Directors' fees and expenses--Note 2 15,551
Other expenses 16,468
----------
Total Expenses 594,478
Earnings Credits (2,446)
Reimbursed/Waived Expenses (15,313)
Expense Offset to Broker Commissions (30)
----------
Net Expenses 576,689
----------
Net Investment Income 21,260
----------
REALIZED AND UNREALIZED GAIN (LOSS) ON SECURITY TRANSACTIONS AND
FOREIGN CURRENCY TRANSACTIONS
- -------------------------------------------------------------------------------
Net Realized Gain on:
Security Transactions 6,044,996
Foreign Currency Transactions 791
----------
Net Realized Gain 6,045,787
Net Change in Unrealized Appreciation/Depreciation of Investments
and Foreign Currency Translation (2,810,233)
----------
Net Realized and Unrealized Gain 3,235,554
----------
Net Increase in Net Assets Resulting from Operations $3,256,814
==========
SEE NOTES TO FINANCIAL STATEMENTS.
22
<Page>
STATEMENTS OF CHANGES IN NET ASSETS
(UNAUDITED)
SIX MONTHS ENDED YEAR ENDED
JUNE 30, 2006 DECEMBER 31, 2005
OPERATIONS
- --------------------------------------------------------------------------------
Net Investment Income (Loss) $ 21,260 $ (38,851)
Net Realized Gain on Security and
Foreign Currency Transactions 6,045,787 14,142,515
Net Change in Unrealized
Appreciation/Depreciation of
Investments and Foreign Currency
Translation (2,810,233) (6,260,128)
----------- ------------
Net Increase in Net Assets Resulting
from Operations 3,256,814 7,843,536
----------- ------------
CAPITAL SHARE TRANSACTIONS
- --------------------------------------------------------------------------------
Net Increase (Decrease)--Note 4
Class A 510,674 31,644
Class B (669,020) (430,097)
Class C (21,701) 8,837
Class F (4,742,172) (13,367,715)
Class R 213,096 (25,021,636)(1)
Class T 7 (26,282)
----------- ------------
Net Decrease from Capital Share
Transactions (4,709,116) (38,805,249)
----------- ------------
Net Decrease in Net Assets (1,452,302) (30,961,713)
----------- ------------
NET ASSETS
- --------------------------------------------------------------------------------
Beginning of Period $57,646,467 $ 88,608,180
----------- ------------
End of Period $56,194,165 $ 57,646,467
=========== ============
Accumulated Net Investment Loss $ (7,498) $ (28,758)
(1) ON NOVEMBER 30, 2005, CLASS R DISBURSED PORTFOLIO SECURITIES AND CASH
VALUED AT $23,196,136 IN PAYMENT OF A REDEMPTION BY AN AFFILATE OF THE
FUND.
SEE NOTES TO FINANCIAL STATEMENTS.
23
<Page>
FINANCIAL HIGHLIGHTS
(UNAUDITED)
<Table>
<Caption>
SIX MONTHS YEAR ENDED
ENDED JUNE 30, DECEMBER 31,
2006 2005 2004 2003 2002
-------------- --------------------------------------
CLASS A SHARES
PER SHARE OPERATING DATA
Net Asset Value, beginning of period $14.21 $12.82 $11.38 $ 8.32 $ 11.71
- -------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) 0.02(a) (0.02)(a) (0.21) (0.10) (0.15)
Net realized and unrealized gains
(losses) on securities 0.80 1.41 1.65 3.16 (3.24)
-------------------------------------------------------
Total from investment operations 0.82 1.39 1.44 3.06 (3.39)
- -------------------------------------------------------------------------------------------------
Less dividends and distributions:
From net investment income 0.00 0.00 0.00 0.00 0.00
From net realized gains 0.00 0.00 0.00 0.00 0.00
-------------------------------------------------------
Total distributions 0.00 0.00 0.00 0.00 0.00
- -------------------------------------------------------------------------------------------------
Net Asset Value, end of period $15.03 $14.21 $12.82 $11.38 $ 8.32
=======================================================
TOTAL RETURN(b) 5.77% 10.84% 12.65% 36.78% (28.95%)
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000s) $1,157 $ 619 $ 519 $ 656 $ 543
- -------------------------------------------------------------------------------------------------
Ratios to average net assets:
Expenses with reimbursements, but no
earnings credits or brokerage
offsets(c) 1.96% 1.95% 1.81% 2.03% 2.06%
Expenses with reimbursements, earnings
credits and brokerage offsets 1.95% 1.92% 1.81% 2.03% 2.06%
Net investment income (loss) 0.24% (0.19%) (0.18%) (0.55%) (0.77%)
- -------------------------------------------------------------------------------------------------
Portfolio turnover rate(d) 116% 120% 130% 138% 211%
</Table>
(a.) COMPUTED USING AVERAGE SHARES OUTSTANDING THROUGHOUT THE PERIOD.
