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File Numbers 333-68669 and 811-09139
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 X
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Pre-Effective Amendment Number
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Post-Effective Amendment Number 2
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and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 X
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Amendment Number 2
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ADVANTUS REAL ESTATE SECURITIES FUND, INC.
(Exact Name of Registrant as Specified in Charter)
400 ROBERT STREET NORTH, ST. PAUL, MINNESOTA 55101
(Address of Principal Executive Offices)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (651) 665-3826
ERIC J. BENTLEY, 400 ROBERT STREET NORTH, ST. PAUL, MINNESOTA 55101
(Name and Address of Agent for Service)
Copy to:
Michael J. Radmer, Esquire
Dorsey & Whitney LLP
220 South Sixth Street
Minneapolis, Minnesota 55402-1498
IT IS PROPOSED THAT THIS FILING WILL BECOME EFFECTIVE (check appropriate box)
immediately upon filing pursuant to paragraph (b)
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--- on (date) pursuant to paragraph (b)
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60 days after filing pursuant to paragraph (a)(1)
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X on May 1, 2000 pursuant to paragraph (a)(1)
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75 days after filing pursuant to paragraph (a)(2)
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on (date) pursuant to paragraph (a)(2) of Rule 485.
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IF APPROPRIATE, CHECK THE FOLLOWING BOX:
this post-effective amendment designates a new effective date
--- for a previously filed post-effective amendment.
<PAGE>
REAL ESTATE
As with all mutual funds, the Securities and Exchange Commission
has not determined that the information in this prospectus is
accurate or complete, nor has it approved the Fund's securities.
It is a criminal offense to state otherwise.
ADVANTUS REAL ESTATE SECURITIES FUND, INC.
PROSPECTUS DATED MAY 1, 2000
[LOGO]
[GRAPHIC]
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ADVANTUS REAL ESTATE SECURITIES FUND, INC.
Advantus Real Estate Securities Fund, Inc. (Fund) is a mutual fund that offers a
single class of shares. This prospectus provides you information about the Fund
you should know before investing. The Fund is a member of the Advantus family of
funds (the Advantus Funds). The Advantus Funds, other than the Fund and the
Advantus Money Market Fund, Inc., are referred to as "Advantus Multiple
Class Funds."
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page No.
<S> <C>
THE FUND - SUMMARY ................................. 3
Investment Objective and Policies ........... 3
Main Risks .................................. 3
Fund Performance ............................ 4
Fees and Expenses ........................... 4
FINANCIAL HIGHLIGHTS ............................... 6
INVESTING IN THE FUND .............................. 7
Managing the Fund ........................... 7
Investment Objective, Policies and
Practices ................................... 7
Defining Risks .............................. 9
BUYING AND SELLING SHARES .......................... 12
Sales and Distribution Charges .............. 12
Reducing Sales Charges ...................... 13
Buying Shares ............................... 14
Selling Shares .............................. 15
Exchanging Shares ........................... 16
Telephone Transactions ...................... 17
Internet Transactions ....................... 17
GENERAL INFORMATION ................................ 18
Dividends and Capital Gains Distributions ... 18
Taxes ....................................... 18
Service Providers ........................... 20
Advantus Family of Funds .................... 23
Additional Information About the Fund ....... 24
How to Obtain Additional Information ........ 24
</TABLE>
<PAGE>
[GRAPHIC]
THE FUND - SUMMARY
Advantus Real Estate Securities Fund, Inc. (Real Estate Securities Fund) is an
open-end, diversified investment company, commonly called a mutual fund.
This section gives you a brief summary of the Fund's investment policies,
practices and main risks, as well as performance and fee information. More
detailed information about the Fund follows this summary.
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FOR YOUR INFORMATION
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A mutual fund is an investment company that invests the money of many people in
a variety of securities to seek a specific objective over time. An open-end
mutual fund buys back an investor's shares at the fund's current net asset
value.
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REFERENCE POINT
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Please see "Investing in the Fund - Defining Risks" for a more detailed
description of these main risks and additional risks in connection with
investing in the Fund.
For more information on Fund portfolio turnover, see "General
Information - Taxes."
INVESTMENT OBJECTIVE AND POLICIES
REAL ESTATE SECURITIES FUND seeks total return through a combination of capital
appreciation and current income.
Under normal circumstances, at least 65% of the Fund's total assets will be
invested in real estate and real estate-related securities. "Real estate
securities" include securities issued by companies that receive at least 50% of
their gross revenue from the construction, ownership, management, financing or
sale of residential, commercial or industrial real estate. "Real estate-related
securities" include securities issued by companies engaged in businesses that
sell or offer products or services that are closely related to the real estate
industry.
Most of the Fund's real estate securities portfolio will consist of securities
issued by Real Estate Investment Trusts (REITs) that are listed on a securities
exchange or traded over-the-counter. A REIT is a corporation or trust that
invests in fee or leasehold ownership of real estate, mortgages or shares issued
by other REITs. In selecting securities, factors such as an issuer's financial
condition, financial performance, policies and strategies and competitive market
condition are considered by the Fund's investment adviser.
MAIN RISKS
Keep in mind that an investment in the Fund is not a deposit of a bank and is
not insured or guaranteed by the Federal Deposit Insurance Corporation or any
other governmental agency and that it is possible to lose money by investing in
the Fund. You should also note that if the Fund makes frequent changes in its
portfolio securities, such changes may result in higher Fund costs and may
adversely affect your return. An investment in the Fund may be subject to
various risks including the following types of main risk:
- MARKET RISK - the risk that equity securities are subject to adverse
trends in equity markets
- FUND RISK - the risk that Fund performance may not meet or exceed that of
the market as a whole
- REAL ESTATE RISK - the risk that the value of the Fund's investments may
decrease due to a variety of factors related to the construction,
development, ownership, financing, repair or servicing or other events
affecting the value of real estate, buildings or other real estate
fixtures
- REIT-RELATED RISK - the risk that the value of the Fund's equity
securities issued by REITs (as discussed in "Investing in the
Fund - Investment Objective, Policies and Practices" below) will be
adversely affected by changes in the value of the underlying property
THE FUND - SUMMARY 3
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FUND PERFORMANCE
Performance data is not presented inasmuch as the Fund does not as yet have
annual returns for a full calendar year.
FEES AND EXPENSES
Investors pay fees and expenses in connection with investing in the Fund. This
table describes the fees and expenses that you may pay if you buy and hold
shares of the Fund.
<TABLE>
<CAPTION>
<S> <C> <C>
SHAREHOLDER FEES
(fees paid directly from your
investment)
Maximum Sales Charge on Purchases
(as a percentage of offering price) % 5.50
Maximum Deferred Sales Charge
(as a percentage of sales proceeds) % 1.00(a)
Exchange Fees
-On First Twelve Exchanges Each Year none
-On Each Additional Exchange $ 7.50
ANNUAL FUND OPERATING EXPENSES
(expenses that are deducted from
Fund assets)
Management Fees % 0.75
Rule 12b-1 Fees % 0.25
Other Expenses % 2.18
TOTAL ANNUAL FUND OPERATING EXPENSES % 3.18
Fees and Expenses Waived or Absorbed (b) % 1.68
Net Expenses % 1.50
</TABLE>
(a) Applies only to purchases of at least $1 million, in which case a
contingent deferred sales charge of 1.00% will be imposed if such
shares are sold within one year after the date of purchase.
(b) Advantus Capital Management, Inc. (Advantus Capital), the Fund's
investment adviser, has voluntarily agreed to absorb "other expenses",
excluding investment advisory fees and Rule 12b-1 fees, in excess of
.65% of the average net assets of the Fund. Ascend Financial Services,
Inc. (Ascend Financial), the Fund's underwriter, has voluntarily
agreed to waive Rule 12b-1 fees in excess of .10% of the average net
assets of the Fund. After such absorption and waiver, the Fund's total
operating expenses will equal 1.50% of average net assets. Advantus
Capital and Ascend Financial reserve the right to discontinue such
absorption or waiver, respectively, at any time at their sole
discretion.
4 THE FUND - SUMMARY
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EXAMPLE
This example is intended to help you compare the costs of investing in the Fund
with the cost of investing in other mutual funds.
The example assumes that you invest $10,000 in the Fund for the time periods
indicated and then redeem all of your shares at the end of those periods. The
example also assumes that your investment has a 5% return each year and that the
Fund's operating expenses remain the same. Although your actual costs may be
higher or lower, based on these assumptions, your costs would be:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
<S> <C><C> <C> <C> <C>
Real Estate Securities
Fund $ 853 1,476 2,122 3,843
</TABLE>
THE FUND - SUMMARY 5
<PAGE>
[GRAPHIC]
FINANCIAL HIGHLIGHTS
The following table describes the Fund's performance for the fiscal period
indicated. "Total return" shows how much your investment in the Fund would have
increased (or decreased) during the period, assuming you had reinvested all
dividends and distributions. These figures have been audited by KPMG LLP, the
Fund's independent auditor, whose report, along with the Fund's financial
statements, are included in the annual report, which is available upon request.
Per share data for a share of capital stock and selected information for each
period are as follows:
<TABLE>
FINANCIAL HIGHLIGHTS CLASS A
Period From
February 25,
1999(d) to
July 31,
1999
<S> <C><C>
Net Asset Value, Beginning of Period $ 10.02
INCOME FROM INVESTMENT OPERATIONS:
Net Investment Income .18
Net Gains on Securities (both realized
and unrealized) .31
Total from Investment Operations .49
LESS DISTRIBUTIONS:
Dividends from Net Investment Income (.18)
In Excess of Net Investment Income (.08)
Total Distributions (.26)
Net Asset Value, End of Period $ 10.25
Total Return (a) % 4.78
Net Assets, End of Period (in thousands) $ 6,113
Ratio of Expenses to Average Daily Net
Assets (c) % 1.50(b)
Ratio of Net Investment Income to Average Daily Net Assets (c) % 4.09(b)
Portfolio Turnover Rate (excluding
short-term securities) % 51.5
</TABLE>
(a) Total return figures are based on a share outstanding throughout
the period and assume reinvestment of distributions at net asset
value. Total return figures do not reflect the impact of
front-end sales charges. For periods less than one year, total
return presented has not been annualized.
(b) Adjusted to an annual basis.
(c) The Fund's Distributor and Adviser voluntarily waived and
absorbed $41,991 in expenses for the period February 25, 1999 to
July 31, 1999. If Class A shares had been charged for these
expenses, the ratio of expenses to average daily net assets would
have been 3.18%, and the ratio of net investment income to
average daily net assets would have been 2.41%.
(d) Date shares of the Fund were effectively registered under the
Securities Exchange Act of 1933.
6 FINANCIAL HIGHLIGHTS
<PAGE>
[GRAPHIC]
INVESTING IN THE FUND
MANAGING THE FUND
The investment adviser of the Fund is Advantus Capital Management, Inc.
(Advantus Capital), 400 Robert Street North, St. Paul, Minnesota 55101. Since
its inception in 1994, Advantus Capital has provided investment advisory
services for the Fund and other Advantus Funds, and has managed investment
portfolios for various private accounts. With more than $14 billion of assets
under management, Advantus Capital manages the Fund's investments and furnishes
all necessary office facilities, equipment and personnel for servicing the
Fund's investments. Advantus Capital is a wholly-owned subsidiary of Minnesota
Life Insurance Company (Minnesota Life), which was organized in 1880 and has
assets on a consolidated basis of more than $16.5 billion. Personnel of Advantus
Capital also manage Minnesota Life's investment portfolio. Minnesota Life is a
third-tier subsidiary of a mutual insurance holding company called Minnesota
Mutual Companies, Inc. In addition, Minnesota Life, through its Advantus
Shareholder Services division, serves as shareholder and administrative services
agent to the Fund.
The Fund pays Advantus Capital an advisory fee calculated on an annual basis
equal to 0.75% of its first $1 billion of average daily net assets, 0.725% of
the next $1 billion of assets, and 0.70% of all assets in excess of $2 billion.
Joseph R. Betlej has served as the portfolio manager of the Fund since its
inception. Mr. Betlej has also served as a Vice President of Advantus Capital
since September 1996. Mr. Betlej has served as a portfolio manager at Advantus
Capital managing the real estate securities portfolio for Advantus
Series Fund, Inc. since May 1998, and managing other private real estate
securities accounts since May 1996. Mr. Betlej previously served as an
investment officer and real estate analyst at Advantus Capital and its
predecessor, MIMLIC Asset Management Company, since 1987.
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FOR YOUR INFORMATION
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One of the advantages of investing in mutual funds is continuous professional
management of your investment. Skilled, experienced professionals manage the
Fund's assets.
Joseph Betlej holds a bachelor's degree in architecture from the University of
Minnesota and a master's degree in real estate appraisal and investment analysis
from the University of Wisconsin. Mr. Betlej is a Chartered Financial Analyst.
INVESTMENT OBJECTIVE, POLICIES AND PRACTICES
The Fund seeks total return through a combination of capital appreciation and
current income.
Under normal circumstances, at least 65% of the Fund's total assets will be
invested in real estate and real estate-related securities. The Fund will
primarily invest in real estate and real estate-related equity securities
(including securities convertible into equity securities). The Fund does not
invest directly in real estate. "Real estate securities" include securities
issued by companies that receive at least 50% of their gross revenue from the
construction, ownership, management, financing or sale of residential,
commercial or industrial real estate. Real estate securities issuers typically
include real estate investment trusts (REITs), real estate brokers and
developers, real estate holding companies and publicly traded limited
partnerships.
INVESTING IN THE FUND 7
<PAGE>
"Real estate-related securities" include securities issued by companies engaged
in businesses that sell or offer products or services that are closely related
to the real estate industry. Real estate-related securities issuers typically
include construction and related building companies, manufacturers and
distributors of building supplies, financial institutions that issue or service
mortgages and resort companies.
Most of the Fund's real estate securities portfolio will consist of securities
issued by REITs that are listed on a securities exchange or traded
over-the-counter. A REIT is a corporation or trust that invests in fee or
leasehold ownership of real estate, mortgages or shares issued by other REITs.
REITs may be characterized as equity REITs (i.e., REITs that primarily invest in
fee ownership and leasehold ownership of land), mortgage REITs (i.e., REITs that
primarily invest in mortgages on real estate) or hybrid REITs which invest in
both fee and leasehold ownership of land and mortgages. The Fund mostly invests
in equity REITs but also invests lesser portions of its assets in mortgage REITs
and hybrid REITs. A REIT that meets the applicable requirements of the Internal
Revenue Code of 1986 may deduct dividends paid to shareholders, effectively
eliminating any corporate level federal tax. As a result, REITs distribute a
larger portion of their earnings to investors than other corporate entities
subject to the federal corporate tax.
The Fund may invest in securities of issuers of any size, including issuers with
small, medium or large market capitalizations. Advantus Capital assesses an
investment's potential for sustainable earnings growth over time. In selecting
securities, Advantus Capital considers factors such as an issuer's financial
condition, financial performance, quality of management, policies and
strategies, real estate properties and competitive market position.
In addition, the Fund may invest lesser portions of its assets in securities
issued by companies outside of the real estate industry. The Fund may also
invest in non-real estate-related equity securities, convertible debt
securities, investment-grade fixed income securities, securities of other mutual
funds, repurchase agreement transactions, restricted and illiquid securities,
stock index futures contracts, options (the Fund may purchase, sell and write
put and call options), American Depositary Receipts, securities purchased on a
when issued or forward commitment basis, and money market securities. To
generate additional income, the Fund may lend securities representing up to
one-third of the value of its total assets to broker-dealers, banks and other
institutions.
In an attempt to respond to adverse market, economic, political or other
conditions, the Fund may invest for temporary defensive purposes in various
short-term cash and cash equivalent items. When investing for temporary
defensive purposes, the Fund may not always achieve its investment objective.
You can find a description of these securities in the Statement of Additional
Information.
8 INVESTING IN THE FUND
<PAGE>
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FOR YOUR INFORMATION
- --------------------
In order to make informed decisions, investors must be aware of both the risks
and rewards associated with investing. Not only should you understand the risks
associated with your investments, but you must be comfortable with them as well.
Risks are an inherent part of investing, and your investment in this Fund is
subject to different types and varying degrees of risk.
DEFINING RISKS
Investment in the Fund involves risks. The Fund's yield and price are not
guaranteed, and the value of your investment in the Fund will go up or down. The
value of your investment in the Fund may be affected by the following risks:
- MARKET RISK - is the risk that equity securities are subject to adverse
trends in equity markets. Securities are subject to price movements due to
changes in general economic conditions, the level of prevailing interest
rates or investor perceptions of the market. In addition, prices are
affected by the outlook for overall corporate profitability. Market prices
of equity securities are generally more volatile than debt securities.
This may cause a security to be worth less than the price originally paid
for it, or less than it was worth at an earlier time. Market risk may
affect a single issuer or the market as a whole.
- FUND RISK - is the risk that Fund performance may not meet or exceed that
of the market as a whole. The performance of the Fund will depend on
Advantus Capital's ability to select securities suited to achieve the
Fund's investment objective and judgment of economic and market policies,
trends in investment yields and monetary policy. Due to its active
management, the Fund could underperform other mutual funds with similar
investment objectives or the market generally.
- COMPANY RISK - is the risk that individual securities may perform
differently than the overall market. This may be a result of specific
factors such as changes in corporate profitability due to the success or
failure of specific real estate projects, products or management
strategies, or it may be due to changes in investor perceptions regarding
a company.
- SECTOR RISK - is the risk that the securities of companies within specific
industries or sectors of the economy can periodically perform differently
than the overall market. This may be due to changes in such things as the
regulatory or competitive environment or to changes in investor
perceptions regarding a company.
- REAL ESTATE RISK - is the risk that the value of the Fund's investments
may decrease due to fluctuations in rental income, overbuilding and
increased competition, casualty and condemnation losses, environmental
costs and liabilities, extended vacancies of property, lack of available
mortgage funds, government regulation and limitations, increases in
property taxes, cash flow dependency, declines in real estate value,
physical depreciation of buildings, inability to obtain project financing,
increased operating costs and changes in general or local economic
conditions.
