<PAGE>
REAL ESTATE
ADVANTUS REAL ESTATE SECURITIES FUND, INC. [LOGO]
ANNUAL REPORT TO SHAREHOLDERS DATED JULY 31, 2000 ADVANTUS-TM-
FAMILY OF FUNDS
[EQUITY LOGO]
<PAGE>
ADVANTUS REAL ESTATE SECURITIES FUND
TABLE OF CONTENTS
<TABLE>
<S> <C>
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
INDEPENDENT AUDITORS' REPORT 15
FEDERAL INCOME TAX INFORMATION 16
SHAREHOLDER VOTING RESULTS 17
SHAREHOLDER SERVICES 18
</TABLE>
<PAGE>
LETTER FROM THE PRESIDENT [PHOTO]
Dear Shareholder:
The U.S. has been enjoying an exceptional economic environment. Over the past
10 years, we have seen booming capital markets bolstered by robust economic
growth and low, but rising inflation. Since June 1999, six interest rate
increases engineered by the inflation-fighting Federal Reserve, have resulted in
some early signs of an economic slowdown. Recent economic data (housing starts,
auto sales and unemployment) indicate that the breakneck growth rate may be
slowing.
We still contend that the Fed holds a bias towards tightening the money supply.
As you know, the Federal Funds Rate, the overnight rate at which Federal Reserve
member banks loan each other money, is a powerful tool for the Fed. Currently,
short-term interest rates are higher than long-term rates, which clearly shows
that the economy is in a tightening mode.
Our country's economic strength is very broad, and there are very few weak
spots. The U.S. has also benefited from the expanding global economy. Large,
diversified companies are doing well in the current economic climate. As capital
spending remains strong, underlying support for technology grows. Companies
everywhere continue to build their technology base and infrastructure.
In the equity market, valuations DO matter, as evidenced by the latest series of
market corrections early in the second quarter. Capitalism has a way of bringing
things back into balance. Market corrections tend to be quick and sharp.
Investors may need to adjust their expectations, as double-digit equity returns
may not be as commonplace as they have been over the last few years. Even though
recent corrections have reigned in many stocks - particularly in the technology
sector - the stock market is still strong.
So far this year, U.S. Treasury securities have been the star performers within
the fixed income universe. U.S. Treasuries have benefited from a relatively low
inflationary environment, the strong fiscal situation in the U.S., and the
government's decision to buy back its longer-maturity debt. Corporate bonds have
been the weakest performing fixed income sector in 2000. An inverted yield curve
(i.e., short-term bonds have higher yields than long-term bonds), several Fed
tightening moves, increased event risk and equity market volatility have all
negatively impacted corporate bond performance. Mortgage-backed securities have
outperformed corporate bonds to date this year, but have lagged U.S. Treasuries.
Whenever we have a change in interest rate direction, volatility and uncertainty
surface. We have witnessed volatility in the capital markets throughout the
first half of 2000, and we believe this will continue through the remainder of
the year. In this election year, we will witness the political posturing of both
parties. It is likely, however, that whoever the presidential election in
November brings to office, Americans will still enjoy a healthy, recession-free
economy.
Thank you for your continued confidence and investment in the Advantus Family of
Funds.
Sincerely,
/s/ William N. Westhoff
William N. Westhoff, President
Advantus Funds
<PAGE>
ADVANTUS REAL ESTATE SECURITIES FUND
PERFORMANCE UPDATE
[PHOTO]
JOSEPH 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
The Advantus Real Estate Securities Fund+ (A Shares) generated a total return of
14.89 percent* for the year ended July 31, 2000. This return marked a change in
investor sentiment over the past year for Real Estate Investment Trusts (REITs)
and other real estate related companies. Long-term investors returned to the
attractive high dividend-yielding stocks with solid growth rates. The Fund's
performance compares to the Wilshire Associates Real Estate Securities Index
(WARESI)** return of 18.37 percent for the same period.
PERFORMANCE ANALYSIS
Real estate securities' returns were strong for the year in contrast with a vast
amount of volatility viewed in the broader equity markets. During the first
seven months of the fiscal year (August through February), the real estate
stocks fell to pressure from the high-flying "new economy" stocks that exhibited
a strong following and price momentum. As the Federal Reserve continued its
tightening monetary policy, with the goal of slowing domestic economic growth,
investors were reacquainted with risk in the early part of 2000. Investors
looked at the Fed's goal as impacting future earnings growth of companies,
causing concern over the valuations attributed to technology and other stocks.
In the turbulence of the last five months, investors sought value and stability.
Real estate stocks became attractive due to a healthy environment of supply and
demand balance found within the real estate market. These companies were also
showing earnings growth increases and higher returns on invested capital. The
rise in interest rates was significantly slowing the supply of new development
in these markets, making the case that the good times for real estate would
continue. The recent rebound in these stocks reflected the strong underlying
fundamentals of the group.
