<PAGE>
File Numbers 33-80756 and 811-8590
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 X
---
Pre-Effective Amendment Number ___
Post-Effective Amendment Number 6
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 X
---
Amendment Number 7
ADVANTUS INTERNATIONAL BALANCED 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)
___ On (date) pursuant to paragraph (b)
___ 60 days after filing pursuant to paragraph (a)(1)
X on February 1, 1999 pursuant to paragraph (a)(1)
___ 75 days after filing pursuant to paragraph (a)(2)
___ on (date) pursuant to paragraph (a)(2) of Rule 485.
IF APPROPRIATE, CHECK THE FOLLOWING BOX:
___ this post-effective amendment designates a new effective date
for a previously filed post-effective amendment.
<PAGE>
<PAGE>
INTERNATIONAL
BALANCED
As with all mutual funds, the Securities and Exchange Commission
does not guarantee that the information in this prospectus is
accurate or complete, nor has it judged this fund for investment
merit. It is a criminal offense to state otherwise.
ADVANTUS INTERNATIONAL BALANCED FUND, INC.
PROSPECTUS DATED FEBRUARY 1, 1999
[LOGO]
[GRAPHIC]
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ADVANTUS INTERNATIONAL BALANCED FUND, INC.
Advantus International Balanced 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., are referred to as "Advantus
Multiple Class Funds."
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page No.
<S> <C>
THE FUND - SUMMARY ................................................. 3
Investment Policies, Practices and 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 .............................................. 13
Managing the Fund ........................................... 13
Investment Policies and Practices ........................... 13
Defining Risks .............................................. 15
BUYING AND SELLING SHARES .......................................... 17
Choosing a Share Class ...................................... 17
Sales and Distribution Charges .............................. 17
Reducing Sales Charges ...................................... 20
Buying Shares ............................................... 21
Selling Shares .............................................. 23
Exchanging Shares ........................................... 24
Telephone Transactions ...................................... 25
GENERAL INFORMATION ................................................ 26
Dividends and Capital Gains Distributions ................... 26
Taxes ....................................................... 26
Service Providers ........................................... 28
Advantus Family of Funds .................................... 29
Additional Information About the Fund ....................... 30
How to Obtain Additional Information ........................ 30
</TABLE>
<PAGE>
[GRAPHIC]
THE FUND - SUMMARY
Advantus International Balanced Fund, Inc. (International 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 POLICIES, PRACTICES AND MAIN RISKS
International Fund seeks a high level of total return.
The Fund invests in equity and debt securities issued by large and small
international companies and governmental agencies. Normally, the Fund invests
approximately 50% to 70% of its assets in international equity securities. In
addition, the Fund invests approximately 30% to 50% of its assets in
international investment-grade debt securities.
Keep in mind that an investment in the Fund is not a deposit of a bank and is
not insured or guaranteed by the Federal Deposit Insurance Corporation or any
other governmental agency. 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
- INTEREST RATE RISK - the risk that the value of a debt security or fixed
income obligation will decline due to changes in market interest rates
(note: one measure of interest rate risk is effective duration, explained
under "Investing in the Fund -- Investment Policies and Practices")
- CREDIT RISK - the risk that an issuer of a debt security or fixed income
obligation will not make payments on the security when due
- FOREIGN SECURITIES RISK - the risk that the value of foreign companies or
foreign government securities may be subject to greater volatility than
domestic securities due to additional factors related to investing in
foreign securities
- CURRENCY RISK - the risk that changes in foreign currency exchange rates
will increase or decrease the value of foreign securities or the amount of
income or gain received on such securities
- --------------------
FOR YOUR INFORMATION
- --------------------
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.
- ---------------
REFERENCE POINT
- ---------------
Please see "Investing in the Fund - Defining Risks" for a more detailed
description of these main risks and additional risks in connection with
investing in the Fund.
THE FUND - SUMMARY 3
<PAGE>
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FOR YOUR INFORMATION
- --------------------
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.
FUND PERFORMANCE
The following table and bar chart 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.
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURN
(FOR THE PERIODS ENDING DECEMBER 31, 1997) From
1 Year 5 Years 10 Years inception
<S> <C> <C> <C> <C>
- --------------------------------------------------------------------
Class A
(inception 9/16/94) % -0.13 -- -- 7.24
Class B
(inception 1/31/97) -- -- -- -1.62
Class C
(inception 3/1/95) 4.15 -- -- 11.48
MSCI EAFE Index 2.03 11.70 6.56 --
J.P. Morgan Non-U.S.
Government Bond Index (3.77 ) 8.07 7.13 --
</TABLE>
4 THE FUND - SUMMARY
<PAGE>
CLASS A YEAR TO YEAR TOTAL RETURN(1) (AS OF DECEMBER 31)(2)
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<S> <C>
'95 12.63%
'96 17.41%
'97 5.12%
</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.
(2) The Fund's Class A total return for the nine month period ending September
30, 1998 was -5.72%.
<TABLE>
<S> <C> <C>
Best
Quarter: (Q1'98) 9.73%
Worst
Quarter: (Q3'98) -12.37%
</TABLE>
THE FUND - SUMMARY 5
<PAGE>
FEES AND EXPENSES
Investors pay certain 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. You should note that since the Fund may make frequent
changes in its portfolio securities, such changes may result in higher Fund
costs.
- ---------------
REFERENCE POINT
- ---------------
For more information on Fund portfolio turnover, see "General Information -
Taxes."
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
<S> <C> <C> <C>
SHAREHOLDER FEES
- -----------------------------------------------------------------------
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) % none 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
(as a percentage of average net assets)
- -----------------------------------------------------------------------
Management Fees % 0.86 0.86 0.86
Rule 12b-1 Fees % 0.25 1.00 1.00
Other Expenses % 0.71 0.71 0.71
TOTAL FUND OPERATING EXPENSES* % 1.82 2.57 2.57
</TABLE>
* Advantus Capital Management, Inc. (Advantus Capital), the Fund's investment
adviser, and Ascend Financial Services, Inc. (Ascend Financial), the Fund's
underwriter, voluntarily waived or absorbed certain expenses of the Fund
for the year ended September 30, 1998. After these waivers, the ratios of
total fund expenses to average daily net assets was 1.58% for Class A
shares, 2.77% for Class B shares and 2.80% for Class C shares. Advantus
Capital and Ascend Financial reserve the right to discontinue such waivers
at any time in their sole discretion.
6 THE FUND - SUMMARY
<PAGE>
SHAREHOLDER EXPENSE 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>
Class A $ 725 1,091 1,481 2,570
Class B 760 1,149 1,515 2,636
Class C 260 799 1,365 2,722
</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>
Class A $ 725 1,091 1,481 2,570
Class B 260 799 1,365 2,636
Class C 260 799 1,365 2,722
</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 Peat
Marwick LLP, the Fund's independent auditor, whose report, along with the Fund's
financial statements, are included in the annual report, which is available upon
request.
Per share data for a capital stock and selected information for each period are
as follows:
<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS CLASS A
Period From
September 16,
Year Ended September 30, '94(b) to
September 30,
'98 '97 '96 '95(a) '94
<S> <C> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------
Net Asset Value,
Beginning of Period $ 13.29 11.42 10.79 10.34 10.54
INCOME FROM INVESTMENT OPERATIONS:
- -----------------------------------------------------------------------------------
Net Investment Income .25 .30 .25 .20 .01
Net Gains or Losses on
Securities
(both realized and
unrealized) (1.92) 2.25 .87 .56 (.21)
Total from Investment
Operations (1.67) 2.55 1.12 .76 (.20)
LESS DISTRIBUTIONS:
- -----------------------------------------------------------------------------------
Dividends from Net
Investment Income (.14) (.40) (.28) (.19) --
Distributions from
Capital Gains (.92) (.28) (.21) (.12) --
Total Distributions (1.06) (.68) (.49) (.31) --
Net Asset Value, End of
Period $ 10.56 13.29 11.42 10.79 10.34
Total Return (c) % (13.02) 23.09 10.73 7.41 (1.90)
Net Assets, End of Period
(in thousands) $ 46,025 54,090 40,381 30,949 15,430
Ratio of Expense to
Average
Daily Net Assets (d) % 1.58 1.51 1.85 2.08 .47(e)
Ratio of Net Investment
Income to
Average Daily Net Assets
(d) % 2.18 2.54 2.39 2.22 .14(e)
Portfolio Turnover Rate
(excluding short-term
securities) % 57.0 73.4 56.1 52.0 12.1
</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) Commencement of operations.
8 FINANCIAL HIGHLIGHTS
<PAGE>
(c) Total return figures are based on a share outstanding throughout the period
and assumes 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.
(d) The Fund's Distributor and Adviser voluntarily waived or absorbed $162,744,
$114,735, $53,123, $56,482 and $4,034 in expenses for the years ended
September 30, 1998, 1997, 1996 and 1995 and the period ended September 30,
1994, respectively. If Class A shares had been charged for these expenses,
the ratio of expenses to average daily net assets would have been 1.87%,
1.75%, 2.00%, 2.30% and .49%, respectively, and the ratio of net investment
income to average daily net assets would have been 1.89%, 2.30%, 2.24%,
2.00% and .12%, respectively.
(e) Ratios presented for the periods from September 16, 1994 to September 30,
1994 are not annualized as they are not indicative of anticipated results.
FINANCIAL HIGHLIGHTS 9
<PAGE>
<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS CLASS B
Period from
January 31,
Year ended '97(a) to
September 30, September 30,
'98 '97
<S> <C> <C>
- ---------------------------------------------------------------------------
Net Asset Value, Beginning of
Period $ 13.23 11.95
INCOME FROM INVESTMENT OPERATIONS
- ---------------------------------------------------------------------------
Net Investment Income .39 .16
Net Gains or Losses on Securities
(both realized and unrealized) (2.13) 1.30
Total from Investment Operations (1.74) 1.46
LESS DISTRIBUTIONS
- ---------------------------------------------------------------------------
Dividends from Net Investment
Income (.10) (.18)
Distributions from Capital Gains (.92) --
Total Distributions (1.02) (.18)
Net Asset Value, End of Period $ 10.47 13.23
Total Return (b) % (13.63) 12.30
Net Assets, End of Period
(in thousands) $ 4,869 2,287
Ratio of Expense to Average
Daily Net Assets (c) % 2.77 2.33(d)
Ratio of Net Investment Income to
Average Daily Net Assets (c) % 3.12 2.64(d)
Portfolio Turnover Rate
(excluding short-term securities) % 57.0 73.4
</TABLE>
(a) Commencement of operations.
(b) Total return figures are based on a share outstanding throughout the period
and assumes 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 $162,744,
and $114,735, in expenses for the years ended September 30, 1998, and 1997.
If Class B shares had been charged for these expenses, the ratios of
expenses to average daily net assets would have been 2.92% and 2.47%,
respectively, and the ratios of net investment income to average daily net
assets would have been 2.97% and 2.50%, respectively.
(d) Adjusted to an annual basis.
10 FINANCIAL HIGHLIGHTS
<PAGE>
<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS CLASS C
Period from
March 1,
Year ended '95(a) to
September 30, September 30,
'98 '97 '96 '95
<S> <C> <C> <C> <C>
- --------------------------------------------------------------------------------------
Net Asset Value,
Beginning of Period $ 13.24 11.40 10.77 9.95
INCOME FROM INVESTMENT OPERATIONS
- --------------------------------------------------------------------------------------
Net Investment Income .39 .26 .15 .11
Net Gains or Losses on
Securities
(both realized and
unrealized) (2.13) 2.16 .89 .91
Total from Investment
Operations (1.74) 2.42 1.04 1.02
LESS DISTRIBUTIONS
- --------------------------------------------------------------------------------------
Dividends from Net
Investment Income (.10) (.30) (.20) (.13)
Distributions from
Capital Gains (.92) (.28) (.21) (.07)
Total Distributions (1.02) (.58) (.41) (.20)
Net Asset Value, End of
Period $ 10.48 13.24 11.40 10.77
Total Return (b) % (13.67) 21.95 9.93 10.26
Net Assets, End of Period
(in thousands) $ 3,074 4,025 1,811 330
Ratio of Expense to
Average
Daily Net Assets (c) % 2.80 2.37 2.61 2.93(d)
Ratio of Net Investment
Income to
Average Daily Net Assets
(c) % 3.15 2.50 1.15 1.39(d)
Portfolio Turnover Rate
(excluding short-term
securities) % 57.0 73.4 56.1 52.0
</TABLE>
(a) Commencement of operations.
(b) Total return figures are based on a share outstanding throughout the period
and assumes 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 $162,744,
$114,735, and $56,482 in expenses for the years ended September 30, 1998,
1997, and the period ended September 30, 1995, respectively. If Class C
shares had been charged for these expenses, the ratio of expenses to
average daily net assets would have been 2.96%, 2.45%, and 3.00%,
respectively, and the ratio of net investment income to average daily net
assets would have been 2.99%, 2.41% and 1.32% shares, respectively.
(d) Adjusted to an annual basis.
FINANCIAL HIGHLIGHTS 11
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This page is purposely left blank
12 FINANCIAL HIGHLIGHTS
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[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 $13.7 billion of assets
under management, Advantus Capital manages the Fund's investments and furnishes
all necessary office facilities, equipment and personnel for servicing the
Fund's investments. Advantus Capital is a wholly-owned subsidiary of Minnesota
Life Insurance Company (Minnesota Life), which was organized in 1880 and has
assets on a consolidated basis of more than $15.7 billion. Minnesota Life is a
third-tier subsidiary of a mutual insurance holding company called Minnesota
Mutual Companies, Inc. Personnel of Advantus Capital also manage Minnesota
Life's investment portfolio. In addition, Minnesota Life, through its Advantus
Shareholder Services division, serves as shareholder and administrative services
agent to the Fund.
The investment sub-adviser of the Fund is Templeton Investment Counsel, Inc.
(Templeton Counsel), 500 East Broward Boulevard, Fort Lauderdale, Florida 33394.
Templeton Counsel provides investment advice, and generally conducts the
investment management program for the Fund.
The Fund pays Advantus Capital monthly fees calculated on an annual basis equal
to 0.95% of its first $25 million of average daily net assets, 0.80% of the next
$25 million of assets, 0.75% of the next $50 million of assets and 0.65% of all
assets in excess of $100 million. Advantus Capital uses a poriton of these fees
to pay Templeton Counsel a sub-adviser's fee.
