<PAGE>
Mortgage
ADVANTUS MORTGAGE SECURITIES FUND
SEMI-ANNUAL REPORT TO SHAREHOLDERS DATED MARCH 31, 1999
ADVANTUS-TM-
Family of Funds
FIXED INCOME
<PAGE>
ADVANTUS MORTGAGE SECURITIES FUND
TABLE OF CONTENTS
PERFORMANCE UPDATE 2
INVESTMENTS IN SECURITIES 7
STATEMENT OF ASSETS AND LIABILITIES 10
STATEMENT OF OPERATIONS 11
STATEMENTS OF CHANGES IN NET ASSETS 12
NOTES TO FINANCIAL STATEMENTS 13
SHAREHOLDER SERVICES 18
<PAGE>
LETTER FROM THE PRESIDENT [PHOTO]
Dear Shareholders:
U.S. economic expansion, in its longevity and in vigor, is the envy of the rest
of the world. While growth in Europe and the United Kingdom is falling, we are
finally seeing some small improvements in Asia's economic angst; it also appears
that Japan's economic free fall has stopped. However, a working plan for a
sustainable recovery in Japan is still forthcoming. As you can see, growth
patterns around the globe are mixed, but overall, world growth is forecasted to
decline by about one percent over the course of 1999. (World growth is
forecasted to be two percent in 1999.)
In this six-month reporting period, U.S. Gross Domestic Product (GDP) in the
fourth quarter 1998 was 6.0 percent. This phenomenal result was fueled by strong
consumer demand and spending. GDP figures for the first quarter 1999 are
estimated at a respectable 4 percent. This economic growth was very broad based,
despite some export difficulties. Above-trend growth is expected for the
remainder of the year.
Will inflation spoil the party? It's unlikely. Weak commodity prices coupled
with excess global capital and labor has created an inflation-benign
environment. The inflation outlook in the U.S. continues to be positive, as
well.
The strong momentum in top-tier large cap growth stocks continues to drive the
equity market. Some trends have continued, such as large cap stocks
outperforming small caps and growth stocks outperforming value stocks. The
breadth of leadership of the equity market has continued to narrow, with only
26.3 percent of the issues in the S&P 500* able to outperform their index over
the last twelve months. The average equity mutual fund has lagged the market
unless it has been overweighted in growth and technology investments. Valuations
in the marketplace continue to be high, particularly in the large cap growth
weighted indices.
Stronger economic growth increased investors' comfort with corporate bonds and
thus the spread to Treasury bonds narrowed. In the fixed-income market,
mortgage-backed securities were the star performers this period, followed by
corporate bonds, and then Treasuries.
The economic and market outlook for the U.S. remains strong. Looking ahead, we
are cautiously optimistic for stock and bond prices, but valuations for
large-cap growth issues are high. Economic growth is forecasted, albeit slower
than in the past. With much of the world still in recession, commodity prices
low, and rapid increases in technology and productivity, high inflation is
unlikely. The Federal Reserve and other central banks stand ready to intervene
if necessary. We are watchful of Y2K issues. Certain countries that are mired in
prolonged recessions lack the money to solve these technology-related problems.
We are - along with the rest of the world - watching the political strife in the
Balkans. The military action in Kosovo has commanded world attention. Escalation
will prove costly in money and human resources.
In the pages that follow, the Fund's manager will update you on how the economy
and the market affected the Fund during this reporting period. The manager will
discuss the Fund's performance and some strategies used to maximize performance.
As always, we thank you for investing with Advantus. We encourage you to
maintain a long-range view of investing; we believe you will derive the greatest
benefit by doing so.
Sincerely,
/s/ William N. Westhoff
William N. Westhoff, President
Advantus Funds
*The S&P 500 is a broad, unmanaged index of 500 common stocks which are
representative of the U.S. stock market overall.
<PAGE>
ADVANTUS MORTGAGE SECURITIES FUND
PERFORMANCE UPDATE
[PHOTO]
KENT WEBER, CFA
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 six-month
period ended March 31, 1999 was as follows for the three classes of shares
currently outstanding:
<TABLE>
<S> <C>
CLASS A.......................... 1.61 PERCENT*
CLASS B.......................... 1.23 PERCENT*
CLASS C.......................... 1.04 PERCENT*
</TABLE>
The Fund's benchmark, the Lehman Brothers Mortgage-Backed Securities Index,**
returned 1.78 percent for the same period.
PERFORMANCE ANALYSIS
In our last report to you, dated September 30, 1998, we chronicled that investor
sentiment - based on global recession, low interest rates around the world, and
fear of a bear market in stocks - heavily favored the safety of the U.S.
Treasury market. Liquidity in the spread sectors (mortgage-backed securities and
corporate bonds) all but disappeared as buyers and market makers turned away
from these asset classes. It was a dark time for the spread sectors (i.e.,
non-Treasury securities).
