<PAGE>
[LOGO]
ADVANTUS-TM-
FAMILY OF FUNDS
ANNUAL REPORT TO SHAREHOLDERS
ADVANTUS INTERNATIONAL BALANCED FUND
SEPTEMBER 30, 1997
<PAGE>
ADVANTUS INTERNATIONAL BALANCED FUND
TABLE OF CONTENTS
PERFORMANCE UPDATE 2
INVESTMENTS IN SECURITIES 7
STATEMENT OF ASSETS AND LIABILITIES 16
STATEMENT OF OPERATIONS 17
STATEMENTS OF CHANGES IN NET ASSETS 18
NOTES TO FINANCIAL STATEMENTS 19
INDEPENDENT AUDITORS' REPORT 27
FEDERAL INCOME TAX INFORMATION 28
SHAREHOLDER SERVICES 30
<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 months 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
months 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,
/s/ Paul Gooding
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 INTERNATIONAL BALANCED FUND
PERFORMANCE UPDATE
[PHOTO]
GARY CLEMONS AND
NEIL DEVLIN
TEMPLETON INVESTMENT COUNSEL, INC.
PORTFOLIO MANAGERS
The Advantus International Balanced Fund
is a mutual fund designed for investors
seeking a high level of total return. The
Fund hopes to achieve its objective by
investing in both stocks and debt
securities issued by companies, large and
small, primarily outside the United
States. While Advantus Capital
Management, Inc. acts as investment
adviser for the Fund, Templeton
Investment Counsel, Inc. provides
investment advice to the Fund under a
subadvisory agreement.
-Dividends paid quarterly.
-Capital gains distributions paid annually.
PERFORMANCE
The Advantus International Balanced Fund's performance for the year ending
September 30, 1997 (period from January 31, 1997, commencement of operations, to
September 30, 1997 for Class B) is as follows:
<TABLE>
<S> <C>
Class A.......................... 23.1 percent*
Class B.......................... 12.3 percent*
Class C.......................... 22.0 percent*
</TABLE>
By comparison, an international equity index, the MSCI EAFE Index** posted a
gain of 12.5 percent and an international bond index, the J.P. Morgan Non-U.S.
Government Bond Index+ returned .2 percent for the year ended September 30,
1997.
The Fund's strong relative performance resulted from a 70 percent stock
weighting, an underweighting in the poor performing Japanese market, and a full
weighting in the strong performing European markets. Additionally, with the
exception of the Southeast Asian countries, our emerging markets' holdings
contributed meaningfully to the Fund's performance.
PORTFOLIO RECAP
Major stock markets around the world generally performed well during fiscal
1997. A benign interest rate environment and positive investment capital flows
into global equity markets helped fuel solid performance.
Europe, which continues to represent our largest regional exposure, performed
well. Improving economic conditions, positive earnings revisions, and continued
progress on corporate restructuring provided the environment for superior stock
market performance. As a result, many of our European holdings are nearing full
value, and we have started to reduce exposure. However, the U.K. remains the one
European market in which we continue to find value as the successful ongoing
corporate restructuring and improving economy scenario do not appear to be
reflected in U.K. share prices.
The emerging markets were mixed over the fiscal year. Latin American markets
performed well as investors warmed to the sound economic policies of many Latin
countries. However, the Southeast Asian countries experienced turmoil in equity
and currency markets. These formerly stable and high growth countries now face
problems reminiscent of those experienced by Mexico a few years ago. Strong
capital inflows from developed countries were misallocated to investments within
adequate economic justifications, currencies were pegged to the U.S. dollar
instead of being allowed to float and reflect the changing economic and
financial environment, companies accumulated high levels of debt (much of which
were dollar dominated), the banking system became burdened by a dangerous level
of nonperforming loans, and the balance of payments position of several
countries became unbalanced. We expect the region will recover eventually, aided
by the improved competitiveness, the devaluation will bring together
2
<PAGE>
ADVANTUS INTERNATIONAL
BALANCED FUND
SEPTEMBER 30, 1997
with the high savings rates typical in Southeast Asian economies. As one might
surmise, we are now focused on identifying investment opportunities within these
Southeast Asian countries.
Volatility best characterized the global fixed income market for the past year.
A decline in foreign currencies versus the U.S., emergence of economic growth
outside the U.S., and the shifting probability for the establishment of a common
currency in Europe all contributed to a perilous global bond investing
environment. The Fund's European holdings were reallocated through the sale of
modest amounts of Denmark, Ireland, Spain, and the U.K. while the German
position was increased. Within the dollar block of markets, assets were shifted
out of Australia and into dollar denominated emerging markets assets of Latin
American countries.
OUTLOOK
Based on current valuations, it is our expectation that international stock
markets will likely continue to perform as well as or better than the U.S.
market. Despite the inevitable volatility of returns, we remain optimistic about
future prospects for our current holdings. We anticipate that the Fund will
continue to hold approximately 70 percent of its assets in stocks, with the
remainder in bonds.
*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 EAFE Index is an unmanaged index of common stocks from European, Asian,
and Far Eastern markets.
+The J.P. Morgan Non-U.S. Government Bond Index includes all liquid foreign
government issues of Australia, Belgium, Canada, Denmark, France, Germany,
Italy, Japan, Netherlands, Spain, Sweden and United Kingdom.
3
<PAGE>
ADVANTUS INTERNATIONAL
BALANCED FUND
SEPTEMBER 30, 1997
COMPARISON OF CHANGE IN VALUE OF $10,000 INVESTMENT IN
ADVANTUS INTERNATIONAL BALANCED FUND, EAFE INDEX,
J.P. MORGAN NON-U.S. GOVERNMENT BOND 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 International Balanced Fund compared to the
EAFE Index, the J.P. Morgan Non-U.S. Government Bond Index and the Consumer
Price Index. The four 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 International Balanced Fund (September 16, 1994 for Class
A, January 31, 1997 for Class B and March 1, 1995 for Class C) through September
30, 1997.
CLASS A
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL
RETURN:
<S> <C> <C> <C> <C>
One year 16.9%
Since inception (9/16/94) 10.8%
Class A EAFE Index J.P. Morgan Index CPI
9/16/94 $10,000 $10,000 $10,000 $10,000
9/30/94 9,324 9,845 10,094 10,054
9/30/95 10,014 10,460 11,972 10,275
9/30/96 11,089 11,399 12,605 10,584
9/30/97 13,650 12,819 12,639 10,818
</TABLE>
CLASS B
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL
RETURN:
<S> <C> <C> <C> <C>
Since inception (1/31/97) 7.3%
Class B EAFE Index J.P. Morgan Index CPI
1/31/97 $10,000 $10,000 $10,000 $10,000
9/30/97 10,730 11,246 10,027 10,094
</TABLE>
4
<PAGE>
ADVANTUS INTERNATIONAL
BALANCED 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> <C>
One year 22.0%
Since inception (3/1/95) 16.3%
Class C EAFE Index J.P. Morgan Index CPI
3/1/95 $10,000 $10,000 $10,000 $10,000
9/30/95 11,026 11,175 11,198 10,146
9/30/96 12,120 12,179 11,791 10,450
9/30/97 14,780 13,696 11,822 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 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.
