<PAGE>
[LOGO]
ANNUAL REPORT TO SHAREHOLDERS
ADVANTUS MORTGAGE SECURITIES FUND
SEPTEMBER 30, 1996
<PAGE>
ADVANTUS MORTGAGE SECURITIES FUND
TABLE OF CONTENTS
PERFORMANCE UPDATE 2
INVESTMENTS IN SECURITIES 7
STATEMENT OF ASSETS AND
LIABILITIES 10
STATEMENT OF OPERATIONS 11
STATEMENT OF CHANGES IN NET
ASSETS 12
NOTES TO FINANCIAL STATEMENTS 13
INDEPENDENT AUDITORS' REPORT 19
FEDERAL INCOME TAX INFORMATION 20
SHAREHOLDER SERVICES 22
<PAGE>
October 31, 1996
[PHOTO]
Dear Shareholders:
The nation's economic expansion, noted for its longevity, breadth and strength,
pressed forward in the third quarter of 1996. The Federal Reserve's decision not
to raise interest rates, coupled with the long awaited upswing of several key
foreign economies, offers new signs that the expansion, currently in its 23rd
quarter, will extend well into next year.
The financial markets shrugged off concerns about an overheated economy to post
record highs for both the Dow Jones Industrial Average and the NASDAQ. The
current optimism is based partly on a relatively unique phenomenon of this
expansion; industrial production, a harbinger of future economic activity, is
actually rebuilding depleted inventories. Normally associated with the early
stages of an economic recovery, this activity is unusual for a mature expansion
and indicates continued economic strength.
Gross Domestic Product (GDP), clipping along at 2.5-3.0 percent annually, is
hovering above the Fed's comfort level. However, consumer confidence is very
high and plays a definite role in our forecast. After experiencing the lowest
unemployment rates in nearly seven years, consumers today are employed,
confident and spending money which bodes well for continued growth. This higher
level of consumer spending is capable of sustaining a strong GDP without risk of
exhausting the recovery.
Inflation, a primary concern of a heated up economy, is playing only a minor
role in the current recovery. The abundance of material resources supplied from
the former communist countries in Eastern Europe and the Soviet Union has
mitigated the resource demands of the U.S. economy's strength. In addition, the
increase of the world's labor force, in China and elsewhere, provides lower cost
production options for many manufacturers, eliminating the need to raise prices.
Consequently, we can envision a scenario in which inflation and interest rates
actually edge lower in the coming months.
The Advantus Funds took full advantage of the extended expansion and recorded
impressive gains across broad industrial segments this year. While mandated wage
accelerations will affect many service related industries in the months ahead,
we remain cautiously optimistic that most sectors will experience strong growth
well into 1997. Further buttressing this report is the fact that in the first
year of every Presidential term since 1948, the markets have returned positive
performance.
The Advantus family of mutual funds offers a wide array of investment objectives
to capture growth potential in many different market segments. Our experienced
and dedicated portfolio managers will make the most of each opportunity.
Sincerely,
/s/ Paul Gooding
Paul Gooding, President
Advantus Capital Management, Inc.
<PAGE>
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 FHLMC) or rated
"A" or better by Moody's or Standard &
Poor's.
-Dividends declared daily and paid monthly.
-Capital gains distributions paid annually.
ADVANTUS MORTGAGE SECURITIES FUND
PERFORMANCE
The performance of your Advantus Mortgage Securities Fund for the year ended
September 30, 1996 was as follows for the three classes of shares currently
outstanding:
<TABLE>
<S> <C>
Class A 4.8 percent*
Class B 4.1 percent*
Class C 4.1 percent*
</TABLE>
Income investors were blanketed with positive returns over the last twelve
months. However, such performance did not come without some volatility. Patient
investors were treated to mood swings by Wall Street investors that ranged from
bullish to bearish and back to neutral. Ultimately, intermediate and long
interest rates ended the year about one half of a percent higher. Money market
rates, on the other hand, actually ended lower as the Federal Reserve opted not
to change short term rates again after lowering them in January.
The mortgage market stood tall throughout these events and outperformed both the
treasury and corporate markets. Following suit, the Mortgage Securities Fund
Class A delivered strong relative performance by returning 4.8 percent* over the
past year. Positive returns were also enjoyed by Lehman Brother's Ginnie Mae
Index** and Lipper Analytical's Ginnie Mae Category+ which returned 5.80 percent
and 4.45 percent, respectively, over the same period. All this happened while
inflation, as measured by the Consumer Price Index, registered 3.0 percent.
Moreover, in September 1996 Advantus Capital Management decided to cap the
Funds' Class A management, distribution fees and other fund expenses at .95
percent of net assets (Class B and Class C expenses were also capped at 1.70
percent).
PORTFOLIO RECAP
Relative to other sectors of the bond market, these events were just what the
doctor ordered for the mortgage market. Prepayment pressures have all but
vaporized with the summer heat. Investor appetite for high quality, the
potential for high yielding mortgage securities continues to intensify. In
summary, the mortgage market is enjoying exceptional liquidity as the result of
solid fundamentals. These are ideal conditions and should contribute to more
positive results for the sector in the months ahead.
