<PAGE>
REAL ESTATE
ADVANTUS REAL ESTATE SECURITIES FUND, INC.
SEMI-ANNUAL REPORT TO SHAREHOLDERS DATED JANUARY 31, 2000 [LOGO]
ADVANTUS-TM-
FAMILY OF FUNDS
EQUITY
[PHOTO]
<PAGE>
ADVANTUS Real Estate Securities Fund
TABLE OF CONTENTS
PERFORMANCE UPDATE 2
INVESTMENTS IN SECURITIES 6
STATEMENT OF ASSETS AND LIABILITIES 8
STATEMENT OF OPERATIONS 9
STATEMENTS OF CHANGES IN NET ASSETS 10
NOTES TO FINANCIAL STATEMENTS 11
SHAREHOLDER SERVICES 15
<PAGE>
Letter from the President [PHOTO]
Dear Shareholder:
Over the past year, which includes this reporting period, the key themes in our
updates were consistent: global economic recovery, continued U.S. growth with
low inflation, investors' affinity for and fickleness with the capital markets,
and glitch-free passage into the next millennium. These themes will likely
continue into 2000, since turning a calendar page has little to do with the
conduct of economies or markets. Most economic and market conditions play out
over a period of time. However, transition should not be mistaken for
tranquility; volatility was extremely evident in the markets over the past 6
months, and we expect the same for the upcoming year.
Throughout 1999, many of the world's economies were mending. Asia, including
economically devastated Japan, showed signs of a sustainable recovery. Europe
improved, equity markets soared and growth in the U.S. climbed higher. As the
year ended, many of the world's economies looked brighter and the U.S. continued
to shine. In the U.S., economic growth accelerated. The inflation-wary Federal
Reserve again tapped the brakes to slow the U.S. growth engine by raising the
Fed Funds rate on November 16. This tightening - like the two preemptive moves
earlier in 1999 - was 25 basis points (.25 percent), totaling 75 basis points
(.75 percent) for 1999. The most recent hike in Fed Funds (25 basis points) was
announced at the February 2, 2000 Federal Open Market Committee (FOMC) meeting.
The Fed's inflation fighting vigilance continues.
Stock Market: Large cap stocks were strong performers for the reporting period.
The S&P 500 Index* finished 1999 up 21 percent despite increasing interest
rates, continuing fears of future interest rate hikes, looming Y2K issues and
recovery of many foreign economies. However, the Index* composite declined
significantly in January 2000 to return -5.0 percent. The technology sector, the
largest weighted sector in the composite, returned 32 percent for the six-month
period ended January 31st.
Bond Market: The steady climb in interest rates throughout the year sent bond
prices lower. The bond market suffered its worst year-end performance since 1994
and the second worst since 1973. Rising interest rates, low unemployment,
inflationary fears and a runaway stock market did not bode well for the bonds
during this reporting period.
What do we expect going forward? We believe that Asia's recovery, including
Japan, will continue. We anticipate the growth in Europe will also continue. It
appears that more countries are moving toward free market economies. As these
countries embrace the free market system, we anticipate that capital will flow
more efficiently and competition will increase. Historically, price competition
keeps global inflation lower, however, past performance is not necessarily
indicative of future results.
On the domestic front, we expect growth to slow. The Federal Reserve will likely
adopt a "tightening" posture through the first half of 2000 to reign in the
economic growth rate. We expect that fundamentals for the stock market (i.e.,
earnings growth, moderate inflation, and good productivity numbers) will remain
very strong.
A technological revolution is driving the U.S. economy. Spending to retrofit
U.S. industry has pushed economic growth and productivity. It is likely that
market euphoria will spill over, and corrections will still occur in the economy
and the marketplace. However, this "new economy" is creating excitement and the
potential to bring significant opportunity to long-term investors.
Thank you for investing with Advantus.
Sincerely,
/s/ William N. Westhoff
William N. Westhoff, President
Advantus Funds
*The S&P 500 Index is a broad, unmanaged index of 500 common stocks which are
representative of the U.S. stock market overall.
<PAGE>
ADVANTUS Real Estate Securities Fund
PERFORMANCE UPDATE
[PHOTO]
JOE BETLEJ, CFA
PORTFOLIO MANAGER
The Advantus Real Estate
Securities Fund seeks total
return through a combination
of capital appreciation and
current income. Under normal
circumstances, at least 65
percent of the Fund's total
assets will be invested in
real estate and real
estate-related securities.
Performance
For the six month period ended January 31, 2000, the performance of the Advantus
Real Estate Securities Fund - Class A shares was -5.95 percent.* This compares
to the Wilshire Associates Real Estate Securities Index (WARESI)** return of
- -5.29 percent for the same period.
