<PAGE>
CASH
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.
MIMLIC CASH FUND, INC.
PROSPECTUS DATED FEBRUARY 1, 1999
[LOGO]
[GRAPHIC]
<PAGE>
MIMLIC CASH FUND, INC.
MIMLIC Cash Fund, Inc., (Fund) is a mutual fund. This prospectus provides you
information about the Fund you should know before investing.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page No.
<S> <C>
THE FUND - SUMMARY ................................................. 3
Investment Policies and Practices ........................... 3
Main Risks .................................................. 3
Fund Performance ............................................ 4
Fees and Expenses ........................................... 5
FINANCIAL HIGHLIGHTS ............................................... 6
INVESTING IN THE FUND .............................................. 7
Managing the Fund ........................................... 7
Investment Objective, Policies and Practices ................ 7
Defining Risks .............................................. 8
BUYING AND SELLING SHARES .......................................... 10
Buying Shares ............................................... 10
Selling Shares .............................................. 11
GENERAL INFORMATION ................................................ 12
Dividends ................................................... 12
Taxes ....................................................... 12
Service Providers ........................................... 13
Additional Information About the Fund ....................... 14
How to Obtain Additional Information ........................ 14
</TABLE>
<PAGE>
THE FUND - SUMMARY
MIMLIC Cash Fund, Inc. (Cash Fund) is an open-end, diversified investment
company, commonly called a mutual fund. Money market funds buy and sell
short-term securities from highly rated issuers. Money market funds attempt to
maintain their net asset value at a constant $1.00 per share.
This section gives you a brief summary of the Fund's investment policies,
practices and main risks, as well as performance and fee information. More
detailed information about the Fund follows this summary.
INVESTMENT POLICIES AND PRACTICES
CASH FUND seeks a high level of current income to the extent consistent with the
preservation of capital and maintenance of liquidity.
The Fund invests in a variety of U.S. dollar denominated money market
securities.
Keep in mind that an investment in the Fund is not a deposit of a bank and is
not insured or guaranteed by the Federal Deposit Insurance Corporation or any
other governmental agency and that it is possible to lose money by investing in
the Fund. You should also note that since the Fund may make frequent changes in
its portfolio securities, such changes may result in higher Fund costs and may
adversely affect your return. Although the Fund seeks to preserve the value of
your investment at $1.00 per share, it is possible to lose money by investing in
the Fund. An investment in the Fund may 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 Fund's income may decrease due to falling
interest rates
- CREDIT RISK - the risk that an issuer of debt securities or other fixed
income obligations will not make payments on the securities when due
MAIN RISKS
Please see "Investing in the Fund - Defining Risks" for a more detailed
description of these main risks and additional risks in connection with
investing in the Fund.
THE FUND - SUMMARY 3
<PAGE>
FUND PERFORMANCE
The following bar chart and table show the Fund's annual returns and long-term
performance. The chart shows how the Fund's performance has varied from year to
year, and provides some indication of the risks in investing in the Fund. The
table shows the Fund's average annual return over a one, five and ten year
period. The chart and table assume reinvestment of dividends. Like other mutual
funds, the past performance of the Fund does not necessarily indicate how the
Fund 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>
89 9.43%
90 8.37%
91 6.06%
92 3.81%
93 3.23%
94 4.27%
95 6.03%
96 5.49%
97 6.21%
98 5.32%
</TABLE>
<TABLE>
<S> <C> <C>
Best
Quarter: (Q2'89) 2.42%
Worst
Quarter: (Q2'93) .78%
</TABLE>
You may obtain up-to-date information about the Fund's seven-day current yield
and seven-day effective yield by telephoning (800) 665-6005.
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURN
(FOR THE PERIODS ENDING DECEMBER 31,
1998) 1 Year 5 Years 10 Years
<S> <C> <C> <C>
MIMLIC Cash Fund % 5.32 5.46 5.81
</TABLE>
4 THE FUND - SUMMARY
<PAGE>
FEES AND EXPENSES
Investors pay fees and expenses in connection with investing in the Fund. This
table describes the fees and expenses that you may pay if you buy and hold
shares of the Fund.
<TABLE>
<CAPTION>
<S> <C>
SHAREHOLDER FEES
(fees paid directly from your investment)
Maximum Sales Charge on Purchases
(as a percentage of offering price) % none
Maximum Deferred Sales Charge
(as a percentage of sales proceeds) % none
Maximum Account Fee(1) % .875
ANNUAL FUND OPERATING EXPENSES
(expenses that are deducted from Fund assets)
Advisory Fees % 0.00
Rule 12b-1 Fees % 0.00
Other Expenses % 0.05
TOTAL FUND OPERATING EXPENSE(2) % 0.05
</TABLE>
(1) Shares of the Fund are sold only to persons who have previously entered
into a separate investment management agreement with the Fund's investment
adviser. This represents the highest management fee payable by any person
under a separate investment management agreement. The amount you pay may be
lower.
(2) The Fund does not pay advisory fees inasmuch as it sells its shares only to
persons who have previously entered into a separate investment management
agreement with the Fund's investment adviser. You will pay management fees
in connection with that separate investment management agreement, however,
and you should take those fees into consideration in determining your total
cost of investing in the Fund. See Note 1 above.
EXAMPLE(1)
This example is intended to help you compare the costs of investing in the Fund
with the cost of investing in other mutual funds.
The example assumes that you invest $10,000 in the Fund for the time periods
indicated and then redeem all of your shares at the end of those periods. The
example also assumes that your investment has a 5% return each year and that the
Fund's operating expenses remain the same. Although your actual costs may be
higher or lower, based on these assumptions, your costs would be:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
<S> <C> <C> <C> <C>
MIMLIC Cash Fund $ 5 16 28 64
</TABLE>
(1) The costs shown in the example are based on the actual expenses of the
Fund, which do not include an expense for advisory fees. The Fund does not
pay advisory fees inasmuch as it sells its shares only to persons who have
previously entered into a separate investment management agreement with the
Fund's investment adviser. You will pay management fees in connection with
that separate investment management agreement, however, and you should take
those fees into consideration in determining your actual cost of investing
in the Fund.
THE FUND - SUMMARY 5
<PAGE>
FINANCIAL HIGHLIGHTS
The following table describes the Fund's performance for the fiscal periods
indicated. "Total return" shows how much your investment in the Fund would have
increased (or decreased) during each period, assuming you had reinvested all
dividends. These figures have been audited by KPMG Peat Marwick LLP, the Fund's
independent auditor, whose report, along with the Fund's financial statements,
are included in the annual report, which is available upon request.
Per share data for a share of capital stock and selected information for each
period are as follows:
<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS
Period
From
November
1, Year
'93 to Ended
Year Ended September 30, September October
30, 31,
'98 '97 '96 '95(a) '94(b) '93
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of
period $ 1.0000 1.0000 1.0000 1.0000 1.0000 1.0000
INCOME FROM INVESTMENT OPERATIONS:
Net investment income 0.0575 0.0556 0.0547 0.0571 0.0342 0.0320
Total from investment operations 0.0575 0.0556 0.0547 0.0571 0.0342 0.0320
LESS DISTRIBUTIONS:
Dividends from net investment
income (0.0575) (0.0556) (0.0547) (0.0571) (0.0342) (0.0320)
Total distributions (0.0575) (0.0556) (0.0547) (0.0571) (0.0342) (0.0320)
Net asset value, end of period $ 1.0000 1.0000 1.0000 1.0000 1.0000 1.0000
Total return (c) % 5.90 5.70 5.60 5.87 3.49 3.25
Net assets, end of period (in
thousands) $ 9,160 14,194 9,541 10,922 12,316 16,927
Ratio of expenses to average daily
net assets % 0.05(e) 0.07(e) 0.09(e) 0.10(e) 0.08(d) 0.07
Ratio of net investment income to
average daily net assets % 5.55 5.51 5.52 5.71 3.68(d) 3.20
</TABLE>
(a) Effective March 1, 1995, the Fund entered into a new investment advisory
agreement with Advantus Capital Management, Inc. Prior to March 1, 1995,
the Fund had an investment advisory agreement with MIMLIC Asset Management
Company.
(b) During 1994, the Fund changed its fiscal year end from October 31 to
September 30.
(c) Total return figures are based on a share outstanding throughout the period
and assumes reinvestment of distributions at net asset value. For periods
less than one year, total return presented has not been annualized.
(d) Adjusted to an annual basis.
(e) Effective fiscal year 1995, the ratio of expenses to average daily net
assets is based on total expenses of the Fund before reduction of interest
credits earned on cash balances.
6 FINANCIAL HIGHLIGHTS
<PAGE>
INVESTING IN THE FUND
MANAGING THE FUND
The investment adviser of the Fund is Advantus Capital Management, Inc.