Sectors providing the best performance to the Fund were apartments, hotels,
office, and industrial companies. Apartments did well due to strong occupancies
and earnings. As hotel companies saw the supply/demand fundamentals turn, their
valuations rebounded from their depths. Office and industrial companies
continued to show strength in rental rate growth, particularly in regions with
high barriers to entry for new development. In particular, the Fund's exposure
to companies in California and the Northeast provided a substantial contribution
to performance. Retail companies were weak due to levels of new development in
the past year and concerns over consumer demand in a slowing economy. Our
underweight in retail favored the Fund. Weakness for the Fund was found in
investments in building material companies, real estate service companies, and
net lease companies. Valuations on building materials companies dropped with the
reduction in new construction starts. These companies along with net lease
companies fared poorly in the face of rising interest rates.
2
<PAGE>
Companies adding the strongest performance to the Fund were Spieker Properties,
Essex Property Trust, AvalonBay Communities, and Pinnacle Holdings. The common
theme with these companies was their property operations in supply constrained
markets. Weaker performing companies for the Fund were due to event driven
issues (JDN Realty) and interest rate exposure (US Restaurants). Overall, our
performance was driven by the quality of our stock picking.
OUTLOOK
We believe the real estate sector's strong fundamentals should remain solid, and
is poised to continue it's strength. We remain confident in the real estate
markets if the Fed can continue to engineer the "soft landing" for the economy.
A moderate growth economy should provide a strong foundation for performance
since it does not encourage overbuilding.
We anticipate that the market will continue to distinguish the best operators
and the strongest markets, and these companies will be rewarded with the best
long-term performance. We will, however, be concerned about near term valuations
as many of the elite REITs have been rewarded with very strong pricing,
particularly if these companies dilute themselves with new equity issuance. We
are also looking favorably at the hotel sector as new construction is slowing
dramatically and industry fundamentals are improving.
As a whole, we see that the market for real estate securities is becoming more
fairly valued. The economy remains strong and that strength should continue to
drive demand for real estate. Supply continues to slow. These fundamentals may
cause surprises in future earnings since many earnings models assumed a
dramatically slowing economy in the second half of 2000 and into 2001. We expect
the sector performance to show more normalized returns than that exhibited in
the first half of 2000, and believe future performance will be driven by quality
stock picking.
*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).
+Investment risks associated with investing in the Real Estate Securities Fund,
in addition to other risks include rental income fluctuations, depreciation,
property tax value changes, and differences in real estate market values.
3
<PAGE>
COMPARISON OF CHANGE IN VALUE OF A HYPOTHETICAL $10,000
INVESTMENT IN THE ADVANTUS REAL ESTATE SECURITIES FUND,
WILSHIRE ASSOCIATES REAL ESTATE SECURITIES INDEX AND CONSUMER PRICE INDEX
On the following chart you can see how the total return for the Advantus Real
Estate Securities Fund compared to the Wilshire Associates Real Estate
Securities Index and the Consumer Price Index. The lines represent the
cumulative total return of a hypothetical $10,000 investment made on the
inception date of Class A shares of the Advantus Real Estate Securities Fund
(February 25, 1999) through July 31, 2000.
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURN:
<S> <C> <C>
Class A:
One year 8.57%
Since inception (2/25/99) 9.42%
</TABLE>
<TABLE>
<CAPTION>
CLASS A WILSHIRE INDEX CPI
<S> <C> <C> <C>
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
7/31/00 $11,379 $12,524 $10,486
</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. 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>
Starwood Hotels & Resorts Worldwide, Inc. 17,200 $ 586,950 5.2%
Equity Office Properties Trust 17,900 545,950 4.8%
Avalonbay Communities, Inc. 9,900 466,537 4.1%
Apartment Investment & Management Company 8,220 397,642 3.5%
AMB Property Corporation 16,600 396,325 3.5%
Liberty Property Trust 12,300 353,625 3.1%
General Growth Properties, Inc. 10,300 348,912 3.1%
Catellus Development Corporation 19,900 343,275 3.1%
Prologis Trust 13,700 319,381 2.8%
Highwoods Properties, Inc. 11,800 318,600 2.8%
---------- ----
$4,077,197 36.0%
========== ====
</TABLE>
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<S> <C>
Cash and Other Assets/Liabilities 3.1%
Basic Materials 0.7%
Technology 1.9%
Capital Goods 2.0%
Communication Services 2.1%
Consumer Cyclical 5.4%
Real Estate 3.7%
Real Estate Investment Trust 81.1%
</TABLE>
5
<PAGE>
ADVANTUS REAL ESTATE SECURITIES FUND
INVESTMENTS IN SECURITIES
JULY 31, 2000
(Percentages of each investment category relate to total net assets.)
