<PAGE>
[LOGO]
ADVANTUS
FAMILY OF FUNDS
ANNUAL REPORT TO SHAREHOLDERS
ADVANTUS SPECTRUM FUND
SEPTEMBER 30, 1998
<PAGE>
ADVANTUS SPECTRUM FUND
TABLE OF CONTENTS
PERFORMANCE UPDATE 2
INVESTMENTS IN SECURITIES 8
STATEMENT OF ASSETS AND LIABILITIES 14
STATEMENT OF OPERATIONS 15
STATEMENTS OF CHANGES IN NET ASSETS 16
NOTES TO FINANCIAL STATEMENTS 17
INDEPENDENT AUDITORS' REPORT 22
FEDERAL INCOME TAX INFORMATION 23
SHAREHOLDER SERVICES 25
<PAGE>
LETTER FROM THE PRESIDENT [PHOTO]
Dear Shareholder:
Economic prosperity and record-setting U.S. markets over the last few years have
lulled many Americans into dreaming of perpetual gain. In this year, the effects
of global economic turmoil and market volatility have awakened us.
The global economy has been exposed to the negative effects of Asia's economic
debacle for over a year, and this negative growth is highly contagious. About 40
percent of the world's economies are in recession. Japan continues to seek the
financial stimulus necessary to recover. In Russia, a backlash against
capitalism continues to unfold. Also, Latin America, Brazil in particular, has
seen its competitive position deteriorate sharply. We anticipate that world
growth will slow to an annual rate of 1 percent by the end of 1998. This is a
dramatic change from one year ago (down 3 percent).
As expected, the U.S. economy is slowing. The growth forecast for our country at
the end of this reporting period (September 30, 1998) was 1.5 to 2 percent, a
drop from the 3 percent experienced a year ago. Current economic conditions
favor bonds, as yields will likely decline in light of slowing economic
conditions. Deflation fears have sustained a global "flight to quality" as
investors dumped the riskier assets of developing countries and sought the
relative safety of high quality bonds in the major countries.
We anticipate that there will be a continuation of tight fiscal policy. However,
monetary policy will change. We expect interest rates to move lower in the
upcoming quarters, as we believe it is likely that the Federal Reserve Board
will aggressively lower the Fed Funds rate to inject liquidity into a globally
stressed financial system.
The yield curve should steepen, with short-term interest rates declining further
than long-term interest rates. We expect the corporate bond sector will
stabilize and spreads will recover as the Fed acts to provide liquidity.
Many stocks have declined significantly in response to reduced earnings
expectations, and many stocks are now attractively valued. Interest rates have
declined, which improves the relative value of stocks. However, we expect that
stocks may remain volatile for the near term.
We have witnessed a significantly higher level of volatility in the U.S. stock
markets as most indices and stock funds came under pressure. The flight to
quality in all kinds of securities was reinforced and magnified by more visible
risks in a number of sectors.
A declining equity market hurt corporate bonds as investors began worrying about
the likelihood of lower earnings. Companies with international exposure became a
concern. Liquidity in the corporate bond market began to evaporate, as traders
became reluctant to bid on corporate bonds. These factors pushed corporate bond
spreads even wider, causing them to underperform U.S. Treasury securities.
In the pages that follow, the Fund's manager will give you information about how
the economy and conditions within the market affected the Fund during this
reporting period. The manager will specifically discuss your Advantus Fund's
performance and share some strategies that were used to manage the Fund.
Meanwhile, continue investing for the long term. We believe that you will derive
the greatest benefit by doing so. Be thoughtful about the diversification of
your portfolio, and maintain a high quality portfolio. Consider putting a
periodic investment program in place. It will help you weather volatility in the
markets.
Sincerely,
/s/ William N. Westhoff
William N. Westhoff, President
Advantus Funds
<PAGE>
ADVANTUS SPECTRUM FUND
PERFORMANCE UPDATE
[PHOTO]
THOMAS A. GUNDERSON, CFA
PORTFOLIO MANAGER
The Advantus Spectrum Fund is a mutual
fund seeking the most favorable total
return (including interest, dividends and
capital appreciation) consistent with
preservation of capital. To achieve this
objective, the Fund will vary the
composition of its portfolio with
prevailing economic conditions. At any
given time, the Fund's portfolio may be
primarily composed of equity securities
(common stock, preferred stock and
securities convertible into equity
securities), mortgage-related securities,
debt securities, money market securities
or any combination of these securities.
The investment adviser's positioning of
the portfolio is determined by the
intermediate term outlook for economic
trends and market momentum.
-Dividends paid quarterly.
-Capital gains distributions paid annually.
PERFORMANCE
The Advantus Spectrum Fund's performance for the year ended September 30, 1998
for each class of shares offered was as follows:
<TABLE>
<S> <C>
Class A................................. 11.31 percent*
Class B................................. 10.55 percent*
Class C................................. 10.57 percent*
</TABLE>
The Fund slightly underperformed a 60/40 blend of the Russell 1000 Growth
Index** and the Lehman Brothers Aggregate Bond Index,+ which earned 11.94
percent for the same period. The Fund's benchmarks, the Russell 1000 Growth
Index** and the Lehman Brothers Aggregate Bond Index+ returned 11.11 percent and
11.51 percent, respectively, for the year ended September 30, 1998. The Merrill
Lynch-Wilshire Capital Markets Index++ returned 5.97 percent for the same
period.
In prior reporting periods, the Merrill Lynch-Wilshire Capital Markets Index++
was used as the Fund's benchmark. The Russell 1000 Growth Index** and the Lehman
Brothers Aggregate Bond Index+ better fit our stated investment objective than
did the Merrill-Lynch Wilshire Capital Markets Index++.
PERFORMANCE ANALYSIS
The Fund successfully navigated its way through the rough and volatile financial
markets this year. Our investment strategy, which relies on fundamental research
leading to strong stock and bond selections, contributed to the Fund's
performance for the reporting period. The Fund posted in the top 5 percent of
funds with a similar investment objective according to Morningstar, Inc. for the
one year period ending September 30, 1998. (Percentile ranking for the Fund was
based on 656 mutual funds in the Morningstar Domestic Hybrid universe. Criteria
for percentile ranking is the following: 1 = Best / 100 = Worst. Morningstar
rankings are based on total return and do not include the effect of sales
charges.) The strong performance relative to like funds was due primarily to two
factors. First, the stock portion of the Fund exceeded the overall performance
of the stock market. Second, opportunistic purchases were made on price weakness
throughout the year, adding to the total portfolio return. Over the past year,
the stock market and the bond market have shown approximately equivalent
returns. Stocks were driven higher by surging corporate profits; while low
inflation, weak foreign economies and a flight to quality into U.S. Treasuries
propelled the bond market.
Healthcare was clearly the strongest sector within the stock market as it
reacted positively to excellent fundamentals. Some factors that drove this
strong growth in the healthcare sector were favorable aging demographics
combined with medical advances, as well as the ability of pharmaceutical
2
<PAGE>
ADVANTUS
SPECTRUM FUND
SEPTEMBER 30, 1998
companies to engage in mass-market advertising. Pfizer, Inc., Merck & Co., Inc.,
Bristol-Myers Squibb Company, and Guidant Corporation were some of the
healthcare stocks that helped performance of the Fund over the past year.
A mixture of other growth companies with solid long-term fundamentals also
contributed favorably to performance. Stocks such as Paychex Incorporated, a
market leader in payroll processing in the small-employer market, gained over
100 percent* in the past year as it continued its excellent growth rate.