Performance Analysis
The economy had a strong period. Unemployment remained at historical lows of
about 4 percent. The Gross Domestic Product (GDP) grew at approximately 4
percent. Retail sales, new home sales, and productivity followed the same
course. It has been an outstanding setting for the real estate market, which saw
very high levels of absorption of space during the past year. Steady increases
in rents followed this market strength. The capital markets did not look to this
strength, however, but to forecasts of the future slowing of the economy, thus
providing significant reduction of new supply of real estate properties as shown
in a significant drop in new construction starts from the peak levels shown in
1998 and 1999. It was a good period for owning real estate.
So, why did the real estate securities market NOT participate in the strength of
the underlying real estate markets? First, the broader stock market was driven
by growth - if you weren't part of the high flyers generating significant growth
in revenues, you were left behind. Modest growth along with a dividend could not
keep up with the attractiveness of dot.com (i.e., Internet and Internet-related
stocks). As real estate securities were concerned about levels of new supply to
hit the markets, consensus estimates for growth slowed for the group. This left
the real estate securities in a relatively weak position, resulting in a drop in
stock prices due to a contraction of their multiple reflecting the slowing
growth. Second, in response to the drop in stock prices for real estate
securities, the sector became a victim of tax-loss selling in third quarter by
investment companies (i.e., mutual funds) and the fourth quarter by individuals.
This technical pressure did not reflect the underlying fundamentals. Lastly,
groups including net lease companies and homebuilders reacted poorly to the rise
in interest rates.
Late in the reporting period, real estate securities moved up significantly as
the market began to focus on the sector's valuation characteristics. Dividends
on stocks of Real Estate Investment Trusts had traded above 9 percent -
typically the high end of its range. These stocks, as a group, were trading at
approximately 80-85 percent of their underlying net asset value (NAV), with some
trading significantly lower. The group was also trading at multiples that did
not reflect their long-term growth rates. Within the background of continued
rental growth and slowing supply, new value and income-oriented investors came
back into the group, providing a well-deserved uptick in price.
Apartments and office-industrial companies provided the safe haven for the
six-month period, providing a total return of -1 and -2 percent
2
<PAGE>
respectively. This performance reflected the solid supply and demand balance for
rental housing and a bounce-back from the deep discount valuations of the
office-industrial companies. Weaker areas were those hit by high levels of new
construction such as hotels, down 13 percent, and companies related to the
residential housing industry (home builders, land companies, furniture makers
and building products).
Outlook
As the real estate markets near their peak, we see absorption and -
fortunately - new supply moderating in 2000. We expect to see pockets of
weakness, but overall, the markets should be in balance, assuming our outlook of
modest growth in the economy. We anticipate that the business fundamentals
should keep the dividends strong. We agree with real estate industry analysts
who expect that company growth rates of 7-10 percent should - with their
dividend - provide total returns that align with the historical averages, which
range in the low to mid-teens. We intend to focus on companies with high quality
management, durable business plans, strong rental and occupancy growth, combined
with compelling valuations. We expect the market to be capital constrained for
real estate companies. Therefore, we will avoid companies that are financially
illiquid. We believe that volatility in broader markets will make the dividend
provided by real estate securities increasingly more valued, with particular
emphasis on companies with dividend increases. We will monitor the market for
share buyback announcements, mergers and privatization of companies. If the
stock market returns to a value bias, it could be a very good year for real
estate securities.
*HISTORICAL PERFORMANCE IS NOT AN INDICATION OF FUTURE PERFORMANCE. THESE
PERFORMANCE RESULTS DO NOT REFLECT THE IMPACT OF CLASS A'S MAXIMUM 5.5 PERCENT
FRONT-END SALES CHARGE. INVESTMENT RETURNS AND PRINCIPAL VALUES WILL FLUCTUATE
SO THAT SHARES UPON REDEMPTION MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL
COST.
**THE WILSHIRE ASSOCIATES REAL ESTATE SECURITIES INDEX IS A MARKET
CAPITALIZATION-WEIGHTED INDEX OF EQUITY SECURITIES WHOSE PRIMARY BUSINESS IS
EQUITY OWNERSHIP OF COMMERCIAL REAL ESTATE (REITS).
3
<PAGE>
COMPARISON OF CHANGE IN VALUE OF A HYPOTHETICAL $10,000
INVESTMENT IN THE ADVANTUS REAL ESTATE SECURITIES FUND,
WILSHIRE ASSOCIATES REAL ESTATE SECURITIES INDEX AND CONSUMER PRICE INDEX
On the following chart you can see how the total return for the Advantus Real
Estate Securities Fund compared to the Wilshire Associates Real Estate
Securities Index and the Consumer Price Index. The lines represent the
cumulative total return of a hypothetical $10,000 investment made on the
inception date of Class A shares of the Advantus Real Estate Securities Fund
(February 25, 1999) through January 31, 2000.