<TABLE>
<CAPTION>
MARKET
SHARES VALUE(A)
------ --------------
<C> <S> <C>
COMMON STOCK (96.9%)
BASIC MATERIALS (.7%)
Construction (.7%)
2,000 Martin Marietta Materials, Inc................... $ 84,375
-------------
CAPITAL GOODS (2.0%)
Manufacturing (2.0%)
7,800 St. Joe Company.................................. 232,050
-------------
COMMUNICATION SERVICES (2.1%)
Telecommunication (.7%)
2,400 Crown Castle International Corporation........... 81,600
-------------
Telephone (1.4%)
2,900 Pinnacle Holdings, Inc. (b)..................... 162,944
-------------
CONSUMER CYCLICAL (5.4%)
Building Materials (.2%)
1,900 Standard Pacific Corporation..................... 24,106
-------------
Lodging-Hotel (4.2%)
12,200 Extended Stay America, Inc....................... 167,750
13,200 Hilton Hotels.................................... 135,300
17,000 Host Marriott Corporation........................ 189,125
-------------
492,175
-------------
Retail (.5%)
1,300 Lowes Companies, Inc............................. 54,844
-------------
Service (.5%)
4,700 Cendant Corporation (b)......................... 60,219
-------------
FINANCIAL (84.8%)
Real Estate (3.7%)
19,900 Catellus Development Corporation (b)............ 343,275
3,500 Newhall Land & Farming Company................... 95,812
-------------
439,087
-------------
<CAPTION>
MARKET
SHARES VALUE(A)
-------------------------------------------------------------------------
FINANCIAL--CONTINUED
<C> <S> <C>
Real Estate Investment Trust (81.1%)
16,600 AMB Property Corporation......................... $ 396,325
8,220 Apartment Investment & Management Company........ 397,642
9,600 Archstone Communities Trust...................... 249,000
12,000 Arden Realty, Inc................................ 318,000
9,900 Avalonbay Communities, Inc....................... 466,537
6,200 Boston Properties, Inc........................... 257,300
6,800 Camden Property Trust............................ 212,500
8,000 Carramerica Realty Corporation................... 239,000
9,100 CBL & Associates Properties, Inc................. 227,500
1,200 Charles E. Smith Residential Realty, Inc......... 53,025
8,300 Developers Diversified Realty Corporation........ 130,725
3,500 Duke Realty LP................................... 85,750
2,800 Eastgroup Properties, Inc........................ 65,100
17,900 Equity Office Properties Trust................... 545,950
3,900 Equity Residential Properties Trust.............. 194,512
800 Felcor Suite Hotels, Inc......................... 17,500
2,600 First Industrial Realty Trust.................... 83,200
11,200 Franchise Finance Corporation of America......... 268,800
10,300 General Growth Properties, Inc................... 348,912
6,500 Golf Trust of America, Inc....................... 101,562
11,800 Highwoods Properties, Inc........................ 318,600
18,400 Innkeepers USA Trust............................. 190,900
6,700 Kilroy Realty Corporation........................ 177,550
3,900 Kimco Realty Corporation......................... 160,875
</TABLE>
See accompanying notes to investments in securities.
6
<PAGE>
ADVANTUS REAL ESTATE SECURITIES FUND
INVESTMENTS IN SECURITIES - CONTINUED
<TABLE>
<CAPTION>
MARKET
SHARES VALUE(A)
-------------------------------------------------------------------------
FINANCIAL--CONTINUED
<C> <S> <C>
2,300 Koger Equity, Inc................................ $ 38,956
12,300 Liberty Property Trust........................... 353,625
2,800 Macerich Company................................. 67,025
4,300 Meristar Hospitality Corporation................. 95,406
6,900 Mills Corporation................................ 125,925
5,500 Mission West Properties, Inc..................... 58,781
2,300 P.S. Business Parks, Inc......................... 58,645
10,100 Pacific Gulf Properties, Inc..................... 257,550
8,900 Pan Pacific Retail Properties, Inc............... 186,344
7,400 Parkway Properties, Inc.......................... 236,800
9,600 Philips International Realty Corporation......... 164,400
4,500 Post Properties, Inc............................. 208,687
13,700 Prologis Trust................................... 319,381
8,902 Public Storage, Inc.............................. 228,114
4,400 Reckson Associates Realty Corporation............ 115,500
1,726 Reckson Associates Realty Corporation B.......... 46,710
10,500 Simon Property Group, Inc........................ 274,313
3,400 Spieker Properties, Inc.......................... 175,738
17,200 Starwood Hotels & Resorts Worldwide, Inc......... 586,950
<CAPTION>
MARKET
SHARES VALUE(A)
-------------------------------------------------------------------------
FINANCIAL--CONTINUED
<C> <S> <C>
4,700 Summit Properties, Inc........................... $ 112,213
10,700 Trammell Crow Company (b)....................... 111,013
9,800 Trizechhahn Corporation.......................... 159,863
-------------
9,488,704
-------------
TECHNOLOGY (1.9%)
1,000 American Tower Corporation (b).................. 42,875
2,800 Homestore.com, Inc. (b)......................... 98,000
1,400 Manugistics Group, Inc. (b)..................... 77,700
-------------
218,575
-------------
Total common stock (cost: $9,610,605)....................... 11,338,679
-------------
</TABLE>
<TABLE>
<CAPTION>
SHARES
------
<C> <S> <C>
SHORT-TERM SECURITIES (2.6%)
310,095 Provident Institutional Fund - TempFund
Portfolio, current rate 6.53%................... 310,095
--------------
Total short-term securities (cost: $310,095)................ 310,095
--------------
Total investments in securities (cost: $9,920,700) (c)...... $ 11,648,774
==============
</TABLE>
Notes to Investments in Securities
-----------------------------------
(a) Securities are valued by procedures described in note 2 to the financial
statements.
