<PAGE>
MORTGAGE
ADVANTUS MORTGAGE SECURITIES FUND
SEMI-ANNUAL REPORT TO SHAREHOLDERS DATED MARCH 31, 2000
[LOGO]
FIXED [GRAPHIC]
INCOME
<PAGE>
ADVANTUS Mortgage Securities Fund
TABLE OF CONTENTS
<TABLE>
<S> <C>
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
</TABLE>
<PAGE>
Letter from the President [PHOTO]
Dear Shareholder:
Americans are enjoying the longest period of economic expansion in U.S. history.
This period of growth, which began in March of 1992, recorded its eighth year of
uninterrupted growth in March. To date, the Federal Reserve's actions to slow
the nation's growth engine have not dramatically impacted the upward trend.
Despite the run-up in interest rates over the past year, housing starts and auto
sales, indicators of a robust economy, remain strong.
Around the globe we are seeing economic growth accelerate, albeit at a modest
pace. Asia is rapidly recovering from the economic debacle of the late 90s. The
Bank of Japan has kept interest rates near zero to further assist that country's
recovery. In Europe, the Central Bank raised rates to support a weak euro and
guard against inflation. Latin American economies, such as Brazil, are showing
signs of increasing strength (e.g., lower inflation, job creation). No country
comes close to the sustained economic vigor of the U.S., but many of the world's
economies are growing.
Volatility in the stock market was frequent and dramatic throughout the
six-months, with the wildest of the ride coming in early April, shortly after
this reporting period ended. The first calendar quarter of the new millennium
was a time of contrasts. For the first two months, the broad market was slightly
down, with the growth sector of technology rising and the value sectors of the
market falling. March was a reversal, with a strong rally in traditional value
stocks and a pullback in the technology arena, adding to the market tumult.
Technology, however, continues to drive the increased spending in businesses. As
tech spending increases, so does productivity.
Interest rates also showed a mixed picture. The Federal Reserve raised the Fed
Funds rate five times between June 1999 and March 2000. Each time only
.25 percent, a cumulative increase of 1.25 percent over this 10-month period.
However, longer maturity Treasury bond prices rose and their yields declined as
the U.S. Treasury used some of the budget surplus to begin buying back Treasury
bonds. Meanwhile, corporate bond yields increased.
In the pages that follow, your Fund's portfolio manager will give you his
insight on the Fund's performance for this reporting period. Also, we are
pleased to announce that you can now access your Advantus Funds data online
through the Advantus web site: www.advantusfunds.com. To learn how you can
access your Advantus Fund information through our internet site, call Advantus
Shareholder Services at 1-800-665-6005.
We value your business and want to make doing business with us as easy for you
as possible. 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
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, 2000 was as follows for the three classes of shares
currently outstanding:
<TABLE>
<S> <C>
Class A..... 2.25 percent*
Class B..... 1.87 percent*
Class C..... 1.87 percent*
</TABLE>
The Fund's benchmark index, the Lehman Brothers Mortgage-Backed Securities
Index** returned 1.77% for the same period.
Performance Analysis
Treasury yields and mortgage securities have been on a roller coaster ride over
the past six months. During the first half of the period--October through
December--spread products (i.e., mortgages and corporate bonds) ruled as
Treasury yields rose and SPREADS fell. Spread, in this context, is the
difference in yield between a like-maturity Treasury security and a mortgage
security. Unfortunately for the spread sectors (mortgages, corporate bonds, and
agency securities), the second half of the ride was a different story. The
Treasury market came roaring back as yields plunged, while spreads climbed
higher.
The Federal Reserve and the Treasury Department played key roles in the
emergence of this constant tug-a-war between Treasury yields and mortgage
spreads. First, the Federal Reserve continued to raise the hurdle on short-term
interest rates as part of an ongoing effort to calm the market's fear of
heightened inflation pressures. Second, the Treasury Department's debt buy back
program proved to be long and larger than anticipated and ushered in an inverted
yield curve.
The arrival of an inverted yield curve where long-term interest rates are less
than short-term interest rates was not only a surprise, but a rare event.
Inverted yield curves have only been observed three times in the past 20 years.
Nevertheless, the inversion proved hard to handle as it produced significant
turbulence in all sectors of the fixed income market. This turbulence became
even more gut-wrenching as the Treasury Department announced new legislation
that could materially affect the way that some giant government sponsored
entities, such as Fannie Mae (Federal National Mortgage Association) and Freddie
Mac (Federal Home Loan Mortgage Corporation) operate.