(Advantus Capital), 400 Robert Street North, St. Paul, Minnesota 55101. Since
its inception in 1994, Advantus Capital has provided investment advisory
services for the Fund and for eleven other mutual funds, and has managed
investment portfolios for various private accounts. With more than $13.7 billion
of assets under management, Advantus Capital manages the Fund's investments and
furnishes all necessary office facilities, equipment and personnel for servicing
the Fund's investments. Advantus Capital is a wholly-owned subsidiary of
Minnesota Life Insurance Company (Minnesota Life), which was organized in 1880
and has assets on a consolidated basis of more than $15.7 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, through its
Advantus Shareholder Services division, serves as shareholder and administrative
services agent to the Fund.
Because the Fund sells shares only to persons who have previously entered into
an advisory agreement with Advantus Capital or any other affiliated investment
adviser, the Fund pays no investment advisory fee.
Steven S. Nelson has served as the portfolio manager of the Fund since October
1998. From June 1996 to September 1998, Mr. Nelson served as a vice president
with ReliaStar Investment Research, Inc. From July 1992 to May 1996, Mr. Nelson
served as an investment officer with MIMLIC Asset Management Company.
INVESTMENT OBJECTIVE, POLICIES AND PRACTICES
The Fund seeks a high level of current income to the extent consistent with the
preservation of capital and maintenance of liquidity.
The Fund 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
INVESTING IN THE FUND 7
<PAGE>
- 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 Fund may invest lesser portions of its assets in securities of
other mutual funds and restricted and illiquid securities.
You can find descriptions of these securities in the Statement of Additional
Information.
Generally, the Fund may purchase only securities rated within the two highest
short-term rating categories of one or more national rating agencies. The Fund
only invests in securities that mature in 397 calendar days or less from the
date of purchase. The Fund maintains an average weighted maturity of 90 days or
less.
DEFINING RISKS
Investment in the Fund involves risks. The Fund's yield and price are not
guaranteed, and the value of your investment in the Fund will go up or down. The
value of your investment in the Fund may be affected by the following risks:
- FUND RISK - is the risk that Fund performance may not meet or exceed that
of the market as a whole. The performance of the Fund will depend on
Advantus Capital's judgment of economic and market policies, trends in
investment yields and monetary policy. Due to its active management, the
Fund could underperform other mutual funds with similar investment
objectives.
- INTEREST RATE RISK - is the risk that the value of a fixed income
obligation will decline due to changes in market interest rates.
Generally, when interest rates rise, the value of a fixed income
obligation decreases. Conversely, when short-term interest rates decline,
the value of a fixed income obligation increases. Although the Fund
attempts to maintain the stable share price of $1.00, a major rise in
interest rates could cause the value of your investment to decline.
- INCOME RISK - is the risk that the Fund's income may decrease due to
falling interest rates.
- CREDIT RISK - is the risk that an issuer of a debt security or fixed
income obligation will not make payments on the security when due. 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 Fund. Also, a change in the quality rating of a debt security or fixed
income obligation can affect the security's or obligation's liquidity and
make it more difficult to sell. Any of these events could cause the value
of your investment to fall below $1.00 per share.
- STABLE PRICE RISK - is the risk that the Fund will not be able to maintain
a stable share price of $1.00. There may be situations where the Fund's
share price could fall below $1.00, which would reduce the value of your
account.
8 INVESTING IN THE FUND
<PAGE>
- FOREIGN SECURITIES RISK - is the risk the value of foreign companies or
foreign government securities held by the Fund may be subject to greater
volatility than domestic securities. Risks of foreign securities include,
among other things, potential political and economic instability, limited
liquidity and volatile prices of non-U.S. securities, limited availability
of information regarding non-U.S. companies, investment and repatriation
restrictions and foreign taxation.
- YEAR 2000 RISK - is the risk that the Fund may be adversely affected if
the computer systems used by the Fund and other Fund service providers do
not properly process and calculate date-related information on and after
January 1, 2000. In addition, the Fund's return may decrease if the value
of certain securities held by the Fund are adversely affected by the
inability of the applicable issuer's computer systems to properly process
and calculate date-related information on and after January 1, 2000.
Advantus Capital has undertaken a Year 2000 program that it believes will
assess, monitor and address this issue. In evaluating current and
potential portfolio positions, Year 2000 readiness is one of the factors
that Advantus Capital takes into consideration. Advantus Capital will rely
upon public filings and other statements made by companies regarding their
Year 2000 readiness. Issuers in countries outside the United States,
particularly emerging countries, may not be required to make the level of
disclosure regarding Year 2000 readiness that is required in the United
States. Like many other matters, Advantus Capital cannot audit each
portfolio company and its major suppliers, and so cannot verify their Year
2000 readiness. If the value of a Fund investment is adversely affected by
a Year 2000 problem, the net asset value of the Fund will be affected as
well.
You can find information about other risks in the Statement of Additional
Information.
INVESTING IN THE FUND 9
<PAGE>
BUYING AND SELLING SHARES
The Fund sells shares only to persons ("Advisory Clients") who have previously
entered into investment advisory agreements with Advantus Capital or any other
affiliated investment adviser ("Qualifying Advisers"). As a result, Qualifying
Advisers will initiate share purchases for an Advisory Client in accordance with
the terms of the Advisory Client's investment advisory agreement.
Advisory Clients have the authority to instruct the Qualifying Advisers to
refrain from purchasing Fund shares.
As an investor, you pay certain fees and expenses in connection with the Fund.
Annual fund operating expenses are paid out of Fund assets, which affects the
Fund's share price.
Fund shares are sold without an initial sales charge or contingent deferred
sales charge.
BUYING SHARES
You may purchase shares of the Fund on any day the New York Stock Exchange
(NYSE) is open for business. The price for Fund shares is equal to the Fund's
net asset value (NAV), which will normally be $1.00 per share. However, there is
no assurance the Fund will maintain the $1.00 NAV. NAV is generally calculated
as of the close of normal trading on the NYSE (typically 3:00 p.m. Central
time). However, NAV is not calculated on (a) days in which changes in the Fund's
portfolio do not materially change the Fund's NAV, (b) days on which no Fund
shares are purchased or sold, and (c) customary national business holidays on
which the NYSE is closed for trading.
The Fund's NAV is equal to the Fund's total investments less any liabilities
divided by the number of Fund shares. Securities in the Fund's 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.
Your purchase order will be priced at the next NAV calculated after your
purchase order is received by the Fund's transfer agent. If your order is
received after the close of normal trading on the NYSE, your order will be
priced at the NAV calculated on the next day the NYSE is open for trading.
There is no minimum amount required for initial and subsequent investments.
10 BUYING AND SELLING SHARES
<PAGE>
SELLING SHARES
GENERAL. You may sell your shares at any time. Qualifying Advisers will
ordinarily initiate all sales requests for Advisory Clients in accordance with
the terms of the applicable investment advisory agreement. However, Advisory
Clients may make such requests by contacting the Fund directly by mail.
Shares will be sold at the NAV next calculated after your sale order is received
by the Fund's transfer agent. Fund shares may be sold without charge.
The Fund will forward the sales proceeds to you as soon as possible, but no
later than seven days after the Fund has received an order.
The amount you receive may be more or less than the original purchase price for
your shares.
SIGNATURE GUARANTEE. In order to protect the Fund and shareholders against
fraudulent requests, a signature guarantee may be required in certain cases. No
signature guarantee is required if the sale proceeds are less than $50,000 and
are to be paid to the registered holder of the account at the address of record
for that account. A signature guarantee is required if:
- sale proceeds are $50,000 or more
- sale proceeds will be paid to someone other than the registered
shareholder
- sale proceeds will be mailed to an address other than the registered
shareholder's address of record
- instructions were received by the Fund within 30 days before the sale
order to change the registered shareholder's address or bank wire
instructions
- shares are to be transferred to another Fund account holder
- the request is not made by a pre-authorized trustee for a plan, trust or
other tax-exempt organization
The Fund reserves the right to require signature guarantees on all sales. If
your sale order requires a signature guarantee, the signature guarantee must be
an original (not a copy) and provided by any of the following:
- national or state banks, savings associations, savings and loan
associations, trust companies, savings banks, industrial loan companies
and credit unions
- national securities exchanges, registered securities associations and
clearing agencies
- broker-dealers who belong to a national securities exchange or clearing
agency, or who have a minimum net capital of at least $100,000
- institutions that participate in the Securities Transfer Agent Medallion
Program or other recognized signature medallion program
BUYING AND SELLING SHARES 11
<PAGE>
GENERAL INFORMATION
DIVIDENDS
The Fund pays its shareholders dividends from its net investment income.
