<PAGE>
[LOGO]
ADVANTUS
FAMILY OF FUNDS
ANNUAL REPORT TO SHAREHOLDERS
ADVANTUS CORNERSTONE FUND
SEPTEMBER 30, 1997
<PAGE>
ADVANTUS CORNERSTONE FUND
TABLE OF CONTENTS
PERFORMANCE UPDATE 2
INVESTMENTS IN SECURITIES 6
STATEMENT OF ASSETS AND LIABILITIES 8
STATEMENT OF OPERATIONS 9
STATEMENTS OF CHANGES IN NET ASSETS 10
NOTES TO FINANCIAL STATEMENTS 11
INDEPENDENT AUDITORS' REPORT 16
FEDERAL INCOME TAX INFORMATION 17
SHAREHOLDER SERVICES 18
<PAGE>
LETTER FROM THE PRESIDENT [PHOTO]
Dear Shareholders:
The 1997 fiscal year has been a rewarding one for investors. On the equity side,
despite the anticipation of a market downturn, the equity market continued to
climb. Over the twelve month period ending September 30, 1997, the S&P 500*
gained 40.5 percent; over 26 percent of that gain was for the trailing six
months. We saw a slight market decline of 5.5 percent in August, but stocks
bounced back by the end of September.
As the stock market continues to push forward, some investors lose sight of the
importance of maintaining a position of their assets in bonds. Investors who
diversify their portfolio assets between stocks and bonds can better position
their portfolio in the event of stock market downturns. There was not a stock
market correction of major significance during this reporting period.
The bond market demonstrated strong performance throughout 1997. For the twelve
month period ending September 30, 1997, the Lehman Corporate Bond Index**
returned 10.8 percent. This is a 6 percent increase over last year's return.
Stable interest rates and low inflation have contributed to the bond market's
stellar performance.
Your Advantus Family of Funds includes a range of equity and bond offerings. I
recommend that you talk with your Ascend financial representative to ensure that
your portfolio has an appropriate balance for your situation. As we continue to
watch the stock market hit new highs, we cannot assume that upward moves are a
continuing trend.
In the pages that follow, the Fund's manager will give you more information
about the economy and conditions within the market that may have affected the
Fund during this reporting period. The manager will specifically discuss your
Advantus Fund's performance and share some strategies that were used to manage
the Fund.
We assert that a long-range view of investing provides the greatest benefit to
our shareholders. We encourage you to maintain a long-range view, and we believe
that you will derive the greatest benefit by doing so.
Sincerely,
[SIGNATURE]
Paul Gooding, President
Advantus Capital Management, Inc.
*The S&P 500 is a broad, unmanaged index of 500 common stocks which are
representative of the U.S. stock market overall. The Index includes
approximately 380 industrials, 10 transportations, 45 financials, and 65
utilities.
**The Lehman Corporate Bond Index includes all fixed-rate, publicly traded,
investment grade corporate debt with at least one year to maturity and $50
million par value outstanding.
<PAGE>
ADVANTUS CORNERSTONE FUND
PERFORMANCE UPDATE
[PHOTO]
MATTHEW D. FINN, CFA
PORTFOLIO MANAGER
The Advantus Cornerstone Fund is a mutual
fund designed for investors seeking
long-term accumulation of capital. In
pursuit of this objective, the Fund will
invest primarily in equity securities of
companies which, in the opinion of the
Adviser, have market values which appear
low relative to their underlying value or
future growth potential.
-Dividends paid quarterly
-Capital gains distributions paid annually.
PERFORMANCE
The Cornerstone Fund's performance for the year ended September 30, 1997 for
each class of shares offered is as follows:
<TABLE>
<S> <C>
Class A.......................... 38.4 percent*
Class B.......................... 37.7 percent*
Class C.......................... 37.1 percent*
</TABLE>
The S&P 500** returned 40.5 percent and the S&P Barra Value Index+ returned 39.2
percent for the same period.
PORTFOLIO RECAP
The performance of the Fund for the fiscal year relative to the S&P 500** was
helped by investments in the basic industries sector and the utilities sector.
In the basic industries sector Fort Howard Paper led the way appreciating 149
percent. In the utilities sector, El Paso Natural Gas rose 41.3 percent.
Relative performance was hurt by an under-weighting in consumer non-durables
which is typical of value funds in the current environment. In addition, our
selections in the financial services sector lagged the performance of the group.
