<PAGE>
REAL ESTATE
ADVANTUS REAL ESTATE SECURITIES FUND, INC.
ANNUAL REPORT TO SHAREHOLDERS DATED JULY 31, 1999
[LOGO]
ADVANTUS-TM-
FAMILY OF FUNDS
[GRAPHIC]
<PAGE>
ADVANTUS REAL ESTATE SECURITIES FUND
TABLE OF CONTENTS
PERFORMANCE UPDATE 2
INVESTMENTS IN SECURITIES 6
STATEMENT OF ASSETS AND LIABILITIES 8
STATEMENT OF OPERATIONS 9
STATEMENT OF CHANGES IN NET ASSETS 10
NOTES TO FINANCIAL STATEMENTS 11
INDEPENDENT AUDITORS' REPORT 15
FEDERAL TAX INFORMATION 16
SHAREHOLDER SERVICES 17
<PAGE>
LETTER FROM THE PRESIDENT [PHOTO]
Dear Shareholder:
The United States still leads the world's growth, albeit growth has slowed from
past quarters. The broad base of the U.S. economy is a contributing factor to
our country's sustained health in world markets. The Federal Reserve (Fed)
remains vigilant in its quest to maintain a healthy U.S. economy.
The Fed adjusted the federal funds rate, the rate at which banks lend one
another money overnight, four times in this reporting period (August 1, 1998 -
July 31, 1999 and once more in late August, 1999). These adjustments of one
quarter percent (25 basis points) each since August of 1998, moved rates down 75
basis points in 1998 and up 50 basis points in 1999. These actions, which
individually had little effect on the markets, demonstrated the Fed's neutral
bias, which simply means the Fed plans to wait and watch how the economy
develops. This neutral bias could, however, change at any time - and likely
will.
The U.S. stock market continues to soar, although we have witnessed an extremely
volatile market during this reporting period. Early in the second quarter 1999,
the leadership in the marketplace changed dramatically for a time. There was a
move away from the "nifty twenty" stocks (the largest, most highly capitalized
blue chip companies) and the internet stocks. These mega-stocks and internet
stocks broke their steep up-trends when the weight of relatively high valuations
and some earnings disappointments, caused investors to rethink their investment
strategies. The news that the market was finally broadening was very welcome. In
hindsight, the market has broadened, but large cap growth stocks continue to
lead the market.
During this period, bond performance was lackluster due to the rise in the level
of interest rates. Higher interest rates and lower bond prices have been the
bond market theme for the past eight months. In June, for example, yields on the
ten-year bond rose above six percent, as fixed income investors continued to
worry about strong economic growth in the U.S., higher oil prices, the Federal
Reserve's bias to raise interest rates, and seeds of a global economic recovery.
At the end of the reporting period, yields were roughly one percent higher
across the yield curve from the beginning of the year. This sharp increase in
interest rates in a short period of time caused most major bond indices to show
negative total returns for the first half of 1999.
Thank you for investing with Advantus.
Sincerely,
/s/ William N. Westhoff
William N. Westhoff, President
Advantus Funds
<PAGE>
ADVANTUS REAL ESTATE SECURITIES FUND
PERFORMANCE UPDATE
[PHOTO]
JOE BETLEJ, CFA
PORTFOLIO MANAGER
The Advantus Real Estate
Securities Fund seeks total
return through a combination
of capital appreciation and
current income. Under normal
circumstances, at least 65
percent of the Fund's total
assets will be invested in
real estate and real
estate-related securities.
PERFORMANCE
For the period from February 25, 1999 (date shares became effectively
registered) to July 31, 1999, the performance of the Advantus Real Estate
Securities Fund - Class A shares was 4.78 percent.* This compares to the
Wilshire Associates Real Estate Securities Index (WARESI)** return of 5.74
percent for the same period.
