<PAGE>
File Numbers 333-68669 and 811-09139
----- -----
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 X
---
Pre-Effective Amendment Number 1
---
Post-Effective Amendment Number
---
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 X
---
Amendment Number
---
ADVANTUS REAL ESTATE SECURITIES FUND, INC.
(Exact Name of Registrant as Specified in Charter)
400 ROBERT STREET NORTH, ST. PAUL, MINNESOTA 55101
(Address of Principal Executive Offices)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (651) 665-3826
ERIC J. BENTLEY, 400 ROBERT STREET NORTH, ST. PAUL, MINNESOTA 55101
(Name and Address of Agent for Service)
Copy to:
Michael J. Radmer, Esquire
Dorsey & Whitney LLP
220 South Sixth Street
Minneapolis, Minnesota 55402-1498
APPROXIMATE DATE OF PROPOSED PUBLIC OFFERING: As soon as practicable after this
Registration Statement becomes effective.
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment which specifically states that this
Registration Statement shall thereafter become effective in accordance with
Section 8(a) of the Securities Act of 1933 or until the Registration
Statement shall become effective on such date as the Commission, acting
pursuant to said Section 8(a), may determine.
<PAGE>
REAL ESTATE
As with all mutual funds, the Securities and Exchange Commission
has not determined that the information in this prospectus is
accurate or complete, nor has it approved the Fund's securities.
It is a criminal offense to state otherwise.
ADVANTUS REAL ESTATE SECURITIES FUND, INC.
PROSPECTUS DATED , 1999
[LOGO]
[GRAPHIC]
<PAGE>
ADVANTUS REAL ESTATE SECURITIES FUND, INC.
Advantus Real Estate Securities Fund, Inc. (Fund) is a mutual fund that offers a
single class of shares. This prospectus provides you information about the Fund
you should know before investing. The Fund is a member of the Advantus family of
funds (the Advantus Funds). The Advantus Funds, other than the Fund and the
Advantus Money Market Fund, Inc., are referred to as "Advantus Multiple Class
Funds."
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page No.
<S> <C>
THE FUND - SUMMARY ................................................. 3
Investment Objective and Policies ........................... 3
Main Risks .................................................. 3
Fees and Expenses ........................................... 4
INVESTING IN THE FUND .............................................. 5
Managing the Fund ........................................... 5
Investment Objective, Policies and Practices ................ 5
Defining Risks .............................................. 7
BUYING AND SELLING SHARES .......................................... 10
Sales and Distribution Charges .............................. 10
Reducing Sales Charges ...................................... 11
Buying Shares ............................................... 12
Selling Shares .............................................. 13
Exchanging Shares ........................................... 14
Telephone Transactions ...................................... 15
GENERAL INFORMATION ................................................ 16
Dividends and Capital Gains Distributions ................... 16
Taxes ....................................................... 16
Service Providers ........................................... 18
Advantus Family of Funds .................................... 19
Additional Information About the Fund ....................... 20
How to Obtain Additional Information ........................ 20
</TABLE>
<PAGE>
[GRAPHIC]
THE FUND - SUMMARY
Advantus Real Estate Securities Fund, Inc. (Real Estate Securities Fund) is an
open-end, diversified investment company, commonly called a mutual fund.
This section gives you a brief summary of the Fund's investment policies,
practices and main risks, as well as performance and fee information. More
detailed information about the Fund follows this summary.
- --------------------
FOR YOUR INFORMATION
- --------------------
A mutual fund is an investment company that invests the money of many people in
a variety of securities to seek a specific objective over time. An open-end
mutual fund buys back an investor's shares at the fund's current net asset
value.
- ---------------
REFERENCE POINT
- ---------------
Please see "Investing in the Fund - Defining Risks" for a more detailed
description of these main risks and additional risks in connection with
investing in the Fund.
For more information on Fund portfolio turnover, see "General Information -
Taxes."
INVESTMENT OBJECTIVE AND POLICIES
REAL ESTATE SECURITIES FUND seeks total return through a combination of capital
appreciation and current income.
Under normal circumstances, at least 65% of the Fund's total assets will be
invested in real estate and real estate-related securities. "Real estate
securities" include securities issued by companies that receive at least 50% of
their gross revenue from the construction, ownership, management, financing or
sale of residential, commercial or industrial real estate. "Real estate-related
securities" include securities issued by companies engaged in businesses that
sell or offer products or services that are closely related to the real estate
industry.
Most of the Fund's real estate securities portfolio will consist of securities
issued by Real Estate Investment Trusts (REITs) that are listed on a securities
exchange or traded over-the-counter. A REIT is a corporation or trust that
invests in fee or leasehold ownership of real estate, mortgages or shares issued
by other REITs. In selecting securities, factors such as an issuer's financial
condition, financial performance, policies and strategies and competitive market
condition are considered by the Fund's investment adviser.
MAIN RISKS
Keep in mind that an investment in the Fund is not a deposit of a bank and is
not insured or guaranteed by the Federal Deposit Insurance Corporation or any
other governmental agency and that it is possible to lose money by investing in
the Fund. You should also note that if the Fund makes frequent changes in its
portfolio securities, such changes may result in higher Fund costs and may
adversely affect your return. An investment in the Fund may be subject to
various risks including the following types of main risk:
- MARKET RISK - the risk that equity securities are subject to adverse
trends in equity markets
- FUND RISK - the risk that Fund performance may not meet or exceed that of
the market as a whole
- REAL ESTATE RISK - the risk that the value of the Fund's investments may
decrease due to a variety of factors related to the construction,
development, ownership, financing, repair or servicing or other events
affecting the value of real estate, buildings or other real estate
fixtures
- REIT-RELATED RISK - the risk that the value of the Fund's equity
securities issued by REITs (as discussed in "Investing in the
Fund - Investment Objective, Policies and Practices" below) will be
adversely affected by changes in the value of the underlying property
THE FUND - SUMMARY 3
<PAGE>
FEES AND EXPENSES
Investors pay fees and expenses in connection with investing in the Fund. This
table describes the fees and expenses that you may pay if you buy and hold
shares of the Fund.
<TABLE>
<CAPTION>
<S> <C> <C>
SHAREHOLDER FEES
(fees paid directly from your investment)
Maximum Sales Charge on Purchases
(as a percentage of offering price) % 5.50
Maximum Deferred Sales Charge
(as a percentage of sales proceeds) % 1.00*
Exchange Fees
- -On First Twelve Exchanges Each Year none
- -On Each Additional Exchange $ 7.50
ANNUAL FUND OPERATING EXPENSES
(expenses that are deducted from Fund assets)
Management Fees % 0.75
Rule 12b-1 Fees % 0.25
Other Expenses % 1.00
TOTAL FUND OPERATING EXPENSES** % 2.00
</TABLE>
* Applies only to purchases of at least $1 million, in which case a contingent
deferred sales charge of 1.00% will be imposed if such shares are sold within
one year after the purchase date.
** Because the Fund has only recently commenced operations, the figure for
"other expenses" has been based on estimated expenses for the current fiscal
year. Advantus Capital Management, Inc. (Advantus Capital), the Fund's
investment adviser, has voluntarily agreed to absorb "other expenses",
excluding investment advisory fees and Rule 12b-1 fees, in excess of .65% of
the average net assets of the Fund. Ascend Financial Services, Inc. (Ascend
Financial), the Fund's underwriter, has voluntarily agreed to waive Rule
12b-1 fees in excess of .10% of the average net assets of the Fund. After
such absorption and waiver, the Fund's total operating expenses will equal
1.50% of average net assets. Advantus Capital and Ascend Financial reserve
the right to discontinue such absorption or waiver, respectively, at any time
at their sole discretion.
EXAMPLE
This example is intended to help you compare the costs of investing in the Fund
with the cost of investing in other mutual funds.
The example assumes that you invest $10,000 in the Fund for the time periods
indicated and then redeem all of your shares at the end of those periods. The
example also assumes that your investment has a 5% return each year and that the
Fund's operating expenses remain the same. Although your actual costs may be
higher or lower, based on these assumptions, your costs would be:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
<S> <C> <C> <C> <C>
Class A $ 742 1,143 1,568 2,749
</TABLE>
4 THE FUND - SUMMARY
<PAGE>
[GRAPHIC]
INVESTING IN THE FUND
MANAGING THE FUND
The investment adviser of the Fund is Advantus Capital Management, Inc.
(Advantus Capital), 400 Robert Street North, St. Paul, Minnesota 55101. Since
its inception in 1994, Advantus Capital has provided investment advisory
services for the Fund and other Advantus Funds, and has managed investment
portfolios for various private accounts. With more than $13.7 billion of assets
under management, Advantus Capital manages the Fund's investments and furnishes
all necessary office facilities, equipment and personnel for servicing the
Fund's investments. Advantus Capital is a wholly-owned subsidiary of Minnesota
Life Insurance Company (Minnesota Life), which was organized in 1880 and has
assets on a consolidated basis of more than $15.7 billion. Personnel of Advantus
Capital also manage Minnesota Life's investment portfolio. Minnesota Life is a
third-tier subsidiary of a mutual insurance holding company called Minnesota
Mutual Companies, Inc. In addition, Minnesota Life, through its Advantus
Shareholder Services division, serves as shareholder and administrative services
agent to the Fund.
The Fund pays Advantus Capital an advisory fee calculated on an annual basis
equal to 0.75% of its average daily net assets.
Joseph R. Betlej has served as the portfolio manager of the Fund since its
inception. Mr. Betlej has also served as a Vice President of Advantus Capital
since September 1996. Mr. Betlej has served as a portfolio manager at Advantus
Capital managing the real estate securities portfolio for Advantus Series Fund,
Inc. since May 1998, and managing other private real estate securities accounts
since May 1996. Mr. Betlej previously served as an investment officer and real
estate analyst at Advantus Capital and its predecessor, MIMLIC Asset Management
Company, since 1987.
- --------------------
FOR YOUR INFORMATION
- --------------------
One of the advantages of investing in mutual funds is continuous professional
management of your investment. Skilled, experienced professionals manage the
Fund's assets.
Joseph Betlej holds a bachelor's degree in architecture from the University of
Minnesota and a master's degree in real estate appraisal and investment analysis
from the University of Wisconsin. Mr. Betlej is a Chartered Financial Analyst.
INVESTMENT OBJECTIVE, POLICIES AND PRACTICES
The Fund seeks total return through a combination of capital appreciation and
current income.
Under normal circumstances, at least 65% of the Fund's total assets will be
invested in real estate and real estate-related securities. The Fund will
primarily invest in real estate and real estate-related equity securities
(including securities convertible into equity securities). The Fund does not
invest directly in real estate. "Real estate securities" include securities
issued by companies that receive at least 50% of their gross revenue from the
construction, ownership, management, financing or sale of residential,
commercial or industrial real estate. Real estate securities issuers typically
include real estate investment trusts (REITs), real estate brokers and
developers and real estate holding companies.
INVESTING IN THE FUND 5
<PAGE>
"Real estate-related securities" include securities issued by companies engaged
in businesses that sell or offer products or services that are closely related
to the real estate industry. Real estate-related securities issuers typically
include construction and related building companies, manufacturers and
distributors of building supplies, financial institutions that issue or service
mortgages and resort companies.
Most of the Fund's real estate securities portfolio will consist of securities
issued by REITs that are listed on a securities exchange or traded
over-the-counter. A REIT is a corporation or trust that invests in fee or
leasehold ownership of real estate, mortgages or shares issued by other REITs.
REITs may be characterized as equity REITs (i.e., REITs that primarily invest in
fee ownership and leasehold ownership of land), mortgage REITs (i.e., REITs that
primarily invest in mortgages on real estate) or hybrid REITs which invest in
both fee and leasehold ownership of land and mortgages. The Fund mostly invests
in equity REITs but also invests lesser portions of its assets in mortgage REITs
and hybrid REITs. A REIT that meets the applicable requirements of the Internal
Revenue Code of 1986 may deduct dividends paid to shareholders, effectively
eliminating any corporate level federal tax. As a result, REITs distribute a
larger portion of their earnings to investors than other corporate entities
subject to the federal corporate tax.
The Fund may invest in securities of issuers of any size, including issuers with
small, medium or large market capitalizations. Advantus Capital assesses an
investment's potential for sustainable earnings growth over time. In selecting
securities, Advantus Capital considers factors such as an issuer's financial
condition, financial performance, quality of management, policies and
strategies, real estate properties and competitive market position.
In addition, the Fund may invest lesser portions of its assets in securities
issued by companies outside of the real estate industry. The Fund may also
invest in non-real estate-related equity securities, convertible debt
securities, investment-grade fixed income securities, securities of other mutual
funds, repurchase agreement transactions, restricted and illiquid securities,
American Depositary Receipts, securities purchased on a when issued or forward
commitment basis, and money market securities. To generate additional income,
the Fund may lend securities representing up to 20% of the value of its total
assets to broker-dealers, banks and other institutions.
In an attempt to respond to adverse market, economic, political or other
conditions, the Fund may invest for temporary defensive purposes in various
short-term cash and cash equivalent items. When investing for temporary
defensive purposes, the Fund may not always achieve its investment objective.
You can find a description of these securities in the Statement of Additional
Information.
6 INVESTING IN THE FUND
<PAGE>
- --------------------
FOR YOUR INFORMATION
- --------------------
In order to make informed decisions, investors must be aware of both the risks
and rewards associated with investing. Not only should you understand the risks
associated with your investments, but you must be comfortable with them as well.
Risks are an inherent part of investing, and your investment in this Fund is
subject to different types and varying degrees of risk.
DEFINING RISKS
Investment in the Fund involves risks. The Fund's yield and price are not
guaranteed, and the value of your investment in the Fund will go up or down. The
value of your investment in the Fund may be affected by the following risks:
- MARKET RISK - is the risk that equity securities are subject to adverse
trends in equity markets. Securities are subject to price movements due to
changes in general economic conditions, the level of prevailing interest
rates or investor perceptions of the market. In addition, prices are
affected by the outlook for overall corporate profitability. Market prices
of equity securities are generally more volatile than debt securities.
This may cause a security to be worth less than the price originally paid
for it, or less than it was worth at an earlier time. Market risk may
affect a single issuer or the market as a whole.
- FUND RISK - is the risk that Fund performance may not meet or exceed that
of the market as a whole. The performance of the Fund will depend on
Advantus Capital's ability to select securities suited to achieve the
Fund's investment objective and judgment of economic and market policies,
trends in investment yields and monetary policy. Due to its active
management, the Fund could underperform other mutual funds with similar
investment objectives or the market generally.
- COMPANY RISK - is the risk that individual securities may perform
differently than the overall market. This may be a result of specific
factors such as changes in corporate profitability due to the success or
failure of specific real estate projects, products or management
strategies, or it may be due to changes in investor perceptions regarding
a company.
- SECTOR RISK - is the risk that the securities of companies within specific
industries or sectors of the economy can periodically perform differently
than the overall market. This may be due to changes in such things as the
regulatory or competitive environment or to changes in investor
perceptions regarding a company.
- REAL ESTATE RISK - is the risk that the value of the Fund's investments
may decrease due to fluctuations in rental income, overbuilding and
increased competition, casualty and condemnation losses, environmental
costs and liabilities, extended vacancies of property, lack of available
mortgage funds, government regulation and limitations, increases in
property taxes, cash flow dependency, declines in real estate value,
physical depreciation of buildings, inability to obtain project financing,
increased operating costs and changes in general or local economic
conditions.
- INTEREST RATE RISK - is the risk that the value of a portfolio of
mortgages or debt securities will decline due to changes in market
interest rates. Generally, when interest rates rise, the value of a
portfolio of mortgages (including mortgage REITs) and debt securities
decreases. Conversely, when interest rates decline, the value of a
portfolio of mortgages and debt securities increases (including mortgage
REITs). Longer-term debt securities are generally more sensitive to
interest rate changes.
- INCOME RISK - is the risk that the Fund's income may decrease due to
falling interest rates.
- CREDIT RISK - is the risk that an issuer of a REIT or debt security will
not make payments on the security when due, or that the other party to a
contract will default on its obligation. There is also the risk that an
issuer could suffer adverse changes in
INVESTING IN THE FUND 7
<PAGE>
financial condition that could lower the credit quality of a security.
This could lead to greater volatility in the price of the security and in
shares of the Fund. Also, a change in the quality rating of a REIT
security or debt security can affect the security's liquidity and make it
more difficult to sell. The Fund attempts to minimize credit risk by
investing in debt securities and fixed income obligations considered at
least investment grade at the time of purchase. However, all of these
securities and obligations, especially those in the lower investment grade
rating categories, have credit risk. In adverse economic or other
circumstances, issuers of these lower rated securities and obligations are
more likely to have difficulty making principal and interest payments than
issuers of higher rated securities and obligations. If the Fund purchases
unrated securities and obligations, it will depend on Advantus Capital's
analysis of credit risk more heavily than usual.
- REIT-RELATED RISK - is the risk that the value of the Fund's equity REIT
securities will be adversely affected by changes in the value of the
underlying property. In addition, the value of equity or mortgage REITs
could be adversely affected if the REIT fails to qualify for tax-free pass
through income under the Internal Revenue Code of 1986 (as amended), or
maintain its exemption from registration under the Investment Company Act
of 1940.
- PREPAYMENT RISK - is the risk that falling interest rates could cause
prepayments of mortgage loans to occur more quickly than expected. This
occurs because, as interest rates fall, more property owners refinance the
mortgages underlying mortgage REIT securities. The REIT must reinvest the
prepayments at a time when interest rates of new mortgage investments are
falling, potentially reducing the portion of the REIT's income
distributable to the Fund. In addition, when interest rates fall, prices
of mortgage loans held by a REIT may not rise as much as for other types
of comparable securities because investors may anticipate an increase in
mortgage prepayments.
- EXTENSION RISK - is the risk that rising interest rates could cause
property owners to prepay their mortgages more slowly than expected,
resulting in slower prepayments of real estate debt securities. This
would, in effect, convert a short or medium-duration REIT security into a
longer-duration security, increasing its sensitivity to interest rate
changes and causing its price to decline. Duration measures the expected
price sensitivity of a fixed income security or portfolio for a given
change in interest rates. For example, if interest rates rise by one
percent, the value of a security or portfolio having a duration of two
years generally will fall by approximately two percent.
- LIMITED PORTFOLIO RISK - is the risk that an investment in the Fund may
present greater volatility, due to the limited number of issuers of real
estate and real estate-related securities, than an investment in a
portfolio of securities selected from a greater number of issuers. The
Fund is subject to limited portfolio risk because the Fund may invest in a
smaller number of individual issuers than other portfolios.
- SMALL COMPANY RISK - is the risk that equity securities of small
capitalization companies are subject to greater price volatility due to,
among other things, such companies' small size, limited product lines,
limited access to financing sources and limited management depth. In
addition, the frequency and volume of trading such securities may be less
than is typical of larger companies, making them subject to wider price
fluctuations. In some cases, there could be difficulties in selling
securities of small capitalization companies at the desired time and
place. The Fund may invest in the securities of small capitalization REITs
or other companies.
8 INVESTING IN THE FUND
<PAGE>
- SECURITIES LENDING RISK - is the risk that the Fund may experience a delay
in the recovery of loaned securities, or even the loss of rights in the
collateral deposited by the borrower if the borrower should fail
financially. To reduce these risks, the Fund enters into loan arrangements
only with institutions that Advantus Capital has determined are
creditworthy.
- YEAR 2000 RISK - is the risk that the Fund may be adversely affected if
the computer systems used by the Fund and other Fund service providers do
not properly process and calculate date-related information on and after
January 1, 2000. In addition, the Fund's return may decrease if the value
of certain securities held by the Fund are adversely affected by the
inability of the applicable issuer's computer systems to properly process
and calculate date-related information on and after January 1, 2000.
Advantus Capital has undertaken a Year 2000 program that it believes will
assess, monitor and address this issue. In evaluating current and
potential portfolio positions, Year 2000 readiness is one of the factors
that Advantus Capital takes into consideration. Advantus Capital will rely
upon public filings and other statements made by companies regarding their
Year 2000 readiness. Issuers in countries outside the United States,
particularly emerging countries, may not be required to make the level of
disclosure regarding Year 2000 readiness that is required in the United
States. Like many other matters, Advantus Capital cannot audit each
portfolio company and its major suppliers, and so cannot verify their Year
2000 readiness. If the value of a Fund investment is adversely affected by
a Year 2000 problem, the net asset value of the Fund will be affected as
well.
You can find more information about other risks in the Statement of Additional
Information.
INVESTING IN THE FUND 9
<PAGE>
[GRAPHIC]
BUYING AND SELLING SHARES
- ---------------
REFERENCE POINT
- ---------------
Real Estate Securities Fund offers one share class - Class A - to investors. All
other Advantus Funds, except the Advantus Money Market Fund, offer three classes
of shares, Class A, Class B, and Class C, which lets investors choose among
three classes of shares that offer different sales charges and bear different
expenses. Please see "General Information - Advantus Family of Funds" for a
listing of all Advantus Funds.
SALES AND DISTRIBUTION CHARGES
As an investor, you pay certain fees and expenses in connection with the Fund.
Sales charges are paid from your account. Annual fund operating expenses
(including distribution fees) are paid out of Fund assets, which affects the
Fund's share price.
If you purchase Fund shares, you will generally pay an initial sales charge.
Fund sales charges are calculated as follows:
<TABLE>
<CAPTION>
SALES CHARGE AS A PERCENTAGE OF:
Value of Your Total Investment Net Offering Price Amount Invested
<S> <C> <C>
Less than $50,000 % 5.5 5.82
At least $50,000 but less than
$100,000 4.5 4.71
At least $100,000 but less than
$250,000 3.5 3.63
At least $250,000 but less than
$500,000 2.5 2.56
At least $500,000 but less than
$1,000,000 2.0 2.04
At least $1,000,000 and over(1) 0 0
</TABLE>
(1) You will not be assessed an initial sales charge for purchases of Fund
shares of at least $1 million, but a contingent deferred sales charge of
1.00% will be imposed if you sell such shares within one year after the
date of purchase.
The sales charge applicable to your initial investment in the Fund depends on
the offering price of your investment. The sales charge applicable to subsequent
investments, however, depends on the offering price of that investment plus the
current net asset value of your previous investments in the Fund. For example,
if you make an initial investment with an offering price of $40,000 you will pay
a sales charge equal to 5.5% of your $40,000 investment, but if you already own
shares with a current net asset value of $40,000 and you invest in additional
shares with an offering price of $10,000 you will pay a sales charge equal to
4.5% of the additional $10,000 since your total investment in the Fund would
then be $50,000.
Fund shares are also subject to a shareholder servicing fee (Rule 12b-1 fee).
The Fund has adopted a shareholder servicing plan that allows the Fund to pay
fees for services provided to shareholders. Because these fees are paid out of
the Fund's assets continuously, over time
10 BUYING AND SELLING SHARES
<PAGE>
these fees will increase the cost of your investment and may cost you more than
paying other types of sales charges. As a percentage of average daily net assets
attributable to shares of the Fund, the maximum Rule 12b-1 fee is 0.25%.
REDUCING SALES CHARGES
PURCHASES OF SHARES. There are several ways you may reduce sales charges on your
purchase of Fund shares.
- LETTER OF INTENT. Lets you purchase shares of the Fund over a 13 month
period and receive the same sales charge as if all shares had been
purchased at once.
- COMBINATION PRIVILEGE. Lets you add the value of all shares you already
own for purposes of calculating the sales charge.
- FAMILY AND TRUST PRIVILEGE. Lets you combine purchases of shares of any
class made by your spouse, children and/or family trust for purposes of
calculating the sales charge. If you wish to use this privilege, you must
indicate on your account application that you are entitled to the reduced
sales charge.