Fortunately, this phenomenon was relatively short-lived, and investors have
re-engaged in spread sectors. Recovery was due, in part, to a vigilant Federal
Reserve. As fourth quarter 1998 unfolded, the Federal Reserve cut key short-term
interest rates, and investor sentiment turned. The ongoing news of
stronger-than-forecasted U.S. growth and a surprisingly quick return to
stability by the global markets ushered in a "flight-FROM-quality" trade that
dominated first quarter 1999 investment activities among active fixed income
managers. The market launched 1999 with high hopes for lower rates and lower
inflation, as consensus forecasts called for the U.S. to join the rest of the
global economies in a slow growth dance.
As consumers appeared to buy anything that was not nailed down, the race to shed
Treasury securities intensified. Rates gapped higher, and historically
undervalued assets handily outperformed Treasury and agency securities. Assets
that went unloved during the earlier liquidity crisis returned to star status as
fundamentals and relative value once again drove valuations and unleashed a
powerful wave of spread-tightening. When the dust settled, the yield on the
10-year Treasury had climbed 55 basis points (over one-half percent) to 5.20
percent, and the mortgage market proved to be one of the leading fixed-income
asset classes, delivering positive returns for the period.
The mortgage market sprang to a stronger start in early 1999 than we
anticipated. Strong fundamentals and balanced technicals made mortgages an
attractive asset class trading at historically wide levels. Agency mortgage
securities basked in the warmth of spread tightening to the tune of 40 to 60
basis points. The tightening in spreads helped cushion the blow of higher rates
and sent the peak of the refinancing wave into the history books. Many
2
<PAGE>
sectors of the non-agency mortgage market (i.e., commercial and investment grade
securities) performed even better. They benefited not only from good news on
prepayments, but also from diminished credit concerns, improved liquidity, and
increased sponsorship.
Throughout this reporting period, we added to our over weights in non-agency
mortgage securities, as well as commercial mortgage securities backed by
seasoned loans. While some of these sectors were slow to join the spread-
tightening party that began with the agency markets, they ultimately caught up.
In many situations, they actually surpassed the level of spread tightening
experienced by the agency market. Within our core agency holdings, we continue
to favor newly issued current coupon mortgage securities due to their attractive
yields, liquidity and cash flow stability.
As you know, duration is the key indicator of the Fund's sensitivity to interest
rates. By carrying more duration, about 5 to 7 percent more than the Index
during this back up in rates, our relative performance was curtailed. However,
as signs of above-trend growth appeared - albeit with no hints of a meaningful
pickup in inflation - we took a more neutral stance on the market. We maintained
our modest overweight in duration, but decided to postpone any additional
purchases of duration.
OUTLOOK
While less undervalued today than at the beginning of the year, the mortgage
sector still offers investors an attractive combination of high yield potential
and solid credit quality. The potential for capital appreciation also exists
should spreads grind back to more normalized historical levels or rates resume
their long-term downward trend. With interest rates likely to go nowhere in a
hurry, investors will continue to reach for yield. In this scenario, mortgages
are a natural fit, and we look forward to another good quarter for mortgage
investors.
Ultimately, we believe that the U.S. economy will successfully transition to a
more sustainable growth rate without Federal Reserve interventions. It is likely
that the Fed will be patient with the economy's excessive growth behavior and
will only tighten if it sees significant signs of broad inflation.
*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 March 31, 1989 through March 31, 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
March 31, 1999.
CLASS A
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURN:
<S> <C> <C> <C>
One year 1.75%
Five year 6.81%
Ten year 8.21%
(Thousands)
Class A CPI Lehman Brothers
Mortgage-Backed
Securities Index
3/31/89 $10,000 $10,000 $10,000
10/31/89 10,569 10,253 11,204
10/31/90 11,247 10,899 12,153
10/31/91 13,048 11,217 14,208
10/31/92 14,117 11,577 15,366
10/31/93 15,730 11,887 16,579
9/30/94 15,047 12,247 16,315
9/30/95 17,083 12,516 18,521
9/30/96 17,908 12,892 19,595
9/30/97 19,764 13,178 21,562
9/30/98 21,491 13,366 23,422
3/31/99 21,896 13,480 23,839
</TABLE>
CLASS B
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURN:
<S> <C> <C> <C>
One year .75%
Since inception (8/19/94) 7.29%
(Thousands)
Lehman Brothers
Mortgage-Backed
Class B CPI Securities Index
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
3/31/99 13,841 11,081 14,427
</TABLE>
4
<PAGE>
CLASS C
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURN:
<S> <C> <C> <C>
One year 5.65%
Since inception
(3/1/95) 7.58%
(Thousands)
Class C CPI Lehman Brothers
Mortgage-Backed
Securities Index
3/1/95 $10,000 $10,000 $10,000
9/30/95 10,791 10,146 10,793
9/30/96 11,230 10,450 11,410
9/30/97 12,314 10,682 12,565
9/30/98 13,290 10,834 13,649
3/31/99 13,478 10,927 13,892
</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/Liabilities 3.0%
FNMA 12.0%
FHLMC 1.0%
GNMA 11.1%
Vendee Mortgage Trust 5.6%
Other Mortgage-Backed Securities 66.3%
Preferred Stock 1.0%
</TABLE>
SOLID LIQUIDITY
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<S> <C>
Cash and Other
Assets/Liabilities 3.0%
Preferred Stock 1.0%
Private Placements 4.2%
Private 144A Issues 7.7%
Public Issues 84.1%
</TABLE>
HIGH QUALITY ASSETS
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<S> <C>
Cash and Other
Assets/Liabilities 3.0%
Preferred Stock 1.0%
AAA Rated 51.6%
AA Rated 10.5%
A Rated 15.1%
BBB Rated 15.9%
BB Rated 2.0%
</TABLE>
6
<PAGE>
ADVANTUS Mortgage Securities Fund
Investments in Securities
March 31, 1999
(UNAUDITED)
(Percentages of each investment category relate to total net assets.)