Gary R. Clemons and Neil S. Devlin, Portfolio Managers at Templeton Counsel, are
co-managers of the Fund. Mr. Clemons, a Senior Vice President at Templeton
Counsel, has co-managed the Fund since June 1997. Mr. Clemons joined Templeton
Counsel as a portfolio manager in 1993. Mr. Devlin, the Chief Investment Officer
and Executive Vice President of the Templeton Global Bond Management division of
Templeton Counsel, has co-managed the Fund since March 1995. Mr. Devlin joined
Templeton Counsel as a portfolio manager in 1987.
- --------------------
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 on your behalf.
Gary R. Clemons holds a bachelor of science degree from the University of Nevada
and an MBA with emphasis in finance from the University of Wisconsin.
Neil S. Devlin received a bachelor of administration degree from Brandeis
University. He is a Chartered Financial Analyst and also earned the United
Kingdom's Investment Management Certificate on regulation and markets.
INVESTMENT POLICIES AND PRACTICES
The Fund seeks a high level of total return.
The Fund may invest in equity and debt securities issued by large and small
international companies and governmental agencies. Normally, the Fund invests
approximately 50% to 70% of its assets in international equity securities. In
addition, the Fund invests approximately 30% to 50% of its assets in
international investment-grade debt securities. The
INVESTING IN THE FUND 13
<PAGE>
- --------------------
FOR YOUR INFORMATION
- --------------------
The market prices of bonds are generally less volatile than stocks, although the
market price of bonds may be adversely affected during periods of rising
interest rates. The value of fixed income securities generally rise and fall
inversely with changes in prevailing interest rates. Duration is the most
meaningful indicator of a fixed income security's sensitivity to interest rate
changes.
Fund invests primarily in securities of companies or governments in developed
foreign markets. However, the Fund may also invest up to 20% of its total assets
in equity securities of companies located in developing or emerging markets. In
addition, the Fund may invest up to 10% of its total assets in debt securities
of companies or governments located in developing or emerging markets. Under
normal circumstances, the Fund will maintain investments in at least three
foreign countries.
The Fund invests in equity securities. Equity securities generally entitle the
holder to participate in a company's general operating results. These include
common stock, preferred stock, warrants or rights to purchase such securities.
In addition, the Fund invests in investment-grade debt securities. Debt
securities represent an obligation of the issuer to repay a loan of money to it,
and generally, provide for the payment of interest. These include bonds, notes
and debentures; commercial paper; time deposits; bankers' acceptances; and
structured investments which are more fully described in the Statement of
Additional Information.
As a rule of thumb, a portfolio of debt securities experiences a decrease in
principal value with an increase in interest rates. The extent of the decrease
in principal value may be affected by the Fund's duration of its portfolio of
debt securities. Duration measures the relative price sensitivity of a security
to changes in interest rates. Typically, a security with a longer duration is
more price sensitive than a security with a shorter duration. In general, a
portfolio of debt securities experiences a percentage decrease in principal
value equal to its duration for each 1% increase in interest rates. For example,
if the Fund holds securities with an effective duration of five years and
interest rates rise 1%, the principal value of such securities could be expected
to decrease by approximately 5%. The Fund expects that under normal
circumstances the effective duration of its debt securities portfolio will range
from three to six years.
The Fund may also invest a lesser portion of its assets in closed-end investment
companies, restricted and illiquid securities, U.S. government and domestic
investment-grade debt securities, American Depositary Receipts, European
Depositary Receipts, securities and index futures contracts, forward foreign
currency exchange contracts, exchange-traded foreign currency futures contracts,
securities of other mutual funds (including those advised by Advantus Capital
and Templeton Counsel), warrants, secured portfolio loan transactions,
repurchase agreement transactions, securities purchased on a when-issued or
forward commitment basis and money market securities.
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 will find more information about these securities in the Statement of
Additional Information.
14 INVESTING IN THE FUND
<PAGE>
- --------------------
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
Templeton Counsel'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.
- MARKET RISK - is the risk that equity and debt securities are subject to
adverse trends in equity and debt markets. 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, industry, sector of the economy or 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.
- INTEREST RATE RISK - is the risk that the value of a debt security or
fixed income obligation will decline due to changes in market interest
rates. Generally, when interest rates rise, the value of a debt security
or fixed income obligation decreases. Conversely, when interest rates
decline, the value of a debt security or fixed income obligation
increases.
- CREDIT RISK - is the risk that an issuer of a debt security or fixed
income obligation will not make payments on the security when due. There
is also the risk that an issuer could suffer adverse changes in financial
condition that could lower the credit quality of a security. This could
lead to greater volatility in the price of the security and in the shares
of the Fund. Also, a change in the quality rating of a debt security or
fixed income obligation can affect the security's or obligation's
liquidity and make it more difficult to sell.
- CALL RISK - is the risk that securities with high interest rates will be
prepaid by the issuer prior to maturity, particularly during periods of
falling interest rates. In general, an issuer will call its debt
securities if they can be refinanced by issuing new securities with a
lower interest rate. As a result, the Fund would have to reinvest the
proceeds in other securities with generally lower interest rates,
resulting in a decline in the Fund's income.
- FOREIGN SECURITIES RISK - is the risk the value of foreign companies or
foreign government securities held by the Fund may be subject to greater
volatility than domestic securities. Risks of foreign securities include,
among other things, potential political and economic instability, limited
liquidity and volatile prices of non-U.S. securities, limited availability
of information regarding non-U.S. companies, investment and repatriation
restrictions and foreign taxation.
- EMERGING MARKETS RISK - is the risk that the value of securities issued by
companies located in emerging market countries may be subject to greater
volatility than foreign
INVESTING IN THE FUND 15
<PAGE>
securities issued by companies in developed markets. Risks of investing in
foreign securities issued by companies in emerging market countries
include, among other things, greater social, political and economic
instability, lack of liquidity and greater price volatility due to small
market size and low trading volume, certain national policies that
restrict investment opportunities and the lack of a developed judicial
system.
- CURRENCY RISK - is the risk that changes in foreign currency exchange
rates will increase or decrease the value of foreign securities or the
amount of income or gain received on such securities. Attempts by the Fund
to minimize the effects of currency fluctuations through the use of
foreign currency hedging transactions may not be successful or the Fund's
hedging transactions may cause the Fund to be unable to take advantage of
a favorable change in the value of foreign currencies.
- EURO CONVERSION RISK - is the risk that the value of foreign securities of
companies located in European Monetary Union (EMU) countries may decrease
due to market volatility resulting from the conversion of certain EMU
country currencies to the Euro. It is not possible to predict the impact
of the Euro on the business or financial condition of European issues or
on the 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.
- 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 and Templeton Counsel have each undertaken a Year 2000
program that they believe will assess, monitor and address this issue. In
evaluating current and potential portfolio positions, Year 2000 readiness
is one of the factors that Templeton Counsel takes into consideration.
Templeton Counsel 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, Templeton
Counsel 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.
16 INVESTING IN THE FUND
<PAGE>
[GRAPHIC]
BUYING AND SELLING SHARES
- ---------------
REFERENCE POINT
- ---------------
All Advantus Funds, except the Advantus Money Market 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 17
<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>
- ----------------------------------------------------------------------------
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.
As you see, the sales charge depends on the total value of your investment in
the Fund and not the amount of any single investment you make in the Fund. For
example, if you already own shares with a net asset value of $40,000 and you
decide to invest in additional Class A 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:
18 BUYING AND SELLING SHARES
<PAGE>
<TABLE>
<CAPTION>
CDSC APPLICABLE IN
YEAR FOLLOWING DATE OF
AMOUNT OF SHARES PURCHASE
PURCHASED 1 2 3 4 5 6
<S> <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 19
<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.
20 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 at a lower average cost per share through
the principle of "dollar cost averaging."
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, Templeton Counsel, 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 21
<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.
NAV for one Fund share is the value of that share's portion of the Fund's total
investments. 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. The Fund may
hold portfolio securities that are listed on foreign stock exchanges. These
foreign securities may trade on weekends or other days when the Fund typically
does not calculate NAV. As a result, the NAV of the Fund may change on days when
you will not be able to purchase or sell Fund shares.
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, First Data Investors Services Group, Inc.
(First Data), a completed account application and a check payable
to the Fund (please be sure to write your account number on your
check) 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.
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.
22 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. 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 without a signature guarantee, 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 your account falls below $150 because you
previously have sold shares, you may be required to sell your remaining shares.
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
- shares are to be transferred to another Fund account holder
- ---------------
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 23
<PAGE>
- 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 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 or of the Advantus Money Market Fund, Inc.
(Money Market Fund) provided the other Advantus Fund is available in your state.
If you are considering an exchange into another Advantus Fund you should obtain
the prospectus for that fund and read it carefully. Exchanges may only be made
between Advantus Fund accounts with identical registrations. You may make
exchanges by contacting the Fund by mail or by telephone. 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 charges on exchanges after giving 60 days' prior
notice to shareholders.
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.
- ---------------
REFERENCE POINT
- ---------------
Please see "Telephone Transactions" for instructions on how to exchange shares
by telephone.
24 BUYING AND SELLING SHARES
<PAGE>
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 25
<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.
26 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 Templeton Counsel deems advisable.
The Fund's portfolio turnover may cause the Fund to realize substantial 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 27
<PAGE>
SERVICE PROVIDERS
INVESTMENT ADVISER
Advantus Capital Management, Inc.
400 Robert Street North
St. Paul, Minnesota 55101
(651) 665-3826
INVESTMENT SUB-ADVISER
Templeton Investment Counsel, Inc.
500 East Broward Boulevard
Fort Lauderdale, Florida 33394
(305) 527-7500
UNDERWRITER
Ascend Financial Services, Inc.
P.O. Box 64809
St. Paul, Minnesota 55101-0809
(651) 665-4833
(888) 237-1838
SHAREHOLDER AND ADMINISTRATIVE SERVICES AGENT
Advantus Shareholder Services
(a division of Minnesota Life Insurance Company)
(800) 665-6005
TRANSFER AGENT
First Data Investor Services Group, Inc.
Advantus Funds Group
P.O. Box 9767
Providence, Rhode Island 02940-5059
CUSTODIAN
Norwest Bank Minnesota, N.A.
Sixth Street and Marquette Avenue
Minneapolis, Minnesota 55479
INDEPENDENT AUDITORS
KPMG Peat Marwick LLP
GENERAL COUNSEL
Dorsey & Whitney LLP
28 SERVICE PROVIDERS
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ADVANTUS FAMILY OF FUNDS
International Fund is a member of the Advantus family of funds. The following is
a brief description of the investment policies and practices of the Advantus
Funds.
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
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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
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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
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Total return through investing primarily in stocks and bonds of large and small
companies located outside the U.S.
SPECTRUM
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Total return from a combination of income and capital appreciation through
investing in a portfolio of stocks, bonds and money market instruments.
BOND
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High level of current income by investing primarily in high quality corporate
bonds.
MORTGAGE SECURITIES
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High level of current income by investing primarily in mortgage-related
securities.
MONEY MARKET
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High level of current income by investing primarily in money market securities.
*"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.
[GRAPHIC]
29
<PAGE>
ADDITIONAL INFORMATION ABOUT THE FUND
The Fund's annual and semi-annual reports list portfolio holdings, and discuss
recent market conditions, economic trends and investment strategies that
affected the Fund during the latest fiscal year.
A Statement of Additional Information (SAI) provides further information about
the Fund. The current SAI is on file with the Securities and Exchange Commission
and is incorporated by reference (is legally part of this Prospectus).
HOW TO OBTAIN ADDITIONAL INFORMATION
The SAI and the Fund's annual and semi-annual reports are available without
charge upon request. You may obtain additional information or make any
inquiries:
By Telephone - Call (800) 665-6005
By Mail - Write to Advantus Funds Group, P.O. Box 9767, Providence, Rhode Island
02940-5059
Information about the Fund (including the SAI and annual and semi-annual
reports) can be reviewed and copied at the SEC's Public Reference Room in
Washington, D.C. (telephone 1-800-SEC-0330). This information and other reports
about the Fund are also available on the SEC's World Wide Web site at
http://www.sec.gov. Copies of this information may be obtained by writing to the
SEC's Public Reference Section, Washington, D.C. 20549-6009. You will be charged
a duplicating fee for copies.
Investment Company Act No. 811-8590
[LOGO]
-C-1998 Minnesota Life Insurance Company. All rights reserved.
F. 47469 Rev. 2-1998
<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, 1999
THIS STATEMENT OF ADDITIONAL INFORMATION IS NOT A PROSPECTUS. THIS STATEMENT OF
ADDITIONAL INFORMATION RELATES TO THE SEPARATE PROSPECTUSES DATED FEBRUARY 1,
1999 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
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 Benefits5
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 Payments0
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, offers more than one class of shares (the "Advantus
Multiple Class Funds"). The Advantus Multiple Class Funds currently offer three
classes of shares (Class A, Class B and Class C). Each class is sold pursuant
to different sales arrangements and bears different expenses. The Funds are
incorporated as Minnesota corporations. Horizon Fund, Spectrum Fund, Mortgage
Securities Fund and Money Market Fund were incorporated in October 1984. Bond
Fund was incorporated in January 1987, and Cornerstone Fund, Enterprise Fund and
International Fund were incorporated in January 1994.
INVESTMENT OBJECTIVES AND POLICIES
The investment 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 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.
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.
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. 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,
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 call option, it gives the purchaser of the option the
right to buy the underlying security at the price specified in the option
(the "exercise price") at any time during the option period. If the option
expires unexercised, the Fund realizes income, typically in the form of
short-term capital gain, to the extent of the amount received for the option
(the "premium"). If the option is exercised, a decision over which the Fund
has no control, the Fund must sell the underlying security to the option
holder at the exercise price. By writing a covered option, the Fund
foregoes, in exchange for the premium less the commission ("net premium"),
the opportunity to profit during the option period from an increase in the
market value of the underlying security above the exercise price. The Fund
does not write call options in an aggregate amount greater than 15% of its
net assets.
