0000950137-09-003257.txt : 20110516 0000950137-09-003257.hdr.sgml : 20110516 20090427102459 ACCESSION NUMBER: 0000950137-09-003257 CONFORMED SUBMISSION TYPE: 485BPOS PUBLIC DOCUMENT COUNT: 20 FILED AS OF DATE: 20090427 DATE AS OF CHANGE: 20090427 EFFECTIVENESS DATE: 20090501 FILER: COMPANY DATA: COMPANY CONFORMED NAME: ADVANTUS SERIES FUND INC CENTRAL INDEX KEY: 0000766351 IRS NUMBER: 000000000 STATE OF INCORPORATION: MN FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 485BPOS SEC ACT: 1933 Act SEC FILE NUMBER: 002-96990 FILM NUMBER: 09771380 BUSINESS ADDRESS: STREET 1: 400 N ROBERT ST CITY: ST PAUL STATE: MN ZIP: 55101 BUSINESS PHONE: 6516656918 MAIL ADDRESS: STREET 1: 400 ROBERT STREET NORTH CITY: ST PAUL STATE: MN ZIP: 55101-2098 FORMER COMPANY: FORMER CONFORMED NAME: MIMLIC SERIES FUND INC DATE OF NAME CHANGE: 19920703 FILER: COMPANY DATA: COMPANY CONFORMED NAME: ADVANTUS SERIES FUND INC CENTRAL INDEX KEY: 0000766351 IRS NUMBER: 000000000 STATE OF INCORPORATION: MN FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 485BPOS SEC ACT: 1940 Act SEC FILE NUMBER: 811-04279 FILM NUMBER: 09771381 BUSINESS ADDRESS: STREET 1: 400 N ROBERT ST CITY: ST PAUL STATE: MN ZIP: 55101 BUSINESS PHONE: 6516656918 MAIL ADDRESS: STREET 1: 400 ROBERT STREET NORTH CITY: ST PAUL STATE: MN ZIP: 55101-2098 FORMER COMPANY: FORMER CONFORMED NAME: MIMLIC SERIES FUND INC DATE OF NAME CHANGE: 19920703 0000766351 S000001671 Money Market Portfolio C000004536 Money Market Portfolio 0000766351 S000024505 Bond Portfolio C000072676 Class 1 C000072677 Class 2 0000766351 S000024506 Index 400 Mid-Cap Portfolio C000072678 Class 1 C000072679 Class 2 0000766351 S000024507 Index 500 Portfolio C000072680 Class 1 C000072681 Class 2 0000766351 S000024508 International Bond Portfolio C000072682 Class 2 C000072683 Class 1 0000766351 S000024509 Mortgage Securities Portfolio C000072684 Class 2 C000072685 Class 1 0000766351 S000024510 Real Estate Securities Portfolio C000072686 Class 2 C000072687 Class 1 485BPOS 1 c49473be485bpos.txt 485BPOS File Numbers 2-96990 and 811-4279 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 Form N-1A REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 Pre-Effective Amendment Number ____ Post-Effective Amendment Number 40 ---- and/or REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 Amendment Number 38 ---- --------------------- Advantus Series Fund, Inc. (Exact Name of Registrant as Specified in Charter) 400 Robert Street North St. Paul, Minnesota 55101-2098 (Address of Principal Executive Offices) (651) 665-3500 (Registrant's Telephone Number, Including Area Code) ---------------------- Copy to: Eric J. Bentley, Esquire Michael J. Radmer, Esquire Assistant Secretary Dorsey & Whitney LLP Advantus Series Fund, Inc. 50 South Sixth Street 400 Robert Street North Minneapolis, Minnesota 55402 St. Paul, Minnesota 55101-2098 ---------------------- IT IS PROPOSED THAT THIS FILING WILL BECOME EFFECTIVE (check appropriate box) ___ immediately upon filing pursuant to paragraph (b) _X_ on May 1, 2009 pursuant to paragraph (b) ___ 60 days after filing pursuant to paragraph (a)(1) ___ on (date) pursuant to paragraph (a)(1) ___ 75 days after filing pursuant to paragraph (a)(2) ___ on (date) pursuant to paragraph (a)(2) of Rule 485. IF APPROPRIATE, CHECK THE FOLLOWING BOX: this post-effective amendment designates a new effective date for a previously filed post-effective amendment. [ADVANTUS LOGO] ADVANTUS SERIES FUND, INC. Prospectus dated May 1, 2009 As with all mutual funds, the Securities and Exchange Commission has not determined that the information in this prospectus is accurate or complete, nor has it approved the Fund's securities. It is a criminal offense to state otherwise. ADVANTUS SERIES FUND, INC. Advantus Series Fund, Inc. (Fund) is a Minnesota corporation with various investment portfolios that are each operated as mutual funds (the Portfolios). The Portfolios are as follows: - Bond Portfolio - Index 400 Mid-Cap Portfolio - Index 500 Portfolio - International Bond Portfolio - Money Market Portfolio - Mortgage Securities Portfolio - Real Estate Securities Portfolio The Fund has issued a separate series of its common stock for each Portfolio. Each Portfolio currently offers its shares in two classes (Class 1 and Class 2), except that Money Market Portfolio offers shares in only one class. Different expenses apply to the Class 1 and Class 2 shares. This prospectus provides investors information about the Fund and each Portfolio that Class 1 and Class 2 share investors should know before investing. TABLE OF CONTENTS
Page No. SUMMARY .............................................................. 1 Bond Portfolio.............................................. 2 Index 400 Mid-Cap Portfolio................................. 6 Index 500 Portfolio......................................... 9 International Bond Portfolio................................ 12 Money Market Portfolio...................................... 17 Mortgage Securities Portfolio............................... 21 Real Estate Securities Portfolio............................ 25 INVESTING IN THE FUND ................................................ 28 Managing the Portfolios..................................... 28 Advisory Fees............................................... 30 Distribution Fees........................................... 31 Payments to Insurance Companies............................. 31 Investment Objective, Policies and Practices................ 31 Bond Portfolio......................................... 31 Index 400 Mid-Cap Portfolio............................ 34 Index 500 Portfolio.................................... 35 International Bond Portfolio........................... 36 Money Market Portfolio................................. 40 Mortgage Securities Portfolio.......................... 43 Real Estate Securities Portfolio....................... 45 Investment Practices Common to the Portfolios.......... 47 Portfolio Turnover..................................... 47 Defining Risks.............................................. 48 BUYING AND SELLING SHARES ............................................ 54 Buying Shares............................................... 54 Selling Shares.............................................. 55 Exchanging Shares........................................... 55 GENERAL INFORMATION .................................................. 57 Dividends and Capital Gains Distributions................... 57 Taxes....................................................... 57 Mixed and Shared Funding.................................... 57 FINANCIAL HIGHLIGHTS ................................................. 59 SERVICE PROVIDERS .................................................... 72 ADDITIONAL INFORMATION ABOUT THE FUND ................................ 73
TABLE OF CONTENTS i (This page has been left blank intentionally.) SUMMARY Advantus Series Fund, Inc. (the Fund) consists of various investment portfolios (except International Bond Portfolio) that are each open-end, diversified investment companies (i.e. mutual funds). International Bond Portfolio is an open-end, non-diversified investment company. The Portfolios offer investors a variety of investment objectives. Portfolio shares are not offered directly to the public. Portfolio shares are sold to Minnesota Life Insurance Company (Minnesota Life) in connection with its variable life insurance policies and variable annuity contracts. Portfolio shares are also offered to certain other life insurance companies, including but not limited to Securian Life Insurance Company (Securian Life), an affiliate of Minnesota Life, and may also be offered to certain qualified plans. This section gives investors a brief summary of each Portfolio's investment objective, policies and main risks, as well as performance and financial information. More detailed information about each Portfolio follows this summary. Keep in mind that an investment in each Portfolio is not a deposit of a bank and is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other governmental agency and that it is possible to lose money by investing in a Portfolio. An investor should also note that if a Portfolio makes frequent changes in its investment portfolio securities, such changes may result in higher Portfolio costs and may adversely affect an investor's return. SUMMARY 1 BOND PORTFOLIO Bond Portfolio seeks as high a level of a long-term total rate of return as is consistent with prudent investment risk. The Portfolio also seeks preservation of capital as a secondary objective. The Portfolio invests in a variety of investment-grade debt securities. These debt securities include, among other things, corporate and mortgage-backed securities, debt securities issued or guaranteed by the U.S. government or any of its agencies or instrumentalities, asset-backed securities and other debt obligations of U.S. banks or savings and loan associations. In selecting securities, the Portfolio's investment adviser considers factors such as industry outlook, current and anticipated market and economic conditions, general levels of debt prices and issuer operations. The Portfolio's benchmark index is the Barclays Capital Aggregate Bond Index (the "Index"), an unmanaged composite including U.S. Treasury and agency securities, investment-grade corporate bonds and mortgage-backed securities with maturities greater than one year. The Portfolio's investment positions may be overweight or underweight versus the Index in all sectors, including in asset- backed securities, commercial mortgage-backed securities, non-agency collateralized mortgage-obligations (CMOs), and corporate bond securities. The Portfolio holds securities in all sectors contained in the Index, but in addition holds positions not included in the Index including, but not limited to, CMOs. The Portfolio typically holds similar, but not identical securities represented in the Index. Additionally, the Portfolio Manager determines the appropriate security position size and the Portfolio will typically hold security position sizes (generally referenced as a percentage of total portfolio holdings) that are not in the same proportion as that security or a similar security represents in the Index. Sector exposure is determined by the Portfolio Manager from time to time, and may vary significantly from the Index exposure. An investment in the Portfolio may result in the loss of money, and may also be subject to various risks including the following types of main risk: - CALL RISK - the risk that securities with interest rates will be prepaid by the issuer prior to maturity, particularly during periods of falling interest rates, causing the Portfolio to reinvest the proceeds in other securities with generally lower interest rates. - COMPANY RISK - the risk that individual securities may perform differently from the overall market as a result of changes in specific factors such as profitability or investor perceptions, or as a result of increased volatility in a company's income or the amount of leverage on the company's balance sheet. - CREDIT RISK - the risk that the Portfolio may lose some or all of its investment, including both principal and interest, because an issuer of an asset-backed or debt security (or an underlying obligor) or other fixed income obligation will not make payments on the security or obligation when due, as well as the risk that the credit quality of a security may be lowered, resulting in a lower price, greater volatility and reduced liquidity for such security. - EXTENSION RISK - the risk that rising interest rates could cause property owners to prepay their mortgages more slowly than expected, resulting in slower prepayments of mortgage-backed securities. - INCOME RISK - the risk that the Portfolio may experience a decline in its income due to falling interest rates. - INTEREST RATE RISK - the risk that the value of a debt security or fixed income obligation will decline due to changes in market interest rates (note: one measure of interest rate risk is effective duration, explained under "Investing in the Fund - Investment Objective, Policies and Practices - Bond Portfolio"). 2 SUMMARY - LIQUIDITY RISK - the risk that the debt securities or fixed income obligations purchased by the Portfolio, including restricted securities determined by the Portfolio's investment adviser to be liquid at the time of purchase, may prove to be illiquid or otherwise subject to reduced liquidity due to changes in market conditions or quality ratings, or to errors in judgment by the investment adviser. - NON-AGENCY SECURITIES RISK - is the risk that payments on a security will not be made when due, or the value of such security will decline, because the security is not issued or guaranteed as to principal or interest by the U.S. Government or by agencies or authorities controlled or supervised by and acting as instrumentalities of the U.S. Government. These securities may include but are not limited to securities issued by non-government entities which can include instruments secured by obligations of prime, Alt A, and sub-prime residential mortgage borrowers. Non-agency securities also may include asset-backed securities (which represent interests in auto, consumer and/or credit card loans) and commercial mortgage-backed securities (which represent interests in commercial mortgage loans). - PREPAYMENT RISK - the risk that falling interest rates could cause prepayments of securities to occur more quickly than expected, causing the Portfolio to reinvest the proceeds in other securities with generally lower interest rates. - SHORT-TERM TRADING RISK - the risk that the Portfolio may trade securities frequently and hold securities for one year or less, which will increase the Portfolio's transaction costs. - SUB-PRIME MORTGAGE RISK - the risk that an issuer of a security will not make payments on the security when due, or the value of such security will decline, because the issuer owns (or has exposure to) mortgage notes (or other obligations) payable by "sub-prime" or "Alt A" borrowers. Please see "Investing in the Fund - Investment Objective, Policies and Practices" and "- Defining Risks" for a more detailed description of these main risks and additional risks in connection with investing in the Portfolio. SUMMARY 3 PORTFOLIO PERFORMANCE. The following bar chart and table show Bond Portfolio's annual returns and long-term performance. The chart shows how the Portfolio's performance has varied from year to year, and provides some indication of the risks in investing in the Portfolio. The table shows how the Portfolio's average annual return over a one, five and ten year period compares to the return of a broad based index. The chart and table assume reinvestment of dividends and distributions. The chart and table do not, however, reflect the charges and other expenses associated with the variable life insurance policies and variable annuity contracts, or qualified plans, which invest in the Portfolio. If such charges and expenses were included, the returns shown below would be lower. Like other mutual funds, the past performance of the Portfolio does not necessarily indicate how the Portfolio will perform in the future. Bond Portfolio offers two classes of shares: Class 1 and Class 2. Both classes of shares will be invested in the same portfolio of securities and will have substantially similar annual returns, differing only to the extent that the classes do not have the same expenses. The performance shown in the bar chart below for Bond Portfolio is for Class 2 and reflects a 0.25% 12b-1 distribution fee that is not charged to Class 1 shares. Because Class 1 is not subject to this 12b-1 fee, the returns for Class 1 would have been somewhat greater than the returns shown for Bond Portfolio in the bar chart. YEAR TO YEAR TOTAL RETURN (AS OF DECEMBER 31) -- CLASS 2 -------------------------------------------------------------------------------- [LINE GRAPHIC] '99 -2.73 '00 10.44 '01 7.90 '02 10.50 '03 5.35 '04 4.98 '05 2.44 '06 4.66 '07 2.29 08 -13.52
Best Quarter: Q3'01 4.85% Worst Quarter: Q4'08 -7.02%
AVERAGE ANNUAL TOTAL RETURN (FOR PERIODS ENDING DECEMBER 31, 2008) --------------------------------------------------------------------------------
Inception 1 Year 5 Years 10 Years ----------------------------------------------------------------------------------------------- Bond Portfolio -- Class 1 (inception 2/11/08) (a) % (13.53) -- -- -- Bond Portfolio -- Class 2 % -- (13.52) (0.09) 3.00 Barclays Capital Aggregate Bond Index (formerly named the Lehman Brothers Aggregate Bond Index) % 3.79 5.24 4.65 5.63
(a) Class 1 shares were registered under the Securities Act of 1933 effective November 6, 2007, but the Portfolio did not commence issuing Class 1 shares until February 11, 2008. 4 SUMMARY FEES AND EXPENSES. Investors pay fees and expenses in connection with investing in the Bond Portfolio. This table describes the fees and expenses that investors pay if they buy and hold Class 1 or Class 2 shares of the Portfolio, but it does not reflect charges assessed in connection with the variable life insurance policies or variable annuity contracts, or qualified plans, that invest in the Portfolio. SHAREHOLDER FEES (fees paid directly from an investment in the Portfolio) --------------------------------------------------- Not Applicable ANNUAL PORTFOLIO OPERATING EXPENSES (EXPENSES THAT ARE DEDUCTED FROM PORTFOLIO ASSETS)
Class 1 Class 2 Management Fees % 0.40 0.40 Rule 12b-1 Fees % -- 0.25 Other Expenses % 0.09 0.09 Acquired Fund Fees and Expenses (a) % 0.01 0.01 TOTAL ANNUAL PORTFOLIO OPERATING EXPENSES % 0.50 0.75
(a) In accordance with the Portfolio's investment objectives, policies and practices (see discussion below), the Portfolio is authorized to invest in shares of another investment company (an "Acquired Fund"), in which case the Portfolio indirectly absorbs a proportionate share of the Acquired Fund's operating expenses. These indirect expenses reduce the Portfolio's return on the Acquired Fund, but they are not a direct operating expense of the Portfolio. For that reason, the Portfolio's Total Annual Portfolio Operating Expenses as reported in this table may not equal the expense ratios included in the "Financial Highlights" below or in the Fund's most recent Annual Report. EXAMPLE. This example is intended to help investors compare the costs of investing in the Portfolio with the cost of investing in other Portfolios. The example assumes an investment of $10,000 in the Portfolio for the time periods indicated and then a redemption of all shares at the end of those periods. The example also assumes that the investment has a 5% return each year and that the Portfolio's operating expenses remain the same. Although actual costs may be higher or lower, based on these assumptions, costs would be: 1 Year 3 Years 5 Years 10 Years Class 1 $52 164 286 643 Class 2 $78 243 423 944
The table and the example above reflect the Portfolio related fees and expenses that an investor would bear indirectly as the owner of a variable life insurance policy or variable annuity contract, or as a participant in a qualified plan, that invests in the Portfolio. There are other fees and expenses related to such policies and contracts, or qualified plans, that are not reflected in this prospectus. If the table and example included those other fees and expenses, the fees and expenses shown in the table and example would be higher. SUMMARY 5 INDEX 400 MID-CAP PORTFOLIO Index 400 Mid-Cap Portfolio seeks investment results generally corresponding to the aggregate price and dividend performance of the publicly traded common stocks that comprise the Standard & Poor's 400 MidCap Index (the S&P 400). The Portfolio invests its assets in all of the common stocks included in the S&P 400. The S&P 400 consists of 400 domestic stocks chosen for market size, liquidity and industry group representation. It is a market-weighted index (stock price times shares outstanding), with each stock affecting the index in proportion to its market value. At March 31, 2009, the market capitalizations of companies included in the S&P 400 ranged from $62 million to $4.715 billion. An investment in the Portfolio may result in the loss of money, and may also be subject to various risks including the following types of main risk: - INDEX PERFORMANCE RISK - the risk that the Portfolio's ability to replicate the performance of the S&P 400 may be affected by, among other things, changes in securities markets, the manner in which Standard & Poor's Rating Services calculates the S&P 400, the amount and timing of cash flows into and out of the Portfolio, commissions, settlement fees, and other expenses. - MARKET RISK - the risk that equity securities are subject to adverse trends in equity markets. - PORTFOLIO RISK - the risk that Portfolio performance may not meet or exceed that of the market as a whole. Please see "Investing in the Fund - Investment Objective, Policies and Practices" and "- Defining Risks" for a more detailed description of these main risks and additional risks in connection with investing in the Portfolio. 6 SUMMARY PORTFOLIO PERFORMANCE. The following bar chart and table show Index 400 Mid-Cap Portfolio's annual returns and long-term performance. The chart shows how the Portfolio's performance has varied from year to year, and provides some indication of the risks in investing in the Portfolio. The table shows how the Portfolio's average annual return over a one and five year period and from the inception of the Portfolio compares to the return of a broad based index. The chart and table assume reinvestment of dividends and distributions. The chart and table do not, however, reflect the charges and other expenses associated with the variable life insurance policies and variable annuity contracts, or qualified plans, which invest in the Portfolio. If such charges and expenses were included, the returns shown below would be lower. Like other mutual funds, the past performance of the Portfolio does not necessarily indicate how the Portfolio will perform in the future. Index 400 Mid-Cap Portfolio offers two classes of shares: Class 1 and Class 2. Both classes of shares will be invested in the same portfolio of securities and will have substantially similar annual returns, differing only to the extent that the classes do not have the same expenses. The performance shown in the bar chart below for Index 400 Mid-Cap Portfolio is for Class 2 and reflects a 0.25% 12b-1 distribution fee that is not charged to Class 1 shares. Because Class 1 is not subject to this 12b-1 fee, the returns for Class 1 would have been somewhat greater than the returns shown for Index 400 Mid-Cap Portfolio in the bar chart. YEAR TO YEAR TOTAL RETURN (AS OF DECEMBER 31) -- CLASS 2 [LINE GRAPHIC] '99 15.96 '00 16.05 '01 -1.07 '02 -15.03 '03 34.59 '04 15.73 '05 11.96 '06 9.78 '07 7.44 08 -36.54
Best Quarter: Q4'04 11.93% Worst Quarter: Q4'08 -25.68%
AVERAGE ANNUAL TOTAL RETURN (FOR PERIODS ENDING DECEMBER 31, 2008)
Inception 1 Year 5 Years 10 years ----------------------------------------------------------------------------------------------- Index 400 Mid-Cap Portfolio -- Class 1 (inception 2/11/08) (a) % (31.84) -- -- -- Index 400 Mid-Cap Portfolio -- Class 2 % -- (36.54) (0.61) 3.97 S&P 400 MidCap Index % (31.70) (36.23) (0.08) 4.45
(a) Class 1 shares were registered under the Securities Act of 1933 effective November 6, 2007, but the Portfolio did not commence issuing Class 1 shares until February 11, 2008. SUMMARY 7 FEES AND EXPENSES. Investors pay fees and expenses in connection with investing in the Index 400 Mid-Cap Portfolio. This table describes the fees and expenses that investors pay if they buy and hold Class 1 or Class 2 shares of the Portfolio, but it does not reflect charges assessed in connection with the variable life insurance policies or variable annuity contracts, or qualified plans, that invest in the Portfolio. SHAREHOLDER FEES (fees paid directly from an investment in the Portfolio) ---------------------------------------------------------------- Not Applicable ANNUAL PORTFOLIO OPERATING EXPENSES (expenses that are deducted from Portfolio assets)
Class 1 Class 2 Management Fees % 0.15 0.15 Rule 12b-1 Fees % -- 0.25 Other Expenses % 0.14 0.14 Acquired Fund Fees and Expenses (a) % 0.03 0.03 TOTAL ANNUAL PORTFOLIO OPERATING EXPENSES % 0.32 0.57
(a) In accordance with the Portfolio's investment objectives, policies and practices (see discussion below), the Portfolio is authorized to invest in shares of another investment company (an "Acquired Fund"), in which case the Portfolio indirectly absorbs a proportionate share of the Acquired Fund's operating expenses. These indirect expenses reduce the Portfolio's return on the Acquired Fund, but they are not a direct operating expense of the Portfolio. For that reason, the Portfolio's Total Annual Portfolio Operating Expenses as reported in this table may not equal the expense ratios included in the "Financial Highlights" below or in the Fund's most recent Annual Report. EXAMPLE. This example is intended to help investors compare the costs of investing in the Portfolio with the cost of investing in other Portfolios. The example assumes an investment of $10,000 in the Portfolio for the time periods indicated and then a redemption of all shares at the end of those periods. The example also assumes that the investment has a 5% return each year and that the Portfolio's operating expenses remain the same. Although actual costs may be higher or lower, based on these assumptions, costs would be: 1 Year 3 Years 5 Years 10 Years Class 1 $34 108 189 425 Class 2 $60 188 327 733
The table and the example above reflect the Portfolio related fees and expenses that an investor would bear indirectly as the owner of a variable life insurance policy or variable annuity contract, or as a participant in a qualified plan, that invests in the Portfolio. There are other fees and expenses related to such policies and contracts, or qualified plans, that are not reflected in this prospectus. If the table and example included those other fees and expenses, the fees and expenses shown in the table and example would be higher. 8 SUMMARY INDEX 500 PORTFOLIO Index 500 Portfolio seeks investment results that correspond generally to the price and yield performance of the common stocks included in the Standard & Poor's 500 Composite Stock Price Index (the S&P 500). The S&P 500 is a broad, unmanaged index of 500 large cap common stocks which together represent about 75% of the total U.S. stock market. The Portfolio invests its assets in all of the common stocks included in the S&P 500. An investment in the Portfolio may result in the loss of money, and may also be subject to various risks including the following types of main risk: - INDEX PERFORMANCE RISK - the risk that the Portfolio's ability to replicate the performance of the S&P 500 may be affected by, among other things, changes in securities markets, the manner in which Standard & Poor's Rating Services calculates the S&P 500, the amount and timing of cash flows into and out of the Portfolio, commissions, settlement fees, and other expenses. - MARKET RISK - the risk that equity securities are subject to adverse trends in equity markets. - PORTFOLIO RISK - the risk that Portfolio performance may not meet or exceed that of the market as a whole. Please see "Investing in the Fund - Investment Objective, Policies and Practices" and "- Defining Risks" for a more detailed description of these main risks and additional risks in connection with investing in the Portfolio. SUMMARY 9 PORTFOLIO PERFORMANCE. The following bar chart and table show Index 500 Portfolio's annual returns and long-term performance. The chart shows how the Portfolio's performance has varied from year to year, and provides some indication of the risks in investing in the Portfolio. The table shows how the Portfolio's average annual return over a one, five and ten year period compares to the return of a broad based index. The chart and table assume reinvestment of dividends and distributions. The chart and table do not, however, reflect the charges and other expenses associated with the variable life insurance policies and variable annuity contracts, or qualified plans, which invest in the Portfolio. If such charges and expenses were included, the returns shown below would be lower. Like other mutual funds, the past performance of the Portfolio does not necessarily indicate how the Portfolio will perform in the future. Index 500 Portfolio offers two classes of shares: Class 1 and Class 2. Both classes of shares will be invested in the same portfolio of securities and will have substantially similar annual returns, differing only to the extent that the classes do not have the same expenses. The performance shown in the bar chart below for Index 500 Portfolio is for Class 2 and reflects a 0.25% 12b-1 distribution fee that is not charged to Class 1 shares. Because Class 1 is not subject to this 12b-1 fee, the returns for Class 1 would have been somewhat greater than the returns shown for Index 500 Portfolio in the bar chart. YEAR TO YEAR TOTAL RETURN (AS OF DECEMBER 31) -- CLASS 2 -------------------------------------------------------------------------------- [BAR GRAPHIC] '99 20.28 '00 -9.39 '01 -12.25 '02 -22.37 '03 28.04 '04 10.39 '05 4.43 '06 15.23 '07 5.02 08 -37.21
Best Quarter: Q4'04 9.09% Worst Quarter: Q4'08 -22.00%
AVERAGE ANNUAL TOTAL RETURN (FOR PERIODS ENDING DECEMBER 31, 2007) --------------------------------------------------------------------------------
Inception 1 Year 5 Years 10 Years ----------------------------------------------------------------------------------------------------- Index 500 Portfolio -- Class 1 (inception 2/11/08) (a) % (31.26) -- -- -- Index 500 Portfolio -- Class 2 % -- (37.21) (2.61) (1.81) S&P 500 (as adjusted for dividend reinvestment) % (31.56) (37.00) (2.19) (1.38)
(a) Class 1 shares were registered under the Securities Act of 1933 effective November 6, 2007, but the Portfolio did not commence issuing Class 1 shares until February 11, 2008. 10 SUMMARY FEES AND EXPENSES. Investors pay fees and expenses in connection with investing in the Index 500 Portfolio. This table describes the fees and expenses that investors pay if they buy and hold Class 1 or Class 2 shares of the Portfolio, but it does not reflect charges assessed in connection with the variable life insurance policies or variable annuity contracts, or qualified plans, that invest in the Portfolio. SHAREHOLDER FEES (fees paid directly from an investment in the Portfolio)
----------------------------------------------------------------- Not Applicable
ANNUAL PORTFOLIO OPERATING EXPENSES (expenses that are deducted from Portfolio assets)
Class 1 Class 2 Management Fees % 0.15 0.15 Rule 12b-1 Fees % -- 0.25 Other Expenses % 0.07 0.07 TOTAL ANNUAL PORTFOLIO OPERATING EXPENSES % 0.22 0.47
EXAMPLE. This example is intended to help investors compare the costs of investing in the Portfolio with the cost of investing in other Portfolios. The example assumes an investment of $10,000 in the Portfolio for the time periods indicated and then a redemption of all shares at the end of those periods. The example also assumes that the investment has a 5% return each year and that the Portfolio's operating expenses remain the same. Although actual costs may be higher or lower, based on these assumptions, costs would be: 1 Year 3 Years 5 Years 10 Years Class 1 $23 71 125 282 Class 2 $48 151 264 591
The table and the example above reflect the Portfolio related fees and expenses that an investor would bear indirectly as the owner of a variable life insurance policy or variable annuity contract, or as a participant in a qualified plan, that invests in the Portfolio. There are other fees and expenses related to such policies and contracts, or qualified plans, that are not reflected in this prospectus. If the table and example included those other fees and expenses, the fees and expenses shown in the table and example would be higher. SUMMARY 11 INTERNATIONAL BOND PORTFOLIO International Bond Portfolio seeks to maximize current income, consistent with the protection of principal. Under normal market conditions, the Portfolio invests at least 80% of its net assets in "bonds." "Bonds" include debt securities of any maturity, such as bonds, notes, bills and debentures. Shareholders will be given at least 60 days' advance notice of any change to the 80% policy. In addition, the Portfolio's assets will be invested in issuers located in at least three countries (including the U.S.). Although the Portfolio may buy bonds rated in any category, it focuses on "investment grade" bonds. The Portfolio may invest up to 25% of its total assets in bonds that are rated below investment grade. The Portfolio is a non-diversified fund. The Portfolio may also invest a significant portion of its assets in emerging markets. For purposes of pursuing its investment goal, the Portfolio may enter, from time to time, into derivative currency transactions, including currency forwards and cross currency forwards (either of which may result in net short currency exposures), options on currencies, currency futures contracts, options on currency futures contracts, currency swaps, and cross currency swaps. The Portfolio may also, from time to time, enter into various other derivative strategies, including financial and index futures contracts and options on such contracts, as well as interest rate swaps. Among other techniques, the Portfolio may also use futures contracts on U.S. Treasury securities to help manage risks relating to interest rates and other market factors, to increase liquidity, to invest in particular instruments in more efficient or less expensive ways, and to quickly and efficiently cause new cash to be invested in the securities markets or, if cash will be needed to meet shareholder redemption requests, to remove Portfolio assets from exposure to the market. In addition, the Portfolio may invest in swap agreements which may include interest rate, index, total return, currency and credit default swaps for the purposes of attempting to obtain a particular desired return at a lower cost to the Portfolio than if the Portfolio had invested directly in an instrument that yielded that desired return. Franklin Advisers, Inc. (Franklin), the Portfolio's sub-adviser, allocates the Portfolio's assets based upon its assessment of changing market, political and economic conditions. It will consider various factors, including evaluation of interest and currency exchange rate changes and credit risks. An investment in the Portfolio may result in the loss of money, and may be subject to various risks including the following types of main risk: - INTEREST RATE RISK - the risk that, when interest rates rise, bond prices fall. The opposite is also true: bond prices rise when interest rates fall. In general, securities with longer maturities are more sensitive to these price changes. - FOREIGN SECURITIES RISK - the risk that investing in foreign securities, including securities of foreign governments, typically involves more risks than investing in U.S. securities. Certain of these risks also may apply to securities of U.S. companies with significant foreign operations. These risks can increase the potential for losses in the Portfolio and affect its share price. CURRENCY EXCHANGE RATES. Foreign securities may be issued and traded in foreign currencies. As a result, their values may be affected by changes in exchange rates between foreign currencies and the U.S. dollar, as well as between currencies of countries other than the U.S. CURRENCY MANAGEMENT STRATEGIES. Currency management strategies, including the use of cross currency forwards and currency futures contracts, may substantially change the Portfolio's exposure to currency exchange rates and could result in losses to the Portfolio if currencies do not perform as Franklin expects. In addition, currency management strategies, to the extent that they are used as a hedging technique to reduce the Portfolio's exposure to currency risks, may also reduce the Portfolio's ability to benefit from favorable changes in currency exchange rates. 12 SUMMARY POLITICAL AND ECONOMIC DEVELOPMENTS. The political, economic and social structures of some foreign countries may be less stable and more volatile than those in the U.S. Investments in these countries may be subject to the risks of internal and external conflicts, currency devaluations, foreign ownership limitations and tax increases. TRADING PRACTICES. Brokerage commissions and other fees generally are higher for foreign securities. Government supervision and regulation of foreign stock exchanges, currency markets, trading systems and brokers may be less than in the U.S. The procedures and rules governing foreign transactions and custody (holding of the Portfolio's assets) also may involve delays in payment, delivery or recovery of money or investments. AVAILABILITY OF INFORMATION. Foreign companies may not be subject to the same disclosure, accounting, auditing and financial reporting standards and practices as U.S. companies. LIMITED MARKETS. Certain foreign securities may be less liquid (harder to sell) and more volatile than many U.S. securities. EMERGING MARKETS. The risks of foreign investments typically are greater in less developed countries, sometimes referred to as emerging markets. These countries also are more likely to experience high levels of inflation, deflation or currency devaluation, which can harm their economies and securities markets and increase volatility. In fact, short-term volatility in these markets, and declines of 50% or more, are not uncommon. - CREDIT RISK - the risk that an issuer of bonds may be unable to make interest payments and repay principal when due. LOWER-RATED SECURITIES. Securities rated below investment grade, sometimes called "junk bonds," generally have more credit risk than higher-rated securities. Issuers of high yield, fixed-income securities are not as strong financially as those issuing securities with higher credit ratings. These issuers are more likely to encounter financial difficulties and are more vulnerable to changes in the economy, such as a recession or a sustained period of rising interest rates, that could affect their ability to make interest and principal payments. The prices of high yield, fixed-income securities fluctuate more than higher- quality securities. Prices are especially sensitive to developments affecting the issuer's business and to changes in the ratings assigned by rating agencies. In addition, the entire high yield securities market can experience sudden and sharp price swings due to changes in economic conditions, stock market activity, large sustained sales by major investors, a high-profile default, or other factors. High yield securities generally are less liquid than higher-quality securities. Many of these securities do not trade frequently, and when they do their prices may be significantly higher or lower than expected. - DERIVATIVE SECURITIES RISK - the risk that the Portfolio's investment in derivatives may involve a small investment relative to the amount of risk assumed. The successful use of derivatives may depend on Franklin's ability to predict market movements. Risks include delivery failure, default by the other party or the inability to close out a position because the trading market becomes illiquid. - INCOME RISK - the risk that, since the Portfolio can only distribute what it earns, the Portfolio's distributions to shareholders may decline when interest rates fall. - NON-DIVERSIFICATION RISK - the risk that, because the Portfolio is a non- diversified fund, it may invest a greater portion of its assets in the securities of one or more issuers, and have a smaller number of issuers, than a diversified fund. SUMMARY 13 - PORTFOLIO TURNOVER RISK - the risk that Franklin's attempt to keep the Portfolio of bonds at an optimum level of interest rate sensitivity may cause the Portfolio's portfolio turnover rate to be high and increase the Portfolio's transaction costs. Please see "Investing in the Fund - Investment Objective, Policies and Practices" and "- Defining Risks" for a more detailed description of these main risks and additional risks in connection with investing in the Portfolio. 14 SUMMARY PORTFOLIO PERFORMANCE. The following bar chart and table show International Bond Portfolio's annual returns and long-term performance. The chart shows how the Portfolio's performance has varied from year to year, and provides some indication of the risks in investing in the Portfolio. The table shows how the Portfolio's average annual return over a one and five year period and from the inception of the Portfolio compares to the return of a broad based index. The chart and table assume reinvestment of dividends and distributions. The chart and table do not, however, reflect the charges and other expenses associated with the variable life insurance policies and variable annuity contracts, or qualified plans, which invest in the Portfolio. If such charges and expenses were included, the returns shown below would be lower. Like other mutual funds, the past performance of the Portfolio does not necessarily indicate how the Portfolio will perform in the future. International Bond Portfolio offers two classes of shares: Class 1 and Class 2. Both classes of shares will be invested in the same portfolio of securities and will have substantially similar annual returns, differing only to the extent that the classes do not have the same expenses. The performance shown in the bar chart below for International Bond Portfolio is for Class 2 and reflects a 0.25% 12b-1 distribution fee that is not charged to Class 1 shares. Because Class 1 is not subject to this 12b-1 fee, the returns for Class 1 would have been somewhat greater than the returns shown for International Bond Portfolio in the bar chart. YEAR TO YEAR TOTAL RETURN (AS OF DECEMBER 31) -- CLASS 2 -------------------------------------------------------------------------------- [LINE GRAPHIC] '99 -7.81 '00 1.42 '01 -1.51 '02 17.94 '03 20.25 '04 11.43 '05 -8.91 '06 3.99 '07 9.43 08 4.23
Best Quarter: Q2'02 10.62% Worst Quarter: Q1'05 -3.80%
AVERAGE ANNUAL TOTAL RETURN (FOR PERIODS ENDING DECEMBER 31, 2008) --------------------------------------------------------------------------------
Inception 1 Year 5 Years 10 Years ------------------------------------------------------------------------------ International Bond Portfolio -- Class 1 (inception 2/11/08) (a) % 2.34 -- -- -- International Bond Portfolio -- Class 2 % -- 4.23 3.78 4.63 Citigroup Non-U.S. World Government Bond Index % 6.53 10.11 5.97 5.59 Citigroup World Government Bond Index % 7.13 10.89 6.05 5.90
(a) Class 1 shares were registered under the Securities Act of 1933 effective November 6, 2007, but the Portfolio did not commence issuing Class 1 shares until February 11, 2008. SUMMARY 15 FEES AND EXPENSES. Investors pay fees and expenses in connection with investing in the International Bond Portfolio. This table describes the fees and expenses that investors pay if they buy and hold Class 1 or Class 2 shares of the Portfolio, but it does not reflect charges assessed in connection with the variable life insurance policies or variable annuity contracts, or qualified plans, that invest in the Portfolio. SHAREHOLDER FEES (fees paid directly from an investment in the Portfolio) -------------------------------------------------------------------------------- Not Applicable ANNUAL PORTFOLIO OPERATING EXPENSES (expenses that are deducted from Portfolio assets)
Class 1 Class 2 Management Fees % 0.60 0.60 Rule 12b-1 Fees % -- 0.25 Other Expenses % 0.40 0.40 TOTAL ANNUAL PORTFOLIO OPERATING EXPENSES % 1.00 1.25
EXAMPLE. This example is intended to help investors compare the costs of investing in the Portfolio with the cost of investing in other Portfolios. The example assumes an investment of $10,000 in the Portfolio for the time periods indicated and then a redemption of all shares at the end of those periods. The example also assumes that the investment has a 5% return each year and that the Portfolio's operating expenses remain the same. Although actual costs may be higher or lower, based on these assumptions, costs would be: 1 Year 3 Years 5 Years 10 Years Class 1 $102 319 554 1,227 Class 2 $128 397 688 1,514
The table and the example above reflect the Portfolio related fees and expenses that an investor would bear indirectly as the owner of a variable life insurance policy or variable annuity contract, or as a participant in a qualified plan, that invests in the Portfolio. There are other fees and expenses related to such policies and contracts, or qualified plans, that are not reflected in this prospectus. If the table and example included those other fees and expenses, the fees and expenses shown in the table and example would be higher. 16 SUMMARY MONEY MARKET PORTFOLIO Money Market Portfolio seeks maximum current income to the extent consistent with liquidity and the preservation of capital. The Portfolio invests in a variety of U.S. dollar denominated money market securities, which may include shares of other money market funds. Although the Portfolio seeks to preserve the value of an investment at $1.00 per share, it is possible to lose money by investing in the Portfolio. The Portfolio is currently participating in the U.S. Treasury Temporary Guarantee Program for Money Market Funds (the "Guarantee Program"), which provides coverage to shareholders of record for amounts they held in the Portfolio as of the close of business on September 19, 2008. For additional information about the Guarantee Program, including limitations on coverage, see "Investing in the Fund - Investment Objective, Policies and Practices - Money Market Portfolio." An investment in the Portfolio may result in the loss of money, and may also be subject to various risks including the following types of main risk: - CREDIT RISK - the risk that the Portfolio may lose some or all of its investment because an issuer of a debt security or other fixed income obligation will not make payments on the security or obligation when due, as well as the risk that the credit quality of a security may be lowered, resulting in a lower price, greater volatility and reduced liquidity for such security. - INCOME RISK - the risk that the Portfolio may experience a decline in its income due to falling interest rates. - INFLATION RISK - the risk that inflation will erode the purchasing power of the value of securities held by the Portfolio or the Portfolio's dividends. - INTEREST RATE RISK - the risk that the value of a fixed income obligation will decline due to changes in market interest rates. - LIQUIDITY RISK - the risk that the debt securities or fixed income obligations purchased by the Portfolio, including restricted securities determined by the Portfolio's investment adviser to be liquid at the time of purchase, may prove to be illiquid or otherwise subject to reduced liquidity due to changes in market conditions or quality ratings, or to errors in judgment by the investment adviser. Please see "Investing in the Fund - Investment Objective, Policies and Practices" and "- Defining Risks" for a more detailed description of these main risks and additional risks in connection with investing in the Portfolio. SUMMARY 17 PORTFOLIO PERFORMANCE. The following bar chart and table show Money Market Portfolio's annual returns and long-term performance. The chart shows how the Portfolio's performance has varied from year to year, and provides some indication of the risks in investing in the Portfolio. The table shows the Portfolio's average annual return over a one, five and ten year period. The chart and table assume reinvestment of dividends. The chart and table do not, however, reflect the charges and other expenses associated with the variable life insurance policies and variable annuity contracts, or qualified plans, which invest in the Portfolio. If such charges and expenses were included, the returns shown below would be lower. Like other mutual funds, the past performance of the Portfolio does not necessarily indicate how the Portfolio will perform in the future. YEAR TO YEAR TOTAL RETURN (AS OF DECEMBER 31) [LINE GRAPHIC] '99 4.71 '00 5.96 '01 3.75 '02 1.28 '03 0.61 '04 0.74 '05 2.43 '06 4.36 '07 4.55 08 1.95
Best Quarter: Q4'00 1.56% Worst Quarter: Q2'04 0.10%
AVERAGE ANNUAL TOTAL RETURN (FOR PERIODS ENDING DECEMBER 31, 2008)
1 Year 5 Years 10 Years ---------------------------------------------------------------------------------- Money Market Portfolio % 1.95 2.80 3.02
An investor may obtain up-to-date information about the Portfolio's seven-day current yield and seven-day effective yield by calling Minnesota Life and its life insurance affiliates at (800) 995-3850. 18 SUMMARY FEES AND EXPENSES. Investors pay fees and expenses in connection with investing in the Money Market Portfolio. This table describes the fees and expenses that investors pay if they buy and hold shares of the Portfolio, but it does not reflect charges assessed in connection with the variable life insurance policies or variable annuity contracts, or qualified plans, that invest in the Portfolio. SHAREHOLDER FEES (fees paid directly from an investment in the Portfolio) --------------------------------------------------- Not Applicable ANNUAL PORTFOLIO OPERATING EXPENSES (expenses that are deducted from Portfolio assets) --------------------------------------------------- Management Fees % 0.30 Rule 12b-1 Fees % 0.25 Other Expenses (a) % 0.21 TOTAL ANNUAL PORTFOLIO OPERATING EXPENSES (b) % 0.76
(a) The Portfolio's expenses have been restated, based upon 2009 estimated expenses, to reflect expenses to be incurred by the Portfolio as a result of participating in the U.S. Treasury Temporary Guarantee Program for Money Market Funds. (b) Effective February 1, 2009, the Board of Directors of the Fund approved a Net Investment Income Maintenance Agreement among the Fund (on behalf of the Money Market Portfolio), Advantus Capital Management, Inc. ("Advantus Capital"), and Securian Financial Services, Inc. ("Securian Financial"). Under such Agreement, Advantus Capital agrees to waive, reimburse or pay Money Market Portfolio expenses so that the Portfolio's daily net investment income does not fall below zero. Securian Financial may waive its Rule 12b-1 fees. The amount waived, reimbursed or paid by Advantus Capital and/or Securian Financial, is an obligation of the Money Market Portfolio, and is payable to Advantus Capital and/or Securian Financial on any day on which the Portfolio's net investment income exceeds zero. However, the right of Advantus Capital and/or Securian Financial to receive such payments is subject to the following limitations: (1) the right to recover expenses expires three years after the date it effected such waiver, reimbursement or payment, and (2) any expense recovery paid by the Portfolio cannot cause its expense ratio to exceed 1.25%. This ability of Advantus Capital and/or Securian Financial to receive such payments could negatively affect the Money Market Portfolio's future yield. SUMMARY 19 EXAMPLE. This example is intended to help investors compare the costs of investing in the Portfolio with the cost of investing in other Portfolios. The example assumes an investment of $10,000 in the Portfolio for the time periods indicated and then a redemption of all shares at the end of those periods. The example also assumes that the investment has a 5% return each year and that the Portfolio's operating expenses remain the same. Although actual costs may be higher or lower, based on these assumptions, costs would be: 1 Year 3 Years 5 Years 10 Years $77 240 418 933
The table and the example above reflect the Portfolio related fees and expenses that an investor would bear indirectly as the owner of a variable life insurance policy or variable annuity contract, or as a participant in a qualified plan, that invests in the Portfolio. There are other fees and expenses related to such policies and contracts, or qualified plans, that are not reflected in this prospectus. If the table and example included those other fees and expenses, the fees and expenses shown in the table and example would be higher. 20 SUMMARY MORTGAGE SECURITIES PORTFOLIO Mortgage Securities Portfolio seeks a high level of current income consistent with prudent investment risk. The Portfolio invests in mortgage-related securities. The Portfolio invests a major portion of its assets in investment-grade securities representing interests in pools of mortgage loans. In addition, the Portfolio may invest in a variety of other mortgage-related securities including collateralized mortgage obligations (CMOs) and stripped mortgage-backed securities. In selecting securities, the Portfolio's investment adviser considers factors such as prepayment risk, liquidity, credit quality and the type of loan and collateral underlying the security, as well as trends in economic conditions and interest rates. The Portfolio's benchmark index is the Barclays Capital Mortgage-Backed Securities Index (the "Index"). The Index is an unmanaged benchmark composite which covers the mortgage-backed pass through securities of the Government National Mortgage Association (GNMA), Federal Home Loan Mortgage Corporation (FHLMC) and Federal National Mortgage Association (FNMA). The Index includes fixed-rate and hybrid ARM pass through securities. The Portfolio has invested in and continues to invest in securities that are not included in the Index, including CMOs, asset-backed securities, and commercial mortgage-backed securities. At times, a very substantial percentage of securities held by the Portfolio may be securities not included in the Index. Additionally, the Portfolio Manager determines the appropriate security position size and the Portfolio will typically hold security position sizes (generally referenced as a percentage of total portfolio holdings) that are not in the same proportion as that security or a similar security represents in the Index. Sector exposure for the Portfolio is determined by the Portfolio Manager, and may vary significantly from the Index exposure. An investment in the Portfolio may result in the loss of money, and may also be subject to various risks including the following types of main risk: - CALL RISK - the risk that callable securities with high interest rates will be prepaid by the issuer prior to maturity, particularly during periods of falling interest rates, causing the Portfolio to reinvest the proceeds in other securities with generally lower interest rates. - CONCENTRATION RISK - the risk that the Portfolio's performance may be more susceptible to a single economic, regulatory or technological occurrence than an investment portfolio that does not concentrate its investments in a single industry. The Portfolio concentrates its investments in the mortgage and mortgage-finance industry. - CREDIT RISK - the risk that the Portfolio may lose some or all of its investment, including both principal and interest, because an issuer of an asset-backed or mortgage-backed security (or an underlying obligor) or other fixed income obligation will not make payments on the security or obligation when due, as well as the risk that the credit quality of a security may be lowered, resulting in a lower price, greater volatility and reduced liquidity for such security. - EXTENSION RISK - the risk that rising interest rates could cause property owners to prepay their mortgages more slowly than expected, resulting in slower prepayments of mortgage-backed securities. - INCOME RISK - the risk that the Portfolio may experience a decline in its income due to falling interest rates. - INTEREST RATE RISK - the risk that the value of a mortgage-backed security or fixed income obligation will decline due to changes in market interest rates (note: one measure of interest rate risk is effective duration, explained under "Investing in the Fund - Investment Objective, Policies and Practices - Mortgage Securities Portfolio"). - LIQUIDITY RISK - the risk that mortgage-related securities purchased by the Portfolio, including restricted securities determined by the Portfolio's investment adviser to be liquid at the time of purchase, may prove SUMMARY 21 to be illiquid or otherwise subject to reduced liquidity due to changes in market conditions or quality ratings, or to errors in judgment by the investment adviser. - NON-AGENCY SECURITIES RISK - is the risk that payments on a security will not be made when due, or the value of such security will decline, because the security is not issued or guaranteed as to principal or interest by the U.S. Government or by agencies or authorities controlled or supervised by and acting as instrumentalities of the U.S. Government. These securities may include but are not limited to securities issued by non-government entities which can include instruments secured by obligations of prime, Alt A, and sub-prime residential mortgage borrowers. Non-agency securities also may include asset-backed securities (which represent interests in auto, consumer and/or credit card loans) and commercial mortgage-backed securities (which represent interests in commercial mortgage loans). - PREPAYMENT RISK - the risk that falling interest rates could cause prepayments of securities to occur more quickly than expected, causing the Portfolio to reinvest the proceeds in other securities with generally lower interest rates. - SHORT-TERM TRADING RISK - the risk that the Portfolio may trade securities frequently and hold securities for one year or less, which will increase the Portfolio's transaction costs. - SUB-PRIME MORTGAGE RISK - the risk that an issuer of a security will not make payments on the security when due, or the value of such security will decline, because the issuer owns (or has exposure to) mortgage notes (or other obligations) payable by "sub-prime" or "Alt A" borrowers. Please see "Investing in the Fund - Investment Objective, Policies and Practices" and "- Defining Risks" for a more detailed description of these main risks and additional risks in connection with investing in the Portfolio. 22 SUMMARY PORTFOLIO PERFORMANCE. The following bar chart and table show Mortgage Securities Portfolio's annual returns and long-term performance. The chart shows how the Portfolio's performance has varied from year to year, and provides some indication of the risks in investing in the Portfolio. The table shows how the Portfolio's average annual return over a one, five and ten year period compares to the return of a broad based index. The chart and table assume reinvestment of dividends and distributions. The chart and table do not, however, reflect the charges and other expenses associated with the variable life insurance policies and variable annuity contracts, or qualified plans, which invest in the Portfolio. If such charges and expenses were included, the returns shown below would be lower. Like other mutual funds, the past performance of the Portfolio does not necessarily indicate how the Portfolio will perform in the future. Mortgage Securities Portfolio offers two classes of shares: Class 1 and Class 2. Both classes of shares will be invested in the same portfolio of securities and will have substantially similar annual returns, differing only to the extent that the classes do not have the same expenses. The performance shown in the bar chart below for Mortgage Securities Portfolio is for Class 2 and reflects a 0.25% 12b-1 distribution fee that is not charged to Class 1 shares. Because Class 1 is not subject to this 12b-1 fee, the returns for Class 1 would have been somewhat greater than the returns shown for Mortgage Securities Portfolio in the bar chart. YEAR TO YEAR TOTAL RETURN (AS OF DECEMBER 31) -- CLASS 2 [LINE GRAPHIC] '99 1.99 '00 11.80 '01 9.04 '02 9.66 '03 4.15 '04 4.81 '05 2.88 '06 5.34 '07 3.19 08 -12.97
Best Quarter: Q3'01 4.66% Worst Quarter: Q4'08 -7.38%
AVERAGE ANNUAL TOTAL RETURN (FOR PERIODS ENDING DECEMBER 31, 2008)
Inception 1 Year 5 Years 10 Years -------------------------------------------------------------------------------------- Mortgage Securities Portfolio -- Class 1 (inception 2/11/08) (a) % (13.32) -- -- -- Mortgage Securities Portfolio -- Class 2 % -- (12.97) 0.40 3.77 Barclays Capital Mortgage-Backed Securities Index (formerly named the Lehman Brothers Mortgage- Backed Securities Index) % 6.66 8.34 5.54 6.04
(a) Class 1 shares were registered under the Securities Act of 1933 effective November 6, 2007, but the Portfolio did not commence issuing Class 1 shares until February 11, 2008. SUMMARY 23 FEES AND EXPENSES. Investors pay fees and expenses in connection with investing in the Mortgage Securities Portfolio. This table describes the fees and expenses that investors pay if they buy and hold Class 1 or Class 2 shares of the Portfolio, but it does not reflect charges assessed in connection with the variable life insurance policies or variable annuity contracts, or qualified plans, that invest in the Portfolio. SHAREHOLDER FEES (fees paid directly from an investment in the Portfolio) --------------------------------------------------- Not Applicable ANNUAL PORTFOLIO OPERATING EXPENSES (expenses that are deducted from Portfolio assets)
Class 1 Class 2 Management Fees % 0.40 0.40 Rule 12b-1 Fees % -- 0.25 Other Expenses % 0.15 0.15 Acquired Fund Fees and Expenses (a) % 0.01 0.01 TOTAL ANNUAL PORTFOLIO OPERATING EXPENSES % 0.56 0.81
(a) In accordance with the Portfolio's investment objectives, policies and practices (see discussion below), the Portfolio is authorized to invest in shares of another investment company (an "Acquired Fund"), in which case the Portfolio indirectly absorbs a proportionate share of the Acquired Fund's operating expenses. These indirect expenses reduce the Portfolio's return on the Acquired Fund, but they are not a direct operating expense of the Portfolio. For that reason, the Portfolio's Total Annual Portfolio Operating Expenses as reported in this table may not equal the expense ratios included in the "Financial Highlights" below or in the Fund's most recent Annual Report. EXAMPLE. This example is intended to help investors compare the costs of investing in the Portfolio with the cost of investing in other Portfolios. The example assumes an investment of $10,000 in the Portfolio for the time periods indicated and then a redemption of all shares at the end of those periods. The example also assumes that the investment has a 5% return each year and that the Portfolio's operating expenses remain the same. Although actual costs may be higher or lower, based on these assumptions, costs would be: 1 Year 3 Years 5 Years 10 Years Class 1 $60 187 326 730 Class 2 $85 266 462 1,029
The table and the example above reflect the Portfolio related fees and expenses that an investor would bear indirectly as the owner of a variable life insurance policy or variable annuity contract, or as a participant in a qualified plan, that invests in the Portfolio. There are other fees and expenses related to such policies and contracts, or qualified plans, that are not reflected in this prospectus. If the table and example included those other fees and expenses, the fees and expenses shown in the table and example would be higher. 24 SUMMARY REAL ESTATE SECURITIES PORTFOLIO Real Estate Securities Portfolio seeks above average income and long-term growth of capital. The Portfolio invests its assets primarily in real estate and real estate- related securities. "Real estate securities" include securities issued by companies that receive at least 50% of their gross revenue from the construction, ownership, management, financing or sale of residential, commercial or industrial real estate. "Real estate-related securities" include securities issued by companies primarily engaged in businesses that sell or offer products or services that are closely related to the real estate industry. Most of the Portfolio's real estate securities portfolio will consist of securities issued by Real Estate Investment Trusts (REITs) or Real Estate Operating Companies (REOCs) that are listed on a securities exchange or traded over-the-counter. A REIT is a corporation or trust that invests primarily in fee or leasehold ownership of real estate, mortgages or shares issued by other REITs and that receives favorable tax treatment provided it meets certain conditions, including the requirement that it distributes at least 90% of its taxable income. A REOC is a corporation that also can invest in fee or leasehold ownership of real estate or mortgages, but may also invest directly in other businesses that are either related or unrelated to the ownership of real estate. In selecting securities, the Portfolio's investment adviser considers factors such as a company's financial condition, financial performance, quality of management, policies and strategies, real estate properties and competitive market condition. An investment in the Portfolio may result in the loss of money, and may also be subject to various risks including the following types of main risk: - COMPANY RISK - the risk that individual securities may perform differently from the overall market as a result of changes in specific factors such as profitability or investor perceptions, or as a result of increased volatility in a company's income or share price because of the amount of leverage on the company's balance sheet. - CONCENTRATION RISK - the risk that the Portfolio's performance may be more susceptible to a single economic, regulatory or technological occurrence than an investment portfolio that does not concentrate its investments in a single industry The Portfolio concentrates its investments in the real estate and real estate related industry. - MARKET RISK - the risk that equity securities are subject to adverse trends in equity markets. - PORTFOLIO RISK - the risk that Portfolio performance may not meet or exceed that of the market as a whole. - REAL ESTATE RISK - the risk that the value of the Portfolio's investments may decrease due to a variety of factors related to the construction, development, ownership, financing, repair or servicing or other events affecting the value of real estate, buildings or other real estate fixtures. - REIT-RELATED RISK - the risk that the value of the Portfolio's equity securities issued by REITs will be adversely affected by changes in the value of the underlying property or by the loss of the REIT's favorable tax status. Please see "Investing in the Fund - Investment Objective, Policies and Practices" and "- Defining Risks" for a more detailed description of these main risks and additional risks in connection with investing in the Portfolio. SUMMARY 25 PORTFOLIO PERFORMANCE. The following bar chart and table show Real Estate Securities Portfolio's annual returns and long-term performance. The chart shows how the Portfolio's performance has varied from year to year, and provides some indication of the risks in investing in the Portfolio. The table shows how the Portfolio's average annual return over a one and five year period and from the inception of the Portfolio compares to the return of a broad based index. The chart and table assume reinvestment of dividends and distributions. The chart and table do not, however, reflect the charges and other expenses associated with the variable life insurance policies and variable annuity contracts, or qualified plans, which invest in the Portfolio. If such charges and expenses were included, the returns shown below would be lower. Like other mutual funds, the past performance of the Portfolio does not necessarily indicate how the Portfolio will perform in the future. Real Estate Securities Portfolio offers two classes of shares: Class 1 and Class 2. Both classes of shares will be invested in the same portfolio of securities and will have substantially similar annual returns, differing only to the extent that the classes do not have the same expenses. The performance shown in the bar chart below for Real Estate Securities Portfolio is for Class 2 and reflects a 0.25% 12b-1 distribution fee that is not charged to Class 1 shares. Because Class 1 is not subject to this 12b-1 fee, the returns for Class 1 would have been somewhat greater than the returns shown for Real Estate Securities Portfolio in the bar chart. YEAR TO YEAR TOTAL RETURN (AS OF DECEMBER 31) -- CLASS 2 [BAR GRAPHIC] '00 25.61 '01 10.03 '02 6.97 '03 42.21 '04 35.52 '05 11.08 '06 30.63 '07 -15.76 08 -36.27
Best Quarter: Q4'04 18.13% Worst Quarter: Q4'08 -37.00%
AVERAGE ANNUAL TOTAL RETURN (FOR PERIODS ENDING DECEMBER 31, 2007)
Inception 1 Year 5 Years 10 Years ------------------------------------------------------------------------------ Real Estate Securities Portfolio -- Class 1 (inception 2/11/08) (a) % (31.97) -- -- -- Real Estate Securities Portfolio -- Class 2 (inception 5/1/98) % -- (36.27) 1.09 7.87 Dow Jones Wilshire Real Estate Securities Index % 37.85 (39.83) 0.62 7.33
(a) Class 1 shares were registered under the Securities Act of 1933 effective November 6, 2007, but the Portfolio did not commence issuing Class 1 shares until February 11, 2008. 26 SUMMARY FEES AND EXPENSES. Investors pay fees and expenses in connection with investing in the Real Estate Securities Portfolio. This table describes the fees and expenses that investors pay if they buy and hold Class 1 or Class 2 shares of the Portfolio, but it does not reflect charges assessed in connection with the variable life insurance policies or variable annuity contracts, or qualified plans, that invest in the Portfolio. SHAREHOLDER FEES (fees paid directly from an investment in the Portfolio) ---------------------------------------------------------------- Not Applicable ANNUAL PORTFOLIO OPERATING EXPENSES (expenses that are deducted from Portfolio assets)
Class 1 Class 2 Management Fees % 0.70 0.70 Rule 12b-1 Fees % -- 0.25 Other Expenses % 0.22 0.22 TOTAL ANNUAL PORTFOLIO OPERATING EXPENSES % 0.92 1.17
EXAMPLE. This example is intended to help investors compare the costs of investing in the Portfolio with the cost of investing in other Portfolios. The example assumes an investment of $10,000 in the Portfolio for the time periods indicated and then a redemption of all shares at the end of those periods. The example also assumes that the investment has a 5% return each year and that the Portfolio's operating expenses remain the same. Although actual costs may be higher or lower, based on these assumptions, costs would be: 1 Year 3 Years 5 Years 10 Years Class 1 $ 93 291 505 1,122 Class 2 $118 369 639 1,411
The table and the example above reflect the Portfolio related fees and expenses that an investor would bear indirectly as the owner of a variable life insurance policy or variable annuity contract, or as a participant in a qualified plan, that invests in the Portfolio. There are other fees and expenses related to such policies and contracts, or qualified plans, that are not reflected in this prospectus. If the table and example included those other fees and expenses, the fees and expenses shown in the table and example would be higher. SUMMARY 27 INVESTING IN THE FUND MANAGING THE PORTFOLIOS ADVANTUS CAPITAL. The investment adviser of each of the Portfolios is Advantus Capital Management, Inc. (Advantus Capital), 400 Robert Street North, St. Paul, Minnesota 55101, which has managed the Fund's assets since May 1, 1997. Since its inception in 1994, Advantus Capital has also managed investment portfolios for various private accounts, including its affiliate, Minnesota Life Insurance Company (Minnesota Life), and has provided investment sub-advisory services for various unaffiliated mutual funds. Advantus Capital manages the Fund's investments and furnishes all necessary office facilities, equipment and personnel for servicing the Fund's investments. Both Advantus Capital and Minnesota Life are wholly-owned subsidiaries of Securian Financial Group, Inc. (SFG), which is a second-tier subsidiary of a mutual insurance holding company called Minnesota Mutual Companies, Inc. Personnel of Advantus Capital also manage Minnesota Life's investment portfolio. In addition, Minnesota Life serves as administrative services agent to the Fund. The Fund and Advantus Capital have obtained an exemptive order from the SEC allowing them to use a "manager of managers" strategy related to management of the Fund. Under this strategy, Advantus Capital may select new Portfolio investment sub-advisers upon the approval of the Fund's Board of Directors and without shareholder approval. Advantus Capital may change the terms of any investment sub-advisory agreement or continue to employ an investment sub- adviser after termination of an investment sub-advisory agreement. Investors will be notified of any investment sub-adviser changes. In any event, Fund shareholders may terminate investment sub-adviser arrangements upon a vote of the majority of the applicable outstanding Portfolio shares. Advantus Capital is responsible for overseeing sub-advisers and for recommending their hiring, termination and replacement and retains ultimate responsibility for the investment performance of each Portfolio employing a sub-adviser. Investors in the Fund (purchasers of variable life insurance policies and variable annuity contracts issued by Minnesota Life or other life insurance companies to which the Fund has sold its shares) are, in effect, electing to have Advantus Capital either manage the investment of a Portfolio's assets or select one or more sub- advisers to achieve that Portfolio's investment objective. The investment sub-adviser of the International Bond Portfolio is Franklin Advisers, Inc. (Franklin), One Franklin Parkway, San Mateo, California 94403- 1906. Franklin and its affiliates manage over $401 billion in assets. Franklin provides investment advice and generally conducts the investment management program for the International Bond Portfolio. PORTFOLIO MANAGERS. The following persons serve as the primary portfolio managers for the Portfolios (the Statement of Additional Information provides additional information about the Portfolio Managers' compensation, other accounts managed by the Portfolio Managers, and the Portfolio Managers' ownership of securities in the Fund):
PRIMARY PORTFOLIO PORTFOLIO MANAGER MANAGER BUSINESS EXPERIENCE DURING PAST FIVE PORTFOLIO AND TITLE SINCE YEARS --------------------------------------------------------------------------- Bond Christopher August 14, Senior Vice President and Lead R. Sebald 2003 Portfolio Manager, Total Return Portfolio Fixed Income, Advantus Capital Manager Thomas B. April 29, Vice President and Portfolio Houghton 2005 Manager, Total Return Fixed Income, Portfolio Advantus Capital Manager
28 INVESTING IN THE FUND
PRIMARY PORTFOLIO PORTFOLIO MANAGER MANAGER BUSINESS EXPERIENCE DURING PAST FIVE PORTFOLIO AND TITLE SINCE YEARS --------------------------------------------------------------------------- Bond David W. Land April 29, Vice President and Portfolio Portfolio 2005 Manager, Total Return, Advantus Manager Capital Index James P. June 30, Index Funds Portfolio Manager, 400 Mid- Seifert 1999 Advantus Capital Cap Portfolio Manager Index James P. June 30, Index Funds Portfolio Manager, 500 Seifert 1999 Advantus Capital Portfolio Manager Interna- Michael J. January 1, Portfolio Manager/Research Analyst tional Hasenstab 2008 of Franklin since 2001, Senior Vice Bond Senior Vice President of Franklin since 2007 President of Franklin Money Thomas B. August 18, Vice President and Portfolio Market Houghton 2003 Manager, Total Return Fixed Income, Portfolio Advantus Capital Manager Christopher April 29, Senior Vice President and Lead R. Sebald 2005 Portfolio Manager, Total Return Portfolio Fixed Income, Advantus Capital Manager Mortgage David W. Land April 5, Vice President and Portfolio Securi- Portfolio 2004 Manager, Total Return, Advantus ties Manager Capital Christopher August 14, Senior Vice President and Lead R. Sebald 2003 Portfolio Manager, Total Return Portfolio Fixed Income, Advantus Capital Manager Real Joseph R. May 1, Vice President and Portfolio Estate Betlej 1998 Manager, Advantus Capital Securi- Portfolio ties Manager Lowell R. January Associate Portfolio Manager, Bolken 13, 2006 Advantus Capital, since September Portfolio 2005; Managing Director and Manager Manager, Corporate Bond Research, RBC Dain Rauscher, Inc., April 2001 to September 2005
INVESTING IN THE FUND 29 ADVISORY FEES The Fund pays Advantus Capital monthly fees calculated on an annual basis for each Portfolio. Advantus Capital uses a portion of the applicable fees to pay sub-advisers. The advisory fee paid to Advantus Capital for each Portfolio during 2008, as a percentage of average daily net assets, was as follows:
AGGREGATE FEE PORTFOLIO PAID DURING 2008 --------------------------------------------------------------------- Bond Portfolio 0.40% Index 400 Mid-Cap Portfolio 0.15% Index 500 Portfolio 0.15% International Bond Portfolio 0.60% Money Market Portfolio 0.30% Mortgage Securities Portfolio 0.40% Real Estate Securities Portfolio 0.70%
A discussion regarding the basis of the approval by the Fund's Board of Directors, in January 2008, of the Investment Advisory Agreement with Advantus Capital and the Investment Sub-Advisory Agreement with Franklin is available in the Semiannual Report to Shareholders for the period ended June 30, 2008. An updated discussion regarding the most recent such approval of both the Investment Advisory and the Investment Sub-Advisory Agreements by the Fund's Board of Directors, on January 28, 2009, will be available in the Semiannual Report to Shareholders for the period ending June 30, 2009. 30 INVESTING IN THE FUND DISTRIBUTION FEES The Fund has adopted a Rule 12b-1 Distribution Plan which covers all of its Class 2 shares and its Money Market Portfolio ("Covered Portfolios"). Each Covered Portfolio pays distribution fees equal to .25% per annum of the average daily net assets of the Portfolio. These fees are paid out of the Covered Portfolio's assets on an on-going basis, which affects the Covered Portfolio's share price, and, over time, increases the cost of an investment in the Covered Portfolio. These distribution fees may also cost the purchaser of a variable life insurance policy or variable annuity contract which is invested in the Covered Portfolio more over time than other types of sales charges that may be paid in connection with the variable policy or contract. The fees are paid to Securian Financial Services, Inc. (Securian Financial) the Fund's underwriter, to pay for distribution-related expenses and activities in connection with the distribution of the Covered Portfolio's shares. Securian Financial may also use the fees to pay insurance companies, dealers or others for certain administrative or other non-distribution services as provided for in the Distribution Plan. PAYMENTS TO INSURANCE COMPANIES Minnesota Life, or another life insurance company issuing variable life insurance policies or variable annuity contracts that invest in the Fund's Portfolios, may receive all the Rule 12b-1 distribution fees discussed above. In addition to those payments, Advantus Capital may make other payments to insurance companies that are intended to compensate such companies for costs of various administrative support services they perform in connection with variable life insurance policies and variable annuity contracts that invest in the Fund's Portfolios. These services may indirectly benefit the Fund and the fees paid by Advantus Capital are in addition to any fees that may be paid by the Fund for these or other types of services. Advantus Capital currently makes such payments to Minnesota Life in amounts based on a percentage of the average daily net asset value of shares of certain Portfolios held in connection with certain Minnesota Life variable life insurance policies and variable annuity contracts. Payments in connection with such policies and contracts are equal to .10% per annum for Class 1 and Class 2 shares of the Real Estate Securities Portfolio, and .05% per annum for Class 1 and Class 2 shares of the Bond, Mortgage Securities, Index 400 Mid-Cap and Index 500 Portfolios, except for a payment equal to .10% per annum for Class 1 shares of the Index 500 Portfolio held in connection with a designated policy. The amount of any payments described in this paragraph is determined by Advantus Capital, and all such amounts are paid out of Advantus Capital's available assets and not by the Fund. As a result, the total expense ratio of any Portfolio will not be affected by any such payments. INVESTMENT OBJECTIVE, POLICIES AND PRACTICES The investment objective and principal investment policies for each Portfolio are described below. A Portfolio's fundamental investment policies cannot be changed without the approval of a majority of the Portfolio's outstanding voting shares. Each Portfolio's investment objective is a fundamental investment policy. Other investment restrictions that are fundamental are listed in the Statement of Additional Information. An investment policy is not fundamental unless this prospectus or the Statement of Additional Information says that it is. The Fund's Board of Directors can change non-fundamental investment policies without shareholder approval, although significant changes will be described in amendments to this prospectus. BOND PORTFOLIO Bond Portfolio seeks as high a level of a long-term total rate of return as is consistent with prudent investment risk. The Portfolio also seeks preservation of capital as a secondary objective. INVESTING IN THE FUND 31 It is the Portfolio's policy to invest, under normal circumstances, at least 80% of the value of its net assets (exclusive of collateral received in connection with securities lending) in bonds (for this purpose, "bonds" includes any debt security). The 80% investment policy is not fundamental, which means it may be changed without the vote of a majority of the Portfolio's outstanding shares, but the shareholders will be notified in writing at least 60 days prior to any change of this policy. The Portfolio invests primarily in a variety of investment-grade debt securities which include: - investment-grade corporate debt obligations and mortgage-backed securities - debt securities issued or guaranteed by the U.S. government or any of its agencies or instrumentalities (including U.S. Treasury bills, notes and bonds, and U.S. Treasury inflation-protection securities) - investment-grade mortgage-backed securities issued by governmental agencies and financial institutions - investment-grade asset-backed securities - U.S. dollar denominated investment-grade debt securities issued by foreign governments and companies and publicly traded in the United States - debt obligations of U.S. banks, savings and loan associations and savings banks The Portfolio will invest a portion of its assets in investment-grade debt obligations issued by domestic companies in a variety of industries. The Portfolio may invest in long-term debt securities (i.e., maturities of more than 10 years), intermediate debt securities (i.e., maturities from 3 to 10 years) and short-term debt securities (i.e., maturities of less than 3 years). In selecting corporate debt securities and their maturities, Advantus Capital seeks to maximize current income by engaging in a risk/return analysis that focuses on various factors such as industry outlook, current and anticipated market and economic conditions, general levels of debt prices and issuer operations. The Portfolio may also invest a portion of its assets in government and non- governmental mortgage-related securities, including CMOs, and in stripped mortgage-backed securities and asset-backed securities. CMOs are debt obligations typically issued by a private special-purpose entity that are collateralized by residential or commercial mortgage loans or pools of residential mortgage loans. CMOs allocate the priority of the distribution of principal and interest from the underlying mortgage loans among various series. Each series differs from the other in terms of the priority right to receive cash payments from the underlying mortgage loans. Stripped mortgage-backed securities also represent ownership interests in a pool of mortgages. However, the stripped mortgage-backed securities are separated into interest and principal components. The interest component only allows the interest holder to receive the interest portion of cash payments, while the principal component only allows the interest holder to receive the principal portion of cash payments. Asset-backed securities represent interest in pools of consumer loans (such as credit card, trade or automobile loans). Investors in asset-backed securities are entitled to receive payments of principal and interest received by the pool entity from the underlying consumer loans net of any costs and expenses incurred by the entity. To help manage the average duration of its portfolio of fixed income securities, or to attempt to hedge against the effects of interest rate changes on current or intended investments in fixed rate securities, the Portfolio may invest to a limited extent in futures contracts or other derivatives. Generally speaking, a derivative is a financial contract whose value is based on the value of a financial asset (such as a stock or bond) or a market index. The Portfolio will not use derivatives for speculation or for the purpose of leveraging (magnifying) investment returns. 32 INVESTING IN THE FUND The market for bonds and other debt securities is generally liquid, but individual debt securities purchased by the Portfolio may be subject to the risk of reduced liquidity due to changes in quality ratings or changes in general market conditions which adversely affect particular debt securities or the broader bond market as a whole. In addition, the Portfolio may, at the time of purchase, invest up to 15% of its net assets in illiquid securities, and may also invest without limit in securities whose disposition is restricted under the federal securities laws but which have been determined by Advantus Capital to be liquid under liquidity guidelines adopted by the Fund's Board of Directors. Investments in illiquid and restricted securities present greater risks inasmuch as such securities may only be resold subject to statutory or regulatory restrictions, or if the Portfolio bears the costs of registering such securities. The Portfolio may, therefore, be unable to dispose of such securities as quickly as, or at prices as favorable as those for, comparable but liquid or unrestricted securities. As of December 31, 2008, the Portfolio had 12.2% of its net assets invested in illiquid securities, and 3.69% of its net assets invested in restricted securities deemed liquid pursuant to the liquidity guidelines. Advantus Capital continuously monitors the liquidity of portfolio securities and may determine that, because of a reduction in liquidity subsequent to purchase, securities which originally were determined to be liquid have become illiquid. This could result in more than 15% of the Portfolio's net assets being invested in illiquid securities. As a rule of thumb, a portfolio of debt, mortgage-related and asset-backed securities experiences a decrease in principal value with an increase in interest rates. The extent of the decrease in principal value may be affected by the Portfolio's duration of its portfolio of debt, mortgage-related and asset- backed securities. Duration measures the relative price sensitivity of a security to changes in interest rates. "Effective" duration takes into consideration the likelihood that a security will be called or prepaid prior to maturity given current interest rates. Typically, a security with a longer duration is more price sensitive than a security with a shorter duration. In general, a portfolio of debt, mortgage-related and asset-backed securities experiences a percentage decrease in principal value equal to its effective duration for each 1% increase in interest rates. For example, if the Portfolio holds securities with an effective duration of five years and interest rates rise 1%, the principal value of such securities could be expected to decrease by approximately 5%. The Portfolio expects that under normal circumstances the effective duration of its debt, mortgage-related and asset-backed securities portfolio will range from four to seven years. In addition, the Portfolio may invest lesser portions of its assets in interest rate and other bond futures contracts and options on futures contracts, convertible and non-convertible investment-grade and non-investment grade debt securities issued by domestic governments and companies, restricted and illiquid securities, options (the Portfolio may purchase, sell and write put and call options), stripped asset-backed securities, securities purchased on a when- issued or forward commitment basis, mortgage dollar roll transactions, securities of other investment companies, preferred stocks and other equity securities obtained upon conversion of debt securities or warrants, swap agreements, credit default swaps, repurchase agreement transactions, certificates of deposit, bankers acceptances, and cash and cash equivalents, including commercial paper and other money market securities. To generate additional income, the Portfolio may lend securities representing up to one- third of the value of its total assets to broker-dealers, banks and other institutions. A description of the Fund's policies and procedures with respect to the disclosure of the Portfolio's holdings of securities is available in the Statement of Additional Information. INVESTING IN THE FUND 33 RISKS. An investment in the Portfolio is subject to the following risks: - Call Risk - Company Risk - Credit Risk - Derivatives Risk - Diversification Risk - Extension Risk - Foreign Securities Risk - Income Risk - Inflation Risk - Interest Rate Risk - Liquidity Risk - Market Risk - Non-Agency Securities Risk - Portfolio Risk - Prepayment Risk - Securities Lending Risk - Short-Term Trading Risk - Sub-Prime Mortgage Risk A detailed description of these risks is set forth in "- Defining Risks" below. Additional risk information is provided in the Statement of Additional Information. INDEX 400 MID-CAP PORTFOLIO Index 400 Mid-Cap Portfolio seeks investment results generally corresponding to the aggregate price and dividend performance of the publicly traded common stocks that comprise the Standard & Poor's 400 MidCap Index (the S&P 400). Under normal conditions, the Portfolio invests its assets in all of the common stocks included in the S&P 400. The S&P 400 consists of 400 domestic stocks chosen for market size, liquidity and industry group representation. It is a market-weighted index (stock price times shares outstanding), with each stock affecting the index in proportion to its market value. At March 31, 2009, the market capitalizations of companies included in the S&P 400 ranged from $62 million to $4.715 billion. The Portfolio attempts to achieve a correlation of 100% without considering Portfolio expenses. However, the Portfolio is not required to hold a minimum or maximum number of common stocks included in the S&P 400, and due to changing economic or markets, may invest in less than all of the common stocks included in the S&P 400. Advantus Capital utilizes a computer program to confirm the Portfolio's S&P 400 replication and to round off security weightings. To help stay fully invested and to reduce transaction costs, the Portfolio may invest to a limited extent in derivatives. Generally speaking, a derivative is a financial contract whose value is based on the value of a financial asset (such as a stock or bond) or a market index (such as the S&P 400). The Portfolio will not use derivatives for speculation or for the purpose of leveraging (magnifying) investment returns. Under normal conditions, the Portfolio invests at least 80% of its net assets (exclusive of collateral received in connection with securities lending) in the common stocks included in the S&P 400 (investments covered by this 80% policy may also include S&P 400 stock index futures contracts or shares of other investment companies that also track the performance of the S&P 400, each of which have economic characteristics similar to an investment in the S&P 400). The 80% investment policy is not fundamental, which means it may be changed without the vote of a majority of the Portfolio's outstanding shares, but the shareholders will be notified in writing at least 60 days prior to any change of this policy. In addition, the Portfolio may invest lesser portions of its assets in investment-grade short-term fixed income securities, securities of other investment companies, restricted and illiquid securities, index depositary receipts, stock index futures contracts and options on futures contracts, swap agreements, repurchase agreement transactions, certificates of deposit, bankers acceptances, and cash and cash equivalents, including commercial paper and other money market 34 INVESTING IN THE FUND securities. To generate additional income, the Portfolio may lend securities representing up to one-third of the value of its total assets to broker-dealers, banks and other institutions. S&P designates the stocks included in the S&P 400. From time to time, S&P may add or delete stocks from the S&P 400. Inclusion of a stock in the S&P 400 does not imply an opinion by S&P as to its investment merit. "Standard & Poor's," "S&P," "S&P 400" and "Standard & Poor's MidCap 400," are trademarks of The McGraw-Hill Companies, Inc. and have been licensed for use by the Portfolio. The Portfolio is not sponsored, endorsed, sold or promoted by S&P and S&P makes no representation regarding the advisability of investing in the Portfolio. Please see the Statement of Additional Information which sets forth certain additional disclaimers and limitations on behalf of S&P. A description of the Fund's policies and procedures with respect to the disclosure of the Portfolio's holdings of securities is available in the Statement of Additional Information. RISKS. An investment in the Portfolio is subject to the following risks: - Company Risk - Derivatives Risk - Diversification Risk - Index Performance Risk - Inflation Risk - Market Risk - Mid Size Company Risk - Non-Agency Securities Risk - Portfolio Risk - Sector Risk - Securities Lending Risk - Sub-Prime Mortgage RiskA detailed description of these risks is set forth in "- Defining Risks" below. Additional risk information is provided in the Statement of Additional Information. INDEX 500 PORTFOLIO Index 500 Portfolio seeks investment results that correspond generally to the price and yield performance of the common stocks included in the Standard & Poor's 500 Composite Stock Price Index (the S&P 500). The S&P 500 is a broad, unmanaged index of 500 large cap common stocks which together represent about 75% of the total U.S. stock market. Under normal conditions, the Portfolio invests its assets in all of the common stocks included in the S&P 500. The Portfolio attempts to achieve a correlation of 100% without considering Portfolio expenses. However, the Portfolio is not required to hold a minimum or maximum number of common stocks included in the S&P 500, and due to changing economic or markets, may invest in less than all of the common stocks included in the S&P 500. Advantus Capital utilizes a computer program to confirm the Portfolio's S&P 500 replication and to round off security weightings. To help stay fully invested and to reduce transaction costs, the Portfolio may invest to a limited extent in derivatives. Generally speaking, a derivative is a financial contract whose value is based on the value of a financial asset (such as a stock or bond) or a market index (such as the S&P 500). The Portfolio will not use derivatives for speculation or for the purpose of leveraging (magnifying) investment returns. Under normal conditions, the Portfolio invests at least 80% of its net assets (exclusive of collateral received in connection with securities lending) in the common stocks included in the S&P 500 (investments covered by this 80% policy may also include S&P 500 stock index futures contracts or shares of other investment companies that also track the performance of the S&P 500, each of which have economic characteristics similar to an investment in the S&P 500). The 80% investment policy is not fundamental, which means it may INVESTING IN THE FUND 35 be changed without the vote of a majority of the Portfolio's outstanding shares, but the shareholders will be notified in writing at least 60 days prior to any change of this policy. In addition, the Portfolio may invest lesser portions of its assets in investment-grade short-term fixed income securities, stock index futures contracts and options on futures contracts, securities of other investment companies, restricted and illiquid securities, index depositary receipts, swap agreements, repurchase agreement transactions, certificates of deposit, bankers acceptances, and cash and cash equivalents, including commercial paper and other money market securities. To generate additional income, the Portfolio may lend securities representing up to one-third of the value of its total assets to broker-dealers, banks and other institutions. Standard & Poor's Rating Services (S&P), a division of the McGraw-Hill Companies, Inc., designates the stocks included in the S&P 500. From time to time, S&P may add or delete stocks from the S&P 500. Inclusion of a stock in the S&P 500 does not imply an opinion by S&P as to its investment merit. "Standard & Poor's," "S&P," "S&P 500," "Standard & Poor's 500," and "500" are trademarks of The McGraw-Hill Companies, Inc. and have been licensed for use by the Portfolio. The Portfolio is not sponsored, endorsed, sold or promoted by S&P and S&P makes no representation regarding the advisability of investing in the Portfolio. Please see the Statement of Additional Information which sets forth certain additional disclaimers and limitations on behalf of S&P. A description of the Fund's policies and procedures with respect to the disclosure of the Portfolio's holdings of securities is available in the Statement of Additional Information. RISKS. An investment in the Portfolio is subject to the following risks: - Company Risk - Derivatives Risk - Diversification Risk - Index Performance Risk - Inflation Risk - Large Company Risk - Market Risk - Non-Agency Securities Risk - Portfolio Risk - Sector Risk - Securities Lending Risk - Sub-Prime Mortgage RiskA detailed description of these risks is set forth in "- Defining Risks" below. Additional risk information is provided in the Statement of Additional Information. INTERNATIONAL BOND PORTFOLIO International Bond Portfolio seeks to maximize current income, consistent with the protection of principal. MAIN INVESTMENT STRATEGIES. Under normal market conditions, the Portfolio invests at least 80% of its net assets in "bonds." "Bonds" include debt securities of any maturity, such as bonds, notes, bills and debentures. Shareholders will be given at least 60 days' advance notice of any change to the 80% policy. In addition, the Portfolio's assets will be invested in issuers located in at least three countries (including the U.S.). Bonds represent an obligation of the issuer to repay a loan of money to it, and generally provide for the payment of interest. Although the Portfolio may buy bonds rated in any category, it focuses on "investment grade" bonds. These are issues rated in the top four rating categories by independent rating agencies such as Standard & Poor's or Moody's Investors Service or, if unrated, determined by Franklin to be comparable. The Portfolio may invest up to 25% of its total assets in bonds that are rated below investment grade. Generally, lower rated securities pay higher yields than more highly rated securities to compensate investors for the higher risk. The Portfolio is a non-diversified fund. The Portfolio may also invest a significant portion of its assets in emerging markets. 36 INVESTING IN THE FUND For purposes of pursuing its investment goal, the Portfolio may enter, from time to time, into derivative currency transactions, including currency forwards and cross currency forwards (either of which may result in net short currency exposures), options on currencies, currency futures contracts, options on currency futures contracts, currency swaps, and cross currency swaps. A forward currency contract is an agreement to buy or sell a specific currency at a future date and at a price set at the time of the contract. Cross currency forwards are forward contracts to sell an amount of a foreign currency when the Portfolio believes that foreign currency may suffer or enjoy a substantial movement against another foreign currency. A currency futures contract is a standardized contract for the future delivery of a specified amount of currency at a future date for a price set at the time of the contract. For futures contracts or currency indices (a basket of currencies), such contracts provide for a cash payment upon settlement instead of physical delivery of a foreign currency. Futures contracts trade on an exchange unlike forward currency contracts. The Portfolio's investments in derivative currency transactions may result in net short currency exposures. Currency forwards, futures contracts and swaps could be effected with respect to hedges on non-U.S. dollar denominated securities owned by the Portfolio or sold by the Portfolio but not yet delivered, or committed or anticipated to be purchased by the Portfolio. The successful use of these transactions will usually depend on Franklin's ability to accurately forecast currency exchange rate movements. Should exchange rates move in an unexpected manner, the Portfolio may not achieve the anticipated benefits of the transaction, or it may realize losses. The Portfolio may also, from time to time, enter into various other derivative strategies, including financial and index futures contracts and options on such contracts, as well as interest rate swaps. A financial futures contract is an agreement to buy or sell a specific security or securities at a specified future date and price. Among other techniques, the Portfolio may also use futures contracts on U.S. Treasury securities to help manage risks relating to interest rates and other market factors, to increase liquidity, to invest in particular instruments in more efficient or less expensive ways, and to quickly and efficiently cause new cash to be invested in the securities markets or, if cash will be needed to meet shareholder redemption requests, to remove Portfolio assets from exposure to the market. In addition, the Portfolio may invest in swap agreements which may include interest rate, index, total return, currency and credit default swaps for the purposes of attempting to obtain a particular desired return at a lower cost to the Portfolio than if the Portfolio had invested directly in an instrument that yielded that desired return. Swap agreements are contracts between the Portfolio and, typically, a brokerage firm, bank or other institutional buyer for periods ranging from a few days to more than a year, in which the two parties agree to exchange the returns (or differentials in rates of return) earned or realized on a particular set dollar or other currency value of predetermined investments or instruments. The gross returns to be exchanged or "swapped" between the parties are calculated with respect to a "notional amount", i.e., the return on or increase in value of a particular U.S. dollar amount invested at a particular interest rate, in a particular foreign currency, or in a "basket" of securities representing a particular index. The "notional amount" of the swap agreement is only a fictive basis on which to calculate the obligations which the parties to a swap agreement have agreed to exchange. The Portfolio's obligations (or rights) under a swap agreement will generally be equal only to the net amount to be paid or received under the agreement based on the relative values of the positions held by each party to the agreement (the "net amount"). With derivatives, Franklin attempts to predict whether an underlying investment will increase or decrease in value at some future time. Franklin considers various factors, such as availability and cost, in deciding whether to use a particular instrument or strategy. These techniques could result in a loss if the counterparty to the transaction does not perform as promised. Moreover, investors should bear in mind that the Portfolio is not obligated to actively engage in any derivative transactions. INVESTING IN THE FUND 37 PORTFOLIO SELECTION. Franklin allocates the Portfolio's assets based upon its assessment of changing market, political and economic conditions. It will consider various factors, including evaluation of interest and currency exchange rate changes and credit risks. TEMPORARY INVESTMENTS. When Franklin believes market or economic conditions are unfavorable for investors, it may invest up to 100% of the Portfolio's assets in a temporary defensive manner by holding all or a substantial portion of its assets in cash, cash equivalents or other high quality short-term investments. Temporary defensive investments generally may include short-term U.S. government securities, commercial paper, short-term bank time deposits, bankers' acceptances and money market fund shares. Franklin also may invest in these types of securities or hold cash while looking for suitable investment opportunities, to maintain liquidity or to segregate on the Portfolio's books in connection with its forward currency, currency or interest rate futures positions. In these circumstances, the Portfolio may be unable to achieve its investment objective. A description of the Fund's policies and procedures with respect to the disclosure of the Portfolio's holdings of securities is available in the Statement of Additional Information. RISKS. An investment in the Portfolio is subject to the following main risks: INTEREST RATE RISK. When interest rates rise, bond prices fall. The opposite is also true: bond prices rise when interest rates fall. In general, securities with longer maturities are more sensitive to these price changes. FOREIGN SECURITIES RISK. Investing in foreign securities, including securities of foreign governments, typically involves more risks than investing in U.S. securities. Certain of these risks also may apply to securities of U.S. companies with significant foreign operations. These risks can increase the potential for losses in the Portfolio and affect its share price. CURRENCY EXCHANGE RATES. Foreign securities may be issued and traded in foreign currencies. As a result, their values may be affected by changes in exchange rates between foreign currencies and the U.S. dollar, as well as between currencies of countries other than the U.S. For example, if the value of the U.S. dollar goes up compared to a foreign currency, an investment traded in that foreign currency will go down in value because it will be worth fewer U.S. dollars. CURRENCY MANAGEMENT STRATEGIES. Currency management strategies, including the use of cross currency forwards and currency futures contracts, may substantially change the Portfolio's exposure to currency exchange rates and could result in losses to the Portfolio if currencies do not perform as Franklin expects. In addition, currency management strategies, to the extent that they are used as a hedging technique to reduce the Portfolio's exposure to currency risks, may also reduce the Portfolio's ability to benefit from favorable changes in currency exchange rates. There is no assurance that Franklin's use of currency management strategies will benefit the Portfolio or that they will be, or can be, used at appropriate times. Furthermore, there may not be a perfect correlation between the amount of exposure to a particular currency and the amount of securities in the portfolio denominated in that currency. POLITICAL AND ECONOMIC DEVELOPMENTS. The political, economic and social structures of some foreign countries may be less stable and more volatile than those in the U.S. Investments in these countries may be subject to the risks of internal and external conflicts, currency devaluations, foreign ownership limitations and tax increases. It is possible that a government may take over the assets or operations of a company or impose restrictions on the exchange or export of currency or other assets. Some countries also may have different legal systems that may make it difficult for the Portfolio to vote proxies, exercise shareholder rights, and pursue legal remedies with respect to its foreign investments. Diplomatic and political developments, including rapid and adverse political changes, social instability, regional conflicts, terrorism and war, could affect the economies, industries, and securities and currency markets, and the value of the Portfolio's investments, in non-U.S. countries. These factors are extremely difficult, if not impossible, to predict and take into account with respect to the Portfolio's investments. 38 INVESTING IN THE FUND TRADING PRACTICES. Brokerage commissions and other fees generally are higher for foreign securities. Government supervision and regulation of foreign stock exchanges, currency markets, trading systems and brokers may be less than in the U.S. The procedures and rules governing foreign transactions and custody (holding of the Portfolio's assets) also may involve delays in payment, delivery or recovery of money or investments. AVAILABILITY OF INFORMATION. Foreign companies may not be subject to the same disclosure, accounting, auditing and financial reporting standards and practices as U.S. companies. Thus, there may be less information publicly available about foreign companies than about most U.S. companies. LIMITED MARKETS. Certain foreign securities may be less liquid (harder to sell) and more volatile than many U.S. securities. This means the Portfolio may at times may be unable to sell foreign securities at favorable prices. EMERGING MARKETS. The risks of foreign investments typically are greater in less developed countries, sometimes referred to as emerging markets. For example, political and economic structures in these countries may be less established and may change rapidly. These countries also are more likely to experience high levels of inflation, deflation or currency devaluation, which can harm their economies and securities markets and increase volatility. In fact, short-term volatility in these markets, and declines of 50% or more, are not uncommon. Restrictions on currency trading that may be imposed by emerging market countries will have an adverse effect on the value of the securities of companies that trade or operate in such countries. CREDIT RISK. An issuer of bonds may be unable to make interest payments and repay principal when due. Changes in an issuer's financial strength or in a security's credit rating may affect a security's value, and, thus, impact Portfolio performance. LOWER-RATED SECURITIES. Securities rated below investment grade, sometimes called "junk bonds," generally have more credit risk than higher-rated securities. Issuers of high yield, fixed-income securities are not as strong financially as those issuing securities with higher credit ratings. These issuers are more likely to encounter financial difficulties and are more vulnerable to changes in the economy, such as a recession or a sustained period of rising interest rates, that could affect their ability to make interest and principal payments. If an issuer stops making interest and/or principal payments, payments on the securities may never resume. These securities may be worthless and the Portfolio could lose its entire investment. The prices of high yield, fixed-income securities fluctuate more than higher- quality securities. Prices are especially sensitive to developments affecting the issuer's business and to changes in the ratings assigned by rating agencies. Prices are often closely linked with the issuer's stock prices and typically rise and fall in response to factors that affect stock prices. In addition, the entire high yield securities market can experience sudden and sharp price swings due to changes in economic conditions, stock market activity, large sustained sales by major investors, a high-profile default, or other factors. High yield securities generally are less liquid than higher-quality securities. Many of these securities do not trade frequently, and when they do their prices may be significantly higher or lower than expected. At times, it may be difficult to sell these securities promptly at an acceptable price, which may limit the Portfolio's ability to sell securities in response to specific economic events or to meet redemption requests. DERIVATIVE SECURITIES RISK. The Portfolio's investment in derivatives may involve a small investment relative to the amount of risk assumed. Some derivatives are particularly sensitive to changes in interest rates. Futures, forward contracts, swaps and options contracts are considered derivative investments since their value depends on the value or performance of an underlying asset or reference instrument. Derivative investments involve costs, may be volatile and may involve a small investment relative to the risk assumed. Their successful use may depend on Franklin's ability to predict market movements. Risks include delivery failure, default by the INVESTING IN THE FUND 39 other party or the inability to close out a position because the trading market becomes illiquid. The risk of loss to the Portfolio for a swap transaction on a net basis depends on which party is obligated to pay the net amount to the other party. If the counterparty is obligated to pay the net amount to the Portfolio, the risk of loss to the Portfolio is loss of the entire amount that the Portfolio is entitled to receive; if the Portfolio is obligated to pay the net amount, the Portfolio's risk of loss is limited to the net amount. INCOME RISK. Since the Portfolio can only distribute what it earns, the Portfolio's distributions to shareholders may decline when interest rates fall. NON-DIVERSIFICATION RISK. The Portfolio is a non-diversified fund. It may invest a greater portion of its assets in the securities of one or more issuers, and have a smaller number of issuers, than a diversified fund. The Portfolio may be more sensitive to economic, business, political or other changes affecting similar issuers or securities, which may result in greater fluctuation in the value of the Portfolio's shares. The Portfolio, however, intends to meet certain tax diversification requirements. PORTFOLIO TURNOVER RISK. Franklin's attempt to keep the portfolio of bonds at an optimum level of interest rate sensitivity may cause the Portfolio's portfolio turnover rate to be high. High turnover will increase the Portfolio's transaction costs. In addition to the main risks discussed above, an investment in the Portfolio may also be subject to the following risks: - Call Risk - Euro Conversion Risk - Extension Risk - Inflation Risk - Market Risk - Non-Agency Securities Risk - Portfolio Risk - Prepayment Risk - Securities Lending Risk - Short-Term Trading Risk - Sub-Prime Mortgage Risk A detailed description of these risks is set forth in "- Defining Risks" below. Additional risk information is provided in the Statement of Additional Information. MONEY MARKET PORTFOLIO Money Market Portfolio seeks maximum current income to the extent consistent with liquidity and the preservation of capital. Although the Portfolio seeks to preserve the value of an investment at $1.00 per share, it is possible to lose money by investing in the Portfolio. An investment in the Portfolio is not insured or guaranteed by the Federal Deposit Insurance Corporation. The Fund, on behalf of the Portfolio, is participating in the U.S. Treasury Temporary Guarantee Program for Money Market Funds (the "Guarantee Program") for the periods described below. The Guarantee Program provides coverage to shareholders of record for amounts they held in the Portfolio as of the close of business on September 19, 2008 ("Eligible Shareholders"). (Minnesota Life Insurance Company and its life insurance affiliates own all of the shares of the Portfolio through its separate accounts, and is its sole shareholder of "record." The Portfolio is an underlying investment vehicle used by variable annuity and variable life insurance contracts. The owners of such contracts shall be considered by the Portfolio as shareholders for purposes of the Guarantee Program.) Subsequent contributions by existing or new shareholders are not covered by the Guarantee Program. The Guarantee Program will be triggered if the Portfolio's net asset value falls below $0.995 (a "Guarantee Event"). 40 INVESTING IN THE FUND If a Guarantee Event occurs, certain conditions are necessary for receiving a Guarantee Payment from the U.S. Treasury: 1. The Fund's Board shall promptly initiate the actions necessary under applicable state and federal law to commence the liquidation of the Portfolio, including ceasing the declaration and payment of dividends and suspending the redemption of its shares. 2. The Portfolio shall be liquidated on or before the 30th day following the occurrence of a Guarantee Event, unless the Treasury, in its sole and absolute discretion, after taking into account prevailing market conditions, consents in writing to a later date. The number of shares guaranteed under the Guarantee Program for each Eligible Shareholder is the lesser of the number of shares owned by an Eligible Shareholder on September 19, 2008 and the number of shares owned by an Eligible Shareholder when a Guarantee Event occurs. The Guarantee Program only applies to Eligible Shareholders who continuously maintain a positive account balance from September 19, 2008 until the date a Guarantee Event occurs. An Eligible Shareholder will receive in the aggregate $1.00 per protected share upon liquidation of the Portfolio pursuant to the Guarantee Program (subject to adjustment and the overall limit of $50 billion currently available under the Guarantee Program to all money market funds participating in the Guarantee Program). Payments will be made by the Treasury under the Guarantee Program on a first come, first served basis, based on the date of receipt by Treasury of a request for payment. If there are insufficient funds under the Guarantee Program to pay all requests for payment, then available funds under the Guarantee Program will be paid pro rata among funds that submitted their request to Treasury on the same day based on the number of shares in those funds covered under the Guarantee Program. The Guarantee Program initially existed for a three-month period expiring on December 18, 2008 (the "Initial Period"), but was later extended by the Treasury Department for an additional period expiring on April 30, 2009 (the "First Extension Period"). The Treasury subsequently extended the Guarantee Program for an additional period expiring September 18, 2009 (the "Second Extension Period"). Under the terms of the Guarantee Program, the Program may not be extended beyond September 18, 2009. Participation in the Initial Period of the Guarantee Program required a payment to the Treasury in the amount of 0.01% based on the net asset value of the Portfolio as of September 19, 2008. Participation in the First Extension Period and the Second Extension Period of the Guarantee Program each required an additional payment to the Treasury in the amount of 0.015% based on the net asset value of the Portfolio as of September 19, 2008. These expenses are borne by the Portfolio. The Portfolio invests in a variety of U.S. dollar denominated money market securities, including: - securities issued or guaranteed by the U.S. government or one of its agencies or instrumentalities (including bills, notes, bonds and certificates of indebtedness) - obligations of domestic banks, savings and loan associations, savings banks with total assets of at least $2 billion (including certificates of deposit, bank notes, commercial paper, time deposits and bankers' acceptances) - U.S. dollar denominated obligations of U.S. branches or agencies of foreign banks with total assets of at least $2 billion - U.S. dollar denominated obligations of Canadian chartered banks and London branches of U.S. banks with total assets of at least $2 billion - U.S. dollar denominated securities issued by foreign governments and companies and publicly traded in the United States INVESTING IN THE FUND 41 - obligations of supranational entities such as the International Bank for Reconstruction and Development - domestic corporate, domestic limited partnership and affiliated foreign corporate obligations (including commercial paper, notes and bonds, as well as asset-backed commercial paper and other asset-backed securities) - shares of other investment companies that qualify as money market funds In addition, the Portfolio may invest lesser portions of its assets in restricted and illiquid securities, and in repurchase agreement and reverse repurchase agreement transactions. The Portfolio invests only in high quality securities. Generally, the Portfolio may purchase only securities rated within the two highest short-term rating categories of one or more national rating agencies. The Portfolio only invests in securities that mature in 397 calendar days or less from the date of purchase. The Portfolio maintains an average weighted maturity of 90 days or less. The Portfolio will invest in shares of other money market funds when it cannot invest as efficiently in other money market securities or when Advantus Capital otherwise believes that the return and liquidity features of a money market fund are beneficial relative to other types of investment options. To the extent the Portfolio invests in shares of another money market fund, it will indirectly absorb its pro rata share of such fund's operating expenses, including investment advisory and administrative fees, which will reduce the Portfolio's return on such investment relative to investment alternatives that do not include such expenses. The market for commercial paper and other money market securities is highly liquid, but individual securities purchased by the Portfolio may be subject to the risk of reduced liquidity due to changes in quality ratings or changes in general market conditions which adversely affect particular securities or the broader short-term debt market as a whole. In addition, the Portfolio may, at the time of purchase, invest up to 10% of its net assets in illiquid securities, and may also invest without limit in securities whose disposition is restricted under the federal securities laws but which have been determined by Advantus Capital to be liquid under liquidity guidelines adopted by the Fund's Board of Directors. Investments in illiquid and restricted securities present greater risks inasmuch as such securities may only be resold subject to statutory or regulatory restrictions, or if the Portfolio bears the costs of registering such securities. The Portfolio may, therefore, be unable to dispose of such securities as quickly as, or at prices as favorable as those for, comparable but liquid or unrestricted securities. As of December 31, 2008, the Portfolio had none of its net assets invested in illiquid securities, and 27.71% of its net assets invested in restricted securities deemed liquid pursuant to the liquidity guidelines. Advantus Capital continuously monitors the liquidity of portfolio securities and may determine that, because of a reduction in liquidity subsequent to purchase, securities which originally were determined to be liquid have become illiquid. This could result in more than 10% of the Portfolio's net assets being invested in illiquid securities. A description of the Fund's policies and procedures with respect to the disclosure of the Portfolio's holdings of securities is available in the Statement of Additional Information. RISKS. An investment in the Portfolio is subject to the following risks: - Credit Risk - Diversification Risk - Foreign Securities Risk - Income Risk - Inflation Risk - Interest Rate Risk - Liquidity Risk - Market Risk - Non-Agency Securities Risk - Portfolio Risk - Stable Price Risk - Sub-Prime Mortgage Risk 42 INVESTING IN THE FUND A detailed description of these risks is set forth in "- Defining Risks" below. Additional risk information is provided in the Statement of Additional Information. MORTGAGE SECURITIES PORTFOLIO Mortgage Securities Portfolio seeks a high level of current income consistent with prudent investment risk. Under normal circumstances, the Portfolio invests at least 80% of its net assets (exclusive of collateral received in connection with securities lending) in mortgage-related securities. The 80% investment policy is not fundamental, which means it may be changed without the vote of a majority of the Portfolio's outstanding shares, but the shareholders will be notified in writing at least 60 days prior to any change of this policy. The Portfolio invests a major portion of its assets in high and investment-grade securities representing interests in pools of mortgage loans. In addition, the Portfolio may invest in a variety of other mortgage-related securities including collateralized mortgage obligations (CMOs) and stripped mortgage-backed securities. In selecting mortgage-related securities, Advantus Capital considers a variety of factors, including prepayment risk, credit quality, liquidity, the collateral securing the underlying loan (i.e., residential versus commercial real estate) and the type of underlying mortgage loan (i.e., a 30-year fully-amortized loan versus a 15-year fully-amortized loan). Advantus Capital also considers current and expected trends in economic conditions, interest rates and the mortgage market, and selects securities which, in its judgment, are likely to perform well in those circumstances. The market for mortgage-related securities is generally liquid, but individual mortgage-related securities purchased by the Portfolio may be subject to the risk of reduced liquidity due to changes in quality ratings or changes in general market conditions which adversely affect particular mortgage-related securities or the broader mortgage securities market as a whole. In addition, the Portfolio may, at the time of purchase, invest up to 15% of its net assets in illiquid securities, and may also invest without limit in securities whose disposition is restricted under the federal securities laws but which have been determined by Advantus Capital to be liquid under liquidity guidelines adopted by the Fund's Board of Directors. Investments in illiquid and restricted securities present greater risks inasmuch as such securities may only be resold subject to statutory or regulatory restrictions, or if the Portfolio bears the costs of registering such securities. The Portfolio may, therefore, be unable to dispose of such securities as quickly as, or at prices as favorable as those for, comparable but liquid or unrestricted securities. As of December 31, 2008, the Portfolio had 7.0% of its net assets invested in illiquid securities, and 4.22% of its net assets invested in restricted securities deemed liquid pursuant to the liquidity guidelines. Advantus Capital continuously monitors the liquidity of portfolio securities and may determine that, because of a reduction in liquidity subsequent to purchase, securities which originally were determined to be liquid have become illiquid. This could result in more than 15% of the Portfolio's net assets being invested in illiquid securities. Interests in pools of mortgage loans provide the security holder the right to receive out of the underlying mortgage loans periodic interest payments at a fixed rate and a full principal payment at a designated maturity or call date. Scheduled principal, interest and other payments on the underlying mortgage loans received by the sponsoring or guarantor entity are then distributed or "passed through" to security holders net of any service fees retained by the sponsor or guarantor. Additional payments passed through to security holders could arise from the prepayment of principal resulting from the sale of residential property, the refinancing of underlying mortgages, or the foreclosure of residential property. In "pass through" mortgage loan pools, payments to security holders will depend on whether mortgagors make payments to the pooling entity on the underlying mortgage loans. To avoid this non-payment risk, the Portfolio may also invest in "modified pass through" mortgage loan pools which provide that the security holder will receive interest and principal payments regardless of whether mortgagors make payments on the underlying mortgage loans. INVESTING IN THE FUND 43 The Portfolio may invest in government or government-related mortgage loan pools or private mortgage loan pools. In government or government-related mortgage loan pools, the U.S. government or certain agencies guarantee to mortgage pool security holders the payment of principal and interest. The principal governmental guarantors of mortgage-related securities are the Federal National Mortgage Association (FNMA) and the Federal Home Loan Mortgage Corporation (FHLMC). Although FNMA and FHLMC may be chartered or sponsored by Acts of Congress, their securities are neither issued nor guaranteed by the U.S. Treasury. FNMA and FHLMC generally guarantee payment of principal and interest on mortgage loan pool securities issued by certain pre-approved institutions (i.e., savings and loan institutions, commercial banks and mortgage bankers). The Portfolio may also invest in private mortgage loan pools sponsored by commercial banks, insurance companies, mortgage bankers and other private financial institutions. Mortgage pools created by these non-governmental entities offer a higher rate of interest than government or government related securities. Unlike government agency sponsored mortgage loan pools, payment of interest and payment to investors is not guaranteed. The Portfolio may also invest a major portion of its assets in CMOs and stripped mortgage-backed securities. CMOs are debt obligations issued by both government agencies and private special-purpose entities that are collateralized by residential or commercial mortgage loans. Unlike traditional mortgage loan pools, CMOs allocate the priority of the distribution of principal and level of interest from the underlying mortgage loans among various series. Each series differs from another in terms of the priority right to receive cash payments from the underlying mortgage loans. Each series may be further divided into classes in which the principal and interest payments payable to classes in the same series may be allocated. For instance, a certain class in a series may have right of priority over another class to receive principal and interest payments. Moreover, a certain class in a series may be entitled to receive only interest payments while another class in the same series may be only entitled to receive principal payments. As a result, the timing and the type of payments received by a CMO security holder may differ from the payments received by a security holder in a traditional mortgage loan pool. Stripped mortgage-backed securities also represent ownership interests in a pool of mortgages. However, the stripped mortgage-backed securities are separated into interest and principal components. The interest component only allows the security holder to receive the interest portion of cash payments, while the principal component only allows the security holder to receive the principal portion of cash payments. To help manage the average duration of its portfolio of fixed income securities, or to attempt to hedge against the effects of interest rate changes on current or intended investments in fixed rate securities, the Portfolio may invest to a limited extent in futures contracts or other derivatives. Generally speaking, a derivative is a financial contract whose value is based on the value of a financial asset (such as a stock or bond) or a market index. The Portfolio will not use derivatives for speculation or for the purpose of leveraging (magnifying) investment returns. As a rule of thumb, a portfolio of fixed income securities (including mortgage- related securities) experiences a decrease in principal value with an increase in interest rates. The extent of the decrease in principal value may be affected by the Portfolio's duration of its portfolio of mortgage-related securities. Duration measures the relative price sensitivity of a security to changes in interest rates. "Effective" duration takes into consideration the likelihood that a security will be called or prepaid prior to maturity given current interest rates. Typically, a security with a longer duration is more price sensitive than a security with a shorter duration. In general, a portfolio of mortgage-related securities experiences a percentage decrease in principal value equal to its effective duration for each 1% increase in interest rates. For example, if the Portfolio holds securities with an effective duration of five years and interest rates rise 1%, the principal value of such securities could be expected to decrease by approximately 5%. The Portfolio expects that under normal circumstances the effective duration of its investment portfolio will range from one to seven years. 