5
<PAGE>
ADVANTUS INTERNATIONAL
BALANCED FUND
SEPTEMBER 30, 1997
FIVE LARGEST COMMON STOCK HOLDINGS
<TABLE>
<CAPTION>
% OF
COMMON
MARKET STOCK
COMPANY SHARES VALUE PORTFOLIO
- -------------------------------------- -------- ---------- -----------
<S> <C> <C> <C>
BTR................................... 340,800 $1,381,102 3.4%
British Steel PLC..................... 459,700 1,320,360 3.2%
YPF Sociedad Anonima ADS.............. 35,200 1,298,000 3.1%
Deutsche Bank......................... 17,950 1,260,220 3.1%
AXA................................... 17,465 1,172,583 2.8%
---------- ---
$6,432,265 15.6%
---------- ---
---------- ---
</TABLE>
FIVE LARGEST BOND HOLDINGS
<TABLE>
<CAPTION>
% OF
MARKET BOND
COMPANY VALUE PORTFOLIO
- -------------------------------------- ---------- -----------
<S> <C> <C> <C>
Federal Republic of Germany--5.250%, 02/21/01... $1,281,728 7.6%
Federal Republic of Germany--8.750%, 08/20/01... 1,266,691 7.5%
Government of Spain--12.250%, 03/25/00.......... 1,229,673 7.3%
United Kingdom--8.000%, 12/07/00................ 1,185,884 7.1%
Italy Government--10.500%, 07/15/00............. 1,158,257 6.9%
---------- ---
$6,122,233 36.4%
---------- ---
---------- ---
</TABLE>
6
<PAGE>
ADVANTUS INTERNATIONAL BALANCED 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 (68.1%)
ARGENTINA (2.2%)
Oil and Energy (2.2%)
35,200 YPF Sociedad Anonima ADS................................................................ $ 1,298,000
------------
AUSTRALIA (1.6%)
Building Materials and Components (1.6%)
248,995 Pioneer International................................................................... 847,865
98,500 David Jones, Ltd........................................................................ 144,410
------------
992,275
------------
AUSTRIA (1.0%)
Electrical and Electronics (.7%)
1,900 VA Technologie (e)...................................................................... 407,547
Utilities--Gas and Electric (.3%)
1,650 EVN Energie-Versorung................................................................... 201,919
------------
609,466
------------
BELGIUM (.6%)
Chemicals (.6%)
4,300 Union Miniere NPV (b)................................................................... 352,140
------------
BRAZIL (2.0%)
Financial (.2%)
182,000 Banco ITAU.............................................................................. 117,623
Telecommunications (1.8%)
1,253,300 Telecomunicacoes Brasileiras............................................................ 143,578
7,100 Telecomunicacoes Brasileiras ADR........................................................ 914,125
------------
1,175,326
------------
CANADA (1.2%)
Banking (.7%)
15,500 Canadian Imperial Bank of Commerce...................................................... 446,511
Mining and Metals--Container (.5%)
16,300 Oshawa Group, Ltd....................................................................... 281,970
------------
728,481
------------
CHINA (.8%)
Chemicals (.8%)
1,150,000 Yizheng Chemical Fibre Company.......................................................... 501,616
------------
CZECH REPUBLIC (.5%)
Energy Services (.5%)
9,465 Ceske Energeticke....................................................................... 303,273
------------
</TABLE>
See accompanying notes to investments in securities.
7
<PAGE>
ADVANTUS INTERNATIONAL BALANCED FUND
INVESTMENTS IN SECURITIES--CONTINUED
<TABLE>
<CAPTION>
MARKET
SHARES VALUE(a)
- ------------- ------------
<C> <S> <C>
FINLAND (2.6%)
Telecommunications (.8%)
5,300 Nokia................................................................................... $ 498,363
Banking (.9%)
118,000 Merita, Ltd............................................................................. 560,363
Wholesale and International Trade (.9%)
15,000 Amer Group (b).......................................................................... 326,364
23,500 Metsa-Serla............................................................................. 219,639
------------
1,604,729
------------
FRANCE (9.0%)
Banking (2.0%)
3,300 Banque Nationale de Paris ADR 144A(e)................................................... 166,273
20,587 Banque Nationale de Paris............................................................... 1,038,032
Financial (.2%)
2,200 Credit Commercial France................................................................ 129,150
Electrical and Electronics (.5%)
2,405 Alcatel Alsthom......................................................................... 320,099
Multi-Industry (.4%)
1,000 Marine Wendel........................................................................... 107,962
2,000 Pechiney SA............................................................................. 96,154
610 Bertrand Faure (b)...................................................................... 39,915
Energy Sources (1.1%)
5,070 Societe Nationale Elf Aquitaine......................................................... 677,368
Health and Personal Care (1.2%)
17,935 Rhone-Poulenc........................................................................... 714,011
Insurance (1.9%)
17,465 AXA..................................................................................... 1,172,583
Transportation (1.7%)
34,053 Regie Nationale Des Usines Renault...................................................... 1,010,446
------------
5,471,993
------------
GERMANY (2.1%)
Banking (2.1%)
17,950 Deutsche Bank........................................................................... 1,260,220
------------
HONG KONG (4.9%)
Financial Services (.1%)
28,000 Peregrine Investment Holdings........................................................... 47,586
Multi-Industry (2.3%)
61,000 Hutchison Whampoa....................................................................... 601,131
245,600 C. P. Pokphand Co., Ltd................................................................. 81,734
86,600 Jardine Matheson Holdings............................................................... 701,460
</TABLE>
See accompanying notes to investments in securities.