Dividends are declared on each business day of the Fund, except dividends for
Saturdays, Sundays and holidays are declared on the next business day. The Fund
pays dividends usually on the last business day of each month. Dividends will be
reinvested in additional shares of the Fund unless you instruct the Fund
otherwise. Distributions of these additional shares are made at the NAV of the
payment date. There are no fees or sales charges on reinvestments. If you wish
to receive cash distributions, you may authorize the Fund to do so in your
account application or by writing to Advantus Shareholder Services, the Fund's
shareholder services agent, at the address shown below under "Service
Providers." If your cash distribution checks cannot be delivered by the postal
or other delivery service to your address of record, all distributions will
automatically be reinvested in additional shares of the Fund. No interest will
be paid on amounts represented by uncashed distribution checks.
TAXES
You will be taxed on dividends paid by the Fund (unless you hold your shares
through an IRA or other tax-deferred retirement account). Dividends are subject
to tax regardless of whether they are automatically invested or are received in
cash. Dividends paid from the Fund's investment income will be taxed as ordinary
income. If you purchase shares of the Fund before dividends you will be subject
to taxation on such dividends.
You will receive an annual statement from the Fund providing detailed
information concerning the federal tax status of distributions you have received
during the year.
The above is only a general discussion of the federal income tax consequences of
an investment in the Fund. For more information, see the Statement of Additional
Information. You should consult your own tax adviser for the specific federal,
state or local tax consequences to you of an investment in the Fund.
12 GENERAL INFORMATION
<PAGE>
SERVICE PROVIDERS
INVESTMENT ADVISER
Advantus Capital Management, Inc.
400 Robert Street North
St. Paul, Minnesota 55101
(651) 665-3826
UNDERWRITER
Ascend Financial Services, Inc.
400 Robert Street North
St. Paul, Minnesota 55101-2098
(651) 665-4833
(888) 237-1838
SHAREHOLDER AND ADMINISTRATIVE SERVICES AGENT
Advantus Shareholder Services
(a division of Minnesota Life Insurance Company)
(800) 665-6005
TRANSFER AGENT
First Data Investor Services Group, Inc.
Advantus Funds Group
P.O. Box 9767
Providence, Rhode Island 02940-5059
CUSTODIAN
Bankers Trust Company
280 Park Avenue
New York, New York 10017
INDEPENDENT AUDITORS
KPMG Peat Marwick LLP
GENERAL COUNSEL
Dorsey & Whitney LLP
SERVICE PROVIDERS 13
<PAGE>
ADDITIONAL INFORMATION ABOUT THE FUND
The Fund's annual and semi-annual reports list
portfolio holdings, and discuss recent market
conditions, economic trends and investment
strategies that affected the Fund during the latest
fiscal year.
A Statement of Additional Information (SAI)
provides further information about the Fund. The
current SAI is on file with the Securities and
Exchange Commission and is incorporated by
reference (is legally part of this Prospectus).
HOW TO OBTAIN ADDITIONAL INFORMATION
The SAI and the Fund's annual and semi-annual
reports are available without charge upon request.
You may obtain additional information or make any
inquiries:
By Telephone - Call (800) 665-6005
By Mail - Write to Advantus Funds Group, P.O. Box
9767, Providence, Rhode Island 02940-5059
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 1-800-SEC-0330). 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. 20549-6009. You
will be charged a duplicating fee for copies.
Investment Company Act No. 811-5027
[LOGO]
-C-1999 Advantus Capital Management, Inc. All rights reserved.
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
MIMLIC CASH FUND, INC.
FEBRUARY 1, 1999
THIS STATEMENT OF ADDITIONAL INFORMATION IS NOT A PROSPECTUS. THIS STATEMENT OF
ADDITIONAL INFORMATION RELATES TO THE SEPARATE PROSPECTUS DATED FEBRUARY 1, 1999
AND SHOULD BE READ IN CONJUNCTION THEREWITH. A COPY OF THE PROSPECTUS MAY BE
OBTAINED BY TELEPHONE FROM ADVANTUS SHAREHOLDER SERVICES AT (800) 665-6005 OR BY
WRITING TO THE FUND AT ADVANTUS FUNDS GROUP, P.O. BOX 9767, PROVIDENCE, RHODE
ISLAND 02940-5059.
1
<PAGE>
TABLE OF CONTENTS
GENERAL INFORMATION AND HISTORY. . . . . . . . . . . . . . . . . . . . . .3
INVESTMENT OBJECTIVES AND POLICIES . . . . . . . . . . . . . . . . . . . .3
Money Market Securities . . . . . . . . . . . . . . . . . . . . . . . .3
U.S. Government Obligations . . . . . . . . . . . . . . . . . . . . . .4
Obligations of Non-Domestic Banks . . . . . . . . . . . . . . . . . . .5
Variable Amount Master Demand Notes . . . . . . . . . . . . . . . . . .5
Repurchase Agreements . . . . . . . . . . . . . . . . . . . . . . . . .6
Reverse Repurchase Agreements . . . . . . . . . . . . . . . . . . . . .7
Forward Commitments . . . . . . . . . . . . . . . . . . . . . . . . . .7
INVESTMENT RESTRICTIONS. . . . . . . . . . . . . . . . . . . . . . . . . .8
DIRECTORS AND EXECUTIVE OFFICERS . . . . . . . . . . . . . . . . . . . . 10
DIRECTOR LIABILITY . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
INVESTMENT ADVISORY AND OTHER SERVICES . . . . . . . . . . . . . . . . . 13
General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Control and Management of Advantus Capital and Ascend Financial . . . 13
Investment Advisory Agreement . . . . . . . . . . . . . . . . . . . . 13
Distribution Agreement. . . . . . . . . . . . . . . . . . . . . . . . 14
AMORTIZED COST METHOD OF PORTFOLIO VALUATION . . . . . . . . . . . . . . 15
PORTFOLIO TRANSACTIONS AND ALLOCATION OF BROKERAGE . . . . . . . . . . . 16
CALCULATION OF PERFORMANCE DATA. . . . . . . . . . . . . . . . . . . . . 18
CAPITAL STOCK AND OWNERSHIP OF SHARES. . . . . . . . . . . . . . . . . . 18
HOW TO BUY SHARES. . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Timing of Purchase Orders . . . . . . . . . . . . . . . . . . . . . . 19
Minimum Investments . . . . . . . . . . . . . . . . . . . . . . . . . 20
Public Offering Price . . . . . . . . . . . . . . . . . . . . . . . . 20
SHAREHOLDER SERVICES . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Open Accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
HOW TO SELL SHARES . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Signature Guarantee . . . . . . . . . . . . . . . . . . . . . . . . . 21
DISTRIBUTIONS AND TAX STATUS . . . . . . . . . . . . . . . . . . . . . . 22
Dividends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Taxation - General. . . . . . . . . . . . . . . . . . . . . . . . . . 22
BOND AND COMMERCIAL PAPER RATINGS. . . . . . . . . . . . . . . . . . . . 23
Commercial Paper Ratings. . . . . . . . . . . . . . . . . . . . . . . 25
FINANCIAL STATEMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . 25
2
<PAGE>
GENERAL INFORMATION AND HISTORY
MIMLIC Cash Fund, Inc. (the "Fund") is an open-end, diversified management
investment company, commonly called a mutual fund. The Fund is a Minnesota
corporation, and was incorporated in January 1987.
INVESTMENT OBJECTIVES AND POLICIES
The investment objectives and policies of the Fund are set forth in the
text of the Fund's Prospectus under "Investing in the Fund Investment Policies
and Practices." This section contains detailed descriptions of the investment
policies of the Fund as summarized in the Fund's Prospectus.
Money Market Securities
Subject to the limitations under Rule 2a-7 of the Investment Company Act of
1940 (the "1940 Act") (as described in "Investment Restrictions" below), the
Fund 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 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.
Forward purchase arrangements committing the Fund to purchase any of the
foregoing obligations at an agreed upon price and future date.
3
<PAGE>
By limiting the maturity of its investments as described above, the Fund
seeks to lessen the changes in the value of its assets caused by market factors.
The Fund 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
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 ("FNMA"). 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 GNMA 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 FNMA.
Securities issued or guaranteed as to principal and interest by the U.S.
Government may also be acquired in the form of custodial receipts that evidence
ownership of future interest payments, principal payments or both on certain
United States Treasury notes or bonds. Such notes and bonds are held in custody
by a bank on behalf of the owners. These custodial receipts are known by
various names, including "Treasury Receipts," "Treasury Investment Growth
Receipts" ("TIGR's") and "Certificates of Accrual on Treasury Securities"
("CATS"). The Fund may also invest in separately traded principal and interest
components of securities issued or guaranteed by the United States Treasury.
The principal and interest components of selected securities are traded
independently under the Separate Trading of Registered Interest and Principal of
Securities program ("STRIPS"). Under the STRIPS program, the principal and
interest components are individually numbered and separately issued by the U.S.
Treasury at the request of depository financial institutions, which then trade
the component parts independently.
