<PAGE>
File Numbers 2-96990 and 811-4279
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Form N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
Pre-Effective Amendment Number
----
Post-Effective Amendment Number 21
----
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
Amendment Number 19
---
---------------------
Advantus Series Fund, Inc.
(Exact Name of Registrant as Specified in Charter)
400 Robert Street North
St. Paul, Minnesota 55101-2098
(Address of Principal Executive Offices)
(651) 665-3500
(Registrant's Telephone Number, Including Area Code)
----------------------
Copy to: Donald F. Gruber, Esquire
Michael J. Radmer, Esquire Assistant Secretary
Dorsey & Whitney LLP Advantus Series Fund, Inc.
220 South Sixth Street 400 Robert Street North
Minneapolis, Minnesota 55402-1498 St. Paul, Minnesota 55101-2098
-----------------------
IT IS PROPOSED THAT THIS FILING WILL BECOME EFFECTIVE (check appropriate box)
immediately upon filing pursuant to paragraph (b)
---
on (date) pursuant to paragraph (b)
---
60 days after filing pursuant to paragraph (a)(1)
---
X on May 1, 2000 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.
<PAGE>
[LOGO]
ADVANTUS SERIES FUND, INC.
PROSPECTUS DATED MAY 1, 2000
As with all mutual funds, the
Securities and Exchange Commission has
not determined that the information in
this prospectus is accurate or
complete, nor has it approved the
Fund's securities. It is a criminal
offense to state otherwise.
<PAGE>
ADVANTUS SERIES FUND, INC.
Advantus Series Fund, Inc. (Fund) is a Minnesota corporation with various
investment portfolios that are each operated as mutual funds (the Portfolios).
The Portfolios are as follows:
- Growth Portfolio
- Bond Portfolio
- Money Market Portfolio
- Asset Allocation Portfolio
- Mortgage Securities Portfolio
- Index 500 Portfolio
- Capital Appreciation Portfolio
- International Stock Portfolio
- Small Company Growth Portfolio
- Maturing Government Bond Portfolios (three separate portfolios with
maturity dates of 2002, 2006 and 2010)
- Value Stock Portfolio
- Small Company Value Portfolio
- Global Bond Portfolio
- Index 400 Mid-Cap Portfolio
- Macro-Cap Value Portfolio
- Micro-Cap Growth Portfolio
- Real Estate Securities Portfolio
The Fund has issued a separate series of its common stock for each Portfolio.
This prospectus provides investors information about the Fund and each Portfolio
investors should know before investing.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page No.
<S> <C>
SUMMARY .................................................... 1
Growth Portfolio .................................... 2
Portfolio Performance ............................ 3
Financial Highlights ............................. 4
Bond Portfolio ...................................... 5
Portfolio Performance ............................ 6
Financial Highlights ............................. 7
Money Market Portfolio .............................. 8
Portfolio Performance ............................ 9
Financial Highlights ............................. 10
Asset Allocation Portfolio .......................... 11
Portfolio Performance ............................ 12
Financial Highlights ............................. 13
Mortgage Securities Portfolio ....................... 14
Portfolio Performance ............................ 15
Financial Highlights ............................. 16
Index 500 Portfolio ................................. 17
Portfolio Performance ............................ 18
Financial Highlights ............................. 19
Capital Appreciation Portfolio ...................... 20
Portfolio Performance ............................ 21
Financial Highlights ............................. 22
International Stock Portfolio ....................... 23
Portfolio Performance ............................ 24
Financial Highlights ............................. 25
Small Company Growth Portfolio ...................... 26
Portfolio Performance ............................ 27
Financial Highlights ............................. 28
Maturing Government Bond Portfolios ................. 29
Portfolio Performance ............................ 30
Financial Highlights ............................. 32
Value Stock Portfolio ............................... 35
Portfolio Performance ............................ 36
Financial Highlights ............................. 37
Small Company Value Portfolio ....................... 38
Portfolio Performance ............................ 39
Financial Highlights ............................. 40
Global Bond Portfolio ............................... 41
Portfolio Performance ............................ 42
Financial Highlights ............................. 43
Index 400 Mid-Cap Portfolio ......................... 44
Portfolio Performance ............................ 45
Financial Highlights ............................. 46
</TABLE>
TABLE OF CONTENTS i
<PAGE>
<TABLE>
<CAPTION>
Page No.
<S> <C>
Macro-Cap Value Portfolio ........................... 47
Portfolio Performance ............................ 48
Financial Highlights ............................. 49
Micro-Cap Growth Portfolio .......................... 50
Portfolio Performance ............................ 51
Financial Highlights ............................. 52
Real Estate Securities Portfolio .................... 53
Portfolio Performance ............................ 54
Financial Highlights ............................. 55
INVESTING IN THE FUND ...................................... 56
Managing the Portfolios ............................. 56
Advisory Fees ....................................... 59
Distribution Fees ................................... 61
Voluntary Fee Absorption ............................ 62
Investment Objective, Policies and Practices ........ 62
Growth Portfolio ................................. 62
Bond Portfolio ................................... 63
Money Market Portfolio ........................... 64
Asset Allocation Portfolio ....................... 65
Mortgage Securities Portfolio .................... 67
Index 500 Portfolio .............................. 69
Capital Appreciation Portfolio ................... 70
International Stock Portfolio .................... 70
Small Company Growth Portfolio ................... 71
Maturing Government Bond Portfolios .............. 72
Value Stock Portfolio ............................ 74
Small Company Value Portfolio .................... 75
Global Bond Portfolio ............................ 76
Index 400 Mid-Cap Portfolio ...................... 78
Macro-Cap Value Portfolio ........................ 79
Micro-Cap Growth Portfolio ....................... 80
Real Estate Securities Portfolio ................. 81
Investment Practices Common To The Portfolios .... 82
Defining Risks ...................................... 82
BUYING AND SELLING SHARES .................................. 87
Buying Shares ....................................... 87
Selling Shares ...................................... 87
Exchanging Shares ................................... 88
GENERAL INFORMATION ........................................ 89
Dividends and Capital Gains Distributions ........... 89
Taxes ............................................... 89
Mixed Funding ....................................... 89
Service Providers ................................... 90
Additional Information About the Fund ............... 91
How to Obtain Additional Information ................ 91
</TABLE>
ii TABLE OF CONTENTS
<PAGE>
SUMMARY
Advantus Series Fund, Inc. consists of various investment portfolios (except
Global Bond Portfolio) that are each open-end, diversified investment companies
(I.E. mutual funds). Global Bond Portfolio is an open-end, non-diversified
investment company. The Portfolios offer investors a variety of investment
objectives. Portfolio shares are not offered directly to the public. Portfolio
shares are sold to Minnesota Life Insurance Company (Minnesota Life) in
connection with its variable life insurance policies and variable annuity
contracts. Portfolio shares are also offered to certain life insurance
affiliates of Minnesota Life.
This section gives investors a brief summary of each Portfolio's investment
objective, policies and main risks, as well as performance and financial
information. More detailed information about each Portfolio follows this
summary. Keep in mind that an investment in each Portfolio is not a deposit of a
bank and is not insured or guaranteed by the Federal Deposit Insurance
Corporation or any other governmental agency and that it is possible to lose
money by investing in a Portfolio. An investor should also note that if a
Portfolio makes frequent changes in its investment portfolio securities, such
changes may result in higher Portfolio costs and may adversely affect an
investor's return.
SUMMARY 1
<PAGE>
GROWTH PORTFOLIO
Growth Portfolio seeks long-term accumulation of capital. Current income is a
factor in the selection of securities, but is a secondary objective.
The Portfolio primarily invests in various equity securities of large and mid
capitalization companies (I.E., companies with a market capitalization of at
least $1 billion). The Portfolio invests primarily in common and preferred
stocks but may also invest in securities convertible into equity securities. In
selecting equity securities, the Portfolio invests in securities that the
Portfolio's investment adviser believes show sustainable earnings growth
potential and improving profitability.
An investment in the Portfolio may result in the loss of money, and may also be
subject to various risks including the following types of main risk:
- PORTFOLIO RISK - the risk that Portfolio performance may not meet or
exceed that of the market as a whole.
- MARKET RISK - the risk that equity securities are subject to adverse
trends in equity markets.
- GROWTH STOCK RISK - the risk that if the assessment by the Portfolio's
investment adviser of a company's prospective earnings growth or judgment
of how other investors assess the company's earnings growth is wrong, then
the value of the company's securities may decrease or not approach the
value that the Portfolio's investment adviser has placed on it.
Please see "Investing in the Fund - Investment Objective, Policies and
Practices" and "- Defining Risks" for a more detailed description of these main
risks and additional risks in connection with investing in the Portfolio.
2 SUMMARY
<PAGE>
PORTFOLIO PERFORMANCE
The following bar chart and table show Growth Portfolio's annual returns and
long-term performance. The chart shows how the Portfolio's performance has
varied from year to year, and provides some indication of the risks in investing
in the Portfolio. The table shows how the Portfolio's average annual return over
a one, five and ten year period compares to the return of a broad based index.
The chart and table assume reinvestment of dividends and distributions. The
chart and table do not, however, reflect the charges and other expenses
associated with the variable life insurance policies and variable annuity
contracts which invest in the Portfolio. If such charges and expenses were
included, the returns shown below would be lower. Like other mutual funds, the
past performance of the Portfolio does not necessarily indicate how the
Portfolio will perform in the future.
YEAR TO YEAR TOTAL RETURN (AS OF DECEMBER 31)
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<S> <C>
'90 0.21%
'91 34.06%
'92 4.82%
'93 4.68%
'94 0.81%
'95 24.28%
'96 17.15%
'97 33.41%
'98 34.70%
'99 25.67%
</TABLE>
<TABLE>
<S> <C> <C>
Best Quarter: (Q4'98) 21.62%
Worst Quarter: (Q3'90) -13.51%
</TABLE>
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURN
(FOR PERIODS ENDING DECEMBER 31, 1999)
1 Year 5 Years 10 Years
<S> <C> <C> <C> <C>
Growth Portfolio % 25.67 26.88 17.19
Russell 1000 Growth Index 33.14 32.42 20.32
</TABLE>
SUMMARY 3
<PAGE>
FINANCIAL HIGHLIGHTS
The following table describes the Portfolio's performance for the fiscal periods
indicated. "Total return" shows how much an investment in the Portfolio would
have increased (or decreased) during each period, assuming an investor had
reinvested all dividends and distributions. These figures have been audited by
KPMG Peat Marwick LLP, the Fund's independent auditors, whose report, along with
the Fund's financial statements, are included in the Fund's annual report, which
is available upon request.
<TABLE>
FINANCIAL HIGHLIGHTS GROWTH PORTFOLIO
Year ended December 31,
1999 1998 1997(b) 1996 1995
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of year $ 2.40 2.34 2.21 1.87
INCOME FROM INVESTMENT OPERATIONS:
Net investment income .01 .02 .02 .02
Net gains on securities (both realized and unrealized) .74 .62 .32 .41
Total from investment operations .75 .64 .34 .43
LESS DISTRIBUTIONS:
Dividends from net investment income (.02) (.02) (.02) (.02)
Distributions from net realized gains (.39) (.56) (.19) (.07)
Total distributions (.41) (.58) (.21) (.09)
Net asset value, end of year $ 2.74 2.40 2.34 2.21
Total return (a) % 34.70 33.41 17.15 24.28
Net assets, end of year (in thousands) $ 468,382 330,816 248,465 201,678
Ratio of expenses to average daily net assets % .53 .55 .59 .55
Ratio of net investment income to average daily net assets % .40 1.16 1.04 1.04
Portfolio turnover rate (excluding short-term securities) % 66.4 120.1 154.7 91.9
</TABLE>
<TABLE>
<C> <S>
(a) Total return figures are based on a share outstanding
throughout the period and assume reinvestment of
distributions at net asset value. Total return figures do
not reflect charges pursuant to the terms of the variable
life insurance policies and variable annuity contracts
funded by separate accounts that invest in the Fund's
shares.
(b) Effective May 1, 1997, the Portfolio entered into a new
investment advisory agreement with Advantus Capital
Management, Inc. Prior to May 1, 1997 the Portfolio had an
investment advisory agreement with MIMLIC Asset Management
Company.
</TABLE>
4 SUMMARY
<PAGE>
BOND PORTFOLIO
Bond Portfolio seeks as high a level of a long-term total rate of return as is
consistent with prudent investment risk. The Portfolio also seeks preservation
of capital as a secondary objective.
The Portfolio invests in a variety of investment-grade debt securities. These
debt securities include, among other things, corporate and mortgage-backed
securities, debt securities issued or guaranteed by the U.S. government or any
of its agencies or instrumentalities, asset-backed securities and other debt
obligations of U.S. banks or savings and loan associations. In selecting
securities, the Portfolio's investment adviser considers factors such as
industry outlook, current and anticipated market and economic conditions,
general levels of debt prices and issuer operations.
An investment in the Portfolio may result in the loss of money, and may also be
subject to various risks including the following types of main risk:
- INTEREST RATE RISK - the risk that the value of a debt security or fixed
income obligation will decline due to changes in market interest rates
(note: one measure of interest rate risk is effective duration, explained
under "Investing in the Fund - Investment Objective, Policies and
Practices - Bond Portfolio").
- INCOME RISK - the risk that the Portfolio may experience a decline in its
income due to falling interest rates.
- CREDIT RISK - the risk that an issuer of a debt security or fixed income
obligation will not make payments on the security or obligation when due.
- CALL RISK - the risk that securities with interest rates will be prepaid
by the issuer prior to maturity, particularly during periods of falling
interest rates, causing the Portfolio to reinvest the proceeds in other
securities with generally lower interest rates.
- PREPAYMENT RISK - the risk that falling interest rates could cause
prepayments of securities to occur more quickly than expected, causing the
Portfolio to reinvest the proceeds in other securities with generally
lower interest rates.
- EXTENSION RISK - the risk that rising interest rates could cause property
owners to prepay their mortgages more slowly than expected, resulting in
slower prepayments of mortgage-backed securities.
Please see "Investing in the Fund - Investment Objective, Policies and
Practices" and "- Defining Risks" for a more detailed description of these main
risks and additional risks in connection with investing in the Portfolio.
SUMMARY 5
<PAGE>
PORTFOLIO PERFORMANCE
The following bar chart and table show Bond Portfolio's annual returns and
long-term performance. The chart shows how the Portfolio's performance has
varied from year to year, and provides some indication of the risks in investing
in the Portfolio. The table shows how the Portfolio's average annual return over
a one, five and ten year period compares to the return of a broad based index.
The chart and table assume reinvestment of dividends and distributions. The
chart and table do not, however, reflect the charges and other expenses
associated with the variable life insurance policies and variable annuity
contracts which invest in the Portfolio. If such charges and expenses were
included, the returns shown below would be lower. Like other mutual funds, the
past performance of the Portfolio does not necessarily indicate how the
Portfolio will perform in the future.
YEAR TO YEAR TOTAL RETURN (AS OF DECEMBER 31)
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<S> <C>
'90 7.23%
'91 17.60%
'92 6.67%
'93 10.25%
'94 -4.55%
'95 19.75%
'96 2.96%
'97 9.42%
'98 6.08%
'99 -2.73%
</TABLE>
<TABLE>
<S> <C> <C>
Best Quarter: (Q2'89) 8.03%
Worst Quarter: (Q1'94) -3.92%
</TABLE>
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURN
(FOR PERIODS ENDING DECEMBER 31, 1999)
1 Year 5 Years 10 Years
<S> <C> <C> <C> <C>
Bond Portfolio % -2.73 6.84 7.02
Lehman Brothers Government/Corporate Bond Index -2.15 7.60 7.65
</TABLE>
6 SUMMARY
<PAGE>
FINANCIAL HIGHLIGHTS
The following table describes the Portfolio's performance for the fiscal periods
indicated. "Total return" shows how much an investment in the Portfolio would
have increased (or decreased) during each period, assuming an investor had
reinvested all dividends and distributions. These figures have been audited by
KPMG Peat Marwick LLP, the Fund's independent auditors, whose report, along with
the Fund's financial statements, are included in the Fund's annual report, which
is available upon request.
<TABLE>
FINANCIAL HIGHLIGHTS BOND PORTFOLIO
Year ended December 31,
1999 1998 1997(b) 1996 1995
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of year $ 1.33 1.28 1.33 1.16
INCOME FROM INVESTMENT OPERATIONS:
Net investment income .06 .08 .06 .07
Net gains (losses) on securities (both realized and
unrealized) .01 .04 (.03) .15
Total from investment operations .07 .12 .03 .22
LESS DISTRIBUTIONS:
Dividends from net investment income (.07) (.07) (.07) (.05)
Distributions from net realized gains (.02) -- (.01) --
Total distributions (.09) (.07) (.08) (.05)
Net asset value, end of year $ 1.31 1.33 1.28 1.33
Total return (a) % 6.08 9.42 2.96 19.75
Net assets, end of year (in thousands) $ 178,793 139,824 125,886 101,045
Ratio of expenses to average daily net assets % .55 .57 .56 .58
Ratio of net investment income to average daily net assets % 5.84 6.39 6.36 6.57
Portfolio turnover rate (excluding short-term securities) % 252.1 200.0 154.0 205.4
</TABLE>
<TABLE>
<C> <S>
(a) Total return figures are based on a share outstanding
throughout the period and assume reinvestment of
distributions at net asset value. Total return figures do
not reflect charges pursuant to the terms of the variable
life insurance policies and variable annuity contracts
funded by separate accounts that invest in the Fund's
shares. For periods less than one year, total return
presented has not been annualized.
(b) Effective May 1, 1997, the Portfolio entered into a new
investment advisory agreement with Advantus Capital
Management, Inc. Prior to May 1, 1997 the Portfolio had an
investment advisory agreement with MIMLIC Asset Management
Company.
</TABLE>
SUMMARY 7
<PAGE>
MONEY MARKET PORTFOLIO
Money Market Portfolio seeks maximum current income to the extent consistent
with liquidity and the preservation of capital.
The Portfolio invests in a variety of U.S. dollar denominated money market
securities.
Although the Portfolio seeks to preserve the value of your investment at $1.00
per share, it is possible to lose money by investing in the Portfolio. An
investment in the Portfolio may result in the loss of money, and may also be
subject to various risks including the following types of main risk:
- INTEREST RATE RISK - the risk that the value of a fixed income obligation
will decline due to changes in market interest rates.
- INCOME RISK - the risk that the Portfolio may experience a decline in its
income due to falling interest rates.
- CREDIT RISK - the risk that an issuer of a debt security or other fixed
income obligation will not make payments on the security or obligation
when due.
- INFLATION RISK - the risk that inflation will erode the purchasing power
of the value of securities held by the Portfolio or the Portfolio's
dividends.
Please see "Investing in the Fund - Investment Objective, Policies and
Practices" and "- Defining Risks" for a more detailed description of these main
risks and additional risks in connection with investing in the Portfolio.
8 SUMMARY
<PAGE>
PORTFOLIO PERFORMANCE
The following bar chart and table show Money Market Portfolio's annual returns
and long-term performance. The chart shows how the Portfolio's performance has
varied from year to year, and provides some indication of the risks in investing
in the Portfolio. The table shows the Portfolio's average annual return over a
one, five and ten year period. The chart and table assume reinvestment of
dividends. The chart and table do not, however, reflect the charges and other
expenses associated with the variable life insurance policies and variable
annuity contracts which invest in the Portfolio. If such charges and expenses
were included, the returns shown below would be lower. Like other mutual funds,
the past performance of the Portfolio does not necessarily indicate how the
Portfolio will perform in the future.
YEAR TO YEAR TOTAL RETURN (AS OF DECEMBER 31)
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<S> <C>
'90 7.73%
'91 5.44%
'92 3.23%
'93 2.68%
'94 3.71%
'95 5.43%
'96 4.92%
'97 5.11%
'98 4.97%
'99 4.71%
</TABLE>
<TABLE>
<S> <C> <C>
Best Quarter: (Q2'89) 2.23%
Worst Quarter: (Q2'93) .66%
</TABLE>
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURN
(FOR PERIODS ENDING DECEMBER 31, 1999)
1 Year 5 Years 10 Years
<S> <C> <C> <C> <C>
Money Market Portfolio % 4.71 5.03 4.78
</TABLE>
An investor may obtain up-to-date information about the Portfolio's seven-day
current yield and seven-day effective yield by calling Minnesota Life at
(800) 995-3850.
SUMMARY 9
<PAGE>
FINANCIAL HIGHLIGHTS
The following table describes the Portfolio's performance for the fiscal periods
indicated. "Total return" shows how much an investment in the Portfolio would
have increased (or decreased) during each period, assuming an investor had
reinvested all dividends and distributions. These figures have been audited by
KPMG Peat Marwick LLP, the Fund's independent auditors, whose report, along with
the Fund's financial statements, are included in the Fund's annual report, which
is available upon request.
<TABLE>
FINANCIAL HIGHLIGHTS MONEY MARKET PORTFOLIO
Year ended December 31,
1999 1998 1997(b) 1996 1995
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of year $ 1.00 1.00 1.00 1.00
INCOME FROM INVESTMENT OPERATIONS:
Net investment income .05 .05 .05 .05
Total from investment operations .05 .05 .05 .05
LESS DISTRIBUTIONS:
Dividends from net investment income (.05) (.05) (.05) (.05)
Total distributions (.05) (.05) (.05) (.05)
Net asset value, end of year $ 1.00 1.00 1.00 1.00
Total return (a) % 4.97 5.11 4.92 5.43
Net assets, end of year (in thousands) $ 126,177 53,583 51,461 30,166
Ratio of expenses to average daily net assets (b) % .58 .59 .60 .64
Ratio of net investment income to average daily net assets % 4.84 5.13 4.81 5.29
</TABLE>
<TABLE>
<C> <S>
(a) Total return figures are based on a share outstanding
throughout the period and assume reinvestment of
distributions at net asset value. Total return figures do
not reflect charges pursuant to the terms of the variable
life insurance policies and variable annuity contracts
funded by separate accounts that invest in the Fund's
shares.
(b) Effective May 1, 1997, the Portfolio entered into a new
investment advisory agreement with Advantus Capital
Management, Inc. Prior to May 1, 1997 the Portfolio had an
investment advisory agreement with MIMLIC Asset Management
Company.
</TABLE>
10 SUMMARY
<PAGE>
ASSET ALLOCATION PORTFOLIO
Asset Allocation Portfolio seeks as high a level of long-term total rate of
return as is consistent with prudent investment risk.
The composition of the Portfolio's investment portfolio will vary with
prevailing economic conditions. As a result, the Portfolio may invest in various
types and classes of securities including equity securities, investment-grade
debt securities, money market securities and mortgage-related securities. The
Portfolio's investments are allocated among these asset classes based on a
risk/return analysis by the Portfolio's investment adviser as to current
economic and market conditions, trends in investment yields and interest rates,
changes in fiscal or monetary policies and other relevant factors.
An investment in the Portfolio may result in the loss of money, and may also be
subject to various risks including the following types of main risk:
- PORTFOLIO RISK - the risk that Portfolio performance may not meet or
exceed that of the market as a whole.
- MARKET RISK - the risk that equity and debt securities are subject to
adverse trends in equity and debt markets.
- INTEREST RATE RISK - the risk that the value of a debt security or other
fixed income obligation will increase or decrease due to changes in market
interest rates (note: one measure of interest rate risk is effective
duration, explained under "Investing in the Fund - Investment Objective,
Policies and Practices - Asset Allocation Portfolio").
- INCOME RISK - the risk that the Portfolio may experience a decline in its
income due to falling interest rates.
- CREDIT RISK - the risk that an issuer of a debt security or other fixed
income obligation will not make payments on the security when due.
Please see "Investing in the Fund - Investment Objective, Policies and
Practices" and "- Defining Risks" for a more detailed description of these main
risks and additional risks in connection with investing in the Portfolio.
SUMMARY 11
<PAGE>
PORTFOLIO PERFORMANCE
The following bar chart and table show Asset Allocation Portfolio's annual
returns and long-term performance. The chart shows how the Portfolio's
performance has varied from year to year, and provides some indication of the
risks in investing in the Portfolio. The table shows how the Portfolio's average
annual return over a one, five and ten year period compares to the return of
certain selected broad based indices. The chart and table assume reinvestment of
dividends and distributions. The chart and table do not, however, reflect the
charges and other expenses associated with the variable life insurance policies
and variable annuity contracts which invest in the Portfolio. If such charges
and expenses were included, the returns shown below would be lower. Like other
mutual funds, the past performance of the Portfolio does not necessarily
indicate how the Portfolio will perform in the future.
YEAR TO YEAR TOTAL RETURN (AS OF DECEMBER 31)
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<S> <C>
'90 3.61%
'91 28.88%
'92 7.27%
'93 6.46%
'94 -1.40%
'95 25.01%
'96 12.50%
'97 18.99%
'98 23.65%
'99 15.17%
</TABLE>
<TABLE>
<S> <C> <C>
Best Quarter: (Q4'98) 15.03%
Worst Quarter: (Q3'90) -5.96%
</TABLE>
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURN
(FOR PERIODS ENDING DECEMBER 31, 1999)
1 Year 5 Years 10 Years
<S> <C> <C> <C> <C>
Asset Allocation Portfolio % 15.17 18.97 13.61
Russell 1000 Growth Index 33.14 32.42 20.32
Lehman Brothers Aggregate Bond Index -.83 7.73 7.70
Blended Index(1) 18.80 22.34 15.40
</TABLE>
<TABLE>
<C> <S>
(1) The blended index is comprised of 60 percent Russell 1000
Growth Index and 40 percent Lehman Brothers Aggregate Bond
Index.
</TABLE>
12 SUMMARY
<PAGE>
FINANCIAL HIGHLIGHTS
The following table describes the Portfolio's performance for the fiscal periods
indicated. "Total return" shows how much an investment in the Portfolio would
have increased (or decreased) during each period, assuming an investor had
reinvested all dividends and distributions. These figures have been audited by
KPMG Peat Marwick LLP, the Fund's independent auditors, whose report, along with
the Fund's financial statements, are included in the Fund's annual report, which
is available upon request.
<TABLE>
FINANCIAL HIGHLIGHTS ASSET ALLOCATION PORTFOLIO
Year ended December 31,
1999 1998 1997(b) 1996 1995
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of year $ 2.03 1.87 1.83 1.52
INCOME FROM INVESTMENT OPERATIONS:
Net investment income .05 .05 .05 .06
Net gains (losses) on securities (both realized and
unrealized) .40 .27 .16 .31
Total from investment operations .45 .32 .21 .37
LESS DISTRIBUTIONS:
Dividends from net investment income (.06) (.05) (.06) (.05)
Distributions from net realized gains (.14) (.11) (.11) (.01)
Total distributions (.20) (.16) (.17) (.06)
Net asset value, end of year $ 2.28 2.03 1.87 1.83
Total return (a) % 23.65 18.99 12.50 25.01
Net assets, end of year (in thousands) $ 637,997 507,220 414,709 349,010
Ratio of expenses to average daily net assets % .53 .55 .54 .55
Ratio of net investment income to average daily net assets % 2.51 3.10 3.09 3.75
Portfolio turnover rate (excluding short-term securities) % 129.6 140.2 120.1 157.0
</TABLE>
<TABLE>
<C> <S>
(a) Total return figures are based on a share outstanding
throughout the period and assume reinvestment of
distributions at net asset value. Total return figures do
not reflect charges pursuant to the terms of the variable
life insurance policies and variable annuity contracts
funded by separate accounts that invest in the Fund's
shares.
(b) Effective May 1, 1997, the Portfolio entered into a new
investment advisory agreement with Advantus Capital
Management, Inc. Prior to May 1, 1997 the Portfolio had an
investment advisory agreement with MIMLIC Asset Management
Company.
</TABLE>
SUMMARY 13
<PAGE>
MORTGAGE SECURITIES PORTFOLIO
Mortgage Securities Portfolio seeks a high level of current income consistent
with prudent investment risk.
The Portfolio invests at least 65% of its total assets in mortgage-related
securities. The Portfolio invests a major portion of its assets in
investment-grade securities representing interests in pools of mortgage loans.
In addition, the Portfolio may invest in a variety of other mortgage-related
securities including collateralized mortgage obligations (CMOs) and stripped
mortgage-backed securities. In selecting securities, the Portfolio's investment
adviser considers factors such as prepayment risk, liquidity, credit quality and
the type of loan and collateral underlying the security, as well as trends in
economic conditions and interest rates.
An investment in the Portfolio may result in the loss of money, and may also be
subject to various risks including the following types of main risk:
- INTEREST RATE RISK - the risk that the value of a mortgage-backed security
or fixed income obligation will decline due to changes in market interest
rates (note: one measure of interest rate risk is effective duration,
explained under "Investing in the Fund - Investment Objective, Policies
and Practices - Mortgage Securities Portfolio").
- CREDIT RISK - the risk that an issuer of a mortgage-backed security or
fixed income obligation will not make payments on the security or
obligation when due.
- INCOME RISK - the risk that the Portfolio may experience a decline in its
income due to falling interest rates.
- CALL RISK - the risk that callable securities with high interest rates
will be prepaid by the issuer prior to maturity, particularly during
periods of falling interest rates, causing the Portfolio to reinvest the
proceeds in other securities with generally lower interest rates.
- PREPAYMENT RISK - the risk that falling interest rates could cause
prepayments of securities to occur more quickly than expected, causing the
Portfolio to reinvest the proceeds in other securities with generally
lower interest rates.
- EXTENSION RISK - the risk that rising interest rates could cause property
owners to prepay their mortgages more slowly than expected, resulting in
slower prepayments of mortgage-backed securities.
Please see "Investing in the Fund - Investment Objective, Policies and
Practices" and "- Defining Risks" for a more detailed description of these main
risks and additional risks in connection with investing in the Portfolio.
14 SUMMARY
<PAGE>
PORTFOLIO PERFORMANCE
The following bar chart and table show Mortgage Securities Portfolio's annual
returns and long-term performance. The chart shows how the Portfolio's
performance has varied from year to year, and provides some indication of the
risks in investing in the Portfolio. The table shows how the Portfolio's average
annual return over a one, five and ten year period compares to the return of a
broad based index. The chart and table assume reinvestment of dividends and
distributions. The chart and table do not, however, reflect the charges and
other expenses associated with the variable life insurance policies and variable
annuity contracts which invest in the Portfolio. If such charges and expenses
were included, the returns shown below would be lower. Like other mutual funds,
the past performance of the Portfolio does not necessarily indicate how the
Portfolio will perform in the future.
YEAR TO YEAR TOTAL RETURN (AS OF DECEMBER 31)
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<S> <C>
'90 9.43%
'91 16.27%
'92 6.37%
'93 9.25%
'94 -3.37%
'95 18.01%
'96 5.26%
'97 9.14%
'98 6.57%
'99 1.99%
</TABLE>
<TABLE>
<S> <C> <C>
Best Quarter: (Q2'89) 7.56%
Worst Quarter: (Q1'94) -3.78%
</TABLE>
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURN
(FOR PERIODS ENDING DECEMBER 31, 1999)
1 Year 5 Years 10 Years
<S> <C> <C> <C> <C>
Mortgage Securities Portfolio % 1.99 8.06 7.73
Lehman Brothers Mortgage-Backed Securities Index 1.85 7.98 7.78
</TABLE>
SUMMARY 15
<PAGE>
FINANCIAL HIGHLIGHTS
The following table describes the Portfolio's performance for the fiscal periods
indicated. "Total return" shows how much an investment in the Portfolio would
have increased (or decreased) during each period, assuming an investor had
reinvested all dividends and distributions. These figures have been audited by
KPMG Peat Marwick LLP, the Fund's independent auditors, whose report, along with
the Fund's financial statements, are included in the Fund's annual report, which
is available upon request.
<TABLE>
FINANCIAL HIGHLIGHTS MORTGAGE SECURITIES PORTFOLIO
Year ended December 31,
1999 1998 1997(b) 1996 1995
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of year $ 1.21 1.19 1.21 1.10
INCOME FROM INVESTMENT OPERATIONS:
Net investment income .08 .07 .08 .08
Net gains (losses) on securities (both realized and
unrealized) -- .03 (.02) .11
Total from investment operations .08 .10 .06 .19
LESS DISTRIBUTIONS:
Dividends from net investment income (.07) (.08) (.08) (.08)
Distributions from net realized gains -- -- -- --
Total distributions (.07) (.08) (.08) (.08)
Net asset value, end of year $ 1.22 1.21 1.19 1.21
Total return (a) % 6.57 9.14 5.26 18.01
Net assets, end of year (in thousands) $ 124,358 99,233 75,992 69,746
Ratio of expenses to average daily net assets % .57 .59 .58 .58
Ratio of net investment income to average daily net assets % 6.76 7.08 6.94 7.09
Portfolio turnover rate (excluding short-term securities) % 116.7 106.4 70.0 133.7
</TABLE>
<TABLE>
<C> <S>
(a) Total return figures are based on a share outstanding
throughout the period and assume reinvestment of
distributions at net asset value. Total return figures do
not reflect charges pursuant to the terms of the variable
life insurance policies and variable annuity contracts
funded by separate accounts that invest in the Fund's
shares.
(b) Effective May 1, 1997, the Portfolio entered into a new
investment advisory agreement with Advantus Capital
Management, Inc. Prior to May 1, 1997 the Portfolio had an
investment advisory agreement with MIMLIC Asset Management
Company.
</TABLE>
16 SUMMARY
<PAGE>
INDEX 500 PORTFOLIO
Index 500 Portfolio seeks investment results that correspond generally to the
price and yield performance of the common stocks included in the Standard &
Poor's 500 Composite Stock Price Index (the S&P 500).
The Portfolio invests its assets in all of the common stocks included in the
S&P 500.
An investment in the Portfolio may result in the loss of money, and may also be
subject to various risks including the following types of main risk:
- MARKET RISK - the risk that equity securities are subject to adverse
trends in equity markets.
- INDEX PERFORMANCE RISK - the risk that the Portfolio's ability to
replicate the performance of the S&P 500 may be affected by, among other
things, changes in securities markets, the manner in which Standard &
Poor's Rating Services calculates the S&P 500, the amount and timing of
cash flows into and out of the Portfolio, commissions, and other expenses.
- PORTFOLIO RISK - the risk that Portfolio performance may not meet or
exceed that of the market as a whole.
Please see "Investing in the Fund - Investment Objective, Policies and
Practices" and "- Defining Risks" for a more detailed description of these main
risks and additional risks in connection with investing in the Portfolio.
SUMMARY 17
<PAGE>
PORTFOLIO PERFORMANCE
The following bar chart and table show Index 500 Portfolio's annual returns and
long-term performance. The chart shows how the Portfolio's performance has
varied from year to year, and provides some indication of the risks in investing
in the Portfolio. The table shows how the Portfolio's average annual return over
a one, five and ten year period compares to the return of a broad based index.
The chart and table assume reinvestment of dividends and distributions. The
chart and table do not, however, reflect the charges and other expenses
associated with the variable life insurance policies and variable annuity
contracts which invest in the Portfolio. If such charges and expenses were
included, the returns shown below would be lower. Like other mutual funds, the
past performance of the Portfolio does not necessarily indicate how the
Portfolio will perform in the future.
YEAR TO YEAR TOTAL RETURN (AS OF DECEMBER 31)
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<S> <C>
'90 -3.92%
'91 29.75%
'92 7.38%
'93 9.76%
'94 1.18%
'95 36.83%
'96 21.64%
'97 32.36%
'98 27.99%
'99 20.28%
</TABLE>
<TABLE>
<S> <C> <C>
Best Quarter: (Q4'98) 21.29%
Worst Quarter: (Q3'90) -13.75%
</TABLE>
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURN
(FOR PERIODS ENDING DECEMBER 31, 1999)
1 Year 5 Years 10 Years
<S> <C> <C> <C> <C>
Index 500 Portfolio % 20.28 27.67 17.56
S&P 500 (as adjusted for dividend reinvestment) 21.01 28.54 18.19
</TABLE>
18 SUMMARY
<PAGE>
FINANCIAL HIGHLIGHTS
The following table describes the Portfolio's performance for the fiscal periods
indicated. "Total return" shows how much an investment in the Portfolio would
have increased (or decreased) during each period, assuming an investor had
reinvested all dividends and distributions. These figures have been audited by
KPMG Peat Marwick LLP, the Fund's independent auditors, whose report, along with
the Fund's financial statements, are included in the Fund's annual report, which
is available upon request.
<TABLE>
FINANCIAL HIGHLIGHTS INDEX 500 PORTFOLIO
Year ended December 31,
1999 1998 1997(b) 1996 1995
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of year $ 3.10 2.41 2.02 1.52
INCOME FROM INVESTMENT OPERATIONS:
Net investment income .04 .03 .03 .03
Net gains (losses) on securities (both realized and
unrealized) .82 .73 .40 .51
Total from investment operations .86 .76 .43 .54
LESS DISTRIBUTIONS:
Dividends from net investment income (.03) (.03) (.03) (.03)
Distributions from net realized gains (.02) (.04) (.01) (.01)
Total distributions (.05) (.07) (.04) (.04)
Net asset value, end of year $ 3.91 3.10 2.41 2.02
Total return (a) % 27.99 32.36 21.64 36.83
Net assets, end of year (in thousands) $ 536,859 380,751 204,395 123,999
Ratio of expenses to average daily net assets % .44 .45 .45 .47
Ratio of net investment income to average daily net assets % 1.08 1.33 1.77 2.08
Portfolio turnover rate (excluding short-term securities) % 30.2 8.3 15.2 4.8
</TABLE>
<TABLE>
<C> <S>
(a) Total return figures are based on a share outstanding
throughout the period and assume reinvestment of
distributions at net asset value. Total return figures do
not reflect charges pursuant to the terms of the variable
life insurance policies and variable annuity contracts
funded by separate accounts that invest in the Fund's
shares.
(b) Effective May 1, 1997, the Portfolio entered into a new
investment advisory agreement with Advantus Capital
Management, Inc. Prior to May 1, 1997 the Portfolio had an
investment advisory agreement with MIMLIC Asset Management
Company.
</TABLE>
SUMMARY 19
<PAGE>
CAPITAL APPRECIATION PORTFOLIO
Capital Appreciation Portfolio seeks growth of capital.
The Portfolio primarily invests in various types of equity securities of small,
mid and large capitalization companies. In selecting equity securities, the
Portfolio invests in securities that the Portfolio's investment sub-adviser
believes show possibilities for capital appreciation. The Portfolio's investment
sub-adviser seeks sectors and companies that will outperform the overall market,
and looks for themes or patterns associated with growth companies, such as
significant fundamental changes, generation of a large free cash flow or company
share-buyback programs.
An investment in the Portfolio may result in the loss of money, and may also be
subject to various risks including the following types of main risk:
- MARKET RISK - the risk that equity securities are subject to adverse
trends in equity markets.
- PORTFOLIO RISK - the risk that Portfolio performance may not meet or
exceed that of the market as a whole.
- GROWTH STOCK RISK - the risk that if the assessment by the Portfolio's
investment adviser of a company's prospective earnings growth or judgement
of how other investors assess the company's earnings growth is wrong, then
the value of the company's securities may decrease or not approach the
value that the Portfolio's investment adviser has placed on it.
- SMALL COMPANY RISK - the risk that equity securities of small
capitalization companies are subject to greater price volatility due to,
among other things, such companies' small size, limited product lines,
limited access to financing sources and limited management depth.
Please see "Investing in the Fund - Investment Objective, Policies and
Practices" and "- Defining Risks" for a more detailed description of these main
risks and additional risks in connection with investing in the Portfolio.
20 SUMMARY
<PAGE>
PORTFOLIO PERFORMANCE
The following bar chart and table show Capital Appreciation Portfolio's annual
returns and long-term performance. The chart shows how the Portfolio's
performance has varied from year to year, and provides some indication of the
risks in investing in the Portfolio. The table shows how the Portfolio's average
annual return over a one, five and ten year period compares to the return of a
broad based index. The chart and table assume reinvestment of dividends and
distributions. The chart and table do not, however, reflect the charges and
other expenses associated with the variable life insurance policies and variable
annuity contracts which invest in the Portfolio. If such charges and expenses
were included, the returns shown below would be lower. Like other mutual funds,
the past performance of the Portfolio does not necessarily indicate how the
Portfolio will perform in the future.
YEAR TO YEAR TOTAL RETURN (AS OF DECEMBER 31)
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<S> <C>
'90 -2.05%
'91 41.79%
'92 5.04%
'93 10.44%
'94 2.25%
'95 22.78%
'96 17.61%
'97 28.26%
'98 30.83%
'99 21.51%
</TABLE>
<TABLE>
<S> <C> <C>
Best Quarter: (Q4'99) 29.80%
Worst Quarter: (Q3'90) -19.20%
</TABLE>
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURN
(FOR PERIODS ENDING DECEMBER 31, 1999)
1 Year 5 Years 10 Years
<S> <C> <C> <C> <C>
Capital Appreciation Portfolio % 21.51 24.11 17.11
Russell 1000 Growth Index 33.14 32.42 20.32
</TABLE>
SUMMARY 21
<PAGE>
FINANCIAL HIGHLIGHTS
The following table describes the Portfolio's performance for the fiscal periods
indicated. "Total return" shows how much an investment in the Portfolio would
have increased (or decreased) during each period, assuming an investor had
reinvested all dividends and distributions. These figures have been audited by
KPMG Peat Marwick LLP, the Fund's independent auditors, whose report, along with
the Fund's financial statements, are included in the Fund's annual report, which
is available upon request.
<TABLE>
FINANCIAL HIGHLIGHTS CAPITAL APPRECIATION PORTFOLIO
Year ended December 31,
1999 1998 1997(b) 1996 1995
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of year $ 2.85 2.47 2.16 1.81
INCOME FROM INVESTMENT OPERATIONS:
Net gains on securities (both realized and unrealized) .86 .62 .37 .40
Total from investment operations .86 .62 .37 .40
LESS DISTRIBUTIONS:
Distributions from net realized gains (.17) (.24) (.06) (.05)
Total distributions (.17) (.24) (.06) (.05)
Net asset value, end of year $ 3.54 2.85 2.47 2.16
Total return (a) % 30.83 28.26 17.61 22.78
Net assets, end of year (in thousands) $ 392,800 294,665 214,468 163,520
Ratio of expenses to average daily net assets % .78 .80 .85 .80
Ratio of net investment (loss) to average daily net assets % (.21) (.12) (.09) (.15)
Portfolio turnover rate (excluding short-term securities) % 82.7 74.0 62.9 51.1
</TABLE>
<TABLE>
<C> <S>
(a) Total return figures are based on a share outstanding
throughout the period and assume reinvestment of
distributions at net asset value. Total return figures do
not reflect charges pursuant to the terms of the variable
life insurance policies and variable annuity contracts
funded by separate accounts that invest in the Fund's
shares.
(b) Effective May 1, 1997, the Portfolio entered into a new
investment advisory agreement with Advantus Capital
Management, Inc. Prior to May 1, 1997 the Portfolio had an
investment advisory agreement with MIMLIC Asset Management
Company.
</TABLE>
22 SUMMARY
<PAGE>
INTERNATIONAL STOCK PORTFOLIO
International Stock Portfolio seeks long-term capital growth.
The Portfolio primarily invests in equity securities issued by small, mid and
large capitalization foreign companies and governmental agencies. In addition,
the Portfolio may invest lesser portions of its assets in foreign
investment-grade debt securities. In selecting equity securities, the
Portfolio's investment sub-adviser performs a company-by-company analysis,
rather than focusing on a specific industry or economic sector. The Portfolio's
investment sub-adviser concentrates on the market price of a company relative to
its view regarding the company's long-term earnings potential.
An investment in the Portfolio may result in the loss of money, and may also be
subject to various risks including the following types of main risk:
- MARKET RISK - the risk that equity securities are subject to adverse
trends in equity markets.
- PORTFOLIO RISK - the risk that Portfolio performance may not meet or
exceed that of the market as a whole.
- FOREIGN SECURITIES RISK - the risk that the value of foreign companies or
foreign government securities may be subject to greater volatility than
domestic securities due to additional factors related to investing in
foreign securities.
- CURRENCY RISK - the risk that changes in foreign currency exchange rates
will increase or decrease the value of foreign securities or the amount of
income or gain received on such securities.
Please see "Investing in the Fund - Investment Objective, Policies and
Practices" and "- Defining Risks" for a more detailed description of these main
risks and additional risks in connection with investing in the Portfolio.
SUMMARY 23
<PAGE>
PORTFOLIO PERFORMANCE
The following bar chart and table show International Stock Portfolio's annual
returns and long-term performance. The chart shows how the Portfolio's
performance has varied from year to year, and provides some indication of the
risks in investing in the Portfolio. The table shows how the Portfolio's average
annual return over a one, five and ten year period (or a shorter period if the
Portfolio has not been available that long) compares to the return of a broad
based index. The chart and table assume reinvestment of dividends and
distributions. The chart and table do not, however, reflect the charges and
other expenses associated with the variable life insurance policies and variable
annuity contracts which invest in the Portfolio. If such charges and expenses
were included, the returns shown below would be lower. Like other mutual funds,
the past performance of the Portfolio does not necessarily indicate how the
Portfolio will perform in the future.
YEAR TO YEAR TOTAL RETURN (AS OF DECEMBER 31)
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<S> <C>
'93 44.15%
'94 -0.32%
'95 14.23%
'96 19.79%
'97 11.94%
'98 6.61%
'99 21.43%
</TABLE>
<TABLE>
<S> <C> <C>
Best Quarter: (Q4'98) 14.54%
Worst Quarter: (Q3'98) -16.76%
</TABLE>
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURN
(FOR PERIODS ENDING DECEMBER 31, 1999) From
1 Year 5 Years 10 Years Inception
<S> <C> <C> <C> <C> <C>
International Stock Portfolio
(inception 5/1/92) % 21.43 14.67 -- 13.58
Morgan Stanley Capital EAFE Index 27.30 13.15 7.34 --
</TABLE>
24 SUMMARY
<PAGE>
FINANCIAL HIGHLIGHTS
The following table describes the Portfolio's performance for the fiscal periods
indicated. "Total return" shows how much an investment in the Portfolio would
have increased (or decreased) during each period, assuming an investor had
reinvested all dividends and distributions. These figures have been audited by
KPMG Peat Marwick LLP, the Fund's independent auditors, whose report, along with
the Fund's financial statements, are included in the Fund's annual report, which
is available upon request.
<TABLE>
FINANCIAL HIGHLIGHTS INTERNATIONAL STOCK PORTFOLIO
Year ended December 31,
1999 1998 1997(b) 1996 1995
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of year $ 1.71 1.60 1.41 1.24
INCOME FROM INVESTMENT OPERATIONS:
Net investment income .04 .03 .03 .03
Net gains (losses) on securities (both realized and
unrealized) .08 .15 .24 .14
Total from investment operations .12 .18 .27 .17
LESS DISTRIBUTIONS:
Dividends from net investment income (.05) (.05) (.04) --
Distributions from net realized gains (.05) (.02) (.04) --
Total distributions (.10) (.07) (.08) --
Net asset value, end of year $ 1.73 1.71 1.60 1.41
Total return (a) % 6.61 11.94 19.79 14.23
Net assets, end of year (in thousands) $ 310,873 287,170 213,608 140,770
Ratio of expenses to average daily net assets % .94 .97 1.06 1.04
Ratio of net investment income to average daily net assets % 2.55 2.29 2.53 2.69
Portfolio turnover rate (excluding short-term securities) % 22.4 12.5 11.5 20.3
</TABLE>
<TABLE>
<C> <S>
(a) Total return figures are based on a share outstanding
throughout the period and assume reinvestment of
distributions at net asset value. Total return figures do
not reflect charges pursuant to the terms of the variable
life insurance policies and variable annuity contracts
funded by separate accounts that invest in the Fund's
shares.
(b) Effective May 1, 1997, the Portfolio entered into a new
investment advisory agreement with Advantus Capital
Management, Inc. Prior to May 1, 1997 the Portfolio had an
investment advisory agreement with MIMLIC Asset Management
Company.
</TABLE>
SUMMARY 25
<PAGE>
SMALL COMPANY GROWTH PORTFOLIO
Small Company Growth Portfolio seeks long-term accumulation of capital.
The Portfolio primarily invests in various types of equity securities of small
capitalization companies (I.E., companies with a market capitalization of less
than $1.5 billion) at the time of purchase. The Portfolio invests primarily in
common and preferred stocks but may also invest in securities convertible into
equity securities. In selecting equity securities, the Portfolio's investment
sub-adviser employs a growth investment style and looks for either developing or
older companies in a growth stage or companies providing products or services
with a high unit-volume growth rate.
An investment in the Portfolio may result in the loss of money, and may also be
subject to various risks including the following types of main risk:
- MARKET RISK - the risk that equity securities are subject to adverse
trends in equity markets.
- PORTFOLIO RISK - the risk that Portfolio performance may not meet or
exceed that of the market as a whole.
- GROWTH STOCK RISK - the risk that if the assessment by the Portfolio's
investment adviser of a company's prospective earnings growth or judgment
of how other investors assess the company's earnings growth is wrong, then
the value of the company's securities may decrease or not approach the
value that the Portfolio's investment adviser has placed on it.
- SMALL COMPANY RISK - the risk that equity securities of small companies
are subject to greater price volatility due to, among other things, such
companies' small size, limited product lines, limited access to financing
sources and limited management depth.
Please see "Investing in the Fund - Investment Objective, Policies and
Practices" and "- Defining Risks" for a more detailed description of these main
risks and additional risks in connection with investing in the Portfolio.
26 SUMMARY
<PAGE>
PORTFOLIO PERFORMANCE
The following bar chart and table show Small Company Growth Portfolio's annual
returns and long-term performance. The chart shows how the Portfolio's
performance has varied from year to year, and provides some indication of the
risks in investing in the Portfolio. The table shows how the Portfolio's average
annual return over a one, five and ten year period (or a shorter period if the
Portfolio has not been available that long) compares to the return of a broad
based index. The chart and table assume reinvestment of dividends and
distributions. The chart and table do not, however, reflect the charges and
other expenses associated with the variable life insurance policies and variable
annuity contracts which invest in the Portfolio. If such charges and expenses
were included, the returns shown below would be lower. Like other mutual funds,
the past performance of the Portfolio does not necessarily indicate how the
Portfolio will perform in the future.
YEAR TO YEAR TOTAL RETURN (AS OF DECEMBER 31)
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<S> <C>
'94 6.16%
'95 32.06%
'96 6.45%
'97 7.75%
'98 1.27%
'99 45.63%
</TABLE>
<TABLE>
<S> <C> <C>
Best Quarter: (Q4'99) 45.45%
Worst Quarter: (Q3'98) -27.87%
</TABLE>
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURN
(FOR PERIODS ENDING DECEMBER 31, 1999) From
1 Year 5 Years 10 Years Inception
<S> <C> <C> <C> <C> <C>
Small Company Growth Portfolio
(inception 5/3/93) % 45.63 17.44 -- 16.59
Russell 2000 Growth Index 43.10 18.99 -- 13.51
</TABLE>
SUMMARY 27
<PAGE>
FINANCIAL HIGHLIGHTS
The following table describes the Portfolio's performance for the fiscal periods
indicated. "Total return" shows how much an investment in the Portfolio would
have increased (or decreased) during each period, assuming an investor had
reinvested all dividends and distributions. These figures have been audited by
KPMG LLP, the Fund's independent auditors, whose report, along with the Fund's
financial statements, are included in the Fund's annual report, which is
available upon request.
<TABLE>
FINANCIAL HIGHLIGHTS SMALL COMPANY GROWTH PORTFOLIO
Year ended December 31,
1999 1998 1997(b) 1996 1995
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of year $ 1.65 1.54 1.60 1.23
INCOME FROM INVESTMENT OPERATIONS:
Net gains on securities (both realized and unrealized) .03 .11 .10 .39
Total from investment operations .03 .11 .10 .39
LESS DISTRIBUTIONS:
Dividends from net investment income -- -- (.16) (.02)
Total distributions -- -- (.16) (.02)
Net asset value, end of year $ 1.68 1.65 1.54 1.60
Total return (a) % 1.27 7.75 6.45 32.06
Net assets, end of year (in thousands) $ 195,347 182,917 144,544 98,895
Ratio of expenses to average daily net assets (b) % .79 .82 .81 .84
Ratio of net investment income to average daily net
assets (b) % (.28) (.05) .24 .15
Portfolio turnover rate (excluding short-term securities) % 75.5 63.8 74.4 61.3
</TABLE>
<TABLE>
<C> <S>
(a) Total return figures are based on a share outstanding
throughout the period and assume reinvestment of
distributions at net asset value. Total return figures do
not reflect charges pursuant to the terms of the variable
life insurance policies and variable annuity contracts
funded by separate accounts that invest in the Fund's
shares.
(b) Effective May 1, 1997, the Portfolio entered into a new
investment advisory agreement with Advantus Capital
Management, Inc. Prior to May 1, 1997 the Portfolio had an
investment advisory agreement with MIMLIC Asset Management
Company.
</TABLE>
28 SUMMARY
<PAGE>
MATURING GOVERNMENT BOND PORTFOLIOS
Each of the Maturing Government Bond Portfolios seeks as high an investment
return as is consistent with prudent investment risk for a specified period of
time ending on a specified liquidation date.
Each of the Portfolios primarily invests in debt securities issued by the United
States Treasury that are stripped of their unmatured interest coupons, and in
receipts and certificates for stripped debt obligations and stripped interest
coupons. In addition, each of the Portfolios may purchase other zero coupon
securities issued by the U.S. government and its agencies and instrumentalities,
by trusts where payment of principal and interest is guaranteed by the U.S. and
by other government corporations. Each Portfolio will mature on a specific
target date. The current target maturity dates are September 2002, 2006 and
2010. On each target date, the Portfolio will be converted to cash and
reinvested in another Fund Portfolio at the direction of the investor. If the
investor does not provide reinvestment instructions, then the proceeds will
automatically be invested in the Money Market Portfolio.
An investment in the Portfolio may result in the loss of money, and may also be
subject to various risks including the following types of main risk:
- INTEREST RATE RISK - the risk that the value of a debt security will
decline due to changes in market interest rates (note: interest rate risk
will affect the value of any of the Portfolio's zero coupon securities if
the Portfolio desires to redeem a security prior to the security's
maturity date. Otherwise, the Portfolio will receive the stated return
from a zero coupon security upon maturity that will not be affected by
changes in prevailing market interest rates). If an investor redeems
Portfolio shares prior to the Portfolio's maturity target date, then the
value of such Portfolio shares may be affected by interest rate risk.
- CREDIT RISK - the risk that an issuer of a fixed income obligation will
not make payments on the obligation when due (note: since the payment of
principal on Portfolio securities is backed by the full faith and credit
of the United States, this risk is less pervasive than other fixed
income-oriented mutual funds).
Please see "Investing in the Fund - Investment Objective, Policies and
Practices" and "- Defining Risks" for a more detailed description of these main
risks and additional risks in connection with investing in the Portfolio.
SUMMARY 29
<PAGE>
PORTFOLIO PERFORMANCE
The following bar chart and table show each of the Maturing Government Bond
Portfolio's annual returns and long-term performance. The chart shows how each
Portfolio's performance has varied from year to year, and provides some
indication of the risks in investing in each of the Portfolios. The table shows
how each Portfolio's average annual return over a one, five and ten year period
(or a shorter period if the Portfolio has not been available that long) compares
to the return of a broad based index. The chart and table assume reinvestment of
dividends and distributions. The chart and table do not, however, reflect the
charges and other expenses associated with the variable life insurance policies
and variable annuity contracts which invest in the Portfolio. If such charges
and expenses were included, the returns shown below would be lower. Like other
mutual funds, the past performance of each Portfolio does not necessarily
indicate how such Portfolio will perform in the future.
2002 PORTFOLIO
YEAR TO YEAR TOTAL RETURN (AS OF DECEMBER 31)
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<S> <C>
'95 25.02%
'96 1.73%
'97 8.50%
'98 9.61%
'99 -0.48%
</TABLE>
<TABLE>
<S> <C> <C>
Best Quarter: (Q2'95) 9.14%
Worst Quarter: (Q1'96) -3.36%
</TABLE>
2006 PORTFOLIO
YEAR TO YEAR TOTAL RETURN (AS OF DECEMBER 31)
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<S> <C>
'95 34.72%
'96 -1.21%
'97 12.62%
'98 14.37%
'99 -7.81%
</TABLE>
<TABLE>
<S> <C> <C>
Best Quarter: (Q2'95) 12.66%
Worst Quarter: (Q1'96) -6.91%
</TABLE>
30 SUMMARY
<PAGE>
2010 PORTFOLIO
YEAR TO YEAR TOTAL RETURN (AS OF DECEMBER 31)
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<S> <C>
'95 41.22%
'96 -3.42%
'97 17.87%
'98 14.28%
'99 -11.54%
</TABLE>
<TABLE>
<S> <C> <C>
Best Quarter: (Q2'95) 15.42%
Worst Quarter: (Q1'96) -10.09%
</TABLE>
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURN
(FOR PERIODS ENDING DECEMBER 31, 1999) From
1 Year 5 Years Inception
<S> <C> <C> <C> <C>
2002 Portfolio
(inception 5/2/94) % -0.48 8.52 7.53
Ryan Labs, Inc. September 2002
Index of U.S. Treasury Strips -0.28 9.02 7.82
2006 Portfolio
(inception 5/2/94) -7.81 9.58 8.43
Ryan Labs, Inc. September 2006
Index of U.S. Treasury Strips -7.45 10.00 8.74
2010 Portfolio
(inception 5/2/94) -11.54 10.20 8.89
Ryan Labs, Inc. September 2010
Index of U.S. Treasury Strips -11.35 10.94 9.45
</TABLE>
SUMMARY 31
<PAGE>
FINANCIAL HIGHLIGHTS
The following tables describe each Portfolio's performance for the fiscal
periods indicated. "Total return" shows how much an investment in each of the
Portfolios would have increased (or decreased) during each period, assuming an
investor had reinvested all dividends and distributions. These figures have been
audited by KPMG LLP, the Fund's independent auditors, whose report, along with
the Fund's financial statements, are included in the Fund's annual report, which
is available upon request.
<TABLE>
FINANCIAL HIGHLIGHTS MATURING GOVERNMENT BOND 2002 PORTFOLIO
Year ended December 31,
1999 1998 1997(c) 1996 1995
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of
period $ 1.07 1.05 1.09 .93
INCOME FROM INVESTMENT OPERATIONS:
Net investment income .05 .06 .06 .07
Net gains (losses) on securities
(both realized and unrealized) .06 .02 (.04) .16
Total from investment operations .11 .08 .02 .23
LESS DISTRIBUTIONS:
Dividends from net investment
income (.06) (.05) (.06) (.07)
Distributions from net realized
gains (.01) (.01) -- --
Total distributions (.07) (.06) (.06) (.07)
Net asset value, end of period $ 1.11 1.07 1.05 1.09
Total return (a) % 9.61 8.50 1.73 25.02
Net assets, end of period
(in thousands) $ 6,854 4,208 3,900 3,049
Ratio of expenses to average daily
net assets (b) % .34 .20 .20 .20
Ratio of net investment income to
average daily net assets (b) % 5.74 5.99 6.52 6.52
Portfolio turnover rate (excluding
short-term securities) % 35.2 36.9 21.9 --
</TABLE>
(a) Total return figures are based on a share outstanding throughout the period
and assume reinvestment of distributions at net asset value. Total return
figures do not reflect charges pursuant to the terms of the variable life
insurance policies and variable annuity contracts funded by separate
accounts that invest in the Fund's shares. For periods less than one year,
total return presented has not been annualized.
(b) Minnesota Life voluntarily absorbed $37,949, $36,833, $31,158 and $24,709
in expenses for the years ended December 31, 1998, 1997, 1996 and 1995,
respectively. Had the Portfolio paid all fees and expenses, the ratio of
expenses to average daily net assets would have been 1.07%, 1.14%, 1.14%
and 1.06%, respectively, and the ratio of net investment income to average
daily net assets would have been 5.01%, 5.05%, 5.58% and 5.66%,
respectively.
(c) Effective May 1, 1997, the Portfolio entered into a new investment advisory
agreement with Advantus Capital Management, Inc. Prior to May 1, 1997 the
Portfolio had an investment advisory agreement with MIMLIC Asset Management
Company.
32 SUMMARY
<PAGE>
<TABLE>
FINANCIAL HIGHLIGHTS MATURING GOVERNMENT BOND 2006 PORTFOLIO
Year ended December 31,
1999 1998 1997(c) 1996 1995
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of
period $ 1.16 1.09 1.17 .92
INCOME FROM INVESTMENT OPERATIONS:
Net investment income .05 .07 .06 .07
Net gains (losses) on securities
(both realized and unrealized) .11 .07 (.07) .25
Total from investment operations .16 .14 (.01) .32
LESS DISTRIBUTIONS:
Dividends from net investment
income (.06) (.06) (.06) (.07)
Distributions from net realized
gains (.01) (.01) (.01) --
Total distributions (.07) (.07) (.07) (.07)
Net asset value, end of period $ 1.25 1.16 1.09 1.17
Total return (a) % 14.37 12.62 (1.21) 34.72
Net assets, end of period
(in thousands) $ 6,870 3,900 3,095 2,570
Ratio of expenses to average daily
net assets (b) % .40 .40 .40 .40
Ratio of net investment income to
average daily net assets (c) % 5.57 6.23 6.43 6.56
Portfolio turnover rate (excluding
short-term securities) % 21.6 3.1 25.7 10.0
</TABLE>
(a) Total return figures are based on a share outstanding throughout the period
and assume reinvestment of distributions at net asset value. Total return
figures do not reflect charges pursuant to the terms of the variable life
insurance policies and variable annuity contracts funded by separate
accounts that invest in the Fund's shares. For periods less than one year,
total return presented has not been annualized.
(b) Minnesota Life voluntarily absorbed $37,165, $37,425, $31,536 and $25,199
in expenses for the years ended December 31, 1998, 1997, 1996 and 1995,
respectively. Had the Portfolio paid all fees and expenses, the ratio of
expenses to average daily net assets would have been 1.12%, 1.50%, 1.58%
and 1.56%, respectively, and the ratio of net investment income to average
daily net assets would have been 4.85%, 5.13%, 5.25% and 5.40%
respectively.
(c) Effective May 1, 1997, the Portfolio entered into a new investment advisory
agreement with Advantus Capital Management, Inc. Prior to May 1, 1997 the
Portfolio had an investment advisory agreement with MIMLIC Asset Management
Company.
SUMMARY 33
<PAGE>
<TABLE>
FINANCIAL HIGHLIGHTS MATURING GOVERNMENT BOND 2010 PORTFOLIO
Year ended December 31,
1999 1998 1997(c) 1996 1995
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of
period $ 1.29 1.17 1.21 .91
INCOME FROM INVESTMENT OPERATIONS:
Net investment income .06 .07 .05 .07
Net gains (losses) on securities
(both realized and unrealized) .12 .11 (.09) .30
Total from investment operations .18 .18 (.04) .37
LESS DISTRIBUTIONS:
Dividends from net investment
income (.06) (.05) -- (.07)
Distributions from net realized
gains -- (.01) -- --
Total distributions (.06) (.06) -- (.07)
Net asset value, end of period $ 1.41 1.29 1.17 1.21
Total return (b) % 14.28 17.87 (3.42) 41.22
Net assets, end of period
(in thousands) $ 5,648 3,176 2,813 1,384
Ratio of expenses to average daily
net assets (c) % .40 .40 .40 .40
Ratio of net investment income to
average daily net assets (c) % 5.48 6.18 6.40 6.58
Portfolio turnover rate (excluding
short-term securities) % 28.2 39.3 71.0 --
</TABLE>
(a) Total return figures are based on a share outstanding throughout the period
and assume reinvestment of distributions at net asset value. Total return
figures do not reflect charges pursuant to the terms of the variable life
insurance policies and variable annuity contracts funded by separate
accounts that invest in the Fund's shares. For periods less than one year,
total return presented has not been annualized.
(b) Minnesota Life voluntarily absorbed $39,052, $38,967, $33,042 and $26,308
in expenses for the years ended December 31, 1998, 1997, 1996 and 1995,
respectively. Had the Portfolio paid all fees and expenses, the ratio of
expenses to average daily net assets would have been 1.33%, 1.85%, 2.18%
and 2.68%, respectively, and the ratio of net investment income to average
daily net assets would have been 4.55%, 4.73%, 4.62% and 4.30%,
respectively.
(c) Effective May 1, 1997, the Portfolio entered into a new investment advisory
agreement with Advantus Capital Management, Inc. Prior to May 1, 1997 the
Portfolio had an investment advisory agreement with MIMLIC Asset Management
Company.
34 SUMMARY
<PAGE>
VALUE STOCK PORTFOLIO
Value Stock Portfolio seeks long-term accumulation of capital. The production of
income is a secondary objective of the Portfolio.
The Portfolio primarily invests in various types of equity securities of mid and
large capitalization companies (I.E., companies with a market capitalization of
at least $1.5 billion). These equity securities will consist primarily of common
stock, but may also include preferred stock and other securities convertible
into equity securities. In selecting equity securities, the Portfolio invests in
securities that the Portfolio's investment adviser believes are undervalued
relative to other securities, earn low returns with a potential for higher
returns, are undervalued relative to their potential for improved operating
performance and financial strength or are issued by companies that have recently
undergone a change in management or control and are undervalued relative to
their potential for improved operating performance.
An investment in the Portfolio may result in the loss of money, and may also be
subject to various risks including the following types of main risk:
- MARKET RISK - the risk that equity securities are subject to adverse
trends in equity markets.
- PORTFOLIO RISK - the risk that Portfolio performance may not meet or
exceed that of the market as a whole.
- VALUE STOCK RISK - the risk that the value of a security believed by the
Portfolio's investment adviser to be undervalued may never reach what such
investment adviser believes is its full value, or that such security's
value may decrease.
Please see "Investing in the Fund - Investment Objective, Policies and
Practices" and "- Defining Risks" for a more detailed description of these main
risks and additional risks in connection with investing in the Portfolio.
SUMMARY 35
<PAGE>
PORTFOLIO PERFORMANCE
The following bar chart and table show Value Stock Portfolio's annual returns
and long-term performance. The chart shows how the Portfolio's performance has
varied from year to year, and provides some indication of the risks in investing
in the Portfolio. The table shows how the Portfolio's average annual return over
a one, five and ten year period (or a shorter period if the Portfolio has not
been available that long) compares to the return of a broad based index. The
chart and table assume reinvestment of dividends and distributions. The chart
and table do not, however, reflect the charges and other expenses associated
with the variable life insurance policies and variable annuity contracts which
invest in the Portfolio. If such charges and expenses were included, the returns
shown below would be lower. Like other mutual funds, the past performance of the
Portfolio does not necessarily indicate how the Portfolio will perform in the
future.
YEAR TO YEAR TOTAL RETURN (AS OF DECEMBER 31)
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<S> <C>
'95 32.96%
'96 30.95%
'97 21.19%
'98 1.75%
'99 0.27%
</TABLE>
<TABLE>
<S> <C> <C>
Best Quarter: (Q4'98) 15.18%
Worst Quarter: (Q3'98) -13.65%
</TABLE>
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURN
(FOR PERIODS ENDING DECEMBER 31, 1999) From
1 Year 5 Years 10 Years Inception
<S> <C> <C> <C> <C> <C>
Value Stock Portfolio
(inception 5/2/94) % .27 16.57 -- 15.39
Russell 1000 Value Index 7.34 23.07 15.60 --
</TABLE>
36 SUMMARY
<PAGE>
FINANCIAL HIGHLIGHTS
The following table describes the Portfolio's performance for the fiscal periods
indicated. "Total return" shows how much an investment in the Portfolio would
have increased (or decreased) during each period, assuming an investor had
reinvested all dividends and distributions. These figures have been audited by
KPMG LLP, the Fund's independent auditors, whose report, along with the Fund's
financial statements, are included in the Fund's annual report, which is
available upon request.
<TABLE>
FINANCIAL HIGHLIGHTS VALUE STOCK PORTFOLIO
Year ended December 31,
1999 1998 1997(c) 1996 1995
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period $ 1.73 1.59 1.31 1.04
INCOME FROM INVESTMENT OPERATIONS:
Net investment income .03 .01 .01 .01
Net gains on securities (both realized and unrealized) -- .32 .39 .33
Total from investment operations .03 .33 .40 .34
LESS DISTRIBUTIONS:
Dividends from net investment income -- (.02) (.01) (.01)
Distributions from net realized gains -- (.17) (.11) (.06)
Total distributions -- (.19) (.12) (.07)
Net asset value, end of period $ 1.76 1.73 1.59 1.31
Total return (a) % 1.75 21.19 30.95 32.96
Net assets, end of period (in thousands) $ 214,046 208,093 97,187 31,825
Ratio of expenses to average daily net assets (b) % .79 .80 .83 .89
Ratio of net investment income to average daily net
assets (b) % 1.54 1.13 1.28 1.25
Portfolio turnover rate (excluding short-term securities) % 88.9 115.4 88.6 164.2
</TABLE>
<TABLE>
<C> <S>
(a) Total return figures are based on a share outstanding
throughout the period and assume reinvestment of
distributions at net asset value. Total return figures do
not reflect charges pursuant to the terms of the variable
life insurance policies and variable annuity contracts
funded by separate accounts that invest in the Fund's
shares. For periods less than one year, total return has not
been annualized.
(b) Minnesota Life voluntarily absorbed $11,610 for the year
ended December 31, 1995. Had the Portfolio paid all fees and
expenses, the ratio of expenses to average daily net assets
would have been .95% and the ratio of net investment income
to average daily net assets would have been 1.19%.
(c) Effective May 1, 1997, the Portfolio entered into a new
investment advisory agreement with Advantus Capital
Management, Inc. Prior to May 1, 1997 the Portfolio had an
investment advisory agreement with MIMLIC Asset Management
Company.
</TABLE>
SUMMARY 37
<PAGE>
SMALL COMPANY VALUE PORTFOLIO
Small Company Value Portfolio seeks long-term accumulation of capital.
The Portfolio primarily invests in various types of equity securities of small
capitalization companies (I.E. companies with a market capitalization of less
than $1.5 billion) at the time of purchase. These equity securities will consist
primarily of value common stocks, but may also include preferred stock and other
securities convertible into equity securities. In selecting equity securities,
the Portfolio's investment sub-adviser searches for those companies that appear
to be undervalued or trading below their true worth, and examines such features
as a firm's financial condition, business prospects, competitive position and
business strategy. The Fund looks for companies that appear likely to come back
into favor with investors, for reasons that may range from good prospective
earnings or strong management teams to new products or services.
An investment in the Portfolio may result in the loss of money, and may also be
subject to various risks including the following types of main risk:
- MARKET RISK - the risk that equity securities are subject to adverse
trends in equity markets.
- PORTFOLIO RISK - the risk that Portfolio performance may not meet or
exceed that of the market as a whole.
- VALUE STOCK RISK - the risk that the value of a security believed by the
Portfolio's investment adviser to be undervalued may never reach what such
investment adviser believes is its full value, or that such security's
value may decrease.
- SMALL COMPANY RISK - the risk that equity securities of small companies
are subject to greater price volatility due to, among other things, such
companies' small size, limited product lines, limited access to financing
sources and limited management depth.
Please see "Investing in the Fund - Investment Objective, Policies and
Practices" and "- Defining Risks" for a more detailed description of these main
risks and additional risks in connection with investing in the Portfolio.
38 SUMMARY
<PAGE>
PORTFOLIO PERFORMANCE
The following bar chart and table show Small Company Value Portfolio's annual
returns and long-term performance. The chart shows how the Portfolio's
performance has varied from year to year, and provides some indication of the
risks in investing in the Portfolio. The table shows how the Portfolio's average
annual return over a one, five and ten year period (or a shorter period if the
Portfolio has not been available that long) compares to the return of a broad
based index. The chart and table assume reinvestment of dividends and
distributions. The chart and table do not, however, reflect the charges and
other expenses associated with the variable life insurance policies and variable
annuity contracts which invest in the Portfolio. If such charges and expenses
were included, the returns shown below would be lower. Like other mutual funds,
the past performance of the Portfolio does not necessarily indicate how the
Portfolio will perform in the future.
YEAR TO YEAR TOTAL RETURN (AS OF DECEMBER 31)
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<S> <C>
'98 -6.75%
'99 -3.07%
</TABLE>
<TABLE>
<S> <C> <C>
Best Quarter: (Q2'99) 15.97%
Worst Quarter: (Q3'98) -19.72%
</TABLE>
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURN
(FOR PERIODS ENDING DECEMBER 31, 1999) From
1 Year 5 Years 10 Years Inception
<S> <C> <C> <C> <C> <C>
Small Company Value Portfolio
(inception 10/1/97) % -3.07 -- -- -3.42
Russell 2000 Value Index -1.50 13.14 12.46 --
</TABLE>
SUMMARY 39
<PAGE>
FINANCIAL HIGHLIGHTS
The following table describes the Portfolio's performance for the fiscal periods
indicated. "Total return" shows how much an investment in the Portfolio would
have increased (or decreased) during each period, assuming an investor had
reinvested all dividends and distributions. These figures have been audited by
KPMG LLP, the Fund's independent auditors, whose report, along with the Fund's
financial statements, are included in the Fund's annual report, which is
available upon request.
<TABLE>
FINANCIAL HIGHLIGHTS SMALL COMPANY VALUE PORTFOLIO
Period from
Year ended October 1,
1997 to
December 31, December 31,
1999 1998 1997(a)
<S> <C> <C> <C> <C>
Net asset value, beginning of period $ 1.03 1.01
INCOME FROM INVESTMENT OPERATIONS:
Net investment income .01 --
Net gains (losses) on securities (both realized and
unrealized) (.08) .02
Total from investment operations (.07) .02
LESS DISTRIBUTIONS:
Dividends from net investment income (.01) --
Total distributions (.01) --
Net asset value, end of period $ .95 1.03
Total return (b) % (6.75) 2.30
Net assets, end of period (in thousands) $ 8,646 5,177
Ratio of expenses to average daily net assets (c) % .90 .90(d)
Ratio of net investment income to average daily net
assets (c) % 1.52 1.13(d)
Portfolio turnover rate (excluding short-term securities) % 70.2 13.0
</TABLE>
<TABLE>
<C> <S>
(a) The shares of the Portfolio became effectively registered
under the Securities Act of 1933 on May 1, 1997, but shares
were not available to the public until October 1, 1997.
(b) Total return figures are based on a share outstanding
throughout the period and assume reinvestment of
distributions at net asset value. Total return figures do
not reflect charges pursuant to the terms of the variable
life insurance policies and variable annuity contracts
funded by separate accounts that invest in the Fund's
shares. For periods less than one year, total return
presented has not been annualized.
(c) Minnesota Life voluntarily absorbed $58,848 and $11,517 in
expenses for the year ended December 31, 1998, and the
period ended December 31, 1997, respectively. Had the
Portfolio paid all fees and expenses, the ratio of expenses
to average daily net assets would have been 1.83% and 1.78%,
respectively, and the ratio of net investment income to
average daily net assets would have been .59% and .25%,
respectively.
(d) Adjusted to an annual basis.
</TABLE>
40 SUMMARY
<PAGE>
GLOBAL BOND PORTFOLIO
Global Bond Portfolio seeks to maximize current income, consistent with the
protection of principal.
The Portfolio invests mainly in a variety of investment-grade debt securities
issued by domestic and foreign issuers. These debt securities include, among
other things, debt obligations issued or guaranteed by foreign governments or
any of their agencies or instrumentalities, debt obligations issued or
guaranteed by supranational organizations established or supported by foreign
governments and debt obligations issued by foreign companies. In addition, the
Portfolio may invest in U.S. debt obligations including, among other things,
corporate and mortgage-backed securities, debt securities issued or guaranteed
by the U.S. government or any of its agencies or instrumentalities, asset-backed
securities and other debt obligations of U.S. banks or savings and loan
associations.
An investment in the Portfolio may result in the loss of money, and may also be
subject to various risks including the following types of main risk:
- INTEREST RATE RISK - the risk that the value of a debt security or fixed
income obligation will decline due to changes in market interest rates
(note: one measure of interest rate risk is effective duration, explained
under "Investing in the Fund - Investment Objective, Policies and
Practices - Global Bond Portfolio").
- INCOME RISK - the risk that the Portfolio may experience a decline in its
income due to falling interest rates.
- CREDIT RISK - the risk that an issuer of a debt security or fixed income
obligation will not make payments on the security or obligation when due.
- CALL RISK - the risk that securities with interest rates will be prepaid
by the issuer prior to maturity, particularly during periods of falling
interest rates, causing the Portfolio to reinvest the proceeds in other
securities with generally lower interest rates.
- PREPAYMENT RISK - the risk that falling interest rates could cause
prepayments of securities to occur more quickly than expected, causing the
Portfolio to reinvest the proceeds in other securities with generally
lower interest rates.
- EXTENSION RISK - the risk that rising interest rates could cause property
owners to prepay their mortgages more slowly than expected, resulting in
slower prepayments of mortgage-backed securities.
- FOREIGN SECURITIES RISK - the risk that the value of foreign companies or
foreign government securities may be subject to greater volatility than
domestic securities due to additional factors related to investing in
foreign securities.
- CURRENCY RISK - the risk that changes in foreign currency exchange rates
will increase or decrease the value of foreign securities or the amount of
income or gain received on such securities.
Please see "Investing in the Fund - Investment Objective, Policies and
Practices" and "- Defining Risks" for a more detailed description of these main
risks and additional risks in connection with investing in the Portfolio.
SUMMARY 41
<PAGE>
PORTFOLIO PERFORMANCE
The following bar chart and table show Global Bond Portfolio's annual returns
and long-term performance. The chart shows how the Portfolio's performance has
varied from year to year, and provides some indication of the risks in investing
in the Portfolio. The table shows how the Portfolio's average annual return over
a one, five and ten year period (or a shorter period if the Portfolio has not
been available that long) compares to the return of a broad based index. The
chart and table assume reinvestment of dividends and distributions. The chart
and table do not, however, reflect the charges and other expenses associated
with the variable life insurance policies and variable annuity contracts which
invest in the Portfolio. If such charges and expenses were included, the returns
shown below would be lower. Like other mutual funds, the past performance of the
Portfolio does not necessarily indicate how the Portfolio will perform in the
future.
YEAR TO YEAR TOTAL RETURN (AS OF DECEMBER 31)
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<S> <C>
'98 16.18%
'99 -7.81%
</TABLE>
<TABLE>
<S> <C> <C>
Best Quarter: (Q3'98) 8.07%
Worst Quarter: (Q1'98) 2.21%
</TABLE>
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURN
(FOR PERIODS ENDING DECEMBER 31, 1999) From
1 Year 5 Years 10 Years Inception
<S> <C> <C> <C> <C> <C>
Global Bond Portfolio
(inception 10/1/97) % -7.81 -- -- 3.13
Salomon Brothers World Government Bond
Index -4.27 6.42 8.04 --
</TABLE>
42 SUMMARY
<PAGE>
FINANCIAL HIGHLIGHTS
The following table describes the Portfolio's performance for the fiscal periods
indicated. "Total return" shows how much an investment in the Portfolio would
have increased (or decreased) during each period, assuming an investor had
reinvested all dividends and distributions. These figures have been audited by
KPMG LLP, the Fund's independent auditors, whose report, along with the Fund's
financial statements, are included in the Fund's annual report, which is
available upon request.
<TABLE>
FINANCIAL HIGHLIGHTS GLOBAL BOND PORTFOLIO
Period from
Year ended October 1,
1997 to
December 31, December 31,
1999 1998 1997(a)
<S> <C> <C> <C> <C>
Net asset value, beginning of period $ .98 1.00
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss) .05 (.02)
Net gains on securities (both realized and unrealized) .11 .02
Total from investment operations .16 --
LESS DISTRIBUTIONS:
Dividends from net investment income (.03) (.01)
Distributions from net realized gains (.06) --
Excess distributions of net investment income -- (.01)
Total distributions (.09) (.02)
Net asset value, end of period $ 1.05 .98
Total return (b) % 16.18 .10
Net assets, end of period (in thousands) $ 31,152 25,019
Ratio of expenses to average daily net assets % 1.13 1.60(c)
Ratio of net investment income to average daily % 4.86 3.66(c)
Portfolio turnover rate (excluding short-term securities) % 285.3 120.5
</TABLE>
<TABLE>
<C> <S>
(a) The shares of the Portfolio became effectively registered
under the Securities Act of 1933 on May 1, 1997, but shares
were not available to the public until October 1, 1997.
(b) Total return figures are based on a share outstanding
throughout the period and assume reinvestment of
distributions at net asset value. Total return figures do
not reflect charges pursuant to the terms of the variable
life insurance policies and variable annuity contracts
funded by separate accounts that invest in the Fund's
shares. For periods less than one year, total return
presented has not been annualized.
(c) Adjusted to an annual basis.
</TABLE>
SUMMARY 43
<PAGE>
INDEX 400 MID-CAP PORTFOLIO
Index 400 Mid-Cap Portfolio seeks investment results generally corresponding to
the aggregate price and dividend performance of the publicly traded common
stocks that comprise the Standard & Poor's 400 MidCap Index (the S&P 400).
The Portfolio invests at least 80% of its total assets in common stocks included
in the S&P 400.
An investment in the Portfolio may result in the loss of money, and may also be
subject to various risks including the following types of main risk:
- MARKET RISK - the risk that equity securities are subject to adverse
trends in equity markets.
- INDEX PERFORMANCE RISK - the risk that the Portfolio's ability to
replicate the performance of the S&P 400 may be affected by, among other
things, changes in securities markets, the manner in which Standard &
Poor's Rating Services calculates the S&P 400, the amount and timing of
cash flows into and out of the Portfolio, commissions, and other expenses.
- PORTFOLIO RISK - the risk that Portfolio performance may not meet or
exceed that of the market as a whole.
Please see "Investing in the Fund - Investment Objective, Policies and
Practices" and "- Defining Risks" for a more detailed description of these main
risks and additional risks in connection with investing in the Portfolio.
