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STATEMENT OF ADDITIONAL INFORMATION
ADVANTUS VENTURE FUND, INC.
ADVANTUS INDEX 500 FUND, INC.
FEBRUARY 1, 1999
AS SUPPLEMENTED MAY 21, 1999
This Statement of Additional Information is not a prospectus. This
Statement of Additional Information relates to the separate Prospectuses dated
February 1, 1999 and should be read in conjunction therewith. A copy of each
Prospectus may be obtained by telephone from Advantus Shareholder Services
at (800) 665-6005 or by writing to the Funds at Advantus Funds Group, P.O. Box
9767, Providence, Rhode Island 02940-5059.
THIS STATEMENT OF ADDITIONAL INFORMATION MUST BE ACCOMPANIED OR PRECEDED BY A
COPY OF THE CURRENT PROSPECTUS FOR THE RESPECTIVE FUND.
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TABLE OF CONTENTS
GENERAL INFORMATION AND HISTORY
INVESTMENT OBJECTIVES AND POLICIES
Equity Securities of Small Capitalization Companies
S&P 500 Index
Debt and Money Market Securities
Low Rated Securities
Convertible Securities
Foreign Securities
Stock Index Futures Contracts
Options
United States Government and Agency Obligations
Short Sales Against the Box
Loans of Portfolio Securities
Restricted and Illiquid Securities
Repurchase Agreements
Warrants
Index Depositary Receipts
Defensive Purposes
INVESTMENT RESTRICTIONS
Venture Fund
Index Fund
PORTFOLIO TURNOVER
DIRECTORS AND EXECUTIVE OFFICERS
DIRECTOR LIABILITY
INVESTMENT ADVISORY AND OTHER SERVICES
General
Control and Management of Advantus Capital and Ascend Financial
Investment Advisory Agreement
Distribution Agreement
Payment of Certain Distribution Expenses of the Funds
Transfer Agent and Administrative Services
PORTFOLIO TRANSACTIONS AND ALLOCATION OF BROKERAGE
CALCULATION OF PERFORMANCE DATA
CAPITAL STOCK AND OWNERSHIP OF SHARES
HOW TO BUY SHARES
Alternative Purchase Arrangements
Purchase by Check
Purchase by Wire
Timing of Purchase Orders
Minimum Investments
Public Offering Price
SALES CHARGES
Class A Shares
Class B Shares
Class C Shares
Other Payments to Broker-Dealers
NET ASSET VALUE AND PUBLIC OFFERING PRICE
REDUCED SALES CHARGES
Right of Accumulation-Cumulative Purchase Discount
Letter of Intent
Combining Purchases
Group Purchases
Waiver of Sales Charges For Certain Sales of Class A Shares
EXCHANGE AND TRANSFER OF FUND SHARES
Systematic Exchange Plan
SHAREHOLDER SERVICES
Open Accounts
Automatic Investment Plan
Group Systematic Investment Plan
Retirement Plans Offering Tax Benefits
Systematic Withdrawal Plans
REDEMPTIONS
Signature Guarantee
Contingent Deferred Sales Charge
Telephone Redemption
Delay in Payment of Redemption Proceeds
Fund's Right to Redeem Small Accounts
Reinstatement Privilege
TELEPHONE TRANSACTIONS
THE STANDARD & POOR'S LICENSE
DISTRIBUTIONS AND TAX STATUS
Dividends and Capital Gains Distributions
Taxation - General
Taxation on Portfolio Holdings
FINANCIAL STATEMENTS
Appendix A - Bond and Commercial Paper Ratings
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GENERAL INFORMATION AND HISTORY
Advantus Venture Fund, Inc. ("Venture Fund") and Advantus Index 500 Fund,
Inc. ("Index Fund"), collectively referred to as the "Funds," are open-end
diversified investment companies, commonly called mutual funds. The Funds,
together with ten other mutual funds which share the same investment adviser,
are members of a family of mutual funds known as the "Advantus Funds." Each of
the Advantus Funds, excluding Advantus Money Market Fund, Inc., offers more than
one class of shares (the "Advantus Multiple Class Funds"). The Advantus
Multiple Class Funds currently offer three classes of shares (Class A, Class B
and Class C). Each class is sold pursuant to different sales arrangements and
bears different expenses. The Funds were incorporated as Minnesota corporations
in July 1996.
INVESTMENT OBJECTIVES AND POLICIES
The investment objectives and principal investment policies of each of
the Funds are set forth in detail in the text of each Fund's Prospectus under
"Investing in the Fund --Investment Policies and Practices."
EQUITY SECURITIES OF SMALL CAPITALIZATION COMPANIES
Venture Fund will invest primarily in equity securities issued by small
capitalization companies. Small capitalization companies may be in a relatively
early stage of development or may produce goods and services which have
favorable prospects for growth due to increasing demand or developing markets.
Frequently, such companies have a small management group and single product or
product-line expertise that may result in an enhanced entrepreneurial spirit and
greater focus which allow such firms to be successful. The Fund's investment
adviser believes that such companies may develop into significant business
enterprises and that an investment in such companies offers a greater
opportunity for capital appreciation than an investment in larger more
established entities. However, small capitalization companies frequently retain
a large part of their earnings for research, development and investment in
capital assets, so that the prospects for immediate dividend income are limited.
While securities issued by smaller capitalization companies have
historically produced better market results than the securities of larger
issuers, there is no assurance that they will continue to do so or that the
Fund will invest specifically in those companies which produce those results.
Because of the risks involved, the Fund is not intended to constitute a
complete investment program.
S&P 500 INDEX
Index Fund invests in common stocks included in the Standard & Poor's 500
Composite Stock Price Index (the "S&P 500"). The S&P 500 is an unmanaged index
of common stocks which emphasizes large capitalization companies and is
comprised of 500 industrial, financial, utility and transportation companies.
The S&P 500 is a well-known stock market index that includes common stocks of
companies representing approximately 70% of the market value of all common
stocks publicly traded in the United States. The weightings of stock in the S&P
500 are based on each stock's relative capitalization or total market value;
that is, its market price per share times the number of shares outstanding.
Because of this weighting, approximately 50% of the S&P 500 is typically
composed of stocks of the 50 to 60 largest companies in the S&P 500. The
composition of the S&P 500 may be changed from time to time. Stocks included in
the S&P 500 are chosen by Standard & Poor's on a statistical basis which
reflects such factors as the market capitalization and trading activity of each
stock and the extent to which each stock is representative of stocks in a
particular industry. Typically, companies included in the S&P 500 are the
largest and most dominant companies in their respective industries. The
inclusion of a stock in the S&P 500 in no way implies that Standard & Poor's
believes the stock to be an attractive investment, nor does it afford any
assurance against declines in the price or yield performance of that stock. The
Fund's investment adviser believes that the performance of the S&P 500 is
representative of the performance of publicly traded common stocks in general.
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The Fund will at all times invest at least 80% of its total assets in
common stocks included in the S&P 500. There is no minimum or maximum number of
stocks included in the S&P 500 which the Fund must hold. Under normal
circumstances Advantus Capital generally will seek to match the Fund to the
composition of the S&P 500 to the maximum extent, but may not always invest the
Fund's portfolio to mirror the S&P 500 exactly. Because of the difficulty and
expense of executing relatively small stock transactions, the Fund may not
always be invested in the less heavily weighted stocks included in the S&P 500,
and may at times have its portfolio weighted differently from the S&P 500,
particularly when the Fund has assets of less than $25 million. Regardless of
the number, or relative weightings, of stocks included in the S&P 500 held by
the Fund, however, the Fund's intention is to seek investment results, before
sales charges and other Fund expenses, which match as closely as possible the
investment performance of the S&P 500.
The method used to select investments for the Fund involves investing
primarily in those stocks having the highest statistical weightings in the
S&P 500. Stocks in the S&P 500 are ranked in accordance with their
statistical weightings from highest to lowest. The Fund will invest in all
of the stocks above a specified level in the ranking in approximately the
same proportion as the weightings of those stocks in the S&P 500. However,
the Fund will not invest in all of the stocks below the specified level in
the ranking, but rather will invest only in those stocks, and in amounts, as
the Fund's investment adviser determines to be necessary or appropriate for
the Fund to approximate the performance of the S&P 500. The stocks of the
S&P 500 to be included in the Fund will be selected utilizing a computer
program which provides simulations of alternative investment strategies for
tracking the performance of the S&P 500 and analyzes the estimated tracking
results of such alternative strategies prior to their implementation. This
process selects stocks for the Fund so that various industry weightings and
market capitalizations closely approximate those of the S&P 500. This
technique employed by the Fund is expected to be an effective means of
substantially duplicating the income and capital returns of the S&P 500. The
Fund's ability to duplicate the performance of the S&P 500 will depend to
some extent, however, on the size and timing of cash flows into or out of the
Fund. Investment changes to accommodate these cash flows will be made to
maintain the similarity of the Fund's holdings to the S&P 500 to the maximum
practicable extent.
Over the long term, the Fund's investment adviser will seek a correlation
between the performance of the Fund, before sales charges and other Fund
expenses, and that of the S&P 500 of at least 95% (or 85% - 95% if the Fund's
assets are less than $25 million). A correlation of 100% would indicate perfect
correlation, which would be achieved when the net asset value of the Fund,
including the value of its dividend and capital gains distributions, increased
or decreased in exact proportion to changes in the S&P 500. An investment in
shares of the Fund therefore involves risks similar to those of investing in a
portfolio consisting of the common stocks of some or all of the companies
included in the S&P 500.
DEBT AND MONEY MARKET SECURITIES
Venture Fund may invest in long, intermediate and short-term debt
securities from various industry classifications and money market instruments.
Such instruments may include the following:
* Corporate obligations which at the time of purchase are rated within
the four highest grades assigned by Standard & Poor's Corporation
("S&P"), Moody's Investors Services, Inc. ("Moody's") or any other
national rating service, or, if not rated, are of equivalent
investment quality as determined by the Fund's investment adviser or
sub-adviser, as the case may be. To the extent that the Fund invests
in securities rated BBB or Baa by S&P or Moody's, respectively, it
will be investing in securities which have speculative elements.
Venture Fund may also invest up to 10% of its net assets in securities
(including convertible securities) rated at least B- by S&P or B3 by
Moody's. See "Low Rated Securities," below. For a description of the
ratings used by Moody's and S&P, see Appendix A below.
* Obligations of, or guaranteed by, the U.S. Government, its agencies or
instrumentalities.
* Debt obligations of banks.
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In addition to the instruments described above, which will generally be
long-term, but may be purchased by the Fund within one year of the date of a
security's maturity, the Fund may also purchase other high quality securities
including:
* Obligations (including certificates of deposit and bankers'
acceptances) of U.S. banks, savings and loan associations, savings
banks which have total assets (as of the date of their most recent
annual financial statements at the time of investment) of not less
than $2,000,000,000; U.S. dollar denominated obligations of Canadian
chartered banks, London branches of U.S. banks and U.S. branches or
agencies of foreign banks which meet the above-stated asset size; and
obligations of any U.S. banks, savings and loan associations and
savings banks, regardless of the amount of their total assets,
provided that the amount of the obligations purchased does not exceed
$100,000 for any one U.S. bank, savings and loan association or
savings bank and the payment of the principal is insured by the
Federal Deposit Insurance Corporation or the Federal Savings and Loan
Insurance Corporation.
* Obligations of the International Bank for Reconstruction and
Development.
* Commercial paper (including variable amount master demand notes)
issued by U.S. corporations or affiliated foreign corporations and
rated (or guaranteed by a company whose commercial paper is rated) at
the date of investment Prime-1 by Moody's or A-1 by S&P or, if not
rated by either Moody's or S&P, issued by a corporation having an
outstanding debt issue rated Aa or better by Moody's or AA or better
by S&P and, if issued by an affiliated foreign corporation, such
commercial paper (not to exceed in the aggregate 10% of the Fund's net
assets) is U.S. dollar denominated and not subject at the time of
purchase to foreign tax withholding.
The Fund may also invest in securities which are unrated if the Fund's
investment adviser determines that such securities are of equivalent investment
quality to the rated securities described above. In the case of "split-rated"
securities, which result when nationally-recognized rating agencies rate the
security at different rating levels (e.g., BBB by S&P and Ba by Moody's), it is
the Fund's general policy to classify such securities at the higher rating level
where, in the judgment of the Fund's investment adviser, such classification
reasonably reflects the security's quality and risk.
The market value of debt securities generally varies in response to changes
in interest rates and the financial condition of each issuer. During periods of
declining interest rates, the value of debt securities generally increases.
Conversely, during periods of rising interest rates, the value of such
securities generally declines. These changes in market value will be reflected
in the Fund's net asset value.
The Fund may, however, acquire debt securities which, after acquisition,
are down-graded by the rating agencies to a rating which is lower than the
applicable minimum rating described above. In such an event it is the Fund's
general policy to dispose of such down-graded securities except when, in the
judgment of the Fund's investment adviser, it is to the Fund's advantage to
continue to hold such securities. In no event, however, will the Fund hold in
excess of 5% of its net assets in securities which have been down-graded
subsequent to purchase where such down-graded securities are not otherwise
eligible for purchase by the Fund. This 5% is in addition to securities which
the Fund may otherwise purchase under its usual investment policies.
LOW RATED SECURITIES
Venture Fund may also invest up to 10% of its net assets in debt
securities (including convertible debt securities), which, at the time of
acquisition, are rated at least B- or B3 by S&P or Moody's, respectively, or
rated at a comparable level by another independent publicly-recognized rating
agency, or, if not rated, are of equivalent investment quality as determined
by the Fund's investment adviser. Venture Fund may also hold an additional
5% of its total assets in low rated securities rated below "investment grade"
(i.e. below BBB) where such securities were either investment grade or
eligible securities at the time of purchase but subsequently down-graded to a
rating not otherwise
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eligible for purchase by the Fund (see "Debt and Money Market Securities"
above). Debt securities rated below the four highest categories (i.e., below
BBB) are not considered investment grade obligations and are commonly called
"junk bonds." These securities are predominately speculative and present
more credit risk than investment grade obligations. Bonds rated below BBB
are also regarded as predominately speculative with respect to the issuer's
continuing ability to meet principal and interest payments.
Low rated and unrated debt securities generally involve greater volatility
of price and risk of principal and income, including the possibility of default
by, or bankruptcy of, the issuers of the securities. In addition, the markets
in which low rated and unrated debt securities are traded are more limited than
those in which higher rated securities are traded. The existence of limited
markets for particular securities may diminish the Fund's ability to sell the
securities at fair value either to meet redemption requests or to respond to
changes in the economy or in the financial markets and could adversely affect
and cause fluctuations in the daily net asset value of the Funds' shares.
Adverse publicity and investor perceptions, whether or not based on
fundamental analysis, may decrease the values and liquidity of low rated debt
securities, especially in a thinly traded market. Analysis of the
creditworthiness of issuers of low rated debt securities may be more complex
than for issuers of higher rated securities, and the ability of the Fund to
achieve its investment objective may, to the extent of investment in low rated
debt securities, be more dependent upon such creditworthiness analysis than
would be the case if the Fund were investing in higher rated securities.
Low rated debt securities may be more susceptible to real or perceived
adverse economic and competitive industry conditions than investment grade
securities. The prices of low rated debt securities have been found to be less
sensitive to interest rate changes than higher rated investments, but more
sensitive to adverse economic downturns or individual corporate developments. A
projection of an economic downturn or of a period of rising interest rates, for
example, could cause a decline in low rated debt securities prices because the
advent of a recession could lessen the ability of a highly leveraged company to
make principal and interest payments on its debt securities. If the issuer of
low rated debt securities defaults, the Fund may incur additional expenses to
seek recovery. The low rated bond market is relatively new, and many of the
outstanding low rated bonds have not endured a major business recession.
CONVERTIBLE SECURITIES
Venture Fund may invest in debt or preferred equity securities convertible
into or exchangeable for equity securities. Traditionally, convertible
securities have paid dividends or interest at rates higher than common stocks
but lower than non-convertible securities. They generally participate in the
appreciation or depreciation of the underlying stock into which they are
convertible, but to a lesser degree. The total return and yield of lower
quality (high yield/high risk) convertible bonds can be expected to fluctuate
more than the total return and yield of higher quality, shorter-term bonds, but
not as much as common stocks. The Fund will limit its purchase of convertible
debt securities to those that, at the time of purchase, are rated at least B- by
S&P or B3 by Moody's, or if not rated by S&P or Moody's, are of equivalent
investment quality as determined by the Fund's investment adviser.
FOREIGN SECURITIES
Venture Fund may invest up to 10% of its total assets in securities of
foreign issuers which are not publicly traded in the U.S. (securities of
foreign issuers which are publicly traded in the U.S., usually in the form of
sponsored American Depositary Receipts, are not subject to this 10%
limitation.) Investing in securities of foreign issuers may result in greater
risk than that incurred in investing in securities of domestic issuers.
There is the possibility of expropriation, nationalization or confiscatory
taxation, taxation of income earned in foreign nations or other taxes imposed
with respect to investments in foreign nations; foreign exchange controls
(which may include suspension of the ability to transfer currency from a
given country), default in foreign government securities, political or social
instability or diplomatic developments which could affect investments in
securities of issuers in those nations. In addition, in many countries there
is less publicly available information about issuers than is available in
reports about companies in the U.S. Foreign companies are not generally
subject to uniform accounting, auditing and financial reporting standards,
and auditing practices and requirements may not be comparable to those
applicable to U.S. companies. Further, the Fund may encounter difficulties or
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be unable to pursue legal remedies and obtain judgments in foreign courts.