Custodial receipts (including Treasury Receipts, TIGR's and CATS) and
STRIPS are sold on a yield basis which represents a compounded rate of return
(bond equivalent yield). The amount of discount therefore depends upon the
maturity of the custodial receipt or STRIP - the longer the maturity the deeper
the discount. Certain of these instruments are available in maturities as long
as thirty years, but the Fund will purchase custodial receipts and STRIPS only
where the time remaining to maturity does not exceed one year. Although these
instruments provide certainty as to the amount and timing of cash flows, the
rate of return on a custodial receipt or STRIP is guaranteed only if it is held
to maturity. There is no income (or reinvestment decision) between the purchase
date and maturity inasmuch as each custodial receipt or STRIP represents a
single interest (coupon) or principal component of an underlying U.S. Treasury
4
<PAGE>
obligation, payable at maturity. A secondary market exists for custodial
receipts and STRIPS, and such instruments are generally thought to be liquid.
Obligations of Non-Domestic Banks
The Fund 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 Fund invests, 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.
Variable Amount Master Demand Notes
The Fund 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 Fund at varying market rates of interest pursuant to direct
arrangements between the Fund, 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 Fund's
investment adviser will monitor the creditworthiness of the borrower throughout
the term of the variable amount master demand note.
Restricted and Illiquid Securities
The Fund may invest up to 10% of its net assets in securities restricted as
to disposition under the federal securities laws or otherwise, or other illiquid
assets. 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
5
<PAGE>
placements and which have not been registered under the Securities Act of 1933
(the "1933 Act"). Such securities generally have been considered illiquid by
the staff of the Securities and Exchange Commission (the "SEC"), since such
securities may be resold only subject to statutory restrictions and delays or if
registered under the 1933 Act. Because of such restrictions, the Fund may not
be able to dispose of a block of restricted securities for a substantial period
of time or at prices as favorable as those prevailing in the open market should
like securities of an unrestricted class of the same issuer be freely traded.
The Fund may be required to bear the expenses of registration of such restricted
securities.
The SEC has acknowledged, however, that a market exists for certain
restricted securities (for example, securities qualifying for resale to certain
"qualified institutional buyers" pursuant to Rule 144A under the 1933 Act).
Additionally, the Fund's investment adviser believes that a similar market
exists for commercial paper issued pursuant to the private placement exemption
of Section 4(2) of the 1933 Act. The Fund may invest without limitation in
these forms of restricted securities if such securities are deemed by the Fund's
investment adviser to be liquid in accordance with standards established by the
Fund's Board of Directors. Under these guidelines, the Fund's investment
adviser must consider (a) the frequency of trades and quotes for the security,
(b) the number of dealers willing to purchase or sell the security and the
number of other potential purchasers, (c) dealer undertakings to make a market
in the security, and (d) the nature of the security and the nature of the
marketplace trades (for example, the time needed to dispose of the security, the
method of soliciting offers and the mechanics of transfer). At the present
time, it is not possible to predict with accuracy how the markets for certain
restricted securities will develop. Investing in such restricted securities
could have the effect of increasing the level of the Fund's illiquidity to the
extent that qualified purchasers of the securities become, for a time,
uninterested in purchasing these securities.
If through the appreciation of restricted securities or the depreciation of
unrestricted securities, the Fund is in a position where more than 10% of its
net assets are invested in restricted and other illiquid securities, the Fund
will take appropriate steps to protect liquidity.
Repurchase Agreements
The Fund may enter into repurchase agreements. Repurchase agreements are
agreements by which the Fund purchases a security and obtains a simultaneous
commitment from the seller (a member bank of the Federal Reserve System or, if
permitted by law or regulation and if the Board of Directors of the Fund has
evaluated its creditworthiness through adoption of standards of review or
otherwise, a securities dealer) to repurchase the security at an agreed upon
price and date. The creditworthiness of entities with whom the Fund enters into
repurchase agreements is monitored by the Fund's investment adviser throughout
the term of the repurchase agreement. The resale price is in excess of the
purchase price and reflects an agreed upon market rate unrelated to the coupon
rate on the purchased security. Such transactions afford the Fund the
opportunity to earn a return on temporarily available cash. The Fund's
custodian, or a duly appointed subcustodian, holds the securities underlying any
repurchase agreement in a segregated account or such securities may be part of
the Federal Reserve Book Entry System. The market value of the collateral
underlying the repurchase agreement is determined on each business day. If at
any time the market value of the collateral falls below the repurchase price of
the repurchase agreement (including any accrued interest), the Fund promptly
receives additional collateral, so that the total collateral is in an amount at
least equal to the repurchase price plus
6
<PAGE>
accrued interest. While the underlying security may be a bill, certificate of
indebtedness, note or bond issued by an agency, authority or instrumentality of
the U.S. Government, the obligation of the seller is not guaranteed by the U.S.
Government. In the event of a bankruptcy or other default of a seller of a
repurchase agreement, the Fund could experience both delays in liquidating the
underlying security and losses, including: (a) possible decline in the value of
the underlying security during the period while the Fund seeks to enforce its
rights thereto; (b) possible subnormal levels of income and lack of access to
income during this period; and (c) expenses of enforcing its rights.
Reverse Repurchase Agreements
The Fund may also enter into reverse repurchase agreements. Reverse
repurchase agreements are the counterparts of repurchase agreements, by which
the Fund 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 Fund, reverse repurchase
agreements may be considered a form of borrowing by the Fund from the buyer,
collateralized by the security. The Fund 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 Fund 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 Fund allows it to leverage
its portfolio. While leveraging offers the potential for increased yield, it
magnifies the risks associated with the Fund's investments and reduces the
stability of the Fund's net asset value per share. To limit this risk, the Fund
will not enter into a reverse repurchase agreement if all such transactions,
together with any money borrowed, exceed 5% of the Fund's net assets. In
addition, when entering into reverse repurchase agreements, the Fund 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, the Fund will
not enter into reverse repurchase agreements if and to the extent such
transactions would, as determined by the Fund's investment adviser, materially
increase the risk of a significant deviation in the Fund's net asset value per
share. See "Amortized Cost Method of Portfolio Valuation" below.
Forward Commitments
Forward commitments are arrangements by which the Fund agrees to purchase a
security at a fixed price on a specified future date. Delivery of and payment
for the security normally takes place 15 to 45 days after the date of the
commitment. Such arrangements might be entered into, for example, when the Fund
anticipates a decline in the yield of securities of a certain issuer and is able
to obtain a higher yield by committing currently to purchase such securities to
be issued at a later date. The Fund may enter into forward commitments if it
holds, and maintains until the settlement date in a segregated account, cash or
high-grade, short-term debt obligations in an amount sufficient to meet the
purchase price. Forward commitments involve a risk of loss if the value of the
security to be purchased declines prior to the settlement date, which risk is in
addition to the risk of decline in value of the Fund's other assets. Although
the Fund generally enters into forward commitments with the intention of
acquiring the security for its portfolio, the
7
<PAGE>
Fund may dispose of a commitment prior to settlement if its investment adviser
deems it appropriate to do so. No more than 5% of the Fund's total assets may
be subject to forward commitments. Moreover, the Fund will not enter into
forward commitments if and to the extent such investments would, as determined
by the Fund's investment adviser, materially increase the risk of a significant
deviation in the Fund's net asset value per share. See "Amortized Cost Method
of Portfolio Valuation" below.
INVESTMENT RESTRICTIONS
The Fund is subject to certain "fundamental" investment restrictions, which
may not be changed without the approval of the holders of a "majority" of the
outstanding shares of the Fund. A "majority" of the outstanding shares of the
Fund means the lesser of (i) 67% of the shares of the Fund represented at the
meeting at which more than 50% of the outstanding shares are represented or (ii)
more than 50% of the outstanding shares. An investment restriction which is not
fundamental may be changed by vote of the Board of Directors without further
shareholder approval. Except as otherwise noted, each of the investment
restrictions below is fundamental.
The Fund is subject to the investment restrictions of Rule 2a-7 under the
1940 Act, in addition to its other 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 Fund 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 Fund 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 Fund's present
practice is not to purchase any Second Tier Securities.
In addition, the Fund will NOT:
(1) Purchase any security (other than securities issued or guaranteed by
the United States Government, its agencies or instrumentalities) if,
as a result, more than 5% of the Fund's total assets would be invested
in securities of a single issuer;
(2) Purchase any security if, as a result, more than 25% of the Fund's
total assets would be invested in the securities of issuers conducting
their principal business activities in a single industry; provided
that (a) telephone, gas, and electric public utilities are each
regarded as separate industries and (b) United States banks, savings
and loan associations, savings banks and finance companies are each
regarded as separate industries for the purpose of this limitation.