OUTLOOK
The financial markets and the Fund have done exceptionally well over the last
several years. This leads to many of the companies in the Fund bumping up
against valuation targets. We continue to work very hard at identifying
attractively priced securities where earnings will likely rise in excess of
current expectations. As these situations are identified, we will be reducing
the weightings in fully valued positions in order to add new positions.
2
<PAGE>
ADVANTUS CORNERSTONE
FUND
SEPTEMBER 30, 1997
COMPARISON OF CHANGE IN VALUE OF A HYPOTHETICAL $10,000 INVESTMENT IN ADVANTUS
CORNERSTONE FUND, S&P 500 BARRA VALUE
INDEX AND CONSUMER PRICE INDEX
On the following charts you can see how the total return for each of the three
classes of shares of the Advantus Cornerstone Fund compared to the S&P 500 Barra
Value Index and the Consumer Price Index. The lines in each graph represent the
cumulative total return of a hypothetical $10,000 investment made on the
inception date of each class of shares of the Advantus Cornerstone Fund
(September 16, 1994 for Class A and Class B and March 1, 1995 for Class C)
through September 30, 1997.
CLASS A AND B
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL
RETURN:
<S> <C> <C> <C> <C>
Class A:
One year 31.4%
Since inception (9/16/94) 25.8%
Class B:
One year 32.7%
Since inception (9/16/94) 26.4%
S&P 500
Class A Class B Barra Value Index CPI
9/16/94 10,000 10,000 10,000 10,000
9/30/94 9,374 9,870 9,824 10,054
9/30/95 11,659 11,708 12,582 10,275
9/30/96 14,517 14,649 14,929 10,570
9/30/97 20,085 20,400 20,784 10,818
</TABLE>
*Historical performance is 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 S&P 500 is a broad, unmanaged index of 500 common stocks which are
representative of the U.S. stock market overall. The Index includes
approximately 380 industrials, 10 transportations, 45 financials and 65
utilities.
+The S&P 500 Barra Value Index contains those stocks from the S&P 500 that have
a price-to-book ratio below the capitalization weighted median price-to-book
ratio of the S&P 500.
3
<PAGE>
ADVANTUS CORNERSTONE
FUND
SEPTEMBER 30, 1997
CLASS C
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL
RETURN:
<S> <C> <C> <C>
One year 37.1%
Since inception (3/1/95) 31.6%
S&P 500
Class C Barra Value Index CPI
3/01/95 10,000 10,000 10,000
9/30/95 12,013 11,865 10,146
9/30/96 14,846 14,078 10,437
9/30/97 20,354 19,599 10,682
</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 professional's investment advice. Individuals cannot buy even an
unmanaged index fund without incurring some charges and expenses.
Historical performance is 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.
4
<PAGE>
ADVANTUS CORNERSTONE
FUND
SEPTEMBER 30, 1997
TEN LARGEST STOCK HOLDINGS
<TABLE>
<CAPTION>
MARKET % OF STOCK
COMPANY SHARES VALUE PORTFOLIO
- ------------------------------------------------------------ -------- ----------- ----------
<S> <C> <C> <C>
Everest Reinsurance Holdings................................ 191,290 $ 7,842,890 6.0%
American Stores Company..................................... 282,902 6,895,736 5.3%
Hormel Foods Corporation.................................... 168,214 5,393,361 4.2%
Reynolds Metals Company..................................... 71,900 5,091,419 3.9%
C.R. Bard, Inc.............................................. 143,400 4,866,638 3.8%
Chubb Corporation........................................... 62,813 4,463,649 3.4%
Corestates Financial Corporation............................ 62,400 4,130,100 3.2%
Philips Electronics......................................... 48,400 4,065,600 3.1%
Enron Oil & Gas............................................. 174,700 3,887,075 3.0%
Valero Energy Corporation................................... 117,200 3,845,625 3.0%
----------- ---
$50,482,093 38.9%
----------- ---
----------- ---
</TABLE>
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<S> <C>
Cash and Other
Assets/Liabilities 1.8%
Basic Materials 12.6%
Capital Goods 5.0%
Communication Services 5.4%
Consumer Cyclical 11.3%
Consumer Staples 11.0%
Energy 16.4%
Financial 17.5%
Health Care 3.7%
Technology 7.4%
Transportation 0.5%
Utilities 7.4%
</TABLE>
5
<PAGE>
ADVANTUS CORNERSTONE FUND
INVESTMENTS IN SECURITIES
SEPTEMBER 30, 1997
(Percentages of each investment category relate to total net assets.)
