<PAGE>
File Numbers 33-80754 and 811-8588
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 X
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Pre-Effective Amendment Number ___
Post-Effective Amendment Number 8
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 X
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Amendment Number 9
ADVANTUS ENTERPRISE FUND, INC.
(Exact Name of Registrant as Specified in Charter)
400 ROBERT STREET NORTH, ST. PAUL, MINNESOTA 55101
(Address of Principal Executive Offices)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (651) 665-3826
ERIC J. BENTLEY, 400 ROBERT STREET NORTH, ST. PAUL, MINNESOTA 55101
(Name and Address of Agent for Service)
Copy to:
Michael J. Radmer, Esquire
Dorsey & Whitney LLP
220 South Sixth Street
Minneapolis, Minnesota 55402-1498
IT IS PROPOSED THAT THIS FILING WILL BECOME EFFECTIVE (check appropriate box)
immediately upon filing pursuant to paragraph (b)
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X On February 1, 2000 pursuant to paragraph (b)
---
60 days after filing pursuant to paragraph (a)(1)
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on (date) pursuant to paragraph (a)(1)
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75 days after filing pursuant to paragraph (a)(2)
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on (date) pursuant to paragraph (a)(2) of Rule 485.
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IF APPROPRIATE, CHECK THE FOLLOWING BOX:
this post-effective amendment designates a new effective date
--- for a previously filed post-effective amendment.
<PAGE>
ENTERPRISE
As with all mutual funds, the Securities and Exchange Commission
has not determined that the information in this prospectus is
accurate or complete, nor has it approved the Fund's securities.
It is a criminal offense to state otherwise.
ADVANTUS ENTERPRISE FUND, INC.
PROSPECTUS DATED FEBRUARY 1, 2000
[LOGO]
[GRAPHIC]
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ADVANTUS ENTERPRISE FUND, INC.
Advantus Enterprise Fund, Inc. (Fund) is a mutual fund that offers different
classes of shares. This prospectus provides you information about the Fund you
should know before investing. The Fund is a member of the Advantus family of
funds (the Advantus Funds). The Advantus Funds (including the Fund) other than
the Advantus Money Market Fund, Inc. and Advantus Real Estate Securities Fund,
Inc. are referred to as "Advantus Multiple Class Funds."
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page No.
<S> <C>
THE FUND - SUMMARY ................................. 3
Investment Objective and Policies ........... 3
Main Risks .................................. 3
Fund Performance ............................ 4
Fees and Expenses ........................... 6
FINANCIAL HIGHLIGHTS ............................... 8
Financial Highlights Class A Shares ......... 8
Financial Highlights Class B Shares ......... 10
Financial Highlights Class C Shares ......... 11
INVESTING IN THE FUND .............................. 12
Managing the Fund ........................... 12
Investment Objective, Policies and
Practices ................................... 12
Defining Risks .............................. 13
BUYING AND SELLING SHARES .......................... 15
Choosing a Share Class ...................... 15
Sales and Distribution Charges .............. 15
Reducing Sales Charges ...................... 18
Buying Shares ............................... 19
Selling Shares .............................. 21
Exchanging Shares ........................... 22
Telephone Transactions ...................... 23
GENERAL INFORMATION ................................ 24
Dividends and Capital Gains Distributions ... 24
Taxes ....................................... 24
Service Providers ........................... 26
Advantus Family of Funds .................... 27
Additional Information About the Fund ....... 28
How to Obtain Additional Information ........ 28
</TABLE>
<PAGE>
[GRAPHIC]
THE FUND - SUMMARY
Advantus Enterprise Fund, Inc. (Enterprise Fund) is an open-end, diversified
investment company, commonly called a mutual fund. This Fund lets you choose
among three classes of shares that offer different sales charges and bear
different expenses. These alternatives allow you to choose the share class that
you believe is most beneficial given the amount of your purchase, the length of
time you expect to hold onto the shares and whether you plan to make additional
investments.
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 OBJECTIVE AND POLICIES
ENTERPRISE FUND seeks long-term accumulation of capital.
The Fund primarily invests in various types of equity securities of small
capitalization companies (i.e., companies with a market capitalization of less
than $1.5 billion) at the time of purchase. In selecting equity securities, the
Fund invests in securities that the Fund's investment adviser believes show
sustainable earnings growth potential and improving profitability.
MAIN RISKS
Keep in mind that an investment in the Fund is not a deposit of a bank and is
not insured or guaranteed by the Federal Deposit Insurance Corporation or any
other governmental agency and that it is possible to lose money by investing in
the Fund. You should also note that if the Fund makes frequent changes in its
portfolio securities, such changes may result in higher Fund costs and may
adversely affect your return. An investment in the Fund may be subject to
various risks including the following types of main risk:
- MARKET RISK - the risk that equity securities are subject to adverse
trends in equity markets
- FUND RISK - the risk that Fund performance may not meet or exceed that of
the market as a whole
- GROWTH STOCK RISK - the risk that if the Fund's investment adviser's
assessment of a company's prospective earnings growth or judgment of how
other investors assess the company's earnings growth is wrong, then the
value of the company's securities may decrease or not approach the value
that the Fund's investment adviser placed on it
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FOR YOUR INFORMATION
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A mutual fund is an investment company that invests the money of many people in
a variety of securities to seek a specific objective over time. An open-end
mutual fund buys back an investor's shares at the fund's current net asset
value.
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REFERENCE POINT
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Please see "Investing in the Fund - Defining Risks" for a more detailed
description of these main risks and additional risks in connection with
investing in the Fund.
For more information on Fund portfolio turnover, see "General Information -
Taxes."
THE FUND - SUMMARY 3
<PAGE>
- SMALL COMPANY RISK - the risk that equity securities of small
capitalization companies are subject to greater price volatility due to,
among other things, such companies' small size, limited product lines,
limited access to financing sources and limited management depth
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 how the Fund's average annual return over a one, five and ten year
period compare to the return of a broad based index. The chart and table assume
reinvestment of dividends and distributions, and the table reflects applicable
initial and contingent deferred sales charges. Like other mutual funds, the past
performance of the Fund does not necessarily indicate how the Fund will perform
in the future.
CLASS A YEAR TO YEAR TOTAL RETURN(1) (AS OF DECEMBER 31)
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<S> <C>
'95 33.43%
'96 5.43%
'97 7.11%
'98 0.97%
'99 45.52%
</TABLE>
(1) Absent reductions for sales loads, account fees and other charges. If such
sales loads, account fees and other charges were included, returns would be
less than shown above.
<TABLE>
<S> <C> <C>
Best Quarter: (Q4'99) 46.12%
Worst Quarter: (Q3'98) -27.99%
</TABLE>
4 THE FUND - SUMMARY
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FOR YOUR INFORMATION
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The Fund seeks to achieve its investment objective over longer rather than
shorter periods of time. An investment in the Fund may therefore be more
appropriate for an investor with a longer-term focus.
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURN
(FOR THE PERIODS ENDING DECEMBER 31, 1999) From
1 Year 5 Years 10 Years Inception
<S> <C><C> <C> <C> <C>
Class A(1)
(inception 9/16/94) % 37.51 15.91 -- 15.15
Class B
(inception 9/16/94) 39.33 16.03 -- 15.21
Class C
(inception 3/1/95) 44.25 -- -- 15.90
Russell 2000 Growth Index 43.10 18.99 13.51 --
</TABLE>
(1) Average annual total returns quoted assume that the Class A
maximum initial sales charge of 5.5% was in effect at the
beginning of each period shown. The maximum initial sales charge
for Class A shares was 5.0% prior to February 1, 1999.
THE FUND - SUMMARY 5
<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>
CLASS A CLASS B CLASS C
<S> <C><C> <C> <C>
SHAREHOLDER FEES
(fees paid directly from your investment)
Maximum Sales Charge on
Purchases
(as a percentage of offering
price) % 5.50 none none
Maximum Deferred Sales Charge
(as a percentage of sales
proceeds) 1.00* 5.00 none
Exchange Fees
-On First Twelve Exchanges
Each Year none none none
-On Each Additional Exchange $ 7.50 7.50 7.50
ANNUAL FUND OPERATING EXPENSES
(expenses that are deducted from Fund assets)
Management Fees % 0.80 0.80 0.80
Rule 12b-1 Fees % 0.25 1.00 1.00
Other Expenses % 0.38 0.38 0.38
TOTAL FUND OPERATING
EXPENSES** % 1.43 2.18 2.18
</TABLE>
* Applies only to purchases of at least $1 million, in which case a
contingent deferred sales charge of 1.00% will be imposed if such
shares are sold within one year after the purchase date.
** Ascend Financial Services, Inc. (Ascend Financial), the Fund's
underwriter, has voluntarily agreed to waive Class A Rule 12b-1
fees in excess of .15% of Class A average net assets. After such
waiver, the ratio of total fund operating expenses to average net
assets will be 1.33% for Class A shares. Ascend Financial reserves
the right to discontinue such waiver at its sole discretion.
6 THE FUND - SUMMARY
<PAGE>
EXAMPLE
This example is intended to help you compare the costs of investing in the Fund
with the cost of investing in other mutual funds.
The example assumes that you invest $10,000 in the Fund for the time periods
indicated and then redeem all of your shares at the end of those periods. The
example also assumes that your investment has a 5% return each year and that the
Fund's operating expenses remain the same. Although your actual costs may be
higher or lower, based on these assumptions, your costs would be:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
<S> <C><C> <C> <C> <C>
Class A $ 688 978 1,289 2,169
Class B 721 1,032 1,319 2,234
Class C 221 682 1,169 2,323
</TABLE>
You would pay the following expenses if you did not redeem your shares:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
<S> <C><C> <C> <C> <C>
Class A $ 688 978 1,289 2,169
Class B 221 682 1,169 2,234
Class C 221 682 1,169 2,323
</TABLE>
THE FUND - SUMMARY 7
<PAGE>
[GRAPHIC]
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 and distributions. These figures have been audited by KPMG LLP, the
Fund's independent auditor, whose report, along with the Fund's financial
statements, are included in the annual report, which is available upon request.
Per share data for a share of capital stock and selected information for each
period are as follows:
<TABLE>
FINANCIAL HIGHLIGHTS CLASS A
YEAR ENDED SEPTEMBER 30,
'99 '98 '97 '96 '95(a)
<S> <C><C> <C> <C> <C> <C>
Net Asset Value, Beginning of
Period $ 11.32 15.90 15.94 14.08 11.03
INCOME FROM INVESTMENT OPERATIONS:
Net Investment Income (Loss) (.14) (.13) (.04) (.05) (.04)
Net Gains or Losses on Securities
(both realized and unrealized) 3.38 (4.45) 1.74 2.34 3.11
Total from Investment Operations 3.24 (4.58) 1.70 2.29 3.07
LESS DISTRIBUTIONS:
Distributions from Net Realized
Gains -- -- (1.74) (.43) (.02)
Total Distributions -- -- (1.74) (.43) (.02)
Net Asset Value, End of Period $ 14.56 11.32 15.90 15.94 14.08
Total Return (b) % 28.62 (28.81) 12.88 16.66 27.87
Net Assets, End of Period
(in thousands) $ 40,009 31,844 44,102 38,722 30,454
Ratio of Expenses to Average
Daily Net Assets (c)(d) % 1.33 1.27 1.28 1.31 1.34
Ratio of Net Investment Income
(Loss) to
Average Daily Net Assets (c)(d) % (.97) (.91) (.32) (.38) (.48)
Portfolio Turnover Rate
(excluding short-term securities) % 99.3 71.1 65.8 80.2 48.8
</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.
8 FINANCIAL HIGHLIGHTS
<PAGE>
(b) Total return figures are based on a share outstanding throughout
the period and assume reinvestment of distributions at net asset
value. Total return figures do not reflect the impact of front-end
or contingent deferred sales charges.
(c) The Fund's Distributor and Adviser voluntarily waived or absorbed
$83,999 in expenses for the year ended September 30, 1995. If the
Fund had been charged for these expenses, the ratio of expenses to
average daily net assets would have been 1.75%, and the ratio of
net investment income (loss) to average daily net assets would
have been (.89)% for Class A shares.
(d) The Fund's Distributor voluntarily waived $44,303, $68,536,
$74,325 and $68,785 in Class A Rule 12b-1 fees for the years
ended September 30, 1999, 1998, 1997 and 1996, respectively. If
the Fund had been charged for these fees, the ratio of expenses to
average daily net assets would have been 1.45%, 1.44%, 1.48% and
1.51%, respectively, and the ratio of net investment income (loss)
to average daily net assets would have been (1.09)%, (1.08)%,
(.52)% and (.58)%, respectively, for Class A shares.
FINANCIAL HIGHLIGHTS 9
<PAGE>
<TABLE>
FINANCIAL HIGHLIGHTS CLASS B
YEAR ENDED SEPTEMBER 30,
'99 '98 '97 '96 '95(a)
<S> <C><C> <C> <C> <C> <C>
Net Asset Value, Beginning of
Period $ 10.88 15.42 15.64 13.94 11.02
INCOME FROM INVESTMENT OPERATIONS:
Net Investment Income (Loss) (.26) (.24) (.18) (.12) (.09)
Net Gains or Losses on Securities
(both realized and unrealized) 3.26 (4.30) 1.70 2.25 3.03
Total from Investment Operations 3.00 (4.54) 1.52 2.13 2.94
LESS DISTRIBUTIONS:
Distributions from Net Realized
Gains -- -- (1.74) (.43) (.02)
Total Distributions -- -- (1.74) (.43) (.02)
Net Asset Value, End of Period $ 13.88 10.88 15.42 15.64 13.94
Total Return (b) % 27.57 (29.44) 11.89 15.65 26.71
Net Assets, End of Period
(in thousands) $ 6,491 5,903 7,683 4,871 1,720
Ratio of Expenses to Average
Daily Net Assets (c) % 2.18 2.14 2.18 2.20 2.24
Ratio of Net Investment Income
(Loss) to
Average Daily Net Assets (c) % (1.82) (1.77) (1.60) (1.25) (1.45)
Portfolio Turnover Rate
(excluding short-term securities) % 99.3 71.1 65.8 80.2 48.8
</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) Total return figures are based on a share outstanding throughout
the period and assume reinvestment of distributions at net asset
value. Total return figures do not reflect the impact of front-end
or contingent deferred sales charges.
(c) The Fund's Distributor and Adviser voluntarily waived or absorbed
$83,999 in expenses for the year ended September 30, 1995. If the
Fund had been charged for these expenses, the ratio of expenses to
average daily net assets would have been 2.39%, and the ratio of
net investment income (loss) to average daily net assets would
have been (1.60)% for Class B shares.
10 FINANCIAL HIGHLIGHTS
<PAGE>
<TABLE>
FINANCIAL HIGHLIGHTS CLASS C
Period From
March 1,
YEAR ENDED SEPTEMBER 30, '95(a) to
September 30,
'99 '98 '97 '96 '95
<S> <C><C> <C> <C> <C> <C>
Net Asset Value, Beginning of
Period $ 10.87 15.41 15.63 13.94 11.58
INCOME FROM INVESTMENT OPERATIONS:
Net Investment Income (Loss) (.27) (.26) (.23) (.09) (.06)
Net Gains or Losses on Securities
(both realized and unrealized) 3.27 (4.28) 1.75 2.21 2.42
Total from Investment Operations 3.00 (4.54) 1.52 2.12 2.36
LESS DISTRIBUTIONS:
Distributions from Net Realized
Gains -- -- (1.74) (.43) --
Total Distributions -- -- (1.74) (.43) --
Net Asset Value, End of Period $ 13.87 10.87 15.41 15.63 13.94
Total Return (b) % 27.48 (29.40) 11.89 15.58 20.38
Net Assets, End of Period
(in thousands) $ 812 780 1,133 807 71
Ratio of Expenses to Average
Daily Net Assets (c) % 2.18 2.14 2.18 2.19 2.24(d)
Ratio of Net
Investment Income (Loss) to
Average Daily Net Assets (c) % (1.82) (1.78) (1.75) (1.22) (1.57)(d)
Portfolio Turnover Rate
(excluding short-term securities) % 99.3 71.1 65.8 80.2 48.8
</TABLE>
(a) Commencement of operations.
(b) Total return figures are based on a share outstanding throughout
the period and assume reinvestment of distributions at net asset
value. Total return figures do not reflect the impact of front-end
or contingent deferred sales charges. For periods less than one
year, total return presented has not been annualized.
(c) The Fund's Distributor and Adviser voluntarily waived or absorbed
$83,999 in expenses for the period ended September 30, 1995. If
the Fund had been charged for these expenses, the ratio of
expenses to average daily net assets would have been 2.32%, and
the ratio of net investment income (loss) to average daily net
assets would have been (1.65)% for Class C shares.
(d) Adjusted to an annual basis.
FINANCIAL HIGHLIGHTS 11
<PAGE>
[GRAPHIC]
INVESTING IN THE FUND
MANAGING THE FUND
The investment adviser of the Fund is Advantus Capital Management, Inc.
(Advantus Capital), 400 Robert Street North, St. Paul, Minnesota 55101. Since
its inception in 1994, Advantus Capital has provided investment advisory
services for the Fund and other Advantus Funds, and has managed investment
portfolios for various private accounts. With more than $14 billion of assets
under management, Advantus Capital manages the Fund's investments and furnishes
all necessary office facilities, equipment and personnel for servicing the
Fund's investments. Advantus Capital is a wholly-owned subsidiary of Minnesota
Life Insurance Company (Minnesota Life), which was organized in 1880 and has
assets on a consolidated basis of more than $16.5 billion. 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.
The Fund pays Advantus Capital an advisory fee calculated on an annual basis
equal to 0.80% of its average daily net assets.
James P. Tatera, Vice President and Equity Portfolio Manager of Advantus
Capital, has served as the portfolio manager of the Fund since September 1994.
Mr. Tatera has also served as a Second Vice President of Minnesota Life since
February 1992.
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FOR YOUR INFORMATION
- --------------------
One of the advantages of investing in mutual funds is continuous professional
management of your investment. Skilled, experienced professionals manage the
Fund's assets.
James P. Tatera earned a bachelor's degree with majors in finance and
management, and an MBA in finance and investments, from the University of
Wisconsin. Mr. Tatera is a Chartered Financial Analyst.
INVESTMENT OBJECTIVE, POLICIES AND PRACTICES
The Fund seeks long-term accumulation of capital.
The Fund primarily invests in various types of equity securities of small
capitalization companies (i.e., companies with a market capitalization of less
than $1.5 billion) at the time of purchase. If a company's market capitalization
exceeds $1.5 billion after the Fund purchases the company's securities, the Fund
may nevertheless hold such securities. The Fund primarily invests in common
stocks but may also invest in preferred stocks and securities convertible into
equity securities. Under normal circumstances, at least 65% of the Fund's total
assets will be invested in securities of small capitalization companies. From
time to time, the Fund may also invest a lesser portion of its assets in
securities of mid and large capitalization companies (i.e., companies with
market capitalizations of at least $1.5 billion). As of September 30, 1999, the
average weighted market capitalization of the Fund's investment portfolio was
$1.7 billion.
12 INVESTING IN THE FUND
<PAGE>
In selecting equity securities for the Fund, Advantus Capital primarily looks to
an investment's potential for sustainable earnings growth and improving
profitability. In selecting securities with earnings growth potential, Advantus
Capital considers factors such as a company's competitive market position,
quality of management, growth strategy, internal operating trends (such as
profit margins, cash flows and earnings and revenue growth), overall financial
condition, and ability to sustain current rate of growth. In seeking to achieve
its investment objective, the Fund may also invest in equity securities of
companies that Advantus Capital believes are temporarily undervalued or show
promise of improved results due to new management, products, markets or other
factors.
In addition, the Fund may invest lesser portions of its assets in restricted and
illiquid securities, investment-grade corporate debt securities, foreign
securities, warrants, covered call options on equity securities written by the
Fund, index depositary receipts, repurchase agreement transactions, securities
of other mutual funds and money market securities. To generate additional
income, the Fund may lend securities representing up to 20% of the value of its
total assets to broker-dealers, banks and other institutions.
In an attempt to respond to adverse market, economic, political or other
conditions, the Fund may invest for temporary defensive purposes in various
short-term cash and cash equivalent items. When investing for temporary
defensive purposes, the Fund may not always achieve its investment objective.
You can find descriptions of these securities in the Statement of Additional
Information.
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FOR YOUR INFORMATION
- --------------------
In order to make informed decisions, investors must be aware of both the risks
and rewards associated with investing. Not only should you understand the risks
associated with your investments, but you must be comfortable with them as well.
Risks are an inherent part of investing, and your investment in this Fund is
subject to different types and varying degrees of risk.
DEFINING RISKS
Investment in the Fund involves risks. The Fund's yield and price are not
guaranteed, and the value of your investment in the Fund will go up or down. The
value of your investment in the Fund may be affected by the following risks:
- FUND RISK - is the risk that Fund performance may not meet or exceed that
of the market as a whole. The performance of the Fund will depend on
Advantus Capital's ability to select securities suited to achieve the
Fund's investment objective and judgment of economic and market policies,
trends in investment yields and monetary policy. Due to its active
management, the Fund could underperform other mutual funds with similar
investment objectives of the market generally.
- GROWTH STOCK RISK - is the risk that if Advantus Capital's assessment of a
company's prospective earnings growth or judgment of how other investors
assess the company's earnings growth is wrong, then the value of the
company's securities may decrease or not approach the value that Advantus
Capital placed on it.
- MARKET RISK - is the risk that equity securities are subject to adverse
trends in equity markets. Securities are subject to price movements due to
changes in general economic conditions, the level of prevailing interest
rates or investor perceptions of the market. In addition, prices are
affected by the outlook for overall corporate profitability. Market prices
of equity securities are generally more volatile than debt securities.
This may cause a security to be worth less than the price originally paid
for it, or less than it was worth at an earlier time. Market risk may
affect a single issuer or the market as a whole. In addition, market risk
may affect a portfolio of equity securities of small capitalization
companies and/or equity securities believed to exhibit above average
INVESTING IN THE FUND 13
<PAGE>
sustainable earnings growth potential. As a result, a portfolio of such
small capitalization company and/or growth securities may underperform the
market as a whole.
- COMPANY RISK - is the risk that individual securities may perform
differently than the overall market. This may be a result of specific
factors such as changes in corporate profitability due to the success or
failure of specific products or management strategies, or it may be due to
changes in investor perceptions regarding a company.
- CONCENTRATION RISK - is the risk that Fund performance may be more
susceptible to a single economic, regulatory or technological occurrence
than more diversified portfolios. The Fund is subject to concentration
risk since the Fund may invest more than 5% of its total assets in the
securities of a single issuer with respect to 25% of its total investment
portfolio.
- SMALL COMPANY RISK - is the risk that equity securities of small
capitalization companies are subject to greater price volatility due to,
among other things, such companies' small size, limited product lines,
limited access to financing sources and limited management depth. In
addition, the frequency and volume of trading such securities may be less
than is typical of larger companies, making them subject to wider price
fluctuations. In some cases, there could be difficulties in selling
securities of small capitalization companies at the desired time and
place.
- SECTOR RISK - is the risk that the securities of companies within specific
industries or sectors of the economy can periodically perform differently
than the overall market. This may be due to changes in such things as the
regulatory or competitive environment or to changes in investor
perceptions regarding a company.
- SECURITIES LENDING RISK - is the risk that the Fund may experience a delay
in the recovery of loaned securities, or even the loss of rights in the
collateral deposited by the borrower if the borrower should fail
financially. To reduce these risks, the Fund enters into loan arrangements
only with institutions that Advantus Capital has determined are
creditworthy.
- 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.
14 INVESTING IN THE FUND
<PAGE>
[GRAPHIC]
BUYING AND SELLING SHARES
- ---------------
REFERENCE POINT
- ---------------
All Advantus Funds, except the Advantus Money Market Fund and Advantus Real
Estate Securities Fund, offer three classes of shares, Class A, Class B, and
Class C. See "The Fund - Summary - Fees and Expenses."
CHOOSING A SHARE CLASS
You may purchase Class A, Class B or Class C shares of the Fund. Your decision
to purchase a particular class will depend on a number of factors such as the
amount you wish to invest, the amount of time you wish to hold on to your
investment and whether you intend to make additional investments.
CLASS A SHARES. If you invest in Class A shares you will generally pay an
initial sales charge. However, you will not be assessed an initial sales
charge for purchases of Class A shares of $1 million or more, but a deferred
sales charge will be imposed if you sell such shares within one year after
the date of purchase. There are several ways to reduce or waive these sales
charges that are described in "Reducing Sales Charges" below. Class A shares
generally have lower annual operating expenses than Class B and Class C
shares.
CLASS B SHARES. If you invest in Class B shares, you will not pay an initial
sales charge. However, if you wish to sell your shares within six years from
the date of your purchase, you will pay a deferred sales charge. If you
maintain your Class B shares for a certain period of time, your Class B
shares will automatically convert to Class A shares in the manner described
in "Sales and Distribution Charges" below. Class B shares generally have
higher annual operating expenses than Class A shares.
CLASS C SHARES. If you invest in Class C shares, you will not pay an initial
sales charge. Unlike Class B shares, you will not pay a deferred sales
charge if you wish to sell your shares. Class C shares generally have higher
annual operating expenses than Class A shares. Class C shares will
automatically convert to Class A shares in the manner described in "Sales
and Distribution Charges" below, but you must hold on to such shares for a
longer period of time than Class B shares prior to conversion.
If you qualify for a reduction or waiver of the sales charge you should purchase
Class A shares. If you expect to hold shares for a short period of time you may
prefer to purchase Class C shares since these shares may be purchased and sold
without any initial or deferred sales charge. If you expect to hold shares
longer you may prefer to purchase Class B shares since these shares convert to
Class A shares sooner than Class C shares.
SALES AND DISTRIBUTION CHARGES
As an investor, you pay certain fees and expenses in connection with the Fund.
Sales charges are paid from your account. Annual fund operating expenses
(including distribution fees) are paid out of Fund assets, which affects the
Fund's share price.
BUYING AND SELLING SHARES 15
<PAGE>
CLASS A SHARES. If you purchase Class A shares, you will generally pay an
initial sales charge. Class A sales charges are calculated as follows:
<TABLE>
<CAPTION>
SALES CHARGE AS A PERCENTAGE OF:
Value of Your Total Investment Net Offering Price Amount Invested
<S> <C><C> <C>
Less than $50,000 % 5.5 5.82
At least $50,000 but less than
$100,000 4.5 4.71
At least $100,000 but less than
$250,000 3.5 3.63
At least $250,000 but less than
$500,000 2.5 2.56
At least $500,000 but less than
$1,000,000 2.0 2.04
At least $1,000,000 and over(1) 0 0
</TABLE>
(1) You will not be assessed an initial sales charge for purchases of
Class A shares of at least $1 million, but a contingent deferred
sales charge of 1.00% will be imposed if you sell such shares
within one year after the date of purchase.
The sales charge applicable to your initial investment in the Fund depends on
the offering price of your investment. The sales charge applicable to subsequent
investments, however, depends on the offering price of that investment plus the
current net asset value of your previous investments in the Fund. For example,
if you make an initial investment with an offering price of $40,000 you will pay
a sales charge equal to 5.5% of your $40,000 investment, but if you already own
shares with a current net asset value of $40,000 and you invest in additional
shares with an offering price of $10,000 you will pay a sales charge equal to
4.5% of the additional $10,000 since your total investment in the Fund would
then be $50,000.
Class A shares are also subject to a shareholder servicing fee (Rule 12b-1 fee).
The Fund has adopted a shareholder servicing plan that allows the Fund to pay
fees for services provided to shareholders. Because these fees are paid out of
the Fund's assets continuously, over time these fees will increase the cost of
your investment and may cost you more than paying other types of sales charges.
As a percentage of average daily net assets attributable to Class A shares of
the Fund, the maximum Rule 12b-1 fee is 0.25%.
CLASS B SHARES. If you wish to sell your Class B shares within six years from
the date of your purchase, you will pay a contingent deferred sales charge
(CDSC). The amount of the CDSC on Class B shares depends on the number of years
since your purchase was made, the amount of shares originally purchased and the
dollar amount being sold. The CDSC is based on the net asset value (NAV) of the
shares being sold at the time of your purchase or your sale of such shares,
whichever is lower. No CDSC is charged on shares acquired through reinvestment
of dividends or capital gains distributions, or on shares held longer than the
applicable CDSC period. Class B CDSC is calculated as follows:
16 BUYING AND SELLING SHARES
<PAGE>
<TABLE>
<CAPTION>
CDSC APPLICABLE IN
YEAR FOLLOWING DATE OF
PURCHASE
AMOUNT OF SHARES PURCHASED 1 2 3 4 5 6
<S> <C><C> <C> <C> <C> <C> <C>
Less than $50,000 % 5.0 4.5 3.5 2.5 1.5 1.5
At least $50,000 but less than
$100,000 4.5 3.5 2.5 1.5 1.5 0
At least $100,000 but less than
$250,000 3.5 2.5 1.5 1.5 0 0
At least $250,000 but less than
$500,000 2.5 1.5 1.5 0 0 0
At least $500,000 but less than
$1,000,000 1.5 1.5 0 0 0 0
</TABLE>
Purchase orders for Class B shares of $1 million or more will be treated as
orders for Class A shares or declined.
To determine if a CDSC is payable for any redemption of Class B shares, CDSC
calculation will be determined in a manner that results in the lowest CDSC
charged.
Class B shares are also subject to a Rule 12b-1 fee that is payable at an annual
rate of 1.00% of average daily net assets attributable to Class B shares of the
Fund.
The Fund uses the proceeds from the CDSC to pay underwriting fees and expenses.
The Fund uses the proceeds from Rule 12b-1 fees to pay expenses related to
distribution and shareholder services to the Fund. As a result, the combination
of the CDSC and Rule 12b-1 fees allows the Fund to sell Class B shares without
any initial sales charge. Because these fees are paid out of the Fund's assets
continuously, over time these fees will increase the cost of your investment and
may cost you more than paying other types of sales charges.
Class B shares will automatically convert to Class A shares on a specified date
following your date of purchase. Thereafter, the Class A shares you receive upon
conversion will not be subject to the higher annual operating expenses assessed
on Class B shares. The conversion will be based on the relative NAVs of the two
classes. For a description of NAV, see "Buying Shares" below. The date of
conversion is based on the amount of shares purchased and is determined as
described in the following table:
<TABLE>
<CAPTION>
CONVERSION DATE FOLLOWING EXPIRATION
AMOUNT OF SHARES PURCHASED OF PERIOD AFTER DATE OF PURCHASE*
<S> <C>
Less than $50,000 84 months
At least $50,000 but less than $100,000 76 months
At least $100,000 but less than $250,000 60 months
At least $250,000 but less than $500,000 44 months
At least $500,000 but less than $1,000,000 28 months
</TABLE>
* Conversion will occur on the fifteenth day of the month
immediately following the termination of the applicable period. If
the fifteenth day falls on a Saturday, Sunday or a national
holiday, then conversion will occur on the most recent business
day.
BUYING AND SELLING SHARES 17
<PAGE>
CLASS C SHARES. Class C shares are sold without an initial sales charge or CDSC.
Class C shares are subject to a Rule 12b-1 fee that is payable at an annual rate
of 1.00% of average daily net assets attributable to Class C shares of the Fund.
The Fund uses the proceeds from Rule 12b-1 fees to pay expenses related to
distribution and shareholder services to the Fund. Because these fees are paid
out of the Fund's assets continuously, over time these fees will increase the
cost of your investment and may cost you more than paying other types of sales
charges.
Purchase orders for Class C shares of $1 million or more will be treated as
orders for Class A shares or declined.
Class C shares will automatically convert to Class A shares on a specified date
following your date of purchase. Thereafter, the Class A shares you receive upon
conversion will not be subject to the higher annual operating expenses assessed
on Class C shares. The conversion will be based on the relative NAVs of the two
classes. Generally, Class C shares must be held longer than Class B shares
before such shares automatically convert to Class A shares. Like Class B shares,
the date of conversion is based on the amount of shares purchased and is
determined as described in the following table:
<TABLE>
<CAPTION>
CONVERSION DATE FOLLOWING EXPIRATION
AMOUNT OF SHARES PURCHASED OF PERIOD AFTER DATE OF PURCHASE*
<S> <C>
Less than $50,000 96 months
At least $50,000 but less than $100,000 88 months
At least $100,000 but less than $250,000 72 months
At least $250,000 but less than $500,000 56 months
At least $500,000 but less than $1,000,000 40 months
</TABLE>
* Conversion will occur on the fifteenth day of the month
immediately following the termination of the applicable period. If
the fifteenth day falls on a Saturday, Sunday or a national
holiday, then conversion will occur on the most recent business
day.
Since the longer holding period for Class C shares enables the Fund to charge
the higher Rule 12b-1 fee for a longer period, the Fund is able to offer
Class C shares without an initial sales charge or CDSC.
REDUCING SALES CHARGES
PURCHASES OF SHARES. There are several ways you may reduce sales charges on your
purchase of Fund shares.
- LETTER OF INTENT. Lets you purchase Class A shares of the Fund over a 13
month period and receive the same sales charge as if all shares had been
purchased at once.
- COMBINATION PRIVILEGE. Lets you add the value of all shares you already
own (Class A, Class B or Class C) for purposes of calculating the sales
charge.
- FAMILY AND TRUST PRIVILEGE. Lets you combine purchases of shares of any
class made by your spouse, children and/or family trust for purposes of
calculating the sales charge. If you wish to use this privilege, you must
indicate on your account application that you are entitled to the reduced
sales charge.
18 BUYING AND SELLING SHARES
<PAGE>
- GROUP PURCHASES. Lets you purchase shares with others as a group at a
reduced sales charge applicable to the group as a whole. A purchase group
must meet criteria established by Ascend Financial Services, Inc. (Ascend
Financial), the Fund's underwriter.
- AUTOMATIC INVESTMENT PLAN. Lets you automatically invest a specified
amount in the Fund each month, which may result in a lower average cost
per share through the principle of "dollar cost averaging." The automatic
investment plan will not always result in a lower cost per share, nor will
it alone reduce your sales charge.
For more information on any of these plans, please contact Advantus Shareholder
Services by telephone at (800) 665-6005.
WAIVER OF SALES CHARGE ON CLASS A SHARE PURCHASES. Class A shares may be offered
without any sales charge to the following individuals and institutions:
- officers, directors, employees, sales representatives and retirees of the
Fund, Advantus Capital, Ascend Financial, Minnesota Life and affiliated
companies of Minnesota Life, and their respective spouses, siblings,
direct ancestors or direct descendants
- Minnesota Life and its affiliated companies
- trusts, pension or benefit plans sponsored by or on behalf of Advantus
Capital, Ascend Financial, Minnesota Life and affiliated companies of
Minnesota Life
- advisory clients of Advantus Capital or other affiliated companies of
Minnesota Life
- employees of sales representatives of Advantus Capital, Minnesota Life or
affiliated companies of Minnesota Life
- certain accounts as to which a bank or broker-dealer charges an account
management fee, provided that the bank or broker-dealer has an agreement
with Ascend Financial
- certain accounts sold by registered investment advisers
WAIVER OF SALES CHARGES ON CLASS B SHARE SALES. The CDSC for Class B shares will
generally be waived in the following cases:
- upon the automatic conversion of Class B shares to Class A shares;
- upon the Fund's decision to liquidate accounts with less than the minimum
account size; and
- upon a shareholder's death or disability.
For more information on these waivers, please see the Statement of Additional
Information or contact Advantus Shareholder Services or Ascend Financial.
BUYING SHARES
You may purchase shares of the Fund on any day the New York Stock Exchange
(NYSE) is open for business. The price for Fund shares is equal to the Fund's
NAV plus any applicable sales charge. NAV is generally calculated as of the
close of normal trading on the NYSE (typically 3:00 p.m. Central time). However,
NAV is not calculated on (a) days in which
BUYING AND SELLING SHARES 19
<PAGE>
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 for each class is equal to the Fund's total investments
attributable to such class less liabilities attributable to such class divided
by the number of shares of such class. To determine NAV, the Fund generally
values the Fund's investments based on market quotations. If market quotations
are not available for certain Fund investments, the investments are valued based
on the fair value of the investments as determined in good faith by the Fund's
board of directors. Debt securities may be valued based on calculations
furnished to the Fund by a pricing service or by brokers who make a market in
such securities.
Your purchase order will be priced at the next NAV calculated after your
purchase order is received by the Fund's transfer agent plus the applicable
initial sales charge (for Class A shares). If your order is received after the
close of normal trading on the NYSE, your order will be priced at the NAV
calculated on the next day the NYSE is open for trading.
A minimum initial investment of $250 is required, and you may make minimum
subsequent investments of $25. The Fund may reject any purchase order when the
Fund determines it would not be in the best interests of the Fund or its
shareholders.
You may purchase shares of the Fund in any of the following ways:
BY CHECK. New investors may purchase shares of the Fund by sending to the
Fund's transfer agent, PFPC Inc. (PFPC), a completed account
application and a check payable to the Fund at Advantus Funds
Group, P.O. Box 9767, Providence, Rhode Island 02940-5059. If you
wish to purchase additional shares, please send a check payable
to the Fund at the above address (please be sure to write your
account number on your check). Purchase orders may also be
submitted through Ascend Financial or other authorized
broker-dealers.
BY WIRE. New investors may also purchase shares of the Fund by Federal
Reserve or bank wire. You should first complete an account
application and send it to Advantus Funds Group, P.O. Box 9767,
Providence, Rhode Island 02940-5059. Prior to wiring any funds,
you must contact Advantus Shareholder Services at (800) 665-6005
for wire instructions. Wire purchases normally take two or more
hours to complete. To be accepted the same day, wire purchases
must be received by the close of normal trading on the NYSE.
All investments must be in U.S. dollars. Cash, money orders and credit card and
third-party checks are not accepted. If a check does not clear your bank, the
Fund may cancel the purchase.
20 BUYING AND SELLING SHARES
<PAGE>
SELLING SHARES
GENERAL. You may sell your shares at any time. You may make such requests by
contacting the Fund directly by mail or by telephone. Requests by mail should be
sent to Advantus Funds Group, P.O. Box 9767, Providence, Rhode Island
02940-5059. You may also sell your shares by sending a facsimile request to
Advantus Funds Group at (508) 871-3560 if no signature guarantee is required.
Shares will be sold at the NAV next calculated after your sale order is received
by the Fund's transfer agent less any applicable CDSC (for Class A shares
subject to a CDSC and for Class B shares). Class A shares not otherwise subject
to a CDSC and Class C shares may be sold without any charge.
The Fund will forward the sales proceeds to you as soon as possible, but no
later than seven days after the Fund has received an order. If you recently
purchased your shares by check sales proceeds may not be available until your
check has cleared (which may take up to 14 days). If you designate a bank
account with the Fund and wish to sell shares with a value of at least $500,
then the proceeds can be wired directly to your bank account. If you elect to
have proceeds sent by wire transfer, the current $5.00 wire charge will be
deducted from your Fund account.
The amount you receive may be more or less than the original purchase price for
your shares.
MINIMUM ACCOUNT WITHDRAWAL. If you sell some of your shares and the remaining
shares in your account have a value of less than $150, the Fund has the right to
require you to sell your remaining shares and close your account. However, you
will not be required to sell your shares if your account falls below the minimum
due to changes in the market value of your account. You will be given at least
60 days' written notice to add funds to your account and avoid any required
sale.
SYSTEMATIC WITHDRAWAL PLAN. If you have an account with a value of at least
$5,000, you may establish a Systematic Withdrawal Plan which allows you to sell
a portion of your shares for a fixed or variable amount over a period of time.
Withdrawal payments for Class A shares purchased in amounts of $1 million or
more and for Class B shares may also be subject to a CDSC. As a result, you
should carefully consider whether a Systematic Withdrawal Plan is appropriate.
More information about the Systematic Withdrawal Plan is provided in the
Statement of Additional Information.
SIGNATURE GUARANTEE. In order to protect the Fund and shareholders against
fraudulent requests, a signature guarantee may be required in certain cases. No
signature guarantee is required if the sale proceeds are less than $50,000 and
are to be paid to the registered holder of the account at the address of record
for that account. A signature guarantee is required if:
- sale proceeds are $50,000 or more
- sale proceeds will be paid to someone other than the registered
shareholder
- sale proceeds will be mailed to an address other than the registered
shareholder's address of record
- instructions were received by the Fund within 30 days before the sale
order to change the registered shareholder's address or bank wire
instructions
- ---------------
REFERENCE POINT
- ---------------
Please see "Telephone Transactions" for instructions on how to sell shares by
telephone.
See "Selling Shares - Signature Guarantee" below to determine whether your sale
will require a signature guarantee.
BUYING AND SELLING SHARES 21
<PAGE>
- shares are to be transferred to another Fund account holder
- the request is not made by a pre-authorized trustee for a plan, trust or
other tax-exempt organization
The Fund reserves the right to require signature guarantees on all sales. If
your sale order requires a signature guarantee, the signature guarantee must be
an original (not a copy) and provided by any of the following:
- national or state banks, savings associations, savings and loan
associations, trust companies, savings banks, industrial loan companies
and credit unions
- national securities exchanges, registered securities associations and
clearing agencies
- broker-dealers who belong to a national securities exchange or clearing
agency, or who have a minimum net capital of at least $100,000
- institutions that participate in the Securities Transfer Agent Medallion
Program or other recognized signature medallion program
REINSTATEMENT PRIVILEGE. If you sell shares of the Fund, you have a one-time
privilege within 90 days after the sale to use some or all of the sale proceeds
to purchase shares of any of the Advantus Multiple Class Funds or Advantus Real
Estate Securities Fund, Inc. (Real Estate Fund) at no sales charge. Following
your sale of Class A or Class B shares, you will be entitled to purchase only
Class A shares under this reinstatement privilege. Any CDSC incurred in
connection with the prior sale of Class A or B shares within a 90 day period
will not be refunded to a shareholder's account. Following your sale of Class C
shares, you will be entitled to purchase only Class C shares under this
reinstatement privilege.
EXCHANGING SHARES
You may exchange some or all of your shares for shares of the same class of any
other Advantus Multiple Class Fund, Real Estate Fund or Advantus Money Market
Fund, Inc. (Money Market Fund) provided the other Advantus Fund is available in
your state. If you are considering an exchange into another Advantus Fund you
should obtain the prospectus for that fund and read it carefully. Exchanges may
only be made between Advantus Fund accounts with identical registrations. You
may make exchanges by contacting the Fund by mail or by telephone. Exchange
requests must be for an exchange amount of at least $250. You may exchange your
shares up to twelve times a year without restriction or charge. A $7.50 service
fee will then be imposed on subsequent exchanges. The Fund reserves the right to
change the terms of and impose additional limitations and charges on exchanges
after giving 60 days' prior notice to shareholders.
Frequent exchanges may interfere with Fund management or operations and drive up
Fund costs. The Fund is not designed for market timers, or for large or frequent
transfers. To protect shareholders, the Fund may restrict or refuse purchases or
exchanges by market timers. You will be considered to be a market timer if you
have: (i) requested an exchange out of any Advantus Fund within two weeks of an
earlier exchange request, or (ii) exchanged shares out of any Advantus Fund more
than three times in a calendar quarter, or (iii) exchanged shares equal to at
least $1 million, or more than 1% of the net assets of any class of shares of
any Advantus Fund, or (iv) followed what otherwise seems to be a timing pattern
in the exercise of exchange or transfer rights. Accounts under common control or
ownership are combined for the purpose of determining these limitations.
- ---------------
REFERENCE POINT
- ---------------
Please see "Telephone Transactions" for instructions on how to exchange shares
by telephone.
22 BUYING AND SELLING SHARES
<PAGE>
Exchanges will be made based on the NAVs of the shares. No additional purchase
or sales charges will be imposed on exchanges for shares. If Class B shares are
acquired by exchange and later sold, any CDSC on such sale will be calculated as
if no previous exchange occurred. However, shares of the Money Market Fund
acquired by exchange will still be subject to the CDSC. The CDSC will be
calculated without including the period that shares of the Money Market Fund are
held.
You may also elect to systematically exchange Fund shares for shares of other
Advantus Funds on a monthly basis. Systematic exchanges must be for an exchange
amount of at least $25.
More information about exchanging shares is provided in the Statement of
Additional Information.
TELEPHONE TRANSACTIONS
You may sell or exchange Fund shares by telephone. You will automatically have
the right to initiate such telephone transactions unless you elect not to do so
on your account application. You may initiate telephone transactions by calling
Advantus Shareholder Services at (800) 665-6005. Automated service is available
24 hours a day or you may speak to a service representative Monday through
Friday, from 8:00 a.m. to 4:45 p.m. (Central time). The maximum amount of shares
you may sell by telephone is $50,000.
During periods of economic or market changes, you may experience difficulty in
selling or exchanging shares due to a heavy volume of telephone calls. In such a
case, you should consider submitting a written request while still trying a
telephone sale or exchange. The Fund reserves the right to change, terminate or
impose a fee on, telephone sale and exchange privileges after giving 60 days'
prior notice to shareholders.
Unless you decline telephone privileges on your account application, you may be
responsible for any fraudulent telephone order as long as the Fund takes
reasonable measures to verify the order.
- ---------------
REFERENCE POINT
- ---------------
Please see "Selling Shares" and "Exchanging Shares" for sale and exchange
details.
BUYING AND SELLING SHARES 23
<PAGE>
[GRAPHIC]
GENERAL INFORMATION
DIVIDENDS AND CAPITAL GAINS DISTRIBUTIONS
The Fund pays its shareholders dividends from its net investment income, and
distributes any net capital gains that it has realized. Dividends are paid
quarterly and net capital gains distributions are generally paid once a year.
Distributions on Class A shares will generally be higher than Class B and
Class C share distribution due to higher Rule 12b-1 fees applicable to Class B
and Class C shares. Your distributions will be reinvested in additional shares
of the Fund unless you instruct the Fund otherwise. Distributions of these
additional shares are made at the NAV of the payment date. There are no fees or
sales charges on reinvestments. If you wish to receive cash distributions, you
may authorize the Fund to do so in your account application or by writing to
Advantus Shareholder Services. If your cash distribution checks cannot be
delivered by the postal or other delivery service to your address of record, all
distributions will automatically be reinvested in additional shares of the Fund.
No interest will be paid on amounts represented by uncashed distribution checks.
You may elect to have dividends invested in shares of the Money Market Fund or
in shares of the same class of another Advantus Multiple Class Fund described in
"Advantus Family of Funds" below. Dividends are valued at the NAV of such other
Advantus Fund on the dividend payment date. To qualify for this privilege, you
must maintain a minimum account balance of $250 in the Fund and the other
applicable Advantus Fund. You must request this privilege by writing to Advantus
Funds Group, P.O. Box 9767, Providence, Rhode Island 02940-5059.
TAXES
You will be taxed on both dividends and capital gains distributions paid by the
Fund (unless you hold your shares through an IRA or other tax-deferred
retirement account). Dividends and distributions are subject to tax regardless
of whether they are automatically invested or are received in cash. Dividends
paid from the Fund's investment income will be taxed as ordinary income. Capital
gains distributions will be taxed as long-term capital gains, regardless of the
length of time for which you have held your shares. Long-term capital gains are
currently taxable to individuals at a maximum federal tax rate of 20%. If you
purchase shares of the Fund before dividends or capital gains distributions,
such dividends and distributions will reduce the NAV per share by the amount of
such dividends and distributions. Furthermore, you will be subject to taxation
on such dividends and distributions.
If you sell your shares, you will generally realize a capital gain or loss. Any
gain will be treated as short-term if you have held the shares for one year or
less, and long-term if you have held the shares more than one year. Short-term
capital gains are taxed as ordinary income, while long-term capital gains are
subject to a maximum federal tax rate of 20%. If
- --------------------
FOR YOUR INFORMATION
- --------------------
The redemption or exchange of Fund shares may generate a taxable event for you.
Depending on the purchase price and the sale price of the shares you redeem or
exchange, you may incur a gain or loss.
24 GENERAL INFORMATION
<PAGE>
you exchange your shares in the Fund for shares of another Advantus Fund, the
exchange will be treated as a sale for federal tax purposes, and you will be
taxed on any capital gain you realize on the sale.
The Fund makes changes in its portfolio that Advantus Capital deems advisable.
The Fund's portfolio turnover may cause the Fund to realize capital gains which,
when distributed to shareholders, will be taxable to them.
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.
GENERAL INFORMATION 25
<PAGE>
SERVICE PROVIDERS
INVESTMENT ADVISER
Advantus Capital Management, Inc.
400 Robert Street North
St. Paul, Minnesota 55101
(651) 665-3826
UNDERWRITER
Ascend Financial Services, Inc.
400 Robert Street North
St. Paul, Minnesota 55101-2098
(651) 665-4833
(888) 237-1838
SHAREHOLDER AND ADMINISTRATIVE SERVICES AGENT
Advantus Shareholder Services
(a division of Minnesota Life Insurance Company)
(800) 665-6005
TRANSFER AGENT
PFPC Inc.
Advantus Funds Group
P.O. Box 9767
Providence, Rhode Island 02940-5059
CUSTODIAN
Norwest Bank Minnesota, N.A.
Sixth Street and Marquette Avenue
Minneapolis, Minnesota 55479
INDEPENDENT AUDITORS
KPMG LLP
GENERAL COUNSEL
Dorsey & Whitney LLP
26 GENERAL INFORMATION
<PAGE>
ADVANTUS FAMILY OF FUNDS
Enterprise Fund is a member of the Advantus family of funds. The following is a
brief description of the investment objectives, policies and practices of the
Advantus Funds.
HIGHER POTENTIAL
LONG-TERM
RISK AND RETURN
[BEGIN GRAPHIC]
ENTERPRISE
- -------------------------------------------------
Long-term growth through investing primarily in common
stocks issued by small capitalization companies.
VENTURE
- -------------------------------------------------
Long-term growth through investing primarily in stocks of
small capitalization companies deemed by Advantus Capital to
be undervalued relative to their future earnings and growth
potential.
HORIZON
- -------------------------------------------------
Long-term growth combined with a moderate level of current
income through investing primarily in common stocks issued
by mid and large capitalization companies.
INDEX 500
- -------------------------------------------------
Investment results that correspond generally to the S&P 500
Index by investing a significant portion of its portfolio in
common stocks included in the S&P 500 Index.*
CORNERSTONE
- -------------------------------------------------
Long-term growth through investing primarily in stocks of
mid and large capitalization companies deemed by Advantus
Capital to be undervalued relative to their future earnings
and growth potential.
INTERNATIONAL BALANCED
- -------------------------------------------------
Total return through investing primarily in stocks and bonds
of large and small companies located outside the U.S.
REAL ESTATE SECURITIES
- -------------------------------------------------
Total return through investing in real estate and
real-estate related securities.
SPECTRUM
- -------------------------------------------------
Total return from a combination of income and capital
appreciation through investing in a portfolio of stocks,
bonds and money market instruments.
BOND
- -------------------------------------------------
High level of current income by investing primarily in high
quality corporate bonds.
MORTGAGE SECURITIES
- -------------------------------------------------
High level of current income by investing primarily in
mortgage-related securities.
MONEY MARKET
- -------------------------------------------------
High level of current income by investing primarily in money
market securities.
[END GRAPHIC]
LOWER POTENTIAL
LONG-TERM
RISK AND RETURN
*"STANDARD & POOR'S-REGISTERED TRADEMARK-", "S&P 500-REGISTERED TRADEMARK-",
"STANDARD & POOR'S 500", AND "500" ARE REGISTERED TRADEMARKS OF THE MCGRAW-HILL
COMPANIES, INC. AND HAVE BEEN LICENSED FOR USE BY ADVANTUS INDEX 500 FUND, INC.
THE FUND IS NOT SPONSORED, ENDORSED, SOLD OR PROMOTED BY STANDARD & POOR'S AND
STANDARD & POOR'S MAKES NO REPRESENTATION REGARDING THE ADVISABILITY OF
INVESTING IN THE FUND.
AN INVESTMENT IN ANY ADVANTUS FUND WILL BE SUBJECT TO A VARIETY OF RISKS. AS A
RESULT, AN ADVANTUS FUND MAY NOT ALWAYS ACHIEVE ITS INVESTMENT OBJECTIVE.
THIS INFORMATION IS A RESULT OF LONG-TERM RISK AND RETURN EXPECTATIONS USING
VARIOUS INDICES AND ASSET CLASS HISTORIES, AND IS NOT FROM ACTUAL PERFORMANCE.
PLEASE NOTE THAT THE ACTUAL RISK/RETURN FOR AN INVESTMENT IN THE ABOVE ADVANTUS
FUNDS MAY VARY AND THE ABOVE TABLE DOES NOT NECESSARILY INDICATE HOW EACH
ADVANTUS FUND WILL PERFORM IN THE FUTURE.
GENERAL INFORMATION 27
<PAGE>
<TABLE>
<S> <C>
ASCEND FINANCIAL SERVICES, INC. PRESORTED STANDARD
400 ROBERT STREET NORTH U.S. POSTAGE PAID
ST. PAUL, MN 55101-2098 ST. PAUL, MN
PERMIT NO. 3547
ADDRESS SERVICE REQUESTED
</TABLE>
ADDITIONAL INFORMATION ABOUT THE FUND
The Fund's annual and semi-annual reports list
portfolio holdings, and discuss recent market
conditions, economic trends and investment
strategies that affected the Fund during the latest
fiscal year.
A Statement of Additional Information (SAI) provides
further information about the Fund. The current SAI
is on file with the Securities and Exchange
Commission and is incorporated by reference (is
legally part of this Prospectus).
HOW TO OBTAIN ADDITIONAL INFORMATION
The SAI and the Fund's annual and semi-annual
reports are available without charge upon request.
You may obtain additional information or make any
inquiries:
By Telephone - Call (800) 665-6005
By Mail - Write to Advantus Funds Group, P.O. Box
9767, Providence, Rhode Island 02940-5059
Web Site Address - www.advantusfunds.com
Information about the Fund (including the SAI and
annual and semi-annual reports) can be reviewed and
copied at the SEC's Public Reference Room in
Washington, D.C. (telephone 1-202-942-8090). This
information and other reports about the Fund are
also available on the SEC's World Wide Web site at
http://www.sec.gov. Copies of this information may
be obtained by writing to the SEC's Public Reference
Section, Washington, D.C. 20549-0102 or obtained by
electronic request to: [email protected]. You will
be charged a duplicating fee for copies.
Investment Company Act No. 811-8588
[LOGO]
ADVANTUS-TM-
FAMILY OF FUNDS
- -C-1999 Advantus Capital Management, Inc.
All rights reserved.
F. 48219 Rev. 2-2000
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
ADVANTUS HORIZON FUND, INC.
ADVANTUS SPECTRUM FUND, INC.
ADVANTUS MORTGAGE SECURITIES FUND, INC.
ADVANTUS MONEY MARKET FUND, INC.
ADVANTUS BOND FUND, INC.
ADVANTUS CORNERSTONE FUND, INC.
ADVANTUS ENTERPRISE FUND, INC.
ADVANTUS INTERNATIONAL BALANCED FUND, INC.
FEBRUARY 1, 2000
THIS STATEMENT OF ADDITIONAL INFORMATION IS NOT A PROSPECTUS. THIS STATEMENT OF
ADDITIONAL INFORMATION RELATES TO THE SEPARATE PROSPECTUSES DATED FEBRUARY 1,
2000 AND SHOULD BE READ IN CONJUNCTION THEREWITH. A COPY OF EACH PROSPECTUS MAY
BE OBTAINED BY TELEPHONE FROM ADVANTUS SHAREHOLDER SERVICES AT (800) 665-6005
OR BY WRITING TO THE FUNDS AT ADVANTUS FUNDS GROUP, P.O. BOX 9767, PROVIDENCE,
RHODE ISLAND 02940-5059.
THIS STATEMENT OF ADDITIONAL INFORMATION MUST BE ACCOMPANIED OR PRECEDED BY A
COPY OF THE CURRENT PROSPECTUS FOR THE RESPECTIVE FUND.