8
<PAGE>
ADVANTUS INTERNATIONAL BALANCED FUND
INVESTMENTS IN SECURITIES--CONTINUED
<TABLE>
<CAPTION>
MARKET
SHARES VALUE(a)
- ------------- ------------
<C> <S> <C>
HONG KONG--CONTINUED
Electrical and Electronics (.4%)
73,900 Hong Kong Aircraft Engineering Co. Ltd.................................................. $ 239,727
Transportation (2.0%)
45,000 Swire Pacific Class A................................................................... 344,588
352,400 Swire Pacific Class B................................................................... 521,484
102,628 Jardine Strategic Holdings.............................................................. 402,302
Utilities, Gas and Electric (.1%)
9,500 Hong Kong Electrical Holdings........................................................... 35,360
------------
2,975,372
------------
INDONESIA (.5%)
Financial Services (.3%)
200,000 J.F. Indonesia Fund..................................................................... 196,446
Forest Products and Paper (.2%)
151,500 P.T. Barito Pacific Timber.............................................................. 96,997
Utilities (--)
200 P.T. Indostat ADR....................................................................... 5,250
------------
298,693
------------
ITALY (1.5%)
Telecommunications (.7%)
63,000 Sirti................................................................................... 395,233
Transportation (.8%)
139,370 Fiat.................................................................................... 497,548
------------
892,781
------------
KOREA (.2%)
Financial Services (.2%)
4 Korea International Trust............................................................... 107,000
------------
MEXICO (1.4%)
Chemicals (.4%)
48,000 Vitro................................................................................... 247,072
Mining and Metals (.8%)
120,000 Grupo Mexico (b)........................................................................ 468,665
Utilities--Gas and Electric (.2%)
2,800 Telefonos de Mexico ADR................................................................. 144,900
------------
860,637
------------
NETHERLANDS (3.5%)
Broadcasting, Advertising and Publishing (1.1%)
14,500 International Nederlanden Group......................................................... 666,315
Building Materials and Components (.3%)
6,850 European Vinyls......................................................................... 161,865
</TABLE>
See accompanying notes to investments in securities.
9
<PAGE>
ADVANTUS INTERNATIONAL BALANCED FUND
INVESTMENTS IN SECURITIES--CONTINUED
<TABLE>
<CAPTION>
MARKET
SHARES VALUE(a)
- ------------- ------------
<C> <S> <C>
NETHERLANDS--CONTINUED
Electrical and Electronics (1.7%)
12,200 Philips Electronics..................................................................... $ 1,032,921
Merchandising (.4%)
4,320 Koninklijke Bijenkorf Beheer............................................................ 276,271
------------
2,137,372
------------
NEW ZEALAND (2.1%)
Building Materials and Components (.2%)
27,000 Fletcher Challenge Building............................................................. 88,167
Energy Services (.2%)
27,000 Fletcher Challenge Energy............................................................... 122,051
Forest Products and Paper (.7%)
19,643 Fletcher Challenge Forestry............................................................. 24,525
171,400 Carter Holt Harvey, Ltd................................................................. 372,036
Transportation (.4%)
100,000 Air New Zealand Ltd..................................................................... 257,395
Wholesale and International Trade (.6%)
438,750 Brierley Investments.................................................................... 379,250
------------
1,243,424
------------
NORWAY (2.6%)
Energy Sources (.8%)
23,000 Saga Petroleum.......................................................................... 486,018
Health and Personal Care (1.4%)
11,700 Nycomed (b)............................................................................. 265,366
25,900 Hafslund Nycomed........................................................................ 556,420
Mining and Metals--Container (.4%)
13,000 Elkem................................................................................... 230,753
------------
1,538,557
------------
PHILIPPINES (.2%)
Telecommunications (.2%)
5,300 Philippine Long Distance Telephone...................................................... 144,545
------------
PORTUGAL (.4%)
Banking (.4%)
9,660 Banco Portugues de Investimento......................................................... 220,007
------------
SOUTH AFRICA (.9%)
Forest Products and Paper (.4%)
27,478 Sappi, Ltd.............................................................................. 218,810
Mining and Metals (.5%)
17,528 Anglo American Platinum................................................................. 303,796
------------
522,606
------------
</TABLE>
See accompanying notes to investments in securities.
10
<PAGE>
ADVANTUS INTERNATIONAL BALANCED FUND
INVESTMENTS IN SECURITIES--CONTINUED
<TABLE>
<CAPTION>
MARKET
SHARES VALUE(a)
- ------------- ------------
<C> <S> <C>
SPAIN (3.5%)
Energy Sources (.7%)
10,800 Repsol.................................................................................. $ 466,953
Telecommunications (1.2%)
23,000 Telefonica de Espana.................................................................... 723,086
Utilities--Gas and Electric (1.6%)
15,200 Empresa Nacional de Electricidad........................................................ 324,521
50,072 Iberdrola............................................................................... 615,914
------------
2,130,474
------------
SWEDEN (5.7%)
Broadcasting, Advertising and Publishing (.1%)
3,300 Marieberg Tidnings...................................................................... 91,297
Business and Public Service (1.2%)
24,000 Esselte................................................................................. 692,435
2,250 Naeckebro (b)........................................................................... 31,420
Forest Products and Paper (.8%)
27,000 Stora Kopparbergs Bergslags............................................................. 457,078
Health and Personal Care (1.5%)
18,933 Astra................................................................................... 334,232
16,900 Svenska Handelsbanken................................................................... 585,553
Metals and Mining (.5%)
16,900 Granges................................................................................. 307,248
Transportation (1.6%)
8,400 Autoliv................................................................................. 357,000
20,800 Volvo................................................................................... 596,000
------------
3,452,263
------------
SWITZERLAND (.8%)
Electrical and Electronics (.7%)
270 BBC Brown Boveri Ltd.................................................................... 398,032
Health and Personal Care (.1%)
51 Societe Generale de Surveillance........................................................ 89,329
------------
487,361
------------
THAILAND (.1%)
Building Materials and Components (.1%)
17,400 Siam City Cement Public Co. Ltd......................................................... 62,005
Financial Services (--)
539 Thai Fund............................................................................... 5,996
------------
68,001
------------
</TABLE>
See accompanying notes to investments in securities.
11
<PAGE>
ADVANTUS INTERNATIONAL BALANCED FUND
INVESTMENTS IN SECURITIES--CONTINUED
<TABLE>
<CAPTION>
MARKET
SHARES VALUE(a)
- ------------- ------------
<C> <S> <C>
UNITED KINGDOM (16.2%)
Chemicals (2.1% )
98,900 Courtaulds PLC.......................................................................... $ 541,830
231,000 Harrisons & Crosfield PLC............................................................... 457,831
8,500 Imperial Chemical....................................................................... 137,786
36,000 Somerfield PLC.......................................................................... 116,307
Financial (.8%)
67,100 Tate & Lyle............................................................................. 476,274
Banking (.3%)
5,681 Barclays Bank........................................................................... 153,284
Building Materials and Components (.8%)
114,781 BICC.................................................................................... 307,020
54,900 Hepworth PLC (b)........................................................................ 184,003
Drugs (1.5%)
276,500 Medeva.................................................................................. 931,171
Electrical and Electronics (.5%)
15,500 Waste Management International ADR (b).................................................. 125,938
38,000 Waste Management International PLC...................................................... 154,302
Energy Services (3.8%)
220,700 BG PLC.................................................................................. 958,406
152,500 Centrica PLC (b)........................................................................ 228,529
57,000 British Telecommunications.............................................................. 376,112
25,833 Hyder................................................................................... 381,501
25,510 Thames Water Group...................................................................... 358,850
Food and Household Products (1.1%)
531,893 Albert Fisher Group..................................................................... 317,113
128,429 Hillsdown Holdings...................................................................... 348,699
Merchandising (.3%)
30,100 Kwik Save Group......................................................................... 169,028
Mining and Metals (2.2%)
459,700 British Steel PLC....................................................................... 1,320,360
Transportation (2.8%)
17,050 BTR PLC................................................................................. 67,408
340,800 BTR..................................................................................... 1,381,102
128,200 Thorn PLC............................................................................... 41,315
109,885 Thorn................................................................................... 247,888
------------
9,782,057
------------
Total common stocks (cost: $32,027,407)................................................. 41,158,669
------------
</TABLE>
See accompanying notes to investments in securities.