<TABLE>
<CAPTION>
MARKET
SHARES VALUE(a)
- ----------- ------------
<C> <S> <C>
COMMON STOCKS (98.2%)
BASIC MATERIALS (12.6%)
Aluminum (3.0%)
40,007 Aluminum Company of America.................. $ 3,280,573
37,200 Century Aluminum Company..................... 655,650
------------
3,936,223
------------
Chemicals (2.6%)
17,700 Cytec Industries Inc. (b).................... 847,388
6,125 Quest Diagnostics Inc. (b)................... 103,742
54,687 Witco Corporation............................ 2,495,093
------------
3,446,223
------------
Iron and Steel (3.8%)
71,900 Reynolds Metals Company...................... 5,091,419
------------
Paper and Forest (3.2%)
24,717 Champion International Corporation........... 1,506,192
58,837 Fort James Corporation....................... 2,695,447
------------
4,201,639
------------
CAPITAL GOODS (5.0%)
Manufacturing (2.5%)
20,900 Corning Inc.................................. 987,525
82,101 United Dominion.............................. 2,324,485
------------
3,312,010
------------
Waste Management (2.5%)
95,500 WMX Technologies Inc......................... 3,336,531
------------
COMMUNICATION SERVICES (5.4%)
Telephone (5.4%)
30,696 Bell Atlantic Corporation.................... 2,469,110
48,300 Bellsouth
Corporation................................. 2,233,874
<CAPTION>
MARKET
SHARES VALUE(a)
- ----------- ------------
<C> <S> <C>
COMMUNICATION SERVICES--CONTINUED
38,671 SBC Communications,
Inc......................................... $ 2,373,433
------------
7,076,417
------------
CONSUMER CYCLICAL (11.3%)
Auto (2.0%)
78,100 ITT Industries............................... 2,591,944
------------
Retail (7.5%)
87,000 Federated Department Stores (b).............. 3,751,875
48,400 Philips
Electronics (c)............................. 4,065,600
93,080 Woolworth Corporation (b).................... 2,059,395
------------
9,876,870
------------
Textiles (1.8%)
83,400 Fruit of the
Loom (b).................................... 2,345,625
------------
CONSUMER STAPLES (11.0%)
Food (4.1%)
168,214 Hormel Foods Corporation..................... 5,393,361
------------
Retail (6.9%)
282,902 American Stores Company...................... 6,895,736
74,600 Kroger Company (b)........................... 2,251,988
------------
9,147,724
------------
ENERGY (16.4%)
Oil (9.7%)
47,900 Amerada Hess Corporation..................... 2,954,831
29,800 Amoco Corporation............................ 2,871,975
30,200 Unocal Corporation........................... 1,306,150
75,600 USX--Marathon Group.......................... 2,811,375
</TABLE>
See accompanying notes to investments in securities.
6
<PAGE>
ADVANTUS CORNERSTONE FUND
INVESTMENTS IN SECURITIES--CONTINUED
<TABLE>
<CAPTION>
MARKET
SHARES VALUE(a)
- ----------- ------------
<C> <S> <C>
ENERGY--CONTINUED
78,900 YPF Sociedad Anonima (c)..................... $ 2,909,438
------------
12,853,769
------------
Oil and Gas (6.7%)
174,700 Enron Oil & Gas.............................. 3,887,075
34,700 Ultramar Diamond Shamrock Corporation........ 1,121,244
117,200 Valero Energy Corporation.................... 3,845,625
------------
8,853,944
------------
FINANCIAL (17.5%)
Banks (5.8%)
62,400 Corestates Financial Corporation............. 4,130,100
12,700 Wells Fargo & Company........................ 3,492,500
------------
7,622,600
------------
Insurance (9.3%)
62,813 Chubb Corporation............................ 4,463,649
191,290 Everest Reinsurance Holdings................. 7,842,890
------------
12,306,539
------------
Savings and Loans (2.4%)
182,617 Sovereign Bancorp Incorporated............... 3,195,798
------------
MARKET
SHARES VALUE(a)
- ----------- ------------
HEALTH CARE (3.7%)
Medical Products/Supplies (3.7%)
143,400 C.R. Bard, Inc............................... $ 4,866,638
------------
TECHNOLOGY (7.4%)
101,200 Advanced Micro Devices, Inc. (b)............. 3,295,325
79,600 Digital
Equipment (b)............................... 3,447,675
66,400 Lam Research Corporation (b)................. 3,087,600
------------
9,830,600
------------
TRANSPORTATION (0.5%)
Shipping (0.5%)
20,600 Teekay Shipping Corporation (c).............. 692,675
------------
UTILITIES (7.4%)
Electric Companies (4.8%)
49,300 FPL Group Incorporated....................... 2,526,625
106,550 Texas Utilities Company...................... 3,835,800
------------
6,362,425
------------
Natural Gas (2.6%)
56,277 El Paso Natural Gas Company.................. 3,408,276
------------
Total investments in securities
(cost: $105,658,217) (d)................................. $129,749,250
------------
------------
</TABLE>
Notes to Investments in Securities
- ----------------------------
(a) Securities are valued by procedures described in note 2 to the financial
statements.