-1-
<PAGE>
TABLE OF CONTENTS
GENERAL INFORMATION AND HISTORY
INVESTMENT OBJECTIVES AND POLICIES
Equity Securities of Small Capitalization Companies
Debt and Money Market Securities - Advantus Multiple Class Funds
Low Rated Securities
Convertible Securities
Money Market Securities - Money Market Fund
U.S. Government Obligations
Obligations of Non-Domestic Banks
Variable Amount Master Demand Notes
Mortgage-Related Securities
U.S. Government Mortgage-Related Securities
Non-governmental Mortgage-Related Securities
Collateralized Mortgage Obligations
Stripped Mortgage-Backed Securities
Asset-Backed Securities
Direct Investments in Mortgages - Whole Loans
Foreign Securities
Currency Exchange Transactions
Foreign Currency Hedging Transactions
Closed-End Investment Companies
Loans of Portfolio Securities
Restricted and Illiquid Securities
When-Issued Securities and Forward Commitments
Mortgage Dollar Rolls
Repurchase Agreements
Reverse Repurchase Agreements
Futures Contracts
Options - Horizon Fund, Cornerstone Fund and Enterprise Fund
Options - Mortgage Securities Fund
Options - Spectrum Fund and Bond Fund
Warrants
Warrants with Cash Extractions
Index Depositary Receipts
Short Sales Against the Box
Investments in Russia
Defensive Purposes
INVESTMENT RESTRICTIONS
Horizon Fund
Spectrum Fund
Mortgage Securities Fund
Money Market Fund
Bond Fund
Cornerstone Fund and Enterprise Fund
International Fund
Additional Investment Restrictions
All Funds
PORTFOLIO TURNOVER
DIRECTORS AND EXECUTIVE OFFICERS
DIRECTOR LIABILITY
INVESTMENT ADVISORY AND OTHER SERVICES
General
Control and Management of Advantus Capital and Ascend Financial
Investment Advisory Agreement
International Fund Sub-Adviser - Templeton Counsel
International Fund Investment Sub-Advisory Agreement - Templeton
Counsel
Distribution Agreement
Payment of Certain Distribution Expenses of the Funds
Transfer Agent and Administrative Services
MONEY MARKET FUND AMORTIZED COST METHOD
OF PORTFOLIO VALUATION
-2-
<PAGE>
PORTFOLIO TRANSACTIONS AND ALLOCATION OF BROKERAGE
Horizon Fund, Spectrum Fund, Cornerstone Fund and Enterprise Fund
Mortgage Securities Fund and Bond Fund
Money Market Fund
International Fund
Generally
CALCULATION OF PERFORMANCE DATA
Money Market Fund
Advantus Multiple Class Funds
CAPITAL STOCK AND OWNERSHIP OF SHARES
HOW TO BUY SHARES
SALES CHARGES
Class A Shares
Class B Shares
Class C Shares
Other Payments to Broker-Dealers
NET ASSET VALUE AND PUBLIC OFFERING PRICE
REDUCED SALES CHARGES
Right of Accumulation-Cumulative Purchase Discount
Letter of Intent
Combining Purchases
Group Purchases
Waiver of Sales Charges For Certain Sales of Class A Shares
EXCHANGE AND TRANSFER OF FUND SHARES
Systematic Exchange Plan
SHAREHOLDER SERVICES
Open Accounts
Automatic Investment Plan
Group Systematic Investment Plan
Retirement Plans Offering Tax Benefits
Systematic Withdrawal Plans
REDEMPTIONS
Signature Guarantee
Contingent Deferred Sales Charge
Telephone Redemption
Delay in Payment of Redemption Proceeds
Fund's Right to Redeem Small Accounts
Checkwriting
Automatic Premium Payments
Reinstatement Privilege
TELEPHONE TRANSACTIONS
DISTRIBUTIONS AND TAX STATUS
Dividends and Capital Gains Distributions
Taxation - General
Taxation on Portfolio Holdings
FINANCIAL STATEMENTS
Appendix A - Mortgage-Related Securities
Appendix B - Bond and Commercial Paper Ratings
Appendix C - Futures Contracts
-3-
<PAGE>
GENERAL INFORMATION AND HISTORY
Advantus Horizon Fund, Inc. ("Horizon Fund"), Advantus Spectrum Fund,
Inc. ("Spectrum Fund"), Advantus Mortgage Securities Fund, Inc. ("Mortgage
Securities Fund"), Advantus Money Market Fund, Inc. ("Money Market Fund"),
Advantus Bond Fund, Inc. ("Bond Fund"), Advantus Cornerstone Fund, Inc.
("Cornerstone Fund"), Advantus Enterprise Fund, Inc. ("Enterprise Fund") and
Advantus International Balanced Fund, Inc. ("International Fund"),
collectively referred to as the "Funds," are open-end diversified management
investment companies, commonly called mutual funds. The Funds, together with
three other mutual funds which share the same investment adviser, are members
of a family of mutual funds known as the "Advantus Funds." Each of the
Advantus Funds, excluding Money Market Fund and Advantus Real Estate
Securities Fund, Inc. ("Real Estate Fund"), offers more than one class of
shares (the "Advantus Multiple Class Funds"). The Advantus Multiple Class
Funds currently offer three classes of shares (Class A, Class B and Class C).
Real Estate Fund currently offers one class of shares (Class A). Each class
is sold pursuant to different sales arrangements and bears different
expenses. The Funds are incorporated as Minnesota corporations. Horizon
Fund, Spectrum Fund, Mortgage Securities Fund and Money Market Fund were
incorporated in October 1984. Bond Fund was incorporated in January 1987,
and Cornerstone Fund, Enterprise Fund and International Fund were
incorporated in January 1994.
INVESTMENT OBJECTIVES AND POLICIES
The investment objectives and principal investment policies of each of
the Funds are set forth in the text of each Fund's Prospectus under
"Investing in the Fund Investment Policies and Practices." This section
contains detailed descriptions of the investment policies of the Funds as
summarized in each Fund's Prospectus.
EQUITY SECURITIES OF SMALL CAPITALIZATION COMPANIES
Enterprise Fund will primarily invest in equity securities issued by small
capitalization companies. Small capitalization companies may be in a relatively
early stage of development or may produce goods and services which have
favorable prospects for growth due to increasing demand or developing markets.
Frequently, such companies have a small management group and single product or
product-line expertise that may result in an enhanced entrepreneurial spirit and
greater focus which allow such firms to be successful. The Fund's investment
adviser believes that such companies may develop into significant business
enterprises and that an investment in such companies offers a greater
opportunity for capital appreciation than an investment in larger more
established entities. However, small capitalization companies frequently retain
a large part of their earnings for research, development and investment in
capital assets, so that the prospects for immediate dividend income are limited.
While securities issued by smaller capitalization companies have
historically produced better market results than the securities of larger
issuers, there is no assurance that they will continue to do so or that the Fund
will invest specifically in those companies which produce those results.
Because of the risks involved, the Fund is not intended to constitute a complete
investment program.
DEBT AND MONEY MARKET SECURITIES - ADVANTUS MULTIPLE CLASS FUNDS
Each of Horizon Fund, Spectrum Fund, Mortgage Securities Fund, Bond Fund,
Enterprise Fund, Cornerstone Fund and International Fund may invest in long,
intermediate and short-term debt securities from various industry
classifications and money market instruments. Such instruments may include the
following:
-4-
<PAGE>
Corporate obligations which at the time of purchase are rated within the
four highest grades assigned by Standard & Poor's Corporation ("S&P"),
Moody's Investors Services, Inc. ("Moody's") or any other national
rating service, or, if not rated, are of equivalent investment quality
as determined by the Fund's investment adviser or sub-adviser, as the
case may be. To the extent that the Fund invests in securities rated
BBB or Baa by S&P or Moody's, respectively, it will be investing in
securities which have speculative elements. As an operating policy,
International Fund will not invest more than 5% of its assets in debt
securities rated BBB by S&P or Baa by Moody's. In addition, Spectrum
Fund, Bond Fund and Mortgage Securities Fund may also invest up to 5% of
their respective net assets in securities rated BB or Ba by S&P or
Moody's, respectively, and Cornerstone Fund may also invest up to 10% of
its net assets in securities (including convertible securities) rated at
least B- by S&P or by B3 by Moody's. See "Low Rated Securities," below.
For a description of the ratings used by Moody's and S&P, see Appendix
B ("Bond and Commercial Paper Ratings") below.
Obligations of, or guaranteed by, the U.S. Government, its agencies or
instrumentalities.
Debt obligations of banks.
Bond Fund may also purchase U.S. dollar denominated debt securities of
foreign governments and companies which are publicly traded in the United States
and rated within the four highest grades assigned by S&P or Moody's.
In addition to the instruments described above, which will generally be
long-term, but may be purchased by the Fund within one year of the date of a
security's maturity, the Fund may also purchase other high quality securities
including:
Obligations (including certificates of deposit and bankers acceptances)
of U.S. banks, savings and loan associations, savings banks which have
total assets (as of the date of their most recent annual financial
statements at the time of investment) of not less than $2,000,000,000;
U.S. dollar denominated obligations of Canadian chartered banks, London
branches of U.S. banks and U.S. branches or agencies of foreign banks
which meet the above-stated asset size; and obligations of any U.S.
banks, savings and loan associations and savings banks, regardless of
the amount of their total assets, provided that the amount of the
obligations purchased does not exceed $100,000 for any one U.S. bank,
savings and loan association or savings bank and the payment of the
principal is insured by the Federal Deposit Insurance Corporation or the
Federal Savings and Loan Insurance Corporation.
Obligations of the International Bank for Reconstruction and Development.
Commercial paper (including variable amount master demand notes) issued
by U.S. corporations or affiliated foreign corporations and rated (or
guaranteed by a company whose commercial paper is rated) at the date of
investment Prime-1 by Moody's or A-1 by S&P or, if not rated by either
Moody's or S&P, issued by a corporation having an outstanding debt issue
rated Aa or better by Moody's or AA or better by S&P and, if issued by
an affiliated foreign corporation, such commercial paper (not to exceed
in the aggregate 10% of such Fund's (other than Mortgage Securities
Fund's) net assets) is U.S. dollar denominated and not subject at the
time of purchase to foreign tax withholding.
The Fund may also invest in securities which are unrated if the Fund's
investment adviser or sub-adviser, as the case may be, determines that such
securities are of equivalent investment quality to the rated securities
described above. In the case of "split-rated" securities, which result when
nationally-recognized rating agencies rate the security at different rating
levels (e.g., BBB by S&P and Ba by Moody's), it is the Fund's general policy to
classify such securities at the higher rating level where, in the judgment of
the Fund's investment adviser or sub-adviser, such classification reasonably
reflects the security's quality and risk.
-5-
<PAGE>
The market value of debt securities generally varies in response to changes
in interest rates and the financial condition of each issuer. During periods of
declining interest rates, the value of debt securities generally increases.
Conversely, during periods of rising interest rates, the value of such
securities generally declines. These changes in market value will be reflected
in each Fund's net asset value.
These Funds may, however, acquire debt securities which, after acquisition,
are down-graded by the rating agencies to a rating which is lower than the
applicable minimum rating described above. In such an event it is the Funds'
general policy to dispose of such down-graded securities except when, in the
judgment of the Funds' investment adviser or sub-adviser, it is to the Funds'
advantage to continue to hold such securities. In no event, however, will any
Fund hold in excess of 5% of its net assets in securities which have been
down-graded subsequent to purchase where such down-graded securities are not
otherwise eligible for purchase by the Fund. This 5% is in addition to
securities which the Fund may otherwise purchase under its usual investment
policies.
LOW RATED SECURITIES
Spectrum Fund, Mortgage Securities Fund and Bond Fund may also invest up
to 5% of their respective net assets in corporate bonds and mortgage-related
securities, which, at the time of acquisition, are rated BB or Ba by S&P or
Moody's, respectively, or rated at a comparable level by another independent
publicly-recognized rating agency, or, if not rated, are of equivalent
investment quality as determined by the Fund's investment adviser or
sub-adviser, as the case may be. Cornerstone Fund may also invest up to 10%
of its net asset in debt securities (including convertible securities) which
are rated at least B- by S&P or B3 by Moody's, or rated at a comparable level
by another independent publicly-recognized rating agency, or, if not rated,
are of equivalent investment quality as determined by the Fund's investment
adviser. Each of these Funds may also hold an additional 5% of its net assets
in securities rated below "investment grade" (i.e. below BBB) where such
securities were either investment grade or eligible low rated securities at
the time of purchase but subsequently down-graded to a rating not otherwise
eligible for purchase by the Fund (see "Debt and Money Market Securities -
Advantus Multiple Class Funds" above). Debt securities rated below the four
highest categories (i.e., below BBB) are not considered investment grade
obligations and are commonly called "junk bonds." These securities are
predominately speculative and present more credit risk than investment grade
obligations. Bonds rated below BBB are also regarded as predominately
speculative with respect to the issuer's continuing ability to meet principal
and interest payments.
Low rated and unrated debt securities generally involve greater volatility
of price and risk of principal and income, including the possibility of default
by, or bankruptcy of, the issuers of the securities. In addition, the markets
in which low rated and unrated debt securities are traded are more limited than
those in which higher rated securities are traded. The existence of limited
markets for particular securities may diminish the Funds' ability to sell the
securities at fair value either to meet redemption requests or to respond to
changes in the economy or in the financial markets and could adversely affect
and cause fluctuations in the daily net asset value of the Funds' shares.
Adverse publicity and investor perceptions, whether or not based on
fundamental analysis, may decrease the values and liquidity of low rated debt
securities, especially in a thinly traded market. Analysis of the
creditworthiness of issuers of low rated debt securities may be more complex
than for issuers of higher rated securities, and the ability of the Funds to
achieve their respective investment objective may, to the extent of investment
in low rated debt securities, be more dependent upon such creditworthiness
analysis than would be the case if the Funds were investing in higher rated
securities.
-6-
<PAGE>
Low rated debt securities may be more susceptible to real or perceived
adverse economic and competitive industry conditions than investment grade
securities. The prices of low rated debt securities have been found to be less
sensitive to interest rate changes than higher rated investments, but more
sensitive to adverse economic downturns or individual corporate developments. A
projection of an economic downturn or of a period of rising interest rates, for
example, could cause a decline in low rated debt securities prices because the
advent of a recession could lessen the ability of a highly leveraged company to
make principal and interest payments on its debt securities. If the issuer of
low rated debt securities defaults, the Funds may incur additional expenses to
seek recovery. The low rated bond market is relatively new, and many of the
outstanding low rated bonds have not endured a major business recession.
CONVERTIBLE SECURITIES
Cornerstone Fund, Enterprise Fund and Horizon Fund may invest in debt or
preferred equity securities convertible into or exchangeable for equity
securities. Traditionally, convertible securities have paid dividends or
interest at rates higher than common stocks but lower than non-convertible
securities. They generally participate in the appreciation or depreciation
of the underlying stock into which they are convertible, but to a lesser
degree. The total return and yield of lower quality (high yield/high risk)
convertible bonds can be expected to fluctuate more than the total return and
yield of higher quality, shorter-term bonds, but not as much as common
stocks. Enterprise Fund and Horizon Fund will each limit its purchase of
convertible debt securities to those that, at the time of purchase, are rated
at least BBB or Baa by S&P or Moody's, respectively, or it not rated by S&P
or Moody's, are of equivalent investment quality as determined by the Fund's
investment adviser. Cornerstone Fund will limit its purchase of convertible
debt securities to those that, at the time of purchase, are rated at least B-
by S&P or B3 by Moody's, or if not rated by S&P or Moody's, are of equivalent
investment quality as determined by the Fund's investment adviser.
MONEY MARKET SECURITIES - MONEY MARKET FUND
Subject to the limitations under Rule 2a-7 of the Investment Company Act of
1940 (as described in "Investment Restrictions - Money Market Fund" below),
Money Market 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.
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.
-7-
<PAGE>
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. Some obligations of U.S. Government agencies,
authorities and other instrumentalities are supported by the full faith and
credit of the U.S. Treasury, such as securities of the Government National
Mortgage Association and the Student Loan Marketing Association; others by the
right of the issuer to borrow from the U.S. Treasury, such as securities of the
Federal Financing Bank and the U.S. Postal Service; and others only by the
credit of the issuing agency, authority or other instrumentality, such as
securities of the Federal Home Loan Bank and the Federal National Mortgage
Association ("FNMA").
OBLIGATIONS OF NON-DOMESTIC BANKS
Money Market Fund and the Advantus Multiple Class Funds 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 such
Funds invest, but may also involve investment risks in addition to any risks
associated with direct obligations of domestic banks. These additional risks
include future political and economic developments, the possible imposition of
withholding taxes on interest income payable on such obligations, the possible
seizure or nationalization of foreign deposits, the possible establishment of
exchange controls or the adoption of other governmental restrictions, as well as
market and other factors which may affect the market for or the liquidity of
such obligations. Generally, Canadian chartered banks, London branches of U.S.
banks, and U.S. branches and agencies of foreign banks are subject to fewer U.S.
regulatory restrictions than those applicable to domestic banks, and London
branches of U.S. banks may be subject to less stringent reserve requirements
than domestic branches. Canadian chartered banks, U.S. branches and agencies of
foreign banks, and London branches of U.S. banks may provide less public
information than, and may not be subject to the same accounting, auditing and
financial recordkeeping standards as, domestic banks. The Fund will not invest
more than 25% of its total assets in obligations of Canadian chartered banks,
London branches of U.S. banks, and U.S. branches and agencies of foreign banks.
VARIABLE AMOUNT MASTER DEMAND NOTES
Money Market 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 Money Market 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.
-8-
<PAGE>
MORTGAGE-RELATED SECURITIES
Spectrum Fund, Bond Fund and Mortgage Securities Fund may invest in
mortgage-related securities (including securities which represent interests in
pools of mortgage loans) issued by government (some of which may be U.S.
Government agency issued or guaranteed securities as described herein) and
non-government entities such as banks, mortgage lenders or other financial
institutions. These securities may include both collateralized mortgage
obligations and stripped mortgage-backed securities. Mortgage loans are
originated and formed into pools by various organizations, including the
Government National Mortgage Association ("GNMA"), the Federal National Mortgage
Association ("FNMA"), the Federal Home Loan Mortgage Corporation ("FHLMC") and
various private organizations including commercial banks and other mortgage
lenders. Payments on mortgage-related securities generally consist of both
principal and interest, with occasional repayments of principal due to
refinancings, foreclosures or certain other events. Some mortgage-related
securities, such as collateralized mortgage obligations, make payments of both
principal and interest at a variety of intervals. Certain mortgage-related
securities, such as GNMA securities, entitle the holder to receive such
payments, regardless of whether or not the mortgagor makes loan payments;
certain mortgage-related securities, such as FNMA securities, guarantee the
timely payment of interest and principal; certain mortgage-related securities,
such as FHLMC securities, guarantee the timely payment of interest and ultimate
collection of principal; and certain mortgage-related securities contain no such
guarantees but may offer higher rates of return. No mortgage-related securities
guarantee the Fund's yield or the price of its shares.
The Fund expects its investments in mortgage-related securities to be
primarily in high-grade mortgage-related securities either (a) issued by GNMA,
FNMA or FHLMC or other United States Government owned or sponsored corporations
or (b) rated A or better by S&P or Moody's, or rated at a comparable level by
another independent publicly-recognized rating agency, or, if not rated, are of
equivalent investment quality as determined by the Fund's investment adviser or
sub-adviser, as the case may be. The Fund may invest in mortgage-related
securities rated BBB or Baa by S&P or Moody's, respectively, or rated at a
comparable level by another independent publicly-recognized rating agency, or,
if not rated, are of equivalent investment quality as determined by the Fund's
investment adviser or sub-adviser, as the case may be, when deemed by the Fund's
investment adviser or sub-adviser to be consistent with the Fund's respective
objective. To the extent that the Fund invests in securities rated BBB or Baa
by S&P or Moody's, respectively, it will be investing in securities which have
speculative elements. Mortgage Securities Fund may not invest more than 35% of
its total assets in securities rated BBB or Baa by S&P or Moody's, respectively.
For further information about the characteristics and risks of mortgage-related
securities, and for a description of the ratings used by Moody's and S&P, see
Appendix A and B ("Mortgage-Related Securities" and "Bond and Commercial Paper
Ratings") below.
U.S. GOVERNMENT MORTGAGE-RELATED SECURITIES
A governmental (i.e., backed by the full faith and credit of the U.S.
Government) guarantor of mortgage-related securities is GNMA. GNMA is a
wholly-owned U.S. Government corporation within the Department of Housing and
Urban Development. GNMA is authorized to guarantee, with the full faith and
credit of the U.S. Government, the timely payment of principal and interest on
securities issued by institutions approved by GNMA (such as savings and loan
institutions, commercial banks and mortgage bankers) and backed by pools of
FHA-insured or VA-guaranteed mortgages.
Government-related (i.e., not backed by the full faith and credit of the
U.S. Government) guarantors include FNMA and FHLMC. FNMA is a
government-sponsored corporation owned entirely by private stockholders. It is
subject to general regulation by the Secretary of Housing and Urban Development.
FNMA purchases residential mortgages from a list of approved seller/servicers
which include state and federally-chartered savings and loan associations,
mutual savings banks, commercial banks and credit unions and mortgage bankers.
Pass-through securities issued by FNMA are guaranteed as to timely payment of
principal and interest by FNMA but are not backed by the full faith and credit
of the U.S. Government.
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FHLMC is a corporate instrumentality of the U.S. Government and was created
by Congress in 1970 for the purpose of increasing the availability of mortgage
credit for residential housing. Its stock is publicly traded. FHLMC issues
Participation Certificates ("PCs") which represent interests in mortgages from
FHLMC's national portfolio. FHLMC guarantees the timely payment of interest and
principal on most PCs. There are some PCs, however, on which FHLMC guarantees
the timely payment of interest but only the ultimate payment of principal. PCs
are not backed by the full faith and credit of the U.S. Government.
NON-GOVERNMENTAL MORTGAGE-RELATED SECURITIES
Mortgage Securities Fund may invest in non-governmental mortgage-related
securities. Commercial banks, savings and loan institutions, private mortgage
insurance companies, mortgage bankers and other secondary market issuers also
create pass-through pools of conventional residential and commercial mortgage
loans. Such issuers may in addition be the originators and servicers of the
underlying mortgage loans as well as the guarantors of the mortgage-related
securities. Pools created by such non-governmental issuers generally offer a
higher rate of interest than government and government-related pools because
there are no direct or indirect government guarantees of payments in the former
pools. However, timely payment of interest and principal of these pools is
supported by various forms of insurance, guarantees and credit enhancements,
including individual loan, title, pool and hazard insurance. The insurance and
guarantees are issued by government entities, private insurers and the mortgage
poolers. Such insurance and guarantees and the creditworthiness of the issuers
thereof will be considered in determining whether a mortgage-related security
meets the Fund's investment quality standards. There can be no assurance that
the private insurers can meet their obligations under the policies. The Fund
may buy mortgage-related securities without insurance or guarantees if through
an examination of the loan experience and practices of the poolers the Fund's
investment adviser determines that the securities meet the Fund's quality
standards. Although the market for such securities is becoming increasingly
liquid, securities issued by certain private organizations may not be readily
marketable. The Fund will not purchase mortgage-related securities or any other
assets which in its investment adviser's opinion are illiquid if, as a result,
more than 10% of the value of the Fund's net assets will be illiquid.
COLLATERALIZED MORTGAGE OBLIGATIONS
Spectrum Fund, Bond Fund and Mortgage Securities Fund may invest in
collateralized mortgage obligations ("CMOs"), in which several different series
of bonds or certificates secured by pools of mortgage-backed securities or
mortgage loans, are issued. The series differ from each other in terms of the
priority rights which each has to receive cash flows with the CMO from the
underlying collateral. Each CMO series may also be issued in multiple classes.
Each class of a CMO series, often referred to as a "tranche," is usually issued
at a specific coupon rate and has a stated maturity. The underlying security
for the CMO may consist of mortgage-backed securities issued or guaranteed by
U.S. Government agencies or whole loans. CMOs backed by U.S. Government agency
securities retain the credit quality of such agency securities and therefore
present minimal credit risk. CMOs backed by whole loans typically carry various
forms of credit enhancements to protect against credit losses and provide
investment grade ratings. Unlike traditional mortgage pass-through securities,
which simply pass through interest and principal on a pro rata basis as
received, CMOs allocate the principal and interest from the underlying mortgages
among the several classes or tranches of the CMO in many ways. All residential,
and some commercial, mortgage-related securities are subject to prepayment risk.
A CMO does not eliminate that risk, but, by establishing an order of priority
among the various tranches for the receipt and timing of principal payments, it
can reallocate that risk among the tranches. Therefore, the stream of payments
received by a CMO bondholder may differ dramatically from that received by an
investor holding a traditional pass-through security backed by the same
collateral.
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In the traditional form of CMO, interest is paid currently on all tranches
but principal payments are applied sequentially to retire each tranche in order
of stated maturity. Traditional sequential payment CMOs have evolved into
numerous more flexible forms of CMO structures which can vary frequency of
payments, maturities, prepayment risk and performance characteristics. The
differences between these new types of CMOs relate primarily to the manner in
which each varies the amount and timing of principal and interest received by
each tranche from the underlying collateral. Under all but the sequential
payment structures, specific tranches of CMOs have priority rights over other
tranches with respect to the amount and timing of cash flow from the underlying
mortgages.
The primary risk associated with any mortgage security is the uncertainty
of the timing of cash flows; specifically, uncertainty about the possibility of
either the receipt of unanticipated principal in falling interest rate
environments (prepayment or call risk) or the failure to receive anticipated
principal in rising interest rate environments (extension risk). In a CMO, that
uncertainty may be allocated to a greater or lesser degree to specific tranches
depending on the relative cash flow priorities of those tranches. By
establishing priority rights to receive and reallocate payments of prepaid
principal, the higher priority tranches are able to offer better call protection
and extension protection relative to the lower priority classes in the same CMO.
For example, when insufficient principal is received to make scheduled principal
payments on all tranches, the higher priority tranches receive their scheduled
premium payments first and thus bear less extension risk than lower priority
tranches. Conversely, when principal is received in excess of scheduled
principal payments on all tranches (call risk), the lower priority tranches are
required to receive such excess principal until they are retired and thus bear
greater prepayment risk than the higher priority tranches. Therefore, depending
on the type of CMO purchased, an investment may be subject to a greater or
lesser risk of prepayment, and experience a greater or lesser volatility in
average life, yield, duration and price, than other types of mortgage-related
securities. A CMO tranche may also have a coupon rate which resets periodically
at a specified increment over an index. These floating rate CMOs are typically
issued with lifetime caps on the level to which the floating coupon rate is
allowed to rise. The Fund may invest in such securities, usually subject to a
cap, provided such securities satisfy the same requirements regarding cash flow
priority applicable to the Fund's purchase of CMOs generally. CMOs are
typically traded over the counter rather than on centralized exchanges. Because
CMOs of the type purchased by the Fund tend to have relatively more predictable
yields and are relatively less volatile, they are also generally more liquid
than CMOs with greater prepayment risk and more volatile performance profiles.
Spectrum Fund, Bond Fund and Mortgage Securities Fund may also purchase
CMOs known as "accrual" or "Z" bonds. An accrual or Z bond holder is not
entitled to receive cash payments until one or more other classes of the CMO
have been paid in full from payments on the mortgage loans underlying the CMO.
During the period in which cash payments are not being made on the Z tranche,
interest accrues on the Z tranche at a stated rate, and this accrued interest is
added to the amount of principal which is due to the holder of the Z tranche.
After the other classes have been paid in full, cash payments are made on the Z
tranche until its principal (including previously accrued interest which was
added to principal, as described above) and accrued interest at the stated rate
have been paid in full. Generally, the date upon which cash payments begin to
be made on a Z tranche depends on the rate at which the mortgage loans
underlying the CMO are prepaid, with a faster prepayment rate resulting in an
earlier commencement of cash payments on the Z tranche. Like a zero coupon
bond, during its accrual period the Z tranche of a CMO has the advantage of
eliminating the risk of reinvesting interest payments at lower rates during a
period of declining market interest rates. At the same time, however, and also
like a zero coupon bond, the market value of a Z tranche can be expected to
fluctuate more widely with changes in market interest rates than would the
market value of a tranche which pays interest currently. Changes in market
interest rates also can be expected to influence prepayment rates on the
mortgage loans underlying the CMO of which a Z tranche is a part. As noted
above, such changes in prepayment rates will affect the date at which cash
payments begin to be made on a Z tranche, and therefore also will influence its
market value. As an operating policy, Spectrum Fund, Mortgage Securities Fund
and Bond Fund will not purchase a Z bond if the respective Fund's aggregate
investment in Z bonds which are then still in their accrual periods would exceed
20% of the Fund's total assets (Z bonds which have begun to receive cash
payments are not included for purposes of this 20% limitation).
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Spectrum Fund, Bond Fund and Mortgage Securities Fund may also invest in
inverse or reverse floating CMOs. Inverse or reverse floating CMOs
constitute a tranche of a CMO with a coupon rate that moves in the reverse
direction to an applicable index. Accordingly, the coupon rate will increase
as interest rates decrease. The Fund would be adversely affected, however,
by the purchase of such CMOs in the event of an increase in interest rates
since the coupon rate will decrease as interest rates increase, and, like
other mortgage-related securities, the value will decrease as interest rates
increase. Inverse or reverse floating rate CMOs are typically more volatile
than fixed or floating rate tranches of CMOs, and usually carry a lower cash
flow priority. As an operating policy, Spectrum Fund, Bond Fund and Mortgage
Securities Fund will treat inverse floating rate CMOs as illiquid and,
therefore, will limit its investments in such securities, together with all
other illiquid securities, to 10% of such Fund's net assets.
STRIPPED MORTGAGE-BACKED SECURITIES
Spectrum Fund, Bond Fund and Mortgage Securities Fund may invest in
stripped mortgage-backed securities. Stripped mortgage-backed securities
represent undivided ownership interests in a pool of mortgages, the cash flow of
which has been separated into its interest and principal components. "IOs"
(interest only securities) receive the interest portion of the cash flow while
"POs" (principal only securities) receive the principal portion. Stripped
mortgage-backed securities may be issued by U.S. Government agencies or by
private issuers. As interest rates rise and fall, the value of IOs tends to
move in the same direction as interest rates, unlike other mortgage-backed
securities (which tend to move in the opposite direction compared to interest
rates). Under the Internal Revenue Code of 1986, as amended, POs may generate
taxable income from the current accrual of original issue discount, without a
corresponding distribution of cash to the Fund.
The cash flows and yields on standard IO and PO classes are extremely
sensitive to the rate of principal payments (including prepayments) on the
related underlying mortgage assets. For example, a rapid or slow rate of
principal payments may have a material adverse effect on the performance and
prices of IOs or POs, respectively. If the underlying mortgage assets
experience greater than anticipated prepayments of principal, an investor may
fail to recoup fully its initial investment in an IO class of a stripped
mortgage-backed security, even if the IO class is rated AAA or Aaa or is derived
from a full faith and credit obligation (i.e., a GNMA). Conversely, if the
underlying mortgage assets experience slower than anticipated prepayments of
principal, the price on a PO class will be affected more severely than would be
the case with a traditional mortgage-backed security, but unlike IOs, an
investor will eventually recoup fully its initial investment provided no default
of the guarantor occurs. As an operating policy, the Fund will limit its
investments in IOs and POs to 10% of the Fund's net assets, and will treat them
as illiquid securities (which, in the aggregate, may not exceed 10% of each
Fund's net assets) except to the extent such securities are deemed liquid by the
Fund's adviser in accordance with standards established by the Fund's Board of
Directors. See "Restricted and Illiquid Securities" below.
ASSET-BACKED SECURITIES
Bond Fund may invest in asset-backed securities rated within the four
highest grades assigned by Moody's or S&P, or, if not rated, are of equivalent
investment quality as determined by the Fund's investment adviser. These
securities usually represent interests in pools of consumer loans (typically
trade, credit card or automobile receivables). The credit quality of most
asset-backed securities depends primarily on the credit quality of the assets
underlying such securities, how well the entity issuing the security is
insulated from the credit risk of the originator or any other affiliated
entities, the quality of the servicing of the receivables, and the amount and
quality of any credit support provided to the securities. The rate of principal
payment on asset-backed securities may depend on the rate of principal payments
received on the underlying assets which in turn may be affected by a variety of
economic and other factors. As a result, the yield on any asset-backed security
may be difficult to predict with precision and actual yield to maturity may be
more or less than the anticipated yield to maturity. Some asset-backed
transactions are structured with a "revolving period" during which the principal
balance of the asset-backed security is maintained at a fixed level, followed by
a period of rapid repayment. This structure is intended to insulate holders of
the asset-backed security from prepayment risk to a significant extent.
Asset-backed securities may be classified as pass-through certificates or
collateralized obligations.
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Pass-through certificates are asset-backed securities which represent an
undivided fractional ownership interest in an underlying pool of assets.
Pass-through certificates usually provide for payments of principal and interest
received to be passed through to their holders, usually after deduction for
certain costs and expenses incurred in administering the pool. Because
pass-through certificates represent an ownership interest in the underlying
assets, the holders thereof bear directly the risk of any defaults by the
obligors on the underlying assets not covered by any credit support.
Asset-backed securities issued in the form of debt instruments, also known
as collateralized obligations, are generally issued as the debt of a special
purpose entity organized solely for the purpose of owning such assets and
issuing such debt. The assets collateralizing such asset-backed securities are
pledged to a trustee or custodian for the benefit of the holders thereof. Such
issuers generally hold no assets other than those underlying the asset-backed
securities and any credit support provided. As a result, although payments on
such asset-backed securities are obligations of the issuers, in the event of
defaults on the underlying assets not covered by any credit support, the issuing
entities are unlikely to have sufficient assets to satisfy their obligations on
the related asset-backed securities.
To lessen the effect of failures by obligors on underlying assets to make
payments, such securities may contain elements of credit support. Such credit
support falls into two classes: liquidity protection and protection against
ultimate default by an obligor on the underlying assets. Liquidity protection
refers to the provision of advances, generally by the entity administering the
pool of assets, to ensure that scheduled payments on the underlying pool are
made in a timely fashion. Protection against ultimate default ensures ultimate
payment of the obligations on at least a portion of the assets in the pool.
Such protection may be provided through guarantees, insurance policies or
letters of credit obtained from third parties, through various means of
structuring the transaction or through a combination of such approaches.
DIRECT INVESTMENTS IN MORTGAGES - WHOLE LOANS
Mortgage Securities Fund may invest up to 10% of the value of its net
assets directly in mortgages securing residential or commercial real estate
(i.e., the Fund becomes the mortgagee). Such investments are not
"mortgage-related securities" as described above. They are normally available
from lending institutions which group together a number of mortgages for resale
(usually from 10 to 50 mortgages) and which act as servicing agent for the
purchaser with respect to, among other things, the receipt of principal and
interest payments. (Such investments are also referred to as "whole loans".)
The vendor of such mortgages receives a fee from Mortgage Securities Fund for
acting as servicing agent. The vendor does not provide any insurance or
guarantees covering the repayment of principal or interest on the mortgages.
Unlike pass-through securities, whole loans constitute direct investment in
mortgages inasmuch as Mortgage Securities Fund, rather than a financial
intermediary, becomes the mortgagee with respect to such loans purchased by the
Fund. At present, such investments are considered to be illiquid by the Fund's
investment adviser. Mortgage Securities Fund will invest in such mortgages only
if its investment adviser has determined through an examination of the mortgage
loans and their originators (which may include an examination of such factors as
percentage of family income dedicated to loan service and the relationship
between loan value and market value) that the purchase of the mortgages should
not represent a significant risk of loss to the Fund.
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FOREIGN SECURITIES
Horizon Fund, Spectrum Fund, Enterprise Fund and Cornerstone Fund may
invest up to 10% of the market value of their respective total assets in
securities of foreign issuers which are not publicly traded in the U.S.
(Securities of foreign issuers which are publicly traded in the U.S., usually in
the form of sponsored American Depositary Receipts, are not subject to this 10%
limitation.) Bond Fund may also invest in debt securities issued by foreign
governments and companies provided that such securities are U.S.
dollar-denominated and publicly traded in the United States. In addition,
International Fund may invest in securities without limitation. Investing in
securities of foreign issuers may result in greater risk than that incurred in
investing in securities of domestic issuers. There is the possibility of
expropriation, nationalization or confiscatory taxation, taxation of income
earned in foreign nations or other taxes imposed with respect to investments in
foreign nations; foreign exchange controls (which may include suspension of the
ability to transfer currency from a given country), default in foreign
government securities, political or social instability or diplomatic
developments which could affect investments in securities of issuers in those
nations. In addition, in many countries there is less publicly available
information about issuers than is available in reports about companies in the
U.S. Foreign companies are not generally subject to uniform accounting, auditing
and financial reporting standards, and auditing practices and requirements may
not be comparable to those applicable to U.S. companies. Further, the Fund may
encounter difficulties or be unable to pursue legal remedies and obtain
judgments in foreign courts. Commission rates in foreign countries, which are
sometimes fixed rather than subject to negotiation as in the U.S., are likely to
be higher. Further, the settlement period of securities transactions in foreign
markets may be longer than in domestic markets. In many foreign countries there
is less government supervision and regulation of business and industry
practices, stock exchanges, brokers and listed companies than in the U.S. The
foreign securities markets of many of the countries in which the Fund may invest
may also be smaller, less liquid, and subject to greater price volatility than
those in the U.S. Also, some countries may withhold portions of interest,
dividends and gains at the source. The Fund may also be unfavorably affected by
fluctuations in the relative rates of exchange between the currencies of
different nations (i.e., when the currency being exchanged has decreased in
value relative to the currency being purchased). There are further risk
considerations, including possible losses through the holding of securities in
domestic and foreign custodial banks and depositories.
The countries of the European Monetary Union (EMU) began the process of
converting their individual country currencies to the Euro on January 1, 1999.
There is also a risk that the value of foreign securities of companies located
in EMU countries may decrease due to market volatility resulting from the
conversion of certain EMU country currencies to the Euro. It is not possible to
predict the impact of the Euro on the business or financial condition of
European issues or on the Fund. The transition and the elimination of currency
risk among EMU countries may change the economic environment and behavior of
investors, particularly in European markets. To the extent the Fund holds
non-U.S. dollar (Euro or other) denominated securities, it will still be exposed
to currency risk due to fluctuations in those currencies versus the U.S. dollar.
Furthermore, International Fund may invest in securities issued by
governments, governmental agencies and companies located in developing market
countries. The Fund considers countries having developing markets to be all
countries that are generally considered to be developing or emerging countries
by the International Bank for Reconstruction and Development (more commonly
referred to as the World Bank) and the International Finance Corporation, as
well as countries that are classified by the United Nations or otherwise
regarded by their authorities as developing. Currently, the countries not
included in this category are Ireland, Spain, New Zealand, Australia, the United
Kingdom, Italy, the Netherlands, Belgium, Austria, France, Canada, Germany,
Denmark, the United States, Sweden, Finland, Norway, Japan and Switzerland. In
addition, developing market securities means (i) securities of companies the
principal securities trading market for which is a developing market country, as
defined above, (ii) securities, traded in any market, of companies that derive
50% or more of their total revenue from either goods or services produced in
such developing market countries or sales made in such developing market
countries or (iii) securities of companies organized under the laws of, and with
a principal office in, a developing market country. International Fund will at
all times, except during temporary defensive periods, maintain investments in at
least three countries having developing markets.
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An ADR is sponsored if the original issuing company has selected a single
U.S. bank to serve as its U.S. depositary and transfer agent. This relationship
requires a deposit agreement which defines the rights and duties of both the
issuer and depositary. Companies that sponsor ADRs must also provide their ADR
investors with English translations of company information made public in their
own domiciled country. Sponsored ADR investors also generally have the same
voting rights as ordinary shareholders, barring any unusual circumstances. ADRs
which meet these requirements can be listed on U.S. stock exchanges.
Unsponsored ADRs are created at the initiative of a broker or bank reacting to
demand for a specific foreign stock. The broker or bank purchases the
underlying shares and deposits them in a depositary. Unsponsored shares issued
after 1983 are not eligible for U.S. stock exchange listings. Furthermore, they
do not generally include voting rights.
In addition, International Fund may invest in European Depositary Receipts,
which are receipts evidencing an arrangement with a European bank similar to
that for ADRs and which are designed for use in the European securities markets.
European Depository Receipts are not necessarily denominated in the currency of
the underlying security.
CURRENCY EXCHANGE TRANSACTIONS
International Fund usually effects currency exchange transactions on a spot
(i.e. cash) basis at the spot rate prevailing in the foreign exchange market.
However, some price spread on currency exchange will be incurred when the Fund
converts assets from one currency to another. Further, the Fund may be affected
either unfavorably or favorably by fluctuations in the relative rates of
exchange between the currencies of different nations. For example, in order to
realize the value of a foreign investment, the Fund must convert that value, as
denominated in its foreign currency, into U.S. dollars using the applicable
currency exchange rate. The exchange rate represents the current price of a
U.S. dollar relative to that foreign currency; that is, the amount of such
foreign currency required to buy one U.S. dollar. If the Fund holds a foreign
security which has appreciated in value as measured in the foreign currency, the
level of appreciation actually realized by the Fund may be reduced or even
eliminated if the foreign currency has decreased in value relative to the U.S.
dollar subsequent to the date of purchase. In such a circumstance, the cost of
a U.S. dollar purchased with that foreign currency has gone up and the same
amount of foreign currency purchases fewer dollars than at an earlier date.
FOREIGN CURRENCY HEDGING TRANSACTIONS
FORWARD EXCHANGE CONTRACTS. International Fund has authority to deal in
forward foreign currency exchange contracts between currencies of the different
countries in which the Fund will invest as a hedge against possible variations
in the foreign exchange rate between these currencies. This is accomplished
through contractual agreements to purchase or sell a specified currency at a
specified future date and price set at the time of the contract. Forward
exchange contracts are individually negotiated and privately traded by currency
traders and their customers. The Fund's dealings in forward foreign exchange
contracts will be limited to hedging involving either specific transactions or
portfolio positions. Transaction hedging is the purchase or sale of forward
foreign currency with respect to specific receivables or payables of the Fund
arising from the purchase and sale of portfolio securities, the sale and
redemption of shares of the Fund, or the payment of dividends and distributions
by the Fund. Position hedging is the sale of forward foreign exchange contracts
with respect to portfolio security positions denominated or quoted in such
foreign currency. The Fund will not engage in naked forward foreign exchange
contracts.
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In addition, when the Fund's investment sub-adviser believes that the
currency of a particular foreign country may suffer or enjoy a substantial
movement against another currency, it may enter into a forward contract to sell
or buy the amount of the former foreign currency, approximating the value of
some or all of the Fund's securities denominated in such foreign currency. The
projection of short-term currency market movement is extremely difficult, and
the successful execution of a short-term hedging strategy is highly uncertain.
It is impossible to forecast with absolute precision the market value of
portfolio securities at the expiration of the contract. Accordingly, it may be
necessary for the Fund to purchase additional foreign currency on the spot
market (and bear the expense of such purchase) if the market value of the
security is less than the amount of foreign currency the Fund is obligated to
deliver and if a decision is made to sell the security and make delivery of the
foreign currency. Conversely, it may be necessary to sell on the spot market
some of the foreign currency received upon the sale of the portfolio security if
its market value exceeds the amount of foreign currency the Fund is obligated to
deliver.
If the Fund retains the portfolio security and engages in an offsetting
transaction, the Fund will incur a gain or a loss to the extent that there has
been movement in forward contract prices. If the Fund engages in an offsetting
transaction, it may subsequently enter into a new forward contract to sell the
foreign currency. Should forward prices decline during the period between the
Fund entering into a forward contract for the sale of a foreign currency and the
date it enters into an offsetting contract for the purchase of the foreign
currency, the Fund will realize a gain to the extent the price of the currency
it has agreed to sell exceeds the price of the currency it has agreed to
purchase. Should forward prices increase, the Fund will suffer a loss to the
extent the price of the currency it has agreed to purchase exceeds the price of
the currency it has agreed to sell.
CURRENCY FUTURES CONTRACTS. International Fund may also enter into
exchange-traded contracts for the purchase or sale for future delivery of
foreign currencies ("foreign currency futures"). This investment technique will
be used only to hedge against anticipated future changes in exchange rates which
otherwise might adversely affect the value of the Fund's portfolio securities or
adversely affect the prices of securities that the Fund intends to purchase at a
later date. The successful use of foreign currency futures will usually depend
on the ability of the Fund's investment sub-adviser to forecast currency
exchange rate movements correctly. Should exchange rates move in an unexpected
manner, the Fund may not achieve the anticipated benefits of foreign currency
futures or may realize losses.
CLOSED-END INVESTMENT COMPANIES
Some countries, such as South Korea, Chile and India, have authorized the
formation of closed-end investment companies to facilitate indirect foreign
investment in their capital markets. In accordance with the Investment Company
Act of 1940, International Fund may invest up to 10% of its total assets in
securities of closed-end investment companies. This restriction on investments
in securities of closed-end investment companies may limit opportunities for the
International Fund to invest indirectly in certain developing markets. Shares
of certain closed-end investment companies may at times be acquired only at
market prices representing premiums to their net asset values. If the
International Fund acquires shares of closed-end investment companies,
shareholders would bear both their proportionate share of expenses of the
International Fund (including management and advisory fees) and, indirectly, the
expenses of such closed-end investment companies.
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LOANS OF PORTFOLIO SECURITIES
For the purpose of realizing additional income, Horizon Fund, Spectrum
Fund, Enterprise Fund, Cornerstone Fund, Bond Fund and International Fund may
make secured loans of portfolio securities amounting to not more than 20% of
their respective total assets. Securities loans are made to broker-dealers or
financial institutions pursuant to agreements requiring that the loans be
continuously secured by collateral at least equal at all times to the value of
the securities lent. The collateral received will consist of cash, letters of
credit or securities issued or guaranteed by the U.S. Government, its agencies
or instrumentalities. While the securities are being lent, the Fund will
continue to receive the equivalent of the interest or dividends paid by the
issuer on the securities, as well as interest on the investment of the
collateral or a fee from the borrower. Although the Fund does not expect to pay
commissions or other front-end fees (including finders fees) in connection with
loans of securities (but in some cases may do so), a portion of the additional
income realized will be shared with the Fund's custodian for arranging and
administering such loans. The Fund has a right to call each loan and obtain the
securities on five business days' notice. The Fund will not have the right to
vote securities while they are being lent, but it will call a loan in
anticipation of any important vote. The risks in lending portfolio securities,
as with other extensions of secured credit, consist of possible delay in
receiving additional collateral or in the recovery of the securities or possible
loss of rights in the collateral should the borrower fail financially. Loans
will only be made to firms deemed by the Fund's investment adviser or
sub-adviser to be of good standing and to have sufficient financial
responsibility, and will not be made unless, in the judgment of the Fund's
investment adviser or sub-adviser, the consideration to be earned from such
loans would justify the risk. The creditworthiness of entities to which the
Fund makes loans of portfolio securities is monitored by the Fund's investment
adviser or sub-adviser throughout the term of each loan.
RESTRICTED AND ILLIQUID SECURITIES
Horizon Fund, Spectrum Fund, Mortgage Fund, Enterprise Fund, Cornerstone
Fund, Money Market Fund, Bond Fund and International Fund may invest up to 10%
of their respective net assets in securities restricted as to disposition under
the federal securities laws or otherwise, or other illiquid assets. An
investment is generally deemed to be "illiquid" if it cannot be disposed of
within seven days in the ordinary course of business at approximately the amount
at which the investment company is valuing the investment. "Restricted
securities" are securities which were originally sold in private placements and
which have not been registered under the Securities Act of 1933 (the "1933
Act"). Such securities generally have been considered illiquid by the staff of
the Securities and Exchange Commission (the "SEC"), since such securities may be
resold only subject to statutory restrictions and delays or if registered under
the 1933 Act. Because of such restrictions, the Fund may not be able to dispose
of a block of restricted securities for a substantial period of time or at
prices as favorable as those prevailing in the open market should like
securities of an unrestricted class of the same issuer be freely traded. The
Fund may be required to bear the expenses of registration of such restricted
securities.
The SEC has acknowledged, however, that a market exists for certain
restricted securities (for example, securities qualifying for resale to
certain "qualified institutional buyers" pursuant to Rule 144A under the 1933
Act). Additionally, the Fund's investment adviser and sub-adviser believe
that a similar market exists for commercial paper issued pursuant to the
private placement exemption of Section 4(2) of the 1933 Act and for certain
interest-only and principal-only classes of mortgage-backed securities issued
by the United States Government or its agencies or instrumentalities and
backed by fixed rate mortgages. The Enterprise, Cornerstone, Money Market
and International Funds may invest without limitation in these forms of
restricted securities if such securities are deemed by the Fund's investment
adviser or sub-adviser to be liquid in accordance with standards established
by the Fund's Board of Directors. Under these guidelines, the Fund's
investment adviser or sub-adviser must consider (a) the frequency of trades
and quotes for the security, (b) the number of dealers willing to purchase or
sell the security and the number of other potential purchasers, (c) dealer
undertakings to make a market in the security, and (d) the nature of the
security and the nature of the marketplace trades (for example, the time
needed to dispose of the security, the method of soliciting offers and the
mechanics of transfer). At the present time, it is not possible to predict
with accuracy how the markets for certain restricted securities will develop.
Investing in such restricted securities could have the effect of increasing
the level of the Fund's illiquidity to the extent that qualified purchasers
of the securities become, for a time, uninterested in purchasing these
securities.
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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.
WHEN-ISSUED SECURITIES AND FORWARD COMMITMENTS
Mortgage Securities Fund, Spectrum Fund, Bond Fund and International Fund
may each purchase securities offered on a "when-issued" basis and may purchase
or sell securities on a "forward commitment" basis. When such transactions are
negotiated, the price, which is generally expressed in yield terms, is fixed at
the time the commitment is made, but delivery and payment for the securities
takes place at a later date. Normally, the settlement date occurs within two
months after the transaction, but delayed settlements beyond two months may be
negotiated. During the period between a commitment to purchase by the Fund and
settlement, no payment is made for the securities purchased by the Fund and,
thus, no interest accrues to the Fund from the transaction.
The use of when-issued transactions and forward commitments enables the
Fund to hedge against anticipated changes in interest rates and prices. For
instance, in periods of rising interest rates and falling prices, the Fund might
sell securities in its portfolio on a forward commitment basis to limit its
exposure to falling prices. In periods of falling interest rates and rising
prices, the Fund might sell a security in its portfolio and purchase the same or
a similar security on a when-issued or forward commitment basis, thereby fixing
the purchase price to be paid on the settlement date at an amount below that to
which the Fund anticipates the market price of such security to rise and, in the
meantime, obtaining the benefit of investing the proceeds of the sale of its
portfolio security at currently higher cash yields. Of course, the success of
this strategy depends upon the ability of the Fund's investment adviser or
sub-adviser to correctly anticipate increases and decreases in interest rates
and prices of securities. If the Fund's investment adviser or sub-adviser
anticipates a rise in interest rates and a decline in prices and, accordingly,
the Fund sells securities on a forward commitment basis in order to hedge
against falling prices, but in fact interest rates decline and prices rise, the
Fund will have lost the opportunity to profit from the price increase. If the
investment adviser or sub-adviser anticipates a decline in interest rates and a
rise in prices, and, accordingly, the Fund sells a security in its portfolio and
purchases the same or a similar security on a when-issued or forward commitment
basis in order to enjoy currently high cash yields, but in fact interest rates
increase and prices fall, the Fund will have lost the opportunity to profit from
investment of the proceeds of the sale of the security at the increased interest
rates. The likely effect of this hedging strategy, whether the Fund's
investment adviser or sub-adviser is correct or incorrect in its prediction of
interest rate and price movements, is to reduce the chances of large capital
gains or losses and thereby reduce the likelihood of wide variations in the
Fund's net asset value.
When-issued securities and forward commitments may be sold prior to the
settlement date, but, except for mortgage dollar roll transactions (as discussed
below), the Fund enters into when-issued and forward commitments only with the
intention of actually receiving or delivering the securities, as the case may
be. The Fund may hold a when-issued security or forward commitment until the
settlement date, even if the Fund will incur a loss upon settlement. To
facilitate transactions in when-issued securities and forward commitments, the
Fund's custodian bank maintains, in a separate account of the Fund, liquid
assets, such as cash, short-term securities and other liquid securities (marked
to the market daily), having a value equal to, or greater than, any commitments
to purchase securities on a when-issued or forward commitment basis and, with
respect to forward commitments to sell portfolio securities of the Fund, the
portfolio securities themselves. If the Fund, however, chooses to dispose of
the right to acquire a when-issued security prior to its acquisition or dispose
of its right to deliver or receive against a forward commitment, it can incur a
gain or loss. (At the time the Fund makes the commitment to purchase or sell a
security on a when-issued or forward commitment basis, it records the
transaction and reflects the value of the security purchased or, if a sale, the
proceeds to be received, in determining its net asset value.)
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The Fund may also enter into such transactions to generate incremental
income. In some instances, the third-party seller of when-issued or forward
commitment securities may determine prior to the settlement date that it will be
unable or unwilling to meet its existing transaction commitments without
borrowing securities. If advantageous from a yield perspective, the Fund may,
in that event, agree to resell its purchase commitment to the third-party seller
at the current market price on the date of sale and concurrently enter into
another purchase commitment for such securities at a later date. As an
inducement for the Fund to "roll over" its purchase commitment, the Fund may
receive a negotiated fee. These transactions, referred to as "mortgage dollar
rolls," are entered into without the intention of actually acquiring securities.
For a description of mortgage dollar rolls and the Funds that may invest in such
transactions, see "Mortgage Dollar Rolls" below.
The purchase of securities on a when-issued or forward commitment basis
exposes the Fund to risk because the securities may decrease in value prior to
their delivery. Purchasing securities on a when-issued or forward commitment
basis involves the additional risk that the return available in the market when
the delivery takes place will be higher than that obtained in the transaction
itself. The Fund's purchase of securities on a when-issued or forward
commitment basis while remaining substantially fully invested increases the
amount of the Fund's assets that are subject to market risk to an amount that is
greater than the Fund's net asset value, which could result in increased
volatility of the price of the Fund's shares. No more than 30% of the value of
such Fund's (other than International Fund's) total assets will be committed to
when-issued or forward commitment transactions, and of such 30%, no more than
two-thirds (i.e., 20% of its total assets) may be invested in mortgage dollar
rolls. No more than 20% of the value of International Fund's total assets will
be committed to when-issued or forward commitment transactions.
MORTGAGE DOLLAR ROLLS
In connection with its ability to purchase securities on a when-issued or
forward commitment basis, Spectrum Fund, Bond Fund and Mortgage Securities Fund
may enter into mortgage "dollar rolls" in which the Fund sells securities for
delivery in the current month and simultaneously contracts with the same
counterparty to repurchase similar (same type, coupon and maturity) but not
identical securities on a specified future date. In a mortgage dollar roll, the
Fund gives up the right to receive principal and interest paid on the securities
sold. However, the Fund would benefit to the extent of any difference between
the price received for the securities sold and the lower forward price for the
future purchase plus any fee income received. Unless such benefits exceed the
income, capital appreciation and gain or loss due to mortgage prepayments that
would have been realized on the securities sold as part of the mortgage dollar
roll, the use of this technique will diminish the investment performance of the
Fund compared with what such performance would have been without the use of
mortgage dollar rolls. The Fund will hold and maintain in a segregated account
until the settlement date cash or liquid securities in an amount equal to the
forward purchase price. The benefits derived from the use of mortgage dollar
rolls may depend upon the ability of the Fund's investment adviser to predict
correctly mortgage prepayments and interest rates. There is no assurance that
mortgage dollar rolls can be successfully employed. In addition, the use of
mortgage dollar rolls by the Fund while remaining substantially fully invested
increases the amount of the Fund's assets that are subject to market risk to an
amount that is greater than the Fund's net asset value, which could result in
increased volatility of the price of the Fund's shares.
For financial reporting and tax purposes, mortgage dollar rolls are
considered as two separate transactions: one involving the sale of a security
and a separate transaction involving a purchase. The Funds do not currently
intend to enter into mortgage dollar rolls that are accounted for as a
"financing" rather than as a separate sale and purchase transactions.
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REPURCHASE AGREEMENTS
Horizon Fund, Spectrum Fund, Enterprise Fund, Cornerstone Fund, Money
Market Fund, Bond Fund and International 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 or sub-adviser
throughout the term of the repurchase agreement. The resale price is in
excess of the purchase price and reflects an agreed upon market rate
unrelated to the coupon rate on the purchased security. Such transactions
afford the Fund the opportunity to earn a return on temporarily available
cash. The Fund's custodian, or a duly appointed subcustodian, holds the
securities underlying any repurchase agreement in a segregated account or
such securities may be part of the Federal Reserve Book Entry System. The
market value of the collateral underlying the repurchase agreement is
determined on each business day. If at any time the market value of the
collateral falls below the repurchase price of the repurchase agreement
(including any accrued interest), the Fund promptly receives additional
collateral, so that the total collateral is in an amount at least equal to
the repurchase price plus accrued interest. While the underlying security
may be a bill, certificate of indebtedness, note or bond issued by an agency,
authority or instrumentality of the U.S. Government, the obligation of the
seller is not guaranteed by the U.S. Government. In the event of a
bankruptcy or other default of a seller of a repurchase agreement, the Fund
could experience both delays in liquidating the underlying security and
losses, including: (a) possible decline in the value of the underlying
security during the period while the Fund seeks to enforce its rights
thereto; (b) possible subnormal levels of income and lack of access to income
during this period; and (c) expenses of enforcing its rights.
REVERSE REPURCHASE AGREEMENTS
Spectrum Fund and Money Market 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.
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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 Money
Market 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 "Money Market Fund Amortized Cost Method of Portfolio
Valuation" below.
FUTURES CONTRACTS
A futures contract sale creates an obligation by a Fund, as seller, to
deliver the specific type of financial instrument called for in the contract at
a specified future time for a specified price. A futures contract purchase
creates an obligation by a Fund, as purchaser, to take delivery of the specific
type of financial instrument at a specified future time at a specified price.
The specific securities delivered or taken, respectively, at settlement date,
would not be determined until at or near that date. The determination would be
in accordance with the rules of the exchange on which the futures contract sale
or purchase was made.
Although futures contracts by their terms call for actual delivery or
acceptance of securities, in most cases the contracts are closed out before the
settlement date without the making or taking of delivery of securities. Closing
out a futures contract sale is effected by the Fund entering into a futures
contract purchase for the same aggregate amount of the specific type of
financial instrument and the same delivery date. If the price in the sale
exceeds the price in the offsetting purchase, the Fund immediately is paid the
difference and thus realizes a gain. If the offsetting purchase price exceeds
the sale price, the Fund pays the difference and realizes a loss. Similarly,
the closing out of a futures contract purchase is effected by the Fund's
entering into a futures contract sale. If the offsetting sale price exceeds the
purchase price, the Fund realizes a gain, and if the purchase price exceeds the
offsetting sale price, the Fund realizes a loss. See "General Risks", below,
for a disclosure of the risks of being unable to close out a position before the
settlement date.
A public market now exists in futures contracts covering primarily the
following financial instruments: long-term United States Treasury Bonds;
Government National Mortgage Association modified pass-through mortgage-backed
securities (GNMA); three month United States Treasury Bills; United States
Treasury Notes; and bank certificates of deposit. It is expected that other
financial instruments will be subject to futures contacts. There is a $100,000
minimum for futures contracts in United States Treasury Bonds, GNMA pass-through
securities, and United States Treasury Notes, and a $1,000,000 minimum for
contracts in United States Treasury Bills and bank certificates of deposit. See
"Example of Futures Contract Sale" and "Example of Futures Contract Purchase" in
Appendix C.