These second half events left all spread sectors feeling ill as the trend was
clearly toward wider spreads and lower prices relative to Treasuries. This
growing gap ultimately led to the under performance of most spread sectors in
the first quarter 2000. The good news is that these sectors are attractively
priced and offer historically large yield pick-ups over Treasury securities.
At the end of this reporting period, the Fund remains broadly diversified as
evidenced by the breadth and depth of our asset allocation: 49 percent in
2
<PAGE>
Collateralized Mortgage Obligations; 30 percent in Residential-Backed
Securities; 14 percent in Commercial Mortgage-Backed Securities; 5 percent in
Asset-Backed Securities, and 2 percent in Corporate and Preferred Stock.
Several investment themes influenced the relative performance of the Fund:
1) Early in 2000, as yields approached a three-year high, we extended the
duration of the portfolio to 105 percent of the Lehman Mortgage Index
(approximately 4.2 years). Yields subsequently ended the reporting period
lower, which boosted returns.
2) Several of our whole loan mortgage securities received credit up-grades that
allowed their spread to tighten and prices to rise, all things being equal.
3) We were underweighted in Fannie Mae and Freddie Mac securities, which
underperformed other mortgage securities, especially Ginnie Mae. (Government
National Mortgage Association).
4) We were overweighted in Ginnie Mae securities, which put in their best
relative quarterly performance in over two years.
Outlook
We remain optimistic about our outlook for the mortgage market:
1) Yield spread advantages over Treasuries are at distressed levels. We have
not seen yields this high since 1997 or spreads this wide since the global
liquidity crisis of 1998. Remember one of the mortgage markets best relative
performance runs in recent history followed in 1999.
2) Prepayment fundamentals continue to be strong. Housing turnover is running
at a healthy pace; this is indeed a positive as most mortgage securities
trade at a discount dollar price. Refinancing activity remains strong.
3) Credit fundamentals on prime quality residential and commercial mortgage
securities remains solid.
-- Mortgage securities tend to carry broad diversification and are not
subject to "event risk" due to a leveraged buy out of the issuer.
-- While real estate may still be an OLD economy industry, the value of
residential homes, and therefore mortgages securities, are fueled by the
growth of the new economy.
-- Housing values have seen tremendous appreciation over the last three to
five years and credit upgrades continue to dominate rating agency
activities.
We forsee that the Federal Reserve is likely to maintain its gradualist approach
to raising short-term interest rates until either the consumer or the stock
market cries uncle. Until then, the spread sectors of the fixed income market
likely have no choice but to maintain their ring side seats. Once the Federal
Reserve is declared victor, liquidity should improve and send high volatility to
the showers. The combination of these events should allow spreads to tighten and
return the mortgage market to its championship form.
*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. If these charges were reflected, performance would be reduced.
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, 1990 through March 31, 2000.
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, 2000.
CLASS A
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURN:
<S> <C>
Class A:
One year -2.00%
Five year 6.23%
Ten year 7.26%
</TABLE>
(Thousands)
<TABLE>
<CAPTION>
CLASS A CPI LEHMAN BROTHERS MORTGAGE-BACKED SECURITIES INDEX
<S> <C> <C> <C>
3/31/90 $10,000 $10,000 $10,000
10/31/90 $10,088 $10,357 $10,652
10/31/91 $11,703 $10,660 $12,454
10/31/92 $12,662 $11,002 $13,469
10/31/93 $14,109 $11,297 $14,532
9/30/94 $13,497 $11,638 $14,300
9/30/95 $15,323 $11,894 $16,234
9/30/96 $16,062 $12,252 $17,176
9/30/97 $17,728 $12,523 $18,899
9/30/98 $19,276 $12,702 $20,530
9/30/99 $19,712 $13,036 $20,994
3/31/00 $20,154 $13,292 $21,365
</TABLE>
CLASS B
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURN:
CLASS B:
<S> <C>
One year -3.14%
Five year 6.22%
Since inception (8/19/94) 6.31%
</TABLE>
(Thousands)
<TABLE>
<CAPTION>
LEHMAN BROTHERS MORTGAGE-BACKED
CLASS B CPI SECURITIES INDEX
<S> <C> <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
3/30/99 $13,841 $11,276 $14,495
3/31/00 $14,102 $11,498 $14,752
</TABLE>
4
<PAGE>
CLASS C
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURN:
CLASS C:
<S> <C>
One year 1.95%
Five year 6.42%
Since inception (3/1/95) 6.45%
</TABLE>
(Thousands)
<TABLE>
<CAPTION>
LEHMAN BROTHERS MORTGAGE-BACKED
CLASS C CPI SECURITIES INDEX
<S> <C> <C> <C>
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 $11,419
9/30/97 $12,314 $10,682 $12,565
9/30/98 $13,290 $10,834 $13,649
9/30/99 $13,489 $11,119 $13,957
3/31/00 $13,741 $11,338 $14,204
</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. 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>
Preferred Stock (1.0%)
Cash and Other
Assets/Liabilities (1.2%)
FNMA (12.4%)
FHLMC (0.9%)
Other Mortgage-Backed Securities (66.6%)
GNMA (14.3%)
Vendee Mortgage Trust (3.6%)
</TABLE>
SOLID LIQUIDITY
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<S> <C>
Cash and Other Assets/Liabilities (1.2%)
Preferred Stock (1.0%)
Private 144A and Other Illquid Issues (12.1%)
Public Issues (85.7%)
</TABLE>
HIGH QUALITY ASSETS
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<S> <C>
AAA Rated (45.1%)
AA Rated (12.2%)
A Rated (14.5%)
BBB Rated (23.1%)
BB Rated (2.9%)
Cash and Other Assets/Liabilities (1.2%)
Preferred Stock (1.0%)
</TABLE>
6
<PAGE>
ADVANTUS MORTGAGE SECURITIES FUND
INVESTMENTS IN SECURITIES
MARCH 31, 2000
(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 (97.8%)
U.S. GOVERNMENT AND AGENCIES OBLIGATIONS (42.0%)
Federal Home Loan Mortgage Corporation (FHLMC) (.9%)
$ 455,886 ................................................. 6.500% 12/01/23 $ 428,807
-----------
Federal National Mortgage Association (FNMA) (12.4%)
500,000 ................................................. 6.500% 11/01/29 468,972
1,100,000 (d).............................................. 7.500% 01/01/30 1,080,750
250,000 (d).............................................. 7.500% 01/01/30 245,625
250,000 (d).............................................. 7.500% 01/01/30 245,625
1,845,788 ................................................. 6.500% 05/01/28 1,732,370
705,528 ................................................. 6.500% 10/01/28 663,336
546,880 ................................................. 7.000% 02/01/29 527,794
985,218 ................................................. 7.000% 09/01/29 947,151
-----------
5,911,623
-----------
Government National Mortgage Association (GNMA) (14.3%)
558,995 ................................................. 6.500% 11/15/28 527,680
1,251,176 ................................................. 6.500% 03/15/29 1,180,437
925,273 ................................................. 6.500% 03/15/29 872,960
644,706 ................................................. 7.000% 08/15/29 624,559
856,739 ................................................. 7.875% 05/15/17 886,776
493,203 ................................................. 6.500% 03/15/29 465,319
749,999 ................................................. 7.000% 03/15/29 726,563
399,999 ................................................. 7.000% 04/15/29 387,500
500,000 (d).............................................. 8.000% 01/01/30 505,312
600,000 (d).............................................. 8.000% 01/01/30 606,375
-----------
6,783,481
-----------
Mortgage Revenue Bonds (5.1%)
1,547,368 Chase Mortgage Finanace Corporation.............. 6.750% 02/25/25 1,453,210
322,573 First Union Residential.......................... 7.661% 09/25/26 303,893
726,149 Residential Funding Mortgage..................... 7.000% 05/25/12 687,039
-----------
2,444,142
-----------
Vendee Mortgage Trust (3.6%)
1,066,426 (c).............................................. 7.210% 02/15/25 1,041,141
645,660 (c).............................................. 7.793% 02/15/25 649,366
-----------
1,690,507
-----------
Whole Loan Mortgage-Backed (5.7%)
1,247,935 Countrywide Home Loans........................... 7.250% 02/25/28 1,182,144