- GROUP PURCHASES. Lets you purchase shares with others as a group at a
reduced sales charge applicable to the group as a whole. A purchase group
must meet criteria established by Ascend Financial Services, Inc. (Ascend
Financial), the Fund's underwriter.
- AUTOMATIC INVESTMENT PLAN. Lets you automatically invest a specified
amount in the Fund each month, which may result in a lower average cost
per share through the principle of "dollar cost averaging." The automatic
investment plan will not always result in a lower cost per share, nor will
it alone reduce your sales charge.
For more information on any of these plans, please contact Advantus Shareholder
Services by telephone at (800) 665-6005.
WAIVER OF SALES CHARGE ON SHARE PURCHASES. Fund shares may be offered without
any sales charge to the following individuals and institutions:
- officers, directors, employees, sales representatives and retirees of the
Fund, Advantus Capital, Ascend Financial, Minnesota Life and affiliated
companies of Minnesota Life, and their respective spouses, siblings,
direct ancestors or direct descendants
- Minnesota Life and its affiliated companies
- trusts, pension or benefit plans sponsored by or on behalf of Advantus
Capital, Ascend Financial, Minnesota Life and affiliated companies of
Minnesota Life
- advisory clients of Advantus Capital or other affiliated companies of
Minnesota Life
- employees of sales representatives of Advantus Capital, Minnesota Life or
affiliated companies of Minnesota Life
- certain accounts as to which a bank or broker-dealer charges an account
management fee, provided that the bank or broker-dealer has an agreement
with Ascend Financial
- certain accounts sold by registered investment advisers
BUYING AND SELLING SHARES 11
<PAGE>
For more information on these waivers, please see the Statement of Additional
Information or contact Advantus Shareholder Services.
BUYING SHARES
You may purchase shares of the Fund on any day the New York Stock Exchange
(NYSE) is open for business. The price for Fund shares is equal to the Fund's
NAV plus any applicable sales charge. NAV is generally calculated as of the
close of normal trading on the NYSE (typically 3:00 p.m. Central time). However,
NAV is not calculated on (a) days in which changes in the Fund's portfolio do
not materially change the Fund's NAV, (b) days on which no Fund shares are
purchased or sold, and (c) customary national business holidays on which the
NYSE is closed for trading.
The Fund's NAV is equal to the Fund's total investments less any liabilities
divided by the number of Fund shares. To determine NAV, the Fund generally
values the Fund's investments based on market quotations. If market quotations
are not available for certain Fund investments, the investments are valued based
on the fair value of the investments as determined in good faith by the Fund's
board of directors. Debt securities may be valued based on calculations
furnished to the Fund by a pricing service or by brokers who make a market in
such securities.
Your purchase order will be priced at the next NAV calculated after your
purchase order is received by the Fund's transfer agent plus the applicable
initial sales charge. If your order is received after the close of normal
trading on the NYSE, your order will be priced at the NAV calculated on the next
day the NYSE is open for trading.
A minimum initial investment of $250 is required, and you may make minimum
subsequent investments of $25. The Fund may reject any purchase order when the
Fund determines it would not be in the best interests of the Fund or its
shareholders.
You may purchase shares of the Fund in any of the following ways:
BY CHECK. New investors may purchase shares of the Fund by sending to the
Fund's transfer agent, First Data Investors Services Group, Inc.
(First Data), a completed account application and a check payable
to the Fund at Advantus Funds Group, P.O. Box 9767, Providence,
Rhode Island 02940-5059. If you wish to purchase additional
shares, please send a check payable to the Fund at the above
address (please be sure to write your account number on your
check). Purchase orders may also be submitted through Ascend
Financial or other authorized broker-dealers.
BY WIRE. New investors may also purchase shares of the Fund by Federal
Reserve or bank wire. You should first complete an account
application and send it to Advantus Funds Group, P.O. Box 9767,
Providence, Rhode Island 02940-5059. Prior to wiring any funds,
you must contact Advantus Shareholder Services at (800) 665-6005
for wire instructions. Wire purchases normally take two or more
hours to complete. To be accepted the same day, wire purchases
must be received by the close of normal trading on the NYSE.
All investments must be in U.S. dollars. Cash, money orders and credit card and
third-party checks are not accepted. If a check does not clear your bank, the
Fund may cancel the purchase.
12 BUYING AND SELLING SHARES
<PAGE>
SELLING SHARES
GENERAL. You may sell your shares at any time. You may make such requests by
contacting the Fund directly by mail or by telephone. Requests by mail should be
sent to Advantus Funds Group, P.O. Box 9767, Providence, Rhode Island
02940-5059. You may also sell your shares by sending a facsimile request to
Advantus Funds Group at (508) 871-3560 if no signature guarantee is required.
Shares will be sold at the NAV next calculated after your sale order is received
by the Fund's transfer agent less any applicable contingent deferred sales
charge (CDSC) for Class A shares subject to a CDSC. Fund shares not otherwise
subject to a CDSC may be sold without any charge.
The Fund will forward the sales proceeds to you as soon as possible, but no
later than seven days after the Fund has received an order. If you recently
purchased your shares by check sales proceeds may not be available until your
check has cleared (which may take up to 14 days). If you designate a bank
account with the Fund and wish to sell shares with a value of at least $500,
then the proceeds can be wired directly to your bank account. If you elect to
have proceeds sent by wire transfer, the current $5.00 wire charge will be
deducted from your Fund account.
The amount you receive may be more or less than the original purchase price for
your shares.
MINIMUM ACCOUNT WITHDRAWAL. If you sell some of your shares and the remaining
shares in your account have a value of less than $150, the Fund has the right to
require you to sell your remaining shares and close your account. However, you
will not be required to sell your shares if your account falls below the minimum
due to changes in the market value of your account. You will be given at least
60 days' written notice to add funds to your account and avoid any required
sale.
SYSTEMATIC WITHDRAWAL PLAN. If you have an account with a value of at least
$5,000, you may establish a Systematic Withdrawal Plan which allows you to sell
a portion of your shares for a fixed or variable amount over a period of time.
Withdrawal payments for Fund shares purchased in amounts of $1 million or more
may also be subject to a CDSC. As a result, you should carefully consider
whether a Systematic Withdrawal Plan is appropriate. More information about the
Systematic Withdrawal Plan is provided in the Statement of Additional
Information.
SIGNATURE GUARANTEE. In order to protect the Fund and shareholders against
fraudulent requests, a signature guarantee may be required in certain cases. No
signature guarantee is required if the sale proceeds are less than $50,000 and
are to be paid to the registered holder of the account at the address of record
for that account. A signature guarantee is required if:
- sale proceeds are $50,000 or more
- sale proceeds will be paid to someone other than the registered
shareholder
- sale proceeds will be mailed to an address other than the registered
shareholder's address of record
- instructions were received by the Fund within 30 days before the sale
order to change the registered shareholder's address or bank wire
instructions
- ---------------
REFERENCE POINT
- ---------------
Please see "Telephone Transactions" for instructions on how to sell shares by
telephone.
See "Selling Shares - Signature Guarantee" below to determine whether your sale
will require a signature guarantee.
BUYING AND SELLING SHARES 13
<PAGE>
- shares are to be transferred to another Fund account holder
- the request is not made by a pre-authorized trustee for a plan, trust or
other tax-exempt organization
The Fund reserves the right to require signature guarantees on all sales. If
your sale order requires a signature guarantee, the signature guarantee must be
an original (not a copy) and provided by any of the following:
- national or state banks, savings associations, savings and loan
associations, trust companies, savings banks, industrial loan companies
and credit unions
- national securities exchanges, registered securities associations and
clearing agencies
- broker-dealers who belong to a national securities exchange or clearing
agency, or who have a minimum net capital of at least $100,000
- institutions that participate in the Securities Transfer Agent Medallion
Program or other recognized signature medallion program
REINSTATEMENT PRIVILEGE. If you sell shares of the Fund, you have a one-time
privilege within 90 days after the sale to use some or all of the sale proceeds
to purchase shares of any of the Advantus Multiple Class Funds at no sales
charge. Following your sale of Class A shares, you will be entitled to purchase
only Class A shares of any of the Advantus Multiple Class Funds under this
reinstatement privilege. Any CDSC incurred in connection with the prior sale of
Class A shares within a 90 day period will not be refunded to a shareholder's
account.
EXCHANGING SHARES
You may exchange some or all of your Fund shares - which are designated "Class
A" shares - for shares of the same class of any other Advantus Multiple Class
Fund or of the Advantus Money Market Fund, Inc. (Money Market Fund) provided the
other Advantus Fund is available in your state. If you are considering an
exchange into another Advantus Fund you should obtain the prospectus for that
fund and read it carefully. Exchanges may only be made between Advantus Fund
accounts with identical registrations. You may make exchanges by contacting the
Fund by mail or by telephone. Exchange requests must be for an exchange amount
of at least $250. You may exchange your shares up to twelve times a year without
restriction or charge. A $7.50 service fee will then be imposed on subsequent
exchanges. The Fund reserves the right to change the terms of and impose
additional charges on exchanges after giving 60 days' prior notice to
shareholders.
Exchanges will be made based on the NAVs of the shares. No additional purchase
or sales charges will be imposed on exchanges for shares. However, shares of the
Money Market Fund acquired by exchange will still be subject to any applicable
CDSC. The CDSC will be calculated without including the period that shares of
the Money Market Fund are held.
You may also elect to systematically exchange Fund shares for shares of other
Advantus Funds on a monthly basis. Systematic exchanges must be for an exchange
amount of at least $25.
More information about exchanging shares is provided in the Statement of
Additional Information.
- ---------------
REFERENCE POINT
- ---------------
Please see "Telephone Transactions" for instructions on how to exchange shares
by telephone.
14 BUYING AND SELLING SHARES
<PAGE>
TELEPHONE TRANSACTIONS
You may sell or exchange Fund shares by telephone. You will automatically have
the right to initiate such telephone transactions unless you elect not to do so
on your account application. You may initiate telephone transactions by calling
Advantus Shareholder Services at (800) 665-6005. Automated service is available
24 hours a day or you may speak to a service representative Monday through
Friday, from 8:00 a.m. to 4:45 p.m. (Central time). The maximum amount of shares
you may sell by telephone is $50,000.
During periods of economic or market changes, you may experience difficulty in
selling or exchanging shares due to a heavy volume of telephone calls. In such a
case, you should consider submitting a written request while still trying a
telephone sale or exchange. The Fund reserves the right to change, terminate or
impose a fee on, telephone sale and exchange privileges after giving 60 days'
prior notice to shareholders.
Unless you decline telephone privileges on your account application, you may be
responsible for any fraudulent telephone order as long as the Fund takes
reasonable measures to verify the order.
- ---------------
REFERENCE POINT
- ---------------
Please see "Selling Shares" and "Exchanging Shares" for sale and exchange
details.
BUYING AND SELLING SHARES 15
<PAGE>
[GRAPHIC]
GENERAL INFORMATION
DIVIDENDS AND CAPITAL GAINS DISTRIBUTIONS
The Fund pays its shareholders dividends from its net investment income, and
distributes any net capital gains that it has realized. Dividends are paid
quarterly and net capital gains distributions are generally paid once a year.
Your distributions will be reinvested in additional shares of the Fund unless
you instruct the Fund otherwise. Distributions of these additional shares are
made at the NAV of the payment date. There are no fees or sales charges on
reinvestments. If you wish to receive cash distributions, you may authorize the
Fund to do so in your account application or by writing to Advantus Shareholder
Services. If your cash distribution checks cannot be delivered by the postal or
other delivery service to your address of record, all distributions will
automatically be reinvested in additional shares of the Fund. No interest will
be paid on amounts represented by uncashed distribution checks.
You may elect to have dividends invested in shares of the Money Market Fund or
in shares of the same class of another Advantus Multiple Class Fund described in
"Advantus Family of Funds" below. Dividends are valued at the NAV of such other
Advantus Fund on the dividend payment date. To qualify for this privilege, you
must maintain a minimum account balance of $250 in the Fund and the other
applicable Advantus Fund. You must request this privilege by writing to Advantus
Funds Group, P.O. Box 9767, Providence, Rhode Island 02940-5059.
TAXES
You will be taxed on both dividends and capital gains distributions paid by the
Fund (unless you hold your shares through an IRA or other tax-deferred
retirement account). Dividends and distributions are subject to tax regardless
of whether they are automatically invested or are received in cash. Dividends
paid from the Fund's investment income will be taxed as ordinary income. Capital
gains distributions will be taxed as long-term capital gains, regardless of the
length of time for which you have held your shares. Long-term capital gains are
currently taxable to individuals at a maximum federal tax rate of 20%. If you
purchase shares of the Fund before dividends or capital gains distributions,
such dividends and distributions will reduce the NAV per share by the amount of
such dividends and distributions. Furthermore, you will be subject to taxation
on such dividends and distributions.
If you sell your shares, you will generally realize a capital gain or loss. Any
gain will be treated as short-term if you have held the shares for one year or
less, and long-term if you have held the shares more than one year. Short-term
capital gains are taxed as ordinary income, while long-term capital gains are
subject to a maximum federal tax rate of 20%. If you exchange your shares in the
Fund for shares of another Advantus Fund, the exchange will be treated as a sale
for federal tax purposes, and you will be taxed on any capital gain you realize
on the sale.
- --------------------
FOR YOUR INFORMATION
- --------------------
The redemption or exchange of Fund shares may generate a taxable event for you.
Depending on the purchase price and the sale price of the shares you redeem or
exchange, you may incur a gain or loss.
16 GENERAL INFORMATION
<PAGE>
The Fund makes changes in its portfolio that Advantus Capital deems advisable.
The Fund's portfolio turnover may cause the Fund to realize capital gains which,
when distributed to shareholders, will be taxable to them.
REITs in which the Fund invests may generate significant non-cash deductions
such as property depreciation, and therefore their cash flow may exceed their
taxable income. If a REIT distributes this excess cash to its shareholders,
including the Fund, this portion of the distribution is classified for tax
purposes as a return of capital. The Fund may, in turn, distribute this cash to
shareholders in the form of a return of capital. A return of capital is
generally not taxable to you; however, any return of capital distribution would
be taxable as a capital gain once your cost basis is reduced to zero (which
could happen if you do not reinvest your distributions and return of capital in
those distributions is significant).
The Fund may invest in REITs that hold residual interests in real estate
mortgage investment conduits (REMICs). Under Treasury regulations that have not
yet been issued, but may apply retroactively, a portion of the Fund's income
from a REIT that is attributable to the REIT's residual interest in a REMIC
(referred to in the Code as an "excess inclusion") will be subject to federal
income tax in all events. See "Distributions and Tax Status - Taxation" in the
Statement of Additional Information for further discussion of the possible
effect of these regulations on Fund shareholders, including shareholders who are
otherwise exempt from taxation.
You will receive an annual statement from the Fund providing detailed
information concerning the federal tax status of distributions you have received
during the year. Because REITs cannot provide complete information about the
taxability of their distributions until after the end of the calendar year, the
Fund intends to ask the Internal Revenue Service each year for an extension on
issuing Forms 1099-DIV (1099s) for the Fund. If this request is approved, we
expect to mail 1099s to Fund shareholders in nonretirement accounts during
February.
The above is only a general discussion of the federal income tax consequences of
an investment in the Fund. For more information, see the Statement of Additional
Information. You should consult your own tax adviser for the specific federal,
state or local tax consequences to you of an investment in the Fund.
GENERAL INFORMATION 17
<PAGE>
SERVICE PROVIDERS
INVESTMENT ADVISER
Advantus Capital Management, Inc.
400 Robert Street North
St. Paul, Minnesota 55101
(651) 665-3826
UNDERWRITER
Ascend Financial Services, Inc.
400 Robert Street North
St. Paul, Minnesota 55101-2098
(651) 665-4833
(888) 237-1838
SHAREHOLDER AND ADMINISTRATIVE SERVICES AGENT
Advantus Shareholder Services
(a division of Minnesota Life Insurance Company)
(800) 665-6005
TRANSFER AGENT
First Data Investor Services Group, Inc.
Advantus Funds Group
P.O. Box 9767
Providence, Rhode Island 02940-5059
CUSTODIAN
U.S. Bank National Association
180 East Fifth Street
St. Paul, Minnesota 55101
INDEPENDENT AUDITORS
KPMG Peat Marwick LLP
GENERAL COUNSEL
Dorsey & Whitney LLP
18 GENERAL INFORMATION
<PAGE>
ADVANTUS FAMILY OF FUNDS
Real Estate Securities Fund is a member of the Advantus family of funds. The
following is a brief description of the investment objectives, policies and
practices of the Advantus Funds.
ENTERPRISE
- -------------------------------------------------
Long-term growth through investing primarily in common stocks issued by small
capitalization companies.
VENTURE
- -------------------------------------------------
Long-term growth through investing primarily in stocks of small capitalization
companies deemed by Advantus Capital to be undervalued relative to their future
earnings and growth potential.
HORIZON
- -------------------------------------------------
Long-term growth combined with a moderate level of current income through
investing primarily in common stocks issued by mid and large capitalization
companies.
INDEX 500
- -------------------------------------------------
Investment results that correspond generally to the S&P 500 Index by investing a
significant portion of its portfolio in common stocks included in the S&P 500
Index.*
CORNERSTONE
- -------------------------------------------------
Long-term growth through investing primarily in stocks of mid and large
capitalization companies deemed by Advantus Capital to be undervalued relative
to their future earnings and growth potential.
INTERNATIONAL BALANCED
- -------------------------------------------------
Total return through investing primarily in stocks and bonds of large and small
companies located outside the U.S.
REAL ESTATE SECURITIES
- -------------------------------------------------
Total return through investing in real estate and real estate-related
securities.
SPECTRUM
- -------------------------------------------------
Total return from a combination of income and capital appreciation through
investing in a portfolio of stocks, bonds and money market instruments.
BOND
- -------------------------------------------------
High level of current income by investing primarily in high quality corporate
bonds.
MORTGAGE SECURITIES
- -------------------------------------------------
High level of current income by investing primarily in mortgage-related
securities.
MONEY MARKET
- -------------------------------------------------
High level of current income by investing primarily in money market securities.
*"STANDARD & POOR'S-REGISTERED TRADEMARK-", "S&P 500-REGISTERED TRADEMARK-",
"STANDARD & POOR'S 500", AND "500" ARE REGISTERED TRADEMARKS OF THE MCGRAW-HILL
COMPANIES, INC. AND HAVE BEEN LICENSED FOR USE BY ADVANTUS INDEX 500 FUND, INC.
THE FUND IS NOT SPONSORED, ENDORSED, SOLD OR PROMOTED BY STANDARD & POOR'S AND
STANDARD & POOR'S MAKES NO REPRESENTATION REGARDING THE ADVISABILITY OF
INVESTING IN THE FUND.
AN INVESTMENT IN ANY ADVANTUS FUND WILL BE SUBJECT TO A VARIETY OF RISKS. AS A
RESULT, AN ADVANTUS FUND MAY NOT ALWAYS ACHIEVE ITS INVESTMENT OBJECTIVE.
THIS INFORMATION IS A RESULT OF LONG-TERM RISK AND RETURN EXPECTATIONS USING
VARIOUS INDICES AND ASSET CLASS HISTORIES, AND IS NOT FROM ACTUAL PERFORMANCE.
PLEASE NOTE THAT THE ACTUAL RISK/RETURN FOR AN INVESTMENT IN THE ABOVE ADVANTUS
FUNDS MAY VARY AND THE ABOVE TABLE DOES NOT NECESSARILY INDICATE HOW EACH
ADVANTUS FUND WILL PERFORM IN THE FUTURE.
[GRAPHIC]
GENERAL INFORMATION 19
<PAGE>
<TABLE>
<S> <C>
ASCEND FINANCIAL SERVICES, INC. BULK RATE
400 ROBERT STREET NORTH U.S. POSTAGE PAID
ST. PAUL, MN 55101-2098 ST. PAUL, MN
PERMIT NO. 3547
ADDRESS SERVICE REQUESTED
</TABLE>
ADDITIONAL INFORMATION ABOUT THE FUND
The Fund's annual and semi-annual reports list
portfolio holdings, and discuss recent market
conditions, economic trends and investment
strategies that affected the Fund during the latest
fiscal year.
A Statement of Additional Information (SAI) provides
further information about the Fund. The current SAI
is on file with the Securities and Exchange
Commission and is incorporated by reference (is
legally part of this Prospectus).
HOW TO OBTAIN ADDITIONAL INFORMATION
The SAI and the Fund's annual and semi-annual
reports are available without charge upon request.
You may obtain additional information or make any
inquiries:
By Telephone - Call (800) 665-6005
By Mail - Write to Advantus Funds Group, P.O. Box
9767, Providence, Rhode Island 02940-5059
Information about the Fund (including the SAI and
annual and semi-annual reports) can be reviewed and
copied at the SEC's Public Reference Room in
Washington, D.C. (telephone 1-800-SEC-0330). This
information and other reports about the Fund are
also available on the SEC's World Wide Web site at
http://www.sec.gov. Copies of this information may
be obtained by writing to the SEC's Public Reference
Section, Washington, D.C. 20549-6009. You will be
charged a duplicating fee for copies.
Investment Company Act No. 811-9139
[LOGO]
-C-1999 Advantus Capital Management, Inc.
All rights reserved.
F. 53055 2-1999
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
ADVANTUS REAL ESTATE SECURITIES FUND, INC.
_________________, 1999
THIS STATEMENT OF ADDITIONAL INFORMATION IS NOT A PROSPECTUS. THIS STATEMENT OF
ADDITIONAL INFORMATION RELATES TO THE SEPARATE PROSPECTUS DATED ____________,
1999, AND SHOULD BE READ IN CONJUNCTION THEREWITH. A COPY OF THE PROSPECTUS MAY
BE OBTAINED BY TELEPHONE FROM ADVANTUS SHAREHOLDER SERVICES AT (800) 665-6005 OR
BY WRITING TO ADVANTUS FUNDS GROUP, P.O. BOX 9767, PROVIDENCE, RHODE ISLAND
02940-5059.
THIS STATEMENT OF ADDITIONAL INFORMATION MUST BE ACCOMPANIED OR PRECEDED BY A
COPY OF THE CURRENT PROSPECTUS AND ANNUAL REPORT TO SHAREHOLDERS FOR THE FUND.
