Registration No. 333-61642
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-14
REGISTRATION STATEMENT UNDER THE
SECURITIES ACT OF 1933
[_] Pre-Effective Amendment No.__ [_] Post-Effective Amendment No.__
(Check appropriate box or boxes)
DREYFUS FOUNDERS FUNDS, INC.
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(Exact name of Registrant as Specified in Charter)
(303) 394-4404
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(Area Code and Telephone Number)
Founders Asset Management LLC
210 University Boulevard, Suite 800, Denver, Colorado 80206
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(Address of Principal Executive Offices: Number,
Street, City, State, Zip Code)
(Name and Address of Agent for Service)
Kenneth R. Christoffersen, Esq.
Founders Asset Management LLC
210 University Boulevard, Suite 800
Denver, Colorado 80206
Copy to:
Clifford J. Alexander
Ndenisarya Meekins
Kirkpatrick & Lockhart Preston Gates Ellis LLP
1601 K Street, N.W.
Washington, DC 20006
Approximate Date of Proposal Public Offering: As soon as practicable after
this Registration Statement is declared effective.
It is proposed that this filing will become effective on April 9, 2007
pursuant to Rule 488.
An indefinite number of Registrant's shares of common stock, par value
$0.01 per share, has been registered pursuant to Rule 24f-2 under the Investment
Company Act of 1940. Accordingly, no filing fee is being paid at this time.
DREYFUS FOUNDERS FUNDS, INC.
Form N-14
Cross Reference Sheet
FORM N-14 PROSPECTUS/PROXY
ITEM NO. STATEMENT CAPTION
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PART A
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Item 1. Beginning of Registration Statement and Cover Page
Outside Front Cover Page of Prospectus
Item 2. Beginning and Outside Back Cover Page of Cover Page
Prospectus
Item 3. Synopsis Information and Risk Factors Summary
Item 4. Information About the Transaction Letter to Shareholders; Questions and
Answers; Summary; Reasons for the
Reorganization; Information about the
Reorganization; Exhibit A: Plan of
Reorganization
Item 5. Information About the Registrant Letter to Shareholders; Summary;
Reasons for the Reorganization; Additional
Information about the Acquiring Fund
and the Fund; Exhibit B: Supplemental
Information
Item 6. Information About the Company Being Letter to Shareholders; Reasons for the
Acquired Reorganization; Additional Information about
the Acquiring Fund and the Fund
Item 7. Voting Information Letter to Shareholders; Cover Page;
Voting Information
Item 8. Interest of Certain persons and Experts Not Applicable
Item 9. Additional Information Required for Not Applicable
Reoffering by Persons Deemed to be
Underwriters
STATEMENT OF ADDITIONAL
PART B INFORMATION CAPTION
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Item 10. Cover Page Cover Page
Item 11. Table of Contents Not Applicable
Item 12. Additional Information About the Investment Objectives and Restrictions;
Registrant Investment Strategies and Risks;
Directors and Officers; Investment Adviser,
Distributor and Other Service Providers;
Purchase of Shares; Distribution Plans and
Shareholder Services Plan; Redemption of Shares;
Shareholder Services; Other Services; Brokerage
Allocation; Capital Stock; Pricing of Shares;
Dividends Distributions, and Taxes; Yield and
Performance Information; Additional Information
Item 13. Additional Information About the Investment Objectives and Restrictions;
Company Being Acquired Investment Strategies and Risks;
Directors and Officers; Investment Adviser,
Distributor and Other Service Providers;
Purchase of Shares; Distribution Plans and
Shareholder Services Plan; Redemption of Shares;
Shareholder Services; Other Services; Brokerage
Allocation; Capital Stock; Pricing of Shares;
Dividends Distributions, and Taxes; Yield and
Performance Information; Additional Information
Item. 14 Financial Statements Pro Forma Financial Statements;
Annual Report of Dreyfus Founders Equity
Growth Fund dated December 31, 2006;
Annual Report of Dreyfus Founders Growth
Fund dated December 31, 2006
PART C
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Item 15 Indemnification
Item 16. Exhibits
Item 17. Undertakings
DREYFUS FOUNDERS GROWTH FUND
(A SERIES OF DREYFUS FOUNDERS FUNDS, INC.)
c/o Founders Asset Management LLC
210 University Boulevard, Suite 800
Denver, Colorado 80206
Dear Shareholder:
As a shareholder of Dreyfus Founders Growth Fund (the "Fund"), you are
being asked to vote on a Plan of Reorganization to allow the Fund to transfer
all of its assets in a tax-free reorganization to Dreyfus Founders Equity Growth
Fund (the "Acquiring Fund"), in exchange for shares of the Acquiring Fund and
the assumption by the Acquiring Fund of the Fund's stated liabilities. If the
Plan of Reorganization is approved and consummated for the Fund, you would no
longer be a shareholder of the Fund, but would become a shareholder of the
Acquiring Fund, which has a similar investment objective and management policies
as the Fund. The Fund and the Acquiring Fund are series of Dreyfus Founders
Funds, Inc. (the "Company").
Founders Asset Management LLC ("Founders"), the Fund's and Acquiring Fund's
investment adviser, has reviewed the funds in the Dreyfus Founders Family of
Funds and has concluded that it would be appropriate to consolidate certain
funds having similar investment objectives and management policies. As a result
of this review, management recommended that the Fund be consolidated with the
Acquiring Fund. Management believes that the proposed reorganization offers
shareholders the opportunity to pursue similar investment goals in a larger
combined fund with a lower expense ratio and a better performance record.
Management believes that the reorganization should enable shareholders of the
Fund to benefit from more efficient portfolio management and will eliminate the
duplication of resources and costs associated with marketing and servicing the
funds as separate entities.
AFTER CAREFUL REVIEW, THE COMPANY'S BOARD OF DIRECTORS HAS UNANIMOUSLY
APPROVED THE PROPOSED REORGANIZATION. THE BOARD OF DIRECTORS BELIEVES THAT THE
REORGANIZATION WILL PERMIT FUND SHAREHOLDERS TO PURSUE SIMILAR INVESTMENT GOALS
IN A FUND WITH A BETTER PERFORMANCE RECORD AND A LOWER TOTAL EXPENSE RATIO. THE
BOARD OF DIRECTORS RECOMMENDS THAT YOU READ THE ENCLOSED MATERIALS CAREFULLY AND
THEN VOTE FOR THE PROPOSAL.
Your vote is extremely important, no matter how large or small your Fund
holdings.
TO VOTE, YOU MAY USE ANY OF THE FOLLOWING METHODS:
o BY MAIL. Please complete, date and sign the enclosed proxy card and
mail it in the enclosed, postage-paid envelope.
o BY INTERNET. Have your proxy card available. Go to the website listed
on the proxy card. Enter your control number from your proxy card.
Follow the instructions on the website.
o BY TELEPHONE. Have your proxy card available. Call the toll-free
number listed on the proxy card. Enter your control number from your
proxy card. Follow the recorded instructions.
o IN PERSON. Any shareholder who attends the meeting in person may vote
by ballot at the meeting.
Further information about the proposed reorganization is contained in the
enclosed materials, which you should review carefully before you vote. If you
have any questions after considering the enclosed materials, please call
1-800-525-2440.
Sincerely,
Thomas F. Eggers
President
Dreyfus Founders Funds, Inc.
April __, 2007
REORGANIZATION OF
DREYFUS FOUNDERS GROWTH FUND
WITH AND INTO
DREYFUS FOUNDERS EQUITY GROWTH FUND
QUESTIONS AND ANSWERS
THE ENCLOSED MATERIALS INCLUDE A PROSPECTUS/PROXY STATEMENT CONTAINING
INFORMATION YOU NEED TO MAKE AN INFORMED DECISION. HOWEVER, WE THOUGHT IT ALSO
WOULD BE HELPFUL TO BEGIN BY ANSWERING SOME OF THE IMPORTANT QUESTIONS YOU MIGHT
HAVE ABOUT THE PROPOSED REORGANIZATION.
WHAT WILL HAPPEN TO MY DREYFUS FOUNDERS GROWTH FUND INVESTMENT IF THE PROPOSED
REORGANIZATION IS APPROVED?
You will become a shareholder of Dreyfus Founders Equity Growth Fund (the
"Acquiring Fund"), a series of Dreyfus Founders Funds, Inc. (the "Company"),
which is an open-end investment company managed by Founders Asset Management LLC
("Founders"), on or about June 8, 2007 (the "Closing Date"), and will no longer
be a shareholder of Dreyfus Founders Growth Fund (the "Fund"). The Fund will
then cease operations and will be terminated as a series of the Company. You
will receive Class A, Class B, Class C, Class R or Class T shares of the
Acquiring Fund corresponding to your Class A, Class B, Class C, Class R or Class
T shares of the Fund with a value equal to the value of your investment in the
Fund as of the Closing Date. If you hold Class F shares of the Fund, you will
receive Class A shares of the Acquiring Fund with a value equal to the value of
your Class F shares as of the Closing Date.
WHAT ARE THE BENEFITS OF THE PROPOSED REORGANIZATION FOR ME?
The Company's Board believes that the reorganization will permit Fund
shareholders to pursue similar investment goals in a larger combined fund that
has a lower total expense ratio and a better performance record than the Fund.
Fund shareholders also should benefit from more efficient portfolio management.
The reorganization will eliminate the duplication of resources and costs
associated with marketing and servicing the funds as separate entities. Other
potential benefits are described in the enclosed Prospectus/Proxy Statement.
DO THE FUNDS HAVE SIMILAR INVESTMENT GOALS AND STRATEGIES?
The investment goals, policies, practices and limitations of each fund (and the
related risks) are similar, but not identical. Founders manages both funds using
a "growth style" of investing, searching for companies whose fundamental
strengths suggest the potential to provide superior earnings growth over time.
The Acquiring Fund seeks long-term growth of capital and income. To pursue this
goal, the Acquiring Fund primarily invests in common stocks of large,
well-established and mature companies. These companies generally have long
records of profitability and dividend payments and a reputation for high-quality
management, products, and services. The Acquiring Fund normally invests at least
80% of its net assets in stocks that are included in a widely recognized index
of stock market performance, such as the Dow Jones Industrial Average, the
Standard & Poor's 500 Index, or the Nasdaq Composite Index. While a significant
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portion of these stocks normally would be expected to pay regular dividends, the
Acquiring Fund may invest in non-dividend-paying companies if they offer better
prospects for capital appreciation. The Acquiring Fund may also invest up to 30%
of its total assets in foreign securities.
The Fund seeks long-term growth of capital. To pursue this goal, the Fund
normally invests at least 65% of its total assets in common stocks of
well-established, high-quality growth companies. These companies tend to have
strong performance records, solid market positions, reasonable financial
strength, and continuous operating records of three years or more. The Fund also
may invest up to 30% of its total assets in foreign securities, with no more
than 25% invested in any one foreign country. Founders provides day-to-day
management of both funds' investments. Dreyfus Service Corporation distributes
the shares of the Acquiring Fund and the Fund. For additional information
regarding the funds, please refer to the enclosed Prospectus/Proxy Statement.
WHAT ARE THE TAX CONSEQUENCES OF THE PROPOSED REORGANIZATION?
The reorganization will not be a taxable event for federal income tax purposes.
Shareholders will not recognize any capital gain or loss as a direct result of
the reorganization. A shareholder's tax basis in Fund shares will carry over to
the shareholder's Acquiring Fund shares. The Fund will distribute any
undistributed net investment income and net realized capital gains (after
reduction for any capital loss carryforwards) prior to the reorganization, which
distribution would be taxable to shareholders.
WHAT ARE THE DIFFERENCES BETWEEN THE CLASS F SHARES OF THE FUND THAT I HOLD NOW
AND THE CLASS A SHARES OF THE ACQUIRING FUND THAT I WILL ACQUIRE IN THE
REORGANIZATION?
The attributes of the Fund's Class F shares are the same as those of the
Acquiring Fund's Class F shares and the Class F shares of each fund in the
Dreyfus Founders Family of Funds. Similarly, the attributes of the Fund's Class
A shares are the same as those of the Acquiring Fund and the other funds in the
Dreyfus Founders Family of Funds. The principal differences between the Class F
shares and the Class A shares are their sales charges, distribution or service
fees and eligible investors. An investor pays no sales charge in connection with
an investment in Class F shares of a fund and no contingent deferred sales
charge ("CDSC") in connection with a redemption of Class F shares. Some
investors may pay an initial sales charge in connection with a purchase of Class
A shares of a fund, depending upon the amount of the investment. Also, Class A
shares purchased without an initial sales charge as part of an investment of $1
million or more may be charged a CDSC of 1.00% if redeemed within one year.
HOWEVER, NO SALES CHARGE OR CDSC WILL BE IMPOSED ON FORMER CLASS F SHAREHOLDERS
AT THE TIME OF THE REORGANIZATION. IN ADDITION, NO SALES CHARGE OR CDSC WILL BE
IMPOSED ON A SUBSEQUENT INVESTMENT IN OR REDEMPTION OF CLASS A SHARES OF THE
ACQUIRING FUND BY FORMER CLASS F SHAREHOLDERS OF THE FUND.
The Class F shares of each fund pay Dreyfus Service Corporation (the
"Distributor") an annual Rule 12b-1 Plan fee of up to 0.25% of the value of the
average daily net assets of the Class F shares of the fund to reimburse the
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Distributor for expenses incurred in connection with the distribution of the
Funds' Class F shares. The Class A shares of each fund pay the Distributor an
annual Shareholder Services Plan fee of 0.25% of the value of the average daily
net assets of the Class A shares for providing services to Class A shareholders.
WILL I ENJOY THE SAME PRIVILEGES AS A SHAREHOLDER OF THE ACQUIRING FUND THAT I
CURRENTLY HAVE AS A SHAREHOLDER OF THE FUND?
You will continue to enjoy the same shareholder privileges as a shareholder of
the Acquiring Fund as you currently do as a shareholder of the Fund. You have
the ability to continue to transfer money between your bank account and fund
account through the TeleTransfer privilege. Subject to the terms of the
applicable prospectus, you also may exchange shares of the Acquiring Fund for
shares of other funds in the Dreyfus Founders Family of Funds through the
Exchange privilege.
If you are a Class F shareholder of the Fund who will acquire Class A shares of
the Acquiring Fund, you may exchange your Class A shares of the Acquiring Fund
for Class F shares of the Acquiring Fund or other funds in the Dreyfus Family of
Funds through the Exchange Privilege. You may also exchange Class A shares of
the Acquiring Fund for Class A shares of other funds in the Dreyfus Family of
Funds or a Dreyfus Premier Fund through the Exchange Privilege. Your Acquiring
Fund Class A shares, however, will not be counted for purposes of determining
your eligibility to participate in Founders' Premier services program. If you
were to exchange all of your Acquiring Fund Class A or Class F shares for shares
of other funds in the Dreyfus Family of Funds or for other Dreyfus Premier funds
and no longer held Class A shares of the Acquiring Fund or Class F shares of a
Dreyfus Founders fund, you would lose your status as a "grandfathered Class F
investor" and would not be able to purchase Class F shares of a Dreyfus Founders
fund.
You also may purchase and sell shares of the Acquiring Fund online at
www.founders.com (for Class F shares) and www.dreyfus.com (for all other share
classes).
WILL THE PROPOSED REORGANIZATION RESULT IN HIGHER FUND EXPENSES?
No. Under its agreement with Founders, the Fund pays Founders a management fee
at the annual rate of 1.00% of the value of the Fund's average daily net assets
up to $30 million, 0.75% of such assets between $30 million and $300 million,
0.70% of such assets between $300 million and $500 million, and 0.65% of such
assets over $500 million. The Acquiring Fund pays Founders a management fee at
the annual rate of 0.65% of the value of the Acquiring Fund's average daily net
assets up to $250 million, 0.60% of such assets between $250 million and $500
million, 0.55% of such assets between $500 million and $750 million, and 0.50%
of such assets over $750 million. The Acquiring Fund, with assets of
approximately $229.8 million (as of December 31, 2006), currently pays Founders
a management fee at the annual rate of 0.65% of the value of the Acquiring
Fund's average daily net assets. In contrast, the Fund, with assets of
approximately $339.6 million (as of December 31, 2006), currently pays Founders
a management fee at the annual rate of 0.77% of the value of the Fund's average
daily net assets. The Acquiring Fund's lower management fee, as well as the
potential economies of scale that are expected to result from the proposed
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reorganization, are anticipated to result in a lower total expense ratio for
Fund shareholders.
WILL I BE CHARGED A SALES CHARGE OR CONTINGENT DEFERRED SALES CHARGE ("CDSC") AT
THE TIME OF THE PROPOSED REORGANIZATION?
No sales charge or CDSC will be imposed at the time of the reorganization.
Subsequent investments in the Acquiring Fund will be subject to applicable sales
charges and redemptions of Class B or Class C shares (or Class A or Class T
shares subject to a CDSC) of the Acquiring Fund received in the reorganization
will be subject to the same CDSC as redemption of Class B or Class C shares (or
Class A or Class T shares subject to a CDSC) of the Fund (calculated from the
date of original purchase of Fund shares). No sales charge or CDSC will be
imposed on subsequent investments in or redemptions of Class A shares of the
Acquiring Fund by former Class F shareholders of the Fund.
WHO WILL PAY THE EXPENSES OF THE PROPOSED REORGANIZATION?
Because of the anticipated benefits to shareholders of each fund as a result of
the proposed reorganization, including possible lower expense ratios, the
expenses related to the proposed reorganization will be split proportionately
between the funds, based on the net assets of each fund.
HOW DOES THE BOARD OF DIRECTORS RECOMMEND I VOTE?
The Company's Board of Directors has determined that reorganizing the Fund into
another fund managed by Founders, that has a similar investment objective and
investment policies as the Fund, and a lower total expense ratio and a better
performance record than the Fund, offers potential benefits to shareholders of
the Fund. These potential benefits include permitting Fund shareholders to
pursue similar investment goals in a larger combined fund with a lower expense
ratio and better performance record. By combining the Fund with the Acquiring
Fund, shareholders of the Fund also should benefit from more efficient portfolio
management.
The Company's Board of Directors believes the reorganization is in the best
interests of the Fund and its shareholders. Therefore, the Directors recommend
that you vote FOR the reorganization.
HOW CAN I VOTE MY SHARES?
You can vote in any one of the following ways:
o By mail, with the enclosed proxy card and postage-paid envelope;
o By telephone, with a toll-free call to the number listed on your proxy
card;
o Through the Internet, at the website address listed on your proxy
card; or
o In person at the meeting.
We encourage you to vote through the Internet or by telephone using the number
that appears on your proxy card. Whichever voting method you choose, please take
the time to read the Prospectus/Proxy Statement before you vote.
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Please note: if you sign and date your proxy card, but do not provide voting
instructions, your shares will be voted FOR the proposal. Thank you in advance
for your vote.
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DREYFUS FOUNDERS GROWTH FUND
(A SERIES OF DREYFUS FOUNDERS FUNDS, INC.)
__________________________
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
___________________________
To the Shareholders:
A Special Meeting of Shareholders of Dreyfus Founders Growth Fund (the
"Fund"), a series of Dreyfus Founders Funds, Inc. (the "Company"), will be held
at the offices of Founders Asset Management LLC, 210 University Boulevard, Suite
800, Denver, Colorado, on Thursday, May 24, 2007, at 1:00 p.m., Mountain time,
for the following purposes:
1. To approve a Plan of Reorganization providing for the transfer of all
of the assets of the Fund to Dreyfus Founders Equity Growth Fund (the
"Acquiring Fund"), another series of the Company, in exchange for the
Acquiring Fund's Class A, Class B, Class C, Class F, Class R and Class
T shares having an aggregate net asset value equal to the value of the
Fund's net assets and the assumption by the Acquiring Fund of the
Fund's stated liabilities (the "Reorganization"). Class A, Class B,
Class C, Class R and Class T shares of the Acquiring Fund received by
the Fund in the Reorganization will be distributed pro rata by the
Fund to its Class A, Class B, Class C, Class F, Class R and Class T
shareholders, respectively, with Class F shareholders receiving Class
A shares of the Acquiring Fund, in liquidation of the Fund, after
which the Fund will cease operations and will be terminated as a
series of the Company; and
2. To transact such other business as may properly come before the
meeting, or any adjournment or adjournments thereof.
Shareholders of record at the close of business on March 26, 2007 will be
entitled to receive notice of and to vote at the meeting.
By Order of the Board of Directors
Kenneth R. Christoffersen
Secretary
Denver, Colorado
April __, 2007
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WE NEED YOUR PROXY VOTE
A SHAREHOLDER MAY THINK HIS OR HER VOTE IS NOT IMPORTANT, BUT IT IS VITAL.
BY LAW, THE MEETING OF SHAREHOLDERS WILL HAVE TO BE ADJOURNED WITHOUT CONDUCTING
ANY BUSINESS IF LESS THAN A QUORUM OF FUND SHARES ELIGIBLE TO VOTE IS
REPRESENTED. IN THAT EVENT, THE FUND WOULD CONTINUE TO SOLICIT VOTES IN AN
ATTEMPT TO ACHIEVE A QUORUM. CLEARLY, YOUR VOTE COULD BE CRITICAL TO ENABLE THE
FUND TO HOLD THE MEETING AS SCHEDULED, SO PLEASE RETURN YOUR PROXY CARD OR
OTHERWISE VOTE PROMPTLY. YOU AND ALL OTHER SHAREHOLDERS WILL BENEFIT FROM YOUR
COOPERATION.
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Reorganization of
DREYFUS FOUNDERS GROWTH FUND
(A SERIES OF DREYFUS FOUNDERS FUNDS, INC.)
With and Into
DREYFUS FOUNDERS EQUITY GROWTH FUND
(A SERIES OF DREYFUS FOUNDERS FUNDS, INC.)
PROSPECTUS/PROXY STATEMENT
APRIL __, 2007
_______________________________________
Special Meeting of Shareholders
To Be Held on Friday, May 24, 2007
This Prospectus/Proxy Statement is furnished in connection with a
solicitation of proxies by the Board of Directors of Dreyfus Founders Funds,
Inc. (the "Company"), on behalf of Dreyfus Founders Growth Fund (the "Fund"), to
be used at the Special Meeting of Shareholders (the "Meeting") of the Fund to be
held on Thursday, May 24, 2007, at 1:00 p.m., Mountain time, at the offices of
Founders Asset Management LLC ("Founders"), 210 University Boulevard, Suite 800,
Denver, Colorado 80206, for the purposes set forth in the accompanying Notice of
Special Meeting of Shareholders. Shareholders of record at the close of business
on March 26, 2007 are entitled to receive notice of and to vote at the Meeting.
It is proposed that the Fund transfer all of its assets to Dreyfus Founders
Equity Growth Fund (the "Acquiring Fund") in exchange for the Acquiring Fund's
shares and the assumption by the Acquiring Fund of the Fund's stated
liabilities, all as more fully described in this Prospectus/Proxy Statement (the
"Reorganization"). Upon consummation of the Reorganization, the Acquiring Fund
shares received by the Fund will be distributed to Fund shareholders, with each
shareholder receiving a pro rata distribution of the Acquiring Fund's Class A,
Class B, Class C, Class R and Class T shares (or fractions thereof) for Fund
shares held prior to the Reorganization. Each shareholder will receive for his
or her Fund shares a number of Class A, Class B, Class C, Class R and Class T
shares (or fractions thereof) of the Acquiring Fund equal in value to the
aggregate net asset value of the shareholder's Fund shares as of the date of the
Reorganization. The Acquiring Fund shares received by each Fund shareholder will
be of the same share class as the shareholder's Fund shares, except that Class F
shareholders of the Fund will receive Class A shares of the Acquiring Fund.
This Prospectus/Proxy Statement, which should be retained for future
reference, concisely sets forth information about the Acquiring Fund that Fund
shareholders should know before voting on the proposal or investing in the
Acquiring Fund.
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A Statement of Additional Information ("SAI") dated April __, 2007,
relating to this Prospectus/Proxy Statement, has been filed with the Securities
and Exchange Commission (the "Commission") and is incorporated by reference in
its entirety. The Commission maintains a website (http://www.sec.gov) that
contains the SAI, material incorporated into this Prospectus/Proxy Statement by
reference, and other information regarding the Acquiring Fund and the Fund. A
copy of the SAI is available without charge by calling 1-800-525-2440, or
writing to the Acquiring Fund at its offices at 144 Glenn Curtiss Boulevard,
Uniondale, New York 11556-0144.
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SHARES OF THE ACQUIRING FUND AND THE FUND ARE NOT BANK DEPOSITS AND ARE NOT
INSURED OR GUARANTEED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY OTHER
GOVERNMENT AGENCY. INVESTING IN THE ACQUIRING FUND, AS IN THE FUND, INVOLVES
CERTAIN RISKS, INCLUDING THE POSSIBLE LOSS OF PRINCIPAL.
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THE SECURITIES AND EXCHANGE COMMISSION HAS NOT APPROVED OR DISAPPROVED THE
ACQUIRING FUND'S SHARES OR PASSED UPON THE ADEQUACY OF THIS PROSPECTUS/PROXY
STATEMENT. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
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NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS NOT CONTAINED IN THIS COMBINED PROSPECTUS/PROXY STATEMENT IN
CONNECTION WITH THE OFFERING MADE HEREBY AND, IF GIVEN OR MADE, SUCH INFORMATION
OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE
COMPANY. THIS COMBINED PROSPECTUS/PROXY STATEMENT DOES NOT CONSTITUTE AN
OFFERING BY THE COMPANY IN ANY JURISDICTION IN WHICH SUCH OFFERING MAY NOT
LAWFULLY BE MADE.
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The Fund and the Acquiring Fund are open-end management investment
companies advised by Founders. The funds have a similar investment objective and
investment management policies. However, the investment practices and
limitations of each fund (and the related risks) are not identical. A comparison
of the Fund and the Acquiring Fund is set forth in this Prospectus/Proxy
Statement.
The Acquiring Fund's Annual Report for its fiscal year ended December 31,
2006 (including its audited financial statements for the fiscal year)
accompanies this Prospectus/Proxy Statement. The financial statements contained
in the Acquiring Fund's Annual Report are incorporated into this
Prospectus/Proxy Statement by reference. FOR A FREE COPY OF THE FUND'S MOST
RECENT PROSPECTUS AND THE FUND'S ANNUAL REPORT FOR THE FISCAL YEAR ENDED
DECEMBER 31, 2006, PLEASE CALL YOUR FINANCIAL ADVISER, OR CALL 1-800-525-2440,
VISIT WWW.FOUNDERS.COM (CLASS F SHARES) OR WWW.DREYFUS.COM (ALL OTHER SHARE
CLASSES), OR WRITE TO THE FUND AT ITS OFFICES LOCATED AT 144 GLENN CURTISS
BOULEVARD, UNIONDALE, NEW YORK 11556-0144.
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Shareholders are entitled to one vote for each Fund share held and
fractional votes for each fractional Fund share held. Class A, Class B, Class C,
Class F, Class R and Class T shareholders will vote together on the proposal.
Fund shares represented by executed and unrevoked proxies will be voted in
accordance with the specifications made thereon. If the enclosed proxy card is
executed and returned, it nevertheless may be revoked by giving another proxy
before the Meeting. Also, any shareholder who attends the Meeting in person may
vote by ballot at the Meeting, thereby canceling any proxy previously given. If
you sign and date your proxy card, but do not provide voting instructions, your
shares will be voted FOR the proposal.
If the Reorganization is approved at the Meeting, shareholders will not
have the right to dissent and obtain payment of the fair value of their shares
because the exercise of appraisal rights is subject to the forward pricing
requirements of Rule 22c-1 under the Investment Company Act of 1940, as amended
(the "1940 Act"), which supersede state law. However, shareholders have the
right to redeem their Fund shares until the completion of the Reorganization.
As of January 31, 2007, the following numbers of Fund shares were issued
and outstanding:
Class A Shares Class B Shares Class C Shares Class F Shares Class R Shares Class T Shares
985,785 187,589 124,029 25,474,488 211,059 6,500
Proxy materials will be mailed to shareholders of record on or about April
__, 2007.
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TABLE OF CONTENTS
Summary......................................................................
Reasons for the Reorganization...............................................
Information about the Reorganization.........................................
Additional Information about the Acquiring Fund and the Fund.................
Voting Information...........................................................
Financial Statements and Experts.............................................
Shareholder Proposals .......................................................
Other Matters................................................................
Notice To Banks, Broker/Dealers and Voting Trustees and Their Nominees.......
Exhibit A: Plan of Reorganization...........................................A-1
Exhibit B: Supplemental Information Relating to the Acquiring Fund .........B-1
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APPROVAL OF A PLAN OF REORGANIZATION PROVIDING FOR THE TRANSFER
OF ALL OF THE ASSETS OF THE FUND TO THE ACQUIRING FUND
SUMMARY
This Summary is qualified by reference to the more complete information
contained elsewhere in this Prospectus/Proxy Statement and the Plan of
Reorganization (the "Plan") attached to this Prospectus/Proxy Statement as
Exhibit A.
PROPOSED TRANSACTION. The Company's Board, all of whose members are not
"interested persons" (as defined in the 1940 Act) of the Company (the
"Independent Directors"), has unanimously approved the Plan. The Plan provides
that, subject to the requisite approval of the Fund's shareholders, on the date
of the Reorganization the Fund will assign, transfer and convey to the Acquiring
Fund all of the assets of the Fund, including all securities and cash, in
exchange for Class A, Class B, Class C, Class R and Class T shares of the
Acquiring Fund having an aggregate net asset value equal to the value of the
Fund's net assets, and the Acquiring Fund will assume the Fund's stated
liabilities. The Fund will distribute all Acquiring Fund shares received by it
among its shareholders so that each Class A, Class B, Class C, Class F, Class R
and Class T Fund shareholder will receive a pro rata distribution of the
Acquiring Fund's Class A, Class B, Class C, Class R and Class T shares (or
fractions thereof) having an aggregate net asset value equal to the aggregate
net asset value of the shareholder's Fund shares as of the date of the
Reorganization. The Acquiring Fund shares received by each Fund shareholder will
be of the same share class as the shareholder's Fund shares, except that Class F
shareholders of the Fund will receive Class A shares of the Acquiring Fund.
Thereafter, the Fund will cease operations and will be terminated as a series of
the Company.
As a result of the Reorganization, each Fund shareholder will cease to be a
shareholder of the Fund and will become a shareholder of the Acquiring Fund as
of the close of business on the date of the Reorganization. No sales charge or
contingent deferred sales charge ("CDSC") will be imposed at the time of the
Reorganization. Subsequent investments in the Acquiring Fund after the
Reorganization will be subject to applicable sales charges, and redemptions of
Class B or Class C shares (or Class A or Class T shares subject to a CDSC) of
the Acquiring Fund received in the Reorganization will be subject to the same
CDSC as the redemption of Class B or Class C shares (or Class A or Class T
shares subject to a CDSC) of the Fund (calculated from the date of original
purchase of Fund shares). No sales charge or CDSC will be imposed on subsequent
investments in or redemptions of Class A shares of the Acquiring Fund by former
Class F shareholders of the Fund.
The Company's Board has unanimously concluded that the Reorganization is in
the best interests of the Fund and its shareholders and the economic interests
of the Fund's existing shareholders will not be diluted as a result of the
transactions contemplated thereby. In reaching this conclusion, the Board
considered, among other things, the similarity of the funds' investment goals
and investment approaches, the expense ratio of the Acquiring Fund as compared
to that of the Fund, the performance of the Acquiring Fund as compared to the
-5-
performance of the Fund, the potential economies of scale that could be realized
as a result of the increase in the asset size of the Acquiring Fund, the fact
that the Reorganization will be free of federal income tax, the recommendation
of Founders in favor of the Reorganization and the fact that the cost of the
Reorganization will be split proportionately between the Fund and the Acquiring
Fund based on the net assets of each fund. See "Reasons for the Reorganization."
TAX CONSEQUENCES. As a condition to the closing of the Reorganization, the
Company will receive an opinion of counsel to the effect that, for federal
income tax purposes, the Reorganization will qualify as a tax-free
reorganization and, thus, no gain or loss will be recognized by the Fund, the
Fund's shareholders, or the Acquiring Fund as a result of the Reorganization.
Certain tax attributes of the Fund will carry over to the Acquiring Fund;
however, the ability of the Acquiring Fund to utilize its own and the Fund's
capital loss carryforwards will be subject to limitations. See "Information
about the Reorganization--Federal Income Tax Consequences."
COMPARISON OF THE FUND AND THE ACQUIRING FUND.
GOAL/APPROACH. The Fund and the Acquiring Fund have similar investment
goals and investment approaches. The Fund seeks long-term growth of capital. The
Acquiring Fund seeks long-term growth of capital and income. These investment
objectives are fundamental policies which cannot be changed without the approval
of a majority of the relevant fund's outstanding voting shares.
To pursue its goal, the Fund normally invests at least 65% of its total
assets in common stocks of well-established, high-quality growth companies.
These companies tend to have strong performance records, solid market positions,
reasonable financial strength, and continuous operating records of three years
or more. The Fund also may invest up to 30% of its total assets in foreign
securities, with no more than 25% invested in any one foreign country.
To pursue its goal, the Acquiring Fund primarily invests in common stocks
of large, well-established and mature companies. These companies generally have
long records of profitability and dividend payments and a reputation for
high-quality management, products, and services. The Acquiring Fund normally
invests at least 80% of its net assets in stocks that are included in a widely
recognized index of stock market performance, such as the Dow Jones Industrial
Average, the Standard & Poor's 500 Index, or the Nasdaq Composite Index. While a
significant portion of these stocks normally would be expected to pay regular
dividends, the Acquiring Fund may invest in non-dividend-paying companies if
they offer better prospects for capital appreciation. The Acquiring Fund may
also invest up to 30% of its total assets in foreign securities.(1)
- ----------
(1) The term "net assets" as used in this paragraph includes Acquiring Fund
borrowings made for investment purposes. The indexes listed in this
paragraph are examples of indexes considered to be widely recognized
indexes of stock market performance. The stocks held by the Acquiring Fund
may be included in other indexes also considered to be widely recognized
indexes of stock market performance.
-6-
Founders manages both funds using the same "growth style" of investing,
searching for companies whose fundamental strengths suggest the potential to
provide superior earnings growth over time. Founders uses a consistent,
bottom-up approach to build equity portfolios which emphasizes individual stock
selection. Founders goes beyond Wall Street analysis and performs intensive
qualitative and quantitative in-house research to determine whether companies
meet its investment criteria.
Founders continually monitors the securities in each fund's portfolio, and
will consider selling a security if its business momentum deteriorates or its
valuation becomes excessive. Founders also may sell a security if an event
occurs that contradicts Founders' rationale for owning it, such as a
deterioration in the company's financial fundamentals. In addition, Founders may
sell a security if better investment opportunities emerge elsewhere. Founders
also may liquidate a security if Founders changes the fund's industry or sector
weightings.
The principal difference between the two funds is that the pursuit of
income is a component of the Acquiring Fund's investment objective, but is not a
component of the Fund's investment objective. The Acquiring Fund historically
has sought income primarily through investments in dividend-paying companies.
While not required to seek income, the Fund also has invested in many of these
same companies in recent years as a result of the application of Founders'
bottom-up investment approach. In addition, while both the Fund and the
Acquiring Fund may invest up to 30% of their respective total assets in foreign
securities, the Fund limits its investments in any one foreign country to no
more than 25% of its total assets. While the Acquiring Fund has no comparable
limit, its investments in any one foreign country historically have been well
below that level.
KEY CONCEPTS
FUND AND ACQUIRING FUND
-----------------------
o Growth companies: companies whose earnings are expected to grow faster than
the overall market.
o "Bottom-up" approach: choosing fund investments by analyzing the
fundamentals of individual companies one at a time rather than focusing on
broader market themes.
ACQUIRING FUND
--------------
o Large Companies: generally companies that have market capitalizations of
more than $10 billion. This range may fluctuate depending on changes in the
stock market as a whole.
o Dividend: a payment of stock or cash from a company's profits to its
stockholders.
See "Investment Strategies and Risks" in the SAI for a more complete
description of investment policies.
MAIN RISKS. The principal risks associated with an investment in the Fund
and the Acquiring Fund are virtually identical. These risks are discussed below.
As a result, the value of your investment in the Acquiring Fund, as in the Fund,
will fluctuate, which means you could lose money.
o STOCK MARKET RISK. The market value of the stocks and other securities
owned by each fund will fluctuate depending on the performance of the companies
that issued them, general market and economic conditions, and investor
confidence. In addition, whether or not Founders' assessment of a company's
-7-
potential to increase earnings faster than the rest of the market is correct,
the securities in the portfolio may not increase in value, and could decrease in
value.
o INVESTMENT STYLE RISK. Market performance tends to be cyclical, and during
various cycles, certain investment styles may fall in and out of favor. The
market may not favor the funds' growth style of investing, and the funds'
returns may vary considerably from other equity funds using different investment
styles. Investors often expect growth companies to increase their earnings at a
certain rate. If these expectations are not met, investors can punish the stocks
inordinately, even if earnings do increase. In addition, growth stocks typically
lack the dividend yield that can cushion stock prices in market downturns.
o SECTOR RISK. Each fund may overweight or underweight certain market sectors
relative to its benchmark index, which may cause the fund's performance to be
more or less sensitive to developments affecting those sectors.
o FOREIGN INVESTMENT RISK. Investments in foreign securities involve
different risks than U.S. investments, including less trading volume and
liquidity, increased volatility, fluctuations in currency exchange rates,
potentially unstable political and economic structures, reduced availability of
public information, and lack of uniform financial reporting and regulatory
practices similar to those that apply to U.S. issuers.
Each fund is a mutual fund: a pooled investment that is professionally
managed and gives you the opportunity to participate in financial markets. Each
fund strives to reach its stated goal, although as with all mutual funds, it
cannot offer guaranteed results.
An investment in a fund is not a bank deposit. The funds are not insured or
guaranteed by the FDIC or any other government agency. A fund is not a complete
investment program. You could lose money in the funds, but you also have the
potential to make money.
MORE ABOUT INVESTMENT OBJECTIVES, STRATEGIES AND RISKS. This section
discusses other investment strategies that may be used by the funds and provides
more detailed information about the risks associated with those strategies.
Although Founders might not use all of the different techniques and investments
described below, some of these techniques are designed to help reduce investment
or market risks. The SAI contains more detailed information about the funds'
investment policies and risks.
OTHER PORTFOLIO INVESTMENTS AND STRATEGIES
o ADRs. Each fund may invest in American Depositary Receipts and American
Depositary Shares (collectively, ADRs) as a way to invest in foreign securities.
ADRs are receipts representing shares of a foreign corporation held by a U.S.
bank that entitle the holder to all dividends and capital gains on the
underlying foreign shares. ADRs are typically denominated in U.S. dollars and
trade in the U.S. securities markets. ADRs are subject to many of the same risks
as direct investments in foreign securities. These risks include fluctuations in
currency exchange rates, potentially unstable political and economic structures,
reduced availability of public information, and lack of uniform financial
reporting and regulatory practices similar to those that apply to U.S. issuers.
-8-
o DERIVATIVE INSTRUMENTS. Unlike stocks or bonds that represent actual
ownership of the equity or debt of an issuer, derivatives are instruments that
derive their value from an underlying security, index, or other financial
instrument. Derivatives may be used for the following purposes: to hedge risks
inherent in a fund's portfolio, to enhance the potential return of a portfolio,
to diversify a portfolio, to equitize cash, to reduce transaction costs
associated with managing a portfolio, and/or to implement a fund's investment
strategy through investments that may be more tax-efficient than a direct equity
investment. Derivatives the funds may use include futures contracts (including
those related to indexes) and forward contracts, and purchasing and/or writing
(selling) put and call options on securities, securities indexes, futures
contracts, and foreign currencies, and purchasing equity-linked notes. The funds
have limits on the use of derivatives and are not required to use them in
seeking their investment objectives.
Certain strategies may hedge all or a portion of a fund's portfolio against
price fluctuations. Other strategies, such as buying futures and call options,
would tend to protect a fund against increases in the prices of securities or
other instruments the fund intends to buy. Forward contracts, futures contracts
and options may be used to try to manage foreign currency risks on a fund's
foreign investments. Options trading may involve the payment of premiums and has
special tax effects on the funds.
There are special risks in using particular derivative strategies. Using
derivatives can cause a fund to lose money on its investments and/or increase
the volatility of its share prices. In addition, the successful use of
derivatives draws upon skills and experience that are different from those
needed to select the other securities in which the funds invest. Should interest
rates, foreign currency exchange rates, or the prices of securities or financial
indexes move in an unexpected manner, a fund may not achieve the desired benefit
of these instruments, or may realize losses and be in a worse position than if
the instruments had not been used. A fund could also experience losses if the
prices of its derivative positions were not correlated with its other
investments or if it could not close out a position because of an illiquid
market. Derivative instruments also involve the risk that a loss may be
sustained as a result of the failure of the counterparty to the derivative
instrument to make required payments or otherwise comply with the derivative
instrument's terms.
SECURITIES OF OTHER INVESTMENT COMPANIES. Each fund may acquire securities
of other investment companies, including exchange-traded funds (ETFs), subject
to the limitations of the 1940 Act and the conditions of exemptive orders issued
by the Commission. A fund's purchase of securities of other investment companies
will result in the payment of additional management fees and may result in the
payment of additional distribution fees. Each fund may invest its uninvested
cash reserves in shares of one or more money market funds advised by affiliates
of Founders in accordance with the 1940 Act and the rules thereunder. ETFs are
open-end investment companies or unit investment trusts that are registered
under the 1940 Act. The shares of ETFs are listed and traded on stock exchanges
at market prices. Since ETF shares can be bought and sold like ordinary stocks
throughout the day, a fund may invest in ETFs in order to equitize cash, achieve
exposure to a broad basket of securities in a single transaction, or for other
reasons. An investment in an ETF generally presents the same primary risks as an
investment in a conventional fund (i.e., one that is not exchange-traded) that
has the same investment objectives, strategies, and policies. The price of an
-9-
ETF can fluctuate up or down, and a fund can lose money investing in an ETF if
the prices of the securities owned by the ETF go down. In addition, ETFs are
subject to the following risks that do not apply to conventional funds: (i) the
market price of an ETF's shares may trade above or below their net asset value;
(ii) an active trading market for an ETF's shares may not develop or be
maintained; or (iii) trading of an ETF's shares may be halted if the listing
exchange's officials deem such action appropriate, the shares are delisted from
the exchange, or the activation of market-wide "circuit breakers" (which are
tied to large decreases in stock prices) halts stock trading generally. As with
traditional mutual funds, ETFs charge asset-based fees, although these fees tend
to be relatively low. ETFs do not charge initial sales charges or redemption
fees and investors pay only customary brokerage fees to buy and sell ETF shares.
o TEMPORARY DEFENSIVE INVESTMENTS. In times of unstable or adverse market or
economic conditions, up to 100% of each fund's assets can be invested in
temporary defensive instruments in an effort to enhance liquidity or preserve
capital. Temporary defensive investments generally include cash, cash
equivalents such as commercial paper, money market instruments, short-term debt
securities, U.S. government securities, or repurchase agreements. Each fund also
could hold these types of securities pending the investment of proceeds from the
sale of fund shares or portfolio securities, or to meet anticipated redemptions
of fund shares. To the extent a fund invests defensively in these securities, it
might not achieve its investment objective.
o PORTFOLIO TURNOVER. The funds do not have any limitations regarding
portfolio turnover. Each fund may engage in short-term trading to try to achieve
its objective and may have portfolio turnover rates significantly in excess of
100%. A portfolio turnover rate of 100% is equivalent to a fund buying and
selling all of the securities in its portfolio once during the course of a year.
The portfolio turnover rate of a fund may be higher than other mutual funds with
the same investment objective. Higher portfolio turnover rates increase the
brokerage costs the funds pay and may adversely affect their performance.
If a fund realizes capital gains when it sells portfolio investments, it
generally must pay those gains out to shareholders, increasing their taxable
distributions. This may adversely affect the after-tax performance of the fund
for shareholders with taxable accounts. The Acquiring Fund's portfolio turnover
rates for prior years are included in the "Financial Highlights" section of its
Annual Report for the fiscal year ended December 31, 2006, enclosed herewith.
Each fund's current and future portfolio turnover rates may differ significantly
from its historical portfolio turnover rates.
MORE ABOUT RISK
Like all investments in securities, you risk losing money by investing in the
funds. The funds' investments are subject to changes in their value from a
number of factors.
o COMPANY RISK. The stocks in a fund's portfolio may not perform as expected.
Factors that can negatively affect a particular stock's price include poor
earnings reports by the issuer, loss of major customers or management team
members, major litigation against the issuer, or changes in government
regulations affecting the issuer or its industry.
-10-
o OPPORTUNITY RISK. There is the risk of missing out on an investment
opportunity because the assets necessary to take advantage of the opportunity
are held in other investments.
See "Investment Strategies and Risks" in the SAI for a more complete
description of investment risks.
FEES AND EXPENSES. As an investor, you pay certain fees and expenses in
connection with each fund, which are described in the tables below. The first
table shows the transaction fees paid by shareholders of each fund from their
accounts. The shareholder transaction fees for each class of each fund are
identical. See "Share Classes" and "Sales Charges" on page ___for additional
information.
SHAREHOLDER TRANSACTION FEES
(FEES PAID FROM YOUR ACCOUNT):
Class A Class B* Class C Class F Class R Class T
------- -------- ------- ------- ------- -------
Maximum front-end sales charge on purchases % OF 5.75 none none none none 4.50
OFFERING PRICE
Maximum contingent deferred sales charge (CDSC) % OF none** 4.00 1.00 none none none**
PURCHASE OR SALE PRICE, WHICHEVER IS LESS
*With the exception of the Acquiring Fund Class B shares to be issued in the
Reorganization, Class B shares of the funds are available only in connection
with dividend reinvestments and permitted exchanges of Class B shares of certain
other funds.
**Shares bought without an initial sales charge as part of an investment of $1
million or more may be charged a CDSC of 1.00% if redeemed within one year.
The table below compares the fees and expenses of each class of shares of
the Fund and the Acquiring Fund based on each fund's net assets and accruals as
of December 31, 2006. The table compares the fees and expenses of the Fund's
Class F shares and the Acquiring Fund's Class A shares because Class F
shareholders of the Fund will receive Class A shares of the Acquiring Fund in
the Reorganization. The "Pro Forma After Reorganization" operating expenses
information is based on the net assets and fund accruals of the Fund and the
Acquiring Fund as of December 31, 2006, as adjusted showing the effect of the
Reorganization had it occurred on such date. Annual fund operating expenses are
paid out of fund assets, so their effect is reflected in the funds' share
prices.
-11-
The fee tables below indicate that, as of December 31, 2006, for each class
of shares other than the Class T shares, the Acquiring Fund's annual operating
expenses were lower than the Fund's annual operating expenses. It also shows
that, assuming shareholder approval of the Reorganization, the annual operating
expenses of each class of shares of the Acquiring Fund are expected to be less
than those of the Fund. This is principally attributable to the lower management
fee paid by the Acquiring Fund, as well as the potential economies of scale that
are expected to result from the Reorganization.
The Fund and the Acquiring Fund each pay Founders a management fee. The
management fee schedules of the Fund and the Acquiring Fund differ. The Fund
pays Founders a management fee at the annual rate of 1.00% of the value of the
Fund's average daily net assets up to $30 million, 0.75% of such assets between
$30 million and $300 million, 0.70% of such assets between $300 million and $500
million, and 0.65% of such assets over $500 million. The Acquiring Fund pays
Founders a management fee at the annual rate of 0.65% of the value of the
Acquiring Fund's average daily net assets up to $250 million, 0.60% of such
assets between $250 million and $500 million, 0.55% of such assets between $500
million and $750 million, and 0.50% of such assets over $750 million. The
Acquiring Fund, with assets of approximately $229.8 million (as of December 31,
2006), currently pays Founders a management fee at the annual rate of 0.65% of
the value of the Acquiring Fund's average daily net assets. In contrast, the
Fund, with assets of approximately $339.6 million (as of December 31, 2006),
currently pays Founders a management fee at the annual rate of 0.77% of the
value of the Fund's average daily net assets. A discussion regarding the basis
for the Board's approval of the funds' investment advisory agreement with
Founders is available in each fund's annual report for the year ended December
31, 2006.
ANNUAL FUND OPERATING EXPENSES
(EXPENSES PAID FROM FUND ASSETS)
(PERCENTAGE OF AVERAGE DAILY NET ASSETS):
PRO FORMA AFTER
REORGANIZATION
FUND ACQUIRING FUND ACQUIRING FUND
CLASS A CLASS A CLASS A
----------------- ----------------- -----------------
Management fees 0.77% 0.65% 0.62%
Rule 12b-1 fee N/A N/A N/A
Shareholder services fee 0.25% 0.25% 0.25%
-------- -------- --------
Other expenses 0.38% 0.31% 0.31%
- -------------- -------- -------- --------
TOTAL 1.40% 1.21% 1.18%
-12-
PRO FORMA AFTER
REORGANIZATION
FUND ACQUIRING FUND ACQUIRING FUND
CLASS B CLASS B CLASS B
----------------- ----------------- -----------------
Management fees 0.77% 0.65% 0.62%
Rule 12b-1 fee 0.75% 0.75% 0.75%
Shareholder services fee 0.25% 0.25% 0.25%
-------- -------- --------
Other expenses 0.46% 0.35% 0.39%
- -------------- -------- -------- --------
TOTAL 2.23% 2.00% 2.01%
PRO FORMA AFTER
REORGANIZATION
FUND ACQUIRING FUND ACQUIRING FUND
CLASS C CLASS C CLASS C
----------------- ----------------- -----------------
Management fees 0.77% 0.65% 0.62%
Rule 12b-1 fee 0.75% 0.75% 0.75%
Shareholder services fee 0.25% 0.25% 0.25%
-------- -------- --------
Other expenses 0.40% 0.25% 0.26%
- -------------- -------- -------- --------
TOTAL 2.17% 1.90% 1.88%
PRO FORMA AFTER
REORGANIZATION
FUND ACQUIRING FUND ACQUIRING FUND
CLASS F CLASS A** CLASS A
----------------- ----------------- -----------------
Management fees 0.77% 0.65% 0.62%
Rule 12b-1 fee 0.25% N/A N/A
Shareholder services fee N/A 0.25% 0.25%
-------- -------- --------
Other expenses 0.35%* 0.31% 0.31%
- -------------- -------- -------- --------
TOTAL 1.37% 1.21% 1.18%
- ----------
* "Other expenses" for the Class F shares include separate fees paid by the
funds pursuant to a Shareholder Services Agreement.
** As of December 31, 2006, the Acquiring Fund's Class F shares were paying a
management fee of 0.65%, a Rule 12b-1 fee of 0.08%, no shareholder services fee,
other expenses of 0.31% for total expenses of 1.04%. The Reorganization is
expected to result in a slight decrease in the expenses paid by the Acquiring
Fund's Class F shares.
-13-
PRO FORMA AFTER
REORGANIZATION
FUND ACQUIRING FUND ACQUIRING FUND
CLASS R CLASS R CLASS R
----------------- ----------------- -----------------
Management fees 0.77% 0.65% 0.62%
Rule 12b-1 fee N/A N/A N/A
Shareholder services fee N/A N/A N/A
-------- -------- --------
Other expenses 0.56% 0.32% 0.51%
- -------------- -------- -------- --------
TOTAL 1.33% 0.97% 1.13%
Expense reimbursement N/A N/A (0.16%)*
NET OPERATING EXPENSES 1.33% 0.97% 0.97%
*If the Reorganization is approved, Founders has agreed to cap the Acquiring
Fund's Class R share expense ratio at 0.97% following the Reorganization. This
commitment will extend through at least August 31, 2008, and will not be
terminated without prior notice to the Company's Board of Directors..
PRO FORMA AFTER
REORGANIZATION
FUND ACQUIRING FUND ACQUIRING FUND
CLASS T CLASS T CLASS T
----------------- ----------------- -----------------
Management fees 0.77% 0.65% 0.62%
Rule 12b-1 fee 0.25% 0.25% 0.25%
Shareholder services fee 0.25% 0.25% 0.25%
-------- -------- --------
Other expenses 0.44% 1.33% 0.54%
- -------------- -------- -------- --------
TOTAL 1.71% 2.48% 1.66%
Expense reimbursement N/A (0.71%)* (0.11%)*
NET OPERATING EXPENSES 1.71% 1.77% 1.55%
- ----------
* Founders has agreed to reimburse (or to cause its affiliates to reimburse) the
Class T share class of the Acquiring 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 notice
to the Company's Board of Directors.
KEY CONCEPTS
o Contingent deferred sales charge (CDSC): a back-end sales charge payable if
shares are redeemed within a certain time period.
o Management fee: the fee paid to Founders for managing a fund's portfolio
and assisting in other aspects of the fund's operations.
o Rule 12b-1 fee: the fee paid to the funds' distributor to finance the sale
and distribution of Class B, Class C, and Class T shares. Because this fee is
paid out of a fund's assets on an ongoing basis, over time it will increase the
cost of your investment and may cost you more than paying other types of sales
charges.
o Shareholder services fee: the fee paid to the funds' distributor for
providing shareholder services.
o Other expenses: expenses paid by a fund for custodian, transfer agency and
accounting agent services, and other customary fund services. The funds also
make payments to certain financial institution intermediaries, including
affiliates, who provide sub-administration, recordkeeping and/or sub-transfer
agency services to beneficial owners of the funds.
-14-
EXPENSE EXAMPLE
This example shows what you could pay in expenses over time. It uses the same
hypothetical conditions other funds use in their prospectuses: $10,000 initial
investment, 5% total return each year and no changes in expenses. The one-year
example and the first year of the three-, five- and ten-years examples for the
Class T shares of the Acquiring Fund and the Acquiring Fund Pro Forma After
Reorganization are based on net operating expenses, which reflect the expense
reimbursement by Founders. Because actual returns and expenses will be
different, the example is for comparison only.
1 YEAR 3 YEARS 5 YEARS 10 YEARS
Fund Class A shares $709 $993 $1,297 $2,158
Acquiring Fund Class A shares $691 $937 $1,202 $1,957
Acquiring Fund Pro Forma After Reorganization
Class A shares $688 $928 $1,187 $1,924
Fund Class B shares* $626/$226 $997/$697 $1,395/$1,195 $2,163/$2,163**
Acquiring Fund Class B shares* $603/$203 $927/$627 $1,278/$1,078 $1,936/$1,936**
Acquiring Fund Pro Forma After Reorganization
Class B shares* $604/$204 $930/$630 $1,283/$1,083 $1,927/$1,927**
Fund Class C shares* $320/$220 $679/$679 $1,164/$1,164 $2,503/$2,503
Acquiring Fund Class C shares* $293/$193 $597/$597 $1,026/$1,026 $2,222/$2,222
Acquiring Fund Pro Forma After Reorganization
Class C shares* $291/$191 $591/$591 $1,016/$1,016 $2,201/$2,201
Fund Class F shares $139 $434 $750 $1,646
Acquiring Fund Class A share*** $691 $937 $1,202 $1,957
Acquiring Fund Pro Forma After Reorganization
Class A shares $688 $928 $1,187 $1,924
Fund Class R shares $135 $421 $729 $1,601
Acquiring Fund Class R shares $99 $309 $536 $1,190
Acquiring Fund Pro Forma After Reorganization
Class R shares $99 $327 $591 $1,345
Fund Class T shares $616 $965 $1,336 $2,379
Acquiring Fund Class T shares $622 $1,123 $1,650 $3,088
Acquiring Fund Pro Forma After Reorganization
Class T shares $601 $940 $1,302 $2,318
- ----------
* With redemption/without redemption.
** Assumes conversion of Class B to Class A at end of sixth year following date
of purchase.
-15-
*** Expenses for the Acquiring Fund's Class F shares for the 1, 3, 5, and 10
year periods would be $106, $331, $574 and $1,271, respectively. The
Reorganization is expected to result in a slight decrease in the expenses paid
by the Acquiring Fund's Class F shares.
Each fund charges $6 for each wire redemption of Class F shares; no other
redemption or exchange fees are charged by the funds.
As discussed above, the foregoing tables are based on each fund's net
assets and accruals as of December 31, 2006. The fees and expenses of the
Acquiring Fund for the full year ended December 31, 2006 are shown in Exhibit B.
PAST PERFORMANCE. The bar charts and tables below illustrate the risks of
investing in the Acquiring Fund and the Fund. Each bar chart shows the changes
in the performance of the respective fund's Class F shares from year to year.
The sales loads applicable to other share classes are not reflected in the
charts; if they were, the returns shown would have been lower. The table for
each fund compares the average annual total returns of the fund's Class A, Class
B, Class C, Class F, Class R and Class T shares to those of its primary
benchmark, the Russell 1000 Growth Index. This is an unmanaged index that
measures the performance of the common stocks of those companies among the
largest 1,000 publicly traded U.S. companies with higher price-to-book ratios
and higher forecasted growth values. You may not invest directly in this index.
The returns in the tables reflect applicable sales loads. All returns assume
reinvestment of dividends and distributions. Of course, past performance (both
before and after taxes) is no guarantee of future results. For each fund, the
share classes invest in the same portfolio of securities. Performance for each
share class will vary from the performance of the respective fund's other share
classes due to differences in charges and expenses.
After-tax performance is shown only for Class F shares. After-tax
performance of each fund's other share classes will vary. After-tax returns are
calculated using the historical highest individual federal marginal income tax
rates, and do not reflect the impact of state and local taxes. Actual after-tax
returns depend on the investor's tax situation and may differ from those shown,
and the after-tax returns shown are not relevant to investors who hold their
shares through tax-deferred arrangements such as 401(k) plans or individual
retirement accounts.
-16-
ACQUIRING FUND - CLASS F SHARES
YEAR-BY-YEAR TOTAL RETURNS AS OF 12/31 EACH YEAR (%)
19.40 17.78 15.03 -19.57 -17.55 -25.33 30.67 8.97 4.64 13.25
- ------------------------------------------------------------------------------------------------
'97 '98 '99 '00 '01 '02 '03 '04 '05 `06
Best Quarter: Q4 '99 +17.77%
Worst Quarter: Q2 '02 -16.39%
-17-
ACQUIRING FUND
AVERAGE ANNUAL TOTAL RETURNS AS OF 12/31/06
Share class 1 Year 5 Years 10 Years Since Inception*
---------------- ---------------- ---------------- ----------------
CLASS A 13.02% 4.31% N/A -2.91%
returns before taxes
CLASS B 12.22% 3.63% N/A -3.40%**
returns before taxes
CLASS C 12.24% 3.62% N/A -3.72%
returns before taxes
CLASS F 13.25% 4.73% 3.06% N/A
returns before taxes
CLASS F 13.23% 4.70% 1.49% N/A
returns after taxes
on distributions
CLASS F 8.64% 4.07% 1.81% N/A
returns after taxes
on distributions and
sale of fund shares
CLASS R 13.55% 4.32% N/A -2.64%
returns before taxes
CLASS T*** 12.37% 3.49% N/A -3.65%
returns before taxes
RUSSELL 1000 GROWTH INDEX 9.07% 2.69% 5.44% -4.87%
REFLECTS NO DEDUCTION FOR FEES,
EXPENSES OR TAXES
* INCEPTION DATE OF CLASS A, CLASS B, CLASS C, CLASS R AND CLASS T SHARES WAS
12/31/1999. INCEPTION DATE OF CLASS F SHARES WAS 7/5/1938.