Carnival Corporation (cruise line) and Safeway, Inc (grocery retailer) continued
to meet or exceed our expectations of revenue and earnings growth and posted
strong performance. Large technology companies also had a positive impact on the
Fund with Cisco Systems, Inc., Microsoft Corporation, and Lucent Technologies
Corporation leading the way with 12-month appreciation of 90 percent,* 66
percent,* and 70 percent,* respectively, for the year ending September 30, 1998.
Energy was the weakest sector of the market over the past year. Energy's lag was
due to the falling price of oil from the low $20s per barrel to the $13-14 per
barrel range. The Fund's single investment in energy, Anadarko Petroleum,
actually posted a positive return, as they were able to make major new
discoveries at a reasonable cost.
Overall, our stock approach of investing in established companies with above
average sustainable earnings growth was the right place to be over the past
year. An overall slowing in corporate earnings growth led to higher valuations
on companies that proved their ability to continue their growth trend.
Bonds were an attractive financial asset over the past year, as they posted a
high single-digit total return for the 12 month period ending September 30,
1998. The Fund had substantial investments in high quality corporate bonds,
along with U.S. Treasury securities and mortgage-backed securities. This portion
of the Fund offered current income and capital gains; it also provided stability
throughout the stock market correction in the third calendar quarter of 1998.
Over the past twelve months we have gradually increased the Fund's stock weight
and reduced its bond weight in the portfolio. The correction in the stock market
allowed us to purchase growth companies at attractive valuation levels. Also, as
yields moved lower for bonds, they became less attractive and were sold from the
portfolio. The move in bond yields was substantial as the yield on the 10 year
U.S. Treasury Bond fell from over 6 percent on 9/30/97 (Bonds made up 40 percent
of the Fund at that time.) to 4.4 percent on 9/30/98. The asset allocation in
the portfolio at its fiscal year end (9/30/98) is 71 percent stocks, 26 percent
bonds, and 3 percent cash/cash equivalents.
*Historical performance is not an indication of future performance. These
performance results do not reflect the impact of Class A's maximum 5 percent
front-end sales charge or Class B's maximum 5 percent contingent deferred 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 Russell 1000 Growth Index contains stocks from the Russell 1000 with a
greater than average growth orientation. The Russell 1000 are the 1,000 largest
companies in the Russell 3000. The Russell 3000 is an unmanaged index of 3,000
common stocks which represents approximately 98 percent of the U.S. market.
+The Lehman Brothers Aggregate Bond is comprised of the Lehman Brothers
Government Corporate Bond Index, the Lehman Brothers Mortgage-Backed Securities
Index and the Lehman Brothers Asset-Backed Securities Index.
++The Merrill Lynch-Wilshire Capital Markets Index is a market value-weighted
index measuring the total return performance of the combined domestic taxable
fixed income and equity markets. It includes the entire domestic common stock
universe for which daily pricing is available, as well as all publicly placed
domestic taxable debt issues with at least one year remaining to maturity and at
least ten million dollars par value.
3
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ADVANTUS
SPECTRUM FUND
SEPTEMBER 30, 1998
OUTLOOK
The cascading economic impact that started with emerging countries in the fall
of 1997 has not yet fully run its course. The well-documented problems in Asia
and Japan along with the collapse in the Russian market may have further
ramifications on the U.S. economy and our financial markets. The next wave is
likely to be a weakened demand for U.S. products causing layoffs in the U.S.
with the possibility of a recession in 1999. While few people expect an end to
economic cycles, it always seems to be a negative surprise when we are looking
into the teeth of the down side of the cycle.
While the current economic concerns are real, there are many financial weapons
available to keep us out of a recession, including a stimulative monetary policy
(i.e., the Federal Reserve Board lowers interest rates), as well as a
stimulative U.S. fiscal policy--an option we have not seen for many years. Over
the long term, U.S. based companies continue to show that they are the best
managed in the world and have access to financial capital in possibly the most
solid financial markets in the world. Throughout an economic cycle many of these
U.S. companies still have the ability to offer attractive financial gain--a
concept we should not dismiss in weaker periods of the economic cycle.
The Fund will continue to invest in a combination of growth stocks, quality
bonds and mortgages, along with selective use of money market securities. We
position the Fund to meaningfully participate in market advances while
protecting your capital during periods of market decline. This has been our
strategy since the Fund's inception over 10 years ago. This past year's success
is a confirmation of this strategy.
4
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ADVANTUS
SPECTRUM FUND
SEPTEMBER 30, 1998
COMPARISON OF CHANGE IN VALUE OF A HYPOTHETICAL $10,000 INVESTMENT IN ADVANTUS
SPECTRUM FUND, MERRILL LYNCH-WILSHIRE CAPITAL MARKETS INDEX, RUSSELL 1000 GROWTH
INDEX,
LEHMAN BROTHERS AGGREGATE BOND INDEX,
BLENDED INDEX AND CONSUMER PRICE INDEX
On the following three charts you can see how the total return for each of the
three classes of shares of the Advantus Spectrum Fund compared to the Merrill
Lynch-Wilshire Capital Markets Index, Russell 1000 Growth Index, Lehman Brothers
Aggregate Bond Index, a blended index of 60 percent Russell 1000 Growth Index
and 40 percent Lehman Brothers Aggregate Bond Index, and the Consumer Price
Index. The lines in the Class A graph represent the cumulative total return of a
hypothetical $10,000 investment made on September 30, 1988 through September 30,
1998. The lines in the Class B and Class C graph represent the cumulative total
return of a hypothetical $10,000 investment made on the inception date of Class
B and Class C shares of the Advantus Spectrum Fund (August 19, 1994 and March 1,
1995, respectively) through September 30, 1998.
CLASS A
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
AVERAGE ANNUAL TOTAL RETURN:
One year 5.75%
Five year 10.34%
Ten year 11.30%
Since inception (11/16/87) 11.24%
ML-Wilshire
Capital Markets Russell 1000 Lehman Brothers
Class A Index CPI Blended Index Growth Index Aggregate Bond Index
9/30/88 10,000 10,000 10,000 10,000 10,000 10,000
10/31/88 9,626 10,190 10,292 11,095 10,195 10,188
10/31/89 11,246 12,062 10,763 13,485 13,378 11,400
10/31/90 11,187 11,685 11,441 13,280 12,620 12,117
10/31/91 14,095 14,815 11,775 16,857 17,702 14,032
10/31/92 15,656 16,300 12,153 18,658 19,615 15,414
10/31/93 17,015 18,756 12,479 20,337 21,048 17,243
9/30/94 16,689 18,537 12,856 20,762 21,674 16,623
9/30/95 19,757 22,654 13,139 25,419 28,651 18,961
9/30/96 22,467 25,584 13,533 28,942 34,781 19,890
9/30/97 26,209 32,493 13,834 35,732 47,403 21,822
9/30/98 29,174 34,433 14,031 40,106 52,665 24,334
</TABLE>
CLASS B
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
AVERAGE ANNUAL TOTAL RETURN:
One year 5.55%
Since inception (8/19/94) 13.61%
ML-Wilshire Lehman Brothers
Capital Markets Russell 1000 Aggregate Bond
Class B Index CPI Blended Index Growth Index Index
8/19/94 10,000 10,000 10,000 10,000 10,000 10,000
9/30/94 10,003 9,952 10,067 10,209 9,863 9,860
9/30/95 11,316 12,162 10,289 12,499 11,816 10,677
9/30/96 12,953 13,735 10,598 14,231 13,020 10,926
9/30/97 15,184 17,445 10,833 17,570 16,645 11,704
9/30/98 16,913 18,486 10,987 19,720 15,819 12,483
</TABLE>
5
<PAGE>
ADVANTUS
SPECTRUM FUND
SEPTEMBER 30, 1998
CLASS C
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
AVERAGE ANNUAL TOTAL RETURN:
One year 10.57%
Since inception (3/1/95) 14.57%
ML-Wilshire
Capital Markets Russell 1000 Lehman Brothers
Class C Index CPI Blended Index Growth Index Aggregate Bond Index
3/01/95 10,000 10,000 10,000 10,000 10,000 10,000
9/30/95 11,263 11,626 10,146 12,243 11,980 10,818
9/30/96 12,713 13,130 10,450 13,940 13,201 11,081
9/30/97 14,731 16,676 10,682 17,210 16,876 11,870
9/30/98 16,288 17,672 10,834 19,317 16,039 12,660
</TABLE>
The preceding charts are useful because they provide you with more information
about your investments. There are limitations, however. An index may reflect the
performance of securities that the Fund may not hold. Also, the index does not
deduct sales charges, investment advisory fees and other fund expenses, whereas
your Fund does. Performance presented for the Fund reflects the deduction of the
maximum 5 percent front-end sales charge for Class A and the maximum applicable
contingent deferred sales charge for Class B shares. Sales charges pay for your
financial professional's investment advice. Individuals cannot buy even an
unmanaged index fund 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.