<TABLE>
<CAPTION>
MARKET
PRINCIPAL VALUE(a)
- ------------- --------------
<C> <S> <C> <C> <C>
LONG-TERM DEBT SECURITIES (96.0%)
U.S. GOVERNMENT AND AGENCIES OBLIGATIONS (29.7%)
Federal Home Loan Mortgage Corporation (FHLMC) (1.0%)
$ 514,439 .............................................. 6.500% 12/01/23 $ 510,246
--------------
Federal National Mortgage Association (FNMA) (12.0%)
610,447 .............................................. 6.500% 09/01/28 607,724
743,635 .............................................. 6.500% 10/01/28 737,574
2,000,000 .............................................. 6.500% 03/15/29 1,991,080
1,477,917 .............................................. 7.000% 02/01/29 1,495,135
1,262,296 .............................................. 8.000% 07/15/16 1,328,895
--------------
6,160,408
--------------
Government National Mortgage Association (GNMA) (11.1%)
840,913 .............................................. 6.500% 11/15/28 837,222
1,000,000 .............................................. 6.500% 03/15/29 995,350
496,830 .............................................. 7.500% 09/15/28 511,427
899,932 .............................................. 7.500% 12/15/28 926,372
878,539 .............................................. 7.875% 05/15/17 926,035
247,750 .............................................. 6.500% 12/15/28 246,663
1,300,000 (d)........................................... 6.500% 04/01/29 1,293,500
--------------
5,736,569
--------------
Vendee Mortgage Trust Participation Certificates (5.6%)
1,191,303 (c)........................................... 7.210% 02/15/25 1,226,427
763,412 (c)........................................... 7.793% 02/15/25 798,798
810,893 (c)........................................... 8.293% 12/15/26 860,464
--------------
2,885,689
--------------
Total U.S. government and agencies obligations (cost:
$15,053,404)..................................................... 15,292,912
--------------
OTHER MORTGAGE-BACKED SECURITIES (66.3%)
Asset-Backed Securities (1.3%)
661,832 Tyron Mortgage Funding........................ 7.750% 12/20/09 674,835
--------------
Collateralized Mortgage Obligations/Mortgage Revenue Bonds (54.9%)
469,027 American Housing Trust........................ 8.125% 06/25/18 482,858
-- Asset Securitization Corporation (e)(f)....... 8.541% 08/13/29 1,527,326
941,814 Banco Hipotecario Nacional-144A Issue 828,208
(b)(e)....................................... 7.916% 07/25/09
1,354,638 Bear Stearns Mortgage Securities, Inc......... 6.750% 04/30/30 1,344,357
721,551 Bear Stearns Mortgage Securities, Inc......... 8.000% 11/25/29 738,197
1,100,000 California Housing Finance Agency............. 7.760% 08/01/25 1,155,362
735,000 California Housing Finance Agency............. 8.160% 02/01/28 771,750
1,821,363 Chase Mortgage Finance Corporation............ 6.750% 11/25/24 1,818,686
</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--CONTINUED
<C> <S> <C> <C> <C>
$ 371,753 Collateralized Mortgage Trust................. 5.000% 07/01/18 $ 359,864
1,000,000 Countrywide Funding........................... 7.000% 06/25/24 963,410
1,150,000 CSFB Finance Company-144A Issue (e)........... 7.092% 11/15/05 1,021,344
576,142 GE Capital Mortgage Securities................ 6.000% 04/25/09 562,367
500,000 GE Capital Mortgage Securities................ 6.500% 12/25/23 501,100
729,988 GE Capital Mortgage Securities................ 6.750% 09/25/12 708,081
1,233,454 GE Capital Mortgage Securities-144A Issue 1,217,012
(e).......................................... 6.500% 04/25/24
245,000 Lee County Florida............................ 6.700% 09/01/25 248,007
1,028,000 Lehman Brothers Grantor Trust................. 7.000% 12/01/22 1,043,420
612,772 Norwest Mortgage, Inc......................... 7.500% 12/25/26 608,488
1,152,341 Paine Webber Mortgage Acceptance 1,129,894
Corporation.................................. 6.930% 02/25/24
650,656 Paine Webber Mortgage Acceptance 658,533
Corporation.................................. 8.125% 07/25/09
1,000,000 Pennsylvania Housing Finance.................. 7.410% 10/01/17 1,032,036
1,188,628 Prudential Home Mortgage Securities........... 6.050% 04/25/24 1,164,368
1,211,416 Prudential Home Mortgage Securities........... 6.500% 10/25/23 1,207,633
1,280,202 Prudential Home Mortgage Securities........... 6.500% 04/25/26 1,252,869
872,000 Prudential Home Mortgage Securities........... 7.000% 06/25/23 890,400
956,789 Prudential Home Mortgage Securities-144A Issue 869,781
(e).......................................... 6.803% 04/28/24
904,863 Residential Funding Mortgage.................. 7.000% 11/25/10 913,712
1,491,826 Residential Funding Mortgage.................. 7.000% 10/25/23 1,503,316
538,343 Residential Funding Mortgage.................. 7.250% 07/25/11 538,364
700,130 Securitized Asset Sales, Inc. (e)............. 6.808% 11/28/23 646,703
541,400 Wyoming Community Development................. 6.850% 06/01/10 537,171
--------------
28,244,617
--------------
Commercial Mortgage-Backed Securities (10.1%)
1,000,000 Covenant Retirement Community................. 6.250% 12/01/22 992,167
490,000 Los Angeles Housing Authority................. 6.750% 11/01/03 497,653
900,000 Massachusetts Industrial Financial............ 7.100% 02/01/10 925,862
860,000 Pleasant Hill Revenue Bond.................... 7.950% 09/20/15 926,891
1,801,942 Rosewood Care Center.......................... 7.250% 11/01/13 1,863,371
--------------
5,205,944
--------------
Total other mortgage-backed securities (cost: $33,827,826)........ 34,125,396
--------------
Total long-term debt securities (cost: $48,881,230)............... 49,418,308
--------------
</TABLE>
See accompanying notes to investments in securities.