Mortgage securities continue to gain popularity among knowledgeable fixed income
investors because they offer predictable cash flow and high levels of income
while carrying limited credit risk. Likewise, the mortgage market continues to
mature into a kinder and gentler fixed income sector. This creative market now
represents a smorgasbord of high quality investment
2
<PAGE>
opportunities where straight Agency mortgage pass through securities once ruled.
In fact, the mortgage market is one of the largest, most dynamic fixed income
sectors available in the United States today.
With mortgage securities in vogue, many mortgage sectors have become fairly
priced and increasingly more efficient. While we continue to maintain a core
portfolio holding of straight Agency mortgage pass through securities, some of
our most promising investment opportunities are in less traveled, high quality
sectors. More specifically, our ownership of pass through securities remains
overweighted in seasoned ("vintage") securities. These vintage securities have
emerged as the "Blue Chip" securities of the mortgage market because they offer
investors more predictable earnings than similar new issue securities. The other
types of securities we are finding value in include Agency commercial mortgage
backed securities, non-Agency investment grade mortgage backed securities and
collateralized mortgage obligations (CMOs). In fact, CMOs have become such a
mainstream part of the mortgage capital markets that their values are now quoted
in Section C of the Wall Street Journal's "Bond Market Data Bank." Going
forward, I look for these types of securities to benefit from increased investor
interest and improved coverage by the research analysts on Wall Street.
In the wake of consistent growth but subdued inflation, we maintain our
effective duration in-line with Lehman Brother's Ginnie Mae Index. To this
extent, our duration stands at 4.2 years while Lehman Brother's duration stands
at 4.1 years. These efforts make the Fund's interest rate sensitivity relatively
mild and neutral to Lehman Brother's Ginnie Mae Index.
OUTLOOK
The economic picture has the makings of a "Cinderella" story. In this brave new
world, moderate economic growth rates and low unemployment rates live in harmony
with stable inflation. The Federal Reserve's decision to leave short term rates
unchanged shows a willingness on their part to experiment with this relatively
new frontier. Investors, on the other hand, are uncomfortable with this notion
and are behind this higher interest rate environment. Historically, ideal
conditions like these tended not to last long. Therefore, market volatility
increases because investors have not reached a consensus on the future direction
of the economy. Unless the economy begins to march in one definite direction,
intermediate interest rates are likely to remain in a broad trading range of
6.25 percent and 7.25 percent. With most of the damage of higher rates already
done to the market, the outlook for the Mortgage Securities Fund remains bright.
Market conditions both fundamentally and technically remain poised to lead the
Fund to positive competitive returns.
*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. Investment returns and principal values will fluctuate so that shares
upon redemption may be worth more or less than their original cost.
**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>
PRUDENT SECTOR DIVERSIFICATION
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<S> <C>
Vendee Mortgage Trust 15.1%
FHLMC 6.6%
GNMA 34.6%
FNMA 1.0%
Mortgage-Backed Securities 39.3%
Cash and Other
Assets/Liabilities 3.4%
</TABLE>
HIGH QUALITY ASSETS
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<S> <C>
AAA Rated 77.8%
Not Rated 0.9%
AA Rated 6.7%
A Rated 5.5%
BBB Rated 5.7%
Cash and Other
Assets/Liabilities 3.4%
</TABLE>
SOLID LIQUIDITY
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<S> <C>
Public Issues 87.1%
Private 144A Issues 9.5%
Cash and Other
Assets/Liabilities 3.4%
</TABLE>
4
<PAGE>
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
On the following three charts you can see how the total return for each of the
three classes of the Advantus Mortgage Securities Fund compared to the Lehman
Brother's GNMA Index and the Consumer Price Index. The three lines in the Class
A graph represent the cumulative total return of a hypothetical $10,000
investment made on September 30, 1986 through September 30, 1996. The three
lines in the Class B and Class C graphs represent the cumulative total return of
a hypothetical $10,000 investment made on the inception date of Class B and
Class C shares (August 19, 1994 and March 1, 1995, respectively) through
September 30, 1996.
CLASS A
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL
RETURN:
<S> <C> <C> <C>
One year (.4)%
Five years 5.8%
Ten years 7.5%
Lehman Brother's
Class A GNMA Index CPI
9/30/86 10,000 10,000 10,000
10/31/86 10,122 10,559 10,101
10/31/87 10,321 10,984 10,550
10/31/88 11,690 12,498 10,999
10/31/89 12,839 13,925 11,503
10/31/90 13,663 15,079 12,227
10/31/91 15,851 17,656 12,585
10/31/92 17,150 19,209 12,988
10/31/93 19,109 20,664 13,336
9/30/94 18,280 20,529 13,740
9/30/95 20,753 23,418 14,042
9/30/96 20,661 24,793 14,464
</TABLE>
5
<PAGE>
CLASS B
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL
RETURN:
<S> <C> <C> <C>
One year (.9)%
Since Inception (8/19/94) 5.9%
Lehman Brother's
Class B GNMA Index CPI
8/19/94 10,000 10,000 10,000
9/30/94 9,928 9,874 10,067
9/30/95 10,742 11,264 10,289
9/30/96 11,297 11,926 10,598
</TABLE>
CLASS C
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL
RETURN:
<S> <C> <C> <C>
One year 4.1%
Since Inception (3/1/95) 7.6%
Lehman Brother's
Class C GNMA Index CPI
3/01/95 10,000 10,000 10,000
9/30/95 10,791 10,817 10,146
9/30/96 11,230 11,452 10,450
</TABLE>
The preceding 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 applicable
contingent deferred sales charge for Class B shares. 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. Investment
returns and principal values will fluctuate so that shares upon redemption may
be worth more or less than their original cost.