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The Commodity Futures Trading Commission (the "CFTC"), a Federal agency,
regulates trading activity on the exchanges pursuant to the Commodity
Exchange Act, as amended. The CFTC requires the registration of "commodity
pool operators," defined as any person engaged in a business which is of the
nature of an investment trust, syndicate, or similar form or enterprise, and
who, in connection therewith, solicits, accepts, or receives from others,
funds, securities, or property for the purpose of trading in any commodity
for future delivery on or subject to the rules of any contract market. The
CFTC has adopted certain regulations which exclude from the definition of
"commodity pool operator" an investment company, like the Fund, registered
with the Securities and Exchange Commission under the Investment Company Act
of 1940, and any principal or employee thereof, which investment company
files a notice of eligibility with the CFTC and the National Futures
Association containing certain information about the investment company and
representing that it (i) will use commodity futures or commodity options
contracts solely for bona fide hedging purposes, (ii) will not enter into
commodity futures and commodity options contracts for which the aggregate
initial margin and premiums exceed 5% of the fair market value of its assets,
after taking into account unrealized profits and unrealized losses on any
such contracts it has entered into, (iii) will not be, and has not been,
marketing participations to the public as or in a commodity pool or otherwise
as or in a vehicle for trading in the commodity futures or commodity options
markets, (iv) will disclose in writing to each prospective participant the
purpose of and the limitations on the scope of the commodity futures and
commodity options trading in which the entity intends to engage, and (v) will
submit to such special calls as the CFTC may make to require the qualifying
entity to demonstrate compliance with these representations. The "bona fide
hedging" transactions and positions authorized by these regulations mean
transactions or positions in a contract for future delivery on any contract
market, where such transactions or positions normally represent a substitute
for transactions to be made or positions to be taken at a later time in a
physical marketing channel, and where they are economically appropriate to
the reduction of risks in the conduct and management of a commercial
enterprise, and where they arising from (i) the potential change in the value
of assets which a person owns, produces, manufactures, processes or
merchandises or anticipates owning, producing, manufacturing, processing or
merchandising, (ii) the potential change in the value of liabilities a person
owes or anticipates incurring, or (iii) the potential change in the value of
services which a person provides, purchases or anticipates providing or
purchasing; provided that, notwithstanding the foregoing, no transactions or
positions shall be classified as bona fide hedging unless their purpose is to
offset price risk incidental to commercial cash or spot operations and such
positions are established and liquidated in an orderly manner in accordance
with sound commercial practices and unless certain statements are filed with
the CFTC with respect to such transactions or positions. The Funds investing
in futures contracts intend to meet these requirements, or such other
requirements as the CFTC or its staff may from time to time issue, in order
to render registration of the Fund and any of its principals and employees as
a commodity pool operator unnecessary.
SECURITIES FUTURES CONTRACTS. International Fund may purchase and sell
securities futures contracts. A futures contract on a security obligates one
party to purchase, and the other to sell, a specified security at a specified
price on a date certain in the future. The acquisition of put and call options
on futures contracts will, respectively, give the Fund the right (but not the
obligation), for a specified exercise price, to sell or to purchase the
underlying futures contract at any time during the option period.
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INTEREST RATE FUTURES CONTRACTS. Mortgage Securities Fund and Bond Fund
may each also enter into contracts for the future delivery of fixed income
securities commonly referred to as "interest rate futures contracts." These
futures contracts will be used only as a hedge against anticipated interest rate
changes. The Fund will sell futures contracts to protect against expected
increases in interest rates and purchase futures contracts to offset the impact
of interest rate declines. The Fund will not enter into an interest rate
futures contracts if immediately thereafter (a) more than 5% of the value of the
Fund's total assets will be committed to initial margin or (b) the sum of the
then aggregate futures market prices of financial instruments required to be
delivered upon open futures contract sales and the aggregate purchase prices
under open futures contract purchases would exceed 30% of the value of the
Fund's total assets. In addition, when purchasing interest rate futures
contracts, the Fund will deposit and maintain in a separate account with its
custodian cash or cash equivalents in an amount equal to the market value of
such futures contracts, less any margin deposited on the Fund's long position,
to cover the Fund's obligation. These earmarked assets will be used to cover
the Fund's obligation and will not be used to support any other transaction into
which the Fund may enter.
FINANCIAL FUTURES CONTRACTS. International Fund may purchase and sell
financial futures contracts. A financial futures contract is an agreement
between two parties to buy or sell a specified debt security at a set price on a
future date. Currently, futures contracts are available on several types of
fixed-income securities including: U.S. Treasury bonds, notes and bills;
commercial paper; and certificates of deposit. Although some financial futures
contracts call for making or taking delivery of the underlying securities, in
most cases these obligations are closed out before the settlement date. The
closing of a contractual obligation is accomplished by purchasing or selling an
identical offsetting futures contract. Other financial futures contracts by
their terms call for cash settlements.
Financial futures contracts are traded in an auction environment on the
floors of several exchanges--principally, the Chicago Board of Trade, the
Chicago Mercantile Exchange and the New York Futures Exchange. Each exchange
guarantees performance under contract provisions through a clearing corporation,
a nonprofit organization managed by the exchange membership. The Fund will pay
a commission on each contract, including offsetting transactions. In addition,
the Fund is required to maintain margin deposits with brokerage firms through
which it enters into futures contracts. Currently, the initial margin deposit
per contract is $1,500 for Treasury Bills and commercial paper and $2,000 for
Treasury Bonds and GNMAs. The Fund will establish a custodial account with its
bank custodian to hold initial margin deposits. The account will be in the name
of the futures commission merchant through which the Fund entered into the
futures contract. The futures commission merchant will be able to gain access
to the assets held in this account only if he states that all conditions
precedent to his right to direct disposition have been satisfied. Margin
balances will be adjusted daily to reflect unrealized gains and losses on open
contracts. The payments to or withdrawals from this account are known as
variation margin payments. The Fund can withdraw amounts from this account in
excess of the initial margin payments, and it is the Fund's intention to
promptly make withdrawals of any such excess. If the margin account is depleted
below the maintenance level (a fixed percentage of the initial margin), the Fund
will be required to deposit an amount that will bring the margin account back up
to its initial margin level. If the Fund has an unrealized gain above the
amount of any net variation margin it has already received, the futures
commission merchant, as of the close of that trading day, may receive, on behalf
of the Fund, a variation margin payment from the clearing corporation in the
amount of the gain. By 10:30 A.M. (Central Time) the next day, the futures
commission merchant must notify the Fund of its entitlement to receive a
variation margin payment from the margin account, and the Fund will promptly
demand payment of such amount.
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INDEX FUTURES CONTRACTS. International Fund may buy or sell index futures
contracts with respect to any non-U.S. stock or bond index. The Fund may invest
in index futures contracts for hedging purposes only and not for speculation.
The Fund may engage in such transactions only to the extent that the total
contract value of the futures contracts do not exceed 5% of the Fund's total
assets at the time when such contracts are entered into. Successful use of
stock or bond index futures is subject to the ability of the Fund's investment
adviser or sub-adviser to predict correctly movements in the direction of the
stock or bond markets. No assurance can be given that the judgment of the
Fund's investment adviser or sub-adviser in this respect will be correct.
An index futures contract is a contract to buy or sell units of a stock or
bond index at a specified future date at a price agreed upon when the contract
is made. The value of a unit is the current value of the stock or bond index.
During or in anticipation of a period of market appreciation, the Fund may enter
into a "long hedge" of a security which it proposes to add to its portfolio by
purchasing an index future for the purpose of reducing the effective purchase
price of such security. To the extent that the securities which the Fund
proposes to purchase increase in value in correlation with the index contracts,
the purchase of futures contracts on that index would result in gains to the
Fund which could be offset against rising prices of such security. During or in
anticipation of a period of market decline, the Fund may "hedge" securities in
its portfolio by selling stock or bond index futures for the purpose of limiting
the exposure of its portfolio to such decline. To the extent that a portfolio
of securities decreases in value in relation with a given index, the sale of
futures contracts on that index could substantially reduce the risk to the
portfolio of a market decline and, by so doing, provide an alternative to the
liquidation of securities positions in the portfolio with resultant transaction
costs.
GENERAL RISKS. One risk in employing futures contracts to protect against
cash market price volatility is the prospect that futures prices will correlate
imperfectly with the behavior of cash prices. The ordinary spreads between
prices in the cash and future markets, due to differences in the nature of those
markets, are subject to distortions. First, all participants in the futures
market are subject to margin deposit and maintenance requirements. Rather than
meeting additional margin deposit requirements, investors may close futures
contracts through offsetting transactions which could distort the normal
relationship between the cash and futures markets. Second, the liquidity of the
futures market depends on participants entering into offsetting transactions
rather than making or taking delivery. To the extent participants decide to
make or take delivery, liquidity in the futures market could be reduced, thus
producing distortion. Third, from the point of view of speculators the deposit
requirements in the futures market are less onerous than margin requirements in
the securities market. Therefore increased participation by speculators in the
futures market may cause temporary price distortions.
In addition, there can be significant differences between the securities
and futures markets that could result in an imperfect correlation between the
markets, causing a given hedge not to achieve its objectives. The degree of
imperfection of correlation depends on circumstances such as variations in
speculative market demand for futures, including technical influences in futures
trading, and differences between the financial instruments being hedged and the
instruments underlying the standard contracts available for trading in such
respects as interest rate levels, maturities, and creditworthiness of issuers.
A decision as to whether, when, and how to hedge involves the exercise of skill
and judgment, and even a well-conceived hedge may be unsuccessful to some degree
because of market behavior or unexpected interest rate trends.
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Futures exchanges may limit the amount of fluctuation permitted in certain
futures contract prices during a single trading day. The daily limit
establishes the maximum amount that the price of a futures contract may vary
either up or down from the previous day's settlement price at the end of the
current trading session. Once the daily limit has been reached in a futures
contract subject to the limit, no more trades may be made on that day at a price
beyond that limit. The daily limit governs only price movements during a
particular trading day and, therefore, does not limit potential losses because
the limit may work to prevent the liquidation of unfavorable positions. For
example, futures prices have occasionally moved to the daily limit for several
consecutive trading days with little or no trading, thereby preventing prompt
liquidation of positions and subjecting some holders of futures contracts to
substantial losses.
There can be no assurance that a liquid market will exist at a time when
the Fund seeks to close out a futures position, and it would remain obligated to
meet margin requirements until the position is closed. The Fund intends to
purchase or sell futures only on exchanges or boards of trade where there
appears to be an active secondary market, but there is no assurance that a
liquid secondary market will exist for any particular contract or at any
particular time. In addition, many of the futures contracts available may be
relatively new instruments without a significant trading history. As a result,
there can be no assurance that an active secondary market will develop or
continue to exist.
Successful use of stock and bond index futures by the Fund for hedging
purposes also depends upon the ability of the Fund's investment adviser or
sub-adviser, as the case may be, to predict correctly movements in the direction
of the market, as to which no assurance can be given.
The Fund's investment adviser or sub-adviser may be incorrect in its
expectation as to the extent of various interest rate movements or the time span
within which the movements take place. Closing out a futures contract purchase
at a loss because of higher interest rates will generally have one of two
consequences depending on whether, at the time of closing out, the "yield curve"
is normal (long-term rates exceeding short-term). If the yield curve is normal,
it is possible that the Fund will still be engaged in a program of buying
long-term securities, because the price of long-term securities will likely have
decreased. The closing out of the futures contract purchase at a loss will
reduce the benefit of the reduced price of the securities purchased. If the
yield curve is inverted, it is possible that the Fund will retain its
investments in short-term securities earmarked for purchase of longer term
securities. Thus, closing out of a loss will reduce the benefit of the
incremental income that the Fund will experience by virtue of the high
short-term rates.
In addition, although the Fund will only purchase and sell futures
contracts for which there is a public market, there can be no assurance that the
Fund will be able to close out its position by entering into an offsetting
transaction before the settlement date. In that event, the Fund will be
required to deliver or accept the underlying securities in accordance with the
terms of its commitment.
For examples of futures contracts and their tax treatment, see Appendix C
to this Statement of Additional Information.
OPTIONS - HORIZON FUND, CORNERSTONE FUND AND ENTERPRISE FUND
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The Fund may write covered call options which are traded on national
securities exchanges with respect to common stocks in its portfolio ("covered
options") in an attempt to earn additional current income on its portfolio or
to guard against an expected decline in the price of a security. When the
Fund writes a covered option, it gives the purchaser of the option the right
to buy the underlying security at the price specified in the option (the
"exercise price") at any time during the option period. If the option
expires unexercised, the Fund realizes income, typically in the form of
short-term capital gain, to the extent of the amount received for the option
(the "premium"). If the option is exercised, a decision over which the Fund
has no control, the Fund must sell the underlying security to the option
holder at the exercise price. By writing a covered option, the Fund
foregoes, in exchange for the premium less the commission ("net premium"),
the opportunity to profit during the option period from an increase in the
market value of the underlying security above the exercise price. The Fund
does not write covered options in an aggregate amount greater than 15% of its
net assets.
The Fund purchases call options only to close out a position, and will
neither write nor purchase put options. When an option is written on securities
in the Fund's portfolio and it appears that the purchaser of that option is
likely to exercise the option and purchase the underlying security, it may be
considered appropriate to avoid liquidating the Fund's position, or the Fund may
wish to extinguish a call option sold by it so as to be free to sell the
underlying security. In such instances the Fund may purchase a call option on
the same security with the same exercise price and expiration date which had
been previously written. Such a purchase would have the effect of closing out
the option which the Fund has written. The Fund realizes a short-term capital
gain if the amount paid to purchase the call option is less than the premium
received for writing a similar option. Generally, the Fund realizes a
short-term loss if the amount paid to purchase the call option is greater than
the premium received for writing the option. If the underlying security has
substantially risen in value, it may be difficult or expensive to purchase the
call option for the closing transaction.
The use of options contracts involves risk of loss to the Fund due to the
possibility that the prices of the underlying securities on which such options
are written may not move as anticipated.
OPTIONS - MORTGAGE SECURITIES FUND
Mortgage Securities Fund may purchase put and call options written by
others covering the types of securities in which the Fund may invest. The Fund
may not write put or call options. The Fund utilizes put and call options to
provide protection against adverse price or yield effects from anticipated
changes in prevailing interest rates.
A put option gives the buyer of such option, upon payment of a premium, the
right to deliver a specified amount of a security to the writer of the option on
or before a fixed date at a predetermined price. A call option gives the
purchaser of the option, upon payment of a premium, the right to call upon the
writer to deliver a specified amount of a security on or before a fixed date at
a predetermined price. The Fund will not purchase a put or call option if, as a
result, the aggregate cost of all outstanding options purchased and held by the
Fund plus all other illiquid assets held by the Fund would exceed 10% of the
value of the Fund's net assets. If an option is permitted to expire without
being sold or exercised, its premium would be lost by the Fund.
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In buying a call, the Fund would be in a position to realize a gain if,
during the option period, the price of the security increased by an amount in
excess of the premium paid. It would realize a loss if the price of the
security declined or remained the same or did not increase during the period by
more than the amount of the premium. By buying a put, the Fund would be in a
position to realize a gain if, during the option period, the price of the
security declines in an amount in excess of the premium paid. It would realize
a loss if the price of the security increased or remained the same or did not
decrease during that period by more than the amount of the premium.
The Fund generally purchases options in negotiated transactions with the
writers of the options. The Fund purchases options only from investment dealers
and other financial institutions (such as commercial banks or savings and loan
institutions) deemed creditworthy by its investment adviser. The Fund may
dispose of an option by entering into a closing sale transaction with the writer
of the option. A closing sale transaction terminates the obligation of the
writer of the option and does not result in the ownership of an option. The
Fund realizes a profit or loss from a closing sale transaction if the premium
received from the transaction is more than or less than the cost of the option.
Options purchased by the Fund in negotiated transactions are illiquid and there
is no assurance that the Fund will be able to effect a closing sale transaction
at a time when its investment adviser believes it would be advantageous to do
so.
The use of options contracts involves risk of loss to the Fund due to the
possibility that the prices of the underlying securities on which such options
are written may not move as anticipated.
OPTIONS - SPECTRUM FUND AND BOND FUND
The Fund may write (sell) "covered" call options and purchase "covered" put
options. The Fund will not purchase call options except to close out call
options previously written by the Fund, nor will it write put options except to
close out put options previously purchased by the Fund. The effect of writing
covered call options and purchasing covered put options will be to reduce the
effect of price fluctuations of the securities owned by the Fund (and involved
in the options) on the Fund's net asset value per share. Another effect may be
the generation of additional revenues in the form of premiums received for
writing covered call options.
Spectrum Fund does not write covered call or purchase covered put options
if, as a result, the aggregate market value of all portfolio securities covering
such options exceeds an aggregate amount greater than 15% of the market value of
its net assets. Bond Fund will not write a covered call option or purchase a
put option if, as a result, the aggregate market value of all portfolio
securities covering call options or subject to put options exceeds 25% of the
market value of the Fund's net assets. In addition, Bond Fund will purchase
covered put options (and purchase call options to close out call options
previously written by the Fund) only to the extent that the aggregate premiums
paid for all such options held do not exceed 2% of the value of its net assets.
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The Fund will only write "covered" call and purchase "covered" put
options. This means that the Fund will only write a call option or purchase a
put option on a security which the Fund already owns. Each Fund will only
write covered call options and purchase covered put options in
exchange-traded standard contracts issued by the Options Clearing Corporation
("OCC"), or write covered call options and purchase covered put options in
the over-the-counter ("OTC") market in negotiated transactions entered into
directly with investment dealers meeting the creditworthiness criteria
(described below) of the Fund's investment adviser. Exchange-traded options
are third-party contracts and standardized strike prices and expiration
dates, and are purchased from a clearing corporation such as the OCC.
Technically, the OCC assumes the other side of every purchase and sale
transaction on a stock exchange and, by doing so, guarantees the transaction.
In contrast, OTC options are two-party contracts with price and terms
negotiated between buyer and seller. The Fund relies on the dealer from whom
it purchases an OTC option to perform if the option is exercised, and will
therefore only negotiate an OTC option with a dealer subject to the following
criteria: (i) the broker-dealer or its predecessor must have been in
business at least 15 years; (ii) the broker-dealer must have, in the judgment
of the Fund's investment adviser, a reputation for sound management and
ethical business practices; (iii) the broker-dealer must be registered with
the SEC; and (iv) the broker-dealer must have at least $50 million in "Excess
Capital." ("Excess Capital" is that portion of a firm's permanent capital
which is in excess of the minimum capital required under the Uniform Net
Capital Rule of the SEC). Broker-dealer subsidiaries of companies having at
least $1 billion in net worth shall also be considered creditworthy, in the
event of a lack of publicly available financial information. To the extent
the Fund invests in OTC options for which there is no secondary market it
will be investing in securities which are illiquid and therefore subject to
the Fund's 10% limitation on aggregate investment in restricted or other
illiquid securities (see "Investment Restrictions" below).
The writing of covered call options is a conservative investment technique
believed to involve relatively little risk (in contrast to the writing of naked
or uncovered options) but capable of enhancing total return. When writing a
covered call option, the Fund, in return for the premium, gives up the
opportunity for profit from a price increase in the underlying security above
the exercise price, but conversely retains the risk of loss should the price of
the security decline. If a call option which the Fund has written expires, the
Fund will realize a gain in the amount of the premium; however, such gain may be
offset by a decline in the market value of the underlying security during the
option period. If the call option is exercised, the Fund will realize a gain or
loss from the sale of the underlying security. The Fund will purchase put
options involving portfolio securities only when the Fund's investment adviser
believes that a temporary defensive position is desirable in light of market
conditions, but does not desire to sell the portfolio security. Therefore, the
purchase of put options will be utilized to protect the Fund's holdings in an
underlying security against a substantial decline in market value. Such
protection is, of course, only provided during the life of the put option when
the Fund, as the holder of the put option, is able to sell the underlying
security at the put exercise price regardless of any decline in the underlying
security's market price. By using put options in this manner, the Fund will
reduce any profit it might otherwise have realized in its underlying security by
the premium paid for the put option and by transaction costs.
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The Fund will purchase a call option only to close out a covered call
option it has written (a "closing purchase transaction"), and will write a
put option only to close out a put option it has purchased (a "closing sale
transaction"). Such closing transactions will be effected in order to
realize a profit on an outstanding call or put option, to prevent an
underlying security from being called or put, or, to permit the sale of the
underlying security. Furthermore, effecting a closing transaction will permit
the Fund to write another call option, or purchase another put option, on the
underlying security with either a different exercise price or expiration date
or both. If the Fund desires to sell a particular security from its
portfolio on which it has written a call option, or purchased a put option,
it will seek to effect a closing transaction prior to, or concurrently with,
the sale of the security. There is, of course, no assurance that the Fund
will be able to effect such closing transactions at a favorable price. If
the Fund cannot enter into such a transaction, it may be required to hold a
security that it might otherwise have sold, in which case it would continue
to be at market risk on the security. This could result in higher transaction
costs, including brokerage commissions. The Fund will pay brokerage
commissions in connection with the writing or purchase of options to close
out previously written options. Such brokerage commissions are normally
higher than those applicable to purchases and sales of portfolio securities.
The use of options contracts involves risk of loss to the Fund due to the
possibility that the prices of the underlying securities on which such options
are written may not move as anticipated.
WARRANTS
Horizon Fund, Spectrum Fund, Enterprise Fund, Cornerstone Fund, Bond Fund
and International Fund may invest in warrants; however, not more than 5% of
their respective net assets (at the time of purchase) will be invested in
warrants other than warrants acquired in units or attached to other securities.
Of such 5%, not more than 2% of the Fund's respective assets at the time of
purchase may be invested in warrants that are not listed on the New York or
American Stock Exchanges. Warrants are instruments that allow investors to
purchase underlying shares at a specified price (exercise price) at a given
future date. The market price of a warrant is determined by market participants
by the addition of two distinct components: (1) the price of the underlying
shares less the warrant's exercise price, and (2) the warrant's premium that is
attributed to volatility and leveraging power. Warrants are pure speculation in
that they have no voting rights, pay no dividends and have no rights with
respect to the assets of the corporation issuing them. The prices of warrants
do not necessarily move parallel to the prices of the underlying securities.
It is not expected that Bond Fund will invest in common stocks or equity
securities other than warrants, but it may retain for reasonable periods of time
up to 5% of its total assets in common stocks acquired upon conversion of debt
securities or preferred stocks or upon exercise of warrants.
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<PAGE>
WARRANTS WITH CASH EXTRACTIONS
International Fund may also invest up to 5% of its assets in warrants used
in conjunction with the cash extraction method. If an investor wishes to
replicate an underlying share, the investor can use the warrant with cash
extraction method by purchasing warrants and holding cash. The cash component
would be determined by subtracting the market price of the warrant from the
underlying share price.
For example, ASSUME one share for company "Alpha" has a current share price
of $40 and issued warrants can be converted one for one share at an exercise
price of $31 exercisable two years from today. Also ASSUME that the market
price of the warrant is $10 ($40 - $31 + $1) because investors are willing to
pay a premium ($1) for previously stated reasons. If an investor wanted to
replicate an underlying share by engaging in a warrant with cash extraction
strategy, the amount of cash the investor would need to hold for every warrant
would be $30 ($40 - $10 = $30). A warrant with cash extraction is, thus, simply
a synthetically created quasi-convertible bond.
If an underlying share issues no or a low dividend and has an associated
warrant with a market price that is low relative to its share price, a warrant
with cash extraction may provide attractive cash yields and minimize capital
loss risk, provided the underlying share is also considered a worthy investment.
For example, ASSUME Alpha's share is an attractive investment opportunity and
its share pays no dividend. Given the information regarding Alpha provided
above, also ASSUME that short-term cash currently yields 5% per year and that
the investor plans to hold the investment at least two years, barring
significant near-term capital appreciation. If the share price were to fall
below $30, the warrant with cash extraction strategy would yield a lower loss
than the underlying share because an investor cannot lose more than the purchase
cost of the warrant (capital risk minimized). The cash component for this
strategy would yield $3.08 after two years (compound interest). The total value
of the underlying investment would be $43.08 versus $40.00 for the non-yielding
underlying share (attractive yield). Finally, it is important to note that this
strategy will not be pursued if it is not economically more attractive than
underlying shares.
INDEX DEPOSITARY RECEIPTS
Cornerstone Fund, Enterprise Fund, Spectrum Fund and Horizon Fund may each
invest up to 5% of its total assets in one or more types of depositary receipts
("DRs") as a means of tracking the performance of a designated stock index while
maintaining liquidity. The Fund may invest in S&P 500 Depositary Receipts
("SPDRs"), which track the S&P 500 Index; S&P MidCap 400 Depositary Receipts
("MidCap SPDRs"), which track the S&P MidCap 400 Index; and "Dow Industrial
Diamonds," which track the Dow Jones Industrial Average, or in other DRs which
track indexes, provided that such investments are consistent with the Fund's
investment objective as determined by the Fund's investment adviser. Each of
these securities represents shares of ownership of a long term unit investment
trust (a type of investment company) that holds all of the stock included in the
relevant underlying index.
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<PAGE>
DRs carry a price which equals a specified fraction of the value of the
designated index and are exchange traded. As with other equity transactions,
brokers charge a commission in connection with the purchase of DRs. In
addition, an asset management fee is charged in connection with the underlying
unit investment trust (which is in addition to the asset management fee paid by
the Fund).
Trading costs for DRs are somewhat higher than those for stock index
futures contracts, but, because DRs trade like other exchange-listed equities,
they represent a quick and convenient method of maximizing the use of the Fund's
assets to track the return of a particular stock index. DRs share in the same
market risks as other equity investments.
SHORT SALES AGAINST THE BOX
Each Fund may sell securities "short against the box." Whereas a short
sale is the sale of a security the Fund does not own, a short sale is "against
the box" if, at all times during which the short position is open, the Fund owns
at least an equal amount of the securities sold short or other securities
convertible into or exchangeable without further consideration for securities of
the same issue as the securities sold short. Short sales against the box are
typically used by sophisticated investors to defer recognition of capital gains
or losses. The Funds have no present intention to sell securities short in this
fashion.
INVESTMENTS IN RUSSIA
International Fund may invest in securities of Russian companies, which
involves risks and special considerations not typically associated with
investing in United States securities markets. Since the breakup of the Soviet
Union at the end of 1991, Russia has experienced dramatic political and social
change. The political system in Russia is emerging from a long history of
extensive state involvement in economic affairs. The country is undergoing a
rapid transition from a centrally-controlled command system to a
market-oriented, democratic model. The Fund may be affected unfavorably by
political or diplomatic developments, social instability, changes in government
policies, taxation and interest rates, currency repatriation restrictions and
other political and economic developments in the law or regulations in Russia
and, in particular, the risks of expropriation, nationalization and confiscation
of assets and changes in legislation relating to foreign ownership.
The planned economy of the former Soviet Union was run with qualitatively
different objectives and assumptions from those prevalent in a market system and
Russian businesses do not have any recent history of operating within a
market-oriented economy. In general, relative to companies operating in Western
economies, companies in Russian are characterized by a lack of: (i) management
with experience of operating in a market economy; (ii) modern technology; and,
(iii) a sufficient capital base with which to develop and expand their
operations. It is unclear what will be the future effect on Russian companies,
if any, of Russia's continued attempts to move toward a more market-oriented
economy. Russia's economy has experienced severe economic recession, if not
depression, since 1990 during which time the economy has been characterized by
high rates of inflation, high rates of unemployment, declining gross domestic
product, deficit government spending, and a devaluing currency. The economic
reform program has involved major disruptions and dislocations in various
sectors of the economy, and those problems have been exacerbated by growing
liquidity problems. Further, Russian presently receives significant financial
assistance from a number of countries through various programs. To the extent
these programs are reduced or eliminated in the future, Russian economic
development may be adversely impacted.
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<PAGE>
The Russian securities markets are substantially smaller, less liquid
and significantly more volatile than the securities markets in the United
States. In addition, there is little historical data on these securities
markets because they are of recent origin. A substantial proportion of
securities transactions in Russia are privately negotiated outside of stock
exchanges and over-the-counter markets. A limited number of issuers
represent a disproportionately large percentage of market capitalization and
trading volume. Although evolving rapidly, even the largest of Russia's stock
exchanges are not well developed compared to Western stock exchanges. The
actual volume of exchange-based trading in Russia is low and active on-market
trading generally occurs only in the shares of a few private companies. Most
secondary market trading of equity securities occurs through over-the-counter
trading facilitated by a growing number of licensed brokers. Shares are
traded on the over-the-counter market primarily by the management of
enterprises, investment funds, short-term speculators and foreign investors.
The securities of Russian companies are mostly traded over-the-counter and,
despite the large number of stock exchanges, there is still no organized
public market for such securities. This may increase the difficulty of
valuing the Fund's investments. No established secondary markets may exist
for many of the securities in which the Fund may invest. Reduced secondary
market liquidity may have an adverse effect on market price and the Fund's
ability to dispose of particular instruments when necessary to meet its
liquidity requirements or in response to specific economic events such as a
deterioration in the creditworthiness of the issuer. Reduced secondary
market liquidity for securities may also make it more difficult for the Fund
to obtain accurate market quotations for purposes of valuing its portfolio
and calculating its net asset value. Market quotations are generally
available on many emerging country securities only from a limited number of
dealers and may not necessarily represent firm bids of those dealers or
prices for actual sales.
Because of the recent formation of the securities markets as well as the
underdeveloped state of the banking and telecommunications systems,
settlement, clearing and registration transactions are subject to significant
risks not normally associated with investments in the United States and other
more developed markets. Ownership of shares (except where shares are held
through depositories that meet the requirements of the 1940 Act) is defined
according to entries in the company's share register and normally evidenced
by extracts from the register or in certain limited cases by formal share
certificates. However, there is not a central registration system and these
services are carried out by the companies themselves or by registrars located
throughout Russia. These registrars are not necessarily subject to effective
state supervision and its possible for the Fund to lose its registration
through fraud, negligence and even mere oversight. The laws and regulations
in Russia affecting Western investment business continue to evolve in an
unpredictable manner. Russian laws and regulations, particularly those
involving taxation, foreign investment and trade, title to property or
securities, and transfer of title, applicable to the Fund's activities are
relatively new and can change quickly and unpredictably in a manner far more
volatile than in the United States or other developed market economies.
Although basic commercial laws are in place, they are often unclear or
contradictory and subject to varying interpretation, and may at any time be
amended, modified, repealed or replaced in a manner adverse to the interest
of the Fund. There is still lacking a cohesive body of law and precedents
normally encountered in business environments. Foreign investment in Russian
companies is, in certain cases, legally restricted. Sometimes these
restrictions are contained in constitutional documents of an enterprise which
are not publicly available. Russian foreign investment legislation currently
guarantees the right of foreign investors to transfer abroad income received
on investments such as profits, dividends and interest payments. This right
is subject to settlement of all applicable taxes and duties. However, more
recent legislation governing currency regulation and control guarantees the
right to export interest, dividends and other income on investments, but does
not expressly permit the repatriation of capital from the realization of
investments. Current practice is to recognize the right to repatriation of
capital. Authorities currently do not attempt to restrict repatriation
beyond the extent of the earlier law. No guarantee can be made, however,
that amounts representing realization of capital of income will be capable of
being remitted. If, for any reason, the Fund were unable to distribute an
amount equal to substantially all of its investment company taxable income
(as defined for U.S. tax purposes) within applicable time periods, the Fund
would not qualify for the favorable U.S. federal income tax treatment
afforded to regulated investment companies, or, even if it did so qualify, it
might become liable for income and excise taxes on undistributed income.
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Russian courts lack experience in commercial dispute resolution and many
of the procedural remedies for enforcement and protection of legal rights
typically found in Western jurisdictions are not available in Russia. There
remains uncertainty as to the extent to which local parties and entities,
including Russian state authorities, will recognize the contractual and other
rights of the parties with which they deal. Accordingly, there will be
difficulty and uncertainty in the Fund's ability to protect and enforce its
rights against Russian state and private entities. There is also no
assurance that the Russian courts will recognize or acknowledge that the Fund
has acquired title to any property or securities in which the Fund invests,
or that the Fund is the owner of any property or security held in the name of
a nominee which has acquired such property or security on behalf of the Fund,
because there is at present in Russia no reliable system or legal framework
regarding the registration of titles. There can be no assurance that this
difficulty in protecting and enforcing rights in Russia will not have a
material adverse effect on the Fund and its operations. Difficulties are
likely to be encountered enforcing judgments of foreign courts within Russia
or of Russian courts in foreign jurisdictions due to the limited number of
countries which have signed treaties for mutual recognition of court
judgments with Russia.
DEFENSIVE PURPOSES
The Funds may invest up to 20% of their respective net assets in cash or
cash items. In addition, for temporary or defensive purposes, the Funds may
invest in cash or cash items without limitation. The "cash items" in which
the Funds may invest, include short-term obligations such as rated commercial
paper and variable amount master demand notes; United States
dollar-denominated time and savings deposits (including certificates of
deposit); bankers' acceptances; obligations of the United States Government
or its agencies or instrumentalities; repurchase agreements collateralized by
eligible investments of a Fund; securities of other mutual funds which invest
primarily in debt obligations with remaining maturities of 13 months or less
(which investments also are subject to the advisory fee); and other similar
high-quality short-term United States dollar-denominated obligations. The
other mutual funds in which the Funds may so invest include money market
funds advised by the Fund's investment adviser.
INVESTMENT RESTRICTIONS
Each of the Funds is "diversified" as defined in the Investment Company Act
of 1940. This means that at least 75% of the value of the Fund's total assets
is represented by cash and cash items, government securities, securities of
other investment companies, and securities of other issuers, which for purposes
of this calculation, are limited in respect of any one issuer to an amount not
greater in value than 5% of the Fund's total assets and to not more than 10% of
the outstanding voting securities of such issuer.
Each Fund is also subject to certain "fundamental" investment restrictions,
which may not be changed without the vote of a "majority" of the Fund's
outstanding shares. As used in the applicable Prospectus and this Statement of
Additional Information, "majority" means the lesser of (i) 67% of a Fund's
outstanding shares present at a meeting of the holders if more than 50% of the
outstanding shares are present in person or by proxy or (ii) more than 50% of a
Fund's outstanding shares. 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.
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HORIZON FUND
Horizon Fund will NOT:
(1) Purchase any security (other than securities issued or guaranteed by
the United States Government, its agencies or instrumentalities) if,
as a result, more than 5% of the Fund's total assets would be invested
in securities of a single issuer, except that up to 25% of the value
of the Fund's total assets may be invested without regard to this
limitation; [Note: see "Additional Investment Restrictions" below.]
(2) Purchase any security if, as a result, more than 25% of the Fund's
total assets would be invested in the securities of issuers conducting
their principal business activities in a single industry;
(3) Purchase securities on margin (but it may obtain such short-term
credits as may be necessary for the clearance of purchases and sales
or securities); or make short sales except short sales against the box
where it owns the securities sold or, by virtue of ownership of other
securities, it has the right to obtain, without payment of further
consideration, securities equivalent in kind and amount to those sold;
(4) Acquire more than 10% of any class of securities of an issuer (taking
all preferred stock issues of an issuer as a single class and all debt
issues of an issuer as a single class) or acquire more than 10% of the
outstanding voting securities of an issuer;
(5) Borrow money, except from banks and only as a temporary measure for
extraordinary or emergency purposes and not in excess of 5% of its net
assets;
(6) Mortgage, pledge, hypothecate, or in any manner transfer, as security
for indebtedness, any assets of the Fund;
(7) Invest more than a total of 5% of its total assets in securities of
businesses (including predecessors) less than three years old or
equity securities which are not readily marketable;
(8) Purchase or retain securities of any company if officers and directors
of the Fund or of its investment adviser who individually own more
than 1/2 of 1% of the shares or securities of that company, together
own more than 5%;
(9) Make loans, except by purchase of bonds, debentures, commercial paper,
certificates of deposit, corporate notes and similar evidences of
indebtedness, which are a part of an issue to the public or to
financial institutions, and except loans of portfolio securities to
broker-dealers and financial institutions, determined by the Fund to
have sufficient financial responsibility, if such loans are secured at
all times by cash or securities issued or guaranteed by the United
States Government, its agencies or instrumentalities, in an amount at
all times equal to at least 100% of the market value of the portfolio
securities loaned and if, immediately after making such loan, the
total amount of portfolio securities loaned does not exceed 20% of the
market value of the Fund's total assets;
(10) Buy or sell oil, gas or other mineral leases, rights or royalty
contracts, real estate or interests in real estate which are not
readily marketable, commodities or commodity contracts. (This does
not prevent the Fund from purchasing securities of companies investing
in the foregoing.);
(11) Act as an underwriter of securities, except to the extent the Fund may
be deemed to be an underwriter, under the federal securities laws, in
connection with the disposition of portfolio securities;
(12) Make investments for the purpose of exercising control or management;
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<PAGE>
(13) Participate on a joint or joint and several basis in any trading
account in securities;
(14) Write put or call options, except covered call options which are
traded on national securities exchanges with respect to common stocks
in its portfolio, in an aggregate amount not greater than 15% of its
net assets; or purchase options, except call options in order to close
out a position;
(15) Invest in the securities of other investment companies with an
aggregate value in excess of 5% of the Fund's total assets, except
securities acquired as a result of a merger, consolidation or
acquisition of assets;
(16) Purchase or sell any securities other than Fund shares from or to its
investment adviser or any officer or director of the Fund or its
investment adviser; or
(17) Invest more than a total of 10% of the Fund's net assets in securities
restricted as to disposition under federal securities laws or
otherwise or other illiquid assets (which include repurchase
agreements with a maturity of over seven days).
SPECTRUM FUND
Spectrum Fund will NOT:
(1) Purchase any security (other than securities issued or guaranteed by
the United States Government, its agencies or instrumentalities) if,
as a result, more than 5% of the Fund's total assets would be invested
in securities of a single issuer, except that up to 25% of the value
of the Fund's total assets may be invested without regard to this
limitation;
(2) Purchase any security if, as a result, more than 25% of the Fund's
total assets would be invested in the securities of issuers conducting
their principal business activities in a single industry, provided
that (a) telephone, gas and electric public utilities are each
regarded as separate industries and (b) banking, savings and loan
associations, savings banks and finance companies as a group will not
be considered a single industry for the purpose of this limitation.
There is no limitation with respect to the concentration of
investments in securities issued or guaranteed by the United States
Government, its agencies or instrumentalities or certificates of
deposit and bankers' acceptances of United States banks and savings
and loan associations; [Note: see "Additional Investment
Restrictions" below.]
(3) Purchase any security on margin (but it may obtain such short-term
credits as may be necessary for the clearance of purchases and sales
of securities);
(4) Make short sales except short sales against the box where it owns the
securities sold or, by virtue of ownership of other securities, it has
the right to obtain, without payment of further consideration,
securities equivalent in kind and amount to those sold;
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<PAGE>
(5) Acquire more than 10% of any class of securities of an issuer (taking
all preferred stock issues of an issuer as a single class and all debt
issues of an issuer as a single class) or acquire more than 10% of the
outstanding voting securities of an issuer;
(6) Borrow money, except from banks and only as a temporary measure for
extraordinary or emergency purposes and not in excess of 5% of its net
assets; [Note: see "Additional Investment Restrictions" below.]
(7) Mortgage, pledge, hypothecate, or in any manner transfer, as security
for indebtedness, any assets of the Fund, except that this limitation
shall not apply to deposits made in connection with the entering into
and holding of interest rate futures contracts;
(8) Invest more than a total of 5% of its total assets in securities of
businesses (including predecessors) less than three years old or
equity securities which are not readily marketable;
(9) Purchase or retain securities of any company if officers and directors
of the Fund or of its investment adviser who individually own more
than 1/2 of 1% of the shares of securities of that company, together
own more than 5%;
(10) Make loans, except by purchase of qualified debt obligations referred
to in the Prospectus and except loans of portfolio securities to
broker-dealers and financial institutions, determined by the Fund's
investment adviser to have sufficient financial responsibility, if
such loans are secured at all times by cash or securities issued or
guaranteed by the United States Government, its agencies or
instrumentalities, in an amount at all times equal to at least 100% of
the market value of the portfolio securities loaned and if,
immediately after making such loans, the total amount of portfolio
securities loaned does not exceed 20% of the market value of the
Fund's total assets;
(11) Buy or sell oil, gas or other mineral leases, rights or royalty
contracts, real estate or interests in real estate which are not
readily marketable, commodities or commodity contracts. (This does
not prevent the Fund from purchasing securities of companies investing
in the foregoing.);
(12) Act as an underwriter of securities, except to the extent the Fund may
be deemed to be an underwriter, under the federal securities laws, in
connection with the disposition of portfolio securities;
(13) Make investments for the purpose of exercising control or management;
(14) Participate on a joint or joint and several basis in any trading
account in securities;
(15) Write call or purchase put options, except covered options which are
traded on national securities exchanges with respect to securities in
its portfolio, in an amount not greater than 15% of its net assets, or
purchase a call option or write a put option, except to close out a
position;
(16) Invest in the securities of other investment companies with an
aggregate value in excess of 5% of the Fund's total assets, except
securities acquired as a result of a merger, consolidation or
acquisition of assets; or
(17) Invest more than a total of 10% of the Fund's net assets in securities
restricted as to disposition under federal securities laws or
otherwise or other illiquid assets.
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<PAGE>
MORTGAGE SECURITIES FUND
Mortgage Securities Fund will NOT:
(1) Purchase any security (other than securities issued or guaranteed by
the United States Government, its agencies or instrumentalities) if,
as a result, more than 5% of the Fund's total assets would be invested
in securities of a single issuer, except that up to 25% of the value
of the Fund's total assets may be invested without regard to this
limitation;
(2) Purchase any security if, as a result, more than 25% of the Fund's
total assets would be invested in the securities of issuers conducting
their principal business activities in a single industry, except that
this limitation shall not apply to investment in the mortgage and
mortgage-finance industry (in which more than 25% of the value of the
Fund's total assets will, except for temporary defensive positions, be
invested) or securities issued or guaranteed by the United States
Government, its agencies or instrumentalities; [Note: see "Additional
Investment Restrictions" below.]
(3) Purchase securities on margin (but it may obtain such short-term
credits as may be necessary for the clearance of purchases and sales
of securities); or make short sales except short sales against the box
where it owns the securities sold or, by virtue of ownership of other
securities, it has the right to obtain, without payment of further
consideration, securities equivalent in kind and amount to those sold;
(4) Lend its portfolio securities;
(5) Borrow money except from banks and only as a temporary measure for
extraordinary or emergency purposes and not in excess of 5% of its net
assets;
(6) Mortgage, pledge, hypothecate, or in any manner transfer, as security
for indebtedness, any assets of the Fund, except that this limitation
shall not apply to deposits made in connection with the entering into
and holding of interest rate futures contracts;
(7) Invest more than a total of 5% of its total assets in securities of
businesses (including predecessors) less than three years old or
equity securities which are not readily marketable;
(8) Purchase or retain securities of any company if officers and directors
of the Fund or of its investment adviser who individually own more
than 1/2 of 1% of the shares or securities of the company, together
own more than 5%;
(9) Make loans, except by purchase of qualified debt obligations referred
to in the Prospectus and in "Investment Objectives and Policies"
above;
(10) Buy or sell (a) oil, gas or other mineral leases, rights or royalty
contracts; (b) real estate, except that it may invest in
mortgage-related securities and whole loans and purchase and sell
securities of companies which deal in real estate or interests
therein; or (c) commodities or commodity contracts, except that it may
invest in interest rate futures contracts;
(11) Act as an underwriter of securities, except to the extent the Fund may
be deemed to be an underwriter, under the federal securities laws, in
connection with the disposition of portfolio securities;
(12) Make investments for the purpose of exercising control or management;
(13) Invest in the securities of other investment companies with an
aggregate value in excess of 5% of the Fund's total assets, except
securities acquired as a result of a merger, consolidation or
acquisition of assets; or
(14) Invest more than a total of 10% of the Fund's net assets in securities
restricted as to disposition under federal securities laws or
otherwise or other illiquid assets (which include put and call
options).
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<PAGE>
MONEY MARKET FUND - (Restriction number 15 is not "fundamental.")
The Money Market Fund is subject to the investment restrictions of Rule
2a-7 under the Investment Company Act of 1940, as amended (the "1940 Act"),
in addition to its other policies and restrictions discussed below. Pursuant
to Rule 2a-7, the Fund is required to invest exclusively in securities that
mature within 397 days from the date of purchase and to maintain an average
weighted maturity of not more than 90 days. Rule 2a-7 also requires that all
investments by the 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 Money Market 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, Money Market Fund will NOT:
(1) Purchase any security (other than securities issued or guaranteed by
the United States Government, its agencies or instrumentalities) if,
as a result, more than 5% of the Fund's total assets would be invested
in securities of a single issuer;
(2) Purchase any security if, as a result, more than 25% of the Fund's
total assets would be invested in the securities of issuers conducting
their principal business activities in a single industry; provided
that (a) telephone, gas, and electric public utilities are each
regarded as separate industries and (b) United States banks, savings
and loan associations, savings banks and finance companies are each
regarded as separate industries for the purpose of this limitation.
There are no limitations with respect to the concentration of
investments in securities issued or guaranteed by the United States
Government, its agencies or instrumentalities, or certificates of
deposit and bankers acceptances of domestic branches of United States
banks; [Note: see "Additional Investment Restrictions" below.]
(3) Purchase securities on margin (but it may obtain such short-term
credits as may be necessary for the clearance of purchases and sales
of securities); or make short sales except short sales against the box
where it owns the securities sold or, by virtue of ownership of other
securities, it has the right to obtain, without payment of further
consideration, securities equivalent in kind and amount to those sold,
and only to the extent that the Fund's short positions will not at the
time of any short sale aggregate in total sale prices more than 10% of
its total assets;
(4) Acquire more than 10% of any class of securities of an issuer (taking
all preferred stock issues of an issuer as a single class and all debt
issues of an issuer as a single class) or acquire more than 10% of the
outstanding voting securities of an issuer;
(5) Borrow money or enter into reverse repurchase agreements in excess of
5% of its net assets and, with respect to borrowing money, only from
banks and only as a temporary measure for extraordinary or emergency
purposes;
(6) Mortgage, pledge, hypothecate, or in any manner transfer, as security
for indebtedness, any assets of the Fund;
(7) Invest more than 5% of its total assets in securities of businesses
(including predecessors) less than three years old;
(8) Purchase or retain securities of any company if officers and directors
of the Fund or of its investment adviser who individually own more
than 1/2 of 1% of the shares or securities of that company, together
own more than 5%;
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<PAGE>
(9) Make loans, except by purchase of bonds, debentures, commercial paper,
corporate notes and similar evidences of indebtedness, which are a
part of an issue to the public or to financial institutions;
(10) Buy or sell oil, gas or other mineral leases, rights or royalty
contracts, real estate or interests in real estate which are not
readily marketable, commodities or commodity contracts. (This does
not prevent the Fund from purchasing securities of companies investing
in the foregoing.);
(11) Act as an underwriter of securities, except to the extent the Fund
maybe deemed to be an underwriter in connection with the disposition
of portfolio securities;
(12) Make investments for the purpose of exercising control or management;
(13) Participate on a joint or joint and several basis in any trading
account in securities;
(14) Write or purchase put or call options, or combinations thereof;
(15) Enter into repurchase agreements maturing in more than seven days,
purchase certificates of deposit of banks and savings and loan
associations which at the date of the investment have total assets (as
of the date of their most recent annual financial statements) of less
than $2 billion, purchase variable amount master demand notes, or
invest in any other illiquid assets, if such investments taken
together exceed 10% of the Fund's net assets (This restriction is
non-fundamental.); or
(16) Invest in the securities of other investment companies with an
aggregate value in excess of 5% of the Fund's total assets, except
securities acquired as a result of a merger, consolidation or
acquisition of assets.
BOND FUND - (Restriction number 16 is not "fundamental.")
Bond Fund will NOT:
(1) Purchase any security (other than securities issued or guaranteed by
the United States Government, its agencies or instrumentalities) if,
as a result, more than 5% of the Fund's total assets would be invested
in securities of a single issuer, except that up to 25% of the value
of the Fund's total assets may be invested without regard to this
limitation;
(2) Purchase any security if, as a result, 25% or more of the Fund's total
assets would be invested in the securities of issuers conducting their
principal business activities in a single industry, provided that (a)
the electric, telephone, gas, gas transmission, water, telegraph and
satellite communications utilities are each regarded as separate
industries, and (b) banks, savings and loan associations, savings
banks, and finance companies are each regarded as separate industries.
There is no limitation with respect to the concentration of
investments in securities issued or guaranteed by the United States
Government, its agencies or instrumentalities;
(3) Purchase securities on margin (but it may obtain such short-term
credits as may be necessary for the clearance of purchases and sales
or securities); or make short sales except short sales against the box
where it owns the securities sold or, by virtue of ownership of other
securities, it has the right to obtain, without payment of further
consideration, securities equivalent in kind and amount to those sold;
-39-
<PAGE>
(4) Acquire more than 10% of any class of securities of an issuer (taking
all preferred stock issues of an issuer as a single class and all debt
issues of an issuer as a single class) or acquire more than 10% of the
outstanding voting securities of an issuer;
(5) Borrow money, except from banks and only as a temporary measure for
extraordinary or emergency purposes, including the meeting of
redemption requests which might otherwise require the untimely
disposition of securities, and not in excess of 5% of its net assets;
or enter into reverse repurchase agreements;
(6) Mortgage, pledge, hypothecate, or in any manner transfer, as security
for indebtedness, any assets of the Fund, except that this limitation
shall not apply to deposits made in connection with the entering into
and holding of interest rate futures contracts;
(7) Invest more than a total of 5% of its total assets in securities of
businesses (including predecessors) less than three years old or
equity securities which are not readily marketable;
(8) Purchase or retain securities of any company if officers and directors
of the Fund or of its investment adviser who individually own more
than 1/2 of 1% of the shares or securities of that company, together
own more than 5%;
(9) Make loans, except by purchase of qualified debt obligations referred
to in the Prospectus and under "Investment Objectives and Policies"
above, and except loans of portfolio securities to broker-dealers and
financial institutions, determined by the Fund to have sufficient
financial responsibility, if such loans are secured at all times by
cash or securities issued or guaranteed by the United States
Government, its agencies or instrumentalities, in an amount at all
times equal to at least 100% of the market value of the portfolio
securities loaned and if, immediately after making such loan, the
total amount of portfolio securities loaned does not exceed 20% of the
market value of the Fund's total assets;
(10) Buy or sell oil, gas or other mineral leases, rights or royalty
contracts, real estate, or interests in real estate which are not
readily marketable, commodities or commodity contracts, except that it
may invest in interest rate futures contracts. (This does not prevent
the Fund from purchasing securities of companies investing in the
foregoing.);
(11) Act as an underwriter of securities, except to the extent the Fund may
be deemed to be an underwriter, under the federal securities laws, in
connection with the disposition of portfolio securities;
(12) Make investments for the purpose of exercising control or management;
(13) Participate on a joint or joint and several basis in any trading
account in securities (but this does not prohibit the "bunching" of
orders for the sale or purchase of the Fund's portfolio securities
with other accounts advised by the Fund's investment adviser to reduce
brokerage commissions or otherwise to achieve best overall execution);
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<PAGE>
(14) Invest in the securities of other investment companies with an
aggregate value in excess of 5% of the Fund's total assets, except
securities acquired as a result of a merger, consolidation or
acquisition of assets;
(15) Invest more than a total of 10% of the Fund's net assets in securities
restricted as to disposition under federal securities laws or
otherwise or other illiquid assets (which include repurchase
agreements with a maturity of over seven days and OTC options for
which there is no secondary market); or
(16) Invest more than 10% of its net assets in securities of foreign
issuers which are not U.S. dollar-denominated and publicly traded in
the United States. (This restriction is non-fundamental.)
CORNERSTONE FUND AND ENTERPRISE FUND - (The investment restrictions numbered 1
through 7 below are fundamental. Restrictions numbered 8 through 14 are not
fundamental.)
Cornerstone Fund and Enterprise Fund will NOT:
(1) Purchase any security if, as a result, 25% or more of the Fund's total
assets would be invested in the securities of issuers conducting their
principal business activities in a single industry;
(2) Purchase securities on margin (but it may obtain such short-term
credits as may be necessary for the clearance of purchases and sales
or securities); or make short sales except short sales against the box
where it owns the securities sold or, by virtue of ownership of other
securities, it has the right to obtain, without payment of further
consideration, securities equivalent in kind and amount to those sold;
(3) Borrow money, except from banks and only as a temporary measure for
extraordinary or emergency purposes and not in excess of 5% of its net
assets;
(4) Mortgage, pledge, hypothecate, or in any manner transfer, as security
for indebtedness, any assets of the Fund;
(5) Make loans, except by purchase of bonds, debentures, commercial paper,
certificates of deposit, corporate notes and similar evidences of
indebtedness, which are a part of an issue to the public or to
financial institutions, and except loans of portfolio securities to
broker-dealers and financial institutions, determined by the Fund to
have sufficient financial responsibility, if such loans are secured at
all times by cash or securities issued or guaranteed by the United
States Government, its agencies or instrumentalities, in an amount at
all times equal to at least 100% of the market value of the portfolio
securities loaned and if, immediately after making such loan, the
total amount of portfolio securities loaned does not exceed 20% of the
market value of the Fund's total assets;
-41-
<PAGE>
(6) Buy or sell oil, gas or other mineral leases, rights or royalty
contracts, real estate, real estate limited partnership interests, or
interests in real estate which are not readily marketable, commodities
or commodity contracts. (This does not prevent the Fund from
purchasing securities of companies investing in the foregoing.);
(7) Act as an underwriter of securities, except to the extent the Fund may
be deemed to be an underwriter, under the federal securities laws, in
connection with the disposition of portfolio securities;
(8) Purchase or retain securities of any company if officers and directors
of the Fund or of its investment adviser who individually own more
than 1/2 of 1% of the shares or securities of that company, together
own more than 5%;
(9) Make investments for the purpose of exercising control or management;
(10) Participate on a joint or joint and several basis in any trading
account in securities;
(11) Write put or call options, except covered call options which are
traded on national securities exchanges with respect to common stocks
in its portfolio, in an aggregate amount not greater than 15% of its
net assets; or purchase options, except call options in order to close
out a position;
(12) Invest in the securities of other investment companies with an
aggregate value in excess of 5% of the Funds total assets, except
securities acquired as a result of a merger, consolidation or
acquisition of assets;
(13) Purchase or sell any securities other than Fund shares from or to its
investment adviser or any officer or director of the Fund or its
investment adviser; or
(14) Invest more than a total of 10% of the Fund's net assets in securities
or other assets, including repurchase agreements with a maturity of
over seven days, which are illiquid or securities of businesses
(including predecessors) less than three years old; provided that
investments in securities of businesses (including predecessors) less
than three years old will in no event exceed in the aggregate more
than 5% of the Fund's net assets.
INTERNATIONAL FUND - (The investment restrictions numbered 1 through 7 below
are fundamental. Restrictions numbered 8 through 15 are not fundamental.)
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<PAGE>
International Fund will NOT:
(1) Purchase any security if, as a result, 25% or more of the Fund's total
assets would be invested in the securities of issuers conducting their
principal business activities in a single industry;
(2) Purchase securities on margin (but it may obtain such short-term
credits as may be necessary for the clearance of purchases and sales
or securities); or make short sales except short sales against the box
where it owns the securities sold or, by virtue of ownership of other
securities, it has the right to obtain, without payment of further
consideration, securities equivalent in kind and amount to those sold;
(3) Borrow money, except from banks and only as a temporary measure for
extraordinary or emergency purposes and not in excess of 5% of its net
assets;
(4) Mortgage, pledge, hypothecate, or in any manner transfer, as security
for indebtedness, any assets of the Fund;
(5) Make loans, except by purchase of bonds, debentures, commercial paper,
certificates of deposit, corporate notes and similar evidences of
indebtedness, which are a part of an issue to the public or to
financial institutions, and except loans of portfolio securities to
broker-dealers and financial institutions, determined by the Fund to
have sufficient financial responsibility, if such loans are secured at
all times by cash or securities issued or guaranteed by the United
States Government, its agencies or instrumentalities, in an amount at
all times equal to at least 100% of the market value of the portfolio
securities loaned and if, immediately after making such loan, the
total amount of portfolio securities loaned does not exceed 20% of the
market value of the Fund's total assets;
(6) Buy or sell oil, gas or other mineral leases, rights or royalty
contracts, real estate, real estate limited partnership interests, or
interests in real estate which are not readily marketable, commodities
or commodity contracts, except the Fund may purchase and sell futures
contracts on financial instruments and indices, and options on such
futures contracts. (This does not prevent the Fund from purchasing
securities of companies investing in the foregoing.);
(7) Act as an underwriter of securities, except to the extent the Fund may
be deemed to be an underwriter, under the federal securities laws, in
connection with the disposition of portfolio securities;
(8) Purchase or retain securities of any company if officers and directors
of the Fund or of its investment adviser who individually own more
than 1/2 of 1% of the shares or securities of that company, together
own more than 5%;
(9) Make investments for the purpose of exercising control or management;
(10) Participate on a joint or joint and several basis in any trading
account in securities;
(11) Write put or call options, except covered call options which are
traded on national securities exchanges with respect to common stocks
in its portfolio, in an aggregate amount not greater than 15% of its
net assets; or purchase options, except call options in order to close
out a position;
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<PAGE>
(12) Invest in the securities of other investment companies with an
aggregate value in excess of 10% of the Fund's total assets, except
securities acquired as a result of a merger, consolidation or
acquisition of assets;
(13) Purchase or sell any securities other than Fund shares from or to its
investment adviser or any officer or director of the Fund or its
investment adviser;
(14) Invest more than a total of 10% of the Fund's net assets in securities
or other assets, including repurchase agreements with a maturity of
over seven days, which are illiquid or securities of businesses
(including predecessors) less than three years old; provided that
investments in securities of businesses (including predecessors) less
than three years old will in no event exceed in the aggregate more
than 5% of the Fund's net assets; or
(15) Invest more than 5% of its assets in warrants other than warrants
acquired in units or attached to other securities; provided, that of
such 5%, not more than 2% of the Fund's assets shall be invested in
warrants that are not exchange listed.
