<PAGE>
[LOGO]
SEMI-ANNUAL REPORT TO SHAREHOLDERS
ADVANTUS MORTGAGE SECURITIES FUND
MARCH 31, 1995
<PAGE>
ADVANTUS MORTGAGE SECURITIES FUND
TABLE OF CONTENTS
PERFORMANCE UPDATE 2
INVESTMENTS IN SECURITIES 6
STATEMENT OF ASSETS AND
LIABILITIES 9
STATEMENT OF OPERATIONS 10
STATEMENT OF CHANGES IN NET
ASSETS 11
NOTES TO FINANCIAL STATEMENTS 12
SHAREHOLDER VOTING RESULTS 18
SHAREHOLDER SERVICES 19
<PAGE>
May 19, 1995
[PHOTO]
Dear Shareholders:
Practically everyone would like to annualize the first quarter results. Both
bonds and equities provided excellent returns for investors according to
Ibbotson Associates. For now, investors seem to have positive expectations on
interest rates and are enjoying the benefits on earnings attributed to the
declining dollar. Additionally, they have become increasingly confident in the
ability of the Federal Reserve to engineer a soft landing (i.e., low inflation
without a recession) for the economy.
For the last six months there was even more good news for the markets. The
November election results combined with two additional Federal Reserve moves to
raise short term interest rates and good news on inflation amid signs of slower
economic growth all helped restore investor confidence.
What can be confusing is that a soft landing and a recession often look very
much the same. The economy is on an unpredictable course, and experts seem to be
particularly divided in their opinions. (Opinions always seem to get farther
apart when markets set new highs.) Bulls argue that earnings are excellent and
will remain healthy because of stringent cost controls and improving overseas
operations. Bears believe the Dow is at its peak for the cycle. Also, the
consensus of a soft landing can be shaken badly if the Fed has to raise interest
rates to protect the dollar. Finally, all signs do not indicate inflation can
remain under control.
There is much evidence that we have entered a period where interest rates,
whether increasing or decreasing, are likely to trade in a narrower range.
Slower but steady economic growth, coupled with a moderate inflationary
environment should prove to be positive for fixed income investments. The
uncertainty in the economy over whether we are heading toward a recession or a
soft landing should create buying opportunities in the equity markets.
The saga of the dollar reaffirms the fact that most events are neither totally
positive nor totally negative. The dollar will buy less in Europe and Japan, but
will buy more in Mexico and Canada than a year ago. However, determining which
investments benefit and which suffer from any event is very difficult and
requires experienced professionals to make the best decisions.
Finally, as always, it is important to remember not to vary from your investment
plan and that diversification across asset types and geographic regions is
important because asset classes tend to perform differently from each other in
different market conditions.
Sincerely,
Paul Gooding, President
Advantus Capital Management, Inc.
<PAGE>
ADVANTUS MORTGAGE SECURITIES FUND
PERFORMANCE UPDATE
[PHOTO]
KENT WEBER, CFA
PORTFOLIO MANAGER
The Advantus Mortgage Securities Fund is
a mutual fund designed for investors
seeking a high level of current income
consistent with prudent investment risk.
The Fund hopes to achieve its income
objective by investing primarily in a
diversified portfolio of mortgage-related
securities. The Fund expects, under
normal circumstances, to have most of its
assets in high quality mortgage-related
securities such as those issued by U.S.
Government owned (GNMA) or sponsored
corporations (FNMA and FMLMC) or rated
"A" or better by Moody's or Standard &
Poor's.
-Dividends declared daily and paid monthly.
-Capital gains distributions paid annually.
PERFORMANCE
Spring arrived early for investors who remained patiently invested in the
domestic fixed income market. Positive returns blossomed throughout the mortgage
market during the first quarter as interest rates fell from their 1994 fourth
quarter peak.
This good news was reflected in the performance of the Advantus Mortgage
Securities Fund. The Fund's Class A 5.40 percent semiannual return (Class B
returned 4.98 percent for the same time period)* was cultivated primarily from
an exceptional first quarter where returns grew 5.21 percent (Class B grew 5.01
percent during the same period.) Displaying a similar quarterly growth spurt,
Lehman Ginnie Mae Index** grew 5.27 percent while Lipper's Ginnie Mae Index+ of
fifty-six mutual funds yielded 5.09 percent for the same six month holding
period.
PORTFOLIO RECAP
A tighter Federal Reserve interest rate policy and slower government spending
appears to be working their charm on the economy and investors. Since the
beginning of the year, investors have pushed interest rates down in response to
an overdue reassessment of long term inflation and economic growth expectations.
Throughout this rebalancing phase, we have remained fully invested in the
mortgage market keeping our cash position at a minimum and our effective
duration in line with the Lehman Ginnie Mae Index (5.0 years). While we were
relatively duration neutral, our exposure to prepayment risk remains
conservative when compared to the Lehman Index. Our goal is to retain a lower
dose of prepayment risk without compromise to our yield and total return
expectations.
In the last six months, mainstream investors have remained content to pay a
hefty price for liquidity and simplicity. These practices have created an
exceptional buyers market for those investors with the desire and experiences to
thoroughly evaluate the fundamentals and actively manage nongeneric agency
mortgage backed securities. Managers with the discipline to use such instruments
in cooperation with sound investment practices and without speculative
maneuvering were handsomely rewarded with additional yield and rising prices as
yield spreads narrowed.