(b.) SALES CHARGES ARE NOT REFLECTED IN THE TOTAL RETURN.
(c.) CERTAIN FEES WERE WAIVED BY THE CUSTODIAN. HAD THESE FEES NOT BEEN WAIVED,
THE EXPENSE RATIOS WOULD HAVE BEEN 2.02% (2006), 1.98% (2005), 1.83%
(2004), 2.04% (2003) AND 2.06% (2002).
(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,
2006 2005 2004 2003 2002
-------------- -------------------------------------
CLASS B SHARES
PER SHARE OPERATING DATA
Net Asset Value, beginning of period $13.58 $12.33 $11.02 $ 8.12 $ 11.52
- ------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment loss (0.05)(a) (0.11)(a) (0.09) (0.16) (0.14)
Net realized and unrealized gains
(losses) on securities 0.77 1.36 1.40 3.06 (3.26)
------------------------------------------------------
Total from investment operations 0.72 1.25 1.31 2.90 (3.40)
- ------------------------------------------------------------------------------------------------
Less dividends and distributions:
From net investment income 0.00 0.00 0.00 0.00 0.00
From net realized gains 0.00 0.00 0.00 0.00 0.00
------------------------------------------------------
Total distributions 0.00 0.00 0.00 0.00 0.00
- ------------------------------------------------------------------------------------------------
Net Asset Value, end of period $14.30 $13.58 $12.33 $11.02 $ 8.12
======================================================
TOTAL RETURN(b) 5.30% 10.14% 11.89% 35.71% (29.51%)
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000s) $1,237 $1,803 $2,061 $1,821 $ 1,459
- ------------------------------------------------------------------------------------------------
Ratios to average net assets:
Expenses with reimbursements, but no
earnings credits or brokerage
offsets(c) 2.74% 2.69% 2.52% 2.80% 2.71%
Expenses with reimbursements, earnings
credits and brokerage offsets 2.73% 2.66% 2.52% 2.80% 2.70%
Net investment loss (0.74%) (0.93%) (0.87%) (1.30%) (1.41%)
- ------------------------------------------------------------------------------------------------
Portfolio turnover rate(d) 116% 120% 130% 138% 211%
</Table>
(a.) COMPUTED USING AVERAGE SHARES OUTSTANDING THROUGHOUT THE PERIOD.
(b.) SALES CHARGES ARE NOT REFLECTED IN THE TOTAL RETURN.
(c.) CERTAIN FEES WERE WAIVED BY THE CUSTODIAN. HAD THESE FEES NOT BEEN WAIVED,
THE EXPENSE RATIOS WOULD HAVE BEEN 2.79% (2006), 2.72% (2005), 2.54%
(2004), 2.82% (2003) AND 2.71% (2002).
(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,
2006 2005 2004 2003 2002
-------------- ------------------------------------
CLASS C SHARES
PER SHARE OPERATING DATA
Net Asset Value, beginning of period $13.31 $12.08 $10.81 $ 7.96 $ 11.34
- -----------------------------------------------------------------------------------------------
Income from investment operations:
Net investment loss (0.04)(a) (0.07) (0.20) (0.20) (0.30)
Net realized and unrealized gains
(losses) on securities 0.74 1.30 1.47 3.05 (3.08)
-----------------------------------------------------
Total from investment operations 0.70 1.23 1.27 2.85 (3.38)
- -----------------------------------------------------------------------------------------------
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 $14.01 $13.31 $12.08 $10.81 $ 7.96
=====================================================
TOTAL RETURN(b) 5.26% 10.18% 11.75% 35.80% (29.81%)
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000s) $ 299 $ 308 $ 272 $ 271 $ 218
- -----------------------------------------------------------------------------------------------
Ratios to average net assets:
Expenses with reimbursements, but no
earnings credits or brokerage
offsets(c) 2.71% 2.70% 2.60% 2.82% 3.33%
Expenses with reimbursements, earnings
credits and brokerage offsets 2.69% 2.66% 2.59% 2.82% 3.33%
Net investment loss (0.59%) (0.93%) (0.97%) (1.34%) (2.05%)
- -----------------------------------------------------------------------------------------------
Portfolio turnover rate(d) 116% 120% 130% 138% 211%
</Table>
(a.) COMPUTED USING AVERAGE SHARES OUTSTANDING THROUGHOUT THE PERIOD.