44 INVESTING IN THE FUND In addition, the Portfolio may invest lesser portions of its assets in non- investment grade mortgage-related securities, securities issued or guaranteed by the U.S. government or its agencies and instrumentalities, convertible and non- convertible investment-grade and non-investment grade corporate debt securities, securities of other investment companies, direct mortgage investments, interest rate and other bond futures contracts, and options on futures contracts, swap agreements, credit default swaps, options (the Portfolio may purchase, sell and write put and call options), asset-backed and stripped asset-backed securities, U.S. dollar denominated mortgage-related securities issued by foreign governments and companies and traded in the U.S., repurchase agreement transactions, when-issued or forward commitment transactions, mortgage dollar rolls, certificates of deposit, bankers acceptances, and cash and cash equivalents, including commercial paper and other money market securities. To generate additional income, the Portfolio may lend securities representing up to one-third of the value of its total assets to broker-dealers, banks and other institutions. A description of the Fund's policies and procedures with respect to the disclosure of the Portfolio's holdings of securities is available in the Statement of Additional Information. RISKS. An investment in the Portfolio is subject to the following risks: - Call Risk - Concentration Risk - Credit Risk - Derivatives Risk - Diversification Risk - Extension Risk - Foreign Securities Risk - Income Risk - Inflation Risk - Interest Rate Risk - Liquidity Risk - Market Risk - Non-Agency Securities Risk - Portfolio Risk - Prepayment Risk - Short-Term Trading Risk - Sub-Prime Mortgage RiskA detailed description of these risks is set forth in "- Defining Risks" below. Additional risk information is provided in the Statement of Additional Information. REAL ESTATE SECURITIES PORTFOLIO Real Estate Securities Portfolio seeks above average income and long-term growth of capital. Under normal circumstances, at least 80% of the Portfolio's net assets (exclusive of collateral received in connection with securities lending) will be invested in real estate and real estate-related securities. The 80% investment policy is not fundamental, which means it may be changed without the vote of a majority of the Portfolio's outstanding shares, but the shareholders will be notified in writing at least 60 days prior to any change of this policy. The Portfolio will primarily invest in real estate and real estate-related equity securities (including securities convertible into equity securities). The Portfolio does not invest directly in real estate. "Real estate securities" include securities issued by companies that receive at least 50% of their gross revenue from the construction, ownership, management, financing or sale of residential, commercial or industrial real estate. Real estate securities issuers typically include real estate investment trusts (REITs), Real Estate Operating Companies (REOCs), real estate brokers and developers, real estate managers, hotel franchisers, real estate holding companies and publicly traded limited partnerships. "Real estate-related securities" include securities issued by companies primarily engaged in businesses that sell or offer products or services that are closely related to the real estate industry. Real estate-related securities INVESTING IN THE FUND 45 issuers typically include construction and related building companies, manufacturers and distributors of building supplies, financial institutions that issue or service mortgages and resort companies. Most of the Portfolio's real estate securities portfolio will consist of securities issued by REITs and REOCs that are listed on a securities exchange or traded over-the-counter. A REIT is a corporation or trust that invests in fee or leasehold ownership of real estate, mortgages or shares issued by other REITs and that receives favorable tax treatment provided it meets certain conditions. REITs may be characterized as equity REITs (i.e., REITs that primarily invest in fee ownership and leasehold ownership of land), mortgage REITs (i.e., REITs that primarily invest in mortgages on real estate and other real estate debt) or hybrid REITs which invest in both fee and leasehold ownership of land and mortgages. The Portfolio mostly invests in equity REITs but also invests lesser portions of its assets in mortgage REITs and hybrid REITs. A REIT that meets the applicable requirements of the Internal Revenue Code of 1986 may deduct dividends paid to shareholders, effectively eliminating any corporate level federal tax. As a result, REITs are able to distribute a larger portion of their earnings to investors than other corporate entities subject to the federal corporate tax. There is the risk that a REIT held by the Portfolio will fail to qualify for this tax-free pass-through treatment of its income. By investing in REITs indirectly through the Portfolio, in addition to bearing a proportionate share of the expenses of the Portfolio, investors will also indirectly bear similar expenses of the REITs in which the Portfolio invests. A REOC is typically structured as a "C" corporation under the tax code and is not required to distribute any portion of its income. A REOC, therefore, does not receive the same favorable tax treatment that is accorded a REIT. In addition, the value of the Portfolio's securities issued by REOCs may be adversely affected by income streams derived from businesses other than real estate ownership. The Portfolio may also invest in exchange-traded funds (ETFs) that replicate a REIT or real estate stock index or a basket of REITs or real estate stocks, as well as in ETFs that attempt to provide enhanced returns, or inverse returns, on such indices or baskets. Enhanced or inverse return ETFs present greater opportunities for investment gains but also present correspondingly greater risk of loss. For instance, if the Portfolio invests in an ETF that attempts to double the return of an index, the ETF's value would increase or decrease approximately twice the percentage of the underlying index. If the Portfolio invests in an ETF that attempts to provide the inverse return of an index, the ETF's value would increase or decrease approximately the opposite percentage of the underlying index. The Portfolio may invest in securities of small, mid and large capitalization companies. Advantus Capital assesses an investment's potential for sustainable earnings growth over time. In selecting securities, Advantus Capital considers factors such as a company's financial condition, financial performance, quality of management, policies and strategies, real estate properties and comparative market position. In addition, the Portfolio may invest lesser portions of its assets in securities issued by companies outside of the real estate industry. The Portfolio may also invest in non-real estate related equity securities, warrants, preferred stock, convertible debt securities, investment-grade fixed income securities, securities of other investment companies, repurchase agreement transactions, restricted and illiquid securities, stock index futures contracts and options on futures contracts, options (the Portfolio may purchase, sell and write put and call options), swap agreements, securities issued by foreign governments and companies, American Depository Receipts, securities purchased on a when issued or forward commitment basis, certificates of deposit, bankers acceptances, and cash and cash equivalents, including commercial paper and other money market securities. To generate additional income, the Portfolio may lend securities representing up to one-third of the value of its total assets to broker-dealers, banks and other institutions. A description of the Fund's policies and procedures with respect to the disclosure of the Portfolio's holdings of securities is available in the Statement of Additional Information. 46 INVESTING IN THE FUND RISKS. An investment in the Portfolio is subject to the following risks: - Company Risk - Concentration Risk - Credit Risk - Derivatives Risk - Diversification Risk - Extension Risk - Foreign Securities Risk - Income Risk - Inflation Risk - Interest Rate Risk - Large Company Risk - Limited Portfolio Risk - Market Risk - Mid Size Company Risk - Non-Agency Securities Risk - Portfolio Risk - Prepayment Risk - Real Estate Risk - REIT-Related Risk - Sector Risk - Securities Lending Risk - Short-Term Trading Risk - Small and Micro-Cap Company Risk - Sub-Prime Mortgage Risk A detailed description of these risks is set forth in "- Defining Risks" below. INVESTMENT PRACTICES COMMON TO THE PORTFOLIOS In an attempt to respond to adverse market, economic, political or other conditions, each of the Portfolios may also invest for temporary defensive purposes in cash and various short-term cash equivalent items without limit. When investing for temporary defensive purposes, a Portfolio may not always achieve its investment objective. See "Investment Objective and Policies -- Defensive Purposes" in the Statement of Additional Information for further details. PORTFOLIO TURNOVER Before investing in a Portfolio, you should review its portfolio turnover rate for an indication of the potential effect of transaction costs on the Portfolio's future returns. In general, the greater the volume of buying and selling by the Portfolio, the greater the impact that brokerage commissions and other transaction costs will have on its return. Portfolio turnover rates for the last five years are presented in the Financial Highlights included in the Summary for each Portfolio, above. The Portfolios, while they generally do not invest or trade for short-term profits, are actively managed and the Portfolio managers may trade securities frequently. As a result, each Portfolio may, from time to time, have an annual portfolio turnover rate of over 100%. Factors contributing to a Portfolio's higher turnover rate may include general market volatility, significant positive or negative developments concerning particular securities holdings, an attempt to maintain the Portfolio's market capitalization target and the need to sell holdings to meet redemption requests. While higher turnover rates may result in increased transaction costs, the managers of the Portfolios attempt to have the benefits of these transactions outweigh the costs, although this cannot be assured. In the case of the International Bond Portfolio, for example, the frequent use of forward foreign currency exchange contracts to hedge against variations in foreign currency exchange rates contributes to substantially higher turnover rates. During the year ended December 31, 2008, the following Portfolio had a turnover rate in excess of 100%: Bond (229.6%), International Bond (103.8%) and Mortgage Securities (127.5%). . INVESTING IN THE FUND 47 DEFINING RISKS Investment in each Portfolio involves risks. A Portfolio's yield and price are not guaranteed, and the value of an investment in a Portfolio will go up or down. The value of an investment in a particular Portfolio may be affected by the risks of investing in that Portfolio as identified for each Portfolio in " -Investment Objective, Policies and Practices" above. The following glossary describes those identified risks associated with investing in the Portfolios. - CALL RISK - is the risk that securities with high interest rates (or other attributes that increase debt cost) will be prepaid by the issuer prior to maturity, particularly during periods of falling interest rates. In general, an issuer will call its debt securities if they can be refinanced by issuing new securities with a lower interest rate. The Portfolio is subject to the possibility that during periods of falling interest rates, an issuer will call its securities. As a result, the Portfolio would have to reinvest the proceeds in other securities with generally lower interest rates, resulting in a decline in the Portfolio's income. - COMPANY RISK - is the risk that individual securities may perform differently than the overall market. This may be a result of specific factors such as changes in corporate profitability due to the success or failure of specific products or management strategies, or it may be due to changes in investor perceptions regarding a company. In addition, the volatility of a company's income or share price may be greater because of the amount of leverage on the company's balance sheet. - CONCENTRATION RISK - is the risk that the Portfolio's performance may be more susceptible to a single economic, regulatory or technological occurrence than an investment portfolio that does not concentrate its investments in a single industry. The Portfolio is subject to concentration risk if the Portfolio invests more than 25% of its total assets in a particular industry. The Mortgage Securities and Real Estate Securities Portfolios each concentrates its investments in a single industry. - CREDIT RISK - is the risk that an issuer of a debt security, asset-backed or mortgage-backed security (or an underlying obligor) or other fixed income obligation will not make payments on the security or obligation when due, or that the other party to a contract will default on its obligation. There is also the risk that an issuer could suffer adverse changes in financial condition that could lower the credit quality of a security. This could lead to greater volatility in the price of the security and in shares of the Portfolio. Also, a change in the quality rating of a debt security or other fixed income obligation can affect the security's or obligation's liquidity and make it more difficult to sell. The Portfolio may attempt to minimize credit risk by investing in debt securities and other fixed income obligations considered at least investment grade at the time of purchase. However, all of these securities and obligations, especially those in the lower investment grade rating categories, have credit risk. In adverse economic or other circumstances, issuers of these lower rated securities and obligations are more likely to have difficulty making principal and interest payments than issuers of higher rated securities and obligations. If the Portfolio purchases unrated securities and obligations, it will depend on its investment adviser's or sub-adviser's analysis of credit risk more heavily than usual. - CURRENCY RISK - is the risk that changes in foreign currency exchange rates will increase or decrease the value of foreign securities or the amount of income or gain received on such securities. A strong U.S. dollar relative to these other currencies will adversely affect the value of the Portfolio. Attempts by the Portfolio to minimize the effects of currency fluctuations through the use of foreign currency hedging transactions may not be successful or the Portfolio's hedging transactions may cause the Portfolio to be unable to take advantage of a favorable change in the value of foreign currencies. - DERIVATIVES RISK - is the risk associated with investing in a financial contract whose value depends on, or is derived from, the value of an underlying asset, reference rate, or index. A Portfolio typically uses 48 INVESTING IN THE FUND derivatives as a substitute for taking a position in the underlying asset and/or as part of a strategy designed to reduce exposure to other risks, such as interest rate or currency risk. The Index 400 Mid-Cap and Index 500 Portfolios may invest, to a limited extent, in derivatives solely to help stay fully invested and to reduce transaction costs. Derivatives may also be used for leverage, in which case their use would likely accentuate a particular risk related to the derivative. Use of derivative instruments involves risks different from, or possibly greater than, the risks associated with investing directly in securities and other traditional investments. Derivatives are subject to a number of other risks, such as liquidity risk, interest rate risk, market risk, credit risk and management risk. Derivatives also involve the risk of mispricing or improper valuation and the risk that changes in the value may not correlate perfectly with the underlying asset, rate, or index. Using derivatives may result in losses, possibly in excess of the principal amount invested. Also, suitable derivative transactions may not be available in all circumstances. The counterparty to a derivative contract could also default, resulting in losses to the Portfolio. - DIVERSIFICATION RISK - is the risk that, as a result of investing more than 5% of its total assets in the securities of a single issuer, the Portfolio's performance may be more susceptible to a single economic, regulatory or technological occurrence than a more diversified investment portfolio. A Portfolio (other than International Bond Portfolio) may not, with respect to 75% of its total assets, invest more than 5% of its total assets in the securities of a single issuer. With respect to the other 25% of its total assets, however, a Portfolio is subject to diversification risk if it invests more than 5% of its total assets in the securities of a single issuer. As a non-diversified investment company, International Bond Portfolio may particularly be subject to diversification risk since the Portfolio may invest more than 5% of its total assets in the securities of a single issuer with respect to 100% of its total investment portfolio. - EURO CONVERSION RISK - is the risk that the value of foreign securities of companies located in European Monetary Union (EMU) countries may decrease due to market volatility resulting from the conversion of certain EMU country currencies to the Euro. It is not possible to predict the impact of the Euro on the business or financial condition of European issues or on the Portfolio. The transition and the elimination of currency risk among EMU countries may change the economic environment and behavior of investors, particularly in European markets. To the extent the Portfolio holds non-U.S. dollar (Euro or other) denominated securities, it will still be exposed to currency risk due to fluctuations in those currencies versus the U.S. dollar. - EXTENSION RISK - is the risk that rising interest rates could cause property owners to prepay their mortgages more slowly than expected, resulting in slower prepayments of mortgage-related securities. - FOREIGN SECURITIES RISK - is the risk that the value of foreign companies or foreign government securities held by the Portfolio may be subject to greater volatility than domestic securities. Risks of foreign securities include, among other things: POLITICAL AND ECONOMIC RISKS. Investing in foreign securities is subject to the risk of political, social or economic instability in the country of the issuer of the security, the difficulty of predicting international trade patterns, the possibility of exchange controls, expropriation, limits on currency removal or nationalization of assets. FOREIGN TAX RISK. The Portfolio's income from foreign issuers may be subject to non-U.S. withholding taxes. In some countries, the Portfolio may be subject to taxes on trading profits and, on certain securities transactions, transfer or stamp duties. To the extent foreign income taxes are paid by the Portfolio, U.S. shareholders may be entitled to a credit or deduction for U.S. tax purposes. INVESTING IN THE FUND 49 FOREIGN INVESTMENT RESTRICTION RISK. Some countries, particularly emerging market countries, restrict to varying degrees foreign investment in their securities markets. In some circumstances, these restrictions may limit or preclude investment in certain countries or may increase the cost of investing in securities of particular companies. FOREIGN SECURITIES MARKET RISK. Securities of many foreign companies may be less liquid and their prices more volatile than securities of domestic companies. Securities of companies traded outside the U.S. may be subject to further risks due to the inexperience of local brokers and financial institutions, the possibility of permanent or temporary termination of trading, and greater spreads between bid and asked prices for securities. Moreover, foreign stock exchanges and brokers are subject to less governmental regulation, and commissions may be higher than in the U.S. In addition, there may be delays in the settlement of foreign stock exchange transactions. INFORMATION AND REMEDIES RISK. Foreign companies generally are not subject to uniform accounting, auditing and financial reporting standards or to other regulatory requirements that apply to domestic companies. As a result, less information may be available to investors concerning foreign issuers. In addition, the Portfolio may have greater difficulty voting proxies, exercising shareholder rights, pursuing legal remedies and obtaining judgments with respect to foreign investments in foreign courts than with domestic companies in domestic courts. - INCOME RISK - is the risk that the Portfolio may experience a decline in its income due to falling interest rates. - INDEX PERFORMANCE RISK - is the risk that the Portfolio's ability to replicate the performance of a particular securities index may be affected by, among other things, changes in securities markets, the manner in which the index's sponsor calculates the applicable securities index, the amount and timing of cash flows into and out of the Portfolio, commissions, settlement fees and other expenses. - INFLATION RISK - is the risk that inflation will erode the purchasing power of the value of securities held by the Portfolio or the value of the Portfolio's dividends. Fixed-rate debt securities may be more susceptible to this risk than floating-rate debt securities or equity securities, whose value and dividends may increase in the future. - INTEREST RATE RISK - is the risk that the value of a debt security, mortgage-backed security or fixed income obligation will decline due to changes in market interest rates. Generally, when interest rates rise, the value of such a security or obligation decreases. Conversely, when interest rates decline, the value of a debt security, mortgage-backed security or fixed income obligation generally increases. Long-term debt securities, mortgage-backed securities and fixed income obligations are generally more sensitive to interest rate changes. - LARGE COMPANY RISK - is the risk that a portfolio of large capitalization company securities may underperform the market as a whole. - LIMITED PORTFOLIO RISK - is the risk that an investment in the Portfolio may present greater volatility, due to the limited number of issuers of real estate and real estate-related securities, than an investment in portfolio of securities selected from a greater number of issuers. The Portfolio is subject to limited portfolio risk because the Portfolio may invest in a smaller number of individual issuers than other portfolios. - LIQUIDITY RISK - is the risk that a debt security, mortgage-backed security or fixed income obligation purchased by a Portfolio, including restricted securities determined by the Portfolio's investment adviser to be liquid at the time of purchase, may prove to be illiquid or otherwise subject to reduced liquidity 50 INVESTING IN THE FUND due to changes in market conditions or quality ratings, or to errors in judgment by the investment adviser. - MARKET RISK - is the risk that equity and debt securities are subject to adverse trends in equity and debt markets. Securities are subject to price movements due to changes in general economic conditions, the level of prevailing interest rates or investor perceptions of the market. In addition, prices are affected by the outlook for overall corporate profitability. Market prices of equity securities are generally more volatile than debt securities. This may cause a security to be worth less than the price originally paid for it, or less than it was worth at an earlier time. Market risk may affect a single issuer or the market as a whole. In addition, market risk may affect a portfolio of equity securities of micro, small, mid, large and very large capitalization companies and/or equity securities believed by a Portfolio's investment adviser or sub- adviser to be undervalued or exhibit above average sustainable earnings growth potential. As a result, a portfolio of such equity securities may underperform the market as a whole. - MID SIZE COMPANY RISK - is the risk that securities of mid capitalization companies may be more vulnerable to adverse developments than those of larger companies due to such companies' limited product lines, limited markets and financial resources and dependence upon a relatively small management group. - NON-AGENCY SECURITIES RISK - is the risk that payments on a security will not be made when due, or the value of such security will decline, because the security is not issued or guaranteed as to principal or interest by the U.S. Government or by agencies or authorities controlled or supervised by and acting as instrumentalities of the U.S. Government. These securities may include but are not limited to securities issued by non-government entities which can include instruments secured by obligations of prime, Alt A, and sub-prime residential mortgage borrowers. Non-agency securities also may include asset-backed securities (which represent interests in auto, consumer and/or credit card loans) and commercial mortgage-backed securities (which represent interests in commercial mortgage loans). Non-agency securities can present valuation and liquidity issues and be subject to precipitous downgrades (or even default) during time periods characterized by recessionary market pressures such as falling home prices, rising unemployment, bank failures and/or other negative market stresses. The risk of non-payment by the issuer of any non-agency security increases when markets are stressed. - PORTFOLIO RISK - is the risk that Portfolio performance may not meet or exceed that of the market as a whole. The performance of the Portfolio will depend on the Portfolio's investment adviser's or sub-adviser's judgment of economic and market policies, trends in investment yields and monetary policy. - PREPAYMENT RISK - is the risk that falling interest rates could cause prepayments of mortgage-related securities to occur more quickly than expected. This occurs because, as interest rates fall, more property owners refinance the mortgages underlying these securities. The Portfolio must reinvest the prepayments at a time when interest rates on new mortgage investments are falling, reducing the income of the Portfolio. In addition, when interest rates fall, prices on mortgage-related securities may not rise as much as for other types of comparable debt securities because investors may anticipate an increase in mortgage prepayments. - REAL ESTATE RISK - is the risk that the value of the Portfolio's investments may decrease due to fluctuations in rental income, overbuilding and increased competition, casualty and condemnation losses, environmental costs and liabilities, extended vacancies of property, lack of available mortgage funds, government regulation and limitations, increases in property taxes, cash flow dependency, declines in real estate value, physical depreciation of buildings, inability to obtain project financing, increased operating costs and changes in general or local economic conditions. INVESTING IN THE FUND 51 - REIT-RELATED RISK - is the risk that the value of the Portfolio's equity REIT securities will be adversely affected by changes in the value of the underlying property. In addition, the value of equity or mortgage REITs could be adversely affected if the REIT fails to qualify for tax-free pass through income under the Internal Revenue Code of 1986 (as amended), or maintain its exemption from registration under the Investment Company Act of 1940. In addition, REITs may be limited in their ability to maintain sufficient short-term liquidity in the event of an unforeseen or sudden decline in asset values and/or income because REITs are required to limit the amount of cash retained from business activities in order to maintain their REIT status under the Internal Revenue Code. - SECTOR RISK - is the risk that the securities of companies within specific industries or sectors of the economy can periodically perform differently than the overall market. This may be due to changes in such things as the regulatory or competitive environment or to changes in investor perceptions regarding a company. - SECURITIES LENDING RISK - is the risk that the Portfolio may experience a delay in the recovery of loaned securities, or even the loss of rights in the collateral deposited by the borrower if the borrower should fail financially. To reduce these risks, the Portfolio enters into loan arrangements only with institutions that the Portfolio's investment adviser or sub-adviser has determined are creditworthy. In addition, the investment of the cash collateral deposited by the borrower is subject to inherent market risks such as interest rate risk, credit risk, liquidity risk and other risks that are present in the market, and, as such, the value of these investments may not be sufficient, when liquidated, to repay the borrower when the loaned security is returned. This could result in losses incurred by the Portfolio. - SHORT-TERM TRADING RISK - is the risk that a Portfolio may trade securities frequently and hold securities in its portfolio for one year or less. Frequent purchases and sales of securities will increase the Portfolio's transaction costs. Factors that can lead to short-term trading include market volatility, a significant positive or negative development concerning a security, an attempt to maintain a Portfolio's market capitalization target, and the need to sell a security to meet redemption activity. - SMALL AND MICRO-CAP COMPANY RISK - is the risk that equity securities of small and micro-cap capitalization companies are subject to greater price volatility due to, among other things, such companies' small size, limited product lines, limited access to financing sources and limited management depth. In addition, the frequency and volume of trading of such securities may be less than is typical of larger companies, making them subject to wider price fluctuations. In some cases, there could be difficulties in selling securities of micro-cap and small capitalization companies at the desired time and place. - STABLE PRICE RISK - is the risk that the Money Market Portfolio will not be able to maintain a stable share price of $1.00. There may be situations where the Portfolio's share price could fall below $1.00, which would reduce the value of an investor's account. - SUB-PRIME MORTGAGE RISK - is the risk that an issuer of a security will not make payments on the security when due, or the value of such security will decline, because the issuer owns (or has exposure to) mortgage notes (or other obligations) payable by "sub-prime" or "Alt A" borrowers. Loans to Alt A borrowers are underwritten using standards that are more liberal than those for prime borrowers, such as high loan-to-value ratios and less documentation of borrower income or assets, but not as liberal as those for sub-prime borrowers. Sub-prime borrowers typically have weakened credit histories that include payment delinquencies, and possibly more severe problems such as charge-offs, judgments and bankruptcies. They may also display reduced repayment capacity as measured by credit scores, debt-to- income ratios, or other criteria that may encompass borrowers with incomplete credit histories. Sub-prime loans are loans to borrowers displaying one or more of these characteristics at the time of 52 INVESTING IN THE FUND origination or purchase. Loans to sub-prime or Alt A borrowers have a higher risk of default than loans to prime borrowers. Various types of mortgage-related securities exist -- such as collateralized mortgage obligations and structured investments -- which may invest substantially in obligations of sub-prime or Alt A borrowers. Such securities may be rated investment grade and even AAA or A-1/P-1, but are nonetheless subject to the risk of precipitous downgrades, and even default, if borrowers are delinquent or in default. Securities which invest substantially in obligations of sub-prime or Alt A borrowers are more likely to present valuation problems, and are more likely to become less liquid (or even illiquid), than securities which do not invest substantially in obligations of sub-prime or Alt A borrowers. INVESTING IN THE FUND 53 BUYING AND SELLING SHARES BUYING SHARES Portfolio shares may be sold only to participating life insurance company separate accounts and qualified plans (financial intermediaries) and are not offered directly to the public. Portfolio shares are currently offered only to certain of Minnesota Life's separate accounts in connection with its variable life insurance policies and variable annuity contracts, and to certain other separate accounts of life insurance company affiliates of Minnesota Life. It is possible that the Fund may offer Portfolio shares to other financial intermediaries in the future. In all cases, Portfolio shares are held in an omnibus account owned by the participating financial intermediary. Please refer to the appropriate separate account prospectus or plan documents for details. Securian Financial serves as the underwriter of the Fund's shares. Eligible investors may purchase Portfolio shares on any day the New York Stock Exchange (NYSE) is open for business. The price for Portfolio shares is equal to the Portfolio's net asset value (NAV). NAV is generally calculated as of the close of normal trading on the NYSE (typically 3:00 p.m. Central time). NAV is not calculated on: (a) days in which changes in a Portfolio's investment portfolio do not materially change the Portfolio's NAV, (b) days on which no Portfolio shares are purchased or sold, and (c) customary national business holidays on which the NYSE is closed for trading. The price for shares of Money Market Portfolio will normally be $1.00. However, there is no assurance that Money Market Portfolio will maintain the $1.00 NAV. A purchase order will be priced at the next NAV calculated after the purchase order is received by the Fund. If a purchase order is received after the close of normal trading on the NYSE, the order will be priced at the NAV calculated on the next day the NYSE is open for trading. DETERMINATION OF NET ASSET VALUE. NAV for one Portfolio share is equal to the Portfolio's total investments less any liabilities divided by the number of Portfolio shares. To determine NAV, a Portfolio (other than Money Market Portfolio) generally values its investments based on market quotations. Debt securities may be valued based on calculations furnished to the Portfolio by a pricing service or by brokers who make a market in such securities. A Portfolio may hold securities that are listed on foreign stock exchanges. These foreign securities may trade on weekends or other days when the Portfolio typically does not calculate NAV. As a result, the NAV of such Portfolio shares may change on days when an investor will not be able to purchase or sell Portfolio shares. If market quotations are not available for certain Portfolio investments, the investments are valued based on the fair value of the investments as determined in good faith by the Advantus Capital Valuation Committee under the supervision of the Fund's Board of Directors and in accordance with Board-approved valuation policies and procedures. A Portfolio's investments will also be valued at fair value by the Valuation Committee if Advantus Capital determines that an event impacting the value of an investment occurred after the close of the security's primary exchange or market (for example, a foreign exchange or market) and before the time the Portfolio's share price is calculated. Other circumstances in which fair value pricing may be utilized include, but are not limited to: (i) when significant events occur which may affect the securities of a single issuer, such as mergers, bankruptcies or defaults; (ii) when events occur such as markets closing early or not opening, or security trading halts; or (iii) when pricing certain restricted or non-public securities. Despite best efforts, due to the subjective nature of fair value pricing there is an inherent risk that the fair value of an investment may be higher or lower than the value the Portfolio would have received if it had sold the investment. Fair value pricing may in some cases reduce the ability of frequent traders to take advantage of arbitrage opportunities resulting from potentially "stale" prices of portfolio holdings. However, fair value pricing cannot eliminate the possibility of frequent trading (see "Excessive Trading" below). Securities in 54 BUYING AND SELLING SHARES Money Market Portfolio's investment portfolio are valued on an amortized cost basis. This involves valuing an instrument at its cost and thereafter assuming a constant amortization of any discount or premium until the instrument's maturity, rather than looking at actual changes in the market value of the instrument. SELLING SHARES Portfolio shares will be sold at the NAV next calculated after a sale order is received by the Fund. The amount an investor receives may be more or less than the original purchase price for the applicable shares. The Fund does not currently impose a redemption fee in connection with such transactions, but reserves the right to do so if the Board of Directors determines that imposing a redemption fee is in the best interest of the Fund and its shareholders or is required by law or regulation. Redemptions, like purchases, may be effected only through a participating life insurance company or qualified plan. Please refer to the appropriate separate account prospectus or plan documents for details. EXCHANGING SHARES GENERALLY. Owners of the variable life insurance policies and variable annuity contracts who invest in the Fund may exchange Class 1 shares or Class 2 shares of a Portfolio for Class 1 shares or Class 2 shares, respectively of other Portfolios (or for the Money Market Portfolio). Shares in the Money Market Portfolio acquired in an exchange for Class 1 shares or Class 2 shares may be re-exchanged for Class 1 shares or Class 2 shares, respectively. Class 1 shares cannot be exchanged for Class 2 shares, nor can Class 2 shares be exchanged for Class 1 shares. Such exchanges are also subject to both the limitations described below and the terms and any specific limitations on the exchange or "transfer" privilege described in the accompanying prospectus for those policies or contracts. An exchange will be made on the basis of the respective Portfolio's relative net asset value per Class 1 share or Class 2 share (or the Money Market Portfolio's net asset value per share). EXCESSIVE TRADING. The Board of Directors of the Fund has adopted the following as the Fund's policies and procedures with respect to frequent purchases and redemptions of Fund shares by shareholders: The Fund and its Portfolios are not intended for market timing or excessive trading, nor will the Fund knowingly accommodate such trading activity. It is also the policy of the Fund to discourage frequent purchases and redemptions of Portfolio shares when the Fund becomes aware of such activity, and, in such circumstances, to take steps to attempt to minimize the effect of excessive trading activity in affected Portfolios. Frequent trading into and out of a Portfolio can disrupt the efficient management of the Portfolio and its investment strategies, dilute the value of Portfolio shares held by long-term shareholders, and increase portfolio expenses (including brokerage or other trading costs) for all shareholders, including long-term shareholders who do not generate these expenses. The International Bond Portfolio, which invests in overseas markets, may be particularly subject to such risks resulting from time-zone arbitrage, where a market timer attempts to take advantage of pricing differences that may occur when an event impacting the value of a Portfolio investment occurs after the close of the foreign exchange or market on which the security is traded but before the time the Portfolio's share price is calculated. A Portfolio holding material amounts of thinly-traded securities may also be more susceptible to market timing risks. Fair value pricing of such securities may, in some cases, reduce the risk of frequent or excessive trading in a Portfolio, but it cannot eliminate the possibility of such trading. The Fund and its agents reserve the right to reject, for any reason and without prior notice, any purchase request (including exchange purchases if permitted by the insurance company or qualified plan) by any investor or group of investors indefinitely if they believe that any combination of trading activity, including trading done in multiple accounts under common ownership or control, is attributable to market timing or is otherwise excessive or potentially disruptive to a Portfolio. In addition to refusing purchase and exchange BUYING AND SELLING SHARES 55 orders, the Fund reserves the right to instruct its participating financial intermediaries to restrict the availability to their contract owners or plan participants of purchases and exchanges through telephone requests, facsimile transmissions, automated telephone services, express mail or delivery services, internet services or any other electronic transfer service if, in the judgment of the Fund, a contract owner's or plan participant's trading has been or may be disruptive to a Portfolio. The Fund watches for and attempts to detect unusual trading activity by monitoring aggregate trades in Portfolio shares placed in the omnibus accounts. When such activity is detected, the Fund will contact participating life insurance companies and qualified plans for the purpose of asking them to investigate the trading activities of their contract owners and participants, respectively, to discourage such contract owners or participants from engaging in further abusive trading, and, where appropriate, to impose restrictions on excessive trading as described above. Although the Fund itself attempts to monitor aggregate trades in the omnibus accounts for unusual activity, the Fund relies primarily on financial intermediaries to take steps reasonably designed to detect and prevent excessive trading in the Fund. In accordance with regulations under the Investment Company Act of 1940, the Fund has entered into a shareholder information agreement with each of its financial intermediaries. Pursuant to such agreements, financial intermediaries are required, among other things, to provide to the Fund, upon request, the Taxpayer Identification Numbers of contract owners or plan participants who trade Fund shares through an omnibus account with the intermediary, as well as the amounts and dates of such transactions. Financial intermediaries are also required to implement instructions from the Fund to restrict or prohibit further purchases or exchanges of Fund shares by a contract owner or plan participant who has been identified by the Fund as being in violation of the Fund's policies prohibiting excessive trading. The Fund will generally refuse purchase or exchange orders from a financial intermediary only in situations where such intermediary has failed to cooperate reasonably in detecting and preventing excessive trading. In addition, the Fund will generally ask a financial intermediary to impose the restrictions described above only if excessive trading by a contract owner or participant continues after the financial intermediary has requested that such trading activity cease. The Fund reserves the right to determine in any circumstance whether excessive trading has occurred, but it will not exercise discretion to do nothing in response to significant evidence of excessive trading activity. It is also the policy of the Fund to impose the restrictions, policies and procedures described above on a uniform basis, but there may sometimes be differences in application for the reasons described in the following paragraph. Due to the complexity and subjectivity involved in identifying abusive trading activity and the volume of shareholder transactions, there can be no assurance that the Fund's efforts will identify all trades or trading practices that may be considered abusive. In addition, the Fund's ability to monitor trades that are placed by individual contract owners and plan participants through the omnibus accounts of financial intermediaries is severely limited because the Fund does not have direct access to the underlying account information for such contract owners and plan participants. There may also be legal and technological limitations on the ability of financial intermediaries to impose restrictions on the trading practices of their contract owners and plan participants. As a result, the Fund's ability to monitor and discourage abusive trading practices in omnibus accounts owned by life insurance companies and qualified plans, or to do so on a uniform basis, may be limited. In such circumstances, the Fund and its long-term shareholders may suffer some or all of the adverse consequences of excessive trading described above. 56 BUYING AND SELLING SHARES GENERAL INFORMATION DIVIDENDS AND CAPITAL GAINS DISTRIBUTIONS Each Portfolio pays its shareholders dividends from its net investment income, and distributes any net capital gains that it has realized. Except for Money Market Portfolio, dividends and net capital gains distributions, if any, are generally paid once a year. Dividends for Money Market Portfolio are declared daily and paid on the last business day of the month. Distributions will be reinvested in additional Portfolio shares. Distributions of these additional shares are made at the NAV of the payment date. From time to time, however, the Portfolios may employ a practice known as "consent dividends." Under this method of "distributing" income, the shareholders of the Portfolios consent to treat specified amounts as dividend income for tax purposes even though dividends are not actually paid (either in cash or by reinvestment in additional shares) by the Portfolios. TAXES GENERALLY. Each Portfolio is treated as a separate entity for federal income tax purposes. Since Minnesota Life and Securian Life currently are the sole shareholders of the Fund, no discussion regarding the tax consequences to Fund investors is included in this prospectus. For information concerning the tax consequences to purchasers of variable annuity contracts and variable life insurance policies issued by Minnesota Life, please see the accompanying prospectus for those contracts. SPECIAL PORTFOLIO DIVERSIFICATION REQUIREMENTS. To enable a variable annuity contract or variable life insurance policy based on an insurance company separate account to qualify for favorable tax treatment under the Internal Revenue Code, the underlying investments must follow special diversification requirements that limit the percentage of assets that can be invested in securities of particular issuers. The Fund's investment program is managed to meet those requirements, in addition to other diversification requirements under the Internal Revenue Code and the Investment Company Act of 1940. Failure by the Fund to meet those special requirements could cause earnings on a contract or policy owner's interest in an insurance company separate account to be taxable income. Those diversification requirements might also limit, to some degree, the Fund's investment decisions in a way that could reduce its performance. MIXED AND SHARED FUNDING The Fund serves as the underlying investment medium for amounts invested in life insurance company separate accounts funding both variable life insurance policies and variable annuity contracts (mixed funding), and as the investment medium for such policies and contracts issued by both Minnesota Life and other affiliated and unaffiliated life insurance companies (shared funding). Shared funding also occurs when the Fund is used by both a life insurance company to fund its policies or contracts and a participating qualified plan to fund plan benefits. It is possible that there may be circumstances where it is disadvantageous for either: (i) the owners of variable life insurance policies and variable annuity contracts to invest in the Fund at the same time, or (ii) the owners of such policies and contracts issued by different life insurance companies to invest in the Fund at the same time or (iii) participating qualified plans to invest in shares of the Fund at the same time as one or more life insurance companies. Neither the Fund nor Minnesota Life currently foresees any disadvantage, but if the Fund determines that there is any such disadvantage due to a material conflict of GENERAL INFORMATION 57 interest between such policy owners and contract owners, or between different life insurance companies, or between participating qualified plans and one or more life insurance companies, or for any other reason, the Fund's Board of Directors will notify the life insurance companies and participating qualified plans of such conflict of interest or other applicable event. In that event, the life insurance companies or participating qualified plans may be required to sell Fund shares with respect to certain groups of policy owners or contract owners, or certain participants in participating qualified plans, in order to resolve any conflict. The life insurance companies and participating qualified plans will bear the entire cost of resolving any material conflict of interest. 58 GENERAL INFORMATION FINANCIAL HIGHLIGHTS The following tables describe each Portfolio's performance for the fiscal periods indicated. "Total return" shows how much an investment in the Portfolio would have increased (or decreased) during each period, assuming an investor had reinvested all dividends and distributions. The tables do not, however, reflect the charges and other expenses associated with the variable life insurance policies and variable annuity contracts, or qualified plans, which invest in the Portfolios. If such charges and expenses were included, the total return shown below for each Portfolio would be lower. These figures have been audited by KPMG LLP, the Fund's independent registered public accounting firm, whose report, along with the Fund's financial statements, are included in the Fund's annual report, which is available upon request. Money Market Portfolio issues a single class of shares. Bond Portfolio, Index 400 Mid-Cap Portfolio, Index 500 Portfolio, International Bond Portfolio, Mortgage Securities Portfolio and Real Estate Securities Portfolio each offer two classes of shares: Class 1 and Class 2. Class 1 shares were registered under the Securities Act of 1933 effective November 6, 2007, but the Portfolio did not commence issuing Class 1 shares until February 11, 2008. With respect to each such Portfolio, both classes of shares are invested in the same portfolio of securities and have substantially similar annual returns, differing only to the extent that the classes do not have the same expenses. The Financial Highlights shown for Class 2 reflects a 0.25% 12b-1 distribution fee that is not charged to Class 1 shares. Because Class 1 is not subject to this 12b-1 fee, the returns for Class 1 of each such Portfolio are somewhat greater than the returns for Class 2. Per share data for a share of capital stock and selected information for each period are as follows for each Portfolio: BOND PORTFOLIO FINANCIAL HIGHLIGHTS
Class 1 Shares Period from February 11, 2008(c) to December 31, 2008 ------------------------------------------------------------------------------------------ Net Asset Value, Beginning of Period $ 1.58 ------------------- Income from Investment Operations: Net Investment Income .07 Net Gains (Losses) on Securities (both realized and unrealized) (.28) ------------------- Total from Investment Operations (.21) ------------------- Net Asset Value, End of Period $ 1.37 =================== Total Return (a) % (13.53) Net Assets, End of Period (in thousands) $ 115 Ratios to Average Net Assets: Expenses % .50(b) Net Investment Income % 5.35(b) Portfolio Turnover Rate (excluding short-term securities) % 229.6
(a) Total return figures are based on a share outstanding throughout the period and assume reinvestment of distributions at net asset value. Total return figures do not reflect charges pursuant to the terms of the variable life insurance policies and variable annuity contracts funded by separate accounts that invest in the Portfolio's shares. For periods less than one year, total return presented has not been annualized. (b) Adjusted to an annual basis. (c) The shares of the Portfolio became effectively registered under the Securities Act of 1933 on November 6, 2007, but shares were not available to the public until February 11, 2008. FINANCIAL HIGHLIGHTS 59 BOND PORTFOLIO FINANCIAL HIGHLIGHTS
Class 2 Shares Year Ended December 31, 2008 2007 2006 2005(b) 2004 ----------------------------------------------------------------------------------------------------- Net Asset Value, Beginning of Year $ 1.58 1.54 1.48 1.44 1.37 ----------------------------------------------- Income from Investment Operations: Net Investment Income .08 .08 .07 .06 .06 Net Gains (Losses) on Securities (both realized and unrealized) (.29) (.04) (.01) (.02) .01 ----------------------------------------------- Total from Investment Operations (.21) .04 .06 .04 .07 ----------------------------------------------- Net Asset Value, End of Year $ 1.37 1.58 1.54 1.48 1.44 =============================================== Total Return (a) % (13.52) 2.29(c) 4.66 2.44 4.98 Net Assets, End of Year (in thousands) $ 334,782 406,106 366,077 336,093 304,936 Ratio of Expenses to Average Daily Net Assets % .75 .73 .74 .75 .64 Ratio of Net Investment Income to Average Daily Net Assets % 5.10 5.18 4.92 4.49 4.42 Portfolio Turnover Rate (excluding short- term securities) % 229.6 89.6 90.2 131.5 124.2
(a) Total return figures are based on a share outstanding throughout the period and assume reinvestment of distributions at net asset value. Total return figures do not reflect charges pursuant to the terms of the variable life insurance policies and variable annuity contracts funded by separate accounts that invest in the Portfolio's shares. (b) Effective January 1, 2005, the Portfolio's shareholders approved an amendment to the schedule of fees paid by the Portfolio pursuant to its investment advisory agreement with Advantus Capital Management, Inc. (c) In 2007, 0.10% of the Portfolio's total return consisted of an unrealized gain on a guarantee and purchase agreement with SFG related to unrealized losses incurred on certain securities purchased in conjunction with the Portfolio's securities lending program. Excluding this unrealized gain, the total return would have been 2.19%. 60 FINANCIAL HIGHLIGHTS INDEX 400 MID-CAP PORTFOLIO FINANCIAL HIGHLIGHTS
Class 1 Shares Period from February 11, 2008(c) to December 31, 2008 ------------------------------------------------------------------------------------------ Net Asset Value, Beginning of Period $ 1.84 ------------------- Income from Investment Operations: Net Investment Income .02 Net Gains (Losses) on Securities (both realized and unrealized) (.60) ------------------- Total from Investment Operations (.58) ------------------- Net Asset Value, End of Period $ 1.26 =================== Total Return (a) % (31.84) Net Assets, End of Period (in thousands) $ 24 Ratios to Average Net Assets: Expenses % .32(b) Net Investment Income % 1.33(b) Portfolio Turnover Rate (excluding short-term securities) % 24.0
(a) Total return figures are based on a share outstanding throughout the period and assume reinvestment of distributions at net asset value. Total return figures do not reflect charges pursuant to the terms of the variable life insurance policies and variable annuity contracts funded by separate accounts that invest in the Portfolio's shares. For periods less than one year, total return presented has not been annualized. (b) Adjusted to an annual basis. (c) The shares of the Portfolio became effectively registered under the Securities Act of 1933 on November 6, 2007, but shares were not available to the public until February 11, 2008. FINANCIAL HIGHLIGHTS 61 INDEX 400 MID-CAP PORTFOLIO FINANCIAL HIGHLIGHTS
Class 2 Shares Year Ended December 31, 2008 2007 2006 2005(b) 2004 ---------------------------------------------------------------------------------------------------- Net Asset Value, Beginning of Year $ 1.98 1.84 1.68 1.50 1.29 ---------------------------------------------- Income from Investment Operations: Net Investment Income .02 .02 .02 .02 .01 Net Gains (Losses) on Securities (both realized and unrealized) (.74) .12 .14 .16 .20 ---------------------------------------------- Total from Investment Operations (.72) .14 .16 .18 .21 ---------------------------------------------- Net Asset Value, End of Year $ 1.26 1.98 1.84 1.68 1.50 ============================================== Total Return (a) % (36.54) 7.44(c) 9.78 11.96 15.73 Net Assets, End of Year (in thousands) $ 112,397 167,993 145,021 123,649 87,167 Ratio of Expenses to Average Daily Net Assets (b) % .57 .53 .56 .58 .64 Ratio of Net Investment Income to Average Daily Net Assets % 1.08 1.21 1.02 1.16 .56 Portfolio Turnover Rate (excluding short- term securities) % 24.0 22.8 15.5 25.5 16.3
(a) Total return figures are based on a share outstanding throughout the period and assume reinvestment of distributions at net asset value. Total return figures do not reflect charges pursuant to the terms of the variable life insurance policies and variable annuity contracts funded by separate accounts that invest in the Portfolio's shares. (b) Effective January 1, 2005, the Portfolio's shareholders approved an amendment to the schedule of fees paid by the Portfolio pursuant to its investment advisory agreement with Advantus Capital Management, Inc. (c) In 2007, 0.32% of the Portfolio's total return consisted of an unrealized gain on a guarantee and purchase agreement with SFG related to unrealized losses incurred on certain securities purchased in conjunction with the Portfolio's securities lending program. Excluding this unrealized gain, the total return would have been 7.12%. 62 FINANCIAL HIGHLIGHTS INDEX 500 PORTFOLIO FINANCIAL HIGHLIGHTS
Class 1 Shares Period from February 11, 2008(c) to December 31, 2008 ------------------------------------------------------------------------------------------ Net Asset Value, Beginning of Period $ 4.40 ------------------- Income from Investment Operations: Net Investment Income .06 Net Gains (Losses) on Securities (both realized and unrealized) (1.43) ------------------- Total from Investment Operations (1.37) ------------------- Net Asset Value, End of Period $ 3.03 =================== Total Return (a) % (31.26) Net Assets, End of Period (in thousands) $ 24 Ratios to Average Net Assets: Expenses % .22(b) Net Investment Income % 2.10(b) Portfolio Turnover Rate (excluding short-term securities) % 4.6
(a) Total return figures are based on a share outstanding throughout the period and assume reinvestment of distributions at net asset value. Total return figures do not reflect charges pursuant to the terms of the variable life insurance policies and variable annuity contracts funded by separate accounts that invest in the Portfolio's shares. For periods less than one year, total return presented has not been annualized. (b) Adjusted to an annual basis. (c) The shares of the Portfolio became effectively registered under the Securities Act of 1933 on November 6, 2007, but shares were not available to the public until February 11, 2008. FINANCIAL HIGHLIGHTS 63 INDEX 500 PORTFOLIO FINANCIAL HIGHLIGHTS
Class 2 Shares Year Ended December 31, 2008 2007 2006 2005(b) 2004 ---------------------------------------------------------------------------------------------------- Net Asset Value, Beginning of Year $ 4.82 4.59 3.98 3.81 3.45 ----------------------------------------------- Income from Investment Operations: Net Investment Income .08 .07 .08 .05 .06 Net Gains (Losses) on Securities (both realized and unrealized) (1.87) .16 .53 .12 .30 ----------------------------------------------- Total from Investment Operations (1.79) .23 .61 .17 .36 ----------------------------------------------- Net Asset Value, End of Year $ 3.03 4.82 4.59 3.98 3.81 =============================================== Total Return (a) % (37.21) 5.02(c) 15.23 4.43 10.39 Net Assets, End of Year (in thousands) $ 372,627 637,194 669,976 661,874 663,636 Ratio of Expenses to Average Daily Net Assets % .47 .48 .49 .50 .45 Ratio of Net Investment Income to Average Daily Net Assets % 1.85 1.52 1.83 1.38 1.59 Portfolio Turnover Rate (excluding short- term securities) % 4.6 3.5 3.6 5.5 1.6
(a) Total return figures are based on a share outstanding throughout the period and assume reinvestment of distributions at net asset value. Total return figures do not reflect charges pursuant to the terms of the variable life insurance policies and variable annuity contracts funded by separate accounts that invest in the Portfolio's shares. (b) Effective January 1, 2005, the Portfolio's shareholders approved an amendment to the schedule of fees paid by the Portfolio pursuant to its investment advisory agreement with Advantus Capital Management, Inc. (c) In 2007, 0.23% of the Portfolio's total return consisted of an unrealized gain on a guarantee and purchase agreement with SFG related to unrealized losses incurred on certain securities purchased in conjunction with the Portfolio's securities lending program. Excluding this unrealized gain, the total return would have been 4.79%. 64 FINANCIAL HIGHLIGHTS INTERNATIONAL BOND PORTFOLIO FINANCIAL HIGHLIGHTS
Class 1 Shares Period from February 11, 2008(c) to December 31, 2008 ------------------------------------------------------------------------------------------ Net Asset Value, Beginning of Period $ 1.54 -------------------- Income from Investment Operations: Net Investment Income .05 Net Gains (Losses) on Securities (both realized and unrealized) (.02) -------------------- Total from Investment Operations .03 -------------------- Net Asset Value, End of Period $ 1.57 ==================== Total Return (a) % 2.34 Net Assets, End of Period (in thousands) $ 60 Ratios to Average Net Assets: Expenses % 1.00(b) Net Investment Income % 3.38(b) Portfolio Turnover Rate (excluding short-term securities) % 103.8
(a) Total return figures are based on a share outstanding throughout the period and assume reinvestment of distributions at net asset value. Total return figures do not reflect charges pursuant to the terms of the variable life insurance policies and variable annuity contracts funded by separate accounts that invest in the Portfolio's shares. For periods less than one year, total return presented has not been annualized. (b) Adjusted to an annual basis. (c) The shares of the Portfolio became effectively registered under the Securities Act of 1933 on November 6, 2007, but shares were not available to the public until February 11, 2008. FINANCIAL HIGHLIGHTS 65 INTERNATIONAL BOND PORTFOLIO FINANCIAL HIGHLIGHTS
Class 2 Shares Year Ended December 31, 2008 2007 2006 2005 2004 --------------------------------------------------------------------------------------------------- Net Asset Value, Beginning of Year $ 1.51 1.38 1.33 1.46 1.31 ------------------------------------------ Income from Investment Operations: Net Investment Income .05 .03 -- .03 .03 Net Gains (Losses) on Securities (both realized and unrealized) .01 .10 .05 (.16) .12 ------------------------------------------ Total from Investment Operations .06 .13 .05 (.13) .15 ------------------------------------------ Net Asset Value, End of Year $ 1.57 1.51 1.38 1.33 1.46 ========================================== Total Return (a) % 4.23 9.43 3.99 (8.91) 11.43 Net Assets, End of Year (in thousands) $ 93,006 83,407 62,683 62,927 67,534 Ratio of Expenses to Average Daily Net Assets % 1.25 1.18 1.16 1.15 1.17 Ratio of Net Investment Income to Average Daily Net Assets % 3.13 2.17 2.70 2.42 2.20 Portfolio Turnover Rate (excluding short-term securities) % 103.8 139.3 225.7 317.5 145.2
(a) Total return figures are based on a share outstanding throughout the period and assume reinvestment of distributions at net asset value. Total return figures do not reflect charges pursuant to the terms of the variable life insurance policies and variable annuity contracts funded by separate accounts that invest in the Portfolio's shares. 66 FINANCIAL HIGHLIGHTS MONEY MARKET PORTFOLIO FINANCIAL HIGHLIGHTS
Year Ended December 31, 2008 2007 2006 2005(b) 2004 ---------------------------------------------------------------------------------------------------- Net Asset Value, Beginning of Year $ 1.00 1.00 1.00 1.00 1.00 ---------------------------------------------- Income from Investment Operations: Net Investment Income .02 .04 .04 .02 .01 ---------------------------------------------- Total from Investment Operations .02 .04 .04 .02 .01 ---------------------------------------------- Less Distributions: Dividends from Net Investment Income (.02) (.04) (.04) (.02) (.01) ---------------------------------------------- Total Distributions (.02) (.04) (.04) (.02) (.01) ---------------------------------------------- Net Asset Value, End of Year $ 1.00 1.00 1.00 1.00 1.00 ============================================== Total Return (a) % 1.95 4.55 4.36 2.43 .74 Net Assets, End of Year (in thousands) $ 149,089 133,217 113,487 97,016 85,433 Ratio of Expenses to Average Daily Net Assets % .68 .68 .71 .72 .64 Ratio of Net Investment Income to Average Daily Net Assets % 1.88 4.51 4.31 2.43 .75
(a) Total return figures are based on a share outstanding throughout the period and assume reinvestment of distributions at net asset value. Total return figures do not reflect charges pursuant to the terms of the variable life insurance policies and variable annuity contracts funded by separate accounts that invest in the Portfolio's shares. (b) Effective January 1, 2005, the Portfolio's shareholders approved an amendment to the schedule of fees paid by the Portfolio pursuant to its investment advisory agreement with Advantus Capital Management, Inc. FINANCIAL HIGHLIGHTS 67 MORTGAGE SECURITIES PORTFOLIO FINANCIAL HIGHLIGHTS
Class 1 Shares Period from February 11, 2008(c) to December 31, 2008 ----------------------------------------------------------------------------------------- Net Asset Value, Beginning of Period $ 1.58 Income from Investment Operations: --------------------- Net Investment Income .07 Net Gains (Losses) on Securities (both realized and unrealized) (.28) --------------------- Total from Investment Operations (.21) --------------------- Net Asset Value, End of Period $ 1.37 ===================== Total Return (a) % (13.32) Net Assets, End of Period (in thousands) $ 49 Ratios to Average Net Assets: Expenses % .56(b) Net Investment Income % 5.43(b) Portfolio Turnover Rate (excluding short-term securities) % 127.5
(a) Total return figures are based on a share outstanding throughout the period and assume reinvestment of distributions at net asset value. Total return figures do not reflect charges pursuant to the terms of the variable life insurance policies and variable annuity contracts funded by separate accounts that invest in the Portfolio's shares. For periods less than one year, total return presented has not been annualized. (b) Adjusted to an annual basis. (c) The shares of the Portfolio became effectively registered under the Securities Act of 1933 on November 6, 2007, but shares were not available to the public until February 11, 2008. 68 FINANCIAL HIGHLIGHTS MORTGAGE SECURITIES PORTFOLIO FINANCIAL HIGHLIGHTS
Class 2 Shares Year Ended December 31, 2008 2007 2006 2005(b) 2004 ---------------------------------------------------------------------------------------------------- Net Asset Value, Beginning of Year $ 1.57 1.52 1.45 1.41 1.34 ----------------------------------------------- Income from Investment Operations: Net Investment Income .08 .08 .08 .07 .07 Net Gains (Losses) on Securities (both realized and unrealized) (.28) (.03) (.01) (.03) -- ----------------------------------------------- Total from Investment Operations (.20) .05 .07 .04 .07 ----------------------------------------------- Net Asset Value, End of Year $ 1.37 1.57 1.52 1.45 1.41 =============================================== Total Return (a) % (12.97) 3.19 5.34 2.88 4.81 Net Assets, End of Year (in thousands) $ 132,613 187,180 191,993 195,294 235,481 Ratio of Expenses to Average Daily Net Assets % .81 .76 .76 .78 .65 Ratio of Net Investment Income to Average Daily Net Assets % 5.18 5.44 5.49 4.93 4.98 Portfolio Turnover Rate (excluding short- term securities) % 127.5 87.8 89.4 138.9 152.2
(a) Total return figures are based on a share outstanding throughout the period and assume reinvestment of distributions at net asset value. Total return figures do not reflect charges pursuant to the terms of the variable life insurance policies and variable annuity contracts funded by separate accounts that invest in the Portfolio's shares. (b) Effective January 1, 2005, the Portfolio's shareholders approved an amendment to the schedule of fees paid by the Portfolio pursuant to its investment advisory agreement with Advantus Capital Management, Inc. FINANCIAL HIGHLIGHTS 69 REAL ESTATE SECURITIES PORTFOLIO FINANCIAL HIGHLIGHTS
Class 1 Shares Period from February 11, 2008(c) to December 31, 2008 -------------------------------------------------------------------------------------- Net Asset Value, Beginning of Period $ 2.26 ----------------- Income from Investment Operations: Net Investment Income .04 Net Gains (Losses) on Securities (both realized and unrealized) (.76) ----------------- Total from Investment Operations (.72) ----------------- Net Asset Value, End of Period $ 1.54 ================= Total Return (a) % (31.97) Net Assets, End of Period (in thousands) $ 38 Ratios to Average Net Assets: Expenses % .92(b) Net Investment Income % 2.23(b) Portfolio Turnover Rate (excluding short-term securities) % 43.6
(a) Total return figures are based on a share outstanding throughout the period and assume reinvestment of distributions at net asset value. Total return figures do not reflect charges pursuant to the terms of the variable life insurance policies and variable annuity contracts funded by separate accounts that invest in the Portfolio's shares. For periods less than one year, total return presented has not been annualized. (b) Adjusted to an annual basis. (c) The shares of the Portfolio became effectively registered under the Securities Act of 1933 on November 6, 2007, but shares were not available to the public until February 11, 2008. 70 FINANCIAL HIGHLIGHTS REAL ESTATE SECURITIES PORTFOLIO FINANCIAL HIGHLIGHTS
Class 2 Shares Year Ended December 31, 2008 2007 2006 2005(b) 2004 ----------------------------------------------------------------------------------------------------- Net Asset Value, Beginning of Year $ 2.41 2.86 2.19 1.97 1.46 ------------------------------------------------ Income from Investment Operations: Net Investment Income .04 .07 .07 .06 .03 Net Gains (Losses) on Securities (both realized and unrealized) (.91) (.52) .60 .16 .48 ------------------------------------------------ Total from Investment Operations (.87) (.45) .67 .22 .51 ------------------------------------------------ Net Asset Value, End of Year $ 1.54 2.41 2.86 2.19 1.97 ================================================ Total Return (a) % (36.27) (15.76)(c) 30.63 11.08 35.52 Net Assets, End of Year (in thousands) $ 71,421 115,080 147,021 110,437 95,410 Ratio of Expenses to Average Daily Net Assets % 1.17 1.08 1.10 1.12 1.06 Ratio of Net Investment Income to Average Daily Net Assets % 1.98 2.65 2.90 3.14 2.13 Portfolio Turnover Rate (excluding short- term securities) % 43.6 37.3 39.7 34.8 85.3
(a) Total return figures are based on a share outstanding throughout the period and assume reinvestment of distributions at net asset value. Total return figures do not reflect charges pursuant to the terms of the variable life insurance policies and variable annuity contracts funded by separate accounts that invest in the Portfolio's shares. (b) Effective January 1, 2005, the Portfolio's shareholders approved an amendment to the schedule of fees paid by the Portfolio pursuant to its investment advisory agreement with Advantus Capital Management, Inc. (c) In 2007, 0.31% of the Portfolio's total return consisted of an unrealized gain on a guarantee and purchase agreement with SFG related to unrealized losses incurred on certain securities purchased in conjunction with the Portfolio's securities lending program. Excluding this unrealized gain, the total return would be -16.07%. FINANCIAL HIGHLIGHTS 71 SERVICE PROVIDERS INVESTMENT ADVISER Advantus Capital Management, Inc. 400 Robert Street North St. Paul, Minnesota 55101 (800) 665-6005 INVESTMENT SUB-ADVISER International Bond Portfolio Franklin Advisers, Inc. One Franklin Parkway San Mateo, California 94403-1906 (800) 342-5236 ADMINISTRATIVE SERVICES AGENT Minnesota Life Insurance Company (800) 995-3850 UNDERWRITER Securian Financial Services, Inc. 400 Robert Street North St. Paul, Minnesota 55101-2098 (800) 820-4205 CUSTODIANS Wells Fargo Bank Minnesota Sixth Street and Marquette Avenue Minneapolis, Minnesota 55479 Money Market, Index 500, Index 400 Mid-Cap and Real Estate Securities Portfolios The Bank of New York Mellon Corporation One Mellon Center Pittsburgh, Pennsylvania 15258 Bond, Mortgage Securities and International Bond Portfolios INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM KPMG LLP GENERAL COUNSEL Dorsey & Whitney LLP INDEPENDENT LEGAL COUNSEL TO INDEPENDENT DIRECTORS Faegre & Benson LLP 72 SERVICE PROVIDERS ADDITIONAL INFORMATION ABOUT THE FUND The Fund's annual and semiannual reports list holdings for each Portfolio, and discuss recent market conditions, economic trends and investment strategies that affected the Portfolios during the latest fiscal year. A Statement of Additional Information (SAI) provides further information about the Fund and the Portfolios. The current SAI is on file with the Securities and Exchange Commission and is incorporated by reference (is legally part of this prospectus). HOW TO OBTAIN ADDITIONAL INFORMATION. The SAI and the Fund's annual and semiannual reports are available without charge upon request. You may obtain additional information or make any inquiries: By Telephone - Call 1-800-995-3850 By Mail - Write to Minnesota Life Insurance Company, 400 Robert Street North, St. Paul, Minnesota 55101-2098 The SAI and the Fund's annual and semiannual reports are not currently available on or through a Fund internet web site inasmuch as the Fund does not at present have such a web site. Information about the Fund (including the SAI and annual and semiannual reports) can be reviewed and copied at the SEC's Public Reference Room in Washington, D.C. (telephone 1-202-942-8090 or 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. 20549-0102 or obtained by electronic request to: publicinfo@sec.gov. You will be charged a duplicating fee for copies. Investment Company Act No. 811-4279 [ADVANTUS LOGO] (C)2009 Minnesota Life Insurance Company. All rights reserved. ADDITIONAL INFORMATION ABOUT THE FUND 73 (This page has been left blank intentionally.) STATEMENT OF ADDITIONAL INFORMATION ADVANTUS SERIES FUND, INC. May 1, 2009 This Statement of Additional Information is not a prospectus. This Statement of Additional Information relates to the separate Prospectus dated May 1, 2009, and should be read in conjunction therewith. The Fund's audited Annual Report, dated December 31, 2008, and the Fund's unaudited Semiannual Report, dated June 30, 2008, which either accompany this Statement of Additional Information or have previously been provided to the investor to whom this Statement of Additional Information is being sent, are incorporated herein by reference. A copy of the Prospectus, Annual Report and Semiannual Report may be obtained by telephone from Minnesota Life Insurance Company (Minnesota Life) and Securian Life Insurance Company (Securial Life) at (800) 995-3850 or by writing to Minnesota Life at 400 Robert Street North, St. Paul, Minnesota 55101-2098. TABLE OF CONTENTS GENERAL INFORMATION AND HISTORY...................................................................................1 INVESTMENT OBJECTIVES AND POLICIES................................................................................2 Portfolio Names and Investment Policies........................................................................2 Debt and Money Market Securities - Non-Money Market Portfolios.................................................3 Low Rated and Unrated Debt Securities..........................................................................5 Convertible Securities and Preferred Stock ....................................................................6 Money Market Securities - Money Market Portfolio...............................................................7 U.S. Government Obligations....................................................................................8 U.S. Treasury Inflation-Protection Securities..................................................................8 Obligations of Non-Domestic Banks..............................................................................8 Variable Amount Master Demand Notes............................................................................9 Mortgage-Related Securities....................................................................................9 U.S. Government Mortgage-Related Securities...................................................................10 Non-Governmental Mortgage-Related Securities..................................................................11 Collateralized Mortgage Obligations...........................................................................11 Structured Investments........................................................................................13 Stripped Mortgage-Backed Securities...........................................................................13 Asset-Backed and Stripped Asset-Backed Securities.............................................................14 Direct Investments in Mortgages - Whole Loans.................................................................15 Zero Coupon Securities........................................................................................16 Pay-in-Kind and Delayed Interest Securities...................................................................17 Derivative Instruments........................................................................................17 Futures Contracts and Options on Futures Contracts............................................................17 Options.......................................................................................................20 Swap Agreements...............................................................................................22 Credit Default Swaps..........................................................................................22 Credit-Linked Securities......................................................................................23 Foreign Securities............................................................................................23 Foreign Currency Transactions.................................................................................25 Loans of Portfolio Securities.................................................................................26 Restricted and Illiquid Securities............................................................................27 When-Issued Securities and Forward Commitments................................................................28 Mortgage Dollar Rolls.........................................................................................30 Real Estate Investment Trust Securities.......................................................................30 Repurchase Agreements.........................................................................................31 Reverse Repurchase Agreements.................................................................................31 Warrants......................................................................................................33 Securities of Other Investment Companies......................................................................34 Short Sales Against the Box...................................................................................34 Defensive Purposes............................................................................................35 INVESTMENT RESTRICTIONS..........................................................................................35 Fundamental Restrictions......................................................................................35 Non-Fundamental Restrictions..................................................................................36
i Additional Restrictions.......................................................................................37 PORTFOLIO TURNOVER...............................................................................................38 DIRECTORS AND EXECUTIVE OFFICERS.................................................................................39 DIRECTOR LIABILITY...............................................................................................43 INVESTMENT ADVISORY AND OTHER SERVICES...........................................................................43 General.......................................................................................................43 Control and Management of Advantus Capital and Securian Financial.............................................44 The Fund's Investment Advisory Agreement with Advantus Capital................................................45 The Fund's Investment Advisory Fees...........................................................................46 Money Market Portfolio-Net Investment Income Maintenance Agreement............................................47 Sub-Adviser - Franklin........................................................................................47 International Bond Portfolio Investment Sub-Advisory Agreement - Franklin.....................................47 Basis of Annual Approval of Advisory and Sub-Advisory Agreements..............................................47 Information Regarding Fund Portfolio Managers-Advantus Capital................................................47 Information Regarding Portfolio Manager of International Bond Portfolio.......................................48 Disclosure of Fund Portfolio Holdings.........................................................................48 Administrative Services.......................................................................................48 Code of Ethics................................................................................................49 Proxy Voting Policies.........................................................................................49 Distribution Agreement........................................................................................49 Payment of Certain Distribution Expenses of the Fund..........................................................50 Custodians....................................................................................................53 Independent Registered Public Accounting Firm.................................................................53 Legal Counsel.................................................................................................53 PORTFOLIO TRANSACTIONS AND ALLOCATION OF BROKERAGE...............................................................53 Investment Adviser............................................................................................53 Sub-Adviser-International Bond Portfolio........................................................................56 PURCHASE AND REDEMPTION OF SHARES................................................................................56 FUND SHARES AND VOTING RIGHTS....................................................................................57 PRINCIPAL SHAREHOLDERS...........................................................................................58 NET ASSET VALUE..................................................................................................58 PERFORMANCE DATA.................................................................................................60 Current Yield Figures for Money Market Portfolio..............................................................60 Current Yield Figures for Other Portfolios....................................................................60 Total Return Figures For All Portfolios.......................................................................61
ii TAXES............................................................................................................62 THE STANDARD & POOR'S LICENSE....................................................................................62 FINANCIAL STATEMENTS.............................................................................................63 APPENDIX A - MORTGAGE-RELATED SECURITIES........................................................................A-1 Underlying Mortgages.........................................................................................A-1 Liquidity and Marketability..................................................................................A-1 Average Life.................................................................................................A-1 Yield Calculations...........................................................................................A-2 APPENDIX B - BOND AND COMMERCIAL PAPER RATINGS..................................................................B-1 Bond Ratings.................................................................................................B-1 Commercial Paper Ratings.....................................................................................B-2 APPENDIX C - FUTURES CONTRACTS..................................................................................C-1 Example of Futures Contract Sale.............................................................................C-1 Example of Futures Contract Purchase.........................................................................C-1 Tax Treatment................................................................................................C-2 APPENDIX D - Advantus Capital Management, Inc. Proxy Voting Policies and Procedures.............................D-1
iii GENERAL INFORMATION AND HISTORY Advantus Series Fund, Inc. ("Fund"), is a Minnesota corporation, each of whose Portfolios operates as a no-load, diversified, open-end management investment company, except that International Bond Portfolio operates as a non-diversified, open-end management investment company. The Fund was organized on February 22, 1985. Prior to a change of its name on May 1, 1997, the Fund was known as MIMLIC Series Fund, Inc. The Fund is a series fund, which means that it has several different Portfolios. The Portfolios of the Fund are as follows: o Bond Portfolio o Index 400 Mid-Cap Portfolio o Index 500 Portfolio o International Bond Portfolio o Money Market Portfolio o Mortgage Securities Portfolio o Real Estate Securities Portfolio Each Portfolio currently offers its shares in two classes (Class 1 and Class 2), except that Money Market Portfolio offers shares in only one class. Class 2 shares and Money Market Portfolio are subject to a 12b-1 distribution fee. Class 1 shares are NOT subject to a 12b-1 distribution fee. The investment adviser of the Fund is Advantus Capital Management, Inc. ("Advantus Capital" or the "Adviser"). Advantus Capital has entered into an investment sub-advisory agreement with Franklin Advisers, Inc. ("Franklin") pursuant to which Franklin serves as investment sub-adviser to the Fund's International Bond Portfolio. Currently, the shares of the Fund are sold only to Minnesota Life Insurance Company ("Minnesota Life"), a Minnesota corporation, and 1 to separate accounts of Securian Life Insurance Company, an indirect wholly-owned subsidiary of Minnesota Life domiciled in the State of Minnesota. The separate accounts, which will be the owners of the shares of the Fund, will invest in the shares of each Portfolio in accordance with instructions received from the owners of the Contracts. Shares of the Fund may in the future also be offered to separate accounts of other participating life insurance companies or to participating qualified plans. Minnesota Life and its subsidiary, Securian Life, through their separate accounts which fund the Contracts, owned 100% of the shares outstanding of each Portfolio of the Fund as of December 31, 2008. As a result, Minnesota Life is a controlling person of the Fund and through its ownership of shares of the Fund, may elect all the directors of the Fund and approve other Fund actions. Minnesota Life's address is 400 Robert Street North, St. Paul, Minnesota 55101-2098. INVESTMENT OBJECTIVES AND POLICIES The investment objectives and principal investment policies of each of the Portfolios are set forth in the text of the Fund's Prospectus under "Investing in the Fund - Investment Objective, Policies and Practices." This section contains detailed descriptions of the investment policies of the Portfolios as identified in the Fund's Prospectus. PORTFOLIO NAMES AND INVESTMENT POLICIES The Bond, Mortgage Securities, Index 500, Index 400 Mid-Cap, International Bond, and Real Estate Securities Portfolios of the Fund have names that suggest a focus on a particular type of investment or index. In accordance with Rule 35d-1 under the Investment Company Act of 1940 (the "1940 Act"), each of those Portfolios has adopted a policy that it will, under normal circumstances, invest at least 80% of its assets in investments of the type suggested by its name. For this policy, "assets" means net assets plus the amount of any borrowings for investment purposes. In addition, in appropriate circumstances, synthetic investments may be included in the 80% basket if they have economic characteristics similar to the other investments included in the basket. A Portfolio's policy to invest at least 80% of its assets in such a manner is not a "fundamental" one, which means that it may be changed without the vote of a majority of the Portfolio's outstanding shares as defined in the 1940 Act. The names of these Portfolios may be changed at any time by a vote of the Fund's Board of Directors. However, Rule 35d-1 also requires that shareholders be given written notice at least 60 days prior to any change by a Portfolio of its 80% investment policy. 2 DEBT AND MONEY MARKET SECURITIES - NON-MONEY MARKET PORTFOLIOS To the extent specified in the Prospectus, certain non-Money Market Portfolios may invest in long, intermediate and short-term debt securities from various industry classifications and money market instruments. Such instruments may include the following: o 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 independent nationally-recognized rating agency, or, if not rated, are of equivalent investment quality as determined by the Portfolio's investment adviser or sub-adviser, as the case may be. To the extent that the Portfolio invests in securities rated BBB or Baa by S&P or Moody's, respectively, or in securities of equivalent quality, it will be investing in securities which have speculative elements. In addition, Bond Portfolio and Mortgage Securities Portfolio may invest up to 10% of their respective net assets in debt securities rated BB or Ba by S&P or Moody's, respectively, or rated at a comparable level by another independent nationally-recognized rating agency, or, if not rated, are of equivalent investment quality as determined by the Portfolio's investment adviser or sub-adviser. International Bond Portfolio may also invest up to 25% of its total assets in securities that are rated below investment grade. See "Low Rated and Unrated Debt Securities" below. For a description of the ratings used by Moody's and S&P, see Appendix B ("Bond and Commercial Paper Ratings") below. o Obligations of, or guaranteed by, the U.S. Government, its agencies or instrumentalities. o Debt obligations of banks. 3 Bond, Mortgage Securities and Real Estate Securities Portfolios may each 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, or rated at a comparable level by another independent nationally-recognized rating agency, or, if not rated, are of equivalent investment quality as determined by the Portfolio's investment adviser or sub-adviser. Real Estate Securities Portfolio may also purchase similarly rated securities of Canadian issuers which are not U.S. dollar denominated or publicly traded in the U.S. See "Foreign Securities" below. International Bond Portfolio may also purchase debt securities of foreign companies and debt securities issued or guaranteed by foreign governments or any of their agencies, instrumentalities or political subdivisions, or by supranational organizations. The Portfolio may invest in fixed-income securities issued or guaranteed by supranational organizations. Such organizations are entities designated or supported by a government or government entity to promote economic development, and include, among others, the Asian Development Bank, the European Economic Community and the World Bank. These organizations do not have taxing authority and are dependent upon their members for payments of interest and principal. Each supranational entity's lending activities are limited to a percentage of its total capital (including "callable capital" contributed by members at the entity's call), reserves and net income. Securities issued by supranational organizations may be denominated in U.S. dollars or in foreign currencies. Securities issued or guaranteed by supranational organizations are considered by the Securities and Exchange Commission to be securities in the same industry. Therefore, the Portfolio will not concentrate 25% or more of the value of its assets in securities of a single supranational organization. In addition to the instruments described above, which will generally be long-term, but may be purchased by the Portfolio within one year of the date of a security's maturity, certain Portfolios specified in the Prospectus may also purchase other high quality securities including: o 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. o Obligations of the International Bank for Reconstruction and Development. 4 o Commercial paper (including, in the case of Money Market Portfolio, 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 rated at a comparable level by another independent nationally-recognized rating agency, or, if not rated, issued by a corporation having an outstanding debt issue rated Aa or better by Moody's or AA or better by S&P, or rated at a comparable level by another independent nationally-recognized rating agency. The Portfolios may also invest in securities which are unrated if the Portfolio's investment adviser or sub-adviser, as the case may be, determines that such securities are of equivalent investment quality to the rated securities described above. In the case of "split-rated" securities, which result when nationally-recognized rating agencies rate the security at different rating levels (e.g., BBB by S&P and Ba by Moody's), it is the Portfolio's general policy to classify such securities at the higher rating level where, in the judgment of the Portfolio's investment adviser or sub-adviser, such classification reasonably reflects the security's quality and risk. However, in the case of securities held by the International Bond Portfolio that have been assigned different ratings by S&P and Moody's, it is the policy of the Portfolio's investment sub-adviser to classify such securities at the rating level assigned by Fitch Ratings, Ltd. The market value of debt securities generally varies in response to changes in interest rates and the financial condition of each issuer. During periods of declining interest rates, the value of debt securities generally increases. Conversely, during periods of rising interest rates, the value of such securities generally declines. These changes in market value will be reflected in each Portfolio's net asset value. These Portfolios may, however, acquire debt securities which, after acquisition, are down-graded by the rating agencies to a rating which is lower than the applicable minimum rating described above. In such an event it is the Portfolios' general policy to dispose of such down-graded securities except when, in the judgment of the Portfolios' investment adviser or sub-adviser, it is to the Portfolios' advantage to continue to hold such securities. In no event, however, will any Portfolio (except the International Bond Portfolio) hold in excess of 5% of its net assets in securities which have been down-graded subsequent to purchase where such down-graded securities are not otherwise eligible for purchase by the Portfolio. This 5% is in addition to securities which the Portfolio may otherwise purchase under its usual investment policies. LOW RATED AND UNRATED DEBT SECURITIES Bond Portfolio and Mortgage Securities Portfolio may also invest up to 10% of their respective net assets in corporate bonds and mortgage-related securities, including convertible securities, which, at the time of acquisition, are rated BB or Ba by S&P or Moody's, respectively, or rated at a comparable level by another independent nationally-recognized rating agency, or, if not rated, are of equivalent investment quality as determined by the Portfolio's investment adviser or sub-adviser, as the case may be. Each of these Portfolios may also hold an additional 5% of its net assets in securities rated below "investment grade" (i.e. below BBB) where such securities were either investment grade or eligible low rated securities at the time of purchase but subsequently down-graded to a rating not otherwise eligible for purchase by the Portfolio (see "Debt and Money Market Securities - Non-Money Market Portfolios" above). Debt securities rated below the four highest categories (i.e., below BBB) are not considered investment grade obligations and are commonly called "junk bonds." These securities are predominately speculative and present more credit risk than investment grade obligations. Bonds rated below BBB are also regarded as predominately speculative with respect to the issuer's continuing ability to meet principal and interest payments. 5 The International Bond Portfolio may not invest more than 25% of its total assets in lower rated securities. It may buy debt securities that are rated C or better by Moody's and S&P or unrated debt that Franklin deems to be of comparable quality. Debt securities rated C by Moody's are the lowest rated debt securities and are regarded as having extremely poor prospects of ever attaining any real investment standing. Debt securities rated C by S&P are regarded as speculative and this rating typically applies to debt securities that are subordinate to senior debt securities that also have a speculative rating. The Portfolios may also invest in unrated debt securities, which are debt securities not yet rated by an independent rating organization. Unrated debt, while not necessarily of lower quality than rated securities, may not have as broad a market. Because of the size and perceived demand for the issue, among other factors, certain issuers may decide not to pay the cost of getting a rating for their bonds. The creditworthiness of the issuer, as well as any financial institution or other party responsible for payments on the security, will be analyzed by Advantus Capital (or for the International Bond Portfolio, Franklin) to determine whether to purchase unrated debt securities and if it is of comparable quality to rated securities. Low rated and unrated debt securities generally involve greater volatility of price and risk of principal and income, including the possibility of default by, or bankruptcy of, the issuers of the securities. In addition, the markets in which low rated and unrated debt securities are traded are more limited than those in which higher rated securities are traded. The existence of limited markets for particular securities may diminish the Portfolios' ability to sell the securities at fair value either to meet redemption requests or to respond to changes in the economy or in the financial markets and could adversely affect and cause fluctuations in the daily net asset value of the Portfolios' shares. Adverse publicity and investor perceptions, whether or not based on fundamental analysis, may decrease the values and liquidity of low rated debt securities, especially in a thinly traded market. Analysis of the creditworthiness of issuers of low rated debt securities may be more complex than for issuers of higher rated securities, and the ability of the Portfolios to achieve their respective investment objective may, to the extent of investment in low rated debt securities, be more dependent upon such creditworthiness analysis than would be the case if the Portfolios were investing in higher rated securities. Low rated debt securities may be more susceptible to real or perceived adverse economic and competitive industry conditions than investment grade securities. The prices of low rated debt securities have been found to be less sensitive to interest rate changes than higher rated investments, but more sensitive to adverse economic downturns or individual corporate developments. A projection of an economic downturn or of a period of rising interest rates, for example, could cause a decline in low rated debt securities prices because the advent of a recession could lessen the ability of a highly leveraged company to make principal and interest payments on its debt securities. If the issuer of low rated debt securities defaults, the Portfolios may incur additional expenses to seek recovery. The low rated bond market is relatively new, and many of the outstanding low rated bonds have not endured a major business recession. CONVERTIBLE SECURITIES AND PREFERRED STOCK To the extent specified in the Prospectus, certain Portfolios may invest in debt or preferred stock convertible into or exchangeable for equity securities, as well as non-convertible preferred stock. Traditionally, convertible securities have paid dividends or interest at rates higher than common stocks but lower than non-convertible securities. Convertible securities 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 securities can be expected to 6 fluctuate more than the total return and yield of higher quality, shorter-term bonds, but not as much as common stocks. Real Estate Securities Portfolio will limit its purchase of convertible securities and preferred stocks to those that, at the time of purchase, are rated at least BB or Ba2 by S&P or Moody's, respectively, or rated at a comparable level by another independent nationally-recognized rating agency, or if not rated, are of equivalent investment quality as determined by the Portfolio's investment adviser. Bond Portfolio, and Mortgage Securities Portfolio will each limit its purchase of convertible securities, and preferred stocks in the case of the Bond Portfolio, to those that, at the time of purchase, are rated at least BB or Ba by S&P or Moody's, respectively, or rated at a comparable level by another independent nationally-recognized rating agency, or if not rated, are of equivalent investment quality as determined by the Portfolio's investment adviser. As an operating policy, none of these Portfolios will purchase a non-investment grade convertible security or preferred stock if immediately after such purchase such Portfolio would have more than 10% of its total assets invested in such securities. See "Low Rated and Unrated Debt Securities," above. MONEY MARKET SECURITIES - MONEY MARKET PORTFOLIO Subject to the limitations under Rule 2a-7 of the Investment Company Act of 1940 (as described in "Investment Restrictions - Additional Restrictions" below), Money Market Portfolio will invest in a managed portfolio of money market instruments as follows: o 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. o 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. o Obligations of the International Bank for Reconstruction and Development. o Commercial paper (including variable amount master demand notes and asset-backed commercial paper) issued by U.S. limited partnerships, corporations or affiliated foreign corporations. o Other corporate debt obligations (including asset-backed obligations) that at the time of issuance were long-term securities, but that have remaining maturities of 397 calendar days or less. 7 o Repurchase agreements and reverse repurchase agreements with respect to any of the foregoing obligations. o Shares of other investment companies that qualify as money market funds (see "Securities of Other Investment Companies" below). By limiting the maturity of its investments as described above, the Portfolio seeks to lessen the changes in the value of its assets caused by market factors. The Portfolio intends to maintain a constant net asset value of $1.00 per share, but there can be no assurance it will be able to do so. U.S. GOVERNMENT OBLIGATIONS Each of the Portfolios may invest in obligations of the U.S. Government. These obligations are bills, certificates of indebtedness, notes and bonds issued or guaranteed as to principal or interest by the U.S. or by agencies or authorities controlled or supervised by and acting as instrumentalities of the U.S. Government established under the authority granted by Congress. Bills, notes and bonds issued by the U.S. Treasury are direct obligations of the U.S. Government and differ in their interest rates, maturities and times of issuance. Securities issued or guaranteed by agencies or authorities controlled or supervised by and acting as instrumentalities of the U.S. Government established under authority granted by Congress include but are not limited to, the Government National Mortgage Association ("GNMA"), the Export-Import Bank, the Student Loan Marketing Association, the U.S. Postal Service, the Tennessee Valley Authority, the Bank for Cooperatives, the Farmers Home Administration, the Federal Home Loan Bank, the Federal Financing Bank, the Federal Intermediate Credit Banks, the Federal Land Banks, the Farm Credit Banks and the Federal National Mortgage Association. Some obligations of U.S. Government agencies, authorities and other instrumentalities are supported by the full faith and credit of the U.S. Treasury, such as securities of the Government National Mortgage Association and the Student Loan Marketing Association; others by the right of the issuer to borrow from the U.S. Treasury, such as securities of the Federal Financing Bank and the U.S. Postal Service; and others only by the credit of the issuing agency, authority or other instrumentality, such as securities of the Federal Home Loan Bank and the Federal National Mortgage Association ("FNMA"). U.S. TREASURY INFLATION-PROTECTION SECURITIES One type of U.S. government obligation is U.S. Treasury inflation-protection securities. The Bond and International Bond Portfolios may invest in U.S. Treasury inflation-protection securities which are marketable book-entry securities issued by the United States Department of Treasury with a nominal return linked to the inflation rate in consumer prices. The index used to measure inflation is the non-seasonably adjusted U.S. City Average All Items Consumer Price Index for All Urban Consumers. The principal value of an inflation-protection security is adjusted for inflation, and every six months the security pays interest, which is an amount equal to a fixed percentage of the inflation-adjusted value of the principal. The final payment of principal of the security will not be less than the original par amount of the security at issuance. Some inflation-protection securities may be stripped into principal and interest components. OBLIGATIONS OF NON-DOMESTIC BANKS As specified in the Prospectus, certain of the Portfolios may invest in U.S. dollar denominated obligations of Canadian chartered banks, London branches of U.S. banks, and U.S. branches and agencies of foreign banks. These investments may involve somewhat greater opportunity for income than the other money market instruments in which the Portfolios invest, but may also involve investment risks in addition to any risks associated with direct obligations of domestic banks. These additional risks include future political and economic developments, the possible imposition of withholding taxes on interest income payable on such obligations, the possible seizure or nationalization of foreign deposits, the possible establishment of exchange controls or the adoption of other governmental restrictions, as well as market and other factors which may affect the market for or the liquidity of such obligations. Generally, Canadian chartered banks, London branches of U.S. banks, and U.S. branches and agencies of foreign banks are subject to fewer U.S. regulatory restrictions than those applicable to domestic banks, and London branches of U.S. banks may be subject to less stringent reserve requirements than domestic branches. Canadian chartered banks, U.S. branches and agencies of foreign banks, and London branches of U.S. banks may provide less public information than, and may not be subject to the same accounting, auditing and 8 financial recordkeeping standards as, domestic banks. A Portfolio authorized to invest in such securities (as described in the Prospectus) will not invest more than 25% of its total assets in obligations of Canadian chartered banks, London branches of U.S. banks, and U.S. branches and agencies of foreign banks. VARIABLE AMOUNT MASTER DEMAND NOTES Money Market Portfolio may invest in variable amount master demand notes. These instruments are short-term, unsecured promissory notes issued by corporations to finance short-term credit needs. They allow the investment of fluctuating amounts by the Portfolio at varying market rates of interest pursuant to direct arrangements between Money Market Portfolio, as lender, and the borrower. Variable amount master demand notes permit a series of short-term borrowings under a single note. The lender has the right to increase the amount under the note at any time up to the full amount provided by the note agreement. Both the lender and the borrower have the right to reduce the amount of outstanding indebtedness at any time. Because variable amount master demand notes are direct lending arrangements between the lender and borrower, it is not generally contemplated that such instruments will be traded and there is no secondary market for the notes. Typically, agreements relating to such notes provide that the lender shall not sell or otherwise transfer the note without the borrower's consent. Thus, variable amount master demand notes are illiquid assets. Such notes provide that the interest rate on the amount outstanding varies on a daily basis depending upon a stated short-term interest rate barometer. The Portfolio's investment adviser will monitor the creditworthiness of the borrower throughout the term of the variable amount master demand note. MORTGAGE-RELATED SECURITIES Bond Portfolio, Mortgage Securities Portfolio and International Bond Portfolio may invest in mortgage-related securities (including securities which represent interests in pools of mortgage loans) issued by government (some of which may be U.S. Government agency issued or guaranteed securities as described herein) and non-government entities such as banks, mortgage lenders or other financial institutions. These securities may include both collateralized mortgage obligations and stripped mortgage-backed securities. Mortgage loans are originated and formed into pools by various organizations, including the Government National Mortgage Association ("GNMA"), the Federal National Mortgage Association ("FNMA"), the Federal Home Loan Mortgage Corporation ("FHLMC") and various private organizations including commercial banks and other mortgage lenders. Payments on mortgage-related securities generally consist of both principal and interest, with occasional repayments of principal due to refinancings, foreclosures or certain other events. Some mortgage-related securities, such as collateralized mortgage obligations, make payments of both principal and interest at a variety of intervals. Certain mortgage-related securities, such as GNMA securities, entitle the holder to receive such payments, regardless of whether or not the mortgagor makes loan payments; certain mortgage-related securities, such as FNMA securities, guarantee the timely payment of interest and principal; certain mortgage-related securities, such as FHLMC securities, guarantee the timely payment of interest and ultimate collection of principal; and certain mortgage-related securities contain no such guarantees but may offer higher rates of return. No mortgage-related securities guarantee the Portfolio's yield or the price of its shares. 9 Each Portfolio expects its investments in mortgage-related securities to be primarily in high-grade mortgage-related securities either: (a) issued by GNMA, FNMA or FHLMC or other United States Government owned or sponsored corporations or (b) rated A or better by S&P or Moody's, or rated at a comparable level by another independent publicly-recognized rating agency, or, if not rated, are of equivalent investment quality as determined by the Portfolio's investment adviser or sub-adviser, as the case may be. The Portfolio may invest in mortgage-related securities rated BBB or Baa by S&P or Moody's, respectively, or rated at a comparable level by another independent publicly-recognized rating agency, or, if not rated, are of equivalent investment quality as determined by the Portfolio's investment adviser or sub-adviser, as the case may be, when deemed by the Portfolio's investment adviser or sub-adviser to be consistent with the Portfolio's respective objective. To the extent that the Portfolio invests in securities rated BBB or Baa by S&P or Moody's, respectively, it will be investing in securities which have speculative elements. (Each of these Portfolios may also invest a portion of its assets in securities rated below BBB or Baa by S&P or Moody's, respectively, or rated at a comparable level by another independent nationally-recognized rating agency, or, if not rated, are of equivalent investment quality as determined by the Portfolio's investment adviser or sub-adviser. See "Low Rated and Unrated Debt Securities" and "Convertible Securities," above, for more information.) Mortgage Securities Portfolio may not invest more than 35% of its total assets in securities rated BBB or Baa or lower by S&P or Moody's, respectively, or rated at a comparable level by another independent nationally-recognized rating agency, or, if not rated, are of equivalent investment quality as determined by the Portfolio's investment adviser or sub-adviser. For further information about the characteristics and risks of mortgage-related securities, and for a description of the ratings used by Moody's and S&P, see Appendix A and B ("Mortgage-Related Securities" and "Bond and Commercial Paper Ratings") below. U.S. GOVERNMENT MORTGAGE-RELATED SECURITIES A governmental guarantor (i.e., backed by the full faith and credit of the U.S. Government) of mortgage-related securities is GNMA. GNMA is a wholly-owned U.S. Government corporation within the Department of Housing and Urban Development. GNMA is authorized to guarantee, with the full faith and credit of the U.S. Government, the timely payment of principal and interest on securities issued by institutions approved by GNMA (such as savings and loan institutions, commercial banks and mortgage bankers) and backed by pools of FHA-insured or VA-guaranteed mortgages. Government-related guarantors (i.e., not backed by the full faith and credit of the U.S. Government) include FNMA and FHLMC. FNMA is a government-sponsored corporation owned entirely by private stockholders. It is subject to general regulation by the Secretary of Housing and Urban Development. FNMA purchases residential mortgages from a list of approved seller/servicers which include state and federally-chartered savings and loan associations, mutual savings banks, commercial banks and credit unions and mortgage bankers. Pass-through securities issued by FNMA are guaranteed as to timely payment of principal and interest by FNMA but are not backed by the full faith and credit of the U.S. Government. FHLMC is a corporate instrumentality of the U.S. Government and was created by Congress in 1970 for the purpose of increasing the availability of mortgage credit for residential housing. Its stock is publicly traded. FHLMC issues Participation Certificates ("PCs") which represent interests in mortgages from FHLMC's national portfolio. FHLMC guarantees the timely payment of interest and principal on most PCs. There are some PCs, however, on which FHLMC guarantees the timely payment of interest but only the ultimate payment of principal. PCs are not backed by the full faith and credit of the U.S. Government. 