PERFORMANCE ANALYSIS
Since its launch on February 25 of this year, the Fund has participated in a
transformation that has taken the real estate sector by storm. During the first
quarter of 1999, the real estate securities market consolidated in a number of
ways. This activity was in response to the poor performance posted by real
estate stocks in 1998, including concerns of overbuilding and a withdrawal of
capital from the real estate markets. Investors consolidated into the larger,
more liquid real estate stocks, believing they would perform better when capital
returned to the group. Construction lenders, who were concerned about the volume
of new development relative to demand for more real estate, cut back on their
funding of new projects. These changes helped the real estate sector turn the
corner early in the second quarter providing a substantial rebound in prices.
Investors recognized the deep price discount of this sector relative to the
broader market.
The dividend yield for real estate investment trusts (REITs) was very high in
the first quarter of 1999, while investors can be assured that the higher
dividend is in step with risk and quality. New construction numbers continued to
decline. Real estate companies were trading at deep discounts relative to the
underlying value of their real estate. These fundamentals for the underlying
real estate, as well as real estate securities, continued to improve. Real
estate companies were also gaining savvy as they modified and articulated their
business plans for generating long-term growth without the need for new equity
capital - proving they could sustain growth without new equity offerings.
The negative market sentiment changed in mid-April. Perhaps the sector
valuations became too cheap. Capital started to flow back to real estate
securities. Investors began to rally the group, sparked by well-known investor
Warren Buffet's well-publicized personal investment into two REITs, which
effectively legitimized investment in real estate securities again. In the
second quarter 1999, the Wilshire Associates Real Estate Securities Index,** the
Fund's benchmark index, posted a return of 10.62 percent, reflecting the change
in investor sentiment.
Apartment, office, and office/industrial companies led performance for the first
six months of 1999. Weaker performing groups include Hotel REITs, Regional Mall,
and Shopping Center Retail companies. The retail companies sold off strong at
the beginning of the year with fears that internet retailing would remove the
necessity for site-based retail. Hotel REITs came under pressure as
2
<PAGE>
a few companies announced weaker revenues per available room due to increased
amount of new supply, particularly in the limited service hotels. We expect this
trend to continue for the balance of the year for the hotel sector until the new
supply is absorbed by market demand. We continue to watch company exposure
within select geographic markets to see that demand keeps pace with new supply.
During second quarter, we enhanced our holdings in real estate related
companies, helping our performance and diversifying a bit from REIT securities.
Additions to the portfolio included Home Depot, Newell-Rubbermaid, and Cendant
Corporation. Although these companies do not directly own significant amounts of
real estate, the quality of their business is driven by the strength of the real
estate markets, providing our portfolio with additional ways to drive
performance.
OUTLOOK
Real estate securities have begun retracing some of 1998's losses and have
rebuilt confidence in the sector. We believe that these stocks will continue to
generate total returns consistent with the low-to-mid teens range. Earnings
quality remains high, rental rates are increasing, companies are becoming more
efficient operators, and new construction is slowing down across most property
types providing a strong base of fundamentals to drive this sector. The rise in
interest rates have diminished the yield premium that REITs have delivered over
fixed income investments, perhaps dampening some demand from interest rate
sensitive buyers. We do feel, however, that dividend quality remains strong. The
real estate companies are showing strong capital management plans by becoming
self-sustaining; they are generating new investment capital from asset sales and
remaining less dependent on new issuance of equity for growth opportunities.
While real estate companies as a group are trading at approximately the
underlying value of the assets of these companies, their stock should likely
command a premium for the liquidity and management that the public market format
provides. We remain confident in the group going forward.
*Historical performance is not an indication of future performance. These
performance results do not reflect the impact of Class A's maximum 5.5 percent
front-end 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 Wilshire Associates Real Estate Securities Index is a market
capitalization-weighted index of equity securities whose primary business is
equity ownership of commercial real estate (REITS).
3
<PAGE>
COMPARISON OF CHANGE IN VALUE OF A HYPOTHETICAL $10,000
INVESTMENT IN THE ADVANTUS REAL ESTATE SECURITIES FUND,
WILSHIRE ASSOCIATES REAL ESTATE SECURITIES INDEX AND
CONSUMER PRICE INDEX
On the following chart you can see how the total return for the Advantus Real
Estate Securities Fund compared to the Wilshire Associates Real Estate
Securities Index and the Consumer Price Index. The lines represent the
cumulative total return of a hypothetical $10,000 investment made on the
inception date of Class A shares of the Advantus Real Estate Securities Fund
(February 25, 1999) through July 31, 1999.