12
<PAGE>
ADVANTUS INTERNATIONAL BALANCED FUND
INVESTMENTS IN SECURITIES--CONTINUED
<TABLE>
<CAPTION>
MARKET
SHARES VALUE(a)
- ------------- ------------
<C> <S> <C>
PREFERRED STOCKS (3.8%)
ARGENTINA (.6%)
Multi-Industry (.6%)
5,010 Compania de Inversiones en Telecomunications convertible preferred-7.00% (d)............ $ 355,710
------------
BRAZIL (1.1%)
Banking (1.1%)
2,451,000 Unibanco................................................................................ 87,927
54,461,000 Banco Bradesco.......................................................................... 574,189
------------
662,116
------------
ITALY (1.1%)
Telecommunications (1.1%)
167,000 Telecom Italia.......................................................................... 649,901
------------
MEXICO (.4%)
Utilities--Gas and Electric (.4%)
5,550 Nacional Financiera..................................................................... 259,463
------------
SPAIN ( .5%)
Banks ( .5%)
9,700 Argentaria Bancaria ADR................................................................. 287,363
------------
UNITED KINGDOM (.1%)
Energy Services (.1%)
27,900 Hyder................................................................................... 50,688
------------
Total preferred stocks (cost: $1,556,856)............................................... 2,265,241
------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
- -------------
<C> <S> <C> <C> <C>
LONG-TERM DEBT SECURITIES (27.8%)
AUSTRALIA (1.8%)
Government (1.8%)
1,285,000 Australian Government (Australian Dollar) (c)..................... 9.500% 08/15/03 1,100,497
------------
CANADA (4.0%)
Government (4.0%)
823,000 Canadian Government Bond (Canadian Dollar) (c).................... 10.500% 07/01/00 679,696
821,000 Canadian Government Bond (Canadian Dollar) (c).................... 10.500% 03/01/01 694,279
1,230,000 Canadian Government Bond (Canadian Dollar) (c).................... 10.000% 05/01/02 1,061,899
------------
2,435,874
------------
DENMARK (2.5%)
Government (2.5%)
6,895,000 Kingdom of Denmark (Danish Krone) (c)............................. 9.000% 11/15/00 1,157,356
</TABLE>
See accompanying notes to investments in securities.
13
<PAGE>
ADVANTUS INTERNATIONAL BALANCED FUND
INVESTMENTS IN SECURITIES--CONTINUED
<TABLE>
<CAPTION>
MARKET
PRINCIPAL VALUE(a)
- ------------- ------------
<C> <S> <C> <C> <C>
DENMARK--CONTINUED
2,050,000 Kingdom of Denmark (Danish Krone) (c)............................. 8.000% 05/15/03 $ 343,283
------------
1,500,639
------------
GERMANY (6.7%)
Government (6.7%)
1,960,000 Federal Republic of Germany (Deutsch Mark) (c).................... 8.750% 08/20/01 1,266,691
375,000 Federal Republic of Germany (Deutsch Mark) (c).................... 6.000% 09/15/03 223,011
385,000 Federal Republic of Germany (Deutsch Mark) (c).................... 5.375% 02/22/99 222,547
2,215,000 Federal Republic of Germany (Deutsch Mark) (c).................... 5.250% 02/21/01 1,281,728
1,650,000 Treuhandanstalt (Deutsch Mark) (c)................................ 7.750% 10/01/02 1,049,185
------------
4,043,162
------------
UNITED KINGDOM (2.0%)
Government (2.0%)
710,000 United Kingdom (British Sterling Pound) (c)....................... 8.000% 12/07/00 1,185,884
20,000 United Kingdom (British Sterling Pound) (c)....................... 7.000% 11/06/01 32,708
------------
1,218,592
------------
HONG KONG (.6%)
Finance (.6%)
400,000 PIV Investment Finance (U.S. Dollar) (c).......................... 4.500% 12/01/00 350,000
------------
ITALY (3.5%)
Government (3.5%)
1,770,000,000 Italy Government (Italian Lira) (c)............................... 10.500% 07/15/00 1,158,257
1,400,000,000 Buoni Poliennali Del Tes (Italian Lira) (c)....................... 10.000% 08/01/03 974,442
------------
2,132,699
------------
SPAIN (2.8%)
Government (2.8%)
157,580,000 Government of Spain (Spanish Peseta) (c).......................... 12.250% 03/25/00 1,229,673
55,000,000 Government of Spain (Spanish Peseta) (c).......................... 10.900% 08/30/03 468,653
------------
1,698,326
------------
SWEDEN (2.6%)
Government (2.6%)
3,000,000 Sweden Kingdom (Swedish Krona) (c)................................ 13.000% 06/15/01 501,536
6,600,000 Sweden Kingdom (Swedish Krona) (c)................................ 10.250% 05/05/03 1,056,125
------------
1,557,661
------------
UNITED STATES (1.3%)
Government (1.3%)
192,000 U.S. Treasury Note (U.S. Dollar) (c).............................. 5.125% 04/30/98 191,626
</TABLE>
See accompanying notes to investments in securities.
14
<PAGE>
ADVANTUS INTERNATIONAL BALANCED FUND
INVESTMENTS IN SECURITIES--CONTINUED
<TABLE>
<CAPTION>
MARKET
PRINCIPAL VALUE(a)
- ------------- ------------
<C> <S> <C> <C> <C>
UNITED STATES--CONTINUED
70,000,000 Federal National Mortgage Association (Japanese Yen) (c).......... 2.125% 10/09/07 $ 579,022
------------
770,648
------------
Total long-term debt securities (cost: $16,851,200)..................................... 16,808,098
------------
Total investments in securities (cost: $50,435,463) (f)................................. $ 60,232,008
------------
------------
</TABLE>
Notes to Investments in Securities
- ----------------------------
(a) Securites are valued by procedures described in note 2 to the financial
statements.
(b) Presently non-income producing.
(c) Principal amounts for foreign debt securities are denominated in the
currencies indicated.
(d) PRIDES--Preferred Redeemed Increased Dividend Equity Securities are
structured as convertible preferred secuities issued by a company. Investors
receive an enhanced yield but based upon a specific formula, potential
appreciation is limited. PRIDES pay dividends, have voting rights, are
noncallable for three years and upon maturity, convert into shares of common
stock.