ADDITIONAL INVESTMENT RESTRICTIONS
In addition, as a non-fundamental restriction, each of the Funds will not
issue any senior securities, as defined in the Investment Company Act of 1940,
except to the extent that using options and futures contracts or purchasing or
selling securities on a when-issued or forward commitment basis may be deemed to
constitute issuing a senior security. Certain of the Funds have agreed with the
staff of the Securities and Exchange Commission that, as a non-fundamental
operating policy, the following additional investment restrictions, which modify
certain of the fundamental investment restrictions described above, will be
observed:
(1) Horizon Fund, Spectrum Fund, Mortgage Securities Fund and Money Market
Fund will not purchase any security if, as a result, "25% or more" of
the Fund's total assets would be invested in the securities of issuers
conducting their principal business activities in a single industry
(see investment restriction number 2 for each Fund).
(2) Spectrum Fund, in applying the limitation on investments in securities
of issuers conducting their principal business activities in a single
industry (see Spectrum Fund investment restriction number 2, as
modified by additional investment restriction number 1 above), will
also apply such limitation to certificates of deposit and bankers'
acceptances of United States banks and savings and loan associations.
(3) Spectrum Fund shall include reverse repurchase agreements as a
"borrowing" for purposes of applying the Fund's 5% of net assets
limitation on borrowing money (see Spectrum Fund investment
restriction number 6).
ALL FUNDS
With respect to each of the Funds, any investment policy set forth under
"Investing in the Fund - Investment Policies and Practices" in the applicable
Prospectus, under "Investment Objectives and Policies" above, or any restriction
set forth above which involves a maximum percentage of securities or assets
shall not be considered to be violated unless an excess over the percentage
occurs immediately after an acquisition of securities or utilization of assets
and results therefrom, or unless the Investment Company Act of 1940 provides
otherwise.
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<PAGE>
PORTFOLIO TURNOVER
Portfolio turnover is the ratio of the lesser of annual purchases or sales
of portfolio securities to the average monthly value of portfolio securities,
not including short-term securities. A 100% portfolio turnover rate would
occur, for example, if the lesser of the value of purchases or sales of
portfolio securities for a particular year were equal to the average monthly
value of the portfolio securities owned during such year.
Horizon Fund makes changes in its portfolio securities which are considered
advisable in light of market conditions. Frequent changes may result in higher
brokerage and other costs for the Fund. For the fiscal years ended September
30, 1999 and 1998, the Fund's portfolio turnover rates were 60.1% and 72.6%,
respectively.
Spectrum Fund's objective and policies may cause the annual portfolio
turnover rate to be higher than the average turnover rate of other investment
companies. Accordingly, the Fund may have high brokerage and other costs. A
portfolio turnover rate that exceeds 100% is considered high and will result in
higher costs. For the fiscal years ended September 30, 1999 and 1998, the
Fund's portfolio turnover rates were 100.8% and 139.8%, respectively.
Mortgage Securities Fund's investment activities may result in the Fund's
engaging in a considerable amount of trading of securities held for less than
one year. Accordingly, it can be expected that the Fund will have a higher
turnover rate, and thus a higher incidence of brokerage and other costs, than
might be expected from investment companies which invest substantially all of
their funds on a long-term basis. A portfolio turnover rate that exceeds 100%
is considered high and will result in higher costs. For the fiscal years ended
September 30, 1999 and 1998, the Fund's portfolio turnover rates were 127.1% and
152.5%, respectively.
Money Market Fund, consistent with its investment objective, attempts to
maximize yield through portfolio trading. This may involve selling portfolio
instruments and purchasing different instruments to take advantage of
disparities of yields in different segments of the high grade money market or
among particular instruments within the same segment of the market. As a
result, the Fund may have significant portfolio turnover. There usually are no
brokerage commissions paid by the Fund for such purchases since such securities
are purchased on a net basis. Since securities with maturities of less than one
year are excluded from required portfolio turnover rate calculations, the Fund's
portfolio turnover rate for reporting purposes is zero.
Bond Fund makes changes in its portfolio securities which are considered
advisable in light of market conditions. Portfolio turnover rates may vary
greatly from year to year and within a particular year and may also be affected
by cash requirements for redemptions of Fund shares. Rate of portfolio turnover
is not a limiting factor, however, and particular holdings may be sold at any
time, if, in the opinion of the Fund's investment adviser, such a sale is
advisable. A portfolio turnover rate that exceeds 100% is considered high and
will result in higher costs. For the fiscal years ended September 30, 1999 and
1998 the Fund's portfolio turnover rates were 211.9% and 237.2%, respectively.
Cornerstone Fund and Enterprise Fund each make changes in their portfolio
securities which are considered advisable in light of market conditions.
Frequent changes may result in higher brokerage and other costs for the Funds.
Portfolio turnover rates may vary greatly from year to year and within a
particular year and may also be affected by cash requirements for redemptions of
Fund shares. Neither Fund emphasizes short-term trading profits. For the
fiscal years ended September 30, 1999 and 1998 Cornerstone Fund's portfolio
turnover rate was 78.7% and 114.4%, respectively. For the fiscal years ended
September 30, 1999 and 1998 Enterprise Fund's portfolio turnover rate was 99.3%
and 71.1%, respectively.
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<PAGE>
International Fund also makes changes in its portfolio securities which are
considered advisable in light of market conditions. The Fund does not emphasize
short-term trading profits. For the fiscal years ended September 30, 1999 and
1998, International Fund's portfolio turnover rate was 73.8% and 57.0%,
respectively.
DIRECTORS AND EXECUTIVE OFFICERS
The names, addresses, principal occupations, and other affiliations of
directors and executive officers of each of the Funds are given below:
<TABLE>
<CAPTION>
Position with Principal Occupation and other
Name and Address the Funds Affiliations (Past 5 Years)
- ---------------- --------- ------------------------------
<S> <C> <C>
William N. Westhoff* President President, Treasurer and 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
Frederick P. Feuerherm* Vice President, Vice President, Assistant Secretary
Advantus Capital Director and and Director, Advantus Capital
Management, Inc. Treasurer Management, Inc.; Vice President,
400 Robert Street North Minnesota Life Insurance Company;
St. Paul, Minnesota 55101 Vice President and Director, MIMLIC
Funding, Inc.; Vice President and
Assistant Secretary, MCM Funding 1997-1,
Inc.; Vice President and Assistant
Secretary, MCM Funding 1998-1, Inc.
Ralph D. Ebbott Director Retired, Vice President and Treasurer
409 Birchwood Avenue of Minnesota Mining and Manufacturing
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 Funds who are "interested persons" (as defined under
the Investment Company Act of 1940) of the Funds.
- ----------------------------
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<PAGE>
Legal fees and expenses are paid to the law firm of which Michael J. Radmer
is a partner. No compensation is paid by any of the Advantus Funds to any of
its officers or directors who is affiliated with Advantus Capital Management,
Inc. ("Advantus Capital"). Each director of the Funds who is not affiliated
with Advantus Capital also a director of the other five investment companies of
which Advantus Capital is the investment adviser (13 investment companies in
total -- the "Fund Complex"). As of the date hereof, such directors receive
compensation in connection with all such investment companies which, in the
aggregate, is equal to $8,000 per year and $2,000 per meeting attended (and
reimbursement of travel expenses to attend directors' meetings). The portion of
such compensation borne by any Fund is a pro rata portion based on the ratio
that such Fund's total net assets bears to the total net assets of the Fund
Complex. During the fiscal year ended September 30, 1998, each Director not
affiliated with Advantus Capital or was compensated by the funds in accordance
with the following table:
<TABLE>
<CAPTION>
Pension or Total
Retirement Compensation
Aggregate Benefits Estimated From Funds and
Compensation Accrued as Annual Fund Complex
from the Part of Fund Benefits Upon Paid to
Name of Director Funds(1) Expenses Retirement Directors
---------------- -------- -------- ---------- ---------
<S> <C> <C> <C> <C>
Charles E. Arner $3,346.47 n/a n/a $20,000
Ellen S. Berscheid $3,346.47 n/a n/a $20,000
Ralph D. Ebbott $3,346.47 n/a n/a $20,000
</TABLE>
(1) During the fiscal year ended September 30, 1999, each Director not
affiliated with Advantus Capital received $446.52 from Horizon Fund, $602.67
from Spectrum Fund, $309.39 from Mortgage Securities Fund, $288.23 from Money
Market Fund, $190.05 from Bond Fund, $297.11 from Enterprise Fund, $833.86 from
Cornerstone Fund and $293.13 from International Fund.
As of September 30, 1999, the directors and executive officers of the
Funds did not own any shares of the Funds, except for William N. Westhoff who
owned less than 1% of the outstanding shares of Horizon Fund, Spectrum Fund,
Mortgage Securities Fund, Money Market Fund, Enterprise Fund and Cornerstone
Fund, Frederick P. Feuerherm who owned less than 1% of the outstanding shares
of Spectrum Fund, and Michael J. Radmer who owned less than 1% of the
outstanding shares of Spectrum Fund.
DIRECTOR LIABILITY
Under Minnesota law, the Board of Directors of each Fund owes certain
fiduciary duties to the Fund and to its shareholders. Minnesota law provides
that a director "shall discharge the duties of the position of director in
good faith, in a manner the director reasonably believes to be in the best
interest of the corporation, and with the care an ordinarily prudent person
in a like position would exercise under similar circumstances." Fiduciary
duties of a director of a Minnesota corporation include, therefore, both a
duty of "loyalty" (to act in good faith and act in a manner reasonably
believed to be in the best interests of the corporation) and a duty of "care"
(to act with the care an ordinarily prudent person in a like position would
exercise under similar circumstances). Minnesota law also authorizes
corporations to eliminate or limit the personal liability of a director to
the corporation or its shareholders for monetary damages for breach of the
fiduciary duty of "care." Minnesota law does not, however, permit a
corporation to eliminate or limit the liability of a director (i) for any
breach of the directors' duty of "loyalty" to the corporation or its
shareholders, (ii) for acts or omissions not in good faith or that involve
intentional misconduct or a knowing violation of law, (iii) for authorizing a
dividend, stock repurchase or redemption or other distribution in violation
of Minnesota law or for violation of certain provisions of Minnesota
securities laws, or (iv) for any transaction from which the director derived
an improper personal benefit. The Articles of Incorporation of each Fund
limit the liability of directors to the fullest extent permitted by Minnesota
statutes, except to the extent that such liability cannot be limited as
provided in the Investment Company Act of 1940 (which 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).
-47-
<PAGE>
Minnesota law does not eliminate the duty of "care" imposed upon a
director. It only authorizes a corporation to eliminate monetary liability for
violations of that duty. Minnesota law, further, does not permit elimination or
limitation of liability of "officers" to the corporation for breach of their
duties as officers (including the liability of directors who serve as officers
for breach of their duties as officers). Minnesota law does not permit
elimination or limitation of the availability of equitable relief, such as
injunctive or rescissionary relief. Further, Minnesota law does not permit
elimination or limitation of a director's liability under the Securities Act of
1933 or the Securities Exchange Act of 1934, and it is uncertain whether and to
what extent the elimination of monetary liability would extend to violations of
duties imposed on directors by the Investment Company Act of 1940 and the rules
and regulations adopted under such Act.
INVESTMENT ADVISORY AND OTHER SERVICES
GENERAL
Advantus Capital Management, Inc. ("Advantus Capital") has been the
investment adviser and manager of each of the Funds since March 1, 1995. Prior
to that date the Funds' investment adviser was MIMLIC Asset Management Company
("MIMLIC Management"), formerly the parent company of Advantus Capital. Ascend
Financial Services, Inc. ("Ascend Financial") acts as the Funds' underwriter.
Both Advantus Capital and Ascend Financial act as such pursuant to written
agreements that will be periodically considered for approval by the directors or
shareholders of the Fund. The address of both Advantus Capital and Ascend
Financial is 400 Robert Street North, St. Paul, Minnesota 55101.
CONTROL AND MANAGEMENT OF ADVANTUS CAPITAL AND ASCEND FINANCIAL
Advantus Capital was incorporated in Minnesota in June, 1994, and is a
wholly-owned subsidiary of Minnesota Life Insurance Company ("Minnesota
Life"). Minnesota Life is a third-tier subsidiary of a mutual insurance
holding company called Minnesota Mutual Companies, Inc. Minnesota Life was
organized in 1880, and has assets of more than $16.5 billion. Ascend
Financial is a subsidiary of Advantus Capital. William N. Westhoff,
President and a Director of each of the Funds, is President, Treasurer and
Director of Advantus Capital. Frederick P. Feuerherm, Vice President,
Treasurer and a Director of each of the Funds, is a Vice President, Assistant
Secretary and Director of Advantus Capital. 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 Funds under
Investment Advisory Agreements (the "Advisory Agreements") dated March 1, 1995
for each Fund, each of which Advisory Agreements was approved by shareholders on
February 14, 1995. The Advisory Agreements were last approved by the Board of
Directors of each Fund (including a majority of the directors who are not
parties to the contract, or interested persons of any such party) on January 25,
2000. The Advisory Agreements will terminate automatically in the event of
their assignment. In addition, each Advisory Agreement is terminable at any
time, without penalty, by the Board of Directors of the respective Fund or by
vote of a majority of the Fund's outstanding voting securities on not more than
60 days' written notice to Advantus Capital, and by Advantus Capital on 60 days'
written notice to the Fund. Unless sooner terminated, each Advisory Agreement
shall continue in effect for more than two years after its execution only so
long as such continuance is specifically approved at least annually by either
the Board of Directors of the respective Fund or by a vote of a majority of the
outstanding voting securities, provided that in either event such continuance is
also approved by the vote of a majority of the directors who are not parties to
the Advisory Agreement, or interested persons of such parties, cast in person at
a meeting called for the purpose of voting on such approval.
Pursuant to the Advisory Agreements each Fund pays Advantus Capital an
advisory fee equal on an annual basis to a percentage of that Fund's average
daily net assets as set forth in the following table:
-48-
<PAGE>
<TABLE>
<CAPTION>
Advisory Fee as Percentage
Fund of Average Net Assets
---- --------------------------
<S> <C>
Horizon Fund .80%
Spectrum Fund .60%
Mortgage Securities Fund .575%
Money Market Fund .50%
Bond Fund .70%
Cornerstone Fund .80%
Enterprise Fund .80%
International Fund:
On the first $25 million in assets .95%
On the next $25 million in assets .80%
On the next $50 million in assets .75%
On all assets in excess of $100 million .65%
</TABLE>
From the advisory fee received from International Fund, Advantus Capital
pays Templeton Investment Counsel, Inc. a sub-advisory fee equal to .70% on the
first $25 million of International Fund's average daily net assets, .55% on the
next $25 million, .50% on the next $50 million, and .40% on all average daily
net assets in excess of $100 million.
The fees paid by the Funds during the fiscal years ended September 30,
1999, 1998 and 1997 (before Advantus Capital's absorption of certain expenses,
described below) were as follows:
<TABLE>
<CAPTION>
Fund 1999 1998 1997
---- ---------- ---------- --------
<S> <C> <C> <C>
Horizon Fund $ 646,511 $ 503,499 $369,628
Spectrum Fund 613,091 517,339 434,731
Mortgage Securities Fund 287,662 239,294 171,007
Money Market Fund 261,232 288,221 249,110
Bond Fund 207,779 187,219 154,304
Cornerstone Fund 1,005,217 1,091,329 726,045
Enterprise Fund 366,946 397,522 350,613
International Fund 499,749 515,264 436,431
</TABLE>
For this fee, Advantus Capital acts as investment adviser and manager for
the Funds, and, except for Money Market Fund, pays the Funds' transfer agent and
shareholder servicing expenses. Money Market Fund pays its own transfer agent
and shareholder servicing expenses. While the advisory fees paid by Horizon
Fund, Cornerstone Fund, Enterprise Fund and International Fund are higher than
those paid by most mutual funds, they are partially offset by Advantus Capital's
payment of certain expenses, such as the transfer agent and shareholder
servicing expenses, which expenses are not customarily paid for by a mutual
fund's investment adviser.
-49-
<PAGE>
Under the Advisory Agreements, Advantus Capital furnishes the Funds office
space and all necessary office facilities, equipment and personnel for servicing
the investments of the Funds, and pays the salaries and fees of all officers and
directors of the Funds who are affiliated with Advantus Capital. In addition,
except to the extent that Ascend Financial receives Rule 12b-1 distribution fees
(see "Payment of Certain Distribution Expenses of the Funds" below), Ascend
Financial bears all promotional expenses in connection with the distribution of
the Funds' shares, including paying for prospectuses and statements of
additional information for new shareholders, and shareholder reports for new
shareholders, and the costs of sales literature. The Funds pay all other
expenses not so expressly assumed.
During the fiscal years ended September 30, 1999, 1998, and 1997 Advantus
Capital voluntarily absorbed certain expenses of the Funds (which do not include
certain Rule 12b-1 fees waived by Ascend Financial) as set forth below:
<TABLE>
<CAPTION>
Fund 1999 1998 1997
---- ---- ---- ----
<S> <C> <C> <C>
Horizon Fund $ 0 $ 0 $ 0
Spectrum Fund 0 0 0
Mortgage Securities Fund 119,827 119,413 110,000
Money Market Fund 232,015 150,711 139,462
Bond Fund 112,547 101,242 96,058
Cornerstone Fund 0 0 0
Enterprise Fund 0 0 0
International Fund 0 92,869 46,576
</TABLE>
INTERNATIONAL FUND SUB-ADVISER - TEMPLETON COUNSEL
Templeton Investment Counsel, Inc., (hereinafter "Templeton Counsel"), a
Florida corporation with principal offices at 500 East Broward Boulevard, Fort
Lauderdale, Florida 33394 has been retained under an investment sub-advisory
agreement to provide investment advice and, in general, to conduct the
management investment program of the International Fund, subject to the general
control of the Board of Directors of the Fund. Templeton Counsel is an
indirect, wholly-owned subsidiary of Templeton Worldwide, Inc., Fort Lauderdale,
Florida, which in turn is a wholly-owned subsidiary of Franklin Resources, Inc.
("Franklin").
Franklin is a large, diversified financial services organization. Through
its operating subsidiaries, Franklin provides a variety of investment products
and services to institutions and individuals throughout the United States and
abroad. One of the country's largest mutual fund organizations, Franklin's
business includes the provision of management, administrative and distribution
services to the Franklin/Templeton Group of Funds, which is distributed through
a nationwide network of banks, broker-dealers, financial planners and investment
advisers. Franklin is headquartered in San Mateo, California, and its common
stock is listed on the New York Stock Exchange under the ticker symbol BEN.
-50-
<PAGE>
Certain clients of Templeton Counsel may have investment objectives and
policies similar to that of the International Fund. Templeton Counsel may, from
time to time make recommendations which result in the purchase or sale of a
particular security by its other clients simultaneously with Fund. If
transactions on behalf of more than one client during the same period increase
the demand for securities being purchased or the supply of securities being
sold, there may be an adverse effect on price. It is the policy of Templeton
Counsel to allocate advisory recommendations and the placing of orders in a
manner which is deemed equitable by Templeton Counsel to the accounts involved,
including the International Fund. When two or more of the clients of Templeton
Counsel (including the International Fund) are purchasing the same security on a
given day from the same broker-dealer, such transactions may be averaged as to
price.
INTERNATIONAL FUND INVESTMENT SUB-ADVISORY AGREEMENT - TEMPLETON COUNSEL
Templeton Counsel acts as an investment sub-adviser to the International
Fund under an Investment Sub-Advisory Agreement (the "Templeton Agreement") with
Advantus Capital dated March 1, 1995, and approved by shareholders of the Fund
on February 14, 1995. The Templeton Agreement was last approved for continuance
by the Board of Directors of the Fund, including a majority of the Directors who
are not a party to the Templeton Agreement or interested persons of any such
party, on January 25, 2000. The Templeton Agreement will terminate
automatically upon the termination of the Advisory Agreement and in the event of
its assignment. In addition, the Templeton Agreement is terminable at any time,
without penalty, by the Board of Directors of the Fund, by Advantus Capital or
by a vote of the majority of the International Fund's outstanding voting
securities on 60 days' written notice to Templeton Counsel and by Templeton
Counsel on 60 days' written notice to Advantus Capital. Unless sooner
terminated, the Templeton Agreement shall continue in effect from year to year
if approved at least annually by the Board of Directors of the Fund or by a vote
of a majority of the outstanding voting securities of the International Fund,
provided that in either event such continuance is also approved by the vote of a
majority of the directors who are not interested persons of any party to the
Templeton Agreement, cast in person at a meeting called for the purpose of
voting on such approval.
DISTRIBUTION AGREEMENT
Ascend Financial acts as the underwriter of the Funds' shares. The Board
of Directors of each Fund, on January 25, 2000, including a majority of the
directors who are not parties to the contract, or interested persons of any such
party, last approved the respective Fund's Distribution Agreement with Ascend
Financial (the "Distribution Agreements"), each dated October 22, 1998. During
the fiscal years ended September 30, 1999, 1998 and 1997, the commissions
received by Ascend Financial under the Distribution Agreements, except in the
case of Money Market Fund (which does not provide for Ascend Financial to
receive a commission), with respect to shares of all classes under the
Distribution Agreements were as follows:
<TABLE>
<CAPTION>
Fund 1999 1998 1997
---- ---- ---- ----
<S> <C> <C> <C>
Horizon Fund $187,561 $321,515 $269,005
Spectrum Fund 244,604 418,271 323,690
Mortgage Securities Fund 103,245 268,951 190,368
Bond Fund 69,196 166,299 132,436
Cornerstone Fund 81,278 488,199 671,121
Enterprise Fund 32,359 113,663 152,474
International Fund 47,616 225,967 325,230
</TABLE>
During the same periods Ascend Financial retained from these commissions the
following amounts:
-51-
<PAGE>
<TABLE>
<CAPTION>
Fund 1999 1998 1997
---- ---- ---- ----
<S> <C> <C> <C>
Horizon Fund $26,961 $30,329 $26,045
Spectrum Fund 42,214 44,702 65,605
Mortgage Securities Fund 15,596 12,159 10,151
Bond Fund 6,279 10,115 6,770
Cornerstone Fund 8,432 34,703 42,739
Enterprise Fund 4,670 10,899 12,279
International Fund 4,725 19,461 10,075
</TABLE>
The remainder of these commissions was paid to registered representatives of
Ascend Financial or to broker-dealers who have selling agreements with Ascend
Financial.
Each Distribution Agreement may be terminated by the respective Fund or
Ascend Financial at any time by the giving of 60 days' written notice, and
terminates automatically in the event of its assignment. Unless sooner
terminated, the Distribution Agreement for the respective Fund shall continue in
effect for more than two years after its execution only so long as such
continuance is specifically approved at least annually by either the Board of
Directors of the Fund or by a vote of a majority of the outstanding voting
securities, provided that in either event such continuance is also approved by
the vote of a majority of the directors who are not parties to the Distribution
Agreement, or interested persons of such parties, cast in person at a meeting
called for the purpose of voting on such approval.
The Distribution Agreements require Ascend Financial to pay all advertising
and promotional expenses in connection with the distribution of the Funds'
shares including paying for Prospectuses and Statements of Additional
Information (if any) for new shareholders, shareholder reports for new
shareholders, and the costs of sales literature.
In the Distribution Agreements, Ascend Financial undertakes to indemnify
the Funds against all costs of litigation and other legal proceedings, and
against any liability incurred by or imposed upon the Funds in any way arising
out of or in connection with the sale or distribution of the Funds' shares,
except to the extent that such liability is the result of information which was
obtainable by Ascend Financial only from persons affiliated with the Funds but
not with Ascend Financial.
PAYMENT OF CERTAIN DISTRIBUTION EXPENSES OF THE FUNDS
Money Market Fund has adopted a Plan of Distribution, and each of the other
Funds has adopted separate Plans of Distribution applicable to Class A shares,
Class B shares and Class C shares, respectively, relating to the payment of
certain distribution and/or shareholder servicing expenses pursuant to Rule
12b-1 under the Investment Company Act of 1940. Money Market Fund, pursuant to
its Plan of Distribution, pays a fee to Ascend Financial which, on an annual
basis, is equal to .25% of the Fund's average daily net assets, and is to be
used to pay certain expenses incurred in connection with servicing shareholder
accounts. Each of the other Funds, pursuant to its Plans of Distribution, also
pays fees to Ascend Financial which equal, on an annual basis, a percentage of
the Fund's average daily net assets attributable to Class A shares, Class B
shares and Class C shares, respectively, as set forth in the following table:
<TABLE>
<CAPTION>
Rule 12b-1 Fee as Percentage
of Average Daily Net Assets Attributable to
-------------------------------------------
Fund Class A Shares Class B Shares Class C Shares
---- -------------- -------------- --------------
<S> <C> <C> <C>
Horizon Fund .25% 1.00% 1.00%
Spectrum Fund .25% 1.00% 1.00%
Mortgage Securities Fund .25% 1.00% 1.00%
Bond Fund .25% 1.00% 1.00%
Cornerstone Fund .25% 1.00% 1.00%
Enterprise Fund .25% 1.00% 1.00%
International Fund .25% 1.00% 1.00%
</TABLE>
-52-
<PAGE>
Such fees are used for distribution-related services for Class B and C
shares and for servicing of shareholder accounts in connection with Class A, B
and C shares.
A portion of the Rule 12b-1 fees payable by the Advantus Multiple Class
Funds with respect to Class B and Class C shares equal to 0.75% of the average
daily net assets attributable to such Class B and Class C shares, constitute
distribution fees designed to compensate Ascend Financial for advertising,
marketing and distributing the shares of the Advantus Multiple Class Funds.
The distribution fees may be used by Ascend Financial for the purpose of
financing any activity which is primarily intended to result in the sale of
shares of the particular Fund. For example, such distribution fee may be used
by Ascend Financial: (a) to compensate broker-dealers, including Ascend
Financial and its registered representatives, for their sale of a Fund's shares,
including the implementation of the programs described below with respect to
broker-dealers, banks, and other financial institutions; and (b) to pay other
advertising and promotional expenses in connection with the distribution of a
Fund's shares. These advertising and promotional expenses include, by way of
example but not by way of limitation, costs of prospectuses for other than
current shareholders; preparation and distribution of sales literature;
advertising of any type; expenses of branch offices provided jointly by Ascend
Financial and any affiliate thereof; and compensation paid to and expenses
incurred by officers, employees or representatives of Ascend Financial or of
other broker-dealers, banks, or financial institutions.
All of the Rule 12b-1 fee payable with respect to Class A shares and a
portion of the Rule 12b-1 fee payable with respect to Class B and Class C
shares, of each of the Advantus Multiple Class Funds, equal to .25% of the
average daily net assets attributable to such Class A, B and Class C shares,
constitute a shareholder servicing fee designed to compensate Ascend Financial
for the provision of certain services to the holders of Class A, B and Class C
shares.
Amounts expended by the Funds under the respective Plan of Distribution are
expected to be used for the implementation by Ascend Financial of a dealer
incentive program. Pursuant to the program, Ascend Financial may provide
compensation to investment dealers for the provision of distribution assistance
in connection with the sale of the Funds' shares to such dealers' customers and
for the provision of administrative support services to customers who directly
or beneficially own shares of the Funds. The distribution assistance and
administrative support services rendered by dealers may include, but are not
limited to, the following: distributing sales literature; answering routine
customer inquiries concerning the Funds; assisting customers in changing
dividend options, account designation and addresses, and in enrolling into the
pre-authorized check plan or systematic withdrawal plan; assisting in the
establishment and maintenance of customer accounts and records and in the
processing of purchase and redemption transactions; investing dividends and any
capital gains distributions automatically in the Funds' shares and providing
such other information and services as the Funds or the customer may reasonably
request. Such fees for servicing customer accounts would be in addition to the
portion of the sales charge received or to be received by dealers which sell
shares of the Funds.
Ascend Financial may also provide compensation to certain institutions such
as banks ("Service Organizations") which have purchased shares of the Funds for
the accounts of their clients, or which have made the Funds' shares available
for purchase by their clients, and/or which provide continuing service to such
clients. The Glass-Steagall Act and other applicable laws, among other things,
prohibit certain banks from engaging in the business of underwriting securities.
In such circumstances, Ascend Financial, if so requested, will engage such banks
as Service Organizations only to perform administrative and shareholder
servicing functions, but at the same fees and other terms applicable to dealers.
State law may, however, differ from the interpretation of the Glass-Steagall Act
expressed and banks and other financial institutions may therefore be required
to register as securities dealers pursuant to state law. If a bank were
prohibited from acting as a Service Organization, its shareholder clients would
be permitted to remain shareholders of the Funds and alternative means for
continuing servicing of such shareholders would be sought. In such event
changes in the operation of the Funds might occur and a shareholder serviced by
such bank might no longer be able to avail itself of any automatic investment or
other services then being provided by the bank. It is not expected that
shareholders would suffer any adverse financial consequences as a result of any
of these occurrences.
-53-
<PAGE>
In addition, the applicable Plan of Distribution contains, among other
things, provisions complying with the requirements of Rule 12b-1 discussed
below. In particular, each Plan provides that (1) the Plan will not take
effect until it has been approved by a vote of a majority of the outstanding
voting securities of the Fund, and by a majority vote of both the full board
of directors of the Fund and those directors who are not interested persons
of the Fund and who have no direct or indirect financial interest in the
operation of the Plan or in any agreements relating to it (the Independent
Directors), (2) the Plan will continue in effect from one year to another so
long as its continuance is specifically approved annually by a majority vote
of both the full board of directors and the Independent Directors, (3) the
Plan may be terminated at any time, without penalty, by vote of a majority of
the Independent Directors or by a vote of a majority of the outstanding
voting securities of the Fund, (4) the Plan may not be amended to increase
materially the amount of the fees payable thereunder unless the amendment is
approved by a vote of a majority of the outstanding voting securities of the
Fund, and all material amendments must be approved by a majority vote of both
the full board of directors and the Independent Directors, (5) while the Plan
is in effect, the selection and nomination of any new Independent Directors
is committed to the discretion of the Independent Directors then in office,
and (6) the Fund's underwriter will prepare and furnish to the board of
directors, and the board of directors will review, at least quarterly,
written reports which set forth the amounts expended under the Plan and the
purposes for which those expenditures were made.
Rule 12b-1(b) provides that any payments made by an investment company in
connection with the distribution of its shares may only be made pursuant to a
written plan describing all material aspects of the proposed financing of
distribution and also requires that all agreements with any person relating
to implementation of the plan must be in writing. In addition, Rule
12b-1(b)(2) requires that such plan, together with any related agreements, be
approved by a vote of the board of directors and of the directors who are not
interested persons of the investment company and have no direct or indirect
financial interest in the operation of the plan or in any agreements related
to the plan, cast in person at a meeting called for the purpose of voting on
such plan or agreements. Rule 12b-1(b)(3) requires that the plan or
agreement provide, in substance: (1) that it shall continue in effect for a
period of more than one year from the date of its execution or adoption only
so long as such continuance is specifically approved at least annually in the
manner described in paragraph (b)(2) of Rule 12b-1; (2) that any person
authorized to direct the disposition of monies paid or payable by the
investment company pursuant to the plan or any related agreement shall
provide to the investment company's board of directors, and the directors
shall review, at least quarterly, a written report of the amounts so expended
and the purposes for which such expenditures were made; and (3) in the case
of a plan, that it may be terminated at any time by vote of a majority of the
members of the board of directors of the investment company who are not
interested persons of the investment company and have no direct or indirect
financial interest in the operation of the plan or in any agreements related
to the plan or by vote of a majority of the outstanding voting securities of
the investment company. Rule 12b-1(b)(4) requires that such plans may not be
amended to increase materially the amount to be spent for distribution
without shareholder approval and that all material amendments of the plan
must be approved in the manner described in paragraph (b)(2) of Rule 12b-1.
Rule 12b-1(c) provides that the investment company may rely upon Rule
12b-1(b) only if selection and nomination of the investment company's
disinterested directors are committed to the discretion of such disinterested
directors. Rule 12b-1(e) provides that the investment company may implement
or continue a plan pursuant to Rule 12b-1(b) only if the directors who vote
to approve such implementation or continuation conclude, in the exercise of
reasonable business judgment and in light of their fiduciary duties under
state law, and under Sections 36(a) and (b) of the Investment Company Act of
1940, that there is a reasonable likelihood that the plan will benefit the
investment company and its shareholders. At the Board of Directors meeting
held January 25, 2000, the directors of the Funds so concluded.
During the fiscal year ended September 30, 1999, each of the Advantus
Multiple Class Funds made payments under its Plans of Distribution applicable to
Class A, Class B and Class C shares as set forth below (distribution fees waived
by Ascend Financial, if any, are shown in parentheses).
<TABLE>
<CAPTION>
Class A Class B Class C
------- ------- -------
<S> <C> <C> <C>
Horizon Fund $ 149,250 (n/a) $218,777 $27,014
Spectrum Fund $ 210,339 (n/a) $225,080 $51,268
Mortgage Securities Fund 89,220 (5,448) 121,858 43,336
Bond Fund 50,469 (3,209) 86,763 21,023
Cornerstone Fund 270,308 (16,931) 214,827 28,187
Enterprise Fund 101,768 (44,303) 67,028 8,554
International Fund 134,992 (35,105) 53,826 29,733
</TABLE>
-54-
<PAGE>
Money Market Fund made no payments under its Plan of Distribution during
the fiscal year ended September 30, 1999. Ascend Financial waived distribution
fees from Money Market Fund in the amount of $139,419 during such period.
The Plans of Distribution could be construed as "compensation plans"
because Ascend Financial is paid a fixed fee and is given discretion concerning
what expenses are payable under the Plans of Distribution. Under a compensation
plan, the fee to the distributor is not directly tied to distribution expenses
actually incurred by the distributor, thereby permitting the distributor to
receive a profit if amounts received exceed expenses. Ascend Financial may
spend more or less for the distribution and promotion of the Funds' shares than
it receives as distribution fees pursuant to the Plans of Distribution.
However, to the extent fees received exceed expenses, including indirect expense
such as overhead, Ascend Financial could be said to have received a profit.
TRANSFER AGENT AND ADMINISTRATIVE SERVICES
Advantus Capital pays the costs of providing transfer agent services to
each of the Fund's except Money Market Fund. Effective October 26, 1998, the
Funds' transfer agent is PFPC Inc. ("PFPC") Prior to that date each of the
Funds had engaged Minnesota Life to act as its transfer agent, dividend
disbursing agent and redemption agent. During the period from October 1, 1998
to October 25, 1998, Money Market Fund paid Minnesota Life $11,902 for
transfer agent services.
In addition, separate from the investment advisory agreement, each of
the Funds has entered into an agreement with Minnesota Life under which
Minnesota Life provides (i) accounting, legal and other administrative
services and (ii) shareholder servicing to the Funds. Minnesota Life
currently provides administrative services to the Funds at a monthly cost of
$6,200 for Horizon Fund, Spectrum Fund, Mortgage Securities Fund, Bond Fund,
Enterprise Fund and Cornerstone Fund, $5,100 for Money Market Fund and $5,300
for International Fund. During the fiscal year ended September 30, 1999, each of
the Funds paid Minnesota Life the following amounts for such administrative
services:
<TABLE>
<CAPTION>
Fund Amount
---- ------
<S> <C>
Horizon Fund $61,400
Spectrum Fund 61,400
Mortgage Securities Fund 61,400
Money Market Fund 51,400
Bond Fund 61,400
Cornerstone Fund 61,400
Enterprise Fund 61,400
International Fund 51,800
</TABLE>
Advantus Capital pays the costs of providing shareholder services to
each of the Funds except Money Market Fund. Minnesota Life currently provides
shareholder servicing to Money Market Fund at a cost of $5 per shareholder
account per year.
International Balanced Fund has also entered into a separate agreement
with SEI Investments Mutual Fund Services ("SEI") pursuant to which SEI
provides daily accounting services for the Fund. Minnesota Life, pursuant to
its administrative services agreement with International Balanced Fund,
provides the Fund with financial reporting services and generally oversees
SEI's performance of its services. Under the agreement with SEI, the cost to
International Balanced Fund for SEI's services is an annual fee equal to the
greater of $45,000 or .08% of the Fund's first $150 million of net assets and
.05% of its net assets in excess of $150 million. International Balanced Fund
also reimburses SEI for certain out-of-pocket expenses. During the last three
fiscal years, the amounts paid by International Balanced Fund to SEI (or to
Norwest Bank National Association, which performed these services prior to
April 1, 1998) were as follows:
<TABLE>
<CAPTION>
September 30
--------------------------------------------
1999 1998 1997
---- ---- ----
<S> <C> <C>
$57,220 $69,774 $37,678
</TABLE>
MONEY MARKET FUND AMORTIZED COST METHOD OF PORTFOLIO VALUATION
Money Market Fund values its portfolio securities at amortized cost in
accordance with Rule 2a-7 under the Investment Company Act of 1940, as amended.
This method involves valuing an instrument at its cost and thereafter assuming a
constant amortization to maturity of any discount or premium, regardless of the
impact of fluctuations in interest rates on the market value of the instrument
and regardless of any unrealized capital gains or losses. While this method
provides certainty in valuation, it may result in periods during which value, as
determined by amortized cost, is higher or lower than the price the Fund would
receive if it sold the instrument. During periods of declining interest rates,
the daily yield on shares of the Fund computed by dividing the annualized daily
income of the Fund by the net asset value computed as described above may tend
to be higher than a like computation made by the Fund with identical investments
utilizing a method of valuation based upon market prices and estimates of market
prices for all of its securities.
Pursuant to Rule 2a-7, the Board of Directors of the Fund has determined,
in good faith based upon a full consideration of all material factors, that it
is in the best interests of the Fund and its shareholders to maintain a stable
net asset value per share by virtue of the amortized cost method of valuation.
The Fund will continue to use this method only so long as the Board of Directors
believes that it fairly reflects the market-based net asset value per share. In
accordance with Rule 2a-7, the Board of Directors has undertaken, as a
particular responsibility within the overall duty of care owed to the Fund's
shareholders, to establish procedures reasonably designed, taking into account
current market conditions and the Fund's investment objectives, to stabilize the
Fund's net asset value per share at a single value. These procedures include
the periodic determination of any deviation of current net asset value per share
calculated using available market quotations from the Fund's amortized cost
price per share, the periodic review by the Board of the amount of any such
deviation and the method used to calculate any such deviation, the maintenance
of records of such determinations and the Board's review thereof, the prompt
consideration by the Board if any such deviation exceeds 1/2 of 1%, and the
taking of such remedial action by the Board as it deems appropriate where it
believes the extent of any such deviation may result in material dilution or
other unfair results to investors or existing shareholders. Such remedial
action may include redemptions in kind, selling portfolio instruments prior to
realizing capital gains or losses, shortening the average portfolio maturity,
withholding dividends or utilizing a net asset value per share as determined by
using available market quotations.
The Fund will, in further compliance with Rule 2a-7, maintain a
dollar-weighted average portfolio maturity not exceeding 90 days and will limit
its portfolio investments to those United States dollar-denominated instruments
which the Board determines present minimal credit risks and which are eligible
securities. The Fund will limit its investments in the securities of any one
issuer to no more than 5% of the Fund's total assets and it will limit
investment in securities of less than the highest rated category to 5% of the
Fund's total assets. Investment in the securities of any issuer of less than
the highest rated category will be limited to the greater of 1% of the Fund's
total assets or one million dollars. In addition, the Fund will reassess
promptly any security which is in default or downgraded from its rating category
to determine whether that security then presents minimal credit risks and
whether continuing to hold the securities is in the best interests of the Fund.
In addition, the Fund will record, maintain, and preserve a written copy of the
above-described procedures and a written record of the Board's considerations
and actions taken in connection with the discharge of its above-described
responsibilities.
-55-
<PAGE>
PORTFOLIO TRANSACTIONS AND ALLOCATION OF BROKERAGE
HORIZON FUND, SPECTRUM FUND, CORNERSTONE FUND AND ENTERPRISE FUND
In a number of security transactions, it is possible for Horizon Fund,
Spectrum Fund, Cornerstone Fund and Enterprise Fund to deal in the
over-the-counter security markets (including the so-called "third market" which
is the "over-the-counter" market for securities listed on the New York Stock
Exchange) without the payment of brokerage commissions but at net prices
including a spread or markup; these Funds trade in this manner whenever the net
price appears advantageous.
MORTGAGE SECURITIES FUND AND BOND FUND
Portfolio transactions of Mortgage Securities Fund and Bond Fund occur
primarily with issuers, underwriters or major dealers acting as principals.
Such transactions are normally on a net basis which do not involve payment of
brokerage commissions. The cost of securities purchased from an underwriter
usually includes a commission paid by the issuer to the underwriters;
transactions with dealers normally reflect the spread between bid and asked
prices. Premiums are paid with respect to options purchased by these two Funds
and brokerage commissions are payable with respect to transactions in
exchange-traded interest rate futures contracts.
MONEY MARKET FUND
Most transactions in portfolio securities of Money Market Fund are
purchases from issuers or dealers in money market instruments acting as
principal. There usually are no brokerage commissions paid by the Fund for such
purchases since securities are purchased on a net price basis. Trading does,
however, involve transaction costs. Transactions with dealers serving as
primary market makers reflect the spread between the bid and asked prices of
securities. Purchases of underwritten issues may be made which reflect a fee
paid to the underwriter.
INTERNATIONAL FUND
Templeton Counsel, as investment sub-adviser to the International Fund, is
primarily responsible for selecting and (where applicable) negotiating
commissions with the brokers who execute the transactions for the Fund.
Templeton Counsel, in managing the International Fund, follows the same basic
brokerage practices as those described below for Advantus Capital. In addition,
in selecting brokers for portfolio transactions, Templeton Counsel takes into
account its past experience as to brokers qualified to achieve "best execution,"
including the ability to effect transactions at all where a large block is
involved, availability of the broker to stand ready to execute possibly
difficult transactions in the future, the financial strength and stability of
the broker, and whether the broker specializes in foreign securities held by the
International Fund. Purchases and sales of portfolio securities within the
United States other than on a securities exchange are executed with primary
market makers acting as principal, except where, in the judgment of Templeton
Counsel, better prices and execution may be obtained on a commission basis or
from other sources.
GENERALLY
Advantus Capital selects and (where applicable) negotiates commissions with
the brokers who execute the transactions for the Funds (except for International
Fund, as described above). During the fiscal years ended September 30, 1999,
1998 and 1997, brokerage commissions paid were:
<TABLE>
<CAPTION>
Fund 1999 1998 1997
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Horizon Fund $110,447 $88,188 $61,259
Spectrum Fund 122,688 98,839 56,107
Mortgage Securities Fund 0 0 0
Money Market Fund 0 0 0
Bond Fund 0 0 0
Cornerstone Fund 258,334 388,917 263,314
Enterprise Fund 66,576 54,692 37,239
International Fund 81,086 59,313 82,535
</TABLE>
-56-
<PAGE>
The primary criteria for the selection of a broker is the ability of the
broker, in the opinion of Advantus Capital, to secure prompt execution of the
transactions on favorable terms, including the reasonableness of the commission
and considering the state of the market at the time. In selecting a broker,
Advantus Capital considers whether such broker provides brokerage and research
services (as defined in the Securities Exchange Act of 1934), and generally the
Funds pay higher than the lowest commission rates available. Advantus Capital
may direct Fund transactions to brokers who furnish research services to
Advantus Capital. Such research services include advice, both directly and in
writing, as to the value of securities, the advisability of investing in,
purchasing or selling securities, and the availability of securities or
purchasers or sellers of securities, as well as analyses and reports concerning
issues, industries, securities, economic factors and trends, portfolio strategy,
and the performance of accounts. By allocating brokerage business in order to
obtain research services for Advantus Capital, the Funds enable Advantus Capital
to supplement its own investment research activities and allows Advantus Capital
to obtain the views and information of individuals and research staffs of many
different securities research firms prior to making investment decisions for the
Funds. To the extent such commissions are directed to these other brokers who
furnish research services to Advantus Capital, Advantus Capital receives a
benefit, not capable of evaluation in dollar amounts, without providing any
direct monetary benefit to the Funds from these commissions.
There is no formula for the allocation by Advantus Capital of the Funds'
brokerage business to any broker-dealer for brokerage and research services.
However, Advantus Capital will authorize a Fund to pay an amount of
commission for effecting a securities transaction in excess of the amount of
commission another broker would have charged only if Advantus Capital
determines in good faith that such amount of commission is reasonable in
relation to the value of the brokerage and research services provided by such
broker viewed in terms of either that particular transaction or Advantus
Capital's overall responsibilities with respect to the accounts as to which
it exercises investment discretion. During the fiscal year ended September
30, 1999, Horizon Fund, Spectrum Fund, Cornerstone Fund, Enterprise Fund and
International Fund directed transactions to brokers because of research
services they provided, and paid commissions in connection with such
transactions, in the aggregate amounts set forth below:
<TABLE>
<CAPTION>
Aggregate Transactions Commissions Paid on
Fund Directed for Research Directed Transaction
- --------------------------------------------------------------------------------
<S> <C> <C>
Horizon Fund $ 2,185,290 $106,479
Spectrum Fund 111,903,352 109,844
Cornerstone Fund 13,281,612 231,950
Enterprise Fund 7,984,006 52,044
International Fund 64,598,267 81,086
</TABLE>
During the same period, Mortgage Securities Fund, Money Market Fund and Bond
Fund directed no transactions to brokers because of research services they
provided.
No brokerage is allocated for the sale of Fund shares. Advantus Capital
believes that most research services obtained by it generally benefit one or
more of the investment companies which it manages and also benefit accounts
which it manages. Normally research services obtained through managed funds and
managed accounts investing in common stocks would primarily benefit such funds
and accounts; similarly, services obtained from transactions in fixed income
securities would be of greater benefit to the managed funds and managed accounts
investing in debt securities.
-57-
<PAGE>
The same security may be suitable for one or more of the Funds and the
other funds or private accounts managed by Advantus Capital or its affiliates.
If and when two or more funds or accounts simultaneously purchase or sell the
same security, the transactions will be allocated as to price and amount in
accordance with arrangements equitable to each fund or account. The
simultaneous purchase or sale of the same securities by one Fund and other Funds
or accounts may have a detrimental effect on that Fund, as this may affect the
price paid or received by the Fund or the size of the position obtainable by the
Fund.
The Funds will not execute portfolio transactions through any affiliate,
unless such transactions, including the frequency thereof, the receipt of
commissions payable in connection therewith and the selection of the affiliated
broker-dealer effecting such transactions are not unfair or unreasonable to the
shareholders of the Funds. In the event any transactions are executed on an
agency basis, Advantus Capital will authorize the Funds to pay an amount of
commission for effecting a securities transaction in excess of the amount of
commission another broker-dealer would have charged only if Advantus Capital
determines in good faith that such amount of commission is reasonable in
relation to the value of the brokerage and research services provided by such
broker-dealer, viewed in terms of either that particular transaction or the
overall responsibilities of Advantus Capital with respect to the Funds as to
which it exercises investment discretion. If the Funds execute any transactions
on an agency basis, they will generally pay higher than the lowest commission
rates available.
In determining the commissions to be paid to an affiliated
broker-dealer, it is the policy of the Funds that such commissions will, in
the judgment of Advantus Capital, subject to review by the Fund's Board of
Directors, be both (a) at least as favorable as those which would be charged
by other qualified brokers in connection with comparable transactions
involving similar securities being purchased or sold on an exchange during a
comparable period of time, and (b) at least as favorable as commissions
contemporaneously charged by such affiliated broker-dealers on comparable
transactions for their most favored comparable unaffiliated customers. While
the Funds do not deem it practicable and in their best interest to solicit
competitive bids for commission rates on each transaction, consideration will
regularly be given to posted commission rates as well as to other information
concerning the level of commissions charged on comparable transactions by
other qualified brokers.
Information regarding the acquisition by the Funds during the fiscal year
ended September 30, 1999, of securities of the Funds' regular brokers or
dealers, or the parents of those broker or dealers that derive more than 15
percent of their gross revenue from securities-related activities, is presented
below:
-58-
<PAGE>
<TABLE>
<CAPTION>
Approximate Value of
Securities Owned at the
Fund Name of Issuer End of Fiscal Period
- -------------------------------------------------------------------------------------------------
<S> <C> <C>
Spectrum Fund Bear Stearns Mortgage Securities, Inc. $477,612
Morgan Stanley Dean Witter 734,966
Mortgage Securities Fund Bear Stearns Mortgage Securities, Inc. 1,988,181
GE Capital Mortgage Securities 2,401,629
Paine Webber Mortgage Acceptance
Corporation 1,657,615
Prudential Home Mortgage Securities 3,479,493
Money Market Fund General Motors Acceptance Corporation 1,675,390
GE Capital Corporation 2,503,982
American General Finance Corporation 2,186,327
Associates Corporation of America 1,569,996
Ciesco LP 1,503,977
Bond Fund Morgan Stanley Dean Witter 881,960
Cornerstone Fund Morgan Stanley Dean Witter 1,856,884
</TABLE>
CALCULATION OF PERFORMANCE DATA
MONEY MARKET FUND
Money Market Fund may issue "current yield" and "effective yield"
quotations. "Current yields" are computed by determining the net change in the
value of a hypothetical account having a balance of one share at the beginning
of a recent seven calendar day period, and multiplying that change by 365/7.
"Effective yields" are computed by determining the net change in the value of a
hypothetical account having a balance of one share at the beginning of a recent
seven calendar day period, dividing that change by seven, adding one to the
quotient, raising the sum to the 365th power, and subtracting one from the
result. For purposes of the foregoing calculations, the value of the
hypothetical account includes accrued interest income plus or minus amortized
purchase discount or premium less accrued expenses, but does not include
realized gains and losses or unrealized appreciation and depreciation. The Fund
will also quote the average dollar-weighted portfolio maturity for the
corresponding seven-day period.
-59-
<PAGE>
Although there can be no assurance that the net asset value of Money Market
Fund's shares will always be $1.00, Advantus Capital does not expect that the
net asset value of its shares will fluctuate since the Fund uses the amortized
cost method of valuation to maintain a stable $1.00 net asset value. See "Money
Market Fund Amortized Cost Method of Portfolio Valuation." Principal is not,
however, insured. Yield is a function of portfolio quality and composition,
maturity, and operating expenses. Yield information is useful in reviewing the
Fund's performance, but it may not provide a basis for comparison with bank
deposits or other investments, which pay a fixed yield for a stated period of
time, or other investment instruments, which may use a different method of
calculating yield.
For the seven calendar days ended September 30, 1999, Money Market Fund's
annualized current yield was 4.35% and its annualized effective yield was 4.45%.
The Fund's investment adviser was voluntarily absorbing certain expenses of the
Fund during that period. If the Fund had been charged these expenses its
current yield and effective yield for the same period would have been 3.69% and
3.76% respectively.
ADVANTUS MULTIPLE CLASS FUNDS
Advertisements and other sales literature for the Advantus Multiple Class
Funds may refer to "yield," "average annual total return" and "cumulative total
return." Performance quotations are computed separately for each class of
shares of the Advantus Multiple Class Funds.
YIELD. Yield is computed by dividing the net investment income per share
(as defined under Securities and Exchange Commission rules and regulations)
earned during the computation period by the maximum offering price per share on
the last day of the period, according to the following formula:
a-b
YIELD = 2[( ----- +1)6-1]
cd
Where: a = dividends and interest earned during the period;
b = expenses accrued for the period (net of reimbursements);
c = the average daily number of shares outstanding during the period
that were entitled to receive dividends; and
d = the maximum offering price per share on the last day of the period.
The yield on investments in each of these Funds for the 30 day period ended
September 30, 1999 was as set forth in the table below. The Funds' investment
adviser and distributor were voluntarily absorbing and waiving certain expenses
of certain of the Funds during that period. If such Funds had been charged for
these expenses the yield on investments for the same period would have been
lower, as also shown in the table below in parentheses.
<TABLE>
<CAPTION>
Yield
-----
Fund Class a Class B Class c
---- ------- ------- -------
<S> <C> <C> <C>
Horizon Fund -.98% (-.98%) -1.79% (-1.79%) -1.79% (-1.79%)
Spectrum Fund 1.56 (1.56) .89 (.89) .89 (.89)
Mortgage Securities Fund 6.04 (5.83) 5.55 (5.36) 5.56 (5.36)
Bond Fund 5.80 (5.43) 5.31 (4.95) 5.36 (5.00)
Cornerstone Fund .59 (.59) -.12 (-.12) -.12 (-.12)
Enterprise Fund -1.38 (-1.58) -2.31 (-2.51) -2.30 (-2.50)
International Fund 1.18 (1.18) .44 (.44) .44 (.44)
</TABLE>
AVERAGE ANNUAL TOTAL RETURN. Average annual total return is computed by finding
the average annual compounded rates of return over the periods indicated in the
advertisement that would equate the initial amount invested to the ending
redeemable value, according to the following formula:
-60-
<PAGE>
P(1+T)n = ERV
Where: P = a hypothetical initial payment of $1,000;
T = average annual total return;
n = number of years; and
ERV = ending redeemable value at the end of the period of a
hypothetical $1,000 payment made at the beginning of such
period.
The average annual total return on investments in each of the Advantus
Multiple Class Funds for the periods indicated ending September 30, 1999,
were as set forth in the table below. Average annual total returns quoted
assume that the Class A maximum initial sales charge of 4.5% for Bond and
Mortgage Funds and 5.5% for Horizon, Spectrum, Cornerstone, Enterprise and
International Funds was in effect at the beginning of each period shown. The
maximum initial sales charge was 5.0% prior to February 1, 1999. The Funds'
investment adviser and distributor were voluntarily absorbing and waiving
certain expenses of certain of the Funds during these periods. If such Funds
had been charged for these expenses the average annual total returns for the
same periods would have been lower, as also shown in the table below in
parentheses.
<TABLE>
<CAPTION>
1 Year
--------------------------------------------------
Fund Class A Class B Class C
------- ------- -------
<S> <C> <C> <C>
Horizon Fund(1) 17.88% (17.88%) 18.93% (18.93%) 23.82% (23.82%)
Spectrum Fund (2) 9.69 (9.69) 10.31 (10.31) 15.29 (15.29)
Mortgage Securities Fund (1) -2.34 (-2.70) -3.49 (-3.67) 1.50 (1.23)
Bond Fund (3) -6.76 (-7.05) -7.83 (-8.12) -3.10 (3.36)
Cornerstone Fund (4) 4.07 (4.07) 4.26 (4.25) 9.35 (9.34)
Enterprise Fund (4) 21.54 (21.46) 22.57 (22.57) 27.48 (27.48)
International Fund (5) 10.24 (10.08) 10.84 (10.16) 15.71 (15.04)
<CAPTION>
5 Year
---------------------------------------------------
Fund Class A Class B Class C
------- ------- -------
<S> <C> <C> <C>
Horizon Fund(1) 20.18% (20.18%) 20.52% (20.52%) n/a (n/a)
Spectrum Fund (2) 13.91 (13.91) 14.31 (14.31) n/a (n/a)
Mortgage Securities Fund (1) 6.88 (6.61) 6.87 (6.66) n/a (n/a)
Bond Fund (3) 6.06 (5.43) 5.98 (5.49) n/a (n/a)
Cornerstone Fund (4) 13.25 (13.05) 13.43 (13.33) n/a (n/a)
Enterprise Fund (4) 7.81 (7.76) 7.88 (7.88) n/a (n/a)
International Fund (5) 7.02 (6.80) n/a (n/a) n/a (n/a)
</TABLE>
<TABLE>
<CAPTION>
10 Year
---------------------------------------------------
Fund Class A Class B Class C
------- ------- -------
<S> <C> <C> <C>
Horizon Fund(1) 14.37% (14.32%) n/a (n/a) n/a (n/a)
Spectrum Fund (2) 11.08 (10.88) n/a (n/a) n/a (n/a)
Mortgage Securities Fund (1) 7.35 (7.16) n/a (n/a) n/a (n/a)
Bond Fund (3) 6.79 (5.97) n/a (n/a) n/a (n/a)
Cornerstone Fund (4) n/a (n/a) n/a (n/a) n/a (n/a)
Enterprise Fund (4) n/a (n/a) n/a (n/a) n/a (n/a)
International Fund (5) n/a (n/a) n/a (n/a) n/a (n/a)
<CAPTION>
Since Inception
--------------------------------------------------------
Fund Class A Class B Class C
------- ------- -------
<S> <C> <C> <C>
Horizon Fund(1) 13.29 (13.10%) 20.31% (20.31%) 21.53% (21.53%)
Spectrum Fund (2) 11.59 (11.05) 13.97 (13.97) 14.73 (14.73)
Mortgage Securities Fund (1) 8.17 (7.92) 6.56 (6.34) 6.74 (6.51)
Bond Fund (3) 6.97 (6.06) 5.57 (5.07) 5.72 (5.26)
Cornerstone Fund (4) 12.84 (12.82) 13.02 (12.92) 14.23 (14.13)
Enterprise Fund (4) 7.57 (7.52) 7.62 (7.62) 7.63 (7.63)
International Fund (5) 6.55 (6.34) 3.25 (3.01) 8.87 (8.68)
</TABLE>
- --------------------
-61-
<PAGE>
(1)Class A Inception May 3, 1985.
Class B Inception August 19, 1994.
Class C Inception March 1, 1995.
(2)Class A Inception November 16, 1987.
Class B Inception August 19, 1994.
Class C Inception March 1, 1995
(3)Class A Inception August 14, 1987.
Class B Inception August 19, 1994.
Class C Inception March 1, 1995.