The Fund purchases call options only to close out a position, 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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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 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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(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 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 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 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 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 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 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, 1998 and 1997, the Fund's portfolio turnover rates were 72.6% and 71.5%,
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, 1998 and 1997, the
Fund's portfolio turnover rates were 139.8% and 141.4%, 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, 1998 and 1997, the Fund's portfolio turnover rates were 152.5% and
85.1%, 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, 1998 and
1997 the Fund's portfolio turnover rates were 237.2% and 180.5%, 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, 1998 and 1997 Cornerstone Fund's portfolio
turnover rate was 114.4% and 87.7%, respectively. For the fiscal years ended
September 30, 1998 and 1997 Enterprise Fund's portfolio turnover rate was 71.1%
and 65.8%, 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, 1998 and
1997, International Fund's portfolio turnover rate was 57.0% and 73.4%,
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; Senior Vice President, Fixed Income
Management, American Express Financial
Corporation, Minneapolis, Minnesota,
from November 1989 to July 1994
Frederick P. Feuerherm* Vice President, Vice President, Assistant Secretary
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 $3,170.51 n/a n/a $16,000
Ellen S. Berscheid $3,170.51 n/a n/a $16,000
Ralph D. Ebbott $3,170.51 n/a n/a $16,000
</TABLE>
(1) During the fiscal year ended September 30, 1998, each Director not
affiliated with Advantus Capital received $359.96 from Horizon Fund, $450.18
from Spectrum Fund, $282.77 from Mortgage Securities Fund, $346.41 from Money
Market Fund, $228.09 from Bond Fund, $325.06 from Enterprise Fund, $651.03 from
Cornerstone Fund and $346.50 from International Fund.
As of September 30, 1998, 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, Mortgage
Securities Fund, Money Market Fund, Enterprise Fund and Cornerstone Fund and
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. The same
portfolio managers and other personnel who previously provided investment
advisory services to the Funds through MIMLIC Management continue to provide the
same services through Advantus Capital. Ascend Financial Services, Inc.
("Ascend Financial") acts as the Funds' underwriter. Both Advantus Capital and
Ascend Financial act as such pursuant to written agreements that will be
periodically considered for approval by the directors or shareholders of the
Fund. The address of both Advantus Capital and Ascend Financial is 400 Robert
Street North, St. Paul, Minnesota 55101.
CONTROL AND MANAGEMENT OF ADVANTUS CAPITAL AND ASCEND FINANCIAL
Advantus Capital was incorporated in Minnesota in June, 1994, and is a
wholly-owned subsidiary of 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 $15.7 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 14,
1998. 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,
1998, 1997 and 1996 (before Advantus Capital's absorption of certain expenses,
described below) were as follows:
<TABLE>
<CAPTION>
Fund 1998 1997 1996
---- ---------- -------- --------
<S> <C> <C> <C>
Horizon Fund $ 503,499 $369,628 $319,371
Spectrum Fund 517,339 434,731 370,684
Mortgage Securities Fund 239,294 171,007 154,423
Money Market Fund 288,221 249,110 198,141
Bond Fund 187,219 154,304 130,555
Cornerstone Fund 1,091,329 726,045 330,954
Enterprise Fund 397,522 350,613 302,906
International Fund 515,264 436,431 327,858
</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. Effective October 26, 1998, the Funds' transfer
agent is First Data Investor Services Group, Inc. 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 fiscal year ended September
30, 1998, Money Market Fund paid Minnesota Life $149,913 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, through its Advantus Shareholder Services division, 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 $3,700 for Horizon Fund, Spectrum
Fund, Mortgage Securities Fund, Bond Fund, Enterprise Fund and Cornerstone Fund
and $3,100 for Money Market Fund and International Fund. Minnesota Life
currently provides shareholder servicing to Money Market Fund at a cost of $5
per shareholder account per year. During the fiscal year ended September 30,
1998, each of the Funds paid Minnesota Life the following amounts for such
services:
-49-
<PAGE>
<TABLE>
<CAPTION>
Fund Amount
---- ------
<S> <C>
Horizon Fund $44,000
Spectrum Fund 44,000
Mortgage Securities Fund 44,000
Money Market Fund 36,800
Bond Fund 44,000
Cornerstone Fund 44,000
Enterprise Fund 44,000
International Fund 36,800
</TABLE>
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, 1998, 1997 and 1996 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 1998 1997 1996
---- ---- ---- ----
<S> <C> <C> <C>
Horizon Fund $ 0 $ 0 $ 0
Spectrum Fund 0 0 0
Mortgage Securities Fund 119,413 110,000 20,025
Money Market Fund 150,711 139,462 142,522
Bond Fund 101,242 96,058 88,798
Cornerstone Fund 0 0 0
Enterprise Fund 0 0 0
International Fund 92,869 46,576 0
</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 14, 1998. The Templeton Agreement will terminate
automatically upon the termination of the Advisory Agreement and in the event of
its assignment. In addition, the Templeton Agreement is terminable at any time,
without penalty, by the Board of Directors of the Fund, by Advantus Capital or
by a vote of the majority of the International Fund's outstanding voting
securities on 60 days' written notice to Templeton Counsel and by Templeton
Counsel on 60 days' written notice to Advantus Capital. Unless sooner
terminated, the Templeton Agreement shall continue in effect from year to year
if approved at least annually by the Board of Directors of the Fund or by a vote
of a majority of the outstanding voting securities of the International Fund,
provided that in either event such continuance is also approved by the vote of a
majority of the directors who are not interested persons of any party to the
Templeton Agreement, cast in person at a meeting called for the purpose of
voting on such approval.
DISTRIBUTION AGREEMENT
Ascend Financial acts as the underwriter of the Funds' shares. The Board
of Directors of each Fund, on October 22, 1998, including a majority of the
directors who are not parties to the contract, or interested persons of any such
party, last approved the respective Fund's Distribution Agreement with Ascend
Financial (the "Distribution Agreements"), each dated October 22, 1998. During
the fiscal years ended September 30, 1998, 1997 and 1996, 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 1998 1997 1996
---- ---- ---- ----
<S> <C> <C> <C>
Horizon Fund $321,515 $269,005 $247,322
Spectrum Fund 418,271 323,690 354,051
Mortgage Securities Fund 268,951 190,368 101,891
Bond Fund 166,299 132,436 137,919
Cornerstone Fund 488,199 671,121 271,957
Enterprise Fund 113,663 152,474 163,228
International Fund 225,967 325,230 158,726
</TABLE>
During the same periods Ascend Financial retained from these commissions the
following amounts:
-51-
<PAGE>
<TABLE>
<CAPTION>
Fund 1998 1997 1996
---- ---- ---- ----
<S> <C> <C> <C>
Horizon Fund $30,329 $26,045 $40,283
Spectrum Fund 44,702 65,605 27,761
Mortgage Securities Fund 12,159 10,151 13,435
Bond Fund 10,115 6,770 13,413
Cornerstone Fund 34,703 42,739 21,374
Enterprise Fund 10,899 12,279 15,980
International Fund 19,461 10,075 24,740
</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. 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
14, 1998, the directors of the Funds so concluded.
During the fiscal year ended September 30, 1998, 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 $ 130,887 (6,809) $148,623 $21,764
Spectrum Fund $ 236,909 (n/a) 155,257 30,090
Mortgage Securities Fund 76,465 (15,291) 80,316 29,996
Bond Fund 36,801 (17,850) 72,435 12,852
Cornerstone Fund 220,509 (107,096) 235,935 36,210
Enterprise Fund 54,998 (68,536) 74,574 10,550
International Fund 96,228 (69,875) 41,398 38,490
</TABLE>
-54-
<PAGE>
Money Market Fund made no payments under its Plan of Distribution during
the fiscal year ended September 30, 1998. Ascend Financial waived distribution
fees from Money Market Fund in the amount of $172,928 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.
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 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, 1998,
1997 and 1996, brokerage commissions paid were:
<TABLE>
<CAPTION>
Fund 1998 1997 1996
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Horizon Fund $88,188 $61,259 $71,278
Spectrum Fund 98,839 56,107 69,801
Mortgage Securities Fund 0 0 0
Money Market Fund 0 0 0
Bond Fund 0 0 0
Cornerstone Fund 388,917 263,314 165,563
Enterprise Fund 54,692 37,239 39,583
International Fund 59,313 82,535 34,467
</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, 1998, 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 $ 1,976,274 $ 79,896
Spectrum Fund 134,478,049 83,790
Cornerstone Fund 10,822,024 370,317
Enterprise Fund 2,433,509 46,313
International Balanced Fund 63,544,256 59,313
</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, 1998, 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. $469,068
Morgan Stanley Dean Witter 786,781
Mortgage Securities Fund Bear Stearns Mortgage Securities, Inc. 2,142,561
GE Capital Mortgage Securities 2,354,775
Lehman Brothers Grantor Trust 1,048,560
Paine Webber Mortgage Acceptance
Corporation 2,400,804
Prudential Home Mortgage Securities 4,445,659
Money Market Fund General Motors Acceptance Corporation 2,133,848
Norwest Financial 2,940,614
GE Capital Corporation 1,276,009
American General Finance Corporation 2,853,353
Associates Corporation of America 2,156,580
Ciesco LP 672,812
Bond Fund Morgan Stanley Dean Witter 944,137
Cornerstone Fund Everest Reinsurance Holdings 4,451,381
Morgan Stanley Dean Witter 667,469
Enterprise Fund N/A
International Balanced Fund Deutsche Bank 927,429
Hong Kong Shanghai Banking Corporation 476,492
</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, 1998, Money Market Fund's
annualized current yield was 4.61% and its annualized effective yield was 4.71%.
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 3.95% and
4.02% 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, 1998 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 -.26 (-.26) -.95 (-.95) -.95 (-.95)
Spectrum Fund 1.69 (1.69) 1.14 (1.14) 1.13 (1.13)
Mortgage Securities Fund 5.25 (5.02) 4.77 (4.52) 4.74 (4.50)
Bond Fund 4.39 (4.07) 3.84 (3.51) 3.84 (3.51)
Cornerstone Fund .91 (.91) .21 (.21) .22 (.22)
Enterprise Fund -.94 (-.94) -1.81 (-1.81) -1.82 (-1.82)
International Fund 8.04 (8.04) 7.69 (7.69) 7.50 (7.50)
</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, 1998, were
as set forth in the table below. The Funds' investment adviser and distributor
were voluntarily absorbing and waiving certain expenses of certain of the Funds
during these periods. If such Funds had been charged for these expenses the
average annual total returns for the same periods would have been lower, as also
shown in the table below in parentheses.
<TABLE>
<CAPTION>
1 Year
----------------------------------------------------
Fund Class A Class B Class C
------- ------- -------
<S> <C> <C> <C>
Horizon Fund(1) 10.6% (10.6%) 10.5% (10.5%) 16.3% (16.3%)
Spectrum Fund (2) 5.8 (5.8) 5.6 (5.6) 10.6 (10.6)
Mortgage Securities Fund (1) 3.3 (2.9) 2.9 (2.6) 7.9 (7.6)
Bond Fund (3) 3.3 (2.8) 3.0 (2.7) 7.9 (7.5)
Cornerstone Fund (4) -20.6 (-20.7) -21.4 (-21.4) -17.3 (-17.3)
Enterprise Fund (4) -32.4 (-32.4) -33.0 (-33.0) -29.4 (-29.4)
International Balanced Fund (5) -17.4 (-17.6) -17.9 (-18.0) -13.7 (-13.8)
<CAPTION>
5 Year
---------------------------------------------------
Fund Class A Class B Class C
------- ------- -------
<S> <C> <C> <C>
Horizon Fund(1) 15.6% (15.6%) n/a (n/a) n/a (n/a)
Spectrum Fund (2) 10.3 (10.3) n/a (n/a) n/a (n/a)
Mortgage Securities Fund (1) 5.5 (4.9) n/a (n/a) n/a (n/a)
Bond Fund (3) 5.1 (4.4) 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 Balanced Fund (5) n/a (n/a) 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) 14.6% (14.5%) n/a (n/a) n/a (n/a)
Spectrum Fund (2) 11.3 (11.0) n/a (n/a) n/a (n/a)
Mortgage Securities Fund (1) 8.0 (7.9) n/a (n/a) n/a (n/a)
Bond Fund (3) 8.0 (7.1) 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 Balanced 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) 12.5% (12.3%) 19.4% (19.4%) 21.0% (21.0%)
Spectrum Fund (2) 11.2 (10.7) 13.6 (13.6) 14.6 (14.6)
Mortgage Securities Fund (1) 8.6 (8.3) 7.8 (7.6) 8.3 (8.0)
Bond Fund (3) 7.8 (6.9) 7.7 (7.1) 8.3 (7.9)
Cornerstone Fund (4) 13.7 (13.4) 13.9 (13.9) 15.6 (15.6)
Enterprise Fund (4) 3.1 (3.0) 3.1 (3.1) 2.7 (2.7)
International Balanced Fund (5) 4.3 (4.1) -4.5 (-4.5) 7.0 (7.0)
</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, 1998, was as set forth
in the table below. The Funds' investment adviser was voluntarily absorbing
certain expenses of certain of the Funds during these periods. If such Funds
had been charged for these expenses the cumulative total return for the same
periods would have been lower, as also shown in the table below in parentheses.
<TABLE>
<CAPTION>
Cumulative Total Return
--------------------------------------------------------
Fund Class A Class B Class C
------- ------- -------
<S> <C> <C> <C>
Horizon Fund(1) 387.1% (376.2%) 107.6% (107.6%) 98.2% (98.2%)
Spectrum Fund (2) 218.7 (200.8) 69.2 (69.2) 62.9 (62.9)
Mortgage Securities Fund (1) 201.9 (192.7) 36.4 (35.3) 32.9 (31.9)
Bond Fund (3) 130.9 (108.8) 36.1 (33.4) 33.3 (31.1)
Cornerstone Fund (4) 67.9 (66.3) 69.5 (69.1) 68.5 (68.1)
Enterprise Fund (4) 13.0 (12.7) 13.2 (13.2) 9.9 (9.9)
International Balanced Fund (5) 18.7 (17.6) -7.4 (-7.4) 27.6 (27.4)
</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, 1998
-------------------------------------------------
Fund Class A Class B Class C
------- ------- -------
<S> <C> <C> <C>
Horizon Fund 2,000,290 754,926 100,891
Spectrum Fund 4,129,890 1,080,408 248,544
Mortgage Securities Fund 3,002,157 935,785 403,656
Money Market Fund 60,901,284 n/a n/a
Bond Fund 1,817,179 830,378 195,621
Cornerstone Fund 6,758,386 1,542,620 226,076
Enterprise Fund 2,814,170 542,523 71,769
International Fund 4,356,501 464,973 293,208
</TABLE>
As of September 30, 1998, 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* 42,479 1.5%
SPECTRUM FUND
Minnesota Life and affiliates* 44,649 .8%
MORTGAGE SECURITIES FUND
Minnesota Life and affiliates* 634,210 14.6%
MONEY MARKET FUND
Minnesota Life and affiliates* 23,755,139 39.0%
BOND FUND
Minnesota Life and affiliates* 385,471 13.6%
CORNERSTONE FUND
Minnesota Life and affiliates* 2,265,071 26.6%
ENTERPRISE FUND
Minnesota Life and affiliates* 2,227,176 65.0%
INTERNATIONAL FUND
Minnesota Life and affiliates* 2,672,766 52.3%
</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 First Data Investors Services Group, Inc. ("First
Data"), the Funds' transfer agent, at Advantus Funds Group, P.O. Box 9767,
Providence, Rhode Island 02940-5059. Additional purchases may be made at any
time by mailing a check, payable to the Fund, to the same address. Checks for
additional purchases should be identified with the appropriate account number.