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
TOTAL RETURN SINCE INCEPTION
(2/25/99) (NOT ANNUALIZED):
<S> <C> <C> <C>
Class A -6.87%
(Thousands)
Class A Wilshire Associates Real Estate Securities Index CPI
2/25/99 $10,000 $10,000 $10,000
7/31/99 9,904 10,574 10,121
1/31/00 9,315 10,015 10,267
</TABLE>
The preceding chart is useful because it provides you with more information
about your investments. There are limitations, however. An index may reflect the
performance of securities that the Fund may not hold. Also, the index does not
deduct sales charges, investment advisory fees and other fund expenses, whereas
your Fund does. Performance presented for the Fund reflects the deduction of the
maximum 5.5 percent front-end sales charge for Class A shares. Sales charges pay
for your financial professional's investment advice. Individuals cannot invest
in the index itself, nor can they invest in any fund which seeks to track the
performance of the index without incurring some charges and expenses.
Historical performance is not an indication of future performance. Investment
returns and principal values will fluctuate so that shares upon redemption may
be worth more or less than their original cost.
4
<PAGE>
TEN LARGEST STOCK HOLDINGS
<TABLE>
<CAPTION>
MARKET % OF STOCK
COMPANY SHARES VALUE PORTFOLIO
- ------- -------- ----------- ----------
<S> <C> <C> <C>
Avalon Bay Communities, Inc. ............... 11,000 $ 379,500 4.5%
Equity Residential Properties............... 9,100 377,650 4.5%
Public Storage, Inc. ....................... 16,402 372,120 4.4%
Apartment Investment & Management Company... 9,420 356,782 4.3%
Starwood Hotels & Resorts Worldwide,
Inc. ..................................... 13,400 321,600 3.8%
Equity Office Properties Trust.............. 11,400 291,413 3.5%
Highwoods Properties, Inc. ................. 12,800 291,200 3.5%
Catellus Development Corporation............ 21,200 265,000 3.2%
Simon Property Group, Inc. ................. 10,100 249,344 3.0%
Arden Realty Group, Inc. ................... 11,700 247,162 2.9%
---------- ----
$3,151,771 37.6%
========== ====
</TABLE>
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<S> <C>
Cash and Other Assets/Liabilities (3.4%)
Communication Services (0.1%)
Real Estate (7.1%)
Basic Materials (0.8%)
Capital Goods (1.0%)
Technology (1.0%)
Consumer Staples (1.2%)
Consumer Cyclical (3.6%)
Finance - Diversified (1.3%)
Real Estate Investment Trust (80.5%)
</TABLE>
5
<PAGE>
ADVANTUS Real Estate Securities Fund
Investments in Securities
JANUARY 31, 2000
(UNAUDITED)
(Percentages of each investment category relate to total net assets.)
<TABLE>
<CAPTION>
MARKET
SHARES VALUE(A)
- ------ ---------------
<C> <S> <C>
COMMON STOCK (96.6%)
BASIC MATERIALS (.8%)
Construction (.8%)
1,700 Martin Marietta Materials........................ $ 71,400
----------
CAPITAL GOODS (1.0%)
Manufacturing (1.0%)
3,800 The St. Joe Company.............................. 90,012
----------
COMMUNICATION SERVICES (.1%)
Telecommunication (.1%)
300 Tut Systems, Inc. (b)............................ 11,812
----------
CONSUMER CYCLICAL (3.6%)
Building Materials (.7%)
2,800 Masco Corporation................................ 55,825
----------
Houseware (.9%)
4,400 Furniture Brands International, Inc. (b)......... 74,800
----------
Retail (.4%)
800 Lowe's Companies, Inc............................ 35,700
----------
Service (1.6%)
2,200 Cendant Corporation (b).......................... 44,412
600 CoStar Group, Inc. (b)........................... 19,350
6,800 Fairfield Communities, Inc. (b).................. 77,350
----------
141,112
----------
CONSUMER STAPLES (1.2%)
Household Products (1.2%)
3,300 Newell Rubbermaid, Inc........................... 99,000
----------
FINANCIAL (88.9%)
Finance-Diversified (1.3%)
10,300 Trammell Crow Company (b)........................ 114,587
----------
Real Estate (7.1%)
21,200 Catellus Development Corporation (b)............. 265,000
5,700 LNR Property Corporation......................... 106,875
2,700 Newhall Land & Farming Company................... 75,600
<CAPTION>
MARKET
SHARES VALUE(A)
- -------------------------------------------------------------------------
FINANCIAL--CONTINUED
<C> <S> <C>
4,000 Pinnacle Holdings, Inc. (b)...................... $ 169,750
----------
617,225
----------
Real Estate Investment Trust (80.5%)
9,600 AMB Property Corporation......................... 196,200
9,420 Apartment Investment & Management Company........ 356,782
2,100 Archstone Communities Trust...................... 42,131
11,700 Arden Realty Group, Inc.......................... 247,162
5,400 Asset Investors Corporation...................... 64,800
11,000 Avalon Bay Communities, Inc...................... 379,500
5,400 Camden Property Trust............................ 139,725
5,700 CarrAmerica Realty Corporation................... 123,619
6,300 CBL & Associates Properties, Inc................. 132,694
2,300 Crescent Real Estate Equity Company.............. 41,400
1,400 Eastgroup Properties............................. 26,775
11,400 Equity Office Properties Trust................... 291,413
9,100 Equity Residential Properties.................... 377,650
4,600 Essex Property Trust, Inc........................ 156,400
9,800 Franchise Finance Corporation of America......... 235,200
12,800 Highwoods Properties, Inc........................ 291,200
12,400 Innkeepers USA Trust............................. 99,200
9,200 Kilroy Realty Corporation........................ 178,825
5,800 Kimco Realty Corporation......................... 204,450
7,200 Koger Equity, Inc................................ 113,400
6,400 Liberty Property Trust........................... 149,200
10,300 Macerich Company................................. 232,394
7,300 Mack-Cali Realty Corporation..................... 185,694
11,500 Meristar Hospitality Corporation................. 187,594
</TABLE>
See accompanying notes to investments in securities.