- INTEREST RATE RISK - is the risk that the value of a portfolio of
mortgages or debt securities will decline due to changes in market
interest rates. Generally, when interest rates rise, the value of a
portfolio of mortgages (including mortgage REITs) and debt securities
decreases. Conversely, when interest rates decline, the value of a
portfolio of mortgages and debt securities increases (including mortgage
REITs). Longer-term debt securities are generally more sensitive to
interest rate changes.
- INCOME RISK - is the risk that the Fund's income may decrease due to
falling interest rates.
- CREDIT RISK - is the risk that an issuer of a REIT or debt security will
not make payments on the security when due, or that the other party to a
contract will default on its obligation. There is also the risk that an
issuer could suffer adverse changes in
INVESTING IN THE FUND 9
<PAGE>
financial condition that could lower the credit quality of a security.
This could lead to greater volatility in the price of the security and in
shares of the Fund. Also, a change in the quality rating of a REIT
security or debt security can affect the security's liquidity and make it
more difficult to sell. The Fund attempts to minimize credit risk by
investing in debt securities and fixed income obligations considered at
least investment grade at the time of purchase. However, all of these
securities and obligations, especially those in the lower investment grade
rating categories, have credit risk. In adverse economic or other
circumstances, issuers of these lower rated securities and obligations are
more likely to have difficulty making principal and interest payments than
issuers of higher rated securities and obligations. If the Fund purchases
unrated securities and obligations, it will depend on Advantus Capital's
analysis of credit risk more heavily than usual.
- REIT-RELATED RISK - is the risk that the value of the Fund's equity REIT
securities will be adversely affected by changes in the value of the
underlying property. In addition, the value of equity or mortgage REITs
could be adversely affected if the REIT fails to qualify for tax-free pass
through income under the Internal Revenue Code of 1986 (as amended), or
maintain its exemption from registration under the Investment Company Act
of 1940.
- PREPAYMENT RISK - is the risk that falling interest rates could cause
prepayments of mortgage loans to occur more quickly than expected. This
occurs because, as interest rates fall, more property owners refinance the
mortgages underlying mortgage REIT securities. The REIT must reinvest the
prepayments at a time when interest rates of new mortgage investments are
falling, potentially reducing the portion of the REIT's income
distributable to the Fund. In addition, when interest rates fall, prices
of mortgage loans held by a REIT may not rise as much as for other types
of comparable securities because investors may anticipate an increase in
mortgage prepayments.
- EXTENSION RISK - is the risk that rising interest rates could cause
property owners to prepay their mortgages more slowly than expected,
resulting in slower prepayments of real estate debt securities. This
would, in effect, convert a short or medium-duration REIT security into a
longer-duration security, increasing its sensitivity to interest rate
changes and causing its price to decline. Duration measures the expected
price sensitivity of a fixed income security or portfolio for a given
change in interest rates. For example, if interest rates rise by one
percent, the value of a security or portfolio having a duration of two
years generally will fall by approximately two percent.
- LIMITED PORTFOLIO RISK - is the risk that an investment in the Fund may
present greater volatility, due to the limited number of issuers of real
estate and real estate-related securities, than an investment in a
portfolio of securities selected from a greater number of issuers. The
Fund is subject to limited portfolio risk because the Fund may invest in a
smaller number of individual issuers than other portfolios.
- SMALL COMPANY RISK - is the risk that equity securities of small
capitalization companies are subject to greater price volatility due to,
among other things, such companies' small size, limited product lines,
limited access to financing sources and limited management depth. In
addition, the frequency and volume of trading such securities may be less
than is typical of larger companies, making them subject to wider price
fluctuations. In some cases, there could be difficulties in selling
securities of small capitalization companies at the desired time and
place. The Fund may invest in the securities of small capitalization REITs
or other companies.
10 INVESTING IN THE FUND
<PAGE>
- SECURITIES LENDING RISK - is the risk that the Fund may experience a delay
in the recovery of loaned securities, or even the loss of rights in the
collateral deposited by the borrower if the borrower should fail
financially. To reduce these risks, the Fund enters into loan arrangements
only with institutions that Advantus Capital has determined are
creditworthy.
You can find more information about other risks in the Statement of Additional
Information.
INVESTING IN THE FUND 11
<PAGE>
[GRAPHIC] [Graphic]
BUYING AND SELLING SHARES
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REFERENCE POINT
- ---------------
Real Estate Securities Fund offers one share class - Class A - to investors. All
other Advantus Funds, except the Advantus Money Market Fund, offer three classes
of shares, Class A, Class B, and Class C, which lets investors choose among
three classes of shares that offer different sales charges and bear different
expenses. Please see "General Information - Advantus Family of Funds" for a
listing of all Advantus Funds.
SALES AND DISTRIBUTION CHARGES
As an investor, you pay certain fees and expenses in connection with the Fund.
Sales charges are paid from your account. Annual fund operating expenses
(including distribution fees) are paid out of Fund assets, which affects the
Fund's share price.
If you purchase Fund shares, you will generally pay an initial sales charge.
Fund sales charges are calculated as follows:
<TABLE>
<CAPTION>
SALES CHARGE AS A PERCENTAGE OF:
Value of Your Total Investment Net Offering Price Amount Invested
<S> <C><C> <C>
Less than $50,000 % 5.5 5.82
At least $50,000 but less than
$100,000 4.5 4.71
At least $100,000 but less than
$250,000 3.5 3.63
At least $250,000 but less than
$500,000 2.5 2.56
At least $500,000 but less than
$1,000,000 2.0 2.04
At least $1,000,000 and over(1) 0 0
</TABLE>
(1) You will not be assessed an initial sales charge for purchases of
Fund shares of at least $1 million, but a contingent deferred
sales charge of 1.00% will be imposed if you sell such shares
within one year after the date of purchase.
The sales charge applicable to your initial investment in the Fund depends on
the offering price of your investment. The sales charge applicable to subsequent
investments, however, depends on the offering price of that investment plus the
current net asset value of your previous investments in the Fund. For example,
if you make an initial investment with an offering price of $40,000 you will pay
a sales charge equal to 5.5% of your $40,000 investment, but if you already own
shares with a current net asset value of $40,000 and you invest in additional
shares with an offering price of $10,000 you will pay a sales charge equal to
4.5% of the additional $10,000 since your total investment in the Fund would
then be $50,000.
Fund shares are also subject to a shareholder servicing fee (Rule 12b-1 fee).
The Fund has adopted a shareholder servicing plan that allows the Fund to pay
fees for services provided to shareholders. Because these fees are paid out of
the Fund's assets continuously, over time
12 BUYING AND SELLING SHARES
<PAGE>
these fees will increase the cost of your investment and may cost you more than
paying other types of sales charges. As a percentage of average daily net assets
attributable to shares of the Fund, the maximum Rule 12b-1 fee is 0.25%.
REDUCING SALES CHARGES
PURCHASES OF SHARES. There are several ways you may reduce sales charges on your
purchase of Fund shares.
- LETTER OF INTENT. Lets you purchase shares of the Fund over a 13 month
period and receive the same sales charge as if all shares had been
purchased at once.
- COMBINATION PRIVILEGE. Lets you add the value of all shares you already
own for purposes of calculating the sales charge.
- FAMILY AND TRUST PRIVILEGE. Lets you combine purchases of shares of any
class made by your spouse, children and/or family trust for purposes of
calculating the sales charge. If you wish to use this privilege, you must
indicate on your account application that you are entitled to the reduced
sales charge.
- GROUP PURCHASES. Lets you purchase shares with others as a group at a
reduced sales charge applicable to the group as a whole. A purchase group
must meet criteria established by Ascend Financial Services, Inc. (Ascend
Financial), the Fund's underwriter.
- AUTOMATIC INVESTMENT PLAN. Lets you automatically invest a specified
amount in the Fund each month, which may result in a lower average cost
per share through the principle of "dollar cost averaging." The automatic
investment plan will not always result in a lower cost per share, nor will
it alone reduce your sales charge.
For more information on any of these plans, please contact Advantus Shareholder
Services by telephone at (800) 665-6005.
WAIVER OF SALES CHARGE ON SHARE PURCHASES. Fund shares may be offered without
any sales charge to the following individuals and institutions:
- officers, directors, employees, sales representatives and retirees of the
Fund, Advantus Capital, Ascend Financial, Minnesota Life and affiliated
companies of Minnesota Life, and their respective spouses, siblings,
direct ancestors or direct descendants
- Minnesota Life and its affiliated companies
- trusts, pension or benefit plans sponsored by or on behalf of Advantus
Capital, Ascend Financial, Minnesota Life and affiliated companies of
Minnesota Life
- advisory clients of Advantus Capital or other affiliated companies of
Minnesota Life
- employees of sales representatives of Advantus Capital, Minnesota Life or
affiliated companies of Minnesota Life
- certain accounts as to which a bank or broker-dealer charges an account
management fee, provided that the bank or broker-dealer has an agreement
with Ascend Financial
- certain accounts sold by registered investment advisers
BUYING AND SELLING SHARES 13
<PAGE>
For more information on these waivers, please see the Statement of Additional
Information or contact Advantus Shareholder Services.
BUYING SHARES
You may purchase shares of the Fund on any day the New York Stock Exchange
(NYSE) is open for business. The price for Fund shares is equal to the Fund's
NAV plus any applicable sales charge. NAV is generally calculated as of the
close of normal trading on the NYSE (typically 3:00 p.m. Central time). However,
NAV is not calculated on (a) days in which changes in the Fund's portfolio do
not materially change the Fund's NAV, (b) days on which no Fund shares are
purchased or sold, and (c) customary national business holidays on which the
NYSE is closed for trading.
The Fund's NAV is equal to the Fund's total investments less any liabilities
divided by the number of Fund shares. To determine NAV, the Fund generally
values the Fund's investments based on market quotations. If market quotations
are not available for certain Fund investments, the investments are valued based
on the fair value of the investments as determined in good faith by the Fund's
board of directors. Debt securities may be valued based on calculations
furnished to the Fund by a pricing service or by brokers who make a market in
such securities.
Your purchase order will be priced at the next NAV calculated after your
purchase order is received by the Fund's transfer agent plus the applicable
initial sales charge. If your order is received after the close of normal
trading on the NYSE, your order will be priced at the NAV calculated on the next
day the NYSE is open for trading.
A minimum initial investment of $250 is required, and you may make minimum
subsequent investments of $25. The Fund may reject any purchase order when the
Fund determines it would not be in the best interests of the Fund or its
shareholders.
You may purchase shares of the Fund in any of the following ways:
BY CHECK. New investors may purchase shares of the Fund by sending to the
Fund's transfer agent, PFPC Inc., a completed account application
and a check payable to the Fund at Advantus Funds Group,
P.O. Box 9767, Providence, Rhode Island 02940-5059. If you wish
to purchase additional shares, please send a check payable to the
Fund at the above address (please be sure to write your account
number on your check). Purchase orders may also be submitted
through Ascend Financial or other authorized broker-dealers.
BY WIRE. New investors may also purchase shares of the Fund by Federal
Reserve or bank wire. You should first complete an account
application and send it to Advantus Funds Group, P.O. Box 9767,
Providence, Rhode Island 02940-5059. Prior to wiring any funds,
you must contact Advantus Shareholder Services at (800) 665-6005
for wire instructions. Wire purchases normally take two or more
hours to complete. To be accepted the same day, wire purchases
must be received by the close of normal trading on the NYSE.
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 more information.
All investments must be in U.S. dollars. Cash, money orders and credit card and
third-party checks are not accepted. If a check does not clear your bank, the
Fund may cancel the purchase.
14 BUYING AND SELLING SHARES
<PAGE>
SELLING SHARES
GENERAL. You may sell your shares at any time. You may make such requests by
contacting the Fund directly by mail or by telephone or by Internet. Requests by
mail should be sent to Advantus Funds Group, P.O. Box 9767, Providence, Rhode
Island 02940-5059. You may also sell your shares by sending a facsimile request
to Advantus Funds Group at (508) 871-3560 if no signature guarantee is required.
Shares will be sold at the NAV next calculated after your sale order is received
by the Fund's transfer agent less any applicable contingent deferred sales
charge (CDSC) for Class A shares subject to a CDSC. Fund shares not otherwise
subject to a CDSC may be sold without any charge.
The Fund will forward the sales proceeds to you as soon as possible, but no
later than seven days after the Fund has received an order. If you recently
purchased your shares by check sales proceeds may not be available until your
check has cleared (which may take up to 14 days). If you designate a bank
account with the Fund and wish to sell shares with a value of at least $500,
then the proceeds can be wired directly to your bank account. If you elect to
have proceeds sent by wire transfer, the current $5.00 wire charge will be
deducted from your Fund account.
The amount you receive may be more or less than the original purchase price for
your shares.
MINIMUM ACCOUNT WITHDRAWAL. If you sell some of your shares and the remaining
shares in your account have a value of less than $150, the Fund has the right to
require you to sell your remaining shares and close your account. However, you
will not be required to sell your shares if your account falls below the minimum
due to changes in the market value of your account. You will be given at least
60 days' written notice to add funds to your account and avoid any required
sale.
SYSTEMATIC WITHDRAWAL PLAN. If you have an account with a value of at least
$5,000, you may establish a Systematic Withdrawal Plan which allows you to sell
a portion of your shares for a fixed or variable amount over a period of time.
Withdrawal payments for Fund shares purchased in amounts of $1 million or more
may also be subject to a CDSC. As a result, you should carefully consider
whether a Systematic Withdrawal Plan is appropriate. More information about the
Systematic Withdrawal Plan is provided in the Statement of Additional
Information.
SIGNATURE GUARANTEE. In order to protect the Fund and shareholders against
fraudulent requests, a signature guarantee may be required in certain cases. No
signature guarantee is required if the sale proceeds are less than $50,000 and
are to be paid to the registered holder of the account at the address of record
for that account. A signature guarantee is required if:
- sale proceeds are $50,000 or more
- sale proceeds will be paid to someone other than the registered
shareholder
- sale proceeds will be mailed to an address other than the registered
shareholder's address of record
- instructions were received by the Fund within 30 days before the sale
order to change the registered shareholder's address or bank wire
instructions
- ---------------
REFERENCE POINT
- ---------------
Please see "Telephone Transactions" or "Internet Transactions" for instructions
on how to sell shares by telephone or Internet.
See "Selling Shares - Signature Guarantee" below to determine whether your sale
will require a signature guarantee.
BUYING AND SELLING SHARES 15
<PAGE>
- shares are to be transferred to another Fund account holder
- the request is not made by a pre-authorized trustee for a plan, trust or
other tax-exempt organization
The Fund reserves the right to require signature guarantees on all sales. If
your sale order requires a signature guarantee, the signature guarantee must be
an original (not a copy) and provided by any of the following:
- national or state banks, savings associations, savings and loan
associations, trust companies, savings banks, industrial loan companies
and credit unions
- national securities exchanges, registered securities associations and
clearing agencies
- broker-dealers who belong to a national securities exchange or clearing
agency, or who have a minimum net capital of at least $100,000
- institutions that participate in the Securities Transfer Agent Medallion
Program or other recognized signature medallion program
REINSTATEMENT PRIVILEGE. If you sell shares of the Fund, you have a one-time
privilege within 90 days after the sale to use some or all of the sale proceeds
to purchase shares of the Fund or any of the Advantus Multiple Class Funds at no
sales charge. Following your sale of Class A shares, you will be entitled to
purchase only Class A shares of any of the Advantus Multiple Class Funds under
this reinstatement privilege. Any CDSC incurred in connection with the prior
sale of Class A shares within a 90 day period will not be refunded to a
shareholder's account.
EXCHANGING SHARES
You may exchange some or all of your Fund shares - which are designated "Class
A" shares - for shares of the same class of any other Advantus Multiple
Class Fund or of the Advantus Money Market Fund, Inc. (Money Market Fund)
provided the other Advantus Fund is available in your state. If you are
considering an exchange into another Advantus Fund you should obtain the
prospectus for that fund and read it carefully. Exchanges may only be made
between Advantus Fund accounts with identical registrations. You may make
exchanges by contacting the Fund by mail or by telephone or by Internet.
Exchange requests must be for an exchange amount of at least $250. You may
exchange your shares up to twelve times a year without restriction or charge. A
$7.50 service fee will then be imposed on subsequent exchanges. The Fund
reserves the right to change the terms of and impose additional limitations and
charges on exchanges after giving 60 days' prior notice to shareholders.
Frequent exchanges may interfere with Fund management or operations and drive up
Fund costs. The Fund is not designed for market timers, or for large or frequent
transfers. To protect shareholders, the Fund may restrict or refuse purchases or
exchanges by market timers. You will be considered to be a market timer if you
have: (i) requested an exchange out of any Advantus Fund within two weeks of an
earlier exchange request, or (ii) exchanged shares out of any Advantus Fund more
than three times in a calendar quarter, or (iii) exchanged shares equal to at
least $1 million, or more than 1% of the net assets of any class of shares of
any Advantus Fund, or (iv) followed what otherwise seems to be a timing pattern
in the exercise of exchange or transfer rights. Accounts under common control or
ownership are combined for the purpose of determining these limitations.
- ---------------
REFERENCE POINT
- ---------------
Please see "Telephone Transactions" or "Internet Transactions" for instructions
on how to exchange shares by telephone or Internet.
16 BUYING AND SELLING SHARES
<PAGE>
Exchanges will be made based on the NAVs of the shares. No additional purchase
or sales charges will be imposed on exchanges for shares. However, shares of the
Money Market Fund acquired by exchange will still be subject to any applicable
CDSC. The CDSC will be calculated without including the period that shares of
the Money Market Fund are held.
You may also elect to systematically exchange Fund shares for shares of other
Advantus Funds on a monthly basis. Systematic exchanges must be for an exchange
amount of at least $25.
More information about exchanging shares is provided in the Statement of
Additional Information.
TELEPHONE TRANSACTIONS
You may sell or exchange Fund shares by telephone. You will automatically have
the right to initiate such telephone transactions unless you elect not to do so
on your account application. You may initiate telephone transactions by calling
Advantus Shareholder Services at (800) 665-6005. Automated service is available
24 hours a day or you may speak to a service representative Monday through
Friday, from 7:30 a.m. to 5:15 p.m. (Central time). The maximum amount of shares
you may sell by telephone is $50,000.
During periods of economic or market changes, you may experience difficulty in
selling or exchanging shares due to a heavy volume of telephone calls. In such a
case, you should consider submitting a written request while still trying a
telephone sale or exchange. The Fund reserves the right to change, terminate or
impose a fee on, telephone sale and exchange privileges after giving 60 days'
prior notice to shareholders.