44 SUMMARY
<PAGE>
PORTFOLIO PERFORMANCE
The following bar chart and table show Index 400 Mid-Cap Portfolio's annual
returns and long-term performance. The chart shows how the Portfolio's
performance has varied from year to year, and provides some indication of the
risks in investing in the Portfolio. The table shows how the Portfolio's average
annual return over a one, five and ten year period (or a shorter period if the
Portfolio has not been available that long) compares to the return of a broad
based index. The chart and table assume reinvestment of dividends and
distributions. The chart and table do not, however, reflect the charges and
other expenses associated with the variable life insurance policies and variable
annuity contracts which invest in the Portfolio. If such charges and expenses
were included, the returns shown below would be lower. Like other mutual funds,
the past performance of the Portfolio does not necessarily indicate how the
Portfolio will perform in the future.
YEAR TO YEAR TOTAL RETURN (AS OF DECEMBER 31)
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<S> <C>
'98 16.68%
'99 15.96%
</TABLE>
<TABLE>
<S> <C> <C>
Best Quarter: (Q4'98) 26.59%
Worst Quarter: (Q3'98) -14.74%
</TABLE>
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURN
(FOR PERIODS ENDING DECEMBER 31, 1999) From
1 Year 5 Years 10 Years Inception
<S> <C> <C> <C> <C> <C>
Index 400 Mid-Cap Portfolio
(inception 10/1/97) % 15.96 -- -- 14.40
S&P 400 MidCap Index 14.71 23.00 17.30 --
</TABLE>
SUMMARY 45
<PAGE>
FINANCIAL HIGHLIGHTS
The following table describes the Portfolio's performance for the fiscal periods
indicated. "Total return" shows how much an investment in the Portfolio would
have increased (or decreased) during each period, assuming an investor had
reinvested all dividends and distributions. These figures have been audited by
KPMG LLP, the Fund's independent auditors, whose report, along with the Fund's
financial statements, are included in the Fund's annual report, which is
available upon request.
<TABLE>
FINANCIAL HIGHLIGHTS INDEX 400 MID-CAP PORTFOLIO
Period from
Year ended October 1,
1997 to
December 31, December 31,
1999 1998 1997(a)
<S> <C> <C> <C> <C>
Net asset value, beginning of period $ 1.01 1.00
INCOME FROM INVESTMENT OPERATIONS:
Net investment income .01 --
Net gains on securities (both realized and unrealized) .16 .01
Total from investment operations .17 .01
LESS DISTRIBUTIONS:
Dividends from net investment income (.01) --
Distributions from net realized gains (.02) --
Total distributions (.03) --
Net asset value, end of period $ 1.15 1.01
Total return (b) % 16.68 .06
Net assets, end of period (in thousands) $ 10,511 5,052
Ratio of expenses to average daily net assets (c) % .55 .55(d)
Ratio of net investment income to average daily net
assets (c) % .78 .89(d)
Portfolio turnover rate (excluding short-term securities) % 85.4 4.9
</TABLE>
<TABLE>
<C> <S>
(a) The shares of the Portfolio became effectively registered
under the Securities Act of 1933 on May 1, 1997, but shares
were not available to the public until October 1, 1997.
(b) Total return figures are based on a share outstanding
throughout the period and assume reinvestment of
distributions at net asset value. Total return figures do
not reflect charges pursuant to the terms of the variable
life insurance policies and variable annuity contracts
funded by separate accounts that invest in the Fund's
shares. For periods less than one year, total return has not
been annualized.
(c) Minnesota Life voluntarily absorbed $52,946 and $14,670 in
expenses for the year ended December 31, 1998, and the
period ended December 31, 1997, respectively. Had the
Portfolio paid all fees and expenses, the ratio of expenses
to average daily net assets would have been 1.36% and 1.70%,
respectively, and the ratio of net investment (loss) to
average daily net assets would have been (.03)% and (.26)%,
respectively.
(d) Adjusted to an annual basis.
</TABLE>
46 SUMMARY
<PAGE>
MACRO-CAP VALUE PORTFOLIO
Macro-Cap Value Portfolio seeks high total return.
The Portfolio primarily invests in common stocks of very large capitalization
domestic companies (I.E. typically companies with a market capitalization of at
least $8 billion) at the time of purchase. These equity securities will consist
primarily of common stock, but may also include preferred stock and other
securities convertible into equity securities. In selecting equity securities,
the Portfolio invests in securities that the Portfolio's investment sub-adviser
believes are undervalued relative to their potential for improved operating
performance and financial strength.
An investment in the Portfolio may result in the loss of money, and may also be
subject to various risks including the following types of main risk:
- MARKET RISK - the risk that equity securities are subject to adverse
trends in equity markets.
- PORTFOLIO RISK - the risk that Portfolio performance may not meet or
exceed that of the market as a whole.
- VALUE STOCK RISK - the risk that the value of a security believed by the
Portfolio's investment sub-adviser to be undervalued may never reach what
such investment sub-adviser believes is its full value, or that such
security's value may decrease.
- LARGE COMPANY RISK - the risk that a portfolio of very large
capitalization company securities may underperform the market as a whole.
Please see "Investing in the Fund - Investment Objective, Policies and
Practices" and "- Defining Risks" for a more detailed description of these main
risks and additional risks in connection with investing in the Portfolio.
SUMMARY 47
<PAGE>
PORTFOLIO PERFORMANCE
The following bar chart and table show Macro-Cap Value Portfolio's annual
returns and long-term performance. The chart shows how the Portfolio's
performance has varied from year to year, and provides some indication of the
risks in investing in the Portfolio. The table shows how the Portfolio's average
annual return over a one, five and ten year period (or a shorter period if the
Portfolio has not been available that long) compares to the return of a broad
based index. The chart and tables assume reinvestment of dividends and
distributions. The chart and table do not, however, reflect the charges and
other expenses associated with the variable life insurance policies and variable
annuity contracts which invest in the Portfolio. If such charges and expenses
were included, the returns shown below would be lower. Like other mutual funds,
the past performance of the Portfolio does not necessarily indicate how the
Portfolio will perform in the future.
YEAR TO YEAR TOTAL RETURN (AS OF DECEMBER 31)
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<S> <C>
'98 22.33%
'99 7.17%
</TABLE>
<TABLE>
<S> <C> <C>
Best Quarter: (Q4'98) 20.98%
Worst Quarter: (Q3'99) -12.25%
</TABLE>
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURN
(FOR PERIODS ENDING DECEMBER 31, 1999) From
1 Year 5 Years 10 Years Inception
<S> <C> <C> <C> <C> <C>
Macro-Cap Value Portfolio
(inception 10/15/97) % 7.17 -- -- 11.92
S&P 500 Index (as adjusted for dividend
reinvestment) 21.01 28.54 18.19 --
</TABLE>
48 SUMMARY
<PAGE>
FINANCIAL HIGHLIGHTS
The following table describes the Portfolio's performance for the fiscal periods
indicated. "Total return" shows how much an investment in the Portfolio would
have increased (or decreased) during each period, assuming an investor had
reinvested all dividends and distributions. These figures have been audited by
KPMG LLP, the Fund's independent auditors, whose report, along with the Fund's
financial statements, are included in the Fund's annual report, which is
available upon request.
<TABLE>
FINANCIAL HIGHLIGHTS MACRO-CAP VALUE PORTFOLIO
Period from
Year ended October 15,
1997 to
December 31, December 31,
1999 1998 1997(a)
<S> <C> <C> <C> <C>
Net asset value, beginning of period $ .97 1.00
INCOME FROM INVESTMENT OPERATIONS:
Net investment income .01 --
Net gains (losses) on securities (both realized and
unrealized) .21 (.02)
Total from investment operations .22 (.02)
LESS DISTRIBUTIONS:
Dividends from net investment income -- (.01)
Distributions from net realized gains (.05) --
Total distributions (.05) (.01)
Net asset value, end of period $ 1.14 .97
Total return (b) % 22.33 (2.13)
Net assets, end of period (in thousands) $ 11,088 4,923
Ratio of expenses to average daily net assets (c) % .85 .85(d)
Ratio of net investment income to average daily net
assets(c) % .69 2.04(d)
Portfolio turnover rate (excluding short-term securities) % 164.0 36.7
</TABLE>
<TABLE>
<C> <S>
(a) The shares of the Portfolio became effectively registered
under the Securities Act of 1933 on May 1, 1997, but shares
were not available to the public until October 15, 1997.
(b) Total return figures are based on a share outstanding
throughout the period and assume reinvestment of
distributions at net asset value. Total return figures do
not reflect charges pursuant to the terms of the variable
life insurance policies and variable annuity contracts
funded by separate accounts that invest in the Fund's
shares. For periods less than one year, total return
presented has not been annualized.
(c) Minnesota Life voluntarily absorbed $114,468 and $22,940 in
expenses for the year ending December 31, 1998 and the
period ending December 31, 1997. Had the Portfolio paid all
fees and expenses, the ratio of expenses to average daily
net assets would have been 2.53% and 3.13%, respectively,
and the ratio of net investment (loss) to average daily net
assets would have been (.99)% and (.24)%, respectively.
(d) Adjusted to an annual basis.
</TABLE>
SUMMARY 49
<PAGE>
MICRO-CAP GROWTH PORTFOLIO
Micro-Cap Growth Portfolio seeks long-term capital appreciation.
The Portfolio primarily invests in equity securities of micro-cap companies
(I.E., companies with a market capitalization of less than $300 million) at the
time of purchase. The Portfolio primarily invests in common stock but may also
invest in preferred stock and securities convertible into equity securities. In
selecting equity securities, the Portfolio invests in securities that the
Portfolio's investment sub-adviser believes show sustainable earnings growth
potential and improving profitability.
An investment in the Portfolio may result in the loss of money, and may also be
subject to various risks including the following types of main risk:
- MARKET RISK - the risk that equity securities are subject to adverse
trends in equity markets.
- PORTFOLIO RISK - the risk that Portfolio performance may not meet or
exceed that of the market as a whole.
- MICRO-CAP COMPANY RISK - the risk that equity securities of micro-cap
companies are subject to greater price volatility due to, among other
things, such companies' small size, limited product lines, limited access
to financing sources and limited management depth.
- GROWTH STOCK RISK - the risk that if the assessment by the Portfolio's
investment sub-adviser of a company's prospective earnings growth or
judgment of how other investors assess the company's earnings growth is
wrong, then the value of the company's securities may decrease or not
approach the value that the Portfolio's investment sub-adviser has placed
on it.
Please see "Investing in the Fund - Investment Objective, Policies and
Practices" and "- Defining Risks" for a more detailed description of these main
risks and additional risks in connection with investing in the Portfolio.
50 SUMMARY
<PAGE>
PORTFOLIO PERFORMANCE
The following bar chart and table show Micro-Cap Growth Portfolio's annual
returns and long-term performance. The chart shows how the Portfolio's
performance has varied from year to year, and provides some indication of the
risks in investing in the Portfolio. The table shows how the Portfolio's average
annual return over a one, five and ten year period (or a shorter period if the
Portfolio has not been available that long) compares to the return of a broad
based index. The chart and table assume reinvestment of dividends and
distributions. The chart and table do not, however, reflect the charges and
other expenses associated with the variable life insurance policies and variable
annuity contracts which invest in the Portfolio. If such charges and expenses
were included, the returns shown below would be lower. Like other mutual funds,
the past performance of the Portfolio does not necessarily indicate how the
Portfolio will perform in the future.
YEAR TO YEAR TOTAL RETURN (AS OF DECEMBER 31)
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<S> <C>
'98 13.44%
'99 148.77%
</TABLE>
<TABLE>
<S> <C> <C>
Best Quarter: (Q4'99) 82.84%
Worst Quarter: (Q3'98) -20.12%
</TABLE>
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURN
(FOR PERIODS ENDING DECEMBER 31, 1999) From
1 Year 5 Years 10 Years Inception
<S> <C> <C> <C> <C> <C>
Micro-Cap Growth Portfolio
(inception 10/1/97) % 148.77 -- -- 48.85
Russell 2000 Growth Index 43.10 18.99 13.51 --
</TABLE>
SUMMARY 51
<PAGE>
FINANCIAL HIGHLIGHTS
The following table describes the Portfolio's performance for the fiscal periods
indicated. "Total return" shows how much an investment in the Portfolio would
have increased (or decreased) during each period, assuming an investor had
reinvested all dividends and distributions. These figures have been audited by
KPMG LLP, the Fund's independent auditors, whose report, along with the Fund's
financial statements, are included in the Fund's annual report, which is
available upon request.
<TABLE>
FINANCIAL HIGHLIGHTS MICRO-CAP GROWTH PORTFOLIO
Period from
Year ended October 1,
1997 to
December 31, December 31,
1999 1998 1997(a)
<S> <C> <C> <C> <C>
Net asset value, beginning of period $ .89 1.06
INCOME FROM INVESTMENT OPERATIONS:
Net gains (losses) on securities (both realized and
unrealized) .12 (.14)
Total from investment operations .12 (.14)
LESS DISTRIBUTIONS:
Distributions from net realized gains -- (.03)
Total distributions -- (.03)
Net asset value, end of period $ 1.01 .89
Total return (b) % 13.44 (13.20)
Net assets, end of period (in thousands) $ 8,034 4,591
Ratio of expenses to average daily net assets (c) % 1.25 1.25(d)
Ratio of net investment (loss) to average daily net
assets (c) % (.40) (.24)(d)
Portfolio turnover rate (excluding short-term securities) % 67.4 28.9
</TABLE>
<TABLE>
<C> <S>
(a) The shares of the Portfolio became effectively registered
under the Securities Act of 1933 on May 1, 1997, but shares
were not available to the public until October 1, 1997.
(b) Total return figures are based on a share outstanding
throughout the period and assume reinvestment of
distributions at net asset value. Total return figures do
not reflect charges pursuant to the terms of the variable
life insurance policies and variable annuity contracts
funded by separate accounts that invest in the Fund's
shares. For periods less than one year, total return
presented has not been annualized.
(c) Minnesota Life voluntarily absorbed $46,960 and $11,102 in
expenses for the year ended December 31, 1998
and the period ended December 31, 1997, respectively. Had
the Portfolio paid all fees and expenses, the ratio of
expenses to average daily net assets would have been 2.10%
and 2.03%, respectively, and the ratio of net investment
(loss) to average daily net assets would have been (1.25)%
and (1.02)%, respectively.
(d) Adjusted to an annual basis.
</TABLE>
52 SUMMARY
<PAGE>
REAL ESTATE SECURITIES PORTFOLIO
Real Estate Securities Portfolio seeks above average income and long-term growth
of capital.
Under normal circumstances, at least 65% of the Portfolio's total assets will be
invested in real estate and real estate-related securities. "Real estate
securities" include securities issued by companies that receive at least 50% of
their gross revenue from the construction, ownership, management, financing or
sale of residential, commercial or industrial real estate. "Real estate-related
securities" include securities issued by companies engaged in businesses that
sell or offer products or services that are closely related to the real estate
industry.
Most of the Portfolio's real estate securities portfolio will consist of
securities issued by Real Estate Investment Trusts (REITs) that are listed on a
securities exchange or traded over-the-counter. A REIT is a corporation or trust
that invests in fee or leasehold ownership of real estate mortgages or shares
issued by other REITs. In selecting securities, the Portfolio's investment
adviser considers factors such as a company's financial condition, financial
performance, policies and strategies, real estate properties and competitive
market condition.
An investment in the Portfolio may result in the loss of money, and may also be
subject to various risks including the following types of main risk:
- MARKET RISK - the risk that equity securities are subject to adverse
trends in equity markets.
- PORTFOLIO RISK - the risk that Portfolio performance may not meet or
exceed that of the market as a whole.
- REAL ESTATE RISK - the risk that the value of the Portfolio's investments
may decrease due to a variety of factors related to the construction,
development, ownership, financing, repair or servicing or other events
affecting the value of real estate, buildings or other real estate
fixtures.
- REIT-RELATED RISK - the risk that the value of the Portfolio's equity
securities issued by REITs will be adversely affected by changes in the
value of the underlying property.
Please see "Investing in the Fund - Investment Objective, Policies and
Practices" and "- Defining Risks" for a more detailed description of these main
risks and additional risks in connection with investing in the Portfolio.
SUMMARY 53
<PAGE>
PORTFOLIO PERFORMANCE
The following bar chart and table show Real Estate Securities Portfolio's annual
returns and long-term performance. The chart shows how the Portfolio's
performance has varied from year to year, and provides some indication of the
risks in investing in the Portfolio. The table shows how the Portfolio's average
annual return over a one, five and ten year period (or a shorter period if the
Portfolio has not been available that long) compares to the return of a broad
based index. The chart and table assume reinvestment of dividends and
distributions. The chart and table do not, however, reflect the charges and
other expenses associated with the variable life insurance policies and variable
annuity contracts which invest in the Portfolio. If such charges and expenses
were included, the returns shown below would be lower. Like other mutual funds,
the past performance of the Portfolio does not necessarily indicate how the
Portfolio will perform in the future.
YEAR TO YEAR TOTAL RETURN (AS OF DECEMBER 31)
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<S> <C>
'98 -14.90%(1)
'99 -3.20%
</TABLE>
<TABLE>
<S> <C> <C>
Best Quarter: (Q2'99) 13.98%
Worst Quarter: (Q3'98) -13.21%
</TABLE>
<TABLE>
<C> <S>
(1) For the period from May 1, 1998 (date of inception) to
December 31, 1998.
</TABLE>
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURN
(FOR PERIODS ENDING DECEMBER 31, 1999) From
1 Year Inception
<S> <C> <C> <C>
Real Estate Securities Portfolio
(inception 5/1/98) % -3.89 -11.33
Wilshire Associates Real Estate Securities Index -3.20 --
</TABLE>
54 SUMMARY
<PAGE>
FINANCIAL HIGHLIGHTS
The following table describes the Portfolio's performance for the fiscal periods
indicated. "Total return" shows how much an investment in the Portfolio would
have increased (or decreased) during each period, assuming an investor had
reinvested all dividends and distributions. These figures have been audited by
KPMG LLP, the Fund's independent auditors, whose report, along with the Fund's
financial statements, are included in the Fund's annual report, which is
available upon request.
<TABLE>
FINANCIAL HIGHLIGHTS REAL ESTATE SECURITIES PORTFOLIO
Period from
May 1,
1998 to
December 31,
1999 1998(a)
<S> <C> <C> <C>
Net asset value, beginning of period $ 1.02
INCOME FROM INVESTMENT OPERATIONS:
Net investment income .03
Net losses on securities (both realized and unrealized) (.19)
Total from investment operations (.16)
LESS DISTRIBUTIONS:
Dividends from net investment income (.03)
Total distributions (.03)
Net asset value, end of period $ .83
Total return (b) % (14.90)
Net assets, end of period (in thousands) $ 5,322
Ratio of expenses to average daily net assets (c)(d) % .90
Ratio of net investment income to average daily net
assets (c)(d) % 5.54
Portfolio turnover rate (excluding short-term securities) % 54.0
</TABLE>
<TABLE>
<C> <S>
(a) The inception of the Portfolio was May 1, 1998 when the
shares of the Portfolio became effectively registered under
the Securities Act of 1933.
(b) Total return figures are based on a share outstanding
throughout the period and assume reinvestment of
distributions at net asset value. Total return figures do
not reflect charges pursuant to the terms of the variable
life insurance policies and variable annuity contracts
funded by separate accounts that invest in the Fund's
shares. For periods less than one year, total return has not
been annualized.
(c) Minnesota Life voluntarily absorbed $31,736 in expenses for
the period ended December 31, 1998. Had the Portfolio paid
all fees and expenses, the ratio of expenses to average
daily net assets would have been 1.90% and the ratio of net
investment income to average daily net assets would have
been 4.54%.
(d) Adjusted to an annual basis.
</TABLE>
SUMMARY 55
<PAGE>
INVESTING IN THE FUND
MANAGING THE PORTFOLIOS
The Fund's investment adviser is Advantus Capital Management, Inc. (Advantus
Capital), 400 Robert Street North, St. Paul, Minnesota 55101. Since its
inception in 1994, Advantus Capital has provided investment advisory services
for the Portfolios and other Advantus Funds, and has managed investment
portfolios for various private accounts. With more than $14.2 billion of assets
under management, Advantus Capital manages the Fund's investments and provides
all necessary office space, equipment and personnel for servicing the Fund's
investments. Advantus Capital is a wholly-owned subsidiary of Minnesota Life,
which was organized in 1880 and has assets on a consolidated basis of more than
$16.4 billion. Minnesota Life is a third-tier subsidiary of a mutual insurance
holding company called Minnesota Mutual Companies, Inc. Personnel of Advantus
Capital also manage Minnesota Life's investment portfolio. In addition,
Minnesota Life serves as administrative services agent to the Fund.
The Fund and Advantus Capital have obtained an exemptive order from the SEC
allowing it to use a "manager of managers" strategy related to management of the
Fund. Under this strategy, Advantus Capital may select new Portfolio investment
sub-advisers upon the approval of the Fund's Board of Directors and without
shareholder approval. Advantus Capital may change the terms of any investment
sub-advisory agreement or continue to employ an investment sub-adviser after
termination of an investment sub-advisory agreement. Investors will be notified
of any investment sub-adviser changes. In any event, Fund shareholders may
terminate investment sub-adviser arrangements upon a vote of the majority of the
applicable outstanding Portfolio shares. Advantus Capital is responsible for
overseeing sub-advisers and for recommending their hiring, termination and
replacement and retains ultimate responsibility for the investment performance
of each Portfolio employing a sub-adviser. Investors in the Fund (purchasers of
variable life insurance policies and variable annuity contracts issued by
Minnesota Life) are, in effect, electing to have Advantus Capital either manage
the investment of a Portfolio's assets or select one or more sub-advisers to
achieve that Portfolio's investment objective.
The investment sub-adviser of the Capital Appreciation Portfolio is Credit
Suisse Asset Management LLC (Credit Suisse), 153 East 53rd Street, One Citicorp
Center, New York, New York 10022. Credit Suisse provides investment advice and
generally conducts the investment management program for the Capital
Appreciation Portfolio.
The investment sub-adviser of the International Stock Portfolio is Templeton
Investment Counsel, Inc. (Templeton Counsel), 500 East Broward Boulevard, Fort
Lauderdale, Florida 33394. Templeton Counsel provides investment advice and
generally conducts the investment management program for the International Stock
Portfolio.
The investment sub-adviser of the Global Bond Portfolio is Julius Baer
Investment Management Inc. (JBIM), 330 Madison Avenue, New York, New York 10017.
JBIM provides investment advice and generally conducts the investment management
program for the Portfolio's foreign securities and determines the Portfolio's
total allocation of domestic and foreign securities. Advantus Capital provides
investment advice and generally conducts the investment management program for
the Portfolio's domestic securities.
56 INVESTING IN THE FUND
<PAGE>
The investment sub-adviser of the Macro-Cap Value Portfolio is J.P. Morgan
Investment Management Inc. (J.P. Morgan), 522 Fifth Avenue, New York, New York
10036. J.P. Morgan provides investment advice and generally conducts the
investment management program for the Macro-Cap Value Portfolio.
The investment sub-adviser of the Micro-Cap Growth Portfolio is Wall Street
Associates (WSA), La Jolla Financial Building, Suite 100, 1200 Prospect Street,
La Jolla, California 92037. WSA provides investment advice and generally
conducts the investment management program for the Micro-Cap Growth Portfolio.
The investment sub-adviser of the Small Company Growth Portfolio is Credit
Suisse Asset Management LLC (CSAM), 153 East 53rd Street, One Citicorp Center,
New York, New York 10022. Credit Suisse provides investment advice and generally
conducts the investment management program for the Small Company Growth
Portfolio.
The investment sub-adviser of the Small Company Value Portfolio is State Street
Research and Management Company (State Street Research), One Financial Center,
Boston, Massachusetts 02111. State Street Research provides investment advice
and generally conducts the investment management program for the Small Company
Value Portfolio.
The following persons serve as the primary portfolio managers for the
Portfolios:
<TABLE>
<CAPTION>
PORTFOLIO MANAGER PRIMARY PORTFOLIO
PORTFOLIO AND TITLE MANAGER SINCE
<S> <C> <C>
Growth Thomas A. Gunderson June 30, 1997
Portfolio Manager
Bond Wayne R. Schmidt May 1, 1991
Portfolio Manager
Money Market Steven S. Nelson May 1, 1999
Portfolio Manager
Asset Allocation Thomas A. Gunderson January 1, 1989
Portfolio Manager
Wayne R. Schmidt May 1, 1999
Portfolio Manager
Mortgage Securities Kent R. Weber January 1, 1990
Portfolio Manager
Capital Appreciation Susan L. Black May 1, 2000
Portfolio Manager
International Stock Gary R. Clemons June 2, 1997
Senior Vice President
Edgerton Tucker Scott III February 1, 2000
Vice President and Research
Analyst
<CAPTION>
PORTFOLIO BUSINESS EXPERIENCE DURING PAST FIVE YEARS
<S> <C>
Growth Vice President of Advantus Capital; Investment Officer of
MIMLIC Asset Management Company, Advantus Capital's
predecessor ("MIMLIC Management")
Bond Vice President of Advantus Capital; Investment Officer of
MIMLIC Management
Money Market Vice President of Advantus Capital since February 1999,
Portfolio Manager of Advantus Capital since
September 1998; Vice President of Reliastar Investment
Research, Inc. from June 1996 to September 1998;
Investment Officer, MIMLIC Management, from July 1992 to
May 1996
Asset Allocation Vice President of Advantus Capital; Investment Officer of
MIMLIC Management
Vice President of Advantus Capital; Investment Officer of
MIMLIC Management
Mortgage Securities Vice President of Advantus Capital; Investment Officer of
MIMLIC Management
Capital Appreciation Managing Director, Senior Investment Manager, CSAM, from
July, 1999; prior to that time Portfolio Manager, Warburg
Pincus Asset Management, Inc.
International Stock Senior Vice President, Portfolio Management/ Research,
Templeton Investment Counsel, Inc., since 1993
Vice President and Research Analyst, Templeton Investment
Counsel since September 1996; Investment Analyst, Aeltus
Investment Management, from June 1994 to August 1996.
</TABLE>
INVESTING IN THE FUND 57
<PAGE>
<TABLE>
<CAPTION>
PORTFOLIO MANAGER PRIMARY PORTFOLIO
PORTFOLIO AND TITLE MANAGER SINCE
<S> <C> <C>
Small Company Growth Stephen J. Lurito March 7, 2000
Co-Portfolio Manager
Sammy Oh March 7, 2000
Co-Portfolio Manager
Maturing Government Kent R. Weber April 25, 1994
Bond - 2002, 2006 and Portfolio Manager
2010
Value Stock Matthew Norris February 1, 2000
Portfolio Manager
Small Company Value Rudolph K. Kluiber March 7, 2000
Portfolio Manager
Global Bond Edward C. Dove October 1, 1997
Director, Chief Investment
Officer
Wayne R. Schmidt May 1, 1998
Portfolio Manager
Macro-Cap Value Peggy Adams September 17, 1999
Vice President, Portfolio
Manager
Harry D. Cavanna
Managing Director
Micro-Cap Growth William Jeffery, III and October 1, 1997
Kenneth F. McCain and June 11, 1999
David A. Baratta, Principals
and Portfolio Managers
Real Estate Joseph R. Betlej May 1, 1998
Securities Portfolio Manager
<CAPTION>
PORTFOLIO BUSINESS EXPERIENCE DURING PAST FIVE YEARS
<S> <C>
Small Company Growth Managing Director and Portfolio Manager, CSAM
Portfolio Manager, CSAM, from 1997; previous Vice
President of Bessemar Trust, 1995 to 1996; Vice President
of Forstmann-Leff, 1993 to 1995.
Maturing Government Vice President of Advantus Capital; Investment Officer of
Bond - 2002, 2006 and MIMLIC Management
2010
Value Stock Vice President of Advantus Capital; Investment Officer and
Equity Portfolio Manager of MIMLIC Management; Managing
Director, Dain Bosworth, Seattle, Washington, from
July 1995 to December 1997; prior to that time, Portfolio
Manager, Safeco Asset Management, Seattle, Washington
Small Company Value Senior Vice President, State Street Research, since 1989.
Global Bond Director, Fixed Income, Julius Baer Investment Management
Inc., since January 1995
Vice President of Advantus Capital; Investment Officer of
MIMLIC Management
Macro-Cap Value Institutional Portfolio Manager, J.P. Morgan Investment
Management Inc.
Senior U.S. Equity Portfolio Manager, J.P. Morgan
Investment Management, Inc.
Micro-Cap Growth Principals and Portfolio Managers, Wall Street Associates
Principal and Portfolio Manager, Wall Street Associates
since June 1999; Portfolio Manager and Executive Vice
President, Morgan Gremfell, Inc., New York, New York, from
October 1994 to June 1999.
Real Estate Vice President of Advantus Capital; Vice President of
Securities MIMLIC Management since September 1996; prior to that
time, Investment Officer, MIMLIC Management
</TABLE>
58 INVESTING IN THE FUND
<PAGE>
ADVISORY FEES
The Fund pays Advantus Capital monthly fees calculated on an annual basis for
each Portfolio. Advantus Capital uses a portion of the applicable fees to pay
sub-advisers. The annual advisory fees paid to Advantus Capital for each of the
Portfolios is as follows:
<TABLE>
<CAPTION>
ADVISORY FEE
(AS A PERCENTAGE OF AVERAGE
PORTFOLIO DAILY NET ASSETS)
<S> <C>
Growth Portfolio 0.45% of assets to $1 billion; and
0.40% of assets exceeding $1 billion
Bond Portfolio 0.30% of assets to $500 million;
0.24% of assets exceeding $500 million
to $1 billion; and
0.20% of assets exceeding $1 billion
Money Market Portfolio 0.25% of asset to $1 billion; and
0.20% of assets exceeding $1 billion
Asset Allocation Portfolio 0.35% of assets to $1 billion; and
0.30% of assets exceeding $1 billion
Mortgage Securities Portfolio 0.30% of assets to $1 billion; and
0.25% of assets exceeding $1 billion
Index 500 Portfolio 0.15% of assets to $250 million;
0.10% of assets exceeding $250 million
to $1 billion; and
0.075% of assets exceeding $1 billion
Capital Appreciation Portfolio 0.50% of assets to $1 billion; and
0.45% of assets exceeding $1 billion(1)
International Stock Portfolio 0.60% of assets to $250 million;
0.55% of assets exceeding $250 million
to $500 million;
0.50% of assets exceeding $500 million
to $1 billion; and
0.45% of assets exceeding $1 billion(2)
Small Company Growth Portfolio 0.65% of assets to $1 billion; and
0.60% of assets exceeding $1 billion(3)
Maturing Government Bond Portfolios 0.25%
Value Stock Portfolio 0.50% of assets to $500 million;
0.45% of assets exceeding $500 million
to $1 billion; and
0.40% of assets exceeding $1 billion
Small Company Value Portfolio 0.70% of assets to $1 billion; and
0.65% of assets exceeding $1 billion(4)
Global Bond Portfolio 0.60% of assets to $1 billion; and
0.55% of assets exceeding $1 billion(5)
Index 400 Mid-Cap Portfolio 0.15% of assets to $250 million;
0.10% of assets exceeding $250 million
to $1 billion; and
0.075% of assets exceeding $1 billion
Macro-Cap Value Portfolio 0.50%(6)
Micro-Cap Growth Portfolio 0.95%(7)
Real Estate Securities Portfolio 0.60% of assets to $1 billion; and
0.55% of assets exceeding $1 billion
</TABLE>
INVESTING IN THE FUND 59
<PAGE>
<TABLE>
<C> <S>
(1) Advantus Capital uses a portion of these fees to pay Credit
Suisse an annual sub-advisers fee equal to 0.50% of total
assets between $0 and $500 million; 0.45% of total assets
between $500 million and $1 billion; 0.35% of total assets
between $1 billion and $2 billion; and 0.30% of total
assets exceeding $2 billion. The term "assets" includes all
assets advised or sub-advised by Credit Suisse for Advantus
Capital or its affiliates, in addition to the assets of the
Portfolio. The fee rate is applied to all assets back to the
first dollar in the Portfolio.
(2) Advantus Capital uses a portion of these fees to pay
Templeton Counsel an annual sub-advisers fee equal to 0.70%
of total assets between $0 and $10 million; 0.65% of total
assets exceeding $10 million to $25 million; 0.55% of assets
exceeding $25 million to $50 million; 0.50% of assets
exceeding $50 million to $100 million; and 0.40% of assets
exceeding $100 million. For the purpose of establishing the
appropriate breakpoints at which the Portfolio's
sub-advisory fee shall be calculated, the Portfolio will
benefit from the aggregation of the monthly market value of
any non-mutual fund account of Minnesota Life or any
affiliate thereof, advised or sub-advised by Templeton
Counsel or any advisory affiliate thereof as well as the
average daily net assets of any U.S. registered mutual fund
advised by Advantus and sub-advised by Templeton Counsel or
any advisory affiliate. For fee-stacking purposes, the asset
classes so managed with the highest fee schedules shall be
counted first as assets of this Portfolio in order to
determine this Portfolio's appropriate starting breakpoint
when Franklin Advisors, Inc., an affiliate of Templeton
Counsel, provides other sub-advisory services to Advantus
Capital, covering small company domestic equities in an
amount in excess of $100 million and Minnesota Life, offers
as investment options in its registered variable insurance
contracts the Templeton Developing Markets Fund and any
other two funds in the Franklin/Templeton Variable Insurance
Products Fund.
(3) Advantus Capital uses a portion of these fees to pay Credit
Suisse an annual sub-advisers fee equal to 0.65% of total
assets between $0 and $500 million; 0.60% of total assets
between $500 million and $1 billion; 0.50% of total assets
between $1 billion and $2 billion; and 0.45% of total
assets exceeding $2 billion. The term "assets" includes all
assets advised or sub-advised by Credit Suisse for Advantus
Capital or its affiliates, in addition to the assets of the
Portfolio. The fee rate is applied to all assets back to the
first dollar in the Portfolio.
(4) Advantus Capital uses a portion of these fees to pay State
Street Research an annual sub-advisers fee equal to 0.65% on
the first $500 million of assets; 0.60% on the next
$500 million of assets; and 0.50% of assets in excess of
$1 billion. The term "assets" includes all 'small company
value' assets sub-advised by State Street Research for
Advantus Capital or its affiliates, in addition to the
assets of the Portfolio.
(5) Advantus Capital uses a portion of these fees to pay JBIM an
annual sub-advisers fee equal to .030% of the Portfolio's
average daily net assets.
(6) Advantus Capital uses a portion of these fees to pay J.P.
Morgan an annual sub-advisers fee equal to .45% of the
Portfolio's average daily net assets.
(7) Advantus Capital uses a portion of these fees to pay WSA an
annual sub-advisers fee equal to .85% of the Portfolio's
average daily net assets.
</TABLE>
60 INVESTING IN THE FUND
<PAGE>
DISTRIBUTION FEES
The Fund has adopted a Rule 12b-1 Distribution Plan covering all of its
Portfolios except the Maturing Government Bond Portfolios. Each covered
Portfolio pays distribution fees equal to .25% per annum of the average daily
net assets of the Portfolio. These fees are paid out of the Portfolio's assets,
which affects the Portfolio's share price. The fees are paid to Ascend Financial
Services, Inc. (Ascend Financial) the Fund's underwriter, to pay for
distribution-related expenses and activities in connection with the distribution
of the Portfolio's shares. Ascend Financial may also use the fees to pay
Insurance Companies, dealers or others for certain non-distribution services as
provided for in the Distribution Plan.
INVESTING IN THE FUND 61
<PAGE>
VOLUNTARY FEE ABSORPTION
Prior to January 1, 2000, Minnesota Life had voluntarily agreed to absorb all
fees and expenses that exceed .65% of average daily net assets for the Growth
Portfolio, Bond Portfolio, Money Market Portfolio, Asset Allocation Portfolio
and Mortgage Securities Portfolio, .55% of average daily net assets for the
Index 500 Portfolio and Index 400 Mid-Cap Portfolio, .90% of average daily net
assets for the Capital Appreciation Portfolio, Small Company Growth Portfolio,
Value Stock Portfolio, Small Company Value Portfolio and Real Estate Securities
Portfolio, .40% of average daily net assets for each of the three Maturing
Government Bond Portfolios, 1.60% of average daily net assets of Global Bond
Portfolio, .85% of average daily net assets of Macro-Cap Value Portfolio, and
1.25% of average daily net assets of Micro-Cap Growth Portfolio. In addition,
Minnesota Life had voluntarily agreed to absorb expenses, excluding investment
advisory fees, that exceed 1.00% for International Stock Portfolio. Effective
January 1, 2000, Advantus Capital has voluntarily agreed to absorb all fees and
expenses that exceed, for each Portfolio, the percentage of average daily net
assets set forth above.
INVESTMENT OBJECTIVE,
POLICIES AND PRACTICES
GROWTH PORTFOLIO
Growth Portfolio seeks long-term accumulation of capital. Current income is a
factor in the selection of securities, but is a secondary objective.
The Portfolio primarily invests in various equity securities of mid and large
capitalization companies (I.E., companies with a market capitalization of at
least $1 billion). The Portfolio primarily invests in common and preferred
stocks but may also invest in securities convertible into equity securities.
From time to time, the Portfolio may also invest a lesser portion of its assets
in equity securities of small capitalization companies. As of December 31, 1999,
the average weighted market capitalization of the Portfolio's investments was
$ billion.
In selecting equity securities for the Portfolio, Advantus Capital primarily
looks to an investment's potential for sustainable earnings growth and improving
profitability. In selecting securities with earnings growth potential, Advantus
Capital considers factors such as a company's competitive market position,
quality of management, growth strategy, internal operating trends (such as
profit margins, cash flows and earnings and revenue growth), overall financial
condition, and ability to sustain current rate of growth. In seeking to achieve
its investment objective, the Portfolio may also invest in equity securities of
companies that Advantus Capital believes are temporarily undervalued or show
promise of improved results due to new management, products, markets or other
factors.
In addition, the Portfolio may invest lesser portions of its assets in
restricted and illiquid securities, convertible and non-convertible
investment-grade corporate debt securities, foreign securities, warrants, stock
index futures contracts, options (the Portfolio may purchase, sell and write put
and call options), securities of other mutual funds, index depositary receipts,
repurchase agreement transactions and money market securities. To generate
additional income, the Portfolio may lend securities representing up to
one-third of the value of its total assets to broker-dealers, banks and other
institutions.
62 INVESTING IN THE FUND
<PAGE>
RISKS. An investment in the Portfolio is subject to the following risks:
- Company Risk
- Concentration Risk
- Growth Stock Risk
- Inflation Risk
- Large Company Risk
- Market Risk
- Mid Size Company Risk
- Portfolio Risk
- Sector Risk
- Securities Lending Risk
- Small Company Risk
A detailed description of these risks is set forth in "- Defining Risks" below.
Additional risk information is provided in the Statement of Additional
Information.
BOND PORTFOLIO
Bond Portfolio seeks as high a level of a long-term total rate of return as is
consistent with prudent investment risk. The Portfolio also seeks preservation
of capital as a secondary objective.
The Portfolio invests in a variety of investment-grade debt securities. These
debt securities include:
- investment-grade corporate debt obligations and mortgage-backed securities
- debt securities issued or guaranteed by the U.S. government or any of its
agencies or instrumentalities (including U.S. Treasury bills, notes and
bonds)
- investment-grade mortgage-backed securities issued by governmental
agencies and financial institutions
- investment-grade asset-backed securities
- U.S. dollar denominated investment-grade debt securities issued by foreign
governments and companies and publicly traded in the United States
- debt obligations of U.S. banks, savings and loan associations and savings
banks
The Portfolio invests primarily in investment-grade debt obligations issued by
domestic companies in a variety of industries. The Portfolio may invest in
long-term debt securities (I.E., maturities of more than 10 years), intermediate
debt securities (I.E., maturities from 3 to 10 years) and short-term debt
securities (I.E., maturities of less than 3 years). In selecting corporate debt
securities and their maturities, Advantus Capital seeks to maximize current
income by engaging in a risk/return analysis that focuses on various factors
such as industry outlook, current and anticipated market and economic
conditions, general levels of debt prices and issuer operations.
The Portfolio may also invest a portion of its assets in CMOs, stripped
mortgage-backed securities and asset-backed securities. CMOs are debt
obligations typically issued by a private special-purpose entity that are
collateralized by residential or commercial mortgage loans or pools of
residential mortgage loans. CMOs allocate the priority of the distribution of
principal and interest from the underlying mortgage loans among various series.
Each series differs from the other in terms of the priority right to receive
cash payments from the underlying mortgage loans.
INVESTING IN THE FUND 63
<PAGE>
Stripped mortgage-backed securities also represent ownership interests in a pool
of mortgages. However, the stripped mortgage-backed securities are separated
into interest and principal components. The interest component only allows the
interest holder to receive the interest portion of cash payments, while the
principal component only allows the interest holder to receive the principal
portion of cash payments.
Asset-backed securities represent interest in pools of consumer loans (such as
credit card, trade or automobile loans). Investors in asset-backed securities
are entitled to receive payments of principal and interest received by the pool
entity from the underlying consumer loans net of any costs and expenses incurred
by the entity.
As a rule of thumb, a portfolio of debt, mortgage-related and asset-backed
securities experiences a decrease in principal value with an increase in
interest rates. The extent of the decrease in principal value may be affected by
the Portfolio's duration of its portfolio of debt, mortgage-related and
asset-backed securities. Duration measures the relative price sensitivity of a
security to changes in interest rates. "Effective" duration takes into
consideration the likelihood that a security will be called or prepaid prior to
maturity given current interest rates. Typically, a security with a longer
duration is more price sensitive than a security with a shorter duration. In
general, a portfolio of debt, mortgage-related and asset-backed securities
experiences a percentage decrease in principal value equal to its effective
duration for each 1% increase in interest rates. For example, if the Portfolio
holds securities with an effective duration of five years and interest rates
rise 1%, the principal value of such securities could be expected to decrease by
approximately 5%. The Portfolio expects that under normal circumstances the
effective duration of its debt, mortgage-related and asset-backed securities
portfolio will range from four to seven years.
In addition, the Portfolio may invest lesser portions of its assets in interest
rate and other bond futures contracts, convertible and non-convertible
investment-grade and non-investment grade debt securities issued by domestic
governments and companies, restricted and illiquid securities, options (the
Portfolio may purchase, sell and write put and call options), stripped
asset-backed securities, securities purchased on a when-issued or forward
commitment basis, mortgage dollar roll transactions, securities of other mutual
funds, preferred stocks and other equity securities obtained upon conversion of
debt securities or warrants, repurchase agreement transactions and money market
securities. To generate additional income, the Portfolio may lend securities
representing up to one-third of the value of its total assets to broker-dealers,
banks and other institutions.
RISKS. An investment in the Portfolio is subject to the following risks:
- Call Risk
- Concentration Risk
- Credit Risk
- Extension Risk
- Income Risk
- Inflation Risk
- Interest Rate Risk
- Market Risk
- Portfolio Risk
- Prepayment Risk
- Securities Lending Risk
A detailed description of these risks is set forth in "- Defining Risks" below.
Additional risk information is provided in the Statement of Additional
Information.
MONEY MARKET PORTFOLIO
Money Market Portfolio seeks maximum current income to the extent consistent
with liquidity and the preservation of capital.
64 INVESTING IN THE FUND
<PAGE>
The Portfolio invests in a variety of U.S. dollar denominated money market
securities, including:
- securities issued or guaranteed by the U.S. government or one of its
agencies or instrumentalities (including bills, notes, bonds and
certificates of indebtedness)
- obligations of domestic banks, savings and loan associations, savings
banks with total assets of at least $2 billion (including certificates of
deposit, bank notes, commercial paper, time deposits and bankers'
acceptances)
- U.S. dollar denominated obligations of U.S. branches or agencies of
foreign banks with total assets of at least $2 billion
- U.S. dollar denominated obligations of Canadian chartered banks and London
branches of U.S. banks with total assets of at least $2 billion
- obligations of supranational entities such as the International Bank for
Reconstruction and Development
- domestic corporate, domestic limited partnership and affiliated foreign
corporate obligations (including commercial paper, notes and bonds)
In addition, the Portfolio may invest lesser portions of its assets in
securities of other mutual funds and restricted and illiquid securities.
The Portfolio invests only in high quality securities. Generally, the Portfolio
may purchase only securities rated within the two highest short-term rating
categories of one or more national rating agencies. The Portfolio only invests
in securities that mature in 397 calendar days or less from the date of
purchase. The Portfolio maintains an average weighted maturity of 90 days or
less.
RISKS. An investment in the Portfolio is subject to the following risks:
- Concentration Risk
- Credit Risk
- Foreign Securities Risk
- Income Risk
- Inflation Risk
- Interest Rate Risk
- Market Risk
- Portfolio Risk
- Stable Price Risk
A detailed description of these risks is set forth in "- Defining Risks" below.
Additional risk information is provided in the Statement of Additional
Information.
ASSET ALLOCATION PORTFOLIO
Asset Allocation Portfolio seeks as high a level of long-term total rate of
return as is consistent with prudent investment risk.
The Portfolio's investments may, at any time, consist of equity securities,
investment-grade debt securities, mortgage-related securities, money market
securities or any combination of these securities. The Portfolio's investments
will be allocated among these asset classes based on Advantus Capital's
risk/return analysis as to current economic or market conditions, trends in
investment yields and investment rates, changes in fiscal or monetary policies
and other relevant factors. If Advantus Capital believes total return from debt
securities will exceed total return from equity securities, the Portfolio will
invest mostly in debt securities. On the other hand, if Advantus Capital
believes total return from equity securities will exceed total return from long
or short-term debt securities, the Portfolio will invest mostly in equity
securities. Further, if Advantus Capital
INVESTING IN THE FUND 65
<PAGE>
believes interest rates will rise, the Portfolio may invest mostly in short-term
money market securities. As a result, Advantus Capital has more discretion to
invest in a variety of securities than most mutual funds. The Portfolio may
invest up to 75% of its total assets in equity securities or in long-term and
short-term debt securities and mortgage-related securities, and up to 100% of
its total assets in money market securities.
The Portfolio invests in various types and classes of equity securities such as
common stock but may also invest in preferred stock and securities convertible
into equity securities. In selecting equity securities, Advantus Capital looks
first to an investment's potential for capital appreciation and then to its
income potential. The Portfolio generally invests in companies with strong
long-term growth potential. However, the Portfolio may also invest in equity
securities of companies that Advantus Capital believes are temporarily
undervalued or show promise of improved results due to new management, products,
markets or other factors.
The Portfolio also may invest in long, intermediate and short-term
investment-grade debt securities. These debt securities include U.S. government
and agency debt securities and investment-grade debt obligations of U.S. banks,
savings and loan associations, savings banks with total assets of at least
$2 billion, corporate debt obligations, notes and other investment-grade debt
securities of any maturity and investment-grade commercial paper issued by
U.S. corporations or affiliated foreign corporations.
The Portfolio may invest in mortgage-related securities such as collateralized
mortgage obligations (CMOs) and stripped mortgage-backed securities and may
purchase securities on a when-issued or forward commitment basis. CMOs are debt
obligations typically issued by a private special-purpose entity that are
collateralized by residential or commercial mortgage loans or pools of
residential mortgage loans. Stripped mortgage-backed securities represent
ownership interests in a pool of mortgages. Securities purchased on a
when-issued or delayed delivery basis require the Portfolio to purchase
securities on a later date with the price fixed at the time of the purchase
commitment.
In addition, the Portfolio may invest in money market securities that mature
within one year from the date of purchase.
As a rule of thumb, a portfolio of debt and mortgage-related securities
generally experiences a decrease in principal value with an increase in interest
rates. The extent of the decrease in principal value may be affected by the
Portfolio's duration of its portfolio of debt and mortgage-related securities.
Duration measures the relative price sensitivity of a security to changes in
interest rates. "Effective" duration takes into consideration the likelihood
that a security will be called or prepaid prior to maturity given current
interest rates. Typically, a security with a longer duration is more price
sensitive than a security with a shorter duration. In general, a portfolio of
debt and mortgage-related securities experiences a percentage decrease in
principal value equal to its effective duration for each 1% increase in interest
rates. For example, if the Portfolio holds securities with an effective duration
of five years and interest rates rise 1%, the principal value of such securities
could be expected to decrease by approximately 5%. The Portfolio expects that
under normal circumstances the effective duration of its debt and
mortgage-related securities portfolio will range from one to seven years.
In addition, the Portfolio may invest lesser portions of its assets in
convertible and non-convertible investment-grade and non-investment grade
corporate debt obligations and mortgage-related securities, securities of other
mutual funds, securities purchased on a when-issued or forward commitment basis,
restricted and illiquid securities, foreign securities, warrants, stock index
futures contracts, interest rate and other bond futures contracts, options (the
Portfolio may purchase, sell and write put and call options), asset-backed and
stripped asset-backed securities, mortgage dollar rolls, index depositary
receipts and repurchase
66 INVESTING IN THE FUND
<PAGE>
and reverse repurchase agreement transactions. To generate additional income,
the Portfolio may lend securities representing up to one-third of the value of
its total assets to broker-dealers, banks and other institutions.
RISKS. An investment in the Portfolio is subject to the following risks:
- Call Risk
- Company Risk
- Concentration Risk
- Credit Risk
- Extension Risk
- Income Risk
- Inflation Risk
- Interest Rate Risk
- Large Company Risk
- Market Risk
- Mid Size Company Risk
- Portfolio Risk
- Prepayment Risk
- Sector Risk
- Securities Lending Risk
- Small Company Risk
A detailed description of these risks is set forth in "- Defining Risks" below.
Additional risk information is provided in the Statement of Additional
Information.
MORTGAGE SECURITIES PORTFOLIO
Mortgage Securities Portfolio seeks a high level of current income consistent
with prudent investment risk.
Under normal circumstances, the Portfolio invests at least 65% of its total
assets in mortgage-related securities. The Portfolio invests a major portion of
its assets in high and investment-grade securities representing interests in
pools of mortgage loans. In addition, the Portfolio may invest in a variety of
other mortgage-related securities including collateralized mortgage obligations
(CMOs) and stripped mortgage-backed securities.
In selecting mortgage-related securities, Advantus Capital considers a variety
of factors, including prepayment risk, credit quality, liquidity, the collateral
securing the underlying loan (I.E., residential versus commercial real estate)
and the type of underlying mortgage loan (I.E., a 30-year fully-amortized loan
versus a 15-year fully-amortized loan). Advantus Capital also considers current
and expected trends in economic conditions, interest rates and the mortgage
market, and selects securities which, in its judgment, are likely to perform
well in those circumstances.
Interests in pools of mortgage loans provide the security holder the right to
receive out of the underlying mortgage loans periodic interest payments at a
fixed rate and a full principal payment at a designated maturity or call date.
Scheduled principal, interest and other payments on the underlying mortgage
loans received by the sponsoring or guarantor entity are then distributed or
"passed through" to security holders net of any service fees retained by the
sponsor or guarantor. Additional payments passed through to security holders
could arise from the prepayment of principal resulting from the sale of
residential property, the refinancing of underlying mortgages, or the
foreclosure of residential property. In "pass through" mortgage loan pools,
payments to security holders will depend on whether mortgagors make payments to
the pooling entity on the underlying mortgage loans. To avoid this non-payment
risk, the Portfolio may also invest in "modified pass through" mortgage loan
pools which provide that the security holder will receive interest and principal
payments regardless of whether mortgagors make payments on the underlying
mortgage loans.
The Portfolio may invest in government or government-related mortgage loan pools
or private mortgage loan pools. In government or government-related mortgage
loan pools, the U.S. government or certain agencies guarantee to mortgage pool
security holders the payment of principal and interest. The principal
governmental guarantors of mortgage-related securities are the Federal National
Mortgage Association (FNMA)
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and the Federal Home Loan Mortgage Corporation (FHLMC). FNMA and FHLMC generally
guarantee payment of principal and interest on mortgage loan pool securities
issued by certain pre-approved institutions (I.E., savings and loan
institutions, commercial banks and mortgage bankers).
The Portfolio may also invest in private mortgage loan pools sponsored by
commercial banks, insurance companies, mortgage bankers and other private
financial institutions. Mortgage pools created by these non-governmental
entities offer a higher rate of interest than government or government related
securities. Unlike government agency sponsored mortgage loan pools, payment of
interest and payment to investors is not guaranteed.
The Portfolio may also invest a major portion of its assets in CMOs and stripped
mortgage-backed securities. CMOs are debt obligations issued by both government
agencies and private special-purpose entities that are collateralized by
residential or commercial mortgage loans. Unlike traditional mortgage loan
pools, CMOs allocate the priority of the distribution of principal and level of
interest from the underlying mortgage loans among various series. Each series
differs from another in terms of the priority right to receive cash payments
from the underlying mortgage loans. Each series may be further divided into
classes in which the principal and interest payments payable to classes in the
same series may be allocated. For instance, a certain class in a series may have
right of priority over another class to receive principal and interest payments.
Moreover, a certain class in a series may be entitled to receive only interest
payments while another class in the same series may be only entitled to receive
principal payments. As a result, the timing and the type of payments received by
a CMO security holder may differ from the payments received by a security holder
in a traditional mortgage loan pool.
Stripped mortgage-backed securities also represent ownership interests in a pool
of mortgages. However, the stripped mortgage-backed securities are separated
into interest and principal components. The interest component only allows the
security holder to receive the interest portion of cash payments, while the
principal component only allows the security holder to receive the principal
portion of cash payments.
As a rule of thumb, a portfolio of fixed income securities (including
mortgage-related securities) experiences a decrease in principal value with an
increase in interest rates. The extent of the decrease in principal value may be
affected by the Portfolio's duration of its portfolio of mortgage-related
securities. Duration measures the relative price sensitivity of a security to
changes in interest rates. "Effective" duration takes into consideration the
likelihood that a security will be called or prepaid prior to maturity given
current interest rates. Typically, a security with a longer duration is more
price sensitive than a security with a shorter duration. In general, a portfolio
of mortgage-related securities experiences a percentage decrease in principal
value equal to its effective duration for each 1% increase in interest rates.
For example, if the Portfolio holds securities with an effective duration of
five years and interest rates rise 1%, the principal value of such securities
could be expected to decrease by approximately 5%. The Portfolio expects that
under normal circumstances the effective duration of its investment portfolio
will range from one to seven years.
In addition, the Portfolio may invest lesser portions of its assets in
non-investment grade mortgage-related securities, securities issued or
guaranteed by the U.S. government or its agencies and instrumentalities,
certificates of deposits, bankers' acceptances, investment-grade commercial
paper, convertible and non-convertible investment-grade and non-investment grade
corporate debt securities, securities of other mutual funds, restricted and
illiquid securities, direct mortgage investments, interest rate and other bond
futures contracts, asset-backed and stripped asset-backed securities, repurchase
agreement transactions, when-issued or forward commitment transactions and
mortgage dollar rolls. To generate additional income, the Portfolio may lend
securities representing up to one-third of the value of its total assets to
broker-dealers, banks and other institutions.
68 INVESTING IN THE FUND
<PAGE>
RISKS. An investment in the Portfolio is subject to the following risks:
- Call Risk
- Concentration Risk
- Credit Risk
- Extension Risk
- Income Risk
- Inflation Risk
- Interest Rate Risk
- Market Risk
- Portfolio Risk
- Prepayment Risk
A detailed description of these risks is set forth in "- Defining Risks" below.
Additional risk information is provided in the Statement of Additional
Information.
INDEX 500 PORTFOLIO
Index 500 Portfolio seeks investment results that correspond generally to the
price and yield performance of the common stocks included in the Standard &
Poor's 500 Composite Stock Price Index (the S&P 500).
Under normal conditions, the Portfolio invests its assets in all of the common
stocks included in the S&P 500. The Portfolio attempts to achieve a correlation
of 100% without considering Portfolio expenses. However, the Portfolio is not
required to hold a minimum or maximum number of common stocks included in the
S&P 500, and due to changing economic or markets, may invest in less than all of
the common stocks included in the S&P 500.
Advantus Capital utilizes a computer program to confirm the Portfolio's S&P 500
replication and to round off security weightings.
In addition, the Portfolio may invest lesser portions of its assets in
investment-grade short-term fixed income securities, stock index futures
contracts, securities of other mutual funds, restricted and illiquid securities,
index depositary receipts, repurchase agreement transactions and money market
securities. To generate additional income, the Portfolio may lend securities
representing up to one-third of the value of its total assets to broker-dealers,
banks and other institutions.
Standard & Poor's Rating Services (S&P), a division of the McGraw-Hill
Companies, Inc., designates the stocks included in the S&P 500. From time to
time, S&P may add or delete stocks from the S&P 500. Inclusion of a stock in the
S&P 500 does not imply an opinion by S&P as to its investment merit.
"Standard & Poor's," "S&P," "S&P 500," "Standard & Poor's 500," and "500" are
trademarks of The McGraw-Hill Companies, Inc. and have been licensed for use by
the Portfolio. The Portfolio is not sponsored, endorsed, sold or promoted by S&P
and S&P makes no representation regarding the advisability of investing in the
Portfolio. Please see the Statement of Additional Information which sets forth
certain additional disclaimers and limitations on behalf of S&P.
RISKS. An investment in the Portfolio is subject to the following risks:
- Company Risk
- Concentration Risk
- Index Performance Risk
- Inflation Risk
- Large Company Risk
- Market Risk
- Portfolio Risk
- Sector Risk
- Securities Lending Risk
A detailed description of these risks is set forth in "- Defining Risks" below.
Additional risk information is provided in the Statement of Additional
Information.
INVESTING IN THE FUND 69
<PAGE>
CAPITAL APPRECIATION PORTFOLIO
Capital Appreciation Portfolio seeks growth of capital.
The Portfolio primarily invests in various types of equity securities of small,
mid and large capitalization companies. Under normal circumstances, the
Portfolio will primarily invest in common stock, preferred stock or securities
convertible into equity securities of small, mid and large capitalization
companies. As of December 31, 1999, the average weighted market capitalization
of the Portfolio's investments was $ billion.
In selecting equity securities, the Portfolio invests in securities that Credit
Suisse, the Portfolio's investment sub-adviser, believes show possibilities for
capital appreciation. In assessing capital appreciation potential, Credit Suisse
seeks to identify growth opportunities for the Portfolio. Credit Suisse looks
for sectors and companies that it believes will outperform the overall market,
and also looks for themes and patterns that are generally associated with growth
companies, such as:
- Significant fundamental changes, including changes in senior management
- Generation of a large free cash flow
- Proprietary products and services
- Company share-buyback programs
The Portfolio selects growth companies whose stocks appear to be available at a
reasonable price relative to projected growth.
In addition, the Portfolio may invest lesser portions of its assets in
restricted and illiquid securities, investment-grade corporate debt securities,
warrants, index depositary receipts, stock index futures contracts, options (the
Portfolio may purchase, sell and write put and call options), repurchase
agreement transactions, securities of other mutual funds and money market
securities. To generate additional income, the Portfolio may lend securities
representing up to one-third of the value of its total assets to broker-dealers,
banks and other institutions.
RISKS. An investment in the Portfolio is subject to the following risks:
- Company Risk
- Concentration Risk
- Growth Stock Risk
- Inflation Risk
- Large Company Risk
- Market Risk
- Mid Size Company Risk
- Portfolio Risk
- Sector Risk
- Securities Lending Risk
- Small Company Risk
A detailed description of these risks is set forth in "- Defining Risks" below.
Additional risk information is provided in the Statement of Additional
Information.
INTERNATIONAL STOCK PORTFOLIO
International Stock Portfolio seeks long-term capital growth.
70 INVESTING IN THE FUND
<PAGE>
Under normal circumstances, the Portfolio invests at least 65% of its assets in
equity securities of small, mid and large capitalization foreign companies. The
Portfolio may invest in securities of companies or governments in developed
foreign markets or in developing or emerging markets. Under normal
circumstances, the Portfolio will maintain investments in at least three foreign
countries.
The Portfolio invests in equity securities. Equity securities generally entitle
the holder to participate in a company's general operating results. These
include common stock, preferred stock, warrants or rights to purchase such
securities. In selecting equity securities, Templeton Counsel, the Portfolio's
investment sub-adviser, performs a company-by-company analysis, rather than
focusing on a specific industry or economic sector. Templeton Counsel
concentrates primarily on the market price of a company's securities relative to
its view regarding the company's long-term earnings potential. A company's
historical value measures, including price/earnings ratios, profit margins and
liquidation value will also be considered.
The Portfolio may also invest a lesser portion of its assets in closed-end
investment companies, restricted and illiquid securities, U.S. government,
domestic and foreign investment-grade debt securities, American Depositary
Receipts, European Depositary Receipts, securities and index futures contracts,
forward foreign currency exchange contracts, exchange-traded foreign currency
futures contracts, options (the Portfolio may purchase, sell and write put and
call options), securities of other mutual funds, non-investment grade debt
securities, repurchase agreement transactions, securities purchased on a
when-issued or forward commitment basis and money market securities. To generate
additional income, the Portfolio may lend securities representing up to
one-third of the value of its total assets to broker-dealers, banks and other
institutions.
RISKS. An investment in the Portfolio is subject to the following risks:
- Company Risk
- Concentration Risk
- Credit Risk
- Currency Risk
- Emerging Markets Risk
- Euro Conversion Risk
- Foreign Securities Risk
- Income Risk
- Inflation Risk
- Interest Rate Risk
- Large Company Risk
- Market Risk
- Mid Size Company Risk
- Portfolio Risk
- Sector Risk
- Securities Lending Risk
- Small Company Risk
A detailed description of these risks is set forth in "- Defining Risks" below.
Additional risk information is provided in the Statement of Additional
Information.
SMALL COMPANY GROWTH PORTFOLIO
Small Company Growth Portfolio seeks long-term accumulation of capital.
The Portfolio primarily invests in various types of equity securities of small
capitalization growth companies (I.E. growth companies with a market
capitalization of less than $1.5 billion) at the time of purchase. The Portfolio
primarily invests in common stocks but may also invest in preferred stocks and
securities convertible into equity securities. Under normal circumstances, at
least 65% of the Portfolio's total assets will be invested in securities of
small capitalization growth companies. If a company's market capitalization
exceeds $1.5 billion after the Portfolio purchases the company's securities, the
Portfolio may nevertheless hold such securities. From time to time, the
Portfolio may also invest a lesser portion of its assets in securities of mid
INVESTING IN THE FUND 71
<PAGE>
and large capitalization companies (I.E. companies with market capitalizations
of at least $1.5 billion). As of December 31, 1999, the average weighted market
capitalization of the Portfolio's investments was $ billion.
In selecting equity securities of growth companies for the Portfolio, Credit
Suisse looks for:
- Companies still in the developmental stage
- Older companies that appear to be entering a new stage of growth
- Companies providing products or services with a high unit-volume growth
rate
The Portfolio may also invest in emerging-growth companies - small or
medium-size companies that have passed their start-up phase, show positive
earnings, and offer the potential for accelerated earnings growth.
Emerging-growth companies generally stand to benefit from new products or
services, technological developments, changes in management or other factors.
In addition, the Portfolio may invest lesser portions of its assets in
restricted and illiquid securities, investment-grade corporate debt securities,
foreign securities, warrants, stock index futures contracts, options (the
Portfolio may purchase, sell and write put and call options), index depositary
receipts, repurchase agreement transactions, securities of other mutual funds
and money market securities. To generate additional income, the Portfolio may
lend securities representing up to one-third of the value of its total assets to
broker-dealers, banks and other institutions.
RISKS. An investment in the Portfolio is subject to the following risks:
- Company Risk
- Concentration Risk
- Growth Stock Risk
- Inflation Risk
- Market Risk
- Mid Size Company Risk
- Portfolio Risk
- Sector Risk
- Securities Lending Risk
- Small Company Risk
A detailed description of these risks is set forth in "- Defining Risks" below.
Additional risk information is provided in the Statement of Additional
Information.
MATURING GOVERNMENT BOND PORTFOLIOS
Each of the Maturing Government Bond Portfolios seeks as high an investment
return as is consistent with prudent investment risk for a specified period of
time ending on a specified liquidation date.
Each of the Portfolios primarily invests in zero coupon securities. Zero coupon
securities are securities that pay no cash income and are sold at a discount
from their stated maturity value. When held to maturity, the entire return on
zero coupon securities generally consists of the difference between each
security's purchase price and its respective maturity value. As a result, an
investor knows this difference at the time of purchase and can determine the
investment return from such securities. However, since each Portfolio may invest
in other non-zero coupon securities and instruments (as discussed below), such
Portfolio's total investment return will vary from the aggregate purchase
price-maturity value spread of its zero coupon securities. Nevertheless, these
non-zero coupon securities will also describe an anticipated yield to a
designated maturity
72 INVESTING IN THE FUND
<PAGE>
date. In order to obtain an amount approximating the anticipated return from
each Portfolio's zero coupon holdings, an investor should hold Portfolio shares
until the respective maturity date of the applicable Portfolio.
The anticipated total return on an investment in each Portfolio will vary if
shares of the Portfolio are redeemed prior to the stated maturity date.
Generally, the value of zero coupon and non-zero coupon holdings prior to the
stated maturity date may increase or decrease with changes in prevailing
interest rates. Since shares redeemed prior to maturity are redeemed at net
asset value (I.E. a value based on the current market value of the Portfolio's
holdings per share), an investor may receive a significantly different
investment return than anticipated at the time of purchase upon redemption prior
to maturity. Return may also be affected by cash flow transactions affecting the
Portfolio (E.G., redemptions by others or purchases of Portfolio shares).
In light of the above, the Fund may calculate an anticipated growth rate (AGR)
and anticipated value at maturity (AVM) for each Portfolio. AGR estimates the
average total return expected from an investment in a Portfolio until the target
maturity date (assuming no withdrawals or additional investments). AVM estimates
the value of an investment at the Portfolio's target maturity date. As discussed
above, a number of factors can alter a Portfolio's AGR or AVM such as interest
rate changes, transaction costs and other actions taken by Advantus Capital to
improve total return. Despite this, if Portfolio shares are held to the target
maturity date, then the return on the investment will approximate the applicable
AGR and AVM.
Each Portfolio will mature on a specific target date. The current target dates
are September 2002, 2006 and 2010. On each such target date, the Portfolio will
be converted to cash and reinvested in another Fund Portfolio at the direction
of the investor. If the investor does not provide reinvestment instructions,
then the proceeds will automatically be invested in Money Market Portfolio.
Zero coupon securities include securities issued by the United States Treasury
(Stripped Treasury Securities), by the U.S. government and its agencies and
instrumentalities (Stripped Government Securities) and by domestic corporations
(Stripped Corporate Securities). Under normal circumstances, each Portfolio will
invest at least 65% of its net assets in Stripped Treasury Securities and
Stripped Government Securities.
"Stripped Treasury Securities" consist of (a) debt obligations issued by the
U.S. Treasury that are stripped of their respective unmatured interest coupon
and (b) receipts and certificates for such stripped debt obligations and
stripped interest coupons. "Stripped Government Securities" consist of zero
coupon securities issued by the U.S. government and its agencies and
instrumentalities, by trusts to which payment of principal and interest are
guaranteed by the U.S., and by other government sponsored corporations.
"Stripped Corporate Securities" consist of zero coupon debt securities issued by
domestic corporations, interest coupons stripped from corporate debt obligations
and receipts and certificates for such stripped debt obligations and stripped
coupons.
As a rule of thumb, a portfolio of fixed income securities experiences a
decrease in principal value with an increase in interest rates. The extent of
the decrease in principal value may be affected by the Portfolio's duration of
its portfolio of fixed income securities. Duration measures the relative price
sensitivity of a security to changes in interest rates. "Effective" duration
takes into consideration the likelihood that a security will be called or
prepaid prior to maturity given current interest rates. Typically, a security
with a longer effective duration is more price sensitive than a security with a
shorter duration. In general, a portfolio of fixed income securities experiences
a percentage decrease in principal value equal to its effective duration for
each 1% increase in interest rates. For example, if the Portfolio holds
securities with an effective duration of five years and interest rates rise 1%,
the principal value of such securities could be expected to decrease by
INVESTING IN THE FUND 73
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approximately 5%. Each Portfolio expects that under normal circumstances the
effective duration of its investment portfolio will range within one year of the
Portfolio's remaining maturity. Thus, if the time remaining to a Portfolio's
target maturity date is five years, the Portfolio's duration will range from
four to six years.
In addition, each Portfolio may invest lesser portions of its assets in other
investment-grade debt obligations, restricted and illiquid securities,
securities of other mutual funds, repurchase agreement transactions, cash, cash
equivalent items and money market securities. To generate additional income, the
Portfolio may lend securities representing up to one-third of the value of its
total assets to broker-dealers, banks and other institutions.
RISKS. An investment in each of the Portfolios is subject to the following
risks:
- Concentration Risk
- Credit Risk
- Income Risk
- Inflation Risk
- Interest Rate Risk
- Market Risk
- Portfolio Risk
- Securities Lending Risk
A detailed description of these risks is set forth in "- Defining Risks" below.
Additional risk information is provided in the Statement of Additional
Information.
VALUE STOCK PORTFOLIO
Value Stock Portfolio seeks long-term accumulation of capital. The production of
income is a secondary objective of the Portfolio.
The Portfolio primarily invests in various types of equity securities of mid and
large capitalization companies (I.E., companies with a market capitalization of
at least $1.5 billion). Under normal circumstances, the Portfolio will invest at
least 65% of its total assets in common stocks issued by mid and large
capitalization foreign and domestic companies that are publicly traded in the
United States. The Portfolio may also invest in preferred stock and other
securities convertible into equity securities. From time to time the Portfolio
will also invest a lesser portion of its assets in securities of small
capitalization companies. As of December 31, 1999, the average weighted market
capitalization of the Portfolio's investments was $ billion.
In selecting equity securities, Advantus Capital primarily looks to equity
securities it believes are undervalued. Undervalued securities are securities
that Advantus Capital believes: (a) are undervalued relative to other securities
in the market or currently earn low returns with a potential for higher returns,
(b) are undervalued relative to the potential for improved operating performance
and financial strength, and (c) are issued by companies that have recently
undergone a change in management or control and that are undervalued relative to
their potential for improved operating performance. In assessing relative value,
Advantus Capital will consider factors such as a company's ratio of market price
to earnings, ratio of market price to book value, ratio of market price to
assets, ratio of market price to cash flow, estimated earnings growth rate, cash
flow, yield, liquidation value, product pricing, quality of management and
competitive market position. As a secondary focus, Advantus Capital may also
consider an investment's potential to provide current income. In seeking to
achieve its investment objectives, the Portfolio may also invest in equity
securities of companies that Advantus Capital believes show potential for
sustainable earnings growth above the average market growth rate.
74 INVESTING IN THE FUND
<PAGE>
In addition, the Portfolio may invest lesser portions of its assets in
restricted and illiquid securities, convertible and non-convertible
investment-grade and non-investment grade debt securities, securities of other
mutual funds, foreign securities, warrants, repurchase agreement transactions,
index depositary receipts, stock index futures contracts, options (the Portfolio
may purchase, sell and write put and call options) and money market securities.
To generate additional income, the Portfolio may lend securities representing up
to one-third of the value of its total assets to broker-dealers, banks and other
institutions.
RISKS. An investment in the Portfolio is subject to the following risks:
- Company Risk
- Concentration Risk
- Inflation Risk
- Large Company Risk
- Market Risk
- Mid Size Company Risk
- Portfolio Risk
- Sector Risk
- Securities Lending Risk
- Value Stock Risk
A detailed description of these risks is set forth in "- Defining Risks" below.
Additional risk information is provided in the Statement of Additional
Information.
SMALL COMPANY VALUE PORTFOLIO
Small Company Value Portfolio seeks long-term accumulation of capital.
The Portfolio primarily invests in various types of equity securities of small
capitalization companies (I.E., companies with a market capitalization of less
than $1.5 billion) at the time of purchase. Under normal circumstances, at least
65% of the Portfolio's total assets will be invested in common stocks of small
capitalization domestic companies and foreign companies that are publicly traded
in the United States. Some companies may outgrow the definition of a small
capitalization company after the Portfolio has purchased their securities. These
companies continue to be considered small for purposes of the Portfolio's
minimum 65% allocation to small capitalization companies. The Portfolio may also
invest in preferred stock and other securities convertible into equity
securities. From time to time, the Portfolio will also invest a lesser portion
of its assets in securities of mid and large capitalization companies (I.E.,
companies with a market capitalization of at least $1.5 billion). As of
December 31, 1999, the average weighted market capitalization of the Portfolio's
investments was $ million.
In selecting value stocks and other equity securities, State Street Research
primarily looks to equity securities it believes are undervalued or trading
below their true worth, but that appear likely to come back into favor with
investors. Undervalued securities are securities that State Street Research
believes: (a) are undervalued relative to other securities in the market or
currently earn low returns with a potential for higher returns, (b) are
undervalued relative to the potential for improved operating performance and
financial strength, or (c) are issued by companies that have recently undergone
a change in management or control, or developed new products or services, that
may improve their business prospects or competitive position. In assessing
relative value, State Street Research will consider factors such as a company's
ratio of market price to earnings, ratio of market price to book value, ratio of
market price to assets, ratio of market price to cash flow, estimated earnings
growth rate, cash flow, yield, liquidation value, product pricing, quality of
management and competitive market position. As a secondary focus, State Street
Research may also consider an investment's potential to provide current income.
In seeking to achieve its investment objectives, the Portfolio may also invest
in equity securities of companies that Advantus Capital believes show potential
for sustainable earnings growth above the average market growth rate.
INVESTING IN THE FUND 75
<PAGE>
The Portfolio's purchases of equity securities may include shares of common
stock that are part of a company's initial public offering. In addition, the
Portfolio may invest lesser portions of its assets in restricted and illiquid
securities, convertible and non-convertible investment-grade and non-investment
grade debt securities, securities of other mutual funds, foreign securities,
warrants, repurchase agreement transactions, stock index futures contracts,
options (the Portfolio may purchase, sell and write put and call options), index
depositary receipts and money market securities. To generate additional income,
the Portfolio may lend securities representing up to one-third of its total
assets to broker-dealers, banks and other institutions.
RISKS. An investment in the Portfolio is subject to the following risks:
- Company Risk
- Concentration Risk
- Inflation Risk
- Initial Public Offering Risk
- Market Risk
- Mid Size Company Risk
- Portfolio Risk
- Sector Risk
- Securities Lending Risk
- Small Company Risk
- Value Stock Risk
A detailed description of these risks is set forth in "- Defining Risks" below.
Additional risk information is provided in the Statement of Additional
Information.
GLOBAL BOND PORTFOLIO
Global Bond Portfolio seeks to maximize current income, consistent with the
protection of principal.
The Portfolio invests mainly in a variety of investment-grade debt securities
issued by domestic and foreign issuers. These debt securities include:
- investment-grade corporate debt obligations issued by domestic and foreign
corporate issuers
- investment-grade debt securities issued or guaranteed by the U.S.
government or any of its agencies or instrumentalities (including
U.S. Treasury bills, notes and bonds)
- investment-grade debt securities issued or guaranteed by foreign
governments or any of their agencies, instrumentalities or political
subdivisions, or by supranational organizations
- investment-grade mortgage-backed securities, asset-backed securities
issued or sponsored by domestic governmental agencies and financial
institutions
- investment-grade mortgage-backed and asset-backed securities issued or
sponsored by domestic issuers
- debt obligations of U.S. banks, savings and loan associations and savings
banks
JBIM, the Portfolio's investment sub-adviser, determines the Portfolio's
allocation between foreign and domestic securities and selects and manages the
Portfolio's foreign investments. Advantus Capital selects and manages the
Portfolio's domestic investments.
The Portfolio invests primarily in investment-grade debt obligations issued by
domestic and foreign companies in a variety of industries. However, the
Portfolio may invest in investment-grade and non-investment-grade Brady Bonds.
The Portfolio may invest in long-term debt securities (I.E., maturities of more
than 10 years), intermediate debt securities (I.E., maturities from 3 to 10
years) and short-term debt securities (I.E., maturities of less than 3 years).
In selecting corporate debt securities and their maturities, Advantus Capital
and JBIM
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<PAGE>
seek to maximize current income by engaging in a risk/return analysis that
focuses on various factors such as industry outlook, current and anticipated
market and economic conditions, general levels of debt prices and issuer
operations.
Under normal circumstances, the Portfolio will maintain investments in at least
three foreign countries. The Portfolio may invest in securities or governments
in developed foreign markets or in developing or emerging markets.
The Portfolio may also invest a portion of its assets in CMOs, stripped
mortgage-backed securities and asset-backed securities. CMOs are debt
obligations typically issued by a private special-purpose entity that are
collateralized by residential or commercial mortgage loans or pools of
residential mortgage loans. CMOs allocate the priority of the distribution of
principal and interest from the underlying mortgage loans among various series.
Each series differs from the other in terms of the priority right to receive
cash payments from the underlying mortgage loans.
Stripped mortgage-backed securities also represent ownership interests in a pool
of mortgages. However, the stripped mortgage-backed securities are separated
into interest and principal components. The interest component only allows the
interest holder to receive the interest portion of cash payments, while the
principal component only allows the interest holder to receive the principal
portion of cash payments.
Asset-backed securities represent interest in pools of consumer loans (such as
credit card, trade or automobile loans). Investors in asset-backed securities
are entitled to receive payments of principal and interest received by the pool
entity from the underlying consumer loans net of any costs and expenses incurred
by the entity.
As a rule of thumb, a portfolio of debt, mortgage-related and asset-backed
securities experiences a decrease in principal value with an increase in
interest rates. The extent of the decrease in principal value may be affected by
the Portfolio's duration of its portfolio of debt, mortgage-related and
asset-backed securities. "Effective" duration takes into consideration the
likelihood that a security will be called or prepaid prior to maturity given
current interest rates. Duration measures the relative price sensitivity of a
security to changes in interest rates. Typically, a security with a longer
duration is more price sensitive than a security with a shorter duration. As a
very broad approximation, a portfolio of debt, mortgage-related and asset-backed
securities experiences a percentage decrease in principal value equal to its
effective duration for each 1% increase in interest rates. For example, if the
Portfolio holds securities with an effective duration of five years and interest
rates rise 1%, the principal value of such securities could be expected to
decrease by approximately 5%. The Portfolio expects that under normal
circumstances the effective duration of its debt, mortgage-related and
asset-backed securities portfolio will range from three to eight years.
In addition, the Portfolio may invest lesser portions of its assets in interest
rate and securities futures contracts, options on interest rate or securities
futures contracts, forward foreign currency exchange contracts, exchange-traded
foreign currency futures contracts, options on foreign currency futures
contracts, non-investment grade debt securities, securities index futures
contracts, options on securities index futures contracts, interest rate and
index swap agreement transactions, restricted and illiquid securities, options
(the Portfolio may purchase, sell and write put and call options), securities
purchased on a when-issued or forward commitment basis, mortgage dollar roll
transactions, American Depositary Receipts, Global Depositary Receipts,
securities of other mutual funds, warrants, repurchase agreement transactions,
reverse repurchase agreement transactions, cash, cash equivalent items and money
market securities. To generate additional income, the Portfolio may lend
securities representing up to one-third of its total assets to broker-dealers,
banks and other institutions.
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RISKS. An investment in the Portfolio is subject to the following risks:
- Call Risk
- Concentration Risk
- Credit Risk
- Currency Risk
- Euro Conversion Risk
- Extension Risk
- Foreign Securities Risk
- Income Risk
- Inflation Risk
- Interest Rate Risk
- Market Risk
- Portfolio Risk
- Prepayment Risk
- Securities Lending Risk
A detailed description of these risks is set forth in "- Defining Risks" below.
Additional risk information is provided in the Statement of Additional
Information.
INDEX 400 MID-CAP PORTFOLIO
Index 400 Mid-Cap Portfolio seeks investment results generally corresponding to
the aggregate price and dividend performance of the publicly traded common
stocks that comprise the Standard & Poor's 400 MidCap Index (the S&P 400).
Under normal conditions, the Portfolio invests at least 80% of its total assets
in common stocks included in the S&P 400. Depending on the size of the Portfolio
and to reduce trading costs, Advantus Capital believes the Portfolio's objective
can be achieved by investing in approximately 50% to 100% of the common stocks
included in the S&P 400. However, the Portfolio is not required to hold a
minimum or maximum number of common stocks included in the S&P 400. Because the
Portfolio will not hold all of the common stocks included in the S&P 400, the
Portfolio may not duplicate the S&P 400 performance precisely. Currently, the
Portfolio attempts to achieve a correlation of 85% to 95% without considering
Portfolio expenses. If the Portfolio's total assets exceed $25 million, the
Portfolio will attempt to achieve a correlation of 95% without considering
Portfolio expenses.
The Portfolio is managed by utilizing a computer program that identifies the
common stocks to be purchased or sold in order to replicate the performance of
the S&P 400. Advantus Capital reviews the computer's purchase and sale
recommendations to confirm the S&P 400 correlation. Advantus Capital may delay
making all or a portion of such recommended purchases and sales during adverse
trading periods. The proportion of the Portfolio's total assets invested in an
industry or country will substantially resemble the percentage of the S&P 400
represented by that industry or country.
In addition, the Portfolio may invest lesser portions of its assets in
investment-grade short-term fixed income securities, securities of other mutual
funds, restricted and illiquid securities, index depositary receipts, stock
index futures contracts, repurchase agreement transactions and money market
securities. To generate additional income, the Portfolio may lend securities
representing up to one-third of the value of its total assets to broker-dealers,
banks and other institutions.
S&P designates the stocks included in the S&P 400. From time to time, S&P may
add or delete stocks from the S&P 400. Inclusion of a stock in the S&P 400 does
not imply an opinion by S&P as to its investment merit. "Standard & Poor's,"
"S&P," "S&P 400" and "Standard & Poor's MidCap 400," are trademarks of The
McGraw-Hill Companies, Inc. and have been licensed for use by the Portfolio. The
Portfolio is not sponsored, endorsed, sold or promoted by S&P and S&P makes no
representation regarding the advisability of investing in the Portfolio. Please
see the Statement of Additional Information which sets forth certain additional
disclaimers and limitations on behalf of S&P.