Turmoil in the derivatives market and volatility in interest rates created some
exceptional investment opportunities in a couple of specific sectors of the off-
the-run mortgage market. In fact, our most promising investment opportunities
continue to come from such off-the-run securities as Ginnie Mae IIs, Fannie Mae
and Freddie Mac Bi-Weekly mortgage securities, vintage
2
<PAGE>
ADVANTUS MORTGAGE SECURITIES FUND
MARCH 31, 1995
(issue-year specific) agency mortgage backed securities and well structured
plain vanilla Collateralized Mortgage Obligations (CMO's) and Mortgage Revenue
Bonds (MRB's) backed by vintage/seasoned mortgage securities. With the
fundamental and technical conditions of these mortgage sectors continuing to
embrace positive opportunities, yield spreads should move tighter. We remain
committed to pursuing this style of relative value investing. This style centers
on prudent participation in a number of mortgage sectors in a desire to
continuously add value and achieve competitive risk adjusted total returns.
OUTLOOK
During the last six months, patient investors have been treated to exceptional
returns. Now, the market must wait patiently and let pending economic data
validate the breath of economic slowing and thereby justify the new level of
interest rates. Most likely we have entered a period of consolidation where
interest rates are likely to trade within a narrower range. This means a smaller
percentage of our returns will come from price appreciation via lower rates. A
greater percentage will come from interest income and spread tightening due to
improving security performance. In such an environment, prepayment fears should
remain in check and the supply of new mortgage securities should remain at
historic lows. As a result, the additional yield on mortgage securities will
continue to make this asset class look attractive which leaves us looking
forward to the fund putting forth another strong quarter.
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<S> <C>
CMOs 36.6
FHLMC 4.1
GNMA 34.2
Other Government Agencies 10.7
Cash and Other
Assets/Liabilities 0.4
FNMA 4.2
Mortgage-backed bonds 9.8
</TABLE>
*Historical results are not an indication of future performance. These
performance results do not reflect the impact of Class A's maximum 5 percent
front-end sales charge or Class B's maximum 5 percent contingent deferred sales
charge. Class C commenced operations March 1, 1995, accordingly, performance is
not presented.
**The Lehman Brother's GNMA Index includes 15 and 30 year fixed rate securities
backed by mortgage pools of the Government National Mortgage Association.
+Average return of 56 Ginnie Mae funds according to Lipper Analytical Services,
Inc.
3
<PAGE>
ADVANTUS MORTGAGE SECURITIES FUND
MARCH 31, 1995
COMPARISON OF CHANGE IN VALUE OF A HYPOTHETICAL $10,000 INVESTMENT IN ADVANTUS
MORTGAGE SECURITIES FUND, LEHMAN BROTHER'S GNMA INDEX AND CONSUMER PRICE INDEX
CLASS A
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
CLASS A SHARES' AVERAGE ANNUAL TOTAL
CLASS A LEHMAN GNMA INDEX CPI RETURN
<S> <C> <C> <C> <C> <C> <C>
5/3/85 10000 10000 10000 One year 0.65%
10/31/85 10363 11307 10140 Five year 7.30%
10/31/86 11693 13176 10299 Since inception (05/03/85) 8.49%
10/31/87 11923 13707 10757
10/31/88 13504 15596 11215
10/31/89 14832 17376 11729
10/31/90 15783 18817 12467
10/31/91 18311 22032 12832
10/31/92 19811 23970 13243
10/31/93 22074 25785 13598
10/30/94 21116 25616 14009
3/31/95 22256 27148 14150
</TABLE>
On the chart above you can see how the Advantus Mortgage Securities Fund Class A
shares' total return compared to the Lehman Brother's GNMA Index and the
Consumer Price Index. The three lines represent the cumulative total return of a
hypothetical $10,000 investment made on the inception date of the Advantus
Mortgage Securities Fund Class A shares (May 3, 1985) through March 31, 1995.
4
<PAGE>
ADVANTUS MORTGAGE SECURITIES FUND
MARCH 31, 1995
CLASS B
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
CLASS B LEHMAN GNMA INDEX CPI CLASS B'S TOTAL RETURN:
<S> <C> <C> <C> <C> <C> <C>
Since inception
8/19/94 10000 10000 10000 (08/19/94) 0.67%
9/30/94 9928 9874 10067
3/31/95 9922 10465 10168
</TABLE>
On the chart above you can see how the Advantus Mortgage Securities Fund Class B
shares' total return compared to the Lehman Brother's GNMA Index and the
Consumer Price Index. The three lines represent the cumulative total return of a
hypothetical $10,000 investment made on the inception date of the Advantus
Mortgage Securities Fund Class B shares (August 19, 1994) through March 31,
1995.
The above charts are useful because they provide you with more information about
your investments. There are limitations, however. An index may reflect the
performance of securities that the Fund may not hold. Also, the index does not
deduct sales charges, investment advisory fees and other fund expenses, whereas
your Fund does. Performance presented for the Fund reflects the deduction of the
maximum 5 percent front-end sales charge for Class A and the maximum 5 percent
contingent deferred sales charge for Class B. Sales charges pay for your
financial adviser's investment advice. Individuals cannot buy even an unmanaged
index fund without incurring some charges and expenses.
Historical results are not an indication of future performance.
5
<PAGE>
ADVANTUS MORTGAGE SECURITIES FUND
INVESTMENTS IN SECURITIES
MARCH 31, 1995
(UNAUDITED)
(Percentages of each investment category relate to total net assets.)