Unless you decline telephone privileges on your account application, you may be
responsible for any fraudulent telephone order as long as the Fund takes
reasonable measures to verify the order.
- ---------------
REFERENCE POINT
- ---------------
Please see "Selling Shares" and "Exchanging Shares" for sale and exchange
details.
INTERNET TRANSACTIONS
Advantus Funds maintains a web site located at www.advantusfunds.com. Existing
Advantus Funds shareholders may purchase, exchange and redeem shares, and access
account information such as account balance and the Fund's NAVs. In order to
engage in transactions on our web site, you must first authorize us to transmit
account information on-line and accept our policies and procedures. Please
contact Advantus Shareholder Services at (800) 665-6005. You may need to have
bank account information or other information to complete the authorization
process.
You may be responsible for any fraudulent Internet transactions as long as the
Fund takes reasonable measures to verify the order.
BUYING AND SELLING SHARES 17
<PAGE>
[GRAPHIC]
GENERAL INFORMATION
DIVIDENDS AND CAPITAL GAINS DISTRIBUTIONS
The Fund pays its shareholders dividends from its net investment income, and
distributes any net capital gains that it has realized. Dividends are paid
quarterly and net capital gains distributions are generally paid once a year.
Your distributions will be reinvested in additional shares of the Fund unless
you instruct the Fund otherwise. Distributions of these additional shares are
made at the NAV of the payment date. There are no fees or sales charges on
reinvestments. If you wish to receive cash distributions, you may authorize the
Fund to do so in your account application or by writing to Advantus Shareholder
Services. If your cash distribution checks cannot be delivered by the postal or
other delivery service to your address of record, all distributions will
automatically be reinvested in additional shares of the Fund. No interest will
be paid on amounts represented by uncashed distribution checks.
You may elect to have dividends invested in shares of the Money Market Fund or
in shares of the same class of another Advantus Multiple Class Fund described in
"Advantus Family of Funds" below. Dividends are valued at the NAV of such other
Advantus Fund on the dividend payment date. To qualify for this privilege, you
must maintain a minimum account balance of $250 in the Fund and the other
applicable Advantus Fund. You must request this privilege by writing to Advantus
Funds Group, P.O. Box 9767, Providence, Rhode Island 02940-5059.
TAXES
You will be taxed on both dividends and capital gains distributions paid by the
Fund (unless you hold your shares through an IRA or other tax-deferred
retirement account). Dividends and distributions are subject to tax regardless
of whether they are automatically invested or are received in cash. Dividends
paid from the Fund's investment income will be taxed as ordinary income. Capital
gains distributions will be taxed as long-term capital gains, regardless of the
length of time for which you have held your shares. Long-term capital gains are
currently taxable to individuals at a maximum federal tax rate of 20%. If you
purchase shares of the Fund before dividends or capital gains distributions,
such dividends and distributions will reduce the NAV per share by the amount of
such dividends and distributions. Furthermore, you will be subject to taxation
on such dividends and distributions.
If you sell your shares, you will generally realize a capital gain or loss. Any
gain will be treated as short-term if you have held the shares for one year or
less, and long-term if you have held the shares more than one year. Short-term
capital gains are taxed as ordinary income, while long-term capital gains are
subject to a maximum federal tax rate of 20%. If you exchange your shares in the
Fund for shares of another Advantus Fund, the exchange will be treated as a sale
for federal tax purposes, and you will be taxed on any capital gain you realize
on the sale.
- --------------------
FOR YOUR INFORMATION
- --------------------
The redemption or exchange of Fund shares may generate a taxable event for you.
Depending on the purchase price and the sale price of the shares you redeem or
exchange, you may incur a gain or loss.
18 GENERAL INFORMATION
<PAGE>
The Fund makes changes in its portfolio that Advantus Capital deems advisable.
The Fund's portfolio turnover may cause the Fund to realize capital gains which,
when distributed to shareholders, will be taxable to them.
REITs in which the Fund invests may generate significant non-cash deductions
such as property depreciation, and therefore their cash flow may exceed their
taxable income. If a REIT distributes this excess cash to its shareholders,
including the Fund, this portion of the distribution is classified for tax
purposes as a return of capital. The Fund may, in turn, distribute this cash to
shareholders in the form of a return of capital. A return of capital is
generally not taxable to you; however, any return of capital distribution would
be taxable as a capital gain once your cost basis is reduced to zero (which
could happen if you do not reinvest your distributions and return of capital in
those distributions is significant).
The 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. See "Distributions and Tax Status - Taxation" in the
Statement of Additional Information for further discussion of the possible
effect of these regulations on Fund shareholders, including shareholders who are
otherwise exempt from taxation.
You will receive an annual statement from the Fund providing detailed
information concerning the federal tax status of distributions you have received
during the year. Because REITs cannot provide complete information about the
taxability of their distributions until after the end of the calendar year, the
Fund intends to ask the Internal Revenue Service each year for an extension on
issuing Forms 1099-DIV (1099s) for the Fund. If this request is approved, we
expect to mail 1099s to Fund shareholders in nonretirement accounts during
February.
The above is only a general discussion of the federal income tax consequences of
an investment in the Fund. For more information, see the Statement of Additional
Information. You should consult your own tax adviser for the specific federal,
state or local tax consequences to you of an investment in the Fund.
GENERAL INFORMATION 19
<PAGE>
SERVICE PROVIDERS
INVESTMENT ADVISER
Advantus Capital Management, Inc.
400 Robert Street North
St. Paul, Minnesota 55101
(651) 665-3826
UNDERWRITER
Ascend Financial Services, Inc.
400 Robert Street North
St. Paul, Minnesota 55101-2098
(651) 665-4833
(888) 237-1838
SHAREHOLDER AND ADMINISTRATIVE SERVICES AGENT
Advantus Shareholder Services
(a division of Minnesota Life Insurance Company)
(800) 665-6005
TRANSFER AGENT
PFPC Inc.
Advantus Funds Group
P.O. Box 9767
Providence, Rhode Island 02940-5059
CUSTODIAN
Norwest Bank Minnesota, N.A.
Sixth Street and Marquette Avenue
Minneapolis, Minnesota 55479
INDEPENDENT AUDITORS
KPMG LLP
GENERAL COUNSEL
Dorsey & Whitney LLP
20 GENERAL INFORMATION
<PAGE>
This page is purposely left blank.
21
<PAGE>
This page is purposely left blank.
22
<PAGE>
ADVANTUS FAMILY OF FUNDS
Real Estate Securities Fund is a member of the Advantus family of funds. The
following is a brief description of the investment objectives, policies and
practices of the Advantus Funds.
HIGHER POTENTIAL
LONG-TERM
RISK AND RETURN
[BEGIN GRAPHIC]
ENTERPRISE
- -------------------------------------------------
Long-term growth through investing primarily in common
stocks issued by small capitalization companies.
VENTURE
- -------------------------------------------------
Long-term growth through investing primarily in stocks of
small capitalization companies deemed by Advantus Capital to
be undervalued relative to their future earnings and growth
potential.
HORIZON
- -------------------------------------------------
Long-term growth combined with a moderate level of current
income through investing primarily in common stocks issued
by mid and large capitalization companies.
INDEX 500
- -------------------------------------------------
Investment results that correspond generally to the S&P 500
Index by investing a significant portion of its portfolio in
common stocks included in the S&P 500 Index.*
CORNERSTONE
- -------------------------------------------------
Long-term growth through investing primarily in stocks of
mid and large capitalization companies deemed by Advantus
Capital to be undervalued relative to their future earnings
and growth potential.
INTERNATIONAL BALANCED
- -------------------------------------------------
Total return through investing primarily in stocks and bonds
of large and small companies located outside the U.S.
REAL ESTATE SECURITIES
- -------------------------------------------------
Total return through investing in real estate and real
estate-related securities.
SPECTRUM
- -------------------------------------------------
Total return from a combination of income and capital
appreciation through investing in a portfolio of stocks,
bonds and money market instruments.
BOND
- -------------------------------------------------
High level of current income by investing primarily in high
quality corporate bonds.
MORTGAGE SECURITIES
- -------------------------------------------------
High level of current income by investing primarily in
mortgage-related securities.
MONEY MARKET
- -------------------------------------------------
High level of current income by investing primarily in money
market securities.
[END GRAPHIC]
LOWER POTENTIAL
LONG-TERM
RISK AND RETURN
*"STANDARD & POOR'S-REGISTERED TRADEMARK-", "S&P 500-REGISTERED TRADEMARK-",
"STANDARD & POOR'S 500", AND "500" ARE REGISTERED TRADEMARKS OF THE MCGRAW-HILL
COMPANIES, INC. AND HAVE BEEN LICENSED FOR USE BY ADVANTUS INDEX 500 FUND, INC.
THE FUND IS NOT SPONSORED, ENDORSED, SOLD OR PROMOTED BY STANDARD & POOR'S AND
STANDARD & POOR'S MAKES NO REPRESENTATION REGARDING THE ADVISABILITY OF
INVESTING IN THE FUND.
AN INVESTMENT IN ANY ADVANTUS FUND WILL BE SUBJECT TO A VARIETY OF RISKS. AS A
RESULT, AN ADVANTUS FUND MAY NOT ALWAYS ACHIEVE ITS INVESTMENT OBJECTIVE.
THIS INFORMATION IS A RESULT OF LONG-TERM RISK AND RETURN EXPECTATIONS USING
VARIOUS INDICES AND ASSET CLASS HISTORIES, AND IS NOT FROM ACTUAL PERFORMANCE.
PLEASE NOTE THAT THE ACTUAL RISK/RETURN FOR AN INVESTMENT IN THE ABOVE ADVANTUS
FUNDS MAY VARY AND THE ABOVE TABLE DOES NOT NECESSARILY INDICATE HOW EACH
ADVANTUS FUND WILL PERFORM IN THE FUTURE.
GENERAL INFORMATION 23
<PAGE>
<TABLE>
<S> <C>
ASCEND FINANCIAL SERVICES, INC. PRESORTED STANDARD
400 ROBERT STREET NORTH U.S. POSTAGE PAID
ST. PAUL, MN 55101-2098 ST. PAUL, MN
PERMIT NO. 3547
ADDRESS SERVICE REQUESTED
</TABLE>
ADDITIONAL INFORMATION ABOUT THE FUND
The Fund's annual and semi-annual reports list portfolio holdings, and discuss
recent market conditions, economic trends and investment strategies that
affected the Fund during the latest fiscal year.
A Statement of Additional Information (SAI) provides further information about
the Fund. The current SAI is on file with the Securities and Exchange Commission
and is incorporated by reference (is legally part of this Prospectus).
HOW TO OBTAIN ADDITIONAL INFORMATION
The SAI and the Fund's annual and semi-annual reports are available without
charge upon request. You may obtain additional information or make any
inquiries:
By Telephone - Call (800) 665-6005
By Mail - Write to Advantus Funds Group, P.O. Box 9767, Providence, Rhode Island
02940-5059
Web Site Address - www.advantusfunds.com
Information about the Fund (including the SAI and annual and semi-annual
reports) can be reviewed and copied at the SEC's Public Reference Room in
Washington, D.C. (telephone 1-202-942-8090). This information and other reports
about the Fund are also available on the SEC's World Wide Web site at
http://www.sec.gov. Copies of this information may be obtained by writing to the
SEC's Public Reference Section, Washington, D.C. 20549-0102 or obtained by
electronic request to: [email protected]. You will be charged a duplicating fee
for copies.
Investment Company Act No. 811-9139
ADVANTUS-TM-
FAMILY OF FUNDS
- -C-1999 Advantus Capital Management, Inc.
All rights reserved.
F. 53055 Rev. 5-2000
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
ADVANTUS VENTURE FUND, INC.
ADVANTUS INDEX 500 FUND, INC.
ADVANTUS REAL ESTATE SECURITIES FUND, INC.
May 1, 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. A copy of each
Prospectus may be obtained by telephone from Advantus Shareholder Services
at (800) 665-6005 or by writing to the Funds at Advantus Funds Group, P.O. Box
9767, Providence, Rhode Island 02940-5059.
THIS STATEMENT OF ADDITIONAL INFORMATION MUST BE ACCOMPANIED OR PRECEDED BY A
COPY OF THE CURRENT PROSPECTUS FOR THE RESPECTIVE FUND.
1
<PAGE>
TABLE OF CONTENTS
GENERAL INFORMATION AND HISTORY
INVESTMENT OBJECTIVES AND POLICIES
Equity Securities of Small Capitalization Companies
S&P 500 Index
Real Estate Investment Trust Securities
Debt and Money Market Securities
Low Rated Securities
Convertible Securities
Foreign Securities
Futures Contracts and Options on Futures Contracts
Options
United States Government and Agency Obligations
Short Sales Against the Box
Loans of Portfolio Securities
Restricted and Illiquid Securities
Repurchase Agreements
Warrants
Index Depositary Receipts
When-Issued Securities and Forward Commitments
Defensive Purposes
INVESTMENT RESTRICTIONS
Fundamental Restrictions
Non-Fundamental Restrictions
PORTFOLIO TURNOVER
DIRECTORS AND EXECUTIVE OFFICERS
DIRECTOR LIABILITY
INVESTMENT ADVISORY AND OTHER SERVICES
General
Control and Management of Advantus Capital and Ascend Financial
Investment Advisory Agreement
Venture Fund Sub-Adviser --
State Street
Venture Fund Investment
Sub-Advisory Agreement --
State Street
Code of Ethics
Distribution Agreement
Payment of Certain Distribution Expenses of the Funds
Transfer Agent and Administrative Services
PORTFOLIO TRANSACTIONS AND ALLOCATION OF BROKERAGE
CALCULATION OF PERFORMANCE DATA
CAPITAL STOCK AND OWNERSHIP OF SHARES
HOW TO BUY SHARES
Alternative Purchase Arrangements
Purchase by Check
Purchase by Wire
Purchase by Internet
Timing of Purchase Orders
Minimum Investments
Public Offering Price
SALES CHARGES
Class A Shares
Class B Shares
Class C Shares
Other Payments to Broker-Dealers
NET ASSET VALUE AND PUBLIC OFFERING PRICE
REDUCED SALES CHARGES
Right of Accumulation-Cumulative Purchase Discount
Letter of Intent
Combining Purchases
Group Purchases
Waiver of Sales Charges For Certain Sales of Class A Shares
EXCHANGE AND TRANSFER OF FUND SHARES
Systematic Exchange Plan
SHAREHOLDER SERVICES
Open Accounts
Automatic Investment Plan
Group Systematic Investment Plan
Retirement Plans Offering Tax Benefits
Systematic Withdrawal Plans
REDEMPTIONS
Signature Guarantee
Contingent Deferred Sales Charge
Telephone Redemption
Internet Redemptions
Delay in Payment of Redemption Proceeds
Fund's Right to Redeem Small Accounts
Reinstatement Privilege
TELEPHONE TRANSACTIONS
INTERNET TRANSACTIONS
THE STANDARD & POOR'S LICENSE
DISTRIBUTIONS AND TAX STATUS
Dividends and Capital Gains Distributions
Taxation - General
Taxation on Portfolio Holdings
FINANCIAL STATEMENTS
Appendix A - Bond and Commercial Paper Ratings
Bond Ratings
Commercial Paper Ratings
Appendix B - Futures Contracts
Example of Futures Contract Sale
Example of Futures Contract Purchase
Tax Treatment
2
<PAGE>
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.
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The Fund will at all times invest at least 80% of its total assets in
common stocks included in the S&P 500. There is no minimum or maximum number of
stocks included in the S&P 500 which the Fund must hold. Under normal
circumstances Advantus Capital generally will seek to match the Fund to the
composition of the S&P 500 to the maximum extent, but may not always invest the
Fund's portfolio to mirror the S&P 500 exactly. Because of the difficulty and
expense of executing relatively small stock transactions, the Fund may not
always be invested in the less heavily weighted stocks included in the S&P 500,
and may at times have its portfolio weighted differently from the S&P 500,
particularly when the Fund has assets of less than $25 million. Regardless of
the number, or relative weightings, of stocks included in the S&P 500 held by
the Fund, however, the Fund's intention is to seek investment results, before
sales charges and other Fund expenses, which match as closely as possible the
investment performance of the S&P 500.
The method used to select investments for the Fund involves investing
primarily in those stocks having the highest statistical weightings in the
S&P 500. Stocks in the S&P 500 are ranked in accordance with their
statistical weightings from highest to lowest. The Fund will invest in all
of the stocks above a specified level in the ranking in approximately the
same proportion as the weightings of those stocks in the S&P 500. However,
the Fund will not invest in all of the stocks below the specified level in
the ranking, but rather will invest only in those stocks, and in amounts, as
the Fund's investment adviser determines to be necessary or appropriate for
the Fund to approximate the performance of the S&P 500. The stocks of the
S&P 500 to be included in the Fund will be selected utilizing a computer
program which provides simulations of alternative investment strategies for
tracking the performance of the S&P 500 and analyzes the estimated tracking
results of such alternative strategies prior to their implementation. This
process selects stocks for the Fund so that various industry weightings and
market capitalizations closely approximate those of the S&P 500. This
technique employed by the Fund is expected to be an effective means of
substantially duplicating the income and capital returns of the S&P 500. The
Fund's ability to duplicate the performance of the S&P 500 will depend to
some extent, however, on the size and timing of cash flows into or out of the
Fund. Investment changes to accommodate these cash flows will be made to
maintain the similarity of the Fund's holdings to the S&P 500 to the maximum
practicable extent.
Over the long term, the Fund's investment adviser will seek a correlation
between the performance of the Fund, before sales charges and other Fund
expenses, and that of the S&P 500 of at least 95% (or 85% - 95% if the Fund's
assets are less than $25 million). A correlation of 100% would indicate perfect
correlation, which would be achieved when the net asset value of the Fund,
including the value of its dividend and capital gains distributions, increased
or decreased in exact proportion to changes in the S&P 500. An investment in
shares of the Fund therefore involves risks similar to those of investing in a
portfolio consisting of the common stocks of some or all of the companies
included in the S&P 500.
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.