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RISKS. An investment in the Portfolio is subject to the following risks:
- Company Risk
- Concentration Risk
- Index Performance Risk
- Inflation Risk
- Market Risk
- Mid Size Company Risk
- Portfolio Risk
- Sector Risk
- Securities Lending Risk
A detailed description of these risks is set forth in "- Defining Risks" below.
Additional risk information is provided in the Statement of Additional
Information.
MACRO-CAP VALUE PORTFOLIO
Macro-Cap Value Portfolio seeks high total return.
The Portfolio primarily invests in various equity securities of very large
capitalization domestic companies (I.E. typically companies with a market
capitalization of at least $8 billion) at the time of purchase. Under normal
circumstances, at least 65% of the Portfolio's total assets will be invested in
common stocks of such very large capitalization domestic companies and foreign
issuers that are publicly traded in the United States. The Portfolio may also
invest in preferred stock, other securities convertible into equity securities,
and securities of smaller capitalization companies (I.E., companies with a
market capitalization of less than $8 billion). As of December 31, 1999, the
average weighted market capitalization of the Portfolio's investments was
$ billion and the median market capitalization was approximately
$12 billion.
Fundamental research is the cornerstone of the valuation-driven investment
approach. J.P. Morgan's equity analysts develop long-term forecasts of
normalized earnings, cash flows and dividends on more than 600 domestic
companies. J.P. Morgan then uses a dividend discount model to rank companies
within economic sectors according to their relative value. The dividend discount
model also identifies those securities that are undervalued, based on current
market prices, relative to their long-term earnings power.
From the universe of securities that are identified as undervalued, J.P. Morgan
creates a diversified portfolio of securities which typically has a
price/earnings ratio and a price to book ratio that reflects a value
orientation. J.P. Morgan may modestly under or over-weight selected economic
sectors against the S&P 500 Index's sector weightings to seek to enhance the
Portfolio's total return or reduce the fluctuation in its market value relative
to the S&P 500 Index.
In addition, the Portfolio may invest lesser portions of its assets in
restricted and illiquid securities, convertible and non-convertible
investment-grade and non-investment grade debt securities, foreign securities,
stock index futures contracts, options (the Portfolio may purchase, sell and
write put and call options), warrants, index depositary receipts, securities
purchased on a when-issued or forward commitment basis, repurchase agreement
transactions, securities of other mutual funds and money market securities. To
generate additional income, the Portfolio may lend securities representing up to
one-third of the value of its total assets to broker-dealers, banks and other
institutions.
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RISKS. An investment in the Portfolio is subject to the following risks:
- Company Risk
- Concentration Risk
- Inflation Risk
- Large Company Risk
- Market Risk
- Portfolio Risk
- Sector Risk
- Securities Lending Risk
- Value Stock Risk
A detailed description of these risks is set forth in "- Defining Risks" below.
Additional risk information is provided in the Statement of Additional
Information.
MICRO-CAP GROWTH PORTFOLIO
Micro-Cap Growth Portfolio seeks long-term capital appreciation.
The Portfolio primarily invests in various types of equity securities of
micro-cap companies (I.E., companies with a market capitalization of less than
$300 million) at the time of purchase. If a company's market capitalization
exceeds $300 million after the Portfolio purchases the company's securities, the
Portfolio may nevertheless hold such securities. The Portfolio primarily invests
in common stocks but may also invest in preferred stocks and securities
convertible into equity securities. Under normal circumstances, at least 65% of
the Portfolio's total assets will be invested in common stocks of micro-cap
companies. From time to time, the Portfolio may also invest a lesser portion of
its assets in securities of larger capitalization companies (I.E., companies
with market capitalizations of at least $300 million). As of December 31, 1999,
the average weighted market capitalization of the Portfolio's investments was
$ million.
In selecting equity securities for the Portfolio, WSA, the Portfolio's
investment sub-adviser, primarily looks to an investment's potential for
sustainable earnings growth and improving profitability. In selecting securities
with earnings growth potential, WSA considers factors such as a company's
competitive market position, quality of management, growth strategy, internal
operating trends (such as profit margins, cash flows and earnings and revenue
growth), overall financial condition, and ability to sustain current rate of
growth. In seeking to achieve its investment objective, the Portfolio may also
invest in equity securities of companies that WSA believes are temporarily
undervalued or show promise of improved results due to new management, products,
markets or other factors.
The Portfolio's purchases of equity securities may include shares of common
stock that are part of a company's initial public offering. In addition, the
Portfolio may invest lesser portions of its assets in restricted and illiquid
securities, investment-grade and non-investment grade corporate debt securities,
foreign securities, warrants, stock index futures contracts, options (the
Portfolio may purchase, sell and write put and call options), index depositary
receipts, repurchase agreement transactions, securities of other mutual funds
and money market securities. To generate additional income, the Portfolio may
lend securities representing up to one-third of the value of its total assets to
broker-dealers, banks and other institutions.
RISKS. An investment in the Portfolio is subject to the following risks:
- Company Risk
- Concentration Risk
- Growth Stock Risk
- Inflation Risk
- Initial Public Offering Risk
- Market Risk
- Micro-Cap Company Risk
- Portfolio Risk
- Sector Risk
- Securities Lending Risk
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A detailed description of these risks is set forth in "- Defining Risks" below.
Additional risk information is provided in the Statement of Additional
Information.
REAL ESTATE SECURITIES PORTFOLIO
Real Estate Securities Portfolio seeks above average income and long-term growth
of capital.
Under normal circumstances, at least 65% of the Portfolio's total assets will be
invested in real estate and real estate-related securities. The Portfolio will
primarily invest in real estate and real estate-related equity securities
(including securities convertible into equity securities). The Portfolio does
not invest directly in real estate. "Real estate securities" include securities
issued by companies that receive at least 50% of their gross revenue from the
construction, ownership, management, financing or sale of residential,
commercial or industrial real estate. Real estate securities issuers typically
include real estate investment trusts (REITs), real estate brokers and
developers and real estate holding companies.
The Portfolio may invest in securities of small, mid and large capitalization
companies. Advantus Capital assesses an investment's potential for sustainable
earnings growth over time. In selecting securities, Advantus Capital considers
factors such as a company's financial condition, financial performance, quality
of management, policies and strategies, real estate properties and comparative
market position.
"Real estate-related securities" include securities issued by companies engaged
in businesses that sell or offer products or services that are closely related
to the real estate industry. Real estate-related securities issuers typically
include construction and related building companies, manufacturers and
distributors of building supplies, financial institutions that issue or service
mortgages and resort companies.
Most of the Portfolio's real estate securities portfolio will consist of
securities issued by REITs that are listed on a securities exchange or traded
over-the-counter. A REIT is a corporation or trust that invests in fee or
leasehold ownership of real estate, mortgages or shares issued by other REITs.
REITs may be characterized as equity REITs (I.E., REITs that primarily invest in
fee ownership and leasehold ownership of land), mortgage REITs (I.E., REITs that
primarily invest in mortgages on real estate) or hybrid REITs which invest in
both fee and leasehold ownership of land and mortgages. The Portfolio mostly
invests in equity REITs but also invests lesser portions of its assets in
mortgage REITs and hybrid REITs. A REIT that meets the applicable requirements
of the Internal Revenue Code of 1986 may deduct dividends paid to shareholders,
effectively eliminating any corporate level federal tax. As a result, REITs are
able to distribute a larger portion of their earnings to investors than other
corporate entities subject to the federal corporate tax.
In addition, the Portfolio may invest lesser portions of its assets in
securities issued by companies outside of the real estate industry. The
Portfolio may also invest in non-real estate related equity securities,
warrants, convertible debt securities, investment-grade fixed income securities,
securities of other mutual funds, repurchase agreement transactions, restricted
and illiquid securities, stock index futures contracts, options (the Portfolio
may purchase, sell and write put and call options), American Depository
Receipts, securities purchased on a when issued or forward commitment basis and
money market securities. To generate additional income, the Portfolio may lend
securities representing up to one-third of the value of its total assets to
broker-dealers, banks and other institutions.
INVESTING IN THE FUND 81
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RISKS. An investment in the Portfolio is subject to the following risks:
- Company Risk
- Concentration Risk
- Credit Risk
- Extension Risk
- Income Risk
- Inflation Risk
- Interest Rate Risk
- Limited Portfolio Risk
- Market Risk
- Portfolio Risk
- Prepayment Risk
- Real Estate Risk
- REIT-Related Risk
- Sector Risk
- Securities Lending Risk
- Small Company Risk
A detailed description of these risks is set forth in "- Defining Risks" below.
INVESTMENT PRACTICES COMMON TO THE PORTFOLIOS
In an attempt to respond to adverse market, economic, political or other
conditions, each of the Portfolios may invest for temporary defensive purposes
in various short-term cash and cash equivalent items. When investing for
temporary defensive purposes, a Portfolio may not always achieve its investment
objective.
DEFINING RISKS
Investment in each Portfolio involves risks. A Portfolio's yield and price are
not guaranteed, and the value of an investment in a Portfolio will go up or
down. The value of an investment in a particular Portfolio may be affected by
the risks of investing in that Portfolio as identified for each Portfolio in "-
Investment Objective, Policies and Practices" above. The following glossary
describes those identified risks associated with investing in the Portfolios.
- CALL RISK - is the risk that securities with high interest rates (or other
attributes that increase debt cost) will be prepaid by the issuer prior to
maturity, particularly during periods of falling interest rates. In
general, an issuer will call its debt securities if they can be refinanced
by issuing new securities with a lower interest rate. The Portfolio is
subject to the possibility that during periods of falling interest rates,
an issuer will call its securities. As a result, the Portfolio would have
to reinvest the proceeds in other securities with generally lower interest
rates, resulting in a decline in the Portfolio's income.
- COMPANY RISK - is the risk that individual securities may perform
differently than the overall market. This may be a result of specific
factors such as changes in corporate profitability due to the success or
failure of specific products or management strategies, or it may be due to
changes in investor perceptions regarding a company.
- CONCENTRATION RISK - is the risk that the Portfolio's performance may be
more susceptible to a single economic, regulatory or technological
occurrence than more diversified investment portfolios. The Portfolio may
be subject to concentration risk if the Portfolio may invest more than 5%
of its total assets in the securities of a single issuer with respect to
25% of its total investment portfolio (the Money Market Portfolio may not
in any event invest more than 5% of its total assets in the securities of
a single issuer). As a non-diversified investment company, Global Bond
Portfolio may particularly be subject to concentration risk since the
Portfolio may invest more than 5% of its total assets in the securities of
a single issuer with respect to 100% of its total investment portfolio.
82 INVESTING IN THE FUND
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- CREDIT RISK - is the risk that an issuer of a debt security,
mortgage-backed security or fixed income obligation will not make payments
on the security or obligation when due, or that the other party to a
contract will default on its obligation. There is also the risk that an
issuer could suffer adverse changes in financial condition that could
lower the credit quality of a security. This could lead to greater
volatility in the price of the security and in shares of the Portfolio.
Also, a change in the quality rating of a debt security or other fixed
income obligation can affect the security's or obligation's liquidity and
make it more difficult to sell. The Portfolio may attempt to minimize
credit risk by investing in debt securities and other fixed income
obligations considered at least investment grade at the time of purchase.
However, all of these securities and obligations, especially those in the
lower investment grade rating categories, have credit risk. In adverse
economic or other circumstances, issuers of these lower rated securities
and obligations are more likely to have difficulty making principal and
interest payments than issuers of higher rated securities and obligations.
If the Portfolio purchases unrated securities and obligations, it will
depend on its investment adviser's or sub-adviser's analysis of credit
risk more heavily than usual.
- CURRENCY RISK - is the risk that changes in foreign currency exchange
rates will increase or decrease the value of foreign securities or the
amount of income or gain received on such securities. A strong
U.S. dollar relative to these other currencies will adversely affect the
value of the Portfolio. Attempts by the Portfolio to minimize the effects
of currency fluctuations through the use of foreign currency hedging
transactions may not be successful or the Portfolio's hedging transactions
may cause the Portfolio to be unable to take advantage of a favorable
change in the value of foreign currencies.
- EMERGING MARKETS RISK - is the risk that the value of securities issued by
companies located in emerging market countries may be subject to greater
volatility than foreign securities issued by companies in developed
markets. Risks of investing in foreign securities issued by companies in
emerging market countries include, among other things, greater social,
political and economic instability, lack of liquidity and greater price
volatility due to small market size and low trading volume, certain
national policies that restrict investment opportunities and the lack of
legal structures governing private and foreign investments and private
property.
- EURO CONVERSION RISK - is the risk that the value of foreign securities of
companies located in European Monetary Union (EMU) countries may decrease
due to market volatility resulting from the conversion of certain EMU
country currencies to the Euro. It is not possible to predict the impact
of the Euro on the business or financial condition of European issues or
on the Portfolio. The transition and the elimination of currency risk
among EMU countries may change the economic environment and behavior of
investors, particularly in European markets. To the extent the Portfolio
holds non-U.S. dollar (Euro or other) denominated securities, it will
still be exposed to currency risk due to fluctuations in those currencies
versus the U.S. dollar.
- EXTENSION RISK - is the risk that rising interest rates could cause
property owners to prepay their mortgages more slowly than expected,
resulting in slower prepayments of mortgage-related securities.
- FOREIGN SECURITIES RISK - is the risk that the value of foreign companies
or foreign government securities held by the Portfolio may be subject to
greater volatility than domestic securities. Risks of foreign securities
include, among other things:
POLITICAL AND ECONOMIC RISKS. Investing in foreign securities is subject
to the risk of political, social or economic instability in the country of
the issuer of the security, the difficulty of predicting international
trade patterns, the possibility of exchange controls, expropriation,
limits on currency removal or nationalization of assets.
INVESTING IN THE FUND 83
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FOREIGN TAX RISK. The Portfolio's income from foreign issuers may be
subject to non-U.S. withholding taxes. In some countries, the Portfolio
may be subject to taxes on trading profits and, on certain securities
transactions, transfer or stamp duties. To the extent foreign income taxes
are paid by the Portfolio, U.S. shareholders may be entitled to a credit
or deduction for U.S. tax purposes.
FOREIGN INVESTMENT RESTRICTION RISK. Some countries, particularly emerging
market countries, restrict to varying degrees foreign investment in their
securities markets. In some circumstances, these restrictions may limit or
preclude investment in certain countries or may increase the cost of
investing in securities of particular companies.
FOREIGN SECURITIES MARKET RISK. Securities of many foreign companies may
be less liquid and their prices more volatile than securities of domestic
companies. Securities of companies traded outside the U.S. may be subject
to further risks due to the inexperience of local brokers and financial
institutions, the possibility of permanent or temporary termination of
trading, and greater spreads between bid and asked prices for securities.
Moreover, foreign stock exchanges and brokers are subject to less
governmental regulation, and commissions may be higher than in the
U.S. In addition, there may be delays in the settlement of foreign stock
exchange transactions.
INFORMATION AND REMEDIES RISK. Foreign companies generally are not subject
to uniform accounting, auditing and financial reporting standards or to
other regulatory requirements that apply to domestic companies. As a
result, less information may be available to investors concerning foreign
issuers. In addition, the Portfolio may have greater difficulty voting
proxies, exercising shareholder rights, pursuing legal remedies and
obtaining judgments with respect to foreign investments in foreign courts
than with domestic companies in domestic courts.
- GROWTH STOCK RISK - is the risk that if the assessment by the Portfolio's
investment adviser or sub-adviser of a company's prospective earnings
growth or judgment of how other investors assess the company's earnings
growth is wrong, then the value of the company's securities may decrease
or not approach the value that the Portfolio's investment adviser or
sub-adviser has placed on it.
- INCOME RISK - is the risk that the Portfolio may experience a decline in
its income due to falling interest rates.
- INDEX PERFORMANCE RISK - is the risk that the Portfolio's ability to
replicate the performance of a particular securities index may be affected
by, among other things, changes in securities markets, the manner in which
the index's sponsor calculates the applicable securities index, the amount
and timing of cash flows into and out of the Portfolio, commissions and
other expenses.
- INFLATION RISK - is the risk that inflation will erode the purchasing
power of the value of securities held by the Portfolio or the value of the
Portfolio's dividends. Fixed-rate debt securities may be more susceptible
to this risk than floating-rate debt securities or equity securities,
whose value and dividends may increase in the future.
- INITIAL PUBLIC OFFERING RISK - is the risk that the Portfolio will not be
able to sustain the positive effect on performance that may result from
investments in initial public offerings (IPOs). Investments in IPOs can
have a significant positive impact on the Portfolio's performance. The
positive effect of investments of IPOs may not be sustainable because of a
number of factors. The Portfolio may not be able to buy shares in some
IPOs, or may be able to buy only a small number of shares. Also, the
Portfolio may not
84 INVESTING IN THE FUND
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be able to buy the shares at the commencement of the offering, and the
general availability and performance of IPOs are dependent on market
psychology and economic conditions. The relative performance impact of
IPOs is also likely to decline as the Portfolio grows.
- INTEREST RATE RISK - is the risk that the value of a debt security,
mortgage-backed security or fixed income obligation will decline due to
changes in market interest rates. Generally, when interest rates rise, the
value of such a security or obligation decreases. Conversely, when
interest rates decline, the value of a debt security, mortgage-backed
security or fixed income obligation generally increases. Long-term debt
securities, mortgage-backed securities and fixed income obligations are
generally more sensitive to interest rate changes.
- LARGE COMPANY RISK - is the risk that a portfolio of large capitalization
company securities may underperform the market as a whole.
- LIMITED PORTFOLIO RISK - is the risk that an investment in the Portfolio
may present greater volatility, due to the limited number of issuers of
real estate and real estate-related securities, than an investment in
portfolio of securities selected from a greater number of issuers. The
Portfolio is subject to limited portfolio risk because the Portfolio may
invest in a smaller number of individual issuers than other portfolios.
- MARKET RISK - is the risk that equity and debt securities are subject to
adverse trends in equity and debt markets. Securities are subject to price
movements due to changes in general economic conditions, the level of
prevailing interest rates or investor perceptions of the market. In
addition, prices are affected by the outlook for overall corporate
profitability. Market prices of equity securities are generally more
volatile than debt securities. This may cause a security to be worth less
than the price originally paid for it, or less than it was worth at an
earlier time. Market risk may affect a single issuer or the market as a
whole. In addition, market risk may affect a portfolio of equity
securities of micro, small, mid, large and very large capitalization
companies and/or equity securities believed by a Portfolio's investment
adviser or sub-adviser to be undervalued or exhibit above average
sustainable earnings growth potential. As a result, a portfolio of such
equity securities may underperform the market as a whole.
- MID SIZE COMPANY RISK - is the risk that securities of mid capitalization
companies may be more vulnerable to adverse developments than those of
larger companies due to such companies' limited product lines, limited
markets and financial resources and dependence upon a relatively small
management group.
- PORTFOLIO RISK - is the risk that Portfolio performance may not meet or
exceed that of the market as a whole. The performance of the Portfolio
will depend on the Portfolio's investment adviser's or sub-adviser's
judgment of economic and market policies, trends in investment yields and
monetary policy.
- PREPAYMENT RISK - is the risk that falling interest rates could cause
prepayments of mortgage-related securities to occur more quickly than
expected. This occurs because, as interest rates fall, more property
owners refinance the mortgages underlying these securities. The Portfolio
must reinvest the prepayments at a time when interest rates on new
mortgage investments are falling, reducing the income of the Portfolio. In
addition, when interest rates fall, prices on mortgage-related securities
may not rise as much as for other types of comparable debt securities
because investors may anticipate an increase in mortgage prepayments.
INVESTING IN THE FUND 85
<PAGE>
- REAL ESTATE RISK - is the risk that the value of the Portfolio's
investments may decrease due to fluctuations in rental income,
overbuilding and increased competition, casualty and condemnation losses,
environmental costs and liabilities, extended vacancies of property, lack
of available mortgage funds, government regulation and limitations,
increases in property taxes, cash flow dependency, declines in real estate
value, physical depreciation of buildings, inability to obtain project
financing, increased operating costs and changes in general or local
economic conditions.
- REIT-RELATED RISK - is the risk that the value of the Portfolio's equity
REIT securities will be adversely affected by changes in the value of the
underlying property. In addition, the value of equity or mortgage REITs
could be adversely affected if the REIT fails to qualify for tax-free pass
through income under the Internal Revenue Code of 1986 (as amended), or
maintain its exemption from registration under the Investment Company Act
of 1940.
- SECTOR RISK - is the risk that the securities of companies within specific
industries or sectors of the economy can periodically perform differently
than the overall market. This may be due to changes in such things as the
regulatory or competitive environment or to changes in investor
perceptions regarding a company.
- SECURITIES LENDING RISK - is the risk that the Portfolio may experience a
delay in the recovery of loaned securities, or even the loss of rights in
the collateral deposited by the borrower if the borrower should fail
financially. To reduce these risks, the Portfolio enters into loan
arrangements only with institutions that the Portfolio's investment
adviser or sub-adviser has determined are creditworthy.
- SMALL AND MICRO-CAP COMPANY RISK - is the risk that equity securities of
small and micro-cap capitalization companies are subject to greater price
volatility due to, among other things, such companies' small size, limited
product lines, limited access to financing sources and limited management
depth. In addition, the frequency and volume of trading of such securities
may be less than is typical of larger companies, making them subject to
wider price fluctuations. In some cases, there could be difficulties in
selling securities of micro-cap and small capitalization companies at the
desired time and place.
- STABLE PRICE RISK - is the risk that the Money Market Portfolio will not
be able to maintain a stable share price of $1.00. There may be situations
where the Portfolio's share price could fall below $1.00, which would
reduce the value of an investor's account.
- VALUE STOCK RISK - is the risk that the value of a security believed by
the Portfolio's investment adviser or sub-adviser to be undervalued may
never reach what such investment adviser or sub-adviser believes is its
full value, or that such security's value may decrease.
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BUYING AND SELLING SHARES
BUYING SHARES
Portfolio shares are not offered directly to the public. Portfolio shares are
sold to Minnesota Life in connection with its variable life insurance policies
and variable annuity contracts. Portfolio shares are also offered to certain
life insurance affiliates of Minnesota Life. Ascend Financial serves as the
underwriter of the Fund's shares. It is possible that the Fund may offer
Portfolio shares to other investors in the future.
Eligible investors may purchase Portfolio shares on any day the New York Stock
Exchange (NYSE) is open for business. The price for Portfolio shares is equal to
the Portfolio's net asset value (NAV). NAV is generally calculated as of the
close of normal trading on the NYSE (typically 3:00 p.m. Central time). NAV is
not calculated on (a) days in which changes in a Portfolio's investment
portfolio do not materially change the Portfolio's NAV, (b) days on which no
Portfolio shares are purchased or sold, and (c) customary national business
holidays on which the NYSE is closed for trading. The price for shares of Money
Market Portfolio will normally be $1.00. However, there is no assurance that
Money Market Portfolio will maintain the $1.00 NAV.
NAV for one Portfolio share is equal to the Portfolio's total investments less
any liabilities divided by the number of Portfolio shares. To determine NAV, a
Portfolio (other than Money Market Portfolio) generally values its investments
based on market quotations. If market quotations are not available for certain
Portfolio investments, the investments are valued based on the fair value of the
investments as determined in good faith by the Fund's Board of Directors. Debt
securities may be valued based on calculations furnished to the Portfolio by a
pricing service or by brokers who make a market in such securities. A Portfolio
may hold securities that are listed on foreign stock exchanges. These foreign
securities may trade on weekends or other days when the Portfolio typically does
not calculate NAV. As a result, the NAV of such Portfolio shares may change on
days when an investor will not be able to purchase or sell Portfolio shares.
Securities in Money Market Portfolio's investment portfolio are valued on an
amortized cost basis. This involves valuing an instrument at its cost and
thereafter assuming a constant amortization of any discount or premium until the
instrument's maturity, rather than looking at actual changes in the market value
of the instrument.
A purchase order will be priced at the next NAV calculated after the purchase
order is received by the Fund. If a purchase order is received after the close
of normal trading on the NYSE, the order will be priced at the NAV calculated on
the next day the NYSE is open for trading.
SELLING SHARES
Portfolio shares will be sold at the NAV next calculated after a sale order is
received by the Fund. The amount an investor receives may be more or less than
the original purchase price for the applicable shares.
BUYING AND SELLING SHARES 87
<PAGE>
EXCHANGING SHARES
Owners of the variable life insurance policies and variable annuity contracts
who invest in the Fund may exchange shares of a Portfolio for shares of other
Portfolios as described below and subject to the terms and any specific
limitations on the exchange or "transfer" privilege, described in the attached
prospectus for those policies or contracts. An exchange will be made on the
basis of the Portfolios' relative net asset values.
Frequent exchanges may interfere with Fund management or operations and drive up
Fund costs. The Fund's Portfolios are not designed for market timers, or for
large or frequent transfers. To protect shareholders, the Fund may restrict or
refuse purchases or exchanges by market timers. A variable annuity contract or
variable life insurance policy owner will be considered to be a market timer if
that owner has: (i) requested an exchange out of a Portfolio within two weeks of
an earlier exchange request, or (ii) exchanged shares out of a Portfolio more
than twice in a calendar quarter, or (iii) exchanged shares equal to at least $1
million, or more than 1% of the net assets of the Portfolio, or (iv) followed
what otherwise seems to be a timing pattern in the exercise of exchange or
transfer rights. Policies or contracts under common control or ownership are
combined for the purpose of determining these limitations. The Fund reserves the
right to change the terms of or impose other limitations on the exchange
privilege.
88 BUYING AND SELLING SHARES
<PAGE>
GENERAL INFORMATION
DIVIDENDS AND CAPITAL GAINS DISTRIBUTIONS
Each Portfolio pays its shareholders dividends from its net investment income,
and distributes any net capital gains that it has realized. Except for Money
Market Portfolio, dividends and net capital gains distributions are generally
paid once a year. Dividends for Money Market Portfolio are declared daily and
paid on the last business day of the month. Distributions will be reinvested in
additional Portfolio shares. Distributions of these additional shares are made
at the NAV of the payment date.
TAXES
Each Portfolio is treated as a separate entity for federal income tax purposes.
Since Minnesota Life currently is the sole shareholder of the Fund, no
discussion regarding the tax consequences to Fund investors is included in this
prospectus. For information concerning the tax consequences to purchasers of
variable annuity contracts and variable life insurance policies issued by
Minnesota Life, please see the attached prospectus for those contracts.
MIXED FUNDING
The Fund serves as the underlying investment medium for amounts invested in both
Minnesota Life's variable life insurance policies and variable annuity
contracts. It is possible that there may be circumstances where it is
disadvantageous for the owners of variable life insurance policies and variable
annuity contracts to invest in the Fund at the same time. Neither the Fund nor
Minnesota Life currently foresees any disadvantage, but if the Fund determines
it is disadvantageous for Minnesota Life's variable life insurance policies and
variable annuity contracts to invest in the Fund at the same time, due to a
material conflict of interest between such policy owners and contract owners or
for any other reason, the Fund's Board of Directors will notify Minnesota Life
of such conflict of interest or other applicable event. As a result, Minnesota
Life may be required to sell Fund shares with respect to a certain group of
policy owners or contract owners in order to resolve any conflict. Minnesota
Life will bear the entire cost of resolving any material conflict of interest.
GENERAL INFORMATION 89
<PAGE>
SERVICE PROVIDERS
INVESTMENT ADVISER
Advantus Capital Management, Inc.
400 Robert Street North
St. Paul, Minnesota 55101
(651) 665-3826
INVESTMENT SUB-ADVISERS
CAPITAL APPRECIATION PORTFOLIO
Credit Suisse Asset Management LLC
153 East 53rd Street
One Citicorp Center
New York, New York 10022
(212) 832-2626
INTERNATIONAL STOCK PORTFOLIO
Templeton Investment Counsel, Inc.
500 East Broward Boulevard
Fort Lauderdale, Florida 33394
(954) 527-7500
GLOBAL BOND PORTFOLIO
Julius Baer Investment Management Inc.
330 Madison Avenue
New York, New York 10017
(212) 297-3800
MACRO-CAP VALUE PORTFOLIO
J.P. Morgan Investment Management Inc.
522 Fifth Avenue
New York, New York 10036
(212) 837-2300
MICRO-CAP GROWTH PORTFOLIO
Wall Street Associates
La Jolla Financial Building
1200 Prospect Street, Suite 100
La Jolla, California 92037
(800) 925-5787
SMALL COMPANY GROWTH PORTFOLIO
Credit Suisse Asset Management LLC
153 East 53rd Street
One Citicorp Center
New York, New York 10022
(212) 832-2626
SMALL COMPANY VALUE PORTFOLIO
State Street Research & Management Company
One Financial Center
Boston, Massachusetts 02111
(617) 357-1200
ADMINISTRATIVE SERVICES AGENT
Minnesota Life Insurance Company
(800) 995-3850
UNDERWRITER
Ascend Financial Services, Inc.
400 Robert Street North
St. Paul, Minnesota 55101-2098
(651) 665-4833
CUSTODIANS
Norwest Bank Minnesota, N.A.
Sixth Street and Marquette Avenue
Minneapolis, Minnesota 55479
Growth, Money Market, Asset Allocation, Index 500, Capital Appreciation,
Small Company Growth, Value Stock, Small Company Value, Index 400 Mid-Cap,
Macro-Cap Value, Micro-Cap Growth and Real Estate Securities Portfolios
Bankers Trust Company
280 Park Avenue
New York, New York 10017
Bond, Mortgage Securities, International Stock, Maturing Government Bond and
Global Bond Portfolios
INDEPENDENT AUDITORS
KPMG LLP
GENERAL COUNSEL
Dorsey & Whitney LLP
90 GENERAL INFORMATION
<PAGE>
ADDITIONAL INFORMATION ABOUT THE FUND
The Fund's annual and semi-annual reports list holdings for each Portfolio, and
discuss recent market conditions, economic trends and investment strategies that
affected the Portfolios during the latest fiscal year.
A Statement of Additional Information (SAI) provides further information about
the Fund and the Portfolios. The current SAI is on file with the Securities and
Exchange Commission and is incorporated by reference (is legally part of this
prospectus).
HOW TO OBTAIN ADDITIONAL INFORMATION
The SAI and the Fund's annual and semi-annual reports are available without
charge upon request. You may obtain additional information or make any
inquiries:
By Telephone - Call 1-800-995-3850
By Mail - Write to Minnesota Life Insurance Company, 400 Robert Street North,
St. Paul, Minnesota 55101-2098
Information about the Fund (including the SAI and annual and semi-annual
reports) can be reviewed and copied at the SEC's Public Reference Room in
Washington, D.C. (telephone 1-202-942-8090). This information and other reports
about the Fund are also available on the SEC's World Wide Web site at
http://www.sec.gov. Copies of this information may be obtained by writing to the
SEC's Public Reference Section, Washington, D.C. 20549-0102 or obtained by
electronic request to: [email protected]. You will be charged a duplicating fee
for copies.
Investment Company Act No. 811-4279
[LOGO]
- -C-2000 Minnesota Life Insurance Company. All rights reserved.
GENERAL INFORMATION 91
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
ADVANTUS SERIES FUND, INC.
May 1, 2000
This Statement of Additional Information is not a prospectus. This Statement of
Additional Information relates to the separate Prospectus dated May 1, 2000
and should be read in conjunction therewith. A copy of the Prospectus may
be obtained by telephone from Minnesota Life Insurance Company (Minnesota
Life) at (800) 995-3850 or by writing to Minnesota Life at 400 Robert
Street North, St. Paul, Minnesota 55101-2098.
THIS STATEMENT OF ADDITIONAL INFORMATION MUST BE ACCOMPANIED OR PRECEDED BY A
COPY OF THE CURRENT PROSPECTUS FOR THE FUND.
<PAGE>
TABLE OF CONTENTS
GENERAL INFORMATION AND HISTORY
INVESTMENT OBJECTIVES AND POLICIES
Equity Securities of Small Capitalization Companies
Debt and Money Market Securities - Non-Money Market Portfolios
Low Rated Securities
Convertible Securities
Money Market Securities - Money Market Portfolio
U.S. Government Obligations
Obligations of Non-Domestic Banks
Variable Amount Master Demand Notes
Mortgage-Related Securities
U.S. Government Mortgage-Related Securities
Non-Governmental Mortgage-Related Securities
Collateralized Mortgage Obligations
Stripped Mortgage-Backed Securities
Asset-Backed and Stripped Asset-Backed Securities
Direct Investments in Mortgages - Whole Loans
Zero Coupon Securities
Pay-in-Kind and Delayed Interest Securities
Foreign Securities
Foreign Index Linked Securities
Swap Agreements
Currency Exchange Transactions
Foreign Currency Hedging Transactions
Closed-End Investment Companies
Loans of Portfolio Securities
Restricted and Illiquid Securities
When-Issued Securities and Forward Commitments
Mortgage Dollar Rolls
Real Estate Investment Trust Securities
Repurchase Agreements
Reverse Repurchase Agreements
Futures Contracts and Options on Futures Contracts
Options
Warrants
Warrants with Cash Extractions
Index Depositary Receipts
Short Sales Against the Box
Investments in Russia
Defensive Purposes
INVESTMENT RESTRICTIONS
Fundamental Restrictions
Non-Fundamental Restrictions
Additional Restrictions
PORTFOLIO TURNOVER
DIRECTORS AND EXECUTIVE OFFICERS
DIRECTOR LIABILITY
2
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INVESTMENT ADVISORY AND OTHER SERVICES
General
Control and Management of Advantus Capital
Investment Advisory Agreement
Sub-Adviser - Credit Suisse
Investment Sub-Advisory Agreement - Credit Suisse
Sub-Adviser - Templeton Counsel
Investment Sub-Advisory Agreement - Templeton Counsel
Sub-Adviser - JBIM
Investment Sub-Advisory Agreement - JBIM
Sub-Adviser - Morgan Investment
Investment Sub-Advisory Agreement - Morgan Investment
Sub-Adviser - WSA
Investment Sub-Advisory Agreement - WSA
Administrative Services
Code of Ethics
Distribution Agreement
Payment of Certain Distribution Expenses of the Fund
Custodian
Independent Auditors
General Counsel
PORTFOLIO TRANSACTIONS AND ALLOCATION OF BROKERAGE0
Adviser
Sub-Advisers
PURCHASE AND REDEMPTION OF SHARES
FUND SHARES AND VOTING RIGHTS
NET ASSET VALUE
PERFORMANCE DATA
Current Yield Figures for Money Market Portfolio
Current Yield Figures for Other Portfolios
Total Return Figures For All Portfolios
Predictability of Return
TAXES
THE STANDARD & POOR'S LICENSE
FINANCIAL STATEMENTS
----------------------
APPENDIX A - MORTGAGE-RELATED SECURITIES...................................A-1
Underlying Mortgages....................................................A-1
Liquidity and Marketability.............................................A-1
Average Life............................................................A-1
Yield Calculations......................................................A-2
APPENDIX B - BOND AND COMMERCIAL PAPER RATINGS.............................B-1
Bond Ratings............................................................B-1
Commercial Paper Ratings................................................B-2
APPENDIX C - FUTURES CONTRACTS.............................................C-1
Example of Futures Contract Sale........................................C-1
Example of Futures Contract Purchase....................................C-1
Tax Treatment...........................................................C-2
APPENDIX D - BRADY BONDS...................................................D-1
----------------------
3
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GENERAL INFORMATION AND HISTORY
Advantus Series Fund, Inc. ("Fund"), is a Minnesota corporation, each of
whose Portfolios operates as a no-load, diversified, open-end management
investment company, except that Global Bond Portfolio operates as a
non-diversified, open-end management investment company. The Fund was
organized on February 22, 1985. Prior to a change of its Name on May 1,
1997, the Fund was known as MIMLIC Series Fund, Inc. The Fund is a series
fund, which means that it has several different Portfolios. The Portfolios
of the Fund are as follows:
- Growth Portfolio
- Bond Portfolio
- Money Market Portfolio
- Asset Allocation Portfolio
- Mortgage Securities Portfolio
- Index 500 Portfolio
- Capital Appreciation Portfolio
- International Stock Portfolio
- Small Company Growth Portfolio
- Maturing Government Bond Portfolios (three separate portfolios with
maturity dates of 2002, 2006 and 2010)
- Value Stock Portfolio
- Small Company Value Portfolio
- Global Bond Portfolio
- Index 400 Mid-Cap Portfolio
- Macro-Cap Value Portfolio
- Micro-Cap Growth Portfolio
- Real Estate Securities Portfolio
The investment adviser of the Fund is Advantus Capital Management, Inc.
("Advantus Capital"). Advantus Capital has entered into investment
sub-advisory agreements under which various investment managers provide
investment services. Credit Suisse Asset Management LLP ("Credit Suisse")
serves as investment sub-adviser to the Fund's Capital Appreciation Portfolio
and the Small Company Growth Portfolio. Templeton Investment Counsel, Inc.
("Templeton Counsel") serves as investment sub-adviser to the Fund's
International Stock Portfolio. Julius Baer Investment Management Inc.
("JBIM") serves as investment sub-adviser to the Fund's Global Bond Portfolio
pursuant to an investment sub-advisory agreement with Advantus Capital. J.P.
Morgan Investment Management Inc. ("Morgan Investment") serves as investment
sub-adviser to the Fund's Macro-Cap Value Portfolio pursuant to an investment
sub-advisory agreement with Advantus Capital. Wall Street Associates ("WSA")
serves as investment sub-adviser to the Fund's Micro-Cap Growth Portfolio
pursuant to an investment sub-advisory agreement with Advantus Capital. State
Street Research and Management Company ("State Street Research") serves as
investment sub-adviser for the Small Company Value Portfolio.
Currently, the shares of the Fund are sold only to Minnesota Life
Insurance Company ("Minnesota Life"), a Minnesota corporation, through
certain of its separate accounts to fund the benefits under variable annuity
contracts and variable life insurance policies (collectively, the
"Contracts") issued by Minnesota Life. The Fund may be used for other
purposes in the future. The Fund may also sell its shares to separate
accounts of Northstar Life
4
<PAGE>
Insurance Company, an indirect wholly-owned subsidiary of Minnesota Life
domiciled in the State of New York. The separate accounts, which will be the
owners of the shares of the Fund, will invest in the shares of each Portfolio in
accordance with instructions received from the owners of the Contracts.
Minnesota Life, through its separate accounts which fund the Contracts, owns
100% of the shares outstanding of each Portfolio of the Fund. As a result,
Minnesota Life is a controlling person of the Fund and through its ownership of
shares of the Fund, may elect all the directors of the Fund and approve other
Fund actions. Minnesota Life's address is 400 Robert Street North, St. Paul,
Minnesota 55101-2098.
INVESTMENT OBJECTIVES AND POLICIES
The investment objectives and principal investment policies of each of the
Portfolios are set forth in the text of the Fund's Prospectus under "Investing
in the Fund - Investment Objective, Policies and Practices." This section
contains detailed descriptions of the investment policies of the Portfolios as
identified in the Fund's Prospectus.
EQUITY SECURITIES OF SMALL CAPITALIZATION COMPANIES
Small Company Growth Portfolio, Small Company Value Portfolio and
Micro-Cap Growth Portfolio will primarily invest in equity securities issued
by small capitalization companies. To the extent specified in the Prospectus,
certain other Portfolios may invest in equity securities issued by small
capitalization companies. Small capitalization companies may be in a
relatively early stage of development or may produce goods and services which
have favorable prospects for growth due to increasing demand or developing
markets. Frequently, such companies have a small management group and single
product or product-line expertise that may result in an enhanced
entrepreneurial spirit and greater focus which allow such firms to be
successful. The Portfolio's investment adviser or sub-adviser believes that
such companies may develop into significant business enterprises and that an
investment in such companies offers a greater opportunity for capital
appreciation than an investment in larger more established entities. However,
small capitalization companies frequently retain a large part of their
earnings for research, development and investment in capital assets, so that
the prospects for immediate dividend income are limited.
While securities issued by smaller capitalization companies have
historically produced better market results than the securities of larger
issuers, there is no assurance that they will continue to do so or that the
Portfolio will invest specifically in those companies which produce those
results. Because of the risks involved, the Portfolio is not intended to
constitute a complete investment program.
DEBT AND MONEY MARKET SECURITIES - NON-MONEY MARKET PORTFOLIOS
To the extent specified in the Prospectus, certain non-Money Market
Portfolios may invest in long, intermediate and short-term debt securities from
various industry classifications and money market instruments. Such instruments
may include the following:
- Corporate obligations which at the time of purchase are rated within
the four highest grades assigned by Standard & Poor's Corporation
("S&P"), Moody's Investors Services, Inc. ("Moody's") or any other
national rating service, or, if not rated, are of
5
<PAGE>
equivalent investment quality as determined by the Portfolio's
investment adviser or sub-adviser, as the case may be. To the
extent that the Portfolio invests in securities rated BBB or Baa by
S&P or Moody's, respectively, it will be investing in securities
which have speculative elements. As an operating policy,
International Stock Portfolio will not invest more than 5% of its
assets in debt securities rated BBB by S&P or Baa by Moody's. In
addition, Asset Allocation Portfolio, Bond Portfolio and Mortgage
Securities Portfolio may invest up to 10% of their respective net
assets, and International Stock Portfolio and Macro-Cap
Value Portfolio may invest up to 5% of their respective net
assets, in securities rated BB or Ba by S&P or Moody's,
respectively; Global Bond Portfolio may also invest up to 5% of its
net assets in securities rated B or higher by S&P or Moody's; and
Value Stock Portfolio, Small Company Value Portfolio and Micro-Cap
Growth Portfolio may also invest up to 10% of their respective net
assets in securities (including convertible securities) rated at
least B- by S&P or by B3 by Moody's. See "Low Rated -
-Securities," below. For a description of the ratings used by
Moody's and S&P, see Appendix B ("Bond and Commercial Paper
Ratings") below.
- Obligations of, or guaranteed by, the U.S. Government, its agencies or
instrumentalities.
- Debt obligations of banks.
Bond Portfolio may also purchase U.S. dollar denominated debt securities of
foreign governments and companies which are publicly traded in the United States
and rated within the four highest grades assigned by S&P or Moody's.
Global Bond Portfolio may also purchase debt securities of foreign
companies and debt securities issued or guaranteed by foreign governments or any
of their agencies, instrumentalities or political subdivisions, or by
supranational organizations. The Portfolio may invest in fixed-income
securities issued or guaranteed by supranational organizations. Such
organizations are entities designated or supported by a government or government
entity to promote economic development, and include, among others, the Asian
Development Bank, the European Coal and Steel Community, the European Economic
Community and the World Bank. These organizations do not have taxing authority
and are dependent upon their members for payments of interest and principal.
Each supranational entity's lending activities are limited to a percentage of
its total capital (including "callable capital" contributed by members at the
entity's call), reserves and net income. Securities issued by supranational
organizations may be denominated in U.S. dollars or in foreign currencies.
Securities issued or guaranteed by supranational organizations are considered by
the Securities and Exchange Commission to be securities in the same industry.
Therefore, the Portfolio will not concentrate 25% or more of the value of its
assets in securities of a single supranational organization.
Global Bond Portfolio may invest in Brady Bonds, which are created through
the exchange of existing commercial bank loans to foreign entities for new
obligations in connection with debt restructuring under a plan introduced by
former U.S. Secretary of the Treasury, Nicholas F. Brady (the "Brady Plan").
Brady Bonds have been issued only recently and, accordingly, do not have a long
payment history. They may be collateralized or uncollateralized and issued in
various currencies (although most are dollar-denominated) and they are actively
traded in the over-the-counter secondary market. For a full discussion of Brady
Bonds see Appendix D.
6
<PAGE>
In addition to the instruments described above, which will generally be
long-term, but may be purchased by the Portfolio within one year of the date
of a security's maturity, certain Portfolios specified in the Prospectus may
also purchase other high quality securities including:
- Obligations (including certificates of deposit and bankers
acceptances) of U.S. banks, savings and loan associations, savings
banks which have total assets (as of the date of their most recent
annual financial statements at the time of investment) of not less
than $2,000,000,000; U.S. dollar denominated obligations of Canadian
chartered banks, London branches of U.S. banks and U.S. branches or
agencies of foreign banks which meet the above-stated asset size; and
obligations of any U.S. banks, savings and loan associations and
savings banks, regardless of the amount of their total assets,
provided that the amount of the obligations purchased does not exceed
$100,000 for any one U.S. bank, savings and loan association or
savings bank and the payment of the principal is insured by the
Federal Deposit Insurance Corporation or the Federal Savings and Loan
Insurance Corporation.
- Obligations of the International Bank for Reconstruction and
Development.
- Commercial paper (including variable amount master demand notes)
issued by U.S. corporations or affiliated foreign corporations and
rated (or guaranteed by a company whose commercial paper is rated) at
the date of investment Prime-1 by Moody's or A-1 by S&P or, if not
rated by either Moody's or S&P, issued by a corporation having an
outstanding debt issue rated Aa or better by Moody's or AA or better
by S&P and, if issued by an affiliated foreign corporation, such
commercial paper (not to exceed in the aggregate 10% of such
Portfolio's (other than Mortgage Securities Portfolio's) net assets)
is U.S. dollar denominated and not subject at the time of purchase to
foreign tax withholding.
The Portfolios may also invest in securities which are unrated if the
Portfolio's investment adviser or sub-adviser, as the case may be, determines
that such securities are of equivalent investment quality to the rated
securities described above. In the case of "split-rated" securities, which
result when nationally-recognized rating agencies rate the security at different
rating levels (e.g., BBB by S&P and Ba by Moody's), it is the Portfolio's
general policy to classify such securities at the higher rating level where, in
the judgment of the Portfolio's investment adviser or sub-adviser, such
classification reasonably reflects the security's quality and risk.
The market value of debt securities generally varies in response to changes
in interest rates and the financial condition of each issuer. During periods of
declining interest rates, the value of debt securities generally increases.
Conversely, during periods of rising interest rates, the value of such
securities generally declines. These changes in market value will be reflected
in each Portfolio's net asset value.
These Portfolios 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
Portfolios' general policy to dispose of such down-graded securities except
when, in the judgment of the Portfolios' investment adviser or sub-adviser, it
is to the Portfolios' advantage to continue to hold such securities. In no
event, however, will any Portfolio hold in excess of 5% of its net assets in
securities which have been down-graded subsequent to purchase where such
down-graded securities are not otherwise eligible for purchase by the Portfolio.
This 5% is in addition to securities which the Portfolio may otherwise purchase
under its usual investment policies.
7
<PAGE>
LOW RATED SECURITIES
Bond Portfolio, Asset Allocation Portfolio and Mortgage Securities
Portfolio may also invest up to 10% of their respective net assets, and
International Stock Portfolio and Macro-Cap Value Portfolio may invest up to
5% of their respective net assets, in corporate bonds and mortgage-related
securities, including convertible securities, including convertible
securities which, at the time of acquisition, are rated BB or Ba by S&P or
Moody's, respectively, or rated at a comparable level by another independent
publicly-recognized rating agency, or, if not rated, are of equivalent
investment quality as determined by the Portfolio's investment adviser or
sub-adviser, as the case may be. Global Bond Portfolio may also invest up to
5% of its net assets in securities rated B or higher by S&P or Moody's.
Value Stock Portfolio, Small Company Value Portfolio and Micro-Cap Growth
Portfolio may invest up to 10% of their respective net assets in debt
securities (including convertible securities) which are rated at least B- by
S&P or B3 by Moody's, or rated at a comparable level by another independent
publicly-recognized rating agency, or, if not rated, are of equivalent
investment quality as determined by the Portfolio's investment adviser.
Each of these Portfolios may also hold an additional 5% of its net
assets in securities rated below "investment grade" (i.e. below BBB)
where such securities were either investment grade or eligible low
rated securities at the time of purchase but subsequently down-graded to a
rating not otherwise eligible for purchase by the Portfolio (see "Debt and
Money Market Securities - Non-Money Market Portfolios" above). Debt
securities rated below the four highest categories (i.e., below BBB) are not
considered investment grade obligations and are commonly called "junk bonds."
These securities are predominately speculative and present more credit risk
than investment grade obligations. Bonds rated below BBB are also regarded
as predominately speculative with respect to the issuer's continuing ability
to meet principal and interest payments.
Low rated and unrated debt securities generally involve greater volatility
of price and risk of principal and income, including the possibility of default
by, or bankruptcy of, the issuers of the securities. In addition, the markets
in which low rated and unrated debt securities are traded are more limited than
those in which higher rated securities are traded. The existence of limited
markets for particular securities may diminish the Portfolios' 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 Portfolios' shares.
Adverse publicity and investor perceptions, whether or not based on
fundamental analysis, may decrease the values and liquidity of low rated debt
securities, especially in a thinly traded market. Analysis of the
creditworthiness of issuers of low rated debt securities may be more complex
than for issuers of higher rated securities, and the ability of the Portfolios
to achieve their respective 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 Portfolios were
investing in higher rated securities.
8
<PAGE>
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 Portfolios may incur additional expenses
to seek recovery. The low rated bond market is relatively new, and many of the
outstanding low rated bonds have not endured a major business recession.
CONVERTIBLE SECURITIES
To the extent specified in the Prospectus, certain Portfolios may invest
in debt or preferred equity securities convertible into or exchangeable for
equity securities. Traditionally, convertible securities have paid dividends
or interest at rates higher than common stocks but lower than non-convertible
securities. They generally participate in the appreciation or depreciation
of the underlying stock into which they are convertible, but to a lesser
degree. The total return and yield of lower quality (high yield/high risk)
convertible bonds can be expected to fluctuate more than the total return and
yield of higher quality, shorter-term bonds, but not as much as common
stocks. Growth Portfolio, Small Company Growth Portfolio, Real Estate
Securities Portfolio, Macro-Cap Value Portfolio and Capital Appreciation
Portfolio will each limit its purchase of convertible debt securities to
those that, at the time of purchase, are rated at least BBB or Baa by S&P or
Moody's, respectively, or it not rated by S&P or Moody's, are of equivalent
investment quality as determined by the Portfolio's investment adviser or
sub-adviser. Bond Portfolio, Asset Allocation Portfolio and Mortgage
Securities Portfolio will each limit its purchase of convertible debt
securities to those that, at the time of purchase, are rated at least BB or
Ba by S&P or Moody's, respectively, or if not rated by S&P or Moody's, are of
equivalent investment quality as determined by the Portfolio's investment
adviser. Value Stock Portfolio, Small Company Value Portfolio and
Micro-Cap Growth Portfolio will each limit its purchase of convertible debt
securities to those that, at the time of purchase, are rated at least B- by
S&P or B3 by Moody's, or if not rated by S&P or Moody's, are of equivalent
investment quality as determined by the Portfolio's investment adviser or
sub-adviser. As an operating policy, none of these Portfolios will purchase a
non-investment grade convertible debt security if immediately after such
purchase such Portfolio would have more than 10% of its total assets invested
in such securities. See "Low Rated Securities," above.
MONEY MARKET SECURITIES - MONEY MARKET PORTFOLIO
Subject to the limitations under Rule 2a-7 of the Investment Company Act of
1940 (as described in "Investment Restrictions--Additional Restrictions" below),
Money Market Portfolio will invest in a managed portfolio of money market
instruments as follows:
- Obligations issued or guaranteed as to principal or interest by the
U.S. Government, or any agency or authority controlled or supervised
by and acting as an instrumentality of the U.S. Government pursuant to
authority granted by Congress.
- Obligations (including certificates of deposit and bankers
acceptances) of U.S. banks, savings and loan associations and savings
banks which at the date of the investment have total assets (as of the
date of their most recent annual financial statements) of not less
than $2,000,000,000; U.S. dollar denominated obligations of Canadian
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chartered banks, London branches of U.S. banks, and U.S. branches or
agencies of foreign banks if such banks meet the above-stated asset
size; and obligations of any such U.S. banks, savings and loan
associations and savings banks, regardless of the amount of their
total assets, provided that the amount of the obligations does not
exceed $100,000 for any one U.S. bank, savings and loan association or
savings bank and the payment of the principal is insured by the
Federal Deposit Insurance Corporation.
- Obligations of the International Bank for Reconstruction and
Development.
- Commercial paper (including variable amount master demand notes)
issued by U.S. limited partnerships, corporations or affiliated
foreign corporations.
- Other corporate debt obligations that at the time of issuance were
long-term securities, but that have remaining maturities of 397
calendar days or less.
- Repurchase agreements with respect to any of the foregoing
obligations.
By limiting the maturity of its investments as described above, the
Portfolio seeks to lessen the changes in the value of its assets caused by
market factors. The Portfolio intends to maintain a constant net asset value of
$1.00 per share, but there can be no assurance it will be able to do so.
U.S. GOVERNMENT OBLIGATIONS
Each of the Portfolios may invest in obligations of the U.S. Government.
These obligations are bills, certificates of indebtedness, notes and bonds
issued or guaranteed as to principal or interest by the U.S. or by agencies or
authorities controlled or supervised by and acting as instrumentalities of the
U.S. Government established under the authority granted by Congress. Bills,
notes and bonds issued by the U.S. Treasury are direct obligations of the U.S.
Government and differ in their interest rates, maturities and times of issuance.
Securities issued or guaranteed by agencies or authorities controlled or
supervised by and acting as instrumentalities of the U.S. Government established
under authority granted by Congress include but are not limited to, the
Government National Mortgage Association ("GNMA"), the Export-Import Bank, the
Student Loan Marketing Association, the U.S. Postal Service, the Tennessee
Valley Authority, the Bank for Cooperatives, the Farmers Home Administration,
the Federal Home Loan Bank, the Federal Financing Bank, the Federal Intermediate
Credit Banks, the Federal Land Banks, the Farm Credit Banks and the Federal
National Mortgage Association. Some obligations of U.S. Government agencies,
authorities and other instrumentalities are supported by the full faith and
credit of the U.S. Treasury, such as securities of the Government National
Mortgage Association and the Student Loan Marketing Association; others by the
right of the issuer to borrow from the U.S. Treasury, such as securities of the
Federal Financing Bank and the U.S. Postal Service; and others only by the
credit of the issuing agency, authority or other instrumentality, such as
securities of the Federal Home Loan Bank and the Federal National Mortgage
Association ("FNMA").
OBLIGATIONS OF NON-DOMESTIC BANKS
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As specified in the Prospectus, certain of the Portfolios may invest in
obligations of Canadian chartered banks, London branches of U.S. banks, and
U.S. branches and agencies of foreign banks, which may involve somewhat
greater opportunity for income than the other money market instruments in
which the Portfolios invest, but may also involve investment risks in
addition to any risks associated with direct obligations of domestic banks.
These additional risks include future political and economic developments,
the possible imposition of withholding taxes on interest income payable on
such obligations, the possible seizure or nationalization of foreign
deposits, the possible establishment of exchange controls or the adoption of
other governmental restrictions, as well as market and other factors which
may affect the market for or the liquidity of such obligations. Generally,
Canadian chartered banks, London branches of U.S. banks, and U.S. branches
and agencies of foreign banks are subject to fewer U.S. regulatory
restrictions than those applicable to domestic banks, and London branches of
U.S. banks may be subject to less stringent reserve requirements than
domestic branches. Canadian chartered banks, U.S. branches and agencies of
foreign banks, and London branches of U.S. banks may provide less public
information than, and may not be subject to the same accounting, auditing and
financial recordkeeping standards as, domestic banks. Each Portfolio will
not invest more than 25% of its total assets in obligations of Canadian
chartered banks, London branches of U.S. banks, and U.S. branches and
agencies of foreign banks.
VARIABLE AMOUNT MASTER DEMAND NOTES
Money Market Portfolio may invest in variable amount master demand notes.
These instruments are short-term, unsecured promissory notes issued by
corporations to finance short-term credit needs. They allow the investment of
fluctuating amounts by the Portfolio at varying market rates of interest
pursuant to direct arrangements between Money Market Portfolio, as lender, and
the borrower. Variable amount master demand notes permit a series of short-term
borrowings under a single note. The lender has the right to increase the amount
under the note at any time up to the full amount provided by the note agreement.
Both the lender and the borrower have the right to reduce the amount of
outstanding indebtedness at any time. Because variable amount master demand
notes are direct lending arrangements between the lender and borrower, it is not
generally contemplated that such instruments will be traded and there is no
secondary market for the notes. Typically, agreements relating to such notes
provide that the lender shall not sell or otherwise transfer the note without
the borrower's consent. Thus, variable amount master demand notes are illiquid
assets. Such notes provide that the interest rate on the amount outstanding
varies on a daily basis depending upon a stated short-term interest rate
barometer. The Portfolio's investment adviser will monitor the creditworthiness
of the borrower throughout the term of the variable amount master demand note.
MORTGAGE-RELATED SECURITIES
Bond Portfolio, Asset Allocation Portfolio, Mortgage Securities Portfolio
and Global Bond Portfolio may invest in mortgage-related securities (including
securities which represent interests in pools of mortgage loans) issued by
government (some of which may be U.S. Government agency issued or guaranteed
securities as described herein) and non-government entities such as banks,
mortgage lenders or other financial institutions. These securities may include
both collateralized mortgage obligations and stripped mortgage-backed
securities. Mortgage loans are originated and formed into pools by various
organizations, including the Government National Mortgage Association ("GNMA"),
the Federal National Mortgage
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Association ("FNMA"), the Federal Home Loan Mortgage Corporation ("FHLMC") and
various private organizations including commercial banks and other mortgage
lenders. Payments on mortgage-related securities generally consist of both
principal and interest, with occasional repayments of principal due to
refinancings, foreclosures or certain other events. Some mortgage-related
securities, such as collateralized mortgage obligations, make payments of both
principal and interest at a variety of intervals. Certain mortgage-related
securities, such as GNMA securities, entitle the holder to receive such
payments, regardless of whether or not the mortgagor makes loan payments;
certain mortgage-related securities, such as FNMA securities, guarantee the
timely payment of interest and principal; certain mortgage-related securities,
such as FHLMC securities, guarantee the timely payment of interest and ultimate
collection of principal; and certain mortgage-related securities contain no such
guarantees but may offer higher rates of return. No mortgage-related securities
guarantee the Portfolio's yield or the price of its shares.
Each Portfolio expects its investments in mortgage-related securities to
be primarily in high-grade mortgage-related securities either (a) issued by
GNMA, FNMA or FHLMC or other United States Government owned or sponsored
corporations or (b) rated A or better by S&P or Moody's, or rated at a
comparable level by another independent publicly-recognized rating agency,
or, if not rated, are of equivalent investment quality as determined by the
Portfolio's investment adviser or sub-adviser, as the case may be. The
Portfolio may invest in mortgage-related securities rated BBB or Baa by S&P
or Moody's, respectively, or rated at a comparable level by another
independent publicly-recognized rating agency, or, if not rated, are of
equivalent investment quality as determined by the Portfolio's investment
adviser or sub-adviser, as the case may be, when deemed by the Portfolio's
investment adviser or sub-adviser to be consistent with the Portfolio's
respective objective. To the extent that the Portfolio invests in securities
rated BBB or Baa by S&P or Moody's, respectively, it will be investing in
securities which have speculative elements. (Each of these Portfolios may
also invest a portion of its assets in Securities rated below BBB or Baa by
S&P or Moody's, respectively. See "Low Rated Securities" and "Convertible
Securities," above for more information.) Mortgage Securities
Portfolio may not invest more than 35% of its total assets in securities
rated BBB or Baa or lower by S&P or Moody's, respectively. For further
information about the characteristics and risks of mortgage-related securities,
and for a description of the ratings used by Moody's and S&P, see Appendix A
and B ("Mortgage-Related Securities" and "Bond and Commercial Paper Ratings")
below.
U.S. GOVERNMENT MORTGAGE-RELATED SECURITIES
A governmental guarantor (i.e., backed by the full faith and credit of the
U.S. Government) of mortgage-related securities is GNMA. GNMA is a wholly-owned
U.S. Government corporation within the Department of Housing and Urban
Development. GNMA is authorized to guarantee, with the full faith and credit of
the U.S. Government, the timely payment of principal and interest on securities
issued by institutions approved by GNMA (such as savings and loan institutions,
commercial banks and mortgage bankers) and backed by pools of FHA-insured or
VA-guaranteed mortgages.
Government-related guarantors (i.e., not backed by the full faith and
credit of the U.S. Government) include FNMA and FHLMC. FNMA is a
government-sponsored corporation owned entirely by private stockholders. It is
subject to general regulation by the Secretary of Housing and Urban Development.
FNMA purchases residential mortgages from a list of approved seller/servicers
which include state and federally-chartered savings and loan associations,
mutual savings banks, commercial banks and credit unions and mortgage bankers.
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Pass-through securities issued by FNMA are guaranteed as to timely payment of
principal and interest by FNMA but are not backed by the full faith and credit
of the U.S. Government.
FHLMC is a corporate instrumentality of the U.S. Government and was created
by Congress in 1970 for the purpose of increasing the availability of mortgage
credit for residential housing. Its stock is publicly traded. FHLMC issues
Participation Certificates ("PCs") which represent interests in mortgages from
FHLMC's national portfolio. FHLMC guarantees the timely payment of interest and
principal on most PCs. There are some PCs, however, on which FHLMC guarantees
the timely payment of interest but only the ultimate payment of principal. PCs
are not backed by the full faith and credit of the U.S. Government.
NON-GOVERNMENTAL MORTGAGE-RELATED SECURITIES
Mortgage Securities Portfolio, Bond Portfolio, Asset Allocation
Portfolio and Global Bond Portfolio may invest in non-governmental
mortgage-related securities. Commercial banks, savings and loan
institutions, private mortgage insurance companies, mortgage bankers and
other secondary market issuers also create pass-through pools of conventional
residential and commercial mortgage loans. Such issuers may in addition be
the originators and servicers of the underlying mortgage loans as well as the
guarantors of the mortgage-related securities. Pools created by such
non-governmental issuers generally offer a higher rate of interest than
government and government-related pools because there are no direct or
indirect government guarantees of payments in the former pools. However,
timely payment of interest and principal of these pools is supported by
various forms of insurance, guarantees and credit enhancements, including
individual loan, title, pool and hazard insurance. The insurance and
guarantees are issued by government entities, private insurers and the
mortgage poolers. Such insurance and guarantees and the creditworthiness of
the issuers thereof will be considered in determining whether a
mortgage-related security meets the Portfolio's investment quality standards.
There can be no assurance that the private insurers can meet their
obligations under the policies. The Portfolio may buy mortgage-related
securities without insurance or guarantees if through an examination of the
loan experience and practices of the poolers the Portfolio's investment
adviser determines that the securities meet the Portfolio's quality
standards. Although the market for such securities is becoming increasingly
liquid, securities issued by certain private organizations may not be readily
marketable. The Portfolio will not purchase mortgage-related securities or
any other assets which in its investment adviser's opinion are illiquid if,
as a result, more than 15% of the value of the Portfolio's net assets will be
illiquid.
COLLATERALIZED MORTGAGE OBLIGATIONS
Bond Portfolio, Asset Allocation Portfolio, Mortgage Securities Portfolio
and Global Bond Portfolio may invest in collateralized mortgage obligations
("CMOs"), in which several different series of bonds or certificates secured by
pools of mortgage-backed securities or mortgage loans, are issued. The series
differ from each other in terms of the priority rights which each has to receive
cash flows with the CMO from the underlying collateral. Each CMO series may
also be issued in multiple classes. Each class of a CMO series, often referred
to as a "tranche," is usually issued at a specific coupon rate and has a stated
maturity. The underlying security for the CMO may consist of mortgage-backed
securities issued or guaranteed by U.S. Government agencies or whole loans.
CMOs backed by U.S. Government agency securities retain the credit quality of
such agency securities and therefore present minimal credit risk. CMOs backed
by whole loans typically carry various forms of credit enhancements to protect
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against credit losses and provide investment grade ratings. Unlike traditional
mortgage pass-through securities, which simply pass through interest and
principal on a pro rata basis as received, CMOs allocate the principal and
interest from the underlying mortgages among the several classes or branches of
the CMO in many ways. All residential, and some commercial, mortgage-related
securities are subject to prepayment risk. A CMO does not eliminate that risk,
but, by establishing an order of priority among the various tranches for the
receipt and timing of principal payments, it can reallocate that risk among the
tranches. Therefore, the stream of payments received by a CMO bondholder may
differ dramatically from that received by an investor holding a traditional
pass-through security backed by the same collateral.
In the traditional form of CMO, interest is paid currently on all tranches
but principal payments are applied sequentially to retire each tranche in order
of stated maturity. Traditional sequential payment CMOs have evolved into
numerous more flexible forms of CMO structures which can vary frequency of
payments, maturities, prepayment risk and performance characteristics. The
differences between these new types of CMOs relate primarily to the manner in
which each varies the amount and timing of principal and interest received by
each tranche from the underlying collateral. Under all but the sequential
payment structures, specific tranches of CMOs have priority rights over other
tranches with respect to the amount and timing of cash flow from the underlying
mortgages.
The primary risk associated with any mortgage security is the uncertainty
of the timing of cash flows; specifically, uncertainty about the possibility of
either the receipt of unanticipated principal in falling interest rate
environments (prepayment or call risk) or the failure to receive anticipated
principal in rising interest rate environments (extension risk). In a CMO, that
uncertainty may be allocated to a greater or lesser degree to specific tranches
depending on the relative cash flow priorities of those tranches. By
establishing priority rights to receive and reallocate payments of prepaid
principal, the higher priority tranches are able to offer better call protection
and extension protection relative to the lower priority classes in the same CMO.
For example, when insufficient principal is received to make scheduled principal
payments on all tranches, the higher priority tranches receive their scheduled
premium payments first and thus bear less extension risk than lower priority
tranches. Conversely, when principal is received in excess of scheduled
principal payments on all tranches (call risk), the lower priority tranches are
required to receive such excess principal until they are retired and thus bear
greater prepayment risk than the higher priority tranches. Therefore, depending
on the type of CMO purchased, an investment may be subject to a greater or
lesser risk of prepayment, and experience a greater or lesser volatility in
average life, yield, duration and price, than other types of mortgage-related
securities. A CMO tranche may also have a coupon rate which resets periodically
at a specified increment over an index. These floating rate CMOs are typically
issued with lifetime caps on the level to which the floating coupon rate is
allowed to rise. The Portfolio may invest in such securities, usually subject
to a cap, provided such securities satisfy the same requirements regarding cash
flow priority applicable to the Portfolio's purchase of CMOs generally. CMOs
are typically traded over the counter rather than on centralized exchanges.
Because CMOs of the type purchased by the Portfolio tend to have relatively more
predictable yields and are relatively less volatile, they are also generally
more liquid than CMOs with greater prepayment risk and more volatile performance
profiles.
Bond Portfolio, Asset Allocation Portfolio and Mortgage Securities
Portfolio may also purchase CMOs known as "accrual" or "Z" bonds. An accrual or
Z bond holder is not entitled to
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receive cash payments until one or more other classes of the CMO have been paid
in full from payments on the mortgage loans underlying the CMO. During the
period in which cash payments are not being made on the Z tranche, interest
accrues on the Z tranche at a stated rate, and this accrued interest is added to
the amount of principal which is due to the holder of the Z tranche. After the
other classes have been paid in full, cash payments are made on the Z tranche
until its principal (including previously accrued interest which was added to
principal, as described above) and accrued interest at the stated rate have been
paid in full. Generally, the date upon which cash payments begin to be made on
a Z tranche depends on the rate at which the mortgage loans underlying the CMO
are prepaid, with a faster prepayment rate resulting in an earlier commencement
of cash payments on the Z tranche. Like a zero coupon bond, during its accrual
period the Z tranche of a CMO has the advantage of eliminating the risk of
reinvesting interest payments at lower rates during a period of declining market
interest rates. At the same time, however, and also like a zero coupon bond,
the market value of a Z tranche can be expected to fluctuate more widely with
changes in market interest rates than would the market value of a tranche which
pays interest currently. Changes in market interest rates also can be expected
to influence prepayment rates on the mortgage loans underlying the CMO of which
a Z tranche is a part. As noted above, such changes in prepayment rates will
affect the date at which cash payments begin to be made on a Z tranche, and
therefore also will influence its market value. As an operating policy, Bond
Portfolio, Asset Allocation Portfolio and Mortgage Securities Portfolio will not
purchase a Z bond if the respective Portfolio's aggregate investment in Z bonds
which are then still in their accrual periods would exceed 20% of the
Portfolio's total assets (Z bonds which have begun to receive cash payments are
not included for purposes of this 20% limitation).
Bond Portfolio, Asset Allocation Portfolio and Mortgage Securities
Portfolio may also invest in inverse or reverse floating CMOs. Inverse or
reverse floating CMOs constitute a tranche of a CMO with a coupon rate that
moves in the reverse direction to an applicable index. Accordingly, the coupon
rate will increase as interest rates decrease. The Portfolio would be adversely
affected, however, by the purchase of such CMOs in the event of an increase in
interest rates since the coupon rate will decrease as interest rates increase,
and, like other mortgage-related securities, the value will decrease as interest
rates increase. Inverse or reverse floating rate CMOs are typically more
volatile than fixed or floating rate tranches of CMOs, and usually carry a lower
cash flow priority. As an operating policy, Bond Portfolio, Asset Allocation
Portfolio and Mortgage Securities Portfolio will treat inverse floating rate
CMOs as illiquid and, therefore, will limit its investments in such securities,
together with all other illiquid securities, to 15% of such Portfolio's net
assets.
STRIPPED MORTGAGE-BACKED SECURITIES
Bond Portfolio, Asset Allocation Portfolio and Mortgage Securities
Portfolio may invest in stripped mortgage-backed securities. Stripped
mortgage-backed securities represent undivided ownership interests in a pool of
mortgages, the cash flow of which has been separated into its interest and
principal components. "IOs" (interest only securities) receive the interest
portion of the cash flow while "POs" (principal only securities) receive the
principal portion. Stripped mortgage-backed securities may be issued by U.S.
Government agencies or by private issuers. As interest rates rise and fall, the
value of IOs tends to move in the same direction as interest rates, unlike other
mortgage-backed securities (which tend to move in the opposite direction
compared to interest rates). Under the Internal Revenue Code of 1986, as
amended, POs may
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generate taxable income from the current accrual of original issue discount,
without a corresponding distribution of cash to the Portfolio.
The cash flows and yields on standard IO and PO classes are extremely
sensitive to the rate of principal payments (including prepayments) on the
related underlying mortgage assets. For example, a rapid or slow rate of
principal payments may have a material adverse effect on the performance and
prices of IOs or POs, respectively. If the underlying mortgage assets
experience greater than anticipated prepayments of principal, an investor may
fail to recoup fully its initial investment in an IO class of a stripped
mortgage-backed security, even if the IO class is rated AAA or Aaa or is derived
from a full faith and credit obligation (i.e., a GNMA). Conversely, if the
underlying mortgage assets experience slower than anticipated prepayments of
principal, the price on a PO class will be affected more severely than would be
the case with a traditional mortgage-backed security, but unlike IOs, an
investor will eventually recoup fully its initial investment provided no default
of the guarantor occurs. As an operating policy, the Portfolio will limit its
investments in IOs and POs to 15% of the Portfolio's net assets, and will
treat them as illiquid securities (which, in the aggregate, may not exceed
15% of a Portfolio's net assets) except to the extent such securities are
deemed liquid by the Portfolio's adviser or sub-adviser in accordance with
standards established by the Fund's Board of Directors. See "Restricted and
Illiquid Securities" below.
ASSET-BACKED AND STRIPPED ASSET-BACKED SECURITIES
Bond Portfolio, Asset Allocation Portfolio, Mortgage Securities Portfolio
and Global Bond Portfolio may invest in asset-backed securities rated within
the four highest grades assigned by Moody's or S&P, or, if not rated, are of
equivalent investment quality as determined by the Portfolio's investment
adviser or sub-adviser. Asset-Backed securities usually represent
interests in pools of consumer loans (typically trade, credit card or
automobile receivables). The credit quality of most asset-backed securities
depends primarily on the credit quality of the assets underlying such
securities, how well the entity issuing the security is insulated from the
credit risk of the originator or any other affiliated entities, the quality
of the servicing of the receivables, and the amount and quality of any
credit support provided to the securities. The rate of principal payment on
asset-backed securities may depend on the rate of principal payments received
on the underlying assets which in turn may be affected by a variety of
economic and other factors. As a result, the yield on any asset-backed
security may be difficult to predict with precision and actual yield to
maturity may be more or less than the anticipated yield to maturity. Some
asset-backed transactions are structured with a "revolving period" during
which the principal balance of the asset-backed security is maintained at a
fixed level, followed by a period of rapid repayment. This structure is
intended to insulate holders of the asset-backed security from prepayment
risk to a significant extent. Asset-backed securities may be classified as
pass-through certificates or collateralized obligations.
Pass-through certificates are asset-backed securities which represent an
undivided fractional ownership interest in an underlying pool of assets.
Pass-through certificates usually provide for payments of principal and interest
received to be passed through to their holders, usually after deduction for
certain costs and expenses incurred in administering the pool. Because
pass-through certificates represent an ownership interest in the underlying
assets, the holders thereof bear directly the risk of any defaults by the
obligors on the underlying assets not covered by any credit support.
Asset-backed securities issued in the form of debt instruments, also known
as collateralized obligations, are generally issued as the debt of a special
purpose entity organized solely for the purpose of owning such assets and
issuing such debt. The assets collateralizing such asset-backed securities are
pledged to a trustee or custodian for the benefit of the holders
thereof. Such issuers generally hold no assets other than those underlying the
asset-backed securities and any credit support provided. As a result, although
payments on such asset-backed securities are obligations of the issuers, in the
event of defaults on the underlying assets not covered by any credit support,
the issuing entities are unlikely to have sufficient assets to satisfy their
obligations on the related asset-backed securities.
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To lessen the effect of failures by obligors on underlying assets to make
payments, such securities may contain elements of credit support. Such credit
support falls into two classes: liquidity protection and protection against
ultimate default by an obligor on the underlying assets. Liquidity protection
refers to the provision of advances, generally by the entity administering the
pool of assets, to ensure that scheduled payments on the underlying pool are
made in a timely fashion. Protection against ultimate default ensures ultimate
payment of the obligations on at least a portion of the assets in the pool.
Such protection may be provided through guarantees, insurance policies or
letters of credit obtained from third parties, through various means of
structuring the transaction or through a combination of such approaches.
Bond Portfolio, Asset Allocation Portfolio and Mortgage Securities
Portfolio may also invest in stripped asset-backed securities. Asset-backed
securities may be stripped to create interest-only and principal-only securities
in the same manner as mortgage-backed securities. See "Stripped Mortgage-Backed
Securities," above. The value of asset-backed IOs also tends to move in the same
direction as changes in interest rates, unlike other asset-backed (or
mortgage-backed) securities, which tend to move in the opposite direction
compared to interest rates. As with stripped mortgage-backed securities, the
cash flows and yields on asset-backed IOs and POs are also extremely sensitive
to the rate of principal payments on the related underlying assets. See
"Stripped Mortgage-Backed Securities," above. As an operating policy, each of
these Portfolios will limit its investments in IOs and POs to 15% of the
Portfolio's net assets, and will treat them as illiquid securities (which, in
the aggregate, may not exceed 15% of each Portfolio's net assets) except to the
extent such securities are deemed liquid by the Portfolio's adviser in
accordance with standards established by the Portfolio's Board of Directors. See
"Restricted and Illiquid Securities" below.
DIRECT INVESTMENTS IN MORTGAGES - WHOLE LOANS
Mortgage Securities Portfolio may invest up to 10% of the value of its net
assets directly in mortgages securing residential or commercial real estate
(i.e., the Portfolio becomes the mortgagee). Such investments are not
"mortgage-related securities" as described above. They are normally available
from lending institutions which group together a number of mortgages for resale
(usually from 10 to 50 mortgages) and which act as servicing agent for the
purchaser with respect to, among other things, the receipt of principal and
interest payments. (Such investments are also referred to as "whole loans".)
The vendor of such mortgages receives a fee from Mortgage Securities Portfolio
for acting as servicing agent. The vendor does not provide any insurance or
guarantees covering the repayment of principal or interest on the mortgages.
Unlike pass-through securities, whole loans constitute direct investment in
mortgages inasmuch as Mortgage Securities Portfolio, rather than a financial
intermediary, becomes the mortgagee with respect to such loans purchased by the
Portfolio. At present, such investments are considered to be illiquid by the
Portfolio's investment adviser or sub-adviser. Mortgage Securities Portfolio
will invest in such mortgages only if its investment adviser has determined
through an examination of the mortgage loans and their originators (which may
include an examination of such factors as percentage of family income dedicated
to loan service and the relationship between loan value and market value) that
the purchase of the mortgages should not represent a significant risk of loss to
the Portfolio.
ZERO COUPON SECURITIES
The Maturing Government Bond Portfolios may invest in zero coupon
securities. In addition, Global Bond Portfolio may invest a lesser portion of
its assets in zero coupon securities. When held to maturity, the entire return
on zero coupon securities, which consists of the amortization of discount, comes
from the difference between their purchase price and their maturity value. This
difference is known at the time of purchase, so persons holding a portfolio
composed entirely of zero coupon securities, with no expenses until maturity,
would know the amount of their investment return at the time of their initial
payment. While these Portfolios will have additional holdings, including cash,
which will affect performance, they will describe an anticipated yield to
maturity from time to time. In order to obtain this return, Contract owners
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electing to have payments allocated to a Maturing Government Bond Portfolio
should plan to maintain their investment until the maturity of that Maturing
Government Bond Portfolio.
While many factors may affect the yield to maturity of each Maturing
Government Bond Portfolio, one such factor which may operate to the detriment of
those Contract owners holding interests in such Portfolios until maturity, is
the ability of other Contract owners to purchase or redeem shares on any
business day.
Because each Maturing Government Bond Portfolio will be primarily
invested in zero coupon securities, Contract owners whose purchase payments
are invested in shares held to maturity, including those obtained through
reinvestment of dividends and distributions, will experience a return
consisting primarily of the amortization of discount on the underlying
securities in the Maturing Government Bond Portfolio. However, the net asset
value of the Portfolio's shares will increase or decrease with the daily
changes in the market value of that Maturing Government Bond Portfolio's
investments which will tend to vary inversely with changes in prevailing
interest rates. If shares of a Maturing Government Bond Portfolio are
redeemed prior to the maturity date of that Maturing Government Bond
Portfolio, a Contract owner may experience a significantly different
investment return than was anticipated at the time of purchase.
Zero coupon securities, like other investments in debt securities, are
subject to certain risks, including credit and market risks. Credit risk is the
function of the ability of an issuer of a security to maintain timely interest
payments and to pay the principal of a security upon maturity. Securities
purchased by the Maturing Government Bond Portfolios will be rated at least
single A or better by nationally recognized statistical rating agencies.
Securities rated single A are regarded as having an adequate capacity to pay
principal and interest, but with greater vulnerability to adverse economic
conditions and some speculative characteristics. The Maturing Government Bond
Portfolios will also attempt to minimize the impact of individual credit risks
by diversifying their portfolio investments.
Market risk is the risk of the price fluctuation of a security due
primarily to market interest rates prevailing generally in the economy. Market
risk may also include elements which take into account the underlying credit
rating of an issuer, the maturity length of a security, a security's yield, and
general economic and interest rate conditions. Zero coupon securities do not
make any periodic payments of interest prior to maturity and the stripping of
the securities causes the zero coupon securities to be offered at a discount
from their face amounts. The market value of the zero coupon securities and,
therefore the net asset value of the shares of the Maturing Government Bond
Portfolios, will fluctuate, perhaps markedly, and changes in interest rates and
other factors and may be subject to greater fluctuations in response to changing
interest rates than would a fund of securities consisting of debt obligations of
comparable coupon bearing maturities. The amount of fluctuation increases with
longer maturities.
Because they do not pay interest, zero coupon securities tend to be subject
to greater fluctuation of market value in response to changes in interest rates
than interest-paying securities of similar maturities. Contract owners can
expect more appreciation of the net asset value of a Maturing Government Bond
Portfolio's shares during periods of declining interest rates than from
interest-paying securities of similar maturity. Conversely, when interest rates
rise, the net asset value of a Maturing Government Bond Portfolio's shares will
normally decline more in
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price than interest-paying securities of a similar maturity. Price fluctuations
are expected to be greatest in the longer-maturity Portfolios and are expected
to diminish as a Maturing Government Bond Portfolio approaches its target date.
These fluctuations may make the Maturing Government Bond Portfolios an
inappropriate selection as a basis for variable annuity payments. Interest
rates can change suddenly and unpredictably.
When held to maturity, the return on zero coupon securities consists
entirely of the difference between the maturity value and the purchase price of
securities held in the Portfolio. While this difference allows investors to
measure initial investment return, it also must be considered in light of
changing economic conditions. Inflationary risk, that is the risk attendant to
holding fixed-rate investments during a period of generally upward changing
price levels in the economy, must be considered in selecting a Maturing
Government Bond Portfolio.
PAY-IN-KIND AND DELAYED INTEREST SECURITIES
Global Bond Portfolio may also invest in pay-in-kind securities and delayed
interest securities. Pay-in-kind securities pay interest through the issuance
to the holders of additional securities. Delayed interest securities are
securities that remain zero coupon securities until a predetermined date at
which time the stated coupon rate becomes effective and interest becomes payable
at regular intervals. Because interest on pay-in-kind and delayed interest
securities is not paid on a current basis, the values of securities of this type
are subject to greater fluctuations than the values of securities that
distribute income regularly and they may be more speculative than such
securities. Accordingly, the values of these securities may be highly volatile
as interest rates rise or fall. In addition, the Portfolio's investments in
pay-in-kind and delayed interest securities will result in special tax
consequences.