(b) Presently non-income producing.
(c) The Fund held 5.8% of the net assets in foreign securities as of September
30, 1997.
(d) At September 30, 1997 the cost of securities for federal income tax purposes
was $105,862,241. The aggregate unrealized appreciation and depreciation of
investments in securities based on this cost were:
<TABLE>
<S> <C>
Gross unrealized appreciation........... $25,102,347
Gross unrealized depreciation........... (1,215,338)
----------
Net unrealized appreciation............. $23,887,009
----------
----------
</TABLE>
7
<PAGE>
ADVANTUS CORNERSTONE FUND
STATEMENT OF ASSETS AND LIABILITIES
SEPTEMBER 30, 1997
<TABLE>
<S> <C>
ASSETS
Investments in securities, at market value--see accompanying
schedule for detailed listing (identified cost:
$105,658,217).............................................. $129,749,250
Receivable for Fund shares sold............................. 278,390
Receivable for investment securities sold................... 2,735,072
Dividends receivable........................................ 219,148
Organizational costs........................................ 21,273
------------
Total assets............................................ 133,003,133
------------
LIABILITIES
Bank overdraft.............................................. 709,332
Payable for Fund shares repurchased......................... 10,708
Payable to Adviser.......................................... 156,902
------------
Total liabilities....................................... 876,942
------------
Net assets applicable to outstanding capital stock.......... $132,126,191
------------
------------
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)....................................... $ 70,862
Additional paid-in capital................................ 97,840,735
Accumulated net realized gains from investments........... 10,123,561
Unrealized appreciation on investments.................... 24,091,033
------------
Total--representing net assets applicable to outstanding
capital stock.......................................... $132,126,191
------------
------------
Net assets applicable to outstanding Class A Shares......... $107,322,043
------------
------------
Net assets applicable to outstanding Class B Shares......... $ 21,405,401
------------
------------
Net assets applicable to outstanding Class C Shares......... $ 3,398,747
------------
------------
Shares outstanding and net asset value per share:
Class A--Shares outstanding 5,746,329..................... $ 18.68
------------
------------
Class B--Shares outstanding 1,155,909..................... $ 18.52
------------
------------
Class C--Shares outstanding 183,953....................... $ 18.48
------------
------------
</TABLE>
See accompanying notes to financial statements.
8
<PAGE>
ADVANTUS CORNERSTONE FUND
STATEMENT OF OPERATIONS
YEAR ENDED SEPTEMBER 30, 1997
<TABLE>
<S> <C>
Investment income:
Interest.................................................. $ 349,977
Dividends................................................. 1,407,909
-----------
1,757,886
-----------
Expenses (note 4):
Investment advisory fee................................... 726,045
Distribution fees--Class A................................ 224,199
Distribution fees--Class B................................ 137,399
Distribution fees--Class C................................ 22,828
Administrative services fee............................... 43,200
Amortization of organizational costs...................... 11,099
Custodian fees............................................ 5,239
Auditing and accounting services.......................... 12,984
Legal fees................................................ 2,819
Directors' fees........................................... 1,516
Registration fees......................................... 50,051
Printing and shareholder reports.......................... 31,204
Insurance................................................. 5,637
Other..................................................... 2,671
-----------
Total expenses........................................ 1,276,891
Less fees and expenses waived or absorbed:
Class A distribution fees............................... (149,466)
-----------
Total net expenses.................................... 1,127,425
-----------
Investment income--net................................ 630,461
-----------
Realized and unrealized gains on investments:
Net realized gains on investments (note 3)................ 10,539,073
Net change in unrealized appreciation or depreciation on
investments.............................................. 18,224,827
-----------
Net gains on investments.............................. 28,763,900
-----------
Net increase in net assets resulting from operations........ $29,394,361
-----------
-----------
</TABLE>
See accompanying notes to financial statements.
