<PAGE>
MORTGAGE
ADVANTUS MORTGAGE SECURITIES FUND
ANNUAL REPORT TO SHAREHOLDERS DATED SEPTEMBER 30, 1999
[LOGO]
ADVANTUS-TM-
FAMILY OF FUNDS
[GRAPHIC]
FIXED INCOME
<PAGE>
ADVANTUS MORTGAGE SECURITIES FUND
TABLE OF CONTENTS
<TABLE>
<S> <C>
PERFORMANCE UPDATE 2
INVESTMENTS IN SECURITIES 7
STATEMENT OF ASSETS AND
LIABILITIES 11
STATEMENT OF OPERATIONS 12
STATEMENTS OF CHANGES IN NET
ASSETS 13
NOTES TO FINANCIAL STATEMENTS 14
INDEPENDENT AUDITORS' REPORT 20
FEDERAL INCOME TAX INFORMATION 21
SHAREHOLDER SERVICES 23
</TABLE>
<PAGE>
LETTER FROM THE PRESIDENT [PHOTO]
Dear Shareholders:
Growth has been the economic story throughout this fiscal year. The domestic
growth story continues, albeit growth is slower than in the past. The Federal
Reserve's proactive stance (i.e., raising rates BEFORE reported inflation)
demonstrates the Fed's continuing resolve to control inflation by reigning in
domestic growth. So far, the Fed has achieved this delicate economic balance.
World growth is slowly accelerating. The global economic picture is vastly
different than it was one year ago. Japan has worked its way back from a
devastating recession and financial crisis. Emerging markets are surging and
international markets, overall, are strong. The world's central banks have
played critical roles in getting their respective countries back on track. Like
the Fed, the world's central banks plotted a course of action, and like the Fed,
these banks espoused an expansionary bias. Relative to conditions, each bank
aggressively used its monetary policy to lower interest rates. These actions
have contributed to global economic recovery, country by country.
As the rest of the world rallies, the conditions in the U.S. will likely put
more pressures on our economic systems. The fixed income market may feel some
pressure too due to higher commodity prices, global economic growth, a weaker
dollar, tight labor market, and a Fed poised to tighten. Conditions may also
bode poorly for the stock market. After several years of good equity markets -
driven by both robust growth and higher valuation levels - investors are acutely
aware that the environment is changing. The markets will continue under pressure
if interest rates move higher and valuations peak, challenging the long-running
bull market. On a brighter note, the loss of price momentum in the U.S. equity
market will allow earnings growth to catch up with multiples, thus building the
base for the next leg up in the secular bull market for equities.
If at any time you have questions about your Advantus mutual fund investments, I
encourage you to contact your financial professional or call Advantus
Shareholders Services at 1-800-665-6005. This number allows you 24-hour access,
seven days a week, to your mutual fund account information via an automated
voice-response system. Or you can speak directly to an Advantus Shareholder
Services Representative during business hours, 8 A.M. to 4:45 P.M. (Central
Time) any day that the New York Stock Exchange is open for business.
We appreciate your continued patronage of Advantus Funds. Helping you move
closer to your investment goals is important to us, and we look forward to
working long-term with you and your financial professional. Thank you for
investing with Advantus.
Sincerely,
/s/ William N. Westhoff
William N. Westhoff, President
Advantus Funds
<PAGE>
ADVANTUS MORTGAGE SECURITIES FUND
PERFORMANCE UPDATE
[PHOTO]
KENT WEBER, CFA
PORTFOLIO UPDATE
The Advantus Mortgage
Securities Fund is a mutual
fund designed for investors
seeking a high level of
current income consistent
with prudent investment risk.
The Fund hopes to achieve its
income objective by investing
primarily in a diversified
portfolio of mortgage-
related securities.
- Dividends declared daily and paid monthly.
- Capital gains distributions paid annually.
PERFORMANCE
The performance of your Advantus Mortgage Securities Fund for the year ended
September 30, 1999 was as follows for the three classes of shares currently
outstanding:
<TABLE>
<S> <C>
CLASS A.......................... 2.26 PERCENT*
CLASS B.......................... 1.51 PERCENT*
CLASS C.......................... 1.50 PERCENT*
</TABLE>
The Fund's benchmark index, the Lehman Brothers Mortgage-Backed Securities
Index** returned 2.26 percent for the same period.
PERFORMANCE ANALYSIS
It has been a tumultuous year in the fixed income market, as interest rates
rebounded off their generational lows and spreads went on a roller coaster ride.
The equity markets were the first to come roaring back, and with that the spread
markets (i.e., mortgages, corporates and agencies) were able to ultimately
regain some confidence. Consumers fearlessly drove demand higher, giving
investors all the evidence they needed to set aside any lingering fears of the
ill effects of anemic growth and global recession and cause to push interest
rates higher. Then, all eyes quickly turned to the reemerging threat of
inflation as a tight labor market and rising commodity prices confirmed the
start of a more meaningful global recovery. When the dust settled, the yield on
the 10-Year Treasury had climbed 1.5 percent and the Federal Reserve had been
called back into the game to retire excess liquidity and hold the line on
inflation.
Spreads (yield premiums over treasuries) in the mortgage market made an
impressive come back earlier in the year tightening from their wide level as
credit and prepayment concerns slowly faded. This tightening in spreads helped
cushion the blow of higher rates that ate into a large chunk of our income.
Unfortunately, as the year progressed, some of these hard fought gains were
short lived as discerning, value investing themes faded and spreads leaked wider
as demand for liquidity escalated on the back of excess corporate and agency
supply and Y2K preparation.
The silver lining to this cloud is that the mortgage market was the best
performing sector in the fixed income market and one of only two sectors to
produce positive returns. The catalysts that spurred the mortgage markets
performance were strong demand for better yielding high quality securities and
dwindling supply due to slower prepayments. These factors played out as higher
rates sent the 1998 refinance cycle into the history books.
Throughout the year, we have worked to preserve principal by keeping our
duration in line with the Fund's benchmark index - currently at 4.2 years. The
investment themes employed to accomplish this included selling longer
2
<PAGE>
duration assets and purchasing seasoned mortgage securities. Seasoned securities
carry less duration extension risk, which tends to occur in the mortgage market
as the general levels of prepayments begin to slow.
Keep in mind that prepayment management is a fact of life in the mortgage
market. Prepayments, in and of themselves, are not necessarily bad. The quality
and predictability of prepayments will vary from one security to another, and
their price reflects the market's expectations. The driving issues are whether
the prepayment levels received on the security can deviate meaningfully from
market expectations and whether the security is priced correctly to ensure
proper compensation for owning and managing the relative variability of the
security's cashflow (i.e., the prepayments).