(b) Presently non-income producing.
(c) At July 31, 2000 the cost of securities for federal income tax purposes was
$10,017,340. The aggregate unrealized appreciation and depreciation of
investments in securities based on this cost were:
<TABLE>
<S> <C>
Gross unrealized appreciation.............................. $ 1,714,951
Gross unrealized depreciation.............................. (83,517)
--------------
Net unrealized appreciation................................ $ 1,631,434
==============
</TABLE>
7
<PAGE>
ADVANTUS REAL ESTATE SECURITIES FUND
STATEMENT OF ASSETS AND LIABILITIES
JULY 31, 2000
<TABLE>
<S> <C>
ASSETS
Investments in securities, at market value - see
accompanying schedule for detailed listing
(identified cost: $9,920,700).............................. $ 11,648,774
Cash in bank on demand deposit.............................. 13
Receivable for Fund shares sold............................. 106,405
Receivable for investment securities sold................... 540,776
Accrued interest receivable................................. 1,738
Dividends receivable........................................ 5,591
--------------
Total assets............................................ 12,303,297
--------------
LIABILITIES
Payable for investment securities purchased................. 585,098
Payable to Adviser.......................................... 14,113
--------------
Total liabilities....................................... 599,211
--------------
Net assets applicable to outstanding capital stock.......... $ 11,704,086
==============
Represented by:
Capital stock - authorized 10 billion shares (Class A -
2 billion shares, and 8 billion shares unallocated) of
$.01 par value (note 1)................................... $ 10,419
Additional paid-in capital................................ 10,188,706
Undistributed net investment income....................... 19,904
Accumulated net realized losses from investments.......... (243,017)
Unrealized appreciation on investments.................... 1,728,074
--------------
Total - representing net assets applicable to
outstanding capital stock............................... $ 11,704,086
==============
Net assets applicable to outstanding Class A shares......... $ 11,704,086
==============
Shares outstanding and net asset value per share:
Class A - Shares outstanding 1,041,865.................... $ 11.23
==============
</TABLE>
See accompanying notes to financial statements.
8
<PAGE>
ADVANTUS REAL ESTATE SECURITIES FUND
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED JULY 31, 2000
<TABLE>
<S> <C>
Investment income:
Interest.................................................. $ 19,351
Dividends................................................. 449,732
--------------
Total investment income............................... 469,083
--------------
Expenses (note 4):
Investment advisory fee................................... 61,059
Rule 12b-1 - Class A...................................... 20,353
Administrative services fee............................... 61,200
Transfer agent and shareholder service fee................ 2,494
Custodian fees............................................ 9,300
Auditing and accounting services.......................... 9,503
Legal fees................................................ 12,205
Directors' fees........................................... 118
Registration fees......................................... 16,541
Printing and shareholder reports.......................... 23,208
Insurance................................................. 3,159
Other..................................................... 2,957
--------------
Total expenses........................................ 222,097
--------------
Less fees and expenses waived or absorbed by Adviser and
Distributor:
Class A distribution fees............................... (12,212)
Other waived fees....................................... (87,768)
--------------
Total fees and expenses waived or absorbed............ (99,980)
--------------
Total net expenses.................................... 122,117
--------------
Investment income - net............................... 346,966
--------------
Realized and unrealized gains (losses) on investments:
Net realized losses on investments (note 3)............... (231,575)
Net change in unrealized appreciation or depreciation on
investments............................................. 1,623,178
--------------
Net gains on investments.............................. 1,391,603
--------------
Net increase in net assets resulting from operations........ $ 1,738,569
==============
</TABLE>
See accompanying notes to financial statements.