(e) Security exempt from registration under Rule 144A of the Securities Act of
1933. These securities may be resold in transactions exempt from
registration, normally to qualified institutional buyers. (See note 8 to the
financial statements). Information concerning the illiquid securities held
at September 30, 1997, which includes acquisition date and cost, is as
follows:
<TABLE>
<CAPTION>
SECURITY: DATE COST
-------------------------------------------------- ---------- ---------
<S> <C> <C>
Banque Nationale de Paris ADR..................... Various $ 131,337
VA Technologies................................... Various 180,320
---------
$$311,657
---------
---------
</TABLE>
(f) At September 30, 1997 the cost of securities for federal income tax purposes
was $51,069,330 the aggregate unrealized appreciation and depreciation of
investments in securities based on this cost were:
<TABLE>
<S> <C>
Gross unrealized appreciation................................. $10,952,270
Gross unrealized depreciation................................. (1,789,592)
----------
Net unrealized appreciation................................... $9,162,678
----------
----------
</TABLE>
15
<PAGE>
ADVANTUS INTERNATIONAL BALANCED 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: $50,435,463).................. $ 60,232,008
Cash in bank on demand deposit........................................ 895,193
Receivable for investment securities sold............................. 7,877
Accrued interest and dividends receivable............................. 552,566
Unrealized appreciation on forward foreign currency contracts held, at
value (note 4)....................................................... 70,490
Receivable for fund shares sold....................................... 68,126
Receivable for refundable foreign income taxes withheld............... 68,963
Organizational costs (note 6)......................................... 15,857
------------
Total assets...................................................... 61,911,080
------------
LIABILITIES
Payable for investment securities purchased........................... 973,117
Payable for fund shares repurchased................................... 16,949
Payable to Adviser.................................................... 306,602
Unrealized depreciation on forward foreign currency contracts held, at
value (note 4)....................................................... 212,263
------------
Total liabilities................................................. 1,508,931
------------
Net assets applicable to outstanding capital stock.................... $ 60,402,149
------------
------------
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 unallocated) of $.01 par value (note 1).................... $ 45,477
Additional paid-in capital.......................................... 48,550,558
Undistributed net investment income................................. 357,158
Accumulated net realized gains from investments..................... 1,843,788
Unrealized appreciation of investments and translation of assets and
liabilities in foreign currencies.................................. 9,605,168
------------
Total--representing net assets applicable to outstanding capital
stock............................................................ $ 60,402,149
------------
------------
Net assets applicable to outstanding Class A shares................... $ 54,090,306
------------
------------
Net assets applicable to outstanding Class B shares................... $ 2,286,525
------------
------------
Net assets applicable to outstanding Class C shares................... $ 4,025,318
------------
------------
Shares outstanding and net asset value per share:
Class A--Shares outstanding 4,070,942............................... $ 13.29
------------
------------
Class B--Shares outstanding 172,870................................. $ 13.23
------------
------------
Class C--Shares outstanding 303,938................................. $ 13.24
------------
------------
</TABLE>
See accompanying notes to financial statements.
16
<PAGE>
ADVANTUS INTERNATIONAL BALANCED FUND
STATEMENT OF OPERATIONS
YEAR ENDED SEPTEMBER 30, 1997
<TABLE>
<S> <C>
Investment income:
Interest............................................................ $ 935,920
Dividends (net of foreign withholding taxes of $152,410)............ 1,118,875
-----------
Total investment income......................................... 2,058,161
-----------
Expenses (note 5):
Investment advisory fee............................................. 436,431
Distribution fees--Class A.......................................... 136,318
Distribution fees--Class B.......................................... 6,084
Distribution fees--Class C.......................................... 31,804
Administrative services fee......................................... 34,000
Custodian fees...................................................... 90,834
Auditing and accounting services.................................... 47,611
Legal fees.......................................................... 11,449
Amortization of organizational costs................................ 8,273
Directors' fees..................................................... 2,084
Registration fees................................................... 44,131
Printing and shareholder reports.................................... 36,581
Insurance........................................................... 5,297
Other............................................................... 9,659
-----------
Total expenses.................................................. 900,556
Less fees and expenses waived or absorbed:
Class A distribution fees......................................... (68,159)
Other fund expenses............................................... (46,576)
-----------
Total fees and expenses waived or absorbed...................... (114,735)
-----------
Total net expenses.............................................. 785,821
-----------
Investment income--net.......................................... 1,272,340
-----------
Realized and unrealized gains (losses) on investments and foreign
currencies:
Net realized gains from:
Investments (note 3).............................................. 2,693,682
Foreign currency transactions..................................... 301,745
-----------
2,995,427
-----------
Net change in unrealized appreciation or depreciation on:
Investments....................................................... 6,339,782
Translation of assets and liabilities in foreign currencies....... (213,893)
-----------
6,125,889
-----------
Net gains on investments and foreign currencies................. 9,121,316
-----------
Net increase in net assets resulting from operations.................. $10,393,656
-----------
-----------
</TABLE>
See accompanying notes to financial statements.
17
<PAGE>
ADVANTUS INTERNATIONAL BALANCED 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.......................... $ 1,272,340 $ 857,493
Net realized gains on investments and foreign
currency transactions.......................... 2,995,427 849,245
Net change in unrealized appreciation or
depreciation on investments and translation of
assets and liabilities in foreign currencies... 6,125,889 1,995,086
------------ ------------
Increase in net assets resulting from
operations................................. 10,393,656 3,701,824
------------ ------------
Distributions to shareholders from:
Investment income--net:
Class A....................................... (1,495,458) (902,736)
Class B....................................... (11,375) --
Class C....................................... (75,167) (19,264)
Net realized gains on investments:
Class A....................................... (1,004,915) (634,933)
Class B....................................... -- --
Class C....................................... (55,877) (8,696)
------------ ------------
Total distributions......................... (2,642,792) (1,565,629)
------------ ------------
Capital share transactions (notes 5 and 7):
Proceeds from sales:
Class A....................................... 9,097,887 7,982,293
Class B....................................... 2,167,154 --
Class C....................................... 2,195,751 1,560,752
Proceeds from shares issued as a result of
reinvested dividends:
Class A....................................... 1,286,463 396,003
Class B....................................... 11,206 --
Class C....................................... 139,181 26,804
Payments for redemption of shares:
Class A....................................... (3,815,092) (1,025,826)
Class B....................................... (38,976) --
Class C....................................... (584,091) (163,009)
------------ ------------
Increase in net assets from capital share
transactions............................... 10,459,483 8,777,017
------------ ------------
Total increase in net assets................ 18,210,347 10,913,212
Net assets at beginning of year................... 42,191,802 31,278,590
------------ ------------
Net assets at end of year (including undistributed
net investment income of $357,158 and $348,350,
respectively).................................... $ 60,402,149 $ 42,191,802
------------ ------------
------------ ------------
</TABLE>
See accompanying notes to financial statements.