9
<PAGE>
ADVANTUS CORNERSTONE FUND
STATEMENTS OF CHANGES IN NET ASSETS
YEARS ENDED SEPTEMBER 30, 1997 AND 1996
<TABLE>
<CAPTION>
1997 1996
------------ ------------
<S> <C> <C>
Operations:
Investment income--net.......................... $ 630,461 $ 256,939
Net realized gains on investments............... 10,539,073 6,702,261
Net change in unrealized appreciation or
depreciation on investments.................... 18,224,827 2,262,010
------------ ------------
Increase in net assets resulting from
operations................................. 29,394,361 9,221,210
------------ ------------
Distributions to shareholders from:
Investment income--net:
Class A....................................... (640,427) (241,804)
Class B....................................... (9,734) (4,243)
Class C....................................... (1,338) (953)
Net realized gains on investments:
Class A....................................... (5,575,937) (2,024,993)
Class B....................................... (967,496) (141,042)
Class C....................................... (158,217) (9,744)
------------ ------------
Total distributions......................... (7,353,149) (2,422,779)
------------ ------------
Capital share transactions (notes 4 and 6):
Proceeds from sales:
Class A....................................... 43,863,072 12,858,134
Class B....................................... 12,068,461 4,817,331
Class C....................................... 2,128,188 1,014,692
Proceeds from shares issued as a result of
reinvested dividends:
Class A....................................... 3,121,241 516,144
Class B....................................... 942,926 145,189
Class C....................................... 141,346 10,550
Payments for redemption of shares:
Class A....................................... (6,118,647) (540,831)
Class B....................................... (2,140,767) (169,208)
Class C....................................... (554,087) (19,247)
------------ ------------
Increase in net assets from capital share
transactions............................... 53,451,733 18,632,754
------------ ------------
Total increase in net assets................ 75,492,945 25,431,185
Net assets at beginning of year................... 56,633,246 31,202,061
------------ ------------
Net assets at end of year (including undistributed
net investment income of $0 and $21,038,
respectively).................................... $132,126,191 $ 56,633,246
------------ ------------
------------ ------------
</TABLE>
See accompanying notes to financial statements.
10
<PAGE>
ADVANTUS CORNERSTONE FUND
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1997
(1) ORGANIZATION
Advantus Cornerstone Fund, Inc. (the Fund) was incorporated on January 27,
1994. The Fund is registered under the Investment Company Act of 1940 (as
amended) as a diversified, open-end management investment company. The Fund's
investment objective is to seek the long-term accumulation of capital.
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.
On June 20, 1994, MIMLIC Asset Management Company (MIMLIC Management)
purchased 7,500 Class A shares and 7,500 Class B shares. Operations of the Fund
did not formally commence until September 16, 1994 when the shares became
effectively registered under the Securities Exchange Act of 1933. The Minnesota
Mutual Life Insurance Company (Minnesota Mutual), the parent of MIMLIC
Management, purchased 990,644 Class A shares for $10 million prior to
commencement of operations.
(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, by an independent pricing service or at a price deemed best to
reflect fair value quoted by dealers who make markets in these securities. When
market quotations are not readily available, securities are valued at fair value
as determined in good faith under procedures adopted by the Board of Directors.
Short-term securities are valued at market.
11
<PAGE>
ADVANTUS CORNERSTONE 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.
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.
DISTRIBUTIONS TO SHAREHOLDERS
Dividends from net investment income are declared and paid quarterly.
Realized gains, if any, are paid annually.
(3) INVESTMENT SECURITY TRANSACTIONS
For the year ended September 30, 1997, purchases of securities and proceeds
from sales, other than temporary investments in short-term securities aggregated
$125,779,206 and $74,398,258, respectively.