9
<PAGE>
ADVANTUS REAL ESTATE SECURITIES FUND
STATEMENTS OF CHANGES IN NET ASSETS
FOR THE YEAR ENDED JULY 31, 2000 AND THE PERIOD FROM FEBRUARY 1, 1999,
COMMENCEMENT OF OPERATIONS, TO JULY 31, 1999
<TABLE>
<CAPTION>
2000 1999
-------------- --------------
<S> <C> <C>
Operations:
Investment income - net................................... $ 346,966 $ 102,732
Net realized gain (loss) on investments................... (231,575) 60,914
Net change in unrealized appreciation or depreciation on
investments............................................. 1,623,178 104,896
------------- -------------
Increase in net assets resulting from operations...... 1,738,569 268,542
------------- -------------
Distributions to shareholders from:
Investment income - net:
Class A................................................. (332,000) (102,732)
Net realized gains on investments:
Class A................................................. (21,650) -
In excess of net investment income:
Class A................................................. - (45,768)
------------- -------------
Total distributions................................... (353,650) (148,500)
------------- -------------
Capital share transactions: (notes 4 and 5):
Proceeds from sales:
Class A................................................. 5,339,422 6,114,356
Proceeds from issuance of shares as a result of reinvested
dividends:
Class A................................................. 122,273 16,619
Payments for redemption of shares:
Class A................................................. (1,255,437) (138,108)
------------- -------------
Increase in net assets from capital share
transactions........................................ 4,206,258 5,992,867
------------- -------------
Total increase in net assets.......................... 5,591,177 6,112,909
Net assets at beginning of period........................... 6,112,909 -
------------- -------------
Net assets at end of period (including undistributed net
investment income of $19,904 and $0, respectively)........ $ 11,704,086 $ 6,112,909
============= =============
</TABLE>
See accompanying notes to financial statements.
10
<PAGE>
ADVANTUS REAL ESTATE SECURITIES FUND
NOTES TO FINANCIAL STATEMENTS
JULY 31, 2000
(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's investment objective is to seek total return through a combination of
capital appreciation and current income.
The Fund currently issues one class of share (Class A). Class A shares are
sold subject to a front-end sales charge.
The Fund commenced operations on February 1, 1999. On February 25, 1999, the
shares became effectively registered under the Securities Exchange Act of 1933.
Prior to February 25, 1999, Minnesota Life cumulatively purchased 514,002
Class A shares for $5,150,000.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The significant accounting policies followed by the Fund are summarized as
follows:
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts in the financial statements. Actual
results could differ from those estimates.
INVESTMENTS IN SECURITIES
The Fund's net asset value is generally calculated as of the close of normal
trading on the New York Stock Exchange (typically 3:00 p.m. Central Time).
Investments in securities traded on a national exchange are valued at the last
sales price on that exchange prior to the time when assets are valued;
securities traded in the over-the-counter market and listed securities for which
no sale was reported on that date are valued on the basis of the last current
bid price, by an independent pricing service or at a price deemed best to
reflect fair value as quoted by dealers who make markets in these securities.
When market quotations are not readily available, securities are valued at fair
value as determined in good faith by procedures adopted by the Board of
Directors. Short-term securities are valued at market.
Security transactions are accounted for on the date the securities are
purchased or sold. Realized gains and losses are calculated on the
identified-cost basis. Dividend income is recognized on the ex-dividend date and
interest income, including amortization of bond premium and discount computed on
a level yield basis, is accrued daily.
FEDERAL TAXES
The Fund's policy is to comply with the requirements of the Internal Revenue
Code applicable to regulated investment companies and to distribute all of its
taxable income to shareholders. Therefore, no income tax provision is required.
The Fund's policy is to make required minimum distributions prior to
December 31, in order to avoid federal excise tax.
Net investment income and net realized gains (losses) may differ for
financial statement and tax purposes primarily because of temporary book-to-tax
differences. The character of distributions made during the year from
11
<PAGE>
ADVANTUS REAL ESTATE SECURITIES FUND
NOTES TO FINANCIAL STATEMENTS - CONTINUED
(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 were recorded by the
Fund.
On the statement of assets and liabilities, as a result of permanent
book-to-tax differences, a reclassification adjustment was made to increase
undistributed net investment income and increase accumulated net realized losses
by $4,938.
For federal income tax purposes, the Fund has a capital loss carryover in
the amount of $145,596 which, if not offset by subsequent capital gains, will
expire July 31, 2008. It is unlikely the Board of Directors will authorize a
distribution of any net realized capital gain until the available capital loss
carryover has been offset or expires.
DISTRIBUTIONS TO SHAREHOLDERS
Dividends from net investment income are declared and paid quarterly.
Realized gains, if any, are paid annually.