** ASSUMES CONVERSION OF CLASS B SHARES TO CLASS A SHARES AT THE END OF SIXTH
YEAR FOLLOWING DATE OF PURCHASE.
*** THE ACQUIRING FUND'S AVERAGE ANNUAL TOTAL RETURNS FOR CLASS T SHARES REFLECT
THE EXPENSE REIMBURSEMENT DESCRIBED ABOVE UNDER "ANNUAL FUND OPERATING
EXPENSES."
-18-
FUND - CLASS F SHARES
YEAR-BY-YEAR TOTAL RETURNS AS OF 12/31 EACH YEAR (%)
26.60 25.04 39.06 -27.23 -24.95 -28.96 31.42 7.63 4.08 13.13
- -----------------------------------------------------------------------------------------------------------
'97 '98 '99 '00 '01 '02 '03 '04 '05 `06
Best Quarter: Q4 '99 +31.77%
Worst Quarter: Q4 '00 -25.03%
FUND
AVERAGE ANNUAL TOTAL RETURNS AS OF 12/31/06
Share class 1 Year 5 Years 10 Years Since Inception*
---------------- ---------------- ---------------- ----------------
CLASS A 13.11% 3.30% N/A -6.13%
returns before taxes
CLASS B 11.95% 2.44% N/A -6.72%**
returns before taxes
CLASS C 12.15% 2.50% N/A -6.85%
returns before taxes
CLASS F 13.13% 3.42% 3.58% N/A
returns before taxes
CLASS F 13.13% 3.41% 2.00% N/A
returns after taxes
on distributions
CLASS F 8.53% 2.93% 2.49% N/A
returns after taxes
on distributions and
sale of fund shares
CLASS R 13.50% 3.71% N/A -5.82%
returns before taxes
CLASS T 12.30% 2.56% N/A -6.79%
returns before taxes
RUSSELL 1000 GROWTH INDEX 9.07% 2.69% 5.44% -4.87%
REFLECTS NO DEDUCTION FOR FEES,
EXPENSES OR TAXES
-19-
* INCEPTION DATE OF CLASS A, CLASS B, CLASS C, CLASS R AND CLASS T SHARES WAS
12/31/1999. INCEPTION DATE OF CLASS F SHARES WAS 1/5/1962.
** ASSUMES CONVERSION OF CLASS B SHARES TO CLASS A SHARES AT THE END OF SIXTH
YEAR FOLLOWING DATE OF PURCHASE.
INVESTMENT ADVISER. The investment adviser for the Fund and the Acquiring
Fund is Founders, located at 210 University Boulevard, Suite 800, Denver,
Colorado 80206. In addition to managing the funds' investments, Founders also
provides certain related administrative services to the funds. Founders and its
predecessor companies have operated as investment advisers since 1938. Founders
also serves as investment adviser to other series funds of the Company, as well
as investment sub-adviser to other investment companies. Founders is a
wholly-owned subsidiary of Dreyfus Service Corporation ("DSC"), which is a
wholly-owned subsidiary of The Dreyfus Corporation ("Dreyfus"). Founders is the
growth specialist affiliate of Dreyfus, a leading mutual fund complex with
approximately $190 billion under management in 206 mutual fund portfolios as of
December 31, 2006. Dreyfus is a wholly-owned subsidiary of Mellon Financial
Corporation ("Mellon Financial"), a global financial services company.
Headquartered in Pittsburgh, Pennsylvania, Mellon Financial is one of the
world's leading providers of financial services for institutions, corporations
and high net worth individuals, providing institutional asset management, mutual
funds, private wealth management, asset servicing, payment solutions and
investor services, and treasury services. Mellon Financial had approximately
$5.5 trillion in assets under management, administration or custody, including
$995 billion under management, as of December 31, 2006.
On December 4, 2006, Mellon Financial and The Bank of New York Company,
Inc. (BNY) announced that they had entered into a definitive agreement to merge.
The new company will be called The Bank of New York Mellon Corporation. As part
of this transaction, Founders would become an indirect wholly-owned subsidiary
of The Bank of New York Mellon Corporation. The transaction is subject to
certain regulatory approvals and the approval of BNY's and Mellon Financial's
shareholders, as well as other customary conditions to closing. Subject to such
approvals and the satisfaction of the other conditions, Mellon Financial and BNY
expect the transaction to be completed in the third quarter of 2007.
PRIMARY PORTFOLIO MANAGER. John B. Jares has been the primary portfolio
manager of both the Fund and the Acquiring Fund since 2001. He is a Chartered
Financial Analyst, and has been a portfolio manager at The Boston Company Asset
Management, LLC, an affiliate of Founders, since July 2006. He also has been
employed by Founders as a Vice President of Investments since 2001. The SAI
provides additional information about the primary portfolio manager's
compensation, other accounts managed by the portfolio manager and the portfolio
manager's ownership of fund shares.
To facilitate day-to-day fund management, Founders uses a team system. Each
team is composed of portfolio managers and research analysts, and is supported
by a group of core research analysts as well as portfolio traders. Each
individual shares ideas, information, knowledge, and expertise to assist in the
management of each fund. Daily decisions on security selection for each fund are
made by the portfolio manager. Through participation in the team process, the
manager uses the input, research, and recommendations of the rest of the
management team in making purchase and sale decisions.
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FORM OF ORGANIZATION. Each fund is a separate series of the Company, an
open-end management investment company, which was organized as a Maryland
corporation on June 19, 1987. The Company's Articles of Incorporation authorize
the Company to issue up to 10 billion shares, par value $0.01 per share. Of the
authorized shares, 750 million have been allocated to the Fund and 1.5 billion
have been allocated to the Acquiring Fund. The funds do not, and are not
required to, hold annual shareholder meetings.
BOARD MEMBERS. The Acquiring Fund and the Fund are each series of the
Company. For a description of the Company's Directors, see the SAI. All of the
Company's Directors are Independent Directors.
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM. PricewaterhouseCoopers LLP
was the Company's independent registered public accounting firm during the
period ended December 31, 2006.
CAPITALIZATION. Each fund has classified its shares into six classes -
Class A, Class B, Class C, Class F, Class R and Class T. The following table
sets forth as of December 31, 2006 (1) the capitalization of each class of the
Fund's shares, (2) the capitalization of each class of the Acquiring Fund's
shares, and (3) the pro forma capitalization of each class of the Acquiring
Fund's shares, as adjusted showing the effect of the Reorganization had it
occurred on such date.
PRO FORMA AFTER
REORGANIZATION
FUND FUND ACQUIRING FUND ACQUIRING FUND
CLASS A CLASS F CLASS A CLASS A
-------------- -------------- ------------------ ------------------
Total net assets $12,274,278 $320,872,402 $4,330,136 $337,476,816
Net asset value per share $12.34 $12.41 $5.72 $5.72
Shares outstanding 994,993 25,848,265 757,161 58,999,588
PRO FORMA AFTER
REORGANIZATION
FUND ACQUIRING FUND ACQUIRING FUND
CLASS B CLASS B CLASS B
--------------------------------- ------------------ ------------------
Total net assets $2,442,903 $1,045,637 $3,488,540
Net asset value per share $11.71 $5.51 $5.51
Shares outstanding 208,650 189,910 633,268
PRO FORMA AFTER
REORGANIZATION
FUND ACQUIRING FUND ACQUIRING FUND
CLASS C CLASS C CLASS C
--------------------------------- ------------------ ------------------
Total net assets $1,399,608 $3,758,493 $5,158,101
Net asset value per share $11.72 $5.41 $5.41
Shares outstanding 119,387 694,300 953,008
-21-
Pro Forma After
Reorganization
Fund Acquiring Fund Acquiring Fund
Class R Class R Class R
--------------------------------- ------------------ ------------------
Total net assets $2,568,871 $96,941 $2,665,812
Net asset value per share $12.61 $5.82 $5.82
Shares outstanding 203,761 16,649 458,036
Pro Forma After
Reorganization
Fund Acquiring Fund Acquiring Fund
Class T Class T Class T
--------------------------------- ------------------ ------------------
Total net assets $75,368 $12,194 $87,562
Net asset value per share $11.78 $5.45 $5.45
Shares outstanding 6,397 2,239 16,068
As of December 31, 2006, the total net assets, net asset value per share
and shares outstanding of the Acquiring Fund's Class F shares as of December 31,
2006 were $220,521,560, $5.86 and 37,604,858, respectively. The Reorganization
is not expected to affect the capitalization of the Acquiring Fund's Class F
shares.
The Fund's total net assets (Classes A, B, C, F, R and T) as of December
31, 2006 were approximately $339.6 million. The Acquiring Fund's total net
assets (Classes A, B, C, F, R and T) as of December 31, 2006 were approximately
$229.8 million.
SHARE CLASSES. The Fund and the Acquiring Fund each offer Class A, B, C, F,
R and T shares. The different classes represent investments in the same
portfolio of securities, but the classes are subject to different expenses and
will likely have different share prices. See "Shareholder Guide" in Exhibit B
and the SAI for a discussion of the different share classes offered by the
funds.
NAV. The net asset value ("NAV") of each class of the funds' shares is
generally calculated as of the close of regular trading on the New York Stock
Exchange ("NYSE") (usually at 4:00 p.m. Eastern time) every day the NYSE is
open. See "Shareholder Guide - Buying Shares" in Exhibit B and "Pricing of
Shares" in the SAI for additional information regarding the funds' pricing
procedures.
PURCHASE PROCEDURES. The purchase procedures of the Fund and the Acquiring
Fund and the automatic investment services they offer are the same. See
"Shareholder Guide - Buying Shares," "Services for Fund Investors" and
"Instructions for Regular Accounts" in Exhibit B and "Purchase of Shares" and
"Shareholder Services" in the SAI for a discussion of purchase procedures.
SALES CHARGES. The schedules of sales charges imposed at the time of
purchase of Class A or Class T shares of the Fund and the Acquiring Fund are
identical. The maximum sales charges imposed on the purchase of Class A and
Class T shares of the funds are 5.75% and 4.50%, respectively. In addition, Fund
and Acquiring Fund Class A and Class T shares purchased without an initial sales
charge as part of an investment of at least $1,000,000 and redeemed within one
-22-
year of purchase are subject to the same 1.00% CDSC. The CDSCs imposed at the
time of redemption of Class B and Class C shares for the Fund and Acquiring Fund
are identical. See "Shareholder Guide" in Exhibit B for a discussion of sales
charges and CDSCs. No sales charge or CDSC will be imposed at the time of the
Reorganization.
DISTRIBUTION PLANS. The Class B, C and T shares of each fund are subject to
a plan adopted pursuant to Rule 12b-1 under the 1940 Act (the "Class B, C and T
12b-1 Plan"). Under the Class B, C and T 12b-1 Plan, each fund pays its
distributor a fee at an annual rate of 0.75% of the average daily net assets of
Class B and Class C shares, respectively, and 0.25% of the average daily net
assets of Class T shares, to finance the sale and distribution of such shares.
The Class F shares of each fund also are subject to a plan adopted pursuant to
Rule 12b-1 under the 1940 Act (the "Class F 12b-1 Plan"). Under the Class F
12b-1 Plan, each fund pays for the actual expenses, in an amount of up to 0.25%
of its Class F assets, for the sale and distribution of Class F shares and
services provided to Class F shareholders. Because Rule 12b-1 Plan fees are paid
out of the assets attributable to the relevant class of shares on an ongoing
basis, over time they will increase the cost of your investment in such class of
shares and may cost you more than paying other types of sales charges. See
"Distribution Plans and Shareholder Services Plan" in the SAI. There is no Rule
12b-1 Plan fee for the Class A or Class R shares of either fund.
SHAREHOLDER SERVICES PLAN. The Class A, B, C and T shares of each fund are
subject to a Shareholder Services Plan, pursuant to which each fund pays its
distributor a fee at an annual rate of 0.25% of the average daily net assets of
the relevant class for providing shareholder services. See "Distribution Plans
and Shareholder Services Plan" in the SAI for a discussion of the Shareholder
Services Plan. There is no Shareholder Services Plan fee for the Class F or
Class R shares of either fund. However, the Class F shares of each fund are
subject to a shareholder services agreement, pursuant to which each fund pays
its distributor an annual fee of $24 for each open Class F shareholder account
for providing certain shareholder-related services for the holders of Class F
shares. The fee also is used to compensate the funds' transfer agent for the
provision of transfer agency services for holders of Class F shares.
REDEMPTION PROCEDURES. The redemption procedures of the Fund and the
Acquiring Fund are the same. See "Shareholder Guide - Selling Shares," "Services
for Fund Investors" and "Instructions for Regular Accounts" in Exhibit B and
"Redemption of Shares" and "Shareholder Services" in the SAI for a discussion of
redemption procedures.
FREQUENT TRADING. The Fund and the Acquiring Fund are designed for
long-term investors. Frequent purchases, redemptions, and exchanges may disrupt
portfolio management strategies and harm fund performance by diluting the value
of fund shares and increasing brokerage and administrative costs. As a result,
the Board has adopted a policy of discouraging excessive trading, short-term
market timing, and other abusive practices ("frequent trading") that could
adversely affect the funds or their operations. See "Shareholder Guide - General
Policies" in Exhibit B for a discussion of the Company's frequent trading
policy.
EXCHANGE PRIVILEGE. Class A, B, C, R and T shareholders of each fund may
exchange shares worth $500 or more (no minimum for retirement accounts) from one
class of a fund into the same class of another fund in the Dreyfus Founders
Family of Funds or a Dreyfus Premier fund. Class F shareholders of the Fund who
acquire Class A shares of the Acquiring Fund in the reorganization may exchange
-23-
Class A shares of the Acquiring Fund for Class F shares of the Acquiring Fund or
other funds in the Dreyfus Family of Funds through the Exchange Privilege. These
shareholders may also exchange Class A shares of the Acquiring Fund for Class A
shares of a fund in the Dreyfus Founders Family of Funds or a Dreyfus Premier
fund through the Exchange Privilege. A shareholder's Acquiring Fund Class A
shares, however, will not be counted for purposes of determining your
eligibility to participate in Founders' Premier service program. If a
shareholder exchanges all of his or her Acquiring Fund Class A or Class F shares
for shares of other funds in the Dreyfus Family of Funds or for other Dreyfus
Premier funds and no longer held Class A shares of the Acquiring Fund or Class F
shares of a Dreyfus Founders fund, the shareholder would lose his or her status
as a "grandfathered Class F investor" and would not be able to purchase Class F
shares of a Dreyfus Founders fund. See "Shareholder Guide - Services for Fund
Investors - Exchange Privilege" in Exhibit B and "Shareholder Services - Fund
Exchanges for Classes A, B, C, R and T" in the SAI.
DISTRIBUTIONS. The dividends and distributions policies of the Fund and the
Acquiring Fund are the same. Each fund normally pays dividends and capital gains
distributions annually. The actual amounts of dividends and capital gains
distributions, if any, paid by each fund are different. See "Distributions and
Taxes" in Exhibit B for a discussion of such policies and taxes that may be
associated with an investment in the funds.
SHAREHOLDER SERVICES. The shareholder services offered by the Fund and the
Acquiring Fund are identical. The privileges you currently have on your Fund
account will transfer automatically to your account with the Acquiring Fund.
Shareholders may purchase and sell shares of the Acquiring Fund online at
www.founders.com (for Class F shares) and www.dreyfus.com (for all other share
classes). See "Services for Fund Investors" in Exhibit B and "Shareholder
Services" in the SAI for a further discussion of the shareholder services
offered.
DIFFERENCES BETWEEN CLASS F SHARES OF THE FUND AND CLASS A SHARES OF THE
ACQUIRING FUND. The attributes of the Fund's Class F shares are the same as
those of the Acquiring Fund's Class F shares and the Class F shares of each fund
in the Dreyfus Founders Family of Funds. Similarly, the attributes of the Fund's
Class A shares are the same as those of the Acquiring Fund and the other funds
in the Dreyfus Founders Family of Funds. The principal differences between the
Class F shares and the Class A shares are their sales charges, distribution or
service fees and eligible investors. An investor pays no sales charge in
connection with an investment in Class F shares of a fund and no CDSC in
connection with a redemption of Class F shares. Some investors may pay an
initial sales charge in connection with a purchase of Class A shares of a fund,
depending upon the amount of the investment. Also, Class A shares purchased
without an initial sales charge as part of an investment of $1 million or more
may be charged a CDSC of 1.00% if redeemed within one year. See "Shareholder
Guide" in Exhibit B and the SAI for a discussion of sales charges and CDSCs.
HOWEVER, NO SALES CHARGE OR CDSC WILL BE IMPOSED ON FORMER CLASS F SHAREHOLDERS
AT THE TIME OF THE REORGANIZATION. IN ADDITION, NO SALES CHARGE OR CDSC WILL BE
IMPOSED ON A SUBSEQUENT INVESTMENT IN OR REDEMPTION OF CLASS A SHARES OF THE
ACQUIRING FUND BY FORMER CLASS F SHAREHOLDERS OF THE FUND.
-24-
The Class F shares of each fund pay the distributor an annual Rule 12b-1
Plan fee of up to 0.25% of the value of the average daily net assets of the
Class F shares of the fund to reimburse the distributor for expenses incurred in
connection with the distribution of the Funds' Class F shares. The Class A
shares of each fund pay the distributor an annual Shareholder Services Plan fee
of 0.25% of the value of the average daily net assets of the Class A shares for
providing services to Class A shareholders. See "Distribution Plans and
Shareholder Services Plan" in the SAI.
Class F shares of the funds are generally offered only to persons or
entities who have continuously maintained an account with a Dreyfus Founders
fund since December 30, 1999. These include, without limitation, customers of
certain financial institutions which offer retirement plan programs and which
have had relationships with Founders and/or any Dreyfus Founders fund since
December 30, 1999. Class A shares of the funds are offered to certain clients of
the Distributor and certain financial institutions and other industry
professionals compensated by the Distributor for selling Class A shares. See
"Shareholder Guide" in Exhibit B and the SAI for a discussion of investors
eligible to purchase Class F and Class A shares of the funds.
REASONS FOR THE REORGANIZATION
After management of Founders reviewed the funds in the Dreyfus Founders
Family of Funds to determine whether it would be appropriate to consolidate
certain funds having similar investment objectives and management polices,
management recommended that the Fund be consolidated with the Acquiring Fund.
The Directors of the Company have concluded that the Reorganization is in the
best interests of the Fund and its shareholders and the Acquiring Fund and its
shareholders, respectively. The Company's Board believes that the Reorganization
will permit Fund shareholders to pursue similar investment goals in a larger
combined fund with a better performance record and a lower total expense ratio,
without diluting such shareholders' interests. As of December 31, 2006, the Fund
had net assets of approximately $339.6 million and the Acquiring Fund had net
assets of approximately $229.8 million. By combining the Fund with the Acquiring
Fund, Fund shareholders should benefit from more efficient portfolio management
and Founders would be able to eliminate the duplication of resources and costs
associated with marketing and servicing the funds as separate entities.
The Board of the Company considered that the Reorganization presents an
opportunity for the Acquiring Fund to acquire investment assets without the
obligation to pay commissions or other transaction costs that a fund normally
incurs when purchasing securities. This opportunity provides an economic benefit
to the Acquiring Fund.
In determining whether to recommend approval of the Reorganization, the
Board considered the following factors, among others: (1) the similarity of the
Fund's and the Acquiring Fund's investment objectives, management policies and
restrictions, as well as shareholder services offered by the Fund and the
Acquiring Fund; (2) the terms and conditions of the Reorganization and whether
the Reorganization would result in dilution of shareholder interests; (3) the
expense ratios and information regarding the fees and expenses of the Fund and
the Acquiring Fund, as well as the estimated expense ratio of the combined
Acquiring Fund; (5) the potential economies of scale that could be realized as a
result of the increase in the asset size of the Acquiring Fund; (5) the relative
-25-
performance of the Fund and the Acquiring Fund; (6) the tax consequences of the
Reorganization; (7) the recommendation of Founders in favor of the
Reorganization; and (8) that the costs to be incurred by the Fund and the
Acquiring Fund in connection with the Reorganization would be split
proportionately between the Fund and the Acquiring Fund based on the net assets
of each fund.
For the reasons described above, the Board of the Company, all of whose
members are Independent Directors, approved the Reorganization.
-26-
INFORMATION ABOUT THE REORGANIZATION
PLAN OF REORGANIZATION. The following summary of the Plan is qualified in
its entirety by reference to the Plan attached to this Prospectus/Proxy
Statement as Exhibit A. The Plan provides that, subject to the requisite
approval of the Fund's shareholders, the Acquiring Fund will acquire all of the
assets of the Fund in exchange for Acquiring Fund Class A, Class B, Class C,
Class R and Class T shares and the assumption by the Acquiring Fund of the
Fund's stated liabilities on June 8, 2007 or such other date as may be agreed
upon by the parties (the "Closing Date"). The number of Acquiring Fund Class A,
Class B, Class C, Class R and Class T shares to be issued to the Fund will be
determined on the basis of the relative net asset values per share and aggregate
net assets of the corresponding classes of the Fund and the Acquiring Fund,
computed as of the close of trading on the floor of the New York Stock Exchange
(usually 4:00 p.m., Eastern time) on the Closing Date. Portfolio securities of
the Fund and the Acquiring Fund will be valued in accordance with the valuation
practices of the Acquiring Fund, which are described under the caption "
Shareholder Guide - Buying Shares" in Exhibit B and under the caption "Pricing
of Shares" in the SAI.
On or before the Closing Date, the Fund will declare a dividend or
dividends which, together with all previous dividends, will have the effect of
distributing to Fund shareholders all of the Fund's previously undistributed
investment company taxable income, if any, for the tax periods ending on or
before the Closing Date (computed without regard to any deduction for dividends
paid), its net exempt interest income for the tax periods ending on or prior to
the Closing Date, and all of its previously undistributed net capital gain, if
any, realized in the tax periods ending on or before the Closing Date (after
reduction for any capital loss carryforward). The Fund expects its capital loss
carryforward to eliminate the need for any such net capital gain distribution.
Any Fund distribution would be taxable to shareholders with taxable accounts.
Since the Acquiring Fund intends to distribute any net investment income and net
realized capital gains in December 2007, Fund shareholders could receive two
taxable distributions in 2007 if the Reorganization is approved.
As soon as conveniently practicable after the Closing Date, the Fund will
liquidate and distribute pro rata to its Class A, Class B, Class C, Class F,
Class R and Class T shareholders of record, as of the close of business on the
Closing Date, the Acquiring Fund Class A, Class B, Class C, Class R and Class T
shares received by it in the Reorganization. Such liquidation and distribution
will be accomplished by establishing accounts on the share records of the
Acquiring Fund in the name of each Fund shareholder, each account being credited
with the respective pro rata number of Acquiring Fund shares due to the
shareholder. The Acquiring Fund shares received by each Fund shareholder will be
of the same share class as the shareholder's Fund shares, except that Class F
shareholders of the Fund will receive Class A shares of the Acquiring Fund.
After such distribution and the winding up of its affairs, the Fund will cease
operations and will be terminated as a series of the Company. After the Closing
Date, any outstanding certificates representing Fund shares will represent
Acquiring Fund shares distributed to the Fund's shareholders of record.
The obligation of each fund to consummate the Reorganization is subject to
the satisfaction of certain conditions, including shareholder approval and the
receipt of an opinion in the form and substance satisfactory to the Company, as
described under the caption "Federal Income Tax Consequences" below. The Company
-27-
may terminate the Plan and abandon the Reorganization at any time before or
after approval by the Fund's shareholders, if the Board believes that proceeding
with the Reorganization would be inadvisable for either fund. In addition, the
Plan may be amended at any time prior to the Reorganization. The Fund will
provide shareholders with information describing any material amendment to the
Plan prior to shareholder consideration.
The total expenses of the Reorganization are expected to be approximately
$120,000, which will be split proportionately between the Fund and the Acquiring
Fund based on the net assets of each fund. In addition to use of the mails,
proxies may be solicited personally or by telephone, and the funds may pay
persons holding Fund shares in their names or those of their nominees for their
expenses in sending soliciting materials to their principals. In addition, ADP
Investor Communications Corporation, an outside proxy solicitation firm, may be
retained to solicit proxies on behalf of the Company's Board. The cost of this
firm, which would be borne by the funds, is estimated to be approximately
$22,000, and is included in the total expense amount above.
If the Reorganization is not approved by Fund shareholders, the Company's
Board will consider other appropriate courses of action with respect to the
Fund.
TEMPORARY SUSPENSION OF CERTAIN OF THE FUND'S INVESTMENT RESTRICTIONS.
Since certain of the Fund's existing investment restrictions could preclude the
Fund from consummating the Reorganization in the manner contemplated in the
Plan, Fund shareholders are requested to authorize the temporary suspension of
any investment restriction of the Fund to the extent necessary to permit the
consummation of the Reorganization. The temporary suspension of any of the
Fund's investment restrictions will not affect the investment restrictions of
the Acquiring Fund. A vote in favor of the proposal is deemed to be a vote in
favor of the temporary suspension.
DESCRIPTION OF THE SECURITIES TO BE ISSUED. The Company has an authorized
capitalization of 10 billion shares of common stock (par value $0.01 per share).
Each shareholder is entitled to one vote per share and a proportionate
fractional vote for any fractional share. Shareholders of each fund vote on a
per-fund basis on those matters that affect only their fund. On matters
affecting a single class of shares, only shareholders of that class may vote. On
all other matters, shareholders of the Company vote in the aggregate.
The rights of the shareholders of each fund are identical. Shares of the
funds have no subscription or preemptive rights and only such preferences or
conversion rights as the Board may grant in its discretion. Each share of the
Acquiring Fund issued to shareholders of the Fund will be fully paid and
nonassessable when issued, and will be transferable without restriction.
FEDERAL INCOME TAX CONSEQUENCES. The exchange of Fund assets for Acquiring
Fund shares, the Acquiring Fund's assumption of the Fund's stated liabilities,
and the Fund's distribution of those shares to Fund shareholders are intended to
qualify for federal income tax purposes as a tax-free reorganization under
Section 368(a) of the Code. As a condition to the closing of the Reorganization,
the Company will receive the opinion of Kirkpatrick & Lockhart Preston Gates
Ellis LLP, special counsel to the Acquiring Fund and the Fund, to the effect
that, on the basis of the existing provisions of the Code, Treasury regulations
-28-
issued thereunder, current administrative regulations and pronouncements and
court decisions, and certain facts, assumptions and representations, for federal
income tax purposes: (1) the transfer of all of the Fund's assets to the
Acquiring Fund in exchange solely for Acquiring Fund Class A, Class B, Class C,
Class R and Class T shares and the assumption by the Acquiring Fund of the
Fund's stated liabilities, followed by the distribution by the Fund of those
Acquiring Fund Class A, Class B, Class C, Class R and Class T shares pro rata to
Fund shareholders in complete liquidation of the Fund, will qualify as a
"reorganization" within the meaning of Section 368(a) of the Code, and each of
the Fund and the Acquiring Fund will be "a party to a reorganization"; (2) no
gain or loss will be recognized by the Acquiring Fund upon the receipt of the
assets of the Fund in exchange solely for Acquiring Fund Class A, Class B, Class
C, Class R and Class T shares and the assumption by the Acquiring Fund of stated
liabilities of the Fund pursuant to the Reorganization; (3) no gain or loss will
be recognized by the Fund upon the transfer of its assets to the Acquiring Fund
in exchange solely for Acquiring Fund Class A, Class B, Class C, Class R and
Class T shares and the assumption by the Acquiring Fund of stated liabilities of
the Fund or upon the distribution (whether actual or constructive) of those
Class A, Class B, Class C, Class R and Class T shares to Fund shareholders
(treating holders of the Fund's Class F shares as holders of the Fund's Class A
shares for purposes of this distribution) in exchange for their shares of the
Fund in liquidation of the Fund pursuant to the Reorganization; (4) no gain or
loss will be recognized by Fund shareholders upon the exchange of their Fund
Class A, Class B, Class C, Class F, Class R and Class T shares for Acquiring
Fund shares pursuant to the Reorganization; (5) the aggregate tax basis for the
Acquiring Fund Class A, Class B, Class C, Class R and Class T shares received by
each Fund shareholder pursuant to the Reorganization will be the same as the
aggregate tax basis for the Fund shares held by such shareholder immediately
prior to the Reorganization, and the holding period of those Acquiring Fund
Class A, Class B, Class C, Class R and Class T shares received by each Fund
shareholder will include the period during which the Fund shares exchanged
therefor were held by such shareholder (provided the Fund shares were held as
capital assets on the date of the Reorganization); and (6) the tax basis of each
Fund asset acquired by the Acquiring Fund will be the same as the tax basis of
such asset to the Fund immediately prior to the Reorganization, and the holding
period of each Fund asset in the hands of the Acquiring Fund will include the
period during which that asset was held by the Fund.
THE COMPANY HAS NOT SOUGHT A TAX RULING FROM THE INTERNAL REVENUE SERVICE
("IRS"). THE OPINION OF COUNSEL IS NOT BINDING ON THE IRS, NOR DOES IT PRECLUDE
THE IRS FROM ADOPTING A CONTRARY POSITION. Fund shareholders should consult
their tax advisers regarding the effect, if any, of the Reorganization in light
of their individual circumstances. Because the foregoing discussion relates only
to the federal income tax consequences of the Reorganization, Fund shareholders
also should consult their tax advisers as to state and local tax consequences,
if any, of the Reorganization.
The Acquiring Fund's ability to utilize its own pre-Reorganization capital
loss carryforward will be limited as a result of the Reorganization. As of the
Acquiring Fund's taxable year ended December 31, 2006, the Acquiring Fund had an
unused capital loss carryforward of approximately $66.9 million. As a result of
the Reorganization, the amount of the Acquiring Fund's carryforward that can be
utilized in any one taxable year will be limited, and any amount that cannot be
utilized in any one taxable year can be carried over to a succeeding taxable
year subject to the same limitations in such year. Different amounts of the
-29-
capital loss carryforward expire in different taxable years. Consequently, as a
result of the limitations on the use of the capital loss carryforward, if the
Reorganization is consummated, it is expected that some or all of the Acquiring
Fund's capital loss carryforward may expire unused. In addition, because both
the Fund and the Acquiring Fund have unrealized gains, the Acquiring Fund may be
subject to limitations on its ability to use the capital loss carryforward of
one fund to offset unrealized gain of the other fund when recognized during the
five-year period beginning on the date the Reorganization is consummated.
However, since the Fund had an unused capital loss carryforward of approximately
$670 million as of December 31, 2006, these limitations are not expected to
adversely affect Acquiring Fund shareholders.
REQUIRED VOTE AND BOARD'S RECOMMENDATION
The Company's Board has approved the Plan and the Reorganization and has
determined that (1) participation in the Reorganization is in the best interests
of the Fund and its shareholders and (2) the interests of shareholders of the
Fund will not be diluted as a result of the Reorganization. The affirmative vote
of a majority of the Fund's shares outstanding and entitled to vote is required
to approve the Plan and the Reorganization.
THE COMPANY'S BOARD, ALL OF WHOSE MEMBERS ARE INDEPENDENT
DIRECTORS, UNANIMOUSLY RECOMMENDS THAT SHAREHOLDERS VOTE
"FOR" APPROVAL OF THE PLAN AND THE REORGANIZATION.
ADDITIONAL INFORMATION ABOUT THE ACQUIRING FUND AND THE FUND
Information about the funds is incorporated by reference into this
Prospectus/Proxy Statement from the SAI. In addition, information about the Fund
is incorporated by reference into this Prospectus/Proxy Statement from its Class
A, B, C, R and T share Prospectus and the Company's Prospectus for Class F
shares.
The Fund and the Acquiring Fund are subject to certain informational
requirements of the Securities Exchange Act of 1934, the requirements of the
1940 Act and the Securities Act of 1933. Pursuant to these requirements, the
Fund and the Acquiring Fund file reports, proxy statements and other information
with the Commission. Reports, proxy statements and other information filed by
the Fund and the Acquiring Fund may be inspected and copied at the Public
Reference Facilities of the Commission at 100 F Street, N.E., Washington, D.C.
20549. Text-only versions of fund documents can be viewed on-line or downloaded
from www.sec.gov, www.dreyfus.com or www.founders.com. Copies of such material
also can be obtained from the Public Reference Branch, Office of Consumer
Affairs and Information Services, Securities and Exchange Commission,
Washington, D.C. 20549, at prescribed rates.
VOTING INFORMATION
In addition to the use of the mails, proxies may be solicited personally or
by telephone, and persons holding Fund shares in their names or in nominee name
may be paid for their expenses in sending soliciting materials to their
principals. An outside firm may be retained to assist in the solicitation of
proxies, primarily by contacting shareholders by telephone.
-30-
Authorizations to execute proxies may be obtained by telephonic or
electronically transmitted instructions in accordance with procedures designed
to authenticate the shareholder's identity. In all cases where a telephonic
proxy is solicited (as opposed to where the shareholder calls the toll-free
number directly to vote), the shareholder will be asked to provide his or her
address and to confirm that the shareholder has received the Prospectus/Proxy
Statement and proxy card in the mail. Within 72 hours of receiving a
shareholder's telephonic or electronically transmitted voting instructions, a
confirmation will be sent to the shareholder to ensure that the vote has been
taken in accordance with the shareholder's instructions and to provide a
telephone number to call immediately if the shareholder's instructions are not
correctly reflected in the confirmation. Any shareholder giving a proxy may
revoke it at any time before it is exercised by submitting a new proxy to the
Fund or by attending the Meeting and voting in person.
If a proxy is executed properly and returned accompanied by instructions to
withhold authority to vote, represents a broker "non-vote" (that is, a proxy
from a broker or nominee indicating that such person has not received
instructions from the beneficial owner or other person entitled to vote Fund
shares on a particular matter with respect to which the broker or nominee does
not have discretionary power) or is marked with an abstention (collectively,
"abstentions"), the Fund shares represented thereby will be considered to be
present at the Meeting for purposes of determining the existence of a quorum for
the transaction of business. Abstentions will have the effect of a "no" vote for
the purpose of obtaining requisite approval for the proposal.
In the event that a quorum is not present at the Meeting, or if a quorum is
present but sufficient votes to approve the proposal are not received, the
persons named as proxies may propose one or more adjournments of the Meeting to
permit further solicitation of proxies. In determining whether to adjourn the
Meeting, the following factors may be considered: the nature of the proposal,
the percentage of votes actually cast, the percentage of negative votes actually
cast, the nature of any further solicitation and the information to be provided
to Fund shareholders with respect to the reasons for the solicitation. Any
adjournment will require the affirmative vote of a majority of those shares
affected by the adjournment that are represented at the Meeting in person or by
proxy. If a quorum is present, the persons named as proxies will vote those
proxies which they are entitled to vote "FOR" the proposal in favor of such
adjournment, and will vote those proxies required to be voted "AGAINST" the
proposal against any adjournment. A quorum is constituted by the presence in
person or by proxy of the holders of a majority of the Fund's outstanding shares
entitled to vote at the Meeting.
The votes of the Acquiring Fund's shareholders are not being solicited
since their approval or consent is not necessary for the Reorganization.
As of January 31, 2007, the following shareholders were known by the Fund
to own of record or beneficially 5% or more of the outstanding voting shares of
the indicated Class of the Fund:
-31-
Class A Shares
- --------------
-----------------------------------
Percentage of
Outstanding Shares
-----------------------------------
Before After
Name and Address Reorganization Reorganization
- ---------------- -------------- --------------
MLPF & S For the Sole Benefit 8.22% 0.28%
Of its Customers
4800 Deer Lake Dr E Fl 3
Jacksonville, Fl 32246-6484
NFS LLC FEBO 28.32% 0.98%
Eleftherios Kangadis
4426 W. Montrose
Chicago, IL 60641-2055
Pershing LLC 13.36% 0.46%
P O Box 2052
Jersey City, NJ 07303-9998
Class B Shares
- --------------
-----------------------------------
Percentage of
Outstanding Shares
-----------------------------------
Before After
Name and Address Reorganization Reorganization
- ---------------- -------------- --------------
Citigroup Global Markets, Inc. 7.83% 4.00%
333 West 34th St. - 3rd Floor
New York, NY 10001-2483
First Clearing, LLC 5.04% 2.58%
Patrick J. Whalen Roth IRA
FCC as custodian
637 S. 9th Street
Sharpsville, PA 16150-1721
NFS LLC FEBO 24.41% 12.47%
FMTC Custodian - Roth IRA
FBO Joyce Catherine Panepento
5 Watchman CT.
Rochester, NY 14624-4930
Pershing LLC 9.20% 4.70%
P O Box 2052
Jersey City, NJ 07303-9998
-32-
Class C Shares
- --------------
-----------------------------------
Percentage of
Outstanding Shares
-----------------------------------
Before After
Name and Address Reorganization Reorganization
- ---------------- -------------- --------------
Citigroup Global Markets, Inc. 17.09% 2.41%
333 West 34th St. - 3rd Floor
New York, NY 10001-2483
First Clearing, LLC 22.13% 3.12%
Zachary J. Woods
8546 Kempton Lane
Maineville, OH 45039-7518
IHN Jae Won & Susan T. Won 7.54% 1.06%
319 Morrison Ave.
Raleigh, NC 27608-2537
MLPF & S For the Sole Benefit 15.27% 2.15%
Of its Customers
4800 Deer Lake Dr E Fl 3
Jacksonville, Fl 32246-6484
Pershing LLC 9.19% 1.29%
P O Box 2052
Jersey City, NJ 07303-9998
UBS Financial Services, Inc. 5.51% 0.78%
FBO UBS-Finsvc. CDN
FBO Maria L. Morales
PO Box 3321
1000 Harbor Blvd.
Weehawken, NJ 07086-8154
Class F Shares
- --------------
-----------------------------------
Percentage of
Outstanding Shares
-----------------------------------
Before After
Name and Address Reorganization Reorganization
- ---------------- -------------- --------------
Charles Schwab & Co., Inc. 14.67% 10.01%
-33-
Special Custody Account for the
Exclusive Benefit of Customers
101 Montgomery Street
San Francisco, CA 94104-4122
National Financial Services Corp 14.94% 10.20%
FBO Our Customers Exclusively
PO Box 3908
Church Street Station
New York, NY 10008-3908
Smith Barney, Inc. 9.91% 6.76%
FBO Marissa J. Lewis
PO Box 7777-W9720
Philadelphia, PA 19175-0001
Class R Shares
- --------------
-----------------------------------
Percentage of
Outstanding Shares
-----------------------------------
Before After
Name and Address Reorganization Reorganization
- ---------------- -------------- --------------
Fidelity Investments 33.64% 31.18%
Operations Co (FIIOC) As Agent For
Certain Employee Benefit Plans
100 Magellan Way #KW1C
Covington, KY 41015-1999
Mac & Co. 54.49% 50.52%
FBO Founders Growth
Mutual Fund Operations
PO Box 3198
525 William Penn Place
Pittsburgh, PA 15230-3198
Pershing LLC 10.92% 10.12%
P O Box 2052
Jersey City, NJ 07303-9998
Class T Shares
- --------------
-----------------------------------
Percentage of
Outstanding Shares
-----------------------------------
Before After
Name and Address Reorganization Reorganization
- ---------------- -------------- --------------
Edward D. Jones & Co. Custodian 7.26% 5.21%
-34-
FBO Patricia G. Starnes IRA
396 Bertucci
Biloxi, MS 39531-2262
Emmett A. Larkin Company 11.49% 8.25%
100 Bush St
Suite 1000
San Francisco, CA 94104
First Clearing, LLC 12.98% 5.29%
Marie P. Sperber
10700 Wheat First Drive
Glen Allen, VA 23060-9243
National Investor Services FBO 18.00% 12.92%
55 Water Street, 32nd Floor
New York, NY 10041-0028
Raymond James & Assoc., Inc. 39.77% 28.54%
FBO TX MFD 401(K)
880 Carillon Pkwy.
St. Petersburg, FL 33716-1100
As of January 31, 2007, the following shareholders were known by the
Acquiring Fund to own of record or beneficially 5% or more of the outstanding
voting shares of the indicated Class of the Acquiring Fund:
Class A Shares
- --------------
-----------------------------------
Percentage of
Outstanding Shares
-----------------------------------
Before After
Name and Address Reorganization Reorganization
- ---------------- -------------- --------------
Citigroup Global Markets, Inc. 6.84% 0.48%
333 West 34th St. - 3rd Floor
New York, NY 10001-2483
NFS LLC FEBO 74.11% 5.15%
NFS/FMTC Rollover IRA
FBO James F. McCray
2553 Romig Rd., Apt. 22
Akron, OH 44320-3882
-35-
Class B Shares
- --------------
-----------------------------------
Percentage of
Outstanding Shares
-----------------------------------
Before After
Name and Address Reorganization Reorganization
- ---------------- -------------- --------------
Citigroup Global Markets, Inc. 18.15% 8.87%
333 West 34th St. - 3rd Floor
New York, NY 10001-2483
First Clearing, LLC 13.66% 6.68%
Maude I. Mesler R/O IRA
FCC as custodian
109 S. Buckhout St.
Irvington, NY 10533-2209
LPL Financial Services 8.12% 3.97%
9785 Towne Centre Drive
San Diego, CA 92121-1968
MLPF & S For the Sole Benefit 6.49% 3.17%
Of its Customers
4800 Deer Lake Dr E Fl 3
Jacksonville, Fl 32246-6484
NFS LLC FEBO 31.76% 15.53%
NFS/FMTC IRA
FBO Louis O. Decker
14 Jeffrey Ct.
Branchburg, NJ 08876-3611
Class C Shares
- --------------
-----------------------------------
Percentage of
Outstanding Shares
-----------------------------------
Before After
Name and Address Reorganization Reorganization
- ---------------- -------------- --------------
Citigroup Global Markets, Inc. 32.11% 27.59%
333 West 34th St. - 3rd Floor
New York, NY 10001-2483
First Clearing, LLC 12.98% 11.15%
Laura Lamont (IRA)
FCC as custodian
122 Belle Avenue
Maywood, NJ 07607-1504
-36-
MLPF & S For the Sole Benefit 42.81% 36.78%
Of its Customers
4800 Deer Lake Dr E Fl 3
Jacksonville, Fl 32246-6484
NFS LLC FEBO 6.77% 5.82%
NFS/FMTC IRA
FBO Jason B. Zwyers
1377 Lix Rd.
Warrenton, MO 63383-4227
Class F Shares
- --------------
-----------------------------------
Percentage of
Outstanding Shares
-----------------------------------
Before After
Name and Address Reorganization Reorganization
- ---------------- -------------- --------------
NONE
Class R Shares
- --------------
-----------------------------------
Percentage of
Outstanding Shares
-----------------------------------
Before After
Name and Address Reorganization Reorganization
- ---------------- -------------- --------------
Dreyfus Trust Company Custodian 23.65% 1.73%
FBO Pavel Strnad
Under IRA Rollover Plan
NA Male Sarce 759
16400 Prague 6
Czech Republic
Dreyfus Trust Company Custodian 60.78% 4.44%
Kathleen Hogan
Under IRA Plan
531 Rine Springs Trail
Marietta, GA 30067
-37-
Class T Shares
- --------------
-----------------------------------
Percentage of
Outstanding Shares
-----------------------------------
Before After
Name and Address Reorganization Reorganization
- ---------------- -------------- --------------
Dreyfus Trust Company Custodian 59.21% 16.72%
FBO Diane M. McDonald
Under IRA Plan
PO Box 794
Brewster, MA 02631-0794
MBC Investments Corporation 5.56% 1.57%
C/O Mellon Financial Corporation
Attn Delaware Fin Dep Aim 198-0000
4001 Kennett Pike, Ste. 218
Two Greenville Crossing
Greenville, DE 19807-2029
National Investor Services FBO 22.79% 6.44%
55 Water Street, 32nd Floor
New York, NY 10041-0028
Susan A. Wood FBO 12.41% 3.50%
Tropic Oil Co. 401(K) Profit
Sharing Plan & Trust
10002 NW 89th Avenue
Miami, FL 33178-1409
As of January 31, 2007, Directors and officers of the Company, as a group,
owned less than 1% of the Fund's and the Acquiring Fund's outstanding shares,
respectively.
FINANCIAL STATEMENTS AND EXPERTS
The audited financial statements of the Fund and the Acquiring Fund for the
fiscal year ended December 31, 2006 have been incorporated herein by reference
in reliance upon the reports of PricewaterhouseCoopers LLP, the Company's
independent registered public accounting firm during that period, given on its
authority as an expert in accounting and auditing.
SHAREHOLDER PROPOSALS
The Company is not required and does not intend to hold meetings of
shareholders each year. Instead, meetings will be held only when and if
required. Any shareholder desiring to present a proposal for consideration at
-38-
the next meeting of shareholders must submit the proposal in writing, so that it
is received by the Company, c/o Chairman, Dreyfus Founders Funds, Inc., 210
University Boulevard, Suite 800, Denver, CO 80206, within a reasonable time
before any meeting.
OTHER MATTERS
The Company's Directors are not aware of any other matters that may come
before the Meeting. However, should any such matters properly come before the
Meeting, it is the intention of the persons named in the accompanying form of
proxy to vote the proxy in accordance with their judgment on such matters.
NOTICE TO BANKS, BROKER/DEALERS AND VOTING TRUSTEES
AND THEIR NOMINEES
Please advise the Fund, in care of Dreyfus Transfer, Inc., P.O. Box 55263,
Boston, Massachusetts 02205-8501, whether other persons are the beneficial
owners of Fund shares for which proxies are being solicited from you, and, if
so, the number of copies of the Prospectus/Proxy Statement and other soliciting
material you wish to receive in order to supply copies to the beneficial owners
of Fund shares.
IT IS IMPORTANT THAT PROXIES BE RETURNED PROMPTLY. THEREFORE, SHAREHOLDERS
WHO DO NOT EXPECT TO ATTEND THE MEETING IN PERSON ARE URGED TO COMPLETE, DATE,
SIGN AND RETURN THE PROXY CARD IN THE ENCLOSED POSTAGE-PAID ENVELOPE.
-39-
EXHIBIT A
PLAN OF REORGANIZATION
PLAN OF REORGANIZATION dated as of January 17, 2007 (the "Plan"), adopted
with respect to DREYFUS FOUNDERS GROWTH FUND (the "Fund") and DREYFUS FOUNDERS
EQUITY GROWTH FUND (the "Acquiring Fund"), each a series of DREYFUS FOUNDERS
FUNDS, INC., a Maryland corporation (the "Company").
This Plan is intended to be and is adopted as a "plan of reorganization"
within the meaning of the regulations under Section 368(a) of the United States
Internal Revenue Code of 1986, as amended (the "Code"). The reorganization will
consist of the transfer of all of the assets of the Fund to the Acquiring Fund
in exchange solely for the Acquiring Fund's Class A shares ("Acquiring Fund
Class A Shares"), Class B shares ("Acquiring Fund Class B Shares"), Class C
shares ("Acquiring Fund Class C Shares"), Class R shares ("Acquiring Fund Class
R Shares"), and Class T shares ("Acquiring Fund Class T Shares" and, together
with Acquiring Fund Class A Shares, Acquiring Fund Class B Shares, Acquiring
Fund Class C Shares, and Acquiring Fund Class R Shares, the "Acquiring Fund
Shares") of common stock, par value $.01 per share, and the assumption by the
Acquiring Fund of certain liabilities of the Fund and the distribution, after
the Closing Date hereinafter referred to, of the Acquiring Fund Shares to the
shareholders of the Fund in liquidation of the Fund as provided herein, all upon
the terms and conditions hereinafter set forth in this Plan (the
"Reorganization").
The Fund and the Acquiring Fund are each diversified series of the Company,
a registered, open-end management investment company, and the Fund owns
securities which are assets of the character in which the Acquiring Fund is
permitted to invest;
Both the Acquiring Fund and the Fund are authorized to issue their shares
of common stock and the Company's Board of Directors (the "Board") has
determined that the Reorganization is in the best interests of the Fund and the
Fund's shareholders and that the interests of the Fund's existing shareholders
will not be diluted as a result of the Reorganization. The Board also has
determined that the Reorganization is in the best interests of the Acquiring
Fund and the Acquiring Fund's shareholders and that the interests of the
Acquiring Fund's existing shareholders will not be diluted as a result of the
Reorganization:
1. THE REORGANIZATION.
1.1 Subject to the terms and conditions contained herein, the Fund
shall assign, transfer and convey to the Acquiring Fund all of the assets of the
Fund, including all securities and cash (subject to liabilities), and the
Acquiring Fund, in exchange therefor, shall (a) deliver to the Fund the number
of Acquiring Fund Shares, including fractional Acquiring Fund Shares, determined
as set forth in paragraph 2.3; and (b) assume certain liabilities of the Fund,
as set forth in paragraph 1.2. Such transactions shall take place at the closing
(the "Closing") as of the close of business on the closing date (the "Closing
Date"), provided for in paragraph 3.1. In lieu of delivering certificates for
the Acquiring Fund Shares, the Acquiring Fund shall credit the Acquiring Fund
A-1
Shares to the Fund's account on the books of the Acquiring Fund and shall
deliver a confirmation thereof to the Fund.
1.2 The Fund will endeavor to discharge all of its known liabilities
and obligations prior to the Closing Date. The Acquiring Fund shall assume all
liabilities, expenses, costs, charges and reserves reflected on an unaudited
statement of assets and liabilities of the Fund prepared by The Dreyfus
Corporation ("Dreyfus"), as of the Valuation Date (as defined in paragraph 2.1),
in accordance with generally accepted accounting principles consistently applied
from the prior audited period. The Acquiring Fund shall assume only those
liabilities of the Fund reflected in that unaudited statement of assets and
liabilities and shall not assume any other liabilities, whether absolute or
contingent.
1.3 Delivery of the assets of the Fund to be transferred shall be
made on the Closing Date and shall be delivered to Mellon Bank, N.A., One Mellon
Bank Center, Pittsburgh, Pennsylvania 15258, the Acquiring Fund's custodian (the
"Custodian"), for the account of the Acquiring Fund, with all securities not in
bearer or book-entry form duly endorsed, or accompanied by duly executed
separate assignments or stock powers, in proper form for transfer, with
signatures guaranteed, and with all necessary stock transfer stamps, sufficient
to transfer good and marketable title thereto (including all accrued interest
and dividends and rights pertaining thereto) to the Custodian for the account of
the Acquiring Fund free and clear of all liens, encumbrances, rights,
restrictions and claims. All cash delivered shall be in the form of immediately
available funds payable to the order of the Custodian for the account of the
Acquiring Fund.
1.4 The Fund will pay or cause to be paid to the Acquiring Fund any
interest received on or after the Closing Date with respect to assets
transferred to the Acquiring Fund hereunder. The Fund will transfer to the
Acquiring Fund any distributions, rights or other assets received by the Fund
after the Closing Date as distributions on or with respect to the securities
transferred. Such assets shall be deemed included in assets transferred to the
Acquiring Fund on the Closing Date and shall not be separately valued.
1.5 As soon after the Closing Date as is conveniently practicable
(the "Liquidation Date"), the Fund will liquidate and distribute pro rata to the
Fund's Class A (and as described in the proviso to this sentence), Class B,
Class C, Class F, Class R and Class T shareholders of record, determined as of
the close of business on the Closing Date ("Fund Shareholders"), Acquiring Fund
Class A Shares, Acquiring Fund Class B Shares, Acquiring Fund Class C Shares,
Acquiring Fund Class F Shares, Acquiring Fund Class R Shares and Acquiring Fund
Class T Shares, respectively, received by the Fund pursuant to paragraph 1.1;
provided that for purposes of this distribution the Fund's Class F shareholders
shall receive a pro rata distribution of the Acquiring Fund Class A Shares. Such
liquidation and distribution will be accomplished by the transfer of the
Acquiring Fund Shares then credited to the account of the Fund on the books of
the Acquiring Fund to open accounts on the share records of the Acquiring Fund
in the names of the Fund Shareholders and representing the respective pro rata
number of the applicable Acquiring Fund Shares due such shareholders. The
aggregate net asset value of Acquiring Fund Shares to be so credited to each
Fund Shareholder's account shall equal the aggregate net asset value of the Fund
shares such Shareholder owned as of the Closing Date. All issued and outstanding
shares of the Fund simultaneously will be canceled on the books of the Fund;
A-2
Fund share certificates, if any, will represent the Acquiring Fund Shares
distributed to the Fund Shareholders.
1.6 Ownership of Acquiring Fund Shares will be shown on the books of
the Acquiring Fund's transfer agent. Acquiring Fund Shares will be issued in the
manner described in the Acquiring Fund's current prospectus and statement of
additional information; the Acquiring Fund, however, will not issue share
certificates in the Reorganization.
1.7 Any transfer taxes payable upon issuance of the Acquiring Fund
Shares in a name other than the registered holder of the Acquiring Fund Shares
on the books of the Fund as of that time shall, as a condition of such issuance
and transfer, be paid by the person to whom such Acquiring Fund Shares are to be
issued and transferred.
1.8 Any reporting responsibility of the Fund is and shall remain the
responsibility of the Fund up to and including the Closing Date and such later
date on which the Fund's existence is terminated.
2. VALUATION.
2.1 The value of the Fund's assets to be acquired, and the amount of
the Fund's liabilities to be assumed, by the Acquiring Fund hereunder shall be
computed as of the close of trading on the floor of the New York Stock Exchange
(usually 4:00 p.m., Eastern time) on the Closing Date (such time and date being
hereinafter called the "Valuation Date"), using the valuation procedures set
forth in the Company's Articles of Incorporation, as amended (the "Company's
Charter"), and then-current prospectuses or statement of additional information
of the Acquiring Fund, which are and shall be consistent with the policies
currently in effect for the Fund.
2.2 The net asset value of an Acquiring Fund Share shall be the net
asset value per share computed as of the Valuation Date, using the valuation
procedures set forth in the Company's Charter and then-current prospectuses or
statement of additional information of the Acquiring Fund, which are and shall
be consistent with the policies currently in effect for the Fund.
2.3 The number of Acquiring Fund Class A Shares, Acquiring Fund Class
B Shares, Acquiring Fund Class C Shares, Acquiring Fund Class R Shares and
Acquiring Fund Class T Shares to be issued (including fractional shares, if any)
in exchange for the Fund's net assets shall be determined by dividing the value
of the net assets of the applicable class that the Fund determined using the
same valuation procedures referred to in paragraph 2.1 (treating the net assets
of the Fund's Class F shares as part of the Fund's Class A shares for this
purpose) by the net asset value of one Acquiring Fund Class A Share, Acquiring
Fund Class B Share, Acquiring Fund Class C Share, Acquiring Fund Class R Share
and Acquiring Fund Class T Share, as the case may be, determined in accordance
with paragraph 2.2.
2.4 All computations of value shall be made in accordance with the
regular practices of Dreyfus as fund accountant for the Fund and the Acquiring
Fund.
3. CLOSING AND CLOSING DATE.
A-3
3.1 The Closing Date shall be June 8, 2007, or such other date as the
Company may determine. All acts taking place at the Closing shall be deemed to
take place simultaneously on the Closing Date unless otherwise provided. The
Closing shall be held at 5:00 p.m., Eastern time, at the offices of Dreyfus, 200
Park Avenue, 7th Floor, New York, New York, or such other time and/or place as
the Company may determine.
3.2 The Custodian shall deliver at the Closing a certificate of an
authorized officer stating that the Fund's portfolio securities, cash and any
other assets have been delivered in proper form to the Acquiring Fund on the
Closing Date.
3.3 If on the Valuation Date (a) the New York Stock Exchange or
another primary trading market for portfolio securities of the Acquiring Fund or
the Fund (each, an "Exchange") shall be closed to trading or trading thereon
shall be restricted, or (b) trading or the reporting of trading on said Exchange
or elsewhere shall be disrupted so that accurate appraisal of the value of the
net assets of the Acquiring Fund or the Fund is impracticable, the Closing Date
shall be postponed until the first business day after the day when trading shall
have been fully resumed and reporting shall have been restored.
3.4 The transfer agent for the Fund shall deliver at the Closing a
certificate of an authorized officer stating that its records contain the names
and addresses of the Fund Class A, Class B, Class C, Class F, Class R and Class
T Shareholders and the number and percentage ownership of outstanding Class A,
Class B, Class C, Class F, Class R and Class T shares, respectively, owned by
each such shareholder immediately prior to the Closing. The Acquiring Fund's
transfer agent shall issue and deliver to the Company's Secretary a confirmation
evidencing the Acquiring Fund Shares to be credited on the Closing Date, or
provide evidence satisfactory to the Company that such Acquiring Fund Shares
have been credited to the Fund's account on the books of the Acquiring Fund, and
shall deliver thereto at the Closing a certificate as to the opening of accounts
in the Fund Shareholders' names on the Acquiring Fund's books.
4. CONDITIONS PRECEDENT.
4.1 The Company's obligation to implement this Plan on the Acquiring
Fund's behalf shall be subject to satisfaction of the following conditions at or
before (and continuing through) the Closing:
(a) The Fund is a duly established and designated series of the
Company, and the Company is duly organized and validly existing under the laws
of the State of Maryland, and has power to carry out its obligations under this
Plan.
(b) The Company is registered under the Investment Company Act of
1940, as amended (the "1940 Act"), as an open-end management investment company,
and the Fund's shares are registered under the Securities Act of 1933, as
amended (the "1933 Act"), and such registrations have not been revoked or
rescinded and are in full force and effect.
(c) The current prospectuses and statement of additional
information of the Fund conform in all material respects to the applicable
requirements of the 1933 Act and the 1940 Act and the rules and regulations of
the Securities and Exchange Commission (the "Commission") thereunder and do not
include any untrue statement of a material fact or omit to state any material
A-4
fact required to be stated therein or necessary to make the statements therein,
in light of the circumstances under which they were made, not materially
misleading.
(d) The Fund is not, and the adoption and performance of this
Plan will not result, in material violation of the Company's Charter or its
By-Laws or of any agreement, indenture, instrument, contract, lease or other
undertaking to which the Company is a party on behalf of the Fund or by which
the Fund is bound.
(e) The Fund has no material contracts or other commitments
outstanding (other than this Plan) which will be terminated with liability to it
on or prior to the Closing Date.
(f) No litigation or administrative proceeding or investigation
of or before any court or governmental body is currently pending or to its
knowledge threatened against the Fund or any of its properties or assets which,
if adversely determined, would materially and adversely affect its financial
condition or the conduct of its business. The Company knows of no facts which
might form the basis for the institution of such proceedings, and is not a party
to or subject to the provisions of any order, decree or judgment of any court or
governmental body which materially and adversely affects its business or its
ability to consummate the transactions herein contemplated.
(g) The Statements of Assets and Liabilities of the Fund for each
of its five fiscal years ended December 31, 2006 have been audited by
PricewaterhouseCoopers LLP, an independent registered public accounting firm,
and are in accordance with generally accepted accounting principles, and such
statements fairly reflect the financial condition of the Fund as of such dates,
and there are no known contingent liabilities of the Fund as of such dates not
disclosed therein.
(h) Since December 31, 2006, there has not been any material
adverse change in the Fund's financial condition, assets, liabilities or
business other than changes occurring in the ordinary course of business, or any
incurrence by the Fund of indebtedness maturing more than one year from the date
such indebtedness was incurred, except as disclosed on the statement of assets
and liabilities referred to in paragraph 1.2.
(i) At the Closing Date, all federal and other tax returns and
reports of the Fund required by law then to be filed shall have been filed, and
all federal and other taxes shall have been paid so far as due, or provision
shall have been made for the payment thereof, and to the best of the Company's
knowledge no such return is currently under audit and no assessment has been
asserted with respect to such returns.