10 NON-GOVERNMENTAL MORTGAGE-RELATED SECURITIES Mortgage Securities Portfolio, Bond Portfolio and International Bond Portfolio may invest in non-governmental mortgage-related securities. Commercial banks, savings and loan institutions, private mortgage insurance companies, mortgage bankers and other secondary market issuers also create pass-through pools of conventional residential and commercial mortgage loans. Such issuers may in addition be the originators and servicers of the underlying mortgage loans as well as the guarantors of the mortgage-related securities. Pools created by such non-governmental issuers generally offer a higher rate of interest than government and government-related pools because there are no direct or indirect government guarantees of payments in the former pools. However, timely payment of interest and principal of these pools is supported by various forms of insurance, guarantees and credit enhancements, including individual loan, title, pool and hazard insurance. The insurance and guarantees are issued by government entities, private insurers and the mortgage poolers. Such insurance and guarantees and the creditworthiness of the issuers thereof will be considered in determining whether a mortgage-related security meets the Portfolio's investment quality standards. There can be no assurance that the private insurers can meet their obligations under the policies. The Portfolio may buy mortgage-related securities without insurance or guarantees if through an examination of the loan experience and practices of the poolers the Portfolio's investment adviser determines that the securities meet the Portfolio's quality standards. Although the market for such securities is becoming increasingly liquid, securities issued by certain private organizations may not be readily marketable. The Portfolio will not purchase mortgage-related securities or any other assets which in its investment adviser's opinion are illiquid if, as a result, more than 15% of the value of the Portfolio's net assets will be illiquid. COLLATERALIZED MORTGAGE OBLIGATIONS Bond Portfolio, Mortgage Securities Portfolio and International Bond Portfolio may invest in collateralized mortgage obligations ("CMOs"), in which several different series of bonds or certificates secured by pools of mortgage-backed securities or mortgage loans, are issued. The series differ from each other in terms of the priority rights which each has to receive cash flows with the CMO from the underlying collateral. Each CMO series may also be issued in multiple classes. Each class of a CMO series, often referred to as a "tranche," is usually issued at a specific coupon rate and has a stated maturity. The underlying security for the CMO may consist of mortgage-backed securities issued or guaranteed by U.S. Government agencies or whole loans. CMOs backed by U.S. Government agency securities retain the credit quality of such agency securities and therefore present minimal credit risk. CMOs backed by whole loans typically carry various forms of credit enhancements to protect against credit losses and provide investment grade ratings. Unlike traditional mortgage pass-through securities, which simply pass through interest and principal on a pro rata basis as received, CMOs allocate the principal and interest from the underlying mortgages among the several classes or branches of the CMO in many ways. All residential, and some commercial, mortgage-related securities are subject to prepayment risk. A CMO does not eliminate that risk, but, by establishing an order of priority among the various tranches for the receipt and timing of principal payments, it can reallocate that risk among the tranches. Therefore, the stream of payments received by a CMO bondholder may differ dramatically from that received by an investor holding a traditional pass-through security backed by the same collateral. 11 In the traditional form of CMO, interest is paid currently on all tranches but principal payments are applied sequentially to retire each tranche in order of stated maturity. Traditional sequential payment CMOs have evolved into numerous more flexible forms of CMO structures which can vary frequency of payments, maturities, prepayment risk and performance characteristics. The differences between these new types of CMOs relate primarily to the manner in which each varies the amount and timing of principal and interest received by each tranche from the underlying collateral. Under all but the sequential payment structures, specific tranches of CMOs have priority rights over other tranches with respect to the amount and timing of cash flow from the underlying mortgages. The primary risk associated with any mortgage security is the uncertainty of the timing of cash flows; specifically, uncertainty about the possibility of either the receipt of unanticipated principal in falling interest rate environments (prepayment or call risk) or the failure to receive anticipated principal in rising interest rate environments (extension risk). In a CMO, that uncertainty may be allocated to a greater or lesser degree to specific tranches depending on the relative cash flow priorities of those tranches. By establishing priority rights to receive and reallocate payments of prepaid principal, the higher priority tranches are able to offer better call protection and extension protection relative to the lower priority classes in the same CMO. For example, when insufficient principal is received to make scheduled principal payments on all tranches, the higher priority tranches receive their scheduled premium payments first and thus bear less extension risk than lower priority tranches. Conversely, when principal is received in excess of scheduled principal payments on all tranches (call risk), the lower priority tranches are required to receive such excess principal until they are retired and thus bear greater prepayment risk than the higher priority tranches. Therefore, depending on the type of CMO purchased, an investment may be subject to a greater or lesser risk of prepayment, and experience a greater or lesser volatility in average life, yield, duration and price, than other types of mortgage-related securities. A CMO tranche may also have a coupon rate which resets periodically at a specified increment over an index. These floating rate CMOs are typically issued with lifetime caps on the level to which the floating coupon rate is allowed to rise. The Portfolio may invest in such securities, usually subject to a cap, provided such securities satisfy the same requirements regarding cash flow priority applicable to the Portfolio's purchase of CMOs generally. CMOs are typically traded over the counter rather than on centralized exchanges. Because CMOs of the type purchased by the Portfolio tend to have relatively more predictable yields and are relatively less volatile, they are also generally more liquid than CMOs with greater prepayment risk and more volatile performance profiles. Bond Portfolio, Mortgage Securities Portfolio and International Bond Portfolio 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 12 accrual period the Z tranche of a CMO has the advantage of eliminating the risk of reinvesting interest payments at lower rates during a period of declining market interest rates. At the same time, however, and also like a zero coupon bond, the market value of a Z tranche can be expected to fluctuate more widely with changes in market interest rates than would the market value of a tranche which pays interest currently. Changes in market interest rates also can be expected to influence prepayment rates on the mortgage loans underlying the CMO of which a Z tranche is a part. As noted above, such changes in prepayment rates will affect the date at which cash payments begin to be made on a Z tranche, and therefore also will influence its market value. As an operating policy, Bond Portfolio and Mortgage Securities Portfolio will not purchase a Z bond if the respective Portfolio's aggregate investment in Z bonds which are then still in their accrual periods would exceed 20% of the Portfolio's total assets (Z bonds which have begun to receive cash payments are not included for purposes of this 20% limitation). Bond Portfolio, Mortgage Securities Portfolio and International Bond Portfolio may also invest in inverse or reverse floating CMOs. Inverse or reverse floating CMOs constitute a tranche of a CMO with a coupon rate that moves in the reverse direction to an applicable index. Accordingly, the coupon rate will increase as interest rates decrease. The Portfolio would be adversely affected, however, by the purchase of such CMOs in the event of an increase in interest rates since the coupon rate will decrease as interest rates increase, and, like other mortgage-related securities, the value will decrease as interest rates increase. Inverse or reverse floating rate CMOs are typically more volatile than fixed or floating rate tranches of CMOs, and usually carry a lower cash flow priority. As an operating policy, Bond Portfolio and Mortgage Securities Portfolio will treat inverse floating rate CMOs as illiquid and, therefore, will limit its investments in such securities, together with all other illiquid securities, to 15% of such Portfolio's net assets. STRUCTURED INVESTMENTS The Bond Portfolio, Money Market Portfolio, Mortgage Securities Portfolio and International Bond Portfolio may invest in structured investments where the underlying instruments in such structured investments are mortgage-related securities, asset-backed securities or other debt securities in which the Portfolios may otherwise invest. Structured investments are entities organized and operated solely for the purpose of restructuring the investment characteristics of various securities. These entities typically are organized by investment banking firms that receive fees in connection with establishing each entity and arranging for the placement of its securities. This type of restructuring involves the deposit with or purchase by an entity, such as a corporation or trust, of specified instruments and the issuance by that entity of one or more classes of securities (structured investments) backed by, or representing interests in, the underlying instruments. The cash flow on the underlying instruments may be apportioned among the newly issued structured investments to create securities with different investment characteristics such as varying maturities, payment priorities or interest rate provisions; the extent of the payments made with respect to structured investments is dependent on the extent of the cash flow on the underlying instruments. Because structured investments of the type in which the Portfolios anticipate investing typically involve no credit enhancement, their credit risk generally will be equivalent to that of the underlying instruments. The Bond, Mortgage Securities and International Bond Portfolios are each permitted to invest in a class of structured investments that is either subordinated or unsubordinated to the right of payment of another class. Subordinated structured investments typically have higher yields and present greater risks than unsubordinated structured investments. Although the Portfolio's purchase of subordinated structured investments would have a similar economic effect to that of borrowing against the underlying instruments, the purchase will not be deemed to be leverage for purposes of the limitations placed on the extent of the Portfolio's assets that may be used for borrowing activities. Certain issuers of structured investments may be deemed to be "investment companies" as defined in the Investment Company Act of 1940 (the "1940 Act"). As a result, the Portfolios' investment in these structured investments may be limited by the restrictions contained in the 1940 Act. Structured investments typically are sold in private placement transactions to institutional investors such as the Portfolios, and there generally is no active trading market for structured investments. To the extent such investments are illiquid, they will be subject to the Portfolios' restrictions on investments in illiquid securities. STRIPPED MORTGAGE-BACKED SECURITIES Bond Portfolio, International Bond Portfolio and Mortgage Securities Portfolio may invest in stripped mortgage-backed securities. Stripped mortgage-backed securities represent undivided ownership interests in a pool of mortgages, the cash flow of which has been separated into its interest and principal components. "IOs" (interest only securities) receive the interest portion of the cash flow while "POs" (principal only securities) receive the principal portion. Stripped mortgage-backed securities may be issued by U.S. Government agencies or by private issuers. As interest rates rise and fall, the value of IOs tends to move in the same direction as interest rates, unlike other mortgage-backed securities (which tend to move in the opposite direction compared to interest rates). Under the Internal Revenue Code of 1986, as amended, POs may generate taxable income from the current accrual of original issue discount, without a corresponding distribution of cash to the Portfolio. The cash flows and yields on standard IO and PO classes are extremely sensitive to the rate of principal payments (including prepayments) on the related underlying mortgage assets. For example, a rapid or slow rate of principal payments may have a material adverse effect on the performance and prices of IOs or POs, respectively. If the underlying mortgage assets experience greater than anticipated prepayments of principal, an investor may fail to recoup fully its initial investment in an IO class of a stripped mortgage-backed security, even if the IO class is rated AAA or Aaa or is derived from a full faith and credit obligation (i.e., a GNMA). Conversely, if the underlying 13 mortgage assets experience slower than anticipated prepayments of principal, the price on a PO class will be affected more severely than would be the case with a traditional mortgage-backed security, but unlike IOs, an investor will eventually recoup fully its initial investment provided no default of the guarantor occurs. As an operating policy, the Portfolio (except the International Bond Portfolio) will limit its investments in IOs and POs to 15% of the Portfolio's net assets, and all Portfolios will treat them as illiquid securities (which, in the aggregate, may not exceed 15% of a Portfolio's net assets) except to the extent such securities are deemed liquid by the Portfolio's adviser or sub-adviser in accordance with standards established by the Fund's Board of Directors. See "Restricted and Illiquid Securities" below. ASSET-BACKED AND STRIPPED ASSET-BACKED SECURITIES Bond Portfolio, Money Market Portfolio and Mortgage Securities Portfolio may invest in asset-backed securities rated within the four highest grades assigned by Moody's or S&P, or rated at a comparable level by another independent nationally-recognized rating agency, or, if not rated, are of equivalent investment quality as determined by the Portfolio's investment adviser or sub-adviser. (International Bond Portfolio may invest in asset-backed securities which are unrated or rated as permitted under "Low Rated and Unrated Debt Securities" above.) Asset-backed securities usually represent interests in pools of consumer loans (typically trade, credit card or automobile receivables). The credit quality of most asset-backed securities depends primarily on the credit quality of the assets underlying such securities, how well the entity issuing the security is insulated from the credit risk of the originator or any other affiliated entities, the quality of the servicing of the receivables, and the amount and quality of any credit support provided to the securities. The rate of principal payment on asset-backed securities may depend on the rate of principal payments received on the underlying assets which in turn may be affected by a variety of economic and other factors. As a result, the yield on any asset-backed security may be difficult to predict with precision and actual yield to maturity may be more or less than the anticipated yield to maturity. Some asset-backed transactions are structured with a "revolving period" during which the principal balance of the asset-backed security is maintained at a fixed level, followed by a period of rapid repayment. This structure is intended to insulate holders of the asset-backed security from prepayment risk to a significant extent. Asset-backed securities may be classified as pass-through certificates or collateralized obligations. Pass-through certificates are asset-backed securities which represent an undivided fractional ownership interest in an underlying pool of assets. Pass-through certificates usually provide for payments of principal and interest received to be passed through to their holders, usually after deduction for certain costs and expenses incurred in administering the pool. Because pass-through certificates represent an ownership interest in the underlying assets, the holders thereof bear directly the risk of any defaults by the obligors on the underlying assets not covered by any credit support. Asset-backed securities issued in the form of debt instruments, also known as collateralized obligations, are generally issued as the debt of a special purpose entity organized solely for the purpose of owning such assets and issuing such debt. The assets collateralizing such asset-backed securities are pledged to a trustee or custodian for the benefit of the holders thereof. Such issuers generally hold no assets other than those underlying the asset-backed securities and any credit support provided. As a result, although payments on such asset-backed securities are obligations of the issuers, in the event of defaults on the underlying assets not covered by any credit support, the issuing entities are unlikely to have sufficient assets to satisfy their obligations on the related asset-backed securities. 14 To lessen the effect of failures by obligors on underlying assets to make payments, such securities may contain elements of credit support. Such credit support falls into two classes: liquidity protection and protection against ultimate default by an obligor on the underlying assets. Liquidity protection refers to the provision of advances, generally by the entity administering the pool of assets, to ensure that scheduled payments on the underlying pool are made in a timely fashion. Protection against ultimate default ensures ultimate payment of the obligations on at least a portion of the assets in the pool. Such protection may be provided through guarantees, insurance policies or letters of credit obtained from third parties, through various means of structuring the transaction or through a combination of such approaches. Bond Portfolio, Mortgage Securities Portfolio and International Bond Portfolio may also invest in stripped asset-backed securities. Asset-backed securities may be stripped to create interest-only and principal-only securities in the same manner as mortgage-backed securities. See "Stripped Mortgage-Backed Securities," above. The value of asset-backed IOs also tends to move in the same direction as changes in interest rates, unlike other asset-backed (or mortgage-backed) securities, which tend to move in the opposite direction compared to interest rates. As with stripped mortgage-backed securities, the cash flows and yields on asset-backed IOs and POs are also extremely sensitive to the rate of principal payments on the related underlying assets. See "Stripped Mortgage-Backed Securities," above. As an operating policy, each of these Portfolios (except the International Bond Portfolio) will limit its investments in IOs and POs to 15% of the Portfolio's net assets, and all Portfolios will treat them as illiquid securities (which, in the aggregate, may not exceed 15% of each Portfolio's net assets) except to the extent such securities are deemed liquid by the Portfolio's adviser (or sub-advisor) in accordance with standards established by the Fund's Board of Directors. See "Restricted and Illiquid Securities" below. DIRECT INVESTMENTS IN MORTGAGES - WHOLE LOANS Mortgage Securities Portfolio and Bond Portfolio may each invest up to 10% of the value of its net assets directly in mortgages securing residential or commercial real estate (i.e., the Portfolio becomes the mortgagee). Such investments are not "mortgage-related securities" as described above. They are normally available from lending institutions which group together a number of mortgages for resale (usually from 10 to 50 mortgages) and which act as servicing agent for the purchaser with respect to, among other things, the receipt of principal and interest payments. (Such investments are also referred to as "whole loans".) The vendor of such mortgages receives a fee from the Portfolio for acting as servicing agent. The vendor does not provide any insurance or guarantees covering the repayment of principal or interest on the mortgages. Unlike pass-through securities, whole loans constitute direct investment in mortgages inasmuch as the Portfolio, rather than a financial intermediary, becomes the mortgagee with respect to such loans purchased by the Portfolio. At present, such investments are considered to be illiquid by the Portfolio's investment adviser or sub-adviser. A Portfolio will invest in such mortgages only if its investment adviser has determined through an examination of the mortgage loans and their originators (which may include an examination of such factors as percentage of family income dedicated to loan service and the relationship between loan value and market value) that the purchase of the mortgages should not represent a significant risk of loss to the Portfolio. 15 ZERO COUPON SECURITIES The Portfolios may invest in zero coupon securities. When held to maturity, the entire return on zero coupon securities, which consists of the amortization of discount, comes from the difference between their purchase price and their maturity value. Zero coupon securities, like other investments in debt securities, are subject to certain risks, including credit and market risks. Credit risk is the function of the ability of an issuer of a security to maintain timely interest payments and to pay the principal of a security upon maturity. Market risk is the risk of the price fluctuation of a security due primarily to market interest rates prevailing generally in the economy. Market risk may also include elements which take into account the underlying credit rating of an issuer, the maturity length of a security, a security's yield, and general economic and interest rate conditions. Zero coupon securities do not make any periodic payments of interest prior to maturity and the stripping of the securities causes the zero coupon securities to be offered at a discount from their face amounts. The market value of the zero coupon securities 16 will fluctuate, perhaps markedly, and changes in interest rates and other factors and may be subject to greater fluctuations in response to changing interest rates than would a fund of securities consisting of debt obligations of comparable coupon bearing maturities. The amount of fluctuation increases with longer maturities. Because they do not pay interest, zero coupon securities tend to be subject to greater fluctuation of market value in response to changes in interest rates than interest-paying securities of similar maturities. When held to maturity, the return on zero coupon securities consists entirely of the difference between the maturity value and the purchase price of securities held in the Portfolio. While this difference allows investors to measure initial investment return, it also must be considered in light of changing economic conditions. PAY-IN-KIND AND DELAYED INTEREST SECURITIES International Bond Portfolio may also invest in pay-in-kind securities and delayed interest securities. Pay-in-kind securities pay interest through the issuance to the holders of additional securities. Delayed interest securities are securities that remain zero coupon securities until a predetermined date at which time the stated coupon rate becomes effective and interest becomes payable at regular intervals. Because interest on pay-in-kind and delayed interest securities is not paid on a current basis, the values of securities of this type are subject to greater fluctuations than the values of securities that distribute income regularly and they may be more speculative than such securities. Accordingly, the values of these securities may be highly volatile as interest rates rise or fall. In addition, the Portfolio's investments in pay-in-kind and delayed interest securities will result in special tax consequences. DERIVATIVE INSTRUMENTS Derivative instruments are those financial instruments whose values are dependent upon the value or performance of one or more underlying assets or reference instruments, such as securities, indices, currencies or commodities. Derivative investments involve costs, may be volatile and may involve a small investment relative to the risk assumed. Their successful use may depend on the manager's ability to predict market movements. Risks include delivery failure, default by the other party or the inability to close out a position because the trading market becomes illiquid. Some derivatives are particularly sensitive to changes in interest rates. Derivatives may be used for "hedging," which means that they may help manage risks relating to interest rates, currency fluctuations and other market factors. They also may be used to increase liquidity, to invest in a particular security or replicate a market in a more efficient or less expensive way, generate income, enhance returns or manage portfolio duration. The International Bond Portfolio is subject to a derivatives policy established by Franklin regarding the use of derivatives. Currently no more than 20% of the International Bond Portfolio's total assets may be invested in, or exposed to, futures, options, collars and swap agreements (as measured at the time of investment). FUTURE DEVELOPMENTS IN DERIVATIVES. A Portfolio may take advantage of opportunities in the area of derivative investments that are not presently contemplated for use by the Portfolio or that are not currently available but which may be developed in the future, to the extent such opportunities are consistent with the Portfolio's investment goals and are legally permissible for the Portfolio. FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS GENERALLY. Consistent with their investment objectives and strategies, and to the extent specified in the Prospectus and this Statement of Additional Information, the Portfolios may enter into a variety of futures contracts, including, without limitation, interest rate and other bond futures contracts, index futures contracts, exchange traded fund (ETF) futures contracts and foreign currency futures contracts, and may also purchase and sell put and call options on futures contracts. The purchase of futures contracts or call options on futures contracts can serve as a long hedge, and the sale of futures contracts or the purchase of put options on a futures contract can serve as a short hedge. Writing call options on futures contracts can serve as a limited short hedge, using a strategy similar to that used for writing call options on securities or indexes. Similarly, writing put options on futures contracts can serve as a limited long hedge. In addition, futures contract strategies can be used to manage the average duration of a Portfolio's fixed-income portfolio. If Advantus Capital or a sub-adviser wishes to shorten the average duration of a Portfolio's fixed-income portfolio, the Portfolio may sell a debt futures contract or a call option thereon, or purchase a put option on that futures contract. If Advantus Capital or a sub-adviser wishes to lengthen the average duration of a Portfolio's fixed-income portfolio, the Portfolio may buy a debt futures contract or a call option thereon, or sell a put option thereon. A Portfolio may not enter into short positions in futures contracts or options on futures contracts except for bona fide hedging or other risk management purposes (which may also have the effect of either lengthening or shortening the average duration of its portfolio of fixed income and other debt securities). Subject to the additional limitations described under "Regulatory Matters" below, futures contracts and options on futures contracts can also be purchased and sold to attempt to enhance income or yield. FUTURES CONTRACTS. A futures contract is a bilateral agreement providing for the purchase and sale of a specified type and amount of a financial instrument or foreign currency, or for the making and acceptance of a cash settlement, at a stated time in the future for a fixed price. By its terms, a futures contract provides for a specified settlement date on which, in the case of the majority of interest rate and foreign currency futures contracts, the fixed income securities or currency underlying the contract are delivered by the seller and paid for by the purchaser, or on which, in the case of stock index futures contracts and certain interest rate and foreign currency futures contracts, the difference between the price at which the contract was entered into and the contract's closing value is settled between the purchaser and the seller in cash. Futures contracts differ from options in that they are bilateral agreements, with both the purchaser and the seller equally obligated to complete the transaction. Futures contracts call for settlement only on the expiration date, and cannot be "exercised" at any other time during their term. 17 Purchases or sales of stock index futures contracts are used to attempt to protect current or intended stock investments from broad fluctuations in stock prices. Interest rate and foreign currency futures contracts are purchased or sold to attempt to hedge against the effects of interest or exchange rate changes on a Portfolio's current or intended investments in fixed income or foreign securities. In the event that an anticipated decrease in the value of a Portfolio's securities occurs as a result of a general stock market decline, a general increase in interest rates, or a decline in the dollar value of foreign currencies in which portfolio securities are denominated, the adverse effects of such changes may be offset, in whole or in part, by gains on the sale of futures contracts. Conversely, the increased cost of a Portfolio's securities to be acquired, caused by a general rise in the stock market, a general decline in interest rates, or a rise in the dollar value of foreign currencies, may be offset, in whole or in part, by gains on futures contracts purchased by such Portfolio. Although many futures contracts by their terms call for actual delivery or acceptance of the financial instrument, in most cases the contracts are closed out before the settlement date without the making or taking of delivery. Closing out a short position is effected by purchasing a futures contract for the same aggregate amount of the specific type of financial instrument and the same delivery month. If the price of the initial sale of the futures contract exceeds the price of the offsetting purchase, the seller is paid the difference and realizes a gain. Conversely, if the price of the offsetting purchase exceeds the price of the initial sale, the trader realizes a loss. Similarly, the closing out of a long position is effected by the purchaser entering into a futures contract sale. If the offsetting sale price exceeds the purchase price, the purchaser realizes a gain and, if the purchase price exceeds the offsetting sale price, the purchaser realizes a loss. The purchase or sale of a futures contract differs from the purchase or sale of a security in that no purchase price is paid or received. Instead, an amount of cash or cash equivalents, which varies but may be as low as 5% or less of the value of the contract, must be deposited with the broker as "initial margin." Initial margin on futures contracts does not represent a borrowing, but rather is in the nature of a performance bond or good-faith deposit that is returned to the Portfolio at the termination of the transaction if all contractual obligations have been satisfied. Subsequent payments to and from the broker, referred to as "variation margin," are made on a daily basis as the value of the index or instrument underlying the futures contract fluctuates, making positions in the futures contracts more or less valuable, a process known as "marking to the market." Variation margin does not involve borrowing, but rather represents a daily settlement of the Portfolio's obligations to or from a futures broker. Daily variation margin calls could be substantial in the event of adverse price movements. If the Portfolio has insufficient cash to meet daily variation margin requirements, it might need to sell securities at a time when such sales are disadvantageous. U.S. futures contracts may be purchased or sold only on an exchange, known as a "contract market," designated by the Commodity Futures Trading Commission ("CFTC") for the trading of such contract, and only through a registered futures commission merchant which is a member of such contract market. A commission must be paid on each completed purchase and sale transaction. The contract market clearing house guarantees the performance of each party to a futures contract by in effect taking the opposite side of such contract. At any time prior to the expiration of a futures contract, a trader may elect to close out its position by taking an opposite position on the contract market on which the position was entered into, subject to the availability of a secondary market, which will operate to terminate the initial position. At that time, a final determination of variation margin is made and any loss experienced by the trader is required to be paid to the contract market clearing house while any profit due to the trader must be delivered to it. However, there can be no assurance that a liquid secondary market will exist for a particular contract at a particular time. In such event, it may not be possible to close a futures contract. Futures contracts may also be traded on foreign exchanges. 18 Under certain circumstances, futures contracts exchanges may establish daily limits on the amount that the price of a futures contract can vary from the previous day's settlement price; once that limit is reached, no trades may be made that day at a price beyond the limit. Daily price limits do not limit potential losses because prices could move to the daily limit for several consecutive days with little or no trading, thereby preventing liquidation of unfavorable positions. If a Portfolio were unable to liquidate a futures contract due to the absence of a liquid secondary market or the imposition of price limits, it could incur substantial losses. The Portfolio would continue to be subject to market risk with respect to the position. In addition, the Portfolio would continue to be required to make daily variation margin payments and might be required to maintain the position being hedged by the futures contract or to maintain cash or liquid assets in an account. OPTIONS ON FUTURES CONTRACTS. An option on a futures contract provides the holder with the right to enter into a "long" position in the underlying futures contract, in the case of a call option, or a "short" position in the underlying futures contract, in the case of a put option, at a fixed exercise price up to a stated expiration date or, in the case of certain options, on such date. Upon exercise of the option by the holder, the contract market clearing house establishes a corresponding short position for the writer of the option, in the case of a call option, or a corresponding long position, in the case of a put option. In the event that an option is exercised, the parties will be subject to all the risks associated with the trading of futures contracts, such as payment of variation margin deposits. In addition, the writer of an option on a futures contract, unlike the holder, is subject to initial and variation margin requirements on the option position. A position in an option on a futures contract may be terminated by the purchaser or the seller prior to expiration by affecting a closing purchase or sale transaction, subject to the availability of a liquid secondary market, which is the purchase or sale of an option of the same series (i.e., the same exercise price and expiration date) as the option previously purchased or sold. The difference between the premiums paid and received represents the trader's profit or loss on the transaction. Options on futures contracts that are written or purchased by the Portfolios on United States exchanges are traded on the same contract market as the underlying futures contract and, like futures contracts, are subject to regulation by the CFTC and the performance guarantee of the exchange clearing house. In addition, options on futures contracts may be traded on foreign exchanges. RISKS OF FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS. The use of futures contracts and options on futures contracts will expose the Portfolios to additional investment risks and transactions costs. Risks include: o the risk that interest rates, securities prices or currency markets will not move in the direction that the Portfolio's investment adviser or sub-adviser anticipates; o an imperfect correlation between the price of the instrument and movements in the prices of any securities or currencies being hedged; o the possible absence of a liquid secondary market for any particular instrument and possible exchange imposed price fluctuation limits; o leverage risk, which is the risk that adverse price movements in an instrument can result in a loss substantially greater than a Portfolio's initial investment in that instrument; and o the risk that the counterparty to an instrument will fail to perform its obligations. REGULATORY MATTERS. To the extent required to comply with applicable Securities and Exchange Commission releases and staff positions, when entering into futures contracts each Portfolio will maintain, in a segregated account, cash or liquid securities equal to the value of such contracts. Each of the Fund's Portfolios that invests in futures contracts and options on futures contracts has filed a notice of eligibility for exclusion from the definition of the term "commodity pool operator" with the National Futures Association. In each case, the Portfolio intends to comply with Section 4.5 of the regulations under the Commodity Exchange Act, which limits the extent to which the Portfolio can commit assets to initial margin deposits and option premiums. The above limitation on the Portfolio's investments in futures contracts and commodity options, and the Fund's policies regarding futures contracts and options discussed elsewhere in this Statement of Additional Information, may be changed as regulatory agencies permit. With respect to positions in commodity futures or commodity option contracts which do not come within the meaning and intent of bona fide hedging in the Commodity Futures Trading Commission ("CFTC") rules, the aggregate initial margin and premiums required to establish such positions will not exceed 5% of the liquidation value of the qualifying entity's portfolio, after taking into account unrealized profits and unrealized losses on any such contracts it has entered into; and, provided further, that in the case of an option that is in-the-money at the time of purchase, the in-the-money amount as defined by CFTC Rule 190.01(x) may be excluded in computing such 5%. 19 For examples of futures contracts and their tax treatment, see Appendix C to this Statement of Additional Information. OPTIONS To the extent permitted in the Prospectus, each Portfolio may write (i.e., sell) covered call and secured put options and purchase and sell put and call options written by others. Each Portfolio will limit the total market value of securities against which it may write call or put options to 20% of its total assets. In addition, no Portfolio will commit more than 5% of its total assets to premiums when purchasing put or call options. A put option gives the purchaser the right to sell a security or other instrument to the writer of the option at a stated price during the term of the option. A call option gives the purchaser the right to purchase a security or other instrument from the writer of the option at a stated price during the term of the option. Thus, if a Portfolio writes a call option on a security, it becomes obligated during the term of the option to deliver the security underlying the option upon payment of the exercise price. If a Portfolio writes a put option, it becomes obligated during the term of the option to purchase the security underlying the option at the exercise price if the option is exercised. Portfolios may use put and call options for a variety of purposes. For example, if a portfolio manager wishes to hedge a security a Portfolio owns against a decline in price, the manager may purchase a put option on the underlying security; i.e., purchase the right to sell the security to a third party at a stated price. If the underlying security then declines in price, the manager can exercise the put option, thus limiting the amount of loss resulting from the decline in price. Similarly, if the manager intends to purchase a security at some date in the future, the manager may purchase a call option on the security today in order to hedge against an increase in its price before the intended purchase date. Put and call options also can be used for speculative purposes. For example, if a portfolio manager believes that the price of stocks generally is going to rise, the manager may purchase a call option on a stock index, the components of which are unrelated to the stocks held or intended to be purchased. Finally, a portfolio manager may write options on securities owned in order to realize additional income. Portfolios receive premiums from writing call or put options, which they retain whether or not the options are exercised. By writing a call option, a Portfolio might lose the potential for gain on the underlying security while the option is open, and by writing a put option a Portfolio might become obligated to purchase the underlying security for more than its current market price upon exercise. If a Portfolio purchases a put or call option, any loss to the Portfolio is limited to the premium paid for, and transaction costs paid in connection with, the option. OPTIONS ON SECURITIES. An option on a security provides the purchaser, or "holder," with the right, but not the obligation, to purchase, in the case of a "call" option, or sell, in the case of a "put" option, the security or securities underlying the option, for a fixed exercise price up to a stated expiration date or, in the case of certain options, on such date. The holder pays a nonrefundable purchase price for the option, known as the "premium." The maximum amount of risk the purchaser of the option assumes is equal to the premium plus related transaction costs, although this entire amount may be lost. The risk of the seller, or "writer," however, is potentially unlimited, unless the option is "covered." A call option written by a Portfolio is "covered" if the Portfolio owns the underlying security covered by the call or has an absolute and immediate right to acquire that security without additional cash consideration (or for additional cash consideration held in a segregated account by its custodian) upon conversion or exchange of other securities held in its portfolio. A call option is also covered if the Portfolio holds a call on the same security and in the same principal amount as the call written where the exercise price of the call held (a) is equal to or less than the exercise price of the call written or (b) is greater than the exercise price of the call written if the difference is maintained by the Portfolio in cash and liquid securities in a segregated account with its custodian. A put option written by a Portfolio is "covered" if the Portfolio maintains cash and liquid securities with a value equal to the exercise price in a segregated account with its custodian, or else holds a put on the same security and in the same principal amount as the put written where the exercise price of the put held is equal to or greater than the exercise price of the put written. If the writer's obligation is not so covered, it is subject to the risk of the full change in value of the underlying security from the time the option is written until exercise. Upon exercise of the option, the holder is required to pay the purchase price of the underlying security, in the case of a call option, or to deliver the security in return for the purchase price in the case of a put option. Conversely, the writer is required to deliver the security, in the case of a call option, or to purchase the security, in the case of a put option. Options on securities which have been purchased or written may be closed out prior to exercise 20 or expiration by entering into an offsetting transaction on the exchange on which the initial position was established, subject to the availability of a liquid secondary market. Options on securities and options on indexes of securities, discussed below, are traded on national securities exchanges, such as the Chicago Board Options Exchange and the New York Stock Exchange, which are regulated by the SEC. The Options Clearing Corporation guarantees the performance of each party to an exchange-traded option, by in effect taking the opposite side of each such option. A holder or writer may engage in transactions in exchange-traded options on securities and options on indexes of securities only through a registered broker-dealer which is a member of the exchange on which the option is traded. In addition, options on securities and options on indexes of securities may be traded on exchanges located outside the United States and over-the-counter through financial institutions dealing in such options as well as the underlying instruments. While exchange-traded options have a continuous liquid market, over-the-counter options may not. OPTIONS ON STOCK INDEXES. In contrast to an option on a security, an option on a stock index provides the holder with the right to make or receive a cash settlement upon exercise of the option, rather than the right to purchase or sell a security. The amount of this settlement is equal to (a) the amount, if any, by which the fixed exercise price of the option exceeds (in the case of a call) or is below (in the case of a put) the closing value of the underlying index on the date of exercise, multiplied by (b) a fixed "index multiplier." The purchaser of the option receives this cash settlement amount if the closing level of the stock index on the day of exercise is greater than, in the case of a call, or less than, in the case of a put, the exercise price of the option. The writer of the option is obligated, in return for the premium received, to make delivery of this amount if the option is exercised. As in the case of options on securities, the writer or holder may liquidate positions in stock index options prior to exercise or expiration by entering into closing transactions on the exchange on which such positions were established, subject to the availability of a liquid secondary market. A Portfolio will cover all options on stock indexes by owning securities whose price changes, in the opinion of the Portfolio's adviser or sub-adviser, are expected to be similar to those of the index, or in such other manner as may be in accordance with the rules of the exchange on which the option is traded and applicable laws and regulations. Nevertheless, where a Portfolio covers a call option on a stock index through ownership of securities, such securities may not match the composition of the index. In that event, the Portfolio will not be fully covered and could be subject to risk of loss in the event of adverse changes in the value of the index. The Portfolios will secure put options on stock indexes by segregating assets equal to the option's exercise price, or in such other manner as may be in accordance with the rules of the exchange on which the option is traded and applicable laws and regulations. The index underlying a stock option index may be a "broad-based" index, such as the Standard & Poor's 500 Index or the New York Stock Exchange Composite Index, the changes in value of which ordinarily will reflect movements in the stock market in general. In contrast, certain options may be based upon narrower market indexes, such as the Standard & Poor's 100 Index, or on indexes of securities of particular industry groups, such as those of oil and gas or technology companies. A stock index assigns relative values to the stocks included in the index and the index fluctuates with changes in the market values of the stocks so included. 21 SWAP AGREEMENTS Each Portfolio (other than Money Market Portfolio) may enter into swaps, caps, floors and collars to preserve a return or a spread on a particular investment or portion of its portfolio, to protect against any increase in the price of securities the Portfolio anticipates purchasing at a later date or to attempt to enhance yield. Swap agreements are two-party contracts entered into primarily by institutional investors for periods ranging from a few weeks to more than one year. In a standard "swap" transaction, two parties agree to exchange the returns (or differentials in rates of return) earned or realized on particular predetermined investments or instruments. The gross returns to be exchanged or "swapped" between the parties are calculated with respect to a "notional amount," i.e., the return on or increase in value of a particular dollar amount invested at a particular interest rate or in a "basket" of securities representing a particular index. Commonly used swap agreements include interest rate caps, under which, in return for a premium, one party agrees to make payments to the other to the extent that interest rates exceed a specified rate, or "cap;" interest rate floors, under which, in return for a premium, one party agrees to make payments to the other to the extent that interest rates fall below a specified level, or "floor;" and interest rate collars, under which a party sells a cap and purchases a floor or vice versa in an attempt to protect itself against interest rate movements exceeding given minimum or maximum levels. Swap agreements, including caps, floors and collars, can be individually negotiated and structured to include exposure to a variety of different types of investments or market factors. Depending on their structure, swap agreements may increase or decrease the overall volatility of a Portfolio's investments and its share price and yield because these agreements may affect the Portfolio's exposure to long- or short-term interest rates (in the United States or abroad), foreign currency values, mortgage-backed security values, corporate borrowing rates or other factors such as security prices or inflation rates. Swap agreements will tend to shift a Portfolio's investment exposure from one type of investment to another. For example, if a Portfolio agrees to exchange payments in U.S. dollars for payments in foreign currency, the swap agreement would tend to decrease the Portfolio's exposure to U.S. interest rates and increase its exposure to foreign currency and interest rates. Caps, floors and collars have an effect similar to buying or writing options. Whether the Portfolio's use of swap agreements will be successful in furthering its investment objective will depend on the ability of the Portfolio's investment adviser or sub-adviser to predict correctly whether certain types of investments are likely to produce greater returns than other investments. The creditworthiness of firms with which a Portfolio enters into swaps, caps, floors or collars will be monitored by Advantus Capital or the sub-adviser. If a firm's creditworthiness declines, the value of the agreement would be likely to decline, potentially resulting in losses. If a default occurs by the other party to such transaction, the Portfolio will have contractual remedies pursuant to the agreements related to the transaction. The "notional amount" of the swap agreement is only a fictive basis on which to calculate the obligations which the parties to a swap agreement have agreed to exchange. Most swap agreements entered into by the Portfolio would calculate the obligations of the parties to the agreement on a "net basis." Consequently, the Portfolio's obligations (or rights) under a swap agreement will generally be equal to the net amount to be paid or received under the agreement based on the relative values of the positions held by each party to the agreement (the "net amount"). The Portfolio's obligations under a swap agreement will be accrued daily (offset against amounts owed to the Portfolio) and any accrued but unpaid net amounts owed to a swap counterparty will be covered by the maintenance of a segregated account consisting of cash or liquid securities to avoid any potential leveraging of the Portfolio's securities. The Portfolio will not enter into a swap agreement with any single party if the net amount owed or to be received under existing contracts with that party would exceed 5% of the Portfolio's assets. Advantus Capital and the Portfolios believe that such obligations do not constitute senior securities under the 1940 Act and, accordingly, will not treat them as being subject to a Portfolio's borrowing restrictions. The position of the SEC is that assets involved in swap transactions are illiquid and are, therefore, subject to the limitations on investing in illiquid securities. CREDIT DEFAULT SWAPS Each Portfolio (other than Money Market Portfolio) may also enter into credit default swap agreements. The credit default swap agreement may have as reference obligations one or more securities that are not currently held by the Portfolio. The protection "buyer" in a credit default contract is generally obligated to pay the protection "seller" an upfront or a periodic stream of payments over the term of the contract provided that no credit event, such as a default, on a reference obligation has occurred. If a credit event occurs, the seller generally must pay the buyer the "par value" (full notional value) of the swap in exchange for an equal face amount of deliverable obligations of the reference entity described in the swap, or the seller may be required to deliver the related net cash amount, if the swap is cash settled. A Portfolio may be either the buyer or seller in the transaction. If the Portfolio is a buyer and no credit event occurs, the Portfolio may recover nothing if the swap is held through its termination date. However, if a credit event occurs, the buyer generally may elect to receive the full notional value of the swap in exchange for an equal face amount of deliverable obligations of the reference entity whose value may have significantly decreased. As a seller, a Portfolio generally receives an upfront payment or a fixed rate of income throughout the term of the swap provided that there is no credit event. As the seller, a Portfolio would effectively add leverage to its portfolio because, in addition to its total net assets, a Portfolio would be subject to investment exposure on the notional amount of the swap. 22 Credit default swap agreements involve greater risks than if a Portfolio had invested in the reference obligation directly since, in addition to general market risks, credit default swaps are subject to illiquidity risk, counterparty risk and credit risk. A Portfolio will enter into credit default swap agreements only with counterparties that meet certain standards of creditworthiness. A buyer generally also will lose its investment and recover nothing should no credit event occur and the swap is held to its termination date. If a credit event were to occur, the value of any deliverable obligation received by the seller, coupled with the upfront or periodic payments previously received, may be less than the full notional value it pays to the buyer, resulting in a loss of value to the seller. The Portfolio's obligations under a credit default swap agreement will be accrued daily (offset against any amounts owing to the Portfolio). In connection with credit default swaps in which a Portfolio is the buyer, the Portfolio will segregate or "earmark" cash or assets determined to be liquid, or enter into certain offsetting positions, with a value at least equal to the Portfolio's exposure (any accrued but unpaid net amounts owed by the Portfolio to any counterparty), on a marked-to-market basis. In connection with credit default swaps in which a Portfolio is the seller, the Portfolio will segregate or "earmark" cash or assets determined to be liquid, or enter into offsetting positions, with a value at least equal to the full notional amount of the swap (minus any amounts owed to the Portfolio). Such segregation or "earmarking" will ensure that the Portfolio has assets available to satisfy its obligations with respect to the transaction and will limit any potential leveraging of the Portfolio. Such segregation or "earmarking" will not limit the Portfolio's exposure to loss. Whether a Portfolio's use of swap agreements will be successful in furthering its investment objective will depend on the ability of the adviser correctly to predict whether certain types of investments are likely to produce greater returns than other investments. Because they are two-party contracts and may have terms of greater than seven days, swap agreements may be considered to be illiquid. Moreover, the Portfolio bears the risk of loss of the amount expected to be received under a swap agreement in the event of the default or bankruptcy of a counterparty to a swap agreement. Certain positions adopted by the Internal Revenue Service may limit the Portfolio's ability to use swap agreements in a desired tax strategy. The swap market is a relatively new market and is largely unregulated. It is possible that developments in the swap market and the laws relating to swaps, including potential government regulation, could adversely affect the Portfolio's ability to terminate existing swap agreements, to realize amounts to be received under such agreements, or to enter into swap agreements, or could have adverse tax consequences. CREDIT-LINKED SECURITIES The International Bond Portfolio may invest in credit-linked securities. Credit-linked securities are debt securities that represent an interest in a pool of, or are otherwise collateralized by, one or more debt obligations, bank loan obligations, or credit default swaps on corporate debt or bank loan obligations. Such debt obligations may represent the obligations of one or more corporate issuers. The Portfolio has the right to receive periodic interest payments from the issuer of the credit-linked security at an agreed-upon interest rate, and a return of principal at the maturity date. The Portfolio currently anticipates purchasing only "funded" credit-linked securities. Funded credit-linked securities are structured so that the Portfolio's total investment is made when it purchases the credit-linked security with no further exposure to the Portfolio beyond its initial investment. Consequently, the purchase of these securities will not add leverage to the Portfolio. The Portfolio bears the risk of loss of its principal investment, and the periodic interest payments expected to be received for the duration of its investment in the credit-linked security, in the event that one or more of the debt obligations underlying the credit default swaps go into default or otherwise become non-performing. Upon the occurrence of such a credit event (including bankruptcy, failure to timely pay interest or principal, or a restructuring), the Portfolio will generally reduce the principal balance of the related credit-linked security by the Portfolio's pro rata interest in the par amount of the defaulted underlying debt obligation in exchange for the actual value of the defaulted underlying obligation or the defaulted underlying obligation itself, resulting in a loss of a part of the Portfolio's investment. Thereafter, interest on the credit-linked security will accrue on a smaller principal balance and a smaller principal balance will be returned at maturity. To the extent a credit-linked security represents an interest in underlying obligations of a single corporate or other issuer, a credit event with respect to such issuer presents greater risk of loss to the Portfolio than if the credit-linked security represented an interest in underlying obligations of multiple issuers. In addition, the Portfolio bears the risk that the issuer (typically a bank, broker, or the issuer of the credit default swaps) of the credit-linked security will default or become bankrupt. In such an event, the Portfolio may have difficulty being repaid, or fail to be repaid, the principal amount of its investment and the remaining periodic interest payments thereon. An investment in credit-linked securities also involves reliance on the counterparty to the credit default swap entered into with the issuer of the credit-linked security to make periodic payments to the issuer under the terms of the swap. Any delay or cessation in the making of such payments may be expected in certain instances to result in delays or reductions in payments to the Portfolio as an investor in such credit-linked securities. Additionally, credit-linked securities are typically structured as limited recourse obligations of the issuer of such securities such that the securities issued will usually be obligations solely of the issuer and will not be obligations or responsibilities of any other person. Most credit-linked securities are structured as Rule 144A securities so that they may be freely traded among institutional buyers. The Portfolio will generally only purchase credit-linked securities which are determined to be liquid in accordance with the Portfolio's liquidity guidelines. However, the market for credit-linked securities may be, or suddenly can become, illiquid. The other parties to the transaction may be the only investors with sufficient understanding of the derivative to be interested in bidding for it. Changes in liquidity may result in significant, rapid and unpredictable changes in the prices for credit-linked securities. In certain cases, a market price for a credit-linked security may not be available or may not be reliable, and the Portfolio could experience difficulty in selling such security at a price the investment manager believes is fair. In the event a credit-linked security is deemed to be illiquid, the Portfolio will include such security in calculating its limitation on investments in illiquid securities. The value of a credit-linked security will typically increase or decrease with any change in value of the underlying debt obligations or credit default swap. Further, in cases where the credit-linked security is structured such that the payments to the Portfolio are based on amounts received in respect of, or the value of performance of, any underlying debt obligations specified in the terms of the relevant credit default swap, fluctuations in the value of such obligation may affect the value of the credit-linked security. The collateral of a credit-linked security may be one or more credit default swaps, which are subject to additional risks. See "Credit Default Swaps" above for a description of additional risks associated with credit default swaps. FOREIGN SECURITIES International Bond Portfolio may invest in foreign securities without limitation. In addition, Bond Portfolio, Money Market Portfolio, Mortgage Securities Portfolio and Real Estate Securities Portfolio may each invest up to 10% of its total assets in U.S. dollar denominated securities of foreign governments and companies that are traded in the U.S. Such securities are typically publicly traded but may in some cases be issued as private placements (each Portfolio will treat private placement securities as illiquid securities which, when aggregated with all other illiquid securities, may not exceed 15% of the Portfolio's net assets). Real Estate Securities Portfolio may also invest in securities of Canadian issuers which are not U.S. dollar denominated or traded in the U.S., but in no event may such investments, when aggregated with its other investments in foreign securities, exceed more than 10% of its total assets. Advantus Capital will determine whether, in its judgment, a security purchased by any Portfolio is a "foreign security" based on various criteria it deems relevant, including, but not limited to, the country in which the security's issuer is organized, the location of the issuer's headquarters, the location of the exchange on which the security is traded, the currency in which the security is denominated, and the country in which the issuer's primary operations, including sales, are conducted. The Money Market Portfolio is also permitted to invest up to 25% of its total assets in U.S. dollar denominated obligations of U.S. branches or agencies of foreign banks with assets of at least $2 billion and U.S. dollar denominated obligations of Canadian chartered banks and London branches of U.S. banks with assets of at least $2 billion. See "Obligations of Non-Domestic Banks" above. The S&P 400 Mid-Cap and S&P 500 Portfolios may invest in securities of foreign issuers to the extent such securities are included in the S&P 400 Mid-Cap Index and S&P 500 Index, respectively. Investing in securities of foreign issuers may result in greater risk than that incurred in investing in securities of domestic issuers. There is the possibility of expropriation, nationalization or confiscatory taxation, taxation of income earned in foreign nations or other taxes imposed with respect to investments in foreign nations; foreign exchange controls (which may include suspension of the ability to transfer currency from a given country), default in foreign government securities, political or social instability or diplomatic developments which could affect investments in securities of issuers in those nations. In addition, in many countries there is less publicly available information about issuers than is available in reports about companies in the U.S. Foreign companies are not generally subject to uniform accounting, auditing and financial reporting standards, and auditing practices and requirements may not be comparable to those applicable to U.S. companies. Further, the Portfolio may encounter difficulties or be unable to pursue legal remedies and obtain judgments in foreign courts. Commission rates in foreign countries, which are sometimes fixed rather than subject to negotiation as in the U.S., are likely to be higher. Further, the settlement period of securities transactions in foreign markets may be longer than in domestic markets. In many foreign countries there is less government supervision and regulation of business and industry practices, stock exchanges, brokers and listed companies than in the U.S. The foreign securities markets of many of the countries in which the Portfolio may invest may also be smaller, less liquid, and subject to greater price volatility than those in the U.S. Also, some countries may withhold portions of interest, dividends and gains at the source. The Portfolio may also be unfavorably affected by fluctuations in the relative rates of exchange between the currencies of different nations (i.e., when the currency being exchanged has decreased in value relative to the currency being purchased). There are further risk considerations, including possible losses through the holding of securities in domestic and foreign custodial banks and depositories. An American Depositary Receipt ("ADR") is a negotiable certificate, usually issued by a U.S. bank, representing ownership of a specific number of shares in a non-U.S. corporation. ADRs are quoted and traded in U.S. dollars in the U.S. securities market. 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 Bond Portfolio may invest in European Depositary Receipts, which are receipts evidencing an arrangement with a European bank similar to that for ADRs and which are designed for use in the European securities markets. Furthermore, International Bond Portfolio may invest in Global Depositary Receipts, which are receipts evidencing an arrangement with a foreign bank similar to that for ADRs and which are designed for use in European and other foreign securities markets. European Depositary Receipts and Global Depositary Receipts are not necessarily denominated in the currency of the underlying security. 23 EMERGING/DEVELOPING MARKETS. The International Bond Portfolio may invest up to 100% of its total assets in emerging market countries. However, under current market conditions, it intends to invest no more than 50% of its total assets in emerging markets. Emerging market countries are (i) countries that are generally considered developing by the International Bank of Reconstruction and Development (commonly known as the World Bank) and the International Finance Corporation; or (ii) countries that are classified by the United Nations or otherwise regarded by their authorities as developing; or (iii) countries with a stock market capitalization of less than 3% of the Morgan Stanley Capital International World Index. Emerging market companies are (i) companies whose principal securities trading markets are in emerging market countries; or (ii) companies that derive 50% or more of their total revenue from either goods or services produced or sales made in emerging market countries; or (iii) companies that have 50% or more of their assets in emerging market countries; or (iv) companies that are linked to currencies of emerging market countries; or (v) companies that are organized under the laws of, or with principal offices in, emerging market countries. Investments in companies domiciled in developing countries may be subject to potentially higher risks than investments in developed countries. These risks include (i) less social, political and economic stability; (ii) the small current size of the markets for such securities and the currently low or nonexistent volume of trading, which result in a lack of liquidity and in greater price volatility; (iii) certain national policies which may restrict the Portfolio's investment opportunities, including restrictions on investment in issuers or industries deemed sensitive to national interests; (iv) foreign taxation; (v) the absence of developed legal structures governing private or foreign investment or allowing for judicial redress for injury to private property; (vi) the absence, until recently in many developing countries, of a capital market structure or market-oriented economy; and (vii) the possibility that recent favorable economic developments in some developing countries may be slowed or reversed by unanticipated political or social events in such countries. In addition, many of the countries in which the International Bond Portfolio may invest have experienced substantial, and during some periods, extremely high rates of inflation, for many years. Inflation and rapid fluctuations in inflation rates have had, and may continue to have, negative effects on the economies and securities markets of certain countries. Moreover, the economies of some developing countries may differ unfavorably from the U.S. economy in such respects as growth of gross domestic product, rate of inflation, currency depreciation, capital reinvestment, resource self-sufficiency and balance of payments position. The International Bond Portfolio may invest in Eastern European countries. Investments in developing countries may involve risks of nationalization, expropriation and confiscatory taxation. For example, the Communist governments of a number of Eastern European countries expropriated large amounts of private property in the past, in many cases without adequate compensation, and there can be no assurance that such expropriation will not occur in the future. In the event of expropriation, the Portfolio could lose a substantial portion of any investments it has made in the affected countries. Further, no accounting standards exist in certain developing countries. Finally, even though the currencies of some developing countries, such as certain Eastern European countries, may be convertible into U.S. dollars, the conversion rates may be artificial to the actual market values and may be adverse to the Portfolio's shareholders. FOREIGN BONDS. The International Bond Portfolio's investments in debt instruments may include U.S. and foreign government and corporate securities. These debt instruments may include Samurai bonds, Yankee bonds, Eurobonds and Global Bonds in order to gain exposure to investment capital in other countries in a certain currency. A Samurai bond is a yen-denominated bond issued in Tokyo by a non-Japanese company. Eurobonds are generally issued in bearer form, carry a fixed or floating rate of interest, and typically amortize principal through a bullet payment with semiannual interest payments in the currency in which the bond was issued. Yankee bonds are foreign bonds denominated in U.S. dollars and registered with the SEC for sale in the U.S. A Global Bond is a certificate representing the total debt of an issue. Such bonds are created to control the primary market distribution of an issue in compliance with selling restrictions in certain jurisdictions or because definitive bond certificates are not available. A Global Bond is also known as a Global Certificate. CURRENCY. If the International Bond Portfolio holds securities denominated in foreign currencies, changes in foreign currency exchange rates will affect the value of what the Portfolio owns and its share price. In addition, changes in foreign currency exchange rates will affect the Portfolio's income and distributions to shareholders. Some countries in which the Portfolio may invest also may have fixed or managed currencies that are not free-floating against the U.S. dollar. Certain currencies may not be internationally traded. To the extent that the managers intend to hedge currency risk, the International Bond Portfolio's management endeavors to buy and sell foreign currencies on as favorable a basis as practicable. Some price spread in currency exchange (to cover service charges) may be incurred, particularly when the Portfolio changes investments from one country to another or when proceeds of the sale of shares in U.S. dollars are used for the purchase of securities in foreign countries. Some countries may adopt policies that would prevent the Portfolio from transferring cash out of the country or withhold portions of interest and dividends at the source. The Portfolio may be affected either unfavorably or favorably by fluctuations in the relative rates of exchange between the currencies of different nations, by exchange control regulations and by indigenous economic and political developments. Some countries in which the Portfolio may invest may also have fixed or managed currencies that are not free-floating against the U.S. dollar. Further, certain currencies may not be internationally traded. Certain currencies have experienced a steady devaluation relative to the U.S. dollar. Any devaluations in the currencies in which the Portfolio's portfolio securities are denominated may have a detrimental impact on the Portfolio. Where the exchange rate for a currency declines materially after the Portfolio's income has been accrued and translated into U.S. dollars, the Portfolio may need to redeem portfolio securities to make required distributions. Similarly, if an exchange rate declines between the time the Portfolio incurs expenses in U.S. dollars and the time such expenses are paid, the Portfolio will have to convert a greater amount of the currency into U.S. dollars in order to pay the expenses. The exercise of this flexible policy may include decisions to buy securities with substantial risk characteristics and other decisions such as changing the emphasis on investments from one nation to another and from one type of security to another. Some of these decisions may later prove profitable and others may not. No assurance can be given that profits, if any, will exceed losses. 24 FOREIGN CURRENCY TRANSACTIONS For the purpose of hedging, efficient portfolio management, generating income and/or enhancement of returns, the International Bond Portfolio and the Real Estate Securities Portfolio may also, from time to time, enter into derivative currency transactions, such as forward contracts including currency forwards, cross currency forwards (each of which may result in net short currency exposures), financial and index futures contracts (including currency and currency index futures contracts) or options on currencies or such futures contracts. Such transactions could be effected with respect to hedges on non-U.S. dollar denominated securities owned by the Portfolio, sold by the Portfolio but not yet delivered, or committed or anticipated to be purchased by the Portfolio. The successful use of these transactions will usually depend on the manager's ability to forecast accurately currency exchange rate movements. Should exchange rates move in an unexpected manner, the Portfolio may not achieve the anticipated benefits of the transaction, or it may realize losses. In addition, these techniques could result in a loss if the counterparty to the transaction does not perform as promised. Moreover, investors should bear in mind that the Portfolio is not obligated to actively engage in these transactions; for example, the Portfolio may not have attempted to hedge its exposure to a particular foreign currency at a time when doing so might have avoided a loss. The International Bond Portfolio's investments in futures contracts and related options are subject to the derivative guidelines referred to under "Derivative Instruments" above. FORWARD FOREIGN CURRENCY CONTRACTS AND CROSS CURRENCY FORWARD CONTRACTS. A forward contract is an obligation to purchase or sell a specific currency or multinational currency unit for an agreed price at a future date, which is individually negotiated and privately traded by currency traders and their customers in the interbank market. The Portfolio may either accept or make delivery of the currency specified at the maturity of a forward contract or, prior to maturity, enter into a closing transaction involving the purchase or sale of an offsetting contract. Closing transactions with respect to forward contracts are usually affected with the counterparty to the original forward contract. The Portfolio may enter into a forward contract, for example, when it purchases or sells a security denominated in a foreign currency and desires to "lock in" the U.S. dollar price of the security. Thus, for example, when the Portfolio believes that a foreign currency may suffer a substantial decline against the U.S. dollar, it may enter into a forward contract to sell an amount of that foreign currency approximating the value of some or all of the Portfolio's portfolio securities denominated in such foreign currency. Similarly, when the Portfolio believes that the U.S. dollar may suffer a substantial decline against a foreign currency, it may enter into a forward contract to buy that foreign currency for a fixed dollar amount. The Portfolio may also purchase and sell forward contracts for efficient portfolio management purposes when the manager anticipates that the foreign currency will appreciate or depreciate in value. In addition, when the Portfolio believes that a foreign currency may experience a substantial movement against another foreign currency it may enter into a forward contract to buy or sell, as appropriate, an amount of the foreign currency either: a) approximating the value of some or all of its portfolio securities denominated in such foreign currency (this investment practice generally is referred to as "cross-hedging"); or b) necessary to derive a level of additional income or return that the Portfolio's manager seeks to achieve for the Portfolio. In connection with the Portfolio's forward contracts, an amount of its assets equal to the amount of the purchase will be segregated on the books of the Portfolio or its custodian to be used to pay for the commitment. Accordingly, at the time the Portfolio initially enters into a forward contract, it will have liquid assets available in an amount equal to 102% of the Portfolio's commitments under its forward contracts to limit any potential risk. These assets are marked-to-market daily and, if the asset coverage falls below 100% of the Portfolio's commitments, the Portfolio will increase the aggregate value of the assets to ensure that the assets are at least equal to 102% of the amount of the Portfolio's commitments under its forward contracts. The Portfolio may also cover any commitments under these contracts to sell currency by owning or acquiring the underlying currency (or an absolute right to acquire such currency). Although the Commodity Futures Trading Commission does not currently regulate these contracts, it may in the future assert such regulatory authority. In such event, the Portfolio's ability to utilize forward contracts in the manner set forth above may be restricted. Forward contracts may limit potential gain from a positive change in the relationship between the U.S. dollar and foreign currencies. Unanticipated changes in currency prices may result in poorer overall performance for the Portfolio than if it had not engaged in such contracts. Moreover, there may be an imperfect correlation between the Portfolio's portfolio holdings of securities denominated in a particular currency and forward contracts entered into by the Portfolio. This imperfect correlation may cause the Portfolio to sustain losses that will prevent the Portfolio from achieving a complete hedge or expose the Portfolio to risk of foreign exchange loss. The Portfolio generally will not enter into a forward contract with a term greater than one year. OPTIONS ON FOREIGN CURRENCIES. The Portfolio may purchase and write put and call options on foreign currencies. If used for hedging purposes, as is the case with other kinds of options, the writing of an option on foreign currency will constitute only a partial hedge up to the amount of the premium received, and the Portfolio could be required to purchase or sell foreign currencies at disadvantageous exchange rates, thereby incurring losses. The purchase of an option on foreign currency may constitute a more effective hedge against fluctuations in exchange rates, although, in the event of rate movements adverse to its position, the Portfolio may forfeit the entire amount of the premium paid plus related transaction costs. Options on foreign currencies to be written or purchased by the Portfolio will be traded on U.S. and foreign exchanges or over-the-counter. Over-the-counter forwards and related options may be considered illiquid securities and would be subject to the Portfolio's investment restriction with respect to illiquid securities. All options written by the Portfolio will be "covered." For more information about the mechanics of purchasing, writing and covering options, see "derivative instruments" above. FOREIGN CURRENCY AND CURRENCY INDEX FUTURES. The Portfolio may enter into exchange-traded contracts for the purchase or sale for future delivery of foreign currencies (foreign currency futures). A foreign currency futures contract is a standardized contract for the future delivery of a specified amount of currency at a future date at a price set at the time of the contract. The Portfolio may either accept or make delivery of the currency specified at the maturity of a currency futures contract or, prior to maturity, enter into a closing transaction involving the purchase or sale of an offsetting contract. Closing transactions with respect to currency futures contracts are effected on the exchange on which the contract was entered into (or on a linked exchange). The Portfolio may also enter into currency index futures contracts. Futures contracts on currency indices (a basket of currencies) provides for a cash payment upon settlement instead of physical delivery of a foreign currency. All futures in which the Portfolio participates may be subject to "margin" and coverage requirements. For more information about the mechanics of participating in futures, see "Futures Contracts and Options on Futures Contracts" above. The Portfolio may also enter into options on foreign currency and currency index futures. See "Futures Contracts and Options on Futures Contracts" above. 25 LOANS OF PORTFOLIO SECURITIES For the purpose of realizing additional income, to the extent specified in the Prospectus, certain Portfolios may make secured loans of Portfolio securities amounting to not more than one-third of their respective total assets (which, for purposes of this limitation, will include the value of collateral received in return for securities loaned). Collateral received in connection with securities lending shall not be considered Portfolio assets, however, for purposes of compliance with any requirement described in the Fund's prospectus that a Portfolio invest a specified minimum percentage of its assets in certain types of securities (e.g., securities of small companies). 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 from the borrower will consist of cash, letters of credit or securities issued or guaranteed by the U.S. Government, its agencies or instrumentalities. Cash collateral will be invested in securities consistent with the Portfolio's investment objectives, policies and restrictions and with other securities lending guidelines established by the Fund's Board of Directors. The cash collateral may be invested in securities which are subject to sub-prime mortgage risk. While the securities are being lent, the Portfolio will continue to receive the equivalent of the interest or dividends paid by the issuer on the securities, as well as interest on the investment of the collateral or a fee from the borrower. Although the Portfolio does not expect to pay commissions or other front-end fees (including finders fees) in connection with 26 loans of securities (but in some cases may do so), a portion of the additional income realized will be shared with the Portfolio's custodian for arranging and administering such loans. The Portfolio has a right to call each loan and obtain the securities on five business days' notice. The Portfolio will not have the right to vote securities while they are being lent, but it will call a loan in anticipation of any important vote. The risks in lending portfolio securities, as with other extensions of secured credit, consist of possible delay in receiving additional collateral or in the recovery of the securities or possible loss of rights in the collateral should the borrower fail financially. Loans will only be made to firms deemed by the Portfolio's investment adviser or sub-adviser, as the case may be, to be of good standing and to have sufficient financial responsibility, and will not be made unless, in the judgment of the Portfolio's investment adviser or sub-adviser, the consideration to be earned from such loans would justify the risk. The creditworthiness of entities to which the Portfolio makes loans of portfolio securities is monitored by the Portfolio's investment adviser or sub-adviser throughout the term of each loan. In addition, the investment of the cash collateral deposited by the borrower is subject to inherent market risks such as interest rate risk, credit risk, liquidity risk and other risks that are present in the market, and, as such, the value of these investments may not be sufficient, when liquidated, to repay the borrower when the loaned security is returned. This could result in losses incurred by the Portfolio. RESTRICTED AND ILLIQUID SECURITIES Each Portfolio may invest up to 15% (10% in the case of Money Market Portfolio) of its respective net assets in securities restricted as to disposition under the federal securities laws or otherwise, or other illiquid assets. An investment is generally deemed to be "illiquid" if it cannot be disposed of within seven days in the ordinary course of business at approximately the amount at which the investment company is valuing the investment. "Restricted securities" are securities which were originally sold in private placements and which have not been registered under the Securities Act of 1933 (the "1933 Act"). Such securities generally have been considered illiquid by the staff of the Securities and Exchange Commission (the "SEC"), since such securities may be resold only subject to statutory restrictions and delays or if registered under the 1933 Act. Because of such restrictions, the Portfolio may not be able to dispose of a block of restricted securities for a substantial period of time or at prices as favorable as those prevailing in the open market should like securities of an unrestricted class of the same issuer be freely traded. The Portfolio may be required to bear the expenses of registration of such restricted securities. The SEC has acknowledged, however, that a market exists for certain restricted securities (for example, securities qualifying for resale to certain "qualified institutional buyers" pursuant to Rule 144A under the 1933 Act). Additionally, the Portfolio's investment adviser and sub-adviser, as the case may be, believe that a similar market exists for commercial paper issued pursuant to the private placement exemption of Section 4(2) of the 1933 Act and for certain interest-only and principal-only classes of mortgage-backed and asset-backed securities. Each Portfolio may invest without limitation in these forms of restricted securities if such securities are deemed by the Portfolio's investment adviser or sub-adviser to be liquid in accordance with standards established by the Fund's Board of Directors. Under these guidelines, the Portfolio's 27 investment adviser or sub-adviser must consider: (a) the frequency of trades and quotes for the security, (b) the number of dealers willing to purchase or sell the security and the number of other potential purchasers, (c) dealer undertakings to make a market in the security, and (d) the nature of the security and the nature of the marketplace trades (for example, the time needed to dispose of the security, the method of soliciting offers and the mechanics of transfer). At the present time, it is not possible to predict with accuracy how the markets for certain restricted securities will develop. Investing in such restricted securities could have the effect of increasing the level of the Portfolio's illiquidity to the extent that qualified purchasers of the securities become, for a time, uninterested in purchasing these securities. If through the appreciation of restricted securities or the depreciation of unrestricted securities, the Portfolio is in a position where more than 15% (10% in the case of Money Market Portfolio) of its net assets are invested in restricted and other illiquid securities, the Portfolio will take appropriate steps to protect liquidity. WHEN-ISSUED SECURITIES AND FORWARD COMMITMENTS Bond Portfolio, Mortgage Securities Portfolio, International Bond Portfolio and Real Estate Securities Portfolio may each purchase securities offered on a "when-issued" basis and may purchase or sell securities on a "forward commitment" basis. When such transactions are negotiated, the price, which is generally expressed in yield terms, is fixed at the time the commitment is made, but delivery and payment for the securities takes place at a later date. Normally, the settlement date occurs within two months after the transaction, but delayed settlements beyond two months may be negotiated. During the period between a commitment to purchase by the Portfolio and settlement, no payment is made for the securities purchased by the Portfolio and, thus, no interest accrues to the Portfolio from the transaction. The use of when-issued transactions and forward commitments enables the Portfolio to hedge against anticipated changes in interest rates and prices. For instance, in periods of rising interest rates and falling prices, the Portfolio might sell securities in its portfolio on a forward commitment basis to limit its exposure to falling prices. In periods of falling interest rates and rising prices, the Portfolio might sell a security in its portfolio and purchase the same or a similar security on a when-issued or forward commitment basis, thereby fixing the purchase price to be paid on the settlement date at an amount below that to which the Portfolio anticipates the market price of such security to rise and, in the meantime, obtaining the benefit of investing the proceeds of the sale of its portfolio security at currently higher cash yields. Of course, the success of this strategy depends upon the ability of the Portfolio's investment adviser or sub-adviser to correctly anticipate increases and decreases in interest rates and prices of securities. If the Portfolio's investment adviser or sub-adviser anticipates a rise in interest rates and a decline in prices and, accordingly, the Portfolio sells securities on a forward commitment basis in order to hedge against falling prices, but in fact interest rates decline and prices rise, the Portfolio will have lost the opportunity to profit from the price increase. If the investment adviser or sub-adviser anticipates a decline in interest rates and a rise in prices, and, accordingly, the Portfolio sells a security in its portfolio and purchases the same or a similar security on a when-issued or forward commitment basis in order to enjoy currently high cash yields, but in fact interest rates increase and prices fall, the Portfolio will have lost the opportunity to profit from investment of the proceeds of the sale of the security at the increased interest rates. The likely effect of this 28 hedging strategy, whether the Portfolio's investment adviser or sub-adviser is correct or incorrect in its prediction of interest rate and price movements, is to reduce the chances of large capital gains or losses and thereby reduce the likelihood of wide variations in the Portfolio's net asset value. When-issued securities and forward commitments may be sold prior to the settlement date, but, except for mortgage dollar roll transactions (as discussed below), the Portfolio enters into when-issued and forward commitments only with the intention of actually receiving or delivering the securities, as the case may be. The Portfolio may hold a when-issued security or forward commitment until the settlement date, even if the Portfolio will incur a loss upon settlement. To facilitate transactions in when-issued securities and forward commitments, the Portfolio's custodian bank maintains, in a separate account of the Portfolio, liquid assets, such as cash, short-term securities and other liquid securities (marked to the market daily), having a value equal to, or greater than, any commitments to purchase securities on a when-issued or forward commitment basis and, with respect to forward commitments to sell portfolio securities of the Portfolio, the portfolio securities themselves. If the Portfolio, however, chooses to dispose of the right to acquire a when-issued security prior to its acquisition or dispose of its right to deliver or receive against a forward commitment, it can incur a gain or loss. (At the time the Portfolio makes the commitment to purchase or sell a security on a when-issued or forward commitment basis, it records the transaction and reflects the value of the security purchased or, if a sale, the proceeds to be received, in determining its net asset value.) The Portfolio may also enter into such transactions to generate incremental income. In some instances, the third-party seller of when-issued or forward commitment securities may determine prior to the settlement date that it will be unable or unwilling to meet its existing transaction commitments without borrowing securities. If advantageous from a yield perspective, the Portfolio may, in that event, agree to resell its purchase commitment to the third-party seller at the current market price on the date of sale and concurrently enter into another purchase commitment for such securities at a later date. As an inducement for the Portfolio to "roll over" its purchase commitment, the Portfolio may receive a negotiated fee. These transactions, referred to as "mortgage dollar rolls," are entered into without the intention of actually acquiring securities. For a description of mortgage dollar rolls and the Portfolios that may invest in such transactions, see "Mortgage Dollar Rolls" below. The purchase of securities on a when-issued or forward commitment basis exposes the Portfolio to risk because the securities may decrease in value prior to their delivery. Purchasing securities on a when-issued or forward commitment basis involves the additional risk that the return available in the market when the delivery takes place will be higher than that obtained in the transaction itself. The Portfolio's purchase of securities on a when-issued or forward commitment basis while remaining substantially fully invested increases the amount of the Portfolio's assets that are subject to market risk to an amount that is greater than the Portfolio's net asset value, which could result in increased volatility of the price of the Portfolio's shares. No more than 30% of the value of such Portfolio's 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. 29 MORTGAGE DOLLAR ROLLS In connection with its ability to purchase securities on a when-issued or forward commitment basis, Bond Portfolio, Mortgage Securities Portfolio and International Bond Portfolio may enter into mortgage "dollar rolls" in which the Portfolio sells securities for delivery in the current month and simultaneously contracts with the same counterparty to repurchase similar (same type, coupon and maturity) but not identical securities on a specified future date. In a mortgage dollar roll, the Portfolio gives up the right to receive principal and interest paid on the securities sold. However, the Portfolio would benefit to the extent of any difference between the price received for the securities sold and the lower forward price for the future purchase plus any fee income received. Unless such benefits exceed the income, capital appreciation and gain or loss due to mortgage prepayments that would have been realized on the securities sold as part of the mortgage dollar roll, the use of this technique will diminish the investment performance of the Portfolio compared with what such performance would have been without the use of mortgage dollar rolls. The Portfolio will hold and maintain in a segregated account until the settlement date cash or liquid securities in an amount equal to the forward purchase price. The benefits derived from the use of mortgage dollar rolls may depend upon the ability of the Portfolio's investment adviser or sub-adviser, as the case may be, to predict correctly mortgage prepayments and interest rates. There is no assurance that mortgage dollar rolls can be successfully employed. In addition, the use of mortgage dollar rolls by the Portfolio while remaining substantially fully invested increases the amount of the Portfolio's assets that are subject to market risk to an amount that is greater than the Portfolio's net asset value, which could result in increased volatility of the price of the Portfolio's shares. For financial reporting and tax purposes, mortgage dollar rolls are considered as two separate transactions: one involving the sale of a security and a separate transaction involving a purchase. The Portfolios do not currently intend to enter into mortgage dollar rolls that are accounted for as a "financing" rather than as a separate sale and purchase transactions. REAL ESTATE INVESTMENT TRUST SECURITIES The Real Estate Securities Portfolio may invest in real estate investment trust securities ("REIT"). A REIT is a corporation or a business trust that would otherwise be taxed as a corporation, which meets certain requirements of the Internal Revenue Code of 1986, as amended the "Code"). The Code permits a qualifying REIT to deduct dividends paid, thereby effectively eliminating corporate level federal income tax and making the REIT a pass-through vehicle for federal income tax purposes. In order to qualify as a REIT, a company must derive at least 75% of its gross income from real estate sources (rents, mortgage interest, and gains from sale of real estate assets), 75% of its assets must be in real estate, mortgages or REIT stock, and must distribute to shareholder annually 95% or more of its otherwise taxable income. REITs are sometimes informally characterized as equity REITs, mortgage REITs and hybrid REITS. An equity REIT invests primarily in the fee ownership or leasehold ownership of land and buildings and derives its income primarily from rental income. A mortgage REIT invests primarily in mortgages on real estate, and derives primarily from interest payments received on credit it has granted. A hybrid REIT combines the characteristics of equity REITs 30 and mortgage REITs. It is anticipated, although not required, that under normal circumstances, a majority of the Portfolio's investments in REITS will consist of equity REITs. REPURCHASE AGREEMENTS Each of the Portfolios may enter into repurchase agreements. Repurchase agreements are agreements by which the Portfolio 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 Portfolio has evaluated its creditworthiness through adoption of standards of review or otherwise, a securities dealer) to repurchase the security at an agreed upon price and date. The creditworthiness of entities with whom the Portfolio enters into repurchase agreements is monitored by the Portfolio's investment adviser or sub-adviser throughout the term of the repurchase agreement. The resale price is in excess of the purchase price and reflects an agreed upon market rate unrelated to the coupon rate on the purchased security. Such transactions afford the Portfolio the opportunity to earn a return on temporarily available cash. The Portfolio's custodian, or a duly appointed subcustodian, holds the securities underlying any repurchase agreement in a segregated account or such securities may be part of the Federal Reserve Book Entry System. The market value of the collateral underlying the repurchase agreement is determined on each business day. If at any time the market value of the collateral falls below the repurchase price of the repurchase agreement (including any accrued interest), the Portfolio promptly receives additional collateral, so that the total collateral is in an amount at least equal to the repurchase price plus accrued interest. While the underlying security may be a bill, certificate of indebtedness, note or bond issued by an agency, authority or instrumentality of the United States Government, the obligation of the seller is not guaranteed by the United States Government. In the event of a bankruptcy or other default of a seller of a repurchase agreement, the Portfolio could experience both delays in liquidating the underlying security and losses, including: (a) possible decline in the value of the underlying security during the period while the Portfolio seeks to enforce its rights thereto; (b) possible subnormal levels of income and lack of access to income during this period; and (c) expenses of enforcing its rights. REVERSE REPURCHASE AGREEMENTS Money Market Portfolio and International Bond Portfolio may also enter into reverse repurchase agreements. Reverse repurchase agreements are the counterparts of repurchase agreements, by which the Portfolio sells a security and agrees to repurchase the security from the buyer at an agreed upon price and future date. Because certain of the incidents of ownership of the security are retained by the Portfolio, reverse repurchase agreements may be considered a form of borrowing by the Portfolio from the buyer, collateralized by the security. The Portfolio uses the proceeds of a reverse repurchase agreement to purchase other money market securities either maturing, or under an agreement to resell, at a date simultaneous with or prior to the expiration of the reverse repurchase agreement. The Portfolio utilizes reverse repurchase agreements when the interest income to be earned from investment of the proceeds of the reverse repurchase transaction exceeds the interest expense of the transaction. 31 The use of reverse repurchase agreements by the Portfolio allows it to leverage its portfolio. While leveraging offers the potential for increased yield, it magnifies the risks associated with the Portfolio's investments and reduces the stability of the Portfolio's net asset value per share. To limit this risk, the Portfolio will not enter into a reverse repurchase agreement if all such transactions, together with any money borrowed, exceed 5% of the Portfolio's net assets. In addition, when entering into reverse repurchase agreements, the Portfolio will deposit and maintain in a segregated account with its custodian liquid assets, such as cash or cash equivalents and other appropriate short-term securities and high grade debt obligations, in an amount equal to the repurchase price (which shall include the interest expense of the transaction). Moreover, Money Market Portfolio will not enter into reverse repurchase agreements if and to the extent such transactions would, as determined by the Portfolio's investment adviser, materially increase the risk of a significant deviation in the Portfolio's net asset value per share. See "Net Asset Value" below. 32 WARRANTS Bond Portfolio, International Bond Portfolio and Real Estate Securities Portfolio may invest in warrants. 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 Portfolio or International Bond Portfolio will invest in common stocks or equity securities other than warrants, but it may retain for reasonable periods of time up to 5% of their respective total assets in common stocks acquired upon conversion of debt securities or preferred stocks or upon exercise of warrants. 33 SECURITIES OF OTHER INVESTMENT COMPANIES As permitted by the 1940 Act, and except as otherwise described below, a Portfolio may invest in securities issued by other investment companies, so that, as determined immediately after a securities purchase is made: (a) not more than 5% of the value of a Portfolio's total assets will be invested in the securities of any one investment company; (b) not more than 10% of the value of a Portfolio's total assets will be invested in the securities of investment companies as a group; and (c) not more than 3% of the outstanding voting stock of any one investment company will be owned by a Portfolio. A Portfolio may invest in securities of another investment company without regard to the foregoing limitations, provided the Portfolio satisfies the requirements of Rule 12d1-1 under the 1940 Act, including the requirements that the other investment company is a money market fund and that the Portfolio not pay any sales charge or service fee in connection with such investment. However, because the Money Market Portfolio is also regulated by Rule 2a-7 under the 1940 Act, the Money Market Portfolio may never invest more than 5% of its total assets in the securities of any one investment company, including a money market fund. A Portfolio's investment in another investment company may also be limited by other diversification requirements under the 1940 Act and the Internal Revenue Code. As a shareholder of another investment company, a Portfolio would bear, along with other shareholders, its pro rata portion of that company's expenses, including advisory fees. These expenses would be in addition to the advisory and other expenses that the Portfolio bears directly in connection with its own operations. Investment companies in which a Portfolio may invest may also impose a sales or distribution charge in connection with the purchase or redemption of their shares and other types of commissions or charges. Such charges will be payable by the Portfolio and, therefore, will be borne indirectly by shareholders. Exchange Traded Funds. The Portfolios may invest in investment companies in the form of various exchange traded funds ("ETFs"), subject to the Portfolio's investment objectives, policies and strategies as described in the Prospectus. ETFs are baskets of securities that, like stocks, trade on exchanges such as the American Stock Exchange and the New York Stock Exchange. ETFs are priced continuously and trade throughout the day. ETFs may track a securities index, a particular market sector, or a particular segment of a securities index or market sector. Some types of ETFs include: - "SPDRs" (S&P's Depositary Receipts), which are securities that represent ownership in a long-term unit investment trust that holds a portfolio of common stocks designed to track the performance of an S&P Index. Holders of SPDRs are entitled to receive proportionate quarterly cash distributions corresponding to the dividends that accrue to the stocks in the S&P Index's underlying investment portfolio, less any trust expenses. - "Qubes" (QQQ), which invest in the stocks of the Nasdaq 100 Index, a modified capitalization weighted index that includes the stocks of 100 of the largest and most actively traded non-financial companies quoted through Nasdaq. Qubes use a unit investment trust structure that allows immediate reinvestment of dividends. - "iShares" which are securities that represent ownership in a long-term unit investment trust that holds a portfolio of common stocks designed to track the performance of specific indexes. - "HOLDRs" (Holding Company Depositary Receipts), which are trust-issued receipts that represent beneficial ownership in a specified group of 20 or more stocks. Unlike other ETFs, a Portfolio can hold the group of stocks as one asset or unbundle the stocks and trade them separately, according to the Portfolio's investment strategies. ETFs can experience many of the same risks associated with individual stocks. ETFs are subject to market risk where the market as a whole, or that specific sector, may decline. ETFs that invest in volatile stock sectors, such as foreign issuers, smaller companies, or technology, are subject to the additional risks to which those sectors are subject. ETFs may trade at a discount to the aggregate value of the underlying securities. The underlying securities in an ETF may not follow the price movements of an entire industry, sector or index. Trading in an ETF may be halted if the trading in one or more of the ETF's underlying securities is halted. Although expense ratios for ETFs are generally low, frequent trading of ETFs by a Portfolio can generate brokerage expenses. Closed-End Investment Companies. To encourage indirect foreign investment in their capital markets, some countries, including South Korea, Chile and India, have permitted the creation of closed-end investment companies. Pursuant to the restrictions stated above, shares of certain closed-end investment companies may at times be acquired only at market prices representing premiums to their net asset values. If a Portfolio acquires shares of closed-end investment companies, shareholders would bear both their proportionate share of expenses of the Portfolio (including management and advisory fees) and, indirectly, the expenses of such closed-end investment company. SHORT SALES AGAINST THE BOX Each Portfolio may sell securities "short against the box"; provided that each Portfolio will not at the time of any short sales aggregate in total sales price more than 10% of its total assets. Whereas a short sale is the sale of a security the Portfolio does not own, a short sale is "against the box" if, at all times during which the short position is open, the Portfolio owns at least an equal amount of the securities sold short or other securities convertible into or exchangeable without further consideration for securities of the same issue as the securities sold short. Short sales against the box are typically used by sophisticated investors to defer recognition of capital gains or losses. The Portfolios have no present intention to sell securities short in this fashion. 34 DEFENSIVE PURPOSES Each Portfolio may invest up to 20% of its respective net assets in cash or cash items. In addition, for temporary or defensive purposes, the Portfolio may invest in cash or cash items without limitation. The "cash items" in which a Portfolio may invest for temporary or defensive purposes, include short-term obligations such as rated commercial paper and variable amount master demand notes; United States dollar-denominated time and savings deposits (including certificates of deposit); bankers' acceptances; obligations of the United States Government or its agencies or instrumentalities; repurchase agreements collateralized by eligible investments of a Portfolio; securities of other mutual funds which invest primarily in debt obligations with remaining maturities of 13 months or less (which investments also are subject to the advisory fee); unaffiliated or affiliated money market funds and investment companies (to the extent allowed by the 1940 Act or exemptions granted thereunder and the Portfolio's fundamental investment policies and restrictions); and other similar high-quality short-term United States dollar-denominated obligations. INVESTMENT RESTRICTIONS The Fund has adopted the following restrictions relating to the investment of the assets of the Portfolios. Each Portfolio is subject to certain "fundamental" investment restrictions which may not be changed without the affirmative vote of a majority of the outstanding voting securities of each Portfolio affected by the change. With respect to the submission of a change in an investment restriction to the holders of the Fund's outstanding voting securities, such matter shall be deemed to have been effectively acted upon with respect to a particular Portfolio if a majority of the outstanding voting securities of such Portfolio vote for the approval of such matter, notwithstanding (1) that such matter has not been approved by the holders of a majority of the outstanding voting securities of any other Portfolio affected by such matter, and (2) that such matter has not been approved by the vote of a majority of the outstanding voting securities of the Fund. For this purpose and under the Investment Company Act of 1940, a majority of the outstanding voting shares of each Portfolio means the lesser of (i) 67% of the voting shares represented at a meeting which more than 50% of the outstanding voting shares are represented or (ii) more than 50% of the outstanding voting shares. An investment restriction which is not fundamental may be changed by a vote of the Board of Directors without further shareholder approval. Except as otherwise noted, each of the investment restrictions below is fundamental. FUNDAMENTAL RESTRICTIONS 1. The Portfolios will not borrow money or issue senior securities except as permitted under the Investment Company Act of 1940, as amended, and as interpreted or modified from time to time by any regulatory authority having jurisdiction. 35 2. The Portfolios will not concentrate their investments in a particular industry, except that: (a) with respect to Money Market Portfolio, this limitation does not apply to investments in domestic banks; (b) under normal market conditions, Mortgage Securities Portfolio will concentrate its investments in the mortgage and mortgage-finance industry. Mortgage Securities Portfolio will not concentrate its investments in any other particular industry; (c) under normal market conditions, Real Estate Securities Portfolio will concentrate its investments in the real estate or real estate related industry. Real Estate Portfolio will not concentrate its investments in any other particular industry; (d) Index 500 Portfolio may concentrate its investments in a particular industry if the S&P 500 Index is so concentrated; and (e) Index 400 Mid-Cap Portfolio may concentrate its investments in a particular industry if the S&P 400 Mid-Cap Index is so concentrated. For purposes of this limitation, the U.S. Government, and state or municipal governments and their political subdivisions, are not considered members of any industry. Whether a Portfolio is concentrating in an industry shall be determined in accordance with the Investment Company Act of 1940, as amended, and as interpreted or modified from time to time by any regulatory authority having jurisdiction. 3. The Portfolios will not purchase or sell real estate unless acquired as a result of ownership of securities or other instruments, but this shall not prevent the Portfolios from investing in securities or other instruments backed by real estate investments therein or in securities of companies that deal in real estate or mortgages. 4. The Portfolios will not purchase physical commodities or contracts relating to physical commodities. 5. The Portfolios may not make loans except as permitted under the Investment Company Act of 1940, as amended, and as interpreted or modified from time to time by any regulatory authority having jurisdiction. 6. The Portfolios may not act as an underwriter of securities, except to the extent the Fund may be deemed to be an underwriter in connection with the disposition of Portfolio securities. NON-FUNDAMENTAL RESTRICTIONS The Fund has adopted a number of non-fundamental policies which appear below. 36 7. The Portfolios will not acquire any new securities while borrowings, including borrowings through reverse repurchase agreements, exceed 5% of total assets. 8. The Portfolios will use futures contracts and options on futures contracts only (a) for "bona fide hedging purposes" (as defined in regulations of the Commodity Futures Trading Commission) or (b) for other purposes so long as the aggregate initial margins and premiums required in connection with non-hedging positions do not exceed 5% of the liquidation value of the Portfolio. 9. The Portfolios may mortgage, pledge or hypothecate their assets only to secure permitted borrowings. Collateral arrangements with respect to futures contracts, options thereon and certain options transactions are not considered pledges for purposes of this limitation. 10. The Portfolios may not make short sales of securities, other than short sales "against the box," except that this policy does not prevent a Portfolio from entering into short positions in foreign currency, futures contracts, options, forward contracts, swaps, caps, floors, collars and other financial instruments for bona fide hedging or other risk management purposes (which may also have the effect of either lengthening or shortening the average duration of its portfolio of fixed income and other debt securities). 11. The Portfolios may not purchase securities on margin, but it may obtain such short-term credits as may be necessary for the clearance of securities transactions and it may make margin deposits in connection with futures contracts, options, forward contracts, swaps, caps, floors, collars and other financial instruments. 12. The Portfolios will not invest more than 15% (10% in the case of Money Market Portfolio) of their net assets in illiquid securities. 13. The total market value of securities against which a Portfolio may write call or put options will not exceed 20% of the Portfolios' total assets. In addition, a Portfolio will not commit more than 5% of its total assets to premiums when purchasing put or call options. If a percentage restriction described above or in the Fund's Prospectus is adhered to at the time of an investment, a later increase or decrease in the investment's percentage of the value of a Portfolio's total assets resulting from a change in such values or assets will not constitute a violation of the percentage restriction. For purposes of determining an industry "classification" for a particular security and calculating industry concentration percentages, the Fund will generally use the Standard Industry Classification ("SIC") Code assigned to such security by Bloomberg LP. However, the Fund's investment adviser may, in its discretion, override such SIC Code for a specific security when the adviser determines, based on the characteristics of such security and its issuer, that a different industry classification is more appropriate. ADDITIONAL RESTRICTIONS The Money Market Portfolio is subject to the investment restrictions of Rule 2a-7 under the Investment Company Act of 1940, as amended (the "1940 Act"), in addition to its other policies and restrictions discussed below. Pursuant to Rule 2a-7, the Fund is required to invest exclusively in securities that mature within 397 days from the date of purchase and to maintain an average weighted maturity of not more than 90 days. Rule 2a-7 also requires that all investments by the Portfolio be limited to United States dollar-denominated investments that (a) present "minimal credit risk" and (b) are at the time of acquisition "Eligible Securities." Eligible Securities include, among others, securities that are rated by two Nationally Recognized Statistical Rating Organizations ("NRSROs") in one of the two highest categories for short-term debt obligations, such as A-1 or A-2 by S&P, or Prime-1 or Prime-2 by Moody's. 37 Rule 2a-7 also requires, among other things, that the Money Market Portfolio may not invest, other than in U.S. "Government Securities" (as defined in the 1940 Act), (a) more than 5% of its total assets in Second Tier Securities (i.e., Eligible Securities that are not rated by two NRSROs in the highest category such as A-1 and Prime-1 and (b) more than the greater of 1% of its total assets or $1,000,000 in Second Tier Securities of any one issuer. The present practice is not to purchase any Second Tier Securities. In addition, the Portfolios are subject to and will comply with all other applicable restrictions in the Investment Company Act of 1940, the Internal Revenue Code, as amended, and regulations adopted thereunder. PORTFOLIO TURNOVER Portfolio turnover is the ratio of the lesser of annual purchases or sales of portfolio securities to the average monthly value of portfolio securities, not including short-term securities. A 100% portfolio turnover rate would occur, for example, if the lesser of the value of purchases or sales of portfolio securities for a particular year were equal to the average monthly value of the portfolio securities owned during such year. Each Portfolio has a different expected annual rate of portfolio turnover. A high rate of turnover in a Portfolio generally involves correspondingly greater brokerage commission expenses, which must be borne directly by the Portfolio. Turnover rates may vary greatly from year to year and within a particular year and may also be affected by cash requirements for redemptions of each Portfolio's shares and by requirements which enable the Fund to receive favorable tax treatment. The portfolio turnover rates associated with each Portfolio will, of course, be affected by the level of purchases and redemptions of shares of each Portfolio. However, because rate of portfolio turnover is not a limiting factor, particular holdings may be sold at any time, if in the opinion of Advantus Capital or a Portfolio's sub-adviser such a sale is advisable. The Money Market Portfolio, consistent with its investment objective, will attempt to maximize yield through trading. This may involve selling instruments and purchasing different instruments to take advantage of disparities of yields in different segments of the high grade money market or among particular instruments within the same segment of the market. Since the Portfolio's assets will be invested in securities with short maturities and the Portfolio will manage its assets as described above, the Portfolio's holdings of money market instruments will turn over several times a year. However, this does not generally increase the Portfolio's brokerage costs, since brokerage commissions as such are not usually paid in connection with the purchase or sale of the instruments in which the Portfolio invests since such securities will be purchased on a net basis. For each of the last three calendar years, the portfolio turnover rates for the various Portfolios were as follows: 38
Portfolio Turnover Rate ----------------------- Portfolio 2008 2007 2006 --------- ----- ----- ----- Bond 229.6% 89.6% 90.2% Index 400 Mid-Cap 24.0 22.8 15.5 Index 500 4.6 3.5 3.6 International Bond 103.8 139.3 225.7 Money Market N/A N/A N/A Mortgage Securities 127.5 87.8 89.4 Real Estate Securities 43.6 37.3 39.7
DIRECTORS AND EXECUTIVE OFFICERS Under Minnesota law, the Board of Directors of the Fund has overall responsibility for managing the Fund in good faith and in a manner reasonably believed to be in the best interests of the Fund. The directors meet periodically throughout the year to oversee the Fund's activities, review contractual arrangements with companies that provide services to the Fund, and review the performance of the Fund and its Portfolios. Certain of the directors are considered "interested persons" (as defined in the Investment Company Act of 1940) of the Fund primarily by reason of their engagement as officers of the Fund's investment adviser, Advantus Capital Management, Inc. ("Advantus Capital"), or as officers of companies affiliated with Advantus Capital, including Minnesota Life Insurance Company ("Minnesota Life"). The remaining directors, because they are not interested persons of the Fund, are considered independent ("Independent Directors") and are not employees or officers of, and have no financial interest in, Advantus Capital, Minnesota Life or their other affiliates. A majority (75%) of the Board of Directors is comprised of Independent Directors. Only executive officers and other officers who perform policy-making functions with the Fund are listed. None of the directors is a director of any public company (a company required to file reports under the Securities Exchange Act of 39 1934) or of any registered investment companies other than the Advantus Funds. Each director serves for an indefinite term, until his or her resignation, death or removal.