Thankfully, we were able to opportunistically add to our over weights in
seasoned non-agency, residential and commercial mortgage securities on the wave
of spread widening that occurred early and again later in the year. Our core
holdings remain in the agency residential mortgage sector where we are over
weighted in newly issued current and discount priced mortgage securities. These
agency securities continue to offer attractive yields (north of 7.5 percent*),
solid liquidity and stable prepayment profile. The focus of this core- plus
strategy is to mine value from the bottom up one security at a time from solid
sectors of the mortgage market. By selectively emphasizing high quality,
non-index securities and actively managing prepayment, liquidity and credit risk
we are able to structure a solidly diversified portfolio.
OUTLOOK
Currently, we remain duration neutral, thereby keeping our powder dry until a
more opportunistic time becomes available to take a larger duration position.
Likewise, we remain overweighted in target rich sectors such as seasoned
commercial and investment grade residential mortgage securities. These sectors
offer up some of the best relative value as the fundamentals continue to
strengthen while liquidity remains challenged. In fact, many of the current
opportunities come from the market's demand for liquidity and to investors
willing and able to provide it.
We believe that a lot of damage has already been inflicted upon the bond market
and that we are moving closer to the end game of this cyclical bear market in
bonds. While less undervalued today than at the beginning of the reporting
period, we believe the mortgage market continues to offer investors a
historically attractive combination of high yields and credit quality. In the
last twelve months, the mortgage market has worked its way back into great
fundamental shape at a time when supply continues to subside. However, given the
nervousness of the market it will most likely be next year before spreads are
able to move meaningfully tighter. Likewise, we may need to see interest rates
move moderately higher and into undervalued territory in order to assure a broad
slowing in domestic growth and a less custodial Federal Reserve.
*Historical performance is not an indication of future performance. These
performance results do not reflect the impact of Class A's maximum 4.5 percent
front-end sales charge or Class B's maximum 5 percent contingent deferred sales
charge. Investment returns and principal values will fluctuate so that shares
upon redemption may be worth more or less than their original cost.
**The Lehman Brothers Mortgage-Backed Securities Index is an unmanaged benchmark
composite which includes all fixed-rate securities backed by mortgage pools of
the Government National Mortgage Association (GNMA), Federal Home Loan Mortgage
Corporation (FHLMC) and Federal National Mortgage Association (FNMA).
3
<PAGE>
COMPARISON OF CHANGE IN VALUE OF A HYPOTHETICAL $10,000
INVESTMENT IN ADVANTUS MORTGAGE SECURITIES FUND, LEHMAN BROTHERS
MORTGAGE-BACKED SECURITIES INDEX AND CONSUMER PRICE INDEX
On the following three charts you can see how the total return for each of the
three classes of shares of the Advantus Mortgage Securities Fund compared to the
Lehman Brothers Mortgage-Backed Securities Index and the Consumer Price Index.
The lines in the Class A graph represent the cumulative total return of a
hypothetical $10,000 investment made on September 30, 1989 through
September 30, 1999. The lines in the Class B and Class C graphs represent the
cumulative total return of a hypothetical $10,000 investment made on the
inception date of Class B and Class C shares (August 19, 1994 and March 1, 1995,
respectively) through September 30, 1999.
CLASS A
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
CLASS A CPI LEHMAN BROTHERS
MORTGAGE-BACKED
SECURITIES INDEX
<S> <C> <C> <C>
09/30/89 10,000 10,000 10,000
10/31/89 9,782 10,056 10,228
10/31/90 10,409 10,689 11,094
10/31/91 12,076 11,002 12,970
10/31/92 13,066 11,354 14,027
10/31/93 14,559 11,659 15,135
09/30/94 13,927 12,011 14,893
09/30/95 15,811 12,276 16,907
09/30/96 16,574 12,644 17,888
09/30/97 18,293 12,925 19,683
09/30/98 19,890 13,109 21,381
09/30/99 20,340 13,454 21,864
Thousands
AVERAGE ANNUAL TOTAL RETURN:
One year -2.34%
Five year 6.88%
Ten year 7.35%
</TABLE>
CLASS B
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
CLASS B CPI LEHMAN BROTHERS
MORTGAGE-BACKED
SECURITIES INDEX
<S> <C> <C> <C>
8/19/94 10,000 10,000 10,000
9/30/94 9,928 10,067 9,874
9/30/95 10,742 10,289 11,209
9/30/96 11,297 10,598 11,859
9/30/97 12,521 10,833 13,049
9/30/98 13,633 10,987 14,175
9/30/99 13,841 11,276 14,495
Thousands
AVERAGE ANNUAL TOTAL RETURN:
One year -3.49%
Five year 6.87%
Since inception (8/19/94) 6.56%
</TABLE>
4
<PAGE>
CLASS C
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
CLASS C CPI LEHMAN BROTHERS
MORTGAGE-BACKED
SECURITIES INDEX
<S> <C> <C> <C>
03/1/95 10,000 10,000 10,000
09/30/95 10,791 10,146 10,793
09/30/96 11,230 10,450 11,419
09/30/97 12,314 10,682 12,565
09/30/98 13,290 10,834 13,649
09/30/99 13,489 11,119 13,957
Thousands
AVERAGE ANNUAL TOTAL RETURN:
One year 1.50%
Since inception (3/1/95) 6.74%
</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 4.5 percent front-end sales charge for Class A and the maximum
applicable contingent deferred sales charge for Class B shares. The maximum
initial sales charge for Class A shares was 5.0 percent prior to February 1,
1999. Sales charges pay for your financial professional's investment advice.
Individuals cannot invest in the index itself, nor can they invest in any fund
which seeks to track the performance of the index 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>
PRUDENT SECTOR DIVERSIFICATION
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<S> <C>
Cash and Other Assets/Liabilites 1.5%
FNMA 10.7%
FHLMC .9%
GNMA 18.6%
Vendee Mortgage Trust 4.8%
Other Mortgage-Backed Securities 62.6%
Preferred Stock .9%
</TABLE>
SOLID LIQUIDITY
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<S> <C>
Cash and other Assets/Liabilities 1.5%
Preferred Stock .9%
Private 144A and Other Illiquid Issues 9.2%
Public Issues 88.4%
</TABLE>
HIGH QUALITY ASSETS
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<S> <C>
Cash and Other Assets/Liabilities 1.5%
Preferred Stock .9%
AAA Rated 46.6%
AA Rated 18.2%
A Rated 12.3%
BBB Rated 17.8%
BB Rated 2.7%
</TABLE>
6
<PAGE>
ADVANTUS MORTGAGE SECURITIES FUND
INVESTMENTS IN SECURITIES
SEPTEMBER 30, 1999
(Percentages of each investment category relate to total net assets.)