(4)Class A and Class B Inception September 16, 1994.
Class C Inception March 1, 1995.
(5)Class A Inception September 16, 1994.
Class B Inception January 31, 1997.
Class C Inception March 1, 1995.
CUMULATIVE TOTAL RETURN. Cumulative total return figures are computed by
finding the cumulative compounded rate of return over the period indicated in
the advertisement that would equate the initial amount invested to the ending
redeemable value, according to the following formula:
ERV-P
CTR =( ----- )100
P
Where: CTR = cumulative total return;
ERV = ending redeemable value at the end of the period of a
hypothetical $1,000 payment made at the beginning of such
period; and
P = initial payment of $1,000.
The cumulative total return on investments in each of the Advantus
Multiple Class Funds for the period indicated ended September 30, 1999, was
as set forth in the table below. Average annual total returns quoted assume
that the Class A maximum initial sales charge of 4.5% for Bond and Mortgage
Funds and 5.5% for Horizon, Spectrum, Cornerstone, Enterprise and
International Funds was in effect at the inception date of Class A shares.
The maximum initial sales charge was 5.0% prior to February 1, 1999. The
Funds' investment adviser was voluntarily absorbing certain expenses of
certain of the Funds during these periods. If such Funds had been charged
for these expenses the cumulative total return for the same periods would
have been lower, as also shown in the table below in parentheses.
<TABLE>
<CAPTION>
Cumulative Total Return
---------------------------------------------------------
Fund Class A Class B Class C
------- ------- -------
<S> <C> <C> <C>
Horizon Fund(1) 504.71% (490.25%) 157.74% (157.74%) 144.69% (144.69%)
Spectrum Fund (2) 268.04 (247.42) 95.34 (95.34) 87.87 (87.87)
Mortgage Securities Fund (1) 210.37 (200.19) 38.45 (36.99) 34.89 (33.57)
Bond Fund (3) 126.59 (104.26) 31.99 (28.92) 29.08 (26.52)
Cornerstone Fund (4) 83.67 (81.87) 85.15 (84.49) 83.92 (83.48)
Enterprise Fund (4) 44.49 (44.15) 44.83 (44.83) 40.13 (40.13)
International Fund (5) 37.71 (36.35) 8.86 (8.19) 47.70 (46.52)
</TABLE>
- --------------------
(1)Class A Inception May 3, 1985.
Class B Inception August 19, 1994.
Class C Inception March 1, 1995.
(2)Class A Inception November 16, 1987.
Class B Inception August 19, 1994.
Class C Inception March 1, 1995.
(3)Class A Inception August 14, 1987.
Class B Inception August 19, 1994.
Class C Inception March 1, 1995.
(4)Class A and Class B Inception September 16, 1994.
Class C Inception March 1, 1995.
(5)Class A Inception September 16, 1994.
Class B Inception January 31, 1997.
Class C Inception March 1, 1995.
The calculations for both average annual total return and cumulative total
return deduct the maximum sales charge from the initial hypothetical $1,000
investment, assume all dividends and capital gain distributions are reinvested
at net asset value on the appropriate reinvestment dates as described in the
Prospectus, and include all recurring fees, such as investment advisory and
management fees, charged as expenses to all shareholder accounts.
-62-
<PAGE>
Such average annual total return and cumulative total return figures may
also be accompanied by average annual total return and cumulative total return
figures, for the same or other periods, which do not reflect the deduction of
any sales charges.
CAPITAL STOCK AND OWNERSHIP OF SHARES
Each Fund's shares of common stock, and each class thereof, have a par
value $.01 per share, and have equal rights to share in dividends and assets.
The shares possess no preemptive or conversion rights. Cumulative voting is not
authorized. This means that the holders of more than 50% of the shares voting
for the election of directors can elect 100% of the directors if they choose to
do so, and in such event the holders of the remaining shares will be unable to
elect any directors.
Each of the Funds has 10 billion authorized shares of common stock. Each
of the Advantus Multiple Class Funds has designated 2 billion authorized shares
as Class A shares, 2 billion authorized shares as Class B shares, and 2 billion
authorized shares as Class C shares. The Funds have the number of shares
outstanding as set forth below.
<TABLE>
<CAPTION>
Shares Outstanding at September 30, 1999
-------------------------------------------------
Fund Class A Class B Class C
------- ------- -------
<S> <C> <C> <C>
Horizon Fund 2,105,243 922,499 98,855
Spectrum Fund 4,116,117 1,372,361 319,960
Mortgage Securities Fund 3,262,306 1,361,216 497,187
Money Market Fund 41,202,756 n/a n/a
Bond Fund 1,837,282 839,194 164,274
Cornerstone Fund 6,119,445 1,243,291 134,939
Enterprise Fund 2,748,024 467,651 58,496
International Fund 4,193,369 453,852 215,244
</TABLE>
As of September 30, 1999, no person held of record, to the knowledge of the
respective Funds, or owned more than 5% of the outstanding shares of any of the
Funds, except as set forth in the following table:
<TABLE>
<CAPTION>
Number of
Name and Address of Shareholder Shares Percentage
- ------------------------------- --------- ----------
<S> <C> <C>
HORIZON FUND
Minnesota Life and affiliates* 40,832 1.3%
SPECTRUM FUND
Minnesota Life and affiliates* 59,826 1.0%
MORTGAGE SECURITIES FUND
Minnesota Life and affiliates* 642,997 12.6%
MONEY MARKET FUND
Minnesota Life and affiliates* 4,745,294 11.5%
BOND FUND
Minnesota Life and affiliates* 388,667 13.7%
CORNERSTONE FUND
Minnesota Life and affiliates* 2,265,675 30.2%
ENTERPRISE FUND
Minnesota Life and affiliates* 2,227,414 68.0%
INTERNATIONAL FUND
Minnesota Life and affiliates* 2,763,676 56.8%
</TABLE>
* 400 Robert Street North, St. Paul, Minnesota 55101.
-63-
<PAGE>
HOW TO BUY SHARES
Each Fund's shares may be purchased at the public offering price from
Ascend Financial, and from certain other broker-dealers. Ascend Financial
reserves the right to reject any purchase order. Shares of the Funds may be
purchased at a price equal to their respective net asset value, which, in the
case of Money Market Fund, will normally be constant at $1.00 per share. There
is no assurance that Money Market Fund can maintain the $1.00 per share value.
Certificates representing shares purchased are not currently issued.
However, shareholders will receive written confirmation of their purchases.
Shareholders will have the same rights of ownership with respect to such shares
as if certificates had been issued. SHAREHOLDERS WHO HOLD PREVIOUSLY ISSUED
CERTIFICATES REPRESENTING ANY OF THEIR SHARES WILL NOT BE ALLOWED TO REDEEM SUCH
CERTIFICATED SHARES BY TELEPHONE.
ALTERNATIVE PURCHASE ARRANGEMENTS. The Funds offer investors the choice
among three classes of shares which offer different sales charges and bear
different expenses. These alternatives permit an investor to choose the method
of purchasing shares that the investor believes is most beneficial given the
amount of the purchase, the length of time the investor expects to hold the
shares and other circumstances. For a detailed discussion of these alternative
purchase arrangements see "Reduced Sales Charges" and "Shareholder Services"
below.
The decision as to which class of shares provides a more suitable
investment for an investor may depend on a number of factors, including the
amount and intended length of the investment. Investors making investments that
qualify for a waiver of initial sales charges should purchase Class A shares.
Other investors should consider Class B or Class C shares because all of the
purchase price is invested immediately. Investors who expect to hold shares for
relatively shorter periods of time may prefer Class C shares because such shares
may be redeemed at any time without payment of a contingent deferred sales
charge. Investors who expect to hold shares longer, however, may choose Class B
shares because such shares convert to Class A shares sooner than do Class C
shares and thus pay the higher Rule 12b-1 fee for a shorter period.
Purchase orders for $1,000,000 or more will be accepted for Class A shares
only and are not subject to a sales charge at the time of purchase, but a
deferred sales charge will be imposed if such shares are sold within one year
after the date of purchase. Orders for Class B or Class C shares for $1,000,000
or more will be treated as orders for Class A shares or declined.
PURCHASE BY CHECK. New investors may purchase shares of the Fund by
completing an account application and sending it, together with a check
payable to the Fund, directly to PFPC, the Funds' transfer agent, at Advantus
Funds Group, P.O. Box 9767, Providence, Rhode Island 02940-5059. Additional
purchases may be made at anytime by mailing a check, payable to the Fund, to
the same address. Checks for additional purchases should be identified with the
appropriate account number.Purchase orders may also be submitted through
Ascend Financial or other broker-dealers authorized to sell shares of the
Fund.
PURCHASE BY WIRE. Shares may also be purchased by Federal Reserve or bank
wire. This method will result in a more rapid investment in shares of the Fund.
Before wiring any funds, contact Minnesota Life, through its Advantus
Shareholder Services division, at (800) 665-6005 for instructions. Promptly
after making an initial purchase by wire, an investor should complete an account
application and mail it to at Advantus Funds Group, P.O. Box 9767, Providence,
Rhode Island 02940-5059.
Subsequent purchases may be made in the same manner. Wire purchases
normally take two or more hours to complete, and to be accepted the same day
must be received by 3:00 p.m. (Central time). Banks may charge a fee for
transmitting funds by wire.
-64-
<PAGE>
TIMING OF PURCHASE ORDERS. An order in proper form for the purchase of
shares of the Fund received by the Fund prior to the close of normal trading
on the New York Stock Exchange ("NYSE"), which is generally 3:00 p.m.
(Central time), will be effected at the price next determined on the date
received by PFPC. Orders received after the close of the NYSE will be
effected at the price next determined on the next business day.
MINIMUM INVESTMENTS. A minimum initial investment of $250 is required, and
the minimum subsequent investment is $25.
PUBLIC OFFERING PRICE. The public offering price of the Fund will be the
net asset value per share of the Fund next determined after an order is received
and becomes effective, plus the applicable sales charge, if any. The net asset
value per share of each class is determined by dividing the value of the
securities, cash and other assets (including dividends accrued but not
collected) of the Fund attributable to such class less all liabilities
(including accrued expenses but excluding capital and surplus) attributable to
such class, by the total number of shares of such class outstanding.
The net asset value of the shares of the Fund is determined as of the close
of normal trading on the New York Stock Exchange (as of the date of this
Statement of Additional Information the primary close of trading is 3:00 p.m.
(Central Time), but this time may be changed) on each day, Monday through
Friday, except (i) days on which changes in the value of the Fund's portfolio
securities will not materially affect the current net asset value of Fund
shares, (ii) days during which no Fund shares are tendered for redemption and no
order to purchase or sell Fund shares is received by the Fund and (iii)
customary national business holidays on which the New York Stock Exchange is
closed for trading.
Securities, including put and call options, which are traded
over-the-counter and on a national exchange will be valued according to the
broadest and most representative market. A security which is only listed or
traded on an exchange, or for which an exchange is the most representative
market, is valued at its last sale price (prior to the time as of which assets
are valued) on the exchange where it is principally traded. Lacking any sales
on the exchange where it is principally traded on the day of valuation, prior to
the time as of which assets are valued, the security generally is valued at the
last bid price on that exchange. Futures contracts will be valued in a like
manner, except that open futures contracts sales will be valued using the
closing settlement price or in the absence of such a price, the most recent
quoted bid price. All other securities for which over-the-counter market
quotations are readily available are valued on the basis of the last current bid
price. When market quotations are not readily available, such securities are
valued at fair value as determined in good faith by the Board of Directors.
Other assets also are valued at fair value as determined in good faith by the
Board of Directors. However, debt securities may be valued on the basis of
valuations furnished by a pricing service which utilizes electronic data
processing techniques to determine valuations for normal institutional-size
trading units of debt securities, without regard to sale or bid prices, when
such valuations are believed to more accurately reflect the fair market value of
such securities. Short-term investments in debt securities are valued daily at
market.
Money Market Fund values its portfolio investments at amortized cost in
accordance with Rule 2a-7 under the 1940 Act. See "Money Market Fund Amortized
Cost Method of Portfolio Valuation" above.
SALES CHARGES
CLASS A SHARES
The public offering price of Class A shares of each Fund is the net asset
value of the Fund's shares (other than Money Market Fund) plus the applicable
front end sales charge ("FESC"), which will vary with the size of the purchase.
Ascend Financial receives all applicable sales charges. Shares of Money Market
Fund will be purchased at its net asset value, which will normally be constant
at $1.00. There is no sales charge applicable to the purchase of Money Market
Fund shares. The Fund receives the net asset value. The current sales charges
are:
-65-
<PAGE>
HORIZON FUND, SPECTRUM FUND, CORNERSTONE FUND, ENTERPRISE FUND,
AND INTERNATIONAL FUND
<TABLE>
<CAPTION>
Amount Paid to Broker-Dealers
Sales Charge as a as a Percentage of
Percentage of: Offering Price:
-------------- -----------------------------
Net
Offering Amount
Value of Total Investment Price Invested
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Less Than $50,000 5.5% 5.82% 5.00%
$50,000 But Less Than
$100,000 4.5 4.71 4.00
$100,000 But Less Than
$250,000 3.5 3.63 3.00
$250,000 But Less Than
$500,000 2.5 2.56 2.25
$500,000 But Less Than
$100,000 2.0 2.04 1.75
$1,000,000 And Over (1) 0 0 1.00*
</TABLE>
MORTGAGE SECURITIES FUND AND BOND FUND
<TABLE>
<CAPTION>
Amount Paid to Broker-Dealers
Sales Charge as a as a Percentage of
Percentage of: Offering Price:
-------------- -----------------------------
Net
Offering Amount
Value of Total Investment Price Invested
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Less Than $100,000 4.5% 4.71% 4.00%
$100,000 But Less Than
$250,000 3.5 3.63 3.00
$250,000 But Less Than
$500,000 2.5 2.56 2.25
$500,000 But Less Than
$100,000 2.0 2.04 1.75
$1,000,000 And Over (1) 0 0 1.00*
</TABLE>
(1) A FESC will not be assessed for purchases of Class A shares of at least $1
million, but a contingent deferred sales charge of 1.00% will be imposed if such
shares are sold within one year after the date of purchase.
* These payments are paid by Ascend Financial or one of its affiliates, at its
own expense, and not by the Fund or its shareholders.
The sales charge applicable to an initial investment in the Fund depends
on the offering price of the investment. The sales charge applicable to
subsequent investments, however, depends on the offering price of that
investment plus the current net asset value of the investor's previous
investments in the Fund. For example, if an investor makes an initial
investment in Class A shares of Horizon Fund with an offering price of
$40,000 the investor will pay a sales charge equal to 5.5% of the $40,000
investment, but if an investor already owns Class A shares of Horizon Fund
with a current net asset value of $40,000 and invests in additional Class A
shares of Horizon Fund with an offering price of $10,000 the investor will
pay a sales charge equal to 4.5% of the additional $10,000 since the total
investment in the Fund would then be $50,000.
-66-
<PAGE>
CLASS B SHARES
Class B shares of the Fund are sold without an initial sales charge so that
the Fund receives the full amount of the investor's purchase. However, a
contingent deferred sales charge ("CDSC") of up to 5% will be imposed if shares
are redeemed within six years of purchase. For additional information, see
"Redemptions" below. Class B shares will automatically convert to Class A
shares of the Fund on the fifteenth day of the month (or, if different, the last
business day prior to such date) following the expiration of a specified holding
period. In addition, Class B shares are subject to higher Rule 12b-1 fees as
described below. The amount of the CDSC will depend on the number of years
since the purchase was made, the amount of shares originally purchased and the
dollar amount being redeemed. The amount of the applicable CDSC and the holding
period prior to conversion are determined in accordance with the following
table:
<TABLE>
<CAPTION>
Shares Convert to Class
A in the Month After
CDSC Applicable in Year Expiration of
- -----------------------------------------------------------------------------------------------------------------
Shares Purchased in an Amount 1 2 3 4 5 6
- ----------------------------- - - - - - -
<S> <C> <C> <C> <C> <C> <C> <C>
Less Than $50,000 5.0% 4.5% 3.5% 2.5% 1.5% 1.5% 84 Months
$50,000 But Less Than
$100,000 4.5 3.5 2.5 1.5 1.5 0 76 Months
$100,000 But Less Than
$250,000 3.5 2.5 1.5 1.5 0 0 60 Months
$250,000 But Less Than
$500,000 2.5 1.5 1.5 0 0 0 44 Months
$500,000 But Less Than
$1,000,000 1.5 1.5 0 0 0 0 28 Months
</TABLE>
Proceeds from the CDSC are paid to Ascend Financial and are used to defray
expenses related to providing distribution-related services to the Fund in
connection with the sale of Class B shares, such as the payment of compensation
to selected broker-dealers, and for selling Class B shares. The combination of
the CDSC and the Rule 12b-1 fee enables the Fund to sell the Class B shares
without deduction of a sales charge at the time of purchase. Although Class B
shares are sold without an initial sales charge, Ascend Financial pays a sales
commission to broker-dealers, and to registered representatives of Ascend
Financial, who sell Class B shares. The amount of this commission may differ
from the amount of the commission paid in connection with sales of Class A
shares. The higher Rule 12b-1 fee will cause Class B shares to have a higher
expense ratio and to pay lower dividends than Class A shares. Ascend Financial
pays other broker-dealers for the sale of Class B shares in accordance with the
following schedule:
<TABLE>
<CAPTION>
Advantus Multiple Class Funds:
----------------------------
Amount Paid to Broker-Dealers as a Percentage
Shares Purchased in An Amount of Offering Price
- ---------------------------------------------------------------------------------------
<S> <C>
Less Than $50,000 4.17%
$50,000 But Less Than $100,000 3.75
$100,000 But Less Than $250,000 2.92
$250,000 But Less Than $500,000 2.08
$500,000 But Less Than $1,000,000 1.25
</TABLE>
-67-
<PAGE>
CONVERSION FEATURE. On the fifteenth day of the month (or, if different,
the last business day prior to such date) after the expiration of the applicable
holding period described in the table above, Class B shares will automatically
convert to Class A shares and will no longer be subject to a higher Rule 12b-1
fee. Such conversion will be on the basis of the relative net asset values of
the two classes. Class A shares issued upon such conversion will not be subject
to any FESC or CDSC. Class B shares acquired by exchange from Class B shares of
another Advantus Multiple Class Funds will convert into Class A shares based on
the time of the initial purchase. Purchased Class B shares ("Purchased B
Shares") will convert after the specified number of months following the
purchase date. All Class B shares in a shareholder's account that were acquired
through the reinvestment of dividends and distributions ("Reinvestment B
Shares") will be held in a separate sub-account. Each time any Purchased B
Shares convert to Class A shares, a pro rata portion (based on the ratio that
the total converting Purchased B Shares bears to the shareholder's total
converting and non-converting Purchased B Shares immediately prior to the
conversion) of the Reinvestment B Shares then in the sub-account will also
convert to Class A shares.
The conversion of Class B shares to Class A shares is subject to the
continuing availability of a ruling from the Internal Revenue Service or an
opinion of counsel that payment of different dividends by each of the classes of
shares does not result in the Fund's dividends or distributions constituting
"preferential dividends" under the Internal Revenue Code of 1986, as amended,
and that such conversions do not constitute taxable events for Federal tax
purposes. There can be no assurance that such ruling or opinion will be
available, and the conversion of Class B shares to Class A shares will not occur
if such ruling or opinion is not available. In such event, Class B shares would
continue to be subject to higher expenses than Class A shares for an indefinite
period.
CLASS C SHARES
Class C shares of the Fund are sold without an initial sales charge so that
the Fund receives the full amount of the investor's purchase. Unlike Class B
shares, however, no CDSC is imposed when Class C shares are redeemed. Class C
shares will automatically convert to Class A shares of the Fund on the fifteenth
day of the month (or, if different, the last business day prior to such date)
following the expiration of a specified holding period. In addition, Class C
shares are subject to higher Rule 12b-1 fees (as described below), and are
subject to such higher fees for a longer period than are Class B shares because
of a longer holding period prior to conversion. The applicable holding period
prior to conversion is determined in accordance with the following table:
<TABLE>
<CAPTION>
Shares Convert to Class A in the Month
Shares Purchased in an Amount After Expiration of
- ------------------------------------------------------------------------------
<S> <C>
Less Than $50,000 96 Months
$50,000 But Less Than $100,000 88 Months
$100,000 But Less Than $250,000 72 Months
$250,000 But Less Than $500,000 56 Months
$500,000 But Less Than $1,000,000 40 Months
</TABLE>
The longer period during which the Rule 12b-1 fee is charged enables the
Fund to sell the Class C shares without deduction of a sales charge at the time
of purchase and without imposing a CDSC at redemption. Ascend Financial does
not pay a sales commission to broker-dealers, or to registered representatives
of Ascend Financial, who sell Class C shares. The higher Rule 12b-1 fee will
cause Class C shares to have a higher expense ratio and to pay lower dividends
than Class A shares.
-68-
<PAGE>
CONVERSION FEATURE. On the fifteenth day of the month (or, if different,
the last business day prior to such date) after the expiration of the applicable
holding period described in the table above, Class C shares will automatically
convert to Class A shares and will no longer be subject to a higher Rule 12b-1
fee. Such conversion will be on the basis of the relative net asset values of
the two classes. Class A shares issued upon such conversion will not be subject
to any FESC or CDSC. Class C shares acquired by exchange from Class C shares of
another Advantus Multiple Class Fund will convert into Class A shares based on
the time of the initial purchase. Purchased Class C shares ("Purchased C
Shares") will convert after the specified number of months following the
purchase date. All Class C shares in a shareholder's account that were acquired
through the reinvestment of dividends and distributions ("Reinvestment C
Shares") will be held in a separate sub-account. Each time any Purchased C
Shares convert to Class A shares, a pro rata portion (based on the ratio that
the total converting Purchased C Shares bears to the shareholder's total
converting and non-converting Purchased C Shares immediately prior to the
conversion) of the Reinvestment C Shares then in the sub-account will also
convert to Class A shares.
The conversion of Class C shares to Class A shares is subject to the
continuing availability of a ruling from the Internal Revenue Service or an
opinion of counsel that payment of different dividends by each of the classes of
shares does not result in the Fund's dividends or distributions constituting
"preferential dividends" under the Internal Revenue Code of 1986, as amended,
and that such conversions do not constitute taxable events for Federal tax
purposes. There can be no assurance that such ruling or opinion will be
available, and the conversion of Class C shares to Class A shares will not occur
if such ruling or opinion is not available. In such event, Class C shares would
continue to be subject to higher expenses than Class A shares for an
indefinite period.
OTHER PAYMENTS TO BROKER-DEALERS
Broker-dealers selling Class A, Class B and Class C shares of the
Advantus Multiple Class Funds will receive a shareholder servicing fee (Rule
12b-1 fee) equal, on a an annual basis, to .25% of the net asset values
attributable to Class A, Class B and Class C shares. All such shareholder
servicing fees are paid quarterly in arrears beginning with the second year
after the sale of the shares to which such fees are attributable (i.e., the
first payment is at the end of the fifteenth month). Rule 12b-1 distribution
fees will also be paid quarterly in arrears to broker-dealers selling Class C
shares equal, on an annual basis, to .75% of the net asset values
attributable to such Class C shares.
NET ASSET VALUE AND PUBLIC OFFERING PRICE
Shares of Money Market Fund may be purchased at a price equal to their net
asset value, which will normally be constant at $1.00 per share. See "Money
Market Fund Amortized Cost Method of Valuation." There is no assurance that
Money Market Fund can maintain the $1.00 per share value. The portfolio
securities in which the Advantus Multiple Class Funds invest fluctuate in value,
and hence the net asset value per share of each Fund also fluctuates.
On September 30, 1999, the net asset value and public offering price per
share for Class A, Class B and Class C shares of each of the Funds (except Money
Market Fund) were calculated as set forth below.
-69-
<PAGE>
HORIZON FUND
CLASS A SHARES
Net Assets ($56,581,313) = Net Asset Value Per Share ($26.88)
- ------------------------------
Shares outstanding (2,105,243)
To obtain the maximum public offering price per share, the Fund's
maximum sales charge must be added to the net asset value obtained above:
$26.88 = Public Offering Price Per Share ($28.44)
------
.945(1)
CLASS B SHARES
Net Assets ($23,560,857) = Net Asset Value AND Public
- -----------------------------
Shares outstanding (922,499) Offering Price Per Share ($25.54)
CLASS C SHARES
Net Assets ($2,539,504) = Net Asset Value AND Public
- ----------------------------
Shares outstanding (98,855) Offering Price Per Share ($25.69)
SPECTRUM FUND
CLASS A SHARES
Net Assets ($73,612,896) = Net Asset Value Per Share ($17.88)
- ------------------------------
Shares outstanding (4,116,117)
To obtain the maximum public offering price per share, the Fund's
maximum sales charge must be added to the net asset value obtained above:
$17.88 = Public Offering Price Per Share ($18.92)
------
.945(1)
CLASS B SHARES
Net Assets ($24,420,364) = Net Asset Value AND Public
- ------------------------------
Shares outstanding (1,372,361) Offering Price Per Share ($17.79)
CLASS C SHARES
Net Assets ($5,659,359) = Net Asset Value AND Public
- ----------------------------
Shares Outstanding (319,960) Offering Price Per Share ($17.69)
MORTGAGE SECURITIES FUND
CLASS A SHARES
Net Assets ($33,616,635) = Net Asset Value Per Share ($10.30)
- --------------------------------
Shares outstanding (3,262,306)
To obtain the maximum public offering price per share, the Fund's
maximum sales charge must be added to the net asset value obtained above:
$10.30 = Public Offering Price Per Share ($10.79)
------
.955(1)
-70-
<PAGE>
CLASS B SHARES
Net Assets ($14,056,810) = Net Asset Value AND Public
- ----------------------------
Shares outstanding (1,361,216) Offering Price Per Share ($10.33)
CLASS C SHARES
Net Assets ($5,125,662) = Net Asset Value AND Public
- -----------------------------
Shares outstanding (497,187) Offering Price Per Share ($10.31)
BOND FUND
CLASS A SHARES
Net Assets ($17,845,967) = Net Asset Value Per Share ($9.71)
- --------------------------------
Shares outstanding (1,837,282)
To obtain the maximum public offering price per share, the Fund's
maximum sales charge must be added to the net asset value obtained above:
$9.71 = Public Offering Price Per Share ($10.17)
------
.955(1)
CLASS B SHARES
Net Assets ($8,170,737) = Net Asset Value AND Public
- -------------------------------
Shares outstanding (839,194) Offering Price Per Share ($9.74)
CLASS C SHARES
Net Assets ($1,594,144) = Net Asset Value AND Public
- -----------------------------------
Shares outstanding (164,274) Offering Price Per Share ($9.70)
CORNERSTONE FUND
CLASS A SHARES
Net Assets ($92,657,418) = Net Asset Value Per Share ($15.14)
- -------------------------------
Shares outstanding (6,119,445)
To obtain the maximum public offering price per share, the Fund's
maximum sales charge must be added to the net asset value obtained above:
$15.14 = Public Offering Price Per Share ($16.02)
------
.945(1)
CLASS B SHARES
Net Assets ($18,610,671) = Net Asset Value AND Public
- -------------------------------
Shares outstanding (1,243,291) Offering Price Per Share ($14.97)
CLASS C SHARES
Net Assets ($2,014,588) = Net Asset Value AND Public
- ----------------------------- Offering Price Per Share ($14.93)
Shares outstanding (134,939)
-71-
<PAGE>
ENTERPRISE FUND
CLASS A SHARES
Net Assets ($40,008,663) = Net Asset Value Per Share ($14.56)
- -------------------------------
Shares outstanding (2,748,024)
To obtain the maximum public offering price per share, the Fund's
maximum sales charge must be added to the net asset value obtained above:
$14.56 = Public Offering Price Per Share ($15.41)
------
.945(1)
CLASS B SHARES
Net Assets ($6,491,014) = Net Asset Value AND Public
- ------------------------------ Offering Price Per Share ($13.88)
Shares outstanding (467,651)
CLASS C SHARES
Net Assets ($811,537) = Net Asset Value AND Public
- ----------------------------- Offering Price Per Share ($13.87)
Shares outstanding (58,496)
INTERNATIONAL FUND
CLASS A SHARES
Net Assets ($49,502,238) = Net Asset Value Per Share ($11.80)
- --------------------------------
Shares outstanding (4,193,369)
To obtain the maximum public offering price per share, the Fund's
maximum sales charge must be added to the net asset value obtained above:
$11.80 = Public Offering Price Per Share ($12.49)
------
.945(1)
CLASS B SHARES
Net Assets ($5,293,030) = Net Asset Value AND Public
- ------------------------------- Offering Price Per Share ($11.66)
Shares outstanding (453,852)
CLASS C SHARES
Net Assets ($2,510,016) = Net Asset Value AND Public
- ------------------------------- Offering Price Per Share ($11.66)
Shares outstanding (215,244)
(1) Effective February 1, 1999, the maximum FESC for Horizon Fund, Spectrum
Fund, Cornerstone Fund, Enterprise Fund and International Fund was
increased to 5.5% and the maximum FESC for Mortgage Securities Fund and
Bond Fund was decreased to 4.5%.
REDUCED SALES CHARGES
Special purchase plans are enumerated in the text of each Fund's Prospectus
under "Buying and Selling Shares Reducing Sales Charges" and are fully
described below.
-72-
<PAGE>
RIGHT OF ACCUMULATION-CUMULATIVE PURCHASE DISCOUNT
The front end sales charge and contingent deferred sales charge applicable
to each purchase of Class A shares and Class B shares, respectively, of the
Advantus Multiple Class Funds and Real Estate Fund is based on the next computed
net asset value of all Class A, Class B and Class C shares of such Funds held by
the shareholder (including dividends reinvested and capital gains distributions
accepted in shares), plus the cost of all Class A, Class B and Class C shares of
such Funds currently being purchased. It is the obligation of each shareholder
desiring this discount in sales charge to notify Ascend Financial, through his
or her dealer or otherwise, that he or she is entitled to the discount.
LETTER OF INTENT
The applicable sales charge for purchases of Class A shares is based on
total purchases over a 13-month period where there is an initial purchase equal
to or exceeding $250, accompanied by filing with Ascend Financial a signed
"Letter of Intent" form to purchase, and by in fact purchasing not less than
$100,000 of shares in the case of Mortgage Securities Fund or Bond Fund, or not
less than $50,000 of shares in one of the other Advantus Funds (except Money
Market Fund), within that time. The 13-month period is measured from the date
the Letter of Intent is approved by Ascend Financial, or at the purchaser's
option, it may be made retroactive 90 days, in which case Ascend Financial will
make appropriate adjustments on purchases during the 90-day period.
In computing the total amount purchased for purposes of determining the
applicable sales charge, the net asset value of Class A, Class B and Class C
shares currently held in all Advantus Multiple Class Funds and Real Estate Fund,
on the date of the first purchase under the Letter of Intent, may be used as a
credit toward Fund shares to be purchased under the Letter of Intent. Class A,
Class B and Class C shares of all the Advantus Multiple Class Funds and Real
Estate Fund may also be included in the purchases during the 13-month period.
The Letter of Intent includes a provision for payment of additional
applicable Class A sales charges at the end of the period in the event the
investor fails to purchase the amount indicated. This is accomplished by
holding 5.5%, or 4.5% in the case of Mortgage Securities Fund and Bond Fund,
of the investor's initial Class A share purchase in escrow. If the
investor's purchases equal those specified in the Letter of Intent, the
escrow is released. If the purchases do not equal those specified in the
Letter of Intent, he or she may remit to Ascend Financial an amount equal to
the difference between the dollar amount of sales charges actually paid and
the amount of sales charges that would have been paid on the aggregate
purchases if the total of such purchases had been made at a single time. If
the purchaser does not remit this sum to Ascend Financial on a timely basis,
Ascend Financial will redeem the appropriate number of shares, and then
release or deliver any remaining shares in the escrow account. The Letter of
Intent is not a binding obligation on the part of the investor to purchase,
or the respective Fund to sell, the full amount indicated. Nevertheless, the
Letter of Intent should be read carefully before it is signed.
COMBINING PURCHASES
With respect to each of the Advantus Multiple Class Funds and Real Estate
Fund, purchases of Class A, Class B and Class C shares for any other account of
the investor, or such person's spouse or minor children, or purchases on behalf
of participants in a tax-qualified retirement plan may be treated as purchases
by a single investor for purposes of determining the availability of a reduced
sales charge.
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GROUP PURCHASES
An individual who is a member of a qualified group may also purchase shares
of the Advantus Multiple Class Funds and Real Estate Fund at the reduced sales
charge applicable to the group taken as a whole. The sales charge is calculated
by taking into account not only the dollar amount of the Class A, Class B and
Class C shares of the Funds being purchased by the individual member, but also
the aggregate dollar value of such Class A, Class B and Class C shares
previously purchased and currently held by other members of the group. Members
of a qualified group may not be eligible for a Letter of Intent.
A "qualified group" is one which (i) has been in existence for more than
six months, (ii) has a purpose other than acquiring Fund shares at a discount,
and (iii) satisfies uniform criteria which enable Ascend Financial to realize
economies of scale in distributing such shares. A qualified group must have
more than ten members, must be available to arrange for group meetings between
representatives of Ascend Financial, must agree to include sales and other
materials related to the Funds in its publications and mailings to members at
reduced or no cost to Ascend Financial, and must seek, upon request, to arrange
for payroll deduction or other bulk transmission of investments to the Funds.
WAIVER OF SALES CHARGES FOR CERTAIN SALES OF CLASS A SHARES
Directors and officers of Advantus Capital, Templeton Counsel (with
respect to International Fund only), Ascend Financial, the Funds, Minnesota
Life, or any of Minnesota Life's other affiliated companies, and their
full-time and part-time employees, sales representatives and retirees, any
trust, pension, profit-sharing, or other benefit plan for such persons, the
spouses, siblings, direct ancestors or direct descendants of such persons,
Minnesota Life and its affiliates themselves, advisory clients of Advantus
Capital, employees of sales representatives employed in offices maintained by
such sales representatives, certain accounts as to which a bank or
broker-dealer charges an account management fee, provided the bank or
broker-dealer has an agreement with Ascend Financial, and certain accounts
sold by registered investment advisers who charge clients a fee for their
services may purchase Class A shares of the Advantus Multiple Class Funds and
Real Estate Fund at net asset value. These persons must give written assurance
that they have bought for investment purposes, and that the securities will not
be resold except through redemption or repurchase by, or on behalf of, the
respective Fund. These persons are not required to pay a sales charge because
of the reduced sales effort involved in their purchases.
EXCHANGE AND TRANSFER OF FUND SHARES
A shareholder can exchange some or all of his or her Class A, Class B
and Class C shares in the Advantus Multiple Class Funds, or shares in Real
Estate Fund, including shares acquired by reinvestment of dividends, for shares
of the same class of any of the other Advantus Multiple Class Funds or Real
Estate Fund (provided such Fund is available in the shareholder's State),
and can thereafter re-exchange such exchanged shares back for shares of the
same class of the Fund, provided that the minimum amount which may be
transferred is $250. The exchange will be made on the basis of the relative
net asset values without the imposition of any additional sales load. When
Class B shares acquired through the exchange are redeemed, the shareholder
will be treated as if no exchange took place for the purpose of determining
the contingent deferred sales charge ("CDSC") period and applying the CDSC.
Class A, Class B and Class C shares may also be exchanged for shares of the
Money Market Fund at net asset values. No CDSC will be imposed at the time of
any such exchange of Class B shares; however, the Money Market Fund shares
acquired in any such exchange will remain subject to the CDSC otherwise
applicable to such Class B shares as of the date of exchange, and the period
during which such shares of Money Market Fund are held will not be included in
the calculation of the CDSC due at redemption of such Money Market Fund shares
or any reacquired Class B shares, except as follows. Ascend Financial is
currently waiving the entire Rule 12b-1 fee due from Money Market Fund. In the
event Ascend Financial begins to receive any portion of such fee, either (i) the
time period during which shares of Money Market Fund acquired in exchange for
Class B shares are held will be included in the calculation of the CDSC due at
redemption, or (ii) such time period will not be included but the amount of the
CDSC will be reduced by the amount of any Rule 12b-1 payments made by Money
Market Fund with respect to those shares.
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Shares of Money Market Fund acquired in an exchange for Class A, Class B or
Class C shares from any of the Advantus Multiple Class Funds or Real Estate Fund
may also be re-exchanged at relative net asset values for Class A, Class B and
Class C shares, respectively, of the Fund. Class C shares re-acquired in this
manner will have a remaining holding period prior to conversion equal to the
remaining holding period applicable to the prior Class C shares at the time of
the initial exchange. Shares of Money Market Fund not acquired in an exchange
from any of the Advantus Multiple Class Funds or Real Estate Fund may be
exchanged at relative net asset values for either Class A, Class B or Class C
shares of the Fund, subject to the sales charge applicable to the class
selected.
The exchange privilege is available only in states where such exchanges may
legally be made (at the present time the Fund believes this privilege is
available in all states). An exchange may be made by written request or by a
telephone call, unless the shareholder has elected on the account application
not to have telephone transaction privileges. Up to twelve exchanges each
calendar year may be made without charge. A $7.50 service charge will be
imposed on each subsequent exchange and/or telephone transfer. No service
charge is imposed in connection with systematic exchange plans. However, the
Fund reserves the right to restrict the frequency of, or otherwise modify,
condition, terminate, or impose additional charges upon, the exchange and/or
telephone transfer privileges, upon 60 days' prior notice to shareholders. An
exchange is considered to be a sale of shares for federal income tax purposes on
which an investor may realize a long- or short-term capital gain or loss. See
"Distributions and Tax Status" for a discussion of the effect of redeeming
shares within 90 days after acquiring them and subsequently acquiring new shares
in any mutual fund at a reduced sales charge.
SYSTEMATIC EXCHANGE PLAN
Shareholders of the Fund may elect to have shares of the Fund
systematically exchanged for shares of any of the other Advantus Funds on a
monthly basis. The minimum amount which may be exchanged on such a systematic
basis is $25. The terms and conditions otherwise applicable to exchanges
generally, as described above, also apply to such systematic exchange plans.
SHAREHOLDER SERVICES
OPEN ACCOUNTS
A shareholder's investment is automatically credited to an open account
maintained for the shareholder by PFPC, the Fund's transfer agent. Stock
certificates are not currently issued. Following each transaction in the
account, a shareholder will receive a confirmation statement disclosing the
current balance of shares owned and the details of recent transactions in the
account. After the close of each year PFPC sends to each shareholder a
statement providing federal tax information on dividends and distributions paid
to the shareholder during the year. This should be retained as a permanent
record. A fee may be charged for providing duplicate information.
The open account system provides for full and fractional shares expressed
to four decimal places and, by making the issuance and delivery of stock
certificates unnecessary, eliminates problems of handling and safekeeping, and
the cost and inconvenience of replacing lost, stolen, mutilated or destroyed
certificates.
The costs of maintaining the open account system are paid by Advantus
Capital in the case of the Funds other than Money Market Fund. The costs of
maintaining the open account system for Money Market Fund are paid by the Fund.
No direct charges are made to shareholders. Although the Funds have no present
intention of making such direct charges to shareholders, they reserve the right
to do so. Shareholders will receive prior notice before any such charges are
made.
AUTOMATIC INVESTMENT PLAN
Each Fund provides a convenient, voluntary method of purchasing shares in
the Fund through its "Automatic Investment Plan" (the "Plan").
The principal purposes of the Plan are to encourage thrift by enabling you
to make regular purchases in amounts less than normally required, and, in the
case of the Advantus Multiple Class Funds and Real Estate Fund, to employ the
principle of dollar cost averaging, described below.
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By acquiring Fund shares on a regular basis pursuant to the Automatic
Investment Plan, or investing regularly on any other systematic plan, the
investor takes advantage of the principle of dollar cost averaging. Under
dollar cost averaging, if a constant amount is invested at regular intervals
at varying price levels, the average cost of all the shares will be lower
than the average of the price levels. This is because the same fixed number
of dollars buys more shares when price levels are low and fewer shares when
price levels are high. There is no guarantee, however, that the automatic
investment plan will always result in a lower cost per share compared to other
investment programs. It is essential that the investor consider his or her
financial ability to continue this investment program during times of market
decline as well as market rise. The principle of dollar cost averaging will
not protect against loss in a declining market, as a loss will result if the
plan is discontinued when the market value is less than cost.
A Plan may be opened by indicating an intention to invest $25 or more
monthly for at least one year. Investors will receive a confirmation showing
the number of shares purchased, purchase price, and subsequent new balance of
shares accumulated.
An investor has no obligation to invest regularly or to continue the Plan,
which may be terminated by the investor at any time without penalty. Under the
Plan, any distributions of income and realized capital gains will be reinvested
in additional shares at net asset value unless a shareholder instructs the Fund
in writing to pay them in cash. The Fund reserves the right to increase or
decrease the amount required to open and continue a Plan, and to terminate any
Plan after one year if the value of the amount invested is less than $250.
GROUP SYSTEMATIC INVESTMENT PLAN
This Plan provides employers and employees with a convenient means for
purchasing shares of each Fund under various types of employee benefit and
thrift plans, including payroll withholding and bonus incentive plans. The Plan
may be started with an initial cash investment of $50 per participant for a
group consisting of five or more participants. The shares purchased by each
participant under the Plan will be held in a separate account in which all
dividends and capital gains will be reinvested in additional shares of the Fund
at net asset value. To keep his or her account open, subsequent payments
totaling $25 per month must be made into each participant's account. If the
group is reduced to less than five participants, the minimums set forth under
"Automatic Investment Plan" shall apply. The Plan may be terminated by the Fund
or the shareholder at any time upon reasonable notice.
RETIREMENT PLANS OFFERING TAX BENEFITS
The federal tax laws provide for a variety of retirement plans offering
tax benefits. These plans may be funded with shares of any of the Funds.
The plans include H.R. 10 (Keogh) plans for self-employed individuals and
partnerships, individual retirement accounts (IRA's), corporate pension trust
and profit sharing plans, including 401(k) plans, and retirement plans for
public school systems and certain tax exempt organizations, e.g. 403(b) plans.
The initial investment in each Fund by such a plan must be at least $250
for each participant in a plan, and subsequent investments must be at least $25
per month for each participant. Income dividends and capital gain distributions
must be reinvested. Plan documents and further information can be obtained from
Ascend Financial.
An investor should consult a competent tax or other adviser as to the
suitability of Fund shares as a vehicle for funding a plan, in whole or in part,
under the Employee Retirement Income Security Act of 1974 and as to the
eligibility requirements for a specific plan and its state as well as federal
tax aspects.
SYSTEMATIC WITHDRAWAL PLANS
An investor owning shares in any one of the Funds having a value of $5,000
or more at the current public offering price may establish a Systematic
Withdrawal Plan providing for periodic payments of a fixed or variable amount.
Withdrawal payments for Class A shares of Real Estate Fund and the Advantus
Multiple Class Funds purchased in amounts of $1 million or more, and for Class B
shares of Advantus Multiple Class Funds, may also be subject to a CDSC. As a
result, a shareholder should consider whether a Systematic Withdrawal Plan is
appropriate. It may be appropriate for the shareholder to consult a tax adviser
before establishing such a plan.
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The Plan is particularly convenient and useful for trustees in making
periodic distributions to retired employees. Through this Plan a trustee can
arrange for the retirement benefit to be paid directly to the employee by the
respective Fund and to continue the tax-free accumulation of income and capital
gains prior to their distribution to the employee. An investor may terminate
the Plan at any time. A form for use in establishing such a plan is available
from Ascend Financial.
A shareholder under a Systematic Withdrawal Plan may elect to receive
payments monthly, quarterly, semiannually, or annually for a fixed amount of not
less than $50 or a variable amount based on (1) the market value of a stated
number of shares, (2) a specified percentage of the account's market value or
(3) a specified number of years for liquidating the account (e.g., a 20-year
program of 240 monthly payments would be liquidated at a monthly rate of 1/240,
1/239, 1/238, etc.). The initial payment under a variable payment option may
be $50 or more.
All shares under the Plan must be left on deposit. Income dividends and
capital gain distributions will be reinvested without a sales charge at net
asset value determined on the record date.
Since withdrawal payments represent proceeds from the liquidation of
shares, withdrawals may reduce and possibly exhaust the initial investment,
particularly in the event of a decline in net asset value.
Under this Plan, any distributions of income and realized capital gains
must be reinvested in additional shares, and are reinvested at net asset value.
If a shareholder wishes to purchase additional shares of the respective Fund
under this Plan, except in the case of Money Market Fund, other than by
reinvestment of distributions, it should be understood that, in the case of
Class A shares, he or she would be paying a sales commission on such purchases,
while liquidations effected under the Plan would be at net asset value, and, in
the case of Class B shares, he or she would be purchasing such shares at net
asset value while liquidations effected under the Plan would involve the payment
of a contingent deferred sales charge. Purchases of additional shares
concurrent with withdrawals are ordinarily disadvantageous to the shareholder
because of sales charges and tax liabilities. Additions to a shareholder
account in which an election has been made to receive systematic withdrawals
will be accepted only if each such addition is equal to at least one year's
scheduled withdrawals or $1,200, whichever is greater. A shareholder may not
have an "Automatic Withdrawal Plan" and a "Systematic Investment Plan" in effect
simultaneously as it is not, as explained above, advantageous to do so.
REDEMPTIONS
Registered holders of shares of the Funds may redeem their shares at the
per share net asset value next determined following receipt by the Fund (at its
mailing address listed on the cover page) of a written redemption request signed
by all shareholders exactly as the account is registered (and a properly
endorsed stock certificate if one has been issued). Class A and Class C shares
may be redeemed without charge. A contingent deferred sales charge may be
applicable upon redemption of certain Class A shares and Class B shares. Both
share certificates and stock powers, if any, tendered in redemption must be
endorsed and executed exactly as the Fund shares are registered. Any
certificates should be sent to the Fund by certified mail.
Payment will be made as soon as possible, but not later than seven days
after receipt of a properly executed written redemption request (and any
certificates). The amount received by the shareholder may be more or less than
the shares' original cost.
If stock certificates have not been issued, and if no signature guarantee
is required, shareholders may also submit their signed written redemption
request to the Fund by facsimile (FAX) transmission. The Fund's FAX number is
(508) 871-3560.
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Each Fund will pay in cash all redemption requests by any shareholder of
record, limited in amount during any 90-day period to the lesser of $250,000 or
1% of the net asset value of the Fund at the beginning of such period. When
redemption requests exceed such amount, however, the Fund reserves the right to
make part or all of the payment in the form of securities or other assets of the
Fund. An example of when this might be done is in case of emergency, such as in
those situations enumerated in the following paragraph, or at any time a cash
distribution would impair the liquidity of the Fund to the detriment of the
existing shareholders. Any securities being so distributed would be valued in
the same manner as the portfolio of the Fund is valued. If the recipient sold
such securities, he or she probably would incur brokerage charges. Each Fund
has filed with the Securities and Exchange Commission a notification of election
pursuant to Rule 18f-1 under the Investment Company Act of 1940 in order to make
such redemptions in kind.
Redemption of shares, or payment, may be suspended at times (a) when the
New York Stock Exchange is closed for other than customary weekend or holiday
closings, (b) when trading on said Exchange is restricted, (c) when an emergency
exists, as a result of which disposal by the Fund of securities owned by it is
not reasonably practicable, or it is not reasonably practicable for the Fund
fairly to determine the value of its net assets, or during any other period when
the Securities and Exchange Commission, by order, so permits; provided that
applicable rules and regulations of the Securities and Exchange Commission shall
govern as to whether the conditions prescribed in (b) or (c) exist.
SIGNATURE GUARANTEE
In order to protect both shareholders and the Funds against fraudulent
orders, a shareholder signature is required to be guaranteed in certain cases.
No signature guarantee is required if the redemption proceeds are less than
$50,000 and are to be paid to the registered holder and sent to the address of
record for that account, or if the written redemption request is from
pre-authorized trustees of plans, trusts and other tax-exempt organizations and
the redemption proceeds are less than $50,000.
A signature guarantee is required, however, if (i) the redemption proceeds
are $50,000 or more, (ii) the redemption proceeds are to be paid to someone
other than the registered holder, (iii) the redemption proceeds are to be mailed
to an address other than the registered shareholder's address, (iv) within the
30-day period prior to receipt of the redemption request, instructions have been
received to change the shareholder's address of record, or, in the case of
redemptions to be paid by wire, instructions have been received within such
period to change the shareholder's bank wire instructions, (v) the shares are
requested to be transferred to the account of another owner, or (vi) in the case
of plans, trusts, or other tax-exempt organizations, the redemption request is
not from a pre-authorized trustee. The Fund reserves the right to require
signature guarantees on all redemptions.
A signature guarantee must be provided by an eligible guarantor
institution. A notarized signature is not sufficient. Eligible guarantors
include (1) national or state banks, savings associations, savings and loan
associations, trust companies, savings banks, industrial loan companies and
credit unions; (2) national securities exchanges, registered securities
associations and clearing agencies; (3) securities broker-dealers which are
members of a national securities exchange or a clearing agency or which have
minimum net capital of $100,000; or (4) institutions that participate in the
Securities Transfer Agent Medallion Program ("STAMP") or other recognized
signature medallion program.
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CONTINGENT DEFERRED SALES CHARGE
The CDSC applicable upon redemption of Class A shares purchased in amounts
of $1 million or more and Class B shares will be calculated on an amount equal
to the lesser of the net asset value of the shares at the time of purchase or
their net asset value at the time of redemption. No charge will be imposed on
increases in net asset value above the initial purchase price. In addition, no
charge will be assessed on shares derived from reinvestment of dividends or
capital gains distributions or on shares held for longer than the applicable
CDSC period. See "Sales Charges - Class B Shares" above.
In determining whether a CDSC is payable with respect to any redemption
of Class B shares, the calculation will be determined in the manner that
results in the lowest rate being charged.
The CDSC does not apply to: (1) redemption of Class B shares in connection
with the automatic conversion to Class A shares; (2) redemption of shares when a
Fund exercises its right to liquidate accounts which are less than the minimum
account size; and (3) redemptions in the event of the death or disability of the
shareholder within the meaning of Section 72(m)(7) of the Internal Revenue Code.
The CDSC will also not apply to certain exchanges. See "Exchange and Transfer
of Fund Shares," above.
TELEPHONE REDEMPTION
The Fund's shareholders have this privilege automatically, unless they
have elected on the account application not to have such privilege, and may
redeem shares by calling Advantus Shareholder Services at 1-800-665-6005 (see
"Telephone Transactions"). A telephone redemption request will not be
honored, however, if the shareholder's address of record or bank wire
instructions have been changed without a guarantee of the shareholder's
signature (see "Signature Guarantee" above) within the 30-day period prior to
receipt of the redemption request. The maximum amount which may be redeemed
by telephone is $50,000. The proceeds will be sent by check to the address
of record for the account. If the amount is $500 or more, and if the
shareholder has designated a bank account, the proceeds may be wired to the
shareholder's designated bank account, and the prevailing wire charge
(currently $5.00) will be added to the amount redeemed from the Fund. The
Fund reserves the right to modify, terminate or impose charges upon the
telephone redemption privilege.
DELAY IN PAYMENT OF REDEMPTION PROCEEDS
Payment of redemption proceeds will ordinarily be made as soon as possible
and within the periods of time described above. However, an exception to this
is that if redemption is requested after a purchase by non-guaranteed funds
(such as a personal check), the Fund will delay mailing the redemption check or
wiring proceeds until it has reasonable assurance that the purchase check has
cleared (good payment has been collected). This delay may be up to 14 days from
the purchase date.
FUND'S RIGHT TO REDEEM SMALL ACCOUNTS
The Fund has the right to redeem the shares in inactive accounts which, due
to redemptions and not to decreases in market value of the shares in the
account, have a total current value of less than $150. Before redeeming an
account, the Fund will mail to the shareholder a written notice of its intention
to redeem, which will give the investor an opportunity to make an additional
investment. If no additional investment is received by the Fund within 60 days
of the date the notice was mailed, the shareholder's account will be redeemed.
CHECKWRITING
Money Market Fund shareholders may elect the checkwriting privilege which
allows them to write checks in amounts from a minimum of $250 to a maximum of
$100,000. No charge is made for check orders. Checks may not be written
against shares in a Fund account which have been purchased within the last 14
days, except for shares purchased by wire transfer (which are immediately
available). Checkwriting is not an appropriate means to close a Fund account.
A $10 service fee will be charged when a check is presented to redeem Fund
shares (i) in excess of the value of the shareholder's Fund account, or (ii)
which were purchased by check within 14 days. A $15 service fee will be charged
when a shareholder requests "stop payment" of a check.
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AUTOMATIC PREMIUM PAYMENTS
A shareholder may authorize Minnesota Life to redeem shares in his or her
Money Market Fund account periodically in amounts equal to the premiums due on
insurance policies issued to the shareholder by Minnesota Life and to apply
those amounts in payment of the premiums due on those policies. Payment of
insurance premiums in this manner may be made only where such insurance premiums
are due on a monthly basis. In no event will Minnesota Life redeem shares to
pay on insurance premium unless there are shares in a shareholder's Money Market
Fund account sufficient to pay the full amount of the premium.
REINSTATEMENT PRIVILEGE
The Prospectus for each of the Advantus Multiple Class Funds describes
redeeming shareholders' reinstatement privileges in "Buying and Selling Shares"
in each Fund's Prospectus. Written notice from persons wishing to exercise this
reinstatement privilege must be received by Ascend Financial within 90 days
after the date of the redemption. The reinstatement or exchange will be made at
net asset value next determined after receipt of the notice and will be limited
to the amount of the redemption proceeds or to the nearest full share if
fractional shares are not purchased. All shares issued as a result of the
reinstatement privilege applicable to redemptions of Class A and Class B shares
will be issued only as Class A shares. Any CDSC incurred in connection with the
prior redemption (within 90 days) of Class B shares will not be refunded or
re-credited to the shareholder's account. Shareholders who redeem Class C
shares and exercise their reinstatement privilege will be issued only Class C
shares, which shares will have a remaining holding period prior to conversion
equal to the remaining holding period applicable to the prior Class C shares at
redemption.
See "Distributions and Tax Status" below for a discussion of the effect of
redeeming shares within 90 days after acquiring them and subsequently acquiring
new shares in any mutual fund at a reduced sales charge. Should an investor
utilize the reinstatement privilege following a redemption which resulted in a
loss, all or a portion of that loss might not be currently deductible for
Federal income tax purposes, for an investor which is not tax-exempt.
Exercising the reinstatement privilege would not alter any capital gains taxes
payable on a realized gain, for an investor which is not tax-exempt. See
discussion under "Distributions and Tax Status" below regarding the taxation of
capital gains.
TELEPHONE TRANSACTIONS
Shareholders of the Fund are permitted to exchange or redeem the Fund's
shares by telephone. See "Exchange and Transfer of Fund Shares" and
"Redemptions" for further details. The privilege to initiate such transactions
by telephone is made available automatically unless the shareholder elects on
the account application not to have such privilege.
Shareholders, or persons authorized by shareholders, may initiate telephone
transactions by telephoning Advantus Shareholder Services, toll free, at
1-800-665-6005. Automated service is available 24 hours a day, and service
representatives are available Monday through Friday, from 8:00 a.m. to 4:45 p.m.
(Central Time). Telephone transaction requests received after 3:00 p.m.
(Central Time) will be treated as received the next business day. The maximum
amount which may be redeemed by telephone is $50,000. During periods of marked
economic or market changes, shareholders may experience difficulty in
implementing a telephone exchange or redemption due to a heavy volume of
telephone calls. In such a circumstance, shareholders should consider
submitting a written request while continuing to attempt a telephone exchange or
redemption. The Fund reserves the right to modify, terminate or impose charges
upon the telephone exchange and redemption privileges upon 60 days' prior notice
to shareholders.
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The Fund will not be liable for following instructions communicated by
telephone which it reasonably believes to be genuine; provided, however, that
the Fund will employ reasonable procedures to confirm that instructions
communicated by telephone are genuine, and that if they do not, they may be
liable for any losses due to unauthorized or fraudulent instructions. The
procedures for processing telephone transactions include tape recording of
telephone instructions, asking shareholders for their account number and a
personal identifying number, and providing written confirmation of such
transactions.
DISTRIBUTIONS AND TAX STATUS
DIVIDENDS AND CAPITAL GAINS DISTRIBUTIONS
The policy of the Funds (other than Mortgage Securities Fund, Bond Fund and
Money Market Fund) has been to pay dividends from net investment income
quarterly. In the case of Horizon Fund, however, such quarterly dividends from
current income have not been paid since 1993 inasmuch as the dividend yields of
the mid and large capitalization companies in which the Fund invests have
generally fallen below the average yield for all companies. The policy of
Mortgage Securities Fund, Bond Fund and Money Market 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, and to pay such dividends monthly. Any net realized capital gains
are generally distributed once a year, during December.
For all Funds other than Money Market Fund, distributions, if any, paid
with respect to Class A, Class B and Class C shares will be calculated in the
same manner, at the same time, on the same day and will be in the same
amount, except that the higher Rule 12b-1 fees applicable to Class B and
Class C shares will be borne exclusively by such shares. The per share
distributions on Class B and Class C shares will be lower than the per share
distributions on Class A shares as a result of the higher Rule 12b-1 fees
applicable to Class B and Class C shares.
Any dividend payments or net capital gains distributions made by a Fund
are in the form of additional shares of the same class of the Fund rather than
in cash, unless a shareholder specifically requests the Fund in writing that the
payment be made in cash. The distribution of these shares is made at net asset
value on the payment date of the dividend, without any sales or other charges to
the shareholder. The taxable status of income dividends and/or net capital
gains distributions is not affected by whether they are reinvested or paid in
cash. Authorization to pay dividends in cash may be made on the application
form, or at any time by letter.