Position with Fund Name, Address(1) and Length of Principal Occupation(s) and Year of Birth Time Served During Past 5 Years ------------------------------------------------------------------------------------------------------------------------------------ ------------------------------------------------------------------------------------------------------------------- Independent Directors ------------------------------------------------------------------------------------------------------------------- Linda L. Henderson Director since Retired; Professional Advisor, Carlson School of 1949 January 25, 2007 Management, University of Minnesota, 2004 to May 2007; Senior Vice President, Director of Fixed Income Research and Strategies, RBC Dain Rauscher Investments, 1985 to 2004; Chartered Financial Analyst
40
William C. Melton Director since Founder and President of Melton 1947 April 25, 2002 Research Inc. since 1997; member of the Advisory Board of Macroeconomic Advisors LLC since 1998; member, Minneapolis StarTribune Board of Economists since 1986; member, State of Minnesota Council of Economic Advisors from 1988 to 1994; various senior positions at American Express Financial Advisors (formerly Investors Diversified Services and, thereafter, IDS/American Express) from 1982 through 1997, including Chief Economist and, thereafter, Chief International Economist Dorothy J. Bridges Director since President, Chief Executive Officer and Director, City First Bank 1955 December 28, 2004 of DC since September 2008; Chairman, Community Bankers Council of the American Bankers Association; Vice Chair, Northwest Area Foundation Board of Directors since 2002; President and Chief Executive Officer, Franklin National Bank of Minneapolis from 1999 to August 2008; member, Franklin National Bancorporation from 1999 to August 2008; member, Federal Reserve Bank's Consumer Advisory Council from 2006 to October 2008; Director, Federal Reserve Bank of Minneapolis from 2007 to September 2008 ------------------------------------------------------------------------------------------------------------------- Other Executive Officers(2) ------------------------------------------------------------------------------------------------------------------- Gregory S. Strong President since Retired since December 2008; previously Senior Vice President, 1944 April 25, 2007 Chief Actuary and Treasurer, Minnesota Life Insurance Company; Treasurer, Minnesota Mutual Companies, Inc.; Senior Vice President and Treasurer, Securian Financial Group, Inc.; Treasurer, Securian Holding Company; Gary M. Kleist Vice President and Financial Vice President and Director, Advantus Capital 1959 Treasurer since Management, Inc.; Second Vice President, Minnesota Life July 24, 2003 Insurance Company; Vice President and Secretary/Treasurer, MIMLIC Funding, Inc. (entity holding legal title to bonds beneficially owned by certain clients of Advantus Capital); Financial Vice President, MCM Funding 1997-1, Inc. and MCM Funding 1998-1, Inc. (entities holding legal title to mortgages beneficially owned by certain clients of Advantus Capital); Second Vice President, Securian Financial Group, Inc.; Second Vice President, Securian Life Insurance Company Michael J. Radmer Secretary since Partner with the law firm of Dorsey & Whitney LLP April 16, 1998 Dorsey & Whitney LLP 50 South Sixth Street Minneapolis, Minnesota 55402 1945
(1) Unless otherwise noted, the address of each director and officer is the address of the Fund: 400 Robert Street North, St. Paul, Minnesota 55101. (2) Although not a "corporate" officer of the Fund, Vicki L. Bailey, born in 1955, has served as the Fund's Chief Compliance Officer since July 2004. Ms. Bailey is also Vice President, Investment Law, Chief Compliance Officer and Secretary, Advantus Capital Management, Inc.; Vice President, Investment Law and Advantus Compliance Officer, Minnesota Life Insurance Company; Vice President and Secretary, MCM Funding 1997-1, Inc. and MCM Funding 1998-1, Inc. (entities holding legal title to mortgages beneficially owned by certain clients of Advantus Capital); Vice President, Securian Financial Group, Inc.; Vice President, Securian Life Insurance Company; Director, Personal Finance Company LLC. The Fund has both an Audit Committee and a Governance Committee of the Board of Directors, the members of which are all directors who are not "interested persons" of the Fund. Ms. Bridges, Ms. Henderson and Mr. Melton comprise the members of both committees. The Audit Committee, which has adopted and operates in accordance with a separate Audit Committee Charter, has as its purposes (a) to oversee the accounting and financial reporting processes of the Fund and each of its series and its internal control over financial reporting and, as the Committee deems appropriate, to inquire into the internal control over financial reporting of certain third-party service providers; (b) to oversee, or, as appropriate, assist Board oversight of, the quality and integrity of the Fund's financial statements and the independent audit thereof; (c) to oversee, or, as appropriate, assist Board oversight of, the Fund's compliance with legal and regulatory requirements that relate to the Fund's accounting and financial reporting, internal control over financial reporting and independent audits; (d) to approve prior to appointment the engagement of the Fund's independent auditors and, in connection therewith, to review and evaluate the qualifications, independence and performance of the Fund's independent auditors; (e) to act as a liaison between the Fund's independent auditors and the full Board; and (f) to assist Board oversight of the Fund's internal audit function (if any). The Audit Committee met two (2) times during the fiscal year ended December 31, 2008. The Governance Committee, which operates in accordance with a separate Governance Committee Charter approved by the Board of Directors, selects and recommends to the Board of Directors individuals for nomination as Independent Directors, annually reviews the independence of the Independent Directors, reviews the composition of the Board of Directors, the Board's committee structure and each Committee's Charter, develops proposals regarding director education, reviews director compensation and expenses, and at least annually conducts a self assessment of the adequacy, effectiveness and adherence to industry "best practices" of the Fund's governance structures and practices. The names of potential Independent Director candidates are drawn from a number of sources, including recommendations from management of Advantus Capital. Inasmuch as the Fund does not hold annual meetings of shareholders and meetings of shareholders occur only intermittently, the Governance Committee does not at present consider nominees recommended by shareholders. The Governance Committee held two (2) meetings during the fiscal year ended December 31, 2008. 41 The Directors beneficially owned shares in the Fund, in the following dollar ranges as of December 31, 2008:
Dollar Range of Equity Securities Name of Director in the Fund* ---------------- ------------ Dorothy J. Bridges None Linda L. Henderson None William C. Melton None
* The Fund's shares are currently sold only to separate accounts of Minnesota Life and certain other life insurance companies. Directors who own Contracts issued by those companies are the beneficial owners of the shares of the Fund attributable to such Contracts. Legal fees and expenses are paid to the law firm of which Michael J. Radmer is a partner. No compensation is paid by the Fund to any of its officers or directors who is affiliated with Advantus Capital. The Fund does, however, pay compensation to its Chief Compliance Officer, who is not a corporate officer of the Fund but is affiliated with Advantus Capital. Directors who are not affiliated with Advantus Capital receive compensation in connection with the Fund equal to $8,000 per year plus $3,000 per board meeting and $2,000 per committee meeting attended (and reimbursement of travel expenses to attend directors' meetings), except for telephone board or committee meetings of less than two hours duration for which they receive $1,000 per meeting. During the fiscal year ended December 31, 2008, each Director not affiliated with Advantus Capital was compensated by the Fund in accordance with the following table:
Pension or Retirement Aggregate Benefits Estimated Compensation Accrued as Annual from Part of Fund Benefits Upon Name of Director the Fund Expenses Retirement ---------------- -------- -------- ---------- Dorothy J. Bridges $ 25,000 n/a n/a William C. Melton $ 25,000 n/a n/a Linda L. Henderson $ 25,000 n/a n/a
42 DIRECTOR LIABILITY Under Minnesota law, the Board of Directors of the Fund owes certain fiduciary duties to the Fund and to its shareholders. Minnesota law provides that a director "shall discharge the duties of the position of director in good faith, in a manner the director reasonably believes to be in the best interest of the corporation, and with the care an ordinarily prudent person in a like position would exercise under similar circumstances." Fiduciary duties of a director of a Minnesota corporation include, therefore, both a duty of "loyalty" (to act in good faith and act in a manner reasonably believed to be in the best interests of the corporation) and a duty of "care" (to act with the care an ordinarily prudent person in a like position would exercise under similar circumstances). Minnesota law also authorizes corporations to eliminate or limit the personal liability of a director to the corporation or its shareholders for monetary damages for breach of the fiduciary duty of "care." Minnesota law does not, however, permit a corporation to eliminate or limit the liability of a director (i) for any breach of the directors' duty of "loyalty" to the corporation or its shareholders, (ii) for acts or omissions not in good faith or that involve intentional misconduct or a knowing violation of law, (iii) for authorizing a dividend, stock repurchase or redemption or other distribution in violation of Minnesota law or for violation of certain provisions of Minnesota securities laws, or (iv) for any transaction from which the director derived an improper personal benefit. The Articles of Incorporation of the Fund limit the liability of directors to the fullest extent permitted by Minnesota statutes, except to the extent that such liability cannot be limited as provided in the Investment Company Act of 1940 (which prohibits any provisions which purport to limit the liability of directors arising from such directors' willful misfeasance, bad faith, gross negligence or reckless disregard of the duties involved in the conduct of their role as directors). Minnesota law does not eliminate the duty of "care" imposed upon a director. It only authorizes a corporation to eliminate monetary liability for violations of that duty. Minnesota law, further, does not permit elimination or limitation of liability of "officers" to the corporation for breach of their duties as officers (including the liability of directors who serve as officers for breach of their duties as officers). Minnesota law does not permit elimination or limitation of the availability of equitable relief, such as injunctive or recessionary relief. Further, Minnesota law does not permit elimination or limitation of a director's liability under the Securities Act of 1933 or the Securities Exchange Act of 1934, and it is uncertain whether and to what extent the elimination of monetary liability would extend to violations of duties imposed on directors by the Investment Company Act of 1940 and the rules and regulations adopted under such Act. INVESTMENT ADVISORY AND OTHER SERVICES GENERAL Advantus Capital Management, Inc. ("Advantus Capital") has been the investment adviser and manager of the Fund and Bond Portfolio, Money Market Portfolio, Mortgage Securities Portfolio, Index 500 Portfolio, International Bond Portfolio, Index 400 Mid-Cap Portfolio and Real Estate Securities Portfolio since May 1, 1997. Securian Financial Services, Inc. ("Securian Financial") acts as the Fund's underwriter. Both Advantus Capital and Securian 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 Securian Financial is 400 Robert Street North, St. Paul, Minnesota 55101. 43 The Fund and Advantus Capital have obtained an exemptive order from the Securities and Exchange Commission which permits Advantus Capital to employ a "manager of managers" strategy in connection with its management of the Fund. The exemptive order permits Advantus Capital, subject to certain conditions, to select new investment sub-advisers with the approval of the Fund's Board of Directors, but without obtaining shareholder approval. The order also permits Advantus Capital to change the terms of agreements with the investment sub-advisers or continue the employment of an investment sub-adviser after an event which would otherwise cause the automatic termination of services. Shareholders would be notified of any investment sub-adviser changes. Shareholders have the right to terminate arrangements with an investment sub-adviser by vote of a majority of the outstanding shares of a Portfolio. In the case of a Portfolio which employs more than one investment sub-adviser, the order also permits the Fund to disclose such investment sub-advisers' fees only in the aggregate in its registration statement. Advantus Capital has the ultimate responsibility for the investment performance of each Portfolio employing investment sub-advisers due to its responsibility to oversee the investment sub-advisers and recommend their hiring, termination and replacement. Franklin serves as investment sub-adviser to the Fund's International Bond Portfolio, pursuant to an investment sub-advisory agreement with Advantus Capital, which was initially approved by the Fund's Board of Directors on October 25, 2007 and became effective on January 1, 2008. Prior to January 1, 2008, the sub-adviser was Augustus Asset Managers Limited. Franklin is a wholly owned subsidiary of Franklin Resources, Inc., a publicly owned company engaged in the financial services industry through its subsidiaries. Charles B. Johnson and Rupert H. Johnson, Jr., are the principal shareholders of Franklin Resources, Inc. CONTROL AND MANAGEMENT OF ADVANTUS CAPITAL AND SECURIAN FINANCIAL Advantus Capital was incorporated in Minnesota in June 1994, and is an affiliate of Minnesota Life Insurance Company ("Minnesota Life"). Effective October 1, 1998, The Minnesota Mutual Life Insurance Company reorganized by forming a mutual insurance holding company named "Minnesota Mutual Companies, Inc." The Minnesota Mutual Life Insurance Company continued its corporate existence following conversion to a Minnesota stock life insurance company named "Minnesota Life Insurance Company". All of the shares of the voting stock of Minnesota Life are owned by a second tier intermediate stock holding company named "Securian Financial Group, Inc.", which in turn is a wholly-owned subsidiary of a first tier intermediate stock holding company named "Securian Holding Company", which in turn is a wholly-owned subsidiary of the ultimate parent, Minnesota Mutual Companies, Inc. Advantus Capital and Securian Financial are also wholly-owned subsidiaries of Securian Financial Group, Inc. 44 Gregory S. Strong, President of the Fund, was formerly Senior Vice President and Treasurer of Minnesota Life and Securian Financial Group, Inc., having retired from those positions effective December 31, 2008. Gary M. Kleist, Vice President and Treasurer of the Fund, is Financial Vice President and Director of Advantus Capital. Vicki L. Bailey, Chief Compliance Officer of the Fund, is Vice President, Investment Law, Chief Compliance Officer and Secretary of Advantus Capital. Robert L. Senkler, President of Advantus Capital, is Chairman, President and Chief Executive Officer of Minnesota Life and Securian Financial Group, Inc. THE FUND'S INVESTMENT ADVISORY AGREEMENT WITH ADVANTUS CAPITAL Advantus Capital acts as investment adviser and manager of the Bond Portfolio, Money Market Portfolio, Mortgage Securities Portfolio, Index 500 Portfolio, International Bond Portfolio, Index 400 Mid-Cap Portfolio and Real Estate Securities Portfolio under an Investment Advisory Agreement dated May 1, 2000, and amended with respect to certain of the fees set forth on Schedule A thereto on December 28, 2004 (the "Investment Advisory Agreement"), which originally became effective on May 1, 2000 after it was approved by shareholders on April 17, 2000. Schedule A to the Investment Advisory Agreement, as amended, was approved by shareholders of the Bond, Index 400 Mid-Cap, Index 500, Money Market, Mortgage Securities and Real Estate Securities Portfolios on December 28, 2004 and became effective on January 1, 2005. The Investment Advisory Agreement was last approved by the Board of Directors of the Fund (including a majority of the directors who are not parties to the contract, or interested persons of any such party) on January 28, 2009. Prior to May 1, 1997, the Fund obtained advisory services from MIMLIC Asset Management Company ("MIMLIC Management"), formerly the parent company of Advantus Capital. Advantus Capital commenced its business in June 1994. The Investment Advisory Agreement, will terminate automatically in the event of assignment. In addition, the Investment Advisory Agreement is terminable at any time, without penalty, by the Board of Directors of the Fund or by vote of a majority of the Fund's outstanding voting securities on 60 days' written notice to Advantus Capital, and by Advantus Capital on 60 days' written notice to the Fund. Unless sooner terminated, the Investment Advisory Agreement shall continue in effect for more than two years after its execution only so long as such continuance is specifically approved at least annually either by the Board of Directors of the Fund or by a vote of a majority of the outstanding voting securities, provided that in either event such continuance is also approved by the vote of a majority of the directors who are not interested persons of any party to the Investment Advisory Agreement, cast in person at a meeting called for the purpose of voting on such approval. The required shareholder approval of any continuance of the Investment Advisory Agreement shall be effective with respect to any Portfolio if a majority of the outstanding voting securities of the class of capital stock of that Portfolio votes to approve such continuance, notwithstanding that such continuance may not have been approved by a majority of the outstanding voting securities of the Fund. If the shareholders of a class of capital stock of any Portfolio subject to the Investment Advisory Agreement fail to approve any continuance of the Investment Advisory Agreement, Advantus Capital will continue to act as investment adviser with respect to such Portfolio pending the required approval of its continuance, or a new contract with Advantus Capital or a different investment adviser or other definitive action; provided that the compensation received by Advantus Capital in respect of such Portfolio during such period will be no more than its actual costs incurred in furnishing investment advisory and management services to such Portfolio or the amount it would have received under the Investment Advisory Agreement in respect of such Portfolio, whichever is less. The Investment Advisory Agreement may be amended by the parties only if such amendment is specifically approved by the vote of a majority of the outstanding voting securities of the Fund and by the vote of a majority of the directors of the Fund who are not interested persons of any party to the Investment Advisory Agreement cast in person at a meeting called for the purpose of voting on such approval. The required shareholder approval shall be effective with respect to any Portfolio if a majority of the outstanding voting securities of the class of capital stock of that Portfolio vote to approve the amendment, notwithstanding that the 45 amendment may not have been approved by a majority of the outstanding voting securities of the Fund. THE FUND'S INVESTMENT ADVISORY FEES Pursuant to the investment advisory agreement, each Portfolio pays its Adviser an advisory fee equal on an annual basis to a percentage of the Portfolio's average daily net assets as set forth in the following table, effective January 1, 2005:
Advisory Fee (as a percentage of Portfolio average daily net assets) --------- ------------------------- Bond Portfolio 0.40% of assets to $1 billion; and 0.35% of assets exceeding $1 billion Index 400 Mid-Cap Portfolio 0.15% of assets to $1 billion; and 0.10% of assets exceeding $1 billion; Index 500 Portfolio 0.15% of assets to $1 billion; and 0.10% of assets exceeding $1 billion; International Bond Portfolio 0.60% of assets to $1 billion; and 0.55% of assets exceeding $1 billion Money Market Portfolio 0.30% of assets to $1 billion; and 0.25% of assets exceeding $1 billion Mortgage Securities Portfolio 0.40% of assets to $1 billion; and 0.35% of assets exceeding $1 billion Real Estate Securities Portfolio 0.70% of assets to $1 billion; and 0.65% of assets exceeding $1 billion
The fees paid by the Portfolios during the fiscal years ended December 31, 2008, 2007 and 2006 were as follows:
Advisory Fees Paid -------------------------------- Portfolio 2008 2007 2006 --------- ---------- ---------- ---------- Bond Portfolio $1,539,680 $1,543,370 $1,393,978 Index 400 Mid-Cap Portfolio 221,411 242,740 203,110 Index 500 Portfolio 772,189 992,264 967,756 International Bond Portfolio 565,888 422,616 393,729 Money Market Portfolio 418,426 362,977 310,681 Mortgage Securities Portfolio 657,322 764,673 767,760 Real Estate Securities Portfolio 720,281 977,845 894,242
46 Under the investment advisory agreement, the Adviser furnishes the Fund office space and all necessary office facilities, equipment and personnel for servicing the investments of the Fund. The Fund pays all its costs and expenses which are not assumed by the Adviser. These Fund expenses include, by way of example, but not by way of limitation, all expenses incurred in the operation of the Fund including, among others, interest, taxes, brokerage fees and commissions, fees of the directors who are not employees of the Adviser or any of its affiliates, compensation paid to the Fund's Chief Compliance Officer, expenses of directors' and shareholders' meetings, including the cost of printing and mailing proxies, expenses of insurance premiums for fidelity and other coverage, association membership dues, charges of custodians, auditing and legal expenses. The Fund will also pay the fees and bear the expense of registering and maintaining the registration of the Fund and its shares with the Securities and Exchange Commission and registering or qualifying its shares under state or other securities laws and the expense of preparing and mailing prospectuses and reports to shareholders. Securian Financial shall bear all advertising and promotional expenses in connection with the distribution of the Fund's shares, including paying for the printing of Prospectuses and Statements of Additional Information for new shareholders and the costs of sales literature. Each Portfolio will bear all expenses that may be incurred with respect to its individual operation, including but not limited to transaction expenses, advisory fees, Rule 12b-1 fees, brokerage, interest, taxes, license fees, certain fund accounting expenses and the charges of the custodian. The Fund will pay all other expenses not attributable to a specific Portfolio, but some of such expenses will be allocated equally among the Portfolios, and others will be allocated on the basis of "time and effort," unless otherwise allocated by the Board of Directors of the Fund. MONEY MARKET PORTFOLIO - NET INVESTMENT INCOME MAINTENANCE AGREEMENT Effective February 1, 2009, the Board of Directors of the Fund approved a Net Investment Income Maintenance Agreement among the Fund (on behalf of the Money Market Portfolio), Advantus Capital Management, Inc. ("Advantus Capital"), and Securian Financial Services, Inc. ("Securian Financial"). Under such Agreement, Advantus Capital agrees to waive, reimburse or pay Money Market Portfolio expenses so that the Portfolio's daily net investment income does not fall below zero. Securian Financial may waive its Rule 12b-1 fees. The amount waived, reimbursed or paid by Advantus Capital and/or Securian Financial, is an obligation of the Money Market Portfolio, and is payable to Advantus Capital and/or Securian Financial on any day on which the Portfolio's net investment income exceeds zero. However, the right of Advantus Capital and/or Securian Financial to receive such payments is subject to the following limitations: (1) the right to recover expenses expires three years after the date it effected such waiver, reimbursement or payment, and (2) any expense recovery paid by the Portfolio cannot cause its expense ratio to exceed 1.25%. This ability of Advantus Capital and/or Securian Financial to receive such payments could negatively affect the Money Market Portfolio's future yield. SUB-ADVISER - FRANKLIN Franklin has been retained under an investment sub-advisory agreement to provide investment advice and, in general, to conduct the management investment program for the International Bond Portfolio, subject to the general control of the Board of Directors of the Fund. Franklin and its affiliates manage numerous other investment companies and accounts. One of such publicly registered investment companies - Templeton Global Bond Fund - has investment policies and strategies generally similar to those of the International Bond Portfolio. Franklin may give advice and take action with respect to any of the other funds it manages, or for its own account, that may differ from action taken by the manager on behalf of the International Bond Portfolio. Similarly, with respect to the International Bond Portfolio, Franklin is not obligated to recommend, buy or sell, or to refrain from recommending, buying or selling any security that it and access persons, as defined by applicable federal securities laws, may buy or sell for its or their own account or for the accounts of any other fund. Franklin is not obligated to refrain from investing in securities held by the International Bond Portfolio or other funds it manages. Because the manager is a subsidiary of a financial holding company (FHC) under the Gramm-Leach-Bliley Act of 1999, federal regulations applicable to FHCs may limit or restrict the International Bond Portfolio's ability to acquire or hold a position in a given security when it might otherwise be advantageous for it to acquire or hold that security. INTERNATIONAL BOND PORTFOLIO INVESTMENT SUB-ADVISORY AGREEMENT - FRANKLIN Franklin acts as investment sub-adviser to the Fund's International Bond Portfolio under an Investment Sub-Advisory Agreement (the "Franklin Agreement") with Advantus Capital dated January 1, 2008, which became effective the same date. Prior to January 1, 2008, Augustus Asset Managers Limited served as investment sub-adviser to the International Bond Portfolio. The Franklin Agreement will terminate automatically upon the termination of the Investment Advisory Agreement and in the event of its assignment. In addition, the Franklin Agreement is terminable at any time, without penalty, by the Board of Directors of the Fund, by Advantus Capital or by vote of a majority of the International Bond Portfolio's outstanding voting securities on 60 days' written notice to Franklin and by Franklin on 60 days' written notice to Advantus Capital. Unless sooner terminated, the Franklin Agreement shall continue in effect from year to year if approved at least annually either by the Board of Directors of the Fund or by a vote of a majority of the outstanding voting securities of the International Bond Portfolio, provided that in either event such continuance is also approved by the vote of a majority of the Directors who are not interested persons of any party to the Franklin Agreement, cast in person at a meeting called for the purpose of voting on such approval. The Franklin Agreement was last approved by the Board of Directors of the Fund (including a majority of the directors who are not parties to the contract or interested persons of any such party) on January 28, 2009. From the advisory fee received from International Bond Portfolio, Advantus Capital pays Franklin a sub-advisory fee equal to .37% of International Bond Portfolio's average daily net assets. BASIS OF ANNUAL APPROVAL OF ADVISORY AND SUB-ADVISORY AGREEMENTS A discussion regarding the basis of the approval by the Fund's Board of Directors, in January 2008, of the Investment Advisory Agreement with Advantus Capital and the Franklin Agreement is available in the Semiannual Report to Shareholders for the period ended June 30, 2008. An updated discussion regarding the most recent such approval by the Fund's Board of Directors of the Investment Advisory Agreement with Advantus Capital and the Franklin Agreement, on January 28, 2009, will be available in the Semiannual Report to Shareholders for the period ending June 30, 2009. INFORMATION REGARDING FUND PORTFOLIO MANAGERS - ADVANTUS CAPITAL Other Accounts Managed. For each of the Fund's Portfolios (except the International Bond Portfolio), the table below lists the number of other accounts managed by each portfolio manager within each of the following categories and the total assets in the accounts managed within each category as of December 31, 2008: (i) registered investment companies ("RICs"), (ii) other pooled investment vehicles, and (iii) other accounts. Except as noted below, none of the accounts identified in any category pays an advisory fee based on the performance of the account. 47
NUMBER OF TOTAL ASSETS PORTFOLIO MANAGER TYPE OF ACCOUNT ACCOUNTS (in millions) ----------------- --------------- --------- ------------ Joseph R. Betlej RICs 4 359 Pooled Investment Vehicles 0 22 Other Accounts 1 61 Lowell R. Bolken RICs 4 359 Pooled Investment Vehicles 0 22 Other Accounts 1 61 Thomas B. Houghton RICs 3 606 Pooled Investment Vehicles 2 772 Other Accounts 13 1,482 David W. Land RICs 6 803 Pooled Investment Vehicles 1 195 Other Accounts 10 1,462 Christopher R. Sebald RICs 6 953 Pooled Investment Vehicles 2 772 Other Accounts 16 1,739 James P. Seifert RICs 2 484 Pooled Investment Vehicles 4 445 Other Accounts 0 0
CONFLICTS OF INTEREST. In the judgment of the Fund's investment adviser, no material conflicts of interest are likely to arise in connection with a portfolio manager's management of a Fund Portfolio on the one hand and the management of any account identified above on the other. All portfolio managers must manage assets in their personal accounts in accordance with Advantus Capital's and the Fund's code of ethics. The Fund Portfolio and all other accounts managed by a portfolio manager in a similar style are managed subject to substantially similar investment restrictions and guidelines, and therefore no conflict of interest is likely to arise due to material differences in investment strategy. Advantus Capital has adopted policies and procedures designed to ensure that investment opportunities are allocated fairly between a Fund Portfolio and other accounts managed by the same portfolio manager, including accounts of Advantus Capital or its affiliates. In addition, Advantus Capital believes that material conflicts due to differences in compensation paid to portfolio managers (see below) are also unlikely to arise. Account performance is a factor in determining a portfolio manager's compensation, but no portfolio manager's compensation structure favors one account over another on the basis of performance. PORTFOLIO MANAGERS' OWNERSHIP OF FUND SECURITIES. The Fund's shares are currently sold only to separate accounts of Minnesota Life and certain other life insurance companies. Investments in the Portfolios can only be made beneficially through ownership of certain variable life and variable annuity contracts issued by such companies in which one or more Portfolios are offered as investment options. As of the end of the Fund's most recent fiscal year, none of the portfolio managers identified above owns beneficially, through such contracts, shares of any of the Portfolios. PORTFOLIO MANAGER COMPENSATION. As of the end of the Fund's most recent fiscal year, each portfolio manager of a Fund Portfolio is compensated for managing the Portfolio and for managing other accounts identified above in the manner set forth below. Portfolio managers also receive other compensation in the form of group insurance and medical benefits and pension and other retirement benefits which are available generally to all employees of Advantus Capital and which do not discriminate in favor of any portfolio manager. Index 400 Mid-Cap Portfolio and Index 500 Portfolio The Index 500 and Index 400 portfolio manager receives the following compensation: Base Salary - the portfolio manager's total compensation package is reviewed and adjusted annually using competitive compensation surveys. Base salary is designed to provide a measure of stability and is targeted to be competitive with peers. Short-term Bonus - the portfolio manager is eligible for an annual bonus that is based on ability to meet predetermined goals. Of the total goal, approximately 88% is based on the pre-tax investment performance versus an appropriate benchmark, which, in the case of a Portfolio, is the Portfolio's benchmark index described in the Fund's prospectus. Performance comparisons to the respective benchmark are performed using one-year performance. The remaining goals (approximately 12%) are based on subjective fulfillment of position duties. Long-term Incentive - the portfolio manager is eligible for a long-term bonus that is dependent upon Advantus Capital's strategic business objectives such as profitability, sales, etc. If long-term bonuses are granted, the bonus has a four-year vesting schedule. Deferred Compensation - the portfolio manager has the option to defer all or part of his or her short-term and long-term bonuses into a non-qualified deferred compensation plan. All elections must be made prior to the start of the performance measurement period. Bond Portfolio, Money Market Portfolio, Mortgage Securities Portfolio and Real Estate Securities Portfolio The portfolio managers of the Bond Portfolio, Money Market Portfolio, Mortgage Securities Portfolio and Real Estate Securities Portfolio receive the following compensation: Base Salary - the portfolio manager's total compensation package is reviewed and adjusted annually using competitive compensation surveys. Base salary is designed to provide a measure of stability and is targeted to be competitive with peers. Short-term Bonus - the portfolio manager is eligible for an annual bonus that is based on the portfolio manager's ability to meet predetermined goals. Of the total goal, approximately 95% is based on the pre-tax investment performance versus an appropriate benchmark and peer group. In the case of a Portfolio, the appropriate benchmark is the Portfolio's benchmark index described in the Fund's prospectus. Appropriate peer groups are determined using applicable Lipper investment categories. Performance comparisons to the respective benchmark and peer group are performed using both one-year and three-year performance. The remaining goals (approximately 5%) are based on subjective fulfillment of position duties. Long-term Incentive - the portfolio manager is eligible for a long-term bonus that is dependent upon Advantus Capital's strategic business objectives such as profitability, sales, etc. If long-term bonuses are granted, the bonus has a four-year vesting schedule. Deferred Compensation - the portfolio manager has the option to defer all or part of his or her short-term and long-term bonuses into a non-qualified deferred compensation plan. All elections must be made prior to the start of the performance measurement period. Revenue Share - the portfolio manager is paid a percentage of revenue received for the management of assets for unaffiliated clients. Revenues received from accounts of Advantus Capital or any of its affiliates, or from Fund Portfolios, are not subject to revenue share. INFORMATION REGARDING PORTFOLIO MANAGER - FRANKLIN This section reflects information about the portfolio manager as of December 31, 2008. The following table shows the number of other accounts managed by the portfolio manager and the total assets in the accounts managed within each category:
Assets of Number of Other Assets of Other Registered Number of Other Pooled Assets of Registered Investment Other Pooled Investment Other Investment Companies Investment Vehicles Number of Accounts Companies Managed (x $1 Vehicles Managed (x $1 Other Accounts Managed (x $1 Name Managed million) Managed (1) million) Managed million) ----------------- ---------- ------------- ------------ ------------- -------------- ------------- Michael J. Hasenstab 10 15,185.6 17 13,625.1 8 608.7
(1) The various pooled investment vehicles and accounts listed are managed by a team of investment professionals. Accordingly, the portfolio manager listed would not be solely responsible for managing such listed amounts. Portfolio managers that provide investment services to the International Bond Portfolio may also provide services to a variety of other investment products, including other funds, institutional accounts and private accounts. The advisory fees for some of such other products and accounts may be different than that charged to the International Bond Portfolio and may include performance based compensation. This may result in fees that are higher (or lower) than the advisory fees paid by the International Bond Portfolio. As a matter of policy, each fund or account is managed solely for the benefit of the beneficial owners thereof. As discussed below, the separation of the trading execution function from the portfolio management function and the application of objectively based trade allocation procedures help to mitigate potential conflicts of interest that may arise as a result of the portfolio managers managing accounts with different advisory fees. CONFLICTS. The management of multiple funds, including the International Bond Portfolio, and accounts may also give rise to potential conflicts of interest if the funds and other accounts have different objectives, benchmarks, time horizons, and fees as the portfolio manager must allocate his or her time and investment ideas across multiple funds and accounts. The manager seeks to manage such competing interests for the time and attention of portfolio managers by having portfolio managers focus on a particular investment discipline. Most other accounts managed by a portfolio manager are managed using the same investment strategies that are used in connection with the management of the International Bond Portfolio. Accordingly, portfolio holdings, position sizes, and industry and sector exposures tend to be similar across similar portfolios, which may minimize the potential for conflicts of interest. As noted above, the separate management of the trade execution and valuation functions from the portfolio management process also helps to reduce potential conflicts of interest. However, securities selected for funds or accounts other than the International Bond Portfolio may outperform the securities selected for the International Bond Portfolio. Moreover, if a portfolio manager identifies a limited investment opportunity that may be suitable for more than one fund or other account, the International Bond Portfolio may not be able to take full advantage of that opportunity due to an allocation of that opportunity across all eligible funds and other accounts. The manager seeks to manage such potential conflicts by using procedures intended to provide a fair allocation of buy and sell opportunities among funds and other accounts. The structure of a portfolio manager's compensation may give rise to potential conflicts of interest. A portfolio manager's base pay and bonus tend to increase with additional and more complex responsibilities that include increased assets under management. As such, there may be an indirect relationship between a portfolio manager's marketing or sales efforts and his or her bonus. Finally, the management of personal accounts by a portfolio manager may give rise to potential conflicts of interest. While the funds and the manager have adopted a code of ethics which they believe contains provisions reasonably necessary to prevent a wide range of prohibited activities by portfolio managers and others with respect to their personal trading activities, there can be no assurance that the code of ethics addresses all individual conduct that could result in conflicts of interest. Franklin and the Fund have adopted certain compliance procedures that are designed to address these, and other, types of conflicts. However, there is no guarantee that such procedures will detect each and every situation where a conflict arises. COMPENSATION. Franklin seeks to maintain a compensation program that is competitively positioned to attract, retain and motivate top-quality investment professionals. Portfolio managers receive a base salary, a cash incentive bonus opportunity, an equity compensation opportunity, and a benefits package. Portfolio manager compensation is reviewed annually and the level of compensation is based on individual performance, the salary range for a portfolio manager's level of responsibility and Franklin guidelines. Portfolio managers are provided no financial incentive to favor one fund or account over another. Each portfolio manager's compensation consists of the following three elements: Base Salary. Each portfolio manager is paid a base salary. Annual Bonus. Annual bonuses are structured to align the interests of the portfolio manager with those of the fund's shareholders. Each portfolio manager is eligible to receive an annual bonus. Bonuses generally are split between cash (50% to 65%) and restricted shares of Franklin Resources stock (17.5% to 25%) and mutual fund shares (17.5% to 25%). The deferred equity-based compensation is intended to build a vested interest of the portfolio manager in the financial performance of both Franklin Resources and mutual funds advised by Franklin. The bonus plan is intended to provide a competitive level of annual bonus compensation that is tied to the portfolio manager achieving consistently strong investment performance, which aligns the financial incentives of the portfolio manager and fund shareholders. The Chief Investment Officer of Franklin and/or other officers of Franklin, with responsibility for the fund, have discretion in the granting of annual bonuses to portfolio managers in accordance with Franklin guidelines. The following factors are generally used in determining bonuses under the plan. o Investment Performance. Primary consideration is given to the historic investment performance of all accounts managed by the portfolio manager over the 1, 3 and 5 preceding years measured against risk benchmarks developed by the fixed income management team. The pre-tax performance of each fund managed is measured relative to a relevant peer group and/or applicable benchmark as appropriate. o Non-Investment Performance. The more qualitative contributions of the portfolio manager to the manager's business and the investment management team, including business knowledge, productivity, customer service, creativity, and contribution to team goals, are evaluated in determining the amount of any bonus award. o Responsibilities. The characteristics and complexity of funds managed by the portfolio manager are factored in the manager's appraisal. Additional Long-Term Equity-Based Compensation. Portfolio managers may also be awarded restricted shares or units of Franklin Resources stock or restricted shares or units of one or more mutual funds, and options to purchase common shares of Franklin Resources stock. Awards of such deferred equity-based compensation typically vest over time, so as to create incentives to retain key talent. Portfolio managers also participate in benefit plans and programs available generally to all employees of the manager. Ownership Of Fund Shares. The manager has a policy of encouraging portfolio managers to invest in the funds they manage. Exceptions arise when, for example, a fund is closed to new investors or when tax considerations or jurisdictional constraints cause such an investment to be inappropriate for the portfolio manager. As of January 1, 2008, the portfolio manager of the International Bond Portfolio owns no shares in such Portfolio. DISCLOSURE OF FUND PORTFOLIO HOLDINGS The Board of Directors of the Fund and Advantus Capital have adopted policies and procedures on the Fund's behalf to govern the disclosure of portfolio holdings and any ongoing arrangements to make available information about portfolio holdings for the Portfolios (the "Disclosure Policies"). The Disclosure Policies are intended to ensure compliance by Advantus Capital and the Fund with the applicable restrictions of the federal securities laws, including the 1940 Act. It is the policy of Advantus Capital to prevent the selective disclosure of non-public information concerning the Portfolios, except in accordance with the Disclosure Policies. Advantus Capital does not receive any compensation in return for the disclosure of information about a Portfolio's securities or for any ongoing arrangements to make available information about a Portfolio's securities. The Board and Advantus Capital considered each of the circumstances under which a Portfolio's portfolio holdings may be disclosed to different categories of persons under the Disclosure Policies. Advantus Capital and the Board also considered actual and potential material conflicts that could arise in such circumstances between the interests of the Funds' shareholders, on the one hand, and those of Advantus Capital and its affiliates, on the other hand. After giving due consideration to these matters and after the exercise of their fiduciary duties, Advantus Capital and the Board determined that the Portfolios have a legitimate business purpose for disclosing portfolio holdings to the persons described in each of the circumstances set forth in the Disclosure Policies. The Board of Directors exercises continuing oversight of the disclosure of the portfolio holdings by (i) reviewing, at least quarterly, the potential and actual material conflicts that could arise between the Fund's shareholders and those of Advantus Capital and for any waivers and exceptions made to the Disclosure Policies during the preceding quarter and determining if they were made in the best interests of Fund shareholders, (ii) reviewing, at least quarterly, any violation(s) of the Disclosure Policies during the preceding quarter, and (iii) reviewing these procedures from time to time for their continued appropriateness and amending or ratifying the Disclosure Policies as the Board of Directors deems necessary. In addition, the Board of Directors oversees the implementation and enforcement of the Disclosure Policies by the Chief Compliance Officer of Advantus Capital and considers reports and recommendations by the Chief Compliance Officer concerning any material compliance matters (as defined in Rule 38a-1 under the 1940 Act) that may arise in connection with the Disclosure Policies. Advantus Capital and the Board of Directors reserve the right to amend the Disclosure Policies at any time and from time to time without prior notice in their sole discretion. The Fund files complete portfolio holdings schedules for each Portfolio as required in public filings made with the SEC on a quarterly basis. In its capacity as investment adviser to the Fund, Advantus Capital personnel that deal directly with the management, processing, settlement, review, control, auditing, reporting or valuation of portfolio trades have full daily access to portfolio holdings. Below is a list that describes the circumstances in which portfolio holdings are disclosed to selected third parties in advance of their inclusion in the quarterly filings made with the SEC. No information concerning the portfolio holdings of the Portfolios may be disclosed to any third party except as provided below: o Disclosure on a Delay. The Fund and Advantus Capital may publicly disclose all calendar quarter-end portfolio holdings of all Portfolios after a 60 day delay. Disclosure to consultant databases, ratings agencies and other third parties will be subject to the delay requirement unless permitted pursuant to another approved method of portfolio holdings disclosure. o Affiliated Service Providers. Certain personnel of affiliated service providers that deal directly with internal audit, accounting, financial reporting, legal and other administrative services have full daily access to portfolio holdings. Such personnel include employees of the Fund's administrative services agent, Minnesota Life Insurance Company, and the Fund's underwriter, Securian Financial Services, Inc. The frequency of disclosure varies and may be as frequent as daily, with no lag. o Unaffiliated Service Providers - Daily. Certain personnel employed by unaffiliated third party service providers have daily access to portfolio holdings information. Such personnel include (i) employees of the Fund's accountant, State Street Bank and Trust Company, that are involved in the daily accounting and investment administration services of the Fund, (ii) employees of the Fund custodians and securities lending agents, Wells Fargo Bank Minnesota and The Bank of New York Mellon Corporation, (iii) employees of unaffiliated service providers, Bloomberg LP, FT Interactive Data, and Lehman Brothers Holdings Inc., that are involved with maintenance of computer systems used by Advantus Capital to track portfolio holdings and trading information on behalf of the Fund, and (iv) employees of the sub-adviser for the International Bond Portfolio, Franklin. The frequency of disclosure varies and may be as frequent as daily, with no lag. The Fund's accountant, computer system provider and sub-adviser are subject to contractual duties of confidentiality regarding portfolio holdings information. o Unaffiliated Service Providers - As Needed. Personnel of certain other unaffiliated third party service providers have access to Fund portfolio holdings information only as needed to provide services to the Fund. These service providers include (i) the Fund's independent registered public accounting firm, KPMG LLP, (ii) the Fund's general counsel, Dorsey & Whitney LLP, (iii) the independent legal counsel to the Fund's independent directors, Faegre & Benson LLP, (iv) the Fund's financial printer and EDGAR filing agent, Merrill Corporation, in connection with the printing of the Fund's annual and semiannual reports to shareholders and the filing of the Fund's reports on Form N-CSR and Form N-Q with the Securities and Exchange Commission, and (v) other attorneys in connection with evaluation of a potential investment or a collection of investments or in connection with seeking other legal advice which may be on behalf of the Fund, Advantus Capital or other service providers provided there is a duty of confidentiality established either by contract or by law. The frequency of disclosure varies and is provided on an as needed basis. o Franklin - International Bond Portfolio Sub-Adviser. Franklin has adopted a policy regarding disclosure of portfolio holdings information related to the International Bond Portfolio. Pursuant to this policy, Franklin will not disclose portfolio holdings information except (i) to market counterparties and custodians as necessary in the course of sub-advising the portfolio, (ii) to legal and regulatory authorities, (iii) to Franklin lawyers and other advisers on a confidential basis, and (iv) in accordance with instructions from Advantus Capital. o Select Broker/Dealers Related to Trading. Portfolio managers, analysts and traders may discuss portfolio holdings with various broker/dealers for purposes of trade settlement, analyzing the impact of existing and future market changes on the prices, availability, demand and liquidity of certain portfolio holdings, as well as for the purpose of assisting portfolio managers in the trading of such securities. The frequency of disclosure to select broker/dealers for trading and research purposes varies and may be as frequent as daily, with no delay. o Consultants/Institutional Investors. Advantus Capital discloses representative account and composite "top 10 holdings," "top 10 holdings percentages," "buy/sell examples" and other similar breakdowns to consultants and potential institutional investors in connection with marketing investment advisory services. Composites are made up of accounts managed by Advantus Capital that are focused on a similar investment strategy and meet certain other conditions. For each composite, one account is designated as the representative account. The representative account is used to illustrate characteristics of the accounts that make up a composite. The representative account may be a Portfolio, but will not be identified by name in marketing materials. Composite information is aggregated across accounts and is not identified as held by a particular Portfolio. The information is periodically included in pitchbooks, presentations, requests for proposals and web site one pagers and is generally current as of the most recent quarter end. o Disclosure of Aggregate Composite Characteristics. Aggregate composite characteristics may be made available without a delay. Examples of aggregate composite characteristics include, but are not limited to, (i) the allocation of the portfolio holdings and other investment positions among various asset classes, sectors, industries and countries, (ii) the characteristics of the components of the portfolio holdings and other investment positions, (iii) the attribution of returns by asset class, sector, industry and country, and (iv) volatility characteristics. o Disclosure of Individual Portfolio Holdings. Certain spokespersons of Advantus Capital or the Fund may disclose or confirm the ownership of any individual holding position in materials prepared for Fund shareholders, media interviews, due diligence meetings with management, shareholders, consultants and other interested parties; provided that (i) aggregate client position size is not disclosed, (ii) the discloser has made a good faith judgment that such disclosure does not effectively result in the disclosure of the complete portfolio holdings of any Portfolio (which can be disclosed only in accordance with the Disclosure Policies), and (iii) the information does not constitute material nonpublic information. DISCLOSURE AS REQUIRED BY LAW. A Portfolio's portfolio holdings (whether partial portfolio holdings or complete portfolio holdings) and other investment positions comprising a Portfolio shall be disclosed to any person as required by applicable laws, rules, and regulations. Examples of required disclosure include, but are not limited to, disclosure of portfolio holdings (i) in a filing or submission with the SEC or another regulatory body, (ii) in connection with seeking recovery on defaulted bonds in a federal bankruptcy case, (iii) in connection with a lawsuit, or (iv) as required by court order. Disclosure of portfolio holdings or other investment positions by Advantus Capital or the Fund as required by applicable laws, rules and regulations must be authorized by the Chief Compliance Officer of Advantus Capital, or an authorized designee. WAIVERS OF DISCLOSURE POLICIES. The Chief Compliance Officer of Advantus Capital oversees the Disclosure Policies on a day-to-day basis. The Chief Compliance Officer of Advantus Capital, or an authorized designee, makes decisions regarding any waiver or exception of a Disclosure Policy based on the best interests of Fund shareholders, including an analysis of any actual or potential conflicts of interest. The Chief Compliance Officer of Advantus Capital also considers whether the advance disclosure is supported by a legitimate business purpose and whether the information is subject to an independent duty not to disclose or trade on the nonpublic information. All waivers and exceptions will be disclosed to the Board of Directors at its next regularly scheduled quarterly meeting. The frequency with which complete portfolio holdings may be disclosed to a recipient pursuant to a waiver, and the length of the delay between the date of the information and the date on which the information is disclosed to the recipient, is determined based on the facts and circumstances, including, without limitation, the nature of the portfolio holdings information to be disclosed, the risk of harm to the Portfolios and their shareholders, and the legitimate business purposes served by the disclosure. ADMINISTRATIVE SERVICES The Fund has entered into an agreement with Minnesota Life under which Minnesota Life provides accounting oversight, financial reporting, legal and other administrative services to the Fund in exchange for a monthly fee paid by each Portfolio. Additional accounting and administrative services are performed by State Street Bank and Trust Company (see below). Under the Fund's agreement with Minnesota Life, Minnesota Life oversees State Street's performance of these services. During each of the last three calendar years the amounts paid by each Portfolio to Minnesota Life for these services were as follows:
Portfolio 2008 2007 2006 --------- ---- ---- ---- Bond Portfolio $46,426 $31,200 $34,825 Index 400 Mid-Cap Portfolio 34,430 31,200 34,825 Index 500 Portfolio 28,433 31,200 34,825 International Bond Portfolio 50,424 31,200 34,825 Money Market Portfolio 26,434 31,200 34,825 Mortgage Securities Portfolio 52,424 31,200 34,825 Real Estate Securities Portfolio 34,430 31,200 34,825
48 The Fund has also entered into separate agreements with State Street Bank and Trust Company ("State Street") pursuant to which State Street provides daily accounting and investment administration services for the Fund's Portfolios. Under these agreements, as amended January 1, 2008, each Portfolio pays annual accounting and administration fees equal to a specified percentage of the Portfolio's net assets, ranging from .01% to .045% depending on the Portfolio and its level of net assets, as well as various fixed fees and charges for other services provided under the agreements. During the last three calendar years, the amounts paid by each Portfolio to State Street for these services were as follows:
Portfolio 2008 2007 2006 --------- ---- ---- ---- Bond Portfolio $ 173,867 $ 88,373 $ 91,866 Index 400 Mid-Cap Portfolio 67,532 51,498 58,652 Index 500 Portfolio 120,932 146,115 150,986 International Bond Portfolio 67,956 55,191 61,749 Money Market Portfolio 60,467 50,368 53,941 Mortgage Securities Portfolio 82,778 51,559 58,980 Real Estate Securities Portfolio 65,029 50,764 55,526
CODE OF ETHICS Advantus Capital, Securian Financial and the Fund, together with the sub-adviser for the International Bond Portfolio, has each adopted a Code of Ethics in accordance with the Investment Company Act of 1940 and the rules and regulations thereunder. The private investment activities of personnel covered by the Code of Ethics are restricted in accordance with the Code's provisions, but, subject to such provisions, personnel may invest in securities including securities that may be purchased or held by the Fund. PROXY VOTING POLICIES The Fund and its Portfolios have delegated all proxy voting responsibilities to Advantus Capital. In the case of the Money Market, Index 500, Index 400 Mid-Cap and Real Estate Securities Portfolios, Advantus Capital, pursuant to the Advantus Capital Proxy Voting Policies and Procedures (the "Proxy Voting Policies"), has instructed the Portfolios' custodian, Wells Fargo Bank, to vote proxies on behalf of the Portfolios in accordance with Wells Fargo's Proxy Guidelines and Philosophy (the "Wells Guidelines"). The Wells Guidelines include procedures for avoiding material conflicts of interest between the interests of the Portfolio and the interests of the Fund's investment adviser, principal underwriter or other persons affiliated with the Fund, its investment adviser or principal underwriter. Advantus Capital monitors the proxy votes cast by Wells Fargo, including votes cast in situations presenting conflicts of interest. The Fund's other Portfolios do not generally invest in voting securities, but proxies for any voting securities which may be held by such Portfolios are voted by Advantus Capital in accordance with the Proxy Voting Policies in a manner that is generally consistent with the Wells Guidelines. The Proxy Voting Policies for these Portfolios also include procedures for avoiding material conflicts of interest that are substantially identical to those in the Wells Guidelines. Copies of the Proxy Voting Policies, including the Wells Guidelines, are attached as Appendix E. Information regarding how the Fund voted proxies relating to portfolio securities during the most recent 12-month period ended June 30 is available (1) without charge, upon request by calling, toll-free, 1-866-330-7355 or (2) on the Securities and Exchange Commission's web site at http://www.sec.gov. The Fund will provide this information within three business days of receipt of a request, by first-class mail or other means designed to ensure equally prompt delivery. DISTRIBUTION AGREEMENT Securian Financial Services, Inc. ("Securian Financial") acts as the underwriter of the Funds' shares, pursuant to a written agreement. The Board of Directors of the Fund, including a majority of the directors who are not parties to the agreement, or interested persons of any such party, last approved the Fund's Underwriting and Distribution Agreement dated November 6, 2007 with Securian Financial (the "Distribution Agreement") on January 28, 2009. Under the Distribution Agreement, Securian Financial does not receive any compensation for its services as principal underwriter for the Fund, except for certain fees paid pursuant to the Fund's Rule 12b-1 Plan of Distribution. See "Payment of Certain Distribution Expenses of the Fund," below. The Distribution Agreement may be terminated by the Fund or Securian Financial at any time by the giving of 60 days' written notice, and terminates automatically in the event of its assignment. Unless sooner terminated, the Distribution Agreement shall continue in effect for more than two years after its execution only so long as such continuance is specifically approved at least annually by either the Board of Directors of the Fund or by a vote of a majority of the outstanding voting securities, provided that in either event such continuance is also approved by 49 the vote of a majority of the directors who are not parties to the Distribution Agreement, or interested persons of such parties, cast in person at a meeting called for the purpose of voting on such approval. In the Distribution Agreement, Securian Financial undertakes to indemnify the Fund against all costs of litigation and other legal proceedings, and against any liability incurred by or imposed upon the Fund in any way arising out of or in connection with the sale or distribution of the Fund's shares, except to the extent that such liability is the result of information which was obtainable by Securian Financial only from persons affiliated with the Fund but not with Securian Financial. PAYMENT OF CERTAIN DISTRIBUTION EXPENSES OF THE FUND The Fund has adopted a Plan of Distribution (the "Plan") relating to the payment of certain distribution and/or shareholder servicing expenses pursuant to Rule 12b-1 under the Investment Company Act of 1940. Under the Plan, Class 2 shares and the Money Market Portfolio (Class 1 shares are not part of the Plan), pay a fee to Securian Financial, or to life insurance companies ("Insurance Companies") whose variable insurance contracts ("Variable Contracts") offer shares of the Fund, which, on an annual basis, is equal to ..25% of each Portfolio's average daily net assets, and is to be used to pay certain expenses incurred in connection with servicing shareholder accounts and to promote the distribution of the Fund's shares. The distribution fees may be used by Securian Financial for the purpose of financing any activity, which is primarily intended to result in the sale of shares of the Fund or Variable Contracts offering such shares. Distribution-related payments made under the Plan may be used for, among other things, the printing of prospectuses and reports used for sales purposes, preparing and distributing sales literature and related expenses, advertisements, education of Variable Contract owners or dealers and their representatives, trail commissions, and other distribution-related expenses, including a prorated portion of the overhead expenses of the Distributor or the Insurance Companies which are attributable to the distribution of the Variable Contracts. Payments under the Plan may also be used to pay Insurance Companies, dealers or others for non-distribution services, including, among other things, responding to inquiries from owners of Variable Contracts regarding the Fund, printing and mailing Fund prospectuses and other shareholder communications to existing Variable Contract owners, direct communications with Variable Contract owners regarding Fund operations and Portfolio composition and performance, furnishing personal services or such other enhanced services as the Fund or a Variable Contract owner may require, or maintaining customer accounts and records. In addition, the Plan contains, among other things, provisions complying with the requirements of Rule 12b-1 discussed below. In particular, the Plan provides that (1) with respect to each Portfolio/Class, the Plan has been adopted prior to any public offering of the voting securities of the Portfolio/Class or prior to the sale of such securities to persons who are not affiliated persons of the Fund, affiliated persons of such persons, promoters of the Fund, or affiliated persons of such promoters, or, if not so adopted, the Plan must have been approved by a vote of at least a majority of the outstanding voting securities of each such Portfolio/Class (Class 1 shares are not part of the Plan), and by a majority vote of both the full Board of Directors of the Fund and those directors who are not interested persons of the Fund and who have no direct or indirect financial 50 interest in the operation of the Plan or in any agreements relating to it (the Independent Directors), (2) the Plan will continue in effect from one year to another so long as its continuance is specifically approved annually by a majority vote of both the full Board of Directors and the Independent Directors, (3) the Plan may be terminated at any time, without penalty, by vote of a majority of the Independent Directors or by a vote of a majority of the outstanding voting securities of the Fund or of a particular Portfolio/Class, (4) the Plan may not be amended to increase materially the amount of the fees payable thereunder unless the amendment is approved by a vote of a majority of the outstanding voting securities of the Fund, or of a particular Portfolio/Class, and all material amendments must be approved by a majority vote of both the full Board of Directors and the Independent Directors, (5) while the Plan is in effect, the selection and nomination of any new Independent Directors is committed to the discretion of the Independent Directors then in office, and (6) the Fund's underwriter, the Insurance Companies or others will prepare and furnish to the Board of Directors, and the Board of Directors will review, at least quarterly, written reports which set forth the amounts expended under the Plan and the purposes for which those expenditures were made. Rule 12b-1(b) provides that any payments made by an investment company in connection with the distribution of its shares may only be made pursuant to a written plan describing all material aspects of the proposed financing of distribution and also requires that all agreements with any person relating to implementation of the plan must be in writing. In addition, Rule 12b-1(b)(2) requires that such plan, together with any related agreements, be approved by a vote of 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 28, 2009, the Board of Directors of the Fund so concluded. 51 During the fiscal year ended December 31, 2008, each Portfolio or each Class of a Portfolio covered by the Plan of Distribution paid the following amount to Securian Financial in accordance with the Plan:
Portfolio / Class Amount Paid ----------------- ----------- Bond - Class 2 shares $ 962,222 Index 400 Mid-Cap - Class 2 shares 368,990 Index 500 - Class 2 shares 1,286,954 International Bond - Class 2 shares 235,738 Money Market 348,688 Mortgage Securities - Class 2 shares 410,779 Real Estate Securities - Class 2 shares 257,211
In accordance with the Plan of Distribution, Securian Financial has entered into separate Fund Shareholder Services Agreements with Minnesota Life Insurance Company (Minnesota Life), dated November 6, 2007 and Securian Life Insurance Company (Securian Life), dated November 6, 2007 (Securian Life is an affiliate of Minnesota Life). Each of these Agreements provides that Minnesota Life or Securian Life will provide to the Fund, on behalf of Securian Financial, distribution and non-distribution related services, of the type described above. Securian Financial agrees to pay Minnesota Life or Securian Life an amount equal, on an annual basis, to 0.25% of the average combined daily net assets of all the designated Portfolios of the Fund which are attributable to the Contracts issued by Minnesota Life or Securian Life, respectively, and are a part of the Plan of Distribution. These Agreements were last approved by a vote of the Board of Directors, including a majority of the Independent Directors, on January 28, 2009. The Plan of Distribution could be construed as a "compensation plan" because Securian Financial is paid a fixed fee and is given discretion concerning what expenses are payable under the Plan of Distribution. Under a compensation plan, the fee to the distributor is not directly tied to distribution expenses actually incurred by the distributor, thereby permitting the distributor to receive a profit if amounts received exceed expenses. Securian Financial may spend more or less for the distribution and promotion of the Fund's shares than it receives as distribution fees pursuant to the Plan of Distribution for the Portfolios covered by the Plan. However, to the extent fees received exceed expenses, including indirect expense such as overhead, Securian Financial could be said to have received a profit. 52 CUSTODIANS The assets of each Portfolio of the Fund are held in custody by an independent custodian pursuant to a custodian agreement approved by the Fund's Board of Directors. Wells Fargo Bank Minnesota, Sixth Street and Marquette Avenue, Minneapolis, Minnesota 55479, is the custodian for the Money Market, Index 500, Index 400 Mid-Cap and Real Estate Securities Portfolios. The Bank of New York Mellon Corporation, One Mellon Center, Pittsburgh, Pennsylvania 15258, is the custodian for the Bond, Mortgage and International Bond Portfolios. INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM KPMG LLP, 4200 Wells Fargo Center, 90 South Seventh Street, Minneapolis, Minnesota 55402, acts as the Fund's independent registered public accounting firm and provides audit services to the Fund, including audits of the Fund's annual financial statements. LEGAL COUNSEL The Fund's general counsel is Dorsey & Whitney LLP. The firm of Faegre & Benson LLP serves as independent legal counsel to the Fund's independent directors. PORTFOLIO TRANSACTIONS AND ALLOCATION OF BROKERAGE INVESTMENT ADVISER The Adviser selects and (where applicable) negotiates commissions with the brokers who execute the transactions for the Portfolios of the Fund, except for those Portfolios which have entered into sub-advisory agreements. The primary criteria for the selection of a broker is the ability of the broker, in the opinion of the Adviser, 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, the Adviser considers the quality and expertise of that brokerage and any research services (as defined in the Securities Exchange Act of 1934), and generally the Fund pays higher than the lowest commission rates available. Such research services include advice, both directly and in writing, as to the value of securities, the advisability of investing in, purchasing or selling securities, and the availability of securities 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 the Adviser, the Fund enables the Adviser to supplement its own investment research activities and allows the Adviser to obtain the views and information of individuals and research staffs of many different securities research firms prior to making investment decisions for the Fund. To the extent such commissions are directed to these other brokers who furnish research 53 services to the Adviser, the Adviser receives a benefit, not capable of evaluation in dollar amounts, without providing any direct monetary benefit to the Fund from these commissions. There is no formula for the allocation by the Advisers of the Fund's brokerage business to any broker-dealers for brokerage and research services. However, the Adviser will authorize the Fund to pay an amount of commission for effecting a securities transaction in excess of the amount of commission another broker would have charged only if the Adviser 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 the Adviser's overall responsibilities with respect to the accounts as to which it exercises investment discretion. To the extent research services are used by the Adviser in rendering investment advice to the Fund, such services would tend to reduce the Adviser's expenses. However, the Adviser does not believe that an exact dollar amount can be assigned to these services. Research services received by the Adviser from brokers or dealers executing transactions for the Fund will be available also for the benefit of other portfolios managed by the Adviser, and conversely, research services received by the Adviser in respect of transactions for such other portfolios will be available for the benefit of the Fund. During the fiscal years ended December 31, 2008, 2007 and 2006, brokerage commissions paid were:
Brokerage Commissions Paid Portfolio 2008 2007 2006 --------- ---- ---- ---- Bond Portfolio $ 35,105 $ 53,305 $ 19,530 Index 400 Mid-Cap Portfolio 53,985 46,185 33,269 Index 500 Portfolio 59,200 43,612 52,028 International Bond Portfolio 1,053 -- -- Money Market Portfolio -- -- -- Mortgage Securities Portfolio 11,147 3,804 4,172 Real Estate Securities Portfolio 145,589 169,083 159,909
54 Most transactions in money market instruments will be purchases from issuers of or dealers in money market instruments acting as principal. There usually will be no brokerage commissions paid by the Fund for such purchases since securities will be purchased on a net price basis. Trading does, however, involve transaction costs. Transactions with dealers serving as primary market makers reflect the spread between the bid and asked prices of securities. Purchases of underwritten issues may be made which will reflect a fee paid to the underwriter. The Fund will not execute portfolio transactions through any affiliate, except as described below. The Adviser believes that most research services obtained by it generally benefit one or more of the investment companies which it manages and also benefits accounts which it manages. Normally research services obtained through managed funds and managed accounts investing in common stocks would primarily benefit such funds and accounts; similarly, services obtained from transactions in fixed income securities would be of greater benefit to the managed funds and managed accounts investing in debt securities. Consistent with achieving best execution, the Fund may participate in so-called "directed brokerage" (or "Commission recapture") programs, under which brokers (or dealers) used by the Fund remit a portion of brokerage commissions (or credits on fixed income transactions) to the particular Portfolio from which they were generated. Subject to oversight by the Fund's Board of Directors, either the Adviser or the sub-adviser, if any, is responsible for the selection of brokers or dealers and for ensuring that a Portfolio receives best price and execution in connection with its portfolio brokerage transactions. Participation in such programs may increase Portfolio returns. In addition to providing investment management services to the Fund, Advantus Capital provides investment advisory services for insurance companies, including Minnesota Life and its affiliated life insurance companies and certain associated separate accounts. It also provides investment advisory services to qualified pension and profit sharing plans, corporations, partnerships, investment companies and various private accounts. Frequently, investments deemed advisable for the Fund are also deemed advisable for one or more of such accounts, so that Advantus Capital may decide to purchase or sell the same security at or about the same time for both the Fund and one of those accounts. In such circumstances, orders for a purchase or sale of the same security for one or more of those accounts may be combined with an order for the Fund, in which event the transactions will be averaged as to price and normally allocated as nearly as practicable in proportion to the amounts desired to be purchased or sold for each account. While in some instances combined orders could adversely affect the price or volume of a security, it is believed that the Fund's participation in such transactions on balance will produce better net results for the Fund. 55 The Fund's acquisition during the fiscal year ended December 31, 2008, of securities of its regular brokers or dealers or of the parent of those brokers or dealers that derive more than 15 percent of gross revenue from securities-related activities is presented below:
Value of Securities Owned in the Portfolios at Name of Issuer End of Fiscal Year -------------------------- ------------------------- Bank of America Securities $ 19,093,342 Dreyfus 21,485,169 Deutche 2,290,039 Goldman Sachs & Co 7,467,932 JP Morgan Securities, Inc 17,984,548 Lehman Brothers Holdings 2,694,663 Merrill Lynch & Co 933,137 Wells Fargo Investments 27,063,615
SUB-ADVISER - INTERNATIONAL BOND PORTFOLIO Since most purchases by the International Bond Portfolio (the "Portfolio") are principal transactions at net prices, it incurs little or no brokerage costs. The Portfolio deals directly with the selling or buying principal or market maker without incurring charges for the services of a broker on its behalf, unless it is determined that a better price or execution may be obtained by using the services of a broker. Purchases of portfolio securities from underwriters will include a commission or concession paid to the underwriter, and purchases from dealers will include a spread between the bid and ask prices. The Portfolio seeks to obtain prompt execution of orders at the most favorable net price. Transactions may be directed to dealers in return for research and statistical information, as well as for special services provided by the dealers in the execution of orders. It is not possible to place an accurate dollar value on the special execution or on the research services Franklin receives from dealers effecting transactions in portfolio securities. The allocation of transactions to obtain additional research services allows Franklin to supplement its own research and analysis activities and to receive the views and information of individuals and research staffs from many securities firms. The receipt of these products and services does not reduce Franklin's research activities in providing investment advice to the Portfolio. As long as it is lawful and appropriate to do so, Franklin and its affiliates may use this research and data in their investment advisory capacities with other clients. Because Franklin Templeton Distributors, Inc. ("Distributors") is a member of the Financial Industry Regulatory Authority, it may sometimes receive certain fees when the Portfolio tenders portfolio securities pursuant to a tender-offer solicitation. To recapture brokerage for the benefit of the Portfolio, any portfolio securities tendered by the Portfolio will be tendered through Distributors if it is legally permissible to do so. In turn, the next sub-advisory fee payable to Franklin will be reduced by the amount of any fees received by Distributors in cash, less any costs and expenses incurred in connection with the tender, and the advisory fee the Portfolio pays Advantus Capital will be reduced by the same amount. If purchases or sales of securities of the Portfolio and one or more other investment companies or clients supervised by Franklin are considered at or about the same time, transactions in these securities will be allocated among the several investment companies and clients in a manner deemed equitable to all by Franklin, taking into account the respective sizes of the accounts and the amount of securities to be purchased or sold. In some cases this procedure could have a detrimental effect on the price or volume of the security so far as the Portfolio is concerned. In other cases it is possible that the ability to participate in volume transactions may improve execution and reduce transaction costs to the Portfolio. PURCHASE AND REDEMPTION OF SHARES Shares of the Fund are currently offered continuously at prices equal to the respective net asset values of the Portfolios only to Minnesota Life, and to certain of its life insurance affiliates, in connection with its variable life insurance policies and variable annuity contracts. Securian Financial serves as the Fund's underwriter. It is possible that at some later date the Fund may offer its shares to other investors and it reserves the right to do so. 56 Shares of the Fund are sold and redeemed at their net asset value next computed after a purchase or redemption order is received by the Fund. Depending upon the net asset values at that time, the amount paid upon redemption may be more or less than the cost of the shares redeemed. Payment for shares redeemed will generally be made within seven days after receipt of a proper notice of redemption. The right to redeem shares or to receive payment with respect to any redemption may only be suspended for any period during which: (a) trading on the New York Stock Exchange is restricted as determined by the Securities and Exchange Commission or such exchange is closed for other than weekends and holidays; (b) an emergency exists, as determined by the Securities and Exchange Commission, as a result of which disposal of Portfolio securities or determination of the net asset value of a Portfolio is not reasonably practicable; and (c) the Securities and Exchange Commission by order permits postponement for the protection of shareholders. FUND SHARES AND VOTING RIGHTS The authorized capital of the Fund consists of one trillion shares of capital stock with a par value of $.01 per share; with authorized shares of 100,000,000,000 allocated to each Portfolio and with authorized shares of 10,000,000,000 allocated to each class (Class 1 and Class 2) of the following Portfolios: Bond, Index 400 Mid-Cap, Index 500, International Bond, Mortgage Securities, and Real Estate Securities. The remaining shares may be allocated by the Board of Directors to any new or existing Portfolios. All shares of all Portfolios have equal voting rights, except that only shares of a particular Portfolio are entitled to vote certain matters pertaining only to that Portfolio. Pursuant to the Investment Company Act of 1940 (as amended) and the rules and regulations thereunder, certain matters approved by a vote of all Fund shareholders may not be binding on a Portfolio whose shareholders have not approved such matter. Each class of shares has exclusive voting rights on any matter submitted to shareholders that relates solely to the arrangements pertaining to that class of shares. Further, each class of shares has separate voting rights on any other matter submitted to shareholders in which the interests of a class of shareholders differ from the interests of the holders of any other class of shares and to the extent required by the articles of incorporation and bylaws of Advantus Series Fund, Inc., the Minnesota Business Corporation Act, and the 1940 Act. Each issued and outstanding share is entitled to one vote and to participate equally in dividends and distributions declared by the respective Portfolio/Class and in net assets of such Portfolio/Class upon liquidation or dissolution remaining after satisfaction of outstanding liabilities. The shares of each Portfolio/Class, when issued, are fully paid and non-assessable, have no preemptive, conversion, or similar rights, and are freely transferable. Fund shares do not have cumulative voting rights, which means that the holders of more than half of the Fund shares voting for election of directors can elect all of the directors if they so choose. In such event, the holders of the remaining shares would not be able to elect any directors. The Fund will not hold periodically scheduled shareholder meetings. Minnesota corporate law does not require an annual meeting. Instead, it provides for the Board of Directors to convene shareholder meetings when it deems appropriate. In addition, if a regular meeting of shareholders has not been held during the immediately preceding fifteen months, a shareholder or shareholders holding three percent or more of the voting shares of a Fund may demand a regular meeting of shareholders of the Fund by written notice of demand given to the chief executive officer or the chief financial officer of the Fund. Within thirty days after receipt of the demand by one of those officers, the Board of Directors shall cause a regular meeting of shareholders to be called and held no later than ninety days after receipt of the demand, all at the expense of the Fund. A special meeting may also be called at any time by the chief executive officer, two or more directors, or a shareholder or shareholders holding ten percent of the voting shares of the Fund. At a meeting, called for the purpose, shareholders may remove any director 57 by a vote of two-thirds of the outstanding shares. Additionally, the Investment Company Act of 1940 requires shareholder votes for all amendments to fundamental investment policies and restrictions, and for all investment advisory contracts and amendments thereto. Because of the pass-through voting structure of variable insurance contracts, the owners of the variable annuity contracts and variable life insurance policies ("Contract owners") who invest in the Fund are entitled to provide voting instructions to Minnesota Life and any other insurance company with regard to Fund shares held in insurance company separate account(s) on behalf of such Contract owners. Minnesota Life is required by law to request voting instructions from Contract owners with respect to such shares and must vote shares in accordance with the instructions received. In addition, with respect to shares for which no voting instructions are received, Minnesota Life must vote such shares in proportion to the shares for which voting instructions are received. As a result, a small number of voting Contract owners may be able to control the Fund. PRINCIPAL SHAREHOLDERS The officers and directors of the Fund cannot directly own shares of the Portfolios, but may own shares indirectly by purchasing a variable life insurance policy or variable annuity contract through Minnesota Life or another participating life insurance company. As a result, such officers and directors as a group own less than 1% of the outstanding shares of each Portfolio. No shareholder owns 5% or more of the outstanding shares of any Portfolio except as set forth below. As of March 31, 2009, all of the outstanding shares of each Portfolio were owned by Minnesota Life Insurance Company and its life insurance affiliates, 400 Robert Street North, St. Paul, Minnesota 55101-2098, in the following amounts:
Number of Percent Name of Portfolio Shares Owned Owned ---------------------- ------------ ------- Bond -- Class 1 91,097 100% Bond -- Class 2 225,638,322 100% Index 400 Mid-Cap -- Class 1 30,682 100% Index 400 Mid-Cap -- Class 2 82,289,386 100% Index 500 -- Class 1 12,087 100% Index 500 -- Class 2 118,165,227 100% International Bond -- Class 1 38,317 100% International Bond -- Class 2 49,691,679 100% Money Market 138,483,601 100% Mortgage Securities -- Class 1 39,207 100% Mortgage Securities -- Class 2 83,579,104 100% Real Estate Securities -- Class 1 36,890 100% Real Estate Securities -- Class 2 48,279,479 100%
NET ASSET VALUE The net asset value of the shares of the Portfolios is computed once daily, and, in the case of Money Market Portfolio, after the declaration of the daily dividend, as of the primary closing time for business on the New York Stock Exchange (as of the date hereof the primary close of trading is 3:00 p.m. (Central Time), but this time may be changed) on each day, Monday through Friday, except (i) days on which changes in the value of such Fund's portfolio securities will not materially affect the current net asset value of such Fund's shares, (ii) days during which no such Fund's shares are tendered for redemption and no order to purchase or sell such Fund's shares is received by such Fund and (iii) customary national business holidays on which the New York Stock Exchange is closed for trading (as of the date hereof, New Year's Day, Martin Luther King Jr. Day, Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day and Christmas Day). The net asset value per share of each Portfolio is computed by adding the sum of the value of the securities held by that Portfolio plus any cash or other assets that it holds, subtracting all of its liabilities, and dividing the result by the total number of shares outstanding in that Portfolio at that time. Expenses, including the investment advisory fee payable to Advantus Capital, are accrued daily. Net asset value per share is computed separately by Class for each Portfolio offered in two classes. Because different expenses are applicable to Class 1 and Class 2 shares, the net asset value per share of Class 1 shares of a Portfolio generally will not be the same as the net asset value per share of Class 2 of the same Portfolio. Securities, except securities held by the Money Market Portfolio, 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 date 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 Advantus Capital Valuation Committee under the supervision of the Board of Directors and in accordance with Board-approved valuation policies and procedures. Other assets also are valued at fair value as determined in good faith by the Board of Directors. A Portfolio's investments will also be valued at fair value by the Pricing Committee if Advantus Capital determines that an event impacting the value of an investment occurred after the close of the security's primary exchange or market (for example, a foreign exchange or market) and before the time the Portfolio's share price is calculated. Despite best efforts, there is an inherent risk that the fair value of an investment may be higher or lower than the value the Portfolio would have received if it had sold the investment. 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, except that debt obligations with remaining maturities of sixty days or less held by the International Bond Portfolio may be valued at their amortized cost, which approximates market value. All instruments held by the Money Market Portfolio are valued on an amortized cost basis. This involves valuing an instrument at its cost and thereafter assuming a constant amortization to maturity of any discount or premium, regardless of the impact of fluctuating 58 interest rates on the market value of the instrument. While this method provides certainty in valuation, it may result in periods during which the value of an instrument in the Portfolio, as determined by amortized cost, is higher or lower than the price the Portfolio would receive if it sold the instrument. During periods of declining interest rates, the daily yield on shares of the Portfolio computed by dividing the annualized daily income of the Portfolio by the net asset value computed as described above may tend to be higher than a like computation made by a portfolio with identical investments utilizing a method of valuation based upon market prices and estimates of market prices for all of its securities. The Money Market Portfolio values its portfolio securities at amortized cost in accordance with Rule 2a-7 under the Investment Company Act of 1940, as amended. Pursuant to Rule 2a-7, the Board of Directors of the Fund has determined, in good faith based upon a full consideration of all material factors, that it is in the best interests of the Money Market Portfolio and its shareholders to maintain a stable net asset value per share for such Portfolio of a constant $ 1.00 per share by virtue of the amortized cost method of valuation. The Money Market Portfolio will continue to use this method only so long as the Board of Directors believes that it fairly reflects the market-based net asset value per share. In accordance with Rule 2a-7, the Board of Directors has undertaken, as a particular responsibility within the overall duty of care owed to the Portfolio's shareholders, to establish procedures reasonably designed, taking into account current market conditions and the Portfolio's investment objective, to stabilize the Portfolio's net asset value per share at a single value. These procedures include the periodic determination of any deviation of current net asset value per-share calculated using available market quotations from the Portfolio's amortized cost price per-share, the periodic review by the Board of the amount of any such deviation and the method used to calculate any such deviation, the maintenance of records of such determinations and the Board's review thereof, the prompt consideration by the Board if any such deviation exceeds 1/2 of 1%, and the taking of such remedial action by the Board as it deems appropriate where it believes the extent of any such deviation may result in material dilution or other unfair results to investors or existing shareholders. Such remedial action may include reverse share splits, redemptions in kind, selling portfolio instruments prior to maturity to realize capital gains or losses, shortening the average portfolio maturity, withholding dividends or utilizing a net asset value per share as determined by using available market quotations. The Portfolio will, in further compliance with Rule 2a-7, maintain a dollar-weighted average Portfolio maturity not exceeding 90 days and will limit its Portfolio investments to those United States dollar-denominated instruments which the Board determines present minimal credit risks and which are eligible securities. The Portfolio will limit its investments in the securities of any one issuer to no more than 5% of Portfolio assets and it will limit investment in securities of less than the highest rated categories to 5% of Portfolio assets. Investment in the securities of any issuer of less than the highest rated categories will be limited to the greater of 1% of Portfolio assets or one million dollars. In addition, the Fund will reassess promptly any security which is in default or downgraded from its rating category to determine whether that security then presents minimal credit risks and whether continuing to hold the securities is in the best interests of the Portfolio in the Fund. In addition, the Fund will record, maintain, and preserve a written copy of the above-described procedures and a written record of the Board's considerations and actions taken in connection with the discharge of its above-described responsibilities. 59 PERFORMANCE DATA CURRENT YIELD FIGURES FOR MONEY MARKET PORTFOLIO Current annualized yield quotations for the Money Market Portfolio are based on the Portfolio's net investment income for a seven-day or other specified period and exclude any realized or unrealized gains or losses on portfolio securities. Current annualized yield is computed by determining the net change (exclusive of realized gains and losses from the sale of securities and unrealized appreciation and depreciation) in the value of a hypothetical account having a balance of one share at the beginning of the specified period, dividing such net change in account value by the value of the account at the beginning of the period, and annualizing this quotient on a 365-day basis. The net change in account value reflects the value of any additional shares purchased with dividends from the original share in the account during the specified period, any dividends declared on such original share and any such additional shares during the period, and expenses accrued during the period. The Fund may also quote the effective yield of the Money Market Portfolio for a seven-day or other specified period for which the current annualized yield is computed by expressing the unannualized return on a compounded, annualized basis. The yield figures published for the Money Market Portfolio will reflect any waiver, reimbursement or payment of such Portfolio's expenses by Advantus Capital or Securian Financial pursuant to the Net Investment Income Maintenance Agreement described above under "Investment Advisory and Other Services - Money Market Portfolio - Net Investment Income Maintenance Agreement." Purchasers of variable contracts issued by Minnesota Life and its life insurance affiliates should recognize that the yield on the assets relating to such a contract which are invested in shares of the Money Market Portfolio would be lower than the Money Market Portfolio's yield for the same period since contract-related charges assessed against such assets are not reflected in the Portfolio's yield. The current yield and effective yield of the Money Market Portfolio for the seven-day period ended December 31, 2008 were 1.10% and 1.11%, respectively. CURRENT YIELD FIGURES FOR OTHER PORTFOLIOS Yield quotations for Portfolios other than the Money Market Portfolio are determined by dividing the Portfolio's net investment income per share for a 30-day period, excluding realized or unrealized gains or losses, by the net asset value per share on the last day of the period. In computing net investment income dividends are accrued daily based on the stated dividend rate of each dividend-paying security, and interest reflects an amortization of discount or premium on debt obligations (other than installment debt obligations) based upon the market value of each obligation on the last day of the preceding 30-day period. Undeclared earned income (net investment income which at the end of the base period has not been declared as a dividend but is expected to be declared shortly thereafter) is subtracted from the net asset value per share on the last day of the period. An annualized yield figure is determined under a formula which assumes that the net investment income is earned and reinvested at a constant rate and annualized at the end of a six-month period. For the 30-day period ended December 31, 2008, the yields of the Class 1 and Class 2 shares of each of the Portfolios other than Money Market Portfolio are shown in the table below. With respect to each such Portfolio, both classes of shares will be invested in the same portfolio of securities and will have substantially similar yields and returns, differing only to the extent that the classes do not have the same expenses. Because Class 2 is subject to a 0.25% 12b-1 distribution fee that is not charged to Class 1, the yields and returns for Class 1 of each Portfolio will be somewhat greater than the yields shown for Class 2.
Yield Yield Portfolio Class 1 Class 2 --------- ------- ------- Bond Portfolio 5.80% 5.80% Index 400 Mid-Cap Portfolio N/A N/A Index 500 Portfolio N/A N/A International Bond Portfolio N/A N/A Mortgage Securities Portfolio 5.78 5.78 Real Estate Securities Portfolio 3.78 3.78
60 TOTAL RETURN FIGURES FOR ALL PORTFOLIOS Cumulative total return quotations for the Portfolios represent the total return for the period since shares of the Portfolio became available for sale pursuant to the Fund's registration statement. Cumulative total return is equal to the percentage change between the net asset value of a hypothetical $1,000 investment at the beginning of the period and the net asset value of that same investment at the end of the period with dividend and capital gain distributions treated as reinvested. In addition, yield quotations for Portfolios other than the Money Market Portfolio, and quotations of cumulative total return for all Portfolios, will be accompanied by average annual total return figures for one-year, five-year and ten-year periods, or for the period since shares of the Portfolio became available pursuant to the Fund's registration statement. Average annual total return figures are the average annual compounded rates of return required for an account with an initial investment of $1,000 to equal the redemption value of the account at the end of the period. The total return figures published for the Money Market Portfolio will reflect any waiver, reimbursement or payment of such Portfolio's expenses by Advantus Capital or Securian Financial pursuant to the Net Investment Income Maintenance Agreement described above under "Investment Advisory and Other Services - Money Market Portfolio - Net Investment Income Maintenance Agreement." In addition, certain total return figures for Money Market Portfolio and Class 2 shares of other Portfolios will, where applicable, reflect the voluntary absorption of certain Fund expenses by Advantus Capital or Minnesota Life during certain prior periods. The figures in parentheses in the tables below show what cumulative total returns and average annual total returns would have been during the specified periods had Advantus Capital and Minnesota Life not absorbed such expenses. CUMULATIVE TOTAL RETURN. The cumulative total returns for the Portfolios for the specified periods ended December 31, 2008 are shown in the table below.
From Inception Date of From Inception Date of to 12/31/08 Inception to 12/31/08 Inception Class 1 Class 1 Money Market and Class 2 Money Market and Class 2 ---------------- --------- ------------------------ ------------------------ Bond Portfolio -13.53% (-13.53%) 2/11/08 288.26% (284.52%) 12/3/85 Index 400 Mid-Cap Portfolio -31.84 (-31.84) 2/11/08 72.39 (70.12) 10/1/97 Index 500 Portfolio -31.26 (-31.26) 2/11/08 361.14 (359.58) 5/1/87 International Bond Portfolio 2.34 (2.34) 2/11/08 82.81 (82.81) 10/1/97 Money Market Portfolio N/A N/A N/A 165.68 (160.56) 12/3/85 Mortgage Securities Portfolio -13.32 (-13.32) 2/11/08 279.55 (278.65) 5/1/87 Real Estate Securities Portfolio -31.97 (-31.97) 2/11/08 81.55 (76.25) 5/1/98
AVERAGE ANNUAL TOTAL RETURNS. The average annual rates of return for the Portfolios for the specified periods ended December 31, 2008 are shown in the table below.
Class 1 Shares ------------------------------ From Inception Date of to 12/31/08 Inception ---------------- ---------- Bond Portfolio -13.53% (-13.53%) 2/11/08 Index 400 Mid-Cap Portfolio -31.84 (-31.84) 2/11/08 Index 500 Portfolio -31.26 (-31.26) 2/11/08 International Bond Portfolio 2.34 (2.34) 2/11/08 Mortgage Securities Portfolio -13.32 (-13.32) 2/11/08 Real Estate Securities Portfolio -31.97 (-31.97) 2/11/08
Money Market Portfolio and Class 2 Shares of Other Portfolios ---------------------------------------------------------------- Year Ended Five Years Ten Years 12/31/08 Ended 12/31/08 Ended 12/31/08 ---------- -------------- -------------- Bond Portfolio -13.52% (-13.52%) -0.09% (-0.09%) 3.00% (3.00%) Index 400 Mid-Cap Portfolio -36.54 (-36.54) -0.61 (-0.61) 3.97 (3.90) Index 500 Portfolio -37.21 (-37.21) -2.61 (-2.61) -1.81 (-1.81) International Bond Portfolio 4.23 (4.23) 3.78 (3.78) 4.63 (4.63) Money Market Portfolio 1.95 (1.95) 2.80 (2.80) 3.02 (3.02) Mortgage Securities Portfolio -12.97 (-12.97) 0.40 (0.40) 3.77 (3.77) Real Estate Securities Portfolio -36.27 (-36.27) 1.09 (1.09) 7.87 (7.62)
61 Purchasers of variable contracts issued by Minnesota Life or other life insurance companies should recognize that the yield, cumulative total return and average annual total return on the assets relating to such a contract which are invested in shares of any of the above Portfolios would be lower than the yield, cumulative total return and average annual total return of such Portfolio for the same period since charges assessed by the life insurance companies against such assets are not reflected in the Portfolios' quotations. TAXES The Fund and each Portfolio qualified for the year ended December 31, 2008, and intends to continue to qualify as a "regulated investment company" under the provisions of Subchapter M of the Internal Revenue Code, as amended (the "Code"). Each Portfolio of the Fund is treated as a separate entity for federal income tax purposes. If each Portfolio of the Fund qualifies as a "regulated investment company" and complies with the provisions of the Code relieving regulated investment companies which distribute substantially all of their net income (both ordinary income and capital gain) from federal income tax, each Portfolio of the Fund will be relieved of such tax on the amounts distributed. To qualify for treatment as a regulated investment company, each Portfolio must, among other things, derive in each taxable year at least 90% of its gross income from dividends, interest payments with respect to securities, and gains (without deduction for losses) from the sale or other disposition of securities. Each Portfolio of the Fund with outstanding shares which were purchased to provide the Portfolio's initial capital (in an amount in excess of that specified in the Code) and which are not attributable to any of the contracts is subject to a non-deductible excise tax equal to 4 percent of the excess, if any, of the amount required to be distributed pursuant to the Code for each calendar year over the amount actually distributed. Currently, only the Index 400 Mid-Cap Portfolio, International Bond Portfolio and Real Estate Securities Portfolio are subject to these distribution requirements. In order to avoid the imposition of this excise tax, each Portfolio generally must declare dividends by the end of a calendar year representing 98 percent of that Portfolio's ordinary income for the calendar year and 98 percent of its capital gain net income (both long-term and short-term capital gains) for the twelve-month period ending October 31 of the calendar year. The foregoing is a general summary of applicable provisions of the Code and Treasury Regulations now in effect and as currently interpreted by the courts and the Internal Revenue Service. The Code and these Regulations, as well as current interpretations thereof, may be changed at any time by legislative, judicial or administrative action. As the sole shareholders of the Fund will be Minnesota Life, Securian Life and their respective separate accounts, this statement does not discuss federal income tax consequences to the shareholder. For tax information with respect to an owner of a contract issued in connection with the separate accounts, see the Prospectus for those contracts. THE STANDARD & POOR'S LICENSE Standard & Poor's ("S&P") is a division of the McGraw-Hill Companies, Inc. S&P has trademark rights to the marks "Standard & Poor's(R)," "S&P(R)," "S&P 500(R), "S&P 400(R)," "Standard & Poor's 500," "Standard & Poor's MidCap 400," and "500" and has licensed the use of such marks by the Fund, the Index 500 Portfolio and the Index 400 Mid-Cap Portfolio. The Index 500 Portfolio and the Index 400 Mid-Cap Portfolio (collectively, the "Portfolios") are not sponsored, endorsed, sold or promoted by S&P. S&P makes no representation or warranty, express or implied, to the owners of the Portfolios or any member of the public regarding the advisability of investing in securities generally or in the Portfolios particularly or the ability of the S&P 500 Index or the S&P MidCap 400 Index to track general stock market performance. S&P's only relationship to the Portfolios is the licensing of certain trademarks and trade names of S&P and of the S&P 500 Index and the S&P MidCap 400 Index which are determined, composed and calculated by S&P without regard to the Fund. S&P has no obligation to take the needs of the Portfolios or the owners of the Fund into consideration in 62 determining, composing or calculating the S&P 500 Index or the S&P MidCap 400 Index. S&P is not responsible for and has not participated in the determination of the net asset value or public offering price of the Portfolios nor is S&P a distributor of the Fund. S&P has no obligation or liability in connection with the administration, marketing or trading of the Portfolios. S&P DOES NOT GUARANTEE THE ACCURACY AND/OR THE COMPLETENESS OF THE S&P 500 INDEX OR THE S&P MIDCAP 400 INDEX OR ANY DATA INCLUDED THEREIN, NOR DOES S&P HAVE ANY LIABILITY FOR ANY ERRORS, OMISSIONS, OR INTERRUPTIONS THEREIN. S&P MAKES NO WARRANTY, EXPRESS OR IMPLIED, AS TO THE RESULTS TO BE OBTAINED BY THE PORTFOLIOS, OWNERS OF THE FUND, OR ANY OTHER PERSON OR ENTITY FROM THE USE OF THE S&P 500 INDEX, THE S&P MIDCAP 400 INDEX OR ANY DATA INCLUDED THEREIN. S&P MAKES NO EXPRESS OR IMPLIED WARRANTIES, AND EXPRESSLY DISCLAIMS ALL WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR USE WITH RESPECT TO THE S&P 500 INDEX, THE S&P 400 MIDCAP INDEX OR ANY DATA INCLUDED THEREIN. WITHOUT LIMITING ANY OF THE FOREGOING, IN NO EVENT SHALL S&P HAVE ANY LIABILITY FOR ANY SPECIAL, PUNITIVE, INDIRECT, OR CONSEQUENTIAL DAMAGES (INCLUDING LOST PROFITS), EVEN IF NOTIFIED OF THE POSSIBILITY OF SUCH DAMAGES. FINANCIAL STATEMENTS The Fund's financial statements for the year ended December 31, 2008, including the financial highlights for each of the respective periods presented, appearing in the Fund's Annual Report to Shareholders, and the report thereon of the Fund's independent registered public accounting firm, KPMG LLP, also appearing therein, are incorporated by reference in this Statement of Additional Information. 63 APPENDIX A - MORTGAGE-RELATED SECURITIES Mortgage-related securities represent an ownership interest in a pool of residential mortgage loans. These securities are designed to provide monthly payments of interest and principal to the investor. The mortgagor's monthly payments to his lending institution are "passed-through" to investors such as the Fund. Most insurers or services provide guarantees of payments, regardless of whether or not the mortgagor actually makes the payment. The guarantees made by issuers or servicers are backed by various forms of credit, insurance and collateral. UNDERLYING MORTGAGES Pools consist of whole mortgage loans or participations in loans. The majority of these loans are made to purchasers of 1-4 family homes. Some of these loans are made to purchasers of mobile homes. The terms and characteristics of the mortgage instruments are generally uniform within a pool buy may vary among pools. For example, in addition to fixed-rate fixed-term mortgages, the fund may purchase pools of variable rate mortgages, growing equity mortgages, graduated payment mortgages and other types. All servicers apply standards for qualification to local lending institutions which originate mortgages for the pools. Servicers also establish credit standards and underwriting criteria for individual mortgages included in the pools. In addition, many mortgages included in pools are insured through private mortgage insurance companies. LIQUIDITY AND MARKETABILITY Since the inception of the mortgage-related pass-through security in 1970, the market for these securities has expanded considerably. The size of the primary issuance market and active participation in the secondary market by securities dealers and many types of investors makes government and government-related pass-through pools highly liquid. The recently introduced private conventional pools of mortgages (pooled by commercial banks, savings and loans institutions and others, with no relationship with government and government-related entities) have also achieved broad market acceptance and consequently an active secondary market has emerged. However, the market for conventional pools is smaller and less liquid than the market for the government and government-related mortgage pools. The Fund may purchase some mortgage-related securities through private placements, in which case only a limited secondary market exists, and the security is considered illiquid. AVERAGE LIFE The average life of pass-through pools varies with the maturities of the underlying mortgage instruments. In addition, a pool's term may be shortened by unscheduled or early payments of principal and interest on the underlying mortgages. The occurrence of mortgage prepayments is affected by factors including the level of interest rates, general economic conditions, the location and age of the mortgage and other social and demographic conditions. A-1 As prepayment rates of individual pools vary widely, it is not possible to accurately predict the average life of a particular pool. For pools of fixed-rate 30-year mortgages, common industry practice is to assume that prepayments will result in a 12-year average life. Pools of mortgages with other maturities or different characteristics will have varying assumptions for average life. The assumed average life of pools of mortgages having terms of less than 30 years is less than 12 years, but typically not less than 5 years. YIELD CALCULATIONS Yields on pass-through securities are typically quoted by investment dealers and vendors based on the maturity of the underlying instruments and the associated average life assumption. In periods of falling interest rates the rate of prepayment tends to increase, thereby shortening the actual average life of a pool of mortgage-related securities. Conversely, in periods of rising rates and the rate of prepayment tends to decrease, thereby lengthening the actual average life of the pool. Historically, actual average life has been consistent with the 12-year assumption referred to above. Actual prepayment experience may cause the yield to differ from the assumed average life yield. Reinvestment of prepayments may occur at higher or lower interest rates than the original investment, thus affecting the yield of the Fund. The compounding effect from reinvestments of monthly payments received by the Fund will increase the yield to shareholders compared to bonds that pay interest semi-annually. A-2 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 AAA. Debt rated "AAA" has the highest rating assigned by Standard & Poor's. Capacity to pay interest and repay principal is extremely strong. AA. Debt rated "AA" has a very strong capacity to pay interest and repay principal and differs from the higher rated issues only in small degree. A. Debt rated "A" has a strong capacity to pay interest and repay principal although it is somewhat more susceptible to the adverse effects of changes in circumstances and economic conditions than debt in higher rated categories. BBB. Debt rated "BBB" is regarded as having an adequate capacity to pay interest and repay principal. Whereas it normally exhibits adequate protection parameters, adverse economic conditions or changing circumstances are more likely to lead to a weakened capacity to pay interest and repay principal for debt in this category than in higher rated categories. BB. Debt rated "BB" has less near-term vulnerability to default than other speculative grade debt. However, it faces major ongoing uncertainties or exposure to adverse business, financial, or economic conditions that could lead to inadequate capacity to meet timely interest and principal payments. B. Debt rated "B" has a greater vulnerability to default but currently has the capacity to meet interest payments and principal repayments. Adverse business, financial, or economic conditions will likely impair capacity or willingness to pay interest and repay principal. The "B" rating category is also used for debt subordinated to senior debt that is assigned an actual or implied "BB" or "BB-" rating. Standard & Poor's Corporation applies indicators "+", no character, and "-" to the above rating categories. The indicators show relative standing within the major rating categories. COMMERCIAL PAPER RATINGS The rating Prime-1 is the highest commercial paper rating assigned by Moody's Investors Service, Inc. Among the factors considered by Moody's Investors Service, Inc. in assigning the ratings are the following: (1) evaluation of the management of the issuer, (2) economic evaluation of the issuer's industry or industries and an appraisal of speculative-type risks which may be inherent in certain areas; (3) evaluation of the issuer's products in relation to competition and customer acceptance; (4) liquidity; (5) amount and quality of long-term debt; (6) trend of earnings over a period of ten years; (7) financial strength of a parent company and the relationships which exist with the issuer; an (8) recognition by the management of obligations which may be present or may arise as a result of public interest questions and preparations to meet such obligations. The rating A-1 is the highest rating assigned by Standard & Poor's Corporation to commercial paper which is considered by Standard & Poor's Corporation to have the following characteristics: B-2 Liquidity ratios of the issuer are adequate to meet cash redemptions. Long-term senior debt is rated "A" or better. The issuer has access to at least two additional channels of borrowing. Basic earnings and cash flow have an upward trend with allowance made for unusual circumstances. Typically, the issuer's industry is well established and the issuer has a strong position within the industry. The reliability and quality of management are unquestioned. B-3 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. C-1 Assuming the long-term security has a market price of $100, and the Fund believes that, because of an anticipated fall in interest rates, the price will have risen to $105 (and the yield will have dropped to about 9-1/2%) in four months, the Fund might enter into futures contracts purchases of Treasury bonds for a price of $98. At the same time, the Fund would assign a pool of investments in short-term securities that are either maturing in four months or earmarked for sale in four months, for purchase of the long-term security at an assumed market price of $100. Assume these short-term securities are yielding 15%. If the market price of the long-term bond does indeed rise from $100 to $105, the futures market price for Treasury bonds might also rise from $98 to $103. In that case, the $5 increase in the price that the Fund pays for the long-term security would be offset by the $5 gain realized by closing out the futures contract purchase. The Fund could be wrong in its forecast of interest rates; long-term interest rates might rise to above 10%, and the futures market price could fall below $98. If short-term rates at the same time fall to 10% or below, it is possible that the Fund would continue with its purchase program for long-term securities. The market prices of available long-term securities would have decreased. The benefit of this price decrease, and thus yield increase, will be reduced by the loss realized on closing out the futures contract purchase. If, however, short-term rates remained above available long-term rates, it is possible that the Fund would discontinue its purchase program for long-term securities. The yields on short-term securities in the portfolio, including those originally in the pool assigned to the particular long-term security, would remain higher than yields on long-term bonds. The benefit of this continued incremental income will be reduced by the loss realized on closing out the futures contract purchase. In each transaction, nominal transaction expenses would also be incurred. TAX TREATMENT The amount of any gain or loss realized by the Fund on closing out a futures contract may result in a capital gain or loss for federal income tax purposes. Generally, futures contracts held by the Fund at the close of the Fund's taxable year will be treated for federal income tax purposes as sold for their fair market value on the last business day of such year. Forty percent of any gain or loss resulting from such constructive sale will be treated as short-term capital gain or loss and 60 percent of such gain or loss will be treated as long-term capital gain or loss. The amount of any capital gain or loss actually realized by the Fund in a subsequent sale or other disposition of these futures contracts will be adjusted to reflect any capital gain or loss taken into account by the Fund in a prior year as a result of the constructive sale of the contract. Notwithstanding the rules described above, with respect to futures contracts which are part of futures contract sales, and in certain other situations, the Fund may make an election which may have the effect of exempting all or a part of those identified future contracts from being treated for federal income tax purposes as sold on the last business day of the Fund's taxable year; all or part of any gain or loss otherwise realized by the Fund on any closing transaction may be deferred until all of the Fund's positions with respect to the futures contract sales are closed; and, all or part of any gain or loss may be treated as short-term capital gain or loss. C-2 Under the Federal income tax provisions applicable to regulated investment companies, at least 90% of the Fund's annual gross income must be derived from dividends, interest, payments with respect to loans of securities, and gains from the sale or other disposition of securities ("qualifying income"). Under the Internal Revenue Code of 1986, as amended (the "Code"), the Fund may include gains from forward contracts in determining qualifying income. In addition, in order that the Fund continue to qualify as a regulated investment company for Federal income tax purposes, less than 30% of its gross income for any year must be derived from gains realized on the sale or other disposition of securities held by the Fund for less than three months. For this purpose, the Fund will treat gains realized on the closing out of futures contracts as gains derived from the sale of securities. This treatment could, under certain circumstances, require the Fund to defer the closing out of futures contracts until after three months from the date the fund acquired the contracts, even if it would be more advantageous to close out the contracts prior to that time. However, under the Code, a special rule is provided with respect to certain hedging transactions which has the effect of allowing the Fund to engage in such short-term transactions in limited circumstances. Any gains realized by the Fund as a result of the constructive sales of futures contacts held by the Fund at the end of its taxable year, as described in the preceding paragraph, will in all instances be treated as derived from the sale of securities held for three months or more, regardless of the actual period for which the Fund has held the futures contracts at the end of the year. C-3 ADVANTUS CAPITAL MANAGEMENT, INC. COMPLIANCE POLICIES AND PROCEDURES PROXY VOTING POLICIES AND PROCEDURES PURPOSE The purpose of this proxy voting policy and procedure is to set forth the principles, guidelines and procedures by which Advantus Capital Management, Inc. ("Advantus") votes the proxies for the securities owned by its clients for which Advantus exercises voting authority and discretion (the "Proxies"). The procedure has been designed to ensure the Proxies are voted in the best interest of the clients in accordance with our fiduciary duties and Rule 206(4)-6 under the Investment Advisers Act of 1940 and the Investment Company Act of 1940. These policies and procedures do not apply to any client that explicitly retains authority and discretion to vote its own proxies or delegated such authority and discretion to a third party. Advantus takes no responsibility for the voting of any proxies on behalf of such clients. For those clients that delegate such authority and discretion to Advantus, this policy and procedure apply equally to registered investment companies and client accounts. Advantus has adopted different procedures that reflect the unique nature of its types of clients and contractual relationships that those clients may or may not have with custodians. It should be noted that Advantus has hired certain sub-advisers to manage assets for certain clients. In most of the sub-advisory agreements the sub-adviser has accepted the duty and responsibility to vote proxies for client accounts ("Sub-Adviser Proxy Delegation"). Advantus shall have no responsibility for voting proxies in these cases, but shall review the sub-adviser's proxy voting policies and procedures as part of the annual oversight of the sub-adviser. In addition certain clients may provide Advantus with proxy voting guidelines and procedures ("Client Directed Guidelines"). In such cases Advantus will follow the Client Directed Proxy Guidelines in voting proxies. POLICY As an investment manager, it is Advantus' responsibility to vote Proxies solely in the best interests of the clients to whom it has a fiduciary responsibility. Advantus has certain clients who have retained Wells Fargo Bank as their custodian, to whom Advantus and the client have delegated the responsibility to vote Proxies. For other clients, including clients for whom Advantus acts as sub-adviser, Advantus has been delegated the responsibility for voting proxies. Accordingly, Advantus has adopted separate procedures for these portfolios to reflect that Advantus is making proxy voting decisions directly for these portfolios. In reviewing a Proxy on a particular matter where Advantus has the responsibility to vote proxies, Advantus will endeavor to maintain consistency among the votes of all clients for which Advantus is responsible, but in all cases Advantus will make the decision that is in the best interests of the clients. The role of shareholders in corporate governance is typically limited. A majority of decisions regarding operations of the business of a corporation should be left to management's discretion. It is Advantus' policy that the shareholder should become involved with these matters only when management has failed and the corporation's performance has suffered or to protect the rights of shareholders to take action. D-1 ADVANTUS CAPITAL MANAGEMENT, INC. COMPLIANCE POLICIES AND PROCEDURES PROXY VOTING POLICIES AND PROCEDURES The guiding principle by which Advantus votes on all matters submitted to security holders is the maximization of the ultimate economic value of the securities held by its clients. This involves not only the immediate impact of each proposal but other considerations with respect to the security of the shareholders' investments over the long term. It is the general policy of Advantus to vote on all matters presented to security holders in any Proxy, but Advantus reserves the right to abstain on any particular vote or otherwise withhold its vote on any matter if in the judgment of Advantus, the costs associated with voting such Proxy outweigh the benefits to clients or if circumstances make such an abstention or withholding otherwise advisable and in the best interest of clients, in the judgment of Advantus. There may be situations in which Advantus cannot vote Proxies. For example, Advantus may not be given enough time to process the vote. Advantus, through no fault of their own, may receive a meeting notice from the company too late. In addition, if Advantus has outstanding sell orders, the Proxies for those meetings may not be voted in order to facilitate the sale of those securities. Although Advantus may hold shares on a company's record date, should it sell them prior to the company's meeting date, Advantus ultimately may decide not to vote those shares. The proxy voting guidelines attached hereto as Exhibit I state the general view and typical vote of Advantus with respect to the issues listed therein. However, these guidelines are just that - guidelines; they are not strict rules that must be obeyed in all cases. Advantus may vote shares contrary to the position indicated by the guidelines if such a vote is in the client's best interests. To the extent that Exhibit I refers to materials provided by Risk Metrics to which Advantus does not have access, the Advantus portfolio manager shall vote the proxy in the best interests of the clients as determined by the portfolio manager. PROCEDURE I. ACCOUNTS WHERE ADVANTUS IS THE ADVISER AND WELLS FARGO IS THE CUSTODIAN For all portfolios, including portfolios of the Advantus Series Fund, where Advantus manages the portfolios directly (i.e. those portfolios for which there is no sub-adviser) and where Wells Fargo Bank has been named the custodian for the client, Advantus has delegated the authority to vote Proxies on behalf of the client to Wells Fargo Bank. Proxies are directly sent to Wells Fargo Bank. Wells Fargo Bank votes the Proxies according to the Wells Fargo Bank Proxy Voting Policies and Procedures attached hereto as Exhibit I ("Wells Fargo Proxy Guidelines"). Wells Fargo Bank employs Risk Metrics as its proxy voting agent. Risk Metrics is responsible for analyzing Proxies and recommending a voting position consistent with the Wells Fargo Proxy Guidelines. D-2 ADVANTUS CAPITAL MANAGEMENT, INC. COMPLIANCE POLICIES AND PROCEDURES PROXY VOTING POLICIES AND PROCEDURES II. ALL OTHER PORTFOLIOS FOR WHICH ADVANTUS ACTS AS ADVISER OR SUB-ADVISER For all other portfolios for which Advantus is the investment adviser or sub-adviser and where proxy voting has been delegated to Advantus, and except in the cases where there is Sub-adviser Proxy Delegation or Client Directed Guidelines, Advantus will vote Proxies according to the Guidelines set forth in Appendix A to Exhibit I ("Advantus Proxy Guidelines"). Advantus will endeavor to cast votes for these client portfolios in a manner consistent with Wells Fargo Proxy Guidelines, but in all cases Advantus will vote the Proxies as Advantus determines to be in the best interests of the client. Upon receipt of the proxy voting information from the Client's custodian, Advantus will vote the Proxy and, if requested by the client, finally return a copy of each such Proxy vote to the client for their record keeping purposes. Advantus' relevant portfolio manager(s) are responsible for making the final voting decision based on their review of the proxy, their knowledge of the company and any other information readily available and determined to be relevant to the decision III. ADVANTUS INVESTMENT POLICY COMMITTEE Advantus has an Investment Policy Committee, which is responsible for overseeing the Proxy Voting Policies and Procedures, modifying the Proxy Voting Policies and Procedures from time to time, and monitoring voting decisions to avoid and resolve any conflicts of interests as set forth herein. The Investment Policy Committee will provide an oversight role to ensure that material conflicts of interest are avoided between the interests of the client on the one hand and the investment adviser on the other. Advantus shall have no responsibility for identifying conflicts of custodian banks or sub-advisers except as explicitly set forth herein. The Investment Policy Committee on a periodic basis will request from Wells Fargo all potential conflicts of interest encountered in their proxy voting process and will review accordingly for conflicts of interest. IV. REQUESTS FOR PROXY VOTING POLICIES OR PROXY VOTING RECORDS A. If an Advantus Series Fund shareholder has requested a copy of the Advantus Series Fund proxy voting policies and procedures or proxy voting record, the compliance department will work with the appropriate life insurance and/or annuity department of Minnesota Life to provide a copy to the shareholder within three business days. D-3 ADVANTUS CAPITAL MANAGEMENT, INC. COMPLIANCE POLICIES AND PROCEDURES PROXY VOTING POLICIES AND PROCEDURES B. If any other client or shareholder has requested a copy of Advantus' proxy voting policies and procedures or the proxy voting record, the compliance department will provide a copy to such person within three business days. V. CONFLICTS OF INTEREST AND GUIDELINE OVERRIDES All conflicts of interest will be resolved in the interests of Advantus clients. To identify conflicts of interest in proxy voting for clients whose Proxies are voted by Wells Fargo Bank, Advantus will annually request from Wells Fargo Banka disclosure about potential conflicts of interest encountered in their proxy voting process and a report of such disclosure shall be made to the Investment Policy Committee. If an Advantus portfolio manager believes that a vote cast in accordance with the guidelines would not be in the best interest of the client, the portfolio manager will inform the Advantus compliance department of why the vote should be cast in a manner different from the applicable guidelines, and will also inform the compliance officer of any matter which has or may give rise to a conflict of interest on the part of the portfolio manager or Advantus. In such instances, the compliance department will make a determination whether a potential conflict of interest is presented. If the compliance department makes a determination that there is a potential conflict of interest, the matter will be brought before the Investment Policy Committee of Advantus to make a determination as to how to proceed. The Investment Policy Committee will make a final determination as to whether there is a material conflict of interest for which special steps should be taken. The steps that may be considered include but are not limited to: (i) follow the prescribed Wells Fargo Proxy Guidelines or the Advantus Proxy Guidelines, (ii) delegate the decision to a third party, (iii) have the client vote its own proxy, (iv) disclose the conflict to the client, or (v) defer to the voting recommendation of the client. The Proxy will be handled in the manner authorized by the Investment Policy Committee. VI. RECORDKEEPING Advantus or its designee maintains a record of all proxy voting decisions and votes cast to the extent required by applicable law and regulations. These Proxy Voting Policies and Procedures are subject to change upon approval by Advantus without notice. D-4 ADVANTUS CAPITAL MANAGEMENT, INC. COMPLIANCE POLICIES AND PROCEDURES PROXY VOTING POLICIES AND PROCEDURES VII. CERTAIN RESPONSIBILITIES FOR ADVANTUS SERIES FUND, INC. Under the Proxy Voting Procedure adopted by ASF certain additional responsibilities have been delegated to Advantus. Advantus will perform such duties in the manner set forth in such procedure. Exhibits: Exhibit I - Wells Fargo Proxy Voting Policies and Procedures Written By: Vicki Bailey Last Reviewed By: Jim Moeller, June 2008; Vicki Bailey, August 2008 Compliance Procedure Effective Date: October 1, 2004 Version: 2008-1 Business Owner: Lisa Glaus, Joe Betlej, Michelle Healy (Wells Fargo contact) Training: Portfolio managers and operations staff involved in proxy voting D-5 ADVANTUS CAPITAL MANAGEMENT, INC. COMPLIANCE POLICIES AND PROCEDURES PROXY VOTING POLICIES AND PROCEDURES Exhibit I WELLS FARGO BANK PROXY VOTING POLICIES AND PROCEDURES 1. Scope of Policies and Procedures. These Proxy Voting Policies and Procedures ("Procedures") are used to determine how to vote proxies relating to portfolio securities held in accounts managed by Wells Fargo Bank and whose voting authority has been delegated to Wells Fargo Bank. Wells Fargo Bank believes that the Procedures are reasonably designed to ensure that proxy matters are conducted in the best interest of clients, in accordance with its fiduciary duties. 2. Voting Philosophy. Wells Fargo Bank exercises its voting responsibility, as a fiduciary, with the goal of maximizing value to shareholders consistent with the governing laws and investment policies of each portfolio. While securities are not purchased to exercise control or to seek to effect corporate change through share ownership, Wells Fargo Bank supports sound corporate governance practices within companies in which they invest. Wells Fargo Bank utilizes Institutional Shareholders Services (ISS), a proxy-voting agent, for voting proxies and proxy voting analysis and research. ISS votes proxies in accordance with the Wells Fargo Bank Proxy Guidelines established by Wells Fargo Proxy Committee and attached hereto as Appendix A. 3. Responsibilities (A) Proxy Administrator & Proxy Committee Wells Fargo Bank has designated a Proxy Administrator who is responsible for administering and overseeing the proxy voting process to ensure the implementation of the Procedures. The Proxy Administrator monitors ISS to determine that ISS is accurately applying the Procedures as set forth herein and that proxies are voted in a timely and responsible manner. The Proxy Administrator reviews the continuing appropriateness of the Procedures set forth herein, recommends revisions as necessary, serves as chairperson for the Proxy Committee and provides an annual update to the Trust Committee on the proxy voting process. 2008 Proxy Committee Members - Kevin Ario (Chairman), David Lauer, Brigid Breen, Danielle Barr, Dean Junkans, Laurie Nordquist and Doug Murray. (i) Voting Guidelines. Wells Fargo Bank Proxy Guidelines set forth Wells Fargo's proxy policy statement and guidelines regarding how proxies will be voted on the issues specified. ISS will vote proxies for or against as directed by the guidelines. Where the guidelines specify a "case by case" determination for a particular issue, ISS will evaluate D-6 ADVANTUS CAPITAL MANAGEMENT, INC. COMPLIANCE POLICIES AND PROCEDURES PROXY VOTING POLICIES AND PROCEDURES the proxies based on thresholds established in the proxy guidelines. In addition, proxies relating to issues not addressed in the guidelines, especially foreign securities, Wells Fargo Bank will defer to ISS Proxy Guidelines. Finally, with respect to issues for which a vote for or against is specified by the Procedures, the Proxy Administrator shall have the authority to direct ISS to forward the proxy to him or her for a discretionary vote, in consultation with the [Proxy Committee or the portfolio manager covering the subject security] if the Proxy Committee [or the portfolio manager] determines that a case-by-case review of such matter is warranted, provided however, that such authority to deviate from the Procedures shall not be exercised if the Proxy Administrator is aware of any conflict of interest (as described further below) with respect to such matter. (ii) Voting Discretion. In all cases, the Proxy Administrator will exercise its voting discretion in accordance with the voting philosophy of the Wells Fargo Bank Proxy Guidelines. In cases where a proxy is forwarded by ISS to the Proxy Administrator, the Proxy Administrator may be assisted in its voting decision through receipt of: (i) independent research and voting recommendations provided by ISS or other independent sources; or (ii) information provided by company managements and shareholder groups. In the event that the Proxy Administrator is aware of a material conflict of interest involving Wells Fargo Bank or any of its affiliates regarding a proxy that has been forwarded to him or her, the Proxy Administrator will return the proxy to ISS to be voted in conformance with the voting guidelines of ISS. Voting decisions made by the Proxy Administrator will be reported to ISS to ensure that the vote is registered in a timely manner. (iii) Securities on Loan. As a general matter, securities on loan will not be recalled to facilitate proxy voting (in which case the borrower of the security shall be entitled to vote the proxy). (iv) Conflicts of Interest. Wells Fargo Bank has obtained a copy of ISS policies, procedures and practices regarding potential conflicts of interest that could arise in ISS proxy voting services to Wells Fargo Bank as a result of business conducted by ISS. Wells Fargo Bank believes that potential conflicts of interest by ISS are minimized by these policies, procedures and practices. In addition, Wells Fargo Bank may have a conflict of interest regarding a proxy to be voted upon if, for example, Wells Fargo Bank and/or its affiliates have other relationships with the issuer of the proxy. Wells Fargo Bank believes that, in most instances, any material conflicts of interest will be minimized through a strict and objective application by ISS of the voting guidelines attached hereto. However, when the Proxy Administrator is aware of a material conflict of interest regarding a matter that would otherwise require a vote by Wells Fargo Bank, the Proxy Administrator shall defer to ISS to vote in conformance with the voting guidelines of ISS. In addition, the Proxy Administrator will seek to avoid any undue influence as a result of any material D-7 ADVANTUS CAPITAL MANAGEMENT, INC. COMPLIANCE POLICIES AND PROCEDURES PROXY VOTING POLICIES AND PROCEDURES conflict of interest that exists between the interest of a client and Wells Fargo Bank or any of its affiliates. To this end, an independent fiduciary engaged by Wells Fargo will direct the Proxy Administrator on voting instructions for the Wells Fargo proxy. (v) Practical Limitations to Proxy Voting. Wells Fargo Bank uses its best efforts to vote proxies, in certain circumstances it may be impractical or impossible for Wells Fargo Bank to vote proxies (e.g. limited value or unjustifiable costs). (B) ISS ISS has been delegated with the following responsibilities: - Research and make voting determinations in accordance with the Wells Fargo Bank Proxy Guidelines described in Appendix A; - Vote and submit proxies in a timely manner; - Handle other administrative functions of proxy voting; - Maintain records of proxy statements received in connection with proxy votes and provide copies of such proxy statements promptly upon request; - Maintain records of votes cast; and - Provide recommendations with respect to proxy voting matters in general. (C) Except in instances where clients have retained voting authority, Wells Fargo Bank will instruct custodians of client accounts to forward all proxy statements and materials received in respect of client accounts to ISS. (D) Notwithstanding the foregoing, Wells Fargo Bank retains final authority and fiduciary responsibility for proxy voting. 4. Record Retention. Wells Fargo Bank will maintain the following records relating to the implementation of the Procedures: - A copy of these proxy voting polices and procedures; - Proxy statements received for client securities (which will be satisfied by relying on EDGAR or ISS); - Records of votes cast on behalf of clients (which ISS maintains on behalf of Wells Fargo Bank); - Records of each written client request for proxy voting records and Wells Fargo Bank 's written response to any client request (written or oral) for such records; and D-8 ADVANTUS CAPITAL MANAGEMENT, INC. COMPLIANCE POLICIES AND PROCEDURES PROXY VOTING POLICIES AND PROCEDURES - Any documents prepared by Wells Fargo Bank or ISS that were material to making a proxy voting decision. Such proxy voting books and records shall be maintained at an office of Wells Fargo Bank in an easily accessible place for a period of seven years. 5. Disclosure of Policies and Procedures. Wells Fargo Bank will disclose to its clients and prospective clients a summary description of its proxy voting policy and procedures. A detailed copy of the Wells Fargo Bank Proxy Voting Policies and Procedures and Appendix A: Wells Fargo Bank Proxy Guidelines will be provided to clients upon request. Wells Fargo Bank will also provide proxy statements and any records as to how we voted proxies on behalf of client upon request. Except as otherwise required by law, Wells Fargo Bank has a general policy of not disclosing to any issuer or third party how its client proxies are voted. February 2008 D-9 ADVANTUS CAPITAL MANAGEMENT, INC. COMPLIANCE POLICIES AND PROCEDURES PROXY VOTING POLICIES AND PROCEDURES APPENDIX A WELLS FARGO BANK PROXY GUIDELINES FOR 2008 Wells Fargo Bank will vote proxies relating to portfolio securities held in accounts managed by Wells Fargo Bank and whose voting authority has been delegated to Wells Fargo Bank in accordance with the following proxy voting guidelines. To the extent these guidelines do not address a proxy voting proposal and the proposal does not give rise to a material conflict of interest, Wells Fargo Bank will vote pursuant to ISS' 2008 U.S. and International proxy voting guidelines. UNCONTESTED ELECTION OF DIRECTORS OR TRUSTEES WFB will generally vote for all uncontested director or trustee nominees. The FOR Nominating Committee is in the best position to select nominees who are available and capable of working well together to oversee management of the company. WFB will not require a performance test for directors. WFB will generally vote for binding resolutions calling for directors to be FOR elected with an affirmative majority of votes cast provided it does not conflict with state law where the company is incorporated. Resolutions need to allow for a carve-out for a plurality vote standard when there are more nominees than seats. WFB will withhold votes for a director if the nominee fails to attend at WITHHOLD least 75% of the board and committee meetings without a valid excuse. WFB will vote against routine election of directors if any of the following AGAINST apply: company fails to disclose adequate information in a timely manner, serious issues with the finances, questionable transactions, conflicts of interest, record of abuses against minority shareholder interests, bundling of director elections, and/or egregious governance practices. WFB will withhold votes from the entire board (except for new nominees) where WITHHOLD the director(s) receive more than 50% withhold votes out of those cast and the issue that was the underlying cause of the high level of withhold votes has not been addressed. WFB will withhold votes from audit committee members when a material weakness in WITHHOLD the effectiveness of their internal controls rises to a level of serious
D-10 ADVANTUS CAPITAL MANAGEMENT, INC. COMPLIANCE POLICIES AND PROCEDURES PROXY VOTING POLICIES AND PROCEDURES concern, as indicated by disclosures required under Section 404 of the Sarbanes-Oxley Act. WFB may withhold votes from compensation committee members who presided over CASE-BY-CASE options backdating. Factors considered will include motive, length of time of options backdating, size of restatement, corrective actions taken and adoption of grant policy prohibiting backdating. RATIFICATION OF AUDITORS WFB will vote against auditors and withhold votes from audit committee members AGAINST/ if non-audit fees are greater than audit fees, audit-related fees, and permitted WITHHOLD tax fees, combined. WFB will follow the disclosure categories being proposed by the SEC in applying the above formula. With the above exception, WFB will generally vote for proposals to ratify FOR auditors unless: - an auditor has a financial interest in or association with the company, and AGAINST is therefore not independent, or - there is reason to believe that the independent auditor has rendered an AGAINST opinion that is neither accurate nor indicative of the company's financial position. WFB will vote proposals to ratify a company's auditors after considering terms CASE-BY-CASE of agreement, impact on shareholder rights, rationale for establishing the agreement, quality of disclosure and historical practices. WFB will vote against proposals that require auditors to attend annual meetings AGAINST as auditors are regularly reviewed by the board audit committee, and such attendance is unnecessary. WFB will consider shareholder proposals requiring companies to prohibit their CASE-BY-CASE auditors from engaging in non-audit services on a case-by-case basis (or cap level of non-audit services). WFB will vote for shareholder proposals requesting a shareholder vote for audit FOR firm ratification. WFB will vote against shareholder proposals asking for audit firm rotation. This AGAINST practice is viewed as too disruptive and too costly to implement for the benefit achieved.