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
TOTAL RETURN SINCE
INCEPTION
(2/25/99) (NOT
ANNUALIZED):
<S> <C> <C> <C>
Class A -0.99%
Class A Wilshire Index CPI
2/25/99 10,000 10,000 10,000
2/28/99 9,453 10,000 10,000
3/31/99 9,198 9,940 10,018
4/30/99 10,075 11,000 10,091
5/31/99 10,340 11,185 10,091
6/30/99 10,378 10,995 10,091
7/31/99 9,904 10,574 10,121
</TABLE>
The preceding chart is useful because it provides you with more information
about your investments. There are limitations, however. An index may reflect the
performance of securities that the Fund may not hold. Also, the index does not
deduct sales charges, investment advisory fees and other fund expenses, whereas
your Fund does. Performance presented for the Fund reflects the deduction of the
maximum 5.5 percent front-end sales charge for Class A 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.
4
<PAGE>
TEN LARGEST STOCK HOLDINGS
<TABLE>
<CAPTION>
MARKET % OF STOCK
COMPANY SHARES VALUE PORTFOLIO
- -------------------------------------------- -------- ---------- -----------
<S> <C> <C> <C>
Public Storage, Inc......................... 9,802 $ 251,789 4.3%
Catellus Development Corporation............ 14,800 234,950 4.1%
Apartment Investment & Management Company... 5,420 221,204 3.8%
Avalon Bay Communities, Inc................. 6,500 220,594 3.8%
Macerich Company............................ 7,800 190,125 3.3%
Simon Property Group, Inc................... 7,000 185,938 3.2%
Kilroy Realty Corporation................... 8,000 180,000 3.1%
Archstone Communities Trust................. 8,000 172,500 3.0%
Highwoods Properties, Inc................... 7,000 164,500 2.8%
Meristar Hospitality Corporation............ 8,600 164,475 2.8%
---------- ---
$1,986,075 34.2%
---------- ---
---------- ---
</TABLE>
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<S> <C>
Cash and Other
Assets/Liabilities 5.0%
Consumer Staples 1.0%
Consumer Cyclical 9.3%
Finance - Diversified 3.8%
Real Estate 10.3%
Real Estate Investment Trust 70.6%
</TABLE>
5
<PAGE>
ADVANTUS REAL ESTATE SECURITIES FUND
INVESTMENTS IN SECURITIES
JULY 31, 1999
(Percentages of each investment category relate to total net assets.)
<TABLE>
<CAPTION>
MARKET
SHARES VALUE(A)
- -------- ----------
<C> <S> <C>
COMMON STOCK (95.0%)
CONSUMER CYCLICAL (9.3%)
Construction (2.5%)
4,700 D.R. Horton, Inc................................. $ 76,375
1,400 Lennar Corporation............................... 27,387
3,600 Standard Pacific Corporation..................... 46,575
----------
150,337
----------
Lodging-Hotel (4.4%)
7,500 Host Marriott Corporation........................ 77,344
2,200 Promus Hotel Corporation......................... 59,262
4,900 Starwood Hotels & Resorts Worldwide, Inc. ....... 132,300
----------
268,906
----------
Service (2.4%)
4,400 Cendant Corporation (b).......................... 88,550
3,900 Fairfield Communities, Inc. (b).................. 59,962
----------
148,512
----------
CONSUMER STAPLES (1.0%)
Household Products (1.0%)
1,400 Newell Rubbermaid, Inc........................... 60,550
----------
FINANCIAL (84.7%)
Finance-Diversified (3.8%)
7,200 Crescent Real Estate Equipment Company........... 158,400
4,500 Trammell Crow Company (b)........................ 71,156
----------
229,556
----------
Real Estate (10.3%)
2,700 Boston Properties, Inc. ......................... 92,475
14,800 Catellus Development Corporation (b)............. 234,950
7,000 Highwoods Properties, Inc. ...................... 164,500
3,100 LNR Property Corporation......................... 68,006
1,000 Newhall Land & Farming Company................... 24,312
<CAPTION>
MARKET
SHARES VALUE(A)
- -------- ----------
<C> <S> <C>
FINANCIAL--CONTINUED
2,400 Trizec Hahn Corporation.......................... $ 44,550