1,684,507 Residential Funding Mortgage..................... 7.000% 10/25/27 1,528,421
-----------
2,710,565
-----------
Total U.S. government and agencies obligations
(cost: $18,710,203)................................................ 19,969,125
-----------
</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 (55.8%)
<C> <S> <C> <C> <C>
Asset-Backed Securities (2.6%)
$ 1,329,176 Banco Hipotecario Nacional-144A Issue (b)(e)..... 7.916% 07/25/09 $ 1,217,027
-----------
Collateralized Mortgage Obligations (.5%)
267,679 Collateralized Mortgage Trust.................... 5.000% 07/01/18 244,562
-----------
Commercial Mortgage-Backed Securities (10.4%)
-- Asset Securitization Corporation (e)(f).......... 13.116% 08/13/29 1,412,113
1,000,000 Covenant Retirement Community.................... 6.250% 12/01/22 977,710
1,000,000 Nomura Asset Securities Corporation.............. 7.160% 04/13/36 991,908
750,000 Nomura Asset Securities Corporation.............. 7.370% 04/13/36 743,664
832,000 Pleasant Hill Revenue Bond....................... 7.950% 09/20/15 847,386
-----------
4,972,781
-----------
Mortgage Revenue Bonds (2.7%)
690,000 California Housing Finance Agency................ 8.160% 02/01/28 703,206
250,000 Pennsylvania Housing Finance..................... 7.410% 10/01/17 250,324
317,400 Wyoming Community Development.................... 6.850% 06/01/10 311,738
-----------
1,265,268
-----------
Whole Loan Mortgage-Backed (39.6%)
1,277,929 Bear Stearns Mortgage Securities, Inc............ 6.750% 04/30/30 1,196,883
699,680 Bear Stearns Mortgage Securities, Inc............ 8.000% 11/25/29 690,214
1,712,422 Chase Mortgage Finance Corporation............... 6.750% 11/25/24 1,609,283
2,250,000 Countrywide Funding.............................. 7.000% 06/25/24 2,071,890
1,150,000 CSFB Finance Company-144A Issue (e).............. 5.977% 11/15/05 967,797
1,296,908 DLJ Mortgage Acceptance Corporation.............. 6.750% 01/25/24 1,198,434
514,183 GE Capital Mortgage Services, Inc................ 6.000% 04/25/09 488,513
695,674 GE Capital Mortgage Services, Inc................ 6.750% 09/25/12 641,843
1,246,021 GE Capital Mortgage Services, Inc................ 7.000% 03/25/26 1,179,072
606,201 Norwest Mortgage, Inc............................ 7.500% 12/25/26 574,109
1,050,312 Paine Webber Mortgage Acceptance Corporation..... 6.930% 02/25/24 983,754
605,440 Paine Webber Mortgage Acceptance Corporation..... 8.125% 07/25/09 593,034
1,132,989 Prudential Home Mortgage Securities.............. 6.050% 04/25/24 1,037,285
1,292,292 Prudential Home Mortgage Securities.............. 6.500% 10/25/23 1,224,278
1,263,067 Prudential Home Mortgage Securities.............. 6.500% 04/25/26 1,158,952
1,466,219 Residential Funding Mortgage..................... 7.000% 10/25/23 1,393,861
506,531 Residential Funding Mortgage..................... 7.250% 07/25/11 481,767
1,516,899 Securitized Asset Sales, Inc.-144A Issue (e)..... 6.808% 11/28/23 1,379,089
-----------
18,870,058
-----------
Total other mortgage-backed securities (cost: $28,958,407).......... 26,569,696
-----------
Total long-term debt securities (cost: $47,668,610)................. 46,538,821
-----------
</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%................................. $ 493,625
-----------
Total preferred stock (cost: $550,000).............................. 493,625
-----------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
---------
<C> <S> <C> <C> <C>
SHORT-TERM SECURITIES (6.3%)
$ 2,196,533 Federated Money Market Obligations Trust - Prime
Obligation Fund, current rate................... 5.800% 2,196,533
800,000 MidAmerica Energy, Commercial Paper.............. 6.147% 04/19/00 797,454
-----------
Total short-term securities (cost: $2,994,115)..................... 2,993,987
-----------
Total investments in securities (cost: $51,212,725) (g)............ $50,026,433
===========
</TABLE>
Notes to Investments in Securities
-----------------------------------
(a) Securities are valued by procedures described in note 2 to the financial
statements.
(b) The Fund held 2.6% of net assets in foreign securities as of March 31, 2000.
(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, 2000.