6
<PAGE>
ADVANTUS MORTGAGE SECURITIES FUND
INVESTMENTS IN SECURITIES
SEPTEMBER 30, 1996
(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 (96.6%)
U.S. GOVERNMENT AND AGENCIES OBLIGATIONS (57.3%)
Federal Home Loan Mortgage Corporation (6.6%)
$ 414,318 Bi-weekly............................... 7.000% 12/01/22 $ 402,875
696,936 Bi-weekly............................... 6.500% 12/01/23 660,367
851,273 20 Year Gold............................ 6.000% 10/01/13 799,659
-----------
1,862,901
-----------
Federal National Mortgage Association (FNMA) (1.0%)
314,487 CMO Sequential Payer, Series A, Class 1
(FNMA 11.0%)........................... 5.000% 08/01/10 290,704
-----------
Government National Mortgage Association (GNMA) (34.6%)
338,140 ........................................ 8.000% 12/15/15 343,158
556,401 ........................................ 8.000% 03/15/16 565,030
247,878 ........................................ 7.000% 04/15/16 239,760
307,927 ........................................ 8.000% 07/15/16 312,702
567,965 ........................................ 7.000% 09/15/16 553,709
138,098 ........................................ 7.000% 09/15/16 134,631
329,023 ........................................ 7.000% 05/15/17 320,593
586,136 ........................................ 7.500% 06/15/17 585,913
215,896 ........................................ 7.000% 05/15/17 210,365
346,676 ........................................ 7.000% 12/15/16 337,974
399,343 ........................................ 7.000% 04/15/17 389,111
623,933 ........................................ 7.500% 05/15/17 623,695
330,676 ........................................ 7.000% 04/15/17 322,204
81,335 ........................................ 7.000% 02/15/17 79,251
372,283 ........................................ 7.000% 04/15/17 362,745
382,497 ........................................ 7.000% 10/15/17 372,697
414,625 ........................................ 7.000% 10/15/17 404,002
296,248 GNMA II................................. 7.500% 12/20/15 293,650
510,643 GNMA II................................. 8.000% 10/20/15 519,124
200,331 GNMA II................................. 9.000% 08/20/16 211,223
169,663 GNMA II................................. 9.000% 05/20/16 176,432
208,854 GNMA II................................. 9.000% 06/20/16 217,187
604,650 GNMA II................................. 7.500% 07/20/16 598,561
775,678 GNMA II................................. 8.500% 05/20/17 798,707
</TABLE>
See accompanying notes to investments in securities.
7
<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
$ 400,000 GNMA II (c)............................. 9.000% 08/20/16 $ 420,750
339,141 GNMA II................................. 8.500% 04/20/17 349,209
-----------
9,742,383
-----------
Other Government Agency Obligations (15.1%)
1,048,426 Vendee Mortgage Trust Participation
Certificate (b)........................ 8.465% 05/15/24 1,086,431
718,648 Vendee Mortgage Trust Participation
Certificate (b)........................ 7.206% 02/15/25 697,088
1,011,694 Vendee Mortgage Trust Participation
Certificate (b)........................ 7.793% 02/15/25 1,015,488
1,395,651 Vendee Mortgage Trust Participation
Certificate (b)........................ 8.793% 06/15/25 1,462,817
-----------
4,261,824
-----------
Total U.S. government and agencies obligations (cost:
$16,068,513)................................................. 16,157,812
-----------
OTHER MORTGAGE BACKED SECURITIES (39.3%)
Asset Backed Securities (1.9%)
536,361 Green Tree Financial, Net Interest
Margin, Series 1991, Class A........... 6.900% 02/15/04 531,983
-----------
Collateralized Mortgage Obligations / Mortgage Revenue Bonds (37.4%)
107,597 American Housing Trust, Series VIII,
Class H Sequential Payer............... 8.500% 07/25/97 108,055
735,530 American Housing Trust, Series I, Class
4 Sequential Payer..................... 8.125% 06/25/18 752,079
283,681 Chase 94-1 B2 144A Issue (d)............ 6.611% 03/28/25 257,884
472,802 Chase 94-1 B5 144A Issue (d)............ 6.610% 03/28/25 418,134
492,405 CMO Trust, Sequential Payer, Series 44,
(GNMA 10.0%) Class E................... 5.000% 07/01/18 449,486
1,062,400 Wyoming Community Development Authority,
Series 1993, Class B Sequential
Payer.................................. 6.850% 06/01/10 1,034,512
855,288 International Capital Markets Acceptance
Corporation, Series 1992, Class A
Sequential Payer 144A Issue (d)........ 8.250% 09/01/15 867,048
497,415 PMAC 94-4 M............................. 6.924% 02/25/24 450,161
341,663 Santa Barbara Funding II, Sequential
Payer, Series A, Class 5 (FHLMC
9.5%).................................. 5.000% 03/20/18 311,733
707,921 Shearson Lehman Brothers, Q-3 Sequential
Payer.................................. 7.500% 06/01/18 706,950
1,250,000 California Housing Finance Authority,
Series 0 Sequential Payer (c).......... 8.160% 08/01/28 1,267,188
229,250 New Orleans Home Mortgage Authority,
Series 1991, Class A Sequential
Payer.................................. 6.375% 09/15/05 228,391
926,050 Pleasant Hill Revenue Bond, Series
1993-13, Class A3 (GNMA
Multi-family).......................... 7.950% 09/20/15 940,901
1,050,000 Citicorp Mortgage Securities, Inc.