(b.) SALES CHARGES ARE NOT REFLECTED IN THE TOTAL RETURN.
(c.) 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 2.76% (2006), 2.72% (2005), 2.62%
(2004), 2.84% (2003) AND 3.40% (2002).
(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,
2006 2005 2004 2003 2002
-------------- --------------------------------------------
CLASS F SHARES
PER SHARE OPERATING DATA
Net Asset Value, beginning of period $ 14.26 $ 12.86 $ 11.41 $ 8.33 $ 11.72
- -----------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) 0.01(a) (0.02)(a) (0.21) (0.13) (0.13)
Net realized and unrealized gains (losses)
on securities 0.81 1.42 1.66 3.21 (3.26)
-------------------------------------------------------------
Total from investment operations 0.82 1.40 1.45 3.08 (3.39)
- -----------------------------------------------------------------------------------------------------------
Less dividends and distributions:
From net investment income 0.00 0.00 0.00 0.00 0.00
From net realized gains 0.00 0.00 0.00 0.00 0.00
-------------------------------------------------------------
Total distributions 0.00 0.00 0.00 0.00 0.00
- -----------------------------------------------------------------------------------------------------------
Net Asset Value, end of period $ 15.08 $ 14.26 $ 12.86 $ 11.41 $ 8.33
=============================================================
TOTAL RETURN 5.75% 10.89% 12.71% 36.97% (28.92%)
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000s) $51,455 $53,184 $61,038 $70,566 $59,890
- -----------------------------------------------------------------------------------------------------------
Ratios to average net assets:
Expenses with reimbursements, but no
earnings credits or brokerage offsets(b) 1.97% 1.94% 1.78% 1.97% 1.84%
Expenses with reimbursements, earnings
credits and brokerage offsets 1.96% 1.91% 1.77% 1.97% 1.84%
Net investment income (loss) 0.10% (0.17%) (0.13%) (0.47%) (0.55%)
- -----------------------------------------------------------------------------------------------------------
Portfolio turnover rate(c) 116% 120% 130% 138% 211%
</Table>
(a.) COMPUTED USING AVERAGE SHARES OUTSTANDING THROUGHOUT THE PERIOD.
(b.) CERTAIN FEES WERE WAIVED BY THE CUSTODIAN. HAD THESE FEES NOT BEEN WAIVED,
THE EXPENSE RATIOS WOULD HAVE BEEN 2.02% (2006), 1.96% (2005), 1.80%
(2004), 1.98% (2003) AND 1.84% (2002).
(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.
27
<Page>
<Table>
<Caption>
SIX MONTHS YEAR ENDED
ENDED JUNE 30, DECEMBER 31,
2006 2005 2004 2003 2002
--------------- ------------------------------------------
CLASS R SHARES
PER SHARE OPERATING DATA
Net Asset Value, beginning of period $14.69 $13.13 $ 11.60 $ 8.44 $ 11.81
- ---------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) 0.04(b) 0.05(b) 0.03 0.00(a) (0.01)
Net realized and unrealized gains (losses)
on securities 0.83 1.51 1.50 3.16 (3.36)
-----------------------------------------------------------
Total from investment operations 0.87 1.56 1.53 3.16 (3.37)
- ---------------------------------------------------------------------------------------------------------
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 $15.56 $14.69 $ 13.13 $ 11.60 $ 8.44
===========================================================
TOTAL RETURN 5.92% 11.88% 13.19% 37.44% (28.54%)
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000s) $2,015 $1,701 $24,665 $21,404 $14,060
- ---------------------------------------------------------------------------------------------------------
Ratios to average net assets:
Expenses with reimbursements, but no
earnings credits or brokerage offsets(c) 1.57% 1.45% 1.37% 1.51% 1.41%
Expenses with reimbursements, earnings
credits and brokerage offsets 1.55% 1.44% 1.37% 1.51% 1.41%
Net investment income (loss) 0.55% 0.35% 0.28% (0.03%) (0.13%)
- ---------------------------------------------------------------------------------------------------------
Portfolio turnover rate(d) 116% 120% 130% 138% 211%
</Table>
(a.) NET INVESTMENT LOSS 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.) CERTAIN FEES WERE WAIVED BY THE CUSTODIAN. HAD THESE FEES NOT BEEN WAIVED,
THE EXPENSE RATIOS WOULD HAVE BEEN 1.62% (2006), 1.47% (2005), 1.39%
(2004), 1.53% (2003) AND 1.41% (2002).