6
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ADVANTUS
SPECTRUM FUND
SEPTEMBER 30, 1998
FIVE LARGEST STOCK HOLDINGS
<TABLE>
<CAPTION>
% OF
MARKET STOCK
COMPANY SHARES VALUE PORTFOLIO
- --------------------------------------- ------ ----------- ----------
<S> <C> <C> <C>
General Electric Company............... 40,752 $ 3,242,331 5.1%
Microsoft Corporation.................. 19,000 2,091,188 3.3%
Tyco International Ltd................. 37,492 2,071,433 3.2%
Pfizer, Inc............................ 16,800 1,779,750 2.8%
Bristol-Myers Squibb Company........... 16,100 1,672,388 2.6%
----------- ---
$10,857,090 17.0%
----------- ---
----------- ---
</TABLE>
BOND PORTFOLIO CHARACTERISTICS--QUALITY BREAKDOWN
<TABLE>
<CAPTION>
% OF BOND
CATEGORY PORTFOLIO
- -------------------------------------------------- -------------
<S> <C>
U.S. Treasury..................................... 36.2%
U.S. Government Agencies.......................... 11.9%
AAA rated......................................... 8.3%
AA rated.......................................... 8.8%
A rated........................................... 13.3%
BBB rated......................................... 14.8%
BB rated.......................................... 6.7%
-----
100.0%
-----
-----
</TABLE>
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<S> <C>
Common Stocks 68.9%
Preferred Stocks 2.0%
Bonds 26.4%
Cash and Other
Assets/Liabilities 2.7%
</TABLE>
7
<PAGE>
ADVANTUS SPECTRUM FUND
INVESTMENTS IN SECURITIES
SEPTEMBER 30, 1998
(Percentages of each investment category relate to total net assets.)
<TABLE>
<CAPTION>
MARKET
SHARES VALUE(a)
- ------ -----------
<C> <S> <C>
COMMON STOCK (68.9%)
CAPITAL GOODS (6.9%)
Electrical Equipment (3.6%)
40,752 General Electric Company......................... $ 3,242,331
-----------
Manufacturing (2.3%)
37,492 Tyco International Ltd........................... 2,071,433
-----------
Waste Management (1.0%)
18,128 Waste Management, Inc............................ 871,277
-----------
COMMUNICATION SERVICES (1.1%)
Telecommunication (1.1%)
20,897 MCI Worldcom, Inc. (b)........................... 1,021,341
-----------
CONSUMER CYCLICAL (12.5%)
Auto (.8%)
23,600 Danaher Corporation.............................. 708,000
-----------
Building Materials (1.1%)
3,200 D.R. Horton Incorporated......................... 51,200
36,400 Masco Corporation................................ 896,350
-----------
947,550
-----------
Houseware (1.1%)
46,100 Leggett & Platt Incorporated..................... 956,575
-----------
Lodging-Hotel (.2%)
8,100 Host Marriott Corporation (b).................... 102,769
3,900 Meristar Hospitality Corporation (b)............. 66,544
3,900 Meristar Hotels & Resorts, Inc. (b).............. 10,725
2,700 Prime Hospitality Corporation (b)................ 18,900
800 Promus Hotel Corporation (b)..................... 22,050
-----------
220,988
-----------
Retail (4.6%)
90,200 Family Dollar Stores............................. 1,420,650
19,100 Home Depot, Inc.................................. 754,450
23,000 Tandy Corporation................................ 1,230,500
<CAPTION>
MARKET
SHARES VALUE(a)
- ------ -----------
<C> <S> <C>
CONSUMER CYCLICAL--CONTINUED
13,500 Wal-Mart Stores.................................. $ 737,437
-----------
4,143,037
-----------
Service (4.7%)
21,300 Equifax Incorporated............................. 760,144
5,600 Fairfield Communities, Inc. (b).................. 56,000
36,310 Omnicom Group.................................... 1,633,950
16,800 Quintiles Transnational (b)...................... 735,000
33,300 Service Corporation International................ 1,061,437
-----------
4,246,531
-----------
CONSUMER STAPLES (8.6%)
Beverage (1.7%)
19,200 Coca-Cola Company................................ 1,106,400
14,500 Pepsico, Inc..................................... 426,844
-----------
1,533,244
-----------
Entertainment (1.9%)
52,500 Carnival Corporation............................. 1,670,156
-----------
Household Products (1.7%)
39,800 Dial............................................. 820,875
10,290 Procter & Gamble Company......................... 729,947
-----------
1,550,822
-----------
Retail (1.6%)
30,782 Safeway, Inc. (b)................................ 1,427,515
-----------
Service (1.1%)
12,700 Automatic Data Processing, Inc................... 949,325
-----------
Tobacco (.6%)
12,600 Philip Morris Companies, Inc..................... 580,387
-----------
ENERGY (.7%)
Oil & Gas (.7%)
17,100 Anadarko Petroleum Corporation................... 672,244
-----------
</TABLE>
See accompanying notes to investments in securities.