Targeted Amortization Class............ 6.000% 11/25/08 1,015,149
</TABLE>
See accompanying notes to investments in securities.
8
<PAGE>
ADVANTUS MORTGAGE SECURITIES FUND
INVESTMENTS IN SECURITIES--CONTINUED
<TABLE>
<CAPTION>
MARKET
PRINCIPAL VALUE(a)
- ---------- -----------
<C> <S> <C> <C> <C>
OTHER MORTGAGE BACKED SECURITIES--CONTINUED
$1,150,000 CSFB Finance Company Limited, Series 95-
A, Class A 144A Issue (d).............. 7.500% 11/15/05 $ 1,122,688
678,282 GE Capital Mortgage Services, Inc.,
Series 1994-15, Class B2............... 6.000% 04/25/09 612,169
-----------
10,542,528
-----------
Total mortgage backed securities (cost: $11,060,148).......... 11,074,511
-----------
Total long-term debt securities (cost: $27,128,661)........... 27,232,323
-----------
SHORT-TERM SECURITIES (2.3%)
190,000 U.S. Treasury Bill...................... 5.22% 11/14/96 188,829
250,000 Dupont CP (d)........................... 5.40% 10/16/96 249,412
200,000 Philip Morris Companies CP.............. 5.41% 10/16/96 199,530
-----------
Total short-term securities (cost: $637,728).................. 637,771
-----------
Total investments in securities (cost: $27,766,389) (e)....... $27,870,094
-----------
-----------
</TABLE>
Notes to Investments in Securities
- ----------------------------
(a) Securities are valued by procedures described in note 2 to the financial
statements.
(b) 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 September 30, 1996.
(c) At September 30, 1996 the total cost of investments issued on a when-issued
or forward comittment basis is $1,670,750.
(d) 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 securities held at September 30, 1996, which includes acquisition
date and cost, is as follows:
<TABLE>
<CAPTION>
ACQUISITION
SECURITY DATE COST
- ---------------------------------------------------------------------------------------------------------- ----------- -----------
<S> <C> <C>
Chase 94-1 B2......................................................................................... 03/06/96 $ 269,212
Chase 94-1 B5......................................................................................... 03/06/96 433,489
International Capital Markets Acceptance Corporation.................................................. 01/09/95 1,112,452
CSFB Finance Company Limited.......................................................................... Various 1,145,969
Dupont CP............................................................................................. 09/18/96 248,969
-----------
$ 3,210,091
-----------
-----------
</TABLE>
(e) At September 30, 1996 the cost of securities for federal income tax purposes
was $27,766,389. The aggregate unrealized appreciation and depreciation of
investments in securities based on this cost were:
<TABLE>
<S> <C> <C>
Gross unrealized appreciation........................................................................ $ 355,174
Gross unrealized depreciation........................................................................ (251,469)
----------
Net unrealized appreciation.......................................................................... $ 103,705
----------
----------
</TABLE>
9
<PAGE>
ADVANTUS MORTGAGE SECURITIES FUND
STATEMENT OF ASSETS AND LIABILITIES
SEPTEMBER 30, 1996
<TABLE>
<S> <C>
ASSETS
Investments in securities, at market value--see accompanying
schedule for detailed listing (identified cost: $27,766,389)...... $27,870,094
Cash in bank on demand deposit..................................... 34,796
Receivable for Fund shares sold.................................... 5,499
Receivable for investment securities sold.......................... 1,823,729
Accrued interest receivable........................................ 228,166
-----------
Total assets................................................... 29,962,284
-----------
LIABILITIES
Payable for investment securities purchased........................ 1,670,750
Payable for Fund shares repurchased................................ 59,744
Payable to Adviser................................................. 25,938
-----------
Total liabilities.............................................. 1,756,432
-----------
Net assets applicable to outstanding capital stock................. $28,205,852
-----------
-----------
Represented by:
Capital stock authorized 10 billion shares (Class A--2 billion
shares, Class B--2 billion shares, Class C--2 billion shares and
4 billion shares unallocated) of $.01 par value (note 1)........ $ 27,574
Additional paid-in capital....................................... 29,218,924
Undistributed net investment income.............................. 58,443
Accumulated net realized loss from investments................... (1,202,794)
Unrealized appreciation of investments........................... 103,705
-----------
Total--representing net assets applicable to outstanding
capital stock................................................. $28,205,852
-----------
-----------
Net assets applicable to outstanding Class A shares................ $23,692,254
-----------
-----------
Net assets applicable to outstanding Class B shares................ $ 3,374,944
-----------
-----------
Net assets applicable to outstanding Class C shares................ $ 1,138,654
-----------
-----------
Shares outstanding and net asset value per share:
Class A--Shares outstanding 2,316,394............................ $ 10.23
-----------
-----------
Class B--Shares outstanding 329,660.............................. $ 10.24
-----------
-----------
Class C--Shares outstanding 111,298.............................. $ 10.23
-----------
-----------
</TABLE>
See accompanying notes to financial statements.