There are no limitations with respect to the concentration of
investments in securities issued or guaranteed by the United States
government, its agencies or instrumentalities, or
8
<PAGE>
certificates of deposit and bankers' acceptances of United States
banks or their domestic branches;
(3) Purchase securities on margin (but it may obtain such short-term
credits as may be necessary for the clearance of purchases and sales
of securities); or make short sales except short sales against the box
where it owns the securities sold or, by virtue of ownership of other
securities, it has the right to obtain, without payment of further
consideration, securities equivalent in kind and amount to those sold,
and only to the extent that the Fund's short positions will not at the
time of any short sale aggregate in total sale prices more than 10% of
its total assets;
(4) Acquire more than 10% of any class of securities of an issuer (taking
all preferred stock issues of an issuer as a single class and all debt
issues of an issuer as a single class) or acquire more than 10% of the
outstanding voting securities of an issuer;
(5) Borrow money or enter into reverse repurchase agreements in excess of
5% of its net assets and, with respect to borrowing money, only from
banks and only as a temporary measure for extraordinary or emergency
purposes;
(6) Mortgage, pledge, hypothecate, or in any manner transfer, as security
for indebtedness, any assets of the Fund;
(7) Invest more than 5% of its total assets in securities of businesses
(including predecessors) less than three years old;
(8) Purchase or retain securities of any company if officers and directors
of the Fund or of its investment adviser who individually own more
than of 1% of the shares or securities of that company, together own
more than 5%;
(9) Make loans, except by purchase of bonds, debentures, commercial paper,
corporate notes, repurchase agreements and similar evidences of
indebtedness, which are a part of an issue to the public or to
financial institutions;
(10) Buy or sell oil, gas or other mineral leases, rights or royalty
contracts, real estate or interests in real estate which are not
readily marketable, commodities or commodity contracts. (This does
not prevent the Fund from purchasing securities of companies investing
in the foregoing.);
(11) Act as an underwriter of securities, except to the extent the Fund may
be deemed to be an underwriter in connection with the disposition of
portfolio securities;
(12) Make investments for the purpose of exercising control or management;
(13) Participate on a joint or joint and several basis in any trading
account in securities;
(14) Write or purchase put or call options, or combinations thereof;
9
<PAGE>
(15) Enter into repurchase agreements maturing in more than seven days,
purchase certificates of deposit of banks and savings and loan
associations which at the date of the investment have total assets (as
of the date of their most recent annual financial statements) of less
than $2 billion, purchase variable amount master demand notes, or
invest in any other illiquid assets, if such investments taken
together exceed 10% of the Fund's net assets (This restriction is
non-fundamental.); or
(16) Invest in the securities of other investment companies, with an
aggregate value in excess of 5% of the Fund's total assets, except
securities acquired as a result of a merger, consolidation or
acquisition of assets.
In addition, the Fund does not issue senior securities (as defined in the
1940 Act) other than borrowing money for temporary purposes and entering into
reverse repurchase agreement transactions. In addition, the Fund will not act
as an underwriter of securities of other issuers.
Any investment policy or restriction which involves a maximum percentage of
securities or assets shall not be considered to be violated unless an excess
over the percentage occurs immediately after an acquisition of securities or
utilization of assets and results therefrom.
DIRECTORS AND EXECUTIVE OFFICERS
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 Fund Affiliations (past 5 years)
- ---------------- --------- ---------------------------
<S> <C> <C>
William N. Westhoff* President President, Treasurer and Director,
Advantus Capital and 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.;
Management, Inc. Treasurer Vice President, Minnesota Life
400 Robert Street North Insurance Company; Vice President and
St. Paul, Minnesota 55101 Director, MIMLIC Funding, Inc.; Vice
President and Assistant Secretary, MCM
Funding 1997-1, Inc.; Vice President
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<PAGE>
and Assistant Secretary, MCM Funding
1998-1, Inc.
Ralph D. Ebbott Director Retired, Vice President and Treasurer
409 Birchwood Avenue of Minnesota Mining and Manufacturing
White Bear Lake, Company (tape, adhesive, photographic,
Minnesota 55110 and electrical products) through June
1989
Charles E. Arner Director Retired, Vice Chairman of The First
E-1218 First National National Bank of Saint Paul from
Bank Building November 1983 through June 1984;
332 Minnesota Street Chairman and Chief Executive Officer
St. Paul, Minnesota 55101 of The First National Bank of Saint Paul
from October 1980 through November
1983
Ellen S. Berscheid Director Regents' Professor of Psychology at the
University of Minnesota University of Minnesota
N309 Elliott Hall
Minneapolis, Minnesota 55455
Michael J. Radmer Secretary Partner with the law firm of
Dorsey & Whitney LLP Dorsey & Whitney LLP
220 South Sixth Street
Minneapolis, Minnesota 55402
</TABLE>
- -------------------------
* Denotes directors of the Fund who are "interested persons" (as defined under
the Investment Company Act of 1940) of the Fund.
- -------------------------
Legal fees and expenses are paid by Advantus Capital Management, Inc.
("Advantus Capital") to the law firm of which Michael J. Radmer is a partner.
As of September 30, 1998, the officers and directors of the Fund owned no
shares of the Fund. The Fund does not pay any compensation to any of its
officers or directors. Advantus Capital, however, pays certain fees to
Directors who are not affiliated with Advantus Capital. Each Director of the
Fund who is not affiliated with Advantus Capital is also a director of the
other 12 investment companies of which Advantus Capital is the investment
adviser (13 investment companies in total - the "Fund Complex"). As of the
date hereof, such Directors receive compensation in connection with all such
investment companies which, in the aggregate, is equal to $8,000 per year and
$2,000 per meeting attended (and reimbursement of travel expenses to attend
directors' meetings). The portion of such compensation borne by any
investment company is a pro rata portion based on the ratio that such
investment company's total net assets bears to the total net assets of the
Fund Complex. Advantus Capital bears the Fund's pro rata portion. During
the fiscal year ended September 30, 1998, each Director not affiliated with
Advantus Capital was compensated by Advantus Capital in accordance with the
following table:
11
<PAGE>
<TABLE>
<CAPTION>
Pension or Total
Retirement Compensation
Aggregate Benefits Estimated From Fund and
Compensation Accrued as Annual Fund Complex
Name of from the Part of Fund Benefits Upon Paid to
Director Fund(1) Expenses Retirement Directors
- -------- -------- -------- ---------- ---------
<S> <C> <C> <C> <C>
Charles E. Arner $180.51 n/a n/a $16,000
Ellen S. Berscheid $180.51 n/a n/a $16,000
Ralph D. Ebbott $180.51 n/a n/a $16,000
</TABLE>
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 1940 Act (which prohibits any provisions which
purport to limit the liability of directors arising from such directors' willful
misfeasance, bad faith, gross negligence or reckless disregard of the duties
involved in the conduct of their role as directors).
Minnesota law does not eliminate the duty of "care" imposed upon a
director. It only authorizes a corporation to eliminate monetary liability for
violations of that duty. Minnesota law, further, does not permit elimination or
limitation of liability of "officers" to the corporation for breach of their
duties as officers (including the liability of directors who serve as officers
for breach of their duties as officers). Minnesota law does not permit
elimination or limitation of the availability of equitable relief, such as
injunctive or rescissionary relief. Further, Minnesota law does not permit
elimination or limitation of a director's liability under the Securities Act of
1933 or the Securities Exchange Act of 1934, and it is uncertain whether and to
what extent the elimination of monetary liability would extend to violations of
duties imposed on directors by the 1940 Act and the rules and regulations
adopted thereunder.
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<PAGE>
INVESTMENT ADVISORY AND OTHER SERVICES
General
Advantus Capital Management, Inc. ("Advantus Capital") has been the
investment adviser and manager of the Fund since March 1, 1995. Prior to that
date the Fund's investment adviser was MIMLIC Asset Management Company ("MIMLIC
Management"), formerly the parent company of Advantus Capital. The same
portfolio manager and other personnel who previously provided investment
advisory services to the Fund through MIMLIC Management continue to provide the
same services through Advantus Capital. Ascend Financial Services, Inc.
("Ascend Financial") acts as the Fund's underwriter. Both Advantus Capital and
Ascend Financial act as such pursuant to written agreements that will be
periodically considered for approval by the directors or shareholders of the
Fund. The address of both Advantus Capital and Ascend Financial is 400 Robert
Street North, St. Paul, Minnesota 55101.
Control and Management of Advantus Capital and Ascend Financial
Advantus Capital was incorporated in Minnesota in June 1994, and is a
wholly-owned subsidiary of Minnesota Life Insurance Company ("Minnesota Life").
Ascend Financial is a subsidiary of Advantus Capital. Minnesota Life was
organized in 1880, and has assets of more than $15.7 billion. Minnesota Life is
a third-tier subsidiary of a mutual insurance holding company called Minnesota
Mutual Companies, Inc. William N. Westhoff, President and a Director of the
Fund, is President, Treasurer and a 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. Richard W.
Worthing is a Vice President and Head of Equities with Advantus Capital.