<TABLE>
<CAPTION>
MARKET
PRINCIPAL VALUE(A)
- - --------- ------------
<C> <S> <C> <C> <C>
LONG-TERM DEBT SECURITIES (99.6%)
U.S. GOVERNMENT AND AGENCIES OBLIGATIONS (73.4%)
Federal Home Loan Mortgage (12.3%)
$ 450,289 Bi-weekly.............................................. 7.000% 12/01/22 $ 428,067
231,106 CMO (Whole Loan 9.83%)................................. 7.900% 05/01/01 230,095
225,000 CMO (GNMA 30 Yr. 7%)................................... 6.000% 07/25/16 205,172
748,890 Bi-weekly.............................................. 6.500% 12/01/23 692,041
700,000 CMO PAC (GNMA 7%)...................................... 5.500% 02/25/19 613,594
1,500,000 CMO (GNSF 7%).......................................... 4.500% 08/25/20 1,171,875
------------
3,340,844
------------
Federal National Mortgage Association (16.1%)
1,196,018 Bi-weekly.............................................. 6.000% 07/01/07 1,123,682
128,564 FNMA 8 A-4 CMO Sequential Payer........................ 5.000% 10/01/16 122,511
1,300,000 CMO Sequential Payer................................... 7.000% 06/25/19 1,259,348
1,400,000 CMO Sequential Payer (GNMA 8%)......................... 6.000% 04/25/19 1,265,250
568,000 CMO PAC Targeted Amortization Class (GNMA 8%).......... 6.000% 12/25/08 511,910
225,278 Principal only PAC (b)................................. 6.500% 07/25/22 219,585
------------
4,502,286
------------
Government National Mortgage Association (34.3%)
485,577 GNMA Midget II......................................... 5.500% 05/20/09 435,043
316,673 GNMA Midget II......................................... 5.500% 04/20/09 283,716
249,038 GNMA II................................................ 9.000% 08/20/16 256,527
241,047 GNMA II................................................ 9.000% 05/20/16 248,295
246,124 GNMA II................................................ 9.000% 06/20/16 253,525
750,000 GNMA II................................................ 9.000% 03/20/25 768,509
385,544 ....................................................... 7.500% 06/15/16 377,193
648,312 ....................................................... 7.000% 09/15/16 618,165
219,107 ....................................................... 7.500% 07/15/16 214,361
479,897 ....................................................... 7.500% 10/15/16 469,502
407,216 ....................................................... 7.500% 05/15/17 398,294
382,089 ....................................................... 7.000% 05/15/17 364,241
358,404 ....................................................... 7.000% 12/15/16 341,738
411,576 ....................................................... 7.000% 04/15/17 392,351
340,979 ....................................................... 7.000% 04/15/17 325,052
209,143 ....................................................... 7.500% 04/15/17 204,560
297,184 ....................................................... 9.000% 07/15/18 308,268
92,220 ....................................................... 7.000% 02/15/17 87,912
405,951 ....................................................... 7.000% 04/15/17 386,989
437,640 ....................................................... 7.500% 10/15/17 428,051
</TABLE>
See accompanying notes to investments in securities.
6
<PAGE>
ADVANTUS MORTGAGE SECURITIES FUND
INVESTMENTS IN SECURITIES--CONTINUED
<TABLE>
<CAPTION>
MARKET
PRINCIPAL VALUE(A)
- - --------- ------------
<C> <S> <C> <C> <C>
U.S. GOVERNMENT AND AGENCIES OBLIGATIONS--CONTINUED
Government National Mortgage Association--continued
$ 422,738 ....................................................... 7.000% 10/15/17 $ 402,991
492,593 ....................................................... 7.000% 10/15/17 469,583
23,239 ....................................................... 8.000% 12/15/19 23,208
103,739 ....................................................... 6.000% 10/15/23 90,580
270,820 ....................................................... 6.000% 10/15/23 236,467
29,779 ....................................................... 7.500% 05/15/24 28,737
935,000 ....................................................... 7.000% 12/01/25(f) 873,937
------------
9,287,795
------------
Other U.S. Government Agency Obligations (10.7%)
1,191,251 Vendee Mortgage Trust Participation Certificate (c).... 8.465% 05/15/24 1,206,142
749,396 Vendee Mortgage Trust Participation Certificate (c).... 7.206% 02/01/25 690,850
1,046,075 Vendee Mortgage Trust Participation Certificate (c).... 7.793% 02/01/25 1,009,462
------------
2,906,454
------------
Total U.S. government and agencies obligations (cost: $19,894,311).............. 20,037,379
------------
OTHER MORTGAGE-BACKED SECURITIES (26.2%)
1,200,447 Collaterized Mortgage Obligation Trust CMO, Sequential
Accrual, Z Tranche (FNMA 9%) (d)...................... 8.170% 01/01/17 1,186,809
798,492 Indiana Housing Finance Authority CMO Sequential
Accrual, Z Tranche (GNMA 9%) (d)...................... 7.000% 02/01/16 814,461
1,198,576 International Capital Markets Acceptance Corporation
144-A Issue (g)....................................... 8.250% 09/01/15 1,174,604
330,728 Morgan Stanley Mortgage Trust CMO Sequential Payer
(GNMA 10.05%)......................................... 9.050% 05/01/18 341,780
1,558,400 Wyoming Community Development Authority................ 6.850% 06/01/10 1,484,376
1,800,000 MDC Asset Trust CMO Sequential Payer (FHLMC 10.01%).... 7.000% 01/20/19 1,683,556
338,429 Salomon Brothers CMO Sequential Payer (FNMA 10%)....... 6.000% 07/01/09 313,469
------------
Total other mortgage-backed securities (cost: $6,915,705)....................... 6,999,055
------------
Total investments in securities (cost: $26,810,016) (e)......................... $ 27,036,434
------------
<FN>
Notes to Investments in Securities
(a) Securities are valued by procedures described in note 2 to the financial
statements.
(b) Represents a debt security that entitles holders to receive only principal
payments on the underlying mortgages. The yield to maturity of a
principal-only security is sensitive to the rate of principal payments on
the underlying mortgage assets. A slower (more rapid) than expected rate of
principal repayments may have an adverse (positive) effect on yield to
maturity. Interest rate disclosed represents current yield based upon the
current cost basis and estimated timing of future cash flows.
(c) Represents a debt security with a weighted average net pass-through rate
which varies based on the pool of underlying collateral. The rate disclosed
is the rate in effect at March 31, 1995.