6
<PAGE>
ADVANTUS Real Estate Securities Fund
Investments in Securities - continued
(UNAUDITED)
<TABLE>
<CAPTION>
MARKET
SHARES VALUE(A)
- -------------------------------------------------------------------------
FINANCIAL--CONTINUED
<C> <S> <C>
9,900 Pacific Gulf Properties, Inc..................... $ 193,050
8,500 Pan Pacific Retail Properties.................... 152,469
3,300 Parkway Properties............................... 89,306
8,500 Philips International Realty..................... 140,781
1,900 Post Properties, Inc............................. 72,913
16,402 Public Storage, Inc.............................. 372,120
3,500 Reckson Associates Realty Corporation............ 69,125
1,526 Reckson Associates Realty Corporation B.......... 31,092
10,100 Simon Property Group, Inc........................ 249,344
2,600 SL Green Realty Corporation...................... 56,550
3,900 Spieker Properties, Inc.......................... 151,613
6,135 Starwood Financial, Inc.......................... 106,596
13,400 Starwood Hotels & Resorts Worldwide, Inc......... 321,600
10,300 Summit Properties, Inc........................... 195,700
<CAPTION>
MARKET
SHARES VALUE(A)
- -------------------------------------------------------------------------
FINANCIAL--CONTINUED
<C> <S> <C>
13,600 Trizec Hahn Corporation.......................... $ 218,450
2,900 U.S. Restaurant Properties, Inc.................. 44,406
2,600 Urban Shopping Centers, Inc...................... 72,475
----------
6,990,998
----------
TECHNOLOGY (1.0%)
400 American Tower Corporation....................... 14,250
800 Bamboo.com, Inc. (b)............................. 25,600
200 HomeStore.com, Inc. (b).......................... 19,513
500 Manugistics Group, Inc. (b)...................... 21,156
600 Timberline Software Corporation.................. 7,088
----------
87,607
----------
Total common stock
(cost: $8,453,412)......................................... 8,390,078
----------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
- ---------
<C> <S> <C> <C> <C>
SHORT-TERM SECURITIES (2.5%)
$213,217 Provident Institutional Fund - TempFund Portfolio current rate
5.710%........................................................... 213,217
----------
Total short-term securities (cost: $213,217)...................... 213,217
----------
Total investments in securities (cost: $8,666,629) (c)............ $8,603,295
==========
</TABLE>
Notes to Investments in Securities
- -----------------------------------
(a) Securities are valued by procedures described in note 2 to the financial
statements.
(b) Presently non-income producing.
(c) At January 31, 2000 the cost of securities for federal income tax purposes
was $8,737,480. The aggregate unrealized appreciation and depreciation of
investments in securities based on this cost were:
<TABLE>
<S> <C>
Gross unrealized appreciation.......... $ 296,084
Gross unrealized depreciation.......... (430,269)
---------
Net unrealized depreciation............ $(134,185)
=========
</TABLE>
7
<PAGE>
ADVANTUS Real Estate Securities Fund
Statement of Assets and Liabilities
JANUARY 31, 2000
(UNAUDITED)
<TABLE>
<S> <C>
ASSETS
Investments in securities, at market
value - see accompanying schedule for
detailed listing
(identified cost: $8,666,629)......... $8,603,295
Cash in bank on demand deposit......... 59
Receivable for Fund shares sold........ 115
Receivable for investment securities
sold.................................. 109,162
Accrued interest receivable............ 1,049
Dividends receivable................... 11,544
Other receivable....................... 388
----------
Total assets....................... 8,725,612
----------
LIABILITIES
Payable for investment securities
purchased............................. 31,082
Payable to Adviser..................... 11,211
----------
Total liabilities.................. 42,293
----------
Net assets applicable to outstanding
capital stock......................... $8,683,319
==========
Represented by:
Capital stock - authorized 10 billion
shares (Class A - 2 billion shares,
and 8 billion shares unallocated) of
$.01 par value (note 1).............. $ 9,239
Additional paid-in capital........... 8,987,618
Undistributed net investment
income............................... 28,211
Accumulated net realized losses from
investments.......................... (278,415)
Unrealized depreciation on
investments.......................... (63,334)
----------
Total - representing net assets
applicable to outstanding capital
stock.............................. $8,683,319
==========
Net assets applicable to outstanding
Class A shares........................ $8,683,319
==========
Shares outstanding and net asset value
per share:
Class A - Shares outstanding
923,879.............................. $ 9.40
==========
</TABLE>
See accompanying notes to financial statements.