(d) At March 31, 2000 the total cost of investments issued on a when-issued or
forward commitment basis is $2,680,352.
(e) Represents ownership in an illiquid security. (See note 6 to the financial
statements.) Information concerning the illiquid securities held at
March 31, 2000, which includes acquisition date and cost, is as follows:
<TABLE>
<CAPTION>
ACQUISITION
SECURITY: DATE COST
--------- ----------- ---------------
<S> <C> <C>
Asset Securitization Corporation....................................... various $ 2,026,439
Banco Hipotecario Nacional 144A Issue*................................. various 1,185,555
CSFB Finance Company 144A Issue*....................................... various 1,145,969
Securitized Asset Sales, Inc. 144A Issue*.............................. various 1,395,488
---------------
$ 5,753,451
===============
* A 144A Issue represents a security which has not been registered with the Securities and Exchange
Commission under the Securities Act of 1933.
</TABLE>
(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, 2000 the cost of securities for federal income tax purposes was
$51,230,293. The aggregate unrealized appreciation and depreciation of
investments in securities based on this cost were:
<TABLE>
<S> <C>
Gross unrealized appreciation...................................................... $ 237,526
Gross unrealized depreciation...................................................... (1,441,386)
---------
Net unrealized depreciation........................................................ $(1,203,860)
=========
</TABLE>
9
<PAGE>
ADVANTUS MORTGAGE SECURITIES FUND
STATEMENT OF ASSETS AND LIABILITIES
MARCH 31, 2000
(UNAUDITED)
<TABLE>
<S> <C>
ASSETS
Investments in securities, at market
value - see accompanying schedule for
detailed listing
(identified cost: $51,212,725)........ $50,026,433
Cash in bank on demand deposit......... 5,461
Receivable for Fund shares sold........ 23,598
Receivable for investment securities
sold.................................. 476,753
Accrued interest receivable............ 331,386
----------
Total assets....................... 50,863,631
----------
LIABILITIES
Payable for investment securities
purchased............................. 3,067,098
Payable for Fund shares redeemed....... 63,977
Dividends payable to shareholders...... 74,089
Payable to Adviser..................... 48,849
----------
Total liabilities.................. 3,254,013
----------
Net assets applicable to outstanding
capital stock......................... $47,609,618
==========
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....... $ 46,758
Additional paid-in capital........... 49,481,414
Distributions in excess of net
investment income.................... (136,266)
Accumulated net realized losses from
investments.......................... (595,996)
Unrealized depreciation on
investments.......................... (1,186,292)
----------
Total - representing net assets
applicable to outstanding capital
stock.............................. $47,609,618
==========
Net assets applicable to outstanding
Class A shares........................ $30,879,439
==========
Net assets applicable to outstanding
Class B shares........................ $13,569,479
==========
Net assets applicable to outstanding
Class C shares........................ $3,160,700
==========
Shares outstanding and net asset value
per share:
Class A - Shares outstanding
3,034,651............................ $ 10.18
==========
Class B - Shares outstanding
1,330,810............................ $ 10.20
==========
Class C - Shares outstanding
310,328.............................. $ 10.19
==========
</TABLE>
See accompanying notes to financial statements.
10
<PAGE>
ADVANTUS MORTGAGE SECURITIES FUND
STATEMENT OF OPERATIONS
PERIOD FROM OCTOBER 1, 1999 TO MARCH 31, 2000
(UNAUDITED)
<TABLE>
<S> <C>
Investment income:
Interest............................. $1,864,768
Dividends............................ 20,412
---------
Total investment income.......... 1,885,180
---------
Expenses (note 4):
Investment advisory fee.............. 144,151
Rule 12b-1 - Class A................. 40,389
Rule 12b-1 - Class B................. 69,230
Rule 12b-1 - Class C................. 19,910
Administrative services fee.......... 37,200
Custodian fees....................... 3,184
Auditing and accounting services..... 11,397
Legal fees........................... 4,000
Directors' fees...................... 493
Registration fees.................... 25,057
Printing and shareholder reports..... 33,362
Insurance............................ 1,817
Other................................ 2,034
---------
Total expenses................... 392,224
---------
Less fees and expenses waived or
absorbed by the Adviser:
Other fund expenses................ (87,207)
---------
Total net expenses............... 305,017
---------
Investment income - net.......... 1,580,163
---------
Realized and unrealized losses on
investments:
Net realized losses on investments... (62,255)
Net change in unrealized appreciation
or depreciation on investments..... (562,176)
---------
Net losses on investments........ (624,431)
---------
Net increase in net assets resulting
from operations...................... $ 955,732
=========
</TABLE>
See accompanying notes to financial statements.