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In addition to the instruments described above, which will generally be
long-term, but may be purchased by the Fund within one year of the date of a
security's maturity, the Fund may also purchase other high quality securities
including:
* Obligations (including certificates of deposit and bankers'
acceptances) of U.S. banks, savings and loan associations, savings
banks which have total assets (as of the date of their most recent
annual financial statements at the time of investment) of not less
than $2,000,000,000; U.S. dollar denominated obligations of Canadian
chartered banks, London branches of U.S. banks and U.S. branches or
agencies of foreign banks which meet the above-stated asset size; and
obligations of any U.S. banks, savings and loan associations and
savings banks, regardless of the amount of their total assets,
provided that the amount of the obligations purchased does not exceed
$100,000 for any one U.S. bank, savings and loan association or
savings bank and the payment of the principal is insured by the
Federal Deposit Insurance Corporation or the Federal Savings and Loan
Insurance Corporation.
* Obligations of the International Bank for Reconstruction and
Development.
* Commercial paper (including variable amount master demand notes)
issued by U.S. corporations or affiliated foreign corporations and
rated (or guaranteed by a company whose commercial paper is rated) at
the date of investment Prime-1 by Moody's or A-1 by S&P or, if not
rated by either Moody's or S&P, issued by a corporation having an
outstanding debt issue rated Aa or better by Moody's or AA or better
by S&P and, if issued by an affiliated foreign corporation, such
commercial paper (not to exceed in the aggregate 10% of the Fund's net
assets) is U.S. dollar denominated and not subject at the time of
purchase to foreign tax withholding.
The Fund may also invest in securities which are unrated if the Fund's
investment adviser determines that such securities are of equivalent investment
quality to the rated securities described above. In the case of "split-rated"
securities, which result when nationally-recognized rating agencies rate the
security at different rating levels (e.g., BBB by S&P and Ba by Moody's), it is
the Fund's general policy to classify such securities at the higher rating level
where, in the judgment of the Fund's investment adviser, such classification
reasonably reflects the security's quality and risk.
The market value of debt securities generally varies in response to changes
in interest rates and the financial condition of each issuer. During periods of
declining interest rates, the value of debt securities generally increases.
Conversely, during periods of rising interest rates, the value of such
securities generally declines. These changes in market value will be reflected
in the Fund's net asset value.
The Fund may, however, acquire debt securities which, after acquisition,
are down-graded by the rating agencies to a rating which is lower than the
applicable minimum rating described above. In such an event it is the Fund's
general policy to dispose of such down-graded securities except when, in the
judgment of the Fund's investment adviser, it is to the Fund's advantage to
continue to hold such securities. In no event, however, will the Fund hold in
excess of 5% of its net assets in securities which have been down-graded
subsequent to purchase where such down-graded securities are not otherwise
eligible for purchase by the Fund. This 5% is in addition to securities which
the Fund may otherwise purchase under its usual investment policies.
LOW RATED SECURITIES
Venture Fund may also invest up to 10% of its net assets in debt
securities (including convertible debt securities), which, at the time of
acquisition, are rated at least B- or B3 by S&P or Moody's, respectively, or
rated at a comparable level by another independent publicly-recognized rating
agency, or, if not rated, are of equivalent investment quality as determined
by the Fund's investment adviser. 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
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eligible for purchase by the Fund (see "Debt and Money Market Securities"
above). Debt securities rated below the four highest categories (i.e., below
BBB) are not considered investment grade obligations and are commonly called
"junk bonds." These securities are predominately speculative and present
more credit risk than investment grade obligations. Bonds rated below BBB
are also regarded as predominately speculative with respect to the issuer's
continuing ability to meet principal and interest payments.
Low rated and unrated debt securities generally involve greater volatility
of price and risk of principal and income, including the possibility of default
by, or bankruptcy of, the issuers of the securities. In addition, the markets
in which low rated and unrated debt securities are traded are more limited than
those in which higher rated securities are traded. The existence of limited
markets for particular securities may diminish the Fund's ability to sell the
securities at fair value either to meet redemption requests or to respond to
changes in the economy or in the financial markets and could adversely affect
and cause fluctuations in the daily net asset value of the Funds' shares.
Adverse publicity and investor perceptions, whether or not based on
fundamental analysis, may decrease the values and liquidity of low rated debt
securities, especially in a thinly traded market. Analysis of the
creditworthiness of issuers of low rated debt securities may be more complex
than for issuers of higher rated securities, and the ability of the Fund to
achieve its investment objective may, to the extent of investment in low rated
debt securities, be more dependent upon such creditworthiness analysis than
would be the case if the Fund were investing in higher rated securities.
Low rated debt securities may be more susceptible to real or perceived
adverse economic and competitive industry conditions than investment grade
securities. The prices of low rated debt securities have been found to be less
sensitive to interest rate changes than higher rated investments, but more
sensitive to adverse economic downturns or individual corporate developments. A
projection of an economic downturn or of a period of rising interest rates, for
example, could cause a decline in low rated debt securities prices because the
advent of a recession could lessen the ability of a highly leveraged company to
make principal and interest payments on its debt securities. If the issuer of
low rated debt securities defaults, the Fund may incur additional expenses to
seek recovery. The low rated bond market is relatively new, and many of the
outstanding low rated bonds have not endured a major business recession.
CONVERTIBLE SECURITIES
Venture Fund 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
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be unable to pursue legal remedies and obtain judgments in foreign courts.
Commission rates in foreign countries, which are sometimes fixed rather than
subject to negotiation as in the U.S., are likely to be higher. Further, the
settlement period of securities transactions in foreign markets may be longer
than in domestic markets. In many foreign countries there is less government
supervision and regulation of business and industry practices, stock
exchanges, brokers and listed companies than in the U.S. The foreign
securities markets of many of the countries in which the Fund may invest may
also be smaller, less liquid, and subject to greater price volatility than
those in the U.S. Also, some countries may withhold portions of interest,
dividends and gains at the source. The Fund may also be unfavorably affected
by fluctuations in the relative rates of exchange between the currencies of
different nations (i.e., when the currency being exchanged has decreased in
value relative to the currency being purchased). There are further risk
considerations, including possible losses through the holding of securities
in domestic and foreign custodial banks and depositories.
The countries of the European Monetary Union (EMU) began the process of
converting their individual country currencies to the Euro on January 1, 1999.
There is also a risk that the value of foreign securities of companies located
in EMU countries may decrease due to market volatility resulting from the
conversion of certain EMU country currencies to the Euro. It is not possible to
predict the impact of the Euro on the business or financial condition of
European issues or on the Fund. The transition and the elimination of currency
risk among EMU countries may change the economic environment and behavior of
investors, particularly in European markets. To the extent the Fund holds
non-U.S. dollar (Euro or other) denominated securities, it will still be exposed
to currency risk due to fluctuations in those currencies versus the U.S. dollar.
An ADR is sponsored if the original issuing company has selected a single
U.S. bank to serve as its U.S. depositary and transfer agent. This relationship
requires a deposit agreement which defines the rights and duties of both the
issuer and depositary. Companies that sponsor ADRs must also provide their ADR
investors with English translations of company information made public in their
own domiciled country. Sponsored ADR investors also generally have the same
voting rights as ordinary shareholders, barring any unusual circumstances. ADRs
which meet these requirements can be listed on U.S. stock exchanges.
Unsponsored ADRs are created at the initiative of a broker or bank reacting to
demand for a specific foreign stock. The broker or bank purchases the
underlying shares and deposits them in a depositary. Unsponsored shares issued
after 1983 are not eligible for U.S. stock exchange listings. Furthermore, they
do not generally include voting rights.
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.
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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:
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- - the risk that interest rates, securities prices or currency markets will
not omve 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, w hen
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
C 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.
9
<PAGE>
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
10
<PAGE>
income, may make secured loans of portfolio securities amounting to not more
than one-third of their respective total assets. Securities loans are made to
broker-dealers or financial institutions pursuant to agreements requiring
that the loans be continuously secured by collateral at least equal at all
times to the value of the securities lent. The collateral received will
consist of cash, letters of credit or securities issued or guaranteed by the
U.S. Government, its agencies or instrumentalities. While the securities are
being lent, the Fund will continue to receive the equivalent of the interest
or dividends paid by the issuer on the securities, as well as interest on the
investment of the collateral or a fee from the borrower. Although the Fund
does not expect to pay commissions or other front-end fees (including finders
fees) in connection with loans of securities (but may in some cases do so), a
portion of the additional income realized will be shared with the Fund's
custodian for arranging and administering such loans. The Fund has a right
to call each loan and obtain the securities on five business days' notice.
The Fund will not have the right to vote securities while they are being
lent, but it will call a loan in anticipation of any important vote. The
risks in lending portfolio securities, as with other extensions of secured
credit, consist of possible delay in receiving additional collateral or in
the recovery of the securities or possible loss of rights in the collateral
should the borrower fail financially. Loans will only be made to firms
deemed by the Fund's investment adviser to be of good standing and to have
sufficient financial responsibility, and will not be made unless, in the
judgment of the Fund's investment adviser, the consideration to be earned
from such loans would justify the risk. The creditworthiness of entities to
which the Fund makes loans of portfolio securities is monitored by the Fund's
investment adviser throughout the term of each loan. The Fund has no present
intention to make loans of portfolio securities.
RESTRICTED AND ILLIQUID SECURITIES
Each Fund may invest up to 15% of its net assests, 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 Funds 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.
11
<PAGE>
If through the appreciation of restricted securities or the depreciation
of unrestricted securities, the Fund is in a position where more than 10% of
its net assets are invested in restricted and other illiquid securities, the
Fund will take appropriate steps to protect liquidity.
REPURCHASE AGREEMENTS
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; however, not more than 5% of its net assets (at the time of
purchase) will be invested in warrants other than warrants acquired in units
or attached to other securities. Of such 5%, not more than 2% of the Fund's
assets at the time of purchase may be invested in warrants that are not
listed on the New York or American Stock Exchanges. Warrants are instruments
that allow investors to purchase underlying shares at a specified price
(exercise price) at a given future date. Warrants are pure speculation in
that they have no voting rights, pay no dividends and have no rights with
respect to the assets of the corporation issuing them. The prices of
warrants do not necessarily move parallel to the prices of the underlying
securities.
INDEX DEPOSITARY RECEIPTS
Venture Fund and Index Fund may each invest up to 5% of their respective
total assets in one or more types of depositary receipts ("DRs") as a means
of tracking the performance of a designated stock index while maintaining
liquidity. Venture Fund and Index Fund may invest in S&P 500 Depositary
Receipts ("SPDRs"), which track the S&P 500 Index. In addition, Venture Fund
may invest in S&P MidCap 400 Depositary Receipts ("MidCap SPDRs"), which
track the S&P MidCap 400 Index; and "Dow Industrial Diamonds," which track
the Dow Jones Industrial Average; or in other DRs which track indexes,
provided that such investments are consistent with the Fund's investment
objective as determined by the Fund's investment adviser. Each of these
securities represents shares of ownership of a long term unit investment
trust (a type of investment company) that holds all of the stock included in
the relevant underlying index.
DRs carry a price which equals a specified fraction of the value of the
designated index and are exchange traded. As with other equity transactions,
brokers charge a commission in connection with the purchase of DRs. In
12
<PAGE>
addition, an asset management fee is charged in connection with the underlying
unit investment trust (which is in addition to the asset management fee paid by
the Fund).
Trading costs for DRs are somewhat higher than those for stock index
futures contracts, but, because DRs trade like other exchange-listed equities,
they represent a quick and convenient method of maximizing the use of the Fund's
assets to track the return of a particular stock index. DRs share in the same
market risks as other equity investments.
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
<PAGE>
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.
13
<PAGE>
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.
14
<PAGE>
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.
15
<PAGE>
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:
<TABLE>
<CAPTION>
Position with Principal Occupation and other
Name and Address the Funds Affiliations (past 5 years)
- ---------------- ------------- ---------------------------
<S> <C> <C>
William N. Westhoff* President President, Treasurer and
Advantus Capital and Director Director, Advantus Capital
Management, Inc. Management, Inc.; Senior Vice
400 Robert Street North President and Treasurer, Minnesota
St. Paul, Minnesota 55101 Life Insurance Company;
Vice President and Director, Robert
Street Energy, Inc.; President,
MCM Funding 1997-1, Inc.; President.
MCM Funding 1998-1, Inc.; Senior Vice
President, Global Investments, American
Express Financial Corporation,
Minneapolis, Minnesota, from August
1994 to October 1997
</TABLE>
16
<PAGE>
<TABLE>
<S> <C> <C>
Frederick P. Feuerherm* Vice President, Vice President, Assistant Secretary
Advantus Capital Director and and Director, Advantus Capital
Management, Inc. Treasurer Management, Inc.;
400 Robert Street North Vice President, Minnesota Life
St. Paul, Minnesota 55101 Insurance Company; Vice President and
Director, MIMLIC Funding, Inc.; Vice
President and Assistant Secretary, MCM
Funding 1997-1, Inc.; Vice President
and Assistant Secretary, MCM Funding
1998-1, Inc.
Ralph D. Ebbott Director Retired, Vice President and Treasurer
409 Birchwood Avenue of Minnesota Mining and Manufacturing
White Bear Lake, Company (industrial and consumer
Minnesota 55110 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
</TABLE>
- ------------------------------------------------------------
* Denotes directors of the Funds who are "interested persons" (as defined under
the Investment Company Act of 1940) of the Funds.
- ------------------------------------------------------------
Legal fees and expenses are paid to the law firm of which Michael J. Radmer
is a partner. No compensation is paid by either of the Funds to any of its
officers or directors who is affiliated with Advantus Capital.
Each director of the Funds who is not affiliated with Advantus Capital
Management, Inc. ("Advantus Capital") is also a director of the other eleven
investment companies of which Advantus Capital is the investment adviser (12
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:
<TABLE>
<CAPTION>
Pension or Total
Retirement Compensation
Aggregate Benefits Estimated from Funds and
Compensation Accrued as Annual Fund Complex
from the Part of Fund Benefits Upon Paid to
Name of Director Funds(1) Expenses Retirement Directors
------------------ ---------- ------------ ------------- --------------
<S> <C> <C> <C> <C>
Charles E. Arner $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
</TABLE>
17
<PAGE>
(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
18
<PAGE>
Advantus Capital was incorporated in Minnesota in June, 1994, and is a
wholly-owned subsidiary of Minnesota Life Insurance Company ("Minnesota Life").
Minnesota Life is a third-tier subsidiary of a mutual insurance holding company
called Minnesota Mutual Companies, Inc. Minnesota Life was organized in 1880,
and has assets of more than $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. 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:
<TABLE>
<CAPTION>
ADVISORY FEE AS PERCENTAGE
FUND OF AVERAGE NET ASSETS
VENTURE FUND:
<S> <C>
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%
</TABLE>
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:
<TABLE>
<CAPTION>
Advisory Fee Paid Prior to May 1,
Fund 2000 as Percentage of Average Net Assets
---- ----------------------------------------
<S> <C>
Venture Fund .80%
Index Fund .34%
Real Estate Securities Fund .75%
</TABLE>
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:
<TABLE>
<CAPTION>
Fund 1999 1998 1997
---- ---- ---- ----
<S> <C> <C> <C>
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
</TABLE>
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.
19
<PAGE>
Under the Advisory Agreements, Advantus Capital furnishes the Funds office
space and all necessary office facilities, equipment and personnel for servicing
the investments of the Funds, and pays the salaries and fees of all officers and
directors of the Funds who are affiliated with Advantus Capital. In addition,
except to the extent that Ascend Financial receives Rule 12b-1 distribution fees
(see "Payment of Certain Distribution Expenses of the Funds" below), Ascend
Financial bears all promotional expenses in connection with the distribution of
the Funds' shares, including paying for prospectuses and statements of
additional information for new shareholders, and shareholder reports for new
shareholders, and the costs of sales literature. The Funds pay all other
expenses not so expressly assumed.
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:
<TABLE>
<CAPTION>
Fund 1999 1998 1997
---- ---- ---- ----
<S> <C> <C> <C>
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
</TABLE>
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 13, 1999, 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:
<TABLE>
<CAPTION>
Fund 1999 1998 1997
---- ---- ---- ----
<S> <C> <C>
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
</TABLE>
During the same period Ascend Financial retained from these commissions the
following amounts:
20
<PAGE>
<TABLE>
<CAPTION>
Fund 1999 1998 1997
---- ---- ---- ----
<S> <C> <C>
Venture Fund $1,323 $ 0 $15,344
Index Fund 0 0 16,544
Real Estate
Securities Fund 0 n/a n/a
</TABLE>
The remainder of these commissions was paid to registered representatives
of Ascend Financial or to broker-dealers who have selling agreements with Ascend
Financial.
Each Distribution Agreement may be terminated by the respective Fund or
Ascend Financial at any time by the giving of 60 days' written notice, and
terminates automatically in the event of its assignment. Unless sooner
terminated, the Distribution Agreement for the respective Fund shall continue in
effect for more than two years after its execution only so long as such
continuance is specifically approved at least annually by either the Board of
Directors of the Fund or by a vote of a majority of the outstanding voting
securities, provided that in either event such continuance is also approved by
the vote of a majority of the directors who are not parties to the Distribution
Agreement, or interested persons of such parties, cast in person at a meeting
called for the purpose of voting on such approval.
The Distribution Agreements require Ascend Financial to pay all advertising
and promotional expenses in connection with the distribution of the Funds'
shares including paying for Prospectuses and Statements of Additional
Information (if any) for new shareholders, shareholder reports for new
shareholders, and the costs of sales literature.
In the Distribution Agreements, Ascend Financial undertakes to indemnify
the Funds against all costs of litigation and other legal proceedings, and
against any liability incurred by or imposed upon the Funds in any way arising
out of or in connection with the sale or distribution of the Funds' shares,
except to the extent that such liability is the result of information which was
obtainable by Ascend Financial only from persons affiliated with the Funds but
not with Ascend Financial.
