<PAGE>
File Numbers 2-94174 and 811-4142
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 X
---
Pre-Effective Amendment Number
---
Post-Effective Amendment Number 16
--
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 X
---
Amendment Number 16
--
ADVANTUS HORIZON 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: (612) 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)
---
X January 30, 1998 pursuant to paragraph (b)
---
60 days after filing pursuant to paragraph (a)(1)
---
on (date) pursuant to paragraph (a)(1)
---
75 days after filing pursuant to paragraph (a)(2)
---
on (date) pursuant to paragraph (a)(2) of Rule 485.
---
IF APPROPRIATE, CHECK THE FOLLOWING BOX:
this post-effective amendment designates a new effective date for
--- a previously filed post-effective amendment.
TITLE of SECURITIES BEING REGISTERED:
Class A Common Shares, Par Value $.01 Per Share
Class B Common Shares, Par Value $.01 Per Share
Class C Common Shares, Par Value $.01 Per Share
<PAGE>
ADVANTUS HORIZON FUND, INC.
Registration Statement on Form N-1A
--------------------------------
CROSS REFERENCE SHEET
Pursuant to Rule 481(a)
--------------------------------
<TABLE>
<CAPTION>
ITEM NO. PROSPECTUS HEADING
- -------- ------------------
<S> <C>
1. Cover Page. . . . . . . . . . . . . . . . . Cover Page
2. Synopsis. . . . . . . . . . . . . . . . . . Prospectus Summary;
Fees and Expenses
3. Financial Highlights. . . . . . . . . . . . Financial Highlights;
Investment
Performance
4. General Description of Registrant . . . . . Investment Objectives
and Policies and Risks;
Portfolio Turnover;
Management of the Fund;
General Information
5. Management of the Fund. . . . . . . . . . . Management of the
Fund; General Information
6. Capital Stock and Other Securities. . . . . Dividends and Capital
Gains Distributions;
Taxes; General
Information
7. Purchase of Securities Being Offered. . . . Purchase of Fund
Shares; Sales
Charges; Special
Purchase Plans
8. Redemption or Repurchase. . . . . . . . . . Redemption of Fund
Shares; Reinstatement
Privilege
9. Pending Legal Proceedings . . . . . . . . . Not Applicable
STATEMENT OF
ADDITIONAL ------------
- ----------
ITEM NO. INFORMATION HEADING
- -------- -------------------
10. Cover Page. . . . . . . . . . . . . . . . . Cover Page
11. Table of Contents . . . . . . . . . . . . . Table of Contents
12. General Information and History . . . . . . General Information
and History
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
13. Investment Objectives and Policies. . . . . Investment Objectives
and Policies;
Investment
Restrictions;
Portfolio Turnover
14. Management of the Fund. . . . . . . . . . . Directors and
Executive Officers;
Director Liability
15. Control Persons and Principal Holders
of Securities . . . . . . . . . . . . . . . Capital Stock and
Ownership of Shares
16. Investment Advisory and Other Services. . . Investment Advisory
and Other Services
17. Brokerage Allocation . . . . . . . . . . . Portfolio
Transactions and
Allocation of
Brokerage
18. Capital Stock and Other Securities. . . . . Capital Stock and
Ownership of Shares
19. Purchase, Redemption and Pricing
of Securities Being Offered . . . . . . . . How to Buy Shares;
Net Asset Value and
Public Offering
Price; Reduced
Sales Charges;
Shareholder
Services; Redemptions
20. Tax Status. . . . . . . . . . . . . . . . . Distributions and Tax
Status
21. Underwriters. . . . . . . . . . . . . . . . Investment Advisory
and Other Services
22. Calculation of Performance Data . . . . . . Calculation of
Performance Data
23. Financial Statements. . . . . . . . . . . . Financial Statements
</TABLE>
<PAGE>
[LOGO]
Advantus -TM- Family of Funds
PROSPECTUS DATED JANUARY 30, 1998
ADVANTUS HORIZON FUND, INC.
- ----------------------------------------------------------------------
P.O. Box 64132 - St. Paul, Minnesota 55164-0132 - 1-800-665-6005
- --------------------------------------------------------------------------------
Advantus Horizon Fund, Inc. ("Horizon Fund" or the "Fund") is an open-end
diversified management investment company, commonly called a mutual fund. The
Fund currently offers its shares in three classes: Class A, Class B and Class C.
Each class is sold pursuant to different sales arrangements and bears different
expenses.
The Fund's investment objective is to seek long-term growth of capital
combined with a moderate level of current income through investment in equity
securities, primarily common stocks but also including preferred stocks and
corporate debt securities convertible into common stocks.
There is risk in all investments. There can be no assurance that the Fund
will achieve its objective.
SHARES OF THE FUND MAY BE SOLD THROUGH BANKS OR OTHER FINANCIAL
INSTITUTIONS. THE FUND'S SHARES ARE NOT DEPOSITS OR OBLIGATIONS OF, OR
GUARANTEED OR ENDORSED BY, ANY BANK, AND SUCH SHARES ARE NOT FEDERALLY INSURED
BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY
OTHER AGENCY. AN INVESTMENT IN THE FUND INVOLVES INVESTMENT RISK, INCLUDING
POSSIBLE LOSS OF PRINCIPAL, DUE TO FLUCTUATIONS IN THE FUND'S NET ASSET VALUE.
This Prospectus sets forth concisely the information which a prospective
investor should know about the Fund before investing and it should be retained
for future reference. A "Statement of Additional Information" dated January 30,
1998, which provides a further discussion of certain areas in this Prospectus
and other matters which may be of interest to some investors, has been filed
with the Securities and Exchange Commission and is incorporated herein by
reference. For a free copy, write or call the Fund at the address or telephone
number shown above.
- --------------------------------------------------------------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
<PAGE>
- --------------------------------------------------------------------------------
TABLE OF
CONTENTS
<TABLE>
<S> <C>
PROSPECTUS SUMMARY........................... 3
FEES AND EXPENSES............................ 5
FINANCIAL HIGHLIGHTS......................... 6
INVESTMENT OBJECTIVES, POLICIES AND RISKS.... 8
PORTFOLIO TURNOVER........................... 11
MANAGEMENT OF THE FUND....................... 11
PURCHASE OF FUND SHARES...................... 13
SALES CHARGES................................ 15
SPECIAL PURCHASE PLANS....................... 18
EXCHANGE AND TELEPHONE TRANSFER OF FUND
SHARES....................................... 18
REDEMPTION OF FUND SHARES.................... 19
TELEPHONE TRANSACTIONS....................... 21
REINSTATEMENT PRIVILEGE...................... 21
DIVIDENDS AND CAPITAL GAINS DISTRIBUTIONS ... 22
TAXES........................................ 22
INVESTMENT PERFORMANCE....................... 23
GENERAL INFORMATION.......................... 24
COUNSEL AND INDEPENDENT AUDITORS............. 25
CUSTODIAN.................................... 25
</TABLE>
No dealer, sales representative or other person has been authorized to give
any information or to make any representations other than those contained in
this Prospectus (and/or in the Statement of Additional Information referred to
on the cover page of this Prospectus), and if given or made, such information or
representations must not be relied upon as having been authorized by the Fund or
Ascend Financial. This Prospectus does not constitute an offer or solicitation
by anyone in any state in which such offer or solicitation is not authorized, or
in which the person making such offer or solicitation is not qualified to do so,
or to any person to whom it is unlawful to make such offer or solicitation.
2
<PAGE>
- --------------------------------------------
PROSPECTUS
SUMMARY
Advantus Horizon Fund, Inc. ("Horizon Fund or the "Fund") is
an open-end diversified investment company, commonly called a mutual fund. The
Fund offers investors the choice between 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. The Fund is a
member of a family of mutual funds known as the "Advantus Funds." The Advantus
Funds consist of the Fund and nine other mutual funds, all of which share the
same investment adviser. Except for Advantus Money Market Fund, Inc., all of the
Advantus Funds offer more than one class of shares (the "Advantus Multiple Class
Funds").
- --------------------------------------------
INVESTMENT
OBJECTIVE A summary of the investment objective of the Fund, together with a
brief description of the types of securities in which the Fund will invest in
pursuit of its investment objective, can be found on the cover page of this
Prospectus. See also "Investment Objectives, Policies and Risks."
- --------------------------------------------
INVESTMENT
ADVISER Advantus Capital Management, Inc. ("Advantus Capital") acts as
investment adviser to the Fund and receives an annual fee equal to a stated
percentage of average daily net assets of the Fund. Advantus Capital is a
wholly-owned subsidiary of MIMLIC Asset Management Company ("MIMLIC
Management"). MIMLIC Management is a subsidiary of The Minnesota Mutual Life
Insurance Company ("Minnesota Mutual"). See "Management of the Fund."
- --------------------------------------------
HOW TO PURCHASE
FUND SHARES Ascend Financial Services, Inc. ("Ascend Financial"), a subsidiary
of MIMLIC Management, acts as the principal underwriter (distributor) of the
shares of the Fund. Shares of the Fund may be purchased from Ascend Financial,
and from certain other broker-dealers, at the price per share next determined
after receipt of a purchase order in proper form. The minimum initial purchase
is $250. Additional investments can be made at any time for $25 or more. Shares
of the Fund are sold in three classes which are subject to different sales
charges. Broker-dealers and sales personnel of Ascend Financial may receive
different compensation depending on which class of shares they sell.
CLASS A SHARES. An investor who purchases Class A shares pays a sales charge
at the time of purchase. (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.) Class A shares are not subject to any charges when they are
redeemed. The initial sales charge may be reduced or waived for certain
purchases. Class A shares are subject to a Rule 12b-1 fee payable at an annual
rate of .30% of the Fund's average daily net assets attributable to Class A
shares. See "Sales Charges--Class A Shares."
CLASS B SHARES. Class B shares are sold without an initial sales charge, but
are subject to a contingent deferred sales charge of up to 5% if redeemed within
six years of purchase. Class B shares are also subject to a higher Rule 12b-1
fee than Class A shares. The Rule 12b-1 fee for Class B shares will be paid at
an annual rate of 1.00% of the Fund's average daily net assets attributable to
Class B shares. Class B shares will automatically convert to Class A shares at
net asset value approximately twenty-eight to eighty-four months after purchase,
depending on the amount purchased. Class B shares provide an investor the
benefit of putting all of the investor's dollars to work from the time the
investment is made, but until conversion will have a higher expense ratio and
pay lower dividends than Class A shares due to the higher Rule 12b-1 fee. See
"Sales Charges--Class B Shares."
CLASS C SHARES. Class C shares are sold without either an initial sales
charge or a contingent deferred sales charge. Class C shares are also subject to
a higher Rule 12b-1 fee, paid at an annual rate of 1.00% of the Fund's average
daily net assets attributable to Class C shares. Class C shares will
automatically convert to Class A shares at net asset value approximately forty
to ninety-six months after purchase, depending on the amount purchased. Class C
shares also provide an investor the benefit of putting all of the investor's
dollars to work from the time the investment is made. Although not subject to a
contingent deferred sales charge, Class C shares must be held longer than Class
B shares before they convert automatically to Class A shares, and are
3
<PAGE>
subject to the higher Rule 12b-1 fee during the longer holding period. In
addition, like Class B shares, Class C shares will have a higher expense ratio
and pay lower dividends than Class A shares, due to the higher Rule 12b-1 fee,
prior to conversion. See "Sales Charges--Class C Shares."
CHOOSING A CLASS. 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 might 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.
Orders for Class B or Class C shares for $1,000,000 or more will be treated as
orders for Class A shares or declined.
- --------------------------------------------
HOW TO REDEEM
FUND SHARES Shareholders may redeem (sell) shares of the Fund at the per share
net asset value next determined following receipt by the Fund (at the mailing
address listed on the cover page) of a written redemption request. Class A and
Class C shares of the Fund are redeemable at net asset value without charge.
Class B shares of the Fund are also redeemable at net asset value but are
subject to a contingent deferred sales charge of up to 5% if redeemed within six
years of purchase. The amount of the contingent deferred sales charge, as well
as the period during which it applies, varies with the amount purchased. Shares
of the Fund may also be redeemed by telephone unless the shareholder has elected
on the account application not to have telephone transaction privileges. See
"Redemption of Fund Shares."
- --------------------------------------------
INCOME AND
TAXES Net investment income is the amount of dividends and interest earned on
the Fund's securities less operating expenses. It is distributed to shareholders
quarterly. Capital gains may be realized on the sale of the Fund's securities.
Capital gains, when available, are generally distributed once a year during
December. See "Dividends and Capital Gains Distributions."
As a regulated investment company, the Fund is not taxed on the net investment
income and capital gains it distributes to its shareholders. For income tax
purposes, shareholders must report any net investment income and capital gains
distribution reported to them as income. Shareholders of the Fund receive an
annual statement detailing federal tax information. See "Taxes."
- --------------------------------------------
RISK
FACTORS In addition to the other information set forth in this Prospectus,
prospective investors in the Fund should consider the following factors:
- - The Fund may invest up to 10% of its net assets in
securities which are restricted as to disposition or otherwise illiquid.
- - The Fund may, with respect to 25% of its total
assets, invest in excess of 5% of its total assets in securities of a single
issuer.
- - Equity securities, such as those purchased by the
Fund, are more volatile and present greater risk than some other forms of
investment.
- - The Fund has the right to purchase securities in
foreign countries. Investors should consider carefully the substantial risks
involved in investing in securities issued by companies of foreign nations,
which are in addition to the usual risks inherent in domestic investments. The
Fund may also be affected either unfavorably or favorably by fluctuations in
the relative rates of exchange between the currencies of different nations, by
exchange control regulations and by indigenous economic and political
developments.
- - The Fund may purchase and sell certain types of
options contracts. The use of options contracts involves additional potential
risks, in addition to the risks associated with the underlying securities on
which such options are written, including the risk that the prices of such
underlying securities will not move as anticipated.
For discussions of risks associated with specific investments and risks
associated with investing in the Fund see "Investment Objectives, Policies and
Risks."
4
<PAGE>
- --------------------------------------------------------------------------------
FEES AND
EXPENSES
The purpose of this table is to assist the investor in
understanding the various costs and expenses that an investor in
the Fund will bear directly or indirectly.
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
<S> <C> <C> <C>
- -------------------------------------------------------------------------------
SHAREHOLDER TRANSACTION EXPENSES
MAXIMUM SALES LOAD IMPOSED ON PURCHASES
(AS A PERCENTAGE OF OFFER PRICE) 5.00% 0.00% 0.00%
- -------------------------------------------------------------------------------
MAXIMUM DEFERRED SALES LOAD
(AS A PERCENTAGE OF REDEMPTION PROCEEDS) 0.00% 5.00% 0.00%
- -------------------------------------------------------------------------------
SALES LOAD IMPOSED ON REINVESTED DIVIDENDS 0 0 0
- -------------------------------------------------------------------------------
REDEMPTION FEES+ 0 0 0
- -------------------------------------------------------------------------------
EXCHANGE FEES:
- ON FIRST FOUR EXCHANGES EACH YEAR 0 0 0
- ON EACH ADDITIONAL EXCHANGE $ 7.50 $ 7.50 $ 7.50
+REDEMPTION PROCEEDS SENT BY WIRE ARE SUBJECT TO A WIRE CHARGE OF $5.00,
WHICH WILL BE ADDED TO THE AMOUNT REDEEMED.
ANNUAL FUND OPERATING EXPENSES
(AS A PERCENTAGE OF AVERAGE NET ASSETS)
INVESTMENT ADVISORY FEES 0.80% 0.80% 0.80%
- -------------------------------------------------------------------------------
RULE 12b-1 FEES* 0.30% 1.00% 1.00%
- -------------------------------------------------------------------------------
OTHER EXPENSES 0.38% 0.38% 0.38%
------- ------- -------
TOTAL FUND OPERATING EXPENSES 1.48% 2.18% 2.18%
------- ------- -------
</TABLE>
*A LONG-TERM SHAREHOLDER MAY PAY DISTRIBUTION FEES, WHICH ARE CONSIDERED TO
BE ASSET-BASED SALES CHARGES, WHICH EXCEED THE ECONOMIC EQUIVALENT OF THE
MAXIMUM SALES CHARGE PERMITTED BY THE NATIONAL ASSOCIATION OF SECURITIES
DEALERS, INC.
- ---------------------------------------------------------------
SHAREHOLDER EXPENSE
EXAMPLE An investor would pay the following expenses on a $1,000 investment
assuming (1) 5% annual return and (2) redemption at the end of each time period.
<TABLE>
<CAPTION>
YEAR REDEEMED CLASS A CLASS B CLASS C
<S> <C> <C> <C>
- -------------------------------------------------
1 $ 64 $ 72 $ 22
3 94 103 68
5 127 132 117
10 218 225* 234**
</TABLE>
An investor would pay the following expenses on the same investment in Class B
shares, assuming no redemption:
<TABLE>
<CAPTION>
YEAR REDEEMED CLASS B
<S> <C>
- ------------------------------------
1 $ 22
3 68
5 117
10 225*
</TABLE>
*REFLECTS CONVERSION OF CLASS B SHARES TO CLASS A SHARES (WHICH PAY LOWER
ONGOING EXPENSES) APPROXIMATELY SEVEN YEARS AFTER PURCHASE.
**REFLECTS CONVERSION OF CLASS C SHARES TO CLASS A SHARES (WHICH PAY LOWER
ONGOING EXPENSES) APPROXIMATELY EIGHT YEARS AFTER PURCHASE.
THE EXAMPLES CONTAINED IN THE TABLE SHOULD NOT BE CONSIDERED A REPRESENTATION
OF PAST OR FUTURE EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE
SHOWN.
5
<PAGE>
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
FINANCIAL The following financial highlights table shows certain per share data and selected important
HIGHLIGHTS financial information for evaluating the Fund's results. This information has been audited by KPMG
- ---------- Peat Marwick LLP, independent auditors, and should be read in conjunction with the audited financial
statements contained in the Fund's Annual Report to Shareholders.
</TABLE>
<TABLE>
<CAPTION>
CLASS A FINANCIAL HIGHLIGHTS
----------------------------------------------------------------------------------------------------------------
PERIOD FROM
NOVEMBER 1,
1993 TO
YEAR ENDED SEPTEMBER 30, SEPTEMBER 30, YEAR ENDED OCTOBER 31,
1997 1996 1995(f) 1994(c) 1993 1992 1991 1990 1989 1988 1987
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------------------------------
NET ASSET
VALUE,
BEGINNING OF
PERIOD $ 23.07 $ 20.94 $17.34 $ 17.64 $ 16.73 $ 15.65 $ 11.41 $ 12.79 $ 10.67 $ 10.60 $ 10.19
----------------------------------------------------------------------------------------------------------------
INCOME FROM
INVESTMENT
OPERATIONS:
NET INVESTMENT
INCOME (LOSS) (.08) (.10) (.03 ) -- .05 .10 .17 .20 .24 .25 .21
NET GAINS OR
LOSSES ON
SECURITIES
(BOTH REALIZED
AND UNREALIZED) 4.89 3.51 4.17 .25 1.20 1.47 4.25 (.90) 2.12 .88 .42
----------------------------------------------------------------------------------------------------------------
TOTAL FROM
INVESTMENT
OPERATIONS 4.81 3.41 4.14 .25 1.25 1.57 4.42 (.70) 2.36 1.13 .63
----------------------------------------------------------------------------------------------------------------
LESS
DISTRIBUTIONS:
DIVIDENDS FROM
NET INVESTMENT
INCOME -- -- -- -- (.05) (.12) (.18) (.21) (.22) (.47) (.22)
DISTRIBUTIONS
FROM CAPITAL
GAINS (4.82) (1.28) (.54 ) (.55) (.29) (.37) -- (.47) (.02) (.59) --
----------------------------------------------------------------------------------------------------------------
TOTAL
DISTRIBUTIONS (4.82) (1.28) (.54 ) (.55) (.34) (.49) (.18) (.68) (.24) (1.06) (.22)
----------------------------------------------------------------------------------------------------------------
NET ASSET
VALUE, END OF
PERIOD $ 23.06 $ 23.07 $20.94 $ 17.34 $ 17.64 $ 16.73 $ 15.65 $ 11.41 $ 12.79 $ 10.67 $ 10.60
------- ------- ------- ------- ------- ------- ------- ------- ------- ------- -------
TOTAL RETURN
(a) 25.0% 17.2% 24.8 % 1.4%(b) 7.6% 10.3% 38.9% (5.8)% 22.3% 11.3% 6.2%
- ---------------------------------------------------------------------------------------------------------------------------------
NET ASSETS, END
OF PERIOD (IN
THOUSANDS) $40,192 $34,435 $36,040 $31,387 $30,015 $24,919 $17,608 $11,675 $11,475 $8,414 $6,821
- ---------------------------------------------------------------------------------------------------------------------------------
RATIO OF
EXPENSES TO
AVERAGE DAILY
NET ASSETS (d) 1.43% 1.41% 1.41 % 1.43%(e) 1.31% 1.40% 1.36% 1.25% 1.23% 1.00% 1.00%
- ---------------------------------------------------------------------------------------------------------------------------------
RATIO OF NET
INVESTMENT
INCOME (LOSS)
TO AVERAGE
DAILY NET
ASSETS (d) (.39)% (.43)% (.15 )% (.01)%(e) .27% .61% 1.20% 1.62% 2.08% 2.50% 1.83%
- ---------------------------------------------------------------------------------------------------------------------------------
PORTFOLIO
TURNOVER RATE
(EXCLUDING
SHORT-TERM
SECURITIES) 71.5% 84.7% 46.8 % 43.5% 47.0% 20.6% 16.9% 32.5% 37.8% 36.4% 26.7%
- ---------------------------------------------------------------------------------------------------------------------------------
AVERAGE
COMMISSION RATE
ON STOCK
TRANSACTIONS
(g) $ .0661 $ 0.763 N/A N/A N/A N/A N/A N/A N/A N/A N/A
</TABLE>
<TABLE>
<S> <C>
(a) TOTAL RETURN FIGURES ARE BASED ON A SHARE OUTSTANDING 1.55%, 1.54%, 1.25%, 1.40%, 1.51%, AND 1.50% RESPECTIVELY,
THROUGHOUT THE PERIOD AND ASSUMES REINVESTMENT OF AND THE RATIO OF NET INVESTMENT INCOME (LOSS) TO AVERAGE
DISTRIBUTIONS AT NET ASSET VALUE. TOTAL RETURN FIGURES DO DAILY NET ASSETS WOULD HAVE BEEN (.44%), (.52%), (.31)%,
NOT REFLECT THE IMPACT OF FRONT-END SALES CHARGES. (.19)%, .09%, .46%, 1.02%, 1.62%, 1.91%, 1.99% AND 1.42%,
(b) TOTAL RETURN IS PRESENTED FOR THE PERIOD FROM RESPECTIVELY.
NOVEMBER 1, 1993 TO SEPTEMBER 30, 1994. (e) ADJUSTED TO AN ANNUAL BASIS.
(c) DURING 1994, THE FUND CHANGED ITS FISCAL YEAR END (f) EFFECTIVE MARCH 1, 1995, THE FUND ENTERED INTO A NEW
FROM OCTOBER 31 TO SEPTEMBER 30. INVESTMENT ADVISORY AGREEMENT WITH ADVANTUS CAPITAL
(d) THE FUND'S ADVISER AND DISTRIBUTOR VOLUNTARILY MANAGEMENT, INC. PRIOR TO MARCH 1, 1995, THE FUND HAD AN
ABSORBED OR WAIVED $18,019, $28,836, $52,961, $51,147, INVESTMENT ADVISORY AGREEMENT WITH MIMLIC ASSET MANAGEMENT
$48,807, $32,341, $22,098, $480, $17,151, $38,339 AND COMPANY.
$30,167 IN EXPENSES FOR THE YEARS ENDED SEPTEMBER 30, 1997, (g) BEGINNING IN FISCAL 1996, THE FUND IS REQUIRED TO
1996 AND 1995, THE PERIOD ENDED SEPTEMBER 30, 1994 AND YEARS DISCLOSE AN AVERAGE BROKERAGE COMMISSION RATE. THE RATE IS
ENDED OCTOBER 31, 1993, 1992, 1991, 1990, 1989, 1988 AND CALCULATED BY DIVIDING THE TOTAL BROKERAGE COMMISSIONS PAID
1987, RESPECTIVELY. IF CLASS A SHARES HAD BEEN CHARGED FOR ON APPLICABLE PURCHASES AND SALES OF STOCKS FOR THE PERIOD
THESE EXPENSES, THE RATIO OF EXPENSES TO AVERAGE DAILY NET BY THE TOTAL NUMBER OF RELATED SHARES PURCHASED AND SOLD.
ASSETS WOULD HAVE BEEN 1.48%, 1.50%, 1.57%, 1.61%, 1.49%,
</TABLE>
6
<PAGE>
<TABLE>
<CAPTION>
CLASS C FINANCIAL HIGHLIGHTS
CLASS B FINANCIAL HIGHLIGHTS ---------------------------------
----------------------------------------------- PERIOD FROM
PERIOD FROM MARCH 1,
AUGUST 19, 1995(a) TO
1994(a) TO YEAR ENDED SEPTEMBER
YEAR ENDED SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, 30,
1997 1996 1995(f) 1994 1997 1996 1995
<S> <C> <C> <C> <C> <C> <C> <C>
- -------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF
PERIOD $ 22.65 $ 20.74 $ 17.33 $ 17.11 $ 22.67 $ 20.75 $ 17.52
-----------------------------------------------------------------------------------
INCOME FROM INVESTMENT
OPERATIONS:
NET INVESTMENT INCOME (LOSS) (.19) (.19) (.10) (.01) (.20) (.15) (.06)
NET GAINS OR LOSSES ON
SECURITIES (BOTH REALIZED AND
UNREALIZED) 4.77 3.38 4.05 .23 4.73 3.35 3.29
-----------------------------------------------------------------------------------
TOTAL FROM INVESTMENT
OPERATIONS 4.58 3.19 3.95 .22 4.53 3.20 3.23
-----------------------------------------------------------------------------------
LESS DISTRIBUTIONS:
DIVIDENDS FROM NET INVESTMENT
INCOME -- -- -- -- -- -- --
DISTRIBUTIONS FROM CAPITAL
GAINS (4.82) (1.28) (.54) -- (4.82) (1.28) --
-----------------------------------------------------------------------------------
TOTAL DISTRIBUTIONS (4.82) (1.28) (.54) -- (4.82) (1.28) --
-----------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $ 22.41 $ 22.65 $ 20.74 $ 17.33 $ 22.38 $ 22.67 $ 20.75
-------- -------- -------- ------ -------- -------- -----------
TOTAL RETURN (b) 24.3% 16.3% 23.7% 1.3% 24.0% 16.3% 18.4%
- -------------------------------------------------------------------------------------------------------------------
NET ASSETS, END OF PERIOD (IN
THOUSANDS) $11,684 $6,219 $2,592 $97 $1,754 $1,018 $103
- -------------------------------------------------------------------------------------------------------------------
RATIO OF EXPENSES TO AVERAGE
DAILY NET ASSETS (c) 2.18% 2.19% 2.24% .30%(e) 2.18% 2.19% 2.24%(d)
- -------------------------------------------------------------------------------------------------------------------
RATIO OF NET INVESTMENT INCOME
(LOSS) TO AVERAGE DAILY NET
ASSETS (c) (1.13)% (1.19)% (1.05)% (.13)%(e) (1.14)% (1.17)% (1.13)%(d)
- -------------------------------------------------------------------------------------------------------------------
PORTFOLIO TURNOVER RATE
(EXCLUDING SHORT-TERM
SECURITIES) 71.5% 84.7% 46.8% 43.5% 71.5% 84.7% 46.8%
- -------------------------------------------------------------------------------------------------------------------
AVERAGE COMMISSION RATE ON
STOCK TRANSACTIONS (g) $ .0661 $ .0763 N/A N/A $ .0661 $ .0763 N/A
</TABLE>
<TABLE>
<S> <C>
(a) COMMENCEMENT OF OPERATIONS. (d) ADJUSTED TO AN ANNUAL BASIS.