10
<PAGE>
ADVANTUS MORTGAGE SECURITIES FUND
STATEMENT OF OPERATIONS
YEAR ENDED SEPTEMBER 30, 1996
<TABLE>
<S> <C>
Investment income:
Interest.......................................................... $1,965,279
----------
Expenses (note 4):
Investment advisory fee........................................... 154,423
Distribution fees--Class A........................................ 71,430
Distribution fees--Class B........................................ 23,440
Distribution fees--Class C........................................ 7,020
Administrative services fee....................................... 41,200
Custodian fees.................................................... 6,236
Auditing and accounting services.................................. 10,628
Legal fees........................................................ 3,618
Directors' fees................................................... 434
Registration fees................................................. 29,597
Printing and shareholder reports.................................. 34,355
Insurance......................................................... 5,701
Other............................................................. 7,955
----------
Total expenses.................................................. 396,037
Less fees and expenses waived or absorbed:
Class A distribution fees....................................... (15,693)
Other fund expenses............................................. (20,025)
----------
Total fees and expenses waived or absorbed.................... (35,718)
----------
Total net expenses............................................ 360,319
----------
Investment income--net........................................ 1,604,960
----------
Realized and unrealized gains (losses) on investments:
Net realized gains on investments (note 3)........................ 350,931
Net change in unrealized appreciation or depreciation on
investments...................................................... (689,709)
----------
Net losses on investments....................................... (338,778)
----------
Net increase in net assets resulting from operations................ $1,266,182
----------
----------
</TABLE>
See accompanying notes to financial statements.
11
<PAGE>
ADVANTUS MORTGAGE SECURITIES FUND
STATEMENT OF CHANGES IN NET ASSETS
YEARS ENDED SEPTEMBER 30, 1996 AND 1995
<TABLE>
<CAPTION>
1996 1995
----------- -----------
<S> <C> <C>
Operations:
Investment income--net.............................. $ 1,604,960 $ 1,683,061
Net realized gains on investments................... 350,931 140,686
Net change in unrealized appreciation or
depreciation of investments........................ (689,709) 1,594,464
----------- -----------
Increase in net assets resulting from
operations....................................... 1,266,182 3,418,211
----------- -----------
Distributions to shareholders from investment
income--net:
Class A............................................. (1,434,649) (1,636,844)
Class B............................................. (125,313) (17,742)
Class C............................................. (37,597) (4,382)
----------- -----------
Total distributions............................... (1,597,559) (1,658,968)
----------- -----------
Capital share transactions (notes 4 and 5):
Proceeds from sales:
Class A........................................... 4,801,997 2,594,530
Class B........................................... 2,787,439 990,008
Class C........................................... 1,182,431 340,021
Shares issued as a result of reinvested dividends:
Class A........................................... 976,397 969,887
Class B........................................... 103,411 15,797
Class C........................................... 31,389 2,840
Payments for redemption of shares:
Class A........................................... (7,130,212) (7,089,593)
Class B........................................... (555,653) (2,536)
Class C........................................... (382,103) (22,144)
----------- -----------
Increase (decrease) in net assets from capital
share transactions............................... 1,815,096 (2,201,190)
----------- -----------
Total increase (decrease) in net assets........... 1,483,719 (441,947)
Net assets at beginning of year....................... 26,722,133 27,164,080
----------- -----------
Net assets at end of year (including undistributed net
investment income of $58,443 and $51,042,
respectively)........................................ $28,205,852 $26,722,133
----------- -----------
----------- -----------
</TABLE>
See accompanying notes to financial statements.
12
<PAGE>
ADVANTUS MORTGAGE SECURITIES FUND
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1996
(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 A 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 periods
decline as the amount of the purchase increases and range 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.
Income, expenses (other than distribution fees) and realized and unrealized
gains or losses are allocated to each class of shares based upon its relative
net assets.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The significant accounting policies followed by the Fund are summarized as
follows:
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of increases and decreases in net assets
resulting from operations during the period. Actual results could differ from
those estimates.
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.
13
<PAGE>
ADVANTUS MORTGAGE SECURITIES FUND
NOTES TO FINANCIAL STATEMENTS--CONTINUED
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
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 by the Fund 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 to market
fluctuations. As of September 30, 1996, the Fund had entered into outstanding
when-issued or forward commitments of $1,670,750. 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 $1,202,794 which, if not offset by subsequent capital gains, will
expire September 30, 2003. 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 year ended September 30, 1996, purchases of securities and proceeds
from sales, other than temporary investments in short-term securities aggregated
$33,842,205 and $32,543,935, respectively.