</TABLE>
7
<PAGE>
ADVANTUS MORTGAGE SECURITIES FUND
INVESTMENTS IN SECURITIES--CONTINUED
<TABLE>
<S> <C>
Notes to Investments in Securities - continued
(d) Represents a debt security that defers interest and principal payments
until a later date. Interest rate disclosed represents current yield based
upon estimated future cash flows.
(e) At March 31, 1995 the cost of securities for federal income tax purposes
was $26,810,016. The aggregate unrealized appreciation and depreciation of
investments in securities based on this cost were:
Gross unrealized appreciation.................................. $ 459,301
Gross unrealized depreciation.................................. (232,883)
---------
Net unrealized appreciation.................................... $ 226,418
---------
---------
(f) At March 31, 1995, the total cost of investments issued on a when-issued or
forward committment basis is $887,081.
(g) Represents ownership in a restricted security which has not been registered
with the Securities and Exchange Commission under the Securities Act of
1933. (See note 6 to the financial statements.) Information concerning the
restricted security held at March 31, 1995, which includes acquisition date
and cost, is as follows:
ACQUISITION
SECURITY DATE COST
------------------------------------------------- ----------- ----------
International Capital Markets Acceptance
Corporation..................................... 1/13/95 $1,134,152
----------
----------
</TABLE>
8
<PAGE>
ADVANTUS MORTGAGE SECURITIES FUND
STATEMENT OF ASSETS AND LIABILITIES
MARCH 31, 1995
(UNAUDITED)
<TABLE>
<S> <C>
ASSETS
Investments in securities, at market value--see accompanying schedule for detailed
listing (identified cost: $26,810,016)............................................. $27,036,434
Cash in bank on demand deposit...................................................... 12,954
Receivable for Fund shares sold..................................................... 62,044
Receivable for investment securities sold........................................... 936,477
Accrued interest receivable......................................................... 193,585
-----------
Total assets.................................................................... 28,241,494
-----------
LIABILITIES
Payable for investment securities purchased......................................... 1,005,632
Payable for Fund shares repurchased................................................. 60,298
Payable to Adviser.................................................................. 28,955
-----------
Total liabilities............................................................... 1,094,885
-----------
Net assets applicable to outstanding capital stock.................................. $27,146,609
-----------
-----------
Represented by:
Capital stock--$.01 par value (note 1)............................................ $ 27,385
Additional paid-in capital........................................................ 29,028,401
Undistributed net investment income............................................... 31,677
Accumulated net realized loss from investments.................................... (2,167,272)
Unrealized appreciation of investments............................................ 226,418
-----------
Total--representing net assets applicable to outstanding capital stock.......... $27,146,609
-----------
-----------
Net assets applicable to outstanding Class A shares................................. $26,904,959
-----------
-----------
Net assets applicable to outstanding Class B shares................................. $ 231,555
-----------
-----------
Net assets applicable to outstanding Class C shares................................. $ 10,095
-----------
-----------
Shares outstanding and net asset value per share:
Class A--Shares outstanding 2,714,052............................................. $ 9.91
-----------
-----------
Class B--Shares outstanding 23,359................................................ $ 9.91
-----------
-----------
Class C--Shares outstanding 1,018................................................. $ 9.92
-----------
-----------
</TABLE>
See accompanying notes to financial statements.
9
<PAGE>
ADVANTUS MORTGAGE SECURITIES FUND
STATEMENT OF OPERATIONS
PERIOD FROM OCTOBER 1, 1994 TO MARCH 31, 1995
(UNAUDITED)
<TABLE>
<S> <C>
Investment income:
Interest.......................................................................... $1,018,776
----------
Expenses (note 4):
Investment advisory fee........................................................... 76,778
Distribution fees--Class A........................................................ 39,907
Distribution fees--Class B........................................................ 497
Distribution fees--Class C........................................................ 9
Administrative services fee....................................................... 20,600
Custodian fees.................................................................... 7,174
Auditing and accounting services.................................................. 8,775
Legal fees........................................................................ 3,131
Directors' fees................................................................... 319
Registration fees................................................................. 19,308
Printing and shareholder reports.................................................. 7,027
Insurance......................................................................... 2,995
Other............................................................................. 4,725
----------
Total expenses.................................................................. 191,245
Less fees and expenses waived or absorbed:
Class A distribution fees....................................................... (13,305)
----------
Total net expenses............................................................ 177,940
----------
Investment income--net........................................................ 840,836
----------
Realized and unrealized gains (losses) on investments:
Net realized losses on investments (note 3)....................................... (472,861)
Net change in unrealized appreciation or depreciation on investments.............. 1,027,468
----------
Net gains on investments........................................................ 554,607
----------
Net increase in net assets resulting from operations................................ $1,395,443
----------
----------
</TABLE>
See accompanying notes to financial statements.