(b) TOTAL RETURN FIGURES ARE BASED ON A SHARE OUTSTANDING (e) RATIOS PRESENTED FOR THE PERIOD FROM AUGUST 19, 1994 TO
THROUGHOUT THE PERIOD AND ASSUMES REINVESTMENT OF SEPTEMBER 30, 1994 ARE NOT ANNUALIZED AS THEY ARE NOT
DISTRIBUTIONS AT NET ASSET VALUE. TOTAL RETURN FIGURES DO INDICATIVE OF ANTICIPATED ANNUAL RESULTS.
NOT REFLECT THE IMPACT OF CONTINGENT DEFERRED SALES CHARGES. (f) EFFECTIVE MARCH 1, 1995, THE FUND ENTERED INTO A NEW
FOR PERIODS LESS THAN ONE YEAR, TOTAL RETURN PRESENTED HAS INVESTMENT ADVISORY AGREEMENT WITH ADVANTUS CAPITAL
NOT BEEN ANNUALIZED. MANAGEMENT, INC. PRIOR TO MARCH 1, 1995, THE FUND HAD AN
(c) THE FUND'S ADVISER AND DISTRIBUTOR VOLUNTARILY INVESTMENT ADVISORY AGREEMENT WITH MIMLIC ASSET MANAGEMENT
ABSORBED OR WAIVED $52,961 IN EXPENSES FOR THE YEAR ENDED COMPANY.
SEPTEMBER 30, 1995. IF CLASS B SHARES HAD BEEN CHARGED FOR (g) BEGINNING IN FISCAL 1996, THE FUND IS REQUIRED TO
THESE EXPENSES, THE RATIO OF EXPENSES TO AVERAGE DAILY NET DISCLOSE AN AVERAGE BROKERAGE COMMISSION RATE. THE RATE IS
ASSETS WOULD HAVE BEEN 2.25% AND THE RATIO OF NET INVESTMENT CALCULATED BY DIVIDING THE TOTAL BROKERAGE COMMISSIONS PAID
LOSS TO AVERAGE DAILY NET ASSETS WOULD HAVE BEEN (1.05)%. IF ON APPLICABLE PURCHASES AND SALES OF STOCKS FOR THE PERIOD
CLASS C SHARES HAD BEEN CHARGED FOR THESE EXPENSES, THE BY THE TOTAL NUMBER OF RELATED SHARES PURCHASED AND SOLD.
RATIO OF EXPENSES TO AVERAGE DAILY NET ASSETS WOULD HAVE
BEEN 2.25% AND THE RATIO OF NET INVESTMENT LOSS TO AVERAGE
DAILY NET ASSETS WOULD HAVE BEEN (1.13)%.
</TABLE>
7
<PAGE>
- --------------------------------------------
INVESTMENT
OBJECTIVES,
POLICIES AND RISKS
Horizon Fund is a mutual fund designed for investors
seeking long-term growth of capital combined with a moderate level of current
income through investment in equity securities. This investment objective may
not be changed without the approval of a majority of the outstanding shares of
Horizon Fund. The Fund's other investment policies, except "fundamental"
investment restrictions (see below), may be changed at any time without
shareholder approval, although shareholders will be notified of those changes.
There can be no assurance that Horizon Fund will achieve its objective.
The Fund invests in companies with long-term growth prospects greater than
average, which generally have below average yields. Since the Fund began in 1985
the average dividend yield of the stock markets has fallen from about 4.5% to
about 2%. Because of this, since 1993 the Fund has been unable to achieve its
current income objective. Since 1993 the Fund has not paid current income
dividends but has paid annual capital gains distributions. If market dividend
yields remain at current levels it is unlikely the Fund will pay dividends from
current income.
- --------------------------------------------
INVESTMENT
POLICIES Most of Horizon Fund's investments are normally in common stocks.
However, up to 20% of the market value of Horizon Fund's total assets may be
invested in preferred stocks, securities convertible into common stock and
corporate debt securities (provided that such debt securities, including
securities convertible into common stock, are rated BBB or Baa or higher by
Standard & Poor's Corporation or Moody's Investors Services, Inc.,
respectively). See "Debt Securities and Down-Graded Investments" in the
Statement of Additional Information.
In selecting investments in common stock, the Fund's investment adviser looks
to their potential for both capital appreciation and dividend income. Thus,
Horizon Fund invests primarily in dividend-paying common stocks of established
companies, but may purchase non-dividend paying common stocks when the Fund's
overall portfolio is providing a moderate level of current income. Generally,
Horizon Fund invests in companies with strong long-term outlooks. However,
Horizon Fund may also seek to achieve its objective by investing in companies
which, in its investment adviser's judgment, have temporarily undervalued
securities or, because of new management, products or markets or other factors,
show promise of substantially improved results.
For liquidity purposes, Horizon Fund generally invests approximately 5% of its
net assets in cash or short-term, fixed-income investments (bonds, notes and
high quality money market instruments, including repurchase agreements). In
addition, depending on market conditions, Horizon Fund may temporarily take a
defensive position by so investing a substantial portion of its assets.
LOANS OF PORTFOLIO SECURITIES. For the purpose of realizing additional
income, Horizon Fund may make secured loans of portfolio securities amounting to
not more than 20% of its 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 United States
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 in some cases may 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
8
<PAGE>
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.
WARRANTS. The Fund may invest in warrants; however, not more than 5% of its
net assets (at the time of purchase) will be invested in warrants other than
warrants acquired in units or attached to other securities. Of such 5%, not more
than 2% of the Fund 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.
OPTIONS. Horizon Fund may write covered call options which are traded on
national securities exchanges with respect to common stocks in its portfolio
("covered options") in an attempt to earn additional current income on its
portfolio or to guard against an expected decline in the price of a security. By
writing a covered call option, the Fund gives the purchaser of the option the
right to buy the underlying security at the price specified in the option. The
Fund realizes income from the sale of the option, but foregoes the opportunity
to profit during the option period from an increase in the market value of the
underlying security above the exercise price. The Fund does not write call
options in an aggregate amount greater than 15% of its net assets. See
"Investment Restrictions," below. Horizon Fund purchases call options only to
close out a position, and will neither write nor purchase put options. The use
of options contracts involves additional risk of loss to the Fund, including the
risk that the Fund may incur a loss because the prices of the underlying
securities do not move as anticipated. See the Statement of Additional
Information for a more detailed discussion of options and the risks associated
therewith.
RESTRICTED AND ILLIQUID SECURITIES. Horizon Fund may invest up to 10% of its
net assets in securities restricted as to disposition under the federal
securities laws or otherwise or other illiquid assets. Restricted securities may
be sold only in a privately negotiated transaction or in a public offering for
which a registration statement is in effect under the Securities Act of 1933.
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.
FOREIGN SECURITIES. Horizon Fund may also invest up to 10% of the market
value of the Fund's 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 ("ADRs"), are not subject to this 10% limitation.) Investing in
securities of foreign issuers may result in greater risk than that incurred in
investing in securities of domestic issuers. There is the possibility of
expropriation, nationalization or confiscatory taxation, taxation of income
earned in foreign nations or other taxes imposed with respect to investments in
foreign nations; foreign exchange controls (which may include suspension of the
ability to transfer currency from a given country), default in foreign
government securities, political or social instability or diplomatic
developments which could affect investments in securities of issuers in those
nations. In addition, in many countries there is less publicly available
information about issuers than is available in reports about companies in the
U.S. Foreign companies are not generally subject to uniform accounting, auditing
and financial reporting standards, and auditing practices and requirements may
not be comparable to those applicable to U.S. companies. Further, the Fund may
encounter difficulties or be unable to pursue legal remedies and obtain
judgments in foreign courts. Commission rates in foreign countries, which are
sometimes fixed rather than subject to negotiation as in the U.S., are likely to
be higher. Further, the settlement period of securities transactions in foreign
markets may be longer than in domestic markets. In many foreign countries there
is less government supervision and regulation of business and industry
practices, stock exchanges, brokers and listed companies than in the United
States. 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
9
<PAGE>
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.
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.
REPURCHASE AGREEMENTS. The 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.
INVESTMENT RESTRICTIONS. Horizon Fund has certain investment restrictions,
set forth in their entirety in the Statement of Additional Information, which
are fundamental policies. Without the approval of the holders of a majority of
the outstanding shares of Horizon Fund, the Fund will not: (i) purchase any
security (other than securities issued or guaranteed by the U.S. Government, its
agencies or instrumentalities) if, as a result, more than 5% of Horizon Fund's
total assets would be invested in securities of a single issuer, except that up
to 25% of the value of the Fund's total assets may be invested without regard to
this limitation; (ii) purchase any security if, as a result, more than 25% of
Horizon Fund's total assets would be invested in the securities of issuers
conducting their principal business activities in a single industry; (iii)
borrow money, except from banks and only as a temporary measure for
extraordinary or emergency purposes and not in excess of 5% of its net assets;
(iv) invest more than a total of 5% of its total assets in securities of
businesses (including predecessors) less than three years old or equity
securities which are not readily marketable; (v) make loans, except by purchase
of bonds, debentures, commercial paper, certificates of deposit, corporate notes
and similar evidences of indebtedness, which are part of an issue to the public
or to financial institutions, and except certain loans of portfolio securities
to broker-dealers and financial institutions, determined by Horizon Fund to have
sufficient financial responsibility, described under "Loans of Portfolio
Securities" above; (vi) write put or call options, except covered
10
<PAGE>
call options which are traded on national securities exchanges with respect to
common stocks in its portfolio in an aggregate amount not greater than 15% of
its net assets; or purchase options, except call options in order to close out a
position; or (vii) invest more than a total of 10% of Horizon Fund's net assets
in securities restricted as to disposition under the federal securities laws or
otherwise or other illiquid assets (which include repurchase agreements with a
maturity of over seven days).
- --------------------------------------------
RISKS OF INVESTING
IN THE FUND The Fund's yield and the price of the Fund's shares are not
guaranteed. There is risk in all investment and, depending on the performance of
the Fund's investments, the value of an investment in the Fund may decrease as
well as increase.
The Fund may, with respect to 25% of its total assets, invest in excess of 5%
of its total assets in securities of a single issuer. To the extent it does so,
the Fund may be less well diversified than other mutual funds which do not
invest in excess of 5% of their total assets in securities of a single issuer.
Equity securities, in which the Fund will be primarily invested, are more
volatile than debt securities and involve greater investment risk.
The Fund may invest in corporate bonds rated BBB or Baa by S&P or Moody's,
respectively. To the extent the Fund invests in such securities, it will be
investing in securities which may involve risks and which in fact have
speculative elements not associated with bonds rated A or higher by S&P or
Moody's. S&P, in its description, says that 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.
Some of the investment policies which the Fund may employ, such as investing
in options, repurchase agreements, illiquid, restricted and foreign securities,
and loans of portfolio securities, involve special risks not associated with
more traditional investment instruments and policies. See "Investment Policies,"
above, and the Statement of Additional Information for risks associated with
these investments.
- --------------------------------------------
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.
The 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. Horizon Fund expects, under normal
circumstances, to have an annual portfolio turnover rate not in excess of 75%.
Higher portfolio turnover rates (100% or more) may also result in greater tax
consequences for investors. A fund with a higher rate of portfolio turnover may
realize substantial additional capital gains, both long-term and short-term,
which gains would then result in additional taxable distributions to
shareholders. See "Dividends and Capital Gains Distributions" and "Taxes."
See "Financial Highlights" above, and the Statement of Additional Information,
for more information about the Fund's portfolio turnover policies and rates.
- --------------------------------------------
MANAGEMENT
OF THE FUND
Under Minnesota law, the Board of Directors of the Fund has
overall responsibility for managing the Fund in good faith, in a manner
reasonably believed to be in the best interests of the Fund, and with the care
an ordinarily prudent person in like position would exercise in similar
circumstances. However, this management may be delegated.
The Fund's investment adviser is Advantus Capital. Advantus Capital commenced
its business in June 1994, and provides investment advisory services to each of
the other Advantus Funds, two other mutual funds (MIMLIC Cash Fund, Inc. and
Advantus Series Fund, Inc.) and various private accounts. Advantus Capital is a
wholly-owned subsidiary of MIMLIC Management. MIMLIC Management commenced its
current business in January, 1984, and provides investment advisory services to
various private accounts. The personnel
11
<PAGE>
of Advantus Capital and MIMLIC Management have also had experience in managing
investments for The Minnesota Mutual Life Insurance Company ("Minnesota Mutual")
and its separate accounts. MIMLIC Management is a subsidiary of Minnesota
Mutual, which was organized in 1880, and has assets of more than $13 billion.
The address of the Fund, Advantus Capital, MIMLIC Management, Ascend Financial
and Minnesota Mutual is 400 Robert Street North, St. Paul, Minnesota 55101.
Advantus Capital selects and reviews the Fund's investments, and provides
executive and other personnel for the management of the Fund. The Fund's Board
of Directors supervises the affairs of the Fund as conducted by Advantus
Capital.
The name and title of the portfolio manager employed by Advantus Capital who
is primarily responsible for the day-to-day management of the Fund's portfolio,
the length of time employed in that position, and his other business experience
during the past five years are set forth below:
<TABLE>
<CAPTION>
PORTFOLIO MANAGER PRIMARY PORTFOLIO BUSINESS EXPERIENCE DURING
AND TITLE MANAGER SINCE PAST FIVE YEARS
<S> <C> <C>
- ---------------------------------------------------------------------------------------------
THOMAS A. GUNDERSON SEPTEMBER 5, VICE PRESIDENT OF ADVANTUS CAPITAL; INVESTMENT
(LEAD MANAGER) 1996 OFFICER OF MIMLIC MANAGEMENT
VICE PRESIDENT AND
PORTFOLIO MANAGER
JEFFREY R. ERICKSON SEPTEMBER 5, VICE PRESIDENT OF ADVANTUS CAPITAL AND PORTFOLIO
VICE PRESIDENT AND 1996 MANAGER, MIMLIC MANAGEMENT, JUNE 1994 TO PRESENT;
PORTFOLIO MANAGER EMERGING COUNTRY ANALYST, UNIFUND, APRIL 1994 TO
MAY 1994; NORTH AMERICAN EQUITY STRATEGIST, CREDIT
SUISSE, NOVEMBER 1993 TO MARCH 1994; INVESTMENT
OFFICER, MIMLIC MANAGEMENT, JUNE 1986 TO AUGUST
1993.
</TABLE>
The Fund pays Advantus Capital an advisory fee equal on an annual basis to .8%
of the Fund's average daily net assets. For this fee, Advantus Capital acts as
investment adviser and manager for the Fund and pays the Fund's transfer agent,
dividend disbursing agent and redemption agent expenses. The Fund has engaged
Minnesota Mutual to act as its transfer agent, dividend disbursing agent and
redemption agent. While the advisory fee paid by the Fund is higher than those
paid by most mutual funds, it is partially offset by Advantus Capital's payment
of certain expenses, such as the transfer agent, dividend disbursing agent and
redemption agent expenses, which expenses are not customarily paid for by a
mutual fund's investment adviser. In addition, separate from the investment
advisory agreement, the Fund has entered into an agreement with Minnesota Mutual
under which Minnesota Mutual provides accounting, legal and other administrative
services to the Fund in exchange for a fixed monthly fee which is reviewed
annually by the Fund's Board of Directors. During the fiscal year ended
September 30, 1997, the Fund paid Minnesota Mutual $43,200 for such services.
Under the Advisory Agreement with Advantus Capital, Advantus Capital furnishes
the Fund office space and all necessary office facilities, equipment and
personnel for servicing the investments of the Fund, and pays the salaries and
fees of all officers and directors of the Fund who are affiliated with Advantus
Capital. Ascend Financial, the underwriter of the Fund's shares, bears all
promotional expenses in connection with the distribution of the Fund's shares,
including paying for prospectuses and statements of additional information for
new shareholders, shareholder reports for new shareholders and the costs of
sales literature. The Fund pays all other expenses not so expressly assumed.
For the year ended September 30, 1997, the expenses paid by the Fund (after
the voluntary waiver of certain Class A Rule 12b-1 fees by Ascend Financial), as
a percentage of average daily net assets attributable to Class A, Class B and
Class C shares, were 1.43%, 2.18% and 2.18%, respectively. If the Fund had been
charged for the expenses voluntarily waived, the annual operating expenses, as a
percentage of average net assets would have been 1.48% for Class A. Ascend
Financial reserves the option to reduce further the level of expenses which it
will voluntarily waive for the Fund.
- --------------------------------------------
THE UNDERWRITER AND
PLANS OF DISTRIBUTION The Fund has entered into a Distribution Agreement with
Ascend Financial pursuant to which Ascend Financial acts as
12
<PAGE>
the underwriter of the Fund's shares. In addition, the Fund has adopted separate
Plans of Distribution applicable to Class A shares, Class B shares and Class C
shares relating to the payment of certain distribution expenses pursuant to Rule
12b-1 under the Investment Company Act of 1940. The Fund, pursuant to its Plans
of Distribution, pays fees to Ascend Financial equal, on an annual basis, to 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
CLASS A SHARES CLASS B SHARES CLASS C SHARES
<S> <C> <C>
- -----------------------------------------------
.30% 1.00% 1.00%
</TABLE>
Such fees are used for distribution-related services for all three classes and
for servicing of shareholder accounts in connection with Class B and Class C
shares. Ascend Financial may spend more or less for the distribution and
promotion of the Fund's shares than it receives as Rule 12b-1 fees pursuant to
the Plans.
All of the Rule 12b-1 fee payable by the Fund and attributable to Class A
shares, and a portion of the fee payable with respect to Class B and Class C
shares equal to .75% of the average daily net assets attributable to such Class
B and Class C shares, respectively, constitute distribution fees designed to
compensate Ascend Financial for advertising, marketing and distributing the
Class A, Class B and Class C shares of the Fund. The distribution fees may be
used by Ascend Financial for the purpose of financing any activity which is
primarily intended to result in the sale of shares of the Fund. For example,
such distribution fee may be used by Ascend Financial: (a) to compensate (in
addition to the sales load) broker-dealers, including Ascend Financial and its
registered representatives, banks, and other financial institutions for their
sale of Fund shares; and (b) to pay other advertising and promotional expenses
in connection with the distribution of the 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 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.
A portion of the Rule 12b-1 fee payable with respect to Class B and Class C
shares of the Fund, equal to .25% of the average daily net assets attributable
to such Class B and Class C shares, respectively, constitutes a shareholder
servicing fee designed to compensate Ascend Financial for the provision of
certain services to the holders of Class B and Class C shares. The services
provided may include personal services provided to shareholders, such as
answering shareholder inquiries regarding the Fund and providing reports and
other information, and services related to the maintenance of shareholder
accounts. Ascend Financial may also use the shareholder servicing portion of the
Rule 12b-1 fee to make payments to qualifying broker-dealers and financial
institutions that provide such shareholder services.
Ascend Financial may also provide compensation to certain institutions such as
banks ("Service Organizations") which have purchased shares of the Fund for the
accounts of their clients, or which have made the Fund's 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.
If a bank were prohibited from acting as a Service Organization, its shareholder
clients would be permitted to remain shareholders of the Fund and alternative
means for continuing servicing of such shareholders would be sought. In such
event changes in the operation of the Fund 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.
- --------------------------------------------
PURCHASE OF
FUND SHARES
The Fund's shares may be purchased at the public offering
price from Ascend Financial (the underwriter of the Fund's shares), and from
certain
13
<PAGE>
other broker-dealers. Ascend Financial reserves the right to reject any purchase
order.
Certificates representing shares purchased are not currently issued. However,
shareholders will receive written confirmation of their purchases. Shareholders
will have the same rights of ownership with respect to such shares as if
certificates had been issued. SHAREHOLDERS WHO HOLD PREVIOUSLY ISSUED
CERTIFICATES REPRESENTING ANY OF THEIR SHARES WILL NOT BE ALLOWED TO REDEEM SUCH
CERTIFICATED SHARES BY TELEPHONE.
ALTERNATIVE PURCHASE ARRANGEMENTS. The Fund offers 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, or for a summary of these alternative
purchase arrangements see "Prospectus Summary."
The decision as to which class of shares provides a more suitable investment
for an investor may depend on a number of factors, including the amount and
intended length of the investment. Investors making investments that qualify for
a waiver of initial sales charges should purchase Class A shares. Other
investors should consider Class B or Class C shares because all of the purchase
price is invested immediately. Investors who expect to hold shares for
relatively shorter periods of time may prefer Class C shares because such shares
may be redeemed at any time without payment of a contingent deferred sales
charge. Investors who expect to hold shares longer, however, may choose Class B
shares because such shares convert to Class A shares sooner than do Class C
shares and thus pay the higher Rule 12b-1 fee for a shorter period.
Purchase orders for $1,000,000 or more will be accepted for Class A shares
only and are not subject to a sales charge at the time of purchase. Orders for
Class B or Class C shares for $1,000,000 or more will be treated as orders for
Class A shares or declined.
MINIMUM INVESTMENTS. A minimum initial investment of $250 is required, and
the minimum subsequent investment is $25.
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 Advantus Funds, P.O. Box 64132, St. Paul, Minnesota
55164-0132. 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 the Fund at (800) 665-6005 for instructions.
Promptly after making an initial purchase by wire, an investor should complete
an account application and mail it to Advantus Funds, P.O. Box 64132, St. Paul,
Minnesota 55164-0132.
Subsequent purchases may be made in the same manner. Wire purchases normally
take two or more hours to complete, and to be accepted the same day must be
received by 3:00 p.m. (Central Time). Banks may charge a fee for transmitting
funds by wire.
TIMING OF PURCHASE ORDERS. An order in proper form for the purchase of shares
of the Fund received by the Fund prior to the close of 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. Orders received after the
close of the NYSE will be effected at the price next determined on the next
business day.
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 primary
closing time for business on the New York Stock Exchange (as of the date of this
Prospectus 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
14
<PAGE>
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 (as of the date hereof, New Year's Day,
Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving Day and Christmas Day).
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. 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
The sales charges applicable to purchases of the Fund's shares,
and also the Rule 12b-1 fees paid by the Fund which are
attributable to such shares, will vary depending on the class of shares
purchased, as described below. An investor should carefully consider which sales
charge alternative is most beneficial in the investor's circumstances.
- --------------------------------------------
CLASS A
SHARES The public offering price of Class A shares of the 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:
<TABLE>
<CAPTION>
SALES CHARGE AS A AMOUNT PAID TO
PERCENTAGE OF: BROKER-DEALERS AS
NET A PERCENTAGE OF
OFFERING AMOUNT OFFERING PRICE:
VALUE OF TOTAL INVESTMENT PRICE INVESTED STANDARD AFFILIATED*
<S> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------
LESS THAN $50,000 5.0% 5.26% 4.50% 5.0%
$50,000 BUT LESS THAN $100,000 4.5 4.71 4.05 4.5
$100,000 BUT LESS THAN $250,000 3.5 3.63 3.15 3.5
$250,000 BUT LESS THAN $500,000 2.5 2.56 2.25 2.5
$500,000 BUT LESS THAN $1,000,000 1.5 1.52 1.35 1.5
$1,000,000 AND OVER 0 0 .9** .9**
</TABLE>
*AN AFFILIATED BROKER-DEALER IS ONE OWNED BY A GENERAL AGENT OF MINNESOTA
MUTUAL.
**THESE PAYMENTS ARE PAID BY ASCEND FINANCIAL OR ONE OF ITS AFFILIATES, AT
ITS OWN EXPENSE, AND NOT BY THE FUND OR ITS SHAREHOLDERS.
Note that the sales charge depends on the total value of an investment (net
asset value of shares currently owned plus the cost of any new investment) in
the Fund, and not on the amount of a single investment. For example, if an
investor already owns shares with a net asset value of $40,000 and decides to
invest in additional Class A shares having a public offering price of $10,000,
the investor will pay a sales charge equal to 4.5% of the entire additional
$10,000 investment, since the total value of the investment is now $50,000.
RULE 12b-1 FEES. Class A shares are subject to a Rule 12b-1 fee payable at an
annual rate of .30% of average daily net assets of the Fund attributable to
Class A shares. For additional information about this fee, see "Management of
the Fund--The Underwriter and Plans of Distribution," above.
WAIVER OF SALES CHARGES FOR CLASS A SHARES. Officers, directors, full-time and
part-time employees, sales representatives, and retirees of the Fund, Advantus
Capital, MIMLIC Management, Ascend Financial, Minnesota Mutual or any of
Minnesota Mutual's other affiliated companies, any trust, pension or benefit
plan for such persons, the spouses, siblings, direct ancestors or direct
descendents of such persons, Minnesota Mutual and its affiliates themselves,
advisory clients of Advantus Capital or MIMLIC Management, employees of sales
representatives employed in offices maintained by such sales representatives,
certain accounts as to
15
<PAGE>
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 are allowed to buy Class A shares of the Fund without paying the
FESC.
- --------------------------------------------
CLASS B
SHARES Class B shares of the Fund are sold without an initial sales charge so
that the Fund receives the full amount of the investor's purchase. However, a
contingent deferred sales charge ("CDSC") of up to 5% will be imposed if shares
are redeemed within six years of purchase. For additional information, see
"Redemption of Fund Shares." 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 THE
CDSC APPLICABLE IN YEAR 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
without deduction of a sales charge at the time of purchase. Although Classs 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 PERCENTAGE OF
OFFERING PRICE:
SHARES PURCHASED IN AN AMOUNT STANDARD AFFILIATED*
<S> <C> <C>
- ----------------------------------------------------------------------
LESS THAN $50,000 3.75% 4.17%
$50,000 BUT LESS THAN $100,000 3.38 3.75
$100,000 BUT LESS THAN $250,000 2.63 2.92
$250,000 BUT LESS THAN $500,000 1.88 2.08
$500,000 BUT LESS THAN $1,000,000 1.13 1.25
</TABLE>
*AN AFFILIATED BROKER-DEALER IS ONE OWNED BY A GENERAL AGENT OF MINNESOTA
MUTUAL.
RULE 12b-1 FEES. Class B shares are subject to a Rule 12b-1 fee payable at an
annual rate of 1.00% of the average daily net assets of the Fund attributable to
Class B shares. For additional information about this fee, see "Management of
the Fund--The Underwriter and Plans of Distribution," above.
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 Fund 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
16
<PAGE>
Purchased B Shares bears to the shareholder's total converting and
non-converting Purchased B Shares immediately prior to the conversion) of the
Reinvestment B Shares then in the sub-account will also convert to Class A
shares.
The conversion of Class B shares to Class A shares is subject to the
continuing availability of a ruling from the Internal Revenue Service or an
opinion of counsel that payment of different dividends by each of the classes of
shares does not result in the Fund's dividends or distributions constituting
"preferential dividends" under the Internal Revenue Code of 1986, as amended,
and that such conversions do not constitute taxable events for Federal tax
purposes. There can be no assurance that such ruling or opinion will be
available, and the conversion of Class B shares to Class A shares will not occur
if such ruling or opinion is not available. In such event, Class B shares would
continue to be subject to higher expenses than Class A shares for an indefinite
period.
- --------------------------------------------
CLASS C
SHARES Class C shares of the Fund are sold without an initial sales charge so
that the Fund receives the full amount of the investor's purchase. Unlike Class
B shares, however, no CDSC is imposed when Class C shares are redeemed. Class C
shares will automatically convert to Class A shares of the Fund on the fifteenth
day of the month (or, if different, the last business day prior to such date)
following the expiration of a specified holding period. In addition, Class C
shares are subject to higher Rule 12b-1 fees (as described below), and are
subject to such higher fees for a longer period than are Class B shares because
of a longer holding period prior to conversion. The applicable holding period
prior to conversion is determined in accordance with the following table:
<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.
RULE 12b-1 FEES. Class C shares are subject to a Rule 12b-1 fee payable at an
annual rate of 1.00% of the average daily net assets of the Fund attributable to
Class C shares. For additional information about this fee, see "Management of
the Fund--The Underwriter and Plans of Distribution," above.
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,
17
<PAGE>
Class C shares would continue to be subject to higher expenses than Class A
shares for an indefinite period.