18
<PAGE>
ADVANTUS INTERNATIONAL BALANCED FUND
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1997
(1) ORGANIZATION
The Advantus International Balanced 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 is designed for investors seeking a high level of total return through
investing in both stocks and debt securities primarily outside the United
States.
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 shares 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
period declines as the amount of the purchase increases and range from 28 to 84
months after purchase for Class B shares and from 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 15,000 Class A shares for $150,000. 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
1,476,997 Class A shares for $15 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 U.S. or foreign securities 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 or by an independent pricing service or at a price
deemed best to reflect fair value as quoted by dealers who make markets in these
securities. When market quotations are not readily available, securities are
valued at fair
19
<PAGE>
ADVANTUS INTERNATIONAL BALANCED FUND
NOTES TO FINANCIAL STATEMENTS--CONTINUED
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
value as determined in good faith by the Board of Directors. Short-term
securities with maturities of less than 60 days when acquired, or which
subsequently are within 60 days of maturity, are valued at amortized cost which
approximates market value.
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.
FOREIGN CURRENCY TRANSLATIONS AND FORWARD FOREIGN CURRENCY CONTRACTS
Securities and other assets and liabilities denominated in foreign
currencies are translated daily into U.S. dollars at the closing rate of
exchange. Foreign currency amounts related to the purchase or sale of
securities, income and expenses are translated at the exchange rate on the
transaction date. The Fund does not isolate that portion of the results of
operations resulting from changes in foreign exchange rates on investments from
the fluctuations arising from changes in market prices of securities held. Such
fluctuations are included with net realized and unrealized gains or losses from
investments.
Net realized foreign exchange gains or losses arise from sales and
maturities of short-term securities, sales of foreign currencies, currency gains
or losses realized between trade and settlement dates on securities
transactions, the difference between the amounts of dividends, interest, and
foreign withholding taxes recorded on the Fund's books and the U.S. dollar
equivalent of the amounts actually received or paid. Net unrealized foreign
exchange gains and losses arise from changes in the value of assets and
liabilities, other then investments in securities, resulting from changes in the
exchange rate.
The Fund also may enter into forward foreign currency exchange contracts for
operational purposes and to protect against adverse exchange rate fluctuations.
The net U.S. dollar value of foreign currency underlying all contractual
commitments held by the Fund and the resulting unrealized appreciation and
depreciation are determined using foreign currency exchange rates from an
independent pricing service. The Fund is subject to the credit risk that the
other party will not complete the obligations of the contract.
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 (loss) 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 (loss) or realized gains (losses) were
recorded by the Fund.
On the statement of assets and liabilities, as a result of permanent
book-to-tax differences, a reclassification adjustment was made to decrease
additional paid-in capital $8,273, increase undistributed net investment income
$318,468 and decrease accumulated gains $310,195.
20
<PAGE>
ADVANTUS INTERNATIONAL BALANCED FUND
NOTES TO FINANCIAL STATEMENTS--CONTINUED
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
DISTRIBUTIONS TO SHAREHOLDERS
Dividends from net investment income are declared and paid quarterly in cash
or reinvested in additional shares. 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 $46,766,515 and $35,174,738, respectively.
21
<PAGE>
ADVANTUS INTERNATIONAL BALANCED FUND
NOTES TO FINANCIAL STATEMENTS--CONTINUED
(4) FORWARD FOREIGN CURRENCY CONTRACTS
On September 30, 1997, the Fund had entered into forward foreign currency
contracts that obligate the Fund to deliver currencies at specified future
dates. Unrealized appreciation and depreciation on these contracts is included
in the accompanying financial statements. The terms of the open contracts were
as follows:
<TABLE>
<CAPTION>
EXCHANGE CURRENCY TO CURRENCY TO UNREALIZED UNREALIZED
DATE BE DELIVERED BE RECEIVED APPRECIATION DEPRECIATION
- ---------- ----------------------- ----------------------- ------------- -------------
<C> <C> <S> <C> <C> <C> <C>
10/9/97 817,900 US$ 1,475,000 DEM $ 17,774 $ --
10/9/97 817,900 US$ 1,475,000 DEM 17,774 --
10/17/97 833,079 US$ 1,475,000 DEM 3,081 --
10/17/97 831,407 US$ 1,475,000 DEM 4,753 --
10/8/97 828,638 US$ 1,475,000 DEM 6,975 --
10/14/97 828,908 US$ 1,475,000 DEM 7,070 --
10/20/97 831,407 US$ 1,475,000 DEM 4,935 --
10/7/97 837,117 US$ 1,475,000 DEM -- 1,564
10/1/97 46,732 US$ 28,643 GBP -- 577
10/2/97 60,032 US$ 37,068 GBP -- 302
10/3/97 13,636 US$ 8,379 GBP -- 140
10/6/97 153,032 US$ 94,482 GBP -- 892
10/6/97 17,120 US$ 10,561 GBP -- 113
10/6/97 24,891 US$ 24,890 FRF -- 1
10/9/97 70,718 US$ 416,458 FRF -- 314
10/6/97 577,678 US$ 69,743,100 JPY 1,294 --
10/9/97 5,621 US$ 43,426 HKD -- 10
10/6/97 2,950,000 DEM 1,627,021 US$ -- 43,962
10/7/97 1,475,000 DEM 814,422 US$ -- 21,130
10/8/97 1,475,000 DEM 814,985 US$ -- 20,628
10/9/97 2,950,000 DEM 1,631,592 US$ -- 39,755
10/9/97 2,950,000 DEM 1,636,389 US$ -- 35,080
10/14/97 1,475,000 DEM 823,043 US$ -- 12,935
10/17/97 1,475,000 DEM 839,022 US$ 2,862 --
10/17/97 1,475,000 DEM 836,315 US$ 155 --
10/20/97 1,475,000 DEM 836,690 US$ 347 --
10/28/97 5,900,000 DEM 3,314,793 US$ -- 32,523
10/7/97 1,475,000 DEM 839,022 US$ 3,470 --
11/26/97 573,000 AUD 416,022 US$ -- 164
11/26/97 70,000,000 JPY 582,945 US$ -- 2,173
------------- -------------
$ 70,490 $ 212,263
------------- -------------
------------- -------------
</TABLE>
AUD Australian Dollar
DEM German Deutch Mark
JPY Japanese Yen
FRF French Franc
GBP British Pound
HKD Hong Kong Dollar
US$ United States Dollar
22
<PAGE>
ADVANTUS INTERNATIONAL BALANCED FUND
NOTES TO FINANCIAL STATEMENTS--CONTINUED
(5) 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 of
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 .95 percent on the first $25 million in
net assets, .80 percent on the next $25 million, .75 percent on the next $50
million and .65 percent on net assets in excess of $100 million.
Advantus Capital has a sub-advisory agreement with Templeton Investment
Counsel, Inc. (Templeton). From its advisory fee, Advantus Capital pays
Templeton a fee equal to an annual rate of .70 percent on the first $25 million
in net assets, .55 percent on the next $25 million, .50 percent on the next $50
million and .40 percent on net assets in excess of $100 million.