Investment Advisory Agreement
Advantus Capital acts as investment adviser and manager of the Fund under
an Investment Advisory Agreement (the "Advisory Agreement") dated March 1, 1995,
and which was approved by shareholders on February 14, 1995. The 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 January 14, 1998. The Advisory Agreement will terminate
automatically in the event of its assignment. In addition, the 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 not more than 60 days' written notice to Advantus Capital, and by Advantus
Capital on 60 days' written notice to the Fund. Unless sooner terminated, the
Advisory Agreement shall continue in effect for more than two years after its
execution only so long as such continuance is specifically approved at least
annually by either the Board of Directors of the Fund or by a vote of a majority
of the outstanding voting securities, provided that in either event such
continuance is also approved by the vote of a majority of the directors who are
not parties to the Advisory Agreement, or interested persons of such parties,
cast in person at a meeting called for the purpose of voting on such approval.
Shares of the Fund will be sold only to persons who have previously entered
into investment advisory agreements (the "Advisory Clients") directly with
Advantus Capital
13
<PAGE>
and other affiliated investment advisers (the "Qualifying Advisers") and may
be purchased only with funds managed by the Qualifying Advisers. For that
reason, the Fund does not pay an advisory fee to Advantus Capital under the
Advisory Agreement. Advantus Capital, under the Advisory Agreement with the
Fund, acts as investment adviser and manager for the Fund, and furnishes the
Fund office space and all necessary office facilities, equipment and
personnel for servicing the investments of the Fund. In addition, Advantus
Capital pays all expenses of the Fund, except custodian fees, brokerage
commissions (if any), and those expenses expressly assumed by the Fund's
underwriter, including the salaries and fees of all officers and directors of
the Fund, auditing and accounting fees, legal fees, and the Fund's transfer
agent expenses. First Data Investor Services Group, Inc. ("First Data")
provides transfer agent services to the Fund. Minnesota Life's Advantus
Shareholder Services division acts as the Fund's administrative and
shareholder services agent.
Ascend Financial, the Fund's underwriter, bears all promotional expenses in
connection with the distribution of the Fund's shares, including paying for
prospectuses and statements of additional information for new shareholders, and
shareholder reports for new shareholders, and the costs of sales literature.
Distribution Agreement
On January 14, 1998, the Board of Directors (including a majority of the
directors who are not parties to the contract, or interested persons of any such
party) last approved the Distribution Agreement with Ascend Financial (the
"Distribution Agreement") dated February 25, 1987. The Distribution Agreement
does not provide for payment of commissions to Ascend Financial for distribution
of Fund shares or other distribution-related services. 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.
The Distribution Agreement requires Ascend Financial to pay all advertising
and promotional expenses in connection with the distribution of the Fund's
shares including paying for prospectuses and statements of additional
information (if any) for new shareholders, shareholder reports for new
shareholders, and the costs of sales literature.
In the Distribution Agreement, 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.
14
<PAGE>
AMORTIZED COST METHOD OF PORTFOLIO VALUATION
The Fund values its portfolio securities at amortized cost in accordance
with Rule 2a-7 under the 1940 Act. This method involves valuing an instrument
at its cost and thereafter assuming a constant amortization to maturity of any
discount or premium, regardless of the impact of fluctuations in interest rates
on the market value of the instrument and regardless of any unrealized capital
gains or losses. While this method provides certainty in valuation, it may
result in periods during which value, as determined by amortized cost, is higher
or lower than the price the Fund would receive if it sold the instrument.
During periods of declining interest rates, the daily yield on shares of the
Fund computed by dividing the annualized daily income of the Fund by the net
asset value computed as described above may tend to be higher than a like
computation made by the Fund with identical investments utilizing a method of
valuation based upon market prices and estimates of market prices for all of its
securities.
Pursuant to Rule 2a-7, the Board of Directors of the Fund has determined,
in good faith based upon a full consideration of all material factors, that it
is in the best interests of the Fund and its shareholders to maintain a stable
net asset value per share by virtue of the amortized cost method of valuation.
The Fund will continue to use this method only so long as the Board of Directors
believes that it fairly reflects the market-based net asset value per share. In
accordance with Rule 2a-7, the Board of Directors has undertaken, as a
particular responsibility within the overall duty of care owed to the Fund's
shareholders, to establish procedures reasonably designed, taking into account
current market conditions and the Fund's investment objectives, to stabilize the
Fund's net asset value per share at a single value. These procedures include
the periodic determination of any deviation of current net asset value per share
calculated using available market quotations from the Fund's amortized cost
price per share, the periodic review by the Board of the amount of any such
deviation and the method used to calculate any such deviation, the maintenance
of records of such determinations and the Board's review thereof, the prompt
consideration by the Board if any such deviation exceeds 1/2 of 1%, and the
taking of such remedial action by the Board as it deems appropriate where it
believes the extent of any such deviation may result in material dilution or
other unfair results to investors or existing shareholders. Such remedial
action may include redemptions in kind, selling portfolio instruments prior
to realizing capital gains or losses, shortening the average portfolio
maturity, withholding dividends or utilizing a net asset value per share as
determined by using available market quotations.
The Fund will, in further compliance with Rule 2a-7, maintain a
dollar-weighted average portfolio maturity not exceeding 90 days and will limit
its portfolio investments to those United States dollar-denominated instruments
which the Board determines present minimal credit risks and which are eligible
securities. The Fund will limit its investments in the securities of any one
issuer to no more than 5% of Fund assets and it will limit investment in
securities of less than the highest rated categories to 5% of Fund assets.
Investment in the securities of any issuer of less than the highest rated
categories will be limited to the greater of 1% of Fund assets or one million
dollars. In addition, the Fund will reassess promptly any security which is in
default or downgraded from its rating category to determine whether that
security then presents minimal credit risks and whether continuing to hold the
securities is in the best interests of the Fund. In addition, the Fund will
record, maintain, and preserve a written copy of the above-described procedures
and a written record of the Board's considerations and actions taken in
connection with the discharge of its above-described responsibilities.
15
<PAGE>
PORTFOLIO TRANSACTIONS AND ALLOCATION OF BROKERAGE
Most transactions in portfolio securities are purchases from issuers or
dealers in money market instruments acting as principal. There usually are no
brokerage commissions paid by the Fund for such purchases since securities are
purchased on a net price basis. During the fiscal years ended September 30,
1998, 1997 and 1996, the Fund paid no brokerage commissions. Trading does,
however, involve transaction costs. Transactions with dealers serving as
primary market makers reflect the spread between the bid and asked prices of
securities. Purchases of underwritten issues may be made which reflect a fee
paid to the underwriter.
Decisions with respect to the placement of the Fund's portfolio
transactions are made by Advantus Capital. The primary criteria in making these
decisions are efficiency in the execution of orders and obtaining the most
favorable net prices for the Fund. Most Fund transactions are with the issuer
or with major dealers acting for their own account and not as brokers. When
consistent with these objectives, business may be placed with broker-dealers who
furnish investment research services to Advantus Capital. Such research
services include advice, both directly and in writing, as to the value of
securities, the advisability of investing in, purchasing or selling securities,
and the availability of securities or purchasers or sellers of securities, as
well as 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.
While it is not expected that the Fund will pay brokerage commissions, if it
does, 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. During the fiscal year ended September 30, 1998, the
Fund paid no brokerage commissions and directed no transactions to brokers
because of research services they provided.
No brokerage is allocated for the sale of Fund shares. Advantus Capital
believes that most research services obtained by it generally benefit one or
more of the investment companies which it manages and also 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.
16
<PAGE>
The same security may be suitable for the Fund and the other funds or
accounts managed by Advantus Capital or its affiliates. If and when two or more
funds or accounts simultaneously purchase or sell the same security, the
transactions will be allocated as to price and amount in accordance with
arrangements equitable to each fund or account. The simultaneous purchase or
sale of the same securities by the Fund and other funds or accounts may have a
detrimental effect on the Fund, as this may affect the price paid or received by
the Fund or the size of the position obtainable by the Fund.
The Fund will not execute portfolio transactions through any affiliate,
unless such transactions, including the frequency thereof, the receipt of
commissions payable in connection therewith and the selection of the affiliated
broker-dealer effecting such transactions are not unfair or unreasonable to the
shareholders of the Fund. In the event any transactions are executed on an
agency basis, 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-dealer would have charged only if Advantus Capital
determines in good faith that such amount of commission is reasonable in
relation to the value of the brokerage and research services provided by such
broker-dealer, viewed in terms of either that particular transaction or the
overall responsibilities of Advantus Capital with respect to the Fund as to
which it exercises investment discretion. If the Fund executes any transactions
on an agency basis, it will generally pay higher than the lowest commission
rates available.