- --------------------------------------------
OTHER PAYMENTS
TO BROKER-DEALERS The commissions paid to broker-dealers in connection with the
sale of Class A and Class B shares are as described above. A broker-dealer
receiving more than 90% of the sales charge may be deemed to be an "underwriter"
under the Securities act of 1933, as amended. Broker-dealers selling Class A and
Class C shares will receive Rule 12b-1 distribution fees which equal, on an
annual basis, .25% and .75%, respectively, of the net asset values attributable
to such shares. Rule 12b-1 service fees will also be paid to broker-dealers
selling Class B and Class C shares in amount equal, on an annual basis, to .25%
and .25%, respectively, of the net asset values attributable to such shares.
In addition, Ascend Financial or Minnesota Mutual will pay to "affiliated"
broker-dealers (i.e., broker-dealers owned by general agents of Minnesota
Mutual), based uniformly on the sale of all classes of Fund shares by such
broker-dealers, credits which allow such broker-dealers' registered
representatives who are responsible for such broker-dealers' sales of Fund
shares to attend conventions and other meetings sponsored by Minnesota Mutual or
its affiliates for the purpose of promoting the sale of the insurance and/or
investment products offered by Minnesota Mutual and its affiliates. Such credits
may cover the registered representatives' transportation, hotel accommodations,
meals, registration fees and the like. Affiliated broker-dealers earning such
credits will be allowed to elect to receive from Ascend Financial or Minnesota
Mutual, in lieu of such credits, cash in an amount equal to the cost of
providing such credits.
- --------------------------------------------
SPECIAL
PURCHASE
PLANS
The following are alternative purchase plans applicable to the
Fund, all of which offer the possibility of a reduced sales
charge (see the Statement of Additional Information for the terms and conditions
applicable to these special purchase plans):
- - Letter of Intent--the applicable sales charge is
based on purchases which the investor intends to make, and then makes, during
a 13-month period in an amount not less than $50,000.
- - Combined investments in all Advantus Multiple
Class Funds--all accounts, whether invested in Class A shares, Class B shares
or Class C shares, or any combination, are combined to determine sales charge.
- - Combined purchases with spouse, children, and/or
single trust estates--all accounts, whether invested in Class A shares, Class
B shares or Class C shares, or any combination, are combined to determine
sales charge. It is the obligation of each investor 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.
- - Group Purchases--individuals who are members
of a qualified group (which must meet criteria established by Ascend
Financial) may purchase shares at the reduced sales charge applicable to the
group taken as a whole.
The Fund also offers an Automatic Investment Plan, which allows an investor to
automatically invest a specified amount in the Fund each month and thereby lower
the average cost per share through the principle of "dollar cost averaging." For
more information on any of these plans, contact Ascend Financial or an Ascend
Financial representative.
- --------------------------------------------
EXCHANGE AND
TELEPHONE 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 Fund, including shares acquired
by reinvestment of dividends, for shares of the same class of any of the other
Advantus Multiple Class Funds (provided that the shareholder has an already open
account in such other Advantus Multiple Class Fund), 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 CDSC period and applying the CDSC.
Class A, Class B and Class C shares may also be exchanged for shares of
Advantus Money Market Fund, Inc. ("Money Market Fund") at net asset
18
<PAGE>
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 Advantus Multiple Class 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. Shares of Money Market Fund not acquired in an exchange from any of
the Advantus Multiple Class Funds may be exchanged at relative net asset values
for either Class A, Class B or Class C shares of the Fund, subject to the sales
charge applicable to the class selected.
The exchange privilege is available only in states where such exchanges may
legally be made (at the present time the Fund believes this privilege is
available in all states). An exchange may be made by written request or by a
telephone call, unless the shareholder has elected on the account application
not to have telephone transaction privileges (see "Telephone Transactions"). Up
to four exchanges each calendar year may be made without charge. A $7.50 service
charge will be imposed on each subsequent exchange and/or telephone transfer. No
service charge is imposed in connection with systematic exchange plans. However,
the Fund reserves the right to restrict the frequency of--or otherwise modify,
condition, terminate, or impose additional charges upon--the exchange and/or
telephone transfer privileges, upon 60 days' prior notice to shareholders.
Telephone transfers and other exchanges can only be made between Advantus Fund
accounts having identical registrations. 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 "Taxes" 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 (provided
that such Advantus Fund accounts must have identical registrations) 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.
- --------------------------------------------
REDEMPTION OF
FUND SHARES
Registered holders of shares of the Fund 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 Class B shares (see "Contingent Deferred Sales
Charge," below). 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
19
<PAGE>
to the Fund by facsimile (FAX) transmission. The Fund's FAX number is
1-612-665-6689.
SIGNATURE GUARANTEE. In order to protect both shareholders and the Fund
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 $25,000 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 $25,000.
A signature guarantee is required, however, if (i) the redemption proceeds are
$25,000 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 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, the
calculation will be determined in the manner that results in the lowest rate
being charged. Therefore, it will be assumed that shares that are not subject to
the CDSC are redeemed first, shares subject to the lowest level of CDSC are
redeemed next, and so forth. If a shareholder owns Class A or Class C shares in
addition to Class B shares, then absent a shareholder choice to the contrary,
Class C shares will first be redeemed in full, and Class B shares not subject to
a CDSC will next be redeemed in full, prior to any redemption of Class A shares.
Class A shares will also be redeemed in full, absent a shareholder choice to the
contrary, prior to any redemption of Class B shares which are subject to a CDSC.
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 Telephone
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 the Fund's transfer agent 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 $25,000. 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
20
<PAGE>
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.
SYSTEMATIC WITHDRAWAL PLANS. An investor owning shares in any one Advantus
Fund 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 represent proceeds from the
redemption of shares and may therefore reduce and possibly exhaust the initial
investment. Withdrawal payments attributable to the redemption of Class B shares
may also be subject to a contingent deferred sales charge. A shareholder should
therefore consider carefully whether a Systematic Withdrawal Plan is appropriate
in the circumstances. See the Statement of Additional Information for details of
the terms and conditions applicable to Systematic Withdrawal Plans.
- --------------------------------------------
TELEPHONE
TRANSACTIONS
Shareholders of the Fund are permitted to exchange or
redeem the Fund's shares by telephone. See "Exchange and Telephone Transfer of
Fund Shares" and "Redemption of Fund Shares" 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 the Fund's transfer agent, toll free, at
1-800-665-6005, 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. Telephone exchanges may be
made only between Advantus Fund accounts having identical registrations. The
maximum amount which may be redeemed by telephone is $25,000. 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 and its transfer agent, Minnesota Mutual, will not be liable for
following instructions communicated by telephone which they reasonably believe
to be genuine; provided, however, that the Fund and Minnesota Mutual 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.
- --------------------------------------------
REINSTATEMENT
PRIVILEGE
Shareholders who redeem shares in the Fund have a one-time
privilege to apply their redemption proceeds (at no sales charge) to the
purchase of shares of any of the Advantus Multiple Class Funds by notifying
Ascend Financial within 90 days after their redemption. 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
21
<PAGE>
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 "Taxes" 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.
- --------------------------------------------
DIVIDENDS AND
CAPITAL GAINS
DISTRIBUTIONS
The historical policy of the Fund has been to pay
dividends from net investment income quarterly. However,
such quarterly dividends from current income have not been paid since 1993. See
"Investment Objectives, Policies and Risks." Any net realized capital gains are
generally distributed once a year, during December. Distributions paid by the
Fund, 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 Fund 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 the Fund, a shareholder may also elect to have
dividends from the Fund invested without sales charge in shares of Money Market
Fund or shares of the same class of another of the Advantus Multiple Class Funds
(provided that such Advantus Fund accounts must have identical registrations) at
the net asset value of such other Advantus Fund on the payable date for the
dividends being distributed. To use this privilege of investing dividends from
the Fund in shares of another of the Advantus Funds, shareholders must maintain
a minimum account value of $250 in both the Fund and the Advantus Fund in which
dividends are reinvested.
- --------------------------------------------
TAXES
The following is a general summary of certain federal tax
considerations affecting the Fund and its shareholders. No attempt is made to
present a detailed explanation of the tax treatment of the Fund or its
shareholders, and the discussion here is not intended as a substitute for
careful tax planning.
During the year ended September 30, 1997 the 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, the 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 the 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. For individuals, estates, and trusts, the Taxpayer
Relief Act of 1997 (the "1997 Act") has created new "mid-term capital gain"
rates that apply to the sale of capital assets held more than one year but not
more than 18 months. Under IRS regulations issued pursuant to the Act, the Fund
will notify shareholders who are individuals as to whether they must treat
capital gain distributions that they receive as mid-term or long-term capital
gains. Long-term capital gains of individuals are taxed at a maximum rate of
20%, while mid-term capital gains of individuals are taxed at 28%, and the
highest marginal regular tax rates on ordinary income for individuals is 39.6%.
22
<PAGE>
Some or all of the dividend distributions from the Fund will qualify for the
70% dividend received deduction for corporations.
Prior to purchasing shares of the Fund, prospective shareholders (except for
tax qualified retirement plans) should consider the impact of dividends or
capital gains distributions which are expected to be announced, or have been
announced but not paid. Any such dividends or capital gains distributions paid
shortly after a purchase of shares by an investor prior to the record date will
have the effect of reducing the per share net asset value by the amount of the
dividends or distributions. All or a portion of such dividends or distributions,
although in effect a return of capital, is subject to taxation.
Gain or loss upon the sale of shares of the Fund will be treated as capital
gain or loss, provided that the shares represented a capital asset in the hands
of the shareholder. For corporate shareholders, such gain or loss will be
long-term gain or loss if the shares where held more than one year. For
shareholders who are individuals, estates or trusts, the gain or loss will be
considered long-term if the shareholder has held the shares for more than 18
months and mid-term if the shareholder has held the shares for more than one
year but not more than 18 months.
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.
Before investing in the Fund, an investor should consult a tax adviser
concerning the consequences of any local and state tax laws, and of any
retirement plan offering tax benefits.
Shareholders of the Fund receive an annual statement detailing federal tax
information. Distributions by the Fund, 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 Fund is 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 requirment, 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.
- --------------------------------------------
INVESTMENT
PERFORMANCE
Advertisements and other sales literature for the Fund may
refer to "yield," "average annual total return" and "cumulative total return."
Performance quotations are computed separately for Class A, Class B and Class C
shares of the Fund. All quotations of yield, average annual total return and
cumulative total return are based upon historical information and are not
intended to indicate future performance. The investment return on and principal
value of an investment in the Fund will fluctuate, so that an investor's shares,
when redeemed, may be worth more or less than their original cost.
The advertised yield of the Fund will be based upon a 30-day period stated in
the advertisement. Yield is calculated by dividing the net investment income per
share (as defined under Securities and Exchange Commission rules and
regulations) earned during the period by the maximum offering price per share on
the last day of the period. The result is then "annualized" using a formula that
provides for semi-annual compounding of income.
Both average annual total return and cumulative total return are based on a
hypothetical $1,000 payment to the Fund at the beginning of the advertised
period. Average annual total return is calculated by finding the average annual
compounded rate of return over the period that would equate the initial
investment to the ending redeemable value. Cumulative total return is the
percentage change between the public offering price of one Fund share at the
beginning of a period and the net asset value of that share at the end of the
period with dividend and capital gain distributions treated as reinvested. In
calculating both average annual total return and cumulative total return, the
maximum initial or deferred sales charge is deducted
23
<PAGE>
from the hypothetical investment and all dividends and distributions during the
period are assumed to be reinvested. 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.
- --------------------------------------------
AVERAGE ANNUAL
TOTAL RETURNS The Fund's performance figures shown in the following table do
not reflect the Fund's maximum 5% initial sales charge or contingent deferred
sales charge applicable to Class A and Class B shares, respectively. (See
"Standard Average Annual Total Returns," below.) Such figures do, however,
reflect the reinvestment of dividend and capital gains distributions in
additional shares and all recurring fees, such as investment management fees.
Such figures also reflect, during certain periods, the voluntary absorption of
certain expenses of the Fund by the Fund's investment adviser and the waiver of
certain Class A 12b-1 fees by the Fund's Distributor.
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL
RETURN FOR THE
PERIODS SHOWN ENDING
SEPTEMBER 30, 1997
10 SINCE
1 YEAR 5 YEARS YEARS INCEPTION
<S> <C> <C> <C> <C>
- ---------------------------------------------------------------
CLASS A SHARES (1) 25.0% 15.2% 11.9% 12.7%
CLASS B SHARES (2) 24.3 N/A N/A 21.0
CLASS C SHARES (3) 24.0 N/A N/A 23.0
</TABLE>
(1) INCEPTION WAS MAY 3, 1985.
(2) INCEPTION WAS AUGUST 19, 1994.
(3) INCEPTION WAS MARCH 1, 1995.
- ---------------------------------------------------------------
STANDARD AVERAGE
ANNUAL TOTAL RETURNS The table below shows the average annual total returns for
Class A, Class B and Class C shares of the Fund for the periods indicated. Such
figures reflect the deduction of the Fund's maximum 5% sales load applicable to
Class A shares, the contingent deferred sales charge applicable to Class B
shares, and, for certain periods, the voluntary absorption of certain expenses
of the Fund by the Fund's investment adviser and the waiver of certain Class A
12b-1 fees by the Fund's Distributor.
<TABLE>
<CAPTION>
STANDARD AVERAGE ANNUAL TOTAL
RETURN FOR THE
PERIODS SHOWN ENDING
SEPTEMBER 30, 1997
10 SINCE
1 YEAR 5 YEARS YEARS INCEPTION
<S> <C> <C> <C> <C>
- ---------------------------------------------------------------
CLASS A SHARES (1) 18.7% 14.0% 11.3% N/A
CLASS B SHARES (2) 19.3 N/A N/A 20.4%
CLASS C SHARES (3) 24.0 N/A N/A 23.0
</TABLE>
(1) INCEPTION WAS MAY 3, 1985.
(2) INCEPTION WAS AUGUST 19, 1994.
(3) INCEPTION WAS MARCH 1, 1995.
- ---------------------------------------------------------------
RANKINGS, RATINGS AND
COMPARATIVE RETURNS The Fund may from time to time advertise rankings or other
ratings of the Fund as determined by Morningstar, Inc., Lipper Analytical
Services, Inc., INVESTORS DAILY, Wiesenberger Financial Services, FORTUNE
MAGAZINE, or other mutual fund rating firms. The Fund may also advertise
comparisons of its returns with various indices, including both unmanaged market
indices and indices which measure the performance of groups of mutual funds with
similar investment objectives and policies.
- --------------------------------------------
ADDITIONAL PERFORMANCE
INFORMATION Further information about the performance of the Fund is contained
in the Fund's Annual Report to Shareholders, which may be obtained without
charge by writing or calling the Fund at the address or telephone number shown
on the cover of this Prospectus. Shareholders of the Fund may also telephone
Ascend Financial at (888) 237-1838 for current quotations of yield, average
annual total return and cumulative total return.
For additional information regarding the calculation of yield, average annual
total return and cumulative total return see the Statement of Additional
Information.
- --------------------------------------------
GENERAL
INFORMATION
The Fund was incorporated in October 1984 as a Minnesota
corporation. The Fund's name was changed, by vote of its shareholders, to its
current name in February 1995. The Fund's authorized capital stock is of three
classes (Class A, Class B and Class C), common shares, with a par value of $.01
24
<PAGE>
per share. All shares of the Fund are nonassessable, fully transferable and have
one vote and equal rights to share in dividends and assets of the Fund. The
shares of the Fund possess no preemptive or conversion rights. Cumulative voting
is not authorized for the Fund. This means that the holders of more than 50% of
the shares of the Fund voting for the election of directors of the Fund can
elect 100% of the directors if they choose to do so, and in such event the
holders of the remaining shares of the Fund will be unable to elect any
directors.
On September 30, 1997, Minnesota Mutual and its subsidiaries owned shares in
each class of shares of the Fund as set forth in the following table:
<TABLE>
<CAPTION>
NUMBER OF SHARES
OWNED BY MINNESOTA
SHARES OUTSTANDING MUTUAL AND SUBSIDIARIES
CLASS A CLASS B CLASS C CLASS A CLASS B CLASS C
<S> <C> <C> <C> <C> <C>
- -------------------------------------------------------------------------------
1,742,946 521,312 78,348 36,882 0 761
</TABLE>
Minnesota Mutual, Advantus Capital, MIMLIC Management and Ascend Financial are
all organized as Minnesota corporations.
The Fund does not hold annual or periodically scheduled regular meetings of
shareholders. Regular and special shareholder meetings are held only at such
times and with such frequency as required by law. Minnesota corporation law does
not require an annual meeting; instead, it provides for the Board of Directors
to convene shareholder meetings when it deems appropriate. In addition, if a
regular meeting of shareholders has not been held during the immediately
preceding fifteen months, a shareholder or shareholders holding 3% or more of
the voting shares of the Fund may demand a regular meeting of shareholders of
the Fund by written notice of demand given to the chief executive officer or the
chief financial officer of the Fund. Within 30 days after receipt of the demand
by one of those officers, the Board of Directors shall cause a regular meeting
of shareholders to be called and held no later than 90 days after receipt of the
demand, all at the expense of the Fund. Additionally, the Investment Company Act
of 1940 requires shareholder votes for all amendments to fundamental investment
policies and restrictions and for all investment advisory contracts and
amendments thereto.
The Fund sends to its shareholders a six-month unaudited and annual audited
financial report of the Fund, which includes a list of investment securities
held by the Fund. Shareholder inquiries should be directed to a registered
representative of the shareholder's broker-dealer, or to the Underwriter or the
Fund at the telephone number or mailing address listed on the cover of this
Prospectus.
- --------------------------------------------
COUNSEL AND
INDEPENDENT
AUDITORS
The firm of Dorsey & Whitney LLP, 220 South Sixth Street,
Minneapolis, Minnesota 55402, is the general counsel for the
Fund. KPMG Peat Marwick LLP, 4200 Norwest Center, 90 South Seventh Street,
Minneapolis, Minnesota 55402, are the independent auditors for the Fund.
- --------------------------------------------
CUSTODIAN
First Trust National Association, 180 East Fifth Street, St.
Paul, Minnesota 55101, acts as custodian of the securities held by the Fund.
25
<PAGE>
ADVANTUS HORIZON FUND, INC.
FUND INFORMATION:
INVESTMENT ADVISER
Advantus Capital Management, Inc.
400 Robert Street North
St. Paul, Minnesota 55101
(612) 665-3826
UNDERWRITER
Ascend Financial Services, Inc.
P.O. Box 64809
St. Paul, Minnesota 55101-0809
(612) 665-4833
(888) 237-1838
TRANSFER AGENT AND DIVIDEND
DISBURSING AGENT
The Minnesota Mutual Life Insurance Company
P.O. Box 64132
St. Paul, Minnesota 55164-0132
(800) 665-6005
CUSTODIAN
First Trust National Association
180 East Fifth Street
St. Paul, Minnesota 55101
INDEPENDENT AUDITORS
KPMG Peat Marwick LLP
GENERAL COUNSEL
Dorsey & Whitney LLP
[ADVANTUS -TM- FAMILY OF FUNDS]
<PAGE>
PART B. INFORMATION REQUIRED IN A STATEMENT OF
ADDITIONAL INFORMATION
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
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.
January 30, 1998
This Statement of Additional Information is not a prospectus. This
Statement of Additional Information relates to the separate Prospectuses dated
January 30, 1998 and should be read in conjunction therewith. A copy of each
Prospectus may be obtained from Advantus Funds, P.O. Box 64132, St.
Paul, Minnesota 55164-0132 (telephone (800) 665-6005).
THIS STATEMENT OF ADDITIONAL INFORMATION MUST BE ACCOMPANIED OR PRECEDED BY A
COPY OF THE CURRENT PROSPECTUS AND ANNUAL REPORT TO SHAREHOLDERS FOR THE
RESPECTIVE FUND.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
GENERAL INFORMATION AND HISTORY. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
INVESTMENT OBJECTIVES AND POLICIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
INVESTMENT RESTRICTIONS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Horizon Fund. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Spectrum Fund . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Mortgage Securities Fund. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Money Market Fund . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Bond Fund . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cornerstone Fund and Enterprise Fund. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
International Fund. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Additional Investment Restrictions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
All Funds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
International Fund Sub-Adviser -- Templeton Counsel . . . . . . . . . . . . . . . . . . . . . . . . .
International Fund Investment Sub-Advisory Agreement -- Templeton Counsel . . . . . . . . . . . . . .
Distribution Agreement. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Payment of Certain Distribution Expenses of the Funds . . . . . . . . . . . . . . . . . . . . . . . .
MONEY MARKET FUND AMORTIZED COST METHOD OF PORTFOLIO VALUATION . . . . . . . . . . . . . . . . . . . . . . .
PORTFOLIO TRANSACTIONS AND ALLOCATION OF BROKERAGE . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
CALCULATION OF PERFORMANCE DATA. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
CAPITAL STOCK AND OWNERSHIP OF SHARES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
HOW TO BUY SHARES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
NET ASSET VALUE AND PUBLIC OFFERING PRICE. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
</TABLE>
<PAGE>
<TABLE>
<S> <C>
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 . . . . . . . . . . . . . . . . . . . . .
SHAREHOLDER SERVICES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Open Accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Automatic Investment Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Group Systematic Investment Plan. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Retirement Plans Offering Tax Benefits. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Systematic Withdrawal Plans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Exchange and Telephone Transfer Privilege . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
REDEMPTIONS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Reinstatement Privilege . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
DISTRIBUTIONS AND TAX STATUS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
FINANCIAL STATEMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
APPENDIX A - MORTGAGE-RELATED SECURITIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Underlying Mortgages. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Liquidity and Marketability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Average Life. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Yield Calculations. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
APPENDIX B - BOND AND COMMERCIAL PAPER RATINGS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Bond Ratings. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Commercial Paper Ratings. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
APPENDIX C - FUTURES CONTRACTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Use of Futures Contracts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Description of Futures Contracts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Risks in Futures Contracts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Example of Futures Contract Sale. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Example of Futures Contract Purchase. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Tax Treatment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
</TABLE>
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GENERAL INFORMATION AND HISTORY
Advantus Horizon Fund, Inc. ("Horizon Fund"), Advantus Spectrum Fund,
Inc. ("Spectrum Fund"), Advantus Mortgage Securities Fund, Inc. ("Mortgage
Securities Fund"), Advantus Money Market Fund, Inc. ("Money Market Fund"),
Advantus Bond Fund, Inc. ("Bond Fund"), Advantus Cornerstone Fund, Inc.
("Cornerstone Fund"), Advantus Enterprise Fund, Inc. ("Enterprise Fund") and
Advantus International Balanced Fund, Inc. ("International Fund"),
collectively referred to as the "Advantus Funds" or the "Funds," are open-end
diversified investment companies, commonly called mutual funds. Each of the
Advantus Funds, excluding Money Market Fund, offers more than one class of
shares (the "Advantus Multiple Class Funds"). The Advantus Multiple Class
Funds currently offer three classes of shares (Class A, Class B and Class C).
Each class is sold pursuant to different sales arrangements and bears
different expenses. The Funds are incorporated as Minnesota corporations.
Horizon Fund, Spectrum Fund, Mortgage Securities Fund and Money Market Fund
were incorporated in October 1984. Bond Fund was incorporated in January
1987, and Cornerstone Fund, Enterprise Fund and International Fund were
incorporated in January 1994.
INVESTMENT OBJECTIVES AND POLICIES
The investment objective and policies of each of the Funds are
summarized on the front page of each Fund's Prospectus and are set forth in
detail in the text of each Fund's Prospectus under "Investment Objectives,
Policies and Risks."
WHEN-ISSUED SECURITIES AND FORWARD COMMITMENTS
Mortgage Securities Fund, Spectrum Fund and Bond Fund may each
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 adviser anticipates a rise in interest rates
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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 adviser anticipates a
decline in interest rates and a rise in prices, and, accordingly, the Fund
sells a security in its portfolio and purchases the same or a similar
security on a when-issued or forward commitment basis in order to enjoy
currently high cash yields, but in fact interest rates increase and prices
fall, the Fund will have lost the opportunity to profit from investment of
the proceeds of the sale of the security at the increased interest rates.
The likely effect of this hedging strategy, whether the Fund's investment
adviser is correct or incorrect in its prediction of interest rate and price
movements, is to reduce the chances of large capital gains or losses and
thereby reduce the likelihood of wide variations in the Fund's net asset
value.
When-issued securities and forward commitments may be sold prior to
the settlement date, but, except for mortgage dollar roll transactions, 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, 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.)
In connection with their ability to purchase securities on a when-issued or
forward commitment basis, the Funds may enter into mortgage "dollar rolls."
These transactions are entered into in order to generate incremental income and
without the intention of actually acquiring securities. In such circumstances
the Fund agrees to resell its purchase commitment to the third-party seller at
the current market price on the date of sale and concurrently enter into another
purchase commitment for such securities at a later date. The Fund may receive a
negotiated fee as an inducement "roll over" its purchase commitment. For
financial reporting and tax purposes, mortgage dollar rolls are considered as
two separate transactions: one involving the sale of a security and a separate
transaction involving a purchase. The Funds do not currently intend to enter
into mortgage dollar rolls that are accounted for as a "financing" rather than
as a separate sale and purchase transactions.
INTEREST RATE FUTURES CONTRACTS
Mortgage Securities Fund and Bond Fund may each also enter into
contracts for the future delivery of fixed income securities commonly
referred to as "interest rate futures contracts." These futures contracts
will be used only as a hedge against anticipated interest rate changes. The
Fund will sell futures contracts to protect against expected increases in
interest rates and purchase futures contracts to offset the impact of
interest rate declines. The Fund will not enter into an interest rate
futures contracts if immediately thereafter (a) more than 5% of the value of
the Fund's total assets will be committed to initial margin or (b) the sum of
the then aggregate futures market prices of financial instruments required to
be delivered upon open futures contract sales and the aggregate purchase
prices under open futures contract purchases would exceed 30% of the value of
the Fund's total assets. In addition, when purchasing interest rate futures
contracts, the Fund will deposit and maintain in a separate account with its
custodian cash or cash equivalents in an amount equal to the market value of
such futures contracts, less any margin deposited on the Fund's long
position, to cover the Fund's obligation.
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The Commodity Futures Trading Commission (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 an investment trust, syndicate, or similar form or 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 certain regulations which exclude from the definition of
"commodity pool operator" an investment company, like the Fund, registered
with the Securities and Exchange Commission under the Investment Company Act
of 1940, and any principal or employee thereof, which investment company
files a notice of eligibility with the CFTC and the National Futures
Association containing certain information about the investment company and
representing that it (i) will use commodity futures or commodity options
contracts solely for bona fide hedging purposes, (ii) will not enter into
commodity futures and commodity options contracts for which the aggregate
initial margin and premiums exceed 5% of the fair market value of its assets,
after taking into account unrealized profits and unrealized losses on any
such contracts it has entered into, (iii) will not be, and has not been,
marketing participations to the public as or in a commodity pool or otherwise
as or in a vehicle for trading in the commodity futures or commodity options
markets, (iv) will disclose in writing to each prospective participant the
purpose of and the limitations on the scope of the commodity futures and
commodity options trading in which the entity intends to engage, and (v) will
submit to such special calls as the CFTC may make to require the qualifying
entity to demonstrate compliance with these representations. The "bona fide
hedging" transactions and positions authorized by these regulations mean
transactions or positions in a contract for future delivery on any contract
market, where such transactions or positions normally represent a substitute
for transactions to be made or positions to be taken at a later time in a
physical marketing channel, and where they are economically appropriate to
the reduction of risks in the conduct and management of a commercial
enterprise, and where they arising from (i) the potential change in the value
of assets which a person owns, produces, manufactures, processes or
merchandises or anticipates owning, producing, manufacturing, processing or
merchandising, (ii) the potential change in the value of liabilities a person
owes or anticipates incurring, or (iii) the potential change in the value of
services which a person provides, purchases or anticipates providing or
purchasing; provided that, notwithstanding the foregoing, no transactions or
positions shall be classified as bona fide hedging unless their purpose is to
offset price risk incidental to commercial cash or spot operations and such
positions are established and liquidated in an orderly manner in accordance
with sound commercial practices and unless certain statements are filed with
the CFTC with respect to such transactions or positions. The Fund intends to
meet these requirements, or such other requirements as the CFTC or its staff
may from time to time issue, in order to render registration of the Fund and
any of its principals and employees as a commodity pool operator unnecessary.
