STATEMENT OF ADDITIONAL INFORMATION
ADVANTUS VENTURE FUND, INC.
ADVANTUS INDEX 500 FUND, INC.
ADVANTUS REAL ESTATE SECURITIES FUND, INC.
May 1, 2000
As Supplemented July 31, 2000
This Statement of Additional Information is not a prospectus. This Statement
of Additional Information relates to the separate Prospectuses dated May 1,
2000 and should be read in conjunction therewith.
Each Fund's audited Annual Report dated July 31, 1999 and its unaudited Semi-
Annual Report dated January 31, 2000, which either accompanies this Statement
of Additional Information or has previously been provided to the investor to
whom this Statement of Additional Information is being sent, is incorporated
herein by reference.
A copy of each Prospectus and each Annual and Semi-Annual Report 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.
TABLE OF CONTENTS
GENERAL INFORMATION AND HISTORY 5
INVESTMENT OBJECTIVES AND POLICIES 5
Equity Securities of Small Capitalization Companies 5
S&P 500 Index 5
Real Estate Investment Trust Securities 6
Debt and Money Market Securities 7
Low Rated Securities 8
Convertible Securities 9
Foreign Securities 10
Futures Contracts and Options on Futures Contracts 11
Options 14
United States Government and Agency Obligations 16
Short Sales Against the Box 17
Loans of Portfolio Securities 17
Restricted and Illiquid Securities 18
Repurchase Agreements 18
Warrants 19
Index Depositary Receipts 19
When-Issued Securities and Forward Commitments 20
Defensive Purposes 21
INVESTMENT RESTRICTIONS 21
Fundamental Restrictions 22
Non-Fundamental Restrictions 23
PORTFOLIO TURNOVER 24
DIRECTORS AND EXECUTIVE OFFICERS 25
DIRECTOR LIABILITY 27
INVESTMENT ADVISORY AND OTHER SERVICES 27
General 27
Control and Management of Advantus Capital and Ascend Financial 28
Investment Advisory Agreement 28
Venture Fund Sub-Adviser - State Street 30
Venture Fund Investment Sub-Advisory Agreement - State Street 30
Code of Ethics 31
Distribution Agreement 31
Payment of Certain Distribution Expenses of the Funds 32
Transfer Agent and Administrative Services 35
PORTFOLIO TRANSACTIONS AND ALLOCATION OF BROKERAGE 36
CALCULATION OF PERFORMANCE DATA 38
CAPITAL STOCK AND OWNERSHIP OF SHARES 41
HOW TO BUY SHARES 42
Alternative Purchase Arrangements 42
Purchase by Check 42
Purchase by Wire 43
Purchase by Internet 43
Timing of Purchase Orders 43
Minimum Investments 43
Public Offering Price 43
SALES CHARGES 44
Class A Shares 44
Class B Shares 45
Class C Shares 46
Other Payments to Broker-Dealers 47
NET ASSET VALUE AND PUBLIC OFFERING PRICE 48
REDUCED SALES CHARGES 49
Right of Accumulation-Cumulative Purchase Discount 49
Letter of Intent 50
Combining Purchases 50
Group Purchases 50
Waiver of Sales Charges For Certain Sales of Class A Shares 51
EXCHANGE AND TRANSFER OF FUND SHARES 51
Systematic Exchange Plan 52
SHAREHOLDER SERVICES 52
Open Accounts 52
Automatic Investment Plan 53
Group Systematic Investment Plan 54
Retirement Plans Offering Tax Benefits 54
Systematic Withdrawal Plans 54
REDEMPTIONS 55
Signature Guarantee 56
Contingent Deferred Sales Charge 57
Telephone Redemption 57
Internet Redemption 57
Delay in Payment of Redemption Proceeds 58
Fund's Right to Redeem Small Accounts 58
Reinstatement Privilege 58
TELEPHONE TRANSACTIONS 59
INTERNET TRANSACTIONS 59
THE STANDARD & POOR'S LICENSE 60
DISTRIBUTIONS AND TAX STATUS 61
Dividends and Capital Gains Distributions 61
Taxation - General 61
FINANCIAL STATEMENTS 63
APPENDIX A - BOND AND COMMERCIAL PAPER RATINGS A-1
Bond Ratings A-1
Commercial Paper Ratings A-2
APPENDIX B - FUTURES CONTRACTS B-1
Example of Futures Contract Sale B-1
Example of Futures Contract Purchase B-1
Tax Treatment B-2
GENERAL INFORMATION AND HISTORY
Advantus Venture Fund, Inc. ("Venture Fund"), Advantus Index 500 Fund,
Inc. ("Index Fund") and Advantus Real Estate Securities Fund, Inc. ("Real
Estate Securities 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 Real Estate Securities Fund
and 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). Real
Estate Securities Fund currently offers one class of shares (Class A). Each
class is sold pursuant to different sales arrangements and bears different
expenses. The Venture and Index Funds were incorporated as Minnesota
corporations in July 1996. The Real Estate Securities Fund was incorporated
as a Minnesota Corporation in September 1998.
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.
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.
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.
Real Estate Investment Trust Securities
The Real Estate Securities Fund may invest in securities issued by real
estate investment trusts. A real estate investment trust ("REIT") is a
corporation or a business trust that would otherwise be taxed as a
corporation, which meets certain requirements of the Internal Revenue Code of
1986, as amended (the "Code"). The Code permits a qualifying REIT to deduct
dividends paid, thereby effectively eliminating corporate level federal
income tax and making the REIT a pass-through vehicle for federal income tax
purposes. In order to qualify as a REIT, a company must derive at least 75%
of its gross income from real estate sources (rents, mortgage interest, and
gains from sale of real estate assets), and must distribute to shareholders
annually 95% or more of its taxable income. Moreover, at the end of each
quarter of its taxable year, at least 75% of the value of its total assets
must be represented by real estate assets, cash and cash items, and U.S.
government securities.
REITs are sometimes informally characterized as equity REITs, mortgage
REITs and hybrid REITs. An equity REIT invests primarily in the fee
ownership or leasehold ownership of land and buildings and derives its income
primarily from rental income. A mortgage REIT invests primarily in mortgages
on real estate, and derives primarily from interest payments received on
credit it has granted. A hybrid REIT combines the characteristics of equity
REITs and mortgage REITs. It is anticipated, although not required, that
under normal circumstances, a majority of the Fund investments in REITs will
consist of equity REITs.
Debt and Money Market Securities
Venture Fund and Real Estate Securities Fund may invest in long,
intermediate and short-term debt securities from various industry
classifications and money market instruments. Index Fund may invest in
short-term fixed income securities. 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.
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. Real Estate Securities Fund and Venture
Fund may each 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 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 and Real Estate Securities Fund each 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. Venture 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 sub-adviser. See "Low Rated
Securities," above. Real Estate Securities Fund will limit its purchase of
convertible debt securities to those that, at the time of purchase, are rated
at least BBB by S&P or Baa 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 and Real Estate Securities Fund each 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 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.
Futures Contracts and Options on Futures Contracts
Futures Contracts. Consistent with their investment objectives and
strategies, the Funds may enter into interest rate futures contracts, stock
index futures contracts and foreign currency futures contracts. (Unless
otherwise specified, interest rate futures contracts, stock index futures
contracts and foreign currency futures contracts are collectively referred to
as "futures contracts.")