8
<PAGE>
ADVANTUS MORTGAGE SECURITIES FUND
INVESTMENTS IN SECURITIES - CONTINUED
<TABLE>
<CAPTION>
MARKET
SHARES VALUE(a)
------------- ------------
<C> <S> <C>
PREFERRED STOCK (1.0%)
FINANCIAL (1.0%)
Real Estate Investment Trust (1.0%)
11,000 Duke Realty Investments, Inc.-7.99%............................. $ 501,187
------------
Total preferred stock (cost: $550,000).......................... 501,187
------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
-------------
<C> <S> <C> <C> <C>
SHORT-TERM SECURITIES (1.3%)
$ 649,690 Federated Prime Obligation Fund, current rate 4.860%............ 649,690
------------
Total short-term securities (cost: $649,690).................... 649,690
------------
Total investments in securities (cost: $50,080,920)(g).......... $ 50,569,185
------------
------------
</TABLE>
Notes to Investments in Securities
- -----------------------------------
(a) Securities are valued by procedures described in note 2 to the financial
statements.
(b) The Fund held 1.6% of the net assets in foreign securities as of March 31,
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 March 31, 1999.
(d) At March 31, 1999 the total cost of investments issued on a when-issued or
forward commitment basis is $1,294,211.
(e) Represents ownership in a restricted security which has not been registered
with the Security and Exchange Commission under the Securities Act of 1933.
(See note 6 to the financial statements.) Information concerning the
restricted securities held at March 31, 1999, which includes acquisition
date and cost, is as follows:
<TABLE>
<CAPTION>
ACQUISITION
SECURITY: DATE COST
- --------------------------------------------------------------------- ----------- ------------
<S> <C> <C>
Asset Securitization Corporation..................................... various $ 1,679,460
Banco Hipotecario Nacional 144A Issue*............................... various 838,558
CSFB Finance Company 144A Issue*..................................... various 1,145,969
GE Capital Mortgage Securities 144A Issue*........................... various 1,229,764
Prudential Home Mortgage Securities 144A Issue*...................... 04/01/99 853,934
Securitized Asset Sales, Inc......................................... 02/20/99 634,055
------------
$ 6,381,740
------------
------------
</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 March 31, 1999 the cost of securities for federal income tax purposes was
$50,081,994. The aggregate unrealized appreciation and depreciation of
investments in securities based on this cost were:
<TABLE>
<S> <C>
Gross unrealized appreciation.................................................... $ 876,973
Gross unrealized depreciation.................................................... (389,782)
-------------
Net unrealized appreciation...................................................... $ 487,191
-------------
-------------
</TABLE>
9
<PAGE>
ADVANTUS Mortgage Securities Fund
Statement of Assets and Liabilities
March 31, 1999
(UNAUDITED)
<TABLE>
<CAPTION>
ASSETS
<S> <C>
Investments in securities, at market value - see
accompanying schedule for detailed listing
(identified cost: $50,080,920)............................. $ 50,569,185
Cash in bank on demand deposit.............................. 897,619
Receivable for Fund shares sold............................. 135,400
Receivable for investment securities sold................... 2,490,894
Accrued interest receivable................................. 440,626
Other receivable............................................ 8,345
--------------
Total assets............................................ 54,542,069
--------------
<CAPTION>
LIABILITIES
<S> <C>
Payable for investment securities purchased................. 2,890,695
Payable for Fund shares redeemed............................ 54,855
Cash portion of dividends payable to shareholders........... 91,512
Payable to Adviser.......................................... 55,573
--------------
Total liabilities....................................... 3,092,635
--------------
Net assets applicable to outstanding capital stock.......... $ 51,449,434
--------------
--------------
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)........................................ $ 48,566
Additional paid-in capital................................ 51,319,603
Distributions in excess of net investment income.......... (7,222)
Accumulated net realized losses from investments.......... (399,778)
Unrealized appreciation on investments.................... 488,265
--------------
Total - representing net assets applicable to
outstanding capital stock............................... $ 51,449,434
--------------
--------------
Net assets applicable to outstanding Class A shares......... $ 34,099,268
--------------
--------------
Net assets applicable to outstanding Class B shares......... $ 12,644,835
--------------
--------------
Net assets applicable to outstanding Class C shares......... $ 4,705,331
--------------
--------------
Shares outstanding and net asset value per share:
Class A - Shares outstanding 3,220,634.................... $ 10.59
--------------
--------------
Class B - Shares outstanding 1,191,749.................... $ 10.61
--------------
--------------
Class C - Shares outstanding 444,238...................... $ 10.59
--------------
--------------
</TABLE>
See accompanying notes to financial statements.