1
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
<S> <C>
GENERAL INFORMATION AND HISTORY. . . . . . . . . . . . . . . . . . . . . . . . . . .4
INVESTMENT OBJECTIVES AND POLICIES . . . . . . . . . . . . . . . . . . . . . . . . .4
Real Estate Investment Trust Securities . . . . . . . . . . . . . . . . . . . . . .4
Debt and Money Market Securities. . . . . . . . . . . . . . . . . . . . . . . . . .4
Low Rated Securities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .6
Convertible Securities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .7
Foreign Securities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .7
Loans of Portfolio Securities . . . . . . . . . . . . . . . . . . . . . . . . . . .8
Restricted and Illiquid Securities. . . . . . . . . . . . . . . . . . . . . . . . .8
When-Issued Securities and Forward Commitments. . . . . . . . . . . . . . . . . . .9
Repurchase Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Warrants. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Short Sales Against the Box . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Defensive Purposes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
INVESTMENT RESTRICTIONS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
PORTFOLIO TURNOVER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
DIRECTORS AND EXECUTIVE OFFICERS . . . . . . . . . . . . . . . . . . . . . . . . . 14
DIRECTOR LIABILITY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
INVESTMENT ADVISORY AND OTHER SERVICES . . . . . . . . . . . . . . . . . . . . . . 16
General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Control and Management of Advantus Capital and Ascend Financial . . . . . . . . . 16
Investment Advisory Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Distribution Agreement. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Payment of Certain Distribution Expenses of the Fund. . . . . . . . . . . . . . . 18
PORTFOLIO TRANSACTIONS AND ALLOCATION OF BROKERAGE . . . . . . . . . . . . . . . . 20
CALCULATION OF PERFORMANCE DATA. . . . . . . . . . . . . . . . . . . . . . . . . . 22
CAPITAL STOCK AND OWNERSHIP OF SHARES. . . . . . . . . . . . . . . . . . . . . . . 24
HOW TO BUY SHARES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Alternative Purchase Arrangements . . . . . . . . . . . . . . . . . . . . . . . . 24
Purchase by Check . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Purchase by Wire. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Timing of Purchase Orders . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Minimum Investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Public Offering Price . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
SALES CHARGES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
NET ASSET VALUE AND PUBLIC OFFERING PRICE. . . . . . . . . . . . . . . . . . . . . 26
REDUCED SALES CHARGES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
Right of Accumulation-Cumulative Purchase Discount. . . . . . . . . . . . . . . . 27
Letter of Intent. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
Combining Purchases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
Group Purchases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
Waiver of Sales Charges For Certain Sales of Class A Shares . . . . . . . . . . . 28
2
<PAGE>
EXCHANGE AND TRANSFER OF FUND SHARES . . . . . . . . . . . . . . . . . . . . . . . 28
Systematic Exchange Plan. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
SHAREHOLDER SERVICES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
Open Accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
Automatic Investment Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
Group Systematic Investment Plan. . . . . . . . . . . . . . . . . . . . . . . . . 30
Retirement Plans Offering Tax Benefits. . . . . . . . . . . . . . . . . . . . . . 31
Systematic Withdrawal Plans . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
REDEMPTIONS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
Signature Guarantee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
Telephone Redemption. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
Delay in Payment of Redemption Proceeds . . . . . . . . . . . . . . . . . . . . . 34
Fund's Right to Redeem Small Accounts . . . . . . . . . . . . . . . . . . . . . . 34
Reinstatement Privilege . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
TELEPHONE TRANSACTIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
DISTRIBUTIONS AND TAX STATUS . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
Dividends and Capital Gains Distributions . . . . . . . . . . . . . . . . . . . . 35
Taxation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
FINANCIAL STATEMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
APPENDIX A BOND AND COMMERCIAL PAPER RATINGS . . . . . . . . . . . . . . . . . . .A-1
APPENDIX B - FINANCIAL STATEMENTS. . . . . . . . . . . . . . . . . . . . . . . . .B-1
</TABLE>
3
<PAGE>
GENERAL INFORMATION AND HISTORY
Advantus Real Estate Securities Fund, Inc. (the "Fund") is an open-end
diversified investment companies, commonly called a mutual fund. The Fund,
together with twelve other mutual funds which share the same investment adviser,
are members of a family of mutual funds known as the "Advantus Funds." Each of
the Advantus Funds, excluding the Fund and Advantus Money Market Fund, Inc.,
offers more than one class of shares (the "Advantus Multiple Class Funds"). The
Fund currently offers one class of shares (Class A). The Fund was incorporated
as a Minnesota corporation in September, 1998.
INVESTMENT OBJECTIVES AND POLICIES
The investment objectives and principal investment policies of the Fund are
set forth in detail in the text of the Fund's Prospectus under "Investing in the
Fund - Investment Policies and Practices."
REAL ESTATE INVESTMENT TRUST SECURITIES
A real estate investment trust ("REIT") is a corporation or a business
trust that would otherwise be taxed as a corporation, which meets certain
requirements of the Internal Revenue Code of 1986, as amended (the "Code").
The Code permits a qualifying REIT to deduct dividends paid, thereby
effectively eliminating corporate level federal income tax and making the
REIT a pass-through vehicle for federal income tax purposes. In order to
qualify as a REIT, a company must derive at least 75% of its gross income
from real estate sources (rents, mortgage interest, and gains from sale of
real estate assets), and must distribute to shareholders annually 95% or more
of its taxable income. Moreover, at the end of each quarter of its taxable
year, at least 75% of the value of its total assets must be represented by
real estate assets, cash and cash items, and U.S. government securities.
REITs are sometimes informally characterized as equity REITs, mortgage
REITs and hybrid REITs. An equity REIT invests primarily in the fee ownership
or leasehold ownership of land and buildings and derives its income primarily
from rental income. A mortgage REIT invests primarily in mortgages on real
estate, and derives primarily from interest payments received on credit it has
granted. A hybrid REIT combines the characteristics of equity REITs and
mortgage REITs. It is anticipated, although not required, that under normal
circumstances, a majority of the Fund investments in REITs will consist of
equity REITs.
DEBT AND MONEY MARKET SECURITIES
The Fund may invest in long, intermediate and short-term debt securities
from various industry classifications and money market instruments. Such
instruments may include the following:
--Corporate obligations which at the time of purchase are rated within the
four highest grades assigned by Standard & Poor's Corporation ("S&P"),
Moody's Investors Services, Inc. ("Moody's") or any other national rating
service, or, if not rated, are of equivalent investment quality as
determined by the Fund's investment adviser or sub-adviser, as the case may
be. To the extent that the Fund invests in securities rated BBB or Baa by
S&P or Moody's, respectively, it will be investing in securities which have
speculative elements.
4
<PAGE>
See "Low Rated Securities," below. For a description of the ratings used
by Moody's and S&P, see Appendix A ("Bond and Commercial Paper Ratings")
below.
--Obligations of, or guaranteed by, the U.S. Government, its agencies or
instrumentalities.
--Debt obligations of banks.
In addition to the instruments described above, which will generally be
long-term, but may be purchased by the Fund within one year of the date of a
security's maturity, the Fund may also purchase other high quality securities
including:
-- Obligations (including certificates of deposit and bankers' acceptances) of
U.S. banks, savings and loan associations, savings banks which have total
assets (as of the date of their most recent annual financial statements at
the time of investment) of not less than $2,000,000,000; U.S. dollar
denominated obligations of Canadian chartered banks, London branches of
U.S. banks and U.S. branches or agencies of foreign banks which meet the
above-stated asset size; and obligations of any U.S. banks, savings and
loan associations and savings banks, regardless of the amount of their
total assets, provided that the amount of the obligations purchased does
not exceed $100,000 for any one U.S. bank, savings and loan association or
savings bank and the payment of the principal is insured by the Federal
Deposit Insurance Corporation or the Federal Savings and Loan Insurance
Corporation.
-- Obligations of the International Bank for Reconstruction and Development.'
--Commercial paper (including variable amount master demand notes) issued by
U.S. corporations or affiliated foreign corporations and rated (or
guaranteed by a company whose commercial paper is rated) at the date of
investment Prime-1 by Moody's or A-1 by S&P or, if not rated by either
Moody's or S&P, issued by a corporation having an outstanding debt issue
rated Aa or better by Moody's or AA or better by S&P and, if issued by an
affiliated foreign corporation, such commercial paper (not to exceed in the
aggregate 10% of such Fund's net assets) is U.S. dollar denominated and not
subject at the time of purchase to foreign tax withholding.
The Fund may also invest in securities which are unrated if the Fund's
investment adviser determines that such securities are of equivalent investment
quality to the rated securities described above. In the case of "split-rated"
securities, which result when nationally-recognized rating agencies rate the
security at different rating levels (e.g., BBB by S&P and Ba by Moody's), it is
the Fund's general policy to classify such securities at the higher rating level
where, in the judgment of the Fund's investment adviser or sub-adviser, such
classification reasonably reflects the security's quality and risk.
The market value of debt securities generally varies in response to changes
in interest rates and the financial condition of each issuer. During periods of
declining interest rates, the value of debt securities generally increases.
Conversely, during periods of rising interest rates, the value of such
securities generally declines. These changes in market value will be reflected
in the Fund's net asset value.
5
<PAGE>
The Fund may, however, acquire debt securities which, after acquisition,
are down-graded by the rating agencies to a rating which is lower than the
applicable minimum rating described above. In such an event it is the Fund's
general policy to dispose of such down-graded securities except when, in the
judgment of the Fund's investment adviser it is to the Fund's advantage to
continue to hold such securities. In no event, however, will the Fund hold in
excess of 5% of its net assets in securities which have been down-graded
subsequent to purchase where such down-graded securities are not otherwise
eligible for purchase by the Fund. This 5% is in addition to securities which
the Fund may otherwise purchase under its usual investment policies.
LOW RATED SECURITIES
The Fund may also hold 5% of its net assets in securities rated below
"investment grade" (i.e. below BBB) where such securities were investment grade
at the time of purchase but subsequently down-graded. Debt securities rated
below the four highest categories (i.e., below BBB) are not considered
investment grade obligations and are commonly called "junk bonds." These
securities are predominately speculative and present more credit risk than
investment grade obligations. Bonds rated below BBB are also regarded as
predominately speculative with respect to the issuer's continuing ability to
meet principal and interest payments.
Low rated and unrated debt securities generally involve greater volatility
of price and risk of principal and income, including the possibility of default
by, or bankruptcy of, the issuers of the securities. In addition, the markets
in which low rated and unrated debt securities are traded are more limited than
those in which higher rated securities are traded. The existence of limited
markets for particular securities may diminish the Fund's ability to sell the
securities at fair value either to meet redemption requests or to respond to
changes in the economy or in the financial markets and could adversely affect
and cause fluctuations in the daily net asset value of the Fund's shares.
Adverse publicity and investor perceptions, whether or not based on
fundamental analysis, may decrease the values and liquidity of low rated debt
securities, especially in a thinly traded market. Analysis of the
creditworthiness of issuers of low rated debt securities may be more complex
than for issuers of higher rated securities, and the ability of the Fund to
achieve its investment objective may, to the extent of investment in low rated
debt securities, be more dependent upon such creditworthiness analysis than
would be the case if the Fund were investing in higher rated securities.
Low rated debt securities may be more susceptible to real or perceived
adverse economic and competitive industry conditions than investment grade
securities. The prices of low rated debt securities have been found to be less
sensitive to interest rate changes than higher rated investments, but more
sensitive to adverse economic downturns or individual corporate developments. A
projection of an economic downturn or of a period of rising interest rates, for
example, could cause a decline in low rated debt securities prices because the
advent of a recession could lessen the ability of a highly leveraged company to
make principal and interest payments on its debt securities. If the issuer of
low rated debt securities defaults, the Fund may incur additional expenses to
seek recovery. The low rated bond market is relatively new, and many of the
outstanding low rated bonds have not endured a major business recession.
6
<PAGE>
CONVERTIBLE SECURITIES
The Fund may invest in debt or preferred equity securities convertible into
or exchangeable for equity securities. Traditionally, convertible securities
have paid dividends or interest at rates higher than common stocks but lower
than non-convertible securities. They generally participate in the appreciation
or depreciation of the underlying stock into which they are convertible, but to
a lesser degree. The total return and yield of lower quality (high yield/high
risk) convertible bonds can be expected to fluctuate more than the total return
and yield of higher quality, shorter-term bonds, but not as much as common
stocks. The Fund will limit its purchase of convertible debt securities to
those that, at the time of purchase, are rated at least BBB by S&P or Baa by
Moody's, or if not rated by S&P or Moody's, are of equivalent investment quality
as determined by the Fund's investment adviser.
FOREIGN SECURITIES
The Fund may invest up to 10% of the market value of its total assets in
securities of foreign issuers which are not publicly traded in the U.S.
(securities of foreign issuers which are publicly traded in the U.S., usually in
the form of sponsored American Depositary Receipts, are not subject to this 10%
limitation.) Investing in securities of foreign issuers may result in greater
risk than that incurred in investing in securities of domestic issuers. There
is the possibility of expropriation, nationalization or confiscatory taxation,
taxation of income earned in foreign nations or other taxes imposed with respect
to investments in foreign nations; foreign exchange controls (which may include
suspension of the ability to transfer currency from a given country), default in
foreign government securities, political or social instability or diplomatic
developments which could affect investments in securities of issuers in those
nations. In addition, in many countries there is less publicly available
information about issuers than is available in reports about companies in the
U.S. Foreign companies are not generally subject to uniform accounting,
auditing and financial reporting standards, and auditing practices and
requirements may not be comparable to those applicable to U.S. companies.
Further, the Fund may encounter difficulties or be unable to pursue legal
remedies and obtain judgments in foreign courts. Commission rates in foreign
countries, which are sometimes fixed rather than subject to negotiation as in
the U.S., are likely to be higher. Further, the settlement period of securities
transactions in foreign markets may be longer than in domestic markets. In many
foreign countries there is less government supervision and regulation of
business and industry practices, stock exchanges, brokers and listed companies
than in the U.S. The foreign securities markets of many of the countries in
which the Fund may invest may also be smaller, less liquid, and subject to
greater price volatility than those in th U.S. Also, some countries may
withhold portions of interest, dividends and gains at the source. The Fund may
also be unfavorably affected by fluctuations in the relative rates of exchange
between the currencies of different nations (i.e., when the currency being
exchanged has decreased in value relative to the currency being purchased).
There are further risk considerations, including possible losses through the
holding of securities in domestic and foreign custodial banks and depositories.
The countries of the European Monetary Union (EMU) began the process of
converting their individual country currencies to the EURO on January 1, 1999.
There is also a risk that the value of foreign securities of companies located
in EMU countries may decrease due to market volatility resulting from the
conversion of certain EMU country currencies to the Euro. It is not possible to
predict the impact of the Euro on the business or financial condition of
European issues or on the Fund. The transition and the elimination of currency
risk among EMU countries may change the economic environment and behavior of
investors, particularly in European markets. To the extent the Fund holds
non-U.S. dollar (Euro or other) denominated securities, it will still be exposed
to currency risk due to fluctuations in those currencies versus the U.S. dollar.
The Fund has no present intention of investing in securities of foreign
issuers other than in the form of American Depositary Receipts (ADR).
An ADR is sponsored if the original issuing company has selected a single
U.S. bank to serve as its U.S. depositary and transfer agent. This relationship
requires a deposit agreement which defines the rights and duties of both the
issuer and depositary. Companies that sponsor ADRs must also provide their ADR
investors with English translations of company information made public in their
own domiciled country. Sponsored ADR investors also generally have the same
voting rights as ordinary shareholders, barring any unusual circumstances. ADRs
which meet these
7
<PAGE>
requirements can be listed on U.S. stock exchanges. Unsponsored ADRs are
created at the initiative of a broker or bank reacting to demand for a specific
foreign stock. The broker or bank purchases the underlying shares and deposits
them in a depositary. Unsponsored shares issued after 1983 are not eligible for
U.S. stock exchange listings. Furthermore, they do not generally include voting
rights.
LOANS OF PORTFOLIO SECURITIES
For the purpose of realizing additional income, the Fund may make secured
loans of portfolio securities amounting to not more than 20% of its total
assets. Securities loans are made to broker-dealers or financial institutions
pursuant to agreements requiring that the loans be continuously secured by
collateral at least equal at all times to the value of the securities lent. The
collateral received will consist of cash, letters of credit or securities issued
or guaranteed by the U.S. Government, its agencies or instrumentalities. While
the securities are being lent, the Fund will continue to receive the equivalent
of the interest or dividends paid by the issuer on the securities, as well as
interest on the investment of the collateral or a fee from the borrower.
Although the Fund does not expect to pay commissions or other front-end fees
(including finders fees) in connection with loans of securities (but in some
cases may do so), a portion of the additional income realized will be shared
with the Fund's custodian for arranging and administering such loans. The Fund
has a right to call each loan and obtain the securities on five business days'
notice. The Fund will not have the right to vote securities while they are
being lent, but it will call a loan in anticipation of any important vote. The
risks in lending portfolio securities, as with other extensions of secured
credit, consist of possible delay in receiving additional collateral or in the
recovery of the securities or possible loss of rights in the collateral should
the borrower fail financially. Loans will only be made to firms deemed by the
Fund's investment adviser to be of good standing and to have sufficient
financial responsibility, and will not be made unless, in the judgment of the
Fund's investment adviser, the consideration to be earned from such loans would
justify the risk. The creditworthiness of entities to which the Fund makes
loans of portfolio securities is monitored by the Fund's investment adviser
throughout the term of each loan.
RESTRICTED AND ILLIQUID SECURITIES
The Fund may invest up to 15% of its net assets in securities restricted as
to disposition under the federal securities laws or otherwise, or other illiquid
assets. An investment is generally deemed to be "illiquid" if it cannot be
disposed of within seven days in the ordinary course of business at
approximately the amount at which the investment company is valuing the
investment. "Restricted securities" are securities which were originally sold in
private placements and which have not been registered under the Securities Act
of 1933 (the "1933 Act"). Such securities generally have been considered
illiquid by the staff of the Securities and Exchange Commission (the "SEC"),
since such securities may be resold only subject to statutory restrictions and
delays or if registered under the 1933 Act. Because of such restrictions, the
Fund may not be able to dispose of a block of restricted securities for a
substantial period of time or at prices as favorable as those prevailing in the
open market should like securities of an unrestricted class of the same issuer
be freely traded. The Fund may be required to bear the expenses of registration
of such restricted securities.
The SEC has acknowledged, however, that a market exists for certain
restricted securities (for example, securities qualifying for resale to certain
"qualified institutional buyers" pursuant to
8
<PAGE>
Rule 144A under the 1933 Act). Additionally, the Fund's investment adviser
believes that a similar market exists for commercial paper issued pursuant to
the private placement exemption of Section 4(2) of the 1933 Act. The Fund may
invest without limitation in these forms of restricted securities if such
securities are deemed by the Fund's investment adviser to be liquid in
accordance with standards established by the Fund's Board of Directors. Under
these guidelines, the Fund's investment adviser must consider (a) the frequency
of trades and quotes for the security, (b) the number of dealers willing to
purchase or sell the security and the number of other potential purchasers, (c)
dealer undertakings to make a market in the security, and (d) the nature of the
security and the nature of the marketplace trades (for example, the time needed
to dispose of the security, the method of soliciting offers and the mechanics of
transfer). At the present time, it is not possible to predict with accuracy how
the markets for certain restricted securities will develop. Investing in such
restricted securities could have the effect of increasing the level of the
Fund's illiquidity to the extent that qualified purchasers of the securities
become, for a time, uninterested in purchasing these securities.
If through the appreciation of restricted securities or the depreciation of
unrestricted securities, the Fund is in a position where more than 15% of its
net assets are invested in restricted and other illiquid securities, the Fund
will take appropriate steps to protect liquidity.
WHEN-ISSUED SECURITIES AND FORWARD COMMITMENTS
The Fund may each purchase securities offered on a "when-issued" basis and
may purchase or sell securities on a "forward commitment" basis. When such
transactions are negotiated, the price, which is generally expressed in yield
terms, is fixed at the time the commitment is made, but delivery and payment for
the securities takes place at a later date. Normally, the settlement date
occurs within two months after the transaction, but delayed settlements beyond
two months may be negotiated. During the period between a commitment to
purchase by the Fund and settlement, no payment is made for the securities
purchased by the Fund and, thus, no interest accrues to the Fund from the
transaction.
The use of when-issued transactions and forward commitments enables the
Fund to hedge against anticipated changes in interest rates and prices. For
instance, in periods of rising interest rates and falling prices, the Fund might
sell securities in its portfolio on a forward commitment basis to limit its
exposure to falling prices. In periods of falling interest rates and rising
prices, the Fund might sell a security in its portfolio and purchase the same or
a similar security on a when-issued or forward commitment basis, thereby fixing
the purchase price to be paid on the settlement date at an amount below that to
which the Fund anticipates the market price of such security to rise and, in the
meantime, obtaining the benefit of investing the proceeds of the sale of its
portfolio security at currently higher cash yields. Of course, the success of
this strategy depends upon the ability of the Fund's investment adviser to
correctly anticipate increases and decreases in interest rates and prices of
securities. If the Fund's investment adviser anticipates a rise in interest
rates and a decline in prices and, accordingly, the Fund sells securities on a
forward commitment basis in order to hedge against falling prices, but in fact
interest rates decline and prices rise, the Fund will have lost the opportunity
to profit from the price increase. If the investment adviser anticipates a
decline in interest rates and a rise in prices, and, accordingly, the Fund sells
a security in its portfolio and purchases the same or a similar security on a
when-issued or forward commitment basis in order to enjoy currently high cash
yields, but in fact interest rates increase and prices fall, the Fund will have
lost the opportunity to profit from investment of the proceeds of the sale of
the
9
<PAGE>
security at the increased interest rates. The likely effect of this hedging
strategy, whether the Fund's investment adviser is correct or incorrect in its
prediction of interest rate and price movements, is to reduce the chances of
large capital gains or losses and thereby reduce the likelihood of wide
variations in the Fund's net asset value.
When-issued securities and forward commitments may be sold prior to the
settlement date, but, except for mortgage dollar roll transactions, the Fund
enters into when-issued and forward commitments only with the intention of
actually receiving or delivering the securities, as the case may be. The Fund
may hold a when-issued security or forward commitment until the settlement date,
even if the Fund will incur a loss upon settlement. To facilitate transactions
in when-issued securities and forward commitments, the Fund's custodian bank
maintains, in a separate account of the Fund, liquid assets, such as cash,
short-term securities and other liquid securities (marked to the market daily),
having a value equal to, or greater than, any commitments to purchase securities
on a when-issued or forward commitment basis and, with respect to forward
commitments to sell portfolio securities of the Fund, the portfolio securities
themselves. If the Fund, however, chooses to dispose of the right to acquire a
when-issued security prior to its acquisition or dispose of its right to deliver
or receive against a forward commitment, it can incur a gain or loss. (At the
time the Fund makes the commitment to purchase or sell a security on a
when-issued or forward commitment basis, it records the transaction and reflects
the value of the security purchased or, if a sale, the proceeds to be received,
in determining its net asset value.)
The purchase of securities on a when-issued or forward commitment basis
exposes the Fund to risk because the securities may decrease in value prior to
their delivery. Purchasing securities on a when-issued or forward commitment
basis involves the additional risk that the return available in the market when
the delivery takes place will be higher than that obtained in the transaction
itself. The Fund's purchase of securities on a when-issued or forward
commitment basis while remaining substantially fully invested increases the
amount of the Fund's assets that are subject to market risk to an amount that is
greater than the Fund's net asset value, which could result in increased
volatility of the price of the Fund's shares. No more than 30% of the value of
the Fund's total assets will be committed to when-issued or forward commitment
transactions.
REPURCHASE AGREEMENTS
The Fund may enter into repurchase agreements. Repurchase agreements are
agreements by which the Fund purchases a security and obtains a simultaneous
commitment from the seller (a member bank of the Federal Reserve System or, if
permitted by law or regulation and if the Board of Directors of the Fund has
evaluated its creditworthiness through adoption of standards of review or
otherwise, a securities dealer) to repurchase the security at an agreed upon
price and date. The creditworthiness of entities with whom the Fund enters into
repurchase agreements is monitored by the Fund's investment adviser throughout
the term of the repurchase agreement. The resale price is in excess of the
purchase price and reflects an agreed upon market rate unrelated to the coupon
rate on the purchased security. Such transactions afford the Fund the
opportunity to earn a return on temporarily available cash. The Fund's
custodian, or a duly appointed subcustodian, holds the securities underlying any
repurchase agreement in a segregated account or such securities may be part of
the Federal Reserve Book Entry System. The market value of the collateral
underlying the repurchase agreement is determined on each business day. If at
any time the market value of the collateral falls below the repurchase price of
the repurchase agreement (including any accrued interest), the Fund promptly
receives additional collateral, so that the total collateral is in an amount
10
<PAGE>
at least equal to the repurchase price plus accrued interest. While the
underlying security may be a bill, certificate of indebtedness, note or bond
issued by an agency, authority or instrumentality of the U.S. Government, the
obligation of the seller is not guaranteed by the U.S. Government. In the event
of a bankruptcy or other default of a seller of a repurchase agreement, the Fund
could experience both delays in liquidating the underlying security and losses,
including: (a) possible decline in the value of the underlying security during
the period while the Fund seeks to enforce its rights thereto; (b) possible
subnormal levels of income and lack of access to income during this period; and
(c) expenses of enforcing its rights.