For federal income tax purposes, Enterprise Fund, Bond Fund and Mortgage
Securities Fund have capital loss carryovers as of September 30, 1999 in the
amounts of $1,592,982, $789,206 and $514,548, respectively. It is unlikely
the Board of Directors will authorize a distribution of any net realized
capital gain until the available capital loss carryover has been offset or
expires.
Upon written request to a Fund, a shareholder may also elect to have
dividends from the Fund invested without sales charge in shares of Money
Market Fund or shares of the same class of another of the Advantus Funds at
the net asset value of such other Fund on the payable date for the dividends
being distributed (subject to the applicable sales charge). To use this
privilege of investing dividends from a Fund in shares of another of the
Funds, shareholders must maintain a minimum account value of $250 in both the
Fund paying the dividends and the other Fund in which dividends are
reinvested.
TAXATION - GENERAL
The following is a general summary of certain federal tax considerations
affecting the Funds and their shareholders. No attempt is made to present a
detailed explanation of the tax treatment of the Funds or their
shareholders, and the discussion here is not intended as a substitute for
careful tax planning.
During the year ended September 30, 1999 each Fund fulfilled, and
intends to continue to fulfill, the requirements of Subchapter M of the
Internal Revenue Code of 1986, as amended (the "Code"), as a regulated
investment company. If so qualified, each Fund will not be liable for
federal income taxes to the extent it distributes its taxable income to its
shareholders.
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Distributions of investment company taxable income from a Fund generally
will be taxable to shareholders as ordinary income, regardless of whether such
distributions are paid in cash or are invested in additional shares of the
Fund's stock. A distribution of net capital gain (a "capital gain
distribution"), whether paid in cash or reinvested in shares, generally is
taxable to shareholders as long-term capital gain, regardless of the length of
time a shareholder has held his or her shares or whether such gain was realized
by the Fund before the shareholder acquired such shares and was reflected in the
price paid for the shares. Long-term capital gains of individuals are taxed at
a maximum rate of 20%, and the highest marginal regular tax rates on ordinary
income for individuals is 39.6%.
Some or all of the dividend distributions from Horizon, Spectrum,
Enterprise and Cornerstone Funds are expected to qualify for the 70% dividend
received deduction for corporations.
If more than 50% of International Fund's total assets at the close of its
fiscal year consist of securities of foreign corporations, it will be eligible
to, and may, file an election with the Internal Revenue Service pursuant to
which shareholders will be required to include their pro rata portions of
foreign taxes paid by the Fund as income received by them. Shareholders may
then either deduct such pro rata portions in computing their taxable income or
use them as foreign tax credits against their United States income taxes. If
the Fund makes such an election, it will report annually to each shareholder the
amount of foreign taxes to be included in income and then either deducted or
credited.
Alternatively, if the amount of foreign taxes paid by International Fund is
not large enough to warrant its making the election described above, the Fund
may claim the amount of foreign taxes paid as a deduction against its own gross
income. In that case, shareholders would not be required to include any amount
of foreign taxes paid by the Fund in their income and would not be permitted
either to deduct any portion of foreign taxes from their own income or to claim
any amount of foreign tax credit for taxes paid by the Fund.
Prior to purchasing shares of the Fund, prospective shareholders (except
for tax-qualified retirement plans) should consider the impact of dividends
or capital gains distributions which are expected to be announced, or have
been announced but not paid. Any such dividends or capital gains
distributions paid shortly after a purchase of shares by an investor prior to
the record date will have the effect of reducing the per share net asset
value by the amount of the dividends or distributions. All or a portion of
such dividends or distributions, although in effect a return of capital, is
subject to taxation.
The Code provides that a shareholder who pays a sales charge in acquiring
shares of a mutual fund, redeems those shares within 90 days after acquiring
them, and subsequently acquires new shares in any mutual fund for a reduced
sales charge or no sales charge (pursuant to a reinvestment right acquired with
the first shares), may not take into account the sales charge imposed on the
first acquisition, to the extent of the reduction in the sales charge on the
second acquisition, for purposes of computing gain or loss on disposition of the
first acquired shares. The amount of sales charge disregarded under this rule
will, however, be treated as incurred in connection with the acquisition of the
second acquired shares.
Shareholders of the Fund receive an annual statement detailing federal tax
information. Distributions by the Funds, including the amount of any
redemption, are reported to shareholders in such annual statement and to the
Internal Revenue Service to the extent required by the Code.
The Funds are required by federal law to withhold 31% of reportable
payments (including dividends, capital gain distributions, and redemptions) paid
to certain accounts whose owners have not complied with IRS regulations. In
order to avoid this backup withholding requirement, each shareholder will be
asked to certify on the shareholder's account application that the social
security or taxpayer identification number provided is correct and that the
shareholder is not subject to backup withholding for previous underreporting to
the IRS.
Some of the investment practices that may be employed by the Funds will be
subject to special provisions that, among other things, may defer the use of
certain losses of such Funds, affect the holding period of the securities held
by the Funds and, particularly in the case of transactions in or with respect to
foreign currencies, affect the character of the gains or losses realized. These
provisions may also require the Funds to mark-to-market some of the positions in
their respective portfolios (i.e., treat them as closed out) or to accrue
original discount, both of which may cause such Funds to recognize income
without receiving cash with which to make distributions in amounts necessary to
satisfy the distribution requirements for qualification as a regulated
investment company and for avoiding income and excise taxes. Accordingly, in
order to make the required distributions, a Fund may be required to borrow or
liquidate securities. Each Fund will monitor its transactions and may make
certain elections in order to mitigate the effect of these rules and prevent
disqualification of the Funds as regulated investment companies.
-82-
<PAGE>
Each Fund is subject to a non-deductible excise tax equal to 4 percent of
the excess, if any, of the amount required to be distributed pursuant to the
Code for each calendar year over the amount actually distributed. In order to
avoid the imposition of this excise tax, the Fund generally must declare
dividends by the end of a calendar year representing 98 percent of the Fund's
ordinary income for the calendar year and 98 percent of its capital gain net
income (both long-term and short-term capital gains) for the twelve-month period
ending October 31 of the calendar year.
The foregoing relates only to federal taxation. Prospective shareholders
should consult their tax advisers as to the possible application of state and
local income tax laws to ownership of Fund shares.
FINANCIAL STATEMENTS
The Funds' financial statements for the year ended September 30, 1999,
including the financial highlights for each of the respective periods presented,
appearing in each Fund's Annual Report to shareholders, and the report thereon
of the Funds' independent auditors, KPMG LLP, also appearing therein, are
incorporated by reference in this Statement of Additional Information.
-83-
<PAGE>
APPENDIX A
MORTGAGE-RELATED SECURITIES
Mortgage-related securities represent an ownership interest in a pool of
residential mortgage loans. These securities are designed to provide monthly
payments of interest and principal to the investor. The mortgagor's monthly
payments to his lending institution are "passed-through" to investors such as
the Fund. Most insurers or services provide guarantees of payments, regardless
of whether or not the mortgagor actually makes the payment. The guarantees made
by issuers or servicers are backed by various forms of credit, insurance and
collateral.
UNDERLYING MORTGAGES
Pools consist of whole mortgage loans or participations in loans. The
majority of these loans are made to purchasers of 1-4 family homes. Some of
these loans are made to purchasers of mobile homes. The terms and
characteristics of the mortgage instruments are generally uniform within a pool
buy may vary among pools. For example, in addition to fixed-rate fixed-term
mortgages, the fund may purchase pools of variable rate mortgages, growing
equity mortgages, graduated payment mortgages and other types.
All servicers apply standards for qualification to local lending
institutions which originate mortgages for the pools. Servicers also establish
credit standards and underwriting criteria for individual mortgages included in
the pools. In addition, many mortgages included in pools are insured through
private mortgage insurance companies.
LIQUIDITY AND MARKETABILITY
Since the inception of the mortgage-related pass-through security in 1970,
the market for these securities has expanded considerably. The size of the
primary issuance market and active participation in the secondary market by
securities dealers and many types of investors makes government and
government-related pass-through pools highly liquid. The recently introduced
private conventional pools of mortgages (pooled by commercial banks, savings and
loans institutions and others, with no relationship with government and
government-related entities) have also achieved broad market acceptance and
consequently an active secondary market has emerged. However, the market for
conventional pools is smaller and less liquid than the market for the government
and government-related mortgage pools. The Fund may purchase some
mortgage-related securities through private placements, in which case only a
limited secondary market exists, and the security is considered illiquid.
AVERAGE LIFE
The average life of pass-through pools varies with the maturities of the
underlying mortgage instruments. In addition, a pool's term may be shortened by
unscheduled or early payments of principal and interest on the underlying
mortgages. The occurrence of mortgage prepayments is affected by factors
including the level of interest rates, general economic conditions, the location
and age of the mortgage and other social and demographic conditions.
As prepayment rates of individual pools vary widely, it is not possible to
accurately predict the average life of a particular pool. For pools of
fixed-rate 30-year mortgages, common industry practice is to assume that
prepayments will result in a 12-year average life. Pools of mortgages with
other maturities or different characteristics will have varying assumptions for
average life. The assumed average life of pools of mortgages having terms of
less than 30 years is less than 12 years, but typically not less than 5 years.
A-1
<PAGE>
YIELD CALCULATIONS
Yields on pass-through securities are typically quoted by investment
dealers and vendors based on the maturity of the underlying instruments and the
associated average life assumption. In periods of falling interest rates the
rate of prepayment tends to increase, thereby shortening the actual average life
of a pool of mortgage-related securities. Conversely, in periods of rising
rates and the rate of prepayment tends to decrease, thereby lengthening the
actual average life of the pool. Historically, actual average life has been
consistent with the 12-year assumption referred to above.
Actual prepayment experience may cause the yield to differ from the assumed
average life yield. Reinvestment of prepayments may occur at higher or lower
interest rates than the original investment, thus affecting the yield of the
Fund. The compounding effect from reinvestments of monthly payments received by
the Fund will increase the yield to shareholders compared to bonds that pay
interest semi-annually.
A-2
<PAGE>
APPENDIX B
BOND AND COMMERCIAL PAPER RATINGS
BOND RATINGS
Moody's Investors Service, Inc. describes its six highest ratings for corporate
bonds and mortgage-related securities as follows:
Bonds which are rated Aaa are judged to be of the best quality. They carry
the smallest degree of investment risk and are generally referred to as
"gilt edge." Interest payments are protected by a large or by an
exceptionally stable margin and principal is secure. While the various
protective elements are likely to change, such changes as can be visualized
are most unlikely to impair the fundamentally strong position of such
issues.
Bonds which are rated Aa are judged to be of high quality by all standards.
Together with the Aaa group they comprise what are generally known as high
grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in Aaa securities or fluctuation of
protective elements may be of greater amplitude or there may be other
elements present which make the long term risks appear somewhat larger than
in Aaa securities.
Bonds which are rated A possess many favorable investment attributes and
are to be considered as upper medium grade obligations. Factors giving
security to principal and interest are considered adequate but elements may
be present which suggest a susceptibility to impairment some time in the
future.
Bonds which are rated Baa are considered medium grade obligations, i.e.,
they are neither highly protected nor poorly secured. Interest payments
and principal security appear adequate for the present but certain
protective elements may be lacking or may be characteristically unreliable
over any great length of time. Such bonds lack outstanding investment
characteristics and in fact have speculative characteristics as well.
Bonds which are rated Ba are judged to have speculative elements; their
future cannot be considered as well-assured. Often the protection of
interest and principal payments may be very moderate, and thereby not well
safeguarded during both good and bad times over the future. Uncertainty of
position characterizes bonds in this class.
Bonds which are rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance
of other terms of the contract over any long period of time may be small.
Moody's Investors Service, Inc. also applies numerical modifiers, 1, 2, and 3,
in each of these generic rating classifications. The modifier 1 indicates that
the security ranks in the higher end of its generic rating category; the
modifier 2 indicates a mid-range ranking; and the modifier 3 indicates that the
issue ranks in the lower end of its generic rating category.
Standard & Poor's Corporation describes its six highest ratings for corporate
bonds and mortgage-related securities as follows:
B-1
<PAGE>
AAA. Debt rated "AAA" has the highest rating assigned by Standard &
Poor's. Capacity to pay interest and repay principal is extremely strong.
AA. Debt rated "AA" has a very strong capacity to pay interest and repay
principal and differs from the higher rated issues only in small degree.
A. Debt rated "A" has a strong capacity to pay interest and repay
principal although it is somewhat more susceptible to the adverse effects
of changes in circumstances and economic conditions than debt in higher
rated categories.
BBB. Debt rated "BBB" is regarded as having an adequate capacity to pay
interest and repay principal. Whereas it normally exhibits adequate
protection parameters, adverse economic conditions or changing
circumstances are more likely to lead to a weakened capacity to pay
interest and repay principal for debt in this category than in higher rated
categories.
BB. Debt rated "BB" has less near-term vulnerability to default than other
speculative grade debt. However, it faces major ongoing uncertainties or
exposure to adverse business, financial, or economic conditions that could
lead to inadequate capacity to meet timely interest and principal payments.
B. Debt rated "B" has a greater vulnerability to default but currently has
the capacity to meet interest payments and principal repayments. Adverse
business, financial, or economic conditions will likely impair capacity or
willingness to pay interest and repay principal. The "B" rating category
is also used for debt subordinated to senior debt that is assigned an
actual or implied "BB" or "BB-" rating.
Standard & Poor's Corporation applies indicators "+", no character, and "-" to
the above rating categories. The indicators show relative standing within the
major rating categories.
COMMERCIAL PAPER RATINGS
The rating Prime-1 is the highest commercial paper rating assigned by Moody's
Investors Service, Inc. Among the factors considered by Moody's Investors
Service, Inc. in assigning the ratings are the following: (1) evaluation of the
management of the issuer, (2) economic evaluation of the issuer's industry or
industries and an appraisal of speculative-type risks which may be inherent in
certain areas; (3) evaluation of the issuer's products in relation to
competition and customer acceptance; (4) liquidity; (5) amount and quality of
long-term debt; (6) trend of earnings over a period of ten years; (7) financial
strength of a parent company and the relationships which exist with the issuer;
an (8) recognition by the management of obligations which may be present or may
arise as a result of public interest questions and preparations to meet such
obligations.
The rating A-1 is the highest rating assigned by Standard & Poor's Corporation
to commercial paper which is considered by Standard & Poor's Corporation to have
the following characteristics:
Liquidity ratios of the issuer are adequate to meet cash redemptions. Long-term
senior debt is rated "A" or better. The issuer has access to at least two
additional channels of borrowing. Basic earnings and cash flow have an upward
trend with allowance made for unusual circumstances. Typically, the issuer's
industry is well established and the issuer has a strong position within the
industry. The reliability and quality of management are unquestioned.
B-2
<PAGE>
APPENDIX C
FUTURES CONTRACTS
EXAMPLE OF FUTURES CONTRACT SALE
The Fund would engage in a futures contract sale to maintain the income
advantage from continued holding of a long-term security while endeavoring to
avoid part or all of the loss in market value that would otherwise accompany a
decline in long-term securities prices. Assume that the market value of a
certain security in the Fund's portfolio tends to move in concert with the
futures market prices of long-term United States Treasury bonds ("Treasury
bonds"). The Fund wishes to fix the current market value of this portfolio
security until some point in the future. Assume the portfolio security has a
market value of $100, and the Fund believes that, because of an anticipated rise
in interest rates, the value will decline to $95. The Fund might enter into
futures contract sales of Treasury bonds for a price of $98. If the market
value of the portfolio security does indeed decline from $100 to $95, the
futures market price for the Treasury bonds might also decline from $98 to $93.
In that case, the $5 loss in the market value of the portfolio security
would be offset by the $5 gain realized by closing out the futures contract
sale. Of course, the futures market price of Treasury bonds might decline to
more than $93 or to less than $93 because of the imperfect correlation between
cash and futures prices mentioned above.
The Fund could be wrong in its forecast of interest rates and the futures
market price could rise above $98. In this case, the market value of the
portfolio securities, including the portfolio security being protected, would
increase. The benefit of this increase would be reduced by the loss realized on
closing out the futures contract sale.
If interest rate levels did not change prior to settlement date, the Fund,
in the above example, would incur a loss of $2 if it delivered the portfolio
security on the settlement date (which loss might be reduced by an offsetting
transaction prior to the settlement date). In each transaction, nominal
transaction expenses would also be incurred.
EXAMPLE OF FUTURES CONTRACT PURCHASE
The Fund would engage in a futures contract purchase when it is not fully
invested in long-term securities but wishes to defer for a time the purchase of
long-term securities in light of the availability of advantageous interim
investments, e.g., short-term securities whose yields are greater than those
available on long-term securities. The Fund's basic motivation would be to
maintain for a time the income advantage from investing in the short-term
securities; the Fund would be endeavoring at the same time to eliminate the
effect of all or part of the increases in market price of the long-term
securities that the Fund may purchase.
For example, assume that the market price of a long-term security that the
Fund may purchase, currently yielding 10%, tends to move in concert with futures
market prices of Treasury bonds. The Fund wishes to fix the current market
price (and thus 10% yield) of the long-term security until the time (four months
away in this example) when it may purchase the security.
Assuming the long-term security has a market price of $100, and the Fund
believes that, because of an anticipated fall in interest rates, the price will
have risen to $105 (and the yield will have dropped to about 9-1/2%) in four
months, the Fund might enter into futures contracts purchases of Treasury bonds
for a price of $98. At the same time, the Fund would assign a pool of
investments in short-term securities that are either maturing in four months or
earmarked for sale in four months, for purchase of the long-term security at an
assumed market price of $100. Assume these short-term securities are yielding
15%. If the market price of the long-term bond does indeed rise from $100 to
$105, the futures market price for Treasury bonds might also rise from $98 to
$103. In that case, the $5 increase in the price that the Fund pays for the
long-term security would be offset by the $5 gain realized by closing out the
futures contract purchase.
C-1
<PAGE>
The Fund could be wrong in its forecast of interest rates; long-term
interest rates might rise to above 10%, and the futures market price could fall
below $98. If short-term rates at the same time fall to 10% or below, it is
possible that the Fund would continue with its purchase program for long-term
securities. The market prices of available long-term securities would have
decreased. The benefit of this price decrease, and thus yield increase, will be
reduced by the loss realized on closing out the futures contract purchase.
If, however, short-term rates remained above available long-term rates, it
is possible that the Fund would discontinue its purchase program for long-term
securities. The yields on short-term securities in the portfolio, including
those originally in the pool assigned to the particular long-term security,
would remain higher than yields on long-term bonds. The benefit of this
continued incremental income will be reduced by the loss realized on closing out
the futures contract purchase.
In each transaction, nominal transaction expenses would also be incurred.
TAX TREATMENT
The amount of any gain or loss realized by the Fund on closing out a
futures contract may result in a capital gain or loss for federal income tax
purposes. Generally, futures contracts held by the Fund at the close of the
Fund's taxable year will be treated for federal income tax purposes as sold for
their fair market value on the last business day of such year. Forty percent of
any gain or loss resulting from such constructive sale will be treated as
short-term capital gain or loss and 60 percent of such gain or loss will be
treated as long-term capital gain or loss. The amount of any capital gain or
loss actually realized by the Fund in a subsequent sale or other disposition of
these futures contracts will be adjusted to reflect any capital gain or loss
taken into account by the Fund in a prior year as a result of the constructive
sale of the contract. Notwithstanding the rules described above, with respect
to futures contracts which are part of futures contract sales, and in certain
other situations, the Fund may make an election which may have the effect of
exempting all or a part of those identified future contracts from being treated
for federal income tax purposes as sold on the last business day of the Fund's
taxable year; all or part of any gain or loss otherwise realized by the Fund on
any closing transaction may be deferred until all of the Fund's positions with
respect to the futures contract sales are closed; and, all or part of any gain
or loss may be treated as short-term capital gain or loss.
Under the Federal income tax provisions applicable to regulated investment
companies, at least 90% of the Fund's annual gross income must be derived from
dividends, interest, payments with respect to loans of securities, and gains
from the sale or other disposition of securities ("qualifying income"). Under
the Internal Revenue Code of 1986, as amended (the "Code"), the Fund may include
gains from forward contracts in determining qualifying income. In addition, in
order that the Fund continue to qualify as a regulated investment company for
Federal income tax purposes, less than 30% of its gross income for any year must
be derived from gains realized on the sale or other disposition of securities
held by the Fund for less than three months. For this purpose, the Fund will
treat gains realized on the closing out of futures contracts as gains derived
from the sale of securities. This treatment could, under certain circumstances,
require the Fund to defer the closing out of futures contracts until after three
months from the date the fund acquired the contracts, even if it would be more
advantageous to close out the contracts prior to that time. However, under the
Code, a special rule is provided with respect to certain hedging transactions
which has the effect of allowing the Fund to engage in such short-term
transactions in limited circumstances. Any gains realized by the Fund as a
result of the constructive sales of futures contacts held by the Fund at the end
of its taxable year, as described in the preceding paragraph, will in all
instances be treated as derived from the sale of securities held for three
months or more, regardless of the actual period for which the Fund has held the
futures contracts at the end of the year.
C-2
<PAGE>
PART C. OTHER INFORMATION
ITEM 23. EXHIBITS
The exhibits to this Registration Statement are listed in the Exhibit
Index hereto and are incorporated herein by reference.
ITEM 24. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH THE FUND
Wholly-owned subsidiary of Minnesota Mutual Companies, Inc.:
Securian Holding Company (Delaware)
Wholly-owned subsidiary of Securian Holding Company:
Securian Financial Group, Inc. (Delaware)
Wholly-owned subsidiary of Securian Financial Group, Inc.
Minnesota Life Insurance Company
Wholly-owned subsidiaries of Minnesota Life Insurance Company:
Advantus Capital Management, Inc.
HomePlus Insurance Company
Northstar Life Insurance Company (New York)
The Ministers Life Insurance Company
Robert Street Energy, Inc.
Personal Finance Company (Delaware)
Enterprise Holding Corporation
HomePlus Insurance Agency, Inc.
Open-end registered investment company offering shares solely to separate
accounts of Minnesota Life Insurance Company:
Advantus Series Fund, Inc.
Wholly-owned subsidiary of Advantus Capital Management, Inc.:
Ascend Financial Services, Inc.
Wholly-owned subsidiaries of Ascend Financial Services, Inc.:
MIMLIC Insurance Agency of Massachusetts, Inc. (Massachusetts)
MIMLIC Insurance Agency of Texas, Inc. (Texas)
Ascend Insurance Agency of Nevada, Inc. (Nevada)
Ascend Insurance Agency of Oklahoma, Inc. (Oklahoma)
<PAGE>
Wholly-owned subsidiaries of Enterprise Holding Corporation:
Financial Ink Corporation
Oakleaf Service Corporation
Concepts in Marketing Research Corporation
Concepts in Marketing Services Corporation
Lafayette Litho, Inc.
DataPlan Securities, Inc. (Ohio)
MIMLIC Imperial Corporation
MIMLIC Funding, Inc.
MCM Funding 1997-1, Inc.
MCM Funding 1998-1, Inc.
MIMLIC Venture Corporation
Ministers Life Resources, Inc.
Wedgewood Valley Golf, Inc.
Wholly-owned subsidiary of HomePlus Insurance Agency, Inc.:
HomePlus Insurance Agency of Texas, Inc. (Texas)
Majority-owned subsidiary of Ascend Financial Services, Inc.:
MIMLIC Insurance Agency of Ohio, Inc. (Ohio)
Majority-owned subsidiaries of Minnesota Life Insurance Company:
MIMLIC Life Insurance Company (Arizona)
Advantus Enterprise Fund, Inc.
Advantus International Balanced Fund, Inc.
Advantus Venture Fund, Inc.
Advantus Real Estate Securities Fund, Inc.
Fifty percent-owned subsidiary of MIMLIC Imperial Corporation:
C.R.I. Securities, Inc.
Less than majority owned, but greater than 25% owned, subsidiaries of Minnesota
Life Insurance Company:
Advantus Cornerstone Fund, Inc.
Advantus Index 500 Fund, Inc.
Less than 25% owned subsidiaries of Minnesota Life Insurance Company:
Advantus Horizon Fund, Inc.
Advantus Spectrum Fund, Inc.
Advantus Mortgage Securities Fund, Inc.
Advantus Money Market Fund, Inc.
Advantus Bond Fund, Inc.
Unless indicated otherwise parenthetically, each of the above corporations is a
Minnesota corporation.
ITEM 25. INDEMNIFICATION
The Articles of Incorporation and Bylaws of the Registrant provide that
the Registrant shall indemnify such persons, for such expenses and
liabilities, in such manner, under such circumstances, to the full extent
permitted by Section 302A.521, Minnesota Statutes, as now enacted or
hereafter amended, provided that no such indemnification may be made if it
would be in violation of Section 17(h) of the Investment Company Act of 1940,
as now
<PAGE>
enacted or hereafter amended. Section 302A.521 of the Minnesota Statutes, as
now enacted, provides that a corporation shall indemnify a person made or
threatened to be made a party to a proceeding against judgments, penalties,
fines, settlements and reasonable expenses, including attorneys' fees and
disbursements, incurred by the person in connection with the proceeding, if,
with respect to the acts or omissions of the person complained of in the
proceeding, the person has not been indemnified by another organization for
the same judgments, penalties, fines, settlements and reasonable expenses
incurred by the person in connection with the proceeding with respect to the
same acts or omissions; acted in good faith; received no improper personal
benefit and the Minnesota Statute dealing with directors' conflicts of
interest, if applicable, has been satisfied; in the case of a criminal
proceeding, had no reasonable cause to believe the conduct was unlawful and
reasonably believed that the conduct was in the best interests of the
corporation or, in certain circumstances, reasonably believed that the
conduct was not opposed to the best interests of the corporation.
Section 17(h) of the Investment Company Act of 1940 provides that
neither the charter, certificate of incorporation, articles of association,
indenture of trust, nor the by-laws of any registered investment company, nor
any other instrument pursuant to which such a company is organized or
administered, shall contain any provisions which protects or purports to
protect any director or officer of such company against any liability to the
company or to its security holders to which he would otherwise be subject by
reason of willful misfeasance, bad faith, gross negligence or reckless
disregard of duties involved in the conduct of his office. The staff of the
Securities and Exchange Commission has stated that it is of the view that an
indemnification provision does not violate Section 17(h) if it precludes
indemnification for any liability arising by reason of willful misfeasance,
bad faith, gross negligence, or reckless disregard of duties ("Disabling
conduct") and sets forth reasonable and fair means for determining whether
indemnification shall be made. In the staff's view, "reasonable and fair
means" would include (1) a final decision on the merits by a court or other
body before whom the proceeding was brought that the person to be indemnified
("indemnitee") was not liable by reason of disabling conduct or, (2) in the
absence of such a decision, a reasonable determination, based upon a review
of the facts, that the indemnitee was not liable by reason of disabling
conduct, by (a) the vote of a majority of a quorum of directors who are
neither "interested persons" of the company as defined in Section 2(a)(19) of
the Investment Company Act of 1940 nor parties to the proceeding
("disinterested, non-party directors") or (b) an independent legal counsel in
a written opinion. The dismissal of either a court action or administrative
proceeding against an indemnitee for insufficiency of evidence of any
disabling conduct with which he has been charged would, in the staff's view,
provide reasonable assurance that he was not liable by reason of disabling
conduct. The staff also believes that a determination by the vote of a
majority of a quorum of disinterested, non-party directors would provide
reasonable assurance that the indemnitee was not liable by reason of
disabling conduct.
Insofar as indemnification for liability arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons
of the Registrant pursuant to the foregoing provisions, or otherwise, the
Registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as
expressed in the Act and is, therefore, unenforceable. In the event that a
claim for indemnification against such liabilities (other than the payment by
the Registrant of expenses incurred or paid by a director, officer or
controlling person of the Registrant in the successful defense of any action,
suit or
<PAGE>
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the Act
and will be governed by the final adjudication of such issue.
ITEM 26. BUSINESS AND OTHER CONNECTIONS OF THE INVESTMENT ADVISER
<TABLE>
<CAPTION>
Directors and Officers Office with
of Investment Adviser Investment Adviser Other Business Connections
- ---------------------- ------------------ --------------------------
<C> <C> <S>
William N. Westhoff President, Treasurer Vice President and Director,
and Director Robert Street Energy, Inc.; Senior Vice
President and Treasurer, Minnesota Life
Insurance Company; President, MCM Funding
1997-1, Inc.; President, MCM Funding
1998-1, Inc.
Frederick P. Feuerherm Vice President, Vice President, Minnesota
Assistant Secretary Life Insurance Company;
and Director Vice President and Director, MIMLIC
Funding, Inc.; Vice President and
Assistant Secretary, MCM Funding 1997-1,
Inc.; Vice President and Assistant
Secretary, MCM Funding 1998-1, Inc.
Guy M. de Lambert Vice President, Second Vice President,
Secretary and Minnesota Life Insurance
Director Company; President, Secretary and
Director, Personal Finance Company;
President and Director, Wedgewood Valley
Golf, Inc.; President and Director,
MIMLIC Funding, Inc.; President,
Secretary and Director, Robert Street
Energy, Inc.; Vice President and
Secretary, MCM Funding 1997-1, Inc.; Vice
President and Secretary, MCM Funding
1998-1, Inc.
Lynne M. Mills Vice President Second Vice President, Minnesota Life
Insurance Company; Vice President and
Director, Robert Street Energy, Inc.;
Vice President, MCM Funding 1997-1,
Inc.; Vice
<PAGE>
President, MCM Funding 1998-1, Inc.
Dianne Orbison Vice President Second Vice President, Minnesota Life
Insurance Company; Vice President and
Director, MCM Funding 1997-1, Inc.;
Vice President and Director, MCM
Funding 1998-1, Inc.
Richard W. Worthing Vice President and Vice President, MCM Funding
Head of Equities 1997-1, Inc.; Vice President, MIMLIC
Funding, Inc.; Vice President, MCM
Funding 1998-1, Inc.; Second Vice
President, Minnesota Life Insurance
Company
James P. Tatera Vice President, Second Vice President,
Equity Portfolio Minnesota Life Insurance
Manager Company; Vice President, MIMLIC
Funding, Inc.; Vice President and
Assistant Secretary, MCM Funding 1997-1,
Inc.; Vice President and Assistant
Secretary, MCM Funding 1998-1, Inc.
Marilyn Froelich Vice President and Vice President, MCM Funding
Director - Insurance 1997-1, Inc.; Vice
Asset Advisory President, MCM Funding 1998-1, Inc.;
Director, Investment Advisory,
Minnesota Life Insurance Company
Loren Haugland Vice President and Vice President, MCM Funding
Insurance Asset 1997-1, Inc.; Vice
Advisory President, MCM Funding 1998-1, Inc.;
Senior Investment Officer, Minnesota
Life Insurance Company
Thomas A. Gunderson Vice President Vice President, MCM Funding 1997-1,
Inc.; Vice President, MCM Funding
1998-1, Inc.; Investment Officer,
Equities, Minnesota Life Insurance
Company
Kent R. Weber Vice President Vice President, MCM Funding 1997-1,
Inc.; Vice President, MCM Funding
<PAGE>
1998-1, Inc.; Investment Officer, Total
Return, Minnesota Life Insurance Company
Jeffrey R. Erickson Vice President Vice President, MCM Funding 1997-1,
Inc.; Vice President, MCM Funding
1998-1, Inc.; Investment Officer,
Equities, Minnesota Life Insurance
Company
Gary A. Aster Vice President Vice President, MCM Funding 1997-1,
Inc.; Vice President, MCM Funding
1998-1, Inc.; Investment Officer,
Equities, Minnesota Life Insurance
Company
Wayne R. Schmidt Vice President Secretary and Treasurer, MIMLIC
Funding, Inc.; Assistant Secretary and
Treasurer, Robert Street Energy, Inc.;
Vice President and Secretary, MIMLIC
Imperial Corporation; Vice President
and Assistant Secretary, MCM Funding
1997-1, Inc.; Vice President and
Assistant Secretary, MCM Funding
1998-1, Inc.; Investment Officer -
Total Return, Minnesota Life Insurance
Company
Joseph R. Betlej Vice President Vice President, Secretary and Director,
Wedgewood Valley Golf, Inc.; Vice
President and Secretary, MIMLIC Venture
Corporation; Vice President, MCM
Funding 1997-1, Inc.; Vice President,
MCM Funding 1998-1, Inc.; Senior
Investment Officer - Real Estate,
Minnesota Life Insurance Company
<PAGE>
Erica Bergsland Vice President Vice President, MCM Funding 1997-1,
Inc.; Vice President, MCM Funding
1998-1, Inc.; Senior Investment Officer
- Mortgage, Minnesota Life Insurance
Company
Thomas G. Meyer Vice President Vice President, MCM Funding 1997-1,
Inc.; Vice President, MCM Funding
1998-1, Inc.; Director, Marketing
Development, Minnesota Life Insurance
Company
Gary Kleist Financial Vice Director, Investment
President Operations, Minnesota Life Insurance
Company; Vice President, MCM Funding
1997-1, Inc.; Vice President, MCM
Funding, 1998-1, Inc.
Sean O'Connell Vice President Director, Real Estate Research, Minnesota
Life Insurance Company; Vice President,
MCM Funding 1997-1, Inc.; Vice President,
MCM Funding 1998-1, Inc.
John Leiviska Vice President Senior Investment Officer - Fixed
Income, Minnesota Life Insurance
Company; Vice President, MCM Funding
1997-1, Inc.; Vice President, MCM
Funding 1998-1, Inc.
Annette Masterson Vice President Director, Fixed Income Research,
Minnesota Life Insurance Company; Vice
President, MCM Funding 1997-1, Inc.; Vice
President, MCM Funding 1998-1, Inc.
<PAGE>
David Hackney Vice President Investment Officer, Total Return,
Minnesota Life Insurance Company; Vice
President, MCM Funding 1997-1, Inc.; Vice
President, MCM Funding 1998-1, Inc.
Steven Nelson Vice President Investment Officer, Total Return,
Minnesota Life Insurance Company; Vice
President, MCM Funding 1997-1, Inc.; Vice
President, MCM Funding 1998-1, Inc.
Kevin J. Hiniker Associate General Investment Officer - Law
Counsel and Assistant Secretary, Minnesota Life
Insurance Company; Assistant Secretary,
Robert Street Energy, Inc.; Assistant
Secretary, MCM Funding 1997-1, Inc.;
Assistant Secretary, MCM Funding 1998-1,
Inc.
Vicki Bailey Associate General Investment Officer,
Counsel Minnesota Life Insurance Company;
Assistant Secretary, Personal Finance
Company; Assistant Secretary, MCM Funding
1997-1, Inc.; Assistant Secretary, MCM
Funding 1998-1, Inc.
</TABLE>
ITEM 27. PRINCIPAL UNDERWRITERS
(a) Ascend Financial Services, Inc. currently acts as a principal
underwriter for the following investment companies:
Advantus Horizon Fund, Inc.
Advantus Spectrum Fund, Inc.
Advantus Mortgage Securities Fund, Inc.
Advantus Money Market Fund, Inc.
Advantus Bond Fund, Inc.
Advantus Cornerstone Fund, Inc.
Advantus Enterprise Fund, Inc.
Advantus International Balanced Fund, Inc.
Advantus Venture Fund, Inc.
Advantus Index 500 Fund, Inc.
Advantus Real Estate Securities Fund, Inc.
Variable Fund D
Variable Annuity Account
Minnesota Life Variable Life Account
Group Variable Annuity Account
Minnesota Life Variable Universal Life Account
(b) The name and principal business address, positions and offices with
Ascend Financial Services, Inc., and positions and offices with Registrant of
each director and officer of Ascend Financial Services, Inc. is as follows:
<TABLE>
<CAPTION>
Positions and Positions and
Name and Principal Offices Offices
Business Address with Underwriter with registrant
- ------------------ ---------------- ---------------
<S> <C> <C>
Robert E. Hunstad Director None
Minnesota Life
Insurance Company
400 Robert Street North
St. Paul, Minnesota 55101
George I. Connolly President, Chief None
Ascend Financial Services, Inc. Executive Officer and
400 Robert Street North Director
St. Paul, Minnesota 55101
<PAGE>
Margaret Milosevich Vice President, Chief Assistant
Ascend Financial Services, Inc. Operations Officer, Secretary
400 Robert Street North Treasurer and Secretary
St. Paul, Minnesota 55101
Loyall E. Wilson Vice President and None
Ascend Financial Services, Inc. Chief Compliance
400 Robert Street North Officer
St. Paul, Minnesota 55101
Dennis E. Prohofsky Director None
Minnesota Life
Insurance Company
400 Robert Street North
St. Paul, Minnesota 55101
Thomas L. Clark Assistant Treasurer Assistant
Ascend Financial Services, Inc. and Assistant Secretary Secretary
400 Robert Street North
St. Paul, Minnesota 55101
</TABLE>
(c) Not applicable.
ITEM 28. LOCATION OF ACCOUNTS AND RECORDS
The physical possession of the accounts, books and other documents required
to be maintained by Section 3(a) of the Investment Company Act of 1940 and Rules
31a-1 to 31a-3 promulgated thereunder is maintained by Minnesota Life, 400
Robert Street North, St. Paul, Minnesota 55101; except that the physical
possession of certain accounts, books and other documents related to the custody
of the Registrant's securities is maintained by the following custodian:
Norwest Bank Minnesota, N.A.
Sixth Street and Marquette Avenue
Minneapolis, Minnesota 55479
ITEM 29. MANAGEMENT SERVICES
Not applicable.
ITEM 30. UNDERTAKINGS
(a) Not applicable.
(b) Not applicable.
(c) The Registrant hereby undertakes to furnish, upon request and without
charge to each person to whom a prospectus is delivered, a copy of the
Registrant's latest annual report to shareholders containing the information
called for by Item 5A.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940 the Registrant certifies that it meets all of
the requirements for effectiveness of this Registration Statement pursuant to
Rule 485(b) under the Securities Act of 1933 and has duly caused this
Post-Effective Amendment to its Registration Statement to be signed on its
behalf by the undersigned, thereto duly authorized, in the City of St. Paul
and the State of Minnesota on the 13th day of January, 2000.
ADVANTUS ENTERPRISE FUND, INC.
Registrant
By
---------------------------------------
William N. Westhoff, President
Pursuant to the requirements of the Securities Act of 1933, this
Post-Effective Amendment to the Registration Statement has been signed below
by the following persons in the capacities and on the date indicated.
- ---------------------- President (principal January 13, 2000
William N. Westhoff executive officer)
and Director
- ---------------------- Director and Treasurer January 13, 2000
Frederick P. Feuerherm (principal financial
and accounting officer)
Ralph D. Ebbott* Director)
- ---------------------- ) By
Ralph D. Ebbott ) -------------------------
) William N. Westhoff
) Attorney-in-Fact
Charles E. Arner* Director)
- ---------------------- )
Charles E. Arner ) Dated: January 13, 2000
)
)
Ellen S. Berscheid* Director)
- ----------------------
Ellen S. Berscheid )
- --------------------
*Registrant's director executing power of attorney dated October 22, 1998, a
copy of which is filed herewith.
<PAGE>
ADVANTUS ENTERPRISE FUND, INC.
Exhibit Index
Exhibit Number and Description:
(a) Articles of Incorporation for the Registrant. (1)
(b) Bylaws of the Registrant. (1)
(c) Not applicable.
(d) Investment Advisory Agreement between Advantus Capital
Management, Inc. and the Registrant. (1)
(e)(1) Underwriting and Distribution Agreement between the
Registrant and Ascend Financial Services, Inc. (2)
(e)(2) Form of Dealer Sales Agreement between Ascend Financial
Services, Inc., principal underwriter for the Registrant,
and dealers.
(f) Not applicable.
(g) Custodian Agreement between the Registrant and Norwest Bank
Minnesota, N.A.
(h) Shareholder and Administrative Services Agreement between
the Registrant and The Minnesota Mutual Life Insurance
Company.
(i) Opinion and Consent of Dorsey & Whitney LLP.
(j) Consent of KPMG LLP.
(k) Not applicable.
(l)(1) Letter of Investment Intent regarding the Registrant's
initial capital from MIMLIC Asset Management Company. (1)
(l)(2) Letter of Investment Intent regarding the Registrant's
initial capital from The Minnesota Mutual Life Insurance
Company. (1)
(m)(1) Plan of Distribution for Class A shares of the
Registrant. (2)
(m)(2) Plan of Distribution for Class B shares of the
Registrant. (1)
(m)(3) Plan of Distribution for Class C shares of the
Registrant. (1)
(n) Multiple Class Plan Pursuant to Rule 18f-3. (2)
(p) Code of Ethics.
(q) Power of Attorney to sign Registration Statement executed
by Directors of Registrant.
- -----------------
<PAGE>
(1) Incorporated by reference to the Registrant's Registration
Statement on Form N-1A filed January 26, 1996.
(2) Incorporated by reference to the Registrant's Registration
Statement on Form N-1A filed December 3, 1998.
<PAGE>
ADVANTUS FUNDS
DEALER SALES AGREEMENT
THIS AGREEMENT, made this _____ day of ___________, 199__, by and
between Ascend Financial Services, Inc., a Minnesota corporation (the
"Underwriter"), having its principal office at 400 Robert Street North, St.
Paul, Minnesota, 55101, and ______________ (the "Dealer") having its principal
office at _______________________________________________.
WHEREAS, the Underwriter has entered into Distribution Agreements with
certain registered management investment companies (the "Funds"), as listed on
Schedule A hereto and made a part hereof, which Schedule A may be amended
without notice from time to time by the Underwriter, under which the Underwriter
has been engaged and agreed to act as principal underwriter for the Funds in the
sale and distribution of shares of the Funds to the public, either through
dealers or otherwise; and
WHEREAS, the parties hereto desire that the Dealer be a member of a
selling group to sell and distribute shares of the Funds to the public;
NOW, THEREFORE, the Dealer hereby offers to become a member in a
selling group to sell and distribute shares of the Funds to the public subject
to the following terms and conditions.
1. ACCEPTANCE OF SUBSCRIPTIONS; PROSPECTUS AND REGISTRATION
STATEMENT. Subscriptions solicited by the Dealer will be accepted only in the
amounts and on the terms which are set forth in the then current Prospectus
(and/or Statement of Additional Information, if any) for the Funds. Underwriter
represents and warrants that the Prospectus (and/or Statement of Additional
Information, if any) for the Funds shown on Schedule A are or will be filed with
the Securities and Exchange Commission ("SEC"), that such filings conform in all
material respects with the requirements of the SEC and that, except as
Underwriter has given written notice to Dealer, there is an effective
Registration Statement relating to such Funds. Underwriter shall give written
notice to Dealer either (i) of specified states or jurisdiction in which the
Funds may be offered and sold by the Dealer or (ii) of all states or
jurisdictions where the Funds may not be offered or sold, but Underwriter does
not assume any responsibility as to the Dealer's right to sell the Funds in any
state or jurisdiction. Underwriter, during the term of this Agreement, shall (i)
notify Dealer in writing of the issuance by the SEC of any stop order with
respect to a Registration Statement or the initiation of any proceedings for
such purpose or any other purpose relating to the registration and/or offering
of the Funds, (ii) of any other action or circumstance known to them that may
prevent the lawful sale of the Funds in any state or jurisdiction, and (iii)
advise the Dealer in writing of any amendment to the Registration Statement or
supplement to any Prospectus. The Underwriter shall make available to Dealer
such number of copies of the Prospectus, as amended or supplemented, (and/or
Statements of Additional Information, if any) or any Approved Supplemental Sales
Literature (as defined in Paragraph 5) as the Dealer may reasonably request.
<PAGE>
2. DEALER DISCOUNT AND OTHER COMPENSATION. The Dealer shall receive,
for sales of shares of the Funds' common stock, the applicable Dealer Commission
or other compensation as set forth in Schedule A attached hereto and made a part
hereof. Additionally, with respect to certain of the Funds, the Dealer may be
entitled to receive additional compensation upon such terms and conditions and
in such amounts as set forth in Schedule A hereto for providing to Fund
shareholders certain personal and account maintenance services (including, but
not limited to, responding to shareholder inquiries and providing information on
their investments) not otherwise required to be provided by the applicable
Funds' investment adviser or transfer agent ("Service Fees") or (in addition to
the aforementioned Dealer Discount) for sales of shares of the applicable Fund's
common stock ("Distribution Fees"). Schedule A may be amended in whole or in
part without notice from time to time by the Underwriter. Dealer assumes sole
responsibility to pay commissions due Dealer's agents or registered
representatives in connection with sales of the Funds' shares of common stock.
Upon termination of this Agreement, for any reason, all compensation otherwise
payable to Dealer hereunder shall cease automatically, including any Service
Fees or Distribution Fees.
3. ORDERS. Orders to purchase shares of the Funds shall be placed as
described in the then current Prospectus (and/or Statement of Additional
Information, if any) of the Funds and as instructed from time to time by the
Underwriter. Orders shall be placed promptly upon receipt, and there shall be no
postponement of orders received so as to profit the Dealer by reason of such
postponement. Each order shall be confirmed by the Dealer to the Underwriter in
writing on the day such order was placed.
All monies or other settlements received by the Dealer for or on behalf
of the Underwriter shall be received by the Dealer in fiduciary capacity in
trust for the Underwriter and shall be immediately transmitted to the
Underwriter, and, in no event, shall the Dealer commingle such monies with other
funds. The Dealer shall keep correct accounts and records of all business
transacted and monies collected by him for the Underwriter to the extent
required by the Underwriter, which accounts and records shall be open at all
times to inspection and examination by the Underwriter's authorized
representative. All accounts, records and any supplies furnished to the Dealer
by the Underwriter shall remain the property of the Underwriter and shall be
returned to the Underwriter upon demand.
4. FAILURE OF ORDER. The Underwriter reserves the right at any time
to refuse to accept and approve any application for the purchase of shares of
the Funds obtained by the Dealer, and also reserves the right to settle any
claims against the Underwriter arising from the sale of shares of the Funds by
the Dealer and to refund to the investor payments made by him on his shares,
without the Dealer's consent. In the event any order for the purchase of shares
of the Funds is rejected by the Underwriter or any payment received for the
purchase of shares of the Funds cannot be collected or otherwise proves
insufficient or worthless, any compensation paid to the Dealer hereunder shall,
promptly upon notice to the Dealer, be returned by the Dealer to the Underwriter
either in cash or as a charge against the Dealer's account with the Underwriter,
as the Underwriter may elect, and the Dealer hereby agrees that until the
Underwriter receives full reimbursement in cash, the amount of compensation due
and owing the Underwriter shall
-2-
<PAGE>
constitute a debt to the Underwriter which the Underwriter may collect by any
lawful means, with interest thereon at the maximum rate possible.
5. DEALER'S UNDERTAKINGS. In offering and selling shares of the
Funds, the Dealer shall comply with all applicable state and federal laws and
regulations and all applicable rules of the National Association of Securities
Dealers, Inc. (the "NASD"). In the event of the suspension, revocation,
cancellation or other impairment of the Dealer's membership in the NASD or the
Dealer's registration, license or qualification to sell shares of the Funds
under any applicable state or federal law or regulation, the Dealer shall give
the Underwriter prompt notice of such suspension, revocation, cancellation or
other impairment, and the Dealer's authority under this Agreement shall
thereupon terminate as provided in paragraph 10.
The Dealer shall not sell shares of the Funds pursuant to this
Agreement unless the then current Prospectus is furnished to the purchaser prior
to the offer and sale. The Dealer shall not use any supplemental sales
literature of any kind without prior written approval of the Underwriter unless
it is furnished by the Underwriter for such purpose ("Approved Supplemental
Sales Literature"). No person is authorized to make any representation
concerning shares of the Funds except those contained in the then current
Prospectus (and/or Statement of Additional Information, if any) or Approved
Supplemental Sales Literature. In offering and selling shares of the Funds, the
Dealer shall rely solely on the representations contained in the then current
Prospectus (and/or Statement of Additional Information, if any) or Approved
Supplemental Sales Literature.
With respect to any Fund offering multiple classes of shares, the
Dealer shall disclose to prospective investors the existence of all available
classes of such Fund and shall determine the suitability of each available class
as an investment for each such prospective investor.
The Dealer understands and agrees that each shareholder account which
includes shares of any Fund subject to the Fund's contingent deferred sales
charge (as described in the applicable Fund's current Prospectus and Statement
of Additional Information) shall not be included in the Dealer's Omnibus or
house account, if any, but shall be established as a separate shareholder
account in which purchase and redemption transactions are reported separately to
the Underwriter.
Dealer agrees to furnish to Underwriter such information as may from
time to time be requested by Underwriter for the purpose of complying with the
applicable provisions of federal or state securities laws and the by-laws, rules
or regulations of the NASD or any other securities regulatory authority. Dealer
shall immediately notify the Compliance Department of Underwriter of any
proceeding, suit or action, whether criminal, civil or administrative, or the
commencement by the NASD or any other securities regulatory authority or any
other state or federal authority of any investigation, if such proceeding, suit,
action or investigation arises out of or in connection with Dealer's activities
as broker or dealer with respect to the Funds. Dealer shall also immediately
notify the Compliance Department of Underwriter of any complaint by a customer
or prospective customer or regulatory authority regarding the Funds or Dealer's
activities as broker or dealer with respect to the Funds.
-3-
<PAGE>
Except for those books and records required by law or regulation to be
maintained by Dealer, all books, documents, prospectuses, application forms or
other materials or supplies in the possession of Dealer which pertain to the
Funds or to the business of Underwriter shall be the property of Underwriter,
which at any and all times shall be open to inspection by any duly authorized
representative of Underwriter and at the termination of this Agreement shall be
returned to Underwriter.
6. REPRESENTATIONS AND AGREEMENTS OF THE DEALER. By accepting this
Agreement, the Dealer represents that it: (i) is registered as a broker-dealer
under the Securities Exchange Act of 1934 (the "1934 Act"), as amended; (ii) is
qualified to act as a dealer in each jurisdiction in which it will offer shares
of the Funds; (iii) is a member in good standing of the NASD; and (iv) will
maintain such registrations, qualifications and memberships throughout the term
of this Agreement.
7. DEALER'S EMPLOYEES. By accepting this Agreement, the Dealer
assumes full responsibility for the actions and course of conduct of its
registered representatives in the solicitation of purchases of shares of the
Funds. The Dealer shall provide thorough and prior training to its registered
representatives concerning the selling methods to be used in connection with the
offer and sale of shares of the Funds, giving special emphasis to the principles
of full and fair disclosure to prospective investors. The Dealer may solicit
sales of shares of the Funds only through properly licensed registered
representatives of the Dealer.
8. INDEMNIFICATION PROVISIONS.
A. INDEMNIFICATION BY UNDERWRITER. The Underwriter hereby agrees
to indemnify and to hold harmless the Dealer and each person, if any, who
controls the Dealer within the meaning of Section 15 of the Securities Act of
1933 (the "1933 Act") or Section 20(a) of the 1934 Act and their respective
successors and assigns (hereinafter in this paragraph separately and
collectively referred to as the "Defendants") from and against any and all
losses, claims, demands or liabilities (or actions in respect thereof), joint or
several, to which the Defendants may become subject under the 1933 Act, at
common law or otherwise (including any legal or other expense reasonably
incurred in connection therewith), insofar as such losses, claims, damages or
liabilities (or actions in respect thereof) arise out of or are based upon (i)
any untrue or allegedly untrue statement of a material fact contained in the
then current Prospectus (and/or Statement of Additional Information, if any) of
the Funds or arise out of or are based upon the omission or alleged omission to
state therein a material fact that is required to be stated therein or necessary
to make the statements therein, in light of the circumstances under which they
were made, not misleading, or arise out of any claim based upon any Approved
Supplemental Sales Literature, or (ii) the failure of Underwriter or its
officers, directors, employees or agents to comply with any applicable
provisions of this Agreement; provided that this indemnity agreement is subject
to the condition that notice be given as provided below.
B. FIDELITY BOND OF DEALER AND INDEMNIFICATION BY DEALER. Dealer
represents that all directors, officers, partners, employees or registered
representatives of Dealer who are
-4-
<PAGE>
authorized pursuant to this Agreement to sell shares of the Funds or who have
access to monies belonging to the Underwriter, including but not limited to
monies submitted with applications for purchase of shares of the Funds or monies
being returned to investors, are and shall be covered by a blanket fidelity
bond, including coverage for larceny and embezzlement, issued by a reputable
bonding company. This bond shall be maintained by Dealer at Dealer's expense.
Such bond shall be at least of the form, type and amount required under the NASD
Rules of Fair Practice. The Underwriter may require evidence, satisfactory to
it, that such coverage is in force. Dealer shall give prompt written notice to
the Underwriter of any notice of cancellation or change of coverage with respect
to such bond.
Dealer hereby assigns any proceeds received from the fidelity
bonding company to the Underwriter to the extent of the Underwriter's loss due
to activities covered by the bond. If there is any deficiency amount, whether
due to a deductible or otherwise, Dealer shall promptly pay to the Underwriter
such amount on demand, and Dealer hereby indemnifies and holds harmless the
Underwriter from any such deficiency and from the costs of collection thereof,
including reasonable attorneys fees.
Dealer also agrees to indemnify and hold harmless the Underwriter
and its officers, directors and employees and each person who controls them
within the meaning of Section 15 of the 1933 Act or Section 20(a) of the 1934
Act and their respective successors and assigns (hereinafter in this paragraph
separately and collectively referred to as Defendants) against any and all
losses, claims, damages or liabilities, including reasonable attorneys fees, to
which they may become subject under the 1933 Act, the 1934 Act, or other federal
or state statutory law or regulation, at common law or otherwise, insofar as
such losses, claims, damages or liabilities (or actions in respect thereof)
arise out of or are based upon: (i) any oral or written misrepresentation, any
unauthorized action or statement, or any other willful, reckless or negligent
violation of any law, regulation, contract or other arrangement by Dealer or its
officers, directors, employees or agents, or (ii) the failure of Dealer or its
officers, directors, employees or agents to comply with any applicable
provisions of this Agreement; provided, that this indemnity agreement is subject
to the condition that notice be given as provided below.
C. NOTICE AND DEFENSE. Upon the presentation in writing of any
claim or the commencement of any suit against any Defendant in respect of which
indemnification may be sought from the indemnifying party on account of its
agreement contained in the preceding paragraphs, such Defendant shall with
reasonable promptness give notice in writing of such suit to the indemnifying
party, but failure to so give such notice shall not relieve the indemnifying
party from any liability that it may have to the Defendants otherwise than on
account of this indemnity agreement. The indemnifying party shall be entitled to
participate at its own expense in the defense, or, if it so elects, to assume
the defense of any such claim or suit with counsel chosen by it and satisfactory
to the Defendants who are parties to such suit or against whom such claim is
presented. If the indemnifying party elects to assume the defense and retain
such counsel as herein provided, such Defendant shall bear the fees and expenses
subsequently incurred of any additional counsel retained by them, except the
reasonable costs of investigation and such costs as are approved by the
indemnifying party; provided, that if counsel for an indemnified Defendant
determines in good faith that there is a conflict which requires separate
representation for the indemnified Defendant, the indemnified Defendant shall be
entitled to indemnification for the reasonable expenses of one additional
counsel and local counsel to the extent provided above. Such counsel shall, to
the fullest extent consistent with its professional
-5-
<PAGE>
responsibilities, cooperate with the indemnifying party and its counsel. The
indemnifying party's obligations under this Paragraph 8 shall survive the
termination of this Agreement.
D. SETTLEMENT; CONTRIBUTION. The indemnifying party shall not be
liable under this Agreement for any settlement made by an indemnified party
without the indemnifying party's prior written consent, and the indemnifying
party agrees to indemnify and hold harmless any indemnified party from and
against any loss or liability by reason of the settlement of any claim or action
with the consent of the indemnifying party. The indemnifying party shall not
settle any such claim or action without prior written consent of the indemnified
party. If the foregoing indemnifications should, for reasons of public policy,
not be available to any indemnified party, then the indemnifying party will
contribute to the amount paid or payable by the indemnified party as a result of
such loss, claim, damage or liability in such proportion as is appropriate to
reflect the relative benefits received by the indemnifying party on the one hand
and such indemnified party on the other arising out of the matters contemplated
by this Agreement.
9. ASSIGNMENT. This Agreement may not be assigned by the Dealer
without prior written consent of the Underwriter.
10. TERMINATION. Either party may terminate this Agreement at any time
upon giving written notice to the other party hereto. This Agreement shall
terminate automatically in the event of the suspension, revocation, cancellation
or other impairment of the Dealer's membership in the NASD or the Dealer's
registration, license or qualification to sell shares of the Funds under any
applicable state or federal law or regulation.
11. FIRST CLAIM ON EARNINGS. Underwriter shall have first claim on all
of Dealer's earnings under this Agreement. This means that Underwriter as and
when it elects may keep all or any part of such earnings to reduce any debt
Dealer owes Underwriter. While Underwriter may release Dealer's earnings while
Dealer owes a debt to Underwriter, this does not mean Underwriter has waived
this right of first claim to Dealer's earnings. Underwriter's claim also takes
precedence over claims of Dealer's creditors. All Dealer's earnings kept by
Underwriter will be used to reduce debt owed to Underwriter.
12. CONFIDENTIALITY. During the term of this Agreement, a party may
acquire access to confidential or proprietary information of another, including,
but not limited to, the Underwriter's or the Dealer's business affairs,
customers, property, methods of operation, procedures, marketing policies and
practices, computer software and operational systems (collectively,
"Confidential Information"); provided, however, that the term "Confidential
Information" does not include information which: (a) becomes generally available
to the public other than as a result of a disclosure by a party or its agents or
employees; (b) was available to a party prior to its disclosure to the other;
(c) has become available to a party from a source other than that of the parties
to this Agreement; (d) is intended to be transferred to another person or entity
upon the termination of this Agreement; (e) is required to be disclosed to any
regulatory authority or self-regulatory organization or pursuant to a court
order or subpoena; or (f) is
-6-
<PAGE>
derived from customers. Confidential Information designated as such by a party
shall constitute proprietary information and/or trade secrets of such party and
will be the sole property of such party. Each party agrees that:
(a) it shall use such Confidential Information only for the
purposes of carrying out its obligations under, and performing any inspections
or audits permitted by, this Agreement;
(b) all Confidential Information and any physical and
electronic embodiments thereof will be held by each party in strict confidence;
(c) it shall take reasonable steps to ensure that its
employee, representatives and agents are informed of the contents of this
Paragraph 12 and that they shall comply with its terms;
(d) it will not reveal, disclose, publish, sell or
distribute such Confidential Information to other present or future agents or
broker-dealers, or to any other person or entity, without prior written consent
of the other parties;
(e) the parties shall immediately return any Confidential
Information in their possession to the other upon (i) such party's request at
any time or (ii) the termination of this Agreement.