8
<PAGE>
ADVANTUS SPECTRUM FUND
INVESTMENTS IN SECURITIES--CONTINUED
<TABLE>
<CAPTION>
MARKET
SHARES VALUE(a)
- ------ -----------
FINANCIAL (8.8%)
<C> <S> <C>
Commercial Finance (1.0%)
17,100 Finova Finance Trust............................. $ 853,931
-----------
Finance-Diversified (1.7%)
3,400 Asset Investors Corporation...................... 50,575
8,500 Burnham Pacific Properties, Inc.................. 118,469
3,400 Crescent Real Estate Equity Company.............. 85,850
19,700 Federal Home Loan Mortgage Corporation........... 973,919
4,200 Patriot American Hospitality..................... 53,550
4,100 Simon Property Group, Inc........................ 121,975
4,900 Starwood Lodging Trust........................... 149,450
-----------
1,553,788
-----------
Insurance (2.3%)
2,701 American International Group..................... 207,977
10,100 Hartford Life.................................... 426,725
14,500 Nationwide Financial Services.................... 658,844
12,850 Sunamerica Incorporated.......................... 783,850
-----------
2,077,396
-----------
Investment Bankers/Brokers ( -- )
336 Reckson Service Industries (b)................... 788
-----------
Real Estate (.1%)
9,700 Catellus Development (b)......................... 126,100
-----------
Real Estate Investment Trust (3.7%)
1,600 Apartment Investment & Management Company........ 60,400
4,300 Archstone Communities Trust...................... 87,612
5,800 Arden Realty Group, Inc.......................... 129,412
<CAPTION>
MARKET
SHARES VALUE(a)
- ------ -----------
<C> <S> <C>
FINANCIAL--CONTINUED
3,600 Avalon Bay Communities, Inc...................... $ 122,625
6,900 Camden Property Trust............................ 192,769
5,400 Carramerica Realty Corporation................... 123,187
8,700 Commercial Net Lease Realty...................... 127,237
8,600 Corporate Office Properties...................... 68,262
2,500 Eastgroup Properties............................. 47,187
1,400 Equity Residential Properties.................... 59,062
2,900 Essex Property Trust............................. 89,900
3,900 Felcor Lodging Trust, Inc........................ 94,819
5,800 First Industrial Realty Trust.................... 147,900
1,900 Franchise Finance Corporation of America......... 52,131
6,000 Glenborough Realty Trust, Inc.................... 127,500
3,700 Highwoods Properties, Inc........................ 102,675
4,000 Home Properties New York, Inc.................... 105,000
4,400 Innkeepers USA Trust............................. 52,250
5,600 Kilroy Realty.................................... 128,800
4,700 Koger Equity Incorporated........................ 88,125
2,100 Lennar Corporation............................... 46,856
2,300 LNR Property Corporation......................... 44,419
4,000 Macerich Company................................. 107,500
3,600 Mack-Cali Realty................................. 108,000
2,400 Meditrust Companies.............................. 40,950
6,360 New Plan Excel Realty Trust...................... 148,267
5,800 Pacific Gulf Properties, Inc..................... 116,725
</TABLE>
See accompanying notes to investments in securities.
9
<PAGE>
ADVANTUS SPECTRUM FUND
INVESTMENTS IN SECURITIES--CONTINUED
<TABLE>
<CAPTION>
MARKET
SHARES VALUE(a)
- ------ -----------
FINANCIAL--CONTINUED
<C> <S> <C>
5,500 Pan Pacific Retail Properties.................... $ 102,437
6,200 Philips International Realty..................... 94,937
2,000 Public Storage Incorporated...................... 53,625
6,300 Regency Realty Corporation....................... 144,506
6,200 Storage Trust Realty............................. 145,700
9,100 Sunstone Hotel Investors......................... 82,469
1,300 Trinet Corporation............................... 42,413
2,600 Urban Shopping Centers Incorporated.............. 85,475
-----------
3,371,132
-----------
HEALTH CARE (14.7%)
Drugs (8.0%)
15,700 American Home Products Corporation............... 822,288
16,100 Bristol-Myers Squibb Company..................... 1,672,388
12,800 Eli Lilly & Company.............................. 1,002,400
7,800 Merck & Co., Inc................................. 1,010,588
16,800 Pfizer, Inc...................................... 1,779,750
9,200 Schering Plough Corporation...................... 952,775
-----------
7,240,189
-----------
Health Care-Diversified (3.6%)
18,900 Abbot Laboratories............................... 820,969
14,600 Johnson & Johnson................................ 1,142,450
17,400 Warner-Lambert Company........................... 1,313,700
-----------
3,277,119
-----------
Medical Products/Supplies (2.9%)
18,300 Guidant Corporation.............................. 1,358,775
9,800 Safeskin Corporation (b)......................... 309,313
<CAPTION>
MARKET
SHARES VALUE(a)
- ------ -----------
<C> <S> <C>
HEALTH CARE--CONTINUED
48,200 Sybron International Corporation (b)............. $ 921,825
-----------
2,589,913
-----------
Special Services (.2%)
6,500 Equity Corporation (b)........................... 146,250
-----------
TECHNOLOGY (14.1%)
Technology (14.1%)
19,300 BMC Software, Inc. (b)........................... 1,159,206
32,600 Cadence Design Systems, Inc. (b)................. 833,338
24,900 Cisco Systems, Inc. (b).......................... 1,539,131
13,700 Dell Computer Corporation (b).................... 900,775
16,400 EMC Corporation (b).............................. 937,875
28,300 Galileo International, Inc....................... 1,068,325
20,100 HBO & Company.................................... 580,388
16,100 Intel............................................ 1,380,575
16,400 Lucent Technologies Incorporated................. 1,132,625
19,000 Microsoft Corporation (b)........................ 2,091,188
20,350 Paychex Incorporated............................. 1,049,297
-----------
12,672,723
-----------
TRANSPORTATION (.7%)
Trucking (.7%)
20,700 CNF Transportation............................... 602,888
-----------
UTILITIES (.8%)
Electric Companies (.8%)
18,700 AES Corporation (b).............................. 693,069
-----------
Total common stock
(cost: $49,926,775)...................................... 62,018,042
-----------
</TABLE>
See accompanying notes to investments in securities.
10
<PAGE>
ADVANTUS SPECTRUM FUND
INVESTMENTS IN SECURITIES--CONTINUED
<TABLE>
<CAPTION>
MARKET
SHARES VALUE(a)
- ------ -----------
PREFERRED STOCK (2.0%)
<C> <S> <C>
FINANCIAL (2.0%)
Real Estate Investment Trust (2.0%)
14,000 Duke Realty Investment, Inc.-7.99%............... $ 720,125
5,000 Nationwide Health Property, Inc.-7.68%........... 547,187
<CAPTION>
MARKET
SHARES VALUE(a)
- ------ -----------
<C> <S> <C>
FINANCIAL--CONTINUED
10,000 Prologis Trust-8.54%............................. $ 497,500
-----------
1,764,812
-----------
Total preferred stock
(cost: $1,693,675)....................................... 1,764,812
-----------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
- ----------
<C> <S> <C> <C> <C>
LONG-TERM DEBT SECURITIES (26.4%)
GOVERMENT OBLIGATIONS (14.3%)
U.S. GOVERNMENT AND AGENCIES OBLIGATIONS (12.7%)
U.S. Treasury (9.6%)
$1,750,000 US Treasury Note (e)............................. 4.966% 05/15/06 1,239,175
750,000 US Treasury Note................................. 5.500% 02/29/00 759,844
850,000 US Treasury Note................................. 6.000% 02/15/26 951,204
2,200,000 US Treasury Note................................. 6.375% 09/30/01 2,320,314
3,100,000 US Treasury Note................................. 6.625% 03/31/02 3,322,812
---------------
8,593,349
---------------
Federal National Mortgage Association (FNMA) (3.1%)
1,000,000 ................................................. 5.625% 02/02/06 1,054,083
750,000 ................................................. 6.140% 03/24/03 764,662
500,000 ................................................. 6.250% 12/25/13 511,204
500,000 (f) ................................................. 6.500% 10/15/28 508,125
---------------
2,838,074
---------------
OTHER GOVERNMENT OBLIGATIONS (1.1%)
1,000,000 Ontario Province (c)............................. 5.500% 10/01/08 1,018,010
---------------
STATE AND LOCAL GOVERNMENT OBLIGATIONS (.5%)
399,001 Wyoming Community Development.................... 6.850% 06/01/10 398,253
---------------
Total goverment obligations (cost: $12,497,320).................................. 12,847,686
---------------
CORPORATE OBLIGATIONS (12.1%)
BASIC MATERIALS (1.3%)
Chemicals (.7%)
556,849 Ciba Geigy Corporation-144A Issue (d)............ 7.240% 01/02/16 641,150
---------------
Paper and Forest (.6%)
500,000 International Paper Company...................... 6.875% 07/10/00 512,282
---------------
COMMUNICATION SERVICES (1.0%)
Telephone (1.0%)
900,000 Cable and Wireless Communication (c)............. 6.625% 03/06/05 930,096
---------------
</TABLE>
See accompanying notes to investments in securities.