FOREIGN SECURITIES
Growth Portfolio, Small Company Growth Portfolio, Value Stock Portfolio,
Small Company Value Portfolio, Macro-Cap Value Stock and Micro-Cap Growth
Portfolio may invest up to 10% of the market value of their respective 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.) Bond Portfolio may also invest in debt
securities issued by foreign governments and companies provided that such
securities are U.S. dollar-denominated and publicly traded in the United
States. In addition, International Stock Portfolio and Global Bond Portfolio
may invest in such securities without 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 Portfolio may encounter difficulties or be
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unable to pursue legal remedies and obtain judgments in foreign courts.
Commission rates in foreign countries, which are sometimes fixed rather than
subject to negotiation as in the U.S., are likely to be higher. Further, the
settlement period of securities transactions in foreign markets may be longer
than in domestic markets. In many foreign countries there is less government
supervision and regulation of business and industry practices, stock exchanges,
brokers and listed companies than in the U.S. The foreign securities markets of
many of the countries in which the Portfolio 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 Portfolio may also be unfavorably affected by fluctuations in
the relative rates of exchange between the currencies of different nations
(i.e., when the currency being exchanged has decreased in value relative to the
currency being purchased). There are further risk considerations, including
possible losses through the holding of securities in domestic and foreign
custodial banks and depositories.
The countries of the European Monetary Union began the process of
converting their individual country currencies to the Euro on January 1, 1999.
There is also a risk that the value of foreign securities of companies located
in EMU countries may decrease due to market volatility resulting from the
conversion of certain EMU country currencies to the Euro. It is not possible to
predict the impact of the Euro on the business or financial condition of
European issues or on the Portfolio. The transition and the elimination of
currency risk among EMU countries may change the economic environment and
behavior of investors, particularly in European markets. To the extent the
Portfolio holds non-U.S. dollar (Euro or other) denominated securities, it will
still be exposed to currency risk due to fluctuations in those currencies versus
the U.S. dollar.
Furthermore, International Stock Portfolio may invest in securities issued
by governments, governmental agencies and companies located in developing market
countries. The Portfolio considers countries having developing markets to be
all countries that are generally considered to be developing or emerging
countries by the International Bank for Reconstruction and Development (more
commonly referred to as the World Bank) and the International Finance
Corporation, as well as countries that are classified by the United Nations or
otherwise regarded by their authorities as developing. Currently, the countries
not included in this category are Ireland, Spain, New Zealand, Australia, the
United Kingdom, Italy, the Netherlands, Belgium, Austria, France, Canada,
Germany, Denmark, the United States, Sweden, Finland, Norway, Japan and
Switzerland. In addition, developing market securities means (i) securities of
companies the principal securities trading market for which is a developing
market country, as defined above, (ii) securities, traded in any market, of
companies that derive 50% or more of their total revenue from either goods or
services produced in such developing market countries or sales made in such
developing market countries or (iii) securities of companies organized under the
laws of, and with a principal office in, a developing market country.
International Stock Portfolio will at all times, except during temporary
defensive periods, maintain investments in at least three countries having
developing markets.
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
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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.
In addition, International Stock Portfolio, Global Bond Portfolio and
Macro-Cap Value Portfolio may invest in European Depositary Receipts, which are
receipts evidencing an arrangement with a European bank similar to that for ADRs
and which are designed for use in the European securities markets. Furthermore,
Global Bond Portfolio may invest in Global Depositary Receipts, which are
receipts evidencing an arrangement with a foreign bank similar to that for ADRs
and which are designed for use in European and other foreign securities markets.
European Depositary Receipts and Global Depositary Receipts are not necessarily
denominated in the currency of the underlying security.
FOREIGN INDEX LINKED SECURITIES
Global Bond Portfolio may invest up to 10% of its total assets in
instruments that return principal and/or pay interest to investors in amounts
which are linked to the level of a particular foreign index ("Foreign Index
Linked Securities"). A foreign index may be based upon the exchange rate of a
particular currency or currencies or the differential between two currencies, or
the level of interest rates in a particular country or countries or the
differential in interest rates between particular countries. In the case of
Foreign Index Linked Securities linking the principal amount to a foreign index,
the amount of principal payable by the issuer at maturity will increase or
decrease in response to changes in the level of the foreign index during the
term of the Foreign Index Linked Securities. In the case of Foreign Index
Linked Securities linking the interest component to a foreign index, the amount
of interest payable will adjust periodically in response to changes in the level
of the foreign index during the term of the Foreign Index Linked Security.
Foreign Index Linked Securities may be issued by a U.S. or foreign governmental
agency or instrumentality or by a private domestic or foreign issuer. Only
Foreign Index Linked Securities issued by foreign governmental agencies or
instrumentalities or by foreign issuers will be considered foreign securities
for purposes of the Portfolio's investment policies and restrictions.
Foreign Index Linked Securities may offer higher yields than comparable
securities linked to purely domestic indexes but also may be more volatile.
Foreign Index Linked Securities are relatively recent innovations for which the
market has not yet been fully developed and, accordingly, they typically are
less liquid than comparable securities linked to purely domestic indexes. In
addition, the value of Foreign Index Linked Securities will be affected by
fluctuations in foreign exchange rates or in foreign interest rates. If the
Portfolio's investment sub-adviser is incorrect in its prediction as to the
movements in the direction of particular foreign currencies or foreign interest
rates, the return realized by the Portfolio on Foreign Index Linked Securities
may be lower than if the Portfolio had invested in a similarly rated domestic
security.
SWAP AGREEMENTS
Global Bond Portfolio may enter into interest rate and index swap
agreements for purposes of attempting to obtain a particular desired return at a
lower cost to the Portfolio than if
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the Portfolio had invested directly in an instrument that yielded that desired
return. Swap agreements are two-party contracts entered into primarily by
institutional investors for periods ranging from a few weeks to more than one
year. In a standard "swap" transaction, two parties agree to exchange the
returns (or differentials in rates of return) earned or realized on particular
predetermined investments or instruments. The gross returns to be exchanged or
"swapped" between the parties are calculated with respect to a "notional
amount," i.e., the return on or increase in value of a particular dollar amount
invested at a particular interest rate or in a "basket" of securities
representing a particular index. Commonly used swap agreements include interest
rate caps, under which, in return for a premium, one party agrees to make
payments to the other to the extent that interest rates exceed a specified rate,
or "cap;" interest rate floors, under which, in return for a premium, one party
agrees to make payments to the other to the extent that interest rates fall
below a specified level, or "floor;" and interest rate collars, under which a
party sells a cap and purchases a floor or vice versa in an attempt to protect
itself against interest rate movements exceeding given minimum or maximum
levels.
The "notional amount" of the swap agreement is only a fictive basis on
which to calculate the obligations which the parties to a swap agreement have
agreed to exchange. Most swap agreements entered into by the Portfolio would
calculate the obligations of the parties to the agreement on a "net basis."
Consequently, the Portfolio's obligations (or rights) under a swap agreement
will generally be equal to the net amount to be paid or received under the
agreement based on the relative values of the positions held by each party to
the agreement (the "net amount"). The Portfolio's obligations under a swap
agreement will be accrued daily (offset against amounts owed to the Portfolio)
and any accrued but unpaid net amounts owed to a swap counterparty will be
covered by the maintenance of a segregated account consisting of cash or liquid
securities to avoid any potential leveraging of the Portfolio's securities. The
Portfolio will not enter into a swap agreement with any single party if the net
amount owed or to be received under existing contracts with that party would
exceed 5% of the Portfolio's assets.
Whether the Portfolio's use of swap agreements will be successful in
furthering its investment objective will depend on the Portfolio's investment
sub-adviser's ability to predict correctly whether certain types of investments
are likely to produce greater returns than other investments. Because they are
two-party contracts and because they may have terms of greater than seven days,
swap agreements may be considered to be illiquid. Moreover, the Portfolio bears
the risk of loss of the amount expected to be received under a swap agreement in
the event of the default or bankruptcy of a swap agreement counterparty. The
Portfolio's investment sub-adviser will cause the Portfolio to enter into swap
agreements only with counterparties that would be eligible for consideration as
repurchase agreement counterparties under the Fund's repurchase agreement
guidelines. Certain restrictions imposed on the Portfolio by the Internal
Revenue Code may limit the Portfolio's ability to use swap agreements. The
swaps market is relatively new market and is largely unregulated. It is
possible that developments in the swaps market, including potential government
regulation, could adversely affect a portfolio's ability to terminate existing
swap agreements or to realize amounts to be received under such agreements.
CURRENCY EXCHANGE TRANSACTIONS
International Stock Portfolio and Global Bond Portfolio usually effect
currency exchange transactions on a spot (i.e. cash) basis at the spot rate
prevailing in the foreign exchange market. However, some price spread on
currency exchange will be incurred when the Portfolio converts
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assets from one currency to another. Further, the Portfolio may be affected
either unfavorably or favorably by fluctuations in the relative rates of
exchange between the currencies of different nations. For example, in order to
realize the value of a foreign investment, the Portfolio must convert that
value, as denominated in its foreign currency, into U.S. dollars using the
applicable currency exchange rate. The exchange rate represents the current
price of a U.S. dollar relative to that foreign currency; that is, the amount of
such foreign currency required to buy one U.S. dollar. If the Portfolio holds a
foreign security which has appreciated in value as measured in the foreign
currency, the level of appreciation actually realized by the Portfolio may be
reduced or even eliminated if the foreign currency has decreased in value
relative to the U.S. dollar subsequent to the date of purchase. In such a
circumstance, the cost of a U.S. dollar purchased with that foreign currency has
gone up and the same amount of foreign currency purchases fewer dollars than at
an earlier date.
FOREIGN CURRENCY HEDGING TRANSACTIONS
FORWARD EXCHANGE CONTRACTS. International Stock Portfolio and Global Bond
Portfolio have authority to deal in forward foreign currency exchange contracts
between currencies of the different countries in which such Portfolios will
invest as a hedge against possible variations in the foreign exchange rate
between these currencies. This is accomplished through contractual agreements
to purchase or sell a specified currency at a specified future date and price
set at the time of the contract. Forward exchange contracts are individually
negotiated and privately traded by currency traders and their customers. The
Portfolio's dealings in forward foreign exchange contracts will be limited to
hedging involving either specific transactions or portfolio positions.
Transaction hedging is the purchase or sale of forward foreign currency with
respect to specific receivables or payables of the Portfolio arising from the
purchase and sale of portfolio securities, the sale and redemption of shares of
the Portfolio, or the payment of dividends and distributions by the Portfolio.
Position hedging is the sale of forward foreign exchange contracts with respect
to portfolio security positions denominated or quoted in such foreign currency.
The Portfolio will not engage in naked forward foreign exchange contracts.
In addition, when the Portfolio's investment sub-adviser believes that the
currency of a particular foreign country may suffer or enjoy a substantial
movement against another currency, it may enter into a forward contract to sell
or buy the amount of the former foreign currency, approximating the value of
some or all of the Portfolio's securities denominated in such foreign currency.
The projection of short-term currency market movement is extremely difficult,
and the successful execution of a short-term hedging strategy is highly
uncertain.
It is impossible to forecast with absolute precision the market value of
portfolio securities at the expiration of the contract. Accordingly, it may be
necessary for the Portfolio to purchase additional foreign currency on the spot
market (and bear the expense of such purchase) if the market value of the
security is less than the amount of foreign currency the Portfolio is obligated
to deliver and if a decision is made to sell the security and make delivery of
the foreign currency. Conversely, it may be necessary to sell on the spot
market some of the foreign currency received upon the sale of the portfolio
security if its market value exceeds the amount of foreign currency the
Portfolio is obligated to deliver.
If the Portfolio retains the portfolio security and engages in an
offsetting transaction, the Portfolio will incur a gain or a loss to the extent
that there has been movement in forward
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contract prices. If the Portfolio engages in an offsetting transaction, it may
subsequently enter into a new forward contract to sell the foreign currency.
Should forward prices decline during the period between the Portfolio entering
into a forward contract for the sale of a foreign currency and the date it
enters into an offsetting contract for the purchase of the foreign currency, the
Portfolio will realize a gain to the extent the price of the currency it has
agreed to sell exceeds the price of the currency it has agreed to purchase.
Should forward prices increase, the Portfolio will suffer a loss to the extent
the price of the currency it has agreed to purchase exceeds the price of the
currency it has agreed to sell.
CURRENCY FUTURES CONTRACTS. International Stock Portfolio and Global Bond
Portfolio may also enter into exchange-traded contracts for the purchase or sale
for future delivery of foreign currencies ("foreign currency futures"). This
investment technique will be used only to hedge against anticipated future
changes in exchange rates which otherwise might adversely affect the value of
the Portfolio's securities or adversely affect the prices of securities that the
Portfolio intends to purchase at a later date. The successful use of foreign
currency futures will usually depend on the ability of the Portfolio's
investment sub-adviser to forecast currency exchange rate movements correctly.
Should exchange rates move in an unexpected manner, the Fund may not achieve the
anticipated benefits of foreign currency futures or may realize losses.
CLOSED-END INVESTMENT COMPANIES
Some countries, such as South Korea, Chile and India, have authorized the
formation of closed-end investment companies to facilitate indirect foreign
investment in their capital markets. In accordance with the Investment Company
Act of 1940, International Stock Portfolio may invest up to 10% of its total
assets in securities of closed-end investment companies. This restriction on
investments in securities of closed-end investment companies may limit
opportunities for the International Stock Portfolio to invest indirectly in
certain developing markets. Shares of certain closed-end investment companies
may at times be acquired only at market prices representing premiums to their
net asset values. If the International Stock Portfolio acquires shares of
closed-end investment companies, shareholders would bear both their
proportionate share of expenses of the International Stock Portfolio (including
management and advisory fees) and, indirectly, the expenses of such closed-end
investment companies.
LOANS OF PORTFOLIO SECURITIES
For the purpose of realizing additional income, to the extent specified
in the Prospectus, certain Portfolios may make secured loans of Portfolio
securities amounting to not more than one-third of their respective total
assets. Securities loans are made to broker-dealers or financial institutions
pursuant to agreements requiring that the loans be continuously secured by
collateral at least equal at all times to the value of the securities lent.
The collateral received will consist of cash, letters of credit or securities
issued or guaranteed by the U.S. Government, its agencies or
instrumentalities. While the securities are being lent, the Portfolio 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 Portfolio 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 Portfolio's
custodian for arranging and administering such loans. The Portfolio has a
right to call each loan and obtain the securities on five business days'
notice. The
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Portfolio 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
Portfolio's investment adviser or sub- adviser, as the case may be, to be of
good standing and to have sufficient financial responsibility, and will not be
made unless, in the judgment of the Portfolio's investment adviser or
sub-adviser, the consideration to be earned from such loans would justify the
risk. The creditworthiness of entities to which the Portfolio makes loans of
portfolio securities is monitored by the Portfolio's investment adviser or
sub-adviser throughout the term of each loan.
RESTRICTED AND ILLIQUID SECURITIES
Each Portfolio may invest up to 15% (10% in the case of Money Market
Portfolio) of its respective net assets in securities restricted as to
disposition under the federal securities laws or otherwise, or other illiquid
assets. An investment is generally deemed to be "illiquid" if it cannot be
disposed of within seven days in the ordinary course of business at
approximately the amount at which the investment company is valuing the
investment. "Restricted securities" are securities which were originally sold
in private placements and which have not been registered under the Securities
Act of 1933 (the "1933 Act"). Such securities generally have been considered
illiquid by the staff of the Securities and Exchange Commission (the "SEC"),
since such securities may be resold only subject to statutory restrictions and
delays or if registered under the 1933 Act. Because of such restrictions, the
Portfolio 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 Portfolio may be required to bear the expenses of
registration of such restricted securities.
The SEC has acknowledged, however, that a market exists for certain
restricted securities (for example, securities qualifying for resale to
certain "qualified institutional buyers" pursuant to Rule 144A under the 1933
Act). Additionally, the Portfolio's investment adviser and sub-adviser, as
the case may be, believe that a similar market exists for commercial paper
issued pursuant to the private placement exemption of Section 4(2) of the
1933 Act and for certain interest-only and principal-only classes of
mortgage-backed and asset-backed securities. Each Portfolio may invest
without limitation in these forms of restricted securities if such securities
are deemed by the Portfolio's investment adviser or sub-adviser to be liquid
in accordance with standards established by the Fund's Board of Directors.
Under these guidelines, the Portfolio's investment adviser or sub-adviser
must consider (a) the frequency of trades and quotes for the security, (b)
the number of dealers willing to purchase or sell the security and the number
of other potential purchasers, (c) dealer undertakings to make a market in
the security, and (d) the nature of the security and the nature of the
marketplace trades (for example, the time needed to dispose of the security,
the method of soliciting offers and the mechanics of transfer). At the
present time, it is not possible to predict with accuracy how the markets for
certain restricted securities will develop. Investing in such restricted
securities could have the effect of increasing the level of the Portfolio's
illiquidity to the extent that qualified purchasers of the securities become,
for a time, uninterested in purchasing these securities.
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If through the appreciation of restricted securities or the depreciation of
unrestricted securities, the Portfolio is in a position where more than 15% (10%
in the case of Money Market Portfolio) of its net assets are invested in
restricted and other illiquid securities, the Portfolio will take appropriate
steps to protect liquidity.
WHEN-ISSUED SECURITIES AND FORWARD COMMITMENTS
Bond Portfolio, Asset Allocation Portfolio, Mortgage Securities Portfolio,
International Stock Portfolio, Global Bond Portfolio, Macro-Cap Value Portfolio
and Real Estate Securities Portfolio 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 Portfolio and settlement, no payment is
made for the securities purchased by the Portfolio and, thus, no interest
accrues to the Portfolio from the transaction.
The use of when-issued transactions and forward commitments enables the
Portfolio to hedge against anticipated changes in interest rates and prices.
For instance, in periods of rising interest rates and falling prices, the
Portfolio 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 Portfolio 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 Portfolio 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
Portfolio's investment adviser or sub-adviser to correctly anticipate increases
and decreases in interest rates and prices of securities. If the Portfolio's
investment adviser or sub-adviser anticipates a rise in interest rates and a
decline in prices and, accordingly, the Portfolio sells securities on a forward
commitment basis in order to hedge against falling prices, but in fact interest
rates decline and prices rise, the Portfolio will have lost the opportunity to
profit from the price increase. If the investment adviser or sub-adviser
anticipates a decline in interest rates and a rise in prices, and, accordingly,
the Portfolio 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 Portfolio 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 Portfolio's investment
adviser or sub-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 Portfolio'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 (as discussed
below), the Portfolio enters into when-issued and forward commitments only with
the intention of actually receiving or delivering the securities, as the case
may be. The Portfolio may hold a when-issued security or
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forward commitment until the settlement date, even if the Portfolio will incur a
loss upon settlement. To facilitate transactions in when-issued securities and
forward commitments, the Portfolio's custodian bank maintains, in a separate
account of the Portfolio, liquid assets, such as cash, short-term securities and
other liquid securities (marked to the market daily), having a value equal to,
or greater than, any commitments to purchase securities on a when-issued or
forward commitment basis and, with respect to forward commitments to sell
portfolio securities of the Portfolio, the portfolio securities themselves. If
the Portfolio, 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
Portfolio makes the commitment to purchase or sell a security on a when-issued
or forward commitment basis, it records the transaction and reflects the value
of the security purchased or, if a sale, the proceeds to be received, in
determining its net asset value.)
The Portfolio may also enter into such transactions to generate incremental
income. In some instances, the third-party seller of when-issued or forward
commitment securities may determine prior to the settlement date that it will be
unable or unwilling to meet its existing transaction commitments without
borrowing securities. If advantageous from a yield perspective, the Portfolio
may, in that event, agree 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. As an
inducement for the Portfolio to
"roll over" its purchase commitment, the Portfolio may receive a negotiated fee.
These transactions, referred to as "mortgage dollar rolls," are entered into
without the intention of actually acquiring securities. For a description of
mortgage dollar rolls and the Portfolios that may invest in such transactions,
see " Mortgage Dollar Rolls" below.
The purchase of securities on a when-issued or forward commitment basis
exposes the Portfolio to risk because the securities may decrease in value prior
to their delivery. Purchasing securities on a when-issued or forward commitment
basis involves the additional risk that the return available in the market when
the delivery takes place will be higher than that obtained in the transaction
itself. The Portfolio's purchase of securities on a when-issued or forward
commitment basis while remaining substantially fully invested increases the
amount of the Portfolio's assets that are subject to market risk to an amount
that is greater than the Portfolio's net asset value, which could result in
increased volatility of the price of the Portfolio's shares. No more than 30%
of the value of such Portfolio's (other than Macro-Cap Value Portfolio's) total
assets will be committed to when-issued or forward commitment transactions, and
of such 30%, no more than two-thirds (i.e., 20% of its total assets) may be
invested in mortgage dollar rolls. No more than 15% of the value of Macro-Cap
Value Portfolio's total assets will be committed to when-issued or forward
commitment transactions.
MORTGAGE DOLLAR ROLLS
In connection with its ability to purchase securities on a when-issued or
forward commitment basis, Bond Portfolio, Asset Allocation Portfolio, Mortgage
Securities Portfolio and Global Bond Portfolio may enter into mortgage "dollar
rolls" in which the Portfolio sells securities for delivery in the current month
and simultaneously contracts with the same counterparty to repurchase similar
(same type, coupon and maturity) but not identical securities on a specified
future date. In a mortgage dollar roll, the Portfolio gives up the right to
receive principal and interest paid on the securities sold. However, the
Portfolio would benefit to the
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extent of any difference between the price received for the securities sold and
the lower forward price for the future purchase plus any fee income received.
Unless such benefits exceed the income, capital appreciation and gain or loss
due to mortgage prepayments that would have been realized on the securities sold
as part of the mortgage dollar roll, the use of this technique will diminish the
investment performance of the Portfolio compared with what such performance
would have been without the use of mortgage dollar rolls. The Portfolio will
hold and maintain in a segregated account until the settlement date cash or
liquid securities in an amount equal to the forward purchase price. The benefits
derived from the use of mortgage dollar rolls may depend upon the ability of the
Portfolio's investment adviser or sub-adviser, as the case may be, to predict
correctly mortgage prepayments and interest rates. There is no assurance that
mortgage dollar rolls can be successfully employed. In addition, the use of
mortgage dollar rolls by the Portfolio while remaining substantially fully
invested increases the amount of the Portfolio's assets that are subject to
market risk to an amount that is greater than the Portfolio's net asset value,
which could result in increased volatility of the price of the Portfolio's
shares.
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 Portfolios 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.
REAL ESTATE INVESTMENT TRUST SECURITIES
Real Estate Securities Portfolio may invest in real estate investment trust
securities ("REIT"). A REIT is a corporation or a business trust that would
otherwise be taxed as a corporation, which meets certain requirements of the
Internal Revenue Code of 1986, as amended the "Code"). The Code permits a
qualifying REIT to deduct dividends paid, thereby effectively eliminating
corporate level federal income tax and making the REIT a pass-through vehicle
for federal income tax purposes. In order to qualify as a REIT, a company must
derive at least 75% of its gross income from real estate sources (rents,
mortgage interest, and gains from sale of real estate assets), 75% of its assets
must be in real estate, mortgages or REIT stock, and must distribute to
shareholder annually 95% or more of its otherwise taxable income.
REITs are sometimes informally characterized as equity REITs, mortgage
REITs and hybrid REITS. An equity REIT invests primarily in the fee ownership
or leasehold ownership of land and buildings and derives its income primarily
from rental income. A mortgage REIT invests primarily in mortgages on real
estate, and derives primarily from interest payments received on credit it has
granted. A hybrid REIT combines the characteristics of equity REITs and
mortgage REITs. It is anticipated, although not required, that under normal
circumstances, a majority of the Portfolio's investments in REITS will consist
of equity REITs.
REPURCHASE AGREEMENTS
Growth Portfolio, Bond Portfolio, Mortgage Securities Portfolio, Asset
Allocation Portfolio, Index 500 Portfolio, Capital Appreciation Portfolio,
International Stock Portfolio, Small Company Growth Portfolio, the Maturing
Government Bond Portfolios, Value Stock Portfolio, Small Company Value
Portfolio, Global Bond Portfolio, Index 400 Mid-Cap Portfolio, Macro-Cap
Value Portfolio, Micro-Cap Growth Portfolio and Real Estate Securities
Portfolio may enter into repurchase agreements. Repurchase agreements are
agreements by which the Portfolio purchases a security
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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 Portfolio 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 Portfolio enters into repurchase agreements is monitored by the
Portfolio's investment adviser or sub-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 Portfolio the opportunity to
earn a return on temporarily available cash. The Portfolio'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 Portfolio 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 Portfolio
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 Portfolio 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.
REVERSE REPURCHASE AGREEMENTS
Money Market Portfolio, Asset Allocation Portfolio and Global Bond
Portfolio may also enter into reverse repurchase agreements. Reverse repurchase
agreements are the counterparts of repurchase agreements, by which the Portfolio
sells a security and agrees to repurchase the security from the buyer at an
agreed upon price and future date. Because certain of the incidents of
ownership of the security are retained by the Portfolio, reverse repurchase
agreements may be considered a form of borrowing by the Portfolio from the
buyer, collateralized by the security. The Portfolio uses the proceeds of a
reverse repurchase agreement to purchase other money market securities either
maturing, or under an agreement to resell, at a date simultaneous with or prior
to the expiration of the reverse repurchase agreement. The Portfolio utilizes
reverse repurchase agreements when the interest income to be earned from
investment of the proceeds of the reverse repurchase transaction exceeds the
interest expense of the transaction.
The use of reverse repurchase agreements by the Portfolio allows it to
leverage its portfolio. While leveraging offers the potential for increased
yield, it magnifies the risks associated with the Portfolio's investments and
reduces the stability of the Portfolio's net asset value per share. To limit
this risk, the Portfolio will not enter into a reverse repurchase agreement
if all such transactions, together with any money borrowed, exceed 5% of the
Portfolio's net assets. In addition, when entering into reverse repurchase
agreements, the Portfolio will deposit and maintain in a segregated account
with its custodian liquid assets, such as cash or cash equivalents and other
appropriate short-term securities and high grade debt obligations, in an
amount equal to the repurchase price (which shall include the interest
expense of the transaction). Moreover, Money Market Portfolio will not enter
into reverse repurchase
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agreements if and to the extent such transactions would, as determined by the
Portfolio's investment adviser, materially increase the risk of a significant
deviation in the Portfolio's net asset value per share. See "Net Asset Value"
below.
FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS
FUTURES CONTRACTS. Consistent with their investment objectives and
strategies, the Funds may enter into interest rate futures contracts, stock
index futures contracts and foreign currency futures contracts. (Unless
otherwise specified, interest rate futures contracts, stock index futures
contracts and foreign currency futures contracts are collectively referred to as
"futures contracts.")
A futures contract is a bilateral agreement providing for the purchase
and sale of a specified type and amount of a financial instrument or foreign
currency, or for the making and acceptance of a cash settlement, at a stated
time in the future for a fixed price. By its terms, a futures contract provides
for a specified settlement date on which, in the case of the majority of
interest rate and foreign currency futures contracts, the fixed income
securities or currency underlying the contract are delivered by the seller and
paid for by the purchaser, or on which, in the case of stock index futures
contracts and certain interest rate and foreign currency futures contracts, the
difference between the price at which the contract was entered into and the
contract's closing value is settled between the purchaser and the seller in
cash. Futures contracts differ from options in that they are bilateral
agreements, with both the purchaser and the seller equally obligated to complete
the transaction. Futures contracts call for settlement only on the expiration
date, and cannot be "exercised" at any other time during their term.
Interest rate futures contracts currently are traded on a variety of
fixed income securities, including long-term U.S. Treasury Bonds, Treasury
Notes, Government National Mortgage Association modified pass-through
mortgage-backed securities, and U.S. Treasury Bills. In addition, interest rate
futures contracts include contracts on indexes of municipal securities. Foreign
currency futures contracts currently are traded on the British pound, Canadian
dollar, Japanese yen, Swiss franc, West German mark, and on Eurodollar deposits.
Stock index futures contracts include contracts on the S&P 500 Index
and other broad-based stock market indexes, as well as contracts based on
narrower market indexes or indexes of securities of particular industry groups.
A stock index assigns relative values to the common stocks included in the index
and the index fluctuates with the value of the common stocks so included. The
parties to a stock index futures contract agree to make a cash settlement on a
specific future date in an amount determined by the value of the stock index on
the last trading day of the contract. The amount is a specified dollar amount
times the difference between the value of the index on the last trading day and
the value on the day the contract was struck.
Purchases or sales of stock index futures contracts are used to attempt
to protect current or intended stock investments from broad fluctuations in
stock prices. Interest rate and foreign currency futures contracts are purchased
or sold to attempt to hedge against the effects of interest or exchange rate
changes on a Fund's current or intended investments in fixed income or foreign
securities. In the event that an anticipated decrease in the value of a Fund's
securities occurs as a result of a general stock market decline, a general
increase in interest rates, or a decline in the dollar value of foreign
currencies in which portfolio securities are denominated, the adverse
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effects of such changes may be offset, in whole or in part, by gains on the
sale of futures contracts. Conversely, the increased cost of a Fund's
securities to be acquired, caused by a general rise in the stock market, a
general decline in interest rates, or a rise in the dollar value of foreign
currencies, may be offset, in whole or in part, by gains on futures contracts
purchased by such Fund.
Although many futures contracts by their terms call for actual delivery
or acceptance of the financial instrument, in most cases the contracts are
closed out before the settlement date without the making or taking of delivery.
Closing out a short position is effected by purchasing a futures contract for
the same aggregate amount of the specific type of financial instrument and the
same delivery month. If the price of the initial sale of the futures contract
exceeds the price of the offsetting purchase, the seller is paid the difference
and realizes a gain. Conversely, if the price of the offsetting purchase exceeds
the price of the initial sale, the trader realizes a loss. Similarly, the
closing out of a long position is effected by the purchaser entering into a
futures contract sale. If the offsetting sale price exceeds the purchase price,
the purchaser realizes a gain and, if the purchase price exceeds the offsetting
sale price, the purchaser realizes a loss.
The purchase or sale of a futures contract differs from the purchase or
sale of a security in that no purchase price is paid or received. Instead, an
amount of cash or cash equivalents, which varies but may be as low as 5% or less
of the value of the contract, must be deposited with the broker as "initial
margin." Subsequent payments to and from the broker, referred to as "variation
margin," are made on a daily basis as the value of the index or instrument
underlying the futures contract fluctuates, making positions in the futures
contracts more or less valuable, a process known as "marking to the market."
U.S. futures contracts may be purchased or sold only on an exchange,
known as a"contract market," designated by the Commodity Futures Trading
Commission ("CFTC") for the trading of such contract, and only through a
registered futures commission merchant which is a member of such contract
market. A commission must be paid on each completed purchase and sale
transaction. The contract market clearing house guarantees the performance of
each party to a futures contract by in effect taking the opposite side of such
contract. At any time prior to the expiration of a futures contract, a trader
may elect to close out its position by taking an opposite position on the
contract market on which the position was entered into, subject to the
availability of a secondary market, which will operate to terminate the initial
position. At that time, a final determination of variation margin is made and
any loss experienced by the trader is required to be paid to the contract market
clearing house while any profit due to the trader must be delivered to it.
Futures contracts may also be traded on foreign exchanges.
OPTIONS ON FUTURES CONTRACTS. The Funds also may purchase and sell put
and call options on futures contracts and enter into closing transactions with
respect to such options to terminate existing positions. The Funds may use such
options on futures contracts in connection with their hedging strategies in lieu
of purchasing and writing options directly on the underlying securities or
purchasing and selling the underlying futures contracts.
An option on a futures contract provides the holder with the right to
enter into a "long" position in the underlying futures contract, in the case of
a call option, or a "short" position in the
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underlying futures contract, in the case of a put option, at a fixed exercise
price up to a stated expiration date or, in the case of certain options, on
such date. Upon exercise of the option by the holder, the contract market
clearing house establishes a corresponding short position for the writer of
the option, in the case of a call option, or a corresponding long position,
in the case of a put option. In the event that an option is exercised, the
parties will be subject to all the risks associated with the trading of
futures contracts, such as payment of variation margin deposits. In addition,
the writer of an option on a futures contract, unlike the holder, is subject
to initial and variation margin requirements on the option position.
A position in an option on a futures contract may be terminated by the
purchaser or the seller prior to expiration by affecting a closing purchase or
sale transaction, subject to the availability of a liquid secondary market,
which is the purchase or sale of an option of the same series (i.e., the same
exercise price and expiration date) as the option previously purchased or sold.
The difference between the premiums paid and received represents the trader's
profit or loss on the transaction.
Options on futures contracts that are written or purchased by the Funds
on United States exchanges are traded on the same contract market as the
underlying futures contract and, like futures contracts, are subject to
regulation by the CFTC and the performance guarantee of the exchange clearing
house. In addition, options on futures contracts may be traded on foreign
exchanges.
RISKS OF FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS. The use of
futures contracts and options on futures contracts will expose the Funds to
additional investment risks and transactions costs.
Risks include:
- - the risk that interest rates, securities prices or currency markets
will not move in the direction that the Fund's investment adviser or
sub-adviser anticipates;
- - an imperfect correlation between the price of the instrument and
movements in the prices of any securities or currencies being hedged;
- - the possible absence of a liquid secondary market for any particular
instrument and possible exchange imposed price fluctuation limits;
- - leverage risk, which is the risk that adverse price movements in an
instrument can result in a loss substantially greater than a Fund's
initial investment in that instrument; and
- - the risk that the counterparty to an instrument will fail to perform
its obligations.
REGULATORY MATTERS. To the extent required to comply with applicable
Securities and Exchange Commission releases and staff positions, when entering
into futures contracts each Fund will maintain, in a segregated account, cash or
liquid securities equal to the value of such contracts.
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The CFTC, a federal agency, regulates trading activity on the exchanges
pursuant to the Commodity Exchange Act, as amended. The CFTC requires the
registration of "commodity pool operators," defined as any person engaged in a
business which is of the nature of a company, syndicate or a similar form of
enterprise, and who, in connection therewith, solicits, accepts or receives from
others, funds, securities or property for the purpose of trading in any
commodity for future delivery on or subject to the rules of any contract market.
The CFTC has adopted Rule 4.5, which provides an exclusion from the definition
of commodity pool operator for any registered investment company which meets the
requirements of the Rule. Rule 4.5 requires, among other things, that an
investment company wishing to avoid commodity pool operator status use futures
and options positions only (a) for "bona fide hedging purposes" (as defined in
CFTC regulations) or (b) for other purposes so long as aggregate initial margins
and premiums required in connection with non-hedging positions do not exceed 5%
of the liquidation value of the investment company's portfolio. Any investment
company wishing to claim the exclusion provided in Rule 4.5 must file a notice
of eligibility with both the CFTC and the National Futures Association. Before
engaging in transactions involving interest rate futures contracts, the Funds
will file such notices and meet the requirements of Rule 4.5, or such other
requirements as the CFTC or its staff may from time to time issue, in order to
render registration as a commodity pool operator unnecessary.
For examples of futures contracts and their tax treatment, see Appendix
C to this Statement of Additional Information.
OPTIONS
Each Fund may write (I.E., sell) covered call and secured put options
and purchase and sell put and call options written by others. Each Fund will
limit the total market value of securities against which it may write call or
put options to 20% of its total assets. In addition, no Fund will commit more
than 5% of its total assets to premiums when purchasing put or call options.
A put option gives the purchaser the right to sell a security or other
instrument to the writer of the option at a stated price during the term of the
option. A call option gives the purchaser the right to purchase a security or
other instrument from the writer of the option at a stated price during the term
of the option. Thus, if a Fund writes a call option on a security, it becomes
obligated during the term of the option to deliver the security underlying the
option upon payment of the exercise price. If a Fund writes a put option, it
becomes obligated during the term of the option to purchase the security
underlying the option at the exercise price if the option is exercised.
Funds may use put and call options for a variety of purposes. For
example, if a portfolio manager wishes to hedge a security a Fund owns against a
decline in price, the manager may purchase a put option on the underlying
security; I.E., purchase the right to sell the security to a third party at a
stated price. If the underlying security then declines in price, the manager can
exercise the put option, thus limiting the amount of loss resulting from the
decline in price. Similarly, if the manager intends to purchase a security at
some date in the future, the manager may purchase a call option on the security
today in order to hedge against an increase in its price
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before the intended purchase date. Put and call options also can be used for
speculative purposes. For example, if a portfolio manager believes that the
price of stocks generally is going to rise, the manager may purchase a call
option on a stock index, the components of which are unrelated to the stocks
held or intended to be purchased. Finally, a portfolio manager may write
options on securities owned in order to realize additional income. Funds
receive premiums from writing call or put options, which they retain whether
or not the options are exercised.
By writing a call option, a Fund might lose the potential for gain on
the underlying security while the option is open, and by writing a put option a
Fund might become obligated to purchase the underlying security for more than
its current market price upon exercise. If a Fund purchases a put or call
option, any loss to the Fund is limited to the premium paid for, and transaction
costs paid in connection with, the option.
OPTIONS ON SECURITIES. An option on a security provides the purchaser,
or "holder," with the right, but not the obligation, to purchase, in the case of
a "call" option, or sell, in the case of a "put" option, the security or
securities underlying the option, for a fixed exercise price up to a stated
expiration date or, in the case of certain options, on such date. The holder
pays a nonrefundable purchase price for the option, known as the "premium." The
maximum amount of risk the purchaser of the option assumes is equal to the
premium plus related transaction costs, although this entire amount may be lost.
The risk of the seller, or "writer," however, is potentially unlimited, unless
the option is "covered." A call option written by a Fund is "covered" if the
Fund owns the underlying security covered by the call or has an absolute and
immediate right to acquire that security without additional cash consideration
(or for additional cash consideration held in a segregated account by its
custodian) upon conversion or exchange of other securities held in its
portfolio. A call option is also covered if the Fund holds a call on the same
security and in the same principal amount as the call written where the exercise
price of the call held (a) is equal to or less than the exercise price of the
call written or (b) is greater than the exercise price of the call written if
the difference is maintained by the Fund in cash and liquid securities in a
segregated account with its custodian. A put option written by a Fund is
"covered" if the Fund maintains cash and liquid securities with a value equal to
the exercise price in a segregated account with its custodian, or else holds a
put on the same security and in the same principal amount as the put written
where the exercise price of the put held is equal to or greater than the
exercise price of the put written. If the writer's obligation is not so covered,
it is subject to the risk of the full change in value of the underlying security
from the time the option is written until exercise.
Upon exercise of the option, the holder is required to pay the purchase
price of the underlying security, in the case of a call option, or to deliver
the security in return for the purchase price in the case of a put option.
Conversely, the writer is required to deliver the security, in the case of a
call option, or to purchase the security, in the case of a put option. Options
on securities which have been purchased or written may be closed out prior to
exercise or expiration by entering into an offsetting transaction on the
exchange on which the initial position was established, subject to the
availability of a liquid secondary market.
Options on securities and options on indexes of securities, discussed
below, are traded on national securities exchanges, such as the Chicago Board
Options Exchange and the New York
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Stock Exchange, which are regulated by the SEC. The Options Clearing
Corporation guarantees the performance of each party to an exchange-traded
option, by in effect taking the opposite side of each such option. A holder
or writer may engage in transactions in exchange-traded options on securities
and options on indexes of securities only through a registered broker-dealer
which is a member of the exchange on which the option is traded.
In addition, options on securities and options on indexes of securities
may be traded on exchanges located outside the United States and
over-the-counter through financial institutions dealing in such options as well
as the underlying instruments. While exchange-traded options have a continuous
liquid market, over-the-counter options may not.
OPTIONS ON STOCK INDEXES. In contrast to an option on a security, an
option on a stock index provides the holder with the right to make or receive a
cash settlement upon exercise of the option, rather than the right to purchase
or sell a security. The amount of this settlement is equal to (a) the amount, if
any, by which the fixed exercise price of the option exceeds (in the case of a
call) or is below (in the case of a put) the closing value of the underlying
index on the date of exercise, multiplied by (b) a fixed "index multiplier." The
purchaser of the option receives this cash settlement amount if the closing
level of the stock index on the day of exercise is greater than, in the case of
a call, or less than, in the case of a put, the exercise price of the option.
The writer of the option is obligated, in return for the premium received, to
make delivery of this amount if the option is exercised. As in the case of
options on securities, the writer or holder may liquidate positions in stock
index options prior to exercise or expiration by entering into closing
transactions on the exchange on which such positions were established, subject
to the availability of a liquid secondary market.
A Fund will cover all options on stock indexes by owning securities
whose price changes, in the opinion of the Fund's adviser or sub-adviser, are
expected to be similar to those of the index, or in such other manner as may be
in accordance with the rules of the exchange on which the option is traded and
applicable laws and regulations. Nevertheless, where a Fund covers a call option
on a stock index through ownership of securities, such securities may not match
the composition of the index. In that event, the Fund will not be fully covered
and could be subject to risk of loss in the event of adverse changes in the
value of the index. The Funds will secure put options on stock indexes by
segregating assets equal to the option's exercise price, or in such other manner
as may be in accordance with the rules of the exchange on which the option is
traded and applicable laws and regulations.
The index underlying a stock option index may be a "broad-based" index,
such as the Standard & Poor's 500 Index or the New York Stock Exchange Composite
Index, the changes in value of which ordinarily will reflect movements in the
stock market in general. In contrast, certain options may be based upon narrower
market indexes, such as the Standard & Poor's 100 Index, or on indexes of
securities of particular industry groups, such as those of oil and gas or
technology companies. A stock index assigns relative values to the stocks
included in the index and the index fluctuates with changes in the market values
of the stocks so included.
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WARRANTS
Growth Portfolio, Asset Allocation Portfolio, Bond Portfolio, Capital
Appreciation Portfolio, International Stock Portfolio, Small Company Growth
Portfolio, Value Stock Portfolio, Small Company Value Portfolio, Global Bond
Portfolio, Macro-Cap Value Portfolio, Micro-Cap Growth Portfolio and Real
Estate Securities Portfolio may invest in warrants; however, not more than 5%
of their respective 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 Portfolio's respective
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. 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. 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.
It is not expected that Bond Fund or Global Bond Portfolio will invest in
common stocks or equity securities other than warrants, but it may retain for
reasonable periods of time up to 5% of their respective total assets in common
stocks acquired upon conversion of debt securities or preferred stocks or upon
exercise of warrants.
WARRANTS WITH CASH EXTRACTIONS
International Stock Portfolio may also invest up to 5% of its assets in
warrants used in conjunction with the cash extraction method. 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.
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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.
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.
INDEX DEPOSITARY RECEIPTS
Growth Portfolio, Asset Allocation Portfolio, Index 500 Portfolio, Capital
Appreciation Portfolio, Small Company Growth Portfolio, Value Stock Portfolio,
Small Company Value Portfolio, Index 400 Mid-Cap Portfolio, Macro-Cap Value
Portfolio and Micro-Cap Growth Portfolio may each invest up to 5% of its total
assets in one or more types of depositary receipts ("DRs") as a means of
tracking the performance of a designated stock index while maintaining
liquidity. The Portfolio may invest in S&P 500 Depositary Receipts ("SPDRs"),
which track the S&P 500 Index; S&P MidCap 400 Depositary Receipts ("MidCap
SPDRs"), which track the S&P MidCap 400 Index; and "Dow Industrial Diamonds,"
which track the Dow Jones Industrial Average, or in other DRs which track
indexes, provided that such investments are consistent with the Portfolio's
investment objective as determined by the Portfolio's investment adviser or
sub-adviser. Each of these securities represents shares of ownership of a long
term unit investment trust (a type of investment company) that holds all of the
stock included in the relevant underlying index.
DRs carry a price which equals a specified fraction of the value of the
designated index and are exchange traded. As with other equity transactions,
brokers charge a commission in connection with the purchase of DRs. In
addition, an asset management fee is charged in connection with the underlying
unit investment trust (which is in addition to the asset management fee paid by
the Portfolio).
Trading costs for DRs are somewhat higher than those for stock index
futures contracts, but, because DRs trade like other exchange-listed equities,
they represent a quick and convenient
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method of maximizing the use of the Portfolio's assets to track the return of a
particular stock index. DRs share in the same market risks as other equity
investments.
SHORT SALES AGAINST THE BOX
Each Portfolio may sell securities "short against the box"; provided that
each Portfolio will not at the time of any short sales aggregate in total sales
price more than 10% of its total assets. Whereas a short sale is the sale of a
security the Portfolio does not own, a short sale is "against the box" if, at
all times during which the short position is open, the Portfolio 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 Portfolios have no present intention to sell securities short in this
fashion.
INVESTMENTS IN RUSSIA
International Stock Portfolio 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 Portfolio 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, Russian 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
38
<PAGE>
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
Portfolio's investments. No established secondary markets may exist for many of
the securities in which the Portfolio may invest. Reduced secondary market
liquidity may have an adverse effect on market price and the Portfolio'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 Portfolio 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 Portfolio 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 Portfolio'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 Portfolio. 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
39
<PAGE>
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
Portfolio 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 Portfolio 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 Portfolio'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 Portfolio has acquired title to
any property or securities in which the Portfolio invests, or that the Portfolio
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 Portfolio, 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 Portfolio 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.
DEFENSIVE PURPOSES
Each Portfolio may invest up to 20% of its respective net assets in cash or
cash items. In addition, for temporary or defensive purposes, the Portfolio may
invest in cash or cash items without limitation. The "cash items" in which the
Portfolio may invest, include short-term obligations such as rated commercial
paper and variable amount master demand notes; United States dollar-denominated
time and savings deposits (including certificates of deposit); bankers'
acceptances; obligations of the United States Government or its agencies or
instrumentalities; repurchase agreements collateralized by eligible investments
of a Portfolio; securities of other mutual funds which invest primarily in debt
obligations with remaining maturities of 13 months or less (which investments
also are subject to the advisory fee); and other similar high-quality short-term
United States dollar-denominated obligations.
INVESTMENT RESTRICTIONS
The Fund has adopted the following restrictions relating to the investment
of the assets of the Portfolios.
Each Portfolio is subject to certain "fundamental" investment restrictions
which may not be changed without the affirmative vote of a majority of the
outstanding voting securities of each Portfolio affected by the change. With
respect to the submission of a change in an investment
40
<PAGE>
restriction to the holders of the Fund's outstanding voting securities, such
matter shall be deemed to have been effectively acted upon with respect to a
particular Portfolio if a majority of the outstanding voting securities of such
Portfolio vote for the approval of such matter, notwithstanding (1) that such
matter has not been approved by the holders of a majority of the outstanding
voting securities of any other Portfolio affected by such matter, and (2) that
such matter has not been approved by the vote of a majority of the outstanding
voting securities of the Fund. For this purpose and under the Investment
Company Act of 1940, a majority of the outstanding voting shares of each
Portfolio means the lesser of (i) 67% of the voting shares represented at a
meeting which more than 50% of the outstanding voting shares are represented or
(ii) more than 50% of the outstanding voting shares. An investment restriction
which is not fundamental may be changed by a vote of the Board of Directors
without further shareholder approval. Except as otherwise noted, each of the
investment restrictions below is fundamental. The fundamental investment
restrictions were most recently considered at a special meeting of
shareholders held on April 17, 2000.
FUNDAMENTAL RESTRICTIONS
1. The Portfolios will not borrow money or issue senior securities except
as permitted under the Investment Company Act of 1940, as amended, and
as interpreted or modified from time to time by any regulatory
authority having jurisdiction.
2. The Portfolios will not concentrate their investments in a particular
industry, except that:
(a) with respect to Money Market Portfolios, this limitation does not
apply to investments in domestic banks;
(b) under normal market conditions, Mortgage Securities Portfolio
will concentrate its investments in the mortgage and
mortgage-finance industry. Mortgage Securities Portfolio will not
concentrate its investments in any other particular industry;
(c) under normal market conditions, Real Estate Securities Portfolios
will concentrate its investments in the real estate or real
estate related industry. Real Estate Portfolio will not
concentrate its investments in any other particular industry;
(d) Index 500 Portfolio may concentrate its investments in a
particular industry if the S&P 500 Index is so concentrated; and
(e) Index 400 Mid-Cap Portfolio may concentrate its investments in a
particular industry if the S&P 400 Mid-Cap Index is so
concentrated.
For purposes of this limitation, the U.S. Government, and state or
municipal governments and their political subdivisions, are not
considered members of any
41
<PAGE>
industry. Whether a Portfolio is concentrating in an industry
shall be determined in accordance with the Investment Company Act
of 1940, as amended, and as interpreted or modified from time to
time by an regulatory authority having jurisdiction.
3. The Portfolios will not purchase or sell real estate unless acquired
as a result of ownership of securities or other instruments, but this
shall not prevent the Portfolios from investing in securities or other
instruments backed by real estate investments therein or in securities
of companies that deal in real estate or mortgages.
4. The Portfolios will not purchase physical commodities or contracts
relating to physical commodities.
5. The Portfolios may not make loans except as permitted under the
Investment Company Act of 1940, as amended, and as interpreted or
modified from time to time by an regulatory authority having
jurisdiction.
6. The Portfolios may not act as an underwriter of securities, except to
the extent the Fund may be deemed to be an underwriter in connection
with the disposition of Portfolio securities.
NON-FUNDAMENTAL RESTRICTIONS
The Fund has adopted a number of non-fundamental policies which appear below.
7. The Portfolios will not acquire any new securities while borrowings,
including borrowings through reverse repurchase agreements, exceed 5%
of total assets.
8. The Portfolios will use features contracts and options on futures
contracts only (a) for "bona fide hedging purposes" (as defined in
regulations of the Commodity Futures Trading Commission) or (b) for
other purposes so long as the aggregate initial margins and premiums
required in connection with non-hedging positions do not exceed 5% of
the liquidation value of the Portfolio.
9. The Portfolios may mortgage, pledge or hypothecate their assets only
to secure permitted borrowings. Collateral arrangements with respect
to futures contracts, options thereon and certain options transactions
are not considered pledges for purposes of this limitation.
10. The Portfolios may not make short sales of securities, other than
short sales "against the box."
11. The Portfolios may not purchase securities on margin, but it may
obtain such short-term credits as may be necessary for the clearance
of securities transactions and it may make margin deposits in
connection with futures contracts.
12. The Portfolios will not invest more than 15% (10% in the case of Money
Market Portfolio) of their net assets in illiquid securities.
13. The total market value of securities against which a Portfolio may
write call or put options will not exceed 2% of the Portfolios' total
assets. In addition, a Portfolio will not commit more than 5% of its
total assets to premiums when purchasing put or call options.
42
<PAGE>
If a percentage restriction described above or in the Fund's Prospectus is
adhered to at the time of an investment, a later increase or decrease in the
investment's percentage of the value of a Portfolio's total assets resulting
from a change in such values or assets will not constitute a violation of the
percentage restriction.
ADDITIONAL RESTRICTIONS
The Money Market Portfolio is subject to the investment restrictions of
Rule 2a-7 under the Investment Company Act of 1940, as amended (the "1940 Act"),
in addition to its other policies and restrictions discussed below. Pursuant to
Rule 2a-7, the Fund is required to invest exclusively in securities that mature
within 397 days from the date of purchase and to maintain an average weighted
maturity of not more than 90 days. Rule 2a-7 also requires that all investments
by the Portfolio be limited to United States dollar-denominated investments that
(a) present "minimal credit risk" and (b) are at the time of acquisition
"Eligible Securities." Eligible Securities include, among others, securities
that are rated by two Nationally Recognized Statistical Rating Organizations
("NRSROs") in one of the two highest categories for short-term debt obligations,
such as A-1 or A-2 by S&P, or Prime-1 or Prime-2 by Moody's.
Rule 2a-7 also requires, among other things, that the Money Market
Portfolio may not invest, other than in U.S. "Government Securities" (as defined
in the 1940 Act), (a) more than 5% of its total assets in Second Tier Securities
(i.e., Eligible Securities that are not rated by two NRSROs in the highest
category such as A-1 and Prime-1 and (b) more than the greater of 1% of its
total assets or $1,000,000 in Second Tier Securities of any one issuer. The
present practice is not to purchase any Second Tier Securities.
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.
Each Portfolio has a different expected annual rate of portfolio
turnover. A high rate of turnover in a Portfolio generally involves
correspondingly greater brokerage commission expenses, which must be borne
directly by the 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 each Portfolio's shares and by requirements which enable
the Fund to receive favorable tax treatment. The portfolio turnover rates
associated with each Portfolio will, of course, be affected by the level of
purchases and redemptions of shares of each Portfolio. However, because rate
of portfolio turnover is not a limiting factor, particular holdings may be
sold at any time, if in the opinion of Advantus Capital such a sale is
advisable.
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<PAGE>
The Money Market Portfolio, consistent with its investment objective,
will attempt to maximize yield through trading. This may involve selling
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. Since
the Portfolio's assets will be invested in securities with short maturities
and the Portfolio will manage its assets as described above, the Portfolio's
holdings of money market instruments will turn over several times a year.
However, this does not generally increase the Portfolio's brokerage costs,
since brokerage commissions as such are not usually paid in connection with
the purchase or sale of the instruments in which the Portfolio invests since
such securities will be purchased on a net basis.
For each of the last three calendar years, the portfolio turnover rates
for the various Portfolios were as follows:
<TABLE>
<CAPTION>
Portfolio Turnover Rate
-------------------------
Portfolio 1999 1998 1997
--------- ---- ---- ----
<S> <C> <C> <C>
Growth 66.4% 120.1%
Bond 252.1 200.0
Money Market N/A N/A
Asset Allocation 129.6 140.2
Mortgage Securities 116.7 106.4
Index 500 30.2 8.3
Capital Appreciation 82.7 74.0
International Stock 22.4 12.5
Small Company Growth 75.5 63.8
Maturing Government Bond -
2002 Portfolio 35.2 36.9
2006 Portfolio 21.6 3.1
2010 Portfolio 28.2 39.3
Value Stock 88.9 115.4
Small Company Value 70.2 13.0
Global Bond 285.3 120.5
Index 400 Mid-Cap 85.4 4.9
Macro-Cap Value 164.0 36.7
Micro-Cap Growth 67.4 28.9
Real Estate Securities 54.0 N/A
</TABLE>
44
<PAGE>
DIRECTORS AND EXECUTIVE OFFICERS
Under Minnesota Law, the Board of Directors of the Fund has overall
responsibility for managing the Fund in good faith and in a manner reasonably
believed to be in the best interests of the Fund. The names, addresses,
principal occupations, and other affiliations of directors and executive
officers of the Fund are given below:
<TABLE>
<CAPTION>
Position with Principal Occupation and other
Name and Address the Funds Affiliations (past 5 years)
- ---------------- --------- ---------------------------
<S> <C> <C>
William N. Westhoff* President and President, Treasurer and Director,
Advantus Capital Director Advantus Capital Management, Inc.;
Management, Inc. Senior Vice President and Treasurer,
400 Robert Street North Minnesota Life Insurance Company;
St. Paul, Minnesota 55101 Vice President and Director, Robert Street
Energy, Inc.; President, MCM Funding 1997-1,
Inc.; President, MCM Funding 1998-1, Inc.;
Senior Vice President, Global Investments,
American Express Financial Corporation,
Minneapolis, Minnesota, from August 1994 to
October 1997; Senior Vice President, Fixed
Income Management, American Express Financial
Corporation, Minneapolis, Minnesota, from
November 1989 to July 1994
Frederick P. Feuerherm* Vice President, Vice President, Assistant Secretary and
Advantus Capital Director and Director, Advantus Capital
Management, Inc. Treasurer Management, Inc.; Vice President,
400 Robert Street North Minnesota Life Insurance Company;
St. Paul, Minnesota 55101 Vice President and Director, MIMLIC Funding,
Inc.; Vice President and Assistant Secretary,
MCM Funding 1997-1, Inc.; Vice President and
Assistant Secretary, MCM Funding 1998-1, Inc.
Ralph D. Ebbott Director Retired, Vice President and Treasurer
409 Birchwood Avenue of Minnesota Mining and Manufacturing Company
White Bear Lake, (industrial and consumer products) through June
Minnesota 55110 1989
Charles E. Arner Director Retired, Vice Chairman of The First
E-1430 First National National Bank of Saint Paul from
Bank Building November 1983 through June 1984;
332 Minnesota Street Chairman and Chief Executive Officer
45
<PAGE>
St. Paul, Minnesota 55101 of The First National Bank of Saint Paul
from October 1980 through November
1983
Ellen S. Berscheid Director Regents' Professor of Psychology at the
University of Minnesota University of Minnesota
N309 Elliott Hall
Minneapolis, Minnesota 55455
Michael J. Radmer Secretary Partner with the law firm of
Dorsey & Whitney LLP Dorsey & Whitney LLP
220 South Sixth Street
Minneapolis, Minnesota 55402
</TABLE>
- -------------------------
* Denotes directors of the Funds who are "interested persons" (as defined under
the Investment Company Act of 1940) of the Funds.
- -------------------------
The Fund has both an Audit Committee and a Nominations Committee, the
members of which are all directors who are not "interested persons" of the Fund.
Ms. Berscheid and Messrs. Arner and Ebbott comprise the members of both
committees.
Legal fees and expenses are paid to the law firm of which Michael J. Radmer
is a partner. No compensation is paid by the Fund to any of its officers or
directors who is affiliated with Advantus Capital Management, Inc. ("Advantus
Capital"). Each director of the Fund who is not affiliated with Advantus
Capital is also a director of thirteen other investment companies of which
Advantus Capital is the investment adviser (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 the Fund is a
pro rata portion based on the ratio that the Fund's total net assets bears to
the total net assets of the Fund Complex. During the fiscal year ended December
31, 1999, each Director not affiliated with Advantus Capital was compensated by
the Fund in accordance with the following table:
<TABLE>
<CAPTION>
Pension or Total
Retirement Compensation
Aggregate Benefits Estimated From Fund and
Compensation Accrued as Annual Fund Complex
from the Part of Fund Benefits Upon Paid to
Name of Director Fund Expenses Retirement Directors
---------------- ---- -------- ---------- ---------
<S> <C> <C> <C> <C>
Charles E. Arner $16,845 n/a n/a $20,000
Ellen S. Berscheid $16,845 n/a n/a $20,000
Ralph D. Ebbott $16,845 n/a n/a $20,000
</TABLE>
46
<PAGE>
As of December 31, 1998, the directors and executive officers of the Fund
did not own any shares of the Fund.
DIRECTOR LIABILITY
Under Minnesota law, the Board of Directors of the 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 the Fund limit the liability of directors to the fullest extent
permitted by Minnesota statutes, except to the extent that such liability cannot
be limited as provided in the Investment Company Act of 1940 (which prohibits
any provisions which purport to limit the liability of directors arising from
such directors' willful misfeasance, bad faith, gross negligence or reckless
disregard of the duties involved in the conduct of heir role as directors).
Minnesota law does not eliminate the duty of "care" imposed upon a
director. It only authorizes a corporation to eliminate monetary liability for
violations of that duty. Minnesota law, further, does not permit elimination or
limitation of liability of "officers" to the corporation for breach of their
duties as officers (including the liability of directors who serve as officers
for breach of their duties as officers). Minnesota law does not permit
elimination or limitation of the availability of equitable relief, such as
injunctive or recessionary 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 the Fund and its Portfolios since May 1, 1997.
Advantus Capital acts as investment adviser to the Portfolios pursuant to a
written agreement that will be periodically
47
<PAGE>
considered for approval by the directors or shareholders of the Fund. The
address of Advantus Capital is 400 Robert Street North, St. Paul, Minnesota
55101.
The Fund and Advantus Capital have obtained an exemptive order from the
Securities and Exchange Commission which permits Advantus Capital to employ a
"manager of managers" strategy in connection with its management of the Fund.
The exemptive order permits Advantus Capital, subject to certain conditions, to
select new investment sub-advisers with the approval of the Fund's Board of
Directors, but without obtaining shareholder approval. The order also permits
Advantus Capital to change the terms of agreements with the investment
sub-advisers or continue the employment of an investment sub-adviser after an
event which would otherwise cause the automatic termination of services.
Shareholders would be notified of any investment sub-adviser changes.
Shareholders have the right to terminate arrangements with an investment
sub-adviser by vote of a majority of the outstanding shares of a Portfolio. In
the case of a Portfolio which employs more than one investment sub-adviser, the
order also permits the Fund to disclose such investment sub-advisers' fees only
in the aggregate in its registration statement. Advantus Capital has the
ultimate responsibility for the investment performance of each Portfolio
employing investment sub-advisers due to its responsibility to oversee the
investment sub-advisers and recommend their hiring, termination and replacement.
Credit Suisse Asset Management LLP ("Credit Suisse") serves as investment
sub-adviser to the Fund's Capital Appreciation Portfolio and Small Company
Growth Portfolio pursuant to an investment sub-advisory agreement with
Advantus Capital. Templeton Investment Counsel, Inc. serves as investment
sub-adviser to the Fund's International Stock Portfolio pursuant to an
investment sub-advisory agreement with Advantus Capital. Julius Baer
Investment Management Inc. ("Julius Baer") serves as investment sub-adviser
to the Fund's Global Bond Portfolio, pursuant to an investment sub-advisory
agreement with Advantus Capital. Julius Baer determines the Portfolio's
allocation between foreign and domestic securities and selects and manages
the Portfolio's foreign investments (Advantus Capital selects and manages
domestic investments). J.P. Morgan Investment Management Inc. serves as
investment sub-adviser to the Fund's Macro-Cap Value Portfolio pursuant to an
investment sub-advisory agreement with Advantus Capital. Wall Street
Associates serves as investment sub-adviser to the Fund's Micro-Cap Growth
Portfolio pursuant to an investment sub-advisory agreement with Advantus
Capital. State Street Research and Management Company ("State Street
Research") serves as investment sub-adviser to the Fund's Small Company Value
Portfolio pursuant to an investment sub-advisory agreement with Advantus
Capital.
CONTROL AND MANAGEMENT OF ADVANTUS CAPITAL
Advantus Capital was incorporated in Minnesota in June 1994, and is a
wholly-owned subsidiary of Minnesota Life Insurance Company ("Minnesota Life").
Minnesota Life is a third-tier subsidiary of a mutual insurance holding company
called Minnesota Mutual Companies, Inc. Minnesota Life was organized in 1880,
and has assets of more than $16 billion. William N. Westhoff, President and a
Director of the Fund, is President, Treasurer and Director of Advantus Capital.
Frederick P. Feuerherm, Vice President, Treasurer and a Director of the Fund, is
a Vice President, Assistant Secretary and Director of Advantus Capital.
INVESTMENT ADVISORY AGREEMENT
Advantus Capital acts as investment adviser and manager of the Fund
under an Investment Advisory Agreement dated May 1, 2000 (the "Investment
Advisory Agreement"), which became effective the same date, and was
approved by shareholders on April 17, 2000. The Investment Advisory
Agreement was last approved by the Board of Directors (including a majority
of the directors who are not parties to the contract, or interested persons
of any such party) on February 10, 2000. Prior to
48
<PAGE>
May 1,1997, the Fund obtained advisory services from MIMLIC Asset Management
Company ("MIMLIC Management"),formerly the parent company of Advantus
Capital. Advantus Capital commenced its business in June 1994, and provides
investment advisory services to eleven other Advantus funds and various
private accounts.
The Investment Advisory Agreement, will terminate automatically in the
event of assignment. In addition, the Investment Advisory Agreement is
terminable at any time, without penalty, by the Board of Directors of the Fund
or by vote of a majority of the Fund's outstanding voting securities on 60 days'
written notice to Advantus Capital, and by Advantus Capital on 60 days' written
notice to the Fund. Unless sooner terminated, the Investment 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 either by
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 interested
persons of any party to the Investment Advisory Agreement, cast in person at a
meeting called for the purpose of voting on such approval. The required
shareholder approval of any continuance of the Investment Advisory Agreement
shall be effective with respect to any Portfolio if a majority of the
outstanding voting securities of the class of capital stock of that Portfolio
votes to approve such continuance, notwithstanding that such continuance may not
have been approved by a majority of the outstanding voting securities of the
Fund.
If the shareholders of a class of capital stock of any Portfolio fail to
approve any continuance of the Investment Advisory Agreement, Advantus Capital
will continue to act as investment adviser with respect to such Portfolio
pending the required approval of its continuance, or a new contract with
Advantus Capital or a different investment adviser or other definitive action;
provided that the compensation received by Advantus Capital in respect of such
Portfolio during such period will be no more than its actual costs incurred in
furnishing investment advisory and management services to such Portfolio or the
amount it would have received under the Investment Advisory Agreement in respect
of such Portfolio, whichever is less.
The Investment Advisory Agreement may be amended by the parties only if
such amendment is specifically approved by the vote of a majority of the
outstanding voting securities of the Fund and by the vote of a majority of the
directors of the Fund who are not interested persons of any party to the
Investment Advisory Agreement cast in person at a meeting called for the purpose
of voting on such approval. The required shareholder approval shall be
effective with respect to any Portfolio if a majority of the outstanding voting
securities of the class of capital stock of that Portfolio vote to approve the
amendment, notwithstanding that the amendment may not have been approved by a
majority of the outstanding voting securities of the Fund.
Pursuant to the Investment Advisory Agreement, the Fund pays Advantus
Capital an advisory fee equal on an annual basis to a percentage of a
Portfolio's average daily net assets as set forth in the following table:
<TABLE>
<CAPTION>
Advisory Fee Paid Prior
to May 1, 2000
(as a percentage of
Portfolio Average Daily Net Assets)(1)
--------- --------------------------
<S> <C>
Growth Portfolio 0.45% of assets to $1 billion; and
0.40% of assets exceeding $1 billion
Bond Portfolio 0.30% of assets to $500 million;
0.24% of assets exceeding $500 million
to $1 billion; and
0.20% of assets exceeding $1 billion
Money Market Portfolio 0.25% of asset to $1billion; and
0.20% of assets exceeding $1 billion
Asset Allocation Portfolio 0.35% of assets to $1 billion; and
0.30% of assets exceeding $1 billion
Mortgage Securities Portfolio 0.30% of assets to $1 billion; and
0.25% of assets exceeding $1 billion
Index 500 Portfolio 0.15% of assets to $250 million;
0.10% of assets exceeding $250 million
to $1 billion; and
0.075% of assets exceeding $1 billion
Capital Appreciation Portfolio 0.50% of assets to $1 billion; and
0.45% of assets exceeding $1 billion(1)
International Stock Portfolio 0.60% of assets to $250 million;
0.55% of assets exceeding $250 million
to $500 million;
0.50% of assets exceeding $500 million
to $1 billion; and
0.45% of assets exceeding $1 billion(2)
49
<PAGE>
Small Company Growth 0.65% of assets to $1 billion; and
Portfolio 0.60% of assets exceeding $1 billion(3)
Maturing Government Bond Portfolios 0.25%
Value Stock Portfolio 0.50% of assets to $500 million;
0.45% of assets exceeding $500 million
to $1 billion; and
0.40% of assets exceeding $1 billion
Small Company Value Portfolio 0.70% of assets to $1 billion; and
0.65% of assets exceeding $1 billion(4)
Global Bond Portfolio 0.60% of assets to $1 billion; and
0.55% of assets exceeding $1 billion(5)
Index 400 Mid-Cap Portfolio 0.15% of assets to $250 million;
0.10% of assets exceeding $250 million
to $1 billion; and
0.075% of assets exceeding $1 billion
Macro-Cap Value Portfolio 0.50%(6)
Micro-Cap Growth Portfolio 0.95%(7)
Real Estate Securities Portfolio 0.60% of assets to $1 billion; and
0.55% of assets exceeding $1 billion
</TABLE>
(1) Advantus Capital uses a portion of these fees to pay Credit Suisse an annual
sub-advisers fee equal to 0.50% of total assets between $0 and $500 million;
0.45% of total assets between $500 million and $1 billion; 0.35% of total assets
between $1 billion and $2 billion; and 0.30% of total assets exceeding $2
billion. The term "assets" includes all assets advised or sub-advised by Credit
Suisse for Advantus Capital or its affiliates, in addition to the assets of the
Portfolio. The fee rate is applied to all assets back to the first dollar in the
Portfolio.
(2) Advantus Capital uses a portion of these fees to pay Templeton Counsel an
annual sub-advisers fee equal to 0.70% of total assets between $0 and $10
million; 0.65% of total assets exceeding $10 million to $25 million; 0.55% of
assets exceeding $25 million to $50 million; 0.50% of assets exceeding $50
million to $100 million; and 0.40% of assets exceeding $100 million. For the
purpose of establishing the appropriate breakpoints at which the Portfolio's
sub-advisory fee shall be calculated, the Portfolio will benefit from the
aggregation of the monthly market value of any non-mutual fund account of
Minnesota Life or any affiliate thereof, advised or sub-advised by Templeton
Counsel or any advisory affiliate thereof as well as the average daily net
assets of any U.S. registered mutual fund advised by Advantus and sub-advised
by Templeton Counsel or any advisory affiliate. For fee-stacking purposes,
the asset classes so managed with the highest fee schedules shall be counted
first as assets of this Portfolio in order to determine this Portfolio's
appropriate starting breakpoint when Franklin Advisors, Inc., an affiliate of
Templeton Counsel, provides other sub-advisory services to Advantus Capital,
covering small company domestic equities in an amount in excess of $100
million and Minnesota Life, offers as investment options in its registered
variable insurance contracts the Templeton Developing Markets Fund and any
other two funds in the Franklin/Templeton Variable Insurance Products Fund.
50
<PAGE>
(3) Advantus Capital uses a portion of these fees to pay Credit Suisse an annual
sub-advisers fee equal to 0.65% of total assets between $0 and $500 million;
0.60% of total assets between $500 million and $1 billion; 0.50% of total assets
between $1 billion and $2 billion; and 0.45% of total assets exceeding $2
billion. The term "assets" includes all assets advised or sub-advised by Credit
Suisse for Advantus Capital or its affiliates, in addition to the assets of the
Portfolio. The fee rate is applied to all assets back to the first dollar in the
Portfolio.
(4) Advantus Capital uses a portion of these fees to pay State Street
Research an annual sub-advisers fee equal to 0.65% on the first $500 million
of assets; 0.60% on the next $500 million of assets; and 0.50% of assets in
excess of $1 billion. The term "assets" includes all 'small company value'
assets sub-advised by State Street Research for Advantus Capital or its
affiliates, in addition to the assets of the Portfolio.
(5) Advantus Capital uses a portion of these fees to pay JBIM an annual
sub-advisers fee equal to .030% of the Portfolio's average daily net assets.
(6) Advantus Capital uses a portion of these fees to pay J.P. Morgan an annual
sub-advisers fee equal to .45% of the Portfolio's average daily net assets.
(7) Advantus Capital uses a portion of these fees to pay WSA an annual
sub-advisers fee equal to .85% of the Portfolio's average daily net assets.
Prior to May 1, 2000, each Portfolio paid Advantus Capital an advisory fee,
in accordance with the prior investment advisory agreement between the Fund and
Advantus Capital, equal on an annual basis to a percentage of a Portfolio's
average daily net assets as set forth in the following table:
51
<PAGE>
<TABLE>
<CAPTION>
ADVISORY FEE
PAID PRIOR TO
MAY 1, 2000
(AS A PERCENTAGE OF
PORTFOLIO AVERAGE DAILY NET ASSETS)(1)
--------- ----------------------------
<S> <C>
Growth Portfolio .50%
Bond Portfolio .50%
Money Market Portfolio .50%
Asset Allocation Portfolio .50%
Mortgage Securities Portfolio .50%
Index 500 Portfolio .40%
Capital Appreciation Portfolio .75%
International Stock Portfolio 1.00%(2)
Small Company Growth Portfolio .75%
Maturing Government Bond Portfolios .25%
Value Stock Portfolio .75%
Small Company Value Portfolio .75%
Global Bond Portfolio .60%
Index 400 Mid-Cap Portfolio .40%
Macro-Cap Value Portfolio .70%
Micro-Cap Growth Portfolio 1.10%
Real Estate Securities Portfolio .75%
</TABLE>
(1) Advantus Capital uses a portion of these fees to pay any applicable
sub-adviser's fees.
(2) International Stock Portfolio pays Advantus Capital a fee equal to 1.00%
for the first $10 million of average daily net assets, .90% on the next $15
million, .80% on the next $25 million, .75% on the next $50 million and .65%
on the next $100 million and thereafter.
The fees paid by the Fund during the fiscal years ended December 31, 1999,
1998, and 1997 (before absorption of certain expenses, described below)
were as follows:
<TABLE>
<CAPTION>
Advisory Fees Paid
--------------------------------------------
Portfolio 1999 1998 1997
--------- ---- ---- ----
<S> <C> <C> <C>
Growth Portfolio $1,933,104 $1,466,591
Bond Portfolio 797,554 673,785
Money Market Portfolio 365,699 353,186
Asset Allocation Portfolio 2,789,366 2,284,255
Mortgage Securities Portfolio 558,926 413,651
Index 500 Portfolio 1,883,032 1,171,693
Capital Appreciation Portfolio 2,474,808 1,879,870
International Stock Portfolio 2,179,226 1,856,022
Small Company Growth Portfolio 1,377,138 1,223,927
Maturing Government Bond -
2002 Portfolio 10,114 1,959
2006 Portfolio 12,908 8,471
2010 Portfolio 10,545 6,719
Value Stock Portfolio 1,593,193 1,171,946
Small Company Value Portfolio 47,485 9,775
Global Bond Portfolio 160,962 41,149
Index 400 Mid-Cap Portfolio 26,300 5,014
52
<PAGE>
Macro-Cap Value Portfolio 47,602 7,048 N/A
Micro-Cap Growth Portfolio 60,544 15,671 N/A
Real Estate Securities Portfolio 23,859 N/A N/A
</TABLE>
Under the Investment Advisory Agreement, Advantus Capital furnishes the
Fund office space and all necessary office facilities, equipment and personnel
for servicing the investments of the Fund. The Fund pays all its costs and
expenses which are not assumed by Advantus Capital. These Fund expenses
include, by way of example, but not by way of limitation, all expenses incurred
in the operation of the Fund including, among others, interest, taxes, brokerage
fees and commissions, fees of the directors who are not employees of Advantus
Capital or any of its affiliates, expenses of directors' and shareholders'
meetings, including the cost of printing and mailing proxies, expenses of
insurance premiums for fidelity and other coverage, association membership dues,
charges of custodians, auditing and legal expenses. The Fund will also pay the
fees and bear the expense of registering and maintaining the registration of the
Fund and its shares with the Securities and Exchange Commission and registering
or qualifying its shares under state or other securities laws and the expense of
preparing and mailing prospectuses and reports to shareholders. Advantus
Capital shall bear all advertising and promotional expenses in connection with
the distribution of the Fund's shares, including paying for the printing of
Prospectuses and Statements of Additional Information for new shareholders and
the costs of sales literature. Advantus Capital also bears all costs under its
agreement with Wilshire Associates for the use by Advantus Capital, in
connection with the Index 500 Portfolio, of Wilshire Associates' proprietary
index fund statistical sampling technique.
Prior to January 1, 2000, Minnesota Life had voluntarily agreed to absorb
all fees and expenses that exceed .65% of average daily net assets for the
Growth Portfolio, Bond Portfolio, Money Market Portfolio, Asset Allocation
Portfolio and Mortgage Securities Portfolio, .55% of average daily net assets
for the Index 500 Portfolio and Index 400 Mid-Cap Portfolio, .90% of average
daily net assets for the Capital Appreciation Portfolio, Small Company Growth
Portfolio, Value Stock Portfolio, Small Company Value Portfolio and Real
Estate Securities Portfolio, .40% of average daily net assets for each of
the three Maturing Government Bond Portfolios, 1.60% of average daily net
assets of Global Bond Portfolio, .85% of average daily net assets of
Macro-Cap Value Portfolio, and 1.25% of average daily net assets of Micro-Cap
Growth Portfolio. In addition, Minnesota Life had voluntarily agreed to
absorb expenses, excluding investment advisory fees, that exceed 1.00% for
International Stock Portfolio. Effective January 1, 2000, Advantus Capital
has voluntarily agreed to absorb all fees and expenses that exceed, for each
Portfolio, the percentage of average daily net assets set forth above. For
each of the last three calendar years, the expenses voluntarily absorbed by
Minnesota Life for the various Portfolios were as follows:
<TABLE>
<CAPTION>
Expenses Voluntarily Absorbed
--------------------------------
Portfolio 1999 1998 1997
--------- ---- ---- ----
<S> <C> <C> <C>
Growth Portfolio $-0- $-0-
Bond Portfolio -0- -0-
Money Market Portfolio -0- -0-
Asset Allocation Portfolio -0- -0-
53
<PAGE>
Mortgage Securities Portfolio -0- -0-
Index 500 Portfolio -0- -0-
Capital Appreciation Portfolio -0- -0-
International Stock Portfolio -0- -0-
Small Company Growth Portfolio -0- -0-
Maturing Government Bond -
2002 Portfolio 37,949 36,833
2006 Portfolio 37,165 37,425
2010 Portfolio 39,052 38,967
Value Stock Portfolio -0- -0-
Small Company Value Portfolio 58,848 11,517
International Bond Portfolio -0- -0-
Index 400 Mid-Cap Portfolio 52,946 14,670
Macro-Cap Value Portfolio 114,468 22,940
Micro-Cap Growth Portfolio 46,960 11,102
Real Estate Securities Portfolio 31,736 N/A
</TABLE>
There is no specified or minimum period of time during which Advantus
Capital has agreed to continue its voluntary absorption of these expenses,
and Advantus Capital may in its discretion cease its absorption of expenses
at any time. Should Advantus Capital cease absorbing expenses the effect
would be to increase substantially Fund expenses and thereby reduce
investment return.
Each Portfolio will bear all expenses that may be incurred with respect to
its individual operation, including but not limited to transaction expenses,
advisory fees, brokerage, interest, taxes and the charges of the custodian. The
Fund will pay all other expenses not attributable to a specific Portfolio, but
those expenses will be allocated among the Portfolios on the basis of the size
of their respective net assets unless otherwise allocated by the Board of
Directors of the Fund.
CAPITAL APPRECIATION PORTFOLIO SUB-ADVISER - CSAM
Credit Suisse Asset Management LLC ("CSAM") has been retained under an
investment sub-advisory agreement to provide investment advice and, in general,
to conduct the management and investment program of the Capital Appreciation
Portfolio, subject to the general control of the Board of Directors of the Fund.
CSAM is a registered investment adviser under the Investment Advisers Act of
1940.
CSAM, located at 153 East 53rd Street, New York, New York 10022, serves as
an investment sub-adviser to the Portfolio pursuant to a written agreement. CSAM
is an indirect wholly-owned U.S. subsidiary of Credit Suisse Group ("Credit
Suisse"). Credit Suisse is a global financial services company, providing a
comprehensive range of banking and insurance products. Active on every continent
and in all major financial centers, Credit Suisse comprises five business units
- - Credit Suisse Asset Management (asset management); Credit Suisse First Boston
(investment banking); Credit Suisse Private Banking (private banking); Credit
Suisse (retail banking); and Winterthur (insurance). Credit Suisse has
approximately 62,000 people worldwide. The principal business address of Credit
Suisse is Paradeplatz 8, CH 8070, Zurich, Switzerland. CSAM, formerly known as
BEA Associates, together with its predecessor firms, has been engaged in the
investment advisory business for over 60 years.
54
<PAGE>
CAPITAL APPRECIATION PORTFOLIO INVESTMENT SUB-ADVISORY AGREEMENT - CSAM
CSAM acts as investment sub-adviser to the Fund's Capital Appreciation
Portfolio under an Investment Sub-Advisory Agreement (the "CSAM Capital
Appreciation Agreement") with Advantus Capital dated May 1, 2000, which became
effective the same date. Prior to May 1, 2000, the Capital Appreciation
Portfolio was managed by Winslow Asset Management of Minneapolis, Minnesota. The
CSAM Agreement will terminate automatically upon the termination of the
Investment Advisory Agreement and in the event of its assignment. In addition,
the CSAM Agreement is terminable at any time, without penalty, by the Board of
Directors of the Fund, by Advantus Capital on 60 days' written notice to CSAM,
and by CSAM on 60 days' written notice to Advantus Capital. Unless sooner
terminated, the CSAM Agreement shall continue in effect from year to year if
approved at least annually either by the Board of Directors of the Fund,
provided that in either event such continuance is also approved by the vote of a
majority of the Directors who are not interested persons of any party to the
CSAM Agreement, cast in person at a meeting called for the purpose of voting on
such approval.
In payment for the investment sub-advisory services to be rendered by CSAM
for the Capital Appreciation the Portfolio, the Adviser pays to CSAM, a fee
computed at an annual rate which shall be a percentage of the average daily
value of the net assets of the Portfolio. The fee is accrued daily and shall be
based on the net asset value of all of the issued and outstanding shares of the
Portfolio as determined as of the close of each business day pursuant to the
Articles of Incorporation, Bylaws and currently effective Prospectus and
Statement of Additional Information of the Fund. The fee is payable in arrears
on the last day of each calendar month.
The amount of such annual fee, as applied to the average daily value of the
net assets of the Portfolio shall be applied as follows: Total assets between $0
and $500 million, 0.50%; Total assets between $500 million and $1 billion,
0.45%; Total assets between $1 billion and $2 billion, 0.35%; Total assets
exceeding $2 billion, 0.30%. For the purpose of applying the breakpoints in the
fee calculation, the term "assets" shall include all assets advised or
sub-advised by the Sub-Adviser for the Adviser in addition to those assets of
the Portfolio. The assets shall be calculated quarterly based upon the aggregate
assets on March 31st, June 30th, September 30th and December 31st of each
calendar year (or portion thereof) that the CSAM Capital Appreciation Agreement
is effective, with the fee rate determined on each such date being applicable to
the following period and applied to all assets back to the first dollar in the
Portfolio.
SUB-ADVISER - TEMPLETON COUNSEL
Templeton Investment Counsel, Inc. (hereinafter "Templeton Counsel"), a
Florida corporation with principal offices at 500 East Broward Boulevard, Ft.