(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,
2006 2005 2004 2003 2002
-------------- ----------------------------------------
CLASS T SHARES
PER SHARE OPERATING DATA
Net Asset Value, beginning of period $13.31 $12.05 $10.73 $ 7.89 $11.46
- -------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment loss (0.01) (0.07)(a) (0.36) (0.14) (0.59)
Net realized and unrealized gains (losses)
on securities 0.76 1.33 1.68 2.98 (2.98)
---------------------------------------------------------
Total from investment operations 0.75 1.26 1.32 2.84 (3.57)
- -------------------------------------------------------------------------------------------------------
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 $14.06 $13.31 $12.05 $10.73 $ 7.89
=========================================================
TOTAL RETURN(b) 5.63% 10.46% 12.30% 35.99% (31.15%)
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000s) $ 32 $ 30 $ 54 $ 61 $ 47
- -------------------------------------------------------------------------------------------------------
Ratios to average net assets:
Expenses with reimbursements, but no
earnings credits or brokerage offsets(c) 2.18% 2.33% 2.14% 2.54% 4.60%
Expenses with reimbursements, earnings
credits and brokerage offsets 2.17% 2.30% 2.14% 2.54% 4.60%
Net investment loss (0.08%) (0.56%) (0.50%) (1.05%) (2.88%)
- -------------------------------------------------------------------------------------------------------
Portfolio turnover rate(d) 116% 120% 130% 138% 211%
</Table>
(a.) COMPUTED USING AVERAGE SHARES OUTSTANDING THROUGHOUT THE PERIOD.
(b.) SALES CHARGES ARE NOT REFLECTED IN THE TOTAL RETURN.
(c.) 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 2.23% (2006), 2.35% (2005), 2.16%
(2004), 2.56% (2003) AND 5.48% (2002).
(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, 2006 (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). Effective
June 1, 2006, Class B shares will no longer be offered except in connection with
dividend reinvestments and permitted exchanges of Class B shares. 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. New York closing exchange rates are used to convert foreign
currencies to U.S. dollars.
A debt security with a remaining maturity greater than 60 days at the time of
purchase is valued in accordance with the evaluated bid price supplied by a
pricing service approved by the Company's board of directors or, if such price
is not available, at the mean between the highest bid and lowest asked
quotations obtained from at least two securities dealers. A debt security with a
remaining maturity of 60 days or less at the time of purchase is valued at
amortized cost, which approximates market value, unless it is determined that
amortized cost would not represent market value, in which case the securities
would be marked to market. The Fund amortizes premiums and discounts on all debt
securities.
If market quotations or official closing prices are not readily available or are
determined not to reflect accurately fair value, securities will be valued at
their fair
30
<Page>
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 requires the use of estimates, and as such,
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--The Fund normally will invest a
significant portion of its assets in foreign securities. Foreign securities
carry more risk than U.S. securities, such as political and currency risks. 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
Fund could be exposed to risk if counterparties are unable to meet the terms of
the contracts or if the value of the currency changes unfavorably to the U.S.
dollar. 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, 2006 for settling
foreign trades is listed on the Statement of Assets and Liabilities.
The accounting records of the Fund are maintained in U.S. dollars. The market
values of foreign securities, currency holdings and other assets and liabilities
are translated into U.S. dollars based on the current exchange rates each
business day. 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 unrealized gain or loss from investments and foreign
currency translations on the Statement of Operations.
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
31
<Page>
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 Subchapter M 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 from
net investment income (if any) and from net realized capital gains (if any)
annually. Dividends and distributions, which are determined in accordance with
income tax regulations, are recorded on the ex-dividend date.
EXPENSES--Each Class of the Fund bears expenses incurred specifically on its
behalf and, in addition, each Class bears a portion of general expenses based on
the relative net assets or the number of shareholder accounts of the Class. The
type of expense determines the allocation method.