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), formerly 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 of up to 1.00 percent of average daily net assets of Class B and Class C
shares. 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, .15 percent. Ascend waived Class A distribution fees in the
amount of $68,159 for the year ended September 30, 1997.
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 to Minnesota Mutual for
accounting, auditing, legal and other administrative services which Minnesota
Mutual provides. Prior to February 1, 1997 the administrative services fee for
the Fund was $2,500 per month. Effective February 1, 1997 the administrative
services fee is $3,000 per month.
Advantus Capital directly incurs and pays the above operating expenses and
the Fund in turn reimburses Advantus Capital. For the year ended September 30,
1997, Advantus Capital voluntarily agreed to absorb $46,576 in expenses which
were otherwise payable by the Fund.
Sales charges received by Ascend for distributing the Fund's three classes
of shares amounted to $325,230.
As of September 30, 1997, Minnesota Mutual and subsidiaries and the
directors and officers of the Fund as a whole owned 2,547,701 shares or 62.6% of
the Fund's Class A shares.
During the year ended September 30, 1997, legal fees were paid to a law firm
of which the Fund's secretary is a partner in the amount of $11,449.
23
<PAGE>
ADVANTUS INTERNATIONAL BALANCED FUND
NOTES TO FINANCIAL STATEMENTS--CONTINUED
(6) 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.
(7) CAPITAL SHARE TRANSACTIONS
Transactions in shares for the years ended September 30, 1997 and 1996
(period from January 31, 1997, date of inception, to September 30, 1997 for
Class B) were as follows:
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
--------------------- --------- --------------------
1997 1996 1997 1997 1996
---------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Sold......................................................... 738,147 724,776 175,607 181,585 140,775
Issued for reinvested distributions.......................... 107,948 36,110 896 11,492 2,460
Redeemed..................................................... (310,600) (93,685) (3,633) (48,011) (14,985)
---------- --------- --------- --------- ---------
535,495 667,201 172,870 145,066 128,250
---------- --------- --------- --------- ---------
---------- --------- --------- --------- ---------
</TABLE>
(8) ILLIQUID SECURITIES
At September 30, 1997, 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 (illiquid security). In the event
the securities are registered, those carrying registration rights allow for the
issuer to bear all the related costs; for issues without rights, the Fund may
incur such costs. The Fund currently limits investments in illiquid 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 illiquid securities held
by the Fund at September 30, 1997 was $573,820 which represents 1.0% of net
assets.
24
<PAGE>
ADVANTUS INTERNATIONAL BALANCED FUND
NOTES TO FINANCIAL STATEMENTS--CONTINUED
(9) 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,
1994(b) TO
SEPTEMBER 30,
1997 1996 1995(a) 1994
------- ------- ------- --------------
<S> <C> <C> <C> <C>
Net asset value, beginning of
period....................... $ 11.42 $ 10.79 $ 10.34 $ 10.54
------- ------- ------- -------
Income from investment
operations:
Net investment income....... .30 .25 .20 .01
Net gains or losses on
securities (both realized
and unrealized)............ 2.25 .87 .56 (.21)
------- ------- ------- -------
Total from investment
operations............... 2.55 1.12 .76 (.20)
------- ------- ------- -------
Less distributions:
Dividends from net
investment income.......... (.40) (.28) (.19) --
Distributions from capital
gains...................... (.28) (.21) (.12) --
------- ------- ------- -------
Total distributions....... (.68) (.49) (.31) --
------- ------- ------- -------
Net asset value, end of
period....................... $ 13.29 $ 11.42 $ 10.79 $ 10.34
------- ------- ------- -------
------- ------- ------- -------
Total return (c).............. 23.1% 10.7% 7.4% (1.9)%
Net assets, end of period (in
thousands)................... $54,090 $40,381 $30,949 $ 15,430
Ratio of expenses to average
daily net assets (d)......... 1.51% 1.85% 2.08% .47%(e)
Ratio of net investment income
to average daily net assets
(d).......................... 2.54% 2.39% 2.22% .14%(e)
Portfolio turnover rate
(excluding short-term
securities).................. 73.4% 56.1% 52.0% 12.1%
Average commission rate on
common stock transactions
(g).......................... $ .0110 $ .0189 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 or contingent deferred sales
charges. For periods less than one year, total return presented has not been
annualized.
(d) The Fund's Distributor and Adviser voluntarily waived or absorbed $114,735,
$53,123, $56,482 and $4,034 in expenses for the years ended September 30,
1997, 1996 and 1995 and the period ended September 30, 1994, respectively.
If Class A shares had been charged for these expenses, the ratio of expenses
to average daily net asses would have been 1.75%, 2.00%, 2.30% and .49%,
respectively, and the ratio of net investment income to average daily net
assets would have been 2.30%, 2.24%, 2.00% and .12%, respectively. If Class
B shares had been charged for these expenses the ratio of expenses to
average daily net assets would have been 2.47% and the ratio of net
investment income of average daily net assets would have been 2.50% for the
period ended September 30, 1997. If Class C shares had been charged for
these expenses, the ratio of expenses to average daily net assets would have
been 2.45%, 2.61% and 3.00%, respectively and the ratio of net investment
income to average daily net assets would have been 2.41%, 1.15% and 1.32%
shares, respectively for the years ended September 30, 1997 and 1996 and the
period ended September 30, 1995.
25
<PAGE>
ADVANTUS INTERNATIONAL BALANCED FUND
NOTES TO FINANCIAL STATEMENTS--CONTINUED
<TABLE>
<CAPTION>
CLASS B CLASS C
-------------- --------------------------------------
PERIOD FROM PERIOD FROM
JANUARY 31, YEAR ENDED MARCH 1,
1997(b) TO SEPTEMBER 30, 1995(b) TO
SEPTEMBER 30, ------------------- SEPTEMBER 30,
1997 1997 1996 1995
-------------- ------- ------- --------------
<S> <C> <C> <C> <C>
Net asset value, beginning of
period....................... $ 11.95 $ 11.40 $ 10.77 $ 9.95
------ ------- ------- ------
Income from investment
operations:
Net investment income....... .16 .26 .15 .11
Net gains or losses on
securities (both realized
and unrealized)............ 1.30 2.16 .89 .91
------ ------- ------- ------
Total from investment
operations............... 1.46 2.42 1.04 1.02
------ ------- ------- ------
Less distributions:
Dividends from net
investment income.......... (.18) (.30) (.20) (.13)
Distributions from capital
gains...................... -- (.28) (.21) (.07)
------ ------- ------- ------
Total distributions....... (.18) (.58) (.41) (.20)
------ ------- ------- ------
Net asset value, end of
period....................... $ 13.23 $ 13.24 $ 11.40 $ 10.77
------ ------- ------- ------
------ ------- ------- ------
Total return (c).............. 12.3% 22.0% 9.9% 10.3%
Net assets, end of period (in
thousands)................... $ 2,287 $ 4,025 $ 1,811 $ 330
Ratio of expenses to average
daily net assets (d)......... 2.33%(f) 2.37% 2.61% 2.93%(f)
Ratio of net investment income
to average daily net assets
(d).......................... 2.64%(f) 2.50% 1.15% 1.39%(f)
Portfolio turnover rate
(excluding short-term
securities).................. 73.4% 73.4% 56.1% 52.0%
Average commission rate on
common stock transactions
(g).......................... $ .0110 $ .0110 $ .0189 N/A
</TABLE>
- ------------
(e) Ratios presented for the periods from September 16, 1994 to September 30,
1994 are not annualized as they are not indicative of anticipated results.