WARRANTS
The Fund may invest in warrants; however, not more than 5% of its net
assets (at the time of purchase) will be invested in warrants other than
warrants acquired in units or attached to other securities. Of such 5%, not
more than 2% of the Fund's assets at the time of purchase may be invested in
warrants that are not listed on the New York or American Stock Exchanges.
Warrants are instruments that allow investors to purchase underlying shares at a
specified price (exercise price) at a given future date. The market price of a
warrant is determined by market participants by the addition of two distinct
components: (1) the price of the underlying shares less the warrant's exercise
price, and (2) the warrant's premium that is attributed to volatility and
leveraging power. Warrants are pure speculation in that they have no voting
rights, pay no dividends and have no rights with respect to the assets of the
corporation issuing them. The prices of warrants do not necessarily move
parallel to the prices of the underlying securities.
SHORT SALES AGAINST THE BOX
The Fund may sell securities "short against the box." Whereas a short sale
is the sale of a security the Fund does not own, a short sale is "against the
box" if, at all times during which the short position is open, the Fund owns at
least an equal amount of the securities sold short or other securities
convertible into or exchangeable without further consideration for securities of
the same issue as the securities sold short. Short sales against the box are
typically used by sophisticated investors to defer recognition of capital gains
or losses. The Fund has no present intention to sell securities short in this
fashion.
DEFENSIVE PURPOSES
The Fund may invest approximately 5% of its net assets in cash or cash
items. In addition, for temporary or defensive purposes, the Fund may invest up
to 20% of its net assets in cash or cash items without limitation. The "cash
items" in which the Fund may invest, include short-term obligations such as
rated commercial paper and variable amount master demand notes; United States
dollar-denominated time and savings deposits (including certificates of
deposit); bankers' acceptances; obligations of the United States Government or
its agencies or instrumentalities; repurchase agreements collateralized by
eligible investments of the Fund; securities of other mutual funds which invest
primarily in debt obligations with remaining maturities of 13 months or less
(which investments also are subject to the advisory fee); and other similar
high-quality short-term United States dollar-denominated obligations. The other
mutual funds in which the Fund may so invest include money market funds advised
by the Fund's investment adviser.
11
<PAGE>
INVESTMENT RESTRICTIONS
The Fund is "diversified" as defined in the Investment Company Act of 1940
(the "1940 Act"). This means that at least 75% of the value of the Fund's total
assets is represented by cash and cash items, government securities, securities
of other investment companies, and securities of other issuers, which for
purposes of this calculation, are limited in respect of any one issuer to an
amount not greater in value than 5% of the Fund's total assets and to not more
than 10% of the outstanding voting securities of such issuer.
The Fund is also subject to certain "fundamental" investment restrictions,
which may not be changed without the vote of a "majority" of the Fund's
outstanding shares. As used in the Prospectus and this Statement of Additional
Information, "majority" means the lesser of (i) 67% of the Fund's outstanding
shares present at a meeting of the holders if more than 50% of the outstanding
shares are present in person or by proxy or (ii) more than 50% of the Fund's
outstanding shares. An investment restriction which is not fundamental may be
changed by vote of the Board of Directors without further shareholder approval.
Except as otherwise noted, each of the investment restrictions below is
fundamental.
(The investment restrictions numbered 1 through 7 below are fundamental.
Restrictions numbered 8 through 14 are not fundamental.)
The Fund will NOT:
(1) Purchase any security if, as a result, 25% or more of the Fund's total
assets would be invested in the securities of issuers conducting their
principal business activities in a single industry, except that this
limitation will not apply to investments in securities of issuers in
the real estate or real estate-related industry (in which 25% or more
of the value of the Fund's total assets will be invested).
(2) Purchase or sell real estate, except that the Fund may invest in
securities secured by real estate or interests therein or issued by
companies which invest in real estate or interests therein.
(3) Purchase or sell physical commodities or futures or options
contracts with respect to physical commodities. This restriction
shall not restrict the Fund from purchasing or selling any financial
contracts or instruments which may be deemed commodities (including,
by way of example and not by way of limitation, options, futures, and
options on futures with respect, in each case, to interest rates,
currencies, stock indices, bond indicies or interest rate indicies)
or any security which is collateralized or otherwise backed by
physical commodities.
(4) Borrow money, or enter into reverse repurchase agreements, in excess
of one-third of its net assets, and, with respect to borrowing money,
only from banks for temporary purposes. For purposes of this
restriction, the use of options and futures transactions and the
purchase of securities on a when-issued or delayed delivery basis
shall not be deemed the borrowing of money.
(5) Issue any senior securities, as defined in the 1940 Act, other than
as set forth in restriction number 4 above and except to the extent
that using options and futures contracts or purchasing or selling
securities on a when-issued or forward commitment basis may be deemed
to constitute issuing a senior security.
12
<PAGE>
(6) Make loans to other persons, except that it may lend portfolio
securities representing up to one-third of the value of its total
assets. (The Fund, however, may purchase and hold debt instruments
and enter into repurchase agreements in accordance with its investment
objectives and policies.)
(7) Act as an underwriter of securities, except to the extent the Fund may
be deemed to be an underwriter, under the federal securities laws, in
connection with the disposition of portfolio securities.
(8) Make investments for the purpose of exercising control or management.
(9) Participate on a joint or joint and several basis in any trading
account in securities.
(10) Invest in the securities of other investment companies with an
aggregate value in excess of 5% of the Funds total assets, except
securities acquired as a result of a merger, consolidation or
acquisition of assets.
(11) Invest more than a total of 15% of the Fund's net assets in securities
or other assets, including repurchase agreements with a maturity of
over seven days, which are illiquid.
(12) Purchase securities on margin (but it may obtain such short-term
credits as may be necessary for the clearance of purchases and sales
of securities).
(13) Make short sales except short sales against the box where it owns the
securities sold or, by virtue of ownership of other securities, it has
the right to obtain, without payment of further consideration,
securities equivalent in kind and amount to those sold.
(14) Make additional investments while its borrowings exceed 5% of its
total assets.
Any investment policy set forth under "Investing in the Fund -- Investment
Policies and Practices" in the Prospectus, or any restriction set forth above
which involves a maximum percentage of securities or assets shall not be
considered to be violated unless an excess over the percentage occurs
immediately after an acquisition of securities or utilization of assets and
results therefrom, or unless the Investment Company Act of 1940 provides
otherwise.
PORTFOLIO TURNOVER
Portfolio turnover is the ratio of the lesser of annual purchases or sales
of portfolio securities to the average monthly value of portfolio securities,
not including short-term securities. A 100% portfolio turnover rate would
occur, for example, if the lesser of the value of purchases or sales of
portfolio securities for a particular year were equal to the average monthly
value of the portfolio securities owned during such year.
The Fund makes changes in its portfolio securities which are considered
advisable in light of market conditions. Frequent changes may result in higher
brokerage and other costs for the Fund. Portfolio turnover rates may vary
greatly from year to year and within a particular year and may also be affected
by cash requirements for redemptions of Fund shares. The Fund does not
13
<PAGE>
emphasize short-term trading profits. The Fund had not commenced operations
prior to the date hereof.
DIRECTORS AND EXECUTIVE OFFICERS
The names, addresses, principal occupations, and other affiliations of
directors and executive officers of the Fund are given below:
<TABLE>
<CAPTION>
Position with Principal Occupation and other
Name and Address the Fund Affiliations (past 5 years)
- ---------------- --------- ---------------------------
<S> <C> <C>
William N. Westhoff* President and President, Treasurer and Director,
Advantus Capital Director Advantus Capital Management, Inc.;
Management, Inc. Senior Vice President and Treasurer,
400 Robert Street North Minnesota Life Insurance Company;
St. Paul, Minnesota 55101 Vice President and Director, Robert Street
Energy, Inc.; President, MCM Funding 1997-1,
Inc.; President, MCM Funding 1998-1, Inc.;
Senior Vice President, Global Investments,
American Express Financial Corporation,
Minneapolis, Minnesota, from August 1994 to
October 1997; Senior Vice President, Fixed
Income Management, American Express Financial
Corporation, Minneapolis, Minnesota, from
November 1989 to July 1994
Frederick P. Feuerherm* Vice President, Vice President, Assistant Secretary and
Advantus Capital Director and Director, Advantus Capital
Management, Inc. Treasurer Management, Inc.; Vice President,
400 Robert Street North Minnesota Life Insurance Company;
St. Paul, Minnesota 55101 Vice President and Director, MIMLIC Funding,
Inc.; Vice President and Assistant Secretary,
MCM Funding 1997-1, Inc.; Vice President and
Assistant Secretary, MCM Funding 1998-1, Inc.
Ralph D. Ebbott Director Retired, Vice President and Treasurer
409 Birchwood Avenue of Minnesota Mining and Manufacturing
White Bear Lake, Company (tape, adhesive, photographic,
Minnesota 55110 and electrical products) through June
1989
14
<PAGE>
Charles E. Arner Director Retired, Vice Chairman of The First
E-1218 First National National Bank of Saint Paul from
Bank Building November 1983 through June 1984;
332 Minnesota Street Chairman and Chief Executive Officer
St. Paul, Minnesota 55101 of The First National Bank of Saint Paul
from October 1980 through November
1983
Ellen S. Berscheid Director Regents' Professor of Psychology at the
University of Minnesota University of Minnesota
N309 Elliott Hall
Minneapolis, Minnesota 55455
Michael J. Radmer Secretary Partner with the law firm of
Dorsey & Whitney LLP Dorsey & Whitney LLP
220 South Sixth Street
Minneapolis, Minnesota 55402
</TABLE>
__________________________________
* Denotes directors of the Fund who are "interested persons" (as defined under
the Investment Company Act of 1940) of the Fund.
__________________________________
Legal fees and expenses are paid to the law firm of which Michael J. Radmer
is a partner. No compensation is paid by the Fund to any of its officers or
directors who is affiliated with Advantus Capital Management, Inc. ("Advantus
Capital").
Each director of the Fund who is not affiliated with Advantus Capital is
also a director of the other twelve investment companies of which Advantus
Capital is the investment adviser (13 investment companies in total -- the "Fund
Complex"). As of the date hereof, such directors receive compensation in
connection with all such investment companies which, in the aggregate, is equal
to $8,000 per year and $2,000 per meeting attended (and reimbursement of travel
expenses to attend directors' meetings). The portion of such compensation borne
by the Fund is a pro rata portion based on the ratio that the Fund's total net
assets bears to the total net assets of the Fund Complex. The Fund had not
commenced operations prior to the date hereof but it is estimated that each
Director not affiliated by Advantus Capital will be compensated by the Fund
during a fiscal year in accordance with the following table:
<TABLE>
<CAPTION>
Pension or Total
Retirement Compensation
Aggregate Benefits Estimated From Funds and
Compensation Accrued as Annual Fund Complex
Name of from the Part of Fund Benefits Upon Paid to
Director Funds(1) Expenses Retirement Directors
- -------- -------- -------- ---------- ---------
<S> <C> <C> <C> <C>
Charles E. Arner $26 n/a n/a $20,000
Ellen S. Berscheid $26 n/a n/a $20,000
Ralph D. Ebbott $26 n/a n/a $20,000
</TABLE>
(1) Estimate based on the relative net assets of the Fund and the other
investment companies in the Fund Complex as of the date hereof.
As of the date hereof, the directors and excutive officers of the
Fund did not own any shares of the Fund.
DIRECTOR LIABILITY
Under Minnesota law, the Board of Directors of the Fund owes certain
fiduciary duties to the Fund and to its shareholders. Minnesota law provides
that a director "shall discharge the duties of the position of director in
good faith, in a manner the director reasonably believes to be in the best
interest of the corporation, and with the care an ordinarily prudent person
in a like position would exercise under similar circumstances." Fiduciary
duties of a director of a Minnesota corporation include, therefore, both a
duty of "loyalty" (to act in good faith and act in a manner reasonably
believed to be in the best interests of the corporation) and a duty of "care"
(to act with the care an ordinarily prudent person in a like position would
exercise under similar circumstances). Minnesota law also authorizes
corporations to eliminate or limit the personal liability of a director to
the corporation or its shareholders for monetary damages for breach of the
fiduciary duty of "care." Minnesota law does not, however, permit a
corporation to eliminate or
15
<PAGE>
limit the liability of a director (i) for any breach of the directors' duty
of "loyalty" to the corporation or its shareholders, (ii) for acts or
omissions not in good faith or that involve intentional misconduct or a
knowing violation of law, (iii) for authorizing a dividend, stock repurchase
or redemption or other distribution in violation of Minnesota law or for
violation of certain provisions of Minnesota securities laws, or (iv) for any
transaction from which the director derived an improper personal benefit.
The Articles of Incorporation of the Fund limit the liability of directors to
the fullest extent permitted by Minnesota statutes, except to the extent that
such liability cannot be limited as provided in the Investment Company Act of
1940 (which prohibits any provisions which purport to limit the liability of
directors arising from such directors' willful misfeasance, bad faith, gross
negligence or reckless disregard of the duties involved in the conduct of
heir role as directors).
Minnesota law does not eliminate the duty of "care" imposed upon a
director. It only authorizes a corporation to eliminate monetary liability for
violations of that duty. Minnesota law, further, does not permit elimination or
limitation of liability of "officers" to the corporation for breach of their
duties as officers (including the liability of directors who serve as officers
for breach of their duties as officers). Minnesota law does not permit
elimination or limitation of the availability of equitable relief, such as
injunctive or rescissionary relief. Further, Minnesota law does not permit
elimination or limitation of a director's liability under the Securities Act of
1933 or the Securities Exchange Act of 1934, and it is uncertain whether and to
what extent the elimination of monetary liability would extend to violations of
duties imposed on directors by the Investment Company Act of 1940 and the rules
and regulations adopted under such Act.
INVESTMENT ADVISORY AND OTHER SERVICES
GENERAL
Advantus Capital Management, Inc. ("Advantus Capital") has been the
investment adviser and manager of the Fund since its inception. Ascend
Financial Services, Inc. ("Ascend Financial") acts as the Fund's underwriter.
Both Advantus Capital and Ascend Financial act as such pursuant to written
agreements that will be periodically considered for approval by the directors or
shareholders of the Fund. The address of both Advantus Capital and Ascend
Financial is 400 Robert Street North, St. Paul, Minnesota 55101.
CONTROL AND MANAGEMENT OF ADVANTUS CAPITAL AND ASCEND FINANCIAL
Advantus Capital was incorporated in Minnesota in June 1994, and is a
wholly-owned subsidiary of Minnesota Life Insurance Company ("Minnesota Life").
Minnesota Life is a third-tier subsidiary of a mutual insurance holding company
called Minnesota Mutual Companies, Inc. Minnesota Life was organized in 1880,
and has assets of more than $15.7 billion. Ascend Financial is also a
subsidiary of Minnesota Life. William N. Westhoff, President and a Director of
the Fund, is President, Treasurer and Director of Advantus Capital. Frederick
P. Feuerherm, Vice President, Treasurer and a Director of the Fund, is a Vice
President, Assistant Secretary and Director of Advantus Capital. Richard W.
Worthing is a Vice President and Head of Equities with Advantus Capital.
16
<PAGE>
INVESTMENT ADVISORY AGREEMENT
Advantus Capital acts as investment adviser and manager of the Fund
under an Investment Advisory Agreement (the "Advisory Agreement") dated
October 22, 1998 for the Fund, which became effective on February 3, 1999,
when the Fund's initial shareholder approved the Advisory Agreement. The
Advisory Agreement was approved by the Board of Directors of the Fund
(including a majority of the directors who are not parties to the contract,
or interested persons of any such party) on October 22, 1998. The Advisory
Agreement will terminate automatically in the event of its assignment. In
addition, the Advisory Agreement is terminable at any time, without penalty,
by the Board of Directors of the Fund or by vote of a majority of the Fund's
outstanding voting securities on not more than 60 days' written notice to
Advantus Capital, and by Advantus Capital on 60 days' written notice to the
Fund. Unless sooner terminated, the Advisory Agreement shall continue in
effect for more than two years after its execution only so long as such
continuance is specifically approved at least annually by either the Board of
Directors of the Fund or by a vote of a majority of the outstanding voting
securities, provided that in either event such continuance is also approved
by the vote of a majority of the directors who are not parties to the
Advisory Agreement, or interested persons of such parties, cast in person at
a meeting called for the purpose of voting on such approval.
Pursuant to the Advisory Agreement the Fund pays Advantus Capital an
advisory fee equal on an annual basis to a .75% of the Fund's average daily net
assets. The Fund had not commenced operations prior to the date hereof.
For this fee, Advantus Capital acts as investment adviser and manager for
the Fund. In addition, separate from the Investment Advisory Agreement, the
Fund has entered into an agreement with Minnesota Life under which Minnesota
Life, through its Advantus Shareholder Services division, provides (i)
accounting, legal and other administrative services and (ii) shareholder
servicing to the Fund. Minnesota Life currently provides accounting, legal and
administrative services at a monthly cost to the Fund of $4,800, and shareholder
servicing at a cost to the Fund of $5 per shareholder account per year. The
Fund pays its own transfer agent expenses and has engaged First Data Investor
Services Group, Inc. to act as its transfer agent.
Under the Advisory Agreement, Advantus Capital furnishes the Fund office
space and all necessary office facilities, equipment and personnel for servicing
the investments of the Fund, and pays the salaries and fees of all officers and
directors of the Fund who are affiliated with Advantus Capital. In addition,
except to the extent that Ascend Financial receives Rule 12b-1 distribution fees
(see "Payment of Certain Distribution Expenses of the Fund" below), Ascend
Financial bears all promotional expenses in connection with the distribution of
the Fund's shares, including paying for prospectuses and statements of
additional information for new shareholders, and shareholder reports for new
shareholders, and the costs of sales literature. The Fund pays all other
expenses not so expressly assumed.
17
<PAGE>
DISTRIBUTION AGREEMENT
The Board of Directors of the Fund, including a majority of the directors
who are not parties to the contract, or interested persons of any such party,
approved the Fund's Distribution Agreement with Ascend Financial (the
"Distribution Agreement"), on October 22, 1998.
The Distribution Agreement may be terminated by the Fund or Ascend
Financial at any time by the giving of 60 days' written notice, and terminates
automatically in the event of its assignment. Unless sooner terminated, the
Distribution Agreement shall continue in effect for more than two years after
its execution only so long as such continuance is specifically approved at least
annually by either the Board of Directors of the Fund or by a vote of a majority
of the outstanding voting securities, provided that in either event such
continuance is also approved by the vote of a majority of the directors who are
not parties to the Distribution Agreement, or interested persons of such
parties, cast in person at a meeting called for the purpose of voting on such
approval.
The Distribution Agreement requires Ascend Financial to pay all advertising
and promotional expenses in connection with the distribution of the Fund's
shares including paying for Prospectuses and Statement of Additional Information
(if any) for new shareholders, shareholder reports for new shareholders, and the
costs of sales literature.
In the Distribution Agreement, Ascend Financial undertakes to indemnify the
Fund against all costs of litigation and other legal proceedings, and against
any liability incurred by or imposed upon the Fund in any way arising out of or
in connection with the sale or distribution of the Fund's shares, except to the
extent that such liability is the result of information which was obtainable by
Ascend Financial only from persons affiliated with the Fund but not with Ascend
Financial.
PAYMENT OF CERTAIN DISTRIBUTION EXPENSES OF THE FUND
The Fund has adopted a Plan of Distribution applicable to Class A shares
relating to the payment of certain shareholder servicing expenses pursuant to
Rule 12b-1 under the Investment Company Act of 1940. The Fund, pursuant to its
Plan of Distribution, pays fees to Ascend Financial which equal, on an annual
basis, .25% of the Fund's average daily net assets attributable to Class A
shares.
The 12b-1 fees payable with respect to Class A shares, equal to .25% of the
average daily net assets, constitute a shareholder servicing fee designed to
compensate Ascend Financial for the provision of certain services to the holders
of Class A shares.
Amounts expended by the Fund under the Plan of Distribution are expected
to be used for the implementation by Ascend Financial of a dealer incentive
program. Pursuant to the program, Ascend Financial may provide compensation
to investment dealers for the provision of administrative support services
to customers who directly or beneficially own shares of the Fund. The
administrative support services rendered by dealers may include, but are not
limited to, the following: answering routine customer inquiries concerning
the Fund; assisting customers in changing dividend options, account
designation and addresses, and in enrolling into the pre-authorized check
plan or systematic
18
<PAGE>
withdrawal plan; assisting in the establishment and maintenance of customer
accounts and records and in the processing of purchase and redemption
transactions; investing dividends and any capital gains distributions
automatically in the Fund's shares and providing such other information and
services as the Fund or the customer may reasonably request. Such fees for
servicing customer accounts would be in addition to the portion of the sales
charge received or to be received by dealers which sell shares of the Fund.
Ascend Financial may also provide compensation to certain institutions such
as banks ("Service Organizations") which have purchased shares of the Fund for
the accounts of their clients, or which have made the Fund's shares available
for purchase by their clients, and/or which provide continuing service to such
clients. The Glass-Steagall Act and other applicable laws, among other things,
prohibit certain banks from engaging in the business of underwriting securities.
In such circumstances, Ascend Financial, if so requested, will engage such banks
as Service Organizations only to perform administrative and shareholder
servicing functions, but at the same fees and other terms applicable to dealers.
State law may, however, differ from the interpretation of the Glass-Steagall Act
expressed and banks and other financial institutions may therefore be required
to register as securities dealers pursuant to state law. If a bank were
prohibited from acting as a Service Organization, its shareholder clients would
be permitted to remain shareholders of the Fund and alternative means for
continuing servicing of such shareholders would be sought. In such event
changes in the operation of the Fund might occur and a shareholder serviced by
such bank might no longer be able to avail itself of any automatic investment or
other services then being provided by the bank. It is not expected that
shareholders would suffer any adverse financial consequences as a result of any
of these occurrences.
In addition, the Plan of Distribution contains, among other things,
provisions complying with the requirements of Rule 12b-1 discussed below. In
particular, each Plan provides that (1) the Plan will not take effect until
it has been approved by a vote of a majority of the outstanding voting
securities of the Fund, and by a majority vote of both the full board of
directors of the Fund and those directors who are not interested persons of
the Fund and who have no direct or indirect financial interest in the
operation of the Plan or in any agreements relating to it (the Independent
Directors), (2) the Plan will continue in effect from one year to another so
long as its continuance is specifically approved annually by a majority vote
of both the full board of directors and the Independent Directors, (3) the
Plan may be terminated at any time, without penalty, by vote of a majority of
the Independent Directors or by a vote of a majority of the outstanding
voting securities of the Fund, (4) the Plan may not be amended to increase
materially the amount of the fees payable thereunder unless the amendment is
approved by a vote of a majority of the outstanding voting securities of the
Fund, and all material amendments must be approved by a majority vote of both
the full board of directors and the Independent Directors, (5) while the Plan
is in effect, the selection and nomination of any new Independent Directors
is committed to the discretion of the Independent Directors then in office,
and (6) the Fund's underwriter will prepare and furnish to the board of
directors, and the board of directors will review, at least quarterly,
written reports which set forth the amounts expended under the Plan and the
purposes for which those expenditures were made.