A futures contract is a bilateral agreement providing for the purchase
and sale of a specified type and amount of a financial instrument or foreign
currency, or for the making and acceptance of a cash settlement, at a stated
time in the future for a fixed price. By its terms, a futures contract
provides for a specified settlement date on which, in the case of the
majority of interest rate and foreign currency futures contracts, the fixed
income securities or currency underlying the contract are delivered by the
seller and paid for by the purchaser, or on which, in the case of stock index
futures contracts and certain interest rate and foreign currency futures
contracts, the difference between the price at which the contract was entered
into and the contract's closing value is settled between the purchaser and
the seller in cash. Futures contracts differ from options in that they are
bilateral agreements, with both the purchaser and the seller equally
obligated to complete the transaction. Futures contracts call for settlement
only on the expiration date, and cannot be "exercised" at any other time
during their term.
Interest rate futures contracts currently are traded on a variety of
fixed income securities, including long-term U.S. Treasury Bonds, Treasury
Notes, Government National Mortgage Association modified pass-through
mortgage-backed securities, and U.S. Treasury Bills. In addition, interest
rate futures contracts include contracts on indexes of municipal securities.
Foreign currency futures contracts currently are traded on the British pound,
Canadian dollar, Japanese yen, Swiss franc, West German mark, and on
Eurodollar deposits.
Stock index futures contracts include contracts on the S&P 500 Index
and other broad-based stock market indexes, as well as contracts based on
narrower market indexes or indexes of securities of particular industry
groups. A stock index assigns relative values to the common stocks included
in the index and the index fluctuates with the value of the common stocks so
included. The parties to a stock index futures contract agree to make a cash
settlement on a specific future date in an amount determined by the value of
the stock index on the last trading day of the contract. The amount is a
specified dollar amount times the difference between the value of the index
on the last trading day and the value on the day the contract was struck.
Purchases or sales of stock index futures contracts are used to attempt
to protect current or intended stock investments from broad fluctuations in
stock prices. Interest rate and foreign currency futures contracts are
purchased or sold to attempt to hedge against the effects of interest or
exchange rate changes on a Fund's current or intended investments in fixed
income or foreign securities. In the event that an anticipated decrease in
the value of a Fund's securities occurs as a result of a general stock market
decline, a general increase in interest rates, or a decline in the dollar
value of foreign currencies in which portfolio securities are denominated,
the adverse effects of such changes may be offset, in whole or in part, by
gains on the sale of futures contracts. Conversely, the increased cost of a
Fund's securities to be acquired, caused by a general rise in the stock
market, a general decline in interest rates, or a rise in the dollar value of
foreign currencies, may be offset, in whole or in part, by gains on futures
contracts purchased by such Fund.
Although many futures contracts by their terms call for actual delivery
or acceptance of the financial instrument, in most cases the contracts are
closed out before the settlement date without the making or taking of
delivery. Closing out a short position is effected by purchasing a futures
contract for the same aggregate amount of the specific type of financial
instrument and the same delivery month. If the price of the initial sale of
the futures contract exceeds the price of the offsetting purchase, the seller
is paid the difference and realizes a gain. Conversely, if the price of the
offsetting purchase exceeds the price of the initial sale, the trader
realizes a loss. Similarly, the closing out of a long position is effected
by the purchaser entering into a futures contract sale. If the offsetting
sale price exceeds the purchase price, the purchaser realizes a gain and, if
the purchase price exceeds the offsetting sale price, the purchaser realizes
a loss.
The purchase or sale of a futures contract differs from the purchase or
sale of a security in that no purchase price is paid or received. Instead,
an amount of cash or cash equivalents, which varies but may be as low as 5%
or less of the value of the contract, must be deposited with the broker as
"initial margin." Subsequent payments to and from the broker, referred to as
"variation margin," are made on a daily basis as the value of the index or
instrument underlying the futures contract fluctuates, making positions in
the futures contracts more or less valuable, a process known as "marking to
the market."
U.S. futures contracts may be purchased or sold only on an exchange,
known as a "contract market," designated by the Commodity Futures Trading
Commission ("CFTC") for the trading of such contract, and only through a
registered futures commission merchant which is a member of such contract
market. A commission must be paid on each completed purchase and sale
transaction. The contract market clearing house guarantees the performance
of each party to a futures contract by in effect taking the opposite side of
such contract. At any time prior to the expiration of a futures contract, a
trader may elect to close out its position by taking an opposite position on
the contract market on which the position was entered into, subject to the
availability of a secondary market, which will operate to terminate the
initial position. At that time, a final determination of variation margin is
made and any loss experienced by the trader is required to be paid to the
contract market clearing house while any profit due to the trader must be
delivered to it. Futures contracts may also be traded on foreign exchanges.
Options on Futures Contracts. The Funds also may purchase and sell put
and call options on futures contracts and enter into closing transactions
with respect to such options to terminate existing positions. The Funds may
use such options on futures contracts in connection with their hedging
strategies in lieu of purchasing and writing options directly on the
underlying securities or purchasing and selling the underlying futures
contracts.
An option on a futures contract provides the holder with the right to
enter into a "long" position in the underlying futures contract, in the case
of a call option, or a "short" position in the underlying futures contract,
in the case of a put option, at a fixed exercise price up to a stated
expiration date or, in the case of certain options, on such date. Upon
exercise of the option by the holder, the contract market clearing house
establishes a corresponding short position for the writer of the option, in
the case of a call option, or a corresponding long position, in the case of a
put option. In the event that an option is exercised, the parties will be
subject to all the risks associated with the trading of futures contracts,
such as payment of variation margin deposits. In addition, the writer of an
option on a futures contract, unlike the holder, is subject to initial and
variation margin requirements on the option position.
A position in an option on a futures contract may be terminated by the
purchaser or the seller prior to expiration by affecting a closing purchase
or sale transaction, subject to the availability of a liquid secondary
market, which is the purchase or sale of an option of the same series (i.e.,
the same exercise price and expiration date) as the option previously
purchased or sold. The difference between the premiums paid and received
represents the trader's profit or loss on the transaction.
Options on futures contracts that are written or purchased by the Funds
on United States exchanges are traded on the same contract market as the
underlying futures contract and, like futures contracts, are subject to
regulation by the CFTC and the performance guarantee of the exchange clearing
house. In addition, options on futures contracts may be traded on foreign
exchanges.
Risks of Futures Contracts and Options on Futures Contracts. The use
of futures contracts and options on futures contracts will expose the Funds
to additional investment risks and transactions costs. Risks include:
? the risk that interest rates, securities prices or currency markets will
not move in the direction that the Fund's investment adviser or sub-
adviser anticipates;
? an imperfect correlation between the price of the instrument and movements
in the prices of any securities or currencies being hedged;
? the possible absence of a liquid secondary market for any particular
instrument and possible exchange imposed price fluctuation limits;
? leverage risk, which is the risk that adverse price movements in an
instrument can result in a loss substantially greater than a Fund's
initial investment in that instrument; and
? the risk that the counterparty to an instrument will fail to perform its
obligations.
Regulatory Matters. To the extent required to comply with applicable
Securities and Exchange Commission releases and staff positions, when
entering into futures contracts each Fund will maintain, in a segregated
account, cash or liquid securities equal to the value of such contracts.