<TABLE>
<CAPTION>
MARKET
PRINCIPAL VALUE(A)
- --------- -----------
<C> <S> <C> <C> <C>
LONG-TERM DEBT SECURITIES (97.6%)
U.S. GOVERNMENT AND AGENCIES OBLIGATIONS (35.0%)
Federal Home Loan Mortgage Corporation (FHLMC) (.9%)
$ 491,656 ....................................................... 6.500% 12/01/23 $ 473,242
-----------
Federal National Mortgage Association (FNMA) (10.7%)
1,911,791 ....................................................... 6.500% 05/01/28 1,834,463
94,796 ....................................................... 6.500% 09/01/28 90,962
721,992 ....................................................... 6.500% 10/01/28 687,831
750,000 ....................................................... 6.500% 08/01/29 719,450
800,000 ....................................................... 6.500% 09/01/29 767,414
562,614 ....................................................... 7.000% 02/01/29 550,439
1,404 ....................................................... 7.000% 08/01/29 1,380
1,000,000 ....................................................... 7.000% 09/01/29 983,147
-----------
5,635,086
-----------
Government National Mortgage Association (GNMA) (18.6%)
500,000 (d)................................................... 7.500% 01/01/29 500,234
567,602 ....................................................... 6.500% 11/15/28 542,884
1,000,000 (d)................................................... 7.000% 01/01/29 982,500
1,293,297 ....................................................... 6.500% 03/15/29 1,236,575
972,749 ....................................................... 6.500% 03/15/29 930,086
1,000,000 (d)................................................... 7.000% 01/01/29 981,250
249,349 ....................................................... 7.000% 03/15/29 244,533
666,991 ....................................................... 7.000% 07/15/29 654,916
2,000,000 ....................................................... 7.000% 08/15/29 1,963,794
500,000 ....................................................... 7.000% 09/15/29 490,949
399,428 ....................................................... 7.500% 04/15/28 400,916
25 ....................................................... 7.500% 08/15/29 25
867,863 ....................................................... 7.875% 05/15/17 900,951
-----------
9,829,613
-----------
Vendee Mortgage Trust Participation Certificates (4.8%)
1,125,078 (c)................................................... 7.210% 02/15/25 1,118,507
688,108 (c)................................................... 7.793% 02/15/25 700,589
712,287 (c)................................................... 8.293% 12/15/26 733,250
-----------
2,552,346
-----------
Total U.S. government and agencies obligations (cost: $18,622,824)....... 18,490,287
-----------
</TABLE>
See accompanying notes to investments in securities.
7
<PAGE>
ADVANTUS MORTGAGE SECURITIES FUND
INVESTMENTS IN SECURITIES - CONTINUED
<TABLE>
<CAPTION>
MARKET
PRINCIPAL VALUE(A)
- -------------------------------------------------------------------------------------------------
OTHER MORTGAGE-BACKED SECURITIES (62.6%)
<C> <S> <C> <C> <C>
Asset-Backed Securities (3.0%)
$1,100,949 Banco Hipotecario Nacional - 144A Issue (b)(e)........ 7.916% 07/25/09 $ 957,826
621,588 Tyron Mortgage Funding................................. 7.750% 12/20/09 627,046
-----------
1,584,872
-----------
Collateralized Mortgage Obligations (.5%)
303,671 Collateralized Mortgage Trust.......................... 5.000% 07/01/18 285,500
-----------
Commercial Mortgage-Backed Securities (13.1%)
-- Asset Securitization Corporation (e)(f)............... 9.275% 08/13/29 1,484,818
1,000,000 Covenant Retirement Community.......................... 6.250% 12/01/22 984,282
750,000 Nomura Asset Securities Corporation.................... 7.637% 04/13/36 757,770
1,000,000 Nomura Asset Securities Corporation.................... 7.708% 04/13/36 1,012,110
846,000 Pleasant Hill Revenue Bond............................. 7.950% 09/20/15 880,836
1,748,816 Rosewood Care Center................................... 7.250% 11/01/13 1,790,561
-----------
6,910,377
-----------
Mortgage Revenue Bonds (6.2%)
1,100,000 California Housing Finance Agency...................... 7.760% 08/01/25 1,126,932
710,000 California Housing Finance Agency...................... 8.160% 02/01/28 726,435
1,000,000 Pennsylvania Housing Finance........................... 7.410% 10/01/17 994,109
397,400 Wyoming Community Development.......................... 6.850% 06/01/10 397,400
-----------
3,244,876
-----------
Whole Loan Mortgage-Backed (39.8%)
416,728 American Housing Trust................................. 8.125% 06/25/18 423,433
1,308,102 Bear Stearns Mortgage Securities, Inc.................. 6.750% 04/30/30 1,271,763
710,345 Bear Stearns Mortgage Securities, Inc.................. 8.000% 11/25/29 716,418
1,762,246 Chase Mortgage Finance Corporation..................... 6.750% 11/25/24 1,696,074
2,250,000 Countrywide Funding.................................... 7.000% 06/25/24 2,054,250
1,150,000 CSFB Finance Company - 144A Issue (e)................. 5.969% 11/15/05 1,012,000
1,324,968 DLJ Mortgage Acceptance Corporation.................... 6.750% 01/25/24 1,246,874
544,949 GE Capital Mortgage Services, Inc...................... 6.000% 04/25/09 514,699
713,182 GE Capital Mortgage Services, Inc...................... 6.750% 09/25/12 675,561
1,254,369 GE Capital Mortgage Services, Inc...................... 7.000% 03/25/26 1,211,369
1,095,856 Morserv, Inc........................................... 7.000% 11/25/11 1,088,239
609,610 Norwest Mortgage, Inc.................................. 7.500% 12/25/26 588,463
1,084,770 Paine Webber Mortgage Acceptance Corporation........... 6.930% 02/25/24 1,031,302
627,814 Paine Webber Mortgage Acceptance Corporation........... 8.125% 07/25/09 626,313
1,158,664 Prudential Home Mortgage Securities.................... 6.050% 04/25/24 1,080,767
1,251,198 Prudential Home Mortgage Securities.................... 6.500% 10/25/23 1,210,009
1,271,954 Prudential Home Mortgage Securities.................... 6.500% 04/25/26 1,188,717
1,479,411 Residential Funding Mortgage........................... 7.000% 10/25/23 1,438,890
</TABLE>
See accompanying notes to investments in securities.