11
<PAGE>
ADVANTUS SPECTRUM FUND
INVESTMENTS IN SECURITIES--CONTINUED
<TABLE>
<CAPTION>
MARKET
PRINCIPAL VALUE(a)
- ---------- ---------------
CORPORATE OBLIGATIONS--CONTINUED
<C> <S> <C> <C> <C>
CONSUMER CYCLICAL (.4%)
Textiles (.4%)
$ 500,000 Reliance Industries Limited-144A Issue (c)(d).... 10.250% 01/15/97 $ 376,220
---------------
CONSUMER STAPLES (1.7%)
Entertainment (1.1%)
900,000 Time Warner, Inc................................. 6.950% 01/15/28 937,476
---------------
Household Products (.6%)
500,000 Premark International, Inc....................... 10.500% 09/15/00 547,550
---------------
FINANCIAL (7.2%)
Banks (.7%)
700,000 St. George Bank-144A Issue (c)(d)................ 8.485% 12/31/49 658,840
---------------
Collateralized Mortgage Obligations/Mortgage Revenue Bonds (2.8%)
486,938 Bear Stearns Mortgage Securities, Inc............ 8.000% 11/25/29 496,068
1,250,000 PNC Bank Corporation............................. 6.728% 01/25/07 1,325,000
645,624 Tyron Mortgage Funding........................... 7.750% 12/20/09 664,761
---------------
2,485,829
---------------
Finance-Diversified (.4%)
700,000 Guangdong Enterprises-144A Issue (c)(d).......... 8.875% 05/22/07 377,741
---------------
Investment Bankers/Brokers (.9%)
750,000 Morgan Stanley Dean Witter....................... 6.875% 03/01/07 786,781
---------------
Real Estate Investment Trust (1.5%)
900,000 Bradley Operating LP............................. 7.000% 11/15/04 852,120
500,000 Security Capital Pacific Trust................... 7.500% 02/15/14 511,377
---------------
1,363,497
---------------
Savings and Loans (.9%)
800,000 Bank United Corporation.......................... 8.875% 05/01/07 847,488
---------------
UTILITIES (.5%)
Electric Companies (.5%)
500,000 Enersis S.A. (c)................................. 6.900% 12/01/06 425,600
---------------
Total corporate obligations (cost: $11,256,891).................................. 10,890,550
---------------
Total long-term debt securities (cost: $23,754,211).............................. 23,738,236
---------------
</TABLE>
See accompanying notes to investments in securities.
12
<PAGE>
ADVANTUS SPECTRUM FUND
INVESTMENTS IN SECURITIES--CONTINUED
<TABLE>
<CAPTION>
MARKET
PRINCIPAL VALUE(a)
- ---------- ---------------
SHORT-TERM SECURITIES (2.8%)
<C> <S> <C> <C> <C>
$ 490,000 US Treasury Bill................................. 4.286% 12/10/98 $ 486,027
2,020,752 Federated Prime Obligation Fund, current rate 5.470%............................. 2,020,752
---------------
Total short-term securities (cost: $2,506,757)................................... 2,506,779
---------------
Total investments in securities (cost: $77,881,418)(g)........................... $ 90,027,869
---------------
---------------
</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) The Fund held 4.2% of the net assets in foreign securities as of September
30, 1998.
(d) Represents ownership in a restricted security which has not been registered
with the Security and Exchange Commission under the Securities Act of 1933.
(See note 6 to the financial statements.) Information concerning the
restricted securities held at September 30, 1998, which includes acquisition
date and cost, is as follows:
<TABLE>
<CAPTION>
ACQUISITION
SECURITY: DATE COST
- --------------------------------------- ----------- -----------
<S> <C> <C>
Ciba Geigy Corporation 144A Issue...... Various $ 556,849
St George Bank 144A Issue.............. 06/12/97 700,000
Guangdong Enterprises 144A Issue....... 08/06/97 722,526
Reliance Industries Limited 144A
Issue................................ 10/15/97 539,040
-----------
$ 2,518,415
-----------
-----------
</TABLE>
(e) For zero coupon issues, the interest rate disclosed is the effective yield
at the date of acquisition.
(f) At September 30, 1998 the total cost of investments issued on a when-issued
or forward commitment basis is $506,719.
(g) At September 30, 1998 the cost of securities for federal income tax purposes
was $78,158,107. The aggregate unrealized appreciation and depreciation of
investments in securities based on this cost were:
<TABLE>
<S> <C>
Gross unrealized appreciation.......... $15,295,734
Gross unrealized depreciation.......... (3,425,972)
-----------
Net unrealized appreciation............ $11,869,762
-----------
-----------
</TABLE>
13
<PAGE>
ADVANTUS SPECTRUM FUND
STATEMENT OF ASSETS AND LIABILITIES
SEPTEMBER 30, 1998
<TABLE>
<S> <C>
ASSETS
Investments in securities, at market
value--see accompanying schedule for
detailed listing
(identified cost: $77,881,418)........ $90,027,869
Cash in bank on demand deposit......... 122
Receivable for Fund shares sold........ 112,814
Receivable for investment securities
sold.................................. 1,896,026
Accrued interest receivable............ 226,119
Dividends receivable................... 87,178
-----------
Total assets....................... 92,350,128
-----------
LIABILITIES
Payable for investment securities
purchased............................. 2,232,517
Payable for Fund shares redeemed....... 73,287
Payable to Adviser..................... 68,033
Other payables......................... 6,409
-----------
Total liabilities.................. 2,380,246
-----------
Net assets applicable to outstanding
capital stock......................... $89,969,882
-----------
-----------
Represented by:
Capital stock--authorized 10 billion
shares (Class A--2 billion shares,
Class B--2 billion shares, Class
C--2 billion shares and 4 billion
shares unallocated) of $.01 par
value (note 1)...................... $ 54,588
Additional paid-in capital........... 73,031,215
Undistributed net investment
income.............................. 20,815
Accumulated net realized gains from
investments......................... 4,716,813
Unrealized appreciation on
investments......................... 12,146,451
-----------
Total--representing net assets
applicable to outstanding capital
stock............................. $89,969,882
-----------
-----------
Net assets applicable to outstanding
Class A shares........................ $68,156,655
-----------
-----------
Net assets applicable to outstanding
Class B shares........................ $17,751,117
-----------
-----------
Net assets applicable to outstanding
Class C shares........................ $ 4,062,110
-----------
-----------
Shares outstanding and net asset value
per share:
Class A--Shares outstanding
4,129,890........................... $ 16.50
-----------
-----------
Class B--Shares outstanding
1,080,408........................... $ 16.43
-----------
-----------
Class C--Shares outstanding
248,544............................. $ 16.34
-----------
-----------
</TABLE>
See accompanying notes to financial statements.