The CFTC, a federal agency, regulates trading activity on the exchanges
pursuant to the Commodity Exchange Act, as amended. The CFTC requires the
registration of "commodity pool operators," defined as any person engaged in
a business which is of the nature of a company, syndicate or a similar form
of enterprise, and who, in connection therewith, solicits, accepts or
receives from others, funds, securities or property for the purpose of
trading in any commodity for future delivery on or subject to the rules of
any contract market. The CFTC has adopted Rule 4.5, which provides an
exclusion from the definition of commodity pool operator for any registered
investment company which meets the requirements of the Rule. Rule 4.5
requires, among other things, that an investment company wishing to avoid
commodity pool operator status use futures and options positions only (a) for
"bona fide hedging purposes" (as defined in CFTC regulations) or (b) for
other purposes so long as aggregate initial margins and premiums required in
connection with non-hedging positions do not exceed 5% of the liquidation
value of the investment company's portfolio. Any investment company wishing
to claim the exclusion provided in Rule 4.5 must file a notice of eligibility
with both the CFTC and the National Futures Association. Before engaging in
transactions involving interest rate futures contracts, the Funds will file
such notices and meet the requirements of Rule 4.5, or such other
requirements as the CFTC or its staff may from time to time issue, in order
to render registration as a commodity pool operator unnecessary.
For examples of futures contracts and their tax treatment, see Appendix
B to this Statement of Additional Information.
Options
Each Fund may write (i.e., sell) covered call and secured put options
and purchase and sell put and call options written by others. Each Fund will
limit the total market value of securities against which it may write call or
put options to 20% of its total assets. In addition, no Fund will commit
more than 5% of its total assets to premiums when purchasing put or call
options.
A put option gives the purchaser the right to sell a security or other
instrument to the writer of the option at a stated price during the term of
the option. A call option gives the purchaser the right to purchase a
security or other instrument from the writer of the option at a stated price
during the term of the option. Thus, if a Fund writes a call option on a
security, it becomes obligated during the term of the option to deliver the
security underlying the option upon payment of the exercise price. If a Fund
writes a put option, it becomes obligated during the term of the option to
purchase the security underlying the option at the exercise price if the
option is exercised.
Funds may use put and call options for a variety of purposes. For
example, if a portfolio manager wishes to hedge a security a Fund owns
against a decline in price, the manager may purchase a put option on the
underlying security; i.e., purchase the right to sell the security to a third
party at a stated price. If the underlying security then declines in price,
the manager can exercise the put option, thus limiting the amount of loss
resulting from the decline in price. Similarly, if the manager intends to
purchase a security at some date in the future, the manager may purchase a
call option on the security today in order to hedge against an increase in
its price before the intended purchase date. Put and call options also can
be used for speculative purposes. For example, if a portfolio manager
believes that the price of stocks generally is going to rise, the manager may
purchase a call option on a stock index, the components of which are
unrelated to the stocks held or intended to be purchased. Finally, a
portfolio manager may write options on securities owned in order to realize
additional income. Funds receive premiums from writing call or put options,
which they retain whether or not the options are exercised.
By writing a call option, a Fund might lose the potential for gain on
the underlying security while the option is open, and by writing a put option
a Fund might become obligated to purchase the underlying security for more
than its current market price upon exercise. If a Fund purchases a put or
call option, any loss to the Fund is limited to the premium paid for, and
transaction costs paid in connection with, the option.
Options on Securities. An option on a security provides the purchaser,
or "holder," with the right, but not the obligation, to purchase, in the case
of a "call" option, or sell, in the case of a "put" option, the security or
securities underlying the option, for a fixed exercise price up to a stated
expiration date or, in the case of certain options, on such date. The holder
pays a nonrefundable purchase price for the option, known as the "premium."
The maximum amount of risk the purchaser of the option assumes is equal to
the premium plus related transaction costs, although this entire amount may
be lost. The risk of the seller, or "writer," however, is potentially
unlimited, unless the option is "covered." A call option written by a Fund
is "covered" if the Fund owns the underlying security covered by the call or
has an absolute and immediate right to acquire that security without
additional cash consideration (or for additional cash consideration held in a
segregated account by its custodian) upon conversion or exchange of other
securities held in its portfolio. A call option is also covered if the Fund
holds a call on the same security and in the same principal amount as the
call written where the exercise price of the call held (a) is equal to or
less than the exercise price of the call written or (b) is greater than the
exercise price of the call written if the difference is maintained by the
Fund in cash and liquid securities in a segregated account with its
custodian. A put option written by a Fund is "covered" if the Fund maintains
cash and liquid securities with a value equal to the exercise price in a
segregated account with its custodian, or else holds a put on the same
security and in the same principal amount as the put written where the
exercise price of the put held is equal to or greater than the exercise price
of the put written. If the writer's obligation is not so covered, it is
subject to the risk of the full change in value of the underlying security
from the time the option is written until exercise.
Upon exercise of the option, the holder is required to pay the purchase
price of the underlying security, in the case of a call option, or to deliver
the security in return for the purchase price in the case of a put option.
Conversely, the writer is required to deliver the security, in the case of a
call option, or to purchase the security, in the case of a put option.
Options on securities which have been purchased or written may be closed out
prior to exercise or expiration by entering into an offsetting transaction on
the exchange on which the initial position was established, subject to the
availability of a liquid secondary market.
Options on securities and options on indexes of securities, discussed
below, are traded on national securities exchanges, such as the Chicago Board
Options Exchange and the New York Stock Exchange, which are regulated by the
SEC. The Options Clearing Corporation guarantees the performance of each
party to an exchange-traded option, by in effect taking the opposite side of
each such option. A holder or writer may engage in transactions in exchange-
traded options on securities and options on indexes of securities only
through a registered broker-dealer which is a member of the exchange on which
the option is traded.
In addition, options on securities and options on indexes of securities
may be traded on exchanges located outside the United States and over-the-
counter through financial institutions dealing in such options as well as the
underlying instruments. While exchange-traded options have a continuous
liquid market, over-the-counter options may not.
Options on Stock Indexes. In contrast to an option on a security, an
option on a stock index provides the holder with the right to make or receive
a cash settlement upon exercise of the option, rather than the right to
purchase or sell a security. The amount of this settlement is equal to (a)
the amount, if any, by which the fixed exercise price of the option exceeds
(in the case of a call) or is below (in the case of a put) the closing value
of the underlying index on the date of exercise, multiplied by (b) a fixed
"index multiplier." The purchaser of the option receives this cash
settlement amount if the closing level of the stock index on the day of
exercise is greater than, in the case of a call, or less than, in the case of
a put, the exercise price of the option. The writer of the option is
obligated, in return for the premium received, to make delivery of this
amount if the option is exercised. As in the case of options on securities,
the writer or holder may liquidate positions in stock index options prior to
exercise or expiration by entering into closing transactions on the exchange
on which such positions were established, subject to the availability of a
liquid secondary market.
A Fund will cover all options on stock indexes by owning securities
whose price changes, in the opinion of the Fund's adviser or sub-adviser, are
expected to be similar to those of the index, or in such other manner as may
be in accordance with the rules of the exchange on which the option is traded
and applicable laws and regulations. Nevertheless, where a Fund covers a
call option on a stock index through ownership of securities, such securities
may not match the composition of the index. In that event, the Fund will not
be fully covered and could be subject to risk of loss in the event of adverse
changes in the value of the index. The Funds will secure put options on
stock indexes by segregating assets equal to the option's exercise price, or
in such other manner as may be in accordance with the rules of the exchange
on which the option is traded and applicable laws and regulations.
The index underlying a stock option index may be a "broad-based" index,
such as the Standard & Poor's 500 Index or the New York Stock Exchange
Composite Index, the changes in value of which ordinarily will reflect
movements in the stock market in general. In contrast, certain options may
be based upon narrower market indexes, such as the Standard & Poor's 100
Index, or on indexes of securities of particular industry groups, such as
those of oil and gas or technology companies. A stock index assigns relative
values to the stocks included in the index and the index fluctuates with
changes in the market values of the stocks so included.