14
<PAGE>
ADVANTUS MORTGAGE SECURITIES FUND
NOTES TO FINANCIAL STATEMENTS--CONTINUED
(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.
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 and wholly-owned subsidiary of
MIMLIC Management, 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 and Class C Plans provide for a fee up to 1.00 percent of
average daily net assets of Class B and Class C shares, respectively. The Class
B and Class C 1.00 percent fee is 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, .25 percent. MIMLIC Sales waived Class A distribution fees in the amount
of $15,693 for the year ended September 30, 1996.
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, 1996, the administrative services fee was
$3,100 per month. Effective February 1, 1996, the administrative services fee is
$3,600 per month.
Advantus Capital directly incurs and pays the above operating expenses and
the Fund in turn reimburses Advantus Capital. During the year ended September
30, 1996, Advantus Capital voluntarily agreed to absorb $20,025 in expenses that
were otherwise payable by the Fund.
Sales charges received by MIMLIC Sales for distributing the Fund's three
classes of shares amounted to $101,891.
15
<PAGE>
ADVANTUS MORTGAGE SECURITIES FUND
NOTES TO FINANCIAL STATEMENTS--CONTINUED
(4) EXPENSES AND RELATED PARTY TRANSACTIONS--(CONTINUED)
As of September 30, 1996, Minnesota Mutual and subsidiaries and the
directors and officers of the Fund as a whole owned the following shares:
<TABLE>
<CAPTION>
NUMBER OF SHARES PERCENTAGE OWNED
------------------ ---------------------
<S> <C> <C>
Class A..................................................................... 228,336 9.9%
Class B..................................................................... 5,677 1.7%
Class C..................................................................... 1,101 1.0%
</TABLE>
During the year ended September 30, 1996, legal fees were paid to a law firm
of which the Fund's secretary is a partner in the amount of $3,618.
(5) CAPITAL SHARE TRANSACTIONS
Transactions in shares for the years ended September 30, 1996 and 1995 for
Class A and Class B shares and the year ended September 30, 1996 and the period
from March 1, 1995 to September 30, 1995 for Class C shares were as follows:
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
---------------------- -------------------- --------------------
1996 1995 1996 1995 1996 1995
---------- ---------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Sold............................................... 464,458 259,523 269,093 97,026 114,493 32,851
Issued for reinvested distributions................ 94,676 97,409 10,057 1,653 3,094 276
Redeemed........................................... (687,451) (704,962) (54,084) (216) (37,284) (2,132)
---------- ---------- --------- --------- --------- ---------
(128,317) (348,030) 225,066 98,463 80,303 30,995
---------- ---------- --------- --------- --------- ---------
---------- ---------- --------- --------- --------- ---------
</TABLE>
(6) RESTRICTED SECURITIES
At September 30, 1996, investments in securities includes issues which
generally cannot be offered for sale to the public without first being
registered under the Securities Act of 1933 (restricted securities). 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 September 30, 1996 was $2,915,166 which represents 10.3% of net assets.
16
<PAGE>
ADVANTUS MORTGAGE SECURITIES FUND
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
---------------------------------------------------------------
YEAR ENDED PERIOD FROM YEAR ENDED
SEPTEMBER 30, NOVEMBER 1, 1993 OCTOBER 31,
---------------------- TO SEPTEMBER 30, --------------------
1996 1995(a) 1994(b) 1993 1992
--------- ----------- ----------------- --------- ---------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period....................... $ 10.36 $ 9.70 $ 11.06 $ 10.94 $ 10.80
--------- ----------- ------- --------- ---------
Income from investment operations:
Net investment income.................................... .62 .62 .53 .63 .71
Net gains or losses on securities (both realized and
unrealized)............................................. (.13) .65 (.99) .55 .15
--------- ----------- ------- --------- ---------
Total from investment operations....................... .49 1.27 (.46) 1.18 .86
--------- ----------- ------- --------- ---------
Less distributions:
Dividends from net investment income..................... (.62) (.61) (.53) (.63) (.72)
Distributions from capital gains......................... -- -- (.37) (.43) --
--------- ----------- ------- --------- ---------
Total distributions.................................... (.62) (.61) (.90) (1.06) (.72)
--------- ----------- ------- --------- ---------
Net asset value, end of period............................. $ 10.23 $ 10.36 $ 9.70 $ 11.06 $ 10.94
--------- ----------- ------- --------- ---------
--------- ----------- ------- --------- ---------
Total return (c)........................................... 4.8% 13.5% (4.3)%(d) 11.4% 8.2%
Net assets, end of period (in thousands)................... $ 23,692 $ 25,317 $ 27,105 $ 27,073 $ 20,996
Ratio of expenses to average daily net assets (e).......... 1.26% 1.29% 1.24%(f) 1.17% 1.25%
Ratio of net investment income to average daily net assets
(e)....................................................... 6.05% 6.23% 5.73%(f) 5.77% 6.56%
Portfolio turnover rate (excluding short-term
securities)............................................... 125.2% 203.7% 236.2% 135.0% 137.3%
</TABLE>
- -------------
(a) Effective March 1, 1995, the Fund entered into a new investment advisory
agreement with Advantus Capital Management, Inc. Prior to March 1, 1995, the
Fund had an investment advisory agreement with MIMLIC Asset Management
Company.