----------
628,793
----------
Real Estate Investment Trust (70.6%)
5,420 Apartment Investment & Management Company........ 221,204
8,000 Archstone Communities Trust...................... 172,500
3,500 Arden Realty Group, Inc. ........................ 82,687
2,800 Asset Investors Corporation...................... 39,375
6,500 Avalon Bay Communities, Inc. .................... 220,594
6,100 Carramerica Realty Corporation................... 147,162
3,000 Equity Office Properties Trust................... 75,375
2,100 Equity Residential Properties Trust.............. 86,756
3,400 Essex Property Trust, Inc. ...................... 114,750
4,400 Felcor Lodging Trust, Inc. ...................... 85,800
3,000 First Industrial Realty Trust.................... 77,625
4,200 Franchise Finance Corporation of America......... 95,550
6,200 Gables Residential Trust......................... 150,350
1,300 General Growth Properties, Inc. ................. 42,981
3,200 Glenborough Realty Trust, Inc.................... 56,000
2,000 Golf Trust of America, Inc....................... 44,750
7,000 HRPT Properties Trust............................ 99,312
15,800 Innkeepers USA Trust............................. 140,225
8,000 Kilroy Realty Corporation........................ 180,000
1,600 Kimco Realty Corporation......................... 60,000
5,500 Koger Equity..................................... 99,000
3,600 Liberty Property Trust........................... 85,050
7,800 Macerich Company................................. 190,125
3,800 Mack-Cali Realty................................. 106,400
8,600 Meristar Hospitality Corporation................. 164,475
</TABLE>
See accompanying notes to investments in securities.
6
<PAGE>
ADVANTUS REAL ESTATE SECURITIES FUND
INVESTMENTS IN SECURITIES - CONTINUED
<TABLE>
<CAPTION>
MARKET
SHARES VALUE(A)
- -------- ----------
FINANCIAL--CONTINUED
<C> <S> <C>
6,000 New Plan Excel Realty Trust...................... $ 111,750
3,700 Pacific Gulf Properties, Inc. ................... 85,100
6,100 Pan Pacific Retail Properties.................... 119,713
1,300 Parkway Properties............................... 43,225
5,400 Philips International Realty..................... 90,788
2,400 Post Properties, Inc. ........................... 96,000
1,400 Prologis Trust................................... 27,213
9,802 Public Storage, Inc. ............................ 251,789
3,900 Reckson Associates Realty Corporation............ 87,019
1,126 Reckson Associates Realty Corporation B.......... 24,913
7,000 Simon Property Group, Inc........................ $ 185,938
4,000 SL Green Realty Corporation...................... 82,750
4,000 Summit Properties Incorporated................... 82,000
3,300 Trinet Corporation............................... 85,388
3,500 Urban Shopping Centers, Inc...................... 107,188
----------
4,318,820
----------
Total common stock
(cost: $5,700,584)......................................... 5,805,474
----------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
- ----------
<C> <S> <C> <C> <C>
SHORT-TERM SECURITIES (4.4%)
$ 168,625 Temporary Investment Fund, Inc. - Temp Fund Portfolio, current rate 168,625
4.970%...............................................................
100,000 U.S. Treasury Bill............................... 4.609% 09/23/99 99,346
-----------
Total short-term securities (cost: $267,965).......................... 267,971
-----------
Total investments in securities (cost: $5,968,549)(c)................. $ 6,073,445
-----------
-----------
</TABLE>
Notes to Investments in Securities
- -----------------------------------
(a) Securities are valued by procedures described in note 2 to the financial
statements.