10
<PAGE>
ADVANTUS MORTGAGE SECURITIES FUND
STATEMENT OF OPERATIONS
FOR THE SIX-MONTH PERIOD ENDED MARCH 31, 1999
(UNAUDITED)
<TABLE>
<S> <C>
Investment income:
Interest.................................................. $1,804,935
Dividends................................................. 43,710
----------
Total investment income............................... 1,848,645
----------
Expenses (note 4):
Investment advisory fee................................... 141,128
Rule 12b-1 fees - Class A................................. 46,942
Rule 12b-1 fees - Class B................................. 57,079
Rule 12b-1 fees - Class C................................. 22,384
Administrative services fee............................... 26,200
Custodian fees............................................ 6,034
Auditing and accounting services.......................... 9,650
Legal fees................................................ 4,750
Directors' fees........................................... 391
Registration fees......................................... 21,493
Printing and shareholder reports.......................... 21,851
Insurance................................................. 1,798
Other..................................................... 2,010
----------
Total expenses........................................ 361,710
----------
Less fees and expenses waived or absorbed:
Rule 12b-1 fees......................................... (5,448)
Other fund expenses..................................... (63,496)
----------
Total fees and expenses waived or absorbed............ (68,944)
----------
Total net expenses.................................... 292,766
----------
Investment income - net............................... 1,555,879
----------
Realized and unrealized gains (losses) on investments:
Net realized gains on investments (note 3)................ 68,632
Net change in unrealized appreciation or depreciation on
investments............................................. (799,193)
----------
Net losses on investments............................. (730,561)
----------
Net increase in net assets resulting from operations........ $ 825,318
----------
----------
</TABLE>
See accompanying notes to financial statements.
11
<PAGE>
ADVANTUS MORTGAGE SECURITIES FUND
STATEMENTS OF CHANGES IN NET ASSETS
FOR THE SIX-MONTH PERIOD ENDED MARCH 31, 1999 AND YEAR ENDED SEPTEMBER 30, 1998
(UNAUDITED)
<TABLE>
<CAPTION>
1999 1998
----------- -----------
<S> <C> <C>
Operations:
Investment income - net.............. $ 1,555,879 $ 2,432,701
Net realized gain on investements.... 68,632 585,744
Net change in unrealized appreciation
or depreciation on investments..... (799,193) 392,690
----------- -----------
Increase in net assets resulting
from operations................ 825,318 3,411,135
----------- -----------
Distributions to shareholders from:
Investment income - net:
Class A............................ (1,095,868) (1,866,254)
Class B............................ (335,830) (428,822)
Class C............................ (131,403) (161,070)
Net realized gains on investments
(notes 4 and 5):
Class A............................ -- (99,215)
Class B............................ -- (30,946)
Class C............................ -- (12,017)
----------- -----------
Total distributions.............. (1,563,101) (2,598,324)
----------- -----------
Capital share transactions:
Proceeds from sales:
Class A............................ 4,188,618 9,621,075
Class B............................ 3,510,178 6,091,960
Class C............................ 2,339,499 4,378,096
Proceeds from issuance of shares as a
result of reinvested dividends:
Class A............................ 722,363 1,276,840
Class B............................ 282,407 368,689
Class C............................ 117,845 146,111
Payments for redemption of shares:
Class A............................ (2,580,520) (7,308,009)
Class B............................ (1,062,927) (2,624,311)
Class C............................ (2,020,369) (2,429,147)
----------- -----------
Increase in net assets from
capital share transactions..... 5,497,094 9,521,304
----------- -----------
Total increase in net assets..... 4,759,311 10,334,115
Net assets at beginning of period...... 46,690,123 36,356,008
----------- -----------
Net assets at end of period (including
(distributions in excess)
undistributed net investment income
of ($7,222) and $0, respectively).... $51,449,434 $46,690,123
----------- -----------
----------- -----------
</TABLE>
See accompanying notes to financial statements.