(j) For each taxable year of its operation (including the taxable
year ending at the Closing Date), the Fund has met the requirements of
Subchapter M of the Code for qualification and treatment as a regulated
investment company, and the Fund has no earnings and profits accumulated in any
taxable year in which the provisions of Subchapter M did not apply to it.
(k) All issued and outstanding shares of the Fund are, and at the
Closing Date will be, duly and validly issued and outstanding, fully paid and
non-assessable by the Company. All of the issued and outstanding shares of the
Fund will, at the time of Closing, be held by the persons and in the amounts set
A-5
forth in the records of its transfer agent as provided in paragraph 3.4. The
Fund does not have outstanding any options, warrants or other rights to
subscribe for or purchase any of the Fund's shares, nor is there outstanding any
security convertible into any of the Fund's shares.
(l) On the Closing Date, the Fund will have full right, power and
authority to sell, assign, transfer and deliver the assets to be transferred by
it hereunder.
(m) This Plan will have been duly authorized prior to the Closing
Date by all necessary action on the part of the Board and, subject to the
approval of the Fund's shareholders, this Plan will constitute the valid and
legally binding obligation of the Company, on behalf of the Fund, enforceable in
accordance with its terms, subject to the effect of bankruptcy, insolvency,
reorganization, moratorium, fraudulent conveyance and other similar laws
relating to or affecting creditors' rights generally and court decisions with
respect thereto, and to general principles of equity and the discretion of the
court (regardless of whether the enforceability is considered in a proceeding in
equity or at law).
(n) The proxy statement of the Company, on behalf of the Fund
(the "Proxy Statement"), included in the Registration Statement referred to in
paragraph 5.4, will, on the effective date of the Registration Statement and on
the Closing Date, not contain any untrue statement of a material fact or omit to
state a material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which such statements
were made, not materially misleading.
4.2 The Company's obligation to implement this Plan on the Fund's
behalf shall be subject to satisfaction of the following conditions at or before
(and continuing through) the Closing:
(a) The Acquiring Fund is a duly established and designated
series of the Company, and the Company is duly organized and validly existing
under the laws of the State of Maryland, and has power to carry out its
obligations under this Plan.
(b) The Company is registered under the 1940 Act as an open-end
management investment company, and the Acquiring Fund Shares are registered
under the 1933 Act, and such registrations have not been revoked or rescinded
and are in full force and effect.
(c) The current prospectuses and statement of additional
information of the Acquiring Fund conform in all material respects to the
applicable requirements of the 1933 Act and the 1940 Act and the rules and
regulations of the Commission thereunder and do not include any untrue statement
of a material fact or omit to state any material fact required to be stated
therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not materially misleading.
(d) The Acquiring Fund is not, and the adoption and performance
of this Plan will not result, in material violation of the Company's Charter or
its By-Laws or of any agreement, indenture, instrument, contract, lease or other
undertaking to which the Company is a party on behalf of the Acquiring Fund or
by which the Acquiring Fund is bound.
A-6
(e) No litigation or administrative proceeding or investigation
of or before any court or governmental body is currently pending or to its
knowledge threatened against the Acquiring Fund or any of its properties or
assets which, if adversely determined, would materially and adversely affect its
financial condition or the conduct of its business. The Company knows of no
facts which might form the basis for the institution of such proceedings, and is
not a party to or subject to the provisions of any order, decree or judgment of
any court or governmental body which materially and adversely affects its
business or its ability to consummate the transactions contemplated herein.
(f) The Statements of Assets and Liabilities of the Acquiring
Fund for each of its five fiscal years ended December 31, 2006 have been audited
by PricewaterhouseCoopers LLP, an independent registered public accounting firm,
and are in accordance with generally accepted accounting principles, and such
statements fairly reflect the financial condition of the Acquiring Fund as of
such dates.
(g) Since December 31, 2006, there has not been any material
adverse change in the Acquiring Fund's financial condition, assets, liabilities
or business other than changes occurring in the ordinary course of business, or
any incurrence by the Acquiring Fund of indebtedness maturing more than one year
from the date such indebtedness was incurred, except as disclosed in writing to
the Fund.
(h) At the Closing Date, all federal and other tax returns and
reports of the Acquiring Fund required by law then to be filed shall have been
filed, and all federal and other taxes shown as due on said returns and reports
shall have been paid or provision shall have been made for the payment thereof,
and to the best of the Company's knowledge no such return is currently under
audit and no assessment has been asserted with respect to such returns.
(i) For each taxable year of its operation, the Acquiring Fund
has met the requirements of Subchapter M of the Code for qualification and
treatment as a regulated investment company, and the Acquiring Fund has no
earnings and profits accumulated in any taxable year in which the provisions of
Subchapter M did not apply to it.
(j) All issued and outstanding shares of the Acquiring Fund are,
and at the Closing Date will be, duly and validly issued and outstanding, fully
paid and non-assessable by the Company. The Acquiring Fund does not have
outstanding any options, warrants or other rights to subscribe for or purchase
any of the Acquiring Fund Shares, nor is there outstanding any security
convertible into any Acquiring Fund Shares.
(k) This Plan will have been duly authorized prior to the Closing
Date by all necessary action on the part of the Board and, subject to the
approval of the Fund's shareholders, this Plan will constitute the valid and
legally binding obligation of the Acquiring Fund, enforceable in accordance with
its terms, subject to the effect of bankruptcy, insolvency, reorganization,
moratorium, fraudulent conveyance and other similar laws relating to or
affecting creditors' rights generally and court decisions with respect thereto,
and to general principles of equity and the discretion of the court (regardless
of whether the enforceability is considered in a proceeding in equity or at
law).
A-7
(l) The Proxy Statement included in the Registration Statement
will, on the effective date of the Registration Statement and on the Closing
Date, not contain any untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to make the statements
therein, in light of the circumstances under which such statements were made,
not materially misleading.
(m) No consideration other than the Acquiring Fund Shares (and
the Acquiring Fund's assumption of the Fund's stated liabilities) will be issued
in exchange for the Fund's assets in the Reorganization.
(n) The Acquiring Fund does not directly or indirectly own, nor
on the Closing Date will it directly or indirectly own, nor has it directly or
indirectly owned at any time during the past five years, any shares of the Fund.
5. COVENANTS OF THE COMPANY, ON BEHALF OF THE FUND, AND THE ACQUIRING
FUND, RESPECTIVELY.
5.1 The Acquiring Fund and the Fund each will operate its business in
the ordinary course between the date hereof and the Closing Date, it being
understood that such ordinary course of business will include payment of
customary dividends and other distributions.
5.2 The Company will call a meeting of the Fund's shareholders to
consider and act upon this Plan and to take all other action necessary to obtain
approval of the transactions contemplated herein.
5.3 Subject to the provisions of this Plan, the Company will take, or
cause to be taken, all action, and do or cause to be done, all things reasonably
necessary, proper or advisable to consummate and make effective the transactions
contemplated by this Plan.
5.4 The Company will prepare a prospectus, which will include the
Proxy Statement referred to in paragraph 4.1(n), all to be included in a
Registration Statement on Form N-14 of the Company (the "Registration
Statement"), in compliance with the 1933 Act, the Securities Exchange Act of
1934, as amended, and the 1940 Act in connection with the meeting of the Fund's
shareholders to consider approval of this Plan.
5.5 The Acquiring Fund agrees to use all reasonable efforts to obtain
the approvals and authorizations required by the 1933 Act, the 1940 Act and such
of the state Blue Sky or securities laws as it may deem appropriate in order to
continue its operations after the Closing Date.
5.6 The Company, on behalf of the Fund, covenants that the Fund is not
acquiring the Acquiring Fund Shares to be issued hereunder for the purpose of
making any distribution thereof, other than in accordance with the terms of this
Plan.
5.7 As soon as is reasonably practicable after the Closing, the Fund
will make a liquidating distribution to the Fund's shareholders consisting of
the Acquiring Fund Shares received at the Closing.
A-8
6. FURTHER CONDITIONS PRECEDENT TO OBLIGATIONS OF THE COMPANY.
If any of the conditions set forth below do not exist on or before the
Closing Date with respect to the Fund or the Acquiring Fund, the Company shall,
at its option, not be required to consummate the transactions contemplated by
this Plan.
6.1 This Plan and the transactions contemplated herein shall have been
approved by the requisite vote of the holders of the outstanding shares of the
Fund in accordance with the provisions of the Company's Charter and the 1940
Act.
6.2 On the Closing Date, no action, suit or other proceeding shall be
pending before any court or governmental agency in which it is sought to
restrain or prohibit, or obtain damages or other relief in connection with, this
Plan or the transactions contemplated herein.
6.3 All consents of other parties and all other consents, orders and
permits of federal, state and local regulatory authorities (including those of
the Commission and of state Blue Sky and securities authorities) deemed
necessary by the Fund or the Acquiring Fund to permit consummation, in all
material respects, of the transactions contemplated hereby shall have been
obtained, except where failure to obtain any such consent, order or permit would
not involve a risk of a material adverse effect on the assets or properties of
the Fund or the Acquiring Fund, provided that the Company may waive any of such
conditions.
6.4 The Registration Statement shall have become effective under the
1933 Act and no stop orders suspending the effectiveness thereof shall have been
issued and, to the best knowledge of the Company, no investigation or proceeding
for that purpose shall have been instituted or be pending, threatened or
contemplated under the 1933 Act.
6.5 The Fund shall have declared and paid a dividend or dividends
which, together with all previous dividends, shall have the effect of
distributing to Fund shareholders all of the Fund's investment company taxable
income (within the meaning of Section 852(b)(2) of the Code) for all taxable
years or periods ending on or prior to the Closing Date (computed without regard
to any deduction for dividends paid); the excess of its interest income
excludable from gross income under Section 103(a) of the Code over its
disallowed deductions under Sections 265 and 171(a)(2) of the Code, for all
taxable years or periods; and all of its net capital gain (as defined in Section
1222(11) of the Code) realized in all taxable years or periods (after reduction
for any capital loss carryforward).
6.6 The Company shall have received an opinion of Kirkpatrick &
Lockhart Preston Gates Ellis LLP substantially to the effect that, based on the
facts and assumptions stated herein and conditioned on consummation of the
Reorganization in accordance with this Plan, for federal income tax purposes:
(a) The transfer of all of the Fund's assets to the Acquiring
Fund in exchange solely for the Acquiring Fund Shares and the assumption by the
Acquiring Fund of certain identified liabilities of the Fund, followed by the
distribution by the Fund of those Acquiring Fund Shares to Fund Shareholders in
complete liquidation of the Fund, will qualify as a "reorganization" within the
meaning of Section 368(a) of the Code and each of the Fund and the Acquiring
A-9
Fund will be "a party to a reorganization"; (b) no gain or loss will be
recognized by the Acquiring Fund upon the receipt of the assets of the Fund in
exchange solely for Acquiring Fund Shares and the assumption by the Acquiring
Fund of certain identified liabilities of the Fund pursuant to the
Reorganization; (c) no gain or loss will be recognized by the Fund upon the
transfer of the Fund's assets to the Acquiring Fund in exchange solely for
Acquiring Fund Shares and the assumption by the Acquiring Fund of certain
identified liabilities of the Fund or upon the distribution (whether actual or
constructive) of those Acquiring Fund Shares to Fund Shareholders in exchange
for their shares of the Fund in liquidation of the Fund pursuant to the
Reorganization; (d) no gain or loss will be recognized by Fund Shareholders upon
the exchange of their Fund shares for the Acquiring Fund Shares pursuant to the
Reorganization; (e) the aggregate tax basis for the Acquiring Fund Shares
received by each Fund Shareholder pursuant to the Reorganization will be the
same as the aggregate tax basis of the Fund shares held by such Shareholder
immediately prior to the Reorganization, and the holding period of those
Acquiring Fund Shares received by each Fund Shareholder will include the period
during which the Fund shares exchanged therefor were held by such Shareholder
(provided the Fund shares were held as capital assets on the date of the
Reorganization); and (f) the tax basis of each Fund asset acquired by the
Acquiring Fund will be the same as the tax basis of such asset to the Fund
immediately prior to the Reorganization, and the holding period of each asset of
the Fund in the hands of the Acquiring Fund will include the period during which
that asset was held by the Fund.
No opinion will be expressed as to the effect of the Reorganization on
(i) the Fund or the Acquiring Fund with respect to any asset as to which any
unrealized gain or loss is required to be recognized for federal income tax
purposes at the end of a taxable year (or on the termination or transfer
thereof) under a mark-to-market system of accounting, and (ii) any shareholder
of the Fund that is required to recognize unrealized gains and losses for
federal income tax purposes under a mark-to-market system of accounting.
7. TERMINATION OF AGREEMENT; EXPENSES.
7.1 This Plan and the transactions contemplated hereby may be
terminated and abandoned by resolution of the Board at any time prior to the
Closing Date (and notwithstanding any vote of the Fund's shareholders) if
circumstances should develop that, in the opinion of the Board, make proceeding
with the Reorganization inadvisable.
7.2 If this Plan is terminated and the transactions contemplated
hereby are abandoned pursuant to the provisions of this Section 7, this Plan
shall become void and have no effect, without any liability on the part of any
party hereto or the Directors, officers or shareholders of the Company, as the
case may be, in respect of this Plan.
7.3 The Board may amend, modify or supplement this Plan in any manner
at any time before the meeting of the Fund's shareholders referred to in
paragraph 5.2.
7.4 The aggregate expenses of the transactions contemplated hereby
will be split proportionately between the Fund and the Acquiring Fund, based on
the net assets of each fund.
A-10
8. WAIVER.
At any time prior to the Closing Date, any of the foregoing conditions
may be waived by the Board if, in its judgment, such waiver will not have a
material adverse effect on the benefits intended under this Plan to the
shareholders of the Fund or of the Acquiring Fund, as the case may be.
9. MISCELLANEOUS.
9.1 This Plan shall be governed and construed in accordance with the
internal laws of the State of New York, without giving effect to principles of
conflict of laws; provided, however, that the due authorization of this Plan by
the Company shall be governed and construed in accordance with the internal laws
of the State of Maryland without giving effect to principles of conflict of
laws; provided that, in the case of any conflict between those laws and federal
securities laws, the latter shall govern.
9.2 This Plan shall bind and inure to the benefit of the Company and
its successors and assigns. The Company's obligations under this Plan are not
binding on or enforceable against any series of the Company other than the Fund
and the Acquiring Fund (each, a "Reorganizing Series"), but are only binding on
and enforceable against the Reorganizing Series' respective property. The
Company, in asserting any rights or claims on behalf of either Reorganizing
Series under this Plan, shall look only to property of the other Reorganizing
Series in settlement of such rights or claims. Nothing herein expressed or
implied is intended or shall be construed to confer upon or give any person,
firm or corporation, other than the Company and its successors and assigns, any
rights or remedies under or by reason of this Plan.
A-11
EXHIBIT B
SUPPLEMENTAL INFORMATION RELATING TO THE ACQUIRING FUND-
ACQUIRING FUND EXPENSES FOR THE YEAR ENDED DECEMBER 31, 2006
Fee table CLASS A CLASS B(1) CLASS C CLASS F CLASS R CLASS T
- ------------------------------------------- -------- ---------- ------- ------- ------- -------
SHAREHOLDER TRANSACTION FEES
(FEES PAID FROM YOUR ACCOUNT)
Maximum front-end sales charge on purchases 5.75 NONE NONE NONE NONE 4.50
% OF OFFERING PRICE
Maximum contingent deferred sales charge NONE(2) 4.00 1.00 NONE NONE NONE(2)
(CDSC) % OF PURCHASE OR SALE PRICE,
WHICHEVER IS LESS
ANNUAL FUND OPERATING EXPENSES
(EXPENSES PAID FROM FUND ASSETS) % OF
AVERAGE DAILY NET ASSETS
Management fees 0.65% 0.65% 0.65% 0.65% 0.65% 0.65%
Rule 12b-1 fee NONE 0.75% 0.75% 0.07% NONE 0.25%
Shareholder services fee 0.25% 0.25% 0.25% NONE NONE 0.25%
Other expenses 0.44% 0.56% 0.36% 0.38% 0.39% 1.31%
TOTAL ANNUAL FUND OPERATING EXPENSES 1.34% 2.21% 2.01% 1.10% 1.04% 2.46%(3)
without reimbursements
---------------------------------------------------------------------------------
REIMBURSEMENTS 0.00% 0.00% 0.00% 0.00% 0.00% (0.64%)(3)
---------------------------------------------------------------------------------
TOTAL ANNUAL FUND OPERATING EXPENSES 1.34% 2.21% 2.01% 1.10% 1.04% 1.82%(3)
With reimbursements(2)
(1) CLASS B SHARES OF THE FUND ARE AVAILABLE ONLY IN CONNECTION WITH DIVIDEND
REINVESTMENT AND PERMITTED EXCHANGES OF CLASS B SHARES OF CERTAIN OTHER FUNDS.
(2) SHARES BOUGHT WITHOUT AN INITIAL SALES CHARGE AS PART OF AN INVESTMENT OF $1
MILLION OR MORE MAY BE CHARGED A CDSC OF 1.00% IF REDEEMED WITHIN ONE YEAR.
(3) Founders has agreed to reimburse (or to cause its affiliates to reimburse)
the Class T share class 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 notice to the fund's
board of directors.
Expense example
1 Year 3 Years 5 Years 10 Years
-------- --------- --------- -----------
Class A $704 $975 $1,267 $2,095
Class B $624 $991 $1,385 $2,122*
WITH REDEMPTION
WITHOUT REDEMPTION $224 $691 $1,185 $2,122*
CLASS C $304 $630 $1,083 $2,338
with redemption
without redemption $204 $630 $1,083 $2,338
CLASS F $112 $350 $606 $1,340
CLASS R $106 $331 $574 $1,271
CLASS T $627 $1,124 $1,647 $3,074
* ASSUMES CONVERSION OF CLASS B TO CLASS A AT END OF THE SIXTH YEAR FOLLOWING
THE DATE OF PURCHASE.
This example shows what you could pay in expenses over time. It uses the
same hypothetical conditions other funds use in their prospectuses: $10,000
initial investment, 5% total return each year and no changes in expenses.
Because actual returns and expenses will be different, the example is for
comparison only. For Class T, the 1-year example and the first year of the
3-year, 5-year, and 10-year examples are based on net fund operating expenses
with reimbursements. The 3-year, 5-year, and 10-year examples are based on total
annual fund operating expenses without reimbursements for each year after year
one.
SHAREHOLDER GUIDE
The classes of the fund offered by this prospectus are designed primarily for
people who are investing through a third party, such as a bank, broker-dealer or
financial adviser, or in a 401(k) or other retirement plan. Third parties with
whom you open a fund account may impose policies, limitations and fees which are
different from those described in this prospectus. Consult a representative of
your plan or financial institution for further information.
The fund's Class B shares are offered only in connection with dividend
reinvestment and exchanges of Class B shares of certain other funds advised by
Founders or Dreyfus, or certain eligible shares of Dreyfus Worldwide Dollar
Money Market Fund, Inc.
Your financial representative may receive different compensation for selling one
class of shares than for selling another class. It is important to remember that
the CDSCs and Rule 12b-1 fees for Class B and Class C shares have the same
purpose as the front-end sales charge on sales of Class A and Class T shares: to
compensate the fund's distributor for concessions and expenses it pays to
dealers and financial institutions for selling or servicing shares. A CDSC is
not charged on fund shares acquired through the reinvestment of fund dividends.
DECIDING WHICH CLASS OF SHARES TO BUY
THIS PROSPECTUS OFFERS CLASS A, B, C, T and R shares of the fund. The different
classes of fund shares represent investments in the same portfolio of
securities, but the classes are subject to different expenses and will likely
have different share prices. When choosing a class, you should consider your
investment amount, anticipated holding period, the potential costs over your
holding period and whether you qualify for any reduction or waiver of the sales
charge.
Key concepts
The fund offers multiple classes of shares. This prospectus describes shares of
Classes A, B, C, R and T. The fund's other class of shares, Class F, is offered
by a separate prospectus and is generally available only to shareholders who
have continuously maintained a Class F account with any Dreyfus Founders fund
since December 30, 1999. All share classes of the fund invest in the same
underlying portfolio of securities and have the same management team. However,
because of different charges, fees and expenses, the performance of the fund's
share classes will vary.
WHEN YOU INVEST IN CLASS A OR CLASS T shares you generally pay an initial sales
charge. Class A shares have no ongoing Rule 12b-1 fees and Class T shares have
lower ongoing Rule 12b-1 fees than Class C shares. Each class, except Class R
shares, is subject to a shareholder service fee. Class R shares are available
only to limited types of investors. Please see below for more information
regarding the eligibility requirements.
A more complete description of each class follows. You should review these
arrangements with your financial representative before determining which class
to invest in.
- --------------------------------------------------------------------------------------------------------------------
CLASS A CLASS C CLASS T CLASS R
- --------------------------------------------------------------------------------------------------------------------
Initial sales charge up to 5.75% none up to 4.50% none
- --------------------------------------------------------------------------------------------------------------------
Ongoing distribution fee
(Rule 12b-1 fee) none 0.75% 0.25% none
- --------------------------------------------------------------------------------------------------------------------
Ongoing shareholder service fee 0.25% 0.25% 0.25% none
- --------------------------------------------------------------------------------------------------------------------
Contingent deferred sales charge 1% on sale of 1% on sale of 1% on sale of none
shares bought shares held for shares bought
within one year one year or less within one year
without an initial without an initial
sales charge as sales charge as
part of an part of an
investment of investment of
$1 million $1 million
or more or more
- --------------------------------------------------------------------------------------------------------------------
Conversion feature no no no no
- --------------------------------------------------------------------------------------------------------------------
Recommended purchase maximum none $1 million $1 million none
- --------------------------------------------------------------------------------------------------------------------
CLASS A SHARE CONSIDERATIONS
WHEN YOU INVEST IN CLASS A SHARES, you pay the public offering price, which is
the share price, or NAV, plus the initial sales charge that may apply to your
purchase. The amount of the initial sales charge is based on the size of your
investment, as the following table shows. We also describe below how you may
reduce or eliminate the initial sales charge. (See "Sales charge reductions and
waivers.")
SINCE SOME OF YOUR INVESTMENT goes to pay an up-front sales charge when you
purchase Class A shares, you purchase fewer shares than you would with the same
investment in Class C shares. Nevertheless, you are usually better off
purchasing Class A shares, rather than Class C shares, and paying an up-front
sales charge if you:
o plan to own the shares for an extended period of time, since the
ongoing Rule 12b-1 fees on Class C shares may eventually exceed the
cost of the up-front sales charge
o qualify for a reduced or waived sales charge
If you invest $1 million or more (and are not eligible to purchase Class R
shares), Class A shares will always be the most advantageous choice.
- ----------------------------------------------------------------------------
CLASS A SALES CHARGES
SALES CHARGE SALES CHARGE
AS A % OF AS A % OF
PURCHASE AMOUNT OFFERING PRICE NAV
- ----------------------------------------------------------------------------
Less than $50,000 5.75% 6.10%
$50,000 to $99,999 4.50% 4.70%
$100,000 to $249,999 3.50% 3.60%
$250,000 to $499,999 2.50% 2.60%
$500,000 to $999,999 2.00% 2.00%
$1 million or more* none none
*No sales charge applies on investments of $1 million or more, but a
contingent deferred sales charge of 1% may be imposed on certain
redemptions of such shares within one year of the date of purchase.
CLASS T SHARE CONSIDERATIONS
WHEN YOU INVEST IN CLASS T SHARES, you pay the public offering price, which is
the share price, or NAV, plus the initial sales charge that may apply to your
purchase. The amount of the initial sales charge is based on the size of your
investment. We also describe below how you may reduce or eliminate the initial
sales charge. (See "Sales charge reductions and waivers.")
THE INITIAL SALES CHARGE on Class A is higher than that of Class T.
Nevertheless, you are usually better off purchasing Class A shares rather than
Class T shares if you:
o plan to own the shares for an extended period of time, since the
ongoing Rule 12b-1 fees on Class T may eventually exceed the initial
sales charge differential
o invest at least $1 million, regardless of your investment horizon,
because there is no initial sales charge at that level and Class A has
no ongoing Rule 12b-1 fees
SINCE SOME OF YOUR INVESTMENT goes to pay an up-front sales charge when you
purchase Class T shares, you purchase fewer shares than you would with the same
investment in Class C shares. Nevertheless, you should consider purchasing Class
T shares, rather than Class C shares, and paying an up-front sales charge if
you:
o qualify for a reduced or waived sales charge
o are unsure of your expected holding period
- ----------------------------------------------------------------------------
Class T sales charges
SALES CHARGE SALES CHARGE
AS A % OF AS A % OF
PURCHASE AMOUNT OFFERING PRICE NAV
- ----------------------------------------------------------------------------
Less than $50,000 4.50% 4.70%
$50,000 to $99,999 4.00% 4.20%
$100,000 to $249,999 3.00% 3.10%
$250,000 to $499,999 2.00% 2.00%
$500,000 to $999,999 1.50% 1.50%
$1 million or more* none none
*NO SALES CHARGE APPLIES ON INVESTMENTS OF $1 MILLION OR MORE, BUT A
CONTINGENT DEFERRED SALES CHARGE OF 1% MAY BE IMPOSED ON CERTAIN
REDEMPTIONS OF SUCH SHARES WITHIN ONE YEAR OF THE DATE OF PURCHASE.
SALES CHARGE REDUCTIONS AND WAIVERS
To receive a reduction or waiver of your initial sales charge, you must let your
financial intermediary or the fund know at the time you purchase shares that you
qualify for such a reduction or waiver. If you do not let your financial
intermediary or the fund know that you are eligible for a reduction or waiver,
you may not receive the reduction or waiver to which you are otherwise entitled.
In order to receive a reduction or waiver, you may be required to provide your
financial intermediary or the fund with evidence of your qualification for the
reduction or waiver, such as records regarding shares of Dreyfus Founders funds
or Dreyfus Premier funds held in accounts with that financial intermediary and
other financial intermediaries. Additional information regarding reductions and
waivers of sales loads is available, free of charge, at www.dreyfus.com and in
the fund's SAI.
YOU CAN REDUCE YOUR INITIAL SALES CHARGE IN THE FOLLOWING WAYS:
o RIGHTS OF ACCUMULATION. You can count toward the amount of your
investment your total account value in all share classes of Dreyfus
Founders funds and certain Dreyfus Premier funds that are subject to a
sales charge. For example, if you have $1 million invested in shares
of Dreyfus Founders funds or certain Dreyfus Premier funds, you can
invest in Class A shares of any fund without an initial sales charge.
We may terminate or change this privilege at any time on written
notice.
o LETTER OF INTENT. You can sign a letter of intent, in which you agree
to invest a certain amount (your goal) in Dreyfus Founders funds and
certain Dreyfus Premier funds over a 13-month period, and your initial
sales charge will be based on your goal. A 90-day back-dated period
can also be used to count previous purchases toward your goal. Your
goal must be at least $50,000, and your initial investment must be at
least $5,000. The sales charge will be adjusted if you do not meet
your goal.
o COMBINE WITH FAMILY MEMBERS. You can also count toward the amount of
your investment all investments in Dreyfus Founders funds or certain
Dreyfus Premier funds, in any class of shares, by your spouse and your
children under age 21 (family members), including their rights of
accumulation and goals under a letter of intent. Certain other groups
may also be permitted to combine purchases for purposes of reducing or
eliminating sales charges. (See "How to Buy Shares" in the SAI.)
CLASS A SHARES MAY BE PURCHASED at NAV without payment of a sales charge by the
following individuals and entities:
o full-time or part-time employees, and their family members, of
Founders or any of its affiliates
o board members of Founders, the Dreyfus Founders funds and any funds
managed by an affiliate of Founders
o full-time employees, and their family members, of financial
institutions that have entered into selling agreements with the fund's
distributor
o "wrap" accounts for the benefit of clients of financial institutions,
provided they have entered into an agreement with the fund's
distributor specifying operating policies and standards
o qualified separate accounts maintained by an insurance company; any
state, county or city or instrumentality thereof; charitable
organizations investing $50,000 or more in fund shares; and charitable
remainder trusts
o Qualified investors who (i) purchase Class A shares directly through
the fund's distributor, and (ii) have, or whose spouse or minor
children have, beneficially owned shares and continuously maintained
an open account directly through the distributor in a Founders-managed
fund, including the fund, or a Dreyfus-managed fund since on or before
February 28, 2006
o Investors with the cash proceeds from the investor's exercise of
employment-related stock options, whether invested in the fund
directly or indirectly through an exchange from a Dreyfus-managed
money market fund, provided that the proceeds are processed through an
entity that has entered into an agreement with the fund's distributor
specifically relating to processing stock options. Upon establishing
the account in the fund or the Dreyfus-managed money market fund, the
investor and the investor's spouse and minor children become eligible
to purchase Class A shares of the fund at NAV, whether or not using
the proceeds of the employment-related stock options
o Members of qualified affinity groups who purchase Class A shares
directly through the fund's distributor, provided that the qualified
affinity group has entered into an affinity agreement with the
distributor
CLASS A AND CLASS T SHARES MAY BE PURCHASED at NAV without payment of a sales
charge by the following individuals or entities:
o employees participating in certain qualified or non-qualified employee
benefit plans
o shareholders in Dreyfus-sponsored IRA "Rollover Accounts" funded with
the distribution proceeds from qualified and non-qualified retirement
plans or a Dreyfus-sponsored 403(b)(7) plan, provided that, in the
case of a qualified or non-qualified retirement plan, the rollover is
processed through an entity that has entered into an agreement with
the fund's distributor specifically relating to processing rollovers.
Upon establishing the Dreyfus-sponsored IRA Rollover Account in the
fund, the shareholder becomes eligible to make subsequent purchases of
Class A or Class T shares of the fund at NAV in such account.
CLASS C SHARE CONSIDERATIONS
SINCE YOU PAY NO INITIAL SALES CHARGE, an investment of less than $1 million in
Class C shares buys more shares than the same investment would in Class A or
Class T shares. However, you will pay higher ongoing Rule 12b-1 fees. Over time
these fees may cost you more than paying an initial sales charge on Class A or
Class T shares.
BECAUSE CLASS A SHARES WILL ALWAYS be a more favorable investment than Class C
shares for investments of $1 million or more, the fund will generally not accept
a purchase order for Class C shares in the amount of $1 million or more. While
the fund will take reasonable steps to prevent investments of $1 million or more
in Class C shares, it may not be able to identify such investments made through
certain financial intermediaries or omnibus accounts.
Class C shares redeemed within one year of purchase are subject to a 1% CDSC.
CLASS R SHARE CONSIDERATIONS
SINCE YOU PAY NO INITIAL SALES CHARGE, an investment of less than $1 million in
Class R shares buys more shares than the same investment would in Class A or
Class T shares. There is also no CDSC imposed on redemptions of Class R shares,
and you do not pay any ongoing service or distribution fees.
CLASS R SHARES may be purchased by:
o a bank trust department or other financial services provider acting on
behalf of its customers having a qualified trust or investment account
or relationship at such institution
o a custodian, trustee, investment manager or other entity authorized to
act on behalf of a qualified or non-qualified employee benefit plan
that has entered into an agreement with the fund's distributor or a
SEP-IRA
CLASS B SHARE CONSIDERATIONS
Class B shares sold within six years of purchase are subject to the following
CDSCs:
- -------------------------------------------------------------
Class B sales charges
CDSC AS A % OF
AMOUNT REDEEMED
FOR SHARES SOLD IN THE SUBJECT TO THE CHARGE
- -------------------------------------------------------------
First year 4.00%
Second year 4.00%
Third year 3.00%
Fourth year 3.00%
Fifth year 2.00%
Sixth year 1.00%
Thereafter none
Class B shares also are subject to an annual Rule 12b-1 fee. Class B shares
convert to Class A shares (which are not subject to a Rule 12b-1 fee)
approximately six years after the date they were purchased.
CDSC WAIVERS
THE CDSC ON CLASS A, B, C AND T SHARES may be waived in the following cases:
o permitted exchanges of shares, except if shares acquired by exchange
are then redeemed within the period during which a CDSC would apply to
the initial shares purchased
o redemptions made within one year of death or disability of the
shareholder
o redemptions due to receiving required minimum distributions from
retirement accounts upon reaching age 70 1/2
o redemptions of Class B or Class C shares made through the fund's
Automatic Withdrawal Plan, if such redemptions do not exceed 12% of
the value of the account annually
o redemptions from qualified and nonqualified employee benefit plans
BUYING SHARES
THE NET ASSET VALUE (NAV) of each class is generally calculated as of the close
of regular trading on the New York Stock Exchange (NYSE) (usually 4:00 p.m.
Eastern time) every day the NYSE is open. Your order will be priced at the next
NAV calculated after your order is received in proper form by the fund's
transfer agent or other authorized entity. NAV is not calculated, and you may
not conduct fund transactions, on days the NYSE is closed (generally weekends
and New Year's Day, Martin Luther King Jr. Day, Presidents' Day, Good Friday,
Memorial Day, Independence Day, Labor Day, Thanksgiving Day and Christmas Day).
However, the fund may conduct portfolio transactions on those days, particularly
in foreign markets. Those transactions, and changes in the value of the fund's
foreign securities holdings on such days, may affect the value of fund shares on
days when you are not able to purchase, exchange, or redeem shares. The NAV of
your shares when you redeem them may be more or less than the price you
originally paid, depending primarily upon the fund's investment performance.
GENERALLY, WHEN CALCULATING THE FUNDS' NAV, debt securities with remaining
maturities of 60 days or less at the time of purchase are valued using the
amortized cost method. All other investments are valued on the basis of market
quotations or official closing prices. If market quotations or official closing
prices are not readily available, or are determined not to reflect accurately
fair value (such as when trading in a security has been suspended or when the
value of a security has been materially affected by events occurring after the
close of the exchange or market on which the security is principally traded (for
example, a foreign exchange or market), but before the fund calculates its NAV),
the fund may value those investments at fair value as determined in accordance
with procedures approved by the fund's board. Fair value of investments may be
determined by the fund's board or its valuation committee in good faith using
such information as it deems appropriate under the circumstances. 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 indices of domestic securities and other appropriate indicators, such as
closing market prices of relevant ADRs and futures contracts.
USING FAIR VALUE TO PRICE SECURITIES may result in a value that is different
from a security's most recent closing price and from the prices used by other
mutual funds to calculate their NAVs. 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 NAV of the fund.
ORDERS TO BUY AND SELL SHARES received by dealers by the close of trading on the
NYSE and transmitted to the fund's distributor or its designee by the close of
its business day (usually 5:15 p.m. Eastern time) will be based on the NAV
determined as of the close of trading on the NYSE that day.
Minimum investments
Initial Additional
- ---------------------------- ----------- ------------------------
REGULAR ACCOUNTS $1,000 $100
TRADITIONAL IRAS $750 NO MINIMUM
SPOUSAL IRAS $750 NO MINIMUM
ROTH IRAS $750 NO MINIMUM
EDUCATION SAVINGS ACCOUNTS $500 NO MINIMUM
AFTER THE FIRST YEAR
All investments must be in U.S. dollars. Third-party checks cannot be accepted.
You may be charged a fee for any check that does not clear. Maximum Dreyfus
TeleTransfer purchase is $150,000 per day.
Key concepts
NET ASSET VALUE (NAV): the market value of one fund share, computed by dividing
the total net assets of a fund or class by its shares outstanding. The fund's
shares are offered at NAV, but Class A and Class T shares are subject to a
front-end sales charge and Class B and Class C shares are generally subject to
higher annual operating expenses and a CDSC.
Selling shares
YOU MAY SELL (REDEEM) SHARES at any time. Your shares will be sold at the next
NAV calculated after your order is received in proper form by the fund's
transfer agent or other authorized entity. Your order will be processed
promptly, and you will generally receive the proceeds within a week.
TO KEEP YOUR CDSC AS LOW AS POSSIBLE, each time you request to sell shares, we
will first sell shares that are not subject to a CDSC, and then sell those
subject to the lowest charge. The CDSC is based on the lesser of the original
purchase cost or the current market value of the shares being sold, and is not
charged on shares you acquired by reinvesting your dividends. There are certain
instances when you may qualify to have the CDSC waived. Consult your financial
representative or the SAI for details.
BEFORE SELLING SHARES RECENTLY PURCHASED BY CHECK, DREYFUS TELETRANSFER OR
AUTOMATIC ASSET BUILDER, PLEASE NOTE THAT:
o if you send a written request to sell such shares, the fund may delay
sending the proceeds for up to eight business days following the purchase
of those shares
o the fund will not process wire, telephone, online or Dreyfus TeleTransfer
redemption requests for up to eight business days following the purchase of
those shares
Limitations on selling shares by phone or online
Proceeds sent by Minimum Maximum
phone/online phone/online
- --------------------------------------------------------------------------------
CHECK* NO MINIMUM $250,000 PER DAY
WIRE $1,000 $500,000 FOR JOINT ACCOUNTS
EVERY 30 DAYS/ $20,000 PER DAY
DREYFUS TELETRANSFER $500 $500,000 FOR JOINT ACCOUNTS
EVERY 30 DAYS/ $20,000 PER DAY
* Not available online on accounts whose address has been changed within the
last 30 days.
Written sell orders
Some circumstances require written sell orders along with signature guarantees.
These include:
o amounts of $10,000 or more on accounts whose address has been changed
within the last 30 days
o requests to send the proceeds to a different payee or address
o written sell orders of $100,000 or more
A SIGNATURE GUARANTEE helps protect against fraud. You can obtain one from most
banks or securities dealers, but not from a notary public. For joint accounts,
each signature must be guaranteed. Please call us to ensure that your signature
guarantee will be processed correctly.
GENERAL POLICIES
UNLESS YOU DECLINE TELESERVICE PRIVILEGES on your application, the fund's
transfer agent is authorized to act on telephone or online instructions from any
person representing himself or herself to be you and reasonably believed by the
transfer agent to be genuine. You may be responsible for any fraudulent
telephone or online orders as long as the fund's transfer agent takes reasonable
measures to confirm that instructions are genuine.
THE FUND IS DESIGNED FOR LONG-TERM INVESTORS. Frequent purchases, redemptions,
and exchanges may disrupt portfolio management strategies and harm fund
performance by diluting the value of fund shares and increasing brokerage and
administrative costs. As a result, the fund's board has adopted a policy of
discouraging excessive trading, short-term market timing, and other abusive
trading practices ("frequent trading") that could adversely affect the fund or
its operations. Founders, the fund, and the fund's distributor will not enter
into arrangements with any person or group to permit frequent trading.
The fund reserves the right to:
o change or discontinue its exchange privilege, or temporarily suspend
the privilege during unusual market conditions
o change its minimum or maximum investment amounts
o delay sending out redemption proceeds for up to seven days (generally
applies only during unusual market conditions or in cases of very
large redemptions or excessive trading)
o redeem "in kind," or make payments in securities rather than cash, if
the amount redeemed is large enough to affect fund operations (for
example, if it exceeds 1% of the fund's assets)
o reject any purchase or exchange request, including those from any
individual or group who, in our view, is likely to engage in frequent
trading
More than four roundtrips within a rolling 12-month period generally is
considered to be frequent trading. A roundtrip consists of an investment that is
substantially liquidated within 60 days. Based on the facts and circumstances of
the trades, the fund may also view as frequent trading a pattern of investments
that are partially liquidated within 60 days.
We monitor selected transactions to identify frequent trading. When our
surveillance systems identify multiple roundtrips, we evaluate trading activity
in the account for evidence of frequent trading. We consider the investor's
trading history in other accounts under common ownership or control, in other
Dreyfus Founders, Dreyfus, and Mellon Funds Trust funds, and if known, in
non-affiliated mutual funds and accounts under common control. These evaluations
involve judgments that are inherently subjective, and while we seek to apply the
policy and procedures uniformly, it is possible that similar transactions may be
treated differently. In all instances, we seek to make these judgments to the
best of our abilities in a manner that we believe is consistent with shareholder
interests. If we conclude the account is likely to engage in frequent trading,
we may reject the purchase or exchange, which may occur on the following
business day. We may also temporarily or permanently bar such investor's future
purchases into the fund in lieu of, or in addition to, rejecting the trade. At
our discretion, we may apply these restrictions across all accounts under common
ownership, control, or perceived affiliation.
Fund shares often are held through omnibus accounts maintained by financial
intermediaries such as brokers and retirement plan administrators, where the
holdings of multiple shareholders, such as all the clients of a particular
broker, are aggregated. Our ability to monitor the trading activity of investors
whose shares are held in omnibus accounts is limited and dependent upon the
cooperation of the financial intermediary in providing information with respect
to individual shareholder transactions. However, the agreements between the
fund's distributor and financial intermediaries include obligations to comply
with the terms of this prospectus. Further, all intermediaries have been
requested in writing to notify the fund's distributor immediately if, for any
reason, they cannot meet their commitment to make fund shares available in
accordance with the terms of the prospectus and relevant rules and regulations.
Although the policy and these procedures are designed to discourage market
timing and excessive trading, none of these tools alone, nor all of them
together, completely eliminates the potential for frequent trading.
Transactions made through automatic investment plans, Dreyfus Automatic
Withdrawal Plans, Dreyfus Auto-Exchange Privileges and automatic
non-discretionary rebalancing programs approved in writing by us generally are
not considered to be frequent trading.
Small account policy
If your account falls below $500, the fund may ask you to increase your balance.
If it is still below $500 after 60 days, the fund may close your account and
send you the proceeds to the address on record.
DISTRIBUTIONS AND TAXES
THE FUND EARNS DIVIDENDS, interest and other income from its investments, and
distributes this income (less expenses) to shareholders as dividends. The fund
also may realize capital gains from its investments, and distributes these gains
(less any losses) to shareholders as capital gain distributions. The fund
normally pays dividends and capital gain distributions on an annual basis each
December. From time to time, the fund may make distributions in addition to
those described above. Fund dividends and capital gain distributions will be
reinvested in the fund unless you instruct the fund otherwise. There are no fees
or sales charges on reinvestments.
DISTRIBUTIONS PAID BY THE FUND are subject to federal income tax, and may also
be subject to state or local taxes (unless you are investing through a
tax-advantaged retirement account). For federal tax purposes, in general,
certain fund distributions, including distributions of short-term capital gains,
are taxable to you as ordinary income. Other fund distributions, including
dividends from U.S. companies and certain foreign companies and distributions of
long-term capital gains, generally are taxable to you as qualified dividends and
capital gains, respectively.
HIGH PORTFOLIO TURNOVER and more volatile markets can result in significant
taxable distributions to shareholders, regardless of whether their shares have
increased in value. The tax status of any distribution generally is the same
regardless of how long you have been in the fund and whether you reinvest your
distributions or take them in cash.
IF YOU BUY SHARES WHEN A FUND has realized but not yet distributed income or
capital gains, you will be "buying a dividend" by paying the full price for the
shares and then receiving a portion back in the form of a taxable distribution.
Your redemption of shares, including exchanges into other funds, may result in a
capital gain or loss for tax purposes. A capital gain or loss on your investment
in the fund generally is the difference between the cost of your shares and the
amount you receive upon redemption.
The tax status of your distributions will be detailed in your annual tax
statement from the fund. Because everyone's tax situation is unique, please
consult your tax adviser before investing.
SERVICES FOR FUND INVESTORS
THE THIRD PARTY THROUGH WHOM YOU PURCHASED fund shares may impose different
restrictions on these services and privileges offered by the fund, or it may not
make them available at all. Consult your financial representative for more
information on the availability of these services and privileges.
AUTOMATIC SERVICES
BUYING OR SELLING SHARES AUTOMATICALLY is easy with the services described
below. With each service, you may select a schedule and amount, subject to
certain restrictions. You can set up most of these services with your
application, or by calling your financial representative or 1-800-554-4611.
For investing
DREYFUS AUTOMATIC ASSET BUILDER(R) For making automatic investments from
a designated bank account.
DREYFUS PAYROLL SAVINGS PLAN For making automatic investments
through payroll deduction.
DREYFUS GOVERNMENT DIRECT DEPOSIT For making automatic investments from
PRIVILEGE your federal employment, Social
Security or other regular federal
government check.
DREYFUS DIVIDEND SWEEP For automatically reinvesting the
dividends and distributions from the
fund into another Dreyfus Founders
fund or Dreyfus Premier fund (not
available for IRAs).
For exchanging shares
DREYFUS AUTO-EXCHANGE PRIVILEGE For making regular exchanges from the
fund into another Dreyfus Founders
fund or Dreyfus Premier fund.
For selling shares
DREYFUS AUTOMATIC WITHDRAWAL PLAN For making regular withdrawals from
most funds.
There will be no CDSC on Class B or
Class C shares, as long as the amount
of any withdrawal does not exceed, on
an annual basis, 12% of the greater of
the account value at the time of the
first withdrawal under the plan, or at
the time of the subsequent withdrawal.
EXCHANGE PRIVILEGE
YOU CAN EXCHANGE SHARES WORTH $500 OR MORE (no minimum for retirement accounts)
from one class of the fund into the same class of another Dreyfus Founders fund
or Dreyfus Premier fund. You can also exchange Class T shares into Class A
shares of certain Dreyfus Premier fixed-income funds, and Class B shares into
Class B shares of General Money Market Fund, Inc. You can request your exchange
by contacting your financial representative. Be sure to read the current
prospectus for any fund into which you are exchanging before investing. Any new
account established through an exchange generally has the same privileges as
your original account (as long as they are available). There is currently no fee
for exchanges, although you may be charged a sales load when exchanging into any
fund that has a higher one.
DREYFUS TELETRANSFER PRIVILEGE
To move money between your bank account and your mutual fund account with a
phone call or online, use the Dreyfus TeleTransfer privilege. You can set up
Dreyfus TeleTransfer on your account by providing bank account information and
by following the instructions on your application, or by contacting your
financial representative.
REINVESTMENT PRIVILEGE
UPON WRITTEN REQUEST, YOU CAN REINVEST up to the number of Class A or T shares
you redeemed within 45 days of selling them at the current share price without
any sales charge. If you paid a CDSC, it will be credited back to your account.
This privilege may be used only once.
ACCOUNT STATEMENTS
EVERY FUND SHAREHOLDER automatically receives regular account statements. You
will also be sent an annual statement detailing the tax characteristics of any
dividends and distributions you have received.
INSTRUCTIONS FOR REGULAR ACCOUNTS
- ----------------------------------------------------------------------------------------------------------------------------
TO OPEN AN ACCOUNT TO ADD TO AN ACCOUNT TO SELL SHARES
- ----------------------------------------------------------------------------------------------------------------------------
IN WRITING Complete the application. Mail Fill out an investment slip, and Write a letter of instruction
your application and a check to: write your account number on your that includes:
Dreyfus Founders Funds, Inc. check. o your name(s) and
Equity Growth Fund Mail the slip and the check to: signature(s)
P.O. Box 55268 Dreyfus Founders Funds, Inc. o your account number
Boston, MA 02205-8502 Equity Growth Fund o Equity Growth Fund
Attn: Institutional Processing P.O. Box 55268 o the share class
Boston, MA 02205-8502 o the dollar amount
Attn: Institutional Processing you want to sell
- ----------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------
TO OPEN AN ACCOUNT TO ADD TO AN ACCOUNT TO SELL SHARES
- ----------------------------------------------------------------------------------------------------------------------------
o how and where to
send the proceeds
Obtain a signature guarantee
or other documentation, if
required (see "Account
Policies - Selling Shares").
Mail your request to:
Dreyfus Founders Funds, Inc.
P.O. Box 55268
Boston, MA 02205-8502
Attn: Institutional
Processing
- ----------------------------------------------------------------------------------------------------------------------------
BY TELEPHONE WIRE. Call us to request an WIRE. Have your bank send your WIRE. Call us or your
account application and an investment to Mellon Trust of New financial representative to
account number. Have your bank England, N.A., with these request your transaction. Be
send your investment to Mellon instructions: sure the fund has your bank
Trust of New England, N.A., o ABA #011001234 account information on file.
with these instructions: o DDA #046485 Proceeds will be wired to
o ABA #011001234 o EEC code 5650 your bank.
o DDA #046485 o Equity Growth Fund
o EEC code 5650 o the share class DREYFUS TELETRANSFER. Call
o Equity Growth Fund o your account number us or your financial
o the share class o name(s) of investor(s) representative to request
o your account number o dealer number, if your transaction. Be sure
o name(s) of investor(s) applicable the fund has your bank
o dealer number if account information on file.
applicable ELECTRONIC CHECK. Same as wire, Proceeds will be sent to your
but before your 14-digit account bank by electronic check.
Return your application with number insert "275" for Class A,
the account number on the "277" for Class C, "278" for CHECK. Call us or your
application. Class R, or "279" for Class T. financial representative to
request your transaction. A
DREYFUS TELETRANSFER. Request check will be sent to the
Dreyfus TeleTransfer on your address of record.
application. Call us to request
your transaction.
- ----------------------------------------------------------------------------------------------------------------------------
ONLINE DREYFUS TELETRANSFER. Request WIRE. Visit www.dreyfus.com
(www.dreyfus.com) ----- Dreyfus TeleTransfer on your to request your transaction.
application. Visit Be sure the fund has your
- ----------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------
TO OPEN AN ACCOUNT TO ADD TO AN ACCOUNT TO SELL SHARES
- ----------------------------------------------------------------------------------------------------------------------------
www.dreyfus.com to request your bank account information on
transaction. file. Proceeds will be wired
to your bank.
DREYFUS TELETRANSFER. Visit
www.dreyfus.com to request
your transaction. Be sure
the fund has your bank
account information on file.
Proceeds will be sent to your
bank by electronic check.
CHECK. Visit www.dreyfus.com
to request your transaction.
A check will be sent to the
address of record.
- ----------------------------------------------------------------------------------------------------------------------------
AUTOMATICALLY WITH AN INITIAL INVESTMENT. ALL SERVICES. Call us or your DREYFUS AUTOMATIC WITHDRAWAL
Indicate on your application financial representative to PLAN. Call us or your
which automatic service(s) you request a form to add any financial representative to
want. Return your application automatic investing service (see request a form to add the
with your investment. "Services for Fund Investors"). plan. Complete the form,
Complete and return the form specifying the amount and
along with any other required frequency of withdrawals you
materials. would like.
Be sure to maintain an
account balance of $5,000 or
more.
- ----------------------------------------------------------------------------------------------------------------------------
To open an account, make subsequent investments or sell shares, please contact
your financial representative or call toll free in the U.S. 1-800-554-4611. Make
checks payable to: DREYFUS FOUNDERS FUNDS, INC.
Key concepts
WIRE TRANSFER: for transferring money from one financial institution to another.
Wiring is the fastest way to move money, although your bank may charge a fee to
send or receive wire transfers. Wire transfers from the fund are subject to a
$1,000 minimum.
ELECTRONIC CHECK: for transferring money out of a bank account.
Your transaction is entered electronically but may take up to eight business
days to clear. Electronic checks usually are available without a fee at all
Automated Clearing House (ACH) banks.
INSTRUCTIONS FOR IRAS
- ----------------------------------------------------------------------------------------------------------------------------
TO OPEN AN ACCOUNT TO ADD TO AN ACCOUNT TO SELL SHARES
- ----------------------------------------------------------------------------------------------------------------------------
IN WRITING Complete an IRA application, Fill out an investment slip, Write a letter of instruction that
making sure to specify the fund and write your account number includes:
name and to indicate the year the on your check. Indicate the o your name and signature
contribution is for. year the contribution is for. o your account number
o Equity Growth Fund
Mail your application and a check Mail the slip and the check to: o the share class
to: The Dreyfus Trust Company, o the dollar amount you
The Dreyfus Trust Company, Custodian want to sell
Custodian P.O. Box 55552
P.O. Box 55552 Boston, MA 02205-8568 o how and where to send the
Boston, MA 02205-8568 Attn: Institutional Processing proceeds
Attn: Institutional Processing o whether the distribution
is qualified or premature
o whether the 10% TEFRA
should be withheld
Obtain a signature guarantee or
other documentation, if required
(see "Account Policies - Selling
Shares").
Mail your request to:
The Dreyfus Trust Company
P.O. Box 55552
Boston, MA 02205-8568
Attn: Institutional Processing
- ----------------------------------------------------------------------------------------------------------------------------
BY TELEPHONE ----- Wire. Have your bank send -----
your investment to Mellon
Trust of New England, N.A.,
with these instructions:
o ABA #011001234
o DDA #046485
o EEC code 5650
o Equity Growth Fund
o the share class
o your account number
o name(s) of investor(s)
o the contribution year
o dealer number, if
applicable
- ----------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------
TO OPEN AN ACCOUNT TO ADD TO AN ACCOUNT TO SELL SHARES
- ----------------------------------------------------------------------------------------------------------------------------
ELECTRONIC CHECK. Same as
wire, but before your 14-digit
account number insert "275"
for Class A, "277" for Class
C, "278" for Class R, or "279"
for Class T.
AUTOMATICALLY ----- ALL SERVICES. Call us or your SYSTEMATIC WITHDRAWAL PLAN. Call
financial representative to us to request instructions to
request a form to add any establish the plan.
automatic investing service
(see "Services for Fund
Investors"). Complete and
return the form along with any
other required materials. All
contributions will count as
current year contributions.
- ----------------------------------------------------------------------------------------------------------------------------
For information and assistance, contact your financial representative or call
toll free in the U.S. 1-800-554-4611. Make checks payable to: The Dreyfus Trust
Company, Custodian.
PORTFOLIO HOLDINGS
THE FUND WILL DISCLOSE ITS COMPLETE SCHEDULE OF PORTFOLIO HOLDINGS, AS REPORTED
ON A MONTH-END BASIS, AT WWW.DREYFUS.COM, UNDER MUTUAL FUND CENTER - DREYFUS
MUTUAL FUNDS - MUTUAL FUND TOTAL HOLDINGS. THIS INFORMATION WILL BE POSTED WITH
A ONE-MONTH LAG AND WILL REMAIN ACCESSIBLE UNTIL THE FUND FILES A REPORT ON FORM
N-Q OR FORM N-CSR FOR THE PERIOD THAT INCLUDES THE DATE AS OF WHICH THE
INFORMATION WAS CURRENT. IN ADDITION, FIFTEEN DAYS FOLLOWING THE END OF EACH
CALENDAR QUARTER, THE FUND WILL PUBLICLY DISCLOSE AT WWW.DREYFUS.COM ITS
COMPLETE SCHEDULE OF PORTFOLIO HOLDINGS AS OF THE END OF SUCH QUARTER. A
COMPLETE DESCRIPTION OF THE FUND'S POLICIES AND PROCEDURES WITH RESPECT TO THE
DISCLOSURE OF THE FUND'S PORTFOLIO SECURITIES IS AVAILABLE IN THE SAI.
FORM OF PROXY
DREYFUS FOUNDERS GROWTH FUND
The undersigned shareholder of Dreyfus Founders Growth Fund (the "Fund"), a
series of Dreyfus Founders Funds, Inc. (the "Company"), hereby appoints Kenneth
R. Christoffersen and David L. Ray, and each of them, the attorneys and proxies
of the undersigned, with full power of substitution, to vote, as indicated
herein, all of the shares of common stock of the Fund standing in the name of
the undersigned at the close of business on March 26, 2007, at a Special Meeting
of Shareholders to be held at the offices of Founders Asset Management LLC, 210
University Boulevard, Suite 800, Denver, Colorado 80206, at 1:00 p.m., Mountain
time, on Thursday, May 24, 2007, and at any and all adjournments thereof, with
all of the powers the undersigned would possess if then and there personally
present and especially (but without limiting the general authorization and power
hereby given) to vote as indicated on the proposal, as more fully described in
the Prospectus/Proxy Statement for the meeting.
THIS PROXY IS SOLICITED BY THE COMPANY'S BOARD OF DIRECTORS AND WILL BE VOTED
FOR THE PROPOSAL SHOWN ON THE REVERSE SIDE UNLESS OTHERWISE INDICATED.
THREE EASY WAYS TO VOTE YOUR PROXY
1. TELEPHONE: Call 1-888-221-0697 and follow the simple instructions.
2. INTERNET: Go to www.proxyweb.com, and follow the on-line directions.
3. MAIL: Vote, sign and date, and return in the enclosed postage-paid
envelope.
If you are NOT voting by Telephone or Internet, Please Sign, Date and
Return the Proxy Card Promptly Using the Enclosed Envelope.
Dated: _______________________________
Sign, Date and Return the Proxy Card
Promptly Using the Enclosed Envelope
_____________________________________
Signature(s) (Sign in the Box)
Signature(s) should be exactly as name or
names appearing on this proxy. If shares
are held jointly, each holder should
sign. If signing is by attorney,
executor, administrator, trustee or
guardian, please give full title. By
signing this proxy card, receipt of the
accompanying Notice of Special Meeting of
Shareholders and Prospectus/Proxy
Statement is acknowledged.
Please fill in box as shown using black or blue ink or number 2 pencil.
Please do not use fine point pens.
1. To approve a Plan of Reorganization providing for the transfer of all
of the assets of the Fund to Dreyfus Founders Equity Growth Fund (the
"Acquiring Fund"), a series of Dreyfus Founders Funds, Inc., in
exchange for the Acquiring Fund's Class A, Class B, Class C, Class R
and Class T shares having an aggregate net asset value equal to the
value of the Fund's net assets and the assumption by the Acquiring
Fund of the Fund's stated liabilities, and the pro rata distribution
of those Class A, Class B, Class C, Class R and Class T shares to the
Fund's Class A, Class B, Class C, Class F, Class R and Class T
shareholders, respectively, with Class F shareholders receiving Class
A shares of the Acquiring Fund, and the subsequent termination of the
Fund.
FOR AGAINST ABSTAIN
|_| |_| |_|
2. In their discretion, the proxies are authorized to vote upon such
other business as may properly come before the meeting, or any
adjournment(s) thereof.
PLEASE SIGN AND DATE ON THE REVERSE SIDE.
STATEMENT OF ADDITIONAL INFORMATION
April __, 2007
Acquisition of the Assets of
DREYFUS FOUNDERS GROWTH FUND
(A SERIES OF DREYFUS FOUNDERS FUNDS, INC.)
144 Glenn Curtiss Boulevard
Uniondale, New York 11556-0144
1-800-525-2440
By and in Exchange for Class A, Class B, Class C,
Class R and Class T Shares of
DREYFUS FOUNDERS EQUITY GROWTH FUND
(A SERIES OF DREYFUS FOUNDERS FUNDS, INC.)
144 Glenn Curtiss Boulevard
Uniondale, New York 11556-0144
1-800-525-2440
This Statement of Additional Information ("SAI"), which is not a prospectus,
supplements and should be read in conjunction with the Prospectus/Proxy
Statement dated April __, 2007 relating specifically to the proposed transfer of
all of the assets and liabilities of Dreyfus Founders Growth Fund (the "Fund"),
a series of Dreyfus Founders Funds, Inc. (the "Company"), in exchange for Class
A, Class B, Class C, Class R and Class T shares of Dreyfus Founders Equity
Growth Fund (the "Acquiring Fund"), another series of the Company (the
"Exchange"). The Exchange is to occur pursuant to a Plan of Reorganization.
This Statement of Additional Information includes the following documents
attached hereto:
1. The Acquiring Fund's Annual Report for the fiscal year ended
December 31, 2006.
2. The Fund's Annual Report for the fiscal year ended December 31,
2006.