The parties recognize that the disclosure of Confidential
Information by the other or its employees, representatives or agents may give
rise to irreparable injury, which may not be adequately compensated damages.
Accordingly, in the event of a breach or threatened breach by a party or its
employees, representatives or agents of the provisions of this Paragraph 12, the
non-breaching party shall be entitled to an injunction restraining the other
party and its employees from disclosing, in whole or in part, the Confidential
Information.
13. NATURE OF RELATIONSHIP; LIMITATIONS ON DEALER'S AUTHORITY. In
soliciting purchases of shares of the Funds, the Dealer shall act as an
independent contractor and not on behalf or subject to the control of the
Underwriter. Nothing herein shall constitute the Dealer as a partner of the
Underwriter, any other broker-dealer, any registered representative of the
Underwriter or the Funds, or render any such entity liable for obligations of
the Dealer. The Dealer's participation in the sale and distribution of shares of
the Funds as contemplated by this Agreement is not exclusive and the Underwriter
may engage other broker-dealers and/or its registered representatives to
participate in the sale and distribution of shares of the Funds on terms and
conditions which may differ from the terms and conditions of this Agreement. The
Dealer understands that Dealer has no authority to start any legal proceedings
on Underwriter's behalf or in its name or to incur any expenses or obligations
in the name of the Underwriter, and Dealer agrees to indemnify and save the
Underwriter harmless from any and all expenses, or obligations incurred by
Dealer in the name of the Underwriter for which Dealer is responsible. Dealer
agrees to pay all expenses incurred by Dealer in connection with Dealer's work.
-7-
<PAGE>
14. SECTION HEADINGS. The titles of the sections and paragraphs of this
Agreement are for convenience only and shall not in any way affect the
interpretation of any provision or condition of this Agreement.
15. COUNTERPARTS. This Agreement may be executed in counterparts which,
taken together, shall constitute the whole of the Agreement as between the
parties.
16. NOTICE. Any notice to be given to a party hereto pursuant to this
Agreement shall be in writing, addressed to such party at the address of such
party set forth in the preamble hereof, or such other address as such other
party may from time to time designate in writing to the party hereto giving
notice. Any notice delivered by the mails, postage fully prepaid, shall be
deemed to have been given five (5) days after mailing or, if earlier, upon
receipt.
17. WAIVER. No failure, neglect or forbearance on the part of the
Underwriter to require strict performance of this Agreement shall be construed
as a waiver of the rights or remedies of the Underwriter hereunder.
18. SUSPENDING SALES, AMENDING OR CANCELING THIS AGREEMENT. The
Underwriter may, at any time, without notice, suspend sales or withdraw any
offering of shares entirely. The Underwriter reserves the right to amend or
cancel this Agreement upon notice to Dealer. The Dealer agrees that any order to
purchase shares of Funds placed after notice of any amendment to this Agreement
has been sent to the Dealer shall constitute the Dealer's agreement to any such
amendment.
19. GOVERNING LAW. This Agreement shall be construed in accordance with
the laws of the State of Minnesota.
DEALER:
- ------------------------------------ --------------------------------------
(Name) (NSCC Clearing Number)
- ------------------------------------ --------------------------------------
(Tax Identification Number) (NSCC Executing Broker Symbol)
- ------------------------------------ --------------------------------------
(Street Address) (Telephone Number)
- ------------------------------------
(City) (State) (Zip)
-8-
<PAGE>
Date of offer:_________________, 199__
By
------------------------------------------------------------------------------
(Signature)
Please Print Name
---------------------------------------------------------------
Its
-----------------------------------------------------------------------------
(Title)
Accepted by
ASCEND FINANCIAL SERVICES, INC.
Date of acceptance: _____________________, 19___
By
------------------------------------------------------------------------------
(Signature)
Its
-----------------------------------------------------------------------------
(Title)
-9-
<PAGE>
SCHEDULE A
(Standard)
Dealer Compensation Schedule
Effective February 1, 1999
I. Advantus Horizon Fund, Inc.
Advantus Mortgage Securities Fund, Inc.
Advantus Spectrum Fund, Inc.
Advantus Bond Fund, Inc.
Advantus Cornerstone Fund, Inc.
Advantus Enterprise Fund, Inc.
Advantus International Balanced Fund, Inc.
Advantus Venture Fund, Inc.
Advantus Index 500 Fund, Inc.
Advantus Real Estate Securities Fund, Inc. (Only Class A shares available)
A. DEALER COMMISSIONS
DEALER CONCESSION AS PERCENTAGE OF OFFERING PRICE
<TABLE>
<CAPTION>
Class A Shares
Mortgage
Securities Fund Class A Shares
and Bond All Other Class B Shares Class C
Amount of Sale Fund Only Funds All Funds Shares
-------------- --------- ----- --------- ------
<S> <C> <C> <C> <C>
Less than $50,000 4.00% 5.00% 4.17% -0-
$50,000 but less
than $100,000 4.00% 4.00% 3.75% -0-
$100,000 but less
than $250,000 3.00% 3.00% 2.92% -0-
$250,000 but less
than $500,000 2.25% 2.25% 2.08% -0-
$500,000 but less
than $1,000,000 1.75% 1.75% 1.25% -0-
$1,000,000 1.00%* 1.00%* n/a* n/a*
</TABLE>
* Orders of $1,000,000 or more will be accepted only for Class A Shares.
A-1
<PAGE>
B. DISTRIBUTION AND SERVICE FEES
In addition to the Dealer Commissions, the Dealer shall receive
quarterly Distribution and/or Service Fees, equal to a percentage of
average daily net assets attributable to Shares held in accounts by
customers for whom the Dealer is the holder or agent of record or
with whom the Dealer maintains a servicing relationship in accordance
with the following table:
<TABLE>
<CAPTION>
Quarterly Quarterly
Distribution Fee Service Fee
---------------- -----------
Class C Class A Class B Class C
------- ------- ------- -------
<S> <C> <C> <C>
1/4 of .75% 1/4 of .25% 1/4 of .25% 1/4 of .25%
</TABLE>
No Service Fee will be paid on an account unless or until the assets
have been in the account for 15 months or longer. Distribution Fees
are not subject to the 15 month retention requirement.
II. Advantus Money Market Fund, Inc.
No commissions are paid on sales of Advantus Money Market Fund. Shares of
Advantus Money Market Fund acquired in an exchange from any of the other
Advantus Funds may be exchanged at relative net asset values for shares of
any of the other Advantus Funds. Shares of Advantus Money Market Fund not
acquired in an exchange from any of the other Advantus Funds may be
exchanged at relative net asset values plus applicable sales load for
shares of any of the other Advantus Funds. In the event Dealer's customer
exchanges shares of Advantus Money Market Fund for shares of another
Advantus Fund and pays a sales load in connection with such exchange, the
Dealer shall receive a Dealer Commission as described above.
III. Termination of Compensation
All compensation payable to Dealer hereunder, including Service Fees or
Distribution Fees, shall automatically cease upon the termination of the
Advantus Funds Dealer Sales Agreement, for any reason.
A-2
<PAGE>
CUSTODIAN CONTRACT
BETWEEN
ADVANTUS ENTERPRISE FUND, INC.
AND
NORWEST BANK MINNESOTA, N.A.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
1. Employment of Custodian and Property to be Held by It .......................................1
2. Duties of the Custodian with Respect to Property of the Fund Held by the
Custodian....................................................................................1
2.1 Holding Securities...................................................................1
2.2 Delivery of Securities...............................................................1
2.3 Registration of Securities...........................................................4
2.4 Bank Accounts........................................................................4
2.5 Payments for Shares..................................................................4
2.6 Availability of Federal Funds........................................................4
2.7 Collection of Income.................................................................5
2.8 Payment of Fund Monies...............................................................5
2.9 Liability for Payment in Advance of Receipt of Securities Purchased..................6
2.10 Payments for Repurchases or Redemption of Shares of the Fund.........................6
2.11 Appointment of Agents................................................................7
2.12 Deposit of Fund Assets in Securities Systems.........................................7
2.13 Segregated Account...................................................................8
2.14 Ownership Certificates for Tax Purposes..............................................9
2.15 Proxies..............................................................................9
2.16 Communications Relating to Fund Portfolio Securities.................................9
2.17 Proper Instructions..................................................................9
2.18 Actions Permitted Without Express Authority.........................................10
2.19 Evidence of Authority...............................................................10
2.20 Class Actions.......................................................................10
2.21 Duties of the Custodian with Respect to Fund Property Held Outside
of the United States................................................................11
2.21(a) Appointment of Foreign Sub-Custodian........................................11
2.21(b) Assets to be Held...........................................................11
2.21(c) Segregation of Securities...................................................11
2.21(d) Agreement with Foreign Banking Institution..................................12
2.21(e) Access of Independent Accountants of the Company............................12
2.21(f) Repots by Custodian.........................................................12
2.21(g) Foreign Securities Transactions.............................................13
2.21(h) Foreign Securities Lending..................................................14
2.21(i) Liability of Foreign Sub-Custodian..........................................15
2.21(j) Monitoring Responsibilities.................................................15
2.21(k) Branches of United States Banks.............................................15
2.21(l) Expropriation Insurance.....................................................15
3. Duties of Custodian with Respect to the Books of Account and Calculation of
Net Asset Value and Net Income..............................................................16
i
<PAGE>
4. Records.....................................................................................16
5. Opinion of Fund's Independent Accountant....................................................17
6. Reports to Fund by Independent Public Accountants...........................................17
7. Compensation of Custodian...................................................................17
8. Responsibility of Custodian.................................................................17
9. Effective Period, Termination and Amendment.................................................18
10. Successor Custodian.........................................................................19
11. Interpretive and Additional Provisions......................................................20
12. Minnesota Law to Apply......................................................................20
13. Prior Contracts.............................................................................20
</TABLE>
ii
kp_3<PAGE>
CUSTODIAN CONTRACT
This Contract is between the Advantus Enterprise Fund, Inc., a
corporation organized and existing under the laws of the State of Minnesota,
having its principal place of business at 400 Robert Street North, St. Paul,
Minnesota 55101, attached hereto (hereinafter called the "Fund") and Norwest
Bank Minnesota, N.A., a national banking association having its principal place
of business at Sixth and Marquette, Minneapolis, Minnesota 55479 (hereinafter
called the "Custodian")
WITNESSETH, that in consideration of the mutual covenants and agreements
hereinafter contained, the parties hereto agree as follows:
1. EMPLOYMENT OF CUSTODIAN AND PROPERTY TO BE HELD BY IT
The Fund hereby employs the Custodian as the custodian of its assets
pursuant to the provisions of the Articles of Incorporation. The Fund agrees to
deliver to the Custodian all securities and cash owned by it, and all payments
of income, payments of principal or capital distributions received by it with
respect to all securities owned by the Fund from time to time, and the cash
consideration received by it for such new or treasury shares of capital stock
("Shares") of the Fund as may be issued or sold from time to time. The Custodian
shall not be responsible for any property of the Fund held or received by the
Fund and not delivered to the Custodian.
Upon receipt of "Proper Instructions" (within the meaning of Section
2.17), the Custodian shall from time to time employ one or more sub-custodians,
but only in accordance with an applicable vote by the Board of Directors of the
Fund, and provided that the Custodian shall have no more or less responsibility
or liability to the Fund on account of any actions or omissions of any
sub-custodian so employed than any such sub-custodian has to the Custodian.
2. DUTIES OF THE CUSTODIAN WITH RESPECT TO PROPERTY OF THE FUND HELD BY THE
CUSTODIAN
2.1 HOLDING SECURITIES
The Custodian shall hold and physically segregate for the account
of the Fund all non-cash property, including all securities owned by the
fund, other than (a) securities which are maintained pursuant to Section
2.12 in a clearing agency which acts as a securities depository or in a
book-entry system authorized by the U.S. Department of the Treasury,
collectively referred to herein as a "Securities System."
2.2 DELIVERY OF SECURITIES
The Custodian shall release and deliver securities owned by the
Fund held by the Custodian or in a Securities System account of the
Custodian only upon receipt of Proper Instructions, which may be
continuing instructions when deemed appropriate by the parties, and only
in the following cases:
-1-
<PAGE>
1) Upon sale of such securities for the account of the Fund
and receipt of payment therefor;
2) Upon the receipt of payment in connection with any
repurchase agreement related to such securities entered
into by the Fund;
3) In the case of a sale effected through a Securities System,
in accordance with the provisions of Section 2.12 hereof;
4) To the depository agent in connection with tender or other
similar offers for portfolio securities of the Fund;
5) To the issuer thereof or its agent when such securities are
called, redeemed, retired or otherwise become payable;
provided that, in any such case, the cash or other
consideration is to be delivered to the Custodian;
6) To the issuer thereof, or its agent, for transfer into the
name of the Fund or into the name of any nominee or
nominees of the Custodian or into the name or nominee name
of any agent appointed pursuant to Section 2.11 or into the
name or nominee name of any sub-custodian appointed
pursuant to Article 1; or for exchange for a different
number of bonds, certificates or other evidence
representing the same aggregate face amount or number of
units; PROVIDED that, in any such case, the new securities
are to be delivered to the Custodian;
7) Upon the sale of such securities for the account of the
Fund, to the broker or its clearing agent, against a
receipt, for examination in accordance with "street
delivery" custom; provided that in any such case, the
Custodian shall have no responsibility or liability for any
loss arising from the delivery of such securities prior to
receiving payment for such securities except as may arise
from the Custodian's own negligence or willful misconduct;
8) For exchange or conversion pursuant to any plan or merger,
consolidation, recapitalization, reorganization or
readjustment of the securities of the issuer of such
securities, or pursuant to provisions for conversion
contained in such securities, or pursuant to any deposit
agreement; provided that, in any such case, the new
securities and cash, if any, are to be delivered to the
Custodian;
9) In the case of warrants, rights or similar securities, the
surrender thereof in the exercise of such warrants, rights
or similar securities or the surrender of interim receipts
of temporary securities for definitive securities; provided
that, in any such case, the new securities and cash, if
any, are to be delivered to the Custodian;
-2-
<PAGE>
10) For delivery in connection with any loans of securities,
made by the Fund, BUT ONLY against receipt of adequate
collateral as agreed upon from time to time by the
Custodian and the Fund, which may be in the form of cash or
obligations issued by the United States government, its
agencies or instrumentalities, except that in connection
with any loans for which collateral is to be credited to
the Custodian's account in the book-entry system authorized
by the U.S. Department of the Treasury, the Custodian will
not be held liable or responsible for the delivery of
securities owned by the Fund prior to the receipt of such
collateral;
11) For delivery as security in connection with any borrowings
by the Fund requiring a pledge of assets by the Fund, BUT
ONLY against receipt of amounts borrowed;
12) For delivery in accordance with the provisions of any
agreement among the Fund, the Custodian and a broker-dealer
registered under the Securities Exchange Act of 1934 (the
"Exchange Act") and a member of the National Association of
Securities Dealers, Inc. ("NASD"), relating to the
compliance with the rules of The Options Clearing
Corporation and of any registered national securities
exchange, or of any similar organization or organizations,
regarding escrow or other arrangements in connection with
transactions by the Fund;
13) For delivery in accordance with the provisions of any
agreement among the Fund, the Custodian, and a Futures
Commission Merchant registered under the Commodity Exchange
Act, relating to compliance with the rules of the Commodity
Futures Trading Commission and/or any Contract Market, or
any similar organization or organizations, regarding
account deposits in connection with transactions by the
Fund;
14) Upon receipt of instructions from the transfer agent
("Transfer Agent") for the Fund, for delivery to such
Transfer Agent or to the holders of shares in connection
with distributions in kind, as may be described from time
to time in the Fund's currently effective prospectus and
statement of additional information ("prospectus"), in
satisfaction of requests by holders of Shares for
repurchase or redemptions; and
15) For any other proper corporate purpose, BUT ONLY upon
receipt of, in addition to Proper Instructions, a certified
copy of a resolution of the Board of Directors or of the
Executive Committee signed by an officer of the Fund and
certified by the Secretary or an Assistant Secretary,
specifying the securities to be delivered, setting forth
the purpose for which such delivery is to be made,
declaring such purpose to be a proper corporate purpose,
and naming the person or persons to whom delivery of such
securities shall be made.
-3-
<PAGE>
2.3 REGISTRATION OF SECURITIES
Securities held by the Custodian (other than bearer securities)
shall be registered in the name of the Fund or in the name of any nominee
of the Fund or of any nominee of the Custodian which nominee shall be
assigned exclusively to the Fund, UNLESS the Fund has authorized in
writing the appointment of a nominee to be used in common with other
registered investment companies having the same investment adviser as the
Fund, or in the name of nominee name of any agent appointed pursuant to
Section 2.11 or in the name or nominee name of any sub-custodian
appointed pursuant to Article 1. All securities accepted by the Custodian
on behalf of the Fund under the terms of this Contract shall be in
"street name" or other good delivery form.
2.4 BANK ACCOUNTS
The Custodian shall open and maintain a separate bank account or
accounts in the name of the Fund, subject only to draft or order by the
Custodian acting pursuant to the terms of this Contract, and shall hold
in such account or accounts, subject to the provisions hereof, all cash
received by it from or for the account of the Fund, other than cash
maintained by the Fund in a bank account established and used in
accordance with Rule 17f-3 under the Investment Company Act of 1940.
Funds held by the Custodian for the Fund may be deposited by it to its
credit as Custodian in the Banking Department of the Custodian or in such
other banks or trust companies as it may in its discretion deem necessary
or desirable; PROVIDED, however, that every such bank or trust company
shall be qualified to act as a custodian under the Investment Company Act
of 1940 and that each bank or trust company and the funds to be deposited
with each such bank or trust company shall be approved by vote of a
majority of the Board of Directors of the Fund. Such funds shall be
deposited by the Custodian in its capacity as Custodian and shall be
withdrawable by the Custodian only in that capacity.
2.5 PAYMENTS FOR SHARES
The Custodian shall receive from the distributor for the Fund's
Shares or from the Transfer Agent of the Fund and deposit into the Fund's
account such payments as are received for Shares of the Fund issued or
sold from time to time by the Fund. The Custodian will provide timely
notification to the Fund and the Transfer Agent of any receipt by it of
payments for Shares of the Fund.
2.6 AVAILABILITY OF FEDERAL FUNDS
Upon mutual agreement between the Fund and the Custodian, the
Custodian shall, upon the receipt of Proper Instructions, make federal
funds available to the Fund as of specified times agreed upon from time
to time by the Fund and the Custodian in the amount of checks received in
payment for Shares of the Fund which are deposited into the Fund's
account.
2.7 COLLECTION OF INCOME
-4-
<PAGE>
The Custodian shall collect on a timely basis all income and other
payments with respect to registered securities held hereunder to which
the Fund shall be entitled either by law or pursuant to custom in the
securities business, and shall collect on a timely basis all income and
other payments with respect to bearer securities if, on the date of
payment by the issuer, such securities are held by the Custodian or its
agent thereof and shall credit such income, as collected, to the Fund's
custodian account. Without limiting the generality of the foregoing, the
Custodian shall detach and present for payment all coupons and other
income items requiring presentation as and when they become due and shall
collect interest when due on securities held hereunder. Income due the
Fund on securities loaned pursuant to the provisions of Section 2.2(10)
shall be the responsibility of the Fund. The Custodian will have no duty
or responsibility in connection therewith, other than to provide the Fund
with such information or data as may be necessary to assist the Fund in
arranging for the timely delivery to the Custodian of the income to which
the Fund is properly entitled.
2.8 PAYMENT OF FUND MONIES
Upon receipt of Proper Instructions, which may be continuing
instructions when deemed appropriate by the parties, the Custodian shall
pay out monies of the fund in the following cases only:
1) Upon the purchase of securities, options, futures contracts
or options on futures contracts for the account of the Fund
but only (a) against the delivery of such securities or
evidence of title to such options, futures contracts or
options on futures contracts, to the Custodian (or any
bank, banking firm or trust company doing business in the
United States or abroad which is qualified under the
Investment Company Act of 1940 to act as a custodian and
has been designated by the Custodian as its agent for this
purpose) registered in the name of the Fund or in the name
of a nominee of the Custodian referred to in Section 2.3
hereof or in proper form for transfer; (b) in the case of a
purchase effected through a Securities System, in
accordance with the conditions set forth in Section 2.12
hereof or (c) in the case of the repurchase agreements
entered into between the Fund and the Custodian, or another
bank, or a broker-dealer which is a member of NASD, (i)
against delivery of the securities either in certificate
form or through an entry crediting the Custodian's account
at the Federal Reserve Bank with such securities or (ii)
against delivery of the receipt evidencing purchase by the
Fund of securities owned by the Custodian along with
written evidence of the agreement by the Custodian to
repurchase such securities from the Fund.
2) In connection with conversion, exchange or surrender of
securities owned by the Fund as set forth in Section 2.2
hereof;
3) For the redemption or repurchase of Shares issued by the
Fund as set forth in Section 2.10 hereof;
-5-
<PAGE>
4) For the payment of any expense or liability incurred by the
Fund, including but not limited to the following payments
for the account of the Fund: interest, taxes, management,
accounting, transfer agent and legal fees, and operating
expenses of the Fund whether or not such expenses are to be
in whole or part capitalized or treated as deferred
expenses;
5) For the payment of any dividends declared pursuant to the
governing documents of the Fund;
6) For payment of the amount of dividends received in respect
of securities sold short;
7) For any other proper purpose, BUT ONLY upon receipt of, in
addition to Proper Instructions, a certified copy of a
resolution of the Board of Directors or of the Executive
Committee of the Fund signed by an officer of the Fund and
certified by its Secretary or an Assistant Secretary,
specifying the amount of such payment, setting forth the
purpose for which such payment is to be made, declaring
such purpose to be a proper purpose, and naming the person
or persons to whom such payment is to be made.
2.9 LIABILITY FOR PAYMENT IN ADVANCE OF RECEIPT OF SECURITIES
PURCHASED
The Custodian shall not make payment for the purchase of domestic
securities for the account of the Fund in advance of receipt of the
securities purchased in the absence of specific written instructions from
the Fund to so pay in advance. In any and every case where payment for
purchase of domestic securities of the account of the Fund is made by the
Custodian in advance of receipt of the securities purchased in the
absence of specific written instructions from the Fund to so pay in
advance, the Custodian shall be absolutely liable to the Fund for such
securities to the same extent as if the securities had been received by
the Custodian.
2.10 PAYMENTS FOR REPURCHASES OR REDEMPTIONS OF SHARES OF THE FUND
From such funds as may be available for the purpose but subject to
the limitations of the Articles of Incorporation and any applicable votes
of the Board of Directors of the Fund pursuant thereto, the Custodian
shall, upon receipt of instructions from the Transfer Agent, make funds
available for payment to holders of Shares who have delivered to the
Transfer Agent a request for redemption or repurchase of their Shares. In
connection with the redemption or repurchase of Shares of the fund, the
Custodian is authorized upon receipt of instructions from the Transfer
Agent to wire funds to or through a commercial bank designated by the
redeeming shareholders. In connection with the redemption or repurchase
of Shares of the Fund, the Custodian shall honor checks drawn on the
Custodian by a holder of Shares, which checks have been furnished by the
Fund to the holder of Shares, when presented to the Custodian in
accordance with such
-6-
<PAGE>
procedures and controls as are mutually agreed upon from time to time
between the Fund and the Custodian.
2.11 APPOINTMENT OF AGENTS
The Custodian may at any time or times in its discretion appoint
(and may at any time remove) any other bank or trust company which is
itself qualified under the Investment Company Act of 1940 to act as a
custodian, as its agent to carry out such of the provisions of this
Article 2 as the Custodian may from time to time direct; PROVIDED,
however, that the appointment of any agent shall not relieve the
Custodian of its responsibilities or liabilities hereunder.
2.12 DEPOSIT OF FUND ASSETS IN SECURITIES SYSTEMS
The Custodian may deposit and/or maintain domestic securities
owned by any Fund in a clearing agency registered with the Securities and
Exchange Commission under Section 17A of the Exchange Act, which acts as
a securities depository, or in a Federal Reserve Bank, as Custodian or
Custodian's agent or nominee on the records of such Federal Reserve Bank
or such registered clearing agency or the nominee of either (collectively
referred to herein as "Securities System") in accordance with applicable
Federal Reserve Board and Securities and Exchange Commission rules and
regulations, if any, and subject to the following provisions:
1) The Custodian may keep domestic securities of the Fund in a
Securities System provided that such securities are
represented in an account ("Account") of the Custodian in
the Securities System which shall not include any assets of
the Custodian other than assets held as a fiduciary
custodian or otherwise for customers;
2) The records of the Custodian with respect to domestic
securities of the Fund which are maintained in a Securities
System shall identify by book-entry those securities
belonging to the Fund;
3) The Custodian shall pay for domestic securities purchased
for the account of the Fund upon (i) the simultaneous
receipt of advice from the Securities System that such
securities have been transferred to the Account, and (ii)
the making of an entry on the records of the Custodian to
reflect such payment and transfer for the account of the
Fund. The Custodian shall transfer domestic securities sold
for the account of the Fund upon (a) the simultaneous
receipt of advice from the Securities System that payment
for such securities has been transferred to the Account,
and (b) the making of an entry on the records of the
Custodian to reflect such transfer and payment for the
account of the Fund. Copies of all advises from the
Securities System of transfers of securities for the
account of a Fund shall identify the Fund, be maintained
for the Fund by the Custodian and be provided to the Fund
at its request. Upon request, the Custodian shall furnish
the Fund
-7-
<PAGE>
confirmation of each transfer to or from the account in the
form of a written advice or notice and shall furnish to the
Fund copies of daily transaction sheets reflecting each
day's transactions in the Securities System for the
account.
4) The Custodian shall provide the Fund with any report
obtained by the Custodian on the Securities System's
accounting system internal accounting control and
procedures for safeguarding securities deposited in the
Securities System;
5) The Custodian shall have received the initial or annual
certificate, as the case may be, required by Article 9
hereof;
6) Anything to the contrary in this Contract notwithstanding,
the Custodian shall be liable to the Fund for any loss or
damage to the Fund resulting from use of the Securities
System by reason of any negligence, misfeasance or
misconduct of the Custodian or any of its agents or of any
of its or their employees or from failure of the Custodian
or any such agent or employee to enforce effectively such
rights as it may have against the Securities System; at the
election of the Fund, it shall be entitled to be subrogated
to the rights of the Custodian with respect to any claim
against the Securities System or any other person which the
Custodian may have as a consequence of any such loss or
damage if and to the extent that the Fund has not been made
whole for any such loss or damage.
2.13 SEGREGATED ACCOUNT
The Custodian shall upon receipt of Proper Instructions establish
and maintain a segregated account or accounts for and on behalf of the
Fund, into which account or accounts may be transferred cash and/or
securities, including securities maintained in an account by the
Custodian pursuant to Section 2.12 hereof, (i) in accordance with the
provisions of any agreement among the Fund, the Custodian and a
broker-dealer registered under the Exchange Act and a member of NASD (or
any futures commission merchant registered under the Commodity Exchange
Act), relating to compliance with the rules of The Options Clearing
Corporation and of any registered national securities exchange (or the
Commodity Futures Trading Commission or any registered contract market),
or of any similar organization or organizations, regarding escrow or
other arrangements in connection with transactions by the Fund, (ii) for
the purpose of segregating cash or government securities in connection
with options purchased, sold or written by the Fund or commodity futures
contracts or options thereon purchased or sold by the Fund, (iii) for the
purpose of compliance by the Fund with the procedures required by
Investment Company Act Release No. 10666, or any subsequent release or
releases of the Securities and Exchange Commission relating to the
maintenance of segregated accounts by registered investment companies and
(iv) for other proper corporate purposes, BUT ONLY, in the case of the
clause (iv), upon receipt of, in addition to Proper Instructions, a
certified copy of a resolution of the Board of Directors or of the
Executive
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Committee signed by an officer of the Fund and certified by the Secretary
or an Assistant Secretary, setting forth the purpose or purposes of such
segregated account and declaring such purposes to be proper corporate
purposes.
2.14 OWNERSHIP CERTIFICATES FOR TAX PURPOSES
The Custodian shall execute ownership and other certificates and
affidavits for all federal and state tax purposes in connection with
receipt of income or other payments with respect to securities of the
Fund held by it and in connection with transfers of securities.
2.15 PROXIES
The Custodian shall, with respect to the securities held
hereunder, cause to be promptly executed by the registered holder of such
securities, if the securities are registered otherwise than in the name
of the Fund or a nominee of the Fund, all proxies, without indication of
the manner in which such proxies are to be voted, and shall promptly
deliver to the Fund such proxies, all proxy soliciting materials and all
notices relating to such securities.
2.16 COMMUNICATIONS RELATING TO FUND PORTFOLIO SECURITIES
The Custodian shall transmit promptly to the Fund all written
information (including, without limitation, pendency of calls and
maturities of securities and expirations of rights in connection
therewith and notices of exercise of call and put options written by the
Fund and the maturity of futures contracts purchased or sold by the Fund)
received by the Custodian from issuers of the securities being held for
the Fund. With respect to tender or exchange offers, the Custodian shall
transmit promptly to the Fund all written information received by the
Custodian from issuers of the securities whose tender or exchange is
sought and from the party (or his agents) making the tender or exchange
offer. If the Fund desires to take action with respect to any tender
offer, exchange offer or any other similar transaction, the Fund shall
notify the Custodian at least three (3) business days prior to the date
on which the Custodian is to take such action.
2.17 PROPER INSTRUCTIONS
Proper Instructions as used throughout this Article 2 means a
writing signed or initialed by one or more person or persons as the Board
of Directors shall have from to time authorized. Each such writing shall
set forth the specific transaction or type of transaction involved,
including a specific statement of the purpose for which such action is
requested. Oral instructions will be considered Proper Instructions if
the Custodian reasonably believes them to have been given by a person
authorized to give such instructions with respect to the transaction
involved. The Fund shall cause all oral instructions to be confirmed in
writing. Upon receipt of a certificate of the Secretary or an Assistant
Secretary as to the authorization by the Board of Directors of the Fund
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accompanied by a detailed description of procedures approved by the Board
of Directors, Proper Instructions may include communications effected
directly between electro-mechanical or electronic devices provided that
the Board of Directors and the Custodian are satisfied that such
procedures afford adequate safeguards for the Fund's assets.
2.18 ACTIONS PERMITTED WITHOUT EXPRESS AUTHORITY
The Custodian may in its discretion, without express authority
from the Fund;
1) Make payments to itself or others for minor expenses of
handling securities PROVIDED that all such payments shall
be accounted for to the Fund;
2) Surrender securities in temporary form for securities in
definitive form;
3) Endorse for collection, in the name of the Fund, checks,
drafts and other negotiable instruments; and
4) In general, attend to all non-discretionary details in
connection with the sale, exchange, substitution, purchase,
transfer and other dealings with the securities and
property of the Fund except as otherwise directed by the
Board of Directors of the Fund.
2.19 EVIDENCE OF AUTHORITY
The Custodian shall be protected in acting upon any instructions,
notice, request, consent, certificate or other instrument of paper
believed by it to be genuine and to have been properly executed by or on
behalf of the Fund. The Custodian may receive and accept a certified copy
of a vote of the Board of Directors of the Fund as conclusive evidence
(a) of the authority of any person to act in accordance with such vote or
(b) or any determination or of any action by the Board of Directors
pursuant to the Articles of Incorporation as described in such vote, and
such vote may be considered as in full force and effect until receipt by
the Custodian of written notice to the contrary.
2.20 CLASS ACTIONS
The Custodian shall transmit promptly to the Fund all notices or
other communications received by it in connection with any class action
lawsuit relating to securities currently or previously held for the Fund.
Upon being directed by the Fund to do so, the Custodian shall furnish to
the Fund any and all written materials which establish the
holding/ownership, amount held/owned, and period of holding/ownership of
the securities in question.
2.21 DUTIES OF THE CUSTODIAN WITH RESPECT TO FUND PROPERTY HELD OUTSIDE
OF THE UNITED STATES
2.21(a) APPOINTMENT OF FOREIGN SUB-CUSTODIAN
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The Custodian is authorized and instructed, either directly or
indirectly (through one or more sub-custodian U.S. banks), to employ as
sub-custodians for the Fund's securities and other assets maintained
outside of the United States the foreign institutions, foreign securities
depositories and foreign clearing agencies, if any, designated on
Schedule A hereto ("foreign sub-custodians"); provided, however, that,
notwithstanding the contents of Schedule A hereto, the Custodian
(including any of its agents and sub-custodians) is authorized to
directly or indirectly employ or retain any sub-custodian, depository or
clearing agency only if said employed or retained institution qualifies
as either (a) an "eligible foreign custodian," as defined in Rule 17f-5
under the Investment Company Act of 1940, or (b) a "bank," as defined in
Section 2(a)(5) of the Investment Company Act of 1940, that in turn
qualifies as an eligible domestic custodian under Section 17(f) of the
Investment Company Act of 1940; and provided further that the Custodian
shall be liable to the Fund for any loss of any Fund assets custodied
with any institution directly or indirectly employed or retained by the
Custodian (or any of its agents or sub-custodians) that does not meet the
qualifications of either clause (a) or (b) of the preceding proviso.
Upon receipt of Proper Instructions, together with a certified
resolution of the Fund's Board of Directors, the Custodian and the Fund
may agree to amend Schedule A hereto from time to time to designate
additional or alternative foreign banking institutions, foreign
securities depositories and foreign clearing agencies to act as
sub-custodian. Each foreign banking institution shall be authorized to
deposit securities in foreign securities depositories and foreign
clearing agencies authorized pursuant to Rule 17f-5 under the Investment
Company Act of 1940. Upon receipt of Proper Instructions from the Fund
the Custodian shall promptly cease the employment of any one or more of
such sub-custodians for maintaining custody of the assets of the
application Fund(s).
2.21(b) ASSETS TO BE HELD
The Custodian shall limit the securities and other assets
maintained in the custody of the foreign sub-custodian to: (a) "foreign
securities," as defined in paragraph (c)(1) of Rule 17f-5 under the
Investment Company Act of 1940, and (b) cash and cash equivalents in such
amounts as the Custodian or the Fund may determine to be reasonably
necessary to effect the foreign securities transactions of the Fund.
2.21(c) SEGREGATION OF SECURITIES
The Custodian shall identify on its books as belonging to the
Fund, the foreign securities of the Fund held by each foreign
sub-custodian. Each agreement pursuant to which the Custodian or its duly
appointed U.S. sub-custodian employs a foreign banking institution shall
require that such institution establish a custody account for the
Custodian (or its U.S. sub-custodian, as the case may be) on behalf of
its customers and physically segregate in that account securities and
other assets of the Custodian's customers, and, in the event that such
institution deposits the Fund's securities in a foreign securities
depository, the sub-custodian shall identify on its books as belonging to
the Custodian (or
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is U.S. sub-custodian, as the case may be), as agent for the Custodian's
customers, the securities so deposited (all collectively referred to as
the "Account").
2.21(d) AGREEMENT WITH FOREIGN BANKING INSTITUTION
Each agreement with a foreign banking institution shall provide
that: (a) the Fund's assets will not be subject to any right, charge,
security interest, lien or claim or any kind in favor of the foreign
banking institution or its creditors, except a claim of payment for their
safe custody or administration; (b) beneficial ownership for the Fund's
assets will be freely transferable without the payment of money or value
other than for custody or administration, which may include payment of
stamp duties or government taxes; (c) adequate records will be maintained
identifying the assets as belonging to the customers of Custodian; (d)
officers of or auditors employed by, or other representatives of the
Custodian, including independent public accountants for the Fund, will be
given access to the books and records of the foreign banking institution
relating to its actions given under its agreement with the Custodian or
shall be given confirmation of the contents of such books and records;
and (e) assets of the Fund held by the foreign sub-custodian will be
subject only to the instructions of the Fund, the Custodian or their
agents.
2.21(e) ACCESS OF INDEPENDENT ACCOUNTANTS OF THE FUND
Upon request of the Fund, the Custodian will use its best efforts
to arrange for the independent accountants of the Fund to be afforded
access to the books and records of any foreign banking institution
employed as a foreign sub-custodian insofar as such books and records
relate to the performance of such foreign banking institutions under its
agreement with the Custodian (or its U.S. sub-custodian, as the case may
be).
2.21(f) REPORTS BY CUSTODIAN
The Custodian will supply to the Fund from time to time, as
mutually agreed upon, statements in respect of the securities and other
assets of the Fund held by foreign sub-custodians, including but not
limited to an identification of entities having possession of the Fund's
securities and other assets and advices or notifications of any transfers
of securities to or from each custodial account maintained by a foreign
sub-custodian for the Custodian and Fund indicating, as to securities
acquired for the Fund, the identity of the entity having physical
possession of such securities.
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<PAGE>
2.21(g) FOREIGN SECURITIES TRANSACTIONS
1) Upon receipt of Proper Instructions, which may be
continuing instructions when deemed appropriate by the
parties, the Custodian shall make or cause its foreign
sub-custodian to transfer, exchange, or deliver foreign
securities owned by the Fund, but except to the extent
explicitly provided herein only in any of the cases
specified in Section 2.2.
2) Upon receipt of Proper Instructions, which may be
continuing instructions when deemed appropriate by the
parties the Custodian shall pay out or cause its foreign
sub-custodian to pay out monies of the Fund, but except to
the extent explicitly provided herein only in any of the
cases specified in Section 2.8.
3) Settlement and payment for securities received for the
account of the Fund and delivery of securities maintained
for the account of the Fund may, upon receipt of Proper
Instructions, be effected in accordance with the customary
or established securities trading or securities processing
practices and procedures in the jurisdiction or market in
which the transaction occurs, including, without
limitation, delivering securities to the purchaser thereof
or to a dealer therefor (or an agent for such purchaser or
dealer) against a receipt with the expectation of receiving
later payment for such securities from such purchaser or
dealer.
4) With respect to any transaction involving foreign
securities, the Custodian or any sub-custodian in its
discretion may cause the Fund's account to be credited on
either the contractual settlement date or the actual
settlement date with the proceeds of any sale or exchange
of foreign securities from the account of the Fund and to
be debited on either the contractual settlement date or the
actual settlement date for the cost of foreign securities
purchased or acquired for the Fund according to Custodian's
then current internal policies and procedures pertaining to
securities settlement, which policies and procedures may
change from time to time. Custodian shall advise the Fund
of any changes to such policies and procedures. The
Custodian may reverse any such credit or debit made on the
contractual settlement date if the transaction with respect
to which such credit or debit was made fails to settle
within a reasonable period, determined by Custodian in its
reasonable discretion, after the contractual settlement
date except that if any foreign securities delivered
pursuant to this section are returned by the recipient
thereof, the Custodian may cause any such credits and
debits to be reversed at any time.
5) Securities maintained in the custody of a foreign
sub-custodian may be maintained in the name of such
entity's nominee to the same extent as set forth in Section
2.3 of this Contract and the Fund agrees to hold any such
nominee harmless from any liability as a holder of record
of such securities.
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6) Until the Custodian receives written instructions to the
contrary, the Custodian shall, or shall cause the
sub-custodian to collect all interest and dividends paid on
securities held in each applicable Fund's account, unless
such payment is in default. Unless otherwise instructed,
the Custodian shall convert interest, dividends and
principal received with respect to securities in the Fund's
account into United States dollars, and the Custodian shall
perform foreign exchange contracts for the conversion of
United States dollars to foreign currencies for the
settlement of trades whenever it is practicable to do so
through customary banking channels. Customary banking
channels may vary based upon industry practice in each
jurisdiction, and shall include the banking facilities of
the Custodian's affiliates, in accordance with such
affiliate's then prevailing internal policy on funds
repatriation. All risk and expense incident to such foreign
collection and conversions is the responsibility of the
Fund's account, and Custodian shall have no responsibility
for fluctuation in exchange rates affecting collections or
conversions.
2.21(h) FOREIGN SECURITIES LENDING
Notwithstanding any other provisions contained in this Contract,
the Custodian and any sub-custodian shall deliver and receive securities
loaned or returned in connection with securities lending transactions
only upon and in accordance with Proper Instructions; provided, if the
Custodian is not the lending agent in connection with such securities
lending, then neither the Custodian or any sub-custodian shall undertake,
or otherwise be responsible for,
(i) marking to market values for such loaned securities,
(ii) collection of dividends, interest or other disbursements or
distributions made with respect to such loaned securities,
(iii) receipt of corporate action notices, communications,
proxies or instruments with respect to such loaned
securities, and
(iv) custody, safekeeping, valuation or any other actions or
services with respect to any collateral securing any such
securities lending transactions.
In the event that the Custodian is the applicable Fund's lending
agent in connection with a specific securities loan, the Custodian shall
undertake to perform all of the above duties with regard to such loan,
except that the Fund shall not receive, nor be enabled to vote, proxies
in connection with such loaned security.
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<PAGE>
2.21(i) LIABILITY OF FOREIGN SUB-CUSTODIAN
Each agreement pursuant to which the Custodian (or its U.S.
sub-custodian bank, as applicable) employs a foreign banking institution
as a foreign sub-custodian shall require the institution to exercise
reasonable care in performance of its duties and to indemnify, and hold
harmless, the Custodian and Custodian's customers from and against any
loss, damage, cost, expense, liability or claim arising out of such
sub-custodian's negligence, fraud, bad faith, willful misconduct or
reckless disregard of its duties. At the election of the Fund, it shall
be entitled to be subrogated to the right of the Custodian with respect
to any claims against the Custodian's U.S. sub-custodian bank (if any) or
a foreign banking institution as a consequence of any such loss, damage,
cost, expense, liability or claim if and to the extent that the Fund has
not been made whole for any such loss, damage, cost, expense, liability
or claims.
2.21(j) MONITORING RESPONSIBILITIES
The Custodian shall furnish annually to the Fund information
concerning the foreign sub-custodian employed by the Custodian (or its
U.S. sub-custodian bank, as applicable). Such information shall be
similar in kind and scope to that furnished to the Fund in connection
with the initial approval of this Contract (and any contracts with U.S.
and foreign sub-custodians entered into pursuant hereto). In addition,
the Custodian will promptly inform the Fund in the event that the
Custodian learns of a material adverse change in the financial condition
of a foreign sub-custodian or is notified by the Custodian's U.S.
sub-custodian bank (if any) or a foreign banking institution employed as
foreign sub-custodian that there appears to be a substantial likelihood
that its shareholders' equity will decline below $200 million (United
States dollars or the equivalent thereof) or that its shareholders'
equity has declined below $200 million (in each case computed in
accordance with generally accepted United States accounting principles).
2.21(k) BRANCHES OF UNITED STATES BANKS
Except as otherwise set forth in this Contract, the provisions
hereof shall not apply where the custody of the Fund's assets maintained
in a foreign branch of a banking institution which is a "bank" as defined
by Section 2(a)(5) of the Investment Company Act of 1940 which meets the
qualification set forth in Section 26(a) of said Act. The appointment of
any such branch as a sub-custodian shall be governed by Article 1 of this
Contract.
2.21(l) EXPROPRIATION INSURANCE
The Custodian represents that it does not intend to obtain any
insurance for the benefit of the Fund which protects against the
imposition of exchange control restrictions or the transfer from any
foreign jurisdiction of the proceeds of sale of any securities or against
confiscation, expropriation or nationalization of any securities or the
assets of the issuer of such securities is organized or in which
securities are held for safekeeping either
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by Custodian or any sub-custodians in such country. The Custodian
represents that its understanding of the position of the Staff of the
Securities and Exchange Commission is that any investment company
investing in securities of foreign issuers has the responsibility for
reviewing the possibility of the imposition of exchange control
restrictions which would affect the liquidity of such investment
company's assets and the possibility of exposure to political risk,
including the appropriateness of insuring against such risk.
3. DUTIES OF CUSTODIAN WITH RESPECT TO THE BOOKS OF ACCOUNT AND CALCULATION
OF NET ASSET VALUE AND NET INCOME
The Custodian shall cooperate with and supply necessary
information to the entity or entities appointed by the Board of Directors
of the Fund to keep the books of account of the Fund and/or compute the
net asset value per share of the outstanding shares of the Fund or, if
directed in writing to do so by the Fund, shall itself keep such books of
account and/or computer such net asset value per share. If so directed,
the Custodian shall also calculate daily the net income of the Fund as
described in the Fund's currently effective prospectus and shall advise
the Fund and the Transfer Agent daily of the total amounts of such net
income and, if instructed in writing by an officer of the Fund to do so,
shall advise the Transfer Agent periodically of the division of such net
income among its various components. The calculations of the net asset
value per share and the daily income of the Fund shall be made at the
time or times described from time to time in the Fund's currently
effective prospectus.
4. RECORDS
The Custodian shall create and maintain all records relating to
its activities and obligations under this Contract in such manner as will
meet the obligations of the Fund under the Investment Company Act of
1940, with particular attention to Section 31 thereof and Rule 31a-1 and
31a-2 thereunder. The Custodian shall also maintain records as directed
by the Fund in connection with applicable federal and state tax laws and
any other law or administrative rules or procedures which may be
applicable to the Fund. With respect to securities and cash deposited
with a Securities System, a sub-custodian or an agent of the Custodian,
the Custodian shall identify on its books all such securities and cash as
belonging to the Fund. All such records shall be the property of the Fund
and shall at all times during the regular business hours of the Custodian
be open for inspection by duly authority officers, employees or agents of
the Fund or its agents. Such records shall be made available to the Fund
for review by employees and agents of the Securities and Exchange
Commission. The Custodian shall furnish to the Fund, and its agents, as
of the close of business on the last day of each month a statement
showing all transactions and entries for the account of the Fund during
that month, and all holdings as of month-end.
All records so maintained in connection with the performance of
its duties under this Contract shall remain the property of the Fund and,
in the event of termination of this Contract, shall be delivered to the
Fund. Subsequent to such delivery, and surviving the termination of this
Contract, the Fund shall provide the Custodian access to examine and
photocopy such records as
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the Custodian, in its discretion, deems necessary, for so long as such
records are retained by the Fund.
5. OPINION OF FUND'S INDEPENDENT ACCOUNTANT
The Custodian shall take all reasonable action, as the Fund may from time
to time request, to obtain from year to year favorable opinions from the Fund's
independent accountants with respect to its activities hereunder in connection
with the preparation of the Fund's, Form N-1A, and Form N-SAR or other annual
reports to the Securities and Exchange Commission and with respect to any other
requirements of such Commission.
6. REPORTS TO FUND BY INDEPENDENT PUBLIC ACCOUNTANTS
The Custodian shall provide the Fund, at such times as the Fund may
reasonably require, with reports by independent public accountants on the
accounting system, internal accounting control and procedures for safeguarding
securities, futures contracts and options on futures contracts, including
securities deposited and/or maintained in a Securities System, relating to the
services provided by the Custodian under this Contract; such reports shall be of
sufficient scope, and in sufficient detail, as may reasonably be required by the
Fund to provide reasonable assurance that any material inadequacies would be
disclosed by such examination, and, if there are no such inadequacies, the
reports shall so state.
7. COMPENSATION OF CUSTODIAN
For performance by the Custodian pursuant to this Contract, the Fund
agrees to pay the Custodian annual asset fees and supplemental charges as set
out in the fee schedule attached hereto.
8. RESPONSIBILITY OF CUSTODIAN
So long as and to the extent that it is in the exercise of reasonable
care, the Custodian shall not be responsible for the title, validity or
genuineness of any property or evidence of title thereto received by it or
delivered by it pursuant to this Contract shall be held harmless in acting upon
any notice, request, consent, certificate or other instrument reasonably
believed by it to be genuine and to be signed by the proper party or parties.
The Custodian shall be held to the exercise of reasonable care in carrying out
the provisions of this Contract, but shall be kept indemnified by and shall be
without liability to the Fund for any action taken or omitted by it in good
faith and without negligence. It shall be entitled to rely on and may act upon
advice of counsel of, or reasonably acceptable to, the Fund or its agents on all
matters, and shall be without liability for any action reasonably taken or
omitted pursuant to such advice. Notwithstanding the foregoing, the
responsibility of the Custodian with respect to redemptions effected by check
shall be in accordance with a separate Contract entered into between the
Custodian and the Fund or its agent.
If the Fund requires the Custodian to take any action with respect to
securities, which action involves the payment of money or which action may, in
the reasonable opinion of the
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Custodian, result in the Custodian or its nominee assigned to the Fund being
liable for the payment of money or incurring liability of some other form, the
Fund, as a prerequisite to requiring the Custodian to take such action, shall
provide indemnity to the Custodian in an amount and form reasonably satisfactory
to it.
If the Fund requires the Custodian to advance cash or securities for any
purpose or in the event that the Custodian or its nominee shall incur or be
assessed any taxes, charges, expenses, assessments, claims or liabilities in
connection with the performance of this Contract, except such as may arise from
its or its nominee's own negligent action, negligent failure to act or willful
misconduct, any property at any time held for the account of a Fund shall be
security therefor and should the Fund fail to repay the Custodian promptly, the
Custodian shall be entitled to utilize available cash and to dispose of assets
to the extent necessary to obtain reimbursement.
The Custodian shall not be liable for any loss or damage to the Fund
resulting from participation in a securities depository unless such loss or
damage arises by reason of any negligence, misfeasance, or willful misconduct of
officers or employees of the Custodian, or from its failure to enforce
effectively such rights as it may have against any securities depository or from
use of a sub-custodian or agent. Anything in this Contract to the contrary
notwithstanding, the Custodian shall exercise, in the performance of its
obligations undertaken or reasonably assumed with respect to this Contract,
reasonable care, for which the Custodian shall be responsible to the same extent
as if it were performing such duties directly. The Custodian shall be
responsible for the securities and cash held by or deposited with any
sub-custodian or agent to the same extent as if such securities and cash were
directly held by or deposited with the Custodian. The Custodian hereby agrees
that it shall indemnify and hold the Fund harmless from and against any loss
which shall occur as a result of the failure of a foreign sub-custodian holding
the securities and cash to provide a level of safeguards for maintaining any
Fund's securities and cash not materially different from that provided by a
United States custodian holding such securities and cash in the United States.
The Custodian agrees to indemnify and hold the Fund harmless for any and
all loss, liability and expense, including reasonable legal fees and expenses,
arising out of the Custodian's own negligence or willful misconduct or that of
its officers, agents, sub-custodian or employees in the performance of the
Custodian's duties and obligations under this Contract.
9. EFFECTIVE PERIOD, TERMINATION AND AMENDMENT
The Contract shall become effective as of its execution, shall continue
in full force and effect until terminated as hereinafter provided, may be
amended at any time by mutual agreement of the parties hereto and may be
terminated by either party by an instrument in writing delivered or mailed,
postage prepaid to the other party, such termination to take effect not sooner
than sixty (60) days after the date of such delivery or mailing; PROVIDED,
however, that the Custodian shall not act under Section 2.12 hereof in the
absence of receipt of an initial certificate of the Secretary or an Assistant
Secretary that the Board of Directors of the Fund has approved the initial use
of a particular Securities System and the receipt of an annual certificate of
the Secretary or an Assistant Secretary that the Board of Directors has reviewed
the use by the Fund of such Securities System, as required in each case by Rule
17f-4 under the Investment Company
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Act of 1940; PROVIDED FURTHER, however, that the Fund shall not amend or
terminate this Contract in contravention of any applicable federal or state
regulations, or any provision of the Articles of Incorporation, and further
provided, that the Fund may at any time be action of its Board of Directors (i)
substitute another bank or trust company for the Custodian by giving notice as
described above to the Custodian, or (ii) immediately terminate this Contract in
the event of the appointment of a conservator or receiver for the Custodian by
the Comptroller of the Currency or upon the happening of a like event at the
direction of an appropriate regulatory agency or court of competent
jurisdiction.
Upon termination of the Contract, the Fund shall pay to the Custodian
such compensation as may be due as of the date of such termination and shall
likewise reimburse the Custodian for its costs, expenses and disbursements.
10. SUCCESSOR CUSTODIAN
If a successor custodian shall be appointed by the Board of Directors of
the Fund, the Custodian shall, upon termination, deliver to such successor
custodian at the office of the Custodian, duly endorsed and in the form for
transfer to an account of the successor custodian all of the Fund" securities
held in a Securities System.
If no such successor custodian shall be appointed, the Custodian shall,
in like manner, upon receipt of a certified copy of a vote of the Board of
Directors of the Fund, deliver at the office of the Custodian and transfer such
securities, funds and other properties in accordance with such vote.
In the event that no written order designating a successor custodian or
certified copy of a vote of the Board of Directors shall have been delivered to
the Custodian on or before the date when such termination shall become
effective, then the Custodian shall have the right to deliver to a bank or trust
company, which is a "bank" as defined in the Investment Company Act of 1940, of
its own selection, having an aggregate capital, surplus, and undivided profits,
as shown by its last published report, or not less than $25,000,000, all
securities, funds and other properties held by the Custodian and all instruments
held by the Custodian relative thereto and all other property held by it under
this Contract and to transfer to an account of such successor custodian all of
the Fund's securities held in any Securities System. Thereafter, such bank or
trust company shall be the successor of the Custodian under this Contract.
In the event that securities, funds and other properties remain in the
possession of the Custodian after the date of termination hereof owing to
failure of the Fund to procure the certified copy of the vote referred to or of
the Board of Directors to appoint a successor custodian, the Custodian shall be
entitled to fair compensation for its services during such period as the
Custodian retains possession of such securities, Funds and other properties and
the provisions of this Contract relating to the duties and obligations of the
Custodian shall remain in full force and effect.
-19-
<PAGE>
11. INTERPRETIVE AND ADDITIONAL PROVISIONS
In connection with the operation of this Contract, the Custodian and the
Fund may from time to time agree on such provisions interpretive of or in
addition to the provisions of this Contract as may in their joint opinion be
consistent with the general tenor of this Contract. Any such interpretive or
additional provisions shall be in a writing signed by both parties and shall be
annexed hereto, PROVIDED that no such interpretive or additional provisions
shall contravene any applicable federal or state regulations or any provision of
the Articles of Incorporation of the Fund. No interpretive or additional
provisions made as provided in the preceding sentence shall be deemed to be an
amendment of this Contract.
12. MINNESOTA LAW TO APPLY
This Contract shall be construed and the provisions thereof interpreted
under and in accordance with laws of the State of Minnesota.
13. PRIOR CONTRACTS
This Contract supersedes and terminates, as of the date hereof, all prior
contracts between the Fund and the Custodian relating to the custody of the
Fund's assets.
IN WITNESS WHEREOF, each of the parties has caused this instrument to be
executed in its name and behalf by its duly authorized representative and its
seal to be hereunder affixed as of the 1st day of November, 1999.
ADVANTUS ENTERPRISE FUND, INC.
By:
---------------------------
ATTEST
By:
---------------------------
NORWEST BANK MINNESOTA, N.A.
By:
---------------------------
ATTEST
By:
---------------------------
-20-
<PAGE>
SCHEDULE A
TO THE
CUSTODIAL CONTRACT
BETWEEN
ADVANTUS ENTERPRISE FUND, INC.
AND
NORWEST BANK MINNESOTA, N.A.
No Foreign Sub-Custodians at this time.
A-1
<PAGE>
FEE SCHEDULE
ADVANTUS
ANNUAL MARKET VALUE CHARGE: $.000010
------------------------------------------------------
<TABLE>
<CAPTION>
DOMESTIC TRANSACTION CHARGES:
<S> <C>
DOMESTIC DEPOSITORY SETTLEMENTS -DTC/FED/PTC $6.00
PHYSICAL SETTLEMENTS (NEW YORK, MPLS.) $30.00
MUTUAL FUND SETTLEMENTS $30.00
PRIVATE PLACEMENTS SETTLEMENTS $15.00
OPTIONS/FUTURE SETTLEMENTS $15.00
PRINCIPAL PAYDOWN- NON VARIABLE $8.00
PRINCIPAL PAYDOWNS - CMO'S $15.00
REORGANIZATION/CORPORATE ACTIONS $20.00
MONEY MOVEMENTS (WIRES, CHECKS) $5.00
</TABLE>
Fee Schedule-1
<PAGE>
SHAREHOLDER AND ADMINISTRATIVE SERVICES AGREEMENT
BETWEEN
ADVANTUS ENTERPRISE FUND, INC.
AND
THE MINNESOTA MUTUAL LIFE INSURANCE COMPANY
<PAGE>
SHAREHOLDER AND ADMINISTRATIVE SERVICES AGREEMENT
AGREEMENT made as of the 23rd of July, 1998, by and between
Advantus Enterprise Fund, Inc., a Minnesota corporation, having its principal
office and place of business at 400 Robert Street North, St. Paul, Minnesota,
55101, (the "Fund"), The Minnesota Mutual Life Insurance Company, a Minnesota
corporation having its principal office and place of business at 400 Robert
Street North, St. Paul, Minnesota, 55101, ("MML") and Advantus Capital
Management, Inc., a Minnesota corporation, having its principal office and
place of business at 400 Robert Street North, St. Paul, Minnesota 55101, (the
"Adviser").