D-11 ADVANTUS CAPITAL MANAGEMENT, INC. COMPLIANCE POLICIES AND PROCEDURES PROXY VOTING POLICIES AND PROCEDURES COMPANY NAME CHANGE/PURPOSE WFB will vote for proposals to change the company name as management and the FOR board is best suited to determine if such change in company name is necessary. However, where the name change is requested in connection with a reorganization CASE-BY-CASE of the company, the vote will be based on the merits of the reorganization. In addition, WFB will generally vote for proposals to amend the purpose of the company. Management is in the best position to know whether the description of what the company does is accurate, or whether it needs to be updated by deleting, adding or revising language. FOR EMPLOYEE STOCK PURCHASE PLANS/401(k) EMPLOYEE BENEFIT PLANS WFB will vote for proposals to adopt, amend or increase authorized shares for employee stock purchase plans and 401(k) plans for employees as properly structured plans enable employees to purchase common stock at a slight discount FOR and thus own a beneficial interest in the company, provided that the total cost of the company's plan is not above the allowable cap for the company. Similarly, WFB will generally vote for proposals to adopt or amend thrift and savings plans, retirement plans, pension plans and profit plans. FOR APPROVE OTHER BUSINESS WFB will generally vote for proposals to approve other business. This transfer of authority allows the corporation to take certain ministerial steps that may arise at the annual or special meeting. FOR However, WFB retains the discretion to vote against such proposals if adequate information is not provided in the proxy statement, or the measures are significant and no further approval from shareholders is sought. AGAINST INDEPENDENT BOARD CHAIRMAN WFB will vote against proposals requiring that the positions of chairman and CEO AGAINST be held separately. WFB would prefer to see the chairman and chief executive positions be held by different individuals. However, separation of the two positions may not be in shareholders' best interests if the company has a limited roster of executive
D-12 ADVANTUS CAPITAL MANAGEMENT, INC. COMPLIANCE POLICIES AND PROCEDURES PROXY VOTING POLICIES AND PROCEDURES officers, or a recently organized company may need to combine these positions temporarily. It should also be noted that we support independence and would support a lead independent director. However, separating the chairman and CEO in most companies would be too disruptive to the company. INDEPENDENT BOARD OF DIRECTORS/BOARD COMMITTEES WFB will vote for proposals requiring that two-thirds of the board be FOR independent directors. An independent board faces fewer conflicts and is best prepared to protect stockholders' interests. WFB will withhold votes from insiders and affiliated outsiders on boards that WITHHOLD are not at least majority independent. WFB will withhold votes from compensation committee members where there is a pay-for-performance disconnect (for Russell 3000 companies). WITHHOLD WFB will vote for proposals requesting that the board audit, compensation and/or nominating committees be composed of independent directors, only. Committees should be composed entirely of independent directors in order to avoid conflicts of interest. FOR WFB will withhold votes from any insiders or affiliated outsiders on audit, compensation or nominating committees. WFB will withhold votes from any insiders or affiliated outsiders on the board if any of these key committees has not been WITHHOLD established. Also withhold votes where the board attests that the independent directors serve the function of a nominating committee. WFB will vote against proposals from shareholders requesting an independent compensation consultant. AGAINST MINIMUM STOCK REQUIREMENTS BY DIRECTORS WFB will vote against proposals requiring directors to own a minimum number of shares of company stock in order to qualify as a director, or to remain on the board. Minimum stock ownership requirements can impose an across-the-board requirement that could prevent qualified individuals from serving as directors. AGAINST INDEMNIFICATION AND LIABILITY PROVISIONS FOR DIRECTORS AND OFFICERS WFB will vote for proposals to allow indemnification of directors and officers,
D-13 ADVANTUS CAPITAL MANAGEMENT, INC. COMPLIANCE POLICIES AND PROCEDURES PROXY VOTING POLICIES AND PROCEDURES when the actions taken were on behalf of the company and no criminal violations FOR occurred. WFB will also vote in favor of proposals to purchase liability insurance covering liability in connection with those actions. Not allowing companies to indemnify directors and officers to the degree possible under the law would limit the ability of the company to attract qualified individuals. Alternatively, WFB will vote against indemnity proposals that are overly AGAINST broad. For example, WFB will oppose proposals to indemnify directors for acts going beyond mere carelessness, such as gross negligence, acts taken in bad faith, acts not otherwise allowed by state law or more serious violations of fiduciary obligations. NOMINEE STATEMENT IN THE PROXY WFB will vote against proposals that require board nominees to have a statement AGAINST of candidacy in the proxy, since the proxy statement already provides adequate information pertaining to the election of directors. LIMITATION ON NUMBER OF BOARDS A DIRECTOR MAY SIT ON WFB will withhold votes from non-CEO directors who sit on more than six boards. WITHHOLD WFB does not have a restriction on the number of boards a CEO sits on. DIRECTOR TENURE/RETIREMENT AGE WFB will vote against proposals to limit the tenure or retirement age of directors as such limitations based on an arbitrary number could prevent qualified individuals from serving as directors. However, WFB is in favor of inserting cautionary language when the average director tenure on the board exceeds 15 years for the entire board. AGAINST BOARD POWERS/PROCEDURES/QUALIFICATIONS WFB will consider on a case-by-case basis proposals to amend the corporation's By-laws so that the Board of Directors shall have the power, without the assent or vote of the shareholders, to make, alter, amend, or rescind the By-laws, fix the amount to be reserved as working capital, and fix the number of directors CASE-BY-CASE and what number shall constitute a quorum of the Board. In determining these issues, WFB will rely on the proxy voting Guidelines. LOANS TO OFFICERS
D-14 ADVANTUS CAPITAL MANAGEMENT, INC. COMPLIANCE POLICIES AND PROCEDURES PROXY VOTING POLICIES AND PROCEDURES WFB will consider on a case-by-case basis proposals to authorize the corporation to make loans or to guarantee the obligations of officers of the corporation or CASE-BY-CASE any of its affiliates. ADJOURN MEETING TO SOLICIT ADDITIONAL VOTES WFB will examine proposals to adjourn the meeting to solicit additional votes on a case-by-case basis. As additional solicitation may be costly and could result in coercive pressure on shareholders, WFB will consider the nature of the proposal and its vote recommendations for the scheduled meeting. CASE-BY-CASE WFB will vote for this item when: WFB is supportive of the underlying merger proposal; the company provides a sufficient, compelling reason to support the adjournment proposal; and the authority is limited to adjournment proposals requesting the authority to adjourn solely to solicit proxies to approve a transaction the WFB supports. FOR CONTESTED ELECTION OF DIRECTORS OR TRUSTEES REIMBURSEMENT OF SOLICITATION EXPENSES WFB will consider contested elections on a case-by-case basis, considering the following factors: long-term financial performance of the target company relative to its industry; management's track record; background of the proxy contest; qualifications of director or trustee nominees (both slates); evaluation of what each side is offering shareholders as well as the likelihood that the proposed objectives and goals can be met; and stock ownership positions. CASE-BY-CASE In addition, decisions to provide reimbursement for dissidents waging a proxy contest are made on a case-by-case basis as proxy contests are governed by a mix of federal regulation, state law, and corporate charter and bylaw provisions. CASE-BY-CASE BOARD STRUCTURE: STAGGERED VS. ANNUAL ELECTIONS WFB will consider the issue of classified boards on a case-by-case basis. In some cases, the division of the board into classes, elected for staggered terms, can entrench the incumbent management and make them less responsive to CASE-BY-CASE shareholder concerns. On the other hand, in some cases, staggered elections may provide for the continuity of experienced directors on the Board. REMOVAL OF DIRECTORS WFB will consider on a case-by-case basis proposals to eliminate shareholders' rights to remove directors with or without cause or only with approval of two-
D-15 ADVANTUS CAPITAL MANAGEMENT, INC. COMPLIANCE POLICIES AND PROCEDURES PROXY VOTING POLICIES AND PROCEDURES thirds or more of the shares entitled to vote. CASE-BY-CASE However, a requirement that a 75% or greater vote be obtained for removal of directors is abusive and will warrant a vote against the proposal. AGAINST BOARD VACANCIES WFB will vote against proposals that allow the board to fill vacancies without AGAINST shareholder approval as these authorizations run contrary to basic shareholders' rights. Alternatively, WFB will vote for proposals that permit shareholders to elect FOR directors to fill board vacancies. CUMULATIVE VOTING WFB will vote on proposals to permit or eliminate cumulative voting on a case-by-case basis based upon the existence of a counter balancing governance structure and company performance, in accordance with its proxy voting guideline philosophy. However, if the board is elected annually we will not support cumulative voting. CASE-BY-CASE SHAREHOLDERS' RIGHT TO CALL A SPECIAL MEETING SHAREHOLDER ABILITY TO ACT BY WRITTEN CONSENT Proposals providing that stockholder action may be taken only at an annual or special meeting of stockholder and not by written consent, or increasing the shareholder vote necessary to call a special meeting, will be voted on a case by CASE-BY-CASE case basis in accordance with the proxy voting guidelines. BOARD SIZE WFB will vote for proposals that seek to fix the size of the board, as the ability for management to increase or decrease the size of the board in the FOR face of a proxy contest may be used as a takeover defense. However, if the company has cumulative voting, downsizing the board may decrease AGAINST a minority shareholder's chances of electing a director. By increasing the size of the board, management can make it more difficult for dissidents to gain control of the board. Fixing the size of the board also prevents a reduction in the board size as a means to oust independent directors or those who cause friction within an otherwise homogenous board. SHAREHOLDER RIGHTS PLAN (POISON PILLS)
D-16 ADVANTUS CAPITAL MANAGEMENT, INC. COMPLIANCE POLICIES AND PROCEDURES PROXY VOTING POLICIES AND PROCEDURES WFB will generally vote for proposals that request a company to submit its FOR poison pill for shareholder ratification. WFB will withhold votes from all directors (except for new nominees) if the WITHHOLD company has adopted or renewed a poison pill without shareholder approval since the company's last annual meeting, does not put the pill to a vote at the current annual meeting, and does not have a requirement or does not commit to put the pill to shareholder vote within 12 months. In addition, WFB will withhold votes on all directors at any company that responds to the majority of the shareholders voting by putting the poison pill to a shareholder vote with a recommendation other than to eliminate the pill. Alternatively, WFB will analyze proposals to redeem a company's poison pill, or CASE-BY-CASE requesting the ratification of a poison pill on a case-by-case basis. Poison pills are one of the most potent anti-takeover measures and are generally adopted by boards without shareholder approval. These plans harm shareholder value and entrench management by deterring stock acquisition offers that are not favored by the board. FAIR PRICE PROVISIONS WFB will consider fair price provisions on a case-by-case basis, evaluating factors such as the vote required to approve the proposed mechanism, the vote required to approve the proposed acquisition, the vote required to repeal the fair price provision, and the mechanism for determining the fair price. CASE-BY-CASE WFB will vote against fair price provisions with shareholder vote requirements of 75% or more of disinterested shares. AGAINST GREENMAIL WFB will generally vote in favor of proposals limiting the corporation's authority to purchase shares of common stock (or other outstanding securities) from a holder of a stated interest (5% or more) at a premium unless the same FOR offer is made to all shareholders. These are known as "anti-greenmail" provisions. Greenmail discriminates against rank-and-file shareholders and may have an adverse effect on corporate image. If the proposal is bundled with other charter or bylaw amendments, WFB will analyze such proposals on a case-by-case basis. In addition, WFB will analyze restructurings that involve the payment of pale greenmail on a case-by-case basis. CASE-BY-CASE
D-17 ADVANTUS CAPITAL MANAGEMENT, INC. COMPLIANCE POLICIES AND PROCEDURES PROXY VOTING POLICIES AND PROCEDURES VOTING RIGHTS WFB will vote for proposals that seek to maintain or convert to a one-share, one-vote capital structure as such a principle ensures that management is accountable to all the company's owners. FOR Alternatively, WFB will vote against any proposals to cap the number of votes a shareholder is entitled to. Any measure that places a ceiling on voting may entrench management and lessen its interest in maximizing shareholder value. AGAINST DUAL CLASS/MULTIPLE-VOTING STOCK WFB will vote against proposals that authorize, amend or increase dual class or multiple-voting stock which may be used in exchanges or recapitalizations. Dual AGAINST class or multiple-voting stock carry unequal voting rights, which differ from those of the broadly traded class of common stock. Alternatively, WFB will vote for the elimination of dual class or FOR multiple-voting stock, which carry different rights than the common stock. For foreign corporations, WFB will vote for proposals that create preference shares, provided the loss of voting rights is adequately compensated with a higher dividend and the total amount of preference share capital is not greater than 50% of the total outstanding. Preference shares are a common and legitimate form of corporate financing and can enhance shareholder value. FOR SUPERMAJORITY VOTE PROVISIONS WFB will generally consider on a case-by-case basis proposals to increase the shareholder vote necessary to approve mergers, acquisitions, sales of assets etc. and to amend the corporation's charter or by-laws. The factors considered are those specified in the proxy guidelines. CASE-BY-CASE However, a supermajority requirement of 75% or more is abusive and WFB will vote against proposals that provide for them. AGAINST Supermajority vote provisions require voting approval in excess of a simple majority of the outstanding shares for a proposal. Companies may include supermajority lock-in provisions, which occur when changes are made to a corporation's governing documents, and once approved, a supermajority vote is required to amend or repeal the changes. CONFIDENTIAL VOTING WFB will vote for proposals to adopt confidential voting. VOTE TABULATIONS
D-18 ADVANTUS CAPITAL MANAGEMENT, INC. COMPLIANCE POLICIES AND PROCEDURES PROXY VOTING POLICIES AND PROCEDURES WFB will vote against proposals asking corporations to refrain from counting AGAINST abstentions and broker non-votes in their vote tabulations and to eliminate the company's discretion to vote unmarked proxy ballots. Vote counting procedures are determined by a number of different standards, including state law, the federal proxy rules, internal corporate policies, and mandates of the various stock exchanges. Specifically in Japan, WFB will vote against management proposals amending their articles to relax their quorum requirement for special resolutions (including mergers, article amendments, and option plans) from one-half to one-third of issued capital (although such resolutions would still require two-thirds majority of votes cast). AGAINST EQUAL ACCESS TO THE PROXY WFB will evaluate Shareholder proposals requiring companies to give shareholders CASE-BY-CASE access to the proxy ballot for the purpose of nominating board members, on a case-by-case basis taking into account the ownership threshold proposed in the resolution and the proponent's rationale for the proposal at the targeted company in terms of board and director conduct. ANNUAL MEETINGS WFB will vote for proposals to amend procedures or change date or location of the annual meeting. Decisions as to procedures, dates or locations of meetings are best placed with management. FOR Alternatively, WFB will vote against proposals from shareholders calling for a change in the location or date of annual meetings as no date or location proposed will be acceptable to all shareholders. AGAINST WFB will generally vote in favor of proposals to reduce the quorum necessary for shareholders' meetings, subject to a minimum of a simple majority of the company's outstanding voting shares. FOR SHAREHOLDER ADVISORY COMMITTEES/INDEPENDENT INSPECTORS WFB will vote against proposals seeking to establish shareholder advisory committees or independent inspectors. The existence of such bodies dilutes the responsibility of the board for managing the affairs of the corporation. AGAINST TECHNICAL AMENDMENTS TO THE CHARTER OF BYLAWS WFB will generally vote in favor of charter and bylaw amendments proposed solely to conform with modern business practices, for simplification, or to comply with what management's counsel interprets as applicable law. FOR
D-19 ADVANTUS CAPITAL MANAGEMENT, INC. COMPLIANCE POLICIES AND PROCEDURES PROXY VOTING POLICIES AND PROCEDURES However, amendments that have a material effect on shareholder's rights will be considered on a case-by-case basis. CASE-BY-CASE BUNDLED PROPOSALS WFB will vote for bundled or "conditional" proxy proposals on a case-by-case basis, as WFB will examine the benefits and costs of the packaged items, and determine if the effect of the conditioned items are in the best interests of shareholders. CASE-BY-CASE COMMON STOCK AUTHORIZATIONS/REVERSE STOCK SPLITS/FORWARD STOCK SPLITS WFB will follow the ISS capital structure model in evaluating requested increases in authorized common stock. In addition, even if capital requests of less than or equal to 300% of outstanding shares fail the calculated allowable CASE-BY-CASE cap, WFB will evaluate the request on a case-by-case basis, potentially voting for the proposal based on the company's performance and whether the company's ongoing use of shares has shown prudence. Further, the company should identify what the stock increases are to be used for, i.e. a proposed stock split, issuance of shares for acquisitions, or for general business purposes. Also to be considered is whether the purpose of the proposed increase is to strengthen takeover defenses, in which case WFB will vote against the proposal. AGAINST Such increases give management too much power and are beyond what a company would normally need during the course of a year. They may also allow management to freely place the shares with an allied institution or set the terms and prices of the new shares. For reverse stock splits, WFB will generally vote for proposals to implement the split provided the number of authorized common shares is reduced to a level that FOR does not represent an unreasonably large increase in authorized but unissued shares. The failure to reduce authorized shares proportionally to any reverse split has potential adverse anti-takeover consequences. However, such circumstances may be warranted if delisting of the company's stock is imminent and would result in greater harm to shareholders than the excessive share authorization. WFB will evaluate "Going Dark" transactions, which allow listed companies to CASE-BY-CASE de-list and terminate the registration of their common stock on a case-by-case basis, determining whether the transaction enhances shareholder value. WFB will generally vote in favor of forward stock splits. FOR DIVIDENDS
D-20 ADVANTUS CAPITAL MANAGEMENT, INC. COMPLIANCE POLICIES AND PROCEDURES PROXY VOTING POLICIES AND PROCEDURES WFB will vote for management proposals to allocate income and set dividends. FOR WFB will also vote for proposals that authorize a dividend reinvestment program as it allows investors to receive additional stock in lieu of a cash dividend. FOR However, if a proposal for a special bonus dividend is made that specifically rewards a certain class of shareholders over another, WFB will vote against the AGAINST proposal. WFB will also vote against proposals from shareholders requesting management to redistribute profits or restructure investments. Management is best placed to AGAINST determine how to allocate corporate earnings or set dividends. In addition, WFB will vote for proposals to set director fees. FOR REDUCE THE PAR VALUE OF THE COMMON STOCK WFB will vote for proposals to reduce the par value of common stock. FOR PREFERRED STOCK AUTHORIZATION WFB will generally vote for proposals to create preferred stock in cases where the company expressly states that the stock will not be used as a takeover defense or carry superior voting rights, or where the stock may be used to consummate beneficial acquisitions, combinations or financings. FOR Alternatively, WFB will vote against proposals to authorize or issue preferred stock if the board has asked for the unlimited right to set the terms and conditions for the stock and may issue it for anti-takeover purposes without shareholder approval (blank check preferred stock). AGAINST In addition, WFB will vote against proposals to issue preferred stock if the shares to be used have voting rights greater than those available to other AGAINST shareholders. WFB will vote for proposals to require shareholder approval of blank check preferred stock issues for other than general corporate purposes (white squire placements). FOR Finally, WFB will consider on a case-by-case basis proposals to modify the rights of preferred shareholders and to increase or decrease the dividend rate of preferred stock. CASE-BY-CASE
D-21 ADVANTUS CAPITAL MANAGEMENT, INC. COMPLIANCE POLICIES AND PROCEDURES PROXY VOTING POLICIES AND PROCEDURES RECLASSIFICATION OF SHARES WFB will consider proposals to reclassify a specified class or series of shares CASE-BY-CASE on a case-by-case basis. PREEMPTIVE RIGHTS WFB will generally vote for proposals to eliminate preemptive rights. Preemptive rights are unnecessary to protect shareholder interests due to the size of most modern companies, the number of investors and the liquidity of trading. FOR SHARE REPURCHASE PLANS WFB will vote for share repurchase plans, unless: FOR - there is clear evidence of past abuse of the authority; or AGAINST - the plan contains no safeguards against selective buy-backs. AGAINST Corporate stock repurchases are a legitimate use of corporate funds and can add to long-term shareholder returns. EXECUTIVE AND DIRECTOR COMPENSATION PLANS WFB will analyze on a case-by-case basis proposals on executive or director compensation plans, with the view that viable compensation programs reward the creation of stockholder wealth by having a high payout sensitivity to increases in shareholder value. Such proposals may seek shareholder approval to adopt a new plan, or to increase shares reserved for an existing plan. CASE-BY-CASE WFB will review the potential cost and dilutive effect of the plan. After determining how much the plan will cost, ISS (Institutional Shareholder Services) evaluates whether the cost is reasonable by comparing the cost to an allowable cap. The allowable cap is industry-specific, market cap-base, and pegged to the average amount paid by companies performing in the top quartile of their peer groups. If the proposed cost is below the allowable cap, WFB will vote for the plan. ISS will also apply a pay for performance overlay in assessing equity-based compensation plans for Russell 3000 companies. FOR If the proposed cost is above the allowable cap, WFB will vote against the plan. AGAINST Among the plan features that may result in a vote against the plan are: - plan administrators are given the authority to reprice or replace underwater options; repricing guidelines will conform to changes in the NYSE and NASDAQ listing rules. AGAINST
D-22 ADVANTUS CAPITAL MANAGEMENT, INC. COMPLIANCE POLICIES AND PROCEDURES PROXY VOTING POLICIES AND PROCEDURES WFB will vote against equity plans that have high average three-year burn rate. AGAINST (The burn rate is calculated as the total number of stock awards and stock options granted any given year divided by the number of common shares outstanding.) WFB will define a high average three-year burn rate as the following: The company's most recent three-year burn rate exceeds one standard deviation of its four-digit GICS peer group segmented by Russell 3000 index and non-Russell 3000 index; and the company's most recent three-year burn rate exceeds 2% of common shares outstanding. For companies that grant both full value awards and stock options to their employees, WFB shall apply a premium on full value awards for the past three fiscal years. Even if the equity plan fails the above burn rate, WFB will vote for the plan if FOR the company commits in a public filing to a three-year average burn rate equal to its GICS group burn rate mean plus one standard deviation. If the company fails to fulfill its burn rate commitment, WFB will consider withholding from the members of the compensation committee. WFB will calculate a higher award value for awards that have Dividend Equivalent CASE-BY-CASE Rights (DER's) associated with them. WFB will generally vote for shareholder proposals requiring performance-based CASE-BY-CASE stock options unless the proposal is overly restrictive or the company demonstrates that it is using a substantial portion of performance-based awards for its top executives. WFB will vote for shareholder proposals asking the company to expense stock FOR options, as a result of the FASB final rule on expensing stock options. WFB will generally vote for shareholder proposals to exclude pension fund income FOR in the calculation of earnings used in determining executive bonuses/compensation. WFB will withhold votes from compensation committee members if they fail to WITHHOLD submit one-time transferable stock options (TSO's) to shareholders for approval. WFB will generally vote for TSO awards within a new equity plan if the total FOR cost of the equity plan is less than the company's allowable cap. WFB will generally vote against shareholder proposals to ban future stock option AGAINST grants to executives. This may be supportable in extreme cases where a
D-23 ADVANTUS CAPITAL MANAGEMENT, INC. COMPLIANCE POLICIES AND PROCEDURES PROXY VOTING POLICIES AND PROCEDURES company is a serial repricer, has a huge overhang, or has a highly dilutive, broad-based (non-approved) plans and is not acting to correct the situation. WFB will evaluate shareholder proposals asking companies to adopt holding CASE-BY-CASE periods for their executives on a case-by-case basis taking into consideration the company's current holding period or officer share ownership requirements, as well as actual officer stock ownership in the company. For certain OBRA-related proposals, WFB will vote for plan provisions that (a) CASE-BY-CASE place a cap on annual grants or amend administrative features, and (b) add performance criteria to existing compensation plans to comply with the provisions of Section 162(m) of the Internal Revenue Code. In addition, director compensation plans may also include stock plans that CASE-BY-CASE provide directors with the option of taking all or a portion of their cash compensation in the form of stock. WFB will consider these plans based on their voting power dilution. WFB will generally vote for retirement plans for directors. FOR WFB will evaluate compensation proposals (Tax Havens) requesting share option CASE-BY-CASE schemes or amending an existing share option scheme on a case-by-case basis. Stock options align management interests with those of shareholders by motivating executives to maintain stock price appreciation. Stock options, however, may harm shareholders by diluting each owner's interest. In addition, exercising options can shift the balance of voting power by increasing executive ownership. BONUS PLANS WFB will vote for proposals to adopt annual or long-term cash or cash-and-stock bonus plans on a case-by-case basis. These plans enable companies qualify for a tax deduction under the provisions of Section 162(m) of the IRC. Payouts under FOR these plans may either be in cash or stock and are usually tied to the attainment of certain financial or other performance goals. WFB will consider whether the plan is comparable to plans adopted by companies of similar size in the company's industry and whether it is justified by the company's performance. DEFERRED COMPENSATION PLANS
D-24 ADVANTUS CAPITAL MANAGEMENT, INC. COMPLIANCE POLICIES AND PROCEDURES PROXY VOTING POLICIES AND PROCEDURES WFB will generally vote for proposals to adopt or amend deferred compensation plans as they allow the compensation committee to tailor the plan to the needs of the executives or board of directors, unless - the proposal is embedded in an executive or director compensation plan that is contrary to guidelines DISCLOSURE ON EXECUTIVE OR DIRECTOR COMPENSATION CAP OR RESTRICT EXECUTIVE OR DIRECTOR COMPENSATION WFB will generally vote for shareholder proposals requiring companies to report FOR on their executive retirement benefits (deferred compensation, split-dollar life insurance, SERPs, and pension benefits. WFB will generally vote for shareholder proposals requesting to put FOR extraordinary benefits contained in SERP agreements to a shareholder vote, unless the company's executive pension plans do not contain excessive benefits beyond what is offered under employee-wide plans. WFB will generally vote against proposals that (a) seek additional disclosure of information on executive or director's pay, or (b) seek to limit executive and director pay. AGAINST GOLDEN AND TIN PARACHUTES WFB will vote for proposals that seek shareholder ratification of golden or tin parachutes as shareholders should have the opportunity to approve or disapprove FOR of these severance agreements. Alternatively, WFB will examine on a case-by-case basis proposals that seek to ratify or cancel golden or tin parachutes. Effective parachutes may encourage management to consider takeover bids more fully and may also enhance employee morale and productivity. Among the arrangements that will be considered on their merits are: CASE-BY-CASE - arrangements guaranteeing key employees continuation of base salary for more than three years or lump sum payment of more than three times base salary plus retirement benefits; - guarantees of benefits if a key employee voluntarily terminates; - guarantees of benefits to employees lower than very senior management; and - indemnification of liability for excise taxes. By contrast, WFB will vote against proposals that would guarantee benefits in a AGAINST management-led buyout.
D-25 ADVANTUS CAPITAL MANAGEMENT, INC. COMPLIANCE POLICIES AND PROCEDURES PROXY VOTING POLICIES AND PROCEDURES REINCORPORATION WFB will evaluate a change in a company's state of incorporation on a case-by-case basis. WFB will analyze the valid reasons for the proposed move, CASE-BY-CASE including restructuring efforts, merger agreements, and tax or incorporation fee savings. WFB will also analyze proposed changes to the company charter and differences between the states' corporate governance laws. States have adopted various statutes intended to encourage companies to incorporate in the state. These may include state takeover statutes, control share acquisition statutes, control share cash-out statutes, freezeout provisions, fair price provisions, and disgorgement provisions. WFB will CASE-BY-CASE examine reincorporations on a case-by-case in light of these statutes and in light of the corporate governance features the company has adopted to determine whether the reincorporation is in shareholders' best interests. In addition, WFB will also examine poison pill endorsements, severance pay and labor contract provisions, and anti-greenmail provisions in the context of a CASE-BY-CASE state's corporate governance laws on a case-by-case basis. WFB will evaluate shareholder proposals requiring offshore companies to CASE-BY-CASE reincorporate into the United States on a case-by-case basis. Reincorporation proposals may have considerable implications for shareholders, affecting the company's takeover defenses and possibly its corporate structure and rules of governance. STAKEHOLDER LAWS WFB will vote against resolutions that would allow the Board to consider AGAINST stakeholder interests (local communities, employees, suppliers, creditors, etc.) when faced with a takeover offer. Similarly, WFB will vote for proposals to opt out of stakeholder laws, which permit directors, when taking action, to weight the interests of constituencies other than shareholders in the process of corporate decision-making. Such laws allow directors to consider nearly any factor they deem relevant in discharging their duties. FOR MERGERS/ACQUISITIONS AND CORPORATE RESTRUCTURINGS WFB will consider proposals on mergers and acquisitions on a case-by-case basis. WFB will determine if the transaction is in the best economic interests of the CASE-BY-CASE shareholders. WFB will take into account the following factors:
D-26 ADVANTUS CAPITAL MANAGEMENT, INC. COMPLIANCE POLICIES AND PROCEDURES PROXY VOTING POLICIES AND PROCEDURES - anticipated financial and operating benefits; - offer price (cost versus premium); - prospects for the combined companies; - how the deal was negotiated; - changes in corporate governance and their impact on shareholder rights. In addition, WFB will also consider whether current shareholders would control a minority of the combined company's outstanding voting power, and whether a reputable financial advisor was retained in order to ensure the protection of shareholders' interests. On all other business transactions, i.e. corporate restructuring, spin-offs, asset sales, liquidations, and restructurings, WFB will analyze such proposals on a case-by-case basis and utilize the majority of the above factors in determining what is in the best interests of shareholders. Specifically, for liquidations, the cost versus premium factor may not be applicable, but WFB may also review the compensation plan for executives managing the liquidation, CASE-BY-CASE APPRAISAL RIGHTS WFB will vote for proposals to restore, or provide shareholders with rights of appraisal. Rights of appraisal provide shareholders who are not satisfied with the terms of FOR certain corporate transactions (such as mergers) the right to demand a judicial review in order to determine the fair value of their shares. MUTUAL FUND PROXIES WFB will vote mutual fund proxies as recommended by management. Proposals may include, and are not limited to, the following issues: - eliminating the need for annual meetings of mutual fund shareholders; - entering into or extending investment advisory agreements and management contracts; - permitting securities lending and participation in repurchase agreements; FOR - changing fees and expenses; and - changing investment policies. An investment advisory agreement is an agreement between a mutual fund and its financial advisor under which the financial advisor provides investment advice to the fund in return for a fee based on the fund's net asset size. Most agreements require that the particular fund pay the advisor a fee constituting a small percentage of the fund's average net daily assets. In exchange for this consideration, the investment advisor manages the fund's account, furnishes
D-27 ADVANTUS CAPITAL MANAGEMENT, INC. COMPLIANCE POLICIES AND PROCEDURES PROXY VOTING POLICIES AND PROCEDURES investment advice, and provides office space and facilities to the fund. A new investment advisory agreement may be necessitated by the merger of the advisor or the advisor's corporate parent. Fundamental investment restrictions are limitations within a fund's articles of incorporation that limit the investment practices of the particular fund. As fundamental, such restrictions may only be amended or eliminated with shareholder approval. Non-fundamental investment restrictions may be altered by action of the board of trustees. Distribution agreements are agreements authorized by guidelines established under the Investment Company Act of 1940 and, in particular, Rule 12b-1 thereunder, between a fund and its distributor, which provide that the distributor is paid a monthly fee to promote the sale of the fund's shares. Reorganizations of funds may include the issuance of shares for an acquisition of a fund, or the merger of one fund into another for purposes of consolidation. The mutual fund industry is one of the most highly regulated industries, as it is subject to: individual state law under which the company is formed; the federal Securities Act of 1933; the federal Securities Exchange Act of 1934; and the federal Investment Company Act of 1940.
D-28 PART C OTHER INFORMATION Item 23. Exhibits The exhibits to this Registration Statement are listed in the Exhibit Index hereto and are incorporated herein by reference. Item 24. Persons Controlled by or Under Common Control with the Depositor or Registrant Wholly-owned subsidiary of Minnesota Mutual Companies, Inc.: Securian Holding Company (Delaware) Wholly-owned subsidiaries of Securian Holding Company: Securian Financial Group, Inc. (Delaware) Capitol City Property Management, Inc. Robert Street Property Management, Inc. Wholly-owned subsidiaries of Securian Financial Group, Inc.: Minnesota Life Insurance Company Securian Financial Network, Inc. Securian Ventures, Inc. Advantus Capital Management, Inc. Securian Financial Services, Inc. Securian Casualty Company CNL Financial Corporation (Georgia) Capital Financial Group, Inc. (Maryland) CFG Insurance Services, Inc. (Maryland) H. Beck, Inc. (Maryland) Wholly-owned subsidiaries of Minnesota Life Insurance Company: Personal Finance Company LLC (Delaware) Enterprise Holding Corporation Allied Solutions, LLC (Indiana) Securian Life Insurance Company Wholly-owned subsidiaries of Enterprise Holding Corporation: Financial Ink Corporation Oakleaf Service Corporation Lafayette Litho, Inc. MIMLIC Funding, Inc. MCM Funding 1997-1, Inc. MCM Funding 1998-1, Inc. Wholly-owned subsidiaries of CNL Financial Corporation: Cherokee National Life Insurance Company (Georgia) CNL/Insurance America, Inc. (Georgia) CNL/Resource Marketing Corporation (Georgia) Open-end registered investment company offering shares to separate accounts of Minnesota Life Insurance Company and Securian Life Insurance Company: Advantus Series Fund, Inc. Fifty percent-owned subsidiary of Enterprise Holding Corporation: CRI Securities, LLC Majority-owned subsidiary of Securian Financial Group, Inc.: Securian Trust Company, N.A. Unless indicated otherwise parenthetically, each of the above corporations is a Minnesota corporation. Item 25. Indemnification The Articles of Incorporation and Bylaws of the Registrant provide that the Registrant shall indemnify such persons, for such expenses and liabilities, in such manner, under circumstances, to the full extent permitted by Section 302A.521, Minnesota Statutes, as now enacted or hereafter amended, provided that no such indemnification may be made if it would be in violation of Section 17(h) of the Investment Company Act of 1940, as now enacted, or hereafter amended. Section 302A.521 of the Minnesota Statutes, as now enacted, provides that a corporation shall indemnify a person made or threatened to be made a party to a proceeding by reason of the former or present official capacity of the person against judgments, penalties, fines, settlements and reasonable expenses, including attorneys' fees and disbursements, incurred by the person in connection with the proceeding, if, with respect to the acts or omissions of the person complained of in the proceeding, the person has not been indemnified by another organization for the same judgments, penalties, fines, settlements and reasonable expenses incurred by the person in connection with the proceeding with respect to the same acts or omissions; acted in good faith; received no improper personal benefit and the Minnesota Statute dealing with directors' conflicts of interest, if applicable, has been satisfied; in the case of a criminal proceeding, had no reasonable cause to believe the conduct was unlawful; and reasonably believed that the conduct was in the best interests of the corporation or, in certain circumstances, reasonably believed that the conduct was not opposed to the best interests of the corporation. Insofar as indemnification for liability arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of the Registrant pursuant to the foregoing provisions, or otherwise, the Registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the Registrant of expenses incurred or paid by a director, officer or controlling person of the Registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the Registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Act and the Registrant will be governed by the final adjudication of such issue. Item 26. Business and Other Connections of Investment Adviser (a) Advantus Capital Management, Inc. The investment adviser of the Bond Portfolio, Money Market Portfolio, Mortgage Securities Portfolio, Index 500 Portfolio, International Bond Portfolio, Index 400 Mid-Cap Portfolio and Real Estate Securities Portfolio is Advantus Capital Management, Inc. In addition to the Fund, it manages the investment portfolios of a number of insurance companies, including Minnesota Life and its subsidiary life insurance companies, and certain associated separate accounts.
Directors and Officers Office with Other Business Of Investment Adviser Investment Adviser Connections ---------------------- ------------------ --------------- Robert L. Senkler President President, Chairman and Chief Executive Officer, Minnesota Mutual Companies, Inc.; Chairman and Chief Executive Officer, Securian Financial Group, Inc.; President, Chairman and Chief Executive Officer, Minnesota Life Insurance Company; President, Chairman and Chief Executive Officer, Securian Holding Company; President, Chairman and Chief Executive Officer, Securian Life Insurance Company; Chairman, Cherokee National Life Insurance Company; Chairman, CNL Financial Corporation; Chairman, CNL/Insurance America, Inc.; Chairman, Securian Casualty Company David M. Kuplic Executive Vice Senior Vice President, President and Minnesota Life Insurance Director Company; President and Director, MCM Funding 1997-1, Inc.; President and Director, MCM Funding 1998-1, Inc.; Senior Vice President, Securian Financial Group, Inc.; President and Director, MIMLIC Funding, Inc.; Senior Vice President, Securian Life Insurance Company Christopher R. Sebald Executive Vice Senior Vice President, President/Chief Minnesota Life Insurance Investment Officer Company; Senior Vice President, MCM and Director Funding 1997-1, Inc.; Senior Vice President, MCM Funding 1998-1, Inc.; Senior Vice President, Securian Financial Group, Inc.; Senior Vice President, Securian Life Insurance Company Lynne M. Mills Senior Vice President Vice President, Minnesota Life Insurance Company; Senior Vice President, MCM Funding 1997-1, Inc.; Senior Vice President, MCM Funding 1998-1, Inc.; Second Vice President, Minnesota Mutual Companies, Inc.; Vice President, Securian Financial Group, Inc.; Second Vice President, Securian Holding Company; Vice President,
Securian Life Insurance Company Vicki L. Bailey Vice President, Vice President, Investment Law, Investment Law and Advantus Chief Compliance Compliance Officer, Minnesota Officer and Secretary Life Insurance Company; Vice President and Secretary, MCM Funding 1997-1, Inc.; Vice President and Secretary, MCM Funding 1998-1, Inc.; Vice President, Securian Financial Group, Inc.; Vice President, Securian Life Insurance Company; Director, Personal Finance Company LLC Gary M. Kleist Financial Vice Second Vice President, President and Investment Operations, Director Minnesota Life Insurance Company; Financial Vice President, MCM Funding 1997-1, Inc.; Financial Vice President, MCM Funding 1998-1, Inc.; Vice President and Secretary/Treasurer, MIMLIC Funding, Inc.; Second Vice President, Securian Financial Group, Inc.; Second Vice President, Securian Life Insurance Company Marilyn R. Froelich Vice President Vice President, MCM Funding 1997-1 Inc.; Vice President, MCM Funding 1998-1, Inc.; Second Vice President, Minnesota Life Insurance Company; Second Vice President, Securian Financial Group, Inc.; Second Vice President, Securian Life Insurance Company Sean M. O'Connell Vice President Second Vice President, Minnesota Life Insurance Company; Vice President, MCM Funding 1997-1, Inc.; Vice President, MCM Funding 1998-1, Inc.; Second Vice President, Securian Financial Group, Inc.; Second Vice President, Securian Life Insurance Company
Joseph R. Betlej Vice President Vice President, MCM Funding 1997-1, Inc.; Vice President, MCM Funding 1998-1, Inc.; Senior Investment Officer, Minnesota Life Insurance Company Erica A. Bergsland Vice President Vice President, MCM Funding 1997-1, Inc.; Vice President, MCM Funding 1998-1, Inc.; PT Senior Investment Officer - Mortgage, Minnesota Life Insurance Company John R. Leiviska Vice President Manager, Corporate Research - Fixed Income, Minnesota Life Insurance Company; Vice President, MCM Funding 1997-1, Inc.; Vice President, MCM Funding 1998-1, Inc. James F. Geiger Vice President Senior Investment Officer, Minnesota Life Insurance Company; Vice President, MCM Funding 1997-1, Inc.; Vice President, MCM Funding 1998-1, Inc. David G. Schultz Vice President Senior Investment Officer, Minnesota Life Insurance Company; Vice President, MCM Funding 1997-1, Inc.; Vice President, MCM Funding 1998-1, Inc. Theodore R. Hoxmeier Vice President Senior Investment Officer, Minnesota Life Insurance Company; Vice President, MCM Funding 1997-1, Inc.; Vice President, MCM Funding 1998-1, Inc. James W. Tobin Vice President Senior Investment Officer, Minnesota Life Insurance Company; Vice President, MCM Funding 1997-1, Inc.; Vice President, MCM Funding 1998-1, Inc.
Kathleen H. Parker Vice President Senior Investment Officer, Minnesota Life Insurance Company; Vice President, MCM Funding 1997-1, Inc.; Vice President, MCM Funding 1998-1, Inc. James J. Kragenbring Vice President Senior Investment Officer, Minnesota Life Insurance Company; Vice President, MCM Funding 1997-1, Inc.; Vice President, MCM Funding 1998-1, Inc. Robert W. Thompson Vice President Senior Investment Officer, Minnesota Life Insurance Company; Vice President, MCM Funding 1997-1, Inc.; Vice President, MCM Funding 1998-1, Inc. James W. Ziegler Vice President Senior Investment Officer, Minnesota Life Insurance Company, Vice President, MCM Funding 1997-1, Inc.; Vice President, MCM Funding 1998-1, Inc. Jon R. Thompson Vice President Senior Investment Officer, Minnesota Life Insurance Company Thomas B. Houghton Vice President Total Return Portfolio Manager, Minnesota Life Insurance Company; Vice President, MCM Funding 1997-1, Inc.; Vice President, MCM Funding 1998-1, Inc. David W. Land Vice President Total Return Portfolio Manager, Minnesota Life Insurance Company; Vice President, MCM Funding 1997-1, Inc.; Vice President, MCM Funding 1998-1, Inc. Mary E. Marston Vice President Director, Marketing and Investment Products, Minnesota Life Insurance Company; Vice President, MCM Funding 1998-1, Inc.; Vice President, MCM Funding 1997-1, Inc. Merlin L. Erickson Vice President Senior Quantitative Analyst, Minnesota Life Insurance Company Rose A. Lambros Vice President Senior Investment Officer, Minnesota Life Insurance Company Gregory R. Ortquist Vice President Senior Investment Officer, Minnesota Life Insurance Company
Warren J. Zaccaro Director Executive Vice President, Chief Financial Officer and Director, Minnesota Life Insurance Company; Executive Vice President and Chief Financial Officer, Minnesota Mutual Companies, Inc.; Executive Vice President and Chief Financial Officer, Securian Financial Group, Inc.; Executive Vice President and Chief Financial Officer, Securian Holding Company; President and Director, Securian Ventures, Inc.; Director, Allied Solutions, LLC; Director, Securian Casualty Company; Director, Securian Financial Network, Inc. (a Minnesota corporation); Director, Securian Financial Services, Inc.; Executive Vice President, Chief Financial Officer and Director, Securian Life Insurance Company; Director, CRI Securities, LLC; Vice President and Director, Cherokee National Life Insurance Company; Vice President and Director, CNL Financial Corporation; Vice President and Director, CNL/Insurance America, Inc.; Vice President and Chair, CNL/Resource Marketing Corporation; Director, Capital Financial Group, Inc.; Director, CFG Insurance Services, Inc.; Director, H. Beck, Inc. Dwayne C. Radel Director Senior Vice President, General Counsel and Director, Minnesota Life Insurance Company; Secretary and Director, Capital City Property Management, Inc.; President and Director, Enterprise Holding Corporation; Senior Vice President and General Counsel, Minnesota Mutual Companies, Inc.; Vice President and Director, Oakleaf Service Corporation; Secretary and Director, Robert Street Property Management, Inc.; Senior Vice President and General Counsel, Securian Financial Group, Inc.; Vice President and Director, Securian Financial Network, Inc. (a Minnesota corporation); Senior Vice President and General Counsel, Securian Holding Company; Director, Financial Ink Corporation; Director, Lafayette Litho, Inc.; Director, Securian Financial Services, Inc.; Senior Vice President, General Counsel and Director, Securian Life Insurance Company; Director, Securian Ventures, Inc.; Secretary, CNL/Resource Marketing Corporation; Director; Allied Solutions, LLC; Secretary and Director, Securian Casualty Company
(b) Franklin Advisers, Inc. The officers and directors of the Registrant's sub-adviser, Franklin Advisers, Inc. ("Franklin") also serve as officers and/or directors or trustees for (1) Franklin's corporate parent, Franklin Resources, Inc. or its subsidiaries, and/or (2) other investment companies in Franklin Templeton Investments. DIRECTORS AND OFFICERS OF FRANKLIN ADVISERS, INC. OFFICE WITH FRANKLIN ADVISERS, INC. ------------------------------------------------- ----------------------------------- Edward B. Jamieson Director, President and Chief Investment Officer Rupert H. Johnson, Jr. Director John M. Lusk Director and Vice President Christopher J. Molumphy Director and Executive Vice President Madison S. Gulley Executive Vice President Jack H. Lemein Executive Vice President Selena L. Holmes Chief Compliance Officer Craig S. Tyle Chief Legal Officer Sheila A. Amoroso Senior Vice President/Co-Director Municipal Bond Department Roger A. Bayston Senior Vice President/Portfolio Manager Mark S. Boyadjian Senior Vice President Rafael R. Costas Senior Vice President/Co-Director Municipal Bond Department Frank M. Felicelli Senior Vice President & Portfolio Manager Michael J. Hasenstab Senior Vice President Conrad B. Herrmann Senior Vice President Michael P. McCarthy Senior Vice President/Portfolio Manager Edward D. Perks Senior Vice President Kent P. Shepherd Senior Vice President/Portfolio Manager Eric G. Takaha Senior Vice President Serena P. Vinton Senior Vice President Thomas F. Walsh Senior Vice President/Research Analyst Kenneth A. Lewis Chief Financial Officer Alison E. Baur Secretary Mark L. Constant Treasurer Stephen H. Dover Senior Vice Presidnet
Item 27. Principal Underwriters (a) Securian Financial Services, Inc. currently acts as a principal underwriter for the following additional investment companies: Variable Fund D Variable Annuity Account Minnesota Life Variable Life Account Minnesota Life Variable Universal Life Account Securian Life Variable Universal Life Account Minnesota Life Individual Variable Universal Life Account (b) The name and principal business address, positions and offices with Securian Financial Services, Inc., and positions and offices with Registrant of each director and officer of Securian Financial Services, Inc. is as follows:
Positions and Positions and Name and Principal Offices Offices Business Address with Underwriter with Registrant ---------------- ---------------- --------------- George I. Connolly President, Chief None Securian Financial Services, Inc. Executive Officer and 400 Robert Street North Director St. Paul, Minnesota 55101 Lynda S. Czarnetzki Vice President-Financial None Securian Financial Services, Inc. Management and Treasurer 400 Robert Street North St. Paul, Minnesota 55101 Warren J. Zaccaro Director None Minnesota Life Insurance Company 400 Robert Street North St. Paul, Minnesota 55101 Dwayne C. Radel Director None Minnesota Life Insurance Company 400 Robert Street North St. Paul, Minnesota 55101 Loyall E. Wilson Senior Vice President, None Securian Financial Services, Inc. Chief Compliance Officer 400 Robert Street North and Secretary St. Paul, Minnesota 55101 Richard A. Diehl Vice President and Chief None Securian Financial Services, Inc. Investment Officer 400 Robert Street North St. Paul, Minnesota 55101 Scott C. Thorson Vice President-Operations None Securian Financial Services, Inc. 400 Robert Street North St. Paul, Minnesota 55101 Suzanne M. Chochrek Vice President - None Securian Financial Services, Inc. Business and Market 400 Robert Street North Development St. Paul, Minnesota 55101 Kimberly K. Carpenter Assistant Secretary None Securian Financial Services, Inc. 400 Robert Street North St. Paul, Minnesota 55101 Allen L. Peterson Assistant Secretary None Securian Financial Services, Inc. 400 Robert Street North St. Paul, Minnesota 55101 Janet M. Hill Assistant Secretary None Securian Financial Services, Inc. 400 Robert Street North St. Paul, Minnesota 55101 Jay R. Brown Assistant Secretary None Securian Financial Services, Inc. 400 Robert Street North St. Paul, Minnesota 55101 Dean F. Czarnetzki Assistant Secretary None Minnesota Life Insurance Company 400 Robert Street North St. Paul, Minnesota 55101
(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 31(a) of the Investment Company Act of 1940 and Rules 31a-1 to 31a-3 promulgated thereunder is maintained by Minnesota Life, 400 Robert Street North, St. Paul, Minnesota 55101-2098; except that the physical possession of certain accounts, books and other documents related to the custody of the Registrant's securities is maintained by: (a) Wells Fargo Bank Minnesota, 733 Marquette Avenue, Minneapolis, Minnesota 55479, as to the Money Market, Index 500, Index 400 Mid-Cap and Real Estate Securities Portfolios; and (b) The Bank of New York Mellon Corporation, One Mellon Center, Pittsburgh, Pennsylvania 15258, as to the Bond, Mortgage Securities, and the International Bond Portfolios. Item 29. Management Services Not applicable. Item 30. Undertakings (a) Not applicable. (b) Not applicable. (c) The Registrant hereby undertakes to furnish, upon request and without charge to each person to whom a prospectus is delivered, a copy of the Registrant's latest annual report to shareholders containing the information called for by Item 5A. SIGNATURES Pursuant to the requirements of the Securities Act of 1933 and the Investment Company Act of 1940 the Registrant certifies that it meets all of the requirements for effectiveness of this Registration Statement pursuant to Rule 485(b) under the Securities Act and has duly caused this Post-Effective Amendment to its Registration Statement to be signed on its behalf by the undersigned, thereto duly authorized, in the City of St. Paul and the State of Minnesota on the 27th day of April, 2009. ADVANTUS SERIES FUND, INC. By /s/ Gregory S. Strong --------------------------------- Gregory S. Strong, President Pursuant to the requirements of the Securities Act of 1933, this Post-Effective Amendment to the Registration Statement has been signed below by the following persons in the capacities and on the date indicated.
/s/ Gregory S. Strong President April 27, 2009 -------------------------------------------- (principal executive officer) Gregory S. Strong /s/ Gary M. Kleist Vice President and Treasurer April 27, 2009 -------------------------------------------- (principal financial Gary M. Kleist and accounting officer) Linda L. Henderson* Director) -------------------------------------------- ) Linda L. Henderson ) By /s/ Gregory S. Strong ) --------------------------------------- ) Gregory S. Strong ) Attorney-in-Fact Dorothy J. Bridges* Director) -------------------------------------------- ) Dorothy J. Bridges ) Dated: April 27, 2009 ) ) William C. Melton* Director) -------------------------------------------- ) William C. Melton ) ---------------
*Registrant's director executing power of attorney dated April 25, 2007, a copy of which is filed herewith. ADVANTUS SERIES FUND, INC. EXHIBIT INDEX Exhibit Number and Description: (a)(1) Amended and Restated Articles of Incorporation - Previously filed on April 26, 2001 as Exhibit 23(a) to Registrant's Form N-1A, File Number 2-96990, Post-Effective Amendment Number 23, is hereby incorporated by reference. (a)(2) Certificate of Designation of Class 1 and Class 2 Shares. (b)(1) Bylaws - Previously filed on February 28, 2006 as Exhibit 23(b)(1) to Registrant's Form N-1A, File Number 2-96990, Post-Effective Amendment Number 31, is hereby incorporated by reference. (b)(2) Amendment to the Bylaws dated July 16, 1997 - Previously filed on February 13, 1998 as Exhibit 24(b)(2)(ii) to Registrant's Form N-1A, File Number 2-96990, Post-Effective Amendment Number 17, is hereby incorporated by reference. (b)(3) Amendment to the Bylaws dated April 21, 1999 - Previously filed on March 2, 2000 as Exhibit 23(b)(3) to Registrant's Form N-1A, File Number 2-96990, Post-Effective Amendment Number 21, is hereby incorporated by reference. (b)(4) Amendment to the Bylaws dated October 24, 2002 - Previously filed on February 27, 2003 as Exhibit 23(b)(4) to Registrant's Form N-1A, File Number 2-96990, Post-Effective Amendment Number 26, is hereby incorporated by reference. (b)(5) Amendment to the Bylaws dated January 30, 2003 - Previously filed February 27, 2003 as Exhibit 23(b)(5) to Registrant's Form N-1A, File Number 2-96990, Post-Effective Amendment Number 26, is hereby incorporated by reference. (c) See Exhibits filed under Items 23(a) and 23(b) above. (d)(1) Investment Advisory Agreement between Advantus Series Fund, Inc. and Advantus Capital Management, Inc. (d)(2) Investment Sub-Advisory Agreement between Advantus Capital Management, Inc. and Franklin Advisers, Inc. (e) Amended Underwriting and Distribution Agreement between Advantus Series Fund, Inc. and Securian Financial Services, Inc. (f) Not applicable. (g)(1)(A) Form of Custodian Agreement between Advantus Series Fund, Inc. and Norwest Bank Minnesota, N.A. (g)(1)(B) Schedule A, as amended, to the Custodian Agreement between Advantus Series Fund, Inc. and Norwest Bank Minnesota, N.A. - Previously filed April 26, 2001 as Exhibit 23(g)(1)(B) to Registrant's Form N-1A, File Number 2-96990, Post-Effective Amendment Number 23, is hereby incorporated by reference. (g)(1)(C) Foreign Custody Manager Agreement between Advantus Series Fund, Inc. and Wells Fargo Bank, N.A. (g)(2) Form of Custodian Agreement between Advantus Series Fund, Inc. and Mellon Bank, N.A. (h)(1) Shareholder Information Rule 22c-2 Agreement between Advantus Series Fund, Inc. and Minnesota Life Insurance Company. (h)(2) Administrative Service Agreement between Advantus Series Fund, Inc. and Minnesota Life Insurance Company. (h)(3) Participation Agreement among Advantus Series Fund, Inc., Advantus Capital Management, Inc. and Minnesota Life Insurance Company. (h)(4) Investment Accounting Agreement between Advantus Series Fund, Inc. and State Street Bank and Trust Company. (h)(5) Administration Agreement between Advantus Series Fund, Inc. and State Street Bank and Trust Company. (h)(6) Participation Agreement among Advantus Series Fund, Inc., Advantus Capital Management, Inc. and Securian Life Insurance Company. (h)(7) Shareholder Information Rule 22c-2 Agreement between Advantus Series Fund, Inc. and Securian Life Insurance Company. (h)(8) Net Investment Income Maintenance Agreement between Advantus Capital Management, Inc., Securian Financial Services, Inc. and Advantus Series Fund, Inc. - Previously filed on February 27, 2009 as Exhibit 23(h)(8) to Registrant's Form N-1A, File Number 2-96990, Post-Effective Amendment Number 39, is hereby incorporated by reference. (i) Opinion and Consent of Dorsey & Whitney LLP - Previously filed on February 27, 2009 as Exhibit 23(i) to Registrant's Form N-1A, File Number 2-96990, Post-Effective Amendment Number 39, is hereby incorporated by reference. (j) Consent of KPMG LLP. (k) Not applicable. (l) Form of Letter of Investment Intent - Previously filed on February 13, 1998 as Exhibit 24(b)(13) to Registrant's Form N-1A, File Number 2-96990, Post-Effective Amendment Number 17, is hereby incorporated by reference. (m)(1) Restated Rule 12b-1 Distribution Plan - Previously filed on February 29, 2008 as Exhibit 23(m)(1) to Registrant's Form N-1A, File Number 2-96990, Post-Effective Amendment Number 36, is hereby incorporated by reference. (m)(2) Fund Shareholder Service Agreement between Minnesota Life Insurance Company and Securian Financial Services, Inc. (m)(3) Fund Shareholder Services Agreement between Securian Life Insurance Company and Securian Financial Services, Inc. (n) Advantus Series Fund, Inc. Multiple Class Plan Pursuant to Rule 18f-3 - Previously filed on September 7, 2007 as Exhibit 23(n) to Registrant's Form N-1A, File Number 2-96990, Post-Effective Amendment Number 35, is hereby incorporated by reference. (o) Reserved. (p)(1) Code of Ethics for Registrant, Advantus Capital Management, Inc. and Affiliates - Previously filed on February 27, 2009 as Exhibit 23(p)(1) to Registrant's Form N-1A, File Number 2-96990, Post-Effective Amendment Number 39, is hereby incorporated by reference. (p)(2) Code of Ethics for Franklin Templeton Investments - Previously filed on February 27, 2009 as Exhibit 23(p)(2) to Registrant's Form N-1A, File Number 2-96990, Post-Effective Amendment Number 39, is hereby incorporated by reference. (q) Power of Attorney to sign Registration Statement executed by Directors of Registrant. EX-99.A.2 2 c49473bexv99waw2.txt EX-99.A.2: Exhibit 99.(a)(2) CERTIFICATE OF DESIGNATION OF CLASS 1 AND CLASS 2 SHARES OF ADVANTUS SERIES FUND, INC. The undersigned duly elected Secretary of Advantus Series Fund, Inc., a Minnesota corporation (the "Corporation"), hereby certifies that the following is a true, complete and correct copy of resolutions duly adopted by a majority of the directors of the Board of Directors of the Corporation on August 1, 2007. APPROVAL OF CREATION AND DESIGNATION OF CLASS 1 AND CLASS 2 SHARES WHEREAS, the total authorized number of shares of the Corporation is one hundred trillion (100,000,000,000,000), all of which are common shares, $.01 par value, as set forth in the Articles of Incorporation of the Corporation (the "Articles"); WHEREAS, the Articles provide that one hundred billion (100,000,000,000) shares may be issued in various series; and WHEREAS, the Articles set forth that the authorized shares may be issued in such classes and with such relative rights and preferences as shall be stated or expressed in a resolution or resolutions providing for the issue of any such class or classes of common shares as may be adopted from time to time by the Board of Directors; NOW, THEREFORE, BE IT RESOLVED, that of the authorized common shares of the following series of the Corporation: Series B Common Shares (currently named the "Bond Portfolio") Series E Common Shares (currently named the "Mortgage Securities Portfolio") Series F Common Shares (currently named the "Index 500 Portfolio") Series P Common Shares (currently named the "Index 400 Mid-Cap Portfolio") Series T Common Shares (currently named the "International Bond Portfolio") Series V Common Shares (currently named the "Real Estate Securities Portfolio")
ten billion (10,000,000,000) are hereby designated as Class 1 Common Shares and ten billion (10,000,000,000) are hereby designated as Class 2 Common Shares; and the shares of the Corporation of such series which are outstanding on the date hereof are hereby redesignated as Class 2 Common Shares of the Corporation. FURTHER, RESOLVED, that the Class 1 and Class 2 Common Shares designated by these resolutions shall have the relative rights and preferences set forth in Articles IV, V and VI of the Articles. As provided in Article V of the Articles, any Class of Common Shares designated by these resolutions may be subject to differing charges and expenses (including by way of example, but not by way of limitation, such front-end or other deferred sales charges as may be permitted under the Investment Company Act of 1940, as amended, rules of the National Association of Securities Dealers, Inc., and applicable insurance regulations, expenses under Rule 12b-1 plans, administration plans, service plans, or other plans or arrangements, however designated) as are adopted from time to time by the Board of Directors of the Corporation; and all of the charges and expenses to which a class is subject shall be borne by such class and shall be appropriately reflected (in the manner determined by the Board of Directors in the resolution or resolutions establishing such class) in determining the net asset value and the amounts payable with respect to dividends and distributions on and redemptions or liquidations of such class. IN WITNESS WHEREOF, the undersigned has signed this Certificate of Designation on behalf of Advantus Series Fund, Inc. this 17th day of August, 2007. /s/ Michael J. Radmer ---------------------------------------- Michael J. Radmer, Secretary 2 EX-99.D.1 3 c49473bexv99wdw1.txt EX-99.D.1 EXHIBIT (d)(1) INVESTMENT ADVISORY AGREEMENT THIS AGREEMENT, made the 1st day of May, 2000, and amended with respect to Schedule A hereto the 28th day of December, 2004, by and between Advantus Series Fund, Inc., a Minnesota corporation (the "Fund") and Advantus Capital Management, Inc., a Minnesota corporation ("Adviser"); WITNESSETH: WHEREAS, the Fund is engaged in business as a diversified open-end management investment company registered as such under the Investment Company Act of 1940 (the "Investment Company Act") and offers for sale distinct series of shares of common stock (each a "Portfolio"), each of which Portfolios pursues its investment objectives through separate policies; WHEREAS, the Adviser is engaged in rendering investment advisory services and is registered as an investment adviser under the Investment Advisers Act of 1940; WHEREAS, the Fund desires and intends to have one or more investment advisers ("Sub-Advisers") provide investment advisory and portfolio management services with respect to the Portfolios other than those Portfolios managed by the Adviser; and WHEREAS, the Fund desires to appoint the Adviser to provide investment advisory and management services to the Fund and each Portfolio as now exists and as hereafter may be established in the manner and on the terms hereinafter set forth, and the Adviser is willing to furnish such services. NOW THEREFORE, in consideration of the premises and the mutual covenants herein contained, the parties do hereby agree as follows: Section 1. Appointment of Adviser The Fund appoints the Adviser to act as the investment adviser to and manager of the Fund and the Portfolios, to manage the investment and reinvestment of the assets of those Portfolios and to administer each Portfolio's affairs subject to the supervision of the Board of Directors of the Fund on the terms and conditions set forth in this Agreement. The Adviser accepts such appointment and agrees to render the services and to assume the obligations set forth in this Agreement. The Adviser will for all purposes provided in this Agreement be deemed to be an independent contractor and will have no authority to act for or represent the Fund in any way or otherwise be deemed an agent of the Fund, unless otherwise expressly provided or authorized either in this Agreement or in another writing by the Fund. The Fund retains the ultimate responsibility and authority for direction and control of the services provided by the Adviser pursuant to this Agreement. Section 2. Duties of the Adviser The investment of the assets of the Fund shall at all times be subject to the applicable provisions of the Articles of Incorporation, the Bylaws, the Registration Statement, the current Prospectus and the Statement of Additional Information of the Fund and shall conform to the investment objectives, policies and restrictions of the Fund as set forth in such documents and as interpreted from time to time by the Board of Directors of the Fund. Within the framework of the investment objectives, policies and restrictions of the Fund, the Adviser shall have the sole and -2- exclusive responsibility for the management of the Fund's several Portfolios and the making and execution of all investment decisions for the Fund and those Portfolios which the Adviser manages directly. In carrying out its obligations to manage the investments and reinvestments of the assets of the Portfolios of the Fund, the Adviser shall: (1) obtain and evaluate pertinent economic, statistical, financial and other information affecting the economy generally and individual companies or industries the securities of which are included in the Fund's Portfolios or are under consideration for inclusion therein; (2) formulate and implement a continuous investment program for each Portfolio consistent with the investment objective and related investment policies for each such Portfolio as set forth in the Fund's registration statement, as amended; and (3) take such steps as are necessary to implement the aforementioned investment programs by purchase and sale of securities including the placing of orders for such purchases and sales. The Adviser shall report to the Board of Directors of the Fund regularly at such times and in such detail as the Board may from time to time determine to be appropriate in order to permit the Board to determine the adherence of the Adviser to the investment objectives, policies and restrictions of the Fund and of each of its Portfolios. The Adviser shall, at its own expense, furnish the Fund office space and all necessary office facilities, equipment and personnel for servicing the investments of the Fund. The Adviser shall arrange for officers or employees of the Adviser to serve without compensation from the Fund as directors, officers or employees of the Fund if duly elected or appointed to such positions by the shareholders, directors or officers of the Fund. The Adviser shall maintain all records necessary in the operation of the Fund including records pertaining to its shareholders and investments. The Adviser hereby acknowledges that all such records are the property of the Fund, and in the event that a transfer of management or -3- investment advisory services to someone other than the Adviser should ever occur, the Adviser will promptly and at its own cost, take all steps necessary to segregate such records and deliver them to the Fund. Section 3. Compensation for Services In payment for the investment advisory services to be rendered by the Adviser hereunder, the Fund shall pay to the Adviser as full compensation for all services hereunder a fee computed separately for each Portfolio at an annual rate, as set forth in Schedule A to this Agreement. The amount of the fees as set forth in Schedule A hereto will be deducted on each business day from the value of each Portfolio of the Fund prior to determining the Portfolio's net asset value for the day and it shall be transmitted or credited to the Adviser. The fee shall be based on the net asset values of all of the issued and outstanding shares of such Portfolio of the Fund as determined as of the close of each business day pursuant to the Articles of Incorporation, Bylaws and currently effective Prospectus and Statement of Additional Information of the Fund. Section 4. Use of Sub-Adviser (a) Subject to the supervision and direction of the Board of Directors, the Adviser will provide to the Fund investment management evaluation services with respect to certain Portfolios principally by performing initial review of prospective Sub-Advisers for those Portfolios and supervising and monitoring Sub-Adviser performance thereafter. The Adviser agrees to report to the Fund the results of its evaluation, supervision and monitoring functions and to keep certain books and records of the Fund in connection therewith. The Adviser further agrees to communicate performance expectations and evaluations to the Sub-Advisers, and to recommend to the Fund whether agreements with Sub-Advisers should be renewed, modified or terminated. -4- (b) The Adviser is responsible for informing the Sub-Advisers of the investment objective(s), policies and restrictions of the Portfolio(s) for which the Sub-Adviser is responsible, for informing or ascertaining that it is aware of other legal and regulatory responsibilities applicable to the Sub-Adviser with respect to the Portfolio(s) for which the Sub-Adviser is responsible, and is not responsible for the specific actions (or inactions) of a Sub-Adviser in the performance of the duties assigned to it. (c) The Adviser shall enter into an agreement(s) ("Sub-Advisory Agreement") with one or more Sub-Advisers for each Portfolio which the Adviser does not manage directly. The Sub-Advisory Agreement between the Adviser and any Sub-Adviser shall be subject to the approval of the Fund's Board of Directors. (d) The Adviser shall be responsible for the fees payable to and shall pay the Sub-Adviser of each Portfolio the fee as specified in the Sub-Advisory Agreement relating thereto. Section 5. Allocation of Expenses In addition to the fee described in Section 3 hereof, the Fund shall pay all its costs and expenses which are not assumed by the Adviser. These Fund expenses include, by way of example, but not by way of limitation, all expenses incurred in the operation of the Fund including, among others, interest, taxes, brokerage fees and commissions, fees of the directors who are not employees of the Adviser or any of its affiliates, expenses of the directors' and shareholders' meetings, including the cost of printing and mailing proxies, expenses of insurance premiums for fidelity and other coverage, association membership dues, charges of custodians, auditing and legal expenses. The Fund will also pay the fees and bear the expense of registering and maintaining the registration of the Fund and its shares with the Securities and Exchange Commission and registering or -5- qualifying its shares under state or other securities laws and the expense of preparing and mailing prospectuses and reports to shareholders. Each Portfolio will bear all expenses that may be incurred with respect to its individual operation, including but not limited to transaction expenses, advisory fees, brokerage, interest, taxes and the charges of the custodian. The Fund will pay all other expenses not attributable to a specific Portfolio, but those expenses will be allocated among the Portfolios on the basis of the size of their respective net assets unless otherwise allocated by the Board of Directors of the Fund. Section 6. Freedom to Deal with Third Parties The Adviser shall be free to render services to others, including other investment companies, similar to those rendered under this Agreement or of a different nature except as such services may conflict with the services to be rendered or the duties to be assumed hereunder. It is understood and agreed that the officers, directors and employees of the Adviser are not prohibited from engaging in any other business activity or from rendering services to any other person, or from serving as partners, officers, directors or employees of any other firm or corporation, including other investment companies. Section 7. Conflicts of Interest It is understood that directors, officers, agents and stockholders of the Fund are or may be interested in the Adviser as directors, officers, stockholders, or otherwise; that directors, officers, agents and stockholders of the Adviser are or may be interested in the Fund as directors, officers, stockholders or otherwise; that the Adviser may be interested in the Fund; and that the existence of any such dual interest shall not affect the validity hereof or of any transactions hereunder except as -6- otherwise provided in the Articles of Incorporation of the Fund and the Adviser, respectively, or by specific provision of applicable law. Section 8. Regulation The Adviser shall submit to all regulatory and administrative bodies having jurisdiction over the services provided pursuant to this Agreement any information, reports or other material which any such body by reason of this Agreement may request or require pursuant to applicable laws and regulations. Section 9. Effective Date, Duration and Termination of Agreement This Agreement shall become effective upon its approval by the Shareholders of the capital stock of each Portfolio, which shall be the date of its execution first above written. This Agreement will continue in effect for a period more than two years from the date of its execution only so long as such continuance is specifically approved at least annually either by the Board of Directors of the Fund or by the vote of a majority of the outstanding voting securities of the Fund, provided that in either event such continuance shall also be approved by the vote of a majority of the directors of the Fund who are not interested persons (as defined in the Investment Company Act) of any party to this Agreement cast in person at a meeting called for the purpose of voting on such approval. The required Shareholder approval of this Agreement or of any continuance of this Agreement shall be effective with respect to a Portfolio if a majority of the outstanding voting securities (as defined in Rule 18f-2(h) under the Investment Company Act) of capital stock of that Portfolio votes to approve the Agreement or its continuance, notwithstanding that the Agreement or its continuance may not have been approved by a majority of the outstanding voting securities of the Fund. -7- If the Shareholders of capital stock of any Portfolio to which this Agreement relates fail to approve the Agreement or any continuance of the Agreement, the Adviser will continue to act as investment adviser with respect to such Portfolio pending the required approval of the Agreement or its continuance, of a new contract with the Adviser or a different adviser or other definitive action; provided, that the compensation received by the Adviser in respect of the Portfolio during such period will be no more than its actual costs incurred in furnishing investment advisory and management services to the Portfolio or the amount it would have received under the Agreement in respect of the Portfolio, whichever is less. This Agreement may be terminated at any time, without the payment of any penalty, by the Board of Directors of the Fund or by the vote of a majority of the outstanding voting securities of a Portfolio or by the Adviser, on sixty days' written notice to the other party. This Agreement will automatically terminate in the event of its assignment (as defined in the Investment Company Act). Section 10. Amendments to the Agreement This Agreement may be amended by the parties only if such amendment is specifically approved by the vote of a majority of the outstanding voting securities of the Fund and by the vote of a majority of the directors of the Fund who are not interested persons of any party to this Agreement cast in person at a meeting called for the purpose of voting on such approval. The required shareholder approval shall be effective with respect to any Portfolio to which this Agreement relates if a majority of the outstanding voting securities of the capital stock of that Portfolio vote to approve the amendment, notwithstanding that the amendment may not have been approved by a majority of the outstanding voting securities of the Fund. Notwithstanding the foregoing, this Agreement may be amended without shareholder approval to the extent such is permitted under then-current regulatory interpretations of the Investment Company Act. -8- Section 11. Notice of Information Each party hereto shall advise the others promptly of (a) any action of the Securities and Exchange Commission or any authorities of any state or territory, of which it has knowledge, affecting registration or qualification of the Fund, and (b) the happening of any event which makes untrue any statement, or which requires the making of any change, in the registration statement or prospectus in order to make the statements therein not misleading. Section 12. Entire Agreement This Agreement contains the entire understanding and agreement of the parties. Section 13. Headings The headings in the sections of this Agreement are inserted for convenience of reference only and shall not constitute a part hereof. Section 14 Receipt of Notices Any notice under this Agreement shall be in writing, addressed, delivered or mailed, postage prepaid, to the other party at such address as such other party may designate in writing for the receipt of such notice. -9- IN WITNESS WHEREOF, the Fund and the Adviser have caused this Agreement to be executed by their duly authorized officers as of the day and year first above written. Advantus Series Fund, Inc. By /s/ Dianne M. Orbison ------------------------------ Dianne M. Orbison President Advantus Capital Management, Inc. By /s/ Gary M. Kleist ------------------------------ Gary M. Kleist Financial Vice President -10- SCHEDULE A TO THE INVESTMENT ADVISORY AGREEMENT DECEMBER 28, 2004 As compensation for the services to be rendered and the charges and expenses to be assumed and paid by the Adviser, each Portfolio shall pay the Adviser an annual fee based on the average daily net asset value of the respective Portfolio in accordance with Section 3 of the Investment Advisory Agreement and the following schedule:
Portfolio Fee Rate --------- -------- Bond Portfolio 0.40% of assets to $1 billion; 0.35% of assets exceeding $1 billion Money Market Portfolio 0.30% of assets to $1 billion; 0.25% of assets exceeding $1 billion Mortgage Securities Portfolio 0.40% of assets to $1 billion; 0.35% of assets exceeding $1 billion Index 500 Portfolio 0.15% of assets to $1 billion; 0.10% of assets exceeding $1 billion Maturing Government Bond - 2006 Portfolio 0.25% Maturing Government Bond - 2010 Portfolio 0.25% International Bond Portfolio 0.60% of assets to $1 billion; 0.55% of assets exceeding $1 billion Index 400 Mid-Cap Portfolio 0.15% of assets to $1 billion; 0.10% of assets exceeding $1 billion Real Estate Securities Portfolio 0.70% of assets to $1 billion; 0.65% of assets exceeding $1 billion
EX-99.D.2 4 c49473bexv99wdw2.txt EX-99.D.2 Exhibit (d)(2) INVESTMENT SUB-ADVISORY AGREEMENT (INTERNATIONAL BOND PORTFOLIO) THIS AGREEMENT, made as of the 1st day of January 2008, by and between Advantus Capital Management, Inc., a Minnesota corporation, registered as an Investment Adviser under the Investment Advisers Act of 1940 (the "Adviser") and Franklin Advisers, Inc., a California corporation registered as an Investment Adviser under the Investment Advisers Act of 1940 (the "Sub-Adviser"). WHEREAS, the Adviser is the Investment Adviser to Advantus Series Fund, Inc. (the "Fund"), an open-end diversified management investment company organized as a series fund, registered under the Investment Company Act of 1940, as amended (the "1940 Act"); WHEREAS, the Adviser desires to retain the Sub-Adviser to furnish it with portfolio selection and related research and statistical services in connection with the Adviser's investment advisory activities on behalf of the Fund's International Bond Portfolio (hereinafter "Portfolio"), and the Sub-Adviser desires to furnish such services to the Adviser; and NOW, THEREFORE, in consideration of the premises and the terms and conditions hereinafter set forth, it is agreed as follows: 1. APPOINTMENT OF SUB-ADVISER In accordance with and subject to the Investment Advisory Agreement between the Fund and the Adviser, the Adviser hereby appoints the Sub-Adviser to perform portfolio selection services described herein for the investment and reinvestment of the Portfolio, subject to the control and direction of the Fund's Board of Directors, for the period and on the terms hereinafter set forth. The Sub-Adviser accepts such appointment and agrees to furnish the services hereinafter set forth for the compensation described herein. The Sub-Adviser shall for all purposes herein be deemed to be an independent contractor and shall, except as expressly provided or authorized herein, have no authority to act for or represent the Fund or the Adviser in any way or otherwise be deemed an agent of the Fund or the Adviser. 2. OBLIGATIONS OF AND SERVICES TO BE PROVIDED BY SUB-ADVISER (a) The Sub-Adviser shall provide the following services and assume the following obligations with respect to the Portfolio of the Fund: (1) INVESTMENT PLAN In carrying out its obligations to manage the investments and reinvestments of the assets of the Portfolio, the Sub-Adviser shall: Investment Sub-Advisory Agreement, International Bond Portfolio Page 1 of 11 (i) obtain and evaluate pertinent economic, statistical, financial and other information affecting the economy generally and individual companies or industries the securities of which are included in the Portfolio or are under consideration for inclusion therein; (ii) formulate and implement a continuous investment program for the Portfolio consistent with the investment objective and related investment policies for such Portfolio as set forth in the Fund's registration statement, as amended; and (iii) take such steps as are necessary to implement the aforementioned investment program by purchase and sale of securities, including financial futures contracts and currency exchange transactions, including the placing, or directing the placement through an affiliate of the Sub-Adviser, of orders for such purchases and sales. (2) INVESTMENT OBJECTIVES, POLICIES, PRACTICES AND RESTRICTIONS (i) The investment of the assets of the Portfolio shall at all times be subject to the applicable provisions of the Articles of Incorporation, the Bylaws, the Registration Statement, the current Prospectus and the Statement of Additional Information of the Fund and shall conform to the investment objectives, policies and restrictions of the Portfolio as set forth in such documents and as interpreted from time to time by the Board of Directors of the Fund and by the Adviser, including diversification of the holdings of the Portfolio as a segregated asset account in accordance with Section 817 of the Internal Revenue Code, as amended (the "Code"), and Regulation Section 1.817-5 thereunder, provided that Adviser shall be responsible for ensuring that the Fund as a whole is "adequately diversified" if and to the extent required by Section 817(h) of the Code and Regulation 1.817-5 thereunder. (ii) Within the framework of the investment objectives, policies and restrictions of the Portfolio, and subject to the supervision of the Adviser, the Sub-Adviser shall formulate and implement an overall continuing program for managing the investment of the assets of the Portfolio, and shall amend and update such program from time to time as financial and other economic conditions warrant. (iii) Adviser agrees to promptly inform the Sub-Adviser, in writing, of any changes in such documents or interpretations which may affect the Sub-Adviser's services hereunder, it being understood that such changes will be effective with respect to the Sub-Adviser upon the Sub-Adviser's receipt of such notice, provided, however, that Sub-Adviser shall have a reasonable period to effect any necessary portfolio changes to bring the assets into compliance with such changes or interpretations. (3) CASH MANAGEMENT AND SHORT-TERM INVESTMENT FUNDS (i) The Adviser shall arrange with the custodian of the Portfolio ("Custodian") to have at least one Short-Term Investment Fund ("STIF") available to be used as a sweep vehicle for the short-term investment of cash for the Portfolio. The Sub-Adviser agrees to use this STIF for the short-term investment of cash, subject to the limitations on investments in shares of other Investment Sub-Advisory Agreement, International Bond Portfolio Page 2 of 11 investment companies set forth in the 1940 Act. (ii) In addition, the Sub-Adviser agrees that the management of cash is the Sub-Adviser's responsibility, and agrees that cash will be managed in full compliance with any applicable restrictions, including the limitations on investments in shares of other investment companies set forth in the 1940 Act. (4) ELECTRONIC DELIVERY OF DAILY TRADE FILE AND DAILY HOLDINGS (i) In connection with the purchase and sale of securities of the Portfolio, the Sub-Adviser shall deliver to the Adviser by no later than 4 p.m. Central Time on trading day, a trade file with respect to securities, including financial futures contracts and currency exchange transactions, purchased or sold on such trading day, if any, using a secure electronic system established by Adviser, and confirmations, if customarily provided by counterparties, relating to each transaction executed for the Portfolio. (ii) Using a secure electronic system established by Adviser, Sub-Adviser will deliver to Adviser by no later than noon Central Time on trade date plus one, a complete list of investments held by the Portfolio on a daily basis. Sub-Adviser agrees to reconcile these holdings with the Custodian on a monthly basis. (iii) Revisions to or cancellations of trades must be provided by Sub-Adviser to Adviser using a secure electronic system established by Adviser by no later than 2:00 p.m. Central Time on trade date plus one. If a revision or cancellation is made after this deadline, Sub-Adviser will promptly notify Adviser using a secure electronic system established by Adviser. (5) INVESTMENT IN NEW SECURITIES (i) Sub-Adviser further agrees to provide ongoing security related information as is necessary (including, but not limited to payment discrepancies). (6) TRADE AFFIRMATION AND SETTLEMENT (i) The Sub-Adviser shall affirm and direct the Custodian to settle each trade made by the Sub-Adviser on behalf of the Portfolio and shall advise brokers to list Adviser as an Interested Party on all Depository Trust Company ("DTC") confirms, supplying Adviser's DTC number as 71567. Sub-Adviser agrees that all trades will be affirmed by the Sub-Adviser by no later than 11:00 a.m. Central Time on trade date plus one. (ii) With respect to portfolio securities to be purchased or sold through DTC, the Sub-Adviser shall arrange for the automatic transmission of the I.D. confirmation of the trade to the Custodian of the Portfolio. For non-DTC eligible trades, Sub-Adviser will provide hard copy confirmation, if customarily provided, via facsimile or e-mail to Adviser by no later than 11:00 a.m. Central Time on trade date plus one. Investment Sub-Advisory Agreement, International Bond Portfolio Page 3 of 11 (iii) Sub-Adviser will work directly with Custodian and/or any applicable broker to resolve any trade-related issues (including, but not limited to re-registration of physical certificates, denominational breakdowns, exchanges, etc.). (iv) Sub-Adviser agrees to monitor any failing trades and to use its best efforts to work proactively to resolve these issues, and seek reimbursement from third parties as appropriate. Sub-Adviser agrees to reimburse the Portfolio for any compensating interest due because of failing trades if due to the fault of Sub-Adviser or if Sub-Adviser fails to use its best efforts to seek reimbursement from third parties. (7) CORPORATE ACTIONS (i) Sub-Adviser will work with appropriate parties to facilitate voluntary corporate action processing; (ii) Sub-Adviser will notify Adviser of any voluntary corporate actions and the specific actions that will be taken; and (iii) Sub-Adviser will provide appropriate details related to all corporate actions, including any accounting data needed. (8) PROXY VOTING Adviser is responsible for voting all proxies on behalf of the securities held by the Portfolio in accordance with proxy voting policies and procedures adopted by the Fund. Sub-Adviser shall consult with Adviser as requested by Adviser on proxy voting matters. (9) SECURITIES LENDING The Adviser may have entered into, prior to the existence of this agreement, or may, at some point during the existence of this Agreement enter into a securities lending agreement with the Custodian or another party to have the securities of the Portfolio placed on loan for a fee. If the Adviser does enter into such agreement, the Adviser will notify the Sub-Adviser of such agreement. The Adviser agrees not to enter into such agreement without the counterparty agreeing to contractual settlement, thereby guaranteeing the return of any securities on loan when requested by the Custodian in connection with settlements of transactions initiated by Sub-Adviser. If requested by Sub-Adviser, and as permitted by the relevant securities lending agreements, Adviser will instruct a buy-in against a borrower which has failed to redeliver securities to the Portfolio. (10) DIRECTED BROKERAGE Sub-Adviser understands that Adviser may, on occasion, enter into agreements for directed brokerage with certain brokers. Sub-Adviser agrees to follow Adviser's direction regarding directed brokerage. Investment Sub-Advisory Agreement, International Bond Portfolio Page 4 of 11 (11) BROKER SELECTION Except as provided in paragraph 10 above, in placing orders or directing the placement of orders for the execution of portfolio transactions, the Sub-Adviser shall select brokers and dealers for the execution of the Portfolio's transactions. In selecting brokers or dealers to execute such orders, the Sub-Adviser is expressly authorized to consider the fact that a broker or dealer has furnished statistical, research or other information or services which enhance the Sub-Adviser's investment research and portfolio management capability generally. It is further understood in accordance with Section 28(e) of the Securities Exchange Act of 1934, as amended, that the Sub-Adviser may negotiate with and assign to a broker a commission which may exceed the commission which another broker would have charged for effecting the transaction if the Sub-Adviser determines in good faith that the amount of commission charged was reasonable in relation to the value of brokerage and/or research services (as defined in Section 28(e)) provided by such broker, viewed in terms either of the Portfolio or the Sub-Adviser's overall responsibilities to the Sub-Adviser's discretionary accounts. (12) AVAILABILITY AND RETENTION OF RECORDS The Sub-Adviser shall, in the name of the Portfolio, place or direct the placement of orders for the execution of portfolio transactions in accordance with its investment policies, as set forth in the Portfolio's investment objectives, policies and restrictions. In connection with the placement of orders for the execution of the Portfolio's portfolio transactions, the Sub-Adviser shall create and maintain all necessary records required to be created and maintained by an investment adviser under all applicable law, rules and regulations, including, but not limited to, records required by Section 31(a) of the 1940 Act . All records pertaining to the Sub-Adviser's management of the Portfolio shall be the property of the Fund and shall be available for inspection and use, upon reasonable notice and during normal business hours, by the Securities and Exchange Commission, state regulators, Adviser, or any person retained by the Fund. Where applicable, such records shall be maintained by the Sub-Adviser for the period and in the place required by Rule 31a-2 under the 1940 Act. (13) INVESTMENT ACTIVITY AND PORTFOLIO COMPOSITION REPORTING The Sub-Adviser shall render such reports to the Adviser and/or to the Fund's Board of Directors concerning the investment activity and portfolio composition of the Portfolio in such form and at such intervals as the Adviser or the Board may from time to time reasonably request. The Sub-Adviser shall use the same skill and care in providing services to the Portfolio as it uses in providing services to other fiduciary accounts for which it has investment responsibility. (14) AGGREGATION OF TRADES AND TRADE ALLOCATIONS On occasions when the Sub-Adviser deems the purchase or sale of a security to be in the best Investment Sub-Advisory Agreement, International Bond Portfolio Page 5 of 11 interest of the Portfolio as well as other customers, the Sub-Adviser, to the extent permitted by applicable law, may aggregate the securities to be so sold or purchased in order to obtain the best execution or lower brokerage commissions, if any. The Sub-Adviser also may purchase or sell a particular security for one or more customers in different amounts. On either occasion, and to the extent permitted by applicable law and regulations, allocation of the securities so purchased or sold, as well as the expenses incurred in the transaction, will be made by the Sub-Adviser in the manner it considers to be the most equitable and consistent with its fiduciary obligations to the Portfolio and to such other customers. In no instance, however, will the Portfolio's assets be purchased from or sold to the Adviser, the Sub-Adviser, the Fund's principal underwriter, or any affiliated person of either the Fund, the Adviser, the Sub-Adviser or the principal underwriter, acting as principal in the transaction, except to the extent permitted by the SEC and the 1940 Act. 3. EXPENSES During the term of this Agreement, the Sub-Adviser will pay all of its own expenses incurred in connection with its activities under this Agreement. All brokerage and custodial expenses relating to the operation of the Portfolio shall be borne by the Portfolio. 4. COMPENSATION In payment for the investment sub-advisory services to be rendered by the Sub-Adviser in respect of the Portfolio hereunder, the Adviser shall pay to the Sub-Adviser a fee, determined as described on Exhibit A, attached hereto and made a part hereof. 5. RENEWAL, AMENDMENT AND TERMINATION This Agreement shall not become effective unless and until it is approved by the Board of Directors of the Fund, including a majority of the members who are not "interested persons" to parties to this Agreement, by a vote cast in person at a meeting called for the purpose of voting such approval. This Agreement shall continue in effect for a period more than two years from the date of this Agreement, only so long as such continuance is specifically approved at least annually by a vote of the holders of the majority of the outstanding voting securities of the Portfolio, or by a vote of the majority of the Fund's Board of Directors. And further provided that such continuance is also approved annually by a vote of the majority of the Fund's Board of Directors who are not parties to this Agreement or interested persons of parties hereto, cast in person at a meeting called for the purpose of voting on such approval. This Agreement may be terminated at any time without payment of penalty: (i) by the Fund's Board of Directors or by a vote of a majority of the outstanding voting securities of the class of capital stock of the Portfolio on sixty (60) days' prior written notice, or (ii) by either party hereto upon sixty (60) days' prior written notice to the other. This Agreement will terminate automatically upon any termination of the Investment Advisory Agreement between the Fund and the Adviser or in the event of its assignment. The terms "interested person," "assignment" and "vote of a majority of the Investment Sub-Advisory Agreement, International Bond Portfolio Page 6 of 11 outstanding voting securities" shall have the meanings set forth in the 1940 Act. This Agreement may only be amended by mutual written agreement, signed by both parties. 6. LIABILITY The Sub-Adviser may rely on information reasonably believed by it to be accurate and reliable. Except as provided by the 1940 Act, neither the Sub-Adviser nor its officers, directors, employees or agents shall be subject to any liability for any error of judgment or mistake of law or for any loss arising out of any investment or other act or omission in the performance by the Sub-Adviser of its duties under this Agreement or for any loss or damage resulting from the imposition by any government of exchange control restrictions which might affect the liquidity of the Portfolio's assets, or from acts or omissions of the Adviser, custodians, securities depositories or other third parties, or from any war or political act of any foreign government to which such assets might be exposed, provided that nothing herein shall be deemed to protect, or purport to protect, the Sub-Adviser against any liability to the Portfolio to which the Sub-Adviser would otherwise be subject by reason of willful misfeasance, bad faith or gross negligence in the performance of its duties hereunder, or by reason of the Sub-Adviser's reckless disregard of its obligations and duties hereunder. Notwithstanding the foregoing, if there is a higher standard of care imposed by applicable law, such standard will apply under this Agreement. 7. NO GUARANTEE AS TO INVESTMENT PERFORMANCE The Adviser and the Fund's Board of Directors understand that the value of investments made for the Portfolio may go up as well as down and is not guaranteed, and that investment decisions will not always be profitable. Neither the Adviser nor the Sub-Adviser has made or is making any guarantees, including any guarantee as to any specific level of performance of the Portfolio. The Adviser and the Fund's Board of Directors acknowledge that this Portfolio is designed for the described investment objective and is not intended as a complete investment program. They also understand that investment decisions made on behalf of the Portfolio by Sub-Adviser are subject to various market and business risks. 8. OTHER CLIENTS OF SUB-ADVISER The Adviser understands that the Sub-Adviser now acts, or may act in the future, as investment adviser to other managed accounts, including other investment companies, and the Adviser has no objection to the Sub-Adviser so acting, provided that the Sub-Adviser duly performs all obligations under this Agreement. The Adviser also understands that the Sub-Adviser may give advice and take action with respect to any of its other clients or for its own account which may differ from the timing or nature of action taken by the Sub-Adviser with respect to the Portfolio. Nothing in this Agreement shall impose upon the Sub-Adviser any obligation to purchase or sell, with respect to the Portfolio, any security which the Sub-Adviser or its shareholders, directors, officers, employees or affiliates may purchase or sell for its or their own account(s) or for the account of any other client. Investment Sub-Advisory Agreement, International Bond Portfolio Page 7 of 11 9. OTHER BUSINESS ACTIVITIES OF SUB-ADVISER Except to the extent necessary to perform its obligations hereunder, nothing herein shall be deemed to limit or restrict the right of the Sub-Adviser, or the right of any of its officers, directors or employees who may also be an officer, director or employee of the Fund, or persons otherwise affiliated with the Fund (within the meaning of the 1940 Act) to engage in any other business or to devote time and attention to the management or other aspects of any other business, whether of a similar or dissimilar nature, or to render services of any kind to any other trust, corporation, firm, individual or association. 10. REPRESENTATIONS Sub-Adviser represents that it is registered as an investment adviser under the Investment Advisers Act of 1940 and that such registration is currently effective and will remain effective throughout the term of this Agreement. The Sub-Adviser will perform its duties hereunder with the care, skill, prudence, and diligence under the circumstances then prevailing that a prudent man acting in like capacity and familiar with such matters would use in the conduct of an enterprise of a like character and with like aims. The Sub-Adviser acknowledges that it will be acting as a fiduciary for Adviser in the performance of its duties hereunder. The Sub-Adviser shall at no time have custody or physical control of any assets of the Portfolio. 11. DISCLOSURE STATEMENT Adviser acknowledges receipt of Sub-Adviser's Disclosure Statement, as required by Rule 204-3 under the Investment Advisers Act of 1940, not less than 48 hours prior to the date of execution of this Agreement shown below. 12. ENTIRE AGREEMENT, GOVERNING LAW AND WAIVER OF JURY TRIAL This Agreement constitutes the entire agreement of the parties with respect to management of the Portfolio and it supercedes and replaces any pre-existing agreement between the parties. This Agreement shall be construed and enforced in accordance with and governed by the laws of the State of Minnesota. To the extent permitted by the Federal securities laws, the parties hereby waive their right to a jury trial. 13. ATTORNEYS' FEES In the event of any litigation between the parties with respect to the subject matter of this Agreement, the prevailing party shall be entitled to recover, in addition to any other relief awarded by the court, its reasonable attorneys' fees and other costs of preparing for and participating in the litigation. 14. CAPTIONS Investment Sub-Advisory Agreement, International Bond Portfolio Page 8 of 11 The captions in this Agreement are included for convenience only and in no way define or delimit any of the provisions hereof or otherwise affect their construction or effect. 15. SEVERABILITY Each provision of this Agreement is intended to be severable from the others so that if any provision or term is found to be invalid or illegal for any reason whatsoever, such invalidity or illegality shall not affect the validity or legality of the remaining provisions and terms hereof. 16. CONTACT INFORMATION Sub-Adviser agrees to provide to Adviser, and update as necessary, all specific contact information regarding individual's names, phone numbers, facsimile numbers, e-mail addresses, and similar information for all back-up personnel, and for all personnel who have any individual responsibility for the operation of the Portfolio. 17. NOTICES Any notice under this Agreement shall be in writing, addressed and delivered or mailed postage pre-paid to the appropriate party at the following address: The Adviser at: Advantus Capital Management, Inc. 400 Robert Street North Mail Station 15-3175 St. Paul, Minnesota 55101-2098 Attn: Chief Legal Officer and the Sub-Adviser at: Franklin Advisers, Inc. One Franklin Parkway San Mateo, CA 94403-1906 18. The effective date of this agreement shall be January 1, 2008. IN WITNESS WHEREOF, the parties have duly executed this Agreement. ADVANTUS CAPITAL MANAGEMENT, INC. FRANKLIN ADVISERS, INC. (SUB-ADVISER) (ADVISER) Investment Sub-Advisory Agreement, International Bond Portfolio Page 9 of 11 By: /s/ Kathleen H. Parker By: /s/ Christopher J. Molumphy ---------------------------------- ----------------------------------- Kathleen H. Parker, Vice President Christopher J. Molumphy CIO (printed or typed name and title) (printed or typed name and title) By: /s/ E. A. Bergsland By: /s/ ---------------------------------- ------------------------------------ E. A. Bergsland, Vice President ------------------------------------ (printed or typed name and title) (printed or typed name and title) Investment Sub-Advisory Agreement, International Bond Portfolio Page 10 of 11 EXHIBIT A SCHEDULE OF FEES In payment for the investment sub-advisory services to be rendered by the Sub-Adviser in respect of the Portfolio, the Adviser shall pay to the Sub-Adviser as full compensation for all services hereunder a fee computed at an annual rate which shall be a percentage of the average daily value of the net assets of the Portfolio. The fee shall be accrued daily and shall be based on the net asset value of the Portfolio assets as determined as of the close of each business day. The fee shall be payable quarterly by Adviser to Sub-Adviser within 30 days after quarter end and shall be accompanied by a worksheet created by Adviser which sets forth the supporting documentation upon which Adviser relied to calculate such fee. The amount of such annual fee, as applied to the average daily value of the net assets of the Portfolio shall be as described in the schedule below:
Assets Annual Fee ------ ---------- All Assets of the Portfolio 37 basis points (0.37%)
Exhibit A Page 1 of 1 EX-99.E 5 c49473bexv99we.txt EX-99.E Exhibit 99.(e) AMENDED UNDERWRITING AND DISTRIBUTION AGREEMENT THIS AGREEMENT, made as of November 6, 2007 by and between Advantus Series Fund, Inc., a Minnesota corporation (the "Fund") and Securian Financial Services, Inc. (the "Underwriter"). WITNESSETH: 1. UNDERWRITING SERVICES. The Fund hereby engages the Underwriter, and the Underwriter hereby agrees to act, as principal underwriter for the Fund in the sale and distribution of the shares of the Fund. The Underwriter agrees to offer such shares for sale at all times when such shares are available for sale and may lawfully be offered for sale and sold. 2. SALE OF FUND SHARES. Such shares are to be sold only on the following terms: (a) All subscriptions, offers, or sales shall be subject to acceptance or rejection by the Fund. Any offer or sale shall be conclusively presumed to have been accepted by the Fund if the Fund shall fail to notify the Underwriter of the rejection of such offer or sales prior to the computation of the net asset value of the Fund's shares next following receipt by the Fund of notice of such offer or sale. (b) No share of the Fund shall be sold by the Underwriter for any consideration other than cash. (c) Shares of the Fund are not available to the public. The Fund is available for sale only to separate accounts of Minnesota Life Insurance Company and to certain of its life insurance affiliates for the purpose of funding variable life insurance policies and variable annuity contracts ("Variable Contracts"). At the date of this Agreement, Minnesota Life and Securian Financial Services, Inc., and the Fund have received an order from the Securities and Exchange Commission dated January 7, 1987, issued pursuant to Section 6(c) of the Investment Company Act of 1940, granting relief from Sections 9(a), 13(a), 15(a) and 15(b) of that Act and from paragraph (b)(5) of Rule 6e-l thereunder so as to permit the sales of Fund shares to both variable annuity and variable life separate accounts, a practice known as "mixed funding", subject to the provisions of the Rule and the undertakings set forth in the Order. The Fund will advise Underwriter in the event of any change in the Order. 3. REGISTRATION OF SHARES. The Fund agrees to make prompt and reasonable efforts to effect and keep in effect, at its expense, the registration or qualification of its shares for sale in such jurisdictions as the Fund may designate. 4. INFORMATION TO BE FURNISHED TO THE UNDERWRITER. The Fund agrees that it will furnish the Underwriter with such information with respect to the affairs and accounts of the Fund as the Underwriter may from time to time reasonably require, and further agrees that the Underwriter, at all reasonable times, shall be permitted to inspect the books and records of the Fund. 5. ALLOCATION OF EXPENSES. During the period of this contract, the Fund shall pay or cause to be paid all expenses, costs, and fees incurred by the Fund which are not assumed by the Underwriter or Advantus Capital Management, Inc., a Minnesota corporation and the Fund's investment adviser. The Underwriter shall pay costs associated with the distribution of shares of the Fund. Distribution-related payments may include, among other things, the printing of prospectuses and reports used for sales purposes, preparing and distributing sales literature and related expenses, advertisements, education of Variable Contract owners or dealers and their representatives, trail commissions, and other distribution-related expenses, including a prorated portion of the overhead expenses of the Underwriter or the Insurance Companies which are attributable to the distribution of the Variable Contracts. Underwriter may undertake such activities directly or may compensate others for undertaking such activities. Payments made under the Plan may also be used to pay Insurance Companies, dealers or others for non-distribution services, including, among other things, responding to inquiries from owners of Variable Contracts regarding the Fund, printing and mailing Fund prospectuses and other shareholder communications to existing Variable Contract owners, direct communications with Variable Contract owners regarding Fund operations and portfolio composition and performance, furnishing personal services or such other enhanced services as the Fund or a Variable Contract may require, or maintaining customer accounts and records. Agreements for the payment of fees to the Underwriter, Insurance Companies or others shall be in a form which has been approved from time to time by the Board, including the non-interested Board members. 6. COMPENSATION TO THE UNDERWRITER Pursuant to the Fund's Plan of Distribution adopted in accordance with Rule 12b-1 under the 1940 Act (the "Plan"), the Fund shall pay the Underwriter a total fee each month equal to 0.25% per annum of the average daily net assets represented by shares of the Portfolios (and any Class thereof) of the Fund covered by the Plan to cover the costs of "distribution-related activities" and other "non-distribution services" as described in the Plan ("Distribution Expenses"). As of the date of this Agreement, only the following Portfolios (and Classes thereof) of the Fund are covered by the Plan: - Bond Portfolio, Class 2 only - Index 400 Mid-Cap Portfolio, Class 2 only - Index 500 Portfolio, Class 2 only - International Bond Portfolio, Class 2 only 2 - Money Market Portfolio - Mortgage Securities Portfolio, Class 2 only - Real Estate Securities Portfolio, Class 2 only Average daily net assets shall be computed in accordance with the Fund's currently effective Prospectus. Amounts payable to the Underwriter under the Plan may exceed or be less than the Underwriter's actual Distribution Expenses. In the event such Distribution Expenses exceed amounts payable to the Underwriter under the Plans, the Underwriter shall not be entitled to reimbursement by the Fund. In each year during which this Agreement remains in effect, the Underwriter will prepare and furnish to the Board of Directors of the Fund, and the Board will review, on a quarterly basis, written reports complying with the requirements of Rule 12b-1 under the 1940 Act that set forth the amounts expended under this Agreement and the Plan and the purposes for which those expenditures were made. 7. LIMITATION OF THE UNDERWRITER'S AUTHORITY. The Underwriter shall be deemed to be an independent contractor and, except as specifically provided or authorized herein, shall have no authority to act for or represent the Fund. 8. SUBSCRIPTION FOR SHARES-REFUND FOR CANCELLED ORDERS. The subscription for the shares of the Fund shall be solely from separate accounts pursuant to the terms of the variable life insurance policies and variable annuity contracts. 9. ANTI-MONEY LAUNDERING The Underwriter agrees to comply with all applicable anti-money laundering laws, regulations, rules and government guidance, including the reporting, recordkeeping and compliance requirements of the Bank Secrecy Act ("BSA"), as amended by The International Money Laundering Abatement and Anti-Terrorism Financing Act of 2001, Title III of the USA PATRIOT ACT ("the Act"), its implementing regulations, and related Securities and Exchange Commission and Self-Regulatory Organization rules. These include requirements to identify and report currency transactions and suspicious activity, to verify customer identity, to conduct customer due diligence, and to implement anti-money laundering compliance programs. As required by the Act, the Underwriter certifies that it has a comprehensive anti-money laundering compliance program that includes policies, procedures and internal controls for complying with the BSA; policies, procedures and internal controls for identifying, evaluating and reporting suspicious activity; a designated compliance officer or officers; training for appropriate employees; and an independent audit function. Further, the Underwriter agrees to comply with the economic sanctions programs administered by the U.S. Treasury Department's Office of Foreign Assets Control ("OFAC"). The Underwriter certifies that it has an OFAC compliance program in place which includes 3 procedures for checking customer names and persons with signature authority over accounts against the OFAC lists of sanctioned governments and specially-designated nationals, terrorists and traffickers; the screening of wire transfers and other payments against the OFAC lists; a designated compliance officer; an internal communication network; training of appropriate personnel; and an independent audit function. The Underwriter agrees to promptly notify the Fund whenever questionable activity or potential indications of suspicious activity or OFAC matches are detected. The Underwriter agrees to investigate any potentially suspicious activity in connection with transactions in shares of the Fund and to take appropriate action, including the blocking of accounts, the filing of Suspicious Activity Reports and reporting matches to OFAC. The Underwriter agrees that any order to purchase Fund shares through the Underwriter shall constitute its continued certification of the matters it has certified above. The Underwriter further agrees to require similar certifications from broker-dealers which enter into Dealer Sales Agreements with the Underwriter in connection with the sale and distribution of Fund shares. 10. 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. 11. 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. 12. EFFECTIVE DATE, DURATION AND TERMINATION OF AGREEMENT. The effective date of this Agreement is set forth in the first paragraph of this Agreement. Unless sooner terminated as hereinafter provided, this Agreement shall continue in effect only so long as such continuance is specifically approved at least annually (a) by the Board of Directors of the Fund, or by the vote of the holders of a majority of the outstanding voting securities of the Fund (or such Portfolio or Class thereof), and (b) by a majority of the directors 4 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 with respect to the Fund (or any Portfolio or Class thereof) at any time without penalty, by vote of a majority of the outstanding Shares of the Fund (or such Portfolio or Class thereof) or by vote of a majority of the non-interested Board members, on not more than sixty (60) days' written notice, or by the Underwriter on not more than sixty (60) days' written notice, and shall terminate automatically in the event of any act that constitutes an assignment, (as defined by the provisions of the Investment Company Act of 1940, as amended) of this Agreement. 13. AMENDMENTS TO AGREEMENT. No material amendment to this Agreement shall be effective until approved by the Underwriter and by vote of majority of the Board of Directors of the Fund who are not interested persons of the Underwriter, and such amendment is in writing and signed by both parties. 14. 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. 15. GOVERNING LAW. This Agreement shall be governed by and construed in accordance with the laws of the State of Minnesota and the Federal Securities Laws. IN WITNESS WHEREOF, The Fund and the Underwriter have caused this Agreement to be executed by their duly authorized officers as of the day and year first above written. ADVANTUS SERIES FUND, INC. By /s/ Gregory S. Strong ------------------------------------- Its President SECURIAN FINANCIAL SERVICES, INC. By /s/ George I. Connolly ------------------------------------- Its President & Chief Executive Officer 5 EX-99.G.1.A 6 c49473bexv99wgw1wa.txt EX-99.G.1.A CUSTODIAN CONTRACT BETWEEN ADVANTUS SERIES FUND, INC. AND NORWEST BANK MINNESOTA, N.A. (AS AMENDED AND RESTATED AS OF NOVEMBER 1, 1999) TABLE OF CONTENTS 1. Employment of Custodian and Property to be Held by It .................. 1 2. Duties of the Custodian with Respect to Property of the Fund Held by the Custodian ........................................................... 1 2.1 Holding Securities ................................................ 1 2.2 Delivery of Securities ............................................ 1 2.3 Registration of Securities ........................................ 4 2.4 Bank Accounts ..................................................... 4 2.5 Payments for Shares ............................................... 4 2.6 Availability of Federal Funds ..................................... 4 2.7 Collection of Income .............................................. 5 2.8 Payment of Fund Monies ............................................ 5 2.9 Liability for Payment in Advance of Receipt of Securities Purchased 6 2.10 Payments for Repurchases or Redemption of Shares of the Fund ...... 6 2.11 Appointment of Agents ............................................. 7 2.12 Deposit of Fund Assets in Securities Systems ...................... 7 2.13 Segregated Account ................................................ 8 2.14 Ownership Certificates for Tax Purposes ........................... 9 2.15 Proxies ........................................................... 9 2.16 Communications Relating to Fund Portfolio Securities .............. 9 2.17 Proper Instructions ............................................... 9 2.18 Actions Permitted Without Express Authority ....................... 10 2.19 Evidence of Authority ............................................. 10 2.20 Class Actions ..................................................... 10 2.21 Duties of the Custodian with Respect to Fund Property Held Outside of the United States .............................................. 11 2.21(a) Appointment of Foreign Sub-Custodian ...................... 11 2.21(b) Assets to be Held ......................................... 11 2.21(c) Segregation of Securities ................................. 11 2.21(d) Agreement with Foreign Banking Institution ................ 12 2.21(e) Access of Independent Accountants of the Fund ............. 12 2.21(f) Repots by Custodian ....................................... 12 2.21(g) Foreign Securities Transactions ........................... 13 2.21(h) Foreign Securities Lending ................................ 14 2.21(i) Liability of Foreign Sub-Custodian ........................ 15 2.21(j) Monitoring Responsibilities ............................... 15 2.21(k) Branches of United States Banks ........................... 15 2.21(l) Expropriation Insurance ................................... 15 3. Duties of Custodian with Respect to the Books of Account and Calculation of Net Asset Value and Net Income ........................ 16
i 4. Records .............................................................. 16 5. Opinion of Fund's Independent Accountant ............................. 17 6. Reports to Fund by Independent Public Accountants .................... 17 7. Compensation of Custodian ............................................ 17 8. Responsibility of Custodian .......................................... 17 9. Effective Period, Termination and Amendment .......................... 18 10. Successor Custodian .................................................. 19 11. Interpretive and Additional Provisions ............................... 20 12. Minnesota Law to Apply ............................................... 20 13. Prior Contracts ...................................................... 20