In determining the commissions to be paid to an affiliated broker-dealer,
it is the policy of the Fund that such commissions will, in the judgment of
Advantus Capital, subject to review by the Fund's Board of Directors, be both
(a) at least as favorable as those which would be charged by other qualified
brokers in connection with comparable transactions involving similar securities
being purchased or sold on an exchange during a comparable period of time, and
(b) at least as favorable as commissions contemporaneously charged by such
affiliated broker-dealers on comparable transactions for their most favored
comparable unaffiliated customers. While the Fund does not deem it practicable
and in its best interest to solicit competitive bids for commission rates on
each transaction, consideration will regularly be given to posted commission
rates as well as to other information concerning the level of commissions
charged on comparable transactions by other qualified brokers. During the year
ended September 30, 1998, the Fund did not execute any portfolio transactions
with an affiliated broker-dealer.
Information regarding the acquisition by the Fund during the fiscal year
ended September 30, 1998, of securities of the Fund's regular brokers or
dealers, or the parents of those broker or dealers that derive more than 15
percent of their gross revenue from securities-related activities, is presented
below:
17
<PAGE>
<TABLE>
<CAPTION>
Approximate Value of
Securities Owned at the
Name of Issuer End of Fiscal Period
- ---------------------------------------------------------------------------
<S> <C>
Associates Corporation of North America $218,342
Ford Motor Credit Company $454,553
General Electric Capital Corporation $268,942
Norwest Financial $697,033
American General Corporation $838,188
Ciesco LP $873,532
</TABLE>
CALCULATION OF PERFORMANCE DATA
The Fund may issue "current yield" and "effective yield" quotations.
"Current yields" are computed by determining the net change in the value of a
hypothetical account having a balance of one share at the beginning of a recent
seven calendar day period, and multiplying that change by 365/7. "Effective
yields" are computed by determining the net change in the value of a
hypothetical account having a balance of one share at the beginning of a recent
seven calendar day period, dividing that change by seven, adding one to the
quotient, raising the sum to the 365th power, and subtracting one from the
result. For purposes of the foregoing calculations, the value of the
hypothetical account includes accrued interest income plus or minus amortized
purchase discount or premium less accrued expenses, but does not include
realized gains and losses or unrealized appreciation and depreciation. The Fund
will also quote the average dollar-weighted portfolio maturity for the
corresponding seven-day period.
Although there can be no assurance that the net asset value of the Fund's
shares will always be $1.00, Advantus Capital does not expect that the net asset
value of its shares will fluctuate since the Fund uses the amortized cost method
of valuation to maintain a stable $1.00 net asset value. See "Amortized Cost
Method of Portfolio Valuation." Principal is not, however, insured. Yield is a
function of portfolio quality and composition, maturity, and operating expenses.
Yield information is useful in reviewing the Fund's performance, but it may not
provide a basis for comparison with bank deposits or other investments, which
pay a fixed yield for a stated period of time, or other investment instruments,
which may use a different method of calculating yield.
For the seven calendar days ended September 30, 1998, the Fund's annualized
current yield was 3.60% and its annualized effective yield was 3.73%.
CAPITAL STOCK AND OWNERSHIP OF SHARES
The Fund's shares of common stock have a par value of $.01 per share, and
have equal rights to share in dividends and assets. The shares possess no
preemptive or conversion rights. Cumulative voting is not authorized. This
means that the holders of more than 50% of the shares voting for the election of
directors can elect 100% of the directors if they choose to do so, and in such
event the holders of the remaining shares will be unable to elect any directors.
18
<PAGE>
The Fund has the following authorized capital and numbers of shares
outstanding:
<TABLE>
<CAPTION>
Number of Shares
authorized outstanding at
shares Par value September 30,
common stock per share 1998
- --------------------------------------------------------------------------
<S> <C> <C>
1,000,000,000 $.01 9,159,926
</TABLE>
As of September 30, 1998, no person held of record, to the knowledge of the
Fund, or owned more than 5% of the outstanding shares of the Fund, except as set
forth in the following table:
<TABLE>
<CAPTION>
Number of Percent of
Name and Address of Shareholder Shares Class
- ---------------------------------------------------------------------------
<S> <C> <C>
Minnesota Life and affiliates 3,906,058 42.6%
400 Robert Street North
St. Paul, Minnesota 55101
</TABLE>
Due to their ownership of more than 25% of the outstanding shares of the
Fund, these shareholders of the Fund may be deemed to "control" the Fund in
accordance with applicable regulations promulgated under the 1940 Act.
Minnesota Life and its affiliates (i.e., Advantus Capital and Ascend
Financial) are each organized as Minnesota corporations.
HOW TO BUY SHARES
The Fund's shares may be purchased only with funds of the Advisory Clients
managed by the Qualifying Advisers. Ascend Financial reserves the right to
reject any purchase order. Shares of the Fund may be purchased at a price equal
to their net asset value, which will normally be constant at $1.00 per share.
There is no assurance that the Fund can maintain the $1.00 per share net asset
value.
Certificates representing shares purchased are not currently issued.
However, shareholders will receive written confirmation of their purchases.
Shareholders will have the same rights of ownership with respect to such shares
as if certificates had been issued. SHAREHOLDERS WHO HOLD PREVIOUSLY ISSUED
CERTIFICATES REPRESENTING ANY OF THEIR SHARES WILL NOT BE ALLOWED TO REDEEM SUCH
CERTIFICATED SHARES BY TELEPHONE.
Timing of Purchase Orders
An order in proper form for the purchase of shares of the Fund received by
the Fund prior to the close of normal trading on the New York Stock Exchange
("NYSE"), which is generally 3:00 p.m. Central Time, will be effected at the
price next determined on the date received by the Fund's transfer agent. Orders
received after the close of the NYSE will be effected at the price next
determined on the next business day.
19
<PAGE>
Minimum Investments
There is no minimum amount required for either initial or subsequent
purchases of Fund shares.
Public Offering Price
The public offering price of the Fund will be the net asset value per share
of the Fund next determined after an order is received and becomes effective.
The net asset value per share of each class is determined by dividing the value
of the securities, cash and other assets (including dividends accrued but not
collected) of the Fund attributable to such class less all liabilities
(including accrued expenses but excluding capital and surplus) attributable to
such class, by the total number of shares of such class outstanding.
The net asset value of the shares of the Fund is determined as of the close
of normal trading on the New York Stock Exchange (as of the date of this
Statement of Additional Information the primary close of trading is 3:00 p.m.
(Central Time), but this time may be changed) on each day, Monday through
Friday, except (i) days on which changes in the value of the Fund's portfolio
securities will not materially affect the current net asset value of Fund
shares, (ii) days during which no Fund shares are tendered for redemption and no
order to purchase or sell Fund shares is received by the Fund and (iii)
customary national business holidays on which the New York Stock Exchange is
closed for trading.
The Fund values its portfolio investments at amortized cost in accordance
with Rule 2a-7 under the 1940 Act. See "Amortized Cost Method of Portfolio
Valuation" above.
SHAREHOLDER SERVICES
Open Accounts
A shareholder's investment is automatically credited to an open account
maintained for the shareholder by First Data, the Fund's transfer agent.
Minnesota Life's Advantus Shareholder Services division. Stock certificates
are not currently issued. Following each transaction in the account, a
shareholder will receive a confirmation statement disclosing the current
balance of shares owned and the details of recent transactions in the
account. After the close of each year First Data sends to each shareholder a
statement providing federal tax information on dividends paid to the
shareholder during the year. This should be retained as a permanent record.
A fee may be charged for providing duplicate information.
The open account system provides for full and fractional shares expressed
to four decimal places and, by making the issuance and delivery of stock
certificates unnecessary, eliminates problems of handling and safekeeping, and
the cost and inconvenience of replacing lost, stolen, mutilated or destroyed
certificates.
20
<PAGE>
The costs of maintaining the open account system for the Fund are paid by
the Fund. No direct charges are made to shareholders. Although the Fund has no
present intention of making such direct charges to shareholders, it reserves the
right to do so. Shareholders will receive prior notice before any such charges
are made.
HOW TO SELL SHARES
Registered holders of shares of the Fund may redeem their shares at the per
share net asset value next determined following receipt by the Fund (at its
mailing address listed on the cover page) of a written redemption request as set
forth below. The Qualifying Advisers, acting in accordance with the terms of
the investment advisory agreements with the Advisory Clients, will ordinarily
initiate all redemption requests with respect to shares of the Fund. The
Advisory Clients may redeem their shares, directly, however, by writing to the
Fund. Redemption requests should be signed exactly as the account registration
appears on the account statements. Both share certificates and stock powers, if
any, tendered in redemption must be endorsed and executed exactly as the Fund
shares are registered. Any certificates should be sent to the Fund by certified
mail.
Payment will be made as soon as possible, but not later than seven days
after receipt of a properly executed written redemption request (and any
certificates). The amount received by the shareholder may be more or less than
the shares' original cost. If all of the shares in an account are redeemed,
dividends accrued and unpaid at the date of redemption will be paid when the
redemption proceeds are paid.