Commission rates in foreign countries, which are sometimes fixed rather than
subject to negotiation as in the U.S., are likely to be higher. Further, the
settlement period of securities transactions in foreign markets may be longer
than in domestic markets. In many foreign countries there is less government
supervision and regulation of business and industry practices, stock
exchanges, brokers and listed companies than in the U.S. The foreign
securities markets of many of the countries in which the Fund may invest may
also be smaller, less liquid, and subject to greater price volatility than
those in the U.S. Also, some countries may withhold portions of interest,
dividends and gains at the source. The Fund may also be unfavorably affected
by fluctuations in the relative rates of exchange between the currencies of
different nations (i.e., when the currency being exchanged has decreased in
value relative to the currency being purchased). There are further risk
considerations, including possible losses through the holding of securities
in domestic and foreign custodial banks and depositories.
The countries of the European Monetary Union (EMU) began the process of
converting their individual country currencies to the Euro on January 1, 1999.
There is also a risk that the value of foreign securities of companies located
in EMU countries may decrease due to market volatility resulting from the
conversion of certain EMU country currencies to the Euro. It is not possible to
predict the impact of the Euro on the business or financial condition of
European issues or on the Fund. The transition and the elimination of currency
risk among EMU countries may change the economic environment and behavior of
investors, particularly in European markets. To the extent the Fund holds
non-U.S. dollar (Euro or other) denominated securities, it will still be exposed
to currency risk due to fluctuations in those currencies versus the U.S. dollar.
An ADR is sponsored if the original issuing company has selected a single
U.S. bank to serve as its U.S. depositary and transfer agent. This relationship
requires a deposit agreement which defines the rights and duties of both the
issuer and depositary. Companies that sponsor ADRs must also provide their ADR
investors with English translations of company information made public in their
own domiciled country. Sponsored ADR investors also generally have the same
voting rights as ordinary shareholders, barring any unusual circumstances. ADRs
which meet these requirements can be listed on U.S. stock exchanges.
Unsponsored ADRs are created at the initiative of a broker or bank reacting to
demand for a specific foreign stock. The broker or bank purchases the
underlying shares and deposits them in a depositary. Unsponsored shares issued
after 1983 are not eligible for U.S. stock exchange listings. Furthermore, they
do not generally include voting rights.
STOCK INDEX FUTURES CONTRACTS
Index Fund may purchase and sell stock index futures contracts. The Fund
may enter into stock index futures contracts provided that not more than 5% of
its assets are required as a margin deposit for such contracts and provided that
not more than 20% of its total assets (including assets held as "cover" in
segregated accounts or as margin deposits) are invested in stock index futures
obligations at any time. A stock index futures contract is a bilateral
agreement pursuant to which two parties agree to take or make delivery of an
amount of cash equal to a specified dollar amount times the difference between
the stock index value at the close of trading of the contract and the price at
which the futures contract is originally struck. No physical delivery of the
stocks comprising the stock index is made; generally contracts are closed out
prior to the expiration date of the contract. Closing out an open futures
position is done by taking an opposite position ("buying" a contract which has
previously been "sold," or "selling" a contract previously purchased) in an
identical contract to terminate the position. Brokerage commissions are
incurred when a futures contract is bought or sold. No price is paid upon
entering into futures contracts. Instead, the Fund is required to deposit an
amount of cash or U.S. Treasury securities, known as "initial margin," in a
segregated account established with the Fund's custodian in the name of the
futures broker through which the Fund entered into the futures contract.
Subsequent payments, called "variation margin," to and from the futures broker
are required on a daily basis as the value of the futures position varies.
Because the value of index futures depends primarily on the value of their
underlying indexes, the performance of broad-based contracts will generally
reflect broad changes in common stock prices. The Index Fund's investments may
be more or less heavily weighted in securities of particular types of issuers,
or securities of issuers in particular industries, than the index underlying its
index futures positions. Therefore, while the Fund's index futures positions
should provide exposure to changes in value of the underlying index (or
protection against declines in their value in the case of hedging transactions),
it is likely that, in the case of hedging transactions, the price changes of the
Fund's index futures positions will not match the price changes of the Fund's
other investments. Other factors that could affect the correlation of the
Fund's index futures positions with its other investments are discussed below.
FUTURES MARGIN PAYMENTS. Both the purchaser and seller of a futures
contract are required to deposit "initial margin" with a futures broker (known
as a "futures commission merchant," or "FCM"), when the contract is entered
into. Initial margin deposits are equal to a percentage of the contract's
value, as set by the exchange where the contract is traded, and may be
maintained in cash or high quality liquid securities. If the value of either
party's position declines, that party will be required to make additional
"variation margin" payments to settle the change in value on a daily basis. The
party that has a gain may be entitled to receive all or a portion of this
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amount. Initial and variation margin payments are similar to good faith
deposits or performance bonds, unlike margin extended by a securities broker,
an initial and variation margin payments do not constitute purchasing
securities on margin for purposes of the Fund's investment limitations. In the
event of the bankruptcy of a FCM that holds margin on behalf of the Fund, the
Fund may be entitled to return of margin owed to it only in proportion to the
amount received by the FCM's other customers. The Fund's investment adviser
will attempt to minimize this risk by monitoring the creditworthiness of the
FCMs with which the Index Fund does business.
LIMITATIONS ON STOCK INDEX FUTURES TRANSACTIONS. Index Fund has filed a
notice of eligibility for exclusion from the definition of the term
"commodity pool operator" with the Commodity Futures Trading Commission (the
"CFTC") and the National Futures Association, which regulate trading in the
futures markets. Pursuant to regulations under the Commodity Exchange Act,
the Fund may use futures contracts for bona fide hedging purposes within the
meaning of CFTC regulations; PROVIDED, HOWEVER, that, with respect to
positions in futures contracts which are not used for bona fide hedging
purposes within the meaning of CFTC regulations, the aggregate initial margin
required to establish such position will not exceed 5% of the liquidation
value of the Fund's portfolio, after taking into account unrealized profits
and unrealized losses on any such contracts into which the Fund has entered.
The Fund's investment adviser also intends to follow certain other
limitations on the Fund's futures activities. Under normal conditions, the
Fund will not enter into any futures contract if, as a result, the sum of (i)
the current value of assets hedged in the case of strategies involving the
sale of securities, and (ii) the current value of the indexes or other
instruments underlying the Fund's other futures positions would exceed 20% of
the Fund's total assets. In addition, the Fund does not intend to enter into
futures contracts that are not traded on exchanges or boards of trade.
Index Fund may purchase index futures contracts in order to attempt to
remain fully invested in the stock market. For example, if the Fund had cash
and short-term securities on hand that it wished to invest in common stocks,
but at the same time it wished to maintain a highly liquid position in order
to be prepared to meet redemption requests or other obligations, it could
purchase an index futures contract in order to approximate the activity of
the index with that portion of its portfolio. Index Fund may also purchase
futures contracts as an alternative to purchasing actual securities. For
example, if the Fund intended to purchase stocks but had not yet done so, it
could purchase a futures contract in order to participate in the index's
activity while deciding on particular investments. This strategy is
sometimes known as an anticipatory hedge. In these strategies the Fund would
use futures contracts to attempt to achieve an overall return -- whether
positive or negative -- similar to the return from the stocks included in the
underlying index, while taking advantage of potentially greater liquidity
that futures contracts may offer.
When the Fund wishes to sell securities, it may sell stock index futures
contracts to hedge against stock market declines until the sale can be
completed. For example, if the Fund's investment adviser anticipated a decline
in common stock prices at a time when the Fund anticipated selling common
stocks, it could sell a futures contract in order to lock in current market
prices. If stock prices subsequently fell, the futures contract's value would
be expected to rise and offset all or a portion of the anticipated loss in the
common stocks the Fund had hedged in anticipation of selling them. Of course,
if prices subsequently rose, the futures contract's value could be expected to
fall and offset all or a portion of any gains from those securities. The
success of this type of strategy depends to a great extent on the degree of
correlation between the index futures contract and the securities hedged.
ASSET COVERAGE FOR FUTURES POSITIONS. Index Fund will comply with
guidelines established by the Securities and Exchange Commission with respect to
coverage of futures strategies by mutual funds, and if the guidelines so require
will set aside cash and/or appropriate liquid assets (e.g., United States
Government securities, other investment grade debt obligations and equity
securities) in a segregated custodial account in the amount prescribed.
Securities held in a segregated account cannot be sold while the futures
contract is outstanding, unless they are replaced with other suitable assets.
As a result, there is a possibility that segregation of a large percentage of
the Fund's assets could impede portfolio management or the Fund's ability to
meet redemption requests or other current obligations.
CORRELATION OF PRICE CHANGES. As noted above, price changes of the Fund's
futures positions may not be well correlated with price changes of its other
investments because of differences between the underlying index and the types of
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securities the Fund invests in. For example, if the Fund sold a broad-based
index futures contract to hedge against a stock market decline while the Fund
completed a sale of specific securities in its portfolio, it is possible that
the price of the securities could move differently from the broad market average
represented by the index futures contract, resulting in an imperfect hedge which
could affect the correlation between the Fund's return and that of the benchmark
index. In the case of an index futures contract purchased by the Fund either in
anticipation of actual stock purchases or in an effort to be fully invested,
failure of the contract to track its index accurately could hinder the Fund in
the achievement of its objective.
Stock index futures prices can also diverge from the prices of their
underlying indexes. Futures prices are affected by such factors as current and
anticipated short-term interest rates, changes in volatility of the underlying
index, and the time remaining until expiration of the contract, which may not
affect security prices the same way. Imperfect correlation may 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, or from
imposition of daily price fluctuation limits for futures contract. The Fund may
sell futures contracts with a greater or lesser value than the securities it
wishes to hedge in order to attempt to compensate for differences in historical
volatility between the futures contract and the securities, although this may
not be successful in all cases.
LIQUIDITY OF FUTURES CONTRACTS. Because futures contracts are generally
settled within a day from the date they are closed out, compared with a
settlement period of three days for some types of securities, the futures
markets can provide liquidity superior to the securities markets in many cases.
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 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 may be impossible for the Fund to enter into new positions
or close out existing positions. Trading in index futures can also be halted if
trading in the underlying index stocks is halted. If the secondary market for a
futures contract is not liquid because of price fluctuation limits or otherwise,
it would prevent prompt liquidation of unfavorable futures positions, and
potentially could require the Fund to continue to hold a futures position until
the delivery date regardless of potential consequences. If the Fund must
continue to hold a futures position, its access to other assets held to cover
the position could also be impaired.
FEDERAL TAX TREATMENT. The Internal Revenue Code of 1986, as amended (the
"Code"), forbids the Fund from earning more than 30% of its gross income from
the sale or other disposition of certain investments, including futures
contracts, which are owned for less than three months. The likelihood of
violating this 30% test is increased by the amount of investing the Fund does in
futures contract. Additionally, the Code requires the Fund to diversify its
investment holdings. The Internal Revenue Service position regarding the
treatment of futures contracts for diversification purposes is not clear, and
the extent to which the Fund may engage in these transactions may be limited by
this requirement. The Code also provides that, with respect to certain futures
contracts held by the Fund at the end of its taxable year, unrealized gain or
loss on such contracts may have to be recognized for tax purposes under a
special system within the Code. The actual gain or loss recognized by the Fund
in an eventual disposition of such contract, however, will be adjusted by the
amount of the gain or loss recognized earlier under the Code's system. See
"Distributions and Tax Status."
OPTIONS
Venture Fund may write covered call options which are traded on national
securities exchanges with respect to common stocks in its portfolio ("covered
options") in an attempt to earn additional current income on its portfolio or to
guard against an expected decline in the price of a security. When the Fund
writes a covered call option, it gives the purchaser of the option the right to
buy the underlying security at the price specified in the option (the "exercise
price") at any time during the option period. If the option expires
9
<PAGE>
unexercised, the Fund realizes income, typically in the form of short-term
capital gain, to the extent of the amount received for the option (the
"premium"). If the option is exercised, a decision over which the Fund has no
control, the Fund must sell the underlying security to the option holder at the
exercise price. By writing a covered option, the Fund foregoes, in exchange for
the premium less the commission ("net premium"), the opportunity to profit
during the option period from an increase in the market value of the underlying
security above the exercise price. The Fund does not write call options in an
aggregate amount greater than 15% of its net assets.
The Fund purchases call options only to close out a position. When an
option is written on securities in the Fund's portfolio and it appears that
the purchaser of that option is likely to exercise the option and purchase
the underlying security, it may be considered appropriate to avoid
liquidating the Fund's position, or the Fund may wish to extinguish a call
option sold by it so as to be free to sell the underlying security. In such
instances the Fund may purchase a call option on the same security with the
same exercise price and expiration date which had been previously written.
Such a purchase would have the effect of closing out the option which the
Fund has written. The Fund realizes a short-term capital gain if the amount
paid to purchase the call option is less than the premium received for
writing a similar option. Generally, the Fund realizes a short-term loss if
the amount paid to purchase the call option is greater than the premium
received for writing the option. If the underlying security has
substantially risen in value, it may be difficult or expensive to purchase
the call option for the closing transaction.
The use of options contracts involves risk of loss to the Fund due to the
possibility that the prices of the underlying securities on which such options
are written may not move as anticipated.
UNITED STATES GOVERNMENT AND AGENCY OBLIGATIONS
The Funds may invest in bills, certificates of indebtedness, notes and
bonds issued or guaranteed as to principal or interest by the United States
Government or by agencies or authorities controlled or supervised by and acting
as instrumentalities of the United States Government established under authority
granted by Congress. Obligations issued or guaranteed by agencies of the United
States Government include, among others, the Federal Farm Credit Bank, the
Federal Housing Administration and the Small Business Administration, and
obligations issued or guaranteed by instrumentalities of the United States
Government include, among others, the Federal Home Loan Mortgage Corporation,
the Federal Land Banks and the U.S. Postal Service. Some of these securities
are supported by the full faith and credit of the U.S. Treasury (e.g.,
Government National Mortgage Association securities), others are supported by
the right of the issuer to borrow from the Treasury (e.g., Federal Farm Credit
Bank securities), while still others are supported only by the credit of the
instrumentality (e.g., Federal National Mortgage Association securities).
Guarantees of principal by agencies or instrumentalities of the United States
Government may be a guarantee of payment at the maturity of the obligation so
that in the event of a default prior to maturity there might not be a market and
thus no means of realizing on the obligation prior to maturity. Guarantees as
to the timely payment of principal and interest do not extend to the value or
yield of these securities nor to the value of the Funds' shares.
SHORT SALES AGAINST THE BOX
Each Fund may sell securities "short against the box." Whereas a short
sale is the sale of a security the Fund does not own, a short sale is "against
the box" if, at all times during which the short position is open, the Fund owns
at least an equal amount of the securities or securities sold short or other
securities convertible into or exchangeable without further consideration for
securities of the same issue as the securities sold short. Short sales against
the box are typically used by sophisticated investors to defer recognition of
capital gains or losses. The Funds have no present intention to sell securities
short in this fashion.
LOANS OF PORTFOLIO SECURITIES
Venture Fund and Index Fund for the purpose of realizing additional
10
<PAGE>
income, may make secured loans of portfolio securities amounting to not more
than 20% of their respective total assets. Securities loans are made to
broker-dealers or financial institutions pursuant to agreements requiring
that the loans be continuously secured by collateral at least equal at all
times to the value of the securities lent. The collateral received will
consist of cash, letters of credit or securities issued or guaranteed by the
U.S. Government, its agencies or instrumentalities. While the securities are
being lent, the Fund will continue to receive the equivalent of the interest
or dividends paid by the issuer on the securities, as well as interest on the
investment of the collateral or a fee from the borrower. Although the Fund
does not expect to pay commissions or other front-end fees (including finders
fees) in connection with loans of securities (but may in some cases do so), a
portion of the additional income realized will be shared with the Fund's
custodian for arranging and administering such loans. The Fund has a right
to call each loan and obtain the securities on five business days' notice.
The Fund will not have the right to vote securities while they are being
lent, but it will call a loan in anticipation of any important vote. The
risks in lending portfolio securities, as with other extensions of secured
credit, consist of possible delay in receiving additional collateral or in
the recovery of the securities or possible loss of rights in the collateral
should the borrower fail financially. Loans will only be made to firms
deemed by the Fund's investment adviser to be of good standing and to have
sufficient financial responsibility, and will not be made unless, in the
judgment of the Fund's investment adviser, the consideration to be earned
from such loans would justify the risk. The creditworthiness of entities to
which the Fund makes loans of portfolio securities is monitored by the Fund's
investment adviser throughout the term of each loan. The Fund has no present
intention to make loans of portfolio securities.
RESTRICTED AND ILLIQUID SECURITIES
Venture Fund and Index Fund may invest up to 10% of their respective net
assets in securities restricted as to disposition under the federal securities
laws or otherwise, or other illiquid assets. An investment is generally deemed
to be "illiquid" if it cannot be disposed of within seven days in the ordinary
course of business at approximately the amount at which the investment company
is valuing the investment. "Restricted securities" are securities which were
originally sold in private placements and which have not been registered under
the Securities Act of 1933 (the "1933 Act"). Such securities generally have
been considered illiquid by the staff of the Securities and Exchange Commission
(the "SEC"), since such securities may be resold only subject to statutory
restrictions and delays or if registered under the 1933 Act. Because of such
restrictions, the Fund may not be able to dispose of a block of restricted
securities for a substantial period of time or at prices as favorable as those
prevailing in the open market should like securities of an unrestricted class of
the same issuer be freely traded. The Fund may be required to bear the expenses
of registration of such restricted securities.
The SEC has acknowledged, however, that a market exists for certain
restricted securities (for example, securities qualifying for resale to certain
"qualified institutional buyers" pursuant to Rule 144A under the 1933 Act).
Additionally, the Fund's investment adviser believes that a similar market
exists for commercial paper issued pursuant to the private placement exemption
of Section 4(2) of the 1933 Act. The Fund may invest without limitation in
these forms of restricted securities if such securities are deemed by the Fund's
investment adviser to be liquid in accordance with standards established by the
Fund's Board of Directors. Under these guidelines, the Fund's investment
adviser must consider (a) the frequency of trades and quotes for the security,
(b) the number of dealers willing to purchase or sell the security and the
number of other potential purchasers, (c) dealer undertakings to make a market
in the security, and (d) the nature of the security and the nature of the
marketplace trades (for example, the time needed to dispose of the security, the
method of soliciting offers and the mechanics of transfer). At the present
time, it is not possible to predict with accuracy how the markets for certain
restricted securities will develop. Investing in such restricted securities
could have the effect of increasing the level of the Fund's illiquidity to the
extent that qualified purchasers of the securities become, for a time,
uninterested in purchasing these securities.