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
Each Fund, for the purpose of realizing additional income, may make
secured loans of portfolio securities amounting to not more than one-third of
their respective total assets (which, for purposes of this limitation, will
include the value of collateral received in return for securities loaned).
Collateral received in connection with securities lending shall not be
considered Fund assets, however, for purposes of compliance with any
requirement described in a Fund's prospectus that the Fund invest a specified
minimum percentage of its assets in certain types of securities (e.g.,
securities of small companies). 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.
Restricted and Illiquid Securities
Each Fund may invest up to 15% of its 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 and sub-adviser believe
that a similar market exists for commercial paper issued pursuant to the
private placement exemption of Section 4(2) of the 1933 Act and for certain
interest-only and principal-only classes of mortgage-backed and asset-backed
securities. The Fund may invest without limitation in these forms of
restricted securities if such securities are deemed by the Fund's investment
adviser or sub-adviser to be liquid in accordance with standards established
by the Fund's Board of Directors. Under these guidelines, the Fund's
investment adviser or sub-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.
If through the appreciation of restricted securities or the
depreciation of unrestricted securities, the Fund is in a position where more
than 15% of its net assets are invested in restricted and other illiquid
securities, the Fund will take appropriate steps to protect liquidity.
Repurchase Agreements
Each 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 and Real Estate Securities Fund each may invest in
warrants. 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 10% 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. No more than 5% of a Fund's total assets may be
invested in any one DR. 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
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.
When-Issued Securities and Forward Commitments
The Real Estate Securities Fund may purchase securities offered on a
"when-issued" basis and may purchase or sell securities on a "forward
commitment" basis. When such transactions are negotiated, the price, which
is generally expressed in yield terms, is fixed at the time the commitment is
made, but delivery and payment for the securities takes place at a later
date. Normally, the settlement date occurs within two months after the
transaction, but delayed settlements beyond two months may be negotiated.
During the period between a commitment to purchase by the Fund and
settlement, no payment is made for the securities purchased by the Fund and,
thus, no interest accrues to the Fund from the transaction.
The use of when-issued transactions and forward commitments enables the
Fund to hedge against anticipated changes in interest rates and prices. For
instance, in periods of rising interest rates and falling prices, the Fund
might sell securities in its portfolio on a forward commitment basis to limit
its exposure to falling prices. In periods of falling interest rates and
rising prices, the Fund might sell a security in its portfolio and purchase
the same or a similar security on a when-issued or forward commitment basis,
thereby fixing the purchase price to be paid on the settlement date at an
amount below that to which the Fund anticipates the market price of such
security to rise and, in the meantime, obtaining the benefit of investing the
proceeds of the sale of its portfolio security at currently higher cash
yields. Of course, the success of this strategy depends upon the ability of
the Fund's investment adviser to correctly anticipate increases and decreases
in interest rates and prices of securities. If the Fund's investment adviser
anticipates a rise in interest rates and a decline in prices and,
accordingly, the Fund sells securities on a forward commitment basis in order
to hedge against falling prices, but in fact interest rates decline and
prices rise, the Fund will have lost the opportunity to profit from the price
increase. If the investment adviser anticipates a decline in interest rates
and a rise in prices, and, accordingly, the Fund sells a security in its
portfolio and purchases the same or a similar security on a when-issued or
forward commitment basis in order to enjoy currently high cash yields, but in
fact interest rates increase and prices fall, the Fund will have lost the
opportunity to profit from investment of the proceeds of the sale of the
security at the increased interest rates. The likely effect of this hedging
strategy, whether the Fund's investment adviser is correct or incorrect in
its prediction of interest rate and price movements, is to reduce the chances
of large capital gains or losses and thereby reduce the likelihood of wide
variations in the Fund's net asset value.
When-issued securities and forward commitments may be sold prior to the
settlement date, but the Fund enters into when-issued and forward commitments
only with the intention of actually receiving or delivering the securities,
as the case may be. The Fund may hold a when-issued security or forward
commitment until the settlement date, even if the Fund will incur a loss upon
settlement. To facilitate transactions in when-issued securities and forward
commitments, the Fund's custodian bank maintains, in a separate account of
the Fund, liquid assets, such as cash, short-term securities and other liquid
securities (marked to the market daily), having a value equal to, or greater
than, any commitments to purchase securities on a when-issued or forward
commitment basis and, with respect to forward commitments to sell portfolio
securities of the Fund, the portfolio securities themselves. If the Fund,
however, chooses to dispose of the right to acquire a when-issued security
prior to its acquisition or dispose of its right to deliver or receive
against a forward commitment, it can incur a gain or loss. (At the time the
Fund makes the commitment to purchase or sell a security on a when-issued or
forward commitment basis, it records the transaction and reflects the value
of the security purchased or, if a sale, the proceeds to be received, in
determining its net asset value.)
The purchase of securities on a when-issued or forward commitment basis
exposes the Fund to risk because the securities may decrease in value prior
to their delivery. Purchasing securities on a when-issued or forward
commitment basis involves the additional risk that the return available in
the market when the delivery takes place will be higher than that obtained in
the transaction itself. The Fund's purchase of securities on a when-issued
or forward commitment basis while remaining substantially fully invested
increases the amount of the Fund's assets that are subject to market risk to
an amount that is greater than the Fund's net asset value, which could result
in increased volatility of the price of the Fund's shares. No more than 30%
of the value of the Fund's total assets will be committed to when-issued or
forward commitment transactions.
Defensive Purposes
Venture Fund and Index Fund may invest up to 20% of their respective
net assets in cash or cash items. Real Estate Securities Fund may invest
approximately 5% of its 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.
In addition to the foregoing limitations, each Fund is subject to
certain "fundamental" investment restrictions, described below, 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. Each Fund is also subject to certain other
investment restrictions which are not fundamental and may be changed by vote
of the Board of Directors without further shareholder approval.
Fundamental Restrictions
1. Policy Regarding Borrowing and the Issuance of Senior Securities.
The Fund will not borrow money or issue senior securities, except
as permitted under the Investment Company Act of 1940, as
amended, and as interpreted or modified from time to time by any
regulatory authority having jurisdiction.
2. Policy Regarding Concentration in a Particular Industry.
Venture Fund.
The Fund will not concentrate its investments in a particular
industry. For purposes of this limitation, the U.S. Government,
and state or municipal governments and their political
subdivisions, are not considered members of any industry.
Whether the Fund is concentrating in an industry shall be
determined in accordance with the Investment Company Act of 1940,
as amended, and as interpreted or modified from time to time by
any regulatory authority having jurisdiction.
Index 500 Fund.
The Fund will not concentrate its investments in a particular
industry, except that the Fund may concentrate its investments in
a particular industry if the S&P 500 Index is so concentrated.
For purposes of this limitation, the U.S. Government, and state
or municipal governments and their political subdivisions, are
not considered members of any industry. Whether the Fund is
concentrating in an industry shall be determined in accordance
with the Investment Company Act of 1940, as amended, and as
interpreted or modified from time to time by any regulatory
authority having jurisdiction.
Real Estate Securities Fund.
Under normal market conditions, the Fund will concentrate its
investments in the real estate or real estate related industry.
The Fund will not concentrate its investments in any other
particular industry. For purposes of this limitation, the U.S.
Government, and state or municipal governments and their
political subdivisions, are not considered members of any
industry. Whether the Fund is concentrating in an industry shall
be determined in accordance with the Investment Company Act of
1940, as amended, and as interpreted or modified from time to
time by any regulatory authority having jurisdiction.