(b) Presently non-income producing.
(c) At July 31, 1999 the cost of securities for federal income tax purposes was
$5,975,052. The aggregate unrealized appreciation and depreciation of
investments in securities based on this cost were:
<TABLE>
<S> <C>
Gross unrealized appreciation.......... $ 280,675
Gross unrealized depreciation.......... (182,282)
---------
Net unrealized appreciation............ $ 98,393
---------
---------
</TABLE>
7
<PAGE>
ADVANTUS REAL ESTATE SECURITIES FUND
STATEMENT OF ASSETS AND LIABILITIES
JULY 31, 1999
<TABLE>
<CAPTION>
ASSETS
<S> <C>
Investments in securities, at market
value - see accompanying schedule for
detailed listing
(identified cost: $5,968,549)......... $6,073,445
Other receivables...................... 228
Receivable for Fund shares sold........ 23,944
Receivable for investment securities
sold.................................. 155,055
Accrued interest receivable............ 902
Dividends receivable................... 10,960
----------
Total assets....................... 6,264,534
----------
<CAPTION>
LIABILITIES
<S> <C>
Payable for investment securities
purchased............................. 143,769
Payable to Adviser..................... 7,856
----------
Total liabilities.................. 151,625
----------
Net assets applicable to outstanding
capital stock......................... $6,112,909
----------
----------
Represented by:
Capital stock - authorized 10 billion
shares (Class A - 2 billion shares,
and 8 billion shares unallocated) of
$.01 par value (note 1).............. $ 5,967
Additional paid-in capital........... 5,986,900
Accumulated net realized gains from
investments.......................... 15,146
Unrealized appreciation on
investments.......................... 104,896
----------
Total - representing net assets
applicable to outstanding capital
stock.............................. $6,112,909
----------
----------
Net assets applicable to outstanding
Class A shares........................ $6,112,909
----------
----------
Shares outstanding and net asset value
per share:
Class A - Shares outstanding
596,667.............................. $ 10.25
----------
----------
</TABLE>
See accompanying notes to financial statements.
8
<PAGE>
ADVANTUS REAL ESTATE SECURITIES FUND
STATEMENT OF OPERATIONS
PERIOD FROM FEBRUARY 1, 1999, COMMENCEMENT OF OPERATIONS, TO JULY 31, 1999
<TABLE>
<S> <C>
Investment income:
Interest............................. $ 7,001
Dividends............................ 133,415
--------
Total investment income............ 140,416
--------
Expenses (note 4):
Investment advisory fee.............. 18,842
Rule 12b-1 fees - Class A............ 6,281
Administrative services fee.......... 28,800
Transfer agent and shareholder
servicing fees..................... 426
Custodian fees....................... 4,455
Auditing and accounting services..... 9,300
Legal fees........................... 1,644
Directors' fees...................... 30
Registration fees.................... 3,250
Printing and shareholder reports..... 8,559
Insurance............................ 1,753
Other................................ 4,274
--------
Total expenses..................... 87,614
--------
Less fees and expenses waived or
absorbed:
Class A Rule 12b-1 fees.............. (3,769)
Other fund expenses.................. (46,161)
--------
Total fees and expenses waived or
absorbed.......................... (49,930)
--------
Total net expenses................. 37,684
--------
Investment income - net............ 102,732
--------
Realized and unrealized gains on
investments:
Net realized gains on investments
(note 3)........................... 60,914
Net change in unrealized appreciation
or depreciation on investments..... 104,896
--------
Net gains on investments........... 165,810
--------
Net increase in net assets resulting
from operations...................... $268,542
--------
--------
</TABLE>
See accompanying notes to financial statements.