8
<PAGE>
ADVANTUS Real Estate Securities Fund
Statement of Operations
PERIOD FROM AUGUST 1, 1999 TO JANUARY 31, 2000
(UNAUDITED)
<TABLE>
<S> <C>
Investment income:
Interest....................................................... $ 9,846
Dividends...................................................... 196,187
-----------
Total investment income.................................... 206,033
-----------
Expenses (note 4):
Investment advisory fee........................................ 24,911
Distribution fees - Class A.................................... 8,304
Administrative services fee.................................... 30,600
Transfer agent fees............................................ 2,074
Custodian fees................................................. 2,629
Auditing and accounting services............................... 3,930
Legal fees..................................................... 4,000
Directors' fees................................................ 70
Registration fees.............................................. 4,327
Printing and shareholder reports............................... 11,282
Insurance...................................................... 1,580
Other.......................................................... 1,243
-----------
Total expenses............................................. 94,950
-----------
Less fees and expenses waived or absorbed by Adviser and
Distributor:
Class A distribution fees.................................... (4,982)
Other fund expenses.......................................... (40,146)
-----------
Total fees and expenses waived or absorbed................. (45,128)
-----------
Total net expenses......................................... 49,822
-----------
Investment income - net.................................... 156,211
-----------
Realized and unrealized losses on investments:
Net realized losses on investments (note 3).................... (271,912)
Net change in unrealized appreciation or depreciation on
investments.................................................. (168,230)
-----------
Net losses on investments.................................. (440,142)
-----------
Net decrease in net assets resulting from operations............. $ (283,931)
===========
</TABLE>
See accompanying notes to financial statements.
9
<PAGE>
ADVANTUS Real Estate Securities Fund
Statements of Changes in Net Assets
PERIOD FROM AUGUST 1, 1999 TO JANUARY 31, 2000 AND PERIOD FROM FEBRUARY 1, 1999,
COMMENCEMENT OF OPERATIONS, TO JULY 31, 1999
(UNAUDITED)
<TABLE>
<CAPTION>
2000 1999
----------- -----------
<S> <C> <C>
Operations:
Investment income - net......................... $ 156,211 $ 102,732
Net realized gain (loss) on investments......... (271,912) 60,914
Net change in unrealized appreciation or
depreciation on investments................... (168,230) 104,896
---------- ----------
Increase (decrease) in net assets resulting
from operations........................... (283,931) 268,542
---------- ----------
Distributions to shareholders from:
Investment income - net:
Class A....................................... (128,000) (102,732)
Net realized gains on investments:
Class A....................................... (21,649) -
In excess of net investment income:
Class A....................................... - (45,768)
---------- ----------
Total distributions................... (149,649) (148,500)
---------- ----------
Capital share transactions (notes 4 and 5):
Proceeds from sales:
Class A....................................... 3,556,006 6,114,356
Proceeds from issuance of shares as a result of
reinvested dividends:
Class A....................................... 28,758 16,619
Payments for redemption of shares:
Class A....................................... (580,774) (138,108)
---------- ----------
Increase in net assets from capital share
transactions............................ 3,003,990 5,992,867
---------- ----------
Total increase in net assets.............. 2,570,410 6,112,909
Net assets at beginning of period................. 6,112,909 -
---------- ----------
Net assets at end of period (including
undistributed net investment income of $28,211
and $0, respectively)........................... $8,683,319 $6,112,909
========== ==========
</TABLE>
See accompanying notes to financial statements.
10
<PAGE>
ADVANTUS Real Estate Securities Fund
Notes to Financial Statements
JANUARY 31, 2000
(UNAUDITED)
(1) ORGANIZATION
Advantus Real Estate Securities Fund, Inc. (the Fund) was incorporated on
September 25, 1998. The Fund is registered under the Investment Company Act of
1940 (as amended). The Fund's investment objective is to seek total return
through a combination of capital appreciation and current income.
The Fund currently issues one class of share (Class A). Class A shares are
sold subject to a front-end sales charge.
The Fund commenced operations on February 1, 1999. On February 25, 1999, the
shares became effectively registered under the Securities Exchange Act of 1933.
Prior to February 25, 1999, Minnesota Life cumulatively purchased 514,002
Class A shares for $5,150,000.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The significant accounting policies followed by the Fund are summarized as
follows:
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts in the financial statements. Actual
results could differ from those estimates.
INVESTMENTS IN SECURITIES
The Fund's net asset value is generally calculated as of the close of normal
trading on the New York Stock Exchange (typically 3:00 p.m. Central Time).