The Prospectus/Proxy Statement dated April __, 2007 may be obtained by
writing to the Fund or the Acquiring Fund at 144 Glenn Curtiss Boulevard,
Uniondale, New York 11556-0144.
DOCUMENTS INCORPORATED BY REFERENCE
The financial statements of the Acquiring Fund are incorporated herein by
reference to its Annual Report for its fiscal year ended December 31, 2006,
attached hereto, filed March 8, 2007. The financial statements of the Fund are
incorporated herein by reference to its Annual Report for its fiscal year ended
December 31, 2006, attached hereto, filed March 8, 2007.
TABLE OF CONTENTS
PRO FORMA FINANCIAL STATEMENTS ..............................................
DREYFUS FOUNDERS FUNDS, INC ................................................. 3
INVESTMENT OBJECTIVES AND RESTRICTIONS....................................... 3
FUNDAMENTAL INVESTMENT RESTRICTIONS........................................ 4
NON-FUNDAMENTAL INVESTMENT RESTRICTIONS.................................... 5
INVESTMENT STRATEGIES AND RISKS.............................................. 6
TEMPORARY DEFENSIVE INVESTMENTS............................................ 6
PORTFOLIO TURNOVER......................................................... 7
DERIVATIVE INSTRUMENTS..................................................... 7
FOREIGN SECURITIES AND ADRS................................................ 18
SECURITIES THAT ARE NOT READILY MARKETABLE................................. 20
RULE 144A SECURITIES....................................................... 21
FIXED-INCOME SECURITIES.................................................... 22
FOREIGN BANK OBLIGATIONS................................................... 24
REPURCHASE AGREEMENTS...................................................... 24
CONVERTIBLE SECURITIES..................................................... 25
GOVERNMENT SECURITIES...................................................... 25
MORTGAGE-RELATED SECURITIES................................................ 26
COMMERCIAL PAPER AND OTHER CASH SECURITIES................................. 29
WHEN-ISSUED SECURITIES..................................................... 29
BORROWING AND LENDING...................................................... 30
SECURITIES OF OTHER INVESTMENT COMPANIES................................... 30
DIRECTORS AND OFFICERS....................................................... 31
DIRECTORS.................................................................. 31
COMMITTEES................................................................. 33
BENEFICIAL OWNERSHIP OF SECURITIES......................................... 34
DIRECTOR COMPENSATION...................................................... 35
OFFICERS................................................................... 36
INVESTMENT ADVISER, DISTRIBUTOR AND OTHER SERVICE PROVIDERS.................. 38
INVESTMENT ADVISER......................................................... 38
PORTFOLIO MANAGERS......................................................... 43
DISTRIBUTOR................................................................ 49
TRANSFER AGENTS AND CUSTODIAN.............................................. 51
PURCHASE OF SHARES........................................................... 52
GENERAL.................................................................... 52
CLASS A SHARES............................................................. 55
CLASS B SHARES............................................................. 56
CLASS C SHARES............................................................. 56
i
CLASS F AND CLASS R SHARES................................................. 57
CLASS T SHARES............................................................. 57
DEALER REALLOWANCE -- CLASS A AND CLASS T SHARES........................... 57
CLASS A OR CLASS T SHARES AT NET ASSET VALUE............................... 57
SALES LOADS -- CLASS A AND CLASS T SHARES.................................. 59
RIGHT OF ACCUMULATION -- CLASS A AND CLASS T SHARES........................ 60
DREYFUS TELETRANSFER PRIVILEGE............................................. 61
REOPENING AN ACCOUNT....................................................... 61
DISTRIBUTION PLANS AND SHAREHOLDER SERVICES PLAN............................. 62
DISTRIBUTION PLANS......................................................... 62
Class B, Class C and Class T Shares...................................... 62
Class F Shares........................................................... 63
Provisions Applicable to All Classes..................................... 64
SHAREHOLDER SERVICES PLAN.................................................. 65
REDEMPTION OF SHARES......................................................... 67
GENERAL.................................................................... 67
CONTINGENT DEFERRED SALES CHARGE -- CLASS B SHARES......................... 68
CONTINGENT DEFERRED SALES CHARGE -- CLASS C SHARES......................... 69
WAIVER OF CDSC............................................................. 69
REDEMPTION THROUGH A SELECTED DEALER....................................... 70
REINVESTMENT PRIVILEGE..................................................... 70
WIRE REDEMPTION PRIVILEGE.................................................. 70
DREYFUS TELETRANSFER PRIVILEGE............................................. 71
SIGNATURES................................................................. 71
REDEMPTION COMMITMENT; REDEMPTIONS IN KIND................................. 71
SUSPENSION OF REDEMPTIONS.................................................. 72
TRANSACTIONS THROUGH THIRD PARTIES......................................... 72
SHAREHOLDER SERVICES......................................................... 72
FUND EXCHANGES FOR CLASSES A, B, C, R AND T................................ 72
DREYFUS AUTO-EXCHANGE PRIVILEGE............................................ 74
DREYFUS AUTOMATIC ASSET BUILDER{reg-trade-mark}............................ 75
DREYFUS GOVERNMENT DIRECT DEPOSIT PRIVILEGE................................ 75
DREYFUS PAYROLL SAVINGS PLAN............................................... 75
DREYFUS DIVIDEND OPTIONS................................................... 75
AUTOMATIC WITHDRAWAL PLAN.................................................. 76
LETTER OF INTENT - CLASS A AND CLASS T SHARES.............................. 77
CORPORATE PENSION/PROFIT-SHARING AND PERSONAL RETIREMENT PLANS............. 78
CLASS F SHAREHOLDER SERVICES............................................... 78
OTHER SERVICES............................................................... 78
FUND ACCOUNTING AND ADMINISTRATIVE SERVICES AGREEMENT...................... 78
SHAREHOLDER SERVICES AGREEMENT............................................. 80
ii
BROKERAGE ALLOCATION......................................................... 80
CAPITAL STOCK................................................................ 88
PRICING OF SHARES........................................................... 106
DIVIDENDS, DISTRIBUTIONS AND TAXES.......................................... 109
YIELD AND PERFORMANCE INFORMATION........................................... 112
ADDITIONAL INFORMATION...................................................... 113
CODE OF ETHICS............................................................ 113
DISCLOSURE OF PORTFOLIO HOLDINGS.......................................... 114
PROXY VOTING.............................................................. 118
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM............................. 119
REGISTRATION STATEMENT.................................................... 120
APPENDIX.................................................................... 121
RATINGS OF LONG-TERM OBLIGATIONS.......................................... 121
iii
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PRO FORMA FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
THE FOLLOWING PRO FORMA STATEMENTS OF INVESTMENTS, ASSETS AND LIABILITIES AND
OPERATIONS OF THE ACQUIRING FUND SHOW THE EFFECTS OF THE EXCHANGE HAD IT
OCCURRED ON DECEMBER 31, 2006:
PRO FORMA STATEMENT OF INVESTMENTS (Unaudited)
Dreyfus Founders Equity Growth Fund
December 31, 2006
SHARES VALUE($)
---------------------------------------------- --------------------------------------------
DREYFUS FOUNDERS DREYFUS FOUNDERS
EQUITY GROWTH DREYFUS FOUNDERS PROFORMA EQUITY GROWTH DREYFUS FOUNDERS PROFORMA
FUND GROWTH FUND COMBINED FUND GROWTH FUND COMBINED
COMMON STOCKS--97.0% (*)
- ------------------------------------------------------------------------------------------------------------------------------------
AEROSPACE & DEFENSE--.6%
Empresa Brasileira de Aeronautica,
ADR 32525 49,375 81,900 1,347,511 2,045,606 3,393,117
AIRLINES--1.8%
AMR 47,175 a 71,325 a a 118,500 1,426,100 2,156,155 3,582,255
Continental Airlines, Cl. B 43,125 a 65,400 a a 108,525 1,778,906 2,697,750 4,476,656
US Airways Group 18,325 a 27,775 a a 46,100 986,801 1,495,684 2,482,485
4,191,807 6,349,589 10,541,396
APPAREL RETAIL--1.1%
Gap 57,676 85,633 143,309 1,124,682 1,669,844 2,794,526
Limited Brands 45,261 67,534 112,795 1,309,853 1,954,434 3,264,287
2,434,535 3,624,278 6,058,813
APPLICATION SOFTWARE--1.6%
Autodesk 52,543 a 77,418 a 129,961 2,125,890 3,132,332 5,258,222
Cognos 36,507 a 54,477 a 90,984 1,550,087 2,313,093 3,863,180
3,675,977 5,445,425 9,121,402
ASSET MANAGEMENT & CUSTODY BANKS--.7%
State Street 22,485 36,375 58,850 1,515,714 2,453,130 3,968,844
BIOTECHNOLOGY--2.7%
Amgen 37,827 a 56,211 a 94,038 2,583,962 3,839,773 6,423,735
Genzyme 17,250 a 27,875 a 45,125 1,062,255 1,716,543 2,778,798
MedImmune 74,012 a 109,984 a 183,996 2,395,768 3,560,182 5,955,950
6,041,985 9,116,498 15,158,483
BROADCASTING & CABLE TV--1.2%
Comcast, Cl. A (Special) 64,575 a 96,973 a 161,548 2,704,401 4,061,229 6,765,630
BUILDING PRODUCTS--.8%
Masco 57,787 86,068 143,855 1,726,098 2,570,851 4,296,949
COAL--.4%
Peabody Energy 22,841 34,045 56,886 923,005 1,375,758 2,298,763
COMMUNICATIONS EQUIPMENT--5.6%
Cisco Systems 259,984 a 390,723 a 650,707 7,105,363 1,678,460 17,783,823
Corning 102,887 a 152,614 a 255,501 1,925,016 2,855,408 4,780,424
Motorola 65,797 98,127 163,924 1,352,786 2,017,491 3,370,277
Nokia, ADR 114,452 170,775 285,227 2,325,665 3,470,148 5,795,813
12,708,830 19,021,507 31,730,337
COMPUTER & ELECTRONICS RETAIL--1.0%
Best Buy 47,072 70,391 117,463 2,315,472 3,462,533 5,778,005
COMPUTER HARDWARE--6.0%
Apple Computer 52,583 a 78,639 a 131,222 4,461,142 6,671,733 11,132,875
Diebold 65,944 98,472 164,416 3,072,990 4,588,795 7,661,785
Hewlett-Packard 121,050 182,850 303,900 4,986,050 7,531,591 12,517,641
Sun Microsystems 214,234 a 319,369 a 533,603 1,161,148 1,730,980 2,892,128
13,681,330 20,523,099 34,204,429
COMPUTER STORAGE & PERIPHERALS--2.1%
EMC/Massachusetts 121,360 a 179,976 a 301,336 1,601,952 2,375,683 3,977,635
SanDisk 25,408 a 37,877 a 63,285 1,093,306 1,629,847 2,723,153
Seagate Technology 81,709 122,334 a 204,043 2,165,289 3,241,851 5,407,140
4,860,547 7,247,381 12,107,928
CONSUMER ELECTRONICS--.4%
Harman International Industries 8,741 13,044 21,785 873,313 1,303,226 2,176,539
DATA PROCESSING & OUTSOURCED SERVICES--1.1%
Automatic Data Processing 38,050 57,000 95,050 1,873,963 2,807,250 4,681,213
Western Union 26,369 39,300 65,669 591,193 26,369 1,472,299
2,465,156 3,688,356 6,153,512
DEPARTMENT STORES--1.4%
Federated Department Stores 82,925 125,900 208,825 3,161,930 4,800,567 7,962,497
DIVERSIFIED CHEMICALS--.8%
E.I. du Pont de Nemours & Co. 37,975 56,900 94,875 1,849,762 2,771,599 4,621,361
DIVERSIFIED FINANCIALS--2.2%
Citigroup 28,284 41,945 70,229 1,575,419 2,336,284 3,911,756
JPMorgan Chase & Co. 70,775 106,875 177,650 3,418,433 5,162,063 8,580,496
4,993,852 7,498,400 12,492,252
ENVIRONMENTAL & FACILITIES SERVICES--.8%
Waste Management 51,661 77,013 128,674 1,899,575 2,831,768 4,731,343
EXCHANGE TRADED FUNDS--3.8%
iShares Russell 1000 Growth Index
Fund 63,147 94,150 157,297 3,474,979 63,147 8,656,043
NASDAQ-100 Trust Series 1 81,525 65,075 146,600 3,518,619 2,808,637 6,327,256
Standard & Poor's Depository
Receipts (Tr. Ser. 1) 24,691 22,625 47,316 3,498,468 3,205,736 6,704,204
10,492,066 11,195,448 21,687,514
FOOD DISTRIBUTORS--.6%
SYSCO 37,797 56,402 94,199 1,389,418 2,073,338 3,462,756
FOOD RETAIL--.7%
Safeway 48,435 71,829 120,264 1,673,914 2,482,410 4,156,324
HEALTH CARE EQUIPMENT--1.6%
Zimmer Holdings 45,821 a 68,665 a 114,486 3,591,450 5,381,963 8,973,413
HOME ENTERTAINMENT SOFTWARE--1.7%
Electronic Arts 74,812 a 111,425 a 186,237 3,767,532 5,611,363 9,378,895
HOME FURNISHING RETAIL--.3%
Williams-Sonoma 22,271 33,196 55,467 700,200 1,043,682 1,743,882
HOTELS, RESORTS & CRUISE LINES--.4%
Marriott International, Cl. A 19,942 29,970 49,912 951,632 1,430,168 2,381,800
HOUSEHOLD PRODUCTS--3.9%
Colgate-Palmolive 67,675 102,825 170,500 4,415,117 6,708,303 11,123,420
Procter & Gamble 68,121 102,044 170,165 4,378,137 6,558,368 10,936,505
8,793,254 13,266,671 22,059,925
HYPERMARKETS & SUPER CENTERS--2.1%
Wal-Mart Stores 103,296 153,188 256,484 4,770,209 7,074,222 11,844,431
INDUSTRIAL CONGLOMERATES--3.2%
General Electric 197,702 296,357 494,059 7,356,491 11,027,444 18,383,935
INTEGRATED OIL & GAS--3.4%
Chevron 25,156 37,802 62,958 1,849,721 2,779,581 4,629,302
Exxon Mobil 77,275 115,525 192,800 5,921,583 8,852,681 14,774,264
7,771,304 11,632,262 19,403,566
INTERNET SOFTWARE & SERVICES--2.9%
Google, Cl. A 10,647 a 15,959 a 26,606 4,902,731 7,348,800 12,251,531
Yahoo! 63,198 a 94,042 a 157,240 1,614,077 2,401,833 4,015,910
6,516,808 9,750,633 16,267,441
INVESTMENT BANKING & BROKERAGE--4.5%
Charles Schwab 225,675 344,750 570,425 4,364,555 6,667,465 11,032,020
Goldman Sachs Group 16,073 24,004 40,077 3,204,153 4,785,197 7,989,350
Morgan Stanley 31,356 46,970 78,326 2,553,319 3,824,767 6,378,086
10,122,027 15,277,429 25,399,456
IT CONSULTING & OTHER SERVICES--.9%
Accenture, Cl. A 55,856 83,940 139,796 2,062,762 3,099,904 5,162,666
LIFE SCIENCES TOOLS & SERVICES--1.0%
Thermo Fisher Scientific 51,565 a 76,470 a 128,035 2,335,379 3,463,326 5,798,705
MOVIES & ENTERTAINMENT--1.1%
Walt Disney 71,232 104,980 176,212 2,441,121 3,597,665 6,038,786
MULTI-LINE INSURANCE--.8%
American International Group 24,909 37,339 62,248 1,784,979 2,675,713 4,460,692
OIL & GAS EQUIPMENT & SERVICES--1.2%
Schlumberger 43,692 65,416 109,108 2,759,587 4,131,675 6,891,262
PACKAGED FOODS & MEATS--1.8%
Cadbury Schweppes, ADR 27,522 40,731 68,253 1,181,519 1,748,582 2,930,101
Dean Foods 40,250 a 60,000 a 100,250 1,701,770 2,536,800 4,238,570
Unilever (NY Shares) 44,164 65,837 110,001 1,203,469 1,794,058 2,997,527
4,086,758 6,079,440 10,166,198
PERSONAL PRODUCTS--1.6%
Avon Products 113,948 168,320 282,268 3,764,842 5,561,293 9,326,135
PHARMACEUTICAL--8.3%
Allergan 29,241 43,627 72,868 3,501,317 5,223,897 8,725,214
Bristol-Myers Squibb 44,003 65,598 109,601 1,158,159 1,726,539 2,884,698
Covance 19,476 a 28,890 a 48,366 1,147,331 1,701,910 2,849,241
Eli Lilly & Co. 21,398 31,872 53,270 1,114,836 1,660,531 2,775,367
Johnson & Johnson 67,686 101,462 169,148 4,468,630 6,698,521 11,167,151
Pfizer 66,548 100,316 166,864 1,723,593 2,598,184 4,321,777
Schering-Plough 134,163 201,112 335,275 3,171,613 4,754,288 7,925,901
Wyeth 49,446 74,121 123,567 2,517,790 3,774,241 6,292,031
18,803,269 28,138,111 46,941,380
PROPERTY & CASUALTY INSURANCE--1.5%
Allstate 46,675 82,500 129,175 3,039,009 5,371,575 8,410,584
Semiconductor Equipment--1.8%
ASML Holding (NY Shares) 120,954 a 180,331 a 301,285 2,979,097 4,441,553 7,420,650
KLA-Tencor 24,324 36,262 60,586 1,210,119 1,804,035 3,014,154
4,189,216 6,245,588 10,434,804
SEMICONDUCTORS--2.4%
Broadcom, Cl. A 35,190 a 52,508 a 87,698 1,136,989 1,696,533 2,833,522
Linear Technology 50,020 74,805 124,825 1,516,606 2,268,088 3,784,694
Marvell Technology Group 48,151 a 71,252 a 119,403 924,018 1,367,326 2,291,344
Texas Instruments 68,021 100,896 168,917 1,959,005 2,905,805 4,864,810
5,536,618 8,237,752 13,774,370
SOFT DRINKS--1.6%
PepsiCo 51,475 95,100 146,575 3,219,761 5,948,505 9,168,266
SPECIALIZED FINANCE--1.0%
Chicago Mercantile Exchange
Holdings, Cl. A 2,832 4,200 7,032 1,443,612 2,140,950 3,584,562
Nasdaq Stock Market 31,066 a 45,975 a 77,041 956,522 1,415,570 2,372,092
2,400,134 3,556,520 5,956,654
SPECIALTY STOREs--1.5%
AutoZone 8,104 a 12,071 a 20,175 936,498 1,394,925 2,331,423
Tiffany & Co. 62,372 92,956 155,328 2,447,477 3,647,593 6,095,070
3,383,975 5,042,518 8,426,493
SYSTEMS SOFTWARE--7.5%
Adobe Systems 117,391 a 172,927 a 290,318 4,827,118 7,110,758 11,937,876
Microsoft 327,520 486,703 814,223 9,779,747 14,532,952 24,312,699
Oracle 141,898 a 213,254 a 355,152 2,432,132 3,655,174 6,087,306
42,337,881
TOBACCO--1.6%
Altria Group 41,912 62,470 104,382 3,596,888 5,361,175 8,958,063
Total Common Stocks
(cost $193,944,324 and $287,720,793
respectively) 221,710,400 329,247,477 550,957,877
OTHER INVESTMENT--3.0%
- ------------------------------------------------------------------------------------------------------------------------------------
REGISTERED INVESTMENT COMPANY;
Dreyfus Institutional Preferred
Plus Money Market Fund
(cost $7,362,000 and $ 9,637,000
respectively) 7,362,000 b 9,637,000 b 16,999,000 7,362,000 9,637,000 16,999,000
TOTAL INVESTMENTS--100.0%
(cost $201,306,324 and $297,357,793
respectively) 229,072,400 338,884,477 567,956,877
ADR - American Depository Receipts
* Management does not anticipate having to sell any securities as a result of the Exchange.
a Non-income producing security.
b Investment in affiliated money market mutual fund.
PRO FORMA STATEMENT OF ASSETS AND LIABILITIES
- ------------------------------------------------------------------------------------------------------------------------------------
31-Dec-06
DREYFUS FOUNDERS
EQUITY GROWTH
DREYFUS FUND
DREYFUS FOUNDERS PRO FORMA
FOUNDERS EQUITY COMBINED
GROWTH FUND GROWTH FUND ADJUSTMENTS** (NOTE 1)
----------- ----------- ------------- ----------------
ASSETS: Investments in securities, at value - See
Statement of Investments *
Unaffiliated issuers $ 329,247,477 $ 221,710,400 $ 550,957,877
Affiliated issuers 9,637,000 7,362,000 16,999,000
Cash 260,836 210,660 471,496
Receivable for investment securities sold 3,904,211 2,594,750 6,498,961
Dividends and interest receivable 439,796 295,073 734,869
Receivable for shares of Common Stock
subscribed 70,399 193,841 264,240
Prepaid expenses 44,068 34,526 78,594
Other expenses 7,418 - 7,418
--------------- ---------------- ------------- ----------------
TOTAL ASSETS 343,611,205 232,401,250 576,012,455
--------------- ---------------- ------------- ----------------
LIABILITIES: Due to the Dreyfus Corporation and
affiliates $ 423,076 $ 234,349 657,425
Payable for investment securities purchased 3,182,902 2,178,936 5,361,838
Payable for shares of Common Stock redeemed 214,855 22,723 237,578
Directors' deferred compensation 7,418 - 7,418
Accrued expenses 270,334 150,543 420,877
--------------- ---------------- ------------- ----------------
TOTAL LIABILITIES 4,098,585 2,586,551 6,685,136
--------------- ---------------- ------------- ----------------
NET ASSETS $ 339,512,620 $ 229,814,699 $ 569,327,319
=============== ================ ============= ================
REPRESENTED BY: Paid-in capital $ 969,209,847 $ 270,638,655 $ 1,239,848,502
Accumulated undistributed investment income
(loss) - net (114,287) 325,865 211,578
Accumulated net realized gain (loss) on
investments (671,110,759) (68,916,176) (740,026,935)
Accumulated net unrealized appreciation
(depreciation) on investments 41,527,819 27,766,355 69,294,174
--------------- ---------------- ------------- ----------------
NET ASSETS $ 339,512,620 $ 229,814,699 $ 569,327,319
=============== ================ ============= ================
CLASS A SHARES (750 million, $.01 par value shares authorized)
Net Assets $ 12,267,718 $ 4,399,026 $ 16,666,744
Shares outstanding 994,507 769,294 1,150,985 2,914,786
Net asset value, and redemption price per share $ 12.34 $ 5.72 $ 5.72
=============== ================ ============= ================
Maximum offering price per share (net asset value
plus maximum sales charge) $ 13.09 $ 6.07 $ 6.07
=============== ================ ============= ================
CLASS B SHARES (750 million, $.01 par value shares authorized)
Net Assets $ 2,442,667 $ 1,045,553 $ 3,488,220
Shares outstanding 208,650 189,910 234,779 633,339
Net asset value, offering price and redemption price per share $ 11.71 $ 5.51 $ 5.51
=============== ================ ============= ================
CLASS C SHARES (750 million, $.01 par value shares authorized)
Net Assets $ 1,399,493 $ 3,758,718 $ 5,158,211
Shares outstanding 119,387 694,429 139,248 953,064
Net asset value, offering price and redemption price per share $ 11.72 $ 5.41 $ 5.41
=============== ================ ============= ================
CLASS F SHARES (750 million, $.01 par value shares authorized)
Net Assets $ 320,732,912 $ 220,502,271 $ 541,235,183
Shares outstanding 25,838,095 37,602,611 28,880,465 92,321,171
Net asset value, offering price and redemption price per share $ 12.41 $ 5.86 $ 5.86
=============== ================ ============= ================
CLASS R SHARES (750 million, $.01 par value shares authorized)
Net Assets $ 2,594,467 $ 96,939 $ 2,691,406
Shares outstanding 205,798 16,649 240,098 462,545
Net asset value, offering price and redemption price per share $ 12.61 $ 5.82 $ 5.82
=============== ================ ============= ================
CLASS T SHARES (750 million, $.01 par value shares authorized)
Net Assets $ 75,363 $ 12,192 $ 87,555
Shares outstanding 6,397 2,239 7,430 16,066
Net asset value, offering price and redemption price per share $ 11.78 $ 5.45 $ 5.45
=============== ================ ============= ================
Maximum offering price per share (net asset value
plus maximum sales charge) $ 12.34 $ 5.71 $ 5.71
=============== ================ ============= ================
* Investments in securities, at cost
Unaffiliated issuers $ 287,720,793 $ 193,944,324 $ 481,665,117
=============== ================ ============= ================
Affiliated issuers $ 9,637,000 $ 7,362,000 $ 16,999,000
=============== ================ ============= ================
**Adjustment to reflect the exchange of shares outstanding from Dreyfus Founders Growth Fund to Dreyfus Founders Equity Growth Fund.
SEE NOTES TO UNAUDITED PRO FORMA FINANCIAL STATEMENTS.
PRO FORMA STATEMENT OF OPERATIONS
- ------------------------------------------------------------------------------------------------------------------------------------
For the Twelve Months Ended December 31, 2006
DREYFUS FOUNDERS
EQUITY GROWTH
FUND
DREYFUS PRO FORMA
DREYFUS FOUNDERS EQUITY COMBINED
FOUNDERS GROWTH FUND GROWTH FUND ADJUSTMENTS (a) (NOTE 1)
-------------------- --------------- --------------- ----------------
INVESTMENT INCOME:
INCOME: Cash Dividends (net of $20,771 and $13,706
foreign taxes withheld at source)
Unaffiliated issuers $ 3,689,880 $ 2,416,650 $ 6,106,530
Affiliated issuers 226,113 151,266 377,379
Interest 311,752 279,207 590,959
---------------- ---------------- ---------------- ----------------
TOTAL INCOME 4,227,745 2,847,123 7,074,868
---------------- ---------------- ---------------- ----------------
EXPENSES: Investment advisory fee 2,549,761 1,422,728 (466,189)(b) 3,506,300
Distribution fees 838,188 174,239 1,012,427
Shareholder servicing costs 680,486 371,396 1,051,882
Accounting fees 199,405 131,407 330,812
Professional fees 138,833 97,191 (50,000)(b) 186,024
Prospectus and shareholders' reports 115,815 69,284 (125,000)(b) 60,099
Trustees' fees and expenses 88,606 59,476 - (b) 148,082
Registration fees 70,727 67,252 (50,000)(b) 87,979
Loan Commitment fees 13,444 8,783 22,227
Custodian fees 7,108 6,817 13,925
Interest expense 388 - 388
Miscellaneous 69,585 40,888 (10,000)(b) 100,473
---------------- ---------------- ---------------- ----------------
TOTAL EXPENSES 4,772,346 2,449,461 (701,189) 6,520,618
---------------- ---------------- ----------------
Less- reduction in custody fees due to
waiver - (287) (287)
Less- reduction in custody fees due to
earnings credits (12,337) (8,387) (20,724)
Less- reimbursed/waived expenses - (80) (80)
---------------- ---------------- ---------------- ----------------
NET EXPENSES 4,760,009 2,440,707 (701,189) 6,499,527
---------------- ---------------- ---------------- ----------------
INVESTMENT INCOME - NET (532,264) 406,416 701,189 575,341
---------------- ---------------- ---------------- ----------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net realized gain (loss) on investments 23,110,311 13,557,877 36,668,188
Net unrealized appreciation (depreciation)
on investments 18,372,201 13,579,976 31,952,177
---------------- ---------------- ---------------- ----------------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS 41,482,512 27,137,853 68,620,365
---------------- ---------------- ---------------- ----------------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING
FROM OPERATIONS ($): $ 40,950,248 $ 27,544,269 $ 701,189 $ 69,195,706
================ ================ ================ ================
(a) Merger related expenses are excluded.
(b) Reflects the adjustment of expenses to be commensurate with those of the combined fund.
SEE NOTES TO UNAUDITED PRO FORMA FINANCIAL STATEMENTS.
NOTES TO PRO FORMA FINANCIAL STATEMENTS (Unaudited)
NOTE 1--Basis of Combination:
At a special meeting of the Board of Directors of the Company, the Board
approved a Plan of Reorganization pursuant to which, subject to approval by the
shareholders of the Fund, the Fund will transfer all of its assets, subject to
its liabilities, to the Acquiring Fund. Fund shares will be exchanged for a
number of shares of the Acquiring Fund equal in value to the assets less
liabilities of the Fund (the "Exchange"). The Acquiring Fund shares then will be
distributed to the Fund shareholders on a pro rata basis in liquidation of the
Fund.
The Exchange will be accounted for as a tax-free merger of investment
companies. The unaudited pro forma statement of investments and statement of
assets and liabilities reflect the financial position of the Acquiring Fund and
the Fund at December 31, 2006. The unaudited pro forma statement of operations
reflects the results of operations of the Acquiring Fund and the Fund for the
twelve months ended December 31, 2006. These statements have been derived from
the Fund's and the Acquiring Fund's respective books and records utilized in
calculating daily net asset value at the dates indicated above under U.S.
generally accepted accounting principles. Income, expenses (other than expenses
attributable to a specific class), and realized and unrealized gains or losses
on investments are allocated to each class of shares based on its relative net
assets. The historical cost of investment securities will be carried forward to
the surviving entity and results of operations of the Acquiring Fund for pre-
combination periods will not be restated. The fiscal year ends are December 31
for the Acquiring Fund and December 31 for the Fund.
The pro forma statements of investments, assets and liabilities and
operations should be read in conjunction with the historical financial
statements of the Fund and the Acquiring Fund included or incorporated by
reference in this Statement of Additional Information. The pro forma combined
financial statements are presented for information only and may not necessarily
be representative of what the actual combined financial statements would have
been had the Exchange occurred at December 31, 2006. The pro forma financial
statements were prepared in accordance with U.S. generally accepted accounting
principles, which may require the use of management estimates and assumptions.
1
Actual results could differ from those estimates. Following the proposed
Exchange, the Acquiring Fund will be the accounting survivor.
All costs with respect to the Exchange will be split proportionately between the
Acquiring Fund and the Fund, based on the net assets of each fund.
The Acquiring Fund may enter into contracts and agreements that contain a
variety of representations and warranties, and which provide general
indemnifications. The maximum exposure to the Acquiring Fund under these
arrangements is unknown, as this would involve future claims that may be made
against the Acquiring Fund that have not yet occurred. However, based on
experience, the Acquiring Fund expects the risks of loss to be remote.
NOTE 2--Portfolio Valuation:
Investments in securities (including financial futures) are valued at the
last sales price on the securities exchange on which such securities are
primarily traded or at the last sales price on the national securities market.
Securities not listed on an exchange or the national securities market, or
securities for which there were no transactions, are 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. Securities for which there are no such
valuations are valued at fair value as determined in good faith by the Board or
pursuant to procedures approved by the Board.
NOTE 3--Capital Shares:
The pro forma net asset value per share of the Fund assumes issuance of
58,216,893 Class A, 443,315 Class B, 258,686 Class C, 445,785 Class R and 13,828
Class T shares. The pro forma number of shares that would be issued was
calculated by dividing the net assets of each class of the Fund at December 31,
2006 by the net asset value per share of the Acquiring Fund on December 31,
2006. On this date, the Acquiring Fund's net asset value was $5.72 for Class A,
$5.51 for Class B, $5.41 for Class C, $5.82 for Class R and $5.45 for Class T
shares.
NOTE 4--Pro Forma Operating Expenses:
The accompanying pro forma statement of operations reflects changes in fund
expenses as if the Exchange had taken place on January 1, 2006.
NOTE 7--Federal Income Taxes:
Each fund has elected to be taxed as a "regulated investment company" under
the Internal Revenue Code. After the Exchange, the Acquiring Fund intends to
continue to qualify as a regulated investment company, if such qualification is
in the best interests of its shareholders, by complying with the provisions
available to certain investment companies, as defined in applicable sections of
2
the Internal Revenue Code, and to make distributions of taxable income
sufficient to relieve it from all, or substantially all, federal income taxes.
The identified cost of investments for the funds is substantially the same
for both financial accounting and federal income tax purposes. The tax cost of
investments will remain unchanged for the combined entity.
- --------------------------------------------------------------------------------
DREYFUS FOUNDERS FUNDS, INC.
- --------------------------------------------------------------------------------
The Company is registered with the Securities and Exchange Commission
("SEC") as an open-end management investment company, known as a mutual fund.
The Company was incorporated on June 19, 1987 under the laws of the State of
Maryland.
All of the Company's series portfolios (the "Funds") are diversified
portfolios. This means that, with respect to at least 75% of a Fund's total
assets, the Fund will not invest more than 5% of its total assets in the
securities of any single issuer nor hold more than 10% of the outstanding voting
securities of any single issuer (other than, in each case, securities of other
investment companies, and securities issued or guaranteed by the U.S.
government, its agencies or instrumentalities). A Fund may not change its status
from a diversified portfolio to a non-diversified portfolio without approval by
the holders of a majority, as defined in the Investment Company Act of 1940 (the
"1940 Act"), of such Fund's outstanding voting shares.
On February 22, 2002, Dreyfus Founders Focus Fund was merged into Dreyfus
Founders Growth Fund. On December 22, 2004, Dreyfus Founders Growth and Income
Fund changed its name to Dreyfus Founders Equity Growth Fund.
Founders Asset Management LLC ("Founders") serves as each Fund's investment
adviser.
Dreyfus Service Corporation (the "Distributor") is the distributor of each
Fund's shares.
- --------------------------------------------------------------------------------
INVESTMENT OBJECTIVES AND RESTRICTIONS
- --------------------------------------------------------------------------------
The investment objective of each Fund is fundamental and may not be
changed, as to a Fund, without approval by the holders of a majority, as defined
in the 1940 Act, of such Fund's outstanding voting shares. The investment
objective of each Fund is set forth below:
3
Fund Investment Objective
- ---------------------------------------------------------------
Balanced Current income and capital appreciation
Discovery Capital appreciation
Equity Growth Long-term growth of capital and income
Growth Long-term growth of capital
International Equity Long-term growth of capital
Mid-Cap Growth Capital appreciation
Passport Capital appreciation
Worldwide Growth Long-term growth of capital
In addition, each Fund has adopted investment restrictions numbered 1
through 7 below as fundamental policies. These restrictions cannot be changed,
as to a Fund, without approval by the holders of a majority, as defined in the
1940 Act, of such Fund's outstanding voting shares. Investment restrictions
numbered 8 through 11 below are non-fundamental policies and may be changed, as
to a Fund, by vote of a majority of the members of the Company's Board of
Directors (the "Board") at any time. If a percentage restriction is adhered to
at the time of investment, a later increase or decrease in percentage beyond the
specified limits that results from a change in values or net assets will not be
considered a violation; provided, however, that if the level of a Fund's
borrowings increases above the percentage restriction stated in investment
restriction 4, below, the Fund is required to reduce the level of its borrowings
to a level that is at or below the percentage restriction as provided in the
1940 Act.
FUNDAMENTAL INVESTMENT RESTRICTIONS
No Fund may:
1. Invest 25% or more of the value of its total assets in the
securities of issuers having their principal business activities in the same
industry, provided that there shall be no limitation on the purchase of
obligations issued or guaranteed by the U.S. Government, its agencies or
instrumentalities.
2. Invest in physical commodities, except that a Fund may purchase and
sell foreign currency, options, forward contracts, futures contracts (including
those relating to indices), options on futures contracts or indices, and other
financial instruments, and may invest in securities of issuers which invest in
physical commodities or such instruments.
3. Invest in real estate, real estate mortgage loans or other illiquid
interests in real estate, including limited partnership interests therein,
except that a Fund may invest in securities of issuers which invest in real
estate, real estate mortgage loans, or other illiquid interests in real estate.
4
A Fund may also invest in readily marketable interests in real estate investment
trusts.
4. Borrow money, except to the extent permitted under the 1940 Act,
which currently limits borrowing to no more than 33 1/3% of the value of the
Fund's total assets. For purposes of this investment restriction, investments
in options, forward contracts, futures contracts (including those relating to
indices), options on futures contracts or indices, and other financial
instruments or transactions for which assets are required to be segregated
including, without limitation, reverse repurchase agreements, shall not
constitute borrowing.
5. Lend any security or make any loan if, as a result, more than 33
1/3% of its total assets would be lent to other parties, but this limitation
does not apply to the purchase of debt securities or to repurchase agreements.
6. Act as an underwriter of securities of other issuers, except to the
extent a Fund may be deemed an underwriter under the Securities Act of 1933, as
amended, in connection with disposing of portfolio securities.
7. Issue any senior security, except as permitted under the 1940 Act
and except to the extent that the activities permitted by the Fund's other
investment restrictions may be deemed to give rise to a senior security.
NON-FUNDAMENTAL INVESTMENT RESTRICTIONS
No Fund may:
8. Purchase securities on margin, except to obtain such short-term
credits as may be necessary for the clearance of transactions, and except that a
Fund may make margin deposits in connection with transactions in forward
contracts, futures contracts (including those relating to indices), options on
futures contracts or indices, and other financial instruments, and to the extent
necessary to effect transactions in foreign jurisdictions.
9. Pledge, mortgage or hypothecate its assets, except to the extent
necessary to secure permitted borrowings and to the extent related to the
purchase of securities on a when-issued or forward commitment basis and the
deposit of assets in escrow in connection with writing covered put and call
options and collateral and initial or variation margin arrangements with respect
to options, forward contracts, futures contracts (including those relating to
indices) and options on futures contracts or indices.
10. Enter into repurchase agreements providing for settlement in more
than seven days or purchase securities which are not readily marketable if, in
the aggregate, more than 15% of the value of its net assets would be so
invested.
5
11. Sell securities short, unless it owns or has the right to obtain
securities equivalent in kind and amount to the securities sold short; provided,
however, that this restriction shall not prevent a Fund from entering into short
positions in foreign currency, futures contracts, options, forward contracts,
and other financial instruments.
In applying the limitations on investments in any one industry set forth in
restriction 1, above, the Funds use industry classifications based, where
applicable, on information published by Standard & Poor's, FactSet, and
Bloomberg L.P., and/or the prospectus of the issuing company. Selection of an
appropriate industry classification resource will be made by Founders in the
exercise of its reasonable discretion.
Except for the Funds' fundamental investment objectives and the fundamental
restrictions numbered 1 through 7 above, the strategies and policies used by the
Funds in pursuing their objectives may be changed by the Board without
shareholder approval. However, the policies of the Equity Growth, International
Equity and Mid-Cap Growth Funds to normally invest at least 80% of their net
assets in stocks that are included in a widely recognized index of stock market
performance, foreign equity securities, and equity securities of companies
within the market capitalization range of companies comprising the Russell
Midcap Growth Index, respectively, may not be changed unless at least 60 days'
prior written notice of the change is given to the respective Fund's
shareholders.
The Company and Founders have received an exemptive order from the SEC,
which, among other things, permits the Funds to use cash collateral received in
connection with lending the Funds' securities and other un-invested cash to
purchase shares of one or more registered money market funds advised by The
Dreyfus Corporation ("Dreyfus"), in excess of limitations imposed by the 1940
Act.
- --------------------------------------------------------------------------------
INVESTMENT STRATEGIES AND RISKS
- --------------------------------------------------------------------------------
The Prospectuses discuss the principal investment strategies and risks of
the Funds. This section of the SAI explains certain of these strategies and
their associated risks in more detail. This section also explains other
strategies used in managing the Funds that may not be considered "principal
investment strategies" and discusses the risks associated with these strategies.
TEMPORARY DEFENSIVE INVESTMENTS
In times of unstable or adverse market or economic conditions, up to 100%
of the assets of the Funds can be invested in temporary defensive instruments in
an effort to enhance liquidity or preserve capital. Temporary defensive
investments generally would include cash, cash equivalents such as commercial
paper, money market instruments, short-term debt securities, U.S. government
securities, or repurchase agreements. The Funds could also hold these types of
6
securities pending the investment of proceeds from the sale of Fund shares or
portfolio securities, or to meet anticipated redemptions of Fund shares. To the
extent a Fund invests defensively in these securities, it might not achieve its
investment objective.
PORTFOLIO TURNOVER
During the fiscal years ended 2006 and 2005, respectively, the portfolio
turnover rates for each of the Funds were as follows: Balanced Fund - 197% and
181%; Discovery Fund - 202% and 160%; Equity Growth Fund - 110% and 126%; Growth
Fund - 103% and 120%; International Equity Fund - 79% and 54%; Mid-Cap Growth
Fund - 104% and 211%; Passport Fund - 73% and 729%; and Worldwide Growth Fund -
114% and 120%. The increased portfolio turnover rate of the Discovery Fund was
primarily due to a repositioning of the Fund's portfolio by the new management
team, which began managing the Fund in August 2006. The Mid-Cap Growth Fund had
a higher portfolio turnover rate in 2005 due to two factors. First, the number
of portfolio holdings was decreased in that year by approximately 50%, as the
Fund's portfolio concentration was increased. Second, the decline in assets for
the Fund during the year also decreased the level of assets used in calculating
turnover. The decreased portfolio turnover rate of the Passport Fund was
primarily due to the management style of the Fund's current portfolio managers,
who began managing the Fund in November 2005, which involves less short-term
trading than was engaged in by the Fund's prior portfolio manager.
A 100% portfolio turnover rate would occur if all of the securities in the
portfolio were replaced during the period. Portfolio turnover rates for certain
of the Funds are higher than those of other mutual funds. Although each Fund
purchases and holds securities with the goal of meeting its investment
objectives, portfolio changes are made whenever Founders believes they are
advisable, usually without reference to the length of time that a security has
been held. The Funds may, therefore, engage in a significant number of short-
term transactions. Portfolio turnover rates may also increase as a result of the
need for a Fund to effect significant amounts of purchases or redemptions of
portfolio securities due to economic, market, or other factors that are not
within Founders' control.
Higher portfolio turnover rates increase the brokerage costs a Fund pays
and may adversely affect its performance. If a Fund realizes capital gains when
it sells portfolio investments, it generally must pay those gains out to
shareholders, increasing their taxable distributions. This may adversely affect
the after-tax performance of the Funds for shareholders with taxable accounts.
DERIVATIVE INSTRUMENTS
All of the Funds may enter into futures contracts (including those related
to indexes) and forward contracts, may purchase and/or write (sell) options on
securities, securities indexes, futures contracts and foreign currencies, and
may purchase equity-linked notes ("ELNs"). Balanced Fund may also invest in
7
mortgage-related securities. See "Investment Strategies and Risks - Mortgage-
Related Securities" below. Each of these instruments is sometimes referred to as
a "derivative," since its value is derived from an underlying security, index or
other financial instrument.
OPTIONS ON SECURITIES INDEXES AND SECURITIES. An option gives its purchaser
the right to buy or sell an instrument at a specified price within a limited
period of time. For the right to buy or sell the underlying instrument (e.g.,
individual securities or securities indexes), the buyer pays a premium to the
seller (the "writer" of the option). Options generally have standardized terms,
including the exercise price and expiration time. The current market value of a
traded option is the last sales price or, in the absence of a sale, the last
offering price. The market value of an option will usually reflect, among other
factors, the market price of the underlying security or index. When the market
value of an option appreciates, the purchaser may realize a gain by exercising
the option, or by selling the option on an exchange (provided that a liquid
secondary market is available). If the underlying security or index does not
reach a price level that would make exercise profitable, the option generally
will expire without being exercised and the writer will realize a gain in the
amount of the premium. If a call option on a security is exercised, the proceeds
of the sale of the underlying security by the writer are increased by the amount
of the premium and the writer realizes a gain or loss from the sale of the
security.
So long as a secondary market remains available on an exchange, the writer
of an option traded on that exchange ordinarily may terminate his obligation
prior to the assignment of an exercise notice by entering into a closing
purchase transaction. The cost of a closing purchase transaction, plus
transaction costs, may be greater than the premium received upon writing the
original option, in which event the writer will incur a loss on the transaction.
However, because an increase in the market price of a call option on a security
generally reflects an increase in the market price of the underlying security,
any loss resulting from a closing purchase transaction is likely to be offset in
whole or in part by appreciation of the underlying security that the writer
continues to own.
All of the Funds may write (sell) call options on their portfolio
securities for income and may write put options. The extent of a Fund's option
writing activities will vary from time to time depending upon Founders'
evaluation of market, economic and monetary conditions. The Funds may also buy
call and put options.
When a Fund purchases a security with respect to which it intends to write
a call option, it is likely that the option will be written concurrently with or
shortly after purchase. A Fund will write a call option on a particular security
only if Founders believes that a liquid secondary market will exist on an
exchange for options of the same series, which will permit the Fund to enter
into a closing purchase transaction and close out its position. If the Fund
desires to sell a particular security on which it has written a call option, it
will effect a closing purchase transaction prior to or concurrently with the
sale of the security.
8
A Fund may enter into closing purchase transactions to reduce the
percentage of its assets against which options are written, to realize a profit
on a previously written option, or to enable it to write another option on the
underlying security with either a different exercise price or expiration time or
both.
The exercise prices of options may be below, equal to or above the current
market values of the underlying securities at the times the options are written.
From time to time for tax and other reasons, the Fund may purchase an underlying
security for delivery in accordance with an exercise notice assigned to it with
respect to a call option it has written, rather than delivering such security
from its portfolio.
All of the Funds may purchase and write options on securities indexes. A
securities index measures the movement of a certain group of securities by
assigning relative values to the stocks included in the index. Options on
securities indexes are similar to options on securities. However, because
options on securities indexes do not involve the delivery of an underlying
security, the option represents the holder's right to obtain from the writer in
cash a fixed multiple (the "Multiple") of the amount by which the exercise price
exceeds (in the case of a put) or is less than (in the case of a call) the
closing value of the underlying index on the exercise date. A Fund may purchase
put options on stock indexes to protect its portfolio against declines in value.
A Fund may purchase call options, or write put options, on stock indexes to
establish a position in equities as a temporary substitute for purchasing
individual stocks that then may be acquired over the option period in a manner
designed to minimize adverse price movements. Purchasing put and call options on
securities indexes also permits greater time for evaluation of investment
alternatives. When Founders believes that the trend of stock prices may be
downward, particularly for a short period of time, the purchase of put options
on securities indexes may eliminate the need to sell less liquid securities and
possibly repurchase them later. The purpose of these transactions is not to
generate gain, but to "hedge" against possible loss. Therefore, successful
hedging activity will not produce a net gain to a Fund. Any gain in the price of
a call option a Fund has bought is likely to be offset by higher prices the Fund
must pay in rising markets, as cash reserves are invested. In declining markets,
any increase in the price of a put option a Fund has bought is likely to be
offset by lower prices of stocks owned by the Fund.
When a Fund purchases a call on a securities index, the Fund pays a premium
and has the right during the call period to require the seller of such a call,
upon exercise of the call, to deliver to the Fund an amount of cash if the
closing level of the securities index upon which the call is based is above the
exercise price of the call. This amount of cash is equal to the difference
between the closing price of the index and the lesser exercise price of the
call, in each case multiplied by the Multiple. When a Fund purchases a put on a
securities index, the Fund pays a premium and has the right during the put
period to require the seller of such a put, upon exercise of the put, to deliver
to the Fund an amount of cash if the closing level of the securities index upon
which the put is based is below the exercise price of the put. This amount of
9
cash is equal to the difference between the exercise price of the put and the
lesser closing level of the securities index, in each case multiplied by the
Multiple. Buying securities index options permits a Fund, if cash is deliverable
to it during the option period, either to sell the option or to require delivery
of the cash. If such cash is not so deliverable, and as a result the option is
not exercised or sold, the option becomes worthless at its expiration date.
Transactions in options are subject to limitations, established by each of
the exchanges upon which options are traded, governing the maximum number of
options that may be written or held by a single investor or group of investors
acting in concert, regardless of whether the options are held in one or more
accounts. Thus, the number of options a Fund may hold may be affected by options
held by other advisory clients of Founders.
The value of a securities index option depends upon movements in the level
of the securities index rather than the price of particular securities. Whether
a Fund will realize a gain or a loss from its option activities depends upon
movements in the level of securities prices generally or in an industry or
market segment, rather than movements in the price of a particular security.
Purchasing or writing call and put options on securities indexes involves the
risk that Founders may be incorrect in its expectations as to the extent of the
various securities market movements or the time within which the options are
based. To compensate for this imperfect correlation, a Fund may enter into
options transactions in a greater dollar amount than the securities being hedged
if the historical volatility of the prices of the securities being hedged is
different from the historical volatility of the securities index.
One risk of holding a put or a call option is that if the option is not
sold or exercised prior to its expiration, it becomes worthless. However, this
risk is limited to the premium paid by the Fund. Other risks of purchasing
options include the possibility that a liquid secondary market may not exist at
a time when the Fund may wish to close out an option position. It is also
possible that trading in options on securities indexes might be halted at a time
when the securities markets generally remain open. In cases where the market
value of an issue supporting a covered call option exceeds the strike price plus
the premium on the call, the portfolio will lose the right to appreciation of
the stock for the duration of the option.
OVER-THE-COUNTER ("OTC") OPTIONS. Unlike exchange-traded options, which are
standardized with respect to the underlying instrument, expiration date,
contract size, and strike price, the terms of OTC options (options not traded on
exchanges) generally are established through negotiation with the other party to
the option contract. While this type of arrangement allows a Fund greater
flexibility to tailor the option to its needs, OTC options generally involve
greater risk than exchange-traded options, which are guaranteed by the clearing
organization of the exchanges where they are traded. OTC options are guaranteed
by the issuer of the option.
10
Generally, OTC foreign currency options used by a Fund are European-style
options. This means that the option is only exercisable immediately prior to its
expiration. This is in contrast to American-style options, which are exercisable
at any time prior to the expiration date of the option.
FUTURES CONTRACTS. All of the Funds may purchase and sell futures
contracts. The Company has claimed an exclusion from the definition of the term
"commodity pool operator" under the Commodity Exchange Act (the "CEA"), and
therefore is not subject to registration as a pool operator under the CEA.
U.S. futures contracts are traded on exchanges that have been designated
"contract markets" by the Commodity Futures Trading Commission ("CFTC") and must
be executed through a futures commission merchant (an "FCM") or brokerage firm
that is a member of the relevant contract market. Although futures contracts by
their terms call for the delivery or acquisition of the underlying commodities
or a cash payment based on the value of the underlying commodities, in most
cases the contractual obligation is offset before the delivery date of the
contract by buying, in the case of a contractual obligation to sell, or selling,
in the case of a contractual obligation to buy, an identical futures contract on
a commodities exchange. Such a transaction cancels the obligation to make or
take delivery of the commodities.
The acquisition or sale of a futures contract could occur, for example, if
a Fund held or considered purchasing equity securities and sought to protect
itself from fluctuations in prices without buying or selling those securities.
For example, if prices were expected to decrease, a Fund could sell equity index
futures contracts, thereby hoping to offset a potential decline in the value of
equity securities in the portfolio by a corresponding increase in the value of
the futures contract position held by the Fund and thereby prevent the Fund's
net asset value from declining as much as it otherwise would have. A Fund also
could protect against potential price declines by selling portfolio securities
and investing in money market instruments. However, since the futures market is
more liquid than the cash market, the use of futures contracts would allow the
Fund to maintain a defensive position without having to sell portfolio
securities.
Similarly, when prices of equity securities are expected to increase,
futures contracts could be bought to attempt to hedge against the possibility of
having to buy equity securities at higher prices. This technique is sometimes
known as an anticipatory hedge. If the fluctuations in the value of the equity
index futures contracts used is similar to those of equity securities, a Fund
could take advantage of the potential rise in the value of equity securities
without buying them until the market had stabilized. At that time, the futures
contracts could be liquidated and the Fund could buy equity securities in the
market.
The Funds also may purchase and sell interest rate and foreign currency
futures contracts.
11
The purchase and sale of futures contracts entail risks. Although Founders
believes that use of such contracts could benefit the Funds, if Founders'
investment judgment were incorrect, a Fund's overall performance could be worse
than if the Fund had not entered into futures contracts. For example, if a Fund
hedged against the effects of a possible decrease in prices of securities held
in the Fund's portfolio and prices increased instead, the Fund would lose part
or all of the benefit of the increased value of these securities because of
offsetting losses in the Fund's futures positions. In addition, if the Fund had
insufficient cash, it might have to sell securities from its portfolio to meet
margin requirements.
The ordinary spreads between prices in the cash and futures markets, due to
differences in the nature of those markets, are subject to distortions. First,
the ability of investors to close out futures contracts through offsetting
transactions could distort the normal price relationship between the cash and
futures markets. Second, to the extent participants decide to make or take
delivery, liquidity in the futures markets could be reduced and prices in the
futures markets distorted. Third, from the point of view of speculators, the
margin deposit requirements in the futures markets are less onerous than margin
requirements in the securities market. Therefore, increased participation by
speculators in the futures markets may cause temporary price distortions. Due to
the possibility of the foregoing distortions, a correct forecast of general
price trends still may not result in a successful use of futures.
The prices of futures contracts depend primarily on the value of their
underlying instruments. Because there are a limited number of types of futures
contracts, it is possible that the standardized futures contracts available to
the Funds would not match exactly a Fund's current or potential investments. A
Fund might buy or sell futures contracts based on underlying instruments with
different characteristics from the securities in which it would typically invest
- -- for example, by hedging investments in portfolio securities with a futures
contract based on a broad index of securities -- which involves a risk that the
futures position might not correlate precisely with the performance of the
Fund's investments.
Futures prices can also diverge from the prices of their underlying
instruments, even if the underlying instruments closely correlate with a Fund's
investments. Futures prices are affected by such factors as current and
anticipated short-term interest rates, changes in volatility of the underlying
instruments, and the time remaining until expiration of the contract. Those
factors may affect securities prices differently from futures prices. Imperfect
correlations between a Fund's investments and its futures positions could also
result from differing levels of demand in the futures markets and the securities
markets, from structural differences in how futures and securities are traded,
and from imposition of daily price fluctuation limits for futures contracts. A
Fund could buy or sell futures contracts with a greater or lesser value than the
securities it wished to hedge or was considering purchasing in order to attempt
to compensate for differences in historical volatility between the futures
contract and the securities, although this might not be successful in all cases.
If price changes in a Fund's futures positions were poorly correlated with its
other investments, its futures positions could fail to produce desired gains or
12
result in losses that would not be offset by the gains in the Fund's other
investments.
Unlike the situation in which a Fund purchases or sells a security, no
price is paid or received by a Fund upon the purchase or sale of a futures
contract or when a Fund writes an option on a futures contract. Instead, a
purchaser of a futures contract is required to deposit an amount of cash or
qualifying securities with the FCM. This is called "initial margin." Such
initial margin is in the nature of a performance bond or good faith deposit on
the contract. However, since losses on open contracts are required to be
reflected in cash in the form of variation margin payments, a Fund may be
required to make additional payments during the term of a contract to its
broker. Such payments would be required, for example, when, during the term of
an interest rate futures contract purchased or a put option on an interest rate
futures contract sold by a Fund, there was a general increase in interest rates,
thereby making the Fund's position less valuable. At any time prior to the
expiration of a futures contract or written option on a futures contract, the
Fund may elect to close its position by taking an opposite position that will
operate to terminate the Fund's position in the futures contract or option.
Because futures contracts are generally settled within a day from the date
they are closed out, compared with a settlement period of three business days
for most types of securities, the futures markets can provide superior liquidity
to the securities markets. Nevertheless, there is no assurance a liquid
secondary market will exist for any particular futures contract at any
particular time. In addition, futures exchanges may establish daily price
fluctuation limits for futures contracts and options on futures contracts and
may halt trading if a contract's price moves upward or downward more than the
limit in a given day. On volatile trading days when the price fluctuation limit
is reached, it would be impossible for a Fund to enter into new positions or
close out existing positions. If the secondary market for a futures contract or
an option on a futures contract were not liquid because of price fluctuation
limits or otherwise, a Fund would not promptly be able to liquidate unfavorable
futures or options positions and potentially could be required to continue to
hold a futures or options position until the delivery date, regardless of
changes in its value. As a result, a Fund's access to other assets held to cover
its futures or options positions also could be impaired.
OPTIONS ON FUTURES CONTRACTS. All of the Funds may purchase and write put
and call options on futures contracts. An option on a futures contract provides
the holder with the right to enter into a "long" position in the underlying
futures contract, in the case of a call option, or a "short" position in the
underlying futures contract, in the case of a put option, at a fixed exercise
price on or before a stated expiration date. Upon exercise of the option by the
holder, a contract market clearinghouse establishes a corresponding short
position for the writer of the option, in the case of a call option, or a
corresponding long position, in the case of a put option. If an option is
exercised, the parties will be subject to all the risks associated with the
trading of futures contracts, such as payment of variation margin deposits.
13
A position in an option on a futures contract may be terminated by the
purchaser or seller prior to expiration by effecting a closing sale or purchase
transaction, subject to the availability of a liquid secondary market, which is
the sale or purchase of an option of the same series (i.e., the same exercise
price and expiration date) as the option previously purchased or sold. The
difference between the premiums paid and received represents the trader's profit
or loss on the transaction.
An option, whether based on a futures contract, a stock index or a
security, becomes worthless to the holder when it expires. Upon exercise of an
option, the exchange or contract market clearinghouse assigns exercise notices
on a random basis to those of its members that have written options of the same
series and with the same expiration date. A brokerage firm receiving such
notices then assigns them on a random basis to those of its customers that have
written options of the same series and expiration date. A writer therefore has
no control over whether an option will be exercised against it, nor over the
time of such exercise.
The purchase of a call option on a futures contract is similar in some
respects to the purchase of a call option on an individual security. See
"Options on Securities Indexes and Securities" above. Depending on the pricing
of the option compared to either the price of the futures contract upon which it
is based or the price of the underlying instrument, ownership of the option may
or may not be less risky than ownership of the futures contract or the
underlying instrument. As with the purchase of futures contracts, when a Fund is
not fully invested it could buy a call option (or write a put option) on a
futures contract to hedge against a market advance.
The purchase of a put option on a futures contract is similar in some
respects to the purchase of protective put options on portfolio securities. For
example, a Fund would be able to buy a put option (or write a call option) on a
futures contract to hedge the Fund's portfolio against the risk of falling
prices.
The amount of risk a Fund would assume, if it bought an option on a futures
contract, would be the premium paid for the option plus related transaction
costs. In addition to the correlation risks discussed above, the purchase of an
option also entails the risk that changes in the value of the underlying futures
contract will not fully be reflected in the value of the options bought.
OPTIONS ON FOREIGN CURRENCIES. All of the Funds may buy and sell options on
foreign currencies for hedging purposes in a manner similar to that in which
futures on foreign currencies would be utilized. For example, a decline in the
U.S. dollar value of a foreign currency in which portfolio securities are
denominated would reduce the U.S. dollar value of such securities, even if their
value in the foreign currency remained constant. In order to protect against
such diminutions in the value of portfolio securities, a Fund could buy put
options (or write call options) on the foreign currency. If the value of the
currency declines, the Fund would have the right to sell such currency for a
fixed amount in U.S. dollars and would thereby offset, in whole or in part, the
adverse effect on its portfolio that otherwise would have resulted. Conversely,
14
when a rise is projected in the U.S. dollar value of a currency in which
securities to be acquired are denominated, thereby increasing the cost of such
securities, the Fund could buy call options (or write put options) thereon. The
purchase of such options could offset, at least partially, the effects of the
adverse movements in exchange rates.