9
<PAGE>
ADVANTUS REAL ESTATE SECURITIES FUND
STATEMENT OF CHANGES IN NET ASSETS
PERIOD FROM FEBRUARY 1, 1999, COMMENCEMENT OF OPERATIONS, TO JULY 31, 1999
<TABLE>
<CAPTION>
1999
------------
<S> <C>
Operations:
Investment income - net......................... $ 102,732
Net realized gain on investments................ 60,914
Net change in unrealized appreciation or
depreciation on investments................... 104,896
------------
Increase in net assets resulting from
operations................................... 268,542
------------
Distributions to shareholders from:
Investment income - net:
Class A....................................... (102,732)
In excess of net investment income:
Class A....................................... (45,768)
------------
Total distributions......................... (148,500)
------------
Capital share transactions (notes 4 and 5):
Proceeds from sales:
Class A....................................... 6,114,356
Proceeds from issuance of shares as a result of
reinvested dividends:
Class A....................................... 16,619
Payments for redemption of shares:
Class A....................................... (138,108)
------------
Increase in net assets from capital share
transactions............................... 5,992,867
------------
Total increase in net assets................ 6,112,909
Net assets at beginning of period................. -
------------
Net assets at end of period....................... $ 6,112,909
------------
------------
</TABLE>
See accompanying notes to financial statements.
10
<PAGE>
ADVANTUS REAL ESTATE SECURITIES FUND
NOTES TO FINANCIAL STATEMENTS
JULY 31, 1999
(1) ORGANIZATION
Advantus Real Estate Securities Fund, Inc. (the Fund) was incorporated on
September 25, 1998. The Fund is registered under the Investment Company Act of
1940 (as amended). The Fund's investment objective is to seek total return
through a combination of capital appreciation and current income.
The Fund currently issues one class of share (Class A). Class A shares are
sold subject to a front-end sales charge.
The Fund commenced operations on February 1, 1999. On February 25, 1999, the
shares became effectively registered under the Securities Exchange Act of 1933.
Prior to February 25, 1999, Minnesota Life cumulatively purchased 514,002 Class
A shares for $5,150,000.
(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 by 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.
FEDERAL TAXES
The Fund's policy is to comply with the requirements of the Internal Revenue
Code applicable to regulated investment companies and to distribute all of its
taxable income to shareholders. Therefore, no income tax provision is required.
The Fund's policy is to make required minimum distributions prior to December
31, in order to avoid federal excise tax.
Net investment income and net realized gains (losses) may differ for
financial statement and tax purposes primarily because of temporary book-to-tax
differences. The character of distributions made during the year from net
investment income or net realized gains may differ from their ultimate
characterization for federal income tax purposes. Also, due to the timing of
dividend distributions, the fiscal year in which amounts are distributed may
differ from the year that the income or realized gains (losses) were recorded by
the Fund.
11
<PAGE>
ADVANTUS REAL ESTATE SECURITIES FUND
NOTES TO FINANCIAL STATEMENTS - CONTINUED
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - (CONTINUED)
On the statement of assets and liabilities, as a result of permanent
book-to-tax differences, a reclassification adjustment was made to decrease
distributions in excess of net investment income and decrease accumulated net
realized gains from investments by $45,768.
DISTRIBUTIONS TO SHAREHOLDERS
Dividends from net investment income are declared and paid quarterly.
Realized gains, if any, are paid annually.
(3) INVESTMENT SECURITY TRANSACTIONS
For the period from February 1, 1999 to July 31, 1999, purchases of
securities and proceeds from sales, other than temporary investments in
short-term securities aggregated $8,472,827 and $2,831,453, 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. Under the agreement, Advantus Capital acts as investment adviser
and manager for the Fund. The fee for investment management and advisory
services is based on the average daily net assets of the Fund at the annual rate
of .75 percent. The Fund has engaged First Data Investor Services Group, Inc. to
act as its transfer agent, dividend disbursing agent and redemption agent and
bears the expenses of such services.
The Fund has adopted a Plan of Distribution applicable to Class A shares,
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
connection with the servicing of the Fund's shares. The Class A Plan provides
for a servicing fee up to .25 percent of average daily net assets of Class A
shares. Ascend is currently waiving that portion of Class A Rule 12b-1 fees
which exceeds, as a percentage of average daily net assets, .10 percent. Ascend
waived Class A Rule 12b-1 fees in the amount of $3,769 for the period ended July
31, 1999.