14
<PAGE>
ADVANTUS SPECTRUM FUND
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED SEPTEMBER 30, 1998
<TABLE>
<S> <C>
Investment income:
Interest............................. $1,998,129
Dividends............................ 733,538
----------
Total investment income.......... 2,731,667
----------
Expenses:
Investment advisory fee.............. 517,339
Distribution fees--Class A........... 236,909
Distribution fees--Class B........... 155,257
Distribution fees--Class C........... 30,090
Administrative services fee.......... 44,000
Custodian fees....................... 5,631
Auditing and accounting services..... 43,508
Legal fees........................... 6,326
Directors' fees...................... 1,351
Registration fees.................... 46,417
Printing and shareholder reports..... 43,128
Insurance............................ 5,039
Other................................ 13,211
----------
Total expenses................... 1,148,206
----------
Investment income--net........... 1,583,461
----------
Realized and unrealized gains on
investments:
Net realized gains on investments
(note 3)............................ 5,349,468
Net change in unrealized appreciation
or depreciation on investments...... 1,790,594
----------
Net gains on investments......... 7,140,062
----------
Net increase in net assets resulting
from operations....................... $8,723,523
----------
----------
</TABLE>
See accompanying notes to financial statements.
15
<PAGE>
ADVANTUS SPECTRUM FUND
STATEMENTS OF CHANGES IN NET ASSETS
FOR THE YEARS ENDED SEPTEMBER 30, 1998 AND 1997
<TABLE>
<CAPTION>
1998 1997
----------- -----------
<S> <C> <C>
Operations:
Investment income--net............... $ 1,583,461 $ 1,756,488
Net realized gain on investments..... 5,349,468 6,023,342
Net change in unrealized appreciation
or depreciation on investments...... 1,790,594 3,276,722
----------- -----------
Increase in net assets resulting
from operations................. 8,723,523 11,056,552
----------- -----------
Distributions to shareholders from:
Investment income--net:
Class A............................ (1,322,444) (1,534,364)
Class B............................ (211,503) (204,737)
Class C............................ (43,052) (34,898)
Net realized gains on investments:
Class A............................ (5,089,394) (4,361,553)
Class B............................ (1,075,477) (645,070)
Class C............................ (191,928) (116,045)
----------- -----------
Total distributions.............. (7,933,798) (6,896,667)
----------- -----------
Capital share transactions (notes 4 and
5):
Proceeds from sales:
Class A............................ 14,488,116 8,900,153
Class B............................ 7,106,708 4,388,659
Class C............................ 3,764,605 1,433,237
Proceeds from issuance of shares as a
result of reinvested dividends:
Class A............................ 6,228,838 5,687,547
Class B............................ 1,212,158 812,290
Class C............................ 231,844 148,275
Payments for redemption of shares:
Class A............................ (16,214,526) (13,970,583)
Class B............................ (3,190,571) (1,129,359)
Class C............................ (1,843,302) (1,092,396)
----------- -----------
Increase in net assets from
capital share transactions...... 11,783,870 5,177,823
----------- -----------
Total increase in net assets..... 12,573,595 9,337,708
Net assets at beginning of year........ 77,396,287 68,058,579
----------- -----------
Net assets at end of year (including
undistributed net investment income of
$20,815 and $14,353, respectively).... $89,969,882 $77,396,287
----------- -----------
----------- -----------
</TABLE>
See accompanying notes to financial statements.
16
<PAGE>
ADVANTUS SPECTRUM FUND
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1998
(1) ORGANIZATION
The Advantus Spectrum Fund, Inc. (the Fund) is registered under the
Investment Company Act of 1940 (as amended) as a diversified, open-end
management investment company. The Fund's investment objective is to seek the
most favorable total return (including interest, dividends and capital
appreciation) consistent with the preservation of capital.
The Fund currently issues three classes of shares: Class A, Class B and
Class C shares. Class A shares are sold subject to a front-end sales charge.
Class B shares are sold subject to a contingent deferred sales charge payable
upon redemption if redeemed within six years of purchase. Class C shares are
sold without either a front-end sales charge or a contingent deferred sales
charge. Both Class B and Class C shares are subject to a higher Rule 12b-1 fee
than Class A shares. Both Class B and Class C shares automatically convert to
Class A shares at net asset value after a specified holding period. Such holding
periods decline as the amount of the purchase increases and range from 28 to 84
months after purchase for Class B shares and 40 to 96 months after purchase for
Class C shares. All three classes of shares have identical voting, dividend,
liquidation and other rights and the same terms and conditions, except that the
level of distribution fees charged differs between Class A, Class B and Class C
shares. Income, expenses (other than distribution fees) and realized and
unrealized gains or losses are allocated to each class of shares based upon its
relative net assets.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The significant accounting policies followed by the Fund are summarized as
follows:
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts in the financial statements. Actual
results could differ from those estimates.
INVESTMENTS IN SECURITIES
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 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.
SECURITIES PURCHASED ON A WHEN-ISSUED BASIS
Delivery and payment for securities which have been purchased by the Fund on
a forward commitment or when-issued basis can take place a month or more after
the transaction date. During this period, such securities are subject to market
fluctuations. As of September 30, 1998, the Fund had entered into outstanding
when-issued or forward commitments of $506,719.
17
<PAGE>
ADVANTUS SPECTRUM FUND
NOTES TO FINANCIAL STATEMENTS--CONTINUED
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
FEDERAL TAXES
The Fund's policy is to comply with the requirements of the Internal Revenue
Code applicable to regulated investment companies and to distribute all of its
taxable income to shareholders. Therefore, no income tax provision is required.
The Fund's policy is to make required minimum distributions prior to December
31, in order to avoid federal excise tax.
Net investment income and net realized gains (losses) may differ for
financial statement and tax purposes primarily because of temporary book-to-tax
differences. The character of distributions made during the year from net
investment income or net realized gains (losses) may differ from their ultimate
characterization for federal income tax purposes. Also, due to the timing of
dividend distributions, the fiscal year in which amounts are distributed may
differ from the year that the income 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 year ended September 30, 1998, purchases of securities and proceeds
from sales, other than temporary investments in short-term securities,
aggregated $123,689,805 and $114,417,284, respectively.
(4) EXPENSES AND RELATED PARTY TRANSACTIONS
The Fund has an investment advisory agreement with Advantus Capital
Management, Inc. (Advantus Capital or the Adviser) a wholly-owned subsidiary of
Minnesota Life Insurance Company (Minnesota Life), formerly known as The
Minnesota Mutual Life Insurance Company. Under the agreement, Advantus Capital
manages the Fund's assets and provides research, statistical and advisory
services and pays related office rental and executive expenses and salaries. In
addition, as part of the advisory fee, Advantus Capital pays the expenses of the
Fund's transfer, dividend disbursing and redemption agent, Minnesota Life.
Effective October 26, 1998, the Fund's transfer agent is First Data Investor
Services Group, Inc. The fee for investment management and advisory services is
based on the average daily net assets of the Fund at the annual rate of .60
percent.
The Fund has adopted separate Plans of Distribution applicable to Class A,
Class B and Class C shares, respectively, relating to the payment of certain
distribution expenses pursuant to Rule 12b-1 under the Investment Company Act of
1940 (as amended). The Fund pays distribution fees to Ascend Financial Services,
Inc. (Ascend), the underwriter of the Fund and wholly-owned subsidiary of
Advantus Capital, to be used to pay certain expenses incurred in the
distribution, promotion and servicing of the Fund's shares. The Class A Plan
provides for a fee up to .35 percent of average daily net assets of Class A
shares. The Class B and Class C Plans provide for a fee up to 1.00 percent of
average daily net assets of Class B and Class C shares, respectively. The Class
B and Class C 1.00 percent fee is comprised of a .75 percent distribution fee
and a .25 percent service fee.
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.