10
<PAGE>
ADVANTUS MORTGAGE SECURITIES FUND
STATEMENT OF CHANGES IN NET ASSETS
PERIOD FROM OCTOBER 1, 1994 TO MARCH 31, 1995 AND
PERIOD FROM NOVEMBER 1, 1993 TO SEPTEMBER 30, 1994
(UNAUDITED)
<TABLE>
<CAPTION>
1995 1994
----------- -----------
<S> <C> <C>
Operations:
Investment income--net................................................... $ 840,836 $ 1,439,948
Net realized losses on investments....................................... (472,861) (1,694,411)
Net change in unrealized appreciation or depreciation of investments..... 1,027,468 (983,565)
----------- -----------
Increase (decrease) in net assets resulting from operations............ 1,395,443 (1,238,028)
----------- -----------
Distributions to shareholders from:
Investment income--net
Class A................................................................ (833,289) (1,437,598)
Class B................................................................ (2,771) (316)
Class C................................................................ (48) --
Net realized gains on investments:
Class A................................................................ -- (915,257)
----------- -----------
Total distributions.................................................... (836,108) (2,353,171)
----------- -----------
Capital share transactions (notes 4 and 5):
Proceeds from sales:
Class A................................................................ 1,107,293 6,429,016
Class B................................................................ 166,684 60,000
Class C................................................................ 10,000 --
Shares issued as a result of reinvested dividends:
Class A................................................................ 502,217 1,530,031
Class B................................................................ 2,771 316
Class C................................................................ 48 --
Payments for redemption of shares:
Class A................................................................ (2,364,971) (4,337,552)
Class B................................................................ (848) --
----------- -----------
Increase (decrease) in net assets from capital share transactions...... (576,806) 3,681,811
----------- -----------
Total increase (decrease) in net assets................................ (17,471) 90,612
Net assets at beginning of period.......................................... 27,164,080 27,073,468
----------- -----------
Net assets at end of period (including undistributed net investment income
of $31,677 and $26,944, respectively)..................................... $27,146,609 $27,164,080
----------- -----------
----------- -----------
</TABLE>
See accompanying notes to financial statements.
11
<PAGE>
ADVANTUS MORTGAGE SECURITIES FUND
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1995
(UNAUDITED)
(1) ORGANIZATION
The Advantus Mortgage Securities Fund, Inc. (the Fund) is registered under
the Investment Company Act of 1940 (as amended) as a diversified, open-end
management investment company. On February 14, 1995 shareholders of the Fund
approved a name change to Advantus Mortgage Securities Fund, Inc. (effective
March 1, 1995). Prior to March 1, 1995 the Fund was known as MIMLIC Mortgage
Securities Income Fund, Inc.
The Fund currently issues three classes of shares: Class A, Class B and
Class C shares. Class A shares are sold subject to a front-end sales charge.
Class B shares are sold subject to a contingent deferred sales charge payable
upon redemption if redeemed within six years of purchase. Class C shares are
sold without either a front-end sales charge or a contingent deferred sales
charge. Both Class B and Class C are subject to a higher Rule 12b-1 fee than
Class shares. Both Class B and Class C shares automatically convert to Class A
shares at net asset value after a specified holding period. Such holding period
declines as the amount of the purchase increases and ranges from 28 to 84 months
after purchase for Class B shares and 40 to 96 months after purchase for Class C
shares. All three classes of shares have identical voting, dividend, liquidation
and other rights and the same terms and conditions, except that the level of
distribution fees charged differs between Class A, Class B and Class C shares.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The significant accounting policies followed by the Fund are summarized as
follows:
INVESTMENTS IN SECURITIES
Investments in securities traded on a national exchange are valued at the
last sales price on that exchange prior to the time when assets are valued;
securities traded in the over-the-counter market and listed securities for which
no sale was reported on that date are valued on the basis of the last current
bid price. When market quotations are not readily available, securities are
valued at fair value as determined in good faith by the Board of Directors. Such
fair values are determined using pricing services or prices quoted by
independent brokers. Short-term securities are valued at market.
Security transactions are accounted for on the date the securities are
purchased or sold. Realized gains and losses are calculated on the
identified-cost basis. Dividend income is recognized on the ex-dividend date and
interest income, including amortization of bond premium and discount computed on
a level yield basis, is accrued daily.
SECURITIES PURCHASED ON A WHEN-ISSUED BASIS
Delivery and payment for securities which have been purchased on a forward
commitment or when-issued basis can take place a month or more after the
transaction date. During this period, such securities are subject
12
<PAGE>
NOTES TO FINANCIAL STATEMENTS--CONTINUED
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
to market fluctuations. As of March 31, 1995, the Fund had entered into
outstanding when-issued or forward commitments in the amount of $887,081. The
Fund has segregated assets, with the Fund's custodian, to cover such when-issued
and forward commitment transactions.
FEDERAL TAXES
The Fund's policy is to comply with the requirements of the Internal Revenue
Code applicable to regulated investment companies and to distribute all of its
taxable income to shareholders. Therefore, no income tax provision is required.
The Fund's policy is to make required minimum distributions prior to December
31, in order to avoid federal excise tax.
Net investment income and net realized gains (losses) may differ for
financial statement and tax purposes primarily because of temporary book-to-tax
differences. The character of distributions made during the year from net
investment income or net realized gains may differ from their ultimate
characterization for federal income tax purposes. Also, due to the timing of
dividend distributions, the fiscal year in which amounts are distributed may
differ from the year that the income or realized gains (losses) were recorded by
the Fund.
For federal income tax purposes, the Fund has a capital loss carryover in
the amount of $2,167,272, which, if not offset by subsequent capital gains, will
expire September 30, 2003 to 2004. It is unlikely the board of directors will
authorize a distribution of any net realized capital gain until the available
capital loss carryover has been offset or expires.
DISTRIBUTIONS TO SHAREHOLDERS
Dividends from net investment income are declared daily and paid monthly in
cash or reinvested in additional shares. Realized gains, if any, are paid
annually.
(3) INVESTMENT SECURITY TRANSACTIONS
For the period from October 1, 1994 to March 31, 1995, purchases of
securities and proceeds from sales, other than temporary investments in
short-term securities aggregated $16,145,609 and $15,905,980, respectively.
(4) EXPENSES AND RELATED PARTY TRANSACTIONS
On February 14, 1995 shareholders of the Fund approved a new investment
advisory agreement with Advantus Capital Management, Inc. (Advantus Capital or
the Adviser). Advantus Capital is a wholly-owned subsidiary of MIMLIC Asset
Management Company (MIMLIC Management) which, prior to March 1, 1995, served as
investment adviser to the Fund. Under the agreement, Advantus Capital manages
the Fund's assets and provides research, statistical and advisory services and
pays related office rental and executive expenses and salaries. In addition, as
part of the advisory fee, Advantus Capital pays the expenses of the Fund's
transfer, dividend disbursing and redemption agent (The Minnesota Mutual Life
Insurance Company [Minnesota Mutual], the parent of MIMLIC Management). The fee
for investment management and advisory services is based on the average daily
net assets of the Fund at the annual rate of .575 percent, which is the same as
under the old agreement with MIMLIC Management.