8
<PAGE>
ADVANTUS MORTGAGE SECURITIES FUND
INVESTMENTS IN SECURITIES - CONTINUED
<TABLE>
<CAPTION>
MARKET
PRINCIPAL VALUE(A)
- --------- -----------
OTHER MORTGAGE-BACKED SECURITIES--CONTINUED
<C> <S> <C> <C> <C>
$ 522,920 Residential Funding Mortgage........................... 7.250% 07/25/11 $ 511,290
1,557,250 Securitized Asset Sales, Inc. - 144A Issue (e)........ 6.808% 11/28/23 1,410,183
-----------
20,996,614
-----------
Total other mortgage-backed securities (cost: $33,458,123)............... 33,022,239
-----------
Total long-term debt securities (cost: $52,080,947)...................... 51,512,526
-----------
<CAPTION>
SHARES
- ------
PREFERRED STOCK (.9%)
<C> <S> <C> <C> <C>
FINANCIAL (.9%)
Real Estate Investment Trust (.9%)
11,000 Duke Realty Investments, Inc. - 7.99%.................................... 494,313
-----------
Total preferred stock (cost: $550,000)................................... 494,313
-----------
<CAPTION>
PRINCIPAL
- ---------
SHORT-TERM SECURITIES (2.2%)
<C> <S> <C> <C> <C>
$ 743,008 Federated Prime Obligation Fund, current rate 5.220%..................... 743,008
405,000 U.S. Treasury Bond..................................... 4.697% 12/09/99 401,429
-----------
Total short-term securities (cost: $1,144,444)........................... 1,144,437
-----------
Total investments in securities (cost: $53,775,391) (g).................. $53,151,276
===========
</TABLE>
Notes to Investments in Securities
- -----------------------------------
(a) Securities are valued by procedures described in note 2 to the financial
statements.
(b) The Fund held 1.8% of net assets in foreign securities as of September 30,
1999.
(c) Represents a debt security with a weighted average net pass-through rate
which varies based on the pool of underlying collateral. The rate disclosed
is the rate in effect at September 30, 1999.
(d) At September 30, 1999 the total cost of investments issued on a when-issued
or forward commitment basis is $1,978,135.
(e) Represents ownership in an illiquid and/or restricted security. (See note 6
to the financial statements.) Information concerning the illiquid and/or
restricted securities held at September 30, 1999, which includes acquisition
date and cost, is as follows:
<TABLE>
<CAPTION>
ACQUISITION
SECURITY: DATE COST
--------- ----------- --------------
<S> <C> <C>
Asset Securitization Corporation....................................... various $ 1,484,654
Banco Hipotecario Nacional 144A Issue*................................. various 984,962
CSFB Finance Company 144A Issue*....................................... various 1,145,969
Securitized Asset Sales, Inc. 144A Issue*.............................. various 1,432,609
-------------
$ 5,048,194
=============
</TABLE>
* A 144A Issue represents a security which has not been registered with the
Securities and Exchange Commission under the Securities Act of 1933.
(f) Interest-only security that entitles holders to receive only interest on
the underlying mortgages. The principal amount of the underlying pool
represents the notional amount on which current interest is calculated. The
yield to maturity of an interest-only security is sensitive to the rate of
principal payments on the underlying mortgage assets. The rate disclosed
represents the market yield based upon the current cost basis and estimated
timing and amount of future cash flows.
(g) At September 30, 1999 the cost of securities for federal income tax purposes
was $53,794,584. The aggregate unrealized appreciation and depreciation of
investments in securities based on this cost were:
<TABLE>
<CAPTION>
<S> <C>
Gross unrealized appreciation...................................................... $ 320,687
Gross unrealized depreciation...................................................... (963,995)
--------------
Net unrealized depreciation........................................................ $ (643,308)
==============
</TABLE>
9
<PAGE>
(This page has been left blank intentionally.)
10
<PAGE>
ADVANTUS MORTGAGE SECURITIES FUND
STATEMENT OF ASSETS AND LIABILITIES
SEPTEMBER 30, 1999
<TABLE>
<S> <C>
ASSETS
Investments in securities, at market value - see
accompanying schedule for detailed listing
(identified cost: $53,775,391)............................. $53,151,276
Cash in bank on demand deposit.............................. 137,845
Receivable for Fund shares sold............................. 88,636
Receivable for investment securities sold................... 1,870,014
Accrued interest receivable................................. 407,895
Other receivables........................................... 439
-----------
Total assets............................................ 55,656,105
-----------
LIABILITIES
Payable for investment securities purchased................. 2,684,860
Payable for Fund shares redeemed............................ 39,269
Dividends payable to shareholders........................... 80,682
Payable to Adviser.......................................... 52,187
-----------
Total liabilities....................................... 2,856,998
-----------
Net assets applicable to outstanding capital stock.......... $52,799,107
===========
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)........................................ $ 51,207
Additional paid-in capital................................ 53,986,438
Distributions in excess of net investment income.......... (80,682)
Accumulated net realized losses from investments.......... (533,741)
Unrealized depreciation on investments.................... (624,115)
-----------
Total - representing net assets applicable to
outstanding capital stock............................... $52,799,107
===========
Net assets applicable to outstanding Class A shares......... $33,616,635
===========
Net assets applicable to outstanding Class B shares......... $14,056,810
===========
Net assets applicable to outstanding Class C shares......... $ 5,125,662
===========
Shares outstanding and net asset value per share:
Class A - Shares outstanding 3,262,306.................... $ 10.30
===========
Class B - Shares outstanding 1,361,216.................... $ 10.33
===========
Class C - Shares outstanding 497,187...................... $ 10.31
===========
</TABLE>
See accompanying notes to financial statements.
11
<PAGE>
ADVANTUS MORTGAGE SECURITIES FUND
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED SEPTEMBER 30, 1999
<TABLE>
<S> <C>
Investment income:
Interest.................................................. $ 3,554,023
Dividends................................................. 72,279
-----------
Total investment income............................... 3,626,302
-----------
Expenses (note 4):
Investment advisory fee................................... 287,662
Rule 12b-1 fees - Class A................................. 89,220
Rule 12b-1 fees - Class B................................. 121,858
Rule 12b-1 fees - Class C................................. 43,336
Administrative services fee............................... 61,400
Custodian fees............................................ 6,347
Auditing and accounting services.......................... 19,331
Legal fees................................................ 11,894
Directors' fees........................................... 928
Registration fees......................................... 41,672
Printing and shareholder reports.......................... 32,715
Insurance................................................. 3,595
Other..................................................... 4,480
-----------
Total expenses........................................ 724,438
-----------
Less fees and expenses waived or absorbed:
Class A Rule 12b-1 fees................................. (5,448)
Other fund expenses..................................... (119,827)
-----------
Total fees and expenses waived or absorbed............ (125,275)
-----------
Total net expenses.................................... 599,163
-----------
Investment income - net............................... 3,027,139
-----------
Realized and unrealized losses on investments:
Net realized losses on investments (note 3)............... (65,331)
Net change in unrealized appreciation or depreciation on
investments............................................. (1,911,573)
-----------
Net losses on investments............................. (1,976,904)
-----------
Net increase in net assets resulting from operations........ $ 1,050,235
===========
</TABLE>
See accompanying notes to financial statements.