(4) EXPENSES AND RELATED PARTY TRANSACTIONS
The Fund has an investment advisory agreement with Advantus Capital
Management, Inc. (Advantus Capital or the Adviser), a wholly-owned subsidiary
MIMLIC Management. 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 (Minnesota Mutual). The fee for
investment management and advisory services is based on the average daily net
assets of the Fund at the annual rate of .80 percent.
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 Ascend Financial Services,
Inc. (Ascend), formally known as MIMLIC Sales Corporation, 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. Ascend is currently
waiving that portion of Class A distribution fees which exceeds, as a percentage
of average daily net assets, .10 percent. Ascend waived Class A distribution
fees in the amount of $149,466 for the year ended September 30, 1997.
12
<PAGE>
ADVANTUS CORNERSTONE FUND
NOTES TO FINANCIAL STATEMENTS--CONTINUED
(4) EXPENSES AND RELATED PARTY TRANSACTIONS--(CONTINUED)
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, organizational costs and other
miscellaneous expenses.
The Fund pays an administrative services fee, equal to $3,600 per month, to
Minnesota Mutual for accounting, auditing, legal and other administrative
services which Minnesota Mutual provides.
Advantus Capital directly incurs and pays the above operating expenses and
the Fund in turn reimburses Advantus Capital.
Sales charges received by Ascend for distributing the Fund's three classes
of shares amounted to $671,121.
As of September 30, 1997, Minnesota Mutual and subsidiaries and the
directors and officers of the Fund as a whole owned 2,185,424 Class A shares
which represents 38.0 percent of the total outstanding Class A shares.
Legal fees were paid to a law firm of which the Fund's secretary is a
partner in the amount of $2,819.
(5) ORGANIZATIONAL COSTS
The Fund incurred organizational expenses in connection with the start-up
and initial registration. These costs will be amortized over 60 months on a
straight-line basis beginning with the commencement of operations. If any or all
of the shares held by MIMLIC Management, or any other holder, representing
initial capital of the Fund are redeemed during the amortization period, the
redemption proceeds will be reduced by the pro rata portion (based on the ratio
that the number of initial shares redeemed bears to the total number of
outstanding initial shares of the Fund at the date of redemption) of the
unamortized organizational cost balance.
(6) CAPITAL SHARE TRANSACTIONS
Transactions in shares for the years ended September 30, 1997 and 1996 were
as follows:
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
--------------------- --------------------- --------------------
1997 1996 1997 1996 1997 1996
---------- --------- ---------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Sold............................................. 2,693,449 933,055 747,344 349,609 130,326 74,263
Issued for reinvested distributions.............. 203,010 40,364 63,541 11,527 9,776 788
Redeemed......................................... (362,180) (38,831) (130,360) (12,529) (33,515) (1,310)
---------- --------- ---------- --------- --------- ---------
2,534,279 934,588 680,525 348,607 106,587 73,741
---------- --------- ---------- --------- --------- ---------
---------- --------- ---------- --------- --------- ---------
</TABLE>
13
<PAGE>
ADVANTUS CORNERSTONE 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
-------------------------------------------------
PERIOD FROM
SEPTEMBER 16,
YEAR ENDED SEPTEMBER 30, 1994(b) TO
-------------------------------- SEPTEMBER 30,
1997 1996 1995(a) 1994
---------- --------- --------- ---------------
<S> <C> <C> <C> <C>
Net asset value, beginning of
period....................... $ 15.06 $ 12.96 $ 10.63 $ 10.77
---------- --------- --------- -------
Income from investment
operations:
Net investment income
(loss)..................... .14 .09 .12 .01
Net gains or losses on
securities (both realized
and unrealized)............ 5.19 2.91 2.42 (.15)
---------- --------- --------- -------
Total from investment
operations............... 5.33 3.00 2.54 (.14)
---------- --------- --------- -------
Less distributions:
Dividends from net
investment income.......... (.14) (.08) (.16) --
Distributions from capital
gains...................... (1.57) (.82) (.05) --
---------- --------- --------- -------
Total distributions....... (1.71) (.90) (.21) --
---------- --------- --------- -------
Net asset value, end of
period....................... $ 18.68 $ 15.06 $ 12.96 $ 10.63
---------- --------- --------- -------
---------- --------- --------- -------
Total return (c).............. 38.4% 24.5% 24.4% (1.3)%
Net assets, end of period (in
thousands)................... $ 107,322 $ 48,383 $ 29,520 $ 10,616
Ratio of expenses to average
daily net assets (d)(e)...... 1.08% 1.26% 1.35% .05%(f)
Ratio of net investment income
(loss) to average daily net
assets (d)(e)................ .85% .70% 1.01% .07%(f)
Portfolio turnover rate
(excluding short-term
securities).................. 87.7% 128.0% 160.1% 8.1%
Average commission rate on
stock transactions (h)....... $ .0584 $ .0721 N/A N/A
</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 front-end and contingent deferred sales
charges. For periods less than one year, total return presented has not been
annualized.