3. Policy Regarding Investments in Real Estate.
The Fund will not purchase or sell real estate unless acquired as
a result of ownership of securities or other instruments, but
this shall not prevent the Fund from investing in securities or
other instruments backed by real estate or interests therein or
in securities of companies that deal in real estate or mortgages.
4. Policy Regarding Investments in Commodities.
The Fund will not purchase physical commodities or contracts
relating to physical commodities.
5. Policy Regarding Lending.
The Fund may not make loans except as permitted under the
Investment Company Act of 1940, as amended, and as interpreted or
modified from time to time by any regulatory authority having
jurisdiction.
6. Policy Regarding Underwriting of Securities.
The Fund will not act as an underwriter of securities, except to
the extent that the Fund may be deemed to be an underwriter,
under the federal securities laws, in connection with the
disposition of portfolio securities.
Non-Fundamental Restrictions
7. The Fund will not acquire any new securities while borrowings,
including borrowings through reverse repurchase agreements,
exceed 5% of total assets.
8. The Fund will use futures contracts and options on futures
contracts only (a) for "bona fide hedging purposes" (as defined
in regulations of the Commodity Futures Trading Commission) or
(b) for other purposes so long as the aggregate initial margins
and premiums required in connection with non-hedging positions do
not exceed 5% of liquidation value of the Fund's portfolio.
9. The Fund may mortgage, pledge or hypothecate its assets only to
secure permitted borrowings. Collateral arrangements with
respect to futures contracts, options thereon and certain options
transactions are not considered pledges for purposes of this
limitation.
10. The Fund may not make short sales of securities, other than short
sales "against the box."
11. The Fund may not purchase securities on margin, but it may obtain
such short-term credits as may be necessary for the clearance of
securities transactions and it may make margin deposits in
connection with futures contracts.
12. The Fund will not invest more than 15% of its net assets in
illiquid securities.
13. The total market value of securities against which the Fund may
write call or put options will not exceed 20% of the Fund's total
assets. In addition, the Fund will not commit more than 5% of
its total assets to premiums when purchasing put or call options.
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, 1999, 1998 and 1997, the Fund's portfolio turnover rate
was 103.9%, 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, 1999, 1998 and 1997, the
Fund's portfolio turnover rate was 25.3%, 59.2% and 5.8%, respectively.
Real Estate Securities 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. The Fund does not emphasize short-term trading profits. For
the period ended July 31, 1999, the Fund's portfolio turnover rate was 51.5%.
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:
Position with Principal Occupation and other
Name and Address the Funds Affiliations (past 5 years)
William N. Westhoff* President and President, Treasurer and
Director,
Advantus Capital Director Advantus Capital Management,
Inc.;
Management, Inc. Senior Vice President and
Treasurer,
400 Robert Street North Minnesota Life Insurance
Company;
St. Paul, Minnesota 55101 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
Frederick P. Feuerherm* Vice President, Vice President, Assistant
Secretary and
Advantus Capital Director and Director, Advantus Capital
Management, Inc. Treasurer Management, Inc.; Vice
President,
400 Robert Street North Minnesota Life Insurance
Company;
St. Paul, Minnesota 55101 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
White Bear Lake, Manufacturing Company
(industrial
Minnesota 55110 and consumer products) through
June 1989
Charles E. Arner Director Retired, Vice Chairman of The
First
E-1430 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
__________________________________
* 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,
1999, each Director not affiliated with Advantus Capital was compensated by
the Funds in accordance with the following table:
Name of
Director
Aggregate
Compensation
from the
Funds(1)
Pension or
Retirement
Benefits
Accrued as
Part of Fund
Expenses
Estimated
Annual
Benefits Upon
Retirement
Total
Compensation
from Funds
and
Fund Complex
Paid to
Directors
Charles E.
Arner
$556.44
n/a
n/a
$20,000
Ellen S.
Berscheid
$556.44
n/a
n/a
$20,000
Ralph D.
Ebbott
$556.44
n/a
n/a
$20,000
(1) During the fiscal year ended September 30, 1999, each Director not
affiliated with Advantus Capital received $234.08 from Venture Fund, $295.67
from Index Fund and $26.69 from Real Estate Securities Fund.
As of July 31, 1999, the directors and executive officers of the Funds
did not own any shares of the Funds, with the exception of Bill Westhoff who
owned 5,996 Class A shares of Real Estate Securities Fund (1.00%).
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
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 $16.5 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.
Investment Advisory Agreement
Advantus Capital acts as investment adviser and manager of the Funds
under Investment Advisory Agreements (the "Advisory Agreements") dated May 1,
2000 for each Fund, each of which was approved by shareholders on April 17,
2000 in the case of Venture Fund and Real Estate Securities Fund, and on
April 28, 2000 in the case of Index Fund. 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 February 10, 2000. 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:
Advisory Fee as Percentage
Fund Of Average Net Assets
Venture Fund:
On the first $1 billion in assets .70%
On the next $1 billion in assets .68%
On all assets in excess of $2 billion .66%
Index Fund:
On the first $500 million in assets .34%
On the next $500 million in assets .30%
On the next $1 billion in assets .25%
On all assets in excess of $2 billion .20%
Real Estate Securities Fund:
On the first $1 billion in assets .75%
On the next $1 billion in assets .725%
On all assets in excess of $2 billion .70%
Prior to May 1, 2000, each Fund paid Advantus Capital an advisory fee, in
accordance with its prior investment advisory agreement, equal on an annual
basis to a percentage of that Fund's average daily net assets as set forth in
the following table:
Advisory Fee Paid Prior to May 1, 2000
Fund as Percentage of Average Net Assets
Venture Fund .80%
Index Fund .34%
Real Estate Securities Fund .75%
From the advisory fee received from Venture Fund, Advantus Capital pays
State Street Research & Management Company ("State Street") a sub-advisory
fee equal to .65% of the first $500 million of average daily net assets, .60%
of the next $500 million of assets, and .50% of all assets in excess of $1
billion. For purposes of applying the preceding breakpoints, the assets of
the Fund are combined with all other 'small company value' assets sub-advised
by State Street for Advantus Capital.
The fees paid by the Funds for investment advisory services during the
fiscal periods ended July 31, 1999, 1998 and 1997 (before Advantus Capital's
absorption of certain expenses, described below) were as follows:
Fund 1999 1998 1997
Venture Fund $275,254 $311,606 $125,176
Index Fund 139,480 61,186 13,820
Real Estate Securities Fund 18,842 n/a n/a
For this fee, Advantus Capital acts as investment adviser and manager
for the Funds, or, in the case of Venture Fund, pays State Street to serve as
investment sub-adviser. Effective May 1, 2000, each Fund pays its own
transfer agent and shareholder servicing expenses. Prior to that date,
Advantus Capital paid the transfer agent and shareholder servicing expenses
for Venture Fund.
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.
Under the Advisory Agreement for Venture Fund, Advantus Capital has
agreed to absorb all Fund costs and expenses which exceed 1.40% of the
average daily net assets of Class A shares, 2.25% of the average daily net
assets of Class B shares, and 2.25% of the average daily net assets of Class
C shares, through the fiscal year of the Fund ending July 31, 2001.
During the fiscal periods ended July 31, 1999, 1998 and 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:
Fund 1999 1998 1997
Venture Fund $38,804 $0 $7,397
Index Fund 229,663 162,977 70,164
Real Estate Securities Fund 46,161 n/a n/a
Venture Fund Sub-Adviser - State Street
State Street Research & Management Company ("State Street") has been
retained under an investment sub-advisory agreement to provide investment
advice and, in general, to conduct the management of the investment program
of the Venture Fund, subject to the general control of the Board of Directors
of the Fund. State Street is a registered investment adviser under the
Investment Advisers Act of 1940.