Investments in securities traded on a national exchange are valued at the last
sales price on that exchange prior to the time when assets are valued;
securities traded in the over-the-counter market and listed securities for which
no sale was reported on that date are valued on the basis of the last current
bid price, by an independent pricing service or at a price deemed best to
reflect fair value as quoted by dealers who make markets in these securities.
When market quotations are not readily available, securities are valued at fair
value as determined in good faith by procedures adopted by the Board of
Directors. Short-term securities are valued at market value.
Security transactions are accounted for on the date the securities are
purchased or sold. Realized gains and losses are calculated on the
identified-cost basis. Dividend income is recognized on the ex-dividend date and
interest income, including amortization of bond premium and discount computed on
a level yield basis, is accrued daily.
FEDERAL TAXES
The Fund's policy is to comply with the requirements of the Internal Revenue
Code applicable to regulated investment companies and to distribute all of its
taxable income to shareholders. Therefore, no income tax provision is required.
The Fund's policy is to make required minimum distributions prior to
December 31, in order to avoid federal excise tax.
Net investment income and net realized gains (losses) may differ for
financial statement and tax purposes primarily because of temporary book-to-tax
differences. The character of distributions made during the year from
11
<PAGE>
ADVANTUS Real Estate Securities Fund
Notes to Financial Statements - continued
(UNAUDITED)
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - (CONTINUED)
net investment income or net realized gains may differ from their ultimate
characterization for federal income tax purposes. Also, due to the timing of
dividend distributions, the fiscal year in which amounts are distributed may
differ from the year that the income or realized gains (losses) were recorded by
the Fund.
DISTRIBUTIONS TO SHAREHOLDERS
Dividends from net investment income are declared and paid quarterly.
Realized gains, if any, are paid annually.
(3) INVESTMENT SECURITY TRANSACTIONS
For the period from August 1, 1999 to January 31, 2000, purchases of
securities and proceeds from sales, other than temporary investments in
short-term securities aggregated $6,317,681 and $3,292,802 respectively.
(4) EXPENSES AND RELATED PARTY TRANSACTIONS
The Fund has an investment advisory agreement with Advantus Capital. Under
the agreement, Advantus Capital acts as investment adviser and manager for the
Fund. The fee for investment management and advisory services is based on the
average daily net assets of the Fund at the annual rate of .75 percent. The Fund
has engaged PFPC Global Fund Services to act as its transfer agent, dividend
disbursing agent and redemption agent and bears the expenses of such services.
The Fund has adopted a Plan of Distribution applicable to Class A shares,
relating to the payment of certain expenses pursuant to Rule 12b-1 under the
Investment Company Act of 1940 (as amended). The Fund pays fees to Ascend
Financial Services, Inc. (Ascend), the underwriter of the Fund and wholly-owned
subsidiary of Advantus Capital, to be used to pay certain expenses incurred in
connection with the servicing of the Fund's shares. The Class A Plan provides
for a servicing fee up to .25 percent of average daily net assets of Class A
shares. Ascend is currently waiving that portion of Class A Rule 12b-1 fees
which exceeds, as a percentage of average daily net assets, .10 percent. Ascend
waived Class A Rule 12b-1 fees in the amount of $4,982 for the period ended
January 31, 2000.
The Fund also bears certain other operating expenses including outside
directors' fees, custodian fees, registration fees, printing and shareholder
reports, legal, auditing and accounting services, and other miscellaneous
expenses.
The Fund has a shareholder and administrative services agreement with
Minnesota Life. Under this agreement, the Fund pays a shareholder services fee,
equal to $5 per shareholder account annually, to Minnesota Life for shareholder
services which Minnesota Life provides. The Fund also pays Minnesota Life an
administrative services fee is equal to $5,100 per month for accounting,
auditing, legal and other administrative services which Minnesota Life provides.
Prior to August 1, 1999, the administrative services fee was $4,800 per month.
Advantus Capital directly incurs and pays the above operating expenses and
the Fund in turn reimburses Advantus Capital. During the period ended
January 31, 2000, Advantus Capital voluntarily agreed to absorb $40,146 in
expenses which were otherwise payable by the Fund.
12
<PAGE>
ADVANTUS Real Estate Securities Fund
Notes to Financial Statements - continued
(UNAUDITED)
(4) EXPENSES AND RELATED PARTY TRANSACTIONS - (CONTINUED)
Organizational expenses, including legal fees and initial registration fees
in the amount of $52,000, were incurred in connection with the start up and
initial registration of the fund. These expenses were paid by Advantus Capital.
The Fund does not intend to reimburse Advantus Capital for these costs.
Sales charges received by Ascend for distributing the Fund's shares amounted
to $427.
As of January 31, 2000, Minnesota Life and subsidiaries and the directors
and officers of the Fund as a whole own the following shares:
<TABLE>
<CAPTION>
NUMBER OF SHARES PERCENTAGE OWNED
---------------- ----------------
<S> <C> <C>
Class A................................. 516,548 55.9%
</TABLE>
Legal fees were paid to a law firm of which the Fund's secretary is a
partner in the amount of $4,000.