Purchase orders may also be submitted through Ascend Financial or other
broker-dealers authorized to sell shares of the Fund.
PURCHASE BY WIRE. Shares may also be purchased by Federal Reserve or bank
wire. This method will result in a more rapid investment in shares of the Fund.
Before wiring any funds, contact Minnesota Life, through its Advantus
Shareholder Services division, at (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 First
Data. 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 (as of the date hereof, New Year's Day, Presidents' Day, Good
Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day and
Christmas Day).
Securities, including put and call options, which are traded
over-the-counter and on a national exchange will be valued according to the
broadest and most representative market. A security which is only listed or
traded on an exchange, or for which an exchange is the most representative
market, is valued at its last sale price (prior to the time as of which assets
are valued) on the exchange where it is principally traded. Lacking any sales
on the exchange where it is principally traded on the day of valuation, prior to
the time as of which assets are valued, the security generally is valued at the
last bid price on that exchange. 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% 4.95%
$50,000 But Less Than
$100,000 4.5 4.71 4.05
$100,000 But Less Than
$250,000 3.5 3.63 3.15
$250,000 But Less Than
$500,000 2.5 2.56 2.25
$500,000 But Less Than
$100,000 2.0 2.04 1.80
$1,000,000 And Over (1) -0- -0- .90*
</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% 4.05%
$100,000 But Less Than
$250,000 3.5 3.63 3.15
$250,000 But Less Than
$500,000 2.5 2.56 2.25
$500,000 But Less Than
$100,000 2.0 2.04 1.80
$1,000,000 And Over (1) -0- -0- .90*
</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.
Note that the sales charge depends on the total value of an investment (net
asset value of shares currently owned plus the cost of any new investment) in
the Fund, and not on the amount of a single investment. For example, if an
investor already owns Horizon Fund shares with a net asset value of $40,000 and
decides to invest in additional Horizon Fund Class A shares having a public
offering price of $10,000, the investor will pay a sales charge equal to 4.5% of
the entire additional $10,000 investment, since the total value of the
investment is now $50,000.
-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>
Amount Paid to Broker-Dealers as a Percentage
of Offering Price:
------------------
Mortgage Securities Fund Other Advantus
Shares Purchased in An Amount and Bond Fund Multiple Class Funds
- ---------------------------------------------------------------------------------------
<S> <C> <C>
Less Than $50,000 3.37% 4.12%
$50,000 But Less Than $100,000 3.37 3.37
$100,000 But Less Than $250,000 2.62 2.62
$250,000 But Less Than $500,000 1.87 1.87
$500,000 But Less Than $1,000,000 1.50 1.50
</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. Rule 12b-1 distribution
fees will also be paid 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, 1998, 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 ($47,183,071) = Net Asset Value Per Share ($23.59)
- ------------------------------
Shares outstanding (2,000,290)
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:
$23.59 = Public Offering Price Per Share ($24.83)
------
.95(1)
CLASS B SHARES
Net Assets ($17,100,015) = Net Asset Value AND Public
- -----------------------------
Shares outstanding (754,926) Offering Price Per Share ($22.65)
CLASS C SHARES
Net Assets ($2,298,850) = Net Asset Value AND Public
- ----------------------------
Shares outstanding (100,891) Offering Price Per Share ($22.79)
SPECTRUM FUND
CLASS A SHARES
Net Assets ($68,156,655) = Net Asset Value Per Share ($16.50)
- ------------------------------
Shares outstanding (4,129,890)
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:
$16.50 = Public Offering Price Per Share ($17.37)
------
.95(1)
CLASS B SHARES
Net Assets ($17,751,117) = Net Asset Value AND Public
- ------------------------------
Shares outstanding (1,080,408) Offering Price Per Share ($16.43)
CLASS C SHARES
Net Assets ($4,062,110) = Net Asset Value AND Public
- ----------------------------
Shares Outstanding (248,544) Offering Price Per Share ($16.34)
MORTGAGE SECURITIES FUND
CLASS A SHARES
Net Assets ($32,267,670) = Net Asset Value Per Share ($10.75)
- --------------------------------
Shares outstanding (3,002,157)
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:
$10.75 = Public Offering Price Per Share ($11.32)
------
.95(1)
-70-
<PAGE>
CLASS B SHARES
Net Assets ($10,079,440) = Net Asset Value AND Public
- ----------------------------
Shares outstanding (935,785) Offering Price Per Share ($10.77)
CLASS C SHARES
Net Assets ($4,343,013) = Net Asset Value AND Public
- -----------------------------
Shares outstanding (403,656) Offering Price Per Share ($10.76)
BOND FUND
CLASS A SHARES
Net Assets ($19,418,599) = Net Asset Value Per Share ($10.69)
- --------------------------------
Shares outstanding (1,817,179)
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:
$10.69 = Public Offering Price Per Share ($11.25)
------
.95(1)
CLASS B SHARES
Net Assets ($8,893,909) = Net Asset Value AND Public
- -------------------------------
Shares outstanding (830,378) Offering Price Per Share ($10.71)
CLASS C SHARES
Net Assets ($2,088,643) = Net Asset Value AND Public
- -----------------------------------
Shares outstanding (195,621) Offering Price Per Share ($10.68)
CORNERSTONE FUND
CLASS A SHARES
Net Assets ($93,833,373) = Net Asset Value Per Share ($13.88)
- -------------------------------
Shares outstanding (6,758,386)
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:
$13.88 = Public Offering Price Per Share ($14.61)
------
.95(1)
CLASS B SHARES
Net Assets ($21,176,125) = Net Asset Value AND Public
- -------------------------------
Shares outstanding (1,542,620) Offering Price Per Share ($13.73)
CLASS C SHARES
Net Assets ($3,093,577) = Net Asset Value AND Public
- ----------------------------- Offering Price Per Share ($13.68)
Shares outstanding (226,076)
-71-
<PAGE>
ENTERPRISE FUND
CLASS A SHARES
Net Assets ($31,843,818) = Net Asset Value Per Share ($11.32)
- -------------------------------
Shares outstanding (2,814,170)
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:
$11.32 = Public Offering Price Per Share ($11.92)
------
.95(1)
CLASS B SHARES
Net Assets ($5,902,610) = Net Asset Value AND Public
- ------------------------------ Offering Price Per Share ($10.88)
Shares outstanding (542,523)
CLASS C SHARES
Net Assets ($780,457) = Net Asset Value AND Public
- ----------------------------- Offering Price Per Share ($10.87)
Shares outstanding (71,769)
INTERNATIONAL FUND
CLASS A SHARES
Net Assets ($46,025,357) = Net Asset Value Per Share ($10.56)
- --------------------------------
Shares outstanding (4,356,501)
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:
$10.56 = Public Offering Price Per Share ($11.12)
------
.95(1)
CLASS B SHARES
Net Assets ($4,869,033) = Net Asset Value AND Public
- ------------------------------- Offering Price Per Share ($10.47)
Shares outstanding (464,973)
CLASS C SHARES
Net Assets ($3,073,843) = Net Asset Value AND Public
- ------------------------------- Offering Price Per Share ($10.48)
Shares outstanding (293,208)
(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 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, on the date of
the first purchase under the Letter of Intent, may be used as a credit toward
Fund shares to be purchased under the Letter of Intent. Class A, Class B and
Class C shares of all the Advantus Multiple Class Funds may also be included
in the purchases during the 13-month period.
The Letter of Intent includes a provision for payment of additional
applicable 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, 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.
-73-
<PAGE>
GROUP PURCHASES
An individual who is a member of a qualified group may also purchase shares
of the Advantus Multiple Class Funds at the reduced sales charge applicable to
the group taken as a whole. The sales charge is calculated by taking into
account not only the dollar amount of the Class A, Class B and Class C shares of
the Funds being purchased by the individual member, but also the aggregate
dollar value of such Class A, Class B and Class C shares previously purchased
and currently held by other members of the group. Members of a qualified group
may not be eligible for a Letter of Intent.
A "qualified group" is one which (i) has been in existence for more than
six months, (ii) has a purpose other than acquiring Fund shares at a discount,
and (iii) satisfies uniform criteria which enable Ascend Financial to realize
economies of scale in distributing such shares. A qualified group must have
more than ten members, must be available to arrange for group meetings between
representatives of Ascend Financial, must agree to include sales and other
materials related to the Funds in its publications and mailings to members at
reduced or no cost to Ascend Financial, and must seek, upon request, to arrange
for payroll deduction or other bulk transmission of investments to the Funds.
WAIVER OF SALES CHARGES FOR CERTAIN SALES OF CLASS A SHARES
Directors and officers of Advantus Capital, 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 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, including shares acquired
by reinvestment of dividends, for shares of the same class of any of the other
Advantus Multiple Class Funds (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 may also be
re-exchanged at relative net asset values for Class A, Class B and Class C
shares, respectively, of the Fund. Class C shares re-acquired in this manner
will have a remaining holding period prior to conversion equal to the remaining
holding period applicable to the prior Class C shares at the time of the initial
exchange. Shares of Money Market Fund not acquired in an exchange from any of
the Advantus Multiple Class Funds may be exchanged at relative net asset values
for either Class A, Class B or Class C shares of the Fund, subject to the sales
charge applicable to the class selected.
The exchange privilege is available only in states where such exchanges may
legally be made (at the present time the Fund believes this privilege is
available in all states). An exchange may be made by written request or by a
telephone call, unless the shareholder has elected on the account application
not to have telephone transaction privileges. 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 First Data, 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 First Data sends to each shareholder a
statement providing federal tax information on dividends and distributions paid
to the shareholder during the year. This should be retained as a permanent
record. A fee may be charged for providing duplicate information.
The open account system provides for full and fractional shares expressed
to four decimal places and, by making the issuance and delivery of stock
certificates unnecessary, eliminates problems of handling and safekeeping, and
the cost and inconvenience of replacing lost, stolen, mutilated or destroyed
certificates.
The costs of maintaining the open account system are paid by 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, 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. 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 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. The Fund has
filed with the Securities and Exchange Commission a notification of election
pursuant to Rule 18f-1 under the Investment Company Act of 1940 in order to make
such redemptions in kind.
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. Distributions paid by
the Fund, if any, with respect to Class A, Class B and Class C shares will be
calculated in the same manner, at the same time, on the same day and will be in
the same amount, except that the higher Rule 12b-1 fees applicable to Class B
and Class C shares will be borne exclusively by such shares. The per share
distributions on Class B and Class C shares will be lower than the per share
distributions on Class A shares as a result of the higher Rule 12b-1 fees
applicable to Class B and Class C shares.
Any dividend payments or net capital gains distributions made by the Fund
are in the form of additional shares of the same class of the Fund rather than
in cash, unless a shareholder specifically requests the Fund in writing that the
payment be made in cash. The distribution of these shares is made at net asset
value on the payment date of the dividend, without any sales or other charges to
the shareholder. The taxable status of income dividends and/or net capital
gains distributions is not affected by whether they are reinvested or paid in
cash. Authorization to pay dividends in cash may be made on the application
form, or at any time by letter.
Upon written request to the Fund, a shareholder may also elect to have
dividends from the Fund invested without sales charge in shares of Money Market
Fund or shares of the same class of another of the Advantus Multiple Class Funds
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 the Fund in shares of another of the
Funds, shareholders must maintain a minimum account value of $250 in both the
Fund 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 Fund or its shareholders, and
the discussion here is not intended as a substitute for careful tax planning.
During the year ended September 30, 1998 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, the 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 the Fund generally
will be taxable to shareholders as ordinary income, regardless of whether such
distributions are paid in cash or are invested in additional shares of the
Fund's stock. A distribution of net capital gain (a "capital gain
distribution"), whether paid in cash or reinvested in shares, generally is
taxable to shareholders as long-term capital gain, regardless of the length of
time a shareholder has held his or her shares or whether such gain was realized
by the Fund before the shareholder acquired such shares and was reflected in the
price paid for the shares. 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.
Prior to purchasing shares of the Fund, prospective shareholders (except
for tax qualified retirement plans) should consider the impact of dividends
or capital gains distributions which are expected to be announced, or have
been announced but not paid. Any such dividends or capital gains
distributions paid shortly after a purchase of shares by an investor prior to
the record date will have the effect of reducing the per share net asset
value by the amount of the dividends or distributions. All or a portion of
such dividends or distributions, although in effect a return of capital, is
subject to taxation.
Gain or loss upon the sale of shares of the Funds will be treated as
capital gain or loss, provided that the shares represented a capital asset in
the hands of the shareholder. For shareholders, such gain or loss will be
long-term gain or loss if the shares where held more than one year.
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.
Before investing in the Fund, an investor should consult a tax adviser
concerning the consequences of any local and state tax laws, and of any
retirement plan offering tax benefits.
TAXATION ON PORTFOLIO HOLDINGS
Except for the transactions identified as hedging transactions, each Fund
is required for federal income tax purposes to recognize as income for each
taxable year its net unrealized gains and losses on futures contracts, options
and forward currency contracts as of the end of the year as well as those
actually realized during the year. Except for transactions in futures
contracts, options, or forward currency contracts that are classified as part of
a "mixed straddle," gain or loss recognized with respect to such contracts is
considered to be 60% long-term capital gain or loss and 40% short-term capital
gain or loss, without regard to the holding period of the contracts. In the
case of a transaction classified as a "mixed straddle," the recognition of
losses may be deferred to a later taxable year.
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Sales of futures contracts, options, or forward currency contracts that are
intended to hedge against a change in the value of securities or currencies held
by a Fund may affect the holding period of such securities or currencies and,
consequently, the nature of the gain or loss on such securities or currencies
upon disposition.