State Street, a Delaware corporation, with offices at One Financial
Center, Boston, Massachusetts 02111-2690, acts at the investment sub-adviser
to the Portfolio. State Street was founded by Paul Cabot, Richard
Saltonstall and Richard Paine to serve as investment adviser to one of the
nation's first mutual funds, presently known as State Street Research
Investment Trust, which they had formed in 1924. Their investment management
philosophy emphasized comprehensive fundamental research and analysis,
including meetings with the management of companies under consideration for
investment. State Street's portfolio management group has extensive
investment industry experience managing equity and debt securities. State
Street is an indirect wholly-owned subsidiary of Metropolitan Life Insurance
Company.
Venture Fund Investment Sub-Advisory Agreement - State Street
State Street acts as investment sub-adviser to the Venture Fund under
an Investment Sub-Advisory Agreement (the "State Street Agreement") with
Advantus Capital dated May 1, 2000 and approved by shareholders of the Fund
on April 17, 2000. The State Street Agreement was last approved for
continuance by the Board of Directors of the Fund, including a majority of
the Directors who are not a party to the State Street Agreement or interested
persons of any such party, on February 10, 2000. Prior to May 1, 2000 the
Venture Fund was managed directly by Advantus Capital. The State Street
Agreement will terminate automatically upon the termination of the Advisory
Agreement and in the event of its assignment. In addition, the State Street
Agreement is terminable at any time, without penalty, by the Board of
Directors of the Fund, by Advantus Capital or by vote of a majority of the
Venture Fund's outstanding voting securities on 60 days' written notice to
State Street, and by State Street on 60 days' written notice to Advantus
Capital. Unless sooner terminated, the State Street Agreement shall continue
in effect from year to year if approved at least annually either by the Board
of Directors of the Fund or by a vote of a majority of the outstanding voting
securities of the Fund, provided that in either event such continuance is
also approved by the vote of a majority of the Directors who are not
interested persons or any party to the State Street Agreement, cast in person
at a meeting called for the purpose of voting on such approval.
Code of Ethics
Advantus Capital, Ascend Financial and each of the Funds has adopted a
Code of Ethics in accordance with the Investment Company Act of 1940 and the
rules and regulations thereunder. The private investment activities of
personnel covered by the Code of Ethics are restricted in accordance with the
Code's provisions, but, subject to such provisions, personnel may invest in
securities, including securities that may be purchased or held by the Funds.
Distribution Agreement
The Board of Directors of each Fund, on January 25, 2000, 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 periods ended July 31, 1999, 1998 and 1997, the
commissions received by Ascend Financial under the Distribution Agreements
with respect to shares of all classes were as follows:
Fund 1999 1998 1997
Venture Fund $22,764 $174,716 $47,978
Index Fund 149,932 225,676 73,332
Real Estate Securities Fund 563 n/a n/a
During the same period Ascend Financial retained from these commissions
the following amounts:
Fund 1999 1998 1997
Venture Fund $1,323 $0 $15,344
Index Fund 0 0 16,544
Real Estate Securities Fund 0 n/a n/a
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 Venture Fund and Index Fund 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. Real Estate Securities Fund has a single class of
shares (Class A) and has also adopted a Plan of Distribution pursuant to Rule
12b-1. 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:
Rule 12b-1 Fee as Percentage
of Average Daily Net Assets Attributable to
Fund Class A Shares Class B Shares Class C
Shares
Venture Fund 0.25% 1.00% 1.00%
Index Fund 0.25% 1.00% 1.00%
Real Estate Securities Fund 0.25% n/a n/a
Such fees are used for distribution-related services for Class B and C
shares in Venture Fund and Index Fund and for servicing of shareholder
accounts in connection with Class A, B and C shares in each of the Funds.
A portion of the Rule 12b-1 fees payable with respect to Class B and
Class C shares in Venture Fund and Index Fund 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 paid by Venture Fund and Index Fund 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 each Fund's 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 Venture Fund and Index Fund, 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. Applicable laws may 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. 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 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 25, 2000, the directors of the Funds so concluded.
During the fiscal period ended July 31, 1999, 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).
Fund Class A Class B Class C
Venture Fund $84,272 ($38,385) $32,683 $5,471
Index Fund 56,894 (25,363) 178,100 21,928
Real Estate Securities Fund 6,281 (3,769) n/a n/a
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 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
Venture Fund, Index Fund and Real Estate Securities Fund each pays its
own transfer agent expenses. Prior to May 1, 2000, Advantus Capital paid all
transfer agent expenses incurred by Venture Fund. Effective October 26,
1998, the Funds' transfer agent is PFPC Inc. ("PFPC"). Prior to that date
the Funds had engaged Minnesota Life to act as their transfer agent, dividend
disbursing agent and redemption agent. For the period from August 1, 1998 to
October 25, 1998, Index Fund paid Minnesota Life $19,223 for transfer agent
such 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
$6,200 per Fund for Index and Venture and $5,100 for Real Estate Securities.
During the fiscal period ended July 31, 1999, each Fund paid the following
amounts for such administrative services:
Fund Amount
Venture Fund $56,400
Index Fund 56,400
Real Estate Securities Fund 28,800
Effective May 1, 2000, each Fund pays its own shareholder servicing
cots. Prior to that date Advantus Capital paid the costs of providing
shareholder services to the Venture Fund. Minnesota Life currently provides
shareholder servicing to each 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 periods ended July 31, 1999, 1998 and 1997, brokerage commissions paid
were:
Fund 1999 1998 1997
Venture Fund $114,586 $60,536 $125,176
Index Fund 17,320 14,282 13,820
Real Estate Securities Fund 29,135 n/a n/a
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 period ended July 31,
1999, the Funds 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:
Aggregate Transactions Commissions Paid on
Fund Directed for Research Directed Transaction
Venture Fund $5,896,470 $98,289
Index Fund 5,074,387 2,935
Real Estate Securities Fund 550,781 26,653
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
period ended July 31, 1999 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:
Approximate
Value of Securities
Owned at End of
Fund Name of Issuer Fiscal Period
Venture Fund ----- -----
Index Fund Merrill Lynch & Company, Inc. $102,094
Lehman Brothers Holdings, Inc. 91,375
Morgan Stanley Dean Witter 228,016
Paine Webber Group, Inc. 96,000
Real Estate Securities Fund ----- -----
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
YIELD = 2[( ----- +1)6-1]
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, 1999 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.
Yield
Fund Class A Class B Class C
Venture Fund .32% (.26%) -.50% (-.56%) -.50% (-.56%)
Index Fund .52% (.28%) -.31% (-.56%) -.31% (-.56%)
Real Estate Securities Fund 3.9% 2.8%) n/a (n/a) n/a (n/a)
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:
P(1+T)n = ERV
Where: P = a hypothetical initial payment of $1,000;
T = average annual total return;
n = number of years; and
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, 1999, 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.
1 Year
Fund Class A Class B Class C
Venture Fund -9.18% (-9.39%) -9.53% (-9.63%) -4.77% (-4.88%)
Index Fund 12.58% (11.90%) 13.10% (12.54%) 18.03% (17.47%)
Real Estate Securities Fund n/a (n/a) n/a (n/a) n/a (n/a)
Since Inception
Fund Class A Class B Class C
Venture Fund(1) 5.58% (5.44%) 5.66% (5.61%) 7.03% (7.00%)
Index Fund(1) 21.11% (20.74%) 21.78% (21.46%) 22.62% (22.29%)
Real Estate Securities Fund(2) -.99% (-1.78%) n/a (n/a) n/a (n/a)
_______________
(1) Class A, Class B and Class C inception was January 31, 1997.