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 International Stock Portfolio, 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., Ft. Lauderdale,
Florida, which in turn is a wholly-owned subsidiary of Franklin Resources, Inc.
("Franklin").
55
<PAGE>
Franklin is a large, diversified financial services organization. Through
its operating subsidiaries, Franklin provides a variety of investment products
and services to institutions and 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.
INVESTMENT SUB-ADVISORY AGREEMENT - TEMPLETON COUNSEL
Templeton Counsel acts as an investment sub-adviser to the Fund's
International Stock Portfolio under an Investment Sub-Advisory Agreement (the
"Templeton Agreement") with Advantus Capital dated May 1, 1997, which became
effective the same date, and was approved by shareholders of International Stock
Portfolio on April 24, 1997. The Templeton Agreement, as amended, 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 February 10, 2000. The Templeton
Agreement will terminate automatically upon the termination of the Investment
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 Stock Portfolio'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 International Stock Portfolio, 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.
From the advisory fee received from International Stock Portfolio,
Advantus Capital pays Templeton Counsel a sub-advisory fee equal to .70% on
the first $10 million of International Stock Portfolio's average daily net
assets, .65% on the next $15 million, .55% on the next $25 million, .50% on
the next $50 million, and .40% on the next $100 million and thereafter. For
the purpose of establishing the appropriate breakpoints at which the
Portfolio's sub-advisory fee shall be calculated, the Portfolio will benefit
from the aggregation of the monthly market value of any non-mutual fund
account of Minnesota Life or any affiliate thereof, advised or sub-advised by
Templeton Counsel or any advisory affiliate thereof as well as the average
daily net assets of any U.S. registered mutual fund advised by Advantus and
sub-advised by Templeton Counsel or any advisory affiliate. For fee-stacking
purposes, the asset classes so managed with the highest fee schedules shall
be counted first as assets of this Portfolio in order to determine this
Portfolio's appropriate starting breakpoint when Franklin Advisors, Inc., an
affiliate of Templeton Counsel, provides other sub-advisory services to
Advantus Capital, covering small company domestic equities in an amount in
excess of $100 million and Minnesota Life, offers as investment options in
its registered variable insurance contracts the Templeton Developing Markets
Fund and any other two funds in the Franklin/Templeton Variable Insurance
Products Fund.
SUB-ADVISER - JBIM
Julius Baer Investment Management Inc. ("JBIM"), with principal offices at
330 Madison Avenue, New York, New York 10017, has been retained under an
investment sub-advisory
56
<PAGE>
agreement to provide investment advice and, in general, to conduct the
management investment program for the Global Bond Portfolio's foreign securities
and to determine the Portfolio's total allocation of domestic and foreign
securities, subject to the general control of the Board of Directors of the
Fund. JBIM is a majority owned subsidiary of Julius Baer Securities, Inc., a
registered broker-dealer and investment adviser, which in turn is a wholly-owned
subsidiary of Baer Holding Ltd. Julius Baer Securities, Inc. owns 93% of the
outstanding stock of JBIM and 7% is owned by three employees of JBIM. JBIM has
been registered as an investment adviser since April 1983. Directly and through
Julius Baer Securities, Inc., JBIM provides investment management services to a
wide variety of individual and institutional clients, including registered
investment companies.
INVESTMENT SUB-ADVISORY AGREEMENT - JBIM
JBIM acts as investment sub-adviser to the Fund's Global Bond Portfolio
under an Investment Sub-Advisory Agreement (the "JBIM Agreement") with Advantus
Capital dated May 1, 1998. The JBIM Agreement was last approved by the Board of
Directors of the Fund, including a majority of the Directors who are not a party
to the JBIM Agreement or interested persons of any such party, on February 10,
2000.
The JBIM Agreement will terminate automatically upon the termination of the
Investment Advisory Agreement and in the event of its assignment. In addition,
the JBIM Agreement is terminable at any time, without penalty, by the Board of
Directors of the Fund, by Advantus Capital or by vote of a majority of the
Global Bond Portfolio's outstanding voting securities on 60 days' written notice
to JBIM and by JBIM on 60 days' written notice to Advantus Capital. Unless
sooner terminated, the JBIM Agreement shall continue in effect from year to year
if approved at least annually either by the Board of Directors of the Fund or by
a vote of a majority of the outstanding voting securities of the Global Bond
Portfolio, 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 JBIM Agreement, cast in person at a meeting called for the purpose
of voting on such approval.
From the advisory fee received from Global Bond Portfolio, Advantus Capital
pays JBIM a sub-advisory fee equal to .30% of Global Bond Portfolio's average
daily net assets.
SUB-ADVISER - MORGAN INVESTMENT
J.P. Morgan Investment Management Inc. ("Morgan Investment"), with
principal offices at 522 Fifth Avenue, New York, New York 10036, has been
retained under an investment sub-advisory agreement to provide investment advice
and, in general, to conduct the management investment program of the Macro-Cap
Value Portfolio, subject to the general control of the Board of Directors of the
Fund. Morgan Investment is a wholly-owned subsidiary of J.P. Morgan & Co.
Incorporated ("J.P. Morgan"), a bank holding company organized under the laws of
Delaware. Through offices in New York City and abroad, J.P. Morgan, through
Morgan Investment and other subsidiaries, offers a wide range of services to
governmental, institutional, corporate and individual customers and acts as
investment adviser to individual and institutional clients.
57
<PAGE>
INVESTMENT SUB-ADVISORY AGREEMENT - MORGAN INVESTMENT
Morgan Investment acts as investment sub-adviser to the Fund's Macro-Cap
Value Portfolio under an Investment Sub-Advisory Agreement (the "Morgan
Management Agreement") with Advantus Capital dated May 1, 1997, and became
effective after it was approved by shareholders on October 15, 1997. The Morgan
Management Agreement was last approved by Board of Directors of the Fund,
including a majority of the Directors who are not a party to the Morgan
Management Agreement or interested persons of any such party, on February 10,
2000.
The Morgan Management Agreement will terminate automatically upon the
termination of the Investment Advisory Agreement and in the event of its
assignment. In addition, the Morgan Management Agreement is terminable at any
time, without penalty, by the Board of Directors of the Fund, by Advantus
Capital or by vote of a majority of the Macro-Cap Value Portfolio's outstanding
voting securities on 60 days' written notice to Morgan Management and by Morgan
Management on 60 days' written notice to Advantus Capital. Unless sooner
terminated, the Morgan Management Agreement shall continue in effect from year
to year if approved at least annually either by the Board of Directors of the
Fund or by a vote of a majority of the outstanding voting securities of the
Macro-Cap Value Portfolio, provided that in either such continuance is also
approved by the vote of a majority of the Directors who are not interested
persons of any party to the Morgan Management Agreement, cast in person at a
meeting called for the purpose of voting on such approval.
In payment for the investment sub-advisory services to be rendered by
Morgan Management to the Macro-Cap Portfolio, the Adviser pays to Morgan
Management a fee computed at an annual rate which shall be a percentage of the
average daily net assets of the Portfolio. The fee is accrued daily and based on
the net asset value of all of the issued and outstanding shares of the Portfolio
as determined as of the close of each business day pursuant to the Articles of
Incorporation, Bylaws and currently effective Prospectus and Statement of
Additional Information of the Fund. The fee is payable in arrears on the last
day of each calendar month. From the advisory fee received from Macro-Cap Value
Portfolio, Advantus Capital pays Morgan Management a sub-advisory fee equal to
.45% of Macro-Cap Value Portfolio's average daily net assets.
SUB-ADVISER - WSA
Wall Street Associates ("WSA"), a California corporation with principal
offices at La Jolla Financial Building, Suite 100, 1200 Prospect Street, La
Jolla, California 92037, has been retained under an investment sub-advisory
agreement to provide investment advice and, in general, to conduct the
management investment program of the Micro-Cap Growth Portfolio, subject to the
general control of the Board of Directors of the Fund. WSA, founded in 1987,
provides investment advisory services for institutional clients and high net
worth individuals.
INVESTMENT SUB-ADVISORY AGREEMENT - WSA
WSA acts as investment sub-adviser to the Fund's Micro-Cap Growth Portfolio
under an Investment Sub-Advisory Agreement (the "WSA Agreement") with Advantus
Capital dated May 1, 1997 and became effective after it was approved by
shareholders on September 15, 1997.
58
<PAGE>
The WSA Agreement was last approved by the Board of Directors of the Fund,
including a majority of the Directors who are not a party to the WSA Agreement
or interested persons of any such party, on February 10, 2000.
The WSA Agreement will terminate automatically upon the termination of the
Investment Advisory Agreement and in the event of its assignment. In addition,
the WSA Agreement is terminable at any time, without penalty, by the Board of
Directors of the Fund, by Advantus Capital or by vote of a majority of the
Micro-Cap Growth Portfolio's outstanding voting securities on 60 days' written
notice to WSA and by WSA on 60 days' written notice to Advantus Capital. Unless
sooner terminated, the WSA Agreement shall continue in effect from year to year
if approved at least annually either by the Board of Directors of the Fund or by
a vote of a majority of the outstanding voting securities of the Micro-Cap
Growth Portfolio, 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 WSA Agreement, cast in person at a meeting called
for the purpose of voting on such approval.
In payment for the investment sub-advisory services to be rendered by WSA
to the Micro-Cap Growth Portfolio, the Adviser pays to WSA, a fee computed at an
annual rate which is a percentage of the average daily net assets of the
Portfolio. The fee is accrued daily and based on the net asset value of all of
the issued and outstanding shares of the Portfolio as determined as of the close
of each business day pursuant to the Articles of Incorporation, Bylaws and
currently effective Prospectus and Statement of Additional Information of the
Fund. The fee is payable in arrears on the last day of each calendar month. From
the advisory fee received from Micro-Cap Growth Portfolio, Advantus Capital pays
WSA a sub-advisory fee equal to .85% of Micro-Cap Growth Portfolio's average
daily net assets.
SMALL COMPANY GROWTH PORTFOLIO SUB-ADVISER - CSAM
Credit Suisse Asset Management LLC ("CSAM") has been retained under an
investment sub-advisory agreement to provide investment advice and, in general,
to conduct the management and investment program of the Small Company Growth
Portfolio, subject to the general control of the Board of Directors of the Fund.
CSAM is a registered investment adviser under the Investment Advisers Act of
1940.
CSAM, located at 153 East 53rd Street, New York, New York 10022, serves as an
investment sub-adviser to the Portfolio pursuant to a written agreement. CSAM is
an indirect wholly-owned U.S. subsidiary of Credit Suisse Group ("Credit
Suisse"). Credit Suisse is a global financial services company, providing a
comprehensive range of banking and insurance products. Active on every continent
and in all major financial centers, Credit Suisse comprises five business units
- - Credit Suisse Asset Management (asset management); Credit Suisse First Boston
(investment banking); Credit Suisse Private Banking (private banking); Credit
Suisse (retail banking); and Winterthur (insurance). Credit Suisse has
approximately 62,000 people worldwide. The principal business address of Credit
Suisse is Paradeplatz 8, CH 8070, Zurich, Switzerland. CSAM, formerly known as
BEA Associates, together with its predecessor firms, has been engaged in the
investment advisory business for over 60 years.
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<PAGE>
SMALL COMPANY GROWTH PORTFOLIO INVESTMENT SUB-ADVISORY AGREEMENT - CSAM
CSAM acts as investment sub-adviser to the Fund's Small Company Growth
Portfolio under an Investment Sub-Advisory Agreement (the "CSAM Small Company
Growth Agreement") with Advantus Capital dated March 1, 2000, which became
effective the same date. The CSAM Small Company Growth Agreement represents a
new agreement with this firm for the management of the Small Company Growth
Portfolio. Prior to that date, the Portfolio had been managed by the Portfolio's
advisor, Advantus Capital. The CSAM Small Company Growth Agreement will
terminate automatically upon the termination of the Investment Advisory
Agreement and in the event of its assignment. In addition, the CSAM Small
Company Growth Agreement is terminable at any time, without penalty, by the
Board of Directors of the Fund, by Advantus Capital or, and by CSAM on 60 days'
written notice to Advantus Capital. Unless sooner terminated, the CSAM Small
Company Growth Agreement shall continue in effect from year to year if approved
at least annually either by the Board of Directors of the Fund, provided that in
either event such continuance is also approved by the vote of a majority of the
Directors who are not interested persons of any party to the CSAM Agreement,
cast in person at a meeting called for the purpose of voting on such approval.
In payment for the investment sub-advisory services to be rendered by CSAM
to the Small Company Growth Portfolio, the Adviser pays to CSAM, a fee computed
at an annual rate which is a percentage of the average daily net assets of the
Portfolio. The fee is accrued daily and based on the net asset value of all of
the issued and outstanding shares of the Portfolio as determined as of the close
of each business day pursuant to the Articles of Incorporation, Bylaws and
currently effective Prospectus and Statement of Additional Information of the
Fund. The fee is payable in arrears on the last day of each calendar month.
The amount of such annual fee, as applied to the average daily value of the
net assets of the Portfolio shall be applied as follows: Total assets between $0
and $500 million, 0.65%; Total assets between $500 million and $1 billion,
0.60%; Total assets between $1 billion and $2 billion, 0.50%; On all assets in
excess of $2 billion, 0.45%. For the purpose of the fee calculation, the term
"assets" for purposes of the schedule shall include all assets advised or
sub-advised by the Sub-Adviser for the Adviser in addition to those assets of
the Portfolio. The aggregation of assets for purposes of the breakpoints shall
be calculated quarterly based upon the aggregate assets on March 31st, June
30th, September 30th and December 31st of each calendar year (or portion
thereof) that this Agreement is effective, with the fee rate determined on each
such date being applicable to the following period and applied to all assets
back to the first dollar in the Portfolio.
SUB-ADVISER - STATE STREET RESEARCH
State Street Research & Management Company ("State Street Research") has
been retained under an investment sub-advisory agreement to provide
investment advice and, in general, to conduct the management and investment
program of the Small Company Value Portfolio, subject to the general control
of the Board of Directors of the Fund. State Street Research is a registered
investment adviser under the Investment Advisers Act of 1940.
60
<PAGE>
State Street Research, a Delaware corporation, with offices at One
Financial Center, Boston, Massachusetts 02111-2690, acts as the investment
sub-adviser to the Portfolio. State Street Research was founded by Paul
Cabot, Richard Saltonstall and Richard Paine to serve as investment adviser
to one of the nation's first mutual funds, presently known as State Street
Research Investment Trust, which they had formed in 1924. Their investment
management philosophy emphasized comprehensive fundamental reach and
analysis, including meetings with the management of companies under
consideration for investment. State Street Research's portfolio management
group has extensive investment industry experience managing equity and debt
securities. State Street Research is an indirect wholly-owned subsidiary of
Metropolitan Life Insurance Company.
INVESTMENT SUB-ADVISORY AGREEMENT - STATE STREET RESEARCH
State Street Research acts as investment sub-adviser to the Fund's Small
Company Value Portfolio under an Investment Sub-Advisory Agreement (the
"State Street Research Small Company Value Agreement") with Advantus Capital
dated March 1, 2000, which became effective the same date. The State Street
Research Small Company Value Agreement represents a new agreement with this
firm for the management of the Small Company Value Portfolio. Prior to March
1, 2000, the Small Company Value Portfolio was managed by Portfolio's
advisor, Advantus Capital. The State Street Research Small Company Value
Agreement will terminate automatically upon the termination of the Investment
Advisory Agreement and in the event of its assignment. In addition, the State
Street Research Small Company Value Agreement is terminable at any time,
without penalty, by the Board of Directors of the Fund, by Advantus Capital
on 60 days' written notice to State Street Research, and by State Street
Research on 60 days' written notice to Advantus Capital. Unless sooner
terminated, the State Street Research Agreement shall continue in effect from
year to year if approved at least annually either by the Board of Directors
of the Fund, provided that in either event such continuance is also approved
by the vote of a majority of the Directors who are not interested persons of
any party to the State Street Research Agreement, cast in person at a meeting
called for the purpose of voting on such approval.
In payment for the investment sub-advisory services to be rendered by
State Street Research to the Small Company Value Portfolio, the Adviser pays
to State Street Research, a fee computed at an annual rate which is a
percentage of the average daily net assets of the Portfolio. The fee is
accrued daily and shall be based on the net asset value of all of the issued
and outstanding shares of the Portfolio as determined as of the close of each
business day pursuant to the Articles of Incorporation, Bylaws and currently
effective Prospectus and Statement of Additional Information of the Fund. The
fee is payable in arrears on the last day of each calendar month.
The amount of such annual fee, as applied to the average daily net
assets of the Portfolio is: On the first $500 million, 0.65%; On the next
$500 million, 0.60%; On all assets in excess of $1 billion, 0.50%. For the
purpose of the fee calculation and the indicated breakpoints, the term
"assets" shall include all 'small company value' assets sub-advised by State
Street Research for Advantus Capital, in addition to the assets of the
Portfolio. The aggregation of those assets for purposes of the breakpoints,
shall be calculated quarterly based upon the aggregate assets on March 31st,
June 30th, September 30th, and December 31st of each calendar year (or
portion thereof) that the State Street Research Small Company Value Agreement
is effective.
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<PAGE>
ADMINISTRATIVE SERVICES
The Fund has entered into an agreement with Minnesota Life under which
Minnesota Life provides accounting, legal and other administrative services
to the Fund. Minnesota Life currently provides such services at a monthly
cost of per Portfolio, except for International Stock Portfolio, Global
Bond Portfolio and Macro-Cap Value Portfolio which pay per Portfolio.
During each of the last three calendar years, the amounts paid by each
Portfolio to Minnesota Life for these services were as follows:
<TABLE>
<CAPTION>
Portfolio 1999 1998 1997
--------- ---- ---- ----
<S> <C> <C> <C>
Growth $30,000 $29,600
Bond 30,000 29,600
Money Market 30,000 29,600
Asset Allocation 30,000 29,600
Mortgage Securities 30,000 29,600
Index 500 30,000 29,600
Capital Appreciation 30,000 29,600
International Stock 30,000 29,600
Small Company Growth 30,000 29,600
Maturing Government Bond -
2002 Portfolio 30,000 29,600
2006 Portfolio 30,000 29,600
2010 Portfolio 20,000 29,600
Value Stock 30,000 29,600
Small Company Value 30,000 8,750
Global Bond 30,000 8,750
Index 400 Mid-Cap 30,000 8,750
Macro-Cap Value 30,000 7,500
Micro-Cap Growth 30,000 8,750
Real Estate Securities 20,000 N/A
</TABLE>
The Fund has also entered into a separate agreement with SEI Investments
Mutual Fund Services (SEI) pursuant to which SEI provides daily accounting
services for International Stock Portfolio, Global Bond Portfolio and
Macro-Cap Value Portfolio. Minnesota Life, pursuant to its administrative
services agreement with the Fund, provides these three Portfolios with
financial reporting services and generally oversees SEI's performance of its
services. Under the agreement with SEI, the cost to each Portfolio for SEI's
services is an annual fee equal to the greater of $45,000 or .08% of the
Portfolio's first $150 million of net assets and .05% of its net assets in
excess of $150 million. During the last three calendar years, the amounts
paid by each Portfolio to SEI for these services were as follows:
<TABLE>
<CAPTION>
Portfolio 1999 1998 1997
--------- ---- ---- ----
<S> <C> <C> <C>
International Stock $176,673 $149,792
Global Bond 66,208 14,000
Macro-Cap Value 61,031 11,250
</TABLE>
62
<PAGE>
CODE OF ETHICS
Advantus Capital, Ascend Financial and the Fund has each adopted a Code of
Ethics in accordance with the Investment Company Act of 1940 and the rules and
regulations thereunder. The private investment activities of personnel covered
by the Code of Ethics are restricted in accordance with the Code's provisions,
but, subject to such provisions, personnel may invest in securities including
securities that may be purchased or held by the Fund.
DISTRIBUTION AGREEMENT
Ascend Financial Services, Inc. ("Ascend Financial") acts as the
underwriter of the Funds' shares, pursuant to a written agreement. The Board of
Directors of the Fund, including a majority of the directors who are not parties
to the contract, or interested persons of any such party, approved the Fund's
Underwriting and Distribution Agreement dated May 1, 2000 with Ascend Financial
(the "Distribution Agreements") on February 10, 2000. Under the Agreement,
Ascend Financial does not receive any compensation for its services as principal
underwriter for the Fund, except for certain fees paid pursuant to the Fund's
Rule 12b-1 Plan of Distribution. See "Payment of Certain Distribution Expenses
of the Fund," below.
The Distribution Agreement may be terminated by the 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 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.
In the Distribution Agreements Ascend Financial undertakes to indemnify the
Fund against all costs of litigation and other legal proceedings, and against
any liability incurred by or imposed upon the Fund in any way arising out of or
in connection with the sale or distribution of the Fund's 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 Fund but not with Ascend
Financial.
PAYMENT OF CERTAIN DISTRIBUTION EXPENSES OF THE FUND
The Fund has adopted a Plan of Distribution (the "Plan") relating to the
payment of certain distribution and/or shareholder servicing expenses pursuant
to Rule 12b-1 under the Investment Company Act of 1940. Under the Plan, each
Portfolio of the Fund, with the exception of the Maturing Government Bond
Portfolio 2002, the Maturing Government Bond Portfolio 2006 and the Maturing
Government Bond Portfolio 2010 (each of which is not part of the Plan), pays a
fee to Ascend Financial, or to life insurance companies ("Insurance Companies")
whose variable insurance contracts ("Variable Contracts") offer shares of the
Fund,
63
<PAGE>
which, on an annual basis, is equal to .25% of each Portfolio's average daily
net assets, and is to be used to pay certain expenses incurred in connection
with servicing shareholder accounts and to promote the distribution of the
Fund's shares.
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 or Variable Contracts offering such shares.
Distribution-related payments made under the Plan may be used for, among other
things, the printing of prospectuses and reports used for sales purposes,
preparing and distributing sales literature and related expenses,
advertisements, education of Variable Contract owners or dealers and their
representatives, trail commissions, and other distribution-related expenses,
including a prorated portion of the overhead expenses of the Distributor or the
Insurance Companies which are attributable to the distribution of the Variable
Contracts. Payments under the Plan may also be used to pay Insurance Companies,
dealers or others for non-distribution services, including, among other things,
responding to inquiries from owners of Variable Contracts regarding the Fund,
printing and mailing Fund prospectuses and other shareholder communications to
existing Variable Contract owners, direct communications with Variable Contract
owners regarding Fund operations and Portfolio composition and performance,
furnishing personal services or such other enhanced services as the Fund or a
Variable Contract owner may require, or maintaining customer accounts and
records.
In addition, the Plan contains, among other things, provisions complying
with the requirements of Rule 12b-1 discussed below. In particular, the Plan
provides that (1) the Plan will not take effect until it has been approved by a
vote of a majority of the outstanding voting securities of the Portfolios of the
Fund covered by the Plan, except for the voting securities attributable to the
Maturing Government Bond Portfolio 2002, the Maturing Government Bond Portfolio
2006 and the Maturing Government Bond Portfolio 2010 (each of which is not part
of the Plan), and by a majority vote of both the full Board of Directors of the
Fund and those directors who are not interested persons of the Fund and who have
no direct or indirect financial interest in the operation of the Plan or in any
agreements relating to it (the Independent Directors), (2) the Plan will
continue in effect from one year to another so long as its continuance is
specifically approved annually by a majority vote of both the full Board of
Directors and the Independent Directors, (3) the Plan may be terminated at any
time, without penalty, by vote of a majority of the Independent Directors or by
a vote of a majority of the outstanding voting securities of the Fund, (4) the
Plan may not be amended to increase materially the amount of the fees payable
thereunder unless the amendment is approved by a vote of a majority of the
outstanding voting securities of the Fund, and all material amendments must be
approved by a majority vote of both the full Board of Directors and the
Independent Directors, (5) while the Plan is in effect, the selection and
nomination of any new Independent Directors is committed to the discretion of
the Independent Directors then in office, and (6) the Fund's underwriter, the
Insurance Companies or others will prepare and furnish to the Board of
Directors, and the Board of Directors will review, at least quarterly, written
reports which set forth the amounts expended under the Plan and the purposes for
which those expenditures were made.
Rule 12b-1(b) provides that any payments made by an investment company in
connection with the distribution of its shares may only be made pursuant to a
written plan describing all material aspects of the proposed financing of
distribution and also requires that all agreements with any person relating to
implementation of the plan must be in writing. In addition, Rule 12b-1(b)(2)
requires that such plan, together with any related agreements, be approved by a
vote of
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<PAGE>
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 February 10, 2000, the Board of Directors of the
Fund so concluded.
The Plan 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 Plan of Distribution. 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 Fund's shares than it
receives as distribution fees pursuant to the Plan of Distribution for the
Portfolios covered by the Plan. However, to the extent fees received exceed
expenses, including indirect expense such as overhead, Ascend Financial could be
said to have received a profit.
In accordance with the Plan of Distribution, Ascend Financial has entered
into a Fund Shareholder Services Agreement with Minnesota Life Insurance Company
(Minnesota Life), dated May 1, 2000. This Agreement provides that Minnesota Life
will provide to the Fund, on behalf of Ascend Financial, distribution and
non-distribution related services, of the type described above. Ascend Financial
agrees to pay Minnesota Life an amount equal, on an annual basis, to 0.25% of
the average combined daily net assets of all the designated Portfolios of the
Fund which are attributable to the Variable Contracts and are a part of the Plan
of Distribution. This Agreement was approved by a vote of the Board of
Directors, including a majority of the Independent Directors, on February 10,
2000.
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<PAGE>
CUSTODIANS
The assets of each Portfolio of the Fund are held in custody by an independent
custodian pursuant to a custodian agreement approved by the Fund's Board of
Directors.
Norwest Bank Minnesota, N.A., Sixth Street and Marquette Avenue,
Minneapolis, Minnesota 55479, is the custodian for the Money Market, Growth,
Asset Allocation, Index 500, Capital Appreciation, Small Company Growth,
Value Stock, Small Company Value, Index 400 Mid-Cap, Macro-Cap Value,
Micro-Cap Growth and Real Estate Securities Portfolios.
Bankers Trust Company, 280 Park Avenue, New York, New York 10017, is the
custodian for the Bond, Mortgage, Maturing Government Bond, International
Stock and Global Bond Portfolios.
INDEPENDENT AUDITORS
KPMG LLP, 90 South Seventh Street, Minneapolis, Minnesota 55402, acts as
the Fund's independent auditors, providing audit services including audits of
the Fund's annual financial statements and assistance and consultation in
connection with SEC filings.
GENERAL COUNSEL
The Fund's independent general counsel is Dorsey & Whitney LLP.
PORTFOLIO TRANSACTIONS AND ALLOCATION OF BROKERAGE
ADVISER
Advantus Capital selects and (where applicable) negotiates commissions with
the brokers who execute the transactions for all Portfolios of the Fund, except
for those Portfolios which have entered into sub-advisory agreements. 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 the quality and expertise of that brokerage and any
research services (as defined in the Securities Exchange Act of 1934), and
generally the Fund pays higher than the lowest commission rates available. Such
research services include advice, both directly and in writing, as to the value
of securities, the advisability of investing in, purchasing or selling
securities, and the availability of securities
66
<PAGE>
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 Fund
enables 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 Fund. 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 Fund from these
commissions.
There is no formula for the allocation by Advantus Capital of the Fund's
brokerage business to any broker-dealers for brokerage and research services.
However, Advantus Capital will authorize the 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.
To the extent research services are used by Advantus Capital in rendering
investment advice to the Fund, such services would tend to reduce Advantus
Capital's expenses. However, Advantus Capital does not believe that an exact
dollar amount can be assigned to these services. Research services received by
Advantus Capital from brokers or dealers executing transactions for the Fund
will be available also for the benefit of other portfolios managed by Advantus
Capital, and conversely, research services received by Advantus Capital in
respect of transactions for such other portfolios will be available for the
benefit of the Fund.
During the fiscal years ended December 31, 1999, 1998 and 1997, brokerage
commissions paid were:
<TABLE>
<CAPTION>
Brokerage Commissions Paid
--------------------------------------------
Portfolio 1999 1998 1997
--------- ---- ---- ----
<S> <C> <C> <C>
Growth Portfolio $538,168 $707,244
Bond Portfolio -- --
Money Market Portfolio -- --
Asset Allocation Portfolio 650,690 412,404
Mortgage Securities Portfolio -- --
Index 500 Portfolio 150,419 92,649
Capital Appreciation Portfolio 356,002 342,165
International Stock Portfolio 256,337 163,231
Small Company Growth Portfolio 217,936 168,318
Maturing Government Bond -
2002 Portfolio -- --
2006 Portfolio -- --
2010 Portfolio -- --
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<PAGE>
Value Stock Portfolio 488,264 494,532 275,395
Small Company Value Portfolio 19,653 5,739 --
Global Bond Portfolio -- -- --
Index 400 Mid-Cap Portfolio 12,882 3,192 --
Macro-Cap Value Portfolio 20,044 5,661 --
Micro-Cap Growth Portfolio 6,288 7,115 --
Real Estate Securities Portfolio 24,017 -- --
</TABLE>
Most transactions in money market instruments will be purchases from
issuers of or dealers in money market instruments acting as principal. There
usually will be no brokerage commissions paid by the Fund for such purchases
since securities will be purchased on a net price 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 will reflect a fee paid to
the underwriter.
The Fund will not execute portfolio transactions through any affiliate,
except as described below. Advantus Capital believes that most research
services obtained by it generally benefit one or more of the investment
companies which it manages and also benefits 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.
In addition to providing investment management services to the Fund,
Advantus Capital provides investment advisory services for three insurance
companies, namely Minnesota Life and its subsidiary life insurance companies and
certain associated separate accounts. It also provides investment advisory
services to qualified pension and profit sharing plans, corporations,
partnerships, investment companies and various private accounts. Frequently,
investments deemed advisable for the Fund are also deemed advisable for one or
more of such accounts, so that Advantus Capital may decide to purchase or sell
the same security at or about the same time for both the Fund and one of those
accounts. In such circumstances, orders for a purchase or sale of the same
security for one or more of those accounts may be combined with an order for the
Fund, in which event the transactions will be averaged as to price and normally
allocated as nearly as practicable in proportion to the amounts desired to be
purchased or sold for each account. While in some instances combined orders
could adversely affect the price or volume of a security, it is believed that
the Fund's participation in such transactions on balance will produce better net
results for the Fund.
The Fund's acquisition during the fiscal year ended December 31, 1999, of
securities of its regular brokers or dealers or of the parent of those brokers
or dealers that derive more than 15 percent of gross revenue from
securities-related activities is presented below:
<TABLE>
<CAPTION>
Value of Securities Owned
in the Portfolios at
Name of Issuer End of Fiscal Year
-------------- -------------------------
<S> <C>
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<PAGE>
</TABLE>
SUB-ADVISERS
Except as indicated below, each of the investment advisory firms having a
sub-advisory relationship with Advantus Capital, in managing the affected
Portfolios, intends to follow the same brokerage practices as those described
above for Advantus Capital. Templeton Counsel, in managing the International
Stock Portfolio, follows the same basic brokerage practices as those described
above 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 Stock Portfolio.
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.
PURCHASE AND REDEMPTION OF SHARES
Shares of the Fund are currently offered continuously at prices equal to
the respective net asset values of the Portfolios only to Minnesota Life, and
to certain of its life insurance affiliates, in connection with its variable
life insurance policies and variable annuity contracts. Ascend Financial
serves as the Fund's underwriter. It is possible that at some later date the
Fund may offer its shares to other investors and it reserves the right to do
so.
Shares of the Fund are sold and redeemed at their net asset value next
computed after a purchase or redemption order is received by the Fund.
Depending upon the net asset values at that time, the amount paid upon
redemption may be more or less than the cost of the shares redeemed. Payment
for shares redeemed will generally be made within seven days after receipt of a
proper notice of redemption. The right to redeem shares or to receive payment
with respect to any redemption may only be suspended for any period during
which: (a) trading on the New York Stock Exchange is restricted as determined by
the Securities and Exchange Commission or such exchange is closed for other than
weekends and holidays; (b) an emergency exists, as determined by the Securities
and Exchange Commission, as a result of which disposal of Portfolio securities
or determination of the net asset value of a Portfolio is not reasonably
practicable; and (c) the Securities and Exchange Commission by order permits
postponement for the protection of shareholders.
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<PAGE>
FUND SHARES AND VOTING RIGHTS
The authorized capital of the Fund consists of one trillion shares of
capital stock with a par value of $.01 per share; with authorized shares of
100,000,000,000 allocated to each Portfolio. The remaining shares may be
allocated by the Board of Directors to any new or existing Portfolios.
All shares of all Portfolios have equal voting rights, except that only
shares of a particular Portfolio are entitled to vote certain matters pertaining
only to that Portfolio. Pursuant to the Investment Company Act of 1940 (as
amended) and the rules and regulations thereunder, certain matters approved by a
vote of all Fund shareholders may not be binding on a Portfolio whose
shareholders have not approved such matter.
Each issued and outstanding share is entitled to one vote and to
participate equally in dividends and distributions declared by the respective
Portfolio and in net assets of such Portfolio upon liquidation or dissolution
remaining after satisfaction of outstanding liabilities. The shares of each
Portfolio, when issued, are fully paid and non-assessable, have no preemptive,
conversion, or similar rights, and are freely transferable. Fund shares do not
have cumulative voting rights, which means that the holders of more than half of
the Fund shares voting for election of directors can elect all of the directors
if they so choose. In such event, the holders of the remaining shares would not
be able to elect any directors.
The Fund will not hold periodically scheduled shareholder meetings.
Minnesota corporate 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 three percent or more of the voting shares of a 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 thirty 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 ninety days after receipt of the demand, all at the
expense of the Fund. A special meeting may also be called at any time by the
chief executive officer, two or more directors, or a shareholder or shareholders
holding ten percent of the voting shares of the Fund. At a meeting, called for
the purpose, shareholders may remove any director by a vote of two- thirds of
the outstanding shares. 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.
NET ASSET VALUE
The net asset value of the shares of the Portfolios is computed once daily,
and, in the case of Money Market Portfolio, after the declaration of the daily
dividend, as of the primary closing time for business on the New York Stock
Exchange (as of the date hereof 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 such Fund's portfolio
securities will not materially affect the current net asset value of such Fund's
shares, (ii) days during which no such
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Fund's shares are tendered for redemption and no order to purchase or sell such
Fund's shares is received by such 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, Martin Luther King Jr. Day, Presidents' Day, Good
Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day and
Christmas Day). The net asset value per share of each Portfolio is computed by
adding the sum of the value of the securities held by that Portfolio plus any
cash or other assets that it holds, subtracting all of its liabilities, and
dividing the result by the total number of shares outstanding in that Portfolio
at that time. Expenses, including the investment advisory fee payable to
Advantus Capital, are accrued daily.
Securities held by the Fund are valued at their market value. Otherwise,
such securities are valued at fair value as determined in good faith by the
Board of Directors, with calculations made by persons acting pursuant to the
direction of the Board. However, debt securities of the International Stock
Portfolio with maturities of 60 days or less when acquired, or which
subsequently are within 60 days of maturity, and all securities in the Money
Market Portfolio, are valued at amortized cost.
All instruments held by the Money Market Portfolio are valued on an
amortized cost basis. This 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 fluctuating interest rates on the market
value of the instrument. While this method provides certainty in valuation, it
may result in periods during which the value of an instrument in the Portfolio,
as determined by amortized cost, is higher or lower than the price the Portfolio
would receive if it sold the instrument. During periods of declining interest
rates, the daily yield on shares of the Portfolio computed by dividing the
annualized daily income of the Portfolio by the net asset value computed as
described above may tend to be higher than a like computation made by a
portfolio with identical investments utilizing a method of valuation based upon
market prices and estimates of market prices for all of its securities.
The Money Market Portfolio values its portfolio securities at amortized
cost in accordance with Rule 2a-7 under the Investment Company Act of 1940, as
amended. 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 Money Market Portfolio and its
shareholders to maintain a stable net asset value per share for such Portfolio
of a constant $ 1.00 per share by virtue of the amortized cost method of
valuation. The Money Market Portfolio 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 Portfolio's shareholders, to establish procedures reasonably
designed, taking into account current market conditions and the Portfolio's
investment objective, to stabilize the Portfolio'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 Portfolio'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 of 1%, and the taking of such remedial action by the Board
as it deems appropriate
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<PAGE>
where it believes the extent of any such deviation may result in material
dilution or other unfair results to investors or existing shareholders. Such
remedial action may include reverse share splits, redemptions in kind, selling
portfolio instruments prior to maturity to realize 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 Portfolio 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 Portfolio will limit its investments in the securities of any
one issuer to no more than 5% of Portfolio assets and it will limit investment
in securities of less than the highest rated categories to 5% of Portfolio
assets. Investment in the securities of any issuer of less than the highest
rated categories will be limited to the greater of 1% of Portfolio 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 Portfolio in 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.
PERFORMANCE DATA
CURRENT YIELD FIGURES FOR MONEY MARKET PORTFOLIO
Current annualized yield quotations for the Money Market Portfolio are
based on the Portfolio's net investment income for a seven-day or other
specified period and exclude any realized or unrealized gains or losses on
portfolio securities. Current annualized yield is computed by determining
the net change (exclusive of realized gains and losses from the sale of
securities and unrealized appreciation and depreciation) in the value of a
hypothetical account having a balance of one share at the beginning of the
specified period, dividing such net change in account value by the value of
the account at the beginning of the period, and annualizing this quotient on
a 365-day basis. The net change in account value reflects the value of any
additional shares purchased with dividends from the original share in the
account during the specified period, any dividends declared on such original
share and any such additional shares during the period, and expenses accrued
during the period. The Fund may also quote the effective yield of the Money
Market Portfolio for a seven-day or other specified period for which the
current annualized yield is computed by expressing the unannualized return on
a compounded, annualized basis. Purchasers of variable contracts issued by
Minnesota Life should recognize that the yield on the assets relating to such
a contract which are invested in shares of the Money Market Portfolio would
be lower than the Money Market Portfolio's yield for the same period since
charges assessed against such assets are not reflected in the Portfolio's
yield. The current yield and effective yield of the Money Market Portfolio
for the seven-day period ended December 31, 1999 were 5.20% and 5.34%,
respectively.
CURRENT YIELD FIGURES FOR OTHER PORTFOLIOS
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Yield quotations for Portfolios other than the Money Market Portfolio
are determined by dividing the Portfolio's net investment income per share
for a 30-day period, excluding realized or unrealized gains or losses, by the
net asset value per share on the last day of the period. In computing net
investment income dividends are accrued daily based on the stated dividend
rate of each dividend-paying security, and interest reflects an amortization
of discount or premium on debt obligations (other than installment debt
obligations) based upon the market value of each obligation on the last day
of the preceding 30-day period. Undeclared earned income (net investment
income which at the end of the base period has not been declared as a
dividend but is expected to be declared shortly thereafter) is subtracted
from the net asset value per share on the last day of the period. An
annualized yield figure is determined under a formula which assumes that the
net investment income is earned and reinvested at a constant rate and
annualized at the end of a six-month period. The yield figures published by
the Fund will reflect Minnesota Life's voluntary absorption of certain Fund
expenses (as previously discussed in "Investment Advisory and Other Services
- -- Investment Advisory Agreement" above). For the 30-day period ended
December 31, 1999, the yields of the Portfolios are shown in the table below.
The figures in parentheses show what the yield would have been had Minnesota
Life not absorbed Fund expenses as described above.
<TABLE>
<CAPTION>
Portfolio Yield
--------- -----
<S> <C> <C>
Growth Portfolio -.12% (-.12%)
Bond Portfolio 6.34 (6.34)
Money Market Portfolio N/A N/A
Asset Allocation Portfolio 1.98 (1.98)
Mortgage Securities Portfolio 7.20 (7.20)
Index 500 Portfolio .74 (.74)
Capital Appreciation Portfolio -.69 (-.69)
International Stock Portfolio .18 (.18)
Small Company Growth Portfolio -.69 (-.69)
Maturing Government Bond -
2002 Portfolio 6.47 (6.10)
2006 Portfolio 6.70 (6.11)
2010 Portfolio 6.68 (5.92)
Value Stock Portfolio .82 (.82)
Small Company Value Portfolio .90 (.49)
Global Bond Portfolio 7.45 (7.45)
Index 400 Mid-Cap Portfolio .54 (.42)
Macro-Cap Value Portfolio .63 (.63)
Micro-Cap Growth Portfolio -.88 (.88)
Real Estate Securities Portfolio 4.79 (3.97)
</TABLE>
TOTAL RETURN FIGURES FOR ALL PORTFOLIOS
Cumulative total return quotations for the Portfolios represent the total
return for the period since shares of the Portfolio became available for sale
pursuant to the Fund's registration statement. Cumulative total return is equal
to the percentage change between the net asset value of a hypothetical $ 1,000
investment at the beginning of the period and the net asset value of that same
investment at the end of the period with dividend and capital gain distributions
treated as reinvested.
The cumulative total return figures published by the Fund will reflect
Minnesota Life's voluntary absorption of certain Fund expenses (as previously
discussed in "Investment Advisory and Other Services--Investment Advisory
Agreement" above). The cumulative total returns for the Portfolios for the
specified
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<PAGE>
periods ended December 31, 1999 are shown in the table below. The figures in
parentheses show what the cumulative total returns would have been had Minnesota
Life not absorbed Fund expenses as described above.
<TABLE>
<CAPTION>
From Inception Date of
To 12/31/99 Inception
----------- ---------
<S> <C> <C> <C>
Growth Portfolio 660.51 (651.29) 12/3/85
Bond Portfolio 181.38 (178.82) 12/3/85
Money Market Portfolio 106.72 (100.18) 12/3/85
Asset Allocation Portfolio 425.56 (424.24) 12/3/85
Mortgage Securities Portfolio 167.52 (166.58) 5/1/87
Index 500 Portfolio 561.42 (559.27) 5/1/87
Capital Appreciation Portfolio 568.89 (559.46) 5/1/87
International Stock Portfolio 165.70 (165.52) 5/1/92
Small Company Growth Portfolio 178.31 (178.31) 5/3/93
Maturing Government Bond -
2002 Portfolio 50.94 (44.38) 5/2/94
2006 Portfolio 58.25 (49.44) 5/2/94
2010 Portfolio 62.09 (49.20) 5/2/94
Value Stock Portfolio 125.20 (124.54) 5/2/94
Small Company Value Portfolio -7.54 (-8.70) 10/1/97
Global Bond Portfolio 7.19 (7.19) 10/1/97
Index 400 Mid-Cap Portfolio 35.39 (34.24) 10/1/97
Macro-Cap Value Portfolio 28.31 (25.84) 10/1/97
Micro-Cap Growth Portfolio 144.93 (143.74) 10/1/97
Real Estate Securities Portfolio -18.21 (-19.80) 5/1/98
</TABLE>
Yield quotations for Portfolios other than the Money Market Portfolio and all
quotations of cumulative total return figures will be accompanied by average
annual total return figures for a one year period and for the period since
shares of the Portfolio became available pursuant to the Fund's registration
statement. Average annual total return figures are the average annual
compounded rates of return required for an account with an initial investment of
$1,000 to equal the redemption value of the account at the end of the period.
The average annual total return figures published by the Fund will reflect
Minnesota Life's voluntary absorption of certain Fund expenses (as discussed in
"Investment Advisory and Other Services--Investment Advisory Agreement" above).
The average annual rates of return for the Portfolios for the specified
periods ended December 31, 1999 are shown in the table below. The figures in
parentheses show what the
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<PAGE>
average annual rates of return would have been had Minnesota Life not absorbed
Fund expenses as described above.
75
<PAGE>
<TABLE>
<CAPTION>
Year Ended Five Years Ten Years From Inception Date of
12/31/99 Ended 12/31/99 Ended 12/31/99 to 12/31/99 Inception
---------------- -------------- -------------- --------------- ---------
<S> <C> <C> <C> <C> <C>
Growth Portfolio 25.67% (25.67%) 26.88% (26.88%) 17.19% (17.19%) 15.49% (15.39%) 12/3/85
Bond Portfolio -2.73 (-2.73) 6.84 (6.84) 7.02 (7.00) 7.62 (7.55) 12/3/85
Money Market Portfolio 4.71 (4.71) 5.03 (5.03) 4.78 (4.70) 5.29 (5.05) 12/3/85
Asset Allocation Portfolio 15.17 (15.17) 18.97 (18.97) 13.61 (13.61) 12.50 (12.48) 12/3/85
Mortgage Securities Portfolio 1.99 (1.99) 8.06 (8.06) 7.73 (7.71) 8.07 (8.04) 5/1/87
Index 500 Portfolio 20.28 (20.28) 27.67 (27.67) 17.56 (17.55) 16.18 (16.15) 5/1/87
Capital Appreciation Portfolio 21.51 (21.51) 24.11 (24.11) 17.11 (17.08) 16.17 (16.04) 5/1/87
International Stock Portfolio 21.43 (21.43) 14.67 (14.67) N/A (N/A) 13.58 (13.57) 5/1/92
Small Company Growth
Portfolio 45.63 (45.63) 17.44 (17.44) N/A (N/A) 16.59 (16.59) 5/3/93
Maturing Government Bond-
2002 Portfolio -.48 (1.00) 8.52 (7.75) N/A (N/A) 7.53 (6.69) 5/2/94
2006 Portfolio -7.81 (-8.64) 9.58 (8.62) N/A (N/A) 8.43 (7.34) 5/2/94
2010 Portfolio -11.54 (-12.45) 10.20 (8.92) N/A (N/A) 8.89 (7.31) 5/2/94
Value Stock Portfolio .27 (.27) 16.57 (16.57) N/A (N/A) 15.39 (15.33) 5/2/94
Small Company Value Portfolio -3.07 (-3.61) N/A (N/A) N/A (N/A) -3.42 (-3.96) 10/1/97
Global Bond Portfolio -7.81 (-7.81) N/A (N/A) N/A (N/A) 3.13 (3.13) 10/1/97
Index 400 Mid-Cap Portfolio 15.96 (15.62) N/A (N/A) N/A (N/A) 14.40 (13.98) 10/1/97
Macro-Cap Value Portfolio 7.17 (6.68) N/A (N/A) N/A (N/A) 11.92 (10.94) 10/1/97
Micro-Cap Growth Portfolio 148.77 (148.45) N/A (N/A) N/A (N/A) 48.85 (48.53) 10/1/97
Real Estate Securities Portfolio -3.89 (-5.18) N/A (N/A) N/A (N/A) -11.33 (-12.37) 5/1/98
</TABLE>
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<PAGE>
Purchasers of variable contracts issued by Minnesota Life should recognize
that the yield, cumulative total return and average annual total return on the
assets relating to such a contract which are invested in shares of any of the
above Portfolios would be lower than the yield, cumulative total return and
average annual total return of such Portfolio for the same period since charges
assessed against such assets are not reflected in the Portfolios' quotations.
PREDICTABILITY OF RETURN
ANTICIPATED VALUE AT MATURITY. The maturity values of zero-coupon bonds
are specified at the time the bonds are issued, and this feature, combined with
the ability to calculate yield to maturity, has made these instruments popular
investment vehicles for investors seeking reliable investments to meet long-term
financial goals.
Each Maturing Government Bond Portfolio consists primarily of zero-coupon
bonds but is actively managed to accommodate contract owner activity and to take
advantage of perceived market opportunities. Because of this active management
approach, each Maturing Government Bond Portfolio does not guarantee that a
certain price per share will be attained by the time a Portfolio is liquidated.
Instead, the Fund attempts to track the price behavior of a directly held zero
coupon bond by:
(1) Maintaining a weighted average maturity within each Maturing
Government Bond Portfolio's target maturity year;
(2) Investing at least 90% of assets in securities that mature within one
year of that Portfolio's target maturity year [for example, a
Portfolio with a maturity of ten years will be 90% composed of
securities having remaining maturities of nine, ten or eleven years
(rather than having half its securities with five-year maturities and
half with fifteen-year maturities];
(3) Investing a substantial portion of assets in Treasury STRIPS (the most
liquid Treasury zero);
(4) Under normal conditions, maintaining a nominal cash balance;
(5) Executing portfolio transactions necessary to accommodate net contract
owner purchases or redemptions on a daily basis; and
(6) Whenever feasible, contacting several U.S. government securities
dealers for each intended transaction in an effort to obtain the best
price on each transaction.
These measures enable Advantus Capital to calculate an anticipated value at
maturity (AVM) for each share of a Maturing Government Bond Portfolio,
calculated as of the date of purchase of such share, that approximates the price
per share that such share will achieve by the weighted average maturity date of
its Portfolio. The AVM calculation for each Maturing Government Bond Portfolio
is as follows:
- - - - - - - AVM = P(l + AGR/2)2T
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where P = the Portfolio's current price per share; T = the Portfolio's weighted
average term to maturity in years; and AGR = the anticipated growth rate.
This calculation assumes that the share owner will reinvest all dividend
and capital gain distributions. It also assumes an expense ratio and a
portfolio composition that remain constant for the life of the Maturing
Government Bond Portfolio. Because expenses and composition do not remain
constant, however, the Fund may calculate an AVM for each Maturing Government
Bond Portfolio on any day on which the Fund values its securities. Such an AVM
is applicable only to shares purchased on that date.
In addition to the measures described above, which Advantus Capital
believes are adequate to assure close correspondence between the price behavior
of each Portfolio and the price behavior of directly held zero-coupon bonds with
comparable maturities, the Fund expects that each Portfolio will invest at least
90% of its net assets in zero-coupon bonds until it is within four years of its
target maturity year and at least 80% of its net assets in zero-coupon
securities within two to four years of its target maturity year. This
expectation may be altered if the market supply of zero-coupon securities
diminishes unexpectedly.
ANTICIPATED GROWTH RATE. The Fund may also calculate an anticipated growth
rate (AGR) for each Maturing Government Bond Portfolio on any day on which the
Fund values its securities. AGR is a calculation of the anticipated annualized
rate of growth for a Portfolio share, calculated from the date of purchase of
such share to the Portfolio's target maturity date. As is the case with
calculations of AVM, the AGR calculation assumes that the investor will reinvest
all dividends and capital gain distributions and that each Maturing Government
Bond Portfolio expense ratio and portfolio composition will remain constant.
Each Maturing Government Bond Portfolio AGR changes from day to day (i.e., a
particular AGR calculation is applicable only to shares purchased on that date),
due primarily to changes in interest rates and, to a lesser extent, to changes
in portfolio composition and other factors that affect the value of the
Portfolio's investments.
The Fund expects that a share owner who holds specific shares until a
Portfolio's weighted average maturity date, and who reinvests all dividends and
capital gain distributions, will realize an investment return and maturity value
on those shares that do not differ substantially from the AGR and AVM calculated
on the day such shares were purchased. The AGR and AVM calculated with respect
to shares purchased on any other date, however, may be materially different.
TAXES
The Fund and each Portfolio qualified for the year ended December 31, 1999,
and intends to continue to qualify as a "regulated investment company" under the
provisions of Subchapter M of the Internal Revenue Code, as amended (the
"Code"). As a result of changes included in the Tax Reform Act of 1986, each
Portfolio of the Fund is treated as a separate entity for federal income tax
purposes. If each Portfolio of the Fund qualifies as a "regulated investment
company" and complies with the provisions of the Code relieving regulated
investment companies which distribute substantially all of their net income
(both ordinary income and
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<PAGE>
capital gain) from federal income tax, each Portfolio of the Fund will be
relieved of such tax on the amounts distributed.
To qualify for treatment as a regulated investment company, each Portfolio
must, among other things, derive in each taxable year at least 90% of its gross
income from dividends, interest payments with respect to securities, and gains
(without deduction for losses) from the sale or other disposition of securities.
Each Portfolio of the Fund with outstanding shares which were purchased to
provide the Portfolio's initial capital (in an amount in excess of that
specified in the Code) and which are not attributable to any of the contracts 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. Currently, only the
Maturing Government Bond 2002 Portfolio, Maturing Government Bond 2006
Portfolio, Small Company Value Portfolio, Index 400 Mid-Cap Portfolio,
Macro-Cap Value Portfolio, Micro-Cap Growth Portfolio, Global Bond Portfolio
and Real Estate Securities Portfolio are subject to these distribution
requirements. In order to avoid the imposition of this excise tax, each
Portfolio generally must declare dividends by the end of a calendar year
representing 98 percent of that Portfolio's ordinary income for the calendar
year and 98 percent of its capital gain net income (both long-term and
short-term capital gains) for the twelve-month period ending October 31 of
the calendar year.
The foregoing is a general summary of applicable provisions of the Code and
Treasury Regulations now in effect and as currently interpreted by the courts
and the Internal Revenue Service. The Code and these Regulations, as well as
current interpretations thereof, may be changed at any time by legislative,
judicial or administrative action.
As the sole shareholder of the Fund will be Minnesota Life and the separate
accounts of Minnesota Life, this statement does not discuss federal income tax
consequences to the shareholder. For tax information with respect to an owner
of a contract issued in connection with the separate accounts, see the
Prospectus for those contracts.
THE STANDARD & POOR'S LICENSE
Standard & Poor's ("S&P") is a division of the McGraw-Hill Companies,
Inc. S&P has trademark rights to the marks "Standard & Poor's-Registered
Trademark-," "S&P-Registered Trademark-," "S&P 500-Registered Trademark-,"
"S&P 400-Registered Trademark-," "Standard & Poor's 500," "Standard & Poor's
MidCap 400" and "500" and has licensed the use of such marks by the Fund, the
Index 500 Portfolio and the Index 400 Mid-Cap Portfolio.
The Index 500 Portfolio and the Index 400 Mid-Cap Portfolio
(collectively, the "Portfolios") are not sponsored, endorsed, sold or
promoted by S&P. S&P makes no representation or warranty, express or
implied, to the owners of the Portfolios or any member of the public
regarding the advisability of investing in securities generally or in the
Portfolios particularly or the ability of the S&P 500 Index or the S&P
MidCap 400 Index to track general stock market performance. S&P's only
relationship to the Portfolios is the licensing of certain trademarks and
trade names of S&P and of the S&P 500 Index and the S&P MidCap 400 Index
which are determined, composed and calculated by S&P without regard to the
Fund. S&P has no obligation to take the needs of the Portfolios or the
owners of the Fund into consideration in determining, composing or
calculating the S&P 500 Index or the S&P MidCap 400 Index. S&P is not
responsible for and has not participated in the determination of the net
asset value or public offering price of the Portfolios nor is S&P a
distributor of the Fund. S&P has no obligation or liability in connection
with the administration, marketing or trading of the Portfolios.
S&P DOES NOT GUARANTEE THE ACCURACY AND/OR THE COMPLETENESS OF THE S&P
500 INDEX OR THE S&P MIDCAP 400 INDEX OR ANY DATA INCLUDED THEREIN, NOR DOES
S&P HAVE ANY LIABILITY FOR ANY ERRORS, OMISSIONS, OR INTERRUPTIONS THEREIN.
S&P MAKES NO WARRANTY, EXPRESS OR IMPLIED, AS TO THE RESULTS TO BE OBTAINED
BY THE PORTFOLIOS, OWNERS OF THE FUND, OR ANY OTHER PERSON OR ENTITY FROM THE
USE OF THE S&P 500 INDEX, THE S&P MIDCAP 400 INDEX OR ANY DATA INCLUDED
THERIN. S&P MAKES NO EXPRESS OR IMPLIED WARRANTIES, AND EXPRESSLY DISCLAIMS
ALL WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OF USE
WITH RESPECT TO THE S&P 500 INDEX, THE S&P MIDCAP 400 INDEX OR ANY DATA
INCLUDED THEREIN. WITHOUT LIMITING ANY OF THE FOREGOING, IN NO EVENT SHALL S&P
HAVE ANY LIABILITY FOR ANY SPECIAL, PUNITIVE, INDIRECT, OR CONSEQUENTIAL
DAMAGES (INCLUDING LOST PROFITS), EVEN IF NOTIFIED OF THE POSSIBILITY OF
SUCH DAMAGES
FINANCIAL STATEMENTS
The Fund's financial statements for the year ended December 31, 1999,
including the financial highlights for each of the respective periods
presented, appearing in the Fund's Annual Report to Shareholders, and the
report thereon of the Fund's independent auditors, KPMG LLP, also appearing
therein, are incorporated by reference in this Statement of Additional
Information.
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APPENDIX A
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 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.
A-1
<PAGE>
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.
A-2
<PAGE>
APPENDIX B
BOND AND COMMERCIAL PAPER RATINGS
BOND RATINGS
Moody's Investors Service, Inc. describes its six highest ratings for corporate
bonds and mortgage-related securities as follows:
Bonds which are rated Aaa are judged to be of the best quality. They carry the
smallest degree of investment risk and are generally referred to as "gilt edge."
Interest payments are protected by a large or by an exceptionally stable margin
and principal is secure. While the various protective elements are likely to
change, such changes as can be visualized are most unlikely to impair the
fundamentally strong position of such issues.
Bonds which are rated Aa are judged to be of high quality by all standards.
Together with the Aaa group they comprise what are generally known as high grade
bonds. They are rated lower than the best bonds because margins of protection
may not be as large as in Aaa securities or fluctuation of protective elements
may be of greater amplitude or there may be other elements present which make
the long term risks appear somewhat larger than in Aaa securities.
Bonds which are rated A possess many favorable investment attributes and are to
be considered as upper medium grade obligations. Factors giving security to
principal and interest are considered adequate but elements may be present which
suggest a susceptibility to impairment some time in the future.
Bonds which are rated Baa are considered medium grade obligations, i.e., they
are neither highly protected nor poorly secured. Interest payments and
principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
Bonds which are rated Ba are judged to have speculative elements; their future
cannot be considered as well-assured. Often the protection of interest and
principal payments may be very moderate, and thereby not well safeguarded during
both good and bad times over the future. Uncertainty of position characterizes
bonds in this class.
Bonds which are rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.
Moody's Investors Service, Inc. also applies numerical modifiers, 1, 2, and 3,
in each of these generic rating classifications. The modifier 1 indicates that
the security ranks in the higher end of its generic rating category; the
modifier 2 indicates a mid-range ranking; and the modifier 3 indicates that the
issue ranks in the lower end of its generic rating category.
B-1
<PAGE>
Standard & Poor's Corporation describes its six highest ratings for corporate
bonds and mortgage-related securities as follows:
AAA. Debt rated "AAA" has the highest rating assigned by Standard & Poor's.
Capacity to pay interest and repay principal is extremely strong.
AA. Debt rated "AA" has a very strong capacity to pay interest and repay
principal and differs from the higher rated issues only in small degree.
A. Debt rated "A" has a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than debt in higher rated categories.
BBB. Debt rated "BBB" is regarded as having an adequate capacity to pay
interest and repay principal. Whereas it normally exhibits adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
debt in this category than in higher rated categories.
BB. Debt rated "BB" has less near-term vulnerability to default than other
speculative grade debt. However, it faces major ongoing uncertainties or
exposure to adverse business, financial, or economic conditions that could lead
to inadequate capacity to meet timely interest and principal payments.
B. Debt rated "B" has a greater vulnerability to default but currently has the
capacity to meet interest payments and principal repayments. Adverse business,
financial, or economic conditions will likely impair capacity or willingness to
pay interest and repay principal. The "B" rating category is also used for debt
subordinated to senior debt that is assigned an actual or implied "BB" or "BB-"
rating.
Standard & Poor's Corporation applies indicators "+", no character, and "-" to
the above rating categories. The indicators show relative standing within the
major rating categories.
COMMERCIAL PAPER RATINGS
The rating Prime-1 is the highest commercial paper rating assigned by Moody's
Investors Service, Inc. Among the factors considered by Moody's Investors
Service, Inc. in assigning the ratings are the following: (1) evaluation of the
management of the issuer, (2) economic evaluation of the issuer's industry or
industries and an appraisal of speculative-type risks which may be inherent in
certain areas; (3) evaluation of the issuer's products in relation to
competition and customer acceptance; (4) liquidity; (5) amount and quality of
long-term debt; (6) trend of earnings over a period of ten years; (7) financial
strength of a parent company and the relationships which exist with the issuer;
an (8) recognition by the management of obligations which may be present or may
arise as a result of public interest questions and preparations to meet such
obligations.
The rating A-1 is the highest rating assigned by Standard & Poor's Corporation
to commercial paper which is considered by Standard & Poor's Corporation to have
the following characteristics:
B-2
<PAGE>
Liquidity ratios of the issuer are adequate to meet cash redemptions. Long-term
senior debt is rated "A" or better. The issuer has access to at least two
additional channels of borrowing. Basic earnings and cash flow have an upward
trend with allowance made for unusual circumstances. Typically, the issuer's
industry is well established and the issuer has a strong position within the
industry. The reliability and quality of management are unquestioned.
B-3
<PAGE>
APPENDIX C
FUTURES CONTRACTS
EXAMPLE OF FUTURES CONTRACT SALE
The Fund would engage in a futures contract sale to maintain the income
advantage from continued holding of a long-term security while endeavoring to
avoid part or all of the loss in market value that would otherwise accompany a
decline in long-term securities prices. Assume that the market value of a
certain security in the Fund's portfolio tends to move in concert with the
futures market prices of long-term United States Treasury bonds ("Treasury
bonds"). The Fund wishes to fix the current market value of this portfolio
security until some point in the future. Assume the portfolio security has a
market value of $100, and the Fund believes that, because of an anticipated rise
in interest rates, the value will decline to $95. The Fund might enter into
futures contract sales of Treasury bonds for a price of $98. If the market
value of the portfolio security does indeed decline from $100 to $95, the
futures market price for the Treasury bonds might also decline from $98 to $93.
In that case, the $5 loss in the market value of the portfolio security
would be offset by the $5 gain realized by closing out the futures contract
sale. Of course, the futures market price of Treasury bonds might decline to
more than $93 or to less than $93 because of the imperfect correlation between
cash and futures prices mentioned above.
The Fund could be wrong in its forecast of interest rates and the futures
market price could rise above $98. In this case, the market value of the
portfolio securities, including the portfolio security being protected, would
increase. The benefit of this increase would be reduced by the loss realized on
closing out the futures contract sale.
If interest rate levels did not change prior to settlement date, the Fund,
in the above example, would incur a loss of $2 if it delivered the portfolio
security on the settlement date (which loss might be reduced by an offsetting
transaction prior to the settlement date). In each transaction, nominal
transaction expenses would also be incurred.
EXAMPLE OF FUTURES CONTRACT PURCHASE
The Fund would engage in a futures contract purchase when it is not fully
invested in long-term securities but wishes to defer for a time the purchase of
long-term securities in light of the availability of advantageous interim
investments, e.g., short-term securities whose yields are greater than those
available on long-term securities. The Fund's basic motivation would be to
maintain for a time the income advantage from investing in the short-term
securities; the Fund would be endeavoring at the same time to eliminate the
effect of all or part of the increases in market price of the long-term
securities that the Fund may purchase.
For example, assume that the market price of a long-term security that the
Fund may purchase, currently yielding 10%, tends to move in concert with futures
market prices of Treasury bonds. The Fund wishes to fix the current market
price (and thus 10% yield) of the
C-1
<PAGE>
long-term security until the time (four months away in this example) when it may
purchase the security.
Assuming the long-term security has a market price of $100, and the Fund
believes that, because of an anticipated fall in interest rates, the price will
have risen to $105 (and the yield will have dropped to about 9-1/2%) in four
months, the Fund might enter into futures contracts purchases of Treasury bonds
for a price of $98. At the same time, the Fund would assign a pool of
investments in short-term securities that are either maturing in four months or
earmarked for sale in four months, for purchase of the long-term security at an
assumed market price of $100. Assume these short-term securities are yielding
15%. If the market price of the long-term bond does indeed rise from $100 to
$105, the futures market price for Treasury bonds might also rise from $98 to
$103. In that case, the $5 increase in the price that the Fund pays for the
long-term security would be offset by the $5 gain realized by closing out the
futures contract purchase.
The Fund could be wrong in its forecast of interest rates; long-term
interest rates might rise to above 10%, and the futures market price could fall
below $98. If short-term rates at the same time fall to 10% or below, it is
possible that the Fund would continue with its purchase program for long-term
securities. The market prices of available long-term securities would have
decreased. The benefit of this price decrease, and thus yield increase, will be
reduced by the loss realized on closing out the futures contract purchase.
If, however, short-term rates remained above available long-term rates, it
is possible that the Fund would discontinue its purchase program for long-term
securities. The yields on short-term securities in the portfolio, including
those originally in the pool assigned to the particular long-term security,
would remain higher than yields on long-term bonds. The benefit of this
continued incremental income will be reduced by the loss realized on closing out
the futures contract purchase.
In each transaction, nominal transaction expenses would also be incurred.
TAX TREATMENT
The amount of any gain or loss realized by the Fund on closing out a
futures contract may result in a capital gain or loss for federal income tax
purposes. Generally, futures contracts held by the Fund at the close of the
Fund's taxable year will be treated for federal income tax purposes as sold for
their fair market value on the last business day of such year. Forty percent of
any gain or loss resulting from such constructive sale will be treated as
short-term capital gain or loss and 60 percent of such gain or loss will be
treated as long-term capital gain or loss. The amount of any capital gain or
loss actually realized by the Fund in a subsequent sale or other disposition of
these futures contracts will be adjusted to reflect any capital gain or loss
taken into account by the Fund in a prior year as a result of the constructive
sale of the contract. Notwithstanding the rules described above, with respect
to futures contracts which are part of futures contract sales, and in certain
other situations, the Fund may make an election which may have the effect of
exempting all or a part of those identified future contracts from being treated
for federal income tax purposes as sold on the last business day of the Fund's
taxable year; all or part of any gain or loss otherwise realized by the Fund on
any closing transaction may be deferred until all of the Fund's positions with
respect to the futures contract sales are closed; and, all or part of any gain
or loss may be treated as short-term capital gain or loss.
C-2
<PAGE>
Under the Federal income tax provisions applicable to regulated investment
companies, at least 90% of the Fund's annual gross income must be derived from
dividends, interest, payments with respect to loans of securities, and gains
from the sale or other disposition of securities ("qualifying income"). Under
the Internal Revenue Code of 1986, as amended (the "Code"), the Fund may include
gains from forward contracts in determining qualifying income. In addition, in
order that the Fund continue to qualify as a regulated investment company for
Federal income tax purposes, less than 30% of its gross income for any year must
be derived from gains realized on the sale or other disposition of securities
held by the Fund for less than three months. For this purpose, the Fund will
treat gains realized on the closing out of futures contracts as gains derived
from the sale of securities. This treatment could, under certain circumstances,
require the Fund to defer the closing out of futures contracts until after three
months from the date the fund acquired the contracts, even if it would be more
advantageous to close out the contracts prior to that time. However, under the
Code, a special rule is provided with respect to certain hedging transactions
which has the effect of allowing the Fund to engage in such short-term
transactions in limited circumstances. Any gains realized by the Fund as a
result of the constructive sales of futures contacts held by the Fund at the end
of its taxable year, as described in the preceding paragraph, will in all
instances be treated as derived from the sale of securities held for three
months or more, regardless of the actual period for which the Fund has held the
futures contracts at the end of the year.
C-3
<PAGE>
APPENDIX D
BRADY BONDS
Brady Bonds are debt securities issued under the framework of the Brady
Plan, an initiative announced by U.S. Treasury Secretary Nicholas F. Brady in
1989 as a mechanism for debtor nations to restructure their outstanding external
indebtedness. The Brady Plan contemplates, among other things, the adoption by
debtor nations of certain economic reforms and the exchange of commercial bank
debt. Under the Brady Plan framework, a debtor nation negotiates with its
existing bank lenders as well as the World Bank and/or the IMF. The World Bank
and/or the IMF support the restructuring by providing funds pursuant to loan
agreements or other arrangements which enable the debtor nation to collateralize
the new Brady Bonds or to replenish reserves used to reduce outstanding bank
debt. Under these loan agreements or other arrangements with the World Bank or
the IMF, debtor nations have been required to agree to the implementation of
certain domestic monetary and fiscal reforms. The Brady Plan only sets forth
general guiding principles for economic reform and debt reduction, emphasizing
that solutions must be negotiated on a case-by-case basis between debtor nations
and their creditors. Brady Bonds have been issued only recently, and
accordingly do not have a long payment history. Agreements implemented under
the Brady Plan to date are designed to achieve debt and debt-service reduction
through specific options negotiated by a debtor nation with its creditors. As a
result, the financial packages offered by each country differ. The types of
options have included the exchange of outstanding commercial bank debt for bonds
issued at 100% of face value of such debt, and bonds bearing an interest rate
which increases over time and the advancement of the new money for bonds. The
principal of certain Brady Bonds has been collateralized by Treasury zero coupon
bonds with a maturity equal to the final maturity of such Brady Bonds.
Collateral purchases are financed by the IMF, the World Bank and the debtor
nations' reserves. In addition, the first two or three interest payments on
certain types of Brady Bonds may be collateralized by cash or securities agreed
upon by creditors.
D-1
<PAGE>
PART C
OTHER INFORMATION
ITEM 23. EXHIBITS
The exhibits to this Registration Statement are listed in the Exhibit
Index hereto and are incorporated herein by reference.
ITEM 24. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH THE DEPOSITOR OR
REGISTRANT
Wholly-owned subsidiary of Minnesota Mutual Companies, Inc.:
Securian Holding Company (Delaware)
Wholly-owned subsidiary of Securian Holding Company:
Securian Financial Group, Inc. (Delaware)
Capitol City Property Management, Inc.
Wholly-owned subsidiary of Securian Financial Group, Inc.
Minnesota Life Insurance Company
HomePlus Insurance Agency, Inc.
Wholly-owned subsidiaries of Minnesota Life Insurance Company:
Advantus Capital Management, Inc.
HomePlus Insurance Company
Northstar Life Insurance Company (New York)
The Ministers Life Insurance Company
Robert Street Energy, Inc.
Personal Finance Company (Delaware)
Enterprise Holding Corporation
Wholly-owned subsidiary of Advantus Capital Management, Inc.:
Ascend Financial Services, Inc.
Wholly-owned subsidiaries of Ascend Financial Services, Inc.:
MIMLIC Insurance Agency of Massachusetts, Inc. (Massachusetts)
MIMLIC Insurance Agency of Texas, Inc. (Texas)
Ascend Insurance Agency of Nevada, Inc. (Nevada)
Ascend Insurance Agency of Oklahoma, Inc. (Oklahoma)
Worthmark Financial Services, LLC (Delaware)
Wholly-owned subsidiaries of Enterprise Holding Corporation:
Financial Ink Corporation
Oakleaf Service Corporationn
Concepts in Marketing Research Corporation
Lafayette Litho, Inc.
DataPlan Securities, Inc. (Ohio)
MIMLIC Imperial Corporation
MIMLIC Funding, Inc.
MCM Funding 1997-1, Inc.
MCM Funding 1998-1, Inc.
<PAGE>
Ministers Life Resources, Inc.
Wedgewood Valley Golf, Inc.
Wholly-owned subsidiary of HomePlus Insurance Agency, Inc.:
HomePlus Insurance Agency of Texas, Inc. (Texas)
Majority-owned subsidiary of Ascend Financial Services, Inc.:
MIMLIC Insurance Agency of Ohio, Inc. (Ohio)
Open-end registered investment company offering shares solely to separate
accounts of Minnesota Life Insurance Company:
Advantus Series Fund, Inc.
Fifty percent-owned subsidiary of MIMLIC Imperial Corporation:
C.R.I. Securities, Inc.
Majority-owned subsidiaries of Minnesota Life Insurance Company:
MIMLIC Life Insurance Company (Arizona)
Advantus Enterprise Fund, Inc.
Advantus International Balanced Fund, Inc.
Advantus Venture Fund, Inc.
Advantus Real Estate Securities Fund, Inc.
Less than majority owned, but greater than 25% owned, subsidiaries of Minnesota
Life Insurance Company:
Advantus Cornerstone Fund, Inc.
Less than 25% owned subsidiaries of Minnesota Life Insurance Company:
Advantus Horizon Fund, Inc.
Advantus Spectrum Fund, Inc.
Advantus Mortgage Securities Fund, Inc.
Advantus Bond Fund, Inc.
Advantus Money Market Fund, Inc.
Advantus Index 500 Fund, Inc.
Unless indicated otherwise parenthetically, each of the above corporations is a
Minnesota corporation.
ITEM 25. INDEMNIFICATION
The Articles of Incorporation and Bylaws of the Registrant provide
that the Registrant shall indemnify such persons, for such expenses and
liabilities, in such manner, under 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 by reason of the former or
<PAGE>
present official capacity of the person against judgments, penalties, fines,
settlements and reasonable expenses, including attorneys' fees and
disbursements, incurred by the person in connection with the proceeding, if,
with respect to the acts or omissions of the person complained of in the
proceeding, the person has not been indemnified by another organization for the
same judgments, penalties, fines, settlements and reasonable expenses incurred
by the person in connection with the proceeding with respect to the same acts or
omissions; acted in good faith; received no improper personal benefit and the
Minnesota Statute dealing with directors' conflicts of interest, if applicable,
has been satisfied; in the case of a criminal proceeding, had no reasonable
cause to believe the conduct was unlawful; and reasonably believed that the
conduct was in the best interests of the corporation or, in certain
circumstances, reasonably believed that the conduct was not opposed to the best
interests of the corporation.
Insofar as indemnification for liability arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the Registrant pursuant to the foregoing provisions, or otherwise, the
Registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a director, officer or controlling person of the Registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and the Registrant will be governed by the final
adjudication of such issue.
ITEM 26. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER
See "Managing the Portfolios" in the Prospectus and "Investment
Advisory and Other Services" in the Statement of Additional Information for
information regarding the business of the Adviser and each of the Subadvisers.
For information as to the business, profession, vocation or employment of a
substantial nature of each director, officer or partner of the Adviser and each
of the Subadvisers, reference is made to the respective Form ADV, as amended,
filed under the Investment Advisers Act of 1940, each of which is herein
incorporated by reference.
<PAGE>
ITEM 27. PRINCIPAL UNDERWRITERS
Not applicable.
ITEM 28. LOCATION OF ACCOUNTS AND RECORDS
The physical possession of the accounts, books and other documents
required to be maintained by Section 31(a) of the Investment Company Act of
1940 and Rules 31a-1 to 31a-3 promulgated thereunder is maintained by
Minnesota Life, 400 Robert Street North, St. Paul, Minnesota 55101-2098;
except that the physical possession of certain accounts, books and other
documents related to the custody of the Registrant's securities is maintained
by: (a) Norwest Bank Minnesota, N.A., 733 Marquette Avenue, Minneapolis,
Minnesota 55479, as to the Growth, Money Market, Asset Allocation, Index
500, Capital Appreciation, Small Company Growth, Value Stock, Small Company
Value, Index 400 Mid-Cap, Macro-Cap Value, Micro-Cap Growth and Real Estate
Securities Portfolios; (b) Bankers Trust Company, 280 Park Avenue, New York,
New York 10017, as to the Bond, International Stock, Mortgage Securities, the
three Maturing Government Bond Portfolios and the Global Bond Portfolios.
ITEM 29. MANAGEMENT SERVICES
Not applicable.
ITEM 30. UNDERTAKINGS
(a) Not applicable.
(b) Not applicable.
(c) The Registrant hereby undertakes to furnish, upon request and without
charge to each person to whom a prospectus is delivered, a copy of the
Registrant's latest annual report to shareholders containing the information
called for by Item 5A.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the Investment
Company Act of 1940 the Registrant certifies that it meets all of the
requirements for effectiveness of this Registration Statement pursuant to Rule
485(a) under the Securities 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 2nd day of March, 2000.
ADVANTUS SERIES FUND, INC.
By
----------------------------------
William N. Westhoff, President
Pursuant to the requirements of the Securities Act of 1933, this Post-Effective
Amendment to the Registration Statement has been signed below by the following
persons in the capacities and on the date indicated.
President (principal March 2, 2000
- ---------------------------- executive officer)
William N. Westhoff and Director
Director and Treasurer March 2, 2000
- ---------------------------- (principal financial
Frederick P. Feuerherm and accounting officer)
Ralph D. Ebbott* Director)
- ---------------------------- ) By_______________________
Ralph D. Ebbott ) William N. Westhoff
) Attorney-in-Fact
Charles E. Arner* Director)
- ---------------------------- ) Dated: March 2, 2000
Charles E. Arner )
)
Ellen S. Berscheid* Director)
- ---------------------------- )
Ellen S. Berscheid
_______________
*Registrant's director executing power of attorney dated October 22, 1998, a
copy of which is filed herewith.
<PAGE>
ADVANTUS SERIES FUND, INC.
EXHIBIT INDEX
Exhibit Number and Description:
(a) Articles of Incorporation.
(a)(1) Articles of Correction.
(b)(1) Bylaws - Previously filed as Exhibit 24(b)(2)(i) to
Registrant's Form N-1A, File Number 2-96990, Post-Effective
Amendment Number 17, is hereby incorporated by reference.
(b)(2) Amendment to the Bylaws - Previously filed as Exhibit
24(b)(2)(ii) to Registrant's Form N-1A, File Number 2-96990,
Post-Effective Amendment Number 17, is hereby incorporated by
reference.
(b)(3) Amendment to the Bylaws.
(c) Not applicable.
(d)(1) Investment Advisory Agreement between the Registrant and
Advantus Capital Management, Inc.
(d)(2) Investment Sub-Advisory Agreement between Advantus Capital
Management, Inc. and Winslow Capital Management, Inc. -
Previously filed as Exhibit 24(b)(5)(B) to Registrant's Form
N-1A, File Number 2-96990, Post-Effective Amendment Number 17,
is hereby incorporated by reference.
(d)(3) Investment Sub-Advisory Agreement between Advantus Capital
Management, Inc. and Templeton Investment Counsel, Inc. -
Previously filed as Exhibit 24(b)(5)(C) to Registrant's Form
N-1A, File Number 2-96990, Post-Effective Amendment Number 17,
is hereby incorporated by reference.
(d)(3)(a) Amendment No.1 to the Investment Sub-Advisory Agreement.
(d)(4) Investment Sub-Advisory Agreement between Advantus Capital
Management, Inc. and J.P. Morgan Investment Management Inc. -
Previously filed as Exhibit 24(b)(5)(L) to Registrant's Form
N-1A, File Number 2-96990, Post-Effective Amendment Number 15,
is hereby incorporated by reference.
(d)(5) Investment Sub-Advisory Agreement between Advantus Capital
Management, Inc. and Wall Street Associates - Previously filed
as Exhibit 24(b)(5)(N), File Number 2-96990, Post-Effective
Amendment Number 15, is hereby incorporated by reference.
(d)(6) Investment Sub-Advisory Agreement between Advantus Capital
Management, Inc. and Julius Baer Investment Management Inc. -
Previously filed as Exhibit 24(b)(5)(F), File Number 2-96990,
Post-Effective Amendment Number 18, is hereby incorporated by
reference.
(d)(7) Investment Sub-Advisory Agreement between Advantus Capital
Management, Inc. and Credit Suisse Asset Management LLC.
(d)(8) Investment Sub-Advisory Agreement between Advantus Capital
Management, Inc. and State Street Research & Management
Company.
(e) Underwriting and Distribution Agreement between the Fund and
Advantus Series Fund, Inc.
<PAGE>
(f) Not applicable.
(g)(1)(A) Form of Custodian Agreement between the Registrant and Norwest
Bank Minnesota, N.A.
(g)(2)(A) Form of Custodian Agreement between the Registrant and Bankers
Trust Company - Previously filed as Exhibit 24(b)(8)(D) to
Registrant's N-1A, File Number 2-96990, Post-Effective
Amendment Number 15, is hereby incorporated by reference.
(g)(2)(B) Cash Management Addendum to the Custodian Agreement between
the Registrant and Bankers Trust Company - previously filed as
Exhibit (g)(3)(B) to Registrant's N-1A, File Number 2-96990,
Post-Effective Amendment Number 20, is herby incorporated
by reference.
(g)(2)(c) Addendum Number Two to the Custodian Agreement between the
Registrant and Bankers Trust Company previously filed as
Exhibit (g)(3)(c) to Registrants N-1A, File Number 2-96990,
Post-effective Amendment Number 20, is hereby incorporated by
referance.
(g)(2)(D) Schedule A, as amended, to the Custodian Agreement.
(h)(1) Form of Service Agreement between MIMLIC Asset Management
Company and Wilshire Associates - Previously filed as Exhibit
24(b)(9) to Registrant's Form N-1A, File Number 2-96990,
<PAGE>
Post-Effective Amendment Number 17, is hereby incorporated by
reference.
(h)(2) Administrative Service Agreement between MIMLIC Series Fund,
Inc. and The Minnesota Mutual Life Insurance Company.
(h)(3) Participation Agreement
(h)(4) Fund Shareholder.
(h)(5) Service Agreement.
(i) Opinion and Consent of Dorsey & Whitney LLP.-to be added by
subsequent amendment.
(j) Consent of KPMG LLP. to be added by subsequent
amendment.
(k) Not applicable.
(l) Form of Letter of Investment Intent - Previously filed as
Exhibit 24(b)(13) to Registrant's Form N-1A, File Number
2-96990, Post-Effective Amendment Number 17, is hereby
incorporated by reference.
(m) Rule 12b-1 Distribution Plan.
(n) Not applicable.
<PAGE>
(p) Code of Ethics.
(q) Power of Attorney to sign Registration Statement executed by
Directors of Registrant.
<PAGE>
RESTATED ARTICLES OF INCORPORATION
OF
ADVANTUS SERIES FUND, INC.
The Articles of Incorporation, as amended, of ADVANTUS Series Fund, Inc.
(the "Corporation") are hereby amended and restated in their entirety pursuant
to Chapter 302A of the Minnesota Business Corporation Act to read as set forth
below.
ARTICLE I. NAME
----
The name of the Corporation (hereinafter referred to as the "Corporation")
is ADVANTUS Series Fund, Inc.
ARTICLE II. REGISTERED OFFICE
-----------------
The address of the registered office of the Corporation is 400 Robert
Street North, St. Paul, Minnesota 55101-2098.