The Fund will incur certain risks in employing interest rate futures
contracts to protect against cash market price volatility. One risk is the
prospect that futures prices will correlate imperfectly with the behavior of
cash prices. Another risk is that the Fund's investment adviser would be
incorrect in its expectation as to the extent of various investment rate
movements or the time span within which the movements take place.
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For a detailed discussion of futures contracts and the risks of
investing therein, see Appendix C to this Statement of Additional Information.
OPTIONS - HORIZON FUND, CORNERSTONE FUND AND ENTERPRISE FUND
The Fund may write covered call options which are traded on national
securities exchanges with respect to common stocks in its portfolio ("covered
options") in an attempt to earn additional current income on its portfolio or
to guard against an expected decline in the price of a security. When the
Fund writes a covered call option, it gives the purchaser of the option the
right to buy the underlying security at the price specified in the option
(the "exercise price") at any time during the option period. If the option
expires unexercised, the Fund realizes income, typically in the form of
short-term capital gain, to the extent of the amount received for the option
(the "premium"). If the option is exercised, a decision over which the Fund
has no control, the Fund must sell the underlying security to the option
holder at the exercise price. By writing a covered option, the Fund
foregoes, in exchange for the premium less the commission ("net premium"),
the opportunity to profit during the option period from an increase in the
market value of the underlying security above the exercise price. The Fund
does not write call options in an aggregate amount greater than 15% of its
net assets.
The Fund purchases call options only to close out a position. When an
option is written on securities in the Fund's portfolio and it appears that
the purchaser of that option is likely to exercise the option and purchase
the underlying security, it may be considered appropriate to avoid
liquidating the Fund's position, or the Fund may wish to extinguish a call
option sold by it so as to be free to sell the underlying security. In such
instances the Fund may purchase a call option on the same security with the
same exercise price and expiration date which had been previously written.
Such a purchase would have the effect of closing out the option which the
Fund has written. The Fund realizes a short-term capital gain if the amount
paid to purchase the call option is less than the premium received for
writing a similar option. Generally, the Fund realizes a short-term loss if
the amount paid to purchase the call option is greater than the premium
received for writing the option. If the underlying security has
substantially risen in value, it may be difficult or expensive to purchase
the call option for the closing transaction.
OPTIONS - MORTGAGE SECURITIES FUND
Mortgage Securities Fund may purchase put and call options written by
others covering the types of securities in which the Fund may invest. The
Fund may not write put or call options. The Fund utilizes put and call
options to provide protection against adverse price or yield effects from
anticipated changes in prevailing interest rates.
A put option gives the buyer of such option, upon payment of a
premium, the right to deliver a specified amount of a security to the writer
of the option on or before a fixed date at a predetermined price. A call
option gives the purchaser of the option, upon payment of a premium, the
right to call upon the writer to deliver a specified amount of a security on
or before a fixed date at a predetermined price. The Fund will not purchase a
put or call option if, as a result, the aggregate cost of all outstanding
options purchased and held by the Fund plus all other illiquid assets held by
the Fund would exceed 10% of the value of the Fund's net assets. If an
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option is permitted to expire without being sold or exercised, its premium
would be lost by the Fund.
In buying a call, the Fund would be in a position to realize a gain
if, during the option period, the price of the security increased by an
amount in excess of the premium paid. It would realize a loss if the price
of the security declined or remained the same or did not increase during the
period by more than the amount of the premium. By buying a put, the Fund
would be in a position to realize a gain if, during the option period, the
price of the security declines in an amount in excess of the premium paid.
It would realize a loss if the price of the security increased or remained
the same or did not decrease during that period by more than the amount of
the premium.
The Fund generally purchases options in negotiated transactions with
the writers of the options. The Fund purchases options only from investment
dealers and other financial institutions (such as commercial banks or savings
and loan institutions) deemed creditworthy by its investment adviser. The
Fund may dispose of an option by entering into a closing sale transaction
with the writer of the option. A closing sale transaction terminates the
obligation of the writer of the option and does not result in the ownership
of an option. The Fund realizes a profit or loss from a closing sale
transaction if the premium received from the transaction is more than or less
than the cost of the option. Options purchased by the Fund in negotiated
transactions are illiquid and there is no assurance that the Fund will be
able to effect a closing sale transaction at a time when its investment
adviser believes it would be advantageous to do so.
OPTIONS - SPECTRUM FUND AND BOND FUND
The Fund may write (sell) "covered" call options and purchase
"covered" put options. The Fund will not purchase call options except to
close out call options previously written by the Fund, nor will it write put
options except to close out put options previously purchased by the Fund.
The effect of writing covered call options and purchasing covered put options
will be to reduce the effect of price fluctuations of the securities owned by
the Fund (and involved in the options) on the Fund's net asset value per
share. Another effect may be the generation of additional revenues in the
form of premiums received for writing covered call options.
Spectrum Fund does not write covered call or purchase covered put
options if, as a result, the aggregate market value of all portfolio
securities covering such options exceeds an aggregate amount greater than 15%
of the market value of its net assets. Bond Fund will not write a covered
call option or purchase a put option if, as a result, the aggregate market
value of all portfolio securities covering call options or subject to put
options exceeds 25% of the market value of the Fund's net assets. In
addition, Bond Fund will purchase covered put options (and purchase call
options to close out call options previously written by the Fund) only to the
extent that the aggregate premiums paid for all such options held do not
exceed 2% of net assets.
A call option gives the holder (buyer) the "right to purchase" a
security at a specified price (the exercise price) at any time until a
certain date (the expiration date). So long as the obligation of the writer
of a call option continues, he may be assigned an exercise notice by the
broker-dealer through whom such option was sold, requiring him to deliver the
underlying security
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against payment of the exercise price. This obligation terminates upon the
expiration of the call option, or such earlier time at which the writer
effects a closing purchase transaction by repurchasing the option which he
previously sold. To secure his obligation to deliver the underlying security
in the case of a call option, a writer is required to deposit in escrow the
underlying security or other assets in accordance with the rules of the
Exchanges and of the Options Clearing Corporation (the "OCC"), an institution
created to interpose itself between buyers and sellers of options. A put
option gives the holder (buyer) the "right to sell" a security at a specified
price (the exercise price) at any time until a certain date (the expiration
date).
The Fund will only write "covered" call and purchase "covered" put
options. This means that the Fund will only write a call option or purchase
a put option on a security which the Fund already owns. Each Fund will only
write covered call options and purchase covered put options in
exchange-traded standard contracts issued by the OCC, or write covered call
options and purchase covered put options in the over-the-counter ("OTC")
market in negotiated transactions entered into directly with investment
dealers meeting the creditworthiness criteria (described below) of the Fund's
investment adviser. Exchange-traded options are third-party contracts and
standardized strike prices and expiration dates, and are purchased from a
clearing corporation such as the OCC. Technically, the OCC assumes the other
side of every purchase and sale transaction on an Exchange and, by doing so,
guarantees the transaction. In contrast, OTC options are two-party contracts
with price and terms negotiated between buyer and seller. The Fund relies on
the dealer from whom it purchases an OTC option to perform if the option is
exercised, and will therefore only negotiate an OTC option with a dealer
subject to the following criteria: (i) the broker-dealer or its predecessor
must have been in business at least 15 years; (ii) the broker-dealer must
have, in the judgment of the Fund's investment adviser, a reputation for
sound management and ethical business practices; (iii) the broker-dealer must
be registered with the Securities and Exchange Commission; and (iv) the
broker-dealer must have at least $50 million in "Excess Capital." ("Excess
Capital" is that portion of a firm's permanent capital which is in excess of
the minimum capital required under the Uniform Net Capital Rule of the
Securities and Exchange Commission.) Broker-dealer subsidiaries of companies
having at least $1 billion in net worth shall also be considered
creditworthy, in the event of a lack of publicly available financial
information. To the extent the Fund invests in OTC options for which there
is no secondary market it will be investing in securities which are illiquid
and therefore subject to the Fund's 10% limitation on aggregate investment in
restricted or other illiquid securities (see "Investment Restrictions").
The writing of covered call options is a conservative investment
technique believed to involve relatively little risk (in contrast to the
writing of naked or uncovered options) but capable of enhancing total return.
When writing a covered call option, the Fund, in return for the premium,
gives up the opportunity for profit from a price increase in the underlying
security above the exercise price, but conversely retains the risk of loss
should the price of the security decline. If a call option which the Fund
has written expires, the Fund will realize a gain in the amount of the
premium; however, such gain may be offset by a decline in the market value of
the underlying security during the option period. If the call option is
exercised, the Fund will realize a gain or loss from the sale of the
underlying security. The Fund will purchase put options involving portfolio
securities only when the Fund's investment adviser believes that a temporary
defensive position is desirable in light of market conditions, but does not
desire to sell the
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portfolio security. Therefore, the purchase of put options will be utilized
to protect the Fund's holdings in an underlying security against a
substantial decline in market value. Such protection is, of course, only
provided during the life of the put option when the Fund, as the holder of
the put option, is able to sell the underlying security at the put exercise
price regardless of any decline in the underlying security's market price.
By using put options in this manner, the Fund will reduce any profit it might
otherwise have realized in its underlying security by the premium paid for
the put option and by transaction costs.
The Fund will purchase a call option only to close out a covered call
option it has written (a "closing purchase transaction"), and will write a
put option only to close out a put option it has purchased (a "closing sale
transaction"). Such closing transactions will be effected in order to
realize a profit on an outstanding call or put option, to prevent an
underlying security from being called or put, or, to permit the sale of the
underlying security. Furthermore, effecting a closing transaction will
permit the Fund to write another call option, or purchase another put option,
on the underlying security with either a different exercise price or
expiration date or both. If the Fund desires to sell a particular security
from its portfolio on which it has written a call option, or purchased a put
option, it will seek to effect a closing transaction prior to, or
concurrently with, the sale of the security. There is, of course, no
assurance that the Fund will be able to effect such closing transactions at a
favorable price. If the Fund cannot enter into such a transaction, it may be
required to hold a security that it might otherwise have sold, in which case
it would continue to be at market risk on the security. This could result in
higher transaction costs, including brokerage commissions. The Fund will pay
brokerage commissions in connection with the writing or purchase of options
to close out previously written options. Such brokerage commissions are
normally higher than those applicable to purchases and sales of portfolio
securities.
WARRANTS WITH CASH EXTRACTIONS
The International Fund may invest up to 5% of its assets in warrants,
including warrants used in conjunction with the cash extraction method.
Warrants are instruments that allow investors to purchase underlying shares
at a specified price (exercise price) at a given future date. The market
price of a warrant is determined by market participants by the addition of
two distinct components: (1) the price of the underlying shares less the
warrant's exercise price, and (2) the warrant's premium that is attributed to
volatility and leveraging power. If an investor wishes to replicate an
underlying share, the investor can use the warrant with cash extraction
method by purchasing warrants and holding cash. The cash component would be
determined by subtracting the market price of the warrant from the underlying
share price.
For example, ASSUME one share for company "Alpha" has a current share
price of $40 and issued warrants can be converted one for one share at an
exercise price of $31 exercisable two years from today. Also ASSUME that the
market price of the warrant is $10 ($40 - $31 + $1) because investors are
willing to pay a premium ($1) for previously stated reasons. If an investor
wanted to replicate an underlying share by engaging in a warrant with cash
extraction strategy, the amount of cash the investor would need to hold for
every warrant would be $30 ($40 - $10 = $30). A warrant with cash extraction
is, thus, simply a synthetically created quasi-convertible bond.
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If an underlying share issues no or a low dividend and has an
associated warrant with a market price that is low relative to its share
price, a warrant with cash extraction may provide attractive cash yields and
minimize capital loss risk, provided the underlying share is also considered
a worthy investment. For example, ASSUME Alpha's share is an attractive
investment opportunity and its share pays no dividend. Given the information
regarding Alpha provided above, also ASSUME that short-term cash currently
yields 5% per year and that the investor plans to hold the investment at
least two years, barring significant near-term capital appreciation. If the
share price were to fall below $30, the warrant with cash extraction strategy
would yield a lower loss than the underlying share because an investor cannot
lose more than the purchase cost of the warrant (capital risk minimized).
The cash component for this strategy would yield $3.08 after two years
(compound interest). The total value of the underlying investment would be
$43.08 versus $40.00 for the non-yielding underlying share (attractive
yield). Finally, it is important to note that this strategy will not be
pursued if it is not economically more attractive than underlying shares.
DEBT SECURITIES AND DOWN-GRADED INSTRUMENTS
Each of Horizon Fund, Spectrum Fund, Mortgage Securities Fund, Bond
Fund, Enterprise Fund, Cornerstone Fund and International Fund may invest in
non-convertible debt securities rated BBB or Baa or higher by S&P or Moody's,
respectively as described in each Fund's Prospectus. Each of Spectrum Fund,
Mortgage Securities Fund and Bond Fund may also invest up to 5% of its total
assets in debt securities rated BB or Ba by S&P or Moody's, respectively.
Cornerstone Fund may also invest in debt securities convertible into common
stock which are rated lower than BBB or Baa but which are rated at least B-
by S&P or B3 by Moody's. In each case, the respective 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. (See each Fund's Prospectus for information
regarding these securities and the Fund's policy regarding them.)
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 each Fund's net asset value.
These Funds 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 Funds'
general policy to dispose of such down-graded securities except when, in the
judgment of the Funds' investment adviser, it is to the Funds' advantage to
continue to hold such securities. In no event, however, will any Fund's
aggregate holdings in debt securities which have been down-graded to a rating
which is lower than the applicable minimum rating described above exceed 5% of
its net assets.
Low rated (i.e., below BBB) 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 Funds'
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.
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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 Funds 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 Funds 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
Funds 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.
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 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.
INVESTMENTS IN RUSSIA
The International Fund may invest in securities of Russian companies, which
involves risks and special considerations not typically associated with
investing in United States securities markets. Since the breakup of the Soviet
Union at the end of 1991, Russia has experienced dramatic political and social
change. The political system in Russia is emerging from a long history of
extensive state involvement in economic affairs. The country is undergoing a
rapid transition from a centrally-controlled command system to a market-
oriented, democratic model. The Fund may be affected unfavorably by political
or diplomatic developments, social instability, changes in government policies,
taxation and interest rates, currency repatriation restrictions and other
political and economic developments in the law or regulations in Russia and, in
particular, the risks of expropriation, nationalization and confiscation of
assets and changes in legislation relating to foreign ownership.
The planned economy of the former Soviet Union was run with qualitatively
different objectives and assumptions from those prevalent in a market system and
Russian businesses do not have any recent history of operating within a market-
oriented economy. In general, relative to companies operating in Western
economies, companies in Russian are characterized by a lack of: (i) management
with experience of operating in a market economy; (ii) modern technology; and,
(iii) a sufficient capital base with which to develop and expand their
operations. It is unclear what will be the future effect on Russian companies,
if any, of Russia's continued attempts to move toward a more market-oriented
economy. Russia's economy has experienced severe economic recession, if not
depression, since 1990 during which time the economy has been characterized by
high rates of inflation, high rates of unemployment, declining gross domestic
product, deficit government spending, and a devaluing currency. The economic
reform program has involved major disruptions and dislocations in various
sectors of the economy, and those problems have been exacerbated by growing
liquidity problems. Further, Russia presently receives significant financial
assistance from a number of countries through various programs. To the extent
these programs are reduced or eliminated in the future, Russian economic
development may be adversely impacted.
The Russian securities markets are substantially smaller, less liquid and
significantly more volatile than the securities markets in the United States.
In addition, there is little historical data on these securities markets because
they are of recent origin. A substantial proportion of securities transactions
in Russia are privately negotiated outside of stock exchanges and
over-the-counter markets. A limited number of issuers represent a
disproportionately large percentage of market capitalization and trading volume.
Although evolving rapidly, even the largest of Russia's stock exchanges are not
well developed compared to Western stock exchanges. The actual volume of
exchange-based trading in Russia is low and active on-market trading generally
occurs only in the shares of a few private companies. Most secondary market
trading of equity securities occurs through over-the-counter trading facilitated
by a growing number of licensed brokers. Shares are traded on the over-the-
counter market primarily by the management of enterprises, investment funds,
short-term speculators and foreign investors. The securities of Russian
companies are mostly traded over-the-counter and, despite the large number of
stock exchanges, there is still no organized public market for such securities.
This may increase the difficulty of valuing the Fund's investments. No
established secondary markets may exist for many of the securities in which the
Fund may invest. Reduced secondary market liquidity may have an adverse effect
on market price and the Fund's ability to dispose of particular instruments when
necessary to meet its liquidity requirements or in response to specific economic
events such as a deterioration in the creditworthiness of the issuer. Reduced
secondary market liquidity for securities may also make it more difficult for
the Fund to obtain accurate market quotations for purposes of valuing its
portfolio and calculating its net asset value. Market quotations are generally
available on many emerging country securities only from a limited number of
dealers and may not necessarily represent firm bids of those dealers or prices
for actual sales.
Because of the recent formation of the securities markets as well as the
underdeveloped state of the banking and telecommunications systems, settlement,
clearing and registration transactions are subject to significant risks not
normally associated with investments in the United States and other more
developed markets. Ownership of shares (except where shares are held through
depositories that meet the requirements of the 1940 Act) is defined according to
entries in the company's share register and normally evidenced by extracts from
the register or in certain limited cases by formal share certificates. However,
there is not a central registration system and these services are carried out by
the companies themselves or by registrars located throughout Russia. These
registrars are not necessarily subject to effective state supervision and its
possible for the Fund to lose its registration through fraud, negligence and
even mere oversight. The laws and regulations in Russia affecting Western
investment business continue to evolve in an unpredictable manner. Russian laws
and regulations, particularly those involving taxation, foreign investment and
trade, title to property or securities, and transfer of title, applicable to the
Fund's activities are relatively new and can change quickly and unpredictably in
a manner far more volatile than in the United States or other developed market
economies. Although basic commercial laws are in place, they are often unclear
or contradictory and subject to varying interpretation, and may at any time be
amended, modified, repealed or replaced in a manner adverse to the interest of
the Fund. There is still lacking a cohesive body of law and precedents normally
encountered in business environments. Foreign investment in Russian companies
is, in certain cases, legally restricted. Sometimes these restrictions are
contained in constitutional documents of an enterprise which are not publicly
available. Russian foreign investment legislation currently guarantees the
right of foreign investors to transfer abroad income received on investments
such as profits, dividends and interest payments. This right is subject to
settlement of all applicable taxes and duties. However, more recent legislation
governing currency regulation and control guarantees the right to export
interest, dividends and other income on investments, but does not expressly
permit the repatriation of capital from the realization of investments. Current
practice is to recognize the right to repatriation of capital. Authorities
currently do not attempt to restrict repatriation beyond the extent of the
earlier law. No guarantee can be made, however, that amounts representing
realization of capital of income will be capable of being remitted. If, for any
reason, the Fund were unable to distribute an amount equal to substantially all
of its investment company taxable income (as defined for U.S. tax purposes)
within applicable time periods, the Fund would not qualify for the favorable
U.S. federal income tax treatment afforded to regulated investment companies,
or, even if it did so qualify, it might become liable for income and excise
taxes on undistributed income.
Russian courts lack experience in commercial dispute resolution and many of
the procedural remedies for enforcement and protection of legal rights typically
found in Western jurisdictions are not available in Russia. There remains
uncertainty as to the extent to which local parties and entities, including
Russian state authorities, will recognize the contractual and other rights of
the parties with which they deal. Accordingly, there will be difficulty and
uncertainty in the Fund's ability to protect and enforce its rights against
Russian state and private entities. There is also no assurance that the Russian
courts will recognize or acknowledge that the Fund has acquired title to any
property or securities in which the Fund invests, or that the Fund is the owner
of any property or security held in the name of a nominee which has acquired
such property or security on behalf of the Fund, because there is at present in
Russia no reliable system or legal framework regarding the registration of
titles. There can be no assurance that this difficulty in protecting and
enforcing rights in Russia will not have a material adverse effect on the Fund
and its operations. Difficulties are likely to be encountered enforcing
judgments of foreign courts within Russia or of Russian courts in foreign
jurisdictions due to the limited number of countries which have signed treaties
for mutual recognition of court judgments with Russia.
INVESTMENT RESTRICTIONS
Each of the Funds is "diversified" as defined in the Investment
Company Act of 1940. This means that at least 75% of the value of the Fund's
total assets is represented by cash and cash items, government securities,
securities of other investment companies, and securities of other issuers,
which for purposes of this calculation, are limited in respect of any one
issuer to an amount not greater in value than 5% of the Fund's total assets
and to not more than 10% of the outstanding voting securities of such issuer.
Each Fund is also subject to certain "fundamental" investment
restrictions, which may not be changed without the vote of a "majority" of
the Fund's outstanding shares. As used in the Prospectus and this Statement
of Additional Information, "majority" means the lesser of (i) 67% of a Fund's
outstanding shares present at a meeting of the holders if more than 50% of
the outstanding shares are present in person or by proxy or (ii) more than
50% of a Fund's outstanding shares. An investment restriction which is not
fundamental may be changed by vote of the Board of Directors without further
shareholder approval. Except as otherwise noted, each of the investment
restrictions below is fundamental.
HORIZON FUND
Horizon Fund will NOT:
(1) Purchase any security (other than securities issued
or guaranteed by the United States Government, its agencies or
instrumentalities) if, as a result, more than 5% of the Fund's total
assets would be invested in securities of a single issuer, except
that up to 25% of the value of the Fund's total assets may be
invested without regard to this limitation;
[NOTE: SEE "ADDITIONAL INVESTMENT RESTRICTIONS" BELOW.]
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(2) Purchase any security if, as a result, more than 25% of the
Fund's total assets would be invested in the securities of issuers
conducting their principal business activities in a single industry;
(3) Purchase securities on margin (but it may obtain such
short-term credits as may be necessary for the clearance of purchases
and sales or securities); or make short sales except short sales
against the box where it owns the securities sold or, by virtue of
ownership of other securities, it has the right to obtain, without
payment of further consideration, securities equivalent in kind and
amount to those sold;
(4) Acquire more than 10% of any class of securities of an issuer
(taking all preferred stock issues of an issuer as a single class and
all debt issues of an issuer as a single class) or acquire more than
10% of the outstanding voting securities of an issuer;
(5) Borrow money, except from banks and only as a temporary measure
for extraordinary or emergency purposes and not in excess of 5% of
its net assets;
(6) Mortgage, pledge, hypothecate, or in any manner transfer, as
security for indebtedness, any assets of the Fund;
(7) Invest more than a total of 5% of its total assets in
securities of businesses (including predecessors) less than three
years old or equity securities which are not readily marketable;
(8) Purchase or retain securities of any company if officers and
directors of the Fund or of its investment adviser who individually
own more than 1/2 of 1% of the shares or securities of that company,
together own more than 5%;
(9) Make loans, except by purchase of bonds, debentures, commercial
paper, certificates of deposit, corporate notes and similar evidences
of indebtedness, which are a part of an issue to the public or to
financial institutions, and except loans of portfolio securities to
broker-dealers and financial institutions, determined by the Fund to
have sufficient financial responsibility, if such loans are secured
at all times by cash or securities issued or guaranteed by the United
States Government, its agencies or instrumentalities, in an amount
at all times equal to at least 100% of the market value of the
portfolio securities loaned and if, immediately after making such
loan, the total amount of portfolio securities loaned does not exceed
20% of the market value of the Fund's total assets;
(10) Buy or sell oil, gas or other mineral leases, rights or
royalty contracts, real estate or interests in real estate which are
not readily marketable, commodities or commodity contracts. (This
does not prevent the Fund from purchasing securities of companies
investing in the foregoing.);
-10-
<PAGE>
(11) Act as an underwriter of securities, except to the
extent the Fund may be deemed to be an underwriter, under the federal
securities laws, in connection with the disposition of portfolio
securities;
(12) Make investments for the purpose of exercising control
or management;
(13) Participate on a joint or joint and several basis in
any trading account in securities;
(14) Write put or call options, except covered call options
which are traded on national securities exchanges with respect to
common stocks in its portfolio, in an aggregate amount not greater
than 15% of its net assets; or purchase options, except call options in
order to close out a position;
(15) Invest in the securities of other investment companies
with an aggregate value in excess of 5% of the Fund's total assets,
except securities acquired as a result of a merger, consolidation or
acquisition of assets;
(16) Purchase or sell any securities other than Fund shares
from or to its investment adviser or any officer or director of the
Fund or its investment adviser; or
(17) Invest more than a total of 10% of the Fund's net assets in
securities restricted as to disposition under federal securities laws
or otherwise or other illiquid assets (which include repurchase
agreements with a maturity of over seven days).
SPECTRUM FUND
Spectrum Fund will NOT:
(1) Purchase any security (other than securities issued or
guaranteed by the United States Government, its agencies or
instrumentalities) if, as a result, more than 5% of the Fund's total
assets would be invested in securities of a single issuer, except that
up to 25% of the value of the Fund's total assets may be invested
without regard to this limitation;
(2) Purchase any security if, as a result, more than 25% of
the Fund's total assets would be invested in the securities of issuers
conducting their principal business activities in a single industry,
provided that (a) telephone, gas and electric public utilities are each
regarded as separate industries and (b) banking, savings and loan
associations, savings banks and finance companies as a group will not
be considered a single industry for the purpose of this limitation.
There is no limitation with respect to the concentration of investments
in securities issued or guaranteed by the United States Government, its
agencies or instrumentalities or certificates of deposit and bankers'
acceptances of United States banks and savings and loan associations;
[NOTE: SEE "ADDITIONAL INVESTMENT RESTRICTIONS" BELOW.]
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<PAGE>
(3) Purchase any security on margin (but it may obtain
such short-term credits as may be necessary for the clearance of
purchases and sales of securities);
(4) Make short sales except short sales against the box
where it owns the securities sold or, by virtue of ownership of other
securities, it has the right to obtain, without payment of further
consideration, securities equivalent in kind and amount to those sold;
(5) Acquire more than 10% of any class of securities of
an issuer (taking all preferred stock issues of an issuer as a single
class and all debt issues of an issuer as a single class) or acquire
more than 10% of the outstanding voting securities of an issuer;
(6) Borrow money, except from banks and only as a
temporary measure for extraordinary or emergency purposes and not in
excess of 5% of its net assets;
[NOTE: SEE "ADDITIONAL INVESTMENT RESTRICTIONS" BELOW.]
(7) Mortgage, pledge, hypothecate, or in any manner
transfer, as security for indebtedness, any assets of the Fund,
except that this limitation shall not apply to deposits made in
connection with the entering into and holding of interest rate
futures contracts;
(8) Invest more than a total of 5% of its total assets in
securities of businesses (including predecessors) less than three
years old or equity securities which are not readily marketable;
(9) Purchase or retain securities of any company if
officers and directors of the Fund or of its investment adviser who
individually own more than 1/2 of 1% of the shares of securities of
that company, together own more than 5%;
(10) Make loans, except by purchase of qualified debt
obligations referred to in the Prospectus and except loans of
portfolio securities to broker-dealers and financial institutions,
determined by the Fund's investment adviser to have sufficient
financial responsibility, if such loans are secured at all times by
cash or securities issued or guaranteed by the United States
Government, its agencies or instrumentalities, in an amount at all
times equal to at least 100% of the market value of the portfolio
securities loaned and if, immediately after making such loans, the
total amount of portfolio securities loaned does not exceed 20% of
the market value of the Fund's total assets;
(11) Buy or sell oil, gas or other mineral leases, rights
or royalty contracts, real estate or interests in real estate which
are not readily marketable, commodities or commodity contracts. (This
does not prevent the Fund from purchasing securities of companies
investing in the foregoing.);
(12) Act as an underwriter of securities, except to the
extent the Fund may be deemed to be an underwriter, under the federal
securities laws, in connection with the disposition of portfolio
securities;
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<PAGE>
(13) Make investments for the purpose of exercising
control or management;
(14) Participate on a joint or joint and several basis in
any trading account in securities;
(15) Write call or purchase put options, except covered
options which are traded on national securities exchanges with
respect to securities in its portfolio, in an amount not greater than
15% of its net assets, or purchase a call option or write a put
option, except to close out a position;
(16) Invest in the securities of other investment
companies with an aggregate value in excess of 5% of the Fund's total
assets, except securities acquired as a result of a merger,
consolidation or acquisition of assets; or
(17) Invest more than a total of 10% of the Fund's net
assets in securities restricted as to disposition under federal
securities laws or otherwise or other illiquid assets.