(5) CAPITAL SHARE TRANSACTIONS
Transactions in Class A shares for the period from August 1, 1999 to January
31, 2000 were as follows:
<TABLE>
<S> <C>
Sold........................................................ 385,665
Issued for reinvested distributions......................... 3,107
Redeemed.................................................... (61,560)
-------
327,212
=======
</TABLE>
13
<PAGE>
ADVANTUS Real Estate Securities Fund
Notes to Financial Statements - continued
(UNAUDITED)
(6) FINANCIAL HIGHLIGHTS
Per share data for a share of capital stock and selected information for
each period are as follows:
<TABLE>
<CAPTION>
CLASS A
-------------------------
PERIOD FROM PERIOD FROM
AUGUST 1, FEBRUARY 25,
1999 TO 1999(D) TO
JANUARY 31, JULY 31,
2000 1999
----------- ------------
<S> <C> <C>
Net asset value, beginning of period... $10.25 $10.02
------ ------
Income from investment operations:
Net investment income................ .23 .18
Net gains (losses) on securities
(both realized and unrealized)..... (.84) .31
------ ------
Total from investment operations... (.61) .49
------ ------
Less distributions:
Dividends from net investment
income............................. (.20) (.18)
Distributions from capital gains..... (.04) -
In excess of net investment income... - (.08)
------ ------
Total distributions................ (.24) (.26)
------ ------
Net asset value, end of period......... $ 9.40 $10.25
====== ======
Total return (a)....................... (5.95)% 4.78%
Net assets, end of period (in
thousands)........................... $8,683 $6,113
Ratio of expenses to average daily net
assets (c)........................... 1.50%(b) 1.50%(b)
Ratio of net investment income (loss)
to average daily net assets (c)...... 4.69%(b) 4.09%(b)
Portfolio turnover rate (excluding
short-term securities)............... 50.7% 51.5%
</TABLE>
- ------------
(a) Total return figures are based on a share outstanding throughout the period
and assume reinvestment of distributions at net asset value. Total return
figures do not reflect the impact of front-end contingent deferred sales
charges. For periods less than one year, total return presented has not
been annualized.
(b) Adjusted to an annual basis.
(c) The Fund's Distributor and Adviser voluntarily waived and absorbed $45,128
and $41,991 in expenses for the period ended January 31, 2000 and the
period from February 25, 1999 to July 31, 1999, respectively. If Class A
shares had been charged for these expenses, the ratio of expenses to
average daily net assets would have been 2.85% and 3.18%, respectively, and
the ratio of net investment income to average daily net assets would have
been 3.34% and 2.41%, respectively.
(d) Date shares of the fund were effectively registered under the Securities
Exchange Act of 1933.
14
<PAGE>
Shareholder Services
The Advantus Family of Funds offers a variety of services that enhance your
ability to manage your assets. Check each Fund's prospectus for the details of
the services and any limitations that may apply.
EXCHANGE PRIVILEGES: You can move all or part of your investment dollars from
one fund to any other Advantus Fund you own (for identical registrations within
the same share class) at any time as your needs change. Exchanges are at the
then current net asset value (exchanges from the Advantus Money Market Fund will
incur the applicable sales charge, if not previously subjected to the charge).
Shareholders may make twelve exchanges each calendar year without incurring a
transaction charge. Thereafter, there will be a $7.50 transaction charge for
each additional exchange within the calendar year.
INCOME DISTRIBUTION FLEXIBILITY: You can have your fund dividends and other
distributions automatically reinvested with no sales charge, direct them from
one Advantus Fund to any other you own within the Fund family or, if you desire,
we'll pay you in cash.
SYSTEMATIC WITHDRAWAL PLAN: You can set up a plan to receive a check at
specified intervals from your fund account - subject to minimum guidelines.
Depending upon the performance of the underlying investment options, the value
may be worth more or less than the original amount invested when withdrawn.
DIRECT DIVIDEND DEPOSITS: At your request we will deposit your dividends or
systematic withdrawals directly into your checking or savings account instead of
sending you a check.
TELEPHONE EXCHANGE: You may move money from one Advantus account to any other
Advantus account you own (with identical registrations within the same share
class) just by calling our toll-free number. The Telephone Exchange privilege
will automatically be established unless otherwise indicated on the Account
Application. Telephone Exchange may be changed (added/deleted) at any time by
submitting a request in writing.
SYSTEMATIC EXCHANGE: You may move a set amount of money monthly or quarterly
from one Advantus Fund to another Advantus Fund (with identical registrations
within the same share class) to diversify your investment portfolio and take
advantage of "dollar-cost averaging".
AUTOMATIC PAYMENT OF INSURANCE PREMIUMS: You may automatically pay your
Minnesota Life insurance premiums from your Advantus Money Market account.
REDUCED SALES CHARGES: Letter of Intent, combined purchases with spouse,
children or single trust estates, and the Right of Accumulation make it possible
for you to reduce the sales charge, if any.