ARTICLE III. PURPOSES AND POWERS
-------------------
The Corporation shall have general business purposes and shall have
unlimited power to engage in and do any lawful act concerning any and all lawful
business for which corporations may be organized under Chapter 302A of the
Minnesota Business Corporation Act (the "MBCA"). Without limiting the generality
of the foregoing, the Corporation shall have specific power:
(A) to conduct, operate and carry on the business of an "open-end"
management investment company pursuant to applicable state and federal
regulatory statutes, and exercise all the powers necessary and appropriate to
the conduct of such operations;
(B) to purchase, subscribe for, invest in or otherwise acquire, and to own,
hold, pledge, mortgage, hypothecate, sell, possess, transfer or otherwise
dispose of, or turn to account or realize upon, and generally deal in, all forms
of securities of every kind, nature, character, type and form, secured and
unsecured, issued or to be issued, by any corporation, company, partnership
(limited or general), association, trust, entity or person, public or private,
whether organized under the laws of the United States, or any state,
commonwealth, territory or possession thereof, or organized under the laws of
any foreign country, or any state, province, territory or possession thereof, or
issued or to be issued by the United States government or any agency or
instrumentality thereof;
(C) to issue and sell shares of its own capital stock in such amounts and
on such terms and conditions, for such purposes and for such amount or kind of
consideration now or hereafter permitted by the MBCA and by these Restated
Articles of Incorporation, as its Board of Directors may determine;
<PAGE>
(D) to redeem, purchase or otherwise acquire, hold, dispose of, resell,
transfer or reissue (all without the vote or consent of the stockholders of the
Corporation) shares of its capital stock, in any manner and to the extent now or
hereafter permitted by the MBCA and by these Restated Articles of Incorporation;
and
(E) to do any and all such further acts or things and to exercise any and
all such further powers or rights as may be necessary, incidental, relative,
conducive, appropriate or desirable for the accomplishment, carrying out or
attainment of any of the foregoing purposes or objects.
In the above provisions of this Article III, purposes shall also be
construed as powers and powers shall also be construed as purposes, and the
enumeration of specific purposes or powers shall not be construed to limit other
statements of purposes or to limit purposes or powers which the Corporation may
otherwise have under applicable law, all of the same being separate and
cumulative, and all of the same may be carried on, promoted and pursued,
transacted or exercised in any place whatsoever.
ARTICLE IV. CAPITAL STOCK
-------------
The total number of shares of capital stock which the Corporation shall
have authority to issue is one hundred trillion (100,000,000,000,000) shares of
capital stock of the par value of one cent ($0.01) per share. Such capital stock
shall be allocated and designated in classes of common shares as follows:
100,000,000,000 shares may be issued in the class designated "Class A
Common Shares,"
100,000,000,000 shares may be issued in the class designated "Class B
Common Shares,"
100,000,000,000 shares may be issued in the class designated "Class C
Common Shares,"
100,000,000,000 shares may be issued in the class designated "Class D
Common Shares,"
100,000,000,000 shares may be issued in the class designated "Class E
Common Shares,"
100,000,000,000 shares may be issued in the class designated "Class F
Common Shares,"
100,000,000,000 shares may be issued in the class designated "Class G
Common Shares,"
100,000,000,000 shares may be issued in the class designated "Class H
Common Shares,"
100,000,000,000 shares may be issued in the class designated "Class I
Common Shares,"
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<PAGE>
100,000,000,000 shares may be issued in the class designated "Class K
Common Shares,"
100,000,000,000 shares may be issued in the class designated "Class L
Common Shares,"
100,000,000,000 shares may be issued in the class designated "Class M
Common Shares,"
100,000,000,000 shares may be issued in the class designated "Class N
Common Shares,"
100,000,000,000 shares may be issued in the class designated "Class O
Common Shares,"
100,000,000,000 shares may be issued in the class designated "Class P
Common Shares,"
100,000,000,000 shares may be issued in the class designated "Class Q
Common Shares,"
100,000,000,000 shares may be issued in the class designated "Class S
Common Shares,"
100,000,000,000 shares may be issued in the class designated "Class T
Common Shares," and
100,000,000,000 shares may be issued in the class designated "Class V
Common Shares."
The balance of the authorized shares may be issued in such classes with
such designations, preferences and relative participating, optional or other
special rights, or qualifications, limitations or restrictions thereof, as shall
be stated or expressed in a resolution or resolutions providing for the issue of
any classes of common shares as may be adopted from time to time by the Board of
Directors of the Corporation pursuant to the authority hereby vested in such
Board of Directors. The Class A Common Shares, Class B Common Shares, Class C
Common Shares, Class D Common Shares, Class E Common Shares, Class F Common
Shares, Class G Common Shares, Class H Common Shares, Class I Common Shares,
Class K Common Shares, Class L Common Shares, Class M Common Shares, Class N
Common Shares, Class O Common Shares, Class P Common Shares, Class Q Common
Shares, Class S Common Shares, Class T Common Shares and Class V Common Shares
each evidence, and each other classes of common shares which the Board of
Directors may establish, as provided herein, may evidence if the Board of
Directors shall so determine by resolution, an interest in a separate and
distinct portion of the Corporation's assets, which shall take the form of a
separate portfolio of investment securities, cash and other assets. Authority to
establish such separate portfolios is hereby vested in the Board of Directors of
the Corporation, and such separate portfolios may be established by the Board of
Directors without authorization or approval of the holders of any class of
shares of the Corporation.
(A) The Corporation may issue shares of stock in fractional denominations
to the same extent as its whole shares, and shares in fractional denominations
shall be shares of stock
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<PAGE>
having proportionately, to the respective fractions represented thereby, all the
rights of whole shares, including without limitation, the right to vote, the
right to receive dividends and distributions and the right to participate upon
liquidation of the Corporation, but excluding the right to receive a stock
certificate representing fractional shares.
(B) The holders of each share of stock of the Corporation shall be entitled
to one vote for each full share, and a fractional vote for each fractional
share, of stock, irrespective of the class, then standing in his or her name on
the books of the Corporation. On any matter that is submitted to a vote of the
shareholders, all shares of the Corporation then issued and outstanding and
entitled to vote shall be voted in the aggregate and not by class except that no
class may vote on the submission of an investment advisory contract or on a
change in investment policy as it may pertain to another class. Matters shall be
approved by a majority of the outstanding voting securities present and entitled
to vote in person or by proxy unless a higher proportion is required by the MBCA
or the Investment Company Act of 1940. If these Restated Articles of
Incorporation, the MBCA or the Investment Company Act of 1940, and any rules or
regulations issued thereunder, require a matter to be approved by a particular
class as well as by the shareholders as a whole, such matters must receive the
same affirmative vote of the shareholders of that class as is required for
action by all the shareholders.
(C) Unless otherwise provided in the resolution of the Board of Directors
providing for the issuance of shares in any new class or classes not yet
designated in this Article IV, each class of stock of the Corporation shall have
the following powers, preferences and rights, and qualifications, restrictions,
and limitations thereof:
(1) ASSETS BELONGING TO A CLASS. All consideration received by the
Corporation for the issue or sale of shares of a particular class, together with
all assets in which such consideration is invested or reinvested, all income,
earnings, profits and proceeds thereof, including any proceeds derived from the
sale, exchange or liquidation of such assets, and any funds or payments derived
from any reinvestment of such proceeds in whatever form the same may be, shall
irrevocably belong to that class for all purposes, subject only to the rights of
creditors, and shall be so recorded upon the books and accounts of the
Corporation. Such consideration, assets, income, earnings, profits and proceeds
thereof, including any proceeds derived from the sale, exchange or liquidation
of such assets, and any funds or payments derived from any reinvestment of such
proceeds, in whatever form the same may be, together with any General Items (as
defined below) allocated to that class as provided in the following sentence,
are herein referred to as "assets belonging to" that class. In the event that
there are any assets, income, earnings, profits, proceeds thereof, funds or
payments which are not readily identifiable as belonging to any particular class
(collectively "General Items"), such General Items shall be allocated by or
under the supervision of the Board of Directors to and among any one or more of
the classes established and designated from time to time in such manner and on
such basis as the Board of Directors, in its sole discretion, deems fair and
equitable, and any General Items so allocated to a particular class shall belong
to that class. Each such allocation by the Board of Directors shall be
conclusive and binding for all purposes.
(2) LIABILITIES BELONGING TO A CLASS. The assets belonging to each
particular class shall be charged with the liabilities of the Corporation in
respect of that class and all expenses, costs, charges and reserves attributable
to that class, and any general liabilities,
-4-
<PAGE>
expenses, costs, charges or reserves of the Corporation which are not readily
identifiable as belonging to any particular class shall be allocated and charged
by or under the supervision of the Board of Directors to and among any one or
more of the classes established and designated from time to time in such manner
and on such basis as the Board of Directors, in its sole discretion, deems fair
and equitable. The liabilities, expenses, costs, charges and reserves allocated
and so charged to a class are herein referred to as "liabilities belonging to"
that class. Each allocation of liabilities, expenses, costs, charges and
reserves by the Board of Directors shall be conclusive and binding for all
purposes.
(3) DIVIDENDS. The Board of Directors may from time to time declare and
pay dividends or distributions, in stock or in cash, on any or all classes of
stock, the amount of such dividends and distributions and the payment of them
being wholly in the discretion of the Board of Directors. Dividends may be
declared daily or otherwise pursuant to a standing resolution or resolutions
adopted only once or with such frequency as the Board of Directors may
determine, after providing for actual and accrued liabilities belonging to that
class. All dividends or distributions on shares of a particular class shall be
paid only out of assets determined by the Board of Directors as belonging to
such class. The Board of Directors shall have the power, in its sole discretion,
to distribute in any fiscal year as dividends, including dividends designated in
whole or in part as capital gains distributions, amounts sufficient, in the
opinion of the Board of Directors, to enable the Corporation to qualify as a
regulated investment company under the Internal Revenue Code of 1986, as
amended, or any successor or comparable statute thereto, and regulations
promulgated thereunder, and to avoid liability for the Corporation for federal
income tax in respect of that year. In furtherance, and not in limitation of the
foregoing, in the event that a class of shares has a net capital loss for a
fiscal year, and to the extent that a net capital loss for a fiscal year offsets
net capital gains from one or more of the other classes, the amount to be deemed
available for distribution to the class or classes with the net capital gain may
be reduced by the amount offset.
(4) LIQUIDATION. In the event of the liquidation of the Corporation or
of the assets attributable to a particular class, the shareholders of each class
that has been established and designated and is being liquidated shall be
entitled to receive, as a class, when and as declared by the Board of Directors,
the excess of the assets belonging to that class over the liabilities belonging
to that class. The holders of shares of any class shall not be entitled thereby
to any distribution upon liquidation of any other class. The assets so
distributable to the shareholders of any particular class shall be distributed
among such shareholders in proportion to the number of shares of that class held
by them and recorded on the books of the Corporation. The liquidation of assets
attributable to any particular class in which there are shares then outstanding
may be authorized by a vote of a majority of the Board of Directors then in
office. In the event that there are any general assets not belonging to any
particular class of stock and available for distribution, such distribution
shall be made to holders of stock of various classes in such proportion as the
Board of Directors determines to be fair and equitable, and such determination
by the Board of Directors shall be conclusive and binding for all purposes.
(5) REDEMPTION. All shares of stock of the Corporation shall have the
redemption rights provided for in Article VIII.
-5-
<PAGE>
(D) The Corporation's shares of stock are issued and sold, and all
persons who shall acquire stock of the Corporation shall acquire the same,
subject to the condition and understanding that the provisions of these Restated
Articles of Incorporation, as from time to time amended, shall be binding upon
them.
ARTICLE V. SHAREHOLDERS
------------
The shareholders of the Corporation:
(A) shall not have the right to cumulate votes for the election of
directors; and
(B) shall have no preemptive right to subscribe for or acquire
securities or rights to purchase securities of any kind, class or series of the
Corporation now or hereafter made.
ARTICLE VI. BOARD OF DIRECTORS
------------------
The business and affairs of the Corporation shall be managed under the
direction of the Board of Directors, which shall have and may exercise all
powers of the Corporation except those powers which are by law, by these
Restated Articles of Incorporation or by the Bylaws of the Corporation conferred
upon or reserved to the shareholders.
(A) In furtherance and not in limitation of the powers conferred by
statute and pursuant to these Restated Articles of Incorporation, the Board of
Directors is expressly authorized to do the following:
(1) to make, adopt, alter, amend and repeal the Bylaws of the
Corporation unless reserved to the shareholders by the Bylaws or by the laws of
the State of Minnesota, subject to the power of the shareholders to adopt,
change or repeal such Bylaws;
(2) to distribute, in its discretion, for any fiscal year (in
the year or in the next fiscal year) as ordinary dividends and as capital gains
distributions, respectively, amounts sufficient to enable the Corporation as a
regulated investment company to avoid any liability for federal income tax in
respect of such year. Any distribution or dividend paid to shareholders from any
capital source shall be accompanied by a written statement showing the source or
sources of such payment;
(3) to authorize, subject to such vote, consent, or approval
of shareholders and other conditions, if any, as may be required by any
applicable statute, rule or regulation, the execution and performance by the
Corporation of any agreement or agreements with any person, corporation,
association, company, trust, partnership (limited or general) or other
organization whereby, subject to the supervision and control of the Board of
Directors, any such other person, corporation, association, company, trust,
partnership (limited or general), or other organization shall render
underwriting, investment advisory and/or related services to the Corporation
(including, if deemed advisable, the management or supervision of the investment
portfolio of
-6-
<PAGE>
the Corporation) upon such terms and conditions as may be provided in such
agreement or agreements;
(4) to allot and authorize the issuance of the authorized but unissued
shares of this Corporation;
(5) to accept or reject subscriptions for shares of any class made
after incorporation; and
(6) to fix the terms, conditions and provisions of and authorize the
issuance of options to purchase or subscribe for shares of any class or classes
including the option price or prices at which shares may be purchased or
subscribed for.
(B) The determination of the Board of Directors with regard to any of the
following matters shall be final and conclusive provided such determination is
made in good faith, and shall be binding upon the Corporation and every holder
of shares of its capital stock, namely, the amount of the assets, obligations,
liabilities and expenses of the Corporation; the amount of the net income of the
Corporation from dividends and interest for any period and the amount of assets
at any time legally available for the payment of dividends; the amount of paid
in surplus, other surplus, annual or other net profits, or net assets in excess
of capital, undivided profits, or excess of profits over losses on sales of
securities; the amount, purpose, time of creation, increase or decrease,
alteration or cancellation of any reserves or charges and the propriety thereof
(whether or not any obligation or liability for which such reserves or charges
shall have been created shall have been paid or discharged); the market value,
or any sale, bid or asked price to be applied in determining the market value,
of any security owned or held by the Corporation; the fair value of any other
asset owned by the Corporation; the number of shares of the Corporation issued
or issuable; any matter relating to the acquisition, holding and disposition of
securities and other assets by the Corporation; and any question as to whether
any transaction constitutes a purchase of securities on margin, a short sale of
securities, or an underwriting of the sale of, or participation in any
underwriting or selling group in connection with the public distribution of any
securities.
(C) The Board of Directors and the shareholders of the Corporation may
adopt, amend, affirm or reject investment policies and restrictions upon
investment or the use of assets of the Corporation; and may designate those
policies as fundamental and not subject to change other than by a vote of a
majority of its outstanding voting securities, as such phrase is defined in the
Investment Company Act of 1940.
(D) Any action which might be taken at a meeting of the Board of Directors,
or any duly constituted committee thereof, may be taken without a meeting if
done in writing and signed by a majority of the directors or committee members.
(E) The number of directors of the Corporation shall be five (5), which
number may be increased or decreased pursuant to the Bylaws of the Corporation
but shall never be less than the minimum number required by the MBCA.
-7-
<PAGE>
(F) The Board of Directors shall consist of those persons elected to that
office by the shareholders. The members of the Board of Directors shall be
elected by ballot at an annual meeting of the shareholders. Each director shall
serve until the next annual meeting of the shareholders and until a successor is
duly elected and qualified.
ARTICLE VII. INDEMNIFICATION
---------------
The Corporation shall indemnify such persons, for such expenses and
liabilities, in such manner, under such circumstances, and to the full extent
permitted by Section 302A.521 of the MBCA, as now enacted or hereafter amended,
provided, however, 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.
ARTICLE VIII. REDEMPTION
----------
(A) Each holder of shares of capital stock of the Corporation shall be
entitled to require the Corporation to redeem all or any part of the shares of
capital stock of the Corporation standing in the name of such holder on the
books of the Corporation, and all shares of capital stock issued by the
Corporation shall be subject to redemption by the Corporation, at the redemption
price of such shares as in effect from time to time as may be determined by the
Board of Directors of the Corporation in accordance with the provisions hereof,
subject to the right of the Board of Directors of the Corporation to suspend the
right of redemption of shares of capital stock of the Corporation or postpone
the date of payment of such redemption price in accordance with the provisions
of applicable law. The redemption price of shares of any class of capital stock
of the Corporation shall be the net asset value of such class as determined by,
or pursuant to the direction of, the Board of Directors of the Corporation from
time to time in accordance with the provisions of applicable law, less such
redemption fee or other charge, if any, as may be fixed by resolution of the
Board of Directors of the Corporation. Payment of the redemption price shall be
made in cash or by check on current funds, or in assets other than cash, by the
Corporation at such time and in such manner as may be determined from time to
time by the Board of Directors of the Corporation.
(B) If the Board of Directors determines that the net asset value per share
of any class or classes of the Corporation's stock should remain constant, the
Corporation may declare, pay and credit as dividends daily the net income (which
may include or give effect to realized and unrealized gains and losses, as
determined in accordance with the Corporation's accounting and portfolio
valuation policies) of the Corporation allocated to that class. If the amount so
determined for any day is negative, the Corporation may, without the payment of
monetary compensation but in consideration of the interest of the Corporation
and its stockholders in maintaining a constant net asset value per share of the
class, may declare a reverse share split pro rata among all the stockholders of
record of shares of the class at the time of such redemption such number of
outstanding shares of the class, or fractions thereof, as shall be required to
reduce the aggregate number of outstanding shares of the class in order to
permit the net asset value per share of the class to remain constant.
-8-
<PAGE>
ARTICLE IX. AMENDMENT
---------
The Corporation reserves the right to alter, amend, or repeal any
provisions contained in these Restated Articles of Incorporation from time to
time, including any amendment which alters the contract rights of any
outstanding stock, at any time in the manner now or hereafter prescribed by the
laws of the State of Minnesota, and all rights conferred herein upon the
Corporation's stockholders, directors and officers are granted subject to that
reservation.
ARTICLE X. PERPETUAL EXISTENCE
-------------------
The duration of the Corporation shall be perpetual.
-9-
<PAGE>
ADVANTUS SERIES FUND, INC.
ARTICLES OF CORRECTION
FILED PURSUANT TO MINNESOTA STATUTES, SECTION 5.16,
TO
RESTATED ARTICLES OF INCORPORATION
These Articles of Correction are being filed pursuant to Minnesota
Statutes, Section 5.16. Pursuant to Subdivision 2 of said Section 5.16, the
undersigned hereby states as follows:
1. The entity which filed the instrument to be corrected is ADVANTUS Series
Fund, Inc. (the "Company").
2. The instrument to be corrected is the Company's Restated Articles of
Incorporation, which were filed with the secretary of state on April 23, 1999.
3. The error to be corrected is the inadvertent omission from Article X of
such Restated Articles of Incorporation of a paragraph previously added to the
Company's articles of incorporation by means of an amendment filed with the
secretary of state on May 24, 1991.
4. The text of said Article X is hereby corrected to read in its entirety
as follows:
"The duration of the Corporation shall be perpetual.
"To the fullest extent permitted by Minnesota Statutes,
Chapter 302A, as the same exists or may hereafter be amended (except as
prohibited by the Investment Company Act of 1940, as amended), a
director of this corporation shall not be liable to this corporation or
its shareholders for monetary damages for breach of fiduciary duty as a
director."
As required by Minnesota Statutes, Section 5.16, Subdivision 1, these
Articles of Correction have been signed on behalf of the Company by an
authorized person. The instrument referred to in paragraph 2 above, as corrected
by these Articles of Correction, shall be deemed to have been filed on the date
the original instrument was filed to the extent provided in Minnesota Statutes,
Section 5.16, Subdivision 4.
January 5, 2000. ADVANTUS SERIES FUND, INC.
By:/s/ Michael J. Radmer
Michael J. Radmer, Secretary
<PAGE>
AMENDMENT OF BYLAWS
OF
ADVANTUS SERIES FUND, INC.
Effective April 21, 1999, Article I, Section 1.01 of the Bylaws of Advantus
Series Fund, Inc., is hereby amended to read in its entirety as follows:
Section 1.01 NAME The name of the corporation is Advantus Series Fund,
Inc. The name of the class represented by the corporation's class A
common shares shall be "Growth Portfolio"; the name of the class
represented by the corporation's class B common shares shall be "Bond
Portfolio"; the name of the class represented by the corporation's
class C common shares shall be "Money Market Portfolio"; the name of
the class represented by the corporation's class D common shares shall
be "Asset Allocation Portfolio"; the name of the class represented by
the corporation's class E common shares shall be "Mortgage Securities
Portfolio"; the name of the class represented by the corporation's
class F common shares shall be "Index 500 Portfolio"; the name of the
class represented by the corporation's class G common shares shall be
"Capital Appreciation Portfolio"; the name of the class represented by
the corporation's class H common shares shall be "International Stock
Portfolio"; the name of the class represented by the corporation's
class I common shares shall be "Small Company Growth Portfolio:; the
name of the class represented by the corporation's class K common
shares shall be "Maturing Government Bond 2002 Portfolio"; the name of
the class represented by the corporation's class L common shares shall
be "Maturing Government Bond 2006 Portfolio"; the name of the class
represented by the corporation's class M common shares shall be the
"Maturing Government Bond 2010 Portfolio"; the name of the class
represented by the corporation's class N common shares shall be "Value
Stock Portfolio"; the name of the class represented by the
corporation's class O common shares shall be "Macro-Cap Value
Portfolio"; the name of the class represented by the corporation's
class P common shares shall be "Index 400 Mid-Cap Portfolio"; the name
of the class represented by the corporation's class Q common shares
shall be "Small Company Value Portfolio"; the name of the class
represented by the corporation's class S common shares shall be
"Micro-Cap Growth Portfolio"; the name of the class represented by the
corporation's class T common shares shall be "Global Bond Portfolio";
the name of the class represented by the corporation's class V common
shares shall be "Real Estate Securities Portfolio".
<PAGE>
AMENDMENT OF BYLAWS
OF
ADVANTUS SERIES FUND, INC.
Effective February 10, 2000, Article II, Section 2.06 of the Bylaws of Advantus
Series Fund, Inc., is hereby amended to read in its entirety as follows:
SECTION 2.06. VOTING - PROXIES. The right to vote by proxy
shall be governed by the relevant provisions of the Minnesota Statutes,
as the same may be amended form time to time.
<PAGE>
INVESTMENT ADVISORY AGREEMENT
THIS AGREEMENT, made this 1st day of May, 2000, by and between Advantus
Series Fund, Inc., a Minnesota corporation (the "Fund") and Advantus Capital
Management, Inc., a Minnesota corporation ("Adviser");
WITNESSETH:
WHEREAS, the Fund is engaged in business as a diversified open-end
management investment company registered as such under the Investment Company
Act of 1940 (the "Investment Company Act") and offers for sale distinct series
of shares of common stock (each a "Portfolio"), each of which Portfolios pursues
its investment objectives through separate policies;
WHEREAS, the Adviser is engaged in rendering investment advisory services
and is registered as an investment adviser under the Investment Advisers Act of
1940;
WHEREAS, the Fund desires and intends to have one or more investment
advisers ("Sub-Advisers") provide investment advisory and portfolio management
services with respect to the Portfolios other than those Portfolios managed by
the Adviser; and
WHEREAS, the Fund desires to appoint the Adviser to provide investment
advisory and management services to the Fund and each Portfolio as now exists
and as hereafter may be established in the manner and on the terms hereinafter
set forth, and the Adviser is willing to furnish such services.
<PAGE>
NOW THEREFORE, in consideration of the premises and the mutual covenants
herein contained, the parties do hereby agree as follows:
Section 1. APPOINTMENT OF ADVISER
The Fund appoints the Adviser to act as the investment adviser to and
manager of the Fund and the Portfolios, to manage the investment and
reinvestment of the assets of those Portfolios and to administer each
Portfolio's affairs subject to the supervision of the Board of Directors of the
Fund on the terms and conditions set forth in this Agreement. The Adviser
accepts such appointment and agrees to render the services and to assume the
obligations set forth in this Agreement.
The Adviser will for all purposes provided in this Agreement be deemed to
be an independent contractor and will have no authority to act for or represent
the Fund in any way or otherwise be deemed an agent of the Fund, unless
otherwise expressly provided or authorized either in this Agreement or in
another writing by the Fund. The Fund retains the ultimate responsibility and
authority for direction and control of the services provided by the Adviser
pursuant to this Agreement.
Section 2. DUTIES OF THE ADVISER
The investment of the assets of the Fund shall at all times be subject to
the applicable provisions of the Articles of Incorporation, the Bylaws, the
Registration Statement, the current Prospectus and the Statement of Additional
Information of the Fund and shall conform to the investment objectives, policies
and restrictions of the Fund as set forth in such documents and as interpreted
from time to time by the Board of Directors of the Fund. Within the framework of
the
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<PAGE>
investment objectives, policies and restrictions of the Fund, the Adviser shall
have the sole and exclusive responsibility for the management of the Fund's
several Portfolios and the making and execution of all investment decisions for
the Fund and those Portfolios which the Adviser manages directly.
In carrying out its obligations to manage the investments and reinvestments
of the assets of the Portfolios of the Fund, the Adviser shall: (1) obtain and
evaluate pertinent economic, statistical, financial and other information
affecting the economy generally and individual companies or industries the
securities of which are included in the Fund's Portfolios or are under
consideration for inclusion therein; (2) formulate and implement a continuous
investment program for each Portfolio consistent with the investment objective
and related investment policies for each such Portfolio as set forth in the
Fund's registration statement, as amended; and (3) take such steps as are
necessary to implement the aforementioned investment programs by purchase and
sale of securities including the placing of orders for such purchases and sales.
The Adviser shall report to the Board of Directors of the Fund regularly at
such times and in such detail as the Board may from time to time determine to be
appropriate in order to permit the Board to determine the adherence of the
Adviser to the investment objectives, policies and restrictions of the Fund and
of each of its Portfolios.
The Adviser shall, at its own expense, furnish the Fund office space and
all necessary office facilities, equipment and personnel for servicing the
investments of the Fund. The Adviser shall arrange for officers or employees of
the Adviser to serve without compensation from the Fund as directors, officers
or employees of the Fund if duly elected or appointed to such positions by the
shareholders, directors or officers of the Fund.
-3-
<PAGE>
The Adviser shall maintain all records necessary in the operation of the
Fund including records pertaining to its shareholders and investments. The
Adviser hereby acknowledges that all such records are the property of the Fund,
and in the event that a transfer of management or investment advisory services
to someone other than the Adviser should ever occur, the Adviser will promptly
and at its own cost, take all steps necessary to segregate such records and
deliver them to the Fund.
Section 3. COMPENSATION FOR SERVICES
In payment for the investment advisory services to be rendered by the
Adviser hereunder, the Fund shall pay to the Adviser as full compensation for
all services hereunder a fee computed separately for each Portfolio at an annual
rate, as set forth in Schedule A to this Agreement.
The amount of the fees as set forth in Schedule A hereto will be deducted
on each business day from the value of each Portfolio of the Fund prior to
determining the Portfolio's net asset value for the day and it shall be
transmitted or credited to the Adviser. The fee shall be based on the net asset
values of all of the issued and outstanding shares of such Portfolio of the Fund
as determined as of the close of each business day pursuant to the Articles of
Incorporation, Bylaws and currently effective Prospectus and Statement of
Additional Information of the Fund.
Section 4. USE OF SUB-ADVISER
(a) Subject to the supervision and direction of the Board of Directors, the
Adviser will provide to the Fund investment management evaluation services with
respect to certain Portfolios principally by performing initial review of
prospective Sub-Advisers for those Portfolios and supervising and monitoring
Sub-Adviser performance thereafter. The Adviser agrees to report to
-4-
<PAGE>
the Fund the results of its evaluation, supervision and monitoring functions and
to keep certain books and records of the Fund in connection therewith. The
Adviser further agrees to communicate performance expectations and evaluations
to the Sub-Advisers, and to recommend to the Fund whether agreements with
Sub-Advisers should be renewed, modified or terminated.
(b) The Adviser is responsible for informing the Sub-Advisers of the
investment objective(s), policies and restrictions of the Portfolio(s) for which
the Sub-Adviser is responsible, for informing or ascertaining that it is aware
of other legal and regulatory responsibilities applicable to the Sub-Adviser
with respect to the Portfolio(s) for which the Sub-Adviser is responsible, and
is not responsible for the specific actions (or inactions) of a Sub-Adviser in
the performance of the duties assigned to it.
(c) The Adviser shall enter into an agreement(s) ("Sub-Advisory Agreement")
with one or more Sub-Advisers for each Portfolio which the Adviser does not
manage directly. The Sub-Advisory Agreement between the Adviser and any
Sub-Adviser shall be subject to the approval of the Fund's Board of Directors.
(d) The Adviser shall be responsible for the fees payable to and shall pay
the Sub-Adviser of each Portfolio the fee as specified in the Sub-Advisory
Agreement relating thereto.
Section 5. ALLOCATION OF EXPENSES
In addition to the fee described in Section 3 hereof, the Fund shall pay
all its costs and expenses which are not assumed by the Adviser. These Fund
expenses include, by way of example, but not by way of limitation, all expenses
incurred in the operation of the Fund including, among others, interest, taxes,
brokerage fees and commissions, fees of the directors who are not employees of
the Adviser or any of its affiliates, expenses of the directors' and
shareholders' meetings,
-5-
<PAGE>
including the cost of printing and mailing proxies, expenses of insurance
premiums for fidelity and other coverage, association membership dues, charges
of custodians, auditing and legal expenses. The Fund will also pay the fees and
bear the expense of registering and maintaining the registration of the Fund and
its shares with the Securities and Exchange Commission and registering or
qualifying its shares under state or other securities laws and the expense of
preparing and mailing prospectuses and reports to shareholders.
Each Portfolio will bear all expenses that may be incurred with respect to
its individual operation, including but not limited to transaction expenses,
advisory fees, brokerage, interest, taxes and the charges of the custodian. The
Fund will pay all other expenses not attributable to a specific Portfolio, but
those expenses will be allocated among the Portfolios on the basis of the size
of their respective net assets unless otherwise allocated by the Board of
Directors of the Fund.
Section 6. FREEDOM TO DEAL WITH THIRD PARTIES
The Adviser shall be free to render services to others, including other
investment companies, similar to those rendered under this Agreement or of a
different nature except as such services may conflict with the services to be
rendered or the duties to be assumed hereunder. It is understood and agreed that
the officers, directors and employees of the Adviser are not prohibited from
engaging in any other business activity or from rendering services to any other
person, or from serving as partners, officers, directors or employees of any
other firm or corporation, including other investment companies.
-6-
<PAGE>
Section 7. CONFLICTS OF INTEREST
It is understood that directors, officers, agents and stockholders of the
Fund are or may be interested in the Adviser as directors, officers,
stockholders, or otherwise; that directors, officers, agents and stockholders of
the Adviser are or may be interested in the Fund as directors, officers,
stockholders or otherwise; that the Adviser may be interested in the Fund; and
that the existence of any such dual interest shall not affect the validity
hereof or of any transactions hereunder except as otherwise provided in the
Articles of Incorporation of the Fund and the Adviser, respectively, or by
specific provision of applicable law.
Section 8. REGULATION
The Adviser shall submit to all regulatory and administrative bodies having
jurisdiction over the services provided pursuant to this Agreement any
information, reports or other material which any such body by reason of this
Agreement may request or require pursuant to applicable laws and regulations.
Section 9. EFFECTIVE DATE, DURATION AND TERMINATION OF AGREEMENT
This Agreement shall become effective upon its approval by the Shareholders
of the capital stock of each Portfolio, which shall be the date of its execution
first above written. This Agreement will continue in effect for a period more
than two years from the date of its execution only so long as such continuance
is specifically approved at least annually either by the Board of Directors of
the Fund or by the vote of a majority of the outstanding voting securities of
the Fund, provided that in either event such continuance shall also be approved
by the vote of a majority of the directors of the Fund who are not interested
persons (as defined in the Investment Company Act) of any party to
-7-
<PAGE>
this Agreement cast in person at a meeting called for the purpose of voting on
such approval. The required Shareholder approval of this Agreement or of any
continuance of this Agreement shall be effective with respect to a Portfolio if
a majority of the outstanding voting securities (as defined in Rule 18f-2(h)
under the Investment Company Act) of capital stock of that Portfolio votes to
approve the Agreement or its continuance, notwithstanding that the Agreement or
its continuance may not have been approved by a majority of the outstanding
voting securities of the Fund.
If the Shareholders of capital stock of any Portfolio to which this
Agreement relates fail to approve the Agreement or any continuance of the
Agreement, the Adviser will continue to act as investment adviser with respect
to such Portfolio pending the required approval of the Agreement or its
continuance, of a new contract with the Adviser or a different adviser or other
definitive action; provided, that the compensation received by the Adviser in
respect of the Portfolio during such period will be no more than its actual
costs incurred in furnishing investment advisory and management services to the
Portfolio or the amount it would have received under the Agreement in respect of
the Portfolio, whichever is less.
This Agreement may be terminated at any time, without the payment of any
penalty, by the Board of Directors of the Fund or by the vote of a majority of
the outstanding voting securities of a Portfolio or by the Adviser, on sixty
days' written notice to the other party. This Agreement will automatically
terminate in the event of its assignment (as defined in the Investment Company
Act).
Section 10. AMENDMENTS TO THE AGREEMENT
This Agreement may be amended by the parties only if such amendment is
specifically approved by the vote of a majority of the outstanding voting
securities of the Fund and by the vote of a majority of the directors of the
Fund who are not interested persons of any party to this
-8-
<PAGE>
Agreement cast in person at a meeting called for the purpose of voting on such
approval. The required shareholder approval shall be effective with respect to
any Portfolio to which this Agreement relates if a majority of the outstanding
voting securities of the capital stock of that Portfolio vote to approve the
amendment, notwithstanding that the amendment may not have been approved by a
majority of the outstanding voting securities of the Fund. Notwithstanding the
foregoing, this Agreement may be amended without shareholder approval to the
extent such is permitted under then-current regulatory interpretations of the
Investment Company Act..
Section 11. NOTICE OF INFORMATION
Each party hereto shall advise the others promptly of (a) any action of the
Securities and Exchange Commission or any authorities of any state or territory,
of which it has knowledge, affecting registration or qualification of the Fund,
and (b) the happening of any event which makes untrue any statement, or which
requires the making of any change, in the registration statement or prospectus
in order to make the statements therein not misleading.
Section 12. ENTIRE AGREEMENT
This Agreement contains the entire understanding and agreement of the
parties.
Section 13. HEADINGS
The headings in the sections of this Agreement are inserted for convenience
of reference only and shall not constitute a part hereof.
-9-
<PAGE>
Section 14 RECEIPT OF NOTICES
Any notice under this Agreement shall be in writing, addressed, delivered
or mailed, postage prepaid, to the other party at such address as such other
party may designate in writing for the receipt of such notice.
IN WITNESS WHEREOF, the Fund and the Adviser have caused this Agreement to
be executed by their duly authorized officers as of the day and year first above
written.
Advantus Series Fund, Inc.
BY
--------------------------------
William N. Westhoff
President
Advantus Capital Management, Inc.
BY
--------------------------------
Frederick P. Feuerherm
Senior Vice President
-10-
<PAGE>
SCHEDULE A
TO THE
INVESTMENT ADVISORY AGREEMENT
MAY 1, 2000
As compensation for the services to be rendered and the charges and
expenses to be assumed and paid by the Adviser, each Portfolio shall pay the
Adviser an annual fee based on the average daily net asset value of the
respective Portfolio in accordance with Section 3 of the Investment Advisory
Agreement and the following schedule:
<TABLE>
<CAPTION>
PORTFOLIO FEE RATE
<S> <C>
Growth Portfolio 0.45% on the first $1 billion in assets
0.40% on all assets in excess of $1 billion in assets
Bond Portfolio 0.30% on the first $500 million in assets
0.25% on the next $500 million in assets
0.20% on all assets in excess of $1 billion in assets
Money Market 0.25% on the first $1 billion in assets
Portfolio 0.20% on all assets in excess of $1 billion in assets
Asset Allocation 0.35% on the first $1 billion in assets
Portfolio 0.30% on all assets in excess of $1 billion in assets
Mortgage Securities 0.30% on the first $1 billion in assets
Portfolio 0.25% on all assets in excess of $1 billion in assets
Index 500 Portfolio 0.15% on the first $250 million in assets
0.10% on the next $750 million in assets
0.075% on all assets in excess of $1 billion in assets
Capital Appreciation 0.50% on the first $1 billion in assets
Portfolio 0.45% on all assets in excess of $1 billion in assets
International Stock 0.60% on the first $250 million in assets
Portfolio 0.55% on the next $250 million in assets
0.50% on the next $500 million in assets
0.45% on all assets in excess of $1 billion in assets
</TABLE>
<PAGE>
<TABLE>
<S> <C>
Small Company Portfolio 0.65% on the first $1 billion in assets
0.60% on all assets in excess of $1 billion in assets
Maturing Government
Bond - 2002 Portfolio 0.25%
Maturing Government
Bond - 2006 Portfolio 0.25%
Maturing Government
Bond - 2010 Portfolio 0.25%
Value Stock Portfolio 0.50% on the first $500 million in assets
0.45% on the next $500 million in assets
0.40% on all assets in excess of $1 billion in assets
Small Company Value 0.70% on the first $1 billion in assets
Portfolio 0.65% on all assets in excess of $1 billion in assets
Global Bond Portfolio 0.60% on the first $1 billion in assets
0.55% on all assets in excess of $1 billion in assets
Index 400 Mid-Cap 0.15% on the first $250 million in assets
Portfolio 0.10% on the next $750 million in assets
0.075% on all assets in excess of $1 billion in assets
Macro-Cap Value 0.50%
Portfolio
Micro-Cap Growth 0.95%
Portfolio
Real Estate Securities 0.60% on the first $1 billion in assets
Portfolio 0.55% on all assets in excess of $1 billion in assets
</TABLE>
-2-
<PAGE>
AMENDMENT NO. 1
TO THE
INVESTMENT SUB-ADVISORY AGREEMENT
BETWEEN
ADVANTUS CAPITAL MANAGEMENT, INC.
AND
TEMPLETON INVESTMENT COUNSEL, INC.
This amendment shall be effective May 1, 2000. This is an amendment to the
Investment Sub-Advisory Agreement dated May 1, 1997 ("Agreement") between
Advantus Capital Management, Inc. ("Advantus Capital") and Templeton Investment
Counsel, Inc. ("Templeton Counsel"), with respect to the Advantus Series Fund,
Inc.- International Stock Portfolio, ("the Portfolio").
The following schedule shall replace the schedule contained in the Agreement.
The amount of such annual fee, as applied to the average daily value of
the net assets of the Portfolio shall be as described in the schedule
below:
<TABLE>
<CAPTION>
Assets Fee
------ ---
<S> <C>
On the first $10 million in assets 0.70%
On the next $15 million in assets 0.65%
On the next $25 million in assets 0.55%
On the next $50 million in assets 0.50%
On all assets exceeding $100 million 0.40%
</TABLE>
Solely for the purpose of establishing the appropriate breakpoints
at which the Portfolio's subadvisory fee shall be calculated, the Portfolio
will benefit from the aggregation of the monthly market value of any
non-mutual fund account of Minnesota Life or any affiliate thereof advised or
subadvised by Templeton Counsel or any advisory affiliate thereof as well as
the average daily net assets of any U.S. registered mutual fund advised by
Advantus and sub-advised by Templeton Counsel or any advisory affiliate. For
fee-stacking purposes, the asset classes so managed with the highest fee
schedules shall be counted first as assets of this Portfolio in order to
determine this Portfolio's appropriate starting breakpoint when the following
conditions are satisfied:
(i) Franklin Advisors, Inc., an affiliate of Templeton
Counsel, provides other sub-advisory services to Advantus
Capital, beginning on or after February 15, 2000, covering
small company domestic equities in an amount in excess of $100
million; and
(ii) Minnesota Life, the parent company of
Advantus Capital, offers as investment options in its
registered variable insurance contracts the Templeton
Developing Markets Fund and any other two funds in the
Franklin/Templeton Variable Insurance Products Fund.
IN WITNESS WHEREOF, the parties have duly executed this Agreement on the date
first above written:
ADVANTUS CAPITAL MANAGEMENT, INC. TEMPLETON INVESTMENT COUNSEL, INC.
By: By:
------------------------- -------------------------
Its: Its:
------------------------- -------------------------
<PAGE>
INVESTMENT SUB-ADVISORY AGREEMENT
THIS AGREEMENT, made as of the 7th day of March, 2000, by and between
Advantus Capital Management, Inc., a Minnesota corporation, registered as an
Investment Adviser under the Investment Advisers Act of 1940 (the "Adviser") and
Credit Suisse Asset Management, LLC, a Delaware limited liability company,
registered as an Investment Adviser under the Investment Advisers Act of 1940
(the "Sub-Adviser").
WHEREAS, the Adviser is the Investment Adviser to Advantus Series Fund,
Inc., (the "Fund"), an open-end diversified management investment company
organized as a series fund, registered under the Investment Company Act of 1940,
as amended (the "1940 Act"); and
WHEREAS, the Adviser desires to retain the Sub-Adviser to furnish it with
portfolio selection and related research and statistical services in connection
with the Adviser's investment advisory activities on behalf of the Fund's Small
Company Growth Portfolio (hereinafter "Portfolio"), and the Sub-Adviser desires
to furnish such services to the Adviser;
NOW, THEREFORE, in consideration of the premises and the terms and
conditions hereinafter set forth, it is agreed as follows:
1. APPOINTMENT OF SUB-ADVISER
In accordance with and subject to the Investment Advisory Agreement between
the Fund and the Adviser, the Adviser hereby appoints the Sub-Adviser to perform
portfolio selection services described herein for investment and reinvestment of
the Portfolio, subject to the control and direction of the Fund's Board of
Directors, for the period and on the terms hereinafter set forth. The
Sub-Adviser accepts such appointment and agrees to furnish the services
hereinafter set forth for the compensation herein provided. The Sub-Adviser
shall for all purposes herein be deemed to be an independent contractor and
shall, except as expressly provided or authorized, have no authority to act for
or represent the Fund or the Adviser in any way or otherwise be deemed an agent
of the Fund or the Adviser.
2. OBLIGATIONS OF AND SERVICES TO BE PROVIDED BY THE SUB-ADVISER
(a) The Sub-Adviser shall provide the following services and assume the
following obligations with respect to the Portfolio of the Fund:
(1) The investment of the assets of the Portfolio shall at all
times be subject to the applicable provisions of the
Articles of Incorporation, the Bylaws, the Registration
Statement, the current Prospectus and the Statement of
Additional Information of the Fund and shall conform to the
investment objectives, policies and restrictions of the
Portfolio as
<PAGE>
set forth in such documents and as interpreted from time to
time by the Board of Directors of the Fund and by the
Adviser, including diversification of the holdings of the
Portfolio as a segregated asset account in accordance with
Section 817 of the Internal Revenue Code, as amended (the
"Code"), and Regulation Section 1.817-5 thereunder, provided
that the Adviser shall be responsible for ensuring that each
Portfolio is "adequately diversified" if and to the extent
required by Section 817(h) of the Code and Regulation
1.817-5 thereunder. Within the framework of the investment
objectives, policies and restrictions of the Portfolio, and
subject to the supervision of the Adviser, the Sub-Adviser
shall have the sole and exclusive responsibility for the
making and execution of all investment decisions for the
Portfolio. The Adviser will provide copies of the Articles
of Incorporation, Bylaws, Registration Statement, current
Prospectus and Statement of Additional Information of the
Fund, as well as any current interpretations by the Board of
Directors of the Fund or the Adviser of the investment
objectives, policies and restrictions of the Portfolio set
forth therein, prior to commencement of the Sub-Adviser's
services hereunder and agrees to promptly inform the
Sub-Adviser, in writing, of any changes in such documents or
interpretations which may affect the Sub-Adviser's services
hereunder, it being understood that such changes will be
effective with respect to the Sub-Adviser upon the
Sub-Adviser's receipt of such notice.
(2) In carrying out its obligations to manage the investments
and reinvestments of the assets of the Portfolio, the
Sub-Adviser shall: (1) obtain and evaluate pertinent
economic, statistical, financial and other information
affecting the economy generally and individual companies or
industries the securities of which are included in the
Portfolio or are under consideration for inclusion therein;
(2) formulate and implement a continuous investment program
for the Portfolio consistent with the investment objective
and related investment policies for such Portfolio as set
forth in the Fund's registration statement, as amended; and
(3) take such steps as are necessary to implement the
aforementioned investment program by purchase and sale of
securities including the placing of orders for such
purchases and sales.
(3) In connection with the purchase and sale of securities of
the Portfolio, the Sub-Adviser shall arrange for the
transmission to the Adviser and the Custodian for the Fund
on a daily basis such confirmation, trade tickets and other
documents as may be necessary to enable them to perform
their administrative responsibilities with respect to the
Portfolio. With respect to portfolio securities to be
purchased or sold through the Depository Trust Company, the
Sub-Adviser shall arrange for the automatic transmission of
the I.D. confirmation of the trade to the Custodian of the
Portfolio. The Sub-Adviser shall render such
-2-
<PAGE>
reports to the Adviser and/or to the Fund's Board of
Directors concerning the investment activity and portfolio
composition of the Portfolio in such form and at such
intervals as the Adviser or the Board may from time to time
reasonably require.
4) The Sub-Adviser shall, in the name of the Fund, place or
direct the placement of orders for the execution of
portfolio transactions in accordance with the policies with
respect thereto, as set forth in the Fund's Registration
Statement, as amended from time to time, and under the 1933
Act and the 1940 Act. In connection with the placement of
orders for the execution of the Fund's portfolio
transactions, the Sub-Adviser shall create and maintain all
necessary records required to be created and maintained by
an investment adviser under all applicable law, rules and
regulations, including but not limited to, Section 31(a) of
the 1940 Act. All records shall be the property of the Fund
and shall be available for inspection and use, upon
reasonable notice and during normal business hours, by the
Securities and Exchange Commission, the Fund or any person
retained by the Fund. Where applicable, such records shall
be maintained by the Sub-Adviser for the period and in the
place required by Rule 31a-2 under the 1940 Act.
(5) In placing orders or directing the placement of orders for
the execution of portfolio transactions, the Sub-Adviser
shall select brokers and dealers for the execution of the
Portfolio's transactions. In selecting brokers or dealers to
execute such orders, the Sub-Adviser is expressly authorized
to consider the fact that a broker or dealer has furnished
statistical, research or other information or services which
enhance the Sub-Adviser's investment research and portfolio
management capability generally. It is further understood in
accordance with Section 28(e) of the Securities Exchange Act
of 1934, as amended, that the Sub-Adviser may negotiate with
and assign to a broker a commission which may exceed the
commission which another broker would have charged for
effecting the transaction if the Sub-Adviser determines in
good faith that the amount of commission charged was
reasonable in relation to the value of brokerage and/or
research services (as defined in Section 28(e)) provided by
such broker, viewed in terms either of the Portfolio or the
Sub-Adviser's overall responsibilities to the Sub-Adviser's
discretionary accounts.
(b) The Sub-Adviser shall use the same skill and care in providing
services to the Fund as it uses in providing services to other fiduciary
accounts for which it has investment responsibility. The Sub-Adviser will
conform with all applicable rules and regulations of the Securities and Exchange
Commission.
3. EXPENSES
-3-
<PAGE>
During the term of this Agreement, the Sub-Adviser will pay all of its own
expenses incurred in connection with its activities under this Agreement.
4. COMPENSATION
In payment for the investment sub-advisory services to be rendered by the
Sub-Adviser in respect of the Portfolio hereunder, the Adviser shall pay to the
Sub-Adviser as full compensation for all services hereunder a fee computed at an
annual rate which shall be a percentage of the average daily value of the net
assets of the Portfolio. The fee shall be accrued daily and shall be based on
the net asset values of all of the issued and outstanding shares of the
Portfolio as determined as of the close of each business day pursuant to the
Articles of Incorporation, Bylaws and currently effective Prospectus and
Statement of Additional Information of the Fund. The fee shall be payable in
arrears on the last day of each calendar month.
The amount of such annual fee, as applied to the average daily value of the
net assets of the Portfolio shall be as described in the schedule below:
<TABLE>
<CAPTION>
Assets* Fee
------- ---
<S> <C> <C>
Total assets between $0 and $500 million 0.65%
Total assets between $500 million and $1 billion 0.60%
Total assets between $1 billion and $2 billion 0.50%
On all assets in excess of $2 billion 0.45%
</TABLE>
*The term "assets" for purposes of the above schedule shall include all
assets advised or sub-advised by the Sub-Adviser for the Adviser or its
affiliates, in addition to those assets of the Portfolio. The aggregation of
assets for purposes of the breakpoints shall be calculated quarterly based upon
the aggregate assets on March 31st, June 30th, September 30th and December 31st
of each calendar year (or portion thereof) that this Agreement is effective,
with the fee rate determined on each such date being applicable to the following
period and applied to all assets back to the first dollar in the Portfolio.
5. RENEWAL AND TERMINATION
This Agreement shall continue in effect for a period of more than two years
from the date of this Agreement, only so long as such continuance is
specifically approved at least annually by a vote of the holders of the majority
of the outstanding voting securities of the Portfolio, or by a vote of the
majority of the Fund's Board of Directors, and further provided that such
continuance is also approved annually by a vote of the majority of the Fund's
Board of Directors who are not parties to this Agreement or interested persons
of parties hereto, cast in person at a meeting called for the purpose of voting
on such approval. This Agreement may be terminated at any time without payment
of penalty: (i) by the Fund's Board of Directors or by a vote of a majority of
the outstanding voting securities of the Portfolio on sixty days' prior written
notice, or (ii) by either party hereto upon sixty days' prior written notice to
the other. This Agreement will terminate automatically upon any termination of
the Investment Advisory Agreement between the
-4-
<PAGE>
Fund and the Adviser or in the event of its assignment. The terms "interested
person," "assignment" and "vote of a majority of the outstanding voting
securities" shall have the meanings set forth in the 1940 Act.
6. GENERAL PROVISIONS
(a) The Sub-Adviser may rely on information reasonably believed by it to be
accurate and reliable. Except as may otherwise be provided by the 1940 Act,
neither the Sub-Adviser nor its officers, directors, employees or agents shall
be subject to any liability for any error of judgment or mistake of law or for
any loss arising out of any investment or other act or omission in the
performance by the Sub-Adviser of its duties under this Agreement or for any
loss or damage resulting from the imposition by any government of exchange
control restrictions which might affect the liquidity of the Portfolio's assets,
or from acts or omissions of the Adviser, custodians, securities depositories or
other third parties, or from any war or political act of any foreign government
to which such assets might be exposed, provided that nothing herein shall be
deemed to protect, or purport to protect, the Sub-Adviser against any liability
to the Fund or to its shareholders to which the Sub-Adviser would otherwise be
subject by reason of willful misfeasance, bad faith or gross negligence in the
performance of its duties hereunder, or by reason of the Sub-Adviser's reckless
disregard of its obligations and duties hereunder.
(b) The Adviser and the Fund's Board of Directors understand that the value
of investments made for the Account may go up as well as down and is not
guaranteed, and that investment decisions will not always be profitable. Neither
the Adviser nor the Sub-Adviser has made or is making any guarantees, including
any guarantee as to any specific level of performance of the Portfolio. The
Adviser and the Fund's Board of Directors acknowledge that this Portfolio is
designed for the described investment objective and is not intended as a
complete investment program. They also understand that investment decisions made
on behalf of the Portfolio by Sub-Adviser are subject to various market and
business risks.
(c) This Agreement shall not become effective unless and until it is
approved by the Board of Directors of the Fund, including a majority of the
members who are not "interested persons" to parties to this Agreement, by a vote
cast in person at a meeting called for the purpose of voting on such approval.
(d) The Adviser understands that the Sub-Adviser now acts, will continue to
act, or may act in the future, as investment adviser to fiduciary and other
managed accounts, including other investment companies, and the Adviser has no
objection to the Sub-Adviser so acting, provided that the Sub-Adviser duly
performs all obligations under this Agreement. The Adviser also understands that
the Sub-Adviser may give advice and take action with respect to any of its other
clients or for its own account which may differ from the timing or nature of
action taken by the Sub-Adviser with respect to the Fund. Nothing in this
Agreement shall impose upon the Sub-Adviser any obligation to purchase or sell
or to recommend for purchase or sale, with respect to the Fund, any security
which
-5-
<PAGE>
the Sub-Adviser or its shareholders, directors, officers, employees or
affiliates may purchase or sell for its or their own account(s) or for the
account of any other client.
(e) Except to the extent necessary to perform its obligations hereunder,
nothing herein shall be deemed to limit or restrict the right of the
Sub-Adviser, or the right of any of its officers, directors or employees who may
also be an officer, director or employee of the Fund, or persons otherwise
affiliated with the Fund (within the meaning of the 1940 Act) to engage in any
other business or to devote time and attention to the management or other
aspects of any other business, whether of a similar or dissimilar nature, or to
render services of any kind to any other trust, corporation, firm, individual or
association.
(f) Each party agrees to perform such further acts and execute such further
documents as are necessary to effectuate the purposes hereof. This Agreement
shall be construed and enforced in accordance with and governed by the laws of
the State of Minnesota. The captions in this Agreement are included for
convenience only and in no way define or delimit any of the provisions hereof or
otherwise affect their construction or effect.
(g) Any notice under this Agreement shall be in writing, addressed and
delivered or mailed postage pre-paid to the appropriate party at the following
address: The Adviser and the Fund at 400 Robert Street North, St. Paul,
Minnesota 55101-2098, and the Sub-Adviser at 153 East 53rd Street, New York, New
York 10022 (Attention: General Counsel).
IN WITNESS WHEREOF, the parties have duly executed this Agreement.
ADVANTUS CAPITAL MANAGEMENT, INC.
By:
---------------------------------
Its:
---------------------------------
CREDIT SUISSE ASSET MANAGEMENT, LLC
By:
---------------------------------
Hal Liebes
Its: GENERAL COUNSEL
---------------------------------
-6-
<PAGE>
INVESTMENT SUB-ADVISORY AGREEMENT
THIS AGREEMENT, made as of the 7th day of March, 2000, by and between
Advantus Capital Management, Inc., a Minnesota corporation, registered as an
investment adviser under the Investment Advisers Act of 1940 (the "Adviser") and
State Street Research & Management Company, a Delaware corporation, registered
as an investment adviser under the Investment Advisers Act of 1940 (the
"Sub-Adviser").
WHEREAS, the Adviser is the investment adviser to Advantus Series Fund,
Inc. (the "Fund"), an open-end diversified management investment company
organized as a series fund, registered under the Investment Company Act of 1940,
as amended (the "1940 Act"); and
WHEREAS, the Adviser desires to retain the Sub-Adviser to furnish it
with portfolio selection and related research and statistical services in
connection with the Adviser's investment advisory activities on behalf of the
Fund's Small Company Value Portfolio (hereinafter "Portfolio"), and the
Sub-Adviser desires to furnish such services to the Adviser;
NOW, THEREFORE, in consideration of the premises and the terms and
conditions hereinafter set forth, it is agreed as follows:
1. APPOINTMENT OF SUB-ADVISER
In accordance with and subject to the Investment Advisory Agreement
between the Fund and the Adviser, the Adviser hereby appoints the Sub-Adviser to
perform portfolio selection services described herein for investment and
reinvestment of the Portfolio, subject to the control and direction of the
Fund's Board of Directors, for the period and on the terms hereinafter set
forth. The Sub-Adviser accepts such appointment and agrees to furnish the
services hereinafter set forth for the compensation herein provided. The
Sub-Adviser shall for all purposes herein be deemed to be an independent
contractor and shall, except as expressly provided or authorized, have no
authority to act for or represent the Fund or the Adviser in any way or
otherwise be deemed an agent of the Fund or the Adviser.
2. OBLIGATIONS OF AND SERVICES TO BE PROVIDED BY THE SUB-ADVISER
(a) The Sub-Adviser shall provide the following services and assume the
following obligations with respect to the Portfolio of the Fund:
(1) The investment of the assets of the Portfolio shall at all
times be subject to the applicable provisions of the
Articles of Incorporation, the Bylaws, the Registration
Statement, the current Prospectus and the Statement of
Additional Information of the Fund and shall conform to the
investment objectives, policies and restrictions of the
Portfolio as
<PAGE>
set forth in such documents and as interpreted from time to
time by the Board of Directors of the Fund and by the
Adviser and communicated in writing to the Sub-Adviser,
including diversification of the holdings of the Portfolio
as a segregated asset account in accordance with Section 817
of the Internal Revenue Code, as amended (the "Code"), and
Regulation Section 1.817-5 thereunder, provided that
Advantus and Minnesota Mutual shall be responsible for
ensuring that each Portfolio is "adequately diversified" if
and to the extent required by Section 817(h) of the Code and
Regulation 1.817-5 thereunder. Within the framework of the
investment objectives, policies and restrictions of the
Portfolio, and subject to the supervision of the Adviser,
the Sub-Adviser shall have the sole and exclusive
responsibility for the making and execution of all
investment decisions for the Portfolio. Advantus agrees to
promptly inform the Sub-Adviser if such objective, policies
or restrictions change and to deliver to the Sub-Adviser
updated documents, if prepared.
(2) In carrying out its obligations to manage the investments
and reinvestments of the assets of the Portfolio, the
Sub-Adviser shall: (1) obtain and evaluate pertinent
economic, statistical, financial and other information
affecting the economy generally and individual companies or
industries the securities of which are included in the
Portfolio or are under consideration for inclusion therein;
(2) formulate and implement a continuous investment program
for the Portfolio consistent with the investment objective
and related investment policies for such Portfolio as set
forth in the Fund's registration statement, as amended; and
(3) take such steps as are necessary to implement the
aforementioned investment program by purchase and sale of
securities including the placing, or directing the placement
through an affiliate of the Sub-Adviser, of orders for such
purchases and sales.
(3) In connection with the purchase and sale of securities of
the Portfolio, the Sub-Adviser shall arrange for the
transmission to the Adviser and the Custodian for the Fund
on a daily basis such confirmation, trade tickets and other
documents as may be necessary to enable them to perform
their administrative responsibilities with respect to the
Portfolio. With respect to portfolio securities to be
purchased or sold through the Depository Trust Company, the
Sub-Adviser shall arrange for the automatic transmission of
the I.D. confirmation of the trade to the Custodian of the
Portfolio. The Sub-Adviser shall render such reports to the
Adviser and/or to the Fund's Board of Directors concerning
the investment activity and portfolio composition of the
Portfolio in such form and at such intervals as the Adviser
or the Board may from time to time reasonably require.
-2-
<PAGE>
(4) The Sub-Adviser shall, in the name of the Fund, place or
direct the placement of orders for the execution of
portfolio transactions in accordance with the policies with
respect thereto, as set forth in the Fund's Registration
Statement, as amended from time to time, and under the 1933
Act and the 1940 Act. In connection with the placement of
orders for the execution of the Fund's portfolio
transactions, the Sub-Adviser shall create and maintain all
necessary brokerage records of the Fund in accordance with
all applicable law, rules and regulations, including but not
limited to, records required by Section 31(a) of the 1940
Act. All records shall be the property of the Fund and shall
be available for inspection and use by the Securities and
Exchange Commission, the Fund or any person retained by the
Fund. Where applicable, such records shall be maintained by
the Sub-Adviser for the period and in the place required by
Rule 31a-2 under the 1940 Act.
(5) In placing orders or directing the placement of orders for
the execution of portfolio transactions, the Sub-Adviser
shall select brokers and dealers for the execution of the
Portfolio's transactions. In selecting brokers or dealers to
execute such orders, the Sub-Adviser is expressly authorized
to consider the fact that a broker or dealer has furnished
statistical, research or other information or services which
enhance the Sub-Adviser's investment research and portfolio
management capability generally. It is further understood in
accordance with Section 28(e) of the Securities Exchange Act
of 1934, as amended, that the Sub-Adviser may negotiate with
and assign to a broker a commission which may exceed the
commission which another broker would have charged for
effecting the transaction if the Sub-Adviser determines in
good faith that the amount of commission charged was
reasonable in relation to the value of brokerage and/or
research services (as defined in Section 28(e)) provided by
such broker, viewed in terms either of the Portfolio or the
Sub-Adviser's overall responsibilities to the Sub-Adviser's
discretionary accounts.
(b) The Sub-Adviser shall use the same skill and care in providing services
to the Fund as it uses in providing services to other fiduciary accounts for
which it has investment responsibility. The Sub-Adviser will conform with all
applicable rules and regulations of the Securities and Exchange Commission.
3. EXPENSES
During the terms of this Agreement, the Sub-Adviser will pay all expenses
incurred by it in connection with its activities under this Agreement.
-3-
<PAGE>
4. COMPENSATION
In payment for the investment sub-advisory services to be rendered by the
Sub-Adviser in respect of the Portfolio hereunder, the Adviser shall pay to the
Sub-Adviser as full compensation for all services hereunder a fee computed at an
annual rate which shall be a percentage of the average daily value of the net
assets of the Portfolio. The fee shall be accrued daily and shall be based on
the net asset values of all of the issued and outstanding shares of the
Portfolio as determined as of the close of each business day pursuant to the
Articles of Incorporation, Bylaws and currently effective Prospectus and
Statement of Additional Information of the Fund. The fee shall be payable in
arrears on the last day of each calendar month.
The amount of such annual fee, as applied to the average daily value of the
net assets of the Portfolio shall be as described in the schedule below:
<TABLE>
<CAPTION>
Assets* Fee
------- ---
<S> <C>
On the first $500 million 0.65%
On the next $500 million 0.60%
On all assets in excess of $1 billion 0.50%
</TABLE>
*The term "assets" for purposes of each of the breakpoints set forth
above shall include all [cad 180]small company value' assets sub-advised by the
Sub-Adviser for the Adviser or its affiliates, in addition to the assets of
the Portfolio. The aggregation of the assets for purposes of the breakpoints,
shall be calculated quarterly based upon the aggregate assets on March 31st,
June 30th, September 30th and December 31st of each calendar year (or portion
thereof) that this agreement is effective.
5. RENEWAL AND TERMINATION
This Agreement shall continue in effect for a period more than two years
from the date of this Agreement, only so long as such continuance is
specifically approved at least annually by a vote of the holders of the majority
of the outstanding voting securities of the Portfolio, or by a vote of the
majority of the Fund's Board of Directors. And further provided that such
continuance is also approved annually by a vote of the majority of the Fund's
Board of Directors who are not parties to this Agreement or interested persons
of parties hereto, cast in person at a meeting called for the purpose of voting
on such approval. This Agreement may be terminated at any time without payment
of penalty: (i) by the Fund's Board of Directors or by a vote of a majority of
the outstanding voting securities of the class of capital stock of the Portfolio
on sixty days' prior written notice, or (ii) by either party hereto upon sixty
days' prior written notice to the other. This Agreement will terminate
automatically upon any termination of the Investment Advisory Agreement between
the Fund and the Adviser or in the event of its assignment. The terms
"interested person," "assignment" and "vote of a majority of the outstanding
voting securities" shall have the meanings set forth in the 1940 Act.
-4-
<PAGE>
6. GENERAL PROVISIONS
(a) The Sub-Adviser may rely on information reasonably believed by it to be
accurate and reliable. Except as may otherwise be provided by the 1940 Act,
neither the Sub-Adviser nor its officers, directors, employees or agents shall
be subject to any liability for any error of judgment or mistake of law or for
any loss arising out of any investment or other act or omission in the
performance by the Sub-Adviser of its duties under this Agreement or for any
loss or damage resulting from the imposition by any government or exchange
control restrictions which might affect the liquidity of the Portfolio's assets,
or from acts or omissions of custodians or securities depositories, or from any
war or political act of any foreign government to which such assets might be
exposed, provided that nothing herein shall be deemed to protect, or purport to
protect, the Sub-Adviser against any liability to the Fund or to its
shareholders to which the Sub-Adviser would otherwise be subject by reason of
willful misfeasance, bad faith or gross negligence in the performance of its
duties hereunder, or by reason of the Sub-Adviser's reckless disregard of its
obligations and duties hereunder.
(b) The Adviser and the Fund's Board of Directors understand that the value
of investments made for the Portfolio may go up as well as down, is not
guaranteed and that investment decisions will not always be profitable. The
Adviser has not made and is not making any guarantees, including any guarantee
as to any specific level of performance of the Portfolio. The Adviser and the
Fund's Board of Directors acknowledge that this Portfolio is designed for the
described investment objective and is not intended as a complete investment
program. They also understand that investment decisions made on behalf of the
Portfolio by Sub-Adviser are subject to various market and business risks.
(c) This Agreement shall not become effective unless and until it is
approved by the Board of Directors of the Fund, including a majority of the
members who are not "interested persons" to parties to this Agreement, by a vote
cast in person at a meeting called for the purpose of voting such approval.
(d) The Adviser understands that the Sub-Adviser now acts, will continue to
act, or may act in the future, as investment adviser to fiduciary and other
managed accounts, including other investment companies, and the Adviser has no
objection to the Sub-Adviser so acting, provided that the Sub-Adviser duly
performs all obligations under this Agreement. The Adviser also understands that
the Sub-Adviser may give advice and take action with respect to any of its other
clients or for its own account which may differ from the timing or nature of
action taken by the Sub-Adviser with respect to the Fund. Nothing in this
Agreement shall impose upon the Sub-Adviser any obligation to purchase or sell
or to recommend for purchase or sale, with respect to the Fund, any security
which the Sub-Adviser or its shareholders, directors, officers, employees or
affiliates may purchase or sell for its or their own account(s) or for the
account of any other client.
(e) Except to the extent necessary to perform its obligations hereunder,
nothing herein shall be deemed to limit or restrict the right of the
Sub-Adviser, or the right of any
-5-
<PAGE>
of its officers, directors or employees who may also be an officer, director or
employee of the Fund, or persons otherwise affiliated with the Fund (within the
meaning of the 1940 Act) to engage in any other business or to devote time and
attention to the management or other aspects of any other business, whether of a
similar or dissimilar nature, or to render services of any kind to any other
trust, corporation, firm, individual or association.
(f) Each party agrees to perform such further acts and execute such further
documents as are necessary to effectuate the purposes hereof. This Agreement
shall be construed and enforced in accordance with and governed by the laws of
the State of Minnesota. The captions in this Agreement are included for
convenience only and in no way define or delimit any of the provisions hereof or
otherwise affect their construction or effect.
(g) Any notice under this Agreement shall be in writing, addressed and
delivered or mailed postage pre-paid to the appropriate party at the following
address: The Adviser and the Fund at 400 Robert Street North, St. Paul,
Minnesota 55101-2098, and the Sub-Adviser at One Financial Center, Boston, MA
02111-2690 Attention: General Counsel.
IN WITNESS WHEREOF, the parties have duly executed this Agreement.
ADVANTUS CAPITAL MANAGEMENT, INC.
By:
---------------------------------
Its:
---------------------------------
STATE STREET RESEARCH & MANAGEMENT COMPANY
By:
---------------------------------
Its:
---------------------------------
-6-
<PAGE>
UNDERWRITING AND DISTRIBUTION AGREEMENT
THIS AGREEMENT, made as of May 1, 2000 by and between Advantus
Series Fund, Inc., a Minnesota corporation (the "Fund") and Ascend Financial
Services, Inc. (the "Underwriter").
WITNESSETH:
1. UNDERWRITING SERVICES.
The Fund hereby engages the Underwriter, and the Underwriter
hereby agrees to act, as principal underwriter for the Fund in the sale and
distribution of the shares of the Fund. The Underwriter agrees to offer such
shares for sale at all times when such shares are available for sale and may
lawfully be offered for sale and sold.
2. SALE OF FUND SHARES.
Such shares are to be sold only on the following terms:
(a) All subscriptions, offers, or sales shall be subject to
acceptance or rejection by the Fund. Any offer or sale shall be conclusively
presumed to have been accepted by the Fund if the Fund shall fail to notify the
Underwriter of the rejection of such offer or sales prior to the computation of
the net asset value of the Fund's shares next following receipt by the Fund of
notice of such offer or sale.
(b) No share of the Fund shall be sold by the Underwriter for
any consideration other than cash.
(c) Shares of the Fund are not available to the public. The Fund
is available for sale only to separate accounts of Minnesota Life Insurance
Company and to certain of its life insurance affiliates for the purpose of
funding variable life insurance policies and variable annuity contracts
("Variable Contracts"). At the date of this Agreement, Minnesota Life and Ascend
Financial Services, Inc., and the Fund have received an order from the
Securities and Exchange Commission dated January 7, 1987, issued pursuant to
Section 6(c) of the Investment Company Act of 1940, granting relief from
Sections 9(a), 13(a), 15(a) and 15(b) of that Act and from paragraph (b)(5) of
Rule 6e-1 thereunder so as to permit the sales of Fund shares to both variable
annuity and variable life separate accounts, a practice known as "mixed
funding", subject to the provisions of the Rule and the undertakings set forth
in the Order. The Fund will advise Underwriter in the event of any change in the
Order.
3. REGISTRATION OF SHARES.
The Fund agrees to make prompt and reasonable efforts to effect
and keep in effect, at its expense, the registration or qualification of its
shares for sale in such jurisdictions as the Fund may designate.
1
<PAGE>
4. INFORMATION TO BE FURNISHED TO THE UNDERWRITER.
The Fund agrees that it will furnish the Underwriter with such
information with respect to the affairs and accounts of the Fund as the
Underwriter may from time to time reasonably require, and further agrees that
the Underwriter, at all reasonable times, shall be permitted to inspect the
books and records of the Fund.
5. ALLOCATION OF EXPENSES.
During the period of this contract, the Fund shall pay or cause
to be paid all expenses, costs, and fees incurred by the Fund which are not
assumed by the Underwriter or Advantus Capital Management, Inc., a Minnesota
corporation and the Fund's investment adviser. The Underwriter shall pay costs
associated with the distribution of shares of the Fund. Distribution-related
payments may include, among other things, the printing of prospectuses and
reports used for sales purposes, preparing and distributing sales literature and
related expenses, advertisements, education of Variable Contract owners or
dealers and their representatives, trail commissions, and other
distribution-related expenses, including a prorated portion of the overhead
expenses of the Underwriter or the Insurance Companies which are attributable to
the distribution of the Variable Contracts. Underwriter may undertake such
activities directly or may compensate others for undertaking such activities.
Payments made under the Plan may also be used to pay Insurance Companies,
dealers or others for non-distribution services, including, among other things,
responding to inquiries from owners of Variable Contracts regarding the Fund,
printing and mailing Fund prospectuses and other shareholder communications to
existing Variable Contract owners, direct communications with Variable Contract
owners regarding Fund operations and portfolio composition and performance,
furnishing personal services or such other enhanced services as the Fund or a
Variable Contract may require, or maintaining customer accounts and records.
Agreements for the payment of fees to the Underwriter, Insurance Companies or
others shall be in a form which has been approved from time to time by the
Board, including the non-interested Board members.
6. COMPENSATION TO THE UNDERWRITER.
Pursuant to the Fund's Plan of Distribution adopted by the
shareholders of the Fund in accordance with Rule 12b-1 under the 1940 Act (the
"Plan"), the Fund shall pay the Underwriter a total fee each month equal to .25%
per annum of the average daily net assets represented by shares of the Fund to
cover the costs of "distribution-related activities" and other "non-distribution
services" as described in the Plan ("Distribution Expenses"). Average daily net
assets shall be computed in accordance with the Fund's currently effective
Prospectus. Amounts payable to the Underwriter under the Plan may exceed or be
less than the Underwriter's actual Distribution Expenses. In the event such
Distribution Expenses exceed amounts payable to the Underwriter under the Plans,
the Underwriter shall not be entitled to reimbursement by the Fund.
In each year during which this Agreement remains in effect, the
Underwriter will prepare and furnish to the Board of Directors of the Fund, and
the Board will review, on a quarterly basis, written reports complying with the
requirements of Rule 12b-1 under the 1940
2
<PAGE>
Act that set forth the amounts expended under this Agreement and the Plan and
the purposes for which those expenditures were made.
7. LIMITATION OF THE UNDERWRITER'S AUTHORITY.
The Underwriter shall be deemed to be an independent contractor
and, except as specifically provided or authorized herein, shall have no
authority to act for or represent the Fund.
8. SUBSCRIPTION FOR SHARES--REFUND FOR CANCELLED ORDERS.
The subscription for the shares of the Fund shall be solely from
separate accounts pursuant to the terms of the variable life insurance policies
and variable annuity contracts.
9. INDEMNIFICATION OF THE FUND.
The Underwriter agrees to indemnify the Fund against any and all
litigation and other legal proceedings of any kind or nature and against any
liability, judgment, cost, or penalty imposed as a result of such litigation or
proceedings in any way arising out of or in connection with the sale or
distribution of the shares of the Fund by the Underwriter. In the event of the
threat or institution of any such litigation or legal proceedings against the
Fund, the Underwriter shall defend such action on behalf of the Fund at its own
expense, and shall pay any such liability, judgment, cost, or penalty resulting
therefrom, whether imposed by legal authority or agreed upon by way of
compromise and settlement; provided, however, the Underwriter shall not be
required to pay or reimburse the Fund for any liability, judgment, cost, or
penalty incurred as a result of information supplied by, or as the result of the
omission to supply information by, the Fund to the Underwriter, or to the
Underwriter by a director, officer, or employee of the Fund who is not an
interested person of the Underwriter, unless the information so supplied or
omitted was available to the Underwriter or Management without recourse to the
Fund or any such person referred to above.
10. FREEDOM TO DEAL WITH THIRD PARTIES.
The Underwriter shall be free to render to others services of a
nature either similar to or different from those rendered under this contract,
except such as may impair its performance of the services and duties to be
rendered by it hereunder.
11. EFFECTIVE DATE, DURATION AND TERMINATION OF
AGREEMENT.
The effective date of this Agreement is set forth in the first
paragraph of this Agreement.
Unless sooner terminated as hereinafter provided, this Agreement
shall continue in effect only so long as such continuance is specifically
approved at least annually (a) by the Board of Directors of the Fund, or by the
vote of the holders of a majority of the outstanding voting securities of the
Fund (or such Portfolio), and (b) by a majority of the directors who are not
3
<PAGE>
interested persons of the Underwriter or of the Fund cast in person at a meeting
called for the purpose of voting on such approval.
This Agreement may be terminated with respect to the Fund (or any
Portfolio thereof) at any time without penalty, by vote of a majority of the
outstanding Shares of the Fund (or such Portfolio) or by vote of a majority of
the non-interested Board members, on not more than sixty (60) days' written
notice, or by the Underwriter on not more than sixty (60) days' written notice,
and shall terminate automatically in the event of any act that constitutes an
assignment, (as defined by the provisions of the Investment Company Act of 1940,
as amended) of this Agreement.
12. AMENDMENTS TO AGREEMENT.
No material amendment to this Agreement shall be effective until
approved by the Underwriter and by vote of majority of the Board of Directors of
the Fund who are not interested persons of the Underwriter, and such amendment
is in writing and signed by both parties.
13. NOTICES.
Any notice under this Agreement shall be in writing, addressed,
delivered, or mailed, postage prepaid, to the other party at such address as
such other party may designate in writing for receipt of such notice.
14. GOVERNING LAW.
This Agreement shall be governed by and construed in accordance
with the laws of the State of Minnesota and the Federal Securities Laws.
IN WITNESS WHEREOF, The Fund and the Underwriter have caused this
Agreement to be executed by their duly authorized officers as of the day and
year first above written.
ADVANTUS SERIES FUND, INC.
By________________________________________
William N. Westhoff
Its President
ASCEND FINANCIAL SERVICES, INC.
By________________________________________
George I. Connolly
Its President
c:\sec\dfg\sf principal underwriter.doc
as revised February 9, 2000
4
<PAGE>
CUSTODIAN CONTRACT
BETWEEN
ADVANTUS SERIES FUND, INC.
AND
NORWEST BANK MINNESOTA, N.A.
(AS AMENDED AND RESTATED AS OF NOVEMBER 1, 1999)
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
1. Employment of Custodian and Property to be Held by It ..........................................1
2. Duties of the Custodian with Respect to Property of the Fund Held by the
Custodian.......................................................................................1
2.1 Holding Securities.....................................................................1
2.2 Delivery of Securities.................................................................1
2.3 Registration of Securities.............................................................4
2.4 Bank Accounts..........................................................................4
2.5 Payments for Shares....................................................................4
2.6 Availability of Federal Funds..........................................................4
2.7 Collection of Income...................................................................5
2.8 Payment of Fund Monies.................................................................5
2.9 Liability for Payment in Advance of Receipt of Securities Purchased....................6
2.10 Payments for Repurchases or Redemption of Shares of the Fund...........................6
2.11 Appointment of Agents..................................................................7
2.12 Deposit of Fund Assets in Securities Systems...........................................7
2.13 Segregated Account.....................................................................8
2.14 Ownership Certificates for Tax Purposes................................................9
2.15 Proxies................................................................................9
2.16 Communications Relating to Fund Portfolio Securities...................................9
2.17 Proper Instructions....................................................................9
2.18 Actions Permitted Without Express Authority...........................................10
2.19 Evidence of Authority.................................................................10
2.20 Class Actions.........................................................................10
2.21 Duties of the Custodian with Respect to Fund Property Held Outside
of the United States..................................................................11
2.21(a) Appointment of Foreign Sub-Custodian........................................11
2.21(b) Assets to be Held...........................................................11
2.21(c) Segregation of Securities...................................................11
2.21(d) Agreement with Foreign Banking Institution..................................12
2.21(e) Access of Independent Accountants of the Fund...............................12
2.21(f) Repots by Custodian.........................................................12
2.21(g) Foreign Securities Transactions.............................................13
2.21(h) Foreign Securities Lending..................................................14
2.21(i) Liability of Foreign Sub-Custodian..........................................15
2.21(j) Monitoring Responsibilities.................................................15
2.21(k) Branches of United States Banks.............................................15
2.21(l) Expropriation Insurance.....................................................15
3. Duties of Custodian with Respect to the Books of Account and Calculation of
Net Asset Value and Net Income.................................................................16
i
<PAGE>
4. Records........................................................................................16
5. Opinion of Fund's Independent Accountant.......................................................17
6. Reports to Fund by Independent Public Accountants..............................................17
7. Compensation of Custodian......................................................................17
8. Responsibility of Custodian....................................................................17
9. Effective Period, Termination and Amendment....................................................18
10. Successor Custodian............................................................................19
11. Interpretive and Additional Provisions.........................................................20
12. Minnesota Law to Apply.........................................................................20
13. Prior Contracts................................................................................20
</TABLE>
ii
<PAGE>
CUSTODIAN CONTRACT
This Contract is between the Portfolios of the Advantus Series Fund,
Inc., as set forth in the attached Schedule A, an investment company of the
series type consisting of several portfolios, and a corporation organized and
existing under the laws of the State of Minnesota, having its principal place of
business at 400 Robert Street North, St. Paul, Minnesota 55101, attached hereto
(hereinafter called the "Fund") and Norwest Bank Minnesota, N.A., a national
Banking association having its principal place of business at Sixth and
Marquette, Minneapolis, Minnesota 55479 (hereinafter called the "Custodian")
WITNESSETH, that in consideration of the mutual covenants and
agreements hereinafter contained, the parties hereto agree as follows:
1. EMPLOYMENT OF CUSTODIAN AND PROPERTY TO BE HELD BY IT
The Fund hereby employs the Custodian as the custodian of its assets
pursuant to the provisions of the Articles of Incorporation. The Fund agrees to
deliver to the Custodian all securities and cash owned by it, and all payments
of income, payments of principal or capital distributions received by it with
respect to all securities owned by the Fund from time to time, and the cash
consideration received by it for such new or treasury shares of capital stock
("Shares") of the Fund as may be issued or sold from time to time. The Custodian
shall not be responsible for any property of the Fund held or received by the
Fund and not delivered to the Custodian.
Upon receipt of "Proper Instructions" (within the meaning of Section
2.17), the Custodian shall from time to time employ one or more sub-custodians,
but only in accordance with an applicable vote by the Board of Directors of the
Fund, and provided that the Custodian shall have no more or less responsibility
or liability to the Fund on account of any actions or omissions of any
sub-custodian so employed than any such sub-custodian has to the Custodian.
2. DUTIES OF THE CUSTODIAN WITH RESPECT TO PROPERTY OF THE FUND HELD BY THE
CUSTODIAN
2.1 HOLDING SECURITIES
The Custodian shall hold and physically segregate for the
account of the Fund all non-cash property, including all securities
owned by the fund, other than (a) securities which are maintained
pursuant to Section 2.12 in a clearing agency which acts as a
securities depository or in a book-entry system authorized by the U.S.
Department of the Treasury, collectively referred to herein as a
"Securities System."