MORTGAGE SECURITIES FUND
Mortgage Securities Fund will NOT:
(1) Purchase any security (other than securities issued
or guaranteed by the United States Government, its agencies or
instrumentalities) if, as a result, more than 5% of the Fund's total
assets would be invested in securities of a single issuer, except
that up to 25% of the value of the Fund's total assets may be
invested without regard to this limitation;
(2) Purchase any security if, as a result, more than 25%
of the Fund's total assets would be invested in the securities of
issuers conducting their principal business activities in a single
industry, except that this limitation shall not apply to investment
in the mortgage and mortgage-finance industry (in which more than
25% of the value of the Fund's total assets will, except for
temporary defensive positions, be invested) or securities issued or
guaranteed by the United States Government, its agencies or
instrumentalities;
[NOTE: SEE "ADDITIONAL INVESTMENT RESTRICTIONS" BELOW.]
(3) Purchase securities on margin (but it may obtain such
short-term credits as may be necessary for the clearance of purchases
and sales of securities); or make short sales except short sales
against the box where it owns the securities sold or, by virtue of
ownership of other securities, it has the right to obtain, without
payment of further consideration, securities equivalent in kind and
amount to those sold;
(4) Lend its portfolio securities;
(5) Borrow money except from banks and only as a
temporary measure for extraordinary or emergency purposes and not in
excess of 5% of its net assets;
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<PAGE>
(6) Mortgage, pledge, hypothecate, or in any manner
transfer, as security for indebtedness, any assets of the Fund,
except that this limitation shall not apply to deposits made in
connection with the entering into and holding of interest rate
futures contracts;
(7) Invest more than a total of 5% of its total assets in
securities of businesses (including predecessors) less than three
years old or equity securities which are not readily marketable;
(8) Purchase or retain securities of any company if
officers and directors of the Fund or of its investment adviser who
individually own more than 1/2 of 1% of the shares or securities of
the company, together own more than 5%;
(9) Make loans, except by purchase of qualified debt
obligations referred to in the Prospectus under "Investment
Objectives and Policies;"
(10) Buy or sell (a) oil, gas or other mineral leases,
rights or royalty contracts; (b) real estate, except that it may
invest in mortgage-related securities and whole loans and purchase
and sell securities of companies which deal in real estate or
interests therein; or (c) commodities or commodity contracts, except
that it may invest in interest rate futures contracts.
(11) Act as an underwriter of securities, except to the
extent the Fund may be deemed to be an underwriter, under the federal
securities laws, in connection with the disposition of portfolio
securities;
(12) Make investments for the purpose of exercising
control or management;
(13) Invest in the securities of other investment
companies with an aggregate value in excess of 5% of the Fund's total
assets, except securities acquired as a result of a merger,
consolidation or acquisition of assets; or
(14) Invest more than a total of 10% of the Fund's net
assets in securities restricted as to disposition under federal
securities laws or otherwise or other illiquid assets (which include
put and call options).
MONEY MARKET FUND (Restriction number 15 is not "fundamental".)
Money Market Fund will NOT:
(1) Purchase any security (other than securities issued
or guaranteed by the United States Government, its agencies or
instrumentalities) if, as a result, more than 5% of the Fund's total
assets would be invested in securities of a single issuer;
(2) Purchase any security if, as a result, more than 25%
of the Fund's total assets would be invested in the securities of
issuers conducting their principal business activities in a single
industry; provided that (a) telephone, gas, and electric public
utilities are each
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<PAGE>
regarded as separate industries and (b) United States banks,
savings and loan associations, savings banks and finance
companies are each regarded as separate industries for the
purpose of this limitation. There are no limitations with respect
to the concentration of investments in securities issued or guaranteed
by the United States Government, its agencies or instrumentalities,
or certificates of deposit and bankers acceptances of domestic
branches of United States banks;
[NOTE: SEE "ADDITIONAL INVESTMENT RESTRICTIONS" BELOW.]
(3) Purchase securities on margin (but it may obtain such
short-term credits as may be necessary for the clearance of purchases
and sales of securities); or make short sales except short sales
against the box where it owns the securities sold or, by virtue of
ownership of other securities, it has the right to obtain, without
payment of further consideration, securities equivalent in kind and
amount to those sold, and only to the extent that the Fund's short
positions will not at the time of any short sale aggregate in total
sale prices more than 10% of its total assets;
(4) Acquire more than 10% of any class of securities of
an issuer (taking all preferred stock issues of an issuer as a single
class and all debt issues of an issuer as a single class) or acquire
more than 10% of the outstanding voting securities of an issuer;
(5) Borrow money or enter into reverse repurchase
agreements in excess of 5% of its net assets and, with respect to
borrowing money, only from banks and only as a temporary measure for
extraordinary or emergency purposes;
(6) Mortgage, pledge, hypothecate, or in any manner
transfer, as security for indebtedness, any assets of the Fund;
(7) Invest more than 5% of its total assets in securities
of businesses (including predecessors) less than three years old;
(8) Purchase or retain securities of any company if
officers and directors of the Fund or of its investment adviser who
individually own more than 1/2 of 1% of the shares or securities of
that company, together own more than 5%;
(9) Make loans, except by purchase of bonds, debentures,
commercial paper, corporate notes and similar evidences of
indebtedness, which are a part of an issue to the public or to
financial institutions;
(10) Buy or sell oil, gas or other mineral leases, rights
or royalty contracts, real estate or interests in real estate which
are not readily marketable, commodities or commodity contracts. (This
does not prevent the Fund from purchasing securities of companies
investing in the foregoing.);
(11) Act as an underwriter of securities, except to the
extent the Fund maybe deemed to be an underwriter in connection with
the disposition of portfolio securities;
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<PAGE>
(12) Make investments for the purpose of exercising control or
management;
(13) Participate on a joint or joint and several basis in any
trading account in securities;
(14) Write or purchase put or call options, or combinations thereof;
(15) Enter into repurchase agreements maturing in more than seven
days, purchase certificates of deposit of banks and savings and loan
associations which at the date of the investment have total assets (as
of the date of their most recent annual financial statements) of less
than $2 billion, purchase variable amount master demand notes, or invest
in any other illiquid assets, if such investments taken together exceed
10% of the Fund's net assets (This restriction is non-fundamental.); or
(16) Invest in the securities of other investment companies with
an aggregate value in excess of 5% of the Fund's total assets, except
securities acquired as a result of a merger, consolidation or acquisition
of assets.
BOND FUND (Restriction number 16 is not "fundamental".)
Bond Fund will NOT:
(1) Purchase any security (other than securities issued or
guaranteed by the United States Government, its agencies or
instrumentalities) if, as a result, more than 5% of the Fund's total
assets would be invested in securities of a single issuer, except that
up to 25% of the value of the Fund's total assets may be invested
without regard to this limitation;
(2) Purchase any security if, as a result, 25% or more of the
Fund's total assets would be invested in the securities of issuers
conducting their principal business activities in a single industry,
provided that (a) the electric, telephone, gas, gas transmission,
water, telegraph and satellite communications utilities are each
regarded as separate industries, and (b) banks, savings and loan
associations, savings banks, and finance companies are each regarded
as separate industries. There is no limitation with respect to the
concentration of investments in securities issued or guaranteed by
the United States Government, its agencies or instrumentalities.
(3) Purchase securities on margin (but it may obtain such
short-term credits as may be necessary for the clearance of purchases
and sales or securities); or make short sales except short sales
against the box where it owns the securities sold or, by virtue of
ownership of other securities, it has the right to obtain, without
payment of further consideration, securities equivalent in kind and
amount to those sold;
(4) Acquire more than 10% of any class of securities of an issuer
(taking all preferred stock issues of an issuer as a single class and
all debt issues of an issuer as a single class) or acquire more than
10% of the outstanding voting securities of an issuer;
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<PAGE>
(5) Borrow money, except from banks and only as a temporary measure
for extraordinary or emergency purposes, including the meeting of
redemption requests which might otherwise require the untimely
disposition of securities, and not in excess of 5% of its net assets;
or enter into reverse repurchase agreements;
(6) Mortgage, pledge, hypothecate, or in any manner transfer, as
security for indebtedness, any assets of the Fund, except that this
limitation shall not apply to deposits made in connection with the
entering into and holding of interest rate futures contracts;
(7) Invest more than a total of 5% of its total assets in securities
of businesses (including predecessors) less than three years old or
equity securities which are not readily marketable;
(8) Purchase or retain securities of any company if officers and
directors of the Fund or of its investment adviser who individually own
more than 1/2 of 1% of the shares or securities of that company,
together own more than 5%;
(9) Make loans, except by purchase of qualified debt obligations
referred to in the Prospectus under "Investment Objectives and
Policies," and except loans of portfolio securities to broker-dealers
and financial institutions, determined by the Fund to have sufficient
financial responsibility, if such loans are secured at all times by
cash or securities issued or guaranteed by the United States
Government, its agencies or instrumentalities, in an amount at all
times equal to at least 100% of the market value of the portfolio
securities loaned and if, immediately after making such loan, the
total amount of portfolio securities loaned does not exceed 20% of
the market value of the Fund's total assets;
(10) Buy or sell oil, gas or other mineral leases, rights or
royalty contracts, real estate, or interests in real estate which are
not readily marketable, commodities or commodity contracts, except
that it may invest in interest rate futures contracts. (This does
not prevent the Fund from purchasing securities of companies investing
in the foregoing.);
(11) Act as an underwriter of securities, except to the extent
the Fund may be deemed to be an underwriter, under the federal
securities laws, in connection with the disposition of portfolio
securities;
(12) Make investments for the purpose of exercising control
or management;
(13) Participate on a joint or joint and several basis in
any trading account in securities (but this does not prohibit the
"bunching" of orders for the sale or purchase of the Fund's portfolio
securities with other accounts advised by Advantus Capital to reduce
brokerage commissions or otherwise to achieve best overall execution);
(14) Invest in the securities of other investment companies
with an aggregate value in excess of 5% of the Fund's total assets,
except securities acquired as a result of a merger, consolidation
or acquisition of assets; or
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<PAGE>
(15) Invest more than a total of 10% of the Fund's net assets in
securities restricted as to disposition under federal securities laws
or otherwise or other illiquid assets (which include repurchase
agreements with a maturity of over seven days and OTC options for
which there is no secondary market); or
(16) Invest more than 10% of its net assets in securities of
foreign issuers which are not U.S. dollar-denominated and publicly
traded in the United States (This restriction is non-fundamental.).
CORNERSTONE FUND AND ENTERPRISE FUND (The investment restrictions numbered 1
through 7 below are fundamental. Restrictions numbered 8 through 14 are not
fundamental and may be changed by the Funds' Boards of Directors.)
Cornerstone Fund and Enterprise Fund will NOT:
(1) Purchase any security if, as a result, 25% or more of the
Fund's total assets would be invested in the securities of issuers
conducting their principal business activities in a single industry;
(2) Purchase securities on margin (but it may obtain such
short-term credits as may be necessary for the clearance of purchases
and sales or securities); or make short sales except short sales
against the box where it owns the securities sold or, by virtue of
ownership of other securities, it has the right to obtain, without
payment of further consideration, securities equivalent in kind and
amount to those sold;
(3) Borrow money, except from banks and only as a temporary
measure for extraordinary or emergency purposes and not in excess of
5% of its net assets;
(4) Mortgage, pledge, hypothecate, or in any manner transfer, as
security for indebtedness, any assets of the Fund;
(5) Make loans, except by purchase of bonds, debentures, commercial
paper, certificates of deposit, corporate notes and similar evidences
of indebtedness, which are a part of an issue to the public or to
financial institutions, and except loans of portfolio securities to
broker-dealers and financial institutions, determined by the Fund to
have sufficient financial responsibility, if such loans are secured
at all times by cash or securities issued or guaranteed by the
United States Government, its agencies or instrumentalities, in an
amount at all times equal to at least 100% of the market value of the
portfolio securities loaned and if, immediately after making such loan,
the total amount of portfolio securities loaned does not exceed 20%
of the market value of the Fund's total assets;
(6) Buy or sell oil, gas or other mineral leases, rights
or royalty contracts, real estate, real estate limited partnership
interests, or interests in real estate which are not readily
marketable, commodities or commodity contracts. (This does not
prevent the Fund from purchasing securities of companies investing in
the foregoing.);
-18-
<PAGE>
(7) Act as an underwriter of securities, except to the extent the
Fund may be deemed to be an underwriter, under the federal securities
laws, in connection with the disposition of portfolio securities;
(8) Purchase or retain securities of any company if officers and
directors of the Fund or of its investment adviser who individually
own more than 1/2 of 1% of the shares or securities of that company,
together own more than 5%;
(9) Make investments for the purpose of exercising control or
management;
(10) Participate on a joint or joint and several basis in any
trading account in securities;
(11) Write put or call options, except covered call options
which are traded on national securities exchanges with respect to
common stocks in its portfolio, in an aggregate amount not greater
than 15% of its net assets; or purchase options, except call options
in order to close out a position;
(12) Invest in the securities of other investment companies
with an aggregate value in excess of 5% of the Funds total assets,
except securities acquired as a result of a merger, consolidation
or acquisition of assets;
(13) Purchase or sell any securities other than Fund shares
from or to its investment adviser or any officer or director of the
Fund or its investment adviser; or
(14) Invest more than a total of 10% of the Fund's net assets in
securities or other assets, including repurchase agreements with a
maturity of over seven days, which are illiquid or securities of
businesses (including predecessors) less than three years old;
provided that investments in securities of businesses (including
predecessors) less than three years old will in no event exceed in
the aggregate more than 5% of the Fund's net assets.
INTERNATIONAL FUND (The investment restrictions numbered 1 through 7 below
are fundamental. Restrictions numbered 8 through 15 are not fundamental and
may be changed by the Fund's Board of Directors.)
International Fund will NOT:
(1) Purchase any security if, as a result, 25% or more of the
Fund's total assets would be invested in the securities of issuers
conducting their principal business activities in a single industry;
(2) Purchase securities on margin (but it may obtain such
short-term credits as may be necessary for the clearance of purchases
and sales or securities); or make short sales except short sales
against the box where it owns the securities sold or, by virtue of
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<PAGE>
ownership of other securities, it has the right to obtain, without
payment of further consideration, securities equivalent in kind and
amount to those sold;
(3) Borrow money, except from banks and only as a temporary
measure for extraordinary or emergency purposes and not in excess
of 5% of its net assets;
(4) Mortgage, pledge, hypothecate, or in any manner transfer,
as security for indebtedness, any assets of the Fund;
(5) Make loans, except by purchase of bonds, debentures,
commercial paper, certificates of deposit, corporate notes and
similar evidences of indebtedness, which are a part of an issue to
the public or to financial institutions, and except loans of
portfolio securities to broker-dealers and financial institutions,
determined by the Fund to have sufficient financial responsibility,
if such loans are secured at all times by cash or securities issued
or guaranteed by the United States Government, its agencies or
instrumentalities, in an amount at all times equal to at least 100%
of the market value of the portfolio securities loaned and if,
immediately after making such loan, the total amount of portfolio
securities loaned does not exceed 20% of the market value of the
Fund's total assets;
(6) Buy or sell oil, gas or other mineral leases, rights or
royalty contracts, real estate, real estate limited partnership
interests, or interests in real estate which are not readily
marketable, commodities or commodity contracts, except the Fund may
purchase and sell futures contracts on financial instruments and
indices, and options on such futures contracts. (This does not
prevent the Fund from purchasing securities of companies investing in
the foregoing.);
(7) Act as an underwriter of securities, except to the extent
the Fund may be deemed to be an underwriter, under the federal
securities laws, in connection with the disposition of portfolio
securities;
(8) Purchase or retain securities of any company if officers
and directors of the Fund or of its investment adviser who individually
own more than 1/2 of 1% of the shares or securities of that company,
together own more than 5%;
(9) Make investments for the purpose of exercising control or
management;
(10) Participate on a joint or joint and several basis in any
trading account in securities;
(11) Write put or call options, except covered call options
which are traded on national securities exchanges with respect to
common stocks in its portfolio, in an aggregate amount not greater
than 15% of its net assets; or purchase options, except call options
in order to close out a position;
-20-
<PAGE>
(12) Invest in the securities of other investment companies
with an aggregate value in excess of 10% of the Fund's total assets,
except securities acquired as a result of a merger, consolidation or
acquisition of assets;
(13) Purchase or sell any securities other than Fund shares
from or to its investment adviser or any officer or director of the Fund
or its investment adviser;
(14) Invest more than a total of 10% of the Fund's net assets
in securities or other assets, including repurchase agreements with a
maturity of over seven days, which are illiquid or securities of
businesses (including predecessors) less than three years old; provided
that investments in securities of businesses (including predecessors)
less than three years old will in no event exceed in the aggregate more
than 5% of the Fund's net assets; or
(15) Invest more than 5% of its assets in warrants other than
warrants acquired in units or attached to other securities; provided,
that of such 5%, not more than 2% of the Fund's assets shall be invested
in warrants that are not exchange listed.
ADDITIONAL INVESTMENT RESTRICTIONS
Certain of the Funds have agreed with the staff of the Securities and
Exchange Commission that, as a non-fundamental operating policy, the
following additional investment restrictions, which modify certain of the
fundamental investment restrictions described above, will be observed:
(1) Horizon Fund, Spectrum Fund, Mortgage Securities Fund and
Money Market Fund will not purchase any security if, as a result, "25%
or more" of the Fund's total assets would be invested in the securities
of issuers conducting their principal business activities in a single
industry (see investment restriction number 2 for each Fund).
(2) Spectrum Fund, in applying the limitation on investments
in securities of issuers conducting their principal business activities
in a single industry (see Spectrum Fund investment restriction number 2,
as modified by additional investment restriction number 1 above), will
also apply such limitation to certificates of deposit and bankers'
acceptances of United States banks and savings and loan associations.
(3) Spectrum Fund shall include reverse repurchase agreements
as a "borrowing" for purposes of applying the Fund's 5% of net assets
limitation on borrowing money (see Spectrum Fund investment restriction
number 6).
ALL FUNDS
With respect to each of the Funds, any investment policy set forth
under "Investment Objectives, Policies and Risks" in the 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
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<PAGE>
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.
Horizon 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. For the fiscal years ended
September 30, 1997, 1996 and 1995, the Fund's portfolio turnover rates were
71.5%, 84.7%, and 46.8%, respectively.
Spectrum Fund's objective and policies may cause the annual portfolio
turnover rate to be higher than the average turnover rate of other investment
companies. Accordingly, the Fund may have high brokerage and other costs. A
portfolio turnover rate that exceeds 100% is considered high and will result
in higher costs. For the fiscal years ended September 30, 1997, 1996 and
1995, the Fund's portfolio turnover rates were 141.4%, 140.5%, and 125.5%,
respectively.
Mortgage Securities Fund's investment activities may result in the Fund's
engaging in a considerable amount of trading of securities held for less than
one year. Accordingly, it can be expected that the Fund will have a higher
turnover rate, and thus a higher incidence of brokerage and other costs, than
might be expected from investment companies which invest substantially all of
their funds on a long-term basis. A portfolio turnover rate that exceeds
100% is considered high and will result in higher costs. For the fiscal
years ended September 30, 1997, 1996 and 1995, the Fund's portfolio turnover
rates were 85.1%, 125.2%, and 203.7%, respectively.
Money Market Fund, consistent with its investment objective, attempts to
maximize yield through portfolio trading. This may involve selling portfolio
instruments and purchasing different instruments to take advantage of
disparities of yields in different segments of the high grade money market or
among particular instruments within the same segment of the market. As a
result, the Fund may have significant portfolio turnover. There usually are no
brokerage commissions paid by the Fund for such purchases since such securities
are purchased on a net basis. Since securities with maturities of less than one
year are excluded from required portfolio turnover rate calculations, the Fund's
portfolio turnover rate for reporting purposes is zero.
Bond Fund makes changes in its portfolio securities which are considered
advisable in light of market conditions. 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. Rate of
portfolio turnover is not a limiting factor, however, and particular holdings
may be sold at any time, if, in the opinion of the Fund's investment adviser,
such a sale is advisable. A portfolio turnover rate that exceeds 100% is
considered high and will result in higher costs. For the fiscal years ended
September 30, 1997, 1996 and 1995, the Fund's portfolio turnover rates were
180.5%, 222.6%, and 270.7%, respectively. The substantial rate of portfolio
turnover for the years ended September 30, 1996 and 1995 was attributable to
the fact that the Fund took advantage of opportunities created in the
corporate bond market as a result of tightening spreads between corporate
bonds and U.S. Treasury bonds. The Fund was able to buy corporate bonds at
very attractive prices when the spreads were wide and sell those bonds at
appreciated values when the spreads narrowed.
Cornerstone Fund and Enterprise Fund each make changes in their portfolio
securities which are considered advisable in light of market conditions.
Frequent changes may result in higher brokerage and other costs for the
Funds. 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. Neither Fund emphasizes short-term trading
profits. For the fiscal years ended September 30, 1997, 1996 and 1995,
Cornerstone Fund's portfolio turnover rate was 87.7%, 128.0%, and 160.1%,
respectively. For the fiscal years ended September 30, 1997, 1996 and 1995,
Enterprise Fund's portfolio turnover rate was 65.8%, 80.2%, and 48.8%,
respectively.
International Fund also makes changes in its portfolio securities which are
considered advisable in light of market conditions. The Fund does not
emphasize short-term trading profits. For the fiscal years ended September
30, 1997, 1996 and 1995, International Fund's portfolio turnover rate was
74.4%, 56.1%, and 52.0%, respectively.
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<PAGE>
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>
Paul H. Gooding* President Vice President and Treasurer of
Advantus Capital and Director Minnesota Mutual; President and
Management, Inc. Director of Advantus Capital;
400 Robert Street North President, Treasurer and Director
St. Paul, Minnesota 55101 of MIMLIC Management
Frederick P. Feuerherm* Vice President, Second Vice President of Minnesota
The Minnesota Mutual Treasurer Mutual; Vice President and Assistant
Life Insurance Company and Director Secretary of MIMLIC Management
400 Robert Street North
St. Paul, Minnesota 55101
Ralph D. Ebbott Director Retired, Vice President and Treasurer
409 Birchwood Avenue of Minnesota Mining and Manufacturing
White Bear Lake, Company (tape, adhesive, photographic,
Minnesota 55110 and electrical products) through June
1989
</TABLE>
-23-
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
Charles E. Arner Director Retired, Vice Chairman of The First
E-1218 First National National Bank of Saint Paul from
Bank Building November 1983 through June 1984;
332 Minnesota Street Chairman and Chief Executive Officer
St. Paul, Minnesota 55101 of The First National Bank of Saint
Paul from October 1980 through
November 1983
Ellen S. Berscheid Director Regents' Professor of Psychology at
University of Minnesota the 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 any of the Advantus Funds to
any of its officers or directors who is affiliated with Advantus Capital or
MIMLIC Management. Each director of the Funds who is not affiliated with
Advantus Capital or MIMLIC Management is also a director of the other four
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 September
30, 1997, each Director not affiliated with Advantus Capital or MIMLIC
Management was compensated by the funds in accordance with the following
table:
-24-
<PAGE>
<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 $2,429.52 n/a n/a $13,000
Ellen S. Berscheid $2,429.52 n/a n/a $13,000
Ralph D. Ebbott $2,429.52 n/a n/a $13,000
</TABLE>
(1) During the fiscal year ended September 30, 1997, each Director not
affiliated with Advantus Capital or MIMLIC Management received $275.75 from
Horizon Fund, $442.39 from Spectrum Fund, $183.21 from Mortgage Securities
Fund, $306.34 from Money Market Fund, $148.24 from Bond Fund, $266.75 from
Enterprise Fund, $505.30 from Cornerstone Fund and $301.54 from
International Fund.
As of September 30, 1997, the directors and executive officers of the Funds did
not own any shares of the Funds, except for Frederick P. Feuerherm who owned
less than 1% of the outstanding shares of Spectrum Fund, Paul H. Gooding who
owned less than 1% of the outstanding shares of each of Horizon Fund, Money
Market Fund and Bond Fund, and Michael J. Radmer who owned less than 1% of the
outstanding shares of Horizon Fund and Spectrum Fund.
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 Act 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
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<PAGE>
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 March 1, 1995.
Prior to that date the Funds' investment adviser was MIMLIC Asset Management
Company ("MIMLIC Management"). Advantus Capital is a wholly-owned subsidiary
of MIMLIC Management. The same portfolio managers and other personnel who
previously provided investment advisory services to the Funds through MIMLIC
Management continue to provide the same services through Advantus Capital.
Ascend Financial Services, Inc. ("Ascend Financial") acts as the Funds'
underwriter. Both Advantus Capital and Ascend Financial act as such pursuant
to written agreements that will be periodically considered for approval by
the directors or shareholders of the Fund. The address of both Advantus
Capital and Ascend Financial is 400 Robert Street North, St. Paul, Minnesota
55101.
CONTROL AND MANAGEMENT OF ADVANTUS CAPITAL AND ASCEND FINANCIAL
Advantus Capital was incorporated in Minnesota in June, 1994, and
is a wholly-owned subsidiary of MIMLIC Management. MIMLIC Management is a
subsidiary of The Minnesota Mutual Life Insurance Company ("Minnesota
Mutual"), which was organized in 1880, and has assets of more than $13
billion. Ascend Financial is also a subsidiary of MIMLIC Management. Paul H.
Gooding, President and a Director of each of the Funds, is President and
director of Advantus Capital, and President, Treasurer, and a Director of
MIMLIC Management. Frederick P. Feuerherm, Vice President, Treasurer and a
Director of each of the Funds, is a Vice President and Assistant Secretary of
MIMLIC Management. James P. Tatera, Senior Vice President, Treasurer and
Director of Advantus Capital, is also Vice President of MIMLIC Management.
Richard W. Worthing is a Vice President and Head of Equities with MIMLIC
Management.
INVESTMENT ADVISORY AGREEMENT
Advantus Capital acts as investment adviser and manager of the Funds
under Investment Advisory Agreements (the "Advisory Agreements") dated March
1, 1995 for each Fund, each of which Advisory Agreements was approved by
shareholders on February 14, 1995. The Advisory Agreements were last
approved by the Board of Directors of each Fund (including a majority of the
directors who are not parties to the contract, or interested persons of any
such party) on January 14, 1998. The Advisory Agreements will terminate
automatically in the event of their
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<PAGE>
assignment. In addition, each Advisory Agreement is terminable at any time,
without penalty, by the Board of Directors of the respective Fund or by vote
of a majority of the Fund's outstanding voting securities on not more than 60
days' written notice to Advantus Capital, and by Advantus Capital on 60 days'
written notice to the Fund. Unless sooner terminated, each Advisory
Agreement shall continue in effect for more than two years after its
execution only so long as such continuance is specifically approved at least
annually by either the Board of Directors of the respective Fund or by a vote
of a majority of the outstanding voting securities, provided that in either
event such continuance is also approved by the vote of a majority of the
directors who are not parties to the Advisory Agreement, or interested
persons of such parties, cast in person at a meeting called for the purpose
of voting on such approval.
Pursuant to the Advisory Agreements each Fund pays Advantus Capital an
advisory fee equal on an annual basis to a percentage of that Fund's average
daily net assets as set forth in the following table:
Advisory Fee as Percentage
Fund of Average Net Assets
---- --------------------------
Horizon Fund .80%
Spectrum Fund .60%
Mortgage Securities Fund .575%
Money Market Fund .50%
Bond Fund .70%
Cornerstone Fund .80%
Enterprise Fund .80%
International Fund:
On the first $25 million in assets .95%
On the next $25 million in assets .80%
On the next $50 million in assets .75%
On all assets in excess of $100 million .65%
From the advisory fee received from International Fund, Advantus
Capital pays Templeton Investment Counsel, Inc. a sub-advisory fee equal to
.70% on the first $25 million of International Fund's average daily net
assets, .55% on the next $25 million, .50% on the next $50 million, and .40%
on all average daily net assets in excess of $100 million.