12
<PAGE>
ADVANTUS MORTGAGE SECURITIES FUND
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1998
(UNAUDITED)
(1) ORGANIZATION
The Advantus Mortgage Securities Fund, Inc. (the Fund) is registered under
the Investment Company Act of 1940 (as amended) as a diversified, open-end
management investment company. 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 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 are subject to market
fluctuations. As of March 31, 1999, the Fund had entered into outstanding
when-issued or forward commitments of $1,294,211. The Fund has segregated
assets, with the Fund's custodian, to cover such when-issued and forward
commitment transactions.
13
<PAGE>
ADVANTUS MORTGAGE SECURITIES FUND
NOTES TO FINANCIAL STATEMENTS - CONTINUED
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - (CONTINUED)
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 $467,336 which, if not offset by subsequent capital gains, will
expire September 30, 2003. It is unlikely the Board of Directors will authorize
a distribution of any net realized capital gain until the available capital loss
carryover has been offset or expires.
DISTRIBUTIONS TO SHAREHOLDERS
Dividends from net investment income are declared daily and paid monthly in
cash or reinvested in additional shares. Realized gains, if any, are paid
annually.
(3) INVESTMENT SECURITY TRANSACTIONS
For the period from October 1, 1998 to March 31, 1999, purchases of
securities and proceeds from sales, other than temporary investments in
short-term securities aggregated $38,397,920 and $34,705,777, 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), formerly The Minnesota Mutual
Life Insurance Company. 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 .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 Rule 12b-1
fees waived was $5,448.
14
<PAGE>
ADVANTUS MORTGAGE SECURITIES FUND
NOTES TO FINANCIAL STATEMENTS - CONTINUED
(4) EXPENSES AND RELATED PARTY TRANSACTIONS - (CONTINUED)
The Fund also bears certain other operating expenses including outside
directors' fees, custodian fees, registration fees, printing and shareholder
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 equal to $5,700 per month 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. 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 period ended March 31,
1999, Advantus Capital voluntarily agreed to absorb $63,496 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 $53,981.
As of March 31, 1999, Minnesota Life and subsidiaries and the directors and
officers of the Fund as a whole owned 639,981 Class A shares which represents
19.9 percent of the total outstanding Class A shares.
Legal fees were paid to a law firm of which the Funds secretary is a partner
in the amount of $4,750.
(5) CAPITAL SHARE TRANSACTIONS
Transactions in shares for the period from October 1, 1998 to March 31, 1999
and the year ended September 30, 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...................................... 393,309 903,705 329,261 571,435 219,828 410,305
Issued for reinvested distributions....... 67,927 119,619 26,499 34,443 11,077 13,630
Redeemed.................................. (242,759) (685,656) (99,796) (245,853) (190,323) (227,658)
--------- --------- --------- --------- --------- ---------
218,477 337,668 255,964 360,025 40,582 196,277
--------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- ---------
</TABLE>
(6) RESTRICTED SECURITIES
At March 31, 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). In the event the securities
are registered, those carrying registration rights allow for the issuer to bear
all the related costs; for issues without rights, the Fund may incur such costs.
The Fund currently limits investments in securities that are not readily
marketable, including restricted securities, to 10% of net assets at the time of
the purchase. Securities are valued by procedures described in note 2. The
aggregate value of restricted securities held by the Fund at March 31, 1999 was
$6,110,374 which represents 11.9% of net assets.
(7) YEAR 2000
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 $14 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.
15
<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
-----------------------------------------------------------------------------------------------
PERIOD FROM PERIOD FROM
OCTOBER 1, NOVEMBER 1,
1998 TO YEAR ENDED SEPTEMBER 30, 1993 TO YEAR ENDED
MARCH 31, -------------------------------------------- SEPTEMBER 30, OCTOBER 31,
1999 1998 1997 1996 1995(a) 1994(b) 1993
------------- -------- -------- -------- -------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of
period...................... $ 10.75 $ 10.54 $ 10.23 $ 10.36 $ 9.70 $ 11.06 $ 10.94
------------- -------- -------- -------- -------- ------------- -------------
Income from investment
operations:
Net investment income....... .35 .64 .70 .62 .62 .53 .63
Net gains (losses) on
securities (both realized
and unrealized)........... (.16) .25 .33 (.13) .65 (.99) .55
------------- -------- -------- -------- -------- ------------- -------------
Total from investment
operations.............. .19 .89 1.03 .49 1.27 (.46) 1.18
------------- -------- -------- -------- -------- ------------- -------------
Less distributions:
Dividends from net
investment income......... (.35) (.65) (.72) (.62) (.61) (.53) (.63)
Distributions from capital
gains..................... -- -- -- -- -- (.37) (.43)
Tax return of capital....... -- (.03) -- -- -- -- --
------------- -------- -------- -------- -------- ------------- -------------
Total distributions....... (.35) (.68) (.72) (.62) (.61) (.90) (1.06)
------------- -------- -------- -------- -------- ------------- -------------
Net asset value, end of
period...................... $ 10.59 $ 10.75 $ 10.54 $ 10.23 $ 10.36 $ 9.70 $ 11.06
------------- -------- -------- -------- -------- ------------- -------------
------------- -------- -------- -------- -------- ------------- -------------
Total return(d)............... 1.61% 8.73% 10.37% 4.83% 13.53% (4.34)% 11.43%
Net assets, end of period (in
thousands).................. $34,099 $ 32,268 $ 28,089 $ 23,692 $ 25,317 $27,105 $27,073
Ratio of expenses to average
daily net assets(e)......... .95%(f) .95% .95% 1.26% 1.29% 1.24%(f) 1.17%
Ratio of net investment income
(loss) to average daily net
assets(e)................... 6.57%(f) 6.02% 6.77% 6.05% 6.23% 5.73%(f) 5.77%
Portfolio turnover rate
(excluding short-term
securities)................. 72.2% 152.5% 85.1% 125.2% 203.7% 236.2% 135.0%
</TABLE>
- ------------
(a) Effective March 1, 1995, the Fund entered into a new investment advisory
agreement with Advantus Capital Management, Inc. Prior to March 1, 1995,
the Fund had an investment advisory agreement with MIMLIC Asset Management
Company.