(b) During 1994, the Fund changed its fiscal year end from October 31 to
September 30.
(c) Total return figures are based on a share outstanding throughout the period
and assumes reinvestment of distributions at net asset value. Total return
figures do not reflect the impact of front-end sales charges.
(d) Total return is presented for the period from November 1, 1993 to September
30, 1994.
(e) The Fund's Adviser and Distributor voluntarily waived or absorbed $35,718,
$36,128, $43,505, $34,773 and $21,104 in expenses for the years ended
September 30, 1996 and 1995, the period ended September 30, 1994 and the
years ended October 31, 1993 and 1992, respectively. If Class A shares had
been charged for these expenses, the ratio of expenses to average daily net
assets would have been 1.40%, 1.42%, 1.41%, 1.31% and 1.36%, respectively,
and the ratio of net investment income to average daily net assets would
have been 5.91%, 6.10%, 5.56%, 5.63% and 6.45%, respectively.
(f) Adjusted to an annual basis.
17
<PAGE>
ADVANTUS MORTGAGE SECURITIES FUND
NOTES TO FINANCIAL STATEMENTS--CONTINUED
(7) FINANCIAL HIGHLIGHTS--(CONTINUED)
<TABLE>
<CAPTION>
CLASS B CLASS C
-------------------------------- -----------------------------
PERIOD FROM PERIOD FROM
YEAR ENDED AUGUST 19, MARCH 1,
SEPTEMBER 30, 1994(b) TO YEAR ENDED 1995(b) TO
---------------- SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30,
1996 1995(a) 1994 1996 1995
------ -------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period....... $10.37 $ 9.70 $ 9.83 $10.37 $ 9.90
------ -------- ------ ------ ------
Income from investment operations:
Net investment income.................... .54 .53 .06 .54 .31
Net gains or losses on securities (both
realized and unrealized)................ (.13) .67 (.13) (.14) .47
------ -------- ------ ------ ------
Total from investment operations....... .41 1.20 (.07) .40 .78
------ -------- ------ ------ ------
Less distributions:
Dividends from net investment income..... (.54) (.53) (.06) (.54) (.31)
Distributions from capital gains......... -- -- -- -- --
------ -------- ------ ------ ------
Total distributions.................... (.54) (.53) (.06) (.54) (.31)
------ -------- ------ ------ ------
Net asset value, end of period............. $10.24 $ 10.37 $ 9.70 $10.23 $10.37
------ -------- ------ ------ ------
------ -------- ------ ------ ------
Total return (c)........................... 4.1% 12.7% (.7)%(d) 4.1% 7.9%(e)
Net assets, end of period (in thousands)... $3,375 $ 1,084 $ 60 $1,139 $ 321
Ratio of expenses to average daily net
assets (f)................................ 2.01% 2.05% .28%(g) 2.01% 2.05%(h)
Ratio of net investment income to average
daily net assets (f)...................... 5.38% 5.32% .60%(g) 5.39% 5.26%(h)
Portfolio turnover rate (excluding
short-term securities).................... 125.2% 203.7% 236.2% 125.2% 203.7%
</TABLE>
- -------------
(a) Effective March 1, 1995, the Fund entered into a new investment advisory
agreement with Advantus Capital Management, Inc. Prior to March 1, 1995, the
Fund had an investment advisory agreement with MIMLIC Asset Management
Company.
(b) Commencement of operations.
(c) Total return figures are based on a share outstanding throughout the period
and assumes reinvestment of distributions at net asset value. Total return
figures do not reflect the impact of contingent deferred sales charges.
(d) Total return is presented for the period from August 19, 1994, commencement
of operations, to September 30, 1994.
(e) Total return is presented for the period from March 1, 1995, commencement of
operations, to September 30, 1995.
(f) The Fund's Adviser and Distributor voluntarily waived or absorbed $35,718
and $36,128 in expenses for the years ended September 30, 1996 and 1995,
respectively. If Class B shares had been charged for these expenses, the
ratio of expenses to average daily net assets would have been 2.09% and
2.11%, respectively, and the ratio of net investment income to average daily
net assets would have been 5.30% and 5.26%, respectively. If Class C shares
had been charged for these expenses, the ratio of expenses to average daily
net assets would have been 2.08% and 2.11%, respectively, and the ratio of
net investment income to average daily net assets would have been 5.32% and
5.20%, respectively.
(g) Ratios presented for the period from August 19, 1994 to September 30, 1994
are not annualized as they are not indicative of anticipated results.
(h) Adjusted to an annual basis.