Options on foreign currencies traded on national securities exchanges are
within the jurisdiction of the SEC, as are other securities traded on such
exchanges. As a result, many of the protections provided to traders on organized
exchanges will be available with respect to such transactions. In particular,
all foreign currency option positions entered into on a national securities
exchange are cleared and guaranteed by the Options Clearing Corporation ("OCC"),
thereby reducing the risk of counterparty default.
The purchase and sale of exchange-traded foreign currency options, however,
is subject to the risks of the availability of a liquid secondary market
described above, as well as the risks regarding adverse market movements,
margining of options written, the nature of the foreign currency market,
possible intervention by governmental authorities, and the effects of other
political and economic events. In addition, exchange-traded options on foreign
currencies involve certain risks not presented by the over-the-counter market.
For example, exercise and settlement of such options must be made exclusively
through the OCC, which has established banking relationships in applicable
foreign countries for this purpose. As a result, the OCC may, if it determines
that foreign governmental restrictions or taxes would prevent the orderly
settlement of foreign currency option exercises, or would result in undue
burdens on the OCC or its clearing member, impose special procedures on exercise
and settlement, such as technical changes in the mechanics of delivery of
currency, the fixing of dollar settlement prices, or prohibitions on exercise.
RISK FACTORS OF INVESTING IN FUTURES AND OPTIONS. The successful use of the
investment practices described above with respect to futures contracts, options
on futures contracts, and options on securities indexes, securities, and foreign
currencies draws upon skills and experience that are different from those needed
to select the other instruments in which the Funds invest. All such practices
entail risks and can be highly volatile. Should interest or exchange rates or
the prices of securities or financial indexes move in an unexpected manner, the
Funds may not achieve the desired benefits of futures and options or may realize
losses and thus be in a worse position than if such strategies had not been
used. Unlike many exchange-traded futures contracts and options on futures
contracts, there are no daily price fluctuation limits with respect to options
on currencies and negotiated or over-the-counter instruments, and adverse market
movements could therefore continue to an unlimited extent over a period of time.
In addition, the correlation between movements in the price of the securities
and currencies hedged or used for cover will not be perfect and could produce
unanticipated losses.
A Fund's ability to dispose of its positions in the foregoing instruments
will depend on the availability of liquid markets in the instruments. Particular
15
risks exist with respect to the use of each of the foregoing instruments and
could result in such adverse consequences to a Fund as the possible loss of the
entire premium paid for an option bought by a Fund, the inability of a Fund, as
the writer of a covered call option, to benefit from the appreciation of the
underlying securities above the exercise price of the option, and the possible
need to defer closing out positions in certain instruments to avoid adverse tax
consequences. As a result, no assurance can be given that the Funds will be able
to use those instruments effectively for the purposes set forth above.
In addition, options on U.S. Government securities, futures contracts,
options on futures contracts, and options on foreign currencies may be traded on
foreign exchanges and over-the-counter in foreign countries. Such transactions
are subject to the risk of governmental actions affecting trading in or the
prices of foreign currencies or securities. The value of such positions also
could be affected adversely by (i) other complex foreign political and economic
factors, (ii) lesser availability than in the United States of data on which to
make trading decisions, (iii) delays in a Fund's ability to act upon economic
events occurring in foreign markets during non-business hours in the United
States, (iv) the imposition of different exercise and settlement terms and
procedures and margin requirements than in the United States, and (v) low
trading volume.
FORWARD CONTRACTS FOR PURCHASE OR SALE OF FOREIGN CURRENCIES. The Funds
generally conduct their foreign currency exchange transactions on a spot (i.e.,
cash) basis at the spot rate prevailing in the foreign exchange currency market.
When a Fund purchases or sells a security denominated in a foreign currency, it
may enter into a forward foreign currency contract ("forward contract") for the
purchase or sale, for a fixed amount of dollars, of the amount of foreign
currency involved in the underlying security transaction. A forward contract
involves an obligation to purchase or sell a specific currency at a future date,
which may be any fixed number of days from the date of the contract agreed upon
by the parties, at a price set at the time of the contract. In this manner, a
Fund may obtain protection against a possible loss resulting from an adverse
change in the relationship between the U.S. dollar and the foreign currency
during the period between the date the security is purchased or sold and the
date upon which payment is made or received. Although such contracts tend to
minimize the risk of loss due to the decline in the value of the hedged
currency, at the same time they tend to limit any potential gain that might
result should the value of such currency increase.
Forward contracts are traded in the interbank market conducted directly
between currency traders (usually large commercial banks) and their customers.
Generally, a forward contract has no deposit requirement, and no commissions are
charged at any stage for trades. Although foreign exchange dealers do not charge
a fee for conversion, they do realize a profit based on the difference between
the prices at which they buy and sell various currencies. When Founders believes
that the currency of a particular foreign country may suffer a substantial
decline against the U.S. dollar (or sometimes against another currency), a Fund
may enter into forward contracts to sell, for a fixed-dollar or other currency
amount, foreign currency approximating the value of some or all of a Fund's
16
portfolio securities denominated in that currency. In addition, a Fund may
engage in "proxy hedging" (i.e., entering into forward contracts to sell a
different foreign currency than the one in which the underlying investments are
denominated), with the expectation that the value of the hedged currency will
correlate with the value of the underlying currency. The precise matching of the
forward contract amounts and the value of the securities involved will not
generally be possible. The future value of such securities in foreign currencies
changes as a consequence of market movements in the value of those securities
between the date on which the contract is entered into and the date it expires.
Under normal circumstances, consideration of the possibility of changes in
currency exchange rates will be incorporated into the Funds' long- term
investment strategies.
At the consummation of a forward contract calling for delivery by a Fund of
a foreign currency which has been used as a position hedge, the Fund may either
make delivery of the foreign currency or terminate its contractual obligation to
deliver the foreign currency by purchasing an offsetting contract obligating it
to purchase, at the same maturity date, the same amount of the foreign currency.
If the Fund chooses to make delivery of the foreign currency, it may be required
to obtain such currency through the sale of portfolio securities denominated in
such currency or through conversion of other Fund assets into such currency. It
is impossible to forecast the market value of portfolio securities at the
expiration of the forward contract. Accordingly, it may be necessary for the
Fund to purchase additional foreign currency on the spot market (and bear the
expense of such purchase) if the market value of the security is less than the
amount of foreign currency the Fund is obligated to deliver, and if a decision
is made to sell the security and make delivery of the foreign currency.
Conversely, it may be necessary to sell on the spot market some of the foreign
currency received on the sale of the portfolio security if its market value
exceeds the amount of foreign currency the Fund is obligated to deliver.
If a Fund retains the portfolio security and engages in an offsetting
transaction, it will incur a gain or loss to the extent that there has been
movement in spot or forward contract prices. If any one of the Funds engages in
an offsetting transaction, it may subsequently enter into a new forward contract
to sell the foreign currency. Should forward prices decline during the period
between the Fund's entering into a forward contract for the sale of a foreign
currency and the date it enters into an offsetting contract for the purchase of
the foreign currency, the Fund will realize a gain to the extent the price of
the currency it has agreed to sell exceeds the price of the currency it has
agreed to purchase. Should forward prices increase, the Fund will suffer a loss
to the extent the price of the currency it has agreed to purchase exceeds the
price of the currency it has agreed to sell.
While forward contracts may be traded to reduce certain risks, trading in
forward contracts itself entails certain other risks. Thus, while the Funds may
benefit from the use of such contracts, if Founders is incorrect in its forecast
of currency prices, a poorer overall performance may result than if a Fund had
not entered into any forward contracts. Some forward contracts may not have a
broad and liquid market, in which case the contracts may not be able to be
17
closed at a favorable price. Moreover, in the event of an imperfect correlation
between the forward contract and the portfolio position that it is intended to
protect, the desired protection may not be obtained.
The Funds are not required to enter into forward contracts with regard to
their foreign currency-denominated securities, and will not do so unless deemed
appropriate by Founders. It also should be realized that this method of
protecting the value of the Funds' portfolio securities against a decline in the
value of a currency does not eliminate fluctuations in the underlying prices of
the securities. It simply establishes a rate of exchange that can be achieved at
some future point in time. Additionally, although such contracts tend to
minimize the risk of loss due to the decline in the value of the hedged
currency, at the same time they tend to limit any potential gain that might
result should the value of such currency increase.
COVER. Transactions using options, futures contracts and forward contracts
("Financial Instruments"), other than purchased options, expose a Fund to an
obligation to another party. Pursuant to regulations and/or published positions
of the SEC, each Fund may be required to segregate permissible liquid assets, or
engage in other measures approved by the SEC or its staff, to "cover" the Fund's
obligations relating to such transactions. For example, in the case of futures
contracts or forward contracts that are not contractually required to cash
settle, a Fund must set aside liquid assets equal to such contracts' full
notional value (generally the total numerical value of the asset underlying a
future or forward contract at the time of valuation) while the positions are
open. With respect to futures contracts or forward contracts that are
contractually required to cash settle, however, each Fund is permitted to set
aside liquid assets in an amount equal to the Fund's daily marked-to-market net
obligation (i.e., the Fund's daily net liability) under the contracts, if any,
rather than such contracts' full notional value. By setting aside assets equal
to only its net obligations under cash-settled futures and forward contracts, a
Fund may employ leverage to a greater extent than if the Fund were required to
segregate assets equal to the full notional value of such contracts.
EQUITY-LINKED NOTES. All of the Funds may purchase equity-linked notes
("ELNs"). The principal or coupon payment on an ELN is linked to the performance
of an underlying security or index. ELNs may be used, among other things, to
provide a Fund with exposure to international markets while providing a
mechanism to reduce foreign tax or regulatory restrictions imposed on foreign
investors. The risks associated with purchasing ELNs include the
creditworthiness of the issuer and the risk of counterparty default. Further, a
Fund's ability to dispose of an ELN will depend on the availability of liquid
markets in the instruments. The purchase and sale of an ELN is also subject to
the risks regarding adverse market movements, possible intervention by
governmental authorities, and the effects of other political and economic
events.
FOREIGN SECURITIES AND ADRS
The term "foreign securities" refers to securities of issuers, wherever
organized, that, in the judgment of Founders, have their principal business
18
activities outside of the United States. The determination of whether an
issuer's principal activities are outside of the United States will be based on
the location of the issuer's assets, personnel, sales, and earnings, and
specifically on whether more than 50% of the issuer's assets are located, or
more than 50% of the issuer's gross income is earned, outside of the United
States, or on whether the issuer's sole or principal stock exchange listing is
outside of the United States. Foreign securities typically will be traded on the
applicable country's principal stock exchange but may also be traded on regional
exchanges or over-the-counter. In addition, foreign securities may trade in the
U.S. securities markets. U.S. dollar-denominated foreign debt obligations are
not subject to the maximum limits that certain Funds have on their investments
in foreign securities.
Investments in foreign securities involve certain risks that are not
typically associated with U.S. investments. There may be less publicly available
information about foreign companies comparable to reports and ratings published
about U.S. companies. Foreign companies are not generally subject to uniform
accounting, auditing, and financial reporting standards and requirements
comparable to those applicable to U.S. companies. Some foreign companies may
exclude U.S. investors such as the Funds from participating in beneficial
corporate actions, such as rights offerings. As a result, the Funds may not
realize the same value from a foreign investment as a shareholder residing in
that country. There also may be less government supervision and regulation of
foreign stock exchanges, brokers and listed companies than in the United States.
Foreign stock markets may have substantially less trading volume than the
New York Stock Exchange, and securities of some foreign companies may be less
liquid and may be more volatile than securities of comparable U.S. companies.
Brokerage commissions and other transaction costs on foreign securities
exchanges generally are higher than in the United States.
Because investment in foreign companies will usually involve currencies of
foreign countries, and because a Fund may temporarily hold funds in bank
deposits in foreign currencies during the course of investment programs, the
value of the assets of the Fund as measured in U.S. dollars may be affected
favorably or unfavorably by changes in foreign currency exchange rates and
exchange control regulations, and the Fund may incur costs in connection with
conversion between various currencies. A change in the value of any foreign
currency relative to the U.S. dollar, when the Fund holds that foreign currency
or a security denominated in that foreign currency, will cause a corresponding
change in the dollar value of the Fund assets denominated or traded in that
country. Moreover, there is the possibility of expropriation or confiscatory
taxation, limitations on the removal of funds or other assets of the Fund,
political, economic or social instability or diplomatic developments that could
affect U.S. investments in foreign countries.
Dividends and interest paid by foreign issuers may be subject to
withholding and other foreign taxes, thus reducing the net return on such
investments compared with U.S. investments. The operating expense ratio of a
Fund that invests in foreign securities can be expected to be higher than that
19
of a Fund which invests exclusively in domestic securities, since the expenses
of the Fund, such as foreign custodial costs, are higher. In addition, the Fund
incurs costs in converting assets from one currency to another.
In addition, the Funds may invest in securities issued by companies located
in countries not considered to be major industrialized nations. Each of the
Balanced, Discovery, Equity Growth, Growth and Mid-Cap Growth Funds will not
invest more than 5% of its total assets, measured at the time of purchase, in
securities issued by companies located in such countries. Such countries are
subject to more economic, political and business risk than major industrialized
nations, and the securities issued by companies located there are expected to be
more volatile, less liquid and more uncertain as to payments of dividends,
interest and principal. Such countries may include (but are not limited to)
Argentina, Bolivia, Brazil, Chile, China, Colombia, Costa Rica, Croatia, Czech
Republic, Ecuador, Egypt, Estonia, Hungary, Iceland, India, Indonesia, Israel,
Jordan, Latvia, Lithuania, Malaysia, Mauritius, Mexico, Morocco, Nigeria,
Pakistan, Panama, Paraguay, Peru, Philippines, Poland, Republic of Korea (South
Korea), Romania, Russia and the other countries of the former Soviet Union,
Slovak Republic, Slovenia, South Africa, Sri Lanka, Taiwan, Thailand, Turkey,
Uruguay, Venezuela, and Vietnam.
American Depositary Receipts and American Depositary Shares (collectively,
"ADRs") are receipts representing shares of a foreign corporation held by a U.S.
bank that entitle the holder to all dividends and capital gains on the
underlying foreign shares. ADRs are denominated in U.S. dollars and trade in the
U.S. securities markets. ADRs may be issued in sponsored or unsponsored
programs. In sponsored programs, the issuer makes arrangements to have its
securities traded in the form of ADRs; in unsponsored programs, the issuer may
not be directly involved in the creation of the program. Although the regulatory
requirements with respect to sponsored and unsponsored programs are generally
similar, the issuers of unsponsored ADRs are not obligated to disclose material
information in the United States and, therefore, such information may not be
reflected in the market value of the ADRs.
SECURITIES THAT ARE NOT READILY MARKETABLE
The Funds may invest up to 15% of the value of their net assets, measured
at the time of investment, in investments that are not readily marketable. A
security which is not "readily marketable" is generally considered to be a
security that cannot be disposed of within seven days in the ordinary course of
business at approximately the amount at which it is valued. Subject to the
foregoing 15% limitation, the Funds may invest in restricted securities.
"Restricted" securities generally include securities that are not registered
under the Securities Act of 1933 (the "1933 Act") and are subject to legal or
contractual restrictions upon resale. Restricted securities nevertheless may be
"readily marketable" and can often be sold in privately negotiated transactions
or in a registered public offering. There are a number of securities issued
without registration under the 1933 Act for which a liquid secondary market
exists among institutional investors such as the Funds. These securities are
20
often called "Rule 144A" securities (see "Investment Strategies and Risks - Rule
144A Securities" below).
A Fund may not be able to dispose of a security that is not "readily
marketable" at the time desired or at a reasonable price. In addition, in order
to resell such a security, a Fund might have to bear the expense and incur the
delays associated with effecting registration. In purchasing such securities, no
Fund intends to engage in underwriting activities, except to the extent a Fund
may be deemed to be a statutory underwriter under the 1933 Act in disposing of
such securities.
The assets used as cover for OTC options written by a Fund will be
considered illiquid unless the OTC options are sold to qualified dealers who
agree that the Fund may repurchase any OTC option it writes at a maximum price
to be calculated by a formula set forth in the option agreement. The cover for
an OTC option written subject to this procedure would be considered illiquid
only to the extent that the maximum repurchase price under the formula exceeds
the intrinsic value of the option.
RULE 144A SECURITIES
A large institutional market has developed for certain securities that are
not registered under the 1933 Act. Institutional investors generally will not
seek to sell these instruments to the general public, but instead will often
depend on an efficient institutional market in which such unregistered
securities can readily be resold or on an issuer's ability to honor a demand for
repayment. Therefore, the fact that there are contractual or legal restrictions
on resale to the general public or certain institutions is not dispositive of
the liquidity of such investments.
Rule 144A under the 1933 Act establishes a "safe harbor" from the
registration requirements of the 1933 Act for resales of certain securities to
qualified institutional buyers. The Funds may invest in Rule 144A securities
that may or may not be readily marketable. Rule 144A securities are readily
marketable if institutional markets for the securities develop pursuant to Rule
144A that provide both readily ascertainable values for the securities and the
ability to liquidate the securities when liquidation is deemed necessary or
advisable. However, an insufficient number of qualified institutional buyers
interested in purchasing a Rule 144A security held by one of the Funds could
adversely affect the marketability of the security. In such an instance, the
Fund might be unable to dispose of the security promptly or at reasonable
prices.
The Board of Directors of the Company has delegated to Founders, or to its
designee subject to the general oversight of Founders, the authority to
determine whether a liquid market exists for securities eligible for resale
pursuant to Rule 144A under the 1933 Act, or any successor to such rule, and
whether such securities are not subject to the Funds' limitations on investing
in securities that are not readily marketable. Under guidelines established by
the directors, the following factors will be considered, among others, in making
this determination: (1) the unregistered nature of a Rule 144A security; (2) the
frequency of trades and quotes for the security; (3) the number of dealers
21
willing to purchase or sell the security and the number of additional potential
purchasers; (4) dealer undertakings to make a market in the security; and (5)
the nature of the security and the nature of marketplace trades (e.g., the time
needed to dispose of the security, the method of soliciting offers and the
mechanics of transfers). The readily marketable nature of each Rule 144A
security must be monitored on a basis no less frequently than quarterly. The
Funds' directors also monitor these determinations quarterly.
FIXED-INCOME SECURITIES
The Funds may purchase convertible securities and preferred stocks rated in
medium and lower categories by Moody's Investors Service, Inc. ("Moody's") or
Standard & Poor's ("S&P") (Ba or lower by Moody's and BB or lower by S&P), but
none rated lower than B. The Funds also may invest in unrated convertible
securities and preferred stocks if Founders believes they are equivalent in
quality to the rated securities that the Funds may buy.
The Funds, other than Balanced Fund, will invest in bonds, debentures, and
corporate obligations - other than convertible securities and preferred stock -
only if they are rated investment grade (Baa, BBB or higher) at the time of
purchase. If a bond's, debenture's or other corporate obligation's rating is
reduced to below investment grade, or it becomes unrated, after purchase, the
Funds, other than Balanced Fund, may not invest more than 5% of a Fund's total
assets in the aggregate of such bonds, debentures, and corporate obligations,
and any convertible securities, rated below investment grade or in unrated
securities believed by Founders to be equivalent in quality to securities rated
below investment grade. This 5% limitation does not apply to preferred stocks.
The Balanced Fund may invest up to 15% of the fixed-income portion of the Fund's
total assets in bonds, debentures, convertible securities, and corporate
obligations rated below investment grade or unrated. This 15% limitation does
not apply to preferred stocks.
Investments in lower rated or unrated securities are generally considered
to be of high risk. Lower rated debt securities, commonly referred to as junk
bonds, are generally subject to two kinds of risk, credit risk and interest rate
risk. Credit risk relates to the ability of the issuer to meet interest or
principal payments, or both, as they come due. The ratings given a security by
Moody's and S&P provide a generally useful guide as to such credit risk. The
Appendix to this SAI provides a description of such debt security ratings. The
lower the rating given a security by a rating service, the greater the credit
risk such rating service perceives to exist with respect to the security.
Increasing the amount of a Fund's assets invested in unrated or lower grade
securities, while intended to increase the yield produced by those assets, will
also increase the risk to which those assets are subject.
Interest rate risk relates to the fact that the market values of debt
securities in which a Fund invests generally will be affected by changes in the
level of interest rates. An increase in interest rates will tend to reduce the
22
market values of such securities, whereas a decline in interest rates will tend
to increase their values. Medium and lower rated securities (Baa or BBB and
lower) and non-rated securities of comparable quality tend to be subject to
wider fluctuations in yields and market values than higher rated securities and
may have speculative characteristics. The Funds are not required to dispose of
debt securities whose ratings are downgraded below these ratings subsequent to a
Fund's purchase of the securities, unless such a disposition is necessary to
reduce a Fund's holdings of such securities to 5% or less of its total assets,
in the case of the Funds other than Balanced Fund, or to 15% or less of the
fixed-income portion of the Balanced Fund's total assets. In order to decrease
the risk in investing in debt securities, in no event will a Fund ever invest in
a debt security rated below B by Moody's or by S&P. Of course, relying in part
on ratings assigned by credit agencies in making investments will not protect
the Funds from the risk that the securities in which they invest will decline in
value, since credit ratings represent evaluations of the safety of principal,
dividend, and interest payments on preferred stocks and debt securities, and not
the market values of such securities, and such ratings may not be changed on a
timely basis to reflect subsequent events.
Because investment in medium and lower rated securities involves both
greater credit risk and interest rate risk, achievement of the Funds' investment
objectives may be more dependent on the investment adviser's own credit analysis
than is the case for funds that do not invest in such securities. In addition,
the share price and yield of the Equity Funds may fluctuate more than in the
case of funds investing in higher quality, shorter term securities. Moreover, a
significant economic downturn or major increase in interest rates may result in
issuers of lower rated securities experiencing increased financial stress, that
would adversely affect their ability to service their principal, dividend, and
interest obligations, meet projected business goals, and obtain additional
financing. In this regard, it should be noted that while the market for high
yield debt securities has been in existence for many years and from time to time
has experienced economic downturns in recent years, this market has involved a
significant increase in the use of high yield debt securities to fund highly
leveraged corporate acquisitions and restructurings. Past experience may not,
therefore, provide an accurate indication of future performance of the high
yield debt securities market, particularly during periods of economic recession.
Furthermore, expenses incurred in recovering an investment in a defaulted
security may adversely affect a Fund's net asset value. Finally, while Founders
attempts to limit purchases of medium and lower rated securities to securities
having an established secondary market, the secondary market for such securities
may be less liquid than the market for higher quality securities. The reduced
liquidity of the secondary market for such securities may adversely affect the
market price of, and ability of a Fund to value, particular securities at
certain times, thereby making it difficult to make specific valuation
determinations. The Funds do not invest in any medium and lower rated securities
that present special tax consequences, such as zero coupon bonds or pay-in-kind
bonds, although certain Funds may purchase U.S. Treasury STRIPS as described
under "Investment Strategies and Risks - Government Securities."
23
Founders seeks to reduce the overall risks associated with the Funds'
investments through diversification and consideration of factors affecting the
value of securities it considers relevant. No assurance can be given, however,
regarding the degree of success that will be achieved in this regard or that the
Funds will achieve their investment objectives.
FOREIGN BANK OBLIGATIONS
The Funds may invest in obligations of foreign depository institutions or
their U.S. branches, or foreign branches of U.S. depository institutions.
The obligations of foreign branches of U.S. depository institutions
purchased by the Funds may be general obligations of the parent depository
institution in addition to being an obligation of the issuing branch. These
obligations, and those of foreign depository institutions, may be limited by the
terms of the specific obligation and by governmental regulation. The payment of
these obligations, both interest and principal, also may be affected by
governmental action in the country of domicile of the institution or branch,
such as imposition of currency controls and interest limitations. In connection
with these investments, a Fund will be subject to the risks associated with the
holding of portfolio securities overseas, such as possible changes in investment
or exchange control regulations, expropriation, confiscatory taxation, or
political or financial instability.
Obligations of U.S. branches of foreign depository institutions may be
general obligations of the parent depository institution in addition to being an
obligation of the issuing branch, or may be limited by the terms of a specific
foreign regulation applicable to the depository institutions and by government
regulation (both domestic and foreign).
REPURCHASE AGREEMENTS
A repurchase agreement is a transaction under which a Fund acquires a
security and simultaneously promises to sell that same security back to the
seller at a higher price, usually within a seven-day period. The Funds may enter
into repurchase agreements with banks or well-established securities dealers
meeting criteria established by the Funds' Board of Directors. A repurchase
agreement may be considered a loan collateralized by securities. The resale
price reflects an agreed upon interest rate effective for the period the
instrument is held by a Fund and is unrelated to the interest rate on the
underlying instrument. In these transactions, the collateral securities acquired
by a Fund (including accrued interest earned thereon) must have a total value at
least equal to the value of the repurchase agreement, and are held as collateral
by an authorized custodian bank until the repurchase agreement is completed. All
repurchase agreements entered into by the Funds are marked to market daily. In
the event of default by the seller under a repurchase agreement, the Fund may
experience difficulties in exercising its rights to the underlying security and
may incur costs in connection with the disposition of that security.
24
None of the Funds have adopted any limits on the amounts of its total
assets that may be invested in repurchase agreements that mature in less than
seven days. Each of the Funds may invest up to 15% of the market value of its
net assets, measured at the time of purchase, in securities that are not readily
marketable, including repurchase agreements maturing in more than seven days.
For a further explanation, see "Investment Strategies and Risks - Securities
That Are Not Readily Marketable."
CONVERTIBLE SECURITIES
All Funds may buy securities convertible into common stock if, for example,
Founders believes that a company's convertible securities are undervalued in the
market. Convertible securities eligible for purchase include convertible bonds,
convertible preferred stocks, and warrants. A warrant is an instrument issued by
a corporation that gives the holder the right to subscribe to a specific amount
of the corporation's capital stock at a set price for a specified period of
time. Warrants do not represent ownership of the securities, but only the right
to buy the securities. The prices of warrants do not necessarily move parallel
to the prices of underlying securities. Warrants may be considered speculative
in that they have no voting rights, pay no dividends, and have no rights with
respect to the assets of a corporation issuing them. Warrant positions will not
be used to increase the leverage of a Fund; consequently, warrant positions are
generally accompanied by cash positions equivalent to the required exercise
amount.
GOVERNMENT SECURITIES
U.S. government obligations include, but are not limited to, Treasury
bills, notes and bonds; Government National Mortgage Association ("Ginnie Mae")
pass-through securities; and issues of U.S. agencies, authorities, and
instrumentalities. Obligations of other agencies, authorities and
instrumentalities of the U.S. government include, but are not limited to,
securities issued by the Federal Farm Credit Bank System ("FFCB"), the Federal
Agricultural Mortgage Corporation ("Farmer Mac"), the Federal Home Loan Bank
System ("FHLB"), the Financing Corporation ("FICO"), Federal Home Loan Mortgage
Corporation ("Freddie Mac"), Federal National Mortgage Association ("Fannie
Mae"), Private Export Funding Corporation ("PEFCO"), the Student Loan Marketing
Association ("Sallie Mae"), the Tennessee Valley Authority ("TVA") and the U.S.
Small Business Administration ("SBA"). Some government obligations, such as
Ginnie Mae pass-through certificates, are supported by the full faith and credit
of the United States Treasury. Other obligations, such as securities of the
FHLB, are supported by the right of the issuer to borrow from the United States
Treasury; and others, such as bonds issued by Fannie Mae (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 Fannie Mae. The
Funds also may invest in obligations issued by the International Bank for
Reconstruction and Development ("IBRD" or "World Bank").
25
All of the Funds may also purchase U.S. Treasury STRIPS (Separate Trading
of Registered Interest and Principal of Securities). STRIPS essentially are
zero-coupon bonds that are direct obligations of the U.S. Treasury. These bonds
do not make regular interest payments; rather, they are sold at a discount from
face value, and principal and accrued interest are paid at maturity. STRIPS may
experience greater fluctuations in market value due to changes in interest rates
and other factors than debt securities that make regular interest payments. A
Fund will accrue income on STRIPS for tax and accounting purposes which must be
distributed to Fund shareholders even though no cash is received at the time of
accrual. Therefore, the Fund may be required to liquidate other portfolio
securities in order to meet the Fund's distribution obligations.
The Funds also may invest in securities issued by foreign governments
and/or their agencies. See "Investment Strategies and Risks - Foreign Securities
and ADRs" above.
MORTGAGE-RELATED SECURITIES
Balanced Fund may invest in mortgage-related securities, which are
interests in pools of mortgage loans made to residential home buyers, including
mortgage loans made by savings and loan institutions, mortgage bankers,
commercial banks and others. Pools of mortgage loans are assembled as securities
for sale to investors by various governmental and government-related
organizations (see "Mortgage Pass-Through Securities"). Other Funds also may
invest in such securities for temporary defensive purposes.
MORTGAGE PASS-THROUGH SECURITIES. Interests in pools of mortgage-related
securities differ from other forms of debt securities that normally provide for
periodic payment of interest in fixed amounts with principal payments at
maturity or at specified call dates. Instead, these securities provide a monthly
payment that consists of both interest and principal payments. In effect, these
payments are a "pass-through" of the monthly payments made by the individual
borrowers on their residential or commercial mortgage loans, net of any fees
paid to the issuer or guarantor of such securities. Additional payments are
caused by repayments of principal resulting from the sale of the underlying
property, refinancing or foreclosure, net of fees or costs that may be incurred.
Some mortgage-related securities (such as securities issued by Ginnie Mae) are
described as "modified pass-through." These securities entitle the holder to
receive all interest and principal payments owed on the mortgage pool, net of
certain fees, at the scheduled payment dates regardless of whether or not the
mortgagor actually makes the payment.
Ginnie Mae is the principal governmental guarantor of mortgage-related
securities. Ginnie Mae is a wholly owned U.S. government corporation within the
Department of Housing and Urban Development. Ginnie Mae is authorized to
guarantee, with the full faith and credit of the U.S. government, the timely
payment of principal and interest on securities issued by institutions approved
26
by Ginnie Mae (such as savings and loan institutions, commercial banks and
mortgage bankers) and backed by pools of FHA-insured or VA-guaranteed mortgages.
Government-related guarantors (i.e., not backed by the full faith and
credit of the U.S. government) include Fannie Mae and Freddie Mac. Fannie Mae is
a government-sponsored corporation owned entirely by private stockholders. It is
subject to general regulation by the Secretary of Housing and Urban Development.
Fannie Mae purchases conventional (i.e., not insured or guaranteed by any
government agency) residential mortgages from a list of approved
seller/servicers that include state and federally chartered savings and loan
associations, mutual savings banks, commercial banks and credit unions and
mortgage bankers. Pass-through securities issued by Fannie Mae are guaranteed as
to timely payment of principal and interest by Fannie Mae but are not backed by
the full faith and credit of the U.S. government.
Freddie Mac was created by Congress in 1970 for the purpose of increasing
the availability of mortgage credit for residential housing. It is a
government-sponsored corporation formerly owned by the twelve Federal Home Loan
Banks and now owned entirely by private stockholders. Freddie Mac issues
Participation Certificates ("PCs") that represent interests in conventional
mortgages from Freddie Mac's national portfolio. Freddie Mac guarantees the
timely payment of interest and ultimate collection of principal, but PCs are not
backed by the full faith and credit of the U.S. government.
Mortgage-backed securities that are issued or guaranteed by the U.S.
government, its agencies or instrumentalities, are not subject to a Fund's
industry concentration restrictions, by virtue of the exclusion from that test
available to all U.S. government securities. The assets underlying such
securities may be represented by a portfolio of first lien residential mortgages
(including both whole mortgage loans and mortgage participation interests) or
portfolios of mortgage pass-through securities issued or guaranteed by Ginnie
Mae, Fannie Mae or Freddie Mac. Mortgage loans underlying a mortgage-related
security may in turn be insured or guaranteed by the Federal Housing
Administration or the Department of Veterans Affairs.
COLLATERALIZED MORTGAGE OBLIGATIONS ("CMOs"). A CMO is a hybrid between a
mortgage-backed bond and a mortgage pass-through security. Interest and prepaid
principal is paid, in most cases, monthly. CMOs may be collateralized by whole
mortgage loans, but are more typically collateralized by portfolios of mortgage
pass-through securities guaranteed by Ginnie Mae, Fannie Mae, or Freddie Mac,
and their income streams.
CMOs are structured into multiple classes, each bearing a different stated
maturity. Actual maturity and average life will depend upon the prepayment
experience of the collateral. CMOs provide for a modified form of call
protection through a de facto breakdown of the underlying pool of mortgages
according to how quickly the loans are repaid. Monthly payment of principal
received from the pool of underlying mortgages, including prepayments, is first
returned to investors holding the shortest maturity class. Investors holding the
longer maturity classes receive principal only after the first class has been
27
retired. An investor is partially guarded against a sooner than desired return
of principal because of the sequential payments.
In a typical CMO transaction, a corporation ("issuer") issues multiple
series (e.g., A, B, C, Z) of CMO bonds ("Bonds"). Proceeds of the Bond offering
are used to purchase mortgages or mortgage pass-through certificates
("Collateral"). The Collateral is pledged to a third party trustee as security
for the Bonds. Principal and interest payments from the Collateral are used to
pay principal on the Bonds in the order A, B, C, Z. The Series A, B, and C Bonds
all bear current interest. Interest on the Series Z Bond is accrued and added to
principal and a like amount is paid as principal on the Series A, B, or C Bond
currently being paid off. When the Series A, B, and C Bonds are paid in full,
interest and principal on the Series Z Bond begin to be paid currently. With
some CMOs, the issuer serves as a conduit to allow loan originators (primarily
builders or savings and loan associations) to borrow against their loan
portfolios.
RISKS OF MORTGAGE-RELATED SECURITIES. Investment in mortgage-backed
securities poses several risks, including prepayment, market, and credit risk.
Prepayment risk reflects the risk that borrowers may prepay their mortgages
faster than expected, which may adversely affect the investment's average life
and yield. Whether or not a mortgage loan is prepaid is almost entirely
controlled by the borrower. Borrowers are most likely to exercise prepayment
options at the time when it is least advantageous to investors, generally
prepaying mortgages as interest rates fall, and slowing payments as interest
rates rise. Accordingly, amounts available for reinvestment by a Fund are likely
to be greater during a period of declining interest rates and, as a result,
likely to be reinvested at lower interest rates than during a period of rising
interest rates. Besides the effect of prevailing interest rates, the rate of
prepayment and refinancing of mortgages may also be affected by home value
appreciation, ease of the refinancing process and local economic conditions.
Market risk reflects the risk that the price of the security may fluctuate
over time. The price of mortgage-backed securities may be particularly sensitive
to prevailing interest rates, the length of time the security is expected to be
outstanding, and the liquidity of the issue. In a period of unstable interest
rates, there may be decreased demand for certain types of mortgage-backed
securities, and a fund invested in such securities wishing to sell them may find
it difficult to find a buyer, which may in turn decrease the price at which they
may be sold. In addition, as a result of the uncertainty of cash flows of lower
tranche CMOs, the market prices of and yield on those tranches generally are
more volatile.
Credit risk reflects the risk that a Fund may not receive all or part of
its principal because the issuer or credit enhancer has defaulted on its
obligations. Obligations issued by U.S. government-related entities are
guaranteed as to the payment of principal and interest, but are not backed by
the full faith and credit of the U.S. government. With respect to GNMA
28
certificates, although GNMA guarantees timely payment even if homeowners delay
or default, tracking the "pass-through" payments may, at times, be difficult.
The duration of CMOs is calculated using mathematical models that
incorporate prepayment assumptions and other factors that involve estimates of
future economic and market conditions. These estimates may vary from actual
future results, particularly during periods of extreme market volatility. In
addition, under certain market conditions, such as those that developed in 1994,
the average weighted life of mortgage derivative securities may not accurately
reflect the price volatility of such securities. For example, in periods of
supply and demand imbalances in the market for such securities and/or in periods
of sharp interest rate movements, the prices of mortgage derivative securities
may fluctuate to a greater extent than would be expected from interest rate
movements alone.
A Fund's investments in CMOs also are subject to extension risk. Extension
risk is the possibility that rising interest rates may cause prepayments to
occur at a slower than expected rate. This particular risk may effectively
change a security that was considered short or intermediate-term at the time of
purchase into a long-term security. Long-term securities generally fluctuate
more widely in response to changes in interest rates than short or
intermediate-term securities.
COMMERCIAL PAPER AND OTHER CASH SECURITIES
A Fund may acquire commercial paper, certificates of deposit or bankers'
acceptances. A certificate of deposit is a short-term obligation of a bank. A
banker's acceptance is a time draft drawn by a borrower on a bank, usually
relating to an international commercial transaction.
WHEN-ISSUED SECURITIES
The Funds may purchase securities on a when-issued or delayed-delivery
basis; i.e., the securities are purchased with settlement taking place at some
point in the future beyond a customary settlement date. The payment obligation
and, in the case of debt securities, the interest rate that will be received on
the securities are generally fixed at the time a Fund enters into the purchase
commitment. During the period between purchase and settlement, no payment is
made by the Fund and, in the case of debt securities, no interest accrues to the
Fund. At the time of settlement, the market value of the security may be more or
less than the purchase price, and the Fund bears the risk of such market value
fluctuations. The Fund will maintain liquid assets, such as cash, U.S.
government securities or other liquid equity or debt securities, having an
aggregate value equal to the purchase price, segregated on the records of either
the Founders or the Fund's custodian until payment is made. A Fund also will
segregate assets in this manner in situations where additional installments of
the original issue price are payable in the future.
29
BORROWING AND LENDING
If a Fund borrows money, its share price may be subject to greater
fluctuation until the borrowing is repaid. Each Fund will attempt to minimize
such fluctuations by not purchasing securities when borrowings are greater than
5% of the value of the Fund's total assets. Interest on borrowings will reduce a
Fund's income. See "Investment Objectives and Restrictions - Fundamental
Investment Restrictions" above for each Fund's limitation on borrowing.
Pursuant to an exemptive order issued by the SEC, the Funds are permitted
to utilize an interfund credit facility that allows each Fund to lend money
directly to and borrow money directly from other Funds for temporary or
emergency purposes in accordance with the Funds' investment policies and
limitations. A Fund may borrow through the facility only when the costs are
equal to or lower than the costs of bank loans. Interfund borrowings normally
extend overnight, but can have a maximum duration of seven days. Loans may be
called on one day's notice. Any delay in repayment to a lending Fund could
result in a lost investment opportunity.
SECURITIES OF OTHER INVESTMENT COMPANIES
Each of the Funds may acquire securities of other investment companies,
subject to the limitations of the 1940 Act, the rules thereunder and/or the
conditions of applicable exemptive orders issued by the SEC. Except as provided
below, no Fund may purchase securities of another investment company if,
immediately after such purchase: (a) the Fund would own more than 3% of the
voting securities of such company, (b) the Fund would have more than 5% of its
total assets invested in the securities of such company, or (c) the Fund would
have more than 10% of its total assets invested in the securities of all such
investment companies. These are referred to hereafter as the "Investment Company
Purchase Limitations." In addition, a Fund may not purchase securities issued by
a closed-end investment company if, immediately after such purchase, the Fund
and any other Funds together own more than 10% of the voting securities of such
closed-end fund. Should a Fund purchase securities of other investment
companies, shareholders may incur additional management, advisory, and
distribution fees.
Each Fund also may invest its un-invested cash reserves or cash it receives
as collateral from borrowers of its portfolio securities in shares of one or
more money market funds advised by Dreyfus. Such investments will not be subject
to the Investment Company Purchase Limitations described above.
Securities of other investment companies that may be purchased by the Funds
include exchange-traded funds ("ETFs"). ETFs are a type of index fund that trade
like a common stock and represent a fixed portfolio of securities designed to
track a particular market index. A Fund may purchase an ETF to temporarily gain
exposure to a portion of the U.S. or a foreign market pending the purchase of
individual securities. The risks of owning an ETF generally reflect the risks of
owning the underlying securities it is designed to track, although the potential
lack of liquidity of an ETF could result in it being more volatile. There is
30
also a risk that the general level of stock prices may decline, thereby
adversely affecting the value of ETFs invested in by a Fund. Moreover, a Fund's
investments in ETFs may not exactly match the performance of a direct investment
in the respective indices to which they are intended to correspond due to the
temporary unavailability of certain index securities in the secondary market or
other extraordinary circumstances, such as discrepancies with respect to the
weighting of securities. Additionally, ETFs have management fees which increase
their costs. An investment by a Fund in an ETF is subject to the Investment
Company Purchase Limitations, except where the ETF has been granted an exemption
from such limitations by the SEC and the Fund has abided by all of the
applicable conditions of the exemption.
For purposes of determining compliance with the investment policies
requiring certain Funds to invest at least 65% or 80% of their assets in
particular types of securities, the Funds are permitted to "look through" their
ETF holdings at the underlying portfolio securities held by the ETFs. For
example, Mid-Cap Growth Fund has a policy of normally investing at least 80% of
its net assets in equity securities of companies within the market
capitalization range of companies comprising the Russell Mid Cap Growth Index.
If this Fund invested 2% of its net assets in an ETF known as a Standard &
Poor's Depository Receipt ("SPDR"), and it is assumed that half of the SPDR's
portfolio is invested in companies within the market capitalization range of the
Russell Mid Cap Growth Index, then half of the Fund's SPDR position, or 1% of
its net assets, would count towards compliance with the Fund's 80% policy.
- --------------------------------------------------------------------------------
DIRECTORS AND OFFICERS
- --------------------------------------------------------------------------------
The Board of Directors of the Company oversees all 8 Dreyfus Founders
Funds. The business and affairs of the Company are managed under the direction
of the Board. All directors of the Company, as listed below, are Independent
Directors, which means they are not "interested persons" (as defined in the 1940
Act). They are not affiliated with the Funds' adviser, its parent company, or
its affiliates. The directors have no official term of office and generally
serve until they retire (normally at age 75, but subject to extension to age
80), resign, or are not reelected.
DIRECTORS
POSITION(S) YEAR
HELD JOINED PRINCIPAL OCCUPATION(S) OTHER
NAME AND AGE WITH COMPANY BOARD DURING PAST FIVE YEARS DIRECTORSHIPS
- ------------ ------------- ------ ------------------------ -------------
EUGENE H. Chairman of 1970 Founding Chairman, Director,
31
POSITION(S) YEAR
HELD JOINED PRINCIPAL OCCUPATION(S) OTHER
NAME AND AGE WITH COMPANY BOARD DURING PAST FIVE YEARS DIRECTORSHIPS
- ------------ ------------- ------ ------------------------ -------------
VAUGHAN, CFA the Board Vaughan Nelson Investment Encore Bank, Houston.
Age: 73 and Director Management, LP, an Founding Chairman,
(1),(3) investment counseling firm. Center for Houston's
Future, a non- profit
organization. Founding
Chairman and former
Governor, CFA Institute.
Past Chairman and
Trustee, Institute of
Chartered Financial
Analysts. Past Chairman
and Director, Financial
Analysts Federation.
ALAN S. Director 1991 Private investor. Formerly, Director, Gore Range
DANSON (1),(3),(4) President and Director, D.H. Natural aScience School
Age: 67 Management, Inc., the genera and The Les Streeter
partner of a limited Program, Inc., both of
partnership with technology which are non-profit
company holdings (1996 to organizations.
2003).
ROBERT P. Director 1998 Private investor. Chairman of Member, Boston Society of
MASTROVITA (3),(4) a private charitable Security Analysts.
Age: 62 foundation (1997 to present). Trustee, Partridge
Formerly, Chairman and Academy.
Director, Hagler, Mastrovita
& Hewitt, Inc., a registered
investment adviser (1982 to
1997).
TRYGVE E. Director 1996 President, Myhren Media, Director, Advanced
MYHREN (1),(2),(4) Inc., a firm that invests in Marketing Services, Inc.
Age: 70 and advises media, Trustee and Chairman of
telecommunications, Internet Finance Committee, the
and software companies. University of Denver.
Special Limited Partner and Trustee, Denver Art
member of Investment Museum. Member, Cable
Committee, Megunticook Funds, Television Hall of Fame.
a venture capital firm (1998
to present). Formerly,
President (1990 to 1996) and
Director (1992 to 2001) of
the Providence Journal
Company, a diversified media
and communications company.
Formerly, Chairman and Chief
Executive Officer of American
Television and Communications
32
POSITION(S) YEAR
HELD JOINED PRINCIPAL OCCUPATION(S) OTHER
NAME AND AGE WITH COMPANY BOARD DURING PAST FIVE YEARS DIRECTORSHIPS
- ------------ ------------- ------ ------------------------ -------------
Corporation (now Time Warner
Cable) (1981 to 1988).
Formerly, Chairman of the
National Cable Television
Association (1986-1987).
GEORGE W. Director (2) 1998 Retired. Formerly, President Vice Chairman of the
PHILLIPS and Chief Executive Officer Board, Chairman of the
Age: 68 (1992 to 1997) and Director Finance Committee, and
(1992 to 2002) of Warren Chairman of the
Bancorp, Inc. Formerly, Investment Committee,
President, Chief Executive Children's Medical Center
Officer and Director of of Boston.
Warren Five Cents Savings
Bank (1992 to 1997).
MARTHA A. Director (2) 2005 Telecommunications Director, Board member and
SOLIS-TURNER Wholesale Markets (1995 to Treasurer, Mile High
Age: 46 2001), and Manager (1990 to Montessori Early Learning
1995), Qwest Communications Centers (2002 to
International Inc. present). Board member
(1995 to 2004) and Vice
President (2002 to 2004),
Curtis Park Community
Center. Both are
non-profit organizations.
(1) Member of Executive Committee
(2) Member of Audit Committee
(3) Member of Investment Integrity Committee
(4) Member of Valuation Committee
COMMITTEES
The committees of the Board are the Executive Committee, Audit Committee,
Investment Integrity Committee and Valuation Committee. The Company also has a
Committee on Directors, composed of all of the directors (all of whom are non-
interested or "independent") and chaired by Mr. Vaughan, which serves as a
nominating committee. The selection and nomination of the Company's independent
directors is a matter left to the discretion of such independent directors. The
Committee on Directors did not meet in 2006. When a vacancy on the Board occurs,
the Committee on Directors considers nominees recommended by Fund shareholders.
Shareholders desiring to recommend a nominee should send a written
recommendation, together with the nominee's resume, to: Chairman, Dreyfus
Founders Funds, Inc., 210 University Boulevard, Suite 800, Denver, CO
80206-4658.
33
Except for certain powers that, under applicable law, may only be exercised
by the full Board of Directors, the Executive Committee may exercise all powers
and authority of the Board of Directors in the management of the business of the
Company. The Executive Committee did not meet in 2006.
The Audit Committee meets periodically with the Company's independent
registered public accounting firm, the Chief Compliance Officer of the Funds,
and the executive officers of Founders. This Committee, which met five times
during 2006, reviews the accounting principles being applied by the Company in
financial reporting, the scope and adequacy of internal controls, the
responsibilities and fees of the Company's independent registered public
accounting firm and other matters. The Investment Integrity Committee, which met
four times during 2006, monitors compliance with several Fund policies,
including those governing brokerage, trade allocations, proxy voting, cross
trades, and the Funds' Code of Ethics. The Valuation Committee, which met four
times during 2006, is responsible for determining the methods used to value Fund
securities for which market quotations are not readily available, subject to the
approval of the Board. In addition to their in-person meetings during 2006, the
members of the Valuation Committee acted on a valuation matter by written
consent.
BENEFICIAL OWNERSHIP OF SECURITIES
The following table gives the dollar range of shares of each Fund, as well
as the aggregate dollar range of all Funds advised by Founders, owned by each
Director as of December 31, 2006.
34
EUGENE H. ALAN S. ROBERT P. TRYGVE E. GEORGE W. MARTHA A.
VAUGHAN DANSON MASTROVITA MYHREN PHILLIPS SOLIS-TURNER
-------- ------- ---------- --------- --------- ------------
Balanced Over None Over $1 - Over None
$100,000 $100,000 $10,000 $100,000
Discovery None None $10,001 - $1 - $10,001 - None
$50,000 $10,000 $50,000
Equity Growth Over None None None None None
$100,000
Growth Over None None $1 - None None
$100,000 $10,000
International Equity Over None $10,001 Over None None
$100,000 $50,000 $100,000
Mid-Cap Growth $50,001 - $50,001 - $10,001 - None None None
$100,000 $100,000 $50,000
Passport Over None $10,001 - $10,001 - Over $1 - $10,000
$100,000 $50,000 $50,000 $100,000
Worldwide Growth Over None None Over Over None
$100,000 $100,000 $100,000
Aggregate Holdings of
Funds in the Dreyfus
Founders Family Over $50,001 - Over Over Over $1 - $10,000
of Funds $100,000 $100,000 $100,000 $100,000 $100,000
None of the Directors owned securities of Founders, the Distributor or
their affiliates as of December 31, 2006.
DIRECTOR COMPENSATION
The following table sets forth, for the fiscal year ended December 31,
2006, the compensation paid by the Company to its directors for services
rendered in their capacities as directors of the Company. The Company has no
plan or other arrangement pursuant to which any of the Company's directors
receive pension or retirement benefits. Therefore, none of the Company's
directors has estimated annual benefits to be paid by the Company upon
retirement.
35
Compensation Table
- ------------------
Total compensation from
Company (10 Funds
Name of Person, Position (1) total) paid to Directors (2)
- --------------------------------- -------------------------------
Eugene H. Vaughan, Chairman and Director $71,500
Alan S. Danson, Director $49,000
Robert P. Mastrovita, Director $55,500
Trygve E. Myhren, Director $44,500
George W. Phillips, Director $56,000
Martha Solis-Turner, Director $47,500
------------------------------
TOTAL $324,0003)
(1) The Chairman of the Board, and the Chairmen of the Company's Audit,
Investment Integrity and Valuation Committees each received compensation
for serving in such capacities in addition to the compensation paid to all
directors.
(2) These amounts include the following amounts of deferred compensation
accrued on behalf of the following directors during 2006: Mr. Mastrovita
$27,750, and Mr. Phillips $56,000.
(3) This amount includes compensation paid to each director for services
rendered in connection with the Dreyfus Founders Government Securities and
Money Market Funds. The Government Securities Fund merged into the Dreyfus
U.S. Treasury Intermediate Term Fund, and the Money Market Fund merged into
Dreyfus Liquid Assets Inc., on September 22, 2006. Both Funds were
terminated as a result of the mergers.
In March 2000, the directors adopted a deferred compensation plan pursuant
to which they may defer all or a portion of the compensation payable to them as
directors of the Company. The deferred amounts are invested in the shares of one
or more Funds. Participating directors therefore may be deemed to have an
indirect interest in the shares of such Funds in addition to any Fund shares
that they may own directly. These indirect interests are included in the table
under "Directors and Officers - Beneficial Ownership of Securities."
OFFICERS
The officers of the Company, their ages, positions with the Company, length
of time served, and their principal occupations for the last five years appear
below. Company officers are elected annually by the Board and continue to hold
office until they resign or are removed, or until their successors are elected.
POSITIONS(S)
NAME WITH COMPANY AND PRINCIPAL OCCUPATION(S) DURING PAST
AND AGE LENGTH OF TIME SERVED FIVE YEARS
- ------------- ----------------------- ---------------------------------------
Thomas F. Eggers President Age: 54 and Mr. Eggers is Chief Executive Officer
Age: 54 Principal Executive (since December 2006) and President
Officer since December (most recently since April 2005) and
2006. a Director (since April 2005) of
Dreyfus. He is also Chairman of the
Board and Chief Executive Officer of
36
POSITIONS(S)
NAME WITH COMPANY AND PRINCIPAL OCCUPATION(S) DURING PAST
AND AGE LENGTH OF TIME SERVED FIVE YEARS
- ------------- ----------------------- ---------------------------------------
Dreyfus Service Corporation (since
April 2005). In addition, Mr. Eggers
serves as Chairman, President and
Chief Executive Officer of Founders
(since December 2006). Mr. Eggers
originally joined Dreyfus in 1996 as
head of Dreyfus Investments, and he
was President of Dreyfus from October
2001 to April 2002. From May 2002 to
March 2005, Mr. Eggers was President
of Scudder Investments.
David L. Ray Vice President since Founders' Senior Vice President,
Age: 49 2000, and from 1990 to Chief Operating Officer (since 2006)
1998. and Treasurer. Vice President of the
Distributor since 2003. Employed by
Founders and its predecessor company
since 1990.
Kenneth R. Christoffersen Secretary since 2000, Founders' Senior Vice President -
Age: 51 and from 1996 to 1998. Legal, General Counsel and Secretary.
Assistant Secretary of the
Distributor since 2003. Employed by
Founders and its predecessor company
since 1996.
Jennifer L. Carnes Treasurer, Principal Manager of Fund Administration for
Age: 35 Financial Officer and Founders since September 2006.
Principal Accounting Formerly, Founders' Supervisor of
Officer since Corporate Actions and Pricing (2002
September 2006. to 2006) and Corporate Actions and
Pricing Specialist (2000 to 2002).
Janelle E. Belcher Chief Compliance Founders' Chief Compliance Officer
Age: 49 Officer since 2004 and since 2004 and Vice President -
Assistant Secretary Compliance since 2002. Formerly,
since 2002. Founders' Manager of Compliance (2000
to 2002) and Securities Compliance
Examiner, Staff Accountant and Team
Leader for the U.S. Securities and
Exchange Commission (1990 to 2000).
Erik D. Naviloff Assistant Treasurer Senior Accounting Manager - Taxable
Age: 39 since September 2006. Fixed Income Funds of Dreyfus, and an
officer of 91 investment companies
(comprised of over 200 portfolios)
managed by Dreyfus. He has been an
employee of Dreyfus since 1990.
Robert S. Robol Assistant Treasurer Senior Accounting Manager - Money
Age: 43 since September 2006. Market and Municipal Bond Funds of
Dreyfus, and an officer of 91
37
POSITIONS(S)
NAME WITH COMPANY AND PRINCIPAL OCCUPATION(S) DURING PAST
AND AGE LENGTH OF TIME SERVED FIVE YEARS
- ------------- ----------------------- ---------------------------------------
investment companies (comprised of
over 200 portfolios) managed by
Dreyfus. He has been an employee of
Dreyfus since 1988.
Robert Svagna Assistant Treasurer Senior Accounting Manager - Equity
Age: 40 since September 2006. Funds of Dreyfus, and an officer of
91 investment companies (comprised of
over 200 portfolios) managed by
Dreyfus. He has been an employee of
Dreyfus since 1990.
William G. Germenis Anti-Money Laundering Vice President and Anti-Money
Age: 36 Compliance Officer for Laundering Officer of MBSC, LLC since
the Class A, Class B, 2002. Vice President and Anti- Money
Class C, Class R, and Laundering Compliance Officer of the
Class T shares since Distributor, and Anti-Money
2002 and for the Class Laundering Compliance Officer of
F shares since 2003. investment companies managed by
Dreyfus. Employed by the Distributor
since 1998.
As of February 28 , 2007, the Company's directors and officers as a group
owned less than 1% of the outstanding shares of each class of each Fund, with
the following exception: International Equity Fund (Class F) 3.0%.
Except for Messrs. Eggers, Naviloff, Robol, Svagna and Germenis, each of
the Company's directors and officers may be contacted at the Funds' address: 210
University Boulevard, Suite 800, Denver, Colorado 80206-4658. Messrs. Eggers,
Naviloff, Robol, Svagna and Germenis may be contacted at The Dreyfus
Corporation, 200 Park Avenue, New York, New York 10166.
- --------------------------------------------------------------------------------
INVESTMENT ADVISER, DISTRIBUTOR AND OTHER SERVICE PROVIDERS
- --------------------------------------------------------------------------------
INVESTMENT ADVISER
Founders serves as investment adviser to the Funds. Founders is a wholly-
owned subsidiary of the Distributor, which is a wholly-owned subsidiary of
Dreyfus, which is a wholly-owned subsidiary of Mellon Financial Corporation
("Mellon Financial"). As described below under "Distributor," the Distributor
serves as the distributor of the Funds. Dreyfus serves as the investment adviser
to the Dreyfus family of mutual funds. The Distributor and Dreyfus are located
at 200 Park Avenue, New York, New York 10166. Mellon Financial is a global
financial holding company incorporated under Pennsylvania law in 1971 and
registered under the Federal Bank Holding Company Act of 1956, as amended.
Mellon Financial is located at One Mellon Bank Center, 500 Grant Street,
38
Pittsburgh, Pennsylvania 15258. Mellon Financial provides a comprehensive range
of financial products and services in domestic and selected international
markets.
Mellon Financial and its affiliates may have deposit, loan and commercial
banking or other relationships with the issuers of securities purchased by a
Fund. Founders has informed the Company that in making its investment decisions
it does not obtain or use material inside information that Mellon Financial or
its affiliates may possess with respect to such issuers.
Under the investment advisory agreement between the Company, on behalf of
each Fund, and Founders, Founders furnishes investment management and
administrative services to the Funds, subject to the overall supervision of the
Board of Directors of the Company. In addition, Founders provides office space
and facilities for the Funds and pays the salaries, fees and expenses of all
Founders officers and other employees connected with the operation of the
Company. Subject to the fee waivers described below, the Funds compensate
Founders for its services by the payment of fees computed daily and paid monthly
as follows:
MID-CAP GROWTH AND GROWTH FUNDS
- --------------------------------------------------------------------------------
On Assets in Excess of But Not Exceeding Annual Fee
- ------------------------ ------------------- ------------------
$0 $30,000,000 1.00%
30,000,000 300,000,000 0.75%
300,000,000 500,000,000 0.70%
500,000,000 --- 0.65%
EQUITY GROWTH AND BALANCED FUNDS
- --------------------------------------------------------------------------------
On Assets in Excess of But Not Exceeding Annual Fee
- ------------------------ ------------------- ------------------
$0 $250,000,000 0.65%
250,000,000 500,000,000 0.60%
500,000,000 750,000,000 0.55%
750,000,000 --- 0.50%
39
DISCOVERY, PASSPORT, INTERNATIONAL EQUITY AND WORLDWIDE GROWTH FUNDS
- --------------------------------------------------------------------------------
On Assets in Excess of But Not Exceeding Annual Fee
- ------------------------- -------------------- ------------------
$0 $250,000,000 1.00%
250,000,000 500,000,000 0.80%
500,000,000 --- 0.70%
The investment advisory fees are calculated based on each Fund's net assets
as a whole, and are then allocated among each Fund's respective Classes based on
their relative net assets.
The net assets of the Funds at the end of fiscal year 2006 were as follows:
Balanced Fund - $63,094,976; Discovery Fund - $291,139,470; Equity Growth Fund -
$229,764,960; Growth Fund - $339,633,429; International Equity Fund -
$46,323,863; Mid-Cap Growth Fund - $184,059,515; Passport Fund - $112,463,652;
and Worldwide Growth Fund - $59,464,963.
The Funds pay all of their expenses not assumed by Founders, including fees
and expenses of all members of the Board of Directors, of advisory boards or of
committees of the Board of Directors; compensation of the Funds' custodian,
transfer agent and other agents; an allocated portion of premiums for insurance
required or permitted to be maintained under the 1940 Act; expenses of computing
the Funds' daily per share net asset value; legal and accounting expenses;
brokerage commissions and other transaction costs; interest; all federal, state
and local taxes (including stamp, excise, income and franchise taxes); fees
payable under federal and state law to register or qualify the Funds' shares for
sale; an allocated portion of fees and expenses incurred in connection with
membership in investment company organizations and trade associations;
preparation of prospectuses (including typesetting) and printing and
distribution thereof to existing shareholders; expenses of local representation
in Maryland; and expenses of shareholder and directors meetings and of
preparing, printing and distributing reports to shareholders. The Company also
has the obligation for expenses, if any, incurred by it in connection with
litigation, proceedings or claims, and the legal obligation it may have to
indemnify its officers and directors with respect thereto. In addition, Class B,
Class C, Class F and Class T shares are subject to an annual distribution fee
and Class A, Class B, Class C, and Class T shares are subject to an annual
service fee. See "Distribution Plans and Shareholder Services Plans."