2.2 DELIVERY OF SECURITIES
The Custodian shall release and deliver securities owned by
the Fund held by the Custodian or in a Securities System account of the
Custodian only upon receipt of Proper
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Instructions, which may be continuing instructions when deemed appropriate by
the parties, and only in the following cases:
1) Upon sale of such securities for the account of the
Fund and receipt of payment therefor;
2) Upon the receipt of payment in connection with any
repurchase agreement related to such securities entered
into by the Fund;
3) In the case of a sale effected through a Securities
System, in accordance with the provisions of Section
2.12 hereof;
4) To the depository agent in connection with tender or
other similar offers for portfolio securities of the
Fund;
5) To the issuer thereof or its agent when such securities
are called, redeemed, retired or otherwise become
payable; provided that, in any such case, the cash or
other consideration is to be delivered to the
Custodian;
6) To the issuer thereof, or its agent, for transfer
into the name of the Fund or into the name of any
nominee or nominees of the Custodian or into the
name or nominee name of any agent appointed
pursuant to Section 2.11 or into the name or
nominee name of any sub-custodian appointed
pursuant to Article 1; or for exchange for a
different number of bonds, certificates or other
evidence representing the same aggregate face
amount or number of units; PROVIDED that, in any
such case, the new securities are to be delivered
to the Custodian;
7) Upon the sale of such securities for the account of the
Fund, to the broker or its clearing agent, against a
receipt, for examination in accordance with "street
delivery" custom; provided that in any such case, the
Custodian shall have no responsibility or liability for
any loss arising from the delivery of such securities
prior to receiving payment for such securities except
as may arise from the Custodian's own negligence or
willful misconduct;
8) For exchange or conversion pursuant to any plan or
merger, consolidation, recapitalization, reorganization
or readjustment of the securities of the issuer of such
securities, or pursuant to provisions for conversion
contained in such securities, or pursuant to any
deposit agreement; provided that, in any such case, the
new securities and cash, if any, are to be delivered to
the Custodian;
9) In the case of warrants, rights or similar securities,
the surrender thereof in the exercise of such warrants,
rights or similar securities or the surrender of
interim receipts of temporary securities for definitive
securities; provided
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that, in any such case, the new securities and cash, if
any, are to be delivered to the Custodian;
10) For delivery in connection with any loans of
securities, made by the Fund, BUT ONLY against receipt
of adequate collateral as agreed upon from time to time
by the Custodian and the Fund, which may be in the form
of cash or obligations issued by the United States
government, its agencies or instrumentalities, except
that in connection with any loans for which collateral
is to be credited to the Custodian's account in the
book-entry system authorized by the U.S. Department of
the Treasury, the Custodian will not be held liable or
responsible for the delivery of securities owned by the
Fund prior to the receipt of such collateral;
11) For delivery as security in connection with any
borrowings by the Fund requiring a pledge of assets by
the Fund, BUT ONLY against receipt of amounts borrowed;
12) For delivery in accordance with the provisions of any
agreement among the Fund, the Custodian and a
broker-dealer registered under the Securities Exchange
Act of 1934 (the "Exchange Act") and a member of the
National Association of Securities Dealers, Inc.
("NASD"), relating to the compliance with the rules of
The Options Clearing Corporation and of any registered
national securities exchange, or of any similar
organization or organizations, regarding escrow or
other arrangements in connection with transactions by
the Fund;
13) For delivery in accordance with the provisions of any
agreement among the Fund, the Custodian, and a Futures
Commission Merchant registered under the Commodity
Exchange Act, relating to compliance with the rules of
the Commodity Futures Trading Commission and/or any
Contract Market, or any similar organization or
organizations, regarding account deposits in connection
with transactions by the Fund;
14) Upon receipt of instructions from the transfer agent
("Transfer Agent") for the Fund, for delivery to such
Transfer Agent or to the holders of shares in
connection with distributions in kind, as may be
described from time to time in the Fund's currently
effective prospectus and statement of additional
information ("prospectus"), in satisfaction of requests
by holders of Shares for repurchase or redemptions; and
15) For any other proper corporate purpose, BUT ONLY upon
receipt of, in addition to Proper Instructions, a
certified copy of a resolution of the Board of
Directors or of the Executive Committee signed by an
officer of the Fund and certified by the Secretary or
an Assistant Secretary, specifying the securities to be
delivered, setting forth the purpose for which such
delivery is to be made, declaring such purpose to be a
proper corporate purpose, and
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naming the person or persons to whom delivery of such
securities shall be made.
2.3 REGISTRATION OF SECURITIES
Securities held by the Custodian (other than bearer securities) shall be
registered in the name of the Fund or in the name of any nominee of the Fund or
of any nominee of the Custodian which nominee shall be assigned exclusively to
the Fund, UNLESS the Fund has authorized in writing the appointment of a nominee
to be used in common with other registered investment companies having the same
investment adviser as the Fund, or in the name of nominee name of any agent
appointed pursuant to Section 2.11 or in the name or nominee name of any
sub-custodian appointed pursuant to Article 1. All securities accepted by the
Custodian on behalf of the Fund under the terms of this Contract shall be in
"street name" or other good delivery form.
2.4 BANK ACCOUNTS
The Custodian shall open and maintain a separate bank account or accounts
in the name of the Fund, subject only to draft or order by the Custodian acting
pursuant to the terms of this Contract, and shall hold in such account or
accounts, subject to the provisions hereof, all cash received by it from or for
the account of the Fund, other than cash maintained by the Fund in a bank
account established and used in accordance with Rule 17f-3 under the Investment
Company Act of 1940. Funds held by the Custodian for the Fund may be deposited
by it to its credit as Custodian in the Banking Department of the Custodian or
in such other banks or trust companies as it may in its discretion deem
necessary or desirable; PROVIDED, however, that every such bank or trust company
shall be qualified to act as a custodian under the Investment Company Act of
1940 and that each bank or trust company and the funds to be deposited with each
such bank or trust company shall be approved by vote of a majority of the Board
of Directors of the Fund. Such funds shall be deposited by the Custodian in its
capacity as Custodian and shall be withdrawable by the Custodian only in that
capacity.
2.5 PAYMENTS FOR SHARES
The Custodian shall receive from the distributor for the Fund's Shares or
from the Transfer Agent of the Fund and deposit into the Fund's account such
payments as are received for Shares of the Fund issued or sold from time to time
by the Fund. The Custodian will provide timely notification to the Fund and the
Transfer Agent of any receipt by it of payments for Shares of the Fund.
2.6 AVAILABILITY OF FEDERAL FUNDS
Upon mutual agreement between the Fund and the Custodian, the Custodian
shall, upon the receipt of Proper Instructions, make federal funds available to
the Fund as of specified times agreed upon from time to time by the Fund and the
Custodian in the
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amount of checks received in payment for Shares of the Fund which are deposited
into the Fund's account.
2.7 COLLECTION OF INCOME
The Custodian shall collect on a timely basis all income and other
payments with respect to registered securities held hereunder to which the
Fund shall be entitled either by law or pursuant to custom in the securities
business, and shall collect on a timely basis all income and other payments
with respect to bearer securities if, on the date of payment by the issuer,
such securities are held by the Custodian or its agent thereof and shall
credit such income, as collected, to the Fund's custodian account. Without
limiting the generality of the foregoing, the Custodian shall detach and
present for payment all coupons and other income items requiring presentation
as and when they become due and shall collect interest when due on securities
held hereunder. Income due the Fund on securities loaned pursuant to the
provisions of Section 2.2(10) shall be the responsibility of the Fund. The
Custodian will have no duty or responsibility in connection therewith, other
than to provide the Fund with such information or data as may be necessary to
assist the Fund in arranging for the timely delivery to the Custodian of the
income to which the Fund is properly entitled.
2.8 PAYMENT OF FUND MONIES
Upon receipt of Proper Instructions, which may be continuing instructions
when deemed appropriate by the parties, the Custodian shall pay out monies of
the fund in the following cases only:
1) Upon the purchase of securities, options, futures contracts or options
on futures contracts for the account of the Fund but only (a) against
the delivery of such securities or evidence of title to such options,
futures contracts or options on futures contracts, to the Custodian
(or any bank, banking firm or trust company doing business in the
United States or abroad which is qualified under the Investment
Company Act of 1940 to act as a custodian and has been designated by
the Custodian as its agent for this purpose) registered in the name of
the Fund or in the name of a nominee of the Custodian referred to in
Section 2.3 hereof or in proper form for transfer; (b) in the case of
a purchase effected through a Securities System, in accordance with
the conditions set forth in Section 2.12 hereof or (c) in the case of
the repurchase agreements entered into between the Fund and the
Custodian, or another bank, or a broker-dealer which is a member of
NASD, (i) against delivery of the securities either in certificate
form or through an entry crediting the Custodian's account at the
Federal Reserve Bank with such securities or (ii) against delivery of
the receipt evidencing purchase by the Fund of securities owned by the
Custodian along with written evidence of the agreement by the
Custodian to repurchase such securities from the Fund.
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2) In connection with conversion, exchange or surrender of securities
owned by the Fund as set forth in Section 2.2 hereof;
3) For the redemption or repurchase of Shares issued by the Fund as set
forth in Section 2.10 hereof;
4) For the payment of any expense or liability incurred by the Fund,
including but not limited to the following payments for the account of
the Fund: interest, taxes, management, accounting, transfer agent and
legal fees, and operating expenses of the Fund whether or not such
expenses are to be in whole or part capitalized or treated as deferred
expenses;
5) For the payment of any dividends declared pursuant to the governing
documents of the Fund;
6) For payment of the amount of dividends received in respect of
securities sold short;
7) For any other proper purpose, BUT ONLY upon receipt of, in addition to
Proper Instructions, a certified copy of a resolution of the Board of
Directors or of the Executive Committee of the Fund signed by an
officer of the Fund and certified by its Secretary or an Assistant
Secretary, specifying the amount of such payment, setting forth the
purpose for which such payment is to be made, declaring such purpose
to be a proper purpose, and naming the person or persons to whom such
payment is to be made.
2.9 LIABILITY FOR PAYMENT IN ADVANCE OF RECEIPT OF SECURITIES PURCHASED
The Custodian shall not make payment for the purchase of domestic
securities for the account of a Fund in advance of receipt of the securities
purchased in the absence of specific written instructions from the Fund to so
pay in advance. In any and every case where payment for purchase of domestic
securities of the account of a Fund is made by the Custodian in advance of
receipt of the securities purchased in the absence of specific written
instructions from the Fund to so pay in advance, the Custodian shall be
absolutely liable to the Fund (for the account of the Fund) for such securities
to the same extent as if the securities had been received by the Custodian.
2.10 PAYMENTS FOR REPURCHASES OR REDEMPTIONS OF SHARES OF THE FUND
From such funds as may be available for the purpose but subject to the
limitations of the Articles of Incorporation and any applicable votes of the
Board of Directors of the Fund pursuant thereto, the Custodian shall, upon
receipt of instructions from the Transfer Agent, make funds available for
payment to holders of Shares who have delivered to the Transfer Agent a request
for redemption or repurchase of their Shares. In connection with the redemption
or repurchase of Shares of the fund, the Custodian is authorized upon receipt of
instructions from the Transfer Agent to wire funds to or through a
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commercial bank designated by the redeeming shareholders. In connection with the
redemption or repurchase of Shares of the Fund, the Custodian shall honor checks
drawn on the Custodian by a holder of Shares, which checks have been furnished
by the Fund to the holder of Shares, when presented to the Custodian in
accordance with such procedures and controls as are mutually agreed upon from
time to time between the Fund and the Custodian.
2.11 APPOINTMENT OF AGENTS
The Custodian may at any time or times in its discretion appoint (and may
at any time remove) any other bank or trust company which is itself qualified
under the Investment Company Act of 1940 to act as a custodian, as its agent to
carry out such of the provisions of this Article 2 as the Custodian may from
time to time direct; PROVIDED, however, that the appointment of any agent shall
not relieve the Custodian of its responsibilities or liabilities hereunder.
2.12 DEPOSIT OF FUND ASSETS IN SECURITIES SYSTEMS
The Custodian may deposit and/or maintain domestic securities owned by any
Fund in a clearing agency registered with the Securities and Exchange Commission
under Section 17A of the Exchange Act, which acts as a securities depository, or
in a Federal Reserve Bank, as Custodian or Custodian's agent or nominee on the
records of such Federal Reserve Bank or such registered clearing agency or the
nominee of either (collectively referred to herein as "Securities System") in
accordance with applicable Federal Reserve Board and Securities and Exchange
Commission rules and regulations, if any, and subject to the following
provisions:
1) The Custodian may keep domestic securities of a Fund in a Securities
System provided that such securities are represented in an account
("Account") of the Custodian in the Securities System which shall not
include any assets of the Custodian other than assets held as a
fiduciary custodian or otherwise for customers;
2) The records of the Custodian with respect to domestic securities of a
Fund which are maintained in a Securities System shall identify by
book-entry those securities belonging to such Fund;
3) The Custodian shall pay for domestic securities purchased for the
account of a Fund upon (i) the simultaneous receipt of advice from the
Securities System that such securities have been transferred to the
Account, and (ii) the making of an entry on the records of the
Custodian to reflect such payment and transfer for the account of the
Fund. The Custodian shall transfer domestic securities sold for the
account of a Fund upon (a) the simultaneous receipt of advice from the
Securities System that payment for such securities has been
transferred to the Account, and (b) the making of an entry on the
records of the Custodian to reflect such transfer and payment for the
account
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<PAGE>
of the Fund. Copies of all advises from the Securities System of
transfers of securities for the account of a Fund shall identify
the Fund, be maintained for the Fund by the Custodian and be
provided at its request. Upon request, the Custodian shall furnish
the Fund confirmation of each transfer to or from the account of a
Fund in the form of a written advice or notice and shall furnish to
the Fund copies of daily transaction sheets reflecting each day's
transactions in the Securities System for the account of each Fund.
4) The Custodian shall provide the Fund with any report obtained by the
Custodian on the Securities System's accounting system internal
accounting control and procedures for safeguarding securities
deposited in the Securities System;
5) The Custodian shall have received the initial or annual certificate,
as the case may be, required by Article 16 hereof;
6) Anything to the contrary in this Contract notwithstanding, the
Custodian shall be liable to the Fund for any loss or damage to the
applicable Fund(s) resulting from use of the Securities System by
reason of any negligence, misfeasance or misconduct of the Custodian
or any of its agents or of any of its or their employees or from
failure of the Custodian or any such agent or employee to enforce
effectively such rights as it may have against the Securities System;
at the election of the Fund, it shall be entitled to be subrogated to
the rights of the Custodian with respect to any claim against the
Securities System or any other person which the Custodian may have as
a consequence of any such loss or damage if and to the extent that the
applicable Funds have not been made whole for any such loss or damage.
2.13 SEGREGATED ACCOUNT
The Custodian shall upon receipt of Proper Instructions establish and
maintain a segregated account or accounts for and on behalf of the Fund, into
which account or accounts may be transferred cash and/or securities, including
securities maintained in an account by the Custodian pursuant to Section 2.12
hereof, (i) in accordance with the provisions of any agreement among the Fund,
the Custodian and a broker-dealer registered under the Exchange Act and a member
of NASD (or any futures commission merchant registered under the Commodity
Exchange Act), relating to compliance with the rules of The Options Clearing
Corporation and of any registered national securities exchange (or the Commodity
Futures Trading Commission or any registered contract market), or of any similar
organization or organizations, regarding escrow or other arrangements in
connection with transactions by the Fund, (ii) for the purpose of segregating
cash or government securities in connection with options purchased, sold or
written by the Fund or commodity futures contracts or options thereon purchased
or sold by the Fund, (iii) for the purpose of compliance by the Fund with the
procedures required by Investment Company Act Release No. 10666, or any
subsequent release or releases of the Securities and Exchange Commission
relating to the maintenance of segregated
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accounts by registered investment companies and (iv) for other proper corporate
purposes, BUT ONLY, in the case of the clause (iv), upon receipt of, in addition
to Proper Instructions, a certified copy of a resolution of the Board of
Directors or of the Executive Committee signed by an officer of the Fund and
certified by the Secretary or an Assistant Secretary, setting forth the purpose
or purposes of such segregated account and declaring such purposes to be proper
corporate purposes.
2.14 OWNERSHIP CERTIFICATES FOR TAX PURPOSES
The Custodian shall execute ownership and other certificates and affidavits
for all federal and state tax purposes in connection with receipt of income or
other payments with respect to securities of the Fund held by it and in
connection with transfers of securities.
2.15 PROXIES
The Custodian shall, with respect to the securities held hereunder, cause
to be promptly executed by the registered holder of such securities, if the
securities are registered otherwise than in the name of the Fund or a nominee of
the Fund, all proxies, without indication of the manner in which such proxies
are to be voted, and shall promptly deliver to the Fund such proxies, all proxy
soliciting materials and all notices relating to such securities.
2.16 COMMUNICATIONS RELATING TO FUND PORTFOLIO SECURITIES
The Custodian shall transmit promptly to the Fund all written information
(including, without limitation, pendency of calls and maturities of securities
and expirations of rights in connection therewith and notices of exercise of
call and put options written by the Fund and the maturity of futures contracts
purchased or sold by the Fund) received by the Custodian from issuers of the
securities being held for the Fund. With respect to tender or exchange offers,
the Custodian shall transmit promptly to the Fund all written information
received by the Custodian from issuers of the securities whose tender or
exchange is sought and from the party (or his agents) making the tender or
exchange offer. If the Fund desires to take action with respect to any tender
offer, exchange offer or any other similar transaction, the Fund shall notify
the Custodian at least three (3) business days prior to the date on which the
Custodian is to take such action.
2.17 PROPER INSTRUCTIONS
Proper Instructions as used throughout this Article 2 means a writing
signed or initialed by one or more person or persons as the Board of Directors
shall have from to time authorized. Each such writing shall set forth the
specific transaction or type of transaction involved, including a specific
statement of the purpose for which such action is requested. Oral instructions
will be considered Proper Instructions if the Custodian reasonably believes them
to have been given a person authorized to give such instructions
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with respect to the transaction involved. The Fund shall cause all oral
instructions to be confirmed in writing. Upon receipt of a certificate of the
Secretary or an Assistant Secretary as to the authorization by the Board of
Directors of the Fund accompanied by a detailed description of procedures
approved by the Board of Directors, Proper Instructions may include
communications effected directly between electro-mechanical or electronic
devices provided that the Board of Directors and the Custodian are satisfied
that such procedures afford adequate safeguards for the Fund's assets.
2.18 ACTIONS PERMITTED WITHOUT EXPRESS AUTHORITY
The Custodian may in its discretion, without express authority from the
Fund;
1) Make payments to itself or others for minor expenses of handling
securities PROVIDED that all such payments shall be accounted for to
the Fund;
2) Surrender securities in temporary form for securities in definitive
form;
3) Endorse for collection, in the name of the Fund, checks, drafts and
other negotiable instruments; and
4) In general, attend to all non-discretionary details in connection with
the sale, exchange, substitution, purchase, transfer and other
dealings with the securities and property of the Fund except as
otherwise directed by the Board of Directors of the Fund.
2.19 EVIDENCE OF AUTHORITY
The Custodian shall be protected in acting upon any instructions, notice,
request, consent, certificate or other instrument of paper believed by it to be
genuine and to have been properly executed by or on behalf of the Fund. The
Custodian may receive and accept a certified copy of a vote of the Board of
Directors of the Fund as conclusive evidence (a) of the authority of any person
to act in accordance with such vote or (b) or any determination or of any action
by the Board of Directors pursuant to the Articles of Incorporation as described
in such vote, and such vote may be considered as in full force and effect until
receipt by the Custodian of written notice to the contrary.
2.20 CLASS ACTIONS
The Custodian shall transmit promptly to the Fund all notices or other
communications received by it in connection with any class action lawsuit
relating to securities currently or previously held for the Fund. Upon being
directed by the Fund to do so, the Custodian shall furnish to the Fund any and
all written materials which establish the holding/ownership, amount held/owned,
and period of holding/ownership of the securities in question.
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2.21 DUTIES OF THE CUSTODIAN WITH RESPECT TO FUND PROPERTY HELD OUTSIDE OF THE
UNITED STATES
2.21(a) APPOINTMENT OF FOREIGN SUB-CUSTODIAN
The Custodian is authorized and instructed, either directly or indirectly
(through one or more sub-custodian U.S. banks), to employ as sub-custodians for
any Fund's securities and other assets maintained outside of the United States
the foreign institutions, foreign securities depositories and foreign clearing
agencies designated on Exhibit A hereto ("foreign sub-custodians"); provided,
however, that, notwithstanding the contents of Exhibit A hereto, the Custodian
(including any of its agents and sub-custodians) is authorized to directly or
indirectly employ or retain any sub-custodian, depository or clearing agency
only if said employed or retained institution qualifies as either (a) an
"eligible foreign custodian," as defined in Rule 17f-5 under the Investment
Company Act of 1940, or (b) a "bank," as defined in Section 2(a)(5) of the
Investment Company Act of 1940, that in turn qualifies as an eligible domestic
custodian under Section 17(f) of the Investment Company Act of 1940; and
provided further that the Custodian shall be liable to the Fund for any loss of
any Fund assets custodied with any institution directly or indirectly employed
or retained by the Custodian (or any of its agents or sub-custodians) that does
not meet the qualifications of either clause (a) or (b) of the preceding
proviso.
Upon receipt of Proper Instructions, together with a certified resolution
of the Fund's Board of Directors, the Custodian and the Fund may agree to amend
Exhibit A hereto from time to time to designate additional or alternative
foreign banking institutions, foreign securities depositories and foreign
clearing agencies to act as sub-custodian. Each foreign banking institution
shall be authorized to deposit securities in foreign securities depositories and
foreign clearing agencies authorized pursuant to Rule 17f-5 under the Investment
Company Act of 1940. Upon receipt of Proper Instructions from the Fund the
Custodian shall promptly cease the employment of any one or more of such
sub-custodians for maintaining custody of the assets of the application Fund(s).
2.21(b) ASSETS TO BE HELD
The Custodian shall limit the securities and other assets maintained in the
custody of the foreign sub-custodian to: (a) "foreign securities," as defined in
paragraph (c)(1) of Rule 17f-5 under the Investment Company Act of 1940, and (b)
cash and cash equivalents in such amounts as the Custodian or the Fund may
determine to be reasonably necessary to effect the foreign securities
transactions of the applicable Fund(s).
2.21(c) SEGREGATION OF SECURITIES
The Custodian shall identify on its books as belonging to the Fund for the
account of one or more of the Fund(s), the foreign securities of each such Fund
held by each foreign sub-custodian. Each agreement pursuant to which the
Custodian or its duly appointed U.S. sub-custodian employs a foreign banking
institution shall require that
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such institution establish a custody account for the Custodian (or its U.S.
sub-custodian, as the case may be) on behalf of its customers and physically
segregate in that account securities and other assets of the Custodian's
customers, and, in the event that such institution deposits a Fund's securities
in a foreign securities depository, the sub-custodian shall identify on its
books as belonging to the Custodian (or is U.S. sub-custodian, as the case may
be), as agent for the Custodian's customers, the securities so deposited (all
collectively referred to as the "Account").
2.21(d) AGREEMENT WITH FOREIGN BANKING INSTITUTION
Each agreement with a foreign banking institution shall provide that: (a)
each Fund's assets will not be subject to any right, charge, security interest,
lien or claim or any kind in favor of the foreign banking institution or its
creditors, except a claim of payment for their safe custody or administration;
(b) beneficial ownership for each Fund's assets will be freely transferable
without the payment of money or value other than for custody or administration,
which may include payment of stamp duties or government taxes; (c) adequate
records will be maintained identifying the assets as belonging to the customers
of Custodian; (d) officers of or auditors employed by, or other representatives
of the Custodian, including independent public accountants for each Fund, will
be given access to the books and records of the foreign banking institution
relating to its actions given under its agreement with the Custodian or shall be
given confirmation of the contents of such books and records; and (e) assets of
each Fund held by the foreign sub-custodian will be subject only to the
instructions of the Fund, the Custodian or their agents.
2.21(e) ACCESS OF INDEPENDENT ACCOUNTANTS OF THE FUND
Upon request of the Fund, the Custodian will sue its best efforts to
arrange for the independent accountants of the Fund to be afforded access to the
books and records of any foreign banking institution employed as a foreign
sub-custodian insofar as such books and records relate to the performance of
such foreign banking institutions under its agreement with the Custodian (or its
U.S. sub-custodian, as the case may be).
2.21(f) REPORTS BY CUSTODIAN
The Custodian will supply to the Fund from time to time, as mutually agreed
upon, statements in respect of the securities and other assets of each Fund held
by foreign sub-custodians, including but not limited to an identification of
entities having possession of each applicable Fund's securities and other assets
and advices or notifications of any transfers of securities to or from each
custodial account maintained by a foreign sub-custodian for the Custodian Fund
indicating, as to securities acquired for the Fund, the identity of the entity
having physical possession of such securities.
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2.21(g) FOREIGN SECURITIES TRANSACTIONS
1) Upon receipt of Proper Instructions, which may be continuing
instructions when deemed appropriate by the parties, the Custodian
shall make or cause its foreign sub-custodian to transfer, exchange,
or deliver foreign securities owned by the Fund for the account of a
Fund, but except to the extent explicitly provided herein only in any
of the cases specified in Section 2.2.
2) Upon receipt of Proper Instructions, which may be continuing
instructions when deemed appropriate by the parties the Custodian
shall pay out or cause its foreign sub-custodian to pay out monies of
a Fund, but except to the extent explicitly provided herein only in
any of the cases specified in Section 2.8.
3) Settlement and payment for securities received for the account of a
Fund and delivery of securities maintained for the account of a Fund
may, upon receipt of Proper Instructions, be effected in accordance
with the customary or established securities trading or securities
processing practices and procedures in the jurisdiction or market in
which the transaction occurs, including, without limitation,
delivering securities to the purchaser thereof or to a dealer therefor
(or an agent for such purchaser or dealer) against a receipt with the
expectation of receiving later payment for such securities from such
purchaser or dealer.
4) With respect to any transaction involving foreign securities, the
Custodian or any sub-custodian in its discretion may cause a Fund's
account to be credited on either the contractual settlement date or
the actual settlement date with the proceeds of any sale or exchange
of foreign securities from the account of the applicable Fund and to
be debited on either the contractual settlement date or the actual
settlement date for the cost of foreign securities purchased or
acquired for such Fund according to Custodian's then current internal
policies and procedures pertaining to securities settlement, which
policies and procedures may change from time to time. Custodian shall
advise the Fund of any changes to such policies and procedures. The
Custodian may reverse any such credit or debit made on the contractual
settlement date if the transaction with respect to which such credit
or debit was made fails to settle within a reasonable period,
determined by Custodian in its reasonable discretion, after the
contractual settlement date except that if any foreign securities
delivered pursuant to this section are returned by the recipient
thereof, the Custodian may cause any such credits and debits to be
reversed at any time.
5) Securities maintained in the custody of a foreign sub-custodian may be
maintained in the name of such entity's nominee to the same extent as
set forth in Section 2.3 of this Contract and the Fund agrees to hold
any such nominee harmless from any liability as a holder of record of
such securities.
-13-
<PAGE>
6) Until the Custodian receives written instructions to the contrary, the
Custodian shall, or shall cause the sub-custodian to collect all
interest and dividends paid on securities held in each applicable
Fund's account, unless such payment is in default. Unless otherwise
instructed, the Custodian shall convert interest, dividends and
principal received with respect to securities in a Fund's account into
United States dollars, and the Custodian shall perform foreign
exchange contracts for the conversion of United States dollars to
foreign currencies for the settlement of trades whenever it is
practicable to do so through customary banking channels. Customary
banking channels may vary based upon industry practice in each
jurisdiction, and shall include the banking facilities of the
Custodian's affiliates, in accordance with such affiliate's then
prevailing internal policy on funds repatriation. All risk and expense
incident to such foreign collection and conversions is the
responsibility of each applicable Fund's account, and Custodian shall
have no responsibility for fluctuation in exchange rates affecting
collections or conversions.
2.21(h) FOREIGN SECURITIES LENDING
Notwithstanding any other provisions contained in this Contract, the
Custodian and any sub-custodian shall deliver and receive securities loaned or
returned in connection with securities lending transactions only upon and in
accordance with Proper Instructions; provided, if the Custodian is not the
lending agent in connection with such securities lending, then neither the
Custodian or any sub-custodian shall undertake, or otherwise be responsible for,
(i) marking to market values for such loaned securities,
(ii) collection of dividends, interest or other disbursements or
distributions made with respect to such loaned securities,
(iii) receipt of corporate action notices, communications, proxies or
instruments with respect to such loaned securities, and
(iv) custody, safekeeping, valuation or any other actions or services
with respect to any collateral securing any such securities lending
transactions.
In the event that the Custodian is the applicable Fund's lending agent in
connection with a specific securities loan, the Custodian shall undertake to
perform all of the above duties with regard to such loan, except that the Fund
shall not receive, nor be enabled to vote, proxies in connection with such
loaned security.
-14-
<PAGE>
2.21(i) LIABILITY OF FOREIGN SUB-CUSTODIAN
Each agreement pursuant to which the Custodian (or its U.S. sub-custodian
bank, as applicable) employs a foreign banking institution as a foreign
sub-custodian shall require the institution to exercise reasonable care in
performance of its duties and to indemnify, and hold harmless, the Custodian and
Custodian's customers from and against any loss, damage, cost, expense,
liability or claim arising out of such sub-custodian's negligence, fraud, bad
faith, willful misconduct or reckless disregard of its duties. At the election
of the Fund, it shall be entitled to be subrogated to the right of the Custodian
with respect to any claims against the Custodian's U.S. sub-custodian bank (if
any) or a foreign banking institution as a consequence of any such loss, damage,
cost, expense, liability or claim if and to the extent that the Fund has not
been made whole for any such loss, damage, cost, expense, liability or claims.
2.21(j) MONITORING RESPONSIBILITIES
The Custodian shall furnish annually to the Fund information concerning the
foreign sub-custodian employed by the Custodian (or its U.S. sub-custodian bank,
as applicable). Such information shall be similar in kind and scope to that
furnished to the Fund in connection with the initial approval of this Contract
(and any contracts with U.S. and foreign sub-custodians entered into pursuant
hereto). In addition, the Custodian will promptly inform the Fund in the event
that the Custodian learns of a material adverse change in the financial
condition of a foreign sub-custodian or is notified by the Custodian's U.S.
sub-custodian bank (if any) or a foreign banking institution employed as foreign
sub-custodian that there appears to be a substantial likelihood that its
shareholders' equity will decline below $200 million (United States dollars or
the equivalent thereof) or that its shareholders' equity has declined below $200
million (in each case computed in accordance with generally accepted United
States accounting principles).
2.21(k) BRANCHES OF UNITED STATES BANKS
Except as otherwise set forth in this Contract, the provisions hereof shall
not apply where the custody of any Fund's assets maintained in a foreign branch
of a banking institution which is a "bank" as defined by Section 2(a)(5) of the
Investment Company Act of 1940 which meets the qualification set forth in
Section 26(a) of said Act. The appointment of any such branch as a sub-custodian
shall be governed by Article 1 of this Contract.
2.21(l) EXPROPRIATION INSURANCE
The Custodian represents that it does not intend to obtain any insurance
for the benefit of the Fund which protects against the imposition of exchange
control restrictions or the transfer from any foreign jurisdiction of the
proceeds of sale of any securities or against confiscation, expropriation or
nationalization of any securities or the assets of the issuer of such securities
is organized or in which securities are held for safekeeping either
-15-
<PAGE>
by Custodian or any sub-custodians in such country. The Custodian represents
that its understanding of the position of the Staff of the Securities and
Exchange Commission is that any investment company investing in securities of
foreign issuers has the responsibility for reviewing the possibility of the
imposition of exchange control restrictions which would affect the liquidity
of such investment company's assets and the possibility of exposure to
political risk, including the appropriateness of insuring against such risk.
3. DUTIES OF CUSTODIAN WITH RESPECT TO THE BOOKS OF ACCOUNT AND CALCULATION OF
NET ASSET VALUE AND NET INCOME
The Custodian shall cooperate with and supply necessary information to the
entity or entities appointed by the Board of Directors of the Fund to keep the
books of account of the Fund and/or compute the net asset value per share of the
outstanding shares of the Fund or, if directed in writing to do so by the Fund,
shall itself keep such books of account and/or computer such net asset value per
share. If so directed, the Custodian shall also calculate daily the net income
of the Fund as described in the Fund's currently effective prospectus and shall
advise the Fund and the Transfer Agent daily of the total amounts of such net
income and, if instructed in writing by an officer of the Fund to do so, shall
advise the Transfer Agent periodically of the division of such net income among
its various components. The calculations of the net asset value per share and
the daily income of the Fund shall be made at the time or times described from
time to time in the Fund's currently effective prospectus.
4. RECORDS
The Custodian shall create and maintain all records relating to its
activities and obligations under this Contract in such manner as will meet the
obligations of the Fund under the Investment Company Act of 1940, with
particular attention to Section 31 thereof and Rule 31a-1 and 31a-2 thereunder.
The Custodian shall also maintain records as directed by the Fund in connection
with applicable federal and state tax laws and any other law or administrative
rules or procedures which may be applicable to the Funds. With respect to
securities and cash deposited with a Securities System, a sub-custodian or an
agent of the Custodian, the Custodian shall identify on its books all such
securities and cash as belonging to the account of the applicable Fund(s). All
such records shall be the property of the Fund and shall at all times during the
regular business hours of the Custodian be open for inspection by duly authority
officers, employees or agents of the Fund. Such records shall be made available
to the Fund for review by employees and agents of the Securities and Exchange
Commission. The Custodian shall furnish to the Fund, and its agents, as of the
close of business on the last day of each month a statement showing all
transactions and entries for the account of the Fund during that month, and all
holdings as of month-end.
All records so maintained in connection with the performance of its duties
under this Contract shall remain the property of the Fund and, in the event of
termination of this Contract, shall be delivered to the Fund. Subsequent to such
delivery, and surviving the termination of this Contract, the Fund shall provide
the Custodian access to examine and photocopy such records as
-16-
<PAGE>
the Custodian, in its discretion, deems necessary, for so long as such records
are retained by the Fund.
5. OPINION OF FUND'S INDEPENDENT ACCOUNTANT
The Custodian shall take all reasonable action, as the Fund may from time
to time request, to obtain from year to year favorable opinions from the Fund's
independent accountants with respect to its activities hereunder in connection
with the preparation of the Fund's, Form N-1A, and Form N-SAR or other annual
reports to the Securities and Exchange Commission and with respect to any other
requirements of such Commission.
6. REPORTS TO FUND BY INDEPENDENT PUBLIC ACCOUNTANTS
The Custodian shall provide the Fund, at such times as the Fund may
reasonably require, with reports by independent public accountants on the
accounting system, internal accounting control and procedures for safeguarding
securities, futures contracts and options on futures contracts, including
securities deposited and/or maintained in a Securities System, relating to the
services provided by the Custodian under this Contract; such reports shall be of
sufficient scope, and in sufficient detail, as may reasonably be required by the
Fund to provide reasonable assurance that any material inadequacies would be
disclosed by such examination, and, if there are no such inadequacies, the
reports shall so state.
7. COMPENSATION OF CUSTODIAN
For performance by the Custodian pursuant to this Contract, the Fund
agrees to pay the Custodian annual asset fees and supplemental charges as set
out in the fee schedule attached hereto.
8. RESPONSIBILITY OF CUSTODIAN
So long as and to the extent that it is in the exercise of reasonable
care, the Custodian shall not be responsible for the title, validity or
genuineness of any property or evidence of title thereto received by it or
delivered by it pursuant to this Contract shall be held harmless in acting upon
any notice, request, consent, certificate or other instrument reasonably
believed by it to be genuine and to be signed by the proper party or parties.
The Custodian shall be held to the exercise of reasonable care in carrying out
the provisions of this Contract, but shall be kept indemnified by and shall be
without liability to the Fund for any action taken or omitted by it in good
faith and without negligence. It shall be entitled to rely on and may act upon
advice of counsel of, or reasonably acceptable to, the Fund on all matters, and
shall be without liability for any action reasonably taken or omitted pursuant
to such advice. Notwithstanding the foregoing, the responsibility of the
Custodian with respect to redemptions effected by check shall be in accordance
with a separate Contract entered into between the Custodian and the Fund or its
agent.
If the Fund requires the Custodian to take any action with respect to
securities, which action involves the payment of money or which action may, in
the reasonable opinion of the
-17-
<PAGE>
Custodian, result in the Custodian or its nominee assigned to the Fund being
liable for the payment of money or incurring liability of some other form, the
Fund, as a prerequisite to requiring the Custodian to take such action, shall
provide indemnity to the Custodian in an amount and form reasonably satisfactory
to it.
If the Fund requires the Custodian to advance cash or securities for any
purpose or in the event that the Custodian or its nominee shall incur or be
assessed any taxes, charges, expenses, assessments, claims or liabilities in
connection with the performance of this Contract, except such as may arise from
its or its nominee's own negligent action, negligent failure to act or willful
misconduct, any property at any time held for the account of a Fund shall be
security therefor and should the Fund fail to repay the Custodian promptly with
respect to any Fund, the Custodian shall be entitled to utilize available cash
and to dispose of assets to the extent necessary to obtain reimbursement.
The Custodian shall not be liable for any loss or damage to the Fund
resulting from participation in a securities depository unless such loss or
damage arises by reason of any negligence, misfeasance, or willful misconduct of
officers or employees of the Custodian, or from its failure to enforce
effectively such rights as it may have against any securities depository or from
use of a sub-custodian or agent. Anything in this Contract to the contrary
notwithstanding, the Custodian shall exercise, in the performance of its
obligations undertaken or reasonably assumed with respect to this Contract,
reasonable care, for which the Custodian shall be responsible to the same extent
as if it were performing such duties directly. The Custodian shall be
responsible for the securities and cash held by or deposited with any
sub-custodian or agent to the same extent as if such securities and cash were
directly held by or deposited with the Custodian. The Custodian hereby agrees
that it shall indemnify and hold each applicable Fund harmless from and against
any loss which shall occur as a result of the failure of a foreign sub-custodian
holding the securities and cash to provide a level of safeguards for maintaining
any Fund's securities and cash not materially different from that provided by a
United States custodian holding such securities and cash in the United States.
The Custodian agrees to indemnify and hold each of the Funds harmless for
any and all loss, liability and expense, including reasonable legal fees and
expenses, arising out of the Custodian's own negligence or willful misconduct or
that of its officers, agents, sub-custodian or employees in the performance of
the Custodian's duties and obligations under this Contract.
9. EFFECTIVE PERIOD, TERMINATION AND AMENDMENT
The Contract shall become effective as of its execution, shall continue in
full force and effect until terminated as hereinafter provided, may be amended
at any time by mutual agreement of the parties hereto and may be terminated by
either party by an instrument in writing delivered or mailed, postage prepaid to
the other party, such termination to take effect not sooner than sixty (60) days
after the date of such delivery or mailing; PROVIDED, however, that the
Custodian shall not act under Section 2.12 hereof in the absence of receipt of
an initial certificate of the Secretary or an Assistant Secretary that the Board
of Directors of the Fund has approved the initial use of a particular Securities
System and the receipt of an annual certificate of the Secretary or an Assistant
Secretary that the Board of Directors has reviewed the use by the Fund of such
Securities System, as required in each case by Rule 17f-4 under the Investment
Company
-18-
<PAGE>
Act of 1940; PROVIDED FURTHER, however, that the Fund shall not amend or
terminate this Contract in contravention of any applicable federal or state
regulations, or any provision of the Articles of Incorporation, and further
provided, that the Fund may at any time be action of its Board of Directors (i)
substitute another bank or trust company for the Custodian by giving notice as
described above to the Custodian, or (ii) immediately terminate this Contract in
the event of the appointment of a conservator or receiver for the Custodian by
the Comptroller of the Currency or upon the happening of a like event at the
direction of an appropriate regulatory agency or court of competent
jurisdiction.
Upon termination of the Contract, the Fund shall pay to the Custodian such
compensation as may be due as of the date of such termination and shall likewise
reimburse the Custodian for its costs, expenses and disbursements.
10. SUCCESSOR CUSTODIAN
If a successor custodian shall be appointed by the Board of Directors of
the Fund, the Custodian shall, upon termination, deliver to such successor
custodian at the office of the Custodian, duly endorsed and in the form for
transfer to an account of the successor custodian all of the Fund" securities
held in a Securities System.
If no such successor custodian shall be appointed, the Custodian shall, in
like manner, upon receipt of a certified copy of a vote of the Board of
Directors of the Fund, deliver at the office of the Custodian and transfer such
securities, funds and other properties in accordance with such vote.
In the event that no written order designating a successor custodian or
certified copy of a vote of the Board of Directors shall have been delivered to
the Custodian on or before the date when such termination shall become
effective, then the Custodian shall have the right to deliver to a bank or trust
company, which is a "bank" as defined in the Investment Company Act of 1940, of
its own selection, having an aggregate capital, surplus, and undivided profits,
as shown by its last published report, or not less than $25,000,000, all
securities, funds and other properties held by the Custodian and all instruments
held by the Custodian relative thereto and all other property held by it under
this Contract and to transfer to an account of such successor custodian all of
the Fund's securities held in any Securities System. Thereafter, such bank or
trust company shall be the successor of the Custodian under this Contract.
In the event that securities, funds and other properties remain in the
possession of the Custodian after the date of termination hereof owing to
failure of the Fund to procure the certified copy of the vote referred to or of
the Board of Directors to appoint a successor custodian, the Custodian shall be
entitled to fair compensation for its services during such period as the
Custodian retains possession of such securities, Funds and other properties and
the provisions of this Contract relating to the duties and obligations of the
Custodian shall remain in full force and effect.
-19-
<PAGE>
11. INTERPRETIVE AND ADDITIONAL PROVISIONS
In connection with the operation of this Contract, the Custodian and the
Fund may from time to time agree on such provisions interpretive of or in
addition to the provisions of this Contract as may in their joint opinion be
consistent with the general tenor of this Contract. Any such interpretive or
additional provisions shall be in a writing signed by both parties and shall be
annexed hereto, PROVIDED that no such interpretive or additional provisions
shall contravene any applicable federal or state regulations or any provision of
the Articles of Incorporation of the Fund. No interpretive or additional
provisions made as provided in the preceding sentence shall be deemed to be an
amendment of this Contract.
12. MINNESOTA LAW TO APPLY
This Contract shall be construed and the provisions thereof interpreted
under and in accordance with laws of the State of Minnesota.
13. PRIOR CONTRACTS
This Contract supersedes and terminates, as of the date hereof, all prior
contracts between the Fund and the Custodian relating to the custody of the
Fund's assets.
IN WITNESS WHEREOF, each of the parties has caused this instrument to be
executed in its name and behalf by its duly authorized representative and its
seal to be hereunder affixed as of the 1st day of November, 1999.
ADVANTUS SERIES FUND, INC.
By:
-------------------------------------
ATTEST
By:
-------------------------------------
NORWEST BANK MINNESOTA, N.A.
By:
-------------------------------------
ATTEST
By:
-------------------------------------
-20-
<PAGE>
SCHEDULE A
(AS AMENDED MARCH 1, 2000)
TO THE
CUSTODIAL CONTRACT
BETWEEN
ADVANTUS SERIES FUND, INC.
AND
NORWEST BANK MINNESOTA, N.A.
The following Portfolios of the Advantus Series Fund, Inc. shall be included
within the terms of this Agreement and each shall hereinafter be referred to in
this Agreement as the 'Fund':
International Stock Portfolio
Money Market Portfolio
Growth Portfolio
Asset Allocation Portfolio
Index 500 Portfolio
Capital Appreciation Portfolio
Small Company Growth Portfolio
Value Stock Portfolio
Small Company Value Portfolio
Index 400 Mid-Cap Portfolio
Macro-Cap Value Portfolio
Micro-Cap Growth Portfolio
Real Estate Securities Fund Portfolio
A-1
<PAGE>
FEE SCHEDULES
FEE SCHEDULE FOR:
Growth Portfolio, Asset Allocation Portfolio, Index 500 Portfolio, Capital
Appreciation Portfolio, Small Company Growth Portfolio, Value Stock Portfolio,
Small Company Value Portfolio, Index 400 Mid-Cap Portfolio, Macro-Cap Value
Portfolio, Micro-Cap Growth Portfolio, Real Estate Securities Portfolio
ADVANTUS
ANNUAL MARKET VALUE CHARGE: $.000010
---------------------------------------------
<TABLE>
<CAPTION>
DOMESTIC TRANSACTION CHARGES:
<S> <C>
DOMESTIC DEPOSITORY SETTLEMENTS-DTC/FED/PTC $6.00
PHYSICAL SETTLEMENTS (NEW YORK, MPLS.) $30.00
MUTUAL FUND SETTLEMENTS $30.00
PRIVATE PLACEMENTS SETTLEMENTS $15.00
OPTIONS/FUTURE SETTLEMENTS $15.00
PRINCIPAL PAYDOWN- NON VARIABLE $8.00
PRINCIPAL PAYDOWNS - CMO'S $15.00
REORGANIZATION/CORPORATE ACTIONS $20.00
MONEY MOVEMENTS (WIRES, CHECKS) $5.00
</TABLE>
Fee Schedule-1
<PAGE>
FEE SCHEDULES (CONTINUED)
NORWEST FEE SCHEDULE
ADVANTUS CAPITAL MANAGEMENT, INC
ADVANTUS SERIES FUND INC. - MONEY MARKET PORTFOLIO- 13396800
EFFECTIVE JULY 1, 1999
CUSTODY
-------
<TABLE>
<CAPTION>
<S> <C>
ANNUAL ACCOUNT ADMINISTRATION
Annual Account Charges $1,500.00
DOMESTIC TRANSACTION CHARGES
Domestic Depository Settlements-DTC/FED/PTC $7.00
Physical (New York, Mpls) $30.00
Principal Paydowns $10.00
Money Movement (Wires, checks, etc.) $5.00
Reorg/ Corporate Actions $20.00
Options/Futures $15.00
Mutual Funds $30.00
</TABLE>
OUT-OF-POCKET EXPENSES
Reasonable and standard expenses will be charged to the funds. These
charges include, but are not limited to: postage, miscellaneous supplies,
weekend processing, and special requests.
Fee Schedule-2
<PAGE>
FEE SCHEDULES (CONTINUED)
NORWEST FEE SCHEDULE
ADVANTUS CAPITAL MANAGEMENT, INC.
ADVANTUS SERIES FUND, INC. - INTERNATIONAL STOCK PORTFOLIO - 12735300
EFFECTIVE JULY 1, 1999
CUSTODY
-------
<TABLE>
<CAPTION>
ANNUAL ACCOUNT ADMINISTRATION
<S> <C>
Annual Account Charge $1,500.00
Market Value - Tier I - Tier VI ( See Attached Schedule ) 10-25 Basis Points
DOMESTIC TRANSACTION CHARGES
Domestic Depository Settlements-DTC/FED/PTC $7.00
Physical (New York, Mpls) $30.00
Principal Paydowns $10.00
Money Movement (Wires, checks, etc.) $5.00
Reorg/ Corporate Actions $20.00
Options/Futures $15.00
Mutual Funds $30.00
All transaction (purchase, sale, maturity, call, deposit, withdrawal,
expiration, wire transfer, check) charges are applied on a per
account per trade basis.
GLOBAL TRANSACTION CHARGES
Tier I - Tier VI (See attached schedule) $15.00 - $150.00
Mandatory Reorganizations $20.00
Voluntary Reorganizations $40.00
Stamp Duties and Registrations As expensed
ANNUAL REPORTING CHARGES FOR OPTIONAL SERVICES
Standard Reporting Packages No Charge
Norwest ACCESS Waived
</TABLE>
OUT-OF-POCKET EXPENSES
Reasonable and standard expenses will be charged to the funds. These
charges include, but are not limited to: postage, miscellaneous supplies,
weekend processing, and special requests.
Fee Schedule-3
<PAGE>
EXHIBIT A
To Custodian Agreement dated as of January 2, 1997 between Bankers
Trust Company and MIMLIC Series Fund, Inc.
LIST OF PORTFOLIOS
The following is a list of Portfolios referred to in the first WHEREAS
clause of the above-referred to Custodian Agreement. Terms used herein as
defined terms unless otherwise defined shall have the meanings ascribed to them
in the above-referred to Custodian Agreement.
Global Bond Portfolio
International Stock Portfolio
Dated as of: January 18, 2000 ADVANTUS SERIES FUND, INC.
(Formerly MIMLIC Series Fund, Inc.)
By: __________________________
Name: ________________________
Title: _______________________
BANKERS TRUST COMPANY
By: __________________________
Name:
Title:
<PAGE>
ADMINISTRATIVE SERVICE AGREEMENT
AGREEMENT made as of the 1st of May, 1991, by and between MIMLIC
Series Fund, Inc., a Minnesota corporation, having its principal office and
place of business at 400 North Robert Street, St. Paul, Minnesota, 55101, (the
"Fund"), and The Minnesota Mutual Life Insurance Company, ("Minnesota Mutual"),
a Minnesota corporation having its principal office and place of business at 400
North Robert Street, St. Paul, Minnesota, 55101.
WHEREAS, the Fund desires to engage Minnesota Mutual to provide to
the Fund with accounting, audit, legal and other administrative services, and
Minnesota Mutual desires to provide such services;
NOW, THEREFORE, in consideration of the mutual covenants herein
contained, the parties hereto agree as follows:
Article 1 TERMS OF APPOINTMENT; DUTIES OF MINNESOTA MUTUAL
1.01 Subject to the terms and conditions set forth in this
Agreement, the Fund hereby employs and appoints Minnesota Mutual, and Minnesota
Mutual hereby agrees to provide certain accounting, auditing, legal and other
administrative services to the Fund.
1.02 Minnesota Mutual agrees that it will perform such services as
are required by the Fund, including, without limitation, the following:
(a) register or qualify, and maintain the registrations or
qualifications, of the Fund and its Shares under state or other securities laws.
(b) calculate, for each Portfolio of the Fund, its net asset value
per Share at such times and in such manner as specified in the Fund's current
prospectus and statement of additional information and at such other times as
the parties hereto may from time to time agree upon;
(c) upon the Fund's distribution of dividends and capital gains, for
each Portfolio, calculate the amount of such dividends and capital gains to be
received per Share and calculate the number of additional Shares to be received
by each Portfolio Shareholder;
(d) prepare and maintain all accounting records required by the Fund,
including a general ledger;
(e) prepare the Fund's annual and semi-annual financial statements;
(f) prepare and file the Fund's income, excise and other tax returns;
<PAGE>
(g) provide audit assistance in conjunction with the Fund's
independent auditors;
(h) provide such legal services as the parties hereto may from time
to time agree upon, including without limitation preparation and filing with the
Securities and Exchange Commission of the annual or more frequent post-effective
amendments to the Fund's registration statement and the Fund's proxy materials;
and
(i) provide such other administrative services as the parties hereto
may from time to time agree upon.
Procedures applicable to certain of these services may be established
from time to time by agreement between the Fund and Minnesota Mutual.
Article 2 COMPENSATION FOR SERVICES
2.01 In payment for the administrative services to be performed by
Minnesota Mutual hereunder, the Fund shall pay to Minnesota Mutual a fee in
accordance with Schedule A hereto.
2.02 In addition to the fee paid under Section 2.01 above, the Fund
will reimburse Minnesota Mutual for out-of-pocket expenses or advances incurred
by Minnesota Mutual in connection with Minnesota Mutual's performance of
services hereunder.
Article 3 REPRESENTATIONS AND WARRANTIES OF MINNESOTA MUTUAL
Minnesota Mutual represents and warrants to the Fund that:
3.01 It is a corporation duly organized and existing and in good
standing under the laws of the State of Minnesota.
3.02 It is duly qualified to carry on its business in the State of
Minnesota.
3.03 It has and will continue to have access to the necessary
facilities, equipment and personnel to perform its duties and obligations under
this Agreement.
Article 4 REPRESENTATIONS AND WARRANTIES OF THE FUND
The Fund represents and warrants to Minnesota Mutual that:
4.01 It is a corporation duly organized and existing and in good
standing under the laws of Minnesota.
4.02 It is empowered under applicable laws and by its Articles of
Incorporation and Bylaws to enter into and perform this Agreement.
-2-
<PAGE>
4.03 All corporate proceedings required by said Articles of
Incorporation and Bylaws have been taken to authorize it to enter into and
perform this Agreement.
4.04 It is an open-end and diversified management investment company
registered under the Investment Company Act of 1940. The Fund is a series
company, consisting of several separate Portfolios, each with its own investment
objectives.
4.05 A registration statement under the Securities Act of 1933 is
currently effective and will remain effective, and appropriate state securities
law filings have been made and will continue to be made, with respect to all
Shares of the Fund being offered for sale.
Article 5 INDEMNIFICATION
5.01 Minnesota Mutual shall not be responsible for, and the Fund
shall indemnify and hold Minnesota Mutual harmless from and against, any and all
losses, damages, costs, charges, counsel fees, payments, expenses and liability
arising out of or attributable to:
(a) All actions of Minnesota Mutual or its agents or subcontractors
required to be taken pursuant to this Agreement, provided that such actions are
taken in good faith without negligence or willful misconduct.
(b) The Fund's refusal or failure to comply with the terms of this
Agreement, or which arise out of the Fund's lack of good faith, negligence or
willful misconduct or which arise out of the breach of any representation or
warranty of the Fund hereunder.
(c) The reliance on or use by Minnesota Mutual or its agents or
subcontractors of information, records and documents which (i) are received by
Minnesota Mutual or its agents or subcontractors and furnished to it by or on
behalf of the Fund, and (ii) have been prepared and/or maintained by the Fund or
any other person or firm on behalf of the Fund.
(d) The reliance on, or the carrying out by Minnesota Mutual or its
agents or subcontractors of any instructions or requests of the Fund.
5.02 Minnesota Mutual shall indemnify and hold the Fund harmless
from and against any and all losses, damages, costs, charges, counsel fees,
payments, expenses and liability arising out of or attributable to any action or
failure or omission to act by Minnesota Mutual as a result of Minnesota Mutual's
lack of good faith, negligence or willful misconduct.
5.03 At any time Minnesota Mutual may apply to any officer of the
Fund for instructions, and may consult with legal counsel with respect to any
matter arising in connection with the services to be performed by Minnesota
Mutual under this Agreement, and Minnesota Mutual and its agents or
subcontractors shall not be liable and shall be indemnified by the Fund for any
action taken or omitted by it in reliance upon such instructions or in good
faith reliance upon the opinion of such counsel. Minnesota Mutual, its agents
and subcontractors shall be protected and indemnified in acting upon any paper
or document furnished by or on behalf of the Fund, reasonably believed to be
genuine and to have been signed by the proper person or
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<PAGE>
persons, or upon any instruction, information, data, records or documents
provided Minnesota Mutual or its agents or subcontractors by machine readable
input, telex, CRT data entry or other similar means authorized by the Fund, and
shall not be held to have notice of any change of authority of any person, until
receipt of written notice thereof from the Fund. Minnesota Mutual, its agents
and subcontractors shall also be protected and indemnified in recognizing stock
certificates which are reasonably believed to bear the proper manual or
facsimile signatures of the officers of the Fund, and the proper
countersignature of any current or former transfer agent or registrar, or of a
co-transfer agent or co-registrar.
5.04 In the event either party is unable to perform its obligations
under the terms of this Agreement because of acts of God, strikes, equipment or
transmission failure or damage reasonably beyond its control, or other causes
reasonably beyond its control, such party shall not be liable for damages to the
other for any damages resulting from such failure to perform or otherwise from
such causes.
5.05 Neither party to this Agreement shall be liable to the other
party for consequential damages under any provision of this Agreement or for any
act or failure to act hereunder.
5.06 In order that the indemnification provisions contained in this
Article 5 shall apply, upon the assertion of a claim for which either party may
be required to indemnify the other, the party seeking indemnification shall
promptly notify the other party of such assertion, and shall keep the other
party advised with respect to all developments concerning such claim. The party
who may be required to indemnify shall have the option to participate with the
party seeking indemnification in the defense of such claim. The party seeking
indemnification shall in no case confess any claim or make any compromise in any
case in which the other party may be required to indemnify it except with the
other party's prior written consent.
Article 6 COVENANTS OF THE FUND AND MINNESOTA MUTUAL
6.01 Minnesota Mutual shall keep records relating to the services to
be performed hereunder, in the form and manner as it may deem advisable. To the
extent required by Section 31 of the Investment Company Act of 1940, as amended,
and the Rules thereunder, Minnesota Mutual agrees that all such records prepared
or maintained by Minnesota Mutual relating to the services to be performed by
Minnesota Mutual hereunder are the property of the Fund and will be preserved,
maintained and made available in accordance with such Section and Rules, and
will be surrendered promptly to the Fund on and in accordance with its request.
6.02 Minnesota Mutual and the Fund agree that all books, records,
information and data pertaining to the business of the other party which are
exchanges or received pursuant to the negotiation or the carrying out of this
Agreement shall remain confidential, and shall not be voluntarily disclosed to
any other person, except as may be required by law.
6.03 In the case of any requests or demands for the inspection of
the Shareholder records of the Fund, Minnesota Mutual will endeavor to notify
the Fund and to secure instructions from an authorized officer of the Fund as to
such inspection. Minnesota Mutual reserves the right, however, to exhibit the
Shareholder records to any person whenever it
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<PAGE>
is advised by its counsel that it may be held liable for the failure to exhibit
the Shareholder records to such person.
Article 7 EFFECTIVE DATE, DURATION AND TERMINATION OF AGREEMENT
7.01 The effective date of this Agreement shall be May 1, 1991.
Unless sooner terminated as hereinafter provided, this Agreement shall continue
in effect until the next regular meeting of the Fund's shareholders and from
year to year thereafter, but only so long as such continuance is specifically
approved at least annually by the Board of Directors of the Fund, including the
specific approval of a majority of the directors who are not interested persons
of the Fund, MIMLIC Asset Management Company ("MIMLIC Asset"), investment
adviser to the Fund, or MIMLIC Sales Corporation ("MIMLIC Sales"), the
underwriter of the Fund's Shares, cast in person at a meeting called for the
purpose of voting on such approval.
7.02 This Agreement may be terminated at any time without the
payment of any penalty by the vote of the Board of Directors of the Fund, or by
Minnesota Mutual, upon 60 days' written notice to the other party.
Article 8 ASSIGNMENT
8.01 This Agreement shall automatically terminate in the event of
its assignment as such term is defined by the Investment Company Act of 1940, as
amended.
Article 9 AMENDMENT
9.01 This Agreement may be amended or modified by a written
agreement executed by both parties and authorized or approved by a resolution of
the Board of Directors of the Fund, including a majority of the directors who
are not interested persons of the Fund, MIMLIC Asset or MIMLIC Sales, cast in
person at a meeting called for the purpose of voting on such approval.
Article 10 MINNESOTA LAW TO APPLY
10.01 This Agreement shall be construed and the provisions thereof
interpreted under and in accordance with the laws of the State of Minnesota.
Article 11 MERGER OF AGREEMENT
11.01 This Agreement constitutes the entire agreement between the
parties hereto and supersedes any prior agreement with respect to the subject
matter hereof whether oral or written.
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<PAGE>
Article 12 NOTICES
12.01 Any notice under this Agreement shall be in writing, addressed,
delivered or mailed, postage prepaid, to the other party at such address as such
other party may designate in writing for receipt of such notice.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed in their names and on their behalf under their seals by and through
their duly authorized officers, as of the day and year first above written.
MIMLIC SERIES FUND, INC.
By_________________________________________
Joseph R. Bird
President
Attest_____________________________________
Donald F. Gruber
Secretary
THE MINNESOTA MUTUAL LIFE INSURANCE COMPANY
By_________________________________________
Coleman Bloomfield
Chairman of the Board
Attest_____________________________________
Robert J. Hasling
Secretary
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<PAGE>
ADVANTUS SERIES FUND, INC.
SCHEDULE A
(As amended January 25, 2000 and
effective February 1, 2000)
Minnesota Life shall receive, as compensation for its services
pursuant to this Agreement, a monthly fee determined in accordance with the
following table:
Monthly Administrative
Services Fee
-----------------------
<TABLE>
<S> <C>
Growth Portfolio $4,300
Bond Portfolio $4,300
Money Market Portfolio $4,300
Asset Allocation Portfolio $4,300
Mortgage Securities Portfolio $4,300
Index 500 Portfolio $4,300
Capital Appreciation Portfolio $4,300
International Stock Portfolio $3,100
Small Company Growth Portfolio $4,300
Maturing Government Bond 2002 Portfolio $4,300
Maturing Government Bond 2006 Portfolio $4,300
Maturing Government Bond 2010 Portfolio $4,300
Value Stock Portfolio $4,300
Small Company Value Portfolio $4,300
Global Bond Portfolio $3,100
Index 400 Mid-Cap Portfolio $4,300
Macro-Cap Value Portfolio $3,100
Micro-Cap Growth Portfolio $4,300
Real Estate Securities Portfolio $4,300
</TABLE>
Said monthly fees shall be paid to Minnesota Life not later than five
days following the end of each calendar quarter in which said services were
rendered.
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<PAGE>
PARTICIPATION AGREEMENT
AMONG
ADVANTUS SERIES FUND, INC.
ADVANTUS CAPITAL MANAGEMENT, INC.
AND
MINNESOTA LIFE INSURANCE COMPANY
DATED MARCH 1, 2000
THIS AGREEMENT, made and entered into as of the 1st day of March, 2000, by and
among Minnesota Life Insurance Company (hereinafter "Minnesota Life"), a
Minnesota corporation, on its own behalf and on behalf of each segregated asset
account of Minnesota Life set forth on Schedule A hereto, as may be amended from
time to time (each such account hereinafter referred to as "Account") and the
Advantus Series Fund, Inc., a Minnesota corporation (hereinafter the "Fund") and
Advantus Capital Management, Inc. (hereinafter the "Adviser"), a corporation
organized in the State of Minnesota.
WHEREAS, the Fund engages in business as an open-end management investment
company and is available to act as the investment vehicle for separate accounts
established for variable life insurance policies and variable annuity contracts
(hereinafter collectively, the "Variable Insurance Products") to be offered by
insurance companies which have entered into participation agreements with the
Fund and the Adviser (hereinafter "Participating Insurance Companies"); and
WHEREAS, the beneficial interest in the Fund is divided into several series of
shares, each designated a "Portfolio" and representing the interest in a
particular managed portfolio of securities and other assets and liabilities; and
WHEREAS, the Fund has obtained an order from the Securities and Exchange
Commission granting it and the Separate Accounts of Minnesota Life funding
variable annuity contracts and variable life insurance policies exemptions from
the provisions of Sections 9(a), 13(b), 15(a) and 15(b), of the Investment
Company Act of 1940 and Rule 6e-2(b)(15) under that Act, to the extent necessary
to permit separate accounts subject to the provisions of Clauses (i) thru (iv)
of Rule 6e-2(b)(15) thereunder, to the extent necessary to permit shares of the
Fund to be sold to and held by Variable Annuity and Variable Life Insurance
Separate Accounts so as to permit "mixed funding" of Variable Annuity and
Variable Life Separate Accounts under certain conditions (hereinafter the "Mixed
Funding Exemptive Order"); and
WHEREAS, the Fund is registered as an open-end management investment company
under the 1940 Act and its shares are registered under the Securities Act of
1933, as amended (hereinafter, the "1933 Act"); and
<PAGE>
WHEREAS, the Adviser is duly registered as an investment adviser under the
federal Investment Advisers Act of 1940 (hereinafter, the "Advisers Act") and
any applicable state securities law; and
WHEREAS, Minnesota Life has registered or will register certain variable life
insurance policies and variable annuity contracts under the 1933 Act, unless an
exemption is available and each such contract or policy will provide for the
allocation of net amounts received by Minnesota Life to an Account or
Sub-Account for investment in the Fund and its Portfolios as that selection may
be made by a participant or contract or policy owner, as applicable under that
contract or policy; and
WHEREAS, each Account is a duly organized, validly existing segregated asset
account, established by resolution of the Board of Trustees of Minnesota Life,
to set aside and invest assets attributable to the aforesaid Variable Insurance
Products; and
WHEREAS, Minnesota Life has registered or will register each Account as a unit
investment trust under the 1940 Act, unless an exemption from registration is
available; and
WHEREAS, to the extent permitted by applicable insurance laws and regulations,
Minnesota Life intends to purchase shares in the Portfolios on behalf of each
Account to fund certain of the aforesaid Variable Insurance Products and the
Adviser is authorized to sell such shares to unit investment trusts such as each
Account at net asset value;
NOW, THEREFORE, in consideration of their mutual promises, Minnesota Life, the
Fund and the Adviser agree as follows:
ARTICLE I.
PURCHASE AND REDEMPTION OF FUND PORTFOLIO SHARES
1.1 For purposes of this Article I, Minnesota Life shall be the Fund's
agent for receipt of purchase orders and requests for redemption relating to
each Portfolio from each Account or Sub-Account, provided that Minnesota Life
notifies the Fund of such purchase orders and requests for redemption by 10:00
a.m. Central time on the next following Business Day, as defined in Section 1.3.
The currently available Portfolios are as shown on Schedule B attached hereto.
1.2 The Fund agrees to make shares of the Portfolios available to the
Accounts and the Sub-Accounts of such Accounts for purchase at the net asset
value per share next computed after receipt of a purchase order by the Fund (or
its agent), as established in accordance with the provisions of the then current
prospectus of the Fund describing Portfolio purchase procedures on those days on
which the Fund calculates its net asset value pursuant to rules of the
Commission, and the Fund shall use its best efforts to calculate such net asset
value on each day on which the New York Stock Exchange ("NYSE") is open for
trading. Minnesota Life will transmit orders from time to time to the Fund for
the purchase of shares of the Portfolios. The Directors of the Fund (the
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<PAGE>
"Directors") may refuse to sell shares of any Portfolio to any person, or
suspend or terminate the offering of shares of any Portfolio if such action is
required by law or by regulatory authorities having appropriate jurisdiction or
if, in the sole discretion of the Directors acting in good faith and in light of
their fiduciary duties under federal and any applicable state laws, such action
is deemed in the best interests of the shareholders of such Portfolio.
1.3 Minnesota Life shall submit payment for the purchase of shares of a
Portfolio on behalf of an Account or Sub-Account no later than the close of the
Federal Reserve Bank, which is 6:00 p.m. Central time, on the next Business Day
after the Fund receives the purchase order. Payment shall be made in federal
funds transmitted by wire to the Fund. Upon receipt by the Fund of the federal
funds so wired, such funds shall cease to be the responsibility of Minnesota
Life and shall become the responsibility of the Fund for this purpose. "Business
Day" shall mean any day on which the New York Stock Exchange is open for trading
and on which the Fund calculates its net asset value pursuant to the rules of
the Commission. If payment in federal funds for any purchase is not received by
the Fund or its designated custodian or is received after such time, Minnesota
Life shall promptly, upon written request, reimburse the Fund for any charges,
costs, fees, interest or other expenses incurred by the Fund as a result of
transactions effected by the Fund based upon such purchase order.
1.4 The Fund will redeem for cash any full or fractional shares of any
Portfolio, when requested by Minnesota Life on behalf of an Account, at the net
asset value next computed after receipt by the Fund (or its agent) of the
request for redemption, as established in accordance with the provisions of the
then current prospectus of the Fund describing Portfolio redemption procedures.
The Fund shall make payment for such shares in the manner established from time
to time by the Fund. Redemption with respect to a Portfolio will normally be
paid to Minnesota Life for an Account or Sub-Account in federal funds
transmitted by wire to Minnesota Life before the close of the Federal Reserve
Bank, which is 6:00 p.m. Central time on the next Business Day after the receipt
of the request for redemption. If payment in federal funds for any redemption
request is received by Minnesota Life after such time, the Fund shall promptly
upon Minnesota Life's written request, reimburse Minnesota Life for any charges,
costs, fees, interest, or other expenses incurred by Minnesota Life as a result
of such failure to provide redemption proceeds within the specified time.
Notwithstanding the foregoing, such payment may be delayed if the Portfolio's
cash position so requires or if extraordinary market conditions exist, but in no
event shall payment be delayed for a greater period than is permitted by the
1940 Act.
1.5 Payments for the purchase of shares of the Fund's Portfolios by
Minnesota Life under Section 1.3 and payments for the redemption of shares of
the Fund's Portfolios under Section 1.4 may be netted against one another on any
Business Day for the purpose of determining the amount of any wire transfer of
that Business Day.
1.6 Issuance and transfer of the Fund's Portfolio shares will be by book
entry only. Stock certificates will not be issued to Minnesota Life, an Account
or a Sub-Account. Portfolio Shares purchased from the Fund will be recorded in
the appropriate title for each Account or the appropriate sub-account of each
Account.
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<PAGE>
1.7 The Fund shall furnish, on or before the ex-dividend date, notice to
Minnesota Life of any income dividends or capital gain distributions payable on
the shares of any Portfolio of the Fund. Minnesota Life hereby elects to receive
all such income dividends and capital gain distributions as are payable on a
Portfolio's shares in additional shares of the Portfolio. The Fund shall notify
Minnesota Life of the number of shares so issued as payment of such dividends
and distributions.
1.8 The Fund shall calculate the net asset value of each Portfolio on each
Business Day, as defined in Section 1.3. The Fund shall make the net asset value
per share for each Portfolio available to Minnesota Life or its designated agent
on a daily basis as soon as reasonably practical after the net asset value per
share is calculated (normally by 6:30 p.m. Central time) and shall use
reasonable efforts to make such net asset value per share available by 7:00 p.m.
Central time each Business Day.
1.9 The Fund agrees that its Portfolio shares will be sold only to
Participating Insurance Companies and their separate accounts and to certain
qualified pension and retirement plans to the extent permitted by the Mixed
Funding Exemptive Order. The Fund agrees that it will not sell shares of its
Portfolios to any other insurance company or separate account unless an
agreement containing provisions substantially the same as Section 2.4 and
Articles I and V of this Agreement is in effect to govern sales. No shares of
any Portfolio will be sold directly to the general public. Minnesota Life agrees
that it will use Fund shares only for the purposes of funding the Variable
Insurance Products through the Accounts listed in Schedule A, as amended from
time to time.
1.10 Minnesota Life agrees that all net amounts available under the
Variable Insurance Products referenced herein shall be invested in the Fund or
in such other investment companies advised by the Adviser or its affiliates as
may be mutually agreed to in writing by the parties hereto, or in Minnesota
Life's general account, provided that such amounts may also be invested in an
investment company other than the Fund if: (a) Minnesota Life gives the Fund and
the Adviser forty-five (45) days written notice of its intention to make such
other investment company available as a funding vehicle for these Variable
Insurance Products; or (b) such other investment company is available as a
funding vehicle for these Variable Insurance Products at the date of this
Agreement.
1.11 The Fund agrees that all Participating Insurance Companies shall have
the obligations and responsibilities regarding pass-through voting and conflicts
of interest corresponding to those contained in Section 2.10 and Article IV of
this Agreement.
ARTICLE II.
OBLIGATIONS OF THE PARTIES; FEES AND EXPENSES
2.1 The Fund shall prepare and be responsible for filing with the
Commission and any state regulators requiring such filing all shareholder
reports, notices, proxy materials (or similar materials such as voting
instruction solicitation materials), prospectuses and statements of additional
information of the Fund. The Fund shall bear the costs of registration and
qualification of its shares of the Portfolios, preparation and
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<PAGE>
filing of the documents listed in this Section 2.1 and all taxes to which an
issuer is subject on the issuance and transfer of its shares.
2.2 At the option of Minnesota Life, the Fund or the Adviser shall either
(a) provide Minnesota Life with as many copies of portions of the Fund's current
prospectus, annual report, semi-annual report and other shareholder
communications, including any amendments or supplements to any of the foregoing,
pertaining specifically to the Portfolios as Minnesota Life shall reasonably
request; or (b) provide Minnesota Life with a camera ready copy of such
documents in a form suitable for printing and from which information relating to
series of the Fund other than the Portfolios has been deleted to the extent
practicable. The Fund or the Adviser shall provide Minnesota Life with a copy of
its current statement of additional information, including any amendments or
supplements, in a form suitable for duplication by Minnesota Life. Expenses of
furnishing such documents for marketing purposes shall be borne by Minnesota
Life and expenses of furnishing such documents for current contract owners
invested in the Fund shall be borne by the Fund or the Adviser.
2.3 The Fund (at its expense) shall provide Minnesota Life with copies of
any Fund-sponsored proxy materials in such quantity as Minnesota Life shall
reasonably require for distribution to contract owners. The Fund shall bear the
costs of distributing proxy materials (or similar materials such as voting
solicitation instructions). Minnesota Life shall bear the cost of distributing
prospectuses and statements of additional information to contract owners.
Minnesota Life assumes sole responsibility for ensuring that such materials are
delivered to contract owners in accordance with applicable federal and state
securities laws.
2.4 If and to the extent required by law, Minnesota Life shall: (i) solicit
voting instructions from contract owners; (ii) vote the Fund shares in
accordance with the instructions received from contract owners; and (iii) vote
Fund shares for which no instructions have been received in the same proportion
as Fund shares of such Portfolio for which instructions have been received; so
long as and to the extent that the Commission continues to interpret the 1940
Act to require pass-through voting privileges for variable contract owners.
Minnesota Life reserves the right to vote Fund shares held in any segregated
asset account in its own right, to the extent permitted by law.
2.5 Except as provided in Section 2.6, Minnesota Life shall not use any
designation comprised in whole or part of the names or marks "Advantus Series
Fund, Inc." or "Advantus Capital Management, Inc." without prior written consent
of the Fund or the Adviser, and upon termination of this Agreement for any
reason, Minnesota Life shall cease all use of any such name or mark as soon as
reasonably practicable.
2.6 Minnesota Life and its agents shall not give any information or make
any representations or statements on behalf of the Fund or concerning the Fund
or the Adviser or an Adviser in connection with the sale of the Variable
Insurance Products other than information or representations contained in and
accurately derived from the registration statement or prospectus for the Fund
shares (as such registration statement and prospectus may be amended or
supplemented from time to time), annual and semi-annual reports of the Fund,
Fund-sponsored proxy statements, or in sales literature or other promotional
-5-
<PAGE>
material prepared or approved by the Fund or its designee, except as required by
legal process or regulatory authorities or with the written permission of the
Fund or its designee.
2.7 The Fund shall use its best efforts to provide Minnesota Life, on a
timely basis, with such information about the Fund, the Portfolios and the
Adviser and any Sub-Advisers, in such form as Minnesota Life may reasonably
require, as Minnesota Life shall reasonably request in connection with the
preparation of registration statements and prospectuses and annual and
semi-annual reports pertaining to the Variable Insurance Products.
2.8 The Fund shall not give any information or make any representations or
statements on behalf of Minnesota Life or concerning Minnesota Life, the
Accounts or the Variable Insurance Products other than information or
representations contained in and accurately derived from the registration
statement or prospectus for the Variable Insurance Products (as any such
required registration statement and prospectus may be amended or supplemented
from time to time), or in materials prepared or approved by Minnesota Life for
distribution including sales literature or other promotional materials, except
as required by legal process or regulatory authorities or with the written
permission of Minnesota Life.
2.9 So long as, and to the extent that, the Commission interprets the 1940
Act to require pass-through voting privileges for contract owners, Minnesota
Life will provide pass-through voting privileges to contract owners whose
Contract values are invested, through the registered Accounts, in shares of one
or more Portfolios of the Fund. The Fund shall require all Participating
Insurance Companies to calculate voting privileges in the same manner and
Minnesota Life shall be responsible for assuring that the Accounts calculate
voting privileges in the manner established by the Fund. With respect to each
registered Account, Minnesota Life will vote shares of each Portfolio of the
Fund held by a registered Account for which no timely voting instructions from
contract owners are received in the same proportion as those shares held by that
registered Account for which voting instructions are received. Minnesota Life
and its agents will in no way recommend or oppose or interfere with the
solicitation of proxies for Portfolio shares held to fund the Variable Insurance
Products without the prior written consent of the Fund, which consent may be
withheld in the Fund's sole discretion.
2.10 The Fund and Adviser shall pay no fee or other compensation to
Minnesota Life under this Agreement except as provided on Schedule C, if
attached. Nevertheless, the Fund or the Adviser or an affiliate may make
payments (other than pursuant to a Rule 12b-1 Plan) to Minnesota Life or its
affiliates or to the Adviser in amounts agreed to by the Adviser in writing and
such payments may be made out of fees otherwise payable to the Adviser or its
affiliates, profits of the Adviser or its affiliates, or other resources
available to the Adviser or its affiliates.
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<PAGE>
ARTICLE III.
REPRESENTATIONS AND WARRANTIES
3.1 Minnesota Life represents and warrants that it is an insurance company
duly organized and in good standing under the laws of the State of Minnesota and
that it has legally and validly established each Account as a segregated asset
account under such law as of the date set forth in Schedule A.
3.2 Minnesota Life represents and warrants that it has registered or, prior
to any issuance or sale of the Variable Insurance Contract(s), will register
each Account as a unit investment trust in accordance with the provisions of the
1940 Act to serve as a segregated asset account for the Variable Insurance
Products, unless an exemption from registration is available.
3.3 Minnesota Life represents and warrants that the Variable Insurance
Products will be registered under the 1933 Act, unless an exemption from
registration is available, prior to any issuance or sale of the Variable
Insurance Products; the Variable Insurance Products will be issued and sold in
compliance in all material respects with all applicable federal and state laws;
and the sale of the Variable Insurance Products shall comply in all material
respects with state insurance suitability requirements.
3.4 Minnesota Life represents and warrants that all of its directors,
officers, employees, investment advisers, and other individuals or entities
dealing with the money and/or securities are and shall be at all times covered
by a blanket fidelity bond or similar coverage in an amount not less than $5
million. The aforesaid bond shall include coverage for larceny and embezzlement
and shall be issued by a reputable bonding company. Minnesota Life agrees to
make all reasonable efforts to see that this bond or another bond containing
these provisions is always in effect, and agrees to notify the Fund and the
Adviser in the event that such coverage no longer applies.
3.5 The Fund represents and warrants that it is duly organized and validly
existing under the laws of the State of Minnesota and that it does and will
comply in all material respects with the 1940 Act and the rules and regulations
thereunder and with the diversification rules applicable to the Fund and its
Portfolios under Subchapter M of the Internal Revenue Code of 1986, as amended
(hereinafter "Code").
3.6 The Fund represents and warrants that the Portfolio shares offered and
sold pursuant to this Agreement will be registered under the 1933 Act and the
Fund shall be registered under the 1940 Act prior to and at the time of any
issuance or sale of such shares. The Fund shall amend its registration statement
under the 1933 Act and the 1940 Act from time to time as required in order to
effect the continuous offering of its shares. The Fund shall register and
qualify its shares for sale in accordance with the laws of the various states
only if and to the extent deemed advisable by the Fund or the Adviser.
3.7 The Fund represents and warrants that it is currently qualified as a
"regulated investment company" under Subchapter M of the Code, that it will make
every effort to maintain such qualification and will notify Minnesota Life
immediately upon having a
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<PAGE>
reasonable basis for believing it has ceased to so qualify or might not so
qualify in the future.
3.8 The Fund and its Adviser each represents and warrants that the
investment advisory or management fees paid to the Adviser are legitimate and
not excessive and are derived from an advisory contract which does not result in
a breach of fiduciary duty.
3.9 The Fund represents and warrants that should it ever desire to make any
payments to finance distribution expenses pursuant to Rule 12b-1 under the 1940
Act, the Directors, including a majority who are not "interested persons" of the
Fund under the 1940 Act ("disinterested Directors"), will formulate and approve
any plan under Rule 12b-1 to finance distribution expenses. To the extent that
any Class of the Fund may finance its distribution expenses pursuant to a Plan
adopted under Rule 12b-1, the Fund undertakes to comply with any then current
SEC and SEC staff interpretations concerning Rule 12b-1 or any successor
provisions.
3.10 The Fund represents and warrants that it, its directors, officers,
employees and others dealing with the money or securities, or both, of a
Portfolio shall at all times be covered by a blanket fidelity bond or similar
coverage for the benefit of the Fund in an amount not less than the minimum
coverage required by Rule 17g-1 or other regulations under the 1940 Act. Such
bond shall include coverage for larceny and embezzlement and be issued by a
reputable bonding company.
3.11 The Adviser represents and warrants that it is duly organized and
validly existing under the laws of the State of Minnesota and that it is
currently registered and will, during the term of this Agreement, remain
registered as an investment adviser under the Advisers Act.
ARTICLE IV.
POTENTIAL CONFLICTS
4.1 The parties acknowledge that a Portfolio's shares may be made available
for investment to other Participating Insurance Companies. In such event, the
Directors will monitor the Fund for the existence of any material irreconcilable
conflict between the interests of the contract owners of all Participating
Insurance Companies. An irreconcilable material conflict may arise for a variety
of reasons, including: (a) an action by any state insurance regulatory
authority; (b) a change in applicable federal or state insurance, tax, or
securities laws or regulations, or a public ruling, private letter ruling,
no-action or interpretative letter, or any similar action by insurance, tax, or
securities regulatory authorities; (c) an administrative or judicial decision in
any relevant proceeding; (d) the manner in which the investments of any
Portfolio are being managed; (e) a difference in voting instructions given by
variable annuity contract and variable life insurance contract owners; or (f) a
decision by an insurer to disregard the voting instructions of contract owners.
The Fund shall promptly inform Minnesota Life of any determination by the
Directors that an irreconcilable material conflict exists and of the
implications thereof.
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<PAGE>
4.2 Minnesota Life agrees to promptly report any potential or existing
conflicts of which it is aware to the Directors. Minnesota Life will assist the
Directors in carrying out their responsibilities under the Mixed Funding
Exemptive Order by providing the Directors with all information reasonably
necessary for the Directors to consider any issues raised including, but not
limited to, information as to a decision by Minnesota Life to disregard contract
owner voting instructions. All communications from Minnesota Life to the
Directors may be made in care of the Fund.
4.3 If it is determined by a majority of the Directors, or a majority of
the disinterested Directors, that a material irreconcilable conflict exists that
affects the interests of contract owners, Minnesota Life shall, in cooperation
with other Participating Insurance Companies whose contract owners are also
affected, at its own expense and to the extent reasonably practicable take
whatever steps are necessary to remedy or eliminate the irreconcilable material
conflict.