Rule 12b-1(b) provides that any payments made by an investment company
in connection with the distribution of its shares may only be made pursuant
to a written plan describing all material aspects of the proposed financing
of distribution and also requires that all agreements with any person
relating to implementation of the plan must be in writing. In addition,
Rule 12b-1(b)(2) requires that such plan, together with any related
agreements, be approved by a vote of the board of directors and of the
directors who are not interested persons of the investment company and have
no direct or indirect financial interest in the operation of the plan or in
any agreements related to the plan, cast in person at a meeting called for
the purpose of voting on such plan or agreements. Rule 12b-1(b)(3) requires
that the plan or agreement provide, in substance: (1) that it shall continue
in effect for a period of more than one year from the date of its execution
or adoption only so long as such continuance is specifically approved at
least annually in the manner described in paragraph (b)(2) of Rule 12b-1; (2)
that any person authorized to direct the disposition of monies paid or
payable by the investment company pursuant to the plan or any related
agreement shall provide to the investment company's board of directors, and
the directors shall review, at least quarterly, a written report of the
amounts so expended and the purposes for which such expenditures were made;
and (3) in the case of a plan, that it may be terminated at any time by vote
of a majority of the members of the board of directors of the investment
company who are not interested persons of the investment company and have no
direct or indirect financial interest in the operation of the plan or in any
agreements related to the plan or by vote of a majority of the outstanding
voting securities of the investment company. Rule 12b-1(b)(4) requires that
such plans may not be amended to increase materially the amount to be spent
for distribution without shareholder approval and that all material
amendments of the plan must be approved in the manner described in paragraph
(b)(2) of Rule 12b-1. Rule 12b-1(c)
19
<PAGE>
provides that the investment company may rely upon Rule 12b-1(b) only if
selection and nomination of the investment company's disinterested directors are
committed to the discretion of such disinterested directors. Rule 12b-1(e)
provides that the investment company may implement or continue a plan pursuant
to Rule 12b-1(b) only if the directors who vote to approve such implementation
or continuation conclude, in the exercise of reasonable business judgment and in
light of their fiduciary duties under state law, and under Sections 36(a) and
(b) of the Investment Company Act of 1940, that there is a reasonable likelihood
that the plan will benefit the investment company and its shareholders. At the
Board of Directors meeting held October 22, 1998, the directors of the Fund so
concluded. Since the Fund had not commenced operations prior to the date
hereof, no information regarding 12b-1 fees paid by the Fund is provided.
The Plan of Distribution could be construed as a "compensation plan"
because Ascend Financial is paid a fixed fee and is given discretion
concerning what expenses are payable under the Plan of Distribution. Under a
compensation plan, the fee to the distributor is not directly tied to
distribution expenses actually incurred by the distributor, thereby
permitting the distributor to receive a profit if amounts received exceed
expenses. Ascend Financial may spend more or less for the servicing of
shareholder accounts than it receives as fees pursuant to the Plan of
Distribution. However, to the extent fees received exceed expenses,
including indirect expense such as overhead, Ascend Financial could be said
to have received a profit.
PORTFOLIO TRANSACTIONS AND ALLOCATION OF BROKERAGE
In a number of security transactions, it is possible for the Fund to deal
in the over-the-counter security markets (including the so-called "third market"
which is the "over-the-counter" market for securities listed on the New York
Stock Exchange) without the payment of brokerage commissions but at net prices
including a spread or markup; the Fund trades in this manner whenever the net
price appears advantageous.
Advantus Capital selects and (where applicable) negotiates commissions with
the brokers who execute the transactions for the Fund. Since the Fund had not
commenced operations prior to the date hereof, no information regarding
brokerage commissions paid by the Fund is provided.
The primary criteria for the selection of a broker is the ability of the
broker, in the opinion of Advantus Capital, to secure prompt execution of the
transactions on favorable terms, including the reasonableness of the commission
and considering the state of the market at the time. In selecting a broker,
Advantus Capital considers whether such broker provides brokerage and research
services (as defined in the Securities Exchange Act of 1934), and generally the
Fund pays higher than the lowest commission rates available. Advantus Capital
may direct Fund transactions to brokers who furnish research services to
Advantus Capital. Such research services include advice, both directly and in
writing, as to the value of securities, the advisability of investing in,
purchasing or selling securities, and the availability of securities or
purchasers or sellers of securities, as well as analysis and reports concerning
issues, industries, securities, economic factors and trends, portfolio strategy,
and the performance of accounts. By allocating brokerage business in order to
obtain research services for Advantus Capital, the Fund enables Advantus Capital
to supplement its own investment research activities and allows Advantus Capital
to obtain the views and information of individuals and research staffs of many
different securities research firms prior to making investment decisions for the
Fund. To the extent such commissions are directed to these other brokers who
furnish research services to Advantus Capital, Advantus Capital receives a
20
<PAGE>
benefit, not capable of evaluation in dollar amounts, without providing any
direct monetary benefit to the Fund from these commissions.
There is no formula for the allocation by Advantus Capital of the Fund's
brokerage business to any broker-dealer for brokerage and research services.
However, Advantus Capital will authorize the Fund to pay an amount of commission
for effecting a securities transaction in excess of the amount of commission
another broker would have charged only if Advantus Capital determines in good
faith that such amount of commission is reasonable in relation to the value of
the brokerage and research services provided by such broker viewed in terms of
either that particular transaction or Advantus Capital's overall
responsibilities with respect to the accounts as to which it exercises
investment discretion. Since the Fund had not commenced operations prior to the
date hereof, no information regarding brokerage commissions paid by the Fund is
provided.
No brokerage is allocated for the sale of Fund shares. Advantus Capital
believes that most research services obtained by it generally benefit one or
more of the investment companies which it manages and also benefit accounts
which it manages. Normally research services obtained through managed funds and
managed accounts investing in common stocks would primarily benefit such funds
and accounts; similarly, services obtained from transactions in fixed income
securities would be of greater benefit to the managed funds and managed accounts
investing in debt securities.
The Fund will not execute portfolio transactions through any affiliate,
unless such transactions, including the frequency thereof, the receipt of
commissions payable in connection therewith and the selection of the affiliated
broker-dealer effecting such transactions are not unfair or unreasonable to the
shareholders of the Fund. In the event any transactions are executed on an
agency basis, Advantus Capital will authorize the Fund to pay an amount of
commission for effecting a securities transaction in excess of the amount of
commission another broker-dealer would have charged only if Advantus Capital
determines in good faith that such amount of commission is reasonable in
relation to the value of the brokerage and research services provided by such
broker-dealer, viewed in terms of either that particular transaction or the
overall responsibilities of Advantus Capital with respect to the Fund as to
which it exercises investment discretion. If the Fund executes any transactions
on an agency basis, it will generally pay higher than the lowest commission
rates available.
In determining the commissions to be paid to an affiliated broker-dealer,
it is the policy of the Fund that such commissions will, in the judgment of
Advantus Capital, subject to review by the Fund's Board of Directors, be both
(a) at least as favorable as those which would be charged by other qualified
brokers in connection with comparable transactions involving similar securities
being purchased or sold on an exchange during a comparable period of time, and
(b) at least as favorable as commissions contemporaneously charged by such
affiliated broker-dealers on comparable transactions for their most favored
comparable unaffiliated customers. While the Fund does not deem it practicable
and in its best interest to solicit competitive bids for commission rates on
each transaction, consideration will regularly be given to posted commission
rates as well as to other information concerning the level of commissions
charged on comparable transactions by other qualified brokers.
21
<PAGE>
CALCULATION OF PERFORMANCE DATA
Advertisements and other sales literature for the Fund may refer to
"yield," "average annual total return" and "cumulative total return."
Performance quotations are computed separately for each class of shares of the
Fund.
YIELD. Yield is computed by dividing the net investment income per share
(as defined under Securities and Exchange Commission rules and regulations)
earned during the computation period by the maximum offering price per share on
the last day of the period, according to the following formula:
a-b 6
YIELD = 2[( ----- +1) -1]
cd
Where: a = dividends and interest earned during
the period;
b = expenses accrued for the period (net of
reimbursements);
c = the average daily number of shares
outstanding during the period that were
entitled to receive dividends; and
d = the maximum offering price per share on the
last day of the period.
Since the Fund had not commenced operations prior to the date hereof, no
Fund yield information is provided.
AVERAGE ANNUAL TOTAL RETURN. Average annual total return is computed by
finding the average annual compounded rates of return over the periods indicated
in the advertisement that would equate the initial amount invested to the ending
redeemable value, according to the following formula:
22
<PAGE>
n
P(1+T) = ERV
Where: P = a hypothetical initial payment of $1,000;
T = average annual total return;
n = number of years; and
ERV = ending redeemable value at the end of the
period of a hypothetical $1,000 payment made
at the beginning of such period.
Since the Fund had not commenced operations prior to the date hereof, no
information regarding the average annual total return of the Fund is provided.
CUMULATIVE TOTAL RETURN. Cumulative total return figures are computed by
finding the cumulative compounded rate of return over the period indicated in
the advertisement that would equate the initial amount invested to the ending
redeemable value, according to the following formula:
ERV-P
CTR = ( ----- )100
P
Where: CTR = cumulative total return;
ERV = ending redeemable value at the end of the
period of a hypothetical $1,000 payment made
at the beginning of such period; and
P = initial payment of $1,000.
Since the Fund had not commenced operations prior to the date hereof, no
information regarding the cumulative total return of the Fund is provided.
The calculations for both average annual total return and cumulative total
return deduct the maximum sales charge from the initial hypothetical $1,000
investment, assume all dividends and capital gain distributions are reinvested
at net asset value on the appropriate reinvestment dates as described in the
Prospectus, and include all recurring fees, such as investment advisory and
management fees, charged as expenses to all shareholder accounts.
Such average annual total return and cumulative total return figures may
also be accompanied by average annual total return and cumulative total return
figures, for the same or other periods, which do not reflect the deduction of
any sales charges.
23
<PAGE>
CAPITAL STOCK AND OWNERSHIP OF SHARES
The Fund's shares of common stock have a par value $.01 per share, and have
equal rights to share in dividends and assets. The shares possess no preemptive
or conversion rights. Cumulative voting is not authorized. This means that the
holders of more than 50% of the shares voting for the election of directors can
elect 100% of the directors if they choose to do so, and in such event the
holders of the remaining shares will be unable to elect any directors.
The Fund has 10 billion authorized shares of common stock and has
designated 2 billion authorized shares as Class A shares. As of the date
hereof, there were 15,000 Class A shares of the Fund outstanding, all of
which were owned by Advantus Capital and its affiliates.
HOW TO BUY SHARES
The Fund's shares may be purchased at the public offering price from Ascend
Financial, and from certain other broker-dealers. Ascend Financial reserves the
right to reject any purchase order. Shares of the Fund may be purchased at a
price equal to its net asset value.
ALTERNATIVE PURCHASE ARRANGEMENTS
The Fund offers Class A shares of the Fund. Purchase orders for $1,000,000
or more are not subject to a sales charge at the time of purchase, but a
deferred sales charge will be imposed if such shares are sold within one year
after the date of purchase.
PURCHASE BY CHECK
New investors may purchase shares of the Fund by completing an account
application and sending it, together with a check payable to the Fund, directly
to First Data Investors Services Group, Inc. ("First Data"), the Fund's transfer
agent, at Advantus Funds Group, P.O. Box 9767, Providence, Rhode Island
02940-5059. Additional purchases may be made at any time by mailing a check,
payable to the Fund, to the same address. Checks for additional purchases
should be identified with the appropriate account number. Purchase orders may
also be submitted through Ascend Financial or other broker-dealers authorized to
sell shares of the Fund.
PURCHASE BY WIRE
Shares may also be purchased by Federal Reserve or bank wire. This method
will result in a more rapid investment in shares of the Fund. Before wiring any
funds, contact Minnesota Life, through its Advantus Shareholder Services
division, at (800) 665-6005 for instructions. Promptly after making an initial
purchase by wire, an investor should complete an account application and mail it
to First Data at Advantus Funds Group, P.O. Box 9767, Providence, Rhode Island
02940-5059.
Subsequent purchases may be made in the same manner. Wire purchases
normally take two or more hours to complete, and to be accepted the same day
must be received by 3:00 p.m. (Central Time). Banks may charge a fee for
transmitting funds by wire.
24
<PAGE>
TIMING OF PURCHASE ORDERS
An order in proper form for the purchase of shares of the Fund received by
the Fund prior to the close of normal trading on the New York Stock Exchange
("NYSE"), which is generally 3:00 p.m. Central Time, will be effected at the
price next determined on the date received by First Data. Orders received after
the close of the NYSE will be effected at the price next determined on the next
business day.
MINIMUM INVESTMENTS
A minimum initial investment of $250 is required, and the minimum
subsequent investment is $25.
PUBLIC OFFERING PRICE
The public offering price of the Fund will be the net asset value per share
of the Fund next determined after an order is received by First Data and becomes
effective, plus the applicable sales charge, if any. The net asset value per
share of Class A shares is determined by dividing the value of the securities,
cash and other assets (including dividends accrued but not collected) of the
Fund attributable to such class less all liabilities (including accrued expenses
but excluding capital and surplus) attributable to such class, by the total
number of shares of such class outstanding.
The net asset value of the shares of the Fund is determined as of the close
of normal trading on the New York Stock Exchange (as of the date of this
Statement of Additional Information the primary close of trading is 3:00 p.m.
(Central Time), but this time may be changed) on each day, Monday through
Friday, except (i) days on which changes in the value of the Fund's portfolio
securities will not materially affect the current net asset value of Fund
shares, (ii) days during which no Fund shares are tendered for redemption and no
order to purchase or sell Fund shares is received by the Fund and (iii)
customary national business holidays on which the New York Stock Exchange is
closed for trading.
Securities, including put and call options, which are traded
over-the-counter and on a national exchange will be valued according to the
broadest and most representative market. A security which is only listed or
traded on an exchange, or for which an exchange is the most representative
market, is valued at its last sale price (prior to the time as of which assets
are valued) on the exchange where it is principally traded. Lacking any sales
on the exchange where it is principally traded on the day of valuation, prior to
the time as of which assets are valued, the security generally is valued at the
last bid price on that exchange. Futures contracts will be valued in a like
manner, except that open futures contracts sales will be valued using the
closing settlement price or in the absence of such a price, the most recent
quoted bid price. All other securities for which over-the-counter market
quotations are readily available are valued on the basis of the last current bid
price. When market quotations are not readily available, such securities are
valued at fair value as determined in good faith by the Board of Directors.
Other assets also are valued at fair value as determined in good faith by the
Board of Directors. However, debt securities may be valued on the basis of
valuations furnished by a pricing service which utilizes electronic data
processing techniques to determine valuations for normal institutional-size
trading units of debt securities, without regard to sale or bid prices, when
such valuations are believed to more
25
<PAGE>
accurately reflect the fair market value of such securities. Short-term
investments in debt securities are valued daily at market.
SALES CHARGES
The public offering price of Class A shares of the Fund is the net asset
value of the Fund's shares plus the applicable front end sales charge ("FESC"),
which will vary with the size of the purchase. Ascend Financial receives all
applicable sales charges. The Fund receives the net asset value. The current
sales charges are:
Sales Charge as a Percentage of:
<TABLE>
<CAPTION>
Offering Net Amount Amount Paid to Broker-Dealers
Value of Total Investment Price Invested as a Percentage of Offering Price:
- ------------------------- ----- -------- ----------------------------------
<S> <C> <C> <C>
Less than $50,000 5.5% 5.82% 4.95%
$50,000 but less than
$100,000 4.5 4.71 4.05
$100,000 but less than
$250,000 3.5 3.63 3.15
$250,000 but less than
$500,000 2.5 2.56 2.25
$500,000 but less than
$1,000,000 2.0 2.04 1.80
$1,000,000 and over (1) 0 0 .90
</TABLE>
(1) A FESC will not be assessed for purchases of Class A shares of at least $1
million, but a contingent deferred sales charge of 1.00% will be imposed if such
shares are sold within one year after the date of purchase.
The sales charge applicable to an initial investment in the Fund depends on
the offering price of the investment. The sales charge applicable to subsequent
investments, however, depends on the offering price of that investment plus the
current net asset value of the investor's previous investments in the Fund. For
example, if an investor makes an initial investment with an offering price of
$40,000 the investor will pay a sales charge equal to 5.5% of the $40,000
investment, but if an investor already owns Class A shares with a current net
asset value of $40,000 and invests in additional Class A shares with an offering
price of $10,000 the investor will pay a sales charge equal to 4.5% of the
additional $10,000 since the total investment in the Fund would then be $50,000.
NET ASSET VALUE AND PUBLIC OFFERING PRICE
The method for determining the public offering price and net asset value
per share is summarized in the Prospectus in the text following the heading
"Buying and Selling Shares."
The portfolio securities in which the Fund invests fluctuate in value, and
hence the net asset value per share of the Fund also fluctuates.
26
<PAGE>
Since the Fund had not commenced operations prior to the date hereof, no
information regarding the net asset value of the Fund's shares is provided.
REDUCED SALES CHARGES
Special purchase plans are enumerated in the text of the Fund's Prospectus
under "Buying and Selling Shares - Reducing Sales Charges" and are fully
described below.
RIGHT OF ACCUMULATION-CUMULATIVE PURCHASE DISCOUNT
The front end sales charge and contingent deferred sales charge applicable
to each purchase of Class A shares of the Fund is based on the next computed net
asset value of all Class A shares of the Fund held by the shareholder (including
dividends reinvested and capital gains distributions accepted in shares), plus
the cost of all Class A shares of the Fund currently being purchased. It is the
obligation of each shareholder desiring this discount in sales charge to notify
Ascend Financial, through his or her dealer or otherwise, that he or she is
entitled to the discount.
LETTER OF INTENT
The applicable sales charge is based on total purchases over a 13-month
period where there is an initial purchase equal to or exceeding $250,
accompanied by filing with Ascend Financial a signed "Letter of Intent" form to
purchase, and by in fact purchasing not less than $50,000 of shares in the Fund
within that time. The 13-month period is measured from the date the Letter of
Intent is approved by Ascend Financial, or at the purchaser's option, it may be
made retroactive 90 days, in which case Ascend Financial will make appropriate
adjustments on purchases during the 90-day period.
In computing the total amount purchased for purposes of determining the
applicable sales charge, the net asset value of Class A shares currently held in
the Fund, on the date of the first purchase under the Letter of Intent, may be
used as a credit toward Fund shares to be purchased under the Letter of Intent.
Class A shares of the Fund may also be included in the purchases during the
13-month period.
The Letter of Intent includes a provision for payment of additional
applicable sales charges at the end of the period in the event the investor
fails to purchase the amount indicated. This is accomplished by holding 5.5% of
the investor's initial purchase in escrow. If the investor's purchases equal
those specified in the Letter of Intent, the escrow is released. If the
purchases do not equal those specified in the Letter of Intent, he or she may
remit to Ascend Financial an amount equal to the difference between the dollar
amount of sales charges actually paid and the amount of sales charges that would
have been paid on the aggregate purchases if the total of such purchases had
been made at a single time. If the purchaser does not remit this sum to Ascend
Financial on a timely basis, Ascend Financial will redeem the appropriate number
of shares, and then release or deliver any remaining shares in the escrow
account. The Letter of Intent is not a binding obligation on the part of the
investor to purchase, or the Fund to sell, the full amount indicated.
Nevertheless, the Letter of Intent should be read carefully before it is signed.
27
<PAGE>
COMBINING PURCHASES
With respect to the Fund, purchases of Class A shares for any other account
of the investor, or such person's spouse or minor children, or purchases on
behalf of participants in a tax-qualified retirement plan may be treated as
purchases by a single investor for purposes of determining the availability of a
reduced sales charge.
GROUP PURCHASES
An individual who is a member of a qualified group may also purchase shares
of the Fund at the reduced sales charge applicable to the group taken as a
whole. The sales charge is calculated by taking into account not only the
dollar amount of the Class A shares of the Fund being purchased by the
individual member, but also the aggregate dollar value of such Class A shares
previously purchased and currently held by other members of the group. Members
of a qualified group may not be eligible for a Letter of Intent.
A "qualified group" is one which (i) has been in existence for more than
six months, (ii) has a purpose other than acquiring Fund shares at a discount,
and (iii) satisfies uniform criteria which enable Ascend Financial to realize
economies of scale in distributing such shares. A qualified group must have
more than ten members, must be available to arrange for group meetings between
representatives of Ascend Financial, must agree to include sales and other
materials related to the Fund in its publications and mailings to members at
reduced or no cost to Ascend Financial, and must seek, upon request, to arrange
for payroll deduction or other bulk transmission of investments to the Fund.
WAIVER OF SALES CHARGES FOR CERTAIN SALES OF CLASS A SHARES
Directors and officers of Advantus Capital, Ascend Financial, the Fund,
Minnesota Life, or any of Minnesota Life's other affiliated companies, and their
full-time and part-time employees, sales representatives and retirees, any
trust, pension, profit-sharing, or other benefit plan for such persons, the
spouses, siblings, direct ancestors or direct descendants of such persons,
Minnesota Life and its affiliates themselves, advisory clients of Advantus
Capital, employees of sales representatives employed in offices maintained by
such sales representatives, certain accounts as to which a bank or broker-dealer
charges an account management fee, provided the bank or broker-dealer has an
agreement with Ascend Financial, and certain accounts sold by registered
investment advisers who charge clients a fee for their services may purchase
Class A shares of the Fund at net asset value. These persons must give written
assurance that they have bought for investment purposes, and that the securities
will not be resold except through redemption or repurchase by, or on behalf of,
the Fund. These persons are not required to pay a sales charge because of the
reduced sales effort involved in their purchases.
EXCHANGE AND TRANSFER OF FUND SHARES
A shareholder can exchange some or all of his or her Class A shares in the
Fund, including shares acquired by reinvestment of dividends, for shares of the
same class of any of the other Advantus Multiple Class Funds (provided such Fund
is available in the shareholder's State), and can thereafter re-exchange such
exchanged shares back for shares of the same class of the Fund,
28
<PAGE>
provided that the minimum amount which may be transferred is $250. The exchange
will be made on the basis of the relative net asset values without the
imposition of any additional sales load.
Class A shares may also be exchanged for shares of the Money Market Fund at
their net asset values. Ascend Financial is currently waiving the entire Rule
12b-1 fee due from Money Market Fund. In the event Ascend Financial begins to
receive any portion of such fee such time period will not be included.
Shares of Money Market Fund acquired in an exchange for Class A shares of
the Fund may also be re-exchanged at relative net asset values for Class A
shares of the Fund.
The exchange privilege is available only in states where such exchanges may
legally be made (at the present time the Fund believes this privilege is
available in all states). An exchange may be made by written request or by a
telephone call, unless the shareholder has elected on the account application
not to have telephone transaction privileges. Up to twelve exchanges each
calendar year may be made without charge. A $7.50 service charge will be
imposed on each subsequent exchange and/or telephone transfer. No service
charge is imposed in connection with systematic exchange plans. However, the
Fund reserves the right to restrict the frequency of, or otherwise modify,
condition, terminate, or impose additional charges upon, the exchange and/or
telephone transfer privileges, upon 60 days' prior notice to shareholders. An
exchange is considered to be a sale of shares for federal income tax purposes on
which an investor may realize a long- or short-term capital gain or loss. See
"Distributions and Tax Status" for a discussion of the effect of redeeming
shares within 90 days after acquiring them and subsequently acquiring new shares
in any mutual fund at a reduced sales charge.
SYSTEMATIC EXCHANGE PLAN
Shareholders of the Fund may elect to have shares of the Fund
systematically exchanged for shares of any of the other Advantus Funds on a
monthly basis. The minimum amount which may be exchanged on such a systematic
basis is $25. The terms and conditions otherwise applicable to exchanges
generally, as described above, also apply to such systematic exchange plans.