13
<PAGE>
NOTES TO FINANCIAL STATEMENTS--CONTINUED
(4) EXPENSES AND RELATED PARTY TRANSACTIONS--(CONTINUED)
The Fund has adopted separate Plans of Distribution applicable to Class A,
Class B and Class C shares, respectively, relating to the payment of certain
distribution expenses pursuant to Rule 12b-1 under the Investment Company Act of
1940 (as amended). The Fund pays distribution fees to MIMLIC Sales Corporation
(MIMLIC Sales), the underwriter of the Fund, to be used to pay certain expenses
incurred in the distribution, promotion and servicing of the Fund's shares. The
Class A Plan provides for a fee up to .30 percent of average daily net assets of
Class A shares. The Class B Plan provides for a fee up to 1.00 percent of
average daily net assets of Class B shares. The Class B 1.00 percent fee is
comprised of a .75 percent distribution fee and a .25 percent service fee. The
Class C Plan provides for a fee of up to 1.00 percent of average daily net
assets of Class C shares. The Class C 1.00 percent fee is also comprised of a
.75 percent distribution fee and a .25 percent service fee. MIMLIC Sales is
currently waiving that portion of Class A distribution fees which exceeds, as a
percentage of average daily net assets, .20 percent.
The Fund also bears certain other operating expenses including outside
directors' fees, custodian fees, registration fees, printing and shareholder
reports, legal, auditing and accounting services and other miscellaneous
expenses.
The Fund pays an administrative services fee to Minnesota Mutual for
accounting, auditing, legal and other administrative services which Minnesota
Mutual provides. Prior to February 1, 1995, the administrative services fee was
$3,600 per month. Effective February 1, 1995, the administrative services fee is
$3,100 per month.
Advantus Capital (MIMLIC Management prior to March 1, 1995) directly incurs
and pays the above operating expenses and the Fund in turn reimburses Advantus
Capital.
Sales charges received by MIMLIC Sales for distributing the Fund's three
classes of shares amounted to $39,849.
As of March 31, 1995, Minnesota Mutual and subsidiaries and the directors
and officers of the Fund as a whole own the following shares:
<TABLE>
<CAPTION>
NUMBER OF SHARES PERCENTAGE OWNED
---------------- ----------------
<S> <C> <C>
Class A................................... 610,360 22.5%
Class B................................... 5,249 22.5%
Class C................................... 1,018 100.0%
</TABLE>
Legal fees were paid to a law firm of which the Fund's secretary is a
partner in the amount of $2,746.
14
<PAGE>
NOTES TO FINANCIAL STATEMENTS--CONTINUED
(5) CAPITAL SHARE TRANSACTIONS
Transactions in shares for the period from October 1, 1994 to March 31, 1995
and the period from November 1, 1993 to September 30, 1994 for Class A shares,
the period from October 1, 1994 to March 31, 1995 and the period from August 19,
1994 to September 30, 1994 for Class B shares and the period from March 1, 1995
to March 31, 1995 for Class C shares were as follows:
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
------------------ ------------- -------
1995 1994 1995 1994 1995
-------- -------- ------ ----- -------
<S> <C> <C> <C> <C> <C>
Sold......................................... 114,127 622,858 16,945 6,099 1,013
Issued for reinvested distributions.......... 51,793 148,532 284 32 5
Redeemed..................................... (244,609) (426,991) (1) -- --
-------- -------- ------ ----- -------
(78,689) 344,399 17,228 6,131 1,018
-------- -------- ------ ----- -------
-------- -------- ------ ----- -------
</TABLE>
(6) RESTRICTED SECURITIES
At March 31, 1995, investments in securities includes an issue which
generally cannot be offered for sale to the public without first being
registered under the Securities Act of 1933 (restricted security). In the event
the securities are registered, those carrying registration rights allow for the
issuer to bear all the related costs; for issues without rights, the Fund may
incur such costs. The Fund currently limits investments in securities that are
not readily marketable, including restricted securities, to 10% of net assets at
the time of the purchase. Securities are valued by procedures described in note
2. The aggregate value of restricted securities held by the Fund at March 31,
1995 was $1,174,604 which represents 4.3% of net assets.
15
<PAGE>
NOTES TO FINANCIAL STATEMENTS--CONTINUED
(7) FINANCIAL HIGHLIGHTS
Per share data for a share of capital stock and selected information for
each period are as follows:
<TABLE>
<CAPTION>
CLASS A
---------------------------------------------------------------------------
PERIOD FROM PERIOD FROM
OCTOBER 1, NOVEMBER 1,
1994 TO 1993 TO YEAR ENDED OCTOBER 31,
MARCH 31, SEPTEMBER 30, ----------------------------------------
1995 1994 1993 1992 1991 1990
----------- -------------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of
period....................... $ 9.70 $ 11.06 $ 10.94 $ 10.80 $ 10.04 $ 10.24
----- ------ ------- ------- ------- -------
Income from investment
operations:
Net investment income....... .29 .53 .63 .71 .79 .83
Net gains or losses on
securities (both realized
and unrealized)............ .22 (.99) .55 .15 .76 (.20)
----- ------ ------- ------- ------- -------
Total from investment
operations............... .51 (.46) 1.18 .86 1.55 .63
----- ------ ------- ------- ------- -------
Less distributions:
Dividends from net
investment income.......... (.30) (.53) (.63) (.72) (.79) (.83)
Distributions from capital
gains...................... -- (.37) (.43) -- -- --
----- ------ ------- ------- ------- -------
Total distributions....... (.30) (.90) (1.06) (.72) (.79) (.83)
----- ------ ------- ------- ------- -------
Net asset value, end of
period....................... $ 9.91 $ 9.70 $ 11.06 $ 10.94 $ 10.80 $ 10.04
----- ------ ------- ------- ------- -------
----- ------ ------- ------- ------- -------
Total return (b).............. 5.40%(c) (4.34)%(d) 11.42% 8.19% 16.02% 6.41%
Net assets, end of period (in
thousands)................... $26,905 $27,105 $27,073 $20,996 $16,554 $13,737
Ratio of expenses to average
daily net assets (h)......... 1.33%(g) 1.24%(g) 1.17% 1.25% 1.18% 1.05%
Ratio of net investment income
to average daily net assets
(h).......................... 6.30%(g) 5.73%(g) 5.77% 6.56% 7.64% 8.23%
Portfolio turnover rate
(excluding short-term
securities).................. 61.20% 236.19% 135.04% 137.25% 48.36% 2.94%
<FN>
- - ----------
(a) Commencement of operations.