It is expected that any net gain realized from the closing out of futures
contracts, options, or forward currency contracts will be considered gain from
the sale of securities or currencies and therefore be qualifying income for
purposes of the requirement under the Code that a regulated investment company
derive at least 90% of its gross income from dividends interest, gains from the
sale or disposition of securities, or otherwise from the business of investing
in securities.
Any realized gain or loss on closing out a futures contract, option, or
forward currency contract such as a forward commitment for the purchase or sale
of foreign currency, will generally result in a recognized capital gain or loss
for tax purposes.
Code Section 988 may also apply to forward currency contracts. Under
Section 988, each foreign currency gain or loss is generally computed separately
and treated as ordinary income or loss. In the case of overlap between Section
1256 and 988, special provisions determine the character and timing of any
income gain or loss. International Fund will attempt to monitor Section 988
transactions to avoid an adverse tax impact.
Under the Code, International Fund's taxable income for each year will be
computed without regard to any net foreign currency loss attributable to
transactions after October 31, and any such net foreign currency loss will be
treated as arising on the first day of the following taxable year.
Each Fund is subject to a non-deductible excise tax equal to 4 percent of
the excess, if any, of the amount required to be distributed pursuant to the
Code for each calendar year over the amount actually distributed. In order to
avoid the imposition of this excise tax, the Fund generally must declare
dividends by the end of a calendar year representing 98 percent of the Fund's
ordinary income for the calendar year and 98 percent of its capital gain net
income (both long-term and short-term capital gains) for the twelve-month period
ending October 31 of the calendar year.
Each Fund may in the future sell securities "short against the box." Under
provisions of the Taxpayer Relief Act of 1997, if a Fund sells short against the
box a security in which it has an appreciated position, it will be treated as if
it had sold the security for its fair market value on the date of the short
sale, and will be required to recognize gain as of that date. On a subsequent
sale of the security that has been sold short against the box, the Fund's basis
in the security will be adjusted to take into account the amount of gain
previously recognized.
The foregoing relates only to federal taxation. Prospective shareholders
should consult their tax advisers as to the possible application of state and
local income tax laws to Fund distributions.
FINANCIAL STATEMENTS
The Funds' financial statements for the year ended September 30, 1998,
including the financial highlights for each of the respective periods presented,
appearing in each Fund's Annual Report to shareholders, and the report thereon
of the Funds' independent auditors, KPMG Peat Marwick LLP, also appearing
therein, are incorporated by reference in this Statement of Additional
Information. The respective Fund's 1998 Annual Report to Shareholders is
enclosed with 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.
Capitol City Property Management, Inc.
DataPlan Securities, Inc. (Ohio)
MIMLIC Imperial Corporation
MIMLIC Funding, Inc.
MCM Funding 1997-1, Inc.
MCM Funding 1998-1, Inc.
Personal Finance Company (Delaware)
MIMLIC Venture Corporation
HomePlus Insurance Agency, Inc.
Ministers Life Resources, Inc.
Enterprise Holding Corporation
Wedgewood Valley Golf, 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.
Wholly-owned subsidiary of HomePlus Insurance Agency, Inc.:
HomePlus Insurance Agency of Texas, Inc. (Texas)
Majority-owned subsidiaries of MIMLIC Imperial Corporation:
J. H. Shoemaker Advisory Corporation (Tennessee)
Consolidated Capital Advisors, Inc. (Tennessee)
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.
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 Money Market Fund, Inc.
MIMLIC Cash Fund, Inc.
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 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
(a) Advantus Capital Management, Inc.
DIRECTORS AND OFFICERS OFFICE WITH
OF INVESTMENT ADVISER INVESTMENT ADVISER OTHER BUSINESS CONNECTIONS
- ---------------------- -------------------- --------------------------
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 Company;
Director President, Secretary and Director,
Personal Finance Company;
President and Director, Wedgewood
Valley Golf, Inc.; President and
Director, MIMLIC Venture
Corporation; 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
<PAGE>
1997-1, Inc.; Vice 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, MIMLIC Venture
Corporation; 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 Vice President, MCM Funding
1997-1, Inc.; Vice President, MCM
Funding 1998-1, Inc.; Director,
Investment Advisory, Minnesota
Life Insurance Company
Loren Haugland Vice President Vice President, MCM Funding
1997-1, Inc.; Vice 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, Total Return, Minnesota
Life Insurance Company
Kent R. Weber Vice President Vice President, MCM Funding
1997-1, Inc.; Vice
<PAGE>
President, MCM
Funding 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, Total Return, 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 - Fixed
Income PM, 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, Minnesota Life Insurance
Company
Steven Laude Vice President Vice President, MCM Funding
1997-1, Inc.; Vice President, MCM
Funding 1998-1, Inc.; Senior
Investment Officer - Fixed
Income, 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
Rodney Hare Vice President Director of Institutional
Marketing, Minnesota Life
Insurance Company; Vice President,
MCM Funding 1997-1, Inc.; Vice
President, MCM Funding 1998-1,
Inc.
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 Senior Investment Officer -
Mortgage, 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 Senior Investment Officer - Fixed
Income, Minnesota Life Insurance
Company; Vice President, MCM
Funding 1997-1, Inc.; Vice
President, MCM Funding 1998-1,
Inc.
Mark L. Henneman Vice President Value Portfolio Manager, Minnesota
Life Insurance
<PAGE>
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.
(b) Templeton Investment Counsel, Inc.
Templeton Investment Counsel, Inc. ("TICI"), a Florida corporation with
offices at Broward Financial Centre, Suite 2100, Fort Lauderdale, Florida
33394-3091, is an indirect, wholly-owned subsidiary of Franklin Resources, Inc.
TICI acts as the investment adviser to, in addition to acting as investment
sub-adviser to the Registrant, the following U.S. registered investment
companies or series:
FRANKLIN TEMPLETON FUNDS
Franklin Investors Securities Trust:
- Franklin Global Government Income Fund (Subadviser)
Franklin Strategic Series:
- Franklin Strategic Income Fund (Subadviser)
Franklin Templeton International Trust:
- Templeton Foreign Smaller Companies Fund (Subadviser)
- Templeton Pacific Growth Fund (Subadviser)
Franklin Valuemark Funds:
- Templeton Global Asset Allocation Fund (Subadviser)
- Templeton Global Income Securities Fund (Subadviser)
- Templeton International Equity Fund (Subadviser)
- Templeton International Smaller Companies Fund
- Templeton Pacific Growth Fund (Subadviser)
Franklin/Templeton Global Trust:
- Franklin/Templeton German Government Bond Fund (Subadviser)
- Franklin/Templeton Global Currency Fund (Subadviser)
- Franklin/Templeton Hard Currency Fund (Subadviser)
- Franklin/Templeton High Income Currency Fund (Subadviser)
Franklin/Templeton Japan Fund
Templeton American Trust, Inc.
Templeton Balanced Fund (Subadviser)
Templeton Canada Global Bond Fund (Subadviser)
Templeton Canadian Asset Allocation Fund (Subadviser)
Templeton Canadian Bond Fund (Subadviser)
Templeton Capital Accumulator Fund, Inc.
Templeton Emerging Markets Appreciation Fund (Subadviser)
Templeton Emerging Markets Appreciation Fund, Inc. (Subadviser)
Templeton Emerging Markets Income Fund, Inc.
Templeton Global Balanced Fund (Subadviser)
Templeton Global Governments Income Trust
Templeton Global Income Fund, Inc.
<PAGE>
Templeton Global Income Portfolio Ltd.
Templeton Global Investment Trust:
- Templeton Americas Government Securities Fund
- Templeton Global Infrastructure Fund
- Templeton Latin America Fund
Templeton Global Opportunities Trust
Templeton Global Smaller Companies Fund
Templeton Global Smaller Companies Growth Fund, Inc.
Templeton Global Strategy Funds:
- Franklin Templeton International Bond Fund (Subadviser)
- Templeton American Fund
- Templeton Deutsche Mark Emerging Markets Fixed Income Fund
- Templeton Deutsche Mark Global Bond Fund
- Templeton Deutsche Mark Liquid Reserve Fund
- Templeton Emerging Markets Fixed Income Fund
- Templeton Global Income Fund
- Templeton Managed Currency Fund
- Templeton U.S. Dollar Liquid Reserve Fund
Templeton Global Trust Fund (Subadviser)
Templeton Income Trust:
- Templeton Global Bond Fund
Templeton Institutional Funds, Inc.:
- Templeton Emerging Fixed Income Markets Series
- Templeton Foreign Equity Series
- Templeton Growth Series
Templeton International Balanced Fund (Subadviser)
Templeton International Foreign Fund
Templeton International Growth Fund
Templeton Russia and Eastern European Debt Fund (Subadviser)
Templeton Variable Annuity Fund
Templeton Variable Products Series Fund (TVPSP):
- Templeton Asset Allocation Fund
- Templeton Bond Fund
- Templeton International Fund
- Templeton Money Market Fund
- Templeton Stock Fund
OUTSIDE FUNDS
Advantus International Balanced Fund (Subadviser)
Advantus Series Fund, Inc.:
- International Stock Portfolio (Subadviser)
American AAdvantage Funds (Subadviser)
American AAdvantage Mileage Funds (Subadviser)
Marshall International Stock Fund (Subadviser)
Maxim Series Fund, Inc.:
- International Equity Portfolio (Subadviser)
Northwestern Mutual International Equity Fund (Subadviser)
Northwestern Mutual Life - Mason Street International Equity Fund
(Subadviser)
The following are Directors of TICI, located at the above-referenced
address unless otherwise indicated, and their principal occupations or other
business connections which are of a substantial nature:
<PAGE>
<TABLE>
<CAPTION>
NAME, ADDRESS AND
POSITION WITH TICI PRINCIPAL OCCUPATION
------------------ --------------------
<S> <C>
Charles E. Johnson Senior Vice President and
Chairman and Director of Franklin
Resources, Inc.; President and
Director of Templeton Worldwide, Inc.
Donald F. Reed President, CEO and Director of
Director and President Templeton Management Limited
Martin L. Flanagan Senior Vice President, Chief
Director and Executive Financial Officer and
Vice President Treasurer of Franklin
777 Mariners Island Blvd. Resources, Inc.
San Mateo, California
Gregory E. McGowan Attorney - International
Director and Executive Marketing
Vice President
Gary P. Motyl Equity Research and Portfolio
Director and Executive Management
Vice President
Elizabeth M. Knoblock Attorney
Senior Vice President,
Secretary and General Counsel
</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.
MIMLIC Cash 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:
<PAGE>
<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, Chief
400 Robert Street North Compliance Officer and
St. Paul, Minnesota 55101 Director
Margaret Milosevich Vice President, Chief Assistant
Ascend Financial Services, Inc. Operations Officer, Secretary
400 Robert Street North Treasurer and Secretary
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.
8th Street and Marquette Avenue
Minneapolis, Minnesota 55479
ITEM 29. MANAGEMENT SERVICES
Not applicable.
ITEM 30. UNDERTAKINGS
(a) Not applicable.
(b) Not applicable.
<PAGE>
(c) The Registrant hereby undertakes to furnish, upon request and without
charge to each person to whom a prospectus is delivered, a copy of the
Registrant's latest annual report to shareholders containing the information
called for by Item 5A.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940 the Registrant has duly caused this 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 3rd day of
December, 1998.
ADVANTUS INTERNATIONAL BALANCED 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 December 3, 1998
William N. Westhoff executive officer)
and Director
---------------------- Director and Treasurer December 3, 1998
Frederick P. Feuerherm (principal financial
and accounting officer)
Ralph D. Ebbott* Director)
---------------------------
Ralph D. Ebbott ) By----------------------------
) William N. Westhoff
) Attorney-in-Fact
Charles E. Arner* Director)
---------------------------
Charles E. Arner ) Dated: December 3, 1998
)
)
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 INTERNATIONAL BALANCED FUND, INC.
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit Number and Description:
<S> <C>
(a) Articles of Incorporation for the Registrant. (1)
(b) Bylaws of the Registrant. (1)
(c) Not applicable.
(d)(1) Investment Advisory Agreement between Advantus Capital Management,
Inc. and the Registrant. (1)
(d)(2) Investment Sub-Advisory Agreement between Advantus Capital Management,
Inc. and Templeton Investment Counsel, Inc. (1)
(e)(1) Underwriting and Distribution Agreement between the Registrant and
Ascend Financial Services, Inc.
(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. (1)
(h) Shareholder and Administrative Services Agreement between the
Registrant and The Minnesota Mutual Life Insurance Company.
(i) Opinion and Consent of Dorsey & Whitney LLP. (1)
(j) Consent of KPMG Peat Marwick 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
(m)(2) Plan of Distribution for Class B shares of the Registrant. (2)
(m)(3) Plan of Distribution for Class C shares of the Registrant. (1)
(n)(1) Financial Data Schedule for Class A shares of the Registrant.
(n)(2) Financial Data Schedule for Class B shares of the Registrant.
(n)(3) Financial Data Schedule for Class C shares of the Registrant.
(o) Multiple Class Plan pursuant to Rule 18f-3.
<PAGE>
(p) Power of Attorney to sign Registration Statement executed by Directors
of Registrant.
</TABLE>
- -----------------------------
(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 November 29, 1996.
<PAGE>
UNDERWRITING AND DISTRIBUTION AGREEMENT
THIS AGREEMENT, Made this 22nd day of October, 1998, by and between
Advantus International Balanced Fund, Inc., a Minnesota corporation (the "Fund")
and Ascend Financial Services, Inc. (the "Underwriter").
WITNESSETH:
1. UNDERWRITING SERVICES.
The Fund hereby engages the Underwriter, and the Underwriter hereby agrees
to act, as principal underwriter for the Fund in the sale and distribution of
the shares of the Fund to the public, either through dealers or otherwise. The
Underwriter agrees to offer such shares for sale at all times when such shares
are available for sale and may lawfully be offered for sale and sold.
2. SALE OF FUND SHARES.
Such shares are to be sold only on the following terms:
(a) All subscriptions, offers, or sales shall be subject to acceptance or
rejection by the Fund. Any offer or sale shall be conclusively presumed to have
been accepted by the Fund if the Fund shall fail to notify the Underwriter of
the rejection of such offer or sales prior to the computation of the net asset
value of the Fund's shares next following receipt by the Fund of notice of such
offer or sale.
(b) No share of the Fund shall be sold by the Underwriter (i) for any
consideration other than cash or, pursuant to an exchange privilege provided for
by the Fund's currently effective Prospectus, shares of any other investment
company for which the Underwriter acts as principal underwriter, or (ii), except
in instances otherwise provided for by the Fund's currently effective
Prospectus, for any amount less than the public offering price per share, which
shall be determined in accordance with the Fund's currently effective
Prospectus.