SHAREHOLDER SERVICES
OPEN ACCOUNTS
A shareholder's investment is automatically credited to an open account
maintained for the shareholder by First Data. Stock certificates are not
currently issued. Following each transaction in the account, a shareholder will
receive a confirmation statement disclosing the current balance of shares owned
and the details of recent transactions in the account. After the close of each
year First Data sends to each shareholder a statement providing federal tax
information on dividends and distributions paid to the shareholder during the
year. This should be retained as a permanent record. A fee may be charged for
providing duplicate information.
The open account system provides for full and fractional shares expressed
to four decimal places and, by making the issuance and delivery of stock
certificates unnecessary, eliminates problems of handling and safekeeping, and
the cost and inconvenience of replacing lost, stolen, mutilated or destroyed
certificates.
29
<PAGE>
The costs of maintaining the open account system are paid by the Fund. No
direct charges are made to shareholders. Although the Fund has no present
intention of making such direct charges to shareholders, it reserves the right
to do so. Shareholders will receive prior notice before any such charges are
made.
AUTOMATIC INVESTMENT PLAN
The Fund provides a convenient, voluntary method of purchasing shares in
the Fund through its "Automatic Investment Plan" (the "Plan").
The principal purposes of the Plan are to encourage thrift by enabling you
to make regular purchases in amounts less than normally required, and to employ
the principle of dollar cost averaging, described below.
By acquiring Fund shares on a regular basis pursuant to the Automatic
Investment Plan, or investing regularly on any other systematic plan, the
investor takes advantage of the principle of dollar cost averaging. Under
dollar cost averaging, if a constant amount is invested at regular intervals at
varying price levels, the average cost of all the shares will be lower than the
average of the price levels. This is because the same fixed number of dollars
buys more shares when price levels are low and fewer shares when price levels
are high. There is no guarantee, however, that the automatic investment plan
will always result in a lower cost per share compared to other investment
programs. It is essential that the investor consider his or her financial
ability to continue this investment program during times of market decline as
well as market rise. The principle of dollar cost averaging will not protect
against loss in a declining market, as a loss will result if the plan is
discontinued when the market value is less than cost.
A Plan may be opened by indicating an intention to invest $25 or more
monthly for at least one year. Investors will receive a confirmation showing
the number of shares purchased, purchase price, and subsequent new balance of
shares accumulated.
An investor has no obligation to invest regularly or to continue the Plan,
which may be terminated by the investor at any time without penalty. Under the
Plan, any distributions of income and realized capital gains will be reinvested
in additional shares at net asset value unless a shareholder instructs the Fund
in writing to pay them in cash. The Fund reserves the right to increase or
decrease the amount required to open and continue a Plan, and to terminate any
Plan after one year if the value of the amount invested is less than $250.
GROUP SYSTEMATIC INVESTMENT PLAN
This Plan provides employers and employees with a convenient means for
purchasing shares of the Fund under various types of employee benefit and thrift
plans, including payroll withholding and bonus incentive plans. The Plan may be
started with an initial cash investment of $50 per participant for a group
consisting of five or more participants. The shares purchased by each
participant under the Plan will be held in a separate account in which all
dividends and capital gains will be reinvested in additional shares of the Fund
at net asset value. To keep his or her account open, subsequent payments
totaling $25 per month must be made into each participant's account. If the
group is reduced to less than five participants, the minimums set forth under
30
<PAGE>
"Automatic Investment Plan" shall apply. The Plan may be terminated by the Fund
or the shareholder at any time upon reasonable notice.
RETIREMENT PLANS OFFERING TAX BENEFITS
The federal tax laws provide for a variety of retirement plans offering tax
benefits. These plans may be funded with shares of the Fund. The plans include
H.R. 10 (Keogh) plans for self-employed individuals and partnerships,
individual retirement accounts (IRA's), corporate pension trust and profit
sharing plans, including 401(k) plans, and retirement plans for public school
systems and certain tax exempt organizations, e.g. 403(b) plans.
The initial investment in the Fund by such a plan must be at least $250 for
each participant in a plan, and subsequent investments must be at least $25 per
month for each participant. Income dividends and capital gain distributions
must be reinvested. Plan documents and further information can be obtained from
Ascend Financial.
An investor should consult a competent tax or other adviser as to the
suitability of Fund shares as a vehicle for funding a plan, in whole or in part,
under the Employee Retirement Income Security Act of 1974 and as to the
eligibility requirements for a specific plan and its state as well as federal
tax aspects.
SYSTEMATIC WITHDRAWAL PLANS
An investor owning shares in the Fund having a value of $5,000 or more at
the current public offering price may establish a Systematic Withdrawal Plan
providing for periodic payments of a fixed or variable amount. Withdrawal
payments for Class A shares of the Fund purchased in amounts of $1 million or
more may also be subject to a contingent deferred sales charge ("CDSC"). As a
result, a shareholder should consider whether a Systematic Withdrawal Plan is
appropriate. It may be appropriate for the shareholder to consult a tax adviser
before establishing such a plan.
The Plan is particularly convenient and useful for trustees in making
periodic distributions to retired employees. Through this Plan a trustee can
arrange for the retirement benefit to be paid directly to the employee by the
Fund and to continue the tax-free accumulation of income and capital gains prior
to their distribution to the employee. An investor may terminate the Plan at any
time. A form for use in establishing such a plan is available from Ascend
Financial.
A shareholder under a Systematic Withdrawal Plan may elect to receive
payments monthly, quarterly, semiannually, or annually for a fixed amount of not
less than $50 or a variable amount based on (1) the market value of a stated
number of shares, (2) a specified percentage of the account's market value or
(3) a specified number of years for liquidating the account (e.g., a 20-year
program of 240 monthly payments would be liquidated at a monthly rate of 1/240,
1/239, 1/238, etc.). The initial payment under a variable payment option may be
$50 or more.
All shares under the Plan must be left on deposit. Income dividends and
capital gain distributions will be reinvested without a sales charge at net
asset value determined on the record date.
31
<PAGE>
Since withdrawal payments represent proceeds from the liquidation of
shares, withdrawals may reduce and possibly exhaust the initial investment,
particularly in the event of a decline in net asset value.
Under this Plan, any distributions of income and realized capital gains
must be reinvested in additional shares, and are reinvested at net asset value.
If a shareholder wishes to purchase additional shares of the Fund under this
Plan, other than by reinvestment of distributions, it should be understood that,
in the case of Class A shares, he or she would be paying a sales commission on
such purchases, while liquidations effected under the Plan would be at net asset
value. Purchases of additional shares concurrent with withdrawals are
ordinarily disadvantageous to the shareholder because of sales charges and tax
liabilities. Additions to a shareholder account in which an election has been
made to receive systematic withdrawals will be accepted only if each such
addition is equal to at least one year's scheduled withdrawals or $1,200,
whichever is greater. A shareholder may not have an "Automatic Withdrawal Plan"
and a "Systematic Investment Plan" in effect simultaneously as it is not, as
explained above, advantageous to do so.
REDEMPTIONS
Registered holders of shares of the Fund may redeem their shares at the per
share net asset value next determined following receipt by the Fund (at its
mailing address listed on the cover page) of a written redemption request signed
by all shareholders exactly as the account is registered (and a properly
endorsed stock certificate if one has been issued). Class A shares may be
redeemed without charge. However, a contingent deferred sales charge may be
applicable upon redemption of certain Class A shares. Both share certificates
and stock powers, if any, tendered in redemption must be endorsed and executed
exactly as the Fund shares are registered. Any certificates should be sent to
the Fund by certified mail.
Payment will be made as soon as possible, but not later than seven days
after receipt of a properly executed written redemption request (and any
certificates). The amount received by the shareholder may be more or less than
the shares' original cost.
If stock certificates have not been issued, and if no signature guarantee
is required, shareholders may also submit their signed written redemption
request to the Fund by facsimile (FAX) transmission. The Fund's FAX number is
(508) 871-3560.
The Fund will pay in cash all redemption requests by any shareholder of
record, limited in amount during any 90-day period to the lesser of $250,000 or
1% of the net asset value of the Fund at the beginning of such period. When
redemption requests exceed such amount, however, the Fund reserves the right to
make part or all of the payment in the form of securities or other assets of the
Fund. An example of when this might be done is in case of emergency, such as in
those situations enumerated in the following paragraph, or at any time a cash
distribution would impair the liquidity of the Fund to the detriment of the
existing shareholders. Any securities being so distributed would be valued in
the same manner as the portfolio of the Fund is valued. If the recipient sold
such securities, he or she probably would incur brokerage charges. The Fund has
filed with the Securities and Exchange Commission a notification of election
pursuant to Rule 18f-1 under the Investment Company Act of 1940 in order to make
such redemptions in kind.
32
<PAGE>
Redemption of shares, or payment, may be suspended at times (a) when the
New York Stock Exchange is closed for other than customary weekend or holiday
closings, (b) when trading on said Exchange is restricted, (c) when an emergency
exists, as a result of which disposal by the Fund of securities owned by it is
not reasonably practicable, or it is not reasonably practicable for the Fund
fairly to determine the value of its net assets, or during any other period when
the SEC, by order, so permits; provided that applicable rules and regulations of
the SEC shall govern as to whether the conditions prescribed in (b) or (c)
exist.
SIGNATURE GUARANTEE
In order to protect both shareholders and the Fund against fraudulent
orders, a shareholder signature is required to be guaranteed in certain cases.
No signature guarantee is required if the redemption proceeds are less than
$50,000 and are to be paid to the registered holder and sent to the address of
record for that account, or if the written redemption request is from
pre-authorized trustees of plans, trusts and other tax-exempt organizations and
the redemption proceeds are less than $50,000.
A signature guarantee is required, however, if (i) the redemption proceeds
are $50,000 or more, (ii) the redemption proceeds are to be paid to someone
other than the registered holder, (iii) the redemption proceeds are to be mailed
to an address other than the registered shareholder's address, (iv) within the
30-day period prior to receipt of the redemption request, instructions have been
received to change the shareholder's address of record, or, in the case of
redemptions to be paid by wire, instructions have been received within such
period to change the shareholder's bank wire instructions, (v) the shares are
requested to be transferred to the account of another owner, or (vi) in the case
of plans, trusts, or other tax-exempt organizations, the redemption request is
not from a pre-authorized trustee. The Fund reserves the right to require
signature guarantees on all redemptions.
A signature guarantee must be provided by an eligible guarantor
institution. A notarized signature is not sufficient. Eligible guarantors
include (1) national or state banks, savings associations, savings and loan
associations, trust companies, savings banks, industrial loan companies and
credit unions; (2) national securities exchanges, registered securities
associations and clearing agencies; (3) securities broker-dealers which are
members of a national securities exchange or a clearing agency or which have
minimum net capital of $100,000; or (4) institutions that participate in the
Securities Transfer Agent Medallion Program ("STAMP") or other recognized
signature medallion program.
TELEPHONE REDEMPTION
The Fund's shareholders have this privilege automatically, unless they
have elected on the account application not to have such privilege, and may
redeem shares by calling Advantus Shareholder Services at (800) 665-6005 (see
"Telephone Transactions"). A telephone redemption request will not be
honored, however, if the shareholder's address of record or bank wire
instructions have been changed without a guarantee of the shareholder's
signature (see "Signature Guarantee" above) within the 30-day period prior
to receipt of the redemption request. The maximum amount which may be
redeemed by telephone is $50,000. The proceeds will be sent by check to the
address of record for the account. If the amount is $500 or more, and if the
shareholder has designated a bank account, the proceeds may be wired to the
shareholder's
33
<PAGE>
designated bank account, and the prevailing wire charge (currently $5.00) will
be added to the amount redeemed from the Fund. The Fund reserves the right to
modify, terminate or impose charges upon the telephone redemption privilege.
DELAY IN PAYMENT OF REDEMPTION PROCEEDS
Payment of redemption proceeds will ordinarily be made as soon as possible
and within the periods of time described above. However, an exception to this
is that if redemption is requested after a purchase by non-guaranteed funds
(such as a personal check), the Fund will delay mailing the redemption check or
wiring proceeds until it has reasonable assurance that the purchase check has
cleared (good payment has been collected). This delay may be up to 14 days from
the purchase date.
FUND'S RIGHT TO REDEEM SMALL ACCOUNTS
The Fund has the right to redeem the shares in inactive accounts which, due
to redemptions and not to decreases in market value of the shares in the
account, have a total current value of less than $150. Before redeeming an
account, the Fund will mail to the shareholder a written notice of its intention
to redeem, which will give the investor an opportunity to make an additional
investment. If no additional investment is received by the Fund within 60 days
of the date the notice was mailed, the shareholder's account will be redeemed.
REINSTATEMENT PRIVILEGE
The Prospectus for Fund describes redeeming shareholders' reinstatement
privileges in "Buying and Selling Shares" in the Fund's Prospectus. Written
notice from persons wishing to exercise this reinstatement privilege must be
received by Ascend Financial within 90 days after the date of the redemption.
The reinstatement or exchange will be made at net asset value next determined
after receipt of the notice and will be limited to the amount of the redemption
proceeds or to the nearest full share if fractional shares are not purchased.
All shares issued as a result of the reinstatement privilege applicable to
redemptions of Class A shares will be issued as Class A shares.
See "Distributions and Tax Status" below for a discussion of the effect of
redeeming shares within 90 days after acquiring them and subsequently acquiring
new shares in any mutual fund at a reduced sales charge. Should an investor
utilize the reinstatement privilege following a redemption which resulted in a
loss, all or a portion of that loss might not be currently deductible for
Federal income tax purposes, for an investor which is not tax-exempt.
Exercising the reinstatement privilege would not alter any capital gains taxes
payable on a realized gain, for an investor which is not tax-exempt. See
discussion under "Distributions and Tax Status" below regarding the taxation of
capital gains.
TELEPHONE TRANSACTIONS
Shareholders of the Fund are permitted to exchange or redeem the Fund's
shares by telephone. See "Exchange and Transfer of Fund Shares" and
"Redemptions" for further details. The privilege to initiate such transactions
by telephone is made available automatically unless the shareholder elects on
the account application not to have such privilege.
34
<PAGE>
Shareholders, or persons authorized by shareholders, may initiate telephone
transactions by telephoning Advantus Shareholder Services, toll free, at
1-800-665-6005. Automated service is available 24 hours a day, and service
representatives are available Monday through Friday, from 8:00 a.m. to 4:45 p.m.
(Central Time). Telephone transaction requests received after 3:00 p.m.
(Central Time) will be treated as received the next business day. The maximum
amount which may be redeemed by telephone is $50,000. During periods of marked
economic or market changes, shareholders may experience difficulty in
implementing a telephone exchange or redemption due to a heavy volume of
telephone calls. In such a circumstance, shareholders should consider
submitting a written request while continuing to attempt a telephone exchange or
redemption. The Fund reserves the right to modify, terminate or impose charges
upon the telephone exchange and redemption privileges upon 60 days' prior notice
to shareholders.
The Fund will not be liable for following instructions communicated by
telephone which it reasonably believes to be genuine; provided, however, that
the Fund will employ reasonable procedures to confirm that instructions
communicated by telephone are genuine, and that if they do not, they may be
liable for any losses due to unauthorized or fraudulent instructions. The
procedures for processing telephone transactions include tape recording of
telephone instructions, asking shareholders for their account number and a
personal identifying number, and providing written confirmation of such
transactions.
DISTRIBUTIONS AND TAX STATUS
DIVIDENDS AND CAPITAL GAINS DISTRIBUTIONS
The policy of the Fund is to pay dividends from net investment income
quarterly. Any net realized capital gains are generally distributed once a
year, during December.
Any dividend payments or net capital gains distributions made by the Fund
are in the form of additional shares of the same class of the Fund rather than
in cash, unless a shareholder specifically requests the Fund in writing that the
payment be made in cash. The distribution of these shares is made at net asset
value on the payment date of the dividend, without any sales or other charges to
the shareholder. The taxable status of income dividends and/or net capital
gains distributions is not affected by whether they are reinvested or paid in
cash. Authorization to pay dividends in cash may be made on the application
form, or at any time by letter.
Upon written request to the Fund, a shareholder may also elect to have
dividends from the Fund invested without sales charge in shares of Money Market
Fund or shares of the same class of another of the Advantus Multiple Class Funds
at the net asset value of such other Advantus Multiple Class Fund on the payable
date for the dividends being distributed (subject to the applicable sales
charge). To use this privilege of investing dividends from the Fund in shares
of another of the Funds, shareholders must maintain a minimum account value of
$250 in both the Fund and the other Fund in which dividends are reinvested.
35
<PAGE>
TAXATION
The following is a general summary of certain federal tax considerations
affecting the Fund and its shareholders. No attempt is made to present a
detailed explanation of the tax treatment of the Fund or its shareholders, and
the discussion here is not intended as a substitute for careful tax planning.
The Fund intends to fulfill the requirements of Subchapter M of the
Internal Revenue Code of 1986, as amended (the "Code"), as a regulated
investment company. If so qualified, the Fund will not be liable for federal
income taxes to the extent it distributes its taxable income to its
shareholders.
Distributions of investment company taxable income from the Fund generally
will be taxable to shareholders as ordinary income, regardless of whether such
distributions are paid in cash or are invested in additional shares of the
Fund's stock. A distribution of net capital gain (a "capital gain
distribution"), whether paid in cash or reinvested in shares, generally is
taxable to shareholders as long-term capital gain, regardless of the length of
time a shareholder has held his or her shares or whether such gain was realized
by the Fund before the shareholder acquired such shares and was reflected in the
price paid for the shares. Long-term capital gains of individuals are taxed at
a maximum rate of 20%, and the highest marginal regular tax rates on ordinary
income for individuals is 39.6%.
Dividend distributions from the Fund attributable to dividends that the
Fund receives from REITs will not qualify for the 70% dividend received
deduction for corporations.
Prior to purchasing shares of the Fund, prospective shareholders (except
for tax qualified retirement plans) should consider the impact of dividends or
capital gains distributions which are expected to be announced, or have been
announced but not paid. Any such dividends or capital gains distributions paid
shortly after a purchase of shares by an investor prior to the record date will
have the effect of reducing the per share net asset value by the amount of the
dividends or distributions. All or a portion of such dividends or
distributions, although in effect a return of capital, is subject to taxation.
The Code provides that a shareholder who pays a sales charge in acquiring
shares of a mutual fund, redeems those shares within 90 days after acquiring
them, and subsequently acquires new shares in any mutual fund for a reduced
sales charge or no sales charge (pursuant to a reinvestment right acquired with
the first shares), may not take into account the sales charge imposed on the
first acquisition, to the extent of the reduction in the sales charge on the
second acquisition, for purposes of computing gain or loss on disposition of the
first acquired shares. The amount of sales charge disregarded under this rule
will, however, be treated as incurred in connection with the acquisition of the
second acquired shares.
36
<PAGE>
Shareholders of the Fund receive an annual statement detailing federal tax
information. Distributions by the Fund, including the amount of any redemption,
are reported to shareholders in such annual statement and to the Internal
Revenue Service to the extent required by the Code.
The Fund is required by federal law to withhold 31% of reportable payments
(including dividends, capital gain distributions, and redemptions) paid to
certain accounts whose owners have not complied with IRS regulations. In order
to avoid this backup withholding requirement, each shareholder will be asked to
certify on the shareholder's account application that the social security or
taxpayer identification number provided is correct and that the shareholder is
not subject to backup withholding for previous underreporting to the IRS.
Some of the investment practices that may be employed by the Fund will be
subject to special provisions that, among other things, may defer the use of
certain losses of such Fund, affect the holding period of the securities held by
the Fund and affect the character of the gains or losses realized. These
provisions may also require the Fund to mark-to-market some of the positions in
its portfolio (i.e., treat them as closed out) or to accrue original discount,
both of which may cause the Fund to recognize income without receiving cash with
which to make distributions in amounts necessary to satisfy the distribution
requirements for qualification as a regulated investment company and for
avoiding income and excise taxes. Accordingly, in order to make the required
distributions, the Fund may be required to borrow or liquidate securities. The
Fund will monitor its transactions and may make certain elections in order to
mitigate the effect of these rules and prevent disqualification of the Fund as a
regulated investment company.
The Fund may invest in REITs that hold residual interests in real estate
mortgage investment conduits ("REMICs"). Under Treasury regulations that have
not yet been issued, but may apply retroactively, a portion of the Fund's income
from a REIT that is attributable to the REIT's residual interest in a REMIC
(referred to in the Code as an "excess inclusion") will be subject to federal
income tax in all events. These regulations are also expected to provide that
excess inclusion income of a regulated investment company, such as the Fund,
will be allocated to shareholders of the regulated investment company in
proportion to the dividends received by them with the same consequences as if
the shareholders held the related REMIC residual interest directly. In general,
excess inclusion income allocated to shareholders (i) cannot be offset by net
operating losses (subject to a limited exception for certain thrift
institutions) and (ii) will constitute unrelated business taxable income to
entities (including a qualified pension plan, an individual retirement account,
a 401K plan, a Keogh plan or other tax-exempt entity) subject to tax on
unrelated business income, thereby potentially requiring such an entity that is
allocated excess inclusion income, and otherwise might not be required to file a
tax return, to file a tax return and pay tax on some income. In addition, if at
any time during any taxable year a "disqualified organization" (as defined in
the Code) is a record holder of a share in a regulated investment company, then
the regulated investment company will be subject to a tax equal to that portion
of its excess inclusion income for the taxable year that is allocable to the
disqualified organization, multiplied by the highest Federal income tax rate
imposed on corporations.
The Fund is subject to a non-deductible excise tax equal to 4 percent of
the excess, if any, of the amount required to be distributed pursuant to the
Code for each calendar year over the amount
37
<PAGE>
actually distributed. In order to avoid the imposition of this excise tax, the
Fund generally must declare dividends by the end of a calendar year representing
98 percent of the Fund's ordinary income for the calendar year and 98 percent of
its capital gain net income (both long-term and short-term capital gains) for
the twelve-month period ending October 31 of the calendar year.
The foregoing relates only to federal taxation. Prospective shareholders
should consult their tax advisers as to the possible application of state and
local income tax laws to ownership of Fund shares.
FINANCIAL STATEMENTS
Financial statements for the Fund are presented in Appendix B. These
financial statements have been audited by KPMG Peat Marwick LLP, independent
auditors.
38
<PAGE>
APPENDIX A
BOND AND COMMERCIAL PAPER RATINGS
BOND RATINGS
Moody's Investors Service, Inc. describes its five highest ratings for
corporate bonds and mortgage-related securities as follows:
Bonds which are rated Aaa are judged to be of the best quality. They carry
the smallest degree of investment risk and are generally referred to as "gilt
edge." Interest payments are protected by a large or by an exceptionally stable
margin and principal is secure. While the various protective elements are
likely to change, such changes as can be visualized are most unlikely to impair
the fundamentally strong position of such issues.
Bonds which are rated Aa are judged to be of high quality by all standards.
Together with the Aaa group they comprise what are generally known as high grade
bonds. They are rated lower than the best bonds because margins of protection
may not be as large as in Aaa securities or fluctuation of protective elements
may be of greater amplitude or there may be other elements present which make
the long term risks appear somewhat larger than in Aaa securities.
Bonds which are rated A possess many favorable investment attributes and
are to be considered as upper medium grade obligations. Factors giving security
to principal and interest are considered adequate but elements may be present
which suggest a susceptibility to impairment some time in the future.
Bonds which are rated Baa are considered medium grade obligations, i.e.,
they are neither highly protected nor poorly secured. Interest payments and
principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
Bonds which are rated Ba are judged to have speculative elements; their
future cannot be considered as well-assured. Often the protection of interest
and principal payments may be very moderate, and thereby not well safeguarded
during both good and bad times over the future. Uncertainty of position
characterizes bonds in this class.