WHEREAS, the Fund is in the process of contracting with First Data
Investor Services Group, Inc., a Massachusetts corporation (the "Transfer
Agent"), to provide customary transfer agent services to the Fund; and
WHEREAS, the Fund has reserved certain shareholder servicing tasks
and responsibilities ("Shareholder Services") which are to be performed by
MML rather than the Transfer Agent; and
WHEREAS, the Fund has further reserved certain accounting,
auditing, legal and other administrative tasks and responsibilities
("Administrative Services") to be performed by MML; and
WHEREAS, the Fund desires to appoint MML as its Shareholder
Services agent and agent in connection with certain other Administrative
Services, and MML desires to accept such appointment;
NOW, THEREFORE, in consideration of the mutual covenants herein
contained, the parties hereto agree as follows:
Article 1 TERMS OF APPOINTMENT AND DUTIES OF MML
1.01 Subject to the terms and conditions set forth in this
Agreement, and in accordance with procedures established from time to time by
agreement between the Fund and MML, MML hereby agrees to provide the
following Administrative Services:
(a) Register or qualify, and maintain the
registrations or qualifications, of the Fund and
its common stock ("Shares") under state or other
securities laws;
(b) Calculate the Fund's net asset value per
Share at such times and in such manner as
specified in the Fund's current prospectus and
statement of additional information and at such
other times as the parties hereto may from time
to time agree upon;
-2-
<PAGE>
(c) Upon the Fund's distribution of dividends and
capital gains, calculate the amount of such
dividends and capital gains to be received per
Share and calculate the number of additional
Shares to be received by each Shareholder, other
than any shareholder who has elected to receive
such dividends and capital gains in cash;
(d) Prepare and maintain all accounting records
required by the Fund, including a general
ledger;
(e) Prepare the Fund's annual and semi-annual
financial statements;
(f) Prepare and file the Fund's income, excise
and other tax returns;
(g) Provide audit assistance in conjunction with
the Fund's independent auditors;
(h) Provide such legal services as the parties
hereto may from time to time agree upon,
including without limitation preparation and
filing with the Securities and Exchange
Commission of the annual or more frequent
post-effective amendments to the Fund's
registration statement and the Fund's proxy
materials; and
(i) Provide such other Administrative Services as
the parties hereto may from time to time agree
upon.
1.02 As Shareholder Services agent, MML agrees to provide or
perform the following Shareholder Services in accordance with procedures
established from time to time by agreement between the Fund and MML:
(a) Receive telephone redemption requests, telephone
redemption directions, wire order purchase
requests and telephone transfer instructions,
and deliver such requests, directions and
instructions together with other appropriate
information, to the Transfer Agent;
(b) Provide customer service representatives to
respond to telephone inquiries relating to the
Fund from customers, shareholders and/or
registered representatives and forward any
pertinent information, including without
limitation instructions pertaining to any
periodic investment plan, periodic withdrawal
plan or other plan set out in the currently
effective prospectus, or requests to the
Transfer Agent. MML shall transmit
electronically, via U.S. mail or any other
delivery means MML determines to be suitable,
any Shareholder or account transaction
instructions received, to the Transfer Agent in
a timely fashion; and
-3-
<PAGE>
(c) MML will calculate any minimum required
distribution amounts for plans qualified under
Section 401(a) or 408 of the Internal Revenue
Code, as that term is defined under the Code or
delegate such responsibility to a suitable
agent, with the Fund's approval.
Article 2 ADDITIONAL DUTIES
2.01 MML shall keep records relating to the services to be
performed hereunder, in the form and manner as it may deem advisable. To the
extent required by Section 31 of the Investment Company Act of 1940, as
amended, and the Rules thereunder, MML agrees that all such records prepared
or maintained by MML relating to the services to be performed by MML
hereunder are the property of the Fund and will be preserved, maintained and
made available in accordance with such Section and Rules, and will be
surrendered promptly to the Fund on and in accordance with its request.
2.02 MML and the Fund agree that all books, records,
information and data pertaining to the business of the other party which are
exchanged or received pursuant to the negotiation or the carrying out of this
Agreement shall remain confidential, and shall not be voluntarily disclosed
to any other person, except as may be required be law.
2.03 MML will endeavor to notify the Fund and to secure
instructions from an authorized officer of the Fund in case of any requests
or demands for the inspection of Shareholder records. MML reserves the
right, however, to exhibit the Shareholder records to any person whenever it
is advised by its counsel that it may be held liable for the failure to
exhibit the Shareholder records to such person.
Article 3 FEES AND EXPENSES
3.01 For Shareholder Services performed by MML pursuant to this
agreement, the Adviser will pay MML an annual account servicing fee as agreed
by Adviser and MML. In addition to the fees the Adviser will reimburse MML
for out-of-pocket expenses or advances incurred by MML. Such fees,
out-of-pocket expenses and advances may be changed from time to time subject
to mutual agreement between the Adviser and MML.
3.02 For Administrative Services performed by MML pursuant to
this agreement, the Fund will pay MML a monthly Administrative Services Fee
as set forth in Schedule A. In addition to the fees the Fund will reimburse
MML for out-of-pocket expenses or advances incurred by MML. Such fees,
out-of-pocket expenses and advances may be changed from time to time subject
to mutual written agreement between the Fund and MML.
Article 4 REPRESENTATIONS AND WARRANTIES OF MML
MML represents and warrants to the Fund that:
-4-
<PAGE>
4.01 It is a corporation duly organized and existing and in good
standing under the laws of the State of Minnesota.
4.02 It is duly qualified to carry on its business in the State
of Minnesota
4.03 It has and will continue to have access to the necessary
facilities, equipment and personnel to perform its duties and obligations
under this Agreement.
4.04 It agrees to obtain and maintain, all regulatory licensing
as may be required of it, if any, under this Agreement.
Article 5 REPRESENTATIONS AND WARRANTIES OF THE FUND
The Fund represents and warrants to MML that:
5.01 It is a corporation duly organized and existing and in good
standing under the laws of Minnesota.
5.02 It is empowered under applicable laws and by its Articles
of Incorporation and Bylaws to enter into and perform this Agreement.
5.03 All corporate proceedings required by said Articles of
Incorporation and Bylaws have been taken to authorize it to enter into and
perform this Agreement.
5.04 It is an open-end and diversified management investment
company registered under the Investment Company Act of 1940.
5.05 A registration statement under the Securities Act of 1933
is currently effective and will remain effective, and appropriate state
securities law filings have been made and will continue to be made, with
respect to all Shares of the Fund being offered for sale.
Article 6 INDEMNIFICATION
6.01 MML shall not be responsible for, and the Fund shall
indemnify and hold MML harmless from and against, any and all losses,
damages, costs, charges, counsel fees, payments, expenses and liability
arising out of or attributable to:
(a) All actions of MML or its agent or subcontractors required
to be taken pursuant to this Agreement, provided that such actions are taken
in good faith without negligence or willful misconduct.
-5-
<PAGE>
(b) The Fund's refusal or failure to comply with the terms of
this Agreement, or which arise out of the Fund's lack of good faith,
negligence or willful misconduct or which arise out of the breach of any
representation or warranty of the Fund hereunder.
(c) The reliance on or use by MML or its agents or
subcontractors of information, records and documents which (i) are received
by MML or is agents or subcontractors and furnished to it by or on behalf of
the Fund, and (ii) have been prepared and/or maintained by the Fund or any
other person or firm on behalf of the Fund.
(d) The reliance on, or the carrying out by MML or its agents or
subcontractors of any instructions or requests of the Fund.
(e) The offer or sale of Shares in violation of any requirement
under the federal securities laws or regulations or the securities laws or
regulations of any state that such Shares be registered in such state or in
violation of any stop order or other determination or ruling by any federal
agency or any state with respect to the offer or sale of such Shares in such
state.
6.02 MML shall indemnify and hold the Fund harmless from and
against any and all losses, damages, costs, charges, counsel fees, payments,
expenses and liability arising out of or attributable to any action or
failure or omission to act by MML as a result of MML's lack of good faith,
negligence or willful misconduct, or MML's refusal or failure to comply with
the terms of this Agreement, or which arise out of the breach of any
representation or warranty of MML hereunder.
6.03 At any time MML may apply to any officer of the Fund for
instructions, and may consult with legal counsel to the Fund with respect to
any matter arising in connection with the services to be performed by MML
under this Agreement, and MML and its agents or subcontractors shall not be
liable and shall be indemnified by the Fund for any action taken or omitted
by it in good-faith reliance upon such instructions or upon the opinion of
such counsel. MML, its agents and subcontractors shall be protected and
indemnified in acting upon any paper or document furnished by or on behalf of
the Fund, reasonably believed to be genuine and to have been signed by the
proper person or persons, or upon any instruction, information, data, records
or documents provided MML or its agents or subcontractors by machine readable
input, telex, CRT data entry or other similar means authorized by the Fund,
and shall not be held to have notice of any change or authority of any
person, until receipt of written notice thereof from the Fund. MML, its
agents and subcontractors shall also be protected and indemnified in
recognizing stock certificates which are reasonably believed to bear the
proper manual or facsimile signatures of the officers of the Fund, and the
proper countersignature of any transfer agent or registrar, or of a
co-transfer agent or co-registrar.
6.04 In the event any party is unable to perform its obligations
under the terms of this Agreement because of acts of God, strikes, equipment
or transmission failure or damage reasonably beyond its control, or other
causes reasonably beyond its control, the party shall not be liable for
damages to the other parties for any damages resulting from such failure to
perform or otherwise from such causes.
-6-
<PAGE>
6.05 No party to this Agreement shall be liable to any other
party for consequential damages, whether under any provision of this
Agreement or for any act or failure to act hereunder.
6.06 In order that the indemnification provisions contained in
this Article 6 shall apply, upon the assertion of a claim for which either
party may be required to indemnify the other, the party seeking
indemnification shall promptly notify the other party of such assertion, and
shall keep the other party advised with respect to all developments
concerning such claim. The party who may be required to indemnify shall have
the option to participate with the party seeking indemnification in the
defense of such claim. The party seeking indemnification shall in no case
confess any claim or make any compromise in any case in which the other party
may be required to indemnify it except with the other party's prior written
consent.
Article 7 TERMINATION OF AGREEMENT
7.01 This Agreement may be terminated by either
party upon sixty (60) days written notice to the other party.
Article 8 ASSIGNMENT
8.01 Neither this Agreement nor any rights or
obligations hereunder may be assigned by either party without the
written consent of the other party.
8.02 This Agreement shall inure to the benefit of
and be binding upon the parties and their respective permitted
successors and assigns.
Article 9 AMENDMENT
9.01 This Agreement may be amended or modified by a
written agreement executed by both parties and authorized or
approved by a resolution of the Board of Directors of the Fund.
Article 10 GOVERNING LAW
10.01 This Agreement shall be construed and the provisions
thereof interpreted under and in accordance with the laws of the State of
Minnesota.
-7-
<PAGE>
Article 11 ENTIRE AGREEMENT
11.01 This Agreement constitutes the entire agreement between
the parties hereto and supersedes any prior agreement with respect to the
subject matter hereof whether oral or written.
Article 12 EFFECTIVE DATE
12.01 This Agreement shall be effective as of the date agreed to
by MML and First Data Investor Services Group, Inc. ("First Data") for the
conversion of transfer agent services from MML to First Data, or such other
date as selected by management of the Fund.
IT WITNESS WHEREOF, the parties hereto have caused this Agreement
to be executed in their names and on their behalf under their seals by and
through their duly authorized officers, as of the day and year first above
written.
ADVANTUS ENTERPRISE FUND, INC.
By
-----------------------------------------------
William N. Westhoff, President
Attest
-------------------------------------------
Frederick P. Feuerherm, Treasurer
THE MINNESOTA MUTUAL LIFE
INSURANCE COMPANY
By
-----------------------------------------------
Robert E. Hunstad, Executive Vice President
Attest
-------------------------------------------
Dennis E. Prohofsky, Senior Vice
President, General Counsel and Secretary
ADVANTUS CAPITAL MANAGEMENT, INC.
By
-----------------------------------------------
William N. Westhoff, President
Attest
-------------------------------------------
Richard W. Worthing,
Second Vice President - Equity Investments
-8-
<PAGE>
SCHEDULE A
to the
SHAREHOLDER AND ADMINISTRATIVE SERVICES AGREEMENT
for
ADVANTUS ENTERPRISE FUND, INC.
(As amended July 21, 1999 and effective August 1, 1999)
Minnesota Life shall receive, as compensation for its accounting,
auditing, legal and other administrative services pursuant to this Agreement,
a monthly fee determined in accordance with the following table:
Monthly Administrative
Services Fee
------------
$6,200.00
The above monthly fees shall be paid to Minnesota Life not later
than five days following the end of each calendar quarter in which said
services were rendered.
A-1
<PAGE>
DORSEY & WHITNEY LLP
MINNEAPOLIS PILLSBURY CENTER SOUTH BILLINGS
NEW YORK 220 SOUTH SIXTH STREET GREAT FALLS
SEATTLE MINNEAPOLIS, MINNESOTA 55402-1498 MISSOULA
DENVER TELEPHONE: (612) 340-2600 BRUSSELS
WASHINGTON, D.C. FAX: (612) 340-2868 FARGO
DES MOINES HONG KONG
ANCHORAGE ROCHESTER
LONDON SALT LAKE CITY
COSTA MESA VANCOUVER
Advantus Enterprise Fund, Inc.
400 Robert Street North
St. Paul, Minnesota 55101
Ladies and Gentlemen:
We have acted as counsel to Advantus Enterprise Fund, Inc., a
Minnesota corporation (the "Fund"), in connection with a Registration Statement
on Form N-1A (File No. 33-80754) (the "Registration Statement") relating to the
sale by the Fund of an indefinite number of shares of the Fund's Class A Common
Shares, Class B Common Shares and Class C Common Shares, each with a par value
of $.01 per share (the "Shares").
We have examined such documents and have reviewed such
questions of law as we have considered necessary and appropriate for the
purposes of our opinions set forth below. In rendering out opinions set forth
below, we have assumed the authenticity of all documents submitted to us as
originals, the genuineness of all signatures and the conformity to authentic
originals of all documents submitted to us as copies. We have also assumed the
legal capacity for all purposes relevant hereto of all natural persons and, with
respect to all parties to agreements or instruments relevant hereto other than
the Fund, that such parties had the requisite power and authority (corporate or
otherwise) to execute, deliver and perform such agreements or instruments, that
such agreements or instruments have been duly authorized by all requisite action
(corporate or otherwise), executed and delivered by such parties and that such
agreements or instruments are the valid, binding and enforceable obligations of
such parties. As to questions of fact material to our opinions, we have relied
upon certificates of officers of the Fund and of public officials. We have also
assumed that the Shares will be issued and sold as described in the Registration
Statement.
Based on the foregoing, we are of the opinion that upon
issuance, delivery and payment for the Shares as described in the Registration
Statement, the Shares will be validly issued, fully paid and nonassessable.
<PAGE>
DORSEY & WHITNEY LLP
Advantus Enterprise Fund, Inc.
January 4, 2000
Page 2
We hereby consent to the filing of this opinion as an exhibit
to the Registration Statement and to the reference to our firm under the caption
"Service Providers" in the Prospectus which constitutes a part of the
Registration Statement.
Dated: January 4, 2000
Very truly yours,
/s/ Dorsey & Whitney LLP
MJR
<PAGE>
KPMG LLP
4200 Norwest Center
90 South Seventh Street
Minneapolis, MN 55402
INDEPENDENT AUDITORS' CONSENT
The Board of Directors
Advantus Enterprise Fund, Inc.:
We consent to the use of our report dated November 5, 1999 incorporated by
reference herein and the references to our Firm under the headings
"FINANCIAL HIGHLIGHTS" in Part A and "FINANCIAL STATEMENTS" in Part B of the
Registration Statement.
KPMG LLP
Minneapolis, Minnesota
January 13, 2000
<PAGE>
ADVANTUS POLICY & PROCEDURE MANUAL -
ADVANTUS CODE OF ETHICS, PERSONAL SECURITIES TRADING
- --------------------------------------------------------------------------------
PROCEDURE NAME: ADVANTUS CODE OF ETHICS, PERSONAL SECURITIES TRADING
PROCESS REF. #: ADVANTUS 101
CONTACT NAME: GARY PETERSON
AUTHOR: GARY PETERSON
APPROVAL DATE: 10/28/99
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PURPOSE
- --------------------------------------------------------------------------------
While affirming its confidence in the integrity and good faith of all their
employees, officers and directors, Advantus Capital Management, Inc. (Advantus)
and Ascend Financial Services, Inc. (Ascend) recognize that the knowledge of
present or future fund portfolio transactions and, in certain instances, the
power to influence fund portfolio transactions made by or for the Advantus Funds
may place such individuals, if they engage in Personal Securities Transactions
in securities which are eligible for investment by the Advantus Mutual and
Series Funds (Funds), in a position where their personal interest may conflict
with that of the Funds.
In view of the above and of the provisions of Rule 17j-1(b)(1) under the
Investment Company Act of 1940 (the "1940 Act") and other regulations and legal
considerations, Advantus, Ascend, and the Funds have determined to adopt this
Code of Ethics to specify and prohibit certain types of transactions which would
create conflicts of interest (or at least the potential for the appearance of
conflicts of interest), and to establish reporting requirements and enforcement
procedures. This Code supplements but does not supersede or contradict the
Minnesota Life Code of Ethics.
- --------------------------------------------------------------------------------
SCOPE
- --------------------------------------------------------------------------------
The attached Code of Ethics, (Appendix A), applies to all individuals defined as
access persons and certain Employees. This includes all Advantus employees
engaged in making investment decisions or supporting the investment process
regarding marketable securities and other employees of Advantus or Ascend,
(permanent, temporary and/or contractors), as defined in the Code.
1
<PAGE>
- --------------------------------------------------------------------------------
PROCEDURE
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
TASK/ACTION RESPONSIBILITY
- ---------------------------------------------------------------------------------------------------------
<S> <C>
For Newly Hired and Transferring Access Persons
Provide the Code of Ethics to new or transferred access persons coincident Advantus Human
with their hire or transfer date. Provide an initial holdings report form Resources
to be completed by the access person.
Conduct training/orientation regarding the Code of Ethics and related Advantus Compliance
procedures in groups or in one-on-one meetings, as appropriate. This must
be done within 10 business days of their hire or transfer.
Review the Code of Ethics and complete the attached signoff form within 10 Access Personnel
business days of receipt. Return the signoff forms to Advantus Compliance
department. Complete the initial holdings report and return the report to
the Advantus Compliance department.
For Annual Review or Code of Ethics Revisions
Distribute the Code of Ethics, the annual signoff form, and the annual Advantus Compliance
security holdings report to all access persons according to the annual
schedule as defined by Advantus compliance officer. Complete special
distributions of the Code of Ethics and signoff forms to all access persons
when changes in the Code of Ethics occur.
Review the Code of Ethics, or revisions to the Code, then complete the Access Personnel
signoff form and return it to Advantus Compliance department within 10
business days of receipt. Complete the annual security holdings report and
return to the Advantus Compliance department.
</TABLE>
2
<PAGE>
APPENDIX A
CODE OF ETHICS
FOR
ADVANTUS CAPITAL MANAGEMENT, INC.
AND AFFILIATES
I. PURPOSE AND CONSTRUCTION.
This Code of Ethics ("Code") is adopted by Advantus Capital Management,
Inc. (the "Adviser"), Ascend Financial Services, Inc. ("Ascend"), and the Funds
to set forth their policy with regard to conduct by their officers, directors
and employees and in an effort to comply with and prevent violations of Section
17 of the 1940 Act, Section 15(f) of the Securities Exchange Act of 1934 and
Section 204A of the Investment Advisers Act of 1940. The focus of this Code is
to set forth the standards of ethical conduct expected from employees, officers
and directors and the restriction or prevention of some investment activities by
persons with access to certain information that might be harmful to the
interests of the Funds or which might enable such persons to profit illicitly
from their relationship with the Funds.
II. STATEMENT OF GENERAL ETHICAL PRINCIPLES.
A. Individuals covered by this Code will at all times conduct themselves with
integrity and distinction, putting first the interests of the Funds.
B. The Code is based on the principle that the individuals covered by this
Code owe a fiduciary duty to the Funds, including, among others, the
shareholders of the Funds, to conduct their Personal Securities
Transactions in a manner which does not interfere with Fund portfolio
transactions and in such a manner as to avoid any actual or potential
conflict or interest or abuse of such person's position of trust and
responsibility; or otherwise take inappropriate advantage of such person's
position in relation to the Funds. Individuals covered by this Code must
adhere to this general principle as well as comply with the Code's specific
provisions. It bears emphasis that technical compliance with the Code's
procedures will not automatically insulate from scrutiny, activities which
show a pattern of abuse of the individual's fiduciary duties to the Funds.
III. RESTRICTIONS.
A. NONDISCLOSURE OF INFORMATION. An Access Person shall not divulge to any
person, contemplated or completed securities transactions of a Fund, except
in the performance of his or her duties. This prohibition shall not apply
if such information previously has become a matter of public knowledge.
B. SECTION 17(d) LIMITATIONS. No Affiliated Person of a Fund, or Ascend, or
any Affiliated Person of such person or Ascend, acting as principal, shall
effect any transaction in which a Fund, or a company controlled by a Fund,
is a joint or a joint and several participant with such person, Ascend or
Affiliated Person, in contravention of such rules and regulations as the
Securities and Exchange Commission may prescribe under Section 17(d) of the
1940 Act for the purpose of limiting or preventing participation by the
Funds or controlled companies on a basis different
3
<PAGE>
from or less advantageous than that of such other participant.
C. PROSCRIBED ACTIVITIES UNDER RULE 17J-1(b). Rule 17j-1(b) under the 1940 Act
provides:
It shall be unlawful for any affiliated person of or principal underwriter
for a Fund, or any affiliated person of an investment adviser of or
principal underwriter for a Fund, in connection with the purchase or sale,
directly, or indirectly, by such person of a Security Held or to be
Acquired, as defined in section IX, by such Fund--
1. To employ any device, scheme or artifice to defraud such Fund;
2. To make to such Fund any untrue statement of a material fact or omit
to state to such Fund a material fact necessary in order to make the
statements made, in light of the circumstances under which they were
made, not misleading;
3. To engage in any act, practice, or course of business which operates
or would operate as a fraud or deceit upon any such Fund; or
4. To engage in any manipulative practice with respect to such Fund.
Any violation of Rule 17j-1(b) shall be deemed to be a violation of this
Code.
D. COVENANT TO EXERCISE BEST JUDGMENT. An Advisory Person shall act on his or
her best judgment in effecting, or failing to effect, any Fund transaction
and such Advisory Person shall not take into consideration his or her
personal financial situation in connection with decisions regarding Fund
portfolio transactions.
E. LIMITATIONS ON PERSONAL SECURITIES TRANSACTIONS.
1. NO PERSONAL SECURITIES TRANSACTIONS WITHOUT PRIOR APPROVAL. No Access
Person or Employee shall engage in a Personal Securities Transaction
without Pre-Clearance, as defined below.
a. Prior to effecting any Personal Securities Transaction, except as
provided in Paragraph b. below, an Access Person or Employee
shall secure Pre-Clearance utilizing the procedures set forth in
(i) or (ii) below.
i. Manual Pre-Clearance.
An Access Person shall notify the President of the Adviser,
or his or her designee, of the proposed transaction, and
shall provide the name of the issuer, the title or type of
Security, the number of shares and the price per share or
the principal amount of the transaction. The President of
the Adviser, or his or her designee, shall, after
investigation, determine that such proposed transaction
would, may, or would not be consistent with the specific
limitations of Section III.E. and with this Code generally.
The conclusion of the President of the Adviser, or his or
her designee, shall be promptly communicated to the person
making such request. The President of the
4
<PAGE>
Adviser, or his or her designee, shall make written records
of actions under this Section, which records shall be
maintained and made available in the manner required by Rule
17j-1(f).
ii. E-Mail Based Prior Clearance.
As an alternative to Manual Prior Clearance set forth above,
an Access Person or Employee may utilize the Lotus Notes
based Trade Approval System ("TAS") to pre-clear Personal
Securities Transactions. Thereafter TAS will be loaded onto
the computer of that Access Person or Employee. (An Access
Person or Employee who has undergone TAS training and has
had TAS installed on their computer is called a User).
The User will enter the proposed Personal Securities
Transaction on the TAS system. The User will enter the
security ticker symbol and other information required by
TAS. TAS searches all applicable restricted lists based on
the security ticker symbol. The User has the responsibility
for determining that the security ticker symbol is accurate.
If the proposed Personal Securities Transaction clears the
restricted lists, the User will forward the proposed trade
to the applicable trading desk for further clearance.
Approval or rejection of each proposed Personal Securities
Transaction will be made by e-mail notification to the
mailbox of the User. The User will be required to enter
information as to whether the trade is executed or not
executed and the price at which it was executed.
In utilizing the TAS system, the User is required to make
certifications with regard to the transaction as set forth
on the TAS system. For each proposed Personal Securities
Transaction the User has the responsibility to enter the
information correctly and ensure the accuracy of each of
these statements. Failure to enter the correct security
ticker symbol or to ensure that each certification is
correct may result in disciplinary action being taken
against the User in accordance with the provisions of the
Code. Records of actions under this Section, shall be
maintained and made available in the manner required by Rule
l7j-l(f).
b. Personal Securities Transactions in the following securities do
not require prior approval pursuant to this section:
i. Purchases or sales of securities issued by the Government of
the United States (transactions in securities that are
indirect obligations of the U.S. Government such as
securities of the Federal National Mortgage Association are
not exempted);
ii. Purchases or sales of shares of registered open-end
investment companies;
iii. Purchases or sales of banker's acceptances or bank
certificates of deposit; or
iv. Purchases or sales of commercial paper and high quality
short term instruments, including repurchase agreements.
2. LIMITATIONS RELATED TO TIME OF TRANSACTIONS.
a. No Access Person or Employee shall engage in a Personal
Securities Transaction
5
<PAGE>
involving any Security which, with respect to any Fund, has been
purchased or sold within the most recent 7 days or which has a
pending "buy" or "sell" order.
b. No Access Person or Employee who is a portfolio manager or
analyst shall engage in a Personal Securities Transaction
involving any Security which, with respect to the Funds they
manage or make recommendations for, is being considered for
purchase or sale within the next 7 days.
c. The following exceptions to Paragraphs a. and b. above will apply
if any such Security:
i. is no longer held by any Fund as a result of a sale within
the most recent 7 days, in which case such Security may be
sold the next day following the completion of such a
transaction by a Fund, or
ii. is purchased or sold solely by a Fund which tracks the
performance of an Index, in which case such Security may be
purchased or sold on any day except a day on which any Fund
is trading in such security.
d. No Access Person or Employee shall profit from the purchase and
sale, or sale and purchase, of the same (or an equivalent)
Security in a Personal Securities Transaction within sixty
calendar days.
e. The following Personal Securities Transactions are not subject to
the limitations set forth in Paragraphs a., b., and d. above:
i. Purchases or sales effected in any account over which the
person has no direct or indirect influence or control;
ii. Purchases or sales of securities which are not eligible for
purchase or sale by any Fund;
iii. Purchases which are part of an automatic dividend
reinvestment plan;
iv. Purchases effected upon the exercise or rights issued by an
issuer PRO RATA to all holders of a class of its securities,
to the extent such rights were acquired from such issuer,
and sales of such rights so acquired.
3. INITIAL PUBLIC OFFERING LIMITATIONS. No Access Person or Employee
shall engage in any Personal Securities Transaction that involves the
purchase of a Security which is part of an Initial Public Offering.
4. LIMITED OFFERING LIMITATIONS.
a. No Access Person or Employee shall engage in any Personal
Securities Transaction that involves a Limited Offering of
Securities without the express prior approval of the
6
<PAGE>
President of the Adviser, or his or her designee in accordance
with the procedures set forth in Section III.E.6. In reviewing
any such approval request, the President of the Adviser, or his
or her designee, shall consider, among other factors, whether the
investment opportunity should be reserved for a Fund and its
shareholders, and whether the opportunity is being offered to the
requesting individual by virtue of his or her position with the
Funds or the Adviser.
b. Access Persons and Employees who have received approval as set
forth above and who continue to hold the Security acquired in
such Limited Offering, shall disclose any such continuing
investment to the President of the Adviser, or his or her
designee, if and when they should become involved in any
subsequent consideration of an investment in the same issuer for
the portfolio of any Fund. In such case the decision to invest in
the Securities of such an issuer shall be subject to the approval
of the President of the Adviser, or his or her designee.
c. The President of the Adviser, or his or her designee, shall make
written records of actions under this Paragraph.
5. COPIES OF BROKERAGE REPORTS. All Access Persons that engages in a
Personal Securities Transaction are required to have the executing
broker send a duplicate copy of the confirmation of the transaction to
the President of the Adviser or his or her designee at the same time
as it is provided to such person. In such event, the Access Person
shall also direct such broker to provide duplicate copies of any
periodic statements on any account maintained by such person to the
President of the Adviser, or his or her designee.
6. WAIVERS. An Access Person or Employee may also request prior approval
of a Personal Securities Transaction which, on its face, would be
prohibited by the limitations of Section III.E. Such person shall
provide to the President of the Adviser, or his or her designee, a
description of the proposed transaction, including the name of the
issuer, the title or type of the Security, the number of shares and
the price per share or the principal amount of the transaction, and
shall also provide a statement why the applicable limitation should be
waived in the case of the proposed transaction. The President of the
Adviser, or his or her designee, shall, after investigation, determine
that a waiver of the limitations otherwise applicable to the proposed
transaction would, may, or would not be consistent with the purpose of
this Code. Purchases and sales consistent with the Code shall include
those which are only remotely potentially harmful to any Fund, those
which would be very unlikely to affect a highly institutional market,
and those which clearly are not related economically to the securities
to be purchased, sold or held by any Fund.
IV. REPORTING REQUIREMENTS.
A. QUARTERLY REPORT. Not later than ten (10) days after the end of each
calendar quarter, each Employee and each Access Person shall submit a
report (as shown in Exhibit A) which shall specify the following
information with respect to transactions during the then ended calendar
7
<PAGE>
quarter in any Security in which such Employee or Access Person has, or by
reason of such transaction acquired, any direct or indirect beneficial
ownership in the Security:
1. the date of transaction, the name of the issuer, the title or type of
Security, the interest rate and maturity (if applicable), the number
of shares, and the principal amount of each Security involved;
2. the nature of the transaction (i.e., purchase, sale, or any other type
of acquisition or disposition);
3. the price of the Security at which the transaction was effected;
4. the name of the broker, dealer, or bank with or through whom the
transaction was effected;
5. the date that the report is submitted by the Access Person or
Employee; and
6. any account established in the quarter by the Access Person in which
any securities were held during the quarter for the direct or indirect
benefit of the Access Person.
If no transactions have occurred, or no accounts have been established, in
the quarter, the report shall so indicate.
The President of the Adviser, may in his or her discretion, not require an
Access Person or Employee to make a quarterly transaction report, if the
report duplicates information contained in the broker trade confirmation
received by the Adviser, contains all required information as described in
this section IV.A, the broker trade confirmation is received no later than
10 days after quarter end, and no accounts have been established as
described in this section IV.A.6.
B. LIMITATION ON REPORTING REQUIREMENTS. Notwithstanding the provisions of
Section IV.A., no Access Person or Employee shall be required:
1. To make a report with respect to transactions effected for any account
over which such person does not have any direct or indirect influence
or control; or
2. To make a quarterly report, initial or annual holdings report, if such
person is not an "interested person" of a Fund as defined in Section
2(a)(19) of the 1940 Act, and would be required to make such a report
solely by reason of being a director of a Fund, EXCEPT where such
director knew, or in the ordinary course of fulfilling his or her
official duties as a director of a Fund should have known, that during
the 15-day period immediately preceding or after the date of the
transaction in a Security by the director, such Security was being
purchased or sold by a Fund or such purchase or sale by a Fund was
being considered by a Fund or the Adviser.
C. REPORTS OF VIOLATIONS. In addition to the quarterly reports required under
this Section IV, each Employee and each Access Person promptly shall report
any transaction which is, or might appear to be, in violation of this Code.
Such report shall contain the information required in quarterly reports
filed pursuant to Section IV.A.
D. INITIAL AND ANNUAL REPORTS BY PERSONNEL. All Access Persons and Employees
shall submit to
8
<PAGE>
the President of the Adviser, or his or her designee, a report of all
Securities beneficially owned by them at the time that they commence
employment with the Adviser or Ascend (or any affiliated company) or at the
time they become an Access Person. This report shall be submitted to the
President of the Adviser, or his or her designee, within 10 days of
commencement of employment or within 10 days after notification of becoming
an Access Person. All Access Persons and Employees shall submit to the
President of the Adviser, or his or her designee, within 30 days of the end
of each calendar year, a report of all Securities beneficially owned by
them as of December 31 of each year or at such other date selected by the
President of the Adviser. The initial and annual security holdings report
must include the following information:
1. the name of the security, number of shares, and principal amount of
each Security in which the Access Person or Employee has any direct or
indirect beneficial ownership;
2. the name of the broker, dealer, or bank with whom the Access Person or
Employee maintains an account in which any securities are held for the
direct or indirect benefit of the Access Person or Employee. The
initial security holdings report should be as of the date the person
became an Access Person; and
3. the date the report is submitted by the Access Person or Employee.
E. FILING OF REPORTS. All reports prepared pursuant to this Section IV shall
be filed with the person designated by the President of the Adviser to
review these materials.
F. QUARTERLY REPORT BY ADVISER. Each calendar quarter, after the receipt of
reports from reporting persons, the President of the Adviser, or his or her
designee, shall prepare a report which shall certify, to the best of his or
her knowledge, that all persons required to file a report under Section
IV.A. have complied with this Code for such prior quarter or, if unable to
make such certification, shall describe in detail incomplete reports,
violations or suspected violations of this Code.
G. DISSEMINATION OF REPORTS. The General Counsel of the Funds shall have the
right at any time to receive or review copies of any reports submitted
pursuant to this Section IV. Such General Counsel shall keep all reports
confidential except as disclosure thereof to the Boards of Directors of the
Funds, the Adviser, Ascend, or other appropriate persons may be reasonably
necessary to accomplish the purposes of this Code.
V. RECORDKEEPING REQUIREMENTS
A. The Adviser, Ascend and the Funds must each at its principal place of
business, maintain records in the manner and extent set out in this Section
of the Code and must make available to the Securities and Exchange
Commission (SEC) or any representative of the SEC at any time and from time
to time for reasonable periodic, special or other examination:
9
<PAGE>
1. A copy of each code of ethics of the Adviser, Ascend and the Funds
that is in effect, or at any time within the past five years was in
effect, must be maintained in an easily accessible place;
2. A record of any violation of the code of ethics, and of any action
taken as a result of the violation, must be maintained in an easily
accessible place for at least five years after the end of the fiscal
year in which the violation occurs;
3. A copy of each report made by an Access Person or Employee as
required, including any information provided in lieu of a quarterly
transaction report, see Section IV.A, must be maintained for at least
five years after the end of the fiscal year in which the report is
made or the information is provided, the first two years in an easily
accessible place;
4. A record of all persons, currently or within the past five years, who
are or were required to make reports as deemed Access Persons or
Employee, or who are or were responsible for reviewing these reports,
must be maintained in an easily accessible place;
5. A copy of each report defined in Section VI.B must be maintained for
at least five years after the end of the fiscal year in which it is
made, the first two years in an easily accessible place.
B. The Adviser, Ascend, and the Funds must maintain a record of any decision,
and the reasons supporting the decision, to approve the acquisition by
investment personnel of Limited Offering securities, for at least five
years after the end of the fiscal year in which the approval is given.
VI. FIDUCIARY DUTIES OF THE FUND BOARD OF DIRECTORS
A. The Fund Board of Directors, including a majority of directors who are not
interested persons, must approve the Code of Ethics adopted by the Adviser,
Ascend and the Funds and any material change to the Code. The Board must
base its approval of a code and any material changes to the code on a
determination that the code contains provisions reasonably necessary to
prevent Access Persons from engaging in any conduct prohibited by section
III.C. Before approving the Code of the Adviser, Ascend, and the Funds, the
Fund Board of Directors must receive a certification from the Adviser,
Ascend, and the Funds that each has adopted procedures reasonably necessary
to prevent Access Persons or Employees from violating its Code of Ethics.
The Fund Board of Directors must approve the Code of the Adviser, Ascend,
and the Funds before initially retaining the services of the Adviser or
Ascend. The Fund Board of Directors must approve a material change to the
Code no later than six months after adoption of the material change. The
Adviser, Ascend and the Funds must each use reasonable diligence and
institute procedures reasonably necessary to prevent violations of its Code
of Ethics.
B. No less frequently than annually, the Adviser, Ascend, and the Funds must
furnish to the Fund Board of Directors a written report that:
1. Describes any issues arising under the Code of Ethics since the last
report to the Fund Board of Directors, including, but not limited to,
information about material violations of the Code or procedures and
sanctions imposed in response to the material violations; and
2. Certifies that the Adviser, Ascend, and the Funds have adopted
procedures reasonably
10
<PAGE>
necessary to prevent Access Persons or Employees from violating the
Code.
VII. ENFORCEMENT AND SANCTIONS.
A. GENERAL. Any Affiliated Person of the Adviser or Ascend who is found to
have violated any provision of this Code may be permanently dismissed,
reduced in salary or position, temporarily suspended from employment, or
sanctioned in such other manner as may be determined by the Board of
Directors of the Adviser or Ascend in its discretion. The Board of
Directors of the Adviser or Ascend may delegate this authority to such
person or persons they deem appropriate. If an alleged violator is not
affiliated with the Adviser or Ascend, the Board of Directors of the Fund
or Funds involved shall have the responsibility for enforcing this Code and
determining appropriate sanctions. In determining sanctions to be imposed
for violations of this Code, the Board of Directors may consider any
factors deemed relevant, including but not limited to the following:
1. the degree of willfulness of the violation;
2. the severity of the violation;
3. the extent, if any, to which the violator profited or benefited from
the violation;
4. the adverse effect, if any, of the violation on the Fund or Funds;
5. the market value and liquidity of the class of Securities involved in
the violation;
6. the prior violations of the Code, if any, by the violator;
7. the circumstances of discovery of the violation; and
8. if the violation involved the purchase or sale of Securities in
violation of this Code, (a) the price at which the Fund purchase or
sale was made and (b) the violator's justification for making the
purchase or sale, including the violator's tax situation, the extent
of the appreciation or depreciation of the Securities involved, and
the period the Securities have been held.
B. VIOLATIONS OF SECTION III.E.
1. At its election, a Fund may choose to treat a transaction prohibited
under Section III.E. of this Code as having been made for its account.
Such an election may be made only by a majority vote of the directors
of the Fund who are not Affiliated Persons of the Adviser. Notice of
an election under this Section VII.B.1. shall not be effective unless
given to the Adviser within sixty (60) days after the Fund is notified
of such transaction. In the event of a violation involving more than
one Fund, recovery shall be allocated between the affected
11
<PAGE>
Funds in proportion to the relative net asset values of the Funds as
of the date of the violation.
2. If securities purchased in violation of Section III.E. of this Code
have been sold in a bona fide sale, the Fund shall be entitled to
recover the profit made by the seller. If such securities are still
owned by the seller, or have been disposed of by such seller other
than by a bona fide sale at the time notice of election is given by
the Fund, the Fund shall be entitled to recover from the seller the
difference between the cost of such Securities to the violator and the
fair market value of such Securities on the date the Fund acquired
such Securities. If the violation consists of a sale of Securities in
violation of Section III.E. of this Code, the Fund shall be entitled
to recover from the violator the difference between the net sale price
per share received by the violator and the net sale price per share
received by the Fund, multiplied by the number of shares sold by the
violator. Each violation shall be treated individually and no
offsetting or netting of violations shall be permitted. The sums due
from a violator under this Paragraph shall include sums due a Fund as
a result of a violation by a Member of the Immediate Family of such
violator.
3. Knowledge on the part of director or officer of a Fund who is an
Affiliated Person of the Adviser of a transaction in violation of this
Code shall not be deemed to be notice under Section VII.B.1.
4. If the Board of Directors of a Fund determines that a violation of
this Code has caused financial detriment to such Fund, upon reasonable
notice to the Adviser, the Adviser shall use its best efforts,
including such legal action as may be required, to cause a person who
has violated this Code to deliver to the Fund such Securities, or to
pay to the Fund such sums, as the Fund shall declare to be due under
this Section VII.B., provided that:
a. the Adviser shall not be required to bring legal action if the
amount reasonably recoverable would not be expected to exceed
$2,500.
b. In lieu of bringing a legal action against the violator, the
Adviser may elect to pay to the Fund such sums as the Fund shall
declare to be due under this Section VII.B.; and
c. the Adviser shall have no obligation to bring any legal action
if the violator was not an Affiliated Person or Employee of
either the Adviser or Ascend.
C. RIGHTS OF ALLEGED VIOLATOR. A person charged with a violation of this Code
shall be informed of the violation in writing and shall have the
opportunity to appear before the Board of Directors (or such Boards
designees) as may have authority to impose sanctions pursuant to this Code,
at which time such person shall have the opportunity, orally or in writing,
to deny any and all charges, set forth mitigating circumstances, and set
forth reasons why the sanctions for any violations should not be severe.
D. DELEGATION OF DUTIES. The Board of Directors of the Adviser, Ascend or of
any Fund may delegate its enforcement duties under this Section VII to a
special committee of the Board of Directors
12
<PAGE>
comprised of at least three persons; provided, however, that no director
shall serve on such committee or participate in the deliberations of the
Board of Directors hereunder who is charged with a violation of this Code.
The Board of Directors of Adviser or Ascend may delegate its enforcement
duties under this Section VII to such officers of Adviser or Ascend and
with such authority as the Board deem appropriate.
E. NON-EXCLUSIVITY OF SANCTIONS. The imposition of sanctions hereunder by the
Board of Directors of the Adviser or Ascend will not preclude the
imposition of additional sanctions by the Board of Directors of the Funds
and shall not be deemed a waiver of any rights by the Funds.
VIII. MISCELLANEOUS PROVISIONS.
A. IDENTIFICATION OF ACCESS PERSONS. The Adviser shall, on behalf of the Funds
and Ascend, identify all Employees and all Access Persons who are under a
duty to make reports under Section IV and shall inform such persons of such
duty.
B. MAINTENANCE OF RECORDS. The Adviser shall, on behalf of the Funds and
Ascend, maintain and make available records as required by Rule 17j-1(d).
C. ANNUAL CERTIFICATION OF COMPLIANCE. All Access Persons and Employees shall
sign a certificate to be presented to the Adviser at the end of each
calendar year certifying that they have read and understood this Code and
acknowledging that they are subject to the terms of the Code. The
certificate shall additionally provide that such person has disclosed or
reported all Personal Securities Transactions required to be disclosed or
reported pursuant to the provisions of this Code.
D. SERVICE AS DIRECTOR. An Access Person or Employee may not serve as a
director of a publicly traded company without the prior consent of the
President of the Adviser, or his or her designee. The President of the
Adviser, or his or her designee, shall not provide such authorization
unless he or she finds that such board service would be consistent with the
interests of the Funds and their shareholders. Should any person receive
such authorization, any investment by the Funds in the securities of any
such publicly traded company while such person is serving as a director
shall be previously approved by the President of the Adviser, or his or her
designee.
E. EFFECTIVE DATE. The effective date of this Code shall be October 28, 1999.
IX. DEFINITIONS.
A. "ACCESS PERSON" shall mean any director, officer, or Advisory Person of the
Adviser or of a Fund, or with respect to Ascend, any director or officer
who in the ordinary course of his or her business makes, participates in or
obtains information regarding the purchase or sale of Securities for a Fund
or whose functions or duties as part of the ordinary course of his or her
business relate to the making of any recommendation to a Fund regarding the
purchase or sale of Securities.
B. "ADVISORY PERSON" means:
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1. Any employee of the Adviser or of a Fund (or of any company in a
control relationship to the Adviser or a Fund) who, in connection with
his or her regular functions or duties, makes, participates in, or
obtains information regarding the purchase or sale of a Security by a
Fund, or whose functions or duties relate to the making of any
recommendations with respect to such purchases or sales, and
2. Any natural person in a control relationship to the Adviser or a Fund
who obtains information concerning recommendations made to a Fund with
regard to the purchase or sale of a Security.
C. "AFFILIATED PERSON" means:
1. Any person directly or indirectly owning, controlling or holding with
power to vote, five percent (5%) or more of the outstanding voting
securities of such other person;
2. Any person, five percent (5%) or more of whose outstanding voting
securities are directly or indirectly owned, controlled, or held with
power to vote, by such other person;
3. Any person directly or indirectly controlling, controlled by, or under
common control with, such other person;
4. Any officer, director, partner, co-partner, or employee of such other
person;
5. If such other person is an investment company, any investment adviser
thereof or any member of any advisory board thereof; and
6. If such other person is an unincorporated investment company not
having a board of directors, the depositor thereof.
D. "SECURITY HELD OR TO BE ACQUIRED" means any Security which, within the most
recent 15 days (i) is or has been held by the Fund, or (ii) is being
considered by the Fund or Adviser for purchase by the Fund, and (iii)
includes any option to purchase or sell, and any Security that is
exchangeable for or convertible into, any Security that is held or to be
acquired by the Fund.
E. "BENEFICIAL OWNERSHIP" shall be interpreted in the same manner as it would
be in determining whether a person is subject to the provisions of Section
16 of the Securities Exchange Act of 1934 pursuant to Rule 16a-1
thereunder, except that the determination of direct or indirect beneficial
ownership shall apply to all Securities which the person has or acquires
Beneficial Ownership includes, but is not limited to those securities owned
by a Person who directly or indirectly through any contract, arrangement,
understanding, relationship or otherwise, has or shares a direct or
indirect pecuniary interest in the securities. Direct pecuniary interest
includes the opportunity directly or indirectly to profit or share in any
profit derived from a transaction in the securities. The term indirect
pecuniary interest includes but is not limited to securities held by
members of a person's immediate family sharing the same household. You are
generally considered to be the beneficial owner of securities owned by any
of the following:
1. your spouse/domestic partner;
2. minor children of you, your spouse/domestic partner, or both;
14
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3. a trust of which you are a trustee or a beneficiary;
4. any of your relatives, or relatives of your spouse/domestic partner,
that share your home;
5. a partnership of which you are a partner;
6. a corporation of which you are a substantial shareholder; or
7. any other person who relies on you to make investment decisions.
F. "COMPLIANCE OFFICER" means the Compliance Officer of the Adviser.
G. "CONTROL" shall have the meaning set forth in Section 2(a)(9) of the 1940
Act and shall include the power to exercise a controlling influence over
the management or policies of a company, unless such power is solely the
result of an official position with such company. A person who directly or
indirectly owns more than 25% of the voting securities of a company is
presumed to control such company.
H. "EMPLOYEE" means an employee of the Adviser, or with respect to Ascend or
any other affiliated company an employee who has been notified that he or
she is also subject to this Code.
I. "FUND" means any investment company registered under the 1940 Act for which
the Adviser acts as the investment adviser and manager. For purposes of
this Code, such term shall also include any other account managed by the
Adviser.
J. "1940 ACT" means the Investment Company Act of 1940, 15 U.S.C. 80a-1 to
80a-52, as the same may be amended from time to time.
K. "PERSONAL SECURITIES TRANSACTION" means a transaction in a Security which
an individual effects for his or her own account or for a Member of his or
her Immediate Family.
L. "PRESIDENT OF THE ADVISER" shall mean the President of Advantus Capital
Management, Inc., or its successor.
M. "PURCHASE OR SALE OF A SECURITY" also includes the writing of an option to
purchase or sell a Security.
N. "SECURITY" means any security as that term is defined in Section 2 (a)(36)
of the 1940 Act and includes, but is not limited to: notes, stock, treasury
stock, bonds debentures, evidences of indebtedness, certificates of
interest or participations in any profit-sharing agreement,
collateral-trust certificates, pre-organization certificates or
subscriptions, transferable shares, investment contracts, voting-trust
certificates, any puts, calls, straddles, options or privileges on any
security (including a certificate of deposit) or on any group or index of
securities, or, in general, any interest or instrument commonly known as a
"security". Indirect obligations of the U.S. Government such as securities
of the Federal National Mortgage association are also Securities for the
purposes of the Code. Security does NOT include:
1. direct obligations of the Government of the United States;
15
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2. bankers acceptances, bank certificates of deposit, commercial paper
and high quality short-term instruments, including repurchase
agreements; and
3. shares issued by registered open-end investment companies.
O. "INITIAL PUBLIC OFFERING" means an offering of securities registered with
the Commission, the issuer of which, immediately before the registration,
was not required to file reports with the Commission.
P. "LIMITED OFFERING" means an offering that is exempt from registration under
the Securities Act of 1933 pursuant to section 4(2) or section 4(6) or
pursuant to rule 504, rule 505, or rule 506 under the Securities Act of
1933.
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EXHIBIT A
QUARTERLY SECURITIES TRANSACTION REPORT *
PURSUANT TO THE CODE OF ETHICS FOR
ADVANTUS CAPITAL MANAGEMENT, INC. AND AFFILIATES
For the Calendar Quarter Ending: MARCH 31, 2000
<TABLE>
<CAPTION>
- -------------------------- -------------- --------------- ---------------------- ---------------- ----------------------
NAME OF ISSUER AND DATE OF NATURE OF NUMBER OF SHARES OR PRICE AT WHICH THROUGH WHOM
TITLE OR TYPE OF SECURITY TRANSACTION TRANSACTION PRINCIPAL AMOUNT EFFECTED TRANSACTION EFFECTED
- -------------------------- -------------- --------------- ---------------------- ---------------- ----------------------
<S> <C> <C> <C> <C> <C> <C>
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- -------------------------- -------------- --------------- ---------------------- ---------------- ----------------------
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- -------------------------- -------------- --------------- ---------------------- ---------------- ----------------------
- -------------------------- -------------- --------------- ---------------------- ---------------- ----------------------
- -------------------------- -------------- --------------- ---------------------- ---------------- ----------------------
<CAPTION>
ACCOUNTS OPENED THIS QUARTER**
- -------------------------------------- ----------------------------------- ---------------------------------------------
BROKER OR BANK NAME ACCOUNT TITLE ACCOUNT NUMBER
- -------------------------------------- ----------------------------------- ---------------------------------------------
<S> <C> <C>
- -------------------------------------- ----------------------------------- ---------------------------------------------
- -------------------------------------- ----------------------------------- ---------------------------------------------
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</TABLE>
The reporting of any transaction hereon shall not be construed as an admission
that the reporting person has any direct or indirect beneficial ownership in
such security.
- ---------------------- --------------------------------------- --------------
Name (Please Print) Signature Date
*Transactions by the Access Person, Employee, or family members as defined in
the Code.
** Accounts opened by the Access Person, Employee, or family members as defined
in the Code.
- - SEND TO: 16-5354 NO LATER THAN APRIL 10, 2000
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APPENDIX B
INSIDER TRADING
SUPPLEMENT
TO THE
CODE OF ETHICS
The purpose of this Supplement to the Code of Ethics is to expand upon
the provisions of the Code of Ethics and on prior group and private discussions
regarding the topic of insider trading. If you have any further questions on
insider trading, talk with your supervisor, an Advantus attorney, or the
Compliance Officer.
The term "insider trading" refers to the use of material non-public
information to trade securities. It is also a violation of law to communicate
material non-public information to others.
The Code of Ethics of Advantus Capital Management, Inc., and Ascend
Financial Services, Inc. (together "Advantus") prohibits the use of any special
knowledge, personal contacts or access to property or equipment obtained in
connection with employment at Advantus for personal gain. The use of inside
information for personal securities transactions is clearly included in the
prohibition. In addition to personal transactions, insider trading prohibitions
apply to securities transactions made on behalf of Advantus and any of its
clients.
In recent years several highly publicized insider trading cases involved
the merger and acquisition areas of brokerage companies or had some other
connection with the underwriting of securities. Advantus is not involved in the
merger and acquisition business and does not participate in the sort of
securities underwritings that leads to the typical insider trading violations.
(e.g., a person knowingly takes secret information about a company and tries to
make money by buying or selling securities whose price will be affected by the
secret information). However, the insider trading law applies to a very broad
range of activity and should be a matter of constant consideration in all of
Advantus' security trades.
We at Advantus must be vigilant against even inadvertent violations. We
seldom come across dramatic inside information in the regular course of our
business. What inside information we do come across is so similar in nature to
the non-inside information about companies we regularly use that without a
constant awareness of inside information issues, a trade could be made which is
inadvertently based in part on items of tainted information.
WHO IS AN INSIDER? The concept of insider includes the officers,
directors and employees of the company whose securities are in question. It also
includes people who enter into a special confidential relationship with the
company and as a result are given access to confidential information about the
company. These can include attorneys, accountants, consultants, lenders and the
employees of such organizations. Advantus will most often be an insider due to
being a lender to a company.
WHAT IS MATERIAL INFORMATION? Information for which there is a
substantial likelihood that reasonable investors would consider it important to
making their investment decisions, or information that is reasonably certain to
have a substantial effect on the price of a company's securities is material
information.
WHAT IS NON-PUBLIC INFORMATION? Information that has not yet been
communicated to the public through, for example, SEC filings, newspaper reports
or wire service reports, is non-public information.
PREVENTION AND DETECTION OF INSIDER TRADING. Advantus has a continuing
obligation to prevent and detect insider trading. An Advantus employee who
obtains information about a company which appears to be
18
<PAGE>
material non-public information should disclose that information to his superior
and the Compliance Officer. If it appears that the information is material
non-public information, two things will be done by the Compliance Officer: (1)
Instruct the appropriate Portfolio Management Assistant to put the company on
the restricted stock or bond list so that employees of Advantus know not to
trade the stock or bond in personal transactions and the identified stocks and
bonds are included in the examination of the Securities Transaction Reports
filed quarterly by employees and (2) Inform all investment division heads,
mortgage, bond and stock, that they should not trade the securities of the
identified company because Advantus possesses inside information with respect to
the company. These restrictions will be removed when the Compliance Officer
determines that the information no longer constitutes material non-public
information.
When deemed appropriate, Advantus management may also review trades made
in personal accounts and on behalf of Advantus or any of its clients for
evidence of trading in violation of these rules.
As with all matters concerning ethical conduct, Advantus rules and
procedures for insider trading are intended to promote the highest ethical
standards. It is not sufficient by itself that a course of action is legal. It
also must be the right thing to do. There are no transactions important enough
to risk the reputation of Advantus or Minnesota Life Insurance Company. All
business should be conducted with this in mind.
19
<PAGE>
APPENDIX C
GIFT AND BUSINESS ENTERTAINMENT
SUPPLEMENT TO THE CODE OF ETHICS
As an employee of Advantus Capital Management, Inc., or Ascend Financial
Services, Inc., or an employee of an affiliated company who has been notified
that he or she is also subject to the Code of Ethics, you are being paid solely
to conduct the business of the company to the best of your ability. Any special
knowledge or personal contacts you develop while working at Advantus should be
used for the benefit of the company and should not be considered supplemental
compensation or used for personal gain.
No single rule or group of rules can anticipate every circumstance a
person might encounter which has ethical implications. You must use your own
judgment as to right and wrong but be guided by the knowledge that you are being
relied upon by Advantus to preserve and promote its reputation as a trustworthy
and honorable institution. If in doubt, you are encouraged to talk with your
superiors, but ultimately you are responsible for your own actions.
Below are guidelines to assist you in exercising your own good judgment
in two areas that commonly produce questions concerning appropriate conduct.
BUSINESS ENTERTAINMENT
Letting someone pay for a business meal or other entertainment generally
is permissible if the primary purpose is related to company business. Avoid
situations in which such meals or entertainment may influence or appear to
influence your independence of judgment. If you could not provide your host with
a similar meal or entertainment and put it on your expense report it is probably
inappropriate to accept.
GIFTS
You may accept gifts (or prizes) of nominal value, that is, gifts (or
prizes) so low in value that the gift is insignificant.
DUTY TO DISCLOSE CONFLICTS
All employees shall disclose to their superiors in a timely manner all
conflicts of interest and other matters which could reasonably be expected to
interfere with their duty to Advantus or impair their ability to render unbiased
and objective advice.
SANCTIONS
Upon discovering a violation of this Code of Ethics, Advantus may impose
such sanctions as it may deem appropriate. A record will be kept of all known
violations and any sanctions imposed.
Any person charged with a violation of the Code of Ethics shall be
informed of the violation and shall have the opportunity to explain his actions
prior to the imposition of any sanction.
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<PAGE>
POWER OF ATTORNEY
TO SIGN REGISTRATION STATEMENT
The undersigned, Directors of Advantus Horizon Fund, Inc., Advantus
Spectrum Fund, Inc., Advantus Mortgage Securities Fund, Inc., Advantus Money
Market Fund, Inc., Advantus Bond Fund, Inc., Advantus Cornerstone Fund, Inc.,
Advantus Enterprise Fund, Inc., Advantus International Balanced Fund, Inc.,
Advantus Venture Fund, Inc., Advantus Index 500 Fund, Inc., Advantus Real
Estate Securities Fund, Inc., MIMLIC Cash Fund, Inc., and Advantus Series
Fund, Inc. (the "Funds"), appoint William N. Westhoff, Eric J. Bentley,
Donald F. Gruber and Michael J. Radmer, and each of them individually, as
attorney-in-fact for the purpose of signing in their names and on their
behalf as Directors of the Funds and filing with the Securities and Exchange
Commission Registration Statements on Form N-1A, or any amendments thereto,
for the purpose of registering shares of Common Stock of the Funds for sale
by the Funds and to register the Funds under the Investment Company Act of
1940.
Dated: October 22, 1998 /s/Charles E. Arner
-----------------------------------
Charles E. Arner
/s/Ellen S. Berscheid
-----------------------------------
Ellen S. Berscheid
/s/Ralph D. Ebbott
-----------------------------------
Ralph D. Ebbott
/s/Frederick P. Feuerherm
-----------------------------------
Frederick P. Feuerherm
/s/William N. Westhoff
-----------------------------------
William N. Westhoff