(b) During 1994, the Fund changed its fiscal year end from October 31 to
September 30.
(c) Commencement of operations.
(d) Total return figures are based on a share outstanding throughout the period
and assume reinvestment of distributions at net assets value. Total return
figures do not reflect the impact of front-end or contingent deferred sales
charges. For periods less than one year, total returns presented are not
annualized.
(e) The Fund's Adviser and Distributor voluntarily waived or absorbed $68,944,
$134,706, $121,780, $35,718, $36,128, $43,505 and $34,773 in expenses for
the period ended March 31, 1999, the years ended September 30, 1998, 1997,
1996 and 1995, the period ended September 30, 1994 and the year ended
October 31, 1993, respectively. If Class A shares had been charged for
these expenses, the ratio of expenses to average daily net assets would
have been 1.27%, 1.29%, 1.37%, 1.40%, 1.42%, 1.41%, and 1.31%,
respectively; and the ratio of net investment income to average daily net
assets would have been 6.28%, 5.68%, 6.35%, 5.91%, 6.10%, 5.56%, and 5.63%,
respectively. If Class B shares had been charged for these expenses, the
ratio of expenses to average daily net assets would have been 1.96%, 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 5.60%, 5.04%, 5.71%,
5.30%, and 5.26% for the period ended March 31, 1999, and the years ended
September 30, 1998, 1997, 1996 and 1995, respectively. If Class C shares
had been charged for the expenses, the ratio of expenses to average daily
net assets would have been 1.96%, 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 5.60%, 5.11%, 5.74%, 5.32% and 5.20% for the period
ended March 31, 1999, and the years ended September 30, 1998, 1997, 1996
and the period ended September 30, 1995, respectively.
(f) Adjusted to an annual basis.
(g) Ratios presented for the period from August 19, 1994 to September 30, 1994
are not annualized as they are not indicative of anticipated results.
16
<PAGE>
ADVANTUS MORTGAGE SECURITIES FUND
NOTES TO FINANCIAL STATEMENTS - CONTINUED
<TABLE>
<CAPTION>
CLASS B
------------------------------------------------------------------------------
PERIOD FROM PERIOD FROM
OCTOBER 1, AUGUST 19,
1998 TO YEAR ENDED SEPTEMBER 30, 1994(c) TO
MARCH 31, -------------------------------------------- SEPTEMBER 30,
1999 1998 1997 1996 1995(a) 1994
------------- -------- -------- -------- -------- -------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of
period...................... $ 10.77 $ 10.56 $ 10.24 $ 10.37 $ 9.70 $ 9.83
------------- -------- -------- -------- -------- -------------
Income from investment
operations:
Net investment income....... .31 .57 .63 .54 .53 .06
Net gains (losses) on
securities (both realized
and unrealized)........... (.16) .24 .33 (.13) .67 (.13)
------------- -------- -------- -------- -------- -------------
Total from investment
operations.............. .15 .81 .96 .41 1.20 (.07)
------------- -------- -------- -------- -------- -------------
Less distributions:
Dividends from net
investment income......... (.31) (.57) (.64) (.54) (.53) (.06)
Distributions from capital
gains..................... -- -- -- -- -- --
Tax return of capital....... -- (.03) -- -- -- --
------------- -------- -------- -------- -------- -------------
Total distributions....... (.31) (.60) (.64) (.54) (.53) (.06)
------------- -------- -------- -------- -------- -------------
Net asset value, end of
period...................... $ 10.61 $ 10.77 $ 10.56 $ 10.24 $ 10.37 $ 9.70
------------- -------- -------- -------- -------- -------------
------------- -------- -------- -------- -------- -------------
Total return(d)............... 1.23% 7.92% 9.65% 4.06% 12.74% (.72)%
Net assets, end of period (in
thousands).................. $12,645 $ 10,079 $ 6,079 $ 3,375 $ 1,084 $ 60
Ratio of expenses to average
daily net assets(e)......... 1.70%(f) 1.70% 1.70% 2.01% 2.05% .28%(g)
Ratio of net investment income
(loss) to average daily net
assets(e)................... 5.86%(f) 5.33% 6.08% 5.38% 5.32% .60%(g)
Portfolio turnover rate
(excluding short-term
securities)................. 72.2% 152.5% 85.1% 125.2% 203.7% 236.2%
<CAPTION>
CLASS C
------------------------------------------------------------------
PERIOD FROM PERIOD FROM
OCTOBER 1, MARCH 1,
1998 TO YEAR ENDED SEPTEMBER 30, 1995(c) TO
MARCH 31, -------------------------------- SEPTEMBER 30,
1999 1998 1997 1996 1995
------------- -------- -------- -------- -------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of
period...................... $ 10.76 $ 10.55 $ 10.23 $ 10.37 $ 9.90
------------- -------- -------- -------- -------------
Income from investment
operations:
Net investment income....... .31 .57 .63 .54 .31
Net gains (losses) on
securities (both realized
and unrealized)........... (.17) .24 .33 (.14) .47