(d) The Fund's Distributor voluntarily waived $149,466 and $74,454 in Class A
distribution fees for the years ended September 30, 1997 and 1996,
respectively. If the Fund had been charged for these fees, the ratio of
expenses to average daily net assets would have been 1.28% and 1.46%,
respectively, and the ratio of net investment income to average daily net
assets would have been .65% and .50%, respectively, for Class A shares.
(e) The Fund's Distributor and Advisor voluntarily waived or absorbed $83,746
and $1,872 in expenses for the year ended September 30, 1995 and the period
ended September 30, 1994. If the Fund had been charged for these expenses,
the ratios of expenses to average daily net assets would have been 1.81% and
.07% for Class A shares, 2.45% and .10% for Class B shares, and 2.34% for
Class C shares. The ratios of net investment income (loss) to average daily
net assets would have been .56% and .05% for Class A shares, (.15%) and .02%
for Class B shares and (.16%) for Class C shares.
14
<PAGE>
ADVANTUS CORNERSTONE FUND
NOTES TO FINANCIAL STATEMENTS--CONTINUED
<TABLE>
<CAPTION>
CLASS B CLASS C
-------------------------------------------- ---------------------------------
PERIOD FROM PERIOD FROM
SEPTEMBER 16, YEAR ENDED MARCH 1,
YEAR ENDED SEPTEMBER 30, 1994(b) TO SEPTEMBER 30, 1995(b) TO
---------------------------- SEPTEMBER 30, ----------------- SEPTEMBER 30,
1997 1996 1995(a) 1994 1997 1996 1995
-------- ------- ------- ------------- ------- ------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of
period....................... $ 14.92 $ 12.90 $10.63 $ 10.77 $ 14.94 $ 12.90 $ 10.79
-------- ------- ------- ------ ------- ------- ------
Income from investment
operations:
Net investment income
(loss)..................... -- (.01) .02 (.01) -- -- .02
Net gains or losses on
securities (both realized
and unrealized)............ 5.18 2.86 2.41 (.13) 5.12 2.88 2.14
-------- ------- ------- ------ ------- ------- ------
Total from investment
operations............... 5.18 2.85 2.43 (.14) 5.12 2.88 2.16
-------- ------- ------- ------ ------- ------- ------
Less distributions:
Dividends from net
investment income.......... (.01) (.01) (.11) -- (.01) (.02) (.05)
Distributions from capital
gains...................... (1.57) (.82) (.05) -- (1.57) (.82) --
-------- ------- ------- ------ ------- ------- ------
Total distributions....... (1.58) (.83) (.16) -- (1.58) (.84) (.05)
-------- ------- ------- ------ ------- ------- ------
Net asset value, end of
period....................... $ 18.52 $ 14.92 $12.90 $ 10.63 $ 18.48 $ 14.94 $ 12.90
-------- ------- ------- ------ ------- ------- ------
-------- ------- ------- ------ ------- ------- ------
Total return (c).............. 37.7% 23.4% 23.2% (1.3)% 37.1% 23.6% 20.1%
Net assets, end of period (in
thousands)................... $ 21,405 $ 7,095 $1,635 $ 93 $ 3,399 $ 1,156 $ 47
Ratio of expenses to average
daily net assets (d)(e)...... 1.98% 2.15% 2.25% .09%(f) 1.98% 2.13% 2.25%(g)
Ratio of net investment income
(loss) to average daily net
assets (d)(e)................ (.05)% (.11)% .05% .03%(f) (.05)% (.01)% (.07)%(g)
Portfolio turnover rate
(excluding short-term
securities).................. 87.7% 128.0% 160.1% 8.1% 87.7% 128.0% 160.1%
Average commission rate on
stock transactions (h)....... $ .0584 $ .0721 N/A N/A $ .0584 $ .0721 N/A
</TABLE>
- ------------
(f) Ratios presented for the periods from September 16, 1994 to September 30,
1994 are not annualized as they are not indicative of anticipated results.