The Company's board of directors has authorized the payment of certain Fund
expenses with commissions on Fund portfolio transactions. These commissions
reduce Other Expenses and are included in the Expense Offset to Broker
Commissions in the Statement of Operations.
USE OF ESTIMATES--The preparation of financial statements in conformity with
accounting principles generally accepted in the United States of America
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported amounts of
income and expenses during the reporting period. Actual results could differ
from those estimates.
INDEMNIFICATIONS--In the normal course of business, the Company enters into
contracts that contain provisions indemnifying other parties against specified
potential liabilities. Each Fund's maximum exposure under these arrangements is
unknown as this would involve future claims that may be made against the Fund
that have not yet occurred. However, based on experience, the Funds expect the
risk of loss to be remote.
OTHER--Certain prior year information has been reformatted, without substantive
change, to conform with the current year presentation.
32
<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
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 period ended June 30, 2006,
Class F shares were charged $35,350 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 period ended June 30, 2006, Class F shares were
charged $12,929 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 $12.92 to $13.36, 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 period ended June 30, 2006 were as
follows:
TRANSFER
AGENCY FEES
---------------------
Class A $ 665
---------------------
Class B $1,641
---------------------
Class C $ 258
---------------------
Class R $ 205
---------------------
Class T $ 23
---------------------
33
<Page>
Certain as-of shareholder transactions may result in gains or losses to the
Fund. Depending on the circumstances, these gains may be payable to, or
reimbursable from, the transfer agent; such gains and losses are presented on
the Statement of Assets and Liabilities.
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 period ended June 30, 2006, the Fund was charged $409 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 period ended June
30, 2006, the Fund paid $24,425 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 period ended June 30,
2006, Class F shares were charged $66,543 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 period ended June 30, 2006, were as follows:
DISTRIBUTION SHAREHOLDER
FEES SERVICING FEES
---------------------------------------
Class A N/A $1,061
---------------------------------------
Class B $5,916 $1,972
---------------------------------------
Class C $1,187 $ 396
---------------------------------------
Class T $ 39 $ 39
---------------------------------------
34
<Page>
During the period ended June 30, 2006, DSC retained $243 and $1 in sales
commissions from the sales of Class A and Class T shares, respectively. DSC also
retained $2,562 and $354 of contingent deferred sales charges relating to
redemptions of Class B and Class C shares, respectively.
FUND ACCOUNTING AND ADMINISTRATIVE SERVICES FEES--The Funds have agreed to
compensate Founders for providing accounting services, administration,
compliance monitoring, regulatory and shareholder reporting, as well as related
facilities, equipment and clerical help. The fee is computed by applying the
following rates, as applicable, to the domestic assets and foreign assets, with
the proportions of domestic and foreign assets recalculated monthly, plus
reasonable out-of-pocket expenses.
ON ASSETS IN BUT NOT
EXCESS OF EXCEEDING DOMESTIC FEE FOREIGN FEE
--------------------------------------------------------
$0 $500 million 0.06% 0.10%
--------------------------------------------------------
$500 million $1 billion 0.04% 0.065%
--------------------------------------------------------
$1 billion 0.02% 0.02%
--------------------------------------------------------
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, which are shown as earnings credits on the
Statement of Operations. 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
period and in the amount set forth below:
TIME PERIOD AMOUNT OF WAIVER
-----------------------------------
9/1/05 to 8/31/06 $200,000
-----------------------------------
The fee waiver is allocated among the Funds in proportion to their respective
shares of the total custodian fee. For the period ended June 30, 2006, the
Fund's portion of the fee waiver was $15,313, which reduced the amount paid to
Mellon Bank to $11,405.
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 Directors'
Deferred Compensation on the Statement of Assets and Liabilities. Changes in
market value are included in the Directors' fees and expenses and the net change
in unrealized appreciation/depreciation
35
<Page>
of investments on the Statement of Operations. 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
or its affiliates, which pay 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, deferred compensation, redemptions-in-kind, 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, 2005 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, 2005 were:
EXPIRATION AMOUNT
------------------------
2009 $34,530,988
------------------------
2010 $22,200,649
------------------------
2011 $ 3,142,525
------------------------
$59,874,162
===========
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, 2006 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.