Moody's Investors Service, Inc. also applies numerical modifiers, 1, 2, and
3, in each of these generic rating classifications. The modifier 1 indicates
that the security ranks in the higher end of its generic rating category; the
modifier 2 indicates a mid-range ranking; and the modifier 3 indicates that the
issue ranks in the lower end of its generic rating category.
Standard & Poor's Corporation describes its five highest ratings for
corporate bonds and mortgage-related securities as follows:
AAA. Debt rated "AAA" has the highest rating assigned by Standard &
Poor's. Capacity to pay interest and repay principal is extremely strong.
A-1
<PAGE>
AA. Debt rated "AA" has a very strong capacity to pay interest and repay
principal and differs from the higher rated issues only in small degree.
A. Debt rated "A" has a strong capacity to pay interest and repay
principal although it is somewhat more susceptible to the adverse effects of
changes in circumstances and economic conditions than debt in higher rated
categories.
BBB. Debt rated "BBB" is regarded as having an adequate capacity to pay
interest and repay principal. Whereas it normally exhibits adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
debt in this category than in higher rated categories.
BB. Debt rated "BB" has less near-term vulnerability to default than other
speculative grade debt. However, it faces major ongoing uncertainties or
exposure to adverse business, financial, or economic conditions that could lead
to inadequate capacity to meet timely interest and principal payments.
Standard & Poor's Corporation applies indicators "+", no character, and "-"
to the above rating categories. The indicators show relative standing within
the major rating categories.
COMMERCIAL PAPER RATINGS
The rating Prime-1 is the highest commercial paper rating assigned by
Moody's Investors Service, Inc. Among the factors considered by Moody's
Investors Service, Inc. in assigning the ratings are the following: (1)
evaluation of the management of the issuer, (2) economic evaluation of the
issuer's industry or industries and an appraisal of speculative-type risks which
may be inherent in certain areas; (3) evaluation of the issuer's products in
relation to competition and customer acceptance; (4) liquidity; (5) amount and
quality of long-term debt; (6) trend of earnings over a period of ten years; (7)
financial strength of a parent company and the relationships which exist with
the issuer; an (8) recognition by the management of obligations which may be
present or may arise as a result of public interest questions and preparations
to meet such obligations.
The rating A-1 is the highest rating assigned by Standard & Poor's
Corporation to commercial paper which is considered by Standard & Poor's
Corporation to have the following characteristics:
Liquidity ratios of the issuer are adequate to meet cash redemptions.
Long-term senior debt is rated "A" or better. The issuer has access to at
least two additional channels of borrowing. Basic earnings and cash flow
have an upward trend with allowance made for unusual circumstances.
Typically, the issuer's industry is well established and the issuer has a
strong position within the industry. The reliability and quality of
management are unquestioned.
A-2
<PAGE>
APPENDIX B
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholder
Advantus Real Estate Securities Fund, Inc.:
We have audited the statement of assets and liabilities of Advantus Real
Estate Securities Fund, Inc. as of February 2, 1999. This financial statement
is the responsibility of Fund's management. Our responsibility is to express an
opinion on this financial statement 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 statement is free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statement. Our procedures included
confirmation of cash in bank by correspondence with the custodian. Investment
securities held in custody are confirmed to us by the custodian. 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 provides a reasonable basis for our
opinion.
In our opinion, the statement of assets and liabilities referred to above
presents fairly, in all material respects, the financial position of Advantus
Real Estate Securities Fund, Inc. at February 2, 1999, in conformity with
generally accepted accounting principles.
KPMG Peat Marwick LLP
Minneapolis, Minnesota
February 2, 1999
B-1
<PAGE>
ADVANTUS REAL ESTATE SECURITIES FUND, INC.
STATEMENT OF ASSETS AND LIABILITIES
FEBRUARY 2, 1999
<TABLE>
<CAPTION>
ASSETS:
<S> <C>
Cash in bank................................................ $ 1,320
U.S. Treasury Bill, 4.378%, 4/15/99......................... 148,680
----------------
Total assets........................................... $ 150,000
----------------
----------------
Represented by:
Capital stock - authorized 10 billion shares (Class A - 2
billion shares, 8 billion shares of unallocated $.01 par
value) (note 1).......................................... $ 150
Additional paid-in capital............................... 149,850
----------------
Total - representing net assets applicable to
outstanding capital stock.............................. $ 150,000
----------------
----------------
Shares outstanding and net asset value per share:
Class A - Shares outstanding 15,000...................... $ 10.00
----------------
----------------
</TABLE>
See accompanying notes to statement of assets and liabilities.
B-2
<PAGE>
ADVANTUS REAL ESTATE SECURITIES FUND, INC.
Notes to Statement of Assets and Liabilities
February 2, 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) as a diversified, open-end management investment company.
The Fund currently issues one class of shares: Class A shares. Class A
shares are sold subject to a front-end sales charge.
The only transaction of the Fund since inception has been the initial sale
on February 1, 1999 of 15,000 shares of Class A shares to Minnesota Life
Insurance Company.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
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
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.
Such fair values are determined using pricing services or prices quoted by
independent brokers. 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.
B-3
<PAGE>
ADVANTUS REAL ESTATE SECURITIES FUND, INC.
Notes to Statement of Assets and Liabilities - continued
(3) EXPENSES AND RELATED PARTY TRANSACTIONS
The Fund has entered into 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 which
Advantus Capital manages the Fund's assets and provides research, statistical
and advisory services and pays related office rental and executive expenses and
salaries. 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 adopted a Plan of Distribution applicable to Class A relating
to the payment of certain servicing expenses pursuant to Rule 12b-1 under the
Investment Company Act of 1940 (as amended). Pursuant to Rule 12b-1, the Fund
pays fees to Ascend Financial Services, Inc. (Ascend Financial), the underwriter
of the Fund and wholly-owned subsidiary of Advantus Capital to be used to pay
certain expenses incurred in the 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. Ascend Financial intends to waive that portion of Class A
service fees which exceeds, as a percentage of average daily net assets, .10
percent during the current fiscal year.
The Fund has entered into a shareholder and administrative services
agreement with Minnesota Life for shareholder services, accounting, auditing,
legal and other administrative services which Minnesota Life provides. Under
this agreement, the administrative services fee for the Fund is $4,800 per
month, and the shareholder services fee is equal to $5 per annum per shareholder
account.
The Fund also bears certain other operating expenses including outside
directors' fees, custodian fees, registration fees, fees for printing and
shareholders reports, legal fees, fees for auditing and accounting services and
other miscellaneous expenses.
Advantus Capital directly incurs and pays the above operating expenses
relating to the Fund and the Fund in turn reimburses Advantus Capital. Advantus
Capital intends to voluntarily absorb certain operating expenses, other than
investment advisory fees and Rule 12b-1 fees, which exceed, as a percentage of
average daily net assets, .65% during the current fiscal year.
Organizational expenses are expected to be incurred in connection with the
start-up and initial registration of the Fund. These expenses will be paid by
Advantus Capital. The Fund does not intend to reimburse Advantus Capital for
these costs.
B-4
<PAGE>
PART C. OTHER INFORMATION
Item 23. EXHIBITS
The exhibits to this Registration Statement are listed in the Exhibit Index
hereto and are incorporated herein by reference.
Item 24. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH THE FUND
Wholly-owned subsidiary of Minnesota Mutual Companies, Inc.:
Securian Holding Company (Delaware)
Wholly-owned subsidiary of Securian Holding Company:
Securian Financial Group, Inc. (Delaware)
Wholly-owned subsidiary of Securian Financial Group, Inc.
Minnesota Life Insurance Company
Wholly-owned subsidiaries of Minnesota Life Insurance Company:
Advantus Capital Management, Inc.
HomePlus Insurance Company
Northstar Life Insurance Company (New York)
The Ministers Life Insurance Company
Robert Street Energy, Inc.
Capitol City Property Management, Inc.
DataPlan Securities, Inc. (Ohio)
MIMLIC Imperial Corporation
MIMLIC Funding, Inc.
MCM Funding 1997-1, Inc.
MCM Funding 1998-1, Inc.
Personal Finance Company (Delaware)
MIMLIC Venture Corporation
HomePlus Insurance Agency, Inc.
Ministers Life Resources, Inc.
Enterprise Holding Corporation
Wedgewood Valley Golf, Inc.
Open-end registered investment company offering shares solely to separate
accounts of Minnesota Life Insurance Company:
Advantus Series Fund, Inc.
Wholly-owned subsidiary of Advantus Capital Management, Inc.:
Ascend Financial Services, Inc.
Wholly-owned subsidiaries of Ascend Financial Services, Inc.:
MIMLIC Insurance Agency of Massachusetts, Inc. (Massachusetts)
MIMLIC Insurance Agency of Texas, Inc. (Texas)
Ascend Insurance Agency of Nevada, Inc. (Nevada)
Ascend Insurance Agency of Oklahoma, Inc. (Oklahoma)
<PAGE>
Wholly-owned subsidiaries of Enterprise Holding Corporation:
Financial Ink Corporation
Oakleaf Service Corporation
Concepts in Marketing Research Corporation
Concepts in Marketing Services Corporation
Lafayette Litho, Inc.
Wholly-owned subsidiary of HomePlus Insurance Agency, Inc.:
HomePlus Insurance Agency of Texas, Inc. (Texas)
Majority-owned subsidiaries of MIMLIC Imperial Corporation:
J. H. Shoemaker Advisory Corporation (Tennessee)
Consolidated Capital Advisors, Inc. (Tennessee)
Majority-owned subsidiary of Ascend Financial Services, Inc.:
MIMLIC Insurance Agency of Ohio, Inc. (Ohio)
Majority-owned subsidiaries of Minnesota Life Insurance Company:
MIMLIC Life Insurance Company (Arizona)
Advantus Enterprise Fund, Inc.
Advantus International Balanced Fund, Inc.
Advantus Venture Fund, Inc.
Fifty percent-owned subsidiary of MIMLIC Imperial Corporation:
C.R.I. Securities, Inc.
Less than majority owned, but greater than 25% owned, subsidiaries of Minnesota
Life Insurance Company:
Advantus Money Market Fund, Inc.
MIMLIC Cash Fund, Inc.
Advantus Cornerstone Fund, Inc.
Advantus Index 500 Fund, Inc.
Less than 25% owned subsidiaries of Minnesota Life Insurance Company:
Advantus Horizon Fund, Inc.
Advantus Spectrum Fund, Inc.
Advantus Mortgage Securities Fund, Inc.
Advantus Bond Fund, Inc.
Unless indicated otherwise parenthetically, each of the above corporations is a
Minnesota corporation.
ITEM 25. INDEMNIFICATION
The Articles of Incorporation and Bylaws of the Registrant provide that the
Registrant shall indemnify such persons, for such expenses and liabilities, in
such manner, under such circumstances, to the full extent permitted by Section
302A.521, Minnesota Statutes, as now enacted or hereafter amended, provided that
no such indemnification may be made if it would be in violation of Section 17(h)
of the Investment Company Act of 1940, as now
<PAGE>
enacted or hereafter amended. Section 302A.521 of the Minnesota Statutes, as
now enacted, provides that a corporation shall indemnify a person made or
threatened to be made a party to a proceeding against judgments, penalties,
fines, settlements and reasonable expenses, including attorneys' fees and
disbursements, incurred by the person in connection with the proceeding, if,
with respect to the acts or omissions of the person complained of in the
proceeding, the person has not been indemnified by another organization for the
same judgments, penalties, fines, settlements and reasonable expenses incurred
by the person in connection with the proceeding with respect to the same acts or
omissions; acted in good faith; received no improper personal benefit and the
Minnesota Statute dealing with directors' conflicts of interest, if applicable,
has been satisfied; in the case of a criminal proceeding, had no reasonable
cause to believe the conduct was unlawful and reasonably believed that the
conduct was in the best interests of the corporation or, in certain
circumstances, reasonably believed that the conduct was not opposed to the best
interests of the corporation.
Section 17(h) of the Investment Company Act of 1940 provides that neither
the charter, certificate of incorporation, articles of association, indenture of
trust, nor the by-laws of any registered investment company, nor any other
instrument pursuant to which such a company is organized or administered, shall
contain any provisions which protects or purports to protect any director or
officer of such company against any liability to the company or to its security
holders to which he would otherwise be subject by reason of willful misfeasance,
bad faith, gross negligence or reckless disregard of duties involved in the
conduct of his office. The staff of the Securities and Exchange Commission has
stated that it is of the view that an indemnification provision does not violate
Section 17(h) if it precludes indemnification for any liability arising by
reason of willful misfeasance, bad faith, gross negligence, or reckless
disregard of duties ("Disabling conduct") and sets forth reasonable and fair
means for determining whether indemnification shall be made. In the staff's
view, "reasonable and fair means" would include (1) a final decision on the
merits by a court or other body before whom the proceeding was brought that the
person to be indemnified ("indemnitee") was not liable by reason of disabling
conduct or, (2) in the absence of such a decision, a reasonable determination,
based upon a review of the facts, that the indemnitee was not liable by reason
of disabling conduct, by (a) the vote of a majority of a quorum of directors who
are neither "interested persons" of the company as defined in Section 2(a)(19)
of the Investment Company Act of 1940 nor parties to the proceeding
("disinterested, non-party directors") or (b) an independent legal counsel in a
written opinion. The dismissal of either a court action or administrative
proceeding against an indemnitee for insufficiency of evidence of any disabling
conduct with which he has been charged would, in the staff's view, provide
reasonable assurance that he was not liable by reason of disabling conduct. The
staff also believes that a determination by the vote of a majority of a quorum
of disinterested, non-party directors would provide reasonable assurance that
the indemnitee was not liable by reason of disabling conduct.
Insofar as indemnification for liability arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Registrant of expenses incurred
or paid by a director, officer or controlling person of the Registrant in the
successful defense of any action, suit or
<PAGE>
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Act and will
be governed by the final adjudication of such issue.
ITEM 26. BUSINESS AND OTHER CONNECTIONS OF THE INVESTMENT ADVISER
<TABLE>
<CAPTION>
Directors and Officers Office with
Of Investment Adviser Investment Adviser Other Business Connections
- ---------------------- ------------------ --------------------------
<S> <C> <C>
William N. Westhoff President, Treasurer Vice President and Director,
and Director Robert Street Energy, Inc.;
Senior Vice President and
Treasurer, Minnesota Life
Insurance Company; President,
MCM Funding 1997-1, Inc.;
President, MCM Funding 1998-1,
Inc.
Frederick P. Feuerherm Vice President, Vice President, Minnesota
Assistant Secretary Life Insurance Company;
and Director Vice President and Director,
MIMLIC Funding, Inc.; Vice
President and Assistant
Secretary, MCM Funding 1997-1,
Inc.; Vice President and
Assistant Secretary, MCM
Funding 1998-1, Inc.
Guy M. de Lambert Vice President, Second Vice President,
Secretary and Minnesota Life Insurance
Director Company; President, Secretary
and Director, Personal Finance
Company; President and
Director, Wedgewood Valley
Golf, Inc.; President and
Director, MIMLIC Venture
Corporation; President and
Director, MIMLIC Funding,
Inc.; President, Secretary and
Director, Robert Street
Energy, Inc.; Vice President
and Secretary, MCM Funding
1997-1, Inc.; Vice President
and Secretary, MCM Funding
1998-1, Inc.
Lynne M. Mills Vice President Second Vice President,
Minnesota Life Insurance
Company; Vice President and
Director, Robert Street
Energy, Inc.; Vice President,
MCM Funding 1997-1, Inc.; Vice
<PAGE>
President, MCM Funding 1998-1,
Inc.
Dianne Orbison Vice President Second Vice President,
Minnesota Life
Insurance Company; Vice
President and Director, MCM
Funding 1997-1, Inc.; Vice
President, MIMLIC Venture
Corporation; Vice President
and Director, MCM Funding
1998-1, Inc.
Richard W. Worthing Vice President and Vice President, MCM Funding
Head of Equities 1997-1, Inc.; Vice President,
MIMLIC Funding, Inc.; Vice
President, MCM Funding 1998-1,
Inc.; Second Vice President,
Minnesota Life Insurance
Company
James P. Tatera Vice President, Second Vice President,
Equity Portfolio Minnesota Life Insurance
Manager Company; Vice President,
MIMLIC Funding, Inc.; Vice
President and Assistant
Secretary, MCM Funding 1997-1,
Inc.; Vice President and
Assistant Secretary, MCM
Funding 1998-1, Inc.
Marilyn Froelich Vice President Vice President, MCM Funding
1997-1, Inc.; Vice President,
MCM Funding 1998-1, Inc.;
Director, Investment Advisory,
Minnesota Life Insurance
Company
Loren Haugland Vice President Vice President, MCM Funding
1997-1, Inc.; Vice President,
MCM Funding 1998-1, Inc.;
Senior Investment Officer,
Minnesota Life Insurance
Company
Thomas A. Gunderson Vice President Vice President, MCM Funding
1997-1, Inc.; Vice President,
MCM Funding 1998-1, Inc.;
Investment Officer, Total
Return, Minnesota Life
Insurance Company
Kent R. Weber Vice President Vice President, MCM Funding
1997-1, Inc.; Vice President,
MCM Funding
<PAGE>
1998-1, Inc.; Investment
Officer, Total Return,
Minnesota Life Insurance
Company
Jeffrey R. Erickson Vice President Vice President, MCM Funding
1997-1, Inc.; Vice President,
MCM Funding 1998-1, Inc.;
Investment Officer, Total
Return, Minnesota Life
Insurance Company
Gary A. Aster Vice President Vice President, MCM Funding
1997-1, Inc.; Vice President,
MCM Funding 1998-1, Inc.;
Investment Officer, Equities,
Minnesota Life Insurance
Company
Wayne R. Schmidt Vice President Secretary and Treasurer,
MIMLIC Funding, Inc.;
Assistant Secretary and
Treasurer, Robert Street
Energy, Inc.; Vice President
and Secretary, MIMLIC Imperial
Corporation; Vice President
and Assistant Secretary, MCM
Funding 1997-1, Inc.; Vice
President and Assistant
Secretary, MCM Funding 1998-1,
Inc.; Investment Officer -
Fixed Income PM, Minnesota
Life Insurance Company
Joseph R. Betlej Vice President Vice President, Secretary and
Director, Wedgewood Valley
Golf, Inc.; Vice President and
Secretary, MIMLIC Venture
Corporation; Vice President,
MCM Funding 1997-1, Inc.; Vice
President, MCM Funding 1998-1,
Inc.; Senior Investment
Officer, Minnesota Life
Insurance Company
Steven Laude Vice President Vice President, MCM Funding
1997-1, Inc.; Vice President,
MCM Funding 1998-1, Inc.;
Senior Investment Officer -
Fixed Income, Minnesota Life
Insurance Company
<PAGE>
Erica Bergsland Vice President Vice President, MCM Funding
1997-1, Inc.; Vice President,
MCM Funding 1998-1, Inc.;
Senior Investment Officer -
Mortgage, Minnesota Life
Insurance Company
Thomas G. Meyer Vice President Vice President, MCM Funding
1997-1, Inc.; Vice President,
MCM Funding 1998-1, Inc.;
Director, Marketing
Development, Minnesota Life
Insurance Company
Rodney Hare Vice President Director of Institutional
Marketing, Minnesota Life
Insurance Company; Vice
President, MCM Funding 1997-1,
Inc.; Vice President, MCM
Funding 1998-1, Inc.
Gary Kleist Financial Vice Director, Investment
President Operations, Minnesota Life
Insurance Company; Vice
President, MCM Funding 1997-1,
Inc.; Vice President, MCM
Funding, 1998-1, Inc.
Sean O'Connell Vice President Senior Investment Officer -
Mortgage, Minnesota Life
Insurance Company; Vice
President, MCM Funding 1997-1,
Inc.; Vice President, MCM
Funding 1998-1, Inc.
John Leiviska Vice President Senior Investment Officer -
Fixed Income, Minnesota Life
Insurance Company; Vice
President, MCM Funding 1997-1,
Inc.; Vice President, MCM
Funding 1998-1, Inc.
Annette Masterson Vice President Senior Investment Officer -
Fixed Income, Minnesota Life
Insurance Company; Vice
President, MCM Funding 1997-1,
Inc.; Vice President, MCM
Funding 1998-1, Inc.
Mark L. Henneman Vice President Value Portfolio Manager,
Minnesota Life Insurance
<PAGE>
Company; Vice President, MCM
Funding 1997-1, Inc.; Vice
President, MCM Funding 1998-1,
Inc.
Kevin J. Hiniker Associate General Investment Officer - Law
Counsel and Assistant Secretary,
Minnesota Life Insurance
Company; Assistant Secretary,
Robert Street Energy, Inc.;
Assistant Secretary, MCM
Funding 1997-1, Inc.;
Assistant Secretary, MCM
Funding 1998-1, Inc.
</TABLE>
ITEM 27. PRINCIPAL UNDERWRITERS
(a) Ascend Financial Services, Inc. currently acts as a principal
underwriter for the following investment companies:
Advantus Horizon Fund, Inc.
Advantus Spectrum Fund, Inc.
Advantus Mortgage Securities Fund, Inc.
Advantus Money Market Fund, Inc.
Advantus Bond Fund, Inc.
Advantus Cornerstone Fund, Inc.
Advantus Enterprise Fund, Inc.
Advantus International Balanced Fund, Inc.
Advantus Venture Fund, Inc.
Advantus Index 500 Fund, Inc.
Advantus Real Estate Securities Fund, Inc.
MIMLIC Cash Fund, Inc.
Variable Fund D
Variable Annuity Account
Minnesota Life Variable Life Account
Group Variable Annuity Account
Minnesota Life Variable Universal Life Account
(b) The name and principal business address, positions and offices
with Ascend Financial Services, Inc., and positions and offices with Registrant
of each director and officer of Ascend Financial Services, Inc. is as follows:
<TABLE>
<CAPTION>
Positions and Positions and
Name and Principal Offices Offices
Business Address with Underwriter with Registrant
- ------------------ ---------------- ---------------
<S> <C> <C>
Robert E. Hunstad Director None
Minnesota Life
Insurance Company
400 Robert Street North
St. Paul, Minnesota 55101
George I. Connolly President, Chief None
Ascend Financial Services, Inc. Executive Officer, Chief
400 Robert Street North Compliance Officer and
St. Paul, Minnesota 55101 Director
<PAGE>
Margaret Milosevich Vice President, Chief Assistant
Ascend Financial Services, Inc. Operations Officer, Secretary
400 Robert Street North Treasurer and Secretary
St. Paul, Minnesota 55101
Dennis E. Prohofsky Director None
Minnesota Life
Insurance Company
400 Robert Street North
St. Paul, Minnesota 55101
Thomas L. Clark Assistant Treasurer Assistant
Ascend Financial Services, Inc. and Assistant Secretary Secretary
400 Robert Street North
St. Paul, Minnesota 55101
</TABLE>
(c) Not applicable.
ITEM 28. LOCATION OF ACCOUNTS AND RECORDS
The physical possession of the accounts, books and other documents required
to be maintained by Section 3(a) of the Investment Company Act of 1940 and Rules
31a-1 to 31a-3 promulgated thereunder is maintained by Minnesota Life, 400
Robert Street North, St. Paul, Minnesota 55101; except that the physical
possession of certain accounts, books and other documents related to the custody
of the Registrant's securities is maintained by the following custodian:
U.S. Bank National Association
180 East Fifth Street
St. Paul, Minnesota 55101
ITEM 29. MANAGEMENT SERVICES
Not applicable.
ITEM 30. UNDERTAKINGS
Not applicable.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940 the Registrant has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereto duly
authorized, in the City of St.Paul and the State of Minnesota on the 8th day of
February, 1999.
ADVANTUS REAL ESTATE SECURITIES FUND, INC.