PAYMENT OF CERTAIN DISTRIBUTION EXPENSES OF THE FUNDS
Each of 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:
<TABLE>
<CAPTION>
Rule 12b-1 Fee as Percentage
of Average Daily Net Assets Attributable to
--------------------------------------------
Fund Class A Shares Class B Shares Class C Shares
---- -------------- -------------- --------------
<S> <C> <C> <C>
Venture Fund 0.25% 1.00% 1.00%
Index Fund 0.25% 1.00% 1.00%
Real Estate
Securities Fund 0.25% n/a n/a
</TABLE>
21
<PAGE>
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. The Glass-Steagall Act and other applicable laws,
among other things, prohibit certain banks from engaging in the business of
underwriting securities. In such circumstances, Ascend Financial, if so
requested, will engage such banks as Service Organizations only to perform
administrative and shareholder servicing functions, but at the same fees and
other terms applicable to dealers. State law may, however, differ from the
interpretation of the Glass-Steagall Act expressed and banks and other
financial institutions may therefore be required to register as securities
dealers pursuant to state law. If a bank were prohibited from acting as a
Service Organization, its shareholder clients would be permitted to remain
shareholders of the Funds and alternative means for continuing servicing of
such shareholders would be sought. In such event changes in the operation of
22
<PAGE>
the Funds might occur and a shareholder serviced by such bank might no longer
be able to avail itself of any automatic investment or other services then
being provided by the bank. It is not expected that shareholders would
suffer any adverse financial consequences as a result of any of these
occurrences.
In addition, the Plan contains, among other things, provisions complying
with the requirements of Rule 12b-1 discussed below. In particular, each
Plan provides that (1) the Plan will not take effect until it has been
approved by a vote of a majority of the outstanding voting securities of the
Fund, and by a majority vote of both the full board of directors of the Fund
and those directors who are not interested persons of the Fund and who have
no direct or indirect financial interest in the operation of the Plan or in
any agreements relating to it (the Independent Directors), (2) the Plan will
continue in effect from one year to another so long as its continuance is
specifically approved annually by a majority vote of both the full board of
directors and the Independent Directors, (3) the Plan may be terminated at
any time, without penalty, by vote of a majority of the Independent Directors
or by a vote of a majority of the outstanding voting securities of the Fund,
(4) the Plan may not be amended to increase materially the amount of the fees
payable thereunder unless the amendment is approved by a vote of a majority
of the outstanding voting securities of the Fund, and all material amendments
must be approved by a majority vote of both the full board of directors and
the Independent Directors, (5) while the Plan is in effect, the selection and
nomination of any new Independent Directors is committed to the discretion of
the Independent Directors then in office, and (6) the Fund's underwriter will
prepare and furnish to the board of directors, and the board of directors
will review, at least quarterly, written reports which set forth the amounts
expended under the Plan and the purposes for which those expenditures were
made.
Rule 12b-1(b) provides that any payments made by an investment company in
connection with the distribution of its shares may only be made pursuant to a
written plan describing all material aspects of the proposed financing of
distribution and also requires that all agreements with any person relating
to implementation of the plan must be in writing. In addition, Rule
12b-1(b)(2) requires that such plan, together with any related agreements, be
approved by a vote of the board of directors and of the directors who are not
interested persons of the investment company and have no direct or indirect
financial interest in the operation of the plan or in any agreements related
to the plan, cast in person at a meeting called for the purpose of voting on
such plan or agreements. Rule 12b-1(b)(3) requires that the plan or
agreement provide, in substance: (1) that it shall continue in effect for a
period of more than one year from the date of its execution or adoption only
so long as such continuance is specifically approved at least annually in the
manner described in paragraph (b)(2) of Rule 12b-1; (2) that any person
authorized to direct the disposition of monies paid or payable by the
investment company pursuant to the plan or any related agreement shall
provide to the investment company's board of directors, and the directors
shall review, at least quarterly, a written report of the amounts so expended
and the purposes for which such expenditures were made; and (3) in the case
of a plan, that it may be terminated at any time by vote of a majority of the
members of the board of directors of the investment company who are not
interested persons of the investment company and have no direct or indirect
financial interest in the operation of the plan or in any agreements related
to the plan or by vote of a majority of the outstanding voting securities of
the investment company. Rule 12b-1(b)(4) requires that such plans may not be
amended to increase materially the amount to be spent for distribution
without shareholder approval and that all material amendments of the plan
must be approved in the manner described in paragraph (b)(2) of Rule 12b-1.
Rule 12b-1(c) provides that the investment company may rely upon Rule
12b-1(b) only if selection and nomination of the investment company's
disinterested directors are committed to the discretion of such disinterested
directors. Rule 12b-1(e) provides that the investment company may implement
or continue a plan pursuant to Rule 12b-1(b) only if the directors who vote
to approve such implementation or continuation conclude, in the exercise of
reasonable business judgment and in light of their fiduciary duties under
state law, and under Sections 36(a) and (b) of the Investment Company Act of
1940, that there is a reasonable likelihood that the plan will benefit the
investment company and its shareholders. At the Board of Directors meeting
held January 13, 1999, 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).
<TABLE>
<CAPTION>
Fund Class A Class B Class C
---- ------- ------- -------
<S> <C> <C> <C> <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
</TABLE>
The Plans of Distribution could be construed as "compensation plans"
because Ascend Financial is paid a fixed fee and is given discretion concerning
what expenses are payable under the Plans. Under a compensation plan, the fee
to the distributor is not directly tied to distribution expenses actually
incurred by the distributor, thereby permitting the distributor to receive a
profit if amounts received exceed expenses. Ascend Financial may spend more or
23
<PAGE>
less for the distribution and promotion of the Funds' shares than it receives as
distribution fees pursuant to the Plans. However, to the extent fees received
exceed expenses, including indirect expense such as overhead, Ascend Financial
could be said to have received a profit.
TRANSFER AGENT AND ADMINISTRATIVE SERVICES
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 First Data Investor Services Group, Inc.
Prior to that date the Funds had engaged Minnesota Life to act as their
transfer agent, dividend disbursing agent and redemption agent. For the
period from August 1, 1998 to October 25, 1998, Index Fund paid Minnesota
Life $19,223 for 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:
<TABLE>
<CAPTION>
Fund Amount
---- ------
<S> <C>
Venture Fund $56,400
Index Fund 56,400
Real Estate Securities Fund 28,800
</TABLE>
Effective May 1, 2000, each Fund pays its own shareholder servicing
costs. 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:
<TABLE>
<CAPTION>
Fund 1999 1998 1997
---- ---- ---- ----
<S> <C> <C> <C>
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
</TABLE>
The primary criteria for the selection of a broker is the ability of the
broker, in the opinion of Advantus Capital, to secure prompt execution of the
transactions on favorable terms, including the reasonableness of the commission
and considering the state of the market at the time. In selecting a broker,
Advantus Capital considers whether such broker provides brokerage and research
services (as defined in the Securities Exchange Act of 1934), and generally the
Funds pay higher than the lowest commission rates available. Advantus Capital
may direct Fund transactions to brokers who furnish research services to
Advantus Capital. Such research services include advice, both directly and in
writing, as to the value of securities, the advisability of investing in,
purchasing or selling securities, and the availability of securities or
purchasers or sellers of securities, as well as analysis and reports concerning
issues, industries, securities, economic factors and trends, portfolio strategy,
and the performance of accounts. By allocating brokerage business in order to
obtain research services for Advantus Capital, the Funds enable Advantus Capital
to supplement its own investment research activities and allows Advantus Capital
to obtain the views and information of individuals and research staffs of many
different securities research firms prior to making investment decisions for the
Funds. To the extent such commissions are directed to these other brokers who
furnish research services to Advantus Capital, Advantus Capital receives a
benefit, not capable of evaluation in dollar amounts, without providing any
direct monetary benefit to the Funds from these commissions.
There is no formula for the allocation by Advantus Capital of the Funds'
brokerage business to any broker-dealer for brokerage and research services.
However, Advantus Capital will authorize a Fund to pay an amount of
commission for effecting a securities transaction in excess of the amount of
commission another broker would have charged only if Advantus Capital
determines in good faith that such amount of commission is reasonable in
relation to the value of the brokerage and research services provided by such
broker viewed in terms of either that particular transaction or Advantus
Capital's overall responsibilities with respect to the accounts as to which
it exercises investment discretion. During the fiscal 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:
24
<PAGE>
<TABLE>
<CAPTION>
Aggregate Transactions Commissions Paid on
Fund Directed for Research Directed Transaction
---- --------------------- --------------------
<S> <C> <C>
Venture Fund $5,896,470 $98,289
Index Fund 5,074,387 2,935
Real Estate
Securities Fund 550,781 26,653
</TABLE>
No brokerage is allocated for the sale of Fund shares. Advantus Capital
believes that most research services obtained by it generally benefit one or
more of the investment companies which it manages and also benefit accounts
which it manages. Normally research services obtained through managed funds and
managed accounts investing in common stocks would primarily benefit such funds
and accounts; similarly, services obtained from transactions in fixed income
securities would be of greater benefit to the managed funds and managed accounts
investing in debt securities.
The same security may be suitable for one or more of the Funds and the
other funds or private accounts managed by Advantus Capital or its affiliates.
If and when two or more funds or accounts simultaneously purchase or sell the
same security, the transactions will be allocated as to price and amount in
accordance with arrangements equitable to each fund or account. The
simultaneous purchase or sale of the same securities by one Fund and other Funds
or accounts may have a detrimental effect on that Fund, as this may affect the
price paid or received by the Fund or the size of the position obtainable by the
Fund.
The Funds will not execute portfolio transactions through any affiliate,
unless such transactions, including the frequency thereof, the receipt of
commissions payable in connection therewith and the selection of the affiliated
broker-dealer effecting such transactions are not unfair or unreasonable to the
shareholders of the Funds. In the event any transactions are executed on an
agency basis, Advantus Capital will authorize the Funds to pay an amount of
commission for effecting a securities transaction in excess of the amount of
commission another broker-dealer would have charged only if Advantus Capital
determines in good faith that such amount of commission is reasonable in
relation to the value of the brokerage and research services provided by such
broker-dealer, viewed in terms of either that particular transaction or the
overall responsibilities of Advantus Capital with respect to the Funds as to
which it exercises investment discretion. If the Funds execute any transactions
on an agency basis, they will generally pay higher than the lowest commission
rates available.
In determining the commissions to be paid to an affiliated
broker-dealer, it is the policy of the Funds that such commissions will, in
the judgment of Advantus Capital, subject to review by the Fund's Board of
Directors, be both (a) at least as favorable as those which would be charged
by other qualified brokers in connection with comparable transactions
involving similar securities being purchased or sold on an exchange during a
comparable period of time, and (b) at least as favorable as commissions
contemporaneously charged by such affiliated broker-dealers on comparable
transactions for their most favored comparable unaffiliated customers. While
the Funds do not deem it practicable and in their best interest to solicit
competitive bids for commission rates on each transaction, consideration will
regularly be given to posted commission rates as well as to other information
concerning the level of commissions charged on comparable transactions by
other qualified brokers.
Information regarding the acquisition by the Funds during the fiscal
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:
25
<PAGE>
<TABLE>
<CAPTION>
Approximate
Value of Securities
Owned at End of
Fund Name of Issuer Fiscal Period
---- -------------- -------------
<S> <C> <C>
Venture Fund ----- -----
Index Fund Merrill Lynch & Company, Inc. $102,094
Lehman Brothers Holdings, Inc. 91,375
Morgan Stanley Dean Witter 228,016
Paine Webber Group, Inc. 96,000
Real Estate
Securities Fund -- --
</TABLE>
CALCULATION OF PERFORMANCE DATA
Advertisements and other sales literature for the Funds may refer to
"yield," "average annual total return" and "cumulative total return."
Performance quotations are computed separately for each class of shares of the
Funds.
YIELD. Yield is computed by dividing the net investment income per share
(as defined under Securities and Exchange Commission rules and regulations)
earned during the computation period by the maximum offering price per share on
the last day of the period, according to the following formula:
a-b 6
YIELD = 2[( ----- +1) -1]
cd
Where: a = dividends and interest earned during the period;
b = expenses accrued for the period (net of
reimbursements);
c = the average daily number of shares outstanding during
the period that were entitled to receive dividends; and
d = the maximum offering price per share on the last day of
the period.
The yield on investments in each of the Funds for the 30-day period ended
July 31, 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.
<TABLE>
<CAPTION>
Yield
-------
Fund Class A Class B Class C
---- ------- ------- -------
<S> <C> <C> <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)
</TABLE>
AVERAGE ANNUAL TOTAL RETURN. Average annual total return is computed by
finding the average annual compounded rates of return over the periods indicated
in the advertisement that would equate the initial amount invested to the ending
redeemable value, according to the following formula:
n
P(1+T) = ERV
Where: P = a hypothetical initial payment of $1,000;
T = average annual total return;
n = number of years; and
26
<PAGE>
ERV = ending redeemable value at the end of the period
of a hypothetical $1,000 payment made at the
beginning of such period.
The average annual total return on investments in each of the Funds for the
periods indicated ending July 31, 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.
<TABLE>
<CAPTION>
1 YEAR
-------
FUND CLASS A CLASS B CLASS C
- ----- ------- ------- -------
<S> <C> <C> <C> <C> <C> <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)
</TABLE>
<TABLE>
<CAPTION>
SINCE INCEPTION
---------------
FUND CLASS A CLASS B CLASS C
- ----- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <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)
- ---------------
</TABLE>
(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.
<TABLE>
<CAPTION>
CUMULATIVE TOTAL RETURN
-----------------------
FUND CLASS A CLASS B CLASS C
- ----- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <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)
</TABLE>
27
<PAGE>
- ---------------
(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.
<TABLE>
<CAPTION>
Shares Outstanding at July 31, 1999
-----------------------------------
Fund Class A Class B Class C
---- ------- ------- -------
<S> <C> <C> <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
</TABLE>
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:
<TABLE>
<CAPTION>
Number of
Name and Address of Shareholder Shares Percentage
------------------------------- ------ ----------
<S> <C> <C>
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*
</TABLE>
* 400 Robert Street North, St. Paul, Minnesota 55101.
HOW TO BUY SHARES
Each Fund's shares may be purchased at the public offering price from
Ascend Financial, and from certain other broker-dealers. Ascend Financial
reserves the right to reject any purchase order. Shares of the Funds may be
purchased at a price equal to their respective net asset value.
28
<PAGE>
Certificates representing shares purchased are not currently issued.
However, shareholders will receive written confirmation of their purchases.
Shareholders will have the same rights of ownership with respect to such shares
as if certificates had been issued. SHAREHOLDERS WHO HOLD PREVIOUSLY ISSUED
CERTIFICATES REPRESENTING ANY OF THEIR SHARES WILL NOT BE ALLOWED TO REDEEM SUCH
CERTIFICATED SHARES BY TELEPHONE.
ALTERNATIVE PURCHASE ARRANGEMENTS
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 in
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 First Data Investors Services Group, Inc. ("First Data"), the Funds' transfer
agent, at Advantus Funds Group, P.O. Box 9767, Providence, Rhode Island
02940-5059. Additional purchases may be made at any time by mailing a check,
payable to the Fund, to the same address. Checks for additional purchases
should be identified with the appropriate account number. Purchase orders may
also be submitted through Ascend Financial or other broker-dealers authorized to
sell shares of the Fund.
PURCHASE BY WIRE
Shares may also be purchased by Federal Reserve or bank wire. This method
will result in a more rapid investment in shares of the Fund. Before wiring any
funds, contact Minnesota Life, through its Advantus Shareholder Services
division, at 1-800-665-6005 for instructions. Promptly after making an initial
purchase by wire, an investor should complete an account application and mail it
to Advantus Funds Group, P.O. Box 9767, Providence, Rhode Island 02940-5059.
Subsequent purchases may be made in the same manner. Wire purchases
normally take two or more hours to complete, and to be accepted the same day
must be received by 3:00 p.m. (Central time). Banks may charge a fee for
transmitting funds by wire.
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 First Data. Orders received after
the close of the NYSE will be effected at the price next determined on the next
business day.
29
<PAGE>
MINIMUM INVESTMENTS
A minimum initial investment of $250 is required, and the minimum
subsequent investment is $25.
PUBLIC OFFERING PRICE
The public offering price of the Fund will be the net asset value per share
of the Fund next determined after an order is received and becomes effective,
plus the applicable sales charge, if any. The net asset value per share of each
class is determined by dividing the value of the securities, cash and other
assets (including dividends accrued but not collected) of the Fund attributable
to such class less all liabilities (including accrued expenses but excluding
capital and surplus) attributable to such class, by the total number of shares
of such class outstanding.
The net asset value of the shares of the Fund is determined as of the close
of normal trading on the New York Stock Exchange (as of the date of this
Statement of Additional Information the primary close of trading is 3:00 p.m.
(Central time), but this time may be changed) on each day, Monday through
Friday, except (i) days on which changes in the value of the Fund's portfolio
securities will not materially affect the current net asset value of Fund
shares, (ii) days during which no Fund shares are tendered for redemption and no
order to purchase or sell Fund shares is received by the Fund and (iii)
customary national business holidays on which the New York Stock Exchange is
closed for trading.
Securities, including put and call options, which are traded
over-the-counter and on a national exchange will be valued according to the
broadest and most representative market. A security which is only listed or
traded on an exchange, or for which an exchange is the most representative
market, is valued at its last sale price (prior to the time as of which assets
are valued) on the exchange where it is principally traded. Lacking any sales
on the exchange where it is principally traded on the day of valuation, prior to
the time as of which assets are valued, the security generally is valued at the
last bid price on that exchange. Futures contracts will be valued in a like
manner, except that open futures contracts sales will be valued using the
closing settlement price or in the absence of such a price, the most recent
quoted bid price. All other securities for which over-the-counter market
quotations are readily available are valued on the basis of the last current bid
price. When market quotations are not readily available, such securities are
valued at fair value as determined in good faith by the Board of Directors.
Other assets also are valued at fair value as determined in good faith by the
Board of Directors. However, debt securities may be valued on the basis of
valuations furnished by a pricing service which utilizes electronic data
processing techniques to determine valuations for normal institutional-size
trading units of debt securities, without regard to sale or bid prices, when
such valuations are believed to more accurately reflect the fair market value of
such securities. Short-term investments in debt securities are valued daily at
market.