As described in the applicable Prospectuses, certain expenses of some of
the Funds are being reimbursed or waived voluntarily by Founders or its
affiliates pursuant to a written commitment to the Funds. These fee waivers and
expense limitations are summarized below:
40
BALANCED AND EQUITY GROWTH FUNDS
- --------------------------------
Founders has agreed to reimburse (or to cause its affiliates to reimburse) the
Class R and Class T share classes of the Balanced Fund and the Class T share
class of the Equity Growth Fund for certain transfer agency expenses pursuant to
contractual commitments. These commitments will extend through at least August
31, 2007, and will not be terminated without prior notification to the Company's
Board of Directors.
INTERNATIONAL EQUITY FUND
- -------------------------
Founders has agreed to waive the portion of its annual management fee for
the International Equity Fund that exceeds 0.75% of the Fund's average net
assets, and to limit the annual expenses of the International Equity Fund (net
of any credits received from the Fund's custodian and any brokerage offsets) to
1.40% for the Fund's Class A and Class F shares, 2.15% for the Fund's Class B
and Class C shares, 1.15% for the Fund's Class R shares, and 1.65% for the
Fund's Class T shares. The management fee waiver and expense limitations are
permanent.
For the fiscal years ended December 31 2006, 2005 and 2004, the management
fee for each Fund, the amounts waived by Founders, and the actual net fees paid
by each Fund were as follows:
41
Management Fee Reduction in Fee Net Fee Paid
------------------------------------- ---------------------------- -----------------------------------
Fund 2006 2005 2004 2006 2005 2004 2006 2005 2004
- --------------- ------------- ---------- --------- --------- --------- ------- --------- ---------- ----------
Balanced $426,588 $542,501 $710,424 $0 $0 $0 $426,588 $542,501 $710,424
Discovery $3,368,131 $4,965,602 $6,304,317 $0 $0 $0 $3,368,131 $4,965,602 $6,304,317
Equity Growth $1,422,728 $1,448,888 $1,494,659 $0 $0 $0 $1,422,728 $1,448,888 $1,494,659
Growth $2,549,761 $2,929,053 $3,511,652 $0 $0 $0 $2,549,761 $2,929,053 $3,511,652
International $431,961 $380,617 $385,226 $107,990 $271,337 $96,307 $323,971 $109,280 $288,919
Equity
Mid-Cap $1,181,851 $900,119 $1,044,064 $0 $0 $0 $1,181,851 $900,119 $1,044,064
Growth
Passport $1,111,695 $1,129,577 $1,235,823 $0 $0 $0 $1,111,695 $1,129,577 $1,235,823
Worldwide $579,025 $808,338 $881,782 $0 $0 $0 $579,025 $808,338 $881,782
Growth
42
The advisory agreement between Founders and the Company on behalf of each
of the Funds was approved by the shareholders of each Fund at a shareholders'
meeting of the Company held on February 17, 1998 for an initial term ending May
31, 1999. The advisory agreement was renewed on August 10, 2006 by the Company's
Board of Directors, including all of the Independent Directors, for a period
ending August 31, 2007. The advisory agreement may be continued from year to
year thereafter either by the vote of a majority of the entire Board of
Directors or by the vote of a majority of the outstanding voting securities of
each Fund, and in either case, after review, by the vote of a majority of the
Independent Directors of the Company, cast in person at a meeting called for the
purpose of voting on such approval.
With respect to each Fund, the advisory agreement may be terminated without
penalty at any time by the Board of Directors of the Company or by vote of a
majority of the outstanding securities of the Fund on 60 days' written notice to
Founders or by Founders on 60 days' written notice to the Company. The agreement
will terminate automatically if it is assigned, as that term is defined in the
1940 Act. The agreement provides that each Fund may use the word "Founders" in
its name and business only as long as the agreement remains in effect. Finally,
the agreement provides that Founders shall not be subject to any liability in
connection with matters to which the agreement relates in the absence of willful
misfeasance, bad faith, gross negligence or reckless disregard of duty.
Founders and its predecessor companies have been providing investment management
services since 1938. In addition to serving as adviser to the Funds, Founders
serves as sub-adviser to other mutual funds. The officers of Founders include
Thomas F. Eggers, Chairman, President and Chief Executive Officer; Janelle E.
Belcher, Vice President and Chief Compliance Officer; David T. Buhler, Assistant
Secretary; Kenneth R. Christoffersen, Senior Vice President, General Counsel and
Secretary; John B. Jares, Vice President; Gary R. Pierce, Assistant Treasurer
and David L. Ray, Senior Vice President, Chief Operating Officer and Treasurer.
The affiliations of Messrs. Eggers, Ray, Christoffersen, and Ms. Belcher with
the Company are shown under the "Directors and Officers" section of this SAI.
PORTFOLIO MANAGERS
PORTFOLIO MANAGEMENT. Founders manages each Fund's investments in
accordance with the stated policies of the Fund, subject to the oversight of the
Company's Board. Founders is responsible for investment decisions and provides
the Funds with portfolio managers who execute purchases and sales of securities
for the relevant Fund. The portfolio managers of Balanced Fund are John B. Jares
and Catherine A. Powers (co-primary portfolio managers) and Evan D. Rothschild
and Christopher Pellegrino (additional portfolio managers). Messrs. Jares and
Rothschild are employees of both The Boston Company Asset Management, LLC ("The
43
Boston Company"), an affiliate of Founders, and Founders. Ms. Powers and Mr.
Pellegrino, are employees of both Standish Mellon Asset Management Company LLC,
an affiliate of Founders, and Founders. The portfolio managers of Discovery Fund
are B. Randall Watts, Jr. (primary portfolio manager) and Hans Von der Luft,
each of whom is an employee of both The Boston Company and Founders. The
portfolio managers of Equity Growth and Growth Funds, and the domestic portion
of the Worldwide Growth Fund, are Messrs. Jares (primary portfolio manager) and
Rothschild. The portfolio managers of International Equity Fund and the foreign
portion of the Worldwide Growth Fund are Remi J. Browne and Jeffrey R. Sullivan,
each of whom is an employee of both The Boston Company and Founders. The
portfolio managers of Mid-Cap Growth Fund are Daniel E. Crowe (primary portfolio
manager) and Joseph S. Chin, both of whom are employees of both The Boston
Company and Founders. The portfolio managers of Passport Fund are Daniel B.
LeVan and John W. Evers, both of whom are employees of both The Boston Company
and Founders.
OTHER ACCOUNTS MANAGED. As of December 31, 2006, for each Fund portfolio
manager who manages more than one Fund or who manages other accounts, the
information below shows the number and total assets of the accounts managed by
the portfolio manager. Unless otherwise noted, the advisory fee for these
accounts is not based on the performance of the account.
REMI J. BROWNE
- ------------------------------------------------------------------------------------------------
Dreyfus Other Registered Other Pooled Other Accounts
Founders Funds Investment Companies Investment Managed
Managed Managed Vehicles Managed
Number 2 10* 3 56
Total $106 million $4.8 billion $2.5 billion $9.2 billion
Assets
DANIEL E. CROWE
- ------------------------------------------------------------------------------------------------
Dreyfus Other Registered Other Pooled Other Accounts
Founders Funds Investment Companies Investment Managed
Managed Managed Vehicles Managed
Number 1 0 0 0
Total $184 million $0 $0 $0
Assets
JOHN W. EVERS
- ------------------------------------------------------------------------------------------------
Dreyfus Other Registered Other Pooled Other Accounts
Founders Funds Investment Companies Investment Managed
Managed Managed Vehicles Managed
Number 1 11* 3 56
Total $112 million $4.8 billion $2.5 billion $9.2 billion
Assets
JOHN B. JARES
- ------------------------------------------------------------------------------------------------
Dreyfus Other Registered Other Pooled Other Accounts
Founders Funds Investment Companies Investment Managed
Managed Managed Vehicles Managed
Number 4 6 0 0
Total $692 million $1.3 billion $0 $0
Assets
44
DANIEL B. LEVAN
- ------------------------------------------------------------------------------------------------
Dreyfus Other Registered Other Pooled Other Accounts
Founders Funds Investment Companies Investment Managed
Managed Managed Vehicles Managed
Number 1 11* 3 56
Total $112 million $4.8 billion $2.5 billion $9.2 billion
Assets
CATHERINE A. POWERS
- ------------------------------------------------------------------------------------------------
Dreyfus Other Registered Other Pooled Other Accounts
Founders Funds Investment Companies Investment Managed
Managed Managed Vehicles Managed
Number 1 6 0 64
Total $63 million $1.6 billion $0 $7.9 billion
Assets
JEFFREY R. SULLIVAN
- ------------------------------------------------------------------------------------------------
Dreyfus Other Registered Other Pooled Other Accounts
Founders Funds Investment Companies Investment Managed
Managed Managed Vehicles Managed
Number 2 10* 3 56
Total $106 million $4.8 billion $2.5 billion $9.2 billion
Assets
B. RANDALL WATTS, JR.
- ------------------------------------------------------------------------------------------------
Dreyfus Other Registered Other Pooled Other Accounts
Founders Funds Investment Companies Investment Managed
Managed Managed Vehicles Managed
Number 1 4 2 13
Total Assets $292 million $262 million $102 million $416 million
* The advisory fee for four of these accounts, which have total assets of
$395 million, is based on the performance of each account.
Conflicts of interest may arise when a portfolio manager has day-to-day
management responsibilities with respect to more than one Fund or other account.
More specifically, portfolio managers who manage multiple Funds and/or other
accounts are presented with the following potential conflicts:
o The management of multiple Funds and/or other accounts may result in a
portfolio manager devoting unequal time and attention to the management of
a Fund and/or other account. Founders seeks to manage such competing
interests by having portfolio managers focus on a portfolio investment
discipline. Most other accounts managed by a portfolio manager are managed
45
using the same investment strategies that are used in connection with the
management of the Funds. For accounts managed by a portfolio manager with
differing investment strategies, less time may be spent on an account's
investment strategy than if the portfolio manager only managed accounts
with all of the same investment strategies.
o If a portfolio manager identifies a limited investment opportunity
which may be suitable for more than one Fund or other account, a Fund may
not be able to take full advantage of that opportunity due to an allocation
of filled purchase or sale orders across all eligible Funds and other
accounts. In addition, a portfolio manager potentially could favor a Fund
or other account over others if the portfolio manager has a beneficial
interest in the Fund or account. To deal with these situations, Founders
has adopted procedures designed to ensure that, over time, allocations of
trades and initial public offering ("IPO") securities among eligible Funds
and other accounts is fair and equitable.
o The appearance of a conflict of interest may arise where Founders has
an incentive, such as a performance-based management fee, which relates to
the management of one Fund or account but not all Funds and accounts with
respect to which a portfolio manager has day-to-day management
responsibilities.
Founders and the Funds have adopted certain compliance procedures which are
designed to address these types of conflicts. However, there is no guarantee
that such procedures will detect each and every situation in which a conflict
arises.
In addition, conflicts of interest may arise when a portfolio manager makes
personal investments in securities, including securities that may be purchased
or held by the Funds or other accounts. Founders and the Funds have adopted a
code of ethics that is designed to address such conflicts of interest. See
"Additional Information - Code of Ethics." However, there is no guarantee that
the code of ethics will detect each and every situation in which a conflict
arises.
COMPENSATION. The Funds' portfolio managers are divided into two groups for
compensation purposes: equity portfolio managers and the fixed income manager.
The compensation program applicable to each of these groups is described below.
o EQUITY PORTFOLIO MANAGERS (ALL PORTFOLIO MANAGERS EXCEPT CATHERINE A.
POWERS). These portfolio managers are dual employees of Founders and The Boston
Company, an affiliate of Founders. Their cash compensation is comprised
primarily of a market-based salary and incentive compensation plans (annual and
long term incentive). Funding for The Boston Company Annual Incentive Plan and
Long Term Incentive Plan is through a pre-determined fixed percentage of overall
company profitability. Therefore, all bonus awards are based initially on The
Boston Company's financial performance. The portfolio managers are eligible to
receive annual cash bonus awards from the Annual Incentive Plan. Annual
46
incentive opportunities are pre-established for each individual, expressed as a
percentage of base salary ("target awards"). Annual awards are determined by
applying multiples to this target award (0-2 times target award represents a
portfolio manager's range of opportunity) and are capped at a maximum range of
incentive opportunity for the job category. Awards are 100% discretionary and
regardless of performance will be subject to pool funding availability. Awards
are paid in cash on an annual basis. A significant portion of the target
opportunity awarded is based upon the one-year and three-year (weighted more
heavily) pre-tax performance of the portfolio manager's accounts relative to the
performance of the appropriate Lipper and Callan peer groups. Other factors
considered in determining the award are individual qualitative performance and
the asset size and revenue growth of the products managed.
For research analysts and other investment professionals, awards are
distributed to the respective product teams (in the aggregate) based upon
product performance relative to The Boston Company-wide performance measured on
the same basis as described above. Further allocations are made to specific team
members by the product portfolio manager based upon sector contribution and
other qualitative factors.
All portfolio managers and analysts are also eligible to participate in The
Boston Company Long Term Incentive Plan. This plan provides for an annual award,
payable in cash after a three-year cliff vesting period. The value of the award
increases during the vesting period based upon the growth in The Boston
Company's net income (capped at 20% and with a minimum payout of the Mellon 3
year CD rate).
FIXED-INCOME MANAGER (MS. POWERS). Ms. Powers is a dual employee of Founders
and Standish Mellon Asset Management Company LLC ("Standish Mellon"), an
affiliate of Founders. Her cash compensation is comprised primarily of a
market-based salary and an incentive compensation plan (annual and long-term
incentive). Funding for the Standish Annual Incentive Plan and Long-Term
Compensation Plan is through a pre-determined fixed percentage of overall
Standish Mellon profitability. Therefore, all bonus awards are based initially
on Standish Mellon performance. Investment professionals are eligible to
receive annual cash bonus awards from the incentive compensation plan. Annual
awards are granted in March, for the prior calendar year. Individual awards for
investment professionals are discretionary, based on product performance
relative to both benchmarks and peer comparisons and goals established at the
beginning of each calendar year. Goals are to a substantial degree based on
investment performance, including performance for one and three year periods.
Also considered in determining individual awards are team participation and
general contributions to Standish Mellon.
Ms. Powers also is eligible to participate in the Standish Mellon Long-
Term Incentive Plan. This plan provides for an annual award, payable in deferred
cash that cliff vests after 3 years, with an interest rate equal to the average
year over year earnings growth of Standish Mellon (capped at 20% per year).
Management has discretion with respect to actual participation.
47
Portfolio managers whose compensation exceeds certain levels may elect to
defer portions of their base salaries and/or incentive compensation pursuant to
Mellon Financial's elective deferred compensation plan.
OWNERSHIP OF SECURITIES. The following information shows the beneficial
ownership by each Fund portfolio manager in the Fund(s) they manage, as of
December 31, 2006.
REMI J. BROWNE
--------------
International Equity $10,001 - $50,000
Worldwide Growth $10,001 - $50,000
DANIEL E. CROWE
---------------
Mid-Cap Growth $100,001 - $500,000
JOHN W. EVERS
-------------
Passport None
JOHN B. JARES
-------------
Balanced None
Equity Growth $100,001 - $500,000
Growth $100,001 - $500,000
Worldwide Growth None
DANIEL B. LEVAN
---------------
Passport None
CATHERINE A. POWERS
- -------------------
Balanced None
JEFFREY R. SULLIVAN
-------------------
International Equity $10,001 - $50,000
Worldwide Growth $10,001 - $50,000
48
B. RANDALL WATTS, JR.
---------------------
Discovery None
DISTRIBUTOR
Dreyfus Service Corporation, located at 200 Park Avenue, New York, New York
10166, serves as the Funds' distributor (the "Distributor") on a best efforts
basis. Founders is a wholly-owned subsidiary of the Distributor.
The amounts retained on the sale of Fund shares by the Distributor from
sales loads and contingent deferred sales charges ("CDSCs"), as applicable, with
respect to Class A, Class B, Class C and Class T shares, for the fiscal years
ended December 31, 20065, 2005 and 2004 are set forth below.
YEAR ENDED DECEMBER 31,
-----------------------
2006 2005 2004
BALANCED
Class A $2,026 $1,081 $303
Class B $7,554 $7,895 $6,150
Class C $42 $2 $2
Class T $1 $0 $41
DISCOVERY
Class A $825 $243 $2,399
Class B $18,182 $53,549 $67,480
Class C $1,612 $1,127 $139
Class T $20 $3 $8
EQUITY GROWTH
Class A $3,762 $1,232 $1,157
Class B $3,061 $6,210 $8,955
Class C $304 $2 $163
Class T $1 $35 $0
GROWTH
Class A $1,812 $1,062 $622
Class B $13,336 $34,881 $37,121
Class C $67 $151 $80
Class T $52 $9 $19
INTERNATIONAL EQUITY
Class A $1,435 $278 $94
Class B $3,098 $9,781 $10,862
49
YEAR ENDED DECEMBER 31,
-----------------------
2006 2005 2004
Class C $2 $40 $85
Class T $318 $0 $10
MID-CAP GROWTH
Class A $32,446 $2,891 $572
Class B $5,416 $2,219 $2,629
Class C $599 $44 $269
Class T $543 $0 $33
PASSPORT
Class A $413 $5,945 $6,036
Class B $13,286 $42,377 $60,309
Class C $8,951 $5,578 $3,283
Class T $261 $0 $304
WORLDWIDE GROWTH
Class A $296 $146 $1,546
Class B $3,177 $3,988 $5,371
Class C $649 $2 $19
Class T $1 $0 $0
The provisions for the continuation, termination and assignment of the
Funds' agreement with the Distributor are identical to those described above
with regard to the investment advisory agreement.
The Distributor compensates certain financial institutions (which may
include banks), securities dealers ("Selected Dealers") and other industry
professionals (collectively, "Service Agents") for selling Class A and Class T
shares of the Funds subject to a CDSC, and Class C shares of the Funds at the
time of purchase from its own assets. The Distributor also compensated certain
Service Agents for selling Class B shares at the time of purchase from its own
assets when the Funds offered Class B shares; the Funds no longer offer Class B
shares except in connection with a dividend reinvestment and permitted
exchanges. The proceeds of the CDSC and fees pursuant to the Company's Class B,
C and T Distribution Plan (as described below), in part, are used to defray the
expenses incurred by the Distributor in connection with the sale of the
applicable class of Fund shares. The Distributor also may act as a Service Agent
and retain sales loads and CDSCs and Distribution Plan fees. For purchases of
Class A and Class T shares of the Funds subject to a CDSC, the Distributor
generally will pay Service Agents on new investments made through such Service
Agents a commission of up to 1% of the amount invested. The Distributor
generally will pay Service Agents 1% on new investments of Class C shares made
through Service Agents and generally paid Service Agents 4% on new investments
of Class B shares made through such Service Agents, of the net asset value of
such shares purchase by their clients.
50
The Distributor may pay Service Agents that have entered into agreements
with the Distributor a fee based on the amount invested through such Service
Agents in Fund shares by employees participating in qualified or non-qualified
employee benefit plans, including pension, profit-sharing and other deferred
compensation plans, whether established by corporations, partnerships, non-
profit entities or state and local governments ("Retirement Plans"), or other
programs. The term "Retirement Plans" does not include IRAs, IRA "Rollover
Accounts" or IRAs set up under a Simplified Employee Pension Plan ("SEP-IRAs").
Generally, the Distributor may pay such Service Agents a fee of up to 1.00% of
the amount invested through the Service Agents. The Distributor, however, may
pay Service Agents a higher fee and reserves the right to cease paying these
fees at any time. The Distributor will pay such fees from its own funds, other
than amounts received from the Funds, including past profits or any other source
available to it. Sponsors of such Retirement Plans or the participants therein
should consult their Service Agent for more information regarding any such fee
payable to the Service Agent.
The Distributor may provide additional cash payments out of its own
resources to financial intermediaries that sell shares of the Funds or provide
other services. Such payments are separate from any sales charges, 12b-1 fees,
sub-transfer agency fees and/or shareholder services fees or other expenses paid
by the Funds to those intermediaries. Because those payments are not made by
you or the Funds, the Funds' total expense ratios will not be affected by any
such payments. These additional payments may be made to Service Agents,
including affiliates, that provide shareholder servicing, sub-administration,
record-keeping and/or sub-transfer agency services, marketing support and/or
access to sales meetings, sales representatives and management representatives
of the Service Agent. Cash compensation also may be paid from the Distributor's
own resources to Service Agents for inclusion of a Fund on a sales list,
including a preferred or select sales list or in other sales programs. These
payments sometimes are referred to as "revenue sharing." From time to time, the
Distributor also may provide cash or non-cash compensation to Service Agents or
their representatives in the form of: occasional gifts; occasional meals,
tickets, or other entertainment; support for due diligence trips; educational
conference sponsorship; support for recognition programs; and other forms of
cash or non-cash compensation permissible under broker-dealer regulations, as
periodically amended. In some cases, these payments may create an incentive for
a Service Agent or its employees to recommend or sell shares of a Fund to you.
Please contact your Service Agent for details about any payments they may
receive in connection with the sale of Fund shares or the provision of services
to the Funds.
TRANSFER AGENT AND CUSTODIAN
Dreyfus Transfer, Inc., a wholly-owned subsidiary of Dreyfus, serves as the
Funds' transfer and dividend disbursing agent (the "Transfer Agent"). The
Transfer Agent is located at 200 Park Avenue, New York, New York 10166. Under a
transfer agency agreement with the Company, the Transfer Agent arranges for the
maintenance of shareholder account records for each Fund, the handling of
certain communications between shareholders and the Funds, and the payment of
51
dividends and distributions payable by the Funds. For these services, the
Transfer Agent receives a monthly fee computed on the basis of the number of
shareholder accounts it maintains for the Funds during the month, and is
reimbursed for certain out-of-pocket expenses.
Mellon Bank N.A., a wholly-owned subsidiary of Mellon Financial, acts as
the custodian (the "Custodian") of the Funds' investments, and is located at One
Mellon Bank Center, 500 Grant Street, Pittsburgh, Pennsylvania 15258. The
Custodian has no part in determining the investment policies of the Funds or
which securities are to be purchased or sold by the Funds. Under a custody
agreement with the Funds, the Custodian holds the Funds' securities and keeps
all necessary accounts and records. For its custody services, the Custodian
receives a monthly fee based on the market value of each Fund's assets held in
custody and receives certain securities transaction charges.
- --------------------------------------------------------------------------------
PURCHASE OF SHARES
- --------------------------------------------------------------------------------
GENERAL. Class A, Class C and Class T shares may be purchased only by
clients of certain Service Agents, including the Distributor. Subsequent
purchases may be sent directly to the Transfer Agent, or your Service Agent.
As of June 1, 2006 (the "Effective Date"), Class B shares of each Fund are
offered only in connection with dividend reinvestment and exchanges of Class B
shares of certain other funds advised by Founders or by Dreyfus, or shares of
Dreyfus Worldwide Dollar Money Market Fund, Inc. held in an Exchange Account (as
defined under "Shareholder Services - FUND EXCHANGES FOR CLASSES A, B, C, R AND
T") as a result of a previous exchange of Class B shares. No new or subsequent
investments, including through automatic investment plans, are allowed in Class
B shares of any Fund, except through dividend reinvestment and permitted
exchanges. If you hold Class B shares and make a subsequent investment in Fund
shares, unless you specify the Class of shares you wish to purchase, such
subsequent investment will be made in Class A shares and will be subject to any
applicable sales load. For Class B shares outstanding on the Effective Date and
Class B shares acquired upon reinvestment of dividends, all Class B share
attributes, including associated CDSC schedules, conversion to Class A features
and Distribution Plan and Shareholder Services Plan fees, will continue in
effect.
Class R shares are offered only to (i) bank trust departments and other
financial service providers (including the Custodian and its affiliates) acting
on behalf of their customers having a qualified trust or investment account or
relationship at such institution, or to customers who have received and hold
Class R shares of a Fund distributed to them by virtue of such an account or
relationship, and (ii) institutional investors acting for themselves or in a
52
fiduciary, advisory, agency, custodial or similar capacity for Retirement Plans
and SEP-IRAs. Class R shares may be purchased for a Retirement Plan or SEP-IRA
only by a custodian, trustee, investment manager or other entity authorized to
act on behalf of such Retirement Plan or SEP-IRA. In addition, holders of Class
R shares of a Fund who have held their shares since June 5, 2003 may continue to
purchase Class R shares of the Fund for their existing accounts whether or not
they would otherwise be eligible to do so. Institutions effecting transactions
in Class R shares for the accounts of their clients may charge their clients
direct fees in connection with such transactions.
Class F shares generally are offered only to persons or entities who have
continuously maintained a Class F account with any Fund since December 30, 1999.
These include, without limitation, customers of certain financial institutions
which offer Retirement Plan programs and which have had relationships with
Founders and/or any Fund continuously since December 30, 1999. See the Class F
Prospectus for more detailed information regarding eligibility to purchase Class
F shares.
You will be charged a fee if an investment check is returned unpayable. The
Company does not issue stock certificates.
The Company reserves the right to reject any purchase order. The Company
will not establish an account for a "foreign financial institution," as that
term is defined in Department of the Treasury rules implementing section 312 of
the USA PATRIOT Act of 2001. Foreign financial institutions include: foreign
banks (including foreign branches of U.S. depository institutions); foreign
offices of U.S. securities broker-dealers, futures commission merchants, and
mutual funds; non-U.S. entities that, if they were located in the United States,
would be securities broker-dealers, futures commission merchants or mutual
funds; and non-U.S. entities engaged in the business of a currency dealer or
exchanger or a money transmitter.
When purchasing Fund shares, you must specify which Class is being
purchased. Your Service Agent can help you choose the share class that is
appropriate for your investment. The decision as to which Class of shares is
most beneficial to you depends on a number of factors, including the amount and
the intended length of your investment in the Fund. Please refer to the Funds'
prospectuses for a further discussion of those factors.
In many cases, neither the Distributor nor the Transfer Agent will have the
information necessary to determine whether a quantity discount or reduced sales
charge is applicable to a purchase. You or your Service Agent must notify the
Distributor whenever a quantity discount or reduced sales charge is applicable
to a purchase and must provide the Distributor with sufficient information at
the time of purchase to verify that each purchase qualifies for the privilege or
discount.
Service Agents may receive different levels of compensation for selling
different Classes of shares. Management understands that some Service Agents may
impose certain conditions on their clients which are different from those
53
described in the Company's Prospectuses and this SAI and, to the extent
permitted by applicable regulatory authority, may charge their clients direct
fees. As discussed under "Investment Adviser, Distributor and Other Service
Providers - Distributor," Service Agents may receive revenue sharing payments
from the Distributor. The receipt of such payments could create an incentive for
a Service Agent to recommend or sell shares of a Fund instead of other mutual
funds where such payments are not received. Please contact your Service Agent
for details about any payments they may receive in connection with the sale of
Fund shares or the provision of services to the Funds.
Except as stated below, the minimum initial investment for all Classes is
$1,000, and the minimum subsequent investment is $100. However, with respect to
Class F, the minimum initial investment for IRA and UGMA/UTMA accounts is $500,
and there is no minimum required if you begin an automatic investment plan or
payroll deduction program of $50 or more per month or per pay period. With
respect to Classes A, C and T, the minimum initial investment is $750 for
Dreyfus-sponsored Keogh Plans, IRAs (including regular IRAs, spousal IRAs for a
non-working spouse, Roth IRAs, SEP-IRAs and IRA "Rollover Accounts") and
403(b)(7) Plans with only one participant and $500 for Dreyfus-sponsored
Education Savings Accounts, with no minimum for subsequent purchases. The
initial investment must be accompanied by the Account Application. With respect
to Classes A, B, C, R and T, for full-time or part-time employees of Founders or
any of its affiliates or subsidiaries who elect to have a portion of their pay
directly deposited into their Fund accounts, the minimum initial investment is
$50. Fund shares are offered without regard to the minimum initial investment
requirements to Board members of a Fund advised by Founders, including members
of the Company's Board, who elect to have all or a portion of their compensation
for serving in that capacity automatically invested in a Fund. The Company
reserves the right to offer Fund shares without regard to minimum purchase
requirements to employees participating in certain Retirement Plans or other
programs where contributions or account information can be transmitted in a
manner and form acceptable to the Company. The Company reserves the right to
vary further the initial and subsequent investment minimum requirements at any
time.
Founders' employees and their household family members may open accounts in
Class F shares of a Fund with a minimum initial investment of $250. The minimum
additional investment by such persons is $25. Subsequent investments for
employees for all other Classes is $100. The Internal Revenue Code of 1986, as
amended (the "Code"), imposes various limitations on the amount that may be
contributed to certain Retirement Plans or government-sponsored programs. These
limitations apply with respect to participants at the plan level and, therefore,
do not directly affect the amount that may be invested in a Fund by a Retirement
Plan or government-sponsored programs. Participants and plan sponsors should
consult their tax advisers for details.
The minimum initial investment through an exchange for Class B shares of a
Fund is $1,000. Subsequent exchanges for Class B shares of a Fund must be at
least $500.
54
The Funds' (all Classes) minimum subsequent investment requirements will
be waived on investments made through the Dreyfus Managed Assets Program or
through other wrap account programs.
Class A, C, R and T shares also may be purchased through Dreyfus Automatic
Asset Builder{reg-trade-mark}, Dreyfus Payroll Savings Plan and Dreyfus
Government Direct Deposit Privilege described under "Shareholder Services."
These services enable you to make regularly scheduled investments and may
provide you with a convenient way to invest for long-term financial goals. You
should be aware, however, that periodic investment plans do not guarantee a
profit and will not protect an investor against loss in a declining market.
Fund shares are sold on a continuous basis. Net asset value per share is
determined as described under "Pricing of Shares."
If an order is received in proper form by the Transfer Agent or any other
entity authorized to receive orders on behalf of the Company by the close of
regular trading on the floor of the New York Stock Exchange (the "NYSE")
(usually 4:00 p.m. Eastern time) on a day the NYSE is open, Fund shares will be
purchased at the public offering price determined as of the close of trading on
the floor of the NYSE on that day. Otherwise, Fund shares will be purchased at
the public offering price determined as of the close of regular trading on the
floor of the NYSE on the next day the NYSE is open, except where shares are
purchased through a dealer as provided below.
Orders for the purchase of Fund shares received by dealers by the close of
regular trading on the floor of the NYSE on a day the NYSE is open and
transmitted to the Distributor or its designee by the close of its business day
(usually 5:15 p.m. Eastern time) will be based on the public offering price per
share determined as of the close of regular trading on the floor of the NYSE on
that day. Otherwise, the orders will be based on the next determined public
offering price. It is the dealer's responsibility to transmit orders so that
they will be received by the Distributor or its designee before the close of its
business day. For certain institutions that have entered into agreements with
the Distributor, payment for the purchase of Fund shares may be transmitted, and
must be received by the Transfer Agent, within three business days after the
order is placed. If such payment is not received within three business days
after the order is placed, the order may be canceled and the institution could
be held liable for resulting fees and/or losses.
Federal regulations require that you provide a certified taxpayer
identification number ("TIN") upon opening or reopening an account. See the
Account Application for further information concerning this requirement. Failure
to furnish a certified TIN to the Company could subject you to a $50 penalty
imposed by the Internal Revenue Service.
CLASS A SHARES. The public offering price for Class A shares of the Funds
is the net asset value per share of that Class plus a sales load as shown below:
55
Total Sales Load* - Class A
------------------------------------------------------
As a % of As a % of net Dealers'
Amount of offering price asset value Reallowance as a
Transaction per share per share % of offering
- ---------------------- ---------------- --------------- -----------------
Less than $50,000 5.75 6.10 5.00
$50,000 to less than 4.50 4.70 3.75
$100,000
$100,000 to less than 3.50 3.60 2.75
$250,000
$250,000 to less than 2.50 2.60 2.25
$500,000
$500,000 to less than 2.00 2.00 1.75
$1,000,000
$1,000,000 or more -0- -0- -0-
* Due to rounding, the actual sales load you pay may be more or less than
that calculated using these percentages.
A contingent deferred sales charge ("CDSC") of 1% will be assessed at the
time of redemption of Class A shares purchased without an initial sales charge
as part of an investment of at least $1,000,000 and redeemed within one year of
purchase. The Distributor may pay Service Agents an up-front commission of up to
1% of the net asset value of Class A shares purchased by their clients as part
of a $1,000,000 or more investment in Class A shares that are subject to a CDSC.
See "Investment Adviser, Distributor and Other Service Providers - Distributor".
CLASS B SHARES. Class B shares of each Fund are offered only in connection
with dividend reinvestment and permitted exchanges of Class B shares of certain
other funds. The public offering price for such Class B shares is the net asset
value per share of the Class. No initial sales charge is imposed at the time of
dividend reinvestment or exchange. A CDSC is imposed, however, on certain
redemptions of Class B shares as described in the relevant Fund's Prospectus and
in this SAI under "Redemption of Shares - Contingent Deferred Sales Charge -
Class B Shares."
Approximately six years after the date of purchase, Class B shares
automatically will convert to Class A shares, based on the relative net asset
values for shares of each such Class. Class B shares of a Fund that have been
acquired through the Fund's reinvestment of dividends and distributions will be
converted on a pro rata basis together with other Class B shares, in the
proportion that a shareholder's Class B shares converting to Class A shares
bears to the total Class B shares held by the shareholder not acquired through
the reinvestment of the Fund's dividends and distributions.
CLASS C SHARES. The public offering price for Class C shares is the net
asset value per share of that Class. No initial sales charge is imposed at the
56
time of purchase. A CDSC is imposed, however, on redemptions of Class C shares
made within the first year of purchase. See "Redemption of Shares - Contingent
Deferred Sales Charge - Class C Shares."
CLASS F AND CLASS R SHARES. The public offering price for Class F and Class
R shares is the net asset value per share of the respective Class.
CLASS T SHARES. The public offering price for Class T shares is the net
asset value per share of that Class plus a sales load as shown below:
Total Sales Load* - Class T
----------------------------------
As a % of As a % of net Dealers'
Amount of offering price asset value Reallowance as a
Transaction per share per share % of offering
- -------------------- ---------------- ----------------- ---------------------
Less than $50,000 4.50 4.70 4.00
$50,000 to less than 4.00 4.20 3.50
$100,000
$100,000 to less than 3.00 3.10 2.50
$250,000
$250,000 to less than 2.00 2.00 1.75
$500,000
$500,000 to less than 1.50 1.50 1.25
$1,000,000
$1,000,000 or more -0- -0- -0-
* Due to rounding, the actual sales load you pay may be more or less than
that calculated using these percentages.
A CDSC of 1.00% will be assessed at the time of redemption of Class T
shares purchased without an initial sales charge as part of an investment of at
least $1,000,000 and redeemed within one year of purchase. The Distributor may
pay Service Agents an amount up to 1% of the net asset value of Class T shares
purchased by their clients that are subject to a CDSC. See "Investment Adviser,
Distributor and Other Service Providers - Distributor." Because the expenses
associated with Class A shares will be lower than those associated with Class T
shares, purchasers investing $1,000,000 or more in a Fund will generally find it
beneficial to purchase Class A shares rather than Class T shares.
DEALER REALLOWANCE -- CLASS A AND CLASS T SHARES. The dealer reallowance
provided with respect to Class A and Class T shares may be changed from time to
time but will remain the same for all dealers.
CLASS A OR CLASS T SHARES OFFERED AT NET ASSET VALUE. Full-time employees
of NASD member firms and full-time employees of other financial institutions
57
which have entered into an agreement with the Distributor pertaining to the sale
of Fund shares (or which otherwise have a brokerage related or clearing
arrangement with an NASD member firm or financial institution with respect to
the sale of such shares) may purchase Class A shares for themselves directly or
pursuant to an employee benefit plan or other program (if Fund shares are
offered to such plans or programs), or for their spouses or minor children, at
net asset value without a sales load, provided they have furnished the
Distributor with such information as it may request from time to time in order
to verify eligibility for this privilege. This privilege also applies to full-
time employees of financial institutions affiliated with NASD member firms whose
full-time employees are eligible to purchase Class A shares at net asset value.
In addition, Class A shares are offered at net asset value to full-time or part-
time employees of Founders or any of its affiliates or subsidiaries, members of
Founders' Board of Managers, members of the Company's Board, members of the
board of directors/trustees of any fund managed by an affiliate of Founders, or
the spouse or minor child of any of the foregoing. This policy enables persons
who are involved in the management, distribution or oversight of the Funds to
have ownership stakes in the Funds if they so desire without the necessity of
paying a sales load.
Class A and Class T shares are offered at net asset value without a sales
load to employees participating in Retirement Plans. Class A and Class T shares
also may be purchased (including by exchange) at net asset value without a sales
load for Dreyfus-sponsored IRA "Rollover Accounts" with the distribution
proceeds from a Retirement Plan or a Dreyfus-sponsored 403(b)(7) plan, provided
that, in the case of a Retirement Plan, the rollover is processed through an
entity that has entered into an agreement with the Distributor specifically
relating to processing rollovers. Upon establishing the Rollover Account in the
Fund, the shareholder becomes eligible to make subsequent purchases of Class A
or Class T shares of the Fund at net asset value in such account.
Class A shares may be purchased at net asset value without a sales load:
o By qualified investors who (i) purchase Class A shares directly through
the Distributor, and (ii) have, or whose spouse or minor children have,
beneficially owned shares and continuously maintained an open account
directly through the Distributor in a Founders-managed Fund or a Dreyfus-
managed fund since on or before February 28, 2006;
o With the cash proceeds from an investor's exercise of employment-related
stock options, whether invested in a Fund directly or indirectly through
an exchange from a Dreyfus-managed money market fund, provided that the
proceeds are processed through an entity that has entered into an
agreement with the Distributor specifically relating to processing stock
options. Upon establishing the account in a Fund or the Dreyfus-managed
money market fund, the investor and the investor's spouse and minor
children become eligible to purchase Class A shares of the Fund at net
asset value, whether or not using the proceeds of the employment-related
stock options;
58
o By members of qualified affinity groups who purchase Class A shares
directly through the Distributor, provided that the qualified affinity
group has entered into an affinity agreement with the Distributor;
o Through certain broker-dealers and other financial institutions which have
entered into an agreement with the Distributor, which includes a
requirement that such shares be sold for the benefit of clients
participating in a "wrap account" or a similar program under which such
clients pay a fee to such broker-dealer or other financial institution;
and
Subject to appropriate documentation, by (i) qualified separate accounts
maintained by an insurance company pursuant to the laws of any State or
territory of the United States, (ii) a State, county or city or instrumentality
thereof, (iii) a charitable organization (as defined in Section 501(c)(3) of the
Code) investing $50,000 or more in Fund shares, and (iv) a charitable remainder
trust (as defined in Section 501(c)(3) of the Code).
SALES LOADS -- CLASS A AND CLASS T SHARES. The scale of sales loads applies
to purchases of Class A and Class T shares made by any "purchaser," which term
includes an individual and/or spouse purchasing securities for his, her or their
own account or for the account of any minor children, or a trustee or other
fiduciary purchasing securities for a single trust estate or a single fiduciary
account (including a pension, profit-sharing or other employee benefit trust
created pursuant to a plan qualified under Section 401 of the Code) although
more than one beneficiary is involved; or a group of accounts established by or
on behalf of the employees of an employer or affiliated employers pursuant to an
employee benefit plan or other program (including accounts established pursuant
to Sections 403(b), 408(k) and 457 of the Code); or an organized group which has
been in existence for more than six months, provided that it is not organized
for the purpose of buying redeemable securities of a registered investment
company and provided that the purchases are made through a central
administration or a single dealer, or by other means which result in economy of
sales effort or expense.
Set forth below is an example of the method of computing the offering price
of each Fund's Class A shares. Each example assumes a purchase of Class A shares
aggregating less than $50,000, subject to the schedule of sales charges set
forth above at a price based upon the net asset value of the Fund's Class A
shares on December 31, 2006. Actual offering price may differ from the offering
price listed in the table.
59
Per Share Sales
Charge - 5.75% of Per Share
offering price Offering
Net Asset Value (6.10% of net asset Price to the
Fund per Share value per share) Public
Balanced $9.20 $0.56 $9.76
Discovery $30.09 $1.84 $31.93
Equity Growth $5.72 $0.35 $6.07
Growth $12.34 $0.75 $13.09
International Equity $16.70 $1.02 $17.72
Mid-Cap Growth $5.80 $0.35 $6.15
Passport $26.22 $1.60 $27.82
Worldwide Growth $16.91 $1.03 $17.94
Set forth below is an example of the method of computing the offering price
of each Fund's Class T shares. Each example assumes a purchase of Class T shares
aggregating less than $50,000 subject to the schedule of sales charges set forth
above at a price based upon the net asset value of the Fund's Class T shares on
December 31, 2006. Actual offering price may differ from the offering price
listed in the table.
Per Share Sales
Charge - 4.50% of Per Share
offering price Offering
Net Asset Value (4.70% of net asset Price to the
Fund per Share value per share) Public
Balanced $9.47 $0.45 $9.92
Discovery $29.21 $1.38 $30.59
Equity Growth $5.45 $0.26 $5.71
Growth $11.78 $0.56 $12.34
International Equity $16.62 $0.78 $17.40
Mid-Cap Growth $5.44 $0.26 $5.70
Passport $24.90 $1.17 $26.07
Worldwide Growth $15.79 $0.74 $16.53
RIGHT OF ACCUMULATION -- CLASS A AND CLASS T SHARES. Reduced sales loads
apply to any purchase of Class A and Class T shares by you and any related
"purchaser" as defined above, where the aggregate investment including such
purchase is $50,000 or more. If, for example, you previously purchased and still
hold Class A and Class T shares of a Fund, or shares of certain other funds
advised by Dreyfus or Founders which are subject to a sales load or shares
acquired by a previous exchange of such shares (hereinafter referred to as
"Eligible Funds"), or combination thereof, with an aggregate current market
value of $40,000 and subsequently purchase Class A or Class T shares of such
60
Fund having a current value of $20,000, the sales load applicable to the
subsequent purchase would be reduced to 4.50% of the offering price in the case
of Class A shares, or 4.00% of the offering price in the case of Class T shares.
All present holdings of Eligible Funds may be combined to determine the current
offering price of the aggregate investment in ascertaining the sales load
applicable to each subsequent purchase.
To qualify for reduced sales loads, at the time of purchase you or your
Service Agent must notify the Distributor if orders are made by wire, or the
Transfer Agent if orders are made by mail. The reduced sales load is subject to
confirmation of your holdings through a check of appropriate records.
DREYFUS TELETRANSFER PRIVILEGE. You may purchase Fund shares (except Class
B shares) by telephone or online if you have checked the appropriate box and
supplied the necessary information on the Account Application or have filed a
Shareholder Services Form with the Transfer Agent. The proceeds will be
transferred between the bank account designated in one of these documents and
your Fund account, which will subject the purchase order to a processing delay.
Only a bank account maintained in a domestic financial institution which is an
Automated Clearing House member may be so designated.
Dreyfus TeleTransfer purchase orders may be made at any time. If purchase
orders are received by 4:00 p.m. Eastern time, on any day that the Transfer
Agent and the NYSE are open for regular business, Fund shares will be purchased
at the public offering price determined on the next bank regular business day
following such purchase order. If purchase orders are made after 4:00 p.m.
Eastern time, on any day the Transfer Agent and the NYSE are open for regular
business, or on Saturday, Sunday or any Fund holiday (e.g., when the NYSE is not
open for business), Fund shares will be purchased at the public offering price
determined on the second bank business day following such purchase order. To
qualify to use Dreyfus TeleTransfer Privilege, the initial payment for purchase
of shares must be drawn on, and redemption proceeds paid to, the same bank and
account as are designated on the Account Application or Shareholder Services
Form on file. If the proceeds of a particular redemption are to be sent to an
account at any other bank, the request must be in writing and signature-
guaranteed. See "Redemption of Shares - Dreyfus TeleTransfer Privilege."
REOPENING AN ACCOUNT. You may reopen an account with a minimum investment
of $100 without filing a new Account Application during the calendar year the
account is closed or during the following calendar year, provided the
information on the old Account Application is still applicable.
61
- --------------------------------------------------------------------------------
DISTRIBUTION PLANS AND SHAREHOLDER SERVICES PLAN
- --------------------------------------------------------------------------------
Class B, Class C, Class F and Class T shares are each subject to a
Distribution Plan and Class A, Class B, Class C, and Class T shares are each
subject to a Shareholder Services Plan.
DISTRIBUTION PLANS
CLASS B, CLASS C AND CLASS T SHARES. Rule 12b-1 (the "Rule") adopted by the
SEC under the 1940 Act provides, among other things, that an investment company
may bear expenses of distributing its shares only pursuant to a plan adopted in
accordance with the Rule. The Company's Board has adopted such a plan with
respect to the Funds' Class B, Class C and Class T shares (the "Class B, C and T
Distribution Plan") pursuant to which each such Fund pays the Distributor for
distributing its Class B and Class C shares for a fee at the annual rate of
0.75% of the value of the average daily net assets of Class B and Class C shares
of such Fund, respectively, and pays the Distributor for distributing its Class
T shares for a fee at the annual rate of 0.25% of the value of the average daily
net assets of Class T shares of such Fund. The Distributor may pay one or more
Service Agents in respect of advertising, marketing and other distribution
services for Class B, Class C and Class T shares, and determines the amounts, if
any, to be paid to Service Agents and the basis on which such payments are made.
The Company's Board believes that there is a reasonable likelihood that the
Class B, C and T Distribution Plan will benefit the Company and holders of its
Class B, Class C and Class T shares, respectively.
The table below lists the total amounts paid by each Fund to the
Distributor pursuant to the Class B, C and T Distribution Plan for the fiscal
year ended December 31, 2006.
Fiscal Year Ended December 31, 2006
Fund Class B Class C Class T
Balanced $4,347 $1,373 $125
Discovery $52,818 $28,343 $704
Equity Growth $8,525 $17,569 $31
Growth $42,782 $10,084 $173
International Equity $10,757 $4,604 $415
Mid-Cap Growth $14,169 $19,862 $142
Passport $47,580 $55,386 $1,260
Worldwide Growth $9,594 $2,443 $79
62
CLASS F SHARES. The Company also has adopted a plan pursuant to the Rule
with respect to the Class F shares (the "Class F Distribution Plan") of all
Funds. Pursuant to the Class F Distribution Plan, each Fund pays for
distribution and related services at an annual rate that may be less than, but
that may not exceed, 0.25% of the average daily net assets of Class F shares of
that Fund. These fees may be used to pay directly, or to reimburse the
Distributor for paying, expenses in connection with distribution of the Funds'
Class F shares and related activities including: preparation, printing and
mailing of prospectuses, reports to shareholders (such as semiannual and annual
reports, performance reports and newsletters), sales literature and other
promotional material to prospective investors; direct mail solicitation;
advertising; public relations; compensation of sales personnel, brokers,
financial planners, or others for their assistance with respect to the
distribution of the Funds' Class F shares, including compensation for such
services to personnel of Founders or of affiliates of Founders; providing
payments to any financial intermediary for shareholder support, administrative,
and accounting services with respect to the Class F shareholders of the Fund;
and such other expenses as may be approved from time to time by the Company's
Board of Directors and as may be permitted by applicable statute, rule or
regulation.
Payments under the Class F Distribution Plan may be made only to reimburse
expenses paid during a rolling twelve-month period, subject to the annual
limitation of 0.25% of average daily net assets. Any reimbursable expenses paid
in excess of this limitation are not reimbursable and will be borne by the
Distributor. As of December 31, 2006, the Distributor had paid the following
distribution-related expenses on behalf of the Funds, which had not been
reimbursed pursuant to the Class F Distribution Plan:
% of Average
Fund Amount Net Assets
Balanced $106,537.87 0.16%
Discovery $7,327.54 0.00%
Equity Growth $(8,349.27) 0.00%
Growth $49,969.56 0.02%
International Equity $846.45 0.00%
Mid-Cap Growth $4,051.13 0.00%
Passport $13,174.81 0.01%
Worldwide Growth $32,367.09 0.06%
TOTAL $205,925.18
During the fiscal year ended December 31, 2006, the Distributor expended
the following amounts in marketing the Class F shares of the Funds pursuant to
the Class F Distribution Plan: advertising, $0; printing and mailing of
prospectuses to other than current shareholders, $48,325; payment of
compensation to third parties for distribution and shareholder support services,
63
$1,309,465; and online, sales literature and other communications, $333,700. The
Distributor was reimbursed for these amounts under the Plan.
PROVISIONS APPLICABLE TO ALL CLASSES. The benefits that the Board believes
are reasonably likely to flow to the Funds and their shareholders under the
Distribution Plans include, but are not limited to: (1) enhanced marketing
efforts which, if successful, may result in an increase in net assets through
the sale of additional shares, thereby providing greater resources to pursue the
Funds' investment objectives; (2) increased name recognition for the Funds
within the mutual fund industry, which may help instill and maintain investor
confidence; (3) positive cash flow into the Funds, and the retention of existing
assets, which assists in portfolio management; (4) the positive effect which
increased Fund assets could have on revenues could allow Founders and/or its
affiliates that provide services to the Funds to acquire and retain talented
employees who desire to be associated with a growing organization; (5) the
positive effect which increased Fund assets could have on the Distributor's
revenues could allow the Distributor to have greater resources to make the
financial commitments necessary to continue to improve the quality and level of
shareholder services; and (6) increased Fund assets may result in reducing each
shareholder's share of certain expenses through economies of scale, such as by
exceeding breakpoints in the advisory fee schedules and allocating fixed
expenses over a larger asset base (or, viewed another way, the failure to retain
existing assets could result in the reduction or loss of current economies of
scale).
Payments made by a particular Fund Class under a Distribution Plan may not
be used to finance the distribution of shares of any other Fund Class. In the
event that an expenditure may benefit more than one Fund Class, it is allocated
among the applicable Fund Classes on an equitable basis.
A quarterly report of the amounts expended under each Distribution Plan,
and the purposes for which such expenditures were incurred, must be made to the
Board for its review. In addition, each Distribution Plan provides that it may
not be amended to increase materially the costs which holders of the Company's
Class B, Class C, Class F or Class T shares of any Fund may bear pursuant to the
respective Distribution Plan without the approval of the respective holders of
such shares and that other material amendments of the Distribution Plans must be
approved by the Company's Board, and by the Board members who are not
"interested persons" (as defined in the 1940 Act) of the Company and have no
direct or indirect financial interest in the operation of the Distribution Plans
or in any agreements entered into in connection with the Distribution Plans, by
vote cast in person at a meeting called for the purpose of considering such
amendments.
Each Distribution Plan is subject to annual approval by the Company's Board
of Directors, by such vote cast in person at a meeting called for the purpose of
voting on the Distribution Plan. Each Distribution Plan was approved and renewed
on August 10, 2006 by the Board, including all of the Independent Directors, for
the period ending August 31, 2007. As to the relevant Class of shares of any
64
Fund, the Distribution Plan may be terminated at any time by vote of a majority
of the Board members who are not "interested persons" and have no direct or
indirect financial interest in the operation of the Distribution Plan or in any
agreements entered into in connection with the Distribution Plan or by vote of
the holders of a majority of such Class of shares of such Fund.
So long as any Distribution Plan is in effect for any Class of shares of
any Fund, the selection and nomination of persons to serve as independent
directors of the Company shall be committed to the Independent Directors then in
office at the time of such selection or nomination.
SHAREHOLDER SERVICES PLAN
The Company has adopted a Shareholder Services Plan with respect to the
Funds' Class A, Class B, Class C and Class T shares (the "Shareholder Services
Plan"). Under the Shareholder Services Plan, each Fund's Class A, Class B, Class
C and Class T shares pays the Distributor a fee at the annual rate of 0.25% of
the value of the average daily net assets of the respective Class for the
provision of certain services to the holders of shares of that Class. The
services provided may include personal services relating to shareholder
accounts, such as answering shareholder inquiries regarding the Fund and
providing reports and other information, and services related to the maintenance
of such shareholder accounts. Under the Shareholder Services Plan, the
Distributor may make payments to Service Agents in respect of these services.
A quarterly report of the amounts expended under the Shareholder Services
Plan, and the purposes for which such expenditures were incurred, must be made
to the Board for its review. In addition, the Shareholder Services Plan provides
that material amendments must be approved by the Company's Board, and by the
Board members who are not "interested persons" (as defined in the 1940 Act) of
the Company and have no direct or indirect financial interest in the operation
of the Shareholder Services Plan or in any agreements entered into in connection
with the Shareholder Services Plan, by vote cast in person at a meeting called
for the purpose of considering such amendments. The Shareholder Services Plan is
subject to annual approval by such vote cast in person at a meeting called for
the purpose of voting on the Shareholder Services Plan. The Shareholder Services
Plan was initially approved by the Board at a meeting on August 13, 1999 and was
renewed on August 10, 2006 by the Board, including all of the Independent
Directors, for the period ending August 31, 2007. As to the relevant Class of
shares of any Fund, the Shareholder Services Plan is terminable at any time by
vote of a majority of the Board members who are not "interested persons" and who
have no direct or indirect financial interest in the operation of the
Shareholder Services Plan or in any agreements entered into in connection with
the Shareholder Services Plan.
65
Set forth below are the total amounts paid by each Fund pursuant to the
Shareholder Services Plan to the Distributor, for the Fund's fiscal year ended
December 31, 2006:
Total Amount Paid
Pursuant to Shareholder
Fund Services Plan
Balanced
Class A $4,699
Class B $1,762
Class C $457
Class T $125
Discovery
Class A $116,005
Class B $17,606
Class C $9,447
Class T $704
Equity Growth
Class A $5,065
Class B $2,842
Class C $5,856
Class T $31
Growth
Class A $21,910
Class B $14,261
Class C $3,361
Class T $173
International Equity
Class A $70,032
Class B $3,586
Class C $1,534
Class T $415
Mid-Cap Growth
Class A $33,613
Class B $4,723
Class C $6,621
66
Total Amount Paid
Pursuant to Shareholder
Fund Services Plan
Class T $142
Passport
Class A $77,034
Class B $15,860
Class C $18,462
Class T $1,260
Worldwide Growth
Class A $2,897
Class B $3,198
Class C $814
Class T $79
- --------------------------------------------------------------------------------
REDEMPTION OF SHARES
- --------------------------------------------------------------------------------
GENERAL. Each Fund ordinarily will make payment for all shares redeemed
within seven days after receipt by the Transfer Agent of a redemption request in
proper form, except as provided by the rules of the SEC. (We consider
redemptions to be received in good order upon receipt of the required documents
as described in the applicable Prospectus.) However, if you have purchased Class
A, C, R or T shares by check, by Dreyfus TeleTransfer privilege or through
Dreyfus-Automatic Asset Builder{reg-trade-mark} and subsequently submit a
written redemption request to the Transfer Agent, the Fund may delay sending the
redemption proceeds for up to eight business days after the purchase of such
shares. In addition, the Fund will reject requests to redeem shares by wire,
telephone, online or pursuant to the Dreyfus TeleTransfer Privilege for a period
of up to eight business days after receipt by the Transfer Agent of the purchase
check, the Dreyfus TeleTransfer purchase or the Dreyfus-Automatic Asset
Builder{reg-trade-mark} order against which such redemption is requested. These
procedures will not apply if your shares were purchased by wire payment, or if
you otherwise have a sufficient collected balance in your account to cover the
redemption request. Fund shares will not be redeemed until the Transfer Agent
has received your Account Application. Similar restrictions for redemptions of
Class F shares are described in the Class F Prospectus.
If you hold Fund shares of more than one Class, any request for redemption
must specify the Class of shares being redeemed. If you fail to specify the
Class of shares to be redeemed, or if you own fewer shares of the Class than
67
specified to be redeemed, the redemption request may be delayed until the
Transfer Agent receives further instructions from you or your Service Agent.
The Funds impose no charges (other than any applicable CDSC) when shares
are redeemed, although a $6 fee will be assessed for wire redemptions of Class F
shares. Service Agents may charge their clients a fee for effecting redemptions
of Fund shares. The value of the shares redeemed may be more or less than their
original cost, depending upon the applicable Fund's then-current net asset
value.
CONTINGENT DEFERRED SALES CHARGE -- CLASS B SHARES. A CDSC payable to the
Distributor is imposed on any redemption of Class B shares which reduces the
current net asset value of your Class B shares to an amount which is lower than
the dollar amount of all payments by you for the purchase of Class B shares of
the applicable Fund held by you at the time of redemption. No CDSC will be
imposed to the extent that the net asset value of the Class B shares redeemed
does not exceed (i) the current net asset value of Class B shares of the
applicable Fund acquired through reinvestment of dividends or capital gain
distributions, plus (ii) increases in the net asset value of your Class B shares
of that Fund above the dollar amount of all your payments for the purchase of
Class B shares of that Fund held by you at the time of redemption.
If the aggregate value of the Class B shares of a Fund that are redeemed
has declined below their original cost as a result of the Fund's performance,
any CDSC which is applicable will be applied to the then-current net asset value
rather than the purchase price.
In circumstances where the CDSC is imposed, the amount of the charge will
depend on the number of years from the time you purchased the Class B shares
until the time of redemption of such shares. Solely for purposes of determining
the number of years from the time of any payment for the purchase of Class B
shares, all payments during a month will be aggregated and deemed to have been
made on the first day of the month.
The following table sets forth the rates of the CDSC for Class B shares:
CDSC as a % of
Amount Invested or
Redemption
Year Since Purchase Proceeds
Payment Was Made (whichever is less)
--------------------- ---------------------
First................ 4.00
Second............... 4.00
Third................ 3.00
Fourth............... 3.00
Fifth................ 2.00
Sixth................ 1.00
68
In determining whether a CDSC is applicable to a redemption from a Fund,
the calculation will be made in a manner that results in the lowest possible
rate. It will be assumed that the redemption is made first of amounts
representing shares acquired pursuant to the reinvestment of dividends and
distributions; then of amounts representing the increase in net asset value of
Class B shares above the total amount of payments for the purchase of Class B
shares made during the preceding six years; and finally, of amounts representing
the cost of shares held for the longest period of time.
For example, assume an investor purchased 100 shares of a Fund at $10 per
share for a cost of $1,000. Subsequently, the shareholder acquired five
additional shares through dividend reinvestment. During the second year after
the purchase the investor decided to redeem $500 of the investment. Assuming at
the time of the redemption the Fund's net asset value had appreciated to $12 per
share, the value of the investor's shares would be $1,260 (105 shares at $12 per
share). The CDSC would not be applied to the value of the reinvested dividend
shares and the amount which represents appreciation ($260). Therefore, $240 of
the $500 redemption proceeds ($500 minus $260) would be charged at a rate of 4%
(the applicable rate in the second year after purchase) for a total CDSC of
$9.60.
CONTINGENT DEFERRED SALES CHARGE -- CLASS C SHARES. A CDSC of 1% is paid to
the Distributor on any redemption of Class C shares within one year of the date
of purchase. The basis for calculating the payment of any such CDSC will be the
method used in calculating the CDSC for Class B shares. See "Contingent Deferred
Sales Charge--Class B Shares" above.