11
<PAGE>
If through the appreciation of restricted securities or the depreciation
of unrestricted securities, the Fund is in a position where more than 10% of
its net assets are invested in restricted and other illiquid securities, the
Fund will take appropriate steps to protect liquidity.
REPURCHASE AGREEMENTS
Venture Fund and Index Fund may enter into repurchase agreements.
Repurchase agreements are agreements by which the Fund purchases a security and
obtains a simultaneous commitment from the seller (a member bank of the Federal
Reserve System or, if permitted by law or regulation and if the Board of
Directors of the Fund has evaluated its creditworthiness through adoption of
standards of review or otherwise, a securities dealer) to repurchase the
security at an agreed upon price and date. The creditworthiness of entities
with whom the Fund enters into repurchase agreements is monitored by the Fund's
investment adviser throughout the term of the repurchase agreement. The resale
price is in excess of the purchase price and reflects an agreed upon market rate
unrelated to the coupon rate on the purchased security. Such transactions
afford the Fund the opportunity to earn a return on temporarily available cash.
The Fund's custodian, or a duly appointed subcustodian, holds the securities
underlying any repurchase agreement in a segregated account or such securities
may be part of the Federal Reserve Book Entry System. The market value of the
collateral underlying the repurchase agreement is determined on each business
day. If at any time the market value of the collateral falls below the
repurchase price of the repurchase agreement (including any accrued interest),
the Fund promptly receives additional collateral, so that the total collateral
is in an amount at least equal to the repurchase price plus accrued interest.
While the underlying security may be a bill, certificate of indebtedness, note
or bond issued by an agency, authority or instrumentality of the U.S.
Government, the obligation of the seller is not guaranteed by the U.S.
Government. In the event of a bankruptcy or other default of a seller of a
repurchase agreement, the Fund could experience both delays in liquidating the
underlying security and losses, including: (a) possible decline in the value of
the underlying security during the period while the Fund seeks to enforce its
rights thereto; (b) possible subnormal levels of income and lack of access to
income during this period; and (c) expenses of enforcing its rights.
WARRANTS
Venture Fund may invest in warrants; however, not more than 5% of its net
assets (at the time of purchase) will be invested in warrants other than
warrants acquired in units or attached to other securities. Of such 5%, not
more than 2% of the Fund's assets at the time of purchase may be invested in
warrants that are not listed on the New York or American Stock Exchanges.
Warrants are instruments that allow investors to purchase underlying shares at a
specified price (exercise price) at a given future date. Warrants are pure
speculation in that they have no voting rights, pay no dividends and have no
rights with respect to the assets of the corporation issuing them. The prices
of warrants do not necessarily move parallel to the prices of the underlying
securities.
INDEX DEPOSITARY RECEIPTS
Venture Fund and Index Fund may each invest up to 5% of their respective
total assets in one or more types of depositary receipts ("DRs") as a means
of tracking the performance of a designated stock index while maintaining
liquidity. Venture Fund and Index Fund may invest in S&P 500 Depositary
Receipts ("SPDRs"), which track the S&P 500 Index. In addition, Venture Fund
may invest in S&P MidCap 400 Depositary Receipts ("MidCap SPDRs"), which
track the S&P MidCap 400 Index; and "Dow Industrial Diamonds," which track
the Dow Jones Industrial Average; or in other DRs which track indexes,
provided that such investments are consistent with the Fund's investment
objective as determined by the Fund's investment adviser. Each of these
securities represents shares of ownership of a long term unit investment
trust (a type of investment company) that holds all of the stock included in
the relevant underlying index.
DRs carry a price which equals a specified fraction of the value of the
designated index and are exchange traded. As with other equity transactions,
brokers charge a commission in connection with the purchase of DRs. In
12
<PAGE>
addition, an asset management fee is charged in connection with the underlying
unit investment trust (which is in addition to the asset management fee paid by
the Fund).
Trading costs for DRs are somewhat higher than those for stock index
futures contracts, but, because DRs trade like other exchange-listed equities,
they represent a quick and convenient method of maximizing the use of the Fund's
assets to track the return of a particular stock index. DRs share in the same
market risks as other equity investments.
DEFENSIVE PURPOSES
The Funds may invest up to 20% of their respective net assets in cash or
cash items. In addition, for temporary or defensive purposes, the Funds may
invest in cash or cash items without limitation. The "cash items" in which the
Funds may invest, include short-term obligations such as rated commercial paper
and variable amount master demand notes; United States dollar-denominated time
and savings deposits (including certificates of deposit); bankers' acceptances;
obligations of the United States Government or its agencies or
instrumentalities; repurchase agreements collateralized by eligible investments
of a Fund; securities of other mutual funds which invest primarily in debt
obligations with remaining maturities of 13 months or less (which investments
also are subject to the advisory fee); and other similar high-quality short-term
United States dollar-denominated obligations. The other mutual funds in which
the Funds may so invest include money market funds advised by the Fund's
investment adviser.
INVESTMENT RESTRICTIONS
Each of the Funds is "diversified" as defined in the Investment Company Act
of 1940. This means that at least 75% of the value of the Fund's total assets
is represented by cash and cash items, government securities, securities of
other investment companies, and securities of other issuers, which for purposes
of this calculation, are limited in respect of any one issuer to an amount not
greater in value than 5% of the Fund's total assets and to not more than 10% of
the outstanding voting securities of such issuer.
Each Fund is also subject to certain "fundamental" investment restrictions,
which may not be changed without the vote of a "majority" of the Fund's
outstanding shares. As used in the applicable Prospectus and this Statement of
Additional Information, "majority" means the lesser of (i) 67% of a Fund's
outstanding shares present at a meeting of the holders if more than 50% of the
outstanding shares are present in person or by proxy or (ii) more than 50% of a
Fund's outstanding shares. An investment restriction which is not fundamental
may be changed by vote of the Board of Directors without further shareholder
approval. Except as otherwise noted, each of the investment restrictions below
is fundamental.
VENTURE FUND (The investment restrictions numbered 1 through 8 below are
fundamental. Restrictions numbered 9 through 15 are not fundamental.)
Venture Fund will NOT:
(1) Purchase any security if, as a result, 25% or more of the Fund's total
assets would be invested in the securities of issuers conducting their
principal business activities in a single industry;
(2) Purchase securities on margin (but it may obtain such short-term
credits as may be necessary for the clearance of purchases and sales
of securities); or make short sales except short sales against the box
where it owns the securities sold or, by virtue of ownership of other
securities, it has the right to obtain, without payment of further
consideration, securities equivalent in kind and amount to those sold;
(3) Borrow money, except from banks and only as a temporary measure for
extraordinary or emergency purposes and not in excess of 5% of its net
assets;
13
<PAGE>
(4) Mortgage, pledge, hypothecate, or in any manner transfer, as security
for indebtedness, any assets of the Fund;
(5) Make loans, except by purchase of bonds, debentures, commercial paper,
certificates of deposit, corporate notes and similar evidences of
indebtedness, which are a part of an issue to the public or to
financial institutions, and except loans of portfolio securities if,
immediately after making such loan, the total amount of portfolio
securities loaned does not exceed 20% of the market value of the
Fund's total assets;
(6) Buy or sell oil, gas or other mineral leases, rights or royalty
contracts, real estate, real estate limited partnership interests, or
interests in real estate which are not readily marketable, commodities
or commodity contracts, including futures contracts. (This does not
prevent the Fund from purchasing securities of companies investing in
the foregoing.);
(7) Act as an underwriter of securities, except to the extent the Fund may
be deemed to be an underwriter, under the federal securities laws, in
connection with the disposition of portfolio securities;
(8) Write put or call options, except covered call options which are
traded on national securities exchanges with respect to common stocks
in its portfolio, in an aggregate amount not greater than 15% of its
net assets;
(9) Purchase options, except call options in order to close out a
position;
(10) Purchase or retain securities of any company if officers and directors
of the Fund or of its investment adviser who individually own more
than 1/2 of 1% of the shares or securities of that company, together
own more than 5%;
(11) Make investments for the purpose of exercising control or management;
(12) Participate on a joint or joint and several basis in any trading
account in securities;
(13) Invest in the securities of other investment companies with an
aggregate value in excess of 5% of the Funds total assets, except
securities acquired as a result of a merger, consolidation or
acquisition of assets;
(14) Purchase or sell any securities other than Fund shares from or to its
investment adviser or any officer or director of the Fund or its
investment adviser; or
(15) Invest more than a total of 10% of the Fund's net assets in securities
or other assets, including repurchase agreements with a maturity of
over seven days, which are illiquid or securities of businesses
(including predecessors) less than three years old; provided that
investments in securities of businesses (including predecessors) less
than three years old will in no event exceed in the aggregate more
than 5% of the Fund's net assets.
INDEX FUND (The investment restrictions numbered 1 through 8 below are
fundamental. Restrictions numbered 9 through 15 are not fundamental.)
Index Fund will NOT:
(1) Purchase any security if, as a result, 25% or more of the Fund's total
assets would be invested in the securities of issuers conducting their
principal business activities in a single industry (provided, however,
that the Fund may invest more than 25% of its assets in a single
industry if the S&P 500 is so concentrated);
14
<PAGE>
(2) Purchase securities on margin, although it may obtain such short-term
credits as may be necessary for the clearance of purchases and sales
or securities (for purposes of this restriction, the deposit or
payment of initial or variation margin in connection with futures
contracts will not be deemed to be a purchase of securities on
margin); or make short sales except short sales against the box where
it owns the securities sold or, by virtue of ownership of other
securities, it has the right to obtain, without payment of further
consideration, securities equivalent in kind and amount to those sold;
(3) Borrow money, except from banks and only as a temporary measure for
extraordinary or emergency purposes and not in excess of 5% of its net
assets;
(4) Mortgage, pledge, hypothecate, or in any manner transfer, as security
for indebtedness, any assets of the Fund;
(5) Make loans, except by purchase of bonds, debentures, commercial paper,
certificates of deposit, corporate notes and similar evidences of
indebtedness, which are a part of an issue to the public or to
financial institutions, and except loans of portfolio securities if,
immediately after making such loan, the total amount of portfolio
securities loaned does not exceed 20% of the market value of the
Fund's total assets;
(6) Buy or sell oil, gas or other mineral leases, rights or royalty
contracts, real estate, real estate limited partnership interests, or
interests in real estate which are not readily marketable, commodities
or commodity contracts, except that it may invest in stock index
futures contracts. (This does not prevent the Fund from purchasing
securities of companies investing in the foregoing.);
(7) Act as an underwriter of securities, except to the extent the Fund may
be deemed to be an underwriter, under the federal securities laws, in
connection with the disposition of portfolio securities;
(8) Write put or call options;
(9) Purchase put or call options;
(10) Purchase or retain securities of any company if officers and directors
of the Fund or of its investment adviser who individually own more
than of 1% of the shares or securities of that company, together own
more than 5%;
(11) Make investments for the purpose of exercising control or management;
(12) Participate on a joint or joint and several basis in any trading
account in securities;
(13) Invest in the securities of other investment companies with an
aggregate value in excess of 5% of the Funds total assets, except
securities acquired as a result of a merger, consolidation or
acquisition of assets;
(14) Purchase or sell any securities other than Fund shares from or to its
investment adviser or any officer or director of the Fund or its
investment adviser; or
(15) Invest more than a total of 10% of the Fund's net assets in securities
or other assets, including repurchase agreements with a maturity of
over seven days, which are illiquid or securities of businesses
(including predecessors) less than three years old; provided that
investments in securities of businesses (including predecessors) less
than three years old will in no event exceed in the aggregate more
than 5% of the Fund's net assets.
15
<PAGE>
In addition, as a non-fundamental restriction, each of the Funds will not
issue any senior securities as defined in the Investments Company Act of 1940,
except to the extent that using options and futures contracts or purchasing or
selling securities on a when-issued or forward commitment basis may be deemed to
constitute issuing a senior security.
With respect to each of the Funds, any investment policy set forth under
"Investing in the Fund - Investment Policies and Practices" in the applicable
Prospectus, or any restriction set forth above which involves a maximum
percentage of securities or assets shall not be considered to be violated unless
an excess over the percentage occurs immediately after an acquisition of
securities or utilization of assets and results therefrom, or unless the
Investment Company Act of 1940 provides otherwise.
PORTFOLIO TURNOVER
Portfolio turnover is the ratio of the lesser of annual purchases or sales
of portfolio securities to the average monthly value of portfolio securities,
not including short-term securities. A 100% portfolio turnover rate would
occur, for example, if the lesser of the value of purchases or sales of
portfolio securities for a particular year were equal to the average monthly
value of the portfolio securities owned during such year.
Venture Fund makes changes in its portfolio securities which are considered
advisable in light of market conditions. Frequent changes may result in higher
brokerage and other costs for the Fund. Portfolio turnover rates may vary
greatly from year to year and within a particular year and may also be affected
by cash requirements for redemptions of Fund shares. Venture Fund does not
emphasize short-term trading profits. For the fiscal years ended July 31, 1998
and July 31, 1997, the Fund's portfolio turnover rate was 45.0% and 39.6%,
respectively.
Index Fund generally seeks to invest for the long term, but reserves the
right to sell securities irrespective of how long they have been held.
However, because of the "passive" investment management approach of the Fund,
the Fund's portfolio turnover rate is expected to be generally lower than the
rate for most other investment companies. Ordinarily, securities will be
sold by Index Fund only to reflect certain administrative changes in the S&P
500 (including mergers or changes in its composition) or to accommodate cash
flows into and out of the Fund while maintaining the similarity of the Fund
to the S&P 500. For the fiscal years ended July 31, 1998 and July 31, 1997,
the Fund's portfolio turnover rate was 59.2% and 5.8%, respectively.
DIRECTORS AND EXECUTIVE OFFICERS
The names, addresses, principal occupations, and other affiliations of directors
and executive officers of each of the Funds are given below:
<TABLE>
<CAPTION>
Position with Principal Occupation and other
Name and Address the Funds Affiliations (past 5 years)
- ---------------- ------------- ---------------------------
<S> <C> <C>
William N. Westhoff* President President, Treasurer and
Advantus Capital and Director Director, Advantus Capital
Management, Inc. Management, Inc.; Senior Vice
400 Robert Street North President and Treasurer, Minnesota
St. Paul, Minnesota 55101 Life Insurance Company;
Vice President and Director, Robert
Street Energy, Inc.; President,
MCM Funding 1997-1, Inc.; President.
MCM Funding 1998-1, Inc.; Senior Vice
President, Global Investments, American
Express Financial Corporation,
Minneapolis, Minnesota, from August
1994 to October 1997; Senior Vice
President, Fixed Income Management,
American Express Financial
Corporation, Minneapolis, Minnesota,
from November 1989 to July 1994
16
<PAGE>
Frederick P. Feuerherm* Vice President, Vice President, Assistant Secretary
Advantus Capital Director and and Director, Advantus Capital
Management, Inc. Treasurer Management, Inc.;
400 Robert Street North Vice President, Minnesota Life
St. Paul, Minnesota 55101 Insurance Company; Vice President and
Director, MIMLIC Funding, Inc.; Vice
President and Assistant Secretary, MCM
Funding 1997-1, Inc.; Vice President
and Assistant Secretary, MCM Funding
1998-1, Inc.
Ralph D. Ebbott Director Retired, Vice President and Treasurer
409 Birchwood Avenue of Minnesota Mining and Manufacturing
White Bear Lake, Company (tape, adhesive, photographic,
Minnesota 55110 and electrical products) through June
1989
Charles E. Arner Director Retired, Vice Chairman of The First
E-1218 First National National Bank of Saint Paul from
Bank Building November 1983 through June 1984;
332 Minnesota Street Chairman and Chief Executive Officer
St. Paul, Minnesota 55101 of The First National Bank of Saint Paul
from October 1980 through November
1983
Ellen S. Berscheid Director Regents' Professor of Psychology at the
University of Minnesota University of Minnesota
N309 Elliott Hall
Minneapolis, Minnesota 55455
Michael J. Radmer Secretary Partner with the law firm of
Dorsey & Whitney LLP Dorsey & Whitney LLP
220 South Sixth Street
Minneapolis, Minnesota 55402
</TABLE>
- ------------------------------------------------------------
* Denotes directors of the Funds who are "interested persons" (as defined under
the Investment Company Act of 1940) of the Funds.
- ------------------------------------------------------------
Legal fees and expenses are paid to the law firm of which Michael J. Radmer
is a partner. No compensation is paid by either of the Funds to any of its
officers or directors who is affiliated with Advantus Capital.
Each director of the Funds who is not affiliated with Advantus Capital
Management, Inc. ("Advantus Capital") is also a director of the other eleven
investment companies of which Advantus Capital is the investment adviser (13
investment companies in total -- the "Fund Complex"). As of the date hereof,
such directors receive compensation in connection with all such investment
companies which, in the aggregate, is equal to $8,000 per year and $2,000 per
meeting attended (and reimbursement of travel expenses to attend directors'
meetings). The portion of such compensation borne by any Fund is a pro rata
portion based on the ratio that such Fund's total net assets bears to the
total net assets of the Fund Complex. During the fiscal year ended July 31,
1998, each Director not affiliated with Advantus Capital was compensated by
the Funds in accordance with the following table:
<TABLE>
<CAPTION>
Pension or Total
Retirement Compensation
Aggregate Benefits Estimated from Funds and
Compensation Accrued as Annual Fund Complex
from the Part of Fund Benefits Upon Paid to
Name of Director Funds(1) Expenses Retirement Directors
------------------ ---------- ------------ ------------- --------------
<S> <C> <C> <C> <C>
Charles E. Arner $279.59 n/a n/a $16,000
Ellen S. Berscheid $279.59 n/a n/a $16,000
Ralph D. Ebbott $279.59 n/a n/a $16,000
</TABLE>
17
<PAGE>
(1) During the fiscal year ended September 30, 1998, each Director not
affiliated with Advantus Capital or MIMLIC Management received $198.84 from
Venture Fund and $80.76 from Index Fund.