The Fund also bears certain other operating expenses including outside
directors' fees, custodian fees, registration fees, printing and shareholder
reports, legal, auditing and accounting services, and other miscellaneous
expenses.
The Fund has a shareholder and administrative services agreement with
Minnesota Life. Under this agreement, the Fund pays a shareholder services fee,
equal to $5 per shareholder account annually, to Minnesota Life for shareholder
services which Minnesota Life provides. The Fund also pays Minnesota Life an
administrative services fee is equal to $4,800 per month for accounting,
auditing, legal and other administrative services which Minnesota Life provides.
Effective August 1, 1999, the administrative services fee is $5,100 per month.
Advantus Capital directly incurs and pays the above operating expenses and
the Fund in turn reimburses Advantus Capital. During the period ended July 31,
1999, Advantus Capital voluntarily agreed to absorb $46,161 in expenses which
were otherwise payable by the Fund.
12
<PAGE>
ADVANTUS REAL ESTATE SECURITIES FUND
NOTES TO FINANCIAL STATEMENTS - CONTINUED
(4) EXPENSES AND RELATED PARTY TRANSACTIONS - (CONTINUED)
Organizational expenses, including legal fees and initial registration fees
in the amount of $52,000, were incurred in connection with the start up and
initial registration of the Fund. These expenses were paid by Advantus Capital.
The Fund does not intend to reimburse Advantus Capital for these costs.
Sales charges received by Ascend for distributing the Fund's Class A shares
amounted to $563.
As of July 31, 1999, Minnesota Life and subsidiaries and the directors and
officers of the Fund as a whole owned 519,998 Class A shares which represents
87.2 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 $1,530.
(5) CAPITAL SHARE TRANSACTIONS
Transactions in Class A shares for the period from February 1, 1999 to July
31, 1999 were as follows:
<TABLE>
<S> <C>
Sold.......................................................................................... 607,945
Issued for reinvested distributions........................................................... 1,571
Redeemed...................................................................................... (12,849)
---------
596,667
---------
---------
</TABLE>
(6) YEAR 2000 (UNAUDITED)
In 1995, Minnesota Life began addressing computer systems requirements and
applications to be Year 2000 ready. Based on a current study, Minnesota Life
plans to spend approximately $12 million through 1999 to modify its computer
information systems, enabling proper processing of transactions relating to the
year 2000 and beyond. The Fund will not be charged for these expenses.
13
<PAGE>
ADVANTUS REAL ESTATE 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
FEBRUARY 25,
1999(D) TO
JULY 31,
1999
-------------
<S> <C>
Net asset value, beginning of period... $10.02
-------------
Income from investment operations:
Net investment income................ .18
Net gains on securities (both
realized and unrealized)........... .31
-------------
Total from investment operations... .49
-------------
Less distributions:
Dividends from net investment
income............................. (.18)
In excess of net investment income... (.08)
-------------
Total distributions................ (.26)
-------------
Net asset value, end of period......... $10.25
-------------
-------------
Total return (a)....................... 4.78%
Net assets, end of period (in
thousands)........................... $6,113
Ratio of expenses to average daily net
assets (c)........................... 1.50%(b)
Ratio of net investment income to
average daily net assets (c)......... 4.09%(b)
Portfolio turnover rate (excluding
short-term securities)............... 51.5%
</TABLE>
- ------------
(a) 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 contingent deferred sales
charges. For periods less than one year, total return presented has not
been annualized.
(b) Adjusted to an annual basis.
(c) The Fund's Distributor and Adviser voluntarily waived and absorbed $41,991
in expenses for the period February 25, 1999 to July 31, 1999. If Class A
shares had been charged for these expenses, the ratio of expenses to
average daily net assets would have been 3.18%, and the ratio of net
investment income to average daily net assets would have been 2.41%.
(d) Date shares of the Fund were effectively registered under the Securities
Exchange Act of 1933.