(b) Total return figures are based on a share outstanding throughout the period
and assumes reinvestment of distributions at net asset value. Total return
figures do not reflect the impact of sales charges.
(c) Total return is presented for the period from October 1, 1994 to March 31,
1995.
(d) Total return is presented for the period from November 1, 1993 to September
30, 1994.
(e) Total return is presented for the period from August 19, 1994, commencement
of operations, to September 30, 1994.
(f) Total return is presented for the period from March 1, 1995, commencement
of operations, to March 31, 1995.
(g) Adjusted to an annual basis.
(h) The Fund's Adviser and Distributor voluntarily waived or absorbed $13,302,
$43,505, $34,773, $21,104 and $11,682 in expenses for the periods ended
March 31, 1995 and September 30, 1994 and the years ended October 31, 1993,
1992 and 1991, respectively. If Class A shares had been charged for these
expenses, the ratio of expenses to average daily net assets would have been
1.43%, 1.41%, 1.31%, 1.36% and 1.29%, respectively, and the ratio of net
investment income to average daily net assets would have been 6.20%, 5.56%,
5.63%, 6.45% and 7.53%, respectively.
(i) Ratios presented for the periods from March 1, 1995 to March 31, 1995 and
August 19, 1994 to September 30, 1994 are not annualized as they are not
indicative of anticipated results.
</TABLE>
16
<PAGE>
<TABLE>
<CAPTION>
CLASS B CLASS C
-------------------------------- ------------
PERIOD FROM PERIOD FROM PERIOD FROM
OCTOBER 1, AUGUST 19, MARCH 1,
1994 TO 1994 (A) TO 1995 (A) TO
MARCH 31, SEPTEMBER 30, MARCH 31,
1995 1994 1995
------------ -------------- ------------
<S> <C> <C> <C>
Net asset value, beginning of
period...................... $ 9.70 $ 9.83 $ 9.90
----- ----- -----
Income from investment
operations:
Net investment income....... .27 .06 .05
Net gains or losses on
securities (both realized
and unrealized)............ .21 (.13) .02
----- ----- -----
Total from investment
operations............... .48 (.07) .07
----- ----- -----
Less distributions:
Dividends from net
investment income.......... (.27) (.06) (.05)
Distributions from capital
gains...................... -- -- --
----- ----- -----
Total distributions....... (.27) (.06) (.05)
----- ----- -----
Net asset value, end of
period...................... $ 9.91 $ 9.70 $ 9.92
----- ----- -----
----- ----- -----
Total return (b).............. 4.98%(c) (.72)%(e) .67%(f)
Net assets, end of period (in
thousands).................. $232 $60 $10
Ratio of expenses to average
daily net assets (h)........ 2.10%(g) .28%(i) .17%(i)
Ratio of net investment income
to average daily net assets
(h)......................... 5.55%(g) .60%(i) .48%(i)
Portfolio turnover rate
(excluding short-term
securities)................. 61.20% 236.16% 61.20%
</TABLE>
17
<PAGE>
SHAREHOLDER VOTING RESULTS
On February 14, 1995, a regular shareholder meeting was held. Shareholders
of record on December 19, 1994 were entitled to vote on the proposals described
below. All classes of shares (only Class A and Class B were in existence on
December 19, 1994) of the Fund were entitled to vote on each proposal, and all
shares were voted in the aggregate for each proposal and not by class.
(1) To elect a Board of Directors as follows:
<TABLE>
<CAPTION>
VOTES VOTES
DIRECTOR FOR WITHHELD
---------------------- --------- ---------
<S> <C> <C>
Paul H. Gooding.......................................................... 1,708,840 28,201
Frederick P. Feuerherm................................................... 1,708,840 18,203
Ralph D. Ebbott.......................................................... 1,708,840 17,623
Ellen S. Berscheid....................................................... 1,708,840 20,276
Charles E. Arner......................................................... 1,708,840 24,916
</TABLE>
<TABLE>
<CAPTION>
NUMBER OF SHARE VOTING
-------------------------------
FOR AGAINST ABSTAIN
--------- --------- ---------
<S> <C> <C> <C> <C>
(2) To ratify or reject the selection by the Board of
Directors of KPMG Peat Marwick LLP as the independent
public accountant for the Fund for the fiscal year
ending September 30, 1995.............................. 1,681,515 9,409 35,521
(3) To approve or reject the proposal to amend the Fund's
Articles of Incorporation to change the name of the
Fund from MIMLIC Mortgage Securities Income Fund, Inc.
to Advantus Mortgage Securities Fund, Inc.............. 1,652,975 17,171 56,301
(4) To approve or disapprove a new Investment Advisory
Agreement with Advantus Capital Management, Inc., a
wholly-owned subsidiary of MIMLIC Asset Management
Company, the previous investment adviser............... 1,649,898 14,401 62,146
</TABLE>
18
<PAGE>
SHAREHOLDER SERVICES
The Advantus Family of Funds offers a variety of services that enhance your
ability to manage your assets. Check each Fund's prospectus for the details of
the services and any limitations that apply to a particular Fund:
EXCHANGE PRIVILEGES: You can move all or part of your investment dollars from
one fund to any other Advantus Fund you own (for identical registrations within
the same class) at any time as your needs change. Exchanges are at the then
current net asset value. (Exchanges from the Money Market Fund will incur the
applicable sales charge, if not previously subjected to the charge.)