ii CUSTODIAN CONTRACT This Contract is between the Portfolios of the Advantus Series Fund, Inc., as set forth in the attached Schedule A, an investment company of the series type consisting of several portfolios, and a corporation organized and existing under the laws of the State of Minnesota, having its principal place of business at 400 Robert Street North, St. Paul, Minnesota 55101, attached hereto (hereinafter called the "Fund") and Norwest Bank Minnesota, N.A., a national Banking association having its principal place of business at Sixth and Marquette, Minneapolis, Minnesota 55479 (hereinafter called the "Custodian") WITNESSETH, that in consideration of the mutual covenants and agreements hereinafter contained, the parties hereto agree as follows: 1. Employment of Custodian and Property to be Held by It The Fund hereby employs the Custodian as the custodian of its assets pursuant to the provisions of the Articles of Incorporation. The Fund agrees to deliver to the Custodian all securities and cash owned by it, and all payments of income, payments of principal or capital distributions received by it with respect to all securities owned by the Fund from time to time, and the cash consideration received by it for such new or treasury shares of capital stock ("Shares") of the Fund as may be issued or sold from time to time. The Custodian shall not be responsible for any property of the Fund held or received by the Fund and not delivered to the Custodian. Upon receipt of "Proper Instructions" (within the meaning of Section 2.17), the Custodian shall from time to time employ one or more sub-custodians, but only in accordance with an applicable vote by the Board of Directors of the Fund, and provided that the Custodian shall have no more or less responsibility or liability to the Fund on account of any actions or omissions of any sub-custodian so employed than any such sub-custodian has to the Custodian. 2. Duties of the Custodian with Respect to Property of the Fund Held by the Custodian 2.1 Holding Securities The Custodian shall hold and physically segregate for the account of the Fund all non-cash property, including all securities owned by the fund, other than (a) securities which are maintained pursuant to Section 2.12 in a clearing agency which acts as a securities depository or in a book-entry system authorized by the U.S. Department of the Treasury, collectively referred to herein as a "Securities System." 2.2 Delivery of Securities The Custodian shall release and deliver securities owned by the Fund held by the Custodian or in a Securities System account of the Custodian only upon receipt of Proper -1- Instructions, which may be continuing instructions when deemed appropriate by the parties, and only in the following cases: 1) Upon sale of such securities for the account of the Fund and receipt of payment therefor; 2) Upon the receipt of payment in connection with any repurchase agreement related to such securities entered into by the Fund; 3) In the case of a sale effected through a Securities System, in accordance with the provisions of Section 2.12 hereof; 4) To the depository agent in connection with tender or other similar offers for portfolio securities of the Fund; 5) To the issuer thereof or its agent when such securities are called, redeemed, retired or otherwise become payable; provided that, in any such case, the cash or other consideration is to be delivered to the Custodian; 6) To the issuer thereof, or its agent, for transfer into the name of the Fund or into the name of any nominee or nominees of the Custodian or into the name or nominee name of any agent appointed pursuant to Section 2.11 or into the name or nominee name of any sub-custodian appointed pursuant to Article 1; or for exchange for a different number of bonds, certificates or other evidence representing the same aggregate face amount or number of units; provided that, in any such case, the new securities are to be delivered to the Custodian; 7) Upon the sale of such securities for the account of the Fund, to the broker or its clearing agent, against a receipt, for examination in accordance with "street delivery" custom; provided that in any such case, the Custodian shall have no responsibility or liability for any loss arising from the delivery of such securities prior to receiving payment for such securities except as may arise from the Custodian's own negligence or willful misconduct; 8) For exchange or conversion pursuant to any plan or merger, consolidation, recapitalization, reorganization or readjustment of the securities of the issuer of such securities, or pursuant to provisions for conversion contained in such securities, or pursuant to any deposit agreement; provided that, in any such case, the new securities and cash, if any, are to be delivered to the Custodian; 9) In the case of warrants, rights or similar securities, the surrender thereof in the exercise of such warrants, rights or similar securities or the surrender of interim receipts of temporary securities for definitive securities; provided -2- that, in any such case, the new securities and cash, if any, are to be delivered to the Custodian; 10) For delivery in connection with any loans of securities, made by the Fund, but only against receipt of adequate collateral as agreed upon from time to time by the Custodian and the Fund, which may be in the form of cash or obligations issued by the United States government, its agencies or instrumentalities, except that in connection with any loans for which collateral is to be credited to the Custodian's account in the book-entry system authorized by the U.S. Department of the Treasury, the Custodian will not be held liable or responsible for the delivery of securities owned by the Fund prior to the receipt of such collateral; 11) For delivery as security in connection with any borrowings by the Fund requiring a pledge of assets by the Fund, but only against receipt of amounts borrowed; 12) For delivery in accordance with the provisions of any agreement among the Fund, the Custodian and a broker-dealer registered under the Securities Exchange Act of 1934 (the "Exchange Act") and a member of the National Association of Securities Dealers, Inc. ("NASD"), relating to the compliance with the rules of The Options Clearing Corporation and of any registered national securities exchange, or of any similar organization or organizations, regarding escrow or other arrangements in connection with transactions by the Fund; 13) For delivery in accordance with the provisions of any agreement among the Fund, the Custodian, and a Futures Commission Merchant registered under the Commodity Exchange Act, relating to compliance with the rules of the Commodity Futures Trading Commission and/or any Contract Market, or any similar organization or organizations, regarding account deposits in connection with transactions by the Fund; 14) Upon receipt of instructions from the transfer agent ("Transfer Agent") for the Fund, for delivery to such Transfer Agent or to the holders of shares in connection with distributions in kind, as may be described from time to time in the Fund's currently effective prospectus and statement of additional information ("prospectus"), in satisfaction of requests by holders of Shares for repurchase or redemptions; and 15) For any other proper corporate purpose, but only upon receipt of, in addition to Proper Instructions, a certified copy of a resolution of the Board of Directors or of the Executive Committee signed by an officer of the Fund and certified by the Secretary or an Assistant Secretary, specifying the securities to be delivered, setting forth the purpose for which such delivery is to be made, declaring such purpose to be a proper corporate purpose, and -3- naming the person or persons to whom delivery of such securities shall be made. 2.3 Registration of Securities Securities held by the Custodian (other than bearer securities) shall be registered in the name of the Fund or in the name of any nominee of the Fund or of any nominee of the Custodian which nominee shall be assigned exclusively to the Fund, unless the Fund has authorized in writing the appointment of a nominee to be used in common with other registered investment companies having the same investment adviser as the Fund, or in the name of nominee name of any agent appointed pursuant to Section 2.11 or in the name or nominee name of any sub-custodian appointed pursuant to Article 1. All securities accepted by the Custodian on behalf of the Fund under the terms of this Contract shall be in "street name" or other good delivery form. 2.4 Bank Accounts The Custodian shall open and maintain a separate bank account or accounts in the name of the Fund, subject only to draft or order by the Custodian acting pursuant to the terms of this Contract, and shall hold in such account or accounts, subject to the provisions hereof, all cash received by it from or for the account of the Fund, other than cash maintained by the Fund in a bank account established and used in accordance with Rule 17f-3 under the Investment Company Act of 1940. Funds held by the Custodian for the Fund may be deposited by it to its credit as Custodian in the Banking Department of the Custodian or in such other banks or trust companies as it may in its discretion deem necessary or desirable; provided, however, that every such bank or trust company shall be qualified to act as a custodian under the Investment Company Act of 1940 and that each bank or trust company and the funds to be deposited with each such bank or trust company shall be approved by vote of a majority of the Board of Directors of the Fund. Such funds shall be deposited by the Custodian in its capacity as Custodian and shall be withdrawable by the Custodian only in that capacity. 2.5 Payments for Shares The Custodian shall receive from the distributor for the Fund's Shares or from the Transfer Agent of the Fund and deposit into the Fund's account such payments as are received for Shares of the Fund issued or sold from time to time by the Fund. The Custodian will provide timely notification to the Fund and the Transfer Agent of any receipt by it of payments for Shares of the Fund. 2.6 Availability of Federal Funds Upon mutual agreement between the Fund and the Custodian, the Custodian shall, upon the receipt of Proper Instructions, make federal funds available to the Fund as of specified times agreed upon from time to time by the Fund and the Custodian in the -4- amount of checks received in payment for Shares of the Fund which are deposited into the Fund's account. 2.7 Collection of Income The Custodian shall collect on a timely basis all income and other payments with respect to registered securities held hereunder to which the Fund shall be entitled either by law or pursuant to custom in the securities business, and shall collect on a timely basis all income and other payments with respect to bearer securities if, on the date of payment by the issuer, such securities are held by the Custodian or its agent thereof and shall credit such income, as collected, to the Fund's custodian account. Without limiting the generality of the foregoing, the Custodian shall detach and present for payment all coupons and other income items requiring presentation as and when they become due and shall collect interest when due on securities held hereunder. Income due the Fund on securities loaned pursuant to the provisions of Section 2.2(10) shall be the responsibility of the Fund. The Custodian will have no duty or responsibility in connection therewith, other than to provide the Fund with such information or data as may be necessary to assist the Fund in arranging for the timely delivery to the Custodian of the income to which the Fund is properly entitled. 2.8 Payment of Fund Monies Upon receipt of Proper Instructions, which may be continuing instructions when deemed appropriate by the parties, the Custodian shall pay out monies of the fund in the following cases only: 1) Upon the purchase of securities, options, futures contracts or options on futures contracts for the account of the Fund but only (a) against the delivery of such securities or evidence of title to such options, futures contracts or options on futures contracts, to the Custodian (or any bank, banking firm or trust company doing business in the United States or abroad which is qualified under the Investment Company Act of 1940 to act as a custodian and has been designated by the Custodian as its agent for this purpose) registered in the name of the Fund or in the name of a nominee of the Custodian referred to in Section 2.3 hereof or in proper form for transfer; (b) in the case of a purchase effected through a Securities System, in accordance with the conditions set forth in Section 2.12 hereof or (c) in the case of the repurchase agreements entered into between the Fund and the Custodian, or another bank, or a broker-dealer which is a member of NASD, (i) against delivery of the securities either in certificate form or through an entry crediting the Custodian's account at the Federal Reserve Bank with such securities or (ii) against delivery of the receipt evidencing purchase by the Fund of securities owned by the Custodian along with written evidence of the agreement by the Custodian to repurchase such securities from the Fund. -5- 2) In connection with conversion, exchange or surrender of securities owned by the Fund as set forth in Section 2.2 hereof; 3) For the redemption or repurchase of Shares issued by the Fund as set forth in Section 2.10 hereof; 4) For the payment of any expense or liability incurred by the Fund, including but not limited to the following payments for the account of the Fund: interest, taxes, management, accounting, transfer agent and legal fees, and operating expenses of the Fund whether or not such expenses are to be in whole or part capitalized or treated as deferred expenses; 5) For the payment of any dividends declared pursuant to the governing documents of the Fund; 6) For payment of the amount of dividends received in respect of securities sold short; 7) For any other proper purpose, but only upon receipt of, in addition to Proper Instructions, a certified copy of a resolution of the Board of Directors or of the Executive Committee of the Fund signed by an officer of the Fund and certified by its Secretary or an Assistant Secretary, specifying the amount of such payment, setting forth the purpose for which such payment is to be made, declaring such purpose to be a proper purpose, and naming the person or persons to whom such payment is to be made. 2.9 Liability for Payment in Advance of Receipt of Securities Purchased The Custodian shall not make payment for the purchase of domestic securities for the account of a Fund in advance of receipt of the securities purchased in the absence of specific written instructions from the Fund to so pay in advance. In any and every case where payment for purchase of domestic securities of the account of a Fund is made by the Custodian in advance of receipt of the securities purchased in the absence of specific written instructions from the Fund to so pay in advance, the Custodian shall be absolutely liable to the Fund (for the account of the Fund) for such securities to the same extent as if the securities had been received by the Custodian. 2.10 Payments for Repurchases or Redemptions of Shares of the Fund From such funds as may be available for the purpose but subject to the limitations of the Articles of Incorporation and any applicable votes of the Board of Directors of the Fund pursuant thereto, the Custodian shall, upon receipt of instructions from the Transfer Agent, make funds available for payment to holders of Shares who have delivered to the Transfer Agent a request for redemption or repurchase of their Shares. In connection with the redemption or repurchase of Shares of the fund, the Custodian is authorized upon receipt of instructions from the Transfer Agent to wire funds to or through a -6- commercial bank designated by the redeeming shareholders. In connection with the redemption or repurchase of Shares of the Fund, the Custodian shall honor checks drawn on the Custodian by a holder of Shares, which checks have been furnished by the Fund to the holder of Shares, when presented to the Custodian in accordance with such procedures and controls as are mutually agreed upon from time to time between the Fund and the Custodian. 2.11 Appointment of Agents The Custodian may at any time or times in its discretion appoint (and may at any time remove) any other bank or trust company which is itself qualified under the Investment Company Act of 1940 to act as a custodian, as its agent to carry out such of the provisions of this Article 2 as the Custodian may from time to time direct; provided, however, that the appointment of any agent shall not relieve the Custodian of its responsibilities or liabilities hereunder. 2.12 Deposit of Fund Assets in Securities Systems The Custodian may deposit and/or maintain domestic securities owned by any Fund in a clearing agency registered with the Securities and Exchange Commission under Section 17A of the Exchange Act, which acts as a securities depository, or in a Federal Reserve Bank, as Custodian or Custodian's agent or nominee on the records of such Federal Reserve Bank or such registered clearing agency or the nominee of either (collectively referred to herein as "Securities System") in accordance with applicable Federal Reserve Board and Securities and Exchange Commission rules and regulations, if any, and subject to the following provisions: 1) The Custodian may keep domestic securities of a Fund in a Securities System provided that such securities are represented in an account ("Account") of the Custodian in the Securities System which shall not include any assets of the Custodian other than assets held as a fiduciary custodian or otherwise for customers; 2) The records of the Custodian with respect to domestic securities of a Fund which are maintained in a Securities System shall identify by book-entry those securities belonging to such Fund; 3) The Custodian shall pay for domestic securities purchased for the account of a Fund upon (i) the simultaneous receipt of advice from the Securities System that such securities have been transferred to the Account, and (ii) the making of an entry on the records of the Custodian to reflect such payment and transfer for the account of the Fund. The Custodian shall transfer domestic securities sold for the account of a Fund upon (a) the simultaneous receipt of advice from the Securities System that payment for such securities has been transferred to the Account, and (b) the making of an entry on the records of the Custodian to reflect such transfer and payment for the account -7- of the Fund. Copies of all advises from the Securities System of transfers of securities for the account of a Fund shall identify the Fund, be maintained for the Fund by the Custodian and be provided at its request. Upon request, the Custodian shall furnish the Fund confirmation of each transfer to or from the account of a Fund in the form of a written advice or notice and shall furnish to the Fund copies of daily transaction sheets reflecting each day's transactions in the Securities System for the account of each Fund. 4) The Custodian shall provide the Fund with any report obtained by the Custodian on the Securities System's accounting system internal accounting control and procedures for safeguarding securities deposited in the Securities System; 5) The Custodian shall have received the initial or annual certificate, as the case may be, required by Article 16 hereof; 6) Anything to the contrary in this Contract notwithstanding, the Custodian shall be liable to the Fund for any loss or damage to the applicable Fund(s) resulting from use of the Securities System by reason of any negligence, misfeasance or misconduct of the Custodian or any of its agents or of any of its or their employees or from failure of the Custodian or any such agent or employee to enforce effectively such rights as it may have against the Securities System; at the election of the Fund, it shall be entitled to be subrogated to the rights of the Custodian with respect to any claim against the Securities System or any other person which the Custodian may have as a consequence of any such loss or damage if and to the extent that the applicable Funds have not been made whole for any such loss or damage. 2.13 Segregated Account The Custodian shall upon receipt of Proper Instructions establish and maintain a segregated account or accounts for and on behalf of the Fund, into which account or accounts may be transferred cash and/or securities, including securities maintained in an account by the Custodian pursuant to Section 2.12 hereof, (i) in accordance with the provisions of any agreement among the Fund, the Custodian and a broker-dealer registered under the Exchange Act and a member of NASD (or any futures commission merchant registered under the Commodity Exchange Act), relating to compliance with the rules of The Options Clearing Corporation and of any registered national securities exchange (or the Commodity Futures Trading Commission or any registered contract market), or of any similar organization or organizations, regarding escrow or other arrangements in connection with transactions by the Fund, (ii) for the purpose of segregating cash or government securities in connection with options purchased, sold or written by the Fund or commodity futures contracts or options thereon purchased or sold by the Fund, (iii) for the purpose of compliance by the Fund with the procedures required by Investment Company Act Release No. 10666, or any subsequent release or releases of the Securities and Exchange Commission relating to the maintenance of segregated -8- accounts by registered investment companies and (iv) for other proper corporate purposes, but only, in the case of the clause (iv), upon receipt of, in addition to Proper Instructions, a certified copy of a resolution of the Board of Directors or of the Executive Committee signed by an officer of the Fund and certified by the Secretary or an Assistant Secretary, setting forth the purpose or purposes of such segregated account and declaring such purposes to be proper corporate purposes. 2.14 Ownership Certificates for Tax Purposes The Custodian shall execute ownership and other certificates and affidavits for all federal and state tax purposes in connection with receipt of income or other payments with respect to securities of the Fund held by it and in connection with transfers of securities. 2.15 Proxies The Custodian shall, with respect to the securities held hereunder, cause to be promptly executed by the registered holder of such securities, if the securities are registered otherwise than in the name of the Fund or a nominee of the Fund, all proxies, without indication of the manner in which such proxies are to be voted, and shall promptly deliver to the Fund such proxies, all proxy soliciting materials and all notices relating to such securities. 2.16 Communications Relating to Fund Portfolio Securities The Custodian shall transmit promptly to the Fund all written information (including, without limitation, pendency of calls and maturities of securities and expirations of rights in connection therewith and notices of exercise of call and put options written by the Fund and the maturity of futures contracts purchased or sold by the Fund) received by the Custodian from issuers of the securities being held for the Fund. With respect to tender or exchange offers, the Custodian shall transmit promptly to the Fund all written information received by the Custodian from issuers of the securities whose tender or exchange is sought and from the party (or his agents) making the tender or exchange offer. If the Fund desires to take action with respect to any tender offer, exchange offer or any other similar transaction, the Fund shall notify the Custodian at least three (3) business days prior to the date on which the Custodian is to take such action. 2.17 Proper Instructions Proper Instructions as used throughout this Article 2 means a writing signed or initialed by one or more person or persons as the Board of Directors shall have from to time authorized. Each such writing shall set forth the specific transaction or type of transaction involved, including a specific statement of the purpose for which such action is requested. Oral instructions will be considered Proper Instructions if the Custodian reasonably believes them to have been given a person authorized to give such instructions -9- with respect to the transaction involved. The Fund shall cause all oral instructions to be confirmed in writing. Upon receipt of a certificate of the Secretary or an Assistant Secretary as to the authorization by the Board of Directors of the Fund accompanied by a detailed description of procedures approved by the Board of Directors, Proper Instructions may include communications effected directly between electro-mechanical or electronic devices provided that the Board of Directors and the Custodian are satisfied that such procedures afford adequate safeguards for the Fund's assets. 2.18 Actions Permitted Without Express Authority The Custodian may in its discretion, without express authority from the Fund; 1) Make payments to itself or others for minor expenses of handling securities provided that all such payments shall be accounted for to the Fund; 2) Surrender securities in temporary form for securities in definitive form; 3) Endorse for collection, in the name of the Fund, checks, drafts and other negotiable instruments; and 4) In general, attend to all non-discretionary details in connection with the sale, exchange, substitution, purchase, transfer and other dealings with the securities and property of the Fund except as otherwise directed by the Board of Directors of the Fund. 2.19 Evidence of Authority The Custodian shall be protected in acting upon any instructions, notice, request, consent, certificate or other instrument of paper believed by it to be genuine and to have been properly executed by or on behalf of the Fund. The Custodian may receive and accept a certified copy of a vote of the Board of Directors of the Fund as conclusive evidence (a) of the authority of any person to act in accordance with such vote or (b) or any determination or of any action by the Board of Directors pursuant to the Articles of Incorporation as described in such vote, and such vote may be considered as in full force and effect until receipt by the Custodian of written notice to the contrary. 2.20 Class Actions The Custodian shall transmit promptly to the Fund all notices or other communications received by it in connection with any class action lawsuit relating to securities currently or previously held for the Fund. Upon being directed by the Fund to do so, the Custodian shall furnish to the Fund any and all written materials which establish the holding/ownership, amount held/owned, and period of holding/ownership of the securities in question. -10- 2.21 Duties of the Custodian with Respect to Fund Property Held Outside of the United States 2.21(a) Appointment of Foreign Sub-Custodian The Custodian is authorized and instructed, either directly or indirectly (through one or more sub-custodian U.S. banks), to employ as sub-custodians for any Fund's securities and other assets maintained outside of the United States the foreign institutions, foreign securities depositories and foreign clearing agencies designated on Exhibit A hereto ("foreign sub-custodians"); provided, however, that, notwithstanding the contents of Exhibit A hereto, the Custodian (including any of its agents and sub-custodians) is authorized to directly or indirectly employ or retain any sub-custodian, depository or clearing agency only if said employed or retained institution qualifies as either (a) an "eligible foreign custodian," as defined in Rule 17f-5 under the Investment Company Act of 1940, or (b) a "bank," as defined in Section 2(a)(5) of the Investment Company Act of 1940, that in turn qualifies as an eligible domestic custodian under Section 17(f) of the Investment Company Act of 1940; and provided further that the Custodian shall be liable to the Fund for any loss of any Fund assets custodied with any institution directly or indirectly employed or retained by the Custodian (or any of its agents or sub-custodians) that does not meet the qualifications of either clause (a) or (b) of the preceding proviso. Upon receipt of Proper Instructions, together with a certified resolution of the Fund's Board of Directors, the Custodian and the Fund may agree to amend Exhibit A hereto from time to time to designate additional or alternative foreign banking institutions, foreign securities depositories and foreign clearing agencies to act as sub-custodian. Each foreign banking institution shall be authorized to deposit securities in foreign securities depositories and foreign clearing agencies authorized pursuant to Rule 17f-5 under the Investment Company Act of 1940. Upon receipt of Proper Instructions from the Fund the Custodian shall promptly cease the employment of any one or more of such sub-custodians for maintaining custody of the assets of the application Fund(s). 2.21(b) Assets to be Held The Custodian shall limit the securities and other assets maintained in the custody of the foreign sub-custodian to: (a) "foreign securities," as defined in paragraph (c)(1) of Rule 17f-5 under the Investment Company Act of 1940, and (b) cash and cash equivalents in such amounts as the Custodian or the Fund may determine to be reasonably necessary to effect the foreign securities transactions of the applicable Fund(s). 2.21(c) Segregation of Securities The Custodian shall identify on its books as belonging to the Fund for the account of one or more of the Fund(s), the foreign securities of each such Fund held by each foreign sub-custodian. Each agreement pursuant to which the Custodian or its duly appointed U.S. sub-custodian employs a foreign banking institution shall require that -11- such institution establish a custody account for the Custodian (or its U.S. sub-custodian, as the case may be) on behalf of its customers and physically segregate in that account securities and other assets of the Custodian's customers, and, in the event that such institution deposits a Fund's securities in a foreign securities depository, the sub-custodian shall identify on its books as belonging to the Custodian (or is U.S. sub-custodian, as the case may be), as agent for the Custodian's customers, the securities so deposited (all collectively referred to as the "Account"). 2.21(d) Agreement with Foreign Banking Institution Each agreement with a foreign banking institution shall provide that: (a) each Fund's assets will not be subject to any right, charge, security interest, lien or claim or any kind in favor of the foreign banking institution or its creditors, except a claim of payment for their safe custody or administration; (b) beneficial ownership for each Fund's assets will be freely transferable without the payment of money or value other than for custody or administration, which may include payment of stamp duties or government taxes; (c) adequate records will be maintained identifying the assets as belonging to the customers of Custodian; (d) officers of or auditors employed by, or other representatives of the Custodian, including independent public accountants for each Fund, will be given access to the books and records of the foreign banking institution relating to its actions given under its agreement with the Custodian or shall be given confirmation of the contents of such books and records; and (e) assets of each Fund held by the foreign sub-custodian will be subject only to the instructions of the Fund, the Custodian or their agents. 2.21(e) Access of Independent Accountants of the Fund Upon request of the Fund, the Custodian will sue its best efforts to arrange for the independent accountants of the Fund to be afforded access to the books and records of any foreign banking institution employed as a foreign sub-custodian insofar as such books and records relate to the performance of such foreign banking institutions under its agreement with the Custodian (or its U.S. sub-custodian, as the case may be). 2.21(f) Reports by Custodian The Custodian will supply to the Fund from time to time, as mutually agreed upon, statements in respect of the securities and other assets of each Fund held by foreign sub-custodians, including but not limited to an identification of entities having possession of each applicable Fund's securities and other assets and advices or notifications of any transfers of securities to or from each custodial account maintained by a foreign sub-custodian for the Custodian Fund indicating, as to securities acquired for the Fund, the identity of the entity having physical possession of such securities. -12- 2.21(g) Foreign Securities Transactions 1) Upon receipt of Proper Instructions, which may be continuing instructions when deemed appropriate by the parties, the Custodian shall make or cause its foreign sub-custodian to transfer, exchange, or deliver foreign securities owned by the Fund for the account of a Fund, but except to the extent explicitly provided herein only in any of the cases specified in Section 2.2. 2) Upon receipt of Proper Instructions, which may be continuing instructions when deemed appropriate by the parties the Custodian shall pay out or cause its foreign sub-custodian to pay out monies of a Fund, but except to the extent explicitly provided herein only in any of the cases specified in Section 2.8. 3) Settlement and payment for securities received for the account of a Fund and delivery of securities maintained for the account of a Fund may, upon receipt of Proper Instructions, be effected in accordance with the customary or established securities trading or securities processing practices and procedures in the jurisdiction or market in which the transaction occurs, including, without limitation, delivering securities to the purchaser thereof or to a dealer therefor (or an agent for such purchaser or dealer) against a receipt with the expectation of receiving later payment for such securities from such purchaser or dealer. 4) With respect to any transaction involving foreign securities, the Custodian or any sub-custodian in its discretion may cause a Fund's account to be credited on either the contractual settlement date or the actual settlement date with the proceeds of any sale or exchange of foreign securities from the account of the applicable Fund and to be debited on either the contractual settlement date or the actual settlement date for the cost of foreign securities purchased or acquired for such Fund according to Custodian's then current internal policies and procedures pertaining to securities settlement, which policies and procedures may change from time to time. Custodian shall advise the Fund of any changes to such policies and procedures. The Custodian may reverse any such credit or debit made on the contractual settlement date if the transaction with respect to which such credit or debit was made fails to settle within a reasonable period, determined by Custodian in its reasonable discretion, after the contractual settlement date except that if any foreign securities delivered pursuant to this section are returned by the recipient thereof, the Custodian may cause any such credits and debits to be reversed at any time. 5) Securities maintained in the custody of a foreign sub-custodian may be maintained in the name of such entity's nominee to the same extent as set forth in Section 2.3 of this Contract and the Fund agrees to hold any such nominee harmless from any liability as a holder of record of such securities. -13- 6) Until the Custodian receives written instructions to the contrary, the Custodian shall, or shall cause the sub-custodian to collect all interest and dividends paid on securities held in each applicable Fund's account, unless such payment is in default. Unless otherwise instructed, the Custodian shall convert interest, dividends and principal received with respect to securities in a Fund's account into United States dollars, and the Custodian shall perform foreign exchange contracts for the conversion of United States dollars to foreign currencies for the settlement of trades whenever it is practicable to do so through customary banking channels. Customary banking channels may vary based upon industry practice in each jurisdiction, and shall include the banking facilities of the Custodian's affiliates, in accordance with such affiliate's then prevailing internal policy on funds repatriation. All risk and expense incident to such foreign collection and conversions is the responsibility of each applicable Fund's account, and Custodian shall have no responsibility for fluctuation in exchange rates affecting collections or conversions. 2.21(h) Foreign Securities Lending Notwithstanding any other provisions contained in this Contract, the Custodian and any sub-custodian shall deliver and receive securities loaned or returned in connection with securities lending transactions only upon and in accordance with Proper Instructions; provided, if the Custodian is not the lending agent in connection with such securities lending, then neither the Custodian or any sub-custodian shall undertake, or otherwise be responsible for, (i) marking to market values for such loaned securities, (ii) collection of dividends, interest or other disbursements or distributions made with respect to such loaned securities, (iii) receipt of corporate action notices, communications, proxies or instruments with respect to such loaned securities, and (iv) custody, safekeeping, valuation or any other actions or services with respect to any collateral securing any such securities lending transactions. In the event that the Custodian is the applicable Fund's lending agent in connection with a specific securities loan, the Custodian shall undertake to perform all of the above duties with regard to such loan, except that the Fund shall not receive, nor be enabled to vote, proxies in connection with such loaned security. -14- 2.21(i) Liability of Foreign Sub-Custodian Each agreement pursuant to which the Custodian (or its U.S. sub-custodian bank, as applicable) employs a foreign banking institution as a foreign sub-custodian shall require the institution to exercise reasonable care in performance of its duties and to indemnify, and hold harmless, the Custodian and Custodian's customers from and against any loss, damage, cost, expense, liability or claim arising out of such sub-custodian's negligence, fraud, bad faith, willful misconduct or reckless disregard of its duties. At the election of the Fund, it shall be entitled to be subrogated to the right of the Custodian with respect to any claims against the Custodian's U.S. sub-custodian bank (if any) or a foreign banking institution as a consequence of any such loss, damage, cost, expense, liability or claim if and to the extent that the Fund has not been made whole for any such loss, damage, cost, expense, liability or claims. 2.21(j) Monitoring Responsibilities The Custodian shall furnish annually to the Fund information concerning the foreign sub-custodian employed by the Custodian (or its U.S. sub-custodian bank, as applicable). Such information shall be similar in kind and scope to that furnished to the Fund in connection with the initial approval of this Contract (and any contracts with U.S. and foreign sub-custodians entered into pursuant hereto). In addition, the Custodian will promptly inform the Fund in the event that the Custodian learns of a material adverse change in the financial condition of a foreign sub-custodian or is notified by the Custodian's U.S. sub-custodian bank (if any) or a foreign banking institution employed as foreign sub-custodian that there appears to be a substantial likelihood that its shareholders' equity will decline below $200 million (United States dollars or the equivalent thereof) or that its shareholders' equity has declined below $200 million (in each case computed in accordance with generally accepted United States accounting principles). 2.21(k) Branches of United States Banks Except as otherwise set forth in this Contract, the provisions hereof shall not apply where the custody of any Fund's assets maintained in a foreign branch of a banking institution which is a "bank" as defined by Section 2(a)(5) of the Investment Company Act of 1940 which meets the qualification set forth in Section 26(a) of said Act. The appointment of any such branch as a sub-custodian shall be governed by Article 1 of this Contract. 2.21(l) Expropriation Insurance The Custodian represents that it does not intend to obtain any insurance for the benefit of the Fund which protects against the imposition of exchange control restrictions or the transfer from any foreign jurisdiction of the proceeds of sale of any securities or against confiscation, expropriation or nationalization of any securities or the assets of the issuer of such securities is organized or in which securities are held for safekeeping either -15- by Custodian or any sub-custodians in such country. The Custodian represents that its understanding of the position of the Staff of the Securities and Exchange Commission is that any investment company investing in securities of foreign issuers has the responsibility for reviewing the possibility of the imposition of exchange control restrictions which would affect the liquidity of such investment company's assets and the possibility of exposure to political risk, including the appropriateness of insuring against such risk. 3. Duties of Custodian with Respect to the Books of Account and Calculation of Net Asset Value and Net Income The Custodian shall cooperate with and supply necessary information to the entity or entities appointed by the Board of Directors of the Fund to keep the books of account of the Fund and/or compute the net asset value per share of the outstanding shares of the Fund or, if directed in writing to do so by the Fund, shall itself keep such books of account and/or computer such net asset value per share. If so directed, the Custodian shall also calculate daily the net income of the Fund as described in the Fund's currently effective prospectus and shall advise the Fund and the Transfer Agent daily of the total amounts of such net income and, if instructed in writing by an officer of the Fund to do so, shall advise the Transfer Agent periodically of the division of such net income among its various components. The calculations of the net asset value per share and the daily income of the Fund shall be made at the time or times described from time to time in the Fund's currently effective prospectus. 4. Records The Custodian shall create and maintain all records relating to its activities and obligations under this Contract in such manner as will meet the obligations of the Fund under the Investment Company Act of 1940, with particular attention to Section 31 thereof and Rule 31a-1 and 31a-2 thereunder. The Custodian shall also maintain records as directed by the Fund in connection with applicable federal and state tax laws and any other law or administrative rules or procedures which may be applicable to the Funds. With respect to securities and cash deposited with a Securities System, a sub-custodian or an agent of the Custodian, the Custodian shall identify on its books all such securities and cash as belonging to the account of the applicable Fund(s). All such records shall be the property of the Fund and shall at all times during the regular business hours of the Custodian be open for inspection by duly authority officers, employees or agents of the Fund. Such records shall be made available to the Fund for review by employees and agents of the Securities and Exchange Commission. The Custodian shall furnish to the Fund, and its agents, as of the close of business on the last day of each month a statement showing all transactions and entries for the account of the Fund during that month, and all holdings as of month-end. All records so maintained in connection with the performance of its duties under this Contract shall remain the property of the Fund and, in the event of termination of this Contract, shall be delivered to the Fund. Subsequent to such delivery, and surviving the termination of this Contract, the Fund shall provide the Custodian access to examine and photocopy such records as -16- the Custodian, in its discretion, deems necessary, for so long as such records are retained by the Fund. 5. Opinion of Fund's Independent Accountant The Custodian shall take all reasonable action, as the Fund may from time to time request, to obtain from year to year favorable opinions from the Fund's independent accountants with respect to its activities hereunder in connection with the preparation of the Fund's, Form N-1A, and Form N-SAR or other annual reports to the Securities and Exchange Commission and with respect to any other requirements of such Commission. 6. Reports to Fund by Independent Public Accountants The Custodian shall provide the Fund, at such times as the Fund may reasonably require, with reports by independent public accountants on the accounting system, internal accounting control and procedures for safeguarding securities, futures contracts and options on futures contracts, including securities deposited and/or maintained in a Securities System, relating to the services provided by the Custodian under this Contract; such reports shall be of sufficient scope, and in sufficient detail, as may reasonably be required by the Fund to provide reasonable assurance that any material inadequacies would be disclosed by such examination, and, if there are no such inadequacies, the reports shall so state. 7. Compensation of Custodian For performance by the Custodian pursuant to this Contract, the Fund agrees to pay the Custodian annual asset fees and supplemental charges as set out in the fee schedule attached hereto. 8. Responsibility of Custodian So long as and to the extent that it is in the exercise of reasonable care, the Custodian shall not be responsible for the title, validity or genuineness of any property or evidence of title thereto received by it or delivered by it pursuant to this Contract shall be held harmless in acting upon any notice, request, consent, certificate or other instrument reasonably believed by it to be genuine and to be signed by the proper party or parties. The Custodian shall be held to the exercise of reasonable care in carrying out the provisions of this Contract, but shall be kept indemnified by and shall be without liability to the Fund for any action taken or omitted by it in good faith and without negligence. It shall be entitled to rely on and may act upon advice of counsel of, or reasonably acceptable to, the Fund on all matters, and shall be without liability for any action reasonably taken or omitted pursuant to such advice. Notwithstanding the foregoing, the responsibility of the Custodian with respect to redemptions effected by check shall be in accordance with a separate Contract entered into between the Custodian and the Fund or its agent. If the Fund requires the Custodian to take any action with respect to securities, which action involves the payment of money or which action may, in the reasonable opinion of the -17- Custodian, result in the Custodian or its nominee assigned to the Fund being liable for the payment of money or incurring liability of some other form, the Fund, as a prerequisite to requiring the Custodian to take such action, shall provide indemnity to the Custodian in an amount and form reasonably satisfactory to it. If the Fund requires the Custodian to advance cash or securities for any purpose or in the event that the Custodian or its nominee shall incur or be assessed any taxes, charges, expenses, assessments, claims or liabilities in connection with the performance of this Contract, except such as may arise from its or its nominee's own negligent action, negligent failure to act or willful misconduct, any property at any time held for the account of a Fund shall be security therefor and should the Fund fail to repay the Custodian promptly with respect to any Fund, the Custodian shall be entitled to utilize available cash and to dispose of assets to the extent necessary to obtain reimbursement. The Custodian shall not be liable for any loss or damage to the Fund resulting from participation in a securities depository unless such loss or damage arises by reason of any negligence, misfeasance, or willful misconduct of officers or employees of the Custodian, or from its failure to enforce effectively such rights as it may have against any securities depository or from use of a sub-custodian or agent. Anything in this Contract to the contrary notwithstanding, the Custodian shall exercise, in the performance of its obligations undertaken or reasonably assumed with respect to this Contract, reasonable care, for which the Custodian shall be responsible to the same extent as if it were performing such duties directly. The Custodian shall be responsible for the securities and cash held by or deposited with any sub-custodian or agent to the same extent as if such securities and cash were directly held by or deposited with the Custodian. The Custodian hereby agrees that it shall indemnify and hold each applicable Fund harmless from and against any loss which shall occur as a result of the failure of a foreign sub-custodian holding the securities and cash to provide a level of safeguards for maintaining any Fund's securities and cash not materially different from that provided by a United States custodian holding such securities and cash in the United States. The Custodian agrees to indemnify and hold each of the Funds harmless for any and all loss, liability and expense, including reasonable legal fees and expenses, arising out of the Custodian's own negligence or willful misconduct or that of its officers, agents, sub-custodian or employees in the performance of the Custodian's duties and obligations under this Contract. 9. Effective Period, Termination and Amendment The Contract shall become effective as of its execution, shall continue in full force and effect until terminated as hereinafter provided, may be amended at any time by mutual agreement of the parties hereto and may be terminated by either party by an instrument in writing delivered or mailed, postage prepaid to the other party, such termination to take effect not sooner than sixty (60) days after the date of such delivery or mailing; provided, however, that the Custodian shall not act under Section 2.12 hereof in the absence of receipt of an initial certificate of the Secretary or an Assistant Secretary that the Board of Directors of the Fund has approved the initial use of a particular Securities System and the receipt of an annual certificate of the Secretary or an Assistant Secretary that the Board of Directors has reviewed the use by the Fund of such Securities System, as required in each case by Rule 17f-4 under the Investment Company -18- Act of 1940; provided further, however, that the Fund shall not amend or terminate this Contract in contravention of any applicable federal or state regulations, or any provision of the Articles of Incorporation, and further provided, that the Fund may at any time be action of its Board of Directors (i) substitute another bank or trust company for the Custodian by giving notice as described above to the Custodian, or (ii) immediately terminate this Contract in the event of the appointment of a conservator or receiver for the Custodian by the Comptroller of the Currency or upon the happening of a like event at the direction of an appropriate regulatory agency or court of competent jurisdiction. Upon termination of the Contract, the Fund shall pay to the Custodian such compensation as may be due as of the date of such termination and shall likewise reimburse the Custodian for its costs, expenses and disbursements. 10. Successor Custodian If a successor custodian shall be appointed by the Board of Directors of the Fund, the Custodian shall, upon termination, deliver to such successor custodian at the office of the Custodian, duly endorsed and in the form for transfer to an account of the successor custodian all of the Fund" securities held in a Securities System. If no such successor custodian shall be appointed, the Custodian shall, in like manner, upon receipt of a certified copy of a vote of the Board of Directors of the Fund, deliver at the office of the Custodian and transfer such securities, funds and other properties in accordance with such vote. In the event that no written order designating a successor custodian or certified copy of a vote of the Board of Directors shall have been delivered to the Custodian on or before the date when such termination shall become effective, then the Custodian shall have the right to deliver to a bank or trust company, which is a "bank" as defined in the Investment Company Act of 1940, of its own selection, having an aggregate capital, surplus, and undivided profits, as shown by its last published report, or not less than $25,000,000, all securities, funds and other properties held by the Custodian and all instruments held by the Custodian relative thereto and all other property held by it under this Contract and to transfer to an account of such successor custodian all of the Fund's securities held in any Securities System. Thereafter, such bank or trust company shall be the successor of the Custodian under this Contract. In the event that securities, funds and other properties remain in the possession of the Custodian after the date of termination hereof owing to failure of the Fund to procure the certified copy of the vote referred to or of the Board of Directors to appoint a successor custodian, the Custodian shall be entitled to fair compensation for its services during such period as the Custodian retains possession of such securities, Funds and other properties and the provisions of this Contract relating to the duties and obligations of the Custodian shall remain in full force and effect. -19- 11. Interpretive and Additional Provisions In connection with the operation of this Contract, the Custodian and the Fund may from time to time agree on such provisions interpretive of or in addition to the provisions of this Contract as may in their joint opinion be consistent with the general tenor of this Contract. Any such interpretive or additional provisions shall be in a writing signed by both parties and shall be annexed hereto, provided that no such interpretive or additional provisions shall contravene any applicable federal or state regulations or any provision of the Articles of Incorporation of the Fund. No interpretive or additional provisions made as provided in the preceding sentence shall be deemed to be an amendment of this Contract. 12. Minnesota Law to Apply This Contract shall be construed and the provisions thereof interpreted under and in accordance with laws of the State of Minnesota. 13. Prior Contracts This Contract supersedes and terminates, as of the date hereof, all prior contracts between the Fund and the Custodian relating to the custody of the Fund's assets. IN WITNESS WHEREOF, each of the parties has caused this instrument to be executed in its name and behalf by its duly authorized representative and its seal to be hereunder affixed as of the 1st day of November, 1999. ADVANTUS SERIES FUND, INC. By: /s/ William N. Westhoff ------------------------------------ ATTEST By: /s/ Frederick P. Feuerherm ------------------------------------ NORWEST BANK MINNESOTA, N.A. By: /s/ Yvonne Healy ------------------------------------ ATTEST By: /s/ Daniel J. May ------------------------------------ -20- SCHEDULE A (AS AMENDED MARCH 1, 2000) TO THE CUSTODIAL CONTRACT BETWEEN ADVANTUS SERIES FUND, INC. AND NORWEST BANK MINNESOTA, N.A. The following Portfolios of the Advantus Series Fund, Inc. shall be included within the terms of this Agreement and each shall hereinafter be referred to in this Agreement as the 'Fund': International Stock Portfolio Money Market Portfolio Growth Portfolio Asset Allocation Portfolio Index 500 Portfolio Capital Appreciation Portfolio Small Company Growth Portfolio Value Stock Portfolio Small Company Value Portfolio Index 400 Mid-Cap Portfolio Macro-Cap Value Portfolio Micro-Cap Growth Portfolio Real Estate Securities Fund Portfolio A-1 FEE SCHEDULES Fee Schedule for: Growth Portfolio, Asset Allocation Portfolio, Index 500 Portfolio, Capital Appreciation Portfolio, Small Company Growth Portfolio, Value Stock Portfolio, Small Company Value Portfolio, Index 400 Mid-Cap Portfolio, Macro-Cap Value Portfolio, Micro-Cap Growth Portfolio, Real Estate Securities Portfolio ADVANTUS ANNUAL MARKET VALUE CHARGE: $.000010 DOMESTIC TRANSACTION CHARGES: Domestic Depository Settlements -DTC/FED/PTC $ 6.00 Physical Settlements (New York, Mpls.) $30.00 Mutual Fund Settlements $30.00 Private Placements Settlements $15.00 Options/Future Settlements $15.00 Principal Paydown- non variable $ 8.00 Principal Paydowns - CMO's $15.00 Reorganization/Corporate Actions $20.00 Money Movements (Wires, Checks) $ 5.00
Fee Schedule - 1 FEE SCHEDULES (CONTINUED) NORWEST FEE SCHEDULE ADVANTUS CAPITAL MANAGEMENT, INC ADVANTUS SERIES FUND INC. - MONEY MARKET PORTFOLIO- 13396800 EFFECTIVE JULY 1, 1999 CUSTODY ANNUAL ACCOUNT ADMINISTRATION Annual Account Charges $1,500.00 DOMESTIC TRANSACTION CHARGES Domestic Depository Settlements-DTC/FED/PTC $ 7.00 Physical (New York, Mpls) $ 30.00 Principal Paydowns $ 10.00 Money Movement (Wires, checks, etc.) $ 5.00 Reorg/ Corporate Actions $ 20.00 Options/Futures $ 15.00 Mutual Funds $ 30.00
OUT-OF-POCKET EXPENSES Reasonable and standard expenses will be charged to the funds. These charges include, but are not limited to: postage, miscellaneous supplies, weekend processing, and special requests. Fee Schedule - 2 FEE SCHEDULES (CONTINUED) NORWEST FEE SCHEDULE ADVANTUS CAPITAL MANAGEMENT, INC. ADVANTUS SERIES FUND, INC. - INTERNATIONAL STOCK PORTFOLIO - 12735300 EFFECTIVE JULY 1, 1999 CUSTODY ANNUAL ACCOUNT ADMINISTRATION Annual Account Charge $1,500.00 Market Value - Tier I - Tier VI (See Attached Schedule) 10-25 Basis Points DOMESTIC TRANSACTION CHARGES Domestic Depository Settlements-DTC/FED/PTC $ 7.00 Physical (New York, Mpls) $ 30.00 Principal Paydowns $ 10.00 Money Movement (Wires, checks, etc.) $ 5.00 Reorg/ Corporate Actions $ 20.00 Options/Futures $ 15.00 Mutual Funds $ 30.00
All transaction (purchase, sale, maturity, call, deposit, withdrawal, expiration, wire transfer, check) charges are applied on a per account per trade basis. GLOBAL TRANSACTION CHARGES Tier I - Tier VI (See attached schedule) $15.00 - $150.00 Mandatory Reorganizations $ 20.00 Voluntary Reorganizations $ 40.00 Stamp Duties and Registrations As expensed ANNUAL REPORTING CHARGES FOR OPTIONAL SERVICES Standard Reporting Packages No Charge Norwest ACCESS Waived
OUT-OF-POCKET EXPENSES Reasonable and standard expenses will be charged to the funds. These charges include, but are not limited to: postage, miscellaneous supplies, weekend processing, and special requests. Fee Schedule - 3 EX-99.G.1.C 7 c49473bexv99wgw1wc.txt EX-99.G.1.C Exhibit (g)(1)(c) October 28, 2004 RE: FOREIGN CUSTODY MANAGER Ladies and Gentlemen: In connection with the safekeeping of securities and cash and various other custody activities provided by Wells Fargo Bank, N.A. (the "Custodian") to the ADVANTUS SERIES FUND, INC. - REAL ESTATE (the "Fund"), a series of Advantus Series Fund, Inc. ("the Corporation"), under the Custody Agreement dated as of NOVEMBER 1, 1999 (the "Agreement" and attached hereto as Exhibit A), the Corporation desires to delegate to the Custodian certain additional duties as a "Foreign Custody Manager" for the Fund, as permitted by Rules 17f-5 and 17f-7 of the Investment Company Act of 1940, ("Rule 17f-5" and "Rule 17f-7"). Such additional duties shall be performed on the terms and conditions set forth herein. Capitalized terms not otherwise defined herein shall have the meaning attributed to them in the attached Exhibit A or Rules 17f-5 and 17f-7, as the case may be. As authorized by the Board, the Corporation hereby delegates to the Custodian, with respect to Fund assets located in each Specified Country, the duties of a "Foreign Custody Manager" as defined in Rule 17f-5 and as specified below. The Custodian accepts the Board's delegation of Responsibilities with respect to each Specified Country and agrees in performing the Responsibilities as a Foreign Custody Manager to exercise reasonable care, prudence and diligence such as a person having responsibility for the safekeeping of the Fund's assets would exercise. SECTION I. REPORTS. The Custodian shall provide to the Board at such times as the Board deems reasonable and appropriate based on the circumstances of the Fund's foreign custody arrangements, written reports notifying the Board of the placement of assets of the Fund with a particular Eligible Foreign Custodian within a Specified Country and of any material change in the arrangements (including, in the case of Qualified Foreign Banks, any material change in any contract governing such arrangements and in the case of Securities Depositories, any material change in the established practices or procedures of such Securities Depositories) with respect to assets of the Fund with any such Eligible Foreign Custodian. SECTION II. DUTIES OF THE CUSTODIAN. 1. Eligible Foreign Custodians. ---------------------------- Subject to the provisions of this Agreement, the Custodian shall select an Eligible Foreign Custodian with respect to each Specified Country. In connection therewith, the Custodian shall: (a) determine that assets of the Fund held by such Eligible Foreign Custodian will be subject to reasonable care, based on the standards applicable to custodians in the relevant market in which such Eligible Foreign Custodian operates, after considering all factors relevant to the safekeeping of such assets, including, without limitation, those contained in paragraph (c)(1) of Rule 17f-5; (b) determine that the Fund's foreign custody arrangements with each Qualified Foreign Bank are governed by a written contract with the Custodian (or, in the case of a Securities Depository, by such a contract, by the rules or established practices or procedures of the Securities Depository, or by any combination of the foregoing) which will provide reasonable care for the Fund's assets based on the standards specified in paragraph (c)(2) of Rule 17f-5; (c) determine that each contract with a Qualified Foreign Bank shall include the provisions specified in paragraph (c)(2)(i)(A) through (F) of Rule 17f-5 or, alternatively, in lieu of any or all of such (c)(2)(i)(A) through (F) provisions, such other provisions as the Custodian determines will provide, in their entirety, the same or a greater level of care and protection for the assets of the Fund as such specified provisions; (d) monitor pursuant to the Monitoring System the appropriateness of maintaining the assets of the Fund with a particular Eligible Foreign Custodian pursuant to paragraph (c)(3) of Rule 17f-5 and in the case of a Qualified Foreign Bank, any material change in the contract governing such arrangement and in the case of a Securities Depository, any material change in the established practices or procedures of such Securities Depository; and (e) advise the Fund whenever an arrangement (including, in the case of a Qualified Foreign Bank, any material change in the contract governing such arrangement and in the case of a Securities Depository, any material change in the established practices or procedures of such Securities Depository) described in preceding clause (d) no longer meets the requirements of Rule 17f-5. (f) if the Custodian determines that a custody arrangement with an Eligible Securities Depository no longer meets the requirements of Rule 17f-7(a), the Fund's assets must be withdrawn from the depository as soon as reasonably practicable. 2. Eligible Securities Depositories. --------------------------------- (a) With respect to each Eligible Securities Depository (as defined in Rule 17f-7) identified by the Custodian to the Board from time to time, Custodian shall exercise reasonable care, prudence, and diligence such as a person having responsibilities for -2- the safekeeping of the Fund's assets would exercise (i) to provide the Fund or its investment adviser with an analysis of the custody risks associated with maintaining assets with that Eligible Securities Depository, and (ii) to monitor such custody risks on a continuing basis and promptly notify the Fund of any material change in such risks. (b) All such analysis and monitoring by the Custodian shall be made on the basis of, and limited by, information gathered from Subcustodians, from trade associations of which Custodian is a member from time to time, or through publicly available information otherwise obtained by Custodian, and shall not include any evaluation of Country Risks. Information supplied by Custodian with respect to the status of an institution as a Eligible Securities Depository or utilized by Custodian to conclude that an institution is a Eligible Securities Depository shall be limited to information supplied by such institution without any independent verification. (c) Custodian will endeavor to include in its analysis and monitoring, where appropriate, an Eligible Securities Depository's expertise and market reputation, the quality of its services, its financial strength, any insurance or indemnification arrangements, the extent and quality of regulation and independent examination of the depository, its standing in published ratings, its internal controls and other procedures for safeguarding investments, and any related legal protections. (d) In the event that the Fund reasonably believes that there is a discrepancy between Custodian's performance of its obligations in (a) above and the requirements of paragraphs (a)(1)(i)(A) or (B) of Rule 17f-7, respectively, and provides a detailed notification to Custodian, Custodian shall reasonably cooperate with the Fund and endeavor to resolve any such discrepancy. (e) As used herein, the term "Country Risks" shall mean with respect to any Eligible Securities Depository: (i) the financial infrastructure of the country in which it is organized, but not of any Eligible Securities Depository to the extent covered by an analysis described in clause (a) of this Section, (ii) such country's prevailing custody and settlement practices, (iii) nationalization, expropriation or other governmental actions, (iv) such country's regulation of the banking or securities industry, (v) currency controls, restrictions, devaluations or fluctuations, and (vi) market conditions which affect the orderly execution of securities transactions or affect the value of securities. SECTION III LIMITATIONS ON CUSTODIAN'S DUTY. (1) For purposes of Section II above with respect to both Eligible Foreign Custodians and Eligible Securities Depositories, it is understood that such determination shall be made on the basis of, and limited by, information gathered through the Custodian's subcustodian network through the Bank of New York, or through publicly available information otherwise obtained with respect to each such Securities Depository. (2) For purposes of clause (d) of subsection 1 of Section II above, the Custodian's determination of appropriateness shall not include, nor be deemed to include, any evaluation of Country Risks associated with investment in a particular country. For -3- purposes hereof, "Country Risks" shall mean systemic risks of holding assets in a particular country including, but not limited to, (a) such country's financial infrastructure, (b) such country's prevailing custody and settlement practices, (c) nationalization, expropriation or other governmental actions, (d) regulation of the banking or securities industry, (f) currency controls, restrictions, devaluations or fluctuations, and (f) market conditions which affect the orderly execution of securities transactions or affect the value of securities. SECTION IV. REPRESENTATIONS. 1. The Corporation hereby represents that: (a) this Foreign Custody Manager Agreement has been duly authorized, executed and delivered on behalf of the Fund, constitutes a valid and legally binding obligation of the Corporation, on behalf of the Fund, enforceable in accordance with its terms, and no statute, regulation, rule, order, judgment or contract binding on the Corporation or the Fund prohibits the Corporation's execution or performance of this Agreement; (b) this Foreign Custody Manager Agreement has been approved and ratified by the Board at a meeting duly called and at which a quorum was at all times present; and (c) the Board or its investment advisor has considered the Country Risks associated with investment in each Specified Country and will have considered such risks prior to any settlement instructions being given to the Custodian with respect to any other Specified Country. 2. The Custodian hereby represents that: (a) the Custodian is duly organized and existing as a national banking association, with full power to carry on its businesses as now conducted, and to enter into this Foreign Custody Manager Agreement and to perform its obligations hereunder; (b) this Foreign Custody Manager Agreement has been duly authorized, executed and delivered by the Custodian, constitutes a valid and legally binding obligation of the Custodian enforceable in accordance with its terms, and no statute, regulation, rule, order, judgment or contract binding on the Custodian prohibits the Custodian's execution or performance of this Foreign Custody Manager Agreement; and (c) the Custodian has established the Monitoring System. SECTION V. LIABILITY OF THE CUSTODIAN. 1. The Custodian shall not be liable for any costs, expenses, damages, liabilities or claims, including attorneys' and accountants' fees, sustained or incurred by, or asserted against, the Fund except to the extent the same arises out of the failure of the Custodian to exercise the care, prudence and diligence required of the Custodian under this Foreign Custody Manager Agreement. In no event shall the Custodian be liable to the Fund, the Board, or any third party for special, indirect or consequential damages, or for lost profits or loss of business, arising in connection with this Foreign Custody Manager Agreement. 2. The Corporation agrees that the Fund shall indemnify the Custodian and hold it harmless from and against any and all costs, expenses, damages, liabilities or claims, including attorneys' and accountants' fees, sustained or incurred by, or asserted against, the Custodian by reason or as a result of any action or inaction, or arising out of -4- the Custodian's performance hereunder, provided that the Fund shall not indemnify the Custodian to the extent any such costs, expenses, damages, liabilities or claims arises out of the Custodian's failure to exercise the reasonable care, prudence and diligence required of it under this Foreign Custody Manager Agreement. 3. The Custodian shall have only such duties as are expressly set forth herein. In no event shall the Custodian be liable for any Country Risks associated with investments in a particular country. SECTION VI. MISCELLANEOUS. 1. For its services hereunder, the Corporation agrees that the Fund will pay to the Custodian such compensation and out-of-pocket expenses as shall be mutually agreed. 2. This Foreign Custody Manager Agreement constitutes the entire agreement between the Corporation, with respect to the Fund, and the Custodian, and no provision in the Custody Agreement between the Corporation and the Custodian shall affect the duties and obligations of the Custodian as a Foreign Custody Manager hereunder, nor shall any provision in this Foreign Custody Manager Agreement affect the duties or obligations of the Custodian under the Custody Agreement. 3. Any notice or other instrument in writing, authorized or required by this Foreign Custody Manager Agreement to be given to the Custodian, shall be sufficiently given if received by it at its offices at: Wells Fargo Bank, N.A. Attn: Jeanette Dubanoski, VP Global Custody - N9306-05C 733 Marquette Ave S Minneapolis, MN 55479 4. Any notice or other instrument in writing, authorized or required by this Foreign Custody Manager Agreement to be given to the Fund shall be sufficiently given if received by it at its offices at: Advantus Series Fund, Inc. Attn : ----------------------- 400 Robert Street North St. Paul, MN 55101 5. This Foreign Custody Manager Agreement shall be construed in accordance with the substantive laws of the State of Minnesota, without regard to conflicts of laws principles thereof. The Corporation, on behalf of the Fund, and the -5- Custodian each hereby irrevocably waives any and all rights to trial by jury in any legal proceeding arising out of or relating to this Foreign Custody Manager Agreement. 6. This Foreign Custody Manager Agreement shall terminate simultaneously with the termination of the Custody Agreement between the Corporation, with respect to the Fund, and the Custodian, and may otherwise be terminated by either party giving to the other party a notice in writing specifying the date of such termination, which shall be not less than thirty (30) days after the date of such notice. If the foregoing corresponds to your understanding of our agreement, please indicate your acceptance by the signature of your authorized representative below. Yours truly, WELLS FARGO BANK, N.A. By /s/ Scott Rice ------------------------------------ Name: Scott Rice Title: Vice President Agreed and Accepted: Advantus Series Fund, Inc. on behalf of ADVANTUS REAL ESTATE FUND By /s/ Dianne M. Orbison ----------------------------------- Name: Dianne M. Orbison Title: President TC1JJ192 -6- EXHIBIT A --------- Whenever used in the Foreign Custody Manager Agreement (the "Agreement"), the following words and phrases, unless the context otherwise requires, shall have the following meanings: 1. "BOARD" shall mean the board of directors or board of trustees, as the case may be, of the Corporation 2. "ELIGIBLE FOREIGN CUSTODIAN" shall have the meaning provided in the Rule. 3. "ELIGIBLE SECURITIES DEPOSITORY" shall mean a system for the central handling of securities as defined in Rule 17f-7 under the Investment Company Act of 1940 ("the Act"). 4. "MONITORING SYSTEM" shall mean a system established by the Custodian to fulfill the Responsibilities specified in clauses 1(d) and 1(e) of Article III of the Agreement. 5. "QUALIFIED FOREIGN BANK" shall have the meaning provided in the Rule. 6. "RESPONSIBILITIES" shall mean the responsibilities delegated to the Custodian as a Foreign Custody Manager with respect to each Specified Country and each Eligible Foreign Custodian, as such responsibilities are more fully described in Sections II and III of the Agreement. 7. "RULE" shall mean Rule 17f-5 under the Act, as amended. 8. "SPECIFIED COUNTRY" shall mean each country identified on a list maintained from time to time by mutual agreement of the Corporation, with respect to the Fund, and the Custodian and each country, other than the United States, constituting the primary market for a security with respect to which the Fund has given settlement instructions to the Custodian as custodian (the "Custodian") under its Custody Agreement with the Corporation. EX-99.G.2 8 c49473bexv99wgw2.txt EX-99.G.2 EXHIBIT 99(g)(2) MUTUAL FUND CUSTODY AND SERVICES AGREEMENT . . . TABLE OF CONTENTS
PAGE ---- DEFINITIONS....................................................................................................1 ARTICLE I -- CUSTODY PROVISIONS................................................................................3 1.....APPOINTMENT OF CUSTODIAN..............................................................................3 2.....CUSTODY OF CASH AND SECURITIES........................................................................3 3.....SETTLEMENT OF SERIES TRANSACTIONS.....................................................................7 4.....LENDING OF SECURITIES.................................................................................8 5.....PERSONS HAVING ACCESS TO ASSETS OF THE SERIES.........................................................8 6.....STANDARD OF CARE; SCOPE OF CUSTODIAL RESPONSIBILITIES.................................................9 7.....APPOINTMENT OF SUBCUSTODIANS.........................................................................10 8.....OVERDRAFT FACILITY AND SECURITY FOR PAYMENT..........................................................10 9.....TAX OBLIGATIONS......................................................................................11 ARTICLE II -- FOREIGN CUSTODY MANAGER SERVICES................................................................12 1.....DELEGATION...........................................................................................12 2.....CHANGES TO APPENDIX C................................................................................12 3.....REPORTS TO BOARD.....................................................................................12 4.....MONITORING SYSTEM....................................................................................12 5.....STANDARD OF CARE.....................................................................................12 6.....USE OF SECURITIES DEPOSITORIES.......................................................................12 ARTICLE III - INFORMATION SERVICES............................................................................13 1.....RISK ANALYSIS........................................................................................13 2.....MONITORING OF SECURITIES DEPOSITORIES................................................................13 3.....USE OF AGENTS........................................................................................13 4.....EXERCISE OF REASONABLE CARE..........................................................................13 5.....LIABILITIES AND WARRANTIES...........................................................................13 ARTICLE IV -- GENERAL PROVISIONS..............................................................................13 1.....COMPENSATION.........................................................................................13 2.....INSOLVENCY OF FOREIGN CUSTODIANS.....................................................................14 3.....LIABILITY FOR DEPOSITORIES...........................................................................14 4.....DAMAGES..............................................................................................14 5.....INDEMNIFICATION; LIABILITY OF THE SERIES.............................................................14 6.....FORCE MAJEURE........................................................................................14 7.....TERMINATION..........................................................................................15 8.....INSPECTION OF BOOKS AND RECORDS......................................................................15 9.....MISCELLANEOUS........................................................................................15 APPENDIX A. AUTHORIZED PERSONS................................................................................i APPENDIX B. FUND OFFICERS....................................................................................ii APPENDIX C. SELECTED COUNTRIES..............................................................................iii APPENDIX D. SERIES...........................................................................................iv
i MUTUAL FUND CUSTODY AND SERVICES AGREEMENT THIS AGREEMENT, effective as of the 10th day of September 2003, and is between ADVANTUS SERIES FUND, INC., (the "Fund") a corporation organized under the laws of the State of Minnesota having its principal office and place of business at St. Paul, Minnesota, and MELLON BANK, N.A., (the "Custodian") a national banking association with its principal place of business at One Mellon Center, Pittsburgh, PA 15258. W I T N E S S E T H: WHEREAS, the Fund is authorized to issue shares in separate series with each such series representing interests in a separate portfolio of securities and other assets, and the Fund has made the Series listed on Appendix D subject to this Agreement (each such series, together with all other series subsequently established by the Fund and made subject to the Agreement in accordance with the terms hereof, shall be referred to as a "Series" and collectively as the "Series"); WHEREAS, the Fund and the Custodian desire to set forth their agreement with respect to the custody of the Series' Securities and cash and the processing of Securities transactions; WHEREAS, the Board desires to delegate certain of its responsibilities for performing the services set forth in paragraphs (c)(1), (c)(2) and (c)(3) of Rule 17f-5 to the Custodian as a Foreign Custody Manager; WHEREAS, the Custodian agrees to accept such delegation with respect to Assets, including those held by Foreign Custodians in the Selected Countries as set forth in jurisdictions listed on Appendix C as set forth in Article II; and WHEREAS, the Custodian agrees to perform the function of a Primary Custodian under Rule 17f-7; NOW THEREFORE, the Fund and the Custodian agree as follows: DEFINITIONS The following words and phrases, unless the context requires otherwise, shall have the following meanings: 1. "ACT": the Investment Company Act of 1940 and the Rules and Regulations thereunder, all as amended from time to time. 2. "AGREEMENT": this agreement and any amendments. 1 3. "ASSETS": any of the Series' investments, including foreign currencies and investments for which the primary market is outside the United States, and such cash and cash equivalents as are reasonably necessary to effect the Series' transactions in such investments. 4. "AUTHORIZED PERSON": the Chairman of the Fund's Board, its President, and any Vice President, Secretary, Treasurer or any other person, whether or not any such person is an officer or employee of the Fund, duly authorized by the Board to add or delete jurisdictions pursuant to Article II and to give Instructions on behalf of a Series which is listed in the Certificate annexed hereto as Appendix A or such other Certificate as may be received by the Custodian from time to time. 5. "BOARD": the Board of Managers (or the body authorized to exercise authority similar to that of the board of directors of a corporation) of the Fund. 6. "BOOK-ENTRY SYSTEM": the Federal Reserve/Treasury book-entry system for United States and federal agency Securities, its successor or successors and its nominee or nominees. 7. "BUSINESS DAY": any day on which the Series, the Custodian, the Book-Entry System and appropriate clearing corporation(s) are open for business. 8. "CERTIFICATE": any notice, instruction or other instrument in writing, authorized or required by this Agreement to be given to the Custodian, which is actually received by the Custodian and signed on behalf of a Series by an Authorized Person or Persons designated by the Board to issue a Certificate. 9. "ELIGIBLE SECURITIES DEPOSITORY": the meaning of the term set forth in Rule 17f-7(b)(1). 10. "FOREIGN CUSTODIAN": (a) a banking institution or trust company incorporated or organized under the laws of a country other than the United States, that is regulated as such by the country's government or an agency of the country's government; (b) a majority-owned direct or indirect subsidiary of a U.S. Bank or bank-holding company; or (c) any entity other than a Securities Depository with respect to which exemptive or no-action relief has been granted by the Securities and Exchange Commission. For the avoidance of doubt, the term "Foreign Custodian" shall not include Euroclear, Clearstream, Bank One or any other transnational system for the central handling of securities or equivalent book-entries regardless of whether or not such entities or their service providers are acting in a custodial capacity with respect to Assets, Securities or other property of the Series. 11. "INSTRUCTIONS": directions and instructions to the Custodian from an Authorized Person in writing by facsimile or electronic transmission subject to the Custodian's practices or any other method specifically agreed upon, provided that the 2 Custodian may, in its discretion, accept oral directions and instructions from an individual it reasonably believes to be an Authorized Person and may require confirmation in writing. 12. "PRIMARY CUSTODIAN": the meaning set forth in Rule 17f-7(b)(2). 13. "PROSPECTUS": a Series' current prospectus and statement of additional information relating to the registration of the Shares under the Securities Act of 1933, as amended. 14. "RISK ANALYSIS": the analysis required under Rule 17f-7(a)(1)(i)(A). 15. "RULES 17F-4, 17F-5 and 17F-7": such Rules as promulgated under Section 17(f) of the Act, as such rules (and any successor rules or regulations) may be amended from time to time. 16. "SECURITY" or "SECURITIES": bonds, debentures, notes, stocks, shares, evidences of indebtedness, and other securities, commodities, interests and investments from time to time owned by the Series. 17. "SECURITIES DEPOSITORY": a system for the central handling of securities as defined in Rule 17f-4. 18. "SELECTED COUNTRIES": the jurisdictions listed on Appendix C as such may be amended from time to time in accordance with Article II. 19. "SHARES": shares of each Series, however designated. ARTICLE I -- CUSTODY PROVISIONS 1. APPOINTMENT OF CUSTODIAN. The Board appoints, and the Custodian accepts appointment as custodian of all the Securities and monies at the time owned by or in the possession of the Series during the period of this Agreement. 2. CUSTODY OF CASH AND SECURITIES. a. Receipt and Holding of Assets. The Series will deliver or cause to be delivered to the Custodian all Securities and monies owned by it at any time during the period of this Custody Agreement. The Custodian will not be responsible for such Securities and monies until actually received. The Board specifically authorizes the Custodian to hold Securities, Assets or other property of the Series with any domestic subcustodian, or Securities Depository, and Foreign Custodians or Eligible Securities Depositories in the Selected Countries as provided in Article II. Securities and monies of the Series deposited in a Securities Depository or Eligible Securities Depositories will be reflected in an account or accounts which include only assets held by the Custodian or a Foreign Custodian for its customers. 3 b. Disbursements of Cash and Delivery of Securities. The Custodian shall disburse cash or deliver out Securities only for the purposes listed below. Instructions must specify or evidence the purpose for which any transaction is to be made and the Series shall be solely responsible to assure that Instructions are in accord with any limitations or restrictions applicable to the Series (1) In payment for Securities purchased for the applicable Series; (2) In payment of dividends or distributions with respect to Shares; (3) In payment for Shares which have been redeemed by the applicable Series; (4) In payment of taxes; (5) When Securities are sold, called, redeemed, retired, or otherwise become payable; (6) In exchange for or upon conversion into other securities alone or other securities and cash pursuant to any plan or merger, consolidation, reorganization, recapitalization or readjustment; (7) Upon conversion of Securities pursuant to their terms into other securities; (8) Upon exercise of subscription, purchase or other similar rights represented by Securities; (9) For the payment of interest, management or supervisory fees, distributions or operating expenses; (10) In payment of fees and in reimbursement of the expenses and liabilities of the Custodian attributable to the applicable Series; (11) In connection with any borrowings by the applicable Series or short sales of securities requiring a pledge of Securities, but only against receipt of amounts borrowed; (12) In connection with any loans, but only against receipt of adequate collateral as specified in Instructions which shall reflect any restrictions applicable to the Series. (13) For the purpose of redeeming Shares of the capital stock of the applicable Series and the delivery to, or the crediting to the account of, the Custodian or the applicable Series' transfer agent, such Shares to be purchased or redeemed; 4 (14) For the purpose of redeeming in kind Shares of the applicable Series against delivery to the Custodian, its Subcustodian or the Customer Series' transfer agent of such Shares to be so redeemed; (15) For delivery in accordance with the provisions of any agreement among the Fund, the Custodian and a broker-dealer registered under the Securities Exchange Act of 1934 (the "Exchange Act") and a member of The National Association of Securities Dealers, Inc. ("NASD"), relating to compliance with the rules of The Options Clearing Corporation and of any registered national securities exchange, or of any similar organization or organizations, regarding escrow or other arrangements in connection with transactions by the Fund. The Custodian will act only in accordance with Instructions in the delivery of Securities to be held in escrow and will have no responsibility or liability for any such Securities which are not returned promptly when due other than to make proper requests for such return; (16) For spot or forward foreign exchange transactions to facilitate security trading, receipt of income from Securities or related transactions; (17) Upon the termination of this Agreement; and (18) For other proper purposes as may be specified in Instructions issued by an officer of the Fund which shall include a statement of the purpose for which the delivery or payment is to be made, the amount of the payment or specific Securities to be delivered, the name of the person or persons to whom delivery or payment is to be made, and a Certificate stating that the purpose is a proper purpose under the instruments governing the Fund. c. Actions Which May be Taken Without Instructions. Unless an Instruction to the contrary is received, the Custodian shall: (1) Collect all income due or payable, provided that the Custodian shall not be responsible for the failure to receive payment of (or late payment of) distributions or other payments with respect to Securities or other property held in the account; (2) Present for payment and collect the amount payable upon all Securities which may mature or be called, redeemed, retired or otherwise become payable. Notwithstanding the foregoing, the Custodian shall have no responsibility to the Series for monitoring or ascertaining any call, redemption or retirement dates with respect to put bonds or similar instruments which are owned by the Series and held by the Custodian or its nominees where such dates are not published in sources routinely used by the Custodian. Nor shall the Custodian have any responsibility or liability to the Series for any loss by the Series for any missed payments or other defaults resulting therefrom, unless the Custodian received timely notification from the Series specifying the time, place and manner for the presentment of any such put bond owned by the Series and held by the Custodian or its nominee. The Custodian shall not be responsible and assumes no liability for the accuracy or completeness of any 5 notification the Custodian may furnish to the Series with respect to put bonds or similar instruments; (3) Surrender Securities in temporary form for definitive Securities; (4) Hold directly, or through a Securities Depository with respect to Securities therein deposited, for the account of the applicable Series all rights and similar Securities issued with respect to any Securities held by the Custodian hereunder for that Series; (5) Submit or cause to be submitted to the applicable Series or its investment advisor as designated by the Fund information actually received by the Custodian regarding ownership rights pertaining to property held for the applicable Series; (6) Deliver or cause to be delivered any Securities held for the applicable Series in exchange for other Securities or cash issued or paid in connection with the liquidation, reorganization, refinancing, merger, consolidation or recapitalization of any corporation, or the exercise of any conversion privilege; (7) Deliver or cause to be delivered any Securities held for the applicable Series to any protective committee, reorganization committee or other person in connection with the reorganization, refinancing, merger, consolidation or recapitalization or sale of assets of any corporation, and receive and hold under the terms of this Agreement such certificates of deposit, interim receipts or other instruments or documents as may be issued to it to evidence such delivery; (8) Make or cause to be made such transfers or exchanges of the assets specifically allocated to the applicable Series and take such other steps as shall be stated in Instructions to be for the purpose of effectuating any duly authorized plan of liquidation, reorganization, merger, consolidation or recapitalization of the applicable Series; (9) Deliver Securities upon the receipt of payment in connection with any repurchase agreement related to such Securities entered into by the Series; (10) Deliver Securities owned by the applicable Series to the issuer thereof or its agent when such Securities are called, redeemed, retired or otherwise become payable; provided, however, that in any such case the cash or other consideration is to be delivered to the Custodian. Notwithstanding the foregoing, the Custodian shall have no responsibility to the Series for monitoring or ascertaining any call, redemption or retirement dates with respect to the put bonds or similar instruments which are owned by the Series and held by the Custodian or its nominee where such dates are not published in sources routinely used by the Custodian. Nor shall the Custodian have any responsibility or liability to the Series for any loss by the Series for any missed payment or other default 6 resulting therefrom unless the Custodian received timely notification from the Series specifying the time, place and manner for the presentment of any such put bond owned by the Series and held by the Custodian or its nominee. The Custodian shall not be responsible and assumes no liability to the Series for the accuracy or completeness of any notification the Custodian may furnish to the applicable Series applicable Series with respect to put bonds or similar investments; (11) Endorse and collect all checks, drafts or other orders for the payment of money received by the Custodian for the account of the applicable Series; and (12) Execute any and all documents, agreements or other instruments as may be necessary or desirable for the accomplishment of the purposes of this Agreement. d. Confirmation and Statements. Promptly after the close of business on each day, the Custodian shall furnish each Series with confirmations and a summary of all transfers to or from the account of the Series during the day. Where securities purchased by a Series are in a fungible bulk of securities registered in the name of the Custodian (or its nominee) or shown on the Custodian's account on the books of a Securities Depository, the Custodian shall by book-entry or otherwise identify the quantity of those securities belonging to that Series. At least monthly, the Custodian shall furnish each Series with a detailed statement of the Securities and monies held for the Series under this Custody Agreement. e. Registration of Securities. The Custodian is authorized to hold all Securities, Assets, or other property of each Series in nominee name, in bearer form or in book-entry form. The Custodian may register any Securities, Assets or other property of each Series in the name of the Fund or the Series, in the name of the Custodian, any domestic subcustodian, or Foreign Custodian, in the name of any duly appointed registered nominee of such entity, or in the name of a Securities Depository or its successor or successors, or its nominee or nominees. The Fund agrees to furnish to the Custodian appropriate instruments to enable the Custodian to hold or deliver in proper form for transfer, or to register in the name of its registered nominee or in the name of a Securities Depository, any Securities which it may hold for the account of the applicable Series and which may from time to time be registered in the name of the Fund or the applicable Series. f. Segregated Accounts. Upon receipt of Instructions, the Custodian will, from time to time establish segregated accounts on behalf of the applicable Series to hold and deal with specified assets as shall be directed. 3. SETTLEMENT OF SERIES TRANSACTIONS. a. Customary Practices. Settlement of transactions may be effected in accordance with trading and processing practices customary in the jurisdiction or market 7 where the transaction occurs. The Fund acknowledges that this may, in certain circumstances, require the delivery of cash or Securities (or other property) without the concurrent receipt of Securities (or other property) or cash. In such circumstances, the Custodian shall have no responsibility for nonreceipt of payments (or late payment) or nondelivery of Securities or other property (or late delivery) by the counterparty. b. Contractual Income. Unless the parties agree to the contrary, the Custodian shall credit the applicable Series, in accordance with the Custodian's standard operating procedure, with income and maturity proceeds on securities on contractual payment date net of any taxes or upon actual receipt. To the extent the Custodian credits income on contractual payment date, the Custodian may reverse such accounting entries with back value to the contractual payment date if the Custodian reasonably believes that such amount will not be received. c. Contractual Settlement. Unless the parties agree to the contrary, the Custodian will attend to the settlement of securities transactions in accordance with the Custodian's standard operating procedure, on the basis of either contractual settlement date accounting or actual settlement date accounting. To the extent the Custodian settles certain securities transactions on the basis of contractual settlement date accounting, the Custodian may reverse with back value to the contractual settlement date any entry relating to such contractual settlement if the Custodian reasonably believes that such amount will not be received. 4. LENDING OF SECURITIES. The Custodian may lend the assets of the Series in accordance with the terms and conditions of a separate securities lending agreement, approved by the Fund. 5. PERSONS HAVING ACCESS TO ASSETS OF THE SERIES. a. No trustee or agent of the Fund, and no officer, director, employee or agent of the Fund's investment adviser, of any sub-investment adviser of the Fund, or of the Fund's administrator, shall have physical access to the assets of the Series held by the Custodian or be authorized or permitted to withdraw any investments of the Series, nor shall the Custodian deliver any assets of the Series to any such person. No officer, director, employee or agent of the Custodian who holds any similar position with the Fund's investment adviser, with any sub-investment adviser of the Fund or with the Fund's administrator shall have access to the assets of the Series. b. Nothing in this Section 5 shall prohibit any duly authorized officer, employee or agent of the Fund, or any duly authorized officer, director, employee or agent of the investment adviser, of any sub-investment adviser of the Series or of the Series' administrator, from giving Instructions to the Custodian or executing a Certificate so long as it does not result in delivery of or access to assets of the Series prohibited by paragraph (a) of this Section 5. 8 6. STANDARD OF CARE; SCOPE OF CUSTODIAL RESPONSIBILITIES. a. Standard of Care. Custodian shall be required to exercise reasonable care with respect to its duties under this Agreement unless otherwise provided. (1) Notwithstanding any other provision of this Custody Agreement, the Custodian shall not be liable for any loss or damage, including counsel fees, resulting from its action or omission to act or otherwise, except for any such loss or damage arising out of the negligence or willful misconduct of the Custodian. (2) The Custodian may, with respect to questions of law, apply for and obtain the advice and opinion of counsel to the Fund or of its own counsel, at the expense of the Fund, and shall be fully protected with respect to anything done or omitted by it in good faith in conformity with such advice or opinion. b. Scope of Duties. Without limiting the generality of the foregoing, the Custodian shall be under no duty or obligation to inquire into, and shall not be liable for: (1) The acts or omissions of any agent appointed pursuant to Instructions of the Fund or its investment advisor including, but not limited to, any broker-dealer or other entity to hold any Securities or other property of the Fund as collateral or otherwise pursuant to any investment strategy. (2) The validity of the issue of any Securities purchased by the Series, the legality of the purchase thereof, or the propriety of the amount paid therefor; (3) The legality of the sale of any Securities by the Series or the propriety of the amount for which the same are sold; (4) The legality of the issue or sale of any Shares, or the sufficiency of the amount to be received therefor; (5) The legality of the redemption of any Shares, or the propriety of the amount to be paid therefore (6) The legality of the declaration or payment of any distribution of the Series; (7) The legality of any borrowing for temporary administrative or emergency purposes. c. No Liability Until Receipt. The Custodian shall not be liable for, or considered to be the Custodian of, any money, whether or not represented by any check, draft, or other instrument for the payment of money, received by it on behalf of the Series until the Custodian actually receives and collects such money. 9 d. Amounts Due from Transfer Agent. The Custodian shall not be required to effect collection of any amount due to the Series from the Series' transfer agent nor be required to cause payment or distribution by such transfer agent of any amount paid by the Custodian to the transfer agent. e. Collection Where Payment Refused. The Custodian shall not be required to take action to effect collection of any amount, if the Securities upon which such amount is payable are in default, or if payment is refused after due demand or presentation, unless and until it shall be directed to take such action and it shall be assured to its satisfaction of reimbursement of its related costs and expenses. f. No Duty to Ascertain Authority. The Custodian shall not be under any duty or obligation to ascertain whether any Securities at any time delivered to or held by it for the Series are such as may properly be held by the Series under the provisions of its governing instruments or Prospectus. g. Reliance on Instructions. The Custodian shall be entitled to rely upon any Instruction, notice or other instrument in writing received by the Custodian and reasonably believed by the Custodian to be genuine and to be signed by an officer or Authorized Person of the Series. Where the Custodian is issued Instructions orally, the Series acknowledge that if written confirmation is requested, the validity of the transactions or enforceability of the transactions authorized by the Series shall not be affected if such confirmation is not received or is contrary to oral Instructions given. The Custodian shall be under no duty to question any direction of an Authorized Person to review any property held in the account, to make any suggestions with respect to the investment of the assets in the account, or to evaluate or question the performance of any Authorized Person. The Custodian shall not be responsible or liable for any diminution of value of any securities or other property held by the Custodian. 7. APPOINTMENT OF SUBCUSTODIANS. The Custodian is hereby authorized to appoint one or more domestic subcustodians (which may be an affiliate of the Custodian) to hold Securities and monies at any time owned by the Series. The Custodian is also hereby authorized when acting pursuant to Instructions to: 1) place assets with any Foreign Custodian located in a jurisdiction which is not a Selected Country and with Euroclear, Clearstream, Banc One or any other transnational depository; and 2) place assets with a broker or other agent as subcustodian in connection with futures, options, short selling or other transactions. When acting pursuant to such Instructions, the Custodian shall not be liable for the acts or omissions of any subcustodian so appointed. 8. OVERDRAFT FACILITY AND SECURITY FOR PAYMENT. In the event that the Custodian receives Instructions to make payments or transfers of monies on behalf of the Series for which there would be, at the close of business on the date of such payment or transfer, insufficient monies held by the Custodian on behalf of the Series, the Custodian may, in its sole discretion, provide an overdraft (an "Overdraft") to the Series in an amount sufficient to allow the completion of such payment or transfer. Any Overdraft 10 provided hereunder: (a) shall be payable on the next Business Day, unless otherwise agreed by the Series and the Custodian; and (b) shall accrue interest from the date of the Overdraft to the date of payment in full by the Series at a rate agreed upon from time to time, by the Custodian and the Series or, in the absence of specific agreement, by such rate as charged to other customers of Custodian under procedures uniformly applied. The Custodian and the Series acknowledge that the purpose of such Overdraft is to temporarily finance the purchase of Securities for prompt delivery in accordance with the terms hereof, to meet unanticipated or unusual redemptions, to allow the settlement of foreign exchange contracts or to meet other unanticipated Series expenses. The Custodian shall promptly notify the Series (an "Overdraft Notice") of any Overdraft. To secure payment of any Overdraft, the Series hereby grant to the Custodian a continuing security interest in and right of setoff against the Securities and cash in the Series' account from time to time in the full amount of such Overdraft. Should the Series fail to pay promptly any amounts owed hereunder, the Custodian shall be entitled to use available cash in the Series' account and to liquidate Securities in the account as necessary to meet the Series' obligations under the Overdraft. In any such case, and without limiting the foregoing, the Custodian shall be entitled to take such other actions(s) or exercise such other options, powers and rights as the Custodian now or hereafter has as a secured creditor under the Pennsylvania Uniform Commercial Code or any other applicable law. 9. TAX OBLIGATIONS. For purposes of this Agreement, "Tax Obligations" shall mean taxes, withholding, certification and reporting requirements, claims for exemptions or refund, interest, penalties, additions to tax and other related expenses. To the extent that the Custodian has received relevant and necessary information with respect to the Account, the Custodian shall perform the following services with respect to Tax Obligations: h. The Custodian shall file claims for exemptions or refunds with respect to withheld foreign (non-U.S.) taxes in instances in which such claims are appropriate; i. The Custodian shall withhold appropriate amounts, as required by U.S. tax laws, with respect to amounts received on behalf of nonresident aliens; and j. The Custodian shall provide to the Fund or the Authorized Person such information received by the Custodian which could, in the Custodian's reasonable belief, assist the Fund or the Authorized Person in the submission of any reports or returns with respect to Tax Obligations. The Fund shall inform the Custodian in writing as to which party or parties shall receive information from the Custodian. The Custodian shall provide such other services with respect to Tax Obligations, including preparation and filing of tax returns and reports and payment of amounts due (to the extent funded), as requested by the Fund and agreed to by the Custodian in writing. The Custodian shall have no independent obligation to determine the existence of any information with respect to, or the extent of, any Tax Obligations now or hereafter 11 imposed on the Fund or the Account by any taxing authority. Except as specifically provided herein or agreed to in writing by the Custodian, the Custodian shall have no obligations or liability with respect to Tax Obligations, including, without limitation, any obligation to file or submit returns or reports with any taxing authorities. In making payments to service providers pursuant to Instructions, the Fund acknowledges that the Custodian is acting as a paying agent and not as the payor, for tax information reporting and withholding purposes. ARTICLE II. -- FOREIGN CUSTODY MANAGER SERVICES 1. DELEGATION. The Board delegates to, and the Custodian hereby agrees to accept responsibility as the Fund's Foreign Custody Manager for selecting, contracting with and monitoring Foreign Custodians in Selected Countries set forth in Appendix C in accordance with Rule 17f-5(c). 2. CHANGES TO APPENDIX C. Appendix C may be amended by written agreement from time to time to add or delete jurisdictions by written agreement signed by an Authorized Person of the Fund and the Custodian, but the Custodian reserves the right to delete jurisdictions upon reasonable notice to the Series. 3. REPORTS TO BOARD. Custodian shall provide written reports notifying the Board of the placement of Assets with a particular Foreign Custodian and of any material change in a Series' foreign custody arrangements. Such reports shall be provided to the Board quarterly, except as otherwise agreed by the Custodian and the Fund. 4. MONITORING SYSTEM. In each case in which the Custodian has exercised delegated authority to place Assets with a Foreign Custodian, the Custodian shall establish a system, to re-assess or re-evaluate selected Foreign Custodians, at least annually in accordance with Rule 17f-5(c)(3). 5. STANDARD OF CARE. In exercising the delegated authority under this Article II of the Agreement, the Custodian agrees to exercise reasonable care, prudence and diligence such as a person having responsibility for the safekeeping of the Assets would exercise in like circumstances. Contracts with Foreign Custodians shall provide for reasonable care for Assets based on the standards applicable to Foreign Custodians in the Selected Country. In making this determination, the Custodian shall consider the provisions of Rule 17f-5(c)(2). 6. USE OF SECURITIES DEPOSITORIES. In exercising its delegated authority, the Custodian may assume that the Series and its investment adviser have determined, pursuant to Rule 17f-7, that the depository provides reasonable safeguards against custody risks, if a Series decides to place and maintain foreign assets with any Securities Depository as to which the Custodian has provided the Fund on behalf of such Series with a Risk Analysis. 12 ARTICLE III. -- INFORMATION SERVICES 1. RISK ANALYSIS. The Custodian will provide the Fund on behalf of the Series with a Risk Analysis with respect to Securities Depositories operating in the countries listed in Appendix C. If the Custodian is unable to provide a Risk Analysis with respect to a particular Securities Depository, it will notify the Fund on behalf of the Series. If a new Securities Depository commences operation in one of the Appendix C countries, the Custodian will provide the Fund on behalf of the Series with a Risk Analysis in a reasonably practicable time after such Securities Depository becomes operational. If a new country is added to Appendix C, the Custodian will provide the Fund on behalf of the Series with a Risk Analysis with respect to each Securities Depository in that country within a reasonably practicable time after the addition of the country to Appendix C. 2. MONITORING OF SECURITIES DEPOSITORIES. The Custodian will monitor the custody risks associated with maintaining assets with each Securities Depository for which it has provided the Fund on behalf of the Series with a Risk Analysis as required under Rule 17f-7. The Custodian will promptly notify the Fund on behalf of the Series or its investment adviser of any material change in these risks. 3. USE OF AGENTS. The Custodian may employ agents, including, but not limited to Foreign Custodians, to perform its responsibilities under Sections 1 and 2 above. 4. EXERCISE OF REASONABLE CARE The Custodian will exercise reasonable care, prudence, and diligence in performing its responsibilities under this Article III. With respect to the Risk Analyses provided or monitoring performed by an agent, the Custodian will exercise reasonable care in the selection of such agent, and shall be entitled to rely upon information provided by agents so selected in the performance of its duties and responsibilities under this Article III. 5. LIABILITIES AND WARRANTIES. While the Custodian will take reasonable precautions to ensure that information provided is accurate, the Custodian shall have no liability with respect to information provided to it by third parties. Due to the nature and source of information, and the necessity of relying on various information sources, most of which are external to the Custodian, the Custodian shall have no liability for direct or indirect use of such information. ARTICLE IV. -- GENERAL PROVISIONS 1. COMPENSATION. a. The Fund will compensate the Custodian for its services rendered under this Agreement in accordance with the fees set forth in a separate Fee Schedule which schedule may be modified by the Custodian upon not less than sixty days prior written notice to the Fund. 13 b. The Custodian will bill the Fund as soon as practicable after the end of each calendar month. The Fund will promptly pay to the Custodian the amount of such billing. c. If not paid directly or timely by the Fund, the Custodian may charge against assets held on behalf of the Series compensation and any expenses incurred by the Custodian in the performance of its duties pursuant to this Agreement. The Custodian shall also be entitled to charge against assets of the Series the amount of any loss, damage, liability or expense incurred with respect to the Series, including counsel fees, for which it shall be entitled to reimbursement under the provisions of this Agreement. The expenses which the Custodian may charge include, but are not limited to, the expenses of domestic subcustodians and Foreign Custodians incurred in settling transactions. 2. INSOLVENCY OF FOREIGN CUSTODIANS. The Custodian shall be responsible for losses or damages suffered by the Series arising as a result of the insolvency of a Foreign Custodian only to the extent that the Custodian failed to comply with the standard of care set forth in Article II with respect to the selection and monitoring of such Foreign Custodian. 3. LIABILITY FOR DEPOSITORIES. The Custodian shall not be responsible for any losses resulting from the deposit or maintenance of Securities, Assets or other property of the Series with a Securities Depository. 4. DAMAGES. Under no circumstances shall the Custodian be liable for any indirect, consequential or special damages with respect to its role as Foreign Custody Manager, Custodian or information vendor. 5. INDEMNIFICATION; LIABILITY OF THE SERIES. a. The Fund shall indemnify the Custodian from all liability and expense, including reasonable counsel fees and expenses, arising out of the performance of the Custodian's obligations under this Agreement except as a result of the Custodian's negligence or willful misconduct. b. The Series and the Custodian agree that the obligations of the Fund under this Agreement shall not be binding upon any of the trustees, shareholders, nominees, officers, employees or agents, whether past, present or future, of the Series, individually, but are binding only upon the assets and property of the Fund. 6. FORCE MAJEURE. Notwithstanding anything in this Agreement to the contrary, the Custodian shall not be liable for any losses resulting from or caused by events or circumstances beyond its reasonable control, including, but not limited to, losses resulting from nationalization, strikes, expropriation, devaluation, revaluation, 14 confiscation, seizure, cancellation, destruction or similar action by any governmental authority, de facto or de jure; or enactment, promulgation, imposition or enforcement by any such governmental authority of currency restrictions, exchange controls, taxes, levies or other charges affecting the Series' property; or the breakdown, failure or malfunction of any utilities or telecommunications systems; or any order or regulation of any banking or securities industry including changes in market rules and market conditions affecting the execution or settlement of transactions; or acts of war, terrorism, insurrection or revolution; or any other similar event. 7. TERMINATION. a. Either party may terminate this Agreement by giving the other party sixty (60) days notice in writing, specifying the date of such termination. In the event notice is given by the Fund, it shall be accompanied by a Certificate evidencing the vote of the Fund's Board to terminate this Agreement and designating a successor. b. In the event notice of termination is given by the Custodian, the Fund shall, on or before the termination date, deliver to the Custodian a Certificate evidencing the vote of the Board designating a successor custodian. In the absence of such designation, the Custodian may designate a successor custodian, which shall be a person qualified to so act under the Act or the Series. If the Fund fails to designate a successor custodian, the Fund shall, upon the date specified in the notice of termination, and upon the delivery by the Custodian of all Securities and monies then owned by the Series, be deemed to be its own custodian and the Custodian shall thereby be relieved of all duties and or the Series responsibilities under this Agreement other than the duty with respect to Securities held in the Book-Entry System which cannot be delivered to the Series. c. Upon termination of the Agreement, the Custodian shall, upon receipt of a notice of acceptance by the successor custodian, deliver to the successor all Securities and monies then held by the Custodian on behalf of the Series, after deducting all fees, expenses and other amounts owed. d. In the event of a dispute following the termination of this Agreement, all relevant provisions shall be deemed to continue to apply to the obligations and liabilities of the parties. 8. INSPECTION OF BOOKS AND RECORDS. The books and records of the Custodian shall be open to inspection and audit at reasonable times by officers and auditors employed by the Fund at its own expense and with prior written notice to the Custodian, and by the appropriate employees of the Securities and Exchange Commission. 9. MISCELLANEOUS. a. Appendix A is a document setting forth the names and the signatures of 15 Authorized Persons. The Fund shall furnish a new document when the list of Authorized Persons is changed in any way. Until a new certification is received, the Custodian shall be fully protected in acting upon Instructions from Authorized Persons as set forth in the last delivered Certificate. b. Appendix B is a Certificate signed by the Secretary of the Fund setting forth the names and the signatures of the present officers of the Fund. The Fund agrees to furnish to the Custodian a new Certificate when any changes are made. Until a new Certificate is received, the Custodian shall be fully protected in relying upon the last delivered Certificate. c. Any required written notice or other instrument shall be sufficiently given if addressed to the Custodian or the Fund as the case may be and delivered to it at its offices at: The Custodian: Mellon Bank, N. A. One Mellon Center Room 1035 Pittsburgh, PA 15258-0001 Attn: Rich Marchione, Vice President The Fund: Advantus Series Fund, Inc. 400 Robert Street North St. Paul, MN 55101-2098 Attn. Stephen G. Simon, Compliance Counsel or at such other place as the parties may from time to time designate to the other in writing. d. This Agreement may not be amended or modified except by a written agreement executed by both parties. e. This Agreement shall extend to and shall be binding upon the parties hereto, and their respective successors and assigns; provided, however, that this Agreement shall not be assignable by the Fund without the written consent of the Custodian, or by the Custodian without the written consent of the Fund authorized or approved by a vote of the Board, provided, however, that the Custodian may assign the Agreement or any function thereof to any corporation or entity which directly or indirectly is controlled by, or is under common control with, the Custodian and any other attempted assignment without written consent shall be null and void. f. Nothing in this Agreement shall give or be construed to give or confer upon any third party any rights hereunder. 16 g. The Custodian represents that it is a U.S. Bank within the meaning of paragraph (a)(7) of Rule 17f-5. h. The Fund acknowledges and agrees that, except as expressly set forth in this Agreement, the Fund is solely responsible to assure that the maintenance of the Series' Securities and cash hereunder complies with applicable laws and regulations, including without limitation the Act and the rules and regulations promulgated thereunder and applicable interpretations thereof or exemptions therefrom. The Fund represents that it has determined that it is reasonable to rely on Custodian to perform the responsibilities delegated pursuant to this Agreement. i. This Agreement shall be construed in accordance with the laws of the Commonwealth of Pennsylvania. j. The captions of the Agreement are included for convenience of reference only and in no way define or delimit any of the provisions hereof or otherwise affect their construction or effect. k. Each party represents to the other that it has all necessary power and authority, and has obtained any consent or approval necessary to permit it, to enter into and perform this Agreement and that this Agreement does not violate, give rise to a default or right of termination under or otherwise conflict with any applicable law, regulation, ruling, decree or other governmental authorization or any contract to which it is a party or by which any of its assets is bound. l. This Agreement may be executed in any number of counterparts, each of which shall be deemed to be an original, but such counterparts shall, together, constitute only one instrument. 17 IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed by their respective representatives duly authorized as of the day and year first above written. ADVANTUS SERIES FUND, INC. By: /s/ Gary M. Kleist -------------------------------------- Name: Gary M. Kleist Title: Financial Vice President and Treasurer MELLON BANK, N.A. By: /s/ Richard L. Marchine ----------------------------------- Name: Richard L. Marchine Title: Vice President 18 APPENDIX A LIST OF AUTHORIZED PERSONS ADVANTUS SERIES FUND, INC., (the "Fund") a corporation organized under the laws of the state of Minnesota (the "Fund"), do hereby certify that: The individuals listed on the following pages have been duly authorized as Authorized Persons to give Instructions on behalf of the Fund and each Series thereof and the specimen signatures set forth opposite their respective names are their true and correct signatures: i APPENDIX B FUND OFFICERS ADVANTUS SERIES FUND, INC., (the "Fund") a corporation organized under the laws of the state of Minnesota (the "Fund"), do hereby certify that: The following individuals serve in the following positions with the Series and each individual has been duly elected or appointed to each such position and qualified therefor in conformity with the Fund's governing instrument and the specimen signatures set forth opposite their respective names are their true and correct signatures:
Name Position Signature ---- -------- --------- Chairman of the Board ______________________________ President ______________________________ Treasurer ______________________________ Secretary ______________________________ Vice President and Investment Officer ______________________________ Vice President and Investment Officer ______________________________ By: ______________________________ Secretary Dated:
ii APPENDIX C SELECTED COUNTRIES The Advantus Series Fund, Inc. (the "Fund") Prospectus (the "Prospectus"), discusses allowable investments for all Portfolios of the Fund. The Bond Portfolio, Mortgage Securities Portfolio and the 2 Maturing Government Bond Portfolios focus on U.S. domestic investments. However, the International Bond Portfolio, as its name indicates focuses on international securities. The Prospectus, as it pertains to the International Bond Portfolio states, on page 41 "The Portfolio invests mainly in a variety of investment-grade debt securities issued by foreign issuers. These debt securities include, among other things, debt obligations issued or guaranteed by foreign governments of any of their agencies or instrumentalities, debt obligations issued or guaranteed by supranational organizations established or supported by foreign governments and debt obligations issued by foreign companies. In addition, the Portfolio may invest up to 20% of its net assets in U.S. debt obligations issued or guaranteed by the U.S. government." Further, on page 74 of the Prospectus, the following language can be found: "Under normal circumstances, the Portfolio will maintain investments in at least three foreign markets or in developing or emerging markets>" The language found in the Prospectus does not prohibit investments in any particular country. Therefore, the Fund agrees that this Appendix C shall contain all countries in which Custodian is eligible to act as a Foreign Custody Manager. iii APPENDIX D SERIES Advantus Series Fund, Inc. -- Bond Portfolio Advantus Series Fund, Inc. -- Mortgage Securities Portfolio Advantus Series Fund, Inc.- Maturing Government Bond Portfolio, 2006 Advantus Series Fund, Inc.- Maturing Government Bond Portfolio, 2010 Advantus Series Fund, Inc. -- International Bond Portfolio iv EX-99.H.1 9 c49473bexv99whw1.txt EX-99.H.1 Exhibit 99(h)(1) SHAREHOLDER INFORMATION AGREEMENT This Shareholder Information Agreement (hereinafter "Agreement") is entered into as of March 15, 2007 by and between Advantus Series Fund, Inc. (hereinafter the "Fund") and Minnesota Life Insurance Company (hereinafter the "Intermediary" or "Minnesota Life") with an Agreement effective date of April 16, 2007 and suchother effective dates as are recited herein. WHEREAS, prior to the effective date of this Agreement, the Fund and the Intermediary agree that any request made to the Intermediary by the Fund for shareholder transaction information, and the Intermediary's response to such request, shall be governed by whatever informal practices the Fund and the Intermediary have utilized in the absence of a formal agreement, if any, to govern such requests. WHEREAS, Rule 22c-2 under the Investment Company Act of 1940, as amended (the "1940 Act") requires mutual funds to enter into "shareholder information agreements" with "financial intermediaries" that hold fund shares on behalf of other investors in omnibus accounts and submit orders to purchase or redeem fund shares on behalf of such investors directly to the fund ("Rule 22c-2"); and WHEREAS, Minnesota Life has established one or more separate accounts ("Account" or "Accounts"), which may also be composed of several Sub-Accounts, through which Minnesota Life offers certain group and individual variable life or annuity contracts ("Contract" or "Contracts") that make available as investment options one or more of such Sub-Accounts which, in turn, invest in shares of one or more of the Fund's portfolios ("Portfolios"); and WHEREAS, in accordance with the terms of a Contract, the owner of the Contract may allocate and reallocate Contract values among Sub-Accounts and Portfolios from time to time; and WHEREAS, Minnesota Life has been identified by the Fund as a "financial intermediary" as defined in Rule 22c-2. NOW, THEREFORE, in consideration of the foregoing and the mutual promises set forth below, Intermediary and the Fund agree as follows: Section 1 Terms As used in this Agreement, the following terms shall have the following meanings, unless a different meaning is clearly required by the context: 1.1. The term "Intermediary" shall include an Account. 1.2. The term "Fund" shall also include either (i) an investment adviser to or administrator for the Fund; or (ii) the principal underwriter or distributor for the Fund. The term does not include any "excepted funds" as defined in Rule 22c-2(b).(1) 1.3. The term "Shares" means the interests of Shareholders corresponding to the redeemable securities of record issued by the Fund under the 1940 Act that are held by the Intermediary. 1.4. The term "Shareholder" means the holder of interests in a Contract issued by the Intermediary, or a participant in an employee benefit plan with a beneficial interest in a Contract. 1.5. The term "Shareholder-Initiated Transfer Purchase" means a transaction that is initiated or directed by a Shareholder that results in a transfer of assets within a Contract to a Portfolio, but does not include transactions that are executed: (i) automatically pursuant to a contractual or systematic program or enrollment such as transfer of assets within a Contract to a Portfolio as a result of "dollar cost averaging" programs, insurance company approved asset allocation programs, or automatic rebalancing programs; (ii) pursuant to a Contract death benefit; (iii) one-time step-up in Contract value pursuant to a Contract death benefit; or (iv) allocation of assets to a Portfolio through a Contract as a result of payments such as loan repayments, scheduled contributions, retirement plan salary reduction contributions, or planned premium payments to the Contract. 1.6. The term "Shareholder-Initiated Transfer Redemption" means a transaction that is initiated or directed by a Shareholder that results in a transfer of assets within a Contract out of a Portfolio, but does not include transactions that are executed: (i) automatically pursuant to a contractual or systematic program or enrollments such as transfers of assets within a Contract out of a Portfolio as a result of annuity payouts, loans, systematic withdrawal programs, asset allocation programs and automatic rebalancing programs; (ii) as a result of any deduction of charges or fees under a Contract; (iii) within a Contract out of a Portfolio as a result of scheduled withdrawals or surrenders from a Contract; or (iv) as a result of payment of a death benefit from a Contract. 1.7. The term "written" includes electronic writings and facsimile transmissions. Section 2 Shareholder Information The provisions of this Agreement, with respect to the ability of Fund to request and promptly receive shareholder identity and transaction information pursuant to this Agreement and this Section 2, shall be effective October 16, 2007. 2.1. Agreement to Provide Information. Intermediary agrees to provide the Fund,upon written request, the taxpayer identification number ("TIN"), the Individual/International Taxpayer Identification Number ("ITIN"), or other government-issued identifier ("GII") and the ---------- (1) As defined in Rule 22c-2(b), term "excepted fund" means any: (1) money market fund; (2) fund that issues securities that are listed on a national exchange; and (3) fund that affirmatively permits short-term trading of its securities, if its prospectus clearly and prominently discloses that the fund permits short-term trading of its securities and that such trading may result in additional costs for the fund. 2 Contract owner number or participant account number associated with the Shareholder, if known, of any or all Shareholder(s) of the account, and the amount,date and transaction type (purchase, redemption, transfer, or exchange)of every purchase, redemption, transfer, or exchange of Shares held through an account maintained by the Intermediary during the period covered by the request. This section shall be read to require Intermediary to provide only that information relating to Shareholder-Initiated Transfer Purchases or Shareholder-Initiated Transfer Redemptions. If the Fund wishes to request Intermediary to provide information in addition to that recited in this Section 2.1, it shall provide Intermediary with the details of that additionally requested information together with a suggested format for Intermediary's response. Requests from the Fund to Intermediary should include the Fund name and identification number, Intermediary's Fund Account number and method of response, and the address to which Intermediary must respond with the requested information. 2.2. Period Covered by Request. Requests must set forth a specific period, not to exceed 180 days from the date of the request, for which transaction information is sought. The Fund may request transaction information older than 180 days from the date of the request as it deems necessary to investigate compliance with policies established by the Fund for the purpose of eliminating or reducing any dilution of the value of the outstanding shares issued by the Fund. 2.3. Timing of Requests. Fund requests for Shareholder information shall be made no more frequently than quarterly except as the Fund deems necessary to investigate compliance with policies established by the Fund for the purpose of eliminating or reducing any dilution of the value of the outstanding shares issued by the Fund. 2.4. Form and Timing of Response. (a) Intermediary agrees to provide, promptly upon request of the Fund or its designee, the requested information specified in 2.1. If requested by the Fund or its designee, Intermediary agrees to use best efforts to determine promptly whether any specific person about whom it has received the identification and transaction information specified in 2.1 is itself a financial intermediary ("indirect intermediary") and, upon further request of the Fund or its designee, promptly either (i) provide (or arrange to have provided) the information set forth in 2.1 for those shareholders who hold an account with an indirect intermediary or (ii) restrict or prohibit the indirect intermediary from purchasing, in nominee name on behalf of other persons, securities issued by the Fund. Intermediary additionally agrees to inform the Fund whether it plans to perform (i) or (ii). (b) Responses required by this paragraph must be communicated in writing and in a format mutually agreed upon by the Fund or its designee and the Intermediary; and (c) To the extent practicable, the format for any transaction information provided to the Fund should be consistent with the NSCC Standardized Data Reporting Format provided, however, that the Fund shall not require the Intermediary to report to the Fund using the NSCC Standardized Data Reporting Service. 3 2.5. Limitations on Use of Information. The Fund agrees not to use the information received pursuant to this Agreement for any purpose other than as necessary to comply with the provisions of Rule 22c-2 or to fulfill other regulatory or legal requirements subject to the privacy provisions of Title V of the Gramm-Leach-Bliley Act (Public Law 106-102) and comparable state laws. Section 3 Procedures 3.1. Indemnification. The Fund agrees to indemnify and hold harmless Intermediary from any and all liability, claim, loss, demand, damages, costs and expenses (including reasonable attorney's fees) arising in connection with third party claim or action brought against Intermediary as a result of any unauthorized disclosure of a shareholder's taxpayer identification number provided to the Fund in response to a request for information pursuant to the terms of this Agreement. 3.2. Agreement to Restrict Trading. Intermediary agrees to execute written instructions from the Fund to restrict or prohibit further purchases or exchanges of Shares by a Shareholder that has been identified by the Fund as having engaged in transactions of the Fund's Shares (directly or indirectly through the Intermediary's account) that violate policies established by the Fund for the purpose of eliminating or reducing any dilution of the value of the outstanding Shares issued by the Fund. Unless otherwise directed by the Fund, any such restrictions or prohibitions shall only apply to Shareholder-Initiated Transfer Purchases or Shareholder-Initiated Transfer Redemptions that are effected directly or indirectly through Intermediary. Instructions must be received by Intermediary at the following address, or such other address that Intermediary may communicate to Fund in writing from time to time, including, if applicable, an e-mail and/or facsimile telephone number: Minnesota Life Insurance Company 400 Robert Street North St. Paul, Minnesota 55101 Attention: Christina Moore Phone: 651-665-4715 E-mail: christina.moore@securian.com 3.3. Form of Instructions. Instructions must include the TIN, ITIN, or GII and the specific individual Contract owner number or participant account number associated with the Shareholder, if known, and the specific restriction(s) to be executed, including how long the restriction(s) is(are) to remain in place. If the TIN, ITIN, GII or the specific individual Contract owner number or participant account number associated with the Shareholder is not known, the instructions must include an equivalent identifying number of the Shareholder(s) or account(s) or other agreed upon information to which the instruction relates. Upon request of the Intermediary, Fund agrees to provide to the Intermediary, along with any written instructions to prohibit further purchases or exchanges of Shares by Shareholder, a copy of the Fund's publicly disclosed policies relating to eliminating or reducing any dilution of the value of the outstanding Shares issued by the Fund. 4 3.4. Timing of Response. Intermediary agrees to execute instructions as soon as reasonably practicable, but not later than five (5) business days after receipt of the instructions by the Intermediary. 3.5. Confirmation by Intermediary. Intermediary must provide written confirmation to the Fund that instructions have been executed. Intermediary agrees to provide confirmation as soon as reasonably practicable, but not later than ten (10) business days after the instructions have been executed. 3.6. Force Majeure. Either party is excused from performance and shall not be liable for any delay in performance or non-performance, in whole or in part, caused by the occurrence of any event or contingency beyond the control of the parties including, but not limited to, work stoppages, fires, civil disobedience, riots, rebellions, natural disasters, acts of God, acts of war or terrorism, actions or decrees of governmental bodies, pandemic or epidemic disease, but excluding failure caused by a party's financial condition or negligence and similar occurrences. The party who has been so affected shall promptly give written notice to the other Party and shall use its best efforts to resume performance. Upon receipt of such notice, all obligations under this Agreement shall be immediately suspended for the duration of such Force Majeure Event. Section 4 Construction and Cooperation 4.1. Construction of the Agreement; Fund Participation Agreements. The parties have entered into one or more Fund Participation Agreements between or among them for the purchase and redemption of shares of the Fund by the Accounts in connection with the Contracts. This Agreement supplements those Fund Participation Agreements. To the extent the terms of this Agreement conflict with the terms of a Fund Participation Agreement, the terms of this Agreement shall control. This Agreement shall be governed by and construed with the laws of the State of Minnesota. 4.2. Mutual Cooperation. The Fund and Intermediary agree to cooperate with one another in the development of abusive trading policies that take into consideration the legality of enforcing these limits with respect to certain Shareholders whose existing Contracts impose no or inconsistent trading limits. Fund and Intermediary also agree to cooperate with one another in the development of Intermediary's own market timing policies with respect to its contracts. 4.3. Dispute Resolution. The parties hereby mutually agree to use their best efforts to seek an amicable solution to any controversy or dispute regarding the subject matter hereof. Any unresolved controversy, claim or dispute shall be submitted to binding arbitration in accordance with the Commercial Rules of the American Arbitration Association and judgment upon any such award may be entered in any court having jurisdiction thereof. Arbitration shall be conducted by a single arbitrator who shall have the authority to grant any and all appropriate relief, including, but not limited to, granting injunctive relief or demanding specific performance. The arbitrator may make an initial determination of the location of the arbitration or whether proceedings may ensue based entirely upon documentary evidence. Unless otherwise mutually agreed in writing by the parties, said determination by the arbitrator shall become final and binding three (3) days after the arbitrator's ruling. Arbitration costs and expenses shall be borne 5 equally by the parties. Each party hereby agrees to waive and suspend enforcement of any and all rights pursuant to this and all related agreements during the pendency of such arbitration proceedings. Section 5 Termination 5.1. Termination. This Agreement will terminate upon the termination of the Fund Participation Agreements. IN WITNESS WHEREOF, the undersigned has caused this Agreement to be executed as of the date first above written. FUND /s/ Dianne M. Orbison ------------------------------------- By: Dianne M. Orbison Title: President Advantus Series Fund, Inc. INTERMEDIARY /s/ Bruce P. Shay --------------------------- By: Bruce P. Shay Title: Senior Vice President Minnesota Life Insurance Company 6 EX-99.H.2 10 c49473bexv99whw2.txt EX-99.H.2 Exhibit 99.(h)(2) ADMINISTRATIVE SERVICE AGREEMENT AGREEMENT made as of the 6th of November, 2007, by and between Advantus Series Fund, Inc., a Minnesota corporation, having its principal office and place of business at 400 North Robert Street, St. Paul, Minnesota, 55101, (the "Fund"), and Minnesota Life Insurance Company, ("Minnesota Life"), a Minnesota corporation having its principal office and place of business at 400 North Robert Street, St. Paul, Minnesota, 55101. WHEREAS, the Fund has entered into contracts with State Street Bank and Trust Company ("State Street") to provide certain investment accounting and administrative services to the Fund; and WHEREAS, the Fund has reserved certain accounting, auditing, legal and other administrative tasks and responsibilities ("Administrative Services") to be performed by Minnesota Life rather than State Street; and WHEREAS, the Fund desires to engage Minnesota Life to provide the Administrative Services to the Fund, and Minnesota Life desires to provide such Administrative Services; NOW, THEREFORE, in consideration of the mutual covenants herein contained, the parties hereto agree as follows: Article 1 Terms of Appointment; Duties of Minnesota Life 1.01 Subject to the terms and conditions set forth in this Agreement, the Fund hereby employs and appoints Minnesota Life, and Minnesota Life hereby agrees to provide certain accounting, auditing, legal and other administrative services to the Fund. 1.02 Minnesota Life agrees that it will perform such services as are required by the Fund and are not provided by State Street, including, without limitation, the following: (a) register or qualify, and maintain the registrations or qualifications, of the Fund and its Shares (and any Class thereof) under state or other securities laws. (b) provide oversight for each Portfolio of the Fund, of the calculation of its net asset value per Share (and any Class thereof) by State Street at such times and in such manner as specified in the Fund's current prospectus and statement of additional information and at such other times as the parties hereto may from time to time agree upon; (c) provide oversight with regard to the determination by State Street of the amount of the Fund's distribution of dividends and capital gains, for each Portfolio, and the calculation of the amount of such dividends and capital gains to be received per Share (and any Class thereof) and calculate the number of additional Shares to be received by each Portfolio Shareholder; (d) provide oversight regarding State Street's preparation and maintenance of all accounting records required by the Fund, including a general ledger; (e) prepare the Fund's annual and semi-annual financial statements; (f) provide oversight regarding State Street's preparation of the Fund's income, excise and other tax returns; (g) file the Fund's income, excise and other tax returns after their preparation by State Street; (h) provide audit assistance in conjunction with the Fund's independent auditors; (i) 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 (j) provide such other Administrative Services as the parties hereto may from time to time agree upon. Procedures applicable to certain of these services may be established from time to time by agreement between the Fund and Minnesota Life. Article 2 Compensation for Services 2.01 In payment for the Administrative Services to be performed by Minnesota Life hereunder, the Fund shall pay to Minnesota Life a fee in accordance with Schedule A hereto. 2.02 In addition to the fee paid under Section 2.01 above, the Fund will reimburse Minnesota Life for out-of-pocket expenses or advances incurred by Minnesota Life in connection with Minnesota Life's performance of services hereunder. Article 3 Representations and Warranties of Minnesota Life Minnesota Life represents and warrants to the Fund that: 3.01 It is a corporation duly organized and existing and in good standing under the laws of the State of Minnesota. 3.02 It is duly qualified to carry on its business in the State of Minnesota. -2- 3.03 It has and will continue to have access to the necessary facilities, equipment and personnel to perform its duties and obligations under this Agreement. Article 4 Representations and Warranties of the Fund The Fund represents and warrants to Minnesota Life that: 4.01 It is a corporation duly organized and existing and in good standing under the laws of Minnesota. 4.02 It is empowered under applicable laws and by its Articles of Incorporation and Bylaws to enter into and perform this Agreement. 4.03 All corporate proceedings required by said Articles of Incorporation and Bylaws have been taken to authorize it to enter into and perform this Agreement. 4.04 It is an open-end and diversified management investment company registered under the Investment Company Act of 1940. The Fund is a series company, consisting of several separate Portfolios, each with its own investment objectives, and each of which offers one or more classes of shares. 4.05 A registration statement under the Securities Act of 1933 is currently effective and will remain effective, and appropriate state securities law filings have been made and will continue to be made, with respect to all Shares of the Fund being offered for sale. Article 5 Indemnification 5.01 Minnesota Life shall not be responsible for, and the Fund shall indemnify and hold Minnesota Life harmless from and against, any and all losses, damages, costs, charges, counsel fees, payments, expenses and liability arising out of or attributable to: (a) All actions of Minnesota Life or its agents or subcontractors required to be taken pursuant to this Agreement, provided that such actions are taken in good faith without negligence or willful misconduct. (b) The Fund's refusal or failure to comply with the terms of this Agreement, or which arise out of the Fund's lack of good faith, negligence or willful misconduct or which arise out of the breach of any representation or warranty of the Fund hereunder. (c) The reliance on or use by Minnesota Life or its agents or subcontractors of information, records and documents which (i) are received by Minnesota Life or its agents or subcontractors and furnished to it by or on behalf of the Fund, and (ii) have been prepared and/or maintained by the Fund or any other person or firm on behalf of the Fund. (d) The reliance on, or the carrying out by Minnesota Life or its agents or subcontractors of any instructions or requests of the Fund. -3- 5.02 Minnesota Life shall indemnify and hold the Fund harmless from and against any and all losses, damages, costs, charges, counsel fees, payments, expenses and liability arising out of or attributable to any action or failure or omission to act by Minnesota Life as a result of Minnesota Life's lack of good faith, negligence or willful misconduct. 5.03 At any time Minnesota Life may apply to any officer of the Fund for instructions, and may consult with legal counsel with respect to any matter arising in connection with the services to be performed by Minnesota Life under this Agreement, and Minnesota Life and its agents or subcontractors shall not be liable and shall be indemnified by the Fund for any action taken or omitted by it in reliance upon such instructions or in good faith reliance upon the opinion of such counsel. Minnesota Life, 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 Minnesota Life or its agents or subcontractors by machine readable input, telex, CRT data entry or other similar means authorized by the Fund, and shall not be held to have notice of any change of authority of any person, until receipt of written notice thereof from the Fund. Minnesota Life, its agents and subcontractors shall also be protected and indemnified in recognizing stock certificates which are reasonably believed to bear the proper manual or facsimile signatures of the officers of the Fund, and the proper countersignature of any current or former transfer agent or registrar, or of a co-transfer agent or co-registrar. 5.04 In the event either party is unable to perform its obligations under the terms of this Agreement because of acts of God, strikes, equipment or transmission failure or damage reasonably beyond its control, or other causes reasonably beyond its control, such party shall not be liable for damages to the other for any damages resulting from such failure to perform or otherwise from such causes. 5.05 Neither party to this Agreement shall be liable to the other party for consequential damages under any provision of this Agreement or for any act or failure to act hereunder. 5.06 In order that the indemnification provisions contained in this Article 5 shall apply, upon the assertion of a claim for which either party may be required to indemnify the other, the party seeking indemnification shall promptly notify the other party of such assertion, and shall keep the other party advised with respect to all developments concerning such claim. The party who may be required to indemnify shall have the option to participate with the party seeking indemnification in the defense of such claim. The party seeking indemnification shall in no case confess any claim or make any compromise in any case in which the other party may be required to indemnify it except with the other party's prior written consent. Article 6 Covenants of the Fund and Minnesota Life 6.01 Minnesota Life shall keep records relating to the services to be performed hereunder, in the form and manner as it may deem advisable. To the extent required by Section 31 of the Investment Company Act of 1940, as amended, and the Rules thereunder, Minnesota Life agrees that all such records prepared or maintained by Minnesota Life relating to the -4- services to be performed by Minnesota Life hereunder are the property of the Fund and will be preserved, maintained and made available in accordance with such Section and Rules, and will be surrendered promptly to the Fund on and in accordance with its request. 6.02 Minnesota Life and the Fund agree that all books, records, information and data pertaining to the business of the other party which are exchanges or received pursuant to the negotiation or the carrying out of this Agreement shall remain confidential, and shall not be voluntarily disclosed to any other person, except as may be required by law. 6.03 In the case of any requests or demands for the inspection of the Shareholder records of the Fund, Minnesota Life will endeavor to notify the Fund and to secure instructions from an authorized officer of the Fund as to such inspection. Minnesota Life 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 7 Effective Date, Duration and Termination of Agreement 7.01 The effective date of this Agreement shall be the date above, or the date State Street begins performing services for the Fund, or such other date as selected by management of the Fund. Unless sooner terminated as hereinafter provided, this Agreement shall continue in effect until the next regular meeting of the Fund's shareholders and from year to year thereafter, but only so long as such continuance is specifically approved at least annually by the Board of Directors of the Fund, including the specific approval of a majority of the directors who are not interested persons of the Fund, cast in person at a meeting called for the purpose of voting on such approval. 7.02 This Agreement may be terminated at any time without the payment of any penalty by the vote of the Board of Directors of the Fund, or by Minnesota Life, upon 60 days' written notice to the other party. Article 8 Assignment 8.01 This Agreement shall automatically terminate in the event of its assignment as such term is defined by the Investment Company Act of 1940, as amended. Article 9 Amendment 9.01 This Agreement may be amended or modified by a written agreement executed by both parties and authorized or approved by a resolution of the Board of Directors of the Fund, including a majority of the directors who are not interested persons of the Fund, cast in person at a meeting called for the purpose of voting on such approval. Article 10 Minnesota Law to Apply 10.01 This Agreement shall be construed and the provisions thereof interpreted under and in accordance with the laws of the State of Minnesota. -5- Article 11 Merger of Agreement 11.01 This Agreement constitutes the entire agreement between the parties hereto and supersedes any prior agreement with respect to the subject matter hereof whether oral or written. Article 12 Notices 12.01 Any notice under this Agreement shall be in writing, addressed, delivered or mailed, postage prepaid, to the other party at such address as such other party may designate in writing for receipt of such notice. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed in their names and on their behalf under their seals by and through their duly authorized officers, as of the day and year first above written. ADVANTUS SERIES FUND, INC. By /s/ Gregory S. Strong ------------------------------------- Gregory S. Strong, President MINNESOTA LIFE INSURANCE COMPANY By /s/ David M. Kuplic ------------------------------------- David M. Kuplic, Senior Vice President -6- ADVANTUS SERIES FUND, INC. SCHEDULE A (As effective January 1, 2009) Minnesota Life shall receive, as compensation for its services pursuant to this Agreement, a monthly fee determined in accordance with the following table: Monthly Administrative Services Fee Bond Portfolio $4,354 Money Market Portfolio $2,816 Mortgage Securities Portfolio $4,917 Index 500 Portfolio $2,447 International Bond Portfolio $4,608 Index 400 Mid-Cap Portfolio $3,229 Real Estate Securities Portfolio $3,229
Said monthly fees shall be paid to Minnesota Life not later than five days following the end of each calendar quarter in which said services were rendered. -7- EX-99.H.3 11 c49473bexv99whw3.txt EX-99.H.3 Exhibit 99.(h)(3) PARTICIPATION AGREEMENT AMONG ADVANTUS SERIES FUND, INC. ADVANTUS CAPITAL MANAGEMENT, INC. AND MINNESOTA LIFE INSURANCE COMPANY DATED NOVEMBER 6, 2007 THIS AGREEMENT, made and entered into as of the 6th day of November, 2007, by and among Minnesota Life Insurance Company (hereinafter "Minnesota Life"), a Minnesota corporation, on its own behalf and on behalf of each segregated asset account of Minnesota Life set forth on Schedule A hereto, as may be amended from time to time (each such account hereinafter referred to as "Account") and the Advantus Series Fund, Inc., a Minnesota corporation (hereinafter the "Fund") and Advantus Capital Management, Inc. (hereinafter the "Adviser"), a corporation organized in the State of Minnesota. WHEREAS, the Fund engages in business as an open-end management investment company and is available to act as the investment vehicle for separate accounts established for variable life insurance policies and variable annuity contracts (hereinafter collectively, the "Variable Insurance Products") to be offered by insurance companies which have entered into participation agreements with the Fund and the Adviser (hereinafter "Participating Insurance Companies"); and WHEREAS, the beneficial interest in the Fund is divided into several series of shares, each designated a "Portfolio" and representing the interest in a particular managed portfolio of securities and other assets and liabilities; and WHEREAS, each Portfolio may issue its shares in one or more Classes as shown on Schedule B attached hereto; and WHEREAS, the Fund has obtained an order from the Securities and Exchange Commission granting it exemptions from the provisions of Sections 9(a), 13(a), 15(a) and 15(b), of the Investment Company Act of 1940 and Rule 6e-2(b)(15) thereunder so as to permit the sale of Fund shares to both variable annuity and variable life separate accounts of both affiliated and unaffiliated life insurance companies subject to the provisions of Clauses (i) through (iv) of Rule 6e-2(b)(15) and the undertakings set forth in the order (hereinafter the "Mixed and Shared Funding Exemptive Order"); and WHEREAS, the Fund is registered as an open-end management investment company under the 1940 Act and its shares are registered under the Securities Act of 1933, as amended (hereinafter, the "1933 Act"); and WHEREAS, the Adviser is duly registered as an investment adviser under the federal Investment Advisers Act of 1940 (hereinafter, the "Advisers Act") and any applicable state securities law; and WHEREAS, Minnesota Life has registered or will register certain variable life insurance policies and variable annuity contracts under the 1933 Act, unless an exemption is available and each such contract or policy will provide for the allocation of net amounts received by Minnesota Life to an Account or Sub-Account for investment in the Fund and its Portfolios, or a designated Class thereof, as that selection may be made by a participant or contract or policy owner, as applicable under that contract or policy; and WHEREAS, each Account is a duly organized, validly existing segregated asset account, established by resolution of the Board of Directors of Minnesota Life, to set aside and invest assets attributable to the aforesaid Variable Insurance Products; and WHEREAS, Minnesota Life has registered or will register each Account as a unit investment trust under the 1940 Act, unless an exemption from registration is available; and WHEREAS, to the extent permitted by applicable insurance laws and regulations, Minnesota Life intends to purchase shares in the Portfolios, or a designated Class thereof, on behalf of each Account to fund certain of the aforesaid Variable Insurance Products and the Adviser is authorized to sell such shares to each Account at net asset value; NOW, THEREFORE, in consideration of their mutual promises, Minnesota Life, the Fund and the Adviser agree as follows: ARTICLE I. PURCHASE AND REDEMPTION OF FUND PORTFOLIO SHARES 1.1 For purposes of this Article I, Minnesota Life shall be the Fund's agent for receipt of purchase orders and requests for redemption relating to each Portfolio from each Account or Sub-Account, provided that Minnesota Life notifies the Fund of such purchase orders and requests for redemption by 10:00 a.m. Central time on the next following Business Day, as defined in Section 1.3. The currently available Portfolios and Classes are as shown on Schedule B attached hereto. 1.2 The Fund agrees to make shares of the Portfolios (or any Class thereof) available to the Accounts and the Sub-Accounts of such Accounts for purchase at the net asset value per share next computed after receipt of a purchase order by the Fund (or its agent), as established in accordance with the provisions of the then current prospectus of the Fund describing Portfolio purchase procedures on those days on which the Fund calculates its net asset value pursuant to rules of the Commission, and the Fund shall use its best efforts to calculate such net asset value on each day on which the New York Stock Exchange ("NYSE") is open for trading. Minnesota Life will transmit orders from time to time to the Fund for the purchase of shares of the Portfolios (or any Class thereof). The Directors of the Fund (the "Directors") may refuse to sell shares of any Portfolio (or any Class thereof) to any person, or suspend or terminate the offering of shares of any Portfolio (or any Class thereof) if such action is required by law or by regulatory 2 authorities having appropriate jurisdiction or if, in the sole discretion of the Directors acting in good faith and in light of their fiduciary duties under federal and any applicable state laws, such action is deemed in the best interests of the shareholders of such Portfolio (or any Class thereof). 1.3 Minnesota Life shall submit payment for the purchase of shares of a Portfolio (or any Class thereof) on behalf of an Account or Sub-Account no later than the close of the Federal Reserve Bank, which is 6:00 p.m. Central time, on the next Business Day after the Fund receives the purchase order. Payment shall be made in federal funds transmitted by wire to the Fund. Upon receipt by the Fund of the federal funds so wired, such funds shall cease to be the responsibility of Minnesota Life and shall become the responsibility of the Fund for this purpose. "Business Day" shall mean any day on which the New York Stock Exchange is open for trading and on which the Fund calculates its net asset value pursuant to the rules of the Commission. If payment in federal funds for any purchase is not received by the Fund or its designated custodian or is received after such time, Minnesota Life shall promptly, upon written request, reimburse the Fund for any charges, costs, fees, interest or other expenses incurred by the Fund as a result of transactions effected by the Fund based upon such purchase order. 1.4 The Fund will redeem for cash any full or fractional shares of any Portfolio, when requested by Minnesota Life on behalf of an Account, at the net asset value next computed after receipt by the Fund (or its agent) of the request for redemption, as established in accordance with the provisions of the then current prospectus of the Fund describing Portfolio redemption procedures. The Fund shall make payment for such shares in the manner established from time to time by the Fund. Redemption with respect to a Portfolio will normally be paid to Minnesota Life for an Account or Sub-Account in federal funds transmitted by wire to Minnesota Life before the close of the Federal Reserve Bank, which is 6:00 p.m. Central time on the next Business Day after the receipt of the request for redemption. If payment in federal funds for any redemption request is received by Minnesota Life after such time, the Fund shall promptly upon Minnesota Life's written request, reimburse Minnesota Life for any charges, costs, fees, interest, or other expenses incurred by Minnesota Life as a result of such failure to provide redemption proceeds within the specified time. Notwithstanding the foregoing, such payment may be delayed if the Portfolio's cash position so requires or if extraordinary market conditions exist, but in no event shall payment be delayed for a greater period than is permitted by the 1940 Act. 1.5 Payments for the purchase of shares of the Fund's Portfolios (or any Class thereof) by Minnesota Life under Section 1.3 and payments for the redemption of shares of the Fund's Portfolios under Section 1.4 may be netted against one another on any Business Day for the purpose of determining the amount of any wire transfer of that Business Day. 1.6 Issuance and transfer of the Fund's Portfolio shares (or any Class thereof) will be by book entry only. Stock certificates will not be issued to Minnesota Life, an Account or a Sub-Account. Portfolio Shares (or any Class thereof) purchased from the Fund will be recorded in the appropriate title for each Account or the appropriate sub-account of each Account. 1.7 The Fund shall furnish, on or before the ex-dividend date, notice to Minnesota Life of any income dividends or capital gain distributions payable on the shares (or any Class thereof) of any Portfolio of the Fund. Minnesota Life hereby elects to receive all such income dividends and capital gain distributions as are payable on a Portfolio's shares (or Class) in additional shares 3 of the Portfolio (or Class). The Fund shall notify Minnesota Life of the number of shares so issued as payment of such dividends and distributions. 1.8 The Fund shall calculate the net asset value of each Portfolio (or any Class thereof) on each Business Day, as defined in Section 1.3. The Fund shall make the net asset value per share for each Portfolio available to Minnesota Life or its designated agent on a daily basis as soon as reasonably practical after the net asset value per share is calculated (normally by 6:30 p.m. Central time) and shall use reasonable efforts to make such net asset value per share available by 7:00 p.m. Central time each Business Day. 1.9 The Fund agrees that its Portfolio shares (or any Class thereof) will be sold only to Participating Insurance Companies and their separate accounts and to certain qualified pension and retirement plans to the extent permitted by the Mixed and Shared Funding Exemptive Order. The Fund agrees that it will not sell shares of its Portfolios (or any Class thereof) to any other insurance company or separate account unless an agreement containing provisions substantially the same as Section 2.4 and Articles I and V of this Agreement is in effect to govern sales. No shares of any Portfolio (or any Class thereof) will be sold directly to the general public. Minnesota Life agrees that it will use Fund shares only for the purposes of funding the Variable Insurance Products through the Accounts listed in Schedule A, as amended from time to time. 1.10 Minnesota Life agrees that all net amounts available under the Variable Insurance Products referenced herein shall be invested in the Fund or in such other investment companies advised by the Adviser or its affiliates as may be mutually agreed to in writing by the parties hereto, or in Minnesota Life's general account, provided that such amounts may also be invested in an investment company other than the Fund if: (a) Minnesota Life gives the Fund and the Adviser forty-five (45) days written notice of its intention to make such other investment company available as a funding vehicle for these Variable Insurance Products; or (b) such other investment company is available as a funding vehicle for these Variable Insurance Products at the date of this Agreement. 1.11 The Fund agrees that all Participating Insurance Companies shall have the obligations and responsibilities regarding pass-through voting and conflicts of interest corresponding to those contained in Section 2.10 and Article IV of this Agreement. 1.12 In the event adjustments are required to correct any material error in the computation of the net asset value of the Fund's shares (or any Class thereof), the Fund shall notify Minnesota Life as soon as practicable after discovering the need for those adjustments which result in a reimbursement to an Account in accordance with the Fund's then current policies on reimbursement, which the Fund represents are consistent with applicable SEC standards. If an adjustment is to be made in accordance with such policies to correct an error which has caused an Account to receive an amount different than that to which it is entitled, the Fund shall make all necessary adjustments to the number of shares owned in the Account and distribute to the Account the amount of such underpayment for credit to Minnesota Life's Contract/Policy Owners. 4 ARTICLE II. OBLIGATIONS OF THE PARTIES; FEES AND EXPENSES 2.1 The Fund shall prepare and be responsible for filing with the Commission and any state regulators requiring such filing all shareholder reports, notices, proxy materials (or similar materials such as voting instruction solicitation materials), prospectuses and statements of additional information of the Fund. The Fund shall bear the costs of registration and qualification of its shares of the Portfolios, preparation and filing of the documents listed in this Section 2.1 and all taxes to which an issuer is subject on the issuance and transfer of its shares. 2.2 At the option of Minnesota Life, the Fund or the Adviser shall either (a) provide Minnesota Life with as many copies of portions of the Fund's current prospectus, annual report, semi-annual report and other shareholder communications, including any amendments or supplements to any of the foregoing, pertaining specifically to the Portfolios (or any Class thereof) as Minnesota Life shall reasonably request; or (b) provide Minnesota Life with a camera ready copy of such documents in a form suitable for printing and from which information relating to series of the Fund other than the Portfolios has been deleted to the extent practicable. The Fund or the Adviser shall provide Minnesota Life with a copy of its current statement of additional information, including any amendments or supplements, in a form suitable for duplication by Minnesota Life. Expenses of furnishing such documents for marketing purposes shall be borne by Minnesota Life and expenses of furnishing such documents for current contract owners invested in the Fund shall be borne by the Fund or the Adviser. 2.3 The Fund (at its expense) shall provide Minnesota Life with copies of any Fund-sponsored proxy materials in such quantity as Minnesota Life shall reasonably require for distribution to contract owners. The Fund shall bear the costs of distributing proxy materials (or similar materials such as voting solicitation instructions). Minnesota Life shall bear the cost of distributing prospectuses and statements of additional information to contract owners. Minnesota Life assumes sole responsibility for ensuring that such materials are delivered to contract owners in accordance with applicable federal and state securities laws. 2.4 If and to the extent required by law, Minnesota Life shall: (i) solicit voting instructions from contract owners; (ii) vote the Fund shares in accordance with the instructions received from contract owners; and (iii) vote Fund shares for which no instructions have been received in the same proportion as Fund shares of such Portfolio for which instructions have been received; so long as and to the extent that the Commission continues to interpret the 1940 Act to require pass-through voting privileges for variable contract owners. Minnesota Life reserves the right to vote Fund shares held in any segregated asset account in its own right, to the extent permitted by law. 2.5 Except as provided in Section 2.6, Minnesota Life shall not use any designation comprised in whole or part of the names or marks "Advantus Series Fund, Inc." or "Advantus Capital Management, Inc." without prior written consent of the Fund or the Adviser, and upon termination of this Agreement for any reason, Minnesota Life shall cease all use of any such name or mark as soon as reasonably practicable. 2.6 Minnesota Life and its agents shall not give any information or make any representations or statements on behalf of the Fund or concerning the Fund or the Adviser or an 5 Adviser in connection with the sale of the Variable Insurance Products other than information or representations contained in and accurately derived from the registration statement or prospectus for the Fund shares (as such registration statement and prospectus may be amended or supplemented from time to time), annual and semi-annual reports of the Fund, Fund-sponsored proxy statements, or in sales literature or other promotional material prepared or approved by the Fund or its designee, except as required by legal process or regulatory authorities or with the written permission of the Fund or its designee. 2.7 The Fund shall use its best efforts to provide Minnesota Life, on a timely basis, with such information about the Fund, the Portfolios and the Adviser and any Sub-Advisers, in such form as Minnesota Life may reasonably require, as Minnesota Life shall reasonably request in connection with the preparation of registration statements and prospectuses and annual and semi-annual reports pertaining to the Variable Insurance Products. 2.8 The Fund shall not give any information or make any representations or statements on behalf of Minnesota Life or concerning Minnesota Life, the Accounts or the Variable Insurance Products other than information or representations contained in and accurately derived from the registration statement or prospectus for the Variable Insurance Products (as any such required registration statement and prospectus may be amended or supplemented from time to time), or in materials prepared or approved by Minnesota Life for distribution including sales literature or other promotional materials, except as required by legal process or regulatory authorities or with the written permission of Minnesota Life. 2.9 So long as, and to the extent that, the Commission interprets the 1940 Act to require pass-through voting privileges for contract owners, Minnesota Life will provide pass-through voting privileges to contract owners whose Contract values are invested, through the registered Accounts, in shares of one or more Portfolios (or any Class thereof) of the Fund. The Fund shall require all Participating Insurance Companies to calculate voting privileges in the same manner and Minnesota Life shall be responsible for assuring that the Accounts calculate voting privileges in the manner established by the Fund. With respect to each registered Account, Minnesota Life will vote shares of each Portfolio (or any Class thereof) of the Fund held by a registered Account for which no timely voting instructions from contract owners are received in the same proportion as those shares held by that registered Account for which voting instructions are received. Minnesota Life and its agents will in no way recommend or oppose or interfere with the solicitation of proxies for Portfolio shares held to fund the Variable Insurance Products without the prior written consent of the Fund, which consent may be withheld in the Fund's sole discretion. 2.10 The Fund and Adviser shall pay no fee or other compensation to Minnesota Life under this Agreement except as provided on Schedule C, if attached. Nevertheless, the Fund or the Adviser or an affiliate may make payments (other than pursuant to a Rule 12b-1 Plan) to Minnesota Life or its affiliates in amounts agreed to by the Adviser in writing and such payments may be made out of fees otherwise payable to the Adviser or its affiliates, profits of the Adviser or its affiliates, or other resources available to the Adviser or its affiliates. 6 ARTICLE III. REPRESENTATIONS AND WARRANTIES 3.1 Minnesota Life represents and warrants that it is an insurance company duly organized and in good standing under the laws of the State of Minnesota and that it has legally and validly established each Account as a segregated asset account under such law as of the date set forth in Schedule A. 3.2 Minnesota Life represents and warrants that it has registered or, prior to any issuance or sale of the Variable Insurance Contract(s), will register each Account as a unit investment trust in accordance with the provisions of the 1940 Act to serve as a segregated asset account for the Variable Insurance Products, unless an exemption from registration is available. 3.3 Minnesota Life represents and warrants that the Variable Insurance Products will be registered under the 1933 Act, unless an exemption from registration is available, prior to any issuance or sale of the Variable Insurance Products; the Variable Insurance Products will be issued and sold in compliance in all material respects with all applicable federal and state laws; and the sale of the Variable Insurance Products shall comply in all material respects with state insurance suitability requirements. 3.4 Minnesota Life represents and warrants that all of its directors, officers, employees, investment advisers, and other individuals or entities dealing with the money and/or securities are and shall be at all times covered by a blanket fidelity bond or similar coverage in an amount not less than $5 million. The aforesaid bond shall include coverage for larceny and embezzlement and shall be issued by a reputable bonding company. Minnesota Life agrees to make all reasonable efforts to see that this bond or another bond containing these provisions is always in effect, and agrees to notify the Fund and the Adviser in the event that such coverage no longer applies. 3.5 The Fund represents and warrants that it is duly organized and validly existing under the laws of the State of Minnesota and that it does and will comply in all material respects with the 1940 Act and the rules and regulations thereunder and with the diversification rules applicable to the Fund and its Portfolios under Subchapter M of the Internal Revenue Code of 1986, as amended (hereinafter "Code"). 3.6 The Fund represents and warrants that the Portfolio shares (or any Class thereof) offered and sold pursuant to this Agreement will be registered under the 1933 Act and the Fund shall be registered under the 1940 Act prior to and at the time of any issuance or sale of such shares. The Fund shall amend its registration statement under the 1933 Act and the 1940 Act from time to time as required in order to effect the continuous offering of its shares. The Fund shall register and qualify its shares for sale in accordance with the laws of the various states only if and to the extent deemed advisable by the Fund or the Adviser. 3.7 The Fund represents and warrants that it is currently qualified as a "regulated investment company" under Subchapter M of the Code, that it will make every effort to maintain such qualification and will notify Minnesota Life immediately upon having a reasonable basis for believing it has ceased to so qualify or might not so qualify in the future. 7 3.8 The Fund and its Adviser each represents and warrants that the investment advisory or management fees paid to the Adviser are legitimate and not excessive and are derived from an advisory contract which does not result in a breach of fiduciary duty. 3.9 The Fund represents and warrants that should it ever desire to make any payments to finance distribution expenses pursuant to Rule 12b-1 under the 1940 Act, the Directors, including a majority who are not "interested persons" of the Fund under the 1940 Act ("disinterested Directors"), will formulate and approve any plan under Rule 12b-1 to finance distribution expenses. To the extent that any Class of the Fund may finance its distribution expenses pursuant to a Plan adopted under Rule 12b-1, the Fund undertakes to comply with any then current SEC and SEC staff interpretations concerning Rule 12b-1 or any successor provisions. 3.10 The Fund represents and warrants that it, its directors, officers, employees and others dealing with the money or securities, or both, of a Portfolio shall at all times be covered by a blanket fidelity bond or similar coverage for the benefit of the Fund in an amount not less than the minimum coverage required by Rule 17g-1 or other regulations under the 1940 Act. Such bond shall include coverage for larceny and embezzlement and be issued by a reputable bonding company. 3.11 The Adviser represents and warrants that it is duly organized and validly existing under the laws of the State of Minnesota and that it is currently registered and will, during the term of this Agreement, remain registered as an investment adviser under the Advisers Act. ARTICLE IV. POTENTIAL CONFLICTS 4.1 The parties acknowledge that a Portfolio's shares may be made available for investment to other Participating Insurance Companies. In such event, the Directors will monitor the Fund for the existence of any material irreconcilable conflict between the interests of the contract owners of all Participating Insurance Companies. An irreconcilable material conflict may arise for a variety of reasons, including: (a) an action by any state insurance regulatory authority; (b) a change in applicable federal or state insurance, tax, or securities laws or regulations, or a public ruling, private letter ruling, no-action or interpretative letter, or any similar action by insurance, tax, or securities regulatory authorities; (c) an administrative or judicial decision in any relevant proceeding; (d) the manner in which the investments of any Portfolio are being managed; (e) a difference in voting instructions given by variable annuity contract and variable life insurance contract owners; or (f) a decision by an insurer to disregard the voting instructions of contract owners. The Fund shall promptly inform Minnesota Life of any determination by the Directors that an irreconcilable material conflict exists and of the implications thereof. 4.2 Minnesota Life agrees to promptly report any potential or existing conflicts of which it is aware to the Directors. Minnesota Life will assist the Directors in carrying out their responsibilities under the Mixed and Shared Funding Exemptive Order by providing the Directors with all information reasonably necessary for the Directors to consider any issues raised including, but not limited to, information as to a decision by Minnesota Life to disregard 8 contract owner voting instructions. All communications from Minnesota Life to the Directors may be made in care of the Fund. 4.3 If it is determined by a majority of the Directors, or a majority of the disinterested Directors, that a material irreconcilable conflict exists that affects the interests of contract owners, Minnesota Life shall, in cooperation with other Participating Insurance Companies whose contract owners are also affected, at its own expense and to the extent reasonably practicable take whatever steps are necessary to remedy or eliminate the irreconcilable material conflict. 4.4 If a material irreconcilable conflict arises because of a decision by Minnesota Life to disregard contract owner voting instructions and that decision represents a minority position or would preclude a majority vote, Minnesota Life may be required, at the Fund's election, to withdraw the affected Account's investment in the Fund and terminate this Agreement with respect to such Account; provided, however, that such withdrawal and termination shall be limited to the extent required by the foregoing material irreconcilable conflict as determined by a majority of the disinterested Directors. Any such withdrawal and termination must take place within six (6) months after the Fund gives written notice that this provision is being implemented. Until the end of such six (6) month period, the Fund shall continue to accept and implement orders by Minnesota Life for the purchase and redemption of shares of the Fund. 4.5 If a material irreconcilable conflict arises because a particular state insurance regulator's decision applicable to Minnesota Life conflicts with a majority of other state regulators to which Minnesota Life is subject, then Minnesota Life will withdraw the affected Account's investment in the Fund and terminate this Agreement with respect to such Account within six (6) months after the Directors inform Minnesota Life in writing it has determined that such decision has created an irreconcilable material conflict; provided, however, that such withdrawal and termination shall be limited to the extent required by the foregoing material irreconcilable conflict as determined by a majority of the disinterested Directors. Until the end of such six (6) month period, the Fund shall continue to accept and implement orders by Minnesota Life for the purchase and redemption of shares of the Fund. 4.6 For purposes of Sections 4.3 through 4.6 of this Agreement, a majority of the disinterested Directors shall determine whether any proposed action adequately remedies any irreconcilable material conflict, but in no event will the Fund be required to establish a new funding medium for the Variable Insurance Products. In the event that the disinterested Directors determine that any proposed action does not adequately remedy any irreconcilable material conflict, then Minnesota Life will withdraw the Account's investment in the Fund and terminate this Agreement within six (6) months after the Directors inform Minnesota Life in writing of the foregoing determination; provided, however, that such withdrawal and termination shall be limited to the extent required by any such material irreconcilable conflict as determined by a majority of the disinterested Directors. 4.7 Minnesota Life shall at least annually submit to the Directors such reports, materials or data as the Directors may reasonably request so that the Directors may fully carry out the duties imposed upon them by the Mixed and Shared Funding Exemptive Order, and said reports, materials and data shall be submitted more frequently if reasonably deemed appropriate by the Directors. 9 4.8 If and to the extent that Rule 6e-2 is amended, or similar rule is adopted, so as to provide exemptive relief from any provision of the 1940 Act or the rules promulgated thereunder with respect to mixed funding (as defined in the Mixed and Shared Funding Exemptive Order) on terms and conditions materially different from those contained in the Mixed and Shared Funding Exemptive Order, then the Fund and/or the Participating Insurance Companies, as appropriate, shall take such steps as may be necessary to comply with Rule 6e-2, as amended, or any other rule, as adopted, to the extent such rules are applicable. ARTICLE V. DIVERSIFICATION AND QUALIFICATION 5.1 Both the Fund and the Adviser each represent and warrant that the Fund will at all times sell the share of each Series and invest the assets of each Series in such a manner as to ensure that the Variable Insurance Products will be treated as life insurance or annuity contracts, as the case may be, under the Code and the regulations issued thereunder. Without limiting the scope of the foregoing, each of the Fund and the Adviser represent and warrant that the Fund and each Portfolio thereof will at all times comply with Section 817(h) of the Code and Treasury Regulation Section 1.817-5, as amended from time to time, and any Treasury interpretations thereof, relating to the diversification requirements for variable annuity, endowment, or life insurance contracts and any amendments or other modifications or successor provisions to such Section or Regulations. The Fund and the Adviser agree that shares of the Fund's Portfolios (or any Class thereof) will be sold only to Participating Insurance Companies and their separate accounts and to certain qualified pension and retirement plans to the extent permitted by the Mixed and Shared Funding Exemptive Order. No shares of any Fund's Portfolios (or any Class thereof) will be sold to the general public. 5.2 The Fund represents that it will not be subject to federal income taxation under current laws and regulations, consistent with the provisions of Subchapter M of the Code. 5.3 The Fund or the Adviser will notify the Insurer immediately upon having a reasonable basis for believing that the Fund or any Portfolio has ceased to comply with the aforesaid Section 817(h) diversification requirements or might not so comply in the future. 5.4 Each of the Fund and the Adviser acknowledges that full compliance with the requirements referred to in Sections 5.1 and 5.2 hereof is absolutely essential because any failure to meet those requirements would result in the Variable Insurance Products not being treated as life insurance or annuity contracts, as the case may be, for federal income tax purposes, which would have adverse tax consequences for Contract owners and could also adversely affect Minnesota Life's corporate tax liability. Each of the Fund and the Adviser also acknowledges that it is solely within its power and control to meet those requirements. Accordingly, without in any way limiting the effect of Section 8.2 hereof and without in any way limiting or restricting any other remedies available to Minnesota Life, the Adviser will pay all costs associated with or arising out of any failure, or any anticipated or reasonably foreseeable failure, of the Fund or any Portfolio to comply with Sections 5.1 or 5.2 hereof, including all costs associated with correcting or responding to any such failure; such costs may include, but are not limited to, the costs involved in creating and organizing a new investment company as a funding medium for the 10 Variable Insurance Products and/or the costs of obtaining whatever regulatory authorizations are required to substitute shares of another investment company for those of the failed Portfolio; such costs to include, but are not limited to, fees and expenses of legal counsel and other advisers to Minnesota Life and any federal income taxes or tax penalties incurred by Minnesota Life or its contract owners in connection with any such failure or anticipated or reasonably foreseeable failure. 5.5 Within 45 days of the close of each calendar quarter, the Fund shall provide Minnesota Life or its designee with a certification of compliance with the aforesaid Section 817(h) diversification and Code qualification requirements, in substantially the form attached hereto as Schedule D, provided, however, that providing such certification does not relieve the Fund or the Adviser of its responsibility for such compliance or of liability for any non-compliance. ARTICLE VI. INDEMNIFICATION 6.1 Indemnification by Minnesota Life (a) Minnesota Life agrees to indemnify and hold harmless the Fund and each of its Directors, officers, employees and each person, if any, who controls the Fund within the meaning of Section 15 of the 1933 Act (collectively, the "Indemnified Parties" and individually the "Indemnified Party" for purposes of this Article VI) against any an all losses, claims, damages, liabilities (including amounts paid in settlement with the written consent of Minnesota Life, which consent shall not be unreasonably withheld) or expenses (including the reasonable costs of investigating or defending any alleged loss, claim, damage, liability or expense and reasonable legal counsel fees incurred in connection therewith) (collectively, "Losses"), to which the Indemnified Parties may become subject under any statute or regulation, or at common law or otherwise, insofar as such Losses are related to the sale or acquisition of Fund Shares or the Variable Insurance Products and: (i) arise out of or are based upon any untrue statements or alleged untrue statements of any material fact contained in a registration statement or prospectus for the Variable Insurance Products or in the Variable Insurance Products themselves or in sales literature generated by Minnesota Life on behalf of the Variable Insurance Products or Accounts (or any amendment or supplement to any of the foregoing) (collectively, "Company Documents" for the purposes of this Article VI), or arise out of or are based upon the omission or the alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, provided that this indemnity shall not apply as to any Indemnified Party if such statement or omission or such alleged statement or omission was made in reliance upon and was accurately derived from written information furnished to Minnesota Life by or on behalf of the Fund for use in Company Documents or otherwise for use in connection with the sale of the Variable Insurance Products or Fund shares; or 11 (ii) arise out of or result from written statements or representations (other than statements or representations contained in and accurately derived from Fund Documents as defined in Section 6.2 (a)(i)) or wrongful conduct of Minnesota Life or persons under its control, with respect to the sale or acquisition of the Variable Insurance Products or Fund shares; or (iii) arise out of or result from any untrue statement or alleged untrue statement of a material fact contained in Fund Documents as defined in Section 6.2(a)(i) or the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading if such statement or omission was made in reliance upon and accurately derived from written information furnished to the Fund by or on behalf of Minnesota Life; or (iv) arise out of or result from any failure by Minnesota Life to provide the services or furnish the materials required under the terms of this Agreement; or (v) arise out of or result from any material breach of any representation and/or warranty made by Minnesota Life in this Agreement or arise out of or result from any other material breach of this Agreement by Minnesota Life. (b) Minnesota Life shall not be liable under this indemnification provision with respect to any Losses to which an Indemnified Party would otherwise be subject by reason of such Indemnified Party's willful misfeasance, bad faith, or gross negligence in the performance of such Indemnified Party's duties or by reason of such Indemnified Party's reckless disregard of obligations and duties under this Agreement. Minnesota Life shall also not be liable under this indemnification provision with respect to any claim made against an Indemnified Party unless such Indemnified Party shall have notified Minnesota Life in writing within a reasonable time after the summons or other first legal process giving information of the nature of the claim shall have been served upon such Indemnified Party (or after such Indemnified Party shall have received notice of such service on any designated agent), but failure to notify Minnesota Life of any such claim shall not relieve Minnesota Life from any liability which it may have to the Indemnified Party against whom such action is brought otherwise than on account of this indemnification provision. Minnesota Life also shall be entitled to assume the defense thereof, with counsel satisfactory to the party named in the action. After notice from Minnesota Life to such party of Minnesota Life's election to assume the defense thereof, the Indemnified Party shall bear the fees and expenses of any additional counsel retained by it, and Minnesota Life will not be liable to such party under this Agreement for any legal or other expenses subsequently incurred by such party independently in connection with the defense thereof other than reasonable costs of investigation. (c) The Indemnified Parties will promptly notify Minnesota Life of the commencement of any litigation or proceedings against them or their officers and directors in connection with the issuance or sale of the Fund shares or the Variable Insurance Products or the operation of the Fund. 12 6.2 Indemnification by the Adviser (a) The Adviser agrees to indemnify and hold harmless Minnesota Life and each of its Directors, officers, employees and each person, if any, who controls Minnesota Life within the meaning of Section 15 of the 1933 Act (collectively, the "Indemnified Parties" and individually an "Indemnified Party" for purposes of this Section 6.2) against any and all losses, claims, damages, liabilities (including amounts paid in settlement with the written consent of the Adviser, which consent shall not be unreasonably withheld) or expenses (including the reasonable costs of investigating or defending any alleged loss, claim, damage, liability or expense and reasonable legal counsel fees incurred in connection therewith) (collectively, "Losses") to which the Indemnified Parties may become subject under any statute, at common law or otherwise, insofar as such Losses are related to the sale or acquisition of the Fund's Shares or the Variable Insurance Products and: (i) arise out of or are based upon any untrue statements or alleged untrue statements of any material fact contained in the Registration Statement, prospectus or sales literature of the Fund (or any amendment or supplement to any of the foregoing) (collectively, the "Fund Documents") or arise out of or are based upon the omission or the alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, provided that this agreement to indemnify shall not apply as to any Indemnified Party if such statement or omission of such alleged statement or omission was made in reliance upon and in conformity with information furnished to the Adviser or Fund by or on behalf of Minnesota Life for use in the Registration Statement or prospectus for the Fund or in sales literature (or any amendment or supplement) or otherwise for use in connection with the sale of the Variable Insurance Products or Fund shares; or (ii) arise out of or as a result of written statements or representations (other than statements or representations contained and accurately derived from the registration statement, prospectus or sales literature for the Variable Insurance Products) or wrongful conduct of the Fund, Adviser or persons under their control, with respect to the sale or distribution of the Variable Insurance Variable Insurance Products or Fund shares; or (iii) arise out of any untrue statement or alleged untrue statement of a material fact contained in a registration statement, prospectus or sales literature covering the Variable Insurance Products, or any amendment thereof or supplement thereto, or the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statement or statements therein not misleading, if such statement or omission was made in reliance upon information furnished to Minnesota Life by or on behalf of the Fund; or (iv) arise as a result of any failure by the Fund or Adviser to provide the services and furnish the materials under the terms of this Agreement (including a failure, whether unintentional or in good faith or otherwise, to comply with the qualification representation specified in Section 5.2 of this Agreement and the diversification requirements specified in Section 5.1 of this Agreement); or 13 (v) arise out of or result from any material breach of any representation and/or warranty made by the Adviser in this Agreement or arise out of or result from any other material breach of this Agreement by the Adviser, as limited by and in accordance with the provisions of Sections 5.2(b) and 5.2(c) hereof. (b) The Adviser shall not be liable under this indemnification provision with respect to any Losses to which an Indemnified Party would otherwise be subject to reason of such Indemnified Party's willful misfeasance, bad faith, or gross negligence in the performance of such Indemnified Party's duties or by reason of such Indemnified Party's reckless disregard of obligations and duties under this Agreement or to Minnesota Life or the Account, whichever is applicable. (c) The Adviser shall not be liable under this indemnification provision with respect to any claim made against an Indemnified Party unless such Indemnified Party shall have notified the Adviser in writing within a reasonable time after the summons or other first legal process giving information of the nature of the claim shall have been served upon such Indemnified Party (or after such Indemnified Party shall have received notice of such service on any designated agent), but failure to notify the Adviser of any such claim shall not relieve the Adviser from any liability which it may have to the Indemnified Party against whom such action is brought otherwise than on account of this indemnification provision. In case any such action is brought against the Indemnified Parties, the Adviser will be entitled to participate at its own expense, in the defense thereof. The Adviser also shall be entitled to assume the defense thereof, with counsel satisfactory to the party named in the action. After notice from the Adviser to such party of the Adviser's election to assume the defense thereof, the Indemnified Party shall bear the expenses of any additional counsel retained by it, and the Adviser will not be liable to such party under this Agreement for any legal or other expenses subsequently incurred by such party independently in connection with the defense thereof other than reasonable costs of investigation. (d) Minnesota Life agrees promptly to notify the Adviser of the commencement of any litigation or proceedings against it or any of its officers or directors in connection with the issuance or sale of the Variable Insurance Products or the operation of each Account. 6.3 Indemnification by the Fund (a) The Fund agrees to indemnify and hold harmless Minnesota Life, and each of its directors and officers and each person, if any, who controls Minnesota Life within the meaning of Section 15 of the 1933 Act (collectively, the "Indemnified Parties" for purposes of this Section 5.3) against any and all losses, claims, damages, liabilities (including amounts paid in settlement with the written consent of the Fund, which consent shall not be unreasonably withheld) or litigation (including legal and other expenses) to which the Indemnified Parties may become subject under any statute, at common law or otherwise, insofar as such losses, claims, damages, liabilities or expenses (or actions in respect thereof) or settlements result from the gross negligence, bad faith or willful misconduct of the Board or any member thereof, are related to the operations of the Fund, and arise out of or result from any material breach of any representation and/or warranty made by the Fund in this Agreement or arise out of or result from any other material breach of this Agreement by the Fund; as limited by and in accordance with 14 the provisions of Section 5.3(b) and 5.3(c) hereof. It is understood and expressly stipulated that neither the holders of shares of the Fund nor any Director, officer, agent or employee of the Fund shall be personally liable hereunder, nor shall any resort to be had to other private property for the satisfaction of any claim or obligation hereunder, but the Fund only shall be liable. (b) The Fund shall not be liable under this indemnification provision with respect to any losses, claims, damages, liabilities or litigation incurred or assessed against any Indemnified Party as such may arise from such Indemnified Party's willful misfeasance, bad faith, or gross negligence in the performance of such Indemnified Party's duties or by reason of such Indemnified Party's reckless disregard of obligations and duties under this Agreement to Minnesota Life or the Account, whichever is applicable. (c) The Fund shall not be liable under this indemnification provision with respect to any claim made against an Indemnified Party unless such Indemnified Party shall have notified the Fund in writing within a reasonable time after the summons or other first legal process giving information of the nature of the claims shall have been served upon such Indemnified Party (or after such Indemnified Party shall have received notice of such service on any designated agent), but failure to notify the Fund of any such claim shall not relieve the Fund from any liability which it may have to the Indemnified Party against whom such action is brought otherwise than on account of this indemnification provision. In case any such action is brought against the Indemnified Parties, the Fund will be entitled to participate, at its own expense, in the defense thereof. The Fund also shall be entitled to assume the defense thereof, with counsel satisfactory to the party named in the action. After notice from the Fund to such party of the Fund's election to assume the defense thereof, the Indemnified Party shall bear the fees and expenses of any additional counsel retained by it, and the Fund will not be liable to such party under this Agreement for any legal or other expenses subsequently incurred by such party independently in connection with the defense thereof other than reasonable costs of investigation. (d) Minnesota Life and the Adviser agree promptly to notify the Fund of the commencement of any litigation or proceedings against it or any of its respective officers or directors in connection with this Agreement, the issuance or sale of the Variable Insurance Products, with respect to the operation of either the Account, or the sale or acquisition of share of the Fund. ARTICLE VII. TERMINATION 7.1 This Agreement may be terminated by any party in its entirety or with respect to one, some or all Portfolios for any reason by sixty (60) days advance written notice delivered to the other parties, and shall terminate immediately in the event of its assignment, as that term is used in the 1940 Act. 7.2 This Agreement may be terminated immediately by either the Fund or the Adviser following consultation with the Directors upon written notice to Minnesota Life: 15 (a) if either one or both of the Fund or the Adviser respectively, shall determine, in their sole judgment exercised in good faith, that Minnesota Life has suffered a material adverse change in its business, operations, financial condition or prospects since the date of this Agreement; or (b) if Minnesota Life gives the Fund and the Adviser the written notice specified in Section 1.10 hereof and at the same time such notice was given there was no notice of termination outstanding under any other provision of this Agreement; provided, however, that any termination under this Section 7.2(b) shall be effective forty-five (45) days after the notice specified in Section 1.10 was given. 7.3 This Agreement may be terminated immediately by Minnesota Life upon written notice to the Fund and the Adviser, if Minnesota Life shall determine, in its sole judgment exercised in good faith, that either the Fund or the Adviser has suffered a material adverse change in its business, operations, financial conditions or prospects since the date of this Agreement or is the subject of material adverse publicity. 7.4 If this Agreement is terminated for any reason, except under Article IV (Potential Conflicts) above, the Fund shall, at the option of Minnesota Life, continue to make available additional shares of any Portfolio and redeem shares of any Portfolio pursuant to all of the terms and conditions of this Agreement for all Variable Insurance Products in effect on the effective date of termination of this Agreement (hereinafter "Existing Contracts"). Specifically without limitation the owners of the Existing Contracts shall be permitted to reallocate investments in the Fund, redeem investments in the Fund, and/or invest in the Fund upon the making of additional purchase payments under the Existing Contracts. The parties agree that this Section 7.4 shall not apply to any terminations pursuant to Article IV, and that the provisions of Article IV shall govern. 7.5 The provisions of Articles III (Representations and Warranties) and VI (Indemnification) shall survive the termination of this Agreement. All other applicable provisions of this Agreement shall survive the termination of this Agreement, as long as shares of the Fund are held on behalf of contract owners in accordance with Section 7.4, except that the Fund and the Adviser shall have no further obligation to sell Fund shares with respect to Variable Insurance Products issued after termination. 7.6 Minnesota Life shall not redeem Fund shares attributable to the Variable Insurance Products except (i) as necessary to implement contract owner initiated or approved transactions, (ii) as required by state and/or federal laws or regulations or judicial or other legal precedent of general application (hereinafter referred to as a "Legally Required Redemption"), or (iii) as permitted by an order of the Commission pursuant to Section 26(b) of the 1940 Act. Upon request, Minnesota Life will promptly furnish to the Fund and the Adviser the opinion of counsel for Minnesota Life (which counsel shall be reasonably satisfactory to the Fund and the Adviser) to the effect that any redemption pursuant to clause (ii) above is a Legally Required Redemption. Furthermore, except in cases where permitted under the terms of the Variable Insurance Products, Minnesota Life shall not prevent contract owners from allocating payments to a Portfolio that was otherwise available under the Variable Insurance Products without first giving the Fund or the Adviser ninety (90) days notice of its intention to do so. 16 ARTICLE VIII. NOTICES Any notice shall be sufficiently given when sent by registered or certified mail to the other party at the address of such party set forth below or at such other address as such party may from time to time specify in writing to the other party. If to the Fund or the Adviser: Advantus Capital Management, Inc. 400 Robert Street North St. Paul, Minnesota 55101-2098 Attention: President If to Minnesota Life: Minnesota Life Insurance Company 400 Robert Street North St. Paul, Minnesota 55101-2098 Attention: President ARTICLE IX. COMPLIANCE WITH ANTI-MONEY LAUNDERING LAWS AND REGULATIONS 9.1 Minnesota Life agrees to comply with any and all laws, regulations, and other requirements relating to money laundering, including, without limitation, the International Money Laundering Abatement and Anti-Terrorist Financing Act of 2001 (Title III of the USA Patriot Act), hereinafter, collectively with the rules, regulations and orders promulgated thereunder, the "Act," and any requirements and/or requests in connection therewith, made by regulatory authorities, the Fund or the Fund's underwriter or their duly appointed agents, either generally or in respect of a specific transaction, and/or in the context of a "primary money laundering concern" as defined in the Act. 9.2 Minnesota Life agrees as a condition precedent to any transaction taking or continuing to be in effect, to comply with any and all anti-money laundering laws, regulations, orders or requirements, and without prejudice to the generality of the above, to provide regulatory authorities, the Fund, the Fund's underwriter or their duly appointed agents, with all necessary reports and information for them to fulfill their obligations, if any, under the Act for the purposes of the Fund, the Fund's underwriter, or other third parties complying with any and all anti-money laundering requirements, including, without limitation, the enhanced due diligence obligations, imposed by the Act, the filing of Currency Transaction Reports and/or of Suspicious Activity Reports obligations required by the Act, and/or the sharing of information requirements imposed by the Act. 17 9.3 In the event satisfactory reports and information are not received within a reasonable time period from the date of the request, the Fund or the Fund's underwriter reserve the right to reject any transaction. 9.4 Further, Minnesota Life represents that it has not received notice of, and to its knowledge, there is no basis for, any claim, action, suit, investigation or proceeding that might result in a finding that Minnesota Life is not or has not been in compliance with the Act, and the rules and regulations promulgated thereunder. Minnesota Life agrees to notify the Fund and the Fund's underwriter promptly if the representation in the previous sentence is no longer true or if Minnesota Life has a reasonable basis for believing that such representation may no longer be true. ARTICLE X. MISCELLANEOUS 10.1 The captions in this Agreement are included for convenience of reference only and in no way define or delineate any of the provisions hereof or otherwise affect their construction or effect. 10.2 This Agreement may be executed simultaneously in two or more counterparts, each of which taken together shall constitute one and the same instrument. 10.3 If any provision of this Agreement shall be held or made invalid by a court decision, statute, rule or otherwise, the remainder of the Agreement shall not be affected thereby. 10.4 This Agreement shall be construed and the provisions hereof interpreted under and in accordance with the laws of the State of Minnesota. It shall also be subject to the provisions of the federal securities laws and the rules and regulations thereunder and to any orders of the Commission granting exemptive relief therefrom and the conditions of such orders. Copies of any such orders shall be promptly forwarded by the Fund to Minnesota Life. 10.5 The parties to this Agreement acknowledge and agree that all liabilities of the Fund arising, directly or indirectly, under this Agreement, of any and every nature whatsoever, shall be satisfied solely out of the assets of the Fund and that no director, officer, agent or holder of shares of beneficial interest of the Fund shall be personally liable for any such liabilities. 10.6 Each party shall cooperate with each other party and all appropriate governmental authorities (including without limitation the Commission, the National Association of Securities Dealers, Inc. and state insurance regulators) and shall permit such authorities reasonable access to its books and records in connection with any investigation or inquiry relating to this Agreement or the transactions contemplated hereby. 10.7 The rights, remedies and obligations contained in this Agreement are cumulative and are in addition to any and all rights, remedies and obligations, at law or in equity, which the parties hereto are entitled to under state and federal laws. 18 10.8 The parties of this Agreement acknowledge and agree that this Agreement shall not be exclusive in any respect, except as provided in Section 1.10. 10.9 No provisions of this Agreement may be amended or modified in any manner except by a written agreement properly authorized and executed by all parties. IN WITNESS WHEREOF, the parties have caused their duly authorized officers to execute this Participation Agreement as of the date and year first above written. Minnesota Life: Minnesota Life Insurance Company By its authorized officer By: /s/ Robert L. Senkler ------------------------------------ Name: Robert L. Senkler Title: President and Chief Executive Officer The Fund: Advantus Series Fund, Inc. By its authorized officer By: /s/ Gregory S. Strong ------------------------------------ Name: Gregory S. Strong Title: President The Adviser: Advantus Capital Management, Inc. By its authorized officer By: /s/ Robert L. Senkler ------------------------------------ Name: Robert L. Senkler Title: President 19 SCHEDULE A SEPARATE ACCOUNTS OF MINNESOTA LIFE INSURANCE COMPANY 1. Variable Annuity Account 2. Variable Fund D 3. Minnesota Life Variable Life Account 4. Group Variable Annuity Account 5. Minnesota Life Variable Universal Account 6. Group Variable Universal Life Account 7. Variable Universal Life Account II 8. Variable Universal Life Account III 9. Variable Universal Life Account IV 10. Variable Universal Life Account V 11. Variable Universal Life Account VI 12. Minnesota Life Individual Variable Universal Life Account A-1 SCHEDULE B FUND PORTFOLIOS AND CLASSES AVAILABLE
INVESTMENT INVESTMENT PORTFOLIO CLASS ADVISER SUB-ADVISER --------- -------- --------------------------------- ------------------------------- Bond I and II Advantus Capital Management, Inc. Money Market Advantus Capital Management, Inc. Mortgage Securities I and II Advantus Capital Management, Inc. Index 500 I and II Advantus Capital Management, Inc. International Bond I and II Advantus Capital Management, Inc. Augustus Asset Managers Limited Maturing Government Bond - 2010 Advantus Capital Management, Inc. Index 400 Mid-Cap I and II Advantus Capital Management, Inc. Real Estate Securities I and II Advantus Capital Management, Inc.
B-1 SCHEDULE C FEES OR OTHER COMPENSATION Pursuant to the Fund's Rule 12b-1 Plan of Distribution, Minnesota Life shall receive 12b-1 fees in connection with this Agreement in such amounts and subject to such terms as are set forth in the separate Fund Shareholder Services Agreement between Minnesota Life and the Fund's distributor, Minnesota Financial Services, Inc. C-1 SCHEDULE D CERTIFICATE OF COMPLIANCE Name of Fund: Advantus Series Fund, Inc. Name of each Portfolio: To: Minnesota Life Insurance Company 400 Robert Street North Saint Paul, Minnesota 55101-2098 Attn: Ms. Kathleen Radcliffe Life Fund Accounting Station Number: A6-5136 We have reviewed compliance of the Fund named above with respect to certain investment diversification requirements for the Fund for the quarter ending, __________, __________. The review was limited to verifying whether the Fund complied with the quarterly diversification requirements described in Section 817(h) of the Internal Revenue Code of 1986, as amended, and the regulations thereunder (the "Section 817(h) Diversification Requirements"). As of _____________, ___________________, the Fund was in compliance with the Section 817(h) Diversification Requirements. Dated: --------------------------------- By: ------------------------------------ Title: --------------------------------- D-1 EX-99.H.4 12 c49473bexv99whw4.txt EX-99.H.4 INVESTMENT ACCOUNTING AGREEMENT THIS AGREEMENT is made effective the 10th day of January, 2003, by and between STATE STREET BANK AND TRUST COMPANY, a trust company chartered under the laws of the commonwealth of Massachusetts, having its principal office and place of business at 225 Franklin Street, Boston, Massachusetts 02110 ("STATE STREET"), and ADVANTUS SERIES FUND, INC., a Minnesota corporation having its principal office and place of business at 400 Robert Street North, St. Paul, Minnesota, 55101-2098 ("FUND"). WITNESSETH: WHEREAS, Fund desires to appoint State Street as its agent to perform certain investment company accounting and recordkeeping functions for the investment securities, other non-cash investment properties, and monies (the "ASSETS") of the Fund's investment portfolio or portfolios (each a "PORTFOLIO", and collectively the "PORTFOLIOS") listed on Schedule A hereto, as it may be amended from time to time, incorporated herein by reference; and WHEREAS, State Street is willing to accept such appointment on the terms and conditions hereinafter set forth; and WHEREAS, Fund has retained Advantus Capital Management, Inc. (the "Investment Adviser") to provide investment advisory services to the Fund; NOW THEREFORE, for and in consideration of the mutual promises contained herein, the parties hereto, intending to be legally bound, mutually covenant and agree as follows: SECTION 1 APPOINTMENT OF AGENT. Fund hereby appoints State Street as its agent to perform certain investment company accounting and recordkeeping functions relating to portfolio transactions required of a duly registered investment company under Section 31(a) of the Investment Company Act of 1940, as amended, and the rules and regulations from time to time adopted thereunder (the "1940 ACT") and to calculate the net asset value of each share class of the Fund (a "CLASS") in accordance with the provisions of Section 3 hereof. SECTION 2 REPRESENTATIONS AND WARRANTIES SECTION 2.1 FUND REPRESENTATIONS AND WARRANTIES. Fund hereby represents, warrants and acknowledges to State Street: 1) That it is a corporation duly organized and existing and in good standing under the laws of its state of organization, and that it is registered under the 1940 Act; and 2) That it has the requisite power and authority under the Articles of Incorporation, Bylaws, or other governing documents of Fund ("GOVERNING DOCUMENTS"), and applicable law to enter into this Agreement; it has taken all requisite action necessary to appoint State Street as investment accounting and recordkeeping agent; this Agreement has been duly executed and delivered by Fund; and this Agreement constitutes a legal, valid and binding obligation of Fund, enforceable in accordance with its terms. SECTION 2.2 STATE STREET REPRESENTATIONS AND WARRANTIES. State Street hereby represents, warrants and acknowledges to Fund: 1) That it is a trust company duly organized and existing and in good standing under the laws of the Commonwealth of Massachusetts; and 2) That it has the requisite power and authority under applicable law, its charter and its bylaws to enter into and perform this Agreement; this Agreement has been duly executed and delivered by State Street; and this Agreement constitutes a legal, valid and binding obligation of State Street, enforceable in accordance with its terms. SECTION 3 DUTIES AND RESPONSIBILITIES OF THE PARTIES SECTION 3.1 DELIVERY OF ACCOUNTS AND RECORDS. Each Fund will turn over or cause to be turned over to State Street all accounts and records needed by State Street to perform its duties and responsibilities hereunder fully and properly. State Street shall assist Fund in determining the types of accounts and records needed by State Street to perform its duties and obligations hereunder. State Street may rely conclusively on the completeness and correctness of such accounts and records. SECTION 3.2 ACCOUNTS AND RECORDS. State Street will prepare and maintain, under the direction of and as interpreted by Fund, Fund's accountants and/or other advisors, in complete, accurate and current form such accounts and records: (1) as set forth on Schedule B hereof; (2) required to be maintained by each Fund with respect to portfolio transactions under Section 31(a) of the 1940 Act; (3) required as a basis for calculation of each Fund's net asset value; and (4) as otherwise agreed upon by the parties. Fund will advise State Street in writing of all applicable record retention requirements, other than those set forth in the 1940 Act. State Street will preserve such accounts and records during the term of this Agreement in the manner and for the periods prescribed in the 1940 Act or for such longer period as is agreed upon by the parties. Fund will furnish, in writing or its electronic or digital equivalent, accurate and timely information needed by State Street to complete such accounts and records when such information is not readily available from generally accepted securities industry services or publications. SECTION 3.3 ACCOUNTS AND RECORDS PROPERTY OF FUND. State Street acknowledges that all of the accounts and records maintained by State Street pursuant hereto are the property of Fund, and will be made available to Fund for inspection or reproduction within a reasonable period of time, upon demand. State Street will assist Fund's independent auditors, or upon the prior written approval of Fund, or upon demand, any regulatory body, in any requested review of Fund's accounts and records but Fund will reimburse State Street for all expenses and employee time invested in any such review outside of routine and normal periodic reviews. Upon receipt from Fund of the necessary information or Proper Instructions, State Street will supply information from the books and records it maintains for Fund that Fund may reasonably request for tax returns, questionnaires, periodic reports to shareholders and such other reports and information requests as Fund and State Street may agree upon from time to time. At Fund's expense at an hourly rate per State Street employee as agreed in 2 the fee schedule referenced in Section 6 below, State Street will also provide reasonable assistance to Fund's oversight personnel, and reasonable access to State Street's offices by such personnel, for the purpose of auditing State Street's performance of its duties hereunder, including the systems, disclosure controls and procedures implemented by State Street, but only as they relate to Fund. SECTION 3.4 ADOPTION OF PROCEDURES. State Street and Fund may from time to time adopt such procedures as they agree upon, and State Street may conclusively assume that no procedure approved or directed by Fund, Fund's accountants or other advisors conflicts with or violates any requirements of the governing documents, prospectus, any applicable law, rule or regulation, or any order, decree or agreement by which Fund may be bound. Fund will be responsible for notifying State Street of any changes in statutes, regulations, rules, requirements or Fund policies which may impact State Street responsibilities or procedures under this Agreement. SECTION 3.5 VALUATION OF ASSETS. State Street will value the Assets in accordance with Fund's Proper Instructions utilizing the information sources designated by Fund ("PRICING SOURCES") from time to time on a Price Source and Methodology Authorization Matrix in the form attached as Schedule C. SECTION 3.6 TRAINING. After execution of this Agreement, State Street shall provide initial training to Fund's oversight personnel, at State Street's expense with regard to the person(s) providing such training, on the use of State Street's systems necessary to assist Fund to view its accounting records maintained by State Street. Such training shall be provided at Fund's offices or such other location as the parties may agree. After execution of this Agreement and prior to its termination, upon request from Fund, State Street shall also provide a list of State Street's internal training classes for State Street's employees relating to investment accounting and industry knowledge, and shall provide reasonable access to such classes by Fund's oversight personnel. State Street reserves the right to limit the number of Fund personnel who may enroll in any such class, and to prohibit participation by Fund personnel if their enrollment would bar participation by State Street employees. Fund shall bear all expenses related to the participation of Fund personnel in such classes. SECTION 3.7 MAINTENANCE OF EQUIPMENT, PROCEDURES AND PROGRAMS. State Street agrees that it will maintain: 1) Computer and other equipment necessary or appropriate to carry out its obligations under this Agreement; 2) Commercially reasonable procedures and systems to safeguard from loss or damage attributable to fire, theft or any other cause the records and other data of the Fund; and 3) A commercially reasonable business continuation program and disaster recovery plan. SECTION 4 PROPER INSTRUCTIONS. "PROPER INSTRUCTIONS" means a writing signed or initialed by one or more of such persons as Fund shall have from time to time authorized. Each such writing shall set forth the specific transaction or type of transaction involved, including a specific statement 3 of the purpose for which such action is requested. Oral instructions will be considered Proper Instructions if State Street reasonably believes them to have been given by a person authorized to give such instructions with respect to the transaction involved. Fund shall cause all oral instructions to be confirmed in writing. Proper Instructions may include communications effected directly between electro-mechanical or electronic devices, provided that Fund and State Street agree to security procedures. Fund will deliver to State Street, on or prior to the date hereof and thereafter from time to time as changes therein are necessary, Proper Instructions naming one or more designated representatives to give Proper Instructions in the name and on behalf of Fund, which Proper Instructions may be received and accepted by State Street as conclusive evidence of the authority of any designated representative to act for Fund and may be considered to be in full force and effect until receipt by State Street of notice to the contrary. Unless such Proper Instructions delegating authority to any person to give Proper Instructions specifically limit such authority to specific matters or require that the approval of anyone else will first have been obtained, State Street will be under no obligation to inquire into the right of such person, acting alone, to give any Proper Instructions whatsoever. If Fund fails to provide State Street any such Proper Instructions naming designated representatives, any instructions received by State Street from a person reasonably believed to be an appropriate representative of Fund will constitute valid Proper Instructions hereunder. The term "designated representative" may include Fund's employees and agents, including investment managers and their employees. Fund will provide upon State Street's request a certificate signed by an officer or designated representative of Fund, as conclusive proof of any fact or matter required to be ascertained from Fund hereunder. Fund will also provide State Street Proper Instructions with respect to any matter concerning this Agreement requested by State Street. If State Street reasonably believes that it could not prudently act according to the Proper Instructions, or the instruction or advice of Fund's accountants or counsel, it may in its discretion, with notice to Fund, refrain from acting in accordance therewith. SECTION 5 INDEMNIFICATION AND LIMITATION OF LIABILITY. SECTION 5.1 LIMITATION OF LIABILITY OF STATE STREET. State Street shall be held to the standard of reasonable care in carrying out the provisions of this Agreement. However, State Street is not responsible or liable for, and Fund will indemnify State Street from and against, any and all costs, expenses, losses, damages, charges, reasonable counsel fees (including disbursements), payments and liabilities which may be asserted against or incurred by State Street or for which State Street may be held to be liable, arising out of or attributable to: 1) State Street's action or inaction pursuant hereto; provided that State Street's action or inaction was not the result of its negligence or willful misconduct; 2) State Street's payment of money as requested by Fund, or the taking of any action that might make it or its nominee liable for payment of monies or in any other way; provided, however, that nothing herein obligates State Street to take any such action or expend its own monies except in its sole discretion; 3) State Street's action or inaction hereunder in accordance with any Proper Instruction, advice, notice, request, consent, certificate or other instrument or paper reasonably appearing to it to be genuine and to have been properly executed, including any Proper Instructions, communications, data or other information received by State 4 Street by means of the Systems, as defined in the Remote Access Services Addendum, or any electronic system of communication; 4) State Street's action or inaction in good faith reliance on the advice or opinion of counsel with respect to questions or matters of law, which advice or opinion may be obtained by State Street from counsel for Fund at the expense of Fund, or from counsel for State Street at the expense of State Street, or on the Proper Instruction, advice or statements of any officer or employee of Fund, or Fund's accountants or other authorized individuals; 5) Any error, omission, inaccuracy or other deficiency in the Fund's accounts and records or other information provided to State Street by or on behalf of Fund, including the accuracy of the prices quoted by the Pricing Sources, or the information supplied by Fund to value the Assets, or the failure of Fund to provide, or provide in a timely manner, any accounts, records, or information needed by State Street to perform its duties hereunder; 6) Fund's refusal or failure to comply with the terms hereof (including without limitation Fund's failure to pay or reimburse State Street under Section 5 hereof if, after final adjudication, Fund is found liable to State Street), Fund's negligence or willful misconduct, or the failure of any representation or warranty of Fund hereunder to be and remain true and correct in all respects at all times; 7) Loss occasioned by the acts, omissions, defaults or insolvency of any broker, bank, trust company, securities system or any other person with whom State Street may deal in connection with the services provided under this Agreement. SECTION 5.3 OTHER LIMITATIONS. 1) Neither party shall be liable to the other for consequential, special or punitive damages; and 2) State Street shall not be responsible or liable for the failure or delay in performance of its obligations hereunder, or those of any entity for which it is responsible hereunder, arising out of or caused, directly or indirectly, by circumstances beyond the affected entity's reasonable control, including, without limitation: any interruption, loss or malfunction of any utility, transportation, computer (hardware or software) or communication service; inability to obtain labor, material, equipment or transportation, or a delay in mails; governmental or exchange action, statute, ordinance, rulings, regulations or direction; war, strike, riot, emergency, civil disturbance, terrorism, vandalism, explosions, labor disputes, freezes, floods, fires, tornadoes, acts of God or public enemy, revolutions, or insurrection. SECTION 6 COMPENSATION. In consideration for its services hereunder, the Fund will pay to State Street the compensation set forth in the separate fee schedule described on Schedule D attached hereto, to be agreed to by the Fund and State Street from time to time, and, upon demand, 5 reimbursement for State Street's cash disbursements and reasonable out-of-pocket costs and expenses, incurred by State Street in connection with the performance of services hereunder. SECTION 7 TERM AND TERMINATION. SECTION 7.1 TERM. This Agreement shall remain in full force and effect for an initial term of three (3) years, and thereafter may be renewed for two successive one (1) year terms upon consent by both parties. Thereafter, this Agreement shall automatically continue in full force and effect for subsequent one (1) year terms unless either party terminates this Agreement. SECTION 7.2 TERMINATION. This Agreement may be terminated without penalty in accordance with the following: 1) Either party may terminate this Agreement at the end of the initial term or any subsequent term by providing written notice of termination to the other party at least one hundred eighty (180) days' prior to the end of such term. Notwithstanding the preceding sentence, State Street agrees that it will not terminate this agreement at the end of the initial term solely due to economic considerations relating to the fee schedule agreed to by the parties. 2) In addition, either party may terminate this Agreement at any time if any of the following events occur: a) In the case of a material breach of any obligation under this Agreement by the other party. The non-breaching party shall give written notice to the breaching party specifying the nature of the breach. If the breaching party fails to cure such breach within ninety (90) days after its receipt of written notice, or if such breach cannot be cured within ninety (90) days with reasonable efforts then within a reasonable time after receipt of such notice (provided, however, that the defaulting party promptly commences and diligently pursues efforts to cure), the non-breaching party shall have the right to terminate this Agreement by written notice to the breaching party specifying the date of termination, which shall be not less than ninety (90) days thereafter; or b) In the case of four (4) material breaches of any obligation or obligations under this Agreement by the other party during any consecutive twelve-month period, whether or not such breaches are cured as contemplated in Section 7.2(2)(a). The non-breaching party shall have the right to terminate this Agreement within thirty (30) days after the occurrence of the fourth material breach by written notice to the breaching party specifying the date of termination, which shall be not less than sixty (60) days thereafter; or c) The other party makes an assignment for the benefit of creditors or admits in writing its inability to pay its debts as they become due; or a trustee, receiver or liquidator of such other party or of any substantial part of its assets is appointed, and if appointed in a proceeding brought against such other party, such other party approves, consents to or acquiesces in such appointment, or 6 such trustee, receiver or liquidator is not discharged within sixty (60) days; or any proceedings are commenced by or against such other party under any bankruptcy, reorganization, dissolution, liquidation or supervision law or statute of the United States government or any state government; or d) In the event Fund or a Portfolio is liquidated or agrees to merge with another management investment company or Portfolio and will not be the surviving entity. Fund shall be entitled to terminate this Agreement as to itself if Fund is the entity to be liquidated or merged, or as to such Portfolio if a Portfolio is to be liquidated or merged, upon one hundred eighty (180) days prior written notice to State Street. Termination of this Agreement with respect to any given Portfolio shall in no way affect the continued validity of this Agreement with respect to any other Portfolio; or e) Termination of the separate Administration Agreement between State Street and the Fund. Unless the parties agree otherwise, this Agreement shall terminate automatically upon the date that such Administration Agreement is terminated. Neither party shall have any liability to the other party as a result of a termination of this Agreement pursuant to clause (a), (b), (c), (d) or (e) above or with respect to the unexpired portion of the then-current term of this Agreement, provided, however, that all rights, obligations and liabilities arising or accruing under this Agreement prior to the effective date of termination shall survive such termination. Upon termination hereof: 1) The Fund will pay State Street its fees and compensation due hereunder and its reimbursable disbursements, costs and expenses paid or incurred to such date; 2) The Fund will designate a successor (which may be Fund) by Proper Instruction to State Street; and 3) State Street will, upon payment of all sums due to State Street from the Fund hereunder or otherwise, deliver all accounts and records and other properties of Fund to the successor, or, if none, to the Fund, at State Street's office. Records maintained in electronic form on State Street's systems shall be delivered in machine readable form. In the event that accounts, records or other properties remain in the possession of State Street after the date of termination hereof for any reason other than State Street's failure to deliver the same, State Street is entitled to compensation for storage thereof during such period, and shall be entitled to destroy the same if not removed by the Fund within thirty (30) days after written demand. 7 SECTION 8 GENERAL SECTION 8.1 INTERPRETIVE AND ADDITIONAL PROVISIONS. In connection with the operation hereof, State Street and Fund may from time to time agree on such provisions interpretive of or in addition to the provisions hereof as may in their joint opinion be consistent with the general tenor of this Agreement. Any such interpretive or additional provisions shall be in a writing signed by both parties and shall be annexed hereto, provided that no such interpretive or additional provisions shall contravene any applicable federal or state regulations or any provision of the governing documents. No interpretive or additional provisions made as provided in the preceding sentence shall be deemed to be an amendment of this Agreement. SECTION 8.2 ADDITIONAL PORTFOLIOS. In the event that Fund establishes one or more additional Portfolios, or the Investment Adviser wishes to add one or more additional open-end management investment companies ("NEW FUND"), with respect to which it desires to have State Street render investment company accounting services under the terms hereof, Fund, or the Investment Adviser in the case of a New Fund, shall so notify State Street in writing. Upon written acceptance by State Street, such Portfolio or New Fund shall become subject to the provisions of this Agreement to the same extent as the existing Fund and Portfolios, except to the extent that such provisions (including those relating to the compensation and expenses payable by the Fund and its Portfolios) may be modified with respect to each additional Portfolio or New Fund in writing by the Fund and State Street at the time of the addition of the Portfolio or New Fund. State Street agrees that it will accept additional Portfolios or New Funds provided that (1) the types of securities held by such Portfolios or New Funds, and (2) the services to be provided by State Street hereunder, are substantially the same as the types of securities and services relating to the existing Portfolios and Fund. SECTION 8.3 MASSACHUSETTS LAW TO APPLY. This Agreement shall be construed and the provisions thereof interpreted under and in accordance with laws of The Commonwealth of Massachusetts. SECTION 8.4 NOTICES. Any notice, instruction or other communication authorized or required by this Agreement to be given to either party shall be in writing and deemed to have been given when delivered in person or by confirmed telecopy, or posted by certified mail, return receipt requested, to the following address (or such other address as a party may specify by written notice to the other): To Fund: To State Street: ADVANTUS SERIES FUND, INC. STATE STREET BANK AND TRUST COMPANY 400 Robert Street North 801 Pennsylvania Avenue St. Paul, Minnesota 55101-2098 Kansas City, MO 64105 Attention: Dianne Orbison, President Attention: Senior Vice President, Insurance Services Telephone: 651-665-4512 Telephone: 816-871-4100 Telecopy: 651-223-5959 Telecopy: 816-871-9012
SECTION 8.5 REPRODUCTION OF DOCUMENTS. This Agreement and all schedules, addenda, exhibits, attachments and amendments hereto may be reproduced by any photographic, photostatic, 8 microfilm, micro-card, miniature photographic or other similar process. The parties hereto all/each agree that any such reproduction shall be admissible in evidence as the original itself in any judicial or administrative proceeding, whether or not the original is in existence and whether or not such reproduction was made by a party in the regular course of business, and that any enlargement, facsimile or further reproduction of such reproduction shall likewise be admissible in evidence. SECTION 8.6 REMOTE ACCESS SERVICES ADDENDUM. State Street and Fund agree to be bound by the terms of the Remote Access Services Addendum attached as Schedule E hereto. SECTION 8.7 ASSIGNMENT. Except as otherwise set forth herein, this Agreement may not be assigned by either party without the written consent of the other, except that State Street may assign this Agreement to a successor of all or a substantial portion of its business, or to a party controlling, controlled by or under common control with State Street. State Street shall have the right to delegate and sub-contract for the performance of any or all of its duties hereunder, provided that State Street shall remain responsible for the performance of such duties and all the terms and conditions hereof shall continue to apply as though State Street performed such duties itself, and further provided that State Street provides prior notice of such sub-contract to Fund. SECTION 8.8 COUNTERPARTS. This Agreement may be executed in several counterparts, each of which shall be deemed to be an original, and all such counterparts taken together shall constitute but one and the same Agreement. SECTION 8.9 SEVERABILITY. If any provision in this Agreement is determined to be invalid, illegal, in conflict with any law or otherwise unenforceable, the remaining provisions hereof will be considered severable and will not be affected thereby, and every remaining provision hereof will remain in full force and effect and will remain enforceable to the fullest extent permitted by applicable law. SECTION 8.10 EACH PORTFOLIO A SEPARATE PARTY. Each Portfolio will be regarded for all purposes hereunder as a separate party apart from each other Portfolio. Unless the context otherwise requires, with respect to every transaction covered hereby, every reference herein to Portfolio is deemed to relate solely to the particular Portfolio to which such transaction relates. Under no circumstances will the rights, obligations or remedies with respect to a particular Portfolio constitute a right, obligation or remedy applicable to any other Portfolio. The use of this single document to memorialize the separate agreement as to each Portfolio is understood to be for clerical convenience only and will not constitute any basis for joining the Portfolios for any reason. SECTION 8.11 ENTIRE AGREEMENT. This Agreement and the attached Schedules contain the entire understanding between the parties hereto with respect to the subject matter hereof and supersede all previous representations, warranties or commitments regarding the services to be performed hereunder whether oral or in writing. SECTION 8.12 WAIVER. The failure of a party to insist upon strict adherence to any term of this Agreement on any occasion shall not be considered a waiver nor shall it deprive such party of the right thereafter to insist upon strict adherence to that term or any term of this Agreement. Any waiver must be in writing signed by the waiving party. 9 SECTION 8.13 AMENDMENT. This Agreement may be modified or amended from time to time by mutual written agreement signed by the parties hereto. IN WITNESS WHEREOF, the parties have caused this Agreement to be executed by their respective duly authorized officers. ADVANTUS SERIES FUND, INC. STATE STREET BANK AND TRUST COMPANY By: /s/ Dianne M. Orbison By: /s/ Stephen R. Hilliard --------------------------------- ------------------------------------ Name: Dianne M. Orbison Name: Stephen R. Hilliard Title: President Title: Senior Vice President 10 SCHEDULE A PORTFOLIOS Growth Portfolio Bond Portfolio Money Market Portfolio Asset Allocation Portfolio Mortgage Securities Portfolio Index 500 Portfolio Capital Appreciation Portfolio International Stock Portfolio Small Company Growth Portfolio Maturing Government Bond Portfolios (separate portfolios with maturity dates of 2006 and 2010) Value Stock Portfolio Small Company Value Portfolio Global Bond Portfolio Index 400 Mid-Cap Portfolio Macro-Cap Value Portfolio Micro-Cap Growth Portfolio Real Estate Securities Portfolio 11 SCHEDULE B SERVICES ADVANTUS SERIES FUND PORTFOLIOS FUND ACCOUNTING SERVICES PROVIDED BY VENDOR:
FUNCTION FREQUENCY -------- ----------------- PRICING RECONCILE AND RESOLVE EVENING NAVS DAILY SEND SECURITY PRICES TO ADVANTUS DAILY DETERMINE, CORRECT AND REPORT MATERIAL NAV ERRORS MONTHLY DETERMINE AND REPORT IMMATERIAL NAV ERRORS MONTHLY DETERMINE DAILY ORDINARY DISTRIBUTIONS DAILY DECLARE AND PAY DAILY ORDINARY DISTRIBUTIONS MONTHLY DECLARE AND PAY PERIODIC ORDINARY DISTRIBUTIONS QUARTERLY DECLARE AND PAY PERIODIC CAPITAL GAIN DISTRIBUTIONS ANNUALLY RECONCILE AND RESOLVE CASH BALANCE (REPORT NEGATIVE CASH) DAILY SHAREHOLDER/CONTRACT HOLDER ACCOUNTING RECEIVE SHAREHOLDER ACTIVITY - ADVANTUS SERIES FUND PORTFOLIOS DAILY POST SHAREHOLDER ACTIVITY - ADVANTUS SERIES FUND PORTFOLIOS DAILY RECONCILE SHAREHOLDER ACTIVITY TO ACCOUNTING SYSTEM(S) DAILY SECURITIES ACCOUNTING DETERMINE AND SEND CASH AVAILABLE BALANCES TO ADVANTUS - THIS WILL BE USED TO VERIFY THE INFORMATION ADVANTUS HAS ALREADY PREPARED DAILY PROCESS INCOME/AMORTIZATION TRANSACTIONS DAILY RECONCILE AND RESOLVE PAST DUE RECEIVABLES/PAYABLES WEEKLY RECONCILE AND RESOLVE SECURITIES HELD WITH CUSTODIAN DAILY/MONTHLY SEND SECURITY FILE TO ASSET MANAGER AND SUB-ADVISORS DAILY CANCEL/CORRECT TRADES DAILY AS REQUIRED RECONCILE CAPITAL CHANGES WITH INVESTMENT MANAGER AS REQUIRED ACCOUNT FOR SECURITIES LENDING PROGRAM MONTHLY RECONCILE ACCOUNT BALANCES TO GENERAL LEDGER MONTHLY EXPENSE ACCOUNTING POST EXPENSES AND EXPENSE REIMBURSEMENTS PER AGREED UPON CALCULATIONS DAILY PAYING AND POSTING OF EXPENSES AS INVOICES ARE RECEIVED RECONCILE EXPENSES MONTHLY NEW PRODUCT IMPLEMENTATION SETUP NEW PRODUCTS ON SYSTEM AS REQUIRED COMPLIANCE REPORTING PROVIDE ACCOUNTING DATA REQUIRED BY MINNESOTA LIFE TO COMPLETE COMPLIANCE REPORTING DAILY GENERAL PROVIDE BUSINESS CONTINUATION INFORMATION AS REQUIRED COMPLETE RECORD RETENTION AS AGREED UPON AS REQUIRED PROVIDE ACCESS TO MINNESOTA LIFE DATA AS REQUIRED PROVIDE ALL DATA REQUESTED BY MINNESOTA LIFE TO UPDATE INTERNAL DATA BASES AS REQUIRED
ACCOUNTING SERVICES COMPLETED BY MINNESOTA LIFE:
FUNCTION FREQUENCY -------- ----------------- SECURITIES ACCOUNTING DETERMINE CASH AVAILABILITY DAILY WIRE MONEY PER VENDOR INSTRUCTIONS DAILY TRADE AFFIRMATION DAILY RECONCILE SECURITIES HELD WITH VENDOR DAILY