As of July 31, 1998, the directors and executive officers of the Funds did
not own any shares of the Funds.
DIRECTOR LIABILITY
Under Minnesota law, the Board of Directors of each Fund owes certain
fiduciary duties to the Fund and to its shareholders. Minnesota law provides
that a director "shall discharge the duties of the position of director in
good faith, in a manner the director reasonably believes to be in the best
interest of the corporation, and with the care an ordinarily prudent person
in a like position would exercise under similar circumstances." Fiduciary
duties of a director of a Minnesota corporation include, therefore, both a
duty of "loyalty" (to act in good faith and act in a manner reasonably
believed to be in the best interests of the corporation) and a duty of "care"
(to act with the care an ordinarily prudent person in a like position would
exercise under similar circumstances). Minnesota law also authorizes
corporations to eliminate or limit the personal liability of a director to
the corporation or its shareholders for monetary damages for breach of the
fiduciary duty of "care." Minnesota law does not, however, permit a
corporation to eliminate or limit the liability of a director (i) for any
breach of the directors' duty of "loyalty" to the corporation or its
shareholders, (ii) for acts or omissions not in good faith or that involve
intentional misconduct or a knowing violation of law, (iii) for authorizing a
dividend, stock repurchase or redemption or other distribution in violation
of Minnesota law or for violation of certain provisions of Minnesota
securities laws, or (iv) for any transaction from which the director derived
an improper personal benefit. The Articles of Incorporation of each Fund
limit the liability of directors to the fullest extent permitted by Minnesota
statutes, except to the extent that such liability cannot be limited as
provided in the Investment Company Act of 1940 (which prohibits any
provisions which purport to limit the liability of directors arising from
such directors' willful misfeasance, bad faith, gross negligence or reckless
disregard of the duties involved in the conduct of their role as directors).
Minnesota law does not eliminate the duty of "care" imposed upon a
director. It only authorizes a corporation to eliminate monetary liability for
violations of that duty. Minnesota law, further, does not permit elimination or
limitation of liability of "officers" to the corporation for breach of their
duties as officers (including the liability of directors who serve as officers
for breach of their duties as officers). Minnesota law does not permit
elimination or limitation of the availability of equitable relief, such as
injunctive or rescissionary relief. Further, Minnesota law does not permit
elimination or limitation of a director's liability under the Securities Act of
1933 or the Securities Exchange Act of 1934, and it is uncertain whether and to
what extent the elimination of monetary liability would extend to violations of
duties imposed on directors by the Investment Company Act of 1940 and the rules
and regulations adopted under such Act.
INVESTMENT ADVISORY AND OTHER SERVICES
GENERAL
Advantus Capital Management, Inc. ("Advantus Capital") has been the
investment adviser and manager of each of the Funds since its inception. Ascend
Financial Services, Inc. ("Ascend Financial") acts as the Funds' underwriter.
Both Advantus Capital and Ascend Financial act as such pursuant to written
agreements that will be periodically considered for approval by the directors or
shareholders of the Fund. The address of both Advantus Capital and Ascend
Financial is 400 Robert Street North, St. Paul, Minnesota 55101.
CONTROL AND MANAGEMENT OF ADVANTUS CAPITAL AND ASCEND FINANCIAL
18
<PAGE>
Advantus Capital was incorporated in Minnesota in June, 1994, and is a
wholly-owned subsidiary of Minnesota Life Insurance Company ("Minnesota Life").
Minnesota Life is a third-tier subsidiary of a mutual insurance holding company
called Minnesota Mutual Companies, Inc. Minnesota Life was organized in 1880,
and has assets of more than $15.7 billion. Ascend Financial is a subsidiary of
Advantus Capital. William N. Westhoff, President and a Director of each of the
Funds, is President, Treasurer and Director of Advantus Capital. Frederick P.
Feuerherm, Vice President, Treasurer and a Director of each of the Funds, is a
Vice President, Assistant Secretary and Director of Advantus Capital. Richard
W. Worthing is a Vice President and Head of Equities with Advantus Capital.
INVESTMENT ADVISORY AGREEMENT
Advantus Capital acts as investment adviser and manager of the Funds
under Investment Advisory Agreements (the "Advisory Agreements") dated July
17, 1996 for each Fund, each of which became effective on September 4, 1996,
when the Funds' initial shareholder approved the Advisory Agreements. The
Advisory Agreements were last approved by the Board of Directors of each Fund
(including a majority of the directors who are not parties to the contract,
or interested persons of any such party) on January 14, 1997. The Advisory
Agreements will terminate automatically in the event of their assignment. In
addition, each Advisory Agreement is terminable at any time, without penalty,
by the Board of Directors of the respective Fund or by vote of a majority of
the Fund's outstanding voting securities on not more than 60 days' written
notice to Advantus Capital, and by Advantus Capital on 60 days' written
notice to the Fund. Unless sooner terminated, each Advisory Agreement shall
continue in effect for more than two years after its execution only so long
as such continuance is specifically approved at least annually by either the
Board of Directors of the respective Fund or by a vote of a majority of the
outstanding voting securities, provided that in either event such continuance
is also approved by the vote of a majority of the directors who are not
parties to the Advisory Agreement, or interested persons of such parties,
cast in person at a meeting called for the purpose of voting on such approval.
Pursuant to the Advisory Agreements each Fund pays Advantus Capital an
advisory fee equal on an annual basis to a percentage of that Fund's average
daily net assets as set forth in the following table:
<TABLE>
<CAPTION>
Advisory Fee as Percentage of
Fund Average Net Assets
---- ------------------
<S> <C>
Venture Fund .80%
Index Fund .34%
</TABLE>
The fees paid by the Funds for investment advisory services during the
fiscal years ended July 31, 1998 and July 31, 1997 (before Advantus Capital's
absorption of certain expenses, described below) were as follows:
<TABLE>
<CAPTION>
Fund 1998 1997
---- ---- ----
<S> <C> <C>
Venture Fund $311,606 $125,176
Index Fund 61,186 13,820
</TABLE>
For this fee, Advantus Capital acts as investment adviser and manager for
the Funds, and in the case of Venture Fund pays the Fund's transfer agent and
shareholder servicing expenses. Index Fund pays its own transfer agent and
shareholder servicing expenses. The advisory fees paid by the Venture Fund are
partially offset by Advantus Capital's payment of certain expenses, such as the
transfer agent and shareholder servicing expenses, which expenses are not
customarily paid for by a mutual fund's investment adviser.
19
<PAGE>
Under the Advisory Agreements, Advantus Capital furnishes the Funds office
space and all necessary office facilities, equipment and personnel for servicing
the investments of the Funds, and pays the salaries and fees of all officers and
directors of the Funds who are affiliated with Advantus Capital. In addition,
except to the extent that Ascend Financial receives Rule 12b-1 distribution fees
(see "Payment of Certain Distribution Expenses of the Funds" below), Ascend
Financial bears all promotional expenses in connection with the distribution of
the Funds' shares, including paying for prospectuses and statements of
additional information for new shareholders, and shareholder reports for new
shareholders, and the costs of sales literature. The Funds pay all other
expenses not so expressly assumed.
During the fiscal years ended July 31, 1998 and July 31, 1997, Advantus
Capital voluntarily absorbed certain expenses of the Funds (which do not include
certain Rule 12b-1 fees waived by Ascend Financial) as set forth below:
<TABLE>
<CAPTION>
Fund 1998 1997
---- ---- ----
<S> <C> <C>
Venture Fund $ 0 $ 7,397
Index Fund 162,977 70,164
</TABLE>
Distribution Agreement
The Board of Directors of each Fund, on October 22, 1998, including a
majority of the directors who are not parties to the contract, or interested
persons of any such party, last approved the respective Fund's Distribution
Agreement with Ascend Financial (the "Distribution Agreements"), each dated
October 22, 1998.
During the fiscal years ended July 31, 1998 and July 31, 1997, the
commissions received by Ascend Financial under the Distribution Agreements with
respect to shares of all classes were as follows:
<TABLE>
<CAPTION>
Fund 1998 1997
---- ---- ----
<S> <C> <C>
Venture Fund $174,716 $47,978
Index Fund 225,676 73,332
</TABLE>
During the same period Ascend Financial retained from these commissions the
following amounts:
20
<PAGE>
<TABLE>
<CAPTION>
Fund 1998 1997
---- ---- ----
<S> <C> <C>
Venture Fund $ 0 $15,344
Index Fund 0 16,544
</TABLE>
The remainder of these commissions was paid to registered representatives
of Ascend Financial or to broker-dealers who have selling agreements with Ascend
Financial.
Each Distribution Agreement may be terminated by the respective Fund or
Ascend Financial at any time by the giving of 60 days' written notice, and
terminates automatically in the event of its assignment. Unless sooner
terminated, the Distribution Agreement for the respective Fund shall continue in
effect for more than two years after its execution only so long as such
continuance is specifically approved at least annually by either the Board of
Directors of the Fund or by a vote of a majority of the outstanding voting
securities, provided that in either event such continuance is also approved by
the vote of a majority of the directors who are not parties to the Distribution
Agreement, or interested persons of such parties, cast in person at a meeting
called for the purpose of voting on such approval.
The Distribution Agreements require Ascend Financial to pay all advertising
and promotional expenses in connection with the distribution of the Funds'
shares including paying for Prospectuses and Statements of Additional
Information (if any) for new shareholders, shareholder reports for new
shareholders, and the costs of sales literature.
In the Distribution Agreements, Ascend Financial undertakes to indemnify
the Funds against all costs of litigation and other legal proceedings, and
against any liability incurred by or imposed upon the Funds in any way arising
out of or in connection with the sale or distribution of the Funds' shares,
except to the extent that such liability is the result of information which was
obtainable by Ascend Financial only from persons affiliated with the Funds but
not with Ascend Financial.
PAYMENT OF CERTAIN DISTRIBUTION EXPENSES OF THE FUNDS
Each of the Funds has adopted separate Plans of Distribution applicable to
Class A shares, Class B shares and Class C shares, respectively, relating to the
payment of certain distribution and/or shareholder servicing expenses pursuant
to Rule 12b-1 under the Investment Company Act of 1940. Each of the Funds,
pursuant to its Plans of Distribution, pays fees to Ascend Financial which
equal, on an annual basis, a percentage of the Fund's average daily net assets
attributable to Class A shares, Class B shares and Class C shares, respectively,
as set forth in the following table:
<TABLE>
<CAPTION>
Rule 12b-1 Fee as Percentage
of Average Daily Net Assets Attributable to
--------------------------------------------
Fund Class A Shares Class B Shares Class C Shares
---- -------------- -------------- --------------
<S> <C> <C> <C>
Venture Fund 0.25% 1.00% 1.00%
Index Fund 0.25% 1.00% 1.00%
</TABLE>
21
<PAGE>
Such fees are used for distribution-related services for Class B and C
shares and for servicing of shareholder accounts in connection with Class A, B
and C shares.
A portion of the Rule 12b-1 fees payable with respect to Class B and
Class C shares equal to .75% of the average daily net assets attributable to
such Class B and Class C shares, constitute distribution fees designed to
compensate Ascend Financial for advertising, marketing and distributing the
shares of the Funds.
The distribution fees may be used by Ascend Financial for the purpose of
financing any activity which is primarily intended to result in the sale of
shares of the particular Fund. For example, such distribution fee may be used
by Ascend Financial: (a) to compensate broker-dealers, including Ascend
Financial and its registered representatives, for their sale of a Fund's shares,
including the implementation of the programs described below with respect to
broker-dealers, banks, and other financial institutions; and (b) to pay other
advertising and promotional expenses in connection with the distribution of a
Fund's shares. These advertising and promotional expenses include, by way of
example but not by way of limitation, costs of prospectuses for other than
current shareholders; preparation and distribution of sales literature;
advertising of any type; expenses of branch offices (including overhead
expenses) provided jointly by Ascend Financial and any affiliate thereof; and
compensation paid to and expenses incurred by officers, employees or
representatives of Ascend Financial or of other broker-dealers, banks, or
financial institutions.
All of the 12b-1 fees payable with respect to Class A shares and a portion
of the Rule 12b-1 fee payable with respect to Class B and Class C shares of each
of the Funds, equal to .25% of the average daily net assets attributable to such
Class A, B and Class C shares, constitutes a shareholder servicing fee designed
to compensate Ascend Financial for the provision of certain services to the
holders of Class A, B and Class C shares.
Amounts expended by the Funds under the Plans are expected to be used for
the implementation by Ascend Financial of a dealer incentive program. Pursuant
to the program, Ascend Financial may provide compensation to investment dealers
for the provision of distribution assistance in connection with the sale of the
Funds' shares to such dealers' customers and for the provision of administrative
support services to customers who directly or beneficially own shares of the
Funds. The distribution assistance and administrative support services rendered
by dealers may include, but are not limited to, the following: distributing
sales literature; answering routine customer inquiries concerning the Funds;
assisting customers in changing dividend options, account designation and
addresses, and in enrolling into the pre-authorized check plan or systematic
withdrawal plan; assisting in the establishment and maintenance of customer
accounts and records and in the processing of purchase and redemption
transactions; investing dividends and any capital gains distributions
automatically in the Funds' shares and providing such other information and
services as the Funds or the customer may reasonably request. Such fees for
servicing customer accounts would be in addition to the portion of the sales
charge received or to be received by dealers which sell shares of the Funds.
Ascend Financial may also provide compensation to certain institutions
such as banks ("Service Organizations") which have purchased shares of the
Funds for the accounts of their clients, or which have made the Funds' shares
available for purchase by their clients, and/or which provide continuing
service to such clients. The Glass-Steagall Act and other applicable laws,
among other things, prohibit certain banks from engaging in the business of
underwriting securities. In such circumstances, Ascend Financial, if so
requested, will engage such banks as Service Organizations only to perform
administrative and shareholder servicing functions, but at the same fees and
other terms applicable to dealers. State law may, however, differ from the
interpretation of the Glass-Steagall Act expressed and banks and other
financial institutions may therefore be required to register as securities
dealers pursuant to state law. If a bank were prohibited from acting as a
Service Organization, its shareholder clients would be permitted to remain
shareholders of the Funds and alternative means for continuing servicing of
such shareholders would be sought. In such event changes in the operation of
22
<PAGE>
the Funds might occur and a shareholder serviced by such bank might no longer
be able to avail itself of any automatic investment or other services then
being provided by the bank. It is not expected that shareholders would
suffer any adverse financial consequences as a result of any of these
occurrences.
In addition, the Plan contains, among other things, provisions complying
with the requirements of Rule 12b-1 discussed below. In particular, each
Plan provides that (1) the Plan will not take effect until it has been
approved by a vote of a majority of the outstanding voting securities of the
Fund, and by a majority vote of both the full board of directors of the Fund
and those directors who are not interested persons of the Fund and who have
no direct or indirect financial interest in the operation of the Plan or in
any agreements relating to it (the Independent Directors), (2) the Plan will
continue in effect from one year to another so long as its continuance is
specifically approved annually by a majority vote of both the full board of
directors and the Independent Directors, (3) the Plan may be terminated at
any time, without penalty, by vote of a majority of the Independent Directors
or by a vote of a majority of the outstanding voting securities of the Fund,
(4) the Plan may not be amended to increase materially the amount of the fees
payable thereunder unless the amendment is approved by a vote of a majority
of the outstanding voting securities of the Fund, and all material amendments
must be approved by a majority vote of both the full board of directors and
the Independent Directors, (5) while the Plan is in effect, the selection and
nomination of any new Independent Directors is committed to the discretion of
the Independent Directors then in office, and (6) the Fund's underwriter will
prepare and furnish to the board of directors, and the board of directors
will review, at least quarterly, written reports which set forth the amounts
expended under the Plan and the purposes for which those expenditures were
made.
Rule 12b-1(b) provides that any payments made by an investment company in
connection with the distribution of its shares may only be made pursuant to a
written plan describing all material aspects of the proposed financing of
distribution and also requires that all agreements with any person relating
to implementation of the plan must be in writing. In addition, Rule
12b-1(b)(2) requires that such plan, together with any related agreements, be
approved by a vote of the board of directors and of the directors who are not
interested persons of the investment company and have no direct or indirect
financial interest in the operation of the plan or in any agreements related
to the plan, cast in person at a meeting called for the purpose of voting on
such plan or agreements. Rule 12b-1(b)(3) requires that the plan or
agreement provide, in substance: (1) that it shall continue in effect for a
period of more than one year from the date of its execution or adoption only
so long as such continuance is specifically approved at least annually in the
manner described in paragraph (b)(2) of Rule 12b-1; (2) that any person
authorized to direct the disposition of monies paid or payable by the
investment company pursuant to the plan or any related agreement shall
provide to the investment company's board of directors, and the directors
shall review, at least quarterly, a written report of the amounts so expended
and the purposes for which such expenditures were made; and (3) in the case
of a plan, that it may be terminated at any time by vote of a majority of the
members of the board of directors of the investment company who are not
interested persons of the investment company and have no direct or indirect
financial interest in the operation of the plan or in any agreements related
to the plan or by vote of a majority of the outstanding voting securities of
the investment company. Rule 12b-1(b)(4) requires that such plans may not be
amended to increase materially the amount to be spent for distribution
without shareholder approval and that all material amendments of the plan
must be approved in the manner described in paragraph (b)(2) of Rule 12b-1.