12
<PAGE>
ADVANTUS MORTGAGE SECURITIES FUND
STATEMENTS OF CHANGES IN NET ASSETS
FOR THE YEARS ENDED SEPTEMBER 30, 1999 AND 1998
<TABLE>
<CAPTION>
1999 1998
------------ ------------
<S> <C> <C>
Operations:
Investment income - net................................... $ 3,027,139 $ 2,432,701
Net realized gain (loss) on investments................... (65,331) 585,744
Net change in unrealized appreciation or depreciation on
investments............................................. (1,911,573) 392,690
----------- -----------
Increase in net assets resulting from operations...... 1,050,235 3,411,135
----------- -----------
Distributions to shareholders from:
Investment income - net:
Class A................................................. (2,161,384) (1,866,254)
Class B................................................. (697,922) (428,822)
Class C................................................. (248,515) (161,070)
Tax return of capital:
Class A................................................. (25,263) (99,215)
Class B................................................. (8,157) (30,946)
Class C................................................. (2,905) (12,017)
----------- -----------
Total distributions................................... (3,144,146) (2,598,324)
----------- -----------
Capital share transactions (notes 4 and 5):
Proceeds from sales:
Class A................................................. 6,839,761 9,621,075
Class B................................................. 6,350,510 6,091,960
Class C................................................. 4,626,359 4,378,096
Proceeds from issuance of shares as a result of reinvested
dividends:
Class A................................................. 1,450,093 1,276,840
Class B................................................. 583,352 368,689
Class C................................................. 225,596 146,111
Payments for redemption of shares:
Class A................................................. (5,521,715) (7,308,009)
Class B................................................. (2,457,525) (2,624,311)
Class C................................................. (3,893,536) (2,429,147)
----------- -----------
Increase in net assets from capital share
transactions........................................ 8,202,895 9,521,304
----------- -----------
Total increase in net assets.......................... 6,108,984 10,334,115
Net assets at beginning of year............................. 46,690,123 36,356,008
----------- -----------
Net assets at end of year (including (distributions in
excess of) net investment income of ($80,682) and $0,
respectively)............................................. $52,799,107 $46,690,123
=========== ===========
</TABLE>
See accompanying notes to financial statements.
13
<PAGE>
ADVANTUS MORTGAGE SECURITIES FUND
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1999
(1) ORGANIZATION
The Advantus Mortgage Securities Fund, Inc. (the Fund) is registered under
the Investment Company Act of 1940 (as amended) as a diversified, open-end
management investment company. The Fund's investment objective is to seek a high
level of current income consistent with prudent investment risk.
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
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 Rule 12b-1 fees charged differs between Class A, Class B and Class C
shares. Income, expenses (other than Rule 12b-1 fees) and realized and
unrealized gains or losses are allocated to each class of shares based upon its
relative net assets.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The significant accounting policies followed by the Fund are summarized as
follows:
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts in the financial statements. Actual
results could differ from those estimates.
INVESTMENTS IN SECURITIES
The Fund's net asset value is generally calculated as of the close of normal
trading on the New York Stock Exchange (typically 3:00 p.m. Central Time).
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 as 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.
Security transactions are accounted for on the date the securities are
purchased or sold. Realized gains and losses are calculated on the
identified-cost basis. Dividend income is recognized on the ex-dividend date and
interest income, including amortization of bond premium and discount computed on
a level yield basis, is accrued daily.
SECURITIES PURCHASED ON A WHEN-ISSUED BASIS
Delivery and payment for securities which have been purchased by the Fund on
a forward commitment or when-issued basis can take place a month or more after
the transaction date. During this period, such securities
14
<PAGE>
ADVANTUS MORTGAGE SECURITIES FUND
NOTES TO FINANCIAL STATEMENTS - CONTINUED
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - (CONTINUED)
are subject to market fluctuations. As of September 30, 1999, the Fund had
entered into outstanding when-issued or forward commitments of $1,978,135. The
Fund has segregated assets, with the Fund's custodian, to cover such when-issued
and forward commitment transactions.
FEDERAL TAXES
The Fund's policy is to comply with the requirements of the Internal Revenue
Code applicable to regulated investment companies and to distribute all of its
taxable income to shareholders. Therefore, no income tax provision is required.
The Fund's policy is to make required minimum distributions prior to
December 31, in order to avoid federal excise tax.
Net investment income (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 (losses) 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.
For federal income tax purposes, the Fund has a capital loss carryover in
the amount of $514,548 which, if not offset by subsequent capital gains, will
expire September 30, 2003 through 2008. It is unlikely the Board of Directors
will authorize a distribution of any net realized capital gain until the
available capital loss carryover has been offset or expires.
DISTRIBUTIONS TO SHAREHOLDERS
Dividends from net investment income are declared daily and paid monthly in
cash or reinvested in additional shares. Realized gains, if any, are paid
annually.
(3) INVESTMENT SECURITY TRANSACTIONS
For the year ended September 30, 1999, purchases of securities and proceeds
from sales, other than temporary investments in short-term securities aggregated
$69,278,109 and $62,132,521, 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 of
Minnesota Life Insurance Company (Minnesota Life). 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 (First
Data Investor Services Group). Prior to October 26, 1998, the Fund's transfer
agent was Minnesota Life. The fee for investment management and advisory
services is based on the average daily net assets of the Fund at the annual rate
of .575 percent.
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
expenses pursuant to Rule 12b-1 under the Investment Company Act of 1940 (as
amended). The Fund pays fees to Ascend Financial Services, Inc. (Ascend), the
underwriter of the Fund and wholly-owned subsidiary of Advantus Capital, 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 service fee up
to
15
<PAGE>
ADVANTUS MORTGAGE SECURITIES FUND
NOTES TO FINANCIAL STATEMENTS - CONTINUED
(4) EXPENSES AND RELATED PARTY TRANSACTIONS - (CONTINUED)
.25 percent of average daily net assets of Class A shares. Prior to February 1,
1999, the Class A Plan provided for a distribution 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. Prior
to February 1, 1999, Ascend waived that portion of Class A Rule 12b-1 fees which
exceeded, as a percentage of average daily net assets, .25 percent. For the
period from October 1, 1998 to January 31, 1999, the total amount of Class A
Rule 12b-1 fees waived was $5,448.