Post-October Capital Loss Deferral $ (2,399)
---------------------------------------------------
Federal Tax Cost $48,408,738
---------------------------------------------------
Gross Tax Appreciation of Investments $ 9,058,505
---------------------------------------------------
Gross Tax Depreciation of Investments $(1,260,414)
---------------------------------------------------
Net Tax Appreciation $ 7,798,091
---------------------------------------------------
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>
PERIOD ENDED YEAR ENDED
JUNE 30, 2006 DECEMBER 31, 2005
SHARES AMOUNT SHARES AMOUNT
CLASS A
- -----------------------------------------------------------------------------
Sold 36,043 $ 550,938 22,521 $ 293,185
Redeemed (2,626) $ (40,264) (19,415) $ (261,541)
---------------------------------------------------
Net Increase 33,417 $ 510,674 3,106 $ 31,644
===================================================
CLASS B
- -----------------------------------------------------------------------------
Sold 1,175 $ 16,795 8,028 $ 98,777
Redeemed (47,507) $ (685,815) (42,268) $ (528,874)
---------------------------------------------------
Net Decrease (46,332) $ (669,020) (34,240) $ (430,097)
===================================================
CLASS C
- -----------------------------------------------------------------------------
Sold 3,632 $ 52,125 10,078 $ 128,403
Redeemed (5,459) $ (73,826) (9,465) $ (119,566)
---------------------------------------------------
Net Increase (Decrease) (1,827) $ (21,701) 613 $ 8,837
===================================================
CLASS F
- -----------------------------------------------------------------------------
Sold 79,528 $ 1,207,381 210,093 $ 2,732,978
Redeemed (396,268) $(5,949,553) (1,227,387) $(16,100,693)
---------------------------------------------------
Net Decrease (316,740) $(4,742,172) (1,017,294) $(13,367,715)
===================================================
CLASS R
- -----------------------------------------------------------------------------
Sold 20,910 $ 324,902 256,421 $ 3,470,964
Redeemed (7,280) $ (111,806) (2,018,994) $(28,492,600)
---------------------------------------------------
Net Increase (Decrease) 13,630 $ 213,096 (1,762,573) $(25,021,636)
===================================================
CLASS T
- -----------------------------------------------------------------------------
Sold 7 $ 95 8 $ 100
Redeemed (6) $ (88) (2,190) $ (26,382)
---------------------------------------------------
Net Increase (Decrease) 1 $ 7 (2,182) $ (26,282)
===================================================
</Table>
5. INVESTMENT TRANSACTIONS
For the period ended June 30, 2006, purchases and sales of investment securities
(excluding short-term securities and U.S. government obligations) were
$37,770,013 and $41,435,748, respectively.
37
<Page>
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2006 (UNAUDITED)(CONTINUED)
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 manimum 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, 2006, the Fund did not have
any borrowings under the LOC.
38
<Page>
This page intentionally left blank.
<Page>
For More Information
DREYFUS FOUNDERS
WORLDWIDE GROWTH FUND
MANAGER
Founders Asset
Management LLC
210 University Boulevard
Suite 800
Denver, CO 80206
TRANSFER AGENT &
DIVIDEND DISBURSING AGENT
Dreyfus Transfer, Inc.
200 Park Avenue
New York, NY 10166
DISTRIBUTOR
Dreyfus Service Corporation
200 Park Avenue
New York, NY 10166
TELEPHONE Call your financial representative or 1-800-554-4611
MAIL Dreyfus Founders Funds, Inc.
144 Glenn Curtiss Boulevard, Uniondale, NY 11556-0144
The fund files its complete schedule of portfolio holdings with the Securities
and Exchange Commission ("SEC") for the first and third quarters of each fiscal
year on Form N-Q. The fund's Forms N-Q are available on the SEC's website at
http://www.sec.gov and may be reviewed and copied at the SEC's Public Reference
Room in Washington, DC. Information on the operation of the Public Reference
Room may be obtained by calling 1-202-551-8090.
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, 2006, 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.
(C) 2006 Founders Asset Management LLC
0351SA0606
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
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, 2006, 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/ Stephen E. Canter
-------------------
Stephen E. Canter, President
Date: August 29, 2006
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/ Stephen E. Canter
-------------------
Stephen E. Canter, Principal Executive Officer
Date: August 29, 2006
By: /s/ Robert T. Kelly
-------------------
Robert T. Kelly, Principal Financial Officer
Date: August 29, 2006