Prior to March 1, 1995, the fees paid by the Funds for investment
advisory services were paid to MIMLIC Management rather than to Advantus
Capital. MIMLIC Management was compensated at the same rate as is Advantus
Capital under the current Advisory Agreements. The fees paid by the Funds
during the fiscal years ended September 30, 1997, 1996 and 1995, (before
Advantus Capital's or MIMLIC Management's absorption of certain expenses,
described below) were as follows:
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<PAGE>
Fund 1997 1996 1995
--- ---- ---- ----
Horizon Fund $369,628 $319,371 $276,972
Spectrum Fund 434,731 370,684 338,669
Mortgage Securities Fund 171,007 154,423 155,798
Money Market Fund 249,110 198,141 148,238
Bond Fund 154,304 130,555 104,228
Cornerstone Fund 726,045 330,954 150,365
Enterprise Fund 350,613 302,906 167,883
International Fund 436,431 327,858 241,970
For this fee, Advantus Capital acts as investment adviser and manager for
the Funds, and, except for Money Market Fund, pays the Funds' transfer agent,
dividend disbursing agent and redemption agent expenses. Money Market Fund
pays its own transfer agent, dividend disbursing agent, and redemption agent
expenses. All of the Funds have engaged Minnesota Mutual to act as their
transfer agent, dividend disbursing agent, and redemption agent. While the
advisory fees paid by Horizon Fund, Cornerstone Fund, Enterprise Fund and
International Fund are higher than those paid by most mutual funds, they are
partially offset by Advantus Capital's payment of certain expenses, such as
the transfer agent, dividend disbursing agent and redemption agent expenses,
which expenses are not customarily paid for by a mutual fund's investment
adviser. During the fiscal year ended September 30, 1997, Money Market Fund
paid Minnesota Mutual $133,574 for transfer agent services. In addition,
separate from the investment advisory agreement, each of the Funds has
entered into an agreement with Minnesota Mutual under which Minnesota Mutual
provides accounting, legal and other administrative services to the Funds.
Minnesota Mutual currently provides such services to the Funds at a monthly
cost of $3,600 for Horizon Fund, Spectrum Fund, Mortgage Securities Fund,
Bond Fund, Enterprise Fund, Cornerstone Fund, $3,000 for Money Market Fund,
and $3,000 for International Fund. During the fiscal year ended September
30, 1997, each of the Funds paid Minnesota Mutual the following amounts for
such services:
Fund Amount
---- ------
Horizon Fund $43,200
Spectrum Fund 43,200
Mortgage Securities Fund 43,200
Money Market Fund 36,000
Bond Fund 43,200
Cornerstone Fund 43,200
Enterprise Fund 43,200
International Fund 34,000
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.
-28-
<PAGE>
During the fiscal years ended September 30, 1997, 1996 and 1995, Advantus
Capital or MIMLIC Management (which was formerly the Funds' investment
adviser) voluntarily absorbed certain expenses of the Funds (which do not
include certain Rule 12b-1 fees waived by Ascend Financial) as set forth
below:
Fund 1997 1996 1995
--- ---- ---- ----
Horizon Fund $ -0- $ -0- $ 2,814
Spectrum Fund -0- -0- -0-
Mortgage Securities Fund 110,000 20,025 9,655
Money Market Fund 139,462 142,522 151,288
Bond Fund 96,058 88,798 100,487
Cornerstone Fund -0- -0- 47,635
Enterprise Fund -0- -0- 43,566
International Fund 46,576 -0- 17,626
INTERNATIONAL FUND SUB-ADVISER -- TEMPLETON COUNSEL
Templeton Investment Counsel, Inc., (hereinafter "Templeton Counsel"),
a Florida corporation with principal offices at 500 East Broward Boulevard,
Fort Lauderdale, Florida 33394 has been retained under an investment
sub-advisory agreement to provide investment advice and, in general, to
conduct the management investment program of the International Fund, subject
to the general control of the Board of Directors of the Fund. Templeton
Counsel is an indirect, wholly-owned subsidiary of Templeton Worldwide, Inc.,
Fort Lauderdale, Florida, which in turn is a wholly-owned subsidiary of
Franklin Resources, Inc. ("Franklin").
Franklin is a large, diversified financial services organization.
Through its operating subsidiaries, Franklin provides a variety of investment
products and services to institutions and
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<PAGE>
individuals throughout the United States and abroad. One of the
country's largest mutual fund organizations, Franklin's business includes the
provision of management, administrative and distribution services to the
Franklin/Templeton Group of Funds, which is distributed through a nationwide
network of banks, broker-dealers, financial planners and investment advisers.
Franklin is headquartered in San Mateo, California, and its common stock is
listed on the New York Stock Exchange under the ticker symbol BEN.
Certain clients of Templeton Counsel may have investment objectives
and policies similar to that of the International Fund. Templeton Counsel
may, from time to time make recommendations which result in the purchase or
sale of a particular security by its other clients simultaneously with Fund.
If transactions on behalf of more than one client during the same period
increase the demand for securities being purchased or the supply of
securities being sold, there may be an adverse effect on price. It is the
policy of Templeton Counsel to allocate advisory recommendations and the
placing of orders in a manner which is deemed equitable by Templeton Counsel
to the accounts involved, including the International Fund. When two or more
of the clients of Templeton Counsel (including the International Fund) are
purchasing the same security on a given day from the same broker-dealer, such
transactions may be averaged as to price.
INTERNATIONAL FUND INVESTMENT SUB-ADVISORY AGREEMENT -- TEMPLETON COUNSEL
Templeton Counsel acts as an investment sub-adviser to the
International Fund under an Investment Sub-Advisory Agreement (the "Templeton
Agreement") with Advantus Capital dated March 1, 1995, and approved by
shareholders of the Fund on February 14, 1995. The Templeton 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 Templeton
Agreement or interested persons of any such party, on January 14, 1998. The
Templeton Agreement will terminate automatically upon the termination of the
Advisory Agreement and in the event of its assignment. In addition, the
Templeton Agreement is terminable at any time, without penalty, by the Board
of Directors of the Fund, by Advantus Capital or by a vote of the majority of
the International Fund's outstanding voting securities on 60 days' written
notice to Templeton Counsel and by Templeton Counsel on 60 days' written
notice to Advantus Capital. Unless sooner terminated, the Templeton
Agreement shall continue in effect from year to year if approved at least
annually by the Board of Directors of the Fund or by a vote of a majority of
the outstanding voting securities of the International 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 of any party to the Templeton
Agreement, cast in person at a meeting called for the purpose of voting on
such approval.
DISTRIBUTION AGREEMENT
The Board of Directors of each Fund, on January 14, 1998, including a
majority of the directors who are not parties to the contract, or interested
persons of any such party, last approved the respective Fund's Distribution
Agreement with Ascend Financial (the "Distribution Agreements"), each dated
March 1, 1995, except in the case of International Fund, whose Distribution
Agreement is dated January 31, 1997. During the fiscal years ended September
30, 1997, 1996 and 1995, the commissions received by Ascend Financial under the
Distribution Agreements, except in the case of Money Market Fund (which does
not provide for Ascend Financial to receive a commission), with respect to
shares of all classes under the Distribution Agreements were as follows:
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<PAGE>
Fund 1997 1996 1995
Horizon Fund $269,005 $247,322 $125,141
Spectrum Fund 323,690 354,051 226,547
Mortgage Securities Fund 190,368 101,891 97,402
Bond Fund 132,436 137,919 61,826
Cornerstone Fund 671,121 271,957 62,839
Enterprise Fund 152,474 163,228 57,059
International Fund 325,230 158,726 150,769
During the same periods Ascend Financial retained from these commissions the
following amounts:
Fund 1997 1996 1995
Horizon Fund $26,045 $40,283 $14,640
Spectrum Fund 65,605 27,761 27,391
Mortgage Securities Fund 10,151 13,435 5,436
Bond Fund 6,770 13,413 5,966
Cornerstone Fund 42,739 21,374 5,200
Enterprise Fund 12,279 15,980 6,201
International Fund 10,075 24,740 16,080
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
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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
Money Market Fund has adopted a Plan of Distribution, and each of the
other Funds has adopted separate Plans of Distribution applicable to Class A
shares, Class B shares and Class C shares, respectively, relating to the
payment of certain distribution expenses pursuant to Rule 12b-1 under the
Investment Company Act of 1940. Money Market Fund, pursuant to its Plan of
Distribution, pays a fee to Ascend Financial which, on an annual basis, is
equal to .30% of the Fund's average daily net assets, and is to be used to
pay certain expenses incurred in the distribution and promotion of its
shares. Each of the other Funds, pursuant to its Plans of Distribution, also
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>
Horizon Fund .30% 1.00% 1.00%
Spectrum Fund .35% 1.00% 1.00%
Mortgage Securities Fund .30% 1.00% 1.00%
Bond Fund .30% 1.00% 1.00%
Cornerstone Fund .30% 1.00% 1.00%
Enterprise Fund .30% 1.00% 1.00%
International Fund .30% 1.00% 1.00%
</TABLE>
Such fees are also used for distribution-related services for all threee
classes and for servicing of shareholder accounts in connection with Class B
and C shares.
All of the Rule 12b-1 fees payable by Money Market Fund and all of the
Rule 12b-1 fees payable by the Advantus Multiple Class Funds and attributable
to Class A shares of such Funds, and a portion of the Rule 12b-1 fees payable
with respect to Class B and Class C shares equal to .75% of the average daily
net assets attributable to such Class B and Class C shares, constitute
distribution fees designed to compensate Ascend Financial for advertising,
marketing and distributing the shares of Money Market Fund and the Advantus
Multiple Class Funds.
The distribution fees may be used by Ascend Financial for the purpose
of financing any activity which is primarily intended to result in the sale
of shares of the particular Fund. For example, such distribution fee may be
used by Ascend Financial: (a) to compensate broker-dealers, including Ascend
Financial and its registered representatives, for their sale of a Fund's
shares, including the implementation of the programs described below with
respect to broker-dealers, banks, and other financial institutions; and (b)
to pay other advertising and promotional expenses in connection with the
distribution of a Fund's shares. These advertising and promotional
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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 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.
A portion of the Rule 12b-1 fee payable with respect to Class B and
Class C shares of each of the Advantus Multiple Class Funds, equal to .25% of
the average daily net assets attributable to such Class 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 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
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. Rule 12b-1(b)
provides that any payments made by
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an investment company in connection with the distribution of its shares may
only be made pursuant to a written plan describing all material aspects of
the proposed financing of distribution and also requires that all agreements
with any person relating to implementation of the plan must be in writing.
In addition, Rule 12b-1(b)(2) requires that such plan, together with any
related agreements, be approved by a vote of the board of directors and of
the directors who are not interested persons of the investment company and
have no direct or indirect financial interest in the operation of the plan or
in any agreements related to the plan, cast in person at a meeting called for
the purpose of voting on such plan or agreements. Rule 12b-1(b)(3) requires
that the plan or agreement provide, in substance: (1) that it shall continue
in effect for a period of more than one year from the date of its execution
or adoption only so long as such continuance is specifically approved at
least annually in the manner described in paragraph (b)(2) of Rule 12b-1; (2)
that any person authorized to direct the disposition of monies paid or
payable by the investment company pursuant to the plan or any related
agreement shall provide to the investment company's board of directors, and
the directors shall review, at least quarterly, a written report of the
amounts so expended and the purposes for which such expenditures were made;
and (3) in the case of a plan, that it may be terminated at any time by vote
of a majority of the members of the board of directors of the investment
company who are not interested persons of the investment company and have no
direct or indirect financial interest in the operation of the plan or in any
agreements related to the plan or by vote of a majority of the outstanding
voting securities of the investment company. Rule 12b-1(b)(4) requires that
such plans may not be amended to increase materially the amount to be spent
for distribution without shareholder approval and that all material
amendments of the plan must be approved in the manner described in
paragraph (b)(2) of Rule 12b-1. Rule 12b-1(c) provides that the investment
company may rely upon Rule 12b-1(b) only if selection and nomination of the
investment company's disinterested directors are committed to the discretion
of such disinterested directors. Rule 12b-1(e) provides that the investment
company may implement or continue a plan pursuant to Rule 12b-1(b) only if
the directors who vote to approve such implementation or continuation
conclude, in the exercise of reasonable business judgment and in light of
their fiduciary duties under state law, and under Sections 36(a) and (b) of
the Investment Company Act of 1940, that there is a reasonable likelihood
that the plan will benefit the investment company and its shareholders. At
the Board of Directors meeting held January 14, 1998, the directors of the
Funds so concluded.
During the fiscal year ended September 30, 1997, each of the Advantus
Multiple Class Funds made payments under its Plans of Distribution
applicable to Class A, Class B and Class C shares as follows (distribution
fees waived by Ascend Financial, if any, are shown in parentheses):
Class A Class B Class C
------- ------- -------
Horizon Fund $90,094 (18,019) $88,081 $13,577
Spectrum Fund 211,730 n/a 102,667 16,944
Mortgage Securities Fund 58,894 (11,780) 46,768 15,054
Bond Fund 16,487 (32,973) 47,412 8,158
Cornerstone Fund 74,733 (149,466) 137,399 22,828
Enterprise Fund 37,163 (74,325) 57,079 9,561
International Fund 68,159 (68,159) 6,084 31,795
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<PAGE>
Money Market Fund made no payments under its Plan of Distribution during the
fiscal year ended September 30, 1997. Ascend Financial waived distribution
fees from Money Market Fund in the amount of $149,466 during such period.
The Plans of Distribution could be construed as "compensation plans"
because Ascend Financial is paid a fixed fee and is given discretion
concerning what expenses are payable under the Plans. Under a compensation
plan, the fee to the distributor is not directly tied to distribution
expenses actually incurred by the distributor, thereby permitting the
distributor to receive a profit if amounts received exceed expenses. Ascend
Financial may spend more or less for the distribution and promotion of the
Funds' shares than it receives as distribution fees pursuant to the Plans.
However, to the extent fees received exceed expenses, including indirect
expense such as overhead, Ascend Financial could be said to have received a
profit.
MONEY MARKET FUND AMORTIZED COST METHOD OF
PORTFOLIO VALUATION
Money Market Fund values its portfolio securities at amortized cost in
accordance with Rule 2a-7 under the Investment Company Act of 1940, as
amended. This method involves valuing an instrument at its cost and
thereafter assuming a constant amortization to maturity of any discount or
premium, regardless of the impact of fluctuations in interest rates on the
market value of the instrument and regardless of any unrealized capital gains
or losses. While this method provides certainty in valuation, it may result
in periods during which value, as determined by amortized cost, is higher or
lower than the price the Fund would receive if it sold the instrument.
During periods of declining interest rates, the daily yield on shares of the
Fund computed by dividing the annualized daily income of the Fund by the net
asset value computed as described above may tend to be higher than a like
computation made by the Fund with identical investments utilizing a method of
valuation based upon market prices and estimates of market prices for all of
its securities.
Pursuant to Rule 2a-7, the Board of Directors of the Fund has
determined, in good faith based upon a full consideration of all material
factors, that it is in the best interests of the Fund and its shareholders to
maintain a stable net asset value per share by virtue of the amortized cost
method of valuation. The Fund will continue to use this method only so long
as the Board of Directors believes that it fairly reflects the market-based
net asset value per share. In accordance with Rule 2a-7, the Board of
Directors has undertaken, as a particular responsibility within the overall
duty of care owed to the Fund's shareholders, to establish procedures
reasonably designed, taking into account current market conditions and the
Fund's investment objectives, to stabilize the Fund's net asset value per
share at a single value. These procedures include the periodic determination
of any deviation of current net asset value per share calculated using
available market quotations from the Fund's amortized cost price per share,
the periodic review by the Board of the amount of any such deviation and the
method used to calculate any such deviation, the maintenance of records of
such determinations and the Board's review thereof, the prompt consideration
by the Board if any such deviation exceeds 1/2 of 1%, and the taking of such
remedial action by the Board as it deems appropriate where it believes the
extent of any such deviation may result in material dilution or other unfair
results to investors or existing
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<PAGE>
shareholders. Such remedial action may include redemptions in kind, selling
portfolio instruments prior to realizing capital gains or losses, shortening
the average portfolio maturity, withholding dividends or utilizing a net
asset value per share as determined by using available market quotations.
The Fund will, in further compliance with Rule 2a-7, maintain a
dollar-weighted average portfolio maturity not exceeding 90 days and will
limit its portfolio investments to those United States dollar-denominated
instruments which the Board determines present minimal credit risks and which
are eligible securities. The Fund will limit its investments in the
securities of any one issuer to no more than 5% of the Fund's total assets
and it will limit investment in securities of less than the highest rated
category to 5% of the Fund's total assets. Investment in the securities of
any issuer of less than the highest rated category will be limited to the
greater of 1% of the Fund's total assets or one million dollars. In
addition, the Fund will reassess promptly any security which is in default or
downgraded from its rating category to determine whether that security then
presents minimal credit risks and whether continuing to hold the securities
is in the best interests of the Fund. In addition, the Fund will record,
maintain, and preserve a written copy of the above-described procedures and a
written record of the Board's considerations and actions taken in connection
with the discharge of its above-described responsibilities.
PORTFOLIO TRANSACTIONS AND ALLOCATION OF BROKERAGE
HORIZON FUND, SPECTRUM FUND, CORNERSTONE FUND AND ENTERPRISE FUND
In a number of security transactions, it is possible for Horizon Fund,
Spectrum Fund, Cornerstone Fund and Enterprise Fund 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; these Funds trade in this manner
whenever the net price appears advantageous.
MORTGAGE SECURITIES FUND AND BOND FUND
Portfolio transactions of Mortgage Securities Fund and Bond Fund occur
primarily with issuers, underwriters or major dealers acting as principals.
Such transactions are normally on a net basis which do not involve payment of
brokerage commissions. The cost of securities purchased from an underwriter
usually includes a commission paid by the issuer to the underwriters;
transactions with dealers normally reflect the spread between bid and asked
prices. Premiums are paid with respect to options purchased by these two
Funds and brokerage commissions are payable with respect to transactions in
exchange-traded interest rate futures contracts.
MONEY MARKET FUND
Most transactions in portfolio securities of Money Market Fund are
purchases from issuers or dealers in money market instruments acting as
principal. There usually are no brokerage commissions paid by the Fund for
such purchases since securities are purchased on a net price
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basis. Trading does, however, involve transaction costs. Transactions with
dealers serving as primary market makers reflect the spread between the bid
and asked prices of securities. Purchases of underwritten issues may be made
which reflect a fee paid to the underwriter.
INTERNATIONAL FUND
Templeton Counsel, as investment sub-adviser to the International
Fund, is primarily responsible for selecting and (where applicable)
negotiating commissions with the brokers who execute the transactions for the
Fund. Templeton Counsel, in managing the International Fund, follows the
same basic brokerage practices as those described below for Advantus Capital.
In addition, in selecting brokers for portfolio transactions, Templeton
Counsel takes into account its past experience as to brokers qualified to
achieve "best execution," including the ability to effect transactions at all
where a large block is involved, availability of the broker to stand ready to
execute possibly difficult transactions in the future, the financial strength
and stability of the broker, and whether the broker specializes in foreign
securities held by the International Fund. Purchases and sales of portfolio
securities within the United States other than on a securities exchange are
executed with primary market makers acting as principal, except where, in the
judgment of Templeton Counsel, better prices and execution may be obtained on
a commission basis or from other sources.
GENERALLY
Advantus Capital selects and (where applicable) negotiates commissions
with the brokers who execute the transactions for the Funds (except for
International Fund, as described above). During the fiscal years ended
September 30, 1997, 1996 and 1995, brokerage commissions paid were:
Fund 1997 1996 1995
Horizon Fund $61,259 $71,278 $40,274
Spectrum Fund 56,107 69,801 63,194
Mortgage Securities Fund -0- -0- -0-
Money Market Fund -0- -0- -0-
Bond Fund -0- -0- -0-
Cornerstone Fund 263,314 165,563 146,804
Enterprise Fund 37,239 39,583 29,639
International Fund 82,535 34,467 42,199
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
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of investing in, purchasing or selling securities, and the availability of
securities or purchasers or sellers of securities, as well as analyses and
reports concerning issues, industries, securities, economic factors and
trends, portfolio strategy, and the performance of accounts. By allocating
brokerage business in order to obtain research services for Advantus Capital,
the Funds enable Advantus Capital to supplement its own investment research
activities and allows Advantus Capital to obtain the views and information of
individuals and research staffs of many different securities research firms
prior to making investment decisions for the Funds. To the extent such
commissions are directed to these other brokers who furnish research services
to Advantus Capital, Advantus Capital receives a benefit, not capable of
evaluation in dollar amounts, without providing any direct monetary benefit
to the Funds from these commissions.
There is no formula for the allocation by Advantus Capital of the
Funds' brokerage business to any broker-dealer for brokerage and research
services. However, Advantus Capital will authorize a Fund to pay an amount
of commission for effecting a securities transaction in excess of the amount
of commission another broker would have charged only if Advantus Capital
determines in good faith that such amount of commission is reasonable in
relation to the value of the brokerage and research services provided by such
broker viewed in terms of either that particular transaction or Advantus
Capital's overall responsibilities with respect to the accounts as to which
it exercises investment discretion. During the fiscal year ended September
30, 1997, Horizon Fund, Spectrum Fund, Cornerstone Fund, Enterprise Fund and
International Fund directed transactions to brokers because of research
services they provided, and paid commissions in connection with such
transactions, in the aggregate amounts set forth below:
Aggregate Transactions Commissions Paid On
Fund Directed for Research Directed Transactions
---- ---------------------- ---------------------
Horizon Fund $ 45,020,422 $ 59,890
Spectrum Fund 224,537,979 47,931
Cornerstone Fund 212,423,488 253,945
Enterprise Fund 63,547,654 34,208
International Fund 58,875,085 82,535
During the same period, Mortgage Securities Fund, Money Market Fund and Bond
Fund directed no transactions to brokers because of research services they
provided.
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
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accounts simultaneously purchase or sell the same security, the transactions
will be allocated as to price and amount in accordance with arrangements
equitable to each fund or account. The simultaneous purchase or sale of the
same securities by one Fund and other Funds or accounts may have a
detrimental effect on that Fund, as this may affect the price paid or
received by the Fund or the size of the position obtainable by the Fund.
The Funds will not execute portfolio transactions through any
affiliate, unless such transactions, including the frequency thereof, the
receipt of commissions payable in connection therewith and the selection of
the affiliated broker-dealer effecting such transactions are not unfair or
unreasonable to the shareholders of the Funds. In the event any transactions
are executed on an agency basis, Advantus Capital will authorize the Funds to
pay an amount of commission for effecting a securities transaction in excess
of the amount of commission another broker-dealer would have charged only if
Advantus Capital determines in good faith that such amount of commission is
reasonable in relation to the value of the brokerage and research services
provided by such broker-dealer, viewed in terms of either that particular
transaction or the overall responsibilities of Advantus Capital with respect
to the Funds as to which it exercises investment discretion. If the Funds
execute any transactions on an agency basis, they will generally pay higher
than the lowest commission rates available.
In determining the commissions to be paid to an affiliated
broker-dealer, it is the policy of the Funds that such commissions will, in
the judgment of Advantus Capital, subject to review by the Fund's Board of
Directors, be both (a) at least as favorable as those which would be charged
by other qualified brokers in connection with comparable transactions
involving similar securities being purchased or sold on an exchange during a
comparable period of time, and (b) at least as favorable as commissions
contemporaneously charged by such affiliated broker-dealers on comparable
transactions for their most favored comparable unaffiliated customers. While
the Funds do not deem it practicable and in their best interest to solicit
competitive bids for commission rates on each transaction, consideration will
regularly be given to posted commission rates as well as to other information
concerning the level of commissions charged on comparable transactions by
other qualified brokers.
Information regarding the acquisition by the Funds during the fiscal
year ended September 30, 1997, of securities of the Funds' regular brokers or
dealers, or the parents of those broker or dealers that derive more than 15
percent of their gross revenue from securities-related activities, is
presented below:
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Approximate
Value of Securities
Owned at End of
Fund Name of Issuer Fiscal Period
- ---- -------------- -------------------
Horizon Fund Norwest Corporation $ 682,937
Spectrum Fund Norwest Corporation 1,261,440
Lehman Brothers 1,029,326
Ford Motor Credit 501,460
Morgan Stanley 1,006,938
Bear Stearns 498,250
Mortgage Securities Fund Lehman Brothers 1,026,715
Bear Stearns 747,374
Morgan Stanley 487,145
Money Market Fund GE Capital 1,867,195
Ford Motor Credit 2,365,900
Norwest Financial 2,643,328
Bond Fund Lehman Brothers 1,029,326
Norwest Corporation 304,367
Ford Motor Credit 485,979
GE Capital 758,231
Morgan Stanley 906,279
International Balanced Fund Deutsche Bank 1,260,220
CALCULATION OF PERFORMANCE DATA
MONEY MARKET FUND
Money Market Fund may issue "current yield" and "effective yield"
quotations. "Current yields" are computed by determining the net change in
the value of a hypothetical account having a balance of one share at the
beginning of a recent seven calendar day period, and multiplying that change
by 365/7. "Effective yields" are computed by determining the net change in
the value of a hypothetical account having a balance of one share at the
beginning of a recent seven calendar day period, dividing that change by
seven, adding one to the quotient, raising the sum to the 365th power, and
subtracting one from the result. For purposes of the foregoing calculations,
the value of the hypothetical account includes accrued interest income plus
or minus amortized purchase discount or premium less accrued expenses, but
does not include realized gains and losses or unrealized appreciation and
depreciation. The Fund will also quote the average dollar-weighted portfolio
maturity for the corresponding seven-day period.
Although there can be no assurance that the net asset value of Money
Market Fund's shares will always be $1.00, Advantus Capital does not expect
that the net asset value of its shares will fluctuate since the Fund uses the
amortized cost method of valuation to maintain a stable $1.00 net asset
value. See "Money Market Fund Amortized Cost Method of Portfolio Valuation."
Principal is not, however, insured. Yield is a function of portfolio
quality and composition, maturity, and operating expenses. Yield information
is useful in reviewing the Fund's performance, but it may not provide a basis
for comparison with bank deposits or other investments, which pay a fixed
yield for a stated period of time, or other investment instruments, which may
use a different method of calculating yield.
For the seven calendar days ended September 30, 1997, Money Market
Fund's annualized current yield was 4.70% and its annualized effective yield
was 4.81%. The Fund's investment adviser was voluntarily absorbing certain
expenses of the Fund during that period. If the Fund had been charged these
expenses its current yield and effective yield for the same period would have
been 4.04% and 4.12%, respectively.
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ADVANTUS MULTIPLE CLASS FUNDS
Advertisements and other sales literature for the Advantus Multiple
Class 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 Advantus Multiple Class 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 these Funds for the 30 day period
ended September 30, 1997 was as set forth in the table below. The Funds'
investment adviser and distributor were voluntarily absorbing and waiving
certain expenses of certain of the Funds during that period. If such Funds
had been charged for these expenses the yield on investments for the same
period would have been lower, as also shown in the table below in parentheses.
Yield
------
Fund Class A Class B Class C
---- ------- ------- -------
Horizon Fund -.32 (-.32) -1.07 (-1.07) -1.07 (-1.07)
Spectrum Fund 2.92 (2.92) 2.42 (2.42) 2.42 (2.42)
Mortgage Securities Fund 7.41 (7.02) 7.07 (6.67) 7.05 (6.65)
Bond Fund 6.90 (6.46) 6.36 (5.90) 6.37 (5.91)
Cornerstone Fund .71 (.71) -.13 (-.13) -.13 (-.13)
Enterprise Fund -.50 (-.50) -1.39 (-1.39) -1.39 (-1.39)
International Fund 1.76 (1.76) 1.02 (1.02) 1.04 (1.04)
-41-
<PAGE>
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
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 Advantus
Multiple Class Funds for the periods indicated ending September 30, 1997,
were 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 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.