The Fund also bears certain other operating expenses including outside
directors' fees, custodian fees, registration fees, printing and shareholder
reporting fees, legal, auditing and accounting services fees and other
miscellaneous expenses.
Effective October 26, 1998, the Fund entered into a new shareholder and
administrative services agreement with Minnesota Life. Under this agreement, the
Fund pays an administrative services fee to Minnesota Life for accounting,
auditing, legal and other administrative services which Minnesota Life provides.
Prior to February 1, 1999, the administrative services fee was $3,700 per month.
For the period from February 1, 1999 to July 31, 1999, the administrative
services fee was $5,700 per month. Effective August 1, 1999, the administrative
services fee is $6,200 per month. In addition, for shareholder services
performed by Minnesota Life, the Adviser will pay Minnesota Life an annual
account servicing fee as agreed by the Adviser and Minnesota Life.
Advantus Capital directly incurs and pays the above operating expenses and
the Fund in turn reimburses Advantus Capital. For the year ended September 30,
1999, Advantus Capital voluntarily agreed to absorb $119,827 in expenses that
were otherwise payable by the Fund.
Sales charges received by Ascend for distributing the Fund's three classes
of shares amounted to $103,245.
As of September 30, 1999, Minnesota Life and subsidiaries and the directors
and officers of the Fund as a whole owned 641,794 Class A shares which
represents 19.7 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 $10,454.
(5) CAPITAL SHARE TRANSACTIONS
Transactions in shares for the years ended September 30, 1999 and 1998 were
as follows:
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
------------------- ------------------- -------------------
1999 1998 1999 1998 1999 1998
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Sold..................................... 647,824 903,705 602,510 571,435 441,108 410,305
Issued for reinvested distributions...... 138,280 119,619 55,494 34,443 21,471 13,630
Redeemed................................. (525,955) (685,656) (232,573) (245,853) (369,048) (227,658)
-------- -------- -------- -------- -------- --------
260,149 337,668 425,431 360,025 93,531 196,277
======== ======== ======== ======== ======== ========
</TABLE>
(6) RESTRICTED AND ILLIQUID SECURITIES
At September 30, 1999, investments in securities includes issues which
generally cannot be offered for sale to the public without first being
registered under the Securities Act of 1933 (restricted securities) and other
illiquid issues. In the event the securities are registered, those carrying
registration rights allow for the issuer to
16
<PAGE>
ADVANTUS MORTGAGE SECURITIES FUND
NOTES TO FINANCIAL STATEMENTS - CONTINUED
(6) RESTRICTED AND ILLIQUID SECURITIES - (CONTINUED)
bear all the related costs; for issues without rights, the Fund may incur such
costs. The Fund currently limits investments in securities that are not readily
marketable, including restricted and 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 restricted and illiquid securities held by the
Fund at September 30, 1999 was $4,864,827 which represents 9.2% of net assets.
(7) YEAR 2000 (UNAUDITED)
In 1995, Minnesota Life began addressing computer system requirements and
applications to be Year 2000 ready. Based on a current study, Minnesota Life
plans to spend approximately $12 million through 1999 to modify its computer
information systems, enabling proper processing of transactions relating to the
year 2000 and beyond. The Fund will not be charged for these expenses.
17
<PAGE>
ADVANTUS MORTGAGE SECURITIES FUND
NOTES TO FINANCIAL STATEMENTS - CONTINUED
(8) FINANCIAL HIGHLIGHTS
Per share data for a share of capital stock and selected information for
each period are as follows:
<TABLE>
<CAPTION>
CLASS A
--------------------------------------------------------------------------------------------
YEAR ENDED SEPTEMBER 30,
--------------------------------------------------------------------------------------------
1999 1998 1997 1996 1995(A)
---------------- ---------------- ---------------- ---------------- ----------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of
year........................ $ 10.75 $ 10.54 $ 10.23 $ 10.36 $ 9.70
------- ------- ------- ------- -------
Income from investment operations:
Net investment income....... .69 .64 .70 .62 .62
Net gains (losses) on
securities (both realized
and unrealized)........... (.45) .25 .33 (.13) .65
------- ------- ------- ------- -------
Total from investment
operations.............. .24 .89 1.03 .49 1.27
------- ------- ------- ------- -------
Less distributions:
Dividends from net
investment income......... (.68) (.65) (.72) (.62) (.61)
Tax return of capital....... (.01) (.03) - - -
------- ------- ------- ------- -------
Total distributions....... (.69) (.68) (.72) (.62) (.61)
------- ------- ------- ------- -------
Net asset value, end of
year........................ $ 10.30 $ 10.75 $ 10.54 $ 10.23 $ 10.36
======= ======= ======= ======= =======
Total return (b).............. 2.26% 8.73% 10.37% 4.83% 13.53%
Net assets, end of year (in
thousands).................. $33,617 $32,268 $28,089 $23,692 $25,317
Ratio of expenses to average
daily net assets (d)........ .95% .95% .95% 1.26% 1.29%
Ratio of net investment income
(loss) to average daily net
assets (d).................. 6.29% 6.02% 6.77% 6.05% 6.23%
Portfolio turnover rate
(excluding short-term
securities)................. 127.1% 152.5% 85.1% 125.2% 203.7%
</TABLE>
- ------------
(a) Effective March 1, 1995, the Fund entered into a new investment advisory
agreement with Advantus Capital Management, Inc. Prior to March 1, 1995,
the Fund had an investment advisory agreement with MIMLIC Asset Management
Company.
(b) Total return figures are based on a share outstanding throughout the period
and assume reinvestment of distributions at net asset value. Total return
figures do not reflect the impact of front-end or contingent deferred sales
charges. For periods less than one year, total return presented has not
been annualized.
(c) Commencement of operations.