12 SCHEDULE C PRICE SOURCE AND METHODOLOGY AUTHORIZATION MATRIX 13 SCHEDULE D FEE SCHEDULE 14 SCHEDULE E REMOTE ACCESS SERVICES ADDENDUM To Investment Accounting Agreement by and between State Street Bank and Trust Company and Advantus Series Fund, Inc., dated January 10, 2003 State Street has developed proprietary accounting and other systems, and has acquired licenses for other such systems, which it utilizes in conjunction with the services we provide to you (the "Systems"). In this regard, we maintain certain information in databases under our control and ownership that we make available on a remote basis to our customers (the "Remote Access Services"). The Services. This addendum shall govern use of all Systems that State Street may from time to time agree to provide you, the Customer, and your designated investment advisors, consultants or other third parties authorized by State Street who agree to abide by the terms of this Addendum ("Authorized Designees") in order to provide Remote Access Services for the purpose of obtaining and analyzing reports and information. Security Procedures. You agree to comply, and to cause your Authorized Designees to comply, with remote access operating standards and procedures and with user identification or other password control requirements and other security procedures as may be issued from time to time by State Street for use of the Systems and access to the Remote Access Services. You agree to advise State Street immediately in the event that you learn or have reason to believe that any person to whom you have given access to the Systems or the Remote Access Services has violated or intends to violate the terms of this Addendum and you will cooperate with State Street in seeking injunctive or other equitable relief. You agree to discontinue use of the Systems and Remote Access Services, if requested, for any security reasons cited by State Street. Fees. Fees and charges (if any) for the use of the Systems and the Remote Access Services and related payment terms shall be as set forth in the fee schedule in effect from time to time between the parties (the "Fee Schedule"). You shall be responsible for any tariffs, duties or taxes imposed or levied by any government or governmental agency by reason of the transactions contemplated by this Addendum, including, without limitation, federal, state and local taxes, use, value added and personal property taxes (other than income, franchise or similar taxes which may be imposed or assessed against State Street). Any claimed exemption from such tariffs, duties or taxes shall be supported by proper documentary evidence delivered to State Street. Proprietary Information/Injunctive Relief. The Systems and Remote Access Services and the databases, computer programs, screen formats, report formats, interactive design techniques, formulae, processes, systems, software, know-how, algorithms, programs, training aids, printed materials, methods, books, records, files, documentation and other information made available to you by State Street as part of the Remote Access Services and through the use of the Systems and all copyrights, patents, trade secrets and other proprietary rights of State Street and its relevant licensors related thereto are the exclusive, valuable and confidential property of State Street and its relevant licensors, as applicable (the "Proprietary Information"). You agree on behalf of yourself and your Authorized Designees to keep the Proprietary Information confidential and to limit access to your employees and Authorized Designees (under a similar duty of confidentiality) who require access to the Systems for the purposes intended. The foregoing shall not apply to Proprietary Information in the public domain or required by law to be made public. You agree to use the Remote Access Services only in connection with the proper purposes of this Addendum. You will not, and will cause your employees and Authorized Designees not to, (i) permit any third party to use the Systems or the Remote Access Services, (ii) sell, rent, license or otherwise use the Systems or the Remote Access Services in the operation of a service bureau or for any purpose other than as expressly authorized under this Addendum, (iii) use the Systems or the Remote Access Services for any fund, 15 trust or other investment vehicle without the prior written consent of State Street, or (iv) allow or cause any information transmitted from State Street's databases, including data from third party sources, available through use of the Systems or the Remote Access Services, to be redistributed or retransmitted for other than use for or on behalf of yourself, as our Customer. You agree that neither you nor your Authorized Designees will modify the Systems in any way, enhance or otherwise create derivative works based upon the Systems, nor will you or your Authorized Designees reverse engineer, decompile or otherwise attempt to secure the source code for all or any part of the Systems. You acknowledge that the disclosure of any Proprietary Information, or of any information which at law or equity ought to remain confidential, will immediately give rise to continuing irreparable injury inadequately compensable in damages at law, and that State Street and its licensor, if applicable, shall be entitled to obtain immediate injunctive relief against the breach or threatened breach of any of the foregoing undertakings, in addition to any other legal remedies which may be available. Limited Warranties. State Street represents and warrants that it has the right to grant access to the Systems and to provide the Remote Access Services contemplated herein. Because of the nature of computer information technology, including but not limited to the use of the Internet, and the necessity of relying upon third-party sources, and data and pricing information obtained from third parties, the Systems and Remote Access Services are provided "AS IS", and you and your Authorized Designees shall be solely responsible for the investment decisions, results obtained, regulatory reports and statements produced using the Remote Access Services. State Street and its relevant licensors will not be liable to you or your Authorized Designees for any direct or indirect, special, incidental, punitive or consequential damages arising out of or in any way connected with the Systems or the Remote Access Services, nor shall either party be responsible for delays or nonperformance under this Addendum arising out of any cause or event beyond such party's control. EXCEPT AS EXPRESSLY SET FORTH IN THIS ADDENDUM, STATE STREET FOR ITSELF AND ITS RELEVANT LICENSORS EXPRESSLY DISCLAIMS ANY AND ALL WARRANTIES CONCERNING THE SYSTEM AND THE SERVICES TO BE RENDERED HEREUNDER, WHETHER EXPRESS OR IMPLIED, INCLUDING WITHOUT LIMITATION ANY WARRANTY OF MERCHANTIBILITY OR FITNESS FOR A PARTICULAR PURPOSE. Infringement. State Street will defend or, at our option, settle any claim or action brought against you to the extent that it is based upon an assertion that access to any proprietary System developed and owned by State Street or use of the Remote Access Services through any such proprietary System by you under this Addendum constitutes direct infringement of any United States patent or copyright or misappropriation of a trade secret, provided that you notify State Street promptly in writing of any such claim or proceeding and cooperate with State Street in the defense of such claim or proceeding. Should any such proprietary System or the Remote Access Services accessed thereby or any part thereof become, or in State Street's opinion be likely to become, the subject of a claim of infringement or the like under the patent or copyright or trade secret laws of the United States, State Street shall have the right, at State Street's sole option, to (i) procure for you the right to continue using such System or Remote Access Services, (ii) replace or modify such System or Remote Access Services so that the System or the Remote Access Services becomes noninfringing, or (iii) terminate access to the Remote Access Services without further obligation. Termination. Either party may terminate access to the Remote Access Services (i) for any reason by giving the other party at least one-hundred and eighty (180) days' prior written notice in the case of notice of termination by State Street to you or thirty (30) days' notice in the case of notice from you to State Street of termination, or (ii) immediately for failure of the other party to comply with any material term and condition of the Addendum by giving the other party written notice of termination. In the event of termination, you will return to State Street all Proprietary Information in your possession or in the possession of your Authorized 16 Designees. The foregoing provisions with respect to confidentiality and infringement will survive termination for a period of three (3) years. Miscellaneous. Except as provided in the next sentence, this Addendum constitutes our entire understanding with respect to access to the Systems and the Remote Access Services. If any State Street custody, accounting or other services agreement with you contains terms and conditions relating to computer systems or data access, this Addendum shall constitute an amendment and supplement to them, and in the event of any inconsistency the provisions providing the greatest benefit to State Street shall control. This Addendum cannot be modified or altered except in a writing duly executed by both of us and shall be governed by and construed in accordance with the laws of the Commonwealth of Massachusetts. CONFIRMED AND AGREED: ADVANTUS SERIES FUND, INC. By: /s/ Dianne M. Orbison --------------------------------- Name: Dianne M. Orbison Title: President Date: January 10, 2003 17 EX-99.H.5 13 c49473bexv99whw5.txt EX-99.H.5 ADMINISTRATION AGREEMENT Agreement dated as of January 10, 2003 by and between State Street Bank and Trust Company, a Massachusetts trust company (the "Administrator"), and Advantus Series Fund, Inc. ("Company"). WHEREAS, Company is a Minnesota Corporation, registered as an open-end, management investment company under the Investment Company Act of 1940, as amended (the "1940 Act"); and WHEREAS, Company has retained Advantus Capital Management, Inc. (the "Investment Adviser") to provide investment advisory services to the Company; and WHEREAS, Company desires to retain the Administrator to furnish certain administrative services to the Company, and the Administrator is willing to furnish such services, on the terms and conditions hereinafter set forth. NOW, THEREFORE, in consideration of the premises and mutual covenants herein contained, the parties hereto agree as follows: 1. APPOINTMENT OF ADMINISTRATOR Company hereby appoints the Administrator to act as administrator with respect to the Company for purposes of providing certain administrative services for the period and on the terms set forth in this Agreement. The Administrator accepts such appointment and agrees to render the services stated herein. Company will initially consist of the portfolios and/or class(es) of shares (each an "Investment Fund") listed in Schedule A to this Agreement. In the event that the Company establishes one or more additional Investment Funds with respect to which it wishes to retain the Administrator to act as administrator hereunder, the Company shall notify the Administrator in writing. Upon written acceptance by the Administrator, such Investment Fund shall become subject to the provisions of this Agreement to the same extent as the existing Investment Funds, except to the extent that such provisions (including those relating to the compensation and expenses payable by the Company) may be modified with respect to each additional Investment Fund in writing by the Company and the Administrator at the time of the addition of the Investment Fund. Administrator agrees that it will accept additional Investment Funds provided that (1) the types of securities held by such Investment Funds , and (2) the services to be provided by Administrator hereunder, are substantially the same as the types of securities and services relating to the existing Investment Funds. 2. DELIVERY OF DOCUMENTS Company will promptly deliver to the Administrator copies of each of the following documents and all future amendments and supplements, if any: a. The Company's Articles of Incorporation and by-laws; b. The Company's currently effective registration statement under the Securities Act of 1933, as amended (the "1933 Act"), and the 1940 Act and the Company's Prospectus(es) and Statement(s) of Additional Information relating to all Classes and all amendments and supplements thereto as in effect from time to time; c. Certified copies of the resolutions of the Board of Directors of the Company (the "Board") authorizing the Company to enter into this Agreement; d. A copy of the investment advisory agreement between the Company and its investment adviser; and e. Such other certificates, documents or opinions which the Administrator may, in its reasonable discretion, deem necessary or appropriate in the proper performance of its duties. 3. REPRESENTATIONS AND WARRANTIES OF THE ADMINISTRATOR The Administrator represents and warrants to the Company that: a. It is a Massachusetts trust company, duly organized and existing under the laws of The Commonwealth of Massachusetts; b. It has the corporate power and authority to carry on its business in The Commonwealth of Massachusetts; c. All requisite corporate proceedings have been taken to authorize it to enter into and perform this Agreement; d. No legal or administrative proceedings have been instituted or threatened which would impair the Administrator's ability to perform its duties and obligations under this Agreement; and e. Its entrance into this Agreement shall not cause a material breach or be in material conflict with any other agreement or obligation of the Administrator or any law or regulation applicable to it. 4. REPRESENTATIONS AND WARRANTIES OF THE COMPANY 2 Company represents and warrants to the Administrator that: a. It is a corporation, duly organized, existing and in good standing under the laws of the State of Minnesota; b. It has the corporate power and authority under applicable laws and by its charter and by-laws to enter into and perform this Agreement; c. All requisite proceedings have been taken to authorize it to enter into and perform this Agreement; d. It is an investment company properly registered under the 1940 Act; e. A registration statement under the 1933 Act and the 1940 Act has been filed and will be effective and remain effective during the term of this Agreement. The Company also warrants to the Administrator that as of the effective date of this Agreement, all necessary filings under the securities laws of the states in which the Company offers or sells its shares have been made; f. No legal or administrative proceedings have been instituted or threatened which would impair the Company's ability to perform its duties and obligations under this Agreement; g. Its entrance into this Agreement will not cause a material breach or be in material conflict with any other agreement or obligation of the Company or any law or regulation applicable to it; and h. As of the close of business on the date of this Agreement, the Company is authorized to issue shares of capital stock, and it will initially offer shares, in the authorized amounts as set forth in Schedule B to this Agreement. 5. ADMINISTRATION SERVICES 5.1. Services. The Administrator shall provide the following services, in each case, subject to the control, supervision and direction of the Company and the review and comment by the Company's auditors and legal counsel and in accordance with procedures which may be established from time to time between the Company and the Administrator: a. Prepare the Company's federal, state and local income tax returns for review by the Company's independent accountants and filing by the Company's treasurer; b. Review calculation, submit for approval by officers of the Company and arrange for payment of the Company's expenses; 3 c. Prepare for review and approval by officers of the Company financial information for the Company's semi-annual and annual reports; d. Provide other services and records as agreed upon by the parties. The Administrator shall provide the office facilities and the personnel required by it to perform the services contemplated herein. 5.2 Maintenance of Equipment, Procedures and Programs. Administrator agrees that it will maintain: a. Computer and other equipment necessary or appropriate to carry out its obligations under this Agreement; b. Commercially reasonable procedures and systems to safeguard from loss or damage attributable to fire, theft or any other cause the records and other data of Company; and c. Commercially reasonable business continuation programs and disaster recovery plans. 5.3 Training. In the event that Administrator develops remote look-up capabilities related to its services provided under this Agreement, Administrator agrees that it will, upon request from Company, provide training to Company's oversight personnel necessary to assist Company to view its fund administration records maintained by the Administrator. 6. FEES; EXPENSES; EXPENSE REIMBURSEMENT The Administrator shall receive from the Company such compensation for the Administrator's services provided pursuant to this Agreement as may be agreed to from time to time in a written fee schedule approved by the parties and initially set forth in the separate fee schedule described on Schedule B attached to this Agreement. The fees are accrued daily and billed monthly and shall be due and payable upon receipt of the invoice. Upon the termination of this Agreement before the end of any month, the fee for the part of the month before such termination shall be prorated according to the proportion which such part bears to the full monthly period and shall be payable upon the date of termination of this Agreement. In addition, the Company shall reimburse the Administrator for its out-of-pocket costs incurred in connection with this Agreement. The Company agrees promptly to reimburse the Administrator for any equipment and supplies specially ordered by or for the Company through the Administrator and for any other expenses not contemplated by this Agreement that the Administrator may incur on the Company's behalf at the Company's request or with the Company's consent provided Administrator provides Company advance written notice detailing the equipment, supplies or expense and the anticipated costs. 4 The Company will bear all expenses that are incurred in its operation and not specifically assumed by the Administrator. Expenses to be borne by the Company, include, but are not limited to: organizational expenses; cost of services of independent accountants and outside legal and tax counsel (including such counsel's review of the Company's registration statement, proxy materials, federal and state tax qualification as a regulated investment company and other reports and materials prepared by the Administrator under this Agreement); cost of any services contracted for by the Company directly from parties other than the Administrator; cost of trading operations and brokerage fees, commissions and transfer taxes in connection with the purchase and sale of securities for the Company; investment advisory fees; taxes, insurance premiums and other fees and expenses applicable to its operation; costs incidental to any meetings of shareholders including, but not limited to, legal and accounting fees, proxy filing fees and the costs of preparation, printing and mailing of any proxy materials; costs incidental to Board meetings, including fees and expenses of Board members; the salary and expenses of any officer, director\trustee or employee of the Company; costs incidental to the preparation, printing and distribution of the Company's registration statements and any amendments thereto and shareholder reports; cost of typesetting and printing of prospectuses; cost of preparation and filing of the Company's tax returns, Form N-1A or N-2 and Form N-SAR, and all notices, registrations and amendments associated with applicable federal and state tax and securities laws; all applicable registration fees and filing fees required under federal and state securities laws; fidelity bond and directors' and officers' liability insurance; and cost of independent pricing services used in computing the Company's net asset value. The Administrator is authorized to and may employ or associate with such person or persons as the Administrator may deem desirable to assist it in performing its duties under this Agreement; provided, however, that the compensation of such person or persons shall be paid for solely by the Administrator and that the Administrator shall be as fully responsible to the Company for the acts and omissions of any such person or persons as it is for its own acts and omissions, and further provided Administrator provides advance written notice of its intent to do so. 7. PROPER INSTRUCTIONS. "PROPER INSTRUCTIONS" means a writing signed or initialed by one or more of such persons as Company shall have from time to time authorized. Each such writing shall set forth the specific transaction or type of transaction involved, including a specific statement of the purpose for which such action is requested. Oral instructions will be considered Proper Instructions if Administrator reasonably believes them to have been given by a person authorized to give such instructions with respect to the transaction involved. Company shall cause all oral instructions to be confirmed in writing. Proper Instructions may include communications effected directly between electro-mechanical or electronic devices, provided that Company and Administrator agree to security procedures. Company will deliver to Administrator, on or prior to the date hereof and thereafter from time to time as changes therein are necessary, Proper Instructions naming one or more designated representatives to give Proper Instructions in the name and on behalf of Company, which Proper Instructions may be received and accepted by Administrator as conclusive evidence of the authority of any designated representative to act for Company and may be considered to be in full force and effect until receipt by Administrator of notice to the contrary. Unless such Proper Instructions delegating authority to any person to give 5 Proper Instructions specifically limit such authority to specific matters or require that the approval of anyone else will first have been obtained, Administrator will be under no obligation to inquire into the right of such person, acting alone, to give any Proper Instructions whatsoever. If Company fails to provide Administrator any such Proper Instructions naming designated representatives, any instructions received by Administrator from a person reasonably believed to be an appropriate representative of Company will constitute valid Proper Instructions hereunder. The term "designated representative" may include Company's employees and agents, including investment managers and their employees. Company will provide upon Administrator's request a certificate signed by an officer or designated representative of Company, as conclusive proof of any fact or matter required to be ascertained from Company hereunder. Company will also provide Administrator Proper Instructions with respect to any matter concerning this Agreement requested by Administrator. If Administrator reasonably believes that it could not prudently act according to the Proper Instructions, or the instruction or advice of Company's accountants or counsel, it may in its discretion, with notice to Company, refrain from acting in accordance therewith. 8. INSTRUCTIONS AND ADVICE At any time, the Administrator may apply to any officer of the Company for Proper Instructions and may consult with its own legal counsel at the expense of the Administrator or outside counsel for the Company or the independent accountants for the Company at the expense of the Company, with respect to any matter arising in connection with the services to be performed by the Administrator under this Agreement. The Administrator shall not be liable, and shall be indemnified by the Company, for any action taken or omitted by it in good faith in reliance upon any such Proper Instructions or advice or upon any paper or document believed by it to be genuine and to have been signed by the proper person or persons. The Administrator shall not be held to have notice of any change of authority of any person until receipt of written notice thereof from the Company. Nothing in this paragraph shall be construed as imposing upon the Administrator any obligation to seek such instructions or advice, or to act in accordance with such advice when received. 9. LIMITATION OF LIABILITY AND INDEMNIFICATION 9.1 Limitation of Liability of Administrator. The Administrator shall be responsible for the performance of only such duties as are set forth in this Agreement and, except as otherwise provided under Section 6, shall have no responsibility for the actions or activities of any other party, including other service providers. The Administrator shall have no liability in respect of any loss, damage or expense suffered by the Company insofar as such loss, damage or expense arises from the performance of the Administrator's duties hereunder in reliance upon records that were maintained for the Company by entities other than the Administrator prior to the Administrator's appointment as administrator for the Company. The Administrator shall have no liability for any error of judgment or mistake of law or for any loss or damage resulting from the performance or nonperformance of its duties hereunder unless solely caused by or resulting from the gross negligence or willful misconduct of the Administrator, its officers or employees. The Administrator shall not be liable for any special, indirect, incidental, or consequential damages of any kind whatsoever (including, without limitation, attorneys' fees) under any provision of this 6 Agreement or for any such damages arising out of any act or failure to act hereunder. In any event, the Administrator's cumulative liability for each calendar year (a "Liability Period") with respect to the Company under this Agreement regardless of the form of action or legal theory shall be limited to its total annual compensation earned with respect to the Company and fees payable hereunder during the preceding Compensation Period, as defined herein, for any liability or loss suffered by the Company including, but not limited to, any liability relating to qualification of the Company as a regulated investment company or any liability relating to the Company's compliance with any federal or state tax or securities statute, regulation or ruling during such Liability Period. "Compensation Period" shall mean the calendar year ending immediately prior to each Liability Period in which the event(s) giving rise to the Administrator's liability for that period have occurred. Notwithstanding the foregoing, the Compensation Period for purposes of calculating the annual cumulative liability of the Administrator for the Liability Period commencing on the date of this Agreement and terminating on December 31, 2003 shall be the date of this Agreement through December 31, 2003 on an annualized basis, and the Compensation Period for the Liability Period commencing January 1, 2004 and terminating on December 31, 2004 shall be January 1, 2004 through December 31, 2004. Company shall indemnify and hold the Administrator harmless from all loss, cost, damage and expense, including reasonable fees and expenses for counsel (including disbursements), incurred by the Administrator resulting from any claim, demand, action or suit in connection with the Administrator's acceptance of this Agreement, any action or omission by it in the performance of its duties hereunder, or as a result of acting upon any instructions reasonably believed by it to have been duly authorized by the Company, provided that this indemnification shall not apply to actions or omissions of the Administrator, its officers or employees in cases of its or their own gross negligence or willful misconduct. 9.2 Other Limitations. a. Neither party shall be liable to the other for consequential, special or punitive damages. b. The Administrator shall not be responsible or liable for the failure or delay in performance of its obligations hereunder, or those of any entity for which it is responsible hereunder, arising out of or caused, directly or indirectly, by circumstances beyond the affected entity's reasonable control, including, without limitation: any interruption, loss or malfunction of any utility, transportation, computer (hardware or software) or communication service; inability to obtain labor, material, equipment or transportation, or a delay in mails; governmental or exchange action, statute, ordinance, rulings, regulations or direction; war, strike, riot, emergency, civil disturbance, terrorism, vandalism, explosions, labor disputes, freezes, floods, fires, tornadoes, acts of God or public enemy, revolutions, or insurrection. 9.3 Survival. The indemnifications contained herein shall survive the termination of this Agreement. 7 10. CONFIDENTIALITY The Administrator agrees that, except as otherwise required by law or in connection with any required disclosure to a banking or other regulatory authority, it will keep confidential all records and information in its possession relating to the Company or its shareholders or shareholder accounts and will not disclose the same to any person except at the request or with the written consent of the Company. 11. COMPLIANCE WITH GOVERNMENTAL RULES AND REGULATIONS; RECORDS Company assumes full responsibility for complying with all securities, tax, commodities and other laws, rules and regulations applicable to it. The Administrator agrees that all records which it maintains for the Company shall at all times remain the property of the Company, shall be readily accessible during normal business hours, and shall be promptly surrendered upon the termination of the Agreement or otherwise on written request. The Administrator further agrees that all records which it maintains for the Company pursuant to Rule 31a-1 under the 1940 Act will be preserved for the periods prescribed by Rule 31a-2 under the 1940 Act unless any such records are earlier surrendered as provided above. At Company's expense at an hourly rate per Administrator employee as agreed in the fee schedule referenced in Section 6 below, Administrator will also provide reasonable assistance to Company's oversight personnel, and reasonable access to Administrator's offices by such personnel, for the purpose of auditing Administrator's performance of its duties hereunder, including the systems, disclosure controls and procedures implemented by Administrator, but only as they relate to Company. 12. SERVICES NOT EXCLUSIVE The services of the Administrator to the Company are not to be deemed exclusive, and the Administrator shall be free to render similar services to others. The Administrator shall be deemed to be an independent contractor and shall, unless otherwise expressly provided herein or authorized by the Company from time to time, have no authority to act or represent the Company in any way or otherwise be deemed an agent of the Company. 13. TERM AND TERMINATION 13.1 Term. This Agreement shall remain in full force and effect for an initial term of three (3) years, and thereafter may be renewed for two successive one (1) year terms upon consent by both parties. Thereafter, this Agreement shall automatically continue in full force and effect for subsequent one (1) year terms unless either party terminates this Agreement. 13.2 Termination. This Agreement may be terminated without penalty in accordance with the following: 8 a. Either party may terminate this Agreement at the end of the initial term or any subsequent term by providing written notice of termination to the other party at least one hundred eighty (180) days' prior to the end of such term. Notwithstanding the preceding sentence, Administrator agrees that it will not terminate this agreement at the end of the initial term solely due to economic considerations relating to the fee schedule agreed to by the parties. b. In addition, either party may terminate this Agreement at any time if any of the following events occur: 1) In the case of a material breach of any obligation under this Agreement by the other party. The non-breaching party shall give written notice to the breaching party specifying the nature of the breach. If the breaching party fails to cure such breach within ninety (90) days after its receipt of written notice, or if such breach cannot be cured within ninety (90) days with reasonable efforts then within a reasonable time after receipt of such notice (provided, however, that the defaulting party promptly commences and diligently pursues efforts to cure), the non-breaching party shall have the right to terminate this Agreement by written notice to the breaching party specifying the date of termination, which shall be not less than ninety (90) days thereafter; or 2) In the case of four (4) material breaches of any obligation or obligations under this Agreement by the other party during any consecutive twelve-month period, whether or not such breaches are cured as contemplated in Section 13.2(b)(1). The non-breaching party shall have the right to terminate this Agreement within thirty (30) days after the occurrence of the fourth material breach by written notice to the breaching party specifying the date of termination, which shall be not less than sixty (60) days thereafter; or 3) The other party makes an assignment for the benefit of creditors or admits in writing its inability to pay its debts as they become due; or a trustee, receiver or liquidator of such other party or of any substantial part of its assets is appointed, and if appointed in a proceeding brought against such other party, such other party approves, consents to or acquiesces in such appointment, or such trustee, receiver or liquidator is not discharged within sixty (60) days; or any proceedings are commenced by or against such other party under any bankruptcy, reorganization, dissolution, liquidation or supervision law or statute of the United States government or any state government; or 9 4) In the event Company or an Investment Fund is liquidated or agrees to merge with another management investment company or Investment Fund and will not be the surviving entity. Company shall be entitled to terminate this Agreement as to itself if Company is the entity to be liquidated or merged, or as to such Investment Fund if an Investment Fund is to be liquidated or merged, upon one hundred eighty (180) days prior written notice to the Administrator. Termination of this Agreement with respect to any given Investment Fund shall in no way affect the continued validity of this Agreement with respect to any other Investment Fund; or 5) Termination of the separate Investment Accounting Agreement between Administrator and the Company. Unless the parties agree otherwise, this Agreement shall terminate automatically upon the date that such Investment Accounting Agreement is terminated. Neither party shall have any liability to the other party as a result of a termination of this Agreement pursuant to clause (1), (2), (3), (4) or (5) above or with respect to the unexpired portion of the then-current term of this Agreement, provided, however, that all rights, obligations and liabilities arising or accruing under this Agreement prior to the effective date of termination shall survive such termination. 13.3 Actions upon Termination. Upon termination of this Agreement, the parties agree that: a. Company shall pay to the Administrator such compensation and any reimbursable expenses as may be due under the terms hereof as of the date of such termination, including reasonable out-of-pocket expenses associated with such termination. b. Company will designate a successor (which may be Company) by Proper Instruction to Administrator; and c. Administrator will, upon payment of all sums due to it from Company hereunder, deliver all accounts and records and other properties of Company to the successor, or, if none, to Company, at the Administrator's office. Records maintained in electronic form on the Administrator's systems will be delivered in machine readable form. In the event that accounts, records or other properties remain in the possession of the Administrator after the date of termination hereof for any reason other than Administrator's failure to deliver the same, Administrator is entitled to compensation for storage thereof during such period, and shall be entitled to destroy the same if not removed by Company within thirty (30) days after written demand. 10 14. NOTICES Any notice or other communication authorized or required by this Agreement to be given to either party shall be in writing and deemed to have been given when delivered in person or by confirmed facsimile, or posted by certified mail, return receipt requested, to the following address (or such other address as a party may specify by written notice to the other): if to the Company: Advantus Series Fund, Inc. 400 Robert Street North St. Paul, MN 55101 Attn: Dianne Orbison, President fax: 651-223-5959 if to the Administrator: State Street Bank and Trust Company 801 Pennsylvania Kansas City, MO 64105 Attn: Senior Vice President, Insurance Services Fax: 816-871-9012 15. ASSIGNMENT This Agreement shall not be assigned by either party hereto without the prior consent in writing of the other party, except that the Administrator may assign this Agreement to a successor of all or a substantial portion of its business, or to a party controlling, controlled by or under common control with the Administrator. Administrator shall have the right to delegate and sub-contract for the performance of any or all of its duties hereunder, provided that Administrator shall remain responsible for the performance of such duties and all the terms and conditions hereof shall continue to apply as though Administrator performed such duties itself, and further provided that Administrator provides prior notice of such sub-contract to Company. 16. COUNTERPARTS This Agreement may be executed in several counterparts, each of which shall be deemed to be an original, and all such counterparts taken together shall constitute but one and the same Agreement. 17. ENTIRE AGREEMENT This Agreement and the attached schedules contain the entire understanding between the parties hereto with respect to the subject matter hereof and supersede all previous representations, warranties or commitments regarding the services to be performed hereunder whether oral or in writing. 11 18. WAIVER The failure of a party to insist upon strict adherence to any term of this Agreement on any occasion shall not be considered a waiver nor shall it deprive such party of the right thereafter to insist upon strict adherence to that term or any term of this Agreement. Any waiver must be in writing signed by the waiving party. 19. SEVERABILITY If any provision of this Agreement is invalid or unenforceable, the balance of the Agreement shall remain in effect, and if any provision is inapplicable to any person or circumstance it shall nevertheless remain applicable to all other persons and circumstances. 20. GOVERNING LAW This Agreement shall be construed and the provisions thereof interpreted under and in accordance with the laws of The Commonwealth of Massachusetts. 21. REPRODUCTION OF DOCUMENTS This Agreement and all schedules, exhibits, attachments and amendments hereto may be reproduced by any photographic, photostatic, microfilm, micro-card, miniature photographic or other similar process. The parties hereto all/each agree that any such reproduction shall be admissible in evidence as the original itself in any judicial or administrative proceeding, whether or not the original is in existence and whether or not such reproduction was made by a party in the regular course of business, and that any enlargement, facsimile or further reproduction of such reproduction shall likewise be admissible in evidence. 22. EACH INVESTMENT FUND A SEPARATE PARTY Each Investment Fund will be regarded for all purposes hereunder as a separate party apart from each other Investment Fund. Unless the context otherwise requires, with respect to every transaction covered hereby, every reference herein to Investment Fund is deemed to relate solely to the particular Investment Fund to which such transaction relates. Under no circumstances will the rights, obligations or remedies with respect to a particular Investment Fund constitute a right, obligation or remedy applicable to any other Investment Fund. The use of this single document to memorialize the separate agreement as to each Investment Fund is understood to be for clerical convenience only and will not constitute any basis for joining the Investment Funds for any reason. 23. AMENDMENT This Agreement may be modified or amended from time to time by mutual written agreement signed by the parties hereto. 12 IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed by their officers designated below as of the date first written above. ADVANTUS SERIES FUND, INC. By: /s/ Dianne M. Orbison ------------------------------------ Name: Dianne M. Orbison Title: President STATE STREET BANK AND TRUST COMPANY By: /s/ Stephen R. Hilliard ------------------------------------ Name: Stephen R. Hilliard Title: Senior Vice President 13 ADMINISTRATION AGREEMENT SCHEDULE A LISTING OF INVESTMENT FUNDS AND AUTHORIZED SHARES
Authorized Investment Fund Shares --------------- ----------- Advantus Series Fund, Inc. Growth Portfolio 100 billion Advantus Series Fund, Inc. Bond Portfolio 100 billion Advantus Series Fund, Inc. Money Market Portfolio 100 billion Advantus Series Fund, Inc. Asset Allocation Portfolio 100 billion Advantus Series Fund, Inc. Mortgage Securities Portfolio 100 billion Advantus Series Fund, Inc. Index 500 Portfolio 100 billion Advantus Series Fund, Inc. Capital Appreciation Portfolio 100 billion Advantus Series Fund, Inc. International Stock Portfolio 100 billion Advantus Series Fund, Inc. Small Company Growth Portfolio 100 billion Advantus Series Fund, Inc. Maturing Government Bond 2006 Portfolio 100 billion Advantus Series Fund, Inc. Maturing Government Bond 2010 Portfolio 100 billion Advantus Series Fund, Inc. Value Stock Portfolio 100 billion Advantus Series Fund, Inc. Small Company Value Portfolio 100 billion Advantus Series Fund, Inc. Global Bond Portfolio 100 billion Advantus Series Fund, Inc. Index 400 Mid-Cap Portfolio 100 billion Advantus Series Fund, Inc. Macro-Cap Value Portfolio 100 billion Advantus Series Fund, Inc. Micro-Cap Growth Portfolio 100 billion Advantus Series Fund, Inc. Real Estate Securities Portfolio 100 billion
* The authorized capital of the Advantus Series Fund, Inc. consists of 100 trillion shares of capital stock, with authorized shares of 100 billion allocated to each Portfolio. 14 SCHEDULE B FEE SCHEDULE 15 EX-99.H.6 14 c49473bexv99whw6.txt EX-99.H.6 Exhibit 99. (h)(6) PARTICIPATION AGREEMENT AMONG ADVANTUS SERIES FUND, INC. ADVANTUS CAPITAL MANAGEMENT, INC. AND SECURIAN LIFE INSURANCE COMPANY DATED NOVEMBER 6, 2007 THIS AGREEMENT, made and entered into as of the 6th day of November, 2007, by and among Securian Life Insurance Company (hereinafter "Securian Life"), a Minnesota corporation, on its own behalf and on behalf of each segregated asset account of Securian Life set forth on Schedule A hereto, as may be amended from time to time (each such account hereinafter referred to as "Account") and the Advantus Series Fund, Inc., a Minnesota corporation (hereinafter the "Fund") and Advantus Capital Management, Inc. (hereinafter the "Adviser"), a corporation organized in the State of Minnesota. WHEREAS, the Fund engages in business as an open-end management investment company and is available to act as the investment vehicle for separate accounts established for variable life insurance policies and variable annuity contracts (hereinafter collectively, the "Variable Insurance Products") to be offered by insurance companies which have entered into participation agreements with the Fund and the Adviser (hereinafter "Participating Insurance Companies"); and WHEREAS, the beneficial interest in the Fund is divided into several series of shares, each designated a "Portfolio" and representing the interest in a particular managed portfolio of securities and other assets and liabilities; and WHEREAS, each Portfolio may issue its shares in one or more Classes as shown on Schedule B attached hereto; and WHEREAS, the Fund has obtained an order from the Securities and Exchange Commission granting it exemptions from the provisions of Sections 9(a), 13(a), 15(a) and 15(b), of the Investment Company Act of 1940 and Rule 6e-2(b)(15) thereunder so as to permit the sale of Fund shares to both variable annuity and variable life separate accounts of both affiliated and unaffiliated life insurance companies subject to the provisions of Clauses (i) through (iv) of Rule 6e-2(b)(15) and the undertakings set forth in the order (hereinafter the "Mixed and Shared Funding Exemptive Order"); and WHEREAS, the Fund is registered as an open-end management investment company under the 1940 Act and its shares are registered under the Securities Act of 1933, as amended (hereinafter, the "1933 Act"); and WHEREAS, the Adviser is duly registered as an investment adviser under the federal Investment Advisers Act of 1940 (hereinafter, the "Advisers Act") and any applicable state securities law; and WHEREAS, Securian Life has registered or will register certain variable life insurance policies and variable annuity contracts under the 1933 Act, unless an exemption is available and each such contract or policy will provide for the allocation of net amounts received by Securian Life to an Account or Sub-Account for investment in the Fund and its Portfolios, or a designated Class thereof, as that selection may be made by a participant or contract or policy owner, as applicable under that contract or policy; and WHEREAS, each Account is a duly organized, validly existing segregated asset account, established by resolution of the Board of Directors of Securian Life, to set aside and invest assets attributable to the aforesaid Variable Insurance Products; and WHEREAS, Securian Life has registered or will register each Account as a unit investment trust under the 1940 Act, unless an exemption from registration is available; and WHEREAS, to the extent permitted by applicable insurance laws and regulations, Securian Life intends to purchase shares in the Portfolios, or a designated Class thereof, on behalf of each Account to fund certain of the aforesaid Variable Insurance Products and the Adviser is authorized to sell such shares to each Account at net asset value; NOW, THEREFORE, in consideration of their mutual promises, Securian Life, the Fund and the Adviser agree as follows: ARTICLE I. PURCHASE AND REDEMPTION OF FUND PORTFOLIO SHARES 1.1 For purposes of this Article I, Securian Life shall be the Fund's agent for receipt of purchase orders and requests for redemption relating to each Portfolio from each Account or Sub-Account, provided that Securian Life notifies the Fund of such purchase orders and requests for redemption by 10:00 a.m. Central time on the next following Business Day, as defined in Section 1.3. The currently available Portfolios and Classes are as shown on Schedule B attached hereto. 1.2 The Fund agrees to make shares of the Portfolios (or any Class thereof) available to the Accounts and the Sub-Accounts of such Accounts for purchase at the net asset value per share next computed after receipt of a purchase order by the Fund (or its agent), as established in accordance with the provisions of the then current prospectus of the Fund describing Portfolio purchase procedures on those days on which the Fund calculates its net asset value pursuant to rules of the Commission, and the Fund shall use its best efforts to calculate such net asset value on each day on which the New York Stock Exchange ("NYSE") is open for trading. Securian Life will transmit orders from time to time to the Fund for the purchase of shares of the Portfolios (or any Class thereof). The Directors of the Fund (the "Directors") may refuse to sell shares of any Portfolio (or any Class thereof) to any person, or suspend or terminate the offering of shares of any Portfolio (or any Class thereof) if such action is required by law or by regulatory 2 authorities having appropriate jurisdiction or if, in the sole discretion of the Directors acting in good faith and in light of their fiduciary duties under federal and any applicable state laws, such action is deemed in the best interests of the shareholders of such Portfolio (or any Class thereof). 1.3 Securian Life shall submit payment for the purchase of shares of a Portfolio (or any Class thereof) on behalf of an Account or Sub-Account no later than the close of the Federal Reserve Bank, which is 6:00 p.m. Central time, on the next Business Day after the Fund receives the purchase order. Payment shall be made in federal funds transmitted by wire to the Fund. Upon receipt by the Fund of the federal funds so wired, such funds shall cease to be the responsibility of Securian Life and shall become the responsibility of the Fund for this purpose. "Business Day" shall mean any day on which the New York Stock Exchange is open for trading and on which the Fund calculates its net asset value pursuant to the rules of the Commission. If payment in federal funds for any purchase is not received by the Fund or its designated custodian or is received after such time, Securian Life shall promptly, upon written request, reimburse the Fund for any charges, costs, fees, interest or other expenses incurred by the Fund as a result of transactions effected by the Fund based upon such purchase order. 1.4 The Fund will redeem for cash any full or fractional shares of any Portfolio, when requested by Securian Life on behalf of an Account, at the net asset value next computed after receipt by the Fund (or its agent) of the request for redemption, as established in accordance with the provisions of the then current prospectus of the Fund describing Portfolio redemption procedures. The Fund shall make payment for such shares in the manner established from time to time by the Fund. Redemption with respect to a Portfolio will normally be paid to Securian Life for an Account or Sub-Account in federal funds transmitted by wire to Securian Life before the close of the Federal Reserve Bank, which is 6:00 p.m. Central time on the next Business Day after the receipt of the request for redemption. If payment in federal funds for any redemption request is received by Securian Life after such time, the Fund shall promptly upon Securian Life's written request, reimburse Securian Life for any charges, costs, fees, interest, or other expenses incurred by Securian Life as a result of such failure to provide redemption proceeds within the specified time. Notwithstanding the foregoing, such payment may be delayed if the Portfolio's cash position so requires or if extraordinary market conditions exist, but in no event shall payment be delayed for a greater period than is permitted by the 1940 Act. 1.5 Payments for the purchase of shares of the Fund's Portfolios (or any Class thereof) by Securian Life under Section 1.3 and payments for the redemption of shares of the Fund's Portfolios under Section 1.4 may be netted against one another on any Business Day for the purpose of determining the amount of any wire transfer of that Business Day. 1.6 Issuance and transfer of the Fund's Portfolio shares (or any Class thereof) will be by book entry only. Stock certificates will not be issued to Securian Life, an Account or a Sub-Account. Portfolio Shares (or any Class thereof) purchased from the Fund will be recorded in the appropriate title for each Account or the appropriate sub-account of each Account. 1.7 The Fund shall furnish, on or before the ex-dividend date, notice to Securian Life of any income dividends or capital gain distributions payable on the shares (or any Class thereof) of any Portfolio of the Fund. Securian Life hereby elects to receive all such income dividends and capital gain distributions as are payable on a Portfolio's shares (or Class) in additional shares of 3 the Portfolio (or Class). The Fund shall notify Securian Life of the number of shares so issued as payment of such dividends and distributions. 1.8 The Fund shall calculate the net asset value of each Portfolio (or any Class thereof) on each Business Day, as defined in Section 1.3. The Fund shall make the net asset value per share for each Portfolio available to Securian Life or its designated agent on a daily basis as soon as reasonably practical after the net asset value per share is calculated (normally by 6:30 p.m. Central time) and shall use reasonable efforts to make such net asset value per share available by 7:00 p.m. Central time each Business Day. 1.9 The Fund agrees that its Portfolio shares (or any Class thereof) will be sold only to Participating Insurance Companies and their separate accounts and to certain qualified pension and retirement plans to the extent permitted by the Mixed and Shared Funding Exemptive Order. The Fund agrees that it will not sell shares of its Portfolios (or any Class thereof) to any other insurance company or separate account unless an agreement containing provisions substantially the same as Section 2.4 and Articles I and V of this Agreement is in effect to govern sales. No shares of any Portfolio (or any Class thereof) will be sold directly to the general public. Securian Life agrees that it will use Fund shares only for the purposes of funding the Variable Insurance Products through the Accounts listed in Schedule A, as amended from time to time. 1.10 Securian Life agrees that all net amounts available under the Variable Insurance Products referenced herein shall be invested in the Fund or in such other investment companies advised by the Adviser or its affiliates as may be mutually agreed to in writing by the parties hereto, or in Securian Life's general account, provided that such amounts may also be invested in an investment company other than the Fund if: (a) Securian Life gives the Fund and the Adviser forty-five (45) days written notice of its intention to make such other investment company available as a funding vehicle for these Variable Insurance Products; or (b) such other investment company is available as a funding vehicle for these Variable Insurance Products at the date of this Agreement. 1.11 The Fund agrees that all Participating Insurance Companies shall have the obligations and responsibilities regarding pass-through voting and conflicts of interest corresponding to those contained in Section 2.10 and Article IV of this Agreement. 1.12 In the event adjustments are required to correct any material error in the computation of the net asset value of the Fund's shares (or any Class thereof), the Fund shall notify Securian Life as soon as practicable after discovering the need for those adjustments which result in a reimbursement to an Account in accordance with the Fund's then current policies on reimbursement, which the Fund represents are consistent with applicable SEC standards. If an adjustment is to be made in accordance with such policies to correct an error which has caused an Account to receive an amount different than that to which it is entitled, the Fund shall make all necessary adjustments to the number of shares owned in the Account and distribute to the Account the amount of such underpayment for credit to Securian Life's Contract/Policy Owners. 4 ARTICLE II. OBLIGATIONS OF THE PARTIES; FEES AND EXPENSES 2.1 The Fund shall prepare and be responsible for filing with the Commission and any state regulators requiring such filing all shareholder reports, notices, proxy materials (or similar materials such as voting instruction solicitation materials), prospectuses and statements of additional information of the Fund. The Fund shall bear the costs of registration and qualification of its shares of the Portfolios, preparation and filing of the documents listed in this Section 2.1 and all taxes to which an issuer is subject on the issuance and transfer of its shares. 2.2 At the option of Securian Life, the Fund or the Adviser shall either (a) provide Securian Life with as many copies of portions of the Fund's current prospectus, annual report, semi-annual report and other shareholder communications, including any amendments or supplements to any of the foregoing, pertaining specifically to the Portfolios (or any Class thereof) as Securian Life shall reasonably request; or (b) provide Securian Life with a camera ready copy of such documents in a form suitable for printing and from which information relating to series of the Fund other than the Portfolios has been deleted to the extent practicable. The Fund or the Adviser shall provide Securian Life with a copy of its current statement of additional information, including any amendments or supplements, in a form suitable for duplication by Securian Life. Expenses of furnishing such documents for marketing purposes shall be borne by Securian Life and expenses of furnishing such documents for current contract owners invested in the Fund shall be borne by the Fund or the Adviser. 2.3 The Fund (at its expense) shall provide Securian Life with copies of any Fund-sponsored proxy materials in such quantity as Securian Life shall reasonably require for distribution to contract owners. The Fund shall bear the costs of distributing proxy materials (or similar materials such as voting solicitation instructions). Securian Life shall bear the cost of distributing prospectuses and statements of additional information to contract owners. Securian Life assumes sole responsibility for ensuring that such materials are delivered to contract owners in accordance with applicable federal and state securities laws. 2.4 If and to the extent required by law, Securian Life shall: (i) solicit voting instructions from contract owners; (ii) vote the Fund shares in accordance with the instructions received from contract owners; and (iii) vote Fund shares for which no instructions have been received in the same proportion as Fund shares of such Portfolio for which instructions have been received; so long as and to the extent that the Commission continues to interpret the 1940 Act to require pass-through voting privileges for variable contract owners. Securian Life reserves the right to vote Fund shares held in any segregated asset account in its own right, to the extent permitted by law. 2.5 Except as provided in Section 2.6, Securian Life shall not use any designation comprised in whole or part of the names or marks "Advantus Series Fund, Inc." or "Advantus Capital Management, Inc." without prior written consent of the Fund or the Adviser, and upon termination of this Agreement for any reason, Securian Life shall cease all use of any such name or mark as soon as reasonably practicable. 2.6 Securian Life and its agents shall not give any information or make any representations or statements on behalf of the Fund or concerning the Fund or the Adviser or an 5 Adviser in connection with the sale of the Variable Insurance Products other than information or representations contained in and accurately derived from the registration statement or prospectus for the Fund shares (as such registration statement and prospectus may be amended or supplemented from time to time), annual and semi-annual reports of the Fund, Fund-sponsored proxy statements, or in sales literature or other promotional material prepared or approved by the Fund or its designee, except as required by legal process or regulatory authorities or with the written permission of the Fund or its designee. 2.7 The Fund shall use its best efforts to provide Securian Life, on a timely basis, with such information about the Fund, the Portfolios and the Adviser and any Sub-Advisers, in such form as Securian Life may reasonably require, as Securian Life shall reasonably request in connection with the preparation of registration statements and prospectuses and annual and semi-annual reports pertaining to the Variable Insurance Products. 2.8 The Fund shall not give any information or make any representations or statements on behalf of Securian Life or concerning Securian Life, the Accounts or the Variable Insurance Products other than information or representations contained in and accurately derived from the registration statement or prospectus for the Variable Insurance Products (as any such required registration statement and prospectus may be amended or supplemented from time to time), or in materials prepared or approved by Securian Life for distribution including sales literature or other promotional materials, except as required by legal process or regulatory authorities or with the written permission of Securian Life. 2.9 So long as, and to the extent that, the Commission interprets the 1940 Act to require pass-through voting privileges for contract owners, Securian Life will provide pass-through voting privileges to contract owners whose Contract values are invested, through the registered Accounts, in shares of one or more Portfolios (or any Class thereof) of the Fund. The Fund shall require all Participating Insurance Companies to calculate voting privileges in the same manner and Securian Life shall be responsible for assuring that the Accounts calculate voting privileges in the manner established by the Fund. With respect to each registered Account, Securian Life will vote shares of each Portfolio (or any Class thereof) of the Fund held by a registered Account for which no timely voting instructions from contract owners are received in the same proportion as those shares held by that registered Account for which voting instructions are received. Securian Life and its agents will in no way recommend or oppose or interfere with the solicitation of proxies for Portfolio shares held to fund the Variable Insurance Products without the prior written consent of the Fund, which consent may be withheld in the Fund's sole discretion. 2.10 The Fund and Adviser shall pay no fee or other compensation to Securian Life under this Agreement except as provided on Schedule C, if attached. Nevertheless, the Fund or the Adviser or an affiliate may make payments (other than pursuant to a Rule 12b-1 Plan) to Securian Life or its affiliates in amounts agreed to by the Adviser in writing and such payments may be made out of fees otherwise payable to the Adviser or its affiliates, profits of the Adviser or its affiliates, or other resources available to the Adviser or its affiliates. 6 ARTICLE III. REPRESENTATIONS AND WARRANTIES 3.1 Securian Life represents and warrants that it is an insurance company duly organized and in good standing under the laws of the State of Minnesota and that it has legally and validly established each Account as a segregated asset account under such law as of the date set forth in Schedule A. 3.2 Securian Life represents and warrants that it has registered or, prior to any issuance or sale of the Variable Insurance Contract(s), will register each Account as a unit investment trust in accordance with the provisions of the 1940 Act to serve as a segregated asset account for the Variable Insurance Products, unless an exemption from registration is available. 3.3 Securian Life represents and warrants that the Variable Insurance Products will be registered under the 1933 Act, unless an exemption from registration is available, prior to any issuance or sale of the Variable Insurance Products; the Variable Insurance Products will be issued and sold in compliance in all material respects with all applicable federal and state laws; and the sale of the Variable Insurance Products shall comply in all material respects with state insurance suitability requirements. 3.4 Securian Life represents and warrants that all of its directors, officers, employees, investment advisers, and other individuals or entities dealing with the money and/or securities are and shall be at all times covered by a blanket fidelity bond or similar coverage in an amount not less than $5 million. The aforesaid bond shall include coverage for larceny and embezzlement and shall be issued by a reputable bonding company. Securian Life agrees to make all reasonable efforts to see that this bond or another bond containing these provisions is always in effect, and agrees to notify the Fund and the Adviser in the event that such coverage no longer applies. 3.5 The Fund represents and warrants that it is duly organized and validly existing under the laws of the State of Minnesota and that it does and will comply in all material respects with the 1940 Act and the rules and regulations thereunder and with the diversification rules applicable to the Fund and its Portfolios under Subchapter M of the Internal Revenue Code of 1986, as amended (hereinafter "Code"). 3.6 The Fund represents and warrants that the Portfolio shares (or any Class thereof) offered and sold pursuant to this Agreement will be registered under the 1933 Act and the Fund shall be registered under the 1940 Act prior to and at the time of any issuance or sale of such shares. The Fund shall amend its registration statement under the 1933 Act and the 1940 Act from time to time as required in order to effect the continuous offering of its shares. The Fund shall register and qualify its shares for sale in accordance with the laws of the various states only if and to the extent deemed advisable by the Fund or the Adviser. 3.7 The Fund represents and warrants that it is currently qualified as a "regulated investment company" under Subchapter M of the Code, that it will make every effort to maintain such qualification and will notify Securian Life immediately upon having a reasonable basis for believing it has ceased to so qualify or might not so qualify in the future. 7 3.8 The Fund and its Adviser each represents and warrants that the investment advisory or management fees paid to the Adviser are legitimate and not excessive and are derived from an advisory contract which does not result in a breach of fiduciary duty. 3.9 The Fund represents and warrants that should it ever desire to make any payments to finance distribution expenses pursuant to Rule 12b-1 under the 1940 Act, the Directors, including a majority who are not "interested persons" of the Fund under the 1940 Act ("disinterested Directors"), will formulate and approve any plan under Rule 12b-1 to finance distribution expenses. To the extent that any Class of the Fund may finance its distribution expenses pursuant to a Plan adopted under Rule 12b-1, the Fund undertakes to comply with any then current SEC and SEC staff interpretations concerning Rule 12b-1 or any successor provisions. 3.10 The Fund represents and warrants that it, its directors, officers, employees and others dealing with the money or securities, or both, of a Portfolio shall at all times be covered by a blanket fidelity bond or similar coverage for the benefit of the Fund in an amount not less than the minimum coverage required by Rule 17g-1 or other regulations under the 1940 Act. Such bond shall include coverage for larceny and embezzlement and be issued by a reputable bonding company. 3.11 The Adviser represents and warrants that it is duly organized and validly existing under the laws of the State of Minnesota and that it is currently registered and will, during the term of this Agreement, remain registered as an investment adviser under the Advisers Act. ARTICLE IV. POTENTIAL CONFLICTS 4.1 The parties acknowledge that a Portfolio's shares may be made available for investment to other Participating Insurance Companies. In such event, the Directors will monitor the Fund for the existence of any material irreconcilable conflict between the interests of the contract owners of all Participating Insurance Companies. An irreconcilable material conflict may arise for a variety of reasons, including: (a) an action by any state insurance regulatory authority; (b) a change in applicable federal or state insurance, tax, or securities laws or regulations, or a public ruling, private letter ruling, no-action or interpretative letter, or any similar action by insurance, tax, or securities regulatory authorities; (c) an administrative or judicial decision in any relevant proceeding; (d) the manner in which the investments of any Portfolio are being managed; (e) a difference in voting instructions given by variable annuity contract and variable life insurance contract owners; or (f) a decision by an insurer to disregard the voting instructions of contract owners. The Fund shall promptly inform Securian Life of any determination by the Directors that an irreconcilable material conflict exists and of the implications thereof. 4.2 Securian Life agrees to promptly report any potential or existing conflicts of which it is aware to the Directors. Securian Life will assist the Directors in carrying out their responsibilities under the Mixed and Shared Funding Exemptive Order by providing the Directors with all information reasonably necessary for the Directors to consider any issues raised including, but not limited to, information as to a decision by Securian Life to disregard 8 contract owner voting instructions. All communications from Securian Life to the Directors may be made in care of the Fund. 4.3 If it is determined by a majority of the Directors, or a majority of the disinterested Directors, that a material irreconcilable conflict exists that affects the interests of contract owners, Securian Life shall, in cooperation with other Participating Insurance Companies whose contract owners are also affected, at its own expense and to the extent reasonably practicable take whatever steps are necessary to remedy or eliminate the irreconcilable material conflict. 4.4 If a material irreconcilable conflict arises because of a decision by Securian Life to disregard contract owner voting instructions and that decision represents a minority position or would preclude a majority vote, Securian Life may be required, at the Fund's election, to withdraw the affected Account's investment in the Fund and terminate this Agreement with respect to such Account; provided, however, that such withdrawal and termination shall be limited to the extent required by the foregoing material irreconcilable conflict as determined by a majority of the disinterested Directors. Any such withdrawal and termination must take place within six (6) months after the Fund gives written notice that this provision is being implemented. Until the end of such six (6) month period, the Fund shall continue to accept and implement orders by Securian Life for the purchase and redemption of shares of the Fund. 4.5 If a material irreconcilable conflict arises because a particular state insurance regulator's decision applicable to Securian Life conflicts with a majority of other state regulators to which Securian Life is subject, then Securian Life will withdraw the affected Account's investment in the Fund and terminate this Agreement with respect to such Account within six (6) months after the Directors inform Securian Life in writing it has determined that such decision has created an irreconcilable material conflict; provided, however, that such withdrawal and termination shall be limited to the extent required by the foregoing material irreconcilable conflict as determined by a majority of the disinterested Directors. Until the end of such six (6) month period, the Fund shall continue to accept and implement orders by Securian Life for the purchase and redemption of shares of the Fund. 4.6 For purposes of Sections 4.3 through 4.6 of this Agreement, a majority of the disinterested Directors shall determine whether any proposed action adequately remedies any irreconcilable material conflict, but in no event will the Fund be required to establish a new funding medium for the Variable Insurance Products. In the event that the disinterested Directors determine that any proposed action does not adequately remedy any irreconcilable material conflict, then Securian Life will withdraw the Account's investment in the Fund and terminate this Agreement within six (6) months after the Directors inform Securian Life in writing of the foregoing determination; provided, however, that such withdrawal and termination shall be limited to the extent required by any such material irreconcilable conflict as determined by a majority of the disinterested Directors. 4.7 Securian Life shall at least annually submit to the Directors such reports, materials or data as the Directors may reasonably request so that the Directors may fully carry out the duties imposed upon them by the Mixed and Shared Funding Exemptive Order, and said reports, materials and data shall be submitted more frequently if reasonably deemed appropriate by the Directors. 9 4.8 If and to the extent that Rule 6e-2 is amended, or similar rule is adopted, so as to provide exemptive relief from any provision of the 1940 Act or the rules promulgated thereunder with respect to mixed funding (as defined in the Mixed and Shared Funding Exemptive Order) on terms and conditions materially different from those contained in the Mixed and Shared Funding Exemptive Order, then the Fund and/or the Participating Insurance Companies, as appropriate, shall take such steps as may be necessary to comply with Rule 6e-2, as amended, or any other rule, as adopted, to the extent such rules are applicable. ARTICLE V. DIVERSIFICATION AND QUALIFICATION 5.1 Both the Fund and the Adviser each represent and warrant that the Fund will at all times sell the share of each Series and invest the assets of each Series in such a manner as to ensure that the Variable Insurance Products will be treated as life insurance or annuity contracts, as the case may be, under the Code and the regulations issued thereunder. Without limiting the scope of the foregoing, each of the Fund and the Adviser represent and warrant that the Fund and each Portfolio thereof will at all times comply with Section 817(h) of the Code and Treasury Regulation Section 1.817-5, as amended from time to time, and any Treasury interpretations thereof, relating to the diversification requirements for variable annuity, endowment, or life insurance contracts and any amendments or other modifications or successor provisions to such Section or Regulations. The Fund and the Adviser agree that shares of the Fund's Portfolios (or any Class thereof) will be sold only to Participating Insurance Companies and their separate accounts and to certain qualified pension and retirement plans to the extent permitted by the Mixed and Shared Funding Exemptive Order. No shares of any Fund's Portfolios (or any Class thereof) will be sold to the general public. 5.2 The Fund represents that it will not be subject to federal income taxation under current laws and regulations, consistent with the provisions of Subchapter M of the Code. 5.3 The Fund or the Adviser will notify the Insurer immediately upon having a reasonable basis for believing that the Fund or any Portfolio has ceased to comply with the aforesaid Section 817(h) diversification requirements or might not so comply in the future. 5.4 Each of the Fund and the Adviser acknowledges that full compliance with the requirements referred to in Sections 5.1 and 5.2 hereof is absolutely essential because any failure to meet those requirements would result in the Variable Insurance Products not being treated as life insurance or annuity contracts, as the case may be, for federal income tax purposes, which would have adverse tax consequences for Contract owners and could also adversely affect Securian Life's corporate tax liability. Each of the Fund and the Adviser also acknowledges that it is solely within its power and control to meet those requirements. Accordingly, without in any way limiting the effect of Section 8.2 hereof and without in any way limiting or restricting any other remedies available to Securian Life, the Adviser will pay all costs associated with or arising out of any failure, or any anticipated or reasonably foreseeable failure, of the Fund or any Portfolio to comply with Sections 5.1 or 5.2 hereof, including all costs associated with correcting or responding to any such failure; such costs may include, but are not limited to, the costs involved in creating and organizing a new investment company as a funding medium for the Variable Insurance Products and/or the costs of obtaining whatever regulatory authorizations are 10 required to substitute shares of another investment company for those of the failed Portfolio; such costs to include, but are not limited to, fees and expenses of legal counsel and other advisers to Securian Life and any federal income taxes or tax penalties incurred by Securian Life or its contract owners in connection with any such failure or anticipated or reasonably foreseeable failure. 5.5 Within 45 days of the close of each calendar quarter, the Fund shall provide Securian Life or its designee with a certification of compliance with the aforesaid Section 817(h) diversification and Code qualification requirements, in substantially the form attached hereto as Schedule D, provided, however, that providing such certification does not relieve the Fund or the Adviser of its responsibility for such compliance or of liability for any non-compliance. ARTICLE VI. INDEMNIFICATION 6.1 Indemnification by Securian Life (a) Securian Life agrees to indemnify and hold harmless the Fund and each of its Directors, officers, employees and each person, if any, who controls the Fund within the meaning of Section 15 of the 1933 Act (collectively, the "Indemnified Parties" and individually the "Indemnified Party" for purposes of this Article VI) against any an all losses, claims, damages, liabilities (including amounts paid in settlement with the written consent of Securian Life, which consent shall not be unreasonably withheld) or expenses (including the reasonable costs of investigating or defending any alleged loss, claim, damage, liability or expense and reasonable legal counsel fees incurred in connection therewith) (collectively, "Losses"), to which the Indemnified Parties may become subject under any statute or regulation, or at common law or otherwise, insofar as such Losses are related to the sale or acquisition of Fund Shares or the Variable Insurance Products and: (i) arise out of or are based upon any untrue statements or alleged untrue statements of any material fact contained in a registration statement or prospectus for the Variable Insurance Products or in the Variable Insurance Products themselves or in sales literature generated by Securian Life on behalf of the Variable Insurance Products or Accounts (or any amendment or supplement to any of the foregoing) (collectively, "Company Documents" for the purposes of this Article VI), or arise out of or are based upon the omission or the alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, provided that this indemnity shall not apply as to any Indemnified Party if such statement or omission or such alleged statement or omission was made in reliance upon and was accurately derived from written information furnished to Securian Life by or on behalf of the Fund for use in Company Documents or otherwise for use in connection with the sale of the Variable Insurance Products or Fund shares; or (ii) arise out of or result from written statements or representations (other than statements or representations contained in and accurately derived from Fund Documents as defined in Section 6.2 (a)(i)) or wrongful conduct of Securian Life 11 or persons under its control, with respect to the sale or acquisition of the Variable Insurance Products or Fund shares; or (iii) arise out of or result from any untrue statement or alleged untrue statement of a material fact contained in Fund Documents as defined in Section 6.2(a)(i) or the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading if such statement or omission was made in reliance upon and accurately derived from written information furnished to the Fund by or on behalf of Securian Life; or (iv) arise out of or result from any failure by Securian Life to provide the services or furnish the materials required under the terms of this Agreement; or (v) arise out of or result from any material breach of any representation and/or warranty made by Securian Life in this Agreement or arise out of or result from any other material breach of this Agreement by Securian Life. (b) Securian Life shall not be liable under this indemnification provision with respect to any Losses to which an Indemnified Party would otherwise be subject by reason of such Indemnified Party's willful misfeasance, bad faith, or gross negligence in the performance of such Indemnified Party's duties or by reason of such Indemnified Party's reckless disregard of obligations and duties under this Agreement. Securian Life shall also not be liable under this indemnification provision with respect to any claim made against an Indemnified Party unless such Indemnified Party shall have notified Securian Life in writing within a reasonable time after the summons or other first legal process giving information of the nature of the claim shall have been served upon such Indemnified Party (or after such Indemnified Party shall have received notice of such service on any designated agent), but failure to notify Securian Life of any such claim shall not relieve Securian Life from any liability which it may have to the Indemnified Party against whom such action is brought otherwise than on account of this indemnification provision. Securian Life also shall be entitled to assume the defense thereof, with counsel satisfactory to the party named in the action. After notice from Securian Life to such party of Securian Life's election to assume the defense thereof, the Indemnified Party shall bear the fees and expenses of any additional counsel retained by it, and Securian Life will not be liable to such party under this Agreement for any legal or other expenses subsequently incurred by such party independently in connection with the defense thereof other than reasonable costs of investigation. (c) The Indemnified Parties will promptly notify Securian Life of the commencement of any litigation or proceedings against them or their officers and directors in connection with the issuance or sale of the Fund shares or the Variable Insurance Products or the operation of the Fund. 6.2 Indemnification by the Adviser (a) The Adviser agrees to indemnify and hold harmless Securian Life and each of its Directors, officers, employees and each person, if any, who controls Securian Life within the meaning of Section 15 of the 1933 Act (collectively, the "Indemnified Parties" and 12 individually an "Indemnified Party" for purposes of this Section 6.2) against any and all losses, claims, damages, liabilities (including amounts paid in settlement with the written consent of the Adviser, which consent shall not be unreasonably withheld) or expenses (including the reasonable costs of investigating or defending any alleged loss, claim, damage, liability or expense and reasonable legal counsel fees incurred in connection therewith) (collectively, "Losses") to which the Indemnified Parties may become subject under any statute, at common law or otherwise, insofar as such Losses are related to the sale or acquisition of the Fund's Shares or the Variable Insurance Products and: (i) arise out of or are based upon any untrue statements or alleged untrue statements of any material fact contained in the Registration Statement, prospectus or sales literature of the Fund (or any amendment or supplement to any of the foregoing) (collectively, the "Fund Documents") or arise out of or are based upon the omission or the alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, provided that this agreement to indemnify shall not apply as to any Indemnified Party if such statement or omission of such alleged statement or omission was made in reliance upon and in conformity with information furnished to the Adviser or Fund by or on behalf of Securian Life for use in the Registration Statement or prospectus for the Fund or in sales literature (or any amendment or supplement) or otherwise for use in connection with the sale of the Variable Insurance Products or Fund shares; or (ii) arise out of or as a result of written statements or representations (other than statements or representations contained and accurately derived from the registration statement, prospectus or sales literature for the Variable Insurance Products) or wrongful conduct of the Fund, Adviser or persons under their control, with respect to the sale or distribution of the Variable Insurance Variable Insurance Products or Fund shares; or (iii) arise out of any untrue statement or alleged untrue statement of a material fact contained in a registration statement, prospectus or sales literature covering the Variable Insurance Products, or any amendment thereof or supplement thereto, or the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statement or statements therein not misleading, if such statement or omission was made in reliance upon information furnished to Securian Life by or on behalf of the Fund; or (iv) arise as a result of any failure by the Fund or Adviser to provide the services and furnish the materials under the terms of this Agreement (including a failure, whether unintentional or in good faith or otherwise, to comply with the qualification representation specified in Section 5.2 of this Agreement and the diversification requirements specified in Section 5.1 of this Agreement); or (v) arise out of or result from any material breach of any representation and/or warranty made by the Adviser in this Agreement or arise out of or result from any other material breach of this Agreement by the Adviser, as limited by and in accordance with the provisions of Sections 5.2(b) and 5.2(c) hereof. 13 (b) The Adviser shall not be liable under this indemnification provision with respect to any Losses to which an Indemnified Party would otherwise be subject to reason of such Indemnified Party's willful misfeasance, bad faith, or gross negligence in the performance of such Indemnified Party's duties or by reason of such Indemnified Party's reckless disregard of obligations and duties under this Agreement or to Securian Life or the Account, whichever is applicable. (c) The Adviser shall not be liable under this indemnification provision with respect to any claim made against an Indemnified Party unless such Indemnified Party shall have notified the Adviser in writing within a reasonable time after the summons or other first legal process giving information of the nature of the claim shall have been served upon such Indemnified Party (or after such Indemnified Party shall have received notice of such service on any designated agent), but failure to notify the Adviser of any such claim shall not relieve the Adviser from any liability which it may have to the Indemnified Party against whom such action is brought otherwise than on account of this indemnification provision. In case any such action is brought against the Indemnified Parties, the Adviser will be entitled to participate at its own expense, in the defense thereof. The Adviser also shall be entitled to assume the defense thereof, with counsel satisfactory to the party named in the action. After notice from the Adviser to such party of the Adviser's election to assume the defense thereof, the Indemnified Party shall bear the expenses of any additional counsel retained by it, and the Adviser will not be liable to such party under this Agreement for any legal or other expenses subsequently incurred by such party independently in connection with the defense thereof other than reasonable costs of investigation. (d) Securian Life agrees promptly to notify the Adviser of the commencement of any litigation or proceedings against it or any of its officers or directors in connection with the issuance or sale of the Variable Insurance Products or the operation of each Account. 6.3 Indemnification by the Fund (a) The Fund agrees to indemnify and hold harmless Securian Life, and each of its directors and officers and each person, if any, who controls Securian Life within the meaning of Section 15 of the 1933 Act (collectively, the "Indemnified Parties" for purposes of this Section 5.3) against any and all losses, claims, damages, liabilities (including amounts paid in settlement with the written consent of the Fund, which consent shall not be unreasonably withheld) or litigation (including legal and other expenses) to which the Indemnified Parties may become subject under any statute, at common law or otherwise, insofar as such losses, claims, damages, liabilities or expenses (or actions in respect thereof) or settlements result from the gross negligence, bad faith or willful misconduct of the Board or any member thereof, are related to the operations of the Fund, and arise out of or result from any material breach of any representation and/or warranty made by the Fund in this Agreement or arise out of or result from any other material breach of this Agreement by the Fund; as limited by and in accordance with the provisions of Section 5.3(b) and 5.3(c) hereof. It is understood and expressly stipulated that neither the holders of shares of the Fund nor any Director, officer, agent or employee of the Fund shall be personally liable hereunder, nor shall any resort to be had to other private property for the satisfaction of any claim or obligation hereunder, but the Fund only shall be liable. 14 (b) The Fund shall not be liable under this indemnification provision with respect to any losses, claims, damages, liabilities or litigation incurred or assessed against any Indemnified Party as such may arise from such Indemnified Party's willful misfeasance, bad faith, or gross negligence in the performance of such Indemnified Party's duties or by reason of such Indemnified Party's reckless disregard of obligations and duties under this Agreement to Securian Life or the Account, whichever is applicable. (c) The Fund shall not be liable under this indemnification provision with respect to any claim made against an Indemnified Party unless such Indemnified Party shall have notified the Fund in writing within a reasonable time after the summons or other first legal process giving information of the nature of the claims shall have been served upon such Indemnified Party (or after such Indemnified Party shall have received notice of such service on any designated agent), but failure to notify the Fund of any such claim shall not relieve the Fund from any liability which it may have to the Indemnified Party against whom such action is brought otherwise than on account of this indemnification provision. In case any such action is brought against the Indemnified Parties, the Fund will be entitled to participate, at its own expense, in the defense thereof. The Fund also shall be entitled to assume the defense thereof, with counsel satisfactory to the party named in the action. After notice from the Fund to such party of the Fund's election to assume the defense thereof, the Indemnified Party shall bear the fees and expenses of any additional counsel retained by it, and the Fund will not be liable to such party under this Agreement for any legal or other expenses subsequently incurred by such party independently in connection with the defense thereof other than reasonable costs of investigation. (d) Securian Life and the Adviser agree promptly to notify the Fund of the commencement of any litigation or proceedings against it or any of its respective officers or directors in connection with this Agreement, the issuance or sale of the Variable Insurance Products, with respect to the operation of either the Account, or the sale or acquisition of share of the Fund. ARTICLE VII. TERMINATION 7.1 This Agreement may be terminated by any party in its entirety or with respect to one, some or all Portfolios for any reason by sixty (60) days advance written notice delivered to the other parties, and shall terminate immediately in the event of its assignment, as that term is used in the 1940 Act. 7.2 This Agreement may be terminated immediately by either the Fund or the Adviser following consultation with the Directors upon written notice to Securian Life: (a) if either one or both of the Fund or the Adviser respectively, shall determine, in their sole judgment exercised in good faith, that Securian Life has suffered a material adverse change in its business, operations, financial condition or prospects since the date of this Agreement; or 15 (b) if Securian Life gives the Fund and the Adviser the written notice specified in Section 1.10 hereof and at the same time such notice was given there was no notice of termination outstanding under any other provision of this Agreement; provided, however, that any termination under this Section 7.2(b) shall be effective forty-five (45) days after the notice specified in Section 1.10 was given. 7.3 This Agreement may be terminated immediately by Securian Life upon written notice to the Fund and the Adviser, if Securian Life shall determine, in its sole judgment exercised in good faith, that either the Fund or the Adviser has suffered a material adverse change in its business, operations, financial conditions or prospects since the date of this Agreement or is the subject of material adverse publicity. 7.4 If this Agreement is terminated for any reason, except under Article IV (Potential Conflicts) above, the Fund shall, at the option of Securian Life, continue to make available additional shares of any Portfolio and redeem shares of any Portfolio pursuant to all of the terms and conditions of this Agreement for all Variable Insurance Products in effect on the effective date of termination of this Agreement (hereinafter "Existing Contracts"). Specifically without limitation the owners of the Existing Contracts shall be permitted to reallocate investments in the Fund, redeem investments in the Fund, and/or invest in the Fund upon the making of additional purchase payments under the Existing Contracts. The parties agree that this Section 7.4 shall not apply to any terminations pursuant to Article IV, and that the provisions of Article IV shall govern. 7.5 The provisions of Articles III (Representations and Warranties) and VI (Indemnification) shall survive the termination of this Agreement. All other applicable provisions of this Agreement shall survive the termination of this Agreement, as long as shares of the Fund are held on behalf of contract owners in accordance with Section 7.4, except that the Fund and the Adviser shall have no further obligation to sell Fund shares with respect to Variable Insurance Products issued after termination. 7.6 Securian Life shall not redeem Fund shares attributable to the Variable Insurance Products except (i) as necessary to implement contract owner initiated or approved transactions, (ii) as required by state and/or federal laws or regulations or judicial or other legal precedent of general application (hereinafter referred to as a "Legally Required Redemption"), or (iii) as permitted by an order of the Commission pursuant to Section 26(b) of the 1940 Act. Upon request, Securian Life will promptly furnish to the Fund and the Adviser the opinion of counsel for Securian Life (which counsel shall be reasonably satisfactory to the Fund and the Adviser) to the effect that any redemption pursuant to clause (ii) above is a Legally Required Redemption. Furthermore, except in cases where permitted under the terms of the Variable Insurance Products, Securian Life shall not prevent contract owners from allocating payments to a Portfolio that was otherwise available under the Variable Insurance Products without first giving the Fund or the Adviser ninety (90) days notice of its intention to do so. 16 ARTICLE VIII. NOTICES Any notice shall be sufficiently given when sent by registered or certified mail to the other party at the address of such party set forth below or at such other address as such party may from time to time specify in writing to the other party. If to the Fund or the Adviser: Advantus Capital Management, Inc. 400 Robert Street North St. Paul, Minnesota 55101-2098 Attention: President If to Securian Life: Securian Life Insurance Company 400 Robert Street North St. Paul, Minnesota 55101-2098 Attention: President ARTICLE IX. COMPLIANCE WITH ANTI-MONEY LAUNDERING LAWS AND REGULATIONS 9.1 Securian Life agrees to comply with any and all laws, regulations, and other requirements relating to money laundering, including, without limitation, the International Money Laundering Abatement and Anti-Terrorist Financing Act of 2001 (Title III of the USA Patriot Act), hereinafter, collectively with the rules, regulations and orders promulgated thereunder, the "Act," and any requirements and/or requests in connection therewith, made by regulatory authorities, the Fund or the Fund's underwriter or their duly appointed agents, either generally or in respect of a specific transaction, and/or in the context of a "primary money laundering concern" as defined in the Act. 9.2 Securian Life agrees as a condition precedent to any transaction taking or continuing to be in effect, to comply with any and all anti-money laundering laws, regulations, orders or requirements, and without prejudice to the generality of the above, to provide regulatory authorities, the Fund, the Fund's underwriter or their duly appointed agents, with all necessary reports and information for them to fulfill their obligations, if any, under the Act for the purposes of the Fund, the Fund's underwriter, or other third parties complying with any and all anti-money laundering requirements, including, without limitation, the enhanced due diligence obligations, imposed by the Act, the filing of Currency Transaction Reports and/or of Suspicious Activity Reports obligations required by the Act, and/or the sharing of information requirements imposed by the Act. 9.3 In the event satisfactory reports and information are not received within a reasonable time period from the date of the request, the Fund or the Fund's underwriter reserve the right to reject any transaction. 17 9.4 Further, Securian Life represents that it has not received notice of, and to its knowledge, there is no basis for, any claim, action, suit, investigation or proceeding that might result in a finding that Securian Life is not or has not been in compliance with the Act, and the rules and regulations promulgated thereunder. Securian Life agrees to notify the Fund and the Fund's underwriter promptly if the representation in the previous sentence is no longer true or if Securian Life has a reasonable basis for believing that such representation may no longer be true. ARTICLE X. MISCELLANEOUS 10.1 The captions in this Agreement are included for convenience of reference only and in no way define or delineate any of the provisions hereof or otherwise affect their construction or effect. 10.2 This Agreement may be executed simultaneously in two or more counterparts, each of which taken together shall constitute one and the same instrument. 10.3 If any provision of this Agreement shall be held or made invalid by a court decision, statute, rule or otherwise, the remainder of the Agreement shall not be affected thereby. 10.4 This Agreement shall be construed and the provisions hereof interpreted under and in accordance with the laws of the State of Minnesota. It shall also be subject to the provisions of the federal securities laws and the rules and regulations thereunder and to any orders of the Commission granting exemptive relief therefrom and the conditions of such orders. Copies of any such orders shall be promptly forwarded by the Fund to Securian Life. 10.5 The parties to this Agreement acknowledge and agree that all liabilities of the Fund arising, directly or indirectly, under this Agreement, of any and every nature whatsoever, shall be satisfied solely out of the assets of the Fund and that no director, officer, agent or holder of shares of beneficial interest of the Fund shall be personally liable for any such liabilities. 10.6 Each party shall cooperate with each other party and all appropriate governmental authorities (including without limitation the Commission, the National Association of Securities Dealers, Inc. and state insurance regulators) and shall permit such authorities reasonable access to its books and records in connection with any investigation or inquiry relating to this Agreement or the transactions contemplated hereby. 10.7 The rights, remedies and obligations contained in this Agreement are cumulative and are in addition to any and all rights, remedies and obligations, at law or in equity, which the parties hereto are entitled to under state and federal laws. 10.8 The parties of this Agreement acknowledge and agree that this Agreement shall not be exclusive in any respect, except as provided in Section 1.10. 10.9 No provisions of this Agreement may be amended or modified in any manner except by a written agreement properly authorized and executed by all parties. 18 IN WITNESS WHEREOF, the parties have caused their duly authorized officers to execute this Participation Agreement as of the date and year first above written. Securian Life: Securian Life Insurance Company By its authorized officer By: /s/ Robert L. Senkler ---------------------------------------- Name: Robert L. Senkler Title: President and Chief Executive Officer The Fund: Advantus Series Fund, Inc. By its authorized officer By: /s/ Gregory S. Strong ---------------------------------------- Name: Gregory S. Strong Title: President The Adviser: Advantus Capital Management, Inc. By its authorized officer By: /s/ Robert L. Senkler ---------------------------------------- Name: Robert L. Senkler Title: President 19 SCHEDULE A SEPARATE ACCOUNTS OF SECURIAN LIFE INSURANCE COMPANY 1. Securian Life Variable Universal Life Account A-1 SCHEDULE B FUND PORTFOLIOS AND CLASSES AVAILABLE
PORTFOLIO CLASS INVESTMENT ADVISER INVESTMENT SUB-ADVISER --------- -------- --------------------------------- ------------------------------- Bond I and II Advantus Capital Management, Inc. Money Market Advantus Capital Management, Inc. Mortgage Securities I and II Advantus Capital Management, Inc. Index 500 I and II Advantus Capital Management, Inc. International Bond I and II Advantus Capital Management, Inc. Augustus Asset Managers Limited Maturing Government Bond - 2010 Advantus Capital Management, Inc. Index 400 Mid-Cap I and II Advantus Capital Management, Inc. Real Estate Securities I and II Advantus Capital Management, Inc.
B-1 SCHEDULE C FEES OR OTHER COMPENSATION Pursuant to the Fund's Rule 12b-1 Plan of Distribution, Securian Life shall receive 12b-1 fees in connection with this Agreement in such amounts and subject to such terms as are set forth in the separate Fund Shareholder Services Agreement between Securian Life and the Fund's distributor, Securian Financial Services, Inc. C-1 SCHEDULE D CERTIFICATE OF COMPLIANCE Name of Fund: Advantus Series Fund, Inc. Name of each Portfolio: To: Securian Life Insurance Company 400 Robert Street North Saint Paul, Minnesota 55101-2098 Attn: Ms. Kathleen Radcliffe Life Fund Accounting Station Number: A6-5136 We have reviewed compliance of the Fund named above with respect to certain investment diversification requirements for the Fund for the quarter ending, __________, __________. The review was limited to verifying whether the Fund complied with the quarterly diversification requirements described in Section 817(h) of the Internal Revenue Code of 1986, as amended, and the regulations thereunder (the "Section 817(h) Diversification Requirements"). As of _____________, ___________________, the Fund was in compliance with the Section 817(h) Diversification Requirements. Dated: --------------------------------- By: ------------------------------------ Title: --------------------------------- D-1 EX-99.H.7 15 c49473bexv99whw7.txt EX-99.H.7 Exhibit 99 (h)(7) SHAREHOLDER INFORMATION AGREEMENT This Shareholder Information Agreement (hereinafter "Agreement") is entered into as of March 15, 2007 by and between Advantus Series Fund, Inc. (hereinafter the "Fund") and Securian Life Insurance Company (hereinafter the "Intermediary" or "Securian Life") with an Agreement effective date of April 16, 2007 and such other effective dates as are recited herein. WHEREAS, prior to the effective date of this Agreement, the Fund and the Intermediary agree that any request made to the Intermediary by the Fund for shareholder transaction information, and the Intermediary's response to such request, shall be governed by whatever informal practices the Fund and the Intermediary have utilized in the absence of a formal agreement, if any, to govern such requests. WHEREAS, Rule 22c-2 under the Investment Company Act of 1940, as amended (the "1940 Act") requires mutual funds to enter into "shareholder information agreements" with "financial intermediaries" that hold fund shares on behalf of other investors in omnibus accounts and submit orders to purchase or redeem fund shares on behalf of such investors directly to the fund ("Rule 22c-2"); and WHEREAS, Securian Life has established one or more separate accounts ("Account" or "Accounts"), which may also be composed of several Sub-Accounts, through which Securian Life offers certain group and individual variable life or annuity contracts ("Contract" or "Contracts") that make available as investment options one or more of such Sub-Accounts which, in turn, invest in shares of one or more of the Fund's portfolios ("Portfolios"); and WHEREAS, in accordance with the terms of a Contract, the owner of the Contract may allocate and reallocate Contract values among Sub-Accounts and Portfolios from time to time; and WHEREAS, Securian Life has been identified by the Fund as a "financial intermediary" as defined in Rule 22c-2. NOW, THEREFORE, in consideration of the foregoing and the mutual promises set forth below, Intermediary and the Fund agree as follows: Section 1 Terms As used in this Agreement, the following terms shall have the following meanings, unless a different meaning is clearly required by the context: 1.1. The term "Intermediary" shall include an Account. 1.2. The term "Fund" shall also include either (i) an investment adviser to or administrator for the Fund; or (ii) the principal underwriter or distributor for the Fund. The term does not include any "excepted funds" as defined in Rule 22c-2(b).(1) 1.3. The term "Shares" means the interests of Shareholders corresponding to the redeemable securities of record issued by the Fund under the 1940 Act that are held by the Intermediary. 1.4. The term "Shareholder" means the holder of interests in a Contract issued by the Intermediary, or a participant in an employee benefit plan with a beneficial interest in a Contract. 1.5. The term "Shareholder-Initiated Transfer Purchase" means a transaction that is initiated or directed by a Shareholder that results in a transfer of assets within a Contract to a Portfolio, but does not include transactions that are executed: (i) automatically pursuant to a contractual or systematic program or enrollment such as transfer of assets within a Contract to a Portfolio as a result of "dollar cost averaging" programs, insurance company approved asset allocation programs, or automatic rebalancing programs; (ii) pursuant to a Contract death benefit; (iii) one-time step-up in Contract value pursuant to a Contract death benefit; or (iv) allocation of assets to a Portfolio through a Contract as a result of payments such as loan repayments, scheduled contributions, retirement plan salary reduction contributions, or planned premium payments to the Contract. 1.6. The term "Shareholder-Initiated Transfer Redemption" means a transaction that is initiated or directed by a Shareholder that results in a transfer of assets within a Contract out of a Portfolio, but does not include transactions that are executed: (i) automatically pursuant to a contractual or systematic program or enrollments such as transfers of assets within a Contract out of a Portfolio as a result of annuity payouts, loans, systematic withdrawal programs, asset allocation programs and automatic rebalancing programs; (ii) as a result of any deduction of charges or fees under a Contract; (iii) within a Contract out of a Portfolio as a result of scheduled withdrawals or surrenders from a Contract; or (iv) as a result of payment of a death benefit from a Contract. 1.7. The term "written" includes electronic writings and facsimile transmissions. Section 2 Shareholder Information The provisions of this Agreement, with respect to the ability of Fund to request and promptly receive shareholder identity and transaction information pursuant to this Agreement and this Section 2, shall be effective October 16, 2007. 2.1. Agreement to Provide Information. Intermediary agrees to provide the Fund, upon written request, the taxpayer identification number ("TIN"), the Individual/International Taxpayer Identification Number ("ITIN"), or other government-issued identifier ("GII") and the ---------- (1) As defined in Rule 22c-2(b), term "excepted fund" means any: (1) money market fund; (2) fund that issues securities that are listed on a national exchange; and (3) fund that affirmatively permits short-term trading of its securities, if its prospectus clearly and prominently discloses that the fund permits short-term trading of its securities and that such trading may result in additional costs for the fund. 2 Contract owner number or participant account number associated with the Shareholder, if known, of any or all Shareholder(s) of the account, and the amount, date and transaction type (purchase, redemption, transfer, or exchange) of every purchase, redemption, transfer, or exchange of Shares held through an account maintained by the Intermediary during the period covered by the request. This section shall be read to require Intermediary to provide only that information relating to Shareholder-Initiated Transfer Purchases or Shareholder-Initiated Transfer Redemptions. If the Fund wishes to request Intermediary to provide information in addition to that recited in this Section 2.1, it shall provide Intermediary with the details of that additionally requested information together with a suggested format for Intermediary's response. Requests from the Fund to Intermediary should include the Fund name and identification number, Intermediary's Fund Account number and method of response, and the address to which Intermediary must respond with the requested information. 2.2. Period Covered by Request. Requests must set forth a specific period, not to exceed 180 days from the date of the request, for which transaction information is sought. The Fund may request transaction information older than 180 days from the date of the request as it deems necessary to investigate compliance with policies established by the Fund for the purpose of eliminating or reducing any dilution of the value of the outstanding shares issued by the Fund. 2.3. Timing of Requests. Fund requests for Shareholder information shall be made no more frequently than quarterly except as the Fund deems necessary to investigate compliance with policies established by the Fund for the purpose of eliminating or reducing any dilution of the value of the outstanding shares issued by the Fund. 2.4. Form and Timing of Response. (a) Intermediary agrees to provide, promptly upon request of the Fund or its designee, the requested information specified in 2.1. If requested by the Fund or its designee, Intermediary agrees to use best efforts to determine promptly whether any specific person about whom it has received the identification and transaction information specified in 2.1 is itself a financial intermediary ("indirect intermediary") and, upon further request of the Fund or its designee, promptly either (i) provide (or arrange to have provided) the information set forth in 2.1 for those shareholders who hold an account with an indirect intermediary or (ii) restrict or prohibit the indirect intermediary from purchasing, in nominee name on behalf of other persons, securities issued by the Fund. Intermediary additionally agrees to inform the Fund whether it plans to perform (i) or (ii). (b) Responses required by this paragraph must be communicated in writing and in a format mutually agreed upon by the Fund or its designee and the Intermediary; and (c) To the extent practicable, the format for any transaction information provided to the Fund should be consistent with the NSCC Standardized Data Reporting Format provided, however, that the Fund shall not require the Intermediary to report to the Fund using the NSCC Standardized Data Reporting Service. 3 2.5. Limitations on Use of Information. The Fund agrees not to use the information received pursuant to this Agreement for any purpose other than as necessary to comply with the provisions of Rule 22c-2 or to fulfill other regulatory or legal requirements subject to the privacy provisions of Title V of the Gramm-Leach-Bliley Act (Public Law 106-102) and comparable state laws. Section 3 Procedures 3.1. Indemnification. The Fund agrees to indemnify and hold harmless Intermediary from any and all liability, claim, loss, demand, damages, costs and expenses (including reasonable attorney's fees) arising in connection with third party claim or action brought against Intermediary as a result of any unauthorized disclosure of a shareholder's taxpayer identification number provided to the Fund in response to a request for information pursuant to the terms of this Agreement. 3.2. Agreement to Restrict Trading. Intermediary agrees to execute written instructions from the Fund to restrict or prohibit further purchases or exchanges of Shares by a Shareholder that has been identified by the Fund as having engaged in transactions of the Fund's Shares (directly or indirectly through the Intermediary's account) that violate policies established by the Fund for the purpose of eliminating or reducing any dilution of the value of the outstanding Shares issued by the Fund. Unless otherwise directed by the Fund, any such restrictions or prohibitions shall only apply to Shareholder-Initiated Transfer Purchases or Shareholder-Initiated Transfer Redemptions that are effected directly or indirectly through Intermediary. Instructions must be received by Intermediary at the following address, or such other address that Intermediary may communicate to Fund in writing from time to time, including, if applicable, an e-mail and/or facsimile telephone number: Securian Life Insurance Company 400 Robert Street North St. Paul, Minnesota 55101 Attention: Christina Moore Phone: 651-665-4715 E-mail: christina.moore@securian.com 3.3. Form of Instructions. Instructions must include the TIN, ITIN, or GII and the specific individual Contract owner number or participant account number associated with the Shareholder, if known, and the specific restriction(s) to be executed, including how long the restriction(s) is(are) to remain in place. If the TIN, ITIN, GII or the specific individual Contract owner number or participant account number associated with the Shareholder is not known, the instructions must include an equivalent identifying number of the Shareholder(s)or account(s) or other agreed upon information to which the instruction relates. Upon request of the Intermediary, Fund agrees to provide to the Intermediary, along with any written instructions to prohibit further purchases or exchanges of Shares by Shareholder, a copy of the Fund's publicly disclosed policies relating to eliminating or reducing any dilution of the value of the outstanding Shares issued by the Fund. 4 3.4. Timing of Response. Intermediary agrees to execute instructions as soon as reasonably practicable, but not later than five (5) business days after receipt of the instructions by the Intermediary. 3.5. Confirmation by Intermediary. Intermediary must provide written confirmation to the Fund that instructions have been executed. Intermediary agrees to provide confirmation as soon as reasonably practicable, but not later than ten (10) business days after the instructions have been executed. 3.6. Force Majeure. Either party is excused from performance and shall not be liable for any delay in performance or non-performance, in whole or in part, caused by the occurrence of any event or contingency beyond the control of the parties including, but not limited to, work stoppages, fires, civil disobedience, riots, rebellions, natural disasters, acts of God, acts of war or terrorism, actions or decrees of governmental bodies, pandemic or epidemic disease, but excluding failure caused by a party's financial condition or negligence and similar occurrences. The party who has been so affected shall promptly give written notice to the other Party and shall use its best efforts to resume performance. Upon receipt of such notice, all obligations under this Agreement shall be immediately suspended for the duration of such Force Majeure Event. Section 4 Construction and Cooperation 4.1. Construction of the Agreement; Fund Participation Agreements. The parties have entered into one or more Fund Participation Agreements between or among them for the purchase and redemption of shares of the Fund by the Accounts in connection with the Contracts. This Agreement supplements those Fund Participation Agreements. To the extent the terms of this Agreement conflict with the terms of a Fund Participation Agreement, the terms of this Agreement shall control. This Agreement shall be governed by and construed with the laws of the State of Minnesota. 4.2. Mutual Cooperation. The Fund and Intermediary agree to cooperate with one another in the development of abusive trading policies that take into consideration the legality of enforcing these limits with respect to certain Shareholders whose existing Contracts impose no or inconsistent trading limits. Fund and Intermediary also agree to cooperate with one another in the development of Intermediary's own market timing policies with respect to its contracts. 4.3. Dispute Resolution. The parties hereby mutually agree to use their best efforts to seek an amicable solution to any controversy or dispute regarding the subject matter hereof. Any unresolved controversy, claim or dispute shall be submitted to binding arbitration in accordance with the Commercial Rules of the American Arbitration Association and judgment upon any such award may be entered in any court having jurisdiction thereof. Arbitration shall be conducted by a single arbitrator who shall have the authority to grant any and all appropriate relief, including, but not limited to, granting injunctive relief or demanding specific performance. The arbitrator may make an initial determination of the location of the arbitration or whether proceedings may ensue based entirely upon documentary evidence. Unless otherwise mutually agreed in writing by the parties, said determination by the arbitrator shall become final and binding three (3) days after the arbitrator's ruling. Arbitration costs and expenses shall be borne 5 equally by the parties. Each party hereby agrees to waive and suspend enforcement of any and all rights pursuant to this and all related agreements during the pendency of such arbitration proceedings. Section 5 Termination 5.1. Termination. This Agreement will terminate upon the termination of the Fund Participation Agreements. IN WITNESS WHEREOF, the undersigned has caused this Agreement to be executed as of the date first above written. FUND /s/ Dianne M. Orbison ------------------------------------- By: Dianne M. Orbison Title: President Advantus Series Fund, Inc. INTERMEDIARY /s/ Bruce P. Shay ------------------------------------- By: Bruce P. Shay Title: Senior Vice President Securian Life Insurance Company 6 EX-99.J 16 c49473bexv99wj.txt EX-99(J) EXHIBIT 99.(j) KPMG LLP 4200 Wells Fargo Center 90 South Seventh Street Minneapolis, MN 55402 Consent of Independent Registered Public Accounting Firm The Board of Directors and Shareholders Advantus Series Fund, Inc.: We consent to the use of our report dated February 27, 2009 incorporated by reference herein and to the references to our Firm under the heading "Financial Highlights" and "Service Providers -- INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM" in Part A and "DISCLOSURE OF FUND PORTFOLIO HOLDINGS," "Independent Registered Public Accounting Firm" and "FINANCIAL STATEMENTS" in Part B of the Registration Statement. /s/ KPMG LLP Minneapolis, Minnesota April 24, 2009 EX-99.M.2 17 c49473bexv99wmw2.txt EX-99.M.2 Exhibit 99.(m)(2) FUND SHAREHOLDER SERVICES AGREEMENT This Agreement is entered into on November 6, 2007, between Minnesota Life Insurance Company ("Minnesota Life") and Securian Financial Services, Inc. ("Securian"), each of which is a subsidiary of Minnesota Mutual Companies, Inc. and a corporation domiciled in the State of Minnesota; and WHEREAS, Minnesota Life issues variable life insurance policies and variable annuity contracts (collectively the "Variable Contracts") through its variable separate accounts ("Separate Accounts") which, in turn, invest in designated shares (or in designated Classes thereof) issued by registered investment companies, including Advantus Series Fund, Inc. (the "Fund"); and WHEREAS, the Fund has adopted a plan of distribution (the "Plan of Distribution") pursuant to Rule 12b-1 under the Investment Company Act of 1940, the terms of which provide for certain payments to Securian in exchange for both distribution and non-distribution related services to the Fund's Portfolios (and any class thereof) covered by the Plan of Distribution; and WHEREAS, Minnesota Life desires to provide to the Fund, on behalf of Securian, the services described in the Plan of Distribution, and Securian desires to have Minnesota Life provide such services in the manner described herein; and WHEREAS, Minnesota Statutes Section 60D.20 requires that agreements between subsidiaries of Minnesota Mutual Companies, Inc. must be fair and reasonable; and WHEREAS, the parties believe that Securian's payment to Minnesota Life of the fees described herein is a fair and reasonable basis upon which to compensate Minnesota Life for the services provided under this Agreement. NOW THEREFORE, for good and valuable consideration, the receipt and adequacy of which is acknowledged, the parties hereto, intending to be legally bound, agree as follows: 1. Services: Minnesota Life agrees to provide the following services to the Fund's Portfolios (and any Class thereof) covered by the Plan of Distribution on behalf of Securian: A. Distribution-Related Services. Distribution-related services provided pursuant to this Agreement shall include payment for, among other things, the printing of prospectuses and reports used for sales purposes, preparing and distributing sales literature and related expenses, advertisements, education of contract owners or dealers and their representatives, trail commissions, and other distribution-related expenses, including a prorated portion of the overhead expenses of the Distributor or the Insurance Companies which are attributable to the distribution of these Variable Contracts. B. Non-Distribution Related Services. Non-distribution services provided pursuant to this Agreement shall include payment for, among other things, responding to inquiries from owners of Variable Contracts regarding the Fund, printing and mailing Fund prospectuses and other shareholder communications to existing Variable Contract owners, direct communications with Variable Contract owners regarding Fund operations and Portfolio composition and performance, furnishing personal services or such other enhanced services as the Fund or a Variable Contract may require, or maintaining customer accounts and records. 2. Payments to Minnesota Life. For the services described herein, Securian agrees to pay Minnesota Life on a quarterly basis an amount that is equal, on an annual basis, to .25% of the average combined daily net assets of all the designated Portfolios (or designated Class thereof) of the Fund which are attributable to the Variable Contracts and part of the Plan of Distribution. The payments contemplated by this paragraph shall be calculated by Securian at the end of each quarter and will be paid to Minnesota Life within thirty (30) days thereafter. Payment will be accompanied by a statement showing the calculation of the quarterly amount payable and such other supporting data as may be reasonably requested by Minnesota Life. 3. Nature of the Payments. The parties recognize and agree that Securian's payments to Minnesota Life hereunder relate solely to the services to the Fund described in this Agreement and performed by Minnesota Life on behalf of Securian. 4. Term. This Agreement shall remain in full force and effect for any Portfolio (or designated Class thereof) of the Fund only so long as such Portfolio (or designated Class thereof) is subject to the provisions of the Plan of Distribution, unless terminated in accordance with paragraph 5. 5. Termination. This Agreement may be terminated by either party upon sixty (60) days advance written notice or immediately upon termination of the Plan of Distribution. 6. Representations by Minnesota Life. Minnesota Life represents and agrees that it will maintain and preserve all records as required by law to be maintained and preserved by it in connection with the services described herein and that it will otherwise comply with all laws, rules and regulations applicable to the performance of the services. Minnesota Life further represents and warrants that the receipt of fees hereunder will not constitute a "prohibited transaction" as such term is defined in Section 406 of the Employee Retirement Income Security Act, as amended, and Section 4975 of the Internal Revenue Code of 1986, as amended. Minnesota Life represents that it will indemnify and hold Securian, the Fund and the Fund's advisor and sub-advisors harmless from any and all direct or indirect liabilities or losses resulting from negligent actions or inactions, of or by it or its officers, employees or agents regarding its responsibilities under this Agreement. This indemnification shall survive the termination of this Agreement. Minnesota Life represents that neither it nor any of its officers, employees or agents are authorized to make any representation concerning Fund shares except those contained in the registration statement or prospectus for Fund shares, as such registration statement and prospectus may be amended or supplemented from time to time, or in reports or proxy statements for the Fund, or in sales literature or other -2- promotional materials approved by the Fund or its designee or by Securian, except with the permission of the Fund or Securian or the designee of either. 7. Authority. This Agreement shall in no way limit the authority of the Fund, its adviser or Securian to take such action as any of those parties may deem appropriate or advisable in connection with all matters relating to operations of the Fund and/or the sale of its shares. Minnesota Life agrees and understands that the obligations of Securian under this Agreement are not binding upon the Fund. 8. Miscellaneous. This Agreement may be amended only upon mutual agreement of the parties hereto in writing. This Agreement may not be assigned by a party, by operation of law or otherwise, without the prior written consent of the other party. This Agreement constitutes the entire agreement between the parties with respect to the matters described herein and supersedes any previous agreements and documents with respect to such matters. It may be executed in counterparts, each of which shall be deemed to be an original but all of which shall together constitute one and the same instrument. Minnesota Life agrees to notify Securian promptly if for any reason it is unable to perform fully and to promptly any of its obligations under this Agreement. 9. Independent Contractor. For purposes of this Agreement, Minnesota Life is an independent contractor and its employees or its associates shall not be employees of Securian. Services performed by Minnesota Life on behalf of Securian shall be as its agent, and records maintained by Minnesota Life on behalf of Securian shall be considered to be those of Securian. IN WITNESS WHEREOF, Minnesota Life and Securian have caused this Agreement to be executed in duplicate by their executive officers. This Agreement shall be effective on November 6, 2007. MINNESOTA LIFE INSURANCE COMPANY By: /s/ Gregory S. Strong -------------------------------------- Title: Senior Vice President & Treasurer SECURIAN FINANCIAL SERVICES, INC. By: /s/ George I. Connolly -------------------------------------- Title: President & Chief Executive Officer -3- EX-99.M.3 18 c49473bexv99wmw3.txt EX-99.M.3 Exhibit 99.(m)(3) FUND SHAREHOLDER SERVICES AGREEMENT This Agreement is entered into on November 6, 2007, between Securian Life Insurance Company ("Securian Life"), a Minnesota corporation and Securian Financial Services, Inc. ("Securian"), a Minnesota corporation, each of which is a subsidiary of Minnesota Mutual Companies, Inc. WHEREAS, Securian Life issues variable life insurance policies and variable annuity contracts (collectively the "Variable Contracts") through its variable separate accounts ("Separate Accounts") which, in turn, invest in designated shares (or in designated Classes thereof) issued by registered investment companies, including Advantus Series Fund, Inc. (the "Fund"); and WHEREAS, the Fund has adopted a plan of distribution (the "Plan of Distribution") pursuant to Rule 12b-1 under the Investment Company Act of 1940, the terms of which provide for certain payments to Securian in exchange for both distribution and non-distribution related services to the Fund's Portfolios (and any Class thereof) covered by the Plan of Distribution; and WHEREAS, Securian Life desires to provide to the Fund, on behalf of Securian, the services described in the Plan of Distribution, and Securian desires to have Securian Life provide such services in the manner described herein; and WHEREAS, Minnesota Statutes Section 60D.20 requires that agreements between subsidiaries of Minnesota Mutual Companies, Inc. must be fair and reasonable; and WHEREAS, the parties believe that Securian's payment to Securian Life of the fees described herein is a fair and reasonable basis upon which to compensate Securian Life for the services provided under this Agreement. NOW THEREFORE, for good and valuable consideration, the receipt and adequacy of which is acknowledged, the parties hereto, intending to be legally bound, agree as follows: 1. Services: Securian Life agrees to provide the following services to the Fund's Portfolios (and any Class thereof) covered by the Plan of Distribution on behalf of Securian: A. Distribution-Related Services. Distribution-related services provided pursuant to this Agreement shall include payment for, among other things, the printing of prospectuses and reports used for sales purposes, preparing and distributing sales literature and related expenses, advertisements, education of contract owners or dealers and their representatives, trail commissions, and other distribution-related expenses, including a prorated portion of the overhead expenses of Securian or Securian Life which are attributable to the distribution of these Variable Contracts. B. Non-Distribution Related Services. Non-distribution services provided pursuant to this Agreement shall include payment for, among other things, responding to inquiries from owners of Variable Contracts regarding the Fund, printing and mailing Fund prospectuses and other shareholder communications to existing Variable Contract owners, direct communications with Variable Contract owners regarding Fund operations and Portfolio composition and performance, furnishing personal services or such other enhanced services as the Fund or a Variable Contract may require, or maintaining customer accounts and records. 2. Payments to Securian Life. For the services described herein, Securian agrees to pay Securian Life on a quarterly basis an amount that is equal, on an annual basis, to .25% of the average combined daily net assets of all the designated Portfolios (or designated Class thereof) of the Fund which are attributable to the Variable Contracts and part of the Plan of Distribution. The payments contemplated by this paragraph shall be calculated by Securian at the end of each quarter and will be paid to Securian Life within thirty (30) days thereafter. Payment will be accompanied by a statement showing the calculation of the quarterly amount payable and such other supporting data as may be reasonably requested by Securian Life. 3. Nature of the Payments. The parties recognize and agree that Securian's payments to Securian Life hereunder relate solely to the services to the Fund described in this Agreement and performed by Securian Life on behalf of Securian. 4. Term. This Agreement shall remain in full force and effect for any Portfolio (or designated Class thereof) of the Fund only so long as such Portfolio (or designated Class thereof) is subject to the provisions of the Plan of Distribution, unless terminated in accordance with paragraph 5. 5. Termination. This Agreement may be terminated by either party upon sixty (60) days advance written notice or immediately upon termination of the Plan of Distribution. 6. Representations by Securian Life. Securian Life represents and agrees that it will maintain and preserve all records as required by law to be maintained and preserved by it in connection with the services described herein and that it will otherwise comply with all laws, rules and regulations applicable to the performance of the services. Securian Life further represents and warrants that the receipt of fees hereunder will not constitute a "prohibited transaction" as such term is defined in Section 406 of the Employee Retirement Income Security Act, as amended, and Section 4975 of the Internal Revenue Code of 1986, as amended. Securian Life represents that it will indemnify and hold Securian, the Fund and the Fund's advisor and sub-advisors harmless from any and all direct or indirect liabilities or losses resulting from negligent actions or inactions, of or by it or its officers, employees or agents regarding its responsibilities under this Agreement. This indemnification shall survive the termination of this Agreement. Securian Life represents that neither it nor any of its officers, employees or agents are authorized to make any representation concerning Fund shares except those contained in the registration statement or prospectus for Fund shares, as such registration statement and prospectus may be amended or supplemented from time to time, or in reports or proxy statements for the Fund, or in sales literature or other promotional -2- materials approved by the Fund or its designee or by Securian, except with the permission of the Fund or Securian or the designee of either. 7. Authority. This Agreement shall in no way limit the authority of the Fund, its adviser or Securian to take such action as any of those parties may deem appropriate or advisable in connection with all matters relating to operations of the Fund and/or the sale of its shares. Securian Life agrees and understands that the obligations of Securian under this Agreement are not binding upon the Fund. 8. Miscellaneous. This Agreement may be amended only upon mutual agreement of the parties hereto in writing. This Agreement may not be assigned by a party, by operation of law or otherwise, without the prior written consent of the other party. This Agreement constitutes the entire agreement between the parties with respect to the matters described herein and supersedes any previous agreements and documents with respect to such matters. It may be executed in counterparts, each of which shall be deemed to be an original but all of which shall together constitute one and the same instrument. Securian Life agrees to notify Securian promptly if for any reason it is unable to perform fully and to promptly any of its obligations under this Agreement. 9. Independent Contractor. For purposes of this Agreement, Securian Life is an independent contractor and its employees or its associates shall not be employees of Securian. Services performed by Securian Life on behalf of Securian shall be as its agent, and records maintained by Securian Life on behalf of Securian shall be considered to be those of Securian. IN WITNESS WHEREOF, Securian Life and Securian have caused this Agreement to be executed in duplicate by their executive officers. This Agreement shall be effective on November 6, 2007. SECURIAN LIFE INSURANCE COMPANY By: /s/ Robert L. Senkler ------------------------------------ Title: President and Chief Executive Officer SECURIAN FINANCIAL SERVICES, INC. By: /s/ George I. Connolly ------------------------------------ Title: President and Chief Executive Officer -3- EX-99.Q 19 c49473bexv99wq.txt EX-99.Q EXHIBIT (q) POWER OF ATTORNEY TO SIGN REGISTRATION STATEMENTS The undersigned, Directors of Advantus Series Fund, Inc. (the "Fund"), appoint Gregory S. Strong, Eric J. Bentley and Michael J. Radmer, and each of them individually, as attorney-in-fact for the purpose of signing in their names and on their behalf as Directors of the Fund 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 Fund for sale by the Fund under the Securities Act of 1933 (Registration No. 2-96990) and registering the Fund under the Investment Company Act of 1940 (Registration No. 811-4279). Dated: April 25, 2007 /s/ Dorothy J. Bridges -------------------------------------- Dorothy J. Bridges /s/ Linda L. Henderson -------------------------------------- Linda L. Henderson /s/ William C. Melton -------------------------------------- William C. Melton CORRESP 20 filename20.txt Securian Financial Group, Inc. 400 Robert Street North St. Paul, MN 55101-2098 www.securian.com 651.665.3500 (SECURIAN LOGO) April 27, 2009 Securities and Exchange Commission Judiciary Plaza 100 F Street, N.E. VIA EDGAR Washington, D.C. 20549 RE: POST-EFFECTIVE AMENDMENT FILING PURSUANT TO RULE 485(b) ADVANTUS SERIES FUND, INC. FILE NUMBERS: 2-96990 AND 811-4279 Dear Ladies and Gentlemen: The accompanying post-effective amendment to the Registration Statement on Form N-1A for Advantus Series Fund, Inc. (the "Registrant") is being filed electronically with the Securities and Exchange Commission (the "Commission") pursuant to the Commission's EDGAR System. The amendment is being filed pursuant to Rule 485(b) under the Securities Act of 1933. In that regard, it is requested that the amendment be declared effective on May 1, 2009. The Registrant currently has on file with the Commission a "narrative-only" post-effective amendment filed pursuant to Rule 485(a) on February 27, 2009, which has not yet been declared effective. Please note that the accompanying post-effective amendment does not designate a new effective date for the previously filed post-effective amendment. In response to comments received by telephone on March 6, 2009 from Ms. Alison White of the Commission's staff, please note the following in connection with the current filing: 1. The Registrant hereby confirms that it will post future proxy materials on an internet website in accordance with the requirements of Rule 14a-16 under the Securities Exchange Act of 1934. 2. As noted by Ms. White, certain agreements previously filed as exhibits to the Registration Statement were filed as "form of" rather than "actual" agreements. Those agreements have been refiled as exhibits to the current post-effective amendment and have been conformed in each case to the actual or definitive version. The post-effective amendment further reflects the updating of financial data contained in the Registration Statement and miscellaneous other non-material changes deemed appropriate by the Registrant, including additional disclosures in the Statement of Additional Information about credit-linked securities. These securities may be purchased by the Fund's International Bond Portfolio on a very infrequent basis when the Portfolio seeks exposure indirectly, through a credit-linked security, to an issuer in a foreign country where the Portfolio does not have existing eligible foreign custodian and eligible securities depository arrangements in place. The disclosure is substantially similar to that employed by certain other funds managed by the Portfolio's sub-adviser, Franklin Advisers, Inc. Securian Financial Group provids financial security for individuals and business through its subsidiaries including Minnesota Life Insurance Company, Advantus Capital Management, Securian Financial Services and Securian Trust Company. Securities and Exchange Commission April 27, 2009 Page 2 The accompanying post-effective amendment is being filed pursuant to paragraph (b) of Rule 485, and the Registrant has certified that its amendment meets all of the requirements for effectiveness pursuant to that paragraph. In addition, and pursuant to paragraph (b)(4) of Rule 485, I hereby represent, as counsel responsible for preparation of the post-effective amendment, that the amendment does not contain disclosures that would render it ineligible to become effective under paragraph (b) of Rule 485. In connection with the receipt of comments from the staff of the Commission with respect to the above-referenced filing, the Fund hereby acknowledges that: 1. The Fund is responsible for the adequacy and accuracy of the disclosure in the filing. 2. Staff comments or changes to disclosure in response to staff comments in the filing reviewed by the staff do not foreclose the Commission from taking any action with respect to the filing. 3. The Fund may not assert staff comments as a defense in any proceeding initiated by the Commission or any person under the federal securities laws of the United States. Questions regarding this filing may be directed to the undersigned at (651) 665-4872. Sincerely, /s/ Eric J. Bentley Eric J. Bentley Assistant General Counsel EJB:pjh Enclosures cc: Michael J. Radmer, Esq. Dorsey & Whitney LLP