11
<PAGE>
ADVANTUS MORTGAGE SECURITIES FUND
STATEMENTS OF CHANGES IN NET ASSETS
PERIOD FROM OCTOBER 1, 1999 TO MARCH 31, 2000 AND YEAR ENDED SEPTEMBER 30, 1999
(UNAUDITED)
<TABLE>
<CAPTION>
2000 1999
----------- -----------
<S> <C> <C>
Operations:
Investment income - net.............. $ 1,580,163 $ 3,027,139
Net realized loss on investments..... (62,255) (65,331)
Net change in unrealized appreciation
or depreciation on investments..... (562,176) (1,911,573)
----------- -----------
Increase in net assets resulting
from operations.................. 955,732 1,050,235
----------- -----------
Distributions to shareholders from net
investment income:
Class A............................ (1,097,602) (2,161,384)
Class B............................ (418,528) (697,922)
Class C............................ (119,617) (248,515)
Tax return of capital:
Class A............................ - (25,263)
Class B............................ - (8,157)
Class C............................ - (2,905)
----------- -----------
Total distributions............ (1,635,747) (3,144,146)
----------- -----------
Capital share transactions (notes 4 and
5):
Proceeds from sales:
Class A............................ 1,935,531 6,839,761
Class B............................ 1,634,875 6,350,510
Class C............................ 412,715 4,626,359
Proceeds from issuance of shares as a
result of reinvested dividends:
Class A............................ 716,892 1,450,093
Class B............................ 341,866 583,352
Class C............................ 107,343 225,596
Payments for redemption of shares:
Class A............................ (4,952,493) (5,521,715)
Class B............................ (2,280,926) (2,457,525)
Class C............................ (2,425,275) (3,893,536)
----------- -----------
Increase (decrease) in net assets
from capital share
transactions..................... (4,509,473) 8,202,895
----------- -----------
Total increase (decrease) in net
assets........................... (5,189,488) 6,108,984
Net assets at beginning of period...... 52,799,107 46,690,123
----------- -----------
Net assets at end of period (including
undistributed (distributions in
excess of) net investment income of
($136,266)
and ($80,682), respectively)......... $47,609,618 $52,799,107
=========== ===========
</TABLE>
See accompanying notes to financial statements.
12
<PAGE>
ADVANTUS MORTGAGE SECURITIES FUND
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 2000
(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 are subject to market
fluctuations. As of March 31, 2000, the Fund had entered into outstanding
when-issued or forward commitments of $2,680,352. 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.
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 ended March 31, 2000, purchases of securities and proceeds
from sales, other than temporary investments in short-term securities,
aggregated $20,695,967 and $25,045,991, 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 (PFPC
Global Fund Services, formerly 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.
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.
14
<PAGE>
ADVANTUS Mortgage Securities Fund
Notes to Financial Statements - continued
(4) EXPENSES AND RELATED PARTY TRANSACTIONS - (CONTINUED)
The Fund has entered into a shareholder and administrative services
agreement with Minnesota Life Insurance Company (Minnesota Life). Under this
agreement, the Fund pays an administrative service fee equal to $6,200 per month
to Minnesota Life for accounting, auditing, legal and other administrative
services which Minnesota Life provides. Prior to August 1, 1999, the
administrative services fee was $5,700 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 Fund's operating expenses and
the Fund in turn reimburses Advantus Capital. For the period ended March 31,
2000, Advantus Capital voluntarily agreed to absorb $87,207 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 $73,738.
As of March 31, 2000, Minnesota Life and subsidiaries and the directors and
officers of the Fund as a whole owned 631,592 Class A shares which represents
20.8 percent of the total outstanding Class A shares.
Legal fees were paid to a law firm of which the Fund's secretary is a
partner in the amount of $2,825.