Rule 12b-1(c) provides that the investment company may rely upon Rule
12b-1(b) only if selection and nomination of the investment company's
disinterested directors are committed to the discretion of such disinterested
directors. Rule 12b-1(e) provides that the investment company may implement
or continue a plan pursuant to Rule 12b-1(b) only if the directors who vote
to approve such implementation or continuation conclude, in the exercise of
reasonable business judgment and in light of their fiduciary duties under
state law, and under Sections 36(a) and (b) of the Investment Company Act of
1940, that there is a reasonable likelihood that the plan will benefit the
investment company and its shareholders. At the Board of Directors meeting
held January 14, 1997, the directors of the Funds so concluded.
During the fiscal year ended July 31, 1998, each Fund made payments under
its Plans of Distribution applicable to Class A, Class B and Class C Shares as
set forth below (distribution fees waived by Ascend Financial, if any, are shown
in parentheses).
<TABLE>
<CAPTION>
Fund Class A Class B Class C
---- ------- ------- -------
<S> <C> <C> <C>
Venture Fund $107,769 ($59,431) $25,348 $4,930
Index Fund 33,567 ( 18,213) 59,190 8,876
</TABLE>
The Plans of Distribution could be construed as "compensation plans"
because Ascend Financial is paid a fixed fee and is given discretion concerning
what expenses are payable under the Plans. Under a compensation plan, the fee
to the distributor is not directly tied to distribution expenses actually
incurred by the distributor, thereby permitting the distributor to receive a
profit if amounts received exceed expenses. Ascend Financial may spend more or
23
<PAGE>
less for the distribution and promotion of the Funds' shares than it receives as
distribution fees pursuant to the Plans. However, to the extent fees received
exceed expenses, including indirect expense such as overhead, Ascend Financial
could be said to have received a profit.
TRANSFER AGENT AND ADMINISTRATIVE SERVICES
Index Fund pays its own transfer agent expenses, but Advantus Capital
pays all transfer agent expenses incurred by Venture Fund. Effective October 26,
1998, the Funds' transfer agent is First Data Investor Services Group, Inc.
Prior to that date the Funds had engaged Minnesota Life to act as their transfer
agent, dividend disbursing agent and redemption agent. During the fiscal year
ended July 31, 1998, Index Fund paid Minnesota Life $36,641 for transfer agent
services.
In addition, separate from the investment advisory agreement, each of
the Funds has entered into an agreement with Minnesota Life under which
Minnesota Life provides (i) accounting, legal and other administrative services
and (ii) shareholder servicing to the Funds. Minnesota Life currently provides
administrative services to the Funds at a monthly cost of $5,700 per Fund.
During the fiscal year ended July 31, 1998, each Fund paid the following amounts
for such administrative services:
<TABLE>
<CAPTION>
Fund Amount
---- ------
<S> <C>
Venture Fund $43,800
Index Fund 43,800
</TABLE>
In the case of Venture Fund, Advantus Capital also pays the Fund's
shareholder servicing expenses -- Index Fund pays its own shareholder servicing
expenses. Minnesota Life currently provides shareholder servicing to Index Fund
at a cost of $5 per shareholder account per year.
PORTFOLIO TRANSACTIONS AND ALLOCATION OF BROKERAGE
In a number of security transactions, it is possible for the Funds to deal
in the over-the-counter security markets (including the so-called "third market"
which is the "over-the-counter" market for securities listed on the New York
Stock Exchange) without the payment of brokerage commissions but at net prices
including a spread or markup; the Funds trade in this manner whenever the net
price appears advantageous.
Advantus Capital selects and (where applicable) negotiates commissions with
the brokers who execute the transactions for the Funds. During the fiscal years
ended July 31, 1998 and July 31, 1997, brokerage commissions paid were:
<TABLE>
<CAPTION>
Fund 1998 1997
---- ---- ----
<S> <C> <C>
Venture Fund $60,536 $125,176
Index Fund 14,282 13,820
</TABLE>
The primary criteria for the selection of a broker is the ability of the
broker, in the opinion of Advantus Capital, to secure prompt execution of the
transactions on favorable terms, including the reasonableness of the commission
and considering the state of the market at the time. In selecting a broker,
Advantus Capital considers whether such broker provides brokerage and research
services (as defined in the Securities Exchange Act of 1934), and generally the
Funds pay higher than the lowest commission rates available. Advantus Capital
may direct Fund transactions to brokers who furnish research services to
Advantus Capital. Such research services include advice, both directly and in
writing, as to the value of securities, the advisability of investing in,
purchasing or selling securities, and the availability of securities or
purchasers or sellers of securities, as well as analysis and reports concerning
issues, industries, securities, economic factors and trends, portfolio strategy,
and the performance of accounts. By allocating brokerage business in order to
obtain research services for Advantus Capital, the Funds enable Advantus Capital
to supplement its own investment research activities and allows Advantus Capital
to obtain the views and information of individuals and research staffs of many
different securities research firms prior to making investment decisions for the
Funds. To the extent such commissions are directed to these other brokers who
furnish research services to Advantus Capital, Advantus Capital receives a
benefit, not capable of evaluation in dollar amounts, without providing any
direct monetary benefit to the Funds from these commissions.
There is no formula for the allocation by Advantus Capital of the Funds'
brokerage business to any broker-dealer for brokerage and research services.
However, Advantus Capital will authorize a Fund to pay an amount of commission
for effecting a securities transaction in excess of the amount of commission
another broker would have charged only if Advantus Capital determines in good
faith that such amount of commission is reasonable in relation to the value of
the brokerage and research services provided by such broker viewed in terms of
either that particular transaction or Advantus Capital's overall
responsibilities with respect to the accounts as to which it exercises
investment discretion. During the fiscal year ended July 31, 1998, Venture Fund
directed transactions to brokers because of research services they provided, and
paid commissions in connection with such transactions, in the aggregate amounts
set forth below:
24
<PAGE>
<TABLE>
<CAPTION>
Aggregate Transactions Commissions Paid on
Fund Directed for Research Directed Transaction
---- --------------------- --------------------
<S> <C> <C>
Venture Fund $1,853,941 $47,665
Index Fund 6,100 296
</TABLE>
No brokerage is allocated for the sale of Fund shares. Advantus Capital
believes that most research services obtained by it generally benefit one or
more of the investment companies which it manages and also benefit accounts
which it manages. Normally research services obtained through managed funds and
managed accounts investing in common stocks would primarily benefit such funds
and accounts; similarly, services obtained from transactions in fixed income
securities would be of greater benefit to the managed funds and managed accounts
investing in debt securities.
The same security may be suitable for one or more of the Funds and the
other funds or private accounts managed by Advantus Capital or its affiliates.
If and when two or more funds or accounts simultaneously purchase or sell the
same security, the transactions will be allocated as to price and amount in
accordance with arrangements equitable to each fund or account. The
simultaneous purchase or sale of the same securities by one Fund and other Funds
or accounts may have a detrimental effect on that Fund, as this may affect the
price paid or received by the Fund or the size of the position obtainable by the
Fund.
The Funds will not execute portfolio transactions through any affiliate,
unless such transactions, including the frequency thereof, the receipt of
commissions payable in connection therewith and the selection of the affiliated
broker-dealer effecting such transactions are not unfair or unreasonable to the
shareholders of the Funds. In the event any transactions are executed on an
agency basis, Advantus Capital will authorize the Funds to pay an amount of
commission for effecting a securities transaction in excess of the amount of
commission another broker-dealer would have charged only if Advantus Capital
determines in good faith that such amount of commission is reasonable in
relation to the value of the brokerage and research services provided by such
broker-dealer, viewed in terms of either that particular transaction or the
overall responsibilities of Advantus Capital with respect to the Funds as to
which it exercises investment discretion. If the Funds execute any transactions
on an agency basis, they will generally pay higher than the lowest commission
rates available.
In determining the commissions to be paid to an affiliated
broker-dealer, it is the policy of the Funds that such commissions will, in
the judgment of Advantus Capital, subject to review by the Fund's Board of
Directors, be both (a) at least as favorable as those which would be charged
by other qualified brokers in connection with comparable transactions
involving similar securities being purchased or sold on an exchange during a
comparable period of time, and (b) at least as favorable as commissions
contemporaneously charged by such affiliated broker-dealers on comparable
transactions for their most favored comparable unaffiliated customers. While
the Funds do not deem it practicable and in their best interest to solicit
competitive bids for commission rates on each transaction, consideration will
regularly be given to posted commission rates as well as to other information
concerning the level of commissions charged on comparable transactions by
other qualified brokers.
Information regarding the acquisition by the Funds during the fiscal year
ended July 31, 1998 of securities of the Funds' regular brokers or dealers, or
the parents of those brokers or dealers that derive more than 15 percent of
their gross revenue from securities-related activities, is presented below:
25
<PAGE>
<TABLE>
<CAPTION>
Approximate
Value of Securities
Owned at End of
Fund Name of Issuer Fiscal Period
---- -------------- -------------
<S> <C> <C>
Venture Fund ----- -----
Index Fund Merrill Lynch & Company, Inc. $107,250
Lehman Brothers Holdings, Inc. 28,800
</TABLE>
CALCULATION OF PERFORMANCE DATA
Advertisements and other sales literature for the Funds may refer to
"yield," "average annual total return" and "cumulative total return."
Performance quotations are computed separately for each class of shares of the
Funds.
YIELD. Yield is computed by dividing the net investment income per share
(as defined under Securities and Exchange Commission rules and regulations)
earned during the computation period by the maximum offering price per share on
the last day of the period, according to the following formula:
a-b 6
YIELD = 2[( ----- +1) -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.
The yield on investments in each of the Funds for the 30-day period ended
July 31, 1998 was as set forth in the table below. The Funds' investment
adviser and distributor were voluntarily absorbing and waiving certain expenses
of certain of the Funds during that period. If such Funds had been charged for
these expenses the yield on investments for the same period would have been
lower, as also shown in the table below in parentheses.
<TABLE>
<CAPTION>
Yield
-------
Fund Class A Class B Class C
---- ------- ------- -------
<S> <C> <C> <C>
Venture Fund .51% (.35%) -.35% (-.35%) -.37% (-.37%)
Index Fund .64% (.31%) -.18% (-.53%) -.18% (-.53%)
</TABLE>
AVERAGE ANNUAL TOTAL RETURN. Average annual total return is computed by
finding the average annual compounded rates of return over the periods indicated
in the advertisement that would equate the initial amount invested to the ending
redeemable value, according to the following formula:
n
P(1+T) = ERV
Where: P = a hypothetical initial payment of $1,000;
T = average annual total return;
n = number of years; and
26
<PAGE>
ERV = ending redeemable value at the end of the period
of a hypothetical $1,000 payment made at the
beginning of such period.
The average annual total return on investments in each of the Funds for the
periods indicated ending July 31, 1998, were as set forth in the table below.
Average annual total returns quoted assume that the Class A maximum initial
sales charge of 5.5% was in effect at the beginning of each period shown.
The maximum initial sales charge was 5.0% prior to February 1, 1999. The
Funds' investment adviser and distributor were voluntarily absorbing and
waiving certain expenses of certain of the Funds during these periods. If
such Funds had been charged for these expenses the average annual total
returns for the same periods would have been lower, as also shown in the
table below in parentheses.
<TABLE>
<CAPTION>
1 YEAR
------
Fund Class A Class B Class C
---- ------- ------- -------
<S> <C> <C> <C>
Venture Fund 2.93% (2.93%) 2.65% (2.65%) 7.90% (7.90%)
Index Fund 11.69% (10.50%) 12.17% (11.26%) 17.09% (16.18%)
</TABLE>
<TABLE>
<CAPTION>
Since Inception
---------------
Fund Class A Class B Class C
---- ------- ------- -------
<S> <C> <C> <C>
Venture Fund(1) 12.42% (12.34%) 12.72% (12.72%) 15.74% (15.74%)
Index Fund(1) 22.46% (22.08%) 23.38% (22.06%) 25.78% (25.47%)
</TABLE>
- ---------------
(1) Class A, Class B and Class C inception was January 31, 1997.
CUMULATIVE TOTAL RETURN. Cumulative total return figures are computed
by finding the cumulative compounded rate of return over the period indicated
in the advertisement that would equate the initial amount invested to the
ending redeemable value, according to the following formula:
ERV-P
CTR = ( ----- )100
P
Where: CTR = cumulative total return;
ERV = ending redeemable value at the end of the period of a
hypothetical $1,000 payment made at the beginning of
such period; and
P = initial payment of $1,000.
The cumulative total return on investments in each of the Funds for the
period indicated ended July 31, 1998, was as set forth in the table below. The
cumulative total returns quoted assume that the Class A maximun initial sales
charge of 5.5% was in effect at the inception of Class A shares. The maximum
initial sales charge was 5.0% prior to February 1, 1999. The Funds'
investment adviser and distributor were voluntarily absorbing certain
expenses of certain of the Funds during these periods. If such Funds had
been charged for these expenses the cumulative total return for the same
periods would have been lower, as also shown in the table below in
parentheses.
<TABLE>
<CAPTION>
Cumulative Total Return
-----------------------
Fund Class A Class B Class C
---- ------- ------- -------
<S> <C> <C> <C>
Venture Fund(1) 19.18%(19.05%) 19.65% (19.65%) 24.49% (24.49%)
Index Fund(1) 35.48%(34.85%) 37.01% (36.46%) 41.02% (40.50%)
</TABLE>
27
<PAGE>
- ---------------
(1) Class A, Class B and Class C inception was January 31, 1997.
The calculations for both average annual total return and cumulative total
return deduct the maximum sales charge from the initial hypothetical $1,000
investment, assume all dividends and capital gain distributions are reinvested
at net asset value on the appropriate reinvestment dates as described in the
Prospectus, and include all recurring fees, such as investment advisory and
management fees, charged as expenses to all shareholder accounts.
Such average annual total return and cumulative total return figures may
also be accompanied by average annual total return and cumulative total return
figures, for the same or other periods, which do not reflect the deduction of
any sales charges.
CAPITAL STOCK AND OWNERSHIP OF SHARES
Each Fund's shares of common stock, and each class thereof, have a par
value $.01 per share, and have equal rights to share in dividends and assets.
The shares possess no preemptive or conversion rights. Cumulative voting is not
authorized. This 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 event the holders of the remaining shares will be unable to
elect any directors.
Each of the Funds has 10 billion authorized shares of common stock and
has designated 2 billion authorized shares as Class A shares, 2 billion
authorized shares as Class B shares and 2 billion authorized shares as Class
C shares. The Funds have the number of shares outstanding as of July 31,
1998, as set forth below.
<TABLE>
<CAPTION>
Shares Outstanding at July 31, 1998
-----------------------------------
Fund Class A Class B Class C
---- ------- ------- -------
<S> <C> <C> <C>
Venture Fund 2,878,026 295,649 58,650
Index Fund 1,043,120 788,282 100,721
</TABLE>
As of July 31, 1998, no person held of record, to the knowledge of the
respective Funds, or owned more than 5% of the outstanding shares of any of the
Funds, except as set forth in the following table:
<TABLE>
<CAPTION>
Number of
Name and Address of Shareholder Shares Percentage
------------------------------- ------ ----------
<S> <C> <C>
Venture Fund 2,510,706 77.7%
Minnesota Life and affiliates*
Index Fund 515,376 26.7%
Minnesota Life and affiliates*
</TABLE>
* 400 Robert Street North, St. Paul, Minnesota 55101.
HOW TO BUY SHARES
Each Fund's shares may be purchased at the public offering price from
Ascend Financial, and from certain other broker-dealers. Ascend Financial
reserves the right to reject any purchase order. Shares of the Funds may be
purchased at a price equal to their respective net asset value.
28
<PAGE>
Certificates representing shares purchased are not currently issued.
However, shareholders will receive written confirmation of their purchases.
Shareholders will have the same rights of ownership with respect to such shares
as if certificates had been issued. SHAREHOLDERS WHO HOLD PREVIOUSLY ISSUED
CERTIFICATES REPRESENTING ANY OF THEIR SHARES WILL NOT BE ALLOWED TO REDEEM SUCH
CERTIFICATED SHARES BY TELEPHONE.
ALTERNATIVE PURCHASE ARRANGEMENTS
The Funds offer investors the choice among three classes of shares which
offer different sales charges and bear different expenses. These alternatives
permit an investor to choose the method of purchasing shares that the investor
believes is most beneficial given the amount of the purchase, the length of time
the investor expects to hold the shares and other circumstances. For a detailed
discussion of these alternative purchase arrangements see "Reduced Sales
Charges" and "Shareholder Services" below.
The decision as to which class of shares provides a more suitable
investment for an investor may depend on a number of factors, including the
amount and intended length of the investment. Investors making investments
that qualify for a waiver of initial sales charges should purchase Class A
shares. Other investors should consider Class B or Class C shares because all
of the purchase price is invested immediately. Investors who expect to hold
shares for relatively shorter periods of time may prefer Class C shares
because such shares may be redeemed at any time without payment of a
contingent deferred sales charge. Investors who expect to hold shares
longer, however, may choose Class B shares because such shares convert to
Class A shares sooner than do Class C shares and thus pay the higher Rule
12b-1 fee for a shorter period.
Purchase orders for $1,000,000 or more will be accepted for Class A shares
only and are not subject to a sales charge at the time of purchase, but a
deferred sales charge will be imposed if such shares are sold within one year
after the date of purchase. Orders for Class B or Class C shares for $1,000,000
or more will be treated as orders for Class A shares or declined.
PURCHASE BY CHECK
New investors may purchase shares of the Fund by completing an account
application and sending it, together with a check payable to the Fund, directly
to First Data Investors Services Group, Inc. ("First Data"), the Funds' transfer
agent, at Advantus Funds Group, P.O. Box 9767, Providence, Rhode Island
02940-5059. Additional purchases may be made at any time by mailing a check,
payable to the Fund, to the same address. Checks for additional purchases
should be identified with the appropriate account number. Purchase orders may
also be submitted through Ascend Financial or other broker-dealers authorized to
sell shares of the Fund.