------------- -------- -------- -------- -------------
Total from investment
operations.............. .14 .81 .96 .40 .78
------------- -------- -------- -------- -------------
Less distributions:
Dividends from net
investment income......... (.31) (.57) (.64) (.54) (.31)
Distributions from capital
gains..................... -- -- -- -- --
Tax return of capital....... -- (.03) -- -- --
------------- -------- -------- -------- -------------
Total distributions....... (.31) (.60) (.64) (.54) (.31)
------------- -------- -------- -------- -------------
Net asset value, end of
period...................... $ 10.59 $ 10.76 $ 10.55 $ 10.23 $ 10.37
------------- -------- -------- -------- -------------
------------- -------- -------- -------- -------------
Total return(d)............... 1.04% 7.92% 9.66% 4.07% 7.91%
Net assets, end of period (in
thousands).................. $ 4,705 $ 4,343 $ 2,187 $ 1,139 $ 321
Ratio of expenses to average
daily net assets(e)......... 1.70%(f) 1.70% 1.70% 2.01% 2.05%(f)
Ratio of net investment income
(loss) to average daily net
assets(e)................... 5.86%(f) 5.40% 6.11% 5.39% 5.26%(f)
Portfolio turnover rate
(excluding short-term
securities)................. 72.2% 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) During 1994, the Fund changed its fiscal year end from October 31 to
September 30.
(c) Commencement of operations.
(d) Total return figures are based on a share outstanding throughout the period
and assume reinvestment of distributions at net assets value. Total return
figures do not reflect the impact of front-end or contingent deferred sales
charges. For periods less than one year, total returns presented are not
annualized.
(e) The Fund's Adviser and Distributor voluntarily waived or absorbed $68,944,
$134,706, $121,780, $35,718, $36,128, $43,505 and $34,773 in expenses for
the period ended March 31, 1999, the years ended September 30, 1998, 1997,
1996 and 1995, the period ended September 30, 1994 and the year ended
October 31, 1993, respectively. If Class A shares had been charged for
these expenses, the ratio of expenses to average daily net assets would
have been 1.27%, 1.29%, 1.37%, 1.40%, 1.42%, 1.41%, and 1.31%,
respectively; and the ratio of net investment income to average daily net
assets would have been 6.28%, 5.68%, 6.35%, 5.91%, 6.10%, 5.56%, and 5.63%,
respectively. If Class B shares had been charged for these expenses, the
ratio of expenses to average daily net assets would have been 1.96%, 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 5.60%, 5.04%, 5.71%,
5.30%, and 5.26% for the period ended March 31, 1999, and the years ended
September 30, 1998, 1997, 1996 and 1995, respectively. If Class C shares
had been charged for the expenses, the ratio of expenses to average daily
net assets would have been 1.96%, 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 5.60%, 5.11%, 5.74%, 5.32% and 5.20% for the period
ended March 31, 1999, and the years ended September 30, 1998, 1997, 1996
and the period ended September 30, 1995, respectively.
(f) Adjusted to an annual basis.
(g) Ratios presented for the period from August 19, 1994 to September 30, 1994
are not annualized as they are not indicative of anticipated results.
17
<PAGE>
SHAREHOLDER SERVICES
The Advantus Family of Funds offers a variety of services that enhance your
ability to manage your assets. Check each Fund's prospectus for the details of
the services and any limitations that apply to a particular Fund.
EXCHANGE PRIVILEGES: You can move all or part of your investment dollars from
one fund to any other Advantus Fund you own (for identical registrations within
the same 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.
SPECIAL PURCHASE PLANS: 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.) The Automatic Investment Plan allows
you to invest automatically monthly, semi-monthly or quarterly from your
checking or savings account.
IRAS, OTHER QUALIFIED PLAN: You can use the Advantus Family of Funds for your
Traditional or Roth Individual Retirement Account or other qualified plan
including: SEP IRA's, SIMPLE IRA's, Profit Sharing, 401(k) 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 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
18
<PAGE>
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 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 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. (For the Advantus International Balanced Fund, Inc., the
sub-adviser, Templeton Investment Counsel, Inc., selects the Fund's
investments.)
Advantus Capital Management, Inc. manages thirteen 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>
ASCEND FINANCIAL SERVICES, INC.
400 ROBERT STREET NORTH [LOGO]
ST. PAUL, MN 55101-2098
ADDRESS SERVICE REQUESTED
F.48640 Rev. 5-1999