(c) In connection with certain sales of Fund shares, a contingent deferred
sales charge will be imposed in the event of a redemption transaction occurring
within a certain period of time following such a purchase, as described in the
Fund's currently effective Prospectus and Statement of Additional Information.
(d) The front-end sales charge, if any, for the Fund may, at the
discretion of the Fund and the Underwriter, be reduced or eliminated as
permitted by the Investment Company Act of 1940, and the rules and regulations
thereunder, as they may be amended from time to time (the "1940 Act"), provided
that such reduction or elimination shall be set forth in the Prospectus for the
Fund, and provided that the Fund shall in no event receive for any shares sold
an amount less than the net asset value thereof. In addition, any contingent
deferred sales charge for the Fund may, at the discretion of the Fund and the
Underwriter, be reduced or eliminated in accordance with the terms of an
exemptive order received from the Securities and Exchange Commission by the
Fund, and any amendments thereto, provided that such reduction or elimination
shall be set forth in the Prospectus for the Fund.
<PAGE>
3. REGISTRATION OF SHARES.
The Fund agrees to make prompt and reasonable efforts to effect and keep in
effect, at its expense, the registration or qualification of its shares for sale
in such jurisdictions as the Fund may designate.
4. INFORMATION TO BE FURNISHED TO THE UNDERWRITER.
The Fund agrees that it will furnish the Underwriter with such information
with respect to the affairs and accounts of the Fund as the Underwriter may from
time to time reasonably require, and further agrees that the Underwriter, at all
reasonable times, shall be permitted to inspect the books and records of the
Fund.
5. ALLOCATION OF EXPENSES.
During the period of this contract, the Fund shall pay or cause to be paid
all expenses, costs, and fees incurred by the Fund which are not assumed by the
Underwriter or Advantus Capital Management, Inc., a Minnesota corporation and
the Fund's investment adviser. The Underwriter agrees to provide, and shall pay
costs which it incurs in connection with providing, administrative or accounting
services to shareholders of the Fund (such costs are referred to as "Shareholder
Servicing Costs"). The Underwriter shall also pay all costs of distributing the
shares of the Fund ("Distribution Expenses"). Distribution Expenses include,
but are not limited to, initial and ongoing sales compensation (in addition to
sales loads) paid to investment executives of the Underwriter and to other
broker-dealers and participating financial institutions; expenses incurred in
the printing of prospectuses, statements of additional information and reports
used for sales purposes; expenses of preparation and distribution of sales
literature; expenses of advertising of any type; an allocation of the
Underwriter's overhead; payments to and expenses of persons who provide support
services in connection with the distribution of Fund shares; and other
distribution-related expenses. Shareholder Servicing Costs include all expenses
of the Underwriter incurred in connection with providing administrative or
accounting services to shareholders of the Fund, including, but not limited to,
an allocation of the Underwriter's overhead and payments made to persons,
including employees of the Underwriter, who respond to inquiries of shareholders
regarding their ownership of Fund shares, or who provide other administrative or
accounting services not otherwise required to be provided by the Fund's
investment adviser or transfer agent.
6. COMPENSATION TO THE UNDERWRITER.
It is understood and agreed by the parties hereto that the Underwriter will
receive as compensation for services it performs hereunder:
(a) The Underwriter shall be entitled to receive or retain the front-end
sales charge imposed in connection with sales of Fund shares, as set forth in
Schedule A hereto. Up to the entire amount of the front-end sales charge with
respect to the Fund may be reallowed by the Underwriter to broker-dealers and
participating financial institutions in connection with their sale of Fund
shares. The amount of the front-end sales charge may be retained or deducted by
the Underwriter from any sums received by it in payment for shares so sold. If
such amount is not
-2-
<PAGE>
deducted by the Underwriter from such payments, such amount shall be paid to
the Underwriter by the Fund not later than five business days after the close
of any calendar quarter during which any such sales were made by the
Underwriter and payment received by the Fund.
(b) The Underwriter shall be entitled to receive or retain any contingent
deferred sales charge imposed in connection with any redemption of Fund shares,
as set forth in Schedule A hereto.
(c) Pursuant to the Fund's Plans of Distribution adopted by Class A, Class
B and Class C shareholders in accordance with Rule 12b-1 under the 1940 Act (the
"Plans"), the Fund shall pay the Underwriter a total fee each month equal to
.25% per annum of the average daily net assets represented by Class A shares of
the Fund and 1.0% per annum of the average daily net assets represented by Class
B and Class C shares of the Fund to cover Distribution Expenses and Shareholder
Servicing Costs. As determined from time to time by the Board of Directors of
the Fund, a portion of such fee for each Class may be designated as a
"distribution fee" designed to cover Distribution Expenses, and a portion may be
designated as a "shareholder servicing fee" designed to cover Shareholder
Servicing Costs. Until further action by the Board of Directors, all of such
fees for Class A shall be designated as a "shareholder servicing fee" designed
to cover only Shareholder Servicing Costs; and all of such fees for Class B and
Class C shall be designated as a "distribution fee" designed to cover only
Distribution Expenses, except that a portion of such fee for both Class B and
Class C, equal to .25% per annum of the average daily net assets of Class B and
Class C, shall be designated as a "shareholder servicing fee" designed to cover
only Shareholder Servicing Costs. Average daily net assets shall be computed in
accordance with the Prospectus of the Fund. Amounts payable to the Underwriter
under the Plans may exceed or be less than the Underwriter's actual Distribution
Expenses and Shareholder Servicing Costs. In the event such Distribution
Expenses and Shareholder Servicing Costs exceed amounts payable to the
Underwriter under the Plans, the Underwriter shall not be entitled to
reimbursement by the Fund.
(d) In each year during which this Agreement remains in effect, the
Underwriter will prepare and furnish to the Board of Directors of the Fund, and
the Board will review, on a quarterly basis, written reports complying with the
requirements of Rule 12b-1 under the 1940 Act that set forth the amounts
expended under this Agreement and the Plans and the purposes for which those
expenditures were made.
7. LIMITATION OF THE UNDERWRITER'S AUTHORITY.
The Underwriter shall be deemed to be an independent contractor and, except
as specifically provided or authorized herein, shall have no authority to act
for or represent the Fund.
-3-
<PAGE>
8. SUBSCRIPTION FOR SHARES--REFUND FOR CANCELLED ORDERS.
The Underwriter shall subscribe for the shares of the Fund only for the
purpose of covering purchase orders already received by it or for the purpose of
investment for its own account. In the event that an order for the purchase of
shares of the Fund is placed with the Underwriter by a customer or dealer and
subsequently cancelled, the Underwriter shall forthwith cancel the subscription
for such shares entered on the books of the Fund, and, if the Underwriter has
paid the Fund for such shares, shall be entitled to receive from the Fund in
refund of such payment the lesser of:
(a) the consideration received by the Fund for said shares; or
(b) the net asset value of such shares at the time of cancellation by the
Underwriter.
9. INDEMNIFICATION OF THE FUND.
The Underwriter agrees to indemnify the Fund against any and all litigation
and other legal proceedings of any kind or nature and against any liability,
judgment, cost, or penalty imposed as a result of such litigation or proceedings
in any way arising out of or in connection with the sale or distribution of the
shares of the Fund by the Underwriter. In the event of the threat or
institution of any such litigation or legal proceedings against the Fund, the
Underwriter shall defend such action on behalf of the Fund at its own expense,
and shall pay any such liability, judgment, cost, or penalty resulting
therefrom, whether imposed by legal authority or agreed upon by way of
compromise and settlement; provided, however, the Underwriter shall not be
required to pay or reimburse the Fund for any liability, judgment, cost, or
penalty incurred as a result of information supplied by, or as the result of the
omission to supply information by, the Fund to the Underwriter, or to the
Underwriter by a director, officer, or employee of the Fund who is not an
interested person of the Underwriter, unless the information so supplied or
omitted was available to the Underwriter or Management without recourse to the
Fund or any such person referred to above.
10. FREEDOM TO DEAL WITH THIRD PARTIES.
The Underwriter shall be free to render to others services of a nature
either similar to or different from those rendered under this contract, except
such as may impair its performance of the services and duties to be rendered by
it hereunder.
11. EFFECTIVE DATE, DURATION AND TERMINATION OF
AGREEMENT.
The effective date of this Agreement is set forth in the first paragraph of
this Agreement. Wherever referred to in this Agreement, the vote or approval of
the holders of a majority of the outstanding voting securities of the Fund shall
mean the vote of 67% or more of such securities if the holders of more than 50%
of such securities are present in person or by proxy or the vote of more than
50% of such securities, whichever is the lesser.
-4-
<PAGE>
Unless sooner terminated as hereinafter provided, this Agreement shall
continue in effect only so long as such continuance is specifically approved at
least annually (a) by the Board of Directors of the Fund, or by the vote of the
holders of a majority of the outstanding voting securities of the Fund, and (b)
by a majority of the directors who are not interested persons of the Underwriter
or of the Fund cast in person at a meeting called for the purpose of voting on
such approval.
This Agreement may be terminated at any time without the payment of any
penalty by the vote of the Board of Directors of the Fund or by the vote of the
holders of a majority of the outstanding voting securities of the Fund, or by
the Underwriter, upon 60 days' written notice to the other party.
This Agreement shall automatically terminate in the event of its assignment
(as defined by the provisions of the Investment Company Act of 1940, as
amended).
12. AMENDMENTS TO AGREEMENT.
No material amendment to this Agreement shall be effective until approved
by the Underwriter and by vote of majority of the Board of Directors of the Fund
who are not interested persons of the Underwriter.
13. NOTICES.
Any notice under this Agreement shall be in writing, addressed, delivered,
or mailed, postage prepaid, to the other party at such address as such other
party may designate in writing for receipt of such notice.
IN WITNESS WHEREOF, The Fund and the Underwriter have caused this Agreement
to be executed by their duly authorized officers as of the day and year first
above written.
Advantus International Balanced Fund, Inc.
By--------------------------------------
William N. Westhoff
Its President
Ascend Financial Services, Inc.
By---------------------------------------
George I. Connolly
Its President
-5-
<PAGE>
SCHEDULE A
The Underwriter shall receive, as compensation for its services pursuant to
this Agreement, a front-end sales charge for each investment in the Fund's Class
A shares, or a contingent deferred sales charge in certain circumstances, which
shall be a percentage of the offering price of such Class A shares, as
determined in accordance with the Fund's currently effective Prospectus,
determined in accordance with the following table:
<TABLE>
<CAPTION>
FRONT-END SALES CHARGE
AS A PERCENTAGE OF
AMOUNT OF INVESTMENT OFFERING PRICE
-------------------- ----------------------
<S> <C>
Less than $50,000 5.5%
$50,000 but less than $100,000 4.5%
$100,000 but less than $250,000 3.5%
$250,000 but less than $500,000 2.5%
$500,000 but less than $1,000,000 2.0%
$1,000,000 or more(1) -0-
</TABLE>
The Underwriter shall also receive, as compensation for its services
pursuant to this Agreement, a contingent deferred sales charge imposed in
connection with certain redemptions of shares of the Fund designated as Class B
shares, determined in accordance with the following table:
<TABLE>
<CAPTION>
CONTINGENT DEFERRED SALES CHARGE
SHARES PURCHASED APPLICABLE YEAR
IN AN AMOUNT 1 2 3 4 5 6
---------------- --- --- --- --- --- ---
<S> <C> <C> <C> <C> <C> <C>
Less than $50,000 5.0% 4.5% 3.5% 2.5% 1.5% 1.5%
$50,000 but less than $100,000 4.5 3.5 2.5 1.5 1.5 -0-
$100,000 but less than $250,000 3.5 2.5 1.5 1.5 -0- -0-
$250,000 but less than $500,000 2.5 1.5 1.5 -0- -0- -0-
$500,000 but less than $1,000,000 1.5 1.5 -0- -0- -0- -0-
</TABLE>
(1) The customer will not be assessed an
initial sales charge for purchases of Class A shares of at least $1,000,000, but
a contingent deferred sales charge of 1.00% will be imposed if the customer
redeems such shares within one year of the date of purchase.
-6-
<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
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Please Print Name
------------------------------------------------------------
Its
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(Title)
Accepted by
ASCEND FINANCIAL SERVICES, INC.
Date of acceptance: , 19
--------------------- ----
By
---------------------------------------------------------------------------
(Signature)
Its
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(Title)
-9-
<PAGE>
SCHEDULE A (Standard)
Dealer Compensation Schedule
Effective
-------------
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.
Advantus Money Market Fund, Inc.
A. DEALER COMMISSIONS
<TABLE>
<CAPTION>
DEALER CONCESSION AS PERCENTAGE OF OFFERING PRICE
CLASS A SHARES CLASS B SHARES
MORTGAGE MORTGAGE
SECURITIES FUND CLASS A SHARES SECURITIES FUND CLASS B SHARES
AND BOND ALL OTHER AND BOND ALL OTHER CLASS C
AMOUNT OF SALE FUND ONLY FUNDS FUND ONLY FUNDS SHARES
-------------- --------- ----- --------- ----- ------
<S> <C> <C> <C> <C> <C>
Less than $50,000 4.05% 4.95% 3.37% 4.12% -0-
$50,000 but less
than $100,000 4.05% 4.05% 3.37% 3.37% -0-
$100,000 but less
than $250,000 3.15% 3.15% 2.62% 2.62% -0-
$250,000 but less
than $500,000 2.25% 2.25% 1.87% 1.87% -0-
$500,000 but less
than $1,000,000 1.80% 1.80% 1.50% 1.50% -0-
$1,000,000 .9%* .9%* n/a* n/a* n/a*
</TABLE>
* Orders of $1,000,000 or more will be accepted only for Class A Shares.
No initial sales charge will be assessed the customer for purchase of Class A
Shares of at least $1,000,000, but a
A-1
<PAGE>
contingent deferred sales charge of 1.00% will be imposed if the customer
redeems such shares within one year of the date of purchase.
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:
QUARTERLY QUARTERLY
DISTRIBUTION FEE SERVICE FEE
CLASS C CLASS A CLASS B CLASS C
------- ------- ------- -------
1/4 of .75% 1/4 of .25% 1/4 of .25% 1/4 of .25%
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>
SHAREHOLDER AND ADMINISTRATIVE SERVICES AGREEMENT
BETWEEN
ADVANTUS INTERNATIONAL BALANCED 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
International Balanced 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 INTERNATIONAL BALANCED 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 INTERNATIONAL BALANCED UFND, INC.