14
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders
Advantus Real Estate Securities Fund, Inc.:
We have audited the accompanying statement of assets and liabilities,
including the schedule of investments in securities, of the Advantus Real Estate
Securities Fund, Inc. (the Fund) as of July 31, 1999 and the related statements
of operations and changes in net assets for the period from February 1, 1999,
commencement of operations, to July 31, 1999 and the financial highlights for
the period from February 25, 1999, date shares became effectively registered, to
July 31, 1999. These financial statements and the financial highlights are the
responsibility of the Fund's management. Our responsibility is to express an
opinion on these financial statements and the financial highlights based on our
audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and the financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of July
31, 1999, by correspondence with the custodian and brokers. An audit also
includes assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall financial statement
presentation. We believe that our audit provide a reasonable basis for our
opinion.
In our opinion, the financial statements and the financial highlights
referred to above present fairly, in all material respects, the financial
position of the Fund as of July 31, 1999 and the results of its operations,
changes in its net assets and the financial highlights, for the periods stated
in the first paragraph above, in conformity with generally accepted accounting
principles.
KPMG LLP
Minneapolis, Minnesota
September 3, 1999
15
<PAGE>
ADVANTUS REAL ESTATE SECURITIES FUND
FEDERAL INCOME TAX INFORMATION
The following information for federal income tax purposes is presented as an
aid to shareholders in reporting the distributions paid by the Fund in the
fiscal period ended July 31, 1999. Dividends for the 1999 calendar year will be
reported to you on Form 1099-Div in February 2000. Shareholders should consult a
tax adviser on how to report these distributions for state and local purposes.
CLASS A
<TABLE>
<CAPTION>
PER
PAYABLE DATE SHARE
- ------------------------------------------------------------------------------------- ------
<S> <C>
Income distribution-taxable as dividend income, 78.4% qualifying for deduction by
corporations.
June 24, 1999*....................................................................... $.2538
------
------
Capital gains distribution-taxable as long-term capital gains, 25% rate.
June 24, 1999........................................................................ $.0028
------
------
</TABLE>
*Represents $.0791 of short-term capital gains (taxable as dividend income)
and $.1747 from net investment income.
16
<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
17
<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 8
a.m. to 4:45 p.m. Central Time. Our voice response system is available 24
hours, seven days a week. This system allows you to access current net asset
values, account balances and recent account activity.
HOW TO INVEST
You can invest in one or more of the eleven Advantus Funds through a local
Registered Representative of Ascend Financial Services, Inc., distributor of
the Funds. Contact your representative for information and a prospectus for any
of the Advantus Funds you are interested in. To find a Registered
Representative near you, call the toll-free service line (1-800-665-6005).
MINIMUM INVESTMENTS: Your initial investment in any of the Advantus Funds can
be as small as $25 when you use our Automatic Investment Plan. Minimum lump-sum
initial investment is $250. Minimum subsequent investment is $25.
THE FUND'S MANAGER
Advantus Capital Management, Inc., investment adviser to the Fund, selects and
reviews the Fund's investments and provides executive and other personnel for
the Fund's management. (For the Advantus International Balanced Fund, Inc., the
sub-adviser, Templeton Investment Counsel, Inc., selects the Fund's
investments.)
Advantus Capital Management, Inc. manages thirteen mutual funds containing $3.2
billion in assets in addition to $12.8 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
18
<PAGE>
THIS REPORT HAS BEEN PREPARED FOR SHAREHOLDERS AND MAY BE DISTRIBUTED
TO OTHERS ONLY IF PRECEDED OR ACCOMPANIED BY A CURRENT PROSPECTUS.
READ THE PROSPECTUS CAREFULLY BEFORE YOU INVEST.
[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>
ASCEND FINANCIAL SERVICES PRESORTED STANDARD
400 ROBERT STREET NORTH U.S. POSTAGE
ST. PAUL, MN 55101-2098 PAID
ST. PAUL, MN
PERMIT NO. 3547
ADDRESS SERVICE REQUESTED
F. 53979 Rev. 9-1999