(5) CAPITAL SHARE TRANSACTIONS
Transactions in shares for the period ended October 1, 1999 to March 31,
2000 and the year ended September 30, 1999 were as follows:
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
------------------- ------------------- -------------------
2000 1999 2000 1999 2000 1999
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Sold.................................... 190,198 647,824 160,762 602,510 40,830 441,108
Issued for reinvested distributions..... 70,691 138,280 33,297 55,494 10,563 21,471
Redeemed................................ (488,544) (525,955) (224,465) (232,573) (238,252) (369,048)
-------- -------- -------- -------- -------- --------
(227,655) 260,149 (30,406) 425,431 (186,859) 93,531
======== ======== ======== ======== ======== ========
</TABLE>
(6) RESTRICTED SECURITIES
At March 31, 2000, 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 and illiquid securities held by the Fund at
March 31, 2000 was $3,776,026 which represents 12.1% of net assets.
15
<PAGE>
ADVANTUS Mortgage Securities Fund
Notes to Financial Statements - continued
(7) FINANCIAL HIGHLIGHTS
Per share data for a share of capital stock and selected information for
each period are as follows:
<TABLE>
<CAPTION>
CLASS A
-------------------------------------------------------------
PERIOD FROM
OCTOBER 1,
1999 TO
MARCH 31, YEAR ENDED SEPTEMBER 30,
2000 ------------------------------------------------
(UNAUDITED) 1999 1998 1997 1996 1995(a)
----------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of
period............................ $ 10.30 $ 10.75 $ 10.54 $ 10.23 $ 10.36 $ 9.70
------- ------- ------- ------- ------- -------
Income from investment operations:
Net investment income............. .33 .69 .64 .70 .62 .67
Net gains (losses) on securities
(both realized and
unrealized)..................... (.10) (.45) .25 .33 (.13) .65
------- ------- ------- ------- ------- -------
Total from investment
operations.................... .23 .24 .89 1.03 .49 1.27
------- ------- ------- ------- ------- -------
Less distributions:
Dividends from net investment
income.......................... (.35) (.68) (.65) (.72) (.62) (.61)
Tax return of capital............. - (.01) (.03) - - -
------- ------- ------- ------- ------- -------
Total distributions............. (.35) (.69) (.68) (.72) (.62) (.61)
------- ------- ------- ------- ------- -------
Net asset value, end of period...... $ 10.18 $ 10.30 $ 10.75 $ 10.54 $ 10.23 $ 10.36
======= ======= ======= ======= ======= =======
Total return (b).................... 2.25% 2.26% 8.73% 10.37% 4.83% 13.53%
Net assets, end of period (in
thousands)........................ $30,879 $33,617 $32,268 $28,089 $23,692 $25,317
Ratio of expenses to average daily
net assets (d).................... .95%(e) .95% .95% .95% 1.26% 1.29%
Ratio of net investment income
(loss) to average daily net
assets (d)........................ 6.56%(e) 6.29% 6.02% 6.77% 6.05% 6.23%
Portfolio turnover rate (excluding
short-term securities)............ 41.4% 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 $87,207,
$125,275, $134,706, $121,780, $35,718, and $36,128 in expenses for the
period ended March 31, 2000, and 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 1.30%, 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 6.23%, 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 2.07%, 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 5.48%, 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 2.07%,
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 5.42%, 5.34%,
5.11%, 5.74%, 5.32% and 5.20%, respectively.
(e) Adjusted to an annual basis.