Minnesota Mutual 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
------------
$3,100.00
The above monthly fees shall be paid to Minnesota Mutual not later
than five days following the end of each calendar quarter in which said services
were rendered.
A-1
<PAGE>
KPMG Peat Marwick LLP
4200 Norwest Center
90 South Seventh Street
Minneapolis, MN 55402
INDEPENDENT AUDITORS' CONSENT
The Board of Directors
Advantus International Balanced Fund, Inc.:
We consent to the use of our report included 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 Peat Marwick LLP
Minneapolis, Minnesota
December 3, 1998
<PAGE>
ADVANTUS INTERNATIONAL BALANCED FUND, INC.
RULE 12b-1 PLAN OF DISTRIBUTION
APPLICABLE TO CLASS A SHARES
AS AMENDED OCTOBER 22, 1998
WHEREAS, Rule 12b-1 under the Investment Company Act of 1940, (the "Rule"),
provides that a registered open-end management investment company may act as a
distributor of securities of which it is the issuer, provided that any payments
made by such company in connection with such distribution are made pursuant to a
written plan describing all material aspects of the proposed financing of
distribution; and
WHEREAS, it is intended that shares of Advantus International Balanced
Fund, Inc., (the "Fund") designated as Class A shares will be sold to the public
pursuant to an Underwriting and Distribution Agreement, with Ascend Financial
Services, Inc. ("Ascend").
NOW THEREFORE, the following shall constitute the written plan pursuant to
which Rule 12b-1 fees payable in connection with Class A shares of the Fund
shall be made.
The Underwriting and Distribution Agreement (the "Agreement") between the
Fund and Ascend provides that Ascend will receive, as compensation for services
it renders under the Agreement in connection with Class A shares of the Fund, in
addition to a sales charge, a monthly shareholder servicing fee from the Fund as
set forth below.
Monthly Shareholder Servicing Fee
(as a percentage of the
Fund's average net assets
Attributable to Class A Shares)
-------------------------------
1/12 x .25%
The Shareholder Servicing Fee may be used by Ascend to provide compensation
for ongoing servicing and/or maintenance of Class A shareholder accounts with
the Fund. Compensation may be paid by Ascend to persons, including employees of
Ascend, and institutions who respond to inquiries of Class A shareholders of the
Fund regarding their ownership of shares or their accounts with the Fund or who
provide other administrative or accounting services not otherwise required to be
provided by the Fund's investment adviser, transfer agent or other agent of the
Fund.
Payments under the Plan are not tied exclusively to the expenses for shareholder
servicing and distribution related activities actually incurred by Ascend in
connection with Class A shares of the Fund, so that such payments may exceed
expenses actually incurred by Ascend. The Fund's Board of Directors will
evaluate the appropriateness of the Plan and its payment terms on a continuing
basis and in doing so will consider all relevant factors, including expenses
borne by Ascend and amounts it receives under the Plan.
<PAGE>
The Plan will not take effect with respect to the Fund, and no fee will be
payable in accordance with the Plan, until the Plan has been approved by a vote
of at least a majority of the outstanding voting securities of the Fund
designated as Class A shares.
This Plan shall continue in effect for a period of more than one year from
the date of its adoption only so long as such Plan, together with any related
agreements, has been approved by a vote of the Board of Directors of the Fund,
and the Directors who are not interested persons of the Fund 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.
The Chairman of Ascend, or such other person as he may designate shall
provide to the Board of Directors of the Fund, and the Directors shall review,
at least quarterly, a written report of the amounts received by Ascend pursuant
to the Plan, the expenditures made by Ascend out of such proceeds, and the
purpose for which such expenditures were made.
This Plan may be terminated at any time by vote of a majority of the
members of the Board of Directors of the Fund who are not interested persons of
the Fund 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 Fund designated as Class A shares.
This Plan may not be amended to increase materially the amount to be spent
by the Fund for distribution without Class A shareholder approval.
All material amendments to the Plan, together with any related agreements,
must be approved by a vote of the Board of Directors of the Fund, and of the
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
related to the Plan, cast in person at a meeting called for the purpose of
voting on such Plan or agreements.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FORM N-SAR
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FORM N-SAR.
</LEGEND>
<RESTATED>
<CIK> 0000926034
<NAME> MULTI CLASS ADVANTUS INTERNATIONAL BALANCED FUND
<SERIES>
<NUMBER> 100
<NAME> CLASS A
<MULTIPLIER> 1000
<CURRENCY> US
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-START> OCT-01-1997
<PERIOD-END> SEP-30-1998
<EXCHANGE-RATE> 1
<INVESTMENTS-AT-COST> 55,009
<INVESTMENTS-AT-VALUE> 52,573
<RECEIVABLES> 1,205
<ASSETS-OTHER> 535
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 54,313
<PAYABLE-FOR-SECURITIES> 18
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 327
<TOTAL-LIABILITIES> 345
<SENIOR-EQUITY> 51
<PAID-IN-CAPITAL-COMMON> 55,310
<SHARES-COMMON-STOCK> 4,357
<SHARES-COMMON-PRIOR> 4,071
<ACCUMULATED-NII-CURRENT> 14
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 1,172
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (2,580)
<NET-ASSETS> 46,025
<DIVIDEND-INCOME> 1,520
<INTEREST-INCOME> 901
<OTHER-INCOME> 0
<EXPENSES-NET> 1,040
<NET-INVESTMENT-INCOME> 1,381
<REALIZED-GAINS-CURRENT> 2,675
<APPREC-INCREASE-CURRENT> (12,184)
<NET-CHANGE-FROM-OPS> (8,128)
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 636
<DISTRIBUTIONS-OF-GAINS> 3,919
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 741
<NUMBER-OF-SHARES-REDEEMED> 724
<SHARES-REINVESTED> 269
<NET-CHANGE-IN-ASSETS> (6,434)
<ACCUMULATED-NII-PRIOR> 357
<ACCUMULATED-GAINS-PRIOR> 1,844
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 515
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1,202
<AVERAGE-NET-ASSETS> 51,935
<PER-SHARE-NAV-BEGIN> 13.29
<PER-SHARE-NII> 0.25
<PER-SHARE-GAIN-APPREC> (1.92)
<PER-SHARE-DIVIDEND> 0.14
<PER-SHARE-DISTRIBUTIONS> 0.92
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 10.56
<EXPENSE-RATIO> 1.58
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FORM N-SAR
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FORM N-SAR.
</LEGEND>
<RESTATED>
<CIK> 0000926034
<NAME> MULTI CLASS ADVANTUS INTERNATIONAL BALANCED FUND
<SERIES>
<NUMBER> 101
<NAME> CLASS B
<MULTIPLIER> 1000
<CURRENCY> US
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-START> OCT-01-1997
<PERIOD-END> SEP-30-1998
<EXCHANGE-RATE> 1
<INVESTMENTS-AT-COST> 55,009
<INVESTMENTS-AT-VALUE> 52,573
<RECEIVABLES> 1,205
<ASSETS-OTHER> 535
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 54,313
<PAYABLE-FOR-SECURITIES> 18
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 327
<TOTAL-LIABILITIES> 345
<SENIOR-EQUITY> 51
<PAID-IN-CAPITAL-COMMON> 55,310
<SHARES-COMMON-STOCK> 465
<SHARES-COMMON-PRIOR> 173
<ACCUMULATED-NII-CURRENT> 14
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 1,172
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (2,580)
<NET-ASSETS> 4,869
<DIVIDEND-INCOME> 1,520
<INTEREST-INCOME> 901
<OTHER-INCOME> 0
<EXPENSES-NET> 1,040
<NET-INVESTMENT-INCOME> 1,381
<REALIZED-GAINS-CURRENT> 2,675
<APPREC-INCREASE-CURRENT> (12,184)
<NET-CHANGE-FROM-OPS> (8,128)
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 31
<DISTRIBUTIONS-OF-GAINS> 291
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 319
<NUMBER-OF-SHARES-REDEEMED> 50
<SHARES-REINVESTED> 23
<NET-CHANGE-IN-ASSETS> (6,434)
<ACCUMULATED-NII-PRIOR> 357
<ACCUMULATED-GAINS-PRIOR> 1,844
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 515
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1,202
<AVERAGE-NET-ASSETS> 4,114
<PER-SHARE-NAV-BEGIN> 13.23
<PER-SHARE-NII> 0.39
<PER-SHARE-GAIN-APPREC> (2.13)
<PER-SHARE-DIVIDEND> 0.10
<PER-SHARE-DISTRIBUTIONS> 0.92
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 10.47
<EXPENSE-RATIO> 2.77
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FORM N-SAR
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FORM N-SAR.
</LEGEND>
<RESTATED>
<CIK> 0000926034
<NAME> MULTI CLASS ADVANTUS INTERNATIONAL BALANCED FUND
<SERIES>
<NUMBER> 102
<NAME> CLASS C
<MULTIPLIER> 1000
<CURRENCY> US
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-START> OCT-01-1997
<PERIOD-END> SEP-30-1998
<EXCHANGE-RATE> 1
<INVESTMENTS-AT-COST> 55,009
<INVESTMENTS-AT-VALUE> 52,573
<RECEIVABLES> 1,205
<ASSETS-OTHER> 535
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 54,313
<PAYABLE-FOR-SECURITIES> 18
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 327
<TOTAL-LIABILITIES> 345
<SENIOR-EQUITY> 51
<PAID-IN-CAPITAL-COMMON> 55,310
<SHARES-COMMON-STOCK> 293
<SHARES-COMMON-PRIOR> 304
<ACCUMULATED-NII-CURRENT> 14
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 1,172
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (2,580)
<NET-ASSETS> 3,074
<DIVIDEND-INCOME> 1,520
<INTEREST-INCOME> 901
<OTHER-INCOME> 0
<EXPENSES-NET> 1,040
<NET-INVESTMENT-INCOME> 1,381
<REALIZED-GAINS-CURRENT> 2,675
<APPREC-INCREASE-CURRENT> (12,184)
<NET-CHANGE-FROM-OPS> (8,128)
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 33
<DISTRIBUTIONS-OF-GAINS> 239
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 147
<NUMBER-OF-SHARES-REDEEMED> 185
<SHARES-REINVESTED> 27
<NET-CHANGE-IN-ASSETS> (6,434)
<ACCUMULATED-NII-PRIOR> 357
<ACCUMULATED-GAINS-PRIOR> 1,844
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 515
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1,202
<AVERAGE-NET-ASSETS> 3,814
<PER-SHARE-NAV-BEGIN> 13.24
<PER-SHARE-NII> 0.39
<PER-SHARE-GAIN-APPREC> (2.13)
<PER-SHARE-DIVIDEND> 0.10
<PER-SHARE-DISTRIBUTIONS> 0.92
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 10.48
<EXPENSE-RATIO> 2.80
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<PAGE>
ADVANTUS FUNDS
Multiple Class Plan Pursuant to Rule 18f-3
Adopted October 22, 1998 and
Effective February 1, 1999
I. PREAMBLE.
Each of the funds listed below (each a "Fund", and collectively the
"Funds"), has elected to rely on Rule 18f-3 under the Investment Company Act
of 1940, as amended (the "1940 Act") in offering multiple classes of shares
in each Fund:
Advantus Horizon Fund, Inc.
Advantus Spectrum Fund, Inc.
Advantus Mortgage Securities 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.
This Plan sets forth the differences among classes of shares of the
Funds, including distribution arrangements, shareholder services, expense
allocations, conversion and exchange options, and voting rights.
II. ATTRIBUTES OF SHARES CLASSES.
The attributes of each existing class of the existing Funds (i.e.,
Class A, Class B and Class C), with respect to distribution arrangements,
shareholder services, and conversion and exchange options shall be as set
forth in the following materials:
A. Prospectuses of the respective Funds in the forms most recently
filed with the Securities and Exchange Commission (the "SEC")
prior to the effective date of this Plan (with respect to the
Class A, Class B and Class C shares of each Fund) and as
subsequently amended.
B. Statements of Additional Information of the respective Funds in
the forms most recently filed with the SEC prior to the effective
date of this Plan (with respect to each Fund) and as subsequently
amended.
C. Class A Plan of Distribution in the form approved by the Board
of Directors on October 22, 1998 (with respect to the Class A
shares of each Fund).
D. Class B Plan of Distribution in the form reapproved by the
Board of Directors on January 14, 1998 (with respect to the
Class B shares of each Fund).
<PAGE>
E. Class C Plan of Distribution in the form reapproved by the
Board of Directors on January 14, 1998 (with respect to the
Class C shares of each Fund).
Expenses of such existing classes of the Funds shall continue to be
allocated in the manner set forth in III below. Each such existing class
shall have exclusive voting rights on any matter submitted to shareholders
that relates solely to its arrangement and shall have separate voting rights
on any matter submitted to shareholders in which the interests of one class
differ from the interests of any other class.
III. EXPENSE ALLOCATIONS.
Expenses of the existing classes of the existing Funds shall be
allocated as follows:
A. Distribution fees and service fees relating to the respective
classes of shares, as set forth in the materials referred to
in II above, shall be borne exclusively by the classes of shares
to which they relate.
B. Except as set forth in A above, expenses of the Funds shall be
borne at the Fund level and shall not be allocated on a class
basis.
Unless and until this Plan is amended to provide otherwise, the
methodology and procedures for calculating the net asset value of the
respective classes of shares of the Funds and the allocation of income and
expenses among the respective classes shall be as set forth in the
"Description of the Methodology for Calculation of Net Asset Value, Dividend
Distributions and Allocation of Income and Expenses" attached hereto as
Exhibit A.
The foregoing allocations shall in all cases be made in a manner
consistent with such private letter rulings as the Funds may have received
from the Internal Revenue Service with respect to multiple classes of shares.
IV. AMENDMENT OF PLAN; PERIODIC REVIEW.
A. NEW FUNDS AND NEW CLASSES. With respect to any new Fund
created after the date of this Plan and any new class of shares
of the existing Funds created after the date of this Plan, the
Board of Directors of the such new Fund and the existing Funds
shall approve amendments to this Plan setting forth the
attributes of the classes of shares of such new Fund or of such
new class of shares.
B. MATERIAL AMENDMENTS AND PERIODIC REVIEWS. The Board of
Directors of the Funds, including a majority of the independent
directors, shall periodically review this Plan for its continued
appropriateness and shall approve any material amendment of this
Plan as it relates to any class of any Fund covered by this Plan.