Shareholders may make four exchanges or telephone transfers between the Funds
each calendar year without incurring a transaction charge. Thereafter, there
will be a $7.50 transaction charge for each additional exchange or transfer
within the calendar year. Systematic Exchange Plans are exempt from this charge.
INCOME DISTRIBUTION FLEXIBILITY: You can have your fund dividends and other
distributions automatically reinvested with no sales charge, direct them from
one Advantus Fund to any other you own within the Fund family or, if you desire,
we'll pay you in cash.
SYSTEMATIC WITHDRAWAL PLAN: You can set up a plan to receive checks at
specified intervals from you fund account--subject to minimum guidelines.
DIRECT DEPOSITS: At your request we will deposit your dividends or systematic
withdrawals directly into your checking or savings account instead of sending
you a check.
TELEPHONE TRANSFER: You may transfer money from one Advantus account to any
other Advantus account you own just by calling our toll free number. Sign up for
telephone exchanges on the Advantus Application or complete the telephone
authorization form.
SYSTEMATIC TRANSFER: If you have an Advantus Money Market account you may
transfer a set amount of money to another Advantus Fund to diversify your
investment portfolio and take advantage of dollar-cost averaging.
AUTOMATIC PAYMENT OF INSURANCE PREMIUMS: You may automatically pay your
Minnesota Mutual insurance premiums out of an Advantus Money Market account.
REDUCED SALES CHARGES: Letter of Intent, combined purchases with spouse,
children or single trust estates, and the Right of Accumulation make it possible
for you to reduce the sales charge on Advantus's non-money market funds.
SPECIAL PURCHASE PLANS: Our special purchase plans enable you to open an
Advantus fund account for as little as $25 and lower your average share cost
through "dollar-cost averaging." (Dollar-cost averaging does not assure a
profit, nor does it prevent loss in declining markets.) One of these plans--The
Automatic Investment Plan--allows you to invest automatically each month from
your checking or saving account.
IRAS, OTHER QUALIFIED PLAN: You can use the Advantus Family of Funds for your
Individual Retirement Account or other qualified plan including SEPs, profit
sharing, money purchase or defined benefit plans.
GROUP INVESTMENT PLAN: This plan provides employers and employees with a
convenient means for investing in the funds through payroll deduction.
19
<PAGE>
TELEPHONE REDEMPTION: You may call us and redeem shares over the phone. Amounts
over $1,000 will be wire transferred to your personal bank account. The
prevailing wire charge will be added to the withdrawal amount. Amounts for less
than $1,000 will be mailed to your bank on your behalf. To set this up, please
send a voided check from your bank.
ACCOUNT UPDATES: You'll receive written confirmation of every investment you
initiate (monthly statements for your Money Market account) and quarterly
reports to help you track all of your investments in the Advantus Family of
Funds, and annual tax statements. Semiannual and annual reports will provide you
with portfolio information, fund performance data and the current investment
outlook.
TOLL-FREE SERVICE LINE: For your convenience in obtaining information and
assistance directly from MIMLIC Sales Corporation, call 1-800-443-3677. Our
voice response system is available from 7 a.m. to 3 a.m. Monday through Friday,
and 8 a.m. to 5 p.m. on Saturday. This system allows you to access current net
asset values and your account balances.
HOW TO INVEST
You can invest in one or more of the eight Advantus Funds through your local
registered representative of MIMLIC Sales Corporation, distributor of the Funds.
Contact your representative for information and a prospectus for any of the
Advantus Funds you are interested in.
MINIMUM INVESTMENTS: Your initial investment in any of the Advantus Funds can
be as small as $25 when you use our Systematic Investment Plan. Minimum lump-sum
initial investment is $250. Minimum subsequent investment is $25.
THE FUND'S MANAGER
Advantus Capital Management, Inc., investment adviser to the Fund, selects
and reviews the Fund's investments and provides executive and other personnel
for the Fund's management.
Advantus Capital Management, Inc.'s six portfolio managers manage eight
mutual funds containing $215 million in assets in addition to $1.8 billion in
assets for other clients. Advantus Capital's seasoned portfolio managers average
more than 10 years of investment experience.
ADVANTUS FAMILY OF FUNDS
Advantus Bond Fund
Advantus Horizon Fund
Advantus Spectrum Fund
Advantus Enterprise Fund
Advantus Cornerstone Fund
Advantus Money Market Fund
Advantus Mortgage Securities Fund
Advantus International Balanced Fund
20
<PAGE>
This report has been prepared for shareholders and may be distributed
to others only if preceded or accompanied by a current prospectus.
[LOGO]
MIMLIC SALES CORPORATION
400 ROBERT STREET NORTH
ST. PAUL, MN 55101-2098
1-800-443-3677
<PAGE>
MIMLIC SALES CORPORATION BULK RATE
400 ROBERT STREET NORTH U.S. POSTAGE PAID
ST. PAUL, MN 55101-2098 ST. PAUL, MN
PERMIT NO. 3547
FORWARDING AND RETURN POSTAGE GUARANTEED,
ADDRESS CORRECTION REQUESTED
F.48640 5-95