(2) Class A inception date was February 25, 1999.
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, 1999, was as set forth in the table below.
The cumulative total returns quoted assume that the Class A maximum 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.
Cumulative Total Return
Fund Class A Class B Class C
Venture Fund(1) 14.53% (14.15%) 14.75% (14.61%) 18.50% (18.42%)
Index Fund(1) 61.37% (60.15%) 63.61% (62.54%) 66.45% (65.33%)
Real Estate Securities Fund(2) -.99% (-1.78%) n/a (n/a) n/a (n/a)
_______________
(1) Class A, Class B and Class C inception date was January 31, 1997.
(2) Class A inception date was February 25, 1999.
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. Venture Fund
and Index Fund have also each designated 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, 1999, as set forth below.
Shares Outstanding at July 31, 1999
Fund Class A Class B Class C
Venture Fund 2,829,307 280,417 41,829
Index Fund 1,436,954 1,372,193 165,340
Real Estate Securities Fund 596,667 n/a n/a
As of July 31, 1999, 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:
Number of
Name and Address of Shareholder Shares Percentage
Venture Fund 2,516,527 79.9%
Minnesota Life and affiliates*
Index Fund 515,480 17.3%
Minnesota Life and affiliates*
Real Estate Securities Fund 519,998 87.2%
Minnesota Life and affiliates*
* 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.
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
Real Estate Securities Fund offers a single class of shares (Class A).
Venture Fund and Index Fund 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 "Sales Charges" 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 in Venture Fund and Index Fund 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
Venture Fund and Index Fund 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 PFPC, 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 (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.
Purchase by Internet
Existing Advantus Funds shareholders may also purchase shares via the
Internet, once they have established on-line authorization. Please contact
Advantus Shareholder Services at (800) 665-6005 for information on how to
establish your account.
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 PFPC. Orders
received after the close of the NYSE will be effected at the price next
determined on the next business day.
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:
Sales Charge as a Percentage of:
Offering Net Amount Amount Paid to Broker-Dealers
Value of Total Investment Price Invested as a Percentage of Offering
Price:
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*
(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 Venture Fund and Index 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:
Shares Convert
to Class A in
the Month
CDSC Applicable in Year After
Shares Purchased in an Amount 1 2 3 4 5 6 Expiration of
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
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 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:
Amount Paid to Broker-Dealers as a
Shares Purchased in an Amount Percentage of Offering Price:
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
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 Venture Fund and Index 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:
Shares Convert to Class A in the
Shares Purchased in an Amount Month After Expiration of
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
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."
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 July 31, 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 ($31,682,899) = Net Asset Value Per Share
($11.20)
Shares outstanding (2,829,307)
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:
$11.20 = Public Offering Price Per Share ($11.85)
.945(1)
Class B Shares
Net Assets ($3,115,233) = Net Asset Value and Public
Shares outstanding (280,417) Offering Price Per Share
($11.11)
Class C Shares
Net Assets ($466,587) = Net Asset Value and Public
Shares outstanding (41,829) Offering Price Per Share
($11.15)
Index Fund
Class A Shares
Net Assets ($25,498,132) = Net Asset Value Per Share
($17.74)
Shares outstanding (1,436,954)
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:
$17.74 = Public Offering Price Per Share ($18.77)
.945(1)
Class B Shares
Net Assets ($24,202,406) = Net Asset Value and Public
Shares outstanding (1,372,193) Offering Price Per Share
($17.64)
Class C Shares
Net Assets ($2,909,973) = Net Asset Value and Public
Shares outstanding (165,340) Offering Price Per Share
($17.60)
Real Estate Securities Fund
Class A Shares
Net Assets ($6,112,909) = Net Asset Value Per Share
($10.25)
Shares outstanding (596,667)
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:
$10.25 = Public Offering Price Per Share ($10.85)
.945
____________
(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.
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 shares currently held in Real
Estate Securities Fund and 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. Shares of Real
Estate Securities Fund and 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 Real Estate Securities Fund and 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 Real Estate Securities Fund and 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, 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, State Street (with respect
to Venture Fund only), 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, or shares in Real
Estate Securities Fund, including shares acquired by reinvestment of
dividends, for shares of the same class of any of the other Advantus Multiple
Class Funds or Real Estate Securities Fund (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 not to have telephone transaction privileges) or by Internet. 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 and/or
Internet transactions, 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 PFPC, 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 PFPC 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 each 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 each of the Advantus Funds other than Money Market Fund, 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.
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 Real Estate
Securities Fund and the 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.
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 is valued. If the recipient sold such securities, he
or she probably would incur brokerage charges. Each 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.
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 (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.
Internet Redemption
The Fund's shareholders may elect to perform certain transactions via the
Internet. In order to do so, you must first authorize us to transmit
information on-line and agree to our web site procedures. Please contact
Advantus Funds Shareholder Services at (800) 665-6005 for more information on
how to enable your account. Internet transactions may 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 internet 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 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 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 (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.
INTERNET TRANSACTIONS
Shareholders of the Fund are permitted to exchange or redeem the Fund's
share via the Internet. See "Exchange and Transfer of Fund Shares" and
"Redemptions" for further details. The privilege to initiate such
transactions via Internet requires that a shareholder contact Advantus at
(800) 665-6005 to enable their account.
Shareholders, or persons authorized by shareholders, may initiate
Internet transactions by going to the Advantus Funds web site,
www.advantusfunds.com. Automated service is generally available 24 hours a
day. Internet 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 via Internet is $50,000. During periods of marked economic
or market changes, shareholders may experience difficulty in implementing an
on-line exchange or redemption due to a heavy volume. In such a
circumstance, shareholders should consider submitting a written request while
continuing to attempt an on-line exchange or redemption. The Fund reserves
the right to modify, terminate or impose charges upon the Internet on-line
exchange and redemption privileges upon 60 days' prior notice to
shareholders.
The Fund will not be liable for following instructions communicated by
Internet which it reasonably believes to be genuine; provided, however, that
the Fund will employ reasonable procedures to confirm that instructions
communicated via the Internet 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 Internet transactions include requiring
shareholders to contact Advantus in order to establish their on-line account,
asking shareholders for their account number and a personal identifying
number, providing a confirmation number on-screen, at the completion of an
on-line transaction, 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'sr," "S&Pr,"
"S&P 500r," "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 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
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, 1999 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 Fund are expected
to qualify for the 70% dividend received deduction for corporations, except
that dividend distributions from the Real Estate Securities Fund attributable
to dividends that the Fund receives from REITs will not qualify for such
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 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.