<PAGE>
EXHIBIT A
DESCRIPTION OF THE METHODOLOGY FOR CALCULATION OF NET ASSET
VALUE, DIVIDEND DISTRIBUTIONS AND ALLOCATION OF INCOME AND
EXPENSES
OVERVIEW
The Advantus Mutual Fund Group, formerly known as the MIMLIC Mutual Fund
Group, (the Funds) has adopted a Variable Pricing System that allows the
Funds to issue separate classes of shares. The issuance of separate classes
of shares of the Funds requires the maintenance of accounting records for
each class of shares within each Fund.
Under the Variable Pricing System, shareholders are given an option of how
they will pay for sales commissions:
(1) Class A shares - Shares sold subject to a front-end sales
charge and a distribution and/or service fee pursuant to a
Rule 12b-1 plan at an annual rate of up to .25% of average
daily net assets.
(2) Class B shares - Shares sold without the imposition of a
front-end sales charge but subject to a contingent deferred
sales charge and a Rule 12b-1 plan providing for a service fee
equal to an annual rate of up to .25% and a distribution fee
equal to an annual rate of up to .75% of the average daily net
assets. It is contemplated that Class B shares will
automatically convert to Class A shares of the same Fund after
a specified holding period.
(3) Class C shares - Shares sold without either a front-end sales
charge or a contingent deferred sales charge. Class C has a
Rule 12b-1 plan providing for a service fee equal to an annual
rate of up to .25% and a distribution fee equal to an annual
rate of up to .75% of the average daily net assets. It is
contemplated that Class C shares will automatically convert to
Class A shares of the same Fund after a specified holding period.
In addition to the distribution and service fees described above for each
class, each of the two classes may also be assessed differing class-level
expenses as described below. In the future, alternative product distribution
methods may require additional classes of shares.
ALLOCATION METHODOLOGY
In maintaining the records and calculating the daily net asset values and
daily and periodic dividend distributions for the Funds, the income,
fund-level expenses, class-level expenses and realized and unrealized gains
and losses must be allocated to each class of shares within each Fund. These
allocations, with the exception of class-level expenses, depend upon the
Fund's dividend policy. The two allocation methods are summarized as follows:
<PAGE>
(1) Daily Dividend Funds - Income and fund-level expenses are
allocated to each class based on the relative percentage of
net assets of shares eligible to receive dividends (settled
shares) at the beginning of the day, after such net assets are
adjusted for the prior day's capital share activity of each
class of shares as reported by the Fund's transfer agent on the
current valuation date. Realized and unrealized gains and
losses are allocated to each class based on the relative
percentage of net assets at the beginning of the day, after such
net assets are adjusted for the prior business day's capital
share activity of each class of shares as reported by the Fund's
transfer agent on the current valuation date.
(2) Periodic Dividend Funds - Income, fund-level expenses and
realized and unrealized gains and losses are allocated to each
class based on the relative percentage of net assets at the
beginning of the day, after such net assets are adjusted for the
prior business day's capital share activity of each class of
shares as reported by the Fund's transfer agent on the current
valuation date.
A primary requirement in determining the daily net asset value and
distributions for each class of shares, is the determination of which
expenses are fund-level expenses and which expenses are class-level expenses.
The appropriate accounting records will be maintained to properly identify
fund-level and class-level expenses. Fund-level and class-level expenses are
calculated in the following manner:
Fund-Level Expenses
Fund-level expenses are first determined for each Fund as a whole and then
allocated to each class of shares based on the Fund's proportionate net
assets, pursuant to the Fund's dividend policy, as previously described above.
(1) Investment advisory fees - Daily investment advisory fees are
calculated using the Fund's previous valuation day's net assets,
after such net assets are adjusted for the prior business day's
capital share activity, multiplying by the rate pursuant to
each Fund's Investment Advisory Agreement and dividing by the
number of days in the current year.
(2) Other fund-level expenses - Daily accruals for each type of
other fund-level expense may be determined based on expense
estimates.
Class-Level Expenses
(1) Distribution and service fees pursuant to a Rule 12b-1 Plan -
Daily distribution and service fees are calculated separately
for each class of shares based on the rates stated in the
respective distribution plans for each class of shares. Each
class' daily fee is calculated using the previous valuation
day's net assets for that class, after such net assets are
adjusted for the prior business day's capital share activity,
multiplying by the appropriate distribution and service fee
rate for the respective class and dividing by the number of
days in the current year.
<PAGE>
(2) Other class-level expenses - Daily accruals for class-level
expenses may be determined based on expense estimates for such
expenses that have been specifically identified to a certain
class of shares.
SUMMARY OF CONTROL OBJECTIVES, PROCEDURES AND CONTROLS
Control Objectives
In designing the accounting procedures and controls for the determination of
net asset values and dividend distributions, including the allocation of
income, expenses and realized and unrealized capital gains and losses, the
following objectives must be met:
(1) Expenses directly attributable to each class of shares are
allocated properly to the correct class of shares.
(2) Income, fund-level expenses and realized and unrealized capital
gains and losses are allocated properly to the correct class of
shares.
(3) Dividend rates and daily per share net asset values (NAVs) for
each class of shares reflect the proper allocation of income,
expenses (both fund-level and class-level), and realized and
unrealized capital gains and losses.
Procedures
The accounting records of the Funds are maintained by the Minnesota Life
Insurance Company's Mutual Fund Accounting Unit (Mutual Fund Accounting). In
addition to the books and records currently maintained for the Funds in
accordance with regulatory and accounting requirements, records will be
maintained to support the calculation of NAVs and distributions for each
class of shares. The normal procedures and controls currently in effect over
the daily accounting and recordkeeping for single class Funds will also apply
to multiple class Funds. In addition, the specific procedures and controls
resulting in the determination of daily net income for each class, as well as
realized and unrealized capital gains and losses are as follows:
(1) Allocations
(a) The basis for the daily allocations of income, fund-level expenses
and realized and unrealized gains and losses to each class of shares
is as follows:
(1) Daily Dividend Funds
Income and fund-level expenses are allocated to each class based
on the relative percentage of net assets of dividend-eligible
shares (settled shares) at the beginning of the day, after such
net assets are adjusted for the prior day's capital share activity
of each class of shares as reported by the Fund's transfer agent
on the current valuation date. Dividend-eligible (also referred
to as settled or paid) shares represent shares for which the Fund
has received cash payment. Realized and unrealized gains and
losses are allocated to each class based on the relative
percentage of net assets at the beginning of the day, after such
net assets are
<PAGE>
adjusted for the prior business day's capital share activity of
each class of shares as reported by the Fund's transfer agent on
the current valuation date.
(2) Periodic Dividend Funds
Income, fund-level expenses and realized and unrealized gains and
losses are allocated to each class based on the relative
percentage of net assets at the beginning of the day, after such
net assets are adjusted for the prior business day's capital share
activity of each class of shares as reported by the Fund's
transfer agent on the current valuation date.
(b) Class-level expenses are primarily determined by rates set forth in Fund
agreements (i.e., distribution and service fees) and class net asset
levels. Other class-level expenses may be determined based on expense
estimates for such expenses that have been specifically identified to a
certain class of shares.
(c) Fund-level expenses are determined by (a) rates set forth in Fund
agreements (i.e., investment advisory fees) and Fund net asset levels;
(b) fees approved by the Board of Directors (i.e., administrative
services fees); (c) estimates of expenses incurred for services rendered.
(d) Investment income and realized and unrealized gains and losses are
determined in total for the Fund in accordance with the accounting
principles followed by each of the Funds.
(e) The amounts determined under (a) through (d) are entered into the Mutual
Fund Accounting System (either through an automated mainframe interface
with other accounting and administrative systems used by the Funds or
manually by Mutual Fund Accounting personnel). These same amounts are
entered, through an automated mainframe interface, into a "Net Asset
Value Calculation Worksheet" (NAV Worksheet) which is an additional
mainframe application within the Mutual Fund Accounting System. Amounts
per the Mutual Fund Accounting System are verified by Mutual Fund
Accounting personnel on the NAV Worksheet.
(f) The NAV Worksheet application allocates investment income, realized and
unrealized gains and losses and fund-level expenses to each class of
shares by the appropriate allocation method.
(g) The NAV Worksheet application determines daily net investment income by
class by deducting fund-level and class-level expenses from investment
income and adjusting such amount for any fund and/or class level expense
waivers or reimbursements.
(2) Distributions
Another component in the determination of class-level NAVs is distributions
of net investment income and net realized gains to shareholders of each
class. The two dividend declaration policies currently followed by the Funds
are:
<PAGE>
(a) Daily Dividend Funds - Declare dividends from the Fund's daily net
investment income. Declare annual distributions of net realized
short-term and long-term capital gains on investments.
(b) Periodic Dividend Funds - Declare dividends from net investment income
on a periodic (quarterly) basis. Declare annual distributions of net
realized short-term and long-term capital gains on investments.
The procedures for determining distributions of net investment income for
each class are discussed below, by dividend declaration policy.
(a) Net Investment Dividends
(1) Daily Dividend Funds - The NAV Worksheet is used to calculate the
daily net investment income and daily dividend per share. Daily
net investment income to be distributed by class is determined as
the allocated daily income amount (i.e., interest income and
amortization of discount and premium) minus daily allocated
fund-level expenses minus daily class-level expenses plus any
fund or class-level expense waivers or reimbursements. The daily
net investment income to be distributed by class will then be
divided by the applicable class outstanding dividend eligible
shares (settled shares) to get the daily per share dividend rate
by class.
(2) Periodic Dividend Funds - For Funds paying periodic dividends, net
investment income available for distribution will be determined at
the Fund level (i.e., in total for all classes) and entered into a
Personal Computer spreadsheet. Class-level expenses will be added
back to this amount to arrive at adjusted undistributed net
investment income for the Fund as a total (i.e., net investment
income available for distribution to all shares before
consideration of any class-level expenses). The adjusted
undistributed net investment income will divided by the total
records date shares outstanding (for all classes) to determine a
gross dividend rate for all shares. The gross dividend rate will
then be adjusted by an per share class-level expenses (class-level
expenses divided by the number of shares in that class) to obtain a
dividend rate for each class. Fund-level and class-level expenses
are also adjusted for any related waivers or reimbursements.
(b) Capital Gains Distributions
Distributions from net realized short-term and long-term capital gains
are determined in the same manner for all classes, regardless of dividend
declaration policy. Per share net realized capital gains are determined
by dividing the total amount of net realized capital gains available for
distribution by the total records date shares outstanding (for all
classes).
(3) Net Asset Values
After items (1) and (2) have been completed, the NAV Worksheet application
will compute the total net assets for each class of shares and in total for
each Fund. The NAV Worksheet
<PAGE>
application calculated the NAV by dividing the net assets for each class of
shares by the respective shares outstanding. The NAV Worksheet application
also calculated the public offering price for Class A shares.
A NAV control check is calculated each day on the NAV Worksheet by dividing
the sum of the prior day's ending net assets by class plus the current day's
change in net assets by class, by the class-specific shares outstanding.
In addition to the books and records currently maintained for the Funds in
accordance with regulatory and accounting requirements, records are also
maintained in support of the determination of NAV by class, and associated
dividend distributions, and include expense accrual analyses supporting
class-level expenses and dividend distribution rate analyses. Amounts
allocated to each class (i.e., income and expense items and realized and
unrealized capital gains and losses), as well as dividend distributions, are
accounted for separately by class on a daily basis, including all shareholder
activity, by the Mutual Fund Accounting System and other accounting and
administrative systems used by the Funds. Note that the NAV Worksheet for
determining and/or verifying each class NAV is fully integrated into the
other accounting and administrative systems used by the Funds. As part of
the accounting records of the Funds, these additional records are subject to
the same procedures, reviews and controls currently exercised by Mutual Fund
Accounting in maintaining their accuracy.
Controls
The internal control structure in place applies to single class and multiple
class Funds. The additional controls required in accounting for additional
classes of shares are as follows (these controls are performed by the same
Mutual Fund Accounting personnel that perform control procedures for all the
Advantus and MIMLIC Funds):
(1) The NAV Worksheet is an additional mainframe application with the Mutual
Fund Accounting System, portions of which are integrated with other
accounting and administrative systems used by the Funds, thereby
eliminating the potential for data entry errors. The portions of the
NAV Worksheet which require manual input are independently compared to
source documents to minimize the risk of data entry errors.
(2) The sum of each class' net assets, shares outstanding, net investment
income and realized and unrealized capital gains and losses must agree
to the respective totals for the Fund.
(3) Relative movement of class NAVs and dividend rates are reviewed for
reasonableness in relation to anticipated differences due to
class-level expenses.
(4) Relative performance of the classes (i.e. returns, dividend yields,
expense rations, etc.) is reviewed in relation to anticipated differences
due to class-level expenses.
(5) Class-level expense basis points and class total expense basis points are
reviewed and recalculated on a daily basis to ensure accurate allocation
and agreement with the Fund's prospectus.
<PAGE>
FINANCIAL STATEMENT FORM AND CONTENT
At a minimum, the following disclosures are made in the annual and
semi-annual financial statements issued to shareholders of Funds with
multiple classes of shares:
Schedule of Investments of Securities
- - Shown in accordance with standard reporting practices.
Statement of Assets and Liabilities
- - Assets and liabilities are disclosed on a combined basis.
- - The components of net assets are disclosed on a combined basis.
- - Information with regard to shares authorized, issued and outstanding
and net asset value per share are disclosed for each class.
Statement of Operations
- - Income and expenses are disclosed on a combined basis. Explicit disclosure
is made of class specific expenses. Additionally, specific disclosure is made
of fund-level and class-level expense waiver and reimbursements.
Statement of Changes in Net Assets
- - Statement of changes information is disclosed on a combined basis. Explicit
disclosure is made about dividends and distributions paid to each class and
transactions in Fund shares (both dollars and shares) for each class.
Financial Highlights
- - Per share data and ratios (excluding portfolio turnover rate) is disclosed
for each class.
Notes to Financial Statements
In addition to the standard notes, the notes to financial statements include
theses additional disclosures:
- - Description of each class and their respective attributes.
- - Methodology used in allocating income, expense and realized and unrealized
gains and losses to each class.
- - Description of class-specific 12b-1 plans and any other class-level expenses.
- - Disclosure of transactions in Fund shares for each class.
- - Disclosure of sales charges for each class.
<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