PURCHASE BY WIRE
Shares may also be purchased by Federal Reserve or bank wire. This method
will result in a more rapid investment in shares of the Fund. Before wiring any
funds, contact Minnesota Life, through its Advantus Shareholder Services
division, at 1-800-665-6005 for instructions. Promptly after making an initial
purchase by wire, an investor should complete an account application and mail it
to Advantus Funds Group, P.O. Box 9767, Providence, Rhode Island 02940-5059.
Subsequent purchases may be made in the same manner. Wire purchases
normally take two or more hours to complete, and to be accepted the same day
must be received by 3:00 p.m. (Central time). Banks may charge a fee for
transmitting funds by wire.
TIMING OF PURCHASE ORDERS
An order in proper form for the purchase of shares of the Fund received by
the Fund prior to the close of normal trading on the New York Stock Exchange
("NYSE"), which is generally 3:00 p.m. Central Time, will be effected at the
price next determined on the date received by First Data. Orders received after
the close of the NYSE will be effected at the price next determined on the next
business day.
29
<PAGE>
MINIMUM INVESTMENTS
A minimum initial investment of $250 is required, and the minimum
subsequent investment is $25.
PUBLIC OFFERING PRICE
The public offering price of the Fund will be the net asset value per share
of the Fund next determined after an order is received and becomes effective,
plus the applicable sales charge, if any. The net asset value per share of each
class is determined by dividing the value of the securities, cash and other
assets (including dividends accrued but not collected) of the Fund attributable
to such class less all liabilities (including accrued expenses but excluding
capital and surplus) attributable to such class, by the total number of shares
of such class outstanding.
The net asset value of the shares of the Fund is determined as of the close
of normal trading on the New York Stock Exchange (as of the date of this
Statement of Additional Information the primary close of trading is 3:00 p.m.
(Central time), but this time may be changed) on each day, Monday through
Friday, except (i) days on which changes in the value of the Fund's portfolio
securities will not materially affect the current net asset value of Fund
shares, (ii) days during which no Fund shares are tendered for redemption and no
order to purchase or sell Fund shares is received by the Fund and (iii)
customary national business holidays on which the New York Stock Exchange is
closed for trading.
Securities, including put and call options, which are traded
over-the-counter and on a national exchange will be valued according to the
broadest and most representative market. A security which is only listed or
traded on an exchange, or for which an exchange is the most representative
market, is valued at its last sale price (prior to the time as of which assets
are valued) on the exchange where it is principally traded. Lacking any sales
on the exchange where it is principally traded on the day of valuation, prior to
the time as of which assets are valued, the security generally is valued at the
last bid price on that exchange. Futures contracts will be valued in a like
manner, except that open futures contracts sales will be valued using the
closing settlement price or in the absence of such a price, the most recent
quoted bid price. All other securities for which over-the-counter market
quotations are readily available are valued on the basis of the last current bid
price. When market quotations are not readily available, such securities are
valued at fair value as determined in good faith by the Board of Directors.
Other assets also are valued at fair value as determined in good faith by the
Board of Directors. However, debt securities may be valued on the basis of
valuations furnished by a pricing service which utilizes electronic data
processing techniques to determine valuations for normal institutional-size
trading units of debt securities, without regard to sale or bid prices, when
such valuations are believed to more accurately reflect the fair market value of
such securities. Short-term investments in debt securities are valued daily at
market.
SALES CHARGES
CLASS A SHARES
The public offering price of Class A shares of each Fund is the net asset
value of the Fund's shares plus the applicable front end sales charge ("FESC"),
which will vary with the size of the purchase. Ascend Financial receives all
applicable sales charges. The Fund receives the net asset value. The current
sales charges are:
30
<PAGE>
<TABLE>
<CAPTION>
Sales Charge as a
Percentage of:
Net Amount Paid to Broker-
Offering Amount Dealers as a Percentage of
Value of Total Investment Price Invested Offering Price:
------------------------- ----- -------- ---------------
<S> <C> <C> <C>
Less than $50,000 5.5% 5.82% 5.00%
$50,000 but less than $100,000 4.5 4.71 4.00
$100,000 but less than $250,000 3.5 3.63 3.00
$250,000 but less than $500,000 2.5 2.56 2.25
$500,000 but less than $1,000,000 2.0 2.04 1.75
$1,000,000 and over (1) 0 0 1.00*
</TABLE>
(1) A FESC will not be assessed for purchases of Class A shares of at least $1
million, but a contingent deferred sales charge of 1.00% will be imposed if such
shares are sold within one year after the date of purchase.
* These payments are paid by Ascend Financial or one of its affiliates, at its
own expense, and not by the Fund or its shareholders.
The sales charge applicable to an initial investment in the Fund depends on
the offering price of the investment. The sales charge applicable to subsequent
investments, however, depends on the offering price of that investment plus the
current net asset value of the investor's previous investments in the Fund. For
example, if an investor makes an initial investment in Class A shares of Venture
Fund with an offering price of $40,000 the investor will pay a sales charge
equal to 5.5% of the $40,000 investment, but if an investor already owns Class A
shares of Venture Fund with a current net asset value of $40,000 and invests in
additional Class A shares of Horizon Fund with an offering price of $10,000 the
investor will pay a sales charge equal to 4.5% of the additional $10,000 since
the total investment in the Fund would then be $50,000.
CLASS B SHARES
Class B shares of the Fund are sold without an initial sales charge so that
the Fund receives the full amount of the investor's purchase. However, a
contingent deferred sales charge ("CDSC") of up to 5% will be imposed if shares
are redeemed within six years of purchase. For additional information, see
"Redemptions" below. Class B shares will automatically convert to Class A
shares of the Fund on the fifteenth day of the month (or, if different, the last
business day prior to such date) following the expiration of a specified holding
period. In addition, Class B shares are subject to higher Rule 12b-1 fees as
described below. The amount of the CDSC will depend on the number of years
since the purchase was made, the amount of shares originally purchased and the
dollar amount being redeemed. The amount of the applicable CDSC and the holding
period prior to conversion are determined in accordance with the following
table:
<TABLE>
<CAPTION>
Shares Convert
to Class A in
CDSC Applicable in Year the Month
----------------------- After
Shares Purchased in an Amount 1 2 3 4 5 6 Expiration of
----------------------------- - - - - - - -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Less than $50,000 5.0% 4.5% 3.5% 2.5% 1.5% 1.5% 84 months
$50,000 but less than $100,000 4.5 3.5 2.5 1.5 1.5 0 76 months
$100,000 but less than $250,000 3.5 2.5 1.5 1.5 0 0 60 months
$250,000 but less than $500,000 2.5 1.5 1.5 0 0 0 44 months
$500,000 but less than $1,000,000 1.5 1.5 0 0 0 0 28 months
</TABLE>
Proceeds from the CDSC are paid to Ascend Financial and are used to defray
expenses related to providing distribution-related services to the Fund in
connection with the sale of Class B shares, such as the payment of compensation
to selected broker-dealers, and for selling Class B shares. The combination of
the CDSC and the Rule 12b-1 fee enables the Fund to sell the Class B shares
31
<PAGE>
without deduction of a sales charge at the time of purchase. Although Class B
shares are sold without an initial sales charge, Ascend Financial pays a sales
commission to broker-dealers, and to registered representatives of Ascend
Financial, who sell Class B shares. The amount of this commission may differ
from the amount of the commission paid in connection with sales of Class A
shares. The higher Rule 12b-1 fee will cause Class B shares to have a higher
expense ratio and to pay lower dividends than Class A shares. Ascend Financial
pays other broker-dealers for the sale of Class B shares in accordance with the
following schedule:
<TABLE>
<CAPTION>
Amount Paid to Broker-Dealers as a
Shares Purchased in an Amount Percentage of Offering Price:
----------------------------- -----------------------------
<S> <C>
Less than $50,000 4.17%
$50,000 but less than $100,000 3.75
$100,000 but less than $250,000 2.92
$250,000 but less than $500,000 2.08
$500,000 but less than $1,000,000 1.25
</TABLE>
CONVERSION FEATURE
On the fifteenth day of the month (or, if different, the last business day
prior to such date) after the expiration of the applicable holding period
described in the table above, Class B shares will automatically convert to Class
A shares and will no longer be subject to a higher Rule 12b-1 fee. Such
conversion will be on the basis of the relative net asset values of the two
classes. Class A shares issued upon such conversion will not be subject to any
FESC or CDSC. Class B shares acquired by exchange from Class B shares of
another Advantus Multiple Class Funds will convert into Class A shares based on
the time of the initial purchase. Purchased Class B shares ("Purchased B
Shares") will convert after the specified number of months following the
purchase date. All Class B shares in a shareholder's account that were acquired
through the reinvestment of dividends and distributions ("Reinvestment B
Shares") will be held in a separate sub-account. Each time any Purchased B
Shares convert to Class A shares, a PRO RATA portion (based on the ratio that
the total converting Purchased B Shares bears to the shareholder's total
converting and non-converting Purchased B Shares immediately prior to the
conversion) of the Reinvestment B Shares then in the sub-account will also
convert to Class A shares.
The conversion of Class B shares to Class A shares is subject to the
continuing availability of a ruling from the Internal Revenue Service or an
opinion of counsel that payment of different dividends by each of the classes
of shares does not result in the Fund's dividends or distributions
constituting "preferential dividends" under the Internal Revenue Code of
1986, as amended, and that such conversions do not constitute taxable events
for Federal tax purposes. There can be no assurance that such ruling or
opinion will be available, and the conversion of Class B shares to Class A
shares will not occur if such ruling or opinion is not available. In such
event, Class B shares would continue to be subject to higher expenses than
Class A shares for an indefinite period.
CLASS C SHARES
Class C shares of the Fund are sold without an initial sales charge so that
the Fund receives the full amount of the investor's purchase. Unlike Class B
shares, however, no CDSC is imposed when Class C shares are redeemed. Class C
shares will automatically convert to Class A shares of the Fund on the fifteenth
day of the month (or, if different, the last business day prior to such date)
following the expiration of a specified holding period. In addition, Class C
shares are subject to higher Rule 12b-1 fees (as described below), and are
subject to such higher fees for a longer period than are Class B shares because
of a longer holding period prior to conversion. The applicable holding period
prior to conversion is determined in accordance with the following table:
32
<PAGE>
<TABLE>
<CAPTION>
Shares Convert to
Class A in the
Month After
Shares Purchased in an Amount Expiration of
----------------------------- -------------
<S> <C>
Less than $50,000 96 months
$50,000 but less than $100,000 88 months
$100,000 but less than $250,000 72 months
$250,000 but less than $500,000 56 months
$500,000 but less than $1,000,000 40 months
</TABLE>
The longer period during which the Rule 12b-1 fee is charged enables the
Fund to sell the Class C shares without deduction of a sales charge at the time
of purchase and without imposing a CDSC at redemption. Ascend Financial does
not pay a sales commission to broker-dealers, or to registered representatives
of Ascend Financial, who sell Class C shares. The higher Rule 12b-1 fee will
cause Class C shares to have a higher expense ratio and to pay lower dividends
than Class A shares.
CONVERSION FEATURE. On the fifteenth day of the month (or, if different,
the last business day prior to such date) after the expiration of the applicable
holding period described in the table above, Class C shares will automatically
convert to Class A shares and will no longer be subject to a higher Rule 12b-1
fee. Such conversion will be on the basis of the relative net asset values of
the two classes. Class A shares issued upon such conversion will not be subject
to any FESC or CDSC. Class C shares acquired by exchange from Class C shares of
another Advantus Multiple Class Fund will convert into Class A shares based on
the time of the initial purchase. Purchased Class C shares ("Purchased C
Shares") will convert after the specified number of months following the
purchase date. All Class C shares in a shareholder's account that were acquired
through the reinvestment of dividends and distributions ("Reinvestment C
Shares") will be held in a separate sub-account. Each time any Purchased C
Shares convert to Class A shares, a pro rata portion (based on the ratio that
the total converting Purchased C Shares bears to the shareholder's total
converting and non-converting Purchased C Shares immediately prior to the
conversion) of the Reinvestment C Shares then in the sub-account will also
convert to Class A shares.
The conversion of Class C shares to Class A shares is subject to the
continuing availability of a ruling from the Internal Revenue Service or an
opinion of counsel that payment of different dividends by each of the classes
of shares does not result in the Fund's dividends or distributions
constituting "preferential dividends" under the Internal Revenue Code of
1986, as amended, and that such conversions do not constitute taxable events
for Federal tax purposes. There can be no assurance that such ruling or
opinion will be available, and the conversion of Class C shares to Class A
shares will not occur if such ruling or opinion is not available. In such
event, Class C shares would continue to be subject to higher expenses than
Class A shares for an indefinite period.
OTHER PAYMENTS TO BROKER-DEALERS
Broker-dealers selling Class A, Class B and Class C shares of the Funds
will receive a shareholder servicing fee (Rule 12b-1 fee) equal, on an annual
basis, to .25% of the net asset values attributable to Class A, Class B and
Class C shares. All such shareholder servicing fees are paid quarterly in
arrears beginning with the second year after the sale of the shares to which
such fees are attributable (i.e., the first payment is at the end of the
fifteenth month). Rule 12b-1 distribution fees will also be paid quarterly in
arrears to broker-dealers selling Class C shares equal, on an annual basis,
to .75% of the net asset values attributable to such Class C shares.
NET ASSET VALUE AND PUBLIC OFFERING PRICE
The method for determining the public offering price and net asset value
per share is summarized in the Prospectus in the text following the heading
"Buying and Selling Shares."
33
<PAGE>
The portfolio securities in which the Funds invest fluctuate in value, and
hence the net asset value per share of each Fund also fluctuates.
On February 1, 1999 the net asset value and public offering price per share
for Class A, Class B and Class C shares of each of the Funds were calculated as
set forth below.
Venture Fund
CLASS A SHARES
Net Assets ($30,399,077) = Net Asset Value Per Share ($10.53)
------------------------------
Shares outstanding (2,888,111)
To obtain the maximum public offering price per share, the Fund's
maximum sales charge must be added to the net asset value obtained above:
$10.53 = Public Offering Price Per Share ($11.14)
------
.945 (1)
CLASS B SHARES
Net Assets ($3,437,135) = Net Asset Value and Public
---------------------------- Offering Price Per Share ($10.44)
Shares outstanding (329,277)
CLASS C SHARES
Net Assets ($556,993) = Net Asset Value and Public
--------------------------- Offering Price Per Share ($10.48)
Shares outstanding (53,139)
Index Fund
CLASS A SHARES
Net Assets ($22,671,437) = Net Asset Value Per Share ($16.99)
------------------------------
Shares outstanding (1,334,408)
To obtain the maximum public offering price per share, the Fund's
maximum sales charge must be added to the net asset value obtained above:
$16.99 = Public Offering Price Per Share ($17.98)
------
.945 (1)
CLASS B SHARES
Net Assets ($18,126,894) = Net Asset Value and Public
---------------------------- Offering Price Per Share ($16.92)
Shares outstanding (1,071,550)
CLASS C SHARES
Net Assets ($2,325,344) = Net Asset Value and Public
---------------------------- Offering Price Per Share ($16.88)
Shares outstanding (137,755)
- ------------
(1) Effective February 1, 1999, the maximum FESC was increased to 5.5%.
REDUCED SALES CHARGES
Special purchase plans are enumerated in the text of each Fund's Prospectus
under "Buying and Selling Shares - Reducing Sales Charges" and are fully
described below.
34
<PAGE>
RIGHT OF ACCUMULATION-CUMULATIVE PURCHASE DISCOUNT
The front end sales charge and contingent deferred sales charge applicable
to each purchase of Class A shares and Class B shares, respectively, of the
Funds is based on the next computed net asset value of all Class A, Class B and
Class C shares of such Funds held by the shareholder (including dividends
reinvested and capital gains distributions accepted in shares), plus the cost of
all Class A, Class B and Class C shares of such Funds currently being purchased.
It is the obligation of each shareholder desiring this discount in sales charge
to notify Ascend Financial, through his or her dealer or otherwise, that he or
she is entitled to the discount.
LETTER OF INTENT
The applicable sales charge for purchases of Class A shares is based on
total purchases over a 13-month period where there is an initial purchase equal
to or exceeding $250, accompanied by filing with Ascend Financial a signed
"Letter of Intent" form to purchase, and by in fact purchasing not less than
$50,000 of shares in one of the Funds within that time. The 13-month period is
measured from the date the Letter of Intent is approved by Ascend Financial, or
at the purchaser's option, it may be made retroactive 90 days, in which case
Ascend Financial will make appropriate adjustments on purchases during the
90-day period.
In computing the total amount purchased for purposes of determining the
applicable sales charge, the net asset value of Class A, Class B and Class C
shares currently held in all Advantus Multiple Class Funds, on the date of
the first purchase under the Letter of Intent, may be used as a credit toward
Fund shares to be purchased under the Letter of Intent. Class A, Class B and
Class C shares of all the Advantus Multiple Class Funds may also be included
in the purchases during the 13-month period.
The Letter of Intent includes a provision for payment of additional
applicable Class A sales charges at the end of the period in the event the
investor fails to purchase the amount indicated. This is accomplished by
holding 5.5% of the investor's initial purchase in escrow. If the investor's
purchases equal those specified in the Letter of Intent, the escrow is released.
If the purchases do not equal those specified in the Letter of Intent, he or she
may remit to Ascend Financial an amount equal to the difference between the
dollar amount of sales charges actually paid and the amount of sales charges
that would have been paid on the aggregate purchases if the total of such
purchases had been made at a single time. If the purchaser does not remit this
sum to Ascend Financial on a timely basis, Ascend Financial will redeem the
appropriate number of shares, and then release or deliver any remaining shares
in the escrow account. The Letter of Intent is not a binding obligation on the
part of the investor to purchase, or the respective Fund to sell, the full
amount indicated. Nevertheless, the Letter of Intent should be read carefully
before it is signed.