AUTOMATIC INVESTMENT PLAN: This special purchase plan enables you to open an
Advantus Fund account for as little as $25 and lower your average share cost
through "dollar-cost averaging." (Dollar-cost averaging does not assure a
profit, nor does it prevent loss in declining markets.) The Automatic Investment
Plan allows you to invest automatically monthly, semi-monthly or quarterly from
your checking or savings account.
IRAS, OTHER QUALIFIED PLANS: You can use the Advantus Family of Funds for your
Traditional, Roth or Education Individual Retirement Account or other qualified
plans including: SEP IRA's, SIMPLE IRA's, Profit Sharing, 401(k) Money Purchase
or Defined Benefit plans.
TELEPHONE REDEMPTION: You may call us and redeem shares over the phone. The
proceeds will be sent by check to the address of record for the account or wire
transferred to your bank of record for the account. Wire transfers are for
amounts over $500. The prevailing wire charge will be added to the withdrawal
amount. The Telephone Redemption privilege will automatically be established
unless otherwise indicated on the Account Application. Telephone Redemption may
be changed (added/deleted) at any time by submitting a request in writing. To
have the redemption automatically deposited into your checking account, please
send a voided check
15
<PAGE>
from your bank. Depending on the performance of the underlying investment
options, the value may be worth more or less than the original amount invested
upon redemption. Some limitations apply, please refer to the prospectus for
details.
ACCOUNT UPDATES: You'll receive written confirmation of every investment you
initiate and quarterly statements to help you track all of your Advantus Fund
investments and annual tax statements. Semi-annual and annual reports will
provide you with portfolio information, fund performance data and the current
investment outlook.
TOLL-FREE SERVICE LINE: For your convenience in obtaining information and
assistance directly from Advantus Shareholder Services, call 1-800-665-6005.
Advantus Account Representatives are available Monday through Friday from 7:30
a.m. to 5:15 p.m. Central Time. Our voice response system is available 24 hours,
seven days a week. This system allows you to access current net asset values,
account balances and recent account activity.
INTERNET ADDRESS: www.Advantusfunds.com
HOW TO INVEST
You can invest in one or more of the eleven Advantus Funds through a local
Registered Representative of Ascend Financial Services, Inc., distributor of the
Funds. Contact your representative for information and a prospectus for any of
the Advantus Funds you are interested in. To find a Registered Representative
near you, call the toll-free service line (1-800-665-6005) or visit
www.Advantusfunds.com.
MINIMUM INVESTMENTS: Your initial investment in any of the Advantus Funds can
be as small as $25 when you use our Automatic Investment Plan. Minimum lump-sum
initial investment is $250. Minimum subsequent investment is $25.
THE FUND'S MANAGER
Advantus Capital Management, Inc., investment adviser to the Fund, selects and
reviews the Fund's investments and provides executive and other personnel for
the Fund's management. (For the Advantus International Balanced Fund, Inc., the
sub-adviser, Templeton Investment Counsel, Inc., selects the Fund's
investments.)
Advantus Capital Management, Inc. manages twelve mutual funds containing $3.5
billion in assets in addition to $11.2 billion in assets for other clients.
Advantus Capital's seasoned portfolio managers average more than 13 years of
investment experience.
ADVANTUS FAMILY OF FUNDS
Advantus Bond Fund
Advantus Horizon Fund
Advantus Spectrum Fund
Advantus Enterprise Fund
Advantus Cornerstone Fund
Advantus Money Market Fund
Advantus Mortgage Securities Fund
Advantus International Balanced Fund
Advantus Venture Fund
Advantus Index 500 Fund
Advantus Real Estate Securities Fund
16
<PAGE>
THIS REPORT HAS BEEN PREPARED FOR SHAREHOLDERS. THIS MAY BE USED AS SALES
LITERATURE IN
CONNECTION WITH THE OFFER OR SALE OF THE ADVANTUS REAL ESTATE SECURITIES FUND
IF PRECEDED OR ACCOMPANIED BY (A) THE CURRENT PROSPECTUS FOR THE
ADVANTUS REAL ESTATE SECURITIES FUND, AND (B) THE CURRENT
ADVANTUS MUTUAL FUND PERFORMANCE REPORT.
READ THE PROSPECTUS CAREFULLY BEFORE YOU INVEST.
[LOGO]
[ADVANTUS -TM- FAMILY OF FUNDS]
ASCEND FINANCIAL SERVICES, INC.,
SECURITIES DEALER, MEMBER NASD/SIPC
400 ROBERT STREET NORTH
ST. PAUL, MN 55101-2098
1-800-AFS-1838
(1-800-237-1838)
<PAGE>
<TABLE>
<S> <C>
ASCEND FINANCIAL SERVICES, INC. -------------------
400 ROBERT STREET NORTH PRESORTED STANDARD
ST. PAUL, MN 55101-2098 U.S. POSTAGE PAID
ST. PAUL, MN
PERMIT NO. 3547
-------------------
ADDRESS SERVICE REQUESTED
</TABLE>
F.53980 Rev. 3-2000