(d) The Fund's Adviser and Distributor voluntarily waived or absorbed $125,275,
$134,706, $121,780, $35,718 and $36,128 in expenses for the years ended
September 30, 1999, 1998, 1997, 1996 and 1995, respectively. If Class A
shares had been charged for these expenses, the ratio of expenses to
average daily net assets would have been 1.21%, 1.29%, 1.37%, 1.40% and
1.42%, respectively, and the ratio of net investment income to average
daily net assets would have been 6.03%, 5.68%, 6.35%, 5.91% and 6.10%,
respectively. If Class B shares had been charged for these expenses, the
ratio of expenses to average daily net assets would have been 1.94%, 1.99%,
2.07%, 2.09% and 2.11%, respectively, and the ratio of net investment
income to average daily net assets would have been 5.33%, 5.04%, 5.71%,
5.30% and 5.26%, respectively. If Class C shares had been charged for these
expenses, the ratio of expenses to average daily net assets would have been
1.94%, 1.99%, 2.07%, 2.08% and 2.11%, respectively, and the ratio of net
investment income to average daily net assets would have been 5.34%, 5.11%,
5.74%, 5.32% and 5.20%, respectively.
(e) Adjusted to an annual basis.
18
<PAGE>
ADVANTUS MORTGAGE SECURITIES FUND
NOTES TO FINANCIAL STATEMENTS - CONTINUED
<TABLE>
<CAPTION>
CLASS B
--------------------------------------------------------------------------------------------
YEAR ENDED SEPTEMBER 30,
--------------------------------------------------------------------------------------------
1999 1998 1997 1996 1995(A)
---------------- ---------------- ---------------- ---------------- ----------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of
year........................ $ 10.77 $ 10.56 $10.24 $10.37 $ 9.70
------- ------- ------ ------ ------
Income from investment operations:
Net investment income....... .61 .57 .63 .54 .53
Net gains (losses) on
securities (both realized
and unrealized)........... (.44) .24 .33 (.13) .67
------- ------- ------ ------ ------
Total from investment
operations.............. .17 .81 .96 .41 1.20
------- ------- ------ ------ ------
Less distributions:
Dividends from net
investment income......... (.60) (.57) (.64) (.54) (.53)
Tax return of capital....... (.01) (.03) - - -
------- ------- ------ ------ ------
Total distributions....... (.61) (.60) (.64) (.54) (.53)
------- ------- ------ ------ ------
Net asset value, end of
year........................ $ 10.33 $ 10.77 $10.56 $10.24 $10.37
======= ======= ====== ====== ======
Total return (b).............. 1.51% 7.92% 9.65% 4.06% 12.74%
Net assets, end of year (in
thousands).................. $14,057 $10,079 $6,079 $3,375 $1,084
Ratio of expenses to average
daily net assets (d)........ 1.70% 1.70% 1.70% 2.01% 2.05%
Ratio of net investment income
(loss) to average daily net
assets (d).................. 5.57% 5.33% 6.08% 5.38% 5.32%
Portfolio turnover rate
(excluding short-term
securities)................. 127.1% 152.5% 85.1% 125.2% 203.7%
<CAPTION>
CLASS C
--------------------------------------------------------------------------------------------
PERIOD FROM
MARCH 1,
YEAR ENDED SEPTEMBER 30, 1995(C) TO
------------------------------------------------------------------------- SEPTEMBER 30,
1999 1998 1997 1996 1995
---------------- ---------------- ---------------- ---------------- ----------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of
year........................ $10.76 $10.55 $10.23 $10.37 $ 9.90
------ ------ ------ ------ ------
Income from investment operati
Net investment income....... .61 .57 .63 .54 .31
Net gains (losses) on
securities (both realized
and unrealized)........... (.45) .24 .33 (.14) .47
------ ------ ------ ------ ------
Total from investment
operations.............. .16 .81 .96 .40 .78
------ ------ ------ ------ ------
Less distributions:
Dividends from net
investment income......... (.60) (.57) (.64) (.54) (.31)
Tax return of capital....... (.01) (.03) - - -
------ ------ ------ ------ ------
Total distributions....... (.61) (.60) (.64) (.54) (.31)
------ ------ ------ ------ ------
Net asset value, end of
year........................ $10.31 $10.76 $10.55 $10.23 $10.37
====== ====== ====== ====== ======
Total return (b).............. 1.50% 7.92% 9.66% 4.07% 7.91%
Net assets, end of year (in
thousands).................. $5,126 $4,343 $2,187 $1,139 $ 321
Ratio of expenses to average
daily net assets (d)........ 1.70% 1.70% 1.70% 2.01% 2.05%(e)
Ratio of net investment income
(loss) to average daily net
assets (d).................. 5.58% 5.40% 6.11% 5.39% 5.26%(e)
Portfolio turnover rate
(excluding short-term
securities)................. 127.1% 152.5% 85.1% 125.2% 203.7%
</TABLE>
- ------------
(a) Effective March 1, 1995, the Fund entered into a new investment advisory
agreement with Advantus Capital Management, Inc. Prior to March 1, 1995,
the Fund had an investment advisory agreement with MIMLIC Asset Management
Company.
(b) Total return figures are based on a share outstanding throughout the period
and assume reinvestment of distributions at net asset value. Total return
figures do not reflect the impact of front-end or contingent deferred sales
charges. For periods less than one year, total return presented has not
been annualized.
(c) Commencement of operations.
(d) The Fund's Adviser and Distributor voluntarily waived or absorbed $125,275,
$134,706, $121,780, $35,718 and $36,128 in expenses for the years ended
September 30, 1999, 1998, 1997, 1996 and 1995, respectively. If Class A
shares had been charged for these expenses, the ratio of expenses to
average daily net assets would have been 1.21%, 1.29%, 1.37%, 1.40% and
1.42%, respectively, and the ratio of net investment income to average
daily net assets would have been 6.03%, 5.68%, 6.35%, 5.91% and 6.10%,
respectively. If Class B shares had been charged for these expenses, the
ratio of expenses to average daily net assets would have been 1.94%, 1.99%,
2.07%, 2.09% and 2.11%, respectively, and the ratio of net investment
income to average daily net assets would have been 5.33%, 5.04%, 5.71%,
5.30% and 5.26%, respectively. If Class C shares had been charged for these
expenses, the ratio of expenses to average daily net assets would have been
1.94%, 1.99%, 2.07%, 2.08% and 2.11%, respectively, and the ratio of net
investment income to average daily net assets would have been 5.34%, 5.11%,
5.74%, 5.32% and 5.20%, respectively.
(e) Adjusted to an annual basis.
19
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders
Advantus Mortgage Securities Fund, Inc.:
We have audited the accompanying statement of assets and liabilities,
including the schedule of investments in securities, of the Advantus Mortgage
Securities Fund, Inc. (the Fund) as of September 30, 1999 and the related
statement of operations for the year then ended, the statements of changes in
net assets for each of the years in the two year period then ended and the
financial highlights for each of the years in the five year period then ended.