SALES CHARGES
CLASS A SHARES
The public offering price of Class A shares of each Fund is the net asset
value of the Fund's shares plus the applicable front end sales charge ("FESC"),
which will vary with the size of the purchase. Ascend Financial receives all
applicable sales charges. The Fund receives the net asset value. The current
sales charges are:
30
<PAGE>
<TABLE>
<CAPTION>
Sales Charge as a
Percentage of:
Net Amount Paid to Broker-
Offering Amount Dealers as a Percentage of
Value of Total Investment Price Invested Offering Price:
------------------------- ----- -------- ---------------
<S> <C> <C> <C>
Less than $50,000 5.5% 5.82% 5.00%
$50,000 but less than $100,000 4.5 4.71 4.00
$100,000 but less than $250,000 3.5 3.63 3.00
$250,000 but less than $500,000 2.5 2.56 2.25
$500,000 but less than $1,000,000 2.0 2.04 1.75
$1,000,000 and over (1) 0 0 1.00*
</TABLE>
(1) A FESC will not be assessed for purchases of Class A shares of at least $1
million, but a contingent deferred sales charge of 1.00% will be imposed if such
shares are sold within one year after the date of purchase.
* These payments are paid by Ascend Financial or one of its affiliates, at its
own expense, and not by the Fund or its shareholders.
The sales charge applicable to an initial investment in the Fund depends on
the offering price of the investment. The sales charge applicable to subsequent
investments, however, depends on the offering price of that investment plus the
current net asset value of the investor's previous investments in the Fund. For
example, if an investor makes an initial investment in Class A shares of Venture
Fund with an offering price of $40,000 the investor will pay a sales charge
equal to 5.5% of the $40,000 investment, but if an investor already owns Class A
shares of Venture Fund with a current net asset value of $40,000 and invests in
additional Class A shares of Horizon Fund with an offering price of $10,000 the
investor will pay a sales charge equal to 4.5% of the additional $10,000 since
the total investment in the Fund would then be $50,000.
CLASS B SHARES
Class B shares of 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:
<TABLE>
<CAPTION>
Shares Convert
to Class A in
CDSC Applicable in Year the Month
----------------------- After
Shares Purchased in an Amount 1 2 3 4 5 6 Expiration of
----------------------------- - - - - - - -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Less than $50,000 5.0% 4.5% 3.5% 2.5% 1.5% 1.5% 84 months
$50,000 but less than $100,000 4.5 3.5 2.5 1.5 1.5 0 76 months
$100,000 but less than $250,000 3.5 2.5 1.5 1.5 0 0 60 months
$250,000 but less than $500,000 2.5 1.5 1.5 0 0 0 44 months
$500,000 but less than $1,000,000 1.5 1.5 0 0 0 0 28 months
</TABLE>
Proceeds from the CDSC are paid to Ascend Financial and are used to defray
expenses related to providing distribution-related services to the Fund in
connection with the sale of Class B shares, such as the payment of compensation
to selected broker-dealers, and for selling Class B shares. The combination of
the CDSC and the Rule 12b-1 fee enables the Fund to sell the Class B shares
31
<PAGE>
without deduction of a sales charge at the time of purchase. Although Class B
shares are sold without an initial sales charge, Ascend Financial pays a sales
commission to broker-dealers, and to registered representatives of Ascend
Financial, who sell Class B shares. The amount of this commission may differ
from the amount of the commission paid in connection with sales of Class A
shares. The higher Rule 12b-1 fee will cause Class B shares to have a higher
expense ratio and to pay lower dividends than Class A shares. Ascend Financial
pays other broker-dealers for the sale of Class B shares in accordance with the
following schedule:
<TABLE>
<CAPTION>
Amount Paid to Broker-Dealers as a
Shares Purchased in an Amount Percentage of Offering Price:
----------------------------- -----------------------------
<S> <C>
Less than $50,000 4.17%
$50,000 but less than $100,000 3.75
$100,000 but less than $250,000 2.92
$250,000 but less than $500,000 2.08
$500,000 but less than $1,000,000 1.25
</TABLE>
CONVERSION FEATURE. On the fifteenth day of the month (or, if different, the
last business day prior to such date) after the expiration of the applicable
holding period described in the table above, Class B shares will
automatically convert to Class A shares and will no longer be subject to a
higher Rule 12b-1 fee. Such conversion will be on the basis of the relative
net asset values of the two classes. Class A shares issued upon such
conversion will not be subject to any FESC or CDSC. Class B shares acquired
by exchange from Class B shares of another Advantus Multiple Class Funds will
convert into Class A shares based on the time of the initial purchase.
Purchased Class B shares ("Purchased B Shares") will convert after the
specified number of months following the purchase date. All Class B shares
in a shareholder's account that were acquired through the reinvestment of
dividends and distributions ("Reinvestment B Shares") will be held in a
separate sub-account. Each time any Purchased B Shares convert to Class A
shares, a PRO RATA portion (based on the ratio that the total converting
Purchased B Shares bears to the shareholder's total converting and
non-converting Purchased B Shares immediately prior to the conversion) of the
Reinvestment B Shares then in the sub-account will also convert to Class A
shares.
The conversion of Class B shares to Class A shares is subject to the
continuing availability of a ruling from the Internal Revenue Service or an
opinion of counsel that payment of different dividends by each of the classes
of shares does not result in the Fund's dividends or distributions
constituting "preferential dividends" under the Internal Revenue Code of
1986, as amended, and that such conversions do not constitute taxable events
for Federal tax purposes. There can be no assurance that such ruling or
opinion will be available, and the conversion of Class B shares to Class A
shares will not occur if such ruling or opinion is not available. In such
event, Class B shares would continue to be subject to higher expenses than
Class A shares for an indefinite period.
CLASS C SHARES
Class C shares of 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:
32
<PAGE>
<TABLE>
<CAPTION>
Shares Convert to
Class A in the
Month After
Shares Purchased in an Amount Expiration of
----------------------------- -------------
<S> <C>
Less than $50,000 96 months
$50,000 but less than $100,000 88 months
$100,000 but less than $250,000 72 months
$250,000 but less than $500,000 56 months
$500,000 but less than $1,000,000 40 months
</TABLE>
The longer period during which the Rule 12b-1 fee is charged enables the
Fund to sell the Class C shares without deduction of a sales charge at the time
of purchase and without imposing a CDSC at redemption. Ascend Financial does
not pay a sales commission to broker-dealers, or to registered representatives
of Ascend Financial, who sell Class C shares. The higher Rule 12b-1 fee will
cause Class C shares to have a higher expense ratio and to pay lower dividends
than Class A shares.
CONVERSION FEATURE. On the fifteenth day of the month (or, if different,
the last business day prior to such date) after the expiration of the applicable
holding period described in the table above, Class C shares will automatically
convert to Class A shares and will no longer be subject to a higher Rule 12b-1
fee. Such conversion will be on the basis of the relative net asset values of
the two classes. Class A shares issued upon such conversion will not be subject
to any FESC or CDSC. Class C shares acquired by exchange from Class C shares of
another Advantus Multiple Class Fund will convert into Class A shares based on
the time of the initial purchase. Purchased Class C shares ("Purchased C
Shares") will convert after the specified number of months following the
purchase date. All Class C shares in a shareholder's account that were acquired
through the reinvestment of dividends and distributions ("Reinvestment C
Shares") will be held in a separate sub-account. Each time any Purchased C
Shares convert to Class A shares, a pro rata portion (based on the ratio that
the total converting Purchased C Shares bears to the shareholder's total
converting and non-converting Purchased C Shares immediately prior to the
conversion) of the Reinvestment C Shares then in the sub-account will also
convert to Class A shares.
The conversion of Class C shares to Class A shares is subject to the
continuing availability of a ruling from the Internal Revenue Service or an
opinion of counsel that payment of different dividends by each of the classes
of shares does not result in the Fund's dividends or distributions
constituting "preferential dividends" under the Internal Revenue Code of
1986, as amended, and that such conversions do not constitute taxable events
for Federal tax purposes. There can be no assurance that such ruling or
opinion will be available, and the conversion of Class C shares to Class A
shares will not occur if such ruling or opinion is not available. In such
event, Class C shares would continue to be subject to higher expenses than
Class A shares for an indefinite period.
OTHER PAYMENTS TO BROKER-DEALERS
Broker-dealers selling Class A, Class B and Class C shares of the Funds
will receive a shareholder servicing fee (Rule 12b-1 fee) equal, on an annual
basis, to .25% of the net asset values attributable to Class A, Class B and
Class C shares. All such shareholder servicing fees are paid quarterly in
arrears beginning with the second year after the sale of the shares to which
such fees are attributable (i.e., the first payment is at the end of the
fifteenth month). Rule 12b-1 distribution fees will also be paid quarterly in
arrears to broker-dealers selling Class C shares equal, on an annual basis,
to .75% of the net asset values attributable to such Class C shares.
NET ASSET VALUE AND PUBLIC OFFERING PRICE
The method for determining the public offering price and net asset value
per share is summarized in the Prospectus in the text following the heading
"Buying and Selling Shares."
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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
---------------------------- Offering Price Per Share ($11.11)
Shares outstanding (280,417)
CLASS C SHARES
Net Assets ($466,587) = Net Asset Value and Public
--------------------------- Offering Price Per Share ($11.15)
Shares outstanding (41,829)
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
---------------------------- Offering Price Per Share ($17.64)
Shares outstanding (1,372,193)
CLASS C SHARES
Net Assets ($2,909,973) = Net Asset Value and Public
---------------------------- Offering Price Per Share ($17.60)
Shares outstanding (165,340)
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.
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<PAGE>
RIGHT OF ACCUMULATION-CUMULATIVE PURCHASE DISCOUNT
The front end sales charge and contingent deferred sales charge applicable
to each purchase of Class A shares and Class B shares, respectively, of the
Funds is based on the next computed net asset value of all Class A, Class B and
Class C shares of such Funds held by the shareholder (including dividends
reinvested and capital gains distributions accepted in shares), plus the cost of
all Class A, Class B and Class C shares of such Funds currently being purchased.
It is the obligation of each shareholder desiring this discount in sales charge
to notify Ascend Financial, through his or her dealer or otherwise, that he or
she is entitled to the discount.
LETTER OF INTENT
The applicable sales charge for purchases of Class A shares is based on
total purchases over a 13-month period where there is an initial purchase equal
to or exceeding $250, accompanied by filing with Ascend Financial a signed
"Letter of Intent" form to purchase, and by in fact purchasing not less than
$50,000 of shares in one of the Funds within that time. The 13-month period is
measured from the date the Letter of Intent is approved by Ascend Financial, or
at the purchaser's option, it may be made retroactive 90 days, in which case
Ascend Financial will make appropriate adjustments on purchases during the
90-day period.
In computing the total amount purchased for purposes of determining the
applicable sales charge, the net asset value of 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,
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<PAGE>
and (iii) satisfies uniform criteria which enable Ascend Financial to realize
economies of scale in distributing such shares. A qualified group must have
more than ten members, must be available to arrange for group meetings between
representatives of Ascend Financial, must agree to include sales and other
materials related to the Funds in its publications and mailings to members at
reduced or no cost to Ascend Financial, and must seek, upon request, to arrange
for payroll deduction or other bulk transmission of investments to the Funds.
WAIVER OF SALES CHARGES FOR CERTAIN SALES OF CLASS A SHARES
Directors and officers of Advantus Capital, 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
36
<PAGE>
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 First Data, the Funds' transfer agent. Stock
certificates are not currently issued. Following each transaction in the
account, a shareholder will receive a confirmation statement disclosing the
current balance of shares owned and the details of recent transactions in the
account. After the close of each year First Data sends to each shareholder a
statement providing federal tax information on dividends and distributions paid
to the shareholder during the year. This should be retained as a permanent
record. A fee may be charged for providing duplicate information.
The open account system provides for full and fractional shares expressed
to four decimal places and, by making the issuance and delivery of stock
certificates unnecessary, eliminates problems of handling and safekeeping, and
the cost and inconvenience of replacing lost, stolen, mutilated or destroyed
certificates.
The costs of maintaining the open account system are paid by 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 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.
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<PAGE>
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.
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<PAGE>
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
39
<PAGE>
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.
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<PAGE>
The CDSC does not apply to: (1) redemption of Class B shares in connection
with the automatic conversion to Class A shares; (2) redemption of shares when a
Fund exercises its right to liquidate accounts which are less than the minimum
account size; and (3) redemptions in the event of the death or disability of the
shareholder within the meaning of Section 72(m)(7) of the Internal Revenue Code.
The CDSC will also not apply to certain exchanges. See "Exchange and Transfer
of Fund Shares," above.
TELEPHONE REDEMPTION
The Fund's shareholders have this privilege automatically, unless they have
elected on the account application not to have such privilege, and may redeem
shares by calling Advantus Shareholder Services at 1-800-665-6005 (see
"Telephone Transactions"). A telephone redemption request will not be honored,
however, if the shareholder's address of record or bank wire instructions have
been changed without a guarantee of the shareholder's signature (see
"Signature Guarantee" above) within the 30-day period prior to receipt of the
redemption request. The maximum amount which may be redeemed by telephone is
$50,000. The proceeds will be sent by check to the address of record for the
account. If the amount is $500 or more, and if the shareholder has designated a
bank account, the proceeds may be wired to the shareholder's designated bank
account, and the prevailing wire charge (currently $5.00) will be added to the
amount redeemed from the Fund. The Fund reserves the right to modify, terminate
or impose charges upon the telephone redemption privilege.
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 telephone is $50,000. The
proceeds will be sent by check to the address of record for the account. If the
amount is $500 or more, and if the shareholder has designated a bank account,
the proceeds may be wired to the shareholder's designated bank account, and the
prevailing wire charge (currently $5.00) will be added to the amount redeemed
from the Fund. The Fund reserves the right to modify, terminate or impose
charges upon the telephone redemption privilege.
DELAY IN PAYMENT OF REDEMPTION PROCEEDS
Payment of redemption proceeds will ordinarily be made as soon as possible
and within the periods of time described above. However, an exception to this
is that if redemption is requested after a purchase by non-guaranteed funds
(such as a personal check), the Fund will delay mailing the redemption check or
wiring proceeds until it has reasonable assurance that the purchase check has
cleared (good payment has been collected). This delay may be up to 14 days from
the purchase date.
FUND'S RIGHT TO REDEEM SMALL ACCOUNTS
The Fund has the right to redeem the shares in inactive accounts which, due
to redemptions and not to decreases in market value of the shares in the
account, have a total current value of less than $150. Before redeeming an
account, the Fund will mail to the shareholder a written notice of its intention
to redeem, which will give the investor an opportunity to make an additional
investment. If no additional investment is received by the Fund within 60 days
of the date the notice was mailed, the shareholder's account will be redeemed.
REINSTATEMENT PRIVILEGE
The Prospectus for each of the Funds describes redeeming shareholders'
reinstatement privileges in "Buying and Selling Shares" in the Funds'
Prospectus. Written notice from persons wishing to exercise this
reinstatement privilege must be received by Ascend Financial within 90 days
after the date of the redemption. The reinstatement or exchange will be made
at net asset value next determined after receipt of the notice and will be
limited to the amount of the redemption proceeds or to the nearest full share
if fractional shares are not purchased. All shares issued as a result of the
reinstatement privilege applicable to redemptions of Class A and Class B
shares will be issued only as Class A shares. Any CDSC incurred in
connection with the prior redemption (within 90 days) of Class B shares will
not be refunded or re-credited to the shareholder's account. Shareholders
who redeem Class C shares and exercise their reinstatement privilege will be
issued only Class C shares, which shares will have a remaining holding period
prior to conversion equal to the remaining holding period applicable to the
prior Class C shares at redemption.
See "Distributions and Tax Status" below for a discussion of the effect of
redeeming shares within 90 days after acquiring them and subsequently acquiring
new shares in any mutual fund at a reduced sales charge. Should an investor
utilize the reinstatement privilege following a redemption which resulted in a
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loss, all or a portion of that loss might not be currently deductible for
Federal income tax purposes, for an investor which is not tax-exempt.
Exercising the reinstatement privilege would not alter any capital gains taxes
payable on a realized gain, for an investor which is not tax-exempt. See
discussion under "Distributions and Tax Status" below regarding the taxation of
capital gains.
TELEPHONE TRANSACTIONS
Shareholders of the Fund are permitted to exchange or redeem the Fund's
shares by telephone. See "Exchange and Transfer of Fund Shares" and
"Redemptions" for further details. The privilege to initiate such transactions
by telephone is made available automatically unless the shareholder elects on
the account application not to have such privilege.
Shareholders, or persons authorized by shareholders, may initiate telephone
transactions by telephoning Advantus Shareholder Services, toll free, at
at (800) 665-6005. Automated service is available 24 hours a day, and service
representatives are available Monday through Friday, from 8:00 a.m. to 4:45 p.m.
(Central Time). Telephone transaction requests received after 3:00 p.m.
(Central Time) will be treated as received the next business day. The maximum
amount which may be redeemed by telephone is $50,000. During periods of marked
economic or market changes, shareholders may experience difficulty in
implementing a telephone exchange or redemption due to a heavy volume of
telephone calls. In such a circumstance, shareholders should consider
submitting a written request while continuing to attempt a telephone exchange or
redemption. The Fund reserves the right to modify, terminate or impose charges
upon the telephone exchange and redemption privileges upon 60 days' prior notice
to shareholders.
The Fund will not be liable for following instructions communicated by
telephone which it reasonably believes to be genuine; provided, however, that
the Fund will employ reasonable procedures to confirm that instructions
communicated by telephone are genuine, and that if they do not, they may be
liable for any losses due to unauthorized or fraudulent instructions. The
procedures for processing telephone transactions include tape recording of
telephone instructions, asking shareholders for their account number and a
personal identifying number, and providing written confirmation of such
transactions.
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's-Registered Trademark-,"
"S&P-Registered Trademark-," "S&P 500-Registered Trademark-," "Standard & Poor's
500" and "500" and has licensed the use of such marks by the Index Fund.
Index Fund is not sponsored, endorsed, sold or promoted by S&P. S&P makes
no representation or warranty, express or implied, to the owners of the Index
Fund or any member of the public regarding the advisability of investing in
securities generally or in the Index Fund particularly or the ability of the S&P
500 Index to track general stock market performance. S&P's only relationship to
the Index Fund is the licensing of certain trademarks and trade names of S&P and
of the S&P 500 Index which is determined, composed and calculated by S&P without
regard to the Fund. S&P has no obligation to take the needs of the Index Fund
or the owners of the Fund into consideration in determining, composing or
calculating the S&P 500 Index. S&P is not responsible for and has not
participated in the determination of the net asset value or public offering
price of the Index Fund nor is S&P a distributor of the Fund. S&P has no
obligation or liability in connection with the administration, marketing or
trading of the Index Fund.