(f) Adjusted to an annual basis.
(g) Beginning in fiscal 1996, the Fund is required to disclose an average
brokerage commission rate. The rate is calculated by dividing total
brokerage commissions paid on purchases and sales of common stocks by the
total number of related shares purchased and sold. The comparability of this
information may be effected by the fact that commission rates per share vary
significantly among foreign countries.
26
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Advantus International Balanced Fund, Inc.:
We have audited the accompanying statement of assets and liabilities,
including the schedule of investments in securities, of the Advantus Balanced
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 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, 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
27
<PAGE>
ADVANTUS INTERNATIONAL BALANCED 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
Income distributions--taxable as dividend income, none qualifying for deduction
by corporations
<TABLE>
<CAPTION>
PAYABLE DATE
- ----------------------------------------------------------------------------------------------------------
<S> <C>
December 26, 1996......................................................................................... $ 0.2377
March 26, 1997............................................................................................ 0.0997
June 25, 1997............................................................................................. 0.0937
September 24, 1997........................................................................................ 0.0357
---------
$ 0.4668
---------
---------
Capital gains distribution--taxable as long-term capital gains
December 19, 1996......................................................................................... $ 0.2094
---------
---------
</TABLE>
The distribution of $.2377 payable on December 26, 1996 consisted of $.0699
from short-term capital gains (taxable as dividend income) and $.1678 from net
investment income.
CLASS B
Income distributions--taxable as dividend income, none qualifying for deduction
by corporations
<TABLE>
<CAPTION>
PAYABLE DATE
- ----------------------------------------------------------------------------------------------------------
<S> <C>
March 26, 1997............................................................................................ $ 0.0967
June 25, 1997............................................................................................. 0.0642
September 24, 1997........................................................................................ 0.0148
---------
$ 0.1757
---------
---------
</TABLE>
CLASS C
Income distributions--taxable as dividend income, none qualifying for deduction
by corporations
<TABLE>
<CAPTION>
PAYABLE DATE
- ----------------------------------------------------------------------------------------------------------
<S> <C>
December 26, 1996......................................................................................... $ 0.2155
March 26, 1997............................................................................................ 0.0773
June 25, 1997............................................................................................. 0.0726
September 24, 1997........................................................................................ 0.0086
---------
$ 0.3740
---------
---------
Capital gains distribution--taxable as long-term captial gains
December 19, 1996......................................................................................... $ 0.2094
---------
---------
</TABLE>
The distribution of $.2155 payable on December 26, 1996 consisted of $.0699
from short-term capital gains (taxable as dividend income) and $.1456 from net
investment income.
28
<PAGE>
ADVANTUS INTERNATIONAL BALANCED FUND
FEDERAL INCOME TAX INFORMATION--CONTINUED
The fund has elected to pass-through foreign tax credits to its
shareholders. The following information will aid you in filing your foreign tax
credit.
<TABLE>
<CAPTION>
CLASS A CLASS A CLASS B CLASS B CLASS C CLASS C
FOREIGN INCOME FOREIGN TAX FOREIGN INCOME FOREIGN TAX FOREIGN INCOME FOREIGN TAX
COUNTRY PER SHARE PAID PER SHARE PER SHARE PAID PER SHARE PER SHARE PAID PER SHARE
- -------------- --------------- -------------- --------------- -------------- --------------- --------------
<S> <C> <C> <C> <C> <C> <C>
Australia..... $ 0.002462 $ 0.001272 $ 0.001091 $ 0.000564 $ 0.001887 $ 0.000975
Austria....... 0.013636 0.000447 0.006040 0.000198 0.010451 0.000343
Belgium....... 0.002413 0.000362 0.001069 0.000160 0.001849 0.000277
Brazil........ 0.002006 0.000233 0.000888 0.000103 0.001537 0.000179
Canada........ 0.048810 0.000672 0.021619 0.000298 0.037410 0.000515
Denmark....... 0.029586 -- 0.013105 -- 0.022676 --
Finland....... 0.003551 0.000532 0.001573 0.000236 0.002722 0.000408
France........ 0.015544 0.001656 0.006885 0.000733 0.011913 0.001269
Germany....... 0.033400 0.000066 0.014794 0.000029 0.025599 0.000051
Hong Kong..... 0.018848 -- 0.008348 -- 0.014446 --
Indonesia..... 0.000717 0.000108 0.000317 0.000048 0.000549 0.000083
Ireland....... 0.003765 -- 0.001668 -- 0.002886 --
Italy......... 0.048124 0.001492 0.021316 0.000661 0.036884 0.001144
Japan......... 0.007305 -- 0.003236 -- 0.005599 --
Mexico........ 0.001369 -- 0.000606 -- 0.001049 --
Netherlands... 0.008697 0.001391 0.003852 0.000616 0.006666 0.001066
New Zealand... 0.025548 0.002702 0.011316 0.001197 0.019581 0.002071
Norway........ 0.008870 0.001330 0.003929 0.000589 0.006798 0.001020
Phillipines... 0.000207 0.000019 0.000092 0.000008 0.000159 0.000015
Portugal...... 0.001193 0.000208 0.000529 0.000092 0.000915 0.000160
Spain......... 0.053316 0.002813 0.023615 0.001246 0.040863 0.002156
South
Africa....... 0.002553 -- 0.001131 -- 0.001957 --
Sweden........ 0.031067 0.002834 0.013761 0.001255 0.023811 0.002172
Switzerland... 0.002356 0.000353 0.001044 0.000157 0.001806 0.000271
Thailand...... 0.001172 0.000117 0.000519 0.000052 0.000898 0.000090
United
Kingdom...... 0.135814 0.018630 0.060156 0.008252 0.104093 0.014278
United
States....... 0.052272 0.000998 0.023153 0.000442 0.040063 0.000765
--------------- -------------- --------------- -------------- --------------- --------------
$ 0.554599 $ 0.038237 $ 0.245650 $ 0.016937 $ 0.425067 $ 0.029307
--------------- -------------- --------------- -------------- --------------- --------------
--------------- -------------- --------------- -------------- --------------- --------------
</TABLE>
29
<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
30
<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
31
<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]
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.48651 Rev. 11-1997