(3) INVESTMENT SECURITY TRANSACTIONS
For the year ended July 31, 2000, purchases of securities and proceeds from
sales, other than temporary investments in short-term securities, aggregated
$13,421,938 and $9,280,171, respectively.
(4) EXPENSES AND RELATED PARTY TRANSACTIONS
The Fund has an investment advisory agreement with Advantus Capital
Management, Inc. (Advantus Capital) a wholly-owned subsidiary of Minnesota Life
Insurance Company (Minnesota Life). Under the agreement, Advantus Capital acts
as investment adviser and manager for the Fund. The fee for investment
management and advisory services is based on the average daily net assets of the
Fund at the annual rate of .75 percent. The Fund has engaged 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 $12,212 for the year ended
July 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
12
<PAGE>
ADVANTUS REAL ESTATE SECURITIES FUND
NOTES TO FINANCIAL STATEMENTS - CONTINUED
(4) EXPENSES AND RELATED PARTY TRANSACTIONS - (CONTINUED)
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 July 31,
2000, Advantus Capital voluntarily agreed to absorb $87,768 in expenses which
were otherwise payable by the Fund.
Organizational expenses, including legal fees and initial registration fees
in the amount of $52,000, were incurred in connection with the start up and
initial registration of the fund. These expenses were paid by Advantus Capital.
The Fund does not intend to reimburse Advantus Capital for these costs.
Sales charges received by Ascend for distributing the Fund's Class A shares
amounted to $14,377.
As of July 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................................. 1,007,992 96.7%
</TABLE>
Legal fees were paid to a law firm of which the Fund's secretary is a
partner in the amount of $7,850.
(5) CAPITAL SHARE TRANSACTIONS
Transactions in Class A shares for the year ended July 31, 2000, and the
period from February 1, 1999, commencement of operations, to July 31, 1999 were
as follows:
<TABLE>
<CAPTION>
CLASS A
-------------------
2000 1999
-------- --------
<S> <C> <C>
Sold.................................... 562,429 607,945
Issued for reinvested distributions..... 12,827 1,571
Redeemed................................ (130,058) (12,849)
-------- -------
445,198 596,667
======== =======
</TABLE>
13
<PAGE>
ADVANTUS REAL ESTATE SECURITIES FUND
NOTES TO FINANCIAL STATEMENTS - CONTINUED
(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
FEBRUARY 25,
YEAR ENDED 1999(D) TO
JULY 31, JULY 31,
2000 1999
---------- ------------
<S> <C> <C>
Net asset value, beginning of year.......................... $ 10.25 $10.02
------- ------
Income from investment operations:
Net investment income..................................... .43 .18
Net gains on securities (both realized and unrealized).... 1.00 .31
------- ------
Total from investment operations........................ 1.43 .49
------- ------
Less distributions:
Dividends from net investment income...................... (.41) (.18)
Distributions from net realized gains..................... (.04) -
Excess distributions of net investment income............. - (.08)
------- ------
Total distributions..................................... (.45) (.26)
------- ------
Net asset value, end of year................................ $ 11.23 $10.25
======= ======
Total return (a)............................................ 14.89% 4.78%
Net assets, end of year (in thousands)...................... $11,704 $6,113
Ratio of expenses to average daily net assets (c)........... 1.50% 1.50%(b)
Ratio of net investment income (loss) to average daily net
assets (c)................................................ 4.26% 4.09%(b)
Portfolio turnover rate (excluding short-term securities)... 116.8% 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 $99,980,
and $49,930 in expenses for the year ended July 31, 2000, and the period
fom February 25, 1999, date of inception, to July 31, 1999. If Class A
shares had been charged for these expenses, the ratio of expenses to
average daily net assets would have been 2.72%, and 3.49%, respectively,
and the ratio of net investment income to average daily net assets would
have been 3.04%, and 2.10%, respectively.
(d) Date shares became effectively registered.
14
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders
Advantus Real Estate Securities Fund, Inc.:
We have audited the accompanying statement of assets and liabilities,
including the schedule of investments in securities, of the Advantus Real Estate
Securities Fund, Inc. (the Fund) as of July 31, 2000 and the related statement
of operations for the year then ended, the statements of changes in net assets
for the year ended July 31, 2000 and the period from February 1, 1999,
commencement of operations, to July 31, 1999, and the financial highlights for
the year ended July 31, 2000 and the period from February 25, 1999, date shares
became effectively registered, to July 31, 1999. These financial statements and
the financial highlights are the responsibility of the Fund's management. Our
responsibility is to express an opinion on these financial statements and the
financial highlights based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements and the financial highlights are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. Our procedures included confirmation of
securities owned as of July 31, 2000 by correspondence with the custodian and
brokers. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements and the financial highlights
referred to above present fairly, in all material respects, the financial
position of the Fund as of July 31, 2000 and the results of its operations,
changes in its net assets and financial highlights for the periods stated in the
first paragraph above, in conformity with accounting principles generally
accepted in the United States of America.