16
<PAGE>
ADVANTUS Mortgage Securities Fund
Notes to Financial Statements - continued
<TABLE>
<CAPTION>
CLASS B
----------------------------------------------------------
PERIOD FROM
OCTOBER 1,
1999 TO
MARCH 31, YEAR ENDED SEPTEMBER 30,
2000 ---------------------------------------------
(UNAUDITED) 1999 1998 1997 1996 1995(a)
----------- -------- -------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of
period............................ $ 10.33 $ 10.77 $ 10.56 $10.24 $10.37 $ 9.70
------- ------- ------- ------ ------ ------
Income from investment operations:
Net investment income............. .29 .61 .57 .63 .54 .53
Net gains (losses) on securities
(both realized and
unrealized)..................... (.11) (.44) .24 .33 (.13) .67
------- ------- ------- ------ ------ ------
Total from investment
operations.................... .18 .17 .81 .96 .41 1.20
------- ------- ------- ------ ------ ------
Less distributions:
Dividends from net investment
income.......................... (.31) (.60) (.57) (.64) (.54) (.53)
Tax return of capital............. - (.01) (.03) - - -
------- ------- ------- ------ ------ ------
Total distributions............. (.31) (.61) (.60) (.64) (.54) (.53)
------- ------- ------- ------ ------ ------
Net asset value, end of period...... $ 10.20 $ 10.33 $ 10.77 $10.56 $10.24 $10.37
======= ======= ======= ====== ====== ======
Total return (b).................... 1.87% 1.51% 7.92% 9.65% 4.06% 12.74%
Net assets, end of period (in
thousands)........................ $13,569 $14,057 $10,079 $6,079 $3,375 $1,084
Ratio of expenses to average daily
net assets (d).................... 1.71%(e) 1.70% 1.70% 1.70% 2.01% 2.05%
Ratio of net investment income
(loss) to average daily net
assets (d)........................ 5.81%(e) 5.57% 5.33% 6.08% 5.38% 5.32%
Portfolio turnover rate (excluding
short-term securities)............ 41.4% 127.1% 152.5% 85.1% 125.2% 203.7%
<CAPTION>
CLASS C
----------------------------------------------------------
PERIOD FROM
OCTOBER 1, PERIOD FROM
1999 TO MARCH 01,
MARCH 31, YEAR ENDED SEPTEMBER 30, 1995(c) TO
2000 ------------------------------ SEPTEMBER 30,
(UNAUDITED) 1999 1998 1997 1996 1995
----------- ------ ------ ------ ------ -------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of
period............................ $10.31 $10.76 $10.55 $10.23 $10.37 $ 9.90
------ ------ ------ ------ ------ ------
Income from investment operations:
Net investment income............. .29 .61 .57 .63 .54 .31
Net gains (losses) on securities
(both realized and
unrealized)..................... (.10) (.45) .24 .33 (.14) .47
------ ------ ------ ------ ------ ------
Total from investment
operations.................... .19 .16 .81 .96 .40 .78
------ ------ ------ ------ ------ ------
Less distributions:
Dividends from net investment
income.......................... (.31) (.60) (.57) (.64) (.54) (.31)
Tax return of capital............. - (.01) (.03) - - -
------ ------ ------ ------ ------ ------
Total distributions............. (.31) (.61) (.60) (.64) (.54) (.31)
------ ------ ------ ------ ------ ------
Net asset value, end of period...... $10.19 $10.31 $10.76 $10.55 $10.23 $10.37
====== ====== ====== ====== ====== ======
Total return (b).................... 1.87% 1.50% 7.92% 9.66% 4.07% 7.91%
Net assets, end of period (in
thousands)........................ $3,161 $5,126 $4,343 $2,187 $1,139 $ 321
Ratio of expenses to average daily
net assets (d).................... 1.71%(e) 1.70% 1.70% 1.70% 2.01% 2.05%(e)
Ratio of net investment income
(loss) to average daily net
assets (d)........................ 5.76%(e) 5.58% 5.40% 6.11% 5.39% 5.26%(e)
Portfolio turnover rate (excluding
short-term securities)............ 41.4% 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 $87,207,
$125,275, $134,706, $121,780, $35,718, and $36,128 in expenses for the
period ended March 31, 2000, and 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 1.30%, 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 6.23%, 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 2.07%, 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 5.48%, 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
2.07%, 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 5.42%,
5.34%, 5.11%, 5.74%, 5.32% and 5.20%, respectively.
(e) Adjusted to an annual basis.
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 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
18
<PAGE>
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 7:30
a.m. to 5:15 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.
INTERNET ADDRESS: www.AdvantusFunds.com
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) or visit
www.AdvantusFunds.com.
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 $3.7
billion in assets in addition to $10.9 billion in assets for other clients.
Advantus Capital's seasoned portfolio managers average more than 14 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
19
<PAGE>
THIS REPORT HAS BEEN PREPARED FOR SHAREHOLDERS. THIS MAY BE USED AS SALES
LITERATURE IN
CONNECTION WITH THE OFFER OR SALE OF THE ADVANTUS MORTGAGE SECURITIES FUND
IF PRECEDED OR ACCOMPANIED BY (a) THE CURRENT PROSPECTUS FOR THE
ADVANTUS MORTGAGE SECURITIES FUND, AND (b) THE CURRENT
ADVANTUS MUTUAL FUND PERFORMANCE REPORT.
READ THE PROSPECTUS CAREFULLY BEFORE YOU INVEST.
[LOGO]
[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>
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<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.48640 Rev. 5-2000