4.4 If a material irreconcilable conflict arises because of a decision by
Minnesota Life to disregard contract owner voting instructions and that decision
represents a minority position or would preclude a majority vote, Minnesota Life
may be required, at the Fund's election, to withdraw the affected Account's
investment in the Fund and terminate this Agreement with respect to such
Account; provided, however, that such withdrawal and termination shall be
limited to the extent required by the foregoing material irreconcilable conflict
as determined by a majority of the disinterested Directors. Any such withdrawal
and termination must take place within six (6) months after the Fund gives
written notice that this provision is being implemented. Until the end of such
six (6) month period, the Fund shall continue to accept and implement orders by
Minnesota Life for the purchase and redemption of shares of the Fund.
4.5 If a material irreconcilable conflict arises because a particular state
insurance regulator's decision applicable to Minnesota Life conflicts with a
majority of other state regulators to which Minnesota Life is subject, then
Minnesota Life will withdraw the affected Account's investment in the Fund and
terminate this Agreement with respect to such Account within six (6) months
after the Directors inform Minnesota Life in writing it has determined that such
decision has created an irreconcilable material conflict; provided, however,
that such withdrawal and termination shall be limited to the extent required by
the foregoing material irreconcilable conflict as determined by a majority of
the disinterested Directors. Until the end of such six (6) month period, the
Fund shall continue to accept and implement orders by Minnesota Life for the
purchase and redemption of shares of the Fund.
4.6 For purposes of Sections 4.3 through 4.6 of this Agreement, a majority
of the disinterested Directors shall determine whether any proposed action
adequately remedies any irreconcilable material conflict, but in no event will
the Fund be required to establish a new funding medium for the Variable
Insurance Products. In the event that the disinterested Directors determine that
any proposed action does not adequately remedy any irreconcilable material
conflict, then Minnesota Life will withdraw the Account's investment in the Fund
and terminate this Agreement within six (6) months after the Directors inform
Minnesota Life in writing of the foregoing determination; provided, however,
that such withdrawal and termination shall be limited to the extent required by
-9-
<PAGE>
any such material irreconcilable conflict as determined by a majority of the
disinterested Directors.
4.7 Minnesota Life shall at least annually submit to the Directors such
reports, materials or data as the Directors may reasonably request so that the
Directors may fully carry out the duties imposed upon them by the Mixed Funding
Exemptive Order, and said reports, materials and data shall be submitted more
frequently if reasonably deemed appropriate by the Directors.
4.8 If and to the extent that Rule 6e-2 is amended, or similar rule is
adopted, so as to provide exemptive relief from any provision of the 1940 Act or
the rules promulgated thereunder with respect to mixed funding (as defined in
the Mixed Funding Exemptive Order) on terms and conditions materially different
from those contained in the Mixed Funding Exemptive Order, then the Fund and/or
the Participating Insurance Companies, as appropriate, shall take such steps as
may be necessary to comply with Rule 6e-2, as amended, or any other rule, as
adopted, to the extent such rules are applicable.
ARTICLE V.
DIVERSIFICATION AND QUALIFICATION
---------------------------------
5.1 Both the Fund and the Adviser each represent and warrant that the
Fund will at all times sell the share of each Series and invest the assets of
each Series in such a manner as to ensure that the Variable Insurance
Products will be treated as life insurance or annuity contracts, as the case
may be, under the Code and the regulations issued thereunder. Without
limiting the scope of the foregoing, each of the Fund and the Adviser
represent and warrant that the Fund and each Portfolio thereof will at all
times comply with Section 817(h) of the Code and Treasury Regulation
Section.1.817-5, as amended from time to time, and any Treasury
interpretations thereof, relating to the diversification requirements for
variable annuity, endowment, or life insurance contracts and any amendments
or other modifications or successor provisions to such Section or
Regulations. The Fund and the Adviser agree that shares of the Fund's
Portfolios will be sold only to Participating Insurance Companies and their
separate accounts and to certain qualified pension and retirement plans to
the extent permitted by the Mixed Funding Exemptive Order. No shares of any
Fund's Portfolios will be sold to the general public.
5.2 The Fund represents that it will not be subject to federal income
taxation under current laws and regulations, consistent with the provisions of
Subchapter M of the Code.
5.3 The Fund or the Adviser will notify the Insurer immediately upon having
a reasonable basis for believing that the Fund or any Portfolio has ceased to
comply with the aforesaid Section 817(h) diversification requirements or might
not so comply in the future.
5.4 Each of the Fund and the Adviser acknowledges that full compliance with
the requirements referred to in Sections 5.1 and 5.2 hereof is absolutely
essential because any
-10-
<PAGE>
failure to meet those requirements would result in the Variable Insurance
Products not being treated as life insurance or annuity contracts, as the case
may be, for federal income tax purposes, which would have adverse tax
consequences for Contract owners and could also adversely affect Minnesota
Life's corporate tax liability. Each of the Fund and the Adviser also
acknowledges that it is solely within its power and control to meet those
requirements. Accordingly, without in any way limiting the effect of Section 8.2
hereof and without in any way limiting or restricting any other remedies
available to Minnesota Life, the Adviser will pay all costs associated with or
arising out of any failure, or any anticipated or reasonably foreseeable
failure, of the Fund or any Portfolio to comply with Sections 5.1 or 5.2 hereof,
including all costs associated with correcting or responding to any such
failure; such costs may include, but are not limited to, the costs involved in
creating and organizing a new investment company as a funding medium for the
Variable Insurance Products and/or the costs of obtaining whatever regulatory
authorizations are required to substitute shares of another investment company
for those of the failed Portfolio; such costs to include, but are not limited
to, fees and expenses of legal counsel and other advisers to Minnesota Life and
any federal income taxes or tax penalties incurred by Minnesota Life or its
contract owners in connection with any such failure or anticipated or reasonably
foreseeable failure.
5.5 Within 45 days of the close of each calendar quarter, the Fund shall
provide Minnesota Life or its designee with a certification of compliance with
the aforesaid Section 817(h) diversification and Code qualification
requirements, in substantially the form attached hereto as Schedule D, provided,
however, that providing such certification does not relieve the Fund or the
Adviser of its responsibility for such compliance or of liability for any
non-compliance.
ARTICLE VI.
INDEMNIFICATION
---------------
6.1 INDEMNIFICATION BY MINNESOTA LIFE
(a) Minnesota Life agrees to indemnify and hold harmless the Fund and
each of its Directors, officers, employees and each person, if any, who
controls the Fund within the meaning of Section 15 of the 1933 Act
(collectively, the "Indemnified Parties" and individually the "Indemnified
Party" for purposes of this Article VI) against any an all losses, claims,
damages, liabilities (including amounts paid in settlement with the written
consent of Minnesota Life, which consent shall not be unreasonably
withheld) or expenses (including the reasonable costs of investigating or
defending any alleged loss, claim, damage, liability or expense and
reasonable legal counsel fees incurred in connection therewith)
(collectively, "Losses"), to which the Indemnified Parties may become
subject under any statute or regulation, or at common law or otherwise,
insofar as such Losses are related to the sale or acquisition of Fund
Shares or the Variable Insurance Products and:
(i) arise out of or are based upon any untrue statements or alleged
untrue statements of any material fact contained in a registration
statement or prospectus for the Variable Insurance Products or in the
Variable Insurance Products themselves or in sales literature generated by
-11-
<PAGE>
Minnesota Life on behalf of the Variable Insurance Products or Accounts (or
any amendment or supplement to any of the foregoing) (collectively,
"Company Documents" for the purposes of this Article VI), or arise out of
or are based upon the omission or the alleged omission to state therein a
material fact required to be stated therein or necessary to make the
statements therein not misleading, provided that this indemnity shall not
apply as to any Indemnified Party if such statement or omission or such
alleged statement or omission was made in reliance upon and was accurately
derived from written information furnished to Minnesota Life by or on
behalf of the Fund for use in Company Documents or otherwise for use in
connection with the sale of the Variable Insurance Products or Fund shares;
or
(ii) arise out of or result from written statements or representations
(other than statements or representations contained in and accurately
derived from Fund Documents as defined in Section 6.2 (a)(i)) or wrongful
conduct of Minnesota Life or persons under its control, with respect to the
sale or acquisition of the Variable Insurance Products or Fund shares; or
(iii) arise out of or result from any untrue statement or alleged
untrue statement of a material fact contained in Fund Documents as defined
in Section 6.2(a)(i) or the omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the
statements therein not misleading if such statement or omission was made in
reliance upon and accurately derived from written information furnished to
the Fund by or on behalf of Minnesota Life; or
(iv) arise out of or result from any failure by Minnesota Life to
provide the services or furnish the materials required under the terms of
this Agreement; or
(v) arise out of or result from any material breach of any
representation and/or warranty made by Minnesota Life in this Agreement or
arise out of or result from any other material breach of this Agreement by
Minnesota Life.
(b) Minnesota Life shall not be liable under this indemnification provision
with respect to any Losses to which an Indemnified Party would otherwise be
subject by reason of such Indemnified Party's willful misfeasance, bad faith, or
gross negligence in the performance of such Indemnified Party's duties or by
reason of such Indemnified Party's reckless disregard of obligations and duties
under this Agreement. Minnesota Life shall also not be liable under this
indemnification provision with respect to any claim made against an Indemnified
Party unless such Indemnified Party shall have notified Minnesota Life in
writing within a reasonable time after the summons or other first legal process
giving information of the nature of the claim shall have been served upon such
Indemnified Party (or after such Indemnified Party shall have received notice of
such service on any designated agent), but failure to notify Minnesota Life of
any such claim shall not relieve Minnesota Life from any liability which it may
have to the
-12-
<PAGE>
Indemnified Party against whom such action is brought otherwise than
on account of this indemnification provision. Minnesota Life also shall be
entitled to assume the defense thereof, with counsel satisfactory to the party
named in the action. After notice from Minnesota Life to such party of Minnesota
Life's election to assume the defense thereof, the Indemnified Party shall bear
the fees and expenses of any additional counsel retained by it, and Minnesota
Life will not be liable to such party under this Agreement for any legal or
other expenses subsequently incurred by such party independently in connection
with the defense thereof other than reasonable costs of investigation.
(c) The Indemnified Parties will promptly notify Minnesota
Life of the commencement of any litigation or proceedings against them or their
officers and directors in connection with the issuance or sale of the Fund
shares or the Variable Insurance Products or the operation of the Fund.
6.2 INDEMNIFICATION BY THE ADVISER
(a) The Adviser agrees to indemnify and hold harmless
Minnesota Life and each of its Directors, officers, employees and each person,
if any, who controls Minnesota Life within the meaning of Section 15 of the 1933
Act (collectively, the "Indemnified Parties" and individually an "Indemnified
Party" for purposes of this Section 6.2) against any and all losses, claims,
damages, liabilities (including amounts paid in settlement with the written
consent of the Adviser, which consent shall not be unreasonably withheld) or
expenses (including the reasonable costs of investigating or defending any
alleged loss, claim, damage, liability or expense and reasonable legal counsel
fees incurred in connection therewith) (collectively, "Losses") to which the
Indemnified Parties may become subject under any statute, at common law or
otherwise, insofar as such Losses are related to the sale or acquisition of the
Fund's Shares or the Variable Insurance Products and:
(i) arise out of or are based upon any untrue
statements or alleged untrue statements of any material fact
contained in the Registration Statement, prospectus or sales
literature of the Fund (or any amendment or supplement to any
of the foregoing) (collectively, the "Fund Documents") or
arise out of or are based upon the omission or the alleged
omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not
misleading, provided that this agreement to indemnify shall
not apply as to any Indemnified Party if such statement or
omission of such alleged statement or omission was made in
reliance upon and in conformity with information furnished to
the Adviser or Fund by or on behalf of Minnesota Life for use
in the Registration Statement or prospectus for the Fund or in
sales literature (or any amendment or supplement) or otherwise
for use in connection with the sale of the Variable Insurance
Products or Fund shares; or
(ii) arise out of or as a result of written statements
or representations (other than statements or representations
contained and accurately derived from the registration
statement, prospectus or sales literature for the Variable
Insurance Products) or wrongful conduct of the Fund, Adviser
or
-13-
<PAGE>
persons under their control, with respect to the sale or
distribution of the Variable Insurance Variable Insurance
Products or Fund shares; or
(iii) arise out of any untrue statement or alleged untrue
statement of a material fact contained in a registration
statement, prospectus or sales literature covering the
Variable Insurance Products, or any amendment thereof or
supplement thereto, or the omission or alleged omission to
state therein a material fact required to be stated therein or
necessary to make the statement or statements therein not
misleading, if such statement or omission was made in reliance
upon information furnished to Minnesota Life by or on behalf
of the Fund; or
(iv) arise as a result of any failure by the Fund or
Adviser to provide the services and furnish the materials
under the terms of this Agreement (including a failure,
whether unintentional or in good faith or otherwise, to comply
with the qualification representation specified in Section 5.2
of this Agreement and the diversification requirements
specified in Section 5.1 of this Agreement); or
(v) arise out of or result from any material breach of
any representation and/or warranty made by the Adviser in this
Agreement or arise out of or result from any other material
breach of this Agreement by the Adviser, as limited by and in
accordance with the provisions of Sections 5.2(b) and 5.2(c)
hereof.
(b) The Adviser shall not be liable under this indemnification
provision with respect to any Losses to which an Indemnified Party would
otherwise be subject to reason of such Indemnified Party's willful misfeasance,
bad faith, or gross negligence in the performance of such Indemnified Party's
duties or by reason of such Indemnified Party's reckless disregard of
obligations and duties under this Agreement or to Minnesota Life or the Account,
whichever is applicable.
(c) The Adviser shall not be liable under this indemnification
provision with respect to any claim made against an Indemnified Party unless
such Indemnified Party shall have notified the Adviser in writing within a
reasonable time after the summons or other first legal process giving
information of the nature of the claim shall have been served upon such
Indemnified Party (or after such Indemnified Party shall have received notice of
such service on any designated agent), but failure to notify the Adviser of any
such claim shall not relieve the Adviser from any liability which it may have to
the Indemnified Party against whom such action is brought otherwise than on
account of this indemnification provision. In case any such action is brought
against the Indemnified Parties, the Adviser will be entitled to participate at
its own expense, in the defense thereof. The Adviser also shall be entitled to
assume the defense thereof, with counsel satisfactory to the party named in the
action. After notice from the Adviser to such party of the Adviser's election to
assume the defense thereof, the Indemnified Party shall bear the expenses of any
additional counsel retained by it, and the Adviser will not be liable to such
party under this Agreement for any legal or other expenses subsequently incurred
by
-14-
<PAGE>
such party independently in connection with the defense thereof other than
reasonable costs of investigation.
(d) Minnesota Life agrees promptly to notify the Adviser of the
commencement of any litigation or proceedings against it or any of its officers
or directors in connection with the issuance or sale of the Variable Insurance
Products or the operation of each Account.
6.3 INDEMNIFICATION BY THE FUND
(a) The Fund agrees to indemnify and hold harmless Minnesota
Life, and each of its directors and officers and each person, if any, who
controls Minnesota Life within the meaning of Section 15 of the 1933 Act
(collectively, the "Indemnified Parties" for purposes of this Section 5.3)
against any and all losses, claims, damages, liabilities (including amounts paid
in settlement with the written consent of the Fund, which consent shall not be
unreasonably withheld) or litigation (including legal and other expenses) to
which the Indemnified Parties may become subject under any statute, at common
law or otherwise, insofar as such losses, claims, damages, liabilities or
expenses (or actions in respect thereof) or settlements result from the gross
negligence, bad faith or willful misconduct of the Board or any member thereof,
are related to the operations of the Fund, and arise out of or result from any
material breach of any representation and/or warranty made by the Fund in this
Agreement or arise out of or result from any other material breach of this
Agreement by the Fund; as limited by and in accordance with the provisions of
Section 5.3(b) and 5.3(c) hereof. It is understood and expressly stipulated that
neither the holders of shares of the Fund nor any Trustee, officer, agent or
employee of the Fund shall be personally liable hereunder, nor shall any resort
to be had to other private property for the satisfaction of any claim or
obligation hereunder, but the Fund only shall be liable.
(b) The Fund shall not be liable under this indemnification
provision with respect to any losses, claims, damages, liabilities or litigation
incurred or assessed against any Indemnified Party as such may arise from such
Indemnified Party's willful misfeasance, bad faith, or gross negligence in the
performance of such Indemnified Party's duties or by reason of such Indemnified
Party's reckless disregard of obligations and duties under this Agreement to
Minnesota Life or the Account, whichever is applicable.
(c) The Fund shall not be liable under this indemnification
provision with respect to any claim made against an Indemnified Party unless
such Indemnified Party shall have notified the Fund in writing within a
reasonable time after the summons or other first legal process giving
information of the nature of the claims shall have been served upon such
Indemnified Party (or after such Indemnified Party shall have received notice of
such service on any designated agent), but failure to notify the Fund of any
such claim shall not relieve the Fund from any liability which it may have to
the Indemnified Party against whom such action is brought otherwise than on
account of this indemnification provision. In case any such action is brought
against the Indemnified Parties, the Fund will be entitled to participate, at
its own expense, in the defense thereof. The Fund also shall be entitled to
assume the defense thereof, with counsel satisfactory to
-15-
<PAGE>
the party named in the action. After notice from the Fund to such party of the
Fund's election to assume the defense thereof, the Indemnified Party shall bear
the fees and expenses of any additional counsel retained by it, and the Fund
will not be liable to such party under this Agreement for any legal or other
expenses subsequently incurred by such party independently in connection with
the defense thereof other than reasonable costs of investigation.
(d) Minnesota Life and the Adviser agree promptly to notify the
Fund of the commencement of any litigation or proceedings against it or any of
its respective officers or directors in connection with this Agreement, the
issuance or sale of the Variable Insurance Products, with respect to the
operation of either the Account, or the sale or acquisition of share of the
Fund.
ARTICLE VII.
TERMINATION
-----------
7.1 This Agreement may be terminated by any party in its entirety or with
respect to one, some or all Portfolios for any reason by sixty (60) days advance
written notice delivered to the other parties, and shall terminate immediately
in the event of its assignment, as that term is used in the 1940 Act.
7.2 This Agreement may be terminated immediately by either the Fund or the
Adviser following consultation with the Directors upon written notice to
Minnesota Life:
(a) if either one or both of the Fund or the Adviser respectively,
shall determine, in their sole judgment exercised in good faith, that
Minnesota Life has suffered a material adverse change in its business,
operations, financial condition or prospects since the date of this
Agreement; or
(b) if Minnesota Life gives the Fund and the Adviser the written
notice specified in Section 1.10 hereof and at the same time such notice
was given there was no notice of termination outstanding under any other
provision of this Agreement; provided, however, that any termination under
this Section 7.2(b) shall be effective forty-five (45) days after the
notice specified in Section 1.10 was given.
7.3 This Agreement may be terminated immediately by Minnesota Life upon
written notice to the Fund and the Adviser, if Minnesota Life shall determine,
in its sole judgment exercised in good faith, that either the Fund or the
Adviser has suffered a material adverse change in its business, operations,
financial conditions or prospects since the date of this Agreement or is the
subject of material adverse publicity.
7.4 If this Agreement is terminated for any reason, except under Article IV
(Potential Conflicts) above, the Fund shall, at the option of Minnesota Life,
continue to make available additional shares of any Portfolio and redeem shares
of any Portfolio pursuant to all of the terms and conditions of this Agreement
for all Variable Insurance Products in effect on the effective date of
termination of this Agreement (hereinafter
-16-
<PAGE>
"Existing Contracts"). Specifically without limitation the owners of the
Existing Contracts shall be permitted to reallocate investments in the Fund,
redeem investments in the Fund, and/or invest in the Fund upon the making of
additional purchase payments under the Existing Contracts. The parties agree
that this Section 7.4 shall not apply to any terminations pursuant to Article
IV, and that the provisions of Article IV shall govern.
7.5 The provisions of Articles III (Representations and Warranties) and VI
(Indemnification) shall survive the termination of this Agreement. All other
applicable provisions of this Agreement shall survive the termination of this
Agreement, as long as shares of the Fund are held on behalf of contract owners
in accordance with Section 7.4, except that the Fund and the Adviser shall have
no further obligation to sell Fund shares with respect to Variable Insurance
Products issued after termination.
7.6 Minnesota Life shall not redeem Fund shares attributable to the
Variable Insurance Products except (i) as necessary to implement contract owner
initiated or approved transactions, (ii) as required by state and/or federal
laws or regulations or judicial or other legal precedent of general application
(hereinafter referred to as a "Legally Required Redemption"), or (iii) as
permitted by an order of the Commission pursuant to Section 26(b) of the 1940
Act. Upon request, Minnesota Life will promptly furnish to the Fund and the
Adviser the opinion of counsel for Minnesota Life (which counsel shall be
reasonably satisfactory to the Fund and the Adviser) to the effect that any
redemption pursuant to clause (ii) above is a Legally Required Redemption.
Furthermore, except in cases where permitted under the terms of the Variable
Insurance Products, Minnesota Life shall not prevent contract owners from
allocating payments to a Portfolio that was otherwise available under the
Variable Insurance Products without first giving the Fund or the Adviser ninety
(90) days notice of its intention to do so.
ARTICLE VIII.
NOTICES
-------
Any notice shall be sufficiently given when sent by registered or certified
mail to the other party at the address of such party set forth below or at such
other address as such party may from time to time specify in writing to the
other party.
If to the Fund or the Adviser:
Advantus Capital Management, Inc.
400 Robert Street North
St. Paul, MN 55101-2098
Attention: President
If to Minnesota Life:
Minnesota Life Insurance Company
400 Robert Street North
St. Paul, MN 55101-2098
-17-
<PAGE>
Attention: General Counsel
ARTICLE IX.
MISCELLANEOUS
-------------
9.1 The captions in this Agreement are included for convenience of
reference only and in no way define or delineate any of the provisions hereof or
otherwise affect their construction or effect.
9.2 This Agreement may be executed simultaneously in two or more
counterparts, each of which taken together shall constitute one and the same
instrument.
9.3 If any provision of this Agreement shall be held or made invalid by a
court decision, statute, rule or otherwise, the remainder of the Agreement shall
not be affected thereby.
9.4 This Agreement shall be construed and the provisions hereof interpreted
under and in accordance with the laws of the State of Minnesota. It shall also
be subject to the provisions of the federal securities laws and the rules and
regulations thereunder and to any orders of the Commission granting exemptive
relief therefrom and the conditions of such orders. Copies of any such orders
shall be promptly forwarded by the Fund to Minnesota Life.
9.5 The parties to this Agreement acknowledge and agree that all
liabilities of the Fund arising, directly or indirectly, under this Agreement,
of any and every nature whatsoever, shall be satisfied solely out of the assets
of the Fund and that no director, officer, agent or holder of shares of
beneficial interest of the Fund shall be personally liable for any such
liabilities.
9.6 Each party shall cooperate with each other party and all appropriate
governmental authorities (including without limitation the Commission, the
National Association of Securities Dealers, Inc. and state insurance regulators)
and shall permit such authorities reasonable access to its books and records in
connection with any investigation or inquiry relating to this Agreement or the
transactions contemplated hereby.
9.7 The rights, remedies and obligations contained in this Agreement are
cumulative and are in addition to any and all rights, remedies and obligations,
at law or in equity, which the parties hereto are entitled to under state and
federal laws.
9.8 The parties of this Agreement acknowledge and agree that this Agreement
shall not be exclusive in any respect, except as provided in Section 1.10.
9.9 No provisions of this Agreement may be amended or modified in any
manner except by a written agreement properly authorized and executed by all
parties.
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<PAGE>
IN WITNESS WHEREOF, the parties have caused their duly authorized
officers to execute this Participation Agreement as of the date and year first
above written.
Minnesota Life:
Minnesota Life Insurance Company
By its authorized officer
By:
-----------------------------
Name:
---------------------------
Title:
--------------------------
The Fund:
Advantus Series Fund, Inc.
By its authorized officer
By:
-----------------------------
Name:
---------------------------
Title:
--------------------------
The Adviser:
Advantus Capital Management, Inc.
By its authorized officer
By:
-----------------------------
Name:
---------------------------
Title:
--------------------------
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<PAGE>
SCHEDULE A
SEPARATE ACCOUNTS OF MINNESOTA LIFE INSURANCE COMPANY
-----------------------------------------------------
1. Variable Annuity Account
2. Variable Fund D
3. Minnesota Life Variable Life Account
4. Group Variable Annuity Account
5. Minnesota Life Variable Universal Account
6. Group Variable Universal Life Account
7. Variable Universal Life Account II
8. Variable Universal Life Account III
9. Variable Universal Life Account IV
10. Variable Universal Life Account V
11. Variable Universal Life Account VI
A-1
<PAGE>
SCHEDULE B
FUND PORTFOLIOS AND CLASSES AVAILABLE
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
INVESTMENT INVESTMENT
PORTFOLIO CLASS ADVISER SUB-ADVISER
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Growth Advantus Capital Management, Inc.
- ---------------------------------------------------------------------------------------------------------------------------
Bond Advantus Capital Management, Inc.
- ---------------------------------------------------------------------------------------------------------------------------
Money Market Advantus Capital Management, Inc.
- ---------------------------------------------------------------------------------------------------------------------------
Asset Allocation Advantus Capital Management, Inc.
- ---------------------------------------------------------------------------------------------------------------------------
Mortgage Securities Advantus Capital Management, Inc.
- ---------------------------------------------------------------------------------------------------------------------------
Index 500 Advantus Capital Management, Inc.
- ---------------------------------------------------------------------------------------------------------------------------
Capital Appreciation Advantus Capital Management, Inc. Winslow Capital Management, Inc.
- ---------------------------------------------------------------------------------------------------------------------------
International Stock Advantus Capital Management, Inc. Templeton Investment Counsel, Inc.
- ---------------------------------------------------------------------------------------------------------------------------
Small Company Growth Advantus Capital Management, Inc.
- ---------------------------------------------------------------------------------------------------------------------------
Maturing Government Bond - 2002 Advantus Capital Management, Inc.
- ---------------------------------------------------------------------------------------------------------------------------
Maturing Government Bond - 2006 Advantus Capital Management, Inc.
- ---------------------------------------------------------------------------------------------------------------------------
Maturing Government Bond - 2010 Advantus Capital Management, Inc.
- ---------------------------------------------------------------------------------------------------------------------------
Value Stock Advantus Capital Management, Inc.
- ---------------------------------------------------------------------------------------------------------------------------
Small Company Value Advantus Capital Management, Inc.
- ---------------------------------------------------------------------------------------------------------------------------
Global Bond Advantus Capital Management, Inc. Julius Baer Investment Management,
Inc.
- ---------------------------------------------------------------------------------------------------------------------------
Index 400 Mid-Cap Advantus Capital Management, Inc.
- ---------------------------------------------------------------------------------------------------------------------------
Macro-Cap Value Advantus Capital Management, Inc. J.P. Morgan Investment Management,
Inc.
- ---------------------------------------------------------------------------------------------------------------------------
Micro-Cap Growth Advantus Capital Management, Inc. Wall Street Associates
- ---------------------------------------------------------------------------------------------------------------------------
Real Estate Securities Advantus Capital Management, Inc.
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
B-1
<PAGE>
SCHEDULE C
RULE 12b-1 PLANS
C-1
<PAGE>
SCHEDULE D
CERTIFICATE OF COMPLIANCE
Name of Fund:
Name of each Portfolio:
To: Minnesota Life Insurance Company
400 Robert Street North
Saint Paul, Minnesota 55101-2098
Attn: Ms. Ruth Mayr
Life Fund Accounting
Station Number: 9-6169
We have reviewed compliance of the Fund named above with respect to
certain investment diversification requirements for the Fund for the quarter
ending, __________, __________. The review was limited to verifying whether the
Fund complied with the quarterly diversification requirements described in
Section 817(h) of the Internal Revenue Code of 1986, as amended, and the
regulations thereunder (the "Section 817(h) Diversification Requirements").
The review did not include testing compliance with any other investment
limitations in the Private Placement Memorandum of the Fund or the Private
Placement Memorandum of the Policies issued by Minnesota Life.
As of _____________, ___________________, the Fund was in compliance
with the Section 817(h) Diversification Requirements.
Dated:
---------------------
By:
-----------------------
Title:
--------------------
D-1
<PAGE>
FUND SHAREHOLDER SERVICES AGREEMENT
This Agreement is entered into on May 1, 2000, between Minnesota Life
Insurance Company ("Minnesota Life") and Ascend Financial Services, Inc.
("Ascend"), each of which is a subsidiary of Minnesota Mutual Companies, Inc.
and a corporation domiciled in the State of Minnesota; and
WHEREAS, Minnesota Life issues variable life insurance policies and
variable annuity contracts (collectively the "Variable Contracts") through its
variable separate accounts ("Separate Accounts") which, in turn, invest in
designated registered investment companies, including Advantus Series Fund, Inc.
(the "Fund"); and
WHEREAS, the Fund has adopted a plan of distribution (the "Plan of
Distribution") pursuant to Rule 12b-1 under the Investment Company Act of 1940,
the terms of which provide for certain payments to Ascend in exchange for both
distribution and non-distribution related services to the Fund; and
WHEREAS, Minnesota Life desires to provide to the Fund, on behalf of
Ascend, the services described in the Plan of Distribution, and Ascend
desires to have Minnesota Life provide such services in the manner described
herein; and
WHEREAS, Minnesota Statutes Section 60D.20 requires that agreements
between subsidiaries of Minnesota Mutual Companies, Inc. must be fair and
reasonable; and
WHEREAS, the parties believe that Ascend's payment to Minnesota Life of the
fees described herein is a fair and reasonable basis upon which to compensate
Minnesota Life for the services provided under this Agreement.
NOW THEREFORE, for good and valuable consideration, the receipt and
adequacy of which is acknowledged, the parties hereto, intending to be legally
bound, agree as follows:
1. SERVICES: Minnesota Life agrees to provide the following services to
the Fund on behalf of Ascend:
A. DISTRIBUTION-RELATED SERVICES. Distribution-related services
provided pursuant to this Agreement shall include payment for,
among other things, the printing of prospectuses and reports used
for sales purposes, preparing and distributing sales literature
and related expenses, advertisements, education of contract
owners or dealers and their representatives, trail commissions,
and other distribution-related expenses, including a prorated
portion of the overhead expenses of the Distributor or the
Insurance Companies which are attributable to the distribution of
these Variable Contracts.
B. NON-DISTRIBUTION RELATED SERVICES. Non-distribution services
provided pursuant to this Agreement shall include payment for,
among other things, responding to inquiries from owners of
Variable Contracts regarding the Fund, printing and mailing Fund
prospectuses and other shareholder communications to existing
Variable Contract owners, direct communications with Variable
Contract owners regarding Fund operations and Portfolio
composition and performance, furnishing
<PAGE>
personal services or such other enhanced services as the Fund or
a Variable Contract may require, or maintaining customer accounts
and records.
2. PAYMENTS TO MINNESOTA LIFE. For the services described herein, Ascend
agrees to pay Minnesota Life on a quarterly basis an amount that is
equal, on an annual basis, to .25% of the average combined daily net
assets of all the designated Portfolios of the Fund which are
attributable to the Variable Contracts and part of the Plan of
Distribution.
The payments contemplated by this paragraph shall be calculated by
Ascend at the end of each quarter and will be paid to Minnesota Life
within thirty (30) days thereafter. Payment will be accompanied by a
statement showing the calculation of the quarterly amount payable and
such other supporting data as may be reasonably requested by Minnesota
Life.
3. NATURE OF THE PAYMENTS. The parties recognize and agree that Ascend's
payments to Minnesota Life hereunder relate solely to the services to
the Fund described in this Agreement and performed by Minnesota Life
on behalf of Ascend.
4. TERM. This Agreement shall remain in full force and effect for any
Portfolio of the Fund only so long as such Portfolio is subject to the
provisions of the Plan of Distribution, unless terminated in
accordance with paragraph 5.
5. TERMINATION. This Agreement may be terminated by either party upon
sixty (60) days advance written notice or immediately upon termination
of the Plan of Distribution.
6. REPRESENTATIONS BY MINNESOTA LIFE. Minnesota Life represents and
agrees that it will maintain and preserve all records as required by
law to be maintained and preserved by it in connection with the
services described herein and that it will otherwise comply with all
laws, rules and regulations applicable to the performance of the
services. Minnesota Life further represents and warrants that the
receipt of fees hereunder will not constitute a "prohibited
transaction" as such term is defined in Section 406 of the Employee
Retirement Income Security Act, as amended, and Section 4975 of the
Internal Revenue Code of 1986, as amended.
Minnesota Life represents that it will indemnify and hold Ascend, the
Fund and the Fund's advisor and sub-advisors harmless from any and all
direct or indirect liabilities or losses resulting from negligent
actions or inactions, of or by it or its officers, employees or agents
regarding its responsibilities under this Agreement. This
indemnification shall survive the termination of this Agreement.
Minnesota Life represents that neither it nor any of its officers,
employees or agents are authorized to make any representation
concerning Fund shares except those contained in the registration
statement or prospectus for Fund shares, as such registration
statement and prospectus may be amended or supplemented from time to
time, or in reports or proxy statements for the Fund, or in sales
literature or other promotional materials approved by the Fund or its
designee or by Ascend, except with the permission of the Fund or
Ascend or the designee of either.
-2-
<PAGE>
7. AUTHORITY. This Agreement shall in no way limit the authority of the
Fund, its adviser or Ascend to take such action as any of those
parties may deem appropriate or advisable in connection with all
matters relating to operations of the Fund and/or the sale of its
shares. Minnesota Life agrees and understands that the obligations of
Ascend under this Agreement are not binding upon the Fund.
8. MISCELLANEOUS. This Agreement may be amended only upon mutual
agreement of the parties hereto in writing. This Agreement may not be
assigned by a party, by operation of law or otherwise, without the
prior written consent of the other party. This Agreement constitutes
the entire agreement between the parties with respect to the matters
described herein and supersedes any previous agreements and documents
with respect to such matters. It may be executed in counterparts, each
of which shall be deemed to be an original but all of which shall
together constitute one and the same instrument. Minnesota Life agrees
to notify Ascend promptly if for any reason it is unable to perform
fully and to promptly any of its obligations under this Agreement.
9. INDEPENDENT CONTRACTOR. For purposes of this Agreement, Minnesota Life
is an independent contractor and its employees or its associates shall
not be employees of Ascend. Services performed by Minnesota Life on
behalf of Ascend shall be as its agent, and records maintained by
Minnesota Life on behalf of Ascend shall be considered to be those of
Ascend.
IN WITNESS WHEREOF, Minnesota Life and Ascend have caused this Agreement to
be executed in duplicate by their executive officers. This Agreement shall be
effective on May 1, 2000.
MINNESOTA LIFE INSURANCE COMPANY
By:
------------------------------------
Title:
--------------------------------
ASCEND FINANCIAL SERVICES, INC.
By:
------------------------------------
Title:
--------------------------------
Alt 1.24.00
-3-
<PAGE>
RULE 12b-1 DISTRIBUTION PLAN
I. Investment Company: Advantus Series Fund, Inc.
II. Portfolios of the Advantus Series Fund in the Distribution Plan
Growth Portfolio
Bond Portfolio
Money Market Portfolio
Asset Allocation Portfolio
Mortgage Securities Portfolio
Index 500 Portfolio
Capital Appreciation Portfolio
International Stock Portfolio
Small Company Growth Portfolio
Value Stock Portfolio
Small Company Value Portfolio
Global Bond Portfolio
Index 400 Mid-Cap Portfolio
Macro-Cap Value Portfolio
Micro-Cap Growth Portfolio
Real Estate Securities Portfolio
PREAMBLE TO THE DISTRIBTUION PLAN
The Advantus Series Fund, Inc. ("Fund") is an open-end management investment
company organized as a Minnesota corporation, which offers the shares of its
Portfolios (the "Portfolio" or "Portfolios") to certain life insurance companies
("Insurance Companies") for allocation to their separate accounts which have
been established for the purpose of funding variable annuity contracts and
variable life insurance policies (collectively, "Variable Contracts").
The following Distribution Plan (the "Plan") has been adopted pursuant to Rule
12b-1 under the Investment Company Act of 1940 (the "Act") by the Fund for the
shares of its Portfolios listed above ("Shares"). The Plan shall take effect on
May 1, 2000, provided that it is first approved by the shareholders of each
Portfolio of the Fund (the "Effective Date of the Plan"). The Plan has been
approved by a majority of the Board of Directors of the Fund (the "Board"),
including a majority of the Board who are not interested persons of the Fund and
who have no direct financial interest in the operation of the Plan (the
"non-interested Board members"), cast in person at a meeting called for the
purpose of voting on such Plan.
The Board's approval included a determination that in the exercise of its
reasonable business judgment and in light of its fiduciary duties, there is a
reasonable likelihood that the Plan will benefit each Portfolio of the Fund and
its shareholders.
<PAGE>
DISTRIBUTION PLAN
1. The Fund shall pay Ascend Financial Services, Inc. ("Distributor"), the
Insurance Companies or others, for distribution-related activities primarily
intended to sell Shares or Variable Contracts offering Shares.
Distribution-related payments made under the Plan may be used for, among other
things, the printing of prospectuses and reports used for sales purposes,
preparing and distributing sales literature and related expenses,
advertisements, education of Variable Contract owners or dealers and their
representatives, trail commissions, and other distribution-related expenses,
including a prorated portion of the overhead expenses of the Distributor or the
Insurance Companies which are attributable to the distribution of these Variable
Contracts. Distributor may undertake such activities directly or may compensate
others for undertaking such activities. Payments made under the Plan may also be
used to pay Insurance Companies, dealers or others for non-distribution
services, including, among other things, responding to inquiries from owners of
Variable Contracts regarding the Fund, printing and mailing Fund prospectuses
and other shareholder communications to existing Variable Contract owners,
direct communications with Variable Contract owners regarding Fund operations
and Portfolio composition and performance, furnishing personal services or such
other enhanced services as the Fund or a Variable Contract may require, or
maintaining customer accounts and records. Agreements for the payment of fees to
the Distributor, Insurance Companies or others shall be in a form which has been
approved from time to time by the Board, including the non-interested Board
members.
2. The amount paid by the Fund shall be .25% per annum of the average daily net
assets of the Fund's Shares in each Portfolio covered by this Distribution Plan.
These payments shall be made quarterly by the Fund to Distributor, the Insurance
Companies or others.
3. Distributor, Insurance Companies or others shall furnish to the Board, for
its review, on a quarterly basis, a written report of the monies paid to it, to
the Insurance Companies or others under the Plan. The Distributor, Insurance
Companies or others shall furnish the Board with such other information as the
Board may reasonably request in connection with the payments made under the Plan
including those distributions or payments made to others by the recipient.
4. The Plan shall continue in effect for a period of more than one year with
respect to the Fund only so long as such continuance is specifically approved at
least annually by a vote of the Board, including the non-interested Board
members, cast in person at a meeting called for the purpose of voting on the
Plan and its continuance.
5. The Plan, and any agreements entered into pursuant to this Plan, may be
terminated with respect to the Shares of the Fund (or any Portfolio thereof) at
any time without penalty, by vote of a majority of the outstanding Shares of the
Fund (or such Portfolio) or by vote of a majority of the non-interested Board
members, on not more than sixty (60) days' written notice, or by the Distributor
on not more than sixty (60) days' written notice, and shall terminate
automatically in the event of any act that constitutes an assignment of the
Management agreement between the Fund and the Fund's Adviser.
<PAGE>
6. The Plan, and any agreements entered into pursuant to this Plan, may not be
amended to increase materially the amount to be spent by the Fund pursuant to
Paragraph 2 hereof without approval by a majority of the outstanding Shares of
each Portfolio affected thereby.
7. All material amendments to the Plan, or any agreements entered into pursuant
to this Plan, shall be approved by a vote of the non-interested Board members
case in person at a meeting called for the purpose of voting on any such
amendment.
8. So long as the Plan is in effect, the selection and nomination of the Fund's
non-interested Board members shall be committed to the discretion of such
non-interested Board members.
9. This Plan is a compensation type plan of distribution. It does not require
the Distributor or other recipient of payments to maintain any specific level of
expenditures, nor is the Distributor or other recipient precluded from earning a
profit. Nothing in this Plan limits the ability of the Distributor, the
Portfolios' investment adviser, or others to utilize their own funds in
connection with the promotion of sales of Portfolio shares.
Alt 1.24.00
<PAGE>
ADVANTUS POLICY & PROCEDURE MANUAL -
ADVANTUS CODE OF ETHICS, PERSONAL SECURITIES TRADING
- --------------------------------------------------------------------------------
PROCEDURE NAME: ADVANTUS CODE OF ETHICS, PERSONAL SECURITIES TRADING
PROCESS REF. #: ADVANTUS 101
CONTACT NAME: GARY PETERSON
AUTHOR: GARY PETERSON
APPROVAL DATE: 10/28/99
- --------------------------------------------------------------------------------
PURPOSE
- --------------------------------------------------------------------------------
While affirming its confidence in the integrity and good faith of all their
employees, officers and directors, Advantus Capital Management, Inc. (Advantus)
and Ascend Financial Services, Inc. (Ascend) recognize that the knowledge of
present or future fund portfolio transactions and, in certain instances, the
power to influence fund portfolio transactions made by or for the Advantus Funds
may place such individuals, if they engage in Personal Securities Transactions
in securities which are eligible for investment by the Advantus Mutual and
Series Funds (Funds), in a position where their personal interest may conflict
with that of the Funds.
In view of the above and of the provisions of Rule 17j-1(b)(1) under the
Investment Company Act of 1940 (the "1940 Act") and other regulations and legal
considerations, Advantus, Ascend, and the Funds have determined to adopt this
Code of Ethics to specify and prohibit certain types of transactions which would
create conflicts of interest (or at least the potential for the appearance of
conflicts of interest), and to establish reporting requirements and enforcement
procedures. This Code supplements but does not supersede or contradict the
Minnesota Life Code of Ethics.
- --------------------------------------------------------------------------------
SCOPE
- --------------------------------------------------------------------------------
The attached Code of Ethics, (Appendix A), applies to all individuals defined as
access persons and certain Employees. This includes all Advantus employees
engaged in making investment decisions or supporting the investment process
regarding marketable securities and other employees of Advantus or Ascend,
(permanent, temporary and/or contractors), as defined in the Code.
1
<PAGE>
- --------------------------------------------------------------------------------
PROCEDURE
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
TASK/ACTION RESPONSIBILITY
- --------------------------------------------------------------------------------
<S> <C>
For Newly Hired and Transferring Access Persons
Provide the Code of Ethics to new or transferred Advantus Human
access persons coincident with their hire or Resources
transfer date. Provide an initial holdings report
form to be completed by the access person.
Conduct training/orientation regarding the Code of
Ethics and related procedures in groups or in Advantus Compliance
one-on-one meetings, as appropriate. This must be
done within 10 business days of their hire or
transfer.
Review the Code of Ethics and complete the Access Personnel
attached signoff form within 10 business days of
receipt. Return the signoff forms to Advantus
Compliance department. Complete the initial
holdings report and return the report to the
Advantus Compliance department.
For Annual Review or Code of Ethics Revisions
Distribute the Code of Ethics, the annual signoff Advantus Compliance
form, and the annual security holdings report to
all access persons according to the annual
schedule as defined by Advantus compliance
officer. Complete special distributions of the
Code of Ethics and signoff forms to all access
persons when changes in the Code of Ethics occur.
Review the Code of Ethics, or revisions to the Access Personnel
Code, then complete the signoff form and return it
to Advantus Compliance department within 10
business days of receipt. Complete the annual
security holdings report and return to the
Advantus Compliance department.
</TABLE>
2
<PAGE>
APPENDIX A
CODE OF ETHICS
FOR
ADVANTUS CAPITAL MANAGEMENT, INC.
AND AFFILIATES
I. PURPOSE AND CONSTRUCTION.
This Code of Ethics ("Code") is adopted by Advantus Capital Management,
Inc. (the "Adviser"), Ascend Financial Services, Inc. ("Ascend"), and the
Funds to set forth their policy with regard to conduct by their officers,
directors and employees and in an effort to comply with and prevent
violations of Section 17 of the 1940 Act, Section 15(f) of the Securities
Exchange Act of 1934 and Section 204A of the Investment Advisers Act of 1940.
The focus of this Code is to set forth the standards of ethical conduct
expected from employees, officers and directors and the restriction or
prevention of some investment activities by persons with access to certain
information that might be harmful to the interests of the Funds or which
might enable such persons to profit illicitly from their relationship with
the Funds.
II. STATEMENT OF GENERAL ETHICAL PRINCIPLES.
A. Individuals covered by this Code will at all times conduct themselves
with integrity and distinction, putting first the interests of the
Funds.
B. The Code is based on the principle that the individuals covered by
this Code owe a fiduciary duty to the Funds, including, among others,
the shareholders of the Funds, to conduct their Personal Securities
Transactions in a manner which does not interfere with Fund portfolio
transactions and in such a manner as to avoid any actual or potential
conflict or interest or abuse of such person's position of trust and
responsibility; or otherwise take inappropriate advantage of such
person's position in relation to the Funds. Individuals covered by
this Code must adhere to this general principle as well as comply with
the Code's specific provisions. It bears emphasis that technical
compliance with the Code's procedures will not automatically insulate
from scrutiny, activities which show a pattern of abuse of the
individual's fiduciary duties to the Funds.
III. RESTRICTIONS.
A. NONDISCLOSURE OF INFORMATION. An Access Person shall not divulge to
any person, contemplated or completed securities transactions of a
Fund, except in the performance of his or her duties. This prohibition
shall not apply if such information previously has become a matter of
public knowledge.
B. SECTION 17(d) LIMITATIONS. No Affiliated Person of a Fund, or Ascend,
or any Affiliated Person of such person or Ascend, acting as
principal, shall effect any transaction in which a Fund, or a company
controlled by a Fund, is a joint or a joint and several participant
with such person, Ascend or Affiliated Person, in contravention of
such rules and regulations as the Securities and Exchange Commission
may prescribe under Section 17(d) of the 1940 Act for the purpose of
limiting or preventing participation by the Funds or controlled
companies on a basis different
3
<PAGE>
from or less advantageous than that of such other participant.
C. PROSCRIBED ACTIVITIES UNDER RULE 17j-1(b). Rule 17j-1(b) under the
1940 Act provides:
It shall be unlawful for any affiliated person of or principal
underwriter for a Fund, or any affiliated person of an investment
adviser of or principal underwriter for a Fund, in connection with the
purchase or sale, directly, or indirectly, by such person of a
Security Held or to be Acquired, as defined in section IX, by such
Fund--
1. To employ any device, scheme or artifice to defraud such Fund;
2. To make to such Fund any untrue statement of a material fact or
omit to state to such Fund a material fact necessary in order to
make the statements made, in light of the circumstances under
which they were made, not misleading;
3. To engage in any act, practice, or course of business which
operates or would operate as a fraud or deceit upon any such
Fund; or
4. To engage in any manipulative practice with respect to such Fund.
Any violation of Rule 17j-1(b) shall be deemed to be a violation of
this Code.
D. COVENANT TO EXERCISE BEST JUDGMENT. An Advisory Person shall act on
his or her best judgment in effecting, or failing to effect, any Fund
transaction and such Advisory Person shall not take into consideration
his or her personal financial situation in connection with decisions
regarding Fund portfolio transactions.
E. LIMITATIONS ON PERSONAL SECURITIES TRANSACTIONS.
1. NO PERSONAL SECURITIES TRANSACTIONS WITHOUT PRIOR APPROVAL. No
Access Person or Employee shall engage in a Personal Securities
Transaction without Pre-Clearance, as defined below.
a. Prior to effecting any Personal Securities Transaction,
except as provided in Paragraph b. below, an Access Person
or Employee shall secure Pre-Clearance utilizing the
procedures set forth in (i) or (ii) below.
i. Manual Pre-Clearance.
An Access Person shall notify the President of the
Adviser, or his or her designee, of the proposed
transaction, and shall provide the name of the
issuer, the title or type of Security, the number of
shares and the price per share or the principal
amount of the transaction. The President of the
Adviser, or his or her designee, shall, after
investigation, determine that such proposed
transaction would, may, or would not be consistent
with the specific limitations of Section III.E. and
with this Code generally.
The conclusion of the President of the Adviser, or his
or her designee, shall be promptly communicated to the
person making such request. The President of the
4
<PAGE>
Adviser, or his or her designee, shall make written
records of actions under this Section, which records
shall be maintained and made available in the manner
required by Rule 17j-1(f).
ii. E-Mail Based Prior Clearance.
As an alternative to Manual Prior Clearance set
forth above, an Access Person or Employee may
utilize the Lotus Notes based Trade Approval System
("TAS") to pre-clear Personal Securities
Transactions. Thereafter TAS will be loaded onto the
computer of that Access Person or Employee. (An
Access Person or Employee who has undergone TAS
training and has had TAS installed on their computer
is called a User).
The User will enter the proposed Personal Securities
Transaction on the TAS system. The User will enter the
security ticker symbol and other information required
by TAS. TAS searches all applicable restricted lists
based on the security ticker symbol. The User has the
responsibility for determining that the security
ticker symbol is accurate. If the proposed Personal
Securities Transaction clears the restricted lists,
the User will forward the proposed trade to the
applicable trading desk for further clearance.
Approval or rejection of each proposed Personal
Securities Transaction will be made by e-mail
notification to the mailbox of the User. The User will
be required to enter information as to whether the
trade is executed or not executed and the price at
which it was executed.
In utilizing the TAS system, the User is required to
make certifications with regard to the transaction as
set forth on the TAS system. For each proposed
Personal Securities Transaction the User has the
responsibility to enter the information correctly and
ensure the accuracy of each of these statements.
Failure to enter the correct security ticker symbol or
to ensure that each certification is correct may
result in disciplinary action being taken against the
User in accordance with the provisions of the Code.
Records of actions under this Section, shall be
maintained and made available in the manner required
by Rule l7j-l(f).
b. Personal Securities Transactions in the following securities
do not require prior approval pursuant to this section:
i. Purchases or sales of securities issued by the
Government of the United States (transactions in
securities that are indirect obligations of the U.S.
Government such as securities of the Federal National
Mortgage Association are not exempted);
ii. Purchases or sales of shares of registered open-end
investment companies;
iii. Purchases or sales of banker's acceptances or bank
certificates of deposit; or
iv. Purchases or sales of commercial paper and high quality
short term instruments, including repurchase
agreements.
2. LIMITATIONS RELATED TO TIME OF TRANSACTIONS.
a. No Access Person or Employee shall engage in a Personal
Securities Transaction
5
<PAGE>
involving any Security which, with respect to any Fund, has
been purchased or sold within the most recent 7 days or
which has a pending "buy" or "sell" order.
b. No Access Person or Employee who is a portfolio manager or
analyst shall engage in a Personal Securities Transaction
involving any Security which, with respect to the Funds they
manage or make recommendations for, is being considered for
purchase or sale within the next 7 days.
c. The following exceptions to Paragraphs a. and b. above will
apply if any such Security:
i. is no longer held by any Fund as a result of a sale
within the most recent 7 days, in which case such
Security may be sold the next day following the
completion of such a transaction by a Fund, or
ii. is purchased or sold solely by a Fund which tracks the
performance of an Index, in which case such Security
may be purchased or sold on any day except a day on
which any Fund is trading in such security.
d. No Access Person or Employee shall profit from the purchase
and sale, or sale and purchase, of the same (or an
equivalent) Security in a Personal Securities Transaction
within sixty calendar days.
e. The following Personal Securities Transactions are not
subject to the limitations set forth in Paragraphs a., b.,
and d. above:
i. Purchases or sales effected in any account over which
the person has no direct or indirect influence or
control;
ii. Purchases or sales of securities which are not eligible
for purchase or sale by any Fund;
iii. Purchases which are part of an automatic dividend
reinvestment plan;
iv. Purchases effected upon the exercise or rights issued
by an issuer PRO RATA to all holders of a class of its
securities, to the extent such rights were acquired
from such issuer, and sales of such rights so acquired.
3. INITIAL PUBLIC OFFERING LIMITATIONS. No Access Person or
Employee shall engage in any Personal Securities Transaction
that involves the purchase of a Security which is part of an
Initial Public Offering.
4. LIMITED OFFERING LIMITATIONS.
a. No Access Person or Employee shall engage in any Personal
Securities Transaction that involves a Limited Offering of
Securities without the express prior approval of the
6
<PAGE>
President of the Adviser, or his or her designee in
accordance with the procedures set forth in Section III.E.6.
In reviewing any such approval request, the President of the
Adviser, or his or her designee, shall consider, among other
factors, whether the investment opportunity should be
reserved for a Fund and its shareholders, and whether the
opportunity is being offered to the requesting individual by
virtue of his or her position with the Funds or the Adviser.
b. Access Persons and Employees who have received approval as
set forth above and who continue to hold the Security
acquired in such Limited Offering, shall disclose any such
continuing investment to the President of the Adviser, or
his or her designee, if and when they should become involved
in any subsequent consideration of an investment in the same
issuer for the portfolio of any Fund. In such case the
decision to invest in the Securities of such an issuer shall
be subject to the approval of the President of the Adviser,
or his or her designee.
c. The President of the Adviser, or his or her designee, shall
make written records of actions under this Paragraph.
5. COPIES OF BROKERAGE REPORTS. All Access Persons that engages
in a Personal Securities Transaction are required to have the
executing broker send a duplicate copy of the confirmation of
the transaction to the President of the Adviser or his or her
designee at the same time as it is provided to such person. In
such event, the Access Person shall also direct such broker to
provide duplicate copies of any periodic statements on any
account maintained by such person to the President of the
Adviser, or his or her designee.
6. WAIVERS. An Access Person or Employee may also request prior
approval of a Personal Securities Transaction which, on its
face, would be prohibited by the limitations of Section III.E.
Such person shall provide to the President of the Adviser, or
his or her designee, a description of the proposed
transaction, including the name of the issuer, the title or
type of the Security, the number of shares and the price per
share or the principal amount of the transaction, and shall
also provide a statement why the applicable limitation should
be waived in the case of the proposed transaction. The
President of the Adviser, or his or her designee, shall, after
investigation, determine that a waiver of the limitations
otherwise applicable to the proposed transaction would, may,
or would not be consistent with the purpose of this Code.
Purchases and sales consistent with the Code shall include
those which are only remotely potentially harmful to any Fund,
those which would be very unlikely to affect a highly
institutional market, and those which clearly are not related
economically to the securities to be purchased, sold or held
by any Fund.
IV. REPORTING REQUIREMENTS.
A. QUARTERLY REPORT. Not later than ten (10) days after the end of each
calendar quarter, each Employee and each Access Person shall submit a
report (as shown in Exhibit A) which shall specify the following
information with respect to transactions during the then ended calendar
7
<PAGE>
quarter in any Security in which such Employee or Access Person has, or by
reason of such transaction acquired, any direct or indirect beneficial
ownership in the Security:
1. the date of transaction, the name of the issuer, the title or type of
Security, the interest rate and maturity (if applicable), the number
of shares, and the principal amount of each Security involved;
2. the nature of the transaction (i.e., purchase, sale, or any other type
of acquisition or disposition);
3. the price of the Security at which the transaction was effected;
4. the name of the broker, dealer, or bank with or through whom the
transaction was effected;
5. the date that the report is submitted by the Access Person or
Employee; and
6. any account established in the quarter by the Access Person in which
any securities were held during the quarter for the direct or indirect
benefit of the Access Person.
If no transactions have occurred, or no accounts have been established,
in the quarter, the report shall so indicate.
The President of the Adviser, may in his or her discretion, not require
an Access Person or Employee to make a quarterly transaction report, if
the report duplicates information contained in the broker trade
confirmation received by the Adviser, contains all required information
as described in this section IV.A, the broker trade confirmation is
received no later than 10 days after quarter end, and no accounts have
been established as described in this section IV.A.6.
B. LIMITATION ON REPORTING REQUIREMENTS. Notwithstanding the provisions of
Section IV.A., no Access Person or Employee shall be required:
1. To make a report with respect to transactions effected for any account
over which such person does not have any direct or indirect influence
or control; or
2. To make a quarterly report, initial or annual holdings report, if such
person is not an "interested person" of a Fund as defined in Section
2(a)(19) of the 1940 Act, and would be required to make such a report
solely by reason of being a director of a Fund, EXCEPT where such
director knew, or in the ordinary course of fulfilling his or her
official duties as a director of a Fund should have known, that during
the 15-day period immediately preceding or after the date of the
transaction in a Security by the director, such Security was being
purchased or sold by a Fund or such purchase or sale by a Fund was
being considered by a Fund or the Adviser.
C. REPORTS OF VIOLATIONS. In addition to the quarterly reports required under
this Section IV, each Employee and each Access Person promptly shall report
any transaction which is, or might appear to be, in violation of this Code.
Such report shall contain the information required in quarterly reports
filed pursuant to Section IV.A.
D. INITIAL AND ANNUAL REPORTS BY PERSONNEL. All Access Persons and Employees
shall submit to
8
<PAGE>
the President of the Adviser, or his or her designee, a report of all
Securities beneficially owned by them at the time that they commence
employment with the Adviser or Ascend (or any affiliated company) or at
the time they become an Access Person. This report shall be submitted to
the President of the Adviser, or his or her designee, within 10 days of
commencement of employment or within 10 days after notification of
becoming an Access Person. All Access Persons and Employees shall submit
to the President of the Adviser, or his or her designee, within 30 days
of the end of each calendar year, a report of all Securities
beneficially owned by them as of December 31 of each year or at such
other date selected by the President of the Adviser. The initial and
annual security holdings report must include the following information:
1. the name of the security, number of shares, and principal amount of
each Security in which the Access Person or Employee has any direct or
indirect beneficial ownership;
2. the name of the broker, dealer, or bank with whom the Access Person or
Employee maintains an account in which any securities are held for the
direct or indirect benefit of the Access Person or Employee. The
initial security holdings report should be as of the date the person
became an Access Person; and
3. the date the report is submitted by the Access Person or Employee.
E. FILING OF REPORTS. All reports prepared pursuant to this Section IV shall
be filed with the person designated by the President of the Adviser to
review these materials.
F. QUARTERLY REPORT BY ADVISER. Each calendar quarter, after the receipt of
reports from reporting persons, the President of the Adviser, or his or her
designee, shall prepare a report which shall certify, to the best of his or
her knowledge, that all persons required to file a report under Section
IV.A. have complied with this Code for such prior quarter or, if unable to
make such certification, shall describe in detail incomplete reports,
violations or suspected violations of this Code.
G. DISSEMINATION OF REPORTS. The General Counsel of the Funds shall have the
right at any time to receive or review copies of any reports submitted
pursuant to this Section IV. Such General Counsel shall keep all reports
confidential except as disclosure thereof to the Boards of Directors of the
Funds, the Adviser, Ascend, or other appropriate persons may be reasonably
necessary to accomplish the purposes of this Code.
V. RECORDKEEPING REQUIREMENTS
A. The Adviser, Ascend and the Funds must each at its principal place of
business, maintain records in the manner and extent set out in this Section
of the Code and must make available to the Securities and Exchange
Commission (SEC) or any representative of the SEC at any time and from time
to time for reasonable periodic, special or other examination:
9
<PAGE>
1. A copy of each code of ethics of the Adviser, Ascend and the Funds
that is in effect, or at any time within the past five years was in
effect, must be maintained in an easily accessible place;
2. A record of any violation of the code of ethics, and of any action
taken as a result of the violation, must be maintained in an easily
accessible place for at least five years after the end of the fiscal
year in which the violation occurs;
3. A copy of each report made by an Access Person or Employee as
required, including any information provided in lieu of a quarterly
transaction report, see Section IV.A, must be maintained for at least
five years after the end of the fiscal year in which the report is
made or the information is provided, the first two years in an easily
accessible place;
4. A record of all persons, currently or within the past five years, who
are or were required to make reports as deemed Access Persons or
Employee, or who are or were responsible for reviewing these reports,
must be maintained in an easily accessible place;
5. A copy of each report defined in Section VI.B must be maintained for
at least five years after the end of the fiscal year in which it is
made, the first two years in an easily accessible place.
B. The Adviser, Ascend, and the Funds must maintain a record of any decision,
and the reasons supporting the decision, to approve the acquisition by
investment personnel of Limited Offering securities, for at least five
years after the end of the fiscal year in which the approval is given.
VI. FIDUCIARY DUTIES OF THE FUND BOARD OF DIRECTORS
A. The Fund Board of Directors, including a majority of directors who are not
interested persons, must approve the Code of Ethics adopted by the Adviser,
Ascend and the Funds and any material change to the Code. The Board must
base its approval of a code and any material changes to the code on a
determination that the code contains provisions reasonably necessary to
prevent Access Persons from engaging in any conduct prohibited by section
III.C. Before approving the Code of the Adviser, Ascend, and the Funds, the
Fund Board of Directors must receive a certification from the Adviser,
Ascend, and the Funds that each has adopted procedures reasonably necessary
to prevent Access Persons or Employees from violating its Code of Ethics.
The Fund Board of Directors must approve the Code of the Adviser, Ascend,
and the Funds before initially retaining the services of the Adviser or
Ascend. The Fund Board of Directors must approve a material change to the
Code no later than six months after adoption of the material change. The
Adviser, Ascend and the Funds must each use reasonable diligence and
institute procedures reasonably necessary to prevent violations of its Code
of Ethics.
B. No less frequently than annually, the Adviser, Ascend, and the Funds must
furnish to the Fund Board of Directors a written report that:
1. Describes any issues arising under the Code of Ethics since the last
report to the Fund Board of Directors, including, but not limited to,
information about material violations of the Code or procedures and
sanctions imposed in response to the material violations; and
2. Certifies that the Adviser, Ascend, and the Funds have adopted
procedures reasonably
10
<PAGE>
necessary to prevent Access Persons or Employees from violating the
Code.
VII. ENFORCEMENT AND SANCTIONS.
A. GENERAL. Any Affiliated Person of the Adviser or Ascend who is found to
have violated any provision of this Code may be permanently dismissed,
reduced in salary or position, temporarily suspended from employment, or
sanctioned in such other manner as may be determined by the Board of
Directors of the Adviser or Ascend in its discretion. The Board of
Directors of the Adviser or Ascend may delegate this authority to such
person or persons they deem appropriate. If an alleged violator is not
affiliated with the Adviser or Ascend, the Board of Directors of the Fund
or Funds involved shall have the responsibility for enforcing this Code and
determining appropriate sanctions. In determining sanctions to be imposed
for violations of this Code, the Board of Directors may consider any
factors deemed relevant, including but not limited to the following:
1. the degree of willfulness of the violation;
2. the severity of the violation;
3. the extent, if any, to which the violator profited or benefited from
the violation;
4. the adverse effect, if any, of the violation on the Fund or Funds;
5. the market value and liquidity of the class of Securities involved in
the violation;
6. the prior violations of the Code, if any, by the violator;
7. the circumstances of discovery of the violation; and
8. if the violation involved the purchase or sale of Securities in
violation of this Code, (a) the price at which the Fund purchase or
sale was made and (b) the violator's justification for making the
purchase or sale, including the violator's tax situation, the extent
of the appreciation or depreciation of the Securities involved, and
the period the Securities have been held.
B. VIOLATIONS OF SECTION III.E.
1. At its election, a Fund may choose to treat a transaction prohibited
under Section III.E. of this Code as having been made for its account.
Such an election may be made only by a majority vote of the directors
of the Fund who are not Affiliated Persons of the Adviser. Notice of
an election under this Section VII.B.1. shall not be effective unless
given to the Adviser within sixty (60) days after the Fund is notified
of such transaction. In the event of a violation involving more than
one Fund, recovery shall be allocated between the affected
11
<PAGE>
Funds in proportion to the relative net asset values of the Funds as
of the date of the violation.
2. If securities purchased in violation of Section III.E. of this Code
have been sold in a bona fide sale, the Fund shall be entitled to
recover the profit made by the seller. If such securities are still
owned by the seller, or have been disposed of by such seller other
than by a bona fide sale at the time notice of election is given by
the Fund, the Fund shall be entitled to recover from the seller the
difference between the cost of such Securities to the violator and the
fair market value of such Securities on the date the Fund acquired
such Securities. If the violation consists of a sale of Securities in
violation of Section III.E. of this Code, the Fund shall be entitled
to recover from the violator the difference between the net sale price
per share received by the violator and the net sale price per share
received by the Fund, multiplied by the number of shares sold by the
violator. Each violation shall be treated individually and no
offsetting or netting of violations shall be permitted. The sums due
from a violator under this Paragraph shall include sums due a Fund as
a result of a violation by a Member of the Immediate Family of such
violator.
3. Knowledge on the part of director or officer of a Fund who is an
Affiliated Person of the Adviser of a transaction in violation of this
Code shall not be deemed to be notice under Section VII.B.1.
4. If the Board of Directors of a Fund determines that a violation of
this Code has caused financial detriment to such Fund, upon reasonable
notice to the Adviser, the Adviser shall use its best efforts,
including such legal action as may be required, to cause a person who
has violated this Code to deliver to the Fund such Securities, or to
pay to the Fund such sums, as the Fund shall declare to be due under
this Section VII.B., provided that:
a. the Adviser shall not be required to bring legal action if the
amount reasonably recoverable would not be expected to exceed
$2,500.
b. In lieu of bringing a legal action against the violator, the
Adviser may elect to pay to the Fund such sums as the Fund shall
declare to be due under this Section VII.B.; and
c. the Adviser shall have no obligation to bring any legal action if
the violator was not an Affiliated Person or Employee of either
the Adviser or Ascend.
C. RIGHTS OF ALLEGED VIOLATOR. A person charged with a violation of this Code
shall be informed of the violation in writing and shall have the
opportunity to appear before the Board of Directors (or such Boards
designees) as may have authority to impose sanctions pursuant to this Code,
at which time such person shall have the opportunity, orally or in writing,
to deny any and all charges, set forth mitigating circumstances, and set
forth reasons why the sanctions for any violations should not be severe.
D. DELEGATION OF DUTIES. The Board of Directors of the Adviser, Ascend or of
any Fund may delegate its enforcement duties under this Section VII to a
special committee of the Board of Directors
12
<PAGE>
comprised of at least three persons; provided, however, that no director
shall serve on such committee or participate in the deliberations of the
Board of Directors hereunder who is charged with a violation of this
Code. The Board of Directors of Adviser or Ascend may delegate its
enforcement duties under this Section VII to such officers of Adviser or
Ascend and with such authority as the Board deem appropriate.
E. NON-EXCLUSIVITY OF SANCTIONS. The imposition of sanctions hereunder by the
Board of Directors of the Adviser or Ascend will not preclude the
imposition of additional sanctions by the Board of Directors of the Funds
and shall not be deemed a waiver of any rights by the Funds.
VIII. MISCELLANEOUS PROVISIONS.
A. IDENTIFICATION OF ACCESS PERSONS. The Adviser shall, on behalf of the Funds
and Ascend, identify all Employees and all Access Persons who are under a
duty to make reports under Section IV and shall inform such persons of such
duty.
B. MAINTENANCE OF RECORDS. The Adviser shall, on behalf of the Funds and
Ascend, maintain and make available records as required by Rule 17j-1(d).
C. ANNUAL CERTIFICATION OF COMPLIANCE. All Access Persons and Employees shall
sign a certificate to be presented to the Adviser at the end of each
calendar year certifying that they have read and understood this Code and
acknowledging that they are subject to the terms of the Code. The
certificate shall additionally provide that such person has disclosed or
reported all Personal Securities Transactions required to be disclosed or
reported pursuant to the provisions of this Code.
D. SERVICE AS DIRECTOR. An Access Person or Employee may not serve as a
director of a publicly traded company without the prior consent of the
President of the Adviser, or his or her designee. The President of the
Adviser, or his or her designee, shall not provide such authorization
unless he or she finds that such board service would be consistent with the
interests of the Funds and their shareholders. Should any person receive
such authorization, any investment by the Funds in the securities of any
such publicly traded company while such person is serving as a director
shall be previously approved by the President of the Adviser, or his or her
designee.
E. EFFECTIVE DATE. The effective date of this Code shall be October 28, 1999.
IX. DEFINITIONS.
A. "ACCESS PERSON" shall mean any director, officer, or Advisory Person of the
Adviser or of a Fund, or with respect to Ascend, any director or officer
who in the ordinary course of his or her business makes, participates in or
obtains information regarding the purchase or sale of Securities for a Fund
or whose functions or duties as part of the ordinary course of his or her
business relate to the making of any recommendation to a Fund regarding the
purchase or sale of Securities.
B. "ADVISORY PERSON" means:
13
<PAGE>
1. Any employee of the Adviser or of a Fund (or of any company in a
control relationship to the Adviser or a Fund) who, in connection with
his or her regular functions or duties, makes, participates in, or
obtains information regarding the purchase or sale of a Security by a
Fund, or whose functions or duties relate to the making of any
recommendations with respect to such purchases or sales, and
2. Any natural person in a control relationship to the Adviser or a Fund
who obtains information concerning recommendations made to a Fund with
regard to the purchase or sale of a Security.
C. "AFFILIATED PERSON" means:
1. Any person directly or indirectly owning, controlling or holding with
power to vote, five percent (5%) or more of the outstanding voting
securities of such other person;
2. Any person, five percent (5%) or more of whose outstanding voting
securities are directly or indirectly owned, controlled, or held with
power to vote, by such other person;
3. Any person directly or indirectly controlling, controlled by, or under
common control with, such other person;
4. Any officer, director, partner, co-partner, or employee of such other
person;
5. If such other person is an investment company, any investment adviser
thereof or any member of any advisory board thereof; and
6. If such other person is an unincorporated investment company not
having a board of directors, the depositor thereof.
D. "SECURITY HELD OR TO BE ACQUIRED" means any Security which, within the most
recent 15 days (i) is or has been held by the Fund, or (ii) is being
considered by the Fund or Adviser for purchase by the Fund, and (iii)
includes any option to purchase or sell, and any Security that is
exchangeable for or convertible into, any Security that is held or to be
acquired by the Fund.
E. "BENEFICIAL OWNERSHIP" shall be interpreted in the same manner as it would
be in determining whether a person is subject to the provisions of Section
16 of the Securities Exchange Act of 1934 pursuant to Rule 16a-1
thereunder, except that the determination of direct or indirect beneficial
ownership shall apply to all Securities which the person has or acquires
Beneficial Ownership includes, but is not limited to those securities owned
by a Person who directly or indirectly through any contract, arrangement,
understanding, relationship or otherwise, has or shares a direct or
indirect pecuniary interest in the securities. Direct pecuniary interest
includes the opportunity directly or indirectly to profit or share in any
profit derived from a transaction in the securities. The term indirect
pecuniary interest includes but is not limited to securities held by
members of a person's immediate family sharing the same household. You are
generally considered to be the beneficial owner of securities owned by any
of the following:
1. your spouse/domestic partner;
2. minor children of you, your spouse/domestic partner, or both;
14
<PAGE>
3. a trust of which you are a trustee or a beneficiary;
4. any of your relatives, or relatives of your spouse/domestic partner,
that share your home;
5. a partnership of which you are a partner;
6. a corporation of which you are a substantial shareholder; or
7. any other person who relies on you to make investment decisions.
F. "COMPLIANCE OFFICER" means the Compliance Officer of the Adviser.
G. "CONTROL" shall have the meaning set forth in Section 2(a)(9) of the 1940
Act and shall include the power to exercise a controlling influence over
the management or policies of a company, unless such power is solely the
result of an official position with such company. A person who directly or
indirectly owns more than 25% of the voting securities of a company is
presumed to control such company.
H. "EMPLOYEE" means an employee of the Adviser, or with respect to Ascend or
any other affiliated company an employee who has been notified that he or
she is also subject to this Code.
I. "FUND" means any investment company registered under the 1940 Act for which
the Adviser acts as the investment adviser and manager. For purposes of
this Code, such term shall also include any other account managed by the
Adviser.
J. "1940 ACT" means the Investment Company Act of 1940, 15 U.S.C. 80a-1 to
80a-52, as the same may be amended from time to time.
K. "PERSONAL SECURITIES TRANSACTION" means a transaction in a Security which
an individual effects for his or her own account or for a Member of his or
her Immediate Family.
L. "PRESIDENT OF THE ADVISER" shall mean the President of Advantus Capital
Management, Inc., or its successor.
M. "PURCHASE OR SALE OF A SECURITY" also includes the writing of an option to
purchase or sell a Security.
N. "SECURITY" means any security as that term is defined in Section 2 (a)(36)
of the 1940 Act and includes, but is not limited to: notes, stock, treasury
stock, bonds debentures, evidences of indebtedness, certificates of
interest or participations in any profit-sharing agreement,
collateral-trust certificates, pre-organization certificates or
subscriptions, transferable shares, investment contracts, voting-trust
certificates, any puts, calls, straddles, options or privileges on any
security (including a certificate of deposit) or on any group or index of
securities, or, in general, any interest or instrument commonly known as a
"security". Indirect obligations of the U.S. Government such as securities
of the Federal National Mortgage association are also Securities for the
purposes of the Code. Security does NOT include:
1. direct obligations of the Government of the United States;
15
<PAGE>
2. bankers acceptances, bank certificates of deposit, commercial paper
and high quality short-term instruments, including repurchase
agreements; and
3. shares issued by registered open-end investment companies.
O. "INITIAL PUBLIC OFFERING" means an offering of securities registered with
the Commission, the issuer of which, immediately before the registration,
was not required to file reports with the Commission.
P. "LIMITED OFFERING" means an offering that is exempt from registration under
the Securities Act of 1933 pursuant to section 4(2) or section 4(6) or
pursuant to rule 504, rule 505, or rule 506 under the Securities Act of
1933.
16
<PAGE>
EXHIBIT A
QUARTERLY SECURITIES TRANSACTION REPORT*
PURSUANT TO THE CODE OF ETHICS FOR
ADVANTUS CAPITAL MANAGEMENT, INC. AND AFFILIATES
For the Calendar Quarter Ending: MARCH 31, 2000
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
NAME OF ISSUER AND DATE OF NATURE OF NUMBER OF SHARES OR PRICE AT WHICH THROUGH WHOM
TITLE OR TYPE OF SECURITY TRANSACTION TRANSACTION PRINCIPAL AMOUNT EFFECTED TRANSACTION EFFECTED
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
ACCOUNTS OPENED THIS QUARTER**
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
BROKER OR BANK NAME ACCOUNT TITLE ACCOUNT NUMBER
<S> <C> <C> <C> <C> <C>
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
The reporting of any transaction hereon shall not be construed as an admission
that the reporting person has any direct or indirect beneficial ownership in
such security.
- ----------------------------- ----------------------------- ----------------
Name (Please Print) Signature Date
* Transactions by the Access Person, Employee, or family members as defined
in the Code.
** Accounts opened by the Access Person, Employee, or family members as
defined in the Code.
- - SEND TO: 16-5354 NO LATER THAN APRIL 10, 2000
17
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APPENDIX B
INSIDER TRADING
SUPPLEMENT
TO THE
CODE OF ETHICS
The purpose of this Supplement to the Code of Ethics is to expand upon
the provisions of the Code of Ethics and on prior group and private
discussions regarding the topic of insider trading. If you have any further
questions on insider trading, talk with your supervisor, an Advantus
attorney, or the Compliance Officer.
The term "insider trading" refers to the use of material non-public
information to trade securities. It is also a violation of law to communicate
material non-public information to others.
The Code of Ethics of Advantus Capital Management, Inc., and Ascend
Financial Services, Inc. (together "Advantus") prohibits the use of any
special knowledge, personal contacts or access to property or equipment
obtained in connection with employment at Advantus for personal gain. The use
of inside information for personal securities transactions is clearly
included in the prohibition. In addition to personal transactions, insider
trading prohibitions apply to securities transactions made on behalf of
Advantus and any of its clients.
In recent years several highly publicized insider trading cases involved
the merger and acquisition areas of brokerage companies or had some other
connection with the underwriting of securities. Advantus is not involved in
the merger and acquisition business and does not participate in the sort of
securities underwritings that leads to the typical insider trading
violations. (e.g., a person knowingly takes secret information about a
company and tries to make money by buying or selling securities whose price
will be affected by the secret information). However, the insider trading law
applies to a very broad range of activity and should be a matter of constant
consideration in all of Advantus' security trades.
We at Advantus must be vigilant against even inadvertent violations. We
seldom come across dramatic inside information in the regular course of our
business. What inside information we do come across is so similar in nature
to the non-inside information about companies we regularly use that without a
constant awareness of inside information issues, a trade could be made which
is inadvertently based in part on items of tainted information.
WHO IS AN INSIDER? The concept of insider includes the officers,
directors and employees of the company whose securities are in question. It
also includes people who enter into a special confidential relationship with
the company and as a result are given access to confidential information
about the company. These can include attorneys, accountants, consultants,
lenders and the employees of such organizations. Advantus will most often be
an insider due to being a lender to a company.
WHAT IS MATERIAL INFORMATION? Information for which there is a
substantial likelihood that reasonable investors would consider it important
to making their investment decisions, or information that is reasonably
certain to have a substantial effect on the price of a company's securities
is material information.
WHAT IS NON-PUBLIC INFORMATION? Information that has not yet been
communicated to the public through, for example, SEC filings, newspaper
reports or wire service reports, is non-public information.
PREVENTION AND DETECTION OF INSIDER TRADING. Advantus has a continuing
obligation to prevent and detect insider trading. An Advantus employee who
obtains information about a company which appears to be
18
<PAGE>
material non-public information should disclose that information to his
superior and the Compliance Officer. If it appears that the information is
material non-public information, two things will be done by the Compliance
Officer: (1) Instruct the appropriate Portfolio Management Assistant to put
the company on the restricted stock or bond list so that employees of
Advantus know not to trade the stock or bond in personal transactions and the
identified stocks and bonds are included in the examination of the Securities
Transaction Reports filed quarterly by employees and (2) Inform all
investment division heads, mortgage, bond and stock, that they should not
trade the securities of the identified company because Advantus possesses
inside information with respect to the company. These restrictions will be
removed when the Compliance Officer determines that the information no longer
constitutes material non-public information.
When deemed appropriate, Advantus management may also review trades made
in personal accounts and on behalf of Advantus or any of its clients for
evidence of trading in violation of these rules.
As with all matters concerning ethical conduct, Advantus rules and
procedures for insider trading are intended to promote the highest ethical
standards. It is not sufficient by itself that a course of action is legal.
It also must be the right thing to do. There are no transactions important
enough to risk the reputation of Advantus or Minnesota Life Insurance
Company. All business should be conducted with this in mind.
19
<PAGE>
APPENDIX C
GIFT AND BUSINESS ENTERTAINMENT
SUPPLEMENT TO THE CODE OF ETHICS
As an employee of Advantus Capital Management, Inc., or Ascend Financial
Services, Inc. , or an employee of an affiliated company who has been
notified that he or she is also subject to the Code of Ethics, you are being
paid solely to conduct the business of the company to the best of your
ability. Any special knowledge or personal contacts you develop while working
at Advantus should be used for the benefit of the company and should not be
considered supplemental compensation or used for personal gain.
No single rule or group of rules can anticipate every circumstance a
person might encounter which has ethical implications. You must use your own
judgment as to right and wrong but be guided by the knowledge that you are
being relied upon by Advantus to preserve and promote its reputation as a
trustworthy and honorable institution. If in doubt, you are encouraged to
talk with your superiors, but ultimately you are responsible for your own
actions.
Below are guidelines to assist you in exercising your own good judgment
in two areas that commonly produce questions concerning appropriate conduct.
BUSINESS ENTERTAINMENT
Letting someone pay for a business meal or other entertainment generally
is permissible if the primary purpose is related to company business. Avoid
situations in which such meals or entertainment may influence or appear to
influence your independence of judgment. If you could not provide your host
with a similar meal or entertainment and put it on your expense report it is
probably inappropriate to accept.
GIFTS
You may accept gifts (or prizes) of nominal value, that is, gifts (or
prizes) so low in value that the gift is insignificant.
DUTY TO DISCLOSE CONFLICTS
All employees shall disclose to their superiors in a timely manner all
conflicts of interest and other matters which could reasonably be expected to
interfere with their duty to Advantus or impair their ability to render
unbiased and objective advice.
SANCTIONS
Upon discovering a violation of this Code of Ethics, Advantus may impose
such sanctions as it may deem appropriate. A record will be kept of all
known violations and any sanctions imposed.
Any person charged with a violation of the Code of Ethics shall be
informed of the violation and shall have the opportunity to explain his
actions prior to the imposition of any sanction.
20
<PAGE>
POWER OF ATTORNEY
TO SIGN REGISTRATION STATEMENT
The undersigned, Directors of Advantus Horizon Fund, Inc., Advantus
Spectrum Fund, Inc., Advantus Mortgage Securities Fund, Inc., Advantus Money
Market Fund, Inc., Advantus Bond Fund, Inc., Advantus Cornerstone Fund, Inc.,
Advantus Enterprise Fund, Inc., Advantus International Balanced Fund, Inc.,
Advantus Venture Fund, Inc., Advantus Index 500 Fund, Inc., Advantus Real Estate
Securities Fund, Inc., MIMLIC Cash Fund, Inc., and Advantus Series Fund, Inc.
(the "Funds"), appoint William N. Westhoff, Eric J. Bentley, Donald F. Gruber
and Michael J. Radmer, and each of them individually, as attorney-in-fact for
the purpose of signing in their names and on their behalf as Directors of the
Funds and filing with the Securities and Exchange Commission Registration
Statements on Form N-1A, or any amendments thereto, for the purpose of
registering shares of Common Stock of the Funds for sale by the Funds and to
register the Funds under the Investment Company Act of 1940.
Dated: October 22, 1998 /s/Charles E. Arner
-----------------------------------
Charles E. Arner
/s/Ellen S. Berscheid
-----------------------------------
Ellen S. Berscheid
/s/Ralph D. Ebbott
-----------------------------------
Ralph D. Ebbott
/s/Frederick P. Feuerherm
-----------------------------------
Frederick P. Feuerherm
/s/William N. Westhoff
-----------------------------------
William N. Westhoff