COMBINING PURCHASES
With respect to each of the Advantus Multiple Class Funds, purchases of
Class A, Class B and Class C shares for any other account of the investor, or
such person's spouse or minor children, or purchases on behalf of participants
in a tax-qualified retirement plan may be treated as purchases by a single
investor for purposes of determining the availability of a reduced sales charge.
GROUP PURCHASES
An individual who is a member of a qualified group may also purchase shares
of the Advantus Multiple Class Funds at the reduced sales charge applicable to
the group taken as a whole. The sales charge is calculated by taking into
account not only the dollar amount of the Class A, Class B and Class C shares of
the Funds being purchased by the individual member, but also the aggregate
dollar value of such Class A, Class B and Class C shares previously purchased
and currently held by other members of the group. Members of a qualified group
may not be eligible for a Letter of Intent.
A "qualified group" is one which (i) has been in existence for more than
six months, (ii) has a purpose other than acquiring Fund shares at a discount,
35
<PAGE>
and (iii) satisfies uniform criteria which enable Ascend Financial to realize
economies of scale in distributing such shares. A qualified group must have
more than ten members, must be available to arrange for group meetings between
representatives of Ascend Financial, must agree to include sales and other
materials related to the Funds in its publications and mailings to members at
reduced or no cost to Ascend Financial, and must seek, upon request, to arrange
for payroll deduction or other bulk transmission of investments to the Funds.
WAIVER OF SALES CHARGES FOR CERTAIN SALES OF CLASS A SHARES
Directors and officers of Advantus Capital, Ascend Financial, the Funds,
Minnesota Life, or any of Minnesota Life's other affiliated companies, and
their full-time and part-time employees, sales representatives and retirees,
any trust, pension, profit-sharing, or other benefit plan for such persons,
the spouses, siblings, direct ancestors or direct descendants of such
persons, Minnesota Life and its affiliates themselves, advisory clients of
Advantus Capital, employees of sales representatives employed in offices
maintained by such sales representatives, certain accounts as to which a bank
or broker-dealer charges an account management fee, provided the bank or
broker-dealer has an agreement with Ascend Financial, and certain accounts
sold by registered investment advisers who charge clients a fee for their
services may purchase Class A shares of the Advantus Multiple Class Funds at
net asset value. These persons must give written assurance that they have
bought for investment purposes, and that the securities will not be resold
except through redemption or repurchase by, or on behalf of, the respective
Fund. These persons are not required to pay a sales charge because of the
reduced sales effort involved in their purchases.
EXCHANGE AND TRANSFER OF FUND SHARES
A shareholder can exchange some or all of his or her Class A, Class B and
Class C shares in the Advantus Multiple Class Funds, including shares acquired
by reinvestment of dividends, for shares of the same class of any of the other
Advantus Multiple Class Funds (provided such Fund is available in the
shareholder's State), and can thereafter re-exchange such exchanged shares back
for shares of the same class of the Fund, provided that the minimum amount which
may be transferred is $250. The exchange will be made on the basis of the
relative net asset values without the imposition of any additional sales load.
When Class B shares acquired through the exchange are redeemed, the shareholder
will be treated as if no exchange took place for the purpose of determining the
contingent deferred sales charge ("CDSC") period and applying the CDSC.
Class A, Class B and Class C shares may also be exchanged for shares of the
Money Market Fund at net asset values. No CDSC will be imposed at the time of
any such exchange of Class B shares; however, the Money Market Fund shares
acquired in any such exchange will remain subject to the CDSC otherwise
applicable to such Class B shares as of the date of exchange, and the period
during which such shares of Money Market Fund are held will not be included in
the calculation of the CDSC due at redemption of such Money Market Fund shares
or any reacquired Class B shares, except as follows. Ascend Financial is
currently waiving the entire Rule 12b-1 fee due from Money Market Fund. In the
event Ascend Financial begins to receive any portion of such fee, either (i) the
time period during which shares of Money Market Fund acquired in exchange for
Class B shares are held will be included in the calculation of the CDSC due at
redemption, or (ii) such time period will not be included but the amount of the
CDSC will be reduced by the amount of any Rule 12b-1 payments made by Money
Market Fund with respect to those shares.
Shares of Money Market Fund acquired in an exchange for Class A, Class B or
Class C shares from any of the Funds may also be re-exchanged at relative net
asset values for Class A, Class B and Class C shares, respectively, of the Fund.
Class C shares re-acquired in this manner will have a remaining holding period
prior to conversion equal to the remaining holding period applicable to the
prior Class C shares at the time of the initial exchange.
The exchange privilege is available only in states where such exchanges may
legally be made (at the present time the Fund believes this privilege is
available in all states). An exchange may be made by written request or by a
telephone call, unless the shareholder has elected on the account application
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not to have telephone transaction privileges. Up to twelve exchanges each
calendar year may be made without charge. A $7.50 service charge will be
imposed on each subsequent exchange and/or telephone transfer. No service
charge is imposed in connection with systematic exchange plans. However, the
Fund reserves the right to restrict the frequency of, or otherwise modify,
condition, terminate, or impose additional charges upon, the exchange and/or
telephone transfer privileges, upon 60 days' prior notice to shareholders. An
exchange is considered to be a sale of shares for federal income tax purposes on
which an investor may realize a long- or short-term capital gain or loss. See
"Distributions and Tax Status" for a discussion of the effect of redeeming
shares within 90 days after acquiring them and subsequently acquiring new shares
in any mutual fund at a reduced sales charge.
SYSTEMATIC EXCHANGE PLAN
Shareholders of the Fund may elect to have shares of the Fund
systematically exchanged for shares of any of the other Advantus Funds on a
monthly basis. The minimum amount which may be exchanged on such a systematic
basis is $25. The terms and conditions otherwise applicable to exchanges
generally, as described above, also apply to such systematic exchange plans.
SHAREHOLDER SERVICES
OPEN ACCOUNTS
A shareholder's investment is automatically credited to an open account
maintained for the shareholder by First Data, the Funds' transfer agent. Stock
certificates are not currently issued. Following each transaction in the
account, a shareholder will receive a confirmation statement disclosing the
current balance of shares owned and the details of recent transactions in the
account. After the close of each year First Data sends to each shareholder a
statement providing federal tax information on dividends and distributions paid
to the shareholder during the year. This should be retained as a permanent
record. A fee may be charged for providing duplicate information.
The open account system provides for full and fractional shares expressed
to four decimal places and, by making the issuance and delivery of stock
certificates unnecessary, eliminates problems of handling and safekeeping, and
the cost and inconvenience of replacing lost, stolen, mutilated or destroyed
certificates.
The costs of maintaining the open account system are paid by Advantus
Capital in the case of Venture Fund. The costs of maintaining the open account
system for Index Fund are paid by the Fund. No direct charges are made to
shareholders. Although the Funds have no present intention of making such
direct charges to shareholders, they reserve the right to do so. Shareholders
will receive prior notice before any such charges are made.
AUTOMATIC INVESTMENT PLAN
Each Fund provides a convenient, voluntary method of purchasing shares in
the Fund through its "Automatic Investment Plan" (the "Plan").
The principal purposes of the Plan are to encourage thrift by enabling you
to make regular purchases in amounts less than normally required, and, in the
case of the Advantus Multiple Class Funds, to employ the principle of dollar
cost averaging, described below.
By acquiring Fund shares on a regular basis pursuant to the Automatic
Investment Plan, or investing regularly on any other systematic plan, the
investor takes advantage of the principle of dollar cost averaging. Under
dollar cost averaging, if a constant amount is invested at regular intervals at
varying price levels, the average cost of all the shares will be lower than the
average of the price levels. This is because the same fixed number of dollars
buys more shares when price levels are low and fewer shares when price levels
are high. There is no guarantee, however, that the automatic investment plan
will always result in a lower cost per share compared to other investment
programs. It is essential that the investor consider his or her financial
ability to continue this investment program during times of market decline as
well as market rise. The principle of dollar cost averaging will not protect
against loss in a declining market, as a loss will result if the plan is
discontinued when the market value is less than cost.
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A Plan may be opened by indicating an intention to invest $25 or more
monthly for at least one year. Investors will receive a confirmation showing
the number of shares purchased, purchase price, and subsequent new balance of
shares accumulated.
An investor has no obligation to invest regularly or to continue the Plan,
which may be terminated by the investor at any time without penalty. Under the
Plan, any distributions of income and realized capital gains will be reinvested
in additional shares at net asset value unless a shareholder instructs the Fund
in writing to pay them in cash. The Fund reserves the right to increase or
decrease the amount required to open and continue a Plan, and to terminate any
Plan after one year if the value of the amount invested is less than $250.
GROUP SYSTEMATIC INVESTMENT PLAN
This Plan provides employers and employees with a convenient means for
purchasing shares of each Fund under various types of employee benefit and
thrift plans, including payroll withholding and bonus incentive plans. The Plan
may be started with an initial cash investment of $50 per participant for a
group consisting of five or more participants. The shares purchased by each
participant under the Plan will be held in a separate account in which all
dividends and capital gains will be reinvested in additional shares of the Fund
at net asset value. To keep his or her account open, subsequent payments
totaling $25 per month must be made into each participant's account. If the
group is reduced to less than five participants, the minimums set forth under
"Automatic Investment Plan" shall apply. The Plan may be terminated by the Fund
or the shareholder at any time upon reasonable notice.
RETIREMENT PLANS OFFERING TAX BENEFITS
The federal tax laws provide for a variety of retirement plans offering tax
benefits. These plans may be funded with shares of any of the Funds. The plans
include H.R. 10 (Keogh) plans for self-employed individuals and partnerships,
individual retirement accounts (IRA's), corporate pension trust and profit
sharing plans, including 401(k) plans, and retirement plans for public school
systems and certain tax exempt organizations, e.g. 403(b) plans.
The initial investment in each Fund by such a plan must be at least $250
for each participant in a plan, and subsequent investments must be at least $25
per month for each participant. Income dividends and capital gain distributions
must be reinvested. Plan documents and further information can be obtained from
Ascend Financial.
An investor should consult a competent tax or other adviser as to the
suitability of Fund shares as a vehicle for funding a plan, in whole or in part,
under the Employee Retirement Income Security Act of 1974 and as to the
eligibility requirements for a specific plan and its state as well as federal
tax aspects.
SYSTEMATIC WITHDRAWAL PLANS
An investor owning shares in any one of the Funds having a value of $5,000
or more at the current public offering price may establish a Systematic
Withdrawal Plan providing for periodic payments of a fixed or variable amount.
Withdrawal payments for Class A shares of Advantus Multiple Class Funds
purchased in amounts of $1 million or more and for Class B shares of Advantus
Multiple Class Funds may also be subject to a CDSC. As a result, a shareholder
should consider whether a Systematic Withdrawal Plan is appropriate. It may be
appropriate for the shareholder to consult a tax adviser before establishing
such a plan.
The Plan is particularly convenient and useful for trustees in making
periodic distributions to retired employees. Through this Plan a trustee can
arrange for the retirement benefit to be paid directly to the employee by the
respective Fund and to continue the tax-free accumulation of income and capital
gains prior to their distribution to the employee. An investor may terminate
the Plan at any time. A form for use in establishing such a plan is available
from Ascend Financial.
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A shareholder under a Systematic Withdrawal Plan may elect to receive
payments monthly, quarterly, semiannually, or annually for a fixed amount of not
less than $50 or a variable amount based on (1) the market value of a stated
number of shares, (2) a specified percentage of the account's market value or
(3) a specified number of years for liquidating the account (e.g., a 20-year
program of 240 monthly payments would be liquidated at a monthly rate of 1/240,
1/239, 1/238, etc.). The initial payment under a variable payment option may be
$50 or more.
All shares under the Plan must be left on deposit. Income dividends and
capital gain distributions will be reinvested without a sales charge at net
asset value determined on the record date.
Since withdrawal payments represent proceeds from the liquidation of
shares, withdrawals may reduce and possibly exhaust the initial investment,
particularly in the event of a decline in net asset value.
Under this Plan, any distributions of income and realized capital gains
must be reinvested in additional shares, and are reinvested at net asset value.
If a shareholder wishes to purchase additional shares of the respective Fund
under this Plan, other than by reinvestment of distributions, it should be
understood that, in the case of Class A shares, he or she would be paying a
sales commission on such purchases, while liquidations effected under the Plan
would be at net asset value, and, in the case of Class B shares, he or she would
be purchasing such shares at net asset value while liquidations effected under
the Plan would involve the payment of a contingent deferred sales charge.
Purchases of additional shares concurrent with withdrawals are ordinarily
disadvantageous to the shareholder because of sales charges and tax liabilities.
Additions to a shareholder account in which an election has been made to receive
systematic withdrawals will be accepted only if each such addition is equal to
at least one year's scheduled withdrawals or $1,200, whichever is greater. A
shareholder may not have an "Automatic Withdrawal Plan" and a "Systematic
Investment Plan" in effect simultaneously as it is not, as explained above,
advantageous to do so.
REDEMPTIONS
Registered holders of shares of the Funds may redeem their shares at the
per share net asset value next determined following receipt by the Fund (at its
mailing address listed on the cover page) of a written redemption request signed
by all shareholders exactly as the account is registered (and a properly
endorsed stock certificate if one has been issued). Class A and Class C shares
may be redeemed without charge. A contingent deferred sales charge may be
applicable upon redemption of certain Class A shares and Class B shares. Both
share certificates and stock powers, if any, tendered in redemption must be
endorsed and executed exactly as the Fund shares are registered. Any
certificates should be sent to the Fund by certified mail.
Payment will be made as soon as possible, but not later than seven days
after receipt of a properly executed written redemption request (and any
certificates). The amount received by the shareholder may be more or less than
the shares' original cost.
If stock certificates have not been issued, and if no signature guarantee
is required, shareholders may also submit their signed written redemption
request to the Fund by facsimile (FAX) transmission. The Fund's FAX number is
(508) 871-3560.
Each Fund will 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 net asset value of the Fund at the beginning of such period.
When redemption requests exceed such amount, however, the Fund reserves the
right to make part or all of the payment in the form of securities or other
assets of the Fund. An example of when this might be done is in case of
emergency, such as in those situations enumerated in the following paragraph,
or at any time a cash distribution would impair the liquidity of the Fund to
the detriment of the existing shareholders. Any securities being so
distributed would be valued in the same manner as the portfolio of the Fund
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is valued. If the recipient sold such securities, he or she probably would
incur brokerage charges. The Fund has filed with the Securities and Exchange
Commission a notification of election pursuant to Rule 18f-1 under the
Investment Company Act of 1940 in order to make such redemptions in kind.
Redemption of shares, or payment, may be suspended at times (a) when the
New York Stock Exchange is closed for other than customary weekend or holiday
closings, (b) when trading on said Exchange is restricted, (c) when an emergency
exists, as a result of which disposal by the Fund of securities owned by it is
not reasonably practicable, or it is not reasonably practicable for the Fund
fairly to determine the value of its net assets, or during any other period when
the SEC, by order, so permits; provided that applicable rules and regulations of
the SEC shall govern as to whether the conditions prescribed in (b) or (c)
exist.
SIGNATURE GUARANTEE
In order to protect both shareholders and the Funds against fraudulent
orders, a shareholder signature is required to be guaranteed in certain cases.
No signature guarantee is required if the redemption proceeds are less than
$50,000 and are to be paid to the registered holder and sent to the address of
record for that account, or if the written redemption request is from
pre-authorized trustees of plans, trusts and other tax-exempt organizations and
the redemption proceeds are less than $50,000.
A signature guarantee is required, however, if (i) the redemption proceeds
are $50,000 or more, (ii) the redemption proceeds are to be paid to someone
other than the registered holder, (iii) the redemption proceeds are to be mailed
to an address other than the registered shareholder's address, (iv) within the
30-day period prior to receipt of the redemption request, instructions have been
received to change the shareholder's address of record, or, in the case of
redemptions to be paid by wire, instructions have been received within such
period to change the shareholder's bank wire instructions, (v) the shares are
requested to be transferred to the account of another owner, or (vi) in the case
of plans, trusts, or other tax-exempt organizations, the redemption request is
not from a pre-authorized trustee. The Fund reserves the right to require
signature guarantees on all redemptions.
A signature guarantee must be provided by an eligible guarantor
institution. A notarized signature is not sufficient. Eligible guarantors
include (1) national or state banks, savings associations, savings and loan
associations, trust companies, savings banks, industrial loan companies and
credit unions; (2) national securities exchanges, registered securities
associations and clearing agencies; (3) securities broker-dealers which are
members of a national securities exchange or a clearing agency or which have
minimum net capital of $100,000; or (4) institutions that participate in the
Securities Transfer Agent Medallion Program ("STAMP") or other recognized
signature medallion program.
CONTINGENT DEFERRED SALES CHARGE
The CDSC applicable upon redemption of Class A shares purchased in
amounts of $1 million or more and Class B shares will be calculated on an
amount equal to the lesser of the net asset value of the shares at the time
of purchase or their net asset value at the time of redemption. No charge
will be imposed on increases in net asset value above the initial purchase
price. In addition, no charge will be assessed on shares derived from
reinvestment of dividends or capital gains distributions or on shares held
for longer than the applicable CDSC period. See "Sales Charges - Class B
Shares" above.
In determining whether a CDSC is payable with respect to any redemption
of Class B shares, the calculation will be determined in the manner that
results in the lowest rate being charged.
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The CDSC does not apply to: (1) redemption of Class B shares in connection
with the automatic conversion to Class A shares; (2) redemption of shares when a
Fund exercises its right to liquidate accounts which are less than the minimum
account size; and (3) redemptions in the event of the death or disability of the
shareholder within the meaning of Section 72(m)(7) of the Internal Revenue Code.
The CDSC will also not apply to certain exchanges. See "Exchange and Transfer
of Fund Shares," above.