Registrant
By
------------------------------------------
William N. Westhoff, President
Pursuant to the requirements of the Securities Act of 1933, this
Pre-Effective Amendment to the Registration Statement has been signed below by
the following persons in the capacities and on the date indicated.
- ------------------------ President (principal February 8, 1999
William N. Westhoff executive officer)
and Director
- ------------------------ Director and Treasurer February 8, 1999
Frederick P. Feuerherm (principal financial
and accounting officer)
Ralph D. Ebbott* Director)
- ------------------------
Ralph D. Ebbott ) By-------------------------
) William N. Westhoff
) Attorney-in-Fact
Charles E. Arner* Director)
- ------------------------
Charles E. Arner ) Dated: February 8, 1999
)
)
Ellen S. Berscheid* Director)
- ------------------------
Ellen S. Berscheid )
- --------------------
*Registrant's director executing power of attorney dated October 22, 1998, a
copy of which is filed herewith.
<PAGE>
ADVANTUS REAL ESTATE SECURITIES FUND, INC.
EXHIBIT INDEX
Exhibit Number and Description:
(a) Articles of Incorporation for the Registrant. (1)
(b) Bylaws of the Registrant. (1)
(c) Not applicable.
(d) Investment Advisory Agreement between Advantus Capital Management,
Inc. and the Registrant. (1)
(e)(1) Underwriting and Distribution Agreement between the Registrant and
Ascend Financial Services, Inc. (1)
(e)(2) Dealer Sales Agreement between Ascend Financial Services, Inc.,
principal underwriter for the Registrant, and dealers. (1)
(f) Not applicable.
(g) Custodian Agreement between the Registrant and U.S. Bank National
Association. (1)
(h) Shareholder and Administrative Services Agreement between the
Registrant and Minnesota Life Insurance Company.
(i) Opinion and Consent of Dorsey & Whitney LLP.
(j) Consent of KPMG Peat Marwick LLP.
(k) Not applicable.
(l) Letter of Investment Intent from Minnesota Life Insurance Company
regarding the Registrant's initial capital.
(m) Plan of Distribution for Class A shares of the Registrant. (1)
(n) Financial Data Schedule.
(o) Not applicable.
(p) Power of Attorney to sign Registration Statement executed by Directors
of Registrant.
(1) Incorporated by reference to the Registrant's Registration Statement on
Form N-1A filed December 10, 1998.
<PAGE>
SHAREHOLDER AND ADMINISTRATIVE SERVICES AGREEMENT
BETWEEN
ADVANTUS REAL ESTATE SECURITIES FUND, INC.
AND
MINNESOTA LIFE INSURANCE COMPANY
<PAGE>
SHAREHOLDER AND ADMINISTRATIVE SERVICES AGREEMENT
AGREEMENT made as of the 22nd of October, 1998, by and between Advantus
Real Estate Securities Fund, Inc., a Minnesota corporation, having its principal
office and place of business at 400 Robert Street North, St. Paul, Minnesota,
55101, (the "Fund"), and Minnesota Life Insurance Company, a Minnesota
corporation having its principal office and place of business at 400 Robert
Street North, St. Paul, Minnesota, 55101, ("ML").
WHEREAS, the Fund has contracted with First Data Investor Services Group,
Inc., a Massachusetts corporation (the "Transfer Agent"), to provide customary
transfer agent services to the Fund; and
WHEREAS, the Fund has reserved certain shareholder servicing tasks and
responsibilities ("Shareholder Services") which are to be performed by ML rather
than the Transfer Agent; and
WHEREAS, the Fund has further reserved certain accounting, auditing, legal
and other administrative tasks and responsibilities ("Administrative Services")
to be performed by ML; and
WHEREAS, the Fund desires to appoint ML as its Shareholder Services agent
and agent in connection with certain other Administrative Services, and ML
desires to accept such appointment;
NOW, THEREFORE, in consideration of the mutual covenants herein contained,
the parties hereto agree as follows:
Article 1 TERMS OF APPOINTMENT AND DUTIES OF ML
1.01 Subject to the terms and conditions set forth in this
Agreement, and in accordance with procedures established from time to time by
agreement between the Fund and ML, ML hereby agrees to provide the following
Administrative Services:
(a) Register or qualify, and maintain the registrations or
qualifications, of the Fund and its common stock ("Shares")
under state or other securities laws;
(b) Calculate the Fund's net asset value per Share at such times
and in such manner as specified in the Fund's current
prospectus and statement of additional information and at
such other times as the parties hereto may from time to time
agree upon;
(c) Upon the Fund's distribution of dividends and capital gains,
calculate the amount of such dividends and capital gains to
be received per Share and calculate the number of additional
Shares to be received by each
-2-
<PAGE>
Shareholder, other than any shareholder who has elected to
receive such dividends and capital gains in cash;
(d) Prepare and maintain all accounting records required by the
Fund, including a general ledger;
(e) Prepare the Fund's annual and semi-annual financial
statements;
(f) Prepare and file the Fund's income, excise and other tax
returns;
(g) Provide audit assistance in conjunction with the Fund's
independent auditors;
(h) Provide such legal services as the parties hereto may from
time to time agree upon, including without limitation
preparation and filing with the Securities and Exchange
Commission of the annual or more frequent post-effective
amendments to the Fund's registration statement and the
Fund's proxy materials; and
(i) Provide such other Administrative Services as the parties
hereto may from time to time agree upon.
1.02 As Shareholder Services agent, ML agrees to provide or
perform the following Shareholder Services in accordance with procedures
established from time to time by agreement between the Fund and ML:
(a) Receive telephone redemption requests, telephone redemption
directions, wire order purchase requests and telephone
transfer instructions, and deliver such requests, directions
and instructions together with other appropriate
information, to the Transfer Agent;
(b) Provide customer service representatives to respond to
telephone inquiries relating to the Fund from customers,
shareholders and/or registered representatives and forward
any pertinent information, including without limitation
instructions pertaining to any periodic investment plan,
periodic withdrawal plan or other plan set out in the
currently effective prospectus, or requests to the Transfer
Agent. ML shall transmit electronically, via U.S. mail or
any other delivery means ML determines to be suitable, any
Shareholder or account transaction instructions received, to
the Transfer Agent in a timely fashion; and
(c) ML will calculate any minimum required distribution amounts
for plans qualified under Section 401(a) or 408 of the
Internal Revenue Code, as that term is defined under the
Code or delegate such responsibility to a suitable agent,
with the Fund's approval.
-3-
<PAGE>
Article 2 ADDITIONAL DUTIES
2.01 ML shall keep records relating to the services to be
performed hereunder, in the form and manner as it may deem advisable. To the
extent required by Section 31 of the Investment Company Act of 1940, as amended,
and the Rules thereunder, ML agrees that all such records prepared or maintained
by ML relating to the services to be performed by ML hereunder are the property
of the Fund and will be preserved, maintained and made available in accordance
with such Section and Rules, and will be surrendered promptly to the Fund on and
in accordance with its request.
2.02 ML and the Fund agree that all books, records, information
and data pertaining to the business of the other party which are exchanged or
received pursuant to the negotiation or the carrying out of this Agreement shall
remain confidential, and shall not be voluntarily disclosed to any other person,
except as may be required be law.
2.03 ML will endeavor to notify the Fund and to secure
instructions from an authorized officer of the Fund in case of any requests or
demands for the inspection of Shareholder records. ML reserves the right,
however, to exhibit the Shareholder records to any person whenever it is advised
by its counsel that it may be held liable for the failure to exhibit the
Shareholder records to such person.
Article 3 FEES AND EXPENSES
3.01 For Shareholder Services performed by ML pursuant to this
Agreement, the Fund will pay ML an annual account servicing fee as set forth in
Schedule A. In addition to the fees, the Fund will reimburse ML for
out-of-pocket expenses or advances incurred by ML. Such fees, out-of-pocket
expenses or advances may be changed from time to time subject to mutual written
agreement between the Fund and ML.
3.02 For Administrative Services performed by ML pursuant to
this Agreement, the Fund will pay ML a monthly Administrative Services Fee as
set forth in Schedule A. In addition to the fees, the Fund will reimburse ML
for out-of-pocket expenses or advances incurred by ML. Such fees, out-of-pocket
expenses or advances may be changed from time to time subject to mutual written
agreement between the Fund and ML.
Article 4 REPRESENTATIONS AND WARRANTIES OF ML
ML represents and warrants to the Fund that:
4.01 It is a corporation duly organized and existing and in good
standing under the laws of the State of Minnesota.
4.02 It is duly qualified to carry on its business in the State
of Minnesota
4.03 It has and will continue to have access to the necessary
facilities, equipment and personnel to perform its duties and obligations under
this Agreement.
-4-
<PAGE>
4.04 It agrees to obtain and maintain, all regulatory licensing
as may be required of it, if any, under this Agreement.
Article 5 REPRESENTATIONS AND WARRANTIES OF THE FUND
The Fund represents and warrants to ML that:
5.01 It is a corporation duly organized and existing and in good
standing under the laws of Minnesota.
5.02 It is empowered under applicable laws and by its Articles
of Incorporation and Bylaws to enter into and perform this Agreement.
5.03 All corporate proceedings required by said Articles of
Incorporation and Bylaws have been taken to authorize it to enter into and
perform this Agreement.
5.04 It is an open-end and diversified management investment
company registered under the Investment Company Act of 1940.
5.05 A registration statement under the Securities Act of 1933
is currently effective and will remain effective, and appropriate state
securities law filings have been made and will continue to be made, with respect
to all Shares of the Fund being offered for sale.
Article 6 INDEMNIFICATION
6.01 ML shall not be responsible for, and the Fund shall
indemnify and hold ML harmless from and against, any and all losses, damages,
costs, charges, counsel fees, payments, expenses and liability arising out of or
attributable to:
(a) All actions of ML or its agent or subcontractors required to
be taken pursuant to this Agreement, provided that such actions are taken in
good faith without negligence or willful misconduct.
(b) The Fund's refusal or failure to comply with the terms of
this Agreement, or which arise out of the Fund's lack of good faith, negligence
or willful misconduct or which arise out of the breach of any representation or
warranty of the Fund hereunder.
(c) The reliance on or use by ML or its agents or subcontractors
of information, records and documents which (i) are received by ML or is agents
or subcontractors and furnished to it by or on behalf of the Fund, and (ii) have
been prepared and/or maintained by the Fund or any other person or firm on
behalf of the Fund.
(d) The reliance on, or the carrying out by ML or its agents or
subcontractors of any instructions or requests of the Fund.
-5-
<PAGE>
(e) The offer or sale of Shares in violation of any requirement
under the federal securities laws or regulations or the securities laws or
regulations of any state that such Shares be registered in such state or in
violation of any stop order or other determination or ruling by any federal
agency or any state with respect to the offer or sale of such Shares in such
state.
6.02 ML shall indemnify and hold the Fund harmless from and
against any and all losses, damages, costs, charges, counsel fees, payments,
expenses and liability arising out of or attributable to any action or failure
or omission to act by ML as a result of ML's lack of good faith, negligence or
willful misconduct, or ML's refusal or failure to comply with the terms of this
Agreement, or which arise out of the breach of any representation or warranty of
ML hereunder.
6.03 At any time ML may apply to any officer of the Fund for
instructions, and may consult with legal counsel to the Fund with respect to any
matter arising in connection with the services to be performed by ML under this
Agreement, and ML and its agents or subcontractors shall not be liable and shall
be indemnified by the Fund for any action taken or omitted by it in good-faith
reliance upon such instructions or upon the opinion of such counsel. ML, its
agents and subcontractors shall be protected and indemnified in acting upon any
paper or document furnished by or on behalf of the Fund, reasonably believed to
be genuine and to have been signed by the proper person or persons, or upon any
instruction, information, data, records or documents provided ML or its agents
or subcontractors by machine readable input, telex, CRT data entry or other
similar means authorized by the Fund, and shall not be held to have notice of
any change or authority of any person, until receipt of written notice thereof
from the Fund. ML, its agents and subcontractors shall also be protected and
indemnified in recognizing stock certificates which are reasonably believed to
bear the proper manual or facsimile signatures of the officers of the Fund, and
the proper countersignature of any transfer agent or registrar, or of a
co-transfer agent or co-registrar.
6.04 In the event any party is unable to perform its obligations
under the terms of this Agreement because of acts of God, strikes, equipment or
transmission failure or damage reasonably beyond its control, or other causes
reasonably beyond its control, the party shall not be liable for damages to the
other parties for any damages resulting from such failure to perform or
otherwise from such causes.
6.05 No party to this Agreement shall be liable to any other
party for consequential damages, whether under any provision of this Agreement
or for any act or failure to act hereunder.
6.06 In order that the indemnification provisions contained in
this Article 6 shall apply, upon the assertion of a claim for which either party
may be required to indemnify the other, the party seeking indemnification shall
promptly notify the other party of such assertion, and shall keep the other
party advised with respect to all developments concerning such claim. The party
who may be required to indemnify shall have the option to participate with the
party seeking indemnification in the defense of such claim. The party seeking
indemnification shall in no case confess any claim or make any compromise in any
case in which the other party may be required to indemnify it except with the
other party's prior written consent.
-6-
<PAGE>
Article 7 TERMINATION OF AGREEMENT
7.01 This Agreement may be terminated by either party upon sixty
(60) days written notice to the other party.
Article 8 ASSIGNMENT
8.01 Neither this Agreement nor any rights or obligations
hereunder may be assigned by either party without the written consent of the
other party.
8.02 This Agreement shall inure to the benefit of and be binding
upon the parties and their respective permitted successors and assigns.
Article 9 AMENDMENT
9.01 This Agreement may be amended or modified by a written
agreement executed by both parties and authorized or approved by a resolution of
the Board of Directors of the Fund.
Article 10 GOVERNING LAW
10.01 This Agreement shall be construed and the provisions
thereof interpreted under and in accordance with the laws of the State of
Minnesota.
Article 11 ENTIRE AGREEMENT
11.01 This Agreement constitutes the entire agreement between
the parties hereto and supersedes any prior agreement with respect to the
subject matter hereof whether oral or written.
Article 12 EFFECTIVE DATE
12.01 This Agreement shall be effective as of the date agreed to
by management of the Fund.
-7-
<PAGE>
IT WITNESS WHEREOF, the parties hereto have caused this Agreement
to be executed in their names and on their behalf under their seals by and
through their duly authorized officers, as of the day and year first above
written.
ADVANTUS REAL ESTATE SECURITIES FUND, INC.
By
----------------------------------------------
William N. Westhoff, President
Attest
------------------------------------------
Frederick P. Feuerherm, Treasurer
MINNESOTA LIFE INSURANCE COMPANY
By
----------------------------------------------
Robert E. Hunstad, Executive Vice-President
Attest
------------------------------------------
Dennis E. Prohofsky, Senior Vice
President, General Counsel and Secretary
-8-
<PAGE>
SCHEDULE A
TO THE
SHAREHOLDER AND ADMINISTRATIVE SERVICES AGREEMENT
FOR
ADVANTUS REAL ESTATE SECURITIES FUND, INC.
(As amended January 13, 1999 and effective February 1, 1999)
(1) Minnesota Life shall receive, as compensation for services
performed as its shareholder servicing agent, an annual account servicing fee
for each shareholder account, determined in accordance with the following table:
Annual Account Fee
------------------
$ 5.00
(2) Minnesota Life shall receive, as compensation for its accounting,
auditing, legal and other administrative services pursuant to this Agreement, a
monthly fee determined in accordance with the following table:
Monthly Administrative
Service Fee
-----------
$4,800.00
The above monthly fees shall be paid to Minnesota Life not later than
five days following the end of each calendar quarter in which said services were
rendered.
A-1
<PAGE>
Dorsey & Whitney LLP
Pillsbury Center South
220 South Sixth Street
Minneapolis, Minnesota 55402-1498
Telephone: (612) 340-2600
FAX: (612) 340-2868
Advantus Real Estate Securities Fund, Inc.
400 Robert Street North
St. Paul, Minnesota 55101
Ladies and Gentlemen:
We have acted as counsel to Advantus Real Estate Securities Fund, Inc., a
Minnesota corporation (the "Fund"), in connection with a Registration Statement
on Form N-1A (File No. 811-9139) (the "Registration Statement") relating to the
sale by the Fund of an indefinite number of shares of the Fund's Class A Common
Shares, with a par value of $.01 per share (the "Shares").
We have examined such documents and have reviewed such questions of law as
we have considered necessary and appropriate for the purposes of our opinions
set forth below. In rendering our opinions set forth below, we have assumed the
authenticity of all documents submitted to us as originals, the genuineness of
all signatures and the conformity to authentic originals of all documents
submitted to us as copies. We have also assumed the legal capacity for all
purposes relevant hereto of all natural persons and, with respect to all parties
to agreements or instruments relevant hereto other than the Fund, that such
parties had the requisite power and authority (corporate or otherwise) to
execute, deliver and perform such agreements or instruments, that such
agreements or instruments have been duly authorized by all requisite action
(corporate or otherwise), executed and delivered by such parties and that such
agreements or instruments are the valid, binding and enforceable obligations of
such parties. As to questions of fact material to our opinions, we have relied
upon certificates of officers of the Fund and of public officials. We have also
assumed that the Shares will be issued and sold as described in the Registration
Statement.
Based on the foregoing, we are of the opinion that upon issuance, delivery
and payment for the Shares as described in the Registration Statement, the
Shares will be validly issued, fully paid and nonassessable.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the references to our firm under the caption
"Service Providers" in the Prospectus and under the caption "Investment Advisory
and Other Services" in the Statement of Additional Information, each
constituting part of the Registration Statement.
Dated: February 3, 1999
Very truly yours,
/s/Dorsey & Whitney LLP
Dorsey & Whitney LLP
KLP
<PAGE>
KPMG Peat Marwick LLP
4200 Norwest Center
90 South Seventh Street
Minneapolis, MN 55402
INDEPENDENT AUDITORS' CONSENT
The Board of Directors
Advantus Real Estate Securities Fund, Inc.:
We consent to the use of our report included herein and the references
to our Firm under the headings "General Information - Service Providers"
in Part A and "Financial Statements" in Part B of the Registration Statement.
KPMG Peat Marwick LLP
Minneapolis, Minnesota
February 8, 1999
<PAGE>
MINNESOTA LIFE INSURANCE COMPANY
400 Robert Street North
St. Paul, MN 55101-2098
651.665.3500 Tel
MINNESOTA LIFE
A MINNESOTA MUTUAL COMPANY
February 1, 1999
Advantus Real Estate Securities Fund, Inc.
400 Robert Street North
St. Paul, Minnesota 55101
Dear Sir or Madam:
In connection with the purchase by Minnesota Life Insurance Company (the
"Purchaser") of 15,000 initial Class A shares of common stock ("Stock") of
Advantus Real Estate Securities Fund, Inc. (the "Fund"), the Purchaser hereby
represents that it is acquiring such Stock for investment with no intention of
selling or otherwise disposing or transferring it or any interest in it.
Organization expenses incurred in connection with the start-up and initial
registration of the Fund will be borne by the Purchaser or by Advantus Capital
Management, Inc. ("Advantus Capital"), the Fund's investment adviser and
Purchaser's wholly-owned subsidiary. Such organization expenses will not be
reimbursed to the Purchaser or Advantus Capital by the Fund.
The Purchaser hereby further agrees that any transfer of any such Stock or any
interest in it shall be subject to the following conditions:
1. The Purchaser shall furnish the Fund and counsel satisfactory to the Fund
prior to the time of transfer, a written description of the proposed
transfer specifying its nature and consequence and giving the name of the
proposed transferee.
2. The Fund shall have obtained from its counsel a written opinion stating
whether in the opinion of such counsel the proposed transfer may be
effected without registration under the Securities Act of 1933. If such
opinion states that such transfer may be so effected, the Purchaser shall
then be entitled to transfer its Stock in accordance with the terms
specified in its description of the transaction to the Fund. If such
opinion states that the proposed transfer may not be so effected, the
Purchaser will not be entitled to transfer its Stock unless such Stock is
registered.
3. The Purchaser further agrees that all certificates, if any, representing
such Stock shall contain on the face thereof the following legend:
"The shares represented by this certificate may not be transferred
without (i) the opinion of counsel satisfactory to Advantus Real
Estate Securities
<PAGE>
Advantus Real Estate Securities Fund, Inc.
February 1, 1999
Page 2
Fund, Inc. that the transfer may be legally made without registration under
the Federal Securities Act of 1933; or (ii) such registration."
The Purchaser hereby authorizes the Fund to take such action as it shall
reasonably deem appropriate to prevent any violation of the Securities Act of
1933 in connection with the transfer of Stock, including the imposition of a
requirement that any transferee of the Stock sign a letter agreement similar to
this one.
Very truly yours,
/s/ William N. Westhoff
William N. Westhoff
Senior Vice President
PHG:pjh
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<RESTATED>
<CIK> 0001074981
<NAME> ADVANTUS REAL ESTATE SECURITIES FUND, INC.
<SERIES>
<NUMBER> 100
<NAME> CLASS A
<MULTIPLIER> 1000
<CURRENCY> US
<S> <C>
<PERIOD-TYPE> OTHER
<FISCAL-YEAR-END> JUL-31-1999
<PERIOD-START> FEB-01-1999
<PERIOD-END> FEB-01-1999
<EXCHANGE-RATE> 1
<INVESTMENTS-AT-COST> 148,680
<INVESTMENTS-AT-VALUE> 148,680
<RECEIVABLES> 0
<ASSETS-OTHER> 1,320
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 150,000
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 0
<TOTAL-LIABILITIES> 0
<SENIOR-EQUITY> 150
<PAID-IN-CAPITAL-COMMON> 149,850
<SHARES-COMMON-STOCK> 15,000
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 150,000
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 0
<OTHER-INCOME> 0
<EXPENSES-NET> 0
<NET-INVESTMENT-INCOME> 0
<REALIZED-GAINS-CURRENT> 0
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 0
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 15,000
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 0
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 0
<AVERAGE-NET-ASSETS> 0
<PER-SHARE-NAV-BEGIN> 10.00
<PER-SHARE-NII> 0.00
<PER-SHARE-GAIN-APPREC> 0.00
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.00
<EXPENSE-RATIO> 0
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<PAGE>
POWER OF ATTORNEY
TO SIGN REGISTRATION STATEMENT
The undersigned, Directors of Advantus Horizon Fund, Inc., Advantus
Spectrum Fund, Inc., Advantus Mortgage Securities Fund, Inc., Advantus Money
Market Fund, Inc., Advantus Bond Fund, Inc., Advantus Cornerstone Fund, Inc.,
Advantus Enterprise Fund, Inc., Advantus International Balanced Fund, Inc.,
Advantus Venture Fund, Inc., Advantus Index 500 Fund, Inc., Advantus Real Estate
Securities Fund, Inc., MIMLIC Cash Fund, Inc., and Advantus Series Fund, Inc.
(the "Funds"), appoint William N. Westhoff, Eric J. Bentley, Donald F. Gruber
and Michael J. Radmer, and each of them individually, as attorney-in-fact for
the purpose of signing in their names and on their behalf as Directors of the
Funds and filing with the Securities and Exchange Commission Registration
Statements on Form N-1A, or any amendments thereto, for the purpose of
registering shares of Common Stock of the Funds for sale by the Funds and to
register the Funds under the Investment Company Act of 1940.
Dated: October 22, 1998 /s/Charles E. Arner
---------------------------------------
Charles E. Arner
/s/Ellen S. Berscheid
---------------------------------------
Ellen S. Berscheid
/s/Ralph D. Ebbott
---------------------------------------
Ralph D. Ebbott
/s/Frederick P. Feuerherm
---------------------------------------
Frederick P. Feuerherm
/s/William N. Westhoff
---------------------------------------
William N. Westhoff