(g) Adjusted to an annual basis.
(h) Beginning in fiscal 1996, the Fund is required to disclose an average
brokerage commission rate. The rate is calculated by dividing the total
brokerage commissions paid on applicable purchases and sales of stocks for
the period by the total number of related shares purchased and sold.
15
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders
Advantus Cornerstone Fund, Inc.:
We have audited the accompanying statement of assets and liabilities,
including the schedule of investments in securities, of the Advantus Cornerstone
Fund, Inc. (the Fund) as of September 30, 1997 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 three years then
ended and the period from September 16, 1994 to September 30, 1994. 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 sold but not 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, 1997 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 7, 1997
16
<PAGE>
ADVANTUS CORNERSTONE 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, 1997. Dividends for the 1997 calendar year will
be reported to you on Form 1099-Div in late January 1998. Shareholders should
consult a tax adviser on how to report these distributions for state and local
purposes.
CLASS A
<TABLE>
<CAPTION>
PAYABLE DATE
- ----------------------------------------------------------------------------------------------------------
<S> <C>
Income distributions--taxable as dividend income, 17.0% qualifying for deduction by corporations
December 26, 1996......................................................................................... $ 1.2898
March 26, 1997............................................................................................ .0300
June 25, 1997............................................................................................. .0225
September 24, 1997........................................................................................ .0428
---------
$ 1.3851
---------
---------
Capital gains distribution--taxable as long-term captial gains
December 19, 1996......................................................................................... $ .3201
---------
---------
</TABLE>
The distribution of $1.2898 payable on December 26, 1996 represents $1.2513
of short-term capital gains (taxable of dividend income) and $.0385 from net
investment income.
CLASS B
<TABLE>
<CAPTION>
PAYABLE DATE
- ----------------------------------------------------------------------------------------------------------
<S> <C>
Income distributions--taxable as dividend income, 17.0% qualifying for deduction by corporations
December 26, 1996......................................................................................... $ 1.2594
September 24, 1997........................................................................................ .0041
---------
$ 1.2635
---------
---------
Capital gains distribution--taxable as long-term captial gains
December 19, 1996......................................................................................... $ .3201
---------
---------
</TABLE>
The distribution of $1.2594 payable on December 26, 1996 represents $1.2513
of short-term capital gains (taxable of dividend income) and $.0081 from net
investment income.
CLASS C
<TABLE>
<CAPTION>
PAYABLE DATE
- ----------------------------------------------------------------------------------------------------------
<S> <C>
Income distributions--taxable as dividend income, 17.0% qualifying for deduction by corporations
December 26, 1996......................................................................................... $ 1.2585
September 24, 1997........................................................................................ .0034
---------
$ 1.2619
---------
---------
Capital gains distribution--taxable as long-term captial gains
December 19, 1996......................................................................................... $ .3201
---------
---------
</TABLE>
The distribution of $1.2585 payable on December 26, 1996 represents $1.2513
of short-term capital gains (taxable of dividend income) and $.0072 from net
investment income.
17
<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, SIMPLE,
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.
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. Sign up for
18
<PAGE>
telephone redemption on the Advantus Application or complete a Service Request
Form. To have the redemption automatically deposited into your checking account,
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. Some limitations apply, please refer
to the prospectus for details.
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. Semi-annual 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 Advantus Shareholder Services, call (1-800-665-6005).
Our voice response system is available from 7 a.m. to 3 a.m. Central Time 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 ten Advantus Funds through your local
registered representative of Ascend Financial Services, Inc. (formerly known as
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 twelve mutual funds containing
$2.5 billion in assets in addition to $1.8 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
Advantus Venture Fund
Advantus Index 500 Fund
19
<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 LOGO]
ASCEND FINANCIAL SERVICES, INC.,
SECURITIES DEALER, MEMBER NASD/SIPC
400 ROBERT STREET NORTH
ST. PAUL, MN 55101-2098
1-800-AFS-1838
(1-800-237-1838)
<PAGE>
ASCEND FINANCIAL SERVICES, INC. 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.48649 REV. 11-1997