18
<PAGE>
ADVANTUS SPECTRUM FUND
NOTES TO FINANCIAL STATEMENTS--CONTINUED
(4) EXPENSES AND RELATED PARTY TRANSACTIONS--(CONTINUED)
The Fund pays an administrative services fee, equal to $3,700 per month, to
Minnesota Life for accounting, auditing, legal and other administrative services
which Minnesota Life provides. Prior to February 1, 1998, the administrative
services fee was $3,600 per month. Effective October 26, 1998, Minnesota Life
became the shareholder services agent for the Fund. Under the new shareholder
and administrative services agreement, the administrative services fee remains
unchanged, and for shareholder services performed by Minnesota Life, the Adviser
will pay Minnesota Life an annual account servicing fee as agreed by the Adviser
and Minnesota Life.
Advantus Capital directly incurs and pays the above operating expenses and
the Fund in turn reimburses Advantus Capital.
Sales charges received by Ascend for distributing the Fund's three classes
of shares amounted to $418,271.
Legal fees were paid to a law firm of which the Fund's secretary is a
partner in the amount of $6,272.
(5) CAPITAL SHARE TRANSACTIONS
Transactions in shares for the years ended September 30, 1998 and 1997 were
as follows:
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
---------------------- --------------------- ---------------------
1998 1997 1998 1997 1998 1997
---------- ---------- ---------- --------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C>
Sold............................................... 875,321 568,090 426,818 283,462 225,999 92,091
Issued for reinvested distributions................ 392,294 373,704 77,708 53,627 14,662 9,848
Redeemed........................................... (974,480) (894,370) (192,699) (76,625) (110,505) (71,057)
---------- ---------- ---------- --------- ---------- ---------
293,135 47,424 311,827 260,464 130,156 30,882
---------- ---------- ---------- --------- ---------- ---------
---------- ---------- ---------- --------- ---------- ---------
</TABLE>
(6) RESTRICTED SECURITIES
At September 30, 1998, investments in securities includes issues which
generally cannot be offered for sale to the public without first being
registered under the Securities Act of 1933 (restricted security). In the event
the securities are registered, those carrying registration rights allow for the
issuer to bear all the related costs; for issues without rights, the Fund may
incur such costs. The Fund currently limits investments in securities that are
not readily marketable, including restricted securities, to 10% of net assets at
the time of the purchase. Securities are valued by procedures described in note
2. The aggregate value of restricted securities held by the Fund at September
30, 1998 was $2,053,951 which represents 2.3% of net assets.
(7) YEAR 2000 (UNAUDITED)
In 1995, Minnesota Life began addressing computer systems requirements and
applications to be Year 2000 ready. Based on a current study, Minnesota Life
plans to spend approximately $14 million through 1999 to modify its computer
information systems, enabling proper processing of transactions relating to the
year 2000 and beyond. The Fund will not be charged for these expenses.
19
<PAGE>
ADVANTUS SPECTRUM FUND
NOTES TO FINANCIAL STATEMENTS--CONTINUED
(8) 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
YEAR ENDED NOVEMBER 1,
SEPTEMBER 30, 1993 TO YEAR ENDED
--------------------------------------------- SEPTEMBER 30, OCTOBER 31,
1998 1997 1996 1995(a) 1994(b) 1993
------------ --------- --------- --------- --------------- ------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period.... $ 16.40 $ 15.53 $ 14.79 $ 13.28 $ 13.92 $ 13.63
------------ --------- --------- --------- ------- ------------
Income from investment operations:
Net investment income................. .33 .39 .34 .45 .28 .29
Net gains or losses on securities
(both realized and unrealized)....... 1.40 2.02 1.59 1.88 (.55) .86
------------ --------- --------- --------- ------- ------------
Total from investment operations.... 1.73 2.41 1.93 2.33 (.27) 1.15
------------ --------- --------- --------- ------- ------------
Less distributions:
Dividends from net investment
income............................... (.33) (.39) (.34) (.44) (.28) (.31)
Distributions from capital gains...... (1.30) (1.15) (.85) (.38) (.09) (.55)
------------ --------- --------- --------- ------- ------------
Total distributions................. (1.63) (1.54) (1.19) (.82) (.37) (.86)
------------ --------- --------- --------- ------- ------------
Net asset value, end of period.......... $ 16.50 $ 16.40 $ 15.53 $ 14.79 $ 13.28 $ 13.92
------------ --------- --------- --------- ------- ------------
------------ --------- --------- --------- ------- ------------
Total return (d)........................ 11.31% 16.66% 13.72% 18.38% (1.92)% 8.68%
Net assets, end of period
(in thousands)....................... $ 68,157 $ 62,914 $ 54,848 $ 55,624 $ 55,286 $ 57,048
Ratio of expenses to average daily net
assets............................... 1.19% 1.25% 1.26% 1.33% 1.27%(e) 1.22%
Ratio of net investment income to
average daily net assets............. 1.98% 2.53% 2.28% 3.22% 2.24%(e) 2.16%
Portfolio turnover rate (excluding
short-term securities)............... 139.8% 141.4% 140.5% 125.5% 124.5% 92.1%
</TABLE>
- ---------
(a) Effective March 1, 1995, the Fund entered into a new investment advisory
agreement with Advantus Capital Management, Inc. Prior to March 1, 1995, the
Fund had an investment advisory agreement with MIMLIC Asset Management
Company.
(b) During 1994, the Fund changed its fiscal year end from October 31 to
September 30.
(c) Commencement of operations
(d) Total return figures are based on a share outstanding throughout the period
and assumes reinvestment of distributions at net asset value. Total return
figures do not reflect the impact of front-end or contingent deferred sales
charges. For periods less than one year, total return presented has not been
annualized.
(e) Adjusted to an annual basis.
(f) Ratios presented for the period from August 19, 1994 to September 30, 1994
are not annualized as they are not indicative of anticipated results.