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. Our procedures included confirmation of securities owned as of
September 30, 1999, by correspondence with the custodian and brokers. 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, 1999 and the results of its operations,
changes in its net assets and the financial highlights, for the periods stated
in the first paragraph above, in conformity with generally accepted accounting
principles.
KPMG LLP
Minneapolis, Minnesota
November 5, 1999
20
<PAGE>
ADVANTUS MORTGAGE SECURITIES FUND
FEDERAL INCOME TAX INFORMATION (UNAUDITED)
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, 1999. Dividends for the 1999 calendar year will
be reported to you on Form 1099-Div in late January 2000. Shareholders should
consult a tax adviser on how to report these distributions for state and local
purposes.
CLASS A
<TABLE>
<CAPTION>
PER
PAYABLE DATE SHARE
- ------------ --------
<S> <C>
Income distributions - taxable as dividend income, none qualifying for
deduction by corporations.
October 23, 1998............................................ $.0314
October 31, 1998............................................ .0141
November 30, 1998........................................... .0558
December 31, 1998........................................... .0606
January 31, 1999............................................ .0625
February 28, 1999........................................... .0564
March 31, 1999.............................................. .0687
April 30, 1999.............................................. .0526
May 31, 1999................................................ .0551
June 30, 1999............................................... .0587
July 31, 1999............................................... .0556
August 31, 1999............................................. .0536
September 30, 1999.......................................... .0606
------
$.6857*
======
</TABLE>
* The total distribution of $.6857 includes $.0079 from tax return of capital.
CLASS B
<TABLE>
<CAPTION>
PER
PAYABLE DATE SHARE
- ------------ --------
<S> <C>
Income distributions - taxable as dividend income, none qualifying for
deduction by corporations.
October 23, 1998............................................ $.0264
October 31, 1998............................................ .0123
November 30, 1998........................................... .0493
December 31, 1998........................................... .0539
January 31, 1999............................................ .0559
February 28, 1999........................................... .0504
March 31, 1999.............................................. .0621
April 30, 1999.............................................. .0461
May 31, 1999................................................ .0485
June 30, 1999............................................... .0522
July 31, 1999............................................... .0493
August 31, 1999............................................. .0472
September 30, 1999.......................................... .0544
------
$.6080*
======
</TABLE>
* The total distribution of $.6080 includes $.0070 from tax return of capital.
21
<PAGE>
ADVANTUS MORTGAGE SECURITIES FUND
FEDERAL INCOME TAX INFORMATION (UNAUDITED) - CONTINUED
CLASS C
<TABLE>
<CAPTION>
PER
PAYABLE DATE SHARE
- ------------ --------
<S> <C>
Income distributions - taxable as dividend income, none qualifying for
deduction by corporations.
October 23, 1998............................................ $.0264
October 31, 1998............................................ .0123
November 30, 1998........................................... .0492
December 31, 1998........................................... .0538
January 31, 1999............................................ .0558
February 28, 1999........................................... .0503
March 31, 1999.............................................. .0620
April 30, 1999.............................................. .0460
May 31, 1999................................................ .0484
June 30, 1999............................................... .0492
July 31, 1999............................................... .0521
August 31, 1999............................................. .0471
September 30, 1999.......................................... .0543
------
$.6069*
======
</TABLE>
* The total distribution of $.6069 includes $.0070 from tax return of capital.
22
<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 may apply.
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 share 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 twelve exchanges each calendar year without incurring a
transaction charge. Thereafter, there will be a $7.50 transaction charge for
each additional exchange within the calendar year.
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 a check 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 DIVIDEND 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 EXCHANGE: You may move money from one Advantus account to any other
Advantus account you own (with identical registrations within the same share
class) just by calling our toll-free number. The Telephone Exchange privilege
will automatically be established unless otherwise indicated on the Account
Application. Telephone Exchange may be changed (added/deleted) at any time by
submitting a request in writing.
SYSTEMATIC EXCHANGE: You may move a set amount of money monthly or quarterly
from one Advantus Fund to another Advantus Fund (with identical registrations
within the same share class) to diversify your investment portfolio and take
advantage of "dollar-cost averaging".
AUTOMATIC PAYMENT OF INSURANCE PREMIUMS: You may automatically pay your
Minnesota Life insurance premiums from 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, if any.
AUTOMATIC INVESTMENT PLAN: This special purchase plan enables 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.) The Automatic Investment
Plan allows you to invest automatically monthly, semi-monthly or quarterly from
your checking or savings account.
IRAS, OTHER QUALIFIED PLANS: You can use the Advantus Family of Funds for your
Traditional, Roth or Education Individual Retirement Account or other qualified
plans including: SEP IRA's, SIMPLE IRA's, Profit Sharing, 401(k) Money Purchase
or Defined Benefit plans.
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 or wire
transferred to your bank of record for the account. Wire transfers are for
amounts over $500. The prevailing wire charge will be added to the withdrawal
amount. The Telephone Redemption privilege will automatically be established
unless otherwise indicated on the Account Application. Telephone Redemption may
be changed (added/deleted) at any time by submitting a request in writing. To
have the redemption automatically deposited into your checking account, please
send a voided check
23
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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 and quarterly statements to help you track all of your Advantus Fund
investments 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.
Advantus Account Representatives are available Monday through Friday from 8 a.m.
to 4:45 p.m. Central Time. Our voice response system is available 24 hours,
seven days a week. This system allows you to access current net asset values,
account balances and recent account activity.
HOW TO INVEST
You can invest in one or more of the eleven Advantus Funds through a local
Registered Representative of Ascend Financial Services, Inc., distributor of the
Funds. Contact your representative for information and a prospectus for any of
the Advantus Funds you are interested in. To find a Registered Representative
near you, call the toll-free service line (1-800-665-6005).
MINIMUM INVESTMENTS: Your initial investment in any of the Advantus Funds can
be as small as $25 when you use our Automatic 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. (For the Advantus International Balanced Fund, Inc., the
sub-adviser, Templeton Investment Counsel, Inc., selects the Fund's
investments.)
Advantus Capital Management, Inc. manages twelve mutual funds containing $3.2
billion in assets in addition to $10.8 billion in assets for other clients.
Advantus Capital's seasoned portfolio managers average more than 13 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
Advantus Real Estate Securities Fund
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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>
<TABLE>
<S> <C>
ASCEND FINANCIAL SERVICES, INC. PRESORTED STANDARD
400 ROBERT STREET NORTH U.S. POSTAGE PAID
ST. PAUL, MN 55101-2098 ST. PAUL, MN
PERMIT NO. 3547
ADDRESS SERVICE REQUESTED
</TABLE>
F.48641 Rev. 11-1999