WAIVER OF CDSC. The CDSC may be waived in connection with (a) redemptions
made within one year after the death or disability, as defined in Section
72(m)(7) of the Code, of the shareholder, (b) redemptions by employees
participating in Retirement Plans, (c) redemptions as a result of a combination
of any investment company with a Fund by merger, acquisition of assets or
otherwise, (d) a distribution following retirement under a tax-deferred
retirement plan or upon attaining age 70 1/2 in the case of an IRA or Keogh plan
or custodial account pursuant to Section 403(b) of the Code, and (e) redemptions
pursuant to the Automatic Withdrawal Plan, as described below. If the Company's
Board determines to discontinue the waiver of the CDSC, the disclosure herein
will be revised appropriately. Any Fund shares subject to a CDSC which were
purchased prior to the termination of such waiver will have the CDSC waived as
provided in the applicable Prospectus or this SAI at the time of the purchase of
such shares.
To qualify for a waiver of the CDSC, at the time of redemption you or your
Service Agent must notify the Distributor. Any such qualification is subject to
confirmation of your entitlement.
69
REDEMPTION THROUGH A SELECTED DEALER. If you are a customer of a Selected
Dealer, you may make redemption requests to your Selected Dealer. If the
Selected Dealer transmits the redemption request so that it is received by the
Transfer Agent prior to the close of regular trading on the floor of the NYSE
(usually 4:00 p.m. Eastern time), on a day the NYSE is open for regular
business, the redemption request will be effective on that day. If a redemption
request is received by the Transfer Agent after the close of regular trading on
the floor of the NYSE, the redemption request will be effective on the next
business day. It is the responsibility of the Selected Dealer to transmit a
request so that it is received in a timely manner. The proceeds of the
redemption are credited to your account with the Selected Dealer. See "Purchase
of Shares" for a discussion of additional conditions or fees that may be imposed
upon redemption.
In addition, the Distributor or its designee will accept orders from
Selected Dealers with which the Distributor has sales agreements for the
repurchase of shares held by shareholders. Repurchase orders received by dealers
by the close of regular trading on the floor of the NYSE on any business day and
transmitted to the Distributor or its designee prior to the close of its
business day (usually 5:15 p.m. Eastern time) are effected at the price
determined as of the close of regular trading on the floor of the NYSE on that
day. Otherwise, the shares will be redeemed at the next determined net asset
value. It is the responsibility of the Selected Dealer to transmit orders on a
timely basis. The Selected Dealer may charge the shareholder a fee for executing
the order. This repurchase arrangement is discretionary and may be withdrawn at
any time.
REINVESTMENT PRIVILEGE. Upon written request, you may reinvest up to the
number of Class A or Class T shares you have redeemed, within 45 days of
redemption, at the then-prevailing net asset value without a sales load, or
reinstate your account for the purpose of exercising Fund Exchanges. Upon
reinstatement, if such shares were subject to a CDSC, your account will be
credited with an amount equal to the CDSC previously paid upon redemption of the
shares reinvested. The Reinvestment Privilege may be exercised only once.
WIRE REDEMPTION PRIVILEGE. By using this privilege for Class A, B, C, R or
T shares, you authorize the Transfer Agent to act on telephone, letter or online
redemption instructions from any person representing himself or herself to be
you, or a representative of your Service Agent, and reasonably believed by the
Transfer Agent to be genuine. Ordinarily, the Company will initiate payment for
shares redeemed pursuant to this privilege on the next business day after
receipt by the Transfer Agent of the redemption request in proper form.
Redemption proceeds ($1,000 minimum) will be transferred by Federal Reserve wire
only to the commercial bank account you have specified on the Account
Application or Shareholder Services Form, or to a correspondent bank if your
bank is not a member of the Federal Reserve System. Fees ordinarily are imposed
by such bank and borne by the investor. Immediate notification by the
correspondent bank to your bank is necessary to avoid a delay in crediting the
funds to your bank account.
70
To change the commercial bank or account designated to receive wire
redemption proceeds, a written request must be sent to the Transfer Agent. This
request must be signed by each shareholder, with each signature guaranteed as
described below under "Signatures."
DREYFUS TELETRANSFER PRIVILEGE. You may request by telephone or online that
redemption proceeds be transferred between your Fund account and your bank
account. Only a bank account maintained in a domestic financial institution
which is an Automated Clearing House ("ACH") member may be designated. You
should be aware that if you have selected the Dreyfus TeleTransfer Privilege,
any request for a TeleTransfer transaction will be effected through the ACH
system unless more prompt transmittal specifically is requested. Redemption
proceeds will be on deposit in your account at an ACH member bank ordinarily two
business days after receipt of the redemption request. See "Purchase of Shares -
Dreyfus TeleTransfer Privilege."
SIGNATURES. (For Class A, B, C, R and T shares; signature requirements for
Class F shares are described in the Class F Prospectus.) Any certificates
representing Fund shares to be redeemed must be submitted with the redemption
request. Written redemption requests must be signed by each shareholder,
including each holder of a joint account, and each signature must be guaranteed.
Signatures on endorsed certificates submitted for redemption also must be
guaranteed. The Transfer Agent has adopted standards and procedures pursuant to
which signature guarantees in proper form generally will be accepted from
domestic banks, brokers, dealers, credit unions, national securities exchanges,
registered securities associations, clearing agencies, and savings associations,
as well as from participants in the New York Stock Exchange Medallion Signature
Program, the Securities Transfer Agents Medallion Program ("STAMP") and the
Stock Exchanges Medallion Program. Guarantees must be signed by an authorized
signatory of the guarantor and "Signature Guaranteed" must appear with the
signature. The Transfer Agent may request additional documentation from
corporations, executors, administrators, trustees or guardians, and may accept
other suitable verification arrangements from foreign investors, such as
consular verification. For more information with respect to signature
guarantees, please call one of the telephone numbers listed on the cover.
REDEMPTION COMMITMENT; Redemptions in Kind. Each Fund has committed itself
to pay in cash all redemption requests by any shareholder of record, limited in
amount during any 90-day period to the lesser of $250,000 or 1% of the value of
the Fund's net assets at the beginning of such period. Such commitment is
irrevocable without the prior approval of the SEC. In the case of requests for
redemption in excess of such amount from any Fund, the Board of Directors
reserves the right to make payments in whole or in part in securities or other
assets of the Fund in case of an emergency or any time a cash distribution would
impair the liquidity of the Fund to the detriment of the existing shareholders.
In addition, the Board of Directors has adopted "Investment Company Act Section
17(a) Affiliate Redemption in Kind Conditions and Procedures." Under these
procedures, a Fund may satisfy redemption requests from a shareholder who may be
deemed to be an affiliated person of the Fund by means of an in-kind
71
distribution of the Fund's portfolio securities, subject to certain conditions.
In the event of any redemption in kind, the securities distributed to the
redeeming shareholder would be valued in the same manner as the Fund's portfolio
is valued. If the recipient sold such securities, brokerage charges would be
incurred.
SUSPENSION OF REDEMPTIONS. The right of redemption may be suspended or the
date of payment postponed (a) during any period when the NYSE is closed (other
than customary weekend and holiday closings), (b) when the SEC determines that
trading in the markets a Fund ordinarily utilizes is restricted, or when an
emergency exists as determined by the SEC so that disposal of the Fund's
investments or determination of its net asset value is not reasonably
practicable, or (c) for such other periods as the SEC by order may permit to
protect the Funds' shareholders.
TRANSACTIONS THROUGH THIRD PARTIES. The Company has authorized a number of
brokers and other financial services companies to accept orders for the purchase
and redemption of Fund shares. Certain of such companies are authorized to
designate other intermediaries to accept purchase and redemption orders on the
Company's behalf. In certain of these arrangements, the Company will be deemed
to have received a purchase or redemption order when an authorized company or,
if applicable, its authorized designee, accepts the order. In such cases, the
customer's order will be priced at the public offering price of the applicable
Fund next determined after the order is accepted by the company or its
authorized designee.
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SHAREHOLDER SERVICES
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FUND EXCHANGES FOR CLASSES A, B, C, R AND T. You may purchase, in exchange
for shares of Classes A, B, C, R and T of any Fund, shares of the same Class of
any other Fund or Dreyfus Premier fund. Shares of each Class of a Fund also may
be exchanged for shares of certain other funds managed or administered by
Dreyfus and, with respect to Class T shares of a Fund, Class A shares of certain
Dreyfus Premier fixed-income funds, to the extent such shares are offered for
sale in your state of residence. Shares of other funds purchased by exchange
will be purchased on the basis of relative net asset value per share as follows:
A. Exchanges for shares of funds that are offered without a sales load
will be made without a sales load.
B. Shares of Funds purchased without a sales load may be exchanged for
shares of other funds sold with a sales load, and the applicable sales
load will be deducted.
C. Shares of Funds purchased with a sales load may be exchanged without a
sales load for shares of other funds sold without a sales load.
72
D. Shares of Funds purchased with a sales load, shares of Funds acquired
by a previous exchange from shares purchased with a sales load, and
additional shares acquired through reinvestment of dividends or
distributions of any such Funds (collectively referred to herein as
"Purchased Shares") may be exchanged for shares of other funds sold
with a sales load (referred to herein as "Offered Shares"), provided
that, if the sales load applicable to the Offered Shares exceeds the
maximum sales load that could have been imposed in connection with the
Purchased Shares (at the time the Purchased Shares were acquired),
without giving effect to any reduced loads, the difference may be
deducted.
E. Shares of Funds subject to a CDSC that are exchanged for shares of
another Fund will be subject to the higher applicable CDSC of the two
Funds and, for purposes of calculating CDSC rates and conversion
periods, if any, will be deemed to have been held since the date the
shares being exchanged were initially purchased.
To accomplish an exchange under Item D above, you or your Service Agent
must notify the Transfer Agent of your prior ownership of such Class A or Class
T Fund shares and your account number.
As of the Effective Date, you also may exchange your Class B shares for
Class B shares of General Money Market Fund, Inc. (the "General Fund"), a money
market fund advised by Dreyfus. The shares so purchased will be held in a
special account created solely for this purpose ("Exchange Account"). Exchanges
of shares from an Exchange Account only can be made into Class B shares of the
Funds or the Dreyfus Premier Family of Funds. No CDSC is charged when an
investor exchanges into an Exchange Account; however, the applicable CDSC will
be imposed when shares are redeemed from an Exchange Account or other applicable
fund account. Upon redemption, the applicable CDSC will be calculated taking
into account the time such shares were held in the General Fund's Exchange
Account. In addition, the time Class B shares are held in the General Fund's
Exchange Account will be taken into account for purposes of calculating when
such shares convert to Class A shares. If your Class B shares are held in the
General Fund's Exchange Account at the time such shares are scheduled to convert
to Class A shares, you will receive Class A shares of the General Fund. Prior to
the Effective Date, shareholders were permitted to exchange their Class B shares
for shares of Dreyfus Worldwide Dollar Money Market Fund, Inc. ("Worldwide
Dollar Fund"), and such shares were held in an Exchange Account. Shareholders
who held shares of Worldwide Dollar Fund in an Exchange Account on the Effective
Date may continue to hold those shares and upon redemption from the Exchange
Account or other applicable fund account, the applicable CDSC and conversion to
Class A schedule will be calculated without regard to the time such shares were
held in Worldwide Dollar Fund's Exchange Account. Exchanges of shares from an
Exchange Account in Worldwide Dollar Fund only can be made into Class B shares
73
of the Funds, funds in the Dreyfus Premier Family of Funds, and the General
Fund. See "Redemption of Shares." Redemption proceeds for Exchange Account
shares are paid by Federal wire or check only. Exchange Account shares also are
eligible for the Dreyfus Auto-Exchange Privilege and the Automatic Withdrawal
Plan, as described below.
To request an exchange of Class A, B, C, R or T shares, you or your Service
Agent acting on your behalf must give exchange instructions to the Transfer
Agent in writing, by telephone or online. The ability to issue exchange
instructions by telephone or online is given to all Fund shareholders
automatically, unless you check the applicable "No" box on the Account
Application, indicating that you specifically refuse this privilege. By using
this Privilege, you authorize the Transfer Agent to act on online and telephonic
instructions (including over the Dreyfus Express{reg-trade-mark} voice response
telephone system) from any person representing himself or herself to be you or a
representative of your Service Agent, and reasonably believed by the Transfer
Agent to be genuine. Exchanges may be subject to limitations as to the amount
involved or the number of exchanges permitted. Shares issued in certificate form
are not eligible for telephone or online exchange. No fees currently are charged
shareholders directly in connection with exchanges, although the Company
reserves the right, upon not less than 60 days' written notice, to charge
shareholders a nominal administrative fee in accordance with rules promulgated
by the SEC.
To establish a personal retirement plan by exchange, shares of the Fund
being exchanged must have a value of at least the minimum initial investment
required for the Fund into which the exchange is being made.
Exchanges of Class R shares held by a Retirement Plan may be made only
between the investor's Retirement Plan account in one Fund and such investor's
Retirement Plan account in another Fund.
During times of drastic economic or market conditions, the Company may
suspend Fund Exchanges temporarily without notice and treat exchange requests
based on their separate components - redemption orders with a simultaneous
request to purchase the other fund's shares. In such a case, the redemption
request would be processed at the Fund's next determined net asset value but the
purchase order would be effective only at the net asset value next determined
after the fund being purchased receives the proceeds of the redemption, which
may result in the purchase being delayed.
DREYFUS AUTO-EXCHANGE PRIVILEGE. The Dreyfus Auto-Exchange Privilege
permits you to purchase (on a semi-monthly, monthly, quarterly, or annual
basis), in exchange for Class A, B, C, R or T shares of a Fund, shares of the
same Class of another Fund, shares of the same Class of another fund in the
Dreyfus Premier Family of Funds or shares of certain other funds in the Dreyfus
Family of Funds and, with respect to Class T shares of a Fund, Class A shares of
certain Dreyfus Premier fixed-income funds, of which you are a shareholder
74
(including, for Class B shares, Class B shares of the General Fund held in an
Exchange Account). This Privilege is available only for existing accounts. With
respect to Class R shares held by a Retirement Plan, exchanges may be made only
between the investor's Retirement Plan account in one fund and such investor's
Retirement Plan account in another fund. Shares will be exchanged on the basis
of relative net asset value as described above under "Fund Exchanges."
Enrollment in or modification or cancellation of this Privilege is effective
three business days following notification by you. You will be notified if your
account falls below the amount designated to be exchanged under this Privilege.
In this case, your account will fall to zero unless additional investments are
made in excess of the designated amount prior to the next Auto-Exchange
transaction. Shares held under IRA accounts and other retirement plans are
eligible for this Privilege. Exchanges of IRA shares may be made between IRA
accounts and from regular accounts to IRA accounts if eligible, but not from IRA
accounts to regular accounts. With respect to all other retirement accounts,
exchanges may be made only among those accounts.
Shareholder Services Forms and prospectuses of the other funds may be
obtained by calling 1-800-554-4611. The Company reserves the right to reject any
exchange request in whole or in part. Shares may be exchanged only between
accounts having certain identical identifying designations. The Fund Exchanges
service or Dreyfus Auto-Exchange Privilege may be modified or terminated at any
time upon notice to shareholders.
DREYFUS AUTOMATIC ASSET BUILDER(R). Dreyfus Automatic Asset Builder permits
you to purchase Class A, C, R or T shares (minimum of $100 and maximum of
$150,000 per transaction) at regular intervals selected by you. Fund shares are
purchased by transferring funds from the bank account designated by you.
DREYFUS GOVERNMENT DIRECT DEPOSIT PRIVILEGE. Dreyfus Government Direct
Deposit Privilege enables you to purchase Class A, C, R or T shares (minimum of
$100 and maximum of $50,000 per transaction) by having Federal salary, Social
Security, or certain veterans' military or other payments from the U.S.
Government automatically deposited into your Fund account. You may deposit as
much of such payments as you elect.
DREYFUS PAYROLL SAVINGS PLAN. Dreyfus Payroll Savings Plan permits you to
purchase Class A, C, R or T shares (minimum of $100 per transaction)
automatically on a regular basis. Depending upon your employer's direct deposit
program, you may have part or all of your paycheck transferred to your existing
Dreyfus Payroll Savings Plan account electronically through the ACH system at
each pay period. To establish a Dreyfus Payroll Savings Plan account, your must
file an authorization form with your employer's payroll department. It is the
sole responsibility of your employer to arrange for transactions under the
Dreyfus Payroll Savings Plan.
DREYFUS DIVIDEND OPTIONS. Dreyfus Dividend Sweep allows you to invest
automatically your dividends or dividends and capital gain distributions, if
any, from Class A, C, R or T shares of a Fund in shares of the same Class of
75
another Fund, shares of the same Class of another fund in the Dreyfus Premier
Family of Funds or shares of certain other funds in the Dreyfus Family of Funds
and, with respect to Class T shares of a Fund, in Class A shares of certain
Dreyfus Premier fixed-income funds, of which you are a shareholder. Shares of
other funds purchased pursuant to this privilege will be purchased on the basis
of relative net asset value per share as follows:
A. Dividends and distributions paid by a fund may be invested without a
sales load in shares of other funds that are offered without a sales
load.
B. Dividends and distributions paid by a fund which does not charge a
sales load may be invested in shares of other funds sold with a sales
load, and the applicable sales load will be deducted.
C. Dividends and distributions paid by a fund which charges a sales load
may be invested in shares of other funds sold with a sales load
(referred to herein as "Offered Shares"), provided that, if the sales
load applicable to the Offered Shares exceeds the maximum sales load
charged by the fund from which dividends or distributions are being
swept, without giving effect to any reduced loads, the difference will
be deducted.
D. Dividends and distributions paid by a fund may be invested in shares
of other funds that impose a CDSC and the applicable CDSC, if any, may
be imposed upon redemption of such shares.
Dreyfus Dividend ACH permits you to transfer electronically dividends or
dividends and capital gain distributions, if any, from the Class A, B, C, R or T
shares of a Fund to a designated bank account. Only an account maintained at a
domestic financial institution which is an ACH member may be so designated.
Banks may charge a fee for this service.
AUTOMATIC WITHDRAWAL PLAN. The Automatic Withdrawal Plan permits you to
request withdrawal of a specified dollar amount (minimum of $50 for Class A, B,
C, R or T shares) on either a monthly or quarterly basis if you have a $5,000
minimum account. Withdrawal payments are the proceeds from sales of Fund shares,
not the yield on the shares. If withdrawal payments exceed reinvested dividends
and distributions, your shares will be reduced and eventually may be depleted.
An Automatic Withdrawal Plan may be established by filing an Automatic
Withdrawal Plan application with the Transfer Agent or by oral request from any
of the authorized signatories on the account by calling the Fund at the
appropriate telephone number, as listed on the front cover page of this SAI. The
Automatic Withdrawal Plan may be terminated at any time by you, the Fund or the
Transfer Agent.
No CDSC with respect to Class B shares (including Class B shares held in an
Exchange Account) or Class C shares will be imposed on withdrawals made under
the Automatic Withdrawal Plan, provided that any amount withdrawn under the plan
does not exceed on an annual basis 12% of the greater of (1) the account value
76
at the time of the first withdrawal under the Automatic Withdrawal Plan, or (2)
the account value at the time of the subsequent withdrawal. Withdrawals with
respect to Class B or Class C shares under the Automatic Withdrawal Plan that
exceed such amounts will be subject to a CDSC. Withdrawals of Class A and Class
T shares subject to a CDSC under the Automatic Withdrawal Plan will be subject
to any applicable CDSC. Purchases of additional Class A and Class T shares where
the sales load is imposed concurrently with withdrawals of Class A and Class T
shares generally are undesirable.
Certain retirement plans, including Dreyfus-sponsored retirement plans, may
permit certain participants to establish an automatic withdrawal plan from such
retirement plans. Participants should consult their retirement plan sponsor and
tax adviser for details. Such a withdrawal plan is different from the Automatic
Withdrawal Plan.
LETTER OF INTENT -- CLASS A AND CLASS T SHARES. By signing a Letter of
Intent form, you become eligible for the reduced sales load on purchases of
Class A and Class T shares based on the total number of shares of Eligible Funds
(as defined under "Right of Accumulation -- Class A and Class T Shares" above)
by you and any related "purchaser" (as defined above) in a 13 month period
pursuant to the terms and conditions set forth in the Letter of Intent. Shares
of any Eligible Fund purchased within 90 days prior to the submission of the
Letter of Intent may be used to equal or exceed the amount specified in the
Letter of Intent. A minimum initial purchase of $5,000 is required. You can
obtain a Letter of Intent form by calling 1-800-554-4611.
Each purchase you make during the 13-month period (which begins on the date
you submit the Letter of Intent) will be at the public offering price applicable
to a single transaction of the aggregate dollar amount you select in the Letter
of Intent. The Transfer Agent will hold in escrow 5% of the amount indicated in
the Letter of Intent, which may be used for payment of a higher sales load if
you do not purchase the full amount indicated in the Letter of Intent. When you
fulfill the terms of the Letter of Intent by purchasing the specified amount,
the escrowed amount will be released and additional shares representing such
amount credited to your account. If your purchases meet the total minimum
investment amount specified in the Letter of Intent within the 13- month period,
an adjustment will be made at the conclusion of the 13-month period to reflect
any reduced sales load applicable to shares purchased during the 90-day period
prior to submission of the Letter of Intent. If your purchases qualify for a
further sales load reduction, the sales load will be adjusted to reflect your
total purchase at the end of 13 months. If total purchases are less than the
amount specified, the offering price of the shares you purchased (including
shares representing the escrowed amount) during the 13- month period will be
adjusted to reflect the sales load applicable to the aggregate purchases you
actually made (which will reduce the number of shares in your account), unless
you have redeemed the shares in your account, in which case the Transfer Agent,
as attorney-in-fact pursuant to the terms of the Letter of Intent, will redeem
an appropriate number of Class A or Class T shares of the Fund held in escrow to
realize the difference between the sales load actually paid and the sales load
applicable to the aggregate purchases actually made and any remaining shares
77
will be credited to your account. Signing a Letter of Intent does not bind you
to purchase, or the Fund to sell, the full amount indicated as the sales load in
effect at the time of signing, but you must complete the intended purchase to
obtain the reduced sales load. At the time you purchase Class A or Class T
shares, you must indicate your intention to do so under a Letter of Intent.
Purchases pursuant to a Letter of Intent will be made at the then-current net
asset value plus the applicable sales load in effect at the time such Letter of
Intent was submitted.
CORPORATE PENSION/PROFIT-SHARING AND PERSONAL RETIREMENT PLANS. The Company
makes available to corporations a variety of prototype pension and
profit-sharing plans, including a 401(k) Salary Reduction Plan. In addition, the
Company makes available Keogh Plans, IRAs (including regular IRAs, spousal IRAs
for a non-working spouse, Roth IRAs, SEP-IRAs and rollover IRAs), Education
Savings Accounts and 403(b)(7) Plans. Plan support services also are available.
Investors who wish to purchase Class A, C, R or T shares in conjunction
with a Keogh Plan, a 403(b)(7) Plan or an IRA, including a SEP-IRA, may request
from the Distributor forms for adoption of such plans.
The entity acting as custodian for Keogh Plans, 403(b)(7) Plans or IRAs may
charge a fee, payment of which could require the liquidation of shares. All fees
charged are described in the appropriate form.
Shares may be purchased in connection with these plans only by direct
remittance to the entity acting as custodian. Purchases for these plans may not
be made in advance of receipt of funds.
You should read the Prototype Retirement Plan and the appropriate form of
custodial agreement for further details on eligibility, service fees and tax
implications, and should consult a tax adviser.
CLASS F SHAREHOLDER SERVICES. The services provided to holders of Class F
shares are described in detail in the Prospectus for Class F shares.
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OTHER SERVICES
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FUND ACCOUNTING AND ADMINISTRATIVE SERVICES AGREEMENT
Dreyfus performs administrative, accounting, and recordkeeping services for
the Funds pursuant to a Fund Accounting and Administrative Services Agreement
that was initially approved on October 10, 2006 by a vote cast by all of the
directors of the Company, including all of the directors who are not "interested
persons" of the Company or of Founders, for an initial term ending August 31,
2007. The Agreement may be continued from year to year thereafter as long as
78
each such continuance is specifically approved by the Board of Directors of the
Company, including a majority of the directors who are not parties to the
Agreement or interested persons (as defined in the 1940 Act) of any such party,
cast in person at a meeting for the purpose of voting on such continuance. The
Agreement may be terminated at any time without penalty by the Company upon
ninety (90) days' written notice, or by Dreyfus upon ninety (90) days' written
notice, and terminates automatically in the event of its assignment unless the
Company's Board of Directors approves such assignment.
Pursuant to the Agreement, Dreyfus maintains the portfolios, general
ledgers, and financial statements of the Funds; accumulates data from the Funds'
shareholder servicing agent, Transfer Agent, Custodian, and Founders and
calculates daily the net asset value of each Class of the Funds; monitors the
data and transactions of the Custodian, Transfer Agent, Founders and the
shareholder servicing agent of the Funds; monitors compliance with tax and
federal securities rules and regulations; provides reports and analyses of
portfolio, transfer agent, shareholder servicing agent, and custodial
operations, performance and costs; and reports on regulatory and other
shareholder matters. Each of the domestic Funds (the Balanced, Discovery, Equity
Growth, Growth, and Mid-Cap Growth Funds) pays a fee for this service which is
computed at an annual rate of:
o 0.06% of the daily net assets of the Fund from $0 to $500 million;
o 0.04% of the daily net assets of the Fund from $500 million to $1
billion; and
o 0.02% of the daily net assets of the Fund in excess of $1 billion.
Each of the international Funds (the International Equity and Passport
Funds) pays a fee for this service which is computed at an annual rate of:
o 0.10% of the daily net assets of the Fund from $0 to $500 million;
o 0.065% of the daily net assets of the Fund from $500 million to $1
billion; and
o 0.02% of the daily net assets of the Fund in excess of $1 billion.
The Worldwide Growth Fund pays a fee for this service which is computed by
applying the foregoing fee for domestic Funds to the Fund's domestic assets and
the foregoing fee for international Funds to the Fund's foreign assets, with the
proportions of domestic and foreign assets recalculated monthly.
In addition, after applying any expense limitations or fee waivers
that reduce the fees paid to Dreyfus for this service, Dreyfus has agreed to
waive any remaining fees for this service to the extent that they exceed both
Dreyfus' costs in providing these services and a reasonable allocation of
Founders' costs related to the support and oversight of these services.
The Funds also reimburse Dreyfus for the out-of-pocket expenses incurred by
it in performing this service for the Funds.
79
Prior to January 1, 2007, the Funds had a fund accounting and
administrative services agreement with Founders, pursuant to which Founders
provided these services on substantially the same terms as Dreyfus. During the
fiscal years ended December 31, 2006, 2005 and 2004, the Company paid fund
accounting and administrative services fees to Founders pursuant to that
agreement of $867,128, $1,036,656, and $1,227,501, respectively.
SHAREHOLDER SERVICES AGREEMENT
Pursuant to a Shareholder Services Agreement, the Distributor performs
certain telephone, retirement plan, quality control, personnel training,
shareholder inquiry, shareholder account, and other shareholder-related services
for the Class F shareholders of the Funds. The Agreement was approved on
November 15, 2002 by a vote cast in person by a majority of the directors of the
Company, including a majority of the directors who are not "interested persons"
of the Company or Founders for an initial term beginning May 1, 2003 and ending
August 31, 2004. The Agreement was renewed on August 10, 2006 by the Board,
including all of the Independent Directors, for the period ending August 31,
2007. The Agreement may be continued from year to year thereafter as long as
such continuance is specifically approved by the Board of Directors of the
Company, including a majority of the directors who are not parties to the
Agreement or interested persons (as defined in the 1940 Act) of any such party,
cast in person at a meeting called for the purpose of voting on such
continuance. The Agreement may be terminated at any time without penalty by the
Company upon ninety (90) days' written notice to the Distributor or by the
Distributor upon one hundred eighty (180) days' written notice to the Company,
and terminates automatically in the event of an assignment unless the Company's
Board of Directors approves such assignment. The Funds pay to the Distributor a
prorated monthly fee for such services equal on an annual basis to $24 for each
Class F shareholder account of the Funds considered to be an open account at any
time during the applicable month. The fee provides for the payment not only for
services rendered and facilities furnished by the Distributor pursuant to the
Agreement, but also for services rendered and facilities furnished by the
Transfer Agent in performing transfer agent services for Class F shareholders.
In addition to the per account fee, the Distributor and the Transfer Agent are
reimbursed for all reasonable out-of-pocket expenses incurred in the performance
of their respective services. During the fiscal years ended December 31, 2006,
2005 and 2004, the Company paid shareholder servicing fees for the Class F
shareholder accounts to the Distributor of $1,058,013, $1,342,933 and
$1,436,935, respectively.
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BROKERAGE ALLOCATION
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GENERAL. Founders assumes general supervision over the placement of
securities purchase and sale orders on behalf of the Funds. The Funds execute
their equity portfolio trades through The Boston Company's trading desk (the
80
"Trading Desk"). Such transactions are subject to the internal trading-related
policies and procedures of The Boston Company. These policies and procedures
also have been adopted by Founders. In addition, Founders' employees use the
research facilities of The Boston Company in connection with these transactions.
Subject to the general supervision of Founders, the Trading Desk generally
has the authority to select brokers and the commission rates to be paid.
Allocation of brokerage transactions is made in the best judgment of the Trading
Desk and in a manner deemed fair and reasonable. In choosing brokers or dealers,
the Trading Desk evaluates the ability of the broker or dealer to execute the
transaction at the best combination of price and quality of execution.
In general, brokers or dealers involved in the execution of portfolio
transactions on behalf of a Fund are selected on the basis of their professional
capabilities and the value and quality of their services. The Trading Desk
attempts to obtain best execution for the Funds by choosing brokers or dealers
to execute transactions based on a variety of factors, which may include, but
are not limited to, the following: (i) price; (ii) liquidity; (iii) the nature
and character of the relevant market for the security to be purchased or sold;
(iv) the quality and efficiency of the broker's or dealer's execution; (v) the
broker's or dealer's willingness to commit capital; (vi) the reliability of the
broker or dealer in trade settlement and clearance; (vii) the level of counter-
party risk (i.e., the broker's or dealer's financial condition); (viii) the
commission rate or the spread; (ix) the value of research provided; (x) the
availability of electronic trade entry and reporting links; and (xi) the size
and type of order (e.g., foreign or domestic security, large block, illiquid
security). In selecting brokers or dealers no factor is necessarily
determinative; however, at various times and for various reasons, certain
factors will be more important than others in determining which broker or dealer
to use. Seeking to obtain best execution for all trades takes precedence over
all other considerations.
Investment decisions for one Fund or account are made independently from
those for other Funds or accounts managed by the portfolio managers. Portfolio
managers and the Trading Desk may seek to aggregate (or "bunch") orders that are
placed or received concurrently for more than one Fund or account. In some
cases, this may adversely affect the price paid or received by a Fund or an
account, or the size of the position obtained or liquidated. As noted above,
certain brokers or dealers may be selected because of their ability to handle
special executions such as those involving large block trades or broad
distributions, provided that the primary consideration of best execution is met.
Generally, when trades are aggregated, each Fund or account within the block
will receive the same price and commission. However, random allocations of
aggregate transactions may be made to minimize custodial transaction costs. In
addition, at the close of the trading day, when reasonable and practicable, the
completed securities of partially filled orders will generally be allocated to
each participating Fund and account in the proportion that each order bears to
the total of all orders (subject to rounding to "round lot" amounts and other
relevant factors).
81
Subject to the general supervision of Founders, the overall reasonableness
of brokerage commissions paid is evaluated by the Trading Desk based upon its
knowledge of available information as to the general level of commissions paid
by other institutional investors for comparable services.
To the extent that a Fund invests in foreign securities, certain of such
Fund's transactions in those securities may not benefit from the negotiated
commission rates available to Funds for transactions in securities of domestic
issuers. For Funds that permit foreign exchange transactions, such transactions
are made with banks or institutions in the interbank market at prices reflecting
a mark-up or mark-down and/or commission.
The portfolio managers may deem it appropriate for one Fund or account they
manage to sell a security while another Fund or account they manage is
purchasing the same security. Under such circumstances, the portfolio managers
may arrange to have the purchase and sale transactions effected directly between
the Funds and/or accounts ("cross transactions"). Cross transactions will be
effected in accordance with procedures adopted pursuant to Rule 17a-7 under the
1940 Act.
Funds and accounts managed by Founders or employees of The Boston Company
may own significant positions in portfolio companies which, depending on market
conditions, may affect adversely the ability to dispose of some or all of such
positions.
BROKERAGE COMMISSIONS. The Company contemplates that, consistent with the
policy of obtaining the most favorable net price, brokerage transactions may be
conducted through Founders' affiliates. The Company's Board has adopted
procedures in conformity with Rule 17e-1 under the 1940 Act to ensure that all
brokerage commissions paid to Founders' affiliates are reasonable and fair.
SOFT DOLLARS. The term "soft dollars" is commonly understood to refer to
arrangements where an investment adviser uses client (or Fund) brokerage
commissions to pay for research and other services to be used by the investment
adviser. Section 28(e) of the Securities Exchange Act of 1934 provides a "safe
harbor" that permits investment advisers to enter into soft dollar arrangements
if the investment adviser determines in good faith that the amount of the
commission is reasonable in relation to the value of the brokerage and research
services provided. Eligible products and services under Section 28(e) include
those that provide lawful and appropriate assistance to the investment adviser
in the performance of its investment decision-making responsibilities.
Subject to the policy of seeking best execution, Founders-managed Funds may
execute transactions with brokerage firms that provide research services and
products, as defined in Section 28(e). Any and all research products and
services received in connection with brokerage commissions will be used to
assist Founders and/or The Boston Company in its investment decision-making
82
responsibilities, as contemplated under Section 28(e). Under certain conditions,
higher brokerage commissions may be paid in connection with certain transactions
in return for research products and services.
The products and services provided under these arrangements permit Founders
and/or The Boston Company to supplement their own research and analysis
activities, and provide them with information from individuals and research
staffs of many securities firms. Such services and products may include, but are
not limited to the following: fundamental research reports (which may discuss,
among other things, the value of securities, or the advisability of investing
in, purchasing or selling securities, or the availability of securities or the
purchasers or sellers of securities, or issuers, industries, economic factors
and trends, portfolio strategy and performance); current market data and news;
technical and portfolio analyses; economic forecasting and interest rate
projections; and historical information on securities and companies. Founders
and The Boston Company also may defray the costs of certain services and
communication systems that facilitate trade execution (such as on-line quotation
systems, direct data feeds from stock exchanges and on-line trading systems with
brokerage commissions generated by client transactions) or functions related
thereto (such as clearance and settlement). Some of the research products or
services received by Founders and The Boston Company may have both a research
function and a non-research administrative function (a "mixed use"). If it is
determined that any research product or service has a mixed use, The Boston
Company, subject to the general supervision of Founders, will allocate in good
faith the cost of such service or product accordingly. The portion of the
product or service that will assist in the investment decision-making process
may be paid for in soft dollars. The non-research portion is paid for in hard
dollars.
The Trading Desk generally considers the amount and nature of research,
execution and other services provided by brokerage firms, as well as the extent
to which such services are relied on, and attempts to allocate a portion of the
brokerage business of clients on the basis of that consideration. Neither the
services nor the amount of brokerage given to a particular brokerage firm are
made pursuant to any agreement or commitment with any of the selected firms that
would bind Founders or the Trading Desk to compensate the selected brokerage
firm for research provided. The Trading Desk endeavors, but is not legally
obligated, to direct sufficient commissions to broker/dealers that have provided
research and other services to ensure continued receipt of research believed to
be useful. Actual commissions received by a brokerage firm may be more or less
than the suggested allocations.
There may be no correlation between the amount of brokerage commissions
generated by a particular Fund or client and the indirect benefits received by
that Fund or client. Founders and/or The Boston Company may receive a benefit
from the research services and products that is not passed on to a Fund in the
form of a direct monetary benefit. Further, research services and products may
be useful to Founders and/or employees of The Boston Company in providing
investment advice to any of the funds or clients they advise. Likewise,
83
information made available to Founders or The Boston Company from brokerage
firms effecting securities transactions for a Fund may be utilized on behalf of
another fund or client, including funds or clients managed by Founders'
portfolio managers acting in a "dual employee" capacity. Information so received
is in addition to, and not in lieu of, services required to be performed by
Founders and fees are not reduced as a consequence of the receipt of such
supplemental information. Although the receipt of such research services does
not reduce the normal independent research activities of Founders or The Boston
Company, it enables each of them to avoid the additional expenses that might
otherwise be incurred if it were to attempt to develop comparable information
through its own staff.
IPO ALLOCATIONS. Certain Funds and accounts advised by Founders or
employees of The Boston Company may participate in IPOs. In deciding whether to
purchase an IPO, Founders generally considers the capitalization characteristics
of the security, as well as other characteristics of the security, and
identifies Funds and accounts with investment objectives and strategies
consistent with such a purchase. Generally, as more IPOs involve small- and mid-
cap companies, the Funds and accounts with a small- and mid-cap focus may
participate in more IPOs than Funds and accounts with a large-cap focus. The
Trading Desk, when consistent with the Fund's and/or account's investment
guidelines, generally will allocate shares of an IPO on a pro rata basis. In the
case of "hot" IPOs, where only a partial allocation of the total amount
requested is received, those shares will be distributed fairly and equitably
among participating Funds or accounts managed by Founders or employees of The
Boston Company. "Hot" IPOs raise special allocation concerns because
opportunities to invest in such issues are limited as they are often
oversubscribed. The distribution of the partial allocation among Funds and/or
accounts will be based on relevant net asset values. Shares will be allocated on
a pro rata basis to all appropriate Funds and accounts, subject to a minimum
allocation based on trading, custody, and other associated costs. International
hot IPOs may not be allocated on a pro rata basis due to transaction costs,
market liquidity and other factors unique to international markets.
FIXED INCOME SECURITIES. Fixed income portfolio transactions for the
Balanced Fund are executed by Standish Mellon. In executing fixed income
portfolio transactions for the Fund, Standish Mellon generally has authority to
select the broker-dealers to be used, subject to the general supervision of
Founders. The primary consideration in placing portfolio transactions with
broker-dealers for the Fund is to obtain executions at the most favorable and
reasonable commission rates in relation to the benefits received by the Fund.
Standish Mellon attempts to achieve these results by choosing brokers to
execute transactions based on (1) the price of the securities which they offer,
(2) the value and quality of their services, and (3) their professional
capabilities (including use of capital, clearance, and settlement procedures and
participation in underwriting and corporate finance issues).
Standish Mellon may aggregate transactions for its, Founders' and other
affiliates' accounts managed by Standish Mellon's officers who are also officers
84
of Founders or the other affiliates, as applicable. Standish Mellon may also
aggregate trades for the Fund with trades for accounts such as retirement plans
in which Standish Mellon's employees are participants or mutual funds in which
Standish Mellon's or related parties' employees have invested. When trades are
aggregated, each account within the block will receive the same price and
commission.
The following table lists the amount of brokerage commissions on agency
transactions and the amount of concessions on principal transactions paid by the
Funds for the fiscal years ended 2006, 2005 and 2004, respectively (none of
which was paid to the Distributor):
Brokerage Commissions Concessions
on Agency Transactions on Principal Transactions(1)
----------------------------------------- --------------------------------------
Fund 2006 2005 2004 2006 2005 2004
- ----------------- ----------------------------------------- --------------------------------------
Balanced $136,399 $372,269 $396,078 $9,638 $49,448 $139,319
Discovery $6,377,507 $3,686,772 $3,145.536 $791,987 $1,235,374 $1,261,539
Equity Growth $579,167 $714,510 $701,240 $46,946 $14,519 $0
Growth $886,122 $1,272,895 $1,496,226 $71,074 $25,398 $0
International Equity $75,328 $117,117 $102,203 $0 $0 $0
Mid-Cap $407,652 $681,464 $610,332 $32,466 $66,087 $127,475
Growth
Passport $271,007 $5,044,223 $5,075,407 $0 $1,167,674 $591,550
Worldwide $170,986 $334,642 $357,346 $12,572 $5,371 $0
Growth
(1) Does not include principal transactions on a net trade basis.
The differences in the amounts of brokerage commissions paid by the Funds
during 2006 as compared to prior years are primarily attributable to differences
in the cash flows into and out of the Funds, changes in the assets of the Funds,
and differences in portfolio turnover rates.
The aggregate amount of transactions during the fiscal year ended December
31, 2006 in securities effected through a broker for research services and
products (including brokerage services and products), and the commissions and
concessions related to such transactions, were as follows:
85
Commissions and
Fund Concessions Transactions Amount
- ------------------ ------------------------------ --------------------
Balanced $89,485 $65,628,141
Discovery $1,085,104 $589,866,764
Equity Growth $438,397 $326,416,698
Growth $676,227 $501,628,225
International Equity $30,461 $20,487,401
Mid-Cap Growth $295,414 $203,834,363
Passport $136,514 $77,495,425
Worldwide Growth $107,116 $56,411,295
During the last three years no officer, director or affiliated person of
the Company or Founders executed any portfolio transactions for a Fund, or
received any commission arising out of such portfolio transactions.
During the fiscal year, certain of the funds held securities of their
regular brokers or dealers as follows:
Fund Broker Value*
- ------------------ ------------------------------- ----------
Balanced AIG Funding N/A
Bank of America Corporation N/A
Bear Stearns $586,725
Citigroup, Inc. $280,060
CS First Boston $286,441
Goldman Sachs Group, Inc. $705,427
HSBC Finance $110,519
Lehman Brothers $245,603
Merrill Lynch & Co. $332,781
Morgan Stanley $1,065,612
Prudential Funding $39,659
Wachovia $111,396
- ------------------ ------------------------------ -----------
Discovery AIG Funding N/A
HSBC Finance N/A
Merrill Lynch & Co. N/A
Piper Jaffrey $2,318,037
Morgan Stanley N/A
- ------------------ ------------------------------ -----------
Equity Growth AIG Funding N/A
86
Fund Broker Value*
- ------------------ ------------------------------- ----------
Citigroup, Inc. $1,575,419
Goldman Sachs Group, Inc. $3,204,153
HSBC Finance N/A
Merrill Lynch & Co. N/A
Morgan Stanley $2,553,319
Prudential Funding N/A
- ------------------ ------------------------------ -----------
Growth AIG Funding N/A
Citigroup, Inc. $2,336,337
Goldman Sachs Group, Inc. $4,785,197
HSBC Finance N/A
Merrill Lynch & Co. N/A
Morgan Stanley $3,824,767
Prudential Funding N/A
- ------------------ ------------------------------ -----------
International Equity AIG Funding N/A
CS First Boston $657,653
HSBC Finance N/A
Merrill Lynch & Co. N/A
Prudential Funding N/A
- ------------------ ------------------------------ -----------
Mid-Cap Growth AIG Funding N/A
HSBC Finance N/A
Merrill Lynch & Co. N/A
Prudential Funding N/A
- ------------------ ------------------------------ -----------
Passport HSBC Finance N/A
Merrill Lynch & Co. N/A
Prudential Funding N/A
- ------------------ ------------------------------ -----------
Worldwide Growth AIG Funding N/A
Citigroup, Inc. $406,777
CS First Boston $445,455
Goldman Sachs Group, Inc. N/A
HSBC Finance N/A
Merrill Lynch & Co. N/A
Prudential Funding N/A
* value as of 12/31/06, if applicable.
87
- --------------------------------------------------------------------------------
CAPITAL STOCK
- --------------------------------------------------------------------------------
The Company's capital stock, par value $0.01 per share, is divided into
eight series: Dreyfus Founders Balanced Fund, Dreyfus Founders Discovery Fund,
Dreyfus Founders Equity Growth Fund, Dreyfus Founders Growth Fund, Dreyfus
Founders International Equity Fund, Dreyfus Founders Mid-Cap Growth Fund,
Dreyfus Founders Passport Fund and Dreyfus Founders Worldwide Growth Fund. Each
series is divided into multiple classes of shares: Class A, Class B, Class C,
Class F, Class R and Class T. The Board of Directors is authorized to create
additional series or classes of shares, each with its own investment objectives
and policies.
The following table sets forth as of February 28, 2007, the share ownership
of those shareholders who owned of record 5% or more of any class of a Fund's
issued and outstanding common stock:
- ----------------------------------------------------------------------------
AG Edwards & Sons, Inc. Balanced - Class T 9.75%
Adams Perfect Funeral Homes Inc.
1 N. Jefferson Ave.
St. Louis, MO 63103-2205
- ----------------------------------------------------------------------------
AG Edwards & Sons, Inc. Passport - Class T 8.43%
Custodian for
Claggett C. Upton
Rollover IRA Account
10807 Snow White Drive
Dallas, TX 75229-4038
- ----------------------------------------------------------------------------
AG Edwards & Sons, Inc. International Equity - Class B 7.77%
Peggy Jordan
Rollover IRA Account
4 Parkshore Circle
Sacramento, CA 95831-3033
- ----------------------------------------------------------------------------
AG Edwards & Sons International Equity - Class T 17.16%
Custodian for
Gregory R. Abide
IRA Account
5808 Virginia Place
Metairie, LA 70003-1035
- ----------------------------------------------------------------------------
88
- ----------------------------------------------------------------------------
AG Edwards & Sons C/F Mid-Cap Growth - Class T 7.80%
Patrick Moore
Rollover IRA Account
8036 Cindy Lane
Bethesda, MD 20817-6913
- ----------------------------------------------------------------------------
Anne O Cropp & International Equity - Class C 7.50%
Joan Herald TTEE
Lowell S Cropp Loving Trust
1551 Rosewood Lane
Schererville, IN 46375-1086
- ----------------------------------------------------------------------------
Bisys Retirement Services FBO Mid-Cap Growth -Class R 8.58%
NL Group 401(K) Plan
700 17[th] Street Suite 300
Denver, CO 80202-3531
- ----------------------------------------------------------------------------
Brynne Johnson Solowinski International Equity - Class R 13.12%
891 Main Street
Fords, NJ 08863-1511
- ----------------------------------------------------------------------------
Catherine Stahl & James S. Charters Passport - Class T 18.33%
Stokes Charitable Trust
660 Arcadia Bluff Court
San Marcos, CA 92069-8125
- ----------------------------------------------------------------------------
Charles F. Kohlerman III & Worldwide Growth - Class B 10.61%
Rebecca M. Kohlerman JTWROS
409 Melvin Drive
Brookhaven, PA 19015-1511
- ----------------------------------------------------------------------------
Charles Schwab & Co., Inc. Balanced - Class F 18.74%
Special Custody Account for the
Exclusive Benefit of Customers Discovery - Class F 18.50%
101 Montgomery Street
San Francisco, CA 94104-4122 Growth - Class F 14.57%
International Equity - Class F 17.06%
Mid-Cap Growth - Class F 18.78%
Passport - Class F 36.55%
- ----------------------------------------------------------------------------
89
- ------------------------------------------------------------------------------
Worldwide Growth - Class F 24.02%
- ------------------------------------------------------------------------------
Citigroup Global Markets, Inc. Balanced - Class T 23.10%
333 West 34[th] St. - 3[rd] Floor
New York, NY 10001-2483 Discovery - Class C 20.72%
Discovery - Class T 18.96%
Equity Growth - Class A 7.46%
Equity Growth - Class B 18.71%
Equity Growth - Class C 34.74%
Growth - Class B 7.72%
Growth - Class C 17.78%
Growth - Class F 10.01%
International Equity - Class B 14.50%
International Equity - Class C 19.59%
Mid-Cap Growth - Class A 14.14%
Mid-Cap Growth - Class B 15.80%
Mid-Cap Growth - Class C 24.16%
Mid-Cap Growth - Class T 12.64%
Passport - Class C 20.22%
Worldwide Growth - Class A 6.62%
- ------------------------------------------------------------------------------
90
- ----------------------------------------------------------------------------
Worldwide Growth - Class B 6.43%
Worldwide Growth - Class C 12.21%
- ----------------------------------------------------------------------------
Citigroup Institutional Balanced - Class F 6.52%
Trust Co TTEE
The Copeland Retirement Group Trust
Copeland Co Attn Plan Valuation
400 Atrium Dr.
Somerset, NJ 08873-4162
- ----------------------------------------------------------------------------
Counsel Trust FBO Balanced - Class R 9.93%
Emerald Door & Glass Inc. 401 (K)
Profit Sharing Plan & Trust
336 Fourth Avenue
The Times Building
Pittsburgh, PA 15222-2011
- ----------------------------------------------------------------------------
Counsel Trust FBO International Equity - Class R 50.06%
Grand Prix Association of Long
401(K) Profit Sharing Plan & Trust
336 Fourth Avenue
The Times Building
Pittsburgh, PA 15222-2011
- ----------------------------------------------------------------------------
Dain Rauscher, Inc. FBO Passport - Class B 5.36%
Boog-Scott Fam Ltd Partnership
John Boog-Scott Gen'l Partner
4232 Danmire Drive
Richardson, TX 75082-3758
- ----------------------------------------------------------------------------
Dreyfus Trust Co Custodian Worldwide Growth - Class C 10.63%
Barbara T. Lewy
Under 403 (B) 7 Plan
30 Regent Drive
Lido Beach, NY 11561-4923
- ----------------------------------------------------------------------------
Dreyfus Trust Company Custodian Discovery - Class T 6.20%
- ----------------------------------------------------------------------------
91
- ----------------------------------------------------------------------------
FBO Gilberto Medina
Under IRA Rollover Plan
271 NE 45[th] Street
Ft. Lauderdale, FL 33334-6040
- ----------------------------------------------------------------------------
Dreyfus Trust Company Custodian Equity Growth - Class R 24.21%
FBO Pavel Strnad
Under IRA Rollover Plan
NA Male Sarce 759
16400 Prague 6
Czech Republic
- ----------------------------------------------------------------------------
Dreyfus Trust Company Custodian Discovery - Class C 7.30%
Lizabeth Moriarty Schmitz
Under IRA Plan
15 Happy Acres Rd.
Clinton, CT 06413-1333
- ----------------------------------------------------------------------------
Dreyfus Trust Company Custodian Equity Growth - Class R 62.21%
Kathleen Hogan
Under IRA Plan
531 Pine Springs Trail SE
Marietta, GA 30067-6755
- ----------------------------------------------------------------------------
Dreyfus Trust Company Custodian Equity Growth - Class R 5.27%
Richard M. Kanner
Under 403(B) 7 Plan
3124 Benjamin Rd.
Oceanside, NY 11572-4406
- ----------------------------------------------------------------------------
Dreyfus Trust Company Custodian Equity Growth - Class T 59.08%
FBO Diane M. McDonald
Under IRA Plan
PO Box 794
Brewster, MA 02631-0794
- ----------------------------------------------------------------------------
Dreyfus Trust Company Cust Worldwide Growth - Class T 14.11%
FBO Jean Hawley Culbertson
Under IRA Plan
1116 Washington Street
Glenview, IL 60025-2862
- ----------------------------------------------------------------------------
Dreyfus Trust Co. Custodian Passport - Class R 5.43%
Steve Nelson
Under 403 (B) 7 Plan
3104 Hughitt Avenue
Superior, WI 54880-5442
- ----------------------------------------------------------------------------
Edward D. Jones & Co. Custodian Growth - Class T 7.22%
FBO Patricia G. Starnes IRA
396 Bertucci
Biloxi, MS 39531-2262
- ----------------------------------------------------------------------------
92
- ----------------------------------------------------------------------------
Emmett A. Larkin Company Growth - Class T 11.43%
100 Bush St.
Suite 1000
San Francisco, CA 94104
- ----------------------------------------------------------------------------
Fahnestock & Co., Inc. Balanced - Class B 7.71%
FBO Elcey Watson Stuart TTEE of
The Elcey Watson Stuart
New York, NY 10004
Trust DTD 4-23-9
PO Box 1254
- ----------------------------------------------------------------------------
Fidelity Investments Growth - Class R 33.44%
Operations Co (FIIOC) As Agent For
Certain Employee Benefit Plans Worldwide Growth - Class R 22.42%
100 Magellan Way #KW1C
Covington, KY 41015-1999
- ----------------------------------------------------------------------------
First Clearing, LLC Worldwide Growth - Class T 15.92%
Deborah Fox Roth IRA
FCC as custodian
1061 Leyden Street
Denver, CO 80220-4636
- ----------------------------------------------------------------------------
First Clearing, LLC Mid-Cap Growth - Class C 13.61%
Charles Pantalion IRA
FCC as Custodian
PSC 90 Box 1544
APO AE 09822
- ----------------------------------------------------------------------------
First Clearing, LLC Passport - Class R 27.71%
John H. Bilello
Irrevocable Intangible Trust
10700 Wheat First Drive
Glen Allen, VA 23060-9243
- ----------------------------------------------------------------------------
First Clearing, LLC Discovery - Class C 7.33%
Deborah C. Sullivan IRA
2120 Carrera Ct.
Cumming, GA 30041-6301
- ----------------------------------------------------------------------------
First Clearing, LLC Passport - Class B 8.76%
- ----------------------------------------------------------------------------
93
- ----------------------------------------------------------------------------
Edward J. Merkle (IRA)
FCC as Custodian
970 Jaeger
Columbus, OH 43206-2625
- ----------------------------------------------------------------------------
First Clearing, LLC Balanced - Class B 6.33%
Joseph J. Marzo IRA
FCC as Custodian
36 Norway Ridge Rd.
Woodhull, NY 14898-9662
- ----------------------------------------------------------------------------
First Clearing, LLC Mid-Cap Growth - Class A 4.97%
Kenneth L. Kite (IRA)
FCC as Custodian
3957 Bordeaux Drive
Hoffman Est, IL 60192-1648
- ----------------------------------------------------------------------------
First Clearing, LLC Discovery - Class T 13.72%
Maureen Ryan Cywilko
4940 Camelot Drive
Syracuse, NY 13215-2408
- ----------------------------------------------------------------------------
First Clearing, LLC Growth - Class C 22.60%
RP & L Ltd.