20
<PAGE>
<TABLE>
<CAPTION>
CLASS B
-------------------------------------------------------------
PERIOD FROM
YEAR ENDED AUGUST 19,
SEPTEMBER 30, 1994(c) TO
-------------------------------------------- SEPTEMBER 30,
1998 1997 1996 1995(a) 1994
--------- --------- --------- ----------- ---------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period.... $ 16.34 $ 15.47 $ 14.74 $ 13.27 $ 13.36
--------- --------- --------- ----------- ------
Income from investment operations:
Net investment income................. .22 .30 .27 .39 .03
Net gains or losses on securities
(both realized and unrealized)....... 1.39 2.02 1.56 1.84 .(03)
--------- --------- --------- ----------- ------
Total from investment operations.... 1.61 2.32 1.83 2.23 --
--------- --------- --------- ----------- ------
Less distributions:
Dividends from net investment
income............................... (.22) (.30) (.25) (.38) (.09)
Distributions from capital gains...... (1.30) (1.15) (.85) (.38) --
--------- --------- --------- ----------- ------
Total distributions................. (1.52) (1.45) (1.10) (.76) (.09)
--------- --------- --------- ----------- ------
Net asset value, end of period.......... $ 16.43 $ 16.34 $ 15.47 $ 14.74 $ 13.27
--------- --------- --------- ----------- ------
--------- --------- --------- ----------- ------
Total return (d)........................ 10.55% 16.02% 13.07% 17.62% (.04)%
Net assets, end of period
(in thousands)....................... $ 17,751 $ 12,556 $ 7,860 $ 3,131 $ 140
Ratio of expenses to average daily net
assets............................... 1.84% 1.90% 1.90% 1.99% .23%(f)
Ratio of net investment income to
average daily net assets............. 1.32% 1.89% 1.67% 2.30% .37%(f)
Portfolio turnover rate (excluding
short-term securities)............... 139.8% 141.4% 140.5% 125.5% 124.5%
<CAPTION>
CLASS C
----------------------------------------------------
PERIOD FROM
YEAR ENDED MARCH 1,
SEPTEMBER 30, 1995(c) TO
------------------------------------ SEPTEMBER 30,
1998 1997 1996 1995
---------- ---------- ---------- -------------
<S> <C> <C> <C> <C>
Net asset value, beginning of period.... $ 16.27 $ 15.43 $ 14.74 $ 13.36
---------- ---------- ---------- ------
Income from investment operations:
Net investment income................. .24 .28 .28 .24
Net gains or losses on securities
(both realized and unrealized)....... 1.36 2.01 1.52 1.43
---------- ---------- ---------- ------
Total from investment operations.... 1.60 2.29 1.80 1.67
---------- ---------- ---------- ------
Less distributions:
Dividends from net investment
income............................... (.23) (.30) (.26) (.29)
Distributions from capital gains...... (1.30) (1.15) (.85) --
---------- ---------- ---------- ------
Total distributions................. (1.53) (1.45) (1.11) (.29)
---------- ---------- ---------- ------
Net asset value, end of period.......... $ 16.34 $ 16.27 $ 15.43 $ 14.74
---------- ---------- ---------- ------
---------- ---------- ---------- ------
Total return (d)........................ 10.57% 15.87% 12.87% 12.63%
Net assets, end of period
(in thousands)....................... $ 4,062 $ 1,926 $ 1,351 $ 199
Ratio of expenses to average daily net
assets............................... 1.83% 1.90% 1.90% 2.00%(e)
Ratio of net investment income to
average daily net assets............. 1.31% 1.88% 1.73% 2.17%(e)
Portfolio turnover rate (excluding
short-term securities)............... 139.8% 141.4% 140.5% 125.5%
</TABLE>
21
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders
Advantus Spectrum Fund, Inc.:
We have audited the accompanying statement of assets and liabilities,
including the schedule of investments in securities, of the Advantus Spectrum
Fund, Inc. (the Fund) as of September 30, 1998 and the related statement of
operations for the year then ended, the statement of changes in net assets for
the two years then ended and the financial highlights for the four years then
ended, the period from November 1, 1993 to September 30, 1994 and for the year
ended October 31, 1993. 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 generally accepted auditing
standards. Those standards require that we plan and perform the audits 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. Investment securities held in custody are confirmed to us by the
custodian. As to securities purchased or sold but not received or delivered, we
request confirmations from brokers, and where replies are not received, we carry
out other appropriate auditing procedures. 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 September 30, 1998 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 generally accepted accounting
principles.
KPMG Peat Marwick LLP
Minneapolis, Minnesota
November 6, 1998
22
<PAGE>
ADVANTUS SPECTRUM 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 year ended September 30, 1998. Dividends for the 1998 calendar year will
be reported to you on Form 1099-Div in late January 1999. Shareholders should
consult a tax adviser on how to report these distributions for state and local
purposes.
CLASS A
<TABLE>
<CAPTION>
PAYABLE DATE PER SHARE
- ------------------------------------------------------------------------------------------------------------ ---------
<S> <C>
Income distributions--taxable as dividend income, 20.8% qualifying for deduction by corporations
December 23, 1997........................................................................................... $ .4433
March 25, 1998.............................................................................................. .0809
June 25, 1998............................................................................................... .0826
September 24, 1998.......................................................................................... .0702
---------
$ .6770
---------
---------
Capital gains distribution--taxable as long-term capital gains, 28% rate--60.24%, 20% rate--39.76%
December 17, 1997........................................................................................... $ .9494
---------
---------
</TABLE>
The distribution of $.4433 payable on December 23, 1997 consisted of $.3555
from short-term capital gains (taxable as dividend income) and $.0878 from net
investment income.
CLASS B
<TABLE>
<CAPTION>
PER
PAYABLE DATE SHARE
- ------------------------------------------------------------------------------------------------------------ ---------
<S> <C>
Income distributions--taxable as dividend income, 20.8% qualifying for deduction by corporations
December 23, 1997........................................................................................... $ .4189
March 25, 1998.............................................................................................. .0565
June 25, 1998............................................................................................... .0572
September 24, 1998.......................................................................................... .0429
---------
$ .5755
---------
---------
Capital gains distribution--taxable as long-term capital gains, 28% rate--60.24%, 20% rate--39.76%
December 17, 1997........................................................................................... $ .9494
---------
---------
</TABLE>
The distribution of $.4189 payable on December 23, 1997 consisted of $.3555
from short-term capital gains (taxable as dividend income) and $.0634 from net
investment income.
23
<PAGE>
ADVANTUS SPECTRUM FUND
FEDERAL INCOME TAX INFORMATION--CONTINUED
CLASS C
<TABLE>
<CAPTION>
PAYABLE DATE PER SHARE
- ------------------------------------------------------------------------------------------------------------ ---------
<S> <C>
Income distributions--taxable as dividend income, 20.8% qualifying for deduction by corporations
December 23, 1997........................................................................................... $ .4209
March 25, 1998.............................................................................................. .0559
June 25, 1998............................................................................................... .0593
September 24, 1998.......................................................................................... .0451
---------
$ .5812
---------
---------
Capital gains distribution--taxable as long-term capital gains, 28% rate--60.24%, 20% rate--39.76%
December 17, 1997........................................................................................... $ .9494
---------
---------
</TABLE>
The distribution of $.4209 payable on December 23, 1997 consisted of $.3555
from short-term capital gains (taxable as dividend income) and $.0654 from net
investment income.
24
<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 apply to a particular Fund.
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 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 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 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 from one
Advantus Fund to another Advantus Fund (with identical registrations within the
same 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 out of 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.
SPECIAL PURCHASE PLANS: Special purchase plans enable 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 each month from your checking or savings account.
IRAS, OTHER QUALIFIED PLAN: You can use the Advantus Family of Funds for your
Traditional or Roth Individual Retirement Account or other qualified plan
including: SEP IRA's, SIMPLE IRA's, Profit Sharing, 401(k), Money Purchase or
Defined Benefit plans.
GROUP INVESTMENT PLAN: This plan provides employers and employees with a
convenient means for investing in the funds through payroll deduction.
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
25
<PAGE>
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 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 transaction you
initiate and quarterly statements to help you track all of your Advantus Fund
investments and annual tax statements. Semi-annual and annual reports will
provide you with portfolio information, fund performance data and the current
investment outlook.
TOLL-FREE SERVICE LINE: For your convenience in obtaining information and
assistance directly from Advantus Shareholder Services, call 1-800-665-6005.
Advantus Account Representatives are available Monday through Friday from 8 a.m.
to 4:45 p.m. Central Time. Our voice response system is available 24 hours,
seven days a week. This system allows you to access current net asset values,
account balances and recent account activity.
HOW TO INVEST
You can invest in one or more of the ten Advantus Funds through a local
Registered Representative of Ascend Financial Services, Inc., distributor of the
Funds. Contact your representative for information and a prospectus for any of
the Advantus Funds you are interested in. To find a Registered Representative
near you, call the toll-free service line (1-800-665-6005).
MINIMUM INVESTMENTS: Your initial investment in any of the Advantus Funds can
be as small as $25 when you use the 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
$2.6 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
26
<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>
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
F.48639 Rev. 11-1998