The Real Estate Securities Fund may invest in REITs that hold residual
interests in real estate mortgage investment conduits ("REMICs"). Under
Treasury regulations that have not yet been issued, but may apply
retroactively, a portion of the Fund's income from a REIT that is
attributable to the REIT's residual interest in a REMIC (referred to in the
Code as an "excess inclusion") will be subject to federal income tax in all
events. These regulations are also expected to provide that excess inclusion
income of a regulated investment company, such as the Fund, will be allocated
to shareholders of the regulated investment company in proportion to the
dividends received by them with the same consequences as if the shareholders
held the related REMIC residual interest directly. In general, excess
inclusion income allocated to shareholders (i) cannot be offset by net
operating losses (subject to a limited exception for certain thrift
institutions) and (ii) will constitute unrelated business taxable income to
entities (including a qualified pension plan, an individual retirement
account, a 401K plan, a Keogh plan or other tax-exempt entity) subject to tax
on unrelated business income, thereby potentially requiring such an entity
that is allocated excess inclusion income, and otherwise might not be
required to file a tax return, to file a tax return and pay tax on some
income. In addition, if at any time during any taxable year a "disqualified
organization" (as defined in the Code) is a record holder of a share in a
regulated investment company, then the regulated investment company will be
subject to a tax equal to that portion of its excess inclusion income for the
taxable year that is allocable to the disqualified organization, multiplied
by the highest Federal income tax rate imposed on corporations.
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,
1999, 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 LLP, also appearing
therein, together with each Fund's unaudited financial statements for the
six-month period ended January 31, 2000 included in such Fund's Semi-Annual
Report to shareholders, are incorporated by reference in this Statement of
Additional Information.
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.
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.
APPENDIX B - FUTURES CONTRACTS
Example of Futures Contract Sale
The Fund would engage in a futures contract sale to maintain the income
advantage from continued holding of a long-term security while endeavoring to
avoid part or all of the loss in market value that would otherwise accompany
a decline in long-term securities prices. Assume that the market value of a
certain security in the Fund's portfolio tends to move in concert with the
futures market prices of long-term United States Treasury bonds ("Treasury
bonds"). The Fund wishes to fix the current market value of this portfolio
security until some point in the future. Assume the portfolio security has a
market value of $100, and the Fund believes that, because of an anticipated
rise in interest rates, the value will decline to $95. The Fund might enter
into futures contract sales of Treasury bonds for a price of $98. If the
market value of the portfolio security does indeed decline from $100 to $95,
the futures market price for the Treasury bonds might also decline from $98
to $93.
In that case, the $5 loss in the market value of the portfolio security
would be offset by the $5 gain realized by closing out the futures contract
sale. Of course, the futures market price of Treasury bonds might decline to
more than $93 or to less than $93 because of the imperfect correlation
between cash and futures prices mentioned above.
The Fund could be wrong in its forecast of interest rates and the
futures market price could rise above $98. In this case, the market value of
the portfolio securities, including the portfolio security being protected,
would increase. The benefit of this increase would be reduced by the loss
realized on closing out the futures contract sale.
If interest rate levels did not change prior to settlement date, the
Fund, in the above example, would incur a loss of $2 if it delivered the
portfolio security on the settlement date (which loss might be reduced by an
offsetting transaction prior to the settlement date). In each transaction,
nominal transaction expenses would also be incurred.
Example of Futures Contract Purchase
The Fund would engage in a futures contract purchase when it is not
fully invested in long-term securities but wishes to defer for a time the
purchase of long-term securities in light of the availability of advantageous
interim investments, e.g., short-term securities whose yields are greater
than those available on long-term securities. The Fund's basic motivation
would be to maintain for a time the income advantage from investing in the
short-term securities; the Fund would be endeavoring at the same time to
eliminate the effect of all or part of the increases in market price of the
long-term securities that the Fund may purchase.
For example, assume that the market price of a long-term security that
the Fund may purchase, currently yielding 10%, tends to move in concert with
futures market prices of Treasury bonds. The Fund wishes to fix the current
market price (and thus 10% yield) of the long-term security until the time
(four months away in this example) when it may purchase the security.
Assuming the long-term security has a market price of $100, and the
Fund believes that, because of an anticipated fall in interest rates, the
price will have risen to $105 (and the yield will have dropped to about 9-
1/2%) in four months, the Fund might enter into futures contracts purchases
of Treasury bonds for a price of $98. At the same time, the Fund would
assign a pool of investments in short-term securities that are either
maturing in four months or earmarked for sale in four months, for purchase of
the long-term security at an assumed market price of $100. Assume these
short-term securities are yielding 15%. If the market price of the long-term
bond does indeed rise from $100 to $105, the futures market price for
Treasury bonds might also rise from $98 to $103. In that case, the $5
increase in the price that the Fund pays for the long-term security would be
offset by the $5 gain realized by closing out the futures contract purchase.
The Fund could be wrong in its forecast of interest rates; long-term
interest rates might rise to above 10%, and the futures market price could
fall below $98. If short-term rates at the same time fall to 10% or below,
it is possible that the Fund would continue with its purchase program for
long-term securities. The market prices of available long-term securities
would have decreased. The benefit of this price decrease, and thus yield
increase, will be reduced by the loss realized on closing out the futures
contract purchase.
If, however, short-term rates remained above available long-term rates,
it is possible that the Fund would discontinue its purchase program for long-
term securities. The yields on short-term securities in the portfolio,
including those originally in the pool assigned to the particular long-term
security, would remain higher than yields on long-term bonds. The benefit of
this continued incremental income will be reduced by the loss realized on
closing out the futures contract purchase.
In each transaction, nominal transaction expenses would also be
incurred.
Tax Treatment
The amount of any gain or loss realized by the Fund on closing out a
futures contract may result in a capital gain or loss for federal income tax
purposes. Generally, futures contracts held by the Fund at the close of the
Fund's taxable year will be treated for federal income tax purposes as sold
for their fair market value on the last business day of such year. Forty
percent of any gain or loss resulting from such constructive sale will be
treated as short-term capital gain or loss and 60 percent of such gain or
loss will be treated as long-term capital gain or loss. The amount of any
capital gain or loss actually realized by the Fund in a subsequent sale or
other disposition of these futures contracts will be adjusted to reflect any
capital gain or loss taken into account by the Fund in a prior year as a
result of the constructive sale of the contract. Notwithstanding the rules
described above, with respect to futures contracts which are part of futures
contract sales, and in certain other situations, the Fund may make an
election which may have the effect of exempting all or a part of those
identified future contracts from being treated for federal income tax
purposes as sold on the last business day of the Fund's taxable year; all or
part of any gain or loss otherwise realized by the Fund on any closing
transaction may be deferred until all of the Fund's positions with respect to
the futures contract sales are closed; and, all or part of any gain or loss
may be treated as short-term capital gain or loss.
Under the Federal income tax provisions applicable to regulated
investment companies, at least 90% of the Fund's annual gross income must be
derived from dividends, interest, payments with respect to loans of
securities, and gains from the sale or other disposition of securities
("qualifying income"). Under the Internal Revenue Code of 1986, as amended
(the "Code"), the Fund may include gains from forward contracts in
determining qualifying income. In addition, in order that the Fund continue
to qualify as a regulated investment company for Federal income tax purposes,
less than 30% of its gross income for any year must be derived from gains
realized on the sale or other disposition of securities held by the Fund for
less than three months. For this purpose, the Fund will treat gains realized
on the closing out of futures contracts as gains derived from the sale of
securities. This treatment could, under certain circumstances, require the
Fund to defer the closing out of futures contracts until after three months
from the date the fund acquired the contracts, even if it would be more
advantageous to close out the contracts prior to that time. However, under
the Code, a special rule is provided with respect to certain hedging
transactions which has the effect of allowing the Fund to engage in such
short-term transactions in limited circumstances. Any gains realized by the
Fund as a result of the constructive sales of futures contacts held by the
Fund at the end of its taxable year, as described in the preceding paragraph,
will in all instances be treated as derived from the sale of securities held
for three months or more, regardless of the actual period for which the Fund
has held the futures contracts at the end of the year.
1
A-3
B-1