-42-
<PAGE>
1 Year
------
Fund Class A Class B Class C
---- ------- ------- -------
Horizon Fund(1) 18.7% (18.7%) 19.3% (19.3%) 24.0% (24.0%)
Spectrum Fund(2) 10.8% (10.8%) 11.0% (11.0%) 15.9% (15.9%)
Mortgage Securities Fund(1) 4.9% (4.4%) 4.7% (4.3%) 9.7% (9.3%)
Bond Fund(3) 5.0% (4.4%) 4.7% (4.3%) 9.6% (9.1%)
Cornerstone Fund(4) 31.4% (31.1%) 32.7% (32.7%) 37.1% (37.1%)
Enterprise Fund(4) 7.2% (7.0%) 6.9% (6.9%) 11.9% (11.9%)
International Balanced Fund(5) 16.9% (16.6%) n/a n/a 22.0% (22.0%)
5 Year
------
Fund Class A Class B Class C
---- ------- ------- -------
Horizon Fund(1) 14.0% (14.0%) n/a n/a
Spectrum Fund(2) 9.8% (9.8%) n/a n/a
Mortgage Securities Fund(1) 5.5% (5.3%) n/a n/a
Bond Fund(3) 5.7% (4.9%) n/a n/a
Cornerstone Fund(4) n/a n/a n/a n/a
Enterprise Fund(4) n/a n/a n/a n/a
International Balanced Fund(5) n/a n/a n/a n/a
10 Year
-------
Fund Class A Class B Class C
---- ------- ------- -------
Horizon Fund(1) 11.3% (11.2%) n/a n/a
Spectrum Fund(2) n/a n/a n/a n/a
Mortgage Securities Fund(1) 8.7% (8.6%) n/a n/a
Bond Fund(1) 7.7% (6.7%) n/a n/a
Cornerstone Fund(4) n/a n/a n/a n/a
Enterprise Fund(4) n/a n/a n/a n/a
International Balanced Fund(5) n/a n/a n/a n/a
Since Inception
---------------
Fund Class A Class B Class C
---- ------- ------- -------
Horizon Fund(1) 12.2% (12.2%) 20.4% (20.4%) 23.0% (23.0%)
Spectrum Fund(2) 11.2% (10.6%) 14.3% (14.3%) 16.2% (16.2%)
Mortgage Securities Fund(1) 8.6% (8.3%) 7.5% (7.3%) 8.4% (8.2%)
Bond Fund(3) 7.7% (6.7%) 7.4% (6.8%) 8.5% (8.0%)
Cornerstone Fund(4) 25.8% (25.4%) 26.4% (26.4%) 31.6% (31.6%)
Enterprise Fund(4) 16.4% (16.3%) 16.7% (16.7%) 18.7% (18.7%)
International Balanced Fund(5) 10.8% (10.5%) 7.3% (7.3%) 16.3% (16.3%)
- ---------------
(1)Class A Inception May 3, 1985.
Class B Inception August 19, 1994.
Class C Inception March 1, 1995.
(2)Class A Inception November 16, 1987.
Class B Inception August 19, 1994.
Class C Inception March 1, 1995
(3)Class A Inception August 14, 1987.
Class B Inception August 19, 1994.
Class C Inception March 1, 1995.
(4)Class A and Class B Inception September 16, 1994.
Class C Inception March 1, 1995.
(5)Class A Inception September 16, 1994.
Class B Inception January 31, 1997.
Class C Inception March 1, 1995.
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<PAGE>
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 Advantus
Multiple Class Funds for the period indicated ended September 30, 1997, was a
set forth in the table below. The Funds' investment adviser was voluntarily
absorbing certain expenses of certain of the Funds during these periods. If
such Funds had been charged for these expenses the cumulative total return
for the same periods would have been lower, as also shown in the table below
in parentheses.
Cumulative Total Return
- -----------------------
Fund Class A Class B Class C
---- ------- ------- -------
Horizon Fund(1) 318.8% (317.8%) 78.6% (78.6%) 71.0% (70.9%)
Spectrum Fund(2) 186.3% (170.6%) 51.9% (51.9%) 47.4% (34.1%)
Mortgage Securities Fund(1) 177.7% (169.9%) 25.2% (24.6%) 23.2% (22.6%)
Bond Fund(3) 112.4% (93.0%) 24.8% (22.8%) 23.5% (22.0%)
Cornerstone Fund(4) 101.1% (99.2%) 104.1% (104.0%) 103.7% (103.6%)
Enterprise Fund(4) 58.7% (58.3%) 60.1% (60.0%) 55.8% (55.8%)
International Fund(5) 36.5% (35.5%) 4.7% (4.7%) 47.9% (47.8%)
(1) Class A Inception May 3, 1985.
Class B Inception August 19, 1994.
Class C Inception March 1, 1995.
(2) Class A Inception November 16, 1987.
Class B Inception August 19, 1994.
Class C Inception March 1, 1995.
(3) Class A Inception August 14, 1987.
Class B Inception August 19, 1994.
Class C Inception March 1, 1995.
(4) Class A and Class B Inception September 16, 1994.
Class C Inception March 1, 1995.
(5) Class A Inception September 16, 1994.
Class B Inception January 31, 1997.
Class C Inception March 1, 1995.
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
-44-
<PAGE>
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.
Each of the Advantus Multiple Class Funds has designated 2 billion authorized
shares as Class A shares, 2 billion authorized shares as Class B shares and 2
billion authorized shares as Class C shares. The Funds have the following
numbers of shares outstanding:
Shares Outstanding at September 30, 1997
----------------------------------------
Fund Class A Class B Class C
---- ------- ------- -------
Horizon Fund 1,742,946 521,312 78,348
Spectrum Fund 3,836,755 768,581 118,388
Mortgage Securities Fund 2,664,489 575,760 207,379
Money Market Fund 54,490,917 n/a n/a
Bond Fund 1,642,025 600,784 86,285
Cornerstone Fund 5,746,329 1,155,909 183,953
Enterprise Fund 2,773,953 498,168 73,500
International Fund 4,070,942 172,870 303,938
As of September 30, 1997, 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:
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<PAGE>
Number of
Name and Address of Shareholder Shares Percentage
- ------------------------------- ------ ----------
HORIZON FUND
Minnesota Mutual and affiliates* 37,643 1.6%
SPECTRUM FUND
Minnesota Mutual and affiliates* 40,332 .9%
MORTGAGE SECURITIES FUND
Minnesota Mutual and affiliates* 622,693 18.1%
MONEY MARKET FUND
Minnesota Mutual and affiliates* 19,181,553 35.2%
BOND FUND
Minnesota Mutual and affiliates* 382,036 16.4%
CORNERSTONE FUND
Minnesota Mutual and affiliates* 2,186,521 30.9%
ENTERPRISE FUND
Minnesota Mutual and affiliates* 2,226,155 66.5%
INTERNATIONAL FUND
Minnesota Mutual and affiliates* 2,549,662 56.1%
* 400 Robert Street North, St. Paul, Minnesota 55101.
HOW TO BUY SHARES
The procedures for purchasing shares of the Funds are summarized in
the Prospectus following the caption "Purchase of Fund Shares."
In addition to purchases of shares through insurance agents and
employees of Minnesota Mutual who are registered representatives of Ascend
Financial and who are licensed under applicable state and federal laws,
shares may also be purchased in writing as described in the Prospectus
through firms which are members of the National Association of Securities
Dealers, Inc. and which have selling agreements with Ascend Financial.
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 headings
"Purchase of Fund Shares" and "Sales Charges."
Shares of Money Market Fund may be purchased at a price equal to their
net asset value, which will normally be constant at $1.00 per share. See
"Money Market Fund Amortized Cost Method of Valuation." There is no
assurance that Money Market Fund can maintain the $1.00 per share value. The
portfolio securities in which the Advantus Multiple Class Funds invest
fluctuate in value, and hence the net asset value per share of each Fund also
fluctuates.
-46-
<PAGE>
On September 30, 1997, the net asset value and public offering price
per share for Class A, Class B and Class C shares of each of the Funds
(except Money Market Fund) were calculated as follows:
HORIZON FUND
CLASS A SHARES
Net Assets ($40,191,660) = Net Asset Value Per Share ($23.06)
- ------------------------------
Shares outstanding (1,742,946)
To obtain the maximum public offering price per share, the Fund's 5% sales
charge must be added to the net asset value obtained above:
$23.06 = Public Offering Price Per Share ($24.27)
------
.95
CLASS B SHARES
Net Assets ($11,683,601) = Net Asset Value AND Public
- ------------------------------
Shares outstanding (521,312) Offering Price Per Share ($22.41)
CLASS C SHARES
Net Assets ($1,753,590) = Net Asset Value AND Public
- ------------------------------
Shares outstanding (78,348) Offering Price Per Share ($22.38)
SPECTRUM FUND
CLASS A SHARES
Net Assets ($62,914,120) = Net Asset Value Per Share ($16.40)
- ------------------------------
Shares outstanding (3,836,755)
To obtain the maximum public offering price per share, the Fund's 5% sales
charge must be added to the net asset value obtained above:
$16.40 = Public Offering Price Per Share ($17.26)
------
.95
CLASS B SHARES
Net Assets ($12,555,823) = Net Asset Value AND Public
- ------------------------------
Shares outstanding (768,581) Offering Price Per Share ($16.34)
CLASS C SHARES
Net Assets ($1,926,344) = Net Asset Value AND Public
- ------------------------------
Shares Outstanding (118,388) Offering Price Per Share ($16.27)
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<PAGE>
MORTGAGE SECURITIES FUND
CLASS A SHARES
Net Assets ($28,089,174) = Net Asset Value Per Share ($10.54)
- ------------------------------
Shares outstanding (2,664,489)
To obtain the maximum public offering price per share, the Fund's 5% sales
charge must be added to the net asset value obtained above:
$10.54 = Public Offering Price Per Share ($11.09)
------
.95
CLASS B SHARES
Net Assets ($6,079,359) = Net Asset Value and Public
- ------------------------------
Shares outstanding (575,760) Offering Price Per Share ($10.56)
CLASS C SHARES
Net Assets ($2,187,475) = Net Asset Value and Public
- ------------------------------
Shares outstanding (207,379) Offering Price Per Share ($10.55)
BOND FUND
CLASS A SHARES
NET ASSETS ($17,121,871) = Net Asset Value Per Share ($10.43)
- ------------------------------
Shares outstanding (1,642,025)
To obtain the maximum public offering price per share, the Fund's 5% sales
charge must be added to the net asset value obtained above:
$10.43 = Public Offering Price Per Share ($10.98)
------
.95
CLASS B SHARES
Net Assets ($6,263,466) = Net Asset Value and Public
- ------------------------------
Shares outstanding (600,784) Offering Price Per Share ($10.43)
CLASS C SHARES
Net Assets ($898,922) = Net Asset Value AND Public
- ------------------------------
Shares outstanding (86,285) Offering Price Per Share ($10.42)
CORNERSTONE FUND
CLASS A SHARES
Net Assets ($107,322,043) = Net Asset Value Per Share ($18.68)
- ------------------------------
Shares outstanding (5,746,329)
To obtain the maximum public offering price per share, the Fund's 5% sales
charge must be added to the net asset value obtained above:
-48-
<PAGE>
$18.68 = Public Offering Price Per Share ($19.66)
------
.95
CLASS B SHARES
Net Assets ($21,405,401) = Net Asset Value AND Public
- ------------------------------
Shares outstanding (1,155,909) Offering Price Per Share ($18.52)
Class C Shares
Net Assets ($3,398,747) = Net Asset Value AND Public
- ------------------------------
Shares outstanding (183,953) Offering Price Per Share ($18.48)
ENTERPRISE FUND
CLASS A SHARES
Net Assets ($44,102,229) = Net Asset Value Per Share ($15.90)
- ------------------------------
Shares outstanding (2,773,953)
To obtain the maximum public offering price per share, the Fund's 5% sales
charge must be added to the net asset value obtained above:
$15.90 = Public Offering Price Per Share ($16.74)
------
.95
CLASS B SHARES
Net Assets ($7,682,813) = Net Asset Value AND Public
- ------------------------------
Shares outstanding (498,168) Offering Price Per Share ($15.42)
CLASS C SHARES
Net Assets ($1,132,790) = Net Asset Value AND Public
- ------------------------------
Shares outstanding (73,500) Offering Price Per Share ($15.41)
INTERNATIONAL FUND
CLASS A SHARES
Net Assets ($54,090,306) = Net Asset Value Per Share ($13.29)
- ------------------------------
Shares outstanding (4,070,942)
To obtain the maximum public offering price per share, the Fund's 5% sales
charge must be added to the net asset value obtained above:
$13.29 = Public Offering Price Per Share ($13.99)
------
.95
CLASS B SHARES
Net Assets ($2,286,525) = Net Asset Value AND Public
- ------------------------------
Shares outstanding (172,870) Offering Price ($13.23)
CLASS C SHARES
Net Assets ($4,025,318) = Net Asset Value AND Public
- ------------------------------
Shares outstanding (303,938) Offering Price Per Share ($13.24)
REDUCED SALES CHARGES
Special purchase plans are enumerated in the text of each Fund's Prospectus
immediately following the caption "Special Purchase Plans" and are fully
described below.
-49-
<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 Advantus Multiple Class 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 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 (except Money Market Fund) within that time. The
13-month period is measured from the date the Letter of Intent is approved by
Ascend Financial, or at the purchaser's option, it may be made retroactive 90
days, in which case Ascend Financial will make appropriate adjustments on
purchases during the 90-day period.
In computing the total amount purchased for purposes of determining
the applicable sales charge, the net asset value of Class A, Class B and
Class C shares currently held in all Advantus Multiple Class Funds, on the
date of the first purchase under the Letter of Intent, may be used as a
credit toward Fund shares to be purchased under the Letter of Intent. Class
A, Class B and Class C shares of all the Advantus Multiple Class Funds may
also be included in the purchases during the 13-month period.
The Letter of Intent includes a provision for payment of additional
applicable sales charges at the end of the period in the event the investor
fails to purchase the amount indicated. In the case of Class A shares, this
is accomplished by holding 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. In the case
of Class B shares, if the investor fails to purchase shares in the amount
indicated, the contingent deferred sales charge applicable to purchased Class
B shares will be calculated without regard to the Letter of Intent. 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.
-50-
<PAGE>
COMBINING PURCHASES
With respect to each of the Advantus Multiple Class Funds, purchases
of Class A, Class B and Class C shares for any other account of the investor,
or such person's spouse or minor children, or purchases on behalf of
participants in a tax-qualified retirement plan may be treated as purchases
by a single investor for purposes of determining the availability of a
reduced sales charge.
GROUP PURCHASES
An individual who is a member of a qualified group may also purchase shares
of the Advantus Multiple Class Funds at the reduced sales charge applicable to
the group taken as a whole. The sales charge is calculated by taking into
account not only the dollar amount of the Class A, Class B and Class C shares of
the Funds being purchased by the individual member, but also the aggregate
dollar value of such Class A, Class B and Class C shares previously purchased
and currently held by other members of the group. Members of a qualified group
may not be eligible for a Letter of Intent.
A "qualified group" is one which (i) has been in existence for more than
six months, (ii) has a purpose other than acquiring Fund shares at a discount,
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, MIMLIC Management,
Templeton Counsel (with respect to International Fund only), Ascend
Financial, the Funds, Minnesota Mutual, or any of Minnesota Mutual'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 descendents of such persons, Minnesota Mutual and its affiliates
themselves, advisory clients of Advantus Capital or MIMLIC Management,
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.
SHAREHOLDER SERVICES
OPEN ACCOUNTS
A shareholder's investment is automatically credited to an open
account maintained for the shareholder by Minnesota Mutual. 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 Minnesota Mutual 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.
-51-
<PAGE>
The costs of maintaining the open account system are paid by Advantus
Capital in the case of the Funds other than Money Market Fund. The costs of
maintaining the open account system for Money Market Fund are paid by the
Fund. No direct charges are made to shareholders. Although the Funds have
no present intention of making such direct charges to shareholders, they
reserve the right to do so. Shareholders will receive prior notice before
any such charges are made.
AUTOMATIC INVESTMENT PLAN
Each Fund provides a convenient, voluntary method of purchasing shares
in the Fund through its "Automatic Investment Plan".
The principal purposes of the Plan are to encourage thrift by enabling
you to make regular purchases in amounts less than normally required, and, in
the case of the Advantus Multiple Class Funds, to employ the principle of
dollar cost averaging, described below.
By acquiring Fund shares on a regular basis pursuant to an 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. It is essential that the investor consider his or her
financial ability to continue this investment program during times of market
decline as well as market rise. The principle of Dollar Cost Averaging will
not protect against loss in a declining market, as a loss will result if the
plan is discontinued when the market value is less than cost.
A Plan may be opened by indicating an intention to invest $25 or more
monthly for at least one year. Investors will receive a confirmation showing
the number of shares purchased, purchase price, and subsequent new balance of
shares accumulated.
An investor has no obligation to invest regularly or to continue the
Plan, which may be terminated by the investor at any time without penalty.
Under the Plan, any distributions of income and realized capital gains will
be reinvested in additional shares at net asset value unless a shareholder
instructs the Fund in writing to pay them in cash. The Fund reserves the
right to increase or decrease the amount required to open and continue a
Plan, and to terminate any Plan after one year if the value of the amount
invested is less than $250.
GROUP SYSTEMATIC INVESTMENT PLAN
This Plan provides employers and employees with a convenient means for
purchasing shares of each Fund under various types of employee benefit and
thrift plans, including payroll withholding and bonus incentive plans. The
Plan may be started with an initial cash investment of $50 per participant
for a group consisting of five or more participants. The shares purchased by
each participant under the Plan will be held in a separate account in which
all dividends and capital gains will be reinvested in additional shares of
the Fund at net asset value. To keep his or her account open, subsequent
payments totaling $25 per month must be made into each
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<PAGE>
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.
-53-
<PAGE>
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. The Plan is particularly convenient and useful for trustees
in making periodic distributions to retired employees. Through this Plan a
trustee can arrange for the retirement benefit to be paid directly to the
employee by the respective Fund and to continue the tax-free accumulation of
income and capital gains prior to their distribution to the employee. An
investor may terminate the Plan at any time. A form for use in establishing
such a plan is available from Ascend Financial.
A shareholder under a Systematic Withdrawal Plan may elect to receive
payments monthly, quarterly, semiannually, or annually for a fixed amount of
not less than $50 or a variable amount based on (1) the market value of a
stated number of shares, (2) a specified percentage of the account's market
value or (3) a specified number of years for liquidating the account (e.g., a
20-year program of 240 monthly payments would be liquidated at a monthly rate
of 1/240, 1/239, 1/238, etc.). The initial payment under a variable payment
option may be $50 or more.
All shares under the Plan must be left on deposit. Income dividends
and capital gain distributions will be reinvested without a sales charge at
net asset value determined on the record date.
Since withdrawal payments represent proceeds from the liquidation of
shares, withdrawals may reduce and possibly exhaust the initial investment,
particularly in the event of a decline in net asset value. In addition,
withdrawal payments attributable to the redemption of Class B shares may be
subject to a contingent deferred sales charge. Accordingly, the shareholder
should consider whether a Systematic Withdrawal Plan and the specified
amounts to be withdrawn are appropriate in the circumstances. The Funds and
Ascend Financial make no recommendations or representations in this regard. It
may be appropriate for the shareholder to consult a tax adviser before
establishing such a plan.
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, except in the case of Money Market Fund,
other than by reinvestment of distributions, it should be understood that, in
the case of
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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.
EXCHANGE AND TELEPHONE TRANSFER PRIVILEGE
The exchange and telephone transfer privileges available in connection
with the Funds, the procedures for effecting such transactions and a
description of the applicable charges, are described in each Fund's
Prospectus in the text following the caption "Exchange and Telephone Transfer
of Fund Shares."
Telephone transfers and other exchanges may be made only between
already open Fund accounts having identical registrations.
REDEMPTIONS
The procedures for redemption of Fund shares, and the charges
applicable to redemptions of Class B shares, are summarized in the Prospectus
in the text following the caption "Redemption of Fund Shares."
Class B shares are subject to a contingent deferred sales charge of up
to 5% if redeemed within six years of purchase. See "Sales Charges-Class B
Shares" and "Redemption of Fund Shares" in the Prospectus.
The obligation of each of the Funds to redeem its shares when called
upon to do so by the shareholder is mandatory with the following exceptions.
Each Fund will pay in cash all redemption requests by any shareholder
of record, limited in amount during any 90-day period to the lesser of
$250,000 or 1% of the net asset value of the Fund at the beginning of such
period. When redemption requests exceed such amount, however, the Fund
reserves the right to make part or all of the payment in the form of
securities or other assets of the Fund. An example of when this might be
done is in case of emergency, such as in those situations enumerated in the
following paragraph, or at any time a cash distribution would impair the
liquidity of the Fund to the detriment of the existing shareholders. Any
securities being so distributed would be valued in the same manner as the
portfolio of the Fund is valued. If the recipient sold such securities, he
or she probably would incur brokerage charges. The Fund has filed with the
Securities and Exchange Commission a notification of election pursuant to
Rule 18f-1 under the Investment Company Act of 1940 in order to make such
redemptions in kind.
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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 Securities and Exchange Commission, by
order, so permits; provided that applicable rules and regulations of the
Securities and Exchange Commission shall govern as to whether the conditions
prescribed in (b) or (c) exist.
REINSTATEMENT PRIVILEGE
The Prospectus for each of the Advantus Multiple Class Funds describes
redeeming shareholders' reinstatement privileges in the text following the
caption "Reinstatement Privilege." 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 "Taxes" in the Prospectus for a discussion of the effect of
redeeming shares within 90 days after acquiring them and subsequently
acquiring new shares in any mutual fund at a reduced sales charge. Should an
investor utilize the reinstatement privilege following a redemption which
resulted in a loss, all or a portion of that loss might not be currently
deductible for Federal income tax purposes, for an investor which is not
tax-exempt. Exercising the reinstatement privilege would not alter any
capital gains taxes payable on a realized gain, for an investor which is not
tax-exempt. See discussion under "Taxes" in the Prospectus regarding the
taxation of capital gains.
DISTRIBUTIONS AND TAX STATUS
GENERALLY
The tax status of the Funds and the distributions which they may make
are summarized in the text of the Prospectus following the caption "Taxes."
During the fiscal year ended September 30, 1997, each Fund fulfilled, and
each Fund 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, the Funds will not be liable for
federal income taxes to the extent they distribute their taxable income to
their shareholders.
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Except for the transactions identified as hedging transactions, each Fund
is required for federal income tax purposes to recognize as income for each
taxable year its net unrealized gains and losses on Futures contracts, options
and forward currency contracts as of the end of the year as well as those
actually realized during the year. Except for transactions in futures
contracts, options, or forward currency contracts that are classified as part of
a "mixed straddle," gain or loss recognized with respect to such contracts is
considered to be 60% long-term capital gain or loss and 40% short-term capital
gain or loss, without regard to the holding period of the contracts. In the
case of a transaction classified as a "mixed straddle," the recognition of
losses may be deferred to a later taxable year.
Sales of futures contracts, options, or forward currency contracts that are
intended to hedge against a change in the value of securities or currencies held
by a Fund may affect the holding period of such securities or currencies and,
consequently, the nature of the gain or loss on such securities or currencies
upon disposition.
It is expected that any net gain realized from the closing out of futures
contracts, options, or forward currency contracts will be considered gain from
the sale of securities or currencies and therefore be qualifying income for
purposes of the requirement under the Code that a regulated investment company
derive at least 90% of its gross income from dividends interest, gains from the
sale or disposition of securities, or otherwise from the business of investing
in securities.
Any realized gain or loss on closing out a futures contract, option, or
forward currency contract such as a forward commitment for the purchase or sale
of foreign currency, will generally result in a recognized capital gain or loss
for tax purposes.
Code Section 988 may also apply to forward currency contracts. Under
Section 988, each foreign currency gain or loss is generally computed separately
and treated as ordinary income or loss. In the case of overlap between Section
1256 and 988, special provisions determine the character and timing of any
income gain or loss. International Fund will attempt to monitor Section 988
transactions to avoid an adverse tax impact.
Under the Code, International Fund's taxable income for each year will
be computed without regard to any net foreign currency loss attributable to
transactions after October 31, and any such net foreign currency loss will be
treated as arising on the first day of the following taxable year.
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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.
Each Fund may in the future sell securities "short against the box." Under
provisions of the Taxpayer Relief Act of 1997, if a Fund sells short against the
box a security in which it has an appreciated position, it will be treated as if
it had sold the security for its fair market value on the date of the short
sale, and will be required to recognize gain as of that date. On a subsequent
sale of the security that has been sold short against the box, the Fund's basis
in the security will be adjusted to take into account the amount of gain
previously recognized.
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 Fund distributions.
FINANCIAL STATEMENTS
The Funds' financial statements for the year ended September 30, 1997,
including the financial highlights for each of the respective periods
presented, appearing in each Fund's Annual Report to shareholders, and the
report thereon of the Funds' independent auditors, KPMG Peat Marwick LLP,
also appearing therein, are incorporated by reference in this Statement of
Additional Information. The respective Fund's 1997 Annual Report to
Shareholders is enclosed with this Statement of Additional Information.
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APPENDIX A
MORTGAGE-RELATED SECURITIES
Mortgage-related securities represent an ownership interest in a pool
of residential mortgage loans. These securities are designed to provide
monthly payments of interest and principal to the investor. The mortgagor's
monthly payments to his lending institution are "passed-through" to investors
such as the Fund. Most insurers or services provide guarantees of payments,
regardless of whether or not the mortgagor actually makes the payment. The
guarantees made by issuers or servicers are backed by various forms of
credit, insurance and collateral.
UNDERLYING MORTGAGES
Pools consist of whole mortgage loans or participations in loans. The
majority of these loans are made to purchasers of 1-4 family homes. Some of
these loans are made to purchasers of mobile homes. The terms and
characteristics of the mortgage instruments are generally uniform within a
pool buy may vary among pools. For example, in addition to fixed-rate
fixed-term mortgages, the fund may purchase pools of variable rate mortgages,
growing equity mortgages, graduated payment mortgages and other types.
All servicers apply standards for qualification to local lending
institutions which originate mortgages for the pools. Servicers also
establish credit standards and underwriting criteria for individual mortgages
included in the pools. In addition, many mortgages included in pools are
insured through private mortgage insurance companies.
LIQUIDITY AND MARKETABILITY
Since the inception of the mortgage-related pass-through security in
1970, the market for these securities has expanded considerably. The size of
the primary issuance market and active participation in the secondary market
by securities dealers and many types of investors makes government and
government-related pass-through pools highly liquid. The recently introduced
private conventional pools of mortgages (pooled by commercial banks, savings
and loans institutions and others, with no relationship with government and
government-related entities) have also achieved broad market acceptance and
consequently an active secondary market has emerged. However, the market for
conventional pools is smaller and less liquid than the market for the
government and government-related mortgage pools. The Fund may purchase some
mortgage-related securities through private placements, in which case only a
limited secondary market exists, and the security is considered illiquid.
AVERAGE LIFE
The average life of pass-through pools varies with the maturities of
the underlying mortgage instruments. In addition, a pool's term may be
shortened by unscheduled or early payments of principal and interest on the
underlying mortgages. The occurrence of mortgage
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prepayments is affected by factors including the level of interest rates,
general economic conditions, the location and age of the mortgage and other
social and demographic conditions.
As prepayment rates of individual pools vary widely, it is not
possible to accurately predict the average life of a particular pool. For
pools of fixed-rate 30-year mortgages, common industry practice is to assume
that prepayments will result in a 12-year average life. Pools of mortgages
with other maturities or different characteristics will have varying
assumptions for average life. The assumed average life of pools of mortgages
having terms of less than 30 years is less than 12 years, but typically not
less than 5 years.
YIELD CALCULATIONS
Yields on pass-through securities are typically quoted by investment
dealers and vendors based on the maturity of the underlying instruments and
the associated average life assumption. In periods of falling interest rates
the rate of prepayment tends to increase, thereby shortening the actual
average life of a pool of mortgage-related securities. Conversely, in
periods of rising rates and the rate of prepayment tends to decrease, thereby
lengthening the actual average life of the pool. Historically, actual
average life has been consistent with the 12-year assumption referred to
above.