KPMG LLP
Minneapolis, Minnesota
September 8, 2000
15
<PAGE>
ADVANTUS REAL ESTATE SECURITIES FUND
FEDERAL INCOME TAX INFORMATION
The following information for federal income tax purposes is presented as an
aid to shareholders in reporting the distributions paid by the Fund in the
fiscal period ended July 31, 2000. Dividends for the 2000 calendar year will be
reported to you on Form 1099-Div in late January 2001. Shareholders should
consult a tax adviser on how to report these distributions for state and local
purposes.
CLASS A
<TABLE>
<CAPTION>
PER
PAYABLE DATE SHARE
------------ --------
<S> <C>
Income distribution-taxable as dividend income, 6.84% qualifying for
deductions by corporations.
September 23, 1999.......................................... $.0984
December 3, 1999*........................................... .0266
December 21, 1999........................................... .1028
March 23, 2000**............................................ .1765
June 22, 2000............................................... .0336
------
$.4379
======
Capital gains distribution-taxable as long-term gains, 25% rate.
December 3, 1999............................................ $.0073
March 23, 2000.............................................. .0048
------
$.0121
======
</TABLE>
* Represents short-term capital gains (taxable as dividend income).
** Represents $.0023 short-term capital gains (taxable as dividend income).
16
<PAGE>
ADVANTUS REAL ESTATE SECURITIES FUND
SHAREHOLDER VOTING RESULTS
On April 17, 2000, a special meeting of shareholders of Advantus Real Estate
Securities Fund, Inc. was held. Shareholders of record on February 28, 2000,
were entitled to vote on the proposals described below.
(1) To elect a Board of Directors as follows:
<TABLE>
<CAPTION>
VOTES VOTES
DIRECTOR FOR WITHHELD
-------- ------- --------
<S> <C> <C>
Charles E. Arner........................ 930,552 0
Ellen S. Berscheid...................... 930,552 0
Ralph D. Ebbott......................... 930,552 0
Frederick P. Feuerherm.................. 930,552 0
William N. Westhoff..................... 930,552 0
</TABLE>
(2) To approve the elimination or modification of the following investment
policies for.
<TABLE>
<CAPTION>
VOTES VOTES VOTES
FOR AGAINST WITHHELD
------- ------- --------
<S> <C> <C> <C>
A. Modify policy regarding borrowing
and the issuance of senior
securities........................... 928,256 0 0
B. Modify policy regarding
concentration in a particular
industry............................. 928,256 0 0
C. Modify policy regarding investments
in real estate and commodities....... 928,256 0 0
D. Modify policy regarding lending..... 928,256 0 0
E. Eliminate policy restricting margin
purchases and short sales............ 928,256 0 0
F. Eliminate policy prohibiting
participation in a joint trading
account.............................. 928,256 0 0
</TABLE>
(3) To approve an amendment to the investment advisory agreement between
the Fund and Advantus Capital Management, Inc., as described in the
proxy statement.
<TABLE>
<CAPTION>
VOTES VOTES VOTES
FOR AGAINST WITHHELD
------- ------- --------
<S> <C> <C> <C>
928,256 0 0
</TABLE>
(4) To ratify the selection of KPMG LLP as independent public accountants
for the Fund.
<TABLE>
<CAPTION>
VOTES VOTES VOTES
FOR AGAINST WITHHELD
------- ------- --------
<S> <C> <C> <C>
930,552 0 0
</TABLE>
17
<PAGE>
SHAREHOLDER SERVICES
The Advantus Family of Funds offers a variety of services that enhance your
ability to manage your assets. Check each Fund's prospectus for the details of
the services and any limitations that may apply.
EXCHANGE PRIVILEGES: You can move all or part of your investment dollars from
one fund to any other Advantus Fund you own (for identical registrations within
the same share class) at any time as your needs change. Exchanges are at the
then current net asset value (exchanges from the Advantus Money Market Fund will
incur the applicable sales charge, if not previously subjected to the charge).
Shareholders may make twelve exchanges each calendar year without incurring a
transaction charge. Thereafter, there will be a $7.50 transaction charge for
each additional exchange within the calendar year.
INCOME DISTRIBUTION FLEXIBILITY: You can have your fund dividends and other
distributions automatically reinvested with no sales charge, direct them from
one Advantus Fund to any other you own within the Fund family or, if you desire,
we'll pay you in cash.
SYSTEMATIC WITHDRAWAL PLAN: You can set up a plan to receive a check at
specified intervals from your fund account - subject to minimum guidelines.
Depending upon the performance of the underlying investment options, the value
may be worth more or less than the original amount invested when withdrawn.