S&P DOES NOT GUARANTEE THE ACCURACY AND/OR THE COMPLETENESS OF THE S&P 500
INDEX OR ANY DATA INCLUDED THEREIN, NOR DOES S&P HAVE ANY LIABILITY FOR ANY
ERRORS, OMISSIONS, OR INTERRUPTIONS THEREIN. S&P MAKES NO WARRANTY, EXPRESS OR
IMPLIED, AS TO RESULTS TO BE OBTAINED BY THE INDEX FUND, OWNERS OF THE FUND, OR
ANY OTHER PERSON OR ENTITY FROM THE USE OF THE S&P 500 INDEX OR ANY DATA
INCLUDED THEREIN. S&P MAKES NO EXPRESS OR IMPLIED WARRANTIES, AND EXPRESSLY
DISCLAIMS ALL WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE
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OR USE WITH RESPECT TO THE S&P 500 INDEX OR ANY DATA INCLUDED THEREIN. WITHOUT
LIMITING ANY OF THE FOREGOING, IN NO EVENT SHALL S&P HAVE ANY LIABILITY FOR ANY
SPECIAL, PUNITIVE, INDIRECT, OR CONSEQUENTIAL DAMAGES (INCLUDING LOST PROFITS),
EVEN IF NOTIFIED OF THE POSSIBILITY OF SUCH DAMAGES.
DISTRIBUTIONS AND TAX STATUS
DIVIDENDS AND CAPITAL GAINS DISTRIBUTIONS
The policy of the Funds has been to pay dividends from net investment
income quarterly. Any net realized capital gains are generally distributed once
a year, during December. Distributions paid by the Funds, if any, with respect
to Class A, Class B and Class C shares will be calculated in the same manner, at
the same time, on the same day and will be in the same amount, except that the
higher Rule 12b-1 fees applicable to Class B and Class C shares will be borne
exclusively by such shares. The per share distributions on Class B and Class C
shares will be lower than the per share distributions on Class A shares as a
result of the higher Rule 12b-1 fees applicable to Class B and Class C shares.
Any dividend payments or net capital gains distributions made by the
Funds are in the form of additional shares of the same class of the Fund
rather than in cash, unless a shareholder specifically requests the Fund in
writing that the payment be made in cash. The distribution of these shares
is made at net asset value on the payment date of the dividend, without any
sales or other charges to the shareholder. The taxable status of income
dividends and/or net capital gains distributions is not affected by whether
they are reinvested or paid in cash. Authorization to pay dividends in cash
may be made on the application form, or at any time by letter.
Upon written request to a Fund, a shareholder may also elect to have
dividends from the Fund invested without sales charge in shares of Advantus
Money Market Fund or shares of the same class of another of the Advantus
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
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capital gains distributions which are expected to be announced, or have been
announced but not paid. Any such dividends or capital gains distributions paid
shortly after a purchase of shares by an investor prior to the record date will
have the effect of reducing the per share net asset value by the amount of the
dividends or distributions. All or a portion of such dividends or
distributions, although in effect a return of capital, is subject to taxation.
The Code provides that a shareholder who pays a sales charge in acquiring
shares of a mutual fund, redeems those shares within 90 days after acquiring
them, and subsequently acquires new shares in any mutual fund for a reduced
sales charge or no sales charge (pursuant to a reinvestment right acquired with
the first shares), may not take into account the sales charge imposed on the
first acquisition, to the extent of the reduction in the sales charge on the
second acquisition, for purposes of computing gain or loss on disposition of the
first acquired shares. The amount of sales charge disregarded under this rule
will, however, be treated as incurred in connection with the acquisition of the
second acquired shares.
Shareholders of the Fund receive an annual statement detailing federal tax
information. Distributions by the Funds, including the amount of any
redemption, are reported to shareholders in such annual statement and to the
Internal Revenue Service to the extent required by the Code.
The Funds are required by federal law to withhold 31% of reportable
payments (including dividends, capital gain distributions, and redemptions) paid
to certain accounts whose owners have not complied with IRS regulations. In
order to avoid this backup withholding requirement, each shareholder will be
asked to certify on the shareholder's account application that the social
security or taxpayer identification number provided is correct and that the
shareholder is not subject to backup withholding for previous underreporting to
the IRS.
Some of the investment practices that may be employed by the Funds will be
subject to special provisions that, among other things, may defer the use of
certain losses of such Funds, affect the holding period of the securities held
by the Funds and affect the character of the gains or losses realized. These
provisions may also require the Funds to mark-to-market some of the positions in
their respective portfolios (i.e., treat them as closed out) or to accrue
original discount, both of which may cause such Funds to recognize income
without receiving cash with which to make distributions in amounts necessary to
satisfy the distribution requirements for qualification as a regulated
investment company and for avoiding income and excise taxes. Accordingly, in
order to make the required distributions, a Fund may be required to borrow or
liquidate securities. Each Fund will monitor its transactions and may make
certain elections in order to mitigate the effect of these rules and prevent
disqualification of the Funds as regulated investment companies.
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 thatis allocable to the
disqualified organization, multiplied by the highest Federal income tax rate
imposed on corporations.
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Each Fund is subject to a non-deductible excise tax equal to 4 percent of
the excess, if any, of the amount required to be distributed pursuant to the
Code for each calendar year over the amount actually distributed. In order to
avoid the imposition of this excise tax, the Fund generally must declare
dividends by the end of a calendar year representing 98 percent of the Fund's
ordinary income for the calendar year and 98 percent of its capital gain net
income (both long-term and short-term capital gains) for the twelve-month period
ending October 31 of the calendar year.
The foregoing relates only to federal taxation. Prospective shareholders
should consult their tax advisers as to the possible application of state and
local income tax laws to ownership of Fund shares.
FINANCIAL STATEMENTS
Each Funds' financial statements for the fiscal year ended July 31, 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, are incorporated by reference in this Statement of Additional
Information.
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APPENDIX A
BOND AND COMMERCIAL PAPER RATINGS
BOND RATINGS
Moody's Investors Service, Inc. describes its six highest ratings for
corporate bonds and mortgage-related securities as follows:
Bonds which are rated Aaa are judged to be of the best quality. They carry
the smallest degree of investment risk and are generally referred to as "gilt
edge." Interest payments are protected by a large or by an exceptionally stable
margin and principal is secure. While the various protective elements are
likely to change, such changes as can be visualized are most unlikely to impair
the fundamentally strong position of such issues.
Bonds which are rated Aa are judged to be of high quality by all standards.
Together with the Aaa group they comprise what are generally known as high grade
bonds. They are rated lower than the best bonds because margins of protection
may not be as large as in Aaa securities or fluctuation of protective elements
may be of greater amplitude or there may be other elements present which make
the long term risks appear somewhat larger than in Aaa securities.
Bonds which are rated A possess many favorable investment attributes and
are to be considered as upper medium grade obligations. Factors giving security
to principal and interest are considered adequate but elements may be present
which suggest a susceptibility to impairment some time in the future.
Bonds which are rated Baa are considered medium grade obligations, i.e.,
they are neither highly protected nor poorly secured. Interest payments and
principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
Bonds which are rated Ba are judged to have speculative elements; their
future cannot be considered as well-assured. Often the protection of interest
and principal payments may be very moderate, and thereby not well safeguarded
during both good and bad times over the future. Uncertainty of position
characterizes bonds in this class.
Bonds which are rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.
Moody's Investors Service, Inc. also applies numerical modifiers, 1, 2, and
3, in each of these generic rating classifications. The modifier 1 indicates
that the security ranks in the higher end of its generic rating category; the
modifier 2 indicates a mid-range ranking; and the modifier 3 indicates that the
issue ranks in the lower end of its generic rating category.
Standard & Poor's Corporation describes its six highest ratings for
corporate bonds and mortgage-related securities as follows:
AAA. Debt rated "AAA" has the highest rating assigned by Standard &
Poor's. Capacity to pay interest and repay principal is extremely strong.
AA. Debt rated "AA" has a very strong capacity to pay interest and repay
principal and differs from the higher rated issues only in small degree.
A. Debt rated "A" has a strong capacity to pay interest and repay
principal although it is somewhat more susceptible to the adverse effects of
changes in circumstances and economic conditions than debt in higher rated
categories.
A-1
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BBB. Debt rated "BBB" is regarded as having an adequate capacity to pay
interest and repay principal. Whereas it normally exhibits adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
debt in this category than in higher rated categories.
BB. Debt rated "BB" has less near-term vulnerability to default than other
speculative grade debt. However, it faces major ongoing uncertainties or
exposure to adverse business, financial, or economic conditions that could lead
to inadequate capacity to meet timely interest and principal payments.
B. Debt rated "B" has a greater vulnerability to default but currently has
the capacity to meet interest payments and principal repayments. Adverse
business, financial, or economic conditions will likely impair capacity or
willingness to pay interest and repay principal. The "B" rating category is
also used for debt subordinated to senior debt that is assigned an actual or
implied "BB" or "BB-" rating.
Standard & Poor's Corporation applies indicators "+", no character, and "-"
to the above rating categories. The indicators show relative standing within
the major rating categories.
COMMERCIAL PAPER RATINGS
The rating Prime-1 is the highest commercial paper rating assigned by
Moody's Investors Service, Inc. Among the factors considered by Moody's
Investors Service, Inc. in assigning the ratings are the following: (1)
evaluation of the management of the issuer, (2) economic evaluation of the
issuer's industry or industries and an appraisal of speculative-type risks which
may be inherent in certain areas; (3) evaluation of the issuer's products in
relation to competition and customer acceptance; (4) liquidity; (5) amount and
quality of long-term debt; (6) trend of earnings over a period of ten years; (7)
financial strength of a parent company and the relationships which exist with
the issuer; an (8) recognition by the management of obligations which may be
present or may arise as a result of public interest questions and preparations
to meet such obligations.
The rating A-1 is the highest rating assigned by Standard & Poor's
Corporation to commercial paper which is considered by Standard & Poor's
Corporation to have the following characteristics:
Liquidity ratios of the issuer are adequate to meet cash redemptions.
Long-term senior debt is rated "A" or better. The issuer has access to at
least two additional channels of borrowing. Basic earnings and cash flow
have an upward trend with allowance made for unusual circumstances.
Typically, the issuer's industry is well established and the issuer has a
strong position within the industry. The reliability and quality of
management are unquestioned.
A-2
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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.
<PAGE>
PART C. OTHER INFORMATION
Item 23. EXHIBITS
The exhibits to this Registration Statement are listed in the Exhibit Index
hereto and are incorporated herein by reference.
Item 24. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH THE FUND
Wholly-owned subsidiary of Minnesota Mutual Companies, Inc.:
Securian Holding Company (Delaware)
Wholly-owned subsidiary of Securian Holding Company:
Securian Financial Group, Inc. (Delaware)
Capitol City Property Management, Inc.
Wholly-owned subsidiary of Securian Financial Group, Inc.
Minnesota Life Insurance Company
HomePlus Insurance Agency, Inc.
Wholly-owned subsidiaries of Minnesota Life Insurance Company:
Advantus Capital Management, Inc.
HomePlus Insurance Company
Northstar Life Insurance Company (New York)
The Ministers Life Insurance Company
Robert Street Energy, Inc.
Personal Finance Company (Delaware)
Enterprise Holding Corporation
Open-end registered investment company offering shares solely to separate
accounts of Minnesota Life Insurance Company:
Advantus Series Fund, Inc.
Wholly-owned subsidiary of Advantus Capital Management, Inc.:
Ascend Financial Services, Inc.
Wholly-owned subsidiaries of Ascend Financial Services, Inc.:
MIMLIC Insurance Agency of Massachusetts, Inc. (Massachusetts)
MIMLIC Insurance Agency of Texas, Inc. (Texas)
Ascend Insurance Agency of Nevada, Inc. (Nevada)
Ascend Insurance Agency of Oklahoma, Inc. (Oklahoma)
Worthmark Financial Services, LLC (Delaware)
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Wholly-owned subsidiaries of Enterprise Holding Corporation:
Financial Ink Corporation
Oakleaf Service Corporation
Concepts in Marketing Research Corporation
Lafayette Litho, Inc.
DataPlan Securities, Inc. (Ohio)
MIMLIC Imperial Corporation
MIMLIC Funding, Inc.
MCM Funding 1997-1, Inc.
MCM Funding 1998-1, Inc.
Ministers Life Resources, Inc.
Wedgewood Valley Golf, Inc.
Wholly-owned subsidiary of HomePlus Insurance Agency, Inc.:
HomePlus Insurance Agency of Texas, Inc. (Texas)
Majority-owned subsidiaries of Minnesota Life Insurance Company:
MIMLIC Life Insurance Company (Arizona)
Advantus Enterprise Fund, Inc.
Advantus International Balanced Fund, Inc.
Advantus Venture Fund, Inc.
Advantus Real Estate Securities Fund, Inc.
Majority-owned subsidiary of Ascend Financial Services, Inc.:
MIMLIC Insurance Agency of Ohio, Inc. (Ohio)
Fifty percent-owned subsidiary of MIMLIC Imperial Corporation:
C.R.I. Securities, Inc.
Less than majority owned, but greater than 25% owned, subsidiaries of Minnesota
Life Insurance Company:
Advantus Cornerstone Fund, Inc.
Less than 25% owned subsidiaries of Minnesota Life Insurance Company:
Advantus Horizon Fund, Inc.
Advantus Spectrum Fund, Inc.
Advantus Mortgage Securities Fund, Inc.
Advantus Money Market Fund, Inc.
Advantus Bond Fund, Inc.
Advantus Index 500 Fund, Inc.
Unless indicated otherwise parenthetically, each of the above corporations is a
Minnesota corporation.
ITEM 25. INDEMNIFICATION
The Articles of Incorporation and Bylaws of the Registrant provide that the
Registrant shall indemnify such persons, for such expenses and liabilities, in
such manner, under such circumstances, to the full extent permitted by Section
302A.521, Minnesota Statutes, as now enacted or hereafter amended, provided that
no such indemnification may be made if it would be in violation of Section 17(h)
of the Investment Company Act of 1940, as now
<PAGE>
enacted or hereafter amended. Section 302A.521 of the Minnesota Statutes, as
now enacted, provides that a corporation shall indemnify a person made or
threatened to be made a party to a proceeding against judgments, penalties,
fines, settlements and reasonable expenses, including attorneys' fees and
disbursements, incurred by the person in connection with the proceeding, if,
with respect to the acts or omissions of the person complained of in the
proceeding, the person has not been indemnified by another organization for the
same judgments, penalties, fines, settlements and reasonable expenses incurred
by the person in connection with the proceeding with respect to the same acts or
omissions; acted in good faith; received no improper personal benefit and the
Minnesota Statute dealing with directors' conflicts of interest, if applicable,
has been satisfied; in the case of a criminal proceeding, had no reasonable
cause to believe the conduct was unlawful and reasonably believed that the
conduct was in the best interests of the corporation or, in certain
circumstances, reasonably believed that the conduct was not opposed to the best
interests of the corporation.
Section 17(h) of the Investment Company Act of 1940 provides that neither
the charter, certificate of incorporation, articles of association, indenture of
trust, nor the by-laws of any registered investment company, nor any other
instrument pursuant to which such a company is organized or administered, shall
contain any provisions which protects or purports to protect any director or
officer of such company against any liability to the company or to its security
holders to which he would otherwise be subject by reason of willful misfeasance,
bad faith, gross negligence or reckless disregard of duties involved in the
conduct of his office. The staff of the Securities and Exchange Commission has
stated that it is of the view that an indemnification provision does not violate
Section 17(h) if it precludes indemnification for any liability arising by
reason of willful misfeasance, bad faith, gross negligence, or reckless
disregard of duties ("Disabling conduct") and sets forth reasonable and fair
means for determining whether indemnification shall be made. In the staff's
view, "reasonable and fair means" would include (1) a final decision on the
merits by a court or other body before whom the proceeding was brought that the
person to be indemnified ("indemnitee") was not liable by reason of disabling
conduct or, (2) in the absence of such a decision, a reasonable determination,
based upon a review of the facts, that the indemnitee was not liable by reason
of disabling conduct, by (a) the vote of a majority of a quorum of directors who
are neither "interested persons" of the company as defined in Section 2(a)(19)
of the Investment Company Act of 1940 nor parties to the proceeding
("disinterested, non-party directors") or (b) an independent legal counsel in a
written opinion. The dismissal of either a court action or administrative
proceeding against an indemnitee for insufficiency of evidence of any disabling
conduct with which he has been charged would, in the staff's view, provide
reasonable assurance that he was not liable by reason of disabling conduct. The
staff also believes that a determination by the vote of a majority of a quorum
of disinterested, non-party directors would provide reasonable assurance that
the indemnitee was not liable by reason of disabling conduct.
Insofar as indemnification for liability arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Registrant of expenses incurred
or paid by a director, officer or controlling person of the Registrant in the
successful defense of any action, suit or
<PAGE>
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Act and will
be governed by the final adjudication of such issue.
ITEM 26. BUSINESS AND OTHER CONNECTIONS OF THE INVESTMENT ADVISER
See "Managing the Fund" in the Prospectus and "Investment Advisory and Other
Services" in the Statement of Additional Information for information regarding
the business of the Adviser and the Sub-Adviser. For information as to the
business, profession, vocation or employment of a substantial nature of each
director, officer or partner of the Adviser and the Sub-Adviser, reference is
made to the respective Form ADV, as amended, filed under the Investment Advisers
Act of 1940, each of which is herein incorporated by reference.
ITEM 27. PRINCIPAL UNDERWRITERS
(a) Ascend Financial Services, Inc. currently acts as a principal
underwriter for the following investment companies:
Advantus Horizon Fund, Inc.
Advantus Spectrum Fund, Inc.
Advantus Mortgage Securities Fund, Inc.
Advantus Money Market Fund, Inc.
Advantus Bond Fund, Inc.
Advantus Cornerstone Fund, Inc.
Advantus Enterprise Fund, Inc.
Advantus International Balanced Fund, Inc.
Advantus Venture Fund, Inc.
Advantus Index 500 Fund, Inc.