TELEPHONE REDEMPTION
The Fund's shareholders have this privilege automatically, unless they have
elected on the account application not to have such privilege, and may redeem
shares by calling Advantus Shareholder Services at 1-800-665-6005 (see
"Telephone Transactions"). A telephone redemption request will not be honored,
however, if the shareholder's address of record or bank wire instructions have
been changed without a guarantee of the shareholder's signature (see
"Signature Guarantee" above) within the 30-day period prior to receipt of the
redemption request. The maximum amount which may be redeemed by telephone is
$50,000. The proceeds will be sent by check to the address of record for the
account. If the amount is $500 or more, and if the shareholder has designated a
bank account, the proceeds may be wired to the shareholder's designated bank
account, and the prevailing wire charge (currently $5.00) will be added to the
amount redeemed from the Fund. The Fund reserves the right to modify, terminate
or impose charges upon the telephone redemption privilege.
DELAY IN PAYMENT OF REDEMPTION PROCEEDS
Payment of redemption proceeds will ordinarily be made as soon as possible
and within the periods of time described above. However, an exception to this
is that if redemption is requested after a purchase by non-guaranteed funds
(such as a personal check), the Fund will delay mailing the redemption check or
wiring proceeds until it has reasonable assurance that the purchase check has
cleared (good payment has been collected). This delay may be up to 14 days from
the purchase date.
FUND'S RIGHT TO REDEEM SMALL ACCOUNTS
The Fund has the right to redeem the shares in inactive accounts which, due
to redemptions and not to decreases in market value of the shares in the
account, have a total current value of less than $150. Before redeeming an
account, the Fund will mail to the shareholder a written notice of its intention
to redeem, which will give the investor an opportunity to make an additional
investment. If no additional investment is received by the Fund within 60 days
of the date the notice was mailed, the shareholder's account will be redeemed.
REINSTATEMENT PRIVILEGE
The Prospectus for each of the Advantus Multiple Class Funds describes
redeeming shareholders' reinstatement privileges in "Buying and Selling Shares"
in the Funds' Prospectus. Written notice from persons wishing to exercise this
reinstatement privilege must be received by Ascend Financial within 90 days
after the date of the redemption. The reinstatement or exchange will be made at
net asset value next determined after receipt of the notice and will be limited
to the amount of the redemption proceeds or to the nearest full share if
fractional shares are not purchased. All shares issued as a result of the
reinstatement privilege applicable to redemptions of Class A and Class B shares
will be issued only as Class A shares. Any CDSC incurred in connection with the
prior redemption (within 90 days) of Class B shares will not be refunded or
re-credited to the shareholder's account. Shareholders who redeem Class C
shares and exercise their reinstatement privilege will be issued only Class C
shares, which shares will have a remaining holding period prior to conversion
equal to the remaining holding period applicable to the prior Class C shares at
redemption.
See "Distributions and Tax Status" below for a discussion of the effect of
redeeming shares within 90 days after acquiring them and subsequently acquiring
new shares in any mutual fund at a reduced sales charge. Should an investor
utilize the reinstatement privilege following a redemption which resulted in a
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loss, all or a portion of that loss might not be currently deductible for
Federal income tax purposes, for an investor which is not tax-exempt.
Exercising the reinstatement privilege would not alter any capital gains taxes
payable on a realized gain, for an investor which is not tax-exempt. See
discussion under "Distributions and Tax Status" below regarding the taxation of
capital gains.
TELEPHONE TRANSACTIONS
Shareholders of the Fund are permitted to exchange or redeem the Fund's
shares by telephone. See "Exchange and Transfer of Fund Shares" and
"Redemptions" for further details. The privilege to initiate such transactions
by telephone is made available automatically unless the shareholder elects on
the account application not to have such privilege.
Shareholders, or persons authorized by shareholders, may initiate telephone
transactions by telephoning Advantus Shareholder Services, toll free, at
at (800) 665-6005. Automated service is available 24 hours a day, and service
representatives are available Monday through Friday, from 8:00 a.m. to 4:45 p.m.
(Central Time). Telephone transaction requests received after 3:00 p.m.
(Central Time) will be treated as received the next business day. The maximum
amount which may be redeemed by telephone is $50,000. During periods of marked
economic or market changes, shareholders may experience difficulty in
implementing a telephone exchange or redemption due to a heavy volume of
telephone calls. In such a circumstance, shareholders should consider
submitting a written request while continuing to attempt a telephone exchange or
redemption. The Fund reserves the right to modify, terminate or impose charges
upon the telephone exchange and redemption privileges upon 60 days' prior notice
to shareholders.
The Fund will not be liable for following instructions communicated by
telephone which it reasonably believes to be genuine; provided, however, that
the Fund will employ reasonable procedures to confirm that instructions
communicated by telephone are genuine, and that if they do not, they may be
liable for any losses due to unauthorized or fraudulent instructions. The
procedures for processing telephone transactions include tape recording of
telephone instructions, asking shareholders for their account number and a
personal identifying number, and providing written confirmation of such
transactions.
THE STANDARD & POOR'S LICENSE
Standard & Poor's ("S&P") is a division of The McGraw-Hill Companies, Inc.
S&P has trademark rights to the marks "Standard & Poor's-Registered Trademark-,"
"S&P-Registered Trademark-," "S&P 500-Registered Trademark-," "Standard & Poor's
500" and "500" and has licensed the use of such marks by the Index Fund.
Index Fund is not sponsored, endorsed, sold or promoted by S&P. S&P makes
no representation or warranty, express or implied, to the owners of the Index
Fund or any member of the public regarding the advisability of investing in
securities generally or in the Index Fund particularly or the ability of the S&P
500 Index to track general stock market performance. S&P's only relationship to
the Index Fund is the licensing of certain trademarks and trade names of S&P and
of the S&P 500 Index which is determined, composed and calculated by S&P without
regard to the Fund. S&P has no obligation to take the needs of the Index Fund
or the owners of the Fund into consideration in determining, composing or
calculating the S&P 500 Index. S&P is not responsible for and has not
participated in the determination of the net asset value or public offering
price of the Index Fund nor is S&P a distributor of the Fund. S&P has no
obligation or liability in connection with the administration, marketing or
trading of the Index Fund.
S&P DOES NOT GUARANTEE THE ACCURACY AND/OR THE COMPLETENESS OF THE S&P 500
INDEX OR ANY DATA INCLUDED THEREIN, NOR DOES S&P HAVE ANY LIABILITY FOR ANY
ERRORS, OMISSIONS, OR INTERRUPTIONS THEREIN. S&P MAKES NO WARRANTY, EXPRESS OR
IMPLIED, AS TO RESULTS TO BE OBTAINED BY THE INDEX FUND, OWNERS OF THE FUND, OR
ANY OTHER PERSON OR ENTITY FROM THE USE OF THE S&P 500 INDEX OR ANY DATA
INCLUDED THEREIN. S&P MAKES NO EXPRESS OR IMPLIED WARRANTIES, AND EXPRESSLY
DISCLAIMS ALL WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE
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OR USE WITH RESPECT TO THE S&P 500 INDEX OR ANY DATA INCLUDED THEREIN. WITHOUT
LIMITING ANY OF THE FOREGOING, IN NO EVENT SHALL S&P HAVE ANY LIABILITY FOR ANY
SPECIAL, PUNITIVE, INDIRECT, OR CONSEQUENTIAL DAMAGES (INCLUDING LOST PROFITS),
EVEN IF NOTIFIED OF THE POSSIBILITY OF SUCH DAMAGES.
DISTRIBUTIONS AND TAX STATUS
DIVIDENDS AND CAPITAL GAINS DISTRIBUTIONS
The policy of the Funds has been to pay dividends from net investment
income quarterly. Any net realized capital gains are generally distributed once
a year, during December. Distributions paid by the Funds, if any, with respect
to Class A, Class B and Class C shares will be calculated in the same manner, at
the same time, on the same day and will be in the same amount, except that the
higher Rule 12b-1 fees applicable to Class B and Class C shares will be borne
exclusively by such shares. The per share distributions on Class B and Class C
shares will be lower than the per share distributions on Class A shares as a
result of the higher Rule 12b-1 fees applicable to Class B and Class C shares.
Any dividend payments or net capital gains distributions made by the
Funds are in the form of additional shares of the same class of the Fund
rather than in cash, unless a shareholder specifically requests the Fund in
writing that the payment be made in cash. The distribution of these shares
is made at net asset value on the payment date of the dividend, without any
sales or other charges to the shareholder. The taxable status of income
dividends and/or net capital gains distributions is not affected by whether
they are reinvested or paid in cash. Authorization to pay dividends in cash
may be made on the application form, or at any time by letter.
Upon written request to a Fund, a shareholder may also elect to have
dividends from the Fund invested without sales charge in shares of Advantus
Money Market Fund or shares of the same class of another of the Advantus
Multiple Class Funds at the net asset value of such other Fund on the payable
date for the dividends being distributed (subject to the applicable sales
charge). To use this privilege of investing dividends from a Fund in shares
of another of the Funds, shareholders must maintain a minimum account value
of $250 in both the Fund paying the dividends and the other Fund in which
dividends are reinvested.
TAXATION - GENERAL
The following is a general summary of certain federal tax considerations
affecting the Funds and their shareholders. No attempt is made to present a
detailed explanation of the tax treatment of the Funds or their shareholders,
and the discussion here is not intended as a substitute for careful tax
planning.
During the year ended July 31, 1998 each Fund fulfilled, and intends to
continue to fulfill, the requirements of Subchapter M of the Internal Revenue
Code of 1986, as amended (the "Code"), as a regulated investment company. If
so qualified, each Fund will not be liable for federal income taxes to the
extent it distributes its taxable income to its shareholders.
Distributions of investment company taxable income from a Fund generally
will be taxable to shareholders as ordinary income, regardless of whether such
distributions are paid in cash or are invested in additional shares of the
Fund's stock. A distribution of net capital gain (a "capital gain
distribution"), whether paid in cash or reinvested in shares, generally is
taxable to shareholders as long-term capital gain, regardless of the length of
time a shareholder has held his or her shares or whether such gain was realized
by the Fund before the shareholder acquired such shares and was reflected in the
price paid for the shares. Long-term capital gains of individuals are taxed at
a maximum rate of 20%, and the highest marginal regular tax rates on ordinary
income for individuals is 39.6%.
Some or all of the dividend distributions from each Funds are expected to
qualify for the 70% dividend received deduction for corporations.
Prior to purchasing shares of a Fund, prospective shareholders (except
for tax qualified retirement plans) should consider the impact of dividends or
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capital gains distributions which are expected to be announced, or have been
announced but not paid. Any such dividends or capital gains distributions paid
shortly after a purchase of shares by an investor prior to the record date will
have the effect of reducing the per share net asset value by the amount of the
dividends or distributions. All or a portion of such dividends or
distributions, although in effect a return of capital, is subject to taxation.
The Code provides that a shareholder who pays a sales charge in acquiring
shares of a mutual fund, redeems those shares within 90 days after acquiring
them, and subsequently acquires new shares in any mutual fund for a reduced
sales charge or no sales charge (pursuant to a reinvestment right acquired with
the first shares), may not take into account the sales charge imposed on the
first acquisition, to the extent of the reduction in the sales charge on the
second acquisition, for purposes of computing gain or loss on disposition of the
first acquired shares. The amount of sales charge disregarded under this rule
will, however, be treated as incurred in connection with the acquisition of the
second acquired shares.
Shareholders of the Fund receive an annual statement detailing federal tax
information. Distributions by the Funds, including the amount of any
redemption, are reported to shareholders in such annual statement and to the
Internal Revenue Service to the extent required by the Code.
The Funds are required by federal law to withhold 31% of reportable
payments (including dividends, capital gain distributions, and redemptions) paid
to certain accounts whose owners have not complied with IRS regulations. In
order to avoid this backup withholding requirement, each shareholder will be
asked to certify on the shareholder's account application that the social
security or taxpayer identification number provided is correct and that the
shareholder is not subject to backup withholding for previous underreporting to
the IRS.
Some of the investment practices that may be employed by the Funds will be
subject to special provisions that, among other things, may defer the use of
certain losses of such Funds, affect the holding period of the securities held
by the Funds and affect the character of the gains or losses realized. These
provisions may also require the Funds to mark-to-market some of the positions in
their respective portfolios (i.e., treat them as closed out) or to accrue
original discount, both of which may cause such Funds to recognize income
without receiving cash with which to make distributions in amounts necessary to
satisfy the distribution requirements for qualification as a regulated
investment company and for avoiding income and excise taxes. Accordingly, in
order to make the required distributions, a Fund may be required to borrow or
liquidate securities. Each Fund will monitor its transactions and may make
certain elections in order to mitigate the effect of these rules and prevent
disqualification of the Funds as regulated investment companies.
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Each Fund is subject to a non-deductible excise tax equal to 4 percent of
the excess, if any, of the amount required to be distributed pursuant to the
Code for each calendar year over the amount actually distributed. In order to
avoid the imposition of this excise tax, the Fund generally must declare
dividends by the end of a calendar year representing 98 percent of the Fund's
ordinary income for the calendar year and 98 percent of its capital gain net
income (both long-term and short-term capital gains) for the twelve-month period
ending October 31 of the calendar year.
The foregoing relates only to federal taxation. Prospective shareholders
should consult their tax advisers as to the possible application of state and
local income tax laws to ownership of Fund shares.
FINANCIAL STATEMENTS
Each Funds' financial statements for the fiscal year ended July 31, 1998,
including the financial highlights for each of the respective periods presented,
appearing in such Fund's Annual Report to Shareholders, and the report thereon
of such Fund's independent auditors, KPMG Peat Marwick LLP, also appearing
therein, are incorporated by reference in this Statement of Additional
Information.
45
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APPENDIX A
BOND AND COMMERCIAL PAPER RATINGS
BOND RATINGS
Moody's Investors Service, Inc. describes its six highest ratings for
corporate bonds and mortgage-related securities as follows:
Bonds which are rated Aaa are judged to be of the best quality. They carry
the smallest degree of investment risk and are generally referred to as "gilt
edge." Interest payments are protected by a large or by an exceptionally stable
margin and principal is secure. While the various protective elements are
likely to change, such changes as can be visualized are most unlikely to impair
the fundamentally strong position of such issues.
Bonds which are rated Aa are judged to be of high quality by all standards.
Together with the Aaa group they comprise what are generally known as high grade
bonds. They are rated lower than the best bonds because margins of protection
may not be as large as in Aaa securities or fluctuation of protective elements
may be of greater amplitude or there may be other elements present which make
the long term risks appear somewhat larger than in Aaa securities.
Bonds which are rated A possess many favorable investment attributes and
are to be considered as upper medium grade obligations. Factors giving security
to principal and interest are considered adequate but elements may be present
which suggest a susceptibility to impairment some time in the future.
Bonds which are rated Baa are considered medium grade obligations, i.e.,
they are neither highly protected nor poorly secured. Interest payments and
principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
Bonds which are rated Ba are judged to have speculative elements; their
future cannot be considered as well-assured. Often the protection of interest
and principal payments may be very moderate, and thereby not well safeguarded
during both good and bad times over the future. Uncertainty of position
characterizes bonds in this class.
Bonds which are rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.
Moody's Investors Service, Inc. also applies numerical modifiers, 1, 2, and
3, in each of these generic rating classifications. The modifier 1 indicates
that the security ranks in the higher end of its generic rating category; the
modifier 2 indicates a mid-range ranking; and the modifier 3 indicates that the
issue ranks in the lower end of its generic rating category.
Standard & Poor's Corporation describes its six highest ratings for
corporate bonds and mortgage-related securities as follows:
AAA. Debt rated "AAA" has the highest rating assigned by Standard &
Poor's. Capacity to pay interest and repay principal is extremely strong.
AA. Debt rated "AA" has a very strong capacity to pay interest and repay
principal and differs from the higher rated issues only in small degree.
A. Debt rated "A" has a strong capacity to pay interest and repay
principal although it is somewhat more susceptible to the adverse effects of
changes in circumstances and economic conditions than debt in higher rated
categories.
A-1
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BBB. Debt rated "BBB" is regarded as having an adequate capacity to pay
interest and repay principal. Whereas it normally exhibits adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
debt in this category than in higher rated categories.
BB. Debt rated "BB" has less near-term vulnerability to default than other
speculative grade debt. However, it faces major ongoing uncertainties or
exposure to adverse business, financial, or economic conditions that could lead
to inadequate capacity to meet timely interest and principal payments.
B. Debt rated "B" has a greater vulnerability to default but currently has
the capacity to meet interest payments and principal repayments. Adverse
business, financial, or economic conditions will likely impair capacity or
willingness to pay interest and repay principal. The "B" rating category is
also used for debt subordinated to senior debt that is assigned an actual or
implied "BB" or "BB-" rating.
Standard & Poor's Corporation applies indicators "+", no character, and "-"
to the above rating categories. The indicators show relative standing within
the major rating categories.
COMMERCIAL PAPER RATINGS
The rating Prime-1 is the highest commercial paper rating assigned by
Moody's Investors Service, Inc. Among the factors considered by Moody's
Investors Service, Inc. in assigning the ratings are the following: (1)
evaluation of the management of the issuer, (2) economic evaluation of the
issuer's industry or industries and an appraisal of speculative-type risks which
may be inherent in certain areas; (3) evaluation of the issuer's products in
relation to competition and customer acceptance; (4) liquidity; (5) amount and
quality of long-term debt; (6) trend of earnings over a period of ten years; (7)
financial strength of a parent company and the relationships which exist with
the issuer; an (8) recognition by the management of obligations which may be
present or may arise as a result of public interest questions and preparations
to meet such obligations.
The rating A-1 is the highest rating assigned by Standard & Poor's
Corporation to commercial paper which is considered by Standard & Poor's
Corporation to have the following characteristics:
Liquidity ratios of the issuer are adequate to meet cash redemptions.
Long-term senior debt is rated "A" or better. The issuer has access to at
least two additional channels of borrowing. Basic earnings and cash flow
have an upward trend with allowance made for unusual circumstances.
Typically, the issuer's industry is well established and the issuer has a
strong position within the industry. The reliability and quality of
management are unquestioned.
A-2