DIRECT DIVIDEND DEPOSITS: At your request we will deposit your dividends or
systematic withdrawals directly into your checking or savings account instead of
sending you a check.
TELEPHONE EXCHANGE: You may move money from one Advantus account to any other
Advantus account you own (with identical registrations within the same share
class) just by calling our toll-free number. The Telephone Exchange privilege
will automatically be established unless otherwise indicated on the Account
Application. Telephone Exchange may be changed (added/deleted) at any time by
submitting a request in writing.
SYSTEMATIC EXCHANGE: You may move a set amount of money monthly or quarterly
from one Advantus Fund to another Advantus Fund (with identical registrations
within the same share class) to diversify your investment portfolio and take
advantage of "dollar-cost averaging".
AUTOMATIC PAYMENT OF INSURANCE PREMIUMS: You may automatically pay your
Minnesota Life insurance premiums from your Advantus Money Market account.
REDUCED SALES CHARGES: Letter of Intent, combined purchases with spouse,
children or single trust estates, and the Right of Accumulation make it possible
for you to reduce the sales charge, if any.
AUTOMATIC INVESTMENT PLAN: This special purchase plan enables you to open an
Advantus Fund account for as little as $25 and lower your average share cost
through "dollar-cost averaging." (Dollar-cost averaging does not assure a
profit, nor does it prevent loss in declining markets.) The Automatic Investment
Plan allows you to invest automatically monthly, semi-monthly or quarterly from
your checking or savings account.
IRAS, OTHER QUALIFIED PLANS: You can use the Advantus Family of Funds for your
Traditional, Roth or Education Individual Retirement Account or other qualified
plans including: SEP IRA's, SIMPLE IRA's, Profit Sharing, 401(k) Money Purchase
or Defined Benefit plans.
TELEPHONE REDEMPTION: You may call us and redeem shares over the phone. The
proceeds will be sent by check to the address of record for the account or wire
transferred to your bank of record for the account. Wire transfers are for
amounts over $500. The prevailing wire charge will be added to the withdrawal
amount. The Telephone Redemption privilege will automatically be established
unless otherwise indicated on the Account Application. Telephone Redemption may
be changed (added/deleted) at any time by submitting a request in writing. To
have the redemption automatically deposited into your checking account, please
send a voided check
18
<PAGE>
from your bank. Depending on the performance of the underlying investment
options, the value may be worth more or less than the original amount invested
upon redemption. Some limitations apply, please refer to the prospectus for
details.
ACCOUNT UPDATES: You'll receive written confirmation of every investment you
initiate and quarterly statements to help you track all of your Advantus Fund
investments and annual tax statements. Semi-annual and annual reports will
provide you with portfolio information, fund performance data and the current
investment outlook.
TOLL-FREE SERVICE LINE: For your convenience in obtaining information and
assistance directly from Advantus Shareholder Services, call 1-800-665-6005.
Advantus Account Representatives are available Monday through Friday from 7:30
a.m. to 5:15 p.m. Central Time. Our voice response system is available 24 hours,
seven days a week. This system allows you to access current net asset values,
account balances and recent account activity.
INTERNET ADDRESS: www.Advantusfunds.com
HOW TO INVEST
You can invest in one or more of the eleven Advantus Funds through a local
Registered Representative of Ascend Financial Services, Inc., distributor of the
Funds. Contact your representative for information and a prospectus for any of
the Advantus Funds you are interested in. To find a Registered Representative
near you, call the toll-free service line (1-800-665-6005) or visit
www.Advantusfunds.com.
MINIMUM INVESTMENTS: Your initial investment in any of the Advantus Funds can
be as small as $25 when you use our Automatic Investment Plan. Minimum lump-sum
initial investment is $250. Minimum subsequent investment is $25.
THE FUND'S MANAGER
Advantus Capital Management, Inc., investment adviser to the Fund, selects and
reviews the Fund's investments and provides executive and other personnel for
the Fund's management. (For the Advantus International Balanced Fund, Inc., the
sub-adviser, Templeton Investment Counsel, Inc., selects the Fund's
investments.)
Advantus Capital Management, Inc. manages twelve mutual funds containing
$3.2 billion in assets in addition to $11.1 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
19
<PAGE>
THIS REPORT HAS BEEN PREPARED FOR SHAREHOLDERS AND MAY BE DISTRIBUTED
TO OTHERS ONLY IF PRECEDED OR ACCOMPANIED BY A CURRENT PROSPECTUS.
READ THE PROSPECTUS CAREFULLY BEFORE YOU INVEST.
[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. PRESORTED STANDARD
400 ROBERT STREET NORTH U.S. POSTAGE PAID
ST. PAUL, MN 55101-2098 ST. PAUL, MN
PERMIT NO. 3547
ADDRESS SERVICE REQUESTED
</TABLE>
F.53979 Rev. 9-2000