110 N. Milam Street
Fredericksbrg, TX 78624-3823
- ----------------------------------------------------------------------------
First Clearing, LLC Equity Growth - Class C 12.78%
Robert Webber (IRA)
FCC as Custodian
339 W. 19[th] St., Apt. C
New York, NY 10011-3927
- ----------------------------------------------------------------------------
First Clearing, LLC Equity Growth - Class B 12.13%
Ron Erhardt (IRA)
FCC as Custodian
6400 N.W. 2[nd] Avenue #221
Boca Raton, FL 33487-3026
- ----------------------------------------------------------------------------
First Clearing, LLC Passport - Class C 6.55%
Sally Gillenson (Simple IRA)
FCC as Custodian
4-58 Ivy Lane
Fair Lawn, NJ
- ----------------------------------------------------------------------------
First Clearing, LLC Discovery - Class B 12.00%
- ----------------------------------------------------------------------------
94
- ----------------------------------------------------------------------------
Sarah Mattox IRA
200 Sallys Lane
Blythewood, SC 29016-8121
- ----------------------------------------------------------------------------
First Clearing, LLC Passport - Class A 5.65%
Stephen Chan IRA
309 Sunset Grove Drive
Holly Springs, NC 27540-6810
- ----------------------------------------------------------------------------
First Clearing, LLC Discovery - Class A 7.74%
Timothy P. Vartenisian IRA
541 Mt. Airy Drive
Prattville, AL 36067-2147
- ----------------------------------------------------------------------------
First Clearing, LLC Growth - Class T 7.33%
Marie P. Sperber
10700 Wheat First Drive
Glen Allen, VA 23060-9243
- ----------------------------------------------------------------------------
First Clearing, LLC Mid-Cap Growth - Class B 7.65%
Vicky Gerald IRA
79 Vermont Avenue
Asheville, NC 28806-3040
- ----------------------------------------------------------------------------
First Clearing, LLC Balanced - Class T 19.70%
Stephen A. Sperber
Number 128
1285 Baring Blvd.
Sparks, NV 89434.8673
- ----------------------------------------------------------------------------
First Clearing, LLC Worldwide Growth - Class B 22.96%
David W. Lauth (IRA)
FCC as Custodian
10990 Plattner Pk.
St. Marys, OH 45885-9623
- ----------------------------------------------------------------------------
First Clearing, LLC Worldwide Growth - Class C 21.11%
Wanda Jean Applin
Myron Applin Gdn
1489 Stretch Drive
Beavercreek, OH 45434-5646
- ----------------------------------------------------------------------------
First Clearing, LLC International Equity - Class C 9.69%
The William Elder Kerr and
Phyllis Kerr AB Living Trust
208 Dalmatian Lane
- ----------------------------------------------------------------------------
95
- ----------------------------------------------------------------------------
Las Vegas, NV 89107-2305
- ----------------------------------------------------------------------------
First Clearing, LLC Balanced - Class C 22.66%
Thomas Pilkington IRA
FCC as custodian
865 Shining Rose Pl.
Henderson, NV 89052-8663
- ----------------------------------------------------------------------------
First Clearing Corporation International Equity - Class T 32.46%
FCC as Custodian
2981 W. White Oak Trail
Highlands Ranch, CO 80129-4646
- ----------------------------------------------------------------------------
IHN Jae Won & Susan T. Won Growth - Class C 7.77%
319 Morrison Ave.
Raleigh, NC 27608-2537
- ----------------------------------------------------------------------------
J.J.B. Hilliard, W. L. Lyons, Inc. International Equity - Class R 13.21%
Benjamin J. Vantuil
501 S. 4[th] Street
Louisville, KY 40202-2520
- ----------------------------------------------------------------------------
JP Morgan Chase Bank Discovery - Class R 70.55%
FBO The Super Saver Employee Plan
C/O JP Morgan American Century
PO Box 419784
Kansas City, MO 64141-6784
- ----------------------------------------------------------------------------
Louise A. Wiedermann TTEE Passport - Class T 10.41%
Louise A. Wiedermann Rev Trust
UA DTD 01/31/2002
918 Woodside Village Lane
Manchester, MO 63021-6939
- ----------------------------------------------------------------------------
LPL Financial Services Equity Growth- Class B 8.45%
9785 Towne Centre Drive
San Diego, CA 92121-1968 Mid-Cap Growth - Class A 9.29%
Passport - Class T 24.87%
- ----------------------------------------------------------------------------
Mac & Co. Growth - Class R 54.79%
FBO Founders Growth
Mutual Fund Operations
PO Box 3198
- ----------------------------------------------------------------------------
96
- ----------------------------------------------------------------------------
525 William Penn Place
Pittsburgh, PA 15230-3198
- ----------------------------------------------------------------------------
Mac & Co. Worldwide Growth - Class R 48.05%
FBO Founders Worldwide
Mutual Fund Operations
PO Box 3198
525 William Penn Place
Pittsburgh, PA 15230-3198
- ----------------------------------------------------------------------------
MBC Investments Corporation Equity Growth - Class T 5.55%
C/O Mellon Financial Corporation
Attn Delaware Fin Dep Aim 198-0000
4001 Kennett Pike, Ste. 218
Two Greenville Crossing
Greenville, DE 19807-2029
- ----------------------------------------------------------------------------
MLPF & S For the Sole Benefit Balanced - Class B 5.25%
Of its Customers
4800 Deer Lake Dr E Fl 3 Balanced - Class C 16.25%
Jacksonville, Fl 32246-6484
Discovery - Class A 9.36%
Discovery - Class C 21.36%
Equity Growth - Class B 7.41%
Equity Growth - Class C 44.08%
Growth - Class A 6.30%
Growth - Class C 15.73%
International Equity - Class B 17.10%
International Equity - Class C 32.65%
Mid-Cap Growth - Class A 10.88%
Mid-Cap Growth - Class C 21.60%
Passport - Class A 21.83%
Passport - Class C 19.35%
- ----------------------------------------------------------------------------
97
- ----------------------------------------------------------------------------
Worldwide Growth - Class A 7.11%
Worldwide Growth - Class C 13.28%
- ----------------------------------------------------------------------------
Morgan Stanley DW Discovery - Class C 5.31%
Attn Mutual Funds Operations
3 Harborside Plaza, 6[th] Floor Mid-Cap Growth - Class B 9.31%
Jersey City, NJ 07311-3907
- ----------------------------------------------------------------------------
National Financial Services Corp Balanced - Class F 23.11%
FBO Our Customers Exclusively
PO Box 3908 Discovery - Class F 12.60%
Church Street Station
New York, NY 10008-3908 Growth - Class F 14.81%
Mid-Cap Growth - Class F 14.53%
Passport - Class F 8.85%
Worldwide Growth - Class F 23.43%
- ----------------------------------------------------------------------------
National Investor Services FBO Equity Growth - Class T 22.74%
55 Water Street, 32[nd] Floor
New York, NY 10041-0028 Growth - Class T 17.91%
Mid-Cap Growth - Class T 56.43%
Passport - Class A 8.77%
- ----------------------------------------------------------------------------
NFS LLC FEBO Equity Growth - Class B 32.99%
Chase Manhattan Bank Cust
IRA of Mark A. Savino
Trad'l IRA
10427 Alstyne Avenue
- ----------------------------------------------------------------------------
98
- ----------------------------------------------------------------------------
Corona-A, NY 11368-3128
- ----------------------------------------------------------------------------
NFS LLC FEBO Passport - Class A 12.00%
Citizens Bank
Roth IRA
FBO Jennifer A. Raker
166 Picket Post Lane
Phoenixville, PA 19460-5629
- ----------------------------------------------------------------------------
NFS LLC FEBO Passport - Class T 6.28%
Craig H. York
2704 Welborn St., Apt. B
Dallas, TX 75219-4895
- ----------------------------------------------------------------------------
NFS LLC FEBO Mid-Cap Growth - Class B 21.14%
Eulalia A. Afonso
2311 E. Norris Street
Philadelphia, PA 19125-1907
- ----------------------------------------------------------------------------
NFS LLC FEBO Balanced - Class A 53.84%
FMT Co Cust IRA
FBO Theresa Maria Mooney
32 Lenape TRL
Chatham, NJ 07928-1851
- ----------------------------------------------------------------------------
NFS LLC FEBO Discovery - Class B 14.30%
FMT CO Cust IRA
FBO Savita Hatwal
100 Woodcrest Lane, Apt. 103
Mount Kisco, NY 10549-3048
- ----------------------------------------------------------------------------
NFS LLC FEBO Passport - Class B 14.47%
Linda Rickert
Tod Name on File
6 Pebble Lane
Levittown, PA 19054-3717
- ----------------------------------------------------------------------------
NFS LLC FEBO Balanced - Class B 28.74%
NFS/FMTC IRA
FBO Gary Beres
4081 Derrwood Drive
Akron, OH 44333-1199
- ----------------------------------------------------------------------------
NFS LLC FEBO Equity Growth - Class A 71.31%
NFS/FMTC Rollover IRA
FBO James F. McCray
- ----------------------------------------------------------------------------
99
- ----------------------------------------------------------------------------
2553 Romig Rd., Apt. 22
Akron, OH 44320-3882
- ----------------------------------------------------------------------------
NFS LLC FEBO Equity Growth - Class C 6.61%
NFS/FMTC Roth IRA
FBO Joseph M. Etsibah
4290 Gull Prairie Drive, Apt. 1A
Kalamazoo, MI 49048-3041
- ----------------------------------------------------------------------------
NFS LLC FEBO Growth - Class B 24.70%
NFS/FMTC Rollover IRA
FBO Mary E. Kelman
1500 Sawyer Avenue
Manasquan, NJ 08736-2248
- ----------------------------------------------------------------------------
NFS LLC FEBO Mid-Cap Growth - Class A 19.83%
NFS/FMTC IRA
FBO Marilyn A. Kenerson
9612 Lucerne Avenue #302
Culver City, CA 90232-2926
- ----------------------------------------------------------------------------
NFS LLC FEBO Mid-Cap Growth - Class R 70.95%
FMT CO Cust IRA
FBO Wayne L. Darnell
408 Honeysuckle Lane
Yorktown, VA 23693-5708
- ----------------------------------------------------------------------------
NFS LLC FEBO Worldwide Growth - Class A 19.99%
Jolene D. Mazur Cust
Melissa E. Mazur Utma
5658 S. Sayre Avenue
Chicago, IL 60638-3121
- ----------------------------------------------------------------------------
NFS LLC FEBO Worldwide Growth - Class B 18.19%
Paul Eisenstein
Emma Perry Loss
143 Abbott Avenue
Worthington, OH 43085-2601
- ----------------------------------------------------------------------------
NFS LLC FEBO Worldwide Growth - Class C 5.58%
Toby J. Ayars
Kirsten E. Ayars
4765 8[th] St. #B
Carpinteria, CA 93013-1829
- ----------------------------------------------------------------------------
NFS LLC FEBO International Equity - Class A 5.59%
- ----------------------------------------------------------------------------
100
- ----------------------------------------------------------------------------
Citizens Bank
Regular IRA
FBO Mary Anne Leidich
606 Crestview Road
Hummelstown, PA 17036-9377
- ----------------------------------------------------------------------------
NFS LLC FEBO International Equity - Class B 23.54%
Hansika R. Shah
Tod Rakesh Shah
427 Mahogany Walk
Newtown, PA 18940-4212
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NFS LLC FEBO Balanced - Class T 22.76%
Prudential Bank & Trust, FSB
IRA Rollover
FBO Larry R. Burghdoff
5550 Carmody Rd.
Coloma, MI 49038-9742
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NFS LLC FEBO Discovery - Class A 21.47%
JPMorgan Chase Bank Trad Cust
IRA of Nancy Colon Growth - Class A 29.14%
99-41 64 Avenue, Apt. A6
Rego Park, NY 11374-2667
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NFS LLC FEBO Passport - Class R 31.68%
W. Weldon Wilson
Elaine C. Wilson
Special
85 Sherman Tpke.
Redding Ct. 06896-2428
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Pershing LLC Balanced - Class A 6.30%
P O Box 2052
Jersey City, NJ 07303-9998 Balanced - Class B 12.97%
Balanced - Class R 88.10%
Discovery - Class A 12.19%
Discovery - Class B 6.08%
Discovery - Class C 5.24%
Growth - Class A 13.85%
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101
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Growth - Class B 8.74%
Growth - Class C 9.47%
Growth - Class R 10.82%
International Equity - Class A 6.04%
International Equity - Class C 5.10%
International Equity - Class R 5.22%
International Equity - Class T 19.29%
Mid-Cap Growth - Class A 13.55%
Mid-Cap Growth - Class B 7.93%
Mid-Cap Growth - Class C 5.42%
Mid-Cap Growth - Class R 10.75%
Passport - Class A 14.12%
Passport - Class B 10.79%
Passport - Class C 14.87%
Passport - Class R 25.69%
Worldwide Growth - Class A 17.50%
Worldwide Growth - Class B 21.47%
Worldwide Growth - Class C 8.17%
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102
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Worldwide Growth - Class R 28.86%
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Prudential Retirement Ins & Ann Co Balanced - Class F 7.80%
FBO Various Retirement Accounts
280 Trumbull Street
1 Commercial Plaza
Hartford, CT 06103-3509
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RBC Dain Rauscher Custodian International Equity - Class T 16.06%
Arturo R. Garza
Rollover IRA
2307 Aspen Street
Richardson, TX 75082-3324
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RBC Dain Rauscher Custodian Discovery - Class T 20.00%
Melinda McNutt
Individual Retirement Account
10530 Mapleridge Drive
Dallas, TX 75238-2263
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Raymond James & Assoc., Inc. Balanced - Class B 7.16%
FBO Engel IRA
880 Carillon Pkwy
St. Petersburg, FL 33716-100
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Raymond James & Assoc., Inc. Balanced - Class C 31.80%
FBO Maupin Tr
880 Carillon Pkwy
St. Petersburg, FL 33716-100
- ----------------------------------------------------------------------------
Raymond James & Assoc., Inc. Worldwide Growth - Class C 6.98%
FBO Shafer James
880 Carillon Pkwy
St. Petersburg, FL 33716-1100
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Raymond James & Accoc., Inc. International Equity - Class C 6.50%
FBO Stang Margo
880 Carillon Pkwy
St. Petersburg, FL 33716-1100
- ----------------------------------------------------------------------------
Raymond James & Assoc., Inc. Growth - Class T 39.96%
FBO TX MFD 401(K)
880 Carillon Pkwy.
St. Petersburg, FL 33716-1100
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103
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Ruth M. Bernstein Discovery - Class B 5.45%
12 Crescent Hollow Ct.
Ramsey, NJ 07446-2643
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Scott & Stringfellow, Inc. Discovery - Class T 8.15%
909 East Main Street
Richmond, VA 23219-3002 Worldwide Growth - Class T 69.95%
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Scottrade, Inc. (FBO) Passport - Class T 5.15%
Alex Aumann IRA
PO Box 31759
Saint Louis, MO 63131-0759
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SEI Private Trust Company International Equity - Class R 13.10%
C/O Mellon
One Freedom Valley Drive
Oaks, PA 19456
- ----------------------------------------------------------------------------
State Street Corp as Trustee Discovery - Class R 5.86%
For the JC Penney Co., Inc. Savings
PS and Stock Ownership PL and TR
105 Rosemont Rd.
Westwood, MA 02090-2318
- ----------------------------------------------------------------------------
Susan A. Wood FBO Equity Growth - Class T 12.60%
Tropic Oil Co. 401(K) Profit
Sharing Plan & Trust
10002 NW 89[th] Avenue
Miami, FL 33178-1409
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The Northern Trust Co Discovery - Class R 18.04%
FBO Dole- DV
PO Box 95956
Chicago, IL 60675-0001
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UBS Financial Services Inc. FBO Balanced - Class T 18.36%
Melissa N. Parks
8102 Shady Grove Lane
Houston, TX 77040-4214
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UBS Financial Services, Inc. FBO Discovery - Class C 6.37%
UBS-Finsvc Cdn FBO
Kenneth Lollar
P.O. Box 3321
1000 Harbor Blvd.
Weehawken, NJ 07086-8154
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104
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UBS Financial Services, Inc. FBO Growth - Class C 5.68%
UBS-Finsvc Cdn FBO
Larry Noel
P.O. Box 3321
Weehawken, NJ 07086-8154
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UBS Financial Services, Inc. Worldwide Growth - Class A 6.15%
FBO UBS-Finsvc CDN
FBO Mr. Mahim K. Vora
PO Box 3321
1000 Harbor Blvd.
Weehawken, NJ 07086-8154
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UBS Financial Services, Inc. Discovery - Class T 10.23%
FBO UBS-Finsvc CDN
FBO Norma J. Lamont
PO Box 3321
1000 Harbor Blvd.
Weehawken, NJ 07086-8154
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UBS Financial Services, Inc. Discovery - Class B 10.33%
FBO Herbert G. Stolzer Rev
Declaration of Trust DTD
C/O Richard E. Ingram Esq.
410 George Street
New Brunswick, NJ 08901-2016
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UBS Financial Services, Inc. Balanced - Class B 5.46%
FBO Jane Cowan Smith
20 Bartlett Dr. Apt. 306
Rockland, ME 04841-2270
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Wedbush Morgan Securities Mid-Cap Growth - Class C 4.95%
1000 Wilshire Blvd.
Los Angeles, CA 90017-2457
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Wells Fargo Investments, LLC Worldwide Growth - Class B 5.08%
625 Marquette Avenue S. 13[th] Floor
Minneapolis, MN 55402-2308
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Wells Fargo Investments LLC Balanced - Class B 5.21%
608 Second Ave. South 8[th] Fl
Minneapolis, MN 55402-1916 Balanced - Class C 8.69%
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105
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Mid-Cap Growth - Class B 5.57%
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(1) Except as set forth in the table above, the Company does not know of any
person who, as of February 28, 2007, owned beneficially 5% or more of the
shares of any class of any Fund.
Shares of each Class of each Fund are fully paid and nonassessable when
issued. All shares of each Class of a Fund participate equally upon liquidation
and in dividends and other distributions by that Class, and participate in
proportion to their relative net asset values in the residual assets of a Fund
in the event of its liquidation. Shares of each Class of each Fund are
redeemable as described herein under "Redemption of Shares" and under "About
Your Investment" or "Your Investment" in the Prospectuses. Fractional shares
have the same rights proportionately as full shares. The Company does not issue
share certificates. Shares of the Company have no conversion, subscription or
preemptive rights.
Each full share of the Company has one vote and fractional shares have
proportionate fractional votes. Shares of the Funds are generally voted in the
aggregate except where separate voting by each Class and/or each Fund is
required by law. The Company is not required to hold regular annual meetings of
shareholders and does not intend to do so; however, the Board of Directors will
call special meetings of shareholders if requested in writing generally by the
holders of 10% or more of the outstanding shares of each Fund or as may be
required by applicable law or the Company's Articles of Incorporation. Each Fund
will assist shareholders in communicating with other shareholders as required by
federal and state securities laws. Directors may be removed by action of the
holders of a majority or more of the outstanding shares of all of the Funds.
Shares of the Company have non-cumulative voting rights, which means that the
holders of more than 50% of the shares voting for the election of directors can
elect 100% of the directors if they choose to do so and, in such an event, the
holders of the remaining less than 50% of the shares voting for the election of
directors will not be able to elect any person or persons to the Board of
Directors.
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PRICING OF SHARES
- --------------------------------------------------------------------------------
The Company calculates net asset value per share, and therefore effects
sales, redemptions, and repurchases of its shares, once daily as of the close of
regular trading on the NYSE (usually 4:00 p.m. Eastern time) on each day the
NYSE is open for trading. The NYSE is not open for trading on the following
holidays: New Year's Day, Martin Luther King Jr. Day, President's Day, Good
106
Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day and
Christmas Day.
ALL FUNDS. The net asset value per share of each Class of each Fund is
calculated by dividing the value of all securities held by that Fund and its
other assets (including dividends and interest accrued but not collected)
attributable to that Class, less the Fund's liabilities (including accrued
expenses) attributable to that Class, by the number of outstanding shares of
that Class. Expenses and fees, including the advisory fees and fees pursuant to
the Distribution Plans and Shareholder Services Plan, are accrued daily and
taken into account for the purpose of determining the net asset value of each
Class of each Fund's shares. Because of the differences in the operating
expenses incurred by each Class of a Fund, the per share net asset value of each
Class will differ.
DOMESTIC EQUITY SECURITIES. A 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; lacking any sales on that
day, the security is valued at the current closing bid price. The Company's
Board of Directors has authorized the Funds' accounting agent to value
Nasdaq-traded securities at their official closing prices.
FOREIGN SECURITIES. Foreign securities traded on foreign exchanges ordinarily
are valued at the last quoted official closing price available before the time
when the Fund's assets are valued. In the event that a foreign exchange does not
provide an official closing price, or if the foreign market has not yet closed
as of the valuation time on a particular day, foreign securities shall be valued
at the last quoted sale price available before the time when the Funds' assets
are valued. Lacking any sales on that day, the security is valued at the current
closing bid price. In some cases, particularly with respect to securities or
companies in certain Latin American countries, prices may not be available in a
timely manner. Therefore, such prices will be obtained from a Board-authorized
pricing service. These prices will be reflective of current day trading
activity, and will be secured at a consistent time each day. If a security's
price is available from more than one U.S. or foreign exchange, the exchange
that is the primary market for the security will be used. Foreign securities not
traded on foreign exchanges, including 144As and foreign income securities, are
valued on the basis of the average of at least two market maker quotes and/or
the portal system. New York closing exchange rates are used to convert foreign
currencies to U.S. dollars.
DEBT INSTRUMENTS. Debt securities with remaining maturities greater than 60 days
are valued at the evaluated bid prices as determined on each valuation day by a
portfolio pricing service approved by the Directors. If a pricing service is not
able to provide a price for a debt security, the value shall be determined as
follows: (a) if prices are available from two or more dealers, brokers or market
makers in the security, the value is the mean between the highest bid and the
lowest asked quotations obtained from at least two dealers, brokers or market
makers; and (b) if prices are available from only one broker, dealer or market
maker, the value is the mean between the bid and the asked quotations provided,
unless the broker, dealer or market maker can provide only a bid quotation, in
107
which case the value is such bid quotation. Short-term securities generally are
valued at amortized cost if their remaining maturity at the time of purchase is
60 days or less.
SECURITIES FOR WHICH MARKET QUOTATIONS ARE NOT AVAILABLE OR DO NOT REFLECT FAIR
VALUE. If market quotations or official closing prices are not readily
available, or are determined not to reflect accurately fair value (such as when
trading in a security has been suspended or when the value of a security has
been materially affected by events occurring after the close of the exchange or
market on which the security is principally traded (for example, a foreign
exchange or market), but before a Fund calculates its net asset value), the Fund
may value those investments at fair value as determined in good faith by the
Board of Directors, or pursuant to procedures approved by the Board of
Directors.
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. The Funds
may use fair value prices obtained from such a pricing service in lieu of the
closing prices from foreign markets in valuing foreign equity securities on days
when movements in the U.S. stock market are determined to have materially
affected the value of those securities subsequent to the closing of the foreign
markets. In addition to establishing the fair value of securities, another
objective of this policy is to attempt to reduce the possibility that an
investor may seek to take advantage of any disparity between the foreign
securities' closing market prices and their fair value by engaging in "time zone
arbitrage." Accordingly, the Funds that invest a significant portion of their
assets in foreign equity securities (the International Equity, Passport and
Worldwide Growth Funds) are likely to use fair value pricing more frequently
than Funds that invest substantially all of their assets in domestic securities.
Using fair value to price securities may result in a value that is different
from a security's most recent closing price and from the prices used by other
mutual funds to calculate their net asset values. In addition, it is possible
that the fair value determined for a security may be different from the value
that may be realized upon the security's sale, and that these differences may be
material to the net asset value of the applicable Fund.
PRICING SERVICES. The Company's Board of Directors periodically reviews and
approves the pricing services used to value the Funds' securities. All pricing
services may employ electronic data processing techniques and/or computerized
matrix systems to determine valuations. Normal institutional-size trading units
are normally selected in valuing debt securities.
OPTIONS. When a Fund writes an option, an amount equal to the premium received
is included in the Fund's Statement of Assets and Liabilities as an asset and an
equivalent liability. The amount of the liability is subsequently
marked-to-market to reflect the current market value of the option written.
108
When the Funds purchase a put or call option on a stock index, the premium
paid is included in the asset section of the Fund's Statement of Assets and
Liabilities and subsequently adjusted to the current market value of the option.
Thus, if the current market value of the option exceeds the premium paid, the
excess is unrealized appreciation and, conversely, if the premium exceeds the
current market value, such excess is unrealized depreciation.
- --------------------------------------------------------------------------------
DIVIDENDS, DISTRIBUTIONS AND TAXES
- --------------------------------------------------------------------------------
Management believes that each Fund has qualified for treatment as a
"regulated investment company" under the Code for its most recent fiscal year
end. Each Fund intends to continue to so qualify as a "regulated investment
company" under the Code, if such qualification is in the best interest of its
shareholders. As a regulated investment company, the Funds will pay no Federal
income tax on net investment income and net realized securities gains to the
extent such income and gains are distributed to shareholders in accordance with
applicable provisions of the Code. To qualify as a regulated investment company,
each Fund must distribute at least 90% of its net income (consisting of net
investment income and net short-term capital gain) to its shareholders and meet
certain asset diversification and other requirements. If a Fund does not qualify
as a regulated investment company, it will be treated for tax purposes as an
ordinary corporation subject to Federal income tax. The term "regulated
investment company" does not imply the supervision of management or investment
practices or policies by any government agency.
If you elect to receive dividends and distributions in cash, and your
dividend or distribution check is returned to a Fund as undeliverable or remains
uncashed for six months, each Fund reserves the right to reinvest such dividends
or distributions and all future dividends and distributions payable to you in
additional Fund shares at net asset value. No interest will accrue on amounts
represented by uncashed distribution or redemption checks.
Any dividend or distribution paid shortly after an investor's purchase may
have the effect of reducing the aggregate net asset value of your shares below
the cost of the investment. Such a dividend or distribution would be a return of
capital in an economic sense, although taxable as described in the relevant
Fund's Prospectus. In addition, the Code provides that if a shareholder holds
shares of a Fund for six months or less and has received a capital gain
distribution with respect to such shares, any loss incurred on the sale of such
shares will be treated as long-term capital loss to the extent of the capital
gain distribution received.
In general, dividends (other than capital gain dividends) paid by a Fund to
U.S. individual shareholders may be eligible for the 15% preferential maximum
109
tax rate to the extent that the Fund's income consists of dividends paid by U.S.
corporations and certain foreign corporations on shares that have been held by
the Fund for at least 61 days during the 121-day period commencing 60 days
before the shares become ex-dividend. In order to be eligible for the
preferential rate, the investor in the Fund must have held his or her shares in
the Fund for at least 61 days during the 121-day period commencing 60 days
before the Fund shares become ex-dividend. Additional restrictions on an
investor's qualification for the preferential rate may apply.
In general, dividends (other than capital gain dividends) paid by a Fund to
U.S. corporate shareholders may be eligible for the dividends received deduction
to the extent that the Fund's income consists of dividends paid by U.S.
corporations on shares that have been held by the Fund for at least 46 days
during the 91-day period commencing 45 days before the shares become
ex-dividend. In order to claim the dividends received deduction, the investor in
the Fund must have held its shares in the Fund for at least 46 days during the
91-day period commencing 45 days before the Fund shares become ex-dividend.
Additional restrictions on an investor's ability to claim the dividends received
deduction may apply.
Ordinarily, gains and losses realized from portfolio transactions will be
treated as capital gains and losses. However, a portion of the gain or loss
realized from the disposition of foreign currencies and non-U.S. dollar
denominated securities (including debt instruments and certain forward contracts
and options) may be treated as ordinary income or loss. In addition, all or a
portion of any gains realized from the sale or other disposition of certain
market discount bonds will be treated as ordinary income. Finally, all or a
portion of the gain realized from engaging in "conversion transactions"
(generally including certain transactions designed to convert ordinary income
into capital gain) may be treated as ordinary income.
Gain or loss, if any, realized by a Fund from certain financial futures or
forward contracts and options transactions ("Section 1256 contracts") will be
treated as 60% long-term capital gain or loss and 40% short-term capital gain or
loss. Gain or loss will arise upon exercise or lapse of Section 1256 contracts
as well as from closing transactions. In addition, any Section 1256 contracts
remaining unexercised at the end of the Fund's taxable year will be treated as
sold for their then fair market value, resulting in additional gain or loss to
the Fund characterized in the manner described above.
Offsetting positions held by a Fund involving certain futures or forward
contracts or options transactions with respect to actively traded personal
property may be considered, for tax purposes, to constitute "straddles." To the
extent the straddle rules apply to positions established by the Fund, losses
realized by the Fund may be deferred to the extent of unrealized gain in the
offsetting position. In addition, short-term capital loss on straddle positions
may be recharacterized as long-term capital loss, and long-term capital gains on
straddle positions may be treated as short-term capital gains or ordinary
income. Certain of the straddle positions held by the Fund may constitute "mixed
straddles." The Fund may make one or more elections with respect to the
treatment of "mixed straddles," resulting in different tax consequences. In
110
certain circumstances, the provisions governing the tax treatment of straddles
override or modify certain of the provisions discussed above.
If a Fund either (1) holds an appreciated financial position with respect
to stock, certain debt obligations, or partnership interests ("appreciated
financial position") and then enters into a short sale, futures, forward, or
offsetting notional principal contract (collectively, a "Contract") with respect
to the same or substantially identical property or (2) holds an appreciated
financial position that is a Contract and then acquires property that is the
same as, or substantially identical to, the underlying property, the Fund
generally will be taxed as if the appreciated financial position were sold at
its fair market value on the date the Fund enters into the financial position or
acquires the property, respectively. The foregoing will not apply, however, to
any transaction during any taxable year that otherwise would be treated as a
constructive sale if the transaction is closed within 30 days after the end of
that year and the Fund holds the appreciated financial position unhedged for 60
days after that closing (i.e., at no time during that 60-day period is the
Fund's risk of loss regarding that position reduced by reason of certain
specified transactions with respect to substantially identical or related
property, such as having an option to sell, being contractually obligated to
sell, making a short sale, or granting an option to buy substantially identical
stock or securities).
If a Fund enters into certain derivatives (including forward contracts,
long positions under notional principal contracts, and related puts and calls)
with respect to equity interests in certain pass-through entities (including
other regulated investment companies, real estate investment trusts,
partnerships, real estate mortgage investment conduits and certain trusts and
foreign corporations), long-term capital gain with respect to the derivative may
be recharacterized as ordinary income to the extent it exceeds the long-term
capital gain that would have been realized had the interest in the pass-thru
entity been held directly by the Fund during the term of the derivative
contract. Any gain recharacterized as ordinary income will be treated as
accruing at a constant rate over the term of the derivative contract and may be
subject to an interest charge. The Treasury has authority to issue regulations
expanding the application of these rules to derivatives with respect to debt
instruments and/or stock in corporations that are not pass-through entities.
Investment by a Fund in securities issued or acquired at a discount, or
providing for deferred interest or for payment of interest in the form of
additional obligations, could under special tax rules affect the amount, timing
and character of distributions to shareholders by causing the Fund to recognize
income prior to the receipt of cash payments. For example, the Fund could be
required each year to accrue a portion of the discount (or deemed discount) at
which the securities were issued and to distribute such income in order to
maintain its qualification as a regulated investment company. In such case, the
Fund may have to dispose of securities which it might otherwise have continued
to hold in order to generate cash to satisfy the distribution requirements.
If a Fund invests in an entity that is classified as a "passive foreign
investment company" ("PFIC") for Federal income tax purposes, the operation of
111
certain provisions of the Code applying to PFICs could result in the imposition
of certain Federal income taxes on the Fund. In addition, gain realized from the
sale or other disposition of PFIC securities held beyond the end of the Fund's
taxable year may be treated as ordinary income.
As of December 31, 2006, each of the Funds had capital loss carryovers that
may be available to offset future realized capital gains, if any, and thereby
reduce future taxable gains distributions, if any. Shareholders should consult
the Funds' most recent annual reports under "Notes to Financial Statements -
Federal Tax Information" for additional information, including the expiration
dates of these carryovers.
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YIELD AND PERFORMANCE INFORMATION
- --------------------------------------------------------------------------------
The Company may, from time to time, include the yield or total return of
the Funds in advertisements or reports to shareholders or prospective investors.
Any quotations of yield for the Balanced Fund will be based on all investment
income per share earned during a particular 30-day period (including dividends
and interest), less expenses accrued during the period ("net investment
income"), and are computed by dividing net investment income by the maximum
offering price per share on the last day of the period, according to the
following formula:
(6)
YIELD = 2[(1 + a-b) - 1]
---
cd
where a = dividends and interest earned during the period,
b = expenses accrued for the period (net of reimbursements),
c = the average daily number of shares outstanding during the period
that were entitled to receive dividends, and
d = the maximum offering price per share on the last day of the period.
Quotations of average annual total return for each Fund will be expressed
in terms of the average annual compounded rate of return of a hypothetical
investment in the Fund over periods of 1, 5, and 10 years (up to the life of the
Fund), and may also be expressed for other periods. These are the annual total
rates of return that would equate the initial amount invested to the ending
redeemable value. These rates of return are calculated pursuant to the following
formula: P (1 + T)[n] = ERV (where P = a hypothetical initial payment of $1,000,
T = the average annual total return, n = the number of years, and ERV = the
ending redeemable value of a hypothetical $1,000 payment made at the beginning
of the period). All total return figures reflect the deduction of a proportional
share of Fund expenses on an annual basis, and assume that all dividends and
112
distributions are reinvested when paid. A Class's average annual total return
figures calculated in accordance with this formula assume that in the case of
Class A or Class T, the maximum sales load has been deducted from the
hypothetical initial investment at the time of purchase or, in the case of Class
B or Class C, the maximum applicable CDSC has been paid upon redemption at the
end of the period.
Aggregate total return is calculated by subtracting the amount of a Fund's
net asset value (maximum offering price in the case of Class A or Class T) per
share at the beginning of a stated period from the net asset value per share at
the end of the period (after giving effect to the reinvestment of dividends and
distributions during the period and any applicable CDSC), and dividing the
result by the net asset value (maximum offering price in the case of Class A or
Class T) per share at the beginning of the period. Aggregate total return also
may be calculated based on the net asset value per share at the beginning of the
period instead of the maximum offering price per share at the beginning of the
period for Class A or Class T shares or without giving effect to any applicable
CDSC at the end of the period for Class B or Class C shares. In such cases, the
calculation would not reflect the deduction of the sales load with respect to
Class A or Class T shares or any applicable CDSC with respect to Class B or
Class C shares, which, if reflected, would reduce the performance quoted.
After-tax returns are calculated using the historical highest individual
federal marginal income tax rates and do not reflect the impact of state and
local taxes. The after-tax returns include applicable sales loads. Actual
after-tax returns depend on the investor's individual tax situation. The
after-tax return information does not apply to fund shares held through
tax-deferred accounts, such as 401(k) plans or individual retirement accounts.
Performance information for any Fund reflects only the performance of a
hypothetical investment in the Fund during the particular time period on which
the calculations are based. Performance information should be considered in
light of the Fund's investment objectives and policies, characteristics and
quality of the portfolios and the market conditions during the given time
period, and should not be considered as a representation of what may be achieved
in the future.
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ADDITIONAL INFORMATION
- --------------------------------------------------------------------------------
CODE OF ETHICS
The Company, Founders and the Distributor each have adopted codes of ethics
under Rule 17j-1 of the 1940 Act. These codes permit the personnel, subject to
the respective codes, to invest in securities, including securities that may be
purchased or held by the Funds. Founders' code of ethics subjects its employees'
113
personal securities transactions to various restrictions to ensure that such
trading does not disadvantage any fund advised by Founders. In that regard,
portfolio managers and other investment personnel of Founders must preclear and
report their personal securities transactions and holdings, which are reviewed
for compliance with Founders' code of ethics and also are subject to the
oversight of Mellon's Investment Ethics Council. Portfolio managers and other
investment personnel who comply with the preclearance and disclosure procedures
of Founders' code of ethics and the requirements of the Council may be permitted
to purchase, sell or hold securities which also may be or are held in fund(s)
they manage or for which they otherwise provide investment advice.
Company Code of Ethics.
- -----------------------
The Company has adopted a Code of Ethics applicable to the Independent
Directors of the Company. The Company's Code is intended to prevent Independent
Directors from engaging in any personal securities transactions or other
activities which might conflict with or adversely affect the interests of the
Company and Fund shareholders. An Independent Director may not purchase or sell
any security which he or she knows is then being purchased or sold, or being
considered for purchase and sale, by any Fund. An Independent Director must
report a personal securities transaction if, at the time of the transaction, the
Director knew or should have known that during the 15 days preceding the
transaction, such security was purchased or sold, or considered for purchase or
sale, by any Fund.
DISCLOSURE OF PORTFOLIO HOLDINGS
The Funds have adopted policies and procedures to ensure that the
disclosure of information about the securities they hold in their portfolios is
in the best interests of Fund shareholders and in compliance with applicable
legal requirements. These policies and procedures also have been designed to
address conflicts between the interests of Fund shareholders, on the one hand,
and those of Founders, the Distributor or their affiliates, on the other. It is
the policy of the Funds to protect the confidentiality of their portfolio
holdings and to prevent disclosure of non-public information about such holdings
to selected third parties for other than legitimate business purposes. The Funds
publicly disclose their complete schedule of portfolio holdings, as reported on
a month-end basis, on the Dreyfus website at www.dreyfus.com under Mutual Fund
Center - Dreyfus Mutual Funds - Mutual Fund Total Holdings, and on the Founders
website at www.founders.com under Fund Prices & Information. The information is
posted on these websites on the last day of the month following the month for
which such information is applicable, unless the month for which such
information is applicable is the last month of a calendar quarter, in which case
the information will be posted on these websites on the 15[th] day of the month
following the month for which such information is applicable. The information
will remain accessible on these websites at least until the date on which the
Funds file a Form N-Q or Form N-CSR with the SEC for the period that includes
the date as of which the website information is current.
114
If there is a legitimate business purpose for disclosing portfolio holdings
information that is not publicly available as described above, such information
may be disclosed provided that (a) neither the Funds, Founders nor any other
party may receive any compensation or other consideration in connection with the
disclosure, including any arrangement to maintain assets in the Funds or in
other investment companies managed by Founders or an affiliate of Founders; and
(b) the recipient is subject to a written agreement that obligates the recipient
to maintain the information in a confidential manner and prohibits the recipient
from trading on the basis of the information. Disclosure of the Funds' portfolio
holdings must be authorized by Founders' Legal Department and the Group Manager
of Founders' Investment Department.
The following types of disclosures made in the ordinary course of business
are considered immaterial, and therefore are not prohibited: (1) meetings with
portfolio managers to discuss portfolio performance at which there may be an
occasional mention of specific portfolio securities; (2) disclosure to a broker
or dealer of one or more securities in connection with the purchase or sale by a
Fund of such securities; (3) requests for price quotations on individual
securities from a broker or dealer where such securities are not priced by a
Fund's normal pricing service or where a Fund wishes to obtain a second quote as
a means of checking the quotes it receives from its normal pricing vendor; (4)
requests for price quotations or bids on one or more securities; (5) disclosures
in connection with litigation involving a Fund's portfolio securities such as
class actions to which the Fund may be part of the plaintiff class; (6)
disclosure to regulatory authorities, including foreign regulatory authorities;
(7) disclosure of portfolio securities where a particular Fund is not identified
as the owner of the securities and under circumstances in which a reasonable
person would not be led to believe that a particular Fund was the owner; and (8)
disclosure of more general information about a Fund's portfolio that does not
reveal the holding of any particular security, including, but not limited to,
portfolio volatility, market capitalization data, percentages of international
and domestic securities, net assets, duration, beta, sector allocations, price
to earnings ratios, estimated long-term earnings per share growth, price to book
ratios, and dividend yield.
The Funds also may disclose portfolio holdings information to the following
service providers and others who generally need access to such information in
the performance of their contractual duties and responsibilities and which are
subject to duties of confidentiality, including a duty not to trade on
non-public information, imposed by law and/or contract: the Fund's investment
adviser, fund accountant, custodian, auditors, attorneys, and each of their
respective affiliates and advisers.
Quarterly reports regarding any new disclosure of non-public portfolio
holdings information to selected third parties are provided to the Board. The
Board reviews these reports and determines whether such disclosure is consistent
with the interests of the Funds and their shareholders. In making this
determination, the Board, at a minimum, may consider (i) the proposed
recipient's need for the relevant holdings information; (ii) whether the
115
disclosure will benefit the Funds or, at a minimum, not harm the Funds; (iii)
what conflicts may result from such disclosure; and (iv) what compliance
measures intended to limit the potential for harm to the Funds have been
established. The Board is not foreclosed from reaching the determination that
the disclosure is appropriate simply because the disclosure may also further the
interests of Founders or an affiliate of Founders. On an annual basis, the Board
reviews a report of all ongoing arrangements to disclose non-public portfolio
holdings information to third parties and the results of the program established
by the Funds' CCO for monitoring the recipient's use of the information. The
Board also reviews on an annual basis the policies and procedures for their
continued appropriateness. The Funds' Board or CCO may, on a case-by-case basis,
impose additional restrictions on the dissemination of portfolio holdings
information beyond those found in the policies and procedures.
Ongoing Arrangements
- --------------------
The following are the ongoing arrangements by which the Funds make
available nonpublic information about their portfolio securities. No
compensation or other consideration is received by the Funds, Founders, or any
other party in connection with these arrangements. Each of the recipients is
subject to a duty of confidentiality, including a duty not to trade on
non-public information, imposed by law and/or contract. All arrangements with
non-affiliated recipients have been approved by Founders' Legal Department and
the Group Manager of Founders' Investment Department (or his predecessor).
116
RECIPIENT FREQUENT/LAG TIME
- ---------- -----------------
THE FOLLOWING RECIPIENTS PROVIDE PORTFOLIO ANALYTICS TO BE USED IN INTERNAL
APPLICATIONS OR FOR RELEASE TO FINANCIAL INTERMEDIARIES:
FactSet Research Systems Inc. daily/none
Thomson Financial Inc. daily/none
THE FOLLOWING RECIPIENT PROVIDES PORTFOLIO PRICING SERVICES TO THE FUNDS:
Interactive Data Corporation daily/none
THE FOLLOWING RECIPIENT PROVIDES PROXY VOTING SERVICES TO THE FUNDS:
Institutional Shareholder Services Inc. monthly/none
THE FOLLOWING RECIPIENT PROVIDES THE FUND ACCOUNTING SYSTEM USED BY THE FUNDS:
State Street Portfolio Accounting Systems Inc. daily/none
THE FOLLOWING RECIPIENT PROVIDES CUSTODIAL SERVICES TO THE FUNDS:
Mellon Bank, N.A.* daily/none
THE FOLLOWING RECIPIENT PROVIDES REGULATORY REPORTING SERVICES TO THE FUNDS:
Mellon Financial Corporation* monthly/8 days
THE FOLLOWING RECIPIENT PROVIDES PERSONAL TRADING COMPLIANCE SERVICES:
Epstein & Associates, Inc.
StarCompliance product periodically during the
business day/none
DUAL-EMPLOYEES OF THE FOLLOWING RECIPIENT AND FOUNDERS PROVIDE PORTFOLIO
MANAGEMENT SERVICES TO THE FUNDS, AND EMPLOYEES OF THESE RECIPIENTS PROVIDE
TRADING SERVICES TO THE FUNDS:
The Boston Company Asset Management, LLC* daily/none
Standish Mellon Asset Management Company LLC* daily/none
THE FOLLOWING RECIPIENT POSTS THE PORTFOLIO HOLDINGS FOR EACH OF THE FUNDS ON
ITS WEBSITE, PERFORMS CERTAIN ATTRIBUTION ANALYSIS, AND PROVIDES FUND ACCOUNTING
SERVICES TO THE FUNDS:
The Dreyfus Corporation* monthly/8 days(for website
disclosure)
daily/none (for portfolio
analyses and fund
accounting services)
* These entities are affiliated with Founders and are subject to the Funds'
policies and procedures regarding selective disclosure of the Funds' portfolio
holdings.
117
PROXY VOTING
The Board of Directors of the Company has delegated to Founders the
authority to vote proxies of companies held in the Funds' portfolios. Founders,
through its participation on Mellon's Proxy Policy Committee (the "MPPC"),
applies Mellon's Proxy Voting Policy, related procedures, and voting guidelines
when voting proxies on behalf of the Funds.
Founders recognizes that an investment adviser is a fiduciary that owes its
clients, including funds it manages, a duty of utmost good faith and full and
fair disclosure of all material facts. An investment adviser's duty of loyalty
requires an adviser to vote proxies in a manner consistent with the best
interest of its clients and precludes the adviser from subrogating the clients'
interests to its own. In addition, an investment adviser voting proxies on
behalf of a fund must do so in a manner consistent with the best interests of
the fund and its shareholders. Founders seeks to avoid material conflicts of
interest by participating in the MPPC, which applies detailed, pre-determined
written proxy voting guidelines (the "Voting Guidelines") in an objective and
consistent manner across client accounts, based on internal and external
research and recommendations provided by a third party vendor, and without
consideration of any client relationship factors. Further, the MPPC engages a
third party as an independent fiduciary to vote all proxies of funds managed by
Mellon Financial or its affiliates (including the Dreyfus Founders Funds), and
may engage an independent fiduciary to vote proxies of other issuers at its
discretion.
All proxies received by the Funds are reviewed, categorized, analyzed and
voted in accordance with the Voting Guidelines. The guidelines are reviewed
periodically and updated as necessary to reflect new issues and any changes in
Mellon Financial's or Founders' policies on specific issues. Items that can be
categorized under the Voting Guidelines are voted in accordance with any
applicable guidelines or referred to the MPPC, if the applicable guidelines so
require. Proposals that cannot be categorized under the Voting Guidelines are
referred to the MPPC for discussion and vote. Additionally, the MPPC may review
proposals where it has identified a particular company, industry or issue for
special scrutiny. With regard to voting proxies of foreign companies, Founders
weighs the cost of voting and potential inability to sell the securities (which
may occur during the voting process) against the benefit of voting the proxies
to determine whether or not to vote.
When evaluating proposals, the MPPC recognizes that the management of a
publicly held company may need protection from the market's frequent focus on
short-term considerations, so as to be able to concentrate on such long-term
goals as productivity and development of competitive products and services. In
addition, the MPPC generally supports proposals designed to provide management
with short-term insulation from outside influences so as to enable them to
bargain effectively with potential suitors to the extent such proposals are
discrete and not bundled with other proposals. The MPPC believes that a
shareholder's role in the governance of a publicly-held company is generally
118
limited to monitoring the performance of the company and its management and
voting on matters which properly come to a shareholder vote. However, the MPPC
generally opposes proposals designed to insulate an issuer's management
unnecessarily from the wishes of a majority of shareholders. Accordingly, the
MPPC generally votes in accordance with management on issues that the MPPC
believes neither unduly limit the rights and privileges of shareholders nor
adversely affect the value of the investment.
On questions of social responsibility where economic performance does not
appear to be an issue, the MPPC attempts to ensure that management reasonably
responds to the social issues. Responsiveness will be measured by management's
efforts to address the particular social issue including, where appropriate,
assessment of the implications of the proposal to the ongoing operations of the
company. The MPPC will pay particular attention to repeat issues where
management has failed in its commitment in the intervening period to take
actions on issues.
In evaluating proposals regarding incentive plans and restricted stock
plans, the MPPC typically employs a shareholder value transfer model. This model
seeks to assess the amount of shareholder equity flowing out of the company to
executives as options are exercised. After determining the cost of the plan, the
MPPC evaluates whether the cost is reasonable based on a number of factors,
including industry classification and historical performance information. The
MPPC generally votes against proposals that permit the repricing or replacement
of stock options without shareholder approval or that are silent on repricing
and the company has a history of repricing stock options.
Information regarding how the Funds voted proxies relating to portfolio
securities during the most recent 12-month period ended June 30 is available (1)
at www.dreyfus.com and at www.founders.com; and (2) on the SEC's website at
www.sec.gov.
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
PricewaterhouseCoopers LLP, 1670 Broadway, Suite 1000, Denver, Colorado,
80202, served as the Company's independent registered public accounting firm for
the period ended December 31, 2006. At meetings held on February 22, 2007, the
Company's Audit Committee and Board of Directors selected Ernst & Young LLP
("E&Y") as the Company's independent registered public accounting firm for the
fiscal year ending December 31, 2007. E&Y's principal business address is 5
Times Square, 29[th] Floor, New York, New York, 10036-6530. The Company's
independent registered public accounting firm is responsible for auditing the
financial statements of each Fund and meeting with the Audit Committee of the
Board.
119
REGISTRATION STATEMENT
A Registration Statement (Form N-14) under the 1933 Act has been filed with
the SEC, Washington, D.C., with respect to the securities to which this SAI
relates. If further information is desired with respect to the Company or such
securities, reference should be made to the Registration Statement and the
exhibits filed as a part thereof.
120
APPENDIX
RATINGS OF LONG-TERM OBLIGATIONS
The following are nationally recognized statistical rating organizations
("NRSROs"): Fitch Ratings ("Fitch"), Moody's Investors Service, Inc.
("Moody's"), Standard & Poor's Ratings Services ("S&P"), and Dominion Bond
Rating Service Limited ("DBRS").
Guidelines for Moody's and S&P ratings are described below. For DBRS,
ratings correspond exactly to S&P's format from AAA through D. For Fitch,
ratings correspond exactly to S&P's format from AAA through CCC. Because the
Funds cannot purchase securities rated below B, ratings from Fitch and DBRS can
be compared directly to the S&P ratings scale to determine the suitability of a
particular investment for a given Fund. A security must be rated in the
appropriate category by one or more of these agencies to be considered a
suitable investment.
The four highest long-term ratings of Moody's and S&P are Aaa, Aa, A and
Baa and AAA, AA, A and BBB, respectively.
MOODY'S. Moody's long-term obligation ratings are opinions of the relative
credit risk of fixed-income obligations with an original maturity of one year or
more. They address the possibility that a financial obligation will not be
honored as promised. Such ratings reflect both the likelihood of default and any
financial loss suffered in the event of default. The following are Moody's
long-term credit rating definitions for its six highest ratings:
Aaa -- Obligations rated Aaa are judged to be of the highest quality, with
minimal credit risk
Aa -- Obligations rated Aa are judged to be of high quality and are subject
to very low credit risk.
A -- Obligations rated A are considered as upper-medium grade and are
subject to low credit risk.
Baa -- Obligations rated Baa are considered medium-grade and as such may
possess certain speculative characteristics.
Ba -- Obligations rated Ba are judged to have speculative elements and are
subject to substantial credit risk.
B -- Obligations rated B are considered speculative and are subject to high
credit risk.
121
Note: Moody's appends the numerical modifiers 1, 2 and 3 to each rating
classification. The modifier 1 indicates that the obligation ranks in the higher
end of its rating category; the modifier 2 indicates a mid-range ranking; and
the modifier 3 indicates a ranking in the lower end of that rating category.
STANDARD & POOR'S. Issue credit ratings are based in varying degrees, on the
following considerations: (1) likelihood of payment; (2) nature of and
provisions of the obligation; and (3) protection afforded by, and relative
position of, the obligation in the event of bankruptcy, reorganization, or other
arrangement under the laws of bankruptcy and other laws affecting creditors'
rights. The issue ratings definitions are expressed in terms of default risk. As
such, they pertain to senior obligations of an entity. Junior obligations are
typically rated lower than senior obligations, to reflect the lower priority in
bankruptcy, as noted above. The following are S&P's long-term credit rating
definitions for its six highest ratings:
AAA -- An obligation rated AAA has the highest rating assigned by S&P. The
obligor's capacity to meet its financial commitment on the obligation is
extremely strong.
AA -- An obligation rated AA differs from the highest-rated obligations
only in a small degree. The obligor's capacity to meet its financial commitment
on the obligation is very strong.
A -- An obligation rated A is somewhat more susceptible to the adverse
effects of changes in circumstances and economic conditions than obligations in
higher-rated categories. However, the obligor's capacity to meet its financial
commitment on the obligation is still strong.
BBB -- An obligation rated BBB exhibits adequate protection parameters.
However, adverse economic conditions or changing circumstances are more likely
to lead to a weakened capacity of the obligor to meet its financial commitment
on the obligation.
BB -- An obligation rated BB is less vulnerable to nonpayment than other
speculative issues. However, it faces major ongoing uncertainties or exposure to
adverse business, financial, or economic conditions, which would lead to the
obligor's inadequate capacity to meet its financial commitment on the
obligation.
B -- An obligation rated B is more vulnerable to nonpayment than
obligations rated BB, but the obligor currently has the capacity to meet its
financial commitment on the obligation. Adverse business, financial, or economic
conditions will likely impair the obligor's capacity or willingness to meet its
financial commitment on the obligation.
Note: The ratings may be modified by the addition of a plus or minus sign
to show relative standing within the rating categories.
122
PART C: OTHER INFORMATION
ITEM 15. INDEMNIFICATION
Indemnification provisions for officers, directors, employees, and
agents of the Registrant are set forth in Article XII of the By-Laws of the
Registrant, which By-Laws were filed as Exhibit b to Post-Effective Amendment
No. 72 to the Registration Statement on Form N-1A on February 28, 2004 and are
incorporated herein by reference. Section 12.01 of Article XII of the By-Laws
provides that the Registrant shall indemnify each person who is or was a
director, officer, employee or agent of the Registrant against expenses
(including attorneys' fees), judgments, fines and amounts paid in settlement to
the full extent permitted by Section 2-418 of the General Corporation Law of
Maryland or any other applicable law.
Pursuant to the Investment Advisory Agreement between the Registrant
and Founders Asset Management LLC ("Founders"), with certain exceptions, the
Registrant has agreed Founders shall not be subject to liability to the
Registrant for any act or omission in the course of, or connected with,
rendering services under the agreement.
Pursuant to the Underwriting Agreement between the Registrant and
Dreyfus Service Corporation ("DSC"), with certain exceptions, the Registrant has
agreed to indemnify DSC against any liabilities and expenses arising out of any
omissions of material facts or untrue statements made by the Registrant in its
prospectus or registration statement on Form N-1A.
Notwithstanding any provisions in the By-Laws, Investment Advisory
Agreement or Underwriting Agreement to the contrary, no officer, director,
employee, agent, investment adviser and/or underwriter of the Registrant shall
be indemnified by the Registrant in violation of sections 17(h) and (i) of the
Investment Company Act of 1940, as amended.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933, as amended, may be provided to directors, officers and controlling
persons of the Registrant pursuant to the foregoing provisions or otherwise, the
Registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a director, officer or controlling person of the Registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
ITEM 16. EXHIBITS
(1) (a) Articles of Incorporation of Founders Funds, Inc., dated June 19,
1987.(1)
(b) Articles Supplementary to the Articles of Incorporation, filed
November 25, 1987.(1)
(c) Articles Supplementary to the Articles of Incorporation, filed
February 25, 1988.(1)
(d) Articles Supplementary to the Articles of Incorporation, filed
December 12, 1989.(1)
(e) Articles Supplementary to the Articles of Incorporation, filed May 3,
1990.(1)
(f) Articles Supplementary to the Articles of Incorporation, filed
September 22, 1993.(1)
(g) Articles Supplementary to the Articles of Incorporation, filed
December 27, 1995.(1)
(h) Articles Supplementary to the Articles of Incorporation, filed May
20, 1996.(2)
(i) Articles Supplementary to the Articles of Incorporation, filed
October 21, 1996.(2)
(j) Articles Supplementary to the Articles of Incorporation, filed April
9, 1997.(3)
(k) Articles of Amendment to the Articles of Incorporation, filed April
27, 1999.(5)
(l) Articles Supplementary to the Articles of Incorporation, filed
October 25, 1999.(6)
(m) Articles Supplementary to the Articles of Incorporation, filed
December 29, 1999.(6)
(n) Articles of Amendment to the Articles of Incorporation, filed
December 29, 1999.(6)
(o) Articles of Amendment to the Articles of Incorporation, effective
December 22, 2004.(11)
(p) Articles Supplementary to the Articles of Incorporation, filed
November 30, 2006. (14)
(2) By-Laws of Dreyfus Founders Funds, Inc., as amended March 7, 2003.
(10)
(3) Not applicable.
(4) Plan of Reorganization.*
2
(5) Provisions defining the rights of holders of securities are
contained in Article Fifth of the Registrant's Articles of
Incorporation, as amended, the Articles Supplementary to the
Articles of Incorporation, filed October 25, 1999, and Articles
II, IV, VII and IX of the Registrant's Bylaws.
(6) (a) Investment Advisory Agreement between Dreyfus Founders Funds, Inc.
and Founders Asset Management LLC, dated April 1, 1998.(4)
(b) Amended and Restated Appendix 1 to Dreyfus Founders Funds, Inc.
Investment Advisory Agreement, dated December 31, 1999.(7)
(7) (a) Underwriting Agreement between Dreyfus Founders Funds, Inc.
and Dreyfus Service Corporation, dated March 22, 2000.(8)
(b) Form of Distribution and Shareholder Support Agreement for
Dreyfus Founders Funds, Inc. - Class F Shares.(14)
(c) Form of Broker-Dealer Agreement for Dreyfus Founders Funds,
Inc.(8)
(d) Form of Bank Affiliated Broker-Dealer Agreement for Dreyfus
Founders Funds, Inc.(8)
(e) Form of Bank Agreement for Dreyfus Founders Funds, Inc.(8)
(f) Amendment of Underwriting Agreement between Dreyfus Founders
Funds, Inc. and Dreyfus Service Corporation, dated August 2,
2002.(13)
(g) Form of Supplement to Service Agreements dated October 1,
2006.(14)
(h) Form of Supplement to Service Agreements dated April 16,
2007.(14)
(8) Not applicable.
(9) (a) Mutual Fund Custody and Services Agreement between Dreyfus
Founders Funds, Inc. and Mellon Bank, N.A., dated September 1,
2002.(9)
(b) Amendment to Mutual Fund Custody and Services Agreement between
Dreyfus Founders Funds, Inc. and Mellon Bank, N.A., dated
September 1, 2006. (14)
(10) (a) Amended and Restated Dreyfus Founders Funds, Inc. Rule 12b-1
Distribution Plan (for Class F shares only), dated May 17,
2002.(9)
(b) Dreyfus Founders Funds, Inc. Distribution Plan for Classes B, C
and T, dated December 31, 1999.(5)
3
(c) Dreyfus Founders Funds, Inc. Rule 18f-3 Plan, as amended June 1,
2006.(14)
(11) Opinion and consent of Edward F. O'Keefe P.C. - filed herewith
(12) Opinion and consent of Kirkpatrick & Lockhart Preston Gates Ellis
LLP - to be filed by post-effective amendment
(13) (a) Shareholder Services Agreement between Dreyfus Founders Funds, Inc.
and Dreyfus Service Corporation, dated May 1, 2003.(10)
(b) Fund Accounting and Administrative Services Agreement between
Dreyfus Founders Funds, Inc. and The Dreyfus Corporation, dated
January 1, 2007. (14)
(c) Shareholder Services Plan, dated December 31, 1999.(5)
(14) Consent of Independent Registered Public Accounting Firm. -
filed herewith
(15) Not applicable.
(16) Powers of Attorney. - filed herewith
(17) Form of Proxy.*
- --------------
(1) Filed previously on EDGAR with Post-Effective Amendment No. 60 to the
Registration Statement on Form N-1A on April 29, 1996 and incorporated
herein by reference.
(2) Filed previously on EDGAR with Post-Effective Amendment No. 62 to the
Registration Statement on Form N-1A on February 24, 1997 and
incorporated herein by reference.
(3) Filed previously on EDGAR with Post-Effective Amendment No. 63 to the
Registration Statement on Form N-1A on February 27, 1998 and
incorporated herein by reference.
(4) Filed previously on EDGAR with Post-Effective Amendment No. 64 to the
Registration Statement on Form N-1A on February 22, 1999 and
incorporated herein by reference.
(5) Filed previously on EDGAR with Post-Effective Amendment No. 65 to the
Registration Statement on Form N-1A on October 7, 1999 and incorporated
herein by reference.
(6) Filed previously on EDGAR with Post-Effective Amendment No. 66 to the
Registration Statement on Form N-1A on December 29, 1999 and
incorporated herein by reference.
(7) Filed previously on EDGAR with Post-Effective Amendment No. 67 to the
Registration Statement on Form N-1A on February 29, 2000 and
incorporated herein by reference.
4
(8) Filed previously on EDGAR with Post-Effective Amendment No. 68 to the
Registration Statement on Form N-1A on February 28, 2001 and
incorporated herein by reference.
(9) Filed previously on EDGAR with Post-Effective Amendment No. 71 to the
Registration Statement on Form N-1A on February 28, 2003 and
incorporated herein by reference.
(10) Filed previously on EDGAR with Post-Effective Amendment No. 72 to the
Registration Statement on Form N-1A on February 27, 2004 and
incorporated herein by reference.
(11) Filed previously on EDGAR with Post-Effective Amendment No. 74 to the
Registration Statement on Form N-1A on February 28, 2005 and
incorporated herein by reference.
(12) Filed previously on EDGAR with Post-Effective Amendment No. 75 to the
Registration Statement on Form N-1A on February 28, 2006 and
incorporated herein by reference.
(13) Filed previously on EDGAR with Post-Effective Amendment No. 76 to the
Registration Statement on Form N-1A on April 27, 2006 and incorporated
herein by reference.
(14) Filed previously on EDGAR with Post-Effective Amendment No. 77 to the
Registration Statement on Form N-1A on March 2, 2007 and incorporated
herein by reference.
* Filed herewith as part of the Prospectus/Proxy Statement
ITEM 17. UNDERTAKINGS
(1) The undersigned Registrant agrees that prior to any public
reoffering of the securities registered through the use of a
prospectus which is a part of this registration statement by any
person or party who is deemed to be an underwriter within the
meaning of Rule 145(c) of the Securities Act of 1933, the reoffering
prospectus will contain the information called for by the applicable
registration form for the reofferings by persons who may be deemed
underwriters, in addition to the information called for by the other
items of the applicable form.
(2) The undersigned Registrant agrees that every prospectus that is
filed under paragraph (1) above will be filed as a part of an
amendment to the registration statement and will not be used until
the amendment is effective, and that, in determining any liability
under the Securities Act of 1933 each post-effective amendment shall
be deemed to be a new registration statement for the securities
offered therein, and the offering of the securities at that time
shall be deemed to be the initial bona fide offering of them.
(3) The undersigned Registrant agrees to file by post-effective
amendment the final opinion of counsel regarding tax matters within
a reasonable period of time after receiving such opinion.
5
SIGNATURES
As required by the Securities Act of 1933, this Registration Statement has been
signed on behalf of the Registrant, in the City and County of Denver and State
of Colorado, on the 9th day of March, 2007.
DREYFUS FOUNDERS FUNDS, INC.
(Registrant)
By: /s/ Thomas F. Eggers
--------------------------
Thomas F. Eggers, President
As required by the Securities Act of 1933, this Registration Statement has been
signed by the following persons in the capacities and on the dates indicated.
SIGNATURES TITLE DATE
- ---------- ----- ----
/s/Thomas F. Eggers President March 9, 2007
- --------------------------------
Thomas F. Eggers (Principal Executive
Officer)
/s/Jennifer L. Carnes Treasurer March 9, 2007
- --------------------------------
Jennifer L. Carnes (Principal Financial and
Accounting Officer)
/s/Eugene H. Vaughan * Chairman March 9, 2007
- ---------------------------------
Eugene H. Vaughan
/s/Alan S. Danson * Director March 9, 2007
- ---------------------------------
Alan S. Danson
/s/Robert P. Mastrovita * Director March 9, 2007
- ---------------------------------
Robert P. Mastrovita
/s/Trygve E. Myhren * Director March 9, 2007
- ---------------------------------
Trygve E. Myhren
/s/George W. Phillips * Director March 9, 2007
- ---------------------------------
George W. Phillips
6
/s/Martha A. Solis-Turner * Director March 9, 2007
- ---------------------------------
Martha A. Solis-Turner
/s/Kenneth R. Christoffersen March 9, 2007
- --------------------------------
By Kenneth R. Christoffersen
Attorney-in-Fact
*Original Powers of Attorney authorizing Kenneth R. Christoffersen, David L.
Ray, and Edward F. O'Keefe and each of them, to execute this Registration
Statement of the Registrant on behalf of all of the above-named directors of the
Registrant are filed herewith as Exhibit 16.
Exhibit Index
-------------
Exhibit Description
- ------- -----------
(11) Opinion and consent of Edward F. O'Keefe P.C.
(14) Consent of Independent Registered Public Accounting Firm.
(16) Powers of Attorney.
7