18
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders
Advantus Mortgage Securities Fund, Inc.:
We have audited the accompanying statement of assets and liabilities,
including the schedule of investments in securities, of the Advantus Mortgage
Securities Fund, Inc. (the Fund) as of September 30, 1996 and the related
statement of operations for the year then ended, the statement of changes in net
assets for the two years then ended and the financial highlights for the two
years then ended, the period from November 1, 1993 to September 30, 1994 and
each of the years in the two-year period ended October 31, 1993. These financial
statements and the financial highlights are the responsibility of the Fund's
management. Our responsibility is to express an opinion on these financial
statements and the financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements and the financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Investment securities held in custody are confirmed to us by the
custodian. As to securities purchased or sold but not received or delivered, we
request confirmations from brokers, and where replies are not received, we carry
out other appropriate auditing procedures. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well
as evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and the financial highlights
referred to above present fairly, in all material respects, the financial
position of the Fund as of September 30, 1996 and the results of its operations,
changes in its net assets and financial highlights, for the periods stated in
the first paragraph above, in conformity with generally accepted accounting
principles.
KPMG Peat Marwick LLP
Minneapolis, Minnesota
November 1, 1996
19
<PAGE>
ADVANTUS MORTGAGE SECURITIES FUND
FEDERAL INCOME TAX INFORMATION
The following information for federal income tax purposes is presented as an
aid to shareholders in reporting the distributions paid by the Fund in the
fiscal year ended September 30, 1996. Dividends for the 1996 calendar year will
be reported to you on Form 1099-Div in late January 1997. Shareholders should
consult a tax adviser on how to report these distributions for state and local
purposes.
CLASS A
Income distributions--taxable as dividend income, none qualifying for deduction
by corporations
<TABLE>
<CAPTION>
PAYABLE DATE PER SHARE
- ------------------------------------------------------------------------------------- ---------
<S> <C>
October 31, 1995..................................................................... $ .0479
November 30, 1995.................................................................... .0521
December 31, 1995.................................................................... .0495
January 31, 1996..................................................................... .0484
February 29, 1996.................................................................... .0504
March 31, 1996....................................................................... .0571
April 30, 1996....................................................................... .0487
May 31, 1996......................................................................... .0541
June 30, 1996........................................................................ .0493
July 31, 1996........................................................................ .0522
August 31, 1996...................................................................... .0522
September 30, 1996................................................................... .0553
---------
$ .6172
---------
---------
CLASS B
Income distributions--taxable as dividend income, none qualifying for deduction by corporations
<CAPTION>
PAYABLE DATE PER SHARE
- ------------------------------------------------------------------------------------- ---------
<S> <C>
October 31, 1995..................................................................... $ .0409
November 30, 1995.................................................................... .0453
December 31, 1995.................................................................... .0424
January 31, 1996..................................................................... .0415
February 29, 1996.................................................................... .0442
March 31, 1996....................................................................... .0506
April 30, 1996....................................................................... .0425
May 31, 1996......................................................................... .0477
June 30, 1996........................................................................ .0458
July 31, 1996........................................................................ .0458
August 31, 1996...................................................................... .0457
September 30, 1996................................................................... .0491
---------
$ .5415
---------
---------
</TABLE>
20
<PAGE>
<TABLE>
<S> <C>
CLASS C
Income distributions--taxable as dividend income, none qualifying for deduction by corporations
<CAPTION>
PAYABLE DATE PER SHARE
- ------------------------------------------------------------------------------------- ---------
<S> <C>
October 31, 1995..................................................................... $ .0408
November 30, 1995.................................................................... .0453
December 31, 1995.................................................................... .0424
January 31, 1996..................................................................... .0414
February 29, 1996.................................................................... .0442
March 31, 1996....................................................................... .0506
April 30, 1996....................................................................... .0424
May 31, 1996......................................................................... .0476
June 30, 1996........................................................................ .0469
July 31, 1996........................................................................ .0458
August 31, 1996...................................................................... .0457
September 30, 1996................................................................... .0491
---------
$ .5422
---------
---------
</TABLE>
21
<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 Advantus 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 your fund account--subject to minimum guidelines.
Depending upon the performance of the underlying investment options, the value
may be worth more or less than the original amount invested when withdrawn.
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 your 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 savings 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.
22
<PAGE>
GROUP INVESTMENT PLAN: This plan provides employers and employees with a
convenient means for investing in the funds through payroll deduction.
TELEPHONE REDEMPTION: You may call us and redeem shares over the phone. The
proceeds will be sent by check to the address of record for the account. Amounts
over $1,000 may be wire transferred to your personal bank account. The
prevailing wire charge will be added to the withdrawal amount. To set this up,
please send a voided check from your bank. Depending on the performance of the
underlying investment options, the value may be worth more or less than the
original amount invested upon redemption.
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. manages eight mutual funds containing $346
million in assets in addition to $1.3 billion in assets for other clients.
Advantus Capital's seasoned portfolio managers average more than 11 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
23
<PAGE>
THIS REPORT HAS BEEN PREPARED FOR SHAREHOLDERS AND MAY BE DISTRIBUTED
TO OTHERS ONLY IF PRECEDED OR ACCOMPANIED BY A CURRENT PROSPECTUS.
READ THE PROSPECTUS CAREFULLY BEFORE YOU INVEST.
[ADVANTUS -TM- FAMILY OF FUNDS]
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.48641 11-96