Actual prepayment experience may cause the yield to differ from the
assumed average life yield. Reinvestment of prepayments may occur at higher
or lower interest rates than the original investment, thus affecting the
yield of the Fund. The compounding effect from reinvestments of monthly
payments received by the Fund will increase the yield to shareholders
compared to bonds that pay interest semi-annually.
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APPENDIX B
BOND AND COMMERCIAL PAPER RATINGS
BOND RATINGS
Moody's Investors Service, Inc. describes its five 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.
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 five highest ratings for
corporate bonds and mortgage-related securities as follows:
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AAA. Debt rated "AAA" has the highest rating assigned by
Standard & Poor's. Capacity to pay interest and repay principal is
extremely strong.
AA. Debt rated "AA" has a very strong capacity to pay interest
and repay principal and differs from the higher rated issues only in
small degree.
A. Debt rated "A" has a strong capacity to pay interest and
repay principal although it is somewhat more susceptible to the
adverse effects of changes in circumstances and economic conditions
than debt in higher rated categories.
BBB. Debt rated "BBB" is regarded as having an adequate
capacity to pay interest and repay principal. Whereas it normally
exhibits adequate protection parameters, adverse economic conditions
or changing circumstances are more likely to lead to a weakened capacity
to pay interest and repay principal for debt in this category than in
higher rated categories.
BB. Debt rated "BB" has less near-term vulnerability to
default than other speculative grade debt. However, it faces major
ongoing uncertainties or exposure to adverse business, financial, or
economic conditions that could lead to inadequate capacity to meet timely
interest and principal payments.
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
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issuer has a strong position within the industry. The reliability and
quality of management are unquestioned.
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APPENDIX C
FUTURES CONTRACTS
USE OF FUTURES CONTRACTS
Prices of debt securities may be established in both the cash market
and the futures market. In the cash market, debt securities are purchased
and sold with payment for the full purchase price being made in cash,
generally within five business days after the trade. In the futures market,
a contract is made to purchase or sell a debt security in the future for a
set price on a certain date. Historically, prices established in the futures
markets have tended to move generally and in the aggregate in concert with
cash market prices and have maintained fairly predictable relationships. The
Fund may use interest rate futures solely as a defense, or hedge, against
anticipated interest rate changes and not for speculation. As described
below, this would include the use of futures contract sales to protect
against expected increases in interest rates and futures contract purchases
to offset the impact of interest rate declines.
The Fund currently could accomplish a similar result to that which it
hopes to achieve through the use of futures contracts by selling debt
securities with long maturities and investing in debt securities with short
maturities when interest rates are expected to increase, or conversely,
selling short-term debt securities and investing in long-term debt securities
when interest rates are expected to decline. However, because of the
liquidity that is often available in the futures market, such protection is
more likely to be achieved, perhaps at a lower cost and without changing the
rate of interest being earned by the Fund, through using futures contracts.
DESCRIPTION OF FUTURES CONTRACTS
A futures contract sale creates an obligation by the Fund, as seller,
to deliver the specific type of financial instrument called for in the
contract at a specified future time for a specified price. A futures
contract purchase creates an obligation by the Fund, as purchaser, to take
delivery of the specific type of financial instrument at a specified future
time at a specified price. The specific securities delivered or taken,
respectively, at settlement date, would not be determined until at or near
that date. The determination would be in accordance with the rules of the
exchange on which the futures contract sale or purchase was made.
Although futures contracts by their terms call for actual delivery or
acceptance of securities, in most cases the contracts are closed out before
the settlement date without the making or taking of delivery of securities.
Closing out a futures contract sale is effected by the Fund entering into a
futures contract purchase for the same aggregate amount of the specific type
of financial instrument and the same delivery date. If the price in the sale
exceeds the price in the offsetting purchase, the Fund immediately is paid
the difference and thus realizes a gain. If the offsetting purchase price
exceeds the sale price, the Fund pays the difference and realizes a loss.
Similarly, the closing out of a futures contract purchase is effected by the
Fund's entering into a futures contract sale. If the offsetting sale price
exceeds the purchase price, the Fund realizes a gain, and if the purchase
price exceeds the offsetting sale price, the Fund realizes a loss. See
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"Risks of Futures Contracts", below, for a disclosure of the risks of being
unable to close out a position before the settlement date.
A public market now exists in futures contracts covering primarily the
following financial instruments: long-term United States Treasury Bonds;
Government National Mortgage Association modified pass-through
mortgage-backed securities (GNMA); three month United States Treasury Bills;
United States Treasury Notes; and bank certificates of deposit. It is
expected that other financial instruments will be subject to futures
contacts. There is a $100,000 minimum for futures contracts in United States
Treasury Bonds, GNMA pass-through securities, and United States Treasury
Notes, and a $1,000,000 minimum for contracts in United States Treasury Bills
and bank certificates of deposit. The Fund may invest in interest rate
futures contracts covering the financial instruments referred to above as
well as in new types of such contracts that become available in the future.
See "Example of Futures Contract Sale" and "Example of Futures Contract
Purchase" below.
Financial futures contracts are traded in an auction environment on
the floors of several exchanges--principally, the Chicago Board of Trade, the
Chicago Mercantile Exchange and the New York Futures Exchange. Each exchange
guarantees performance under contract provisions through a clearing
corporation, a nonprofit organization managed by the exchange membership.
The Fund will pay a commission on each contract, including offsetting
transactions. In addition, the Fund is required to maintain margin deposits
with brokerage firms through which it enters into futures contracts.
Currently, the initial margin deposit per contract is $1,500 for Treasury
Bills and commercial paper and $2,000 for Treasury Bonds and GNMAs. The Fund
will establish a custodial account with its bank custodian to hold initial
margin deposits. The account will be in the name of the futures commission
merchant through which the Fund entered into the futures contract. The
futures commission merchant will be able to gain access to the assets held in
this account only if he states that all conditions precedent to his right to
direct disposition have been satisfied. Margin balances will be adjusted
daily to reflect unrealized gains and losses on open contracts. The payments
to or withdrawals from this account are known as variation margin payments.
The Fund can withdraw amounts from this account in excess of the initial
margin payments, and it is the Fund's intention to promptly make withdrawals
of any such excess. If the margin account is depleted below the maintenance
level (a fixed percentage of the initial margin), the Fund will be required
to deposit an amount that will bring the margin account back up to its
initial margin level. If the Fund has an unrealized gain above the amount of
any net variation margin it has already received, the futures commission
merchant, as of the close of that trading day, may receive, on behalf of the
Fund, a variation margin payment from the clearing corporation in the amount
of the gain. By 10:30 A.M. the next day, the futures commission merchant
must notify the Fund of its entitlement to receive a variation margin payment
from the margin account, and the Fund will promptly demand payment of such
amount.
When purchasing interest rate futures contracts, the Fund will deposit
and maintain in a separate account with its custodian cash or cash
equivalents in an amount equal to the market value of such futures contracts,
less any margin deposited on the Fund's long position. These earmarked
assets will be used to cover the Fund's obligation and will not be used to
support any other transaction into which the Fund may enter.
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RISKS IN FUTURES CONTRACTS
One risk in employing futures contracts to protect against cash market
price volatility is the prospect that futures prices will correlate
imperfectly with the behavior of cash prices. The ordinary spreads between
prices in the cash and future markets, due to differences in the nature of
those markets, are subject to distortions. First, all participants in the
futures market are subject to margin deposit and maintenance requirements.
Rather than meeting additional margin deposit requirements, investors may
close futures contracts through offsetting transactions which could distort
the normal relationship between the cash and futures markets. Second, the
liquidity of the futures market depends on participants entering into
offsetting transactions rather than making or taking delivery. To the extent
participants decide to make or take delivery, liquidity in the futures market
could be reduced, thus producing distortion. Third, from the point of view
of speculators the deposit requirements in the futures market are less
onerous than margin requirements in the securities market. Therefore
increased participation by speculators in the futures market may cause
temporary price distortions. Due to the possibility of distortion, a correct
forecast of general interest trends by MIMLIC Management may still not result
in a successful transaction.
Another risk is that the Fund's investment adviser would be incorrect
in its expectation as to the extent of various interest rate movements or the
time span within which the movements take place. Closing out a futures
contract purchase at a loss because of higher interest rates will generally
have one of two consequences depending on whether, at the time of closing
out, the "yield curve" is normal (long-term rates exceeding short-term). If
the yield curve is normal, it is possible that the Fund will still be engaged
in a program of buying long-term securities, because the price of long-term
securities will likely have decreased. The closing out of the futures
contract purchase at a loss will reduce the benefit of the reduced price of
the securities purchased. If the yield curve is inverted, it is possible
that the Fund will retain its investments in short-term securities earmarked
for purchase of longer term securities. Thus, closing out of a loss will
reduce the benefit of the incremental income that the Fund will experience by
virtue of the high short-term rates.
A third risk in using interest rates futures contracts is the
possibility that the value of such futures contracts will not vary in direct
proportion to the value of the Fund's portfolio securities. Such deviations
may result in the failure of the closing of futures transactions to
completely offset decreases in the prices of debt securities in the Fund's
portfolio or increases in the prices of debt securities which the Fund may
wish to purchase.
In addition, although the Fund will only purchase and sell futures
contracts for which there is a public market, there can be no assurance that
the Fund will be able to close out its position by entering into an
offsetting transaction before the settlement date. In that event, the Fund
will be required to deliver or accept the underlying securities in accordance
with the terms of its commitment.
EXAMPLE OF FUTURES CONTRACT SALE
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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
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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
C-5
<PAGE>
("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.
C-6
<PAGE>
PART C. OTHER INFORMATION
<PAGE>
OTHER INFORMATION
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS
(a) Financial statements: The Registrant's financial statements for
the year ended September 30, 1997, including the financial highlights for each
of the respective periods presented, appearing in the Registrant's Annual Report
to Shareholders, and the report thereon of the Registrant's independent
auditors, KPMG Peat Marwick LLP, also appearing therein, are incorporated by
reference in the Statement of Additional Information included in Part B of this
Registration Statement. The following financial statements are included in such
Annual Report to Shareholders:
(1) Investments in Securities as of September 30, 1997
(2) Statement of Assets and Liabilities as of
September 30, 1997
(3) Statement of Operations for the year ended
September 30, 1997
(4) Statement of Changes in Net Assets for the years ended
September 30, 1997 and September 30, 1996
(5) Notes to Financial Statements, including Financial
Highlights for the periods presented ended
September 30, 1997
(6) Independent Auditors' Report
(b) Exhibits:
(1) Restated Articles of Incorporation for the Registrant (1)
(2) Revised Bylaws of the Registrant (1)
(4)(A) Specimen common Class A share of the Registrant (1)
(4)(B) Specimen common Class B share of the Registrant (1)
(4)(C) Specimen common Class C share of the Registrant (1)
(5) Investment Advisory Agreement between Advantus Capital
Management, Inc. and the Registrant (1)
(6)(A) Underwriting and Distribution Agreement between the
Registrant and Ascend Financial Services, Inc. (1)
(6)(B) Form of Dealer Sales Agreement between Ascend
Financial Services, Inc., principal underwriter
for the Registrant, and dealers (1)
(8) Form of Custodian Agreement between the Registrant and
First Trust National Association (1)
(9) Administrative Service Agreement between the Registrant
and The Minnesota Mutual Life Insurance Company (2)
(10) Opinion and Consent of Dorsey & Whitney LLP (1)
(11) Consent of KPMG Peat Marwick LLP
(13) Letter of Investment Intent regarding the Registrant's
initial capital (1)
(15)(A) Plan of Distribution for Class A shares of the
Registrant (1)
(15)(B) Plan of Distribution for Class B shares of the
Registrant (1)
(15)(C) Plan of Distribution for Class C shares of the
Registrant (1)
(16) Calculations of Yield and Total Returns of the
Registrant (1)
(17)(A) Financial Data Schedule for Class A shares of the
Registrant
(17)(B) Financial Data Schedule for Class B shares of the
Registrant
(17)(C) Financial Data Schedule for Class C shares of the
Registrant
(19) 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 January 26, 1996.
(2) Incorporated by reference to the Registrant's Registration
Statement on Form N-1A filed January 29, 1997.
<PAGE>
ITEM 25. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH THE REGISTRANT
Wholly-owned subsidiaries of The Minnesota Mutual Life Insurance Company:
MIMLIC Asset Management Company
The Ministers Life Insurance Company
MIMLIC Corporation
Northstar Life Insurance Company (New York)
Robert Street Energy, Inc.
HomePlus Insurance Company
Open-end registered investment company offering shares solely to separate
accounts of The Minnesota Mutual Life Insurance Company:
Advantus Series Fund, Inc.
Wholly-owned subsidiaries of MIMLIC Asset Management Company:
Ascend Financial Services, Inc.
Advantus Capital Management, Inc.
Wholly-owned subsidiaries of MIMLIC Corporation:
DataPlan Securities, Inc. (Ohio)
MIMLIC Imperial Corporation
MIMLIC Funding, Inc.
MIMLIC Venture Corporation
Personal Finance Company (Delaware)
Wedgewood Valley Golf, Inc.
Ministers Life Resources, Inc.
Enterprise Holding Corporation
HomePlus Insurance Agency, Inc.
MCM Funding 1997-1, Inc.
Wholly-owned subsidiaries of Enterprise Holding Corporation:
Oakleaf Service Corporation
Lafayette Litho, Inc.
Financial Ink Corporation
Concepts in Marketing Research Corporation
Concepts in Marketing Services Corporation
Wholly-owned subsidiary of Ascend Financial Services, Inc.:
MIMLIC Insurance Agency of
Massachusetts, Inc. (Massachusetts)
Majority-owned subsidiaries of MIMLIC Sales Corporation:
J. H. Shoemaker Advisory Corporation
Consolidated Capital Advisors, Inc.
Majority-owned subsidiary of Ascend Financial Services, Inc.:
MIMLIC Insurance Agency of Ohio, Inc.
Fifty percent-owned subsidiary of MIMLIC Imperial Corporation:
C.R.I. Securities, Inc.
Majority-owned subsidiaries of The Minnesota Mutual Life Insurance Company:
MIMLIC Life Insurance Company (Arizona)
MIMLIC Cash Fund, Inc.
Advantus Cornerstone Fund, Inc.
Advantus Enterprise Fund, Inc.
Advantus International Balanced Fund, Inc.
Advantus Venture Fund, Inc.
Advantus Index 500 Fund, Inc.
Less than majority owned, but greater than 25% owned, subsidiaries of The
Minnesota Mutual Life Insurance Company:
Advantus Money Market Fund, Inc.
Less than 25% owned subsidiaries of The Minnesota Mutual Life Insurance Company:
Advantus Bond Fund, Inc.
Advantus Horizon Fund, Inc.
Advantus Spectrum Fund, Inc.
Advantus Mortgage Securities Fund, Inc.
Unless indicated otherwise parenthetically, each of the above
corporations is a Minnesota corporation.
<PAGE>
ITEM 26. NUMBER OF HOLDERS OF SECURITIES
As of November 30, 1997, a date within 90 days of the date of filing of
this Registration Statement:
Title of Class Number of Record Holders
-------------- ------------------------
Class A Common Share 4,607
Class B Common Shares 1,690
Class C Common Shares 223
ITEM 27. 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 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
<PAGE>
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
<PAGE>
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the respective 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 28. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER
<TABLE>
<CAPTION>
Directors and Officers Office with
of Investment Adviser Investment Adviser Other Business Connections
- --------------------- ------------------ --------------------------
<S> <C> <C>
Paul H. Gooding President and President, Treasurer and
Director Director, MIMLIC Asset
Management Company;
President, Secretary and
Director, MIMLIC Corporation;
Director, MIMLIC Imperial
Corporation; Director, MIMLIC
Venture Corporation; Vice
President and Director, MIMLIC
Funding, Inc.; Vice President and
Director, Robert Street Energy,
Inc.; Chairman of the Board and
Director, Personal Finance Company;
Vice President and Treasurer, The
Minnesota Mutual Life
Insurance Company; President, MCM
Funding 1997-1, Inc.
James P. Tatera Senior Vice President, Vice President and
Treasurer and Director Equity Portfolio Manager,
MIMLIC Asset
Management Company;
Vice President, MIMLIC
Funding, Inc.; Second Vice
President, The Minnesota
Mutual Life Insurance
Company; Vice President and
Assistant Secretary,
MCM Funding 1997-1, Inc.
Richard W. Worthing Vice President Vice President and Head of
Equities, MIMLIC Asset
Management Company; Vice
President, MCM Funding
1997-1, Inc.
Thomas A. Gunderson Vice President Investment Officer, MIMLIC Asset
Management Company
Kent R. Weber Vice President Investment Officer, MIMLIC Asset
Management Company
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
Wayne R. Schmidt Vice President Secretary and Treasurer,
MIMLIC Funding, Inc.;
Treasurer and Assistant
Secretary, Robert Street
Energy, Inc.; Vice
President and Secretary,
MIMLIC Imperial
Corporation; Investment
Officer, MIMLIC Asset
Management Company;
Assistant Secretary, MCM
Funding 1997-1, Inc.
Matthew D. Finn Vice President Investment Officer, MIMLIC
Asset Management Company
Jeffrey R. Erickson Vice President Investment Officer, MIMLIC
Asset Management Company
Kevin J. Hiniker Secretary Associate General Counsel, MIMLIC Asset
Mangement Company; Assistant Secretary,
Robert Street Energy, Inc.
</TABLE>
<PAGE>
ITEM 29. 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.
MIMLIC Cash Fund, Inc.
Minnesota Mutual Variable Fund D
Minnesota Mutual Variable Annuity Account
Minnesota Mutual Variable Life Account
Minnesota Mutual Group Variable Annuity Account
Minnesota Mutual 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
The Minnesota Mutual
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
Margaret Milosevich Vice President, Chief None
Ascend Financial Services, Inc. Operations Officer,
400 Robert Street North Treasurer and Secretary
St. Paul, Minnesota 55101
D. Ann Degenshein Vice President, None
Ascend Financial Services, Inc. Compliance
400 Robert Street North
St. Paul, Minnesota 55101
Dennis E. Prohofsky Secretary None
The Minnesota Mutual
Life Insurance Company
400 Robert Street North
St. Paul, Minnesota 55101
Thomas L. Clark Assistant Treasurer None
Ascend Financial Services, Inc.
400 Robert Street North
St. Paul, Minnesota 55101
Margaret A. Berg Assistant Secretary None
The Minnesota Mutual
Life Insurance Company
400 Robert Street North
St. Paul, Minnesota 55101
</TABLE>
(c) Not applicable.
ITEM 30. 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
Mutual, 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:
First Trust National Association
180 East Fifth Street
St. Paul, Minnesota 55101
ITEM 31. MANAGEMENT SERVICES
Not applicable.
ITEM 32. 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 certifies that it meets all of
the requirements for effectiveness of this Registration Statement pursuant to
Rule 485(b) under the Securites Act of 1933 and 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 13th day of January, 1998.
ADVANTUS HORIZON FUND, INC.
Registrant
By /s/ Paul H. Gooding
------------------------------------
Paul H. Gooding, 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.
/s/ Paul H. Gooding President (principal
- ------------------------------ executive officer)
Paul H. Gooding and Director January 13, 1998
/s/ Frederick P. Feuerherm Director and Treasurer
- ------------------------------ (principal financial
Frederick P. Feuerherm and accounting officer) January 13, 1998
Ralph D. Ebbott* Director)
- ------------------------------
Ralph D. Ebbott ) By /s/ Paul H. Gooding
) ------------------------------
) Paul H. Gooding
) Attorney-in-Fact
Charles E. Arner* Director)
- ------------------------------
Charles E. Arner ) Dated: January 13, 1998
)
)
Ellen S. Berscheid* Director)
- ------------------------------
Ellen S. Berscheid )
_______________
*Registrant's director executing power of attorney dated July 31, 1996, a copy
of which is filed herewith.
<PAGE>
ADVANTUS HORIZON FUND, INC.
EXHIBITS
<PAGE>
EXHIBIT INDEX
Exhibit Number and Description:
(1) Restated Articles of Incorporation for the Registrant (1)
(2) Revised Bylaws of the Registrant (1)
(4)(A) Specimen common Class A share of the Registrant (1)
(4)(B) Specimen common Class B share of the Registrant (1)
(4)(C) Specimen common Class C share of the Registrant (1)
(5) Investment Advisory Agreement between Advantus Capital
Management, Inc. and the Registrant (1)
(6)(A) Underwriting and Distribution Agreement between the Registrant
and Ascend Financial Services, Inc. (1)
(6)(B) Form of Dealer Sales Agreement between Ascend Financial Services,
Inc., principal underwriter for the Registrant, and dealers (1)
(8) Form of Custodian Agreement between the Registrant and First
Trust National Association (1)
(9) Administrative Service Agreement between the Registrant and The
Minnesota Mutual Life Insurance Company (2)
(10) Opinion and Consent of Dorsey & Whitney LLP (1)
(11) Consent of KPMG Peat Marwick LLP
(13) Letter of Investment Intent regarding the Registrant's initial
capital (1)
(15)(A) Plan of Distribution for Class A shares of the Registrant (1)
(15)(B) Plan of Distribution for Class B shares of the Registrant (1)
(15)(C) Plan of Distribution for Class C shares of the Registrant (1)
(16) Calculations of Yield and Total Returns of the Registrant (1)
(17)(A) Financial Data Schedule for Class A shares of the Registrant
(17)(B) Financial Data Schedule for Class B shares of the Registrant
(17)(C) Financial Data Schedule for Class C shares of the Registrant
(19) 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 January 26, 1996.
(2) Incorporated by reference to the Registrant's Registration
Statement on Form N-1A filed January 29, 1997.
<PAGE>
(KPMG Peat Marwick LLP Letterhead)
INDEPENDENT AUDITORS' CONSENT
The Board of Directors
Advantus Horizon Fund, Inc.
We consent to the use of our report included herein and the references to our
Firm under the headings "FINANCIAL HIGHLIGHTS" and "COUNSEL AND INDEPENDENT
AUDITORS" in Part A and "FINANCIAL STATEMENTS" in Part B of the Registration
Statement.
/s/ KPMG Peat Marwick LLP
KPMG Peat Marwick LLP
Minneapolis, Minnesota
January 13, 1998
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FORM
N-SAR AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FORM N-SAR.
</LEGEND>
<RESTATED>
<CIK> 0000756923
<NAME> MULTI CLASS ADVANTUS HORIZON FUND
<SERIES>
<NUMBER> 100
<NAME> CLASS A
<MULTIPLIER> 1000
<CURRENCY> US
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-START> OCT-01-1996
<PERIOD-END> SEP-30-1997
<EXCHANGE-RATE> 1
<INVESTMENTS-AT-COST> 39406
<INVESTMENTS-AT-VALUE> 54323
<RECEIVABLES> 108
<ASSETS-OTHER> 27
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 54458
<PAYABLE-FOR-SECURITIES> 735
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 95
<TOTAL-LIABILITIES> 830
<SENIOR-EQUITY> 23
<PAID-IN-CAPITAL-COMMON> 32505
<SHARES-COMMON-STOCK> 1743
<SHARES-COMMON-PRIOR> 1492
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 6183
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 14917
<NET-ASSETS> 40192
<DIVIDEND-INCOME> 415
<INTEREST-INCOME> 68
<OTHER-INCOME> 0
<EXPENSES-NET> 737
<NET-INVESTMENT-INCOME> (255)
<REALIZED-GAINS-CURRENT> 6455
<APPREC-INCREASE-CURRENT> 4155
<NET-CHANGE-FROM-OPS> 10356
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 6782
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 344
<NUMBER-OF-SHARES-REDEEMED> 438
<SHARES-REINVESTED> 345
<NET-CHANGE-IN-ASSETS> 11956
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 8180
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 370
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 755
<AVERAGE-NET-ASSETS> 36038
<PER-SHARE-NAV-BEGIN> 23.07
<PER-SHARE-NII> (.08)
<PER-SHARE-GAIN-APPREC> 4.89
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 4.82
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 23.06
<EXPENSE-RATIO> 1.43
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FORM
N-SAR AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FORM N-SAR.
</LEGEND>
<RESTATED>
<CIK> 0000756923
<NAME> MULTI CLASS ADVANTUS HORIZON FUND
<SERIES>
<NUMBER> 101
<NAME> CLASS B
<MULTIPLIER> 1000
<CURRENCY> US
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-START> OCT-01-1996
<PERIOD-END> SEP-30-1997
<EXCHANGE-RATE> 1
<INVESTMENTS-AT-COST> 39406
<INVESTMENTS-AT-VALUE> 54323
<RECEIVABLES> 108
<ASSETS-OTHER> 27
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 54458
<PAYABLE-FOR-SECURITIES> 735
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 95
<TOTAL-LIABILITIES> 830
<SENIOR-EQUITY> 23
<PAID-IN-CAPITAL-COMMON> 32505
<SHARES-COMMON-STOCK> 521
<SHARES-COMMON-PRIOR> 275
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 6183
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 14917
<NET-ASSETS> 11684
<DIVIDEND-INCOME> 415
<INTEREST-INCOME> 68
<OTHER-INCOME> 0
<EXPENSES-NET> 737
<NET-INVESTMENT-INCOME> (255)
<REALIZED-GAINS-CURRENT> 6455
<APPREC-INCREASE-CURRENT> 4155
<NET-CHANGE-FROM-OPS> 10356
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 1445
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 216
<NUMBER-OF-SHARES-REDEEMED> 45
<SHARES-REINVESTED> 76
<NET-CHANGE-IN-ASSETS> 11956
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 8180
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 370
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 755
<AVERAGE-NET-ASSETS> 8808
<PER-SHARE-NAV-BEGIN> 22.65
<PER-SHARE-NII> (.19)
<PER-SHARE-GAIN-APPREC> 4.77
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 4.82
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 22.41
<EXPENSE-RATIO> 2.18
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FORM
N-SAR AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FORM N-SAR.
</LEGEND>
<RESTATED>
<CIK> 0000756923
<NAME> MULTI CLASS ADVANTUS HORIZON FUND
<SERIES>
<NUMBER> 102
<NAME> CLASS C
<MULTIPLIER> 1000
<CURRENCY> US
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-START> OCT-01-1996
<PERIOD-END> SEP-30-1997
<EXCHANGE-RATE> 1
<INVESTMENTS-AT-COST> 39406
<INVESTMENTS-AT-VALUE> 54323
<RECEIVABLES> 108
<ASSETS-OTHER> 27
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 54458
<PAYABLE-FOR-SECURITIES> 735
<SENIOR-LONG-TERM-DEBT> 00
<OTHER-ITEMS-LIABILITIES> 95
<TOTAL-LIABILITIES> 830
<SENIOR-EQUITY> 23
<PAID-IN-CAPITAL-COMMON> 32505
<SHARES-COMMON-STOCK> 78
<SHARES-COMMON-PRIOR> 45
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 6183
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 14917
<NET-ASSETS> 1754
<DIVIDEND-INCOME> 415
<INTEREST-INCOME> 68
<OTHER-INCOME> 0
<EXPENSES-NET> 737
<NET-INVESTMENT-INCOME> (255)
<REALIZED-GAINS-CURRENT> 6455
<APPREC-INCREASE-CURRENT> 4155
<NET-CHANGE-FROM-OPS> 10356
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 226
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 45
<NUMBER-OF-SHARES-REDEEMED> 23
<SHARES-REINVESTED> 12
<NET-CHANGE-IN-ASSETS> 11956
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 8180
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 370
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 755
<AVERAGE-NET-ASSETS> 1358
<PER-SHARE-NAV-BEGIN> 22.67
<PER-SHARE-NII> (.20)
<PER-SHARE-GAIN-APPREC> 4.73
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 4.82
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 22.38
<EXPENSE-RATIO> 2.18
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<PAGE>
ADVANTUS MUTUAL FUNDS
AND MIMLIC CASH FUND
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., and MIMLIC Cash
Fund, Inc. (the "Funds"), appoint Paul H. Gooding, Eric J. Bentley 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: July 31, 1996 /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/ Paul H. Gooding
----------------------------------
Paul H. Gooding