The Fund will pay in cash all redemption requests by any shareholder of
record, limited in amount during any 90-day period to the lesser of $250,000 or
1% of the net asset value of the Fund at the beginning of such period. When
redemption requests exceed such amount, however, the Fund reserves the right to
make part or all of the payment in the form of securities or other assets of the
Fund. An example of when this might be done is in case of emergency, such as in
those situations enumerated in the following paragraph, or at any time a cash
distribution would impair the liquidity of the Fund to the detriment of the
existing shareholders. Any securities being so distributed would be valued in
the same manner as the portfolio of the Fund is valued. If the recipient sold
such securities, he or she probably would incur brokerage charges. The Fund has
filed with the SEC a notification of election pursuant to Rule 18f-1 under the
Investment Company Act of 1940 in order to make such redemptions in kind.
Redemption of shares, or payment, may be suspended at times (a) when the
NYSE is closed for other than customary weekend or holiday closings, (b) when
trading on the NYSE is restricted, (c) when an emergency exists, as a result of
which disposal by the Fund of securities owned by it is not reasonably
practicable, or it is not reasonably practicable for the Fund fairly to
determine the value of its net assets, or during any other period when the SEC,
by order, so permits; provided that applicable rules and regulations of the SEC
shall govern as to whether the conditions prescribed in (b) or (c) exist.
Signature Guarantee
In order to protect both shareholders and the Fund against fraudulent
orders, a shareholder signature is required to be guaranteed in certain cases.
No signature guarantee is
21
<PAGE>
required if the redemption proceeds are less than $50,000 and are to be paid to
the registered holder and sent to the address of record for that account, or if
the written redemption request is from pre-authorized trustees of plans, trusts
and other tax-exempt organizations and the redemption proceeds are less than
$50,000.
A signature guarantee is required, however, if (i) the redemption proceeds
are $50,000 or more, (ii) the redemption proceeds are to be paid to someone
other than the registered holder, (iii) the redemption proceeds are to be mailed
to an address other than the registered shareholder's address, (iv) within the
30-day period prior to receipt of the redemption request, instructions have been
received to change the shareholder's address of record, or, in the case of
redemptions to be paid by wire, instructions have been received within such
period to change the shareholder's bank wire instructions, (v) the shares are
requested to be transferred to the account of another owner, or (vi) in the case
of plans, trusts, or other tax-exempt organizations, the redemption request is
not from a pre-authorized trustee. The Fund reserves the right to require
signature guarantees on all redemptions.
A signature guarantee must be provided by an eligible guarantor
institution. A notarized signature is not sufficient. Eligible guarantors
include (1) national or state banks, savings associations, savings and loan
associations, trust companies, savings banks, industrial loan companies and
credit unions; (2) national securities exchanges, registered securities
associations and clearing agencies; (3) securities broker-dealers which are
members of a national securities exchange or a clearing agency or which have
minimum net capital of $100,000; or (4) institutions that participate in the
Securities Transfer Agent Medallion Program ("STAMP") or other recognized
signature medallion program.
DISTRIBUTIONS AND TAX STATUS
Dividends
The policy of the Fund has been to declare dividends from net investment
income on each business day of the Fund, except that dividends for Saturdays,
Sundays and holidays are declared on the next business day.
Any dividend payments made by the Fund are in the form of additional shares
of the Fund rather than in cash, unless a shareholder specifically requests the
Fund in writing that the payment be made in cash. The distribution of these
shares is made at net asset value on the payment date of the dividend. The
taxable status of income dividends is not affected by whether they are
reinvested or paid in cash.
Taxation - General
The following is a general summary of certain federal tax considerations
affecting the Fund and its shareholders. No attempt is made to present a
detailed explanation of the tax treatment of the Fund or its shareholders, and
the discussion here is not intended as a substitute for careful tax planning.
During the year ended September 30, 1998 the Fund fulfilled, and intends
to continue to fulfill, the requirements of Subchapter M of the Internal Revenue
Code of 1986, as amended (the
22
<PAGE>
"Code"), as a regulated investment company. If so qualified, the Fund will not
be liable for federal income taxes to the extent it distributes its taxable
income to its shareholders.
Distributions of investment company taxable income from the Fund, including
any short-term capital gains, generally will be taxable to shareholders as
ordinary income, regardless of whether such distributions are paid in cash or
are invested in additional shares of the Fund's stock. The Fund does not expect
to realize net long-term capital gains or losses.
It is not expected that dividend distributions from the Fund will qualify
for the 70% dividend received deduction for corporations.
Prior to purchasing shares of the Fund, prospective shareholders (except
for tax qualified retirement plans) should consider the impact of dividends
which are expected to be announced, or have been announced but not paid. All or
a portion of such dividends, although in effect a return of capital, is subject
to taxation.
Shareholders of the Fund receive an annual statement detailing federal tax
information. Distributions by the Fund, including the amount of any redemption,
are reported to shareholders in such annual statement and to the Internal
Revenue Service to the extent required by the Code.
The Fund is required by federal law to withhold 31% of reportable payments
(including dividends, capital gain distributions, and redemptions) paid to
certain accounts whose owners have not complied with Internal Revenue Service
("IRS") regulations. In order to avoid this backup withholding requirement,
each shareholder will be asked to certify on the shareholder's account
application that the social security or taxpayer identification number provided
is correct and that the shareholder is not subject to backup withholding for
previous underreporting to the IRS.
Before investing in the Fund, an investor should consult a tax adviser
concerning the consequences of any local and state tax laws, and of any
retirement plan offering tax benefits.
BOND AND COMMERCIAL PAPER RATINGS
Bond Ratings
Moody's Investors Service, Inc. describes its five highest ratings for
corporate bonds 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
23
<PAGE>
there may be other elements present which make the long term risks appear
somewhat larger than in Aaa securities.
Bonds which are rated A possess many favorable investment attributes and
are to be considered as upper medium grade obligations. Factors giving
security to principal and interest are considered adequate but elements may
be present which suggest a susceptibility to impairment some time in the
future.
Bonds which are rated Baa are considered medium grade obligations, i.e.,
they are neither highly protected nor poorly secured. Interest payments
and principal security appear adequate for the present but certain
protective elements may be lacking or may be characteristically unreliable
over any great length of time. Such bonds lack outstanding investment
characteristics and in fact have speculative characteristics as well.
Bonds which are rated Ba are judged to have speculative elements; their
future cannot be considered as well-assured. Often the protection of
interest and principal payments may be very moderate, and thereby not well
safeguarded during both good and bad times over the future. Uncertainty of
position characterizes bonds in this class.
Moody's Investors Service, Inc. also applies numerical modifiers, 1, 2, and
3, in each of these generic rating classifications. The modifier 1 indicates
that the security ranks in the higher end of its generic rating category; the
modifier 2 indicates a mid-range ranking; and the modifier 3 indicates that the
issue ranks in the lower end of its generic rating category.
Standard & Poor's Corporation describes its five highest ratings for
corporate bonds 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.
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Standard & Poor's Corporation applies indicators "+", no character, and
"-" to the above rating categories. The indicators show relative standing
within the major rating categories.
Commercial Paper Ratings
The rating Prime-1 is the highest commercial paper rating assigned by
Moody's Investors Service, Inc. Among the factors considered by Moody's
Investors Service, Inc. in assigning the ratings are the following: (1)
evaluation of the management of the issuer, (2) economic evaluation of the
issuer's industry or industries and an appraisal of speculative-type risks which
may be inherent in certain areas; (3) evaluation of the issuer's products in
relation to competition and customer acceptance; (4) liquidity; (5) amount and
quality of long-term debt; (6) trend of earnings over a period of ten years; (7)
financial strength of a parent company and the relationships which exist with
the issuer; an (8) recognition by the management of obligations which may be
present or may arise as a result of public interest questions and preparations
to meet such obligations.
The rating A-1 is the highest rating assigned by Standard & Poor's
Corporation to commercial paper which is considered by Standard & Poor's
Corporation to have the following characteristics:
Liquidity ratios of the issuer are adequate to meet cash redemptions.
Long-term senior debt is rated "A" or better. The issuer has access to at least
two additional channels of borrowing. Basic earnings and cash flow have an
upward trend with allowance made for unusual circumstances. Typically, the
issuer's industry is well established and the issuer has a strong position
within the industry. The reliability and quality of management are
unquestioned.
FINANCIAL STATEMENTS
The Fund's financial statements for the year ended September 30, 1998,
including the financial highlights for each of the respective periods presented,
appearing in the Fund's 1998 Annual Report to Shareholders, and the report
thereon of the Fund's independent auditors, KPMG Peat Marwick LLP, also
appearing therein, are incorporated by reference in this Statement of Additional
Information. The Fund's 1998 Annual Report to Shareholders is enclosed with
this Statement of Additional Information.
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