Advantus Real Estate Securities Fund, Inc.
Variable Fund D
Variable Annuity Account
Minnesota Life Variable Life Account
Group Variable Annuity Account
Minnesota Life Variable Universal Life Account
Northstar Life Variable Universal Life Account
(b) The name and principal business address, positions and offices
with Ascend Financial Services, Inc., and positions and offices with Registrant
of each director and officer of Ascend Financial Services, Inc. is as follows:
<TABLE>
<CAPTION>
Positions and Positions and
Name and Principal Offices Offices
Business Address with Underwriter with Registrant
- ------------------ ---------------- ---------------
<S> <C> <C>
Robert E. Hunstad Director None
Minnesota Life
Insurance Company
400 Robert Street North
St. Paul, Minnesota 55101
George I. Connolly President, Chief None
Ascend Financial Services, Inc. Executive Officer and
400 Robert Street North Director
St. Paul, Minnesota 55101
<PAGE>
Margaret Milosevich Vice President, Chief Assistant
Ascend Financial Services, Inc. Operations Officer, Secretary
400 Robert Street North Treasurer and Secretary
St. Paul, Minnesota 55101
Loyall E. Wilson Vice President and Chief None
Ascend Financial Services, Inc. Compliance Officer
400 Robert Street North
St. Paul, Minnesota 55101
Dennis E. Prohofsky Director None
Minnesota Life
Insurance Company
400 Robert Street North
St. Paul, Minnesota 55101
Thomas L. Clark Assistant Treasurer Assistant
Ascend Financial Services, Inc. and Assistant Secretary Secretary
400 Robert Street North
St. Paul, Minnesota 55101
</TABLE>
(c) Not applicable.
ITEM 28. LOCATION OF ACCOUNTS AND RECORDS
The physical possession of the accounts, books and other documents required
to be maintained by Section 3(a) of the Investment Company Act of 1940 and Rules
31a-1 to 31a-3 promulgated thereunder is maintained by Minnesota Life, 400
Robert Street North, St. Paul, Minnesota 55101; except that the physical
possession of certain accounts, books and other documents related to the custody
of the Registrant's securities is maintained by the following custodian:
Norwest Bank Minnesota, N.A.
Sixth Street and Marquette Avenue
Minneapolis, Minnesota 55479
ITEM 29. MANAGEMENT SERVICES
Not applicable.
ITEM 30. UNDERTAKINGS
(a) Not applicable.
(b) Not applicable.
(c) The Registrant hereby undertakes to furnish, upon request and
without charge to each person to whom a prospectus is delivered,
a copy of the Registrant's latest annual report to shareholders
containing the information called for by Item 5A.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940 the Registrant has duly caused this
Post-Effective Amendment to its Registration Statement to be signed on its
behalf by the undersigned, thereto duly authorized, in the City of St.Paul and
the State of Minnesota on the 1st day of March, 2000.
ADVANTUS REAL ESTATE SECURITIES FUND, INC.
Registrant
By
------------------------------------------
William N. Westhoff, President
Pursuant to the requirements of the Securities Act of 1933, this
Post-Effective Amendment to the Registration Statement has been signed below by
the following persons in the capacities and on the date indicated.
- ------------------------ President (principal March 1, 2000
William N. Westhoff executive officer)
and Director
- ------------------------ Director and Treasurer March 1, 2000
Frederick P. Feuerherm (principal financial
and accounting officer)
Ralph D. Ebbott* Director)
- ------------------------
Ralph D. Ebbott ) By-------------------------
) William N. Westhoff
) Attorney-in-Fact
Charles E. Arner* Director)
- ------------------------
Charles E. Arner ) Dated: March 1, 2000
)
)
Ellen S. Berscheid* Director)
- ------------------------
Ellen S. Berscheid )
- --------------------
*Registrant's director executing power of attorney dated October 22, 1998, a
copy of which is filed herewith.
<PAGE>
ADVANTUS REAL ESTATE SECURITIES FUND, INC.
EXHIBIT INDEX
Exhibit Number and Description:
(a) Articles of Incorporation for the Registrant. (1)
(b) Bylaws of the Registrant. (1)
(b)(1) Amendment of Bylaws.
(c) Not applicable.
(d)(1) Investment Advisory Agreement between Advantus Capital Management,
Inc. and the Registrant, effective through April 30, 2000.(1)
(d)(2) Investment Advisory Agreement between Advantus Capital Management,
Inc. and the Registrant, effective May 1, 2000.
(e)(1) Underwriting and Distribution Agreement between the Registrant and
Ascend Financial Services, Inc. (1)
(e)(2) Dealer Sales Agreement between Ascend Financial Services, Inc.,
principal underwriter for the Registrant, and dealers. (3)
(f) Not applicable.
(g) Custodian Agreement between the Registrant and Norwest Bank
Minnesota, N.A. (3)
(h) Shareholder and Administrative Services Agreement between the
Registrant and Minnesota Life Insurance Company. (3)
(i) Opinion and Consent of Dorsey & Whitney LLP.
(j) Consent of KPMG LLP.
(k) Not applicable.
(l) Letter of Investment Intent from Minnesota Life Insurance Company
regarding the Registrant's initial capital. (2)
(m) Plan of Distribution for Class A shares of the Registrant. (1)
(n) Not applicable.
(p) Code of Ethics (3)
(q) Power of Attorney to sign Registration Statement executed by Directors
of Registrant.
(1) Incorporated by reference to the Registrant's Registration Statement on
Form N-1A filed December 10, 1998.
(2) Incorporated by reference to the Registrant's Pre-Effective Amendment
Number 1 to its Registration Statement on Form N-1A filed February 9,
1999.
(3) Incorporated by reference to the Registrant's Registration Statement on
Form N-1A filed November 23, 1999.
<PAGE>
AMENDMENT OF BYLAWS
OF
ADVANTUS REAL ESTATE SECURITIES FUND, INC.
Effective February 10, 2000, Article II, Section 2.06 of the Bylaws of Advantus
Real Estate Securities Fund, Inc., is hereby amended to read in its entirety as
follows:
SECTION 2.06. VOTING - PROXIES. The right to vote by proxy
shall be governed by the relevant provisions of the Minnesota
Statutes, as the same may be amended from time to time.
<PAGE>
INVESTMENT ADVISORY AGREEMENT
THIS AGREEMENT, Made this 1st day of May 2000, by and between
Advantus Real Estate Securities Fund, Inc., a Minnesota corporation (the "Fund")
and Advantus Capital Management, Inc., a Minnesota corporation ("Management").
WITNESSETH:
1. INVESTMENT ADVISORY AND MANAGEMENT SERVICES
The Fund hereby engages Management, and Management hereby agrees
to act, as investment adviser for, and to manage the affairs, business, and the
investment of the assets of the Fund.
The investment of the assets of the Fund shall at all times be
subject to the applicable provisions of the Articles of Incorporation, the
Bylaws, the Registration Statement, the current Prospectus and the Statement of
Additional Information, if any, of the Fund and shall conform to the investment
objective and policies of the Fund as set forth in such documents and as
interpreted from time to time by the Board of Directors of the Fund. Within the
framework of the objective and investment policies and restrictions of the Fund,
Management shall have the sole and exclusive responsibility for the management
of the Fund's portfolio and the making and execution of all investment decisions
for the Fund. Management shall report to the Board of Directors regularly at
such times and in such detail as the Board may from time to time determine to be
appropriate, in order to permit the Board to determine the adherence of
Management to the investment policies of the Fund.
Management shall, at its own expense, furnish the Fund office
space and all necessary office facilities, equipment, and personnel for
servicing the investments of the Fund. Management shall arrange for officers or
employees of Management to serve without compensation from the Fund as
directors, officers, or employees of the Fund if duly elected to such positions
by the shareholders or directors of the Fund.
<PAGE>
Management hereby acknowledges that all records necessary in the
operation of the Fund, including records pertaining to its shareholders and
investments, are the property of the Fund, and in the event that a transfer of
management or investment advisory services to someone other than Management
should ever occur, Management will promptly, and at its own cost, take all steps
necessary to segregate such records and deliver them to the Fund.
In providing the services and assuming the obligations set forth
herein, Management may at its expense employ one or more Sub-Advisers, or may
enter into such service agreements as Management deems appropriate in connection
with the performance of its duties and obligations hereunder. Reference herein
to the duties and responsibilities of Management shall include any Sub-Adviser
employed by Management to the extent Management shall delegate such duties and
responsibilities to the Sub-Adviser. Any agreement between Management and any
Sub-Adviser shall be subject to the approval of the Fund, its Board of
Directors, and Shareholders as required by the Investment Company Act of 1940,
as amended, and such Sub-Adviser shall at all times be subject to the direction
of the Board of Directors of the Fund and any duly constituted committee thereof
or any officer of the Fund acting pursuant to like authority.
2. COMPENSATION FOR SERVICES
In payment for the investment advisory and other services to be
rendered by Management hereunder, the Fund shall pay to Management a monthly
fee, which fee shall be paid to Management not later than the fifth business day
following the end of each calendar month in which said services were rendered.
Said monthly fee shall be based on the average of the net asset values of all of
the issued and outstanding shares of the Fund as determined as of the close of
each business day of the month pursuant to the Articles of Incorporation, Bylaws
and currently effective Prospectus and Statement of Additional Information, if
any, of the Fund. The amount of such fee as applied to the average daily value
of the net assets of the Fund on an annual rate, shall be as described in the
schedule below:
-2-
<PAGE>
ASSETS FEE
On the first $1 billion in assets 0.75%
On the next $1 billion in assets 0.725%
On all assets in excess of $2 billion 0.70%
The fee shall be pro rated for any fraction of a month at the commencement
or termination of this Agreement.
3. ALLOCATION OF EXPENSES
(a) In addition to the fee described in Section 2 hereof, the
Fund shall pay all its costs and expenses which are not
assumed by Management. The Fund expenses include, by way of
example, but not by way of limitation, all expenses
incurred in the operation of the Fund and any public
offering of its shares, including, among others, interest,
taxes, brokerage fees and commissions, fees of the
directors who are not employees of Management or Ascend
Financial Services, Inc., underwriter of the Fund's shares
(the "Underwriter"), or any of their affiliates, expenses
of directors' and shareholders' meetings, including the
cost of printing and mailing proxies, expenses of insurance
premiums for fidelity and other coverage, expenses of
redemption of shares, expenses of issue and sale of shares
(to the extent not borne by the Underwriter under its
agreement with the Fund), expenses of printing and mailing
stock certificates representing shares of the Fund,
association membership dues, transfer agent and shareholder
services expenses, charges of custodians, and bookkeeping,
auditing, and legal expenses. The Fund will also pay the
fees and bear the expense of registering and maintaining
the registration of the Fund and its shares with the
Securities and Exchange Commission and registering or
qualifying its shares under state or other securities laws
and the expense of preparing and mailing Prospectuses and
reports to shareholders.
-3-
<PAGE>
(b) The Underwriter shall bear all advertising and promotional
expenses in connection with the distribution of the Fund's
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.
4. FREEDOM TO DEAL WITH THIRD PARTIES
Management shall be free to render services to others similar to
those rendered under this Agreement or of a different nature except as such
services may conflict with the services to be rendered or the duties to be
assumed hereunder.
5. EFFECTIVE DATE, DURATION AND TERMINATION OF AGREEMENT
This Agreement shall become effective upon the later of its
approval by Shareholders or the date of its execution first above written.
Wherever referred to in this Agreement, the vote or approval of the holders
of a majority of the outstanding voting securities of the Fund shall mean the
vote of 67% or more of such securities if the holders of more than 50% of
such securities are present in person or by proxy or the vote of more than
50% of such securities, whichever is the lesser.
Unless sooner terminated as hereinafter provided, this
Agreement shall continue in effect for a period of more than two years from
the date of its execution only so long as such continuance is specifically
approved at least annually by the Board of Directors of the Fund, or by the
vote of a majority of the outstanding voting securities of the Fund, provided
that in either event such continuance shall also be approved by the vote of a
majority of the directors who are not interested persons of Management, the
Underwriter, or the Fund, cast in person at a meeting called for the purpose
of voting on such approval.
-4-
<PAGE>
This Agreement may be terminated at any time without the payment of any penalty
by the vote of the Board of Directors of the Fund or by the vote of the holders
of a majority of the outstanding voting securities of the Fund, or by
Management, upon 60 days' written notice to the other party.
This Agreement shall automatically terminate in the event of its
assignment as such term is defined by the Investment Company Act of 1940, as
amended.
6. AMENDMENTS TO AGREEMENT
This Agreement may be amended by the parties only if such
amendment is specifically approved by the vote of a majority of the outstanding
voting securities of the Fund and by the vote of a majority of the directors of
the Fund who are not interested persons of any party to this Agreement cast in
person at a meeting called for the purpose of voting on such approval.
Notwithstanding the foregoing, this Agreement may be amended without Shareholder
approval to the extent such is permitted under then-current regulatory
interpretations of the Investment Company Act.
7. NOTICES
Any notice under this Agreement shall be in writing, addressed,
delivered or mailed, postage prepaid, to the other party at such address as such
other party may designate in writing for receipt of such notice.
IN WITNESS WHEREOF, the Fund and Management have caused this
Agreement to be executed by their duly authorized officers as of the day and
year first above written.
Advantus Real Estate Securities Fund, Inc.
By____________________________________
William N. Westhoff
Its President
Advantus Capital Management, Inc.
By____________________________________
Frederick P. Feuerherm
Its Vice President
-5-
<PAGE>
DORSEY & WHITNEY LLP
MINNEAPOLIS PILLSBURY CENTER SOUTH BILLINGS
NEW YORK 220 SOUTH SIXTH STREET GREAT FALLS
SEATTLE MINNEAPOLIS, MINNESOTA 55402-1498 MISSOULA
DENVER TELEPHONE: (612) 340-2600 BRUSSELS
WASHINGTON, D.C. FAX: (612) 340-2868 FARGO
DES MOINES HONG KONG
ANCHORAGE ROCHESTER
LONDON SALT LAKE CITY
COSTA MESA VANCOUVER
Advantus Real Estate Securities Fund, Inc.
400 Robert Street North
St. Paul, Minnesota 55101
Ladies and Gentlemen:
We have acted as counsel to Advantus Real Estate Securities Fund,
Inc., a Minnesota corporation (the "Fund"), in connection with a Registration
Statement on Form N-1A (File Nos. 333-68669) (the "Registration Statement")
relating to the sale by the Fund of an indefinite number of shares of the Fund's
Class A Common Shares with a par value of $.01 per share (the "Shares").
We have examined such documents and have reviewed such questions of
law as we have considered necessary and appropriate for the purposes of our
opinions set forth below. In rendering out opinions set forth below, we have
assumed the authenticity of all documents submitted to us as originals, the
genuineness of all signatures and the conformity to authentic originals of
all documents submitted to us as copies. We have also assumed the legal
capacity for all purposes relevant hereto of all natural persons and, with
respect to all parties to agreements or instruments relevant hereto other
than the Fund, that such parties had the requisite power and authority
(corporate or otherwise) to execute, deliver and perform such agreements or
instruments, that such agreements or instruments have been duly authorized by
all requisite action (corporate or otherwise), executed and delivered by such
parties and that such agreements or instruments are the valid, binding and
enforceable obligations of such parties. As to questions of fact material to
our opinions, we have relied upon certificates of officers of the Fund and of
public officials. We have also assumed that the Shares will be issued and
sold as described in the Registration Statement.
Based on the foregoing, we are of the opinion that upon issuance,
delivery and payment for the Shares as described in the Registration Statement,
the Shares will be validly issued, fully paid and nonassessable.
<PAGE>
DORSEY & WHITNEY LLP
Advantus Real Estate Securities Fund, Inc.
February 22, 2000
Page 2
We hereby consent to the filing of this opinion as an exhibit to
the Registration Statement and to the references to our firm under the
caption "Service Providers" in the Prospectus and under the caption
"Investment Advisory and Other Services" in the Statement of Additional
Information, each constituting part of the Registration Statement.
Dated: February 22, 2000
Very truly yours,
/s/ Dorsey & Whitney LLP
Dorsey & Whitney LLP
MJR
<PAGE>
KPMG LLP
4200 Norwest Center
90 South Seventh Street
Minneapolis, MN 55402
INDEPENDENT AUDITORS' CONSENT
The Board of Directors
Advantus Real Estate Securities Fund, Inc.:
We consent to the use of our report dated September 3, 1999 incorporated by
reference herein and to the references to our Firm under the headings
"FINANCIAL HIGHLIGHTS" and "INDEPENDENT AUDITORS" in Part A and "FINANCIAL
STATEMENTS" in Part B of the Registration Statement.
KPMG LLP
Minneapolis, Minnesota
March 1, 2000
<PAGE>
POWER OF ATTORNEY
TO SIGN REGISTRATION STATEMENT
The undersigned, Directors of Advantus Horizon Fund, Inc., Advantus
Spectrum Fund, Inc., Advantus Mortgage Securities Fund, Inc., Advantus Money
Market Fund, Inc., Advantus Bond Fund, Inc., Advantus Cornerstone Fund, Inc.,
Advantus Enterprise Fund, Inc., Advantus International Balanced Fund, Inc.,
Advantus Venture Fund, Inc., Advantus Index 500 Fund, Inc., Advantus Real Estate
Securities Fund, Inc., MIMLIC Cash Fund, Inc., and Advantus Series Fund, Inc.
(the "Funds"), appoint William N. Westhoff, Eric J. Bentley, Donald F. Gruber
and Michael J. Radmer, and each of them individually, as attorney-in-fact for
the purpose of signing in their names and on their behalf as Directors of the
Funds and filing with the Securities and Exchange Commission Registration
Statements on Form N-1A, or any amendments thereto, for the purpose of
registering shares of Common Stock of the Funds for sale by the Funds and to
register the Funds under the Investment Company Act of 1940.
Dated: October 22, 1998 /s/Charles E. Arner
---------------------------------------
Charles E. Arner
/s/Ellen S. Berscheid
---------------------------------------
Ellen S. Berscheid
/s/Ralph D. Ebbott
---------------------------------------
Ralph D. Ebbott
/s/Frederick P. Feuerherm
---------------------------------------
Frederick P. Feuerherm
/s/William N. Westhoff
---------------------------------------
William N. Westhoff
